Mike Guillaume

Opinion: From shipyards to wind turbines – Britain needs BETS

By | Mon 15th February 2010 - 1:14 pm

“Where have all the good times gone?” That old song by The Kinks often comes back to my ears when I am in Britain –quite regularly, that is. The economy is not only going down, it is just not up to what it used to be.

The Cadbury flop

The takeover of Cadbury by Kraft Foods is just the latest in a long series. In less than three decades Britain has lost many of the jewels in its industrial crown.

One of the most spectacular examples is of course the car industry. When The Times writes about Jaguar Land Rover as “the UK’s largest carmaker”, it’s an optical illusion. Some of the plants are still there -for how long?- but the seeds have moved to America, Germany, Japan, China, India…

Once a champion in automotive and mechanical engineering, the UK is now just a smaller part of the global assembly line. The brand on the radiator grille might still be British but the rest -almost the whole- is made elsewhere.

A Vauxhall is (was?) just an Opel with another logo. Aston Martin might still be hot but the financial steam now mainly comes from Kuwait. To add fuel, who knows that the English component in Rolls-Royce is in the air only and not on the roads any more. And that a Bentley has just (well, almost) been a Volkswagen for years?

Who has cared -and done something- about Britain turning into a chocolate-box country? And if it was only about cars. BOC for gases, Pilkington for glass, Corus for steel, ICI for chemicals, BAA for airport management, Scottish Power (not so much Scottish now), Body Shop (a trailblazer in natural cosmetics) and so on.

Want another round? Fewer English beers (Heineken has become UK’s largest beer and cider brewer), fewer Scotch whiskies (Pernod Ricard and others have swallowed many). Oh, there are still some real Welsh ciders to comfort, yet not all drinkers.

UK’s manufacturing output went down from over 30% of total gross value added in the 1970s to less than 15% in the first years of the twenty-first century. Behind the numbers, which show an increase of the service sector at the expense of manufacturing in all “old” industrialised nations, there is no equivalent to the UK loss of industrial substance in any of the major countries, such as Germany, Japan, France, the US, and even Italy.

Some smaller developed economies like Sweden and Switzerland have demonstrated a better ability to keep top companies at home, i.e. to save decision centres, value added and significant employment volume. When Frau Merkel declares that Germany will switch to electric cars, at least she knows that the steering wheels are still around the corner. Gordon Brown or David Cameron could hardly promise the same as Britain is no longer in the driving seat.

Enter Nick Clegg, the leader of the Liberal Democrats, who declared on 11th February in Newcastle that shipyards should be converted and upgraded to produce wind turbines. This is of course not the only solution to the crisis and recession, but can certainly bring Britain a step forward towards a “green economy”. This goes through a real reinvention of the manufacturing sector, once the greatest strength of the UK economy.

Mind the gap

Before the latest financial turmoil the City’s financial revenues accounted for 30% of UK’s GDP. This proportion is much higher than any financial centres in any developed economy, including Zurich.  As Vince Cable put it earlier this year, “The British economy had a massive heart attack when the arteries of the banking system seized up.”

To make things better -or worse when the crisis comes- one third of London’s listed companies’ equity is in the hands of foreigners. That explains the heavier toll taken on Britain in the recession.
Britain depends too much on London and London relies too much on the City. Stating that London’s role as financial centre is “set for a new boom” could lead to the same troubles when the next bubble bursts.

This is not to say that the City’s role is bad as such. Having one of the biggest financial hubs in the global economy is a big advantage that should be sustained. But not at any cost and not to the detriment of other parts of the economy and the society. The whole must be rebalanced, and building new with old is a way to do it.

The gap between virtual finance and the real economy is bigger in “Anglo-Saxon” economies than in others, but it is certainly made worse in the UK, and outside London, due to the weakening of the rest of the economy, from manufacturing to business and social services. Reinforcing these should come as an absolute priority.

Bet on BETS

Economic reinvention should top the agenda. Instead on betting on the invisible hand of the market with a little help from the City or the heavy hand of the State, an inspired choice would be to bet on BETS.

BETS stands for business, environmental, technology and social enterprises and economy.

