Prosperity for Britain

PROSPERITY
for Britain


Michael Sartorius



A Plain Guide to Recession, Recovery and Prosperity




Published in 1994 by ARTON Publishers, Ringmer, Sussex, Britain.
This Edition revised in part: 2012.

ISBN 0 9522330 0 2



In a family, a business, a community or a nation,
if everyone is working
to the fullest extent of their desires and capabilities,
and if everyone working is doing so
as efficiently and productively as
current techniques and technology allow....
prosperity will not only be possible,
it will be inevitable.

This is not a matter of economic science;
it is simply commonsense.


CONTENTS


1: THE PROSPERITY-CHALLENGE

Prosperity yesterday, today. And tomorrow? / Prosperity and the Multiplier Eject /
Prosperity: a Matter of Teamwork / Productivity: the Key to Prosperity /
Prosperity and the Environment / Prosperity: a National Goal?

2: RECESSION & UNEMPLOYMENT

Employment Past and Present / Unemployment: Statistics and Reality / The Economic Cycle /
The Social Factor / Defining Inflation / Recession or Inflation: the Only Choice

3: LOW PRODUCTIVITY

Productivity and Prosperity / Productivity in a Viable Economy / The Downward Slope of Recession /
An Anti-Prosperity Society / Our Legacy to the Future / A High Performance Workplace?

4: INADEQUATE INVESTMENT

Invest or Die / Raising Investment: Stock Markets and Banks / Investment or Speculation? /
The Mechanics of Economic Expansion / Banking Discipline / A Sense of National Purpose

5: THE ROLE OF GOVERNMENT

Government and Prosperity / Defining the Role / Anarchy vs Rule of Law / How Much Law? /
Constitution: Regulating Government / Socially Responsible Free Enterprise

6: PROJECT-SECURED INVESTMENT

Money and Investment / Debts of Banks and Governments / Stock Markets to the Rescue? /
Project-Secured Investment for Industry / Investment Criteria / Historical Precedents

7: MAXIMIZING QUALITY & PRODUCTIVITY

Productivity: Potential and Reality / Quality and Social Responsibility / Mandated Productivity Standards /
Management Structure / Creating a Team Spirit / The Quality Effect

8: PAY & PRICE EVALUATION

Rules or Dispute? / Job Evaluation: the Basis of Value / A Tried and Tested Science /
All Levels of Remuneration / The Pay-Price Gap / Productivity and 'Negative Inflation'

9: ESSENTIAL SERVICES

Non-government Business / Market Simulation / Performance Supervision /
Charges and Subsidies / Positive Welfare / A Well State

10: PROSPERITY & THE ENVIRONMENT

This Green and Pleasant Land? / Historical Development of Resources-Use /
Government and Resources-Use Planning / Re-thinking the City /
Urban Development and Transport / The Prosperity Revolution




ONE:
THE CHALLENGE OF PROSPERITY


Prosperity yesterday, today. And tomorrow?

The British are not exactly famous for consensus. But we might come close to agreement on the proposition that life as we currently find it does not match our reasonable expectations or our potential. Nor is our present condition an appropriate reflection of our many and considerable historical achievements. Once Britain was a Great Nation, her greatness spanning the globe and several centuries. At least our past provides us with a tradition on which we can now look back, drawing a measure of comfort in our present times of difficulty.

Many older Britons look back with nostalgia to the mid and late 1930s. For those too young to remember, television recreates the mood and scenes impeccably, as we view through soft focus and tinted lens an idyllic time when village life was preserved, when steam engines puffed along branch lines through orderly countryside, when people expressed confidence and high ideals, when all was well in a stable and ordered society.

Others see the Victorian era as the period of Britain's real greatness. In those days every piece of worthwhile machinery was invented, designed and made with pride in Britain, good sturdy machines built to last. And last they did. Many relics of our Victorian industrial legacy can be found today in developing countries of British association still chugging on steadily and reliably, their makers' names and the cities of their birth emblazoned proudly on cast iron flanks and flywheels.

That was the time, too, when Britain boasted an Empire on which the Sun never set. Today, with imperialism firmly out of fashion, it seems strangely inappropriate when an elderly Indian guide in the city of Delhi gestures through the car window at the chaos of people, cows and stalls blocking all traffic movement and says, almost to himself, “it was never like this when the British were here”. Indeed many are the ex-colonial nations where the long-gone days of British rule are still remembered with affection; and though now proudly independent, their governments show a deep respect for the Commonwealth and the values of tolerance, stability and justice which it represents.

It seems that wherever one travels around the world there are constant reminders of Britain's influence, often in the most unlikely places.

In the middle of Lautoka, a sugar mill town on the Fijian island of Viti Levu, there's a Green much like any English Village Green except for the flaming red flowers on the surrounding trees. At one side of the Green stands a perfect replica of an English Public Convenience. In the centre is a cricket pitch; games are played regularly and enthusiastically, the players' dark-skinned faces contrasting with their traditional white slacks and shirts. Cricket and Public Convenience. Britain it would seem has left a legacy of fair play and public hygiene. Not a bad epitaph.

Mount Koya is a place of monasteries and retreat situated in the mists high above the ancient city of Kyoto, Japan, where Japanese intellectuals and businesspeople spend a few days to reflect and recuperate their forces. It is the custom to review the guest list and to visit one's fellow guests in the evening for quiet conversation. Travellers from England are rare birds, and may certainly expect a social visitor, tapping gently on the sliding door then opening it a fraction to ask if conversation would be convenient.

One such visitor was a Japanese schoolmaster. He spoke faultless English and explained that he studies Shakespeare's plays one each month on a regular cycle. He said how much he respects the traditions which Britain stands for, and he wondered aloud how such a small island could have so influenced the world.

Indeed, Britain's greatness and its contributions to civilization stretch back far beyond Victorian machinery and the Empire, beyond Shakespeare and the age of world exploration when Britain mapped a world of which the geographical centre was and still is Longitude Zero at Greenwich. One of our most notable contributions was the Magna Carta of 1215, that famous document generally regarded as the world's first and still most respected Constitution, which was itself only a confirmation of long-held rights and liberties.

The central idea embodied in the Magna Carta, that rule, by whomsoever, should be subject to constitutional disciplines, was perhaps Britain's greatest contribution to civilization. lts seeds were transplanted throughout the world where they grew and flourished, in the great Philadelphia debates of 1787 on the drafting of the American Constitution, in Australia, New Zealand, Canada, India, and many other countries of British association once coloured Empire Pink in the Great World Atlas.

But the past is past. Things have changed and the days of Greatness are gone. Now recession, declining industry, a distinct fraying and fadedness, unemployment and homelessness are permanently entrenched as integral and apparently immovable components of British society. We pretend not to notice, hoping that better times may come and surviving meanwhile on the lingering reputation of our more prestigious history.

Now is not a good time to make an assessment, optimists may suggest. That is if there are any optimists left. We have recently endured our worst economic recession to date. Perhaps we can now look forward to a little growth. Perhaps indeed. But how long, on past experience, would it last? The fact is that our present condition is not the product of recent events; it is the culmination of an economic descent which has continued virtually unchecked for at least the last quarter century.

With the benefit of hindsight we can now see that Britain's decline began after the first world war, then accelerated after the second. But it was only during the eighties that the fact of our relative decline gained wider acceptance; now there are few indeed who do not accept it. ln seven years since 1986 Britain's industrial production has managed a 3.5% increase, compared with 14% in the USA and 21% in Germany. That's the good news. So far the 1990s are not looking so good. In the first two years of the 1990s our industrial output has fallen by almost 10%, and job losses continue unabated. Decline is almost becoming a free-fall. Statistics confirm what personal experience tells us all: decline is our present reality and future prospect.

Industrial productivity, pride and competitiveness have given way to survival. And our traditional heritage, the historic towns and villages, the country lanes, the fields, the Britain pictured in the calendars we send at Christmastime to long emigrated relatives abroad, all of this is disappearing because we no longer have the prosperity to maintain it nor the pride in ourselves and what we stand for.

Though a few may prosper individually, our relative national prosperity declines. We look at other countries we once considered our equals; we see them doing what we should be doing, overtaking us, finally leaving us far behind. Then we look around our own country, at the wear and tear we can't afford to repair as time unfeelingly fades our old glory.

As we contemplate the accumulation of decline, the overcrowded roads, inadequate infrastructure, rundown public transport, the decrepit state of much of our housing stock, the job losses and factory closures and our overall lack of world competitiveness, prosperity would seem an appropriate national goal.

Inevitably however, some will question whether we can focus on prosperity as a single one-word goal for the Nation. Certainly there are other factors equally if not more important, like social justice, care for the environment, spiritual growth and values. But it can clearly be shown that these wider attributes of a just, unpolluted and rewarding life are achieved as a result of prosperity, not an alternative.

Prosperity and the Multiplier Effect

Perhaps the first major question we will ask about prosperity however, particularly in Britain, is: who gets to enjoy it? Is it for the few, or can we create prosperity for all? The simple answer is that we must create a broadly based prosperity. Individual incentive remains a strong driving force, but an individual cannot prosper unless his or her business prospers, and a business will surely prosper more readily if there is a broad domestic market to support it.

Japanese industries have a wealthy and enthusiastic home market for every new appliance and electronic device which guarantees them a substantial initial sale. Undeveloped countries, in contrast, lack that foundation of a substantial home market. The moral of these two extreme examples is clear: your factory will prosper much more readily if there are customers close to home with the cash and the sophistication to buy your goods.

It is no use having a job and making products if your customers have no money to buy them. Our neighbouring town is dependent on a single major industry, and one day that industry closes down for good. Bad luck for them? Yes, and bad news for us all. The now unemployed workers in our neighbour-town will stop earning and spending. Then the local retail stores serving them will suffer a fall in trade and so place smaller orders with their suppliers in other areas of the country, thus spreading and compounding the effect to those still in work. The moral is clear: as workers and producers we are all dependent on having a market of consumers. And our consumers are dependent on having jobs themselves.

Prosperity must be a national, rather than a purely personal objective. This is not idealism, but economic fact. We are all inter-dependent as co-workers and customers; we all move forward together, or not at all.

It is possible for a minority of successful manufacturers selling mainly for export to gain personal wealth, and this can be seen in every developing country. But when rich industrialists in developing countries come to spend their money they find themselves limited by the level of surrounding prosperity, the quality of goods and services available to them. In an economy which is weak and unproductive their luxury homes are surrounded by dirty streets and uncollected rubbish, and they have to go abroad to spend their money.

In contrast, the average citizen in a productive economy enjoys the increased purchasing power which results from efficient production and distribution of goods and services, together with a high quality of urban life, shops and environment, physical and social amenities, and the essential technological infrastructure of communication and transport systems. Better middle class in a prosperous country, than wealthy in a poor country.

This is not simply a lesson for wealthy industrialists in developing economies. As our own infrastructure falls behind technologically and our urban environment looks increasingly dirty and badly maintained the lesson comes home: prosperity is not just having money, it is living in a community which prospers and so provides the standards and the amenities of prosperity.

Personal wealth can be more easily created, and better enjoyed when those around you enjoy it too in a prospering nation.

This is the Multiplier Effect. Individual, personal effort is magnified, or multiplied-up by the surrounding economic environment. It is easier for an individual to prosper in a successful company, it is easier for a company to prosper in a buoyant economy, and it is easier to enjoy personal prosperity in surroundings of overall community and national prosperity.

From the opposite viewpoint, it is difficult for a business to sell to impoverished consumers. And the enjoyment of personal prosperity is limited if you have to go abroad to spend it.

Prosperity: a Matter of Teamwork

We need to pursue personal prosperity, but within a context of broad national growth. We must also pursue personal prosperity through positive collaboration and teamwork. Whether in a game, a business or a nation, success has always demanded teamwork. Certainly in today's competitive world climate we cannot afford to waste valuable time and energy fighting one another.

There are two ways we can become rich.

Each of us can try to take a piece of somebody else's slice of the cake. Here the aim is to increase one's own wealth at the expense of others. We are not increasing the size of the cake, simply wasting time and effort arguing about it. We are working against one another in continuing confrontation.

The alternative is that we can work together as a team to make a larger cake. Here we are working not against one another but with one another, collaborating to eliminate waste and inefficiency, to improve what has gone before, to make a bigger cake so that as a result we all gain in prosperity.

Confrontation or collaboration. There can be little doubt as to the climate prevailing throughout British industry today.

The Japanese understand quite clearly the need to work together; this may have originated in part from their days of recovery after 1945, when the spirit of working together to “take on the world” became an integral part of Japanese industrial thinking. Whatever their motivation, it works. There is broad consensus at national level on future world trends and Japanese industry's anticipated response, and there is cooperation within broad industry-groups to improve industry standards and world market share.

