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On not apologising for supporting British industry Samuel Brittan Financial Times 29/12/06 The unfortunate implications of the intervention by Tony Blair, UK prime minister, to halt the Serious Fraud Office’s investigation into allegations of bribery in connection with Saudi Arabian arms contracts have been much discussed. A precedent has been created for giving in to blackmail. British foreign policy has been revealed once more as based on supporting a Middle Eastern dynasty notorious for its disregard of human rights and support for the Wahabi form of Muslim fundamentalism. Above all, the impression has been gained that the rule of law applies to small fry only. The ground has been cut from under western lectures on the need for sound governing structures in emerging countries. On previous occasions Mr Blair’s spokesman has said the prime minister made “no apology for lobbying in support of the British defence industry”. This time he gave the impression of abiding by the Organisation for Economic Co-operation and Development’s anti-bribery convention by putting foreign policy objectives as his main justification and mentioning industry and jobs as a throwaway. But there is little doubt that they figure prominently in his reasoning. The initial opposition Conservative party reaction was that the SFO cancellation would be supported if it had been clearly made by the SFO on its own. This feeble response received the rebuff it deserved when Mr Blair defiantly took personal responsibility for the decision. Mr Blair does not realise that support for competitive market capitalism is not the same as the pro-business agenda with which he feels most at home. The virtues of capitalism arise not from the virtues of specific companies or their leaders, but from the fact that these are forced to compete with each other in the marketplace. The heart of the matter is the belief among the business and political establishments that exports are worthwhile for their own sake, irrespective of how much they have to be subsidised - or in this case how many principles of law and good government have to be cast aside. If it were just a matter of arms production in a few constituencies it would be bad enough. But it is far worse. The basic mistake is known as the “lump of labour fallacy”. It is implicitly assumed that there is a fixed amount of work to be done in each industry and that workers displaced by technological progress or shift in demand are doomed to the unemployment scrap heap. It is not asked whether there can be other purchases at home or abroad to make up the difference. This approach ignores the circular flow of income, a fundamental concept unknown to many politicians and businessmen but which many economists find too obvious to explain. The main idea is that there is a continuing flow of spending between final purchases, the products bought and the incomes thereby generated, which in turn give rise to still further purchases. The circular flow can be helped by sensible macroeconomic policies, such as maintaining an adequate but not excessive flow of total spending. There can be cases where the local impact of a shift in the composition of demand, whether or not due to arms order cancellations, justifies specific regional measures. These have of course to be watched with an eagle eye, because regional policy is often a fig leaf for protection. Wildly different estimates, ranging from 10,000 to 50,000, are circulating about the numbers of jobs at stake in any Saudi Arabian cancellation of Typhoon orders. The present feverish atmosphere is not one in which an impartial estimate can be made. What I can do is recall the York Report by a specialist group including the Ministry of Defence’s chief economist (The Economic Cost & Benefits of UK Defence Exports, Centre for Defence Economics, York 2001). The report estimated that defence export sales at the turn of the century averaged 2.6 per cent of all exports. Such exports also accounted for less than 0.4 per cent of total employment. The report investigated a hypothetical halving of defence export jobs. It estimated that a loss of slightly fewer than 50,000 jobs in the defence sector would result, over a five-year period, in their replacement by nearly 70,000 new jobs at lower wages. Such a job loss would be much smaller than the earlier loss of 150,000 jobs in the sector in the eight years surrounding the end of the cold war. In that period 70,000 jobs were lost in metal manufacturing, 180,000 in coal. It is clear that arms exports now make a very limited contribution to the British economy. So one is not requesting a great exercise of moral heroism in asking a government to stand up to the blackmail of a dynastic state with an execrable human rights record. And do not talk to me about oil, which can be bought on the open market. The latest decision is too in keeping with the Blair approach on so many other matters. He simply lacks the abstract intelligence to see the value of due process over an intuitive judgment of “what works” in areas including overseas intervention, the military-industrial complex, cabinet decisions and constitutional arrangements. Liberal democracy is not just a matter of a plebiscite on who should be prime minister every four years or so. This has gone on long enough. There is no assurance that Gordon Brown, his likely successor, would be any better. But he could hardly be much worse.
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