In the City
On management and men
Nicholas Davenport
The world is becoming extraordinarily mad, and very dangerous, but as I have no wish to emulate my old doomster friend Ambassador Peter Jay, Twill confine this column to the exposure of madness, when I see it, in the economic and financial world. I must refer again to the recent madness in the gilt-edged market, although it is becoming a bore. As a result of the bungling by the Bank of England and the City institutions the sales of gilt-edged stock to the non-bank public in June were far more than was necessary to offset the money-inflation of the public sector borrowing requirement — the printing press — of £8.5 billion. (The gross gilt sales last month, after the exhaustion of the two 'tap' stocks, must have been in excess of £1,500 million.) The cost to the public was a rise in Bank rate to 10 per cent and in the house mortgage rate to 9i per cent —deflationary at first but inflationary in the long run.
There is now talk of Bank rate moving up to 12 per cent, which would be another madness. Tim Congdon, the Me sse I economist, reveals in his weekly Monitor how mad this would be. In 1975 Bank rate was consistently beneath 12 per cent (apart from a few weeks in October and November) while the inflation rate was over 20 per cent and the public sector borrowing requirement was equivalent to 10 per cent of the national income. In 1978 the inflation rate is down below 10 per cent (temporarily) and the PSBR is 5 per cent of the national income. Of course, the PSBR has got to come down but dearer money is not the way to do it. We may even have to have a change of government to get it done.
Madness burst out in the steel industry last week when the union bosses threatened a strike because the British Steel Corporation told them that it wanted to close down the whole of the carbon steels plant at Bilston, Staffordshire, by March next year with the loss of 2,400 jobs. Sir Charles Villiers, the head of British Steel, warned them that bulk steel-making in Britain was in jeopardy. The men were furious and now regard Sir Charles as public enemy number one. He presides over a loss of £440 million a year — a continuing loss. This madness stems from the wrong application of industrial democracy. The Steel Board made a great song about putting steel workers on their regional boards but what is the point of having a board of directors divided into two opposing classes with opposing aims? Industrial democracy should be confined to joint planning committees of managers and workers. The actual board of management is a scientific job to be entrusted to skilled professional managers who are trained to get the maximum output at the minimum cost.
The nationalised industries are, of course, a headache — economically and financially — and will eventually have to be denationalised. This can be done, as I have suggested, by 'unitising' each industry and converting it to a public unit trust, allotting the workers 25 per cent of the equity. Joint planning committees of workers and managers would decide how best to run the industry, how best to get the maximum output out of the minimum labour cost, and when the workers realise that the higher the productivity they achieve, the higher will be the dividend paid on their equity units, they will begin to feel part of the national show and put their backs into making it a financial success. At the moment we are a dangerously split society.
Joe Gormley cries out that if Mrs Thatcher denationalises the coal industry there will not be a 'knob' of coal produced in Britain. Mrs Thatcher is no fool and is more likely to hand over coal to a coal unit trust on a fifty-fifty basis if a productivity rise were guaranteed. But there would have to be a change in the tax law. Dividends on nationalised unit trust units held by workers would have to be taxed at the earned rate, not the investment rate.
The only alternative to the unitisation of the nationalised industries would be 'cooperatives'. A Bill has recently gone through Parliament called the Cooperative Development Agency Bill which gives power to the government to launch a new agency which will promote the creation and expansion of commercial co-operative enterprises. Even Tories seemed to be in favour of it. It was the vision of doomster Peter Jay — before he assumed ambassadorial rank — that Parliament, confronted with irreconcilable forces, would finally hand over everything to worker cooperatives. I used to point out that very few co-operatives had ever been commercially successful. Only about twenty survive in the UK and fewer in the US. In France there are about 500 with a labour force of 30,000. The only great success is the Mondragon group of co-operatives in the Basque provinces of Spain — but the Spanish are rare and peculiar people. My objection is that Cooperatives tend to ignore the importance of management. A worker is not a manager and if he is trained to become one he ceases to be a worker. The success of the John Lewis so-called co-operative is the brilliance of its separated management. So we must beware of this political move behind the Co-operative Development Agency, it may be the sugar coating to the Clause 4 'socialisation of all the means of production, distribution and exchange' with which the leftists of the Labour Party hope to introduce the communist state into Britain and join the Russian bloc.
Whenever a professional manager of one of the great investment institutions in the City decides to commit a million or two to the equity shares of a company quoted on the Stock Exchange the first question he asks is about the quality of the management. So I am not exaggerating the importance of management skill. The first example which comes to mind is Sir Arnold Weinstock of GEC but there are many examples of fine management in smaller companies. That is why I think it foolish to sell the equity of a well-managed company in these dangerous times. The most difficult company to manage is the conglomerate but Nigel Broackes and Victor Matthews of Trafalgar House have earned their good market reputation and when Victor warns the trade unions that he may have to close down in Fleet Street we know that a sound manager is talking.
I would not like this commentary on management to leave the impression that there is not good management in the public boards. Our gas is good and cheap. The management success of Sir Peter Parker, chairman of the Railway Board, is recognised on all sides. But the management apparatus set up by the nationalisation of great industries by Labour governments has been appalling. The misapplication of industrial democracy has been disastrous. The confrontation it has created in our split society is the most dangerous element in the mad world we have created.
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