The overall mood of national cooperation in Japan reaches down into every firm and workplace where the pervading spirit is one of constructive teamwork. In contrast, the general reluctance (or inability) of Britons to collaborate in industry is to a very large extent responsible for our present condition of low prosperity and low prospects.

Real prosperity is generated when all the elements of production and community work together to maximize individual effort into a productive whole. Why do Britons in particular find this so difficult to achieve? Partly if not mainly because everyone involved in any productive enterprise is competing for pay and perks with everyone else. Certainly it is clearly observable in strike after strike, dispute after dispute, that the average Briton cares more for the perceived fairness (or lack of it) by which the cake is shared, rather than the size of the cake itself.

At this point we might be tempted to reduce the argument to one of party politics, with our usual fixed ideological positions and mutual non-comprehension. But the route to prosperity has its own logic; its rules are plain, simple, and above the factional positions of us-and- them-ism.

Prosperity can only be maximized through the full cooperation of all contributors. If such cooperation will not, in Britain at any rate, be forthcoming until the rules are perceived as being fair, then we must make fair rules or we will not prosper. The issue will not be resolved by one-sided accusations that workers are idle, or that managements are arrogant or inept. It is simply a matter of objective fact that unless the two sides can somehow come together and reconcile their differences prosperity will remain beyond our reach.

A prosperous nation is one in which citizens, consumers, and everyone involved in industry, business and commerce at whatever level in whatever capacity or function, work together towards the creation not only of individual personal prosperity, but broadly based national prosperity.

Productivity: the Key to Prosperity

Another possible criticism of prosperity as a goal is that it represents a relentless drive for material wealth. Though the purely material rewards are real and substantial, prosperity opens other, more important doors. As our level of prosperity increases, opportunities become available to us. At first we may indeed choose to concentrate on material well-being, to improve our living standards by upgrading our homes and facilities, making life more pleasant and more convenient.

Then gradually, as our prosperity yet further improves, other options appear increasingly attractive. We take time out for more leisure, for travel, for study, for hobbies, for intellectual and cultural development.

Scientists tell us that even in the fast pace of today's complex life we use only a tiny, almost immeasurable fraction of our potential brain power. There is tremendous scope for cultural growth and development in the human mind and spirit. Once we have a firm and secure foundation of prosperity, living comfortably at a cost of only a few hours' work each week (a dream which is already technologically within our reach), we will find that there is a whole new dimension to life simply waiting to be discovered.

The physical needs of the home and bodily nourishment come first, and if the provision of these needs occupies most if not all our waking hours, we will have little time for anything else. But with growing prosperity, the world opens before us.

Poverty, recession and unemployment are frustrating and unfulfilling. Prosperity represents positive growth. It opens doors, encourages talent and the full development of human potential.

Prosperity is not materialism. It is the key to civilization.

If we agree that prosperity can enhance our broader welfare and development, we come then to the question of how we achieve it. Surely the very pursuit of prosperity demands a dedication to materialism in the form of hard work and long hours, to the exclusion of family and hobbies and everything else.

It is true that workaholism is often mistaken for the road to prosperity. But it is not. Indeed it is a serious mistake to believe that prosperity can only be achieved through unending hours of hard slog. Prosperity, true prosperity, is achieved by working, not longer or harder, but more productively.

lf we attempt to increase our prosperity by working longer and harder we are not making an overall gain in our lives, we are simply trading one thing for another. By working harder we may be gaining more material wealth, but we are losing in other areas such as leisure-time and possibly health.

Prosperity is achieved not by working harder or longer but by working more productively, by creatively developing the devices, techniques and systems which permit us to produce more and better goods and services tomorrow with less work than it took yesterday. Only by producing more and better goods and services with less work can we generate real national prosperity.

Prosperity and the Environment

Questions will also be raised concerning the effect of increasing prosperity on the environment. It is true that environmental damage can be, and is being caused in the early stages of economic development. A decent environment is simply one more item on our wants list, and it doesn't always take pride of place. When people in less developed countries are starving they are unlikely to set a very high priority on the preservation of the ozone layer. And when industries are inefficient and barely competitive, governments are reluctant to enforce even the most basic environmental codes, especially if jobs are at stake.

But as prosperity increases, so also does our desire for a healthier, safer environment; and prosperity provides the funds to clean up the environment and to phase out environmentally harmful practices. Two contrasting examples from the now unified Germany clearly illustrate the link between environment and prosperity.

The River Elbe is to the old East Germany what the Rhine is to the West: its main artery. Less used than its western sister river, the Elbe winds at a leisurely pace through the flat countryside around Wittenberg, where Martin Luther worked and first published his Bible. But travellers in the latter days of the Democratic Republic who were tempted to pause and sit on the river's quiet grassy bank in the sunshine would enjoy only a brief moment of relaxation. There was a strong and pungent odour on the wind, an odour which quickly found its way to the back of the throat, there lodging instant germs. It was the river. The surface was thick with pollution of every kind from industrial waste to unprocessed human effluent.

In the late 1980s, as the Socialist Bloc unknowingly approached its final hour, pollution was everywhere in the old East Germany. The cities were polluted by the blue oil fumes of two-stroke car engines, and by the heavy pall of choking yellow smoke from the brown sulphur coal-dust bricks used for domestic fuel. And along the autobahn heading south past Halle, city of George Frederick Handel's birth, great chemical works belched out thick acrid fumes from their chimneys. Pollution is but a small part of the legacy with which the now unified Germany must contend.

Why did the East become so polluted, its industry so pollutive? The title for a company in East Germany was VEB, Volks Eigene Betrieb, or Service owned by the People. Did these Services care so little for the People who owned them, and whom they were supposed to serve?

That was not the issue. The issue was prosperity. East German State- owned industry was so unproductive and inefficient it could barely survive, let alone dedicate investment, labour and resources to environmental improvements.

In contrast, western Germany has become very prosperous in the sixty or so years since 1950, and its citizens have put their prosperity into things which are important to Germans: their urban, cultural and rural heritage. Tour western Germany and you will find an orderly countryside everywhere. You will find new by-passes for almost every small town, roads so carefully planned and landscaped with trees and wild flowers that one hardly realizes they are new, while the town benefits from a traffic-free and peaceful centre now given over to pedestrians, outdoor cafés, and the occasional sleek, modern tramcar wending its way slowly past the flower planters. You will find that all the old houses dating from baroque and medieval times are being stripped to their frames, the wood thoroughly treated, the infilling bricks replaced, the old windows precisely replicated in maintenance- free plastic with energy-saving double glazing and solar-panels on many of the roofs.

The Western part of Germany has prospered, and as a result its urban and rural environment is neat and orderly. Unlike its sister-river Elbe in the East, the Rhine is relatively clean and becoming more so; along its tree-shaded banks people sit at tables under sun umbrellas quietly sipping coffee or a glass of wine as the pleasure steamers glide slowly by, and all's well with the world. East Germany was poor and polluted; Western Germany is wealthy and clean. The lesson is clear enough.

And how does Britain compare in the Euro pollution stakes? Europe in Figures published in September 1992 claims that only Germany pours out more carbon dioxide and nitrogen oxides than Britain, this partly explained by the pollution created in the former East Germany. Britain tops the list for sulphur oxide emissions. And while Germany's output of emissions is falling, Britain's is rising.

Environmental protection costs money, and money comes with prosperity. Money only comes with prosperity.

And national prosperity brings its own substantial rewards.

Prosperity: a National Goal?

A prosperous nation is a nation which can afford not to pollute, which can afford to enhance its natural and built environment and to care for its heritage. It is a nation in which people can enjoy life and enrich themselves culturally and intellectually, in good health of body and mind. It is a nation proud of its world-class infrastructure, with efficient transport and state-of-the-art telecommunications systems. It is a nation of clean towns and cities, of pleasant communities and homes, of responsibly husbanded countryside and natural resources.

Prosperity provides the base of healthy environment, wealth and leisure from which mankind, liberated now from the full-time occupation of physical self-support, can move on to higher objectives of intellectual and spiritual self-improvement. These things become possible with prosperity. Certainly they are not possible without it.

Without prosperity there is environmental degradation, loss of heritage too costly to maintain, a lack of time and energy for anything but making a living - in fact precisely the situation we are currently experiencing today.

And what of our future prospects?

Britain's present lack of prosperity would not in itself be a total disaster if we were confident that things were slowly getting better. Human nature can tolerate considerable hardship provided we know that we are pointing in the right direction and that good fortune will soon be coming our way.

Can we look forward to a brighter tomorrow? Unfortunately we cannot. This is something we all know instinctively; and instinct is supported by simple logic.

Prosperity is created through full, and productive employment. If there is substantial unemployment talents will be wasted. Waste will not create prosperity. And if those who are employed are not working productively they will be wasting a part of their effort, doing unnecessary jobs, or producing goods of poor quality. That will not create prosperity either.

Full employment: everybody working to the fullest extent of their desires, talents and capabilities. And productive employment: everybody working productively, making goods and supplying services which people want and need, goods and services which reflect the highest attainable standards of usability and quality at the lowest possible price.

Full employment, productive employment. The combination will give us prosperity. Automatically, inevitably. Anything less will not.

In Britain today the prospect of achieving anywhere near full employment seems remote indeed.

Figures making the news during l992 included a company going bankrupt every six minutes, and 25,000 manufacturing job losses every month. Though the economy is now supposedly "looking up", these lost companies are unlikely to be reborn, the lost jobs are unlikely to be recreated. Our manufacturing base is now substantially destroyed with little hope of rebuilding, and the economic projections are virtually unanimous: recovery is doubtful and we can look forward to the prospect of at least three million unemployed for the rest of this century.

Nor does our industrial productivity offer much prospect of dramatic improvement. Under the threat of substantial and increasing unemployment we cling to useless jobs and outdated industries, making the possibility of maximizing our industrial productivity even more remote than we realize.

Decline is both our present condition and our future prospect. Today's Britain is unsatisfactory and there is every indication that tomorrow will be considerably worse, a fate from which only a miracle, or at least a major change of direction, can spare us.

A major change of direction is not something to be undertaken lightly. Yet reality and logic would indicate that it is now essential. Whatever the economic debates and their esoteric complexities, the fact remains that an economic system is a device for delivering national prosperity, and the bottom line is that ours clearly does not. When a system fails consistently there is only one solution: we must analyze more carefully, dig more deeply, and be prepared to face solutions which require us to do some things differently. Indeed, when a country is in prolonged decline and continues to point in the wrong direction only a substantially different approach could be credible.

Britain's current ills and the causes of our decline are many and complex. But they can be grouped under three main headings: recession and unemployment, low productivity, and inadequate investment.



TWO:
RECESSION AND UNEMPLOYMENT


Employment Past and Present

Employment, the opportunity to put one's talents and effort to productive use, is one of the key factors generating prosperity and the Good Life. The need for full employment is fundamental to prosperity. Simple commonsense tells us that we will never prosper if we are not working. In a society which considers itself civilized everyone capable of work and willing to work should be able to do so. Yet in Britain today full employment seems an impossible dream. Indeed we have become so accustomed to unemployment that we take it for granted. This will not do.

Is unemployment really inevitable?

In a simple rural economy there is no problem of unemployment; if you want to work, just do it. By contrast life in the so-called developed world has become complex, and our social, political and organizational institutions do not appear to have kept pace. Yet commonsense tells us that whatever the current economic wisdom may say, full employment should be possible.

Americans are great tourists, not only abroad but even more so in their own country. Wherever anything of historical significance happened there is always a museum or instructional exhibit, and the visitor is assured of a warm welcome in this great land of friendly people.

The old Pioneer Trails across America are well documented, and there are many reconstructed early settlements showing how the pioneers lived. Travelling slowly westwards on remote country byways across the hot prairies of Nebraska, the modern tourist can gain some impression of the pioneers' journey despite the comforts of modern towns and motels and the convenience of paved roads. One of many roadside Historical Markers directs the traveller's attention to the route taken by the waggon trains. As they looked ahead from this point the pioneers would see the Rocky Mountains in the distance, gradually getting closer.

Now the waggon train wends its way slowly up into the foothills, through a high mountain pass and then suddenly: there it is, an idyllic valley spread out before you, green, fertile, tempting. The leader of the waggon train strikes a dramatic pose on a prominent rock, points with outstretched arm and says in the immortal words of Mormon Brigham Young: “This is the Place”.

As the line of covered waggons, horses and bullocks winds its way down into the chosen valley below, plans are already being made.

Autumn is coming on and there is so much to be done. A basic street and community plan must be laid out, then houses built, communal buildings, stores, a school, a church. Whatever mother nature has on offer must be harvested and stored, and seeds prepared for winter sowing. There's plenty to do: ploughing, levelling and digging drainage channels for the men, while the womenfolk traditionally occupied themselves with baking, making preserves, and turning newly built houses into attractive homes. Children must do their share too after school is out, tending the animals, fetching water, helping around the house and farm.

