The Sunday Times February 13, 2022 9
BUSINESS
D
ollar Diplomacy, President
William Howard Taft
announced in 1912, was a form
of American foreign policy
designed to substitute
economic power for the use or
threat of military force. It
simply substitutes “dollars for
bullets.. .” proudly announced the
president. Less than five years later,
America was sending both dollars and
bullets to Europe to join the battle
against Kaiser Wilhelm II’s Germany.
Fast forward to today, and a US
administration eager to avoid
involvement in “never-ending wars”.
Dollar Diplomacy is to be reincarnated
as sanctions, their aim to deter bad
behaviour, their removal to reward good
behaviour.
To please Angela Merkel and
Germany, president Biden removed
Trump-era sanctions that had halted the
construction of the nearly completed
$11 billion Nord Stream 2 natural gas
pipeline that would increase the
dependence of America’s Nato allies on
Vladimir Putin’s goodwill. Biden now
threatens to reimpose them if Putin gives
his troops an invasion green-light.
Putin has proved that he has the
power to force natural gas prices so high
that residents of Nato countries must
choose between heating and eating. A
cowed post-Merkel government has
refused to co-operate with efforts to
persuade Putin to stand down his troops
or even allow its air space to be used by
Nato allies flying equipment to Ukraine.
Germany has taught Biden a lesson he
somehow missed in his decades in
Washington: if you want gratitude, get a
dog. Biden has bought a dog.
Meanwhile, Putin is enjoying the
Olympics at the side of Xi Jinping. These
games are sponsored in part by Xi’s
useful idiots, major American
corporations that regularly virtue-signal
their concern about human rights, but
only in a way that does not implicate or
antagonise the Chinese authorities, who
are delighted when corporate bosses
attack human rights violations in the US.
Here is the irony. Compared with
America, China and Russia are economic
pygmies. Each of the dictatorships has a
per capita GDP of about $10,000, one-
sixth of America’s, less than one-eighth
of the richest US state (Connecticut),
one-third of its poorest (Mississippi).
Yet, and yet...
Putin is cocking a snook at America
and Europe in Ukraine, demanding that
America and Nato find ways to meet his
“legitimate security concerns”, among
them the threat posed to his 130,000
troops by a few thousand American
troops and Ukrainians training with
wooden rifles. Xi is flying his J-16 fighters
and nuclear-capable H-16 bombers into
Taiwan’s air defence zone, and threatens
American vessels daring to sail close to
the artificial islands China has
constructed in the South China Sea. Both
Xi and the Taiwanese are watching to see
just how far Putin can push America
without awakening a sleeping giant.
It is not as if either Russia or China can
match the military might of America,
measured in nuclear weapons, combat
aircraft, and aircraft carriers and, until
doubts were raised by the Afghanistanexit, the number of allies. But China and
Russia lead in some technologies, and
are closing the gap on an America willing
to devote less than 3 per cent of its GDP
to defence spending compared with
7 per cent during the Cold War and 4 per
cent during the war on terror.
Corporate America, its lobbyists, and
many members of congress have turned
the defiant call, “Millions for defence but
not one cent for tribute,” a response to
French pressure in some long-forgotten
diplomatic quasi-war, into “Millions for
tribute, but not one cent more for
defence”. Defence experts, of which this
writer is not one, say current levels of
spending are insufficient to permit
America to meet a threat on two fronts.
What America cannot match is those
countries’ clarity of purpose. Xi is
determined to restore Chinese powerIrwin Stelzer American Account
and prestige after what he sees as 100
years of humiliation by the West and
Japan. Putin is out to reverse “the
greatest political catastrophe of the
century”, the fall of the Soviet Union.
America can’t decide whether its foes
are a bigger threat than climate change,
income inequality or its former
president. It can’t decide whether to rely
on its oil companies for its fossil fuel
supplies, or become more reliant on
imports, some from Russia. It can’t agree
to end dependence on China for solar
equipment and strategic materials.
There’s more, but you get the idea.
That’s the bad news. The good news is
that the Chinese economy is showing the
ill effects of the evisceration of the
innovative entrepreneurial class that
threatened the hegemony of the
Communist Party. Russia is a petro-state
with nukes. The better news was laid out
more than a dozen years ago by the
much-missed Charles Krauthammer.
“Nothing is inevitable. Nothing is written... Decline is a choice. More than a
choice, a temptation.”
