Halting_the_decline_of_Britain's_manufacturing_industry

CONTENTS page Preface

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1

The decline of Britain’s manufacturing industries

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2

Why manufacturing matters

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Why Britain’s manufacturing performance is poor compared with other advanced countries

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4

Why the current free-for-all relocation of manufacturing to less developed countries is unsustainable

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What the government should be doing

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6

What trade unions should be doing

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Conclusion and Summary

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8

Notes

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Halting the Decline of Britain’s Manufacturing Industry | 1

Preface This pamphlet is published by the Communist Party in support of the Left Wing Programme launched earlier this year, and as a contribution towards the on-going debate about an alternative economic strategy for Britain, with particular reference to restoring the fortunes of Britain’s manufacturing industry.This, it is argued, is essential for an improved rate of economic growth and a more balanced economy, in which the different sectors support one another’s development. It should not be regarded as a blueprint, or an official statement of Communist Party policy, but as a basis for a wide-ranging discussion and new thinking within the labour and trade union movement and beyond.

It is very much a critique of prevailing neo-liberal policies, which are embraced by, or have been forced on, governments worldwide.Tony Blair and Gordon Brown, in particular, and the European Commission, under the powerful influence of the European Round Table of Industrialists – a body comprising the chief executives of around 50 of the biggest Europeanbased transnational corporations – have been at the forefront in championing such policies. It is an agenda that is intensifying the current world economic crisis.Apart from widening the gap between rich and poor, it perpetuates the problem of a majority of the world’s people being too poor to provide a market for the goods and services capable of being produced and supplied, and which they need and want.This is also the primary cause of the world’s rapidly deteriorating security situation, from which, invariably, it is ordinary people and the poor who suffer the most.

Moreover, it is an anti-democratic agenda.That is because under this neo-liberal regime, alternative policies – especially those involving various kinds of state interventions to manage a country’s economy – are declared illegal, even if a duly elected government has been mandated to carry out such policies.Thus, governments are no longer able to control the capital created by the labour of a country’s citizens – on whose behalf governments are supposed to be acting – such that it benefits the country as a whole, rather than the economically most powerful, as now.This neoliberal agenda was even written into the proposed EU constitution.A constitution, normally, confines itself to how policies are to be arrived at, since even the best policies, invariably, need to be altered as circumstances change. But not the EU’s. Fortunately, its launch has been aborted, following its resounding rejection in referendums conducted by the French and the Dutch earlier this year after successful grassroots campaigns to reveal its written-in neo-liberal content, which was carefully covered up by the propaganda coming from the EU political elite. But we need to remain vigilant.They have not abandoned the idea.

Neo-liberal policies have largely been allowed to flourish by default, because the powers that be have managed to crowd out any discussion of an alternative set of policies. It is time to put that right. Hopefully, this pamphlet, which advocates polices that directly contradict the current neo-liberal agenda, will give a new coherence to the debate that must take place, and, in particular, set a new course for manufacturing industry to serve the needs of all people, not only in Britain, but worldwide.

If you have any comments on any aspect of this pamphlet, these would be gratefully appreciated. Please send them to the Economic Committee, CPB, Ruskin House, Coombe Road, Croydon, CR0 1BD, or email office@communist-party.org.uk.

2 | Halting the Decline of Britain’s Manufacturing Industry

1.

The decline of Britain’s manufacturing industries

ritain’s manufacturing industry is in serious crisis. Currently, it is going through yet another bout of recession.1 Already, since 1997, more than a million jobs in manufacturing have been lost. Only 12 per cent of Britain’s workforce of around 30 million people is now employed in manufacturing, down by about a third since the mid-1980s.2 In fact, manufacturing as a share of output has been falling in all the advanced industrial countries. In France and the United States, for example, it fell from about 30 per cent in 1960 to around 16 per cent now, about the same as in Britain.

In Japan and Germany, over the same period, it fell from 34 and 40 per cent, respectively, to 21 and 23 per cent now.3 Employment in manufacturing has fallen roughly in proportion.

Partly this reflects the fact that as economies develop, it is possible to achieve higher productivity gains in manufacturing through investment in more productive technology than in other sectors. It is logical, therefore, that fewer people need to be employed in manufacturing. In addition, there has been the trend of manufacturers contracting out many services – such as catering, cleaning, secretarial work, printing, transportation – that previously had been carried out in-house, so that many jobs previously classified as manufacturing, because that was the dominant activity of the company, are now classified as services. Furthermore, as incomes grow, people tend to spend more on services, thus creating more employment in those areas.

However, the trend also reflects the extent that manufacturing industries are being relocated to less developed countries, where wages are a fraction of what they are in the advanced countries, enabling goods to be produced more cheaply (and more profitably for company shareholders). Up to a point, from the point of view of the advanced countries, this is not a bad thing. We need underdeveloped countries to have industries and to export to us so that they become more developed, because it means that they can then provide more of a market for the products that we need to export to them for our economies to prosper. Moreover, if goods as a result of being produced in underdeveloped countries are cheaper, we have more to spend on other things, which creates new jobs to fulfil that demand. However, if this process goes too far, undermining our economies, we will not be able to provide markets for their exports, so that everybody loses out. As will be discussed, it needs to go ahead in a controlled and orderly way.

Although manufacturing output as a proportion of total output tends to decline as an economy develops, this does not mean that manufacturing output itself has to decline. It may just grow less fast than other sectors. For example, in France and Germany, since 1992, manufacturing output has grown by around 30 per cent.

In Britain, however, over the same period, it grew by barely 6 per cent. In fact, up to 1997, Britain’s manufacturing output was expanding at more or less the same rate as in France and Germany. It is only after new Labour came to power under Tony Blair as prime minister that it fell back, and then went into decline. Thus, since 1997, whereas in Germany and France, manufacturing output has gone up by around 20 per cent, in Britain it has declined by 2 per cent.4 But does it matter that Britain’s manufacturing is declining? If a country’s strength is in services – for example, in the area of financial services, which is one of Britain’s main strengths – then surely in today’s globalised economy, that should be the focus, rather than manufacturing? Thus, it can be argued, that as long as manufacturing is being invested in and expanded somewhere in the world, which can provide the demand for services elsewhere, and the wealth needed to support them, then it does not matter if manufacturing is being run down in some countries, and being expanded in others.

Indeed, in some quarters, notably in the financial centres in the City of London, it started to become fashionable to draw a line between yesterday’s old economy of manufacturing and tomorrow’s new economy of e-commerce. However, this took a bit

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Halting the Decline of Britain’s Manufacturing Industry | 3

of a knock following the collapse in 2000 of the dot.com bubble. In short, it is slowly coming to be realised – at least outside City and government circles – that manufacturing does matter, even for Britain, which is what trade unionists in the manufacturing sector have been saying for the past several years. As will now be argued, putting its decline into reverse is the key to our future economic welfare.

2.

Why manufacturing matters

urning raw materials into finished products, which is what manufacturing is about, is where the bulk of economic value in society is created. It is what provides the basis for increasing the productivity of labour, enabling more goods and services to be produced and supplied in ever-increasing diversity, utilising ever more efficient technologies. Manufacturing in a modern economy does, of course, depend to a high degree on services such as transport and distribution, wholesale and retail markets, financial and business services, and education and training. Meanwhile, demand for those services, and others, and therefore employment in those activities, as well as employment in the construction industry and utilities, depends to a high degree on manufacturing, and on those employed in manufacturing spending their wages. This is particularly obvious in a locality when a major industry employing many people closes, which often leads to the closing of shops and other facilities, as well as the general running down of the whole neighbourhood due to unemployment and the lack of tax revenue to finance local public services. In short, the prosperity of a neighbourhood, as well as that of countries, depends on having a judicious mix of manufacturing and services, so that the one can effectively support the other.

Of course, this does not mean that every neighbourhood, or every country should go out of its way to invest in a wide range of manufacturing industries. Indeed, in most neighbourhoods, as well as in most small countries, it would be utterly impractical to invest in manufacturing, except on a small scale. In general, countries and neighbourhoods should seek to invest in those productive activities – be they manufacturing or the provision of services, including leisure – for which they have a comparative advantage related to their natural resource endowment and their past history. However, although these will no doubt affect the choice of productive activities, they are not the be all and end all. Comparative advantage is largely created, rather than inherited. In particular, it is a function of a country’s evolving institutions – such as government policies, structure of markets, educational and training systems, business culture, and so on – that favour or support particular productive activities over others. In other words, comparative advantage is largely a function of a country’s comparative institutional advantage.5 This is well illustrated by Japan, which in the last century was the most successful country in manufacturing, yet its industries are dependent almost entirely on imported raw materials and other inputs. This was related to the support given to manufacturing by the Japanese government and other institutions. Much the same can be said for Germany, and to a considerable extent most other European countries, but less so for Britain.6 Although it is conceivable for small island economies or enclaves to prosper (as many do) more or less on services alone, such as tourism and financial services, in which a large number of foreigners are involved relative to the size of the economy, this is not an option for larger economies. That is because many of the services upon which people depend for their livelihoods would barely exist if it were not for manufacturing.

In addition, most services are not tradable internationally, so that it would be impossible to earn sufficient revenue from exports to acquire the manufactured goods that people and businesses need and want, if mostly these were no longer produced in the country.

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4 | Halting the Decline of Britain’s Manufacturing Industry

Furthermore, any sizeable country without much manufacturing lends itself open to being exploited by others – the more so, of course, at the moment, when the main economic agents, the global transnational corporations, are free to move their profits and capital around the world at will, about which more later. The failure to develop a wide range of manufacturing industries in underdeveloped countries is precisely one of the major reasons why they remain underdeveloped, and are subject to such a high level of exploitation by the already developed countries. Meanwhile, the world economy is not static. People in Britain now, and in other advanced countries, up to a point, are benefiting from the lower prices of many consumer goods – and of components that go into their manufacture – as a result of relocation of their production to countries where labour costs are a fraction of ours. However, in time, workers in those countries will become better organised to campaign for a larger share of the resulting profits in the form of higher wages, so that goods from those countries will no longer be so cheap. And as these countries become more developed, they will be in a position to have their own financial services sector, and be less dependent on financial centres such as the City of London to raise finance and insurance. Countries such as Britain, formerly strong in manufacturing, that allow their manufacturing sector to be run down, would then become extremely vulnerable. It would also be difficult and costly to re-establish many of the industries because the skills needed would have disappeared – which, as will be discussed, is already a problem in Britain for what is left of our manufacturing industry.

There is a lesson here from the killing off of our coal mining industry, which no other country, not even the United States, would have allowed. It was linked, of course, with the vindictive short-term desire of the Tory government under Prime Minister Margaret Thatcher to break the backbone of Britain’s trade union movement.

As a result, we now import 70 per cent of our coal needs– mainly from Australia, Colombia, Poland, South Africa and the United States – whereas before we were more or less self-sufficient. Even seven years ago, Britain produced 70 per cent of its coal needs.7 One of the arguments produced as an excuse for the running down of our coal industry was that it was cheaper to import coal than to produce it in Britain. But this was related first to the use of cheap labour (even child labour in Colombia), which, as just argued, will not apply once workers in those countries become better organised to push up wages, and second, to our overvalued exchange rate (see below). Further, it was related to restrictions placed on Britain’s publicly owned coal mining industry to diversify – for example, in the manufacture of its own equipment – and the extent that it was deprived of investment by various governments using it to subsidise other industries and to control inflation. Meanwhile, the use of coal to generate electricity has been run down. Coal now accounts for barely a third, having been overtaken by natural gas, which now accounts for 40 per cent.8 But as the reserves of gas under the North Sea become depleted, again this will depend more and more on imports.

An advantage of gas is that it is less polluting, but that is also to do with the lack of investment in the development of clean coal technologies. In short, the running down of our coal industry will probably prove a costly mistake. And if present trends continue, our manufacturing sector will face a similar fate.

To sum up, in order to be reasonably self-reliant, and to minimise being held to ransom, a country needs a diverse range of productive activities, such that a crisis in one or two areas due to some event at any particular time can be offset by income generated in other productive areas. In other words, it makes sense for all countries as far as possible to have a reasonable range of manufacturing industries, commensurate with their size.

It is analogous to agriculture. Most countries recognise the importance of preserving their agricultural industries so that they are reasonably self-reliant in food. Note that this is not the same as being self-sufficient, which can make a country more vulnerable and less self-reliant, for instance, due to drought or some other catastrophe.

Self-reliance in food means having a diverse range of productive activities and sources Halting the Decline of Britain’s Manufacturing Industry | 5

of income, so that a country can deal with any contingency, one element of which, in the area of food, is maintaining a buoyant agricultural sector. That is why every country has policies in place to ensure that agriculture thrives and is not undermined by cheap imports. This, of course, is the reason for the existence of the European Union’s Common Agricultural Policy – though Britain no doubt would be better served by its own similar policy tailored to its specific needs. Even these policies have been under attack by the neo-liberal ideologues acting on behalf of the transnational agribusiness corporations, and many of the more vulnerable, underdeveloped countries have been forced to abandon such policies in exchange for debt relief. But the main point here is that just as agriculture is generally recognised as being of strategic importance, so must manufacturing, and we need to apply similar policies in order to protect it.

3.

Why Britain’s manufacturing performance is poor compared with other advanced countries

ritain, as the world’s fourth largest economy, and because it was the country that pioneered the development of industrial technologies that form the basis of modern manufacturing industries, should be at the forefront of manufacturing among the advanced countries. Why is this not so? The obvious answer is because there has been insufficient investment in manufacturing. The capitalist institutions that dominate our economy and which are responsible for making investment decisions, find it more profitable to invest capital abroad or to recycle it speculatively within the financial sector. Inevitably, this is at the expense of investment in manufacturing. And successive governments over the years have done little to change that situation – which they have every right to do, as representatives supposedly of everybody, not just the capitalist elite.

After all, that capital is created not by capitalists, but by the labour of all the people – or more precisely, by the surplus labour that they perform over and above that for which they are paid. It should therefore be the responsibility of governments to ensure that this capital that people create is invested for the benefit of the whole of society rather than allow the capitalists appropriating it to make money out of it at the expense of everybody else. Meanwhile, because of the failure of domestic capitalist institutions to invest adequately in manufacturing in Britain, governments have been increasingly relying on foreign investors to plug the gap, such that by the turn of the century, foreign-owned firms accounted for 25 per cent of manufacturing turnover in Britain.9 The trouble is, as will be discussed, foreign investors tend to be fickle, and cannot be regarded as a reliable basis for stabilising and expanding our manufacturing sector, which is what is needed. Moreover, the extent to which they have benefited the British economy has been wildly exaggerated.

Furthermore, the economic and political dominance of the financial sector in Britain has other consequences that militate against investment in manufacturing.

These include the tendency for interest rates, and also the exchange rate of the pound, to be higher than they otherwise would be, and for there to be insufficient investment in education and training in the skills needed for a successful manufacturing sector.

These and other reasons for Britain’s poor manufacturing performance compared with other advanced countries will now be explored in more detail.

