Digest

BBC

October 6th 1995

In my first week at the Confederation of British industry (CBI), in June 1992, I received a personal letter from the then chancellor of the exchequer, Norman Lamont, still in all his ERM glory. How nice, I thought. I have finally arrived. At last I am a fully paid up member of the great and the good.

But when I read the letter I was not so sure. Because the message was that Mr Lamont did not want to see me-ever. Well, not quite. The point he made was that the government proposed-which means they had decided-to abolish the National Economic Development Council. That was the forum in which employers (represented by the CBI), unions (represented by the TUC), and the government came together to discuss the state of the economy. "Neddy," as it was colloquially known, had survived 11 years of Thatcher government, though its deliberations gradually became more and more remote from economic decision-making. So in 1992 it was easy for the government to present it as an irrelevance-the last bastion of the corporate state and the last redoubt of tripartism. It fell without a struggle.

It was hard to argue for the continued existence of a body so redolent of the economic policy failures of the 1960s and 1970s, when government, employers and trade unions tried and failed to promote growth and control inflation through prices and incomes policies over beer and sandwiches at No. 10. There was no place for that nonsense in the bracing 1990s.

As it happens, I had a sandwich, and a beer, at No. 10 the other day. Not with the prime minister, on this occasion, but with one or two of his henchmen. We talked about pay. Top people's pay. It occurred to me then, as I munched my cheese and Branston pickle, that much had changed in the three years since Norman Lamont's letter.

Norman Lamont himself had gone, of course, to prowl the backbenches. More importantly, though, the relationship between the government and industry had changed. Subtly, gradually-and we are not talking about a return to the 1970s. But there is no doubt that the rigorous, minimalist non-interventionism of the late 1980s is now a thing of the past. There is a different, closer relationship between government and business. I will call it the new corporatism, although Michael Heseltine will not thank me for doing so.

The set texts of the new "ism" are the two Competitiveness white papers of the past two years, which set the seal on this change of heart in the Conservative government and incorporated a redefinition of industrial policy. Sadly, they are not best sellers. They have the kind of titles which make the heart sink: "Helping Business to Win" and "Forging Ahead."

And if you can get beyond the title, into the text itself, you will find a somewhat indigestible mixture. All government departments were required to contribute their mite, explaining how their humble efforts were targeted at the enhancement of the competitive position of Britain's companies. Some of it is far from persuasive.

But hidden in the verbiage are some sensible propositions-and one exciting idea.The sensible propositions are straightforward enough. The first is that since the government's own activities take up about 43 per cent of the Gross National Product it is bound to have a big impact on the success of the UK's wealth-creating sector, through the way in which it raises its taxes and spends the receipts. So it makes sense for the government to examine, from time to time, whether it is doing so in a way which helps businessmen to compete-and to consider such questions as whether British taxes are a heavier burden than companies in other countries have to bear, or whether our transport infrastructure is a strength or a weakness. (The answers are that our corporate tax system is a strength, and our road network a weakness.)

And in some circumstances the government gives direct help to businesses. Should it? It is certainly arguable that it should not, and that the best thing the government can do for business is to get out of its way. But even Margaret Thatcher found it hard to sustain that argument in its present form. She accepted that both at home and abroad there are useful functions which the government can perform in the service of British industry.

But it is a wicked world. Most other countries spend money attracting footloose international investment to their shores, so it is difficult for us not to do the same. And having Nissan, Toyota and Honda car factories in the UK is a huge bonus. Aside from their direct effect on employment they have stimulated British suppliers to improve quality, which has helped them get other business too. Forty per cent of all British-manufactured exports are now produced in foreign-owned plants.

Similarly, all countries try to assist their exporters in overseas markets, through their embassies and consulates. If our government did not, British companies would be disadvantaged. And, although it is unfashionable to say so, our Foreign Office is now rather good at that sort of thing.

These are the sensible propositions which underpin a constructive relationship between government and industry. The exciting thought in this year's Competitiveness white paper, is that the government should work with industry on a national benchmarking exercise.

I visit the real world often enough to know that benchmarking is a jargon word which thrills about 150 people in the country, and repels the other 55.99 million. But I press on. Simply put, it means trying to assess a company's performance against the world's best.