Now, over a hundred and fifty years later, a little group of tourists stands on the front porch of the old original schoolhouse looking out over the reconstructed village as the young guide in her smart khaki State Parks uniform tells us this whole story. We feel ourselves transported back in time. We feel the challenge andthe pressure of the work to be done. We're almost ready to move off rolling up our sleeves, collecting tools on the way to the fields or building sites.

Could we, in these circumstances, visualize ten or fifteen strong, intelligent, able-bodied men out of every hundred standing around idle and without work? Absolutely not. There was far too much to be done. The pioneer community could not afford unemployment. Fortunately for them they appear to have had no problem in organizing their communal activities so that everyone was able to contribute to the fullest extent of their talents.

But things are different in our modern times. Today in the major industrialized nations millions while away the hours, days, weeks and months in enforced idleness.

They want to work, to produce, and to consume. But somehow our civilized society seems quite incapable of organizing itself so that all willing hands and talents are put to good, productive use. We have accepted anything from five to ten percent unemployment and more as the norm. We have learned to live with it. We don't even question it. Yet it is a matter of simple logic that we will never maximize prosperity by wasting talents and productive resources.

Unemployment: Statistics and Reality

Jobs For Everybody: this is the first and most fundamental requirement of national prosperity. But it will be more difficult to achieve than the unemployment figures suggest, for these figures do not truly reflect the number of people who would like to work, and who would willingly contribute talents and skills given the opportunity.

There are many purpose-created government distortions such as the exclusion of school-leavers (though they all want work!), make—work schemes which take people off the unemployment register (though they still want jobs and still draw welfare benefits), “seasonal corrections”, and numerous other devices of statistical distortion in which governments specialize and of which ordinary honest folk know little. These and similar manifestations of the conjuror's art all serve to reduce the unemployment figures without reducing unemployment.

In addition there are many people who would like to work, but who do not bother to register as unemployed, discouraged by the lack of job opportunities. Students, housewives and mothers, people who are retired but far from being useless have a whole lifetime of valuable experience to offer: people such as these may not register as unemployed, but they would surely seek employment if there were plenty of jobs available and even more would come forward if employers offered part-time positions and other inducements.

In short, if we expanded our economy by creating the same number of new jobs as the official unemployment figure, to the point where the figure was down to zero, we would not be able to stop there. We would have to go right on creating more and yet more jobs, and as fast as we created them, willing hands would appear from the sidelines, ready and fully able to work, yet never registered as unemployed.

And even more unemployment threatens in the form of present over- manning. Gerhard Schulmeyer, an Executive of the engineering multinational Asea Brown Boveri claims that job losses due to productivity gains will be much greater than any current estimates, requiring a massive job creation effort. "People have totally underestimated the rationalization possible," Schulmeyer claims, asserting that European companies still employ some 20% more people than they need.

The net result is that we have, say, a nominal 10% unemployment figure; but that's just the start. If we add to that the school-leavers, the people on make-work schemes and all the unregistered willing workers, we can push up the real figure by at least a million more. Some estimates have gone as far as doubling the official unemployment figure. And as rationalization in industry takes place yet further redundancies and unemployment can be anticipated.

Of all the problems which beset the British economy and threaten our productivity and prosperity, the most significant is permanent, substantial unemployment. Unemployment is an aspect of recession, from which we also suffer continuously to some degree. Recession puts our industries into a defensive survival strategy, discourages investment, increases costs, creates tensions in industrial relations and encourages opposition to labour-shedding productivity increases.

Why do we seem destined to live with continuous unemployment and recession? The question can best be answered by observing what happens when we try to expand out of recession and reduce unemployment.

The Economic Cycle: Recession-Expansion-Inflation-Recession

The country is in recession; let us now attempt a little cautious expansion. The Signal is given, perhaps by an auspicious Statement from Number Eleven as an indication of government policy. The Statement would be combined with a reduction in the Bank Rate; this permits industry to borrow more cheaply and thus expand production, it also reduces interest-sensitive costs such as mortgages and hire purchase, and encourages consumer spending.

Unfortunately British industry's enthusiasm for expansion has been severely tempered by the caution born of many years' experience, and rather than rushing in to resume investment and recruit more workers, managements are more likely to adopt an attitude of “wait and see”.

But let's assume that the economy does begin to “take off”, with definite signs of increased consumer spending and expanded production. For a while the sensation of growth will be a pleasant one, to be savoured like the balmy days of our fleeting British summers. Unfortunately the pleasures of a growing economy may prove equally fleeting, for the beginnings of a new danger are already discernible: inflation.

As economic expansion begins to take effect, prices, and pay at all levels from shop floor to boardroom, start to rise. As we expand further, the process accelerates. Why does this occur?

Though it is impossible to say which comes first, wage claims, bigger profits, or higher prices, we can begin by looking at wage claims.

Workers want more money, for the better life, as a consolation for the cutbacks of the previous recession, or because they believe with or without justification that the bosses are making good profits and should share some of their prosperity with the people who make the products.

Of course the desire for more and the supposition of inequity exist as a permanent feature of human nature and British industrial relations; but in times of economic expansion there are special conditions which permit and encourage higher wage demands.

When a factory is running at full capacity and selling all it can make the last thing the management wants is a strike; and with expansion creating a tight labour market, management does not have the option of hiring replacement labour. So managements give in and wages begin to move up.

Giving in is the easiest solution. It is probable that the company is indeed doing well and could easily afford to spread its bounty among its workforce; and in any case, producers can always pass on wage increases to the consumer.

In boom times when consumers are spending freely and there are even shortages in certain sectors, producers, distributors and retailers feel able to slide their prices up secure in the knowledge that price increases will probably not hurt sales and will undoubtedly increase profits. It is a fact that consumers become less price-conscious and less diligent in their search for bargains and special offers during economic boom times. So wages and prices go the same way: up.

Pay is up, prices are up. That's inflation.

As economic expansion continues, so the upward movement of pay and prices gathers momentum. All too quickly it reaches the point where government and the central bank feel they can no longer tolerate the uncomfortable sense of instability and the international indignity of inflation. And if our prices are going up faster than the international competition, Sterling will be less desirable and come under pressure - another source of international embarrassment. So there it has to stop.

How do we stop inflation? We stop it by causing a deliberate contraction in economic activity. Another Statement, a rise in the Bank Rate, a Disapproving Speech at some City of London Dinner, and it's back to unemployment and recession again.

How does a return to unemployment and recession halt inflation?

As the recession begins to bite employees become wary of demanding higher wages. They see that the companies they work for are not so profitable now, and there is a danger that if they rock the boat they might jeopardize their jobs and their future. With mounting unemployment, employees who do consider demanding higher wages backed with the ultimate threat of strike may well look at the queue of hopeful job seekers outside the Personnel Office and decide against it. No, it's definitely not a good time for employees to press for higher wages at the moment.

And managements must also change their ways. The drop in consumer spending brought on by recession, unemployment and lack of confidence makes sales increasingly difficult, forcing manufacturers and retailers to reduce prices and to bring out the special offers.

Business, and its consumers, become more price conscious, margins are slashed, the "sale" signs are dusted off and put prominently in shop windows. It's certainly not a good time to contemplate price increases.

So pay and prices are held stable, or reduced. Inflation is for the moment contained and we are rewarded with a degree of monetary stability. But the cost of the “remedy” is another recession. It is a high price to pay, for the newly unemployed, for consumers and home- buyers, as well as for industry.

High interest rates and the resulting recession force domestic firms out of business. High interest rates also enhance the international desirability of the Pound; this pushes up the exchange rate artificially so our goods become more expensive, making it difficult for our firms to compete in export markets.

Sir John Harvey-Jones describes the effect on ICI of recession and high interest rates in his book “Getting it Together”.

“Quite suddenly, in 1980 and 1981, disaster struck us. The Chancellor, Geoffrey Howe, increased interest rates starkly to squeeze our inflation, and as a result the Pound strengthened far beyond our capacity to compete. In three consecutive quarters our annual rate of profit fell from £600 million a year to an annual rate of loss of £200 million a year. We were losing on virtually all our exports, and only the highest added—value products such as pharmaceuticals could jump the currency hurdle. It was doubly galling since independent surveys of the heavy chemicals businesses in Europe had shown us to be in the absolute top league technically - in fact in many cases the best.

“As the year progressed, our discomforts were increased by the realisation that more and more of our [UK] customers were giving up the ghost, or being taken over. By the end of the year, one-third of all our customers in the UK had gone out of business in one way or another.”

High interest rates, recession, and business failures, all to squeeze out inflation. It's a heavy price indeed. But what choice do we have? As soon as we expand we run into inflation. And for the moment the only remedy we know for inflation is a return to recession - whatever its social and industrial cost.

This is the familiar economic cycle: recession-expansion-inflation- recession. We try to expand, run into inflation, put on the brakes, and so return to recession.

The Social Factor

We control inflationary pressure by creating recession and unemployment. How much recession? How much unemployment?

Since recession is created as a remedy for inflation, the degree of recession is dependent on the inflationary potential; this in turn is a product of historical and social factors which differ significantly from country to country.

The Japanese are compliant, group-thinkers; Japanese workers tend to be docile, they do not essentially mistrust their managements nor do they constantly press for higher wages. With this near-zero inflationary pressure, Japan can generally get along with full employment. Full employment and industrial harmony provide a steady increase in productive efficiency so managements can afford to pay their workers well, keep prices low, and still make some profit for reinvestment. In these circumstances a degree of monetary stability can generally be preserved. But even in Japan inflationary tendencies surface from time to time which have to be controlled with higher interest rates and economic slowdown; full employment is normally retained, but workers suffer a reduction in overtime and company profits fall.

Germany has always been considered another haven of industrial and economic stability. Though less "compliant" than the Japanese, German workers nonetheless have a reputation for caring more about the size of the national economic cake than their individual share of it, a positive feature coupled with the traditional German respect for hard work. A precise figure for German unemployment has always been difficult to estimate since the situation has been complicated by the use of "guest workers" whose numbers can be increased or decreased according to the needs of the German economy. And the post-unification closures of the old outdated East German industries make a nonsense of current unemployment statistics. But a figure of 4%-5% might be suggested as a norm.

In the USA coast-to-coast job mobility, the old fashioned work ethic and intense competition at the retail level, not to mention a supply of cheap unofficial labour from points south, allow the nation's economic managers to get away with an average of some 5%-7% unemployment. Fortune magazine (August 9, 1993, Economic Intelligence column) refers to “what economists call the NAIRU, or non-accelerating inflation rate of unemployment. Get any lower, and inflation is sure to speed up. Most economists think it's around 6% now.” The Economist broadly agrees, suggesting in its American Survey (April 17th, 1993) that "the level of unemployment below which inflation tends to accelerate is currently deemed to be 5.5% of the labour force."

The British have a long tradition of management-versus-labour disputes, and to this has been added in more recent years a pentup frustration with relative decline, resulting in a dangerous combination of potentially inflationary factors which take effect the moment expansion begins. This pressure can only be held in check with unemployment of at least 10% and up.

Can we ever hope to get inflation permanently under control and so allow our economy some realistic longterm expansion? Yes we could certainly get inflation under control. But this would not necessarily allow long-term expansion.

We could, through prolonged recession, reduce inflation to a mere one or two percent. But that would not permit any substantial degree of economic expansion since we could only hold that commendably low rate of inflation by maintaining a permanent ten percent or more unemployment and continuing the recession. The moment we relax our guard and launch into expansion, inflation would begin to rise again.

Whatever the social conditions, in whatever country, recession and unemployment to some degree is always in the background, as a permanent fixture, or ready to fight the first signs of monetary instability and inflation.

Defining Inflation

Inflation is clearly the problem, the major if not the sole barrier in the way of expansion. But what is inflation? What causes it?

And more importantly, is there a better way of dealing with it than plunging the country into permanent recession?

Inflation is an increase in pay without a corresponding increase in work done. More pay for more work or more responsibility is not inflationary, it is simply a fair reflection of a larger contribution. But if a worker - at whatever level - receives more money for doing exactly the same work in exactly the same way, that is inflationary.

Likewise, inflation is an increase in the price of a product or service without a corresponding increase in the amount or quality of the work it contains. lf a manufacturer puts up his prices, asking his customers to pay more today for the same product they bought more cheaply yesterday, that is inflationary.

Both these kinds of inflation, pay inflation and price inflation, are social not monetary factors. That we demand more money for the same work (either as higher pay or a higher price) is motivated by greed, frustration, or perceived unfairness. In an expanding economy we can get away with it; in recession we can't.

Taking advantage of economic expansion to demand more money for the same work or the same product sounds almost immoral. How do we justify it?

The workers - or the executives - demanding more money will undoubtedly claim on some grounds or other that they are underpaid. And the manufacturer putting up his prices will likewise claim that he wasn't making enough to cover his costs, or to re—invest, or to reward his investors.

