Tag Archives: British economy

‘From Empire to Europe’, and then where?

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‘From Empire to Europe: The Decline and Revival of British Industry since the Second World War, Geoffrey Owen, Harper Collins, 2000.

This is another book I read last year: a history that more than most has contemporary relevance.  It charts the story of British manufacturing from the end of the Second World War to the end of the century.  The majority consists of ten chapters on the experience of separate industries, from textiles and steel to cars and pharmaceuticals.  Not all are stories of failure.

Two early chapters present the historical background and four at the end review differing explanations for Britain’s relative decline.

The book was first published in 1999 and screams ‘BREXIT’ – as a history of the future of Britain outside the EU, or so it might too easily be concluded.  In fact, given the relative starting positions of Britain and the rest of Europe, then and now, the mistake of standing outside of the rest the continent now looks more obviously stupid and will more quickly be seen to be so.  If it isn’t already.

After the war ended it was expected that in due course Germany would resume its pre-war role of supplying Europe with manufactures; Britain could concentrate on the rest of the world with which it already traded.  The Labour Government decided against joining the European Coal and Steel Community (ECSC) and ceding sovereignty over its two most important industries, while the left of the Labour Party complained of the economic liberalism on the Continent it said led to social injustice.  Foreign  Secretary, Ernest Bevin, insisted that Britain was ‘not just another European country.’  Some economists at the Board of Trade favoured membership of the ECSC on the grounds of exposure to European competition, but this was a minority view.

The Tory Government from 1951 broadly followed its predecessor, rejecting a second opportunity to join the ECSC or taking part in negotiations to create the Common Market.  European integration was, in the words of another author quoted, ‘at best irrelevant to Britain’s economic self-interest and at worst a political nuisance which had to be tolerated, if only in public, because of the Americans.’

Again and again, Owen records the effect of being outside the European market.  In textiles small and medium-sized firms from Italy and Germany benefited ‘to a far greater extent than the British industry from the expansion of intra-European trade in the 1950s and 1960s . . . where the long-standing bias towards non-European export markets proved to be a serious disadvantage’ (p57)

When eventually Britain did join the Common Market, it found that its European competitors ‘instead of scale and standardisation . . . had put more emphasis on design and technical innovation . . . imports from the Continent rose sharply in the second half of the 1970s, and the British textile industry, having neglected European markets in the 1950s and 1960s, was not well equipped to respond.’ (p77)

In shipbuilding ‘the export trade was regarded as marginal and unpredictable’ and ‘a marketing strategy geared to the requirements of domestic owners was becoming obsolete’. (p97 & 100). In steel, ‘traditionally the most nationalistic of all major industries . . .  European steel-makers needed a market as large and competitive as that of the US’, and ‘while recognising that the smaller domestic market-imposed limits on how far British steel-makers could go in the American direction . . .’ there were barriers to this being achieved within Britain.

On the other hand, while ‘there was a long tradition of price-fixing in French steel, and the industry had bee oriented almost entirely to the domestic market the effect of the European Coal and Steel Community (which was opposed by most French steel makers) was to break down the parochialism of the industry and force it to plan for a wider European market.’ (p 148, 127 & 130).

In the paper industry, joining the Common Market ‘would have exposed it ‘at an earlier stage to competition in a large dynamic market; ‘modernisation and rationalisation which occurred in the 1980s and 1990s might have occurred earlier’ and it would ‘have provided export opportunities’ which might also ‘have started earlier.’ (p170)

In relation to the engineering industry Owen writes that, after the war, ‘when the continental economies were in disarray and the need for hard currency was urgent’, when standing aside might been seen as explicable, ‘the neglect of Continental Europe . . . after its recovery in the 1950s . . . was to prove a serious error.’ Seemingly strongly placed in the early 1960s, low economic growth and lack of involvement in intra-European trade meant that ‘an increasing number of British manufacturers were falling behind their Continental counterparts in the scale of their production.’   The failure to Europeanise in the 10–15 years after the war meant that for many firms it was too late when they did.

