THE ECONOMY
Life between the netsukes and the glaciers
JOCK BRUCE-GARDYNE
Nobody would dream of suggesting that if Colonel Gaddafi were to go on the rampage this weekend the Japanese gov- ernment would send him a rare netsuke as a thank-you . Perish the thought! But you could hardly blame them if it crossed their minds. For unless attention can be concen- trated on international terrorism, the hosts at this weekend's summit are going to come in for a fair amount of verbal terroism, from their guests.
'Automaticity' is the buzz-word for the Tokyo summit.. What it means in practice is 'bash the Nips'. Put politely it is that all the intrepid mountaineers will sign solemn vows to achieve, severally and collectively, faster rates of growth, lower rates of interest, less inflation and more jobs. If that sounds familiar, it is: a straightforward playback of the economic doctrines that used to be fashionable at the summits of the 1970s, and prepared the ground for the 'oil shocks' of 1973 and 1978. Fortunately it is not meant to be taken seriously. The rest of the party all agree that the US budget deficit is far too large for their comfort as it is; and that the Germans will not diverge one centimetre from the paths of fiscal righteousness whatever sticks and carrots are offered. Most of the other summit participants — the Canadians, the Brits, the French, the Italians — are frankly too peripheral in terms of the world economy to matter that much either way. Which leaves the Japanese.
If they have a persecution complex it is scarcely to be wondered at. Pilloried for years for their success in selling goods which western markets want to buy, they were told in 1978 to loosen up their monetary policy. So they did, and the yen plunged almost out of sight, vastly enhanc- ing their export competitiveness. At the Plaza meeting in New York last winter they were told to apply a rocket to the yen, and buck up about it. So they did, until their exporters began to scream. And when ten days ago the dollar showed signs of going into a tail-spin, who was said to be to blame? Why, the wicked Nips.
So next week, unless the assembled guests are too busy promising to be beastly to Gaddafi, the hosts will be lectured about their evil propensity to save, and work too hard, and ordered to go out and dot the slopes of Fujiyama with second homes and swimming pools. Which, with oriental pohtesse, they will no doubt bow and pledge to do. For otherwise they will face Protection.
Maybe they will not take it all too tragically. Why should they? President Reagan knows that the folks back home in Peoria may want to be beastly to Gaddafi, but they do not share the enthusiasm of US producer lobbies for beastliness towards the Nips. Besides, the shrinking dollar is already beginning to take the edge off the competitiveness of Japanese imports. The real threat of US protectionism is pointed, not towards the Orient, but towards the European Community. There the shrink- ing dollar is no help at all. If cheaper dollars make it more expensive to unload the Community's food mountains, then the Community passes on a larger bill to its taxpayers. Yet it doesn't look as though the summiteers will have much time for that.
Our own intrepid summiteers, the Prime Minister and Chancellor, should only be up front to the extent that contra-terrorism is allowed to hog the agenda. Otherwise they should be free to keep more than half an eye on the domestic scene — where they have once more the Commons Treasury Committee to confront. Fortunately they shouldn't find that too difficult.
The Committee finds 'the overall tone' of the Budget to have been 'appropriate'. Furthermore the Bank of England has been eating crow. It has now informed the Committee that 'although the faster growth of liquidity in recent years can legitimately be seen as 'potentially wor- rying' (the phrase it used in its December bulletin), it is presently of the view that 'the current monetary and economic situa- tion taken as a whole does not suggest that the economy has become overliquid'. 'Par- don,' in short.
Furthermore the Committee is in hot pursuit of a rather shaggy hare. It con- cludes that the Government is mistaken when it imagines that high real rates of interest help to lower wage claims.
Now if the Government once imagined such a curious proposition it did not tell us. What it did advance last summer was the notion that relatively high real rates of interest might be calculated to keep the exchange rate up, and that this might make it rather difficult for producers to pass on fancy rises in their costs to their customers. As indeed — saving the Committee's presence — it might. But the slump in oil prices has put paid to that. Sterling is now at what we were told was the ideal level — cheap against the deuts- chemark, less cheap against the dollar, and no longer obliging cash-rich companies to look over their shoulders at the interna- tional competition as they settle wages. On the contrary, since their heads are now wedged permanently sideways so that they can scan the horizon for predatory bidders for their stock, the last thing they will contemplate is a show-down with em- ployees over wages.
There is, though, a rather more substan- tial morsel which the Committee does not pursue very far. It draws attention to the curious fact that the Chancellor has used our propensity in recent years to build 11P cash balances in the bank and keep them there, to enjoy the higher rates of interest our bank managers will pay for them nowadays, as a justification not for tighter monetary guidelines, as you might expect, but for looser. It does indeed seem a little like handing the key to the cellar to a reformed alcoholic on the grounds that he has stocked it up. The Committee takes comfort in the assurance it received from Governor Leigh-Pemberton that he 'has not got undue worries or nightmares about the possibility of the unleashing of this what you might call glacier of tightly-held money'. So since we are deep in the quagmire of mixed metaphors, let me conclude with Of verdict of another distinguished banker. do hope,' he told me anxiously, 'that if you ever use the analogy of a wayward teenage daughter, you will emphasise that she is firmly under the lock and key of interest rates and that, if she should succeed in unpicking the lock, she will find posted outside her door two very visible guards (known as MO and the exchange rate) as well as a considerable number of more shadowy sentinels (in the form of "all th.e other available evidence of her condi- tion")'. Understood? If you should see our wayward teenage daughter brushing guards and sentinels aside, and heading for the cellar with a glacier tumbling down_ behind her, for God's sake tell the Bank ot England. Which is, I suppose, just anothert way of saying, as Nigel Lawson did las_ autumn, that 'inflation is the judge and_ jury'. Only by the time they have Pro nounced it is liable to be too late.
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