Author: johnredwood

Dear President elect

Congratulations on your election. As one of the few UK and European politicians who did not seek to interfere in the US election or seek to regale a little interested world with my views on the candidates, I can now say I was impressed by your wish to see more rapid economic growth with more jobs, higher incomes and lower taxes. I understand the wish of many in the USA to see the US make more things for herself, to enjoy rising living standards, and to benefit from a modernising and expansion of US utilities and transport systems.

Your tax reforms should generate more corporate income onshore, and more jobs and individual income. There will be a laffer effect, as more activity generates more revenue despite the lower rates of tax. You will doubtless be told this will be small or insignificant. I trust you will have good advice to make a sensible case so foolish forecasts of ballooning deficits are not used to thwart reasonable reforms. In the short term the tax breaks may well lower individual and corporate income tax receipts, but repatriating substantial sums from abroad could offset these early effects.

The large infrastructure programme can be substantially financed in the private sector, where the US has a tradition of user charges and tolls. This too will help keep down the debt and deficit consequences which will otherwise concern fiscal Conservatives. The right investment can help boost productivity, the way to higher real wages. Supporting more locally produced energy will also help boost jobs and manufacturing. These proposals need to be the cornerstone of the early actions of the new Administration, to use the political advantage of the election result for something which should draw support from across the divide, and which takes time to bear fruits for electors to see.

I was also interested to hear and read of your scepticism concerning past military interventions in the Middle East, just as I have been worried that my country has joined in common actions that have not left behind or helped create new stable regimes or bring about peace. I am sure you share many western concerns about the intents and actions of Russia, but it may well be better to draw Russia into dialogue as Mr Obama was seeking to do in recent days given some common ground on Islamic terrorism. There is war weariness and concern amongst many of us in the west about past military actions which have not left societies at peace with functioning governments.

I wish you every success in choosing good people to run your Administration, and in pursuing the path to prosperity and peace.

Yours sincerely

John Redwood

Why did you let the banks expand credit far too much prior to 2007?
Why did you bring several banks down by refusing liquidity and not backing schemes for bank recovery,leaving others badly wounded in 2007-8?
Why have you gone for Quantitative easing and ultra low rates, which damages small savers and helps the super rich at the expense of everyone else?
Why didn’t you get on with the task of encouraging and enforcing recapitalisation of the banks so we can have a normal credit creating system again capable of financing recovery?
Why did you bring down a dictator in Libya without having a plan to rebuild a better government and society?
Why did you go to war in Iraq?
Whose side are you on in the Syrian civil war, and how is western military action helping?
Can you bomb people into accepting democracy?
Why did you back the Exchange Rate Mechanism, the Euro, the Remain campaign and the Clinton campaign, and what do you think of how they have done?
Why should people trust the economic and political judgements of the World Bank, the EU, the IMF, the Bank of England and the rest when they have got so many forecasts wrong?

There is one theme in common between the very different Brexit and Trump campaigns. Both drew strength from the growing hostility to global government, global treaties, neo con military interventions. Both challenged the arrogant assumption of superior wisdom and moral right adopted by a gilded elite flitting between the large corporations, quangos and governments of the advanced countries, claiming they know best and should be allowed to get on with it unchallenged.

In the case of the UK there was a strong feeling that a largely unaccountable use of power by the EU institutions was not what electors want. We accept that national governments make mistakes and may annoy us, but they are mistakes we can criticise and do something about . They are governments we can persuade to change or politicians we can remove from office if they stubbornly persist in doing the wrong things. We have little power or influence to change EU taxes , budgets and laws, and find that the rigid Treaty based legalistic approach makes normal democracy impossible. This is even more true for Euro members as Greece and its chosen government, Syriza discovered.

We remember the litany of disasters the so called experts and elites have visited upon us – their Exchange Rate Mechanism recession, their Banking crash slump, their Euro with running crises attached, their dear and intermittent energy which often produces more carbon dioxide overall, not less. On both sides of the Atlantic politicians struggle to explain why lower incomes remain depressed and why so many jobs have been exported abroad.

In the USA there was a feeling that their Washington elites – of both major parties – have embedded too much in global treaties too. They felt their trade and global warming treaties did not take into account the need for more and better paid jobs at home, and the important role cheaper energy plays in industrial renaissance. In both countries there was an anger about the elite idea that we in the west know best how Syria, Iraq, Afghanistan and other Middle Eastern states should be governed, and have a moral duty to bomb their cities and train rebel groups in those countries to effect violent change.