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The dominance of the financial sector and its consequences The dominance of the financial sector in Britain at the expense of investment in manufacturing has a long history going back to the eighteenth century, which is 6 | Halting the Decline of Britain’s Manufacturing Industry

related to our imperialist past.10 Thus, even when Britain was the world leader in manufacturing, its profitability was overshadowed by the even greater profitability of financial institutions based in the City of London. Money was made out of the export of capital without it ever having to leave England, because it was spent on investment goods produced in England, after which new capital came flowing into the country in the form of interest and the repayment of principal on the capital advanced. On top of that there were the profits from insurance and shipping.

London’s financial institutions received a new boost from the 1950s on when London became one of the world’s leading offshore tax havens (second only to Switzerland), as foreign companies sought ways of avoiding tax and other regulations in their own countries. (British companies achieved the same object by making use of other offshore tax havens.) Thus, London went on to become the world’s leading centre for foreign exchange transactions and the raising of finance for companies, and indeed, governments, all over the world. This helps to explain why the financial sector in Britain, more than any other country, is so dominant, both in terms of attracting investment and of its effect on economic policy, which has been at the expense of manufacturing.

In contrast, historically, the major priority in other capitalist countries was to get manufacturing established so that they would no longer be exploited by British capitalists. And this focus on investment in manufacturing has to a greater or lesser extent remained a part of their culture ever since. Thus, institutional structures have evolved specifically to support their manufacturing industries, such as networks and associations of industries in particular product areas to serve their common interests, and mutually beneficial links with banks, as in Germany, or more state involvement in coordinating the interests of different industries, as in France.11 In particular, manufacturing industries in most other western European countries are less susceptible to the vagaries of their stock markets, because they are far less dependent on the stock market for raising investment capital. Firms therefore are in a stronger position to invest for the long term, which is what is needed for modern manufacturing, because of the amount of capital often required upfront to undertake the research and investment necessary to develop new technologies and new products, and then to invest in their production, before there can be a return on the capital invested. This has been helped by the fact that many of the shareholders have a longer-term vested interest in the productive activities of the firms in which they hold shares.

All this is in sharp contrast to Britain where firms have to give priority to the shortterm interests of fickle shareholders acting as ‘absentee landlords reaping the benefits from a company while taking no interest in its management’.12 There is a conflict between the need to keep short-term share values high to please the stock market, and the need for longer-term investment to maintain competitiveness of the company. In order to keep share values high, companies have to continue paying out high dividends, which, of course, is at the expense of investment, not only in more productive technologies and improved products, but also in wages. This acts as a disincentive for attracting workers with higher levels of skill, and for acquiring those skills in the first place, upon which a successful manufacturing sector crucially depends. In the 10-year period up to 1997, dividend growth outstripped investment growth by a ratio of 3:1.13 However, during the 1990s’ stock market bubble that partially collapsed in 2000, share value was more important because of the capital gains to be had from the buying and selling of shares at inflated prices, but since then, dividends have once again become more important.

The contrasting fortunes of the car industries in Britain, on the one hand, and in Germany and Japan, on the other, well illustrate the differing attitudes towards investment. In the 1950s, Britain had a well-established British-owned car industry, but because its managers had to give priority to paying dividends to shareholders, it was starved of investment, until eventually, it was run into the ground, no longer able to compete. Today, Britain’s car industry is entirely foreign-owned. Meanwhile, the Halting the Decline of Britain’s Manufacturing Industry | 7

German car industry in the 1950s, as a result of the Second World War, was totally run down, with one of its most famous brands today, BMW, insignificant and bankrupt.

But as a result of the steady ploughing back of profits over the years into investment, Germany today heads the league of world class cars, and its industry is entirely German owned. A similar story can be written about the Japanese car industry. A study in 1977 found that the capital intensity of the Japanese car firms, Toyota and Nissan was $29,200 and $22,400 per worker, respectively. This compared with $15,500 per worker for Volkswagen in Germany, $15,100 and $11,400 for Ford and General Motors, respectively, in the US, and just $4,100 for British Leyland.14 However, it must be said, that the pressures of the neo-liberal agenda being pushed by the giant transnational corporations, including those based in Europe, is narrowing these institutional differences, so that the above account is beginning to get out of date. But it still serves to explain why manufacturing in other western European countries is in a stronger position than in Britain.

The extent to which Britain lags behind other industrialised countries in investment is indicated by its low rate of fixed capital formation – that is the growth of physical assets such as plant, machinery, schools, universities, hospitals, dwellings and other buildings, railways, roads and vehicles, and so on. Britain has been bottom of the league for years, averaging around 17 per cent of GDP. For most other countries, it has been above 20 per cent, reaching 30 per cent in Japan and Portugal in some years.

And in China, over the last decade and a half, it has averaged 35 per cent.15 This has a cumulative effect. If less is invested in one year, there will tend to be less to invest in the next year, and so on. Therefore, as long as Britain lags behind in this respect, we will find ourselves being overtaken by one country after another. These figures also help to explain why growth in productivity in Britain is below that of other advanced countries, which, of course, makes our manufacturers less competitive. Thus, labour productivity in Britain is 60 per cent lower than in the United States, 40 per cent lower than in France, and 20 per cent lower than in Germany,16 which, of course, is related to the much lower capital stock per worker in Britain, as well as lower skill levels, and lower expenditure on research and development. Expenditure on research and development in Britain between 1985 and 1996 grew at an annual rate of barely 2 per cent, compared with 17 per cent in France and Germany.17 The export of capital Britain is the world’s biggest net exporter of capital for direct investment – the United States exports more, but, on average, receives as much back from foreigners investing in the US, and, in fact, currently is a net importer of capital for direct investment.18 The amounts of capital exported vary considerably from year to year according to opportunities, but whatever the amount, it is obviously at the expense of investment in Britain. Over the last decade, it amounted to £570 billion. However, this was offset by £320 billion of foreign direct investment coming into Britain, giving a net outflow of £250 billion.19 On top of that, during the same period, nearly £2,000 billion of capital disappeared abroad in portfolio and other investment – spent mainly on the purchase of foreign shares and bonds, and deposits by British banks. This was offset by £2,500 billion coming into Britain from abroad.20 In other words, overall, Britain was a net importer of capital. But since most of this is portfolio capital or bank deposits, it is mainly speculative, or used by foreigners for the purposes of money laundering and tax avoidance, taking advantage of the City of London’s status as an offshore tax haven.

Therefore, mostly, it is not invested in manufacturing, or other physical assets that produce real goods and services. Even direct investment into Britain is often simply acquiring already established businesses, so that it is not investment in any economic sense, unless, in addition, it results in new plant or buildings, or higher employment.

Some foreign takeovers have actually been vehicles for disinvestment, the purpose being to reduce competition or steal firms’ order books before shutting them down (see below).

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The primary driving force for direct investment abroad is, of course, that it is more profitable than investing at home – or at least it is perceived to be, because, as many companies have found out, it does not always work out that way. For example, Stagecoach, the Perth-based bus company, which also owns South West Trains and 49 per cent of Virgin Trains, last year had to write off nearly £600 million on its illadvised acquisition of Coach USA.21 Similarly, Scottish Power, in May 2005, ended up selling a major acquisition in the United States, Pacifcorp, at a £1 billion loss.22 There are many other examples.

The most obvious way of making extra profit, indeed, super profits, is to relocate production to less developed countries where wages are a fraction of what they are in the advanced countries. But before that can happen, those less developed countries do need to have a reasonable infrastructure in place, and a well-trained workforce.

The former centrally planned economies in Eastern and Central were a gift to transnational corporations in that respect. And China has made huge strides since the early 1980s, and because of its huge supply of cheap labour it can undercut almost everywhere. During the first six months of this year, over 21,000 new foreign-owned enterprises were approved by the Chinese government, which is about average at the moment.23 This trend is enhanced all the more by the fact that the cheap imports undermine manufacturers that originally had chosen not to relocate, so that they are compelled to relocate themselves in order to be able to compete. However, about three quarters of direct investment abroad from the advanced countries goes to other advanced countries. This is still motivated, of course, by the extra profits to be had, but these will arise, if indeed they do arise, for reasons other than cheap labour.

Where the investments are made relates very much to the product, and to its markets.

The cheap labour areas are most attractive for mass produced consumer goods, such as textiles, clothes, shoes, toys, small domestic appliances and other electrical goods, or mass produced intermediate products such as standardised components for industrial equipment, motor vehicles, aircraft, electronic goods, and so on. Even companies making high-tech or specialist products, often tailored to the specific needs of users worldwide, are increasingly subcontracting the manufacture of key components, if not the whole of their production, to companies or subsidiaries in Eastern Europe or Asia – especially China.24 However, for more specialised productive activities, for example, bespoke parts for various industries, or bulky low value products, the motive is to be located near their markets, in the hope of undercutting local producers by investing in more productive technologies, or to have control over a natural resource upon which the industry depends. These are among the motives for the large-scale presence of Britain’s two biggest corporations, BP and Shell, in the United States. BP took over the US corporation Amoco in 1998, and shortly after Atlantic Richmond, and has had major production assets in Alaska since 1969. For both companies, some 30 per cent of their capital expenditure is in the United States.25 Another reason for companies to invest in other advanced countries is to get round potential or existing import restrictions. For example, the huge investment by Japanese car companies in the United States and in Britain (to serve the European market) was motivated by the need to get round import restrictions applied to cars manufactured in Japan. For similar reasons, currently, BAE Systems, the British arms manufacturer is busily seeking acquisitions in the United States in the hope of clinching lucrative contracts from the hugely expanding United States imperialistic war machine. The company is already making sizeable profits from the necessarily more modest imperialist ambitions of the Blair government.

One other motive for investing in subsidiaries abroad is that it opens up opportunities to avoid tax and various regulations by setting up ‘letterbox’ holding companies in offshore tax havens, through which invoices (and bribes) can be channelled – using the device of transfer pricing and the like – to move capital around to where it is most profitable, and least likely to attract tax, to the benefit of the corporation as a whole.

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For all countries, direct investment in manufacturing abroad is, of course, at the expense of investment in manufacturing at home, and the extent to which this goes to the cheap labour countries affects all the advanced countries, as well as Britain. But as shown by the figures given earlier, manufacturing in Britain is suffering more than in other advanced countries. This is related to the continuing dominance of financial institutions based in the City, and their branches in other offshore tax havens, which attracts funds away from investment in manufacturing.

The export of jobs When capital is exported and invested in productive activities abroad rather than in Britain, this obviously is equivalent to the export of jobs. Since, as has just been said, about three-quarters of outward foreign direct investment from the advanced countries, including that from Britain, goes to other advanced countries, that part of direct foreign investment is more or less jobs neutral – jobs exported are compensated by jobs created by inward foreign investment from other advanced countries. Britain, however, loses out because, as just discussed, it is the biggest net exporter of capital for direct investment among the advanced countries.

Furthermore, direct investment covers both the establishment of new productive activities and the takeover of existing enterprises, when foreign firms acquire or merge with firms already existing in the country. Only the former leads to more jobs, unless the foreign firm acquiring or merging with the local firm initiates a new round of investment. Alternatively, if the motive of the merger or acquisition is to capture the markets of the firm already in the country, or to ‘rationalise’ production because the market for the particular product is relatively saturated or declining, the foreign investment can lead to major job losses. How a country is affected is strongly related to its labour laws, and how easy it is to sack workers. Again Britain loses out because of its pro big business, anti-union labour laws, which make it easier, and less costly for companies to close down businesses here and expand them elsewhere (see below).

The quality of jobs might also be affected over time by the interchange of direct investment among the advanced capitalist countries. The big transnational corporations are in a position to set up their various operations worldwide according to where it is most advantageous to them. For example, a country with a highly skilled workforce in a particular productive area will be favoured with the production of its higher value products providing higher paid employment, whereas others with a lower level of skill might be lumbered with its lower value products, with workers being paid less. And this will tend to perpetuate itself, because the opportunities are less for workers in the latter case to acquire the higher level of skills. Again, because of its poor quality of training, Britain loses out, which is why many of the foreign-owned plants have tended to be more in the way of assembly plants, with much of the value in the manufacturing of the components created elsewhere. Furthermore, if a country’s labour laws are weak, as in Britain, this is likely to attract that part of a transnational’s operations that are more susceptible to varying demand, so that the company is in a stronger position to hire and fire workers, or reduce them to part-time, as and when required, according to demand for the product.

The export of jobs is not just due to the export of capital from the advanced countries. More often than not, the big transnational corporations already have a store of funds derived from the profits of their worldwide operations, and access to lines of credit, through their holding companies and subsidiaries based in offshore tax havens. For example, the second biggest source of foreign investment in China during the first six months of this year was the British Virgin Islands, a notorious unregulated tax haven. This was just behind the leader, Hong Kong, which is also in part a tax haven, and ranking seventh, eighth and ninth, after Japan, South Korea and Taiwan, were the Cayman Islands, Singapore and Samoa, again all well known tax havens.26 10 | Halting the Decline of Britain’s Manufacturing Industry

The fickleness of foreign investment in Britain Because of the reluctance of home-grown big business to invest in manufacturing industry, the previous Tory government and, since 1997, the new Labour government, have gone out of their way to attract foreign investors, often awarding them large cash payments as a way of encouragement, courtesy of taxpayers. The trouble is that the world’s transnational corporations have become adept at playing governments and workers in different countries off against one another when deciding where to locate their various operations. BMW, for example, in 1993, after assessing 250 locations in 10 countries, finally decided to establish its new plant in South Carolina in the United States after the state government had offered $130 million worth of incentives and subsidies over a thirty-year period.27 The US car company, Ford, has been particularly skilful in its bargaining with governments in Britain going back a long way. For instance, taking more recent examples, in 1994, Ford persuaded the British government to grant it the equivalent of £64,000 per worker to expand its Jaguar plant, which it had acquired five years earlier.28 Only two years later, the government gave it another £80 million as an incentive to manufacture a new Jaguar sports car saloon in Britain rather than the United States.29 And two years after that, after threatening to move its production line for Jaguar cars elsewhere, citing lower costs, Ford extracted another £43 million from the British government – amounting to £15,000 per worker – to keep the plant in Britain.30 Then, after all that, Ford announced in September 2004 that it was to close two of its three plants in Britain anyway, including the historical site at Browns Lane, Coventry.31 Meanwhile, in December 2004, it got another £4.5 million out of the government – equivalent to £10,000 per job created – as a ‘sweetener’ to set up a new diesel engine plant at Dagenham.32 Ford not only gets money from the British government. In 1999, for example, it got the equivalent of £450 million for setting up a plant in Brazil.33 This was after the progressive government of Guiba, in the Brazilian State of Rio Grande do Sul, after coming to power, rejected a similar scheme on the basis that the subsidies and tax-breaks that would have gone to Ford would have outweighed the benefits of the new employment generated. It had decided that the money would be better spent in other ways. Perhaps Britain should learn from that.

Transnational corporations even play regional or local governments off against one another. For example, the Korean transnational, LG, decided in 1996 to set up two plants in Britain, one manufacturing computer chips, and the other television parts.

