Judging by the doom-mongering on the economic front, businessmen could be tempted to the nearest window-ledge. But while life is a grim battle for survival for many, all is not lost on the economic front. Recovery, however hesitant, may actually be on the way in 1992. But, more importantly for the long-term, Britain is undergoing a revolution that could turn us into the new Germans.
Inflation, at 4%, is now down to German levels and will stay there, courtesy of the ERM. The UK workforce is also acquiring the disciplines associated with a low-inflation economy. In September, there were only 34 industrial disputes, the lowest September figure since 1934. True, the fear of unemployment combined with union legislation creates industrial peace. But this peace encourages a record inflow of overseas investment. Currently, 51% of Japanese EC investment comes to Britain.
Fear of unemployment may also be giving a new competitive edge to the survivors in industry. The UK's manufacturing output per head was 2% higher in the three months to September 1991 than in the three months to June. Fears that the '8Os productivity revolution would run out of steam have proved unfounded. More importantly, successful survivors, such as Smiths Industries, are better placed than before (Smiths Forge Ahead p30). Having painfully moved to niche, high technology and high value-added markets since the early '80s recession, they are now reaping big rewards. Lucas Aerospace's recent $3-billion order for engine management systems is another good example.
High interest rates and recession have smashed the housing boom and, for the time being at least, the British love-affair with rising house prices as the path to instant wealth. Millions of burnt fingers and the pain of re-possessions may mean a much more cautious and Germanic view of housing in future: namely, that a house is a solid life investment, not a speculation.
Recession has also hit the retail trade, making conspicuous consumption unaffordable and unfashionable. With many people fearing redundancy, the emphasis is on reducing debt and saving. From a low point in 1988, when the personal saving ratio stood at 5.4%, it has climbed sharply to 10.1%. In the long term, if this trend can be maintained and the housing market is no longer an avenue for easy money, then the obvious place for those savings is the equity market. The highly successful privatisation programme has created an army of eager shareholders, 12.5 million strong and growing.
But, as ever, there is still much to be done to help British industry remain competitive. The privatisation programme has allowed many sleepy nationalised industries the freedom to develop profitably and improve their efficiency to record levels. Now it is the turn of the government machine itself. Market disciplines need to be introduced into administration (particularly local government) to keep costs under control.
While unemployment has blighted many lives and caused social tension, there is little government can do directly to cure it. This must be recognised in a new approach to the benefits and tax system. The physical fabric of the country must be urgently improved. New roads, rail lines and airports require huge investment (not to mention university education, R and D, etc.) Innovative financing, involving leasing, privatisation, sale and lease-back arrangements, must be explored and pushed through to keep Britain moving.