The gilded elite lacks awareness of its own moral insensitivity. Why did Mrs Clinton think it a good idea to spend valuable campaign and air time in the last week fraternising with rich celebrities, rather than making it her business to see what she could do for out of work steelworkers or middle income Americans facing huge health insurance premium hikes from Obamacare? Why did she think it right to organise a large fireworks celebration of her victory before she was secure in that aim? Why did she not see that the big money she raised from corporates for her campaign posed presentational problems and would not guarantee victory just because she had more cash to spend than her rival?

There are so many examples of the elite rewarding itself too generously from public funds, living on donations from companies whilst claiming they have bought no influence, and meeting in private gatherings where the corporate financiers of it all can rub shoulders with the political leaders. If the governments do not deliver what people want, voters get suspicious of these methods.

Mr Trump’s slogan “Drain the swamp of Washington” resonated. It will be interesting to see if he can do it. A good start would be tough limits on how much a candidate can spend in an election, just as we rightly have here for individual constituency campaigns.

When we leave the EU we will be able to change our procurement rules for the public sector. I would like to see a greater presumption that we buy things from local and UK suppliers where there are appropriate goods and services available with more than one competitor for the business.

We can under EU rules buy more from the UK in the area of defence. It us good that our new aircraft carriers, for example, are being built in the UK with UK steel.
Yet we are buying armed vehicles from Germany, and the steel for our subs is coming from France. The Defence department should work harder to make sure we have the capacity here to meet our needs. Surely an order for 800 armoured vehicles could provide sufficient workload to offer a worthwhile invetsment for a UK factory?

The UK is a huge importer of many things needed to build homes. We import large quantities of tile, bricks, kitchen and bathroom assemblies, central heating boilers, taps, valves, copper pipe, and many aluminium and steel items. As the government and Councils are large builders in their own right directly and through the Housing Associations why not demand a higher UK component in the new homes, or choose specs which UK businesses have a chance of delivering?

I am always struck in France at how much public procurement there buys French, even whilst operating the EU rules. Freed of the EU rules we should be able to do better than our neighbours in this crucial area.

Let’s have another go at explaining why many of us want to leave the so called single market, whilst having access to sell into the EU internal market.

As Single market Minister who “completed” the single market in 1992 according to EU false statements at the time, I remember an endless procession of businesses lobbying me to water down, delay or scupper law after law the EU thought necessary for more trading. Business did not see these laws as helpful on balance when they were being brought in. The one that would have made the London Stock Exchange’s trading system illegal was a good example of the kind of problem we encountered. Having a Eurosceptically inclined Minister was a reassurance to them that I would battle to avoid disaster for them.

As a past Chairman of two global manufacturing businesses I always found it easier to do business in the USA and Asia than on the continent, despite the alleged advantages of the single market. As a Company Chairman I did not use my position to intervene in the political debate about the EU and its market. I was very conscious that I had responsibility for many livelihoods, that I represented employees of all political views, and had to sell to customers with an equally wide range of views. I kept the companies I led neutral on politics, and did not seek to know an individual’s politics or discuss UK party politics with employees.

When trying to do business on the continent I sought to select executives keen on the EU project with the necessary language skills to speak to each target market in their home tongue. Where possible we recruited nationals of the country concerned, as we were well aware of the cultural and linguistic barriers to more EU commerce. Despite this it usually proved impossible to sell manufactured product into Germany, even where we had a technical or competitive advantage that was appreciated in many other places.

It is true some of the businesses I was involved with in the past had complex supply chains involving procurement from places on the continent. They also had procurement from India, China and the USA as part of the supply chain. There was no noticeable greater complication in using the non EU parts of the supply chain. All was judged on assessment of value for money, seeking high quality at affordable prices.

I did not find the so called single market helped us much and were I still in post I would not be too worried about departure from it. I did find the European Exchange Rate Mechanism did a lot of damage with the recession it caused, and always avoided business in countries like Greece, Portugal and Spain given the damage being done to their economies by the Euro.

All year I have been told that Brexit could not win, and Mrs Clinton was a shoe in. All the clever and well educated people were quite sure of these “facts”. They were critical of anyone who suggested UK voters might want to leave the EU, or who dared to venture there might be quite a lot of support for Mr Trump. They were confident because the pollsters told them their preferred outcome was going to happen. They were unsighted on the attractions of the alternative view, leading them to believe someone would have to be stupid to vote for it. They assumed their priorities including freedom of movement, tackling climate change, intervening in Middle Eastern conflicts and the rest were also the preoccupations of enough other voters.

I predicted the UK vote for Brexit correctly because I listened carefully to opinion outside London and Scotland. My only surprise was that the vote was not even higher to leave given the mood and opinions of the majority. Doubtless the tragic death of an MP towards the end of the campaign, and the relentlessness of Project Fear clipped some support from a popular cause. I did not call the vote for Mr Trump because I am not an American voter, and I did not visit the USA to hear for myself on the ground what people were thinking. I did however think it quite likely Mr Trump would win. I was always careful to write about his candidature as a serious one which might win.I afforded equal protection to Mrs Clinton and Mr Trump from bloggers who wanted to be disobliging about them.