Are they right? Are they wrong? There is no answer to these questions, for we really have no way of knowing. The factor common to all these claims and counter-claims is a conspicuous absence of any basis of rules or reason.

What is a day's work worth? What is a product or service worth? What is anything worth? What is value, and how do we define it?

Fair wages, fair prices, the value of a day's work or a product... in these days of wage-employment and complex production accounting the definition of value has become almost obscure.

But it was not always so. The early American pioneers were quite able to organize full employment, and they would have found it equally simple to give stable value to the products and services they exchanged with one another.

How would a farmer value his cheese, how would a carpenter value his carved oak chair, when the two wished to trade with one another?

The question is not as difficult as it might first appear, for simple logic comes to the rescue. The cheese and the chair can both be valued in terms of a common basic component: the amount of work which each contains.

Everything we produce, every product or service, consists of work.

The carpenter begins with a tree, a natural resource in its natural state, to which he adds the work of felling, then adds further work to create furniture, or in this case, a chair. The farmer's work involves tending to his animals, ensuring that they are provided with care, food, shelter and protection; and to the farmer's wife falls the tiring job of turning milk into cheese. In simpler times, work-content formed the natural basis of value, as each trader based his “price” on the amount of work involved in his product, both in terms of duration and complexity.

And the claimed work-value “price” could easily be verified.

Both the farmer and the woodworker are experts in their respective fields, but nonetheless each has a fair idea of the work involved, both in time and expertise, of the other man's product. The farmer does a little carving in his spare time so he knows the work that went into the chair. The woodworker was brought up on a farm and knows about tending cows. So the work-content of both products being traded would be clear to both parties.

And what about inflation? What if the woodworker demanded the equivalent of three days' work for the product of one day's work? The farmer would simply make it himself, for production of most articles had not yet reached a high degree of complexity.

We thus had a relatively stable and clearly defined system of value based on work-content. The result was a fair price which was visible to both parties.

And the price was enforceable by the ultimate option that the buyer could make it himself if the seller's asking price was unreasonable.

But those were simpler times. Today we no longer base the value of our products and services on the work they contain, largely because evaluation of the work involved has now become obscure.

Mass production, investment and wage-labour have introduced complexities which make it impossible for an individual worker to evaluate his personal work-contribution to his factory's output. And it is equally impossible for the customer to evaluate the work—content of articles in the shops. The farmer who could hazard an informed guess at the amount of work contained in a wooden chair would be hard pressed indeed to estimate the value of the total work contained in a television set. Given this relative obscurity we are left with only one alternative: pay and prices are established by ongoing disputation.

This process of disputation is not based on any scientific or mathematical formula, but rather on a complex set of human feelings and aspirations, industrial history, social customs and perceptions, overall economic conditions, and occasionally brute force - the Social Factor mentioned earlier. So the battle lines are drawn.

Employees want high wages.

Employers want low wages and high prices, for the difference between the low wage and the high price is a high profit.

Consumers of course want low prices. We all know which interest- group we belong to, and we all push our own sectional interest.

The results of this “system” can be found in the daily news and frequently in personal experience, as employers “offer” one figure and employees refuse it, then either threaten to strike for more or accept the offer under counter-threat of sackings and unemployment.

This method of establishing pay and prices by disputation is fundamentally unstable and constantly open to the upward inflationary pressure caused by economic frustration and higher income aspirations. And it creates an underlying climate of acrimony which is substantially responsible for our abysmal industrial relations and militancy.

Our “remedy” for inflation, prolonged recession, only worsens the climate of acrimony, fear of job losses and frequent violence in which our productivity falls yet further, resulting in higher prices and a declining standard of living. This is the downward spiral on which Britain now finds itself.

In the early days of the American pioneers, organizing full employment seems to have been no problem. We cannot do it today.

Likewise in earlier days value was something relatively stable and meaningful, based fundamentally on the work contained in a product or service. Value meant something. Now it means nothing. Over the years we have lost a fair and workable system, and replaced it with dispute, acrimony and instability.

But what about money? How does money come into the picture? Is our money so baseless, so meaningless that we can simply and with impunity demand more money for the same work or the same product or the same service? Is there no structural definition of our monetary unit which provides some underlying stability? The simple answer is No.

In its early days, being based on a commodity such as gold or silver, money had value in terms of the work involved in locating, mining and refining it.

A Sterling was a once a silver coin, and a Pound Sterling was a Pound Weight of Sterlings, or a Pound of Silver. Later the Pound was guaranteed in terms of a specific weight of gold. In 1931 the Pound Sterling broke with gold, but retained its tie with the US Dollar which was itself tied to gold. Then in the early 1970s the US abandoned the fixed relationship between gold and the US Dollar. The world's currencies became nothing more than paper and credit, to stand or fall solely on the honesty, reputation and competence of their management; not one of them has any scientifically defined value today.

But of course our monetary unit does have practical day-to-day value for all of us. It is the measure of our work and worth, our pay and our wealth, it is the measure of the goods and services we feel able to buy and consume.

In other words, money has real meaning to us all in terms of pay (how much we get), and prices (what we can buy with what we get). But pay and prices are determined by disputation. So the value of our money itself is based on disputation.

We can therefore define inflation as an upward pressure on wages and prices resulting from the evaluation of wages and prices by disputation; this upward pressure is not stabilized by money since our monetary unit has no inherent value; the upward pressure of wages and prices can be controlled only by recession and unemployment.

Recession or Inflation: the Only Choice

A tangled web indeed, and not especially reassuring. But with this background we can now review the Economic Cycle in a clearer light.

The economy is in recession. We launch into expansion: interest rates fall, jobs are created, consumer demand expands.

But this takes place against a background of mutual mistrust and competing claims among disputing participants in industry - employees, managements, investors, consumers. They all want more, at least they want the sensation of more in monetary terms.

This potential upward pressure on pay and prices is gradually liberated as the economy expands, and inflation takes its course.

Without a stable concept of value or a stable definition of money, the course of inflation, as we have already observed, can be checked only by tightening the credit supply once more. So we return to recession which discourages wage and price increases and thus halts or at least slows the pace of inflation.

We can now re-state the Economic Cycle's chain reaction as follows: recession - expansion - disputation over pay and prices creates upward pressure: money has no definition and so exerts no stabilizing influence: inflation - back to recession.

We accept the inevitability of inflation, recession and unemployment as a fact of life so we make little attempt to study its causes. If we did we would not find it difficult to trace the problem back to the critical point at which the system falters.

The essential problem is the absence of one vital ingredient from our industrial and economic picture: a measure of value, a set of rules and procedures for valuing work, for establishing pay, profits and prices in a way which we can all accept as impartial and fair, so that we would no longer have to combat inflationary potential with unemployment and recession.

The need for full employment is fundamental to prosperity.

Employment, the opportunity to put one's talents and effort to productive use, is one of the key factors generating prosperity and the Good Life. Simple commonsense tells us that we will never prosper if we are not working. In a society which considers itself civilized everyone capable of work and willing to work should be able to do so.

Yet in Britain today full employment seems an impossible dream.

The barrier to economic expansion and full employment is the threat of inflation, which can be defined as a condition of instability and upward pressure arising directly from our current method of evaluating pay, profits and prices by disputation.

Evaluation by disputation thus emerges as the root of the problem.

Until we remedy this problem by supplying a set of fair rules we will not have fair pay and prices, better industrial relations, or a stable money. And we will never be able to expand the economy to its full capacity without fear of inflation.

Until we remedy this problem we will never have full employment.

And we will never create prosperity.



THREE:
LOW PRODUCTIVITY


Productivity and Prosperity

Prosperity is created through full employment. If there is substantial unemployment talents will be wasted. Waste will not create prosperity.

But equally important is that those who are employed should be working productively. If they are not they will be wasting a part of their effort, doing unnecessary jobs, or producing goods of poor quality. That will not create prosperity either.

Full employment: everybody working to the fullest extent of their desires, talents and capabilities.

Productive employment: everybody working productively, making goods and supplying services which people want and need, goods and services which reflect the highest attainable standards of usability and quality at the lowest possible price.

Full employment, productive employment. The combination will give us prosperity. Automatically, inevitably. Anything less will not.

In Britain today the prospect of achieving anywhere near full employment seems remote indeed. And the possibility of maximizing our productive efficiency is even more remote than we realize, for prolonged unemployment has deeper consequences, much more serious than even the most pessimistic observers might concede.

Full employment points an economy upwards on a path of growing industrial productivity and economic prosperity. Permanent and substantial unemployment and recession sets an economy firmly on the downward path of economic decay, with serious longterm effects on industrial relations and productivity.

Productivity in a Viable Economy

Let us start by looking at the upward trend. How does an economy function if all is going well?

When a national economy can be maintained continuously at, or somewhere near its full potential - and Japan provides an example of this - full employment means that human resources are being fully utilized.

And those fully employed workers have money to spend as consumers, providing industry with a buoyant home market.

In a buoyant home market with high consumer demand, industries can be operated efficiently and at full production capacity. Full capacity working increases productive efficiency and reduces costs. This allows goods to be sold cheaply which further increases market share. In such conditions producers are encouraged to invest in new equipment, research and technology, which in turn ensures market leadership, productive efficiency and low prices for the future. This creates an upward trend in which positive economic and industrial conditions are self-regenerating.

Some economists suggest that full employment can cause production bottlenecks due to labour shortages. Japan's experience does not support this view. In the Japan Ministry of Finance seminars held February 2-3, 1990, it was concluded that the labour shortage has made a positive contribution to Japan's economic expansion by encouraging innovation leading to greater efficiency in manpower usage. Examples were quoted where labour shortages have pushed many manufacturers to invest in robots and other labour-saving factory automation devices. Indeed the use of robots and automation is widespread in Japan. In 1989 around 220,000 robots were at work in Japanese factories compared with 37,000 in the United States. Highly automated factories are common everywhere in Japan, making everything from simple plastic mouldings to advanced microchips. A company called Yamazaki Nagaki even makes machine tools in a fully automated factory.

Full employment gives manufacturers a buoyant home consumer market. On the production side, the discipline of full employment provides the incentive to reduce labour and thus costs by increasing productivity and mechanization. In conditions of full employment the maximization of productivity is not only possible, it becomes imperative.

The Downward Slope of Recession

Such is the way of upward mobility. But for an economy like Britain's which is always in some degree of recession, events take a downward turn and here again, though with the opposite effect, the trend is self- regenerating.

The first element in the chain reaction is that the operation of industry at continuously and substantially below its capacity actually increases real production costs. Capital equipment and administrative costs remain virtually the same whether for high or low output; so if industry is only turning out half of its capacity, its fixed costs must be shared by a smaller number of products sold. So the unit cost of production is actually increased, and operating margins are reduced.

Tighter operating margins are reflected in reduced investment and maintenance, so quality suffers. Companies operating in prolonged recession thus have higher real production costs translating into higher prices, coupled with lack of product improvement and lower quality, than companies operating at full capacity in a healthy economy. This explains why recession-bound companies have little export potential, and why their home markets are wide open to competition from the more productive industries based in healthy economies, as well as from low-wage developing countries.

The next step on the downward path is that today's high production costs and lack of competitiveness are projected into the future. The combination of higher real production costs resulting from under- capacity working, coupled with slack home demand requiring rock- bottom prices, creates a climate of low profitability and pessimism in which companies have neither the financial resources nor the incentive to invest in new machinery, research or development. Indeed even regular maintenance of existing machinery may be neglected to cut costs. There is not the incentive or the investment today, to increase productivity and to lower costs for tomorrow. So Britain has gradually become a nation of worn-out industries.

And what of after-tomorrow: the new “sunrise” industries of the future? This same uncertainty of low home demand and below- capacity working offers little encouragement to invest in the new

products and techniques of the future which should replace the outworn, naturally dying industries of yester-year and yester-century. So the national industrial base as a whole falls behind the times and the downward spiral is perpetuated, reflected as a relative decline in productivity.

The overall standard of productivity in our industries has for some years been consistently lower than that of our major competitors. This is shown most devastatingly in the cumulative effect over the forty- plus years since 1950, during which period Japan's cumulative growth in output reached a massive 3,319%, against Germany's 624%, and Britain's 243%. The discrepancy in Britain's growth relative to competitors is also reflected in the international value of Sterling.

The exchange rate of a nation's currency is a measure of its productive efficiency and the international desirability of its goods and services relative to those of other countries. Britain's relative productivity has been declining steadily and this has caused a corresponding fall in our exchange rate.

