Performance of the Economy

The question to be asked of corporate businessmen

If you told the chairman or managing director of company A making pharmaceuticals that it was a key to his company’s survival that it should merge with company B, which was a major producer of fruit and vegetables, few people would be surprised if he expressed, let us say, extreme scepticism about the idea. If you further explained that the merger would be irreversible, would require company A to consume company B’s products in preference to all other supplies of fruit and veg, and that company B would require large and continuing injections of capital from A, he would think you were mad. And he would be right. The question to be asked of the corporate businessmen who continually sign letters[5] to the press supporting Economic and Monetary Union with not just one other country, but with fourteen other countries, is why do they advocate a course of action for our country which they wouldn’t dream of for their own business or personal affairs, a course of action in which the gains are at best problematic and intangible, while the costs are certain and massive? No rational individual or properly managed business would arrange their affairs on such a basis. A characteristic of all the letters cited in the footnote was ignorance of the facts – about the Maastricht Treaty, the requirements of monetary union and the statutes defining the European Central Bank. Instead of relaying second or third-hand misinformation, the CBI and its leading members need to apply themselves personally first to reading the documents and then helping to do for our country, what is done (we hope) for their organisations, namely to carry out an analysis of our Strengths, Weaknesses, Opportunities and Threats – SWOT for short. If, having done this, they believe for political reasons that EMU should go ahead, they should say so, but giving their views as private individuals, not using the prestige of their companies to invest their views with an authority to which they may not be entitled.

SWOT: Strengths, Weaknesses, Opportunities, Threats

Though all of us, I daresay, can call to mind examples of corporate failure and indeed successes, the central purpose of this essay is to point the way forward to a new future for our country in its relations with the world and with the European Union in particular. We need a cool appraisal of our strengths and weaknesses, opportunities and threats. First let us start with our weaknesses.

Weaknesses

Our principal weakness, from which practically all others derive is our industry, specifically manufacturing. As I have noted beforeRef 5, this is not of recent origin, but goes back at least 120 years to the 1880s. In the years since the beginning of this century – the low point of our industrial fortunes – British industry has registered considerable improvement. Within the improving trend there have been outstanding successes: a chemical industry was established in the 1920s and maintained until recently at world rank. Within the chemical industry the 1980s witnessed a quite spectacular success – in pharmaceuticals – when at one time three of the best-selling ethical drugs in the world were British and largely manufactured in British or British controlled plant. During the six years of the Second World War British agriculture was transformed from relative backwardness to one of the most labour and capital efficient in the whole world, with an agricultural machinery industry established as a by-product. This was brought about by a national act of will, by the expertise of our farmers, by mechanization and by the products of the chemical industry referred to. Nonetheless, despite these outstanding examples, the current position is one in which even in a recession (1991-93) Britain imported about 10% more than she exported and over the last 30 years or so Britain’s consumers have shown a consistently larger appetite for foreign goods than foreigners have for ours. In round terms this means that in the three years of the most recent recession, the average British family unit will have accumulated a foreign debt of around £2,500 or about 13% of its annual income. Clearly for those who import say a mid-range BMW car, the debt is much bigger – say £20,000, all of which has to be paid for by the export of some other product. While manufacturing is valued at only around 22% of Britain’s Gross Domestic Product, it represents about 70% of its exports. By contrast the manufacture of tangible goods represents about 30% of Germany’s GDP and a little less for Japan. It is a major theme of this essay that the manufacturing sector of our economy, good as it now is in parts, is simply too small to support indefinitely our present standard of living and will remain too small unless the nation takes specific action to enlarge it. Remember that while a deficit on trade can be paid for by investment income in the short term, it is the production of goods and services which provides employment. As shown in Table 5, manufacturing output per head in Britain is little more than one third that of Switzerland. When utilities are added to manufacturing, the figures mean that whereas for every person in industry in Germany there are two others in the rest of the economy, in Britain there are three. All the Anglo-Saxon countries presently suffer from much the same problem.

Manufacturing per head in 1993 $
Switzerland 9,400
Japan 8,000
Germany 5,200
France and Italy 4,900
USA 4,000
UK 3,400
Australia 2,900

Table 5: Manufacturing output per head for a number of countries

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