I formed this view of Mr Trump’s campaign from reading his website and comparing it with Mrs Clinton’s. Both were professional. Both contained serious policy recommendations. His was more focused, and spoke to the main issues US voters were likely to worry about, hers was wider ranging, lacked focus, and did not seem to grasp the concerns people had about their jobs, their wages, and the security of their local communities.

Last week I asked UK observers of the election who generally thought Mrs Clinton would win to tell me what the slogans were of the two campaigns. Most could name “Making America great again” for Mr Trump. Most struggled to remember either “Stronger together” or ” I’m with her” for Mrs Clinton. That summed up the impact of the two campaigns. Mr Trump had a popular optimistic slogan which could mean what the voter wanted it to mean. Mrs Clinton had a self serving slogan about her which did not cut through. Mr Trump offered people no tax on income below $25,000 a year, and the promise of more jobs from putting America first. Mrs Clinton’s offers were more detailed and diverse.

If the media, the pollsters and the establishment commentators want to be taken seriously, they have to remember the fundamental principles of democracy. Any main candidate running for office might win and deserves a fair hearing. Whilst I am the last person to say commentators should not be partisan, a good commentator understands the other point of view and seeks to explain it as well as criticise it.

The worst feature of some reactions on both sides of the Atlantic is the one where people say “He is not my President” or refuse to accept the verdict on Brexit. I wonder if the next move of Mr Trump’s critics will be to claim the US election was just an advisory vote which does not entitle him to assume office as the wrong person won? Or will they go off to the courts to try to block the decision?

I was on the losing side in General elections in 1997, 2001 and 2005. I thought it was a fair cop, given the damage the Conservative government did with its fashionable establishment policy of belonging to the ERM. I accepted Labour’s right to govern and to implement their Manifesto. I with colleagues took up the task of opposing where we judged it wrong, or where we thought it could be improved. We never said the elections were wrong or Labour had no right to govern. I often agreed with what they were trying to – I became, for example, a fan of much of Mr Brown’s tax policy.

The President elect’s Acceptance Speech looks forward to a substantial investment programme in US infrastructure, and better foreign relations. I look forward to learning more of what he promises for the world economy, and how he intends to alter US foreign policy towards the Middle East and other areas of stress and conflict. I will write about it at greater length when more material is available concerning his plans.

It looks as if the Republicans have done well by keeping the House and Senate, and Mr Trump may well win the Presidency.

Congratulations to them all. The UK looks forward to working with the new administration, and will welcome moves to reflate the US and world economies. We all need more and better paid jobs, which could be assisted by lower tax rates and fairer taxes which large companies actually pay.

The one good thing about the US election is at last we have an event other than Brexit that people think matters and may move markets. Even the commentators with Brexit distorting glasses stuck on their noses might notice this. I have kept out of the merits of the candidates, as the USA does not need foreign help to make up its mind. I am certainly not going to go into the intricacies of their characters and the various charges made against each, in what has been a campaign dominated by character issues on both sides. It is, however, now appropriate to look at what each candidate might mean for the wider world economy and markets.

There has been precious little proper analysis of what the two different candidates would do if elected. Investors say they want Hillary Clinton to win, and suggest markets might rally a little if she did. They usually go on to say they think her proposals on healthcare and banking would be negative for those sectors. They tend to dislike her more protectionist rhetoric post the Sanders challenge, her more regulatory stance, and even her greater hawkishness towards the Middle East than Mr Obama. In other words, they are mainly optimistic about her winning and the consequences of her victory in general terms, yet they seem to dislike much of the small print.

They have the opposite view of Donald Trump. They are highly critical in general terms. They are worried by his stance on migration of labour, by his tougher rhetoric towards Chinese trade and by his hostility to various trade deals, as well as often referring to character issues. They expect a Trump victory to lead to a loss of confidence and a sell off. They tend to ignore his proposals to cut corporate and individual taxes, to seek to repatriate large sums of offshore company cash, and to increase infrastructure spending. Hillary Clinton also wants to give an infrastructure spending boost. Several of Mr Trump’s proposals would normally be welcomed by investors if coming from someone else.

Either candidate is likely to seek to reflate the economy some more, by spending more and borrowing more in the short term. Mr Trump would seek to supercharge this with large tax cuts. Both may experience difficulties in getting their various economic packages through the Congress and Senate, but the direction of travel towards more reflation is clear. Given the reasonable performance of the US economy this year, this may generate modestly higher interest rates. It should also be helpful for the wider world economy.