We need only see how the value of the Pound Sterling has plummeted in relation to the German Mark, the Swiss Frank and the Japanese Yen for a graphic illustration of our declining relative productivity. In 1967 when Harold Wilson devalued Sterling, the Pound was worth over eleven German Marks. Now it is worth less than three. In 1963 the Pound Sterling would buy more than twelve Swiss Francs; now it will buy barely two. There are no secrets to the relative success of these one-time competitors; nor any turns of fortune like the sudden rise in world oil prices which dramatically enriched the Arab producers in the mid-70s. It is simply a matter of higher overall productivity, a little each year, which accumulates into the disparity we see today.

We think we can tinker with exchange rates or peg Sterling to a Euro- basket; but exchange rates are the barometers of economic performance, not the tools, and manipulating the barometer will not affect the weather. Ultimately the international value of our currency is a reflection of the desirability of our goods and services compared to those of other countries, which in turn is a reflection of our relative productivity. And our relative productivity has been declining steadily for the last quarter century.

An Anti-Prosperity Society

Outdated industries, lack of new growth industries, high unemployment, low productivity... this is the economic climate of permanent recession. Clearly prosperity can never flourish in such conditions. But beneath the surface the situation is even more serious. lf we were simply failing to create prosperity today, that would be bad enough. Even worse is the projection of economic decay into the future. But worst of all, the creation of prosperity in Britain is now positively and actively opposed.

It has been suggested earlier that our real rate of unemployment is more like 15% at the least. There are those optimists, however, who would suggest that we should talk not of 15% unemployment, but rather we should call it 85% employment. It does indeed sound much more encouraging. But the truth is far from encouraging. Recession is damaging enough when it puts 15% out of work; but it is far more serious in its effect on the morale and the attitudes of the 85% who are still employed.

In an economy struggling under permanent recession every one of those fortunate 85% with jobs, the factory workers, farmers, miners, administrators, executives, government employees, all come to rely instinctively on over-manning and opposition to productivity- improvements for the preservation of their jobs.

The contribution which employment makes to prosperity is measured in useful output; we know that is true if we think about it. But in conditions of permanent unemployment we lose the ability (and the will) to differentiate between jobs which simply create "employment" and jobs which create real wealth and prosperity. We confuse "being" at a place of work, with "doing" something useful, something genuinely contributive to the end-product or service.

“Does anybody actually want and demand the service I offer?”

“Could our office or factory do the same job with less workers?”

“Would the business suffer, or come to a standstill if I wasn't here doing what I do?”

From private sector companies with an excess of shop floor over-manning and non-productive "supervisory" staff, to those government departments which are marginally productive in that few people would be any the worse off if they disappeared altogether... non-productive employment occupies an already substantial, and a steadily growing proportion of our economy, creating a corresponding shortfall in our potential prosperity.

We create administrative jobs of marginal utility, we refuse to move out of jobs and industries which have become outdated, and we oppose improvements in productivity because jobs may be placed at risk. In all of these cases we are preserving jobs, but at the direct expense of lost productivity and prosperity.

The generator of real prosperity is productivity: the art of improving the efficiency of your work so that every day you are producing a little more and a little better with less work than it took yesterday. But improving productivity means abandoning outdated industries; and in viable industries it means lowering the work-content of each article produced. In both cases the direct implication is redundancy.

In a fully employed economy the risk of redundancy is not a problem, since growth in other areas supplies jobs for workers made redundant by outdated industries or by productivity increases.

Two illustrations involving Toyota factories and developments in Japan make the point:

Workers in the Toyota manufacturing plants in Japan discuss the work regularly and make many thousands of suggestions every year as to how productivity can be improved. Some 95% of worker suggestions are accepted and put into practice, and the worker who made the suggestion is rewarded with publicity and a bonus. And if the suggestions result in job losses on the production line, what happens then? Of course many jobs are shed; productivity cannot be increased in any other way. But redundancies and sackings? Never. Workers are simply redeployed, perhaps retrained, to take up duties in other areas of the plant.

Nor do Japanese workers in outdated industries need to fear unemployment. The traditional coal industry was dying on Hokkaido, Japan's northern island. So there were closures and massive job losses.

As British miners face closures and job losses on a similar scale some might sympathize with fellow miners in Japan; but no need, for the miners of Hokkaido were not worried. Toyota caught the word early on that the coal industry was being phased out, and ever on the lookout for willing hands in this land of full employment, Toyota at once set up a factory on Hokkaido. Now the miners have exchanged foul air and clothing covered in coal dust for smart grey overalls, air that is safe to breathe, civilized canteen and social amenities... and the luxury of going home clean every evening.

That's the way it happens in an economy operating at full capacity: productivity improvements are proposed and encouraged from boardroom to shop floor, and outdated industries are gladly given a respectful funeral. lf there is any redundancy, no problem. There are plenty of other opportunities.

But in an economy which suffers permanent under-utilization and unemployment, events take quite a different turn.

Workers are not usually asked by British managements to make productivity-improvement suggestions. In the first place, British managements generally believe that they have a position of standing and authority to maintain, a position which would somehow be compromised if they even hinted that the man actually doing the job might be able to suggest some improvements.

But more significantly, suggestions would not be forthcoming from workers even if they were encouraged, since it would be assumed by the workers that they would receive no positive reward, and that if their suggestions resulted in labour reductions they might even lose their jobs.

Throughout the length, breadth and depth of British industry potential productivity improvements lie thick on the factory floors, uninvited by managements, and worse still not only un-suggested but positively concealed by workers fearful of losing their jobs and being unable to find new ones. Comparative figures for the car industry are probably typical: in 1989 each Japanese worker made 6l suggestions, while each worker in Britain made on average 0.7.

And when major nationwide or industry-wide opportunities arise for productivity-increases, the potential benefits to the consumer and the economy of higher productivity and lower costs are opposed and rejected by workers fearful of losing irreplaceable jobs.

The British Post Office introduced automatic letter-coding and sorting machinery in the late 1960s with dramatic cost-reduction potential; the Unions opposed it in a long hard battle.

Similarly, automatic ticket barriers lay unused and gathering dust for years on London's underground stations while ticket collectors continued to man the barriers, doing little else but holding out a hand with an occasional “Thank you”. At more or less the same time as the London Underground introduced its ticket automation, the Zurich tramway management replaced on-board conductors with automated ticket machines installed at each stop. The tram conductors who lost their jobs were quite unconcerned; personnel recruiters from industry were waiting for them with job offers at the depot gates.

Throughout British industry, two, three or four men are doing jobs which could and should be done by one. Many are doing mindless repetitive jobs which could be done better and more cheaply by a machine; others are doing jobs which add nothing to the nation's prosperity and shouldn't be done at all. But any attempt to increase productivity through automation or improved work practices is opposed by workers who fear for their jobs.

For the individual worker it makes sense in a climate of high unemployment to preserve your job at all costs, even though you know it is unproductive. But for the economy as a whole it's a disaster. Productivity is actively opposed. And since productivity is the source of prosperity, this means that prosperity is opposed.

No wonder the British people are not prospering as they could and should. Britain has created far itself, and is now living in, an anti- prosperity society.

We are pointing in the wrong direction, with no sign whatsoever of a turning point. The present is cloudy enough. And the future looks distinctly murky.

Our Legacy to the Future

If the present generation is disenchanted with their personal and their country's economic prospects, what message are we sending to the younger, upcoming generations?

Japanese students work themselves hard, as we all know, even to the much-publicized occasional suicide under the pressure to achieve and to excel. But at the end of it all the recruiting personnel from the large, prestigious companies set up stalls outside the universities, competing to claim the services of successful students. Meanwhile Britain's increasingly expensive state education system teaches its students little or nothing, which just about matches their prospects. No matter if you have difficulty filling out a simple job application form son; it probably won't get answered anyway.

Japan's older generation says: work hard, we want you, we need you; the country is strong economically and growing stronger and more prosperous every year. We're looking forward to having you join us, so that we can pass on to you the strong and viable economy we have created.

Britain says: a few will make it, but for the rest, life's a scrap-heap. Look lads. Right now you're in a comfortable situation; you get a free education, free food, free healthcare, a free home, and if you're lucky a handful of spending money each week from Dad. Enjoy it while it lasts. Don't bother studying; it's boring, and your world will have no use for it anyway.

Exaggerated? Perhaps. But not unrecognizably so. In Germany most firms participate in elaborate apprenticeship programmes for young workers, some lasting four years or more, and 60% of Germans between the ages of 16 and 18 become apprentices. The programmes are designed in collaboration with individual companies, industry councils and labour unions. They are not acting out of charity. Germany has profitable, productive industry which is confident in its need to develop now the skills it will need in the future. But with much of British industry looking only for survival, and students looking more towards unemployment or self-employment in the black economy, there is no broad incentive for training programmes.

A High Performance Workplace?

A factory, a place of business, and a national economy all have one essential, fundamental feature in common. Their object is to deliver, and it is by their success or failure in fulfilling this object that they must be judged. A factory, business or national economy can work productively, delivering high quality at low cost. Or it can grind along producing ever-declining quality at a steadily increasing cost. It is not difficult to see into which category the British economy and much of British industry falls.

A permanently under-employed economy creates positive opposition to labour-shedding productivity improvements; full employment must be the first priority of an efficiently functioning economy. But there are other problems which contribute to our low productivity performance.

British industry is bedeviled by a generally low standard of industrial relations. To a considerable extent this results from the acrimony and mistrust surrounding the perennial problem of pay and its relativity, not only to the job concerned but to the pay of others, particularly those in management. Fair play, and its corollary of fair pay, is important to us; without the assurance of a fair wage, however that may be defined, our industrial relations are off to a bad start.

Poor industrial relations must also be a direct reflection of poor management. The success of any enterprise in terms of its productivity, the quality and the cost of its products, can only be achieved through total teamwork. As the mind wanders idly through images of the typical British factory, with its class distinctions, its segregated facilities, the years of mistrust engrained in the attitudes and the faces of its workforce... teamwork is not a word that springs readily to mind.

It may be instructive at this point to compare the objectives and strategies in a football team, with those in industry.

We expect the players first and foremost to build a team spirit. Not for them the distinctions of class as between the centre forwards and the goalkeeper, with privileged park spaces, segregated social facilities and subtle distinctions of dress. The players must think and act as one, a close-knit, efficiently functioning Team, united in its Objective of becoming the Best, armed with the necessary Systems and Game Plays which will help the Team to win and to remain on top.

In industry the relationship between management and production workers should be identical if we are to stand a chance of winning. But in fact, though it hardly needs to be said, the differences between a football team and a factory in terms of team spirit are so far apart as to defy meaningful comparison.

So not surprisingly, much of British industry is losing the game. The Japanese, for the most part, are winning. The Japanese know how to play as a team. The British generally do not.

Japanese factories work as teams and this is one major reason for their success. Their workforces are motivated and involved. Their middle management, always available, wear the team uniform, not to confound western observers with their oriental inscrutability but precisely because they are part of the»team and they want all the players to know it.

Why can Britons accept institutionalized divisions and barriers in their industries while accepting without question the need for close teamwork in sport? The answer lies partly in history, in the fact that conditions have now radically changed, and that our attitudes and institutions have not changed. In short, we are behind the times.

In the days of Good Queen Victoria strong men of capital and enterprise stood ready to adopt and put to productive use the very latest mechanical inventions and power sources. ln those early days of mechanisation the capital machinery was the main productive component, and the man who operated it was simply required to perform a mindless, unskilled repetitive task for a minimal wage.

While much of Britain lingers in her Victorian past, the realities today have changed. Factories are dependent on their workers. Today the productivity, competitiveness and prosperity of a factory depends increasingly on human skills at every level. It depends on designers and their inspiration; it depends on salesmen out in the field. And it depends on the workforce, people who are perfectly capable of doing a good job if they are properly trained and equipped for it, people who are closest to the job and could probably suggest a million ways of doing it better if anyone bothered to ask them. And the gradual o increase in the use of programmable machine tools places even greater reliance on the operative.

But the Victorian principles of industrial relations still remain as the basis of factory relationships in far too many businesses today. Bosses reside “upstairs”, many descend onto “the floor” rarely if ever, and when they do they tend to ignore the workforce, either because the workers are considered incapable of intelligent conversation, or for fear that even a glance could set off some industrial dispute. The workers, for their part, come to work, do their jobs without interest or enthusiasm, and go home. They neither expect, nor do they generally receive any respect, help or encouragement from “Management” which is viewed, if at all, as a class enemy.

“During my time in work-study [at ICI] I was saddened how little the managers walked the floor. If you were absent from your office you were failing in some way and if you were walking around talking to your men, keeping an eye on what was happening, getting to know them all and concerned with them, somehow you were not doing the job for which you were paid. I compared this with my days in the Navy when we were taught that the officer who did his paperwork while his men were working was negligent.” (Sir John Harvey-Jones, Getting it Together, Heinemann 1989.)

The situation would not appear to be improving. International Survey Research, a consulting company, carried out a study in spring 1993 of employees' attitudes to their employers. It shows that Britain ranks lowest in Western Europe on such matters as employer-employee communication, pay, and job security.

