To guarantee world class manufacturing in Britain, world class management is the only answer. Simon Caulkin looks for signs of change.
For a while in the second half of the 1980s you could almost believe in miracles. For a moment, as in the 1960s, the British had a vision of what they wanted to be - and how they went for it. This time, though, the trip was strictly money rather than nirvana and Lebanese Gold. Money was everywhere, loads of it: in pay packets, property, privatisations and, above all, "the deal". Consumption was suddenly an art form, while art was the hottest market in town. Why would anyone care about making things when all the fun was in playing with images and symbols? Post-industrial was post-modern, and in both "the market" would be the miracle solvent of the tedious distinctions of the past: between high and low culture, public and private, manufacturing and service, East and West. Class, ideology and - hyperbolically - even history were coming to an end. New times, indeed.
Well, it is 1991, and the view looks rather different from a stationary train. From this vantage point the 1980s reassert an older, plainer truth. Economic miracles, like free lunches, do not exist. The prosaic reality is that while the UK economy in the 1980s grew more rapidly than in the appalling 1970s, the rate was only two thirds that of the 1960s and 1950s. The same is true of overall productivity. "There is no question", as one group of economists put it, "of the 1980s having established new standards of performance."
This raises a couple of awkward questions. First, whatever happened to the idea that services would kick in to supplant manufacturing as the motor of British advance? "A stupid bloody debate," snorts Sir John Harvey-Jones, the former chairman of ICI. "Plainly you need both. But services are difficult to export. You can't export a haircut. And you can't expand tourism for ever. If ICI went bust, you'd need double the number of tourists."
As an export sector services turned out to be slow growing and relatively small (manufacturing still accounts for over 80% of the total), and in any case, over the decade the UK lost world market share in services, partly for quality reasons. Far from being the UK's salvation, there is now a negative balance of trade on invisibles.
As for manufacturing, whose annual 4.5% productivity increase from 1979 to 1988 was most miraculous of all, the gloss again fades a bit the morning after. It is true that companies improved in the 1980s, and they also achieved higher profitability. But ... if you drop 25% of manufacturing's lowest scorers, as in the previous recession, the "batting average" of the remainder goes up even if they do nothing. Moreover, some of manufacturing's apparent productivity growth is the result of firms contracting out activities like catering, security and public relations. Since these activities are classified as services rather than manufacturing, some of the shift is statistical.
Also, welcome though better productivity and profitability are, the advance, points out Professor Colin New of Cranfield School of Management, was from an extremely low base. One economist calculated that even if 1980s-style productivity growth continued, it would be late 21st century before the UK reached Dutch output-per-person levels. That was before productivity went into reverse in the recession of the past year. In any case, "the gains from changing work practices should have been trebled by investment in training and technology", says Bill Jordan, president of the Amalgamated Engineering Union (AEU) and chairman of the Engineering Industry Sector Group at the National Economic Development Office (NEDO). "That's why at the end of the decade we're talking about an impressive spurt relative to ourselves, but up to a 40% discrepancy in productivity with the continent."
There is more. Productivity means lower costs, not overall growth. In December 1990 UK manufacturing output was just 7% above the 1979 peak (Germany 18%, Japan 50%) and only 4% above 1973. So over two cycles, manufacturing output had barely increased at all. And yes, low growth does matter. With roughly the same population, the UK in 1987 created 92% as much wealth as Italy, 77% as much as France and 61% as much as the former West Germany. No wonder everyone else's trains keep moving. Everyone else is richer. Finally, consider the evidence of foreign trade. For all the productivity improvement, UK industry's share of world manufacturing exports is currently 8.2%, compared with 8.5% in 1974 and nearly 10% in 1980. Meanwhile look what has happened to imports.