What happened in paper-making during the 1980s and 1990s illustrates the central theme of this book – the delayed modernisation of British industry. For the first decade after the war British paper-makers led a comfortable existence. Domestic demand was strong, and import competition was restrained by tariffs and quotas. These easy conditions came to an abrupt end in 1959 when the Conservative government under Harold Macmillan decided to participate in the European Free Trade Association (EFTA). This was a grouping of countries outside the six-nation Common Market, and it included Sweden and Finland, both of which had large, efficient paper industries based on cheap electricity and ample supplies of wood.1
As tariffs among the EFTA countries came down, the Nordic paper producers used their cost advantage to increase their exports to Britain. British firms strove to come to terms with a difficult trading environment. Mills and machines were closed down, and some of the leading British companies lost faith in the industry’s future. But the economics of paper-making in Britain were not as unfavourable as the pessimists supposed. For some grades of paper, being near to the market turned out to be more important than being near to the forests. In addition, Britain had a man-made ‘forest’ of its own: improvements in recycling technology created new opportunities for using waste paper instead of imported woodpulp as the feedstock for paper production. The gloom began to lift in the early 1980s, and over the next fifteen years a remarkable transformation of the industry took place, involving new investment and changes of ownership. Some of the new projects, like the Aylesford newsprint machine, were undertaken by foreign companies. But there was also a new spirit of confidence among the surviving British-owned firms, targeting sectors of the market where a UK-based producer could compete successfully against imports.
A similar chain of events took place in other industries: profitable growth in the first few years after the war, a struggle to cope with increasing international competition in the 1960s and 1970s, and, finally, integration into the world market. The form which integration took varied according to the circumstances of each industry and the amount of ground that had been lost in earlier years. The revival of the British motor industry, for example, which had almost been given up for dead at the end of the 1970s, owed a great deal to the decision by three Japanese companies – Toyota, Honda and Nissan – to choose Britain as the site of their first European assembly plants. By the end of the 1990s, after Jaguar had been bought by Ford, Rover by BMW and Rolls-Royce Motors by Volkswagen, virtually the whole of the British motor industry had passed into foreign control. While this was a blow to national pride, the willingness of these companies to invest on a large scale in British car factories was an indication of how much had changed since the dark days of the 1970s.
With or without the involvement of foreign companies, the 1980s saw a vigorous effort throughout British industry to correct past mistakes and to build defensible positions in the world market. Guest Keen and Nettlefolds (GKN) was an old-established company which had diversified in the inter-war years from its original base in steel-making into a wide range of steel-using businesses, and it continued to do so in the 1950s and 1960s. Most of its sales were to customers in Britain and the Commonwealth. In the second half of the 1970s, when competition increased and profits came under pressure, a new approach was necessary. As Trevor Holdsworth, chairman of the company from 1979 to 1986, put it later: ‘We were drifting uncertainly into the future without a clear strategy. A new generation of senior executives was emerging and we set about trying to make sense of our inheritance. We had to find new products, new technology and we had to spread internationally.’2 The chosen path for expansion was in vehicle components, and over the next decade GKN converted itself into a leading supplier to the world motor industry, with a strong market position in Continental Europe and the US. Other companies went through similar upheavals. The common elements were specialisation and internationalisation, and a drive to raise manufacturing efficiency closer to the best world standards.
What precipitated these changes? Why did they occur in the 1980s, and not thirty years earlier?
During the 1970s a series of shocks – Britain’s entry into the Common Market, the rise of Japan and the newly industrialising countries, the slowdown in the world economy after the first oil crisis – exposed weaknesses in British industry which had been partially obscured and more easily tolerated in the earlier post-war years. By the end of the decade companies such as GKN were forced to take a more critical look at themselves, and decide which of their businesses, if any, could compete on the world stage.
These external pressures coincided with a change in the political climate within Britain. The election of a Conservative government under Margaret Thatcher in May 1979 heralded a break with the past in the management of the economy. A fierce determination to defeat inflation through strict monetary and fiscal policies was combined with a greater emphasis on competition and deregulation. Virtually all the industries which had been nationalised since 1945 – and some, like the telephone network, which had been in government hands for much longer – were transferred to the private sector. The labour relations system, which had been partly responsible for Britain’s reputation as the sick man of Europe, was drastically reformed.
A third ingredient was the phenomenon which came to be known as globalisation. During the 1980s increasing cross-border investment altered the structure of several major industries, paper and cars being two notable examples. Many of the world’s leading companies built or acquired factories in their major markets, and organised their manufacturing and distribution on an international basis. Britain benefited from this process because, thanks to Margaret Thatcher, it had become a more attractive location for investment. The Conservative government was also more relaxed than its predecessors about allowing former ‘national champions’ to be acquired by foreign companies; no objection was raised when BMW bought Rover, or when ICL, the computer manufacturer, was sold to Fujitsu of Japan.
The combined effect of international competition, domestic policy reform and foreign investment brought to an end a long period in which productivity in British manufacturing had grown more slowly than in other European countries (TABLE 1.1). After years of falling behind, Britain was catching up.
This book describes how the transition came about. It focuses on firms and the people who ran them, and on the domestic and international environment in which they were operating. The aim is to identify the reasons for Britain’s poor industrial performance, compared to other European countries, in the first thirty years after the war, and to assess the significance of the changes that occurred in the 1980s and 1990s.
TABLE 1.1 Labour productivity in manufacturing 1960–95
What firms can do in international competition is constrained by the economics of the industry they are competing in and by the conditions which they face in their home base: countries provide a better ‘global platform’ for some industries than for others.3 In some cases companies may derive a competitive advantage from the size and character of domestic demand for their products. In others the crucial factor may be ease of access to essential raw materials. But the most important influence on the international competitiveness of companies, especially in manufacturing, is the extent to which they are helped or hindered by national institutions and policies. To take one example, the US has developed since the Second World War a large and sophisticated community of venture capitalists, who have supported the growth of start-up firms in high-technology industries such as electronics and biotechnology. While access to venture capital is not the only reason for the success of American companies in these industries,