“Buy British” drive takes a dead-end turn

‘The Foreign and Commonwealth Office has been criticised for failing to buy British-made cars for its major embassies … Only three of 17 cars in the Washington and Brussels embassies were made in Britain’ Financial Times, May 29

Gosh. So David Cameron should always travel in the back seat of a Land Rover on overseas visits?

It seems so. Support the British car industry and all that.

We haven’t had a British car industry since the Austin Allegro.

Not true, the industry is doing rather well at the moment.

If it’s all going so well, who cares what the prime minister drives?

Lord Jones, former trade minister, does. He says the whole business is an outrage. Still, it’s odd. I cannot imagine the Germans worry too much about Angela Merkel’s choice of official car; the Germans have a bit more confidence in their car industry than we do.

There’s a reason for that.

Maybe so. I think Lord Jones would like us to avoid self-inflicted wounds. If Mr Cameron rides in a foreign marque, perhaps it suggests that no matter how hard we try, the British are unable to make a car worthy of a prime minister.

It’s not just about avoiding embarrassment – there’s free advertising, too.

Give me a break. People care what Lewis Hamilton drives but no one ever bought a car because they saw William Hague being driven around in one.

Then there is the direct support of the car industry. Douglas Alexander, the shadow foreign secretary, says we should be doing everything we can to support great British companies. Perhaps we should get serious here; I’ve heard it said that the Italians spend absolutely colossal sums on chauffeur-driven cars.

I’ve heard that said, too, including by Italian officials, but such tales turn out to be wildly exaggerated, partly because “official government cars” is a category that turns out to include the local council minibus.

Are you saying that government purchases can’t stimulate British industries?

In aggregate they can deliver a classic Keynesian stimulus, but that is not what we’re talking about, is it? What Mr Alexander seems to want, if he wants anything more than a sound bite, are government purchases as a form of industrial policy. The idea is that the right purchases can help to support fledgling innovative industries. It is not impossible to get this right – the US military effectively created the internet and one would need an awful lot of failures to outweigh that one achievement. But it is tricky. After all, if we’re talking about products that the government will purchase but the private sector won’t touch, I’d want a pretty good explanation of why that was supposed to be a good idea.

The government could at least encourage everyone else to “buy British”.

An intriguing concept. But I don’t understand how this would support the British economy at all. Imagine the whole country collectively agreed not to buy fancy foreign muck unless it was at least 20 per cent cheaper than a comparable British product. Imports would surely take a beating. Assuming the rest of the world simply ignored our silly British ways and did not retaliate, exports would – at first – be unaffected.

Isn’t reducing imports exactly the desired effect?

But such an imbalance of exports and imports would not last. British exporters, flush with the foreign currency they had earned, would seek to spend it, or to find somebody else who wanted it. No one holding pounds would be terribly interested – everyone has, after all, agreed not to buy foreign products unless they are particularly cheap. The only way to get pounds in exchange for dollars, euros and yen would be to offer a premium.

In other words the value of the pound would have to rise.

Of course. And after it had risen a respectable amount, those foreign products would be cheap enough to buy again. Imports would recover.And exports would suffer from the stronger pound.They would and the eventual result would be that we would still buy some foreign products. To the extent that British domestic substitutes flourished, there would be an equal and opposite effect on British export industries.

So there’s no point in a “Buy British” campaign?

You might just as well run a “screw British exporters” campaign.

2nd of June, 2012 • Since You Asked • Comments off