The economy
Singin' in the rain
Jock Bruce-Gardyne
It must be something to do with the weather. No sooner does the Minister of Drought shake out his umbrella to ward off the August downpour than the City comes out singing in the rain.
I say it must be something to do with the weather since until Tuesday (by which time most of the fun and games had happened) it wasn't exactly obvious quite what else had changed. Tuesday's money supply figures did indeed give the optimists some- thing to chew on, and the authorities are not going to need much prompting from the CBI to start nudging interest rates down again, NatWest leading the field.
Even so the euphoria seems almost as overdone as the gloom which preceded it. The real driving force has been Wall Street rather than events nearer home, and it is hard to resist the impression that Wall Street simply clutched at a message it wanted to hear — namely that the US economy was cooling down — on the strength of an unexpected jump in US unemployment figures and a downward blip in the 'leading indicators'. Paul Volc- ker evidently doesn't share the market's happiness, and one can see why. After all there are still three months of presidential campaigning to go, and already Mr Reagan has foresworn any action on direct taxes. At this rate of progress he is not going to have much room left for manoeuvre on the budget deficit by the time November comes around. And then there's the little matter of oil prices. The underlying weak- ness of OPEC's position, compounded by the relevation of the Saudis' Jumbo barter deal, is unlikely to be overlooked for very long. So the Bank and Treasury might be Wise to take their time with interest rates.
But 'sentiment' is all, and we must hope the mood of optimism lasts long enough for the Chancellor to get British Telecom
I" day. Let's also hope he takes Christopher es's advice and widens the magic circle of advisers. Whatever price he gets for BT, and whoever buys it, will he roundly denounced by Peter Shore and Co as a Swindle of the taxpayer (and probably _calculated to undermine confidence in the for good measure), a prospect which need not detain us. But with the runaway success of Jaguar, and the latest batch of annual reports from the public corpora- tions, showing that all save coal, shipbuild- th.g and steel (and Rolls-Royce 1971, in- cidentally, even if it doesn't rank as a _Public corporation) are now making hand- r. me profits, a new argument against share disposals has surfaced. Now that men like John Egan and Lord King have proved they can be turned round from disaster while still in HM's ownership, why not
leave them there? At least the taxpayer would be on hand to pick them up and dust them down if by any chance they happened to trip over their bootlaces once more in the future — and meantime the Treasury can cream their profits.
Well, like Christopher Fildes I'm not sure that I'd necessarily look on stock in Jaguar as bottom-drawer stuff (or stock in British Aerospace either, for that matter). But I find it very hard to believe that Jaguar and Aerospace would have had to wait so long for John Egans and Lord Kings to come along and sort them out had they not been in the public sector in the first place. Nor is an ability to make impressive profits a proof of managerial virtue when those profits stem from an exclusive franchise, as they do for British Gas and British Rail, the Electricity Coun- cil and the generating boards, the British Airports Authority and (up to now) British Telecom.
You can argue till the cows come home — and ministers on occasion do — about the appropriate price for a single-source supplier. The coverage of 'long-run mar- ginal costs' as a yardstick evidently de- pends on the consultant picked to do the measuring — and indeed two contradictory deductions can sometimes be extracted from the same investigation.
What flows from this, however, is that the handmaiden of appropriate privatisa- tion is consumer choice. And unfortunate- ly it's less than clear that three of the key departments which arrange these transfers into private ownership give to this connec- tion the priority it deserves. The Treasury wants to get the best price it can for the assets it is selling, and there's no gainsaying that the punters will pay more for a stake in a monopoly. The Department of Industry sees predatory wogs round every corner, and reckons that restriction of consumer choice is a small sacrifice to make for the benefit of corporations large enough to repel the international boarders. Mr Peter Walker at the Department of Energy wholeheartedly concurs.
And so we hire a watchdog instead called Oftel to keep a wary eye on private sector BT and its — strictly marginal competitor Mercury. BT is to be required to beat the cost of living index by a handsome margin in its domestic pricing (no mystique of long-run marginal costs coverage here), and Oftel can probably be relied upon also to oblige them to sustain every vandalised kiosk in the Outer Heb- rides which they would not have hesitated to get shot of had they stayed within the public sector. But the customer will have to pay for it, if not in higher tariffs then in
shrunken choice of instruments and frills. And the British Telecom investor will be at the mercy of arbitrary judgments from the official umpire. It's hard to believe that a wider field of competition would not have provided a better safeguard for customer and investor alike.
I am not a full-time devotee of that other breed of watchdog, the 'users committees' which are supposed to act as surrogates for consumer choice in the nationalised indus- tries. But the chairman of one of them, Lord Garnock of the Air Transport Users Committee, did strike a blow for common sense this week in the strenuous war of words between Lord King in one corner and Sir Adam Thomson and his fellow independent UK airlines in the other over the Civil Aviation Authority's report to the Department of Transport about life after BA privatisation. The 'pool' agreements governing many international airline routes, particularly in Europe, he pointed out, which 'divide up the income according to the percentage of seats' the participants offer, and 'not according to the percentage of passengers each attracted', are the antithesis of competition. 'Getting such "pool" agreements outlawed under the Treaty of Rome will be a long diplomatic haul, but it is the only road to true airline competition.' Meantime, he concluded, don't rush the BA privatisation. Better to get it late and get it right. Wise words: though not perhaps what either Lord King or Sir Adam Thomson — or Messrs Nigel Lawson and Nicholas Ridley — wish to hear.
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