A few policy ideas:
– A reinvention of venture capital (e.g. through local enterprise funds) and midcap markets.
– Fostering medium-sized enterprises and make them able to grow international. UK companies lag far behind their US, German, French or Italian peers here. Local enterprise training programmes could be set up, also on foreign languages and export capabilities.
– Embarking full steam ahead on “green” energy and economy. Britain is not a champion yet, far from it. It’s high time to roll up the sleeves to avoid being overtaken by competitors.
– Not leaving “Made in Britain” or “Buy British” to the rightists and never mind the accusations of protectionism coming from free-trade zealots. Give incentives for more national and regional value added.
– Keeping as many decision centres as possible in the UK.
– Putting a priority on highly labour-intensive renovation and less on new construction, e.g. through energy savings incentives.
– Sustaining technology spinoffs from laboratories and universities.
– Developing local employment initiatives and social enterprises. Britain is here behind a country like Denmark. This could help (re)weave the social fabric, integrate unemployed people and minorities and better meet the needs of some categories of people.

Mike Guillaume is an economist and financial analyst, “as familiar with the financial sector as with renewable energies.” He is the author of “The Seven Deadly Sins of Capitalism”. His main office is in London and he shares his time and work between other international cities. He is a partisan of the Lib Dems.

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56 Comments

  • Edward 15th Feb '10 - 2:15pm

    Whatever else Mike Guillaume may be familiar with, is he familiar with EU competition regulations about ideas like “buy British”?

    Decision-making centres would be great. But there’s a reason why other European countries seem to do better on this front. Hardly anyone speaks German or Italian. Hardly anyone wealthy speaks Spanish or French. Precisely where are those businesses going to put their headquarters, apart from their own countries? The UK has no such “advantage” when faced with the more pro-business environment in the USA.

    In general, it’s hard to see when exactly the “good times” for manufacturing prevailed. British industry has been in relative decline since the unification of Germany; inevitable, because Britain led the Industrial Revolution.

  • Adam Bell 15th Feb '10 - 3:19pm

    I was going to write a long comment on this, but it boils down to you mixing some good ideas (A reinvention of venture capital; embarking full steam ahead on “green” energy and economy; local enterprise training programmes ) with some ones that aren’t so much bad as contradictory. You can’t foster medium-sized companies with state support at home and expect them to be able to compete internationally. Similarly, adding incentives for value-adding activities at the regional level is equivalent to taking money from actually profitable UK activities to make the regions not feel like they’re economically useless. It’s the economic equivalent of steroids; sure there’ll be some short-term gain, but in the long run you sure won’t be manufacturing anything.

  • Timothy Cox 15th Feb '10 - 4:18pm

    “Fostering medium-sized enterprises and make them able to grow international”
    “Give incentives for more national and regional value added”
    I am confused. If you claim not to be advocating protectionism than what are you advocating? Fostering and incentivising national business interests over foreign business interests IS protectionist.

    Two questions;
    1) In your utopia of incentives and fostering how do you expect low wage developing countries to compete? By artificially supporting less efficient producers in the UK, developing countries will lose their (already fragile) export markets and their historically only proven route out of poverty- trade.
    2) Seeing as you are so keen on the provincial angle, why do you think we should stop at protecting industry within national boundaries? Surely counties/ridings/hamlets even should be afforded the same protection. After all, discrepancies in the regional cost of living mean that it is more expensive to grow turkeys in Norfolk than it is in Lancashire. But many residents of East Anglia would be aghast if their jobs at Bernard Mathews were relocated, due to the lower costs. Are you as supportive of “made in Norfick” as you are of “made in Britain?”

  • Edward 15th Feb '10 - 4:34pm

    Mike, thanks, so you’re saying that
    – There WERE good times when we had those companies before some bad thing happened
    – Margaret Thatcher was the only bad thing worth mentioning
    It’s reasonable to conclude that
    – Before Margaret Thatcher, British industry was great

    Sorry if this sounds like a “Tory view”, but you’re really romanticising the 1970s glory age of industrial planning, which was a disaster.

  • Joe Donnelly 15th Feb '10 - 5:45pm

    It is always important to remember that as a true liberal you should not be looking to preserve ‘British’ freedoms but instead the freedoms of every individual in the world. I agree with Timothy Cox that protectionist policies may give a short term (and fragile) boost to our economy but to the detriment of those much less well off than ourselves. It seems much better to aim for true free trade around the world rather than hide behind our own protectionist policies just because ”everyone else is doing it’ (I realise you have not quite said words to that effect in the article and I am just making a general point not concocting a straw man against you).

  • Alec van Gelder 15th Feb '10 - 5:58pm

    If you genuinely think “we should get back David Ricardo’s comparative advantage” then you’d retract virtually everything from the above. Btw, is the “Seven Deadly Sins of Capitalism” available for sale?

