Chronic yes, but hopefully not incurable

 

Can Prime Minister Teresa May’s new industrial strategy break Britain’s cycle of low productivity and acute balance of payments deficits? Rhys David looks at the issues.

 At first sight it all seems rather paradoxical.  Britain, in many ways, seems a much more efficient country than our Continental neighbours and, on occasions the US. We have led the way in many modern banking developments, including credit and debit card usage, and more recently in contactless payment – to the extent that some banks have now decided to print bank statements on both sides of the paper for the declining number of individuals requiring hard copies, such are the number of non-cash transactions these days. They are also threatening to cut the number of cash point machines, so many people are buying even a cup of coffee with a card and need less change.

 

Our transport ticketing systems, too, are often surprisingly far ahead of those in many other countries. Home ordering (and printing in some cases) of tickets is now routine for bus, rail and air journeys. Even suburban rural stations with relatively small numbers of passengers boast machines that will enable you to buy a ticket for distant destinations, and across London the queues at underground stations are now for the ticket machines not the clerks’ windows. These changes, it can be argued, are merely transferring the cost of purchasing services from the operator, through reduced labour costs, to the user purchasing a service at home. They are still improvements to the efficiency of the enterprise’s operations and hence productivity.

 

There are other examples. We were able to go into Prêt à Manger or one of its competitors and buy packaged sandwiches, paninis, wraps and salads in multiple varieties when in New York the consumer still had to wait while the fillings were added. And who after coming from seven-day, sometimes 24-hour, shopping in Britain has not been frustrated to find that on certain days and times on the Continent retail has shut up shop? Why has the same apparent efficiency not happened as widely as we might hope, including where it perhaps matters most – in the things we make?

 

Many of the developments described above merely reflect that Britain is a very tech-savvy place, as the transformed area around Old Street in London demonstrates. Once among the grimmest of London’s thoroughfares, its crossroads with Moorgate is towered over these days with crazily-shaped and coloured blocks housing the world’s internet giants. Amazon, Intel, Google and Cisco are among those that have flocked to Silicon Roundabout and surrounding East London to be part of a community of more than 50,000 people in 3,000 companies. They have been drawn from countries across the world by the opportunity to work in this creative environment. Indeed, the proportion of the UK economy now accounted for by technology – 12.6 per cent – is more than twice that of the rest of the G7.

 

So, to return to the question. Why do we languish sixth out of seven among the G7 world’s richest countries in growing our output per person?  And, it might be asked, if Britain is growing faster than most of its neighbours (though not the US) does it matter?  The answer to the second point is key.  Britain’s growth is heavily dependent on consumer demand fuelled by debt, leading to a serious balance of payments deficit which perhaps vainly it is hoped the recent devaluation of sterling will help to rectify as our exports become less expensive to overseas buyers and imports are deterred by price. Our deficit itself has to be financed by overseas borrowings which can be secured at reasonable rates of interest only as long as lenders continue to have confidence in our ultimate ability to repay. Britain’s economy needs to shift from this paradigm sooner rather than later and this can only be achieved if the economy becomes more genuinely productive. More productive companies with faster-growing output can afford to pay higher wages, which in turn means higher tax revenues for Government and an improved capacity to pay for the social and other services now demanded.

 

So, what has been tried? Post-war efforts to raise UK productivity began seriously with Harold Wilson’s creation of industrial champions in electrical equipment (merger of English Electric/AEI/GEC), in motors (the 1968 BMC/Leyland merger), steel (the creation of the nationalised British Steel Corporation   in 1967 with plans to expand production to 35m tonnes a year), and in aluminium (new smelters for RTZ/BICC/Kaiser, British Aluminium and Alcan).

 

Joining the European Community in 1974 was part of this same process but Britain, as a whole, continue to lag behind continental rivals in overall productivity even as the City of London has roared ahead as Europe’s financial capital.  Even on the way out of the financial crash of 2008 the economy’s recovery has been sluggish to the extent that it has only recently grown past the point it had reached eight years earlier. Leaving the EU and concentrating on global markets is seen as another magic bullet but is it any more likely to  hit its  target than previous policy projectiles?

