Manufacturing is now at the top of the Government's agenda, writes Chris Hopson, former ministerial special adviser. It is accepted as the foundation stone of recovery. The overall aim is to broaden and strengthen the manufacturing base. Government looks, he says, to a close partnership between itself and industry.
For the first time in 13 years manufacturing industry is back at the top of the Government's agenda. Indeed, the sound of sacred cows being slaughtered is reverberating around the corridors of power as the Government commits itself to developing a policy to help manufacturing industry. John Major has launched a drive to promote manufacturing and has spoken on several recent occasions of the need both to strengthen and to broaden the British industrial base. 'There are areas where I think we can begin to re-enter manufacturing, where perhaps it has fallen away in recent years', he said at the beginning of this year. Michael Heseltine, President of the Board of Trade, has declared himself willing to intervene 'before breakfast, lunch and dinner'.
Caught between the twin perils of a ballooning PSBR and a worrying balance of trade deficit, policymakers now view UK manufacturing as the vital cornerstone of sustained economic recovery. Yet, they fear that once recovery occurs, manufacturing industry will be incapable of meeting a sustained high level of home consumer demand without a substantial shot in the arm. Hence the Government's re-found concern to promote UK manufacturing.
The economic imperative has been matched by the arrival of Heseltine at the Department of Trade and Industry. In his book Where There's A Will, Heseltine wrote of the importance of developing a fully-fledged industrial strategy and what it should contain. In answer to the question, 'What is the Government's industrial strategy?', sources close to Heseltine stress his vision of a tight, constructive partnership between government and industry. This would centre on a direct dialogue between industry and the DTI thus enabling the DTI to make a proper assessment of industry's needs. Once these needs have been established, the DTI will be ready to act, within Government, in Brussels and elsewhere to meet these demands. More specifically, recent government initiatives to promote manufacturing include:
- Treasury measures.
In last year's Autumn statement the Chancellor, Norman Lamont, extended export credits and abolished car tax which boosted car sales over the winter and spring months. The Chancellor has also increased first-year capital allowances from 25% to 40% for a year and introduced a 20% initial tax allowance for new industrial and agricultural buildings, also for a year.
- Industry input.
The Government is listening more to what industry has to say on macroeconomic policy. The CBI welcomed the Chancellor's Autumn Statement last year and the recent budget: unsurprisingly, as it was responsible for a substantial policy input into both. One government source joked that Howard Davies, director-general of the CBI, has visited the Prime Minister, the Chancellor and President of the Board of Trade more often in the last year than his predecessors did in the previous 12 years put together.
The abolition of the National Economic Development Organisation (NEDO) has not, as many anticipated, hampered industry's efforts to press its case with the Government. What was described as a reverse for Heseltine has in fact worked to his benefit. NEDO was never liked or trusted by most Government ministers. Furthermore Heseltine can now talk to industry direct without going through the filter of NEDO.
- Sectorisation of the DTI.
The DTI has adopted a sectoral approach to those industries it sponsors, which mirrors the way the industries organise themselves. New divisions have been established to cover key sectors which were previously not surveyed. All sectoral divisions have an explicit role to establish a dialogue with their industries in order to develop good working relations. Although this may appear a basic reform, Heseltine has argued, with some justification, that the DTI's old structure prevented the development of this dialogue.
- New industrial competitiveness unit.
This unit was established by the DTI to see what lessons could be learnt from other leading industrialised countries and to ensure that the policies of all government departments take proper account of all the needs of British industry and commerce.
- Export drive.
Heseltine has announced his intention to lead a major export drive. He has invited over 100 British companies to second 100 top quality men and women to the DTI. The aim, according to one of Heseltine's team, is to help identify new opportunities in overseas markets and to help British companies capitialise on these foreign opportunities.
The drive has already received support from other parts of Whitehall. The Chancellor announced an additional £700 million for export credits over two years in last year's Autumn Statement and a further £1.3 billion over three years in the Budget. This will help open up markets which might otherwise be closed to British exporters. The Prime Minister's trip to India and the Far East earlier this year, when he was accompanied by the director-general of the CBI and other leading industrialists, netted over £4.5 billion of contracts for British companies.
- One-stop Shops.
Heseltine's team at the DTI place considerable emphasis on the creation of 'one-stop shops' which will enable businesses to get advice, assistance and information in one place. These shops will be located in major towns and cities and will be developed by a partnership between the DTI and local Training and Enterprise Councils and Chambers of Commerce.
His team believes that the shops will increase awareness and take up the assistance provided by existing schemes. They estimate that approximately 60% of firms are unaware of, or do not take advantage of, the help offered by these schemes. The one-stop shops will provide them with an accessible source of information.
Heseltine has fashioned the project along the same principles as the successful City Challenge programme which he set up at the Department of the Environment. Different towns and cities make competing bids for central Government money which is allocated according to the quality of the application and the degree of co-operation shown between the interested parties making the bid. The first 15 successful bids were announced in March and these shops should be open by the end of the year. The DTI plans over 200 shops, one in every major town and city throughout the country.
- Deregulation initiative.
