Britain's Economic Performance

Head Table Guests

Gareth Seltzer, Vice-President, Guardian Capital Advisors Ltd. and a Director, The Empire Club of Canada; Renate Mendes-Martins, OAC student, Central Technical School; The Rev. G. Malcolm Sinclair, Minister, Metropolitan United Church; Jane E. Standish, President, Customs Brokers Association of Canada; Ed Richards, General Manager and Canadian Chief Agent for The London Assurance (part of The Sun Alliance Insurance Group); Robert Dechert, President, British-Canadian Chamber of Trade and Commerce and a Director, The Empire Club of Canada; John Smith, Vice-President, British-Canadian Chamber of Trade and Commerce; Emily Martin, Vice-President and General Manager, Guinness Canada Ltd. and President, Canadian Association of Beverage Alcohol Importers; Howard Mann, President and CEO, McCain Foods Ltd.; and Peter Davies, British Consul General.

Introduction by David Edmison

William Chambers wrote in his Edinburgh Journal in 1840: "It seems mankind are forever destined to live under some alarming apprehension... at every interval of three, four, or five years, the community is plunged into the greatest tribulation from the number of bankruptcies and general mercantile stagnation, while ruin stares everyone in the face."

Mr. Chambers went on to quote some of the mistaken prophesies made during the previous century. For example, he quotes a Dr. Davenport who in 1699 wrote "that unless Britain cuts her annual tax income to 2,300,000 pounds, we should have upon us all the visible marks of a declining people." Chambers concluded that "the future must always lie hid below the horizon and if it rises charged with public calamities, they will doubtless be accompanied with their appropriate remedies and alleviations."

Had Mr. Chambers been alive to write during the 1970s, he might well have quoted many leading economists and business luminaries whose dire warning might have sounded very much like Dr. Davenport's 290 years ago. Indeed the economy of Great Britain was suffering from high interest rates, high inflation, high levels of taxation and low levels of foreign investment.

Well much has changed since then. British industry has been radically restructured and revitalised. In fact, recently Mr. Michael Hesseltine remarked: "We see ourselves as the enterprise centre for Europe" referring to the massive investment by Siemens in Tyneside. This change to a market-oriented approach has been facilitated by the largest employer organisation in the U.K., the Confederation of British Industry.

The C.B.I. represents 250,000 companies from all sectors of the British economy, which together employ 60 per cent of all Britain's work force. The C.B.I.'s aim is to ensure that government, national and international institutions and the public understand the needs, intentions and problems of business so as to create a climate of opinion in which commerce can operate competitively, both at home and abroad.

Quite obviously, the C.B.I. plays a vital role in ensuring the health and vitality of British enterprise. It is therefore not surprising that our guest, with his extensive business background was elected to be its president on May 18th last, a two-year appointment.

Sir Bryan Nicholson's career is an impressive one. After distinguished army service, he graduated from Oxford University, began his career in marketing with Unilever, and later moved to Remington. Joining Rank Xerox in 1972, he quickly rose to Chairman of the Board in 1979 and held this post for five years. Recognising his talents, the government invited him to chair the Manpower Service Commission in 1984, and he then went on to chair the post office from 1987 to 1992.

Sir Bryan is presently chairman of the holding company for Perkins U.K. Prior to his appointment to his position as President of the Confederation of British Industry, he served on the President's Council and led the C.B.I.'s task force on Educational and Vocational Training. This initiative made a major contribution to the skills revolution now underway in Britain. He subsequently became chairman of the C.B.I.'s Training Affairs Committee. Sir Bryan's contribution to the field of education has extended to his position as Chancellor of Sheffield Hallam University.

Ladies and gentleman, I ask you to welcome our special guest, a truly dynamic businessman, Sir Bryan Nicholson.

Bryan Nicholson

It is a great pleasure to be here in Toronto addressing such an important gathering. I must thank David Edmison and Robert Dechert for providing me with the platform to speak. I know I am following in some distinguished footsteps, including, I understand, no less than Winston Churchill's.

