The union chiefs are right - our policies are causing job losses

"WORLD ECONOMIC growth is robust. The G7 economies are expected to grow slightly faster than trend on average this year and to expand at a healthy rate next year. The recent turbulence in global financial markets is not expected to have a major impact on the world economy." (Gordon Brown, pre-Budget speech, November 1997.)

This week, two big political hitters called John, each with impeccable labour movement credentials, made set-piece speeches at the annual gathering of the TUC. The contrast was fascinating. One - shackled by his friend Gordon - couldn't deliver the message he would have wanted, while the other was like a boxer coming out of his corner, pulling no punches.

I was stunned by the response to John Edmonds's speech. For describing fat cat directors as "greedy bastards", Ruth Lea of the right-wing Institute of Directors condemned the GMB leader as "intemperate". Simon Sperring of the London Chamber of Commerce said that John was engaging in the "language of the saloon bar". Well I was at the TUC yesterday, and I can tell Britain's business leaders that the language in Blackpool's bars this week makes John Edmonds' speech look positively mild.

Daily Mail leader writers have always complained about the politics of envy, but it is about time someone took on the politics of greed. Public sector workers have born the brunt of back-door incomes policies for two decades now, whilst shareholders and directors have carried on creaming off ever-increasing salaries and dividends regardless. The Institute of Directors should get their heads out of the pig trough long enough to take a look at the real world.

The Government isn't too happy about John's speech either. Gordon Brown, flying off to Japan today to save the world economy, was said to be "very angry". Ministers were "spitting blood". The minister who must be most annoyed at the moment is John Prescott, who was expected to go all the way to Blackpool to lecture the TUC. John was left to deliver the message that job losses in manufacturing were not the result of Gordon Brown's economic policies: "Don't try and tell me that it is all to do with the pound and British interest rates," he said, blaming the crisis in the Asian economies instead.

Of course the situation in the world economy has a major bearing on our domestic economy. Indeed, the situation is disastrous. Financial Times columnist Martin Wolf recently concluded a survey of the international economy by saying: "The world economy is being held up by its stock market boot-straps. It is no longer a question of asking whether this can last, but of praying for it to do so." Five days later the Wall Street stock market saw the second biggest points fall in its history.

Financial markets in the United States, Japan and western Europe had already started to shake weeks prior to the recent full blown crisis in Russia. Between their peaks in July and the end of August the most important stock markets in the United States and western Europe fell by 20 per cent, threatening to tip the entire world economy into recession.

These enormous shifts on financial markets are driven by fundamental international economic forces, as demonstrated over the summer by the increasingly obvious fact that the Asian crisis had not been contained, let alone rolled back. Instead, it was deepening and spreading outwards.

At the root of this is the crisis in Japan. The Japanese economy is still reeling from the strain of its effort at the end of the 1980s to rescue the US from the effects of the 1987 Wall Street crash. The gigantic flow of funds from Japan which were necessary to prevent a slump in the US at that time inflated an enormous bubble in Japanese financial and property markets.

When that bubble inevitably burst at the beginning of the 1990s, Japanese property and stock market values collapsed, undermining the entire banking system. As a result of the fall in the values of their assets in property and shares, Japanese banks are estimated to be holding $548 billion in bad loans.

Since spring 1995, the Japanese government has tried to escape from the resulting five years of economic stagnation by ultra low interest rates and devaluation of the yen. The effect on its domestic economy has been somewhat akin to pushing a piece of string. Economic output fell by more than 5 per cent in the first quarter of this year.

The devaluation of the yen from 1995 meant East Asian currencies tied to the dollar became increasingly less competitive, leaving Thailand, South Korea, Indonesia and other neighbouring economies running up burgeoning balance of payments deficits which became unsustainable. The financial crises and uncontrollable devaluations last summer were the result.

In the course of this unfolding drama Gordon Brown gave his now infamous diagnosis in his pre-Budget speech last November. It was amazing then that the Chancellor of the Exchequer was prepared to devote just one rose- tinted sentence of his keynote address to the world economy. It is even more amazing that this attitude to the wholly predictable international situation should form the backdrop to the government's economic policy.

Gordon's prognosis was, as Socialist Economic Bulletin pointed out at the time, absurdly over-optimistic. The policies which accompanied it - high interest rates and an over-valued pound - were wrong then and are totally inappropriate to the slowing world economy and intensified competition we now face. The UK is being pushed towards a sharp slowdown and possible recession.

That is why John Prescott must know that Gordon cannot get away with leaving ministers to go to trade union conferences and get them to dissociate the current job losses from his economic policy. Trade unions and employers have been saying for months that interest rates are too high. Some of us have been warning about this since the Bank of England was given independence over interest rate policy.

Even if John Prescott were right about the causes of job losses, the Government would still have to take John Edmonds's advice in cutting interest rates to tackle the high rate of the pound, because the devaluations in Asia are unleashing a wave of much cheaper Asian manufactured goods onto world markets. The high pound in those circumstances is like a fast acting poison on our exporters.

John Edmonds this week opened a new period for the unions, publicly urging the view that the government should carry out policies in the interests of its voters, rather than constraining itself with the political fag- ends of a discredited Tory era. John's key proposals - lower interests to tackle the over-valued pound, combined with taxation on the highest earners - are completely right. If trade unionists, Labour MPs and economists are prepared to run with John's initiative, I think it is likely that the labour movement will break out of its self-imposed constraints. I am sure too that the other John will have a few words to say to Gordon at the next meeting of the Cabinet.