ABSTRACT
I believe that we can and should use the experience we have gained to build a more permanent regime of managed floating. I do not see the last two years as simply a passing phase. Our objective should be clear: to maintain the maximum stability of key exchange rates, and to manage any changes that may be necessary in an orderly way.(Nigel Lawson, 30 September 1987, quoted from Economic Progress Report no. 192, HM Treasury, p. 11) INTRODUCTION
In what was perhaps an unfortunate piece of timing, the UK Chancellor of the Exchequer made the above remarks when addressing a joint annual meeting of the IMF and the World Bank just three weeks before ‘Black Monday*, 19 October 1987. Black Monday not only heralded the most sudden collapse in prices on the world’s stock exchanges, but also led to one of the most disorderly retreats from the Chancellor’s aspirations seen in the post-1970s period. The international value of the US dollar tumbled out of control for several weeks despite initial attempts by the European and Japanese central banks to stabilise this fall. It also quickly became clear that the US authorities, despite agreements made to the contrary earlier that year at the Louvre accord, stood aside and let the decline go on. Indeed, they may even have encouraged it.In this chapter I explore how this came about and what might be an appropriate reaction to it from those on the left. Why is a Chancellor with perhaps the most respected monetarist and free
market credentials of any in the UK’s post-war experience calling for the ‘management’ of a ‘floating* set of exchange rates, with all its attendant intervention ary implications? How are domestic stock markets linked to international concerns and in particular to movements in the exchange rate? Why are accords and agreements made about economic co-operation between countries so readily and easily jettisoned at just that moment it might be thought they would be most sensibly implemented?Any response to these questions requires that we come to terms with the dram atic changes that have characterised the international economy in the post-war period. But the left has yet to fully adapt to the realities of this newly unfolding international economic system that it still finds deeply disturbing. However, we shall see that these changes require significant rethinking of the left’s traditional hostility to multinational corporations and of its positions on protectionism and autonomy, and on the importance of national econom ic m anagem ent in re la tionsh ip to international co-ordination. The next section analyses some of the pertinent changes in the post-war international economy as a prelude to addressing these issues.
