THE ECONOMY
Mr Pym's misapprehension: higher public investment has already taken place
K BRUCE-GARDYNE JOC
‘Conservative Centre Forward' hasn't got off to a flying start. Forget all the crude stuff about baggy shorts and the Stanley Matthews era when they still talked about centre forwards as opposed to strikers, and rats leaving the sinking boarding-party, and the timing still seems the least bit malapropos. Seven per cent price-inflation at the latest count may be the aberration that Nigel Lawson assures us it will prove to be, and let us pray that he is right. All the same, it's not the ideal curtain-raiser for a somewhat, shall we say, hazy alterna- tive economic strategy calculated by its author to 'only have a marginal effect on inflation at worst'. Then there is the talk about the Government's 'extreme aversion to borrowing' and the need for a 'less deflationary fiscal policy' — in the very week in which Financial Secretary John Moore revealed that the total sales of Public assets have so far realised more than £17,000 million since the Government took office — equal to an extra 30 per cent on the cumulative Budget deficit over the same period. Admittedly according to the Treasury's methods of bookkeeping, asset sales are treated as reductions in borrow- ing, rather than as alternative ways of raising the cash, so Mr Pym's mis- apprehension in this respect is perhaps understandable.
Nevertheless, he could do worse than wrap a wet towel round the brow and have a read of a contribution to the current issue of the Institute of Economic Affairs' quarterly bulletin from Rob Ellis, senior economist at Prudential Portfolio Mana- gers (`Fiscal Policy: Rhetoric and Reality', Ecomomic Affairs Vol. 5 No. 3). It would make him gasp and stretch his eyes. For Mr Ellis's theme is that in reality public spend- ing under Mrs Thatcher has been growing almost twice as fast as it did under Harold Wilson and Jim Callaghan — and that far from this being no more than a reflection Of the extra cost of unemployment, it has since 1983 reflected a steep rise in public sector capital investment. 'After declining steadily since 1978, total fixed investment is now estimated to have grown by around 4. 1/4 per cent in 1983. Of this, private investment increased by a mere 11/4 per Cent, while public investment rose by . . . 123/4 per cent.' Where has Centre Forward been all this time?
Mr Ellis carries his assault on the `rhe- tone' of fiscal policy one stage further. He reminds us that — hitherto at least North Sea oil revenues have not just provided this Government with a source of income unavailable to its supposedly more profligate predecessors. They have consis- tently exceeded the Treasury's expecta- tions, year by year, and thus once more allowed the fiscal stance towards the non- North Sea economy to be more expansive than successive Chancellors have let on. Thus if you ignore both asset sales and oil revenues the Budget deficit in 1983-4 would, on Mr Ellis's reckoning, have work- ed out at a whopping £22,000 million. Enough to be going on with, Mr Pym?
Mr Ellis concedes that there is an ele- ment of double counting in all this. Never- theless he makes a powerful case for the argument regularly advanced by that other dissident — the one within the tent Peter Walker, whose consistent theme has been that the Government has in fact throughout been doing what he regards as good, but doing it by stealth.
So fiscal policy has not, perhaps, display- ed quite that 'extreme aversion to borrow- ing' of Francis Pym's nightmares. What, then, of monetary policy? Phillips and Drew think it's dead and buried, and good riddance. Greenwell, whose senior part- ner, Gordon Pepper, has long reigned as the City's equivalent to Wall Street's Hen- ry Kaufman, are 'more relaxed about the expansion of sterling M3 than many other commentators, and see no immediate dan- ger of a significant acceleration of infla- tion'. However, 'there is nevertheless no doubt that liquidity is accumulating . . . At some time in the future, people could decide to spend it.' What does get their goat (and not just theirs alone — the Treasury, too, is working on it) is the awesome spectacle of the Bank of Eng- land's 'bill mountain'.
Indeed they hold the Bank responsible for both the jump in interest rates in January, and the surge of £M3 last month: `An efficient system would have prevented a rise in interest rates as sharp as the 4 per cent in January. It would have also pre- vented the money supply from jumping by 3 per cent . . . I think they overestimate the Bank's ability to dictate the rate of interest — particularly when it has at least one eye on what is happening to sterling. But that works both ways. If the US Federal Reserve is now as keen to get the dollar down as it appears to be, our own authorities are going to face some agonis-' ing choices between taking risks with all that liquidity at home, and provoking more yells of rage from Lord Weinstock, Mr Harvey-Jones, et hoc genus omne, with a dearer pound.
Judging by Nigel Lawson's hilarious encounter with the Lords' Overseas Trade Committee last week such yells would be liable to pass unheeded. Christopher Fildes once perceptively defined our Chancellor as the sort of man who will 'cross the road to pick a fight': and he certainly did so with their Lorships. In the Upper House it isn't done to call people 'twisters', or `gits' or any of those other terms of endearment so popular at the other end of Westminster. When you really want to be severe with someone you 'venture humbly to disagree with just one comment of the noble Lord's'. Nigel, by contrast, told their Lordships that they were 'distasteful', ac- cused them of 'sneering', and implied that they were 'bleating and moaning like a lot of farmers'.
It was all thought to be in the worst possible taste. I confess I have a sneaking sympathy with the Chancellor. It must have been a bit provoking to have a former Deputy Chairman of GEC retailing the business world's impatience with Treasury parsimony towards export support when `Lord Weinstock is in the business of extracting money from the Government and he does that on a large scale'; to have a former head of the Foreign Service airing some old departmental scores against the Treasury; and to have one of Labour's self-appointed champions of the Third World complaining that we are far too lax about force-feeding it with British goods. But I have no doubt that their Lordships will be scathing when they come to deliver their report.
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