A poster on the District Line at Earls Court inviting me to holiday in ‘the 24-hour Mediterranean city, Tel Aviv’ made me want to know more about the local economic impact of the war between Israel and Hezbollah. The rather severe-looking bikini-clad model in the poster is probably in uniform by now, and if Hezbollah’s rockets have reached her home city by the time you read this, the ferocity of Israel’s response will be terrible to contemplate. Israel’s economy had been expected to grow this year at more than 5 per cent, but pundits have slashed their forecasts, and international investors who had bought into Israel’s high-tech and pharmaceutical industries have been running for cover. The northern city of Haifa, which has been hit by rockets, is home to research and development facilities for the likes of Microsoft and Intel, but few factories in the region are able to operate normally. Analysts say the call-up of reservists is also likely to be a major disruption to business.
But all that is, of course, as nothing compared with the damage to the much smaller and more fragile Lebanese economy. Having begun to recover from a downturn after the assassination of prime minister Rafik Hariri in February last year, Beirut had been enjoying a property boom and was looking forward to its best-ever year for tourism, with some 1.6 million visitors expected to spend $2.5 billion. Those who had recently arrived have now fled, and the bombing of the airport has put paid to any short-term hopes of revival. The Lebanese are famously resilient merchants and financiers, and Beirut’s minimally regulated banking sector will no doubt continue to function as an important channel and repository for all kinds of Arab money. But the Lebanese government was already swamped by external debt, and only a massive international aid programme — with Saudi Arabis so far the biggest donor — can pay for reconstruction of the infrastructure that has been destroyed. As for trade, Lebanon’s exports consist mostly of fruit, vegetables and pharmaceuticals of the illegal kind: according to a recent analysis by Stratfor, ‘Hezbollah maintains a network of processing centres for turning Afghan opium into heroin, and methamphetamine labs in the Bekaa valley, with some opium and marijuana produced locally as well.’ No doubt most of that has been knocked out too.
A friend who has done business successfully — and honestly — in Russia for 15 years tells me that the Western media have misjudged the story of the oil giants Yukos and Rosneft. Yukos was declared bankrupt in Moscow last week, while its founder, the former ‘oligarch’ Mikhail Khodorkovsky, who dared to criticise President Putin, rots in a Siberian prison camp — and receives a largely sympathetic press from those outside Russia who think Putin is an increasingly dangerous autocrat. Rosneft came from nowhere and is widely described as having stolen most of its assets from Yukos, with Putin’s blessing, before floating on the London Stock Exchange last month. But my friend points out that Putin always made it plain that he believed the Yeltsin-era oligarchs, of whom Khodorkovsky was one, had stolen most of their assets from the state in the first place — a view with which few objective observers would disagree. Putin was prepared to tolerate the oligarchs’ robber-baron dominance of the Russian economy only so long as they did not interfere in politics. Khodorkovsky stepped over that line by financing a new opposition party, and was dealt with accordingly. As Yukos’s successor, meanwhile, Rosneft is a balancing force against the might of the state-controlled energy group Gazprom, and thereby a step towards a healthier capitalist economy. There are two sides to every story.
The Inflation Game
The Ferrero Rocher index is soaring, according to my friend the ambassador. ‘I don’t know how it is for you,’ he complained over supper, ‘but for the things I have to spend money on, the idea that inflation is running at only 2.5 per cent is absolutely ludicrous. I’d say more like 10.’ Trying to put a number on your personal inflation rate is the new game in town, and credit for inventing it must go to our distinguished contributor George Trefgarne, who pointed out in the Daily Telegraph the other day that the official Consumer Price Index is based on a basket of goods which is all very well for those whose spending priorities include cheap clothing, electronic gadgets and fast food, but bears very little relation to the commitments of the middle-class homeowner and parent.
I set out to find just how fast the cost of living is rising for the typical Spectator reader. Fuel bills and train fares are the most blatant inflation-busters, followed by council tax and household insurance. In London plumbers, electricians and babysitters have all jacked up their rates. A bursar tells me that school-fee inflation is currently ‘5 or 6 per cent, after a couple of years at 7 or 8’ — driven by rising salaries, heating bills and the cost of compliance with Ofsted and the Criminal Records Bureau. A Yorkshire quantity surveyor says that domestic contract prices in the building trade — for a barn conversion, say, or a granny flat — are also officially rising at 5 to 6 per cent, but in practice, because demand for decent builders far exceeds supply despite the influx of Polish tradesmen, expect estimates to come in at 10 or 12 per cent more than last year. My friend the psychotherapist says that an hour on her couch costs 9.5 per cent more than it did last year but ‘I’m worth it’ — and that her own reflexologist recently put her fees up by 20 per cent.
It looks as if the ambassador has got it about right. For confirmation, I raised the question in the Spectator editorial conference — but I’m not sure how much reliance to put on the data offered. One participant claimed ‘teenage friends’ had told her that certain hallucinogenic drugs — she was of course vague about the precise substances involved — are a lot dearer than they used to be, reflecting disruption of supply from the war zones. And Rod Liddle said he’d heard that ‘Hoare’s are charging a lot more this summer’ what with so many wealthy Middle-Easterners taking refuge in London. Maybe I misheard him, but I can find no evidence that the exclusive private bank in Fleet Street is doing any such thing.