Economic Prosperity and Employment

Lord Monks Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Monks]

My Lords, I, too, thank my noble friend Lord Haskell for initiating this timely debate. The state has many roles. Often it has not sought them, but has had them thrust upon it by the failure of markets in important respects. At the moment, the list of roles tends to grow as the country’s problems are no longer masked by the windfalls of the North Sea and booming financial services; they are not completely over, but they are a lot less significant than they were. The problems are not new—economic historians trace them back to the 1870s—but they seem to be getting worse in some fundamental ways: the shrinkage of manufacturing, a persistent balance of payments deficit and too few companies still thinking for the long term, with a relatively low spend on innovation and training. Investment in new machinery is apparently at a lower level than in Austria, Turkey or Mexico. The low productivity levels that we are experiencing reflect inadequate skills, low capital investment and, sometimes, poor relationships at work.

While we are proud of our open economy, can we really be so relaxed about the continued foreign takeovers of successful British companies? The latest is Penguin Books, which has recently been taken over by a smaller rival, and it seems that Invensys is shortly to go as well. There is no comparable traffic in the opposite direction, nor is there a flowering of new UK companies of the same size and importance. A large part of what could be called the commanding heights of the economy is now held abroad. Too many managements and shareholders are governed by thoughts of value extraction—the price they can get—rather than adding value to what they have. There is not a squeak from Eurosceptics or Europhobes about what this means for national sovereignty. A small proposal from the European Commission sends them into paroxysms of anger but when this fundamental change is going on, nothing is said.

We also have a systemic tendency for rewards to go disproportionately to people at the top and for them to outstrip performance. The inequality statistics are truly frightening. Will the Royal Mail in private hands follow the same depressing path by charging higher prices and contracting out delivery services to lower paid, less securely employed workers? Then will we see the Royal Mail sold off, perhaps overseas, like so many of our privatised utilities? Must we watch helplessly as private equity or other predators move in for quick kills? Why are golden shares so out of fashion in developments of this kind?

The stark truth is that private ownership has not unleashed a fresh burst of investment. Thames Water and BT are seeking government guarantees for major investments in the super sewer and national broadband; there is not much appetite for risk among many of these large privatised companies. Centrica withdrew from the new nuclear power project because its shareholders wanted higher returns over a shorter period. This rather frenzied approach to short-term gains continues to enfeeble UK companies. If you add in the periodic devaluations of sterling, which make UK assets relatively cheap, you can see the vulnerability of our economic model.

Some are using the term “responsible capitalism”. I use it myself sometimes; it is a nice thought. However, there is a risk of many in the citadels of deal-making seeing it as an oxymoron and treating it risibly and not seriously at all. We have good economic models among our neighbours, particularly on the other side of the North Sea. Why do we not learn more from them and build, as others have said in this debate, a stronger training culture, foe example, comparable to their economies? Why do we celebrate so much a deregulated labour market while our northern European neighbours reject easy hire and fire, zero-hour contracts and the trend towards making jobs less secure? They are relaxed, even enthusiastic, about collective bargaining and extensive information and consultation arrangements.

Finally, what about our management cultures in this country? We claim some of the world’s leading business schools. I declare an interest as a visiting professor at Manchester Business School. However, they are often seen as transmission belts to put people into financial services or into the finance function of business—accountants and so on. How can they be transformed to become the staff colleges to make the UK a new, North Sea-style economy? The noble Lord, Lord Heseltine, has sought to address some of these issues and I believe that the Business Secretary recognises the problem, but as yet we are well short of measures to promote an economic model and culture that will be both successful and sustainable.

I end with a remark from a senior Siemens executive. When asked what the key factor in the company’s success was, he replied, “Continuity”. Would many top UK executives say the same? I doubt it. We must change that culture so that in due course they will consider that to be the normal way to describe their business.