After first investigating what was on offer in Scotland and North East England, LG finally opted for South Wales after managing to negotiate a subsidy of £248 million – equivalent to £40,600 per job – from the Welsh Office.34 This was supposed to have been for the creation of 6,100 new jobs. In the event, LG never opened the state-of-the-art chip plant – built, incidentally, in opposition to local planning rules.35 (This plant has since been sold on to another Korean transnational, Hyundai, which has mothballed it.) Fewer than 2,000 people were ever employed, and by 2003, this number had dwindled to just 300.36 In addition, LG closed its plant in Southport Merseyside, which made chemicals for its television tube production because they became available more cheaply from Chinese sources.

Another major recipient of state aid in 1996 was the German transnational Siemens, for setting up a semiconductor plant in Wallsend Tyneside, employing 1,567 workers.

Only two years later, following a downturn in the semiconductor market, the plant closed down. Siemens was originally meant to have received £50 million,37 but, in the event, got only £18 million, which it has since paid back.38 A survey conducted by the Financial Times in 2003 found that half the £750 million state aid offered to 50 projects over the previous decade had gone to just 16 transnationals that have since closed factories or failed to reach employment creation targets. Of the rest, only seven showed evidence of creating or safeguarding all of the jobs promised.39 Imagine if all this aid had gone towards helping local enterprises to set up or extend their businesses, especially if they were co-operative ventures, which had a vested interest in providing employment for, and serving the local community.

Halting the Decline of Britain’s Manufacturing Industry | 11

Meanwhile, in June 2005, South Wales was hit by the closure of another television plant, first established in 1973, owned by Sony, the Japanese-based transnational, with the loss of over 650 jobs, already whittled down from the 4,000 it employed in 2000.40 Sony had also been a recipient of state aid – £7 million in 1996, and £16 million in 2000.41 Sony blamed the redundancies on the downturn in sales of cathode ray tube televisions in favour of slender flat-screen types. The former will be concentrated in Sony’s factory in Slovakia, where wages are a fraction of what they are in Britain.

Why doesn’t Sony transform its plant in Bridgend to make flat-screen televisions?

Because that side of its business is taken care of in its plant in Barcelona, which serves the whole of Europe.

In short, under the current neo-liberal regimes which Tony Blair and Gordon Brown favour so strongly, the world’s transnational corporations – with state aid if they can persuade governments to oblige – are allowed to set up their operations, and close them down, as they see fit, according to their own best interests, never mind the effect it has on the local community. Their fickleness when it comes to their investment plans is well summed up a recent headline in the Financial Times: ‘No fixed abode for the modern manufacturer’. The article was about the criteria transnationals apply when deciding where to locate their operations, noting that ‘smart companies are splitting production into stages and carrying it out in different countries’.42 Needless to say, this is hardly a basis for a government to plan the long-term future of its manufacturing industries, upon which the welfare of working people everywhere ultimately depends.

Meanwhile, foreign companies that do set up in Britain, not only transfer the profits created by British workers abroad, so that they are not available for reinvestment here.

They also contrive to pay little or no tax through complex accounting devices, such as exporting products on the cheap to subsidiaries in other countries, or borrowing large amounts from their subsidiaries and offsetting the supposed interest payments against tax.43 Of course, British-based transnationals are guilty of the same tricks, which is one reason why they find it more profitable to invest abroad rather in Britain.

The effect of Britain’s anti-union labour laws Britain’s pro big business, anti-union labour laws make it easier for workers to be sacked than in most other advanced countries, apart from the United States. It is therefore easier to close down enterprises, and relocate production elsewhere, perhaps where labour is cheaper, almost with impunity. Indeed, Britain has the worst employment protection in the EU-15.44 On top of that, Britain has longer working hours than any EU-15 country, and the government has pledged to keep its unique opt-out from the EU Working Hours Directive. Britain also has the lowest benefits for the first year of unemployment of any advanced country – more so even than the United States.45 If laws made it more costly to sack workers, as in France and Germany, companies might have more incentive to invest, making their plants more productive, or to diversify, allowing the redeployment of workers displaced by more productive technologies, or shrinking markets for particular products.

Even when workers are more productive than their counterparts in Europe, this is no guarantee. For example, Corus – the Anglo-Dutch steel company formed in 1999 following a merger between formerly state-owned British Steel and Hoogovens in The Netherlands – sacked 1,300 workers in 2000, even though its British plants were more efficient, simply because it is cheaper to make workers redundant here.46 Similarly, in 2002, the US company, Arco, that owns the tractor firm Massey Ferguson was able to close its Coventry factory, which had been starved of investment, with the loss of 1,100 jobs, and transfer production to its plants in France and Brazil.47 And, in 2004, Heil Trailer International, the US-based manufacturer of tanker trailers, closed down its West Midlands plant with a loss of 100 jobs, transferring production to Thailand, Poland and Argentina48. Just before that, the biggest US food company, Kraft, unceremoniously announced the closure of its Terry’s chocolate factory, which it had acquired in 1993 – and which had been making chocolate in York for nigh on two centuries – with the loss of 12 | Halting the Decline of Britain’s Manufacturing Industry

over 300 jobs, transferring its production to elsewhere in Europe49. At the same time, the world’s biggest food company, Swiss-based Nestlé, with a worldwide turnover in 2004 topping £50 billion50, announced the closure of its Staverton plant making desserts, which had been a key employer in the town for 120 years, with a loss of 120 jobs, having previously closed down its Halifax factory with the loss of 270 jobs.51 One of the most scandalous closures must be that of Biwater Pipeworks, in Claygate, Derbyshire, with the loss of all 700 jobs, the day after its acquisition by the French transnational, Saint-Gobain.52 This was in spite of a full order book for the next two years. The object of the whole operation quite clearly was to drive out the competition and take over its market. What made it all the more scandalous was the fact that the Office of Fair Trading knew about the plan, but failed to reveal it because of ‘commercial confidentiality’ – and also that Stephen Byers, the Trade and Industry Secretary at the time, failed to intervene.53 At the time of writing, Saint-Gobain is trying to take over the British plasterboard manufacturer, BPB.54 Workers at BPB – be warned!

Another scandal that has blown up, purely the result of our anti-union laws, is the sacking of 670 workers – by loud hailer – by Gate Gourmet, for refusing to take a wage cut. The company produces in-flight meals for British Airways. It was formerly owned by British Airways, but is now owned by the US Private Equity firm, Texas Pacific, which has a history of similar actions in enterprises it owns in the United States.55 As the Morning Star put it at the time: ‘Too many workers in Britain have been dumped on the cobbles by hard-faced employers, while trade unions are held hostage by anti-union laws and Labour ministers wash their hands Pontius Pilate-style’.56 Workers are dumped as so much rubbish with no thought at all that these are people with families to support, and lives to live.

These a just a few ‘highlights’ among very many instances of what are coming to be everyday events for workers in manufacturing up and down the country on the way Britain’s anti-union laws are used by companies to ‘rationalise’ production among their plants around the world. Then there are the threats of transferring production abroad to downgrade pay and employment conditions, or to reduce staff so that those remaining have to work longer or more intensively. For example, in August 2005, TRW Automotive in Pontypool was trying to ditch 156 workers out of a workforce of 600, and increase working hours of those remaining ‘to improve competitiveness’, with the threat that if this was not accepted, the company would transfer assembly work to Poland.57 The mythical benefits of Britain’s ‘flexible’ labour The reason why the government refuses to repeal much of the anti-trade union legislation introduced by the Tory government under Margaret Thatcher in the 1980s is supposedly to encourage investment, both domestic and foreign, through Britain having a ‘flexible’ labour force – a euphemism for anti-labour laws making it easier to sack workers or force them to work long hours or part-time. But as the figures given earlier on capital formation clearly demonstrate, this has had little effect, with Britain, if anything, placed at a disadvantage compared with its Western European neighbours.

Meanwhile, research undertaken this year by John Edmonds, former general secretary of the GMB trade union, and now research fellow at King’s College London, and Andrew Glyn, fellow in economics at Corpus Christi College, Oxford, has shown that the extra 550,000 private sector jobs created since 2000 are more or less entirely due to increased government spending going to construction companies to build new hospitals and schools, companies supplying such things as new equipment, drugs and school books, and private service contractors involved in catering, cleaning and other activities.58 Earlier, research based on output data for 20 manufacturing sectors between 1984 and 1992 carried out by the Cardiff Business School similarly showed that the supposed benefits of foreign investment in Britain have been greatly exaggerated.59 Moreover, it was found that foreign investment often had a negative effect on industry because of the extra competition for local British-owned Halting the Decline of Britain’s Manufacturing Industry | 13

companies, with some seeing their productivity decline as their business activities dropped off. In short, Britain’s anti-labour laws have not had the effect of encouraging investment at all, domestic or foreign, as is claimed.

The problem of the pound being overvalued A further reason for the decline of manufacturing in Britain since 1997 is that the trade-weighted exchange rate of the pound in 1997-98 jumped by nearly 25 per cent.

This made our exports more expensive and therefore less competitive, and at the same time, imports cheaper. Thus, manufacturing industries both for export and for the domestic market were undermined. This problem has eased slightly more recently, especially with the recent rise in the value of the dollar, which facilitates exports to the United States, one of Britain’s major export markets. However, the value of the pound is still higher than it otherwise would be due to our interest rates being higher than in other advanced countries. This makes it more profitable for international currency dealers to hold their stocks in pounds, which increases the demand for pounds, and therefore its price in terms of other currencies. The much-publicised quarter percentage point cut in base rates to 4½ per cent in August 2005 was trivial.

The eurozone base rate is 2 per cent.

The negative consequences of high interest rates Apart from this adverse impact on the exchange rate which undermines manufacturing, higher interest rates also make it more costly for manufacturers to invest or borrow to buy inputs from other manufacturers – especially as they often have to pay much higher rates than the Bank of England’s base rate. Ostensibly, the reason for higher interest rates is to control inflation. But one of the factors that makes Britain’s economy more prone to inflation is insufficient investment – which in part is due to the higher interest rates. So it is a vicious circle.

Many people on the Left blame the higher interest rates on the decision of the Chancellor, Gordon Brown, to give independence to the Bank of England for the setting of interest rates. However, even if monetary policy had remained with the Treasury, it is doubtful if it would have made any difference, because interest rate decisions would still be determined by the same criteria. In fact, other things being equal, the setting of interest rates to control inflation is largely a technical decision – or more precisely, a professional judgement among experts attempting to take into account the various uncertainties involved. In any case, the Bank of England, in the last analysis, still has to do what the government says, though, to be sure, it could be made more accountable by Parliament being given the power to vet nominations for the Monetary Policy Committee, the body responsible for setting interest rates, including their past professional history and publications.

The trouble with over-focusing on Brown’s decision to grant the Bank independence is that it actually detracts from the main issue. That is the government’s decision – in line with the neo-liberal ideology that dominates its thinking – not to use other available methods for controlling inflation, such as credit controls to limit consumer demand when necessary, or subsidies financed from revenues from other economic sectors to stimulate investment in productive activities that open up supply bottlenecks – which, ultimately, is the primary cause of inflation. In a way, the government has been lucky, because the main reason for the relatively low rate of inflation at the moment is due to the chronic overcapacity worldwide for the manufacture of a large range of consumer goods (or more precisely, due to underdemand, because most of the world’s people are too poor to afford them).

However, the underlying problem of insufficient investment as a cause of inflation has revealed itself very clearly in the huge escalation of house prices.

The myth of Britain remaining outside the euro as a problem There are some in the trade union movement, and especially at the TUC head office, 14 | Halting the Decline of Britain’s Manufacturing Industry

who somehow believe that Britain would benefit from closer ties with the European Union by joining the eurozone. One supposed advantage is the current low interest rates in the eurozone. First, there is no guarantee that that will always be so.

Interest rates are low at the moment because of the need for European Central Bank to stimulate investment in the depressed economies of Germany, France and Italy (Italy in particular, needing even lower rates). In fact, other countries in the eurozone, such as Ireland, Spain and Greece, need interest rates to be higher, because that is the only tool that the EU allows for the control of inflation – under EU rules, these countries are not permitted to use other methods, just mentioned. They have to accept the ‘one-size-fits-all’ decision of the European Central Bank. Moreover, national governments are not allowed any influence on European Central Bank decisions. At least, ultimately, the Bank of England is answerable to Britain’s Parliament. The European Central bank is answerable to nobody but itself.

Even the most pro euro advocates, if they go into the issues in any depth, have to admit that there is no economic advantage to Britain joining the euro, and most small and medium businesses, as well as the powerful financial sector see it as a distinct disadvantage. Only the large transnational corporations based in Britain stand to gain, giving them even greater flexibility than they have already to set up or close down operations within Europe as they see fit, using their huge financial resources to push out smaller competing businesses. Practically the only plank that supporters of the euro within the labour movement have to stand on is the so-called Social Chapter.

But they should take note of what Keith Richards, Secretary-General of the European Round Table of Industrialists – comprising the chief executives of around 50 of the biggest European-based transnational corporations – had to say about it. (The ERT was largely responsible for drafting the Single European Market agenda and the Maastricht Treaty.) ‘The Social Chapter’, he said, ‘would not affect the functioning of the single market’ and would be ‘a large waste of time’. ‘But if politicians feel it is important to get the chapter referring to the desirability of full employment and they think it will help public opinion we don’t really object. It won’t help jobs, but it won’t do much damage providing of course that it remains related to aspirations’.60 It could not be put much better! But even that was too much for the Tory government to accept, and it opted out of the Social Chapter. The new Labour government, under Blair, has, of course, since signed up to it, but has still retained an opt-out on the Working Hours Directive.

The problem of skill shortages In spite of the inadequacies of government economic policies, some manufacturing has managed to prosper, mainly in high technology areas, such as highly tailored products that need to be produced close to where their British customers are, or products based on locally supplied inputs. The industries that have suffered the most are those which can easily be relocated to less developed countries where wages are low. As mentioned already, if controlled, this need not be a bad thing, because if their economies develop as a result, they will provide bigger markets for our exports. What should be happening, and is happening to a greater extent in other advanced countries, is that as some manufacturing activities are relocated, others producing more specialised products at a higher technological level should be taking their place.

In other words, it need not involve workers in manufacturing losing their jobs at all.

Workers could simply be retrained and redeployed in new productive activities, preferably within the same enterprise. But a major inhibiting factor in Britain compared with other advanced countries is the shortage of skills at various levels. Last year, for example, according to the Department of Work and Pensions, there were 58,000 vacancies in manufacturing largely due to difficulties in attracting staff with the right qualifications.61 Partly this reflects the general crisis of education in Britain, which has suffered from chronic underinvestment. In contrast to Britain, other advanced countries have longHalting the Decline of Britain’s Manufacturing Industry | 15

established and well developed systems of comprehensive education, which do not hive off children from the upper classes to elite schools. Therefore, everybody, especially those with political clout, has a vested interest in ensuring a decent level of investment in the state education system. In Britain, too many people leave school without the basic education needed to learn the technical skills required for working in high technology industries and in research and development. In particular, it is relatively easy for school students in Britain to opt out of scientific and technical subjects, which are perceived as more difficult because of the jargon that has to be learned, and generally because studying such subjects demands more rigour.

