UK Industry: International Competitiveness

Lord Brooke of Sutton Mandeville Excerpts

Thursday 5th July 2012 Lords Chamber

[Lord Brooke of Sutton Mandeville]

My Lords, it is a privilege to follow the noble Lord, Lord Kakkar, a professor who brings great professional distinction to your Lordships’ House and conspicuous relevance to this debate. I declare an interest as president of the British Art Market Federation, though I am not going to allude to that international market in my speech.

My noble friend Lord Jenkin of Roding, with whom I have made common cause from time to time on behalf of the City of London, deserves all the conventional plaudits for securing this debate and for opening it so characteristically comprehensively. He deserves unconventional ones too for the letter with which he summoned some of us to his cause. It was a model of its kind and spellbinding in its irresistibility, just as he has today added yet another string to his bow and to a repertoire which embraces expert knowledge of the sciences, especially in the energy field, of local government and of what our forebears would have called political economy. He has, moreover, in the first week of July, given us a whiff of the sense of holiday—even of romance—that lies ahead of us at the end of this month when the long Recess beckons.

Trade has its own mystical aromas. This year is the bicentenary of Burckhardt’s rediscovery, after six centuries, of Petra:

“A rose-red city—‘half as old as time’”,

standing at the great Nabatean crossroads of two major trade routes amid the mountains in the Jordanian desert. Across the centuries, those spices of Araby and silks of the East mingle with John Masefield’s:

“Dirty British coaster with a salt-caked smoke stack,

Butting through the Channel in the mad March days,

With a cargo of Tyne coal,

Road-rails, pig-lead,

Firewood, iron-ware and cheap tin trays”.

Heady though those romantic scents are, there is a different sense in which they are profoundly serious, for unless we can steer our national barque—a Scrabble word I spell for the Hansard writers with a “q” and a “u”—we are not going to evade or escape the slough of despond which is the world’s current economic and financial lot. In the challenging agenda of today’s debate lie the real prospects of recovery from an otherwise intractable fate. In the middle of page 5 of your Lordships’ Library’s admirable note prepared for this debate, there are parentheses from the Office for Budget Responsibility containing the magical words “excluding oils and erratics”. As an undergraduate, I played village cricket for my college in a side called the Erratics, which catches the double sidedness of joy and duty of this voyage. Until today, I had not appreciated that we had then been in philological descent from a trade category.

Since the nature of our predicament makes starting blocks difficult to discern, let me pick out some encouraging—if random—travel brochures. First is the coincidence that in the European Union—which is at this time, saving the grace of many, one or our beds of nails—the complement of overall unemployed is 23 million which, give or take the population of a medium-sized city, exactly coincides with the number of SMEs the Union contains, so that one extra employee in each SME would solve the conundrum of unemployment. It is, of course, a fantasy worthy of the Odyssey because the precise distribution of the unemployed and the national SMEs are not so perfectly aligned, but I cannot conceive of any time in my 18-year private sector career of continuous profit accountability when I could not have constructively added at least one single person to every unit in our business, so it does carry seeds of hope. Moreover, it underlines the virtue of the EU in seeking specially to reduce regulations in units employing fewer than 10 people.

Secondly, the very initials “SME” bring the medium-sized businesses into focus. The lure of the small business as the key to employment growth has been around since Shell promulgated it a third of a century ago, but its now conventional centrality may have taken our eye off the medium-sized ball which, in engineering for instance, provides growth points of great promise. Next, the World Economic Forum’s league tables of international competitiveness show us beginning—even if only patchily—to pick ourselves up off the floor, though I shall return later to one paradox of institutional verdicts which needs attention. Next, it is a truism of success in the world of tourism that a good holiday is made up of dozens of component elements but if one or two go wrong they sully the total recollection. I am struck, in the run-up to this summer’s Games, by how the Olympic totems Wenlock and Mandeville—I take personal pride in the exploits of the latter—have been both imaginative and comprehensive in their management of detail, which is a good augury to be cherished.

Finally, I have sat at the feet of my noble friend Lord Green on the subject of Africa since he took on his present portfolio. We know from the Latin of Pliny the Elder that there is always something new coming out of Africa. I shall be interested in my noble friend’s view on whether he feels Africa collectively is one of the next mega-BRICs—though perhaps one should say mega-BRICAs.