As a result of these outdated attitudes there is no teamwork. But the problem goes even deeper, for much of British industry lacks an overall objective, or guiding inspiration. In Japan the team is dedicated to quality, to kaizen which means literally gradual improvement. Managers keep their companies and their workforces up-to-date with the latest techniques and equipment; they give leadership and training; and they work closely with their workforces to maximize quality.

Japanese industry, by and large, operates in the environment of the High Performance Workplace. It is an environment in which every manufacturer, every businessman keeps up with the very latest techniques, trends and machines in his particular line of business then integrates these new developments at the earliest opportunity; it is an environment in which every factory operates as a team, each individual worker challenged continuously to improve work methods and quality of output.

A cursory view of the typical British workplace would indicate just how far we are from this ideal.

“Give us sustained expansion”, many British managers will reply, “and we'll give you a High Performance Workplace. Right now it's a struggle, and an achievement just to stay in business.”

Certainly it is only fair to recall that British management has been compelled through many years of economic downturn to concentrate on survival. Sustained economic expansion, if and when it ever happens, would surely improve business confidence and optimism. But it would only provide an opportunity; what Britain could make of it is another matter.

Would we revolutionize management and create an environment of teamwork, making each and every business, large or small in whatever field of production or service, a model of industrial harmony?

Would our designers and inventors bring their talents to full fruition, secure in the knowledge that good ideas and designs would be instantly adopted by an enthusiastic industry?

Would our industries and businesses, large and small, keep themselves constantly in touch with each and every new development affecting their business, and immediately adopt those new ideas and techniques which are relevant to them?

Full employment is the first prerequisite of prosperity. Productive employment is no less vital. If it ever became possible for us to create the conditions necessary to permit sustained economic expansion to full employment, the transformation of our national economy into a high performance workplace would become our next major challenge.



FOUR:
INADEQUATE INVESTMENT


Invest of Die

INVEST OR DIE! Thus did Fortune magazine dramatize the choices for corporate America in early 1993. “US industry”, Fortune pointed out, “has been on the defensive, cutting costs but skimping on R&D and equipment.” This analysis referred to the last couple of years in America; it holds true in Britain for considerably longer, and much of our remaining industry has now slipped into a permanent survival mentality.

Even if we were by some means able to control inflation without the need for recession and thus permit expansion, expansion itself requires the positive driving-force of investment. More specifically it requires investment purpose-directed into the creation of new industries and the raising of existing productivity.

We need investment to create the new jobs which will give us full employment.

And we need investment to provide the basis for productive employment. The purpose of work is to live well today - and even better tomorrow. That depends on each worker and each machine yielding a growing output of better-made products - in other words, rising productivity. And that in turn depends substantially on investment.

"Being as efficient as you can with the tools you have must be the first priority", says Robert Cizik, Chief Executive of Cooper Industries, a $6.2 billion diversified manufacturer headquartered in Houston Texas which makes transformers, air conditioners, Champion spark plugs and industrial grinding files. "But you've got to constantly update your capital equipment base. We're number one in the world in industrial files; but if we produced them the same way we did five years ago we'd be out of business."

A 1991 report which later became influential in President Clinton's economic strategy compared differences in long-term productivity growth in scores of countries, seeking correlations with possible causes. The conclusion was that machinery investment was by far the single most important factor.

Industries in the newly “liberated” countries of eastern Europe reveal an almost universal lack of ongoing investment, resulting in a combination of outworn and outdated equipment producing poor quality expensively, with an almost total absence of new technology. Some are benefitting from injections of western capital and are responding rapidly. Tungsram is Hungary's main, and one of the world's largest manufacturers of light bulbs. They also boast a magnificent male-voice choir. But with the government pocketing most of the company's profits under the old regime there was little to reinvest in the traditional incandescent light bulb business, let alone the rapidly growing market for the new high-tech energy-efficient products used in street lighting and spot lights. When US General Electric took over Tungsram at the end of 1989, investment was identified as a main priority; GE planned to invest at least $15 million a year in the new high-tech, high-margin products, and up to $10 million on a computerized production line for car headlights.

Sophisticated new equipment can speed production and improve quality in everything from the stitching of shoes to the mounting of components on electronic circuit boards. Many electronics factories, for example, still plug semi-conductors and other items into boards with so-called through-hole technology; but with a highly automated surface mounting technique, prong-less components can be soldered in more densely and with greater accuracy.

Quality and precision are not the only advantages to be gained from the latest manufacturing equipment; another important feature is versatility, and the ability to change output rapidly from one product or model to another. Nothing better symbolizes versatility than today's computer-controlled multi-purpose machine tools. In the traditional production pattern, stocks of components and part-finished products pile up behind each work operation, costing money and possibly suffering damage in the process. Production lines are inflexible, taking perhaps weeks to set up then turning out one type of product. This kind of production line is now giving way to smaller machining centres directed by computerized numerical control machines and capable of turning out thousands of different components; changeover takes no longer than the time for an operator to punch a keyboard or feed in a new computer tape.

Flexibility not only reduces production downtime and increases the factory's ability to respond to customers' needs; it can often give a domestic firm the edge over foreign low—wage competition where distance, communication and shipping time all combine to reduce production response capability.

Several years ago US Honeywell considered moving production of their thermostats across the border to Mexico. But because the thermostats come in 250 variations the company preferred to keep production close to their main assembly plant. To boost efficiency and thus compete with low-wage Mexico, while simultaneously increasing flexibility, Honeywell invested more than $5 million in a new production line. Savings and flexibility were both achieved. Worker productivity has increased threefold, and changeover time from one production run to another is down to two minutes. The company claims the investment paid for itself in three years.

In fact the new computer-controlled tools are so much better than their predecessors and capable of generating such an enormous increase in productivity and flexibility that the American branch of Japanese toolmaker Yamazaki Mazak tells its customers that the surest path to success is to rip out old equipment and give it away to rivals!

Those who wonder why Japanese products and industries are successful can indeed benefit from the study of Japanese industrial relations, management methods, and insistence on quality at every stage of production. But the 1992 figures for investment in plant and equipment spending as a percentage of gross domestic product tell their own story, with a score of 21% in Japan, compared to 13% in Britain.

Of course, justification abounds. British industry is operating in a climate of permanent recession; the market just isn't there; and any major investment in productivity will meet with so much worker- opposition that the fight will hardly be worthwhile. All of which brings us back to the need for economic expansion, which will remain impossible until we can find an alternative to recession as the remedy for inflation.

But let us suppose for a moment that the problem of inflation could for whatever reason be set aside and we were able to move into a period of sustained expansion. Would investment flow into Britain's industries and services, supercharging them with the latest productivity-increasing equipment?

This leads in turn to a consideration of the different methods whereby investment can be raised for industry.

Raising Investment: Stock Markets and Banks

In Britain and the USA the stock market has always been the favoured channel for raising investment.

From the viewpoint of business the sale of shares is attractive. Whereas fixed interest bank loans must be serviced whatever the company's fortunes, there is no scheduled capital repayment in the case of shares, and the payment of a dividend though expected is ultimately dependent on the company's current success and would not be obligatory in case of serious financial downturn.

A disadvantage is that stock markets tend to view company performance in terms of the next set of quarterly figures and managements have been trained to do likewise, a situation which hardly encourages the longer term view.

More seriously, the placing of a company's destiny in the hands of shareholders whose identity the company is unable to control can also be risky. Shareholders are the owners of the company and its assets, and by acquiring substantial holdings major shareholders can buy and sell companies as a gamble, or break them up for their asset value. The procedure of the "corporate raider" is relatively simple; forget investment in design, production planning, new machinery and market analysis. Simply sell off the assets, raid the company pension plan, and profits can very quickly be made.

This is no fictitious scenario. Those wishing to explore this avenue more deeply will find it instructively and fully documented in "America: what went wrong" by Pulitzer Prize-winners Barlett and Steele, published 1992. The book tells numerous stories of extensive “corporate raiding” in the USA during the 1980s. Anonymous holding- companies of dubious parentage bought up a very substantial number of viable and productive factories and businesses by means of leveraged buyouts - meaning that they financed their purchases mainly through bank loans. They then proceeded to sell off assets, raid company pension plans, lay off workers and close factories, causing a trail of destructive havoc through the American economy the extent of which is only now being fully understood.

In a broader view we must also consider the effects of stock market activity on the overall economy. While the stock market does indeed fulfil the important function of bringing savers into contact with businesses seeking investment, either by making available new share issues to the public or by facilitating the trading of existing shares, stock markets can also cause serious economic disruption. Many people believe that when stock markets go up that's Good. But there are qualifications. A stock or share in any company has fundamental value only in that it provides a dividend, and when share prices rise too far out of line with actual or expected dividends they become overvalued, and overvalued stock markets must eventually undergo a "correction", with inevitable losses and disruption for some investors. The major Japanese stock market correction of 1990-1992 has had, and continues to have serious repercussions affecting Japanese industry, property, and investments both in Japan and overseas.

Stock markets are not the only source of investment however. In Germany and Japan the Banks and Investment Finance houses supply a major part of industry's investment needs, and these institutions expect to involve themselves in industry and commerce to a much greater degree than their British counterparts. These banks see as their role, not only the holding and safekeeping of personal savings (the British banking view), but also the channelling of savings into productive investment (which British Banks presently prefer to leave to the Stock Market). More significantly they have a greater interest in long-term investment and improvement. They also have the incentive to monitor progress, which they are better equipped to do having access to inside information obtained through placing their own representatives on company Boards.

The needs of industry are twofold: first to obtain the funds necessary to cover investment in design, equipment, stocks and marketing in order to ensure a good product, cheaply and well produced; and second to obtain those investment funds as cheaply and as securely as possible. The availability of adequate investment is essential to maintain, expand and improve industry; and cost of investment can make a significant difference to overall production costs and thus to price competitiveness. The Banking-industry partnership concept satisfies both these demands from the viewpoint of industry. Banks are industry oriented, and the "partnership" assumes long-term commitment.

The long-term Bank-loan cost to industry should be less than the share- dividend option, since the capital is eventually repaid. The major problem with Bank loans is the propensity of interest rates to rise beyond all reasonable expectations. It should be clearly understood however, that such rates are made necessary not as administrative or financial requirements of the banks themselves, but by the use of high interest rates as a political weapon to create recession and thus control inflation - which brings us back once again to the need for an alternative and less damaging anti-inflation strategy.

In discussing the Stock Market versus the Banks as our major industrial investment source however, we need also to address an important question of principle. Does investment serve the needs of industry, productivity and prosperity? Or does industry serve the needs of investment by making its main objective the maximization of return to investors on a quarterly basis?

This question is highlighted by Peter Readman in “The European Money Puzzle” (Michael Joseph, London) where he compares the market (ie Stock Market) approach of the City with the non-market (Investment Banking) approach favoured in Japan, Germany and continental Europe generally:

“The difference between the market and the non-market approach is not merely reflected in the different structures of British and continental markets but also in the attitudes of the people who work within them. Both businessmen and financiers on the continent view finance as a means to an end - just another commodity required for the manufacture of a given product. ln Britain on the other hand, the financial community tends to view money, or more accurately markets, as an end in themselves. On the continent the financial institutions are far more involved in industry itself and their emphasis is undoubtedly on the service-oriented process of channelling funds to end users, possibly at the expense of investors.”

Should industry serve investment, or investment serve industry? lf our objective is Prosperity then the question answers itself. Industry needs investment for productivity and prosperity; and it needs serious, long-term investment. That must be our first consideration.

But even if we move towards a closer banking-industry partnership as in Germany and Japan, can we rely on the banking system to channel funds into productive industrial investment?

Investment or Speculation?

In the early 1970s Edward Heath, then Conservative Prime Minister, announced a dramatic economic policy of “boom or bust”. He was going to expand the economy and nothing was going to stop him, or it. “At last!” many industrialists and businesspeople thought.

But the increased availability of credit and the lowering of interest rates provides only a quantitive incentive to expansion, without any selective criteria. So instead of fuelling economic and industrial expansion, instead of investment in design, training and equipment which would give British industry a sporting chance in the world market once again, money flowed into property speculation. The flow became a torrent and property prices skyrocketed, not only in London, but in every town High Street. General inflation followed on a scale not previously experienced in living British memory.

It was 1970 and a small town in North Wales of some 5,000 inhabitants with a strong sense of community and a good summer tourist trade was saving up for a new Community Centre. The good folk had been saving for a number of years, through the time-honoured but laborious methods of coffee mornings, bring-and-buy sales, and an annual Carnival.

By 1971 they were almost there. The thermometer chart prominently displayed outside the Town Hall showed the red line rising, getting nearer and nearer to its target. But then the target itself began to move upwards, and as fast as the townspeople raised more money, so the cost of building went up ahead of it.