 

Productivity is to a greater or lesser extent a problem across most Western economies and, according to some economists, reflects a slowing pace of change over recent decade, in spite of all the apparent advances we see around us. On this analysis, the western world went through a prolonged period of fast productivity growth from 1870-1970 brought about by changes from the late Victorian period which were much more fundamental than the IT revolution of the past 30 years. This was the period when the rail network was laid down, when plumbing and piped water reached homes, shops and factories, when electricity took over from less efficient means of power generation, when towns and cities brought industry and people together often to specialise in a particular form of commerce, the telephone replaced the telegraph, and disease control reduced mortality. It was also the period when agriculture’s dominance of the economy – from 70 per cent in Victorian times to a figure of only around 1 per cent in Britain today occurred, releasing large quantities of labour to fill burgeoning factories. If this is so it explains the Solow computer paradox, the remark by economist Robert Solow   in 1987 that: “You can see the computer age everywhere but in the productivity statistics”.

 

There are, of course, other explanation . Economists may be mis-measuring productivity – we are doing much better in Britain than we think and are understating productivity growth. The problem appears to have persisted for so long, however, this seems unlikely. The post-crash policy of the Government could be perpetuating the problems.  As Vince Cable, the former Liberal Democrat business secretary in the 2010 coalition admits, Government priority in the aftermath of the 2008 crisis was to ensure unemployment did not surge. Countries that have enjoyed the highest productivity growth in subsequent years are those where the greatest number of workers lost their jobs and now have very high unemployment, often among the youngest. Policies that have encouraged companies to hold on to and recruit low-cost labour (in many cases from outside the UK) have inevitably delayed or made unnecessary the introduction of new labour-saving technologies in the UK.

 

By keeping interest rates at very low levels for the longest period in history the necessary elimination from the economy of “zombie” companies that would not otherwise survive, has also been thwarted. As a result, their more successful rivals have not been able to grow as they might and secure the productivity gains that come when weaker competitors are removed. Or it could be the finance system itself is not working as well as it should, particularly when it comes to channelling resources to small and medium-sized businesses. Hence, the measures the Government has set in train to create new challenger banks and new financial institutions.

 

It is hard not to believe, however, that important as some of these factors have been, something more deep-rooted in the way in which British business operates is at work. In the bigger companies, too much of the surplus generated from activities is going into dividends (and executive salaries, which have now reached vast multiples of average earnings within the same companies). Investment by manufacturing in new equipment and processes has long been neglected, leaving far too many people doing low productivity work where they need more equipment at their elbows if they are to compete with rivals in other countries.

 

One consequence has been to accelerate the decline in the share of manufacturing in total gross domestic product – now down to only about 10 per cent compared with a figure of 33 per cent in 1970. This has left an economy heavily skewed towards services where because of the nature of the work it can be very difficult to secure meaningful productivity gains. If a coffee chain reduces staff by 10 per cent it will save on its wage bill but it is unlikely to be able to find machines that will serve drinks and food as efficiently or clear tables, so customers will be lost. Nor can health care, personal care, education or tourism easily yield productivity gains and these are some of the staples in the British regions where productivity is the biggest problem.

 

The quality of management in much of business is not as good as in some of our competitor countries, a problem which the business education explosion that got under way in earnest in the 1970s has failed successfully to address.  Many of the institutions and courses that have been created since then dedicated to this purpose have now become dependent for survival on the provision of training for the future managers of our competitors in Asia and elsewhere.

 

The incentive schemes available within companies, particularly the largest, may also be perverse in rewarding those nearest the top rather than those more at a more mundane level on whom the implementation of changes in work practices will depend and who may think of useful innovations in the first place.  It may be, too, that the brightest and best-educated Britons are not finding their way into manufacturing or even some sections of the service economy. This may be the legacy of the long period of poor industrial relations that beset British manufacturing from the 1950s through to the 1980s. In this period, it was still common for Britain’s big companies to trawl universities for the best graduates but the brightest since then have often chosen to go instead into service professions such as law, accountancy and management consultancy where the work may be hard but the headaches of dealing with what had become perceived to be difficult unions and labour relations do not exist.

