Britain's Problems In Perspective

MR. GORE:

In those dark hours of the Second World War when Britain stood alone against the formidable Nazi war machine, the voice of her great leader, the late Sir Winston Churchill, rang out with defiance and inspiration. Britain would fight on come what may, he said; there would be no surrender, no weakening of her will to endure and to triumph.

It's a matter of historic record that Britain did fight on, that she did endure, that she did eventually taste the fruits of victory. The cost, however, was high, and the vicissitudes of war cut deeply into Britain's resources.

In the years following the war, we have seen Britain struggling to maintain her economic stability. Her attempts to enter the European Common Market have been un successful so far. Faced with shrinking world markets, she has sought to stimulate trade abroad, and, in this connection, we recall the activities of British Week in Toronto and the distinguished visitors it brought us from overseas. Then, most recently, came the shock of hearing that Britain had resorted to the drastic step of devaluating the pound. Economically, Britain's well-being would seem to be seriously threatened, and the prophets of doom have had a field day. In peace, as in war, however, British endurance and resourcefulness are not to be discounted. Furthermore, not being "right on top of it", as the saying goes, we may be missing important mitigating elements.

It is our pleasure to welcome as our speaker today a man who is "right on top of it". He is Ronald H. Grierson, a British banker, who is Executive Director of S. G. Warburg and Company, the London firm of merchant bankers. He also was, until recently, Chief Executive of the Industrial Reorganization Corporation.

Mr. Grierson was born in Nuremburg, Bavaria, and was educated at the Lycée Pasteur, Paris; High Gate School in London; and Balliol College, Oxford.

During the war, from 1940 to 1946, he served in the Black Watch and the parachute regiments. In 1948, he became Executive Director of S. G. Warburg Company, and subsequently became director of other companies in the United Kingdom and overseas.

Prior to joining Warburg he worked for a short time on the staff of The Economist in London, and later in the Secretariat of the Economic Commission for Europe in Geneva. Mr. Grierson has a keen interest in AngloAmerican relations and is a member of the governing body of Atlantic College in the United Kingdom.

With this kind of background and experience, he is admirably qualified to speak on the subject of "Britain's Problems in Perspective".

Gentlemen, may I now present Ronald H. Grierson.

MR. GRIERSON:

I would like in my address to you today to attempt the difficult task of putting the much advertised problems of my country into reasonable per spective. Not since Turkey was proclaimed the Sick Man of Europe in the 19th century have the problems of any one country been the subject of such intense, almost morbid, analysis--not least by its own citizens--nor the object of so many prescriptions of cure, some of them of a decidedly quack nature.

Somehow--and perhaps we need not wonder too much at this--a picture has emerged of a country in the grip of some incurable economic illness and the contours of this picture have been further sharpened by the fact that the Welfare State, whatever that term may mean, is generally considered to have been a British invention. Yet when one probes into the depth of this situation one finds that it abounds in the most baffling paradoxes; and when one tries to compare individual features in the British scene with comparable phenomena in other countries, not excluding the economically powerful United States, one is often faced with the perplexing conclusion that in this or that respect Britain is not necessarily the most backward.

One can think of many examples. Hardly a day passes without one being told in some context or other that British management is hopelessly unprofessional; maybe it is, compared with your own highly professional standards, but the fact remains that in countries like France and Italy, whose growth rates are our envy and which for the moment at least are not plagued by our own illnesses, the organization and thrust of the leading British managements are enviously contrasted with the paternalism and nepotism still ruling in their own enterprises. Again our friends tell us that British industry is too fragmented; true in a sense -yet, even before the wave of gigantic mergers in which we are now engulfed, Britain occupied a far higher place than any other European country in the annual league table of large companies compiled by Fortune magazine.

To give another example: it is alleged that our executives are insufficiently mobile, that there is not enough hiring and firing; but Japan manages a spectacular growth rate while protecting executives almost from the cradle to the grave. Our trade unions are with some justification held to be difficult and truculent; but far fewer working days are lost in British industry than, for instance, in Italy whose growth rate is more impressive. We lament the fact that our Government gives too little support to Britain's technological industries; yet only the other day I read in a newspaper that U.S.A. telecommunications industry envied the way in which the British Post Office gave clear-cut support to its suppliers!

One could go on with these examples and it would be comforting to take all this as evidence that there is nothing basically wrong with the British economy at all. Indeed one could go further and reflect that, in spite of all our troubles, the British national product and income per head have risen year by year--not equally in all years but risen nevertheless--and that this is after all the main object of all economic endeavour. But such complacency would be totally fatal.

The only philosophical reflections which we can permit ourselves--and they are important ones--are perhaps the following two. First, that in a world of independent nation states, however impressively the habits of co-operation have developed, too much independent striving by each state for the maximum benefit to itself is bound to create a very uneven progress for all. It would indeed be amazing if in such circumstances the developed countries of the world had anything like an equal growth rate year by year. That is the price we pay for our modern form of mercantilism. Against that we can set the more comforting reflection that these national economic rivalries represent a challenge.