The American economy’s problem is
that it is growing too rapidly, its workers
have too many choices, its consumers
and corporations too much cash, its
voters have multiple options. Just the
sort of problems other countries envy.
[email protected]
Irwin Stelzer is a business adviserWhat the US can’t
match is Russia’s
and China’s clarity
of purpose
I fear we won’t get
the high-wage
economy beloved
of ministers
P
ay is the issue of the moment,
and not just for the governor of
the Bank of England. Plenty of
people would like big increases
in wages because of the
current surge in inflation. But,
by the same token, any talk of
inflation-busting pay rises
sends policymakers all aquiver.
We have already had the biggest
recession in the UK since 1921 and are
heading for the highest tax burden since
1951 and the highest inflation rate since- Nobody wants to add to this a
wage-price spiral like 1981.
I shall come on in a moment to
whether that is likely, or indeed
remotely possible. But first let me try to
pin down what is happening on pay.
There is a choice of official measures.
One, average weekly earnings, shows
that in the latest three months total pay
was up by 4.2 per cent on a year earlier,
while regular pay was up by 3.8 per cent.
There is not much there to frighten
the horses, or indeed central banks. The
figures suggest that pay growth is a touch
stronger than it was pre-pandemic, but
not by much. So, in mid-2019, both were
rising at an annual rate of 3.9 per cent,
before slowing towards the end of the
year before the coronavirus struck.
There is another official measure,
passed on PAYE (pay as you earn) figures
from HM Revenue & Customs. These are
new. When you hear Boris Johnson
spouting untruths about the labour
market in the House of Commons by
claiming there are more people in work
than before the pandemic, this is his
source. They show that there are more
employees than pre-Covid. The bigger
picture, of course, is that there are more
than half a million fewer in work in total
because of a sharp drop in self-
employment.
I have become fascinated by these
PAYE figures, which are experimental
but often provide the basis for BBC
headlines during the day when
published alongside other, longer-
established figures. So, for example, it
appeared that employers took on
184,000 new employees during
December, despite Omicron. In three of
the past six months of 2021, employee
numbers apparently rose by more than
200,000. What rarely gets picked up is
that these figures are later revised. So, in
the second half of last year, these initial
reports overstated the revised figures we
now have by some 50 per cent.
It may be that a similar health warning
has to be attached to the PAYE figures on
wages. They show that at the end of last
year, annual earnings growth on this
measure was a chunky 5.3 per cent,
down on a furlough-distorted 9.7 per
cent last spring but higher than before
the pandemic, when it was 3.8 per cent.
There are other ways of looking at
pay. January is a traditionally busy
month for pay settlements. According to
Incomes Data Research, 52 per cent of
awards have been above 3 per cent so
far, compared with 21 per cent in early - More than two-thirds of
settlements to date are huddled in the
2 to 4 per cent range, but settlements
below 2 per cent are a rarity.
What does all this information tell us?
Taking the evidence as a whole, wage
growth is higher than it was before the
pandemic, though not hugely so. But it is
lower than inflation, and significantly
lower than where inflation is heading in
the coming months.
There is one clear group who will
benefit from a bigger pay increase this
year than last. Those on the minimum
wage, the national living wage, will
receive a 6.6 per cent pay rise this April
— an additional burden that some hard-
pressed employers could have done
without and a much bigger increase than
the 2.2 per cent rise in April 2021.
That there is no wage-price spiral, nor
one in prospect, is unsurprising. The
labour market has changed
fundamentally since the wage-price
spirals (which governments often
responded to with price and incomes
policies) of the 1960s, 1970s and early
1980s. Restrictive practices were
reformed away and union power
declined because of legislation and the
relative decline of their power base inMore people are changing jobs,
having decided during the pandemic on
a change of direction, and the tried and
trusted way of getting a pay rise is to do
so. Bank of England calculations, based
on the official Annual Survey of Hours
and Earnings, show that job-changers
achieved annual earnings growth of
about 9 per cent last year, compared
with less than 4 per cent for those
staying with the same employer. Over
time, job-changers achieve earnings
growth about double that of “stickers”.
Only a minority of people switch jobs,
however, and most of those who do so
change and then stick with their new
employer, at least for a while. It would be
wrong, therefore, to think of pay rises
for job changers as typical of the labour
market as a whole.