These are lively times to visit Canada. I'm told the new government in Ontario is already making its mark with a new direction for economic policy and a review of the general climate of business. It will be interesting to see how that turns out. And I see the national government is selling off most of its remaining shares in Petro-Canada. Promising ideas from both your main political traditions.

Travel, of course, is one of the perks of my otherwise unpaid job. And when it comes to matters of organisation, putting yourself in the capable hands of Her Majesty's Diplomatic Service is a pretty safe way of ensuring that things will run smoothly. But nothing comes free. And the price of an itinerary that runs like a well-oiled machine--and of being invited to lunches as fine as this--is a requirement to pitch up as a semi-official representative of Queen and country.

For some of my predecessors that must have been quite a burden. Back in 1974 with the three-day week, or even in 1980 with inflation at 19 per cent, it would have taken a braver man than me to stand here and tell you--without my fingers crossed behind my back--that things were going well.

Nowadays it's not so hard. We still may have a way to go to be right up with the best in the world. But we're moving in the right direction.

Those of you who follow the British economic scene will have seen that the recent news has been less cheery than last year, or early this. The growth rate of the economy is slowing down. Unemployment is not falling so quickly, but we still have a better record than most of the EU. Our trade deficit rose slightly. And inflation has stopped falling. Put like that you could begin to worry.

The U.K. economy has indeed followed a year of very strong growth, around four per cent in 1994, with a slower pace of expansion in 1995. We still expect growth of around 2.9 per cent for the year as a whole (still above the long-term trend rate), but there is concern that the latest evidence suggests that the slower pace of growth apparent over the summer will prove to be a more prolonged pause in the recovery than we initially anticipated. There has been a change of emphasis between economic sectors. Manufacturing output in particular is now growing very slowly. This reflects in part a reduced pace of export demand. By contrast, service sector output has continued to expand.

But we haven't given up hope yet. We are still relatively optimistic for our prospects in 1996. Consumers' disposable incomes are expected to increase, whether or not there are tax cuts in our annual budget in a few weeks' time. We are also anticipating an improved outlook for exports in 1996, as European growth moves ahead again and Sterling remains at a competitive level. With consumer and export demand rising, the prospects for investment growth are very favourable. We expect manufacturing investment growth to rise by around 10 per cent this year and next.

In fact, we have been quietly pleased with the course of this recovery. The traditional British exit from recession has been about as economically unvirtuous as you could get. Previous recoveries, we know, have foundered on the twin rocks of trade deficits and inflation. Whenever the economy has tried to grow at over three per cent for more than a year or two, we have sucked in imports, as our domestic industrial capacity was unable to cope with demand. Then came a sterling crisis, imported inflation, exaggerated wage claims and another recession.

This recovery has followed, for the first time, a different, more virtuous pattern. We've seen low inflation, rising exports, unemployment down, no pressure from wage inflation and improving government finances. Encouraging stuff.

The one missing feature has been favourable consumer sentiment--what has become known to the British popular press as the "feel good factor." It's understandable how it came about. Until recently disposable incomes had not been rising very quickly and people were running down their savings. At the same time, the prices of houses--the main personal sector asset in the U.K.--have remained relatively depressed and people's perceptions of their job security have been badly dented by the redundancies of the last recession. Understandable, but still a cause for some concern, especially in government circles.

There's always a danger of letting your upbeat theme run away with you in these circumstances. But I do think there are some genuine signs that our underlying economic performance has improved in important ways.

In some respects, our industrial performance does still leave a lot to be desired. Although the gap has been closing, our productivity remains, on average, behind that of many of our major competitors. Our investment rate is still lower than some. Our R and D record is nowhere near the best. But, as I have said, we are moving in the right direction.

Take productivity. The British work force had a pretty bad reputation in the past--in Britain at least. Back in the darkest days of the 1970s, we were almost in a different league to the Germans. No one could say that any more. Our manufacturing productivity has improved steadily since about 1980, after slipping back through almost all of the 70s. At its worst, we were barely more than half as productive as the Germans. Last year, we were back up to about 85 per cent of their levels. Still some way behind, but getting there.

