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What would Keynes make of a looming no-deal Brexit?

16 February 2019

9:00 AM

16 February 2019

9:00 AM

‘It is seldom wise to sacrifice a present evil for a doubtful advantage in the future,’ wrote John Maynard Keynes as a precocious undergraduate in 1904. As we contemplate what no deal might be about to bring, those words seem to confirm the view of his living followers that the sage who died in 1946 (though usually labelled a free-trader) would have voted Remain.      But he was also well known as a pragmatist, so it’s worth asking what he would be telling us to do now, as the cliff-edge looms while UK GDP growth has already fallen to its slowest rate since 2012, at 1.4 per cent last year, according to the ONS. I wonder if he might repeat a dictum from his The General Theory of Employment, Interest and Money to the effect that if the Treasury were ‘to fill old bottles with banknotes’, bury them in disused mines and leave it to private enterprise to dig them up again, then ‘there need be no more unemployment and… the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is’.

That passage expressed Keynes’s belief in the value of infrastructure spending as a stimulus at low points in the economic cycle: scorned by monetarists these past 50 years, it is still widely practised by governments. And it’s not hard to see why. A frenzied burst of digging and building, with contracts let and jobs created and the result an impressive new set of showpiece projects, might have been a useful antidote to the uncertainties of the Brexit period. The trouble is that the method was actually last applied in the UK a decade ago, after the financial crisis, and the bottles buried back then have all, as it were, gone pear-shaped.

Here’s a brief round-up. Heathrow’s third runway: facing judicial review next month, with noise and air pollution campaigners in the ascendant. Crossrail: in such trouble that its new boss, Mark Wild, has said, ‘I can’t see how this job can be delivered in calendar year 2019; I don’t actually know when it will be delivered after that.’ Wylfa and Moorside nuclear stations: abandoned or ‘suspended’ by their contractors — while few observers would bet on timely, on-budget delivery for Hinkley Point, the only nuclear plant still under construction. Then there’s HS2, the fast-rail link to the north that may end up running slower and fewer trains no further than Birmingham, or no trains at all. Still awaiting ministerial ‘notice to proceed’ as its estimated costs continue to rise, it is under threat from chief secretary Liz Truss’s forthcoming Treasury spending review, in which she has promised to ‘junk the white elephants’.


So this most famous of Keynesian theories can hardly be tested this time round, because the current set of major infrastructure projects has all but fallen apart and this government has neither the confidence nor the resources to announce any new ones. But what else would the great man have had to say about no deal — and about the hard Brexiteers’ belief that it will turn into an invigorating moment of mercantile freedom? Back to that 1904 essay: ‘The fact that cataclysms in the past have sometimes inaugurated lasting benefits is no argument for cataclysm in general.’

Orcel’s cautionary tale

There’s a lesson for all boardrooms — and an echo of the lost era of big-bucks, big-ego banking — in the story of Santander’s withdrawal of its job offer to Andrea Orcel. The Italian-born former UBS and Merrill Lynch investment banker was named last September as the next chief executive of the Spanish giant that is Europe’s fifth-largest commercial banking group; but during his ‘gardening leave’ between employers, the deal fell apart. The amount Orcel was demanding in compensation for deferred rewards at UBS — some reports say €50 million — turned out to be way over the top for the Spaniards. And having previously known him only as a dealmaker on their behalf, they were evidently late to catch up with his reputation as a boss — on which I commend a Financial News article from October 2018 titled ‘Angry Management: the Dark Side of Andrea Orcel’.

Finally, vanity of vanities, Orcel and Santander chairman Ana Botín had a spat (according to the FT) over whether he could attend the World Economic Forum in Davos, at which both were high-profile regulars. The bank that got big by being shrewd and sensible under Botín family management ends up with huevos all over its face, while lawyers sort out the mess. Simple moral of the story: know everything about your candidate and nail every detail of his pay package before you announce the hiring. And have no truck with anyone who  asks for €50 million upfront.

A cheer for O’Leary

On the other hand, never let it be said that this column disapproves of rewards for performance. And in that context — indeed, especially in these gloomy times — it’s good to have news of our old friend Michael O’Leary of Ryanair, who was this week announced to be in line for €100 million if he meets a target of doubling the Irish airline’s profits to €2 billion or boosting its share price from €11 to €21 over the next five years. O’Leary will remain group chief executive for that period, with responsibility for ‘reducing costs and acquiring aircraft’, while a new appointee will run day-to-day flight operations under him.

All of which looks a bit brash in relation to two recent profit warnings and a Which? survey that named Ryanair as the UK’s least-liked shorthaul carrier for the sixth year running. Passengers love to whinge about cattle-truck boarding, uncomfortable seats, changed baggage rules and refused compensation — but 140 million of them will take Ryanair flights this year that will get them where they want to go, cheaply and (in most cases) on time. O’Leary once described himself as ‘an obnoxious little bollocks’ and he probably is, but he’s the leader of a European travel revolution and I hope he collects his nine-digit bonus.


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