THERE can be no more eloquent harbinger of the price which will be paid in this recession for the failure of the British political establishment to properly advocate our membership of the European Union than the crisis over “British jobs for British workers”.
The trouble with playing to the nationalist gallery (Gordon Brown) is that it ends up believing you and acting upon that belief. The trouble with acquiescing with anti-Europeanism (Ken Clarke) is that it sets the agenda.
No country has gained more from the mobility of labour within the European Union than Britain. It has been critical to the international reach, particularly of our service industries, in the City and elsewhere. Those who are now hoping that we will see an export revival from the dramatically devalued pound (in itself a sort of tariff) are the very same who are risking retaliation from our major continental markets, which must be the inevitable consequence of letting the anti-European protectionist genie out of the bottle.
The picture of hypocrisy is almost too perfectly completed by the fact that the protest strikes coincided with Wen Jiabao’s visit to London to hear Gordon Brown’s pleas that China’s surpluses should be used to assist the revival of the Western economy and that the multilateral trading order should be preserved.
If those very many British workers who are now, rightly, fearful for their jobs are looking for targets, they are not the Italians and Portuguese, their partners in the largest legal single market in the world, but the Chinese, with whom they have no justiciable level playing field at all.
Of course, Brown’s Davos mantra that we should be striving to keep free trade open everywhere is theoretically correct. The protectionism, which is already widespread through national bailouts and competitive devaluations, will unquestionably dramatically reduce global growth. But it was also the imbalances of this global free trade between the West and the East and the unsound monetary policy which it encouraged: relying on cheap Chinamen and Indians to keep down inflation instead of addressing directly our runaway asset bubbles, which got us into the present mess in the first place.
Our priority now must be to remove these imbalances by promoting, as far as possible, free trade within the West, while moving to a more managed trade with the East. We have to rebuild our competitive capability whilst they have to be encouraged to do more trade within their economies and with each other.
This is best achieved by a return to the fixed exchange rate principles of Bretton Woods, with Britain joining the Eurozone, a tight relationship negotiated between the Euro and the Dollar, and a managed emergence of both the Renminbi and the Rupee, along with the Yen, into some form of eventual Asian currency union. Only then can faith in fiat money be secured and a long term sustainable equilibrium growth of trade flows be assured.
Such a switch of doctrine from free-floating to managed exchange rates lies behind Trade Secretary Geithner’s much criticised assertion that the Chinese should revalue their currency. Unfortunately, however, for all the fresh thinking which Obama has brought to Washington, it seems likely that the United States is resolved to follow a protectionist path on its own, rather than wishing to work with the European Union.
A fortress America will inevitably bring into being a fortress Europe and could also, through the collapse of the Dollar peg of many Asian currencies, lead to a fragmentation of Eastern markets too.
The collapse of multilateral globalisation will be felt here in Britain more than in any other advanced nation. It will constitute the defeat of our whole macroeconomic strategy of this country over at least the past three decades. We will be forced to choose whether we should be inside the American block, (as John Redwood and his like in the Conservative Party would advocate) or whether we go with Europe.
There are indications that the new American administration wishes us strongly to be with the Europeans. But on the basis of the rhetoric which has already been generated over some one hundred Italians and Portuguese in Lincolnshire, the omens for the easy resolution of this issue are not good.