A further disincentive to the studying of the natural sciences and technical subjects is the perception, not without grounds, that one can earn more in ‘business’, ‘management’, or ‘accountancy’. This reflects also the bias in Britain towards the financial sector at the expense of manufacturing. In fact, there is something of a Catch22 situation here. If the manufacturing sector is perceived to be declining, which it is right now, this is not going to provide much incentive for young people to invest their time in acquiring education and skills that might in the end be worthless, or when the risk of loss of employment opportunities that require those specific skills is high.

And the shortage of people coming through with the skills needed for a healthy manufacturing sector puts a further nail in the coffin of manufacturing.

But the shortage of skills is also to a considerable extent a problem of British capitalist owners of industries’ own making – namely their reluctance to invest in training workers in transferable skills who might then go on to sell their newly acquired skills to ‘free rider’ competitors. In contrast to Britain, Germany has an elaborate network of industry-wide employer associations and trade unions to supervise a publicly subsidised training system. This helps to ensure that firms investing in training will not have their workers once trained poached by companies that do not make equivalent investments in training. Conversely, a worker undergoing training is assured that it will result in lucrative employment. In short, by pressurising major firms to take on apprentices and monitoring their participation in such schemes, these associations limit free-riding on the training efforts of others.

Meanwhile, by negotiating industry-wide skill categories and training protocols with the firms in each sector, it is ensured both that the training fits the firms’ needs and that there will be an external demand for any graduates not employed by the firms at which they apprenticed.62

4.

Why the current free-for-all relocation of manufacturing to less developed countries is unsustainable

efore considering what the government should be doing to halt the decline of British manufacturing, it will be useful to examine some of the contradictions of the current free-for-all to relocate industries to less developed countries where wages and therefore labour costs are low. As implied already, up to a point, Britain and other advanced capitalist countries benefit from this trend because it means that we have access to high quality goods at cheaper prices, giving us more to spend on other things, especially services. And the extent to which high quality jobs in services replace more mundane jobs lost in manufacturing, we benefit from that too. Furthermore, investment in manufacturing in underdeveloped countries needs to be encouraged because it is precisely the deficiency of such investment that causes these countries to remain poor and underdeveloped. Again, we also would benefit because the more that is invested in manufacturing in these countries, and therefore, the more economically

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developed they become, the more they will be able to provide a market for the goods and services that Britain and other advanced countries need to export to the underdeveloped countries for our economies to prosper.

However, this assumes that the huge profits arising from investing in manufacturing in underdeveloped countries due to the low wages at least remained in the underdeveloped countries so that they were available for re-investment in the development of their economies. As the former Secretary for Trade and Industry, Patricia Hewitt, was fond of pointing out, that is indeed how South Korea turned itself from one of the world’s poorest countries to a major industrial country. But what her propaganda omits, either through ignorance or to deliberately distort, is that in South Korea virtually all its industries are owned by Korean companies, which, along with capital controls, ensured that the profits largely stayed in the country, and were therefore available for reinvestment in other productive activities. In contrast, in most other underdeveloped countries, the industries being established are largely foreignowned, or are joint ventures, so that most of the profits disappear abroad, facilitated by various accounting tricks – especially transfer pricing, through the overinvoicing of imported inputs and the underinvoicing of exports. Thus, even when involved with joint ventures, transnational corporations are able to transfer profits abroad, which means, in addition, that they get away with paying little or no tax. That is why, in spite of the new industries, the economies of less developed countries remain relatively underdeveloped.

Meanwhile, because of the underdeveloped state of their economies, and consequently the high levels of unemployment and underemployment, workers in most underdeveloped countries are in severely weak bargaining positions. Not only are wages forced down to rock bottom, but also workers’ rights are practically nonexistent, and Victorian-like sweatshop conditions prevail, with workers in some cases forced to work a 10-hour day or more. Furthermore, almost invariably, trade unions are banned, or are mere arms of governments wanting to keep down wages. Apart from this obvious abuse of human rights, it perpetuates the underdeveloped state of their economies because the low growth of economic demand locally provides little incentive to invest in the domestic market, so that there are fewer new employment opportunities, which means that economic demand continues to remain at a low level. When manufacturing industries are transferred to underdeveloped countries under these conditions, therefore, our manufacturing base is undermined not only because we lose the industries that get relocated, but also because, as long as the economies of the underdeveloped countries remain relatively underdeveloped, they cannot provide much of a market for the products of the manufacturing industries that we do manage to retain.

The logic of current trends is for all manufacturing to migrate to China, because that is where labour costs are lowest, and therefore is where manufacturing is most profitable, and also because, unlike some other underdeveloped countries where wages are even lower, it now has a well developed infrastructure to support manufacturing industries. And, as noted already, even now, the shift of manufacturing to China is by no means confined to low-tech products, and its industries are becoming ever more sophisticated by the day. That is why China is fast becoming the ‘workshop of the world’ – once Britain’s epithet. On that basis, our wages will have to be pushed down to the same level as China’s for our manufacturing industries to become profitable again! However, in time, this might be moderated to some extent, hopefully,

by Chinese trade unions pushing up wages in China so that its workers get a bigger share of the fruits of their labour. But even before that, and presuming that trade unionists in the advanced countries were unable to prevent wages from falling, which would require forcing upon governments a change of policy, we would be faced with an intensification of the current crisis – that is low wages globally and insufficient economic demand to provide markets for the goods and services capable of being produced and supplied. Thus, if there were a slump in wages in the advanced Halting the Decline of Britain’s Manufacturing Industry | 17

countries too, which would cause economic demand to decline, and markets to contract even more, it would lead to more and more businesses closing down, more unemployment, and a further slump in economic demand, and so on. In other words, it would lead to a prolonged and self-perpetuating economic depression, with all its negative repercussions – indeed, a situation not too much different from what prevails in most of the world, even now, which is causing so much suffering. All these trends, of course, are a consequence of businesses only being able to act in their own interests.

In fact, they cannot act in any other way. It is not their role to deal with the combined effects of their actions on whole economies. That is the job of governments. But as long as governments cannot be weaned from acting in the interests of the shareholders of big financial institutions at the expense of the rest of society, then these contradictions will intensify.

In short, the extent to which the higher profits from investment in manufacturing in underdeveloped countries are not retained in those countries and therefore not reinvested in their economies, is a major cause of the world’s current economic problems, as well as the social, political and security problems that are getting ever more serious. This will only be resolved by governments everywhere taking it on themselves to regain control over the economies that they are charged with, and to act in the interests of everybody rather than privileged groups, such as the shareholders of transnational corporations, which currently are being given a free rein.

5.

What the government should be doing

alting the decline of Britain’s manufacturing industry – which is what is needed for a more balanced and more prosperous economy – will require a wide-ranging package of measures, and a multi-pronged strategy. In particular, the government needs to go out of its way to support British manufacturing enterprises – the opposite of what it appears to be doing right now. Most of the measures needed as proposed here fly in the face of the prevailing neo-liberal ideology that currently dominates economic policy, and therefore could be considered controversial.

However, many would have been regarded as perfectly orthodox in the 1950s and 1960s (and in some countries, into the 1980s), and were part and parcel of government policies everywhere. And this was when economic growth was at an all-time record, peaking in 1973 when world output rose by 6.7 per cent in a single year.63 Today’s neoliberal policies have never achieved anything like those growth rates.

It is beyond the scope of this pamphlet to analyse fully the causes of the demise of those policies in the 1950s and 1960s, which were loosely based on the economic theories pioneered by the British economist John Maynard Keynes (1883-1946).

Suffice to note that they did not address the underlying contradictions of capitalism, which are of a class nature. At first, relatively full employment in the advanced countries as a result of those policies enabled organised labour to push up wages.

And it allowed primary commodity producers in less developed countries, especially members of the Organisation of Petroleum Exporting Countries, to raise prices. Rather than increase investment in response to the growth in economic demand that resulted, many businesses – in some countries, such as Britain, more than others – in order to sustain short-term profits, cut back on investment. This initiated a spiral of inflation, which increased profits in the short run, but which had a massive destabilising effect in the long run. Meanwhile, other businesses sought more profitable investment opportunities abroad, bypassing the capital controls that were then in force, by making increasing use of offshore financial centres or tax havens, which mushroomed as a result. This, in turn, undermined the capacity of governments to control investment and capital flows, exchange rates and interest rates, which had a

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further destabilising effect. Furthermore, it led to a huge growth in the speculative financial sector, which attracted funds away from investment, thus further fuelling inflation. This was added to by irresponsible governments (notably that of the United States to finance its war against Vietnam) attempting to manage their growing deficits by printing money or otherwise increasing money supply, and by unregulated banks in offshore tax havens (actually branches of banks based in the advanced countries) advancing credit to an increasing extent, until it was unsustainable. All these factors gave rise to intensifying political struggles during the course of the 1970s, and a new generation of right wing monetarist governments came to power, first in the United States, and then in Britain and elsewhere. These introduced sharply deflationary policies, freed capital movements and sought to run their economies with much higher levels of unemployment, thus powerfully reducing workers bargaining positions. The result was a sharp increase in inequality in all countries, a massive increase in the development gap between the more advanced and less developed countries, and a huge slowdown in growth of economic demand – and an absolute decline, in many countries.

Prevailing neo-liberal policies have extended all those trends with a vengeance, and, as noted earlier, are leading to a deepening of the world economic crisis. It should also be noted that in essence these policies are a resurrection of those which prevailed in the early part of the last century and which resulted in the worldwide depression of the 1930s – and to which Keynes’s economic theories were largely a response. We should therefore have no qualms about challenging current orthodoxy.

Some of the measures proposed here demand concerted action by governments – most obviously the reining in of offshore tax havens and the negotiation of a new international trade policy. But as the failings of the neo-liberal agenda become more obvious, it is likely that more and more governments can be won round, provided there is a large enough campaign, led by the organised labour movement and its supporters, with a coherent alternative agenda that can counteract the powerful lobbying forces of the world’s transnational corporations that currently influence government policy-making.

Although the following measures are primarily geared to rescuing Britain’s manufacturing industry, many have a wider application. Meanwhile, if they led to a healthier manufacturing sector, this would pave the way for a more healthy economy as a whole, because it will lead to a more sensible balance between different economic sectors that can support one another. There is a certain logic to the order in which the measures are presented in that to a greater or lesser extent those discussed later depend for their effectiveness on the measures considered earlier being implemented. But, in any case, all of them should be regarded as a package. Each on its own is not enough. The combined effect of these measures would no doubt reduce markedly the profitability of so-called investment in the financial sector (actually not investment in any economic sense, but the speculative shifting of capital assets from one form to another). This should mean that investment in manufacturing, as well as in other productive activities that produce and supply things that people and businesses need and want, will become more attractive, the more so as the economy grows as a result. The financial sector will no longer be the tail wagging the dog.

Finally, it should be pointed out that the following measures do not particularly address the underlying contradictions of capitalism just mentioned, merely the worst excesses of neo-liberalism. But they do pave the way for the other political struggles necessary to bring about a more equitable, socialist economic system based on common ownership embracing co-operatives and publicly owned industries and services, because it would become clearer what else needs to be done. Moreover, these measures would not be irrelevant to such a system. On the contrary they would need to be part and parcel of it. So, from a progressive point of view, campaigning for these measures serves three purposes.

Halting the Decline of Britain’s Manufacturing Industry | 19

The case for import controls, and a new international trade policy All governments need to control imports. Indeed, it is their democratic right.

No country, including Britain, has established a manufacturing industry, or reached an advanced state of development without import controls. Mostly, this has been driven by private companies seeking to prevent their investments being undermined by foreign companies with a competitive advantage – for instance, because they had been in the business longer, had more experience, or better technology, or because of the availability of cheap labour. Private companies and governments acting on their behalf only champion free trade from a position of strength. What is needed is for import controls to be subject to internationally agreed rules or guidelines, so that they can be applied in an orderly way to the advantage of all concerned.

The first point to stress is that controlling imports does not mean a ban on competing imports, which is what opponents of such controls almost invariably make them out to be, and which, unfortunately, governments have sometimes practised. In fact, it is selfdefeating. First, countries need to allow in imports so that other countries have the means to import from them. In other words, it is a question of keeping the balance right so that all countries benefit. Secondly, allowing in competing imports, up to a point, tends to enhance quality and efficiency of production, so that consumers benefit in terms of both quality and lower prices. The different devices for controlling imports have advantages and disadvantages (see Box 1).

A major problem with all types of controls on imports is their tendency to remain in place long after their original purpose has abated because they entrench vested interests, which become a powerful lobbying force on governments to prevent their removal. An internationally agreed rules-based system would help to avert this.

One such agreement was the Multi-Fibre Arrangement first put in place in 1974,

BOX 1: Pros and cons of different measures Import tariffs. These are a tax on imports, which may be ad valorem (a certain percentage of value), or on a specific basis (as an amount per unit).Tariffs have the advantage that they are easy to administer and alter as circumstances change, and are transparent – that is, the degree of protection can readily be calculated and therefore the economic effects assessed.Tariffs can also generate revenue for governments, a part of which, if derived from imports from underdeveloped countries, could be channelled back to those countries in the form of aid to help diversify their economies.

Import quotas. These limit the amounts of a particular product allowed to be imported, normally through a system of import licences. Quotas have the advantage that protection is more certain. In contrast, the effectiveness of tariffs depends on how people choose to spend their income.Also, the prices of imported goods tend to be lower than if tariffs are employed.

On the other hand, import quotas require a substantial bureaucracy to implement, and lend themselves to various kinds of abuse, ranging from the bribery of officials in order to obtain licences, to importers overstating their requirements in order to profit from the sale of licences or the sale of resulting excess imports on the black market. It is also more difficult to judge their overall economic impact, especially as an economy becomes more complex, and government bureaucracies, even with the best will in the world, are not necessarily the most reliable judges of the amounts that should be imported.

Countervailing duties. Also known as anti-dumping measures, these are a tax on imports designed to offset export subsidies or products being exported at prices lower than those prevailing domestically.

20 | Halting the Decline of Britain’s Manufacturing Industry

which allowed all countries to import and export textiles and clothes subject to a complex set of quotas. In spite of flaws, it enabled many underdeveloped countries to establish a manufacturing base in these activities, without it undermining too much the established industries in other countries, which were encouraged to switch to higher value products. It is only now, since January 2005, when it was abolished (a sop to the neo-liberal agenda) that its relative success is beginning to be appreciated. Thus, many poorer underdeveloped countries, as well as advanced countries, are discovering that their textile and clothing industries are being undermined by the new free-for-all that overwhelmingly favours China, which has the capacity to produce such products more cheaply than anywhere else. Indeed, almost immediately after the MFA was abolished, the EU has re-imposed emergency quotas because of the pressures from European manufacturers, but it has caused chaos.

