Bill Jamieson: Whisper it, but are they the famous green shoots?

Published on Thursday 2 April 2009 22:18

TODAY, there are ten reasons to be hopeful. And there are three for wishing that the G20 summit falls short of all of its ambitions. Since hope is always worth waiting for, let me first set out the dangers in the G20 "solutions".

On regulation, we are being asked to place huge faith in the concentration of financial power in the hands of government. In Britain, government is now the banking practitioner, major shareholder, regulator, legislator and court of appeal should its activities in any one of the areas be found wanting.

This is putting in place a Leviathan state. It worries me that the separation of powers on which a pluralist economy and society rests now barely registers as a concern.

The problem is not with regulation per se. It is that greater regulation is subject to a law of diminishing returns. Too much of it, and you inhibit and crush the creativity and innovation essential to hauling the global economy out of this storm.

In the UK, the regulatory state to which we seem to be headed appears to be one in which the supervisor pushes for ever fewer banks and building societies – a universe much easier to control but one counterintuitive to the desire, post-crash, for smaller, less monolithic, more accountable financial institutions.

In any event, no regulatory agency can encompass, nor its encyclopaedic code of conduct inform, the supervision of every human impulse and action in markets. Indeed, the danger is the rules become so prescriptive that government itself finds it necessary to suspend or circumscribe them to attain its own ends. This portends something worse than a regulatory Leviathan – a regime of regulatory caprice. We will not know, one month to another, which "copper-bottomed" rules and regulations are applicable or not, whether they are enforced or not, and whether they are permanent or not.

Caution is also needed on the campaign against tax havens. Most tax "avoision" takes place in the very countries most active in the campaign against tax havens. And that campaign has never more smacked of a concerted determination by high-tax jurisdictions to bear down on, bully and drive out of existence low-tax ones. We should take care, in the exhortations to eliminate tax competition, we do not enforce a tax "race to the top".

But surely we must do something, and without the G20, the world will be helpless against this savage and deepening recession? Such summits can and do have value in enabling governments to co-ordinate action and to exchange information on the best route forward. This is particularly true in the field of trade finance, where extra help has been agreed.

Calls for further fiscal stimulus – particularly from governments up to their necks in debt – need to weigh more carefully the risks of a subsequent upsurge in inflation, killing the very recovery we all want to see. Nor should they be blind to the massive fiscal and monetary stimulus in hand.

And here I come to the ten reasons to be hopeful. Because, in the past few weeks, there have been signs that the downturn in activity is starting to ease – a necessary precursor to the stabilisation and eventual recovery that the G20 seeks to achieve.

In America, figures this week showed a slowing of the pace of decline in factory activity.

There are also signs of a pick-up in new orders, with Institute of Supply Management's new orders index rising last month to its highest level since August.

On Wednesday, the US commerce department reported the drop in construction activity in February was 0.9 per cent, substantially less than the 1.5 per cent fall that had been predicted.

Also in the US, the keenly watched house sales index showed contracts to purchase – not just expressions of interest – rose 2.1 per cent in February. Hopes are growing that home sales, while still severely depressed, may be showing signs of life. Sales of existing homes rose 5.1 per cent in February – the largest increase in almost six years.

In Europe, the rate of decline in manufacturing eased last month, with France and Germany showing tentative signs of stabilisation. Here in the UK, manufacturing activity fell at a slower-than-expected pace in March.

In the deeply stricken housing market, the number of mortgages approved rose 19 per cent between January and February to the highest figure since last May. The value of these loans was up 18 per cent to 4.5 billion.

The Bank of England's Credit Conditions survey reported an improvement in credit for companies and that consumers had repaid a total of 245 million of consumer credit in February against a net borrowing rise of 165 million the month before.

Then, yesterday, the Nationwide Building Society reported UK house prices rose by an unexpected 0.9 per cent, after falling by 1.9 per cent in February. Here in Scotland, there are tentative signs of stabilisation with the Edinburgh estate agent Rettie recording last week its best sales results in the past 12 months.

Finally, there is a continuing, if fragile, stabilisation in world stock markets from their February lows. The FTSE 100 index is up 17 per cent from the low point hit last month, with much sharper improvements in bank and financial shares.

These tentative signs of stabilisation – emerging well before the G20 gathering and the war of words over the final communiqu – give hope that we may have stepped back from the "Armageddon scenarios" being forecast just a few weeks ago.

They do not, in themselves, signal an end to the massive "toxic debt" mountain, still less to the onset of recovery. Indeed, because of cyclical time lags, unemployment and company failures are set to get worse before they get any better.

But they should help give a desperately needed boost to confidence. And without a return of confidence, there is little more that governments, regulators and the combined forces of the G20 can do. Recoveries always take time. One falsely induced would betray all hope.