If there are threats by Ford and BMW to withdraw from producing in Britain, it gives an opportunity to recover Rolls-Royce, Rover and Ford assets at knock-down prices, while making life difficult for hostile car companies to sell their products here. It would also serve notice on assorted American and German bosses operating other assets here to keep out of British politics.
City Comment was wrong to suggest that “four million people making things” contribute about the same to the “national economic cake” as a quarter of a million people in the City (Oct. 22nd).
The numbers and value of manufacturing are vastly understated by economic accounting in this country, because it classifies everyone who is not actually employed by a manufacturing company as being in services. Over the past 20 years, probably all manufacturing companies have out-sourced as many functions as they possibly can, even including key functions such as design and maintenance. These out-sourced functions are classified as “services” even though they are actually part of manufacture.
Likewise, it is an accounting fiction that the City “produces” 20 per cent of our national output. Much of its so-called “output” consists of elaborate financial manipulation directed at attracting a disproportionate share of real output to itself. City folk don’t spend their money on more insurance policies, bank accounts, derivatives and other financial “products”. They buy the products of the real economy – cars, clothes, houses.
At a time when Rover is once more under threat, it should be recalled that manufacturers contribute about £110 billion to our exports – about 70 per cent of the total. Even City Invisibles, the organisation formed to promote the City, doesn’t claim more than £25 billion itself – about 17 per cent of the total.
One of our most buoyant “service” exports – engineering consultancy – is not finance at all. Financial services and much of the City do not represent output – but are overhead costs on the output of the real economy.
The fact that we have a higher proportion of our labour force engaged in financial services than any other major economy is a weakness, not a strength. Viewing Britain as an economic enterprise, we should be doing our utmost to reduce, not expand this overhead.
As a director of an SME [small or medium-size enterprise] – a technology transfer and consultancy company “spun out” of university research – I see the Treasury’s euro message which Rachel Bridge reported (September 23rd) as hype.
Over the years my company has invoiced clients in different parts of the world in sterling and they have found no difficulty in remitting payments in that currency. Pari passu, if I purchase a service in the US I expect to be invoiced in dollars.
What is so different about the euro? For those companies already invoicing their euroland customers in marks, francs, etc. life after next January 1st will automatically be easier since they will need to take notice of only one rate of exchange instead of 11. Companies know that. If they invoice in pounds, why should euroland customers not continue to remit payment in pounds?
If British companies such as ICI and Rover try to insist that their suppliers in the UK invoice them in euros rather than in pounds, the legal tender of our country, they may well be breaking the law. In any case such companies will stand accused of abusing their buying power to impose an exchange risk on British suppliers which their euroland suppliers will not be subject to, a gratuitous, unpatriotic act that will be scorned and resented. They will also get short shrift if they try to impose euro-accounting on US suppliers.
One would think that the management of both these and other large companies with Europhile chairmen would be better employed in concentrating on improving their companies’ performance, rather than doing the present Government’s work for it.
The imminent closure of the Fujitsu semi-conductor factory in Durham, following the closure of the Siemens semi-conductor plant in the same area (report, Sept. 5th) should underline to the Government the folly of relying on foreign companies for such a large proportion of new manufacturing investment.
The chief benefit of foreign investment has, in fact, been to bring much needed expertise and modern quality standards to parts of British industry. Yet at the same time it has exposed once again the near total failure of the British financial system to invest in British industry in anything like the amounts needed to sustain it as a viable entity.
The passing into foreign ownership of Rover and Rolls-Royce cars, Courtaulds and a wide range of well-respected smaller engineering companies (Crabtree, on Tyneside, is under bid now) will in due course expose more British workers to the brutal fact that when the chips are down and markets are shrinking, foreign owners will close British plants before they close their own.
Mr Blair may well be “saddened” by the Fujitsu factory’s closure, but such characteristic emotion is no substitute for the hard intellectual and managerial task of putting right, in the fact of enormous entrenched interests, our defective corporate financial system. Fiddling with interest rates is no substitute either.
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.
The impending sale of Rover to BMW, its chief rival in the executive car market in this country (report, Feb. 1st), is another self-inflicted disaster for British industry and the country. If the sale – which could still be rejected by BAe shareholders – goes through, it will quickly lead to the extinction of Rover and the closure of all but the Land-Rover plants.
It is altogether typical for this Government, in the form of its “industry” ministers, to hail the offer as “evidence that this country is an attractive location for foreign manufacturers”. Doubtless the same ministers would have hailed the German conquest of the Channel Islands as evidence of the attractiveness of British holiday towns.
BMW wants only two things: elimination of an increasingly dangerous market rival and acquisition on the cheap of the best four-wheel drive vehicles in the world.
More than anything else this deal exposes the uselessness of the much vaunted over-paid City venture capital expertise. Here is a going concern, of the utmost importance to our economy, with the world’s most modern technology, in a country awash with unemployed engineering talent. Yet they could not find £1,700 million to keep the key decisions on its future in British hands.
