If you had stayed at a room in Tokyo’s Imperial Hotel in 1965 it would’ve cost you ¥2,500 – the equivalent of £2.50. If you stayed there today it would cost ¥26,600.
If the exchange rate hadn’t changed since the 1960s, that would mean a sterling cost today of £26.60. But as Robert Brooke of Halkin Services points out, the exchange rate has changed. Due to the fact that the pound has lost 89% of its value in the last four decades or so, the room will actually cost you £227. We regularly devalue the pound, says Brooke, telling ourselves it can only make things better. When Harold Wilson devalued in 1967 he did so claiming that it would address the root cause of Britain’s financial problems. So far, “history has proved him completely wrong”.
Yet today we tell ourselves the same story. The pound has fallen 25%-plus in trade weighted terms since the financial crisis began. The general view from the authorities is that this is a good thing. We’re lucky we still have the ability to make ourselves competitive and to stimulate our manufacturing and export industries in this way, they say. They may be right (although I see little sign of it). But what they rarely do is mention the impoverishment that comes with regular devaluation.
Take energy. The oil price has fluctuated wildly in the last ten years, but our weak currency has us paying more than anyone else for it. According to numbers from energy consultancy GEOS, the price of oil has risen by 394% in euro terms since 2001, by 463% in US dollar terms and by 552% in sterling terms. That’s why, even as other people worry about deflation, the UK still suffers from high consumer price inflation.
Our cavalier attitude to our currency comes back to bite us every time we turn on a light, climb into a car, or try and manage costs to keep a business going. Does it have to be like this? I doubt it. We’re addicted to the idea that the solution to all economic problems is a weaker pound. But given the failure of the policy we might think about having a go at being more like Switzerland. In 1965 a Swiss Franc was worth ¥83-¥84. It is worth about the same today and, as Brooke says, “it is not obvious that Switzerland has been made poor by this policy of maintaining the value of its currency”.
Finally, I think one thing we can all agree on is that if we want to find a way back to growth we have to encourage fast-growth companies. But what kind of people will run them? And how do we encourage them? I interviewed one of Britain’s busiest entrepreneurs, Luke Johnson, to get to the answers to these questions. It was an interesting conversation – you should enjoy it. But I think that you will also agree that we don’t end up with good answers. That’s proof, perhaps, that while failure is easily explained, what creates success is rather more elusive.