 

Like the previous efforts to raise productivity, Brexit will be seen as the latest opportunity to rebuild a new balance between the different parts of the economy and the different regions. It will not achieve this on its own, however.  And, neither will a greater emphasis on infrastructure, including the digital economy, though this will be important too. The gap between the tech-savvy in Britain and the rest will need to be closed so that more individuals who can operate effectively within the modern labour market can be come forward.  There will need to be investment, too, in improving the skills of managers so that they are better able to carry forward projects that will enable their companies to grow organically and through acquiring other businesses. Large chunks of British industry have already passed into the ownership of multinational corporations outside Britain by business boards with limited interest in any other priority (salary and bonuses apart) than maximising returns to shareholders. Incentives need to be put in place to ensure Britain secures representation in many of those sectors that advanced nations consider to be essential but which in Britain are now controlled from abroad.

 

It will not be easy. Britain will continue to need foreign direct investment even as it tries to rebuild some of its own domestically-owned manufacturing strength. Overseas companies bring with them new products, processes and ideas and play an important part in raising the standards of home-grown competitors, as Japanese, German, and US investors have done over the past 50 years. Nor will it happen quickly.   Unless plans of this sort are embarked upon we are likely to be looking again before long for yet another solution to our industrial balance, productivity and balance of payments – or, chasing   another hoped-for remedy. 

 

 

Rhys David is a writer and journalist  and an Honorary Fellow of the Institute of Welsh Affairs in Cardiff

 

January 20th 2017

 

 

 

 

