Institutions and policies have been central to the long-running controversy about British industrial decline. Three culprits which have figured prominently in the debate – the financial system, the training and education system and the labour relations system – are given special attention in this book. The financial system is accused of failing to provide manufacturing companies with the constructive, long-term support which is available in other countries. The education system has been criticised for being too detached from the world of industry, leading to an inadequate supply of technical and managerial skills. The labour relations system is held responsible for the collapse of strike-prone industries such as shipbuilding and cars, and more generally for the slow growth of productivity in British industry as a whole between the 1950s and the 1970s. These institutional weaknesses have been aggravated, some commentators believe, by policy errors on the part of post-war governments. The management of the economy has been erratic, while micro-economic or ‘supply-side’ policies, ranging from nationalisation to the promotion of mergers, have often been ill-considered and counter-productive.
Opinions differ about the relative importance of these factors, and about the extent to which some of the alleged weaknesses – for example, the ‘short-termism’ of British financial markets – continue to put British firms at a disadvantage today. This book seeks to shed light on these issues by making comparisons across countries and across industries. It examines how British firms in a number of major industries responded to international competition after the Second World War, and compares their response with that of their counterparts in other European countries, principally Germany and France; the list of industries covered is set out in TABLE 1.2.
Some British industries did better than others, and the same was true in the two Continental countries. At the end of the 1990s British-owned firms ranked among the world leaders in chemicals and pharmaceuticals, but not in cars. German companies were outstandingly successful in mechanical engineering, but not in computers or television sets. French manufacturers out-performed their British counterparts in cars, but not in machine tools. The purpose of the industry case studies contained in later chapters is to explore the reasons for these national strengths and weaknesses, and thus to illuminate the larger question of how institutions and policies have affected industrial performance.
In studying the interaction between firms, industries and nations, history matters at all three levels. Although the book is primarily concerned with events after 1945, each of the case studies begins by examining the earlier history of the firms and industries concerned. Did British industry enter the post-war period with managerial and technical weaknesses inherited from the past, or was its poor performance after 1945 due to the things that were done or not done in the post-war period itself?
This is a book about British manufacturing, not about the British economy. The focus on manufacturing is not meant to imply that making things is a more important activity than providing services. The proportion of the workforce employed in manufacturing has been declining for many years in Britain, as it has in other industrial countries, and the trend is certain to continue. A nation’s economic strength cannot be considered in terms of manufacturing alone, and some might argue that, by excluding non-manufacturing sectors such as the media and financial services, this book is underplaying the things which British firms are good at. Nevertheless, the post-war history of British manufacturing is a large and complex subject in its own right, and the focus on this part of the economy seems justified in view of the many unresolved controversies which surround it.
TABLE 1.2 The case study industries in 1988
The Consequences of Coming First
There is a widely held view that British industrial decline began in the closing decades of the nineteenth century and has continued remorselessly ever since. According to this account, British entrepreneurs, having led the world in the first industrial revolution, failed to adapt to competition from the two late-industrialising countries, Germany and the US. British industry was locked into a set of institutions and management practices which had become obsolete. The financial system was not well organised to supply risk capital for the new industries of the second industrial revolution; the education system did not produce enough scientists and engineers; and the labour relations system slowed down the introduction of new manufacturing methods.
It is certainly true that Britain was caught up by the US and Germany between 1870 and 1914. It is also true that the institutions and capabilities which the two late-comers developed were different from those on which the British industrial revolution had been based. One well-known example is the emergence in Germany of the big universal banks, led by Deutsche Bank, which made long-term loans to their industrial clients and organised stock market flotations for them, while British banks concentrated almost entirely on short-term lending. Another is the creation in the US towards the end of the nineteenth century of large, professionally managed corporations, while British businessmen still clung to what Alfred Chandler, the American business historian, has called personal capitalism – a structure of small, family-controlled firms, lacking the economies of scale enjoyed by their US counterparts.1
A much-debated issue is whether Britain’s inability to match these and other innovations constitutes an entrepreneurial failure, and, if so, whether the failure was sufficiently serious and long-lasting to be relevant to what happened after 1945. Was it a disadvantage to have come first?
The Growth of British Industry from 1750 to 1870
Britain’s industrial revolution, which began in the second half of the eighteenth century, was driven by technological change in three sectors. The pace-setter was cotton textiles. The substitution of machines for human effort in the spinning and weaving of cotton generated a huge domestic and international demand for a fabric which had previously been too expensive to capture a mass market. Second, new iron-making techniques – the replacement of charcoal by coke in the smelting of iron ore and the ‘puddling’ process for refining pig iron – increased the supply and lowered the price of wrought iron, which became the building block of the industrial revolution.2 The third breakthrough was the steam engine, first used for pumping water out of coal-mines and later replacing water power in driving machinery of all kinds.
Why did this burst of technological progress occur in Britain and not elsewhere? France was arguably a richer economy at the start of the eighteenth century and more advanced in science. But Britain had several advantages which, taken together, made the industrial revolution possible.3 One was an ample supply of cheap and accessible coal. Another was an endowment of mechanical skills which had been built up in old-established trades such as clock-making and the manufacture of ship’s instruments. The great inventors and engineers of the industrial revolution were predominantly craftsmen, trained in the workshop, and their skills were practical rather than theoretical. Some of them worked closely with scientists, and their lack of formal education did not preclude ‘a rational faith in the orderliness and predictability of natural phenomena, even if the actual laws underlying physics and chemistry were not fully understood.’4 To describe them as tinkerers hardly does justice to their achievements, but they relied on experience and intuition, not on scientific knowledge.
The initial stimulus for exploiting these innovations came from domestic demand. Although society was organised hierarchically with the aristocrats at the top and the labouring poor at the bottom, differences in spending patterns were less extreme than in other parts of Europe. Britain was also a more unified economy than its European neighbours, with an efficient transport system, so that regions could specialise in particular industries, as Lancashire did in cotton textiles, and serve a national market.