British manufacturing’s long decline could be about to end
ROSS Perot, as a US presidential candidate in 1992, infamously decried “the giant sucking sound” of jobs being exported abroad as a result of free trade. It was populist nonsense, of course. Trade creates far more jobs than it destroys – and London’s high value added economy wouldn’t exist without it.
That so many low value added jobs in manufacturing have disappeared is a feature, not a bug, of free-trade: global growth is maximised over time if production is located wherever it is most efficient. The UK’s problem is that poor schooling, poor competitiveness and other policy blunders have prevented enough good, alternative new jobs being created in the old industrial heartlands to replace those that have been lost.
But change is in the air. Capital Economics highlights the fact manufacturing employment was roughly flat between the first quarter of 2011 and the third quarter of last year. This is the first time we see such stability since the early 1990s. The cost of labour is soaring in China, and non-wage costs – such as quality and transport time – are becoming more important to firms operating in the UK, actually encouraging reshoring.
But does that mean the end of offshoring? Not really. It is set to continue in services, but in the most optimistic scenario produced by Capital Economics, UK manufacturing employment would remain constant from now on, rather than falling. There will be no manufacturing jobs renaissance – but the sectoral decline of manufacturing may be finally coming to an end, and that would be a very important trend indeed.
CO-OP NEEDS TO GROW UP
What a debacle at the Co-op. Weirdly, the CEO – who has just quit in exasperation – doesn’t even sit on the bizarre, bitterly divided 21-member board.
I’m on the side of the modernisers. The onus is on supporters of the mutual model – employee or customer ownership – to show how it can change to survive in the modern era. It is a myth – promulgated most recently by Tories too timid to justify capitalism of the red in tooth and claw variety – that these forms of ownership are a superior form of corporate governance to for-profit PLC or private equity models.
New mutuals have been set up successfully, including in health care, but the overwhelming majority of the world’s best firms are of the traditional variety. It is harder to raise capital or incentivise staff in co-ops, and management structures can be unwieldy.
Versions of the model can work beautifully in some industries – such as law firm partnerships, where senior people act as custodian-owners – but in many others, especially those exposed to the most competition and creative destruction, it has been in decline for decades. This has been especially dramatic in financial services: the US savings and loans debacle in the 1980s, the crisis of Spanish and German mutuality post-2008 and the troubles at the Co-op bank here in Britain. The number of building societies has dwindled.
There are, of course, spectacular counter-examples: John Lewis in retail and the Nationwide in finance have both triumphed. The Co-op’s challenge is simple: it needs to show how it can become more like John Lewis and less like its current, amateurish mess. It is wrong for modern businesses to be tied too closely to a political party – Co-op should cease its donations to Labour. It should ditch its members dividend, and replace it with special discounts.
Euan Sutherland was the wrong man for the job. He didn’t see what he was getting into. His pay should have been tied much more closely to performance. But unless the Co-op sweeps away its antiquated structure, and the diehards learn to compromise with reality, it will find it extremely difficult to recruit a proper, permanent successor with the ability to turn it around. Time is fast running out for a historic organisation.
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