Brown's gamble should not go unchallenged

LAST WEEK in an interview with the Financial Times, Chancellor of the Exchequer Gordon Brown repeated his mantra: "Britain for the first time has a chance of establishing a credible framework for both monetary policy and fiscal policy." The question is what this mantra means.

The Liberal Democrats think they know. The Government is "building up a war chest in order to help Labour to win the next general election," Malcolm Bruce, the Lib-Dem Treasury spokesman said in response to news that the Government's tax revenues exceeded its spending by pounds 10.4bn in January - the biggest public-sector debt repayment ever in one month.

The media thinks it knows. The Daily Telegraph noted: "City economists expect Brown to have pounds 3bn more money than he forecast in the November green budget [at the end of the fiscal year]. This could allow him to cut taxes or increase spending and still stay within Tory spending limits as he promised."

But the political opposition and the media are probably wrong. Mr Brown is probably as radical as he says he is. The odds are he has embarked on the same course that Bill Clinton's Treasury secretary, the former Goldman Sachs managing partner, Robert Rubin, embarked on in 1992.

Mr Brown believes that by reducing government borrowing to a negligible factor in the national economy, he will give markets the freedom and confidence to direct capital to growth companies. He believes these growth companies will significantly reduce unemployment.

This same strategy has paid handsome dividends for the Clinton administration. The US is virtually the only tiger economy left in the world. With the Asian competition prostrate, US unemployment continues to dip toward post- war lows.

The question is whether Britain can follow suit and become Europe's tiger. The answer is maybe, but the risk in Mr Brown's strategy is high. The US is home to Microsoft, Intel, Netscape, Cisco, Worldcom, Disney, Time- Warner, TCI, and scores of other corporations dominating the fastest-growing sectors of the world economy.

We have a number of imaginative government initiatives to help boost our information technology, telecommunications, media, and entertainment sectors, but as yet few national champions.

As the winner of the Cold War, meanwhile, the US enjoys the latitude to buy more goods from abroad than it exports. The trade deficit keeps the dollar down. But because everyone from the street kids of Sao Paolo to the hustlers of Shanghai loves the dollar, confidence in the currency remains high. The international economic position of Britain is far less easy to manage.

As ambitious as Mr Rubin was for the US economy in 1992, Mr Brown is even more ambitious for the UK economy now.

Yet no one is offering a critique of his economic policy on its own terms. Instead, the Tories dribble on about irrelevancies. The Left fights welfare cuts. This is dangerous because it leaves Mr Brown unchallenged on the ground he sees himself defending.

For his own good, he needs someone to probe the weaknesses of his plan to modify Clintonomics for domestic use.

Think again on Iraq

THE debate over the economic effects of the stand-off between Iraq and the US has been superficial and seems to have missed two points. First, oil prices. The experts say they will not be affected if war breaks out - Iraqi oil is already embargoed, so any damage done Iraq's oil fields will make no difference. Besides this, crude prices were not significantly affected during the 1991 Gulf War.

The risk is, however, that Saddam will hit Kuwaiti or Saudi oil fields or disrupt Gulf tanker traffic. The odds may be small. The military planners no doubt have sophisticated contingency plans to counter such moves. Still, it could happen.

Second, Western contracts in the Arab world. The experts say they will not be affected. Supposedly, this is because the important business the West does in the Middle East is almost exclusively big ticket - power and infrastructure projects, arms deals - all of which are negotiated with tame government officials. The hitch is that a strike against Iraq will fan anti-Western fundamentalist sentiment. One need only remember the Shah's downfall in 1979 to imagine the possible consequences. How much business has the West lost as a result of the Ayatollah and the clerics running Tehran? How much more could be lost if US belligerence plays into the hands of Saudi fundamentalists?

Talking a load of bank

THERE is something wrong with the way we talk about our banks. The honchos give us declarations carefully couched to add up to less than meets the eye. Speaking about Barclays' future on the occasion of its annual results last week, chief executive Martin Taylor said: "The arguments for banking consolidation internationally over the next decade are very compelling."

Financial analysts and the press engage in fervid speculation. Since last autumn Barclays and NatWest have merged six times. Now this non-event has not happened, you can count on us in the press to report the merger of Barclays with six or eight banks outside the UK.

In between these two varieties of corrupt language there is nothing - silence accurately denoting an absence of facts. Here, perhaps, is an opportunity. There could be a parliamentary select committee on the future of British banking.

The idea will raise horrified outcries of government interference. But a public debate on the future of the British financial system might teach the public to overcome its ingrained prejudice that bankers are grasping fat cats. It might improve Mr Taylor's chances of carrying the day with his argument that British banks must merge to produce national champions capable of competing in a world of mega-banks.