A similar experience les behind the decline of the British motor industry: ‘the decline of Leyland has to be seen as an avoidable disaster, largely attributable to the failure to Europeanise the business in the 1950s and 1960s.’ (p249). The ‘low priority’ given by British firms to Continental Europe meant that they did not join ‘homogenous, fast-expanding and highly competitive mass market enabled companies such as Renault, Volkswagen and Fiat to narrow the productivity gap with American manufactures . . .’ (p250)

Owen points out that European industry was itself not always successful and notes its failure in computers and semiconductors.  Of the former he says that ‘European industry might have done better if governments, instead of nurturing and protecting national champions, had concentrated on widening the market for computers . . . As it was, nationalistic, producer-oriented policies, discriminating in favour of chosen domestic suppliers, exacerbated Europe’s most serious weakness vis-à-vis the US, the small size of the market.’ (p270)

Owen makes clear that lack of orientation to a European market was sometimes a mistake not just made by the British, and that failure was not simply a result of lack of access to that market.  Other strategic mistakes were made. Half a century later it would therefore be an identical mistake to see market restrictions only on a continental scale as the problem, when many industries now have global markets and global production.

So, Renault is partnered with Nissan and Mitsubishi; Volkswagen includes Audi, Bentley, Bugatti, Porsche, SEAT, Škoda plus others and has an alliance with Ford, while Fiat is now part of Stellantis, which includes Chrysler, Jeep, Peugeot, and Citroën.  Britain has a small luxury car market with volume production owned by foreign companies.

Owen tells a similar story about chemicals, noting however that the success of ICI by the end of the period covered was despite the factors that harmed the development of British companies in other industries.

Others were also successful, such as pharmaceuticals, which Owen says was due, among other things, to its ‘openness to foreign investment.’ (p372). This ensured that ‘British-owned firms were forced to compete against the world leaders and learn from them.’ (p387)

In the last chapters he looks at common explanations for the decline of British industry after the war, including the nature and dominance of the financial system; the quality of training, education and culture; poor industrial relations, and Government policy.

On the first, he says that ‘the financial system on its own does not have a decisive influence on which countries succeed in particular industries, although it may play a supporting role.’ (p403).  He does not believe culture or education factors were decisive either, and although he notes that ‘there is no doubt that some British companies were badly managed in the 1950s and 1960s . . . there was significant improvement in the 1980s and 1990s.’ (p 422)

On Government policy ‘the decision to opt out of European integration was the biggest missed opportunity of the 1945–60 period, more important than any mistakes in macro-economic policy.  Indeed, it is hard to argue that Britain suffered from uniquely incompetent macro-economic management during these years.’  (p 450) Britain became a member of the EEC ‘fifteen years too late.’  He concludes on an optimistic note, telling us that ‘by the end of the 1990s Britain had found a role for itself as a medium-sized industrial nation, well integrated into the world market.’  (p 461)

Everyone loves a happy ending so maybe it’s as well the book hasn’t had another edition.  The ‘unique incompetence’ of British Government economic policy that didn’t exist after the war looks as if it has arrived.  But not only the government, the informed commentariat look as if they think this policy should persist, or, more charitably, be persevered with.

In today’s ‘Financial Times’ (6 January) Robert Shrimsley records the view that ‘Tories are wondering what happened to the Brexit they promised’, as if they got ‘the house red’ rather than the ‘vintage claret’.  He recommends that ‘whether one sees Brexit as fabulous or foolhardy, it is absurd not to take the wins that are available.’   

Unfortunately, the wins he seems to champion do not seem to be up to very much and also have downsides. His recommendation, therefore, is to continue better with a failed policy that will do nothing much more than deliver failure.  He, like Kier Starmer – the so-called leader of the opposition – can no more think of going back into the EU than Tory Eurosceptics could previously stop dreaming of leaving it.

