THE ECONOMY
Big vegetables play at numbers while the war clouds gather
JOCK BRUCE-GARDYNE
Mr James Baker has a certain amount to answer for. Many years ago, when Mr Baker was working his way through law school, the world's financial markets had but one shindig of what the French like to call 'the big vegetables' to cope with every year. This was the annual 'Fund and Bank' circus, usually in Washington, and invari- ably in the Fall. It resembled — it still resembles — the Tory Party Conference in the same season of the year. The Western world's finance ministers deliver long ora- tions designed exclusively for the folks back home, while the serious wheeling and dealing goes on amongst the assembled national mandarins and International banks at assorted social functions through the night.
There were, in between times, much more business-like affairs: the interim committee of the International Monetary Fund, meeting in the spring; emergency gatherings, at the headquarters of the Bank for International Settlements in Switzerland; and — most mystical and prestigious of all — gatherings of `G5', the top brass from Washington, Tokyo, Bonn, Paris and London. But all of these func- tions, like committees of the British Cabinet, were not admitted to exist.
To be fair to Mr Baker, the rot set in some time before he climbed his way to the inner circle of advisers around the US President during the incumbency of Ronald Reagan. Back in the 1970s the major players on the financial chessboard took to foregathering at 'economic sum- mits'. These did a fair amount of harm. In the early 1970s the heads of Government embarked upon 'co-ordinated growth', and thus helped to bring about the first 'oil shock', in 1973. In the late 1970s they lectured the Japanese about the excessive stringency of their monetary policy. So the Japanese obligingly relaxed. The yen de- clined in value, and Japanese exporters enjoyed a field day.
Still, the central bankers and finance ministers, unlike the heads of government, contrived to conduct their affairs well shielded from the public gaze. Then along came Mr Baker, swapping places with Mr Donald Regan as Secretary to the US Treasury, and full of awesome plans to set the world to rights. At his behest the traditional discretion was abolished. `G5' met in a blaze of spotlights in New York in September 1985, and announced that the dollar was too dear.
This was deemed to be a great success. The dollar tumbled as it had been told to do, and Japanese and German exporters got the miseries — again, as they were supposed ;43. do. Flushed with this instant achievement Secretary Baker launched his second plan to rescue the great indebted of the third world by having the World Bank underwrite the security of 'genuine new money' loans from the commercial banks to the poorer countries in the red. This was a lesser success. The commercial banks asked impolitely who would guarantee the World Bank, and stayed away.
Nothing daunted, Secretary Baker sum- moned `G5' to meet again, this time in Paris, in the spring of '87. This time the objective was, if possible, even more ambi- tious. Since the Germans and the Japanese reckoned that their exporters had suffered more than enough from the appreciation of their currencies against the dollar, and since the US monetary authorities were getting itchy feet about the impact of the falling dollar on prices back at home, why not call a truce? Let the word go out that Secretary Baker and his colleagues had picked prices for their respective curren- cies, although with a surprising blush of modesty they were not telling what those prices were.
This did not turn out a vast success either. As • soon as Secretary Baker got home, President Reagan, in a forlorn attempt to head off trouble with Congress, promised to impose unspeakable tariffs on a range of Japanese electrical goods unless the Japanese intervened to stop their manufacturers of micro-circuitry selling their wares to third countries at prices which enabled those wares to be resold profitably in the United States. The finan- cial markets paradoxically, but in fact quite logically, responded by swapping every dollar they could lay their hands on into yen.
So as this issue of the Spectator goes to press the 'big vegetables' are once again foregathered, this time in Washington. They will, presumably, have been treated to a fresh instalment of the Baker zeitgeist, involving 'performance indicators' for each of them, for their individual growth rates, budget deficits, trade balance, monetary targets and anything else up to and includ- ing the incidence of Aids. The French, who adore this sort of global planning, will have cheered to the echo; the others will have clapped politely, and reiterated more loud- ly their commitment to undivulged prices for their respective currencies, since that is what the financial markets have now come to expect of them. Meanwhile the mobi- lisation of the forces for the great trade war with Japan will gather momentum, rather like the mobilisation of the armies in the summer months of 1914.
The murder of Archduke Franz Ferdi- nand has seemed, in retrospect, a rather inadequate reason for plunging the world into a bloodbath. It is open to question whether the breakdown of last year's cartel agreement between Washington and Tokyo to 'manage' growth in microchips between them, and the restriction of Cable and Wireless's stake in Japan's second telecommunications network, would look like a better casus belli. But if Secretary Baker and his colleagues in Washington this week felt obliged to pick on someone, why pick on the Japanese? According to the GATT, Japan's exports did not rise last year. They fell. And Japan's imports — OK, such as they were — increased by an eighth. If the Baker zeitgeist requires a foe, why not pick on Germany? The Germans imported more last year, but only prop- ortionately half as much more than Japan imports: and the Germans exported more as well. Nor are the Germans innocent of the sort of non-tariff barriers to import penetration of which the Japanese are regularly accused. Try selling insurance or confectionery in Bavaria. Nor should we forget that it is the Germans, constantly complaining about the burden of their contributions to European Community fi- nances, who demand the highest artificial grain prices to keep their weekend farmers interested.
Better still, don't pick on anybody. Allow the financial markets to adjust to trade performance — as they have been doing. And if that were to mean that Mr Baker packed his bags in deep frustration to go back to his law practice well, as one of my eminent former editors used to say, 'you can't make an omelette without frying eggs.' Mr Baker is surely a good egg to fry.
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