Rebuilding our economy

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But what type of economy do we want?

Sign of the times-again Sign of the times-again
And following on from the title and sub-title of this post, do the voters and taxpayers of the UK get a choice here? For at the moment it looks as if the great and the good, or if you prefer our politicians, are to form a world coalition with scant reference to their electorates to lead us out of a mess which just happened to start on their watch but for which, mysteriously, they are not responsible. Needless to say Gordon Brown is very keen on this.

In 1996 during a tour of America I saw numerous bumper stickers saying: "It's the economy, stupid". This was a key phrase from Bill Clinton's 1992 US presidential campaign that has stayed with us and not just stuck on the back of a pick-up truck. But then, from the dawn of democracy the health of the economy and so the 'feel good factor' has been vital to get the voters on side.

Now it's 2008 and voters in the UK are worried and the economy, if it too had feelings, would have turned from feeling good to feeling bloated with the effects of all that debt. As the current economic downturn is not the first to hit the UK, I'm suggesting that everyone over 30 years old normally resident in the UK knows what to expect next. But just in case anyone needs reminding, then the fear of unemployment heads up the list, as from this catastrophe the loss of the family home and even divorce may follow. So yes, it is serious. Getting through it all will be the main priority for many people. But in doing so is it back to 'normal'? But what is normal? We should try to ignore the emotive side of the oncoming (already established?) recession and examine what would be an ideal economy.

This means that we start by looking at what sort of economy and related paraphernalia we have now before it slips away! We begin with the day Nulabour took office. Since Gordon Brown has dumped his catch phrase about prudence, he would now say that this was "right toodoosoh".

Nulabour and their supporters will claim that they inherited all manner of difficulties from the Tories. So what? This desire to keep going back in time as a way of excusing themselves is irrelevant; especially after all these years in office. But in another post we intend to cover more ground and widen this topic by looking at the UK economy in the post WW2 years.

This website is run from the West Midlands which within the lifetime of my elderly neighbours was called the 'workshop of the world'. The export of products gave the region a level of wealth that, had he seen it, Gordon Brown would have gone all misty eyed; the sort of boom infant Chancellors dream of.

But such is the way of the real world, the decline of manufacturing industries in the UK had its own momentum by the time Tony Blair took office as PM and, for all their talk, Nulabour did little for the sector. In a way who can blame them? As for example in the car industry, the clashing of employers and unions simply turned the whole thing into a graveyard for both and was very old Labour, so did not fit with the image the new PM wished to convey either of himself or the UK. This was the age of 'cool Britannia' ordained as such by Blair himself who was a 'pretty straight kinda guy' if you remember and in those days we took what he said for fact; we also hummed the song: "Things can only get better". The last time the country had been run by a showman we were told that: "You've never had it so good" and that was Harold Macmillan in 1959.
Old industry old Labour Old industry old Labour
In fact from the outset it was clear that Blair was to 'stand aside' while the wealth created by Nulabour policies, or good fortune, it was not altogether obvious at the time, streamed past in a classic parade of get rich quick trickery. The stand aside aspect was down to Blair's concept of 'modernising' the UK; there was much talk of 'unlocking potential' and anyone who so much as raised a query about this was deemed to be "holding Britain back" by standing in the way. Blair, like Macmillan, was an attention seeker by nature; also Macmillan as PM pushed economic growth for all he was worth, as Blair was to do when he was PM. However, Blair was reckless in the extreme as we now can see; also like most attention seekers he was personally appallingly unskilled at attention to detail. All that stuff, the boring bits, he left to his Chancellor. Only now do we realise that Brown under Blair was obsessed by detail, then as now, he is in fact ruled by it as in the tail wagging the dog, but still manages to get it wrong!

The 'independence' of the Bank of England (BoE) and the creation of the relationship between the Treasury, the Bank and the Financial Services Authority (FSA) was typical of Brown. On the one hand the level of prescription in each component was excessive. On the other the very nature of such a relationship was ignored. As Brown does not do anything philosophical - anything upstream from the soundbite, the mechanistic side of the new arrangements was ignored.

We can now see that the Treasury, the BoE and the FSA formed the very worst sort of relationship. In structural engineering the triangulation of forces is an established principle, it is the reason the Moulton bicycle is so good because what you get is the maximum strength from the minimum of material.By contrast its application in politics is questionable on the basis of the evidence so far. For example Tony Blair loved 'triangulation', in this case what he meant was 'solving' a problem by getting as many people as possible even those only slightly affected by the issue behind the problem together. Usually the result was a log-jam of interests, a form of strangulation. The solution to this? Well Blair shimmied his way back into the limelight to take charge and impose his will and break the jam. At the sight of this the MSM declared gratitude of behalf of the nation. At the start it worked with only a few people harbouring doubts.
Moulton bicycle Moulton bicycle
We now look at the handiwork of Brown and his part in the story. The original relationship of just two parties, the Treasury and the BoE, the one he inherited as Chancellor form the Tories, had been in place for years.

Had Brown allowed it to continue the regulation of the UK's financial services industry would have been better because it would have been more dynamic and less complicated and above all, not triangulated.

Brown gave us one of his original 'masterstrokes' just days after Nulabour won the 1997 election, namely the independence of the BoE. It was just a few months later that the FSA assumed the form we see today, thus creating the potential for the Treasury, BoE and FSA log-jam we saw when Northern Rock crashed.

The BBC website archive for this news of the BoE's independence is interesting. It reads:

The Chancellor, Gordon Brown, has given the Bank of England independence from political control.

Who at the time would have thought to question that? For it is now clear that as Brown stepped back, the EU stepped forward as in fact this idea was not the first part of a Brown plan but a requirement of the Maastricht Treaty. See HERE

In the last few weeks Denis MacShane has, as usual in a crisis, been doing his bit to 'help' the government and the Guardian did their bit too by printing one of his articles. The theme was 'Gordon is not to blame'. I'll spare you the link as it was dire and, as usual, totally missed the point. While Brown did not create the US sub-prime problem either as Chancellor or as PM, he gets his name on the list of the culpable as he was responsible for both his actions and, as PM, those of his government. True even he could not use the Prevention of Terrorism Act to stop the US mortgage bank Countrywide and Financial misselling mortgages but here in the UK due to a combination of what he did and what he failed to do, he is responsible.

Its all very well supporters saying Brown and Nulabour have no options here and that they are merely following orders (from the EU), for that is muddling the problem and the solution. It was Brown who signed the Lisbon TreatyConstitution fully aware of the consequences, namely that his 'independence' was being eroded.
Triangulation or strangulation?Triangulation or strangulation?
For the fact is that the 'old' and UK regulated industrial base the UK had, has gone and so too the type of economy to which it contributed. Another fact is the type of economy that replaced it, the 'pooled sovereignty' to use a favourite phrase of the late and fanatically pro-EU Robin Cook, is also less than ideal. So it is hard to imagine the House of Lords latest peer, Lord Mandelson, will be able to offer anything of value to UK businesses large or small. Remember that is supposed to be his new job and not just helping Brown win the next election. And with Mandelson being who he is, he may talk of businesses large and small but it is perhaps the former that would be closer to his heart. For what if Nulabour does lose the next election? By then it is possible that Mandelson will be 'bored' with UK politics having, incidentally, caused yet another upset, so will looking for a job and, perhaps,dancing off into the distance?

Footnote - In the link above we see that interest rates were set by GB at 6.25%. Today they are 3% and there is now concern about the message this sends to savers.See HERE.