Retailers and wholesalers, in anticipation of the end of the MFA, had long before placed orders for this year’s winter stocks. By August 2005, most categories had already exceeded the quotas that had been agreed between the EU and China in June, and, at the time of writing, amongst other things, there were 59 million sweaters and 17 million pairs of men’s trousers piled up in warehouses in Europe unable to be released because the quotas had been exceeded.64 Out of this mess, perhaps, there is a chance for trade unionists in different countries to push for concerted action to the get the Multi-Fibre Arrangement renegotiated and re-introduced, and to extend such a system to other goods. This would enable all countries to develop to a greater or lesser extent and preserve a broad manufacturing base, and at the same time gain from the benefits of international trade. It would allow the beneficial, stimulating effects of competition, but prevent the extremes of cutthroat, dog-eats-dog competition, which is what the

to control imports Non-tariff barriers. These are rules and regulations that make it more difficult or expensive for a country to export to another. Such regulations may be quite genuine – for instance, if a country has democratically decided that it does not want genetically modified foods in the country for safety reasons. Others may more cynically be measures to protect domestic industries, ranging from deliberate delays or obstructionism at customs facilities, and complicated paperwork, to requiring imports to conform to particular standards which favour domestically produced products, perhaps banning some imports altogether on spurious health or safety grounds.

Maintaining an undervalued currency. This is not specifically a measure to control imports, but it makes imports more expensive, thus favouring domestic producers, as well as making exports more competitive. In other words, if taken to extremes, it undermines other countries’ exports, and can lead to retaliation, and a ‘beggar-thy-neighbour’ trend of successive competitive devaluations among countries, as happened in the 1930s, with no country in the end becoming any better off.

Public subsidies for domestic producers. Again, this is not strictly an import control measure, but it has the same effect of enhancing the competitive position of domestically produced products over imports, and, also, if the resulting products are exported, they undermine other countries’ exports. At the moment, one of the major grievances of underdeveloped countries, which cannot afford subsidies, is the extent that their agricultural exports are being undermined by the huge subsidies given to farmers in the rich countries.

Halting the Decline of Britain’s Manufacturing Industry | 21

neo-liberal regime encourages to the disadvantage of everybody apart from the big transnational corporations.

When tariffs are deemed more appropriate and more efficient to administer, again these should not be set at prohibitive levels, which, as in the case of highly restrictive quotas, would be self-defeating. For instance, tariffs on manufactured products from less developed countries when exported to the advanced countries could be designed to offset partially the lower labour costs, but only up to a point. This would allow domestic industries in the advanced countries, as well as imports from less developed countries, to flourish, thus giving the latter a chance to diversify their exports.

And countries with low incomes per capita, or other disadvantages – such as resource poverty, or being land-locked or a small island economy – could be allowed dispensations to charge higher than average tariffs.

In short, it would be beneficial to all concerned if tariffs, and other controls on imports, were applied according to an internationally agreed set of rules that promotes trade, rather than the opposite, and which strike a balance between removing all restrictions on international trade as far as possible in the long run, and preventing trade from undermining countries’ manufacturing industries, and therefore the process of economic development, in the short run – especially in underdeveloped countries, upon which the future expansion of world trade depends.

Thus, it needs to be accepted that all countries, whether rich or poor, at different times, do need, and should have the right, to protect their economies from certain imports if they are having an adverse impact on their economies, and that poorer countries need that kind of protection more than richer countries. Furthermore, it needs to be accepted that governments are bound to have differing priorities, hopefully arrived at democratically, and that therefore a reasonable degree of flexibility needs to be built into international trade rules.

The easiest and most transparent way of achieving those aims would be to allow every country an average tariff or equivalent in some sort of proportion to its GDP per capita, leaving it up to each country to decide how the tariffs were distributed.

Less developed countries would have the higher levels of protection that they need, and they would be able to impose high tariffs on imports, such as luxury goods, or products being produced locally for the first time, offset by very low tariffs, or perhaps even subsidies, on imported technology needed to develop their economies.

More developed countries, meanwhile, could use their much lower ‘allowances’ to limit imports of products tending to undermine employment in certain sectors, giving enterprises a chance to adjust, cut costs, or diversify. Obviously, much detailed work is needed before such a scheme could be put into practice – but that surely is what we pay economists at the World Trade Organisation and in governments to do.

A new Bill of Rights for employees The government should abandon its focus on making Britain an attractive place for companies to do business through so-called ‘flexible’ labour and anti-union labour laws. This not only downgrades pay and working conditions, but also allows companies, at little cost to themselves, to close down businesses here and relocate them elsewhere, mostly where wages, and therefore labour costs, are much lower.

And it allows foreign companies to buy up British competitors in order to capture their markets, and then run them down, before transferring production elsewhere. In any case, from the research cited earlier, the evidence is that these pro big business, antiunion laws have contributed little towards encouraging investment in manufacturing industry, either domestic or foreign, which supposedly are their aim.

Instead, new employment laws making it hard for companies to sack workers need to be introduced. An introductory measure would be to make it illegal for a profitable company to sack workers – unless, of course, trade unions negotiate sizeable compensation packages agreeable to the workers involved. But, for the long term, following, say, a three-year probationary period, during which time workers would 22 | Halting the Decline of Britain’s Manufacturing Industry

receive training and their progress monitored, workers should expect to be offered permanent contracts until retirement age. Of course, workers’ performance could be subject to periodic peer reviews, and if, after several warnings, workers were found not to be pulling their weight, they could be forced to resign, or downgraded to less demanding duties. But the emphasis should be on helping workers to overcome any problems so that they can perform to the best of their ability. Such security of employment would also enhance innovation. The most likely source of new ideas in a company – new product ideas, improvements in the production system that would raise quality or enable more efficient use of resources, and so on – is the workers themselves. It is they who are at the frontline of production and sales. However, workers are unlikely to advance new ideas if they believed that it could lead to them, or some of their colleagues, being made redundant. Finally, such laws would also force companies to invest in diversification to enable workers displaced by advances in technology, or products becoming obsolescent, to be redeployed in other productive activities within the company. All of these points were well illustrated during the heyday of the manufacturing boom in Japan, whose major companies operated a jobsfor-life policy.65 Note that with import controls in place, all the arguments about such laws increasing costs and reducing competitiveness with foreign imports would disappear.

Furthermore, import controls would make it easier to raise substantially the minimum wage. Of course, this would still bring howls of protest from employers – backed by spurious arguments (as when the minimum wage was first launched) – who can only see it from their own narrow perspective. But if all firms pay higher wages, there is greater economic demand, and therefore a bigger market for their products. Without import controls, of course, higher wages would tend to suck in more imports at the expense of local firms, but once in place, there is no such excuse.

New measures to deal with insolvency These new employment rights would need to be backed up by new laws on insolvency in order to deal with the problem of company owners simply deciding to opt out of the new labour laws by closing the business down and setting up elsewhere, as well as that of firms genuinely becoming insolvent. First and foremost, a new state insolvency agency should be established at central government and local government levels (to deal with businesses on multiple sites and single sites, respectively) to act as receivers in place of the major accountancy firms, which currently perform that function, and which invariably top-slice high fees at the expense of creditors.

Secondly, a new state insolvency bank should be established with a revolving fund, whose function would be to advance low cost loans to help re-establish failed businesses where possible, perhaps, in a new productive activity, aimed at maintaining employment, making use of the skills of the workers involved. In many cases, the best option would be to convert such enterprises into worker-owned co-operatives, which would have the advantage that they would only have to cover workers’ wages and the costs of inputs, equipment, maintenance, and marketing, and would not have to generate the high returns demanded by outside shareholders or private capitalists.

Thirdly, new laws need to be introduced to require companies to make their accounts more transparent and available to workers and their advisors, and giving workers the powers to prevent asset stripping, and companies being deliberately run down, thus making insolvency less likely. This, together with other measures to improve investment decisions, would be greatly assisted by requiring all companies, large and small, to establish a management board and a workers’ council. The function of the management board – comprising representatives from shareholders, managers, trade unions, frontline workers, and, if a major employer in a particular locality, representatives from the local community – would, among other things, be to initiate and approve investment decisions. To preserve commercial confidentiality, these Halting the Decline of Britain’s Manufacturing Industry | 23

need not be made public. The function of the workers’ council – which for small firms could be the whole workforce, and for large firms comprising elected representatives from different sections – would be to act as a forum for workers to discuss issues of concern and make proposals for workers’ representatives to put before the management board.

An expanded role for the National Audit Office At present, the National Audit Office has powers only to investigate the accounts of central government departments and agencies (with the Audit Commission performing a similar role at local government level). Its role needs to be extended to the auditing of the consolidated accounts of transnational corporations, and major domestic businesses with multiple subsidiaries. At present, this is performed mainly by the big four accountancy firms. The trouble is these accountancy firms have major conflicts of interest in that at the same time as they act as auditors, they collect large consultancy fees from the same companies whose accounts they are auditing (the fees charged for auditing often acting as a ‘loss leader’ to secure the more lucrative consultancy business). Moreover, a large part of their consultancy business is helping transnational corporations to manipulate their accounts among their large number of subsidiaries, including affiliates and holding companies in offshore tax havens, in order to avoid tax.

The more successful they are in this regard, of course, the more this is at the expense of other taxpayers, including competing businesses that do not have the facility to avoid tax in these ways. Bringing the auditing of accounts of the transnationals under the auspices of the National Audit Office – in effect, nationalising the auditing side of the big accountancy firms – would not only make it more difficult for them to avoid tax, thus boosting government revenues, but also would become an important source of income for the National Audit Office, so that it would be better able to perform this important new role. The auditing of accounts of the large number of smaller, domestic companies could continue to be carried out by the smaller accountancy firms, as now.

A new campaign to abolish offshore tax havens The existence of offshore tax havens arguably is the single most important factor distorting the world economy, and the way in which the capital created by the world’s workers is utilised. First, of course, they deprive governments of tax revenue, and therefore place a greater burden of tax on ordinary people and businesses that cannot avoid tax. Secondly, the large-scale tax avoidance that offshore tax havens encourage means that governments have reduced resources to invest in public services, including education and training, transport infrastructure and utilities, upon which the health of an economy, and manufacturing industry in particular, depend.

Thirdly, by allowing transnational corporations to store a large part of their worldwide profits offshore gives them the power to invest those profits in the form of accumulated capital according to their own vested interests rather than in the interests of the workers who created that capital in the first place. Moreover, more often than not, it means that investment is skewed away from where it is most needed for developing a balanced economy and optimising economic growth, which may require investment in areas that are not at all profitable, and therefore unattractive to transnational corporations.

In other words, allowing transnational corporations to make use of tax havens in these ways deprives a government of its democratic right, acting on behalf of its constituents, to control the way in which the capital created by the country’s citizens is utilised. Indeed, as noted earlier, it was precisely the mushrooming of offshore tax havens that was a major factor that undermined the capacity of governments to control capital flows in the 1950s and 1960s, and therefore their ability to control 24 | Halting the Decline of Britain’s Manufacturing Industry

exchange rates and interest rates. This ultimately led to the demise of the economic policies that up to then had been performing remarkably successfully.

To be sure, the City of London, which is the world’s second biggest offshore tax haven, would lose out if dealings with institutions based in such centres were made illegal, and this could have an adverse impact on Britain’s economy. But if other measures as proposed here were implemented, this would be offset easily by a stronger manufacturing sector, and an all-round, more healthy economy, because capital would be invested in the production and supply of real goods and services that people and businesses need and want, instead of much of it being gambled away in the City’s financial institutions, as now. Small island economies that had carved out a niche in offshore finance, which would lose out, could be compensated by the international community helping them to diversify.

The case for re-introducing capital controls First and foremost, it should be the democratic right for any country to be able to control what happens to the capital created by the labour of its workers, which is the source of all capital. More particularly, if large amounts of capital are disappearing abroad, it is at the expense of investment in the country where it was created, thus tending to slow economic development and undermine the establishment and expansion of manufacturing. As noted earlier, Britain, currently, is the world’s largest net exporter of capital, which is a major reason for the decline of our manufacturing industry compared with other advanced countries. But, in proportion to the size of their economies, it is underdeveloped countries that suffer most from the loss of capital abroad, including that disguised through transfer pricing (underinvoicing exports and overinvoicing imports), which is largely why they remain underdeveloped. And this, in turn, affects the economies of the advanced countries because, as noted already, countries remaining underdeveloped means smaller markets for our exports.

Note that capital controls are not the same as exchange controls.66 Capital controls apply only to a country’s capital account, which deals with future claims through the transfer of cash stocks or credit, and other financial assets, and the creation of liabilities. Exchange controls apply to both a country’s capital account, and its current account, which deals with payments and receipts for more or less immediate transactions, mainly the export or import of goods or services, or currency for foreign travel.

As with import controls, capital controls do not necessarily mean a total ban on international capital transfers, but merely that they are kept under control.

Capital controls may be restricted to particular kinds of assets, and can be applied either to outflows or inflows (especially to curb speculative inflows), or both at the same time. And they may be in the form of quantitative restrictions, including outright bans of particular kinds of assets, or price-based controls, which seek to impose costs on capital flows, perhaps in order to discriminate against one class of assets in favour of another. Or they may be a combination of both. There are, of course, pros and cons of these variations according to different circumstances, but these are essentially a technical matter, and will not be discussed here.67 The main point is to establish the principle of a government’s right to make use of capital controls as it sees fit.

Finally, it should be re-emphasised that a prerequisite for introducing capital controls is the abolition of offshore tax havens, and the opening up of the consolidated accounts of transnational corporations. Without those two things, it would be easy to get round capital controls, aided and abetted by the big accountancy firms, which have their bases in tax havens, including the City of London. Indeed, one of the major reasons for the City becoming one of the world’s biggest tax havens for foreigners was the strengthening of capital controls by the United States government in the early 1960s, as US-based businesses sought ways round them. In short, the reHalting the Decline of Britain’s Manufacturing Industry | 25

introduction of capital controls ideally requires concerted action from all the major capitalist countries.

In fact, there have been some official stirrings that offshore tax havens and the lack of capital controls are causing major distortions, which could be fanned.

For example, researchers at the Organisation for Economic Cooperation and Development in the 1990s made a strong case for opening up tax havens, but, although some progress was made, their efforts were diluted considerably by the major capitalist governments – a measure of the extent to which they are in the pockets of the big transnational corporations that benefit so much from the existence of the tax havens. Furthermore, the 1997 crisis in East Asia, when it became obvious that it was caused by the fickle movement of international capital seeking short-term profits, led many economists and commentators previously sympathetic to neo-liberalism to backtrack, especially after the incompetent handling of the crisis by the International Monetary Fund was exposed for all to see.68 And since 1998, a major international organisation for the first time, namely the United Nations Conference on Trade and Development, has been calling for national controls on capital movements, and it has praised the IMF-defying strategy of Malaysia, which succeeded in reviving its economy through lower interest rates behind a shield of capital controls.69 The need for capital controls for an independent monetary policy Another major argument for restoring capital controls is that they enable a government to operate an independent monetary policy. For example, without capital controls, if a government chooses to lower interest rates in order to stimulate investment, capital will tend to move out to other countries offering higher interest rates, at the expense of investment. However, with capital controls in place, this allows governments to maintain differential interest rates and credit controls to favour investment in particular productive areas, especially, perhaps, directed towards bottlenecks that need opening up to create a more balanced economy.

