In the meantime a small time bomb was ticking away in another part of the Whitehall machine. In 1965 the Board of Trade had asked the Monopolies Commission to examine the rayon market. This was in line with the established policy, dating back to the Monopolies and Restrictive Practices Act of 1948, whereby industries in which a single company accounted for more than half the market could be subjected to review by the Commission. Courtaulds was virtually the sole supplier of rayon, and the Commission had to decide whether its dominance adversely affected the public interest. Kearton and his colleagues were upset that the Board of Trade had referred them to the Commission, pointing out that any monopoly power which Courtaulds might enjoy in rayon was constrained by competition from other fibres. They were even more upset when the Commission found, in its report of 1968, that the company’s monopoly in rayon was against the public interest, and recommended that Courtaulds should be barred from making further acquisitions in textiles if such acquisitions gave it more than 25 per cent of the relevant market.40
This left the government in a dilemma, committed to two apparently contradictory policies – promoting mergers with one hand, attacking monopoly with the other. While the government delayed its response to the Commission’s report, Courtaulds announced, in January 1969, yet another large take-over bid, for English Calico. This was the last straw for the ICI directors. They feared that, if the bid went through, Courtaulds would have such a tight grip on the textile industry that their own fibre business would be at risk. They hatched an alternative scheme whereby English Calico, Carrington & Dewhurst and several other firms would come together in a consortium, with ICI holding a 40 per cent stake. At the same time they pressed the Board of Trade to block the Courtaulds bid. Faced with this ‘confrontation between two great powers’,41 the government set up a committee. Edmund Dell, Minister of State at the Board of Trade, conducted an inquiry into the structure of the industry, which concluded by recommending a temporary standstill on mergers among the five major textile groups – Courtaulds, Viyella, Carrington & Dewhurst, English Calico and Coats Patons.42
The weakest of these five was Carrington & Dewhurst, which with ICI’s money behind it had embarked on a series of ill-judged acquisitions, culminating in a disastrous attempt to establish Crimplene, ICI’s brand name for textured polyester filament yarn, in West Germany. As the largest shareholder and a major fibre supplier, ICI could not afford to let the company collapse. The solution was to merge it with Viyella, which, though no longer financially linked to ICI, was an important customer for its fibres. In December 1969, Joe Hyman, who had fallen out with his fellow directors, was dismissed from his post as chairman. ICI promptly announced its intention to bid for Viyella and then to sell it to Carrington & Dewhurst. This would give ICI 64 per cent of the combined company and contravene the government’s merger standstill. Another government committee was set up, this time under Harold Lever, the Paymaster General, who recommended that ICI should be allowed to go ahead with the Carrington/Viyella merger, on condition that it reduced its voting power to not more than 35 per cent. The merger provided a short-term solution for Carrington’s problems, but had the unfortunate consequence of weakening Viyella, which had been one of the most progressive firms in the industry. Viyella’s senior managers opposed the merger, and several of them left shortly after it was completed. The new company, known as Carrington Viyella, never achieved the sense of mission which Hyman had briefly inspired in the 1960s.
The purpose of all this take-over activity, confused though it was by inter-company rivalries, was to strengthen the competitiveness of the industry. How well it had done so was one of the questions addressed in the Textile Council’s report, commissioned by the government in 1967 and finally published in March 1969.43 Not surprisingly, given the role played by Courtaulds in drawing up the report, the Council concluded that the restructuring process had been wholly beneficial. Pointing to the modernisation and re-equipment which was then under way, the report predicted that costs in cotton spinning and weaving would be reduced by 25 per cent and that by the mid-1970s the leading firms would be at least as efficient as their Continental counterparts. The shift towards scale and vertical integration would make possible longer production runs, better quality control and more effective monitoring of stocks at each stage in the production chain. The one proviso was that the government must take a firmer line on imports. The government welcomed the report, agreed with its conclusions, and – in a decision which was seen in the industry as marking a fundamental change of policy – announced that tariffs on Commonwealth imports would be imposed from the start of 1972.44 Lancashire seemed set for a fresh start.
The 1970s: The Grand Design Unravels
The 1960s were a decade in which managers, politicians and financiers had an exaggerated belief in mergers as a means of improving industrial performance. A few industries benefited from greater concentration, notably the electrical industry which is discussed in Chapter 8, but most of the others did not, the extreme case being the failure of British Leyland Motor Corporation (Chapter 9). Kearton’s grand design, applauded by the government and praised by most outside commentators, was flawed in two major respects.
First, it was based on a misreading of the market. The expectation was that a modernised industry, producing long runs of yarns and fabrics, would compete profitably against low-cost imports and become a major exporter to other European countries. But the commodity products which were the main focus of Courtaulds’ investment programme continued to be subject to fierce price competition, and the shift to a capital-intensive mode of production could not prevent a further loss of market share to imports from developing countries, even with the higher levels of protection which came into force in 1972. Moreover, the European market was very different from that of the US, being less homogeneous and more geared towards design and quality. Instead of a growing demand for standard, mass-produced fabrics, European consumers wanted more differentiated, more colourful and more stylish fabrics. This called for flexibility on the part of textile manufacturers and quick response to changing fashions. The structure which Kearton had put in place was not well suited for these conditions.
The second mistake was to under-estimate the disadvantages of vertical integration. The use of textile and garment companies as captive outlets for fibres was to tackle the problem from the wrong end: the fibre supplier, not the customer, called the tune. It was a technocratic approach which perhaps suited Kearton’s background and experience, but the management skills required for the mass production of fibres were different from those needed in textiles and clothing. The synergies which were supposed to flow from putting the various stages in the production process under single ownership were largely illusory.
The cracks in the grand design first became evident during the recession which followed the first oil shock at the end of 1973. This coincided with Britain’s entry into the Common Market, and the home market came under attack from Continental fabric suppliers, which over the preceding decade had pursued a very different strategy from Courtaulds. Instead of scale and standardisation, they had put more emphasis on design and technical innovation. Imports from the Continent rose sharply in the second half of the 1970s, and the British textile industry, having neglected European markets in the 1950s and 1960s, was not well equipped to respond. With some exceptions at the top end of the market, British manufacturers lacked products suitable for European consumers, and had little experience of marketing and distribution on the Continent.
Kearton retired from the chairmanship of Courtaulds in 1975. His successor, Arthur Knight, brought more order into an organisation which had been built up in a highly personal way by his predecessor; a new divisional structure was introduced, with clearer lines of accountability. Knight also began to reverse the policy of vertical integration, giving managers of each business greater freedom to buy or sell in the best market, instead of being tied to in-house suppliers and customers. But the fundamental problem was an excess of spinning and weaving capacity, planned for a market which had not materialised. One of the large new weaving plants, at Skelmersdale, was closed down in 1977, and there