The book tells a sorry tale of British failure to appreciate where the world was going and what its place in this changing world was to be.  It has happened again with Brexit.  Deciding to persevere is what’s called déjà vu all over again. 

Crisis? What Crisis? part 3 – down, down, deeper and down

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Sterling as a picture of the future

Sterling as a picture of the future

Tory lies over Brexit and the sunlit vistas of UK sovereignty that lie ahead are nothing new.  Uncriticised by the Tory press and a BBC that is both scared of them and shares their broad establishment understanding of society, they have been able to present themselves as the only trusted stewards of a successful economy, with only its fruits perhaps needing some fairer distribution, now that they are the workers’ friend.

But the Tories have lied to themselves and everyone else that the British economy is in rude health, especially when compared to the sclerosis of the rest of Europe.  They quote statistics showing that real Gross Domestic Product has grown faster in Britain than in the bigger EU economies such as Germany, France and Italy.  What they don’t say is that GDP per person was no higher in 2014 than 2007 and that the British are no richer compared to the EU 15 average now than they were 15 years ago.  In fact Britain lags behind Spain and France on this measure.

In order for Britain to grow it has needed to increase its population and workforce, including through immigration, and make the working class work longer hours while reducing their wages, which declined by 10% between 2008 and 2014.  Productivity relative to the EU average has fallen to 90% so that output per hour is 25% below French or German levels.  In only one other region apart from London is GDP per head in excess of the EU average.  This means only 27% of Britons are wealthier than the EU average; but we are expected to believe that the EU is holding Britain back.

The Tories (and Blair before them) have relied on a high debt, low wage and low skilled economy that compensated for poor productivity by increased exploitation, symbolised by zero hours contracts on the one hand and long working hours on the other.  Such a model has no need for a comprehensive education system that can provide a highly educated and skilled workforce for employment across a wide number of economic sectors.

Increased exploitation of labour substitutes for increased capitalist investment in technology, which is mirrored in less state investment in infrastructure.   One example of the result of this is the threat of the lights going out because of a shrinking margin of spare power generation capacity.  This in turn leads to huge subsidies to foreign states to supply nuclear power that may keep the lights on – in the shape of Hinkley Point C and the French and Chinese state companies involved in its development. The lack of infrastructure puts a further drag on the development of productivity and the growth of living standards.

Brexit is being sold as the opportunity to improve this far from outstanding economy but leaving the EU will discourage the foreign investment that helps bail out Britain’s chronic deficit in trade.  Exit from the EU will diminish the financial sector and its acquisition of profits from around the world as bankers already threaten to pull out.  Trade will face new barriers and even old Tories like Michael Heseltine have laughed that there are new markets that no one has so far spotted to replace those that will be lost in Europe.

Devaluation of sterling will hit peoples’ living standards, reducing the domestic market just as foreign markets become harder to enter, while lower economic activity will reduce the capacity of the state to spend on infrastructure. A poorer Britain with reduced foreign earnings will have pressure placed on its interest rates, which will rise to cover the cost of financing a state whose currency is falling.

This risk was made clear by a market analyst quoted in the ‘Financial Times’ as saying that sterling is behaving more like an emerging markets currency and that there is no idea what its true level is. If a foreigner lent £100 to Britain, costing them say $120 in their own currency, it will mean that when she’s paid back the pounds she receives could be worth only $100.  So how much more interest on the loan would she require to protect herself against this risk?  And what sort of investment could warrant borrowing at this rate of interest?

Britain has created an economic model based on sweating its workforce.  Karl Marx noted the limits to exploitation by lengthening the working day 150 years ago, limits again being exposed today by Britain’s declining productivity.  And anyone believing that the Tories will move to create a high wage economy that involves upgrading the skills and talents of the workforce will have to explain the latest genius idea of promoting grammar schools, which relies on improving the education of a few by shiting on the rest.

