Britain’s Industrial Dunkirk
February 21st, 1994
This is an article about the sale of Rover to BMW which was published in the Independent on 21st February 1994.
Despite the general chorus of approval in the City and financial press, the proposed sale by BAe of Rover to the German company BMW, if approved by their respective shareholders, brings into sharp focus fundamental faults in British capitalism which, if not corrected and corrected soon, will take our country to industrial oblivion. At £4,300 million turnover, the transfer of Rover is the largest single loss of control of industrial output and market ever – about 4% of our gross manufactured product, dwarfing other recent transfers like Jaguar to Ford (about £800 million) and ICI Fibres to Dupont (about £300 million).
Contrary to the City comment at the time of the announcement of the sale, it is not chauvinistic to safeguard your most strategic industrial capacity from foreign takeover. To every foreign engineer and manager I know, it is the merest commonsense on the grounds of the opportunity difference between having one company and having none. I doubt if there is a single British professional engineer who does not take the same view.
In terms of GNP per head, Britain has in 30 years slid from near the top to near the bottom of 24 Western industrial countries in the OECD. At the same time, British manufacturing operations have hauled themselves from near the bottom of the efficiency league to near the top, Rover being an outstanding example. We who work with or for British Industry, as well as the millions outside who depend on it for a living, are entitled to ask what magic insight is it, denied the rest of us, that allows a tiny group of financial institutions and corporate managers to watch complacently as British industry is expelled from one sector after another, and yet swear it is the inevitable “restructuring” of the international economy which is working in Britain’s long-term interest?
The Rover sale exposes three of the most profound issues for national debate which must not continue to be brushed aside by the City establishment and their allies in the present government.
Much has already been written about the City’s incompetence and short-term outlook in industrial matters and there have been occasional signs that it is prepared to defend itself against these charges. But Rover is the clinching case for those of us who believe the charges are made out a hundred times over. Essentially Rover is a growing success which is being sold at a failure price, to enable British Aerospace to relieve the difficulty arising from its aircraft leasing arrangements. As a rule of thumb, a well run modern manufacturing company will have capital assets valued somewhere in the region of its annual turnover. On this basis Rover is being sold at well under half its value, even if you count the takeover of debt as part of the price: in fact LandRover on its own is worth the £800 million cash being paid.
This leads to the first fundamental point. Why do the financial institutions place such blind faith in the abilities of a gilded circle of corporate managers, who lacking technical expertise fully to get to grips with the businesses they are entrusted with, are whisked from one chairmanship to another, in an elaborate game of musical chairs in which every participant receives a huge prize every time the music stops? In high tech manufacturing such as cars and aerospace, it is the three-way conjunction of long-term product research, process design and marketing which ought to be the primary concern of the board, as it clearly has been in our successful chemicals and pharmaceuticals businesses. Almost exactly two years ago Akio Morita, chairman of Sony – one of the companies that have propelled Japan to world economic leadership said it was “very curious that so many British industrial companies are headed by accountants or lawyers . . . in Japan almost every major manufacturer is headed by an engineer or technologist . . . I do not believe accountants and financial professionals should be at the helm of industry”. Just as British manufacturing has learned enormously valuable lessons from the Japanese, why do not the financial institutions do likewise in their own interest and that of the millions whose investments they manage? Why do they continue to reinforce failure?
The second fundamental issue is the future of Britain’s prodigious research and design expertise. In an address on February 1 to the Parliamentary Scientific Committee, the Prime Minister complained that too much of Britain’s scientific achievement benefited our competitors rather than our own industry. The answer is you cannot transfer science and technology to an industry which is not there or is not prepared to absorb it. The Rover sale takes out of British hands around £4,300 million of annual turnover in high technology products. No conceivable expansion in the birthrate of new high tech companies can begin to replace the added value this turnover represents. With the world awash with production capacity the key strategy in high technology industry is to spread your very expensive research and design over as many products as possible, retaining only inexpensive badge engineering to create market differentiation.
It is inconceivable that BMW will retain two research and design facilities, since their consolidation into one, centred in Bavaria, is the obvious way for BMW to recoup much of the cost of the purchase. Of course this will not be noticed for some years by the general public, or even by the production workers, since the existing models will run for several years yet. It is for this reason that BMW is able to give a continuity of employment guarantee to production workers.
But the loss of research and design autonomy will be felt immediately. With the centre of design decision making being removed to Munich, discussion with British component suppliers about new developments will come rapidly to a halt as designers realize that for future models BMW will have their own views about component supply. Inevitably young British graduate engineers will realize that promotion and prospects depend on fitting in with Munich not Birmingham. There will be an enhanced flow of our ablest young people to Germany, ultimately to serve German, not British industry.
For our research scientists and engineers to make a useful contribution to our industries, they have to know what the objectives are – what the markets are likely to be. It is this knowledge of the linkage between R & D and the market, which domestic ownership of the market and production provides in strategic sectors of industry. The sale of Rover represents a massive reduction of that linking and therefore a massive opportunity loss in mechanical engineering as well as in plastics, electronics and metals.
Perhaps the most fundamental point of all is the devastating blow to our national morale and self-respect. It is not true as some aver that the battle for the British car industry was lost in the 1970s. This is the defeatest argument which has dominated British public life since Suez. It is never too late to build a new industry if the will is there as the Japanese, the Koreans, and now the Malaysians are demonstrating. Thirty years ago BMW was itself an ailing company, smaller than Jaguar is now. Since then by keeping in the business a much higher proportion of profits than is usual in British industry and by dedicated expertise at the top, it has grown to its present position. Growing a business in this way is in fact much more typical of German industry than of British industry where corporate managements tend to prefer the takeover of existing businesses as the easier route to growth. It was entirely symptomatic of the malaise of British corporate management that the only engineer present at the news conference announcing BMW’s takeover of Rover was Mr Pischetsrieder, chairman of BMW.
No nation can survive on a diet of everlasting retreat and evacuation. Our country desperately needs a victory in the intense industrial war which is fought out daily around the world. There was no immediate need to sell Rover: the partnership with Honda, committed as they were to keeping Rover a British company, had many miles to go. In round terms, the £100 billion bonanza from North Sea oil has financed the bulk of the huge British investments in largely non-strategic sectors of overseas economies. Just two percent of this sum is all that is needed to save the strategically vital Rover for the British economy. Instead the City and the BAe board have handed us another Dunkirk in order to obtain short-term financial relief. When a system continues to deliver nonsense, the thing to do is to change it – not pretend that it works. As Churchill said in 1940, “Wars are not won by evacuations”.
Professor Bush, formerly with ICI, holds the Chair of Polymer Engineering in Manchester and is Chairman of the North of England Plastics Processors’ Consortium. He directs his own technology company and is a Fellow of the Institutions of Mechanical Engineers and of Chemical Engineers and of the Institute of Materials.