Outlook: Greenspan's low interest rate medicine may not be enough

Marshall's retirement; Ritblat/British Land

Tumbling stock markets are a curse for all, but as Alan Greenspan, chairman of the Federal Reserve, made plain in prepared testimony to Congress yesterday, they have at least delayed the onset of higher interest rates. Up until a month ago, you could have put money on a summer hike in rates – here, in Europe and the United States – and been pretty much certain of a payback. Such a rise now looks unlikely this side of Christmas, assuming stock markets don't suddenly rebound of course.

The therapy of cheap and plentiful money has so far worked wonders in keeping Western economies from slipping into outright recession. A steep downturn in New Economy industries has been counterbalanced by resilient consumer spending and confidence and, in the US and Britain at least, by the soaraway housing market. Unfortunately, the excesses of the last boom and the aftershocks of 11 of September are proving harder to shake-off than generally predicted.

When the World Economic Forum held its annual meeting in New York at the end of January, there were two opposing views of how things would pan out. One was that continuing productivity gains would result in a sharp rebound in corporate profits and investment. That view was most dramatically put by Gail Fosler, chief economist at the Conference Board, a respected economic forecasting group. She thought there was about to be a "stunning" recovery in corporate profits, that the US economy would be back to 4 per cent annual growth by next year, and that the dollar still had another 5 to 10 per cent of upside. She was also optimistic about prospects for a recovery in the stock market.

She perhaps deserves some sort of a prize for the boldness of her predictions, but how wrong can you get? As things stand, it is the view put forward by Stephen Roach, chief economist at Morgan Stanley, that looks the more reliable. Mr Roach has long argued that America's balance sheet problems are just too deep to allow a rapid bounce back. High levels of debt, both personal and corporate, abound, the stock market continues to look overvalued, even after the precipitous 40 per cent plunge it has undergone since the peak, overcapacity remains the norm in most industries, and on top of everything else, there remains a massive current account deficit. Despite the economic downturn, America continues to spend more than it earns on a massive scale.

Eventually something had to give. That something was the dollar. With falling stock markets, lower investment returns, and a crisis of confidence in corporate America, dollar assets no longer seem attractive, and what for years has been a massive inflow of foreign capital is reversing. The inflow has turned into an outflow, admittedly quite small at the moment, but apparently growing by the day.

Forget Enron, WorldCom and the possibility that much corporate profit in recent years was just sleight of hand, it is this huge macroeconomic shift that underscores the gathering panic in stock markets. For much of the past decade, America has been the dynamo of world economic growth. It seems now to be disappearing into a double dip and there's no one around to seize the baton. Mr Greenspan's medicine of low interest rates may help stave off the inevitable for a while longer yet, but eventually there will have to be a big structural readjustment – and it's going to be painful, for everyone.

Marshall's retirement

Lord Marshall had no answer to the question from the statuesque blond who had recently been forced to give up her job as a British Airways stewardess. Why should he be allowed to serve as chairman until the age of 70 when she was compelled to retire at 55? The BA chairman replied with some waffle about forthcoming age discrimination legislation and the value of having experience on the board.

Unfortunately for him, his inquisitor at yesterday's annual meeting had hit the nail on the head. Plenty of shareholders ought to be questioning the composition of the BA board, not just disgruntled ex-employees. Leaving aside BA's president emeritus Lord King, who is now 84, the average age of the BA board is 59. Strip out the relatively youthful executive directors and the average age rises to over 61.

It is an open secret that BAT's Martin Broughton, a mere slip of a lad at 55, is being groomed as Lord Marshall's successor. He was introduced yesterday in deliberately pregnant tones as BA's senior independent non-executive director. And yet on current plans, Mr Broughton will have to wait until the annual meeting in 2004 to step into Lord Marshall's shoes. Lord Marshall seems to be following in Lord King's footsteps in outstaying his welcome.If big international oil companies such as Shell and BP can have a mandatory retirement age for executives of 60, then there is no reason why a big international airline like BA cannot harmonise its arrangements so that employees and board members work until they are roughly the same age.

There is another compelling reason for allowing BA's workforce, if not its board directors to remain in harness for longer, as indeed they do at many other airlines. The decision to close the airline's final-salary scheme and replace it with a defined-contribution scheme means that more and more of them are going to need to work into their dotage to earn themselves a decent pension.

Ritblat/British Land

John Ritblat looked on top form yesterday, resplendent in his "real tennis" club tie and lapel badge bearing the legend "I Love British Land". But there was a strong suspicion that he had won the crunch vote at yesterday's annual meeting, only to lose the argument. No one expected him to say he was prepared to split the roles of chairman and chief executive, let along that he would prefer to leave British Land altogether rather than linger on in a reduced role.

For a company as impervious to change as British Land this is seismic stuff. But let's not get too carried away. There is no precise timetable on the succession, nor even yet any sign of a successor. Mr Ritblat would like that man to be his son, Nick, which is understandable enough, but British Land is a public company, not a private one and Mr Ritblat only owns 0.5 per cent of the shares. Other corporate governance issues remain as well. Two of the executive directors are over 70. Indeed, one has just turned 79. And the independence of three of the four non-executives is open to question.

Laxey, the rebel shareholder which has been agitating for change, was plainly fighting the wrong battles in the resolutions it was defeated on at yesterday's meeting, but it has helped highlight some wider concerns. Property may be everyone's favourite investment right now, but too many property companies are merely an excuse for plush West End offices, lavish lifestyles and fat salaries. John Ritblat may once have been worth his £1m a year. British Land has survived two serious property meltdowns in the last 30 years after all. But whether he still is, and whether there is really any point in property investment companies that continue to trade at big discounts to their net asset value, is much more debatable.

jeremy.warner@independent.co.uk