The second thought in which we can find some consolation is that, even if no problem of economic nationalism arose, there could of course be no such thing as a blueprint for steady growth. We are quite wrong to think, as we sometimes do, that, if only those in charge of events could behave more intelligently or less greedily, all the roughness in our economic relations would be eliminated and we could advance to prosperity on a smooth path. This is utter Utopia. Life is perpetual challenge; and creative innovation takes place in an imperfect world and in response to a multitude of complicated pressures.

This brings us to the crux of the British problem. Why is it that Britain seems to have responded less successfully than other countries to the pressures and challenges of the post-war period? It so happens that introspection and self-criticism are two qualities in which the British public has not been lacking these last years and one can therefore take one's pick of the many explanations which have been offered. All of them contain elements of truth, but their relevance is considerably diminished when one realizes that similar shortcomings occur in other countries.

Some of our problems are only too obvious: the responsibility (partly self-imposed) for operating an international currency, the excessive military commitments abroad, the featherbedding of industry through semiprotected Commonwealth markets. But all these are relatively surface phenomena of the kind which all countries encounter from time to time and which it is certainly not beyond the ingenuity or political courage of man to overcome. But I think there are certain other problems with which Britain is more fundamentally faced and these I would not recite to you today had I not the feeling that they are in fact being much more successfully tackled than our public relations would lead you to believe. Indeed, I am fairly confident that under the cloud of gloom and pessimism which far too often is all that is visible to our foreign friends, some very basic transformations are taking place in the British scene which could make us emerge healthier and stronger than a superficial judgment would now indicate.

First and foremost, we have so far lacked in Britain what, for want of a better word, I would call the joy of business. This is something which you in North America, and especially your U.S. neighbours, possess exuberantly and infectiously and I wonder whether you realize what an important problem its relative absence has been for Britain. For over a hundred years our educational and social bias has been towards training administrators for the public service and the system developed for this purpose put a heavy discount on enthusiasm and generated an unhealthy contempt for what became known as trade. I think it is no exaggeration to say that of all the qualities required in a successful businessman enthusiasm is the most vital.

As one of our leading industrialists put it the other day, we will in future have to have just as strong emotional reactions to business situations as we have had to wars and other excitements in the past. Fortunately there is every sign of this happening -though to you, three or four thousand miles away, these changes--rather like watching grass grow--must be obscured by other more dramatic events which you read about. We are training more businessmen. More people are growing up who are sons of businessmen. Many people will now read the Business Supplement of a newspaper before they read the paper itself. The anatomy of business is becoming more widely understood--and it is even possible for a businessman to be the hero of a television series!

To you who have been brought up in a different environment it may seem odd that such phenomena call for special mention. But it is precisely this kind of trans formation which Britain needs and which--in spite of our short-term mishaps--she is getting; and this is more critical for our survival as an industrial power than shortterm upsets in the balance of payments or the timetable of our withdrawal East of Suez.

Another British problem which has received insufficient attention is this. For diverse reasons, Britain, almost alone among the major industrial countries, has lacked the excitement of a really dramatic political or economic upheaval in the last 100 years. You may think it odd that I should sound like regretting this, but when you consider the tremendous energizing effect which the opening up of the West and the subsequent discovery of oil and natural gas have had on your country or the stimulus which Germany and Japan derived from having to reconstruct themselves out of nothing after 1945 or again the challenge which the Common Market represents for the Six, you then see what a handicap it has been for Britain not to have undergone any of these tonic experiences. Of course in earlier periods we did not lack such excitements: we were the first in the industrial revolution and our colonizing adventures represented just such a stimulus, but these events lie far back in history.

If we are lucky--and we will have to keep our fingers well crossed for this--we may in the foreseeable future receive powerful stimuli both in the political and economic fields. Our entry into the European Community is in my opinion bound to take place in one way or another some time in the next few years and the excitement of taking part in the task of closing the technological gap between Europe and the United States should remedy much of our shortcoming. Equally, the discovery of important oil and gas fields in the North Sea, which were barely suspected even half a generation ago, may provide us with some of the economic new horizons which we have missed in the past.

A problem which has formed the subject of much critical discussion in Britain is the relationship between the state and industry. In spite of some ill-judged nation alization measures in recent years, the ratio of public to private enterprise is barely greater in Britain than in some of the Continental countries which show better growth records, nor even much greater than in the United States if you take your defence and space programmes as being a form of public enterprise. Mixed economies, in the sense of the state assuming a wide measure of responsibility for economic growth, have for better or worse become the pattern of the western world and we will have to come to terms with this state of affairs. The main problem still to be solved is that of the correct relationship between state and industry in this situation.