And of course, those are average figures. It's a feature of our economy that there is a quite a disparity between the best and the worst. Our best companies are as good as the best in the world, and their productivity levels show that. The companies choosing to invest here clearly know that--and, in fact, it is their companies that demonstrate many of the highest levels of productivity.

Wage levels are another of our advantages. Not that we could hope to compete on dollars per hour with China or India or one of the other emerging economies. But when you compare like with like, among sophisticated industrialised production sites, we do pretty well, especially when you look at the all-in labour costs.

In Britain, for instance, the average manufacturing worker has a basic pay of US$11.56 an hour, actually slightly higher than in Italy, France, or even Japan, and not so far behind the German figure of US$15.70. But add in bonuses, social costs and the rest and German labour costs jump to US$28.58 an hour. In Britain, the figure is only US$15.98, less than 60 per cent of the cost in Germany and below Japan and most of Europe.

And while one of the reasons firms give for siting in the U.K. is often the quality and flexibility of the staff, overall our human resources remain a little patchy. We need to work harder on building strength in depth.

That is a record that I, and many others in the business community, have devoted a lot of personal effort to turning around. An ever-improving skills base is essential in today's climate and the C.B.I.'s work on education and training, which I led for some years, had a big part in putting in place a practical, business-led agenda for improvement.

There are three aspects in particular. A system of National Education and Training Targets. For example, we aim to get 60 per cent of the work force up to the equivalent of university-entry standard by the year 2000. Or by next year, all employees should be taking part in some training or development activities connected to work.

Second we have a coherent system of National Vocational Qualifications, which are now available to over 85 per cent of the work force.

Third, links between education and business. According to the OECD, this is an area where we now lead the world. Over 90 per cent of our secondary schools (for 11-18 year olds) have links with businesses, and so do the majority of schools for younger children. And it's not just numbers. The quality of these links has improved over the years. At first they were often relatively unproductive factory visits and talks from managers. Now it's more common to find rather more interactive and productive work shadowing or work-based school projects.

That means that not only is our work force becoming better educated, they are becoming educated in the ways that business wants. It's a long-term project, of course, but I think we can be quietly proud of the foundations we have laid for the future.

And relations between the work force and management--an area in which we once provided an object lesson in how not to do it--have improved in a truly remarkable way. Our nadir was the so-called Winter of Discontent, which heralded in the current Conservative government in 1979. In that year, there were 20.5 million days work lost in manufacturing because of industrial disputes. In 1993, it was 100,000. In 1992, 60,000. That is an incredible turnaround.

And I think the bald figures are backed up by the general feeling of a better climate between management and employees. Unions' priorities are no longer trying to get every last penny out of management in the annual wage claim. These days the attitude is much more focussed on win-win strategies to improve the fortunes of the company: recognising that their members' fortunes stand and fall with those of the company. There really has been a change of culture from my early days in management.

All these changes in the U.K. over the last couple of decades have happened against the background of our increasing involvement in the European Union. Whatever the differences among politicians, British business is overwhelmingly committed to our EU membership. We see it as one of the critical elements in Britain's strategy as a global trader. Our economic links with Europe through investment and trade have grown steadily. At the beginning of the 70s, before we joined the EU, barely over 20 per cent of our trade was with EU members. Now it is over 50 per cent, and the picture is very similar for investment.

Not that that means, of course, that we have abandoned relations with our traditional Commonwealth partners, nor would we ever do so. Britain is and will remain a global trader. We remain the third-largest source of imports to Canada, behind only the U.S. and Japan. And I'm sorry to report that after briefly tipping the balance in our favour you've come back strongly in 1995 and we're back into deficit.

On investment we do even better. We are the second-largest foreign direct investor in Canada, behind only the U.S. And, again after the U.S., we are the biggest destination for Canadian investment.