A Walk on the Wild Side – in Wales

Glyndwr’s Way
Rhys David finds solitude and interesting signs of a new vitality on a trek through the middle of Wales
“Of all the beautiful sights in the world, I am not sure if there is anything more lovely than the Welsh hills. It is as if the character of the nation – its under-rated strength and vitality – is contained and channelled in those meadows and rolling slopes.” (The Times June 6th 2016). These comments by Matthew Syed, sports writer and diarist, earlier this month (June) had a particular resonance for those like myself walking those very hills when the article appeared in the best weather window in months.
There is something magical and even reassuring about being a short distance from a sizeable settlement, such as Shrewsbury and the neighbouring West Midlands, and yet in countryside so remote the number of people to be seen during the day can be counted in single figures, with possibly even fewer cars. Instead, one’s constant companions almost everywhere on the horizon and sometimes much closer in this part of the world are sheep in their thousands.
This is the evocatively-named Glyndwr’s Way, a 135-mile long wishbone shaped trail from Knighton to Machynlleth, with a return leg back to Welshpool, the 80 mile first section of which my party of two men and three women covered. Opened in 2000 Glyndwr’s Way purports to follow the route taken by the legendary Welsh hero Owain Glyndwr. Supported at one stage by French forces who marched to within eight miles of Worcester, Glyndwr inflicted several crushing defeats on his English opponents in the early 15th century – notably at the Battle of Pilleth near Knighton in 1402 – before mysteriously disappearing without trace in 1413 but not from Welsh people’s memory.
Today’s route is just a convenient fiction for although Wales’s Braveheart controlled the area for long periods there is more to connect him with the various towns – notably Machynlleth, which he made his capital and seat of his Parliament in 1404 – than with the trail that bears his name. The linking of various UK national trails to historical figures has been a shrewd marketing initiative, however, and one that can probably claim some credit for the growing popularity of long distance walks. Our group walked another such route – St. Cuthbert’s Way from Melrose in the Scottish Borders to Holy Island off Northumberland last year and there are plenty more to choose from, including Wales’s other eponymous trail, Offa’s Dyke. After all, who wants to walk just from A -B, struggling to follow footpaths through remote fields, even for one’s health’s sake, when you can retrace the (supposed) steps of a hero along a scrupulously waymarked route, pointing you in the right direction at every unclear fork or open vista.
But it is not just walkers who have cause to rejoice at the spread of new national trails. Walkers have brought trade and led to facilities being put in place along the routes in towns, villages and other smaller settlements where there was previously not a lot on offer to the outsider (or even the insiders sometimes). Abbey Cwm Hir, one of our stops, is about as remote as it gets yet now boasts a splendid B&B, and walkers are a new potential market for the owners of a quirky country house, Abbey Cwm Hir Hall, built for London lawyer, Thomas Wilson on the site of a Tudor house in in 1833 and purchased four years later by Francis Phillips, a Lancashire landowner and businessman.
Renowned as a roadbuilder (on which subject he published) Phillips is assured of a minor place in history for catching Spencer Percival, the only British Prime Minister ever to be assassinated, as he fell to his knees dying from shotgun wounds in the House of Commons in 1812. The hall’s latest owners have opened it to the public for viewing the series of quirkily eclectic collections they have put together. The nearby ruins of Wales’s biggest abbey, are getting more visitors, too, and educating new generations in Welsh history. Wales’s last native Prince, Llywelyn ap Gruffudd, is reputedly buried here – minus his head which stayed in London where it had been on grisly display following his defeat at Cilmeri in Breconshire in 1282. There are signs of new business in other points along the route. Restaurants have sprung up to serve a growing market in Knighton; a pub has re-opened in another tiny place, Llangunllo; the community shop and café at Llanbadarn Fynydd is getting a few more customers; and there is more business, too, for the teashops, restaurants and mini-markets in Llanidloes and Machynlleth.
Knighton, in particular – once one of the biggest sheep markets in Britain – has gained a new lease of life. It benefits from being not just the starting point for the Glyndwr Way, accessible from the Swansea or Shrewsbury directions on the very scenic Heart of Wales railway line, but from its position near the centre of the much older Offa’s Dyke path. It hosts the visitor centre for this trail. Traditionally very much a border town of divided loyalties, its main street now vies to be the most patriotic in Wales, bedecked with the flag of Glyndwr (four lions passant guardant, red and gold quartered and counter-changed). Having besieged the town’s castle in 1402 and then destroyed it and much of the town, Glyndwr would no doubt now have been giving a wry smile of satisfaction.
These and other developments form part of a more general welcoming feel throughout the area, or so it seemed from our admittedly brief observations. At Velindre, our first stop, the owner of the holiday accommodation we stayed in drove us several miles to the nearest pub serving food and picked us up later. Our host at the Lion Hotel in Llanbister, (who proudly claimed his family had farmed the area for 1,000 years and had the records to prove it!) picked us up from several miles away on the route at the end of one day and took us back the next morning. (His was the nearest accommodation.) At remote, remote Cwm Biga Farm, near the Clywedog reservoir and now self-catering accommodation, the owner had taken over an historic Welsh mixed farm, owned successively by the Welsh prince Gruffudd ap Gwenwynwyn, the monks of nearby Abbey Cwm Hir, and (after the dissolution) Robert Dudley, Earl of Leicester. Chancellor of Oxford University, he passed it on his death in 1588 to University College, which held it until 1920. After a short period in private ownership it was requisitioned by the Forestry Commission in 1939 on the outbreak of World War Two and its 1,300 acres largely planted with conifers. Having semi-retired the new owner like many in the area now has a portfolio career, providing financial, environmental and IT advice to local businesses and groups as well as cooking for guests if required
There are other signs of a new entrepreneurialism. Public road transport was never plentiful in this area and has now largely disappeared but a small network of taxi companies will ferry people about – and just as importantly take walkers’ luggage from one night’s stay to the next. This was a service we used. (We did meet more hardy walkers, such as Elvira, a Swiss living in the south east who was walking the full 135 miles stretch in nine days with what looked like a 30-40lbs backpack.) The same minibus taxis take children to school helping people to stay in the area, as does another relatively new service, the Post Office Travelling Shop. We came across the familiar red livery in Llangunllo, a van equipped inside to sell stationery, greetings cards and other similar items, as well as offering bank cash withdrawals and, of course, selling stamps and taking parcels. The van travels around to different small communities, parking for an hour or so in each on set days each week, providing services which in some cases, such as simple banking, will have never been seen in the village or settlement before.
Other services are not so available. Mobile phone coverage is patchy, though the extent differs from provider to provider, depending on the area. I did receive one call on the roof of Wales between Llanidloes and Machynlleth where there was not a settlement in sight. “Hi, I’m ‘Alex’”, an Indian voice announced, “and I’m calling you from Windows Technical Department about your computer”. The scammer, to paraphrase Stanley Baldwin’s famous comment in 1932 will always get through, I suppose.
It barely does justice to mid Wales to say the scenery is breath-taking and the weather on our walk was ideal – 20-25 degrees with a slight breeze. After you have ascended from the valley towns at the start of each day most of the walk is at between 1,000 – 1,500 feet over rich green hills just asking to be climbed over, or around at a lower contour level, if you are lucky. The odd farm or other building has to be passed through and there are short stretches of stone track or even road but overwhelmingly the terrain is grass or narrow trackway.
The sights, too, were magnificent and accompanied by a constant chorus of birds, with cuckoos particularly prominent throughout the area. Kites have, of course, remained native to this region even when they had been driven out elsewhere and are relatively common alongside buzzards, and plenty of other smaller birds – curlew, dipper, skylark, meadow pipit, wheatear and redstart to name a few.
There are occasional small rocky gashes in the hills where stone has been taken, probably to build the nearby farmhouse, but the main sign of former industrial activity is at the huge Clywedog dam, near the walls of which is an old lead processing works, one of several dating back to the 19th century in this area. In the tributaries that run into this giant reservoir with its 235-ft high concrete buttress, river trout dart about, their presence one of the reasons for the re-establishment of the osprey in the area. A pair can be viewed from a hide alongside the 11 billion-gallon reservoir where Natural Resources Wales have set up a special telescope to enable visitors to see the female on the nest and her partner nearby.
How tough is the walk? The ground everywhere apart from a few very small, somewhat boggy patches, is good and firm, and clear of obstruction. There are some steep climbs but most of the inclines are relatively gentle, if rather frequent. Weather is, however, all-important. Over much of the area there is relatively little cover once up in the hills. The walk can, of course, be taken in stages – one long walk for the fittest, and section by section, if this is more appropriate.
The growth of interest in this type of get-away-from-it-all holidays has led to the emergence of a number of companies that will make all the necessary bookings. We used The Walking Company, based in Monmouth, which took our proposed itinerary and booked the various hotels and B&Bs, and the taxi luggage transport, as well as providing a comprehensive guidance kit consisting of the excellent Harvey map and Cicerone booklet, and other valuable advice and information.
There is perhaps one other invaluable companion on such a trip, George Borrow, the nineteenth century East Anglian author of Lavengro and The Romany Rye was devoted to Wales and in 1854 tramped over most of Wales with his wife and daughter, wondering at the scenery, talking to local people, and learning about the country’s myths and history, all faithfully recorded in his masterly tome, Wild Wales.
http://www.thewalkingholidaycompany.co.uk/
http://www.harveysmaps.co.uk http://www.cicerone.co.uk