In the High Street too, strange things were happening. Shops which for decades had changed hands for less than £10,000 jumped to £50,000 and would soon reach six figures. While the major financial institutions pumped money into speculative city building, the High Street banks financed speculation in local commercial property with similar abandon.

When the balloon burst, small banks were in trouble, several large financial institutions were forced into bankruptcy (though quietly bailed out by the Treasury), and business would never be the same again for ordinary shopkeepers who now found that the purchase and subsequent debt service on their High Street premises would claim the major part of their revenue.

And industry? Industry remained largely unaffected by the “Heath Boom”. Those attempting to do business during those heady years of the mid-70s will remember the hours spent on the phone, trying in vain to persuade their suppliers to supply them with something... anything, while manufacturers strained beneath a workload which they had never experienced before and which was totally beyond the capacity of their machines and their workforces, not to mention a universal shortage of every kind of raw material.

Investment? There was little time to think of it, the cost of capital equipment was increasing at a frightening rate, and no one was sure how long it would all last anyway. During the brief expansionary period of 1988/9 the investment pattern seems to have been substantially repeated, with predictable after- effects. On March 4th 1993 Barclays Bank reported a £285 million after-tax loss, the first in its history, despite an 18% increase in operating profits. Major losses were incurred through loans to several big property companies, requiring a bad debt provision of almost £2.6 billion. Similarly, National Westminster put aside £1.9 billion against bad loans.

The problems of the Banks are not just losses for their shareholders; more significant is that investment is a scarce resource and if it is dissipated in property speculation it will not be working in industry to improve productivity and prosperity. On what basis, if at all, can we hold banks more accountable for the uses to which their loans are directed?

The Mechanics of Economic Expansion

The money which Banks lend, or to put it more accurately, the credit facility which banks extend to borrowers, comes from two distinct sources.

One source is the money placed with the Bank for safekeeping by its depositors.

The major part however is credit created by the Banking system, in line with Central Bank quantitive criteria, to satisfy the demands of the economy for industrial and consumer loans.

In order to exchange goods and services without the tedium of direct barter, society needs an exchange medium. If there is no exchange medium trade becomes almost impossible. If there is a shortage of exchange medium trade is slow. It is therefore important that whatever medium is used, there should be sufficient available to satisfy the needs of trade.

Consideration of this subject has traditionally been approached from the starting point that the exchange medium is a real commodity such as seashells, gold or coffee. Indeed this always was the case; but today the real-commodity exchange medium is just a lingering memory of little current significance. The exchange medium in today's near- cashless society is the credit facility.

But it is still important that we should have the right quantity of credit to satisfy the needs of the economy in its current or potential level of activity. Indeed it is by regulating the amount of credit available that the level of economic activity can be controlled. To expand the economy we increase overdraft and credit facilities to business and consumers. To slow down the economy we reduce the level of credit available.

The quantity of available credit flowing through the system is commonly regulated by the Central Bank, in Britain's case the Bank of England. The Central Bank has three techniques for regulating the quantity of credit: open-market operations, Bank Rate, and Reserve requirements.

The Central Bank can expand or reduce credit available to the commercial Banks through what is called open market operations.

The Central Bank expands credit by giving itself an overdraft facility for the total amount of the desired expansion. The Bank then purchases government securities in the open market, paying for them by writing cheques against its new overdraft facility. These Central Bank cheques are then paid into various commercial Banks, thus expanding the total amount of money or credit in the system.

To reduce the Nation's money supply the Central Bank sells government securities in the open market; the payment it receives in exchange is then cancelled from circulation, thus reducing the total amount of money or credit in the system.

The open market operations by the Central Bank are often combined with changes in the Bank Rate, the rate at which the Central Bank does business with, or if necessary supports, other Banks.

The Bank Rate influences the rates at which all Banks down the line do business; and this in turn influences industry and private borrowing. Lowering interest rates will encourage borrowing for consumption and investment, thus tending to expand economic activity. Raising interest rates will discourage borrowing and will tend to slow down economic activity. This is the second technique for controlling the quantity of the Nation's credit supply.

As we have already observed, the Central Bank purchases securities in the open market and pays for them with newly created credit, its own cheques drawn on a newly created overdraft facility. The commercial Banks into which these cheques are paid now find that their reserves are thus increased, so they can now extend further credit to their customers.

However they are required by the Central Bank to retain a certain margin of reserves, and this margin can also be changed by the Central Bank as a third technique for regulating the overall credit supply.

Thus the Central Bank, in conjunction with government economic policy, regulates the quantity of credit flowing through the economy. But the actual transfer of credit facility into industrial and consumer loans is left to the commercial Banks.

So far we have been wholly concerned with regulating the quantity of credit available in the system.

It is absolutely vital that the quantity of credit available to the economy should at all times relate to the real needs of the economy in its actual, and potential productive capacity.

Too little credit availability, and the wheels of production, trade and consumption will turn at less than the economy's capacity; potential employment and production capacity will be under-used, and consumer demand will fall short of goods currently or potentially available.

Too much credit will result in demand for goods and service in excess of actual and potential production capacity. Thus the regulation of the quantity of credit flow is the first priority of the Banking system.

However we should also consider the selective criteria applied to the flow of credit. When Banks create credit and loans, on what criteria do they assess and satisfy demands for credit?

The simple answer is that the system generating and regulating the revolving flow of credit which empowers investment and lubricates our entire industrial and commercial machinery is concerned solely with the quantitive issue of how much credit is available in the system at any given time, and exhibits no interest in, nor exercises any influence over the selective issue of how the available credit is used.

The irresponsible gambling activities within the Banking System have now become abundantly clear, together with their failure to provide secure, committed finance for industry.

Banking Discipline

Looking first at the fate of depositors' funds, it was always assumed, back in the simpler banking days thirty or forty years ago, that when you put your savings into your High Street Bank your money was lent by the Bank Manager to your good neighbours, or to local concerns of indisputable strength which the Manager could himself personally supervise since they would also be banking with him. It was during the mid-70s and 80s that shocked Bank depositors began hearing revelations that their High Street Banks were making loans to African and Latin American developing countries, loans for which the Banks were then having to make substantial bad debt provisions. Is it right and proper that we should lose all control of our money once it is deposited with our chosen Bank?

The question of the Banker's obligations to his depositors was raised in 1848 in the House of Lords, in the classic case of Foley vs. Hill and Others, and it is worth quoting Lord Cottenham's decision since in essence it remains substantially valid today:

“Money, when paid into a Bank, ceases altogether to be the money of the depositor; it is then the money of the Banker... to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the depositor if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his depositor; but he is, of course, answerable for the amount., by paying (back) a similar sum when he is asked for it.”

Thus the Banks, in this landmark decision, were given a free hand.

Despite the fact that the money, as Lord Cottenham conceded, was placed in the custody of the Banker, the Banker can do virtually anything with it. This decision fundamentally influenced banking practices in Britain, the Commonwealth and the USA.

The Federal Deposit Insurance Corporation has insured American bank deposits since 1933. De-regulation in 1980 was intended to simplify procedures and allow greater banking competition. In practice it reduced effective supervision; and weak supervision backed by the safety-net of FDIC guarantees presented many banks with the irresistible temptation to explore fully Lord Cottenham's implied invitation to put funds under their care in jeopardy, and to engage in hazardous speculation, a course they adopted with considerable enthusiasm.

When the economy turned down, land prices crashed bringing many substantial though dubious development schemes to ruin, and many highly geared industrial takeovers were also exposed. The outcome was the well-publicized Savings and Loan disaster, wherein hundreds of small Savings Banks went to the wall as a result of unsavoury loans and investments, mainly in property speculation, at a cost to the FDIC and ultimately to the unfortunate American taxpayer which stood at an estimated $155 billion in 1992 and is still mounting. Again we return to the question of Banking discipline, and the obligations of Bankers to their depositors.

Investors in Unit Trusts, a form of pooled investment, are first directed to read the fund's Prospectus, which lays down in precise detail the conditions under which the fund can invest. It would seem not unreasonable that depositors should have the same security from their High Street banks in the case of their own deposited savings.

But what about the credit which is not depositors' money that is being lent out, but new credit created by the National Banking system itself? What conditions of Banking discipline and security should be applied here, and by whom?

Certainly when it comes to New Credit (as distinct from credit which is drawn from recycled depositors' funds), a strong case may be made for greater financial security.

Even with greater security however, there remains the issue as to where the newly-created funds should be destined. This may well come down to a simple issue: productive investment, or speculation'?

It would be erroneous to regard this question as a worn-out slogan of socialist dogma. Productive investment in industry can create prosperity by giving us better quality and lower prices.

Speculation in land and property does not create overall prosperity; indeed it does quite the opposite. There is very little we do which does not involve land, and as land prices go up so do the costs of everything from industry and retailing to office space and home buying. Property speculation actually reduces overall prosperity since it increases costs without increasing value.

Industry needs investment for productivity and prosperity; and it needs serious, long-term investment. At present there is no mechanism for ensuring that System-generated Credit is directed into productive industry. This is not so much the fault of the banking sector, but rather of a society which has never formally recognized the significance of this newly-created credit as a National Resource together with the corresponding opportunity, and the need, to use it wisely.

Should we attempt to influence the flow of credit with an eye to the production and management quality of recipient firms, perhaps even with some consideration of the overall needs of the economy?

The issue gains in significance when New Credit is called upon to play a major role in economic expansion. Without selective criteria, credit created as an engine for economic expansion will not be used productively, and may well serve only to escalate land values and through them the overall cost of living.

A Sense of National Purpose

Industry needs investment; and the term “industry” must in this context include all types of business from manufacturing and administrative offices to distribution and retailing.

Nor is industry the only area in which investment is vital to productivity and competitiveness; our infrastructure too needs substantial investment. The totality of a Nation's infrastructure, its roads and bridges, water and sewage, its power supplies, telecommunications and railways, serves not only the convenience of its citizens, it also serves commerce and industry, and a well organized state-of-the-art infrastructure can make its own substantial contribution to productivity.

We know that our road system is totally inadequate, and that in our densely populated island there is little we can do about it. We have an existing investment in a network of railways and rights-of-way which is perfectly capable of serving our present communication needs. But for this we can thank Victorian foresight, with little credit to our railways' present masters who seem quite uncertain what to do with the system and in the meantime allow it to degenerate through lack of sufficient investment to ensure adequate current operation let alone increased productivity.

Twenty-first century visionaries claim that the main infrastructure element of the future will be not roads or railways but an optic-fibre communications network covering the country and linking every home, through which we can send and receive data of every kind from interactive education, videos and music concerts to home shopping and a full range of business services. America has private sector companies with the vision and the capital to make it happen. Britain lacks the investment capability; but worse still we lack the vision.

If investment was an unlimited resource the problem would not arise; we could simply spend freely on anything and everything. But the productive husbanding of a scarce resource requires both a guiding vision, and an order of priorities.

During the early 1970s, the Japanese - or more precisely, Japan's leading figures in industry, banking and government - got together to discuss over a period the long-term strategy of the Country's economy and industry. They concluded that heavy industry on which the Country had hitherto concentrated was becoming over-competitive. They took the decision as a matter of National Production policy to move towards micro-technology. This decision, having been taken by major industries and Banks, then filtered down, affecting the new small industries growing up with Bank finance to supply the new components required. The decision also affected higher education, as appropriate changes were made and new subjects brought into the curricula to meet the needs of the new production strategy. The results of this decision and strategy are clearly visible today.

Hong Kong was similarly quick to recognize and respond to the economic changes of the 80s. Newly developing Asian neighbour countries began to move into Hong Kong's traditional areas of plastic novelties and other products at the lower end of the production and market spectrum, adding to mounting problems of the Colony's higher domestic production costs. "So pragmatic Hong Kong, while maintaining its strong base in the traditional textile and clothing industries began to move increasingly into other industries, including optical goods, metal and chemical products, and especially electronics manufacturing of all kinds." ("In touch with the World" HK Govt).

Today Hong Kong businessmen are rapidly developing production on the mainland of China in what many observers see as a “reverse takeover” of Peking by Hong Kong. Certainly there is no central government planning or economic direction in Hong Kong - perish the thought! But the size of the former British Colony and the need to survive on exports in this resource-less economy lead naturally to a degree of coordination and unity of purpose.

Central planning along the Soviet model is clearly not an option.

But regional-based strategy initiated by local business and community interests can develop local potential, coordinate developments, and mobilize the inherent desire of every community to be fully employed and prosperous. Coordinated at national level and integrating the needs of infrastructure, a broad ongoing sense of purpose and priorities at local and national level can then be developed, providing an essential basis for effective investment decisions.

National investment potential is a scarce commodity, and unless used wisely it can be quickly dissipated with no tangible benefit; indeed it may even produce economically harmful results. To use it wisely we must be prepared to look not just at quantitive expansion, but at selective criteria. It is not enough to unleash expansion, we have to have some idea of where it is going.

