UK: Undermanaged, underdeveloped, underinvested, undereducated ... sinking Britain. (2 of 4)

UK: Undermanaged, underdeveloped, underinvested, undereducated ... sinking Britain. (2 of 4) - In short, the remarkable thing about the 1980s is how little they changed the macro-economic picture. The problem of the British economy remains low output gro

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Last Updated: 31 Aug 2010

In short, the remarkable thing about the 1980s is how little they changed the macro-economic picture. The problem of the British economy remains low output growth, accompanied by low investment and low wages, with a persistent tendency for imports to rise faster than exports. The solutions too have a familiar ring. According to NEDO director general Walter Eltis in a memo last year: "The UK needs substantially to improve its manufacturing trade balance, so from now onwards it will need to perform considerably better than the OECD average and it will also need to improve on past trends." In engineering, disproportionately important both as exporter and as supplier of investment goods to the rest of industry, the UK, according to Jordan, has declined so far that "a dramatic growth in output of up to one third is required to rectify the balance of trade deficit and provide the necessary clout to succeed in world markets".

Are these realistic hopes? The answer depends on the relative optimism with which you view the structure of the productive economy, the ability of the supply side to master its own fate, and the capacity of the Government to manage the economy significantly better than it has done in the past.

As to structure, the key question for the UK economy, spells out Eltis, "is whether the things that we trade have a high enough value added to pay the wage levels of the successful European labour force that our employees aspire to; and whether in those areas advantage is sustainable". The worry here is that the high added-value sectors where the UK currently has comparative advantage - notably financial services - offer little employment potential and are easily copied. On the other hand, sectors which provide both sustainability and employment, such as high-quality engineering or microelectronics, are much harder to muscle in on.

One reason is the importance of accumulated learning in manufacturing success. The primacy of learning explains why it is almost impossible to recreate a sophisticated industrial sector once lost - except through direct foreign investment. When you stop doing, you stop learning. If Rolls-Royce had been allowed to disappear in 1971, would the country be in aero engines today? In this context a clearer role for services suggests itself: not as an independent, stand-alone sector but as one which supports manufacturing through computer or technical services, or even leasing, to form competitive systems that rivals find hard to match. A simple example: but for the recession, points out Steve Young, principal at consultancy AT Kearney, "now would have been a golden opportunity to use the strength of the City" to mount a real manufacturing and export push into Eastern Europe.

Manufacturing, of course, has structural worries of its own. One of the most important is the lack of large, world-competitive companies capable of sustaining and growing a sophisticated knowledge base. Says Professor Doug McWilliams, chief economic adviser to the Confederation of British Industry: "My worry is that British-based companies don't have the knowledge base or the market share to compete in world markets. There's no physics-based UK company that can commit itself to spending $500 million on R and D."

The disadvantage relates not only directly to the balance of trade. Unlike in Germany, where the export success of a Mercedes or BMW tows a raft of happy suppliers in its wake, there simply are not enough good large British companies to pull the small and medium firms along with them. Even if they want to, it is hard for small companies to latch on to foreign firms. "We've lost the commanding heights," says Harvey-Jones. "I don't want to knock the poor buggers. Those that are still there are fighting a valiant fight, and the top names are world class. It's just that there are bloody few of them."

It is no accident that almost all of the survivors are in global industries where pressures for improvement are fiercest. Of Management Today's 21 "Best Factories" since 1988, only two are mainly UK oriented - and one of these, Coca-Cola and Schweppes Beverages, is the domestic product of a global business. The MT list illustrates another point. Although almost exclusively British managed, 15 of the "best" plants were foreign owned, which bespeaks both the relative penury of large, excellent UK companies and the growing worth, both quantitatively and qualitatively, of foreign firms.

At the CBI, McWilliams predicts that by the year 2000 one fifth of UK manufacturing employees will work in Japanese or European-owned plants. Does this matter? Although ownership is an emotive subject, and in an ideal world the fate of UK manufacturing would rest in UK hands, beggars, bluntly, cannot be choosers. At least for the moment, foreign firms are de facto missionaries, bringing technology transfer and best management practice to the natives. "I don't have a problem with foreign businesses in the UK," approves New at Cranfield. "They tend to be better than we are, and they help drag suppliers up to international standards."

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