Rhys David is the author of Tell Mum Not to Worry. A Welsh Soldier’s World War One in the Near East. ISBN 978-0-9930982-0-8

In Northern Ireland, history repeats itself

As another crisis threatens to destroy hard-won progress, Rhys David looks back to the resignation of Chief Minister Brian Faulkner in May 1974

Here we go again, or so it would seem. Not for the first time a painfully-constructed power-sharing government in Belfast teeters, bringing back memories of the occasion the province had to be returned to direct rule more than 40 years ago.

In May 1974, it had been a difficult few months and an even more difficult few weeks for the recently established Government led by Ulster Unionist chief minister, Brian Faulkner, and containing some of the best-known Republican-sympathising politicians of the time, including John Hume, Paddy Devlin and Gerry Fitt as well as representatives from the cross-community Alliance Party. It had come into being despite considerable opposition from the more extreme wings of Loyalism and Republicanism. Yet, it was slowly establishing its authority and demonstrating the two sides could work together for the good of the troubled province, at that stage nearly 10 years into what were euphemistically called the Troubles and the more than 3,000 deaths they would ultimately bring.

The UK election called by Edward Heath in May 1974 on the question “Who Runs the Country”, – the Government or striking coal miners – drove the Conservative party from power, ushering in five years of Labour administration under Harold Wilson and later James Callaghan, and paving the way for a further showdown with the miners in the 1980s under Margaret Thatcher. In Northern Ireland, however, it brought by way of Westminster seats a sweeping endorsement of Loyalist opposition to the power-sharing executive established after long negotiations at Sunningdale a few months earlier.

