Blind faith is destroying British industry

Peter Mandelson, writing in the New Statesman (‘Mind the gap’,20.2.2012), expresses the problem for the UK left in one plaintive sentence: “We still have to have faith in the basic model of an open and competitive market.” Well, no we don’t! Misplaced faith in such broad generalisations is what got us into this mess and is still keeping us there. Mandelson sounds very like Transport Secretary Philip Hammond proclaiming his fervent belief in “free trade and open markets” when he announced the award of the £1.4billion Thameslink contract to Siemens, rather than to Derby’s Bombardier, UK’s last rail producer. Blind commitment to such generalised dogma has led us into all sorts of destruction from which it will be difficult to escape. German and French politicians aren’t so naïve. Nor, when push comes to shove, are the Americans – ask General Motors!

The combination of ‘open’ and ‘competitive’ is itself problematic. ‘Open’ suggests a minimum of control and regulation, but for a market to remain ‘competitive’ requires specific control and regulation. This is because the natural unregulated outcome of competitive markets is for the most successful competitor to become dominant. The natural outcome of competition is monopoly. Competitive markets used to be protected by the Office of Fair Trading (OFT) and the Competition Commission, acting to prevent the establishment of dominant market positions. For example, a merger or acquisition which would result in a market share of 20% or more warranted their consideration. The current legislation specifically allows the creation of dominant market positions. The only restrictions apply to the abuse of a dominant position, or the operation of a price fixing cartel.
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Anglo-American Post-Industrial Waste

The idea of the life cycle is widely applicable, from products and industries to something as simple as a lighted candle, or even something as complex as a whole economy. It depicts four distinct stages: start up, growth, maturity and decline. The early stages are slow with typically many false starts, but once a particular approach is established, growth takes off. For example, the factory system in 18th century England. During this growth phase innovation dominates, with new technologies applied to produce genuinely new products with more features and better performance. In due course, generally accepted standards of performance emerge as growth slows into maturity. During this critical transition to maturity there will be a radical reassessment of growth projections and fierce competition will force the weakest to withdraw.

During the ensuing, relatively stable mature phase, the emphasis of innovation tends to move from product to process, where innovations are largely aimed at reducing costs and improving efficiency. That phase comes to an end when either a completely new technology takes over or some other structural change eliminates the existing; maybe something like globalisation. Again the reduction in future expectations will cause intensified competition and force out marginal units.
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Why Bankers’ Bonuses Matter

It is barely four months since Bob Diamond’s BBC lecture about how banks might restore public trust, which he acknowledged was then sadly lacking. He avoided discussion of excessive bonuses for doing not very much, and also the casino banking which got us into this trouble and for which he was responsible at Barclays. His lecture hardly revealed a man of super intellect, rather one who happened “to have been in the right place at the right time” (see http://www.gordonpearson.co.uk/06/talent-for-being-in-the-right-place-at-the-right-time/). Now, here we are again with bonuses being declared, but with Bob still being coyly reticent about his own take.

According to Peter Drucker, when bosses over indulge themselves at the corporate trough, they lose the respect of people within their organisation. Yet, while paying himself around £5.4m the previous year, Bob lectured that “if you can’t work well with your colleagues, with trust and integrity, you can’t be on the team.” Bob adopts the long discredited ‘rewarding success’ and ‘departure of talent’ defences of banker’s bonuses. He clearly doesn’t recognise Drucker’s ‘hatred, contempt and fury’ among his people at Barclays. Presumably that’s because he doesn’t see much of them, or because those he does see have their trotters in the same trough.
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Sustainable Wealth of Nations

During the initial phase of industrialisation, Adam Smith argued that a nation’s supply of ‘wants and conveniences’ depended mostly on the ‘skill, dexterity and judgment’ of its workers and the extent to which they were employed. His example was the pin factory in which, through specialisation of work tasks, productivity could be multiplied many thousand fold, so that workers in an industrialised nation could enjoy a hugely enhanced standard of living. Smith argued that the wealthy should pay a greater portion of their income in taxes so the nation could provide education, for example, for the less well-off to compensate for the ‘mental mutilation’ caused by the boring, repetitive nature of their ‘specialised’ work.

So how did we get from that position, identified by the father confessor of industrial capitalism, to where we are today, with the Bob Diamonds, Fred Goodwins and Philip Greens of our world being paid zillions for not very much, the less well-off paying proportionately most in taxes and today’s pin factories run by ‘ruthlessly hard-driving, strictly top-down, command-and-control focused, shareholder-value obsessed, win-at-any-cost business leaders’? One explanation is provided in The Road to Co-operation.
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