Britain: The Halfhearted Economy

Britain is a tiny land, smaller than Sweden or Italy, but its problems are as vast as its pride. Once the source of the greatest colonial empire since the days of the Romans, it has only with reluctance adapted to an age in which empire has withered—and with it much of the commercial power of a nation that must live by trade or perish. This year has been unkind for Britain; the Labor Party’s victory has only served to accentuate problems that the defeated Conservatives had struggled with for months. The pound has been put in peril, confidence in Britain’s ability to adjust to the demands of the day has shrunk, and over the island that Blake called a “green and pleasant land” has grown an economic cloud that confuses, frightens and frequently infuriates its stalwart inhabitants.

Like a Fire. Last week, only a few weeks after the pound underwent one of its greatest tests of the century, Britain’s cloud seemed to darken perceptibly. Talk swept London’s City—and the Continent—about the further lack of trust in Labor, about the possibility of the pound’s devaluation, and about a deterioration in the balance of trade. Though not all—perhaps not much—of the gossip was solidly based on fact, it burned as persistently and as contagiously as a fire in a peat bog.

The hard news fed the fire. Britain’s government revealed that the trade deficit widened by another $288 million in November. The price of gold was pushed so high by the uncertainty—to the highest level since the Cuban missile crisis—that the Bank of England rushed to support both the securities market and the pound sterling. In a desperate effort to help alleviate its economic problems, Britain announced that it had taken advantage of a 1957 agreement and arranged a postponement of $138.1 million in repayments due the U.S. and $34.3 million due Canada on British reconstruction loans. As if all that were not enough, the General Agreement on Tariffs and Trade (GATT) denounced as “inconsistent” the 15% surtax Britain had placed on imports in an effort to right the out-of-joint balance of trade, and demanded that it be removed. Says Sir Leon Bagrit, the chairman of Elliott-Automation Ltd.: “The British economy is a little like Gulliver in Lilliput, when he could not move because of hundreds of cords holding him back.”

Attitude of Insularity. What are the cords that hold back what was once one of the world’s most powerful economies —and now is one of its most troubled? There are no great secrets about the failure of the British economy to meet its challenges: its root troubles lie in listless management, the wasteful use of labor, small-scale and inefficient production and indifferent salesmanship. At the heart of these manifestations is less of an inherent economic weakness than a national attitude of insularity, a stubborn refusal from top to bottom to believe that Britain’s standard of living—and its standing in a prospering world —depends on how much it can sell to a world that is increasingly choosy about what it buys from whom.

Britain’s plight would not be so severe were it not for the nation’s present eminence in the world’s monetary structure. Such nations as France and Italy are better able to undergo economic crises than Britain, whose sterling is the world’s second reserve currency after the dollar. Sterling is thus held temporarily by persons all over the world because of the ease with which it can be used in banking and trading—and many of them tend to unload it as quickly as possible when it seems to be threatened by economic difficulties. Since Britain buys so much more than it sells, three-quarters of its sterling reserves are in foreign hands, a fact that straps the British economy into a straitjacket. The only way out of the jacket is to increase greatly the amount of sterling Britain earns.

Britain needs to import vast quantities of food and raw material to live, but it seems increasingly unable to afford the price of these imports. Although British exports are still among the world’s highest and have risen steadily in absolute terms, the nation’s share of world exports has been steadily declining. A measure of Britain’s plight is that the Beatles’ 1963 overseas earnings of $56 million was hailed as a major contribution to the balance of payments. Another measure is that in the past decade Britain has almost exactly reversed positions with Germany: where Britain had 20.9% of world exports of manufactured goods in 1953 and Germany only 13.4%, Germany, by latest figures, has 20.2% v. Britain’s 13.7%. In a land that reveres Dickens, Mr. Micawber’s terse economics seems very apt: “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

No Miracle. Britain’s misery lies deep in its industrial and commercial bones. While other European nations have experienced a postwar “economic miracle,” Britain’s average growth rate over the past decade has been only an unexciting 2½% , among the lowest of Western industrial nations. Its industrial production has increased by only a third in the past decade, while such nations as Japan, France, Germany and Italy have more than doubled production. Improvement in productivity in most branches of British industry has been meager. Britain, in short, has been living considerably beyond her means.

Britain’s industry, while boasting some of the world’s most efficient companies (such as those in electrical equipment and chemicals) is generally antiquated; three out of every five of its machine-tool population of 1,484,496 are more than ten years old and more than one in five is over 20 years old. While Britain had 75 computers installed in 1957 v. 55 for the entire Common Market, six years later it had only 550 against the Market’s 1,500. U.S. Management Consultant William W. Allen has pointed out that it takes three Britons to produce a ton of steel v. one American worker, that shipbuilding in Britain uses about 40% more men than necessary, and that it takes three to six times as long to build a house in Britain as in the U.S. Asked Allen: “Is Britain a half-time country, getting half-pay for half-work under half-hearted management?”