Where will all this leave us when the
dust settles? Not, I fear, in the high-wage
economy beloved of government
ministers. That requires higher
productivity growth, and that is another
story. The Bank expects earnings growth
to subside to 2.5 per cent in the medium
term as the labour market loosens and
inflation subsides. The Office for Budget
Responsibility, in its autumn forecast,
predicted earnings growth of just 2.2 per
cent in 2024. In the meantime, most
people will have to take the cost-of-living
crisis on the chin.PS
Friday’s gross domestic product (GDP)
figures had something for everybody.
After suffering the biggest drop in GDP
since 1921 in 2020 (and the largest in the
G7), last year the UK experienced the
strongest rise since 1941, and in
peacetime since 1927.
Last year’s 7.5 per cent was the
strongest in the G7, though much of that
reflected what happened in the second
quarter, when the annual growth rate
was flattered by comparisons with the
record slump in output in the same
quarter of 2020. Quarterly growth in the
third and fourth quarters was weaker
than in some other G7 countries.
The UK is still, on a quarterly basis,
0.4 per cent below the pre-pandemic
levels of the final quarter of 2019. On this
same basis, America and France are
above pre-pandemic levels, as is the EU
and the eurozone, and Canada should be
when its figures are released.
On a monthly basis, the UK was at pre-
pandemic levels in December, during
which the Omicron effect was milder
than feared, with a monthly drop of just
0.2 per cent — and either measure shows
the unusual nature of this recession and
recovery, with pre-recession levels of
GDP recovered quickly in comparison
with normal recessions. That has also
been the pattern elsewhere.
We are still in unusual times in other
respects. Trade is being held back by
Brexit and the economy is being boosted
by the response to the coronavirus. GDP
was lifted in the final quarter of last year
by more visits to GPs, more Covid testing
and the vaccine booster programme.
Those things should soon settle down
and we will get a more normal picture of
economic growth, with fewer big
numbers and not so many records being
broken.
[email protected]nationalised industries and mass
manufacturing.
Nor, in economic terms, should there
be. The UK, and other countries, are
experiencing “terms of trade” inflation,
caused mainly by big increases in import
prices, particularly for energy. The
implication, and what it means for
inflation, was put well by Llewellyn
Consulting, the firm set up by the former
OECD chief economist John Llewellyn.
As it says: “Whereas a domestically
generated wage-price inflation does not
necessarily represent a reduction in
national income relative to national
output, a terms of trade inflation does.
And raising money wages cannot
eliminate that reduction. The domestic
wages dog may chase its terms of trade
tail, but it can never catch it. Higher
nominal wages at home will not pull
down oil prices abroad.”
There is something else happening to
wages and salaries, which is of note. This
was highlighted by the Recruitment and
Employment Confederation’s latest
report on jobs, in conjunction with the
professional services firm KPMG, which
reported that starting salaries were
rising at their third-fastest rate in the
survey’s history, which dates back to- The two faster increases were in
October and November last year.
This rise in starting salaries is being
driven by a scarcity of candidates, the
REC says. The UK workforce has shrunk,
mainly because of a drop in older
workers rather than Brexit, and suitable
workers are in short supply.
... AND SETTLEMENTS ARE CREEPING UP
Source: IDRPay freeze 0.01-0.99% 1.0-1.99% 2.0-2.99% 3.0-3.99% 4%+Percentage of pay awards in 2021 20221%20%4%
0%2%41%42%13%26% 26%8%17%Source: HRMCPAY GROWTH IS ABOVE PRE-PANDEMIC LEVELS ...
Median pay growth, based on PAYE data-2.50- 5
52.510%2015 2016 2017 2018 2019 2020 2021David Smith Economic Outlook
Sanctions are new
twist on indecision
Higher wages won’t save us
from the cost-of-living squeeze
are loosely linked in that they speak to
the BBC’s dilettante attitude towards the
grubby practice of making profits. Can
you imagine a fundamentally flawed
story about education appearing on the
home page, or a swathe of political
reporters being moved to Leeds?
Actions speak loudly and the licence
fee-funded broadcaster is saying that it is
no longer serious about company news.
“This is a longstanding thing,” says
someone who knows the BBC well. “ItT
wo unfortunate things
coincided at the BBC last week
(well, there were probably
many more, but two that
caught the attention of people
who care about business).
On Wednesday, a puff piece
appeared on the home page
about Hanad Hassan, a 20-year-old who
claimed to have turned £37 into
£5.9 million in nine months through
cryptocurrency trading.
