Posted by

John Longworth, Director General

20 Jun 2013

In 1870, Birmingham was still one of the great manufacturing cities of the world. At that time, Britain’s manufacturing sector represented 35% of employment. Product per capita, that is GDP divided by people, was the highest in the world (with the exception of Australia) and twice that of the USA. What is remarkable is that even in 1950, the economic performance of the UK was exceeded only by a handful of countries and was certainly ahead of all of the eurozone countries. Of course the reset button had been pressed by the world war. 

All through these periods, the UK exported more than almost any other country in the world as a proportion of GDP. Of course, even in this period manufacturing was beginning to lag services right back to 1913. 

Patents were behind other nations by 1913 and investment in manufacturing lagged almost all of our rivals throughout the period – the city of London preferring to invest instead in emerging economies abroad or into services. 

The fact remains that in 1950 we were still in an enviable position. So what happened and what should we do about it?

Well we know what not to do.  The period of greatest, relative economic decline for the UK, across the board but particularly in manufacturing, was between 1950 and 1979. This was the period in which successive governments had an industrial strategy, supporting failing industries, protecting business from competition and picking winners. It is the period in which the public sector became bloated, crowding out business, controlling the economy through public procurement and nationalising the commanding heights of industry. It was the period when slowly but surely we stopped training people for skills and stopped educating for excellence. 

And we inherited a long period of under investment. 

All this led to agency and rent taking among corporate management, unions and shareholders each in their own way;  laziness among feather-bedded management, bred through lack of competition; the crowding out of challenger companies;  and the stifling of entrepreneurialism

Created and nurtured by the dead hand of Whitehall, this environment saw an overweening focus on the big levers of large corporates and culminated in the comfort blanket of the European Union, as we put the rest of the world in the too hard to do box. All of this driven by the policies of successive governments.

We have an engineering sector now starved of apprentices and graduates, both equally important.

We have a continuing structural failure in business and particularly SME finance, exacerbated during this period. 

Even the policies of governments after 1979 have only managed to arrest our relative economic decline – no progress has been made to claw this back.

By contrast, Birmingham, manufacturing and the UK economy, was at its greatest during the period when we had the least government intervention, the lowest taxes, the most access to finance, maximum entrepreneurialism, competition and innovation and when we traded the world! 

So, what is to be done? 

We have in Britain a small but perfectly formed manufacturing sector, which is beginning to trade the world again. It may only be around 10% of the economy, but is a base from which we can grow. But to do this we need a truly enterprise friendly environment. 

Chambers of Commerce across the UK are campaigning for a new model economy, a new way of thinking in government. To expose corporates to competition but to nurture SME's so they become the mid-sized businesses of the future – the challenger companies for our children and grandchildren.

For government to only intervene where there is market failure, but recognise there is a long term structural failure in business finance.

To see the need to have great infrastructure, so that business can compete and grow and a development programme which will itself stimulate economic growth through private investment, under written and for the long-term. 

To have an education system that recognises that knowledge and skills are as important as hard infrastructure in a knowledge based economy. 

To promote exports by providing the help businesses actually want. 

I travel the length and breadth of Britain visiting businesses of all sizes and sectors. Every business has a fascinating story of hard work, sacrifice and enterprise. They tend to say ‘it is tough, but we are doing ok’, almost apologetically, like it shouldn't be so. Businesses must have confidence, as this will contribute to a virtuous cycle of growth.

But all of this is in spite of government, not because of it. Business is doing it for itself. I meet great businesses, all of which have the potential to be world class. They are fighting back, exporting to the rest of the world, driving growth and employment. 

Recently, we at British Chambers of Commerce took a group of fourteen business owners to have breakfast with the Prime Minister, including BSA Engineering from Birmingham and Naturel from the Black Country. They said it like it is. 

Government must focus on creating a truly enterprise friendly environment – not least because everything else depends on it. And if you can't or won't, then Whitehall and Politicians, must get out of the way! 

 

John Longworth is Director General of the British Chambers of Commerce