Heseltine's team has also embarked on a campaign to prune the ever-growing jungle of regulation that ties up much of industry in red tape. Neil Hamilton, one of the junior ministers at the DTI, is co-ordinating the task of getting Whitehall to assess the relevance of the 7,000 or so business-related regulations.
But do such initiatives add up to a viable and credible strategy? Many of Heseltine's critics ask, 'Where's the beef?' or, referring to his book, 'Where's the will?' They point to the sharp contrast between industrial policy in the '70s and weak policy today. They cite the failure to intervene to save Leyland DAF or present job losses at Rolls-Royce as obvious examples of the lack of an effective industrial policy.
The Government would no doubt counter these points by saying that to voice such criticism is to misunderstand the role of industrial policy. Sources close to Heseltine argue that 'we are not talking five-year plans or pouring taxpayers' money down a bottomless well. It is about serious recognition of the role that industry plays in the wealth creation process and the establishment of a framework which allows industry to flourish.' It is certainly clear that the days of picking industrial winners or propping up lame ducks are over. Heseltine and the Government are developing a long-term strategy based on a close and constructive partnership between government and industry. John Major appears to have the will to promote manufacturing. Now his government is developing the way.
- What industry thinks of it.
Leading industrialists have no confidence in the Government's industrial policy according to a survey carried out by the University of Hertfordshire Business School for Management Today. Forty-two per cent of chief executives from the UK's largest 100 industrial companies responded to the survey (see overleaf). Ninety per cent expressed the view that the Government had no clearly defined industrial policy and that what stood for policy was not effective for UK industry. More than three-quarters of chief executives believed that the Government's present industrial policy was inadequate for their sectors.
The survey asked senior industrialists what business really wanted: whether the Government was doing enough to help industry and what management thought the Government should be doing. It asked whether they thought policy should be more interventionist or if they believed the Thatcherite reforms should continue.
Senior executives overwhelmingly wanted a more interventionist policy - something governments since the 1970s have rejected in favour of a free-market solution to the country's economic problems. Sixty-nine per cent of the respondents expressed a desire for greater government intervention within British industry.
Leading industrialists wanted specific rather than blanket forms of Government intervention. Measures of general intervention such as protection from growing imports and general subsidies were not favoured. Instead selective investments in new industrial technologies and in the high technology and energy industries were preferred. Some 78% of respondents believed that intervention in new industrial technologies would be an effective way of re-establishing the UK as a major manufacturing force. This response suggests that those at the sharp end of industry believe that simply leaving the development of new technologies to market forces is an unrealistic option.
Such intervention must be funded. Financing of industrial aid through more taxes on spending was the favourite option chosen by respondents. Indeed, almost two-thirds of senior executives cited increased taxes on spending as a preferred way of raising the revenue to help industry. But there was also encouraging evidence of a willingness to make self-sacrifices. More managers (30%) favoured an increase in the higher rate of income tax and in inheritance tax (26%), than showed support for a rise in the basic rate of income tax (13%).
A resounding 95% of chief executives favoured more infrastructural investment. The clear message is that past neglect of the roads and rail has reached the point where industrial competitiveness is undermined.
Increases in other public spending received short shrift. There was also no real enthusiasm for more regional spending and little support for a rise in welfare benefits. No one believed in increasing unemployment benefit either. More were in favour of a reduction in spending on the NHS (29%) than an increase (21%).
Survey results on training were ambiguous. Prevailing wisdom argues for greater government investment in training but only a slim majority of senior management (52%) believed that there was an overall shortage of skilled workers in the UK economy. When asked about skill shortages in their own companies, most executives answered that there was no shortage at any level from apprentices (76%), through middle (64%) to senior management (64%).
Management views on government policy were clear. There was widespread support for 1980s initiatives in the areas of deregulation (86%), privatisation (83%) and taxation (77%) and Mrs Thatcher's trade union curbs received unanimous support. Only interest rate policy was believed to have had a negative response on industrial activity.
Belief in the destabilising effects of stop-go monetary policies was pronounced. 'We make a number of large capital investments with long paybacks, which require consistent policies on interest rates and economic policy,' summed up one senior executive. Another was more blunt, 'Government must articulate a clear approach and stick to it'. The plea was for almost any policy provided it is consistently followed.
There was, however, little favour for a tripartite industrial forum or co-ordination of industrial policy at the European Community level. Almost three-quarters of respondents rejected the reinstatement of a government, trade union and employer forum similar to the recently abandoned NEDO. Some 84% of chief executives opposed the orchestrating of industrial policy from Brussels (possibly reflecting a wider suspicion of the pos sibility of intervention by the European Commission).
The survey results suggested a deep-seated unease about the Government's economic policy. Survey manager Nigel Culkin pointed to some unflattering comments pencilled on the questionnaire by respondents asked to describe Government policy - 'a stitch and mend, finger in the dyke, unfocused pragmatism'; 'hope for the best'; 'no coherence, lacks credible and defendable foundations; 'confusion'; 'no policy - depends on the heat'; and 'trapped in stop-go policies. It has no real grasp of the need for consistency'.