Many Britons—as well as others—believe that it is. “In this country,” says Sir Leon Bagrit, “there is some resistance to change, whereas in America, ‘new’ is equated with ‘good.’ ” “What do we need in this country?” asks Joe Hyman, chairman of Viyella International. “In a word: change, the acceptance of change.” But no one has better summed up what is wrong with Britain—and what it needs—than Viscount Watkinson, the boss of Schweppes Ltd. To survive, he told his countrymen, they must become “a nation of salesmen.”

Bagmen & Touts. The difficulties of such a transition can be seen in the derisory names that British give their salesmen: bagmen, touts, counter jumpers. The no-sell approach may have been all right in the days when a manufacturer had only to stamp “Made in Britain” on his product and wait for the world to come running for it, but it does not work now. “It certainly won’t do for the 1960s,” said The Director, a management publication, “and it could be the end of us in the 1970s.”

Britain’s inability to hold its own in trade—while the most dramatic of its troubles—is only symptomatic of the deep-seated attitudes of the British businessman. Britain is operating today at 100% of industrial capacity, and at a low 1.47% unemployment rate. Under such circumstances, many British executives do not care to expand their operations to scramble for overseas markets, where competition is open and profits run to 5% v. 15% possible at home. Of the 6,000 firms in Britain that export, 200 account for one-half of all the nation’s exports, and fully a third of the total is accounted for by only 70 companies. The remark of I. H. Levison, managing director of the British Shoe Corp., is typical of the British businessman’s attitude: “Exports are not very profitable, and we can sell all we want on the home market.” Or, as another British businessman put it, “I already have one Rolls. What could I do with a second?”

British firms, unlike foreign competitors, tend to keep their better salesmen on domestic rounds, frequently do not bother to send salesmen abroad at all, but rely hopefully on agents to sell for them. Salesmen who do go overseas often find themselves outnumbered: for every British salesman, one survey has shown, there are 2 Germans, 2.3 Americans and 2.8 Japanese. Salesmen are frequently hampered additionally because their firms neglect to learn the market. “Many British manufacturers,” complains an Australian department-store buyer, “do not even know that American garment sizes are generally used in Australia.”

Bad Management. All this adds up to a major failure of British management. Cecil King, chairman of International Publishing Corp., has said: “The standard of management in business in this country is abysmally low. Too many old men cling on long past their ability to contribute anything. Too many jobs are given to school friends or relations.” The average age of 100 top British executives was recently given as 61—older than either bishops or members of the Cabinet. Many companies are still family-owned and fusty, and the existence of an “Old Boy” network of gentlemen amateurs discourages the formation of an industrial meritocracy. Many executives lack professional business training—and there are few places where they could train anyway: there are only about 600 management students in the entire country.

While the advance of technology has produced professional managers elsewhere, many of Britain’s 500,000 managers are arrogantly suspicious of the new breed of engineers and scientists, and slow to spend money on research. “Of all the countries I know,” said Author C. P. Snow, now Parliamentary Secretary of the newly formed Ministry of Technology, “this country respects engineers least.” Result: a brain drain that has robbed Britain in recent years of some of its best scientific talent. British managers also tend to look down their noses at the self-made man and the aggressive merchant. “A tremendous amount of work has to be done,” in the opinion of Sir George Briggs, deputy chairman of Hawker Siddeley Industries, “to root out the prejudice that trade is non U.”

Britain’s organized labor has its own set of cobwebs. The archaic trade-union structure, a bewildering complex of 623 unions, is involved in continual controversy over jurisdiction. One firm may have to deal—as does Ford of Dagenham—with as many as 21 different unions within one plant. Still, the lack of notice, severance pay and worker retraining has made British labor among the least protected in all Western countries and often moved workers to resist whatever changes are attempted. This situation encourages overemployment —one of Britain’s main labor problems —makes it more difficult and expensive for firms to export, and tends to make all workers progress at the speed of the slowest.

More Than Declarations. To cure such ills, economists believe, Britain must change the very milieu in which its economy operates, acquiring in the process a thirst for efficiency and modernization. The nation that sired the Industrial Revolution two centuries ago needs a new revolution. It can be nothing less than the sort of upheaval that Jean Monnet wrought in France, when in the mid-’50s he was able to shake his nation out of its sloppy practices. The Labor government has made only a beginning: it has offered tax rebates to companies that increase their trade abroad, given new hope and esprit to the scientific community. Last week Minister for Economic Affairs George Brown—whose ministry was created by the Labor government—signed with representatives of unions and management a historic declaration of intention meant to keep wages and prices stable.

The deeds and declarations all had a stirring ring, and there are prophecies that Britain is about to rebound. “The giant is now stirring,” says Sir Leon Bagrit, “and at last a determined effort to modernize is about to begin.” It had better begin soon. In the new world war of hard international trade, the panzers of the more progressive trading nations are often merciless. With too many gentlemen amateurs still in command, the British economy is still badly outgunned.