|The June Press|
|Tackling Britain's False Economy|
by John Mills.
Mills analyses the failings of the British economy and concludes that the main cause of its relatively poor performance has been inappropriate monetary exchange rate policies.
Reviewer Clive Linton
[eurofacts (Vol 3 No 5) – 19th December 1997]
This book is about growth: economic growth. Why does growth matter? What does it enable you to do? Why, over the last hundred years, has the growth of the British economy usually been less than that of its competitors? Why, in the nineteen nineties, is British growth still below the world average and a lot lower than that of the Pacific Rim and the United States? How could the British economy be permanently shifted onto a higher growth path?
These questions go to the heart of macro-economic management. Step by step, block by block, statistic by statistic, John Mills constructs a rigorous and convincing case which answers those key questions (and a lot else besides).
He believes that most of the basic tenets of British conventional economic wisdom (which still underpin current British economic management) are simply not supported by any empirical evidence. He argues that monetarism, for example (to which the new Chancellor seems to be in thrall), once you strip out the mumbo-jumbo, simply boils down to good old-fashioned deflation. (Incidentally, this book is mumbo-jumbo-free).
Another example is the conventional economic wisdom that "devaluations cause inflation". Mr Mills studies five major 20th Century sterling devaluations - those of 1931, 1949, 1967, 1973 and 1992 - and shows that in each case the British economy almost immediately experienced a surge in growth with no or very little inflation. Other countries' experience has been similar. He is particularly interesting about the consequences of the 1931 devaluation (of 24 per cent against the dollar). During the five years 1932 - 1937, manufacturing output rose 58 per cent; import penetration fell by nearly half, from just under 40 per cent to a little over 20 per cent; 2.7 million new jobs were created, half of them in manufacturing; unemployment fell from 3.3 to 1.8 million. Had this not happened, Britain would have been too weak industrially to sustain the war effort.
Mr Mills' case is that for most of the last two centuries sterling interest rates have been set at levels far too high to enable the economy to grow naturally with full employment. As a result, sterling has usually been overvalued, often grotesquely so, without even the compensation of low inflation. He points out that even before the sterling surge (actually a DM slump) of the last few months, Britain's average export prices for manufactures were 40 per cent higher than the rest of the world compared to the 1973 position.
Britain, he thinks, should run an expansionary monetary policy involving the correction of sterling's overvaluation - as she, and other countries, have successfully done both pre-war and post-war. Mr Mills explains carefully how the British economy could achieve growth rates of 5-6 per cent p.a. (two to three times greater than the 2.5 per cent p.a. that conventional wisdom assumes is the "natural" rate) with low inflation - as it has in the past. It can and should be done.
This is a dense and stimulating book and a short review can only hint at its richness. Is it too much to hope that, somewhere in the Treasury, someone is devouring it?
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