  • Liberal Eye 15th Feb '10 - 6:41pm

    An excellent and timely post.

    British industry has been in relative decline since around the 1850s, propped up for many years by the relatively protected markets of Empire which provided soft outlets for products that were too often (but with honourable exceptions) far from world-class. Once continental industry was rebuild after WW2 the deficiencies were cruelly exposed – hence the massive decline that’s now lasted many decades. Successive governments have never found a proper answer but have instead relied first on North Sea oil, then on selling the family silver and increasing debt to keep the economy going. The cupboard is now all but bare and these conventional ‘strategies’ are out of road.

    Traditionally, the excuse has been that of course we can’t compete with low wage countries but this is dishonest and a very partial truth at best. It doesn’t explain how for instance Germany has been the world’s largest exporter until China finally overtook it just in the last few months or how Swedish value added in manufacturing has increased as ours has declined. There is clearly something the ideologues have missed about how the world actually works.

    If we do not find a better and more productive way to run our economy pretty soon we will all be poorer, probably very much poorer. The solutions are no doubt difficult but I don’t suppose they are beyond human ingenuity. Sadly, they seem to be beyond political will (or perhaps the ability to think outside the box) for the moment.

    MG is also dead right to remind us that, “Free trade is based on mechanisms and rules, not on religion”. Free trade is indeed wonderful – but it’s also very difficult to achieve in the real world and thus rarely encountered. The neo-liberal (i.e. Conservative) interpretation glosses over these difficulties and uses free trade rhetoric to promote a ‘winner takes all’ view which is utterly self-serving. Far from providing a level playing field, it actually creates one where ‘big is beautiful’ and which protects the establishment and its rent-seeking behaviour. What else is the debt-bondage that so many people have fallen into? What sort of crazy logic is it that bases economic policy on making housing unaffordable to ordinary people? It is no surprise that society has become increasingly unequal over the last 30 years, nor that New Labour has failed to reverse this – once they broadly adopted the neo-liberal interpretation their project was doomed.

    But, if a big part of the problem is that Conservatives have used neo-liberal arguments to defend their bankrupt establishment (now literally as well as metaphorically true) then it follows that a great many establishment sacred cows will have to be slain to achieve real change. After 30 years of neo-liberal hegemony these sacred cows are to be found in institutions of all sorts and at all levels but most of all in peoples’ habit of mind.

    Not easy, but perfectly doable.

  • asquith 15th Feb '10 - 8:34pm

    I buy British& local whenever possible, in my view it is one of many things consumers can do.

    Visit your local farmers’ market.
    Buy meat, dairy, eggs etc from animals with a high standard of welfare, preferably sourced somewhere near you.
    Buy from sustainable sources such as MSC crtified fish, & others.
    Bank with a mutual rather than a bailed out casino.

    We consumers do not understand the reach of our own power. There is a place for regulation but we have to do a lot of work ourself if we want businesses to do what we want. They make money, & this is the basis of such prosperity as they have, but we are the ones they make money from & we can make our voice heard. It is onl by having an educated, active citizenry that people can be free in the first place.

    I am of course opposed to protectionism. I will buy a mango or some chocolate wthout fear of giving offence. But I choose where to spend my money because I am a citizen, not some moron that the state an do whatever it wants to.

  • Matthew Huntbach 15th Feb '10 - 9:36pm

    Tom Papworth


    It was free trade that made Britain the richest country in the world in the C19th.

    Yes, Britain did pretty well in the 18th century out of slavery in the Caribbean as well.

    It may have escaped your attention, but we are no longer living in the19th century. Assumptions which may have been valid then no longer apply.

    I am fed up of the lazy repetition of this mantra from people like yourself instead of deep thought on the issue. Are you capable of thought that actually addresses the world we live in now, or do you prefer to escape into the certainties of the 19th century?

    I write this not to say that free trade is all wrong, it certainly isn’t. But our economy is vastly different from the one those who write about free trade in the 19th century knew. That was a world where food suppliers, for example, were still largely the local butcher, baker etc. The idea of a few huge nationwide suppliers did not exist. The idea of a huge reliance on a finance industry which could just up sticks and go to Switzerland did not exist. The internet and all that implies did not exist. The world looked a lot more infinite than it does now. In those days it could still be assumed that the people who ran the businesses around us which we relied on had some loyalty to this country, did not regard it simply as a place to make profit, would not shift production away to other lands when it suited them. That no longer applies. We are now dangerously reliant on a very small number of people who care nothing for us.