We can't afford to let relations with North America wither. And we can't let that mean just U.K.-U.S. or EU-U.S. relations. I'm in complete agreement with Foreign Secretary Rifkind's remarks the other day about the need for Canada to feature fully in the trans-Atlantic geometry.

Nevertheless with the potential in the EU of the largest single market in the world, it's essential for the U.K. to continue to play a central role in Europe and in shaping its future.

I cannot pretend that the EU is perfect. Not just the Commission, but national governments and businesses have been slow to respond to the changes in the global market that have brought increased competition from the dynamic emerging economies. But overall the balance sheet on EU membership is clearly positive.

Britain needs the EU, and the EU needs full and active engagement from Britain. John Major has emphasised our need to be at the heart of Europe, and I agree with him. We have a positive contribution to bring: it is Britain that has argued the case for the kinds of changes Europe needs if it is going to regain its competitive edge.

So where does all this lead us? It's all very well my telling you how much the U.K. has come on. If you were feeling cynical, you might even point out that it is my job to do so! But there is concrete evidence that the U.K.'s business prospects are more attractive than at any time since the end of the Second World War. People overseas clearly believe that too, as our outstanding success in inward investment shows.

Our position in Europe is obviously a factor. Siting production inside the EU gives you the biggest home market in the world. But we have been doing considerably better than most other European countries. From 1981 to 1991, Britain attracted in over 5150 billion--we were second only to the U.S. in the world and over twice as high as Spain or France. It accounted for nearly 40 per cent of the EU total inward investment. So there must be something in the improvements I've been sketching for you.

And there was a really spectacular increase during the 1980s. Until the mid-eighties foreign direct investment had never been over S2.5 billion. By 1989 and 1990, the net foreign in-flow was over &17 billion each year.

Just over the last few weeks there have been two huge new investments announced. Fujitsu are to invest 5800 million in expanding their existing micro-electronics plant in the North East of England. And Siemens has announced plans to build a new &1 billion plus semiconductor plant also in the North East. It must say something about the relative attractions of the two countries when a German firm chooses to locate such a huge investment in Britain.

Jiirgen Gehrels, the Chief Executive put it down not just to labour costs. For him the most significant factor was the flexibility of the British work force. He said: "We will be employing highly skilled engineers who are not cheap. But we can operate our factory for three shifts a day, seven days a week, without restriction. People will work long shifts here."

I don't want to blow our own trumpet too much or sound complacent. There's clearly still much work to do. Perhaps I should just mention a few of the C.B.I.'s immediate priorities for action.

I've already mentioned that, while the country as a whole is improving its productivity and industrial performance, there is still quite a gap between the best and the worst. What we need to work on now is getting the rest of Britain's companies up to the competitive levels of the best.

The C.B.Us National Manufacturing Council has made encouraging excellence and disseminating best practice the key to its mission. The next stage of this is going to be a nationwide benchmarking project that will give companies a hard measure of how they compare with the best in their field.

We will be continuing our push to improve the skills of the work force. Our immediate priority is to focus on ways to encourage employers to do more voluntary training of their employees.

And, although international communications--telecomms and physical communications--are good, internally, our transport infrastructure is not as good as it could be. We did a lot of work earlier in the year on establishing how we compared to other countries. Based on that, we are working on practical proposals for a national transport strategy.

We are fortunate in having a government that listens to business, so we know our proposals will get their attention. The government's macro-economic policy line is one we support and I think there is less difference of opinion over the general line of policy than at any time I can remember. Even the opposition speaks much the same language on broad economic policy. Let's hope this time we have all got it right! The evidence certainly points that way.

So I haven't needed to be too shy as I stood here before you this afternoon. I am lucky enough to be speaking as the representative of a country whose fortunes have turned, a country that is on the up. All I can hope is that my successors will be saying the same thing for years to come.

Thank you.

The appreciation of the meeting was expressed by Robert Dechert, President, British Canadian Chamber of Trade and Commerce and a Director, The Empire Club of Canada.