The sale of gold was our darkest hour
Gordon Brown: The case against
I have torn up my 50-year membership of the Labour Party because of the government's handling of the sale of a significant part of Britain's gold reserves. An esoteric issue? Not a matter of great principle? I don't think so. I do not fool myself that my puny resignation will make a blind bit of difference to the party, let alone to a government riding high in the polls. I nevertheless hope that it mig be described as a scandal.
It is a scandal for a number of different reasons. First, its effect on the lives of tens of thousands of ht produce some reaction from Labour and other MPs who have so far shown no interest in - or even much awareness of - what can onlyAfricans in South Africa and elsewhere on the continent. Five thousand miners lost their jobs on the ERPM mine when the gold price plummeted on the news that Britain proposed to sell 125 tonnes of its gold reserves. Since each miner has an average of six dependants, some 30,000 black South Africans have been directly affected.
Second, the Chancellor's decision had a strongly negative impact on the economy of countries such as Zimbabwe and Ghana, as well as halting the exploration for gold in some of the world's poorest nations such as Mali and Eritrea. Over 30 of the world's indebted countries depend to some extent on the export of gold.
Third, the methods adopted by the Treasury for the sell-off have already cost Britain an arm and a leg. Tony Blair's response to Tory questions about the sale was that it would guard against the possibility of a loss in the value of the reserves. This fear was triggered by the prospect of an IMF gold sale to finance third world debt relief.
The fear proved groundless, for the US Congress had opposed the IMF sale, and that was enough to veto it. Therefore the expected fall in the gold price was already effectively off the immediate agenda. In the end Britain went ahead on its own. The announcement of its intention to sell, on 7 May 1999, precipitated a dramatic fall of $30 per ounce to a 20-year low.
So much for the government's commitment to international co-operative action and the protection of the interests of poor countries.
Two South African delegations were dispatched to London to try to persuade the British government to think again. One comprised high-level cabinet ministers, supported by the Ghana government; the other was made up of representatives of the Gold Producers' Committee and the predominantly black Mine Workers' Union. After seeing the loss of 17,000 jobs on the gold mines in the past five years, the union was in desperate negotiations to save 5,000 jobs on the ERPM mine.
What South Africans have found hard to forgive is that neither the Prime Minister nor the Chancellor found the time to meet either of these delegations.
No country is insulated against international fluctuations in the price of its materials or minerals. It was argued at the time that the value of gold is in secular decline, and South African mines, some of them only marginally profitable, must learn to adapt. As it turns out the speculation about the inevitable fall in gold prices was over-pessimistic. In any case, it was no secret that the South African government, the mining industry and the unions have been co-operating in a Gold Crisis Committee to find ways of coping over time with the phasing out of less profitable mines. At this vulnerably early stage of their efforts - in a newly democratic country with an inherited unemployment rate of 30-40 per cent - the precipitate shrinking of the mining industry is potentially disastrous.
The gold scandal is not only a sob story. It illustrates a disturbing ethnocentrism at the heart of British politics. The Labour Party's manifesto committed an incoming Labour government to special concern for poor countries. Yet the sell-off of gold has had the immediate effect of undercutting the value of aid to half a dozen poor countries and hundreds of thousands of very poor people. In the case of the ERPM miners, the men dismissed received only one month's wages plus leave pay and a small sum from a ten-year-old provident fund.
The Treasury's blundering has cost the country dear, for the price of gold rose in September from $307 to $317.25. The effect was the loss to Britain of $80 million.
So much for the advice of the mandarins. But the Chancellor must take the blame for this disgraceful chapter. I have not heard the sound of any heads rolling in the Treasury - but then they don't in the Treasury, do they?
We are left with the much larger question of the need to bring order to the gold market. So long as gold has a place in international transactions, it is in everyone's interests to establish a credible, internationally regulated mechanism, representative of both producers and consumers.
This is not happening at present because the Americans are unwilling to contemplate the proposals currently under discussion. Since they are now the undisputed imperial power of the globalised world, nothing can happen without their agreement. As they hold more gold in Fort Knox than any other country it is in their interest to bring stability to the gold market. It is a moot point whether what they are prepared to accept will benefit or harm the world's 41 gold producers.
The author is a former diplomatic editor of the "Observer"