Cameron is no white knight (From Halesowen News)

Cameron is no white knight

10:00am Friday 19th June 2009

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As Britain stumbles from economic crisis to political crisis and Gordon Brown appoints a man best known for the soundbite 'you're fired', as Enterprise Czar, maybe it's worth taking a step back to look at the mess.

Britain's basic problem lies with its economy which hasn't functioned properly for decades. In the 1960s and 70s, we were being overhauled by at least, the Germans, French and Japanese. You could probably even add the Italians!

The consequences were regular balance of payments problems. For example, in 1967, we were forced to devalue the pound, at that time fixed against the American dollar. It worked for a while and the balance of payments problem eased off.

But in the 1970s, the problem got worse and a new one was added, inflation. In 1975, inflation reached 25% and everyone panicked fearing hyper-inflation. The Labour government managed to get inflation down below 10% by means of an incomes policy but this fell apart in the 'winter of discontent' of 1978-9.

Margaret Thatcher was the massive beneficiary winning her first election in May 1979 (strangely uncelebrated on the 30th anniversary!). Thatcher was probably the most important British post-war prime minister because she altered the rules of the game. She tore up the previous government policy which was based on the ideas of Maynard Keynes (The General Theory, 1936).

But when she applied the American professor, Milton Friedman's policy of monetarism, the poor old British economy caught a further cold and entered its worst recession since the 1930s. Unemployment shot up to over 3 million. Thatcher did finally conquer inflation but at the cost of weakening manufacturing which had already been losing out to banking as the mainstay of the economy.

The 'benefits' of the monetarist policy of the 1980s were felt after 1992. In that year the pound was devalued yet again. Despite Norman Lamont's (Tory chancellor) desperate efforts, the pound was forced out of the ERM and, as in 1967, this boosted the economy.

There followed a long period of upturn and the Thatcherites congratulated themselves on having cured Britain's problems. After the mass unemployment of the 1980s, unemployment fell and times were better. But it was pretty obvious to anyone who looked carefully that, yet again, these were borrowed times - literally.

As regards politics, Margaret Thatcher's importance can be seen by her influence on Tony Blair and Gordon Brown. Blair and Brown were 'sons of Thatcher', not sons of Labour prime ministers Harold Wilson and Jim Callaghan. It worked for a while. When New Labour were elected in 1997, they continued, more or less, with Thatcherism and both unemployment and inflation remained low.

But it was easy to see that the economy was being kept afloat by consumption rather than investment. The balance of payments was running record deficits and personal debt was going through the roof. Banking had, by now, completely taken over from manufacturing as the source of Britain's wealth.

The story comes up to date with the credit crunch. Banking is just too ephemeral for the country to become reliant on it. All the fancy 'investment' schemes - not in plant and machinery but in pieces of paper - came unstuck in the credit crunch. This dislocated the banking system and plunged the economy into the present recession.

All the anger and vitriol now being poured over Gordon Brown is really cheapskate, although deserved. Replacing Brown with David Cameron is about as useful as Margaret Thatcher's monetarism in the 1980s. Cameron is no white knight; the Tories have nothing to offer but another bout of bashing the public sector. It won't work!!

John Payne, Halesowen

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