Gordon should have stuck to the gags

City & business

THE BUSINESS community had its first chance to eyeball the Chancellor since his return from the Washington meetings on Tuesday - and it was left cold by what it saw.

Addressing the annual dinner of the British Retail Consortium at the Grosvenor Hotel on London's Park Lane, he began well. He told several very funny Washington jokes. Laughing at his own punchlines, he revealed the engaging, football-loving side of his personality.

But then he launched into a report on the Washington meetings, and the Government's response to the world economic crisis, and you saw a man losing his audience. The liveliness in the faces turned toward him faded. The chairmen of the country's leading retailers seated at the top table stared off into the middle distance. Employment minister Andrew Martin nodded ever more emphatically at each point made by the Chancellor, as if willing the audience to endorse what was being said.

It was not that the retailers were hostile. In pre-speech cocktail chatter, most made it clear that despite having voted Tory in the election, they were willing, even eager, to work with the Government to achieve its goal of boomless, bustless growth. Quoting a speech made to the British Retail Consortium by Tony Blair while Labour was in opposition, BRC chairman Mark Souhami noted that politicians and retailers had a common aim: making voters, aka consumers, happy.

Rather, the retailers were disappointed. Jokes over, Mr Brown delivered a lengthy defence of New Labour's programmes. He tackled his subject with gusto but seemed oblivious to the fact that he was losing his audience. However, it was even worse than that.

While in opposition - and while the Nineties boom was in full swing - the Chancellor could speak with an honest heart and a clear head about Labour's Third Way. Predicated on the now familiar equation that social justice means more educated workers, and a better workforce means a bigger slice of the globalisation pie, Mr Brown's rhetoric highlighted how out of it the Tories had become.

But the economic dramas of the past two months have put globalisation under a cloud. The denouement of these dramas is still unclear. We might be headed for a slump. Or pessimists like myself might simply be hyper- ventilating, swept up in the moment.

Mr Brown disappointed his audience on Tuesday not because he downplayed the significance of the bad economic news, but because he downplayed it shiftily. He took it as a given that Labour's economic programme was still valid despite the bad news. But his defence was a fig leaf based on the fact that the Government had factored a small surplus into its budgetary calculations pre-crisis.

Is this surplus really going to offset the vaporising of trillions of dollars of wealth as markets have fallen? Is it going to protect the British economy from depression in much of Asia and an incipient credit crunch in the West? Possibly. But the audience wasn't convinced.

Nor did Mr Brown offer much analysis of what is happening to globalisation. Instead, he spokeabout the need to improve financial market regulation. In doing so he betrayed a bafflement about - if not distaste for - the people who dedicate their lives to making money.

Mr Brown has overcome his old socialist roots to the extent that the Third Way depends on the markets. But the markets are in trouble now. As a result, so is the Third Way. Mr Brown's response is to regulate the markets more. The retailers' response is to accept that something may have gone horribly wrong with globalisation, but to trust in the entrepreneurial spirit to keep things going.

It would be wonderful if Mr Brown could make a leap of imagination and understand there are people who express themselves through the pursuit of money just as he expresses himself through the pursuit of power. It would be wonderful if the bloody history dividing the merchant and Labour tribes in the country could be vaporised.

The Government may argue it has consigned the separation of these tribes to history with the inclusion of high-profile businessmen in its inner councils. But it has not. Mr Brown's failure to connect with his audience on Tuesday is evidence.

Dangerous liaison

IN HIS speech, Mr Brown acted like a man with an ace up his sleeve. I think the ace is the increasingly close alliance between the Government and the Clinton administration. If so, the Chancellor should be warned. The gossip in Washington suggests the administration is falling apart - not only because of Monica Lewinsky, but because of splits over how to respond to the economic crisis.

Here's a version of the gossip, courtesy of a politically plugged-in US banker in London. Back in the summer, US Treasury Secretary Robert Rubin fell out with the White House over the decision to intervene in foreign exchange markets to prop up Japan's collapsing yen on the eve of President Clinton's visit to China. The propping up of the yen followed a phone call to Washington from Peking during which the Chinese told Clinton advisers they were close to devaluing their currency so China could remain competitive with Japan.

Mr Rubin was away at this point. So his deputy, Lawrence Summers, took the call from the White House. More interventionist than Mr Rubin, he was happy to instruct the Federal Reserve to help the Japanese, though he advised Mr Clinton to be seen to be demanding a quid pro quo from Tokyo for doing so.

The China-US-Japan joint manoeuvre happened and a new alliance between the White House, Mr Summers, and the internationalists at the Fed came out of it - at the expense of Mr Rubin who believed the propping up of the yen was ineffectual and so squandered Washington's market credibility.

Fast forward to the Russian default, 17 August. The White House again wanted to be seen to be doing something. It put pressure on the Treasury and again Mr Rubin resisted. Nevertheless, the Treasury's international man, David Lipton, travelled to Moscow. Once there, he found no one with whom to confer, and, returning to Washington, bowed out of government disgusted. This reinforced Mr Rubin's isolation, since Lipton was a Rubin man.

Into Mr Lipton's slot has stepped Ted Truman, long-time international man at the Fed. This might seem logical except that Mr Truman goes to the Treasury, joining the Summers camp, after becoming persona non grata with domestically oriented Fed governors. Why? Because the money the US used to prop up the yen came out of a Fed fund authorised by Mr Truman in a manner that angry Fed governors charge was done by stealth.

What, if true, does this gossip matter? Mr Brown's ace could be a joker. He could be boarding the Clinton ship just as it is sinking and the rats are turning on one another.