    Part of the reason Free Trade was popular in the 19th century was that it broke reliance on aristocrat landowners for food supplies. But it was backed up by the assurance we had local energy supplies in coal, and iron works and potteries and the like, all using local raw materials. There was no shortage of occupations for the people of this country to produce objects which could be traded with others for food. The finance industry, on which we are told we must now rely to produce the wealth we trade with, is not like that. It doesn’t need vast numbers of people. Those who run it have made quite clear by their refusal to give to this country in its time of need what they could clearly afford, and their threat to run abroad instead, that they care nothing for it and its people. For them, this country exists simply as a play space, and its people simply as fodder to provide low grade service jobs. They are like the worst of the old aristocrats our political ancestors fought against.

  • Tim Leunig 15th Feb '10 - 10:18pm

    I don’t see many people in Sunderland wishing Nissan were run as well as BL…

  • Timothy Cox 15th Feb '10 - 10:28pm

    Unfortunately, Mr Thorpe, yours was not a very well thought out post and betrays a complete misunderstanding of the nature of global trade.

    “Globalisation is dead – unless nations are all willing to become client states of China. It’s time we British stopped playing the game and started looking out for Number One.”

    China recently overtook Germany as the largest exporter, but the most recent figures show that Beijing’s trade surplus has narrowed to $173 bn for the last 12 months- that’s considerably less than Germany and Saudi Arabia. Why? Because Chinese imports have rebounded faster than their exports. To produce goods China must import from the rest of the world, including “Number One” (I assume you only refer to U.K. businesses, wholly owned by British nationals?!)

    The reality of modern trading is that, whether it’s an iPod, a designer handbag, or a top end stereo from a “good British company like Cambridge Audio,” the final nodes of production often take place in China. Designs are drawn in London, promotions are launched from Manchester, inputs sourced from around the world, assembled in many different countries, and often finished in China.

    Recent estimates suggest only 50 per cent of the value of “made in China” is actually added in China. But trade accounting practices attribute the total value. In reality, “made in China means “made with the rest of the world.” Your mercantilist nonsense fails to account for the harm restricting Chinese trade will cause to those you seek to “protect.”

  • Andrew Suffield 16th Feb '10 - 2:29am

    I’m certainly very familiar with EU competition rules. Does this mean I find them fair? Besides Thatcher’s policies, these rules authorized a number of cross-country takeovers that have hardly proved beneficial.

    Careful there. This point stands on the idea that “cross-country takeovers” are significantly worse than “in-country takeovers”. I don’t think that’s well-established. Being bought out by a local conglomerate doesn’t mean they won’t dramatically downsize and offshore the business.

    The problem lies not with the nationality of the purchasing company, but rather with its attitude.

  • Robert C 16th Feb '10 - 10:14pm

    I’m quite sorry I came in at the end of this debate, since the whole doctrine of non-intervention is one that has long been due to an overhaul and I am surprised at how many fervent adherents it has among the Lib Dems. The idea that the government can simply withdraw from the market and then it will operate in some free-market nirvana is about as realistic in terms of industry as it is to say that free market economies do not suffer booms and busts – and we all know what happened to that supposition. The fact is that no other nation in the world avoids intervening in the market and some commentators here seem to be ignoring this as a result of doctrinally-induced fact blindness.

    People who say it does not matter where a company’s headquarters is are burying their heads in the sand. Of course it matters. Once acquired, these companies pay very little UK tax, remove the key decision-making and research functions from the UK and generally we are relegated to a bit part at the end of the value chain. This has disastrous consequences for the regional balance of our economy as well in terms of income and social inequality. Wealth and income become more narrowly spread and “lumpier” and the costs to the state in terms of benefit payments and regional support become heavier and heavier just as the tax base is rapidly leaching away overseas.

    Very rarely do mergers add value. Mostly they destroy it, and being more open than other countries to foreign acquisitions, we are therefore more open to destruction of value. QED. In fact, in our overweight financial sector is actually feeding on the corpse of what remains of the rest of the productive economy: witness the funding of the Cadburys deal by RBS. At very minimum we need to make these takeovers more difficult and if we do allow them, we have to ask, what is the value to the UK as a whole. Do we still have a “national interest”? Heck, we do!

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