Waging war is no way to secure economic future

Predicting what life in UK business will be like in 2003 is a mildly depressing affair. There is an element of uncertainty to any year-end economic prophecies, but this Christmas seems unduly fuelled with it. And, as we know, uncertainty is the worst enemy of stable markets.

I would ascribe this uncertainty to three principal factors. The first – and darkest – contributor is the prospect of an imminent war with Iraq, to which Britain is mysteriously committed.

I say that our commitment is mysterious because, apparently alone among European nations, we are throwing our military weight behind an American president’s escapade that is driven by no more than a hawkish frustration that he has as yet taken no famous scalp in his war on terror. That and the matter of his forthcoming electoral prospects and the tetchy issue of US supply lines for oil.

These are political issues – as is the assumption that our own Prime Minister is motivated by the knowledge that he is a better and more attractive performer on the world stage than on the domestic front. Next year, it will increasingly become apparent that his government isn’t making our country work, as public services fail to respond to treatment. Tony Blair needs a war.

As I say, these are political issues. In a strictly commercial sense, the UK needs a war somewhat less than Saddam Hussein wants a hole in the head. This may be a factor that Blair hasn’t duly considered in his puppy-like loyalty to President George W. Bush – the war may be very bad for the UK economy.

It is fashionable, in this context, to talk about how previous UK military engagements have served our economy well. Margaret Thatcher’s Falklands campaign in the early Eighties secured her a second term on the basis of a return of national pride after the wilderness years of the Seventies. John Major performed a similar trick a decade later, by helping to resecure the oil fields of Kuwait.

Both were responses to the invasion of benign and poorly protected territories. And both, critically, were able to restore a consumer confidence in a relatively high interest rate and inflationary environment. Neither of these factors apply in a war against Iraq – in fact, UK consumer spending has been curiously buoyant of late, in a period of low interest rates. The worry must be that an Iraq war will have the reverse economic effect in Britain to its predecessors.

My second factor of uncertainty is related to consumer spending and, tangentially, to the risk from terrorism. A report from Capital Economics, a consultancy founded by the bearish former chief economist from HSBC, Roger Bootle, emerged on Monday to claim that house prices are set to fall by 20 per cent from 2003.

I have to say that I’m suspicious of the “what goes up, must come down” school of economics – just as I’m suspicious of the opposite, optimistic, persuasion that drives much of the telecoms and dot-com markets. But there can be little doubt that the British housing market is precarious and that its buoyancy has been maintained by low interest rates and consumer confidence.

Were that confidence to take a knock for the reasons already discussed and, in particular, if London were to suffer a drop in its absurdly high current property values as a consequence of a bomb or poison attack, the house of cards would come tumbling down. Consumer spending and house prices have driven the economy progressively upwards – they could drive each other downwards too.

My third factor of uncertainty for 2003 is leadership competence. I don’t mean political leadership in this context, though there are commentaries enough that cast doubt in that direction. My fear is that we are in a period in which confidence in management is at a deep ebb.

It started with the dot-com boom and bust, deteriorated when the bull market ended and the American mega-scandals of Enron and WorldCom emerged and, in Britain now, is exacerbated by a loss of investor confidence in what should be blue-chip bastions of our economy.

A fortnight ago, Cable & Wireless (C&W) announced that it had found a &£1.5bn potential tax liability in a deal with Deutsche Telekom of three years ago. The consequent run on C&W’s shares pushed it out of the FT-SE 100. Britain’s largest defence contractor, BAE Systems, is meanwhile flat on its back after catastrophic contractual cock-ups – not much evidence of a “war dividend” there.

In the retail sector, the expansionary experiment that was Boots has turned out to be less than successful. Something of a bellwether for the development of the high street, Boots’ ventures into primary and peripheral healthcare have turned out to be less than visionary. Other retailers, such as Mothercare and Woolworths, show little sign of knowing what the future of retailing may be.

At the start of the previous two decades, there was a sense that there was an industrial management class capable of taking a bull market by the horns when it came. And that proved to be the case.

There is no such certainty now – and 2003 looks grim. As the old ITMA radio programme catchphrase had it in the post-war austerity of the Forties: “It’s being so cheerful as keeps me going.” Happy Christmas.

George Pitcher is a founder partner of communications management consultancy Luther Pendragon. His book, The Death of Spin, is published by Wiley at &£16.99 and is available at bookshops or at wileyeurope.com