The role of capital controls in the stabilisation of exchange rates Capital controls are also needed to protect a country’s currency from speculative attacks and exchange rate volatility. At present, the current free market system of floating exchange rates, which sometimes give rise to wild fluctuations, tends to discourage international trade because of the uncertainty of how the prices of exports or imports might be affected between the time contracts are placed and when they are fulfilled. At present, in order to protect themselves, international traders have to engage in costly hedging operations through currency dealers and the like (who, of course, thrive on the uncertainty, and do much to create it). This has an adverse effect on trade because it makes imports and exports more expensive than they otherwise would be.

In addition, once governments are in a position to control exchange rates, they can be managed to achieve other objectives. For example, in order to encourage exports, a country can opt for a lower exchange rate, which will also discourage imports in favour of domestically produced products. Alternatively, perhaps to control inflation, a country can opt for a higher exchange rate, which would make imports cheaper.

However, a problem in the past when governments have had control of exchange rates, especially in less developed countries, has been that they were often subject to powerful political pressures – in particular, directed towards keeping imports demanded by the elite, including imported inputs for industries, cheap, or, if a country was heavily dependent on imports, as a means to control inflation – so that currencies often became exceedingly overvalued. This distorted investment away from domestic production, and generally the direction in which economies were going. In general, the best advice is for exchange rates to be determined by technical criteria, aimed at keeping the purchasing power of a country’s currencies more or less in line, on 26 | Halting the Decline of Britain’s Manufacturing Industry

average, with that of other currencies, and to use other devices such as import controls, or production subsidies, to influence investment decisions, or control inflation, or whatever. In any case, as pointed out earlier, the manipulation of exchange rates by governments has its limitations because it may invite retaliation, thus defeating the object.

In the long run, exchange rates need to be subject to internationally agreed rules and regulations – preferably coinciding with the introduction of a new international currency unit independent of any country or group of countries for the purposes for international trade. This was what was originally proposed by John Maynard Keynes, when the International Monetary Fund was being set-up in 1944, but it was opposed by the United States government.

Tax and subsidy policies As discussed earlier, government aid has been used many times in an attempt to boost manufacturing industries. More often than not, it has been used by companies to invest in things that they would have had to undertake anyway, rather than boost jobs in manufacturing. On occasion, it merely allowed companies to invest more abroad than otherwise. Furthermore, the expectation of aid being made available has been used by companies to blackmail governments, with the threat that they would invest elsewhere if aid were not forthcoming. Meanwhile, the trouble in Britain with all such aid has been that the government has had virtually no control on what the company did with it. The very least one should expect is that the aid would be in the form of shares in which the government – that is taxpayers – get a return on the investment, and that government appointees on the board of directors would have the power of veto on how the money was spent. In addition, one would expect the government to require companies – perhaps in confidence for commercial reasons – to make their accounts, including those of their overseas operations, available for inspection before any monies were advanced. But even with such aid being made available – which, in any case, has severe restrictions under EU legislation – there is no reason to suppose that it will persuade British capitalists to invest in British manufacturing if more profitable opportunities exist abroad. In other words, all the measures discussed so far need to be in place before government aid, including tax breaks, can play a significant role in rescuing Britain’s manufacturing industries. One way for the government to raise finance and direct investment towards where it is most needed for the benefit of the economy as a whole, including the boosting of exports, would be to raise the rate of tax on profits (that is, corporation tax) to, say, 50 per cent, and give rebates and subsidies to companies in productive areas that need boosting for the benefit of manufacturing industry, and the economy, as a whole.

The case for extending the public sector In many cases, public ownership of certain industries would better serve the interests of manufacturing, as well as the public interest in general. The most obvious are public transport and the utilities, at least their infrastructure.70 Since privatisation, these industries in particular have been starved of much-needed investment in order to ensure high rates of return for their shareholders. And, as noted previously, many have squandered large amounts of capital, and management time, on what turned out to be major loss-making acquisitions abroad, often egged on by asset managers and investment banks earning large fees in the process.

In the past, there has been huge propaganda in Britain against publicly owned industries, which have been accused of inefficiency and low productivity. But this is largely a myth. Academic studies have shown that in terms of output per worker, there was no difference in productivity before and after privatisation, or, previously, between privatised industries in the United States and their publicly owned equivalents in Britain.71 And when wider benefits are taken into account, for both Halting the Decline of Britain’s Manufacturing Industry | 27

service users and workers, publicly owned industries have been found to be more efficient by a considerable margin. The losses and supposed inefficiencies of publicly owned industries were essentially artificial, because governments used their power over them to restrict prices to combat inflation, and to provide cheap power, transport, coal and steel to private industries.72 Thus, the real subsidies were from the public sector to the private sector. In short, there is a strong case for bringing large parts of those essential industries back into the public sector so that they can better serve the interests of manufacturing industry as a whole, preferably before they are completely run into the ground by privateers.

Publicly owned industries have also provided the basis for stable long-term investment in equipment, research and labour skills – at least relatively speaking compared with the private sector today.73 For example, the most productive period of some of Britain’s shipyards was in the 1970s, when they were publicly owned. Since then shipbuilding in Britain, once the champion of the world (which as a maritime nation it should be) has now all but disappeared.

Another example is the revolutionary RB211 turbine developed by Rolls Royce after it had been nationalised by a Tory government in 1972. Moreover, on the whole, the old publicly owned industries tended to be run professionally by highly qualified and experienced technical experts. A major cause of the Railtrack disaster, for example, was its decision to sack most of the technically qualified managers and replace them with accountants who knew nothing about running a railway. This indeed is a major problem for manufacturing industries in Britain in general – the extent to which they are run by accountants that move from one company to another rather than engineers and technical specialists who know inside out the production process and the markets for their products. In the case of Railtrack, it led to the outsourcing of maintenance and construction to companies with little experience of rail work and an ill-trained workforce.

Only now, following what amounts to the re-nationalisation of Railtrack, now Network Rail, has a programme of apprenticeships been introduced after ten years of neglect following privatisation.74 Finally, as mentioned earlier, state involvement in manufacturing in the future should be extended to taking over insolvent manufacturers (and, over time, other businesses) so that they can be re-established as worker-owned co-operatives, which can be run more efficiently, among other reasons, because they do not have to generate the high rates of return demanded by outside shareholders or private capitalist owners.

The role of the Department of Trade and Industry The Department of Trade and Industry (DTI) has the potential of playing a key role in the regeneration of Britain’s manufacturing industry, especially channelling resources into the development of industries at the top end of technology, orientated towards producing high value products needed for the future. The energy sector is an obvious example, perhaps directed towards harnessing the sun’s energy more cost-effectively, such as developing cheaper materials for photovoltaic cells, or developing biotechnology industries for generating hydrogen. Is it possible that at last the DTI might be getting the message? In August 2004, it announced grants totalling £18 million for research into nanotechnology – the science of manipulating minute particles – which will be shared by some 25 schemes ranging from anti-corrosion coatings to water purification, covering up to 50 per cent of costs.75 But this is a drop in the ocean compared with what is needed.

Another important role the DTI could play would be to help wean armaments manufacturers away from producing their instruments of death towards things that are more useful to humanity. At present, 12 per cent of research and development expenditure by companies in Britain goes on aerospace and defence, which means mostly armaments, and reflects the continuing imperialistic orientation of the present 28 | Halting the Decline of Britain’s Manufacturing Industry

government. In the world as a whole, only 4 per cent of expenditure on research and development on average is in this area.76 The leading area of research and development expenditure by companies in Britain was pharmaceuticals and biotechnology, which accounted for 40 per cent. But to a considerable extent, this high figure reflects the lack of expenditure on research and development in other important sectors. In the world as a whole, the top three areas of research and development, each accounting for 18-19 per cent of expenditure, were IT hardware, automotive, and pharmaceuticals and biotechnology.

The DTI needs to emulate (not necessarily copy) the famous Japanese Ministry of Trade and Industry (MITI), which, in its heyday, was responsible for transforming Japan into one of the most technologically advanced industrial economies in the world.77 For example, MITI scoured the world for the most recent scientific and technological developments, and systematically made the information available to Japanese companies. Secondly, MITI invested in a wide-range of research and development activities, which Japanese companies, through membership of research clubs, were required to help finance, and from which they benefited, though the consensus is that this was a little uneven, thriving in some areas and in some periods, and less so at other times.78 This was because the leading companies were already heavily engaged in research and development on their own account, but often the activities acted as an incentive for companies to embark on research and development in a new area. MITI also played a major role in many other areas that gave Japanese manufacturing industries the edge over industries in other countries. Unfortunately, during the 1980s, the Japanese government allowed the financial sector to get out of control, which produced a huge bubble of speculation in shares and property (as well as more arcane things such as golf club memberships). 79 That is why, over the past dozen years since the bubble burst, its economy has been in the doldrums – though its main industries are still thriving reasonably well considering the circumstances.

At present, the DTI in Britain is hampered by all the factors discussed earlier that militate against manufacturing in Britain. For example, if effective capital controls were in place, companies would have a greater incentive to invest in research and development, because it would be less easy to make money through the export of capital. And any resources the DTI directed towards companies in support of research and development activities in particular areas would more likely benefit the British economy, because it would be less fungible – companies would be less able to use it to offset foreign investment abroad. Furthermore, if less capital was disappearing abroad, so that there would be fewer opportunities to avoid tax, the government would have more resources available, among other things, for sponsoring research and development – in public research institutes, universities and joint ventures with associations of manufacturers in particular product areas.

Once our economy was more focussed on manufacturing, associations of manufacturers could play a much bigger role, as they do in Germany,80 working out what sort of generic or near-market research is needed to improve their productivity or help diversification, so that funds forthcoming from the government would be distributed more effectively. The same network of manufacturers’ associations could be used to develop a more effective training structure, again along the lines of Germany, as described earlier. At the moment, what support the DTI does give to manufacturing, according to a survey conducted the Engineering and Machinery Alliance – which brings together over 4,000 companies in nine manufacturing trade associations – is undermined by the ‘negative attitudes of the Treasury towards manufacturing’, and high interest rates.81 The same survey also revealed an excessive amount of bureaucracy, with many overlapping schemes that made it difficult for small companies to work out which ones in theory could help, all of which reflects the whole lack of a coherent policy towards manufacturing on the part of the government.

Halting the Decline of Britain’s Manufacturing Industry | 29

6.

What trade unions should be doing

rade unions need to focus on what they are best able to do – that is defending workers’ interests, and organising collective and solidarity actions to achieve limited objectives, but which add to other pressures for changes in policy that can enhance manufacturing, and economic development in general.

T

The campaign against anti-trade union laws First, trade unions, through the TUC, need to toughen up their campaign against our anti-trade union laws not only because it is a matter of basic human rights, but also because it would make it more difficult to close down plants and transfer them elsewhere, and therefore benefit the British economy. This government, nominally from the political party specifically established by trade unions to represent workers’ interests, should have repealed the anti-union measures, as they said they would, long ago. Now that they are clearly in the pockets of big business, perhaps it is time to organise industrial action of the type used in the 1970s to put pressure on right wing governments. Formally, of course, under those very antiunion laws, such action would be illegal. But it has to be remembered that the whole history of trade unionism the world over is littered with examples of trade unionists having to break the law in order to gain recognition and extend workers’ rights. Meanwhile, a natural progression to stepping up action to get these antiunion laws repealed would be the campaign for a new Bill of Rights for employees, and a completely new set of employment laws, as outlined previously. This would give workers proper job security, and a greater say in how enterprises were managed. This, in fact, as noted already, is a prerequisite for workers and trade unionists to become more of a resource for improving productivity and encouraging diversification – which is what manufacturing in Britain needs – because there would no longer be the concern that any suggestions would put their, or their colleagues’, jobs in jeopardy.

The campaign to enforce international labour standards Next, trade unions need to step up their campaign on behalf of the millions of workers not organised in trade unions, first and foremost, of course, here in Britain. This is partly a matter of recruitment, because the more that workers can be drawn into the trade union movement, the more resources there will be, both human and financial, to defend workers’ interests everywhere, and to campaign for alternative policies. But the trade union movement should also be seen to be campaigning on behalf of all workers, irrespective of whether they are members of trade unions, which might be for some very understandable reasons. But equally important, if not more so, working through the international trade union movement, both formally and informally, is the need to step up the campaign for trade union recognition and rights in the rest of the world, especially in underdeveloped countries, where workers are in extremely weak bargaining positions. This applies even more in countries where, in defiance of the International Labour Organisation to which most governments are signed up, belonging to a trade union is illegal or otherwise made impossible through intimidation and so on. This is not just a matter of justice and human rights. It is in our vested interests in the advanced countries, because the more the bargaining position of workers in underdeveloped countries can be improved, thus pushing up their pay, the less this will undermine our productive activities, and the more this will create new economic demand, and therefore investment and employment, and economic growth in general, in those countries, which is what we need to expand markets in these countries for our exports.

Trade unionists in Britain and elsewhere also need to do much more to bring 30 | Halting the Decline of Britain’s Manufacturing Industry

together workers worldwide employed by the same transnational corporation so that it is less possible for them to be played off one against another. This would imply some opening up of the internal accounting mechanisms of transnationals.

Thus, trade unionists have a vested interest in the campaign in Britain for an expanded National Audit Office to become involved in the auditing of the consolidated accounts of British-based transnationals instead of the big four accountancy firms. As noted previously, these have a vested interest in pandering to the demands of transnational corporations to manipulate their accounts – making use of obscure holding companies and the like based in offshore tax havens in order to avoid tax and other regulations – because of the high consultancy fees they can charge for other services on behalf of the corporations. This could become part of the campaign to get offshore tax havens abolished, in which trade unions could focus on the issue of transnationals making use of them for ‘creative accounting’ to keep down workers’ wages.

The need for more sophisticated support structures for trade unionists Another major need is for the TUC and individual trade unions at national level to develop a more sophisticated support structure for their leaders and members at enterprise level. First, in order to be better able to defend their jobs and working conditions, workers need to be helped and encouraged to gain a better understanding of how their enterprises or workplaces are performing in relation to the ever-changing worldwide economic environment in which they operate.

This could be facilitated by organising training seminars and briefing sessions for shop stewards and other trade unionists on the tactics of gleaning information from managers at different levels, and using the pooled knowledge of workers in different parts of the production process, including marketing, and in different plants belonging to the same company. This could perhaps be reinforced by more general seminars that examine the economic situation for particular industrial sectors.

This would put workers in a stronger position to confront or pre-empt management attempts to undermine working conditions, pay, and employment – or, indeed, the enterprise itself, if their employer’s ultimate aim is to close it down in order to transfer production elsewhere.

This approach, of course, is quite opposite to that embodied in the notion of ‘partnership’ that was, and perhaps still is, in vogue in some parts of the trade union movement, which increasingly is being shown to be a fool’s paradise. As long as a business is doing reasonably well, employers and managers quite happily go along paying lip-service to it. But when the crunch comes, it goes straight out of the window without a second thought, and the true antagonistic class character of the relationship between workers and management comes to the fore. This could not be illustrated better than by the case of Sony in South Wales, discussed earlier.

