UK: The CBI report no businessman should be without.

UK: The CBI report no businessman should be without. - Roger Eglin acclaims a guide to positive aspects of the present and future strategy.

Last Updated: 31 Aug 2010

Roger Eglin acclaims a guide to positive aspects of the present and future strategy.

Few will shed many tears for 1991. It was a year of rising unemployment, falling expectations and disenchantment. Names that dominated the commanding heights of manufacturing - Rolls-Royce, Vickers, British Aerospace, Hawker Siddeley, Pilkington and Ford - reached the end of the year looking much the worse for wear. The optimism of the 1980s was gone, replaced by the prospect of a long slog with no guarantee of success.

Nowhere has this disenchantment shown itself more than in the criticism heaped on the hapless Peter Lilley. The trade and industry secretary will never rate more than five out of 10 on the index of political charisma, but the complaints levelled at him by many industrialists must be unique for a Tory minister.

An article in the Financial Times, 'Time for minister to show his mettle', portrayed Lilley as inept, boring, 'too cerebral' and lacking understanding. He is, said the head of an international group with a £3 billion turnover, 'a man of unbelievable arrogance and extraordinarily rigid views. He has a very low opinion of British manufacturers whom he regards either as whingers or in search of a hand-out.'

Yet are things really so bad? Reading the CBI's manufacturing advisory group's extraordinarily comprehensive report 'Competing with the World's Best', left the impression that though the recession represents two wasted years, manufacturing still has a positive story to tell.

Under John Banham, whose deft generalship has raised the CBI's influence to a new level, the quality of the CBI's publications has steadily risen. What makes this one interesting is the skill with which it synthesises the debate about the future of manufacturing and the Government's role in this.

First, look at this report's positive message. Much is going right. Forget the sense of despair and look on the bright side. UK manufacturing output, says the CBI, is now running a quarter above its level of 10 years ago. It is still level with the start of 1988 when the concerns about over-heiting first developed. On perhaps the 27 most important test of all, the UK's manufactured exports have been increasing faster than the world trade. After years of decline, over the past five years our share of developed nation manufactured exports has risen from 7.5% to 9% and the balance of payments in late summer was signalling the first improvement in the manufactured trade surplus since 1982. In 1990, we attracted over half Japan's investment in the European Community.

The report makes it clear that the 1980s were an outstanding period in the British economy. Between 1982-89, manufacturing output grew by 4% per annum, exports by 6% a year and investment by over 7% a year.

Right across manufacturing industry, there was abundant evidence that the right things were happening. The pace of innovation was accelerating. Industrial disputes were a thing of the past. Quality was being taken seriously and companies were investing in training.

Comparing the real annual growth in productivity in the five years to 1980 - which was 0.9% - with the 4% achieved in 1985-9 shows how dramatic the turnaround has been.

The problem is that this upsurge began from the bottom of the British economy's own personal Grand Canyon. In the five years from 1975-1980, manufacturing output declined at an annual rate of -0.1%, scoring the sort of performance we have now come to associate with eastern Europe. The average growth for the leading western economies was 3.7% - for germany it was 3.2%, the US 4.1% and Japan 7.6%. Even Italy achieved 5.6%.

This underlines that the task is a huge one. The heartening feature of the CBI study is its clear assumption that manufacturing can continue to progress. In a detailed pragmatic fashion, 'Competing with the World's Best' lays out an industrial strategy that appears achievable largely because more and more companies were demonstrating in the 1980s that its key features could be made to work.

There are, the CBI points out, a number of factors working in our favour. Britain is well placed to benefit from the development of the 'global' economy. Inward investment is helping to set new standards in manufacturing. Companies like Nissan or Sony set new performance levels for their industries, influence their rivals and suppliers and set a general example for the rest of industry. But Britain is a major outward investor, second only to America in the 1980s. We have a disproportionate number of global players given the size of the economy. On the test of the number of companies in, the Fortune 500 Britain is relatively better off than America or Japan and absolutely better off than Germany and France.

The cost of an hour of labour is lower in Britain than in other major economies and the Government is clearly making significant progress in curbing inflation. On earlier occasions, I have identified the difficulties of running a successful business when inflation continually erodes its real profitability. The CBI is equally concerned at the damage caused by economic volatility and 'the failure to get on top of inflation'. Through the 1970s and 1980s British firms suffered far more from economic instability than their German and Japanese counterparts.

One of the most interesting suggestions is the role the Government should be playing. At the CBI annual conference Peter Lilley endorsed 'Competing with the World's Best' calling it 'superb' despite its forthright criticisms of the Government's approach to manufacturing. It suggests that either he hasn't read it properly or was turning a diplomatic blind eye.

But take just a few of the CBI's points. The DTI often appears ineffective in promoting the interests of manufacturing within Whitehall. Government departments do not appear to take account of the implications of policies for manufacturing competitiveness. There is insufficient depth of understanding of the supply side of the economy within the Treasury and the Bank of England. And finally there is the contemptuous remark that 'both (Germany and Japan) enjoy a state of grace in which government and business operate together to a common purpose. No observer of the British industrial scene could say the same.'

After listening to Lilley's speech to the CBI, it's hard to see him making much of a contribution to solving such issues, though some press reports have suggested that the PM is more receptive. Lilley and the CBI were at least agreed that there is a brighter side to the manufacturing story. But there's still a lot to be done. The CBI found that the average productivity of the top 25% of UK manufacturers is over five times the average of the bottom 25% - quite a target to shoot at.

Roger Eglin is Managing Editor of The Sunday Times.

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