An economic logic will apply to Brexit regardless of whether the Tory party realises it or not just as we have already seen its political logic unfold despite what some might have believed it was all about.  In last Monday’s ‘Financial Times’ some ‘liberal’ Brexit supports complained that they wanted an ‘open’ Brexit and not the nasty Tory variety.  But this is just as innocent of reality as the supporters of a ‘left’ exit – Lexit – thinking that a decisive move to national capitalism could be anything other than reactionary.

The economic logic of Brexit suggests increased unequal competition with other much larger state formations, such as the EU and the US, not to mention China, a la Hinkley Point C.  One weapon of the smaller and weaker is a race to the bottom with reduced corporate taxation as one example, already signalled by the late chancellor George Osborne, but this is not a credible strategy away from the current model.

There are therefore no grounds for believing that an interventionist state acting on behalf of workers will arise from any change in approach by the Tories.  However it is not excluded that the inevitable crisis that Brexit will induce could give rise to a change in direction to a more interventionist approach in order, as we have said in the previous post, to allow “a Tory government (to) save capitalism from itself.”

Unfortunately the Tories have tied themselves to those sections of the electorate least supportive of this approach; those who support lower taxes and a less interventionist state, unless its intervention is into other peoples’ countries.  The best hope of such an outcome is the influence of those sections of British big business that are tied to the Tories who do provide a constituency for such an approach.

However the weakness of a stand-alone Britain doesn’t help such change.  So for example, it is reported that the Tories may be thinking of devising restrictions on foreign investment, which had more potential within the EU than outside, but this idea will conflict with Britain’s more isolated situation and greater need for outside funding.  Their idea of increased state intervention will also be restricted by budgetary pressures arising from the weakened tax base of an ‘independent’ Britain.

As Boffy’s comment to my last post made clear, state intervention in the economy is not by definition left wing, despite much of the left’s identification of Keynesianism with socialism.  There are all manner of right wing Keynesian interventions so a Tory lurch to increased state intervention in the economy is perfectly compatible with increased authoritarian intervention by the same state with both masquerading as the workers’ friend; or more pointedly as the British workers’ friend.

The Tories newly found working class agenda, such as it is, cannot accommodate any sort of workers’ identification with their brothers and sisters beyond their own nation.   Xenophobia thus unavoidably defines the anti-working class core of the new Tory ‘left’ agenda.  This rabid xenophobia is perfectly compatible with false concerns for British workers but utterly incompatible with workers’ real interests, British or otherwise.  The Tories can feign sympathy with all sorts of working class concerns but not with its interest in solidarity across nations.  This appears most immediately in the shape of immigrant workers and, as a member of the EU, in the shape of all those workers who have moved from the EU who have now almost become hostage to the wilder delusions of the Tory right.

The centrality of workers unity was recognised by Marx long ago when he noted the two principles separating the socialists of his day from others:

“The Communists are distinguished from the other working-class parties by this only: 1. In the national struggles of the proletarians of the different countries, they point out and bring to the front the common interests of the entire proletariat, independently of all nationality. 2. In the various stages of development which the struggle of the working class against the bourgeoisie has to pass through, they always and everywhere represent the interests of the movement as a whole.”

No matter how any right wing force attempts to portray itself as the workers’ friend this is always the one area in which they can make no pretence and, in this failure, expose their true character – that they cannot accept never mind promote the identity of the interests of the workers of their own country with the interests of the workers of others.

The nationalists in Scotland in the shape of the SNP have at least temporarily succeeded in fooling many that the interests of Scottish workers are somehow radically different from those in England and Wales, although the rise of Corbynism has demonstrated that in the rest of Britain there might be more of a fight against nationalist division.  It is noteworthy that this blog draws to our attention the SNP’s approach to immigration set out in its White Paper for independence, which was a points based system, rather like that of those British nationalists like Boris Johnson.  But then nationalism is nationalism, innit?

Back to part 2

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