Now you may say that companies must, in practice, do this every day in the marketplace. Otherwise, they would not be able to sell their products or services. But many markets are not global. Companies sometimes only become aware of just how far behind the competition they are when it is too late to do anything about it. The fate of the British motorcycle industry faced with Japanese competition in the 1960s is the locus classicus of that argument.

So benchmarking is a valuable technique, and many companies-usually the best-use it on themselves. There are consultants who make a decent living putting marks on benches. It is part of the rich tapestry of corporate life.

But has this got anything to do with the government? And surely it is not something which can be done nationally, across industry sectors? Are good practices in making soap powder also relevant to manufacturing constant velocity joints? My answers to these three questions are, tentatively: yes, yes, and yes.

I think there could be a useful role for government, and that there are some universal good practices, certainly across the whole of manufacturing-and maybe in the service sector too-which can be assessed and compared. The justification for a government role is that there does appear to be what economists describe as market failure. Companies do not necessarily have the information they need in order to be aware of how good they are, or how bad. Some companies think they are at the leading edge of manufacturing excellence, but are really in the stone age. So the market needs a bit of help.

There is strong evidence for that proposition in a recent study by the London Business School and IBM, which reviews over 600 manufacturing plants in the UK, Germany, the Netherlands and Finland. The researchers highlight those companies which appear to be world class and which follow best practice in everything from stock control to customer service-companies such as Toyota or Siemens. Only just over two per cent of the UK companies investigated fitted that category. Two per cent seems a frighteningly low proportion. But we should not be too depressed, since the percentage was little higher in Germany, and even lower in the Netherlands. Behind the "world class" category there are two other good classifications to be in: the contenders and the promising. Both groups are considered to have the potential to become world class performers, but are not there yet. Perhaps they fall down only in one or two areas. But their performance elsewhere suggests that they have the ability to correct their weaknesses. Sadly, we have fewer companies in those categories than do the Germans or the Dutch.

The remainder are seen as companies which won't go the distance, or are brutally categorised as "punch bags." They are already being badly knocked about by the competition, and have no ability to hit back because they lack the expertise, or the investment, needed. That is the UK's problem-our "tail" of poor performers. We have, proportionately, seven times as many punch bags as the Germans or the Dutch, seven times as many companies whose manufacturing practices are so old fashioned and out of date that they are clearly vulnerable to determined competitors who seek to target their markets. Some may appear on the surface to be doing well and making good profits. But their old-fashioned manufacturing practices mean that they are busting a gut to do so-working much harder and less efficiently than their competitors. In today's increasingly open world economy, it is only a matter of time before they are picked off.

Can we help these companies before it is too late? It seems to me to be worth a try. But it is first essential that we know which they are. That is why I find the notion of a national benchmarking project, to be run as a collaborative venture between government and industry, so exciting.

It is not easy to design the perfect scheme, and it must not be just a theoretical exercise. The results must point companies towards practical changes which they can make to correct the deficiencies identified. There may be a university research department which can be brought in to help upgrade their technology. There may be a government grant available for new machinery. Consultants can be hired, with Department of Trade and Industry (DTI) support, to reorganise the factory layout. Partnership Sourcing Limited, a joint venture between the DTI and industry, can reorganise the company's purchasing, to cut input costs. Management could be sent to a trade fair abroad, to see at first hand what the competition is up to. The point is to decide what sort of help is needed and to provide it fast.

Of course it is primarily for companies themselves to take action. But the government can take the horse to water. The DTI can use its regional offices to market benchmarking schemes, and persuade companies to use them. Companies should pay, of course. This isn't a charitable venture. But it needs selling. Perhaps the communication skills of the deputy prime minister in 10A Downing Street could be put to use.

The government needs to explain very clearly that industrial strategy has a quite different meaning in the 1990s from that in the 1970s. It is not about prices and incomes policies agreed with the TUC. It is about harnessing the skills which the public sector has to offer in the service of private companies-and making markets work better, rather than substituting government decisions for market forces.

I didn't reply to Norman Lamont's letter in 1992. There seemed little point at the time. But I have always thought I should have said something, if only goodbye. Because there are things which government and industry can do, together, to help each other, and the rest of us. Three years late, perhaps this will do as my response.

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