At one time, the firm was held up as a model of ‘partnership’ in action. But when the decision came from on high – that is the top managers in Japan – to close down the television plant, and concentrate production in Slovakia and Spain, ‘partnership’ was shown to be worthless. The workers were gob-smacked. They should never have been led up the garden path of ‘partnership’. Instead, they should have been helped to gain a better knowledge of their plant’s finances, and Sony’s worldwide operations, so that they would have been in a position to defend their livelihoods much earlier on, when they might have been able to insist on the plant investing in diversification immediately when the decline in demand for traditional televisions first became apparent.

Over the last decade or two, there must have been hundreds of instances when, if such a structure had been in place, workers would have been in a much better position to defend their livelihoods, and kept workplaces open that have since closed.

Furthermore, the huge amount of information that would accumulate from such activities and from feedback from workers involved in actual confrontations or during Halting the Decline of Britain’s Manufacturing Industry | 31

training or briefing sessions would provide wide-ranging information to fuel campaigns to protect jobs in particular industries or regions.

Worker takeovers as a strategy for keeping work places open A second major role for this proposed support structure could be to help workers when faced with closure of their plant or whatever, to keep their enterprises running as worker-owned co-operatives. The ultimate goal would be for a new law to be introduced to make it illegal to close down profitable, or potentially profitable enterprises, with workers having the automatic right to take over their enterprise if threatened with closure. In the meantime, no doubt, more direct action would be required, including occupation of the premises to prevent asset stripping. This is not an easy option, but if the workers involved are up for it, they will need all the support that they can get – from the local community, from the trade union movement, both locally, and nationally, local politicians and so on.

Organisation of such wide-ranging support would be greatly facilitated if a local trade union support structure were already in place. Moreover, if workers win the right to run the plant for themselves, they would almost invariably need that support all the more. They are likely to need help in identifying where to go for such things as financial and legal advice, and the recruitment of financial or technical experts to help manage the enterprise, and so on, upon which its future success would likely depend. The way things are going at the moment in Britain as far as manufacturing is concerned suggests that workers in more and more enterprises are going to have to take such steps if they are to retain their jobs, livelihoods and skills, especially if Britain’s economy, and, indeed, the global economy, deteriorate, as seems likely.

There are lessons here from Argentina, when capital flight and currency devaluation unleashed economic depression at the end of 2001, which led to thousands of failing businesses or businesses abandoned by their owners. But by mid-2004, over 200 of these in various parts of the country were occupied by workers and re-opened as worker-owned co-operatives, employing some 15,000 workers. The co-operatives ranged from a fast-food outlet, now Nubecoop, in the main bus station of Rosario, to a refrigerator factory in Tierra del Fuego, schools in Buenos Aires, an auto-parts factory in the city’s suburbs, a newspaper in the city of Córdoba and the largest ceramics factory in South America in Zanón, Patagonia. Almost all of these co-operatives were the end result of struggle, with workers often living in their bankrupt business premises to resist eviction and lawsuits from the former owners. They faced all manner of roadblocks to stop them formalising their co-operatives and getting them up and running. Their main support came from the National Movement of Recovered Businesses. The legal battle was often the most ferocious and the most important.

Although the occupations had popular legitimacy, it is legal expropriation that gives them the protection. One of the main tacks of the movement’s lawyers in bankruptcy proceedings has been to make the case for the workers as ‘priority creditors’ – they are often owed hundreds of thousands of pesos in back pay. With 20 per cent unemployment, and widespread public fury with politicians, city and provincial legislatures frequently found this a convincing argument. Thus, in case after case, legislation handed failed businesses over to the newly formed co-operatives.82 One of the most successful worker takeovers in Britain was that of Tower Colliery in South Wales in 1994, following the onslaught against the British coal mining industry by the Tory government under Margaret Thatcher. The remarkable story, which is summarised in Box 2, gives a valuable insight into what is involved in a workers’ takeover, and its recipe for success.83 As will be seen, it received support from some surprising quarters, but notably absent was support from the trade union movement at national level, and from the co-operative movement. If we are serious about protecting our industries and workers whose livelihoods are under threat, this must change.

32 | Halting the Decline of Britain’s Manufacturing Industry

Box 2: Workers’takeover at Tower Colliery This did not involve an occupation, though a local MP,Ann Clwyd, demonstrated her support for the miners, by bravely staging a 27-hour sit-in deep down the pit until the managers tricked her into believing that they had made some kind of an offer to the miners.The pit was to have been closed down along with hundreds of others in Britain as part of the Tory government’s strategy to privatise the industry. Miners were having to accept new contracts typically with 30 per cent less wages coupled with 30 per cent higher output targets. Pits deemed insufficiently profitable to attract privateers even under those conditions were simply run down and closed, including many that only ten years previously had been declared to have a productive life of 100 years.At Tower, as in other pits earmarked for closure, the local managers did all in their power to paint a negative picture and coerce mineworkers into accepting early retirement.They ran production down from 960,000 tonnes in 1992 to 330,000 tonnes two years later to make it look as if the pit was running out of coal.They said that the coalface was gassy with a high level of methane that affected production and safety, and that the pit had geological flaws. And they said that there was no market for the high quality anthracite that the pit produced. However, the mineworkers knew different. They knew that there was plenty of coal, and that there was a market for it.

Led by Tyrone O’Sullivan, NUM branch secretary for 22 years, the 239 mineworkers stood up to the managers trying to force them out of their jobs, in spite of various dirty tricks and bribes from state-owned British Coal, and they eventually bought the mine out of their redundancy money. The mineworkers drew support from some surprising quarters. After being turned down by other banks, including the Co-operative Bank, they obtained a £2 million loan from Barclays. In the event, only part was used, and it was all paid back within a year. Price Waterhouse, ironically the accountancy firm that the government had used to sequester NUM funds during the strike, agreed to act as financial adviser, their fees dependent on the success of the bid. And John Redwood, MP, Welsh Secretary, normally considered way out on the right, supported them at Cabinet level. Lastly, and not least, they got important support from the Wales Co-operative Development and Training Centre. But the miners received no support, if not outright hostility, from the managers of what was after all a publicly owned industry. In short, they had to be pragmatic on whom to turn to for support.

Now, ten years on, the worker-owners are still running the mine, at a profit, having doubled production since they took over. They have contracts to supply coal to power stations, over a hundred local schools and other public buildings, and for domestic use, not only in Wales, but also in Belgium, France, and Spain.They have formed a joint venture with a heating engineering company, offering total energy packages of fuel supply, heating equipment, installation and maintenance.And they have installed a system for capturing the methane from the mine, which is used to generate on-site electricity sufficient for their entire needs. None of these initiatives would have been possible under British Coal, which, like the rest of British industry, had always been run along hierarchical lines by supposed professional managers who treated any ideas coming from workers with utter contempt.

In addition, as often in mining, there have been mishaps to deal with. On one occasion, following an earth tremor, large amounts of methane entered the mine.This was eventually pumped out using four miles of domestic pipe bought from all over the country to prevent local prices escalating. The mine was out of operation for three months, but they still managed to fulfil contracts out of their stockpiles. On another occasion, the coalface collapsed, burying their £1 million cutting machine. In the old days this might have meant closure of the mine. However, the miners devised a way of digging it out and getting it working again, thus saving the mine and their livelihoods. Finally, it should be noted that the success of Tower has benefited the local economy by an estimated £10 million, employing people in the supply of inputs and as a result of miners spending their wages.

Halting the Decline of Britain’s Manufacturing Industry | 33

7.

Conclusion and Summary

his pamphlet, hopefully, makes a powerful case for supporting manufacturing industry in Britain, upon which our whole future welfare depends. Ten major reasons for the decline of manufacturing in Britain are identified. All are a consequence of, or are exacerbated by, the prevailing neo-liberal agenda that has been foisted onto the world by the major capitalist governments, on behalf of big business and the world’s giant transnational corporations. This agenda, and the worldwide trends to which it has given rise, have adversely affected the manufacturing sectors of all the advanced countries to a greater or lesser extent, but Britain’s has suffered the most. This is related to the institutional structures that have evolved in Britain as a result of its imperialist past, which has led to a tendency for the capital generated by workers, and appropriated by the various capitalist institutions, to be invested abroad at the expense of the domestic economy, especially manufacturing. Meanwhile, the returns from the investment abroad coming back to Britain remain largely within those same capitalist institutions, giving rise to a bloated financial sector that has a disproportionate influence on government policies that tend to discriminate against investment in manufacturing. In order to halt the decline of Britain’s manufacturing industry, therefore, this dominance of the financial sector has to be challenged.

A major priority eventually must be to restore controls on capital outflows, thus to ensure that more capital can be made available for investment in manufacturing, and in the domestic economy as a whole. However, as long as big business and the transnational corporations are free to make use of the secret world of offshore tax havens – through which some say half the world’s money passes – such controls are easily bypassed. In other words, for the re-introduction of capital controls to have any meaning, these offshore financial centres will have to be opened up, and their moneylaundering activities declared illegal. This will require the concerted action of the governments of all the major economies. In fact, abolition of these tax havens should be in the vested interests of governments everywhere because of the considerable loss of taxation revenue to which they give rise. It should therefore be possible, through a concerted campaign by the international trade union movement and other progressive forces, to make some headway on this issue. Indeed, recently some internationally agreed restrictions have been imposed on these centres, but these mainly affect wealthy individuals aiming to avoid tax, leaving the money-laundering activities of transnational corporations largely untouched. It is a priority to tackle this issue, because as long as these offshore financial centres are allowed to operate in these ways, no government will have democratic control over the capital created by the labour of the country’s citizens on whose behalf it is supposed to be acting.

Meanwhile, there are a number of other measures that a progressive government in Britain could take to protect and support manufacturing industries. First and foremost, must be to repeal the Tory anti-trade union laws. This would make it more difficult, or more costly, for transnationals to close down plants here and relocate production elsewhere. In addition, a new law should be introduced making it illegal for profitable companies to sack workers. Ideally, it would be part of a new Bill of Rights for employees, ultimately leading to life-time contracts, and higher levels of consultation and involvement in firms’ decision-making processes. This would stimulate innovation and diversification, which is what manufacturing needs.

Transnationals could get round these changes by deliberately running down plants in Britain, depriving them of investment, so that they become insolvent, meanwhile investing in plants elsewhere where they stand to make more profit. Indeed, this is already going on. One way of pre-empting this would be to require the consolidated accounts of transnational corporations in Britain to be audited by an expanded National Audit Office, instead of by one or other of the big accountancy firms. At present, these firms have a vested interest in colluding with transnational corporations whose

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34 | Halting the Decline of Britain’s Manufacturing Industry

accounts they audit in order to secure lucrative consultancy contracts later. Ending this conflict of interest would not only make it harder for the transnational corporations to manipulate the financial transactions among their innumerable subsidiaries to the maximum advantage of the corporation as a whole, at the expense of workers in particular plants, but also make it harder for them to avoid tax.

A second important measure would be to introduce a new set of insolvency laws and procedures, ideally with new government and local authority agencies specially created for the purpose, again taking over from the big accountancy firms that currently are responsible, which often collect large fees at the expense of creditors.

Where appropriate, this could be extended by such agencies having the power and financial resources to take over insolvent concerns, and prepare them for selling on to the workforce to re-start as worker-owned co-operatives. These have the advantage, among other things, that they do not have to generate the high returns demanded by outside shareholders or private owners. In some cases, it might be more appropriate, following such a takeover, to retain them as publicly owned companies.

Since these measures would require a progressive government coming to power, for the time being they are essentially campaigning issues with the object of getting them adopted as policy for inclusion in election manifestos. In the meantime, workers in plants under threat, and in general, in order to protect their livelihoods, must become more vigilant about their employers’ transactions in order to pre-empt the running down of their workplaces. In addition, it would be useful to build-up a communication network to liaise with their counterparts in other plants owned by the same company both in Britain and abroad. Workers in the different plants would then be in a stronger position to help one another, facilitating various kinds of solidarity actions, when required. A further measure would be to have in place contingency plans in the event of employers suddenly announcing the closure of a plant, including, when appropriate, occupation of the plant in order to prevent asset stripping, and with the aim eventually of getting the plant operational again as a worker-owned co-operative or publicly owned enterprise.

Trade unions need to set up a support structure to help workers in these activities.

This should include training schemes for shop stewards and local trade union leaders, so that they know what to look out for, and to help them with contingency plans.

And trade unions should establish a special department concerned with occupations so that they can give workers practical support, such as legal and financial advice.

Furthermore, trade unions should use their international connections to help workers set up systems of communication with workers worldwide in the same transnational corporation. This same network could be used in the campaign to enforce international labour standards, which, is not just a human rights issue, but also a matter of economics. That is because if workers worldwide are better paid, there will be bigger markets for their products, thus stimulating investment and employment in their production and supply, which would further expand markets, and so on. In the light of experience, all this, arguably, is a more realistic approach than that of ‘partnership’ between trade unions and employers, which has been championed by some elements in the trade union movement.

Turning to another important issue, since the early 1980s, manufacturing industries in Britain, as in other advanced countries, have been undermined by cheap imports from countries utilising more or less similar technologies, but where labour costs are a fraction of what they are in the advanced countries. This applies not only to mass consumer products, but also, less conspicuously to a large range of standardised industrial components and other inputs for incorporating into final products – such as industrial machinery, motor vehicles, electronic products, and so on – which make them cheaper than they otherwise would be. Up to a point this benefits our economy.

First, we have more to spend on other goods and services, which stimulates investment and employment in their production and supply. Secondly, the new industries established in the exporting countries generate foreign revenue, and help Halting the Decline of Britain’s Manufacturing Industry | 35

develop their economies and raise incomes, which provide an expanding market for our exports.

However, as long as current neo-liberal policies prevail, these beneficial effects are unsustainable. First, because of underinvoicing exports and transfer pricing scams, the prices these less developed countries receive for their exports are often a fraction of the prices paid by final consumers in the advanced countries, so that the bulk of the profit from the manufacture of these products ends up abroad, mainly in the coffers of the transnational corporations via offshore tax havens. In other words, they are not available for re-investment in the exporting countries whose workers actually create those profits, so that their economies grow far more slowly than they otherwise would.

Apart from the injustice of people remaining poor as a result, this also means that these countries can only provide a much-reduced market for our exports.

Secondly, the wider the range, and the higher the level of sophistication of the products manufactured in cheap labour countries that are imported into the advanced countries, the more this undermines what remains of manufacturing industry in the advanced countries. And the more this has an adverse impact on the economies of the advanced countries, leading to higher levels of unemployment, the less these countries will be able to provide a market for the products from the cheap labour countries.

In short, both groups of countries would benefit in the long run if imports of manufactured goods from less developed countries were regulated, either through quotas or tariffs, to allow a certain amount in, but without swamping the market. Less developed countries would earn the foreign exchange needed for their imports, without it undermining too much the economies of their main markets in the advanced countries. In addition, less developed countries could earn much more if they were helped to do something about the large-scale appropriation of profits from their countries by the big transnational corporations. Meanwhile, less developed countries also need to control their imports to favour items such as equipment that could help to develop their economies, rather than luxury consumer goods that benefit only the elite. Ideally, a new international trade policy needs to be negotiated that allows all countries to control their imports up to a point, with less developed countries being given greater leeway, in relation to their GDP per capita, and taking other disadvantages into account.

