How ‘fat, lazy’ British business got fit

Posted on September 18, 2016

epa05526759 British Secretary of State for International Trade and President of the Board of Trade Liam Fox arrives for a first cabinet meeting at Downing Street in London, Britain, 06 September 2016, since summer parliamentary recess. EPA/ANDY RAIN©EPA

Liam Fox, UK secretary of state

“This country is not the free-trading nation that it once was. We have become too lazy and too fat on our successes in previous generations,” said Liam Fox, secretary of state, Department for International Trade.

Fifty years ago I started my first job on the Financial Times. In terms of culture, structures and sometimes even of people, the UK business world on which I reported in 1966 was remarkably similar to that of the 1930s. Cartels survived across several sectors: in some — cement or stock exchange trading — price-fixing was a fact of life, unchallenged by the law.

    Domestic industries were protected by trade barriers: in 1966 tariffs on imported cars ran at well over 20 per cent and their share of the UK market was less than 10 per cent. And exporters concentrated their efforts on the easy markets of the Commonwealth, where since the 1930s they had enjoyed a price advantage thanks to the system of Imperial Preference.

    This was a world designed to benefit producers rather than consumers; where poorly designed, unreliable products were brought to market from inefficient plants shielded from foreign competition. US workers produced about five times as many vehicles each year as the British. A study completed in 1965 concluded “many of the firms visited did not apply even comparatively simple techniques” to improve efficiency.

    Without the spur of competition, it is small wonder many managers appeared complacent, arrogant and sometimes supremely incompetent. One good example was Distillers, the whisky company; in 1966 it was still determined to avoid making meaningful compensation to the victims of its sedative drug, Thalidomide.

    Although bosses did nothing so vulgar as to publish their pay, it is clear they were not paid the ridiculous sums of their counterparts today. But high pay was less attractive in a period of heavy personal tax: better to go for juicy benefits. Sir Halford Reddish, the irascible boss of a cement company, lived in a hotel on Park Lane.
    There was a circular drive behind the GKN headquarters to allow the chauffeurs to turn their Rolls-Royces
    . And Gordon White, who was to help build the Hanson conglomerate, was not the only business leader to deploy company funds to support his passion for racehorses. Boards, all male, were stacked with cronies unlikely to challenge such behaviour.

    But in the next few decades, this cosy world was to be hit by five separate shocks. One was much tougher competition policy, driven first by Prime Minister Margaret Thatcher and then by Gordon Brown as Tony Blair’s chancellor of the exchequer. Price-fixing was now ruthlessly hunted down.

    The second was the switch in British business from private to institutional shareholders. These new owners were not prepared to see their money squandered on the chairman’s lifestyle.

    Then came Thatcher’s trade union reforms, which freed managers of industry from spending their time worrying about how to keep the lights on.

    Globalisation was the fourth factor. Ungrateful Commonwealth countries began to build their own factories, sometimes behind tariff barriers, and were only too happy to buy superior products from Japan and elsewhere.

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    The final spur to a more dynamic business world came from Britain’s entry into the Common Market. British manufacturers had lost out heavily by concentrating on the dwindling Commonwealth markets and largely ignoring Europe. European engagement brought new markets and inward investment from large numbers of highly efficient foreign companies, along with cohorts of skilled managers.

    Gone were the days of lengthy lunches in dining rooms organised to reflect a manager’s status. Long weekends were out: now you showed how important you were by the hours you worked.

    Of course, British business today is far from perfect. But the changes of the past 50 years have been as revolutionary as they have been necessary. Which means Mr Fox has not been looking at the past through rose-tinted spectacles. He has been wearing blinkers.

    The writer is a former CBI director-general and a previous Financial Times editor

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