Here again we in Britain face a special problem. Our Civil Service, admirable as it is, was designed for an imperial task rather than for that of helping the state give the necessary encouragement and impetus to business. This is an aspect which is now receiving acute attention and a major reorganization in our Civil Service, with the problems of industry very much in mind, is due to be launched in the course of the current year.

Finally, one might dwell for a moment on what has become known as our Incomes Policy: how to prevent wage increases from getting out of hand. In the short term context of our balance of payments--and more than ever now that we are trying to consolidate devaluation--the rise of personal incomes must obviously be contained within the limits of productivity increases--or, to put it brutally, for a time at least, wages will somehow have to be frozen at or near their present levels. As a short-term policy there is no alternative to this, but from a long-term point of view this policy is really the opposite of what Britain requires.

As the Americans know particularly well, the greatest spur to productivity comes from high labour costs. Thus, as long as our wage rates remain relatively low--and it is significant that, in spite of all you have read in the papers, the average wages in some of our most important industries are lower than comparable wages in Italythere is insufficient incentive to equip ourselves for achieving greater productivity. This is a chicken-and-egg problem which we will have to solve and where the appropriate long-term solution is possibly the exact opposite of what is needed for the immediate present.

In describing these problems to you, I have emphasized my feeling that solutions were on the way. Altogether I think it might be prudent in what you hear about Britain to make allowance for our national mania for self-denigration and, while I would not for a moment give you the impression that our troubles were over, I do want to leave with you the feeling that new attitudes are developing faster than is apparent and that when present problems are out of the way a stronger and more dynamic and entirely revamped Britain may emerge.

It would be foolish to ignore the fact that our present Socialist administration has by its very political colour caused many international eyebrows to be raised. It is hard for a government professing socialism--and there is no denying that the British Labour Party does -to be given the benefit of the doubt in a robust private enterprise country such as yours. But I think you must see things in perspective. In spite of all the evidence -and the way in which our economy has been managed in recent years is certainly nothing to be proud of -the responsible Socialist leaders (I am not talking about the lunatic fringe) now realize that private enterprise is the only possible launching-pad for economic growth and they are curbing their ideological instincts accordingly.

Of course a good deal of wishful thinking still goes on and only the harsh discipline of events will cure this. Nor must you necessarily assume that all our problems will vanish if there is a change of government at the next election--although the arrival of new faces would undoubtedly transform the scene. My main point is this. Governments come and go and, however much they may tug politically this way or that, certain basic trends develop regardless of which political party is in power. Although in the last three years or so we have tended to slide from crisis to crisis, I feel that there is below the surface a healthy reforming current whose effect may not be seen for a few more years.

Though my remarks have been largely philosophical, it would be wrong for me to end this address to an audience of businessmen without some reference to the very specific problem of how devaluation will affect you. We need not here to go into the question, now only of academic significance, whether by different policies at an earlier date devaluation might have been avoided. The fact is that last November there was no longer a choice and the pound now stands at a low level. This has created a difficult problem of pricing strategy for every British industrialist and before you condemn us for what you may consider our egocentricity I should like to explain this a little more fully.

In the first place you must accept the fact that devaluation is a means of helping British industry and that if all the advantages of it were passed on to our foreign trading partners we would be right back to square one. If therefore British suppliers lower their dollar prices to you by only a fraction--or do not lower at all--I urge you to bear in mind in the first place that you are no worse off than before (however much you may have hoped to be better off!) and secondly that the British exporter has to pay more for his own imports (often a large proportion of his cost), more in bank interest (our rediscount rate is now 8%); more in wages due to the increase in the cost of living caused by devaluation--and, last though not least, he has to forgo a number of rebates and premiums which were withdrawn last November. At best therefore he could only pass on to you a fraction of the 14.6% he nominally gains from devaluation.

Equally, if your British customer now fights harder for the dollar price he is willing to pay for your exports, remember that this is one of the strategies he has to deploy to protect himself as much as possible from the effects of a devalued currency. In a sense, some of your U.K. markets have in the past been artificially stimulated by the fact that British buyers had to find relatively few pounds to pay you your dollars. With devaluation this has ceased and you have to fight harder for some of these markets. But I am convinced that in the long run these adjustments can and will be made and that the fabric of Anglo-Canadian trade is strong enough to withstand shortterm upsets.

At present both our countries have their economic problems. Ours are perhaps of a more fundamental social character and luckily for you the basic wealth-creating mechanism operates with fewer hindrances on this side of the ocean than on ours.

The fact that the U.S.A. and Britain at present monopolize the economic headlines should not be misread. Who knows, in a year or two Japan, Germany, Italy and others may have their problems too--in fact they have, but they seem less spectacular--and one would have to be less than human not to wish our friend General de Gaulle, though not perhaps his people, just a tiny bit of economic upset as well! The important thing is that our institutional machinery for crisis-management must be constantly perfected so that we can deal with these events as they occur.

Thanks of the meeting were expressed by R. L. Armstrong.