Jim Waterson, The Guardian’s media
editor, pointed out that this was an
eyebrow-raising return of 16 million per
cent. A 30-minute documentary was also
due to go out that evening detailing how
this entrepreneur had created a crypto
coin that was paying for food banks.
Waterson noted that a quick Twitter
search would have revealed his coin was
shut down last October.
Links to both pieces now lead to “404
Page cannot be found” messages.
And on Friday, the Radio 4 Today
programme’s business team delivered its
final report from London. In a right-
thinking but wrong-headed decision that
could have been parodied on thecomedy show W1A, Auntie is moving the
entire business teams for Today and the
World Service to Salford. Manchester is a
great city, but the capital will always be
the centre of big business and finance.
With the exception of TalkTalk’s Tristia
Harrison, a neighbour of the BBC’s in
Salford, chief executives will no longer
be able to drop in to give face-to-face
interviews on busy results days. Today’s
business journalists refused to head
north. So did almost all World Service
staff affected, according to The Times.
Predictably, the Salford relocation
process is described by observers as a
“real hodge-podge”, with at least one
London-based journalist who had been
earmarked for redeployment managing
to stay after hiring a lawyer and kicking
up a fuss. BBC insiders say the business
team in Salford will be expanded from 15
to 50, although there will be a net
reduction in roles and most — if not all —
the new joiners will simply replace
people who have left. If you were in any
doubt about the focus of the rejigged
unit, look at its name: money and work.
A key word is conspicuously absent.
Wednesday and Friday’s occurrenceswith sensationalist squawking. Yet on
business, Auntie is her own worst
enemy. The Today programme’s way of
covering the spike in BP and Shell’s
profits last week was to bowl underarm
questions at academics about the need
for a windfall tax. This kind of
intellectual laziness justifiably angers
those on the right who perceive the BBC
as existing in a luvvie bubble.
In this respect, the BBC’s attitude to
business is both a symptom and a cause
of its troubles with government. The
more it produces business content that
would embarrass most trainee reporters
on The Times or The Telegraph, the
more it winds up hawks who want to cut
the licence fee, and the more pressure it
comes under to find savings — by getting
rid of business journalists. For reasons of
self-preservation, let alone the blood
pressure of listeners who care about free
enterprise, director-general Tim Davie
and chairman Richard Sharp urgently
need to wake up to business.Gove’s demolition derby
Brickies are hurling brickbats at Michael
Gove. One housebuilder says thelevelling-up secretary is acting like a
“mafia boss” with his plan to make the
industry contribute to a £4 billion fund
for fixing fire-safety problems at flats.
This month, Richard Goodman, an
official in Gove’s department, wrote to
builders setting out proposals that would
force them to pay for all remediation
work on buildings taller than 11 metres.
The sting: those who complied would
“continue to enjoy the benefits of the
government’s services” — access to Help
to Buy and planning consents. Those
who didn’t would, in effect, be shut out.
The builders are tooling up for a fight.
The Times reported yesterday that
Persimmon had taken advice from Lord
Pannick QC, who said Gove’s plan in its
current form would be “unlawful”.
This is a game of poker. Developers
might technically be right but they
should not be seen to be cocking a snook
at long-suffering leaseholders. The onus
is on the industry to propose a sensible
compromise. Gove may not have the
powers to do what he wants, but he can
make life difficult. In the meantime,
expect shares to come under pressure.
[email protected]doesn’t really like business or want to
understand it. It has a mindset that it’s
all a bit mysterious, and somehow a bit
dirty. And maybe, in that, the BBC is a
reflection of British society at large.”
There have been attempts to change it
in the past. Greg Dyke vowed to shake
things up after arriving as director-
general in 2000 and noticing that its TV
news bulletins had ignored Vodafone’s
£106 billion bid for Germany’s
Mannesmann, still the biggest deal in UK
corporate history. He hired the former
Sunday Times business editor Jeff
Randall and launched a prime-time
business show. Randall did a sterling job
but always half-joked to friends that after
he left, “the wind will blow over the sand
and my footprints will be covered”. He
was wrong — at least in the medium
term. Randall was followed by Robert
Peston and Kamal Ahmed, both of whom
did good jobs pushing business stories.
Since then, the sands have returned.
I say all this as someone who loves the
BBC and would hate to see the licence
fee cut. It is a unique institution and part
of what makes Britain special versus
America, where the airwaves are filledOliver Shah
BBC’s dilettante attitude to business
is a symptom and cause of its woes
Crypto confusion: Hanad Hassan