In the meantime, various arrangements for specific products could be negotiated along the lines of the long-standing, but recently abolished, Multi-Fibre Arrangement, in which the imports of textiles and clothing from each of the less developed exporting countries were subject to a quota. This benefited both the advanced and the less developed countries, and especially the least developed countries. It is only since the abolition of the Multi-Fibre Arrangement, in line with the prevailing neo-liberal agenda, and the chaos caused when, after only three months, the United States and the EU were hurriedly forced to re-introduce quotas on an ad hoc basis, that the benefits of the Multi-Fibre Arrangement began to be recognised. This surely strengthens the argument for negotiating a new Multi-Fibre Arrangement, and extending such a scheme to other product areas, including primary commodities, using tariffs or quotas as appropriate, which would be of particular benefit to the least developed countries. If this could be achieved, it would begin to undermine the whole neo-liberal agenda that is causing so much damage to the global economy – and human suffering due to its adverse effect on the poor – paving the way towards a more rational approach to solving the world’s economic problems.

Once some progress had been made on the implementation of these various measures to defend manufacturing industries, policies for supporting manufacturing could become more effective. For instance, a system of taxes and subsidies could be introduced to favour investment in particular manufacturing sectors that open up bottlenecks or are likely to benefit the economy in other ways, or which favour particular regions that are relatively underdeveloped or suffer from high 36 | Halting the Decline of Britain’s Manufacturing Industry

unemployment. In some cases, major public investment may be required to overcome constraints and ‘market failures’. This should take the form of equity stakes, with representatives of the public’s interest being appointed to the board of directors, to ensure that ultimately taxpayers benefit from such investments – unlike now when there is no control on how companies receiving government aid spend the money. In other cases, it may be in the public interest and more efficient for industries to be wholly publicly owned. This particularly applies to the utilities and public transport, and to arms manufacturers, so that their technical expertise can be shifted towards civilian research and development, and the manufacture of products of benefit to humanity rather than the reverse.

Finally, the government’s Department of Trade and Industry could play a much bigger role in the revival of Britain’s manufacturing industry. First, it should monitor, and act as a clearinghouse and database of technical and scientific developments taking place around the world, making such information available to the specific industries to which they apply. Second, it should sponsor on a much larger scale scientific research in universities and specialist research institutes, and generic and near-market research and development activities in specific areas where needed, preferably through a network of associations of manufacturers in the various manufacturing sectors, which could be expected to jointly fund such activities.

And third, through the same network, it could promote a system of training and accreditation of apprentices, technicians, engineers and applied scientists, and so on, to ensure that industries have a sufficient supply of technical expertise to draw on.

All the measures proposed in this pamphlet for halting the decline of Britain’s manufacturing industry more or less challenge the prevailing neo-liberal agenda and the policies of the European Union, which nominally would render them ‘illegal’. But all countries are suffering to a greater or lesser extent, so these institutions need to be challenged. Why shouldn’t Britain, the world’s fourth largest economy, take the lead? It surely would not be long before the world’s other major economies, that are also suffering, would come on board. And it would pave the way for a new world economic order that is so desperately needed, so that once again democratically elected governments can be in control of their countries’ economic policies.

END

Halting the Decline of Britain’s Manufacturing Industry | 37

Summary of main proposals Immediate goals ■ ■ ■ ■ ■ ■ ■ ■

Repeal the Tory anti-trade union laws Campaign to abolish offshore tax havens Negotiate a new Multi-Fibre Arrangement and extend such an arrangement to other major manufactures and primary products Require transnational corporations in Britain to have their accounts audited by an expanded National Audit Office Introduce new insolvency laws and procedures and establish a new government agency to facilitate worker takeovers of insolvent businesses Strengthen the International Department of the TUC to facilitate communication between workers employed by the same transnational worldwide and the enforcement of international labour standards Establish a new department within the TUC to facilitate worker takeovers of workplaces threatened with closure Bring arms manufacturers under public ownership to facilitate conversion into civilian research and development, and production

Longer-term goals ■ ■ ■ ■ ■ ■

Re-introduce capital controls Introduce a new Bill of Rights for employees Negotiate a new international trade policy that promotes trade without undermining countries’ economies Expand the role of the Department of Trade and Industry enabling it to support manufacturing at every level Abolish the European Union, and turn it into a European Association for Co-operation and Development Move towards an economy based mainly on common ownership, including publicly owned enterprises and worker-owned co-operatives

38 | Halting the Decline of Britain’s Manufacturing Industry

Notes 1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

28 29 30 31 32

‘Manufacturing leads slide as industrial output hits nine-year low’, Financial Times, 10 May 2005; ‘Economy growing at slowest rate for 12 years with industry in recession’, Financial Times, 23-24 July 2005; ‘Data offer little hope of manufacturing recovery’, Financial Times, 2 August 2005; ‘Business and financial services eclipse manufacturing’, Financial Times, 20-21 August 2005.

Labour Force Surveys, Office for National Statistics.

World Bank, World Development Report 1980, Washington, 1980; World Bank, 2004 World Development Indicators, Washington, 2004.

Richard Brooks and Peter Robinson, Manufacturing in the UK, Institute for Public Policy Research, London, 2003; p. 19. [Data from Eurostat and the Engineering Employers’ Federation.]

Peter A. Hall and David Soskice (eds), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford University Press, Oxford, 2001; p. 36ff.

Ibid.

Financial Times, 15 August 2005.

Ibid.

TUC, Britain Can Make It: A Strategy for Modern Manufacturing, London, 2000; p. 7.

P.J. Cain and A.G. Hopkins, British Imperialism (2 vols.), Longman, London, 1993; B. Fine and L. Harris, The Peculiarities of the British Economy, Lawrence and Wishart, London, 1985.

Pepper D. Culpepper, ‘Employers, Public Policy, and the Politics of Decentralization and Cooperation in Germany and France’, in Hall and Soskice, op. cit.; pp.275-306.

TUC, op. cit., p. 21.

Ibid.

Charles J. McMillan, The Japanese Industrial System, 2nd revised edition, Walter de Gruyer, Berlin and New York, 1985; p. 31.

IMF, International Financial Statistics Yearbook 2004, International Monetary Fund, Washington, 2004.

Mary O’Mahony, Britain’s Relative Productivity Performance, National Institute for Economic and Social Research, 1998; cited in TUC, op. cit., p. 6.

Ibid.

UNCTAD, World Investment Report 2004, United Nations Conference on Trade and Development, Geneva, 2004; Table 6.2.

United Kingdom Balance of Payments: The Pink Book 2004, Chapter 7, ‘Financial Account’; p. 76ff.

Ibid.

Financial Times, 1 March 2004.

Morning Star, 23 June 2005.

Beijing Review, 28 July 2005, p. 43.

The global significance of this trend will be discussed more fully below.

BP Annual Report 2002; Royal Dutch Shell Annual Report 2002.

Beijing Review, July 28 2005, p. 43.

Business Week, 27 September 1993, pp 98-104; cited in David C. Korten, When Corporations Rule the World, Earthscan, London, 1995, p. 130. It was infamous in Britain, of course, for cherry-picking the Mini, following its acquisition of the last remnants of the British-owned car industry. However, in fairness, in contrast to the four cowboys under the name Phoenix, who acquired it for £10 later, BMW probably did have the intention originally of doing something with the rest of it, until it found the decades of underinvestment by the former British owners, including the state at one time, too much to overcome.

UNCTAD, World Investment Report 1995, United Nations Conference on Trade and Development, Geneva, 1995.

Financial Times, 2 February 1996.

Financial Times, 3 February 1998.

Financial Times, 18-19 September 2004.

Financial Times, 17 December 2004.

Halting the Decline of Britain’s Manufacturing Industry | 39

33 34 35 36 37 38 39 40 41 42 43

44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

66 67 68

Financial Times, 12 July 1999.

Financial Times, 10 July 1996, and 11 July 1996.

Molly Scott Cato, The Pit and the Pendulum: A Cooperative Future for Work in the Welsh Valleys, University of Wales Press, Cardiff, 2004; p. 65.

Financial Times, 23 May 2005.

Financial Times, 1 August 1998.

Financial Times, 23 June 2003.

Ibid. icWales, website, 30 June 2005.

Financial Times, 23 June 2003.

Financial Times, 17 August 2005.

‘Multinationals find tax relief abroad: Shifting resources around countries through their international operations has saved big US groups billions of dollars in a year of rising profits’, Financial Times, 2 February 2004; ‘Counting the cost of globalisation: how companies keep tax low and stay within the law’, Financial Times, July 21 2004; ‘The big squeeze for governments: how transfer pricing threatens global tax revenues’, Financial Times, July 22 2004.

John Edmonds and Andrew Glyn, ‘Public spending alone explains Britain’s jobs growth’ Financial Times, 30 June 2005.

Ibid.

Financial Times, 22 July 2000; Scott Cato, op. cit.; p. 71.

Financial Times, 26 June 2002.

Morning Star, 13 August 2004.

Financial Times, 20 April 2004.

‘FT 500’, FT Magazine, 11 June 2005.

Morning Star, 22 April 2004; Financial Times, 20 April 2004.

Morning Star, 26 October 2000.

‘A Third Way to misery’, by Harry Barnes [the local MP at the time], Morning Star, 24 November 2000.

Financial Times, 4 August 2005.

Bill Benfield, ‘Gate Gourmet’s big dirty secret’, Morning Star, 19 August 2005. The billionaire owner of the parent company, Texas Pacific, David Bonderman spent several million dollars on his 60th birthday party in Las Vegas.

Morning Star, 23 August 2005.

Morning Star, 25 August 2005.

Edmonds and Glyn, op. cit.

Financial Times, 30 September 1999.

Cited in Brian Denny, Politics of the Euro – The Economics of the Madhouse, Campaign against Euro-federalism, Merseyside, 2000.

Financial Times, 14 July 2004.

Hall and Soskice, op. cit.; p. 25.

John Mills and Austin Mitchell MP, Back to the Future: Collectivism in the Twentyfirst Century, Catalyst, London, 2002; p. 9.

Financial Times, 23 August 2005.

Charles J. McMillan, The Japanese Industrial System, 2nd revised edition, Walter de Gruyer, Berlin and New York, 1985; p. 88. To be sure, not everything was rosy – small firms and their workers who were suppliers to the big firms, were often squeezed by the big firms (though, in many cases, the larger firms helped those small firms which were their suppliers, both technically and financially, to upgrade their technologies). And working hours and living conditions frequently left much to be desired, which was a reflection of the weak trade union movement in Japan.

Kavaljit Singh, Taming Global Financial Flows: A Citizen’s Guide, Zed Books, London, 2000; Chapter 6, ‘Capital controls: An idea whose time has returned’.

See Singh, op. cit.

Joseph Stiglitz, Globalization and its Discontents, Allen Lane, 2002; Chapter 4, ‘The East Asia crisis: How IMF policies brought the world to the verge of a global meltdown’.

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69 70 71

72 73 74 75 76 77 78

79 80 81 82 83

UNCTAD, Trade and Development Report 1998, United Nations Conference on Trade and Development, Geneva, 1998.

Malcolm Sawyer and Kathy O’Donnell, A Future for Public Ownership, Lawrence and Wishart, 1999. The Railways in a Third Term: Integrated, accountable and publicly owned, Pre-election briefing, Catalyst, London, March 2005.

Sawyer and O’Donnell, op. cit.; Chapter 3, ‘Comparative performance of public and private ownership’. A.D. Smith, D.M.W.N. Hitchens and S.W. Davies, International Industrial Productivity Comparisons of Britain, America and Germany, Cambridge University Press, Cambridge, 1982. R. Millward, ‘The nationalised industries’, in M. Aretis and D. Cobham (eds.), Labour’s Economic Policies 1974-79, Manchester University Press, Manchester, 1991. L. Hannah, ‘The economic consequences of the state ownership of industry, 1945-1990, in R.C. Floud and D.N. McCloskey (eds.), The Economic History of Britain since 1700, Vol. 3, 2nd edition, 1994. Jean Shaul, ‘Railpolitik: The financial realities of operating Britain’s national railways’, in Francis Terry, Turning the Corner?, Blackwell, 2004.

Sawyer and O’Donnell, op. cit., p. 59.

John Foster, ‘What’s so wrong with public ownership?’, Morning Star, 23 June 2005.

Financial Times, 15 August 2005.

Financial Times, 24 August 2004.

R & D Scoreboard, Department of Trade and Industry website.

Chalmers Johnson, MITI and the Japanese Economic Miracle: The Growth of Industrial Policy 1925-1975, Stanford University Press, California, 1982. Roland Dore, Taking Japan Seriously, Athlone Press, 1988.

Roland Dore, Stock Market Capitalism:Welfare Capitalism: Japan and Germany versus the Anglo-Saxons, Oxford University Press, Oxford, 2000; p. 42. Michael E. Porter, Hirotaka Takeuchi and Mariko Sakakibara, Can Japan Compete?, Macmillan Press, London, 2000; p. 41-2. Ulrike Schaede, ‘The benefits of Shinboku: leveraging information exchange in Japanese industry associations’, in Horst Albach, Ulrike Schaede, and Rita Zobel (eds.), Information Processing as a Competitive Advantage of Japanese Firms, Sigma, Berlin, 1999. Ulrike Schaede, Cooperative Capitalism: SelfRegulation, Trade Associations and the Antimonopoly Law in Japan, Oxford University Press, Oxford, 2000.

Christopher Wood, The Bubble Economy: The Japanese Economic Collapse, Charles E. Tuttle Company, Tokyo, 1993.

Hall and Soskice, op. cit., p. 25.

‘Policies for industry do more harm than good’, Financial Times, 7 May 2003.

Joseph Huff-Hannon, ‘The pollen and the bees’, New Internationalist, No. 368, June 2004 [Special issue on co-operatives].

For a more detailed account of this dramatic and inspirational story, from the horse’s mouth, as it were, see Tyrone O’Sullivan with John Eve and Ann Edworthy, Tower of Strength: The Story of Tyrone O’Sullivan and Tower Colliery, Mainstream Publishing, Edinburgh and London, 2001. See also, Scott Cato, op. cit., Chapter 7, ‘Tower of Strength, Beacon of Hope: A Case Study of Tower Colliery’, and Michael Thomas, Death of an Industry: South Wales Mining and its Decline in a Global Context, Colben Systems Pte. Ltd., Singapore, 2004, Chapter 18, ‘ The Miners’ Next Step – and Their Final One’. In addition, an opera has been written about Tower by the Welsh composer, Alun Hodinott. It had its premier in the Grand Theatre, Swansea, on 23 October 2000, and has played at several other venues in Wales since. Furthermore, a French documentary film, Charbon Ardents (Burning Coal) has been made by French director Jean-Michel Carré, and at the time of writing, a British feature film, scripted

by Colin Welland, is in the process of being made.

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