That the economy is critically balanced between continued recession and recovery was evident from many of the answers. Those with large markets overseas saw some reason for optimism as the effects of sterling's devaluation worked through. But others expected a worsening situation with continued erosion of the industrial base, a return of inflation and a serious loss of confidence in the oil and property markets.
Respondents, dissatisfied with current Conservative policy, argued strongly for a more positive industrial strategy. 'While the Thatcherite reforms of the 1980s were hugely favoured then, there now seems support for a more interventionist stance in the 1990s,' says Professor David Parker, Dean of Hertfordshire Business School.
Senior managers want a more positive approach to industrial regeneration than was fashionable during the Thatcher years. This is not to say that Thatcher reforms should be abandoned. Privatisation, deregulation, trade union reforms and tax rate cuts received overwhelming support, and the survey revealed that there was no particular enthusiasm for more public spending on the welfare state. Indeed, quite the reverse. But management does want more attention paid at government level to what might be called the 'seedcorn' of tomorrow's economy - the new industries springing up in the high technology, energy, biotechnology, pharmaceutical and environment sectors.
Perhaps the fact that other governments are spending large amounts on these sectors is influential. Or perhaps, considers Professor Parker, management believes that the battle is finally lost in many of the older industrial sectors, but feels that the Government could at least prepare for the next conflict.
SURVEY RESULTS Yes No
Do you feel the Government has a clearly
defined industrial policy? 10% 90%
Do you believe the Government's present
policy is the most effective one for: UK industry? 10% 90%
Your own organisation? 24% 76%
Do you believe there is a shortage of skilled
labour in the UK? 52% 48%
Should industrial policy be orchestrated at
the EC rather than national level? 16% 84%
Do you foresee your own organisation suffering
from skills shortages in the future?
Apprentices 24% 76%
Manual workers 7% 93%
Junior management 19% 81%
Middle management 36% 64%
Senior management 36% 64%
Increase Reduce Same
Would you prefer to see an increase
or decrease in public spending on the
Health 21% 29% 50%
State pensions 14% 26% 60%
Unemployment benefits 0% 58% 42%
Other social security benefits 7% 60% 33%
Industrial subsidies 29% 42% 29%
Regional subsidies 19% 24% 57%
Investment in infrastructure 95% 2.5% 2.5%
If you believe the Government should be
doing more to help industry, where should
it raise the revenue?
Taxes on spending 62% 8% 30%
Basic rate of income tax 13% 15% 72%
Higher rate of income tax 30% 8% 62%
Corporation tax 8% 36% 56%
Capital gains tax 15% 23% 62%
Inheritance tax 26% 15% 59%
What should the Government do to Effective Ineffective Neither
assist in re-establishing the UK
as a major manufacturing force?
Introducing tariffs + quotas on
selected imports 22% 71% 7%
Increasing subsidies to leading
industries 15% 73% 12%
Increasing subsidies to
nationalised industries 7% 86% 7%
Privatising more State activities 76% 14% 10%
Identifying potential growth
industries and making long term
High tecnology 76% 16% 8%
Pharmaceuticals 43% 22% 35%
New industrial technologies
+ materials 79% 10% 11%
Energy 54% 14% 32%
Biotechnology 54% 19% 27%
Environment 52% 18% 30%
To discover the views of management on industrial policy, Professor David Parker and Nigel Culkin from the University of Hertfordshire Business School approached Chief Executives of the UK's largest 100 industrial companies. Surveyed during February 1993, 42 companies answered the postal questionnaire which was designed by econometricians at Hertfordshire Business School. Copies of the full questionnaire results can be obtained (cost of £20) by writing to Nigel Culkin at the University of Hertfordshire, Hertford, SG13 8QF. Cheques should be made payable to the University of Hertfordshire.
Industrialists are gratified by the attention they have had: they await the action. That, to summarise the findings of Management Today's poll, should spell out clearly-defined steps in certain key areas. That action should be accompanied by accentuating the drive to create the right atmosphere for industrial investment and a consistent emphasis on the vital role of industry if Britain is to be a significant international player. Our survey shows the steps the Government must take to gain the support of senior managers:
- define an industrial policy in terms of objectives and structure - and stick to it;
- adopt an interventionist stance - promote investment in new industries and technologies;
- raise the money to finance new investment through higher taxes on spending;
- invest heavily in the infrastructure - eg, road and rail;
- use monetary policy to prevent damaging movements in interest rates.
Intervention here is not seen as a return to the policies of the '60s and '70s, which only damaged Britain's international competitiveness. It is not seen as helping lame ducks swim but nurturing eagles to fly. It recognises the priority of industrial investment in what has to be a second industrial revolution - one that will save Britain from relegation to the fourth division of industrial nations.
Other countries in the Far East have achieved high growth rates by concentrating on technology and exports. Other countries with low labour costs are advancing in the less technological sectors. Britain has to return to the doctrine of national purpose and self-help. So far as our future survival as a developed country is concerned, we really are, as an ex-minister remarked in a different context, in the last chance saloon.