Suspect promises
 

‘Bring with thee airs from heaven, or blasts from hell,
Be thy interests wicked, or charitable,
Thou comest in such a questionable shape
That I will speak to thee.’

Hamlet

There will be about eleven million British voters at the next general election below the age of thirty. None will have voted a Labour government into power. Few will have owned property, savings or any investments during a Labour administration. The Wilson and Callaghan years will hardly have touched their political consciousness.

Unlike older voters they may be little surprised by the content of Labour’s new policy document ‘Looking to the Future’, and what it means for Mr Kinnock’s next party manifesto.

Gone, apparently, are the chains of dogmatic Clause 4 socialism with which the left wing and the unions tied down all post-war Labour governments on a bed of nails. Readers must assess for themselves how far the document expresses changed convictions and how far political expediency. But the intention is clear. Cut loose from its roots in working class folklore, the Labour party hopes to enter the next general election bound only by the economic realities which constrain any democratic government. It is none too early to consider what it means for investors should it win.

One point should be made first, whether it wins or not. Namely that Mrs Thatcher has managed, against the odds, to float the private sector firmly into the main stream of the British consensus. Freedom of individual choice in spending decisions, the need to promote and protect private savings and capital, and the importance of profits and incentives in industry are now accepted virtually across the political spectrum. In only ten years this is a remarkable transformation.

That being so, a Labour victory in 1991-2 would owe nothing to the recapture of any ideological high ground by crusading socialism. It would indicate only that the means offered by Mr Kinnock’s manifesto commended themselves as more likely to secure ends now widely agreed.

Investors may draw relief from a number of broad commitments contained in the new document. Chief among these is the following statement:

“sustained and balanced economic growth makes the scope for public spending greater. But it must be clear at the outset that advance towards our objectives will necessarily depend on achieving that growth. We will not spend, nor will we promise to spend, more than Britain can afford.”

This is a weighty and welcome undertaking but many remain to be convinced by it. City commentators are already calculating that Labour’s announced plans add up to additional spending of several billion pounds.

Of more tangible comfort will be the commitment to pay fair market prices for the shares of BT and the water and electricity companies to be brought back into ‘social ownership’. (‘Nationalisation’ has been stuffed back in the cupboard along with a number of other frightening old skeletons).

Very little of the Thatcher programme in other areas is to be reversed or neutralised. Until recently the possibility of an abrupt about-turn carried clear and profoundly negative implications for the national economy as well as for private shareholders. Labour policy as now revealed appears to accept, however reluctantly, that much of the Thatcher legacy is irreversible. Comfort from that conclusion as much as any other factor lay behind the May rise in UK equity market prices.

One or two sectors would still feel a sharp impact from the thrust of Labour’s intentions. For example, the proposal to establish a national minimum wage would raise the costs of companies in the leisure industry which employ a lot of low-paid workers. Restraints promised on bank lending would sew up the earning power of lending institutions in a political straitjacket. Desirable though it may be to limit credit growth, the means of doing so must be effective and equitable rather than cosmetic.

Three substantial questions remain over the medium term implications of a Labour victory under Mr Kinnock. First is the prospect for inflation.

The commitment already noted not to overspend is, up to a point, reassuring. But the outcome in reality would hinge on whether Labour’s policy mix could sustain the improvement in the supply side of the economy. Whether rising living standards always promised would be matched by higher and more valuable output all too rarely delivered.

With inflation as reported now running at close to ten per cent, the question is hardly likely to be whether the RPI might soar from an admirably low base, but rather whether Labour would wrestle it back down to a rate of increase below say five per cent, and keep it there. Participation in the European Exchange Rate Mechanism will help. So would the deflationary effect of higher rates of personal taxation. But a lot remains to be proved and the record is hardly encouraging.

Secondly, the consequences of redefining a new balance between the public and private sectors have been little considered and have to be dealt with. Economic problems in the early Thatcher years were so pressing, public disillusionment with the collapsing public sector so large that no positive and continuing role was mapped out for itself by central Government. That gap has still to be filled.

In vital areas of national endeavour such as health, education, the arts, public utilities, university funding and scientific research, spending and investment decisions ought to be taken not solely with a view to commercial return or early pay-back, but in the context of a considered assessment of long-term priorities and the widest possible public interest. Only Government can make such an assessment and give it effect. No such assessment has been spelt out and without it the economy has been abandoned to the appetites of a hustling bazaar.

Labour’s policy document perceives what is required – ‘the market can be a good servant, but is often a bad master’. But freed even a little from the restraint of commercial discipline, there is the danger that a new Labour administration might revert to type as a wasteful and meddlesome bureaucracy.

Lastly there is the big question of Mr Kinnock himself. The achievements and failures of the ’80s belong not to a party but to its leader. The ideological battle is over, but the issues of the ’90s – economic policy, Britain’s place in Europe, and the environment, among others – are complex and involve competing interests and powerful pressure groups at every point.

The need is for a statesman with sufficient determination and intellectual rigour to bring the enterprise culture to the service of worthy long-term policy objectives. Mr Kinnock has proved that he has the ambition, but not yet the ability. Time may tell. In similar circumstances in AD 69, Tacitus wrote of the emperor Galba “capax imperii nisi imperasset” – they thought he’d be good at the job until he tried it. Galba lasted 8 months.

Despite doubts about Mr Kinnock’s capacity for the highest office, and the other uncertainties, markets are unlikely to take fright so long as they believe that the Opposition’s policies now outlined are the ones which would actually be applied in government. Meantime investors can only journey in hope and trust that Labour’s new clothes would not be discarded after the election to reveal the familiar old rags.

1 July 1990

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