A second industrial revolution? MONEY
NICHOLAS DAVENPORT
If the Government is really studying ways and means of extending the public ownership of industry its first resolve should be never to repeat the expensive process of the steel nationalisation. On Monday steel shares were quoted for the first time ex the dividends de- clared by the private managements and the Government broker was busy supporting the market at 1- per cent discount on the fixed compensation prices. If it were not for this charitable support steel shares would be sell- ing at about half their present prices, some above and some below, for the industry is working at only 75 per cent capacity and many companies at this level of activity must be making losses rather than profits.
The Industrial Reorganisation Corporation, which has been formed by the Government to promote mergers within the industries which need rationalisation, could undoubtedly have carried out the mergers in the steel industry which were considered necessary to cheapen output and help meet foreign competition. And the expense of its promotions with the added boost of some new capital would probably have been of the order of £100 million. But about £500 million of government stock has now to be issued to the former holders of steel prior charges and equity shares, to the great delight of Stock Exchange jobbers and brokers, who are doing a huge trade, and many former owners. The net price paid for the charade of old-fashioned doctrinaire socialism is therefore of the order of £400 million. This will fall on the budget account and not only disturb our foreign creditors but confirm M Couve de Mur- ville in his catankerous view that the British government cannot be admitted to the Com- mon Market because it has too many debts.
If the takeover of an entire industry on these foolish lines is to be avoided in future, what did Mr Michael Stewart mean when he said recently that the Government was con- sidering the extension of public ownership? Not apparently on ideological grounds; nor on the grounds that the IRC existed for this purpose. This worthy body, which started with a banker managing director lent by Sir Sigmund Warburg, is no longer deemed to be equipped for the task of industrial reorganisation. It is very useful for promoting mergers, as I have said, and for providing a meeting place where company directors can meet to discuss them. It helped to bring about the excellent merger of English Electric and Elliott-Automation, putting up the f15 million cash which made it possible. But being banker-conceived and not staffed by industrial experts, the IRC is not technically equipped to bring about the re- organisation of an industry.
Take, for example, the wool textile industry, which is facing disaster from the competition of man-made fibres and a falling export trade. The proposed merger between United Drapery and Montague Burton, which is a large buyer of worsteds, would make a reorganisation of the woollen textile industry imperative and urgent, but the IRC has not the slightest idea how to bring this about. It needs an indus- trial genius to carry out an industrial re- construction. So the IRC is now apparently regarded at the DEA as a banking set- up for bringing opinionated and difficult chair- men together for gentlemanly talks in industries which have too many units. It is, of course, doing good work. It is now making inquiries into certain industries. For example, telecom- munications, where bottlenecks are holding up the fulfilment of Post Office contracts. But the IRC is not intended to be the government in- strument for carrying out the vital reconstruc- tion of an industry which the Prime Minister regards as essential for the economic salvation of Britain.
What Mr Stewart appears to have in mind is the creation of a new financial agency which will do for large industrial companies what the Industrial and Commercial Finance Cor- poration does for small companies: that is, provide cheap loan capital and take a slice of the equity in return for management help. If necessary, this agency could set up joint public-cum-private-enterprise concerns to oper- ate in competition with existing private com- panies. In the House'of Commons this week the Prime Minister explained that to give the finan- cial agency teeth it would be necessary to pass an Enabling Bill to allow the Government to acquire shares in companies in the private sector which it wished either to rescue or to stimulate for export or import-saving purposes. These shares would be acquired by consent not by compulsion and would not necessarily give the Government a controlling interest. To what ex- tent the Government through its financial agency would try to influence or direct manage- ment decision in the companies in which it would take an interest has not been thought out. The danger would be that government inter- ference with management direction would be insufficiently profit-minded to make a commer- cial success of the companies chosen.
The trouble about all government-inspired public enterprise is that commercial and politi- cal aims generally conflict. The politicians want to increase employment so that they may win votes for the next election. The profit-minded businessman wants to cut his labour force in order to cheapen his unit cost of output and enhance the price-competitiveness of his products. The politicians will bribe manufac- turers to build factories in the `development' areas of high unemployment, but the business- man will want to site his factory where it is most economically placed for production. The • reason why some steel companies in Britain cannot compete with steel companies abroad is because they were originally sited in areas where there was large unemployment, but these areas generally had no deep-water facilities for the large iron-ore carriers.
The scientific reconstruction of an industry has for its economic aim the employment of fewer work people, not more, so that its pro- ducts can better compete in price with foreign manufactures at home and abroad. One of the worst economic mistakes made by the Govern- ment was to introduce SET in order to sub- sidise employment in manufacturing industry. Only when our manufacturing industry em- ploys fewer workpeople will it compete more efficiently in international trade.
The steel nationalisation plan brings home the dangers of an extension of public enter- prise in an industry which has to compete in the world's markets. In the interest of 'indus- trial democracy' the TUC and the National Steel Corporation have agreed that workers should sit on boards in their own areas but should give up all their union activities. This means that the workers on steel boards will become `bosses' men' in the eyes of their former union members and will tend to be chosen for their willingness to cooperate with the managements. In fact, all the steel boards will tend to be appointed for their abilities to cooperate and lie down with the Establishment. Hardly the state of mind which ushers in the new industrial revolution dreamed of by the Prime Minister.
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