Tribune leader, 31 July 1992
Less than four months into their fourth term, the Tories are in an almighty mess on the economy. The recovery they promised has foiled to materialise. Every economic indicator shows that the recession is as deep as ever. Company failures are still growing. So is unemployment. A Confederation of British Industry survey published this week reports that 57 per cent of manufacturers' order books are below normal and two-thirds of manufacturers are working below capacity.
True to form, the Chancellor, Norman Lamont, has responded by claiming yet again that recovery is imminent and arguing for patience while his anti-inflationary policies create the foundations for sustained growth. He has ignored critics who have argued that sterling is overvalued, that the fight against inflation is not the main priority at the depth of a recession or that the reduction of public spending is idiotic in an economy suffering a collapse in demand.
In such circumstances, and with its new Shadow Cabinet in place, there is no reason why Labour cannot have a field day baiting the Government over its performance – and indeed this week Gordon Brown, the new Shadow Chancellor, set to work with relish.
But it is one thing to attack the Government and another to come up with an altentative to its policies. And Labour is rather short of ideas about how it would do things differently.
It is true that the party has, since the election, made it clear that it would not be averse to devaluation of sterling, albeit by way of a general realignment of currencies within the exchange rate mechanism of the European Monetary System involving, crucially, the revaluation upwards of the Deutschmark. It is true, too, that Labour has said that a recession is not the time to engage in public spending cuts, which will remove yet more demand from an already depressed economy. Then there are Labour's longstanding commitments to "supply-side” measures: extra spending on training, tax breaks for investment and so on.
All of this is most sensible. Sterling is over-valued, spending cuts are a bad idea and supply-side measures are essential. But it does not add up to a radical alternative to the Tories* basic approach. Devaluation of the pound against the Deutschmark within the ERM would certainly ease the pressure on British exporters for a while, which is what makes it necessary.
But it is no panacea. Because of the import-reliance of the British economy, its most significant effect would be to cut real wages for a while - hardly die stuff of socialist dreams, even if it temporarily improved competitivity. Similarly, the spending cuts, effectively the downside of over-generous pledges in the run-up to the election, are not particularly significant in macroeconomic terms (although they could well be viciously shared out). And supply-side measures are not a short-term answer to recession.
So what should Labour do? The traditional left response is to call for a reflationary alternative economic strategy for Britain. But any nation-state-based attempt to reflate would founder in the face of a massive flight of capital. Britain simply is not big enough to cope with the mobility of capital in the contemporary global economy. What would be possible, however, is a co-ordinated Europe-wide reflationary strategy, organised either inter-governmentally or through new European economic institutions. Labour should start work now with its European social democratic sister parties on precisely such a programme, making the call for Europe-wide reflation the core of its assault on the Tories' miserable economic record.