For all the talk of the political fall-out from the redundancies at MG Rover – and now a further 3,200 from the Littlewoods-owned Index chain – the real test for Labour’s election campaign will be less to do with domestic stewardship of the economy than with how it copes with a US-led downturn in the global economy. Questions are not only about to be asked about Labour’s competence in handling the kind of consumer slump that causes these redundancies in our motor and catalogue-retailing industries, but also about the wisdom of allying the UK’s fortunes so closely with those of the US – albeit a problem that Prime Minister Tony Blair intends to dump on his chancellor the other side of election day.
Election-timing has been altogether kinder to Blair’s great friend, George W Bush. Not only did the president’s re-election come before the risks of the Iraqi elections and attendant insurrections, but he is now facing a US economic crisis with the thick end of a second four-year term in which to sort it out. No such happenstance is offered to Blair if further bad economic news comes down the transatlantic line over the next three weeks.
Regardless of politics, perhaps the most worrying aspect of the current American slump – with the Wall Street markets wiping out all gains achieved since Bush’s re-election last year – is that it is not being caused by any currency play or oil-price spike, but rather by the stalwart American consumer finally running out of energy. Consumer vitality has supported the US economy against all the odds for a decade or more. General Motors is a bellwether of American consumer confidence (in a way, incidentally, that MG Rover isn’t for the UK markets) and its spectacular losses, announced earlier this week, tell the story that US consumers just can’t hold up the economy anymore, however much incentive is offered from the Federal Reserve in supported interest rates.
The knock-on effect for the UK and the rest of Europe is obvious. For the great Tory and Labour champions of throwing in our economic lot with the US rather than with Europe, this will be a testing time. For the time being, the principal European economies remain fundamentally robust in comparison with the US. Part of the political problem for Blair is that he has failed in two terms in office to grasp the nettle of European integration, while performing a convincing role of subordinating the UK to US economic interests.
The interesting factor looking forward is that Europe may suffer in the wake of the American consumer-led downturn, particularly in respect of a weak dollar affecting our exporters, but it may offer European countries an opportunity to develop a global economic alternative to the US. There are plenty who would argue that this alternative already exists. But what I’m talking about is a fundamental shift in economic power across the Atlantic – not a transfer of hegemony, perhaps, but at least the chance to re-balance that power somewhat.
I would offer one small symptom of the power-shift – not of itself a greatly significant change of circumstances, but one of those indicators that shows a significant transformation may be under way. Just as we don’t wake up one day to find that winter has changed to spring, markets don’t shift overnight. But, occasionally, we can see a snowdrop of evidence that change is in progress.
One such snowdrop is a subtle shift in power in wholesale financial services from the American investment banks to their European equivalents. Talismanic in this transfer of power is the trouble at the top of Morgan Stanley and the inverse rise of UBS as Europe’s premier investment bank. For a generation, Morgan Stanley has been the kind of American investment bank that carried all before it. Lately, it has lost its way, a failed development strategy thwarting its attempts to match a retail financial services operation in the US with its worldwide aspirations in the capital markets.
Meanwhile, UBS has grown out of its Swiss base to do precisely what Morgan Stanley has failed to do – it has managed to consolidate disparate and discretely valuable brands under one central and simple brand. The process has been one of considerable pain, with great names of the financial markets, such as Paine Webber, SG Warburg and Phillips & Drew, being absorbed into the maw of UBS.
It would be piquant if this rebranding exercise to create a new international financial power had been undertaken by one of the American marketing services groups. In fact, it is the work of Paris-based Publicis. We shouldn’t, perhaps, read too much into that, but it is at least some further evidence that Europe has a future as a rival to, rather than a vassal of, the American economy.
George Pitcher is a partner at communications management consultancy Luther Pendragon