I move from travel brochures to headlines. Despite the contemporary aridity of EU prospects, I find profoundly encouraging the twin facts that, though our manufacturing base has latterly shrunk by almost 50%, our exports of manufactured goods outside the EU have grown by nearly 25% since 2010. That is not merely evidence of a main chance but also of it being seized. Secondly, the virtue that the Library briefing has drawn on so many sources brings home a much greater intellectual coherence to our global trade planning than I would have appreciated prior to preparing for this debate. I find wholly convincing the argument in the research report entitled “Understanding Recent Developments in UK External Trade” in the Bank of England Quarterly Bulletin in the fourth quarter of last year because services exports are less sensitive to movements in the exchange rate, even when I am also aware of how much of our growth in services has been due to the expansion of professional services as against purely financial ones. Trust in us in this area remains globally high.

I am not going to get into the vicissitudes of foreign direct investment—though I realise how we have been currently losing out to the Germans from the Chinese—save to commend the House of Commons Library for its regularly updated Standard Note 1828 on this subject, and to emphasise how much we gain indirectly through technology transfer and management techniques from inward direct investment. Ministers have recently used the car industry as an example. When I started out in business 50 or so years ago, there were already 1,600 American subsidiaries here and it was very noticeable, in sectors like pharmaceuticals, advertising and branded consumer goods, that American participation raised competitiveness to an extent that indigenously there was a substantial economic return in moving suitably flexible British managers from competitive sectors into ones that were notably uncompetitive.

My noble friend responding to the debate will have more than enough to answer when he winds up so, before adding to his agenda, let me utter words of praise. I am profoundly impressed by the way that the Foreign Office under Mr Hague’s leadership is expanding its global commercial and diplomatic coverage, even in these hard times, by reopening embassies and in expanding the consular network, just as my noble and learned friend Lord Howe of Aberavon urged in opposition.

I am full of praise for the growing imaginativeness of UK export finance, as well as that which is helping to secure office space for new UK exporters in effervescent markets. I am delighted by the application of the theory of comparative advantage to the Darwinian evolution of successful exporters through sensitive and sophisticated product choice, especially in emerging markets. However, I have some bits of grit in my shoe, on which I should be happy for the Minister to reply later than today.

The Government have made announcements on enterprise zones, both in the Plan for Growth and the Treasury Press Notice entitled Autumn Statement: Growth of 29 November last year, covering the second phase of the Government’s growth review. However, there are some notable mismatches in the details between the two references. A composite progress report on each of the original choices of zones might be productive.

I return to an earlier comment. The OECD said in its UK economic survey of March 2011 that faster-rising labour costs in UK manufacturing had robbed us of some of the benefit of a 20% appreciation of sterling, whereas the IMF in May 2012 said:

“Encouragingly, labor market performance has been better, with falling unemployment in recent months and fewer employment losses than in the aftermath of previous major UK recessions”.

I realise that there is at least a year between those two comments and that the Government are responsible for neither, but a reconciliation of the paradox would be interesting.

Finally, I hope that the Chancellor’s confession in March 2011 that our tax code had become so complex that it recently overtook India’s to become the longest in the world is not the last word on the subject, even while allowing for his immediate efforts at repair, for unnecessary complexity is not conducive to a good climate in which to do business.

More generally, I hope that we can recover some of what Keynes called “animal spirits”. Paul Claudel, the French poet who was his country’s ambassador in Washington in 1929, could not have known what was in store for the world when he hosted a soirée at the embassy on the first day of the Wall Street crash, and gave a toast to the effect that:

“Between the crisis and the catastrophe there is always time for a glass of champagne”.

However, there is one interesting echo between 1932 and 2012. In 1932, De La Rue was almost bust when a new chairman arrived and decided to take a gamble by throwing a massive dinner for the diplomatic corps, which was so effective in persuading the latter that the company’s future must be secure that security printing orders poured in from across the world. The De La Rue dinner is still with us today, while Greek membership of the eurozone still hovers on the brink.

Let me end as I began. Last month saw the centenary of the poem, “The Old Vicarage, Grantchester”, by my namesake, Rupert. Given when this debate will end, if we can move the church clock from 10 to three on today’s issues between now and the Summer Recess, we shall have been doing our duty and there may, indeed, be honey still for tea.