Testing times for the Brown mythology

The prime beneficiary of New Labour’s culture of spin was not Tony Blair, as commonly supposed, but Gordon Brown. Despite his extraordinary thespian talents Blair never managed to shake off his image of Essex Estuary spiv and political lightweight. By contrast Brown managed to reinvent himself as the Iron Chancellor, devoted admirer of Prudence and the man who abolished economic boom and bust.

For those aware of Brown’s background this makeover is little short of miraculous. Here was a man embroiled in Labour machine politics since he was in short trousers, with no real experience of any occupation outside politics and whose only exposure to economic management was as an ex officio member of the Edinburgh University Students’ Union catering sub-committee. How was it possible for the New Labour spin machine to pass him off as a towering economic genius and world-beating financial manager? (Although, come to think of it, Labour’s elevation of “Comical Artie” Midwinter to the role of “Scotland’s leading economist” shows anything is possible.)

The truth is that Brown’s credentials as an economist are wholly fictional. To his credit, Brown himself realises this and has had the good sense or cunning to delegate all matters economic to people vastly more skilled than himself.

Granting “independence” to the Bank of England in the setting of interest rates was an example of this delegation of decision-making. Bizarrely this is presented as his most memorable and effective policy decision when, in reality, he had little choice. Unlike Ken Clarke, his Tory predecessor as Chancellor, Brown was hopelessly ill-equipped to engage in any meaningful dialogue with the Governor of the Bank as to the appropriate level of bank rates. The records show that Clarke was not only prepared to overrule the Governor’s base rate recommendations but that he was also, in hindsight, correct to do so. To have placed Brown in a similar role would have been deeply embarrassing for all concerned.

For the rest of economic policy and management Brown was forced to rely almost completely on a mix of young academic theorists (the kind of people Nigel Lawson once described as “teenage scribblers”) and a select band of millionaire entrepreneurs. The former were well-read in the latest academic literature but innocent of any practical business experience. The latter certainly had ample experience of wealth creation, although it must be asked whether their role as advisors to the Chancellor was always disinterested. 

That this rag-bag and ultimately leaderless economic management team has managed to muddle through for ten years is more a matter of luck than anything else. The world economy has been on an upward trajectory that has covered up underlying weaknesses in various economies. The property bubble which underlies much of what passes for economic growth in the UK has defied gravity for much longer than many economists believed possible. In the last few days, however, it has looked as if that luck might be running out.

At the time of writing it looks as though the panic created by the bungled rescue operation for Northern Rock has been halted, but at the price of destroying the credibility of the Governor of the Bank of England and effectively offering the UK’s commercial banks the guarantee that, no matter how wildly they miscalculate borrowing risks, Westminster will always bail them out.

The impression grows that Brown and Darling have no real strategy to deal with economic shocks and are scrambling to come up with solutions as events unfold. As various commentators have noted there are strong parallels with the early months of the doomed Callaghan Government in 1976. Then lack of confidence in the Labour Government’s economic policies provoked a run on the pound which was only halted by an IMF rescue package conditional on savage cuts in public spending.

This time round the price may be higher. I have long predicted that the only credible basis on which the UK will swap sterling for the euro is when it is forced to do so as part of a joint IMF and European Central Bank rescue operation. That possibility grows more realistic by the day.

 

The Scottish Dimension

 

There is bitter irony in the fact that, despite having (at last) a Scottish Government, led by an economist with both private and public sector experience, with another real economist as Finance Secretary and a successful business entrepreneur as Enterprise Minister, Scotland can only observe with dismay the inept and amateurish attempts of the UK Government to put off the evil day when the property bubble bursts and the crisis of personal debt levels becomes unsustainable.

 

Thanks to Westminster’s retention of the main economic policy levers Scotland is almost as vulnerable as England in terms of grossly inflated house prices and record levels of personal debt. We like to think our financial institutions are more solid, more cautious and more inclined to take the long view than their counterparts in London and New York. Whether this remains true in the age of globalised trading needs to be investigated.

 

With the Scottish Government’s new Council of Economic Advisors formally convened today (Friday) an urgent task is to review the likely effects of a UK economic crisis on Scotland, to suggest measures to weather the storm and to develop strategies for eventual regeneration.

 

 

 

Further reading: More on this theme from Chris Harvie MSP at

http://www.opendemocracy.net/article/globalisation/institutions_government/balance_sheet