The Ulster Workers’ Strike that followed brought Northern Ireland to a standstill. Factories and shops were intimidated into closure, barricades closed roads, and the authorities were at a loss how to respond without seeming to give in to what was in effect an attempted putsch. Electricity supplies were reduced to a trickle, making it quite an effort without a lift to go up and down to the rooms – numbers 510 and 512 – which had been my home for more than a year as the Financial Times Northern Ireland correspondent. The Europa’s manager, the legendary Harper Brown, did his best to look after guests in these circumstances, driving south to the Republic to pick up large tins of ham to put on the table in the absence of hot food. Press, radio and television gathered from all over the world to see what would be the outcome of this stand-off.

Faulkner’s power-sharing executive pleaded with the UK authorities for decisive police or Army action to break the strike and restore public order but this never came. Instead, a newly-appointed Northern Ireland Secretary, Merlyn Rees, vacillated in the face of this early challenge so soon into his assumption of the role.

The crucial day turned out to be Tuesday May 29th 1974. With civil servants advising that hospitals would have to shut down and that raw sewage could flood low-lying parts of Belfast, the executive split on the issue of whether it should negotiate with the unelected, self-appointed Ulster Workers Council. The Ulster Unionist members, led by Faulkner, decided they had no option other than to resign and ask Merlyn Rees to take back control.

Summoned to a press conference together with the rest of the press corps I arrived at Stormont after driving past shuttered shops, along roads strewn with makeshift roadblocks, and littered with other debris of civil unrest. Hooded paramilitaries patrolled the roads. After clearing security at the entrance to the long drive and parking outside the monumental Parliament building I decided I would go inside and see what was happening.

As I walked along one of the corridors I came across Brian Faulkner and his entourage proceeding towards me. After trying a few questions, I turned and followed him out to where the rest of the reporters and film crews following the crisis were gathered. Brian Faulkner, a decent man who managed through his efforts to become even less liked on his own side than among his enemies, duly announced his resignation to us and the world and Northern Ireland returned to direct rule until the next set of negotiations led to the Good Friday agreement 20 years later.

Without the UK election, the power-sharing executive would, I believe, have gradually won the support of the people of the province, saving the expenditure of much blood and treasure over the next couple of decades. The misinformation that the Loyalists spread without effective rebuttal about the Council of Ireland, one of the planks of the previous autumn’s Sunningdale Agreement, had been allowed to take root, depriving the executive of the opportunity to win community support.

The situation in 2017 is, of course, very different. Community relations, while still strained are better and previous levels of violence are no longer being recorded, though occasional incidents involving extremists on one side of the other still occur. Nor is the crisis this time a constitutional one, as in 1974 when the prospect of any involvement by the Irish state in Northern Ireland’s affairs was anathema to fierce Loyalists led by Ian Paisley. Yet, the relatively centrist parties led by Faulkner and Hume have lost influence in the interim with the Republican Sinn Fein, and the Loyalist Democratic Unionist Party now the dominant forces in the Northern Assembly and the Government. The once all-powerful Ulster Unionist Party and the Social Democratic and Labour Party have been largely reduced to a watching role.

The next few weeks will be crucial. Sinn Fein has said it will trigger an election now its leader Martin McGuiness is no longer in place as deputy first minister, an outcome that could harden positions on both sides and make it difficult post-ballot to create a new administration that can agree a programme. There could yet be more talks between the two parties to avoid an election. Or it might be necessary to revert to direct rule from London

The concern must be that at a time when ministers in Northern Ireland – and London – need to be concentrating on the Brexit negotiations, they will be seriously distracted by instability in the province. The consequences will be even more serious if politicians and public return to their silos and focus more on blaming each other and point-scoring than on trying to ensure a peaceful transition to further power-sharing. The further possible consequences are obvious.

Karl Marx observed that history is repeated first as tragedy and then as farce. That years of painfully-orchestrated co-operation since the Good Friday agreement should founder on the costly mishandling of an unsound renewable heating scheme suggest history this time, however, is being repeated first as farce. It is in everyone’s interest Marx’s other formulation does not now follow.

Rhys David is a writer and journalist. He was Northern Ireland Correspondent of the Financial Times 1973-1974 rhys.david@btinternet.com