A crash course in the British economy

Made in Britain is a new show on presented by Evan Davies (of Dragon's Den fame). Unsurprisingly it is about the British economy the deficit and basically, whether Britain has gone down the pan.

It is without doubt an excellent programme. It explained relatively complex issues in such a way that anyone can understand them. It breaks some of the myths surrounding our economy such as 'manufacturing industry good, service industry not good' and ' low tech manufacturing is essential to our economy and its decline is the end of us'.

If I could, I would make it so that everyone gets shown this programme from an early age. Hopefully they would get the implied message, if you don't have a specific skill that someone in China doesn't have, then soon enough someone in China is going to be doing your job. Lets face it, that is what people in school need to be aware of. In the last few decades people could do unskilled work and get paid enough to live in the UK, but soon enough if you do an unskilled job, you will only be able to afford to live in China. Sure there will be exceptions, but that is the general rule.

One of the things that surprises me however is that when you look at manufacturing, which I accept needs to grow in the UK, some of the factories here are the most efficient in the world. In fact, Nissan's car factory in Sunderland is the most efficient in the whole of Europe*. Now that amazes me. The Germans are known for their efficiency, and the French have three big car firms. We don't have one, and yet we have the most efficient factory. How does that work?

Well, I think I have the answer. If you look at the all cars that are designed in the UK, Land Rover, Jaguar, Aston Martin, they are all owned by foreign companies. Generally they do not work well then they are owned by a UK firm, then they are sold and they do well. Japanese firms come over here and set up hugely successful factories, but British manufacturers fail. Why?

It could be that the management are retarded, and so when foreign management come along they run the factory well and everything works and the world becomes a better place. But I highly doubt it. For a start most of the management will be British too. Sure the very top might be Japanese, or the owners might be Indian, but most of the management are realistically going to be British. So it is unlikely to be that.

It could be that the principles by which companies are run are superior outside of the UK. I'm sure that is part of it. But generally such principles, once they have proven their worth, are adopted throughout the world.

No, I'm willing to bet there is an entirely different reason why British companies fail and foreign firms succeed in the UK: Unions.

When you think of the last time we had a car industry, back in the 1970s what characterised that period? Strikes. If you think of British Airways, the flag carrier of the country, which is making a loss, why has it been in the news? Best service? Huge profit? Award winning? Nope, strikes. What about transport for London? Is it known for its efficiency? No, it is known for its 1970s style 'fire a single person and we will bring London to a standstill' negotiation tactics.

So lets look at companies based here, Nissan, Honda, no strikes there. Easy Jet? Don't think so. Hmmm, a pattern here?

The thing is, no one is going to strike against these companies because they are foreign. There is no reason they have to be here tomorrow, and no reason why they can't up sticks and head to France, Germany or the Czech republic. Which means if a factory started striking, it would quickly be closed. As a result, the workers don't strike and the factories are a paradigm of efficiency.

In contrast to this when it comes to a British company the Unions assume that they can strike as much as they want and it doesn't matter because:

a) a British companies will no close its operation and move abroad;
b) the British gov will bail out the company when it is losing money hand over fist... because it is British.

The problem with this, mainly, is that it is a load of rubbish. Premise 'a' might be reasonable, but 'b' is undoubtedly completely false.

For a start the rules of the EU forbid state aid, second the country is bankrupt and three the government learned in the 1980s that it is cheaper to let inefficient companies die than to eternally prop them up with subsidies.

Union leaders however, appear rather thick, and haven't quite grasped this fact. So instead of getting what they want with BA for example, they are just going kill off another big company and when they do, it will take quite some time for them to work out what happened... or they will just blame it on everyone else for not capitulating to their demands.

I don't know if other countries have this problem, but judging but the fact that the most efficient European manufacturer's factory is owned by a French company.... and based in Spain I'd say this might be the case.

Then you look at MG, this company failed in the UK. It is now being made in China, I imagine it will do quite well too. While it was UK owned they could not cut costs of staff, although this was partly due to the lack of capital, now that it is Chinese owned they can design it in the UK and build it in China and no one can complain. Can you imagine what would have happened if they had tried this before Chinese ownership? Exactly, chaos, whereas no now one bats an eyelid. No doubt the price will be more competitive too.

Going back finally to the programme "Made in Britain", there were a couple of companies that were held up a British success stories. One of those was GSK, or GlaxoSmithKline. One of the things that the representative of GSK said really resounded with me. He noted, 'there is no reason why there should be a British company based here or called GSK. Therefore if we don't innovate the next generation of products successfully then we won't exist in future. That is what drives us'.

I guess that explains why GSK is still here. They don't think the gov will always back them up because they are British, or because they are a big employer or because they have a right to do what they do. And I'm happy to suggest, that they day they think that there will/should always be a GSK... there won't. But at least then a foreign firm can buy them and make them efficient again.

*although this was on output, units per worker which seems unfair when comparing bigger cars with smaller, less complex ones.