THE ECONOMY
Was Mr Lawson right to stay at home?
JOCK BRUCE-GARDYNE
Denis Healey, I was told last week by one of the expert observers of the theatre of politics, would this week be in Seoul. There was of course the celebrated occa- sion, in 1976, when Denis Healey's inter- national jaunt was 'pulled' on the runway, not because he had a date with his Party faithful, but because his cheques were being returned to drawer. Nigel Lawson faced no such emergency. Nevertheless he gave priority to Blackpool. According to the fashionable Canute courtiers' school of world business man- agement he could not have been more wrong. The recent high-profile gathering of the Group of Five in New York (Nigel Lawson in attendance) marked the demise of market economics. Keynesian man- ipulation has resumed its rightful sway. The speculators have been scourged from the temple — or at any rate taught the fear of God by central bank intervention in the foreign exchanges — and this year's 'Fund and Bank' jamboree in the Korean capital was at long last addressing its mind serious- ly to the provision of crisp new greenbacks for the relief of the third world millions (crisp new greenbacks which those who run the affairs of the third world millions would presumably redirect to Wall Street, to the aid and comfort of Mr Reagan's deficit, if not to that of US manufacturers yearning for a sharper dollar). Gentlemen in Black- pool, now a-bed, shall think themselves accursed they were not there.
Time will tell. When these words appear we shall know whether Mr Lawson has wooed and won the hearts and minds of Party faithful. If he has, his self-denial of the world stage may earn him dividends. He has always reckoned time spent in the Commons smoking-room well wasted: either he runs the shop in a way that attracts the customers on voting day, in which case the shop assistants on the back benches will soon forget their grievances; or else he fails to draw the customers, in which case time spent flattering the egos of the shop assistants will not spare him their fury when they lose their jobs. Sound common sense. But it is also true that the clout a Minister can carry in the arguments in Cabinet depends in substantial measure on his standing with the Party faithful. After his lacklustre presentation last year at Brighton, the Chancellor has some fences to attend to.
That was a good enough reason in itself to stay at home and mind the store. There were others. Not least among them the near-certainty that for all the razzmatazz in South Korea, the key decisions will remain to be mapped out in Washington, and follow not from Seoul, but from the Group of Five gathering which Mr Lawson did attend. The Americans evidently still have a lot of work to do to overcome the (eminently justified) scepticism of Euro- pean bankers about the wisdom of their smart new plans to turn the World Bank into a lender of first resort.
That apart, one senior City banker assured me the other day, on the best authority, that the promise of concerted intervention to shrink the dollar had been but the 'outward and visible sign'. The `inward and spiritual grace' had been a concerted pledge of interest rate disarma- ment. He may be right. But if he is, then a transfer for Mr Paul Volcker from the US Federal Reserve to replace the hapless Mr Tom Clausen at the World Bank would be logical. For it would involve the abandon- ment of the monetary rectitude to which Mr Volcker's reign at the Fed has been dedicated. Time for him to move to pas- tures new.
It also follows that Mr Lawson would have some urgent business to conduct at home. The groundswell of opinion in favour of UK entry into the European monetary system daily gathers momentum. The Treasury, it is said, is now converted: only the Prime Minister bars the door. But to reinforce her gut conviction she has recruited Professor Brian Griffiths, last of the unrepentant monetarists, to run her in-house think-tank and to put the Treas- ury exchange rate freaks in their rightful place.
I have no idea where Professor Griffiths stands on entry into the exchange rate mechanism: my guess it that, like me, he is an agnostic. His influence is going to depend, as has the influence of all his predecessors, on the manner in which he contrives to get on net with the Civil Service and at the same time to attune to the Prime Minister's style. The Treasury will assuredly be deeply suspicious of him. But if they see that he has the Prime Minister's ear, yet makes himself accesssi- ble at Great George Street, they will do their best to use him.
He will have no difficulty in demolishing most of the arguments advanced, whether from the Treasury or outside, for early linkage of the pound to the Deutschemark. That it would give us automatically the blessings of currency stability, or industrial growth and cheap money, or make us, at last, a folk hero of the European Club: Professor Griffiths can be relied upon to expose those absurdities in short order.
There is, though, a much less fashion- able consideration which could conceivably turn Professor Griffiths into the sort of Court advocate which, if rumour is to be believed, Chancellor Lawson is in need of.
With new and more exotic vehicles for consumer credit emerging daily on the market-place, the Bank of England getting (somewhat belatedly) alarmed at the spread of 'off-balance-sheet' lending by the commercial bankers, and the broad money measures apparently hoisting storm warn- ings, unreconstructed monetarists like Pro- fessor Griffiths might be inclined to feel that a squeeze on credit would not come amiss.
Yet while we remain free agents (bear- ing due regard to the 'inward and spiritual grace' of the Group of Five) the Treasury seems to be tempted to respond to dollar appreciation of our pounds with a softening of our interest rates. Were we handcuffed to the Deutschemark we would not have that option. Unless the Germans (some- what improbably) decided to take a risk with cheaper credit we would have to maintain high interest rates to keep in step with them.
That may not be precisely what either the Treasury or the Prime Minister — not necessarily for the same reasons — has in mind. But a monetarist guru might be just the intermediary to convince the Prime Minister that entry into the Deutschemark bloc was the only way to prevent the Treasury jettisoning the gospel of monet- ary restraint, while at the same time convincing the Treasury that monetary restraint was a price that had to be paid for joining a club which City friends could not bear to be excluded from a moment longer. It would not, after all, he the first time a monetarist at No 10, viewed with suspicion in the Treasury on arrival, turned out to be a go-between of value. That role was performed by Professor Griffiths's old ally Professor Alan Walters, to the mutual advantage of both parties. Professor Wal- ters also turned out to be a powerful ally for the Treasury in its battles with the Bank. Now the boot is on the other foot: it's the poor beleaguered Bank that needs allies nowadays. But then Professor Grif- fiths could be well qualified to perform that role as well: he comes fresh from a stint in the Bank's Court parlour, does he not?
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