The British economy can succeed. But it needs less wishful thinking and a more hard-headed assessment of the facts
Can we end austerity without bankrupting the country and our grandchildren? The answer is yes and we can learn the lessons from the turnaround of the British automotive industry. The Deputy Governor of the Bank of England argued that if the British economy could achieve the same performance improvements as the automotive industry since the financial crash the prize for our country would be half a trillion pounds.
In the sixties and seventies British Leyland successfully designed vehicles that would still dominate the world motor industry decades later. They created the Range Rover and the Mini, together with the E-type Jaguar, still regarded as the most beautiful car ever built. For decades though we failed to truly understand the reasons for its dreadful financial performance and more government money seemed to be the only answer.
Meanwhile the Japanese auto industry was powering ahead and I asked one of its leaders, what should we do? His answer. First you must understand the problem, then you must admit it, only then can something be done about it. So what was our industry problem? It was only in the early nineties that the automotive industry finally understood and admitted the problem it was facing. Detailed, objective benchmarking proved that on every key measure of performance the Japanese were twice as good as their British counterparts, except on quality where they were 100 times better. For example their industry produced about 50 parts per million defects while the UK was running at around 5,000. Fortunately we have now caught up.
So what is the UK’s problem? Well if we were a company our auditors would tell us we have £1.8 trillion of debt on the balance sheet with other off-balance sheet liabilities which will have to be paid bringing the total close to £8 trillion. The debt goes up more than £5,000 a second and every year we have had around £50 billion negative cash flow. Our productivity performance is 20% behind the French and 40% behind the Americans and we rank 19th in the global league for employee engagement which correlates strongly with productivity.
Every sector of the economy is demanding more government funding with compelling cases from the NHS, defence, policing and education right through to the requirements for funding the industrial strategy. The only way out is to grow our economy faster and to keep doing it for decades to come. The only way to do that is to keep all the great businesses that produce jobs and taxes here and attract even more.
That requires capital and talent, and unfortunately the former moves at the speed of light to where it is treated best, and with the rapidly advancing Fourth Industrial Revolution we need an extraordinary range of talent. Never before have so many game-changing technologies become available to practically anyone, practically anywhere. They are continuously reducing in cost and advancing at breath-taking speed, and the consequences of the United Kingdom failing to grasp and act on them quickly are far from understood. Any business leader will tell you there is a global war for talent, and the best people can and will migrate to where it is treated best.
It has taken decades of painful hard work to build an automotive industry that can compete on the world stage. A key insight, which has now been universally applied through the global industry (and is relevant to other industries as well) is the understanding that every day this complex interdependent industry has to reduce the cycle time between selling something, and making something. Every day thousands of small improvements need to be made to remove waste and friction from the process. But knowing what to do is just 5% of the task, doing it is the other 95%. What has taken decades to achieve can be undone at the stroke of a pen if great chunks of our industry migrate from Britain’s shores, and the drift has started.
The same is true about many of the other job and tax producing industries. Our financial services sector is globally competitive and can be a source of massive growth in tax revenues. Our universities are sought after collaborators with other institutions in our biggest market, and are welcome partners (at least they have been) in the myriad of exciting research and development projects, so critical for creating the growth opportunities of the future.
Every day, countries from around the world are fighting to attract companies away from the UK with attractive offers of support. Never in the history of mankind have companies or countries been faced with a technological revolution which has already surpassed our human ability to adapt. Geographical advantage can be trumped by technology, and business and government will need every fraction of their bandwidth to focus on supporting this revolutionary change, fostering the creation of new products and services, and the required laws and regulations to allow us to catch up, because we certainly aren’t in the lead at the moment.
Trade deals with the rest of the world are a two-way street and in a brutally competitive global market winning greater market share elsewhere depends on producing better, more innovative, higher quality products than our global competition. When I started in business I remember being told if you can just get 1% of the US market fame and fortune would follow. Sadly, the British landscape was littered with companies that discovered how hard that was. Fortunately some succeeded, but not enough. Our political leaders must focus all the best talent and resources of government on the number one strategy, which is growth, supported by productivity improvement in both the public and private sector.
Given the choice, the people and business in Britain will vote for growth and prosperity. If a credible plan cannot be delivered to do so, which reduces our deficit, reduces our debt, improves productivity, protects our access to our biggest markets, guarantees frictionless trading, retains our best companies and attracts the best from the world, then instead of the answer to the question being yes it will be a resounding no.
British business leaders will continue striving to win Oscars by promoting the UK as a great place to do business and extolling its many virtues, but we all know that investment decisions are not driven by rhetoric and slogans but, instead, a fact based assessment of the risks and opportunities. So let’s remember, as we consider the country’s strategy for Brexit, the quote that was attributed to John Maynard Keynes (or Paul Samuelson) ‘when the facts change I change my mind – what do you do sir?’
Dr John M Neill is chairman of the Unipart Group