At the end of June the Labour Party's Economic Policy Commission presented a consultation document called ‘A New Economic Future for Britain: Economic and Employment Opportunities for all’. This assessment of Labour's current policy position is based mainly on that report. It has benefited from discussion with representatives of the Institute's Corporate Members and with the Editorial Board of the Review, but the views expressed are my own. I look first at the general philosophy underlying the policy statement, and secondly at the specific proposals it contains.

Most of the economic news since our last forecast in May points to an earlier reduction in the rate of economic growth in the UK than we had been expecting at that time. At the aggregate level, GDP growth for the first quarter of the year was revised downwards slightly to 0.7 per cent and growth in the second quarter is estimated to have fallen to 0.6 per cent. Recent business surveys indicate less optimism than was apparent in the earlier part of the year. Other recent figures are indicative of a lack of optimism among households: the weakness of retail sales has continued, house prices have fallen again and the decline in the level of unemployment has abated. A similar pattern is being observed outside of the UK with growth falling more quickly than expected in most of the G7 countries.

The early part of 1995 saw considerable turbulence in the foreign exchange markets, resulting in significant currency realignments. Relative exchange-rate patterns have not changed very much in the last three months, and the effects of the real exchange-rate realignment are beginning to be felt, with growth slowing in those countries whose currencies appreciated, and inflationary pressures building up in some of the countries that depreciated. In addition to the destabilising effects of the realignment, signs are beginning to emerge that growth is slowing of its own accord throughout the OECD, particularly in North America. The recovery also appears to have become somewhat more hesitant than we had anticipated in Germany and the UK, although other European countries are continuing to expand at above trend rates. The fragility of the Japanese financial system has been clear for some time, but the potential scale of bad debts is only now becoming known, and this appears to be having a deleterious effect on both financial and consumer confidence.

This article analyses the properties of five major macroeconometric models of the UK economy in the light of the current debate over the setting of monetary and fiscal policy instruments. The broad objectives of current policy—sound public finances and low inflation—are reflected in a common operating environment for the models, with feedback rules for income tax and interest rates. Five standard simulation experiments demonstrate the consequences of these policy choices. The models disagree on several implications of this new policy framework, a critical parameter being the speed with which financial imbalances are rectified and inflation targets are met.

This article deals with hysteresis in the fundamental equilibrium exchange rate (FEER) arising from misalignment. When the actual real exchange rate departs from its FEER value, current account realisations—and consequently, debt service obli gations—will differ from those assumed in the initial FEER calculation, necessitating its recomputation. The article derives a formal expression for this hysteresis effect in the FEER, and derives and applies rules of thumb for computing the hysteresis effect when considering the rate of approach of an exchange rate toward its FEER value.

Both those who are critical of the current structure of corporate governance, and those who support it, share a common set of prenaises. The corporation is owned by its shareholders: managers exert power and responsibility on behalf of their shareholders: corporate governance is a question of effective accountability to shareholders. If there are problems, they should be dealt with by making these mechanisms more effective. This article challenges that view.

The principal-agent model bears no relationship to the way large companies are actually run. The attempt to bring reality in line with the model is one possible road to reform: another is to adjust the model to reality. Shareholders do not own large companies, in any ordinary sense of the word own. Firms like BT or BP are social institutions, owned by nobody. The distinction between plc and the owner managed limited company should be real, and not just titular. Corporate managers are not the agents of the shareholders, but the trustees of the assets of the corporation, which include its reputation, its distinctive capabilities, and the skills of the employees and suppliers. Their objective should not be to maximise shareholder value but to further the interests of the business.

This account is probably a better description of the current state of British company law than the principal-agent model, but we advocate a new company statute to put the matter beyond doubt. Disposing of the fiction that executives are the agents of shareholders allows us to establish an effective system for achieving the key goals of corporate governance: freedom for managers to manage, combined with real accountability for their performance. We advocate a fixed four-year term for company chief executives, involving a wide ranging and searching review of effectiveness which would involve not only directors and shareholders but advisors, associated companies and employees.

It is better that property should be private, but that man should make it common in use …. it is the task of the legislator to see that the citizens become like that. Aristotle