Full employment, productive employment. Job creation, and productivity increases: both are dependent on investment.

If we were ever to be confronted by major and sustained economic expansion (albeit an apparently remote possibility), and if we were serious in our intent that economic expansion should produce usable results in the form of productivity and prosperity, we would need to establish the principle that any expansion of the National Credit Base must be subject to prosperity-oriented selective criteria.

Our national credit potential must be responsibly invested in securely managed enterprises, whose products and processes reflect the highest standards of quality and productivity.

We would also need to develop the prior capability to formulate a broad strategy, and from it an order of priorities to maximize the productive benefit of any funds released as a result of economic expansion.

If we fail to do so, any attempt at economic expansion through New Credit and lower interest rates will be more likely to fuel speculation than job creation, productivity and prosperity.



FIVE:
THE ROLE OF GOVERNMENT


Government and Prosperity

We have identified three major problem areas: recession and unemployment, low productivity, inadequate investment. To what extent can we attribute to government the blame for our present condition? To what extent can or should we look to government in the pursuit of national prosperity?

The policies and activities of government have a substantial bearing on our national prosperity (or the absence of it). The broad subject of Government and its effect on prosperity can be reviewed under three headings: first, the laws which Government policy sets for Business; second the efficiency of Government's own Legislative and Administrative operations; and third the Government-operated, non- political, Public Sector businesses.

The primary function of Government in a Free Enterprise economy is the formulation of laws and regulations which Government applies to the private Commercial and Industrial sector. Government sets the specific ground rules on which relationships between co- workers and consumers are based. The nature and extent of these laws, or the absence of them, can have a major effect on prosperity.

Does Government do enough? Or does it interfere too much?

This is largely an issue of policy, or principle. Traditional free enterprise Right Wing policies favour a low degree of government intervention, while Socialism and the Left favour a high degree of intervention.

While both policies claim to promote national prosperity, Britain has had ample opportunity to test them over the last quarter century, and in retrospect there seems to have been little to choose between them. Neither has had any major impact on our steady overall decline. Whatever the policy it chooses to adopt, Government is itself a business employing in its legislative and administrative functions a substantial and increasing proportion of the nation's labour and resources. The productive efficiency, or value-for-money of government business is therefore in itself a highly significant factor affecting our overall prosperity. The level of productive efficiency, or cost-benefit ratio of Governments is generally low; more serious is the absence of any inducement for government productivity to improve.

The private sector is motivated to improve efficiency and respond to customer needs by the twin disciplines of competition, and the freedom which customers enjoy to reject a product or service. Government is subject to neither of these disciplines, and indeed there is no effective control over the efficiency of its operations whatsoever.

In addition to its legislative, supervisory role over private sector business, with whatever degree of efficiency or inefficiency it is executed, government is widely involved in the day-to-day running of non-political industries and businesses, from roads and railways to health services and pensions. Here again national prosperity is considerably affected by the relative productivity of these services.

The view is widely held that from a purely managerial point of view, State-operated business does not offer the level of service efficiency which consumers would receive from competing private services.

It may also be argued that government operation of business is frequently distorted by political and budgetary considerations which are not relevant to, and are frequently detrimental to the business itself. More often than not, investment in public sector services from hospitals and schools to roads and railways is judged not on merit but on the government's own budget conditions.

In reviewing the three major issues of Government, namely Policy, Government Productivity, and State-operated businesses, it quickly becomes apparent that the matter of Policy is the most important question, to which the other issues are subordinate.

Defining the Role

Consider Government productivity for example. Government in its present totality is the Nation's largest business enterprise, the Nation's largest employer, and the “charges” for its services represent the largest single item of expenditure in the family budget. Clearly a major contributive factor to our national prosperity is the efficiency and cost-effectiveness of Government's own operations. Government is a service supplied to the population which forms its consumers; it is therefore both reasonable and indeed imperative that responsible consumers should ensure that government fulfils its function efficiently. But this in turn requires that we clarify the function of government; we cannot ensure that a business does its job efficiently until we have defined clearly and precisely what that job is. This leads to the question of Policy.

The need to clarify the function of government also applies to the operation by government of public sector businesses. We know what the public sector businesses are for and what they should achieve; what we have not clarified is the question as to whether Government is the best agency to operate them. This brings us again to the question of Government policy.

When we come to address the question of the policy or function of Government the matter becomes more complex. Any Private Sector business knows what it is there for; it has a product or service which it offers to its customers, and it attempts to do so as efficiently as possible. But when we consider the purpose of government we lack a broadly agreed definition, relying more on the partisan policies of historical class distinctions than any attempt at a scientific definition of government's role and function.

But today the old “party lines” are no longer relevant. The Conservatives can no longer rely solely on the support of a dwindling proportion of wealthy landowners and industrialists, and protecting the profits of industry has taken second place to industrial survival. And as for Socialism, the dramatic demise of the Socialist bloc and all of its ideology, revealing a previously concealed industrial and agricultural shambles, has put paid once and for all to the idea that the State knows best and can do it all better. The problem now confronting us is that while these two traditional policies are the only options currently available to us, neither is entirely relevant to our contemporary needs, and neither has proved able to deliver maximum prosperity to the Nation under its care.

Our challenge today is to find a new ideology, a new set of principles no longer based on class interests but dedicated to providing an essential basis of stability, law and order on which ordinary people can build their own prosperity, an ideology put into practice cost- effectively and efficiently.

We should begin this search at the beginning with the fundamental question: what is the purpose of Government?

One simple way of defining the purpose of any institution is to examine what would happen if we were deprived of it. If life would go on as before (and at less cost!) then the institution can have no productive function and should clearly be abolished. If on the other hand, problems would arise as a result of its abolition, then the institution has relevance in relation to those problems, and its clear purpose is to solve them.

To define the function of Government therefore, we can begin by considering what would happen if we were to abolish it.

One major effect of abolishing Government is that we would all find ourselves un-taxed and consequently on average some 45% better off- an appealing thought indeed! The problem is that without the law and order which Government provides we would no longer be safe in person or property, for we would find ourselves in a state of anarchy. Anarchy vs Rule of Law Without law and order there would be anarchy, a condition of disorder in which anyone and everyone is free to do whatever they like, including murder, theft or injury of any kind to anyone else. If we are to avoid this situation then the fundamental need for and purpose of Government is at once established: it is to provide a framework of Law, Order and Justice in which we are protected from anarchy.

We institute Government in order to preserve us from anarchy, which means essentially that we institute government to protect us from one another. Thus we might summarize in the words of Thomas Jefferson, that “the purpose of Government is to prevent men from injuring one another.”

It is worth considering this proposition in detail, for it has implications far beyond its apparent simplicity.

Clearly, Jefferson was not confining injury to grievous bodily harm, any more than he was confining the term men to the male gender.

The purpose of government in this view is to prevent people from injuring one another, and injury can take many forms which grow in number and complexity as the world develops.

One can harm one's fellow citizens through a product which is unsafe in use; or through incorrect labelling of a food product which results in a user consuming an additive to which he or she is strongly allergic. There are many ways in which we can injure one another, in our personal activities, in commerce and industry, in our use (or misuse) of natural resources. In Jefferson's view it would be government's job to identify and define those actions leading to the injury of others, and to prevent them through appropriate laws and enforcement.

Thomas Jefferson was not inventing a new idea; he was simply reiterating an idea that has existed in English common law since before Magna Carta, an idea which is and always has been central to the British view of law, order and justice: namely that we are free to do whatever we like so long as we do not harm or injure others.

The foundation of law in this traditional view is what may be called the Presumption of Liberty, which is to say that a person is presumed free in every respect unless the law says otherwise. It is a further assumption of the British view that the law should forbid only when it has good and justifiable reason for doing so; and that “good and justifiable reason” is generally assumed to be the harm or injury of others.

Most people of the Anglo legal tradition (Britain, the United States and many Commonwealth countries) do not take at all kindly to regulation for its own sake. Yet few would object to being told they may not do something, if it can be shown that their action is in some way harmful or detrimental to others.

The idea is well summarized by Lord Denning in his book "The Family Story":

“What matters is that each man should be free to develop his own personality to the full; the only restrictions upon this freedom should be those which are necessary to enable everyone else to do the same.”

This reveals the essential character of political freedom: it is by nature limited. If one person is totally free to do whatever he likes, he is by definition free to limit or indeed eliminate the freedom of another, thereby reducing that second freedom possibly to zero. We cannot all have absolute freedom in our social relationships with one another. The best we can do is to maximize freedom, and this we achieve when we all accept certain limitations in our individual freedoms so that we do not infringe the freedom of others.

To describe this kind of limited freedom we use the word of Latin/Roman origin: Liberty.

A Land of Liberty is not a land in which we all have absolute freedom to do exactly as we please. That would be a land of anarchy, since everyone would be free to limit, or eliminate the freedom of anyone else.

A Land of Liberty is a land in which we are all subject to some restraint in those actions which are harmful or detrimental to others, so that we can all enjoy a measure of Liberty.

So we accept the authority of Government and the Rule of Law which sets restraints upon the scope of our actions. We accept that in our relationships with one another our freedom cannot be absolute or unlimited. Rather, it must be limited by rules of conduct which ensure that each of us respects the freedom of others.

How Much Law?

Without the Rule of Law people would be free to injure one another in the widest possible sense, each attempting to enhance his or her own personal wealth and possessions through the dispossession of others. This is Anarchy. The remedy is the kind of government visualized by Jefferson and Lord Denning, government which exists specifically to prevent people from doing those things which are harmful or detrimental to one another.

When Government identifies those actions which are harmful or detrimental to others and prevents such actions by law, Government is fulfilling the function of protecting us from anarchy. This gives Government a clearly defined purpose.

How far should Government go in protecting our Liberty from harm or injury by others? All the way would seem to be the logical answer. If any person suffers harm or injury at the hands of another through lack of legislative protection, Government is not doing its job and should remedy its omission forthwith.

So we can give to Government clear instructions and a clear purpose: formulate, administer and enforce the legislation necessary to ensure that there is absolutely no opportunity for citizens to harm or injure one another in any way.

But our instructions to Government cannot end here. Government can, and frequently does go beyond the simple protection of Liberty; and when it does so we enter the field of oppression, as Government begins to regulate our personal private lives “for our own good”, and to take over business ownership and operation. This is not simple protection of the citizen from harm or injury by other citizens, it is intrusion into the lives and work of citizens in a way which, far from protecting Liberty, actually erodes it.

Government should fully protect us from anarchy and injury, thus maximizing our Liberty. But it should go no further than the protection of Liberty, for by doing so Government moves into oppression, and as it moves into oppression so Liberty, which we had previously maximized, is now progressively reduced.

The field of Government activity thus becomes clearly delineated by obligation on the one hand, and limitation on the other.

If we are to avoid anarchy, Government must be obligated to provide maximum protection of the citizen's Liberty from harm or injury or infringement by others. If there is any opportunity for any citizen to harm or injure or infringe the Liberty of any other citizen, Government is failing in its duty and is permitting a small degree of anarchy. Government should be obligated to take remedial action.

On the other hand, if Government issues any Law, order or directive which is not clearly and directly in protection of another identifiable Liberty, then Government is exceeding its duty and is initiating some degree of oppression. Government should be limited from taking action of this kind.

The function of Government would thus be clearly defined and delineated.

We begin, as in the traditional view of British Law, with a Presumption of Liberty. We are all basically free to pursue our own goals and our own happiness in whatever ways we consider appropriate. But this does not imply total freedom, for we may not exercise our freedom in ways which are harmful or detrimental to one another.

The duty of Government is to observe the activities of citizens in order to ensure that in the exercise of their Liberties they do not harm or infringe the Liberties of one another. Law is brought into being to prevent those actions which are harmful or detrimental to others.

But the Law is limited to providing the protection of Liberty from identifiable infringement, and should avoid oppressive or intrusive Law which itself constitutes a prime erosion of Liberty.

This principle, that Government should fully define and protect Liberty while avoiding any further intrusion into oppression, may be referred to as the Principle of Liberty. If this Principle were fully and consistently applied as the basis of Law, overall Liberty in the Nation would be maximized.

With the adoption of this policy both the duty and the limitations of Government would be clear.

When the obligations and the limitations of Government are clearly defined, citizens can ensure that the function of Government is fully executed, never exceeded, and that it is carried out with optimum efficiency.

This in turn ensures an overall discipline applicable to Government Legislation, as well as to the conduct of Government Administration, finances and operations generally.

Constitution: Regulating Government

The need for discipline over the administrative and financial operations of Government arises immediately from the special status which Government holds in society, a status which insulates it from the disciplines applicable to private-sector business and industry.

We can generally count on private sector business and industry to serve us, its customers, with reasonable efficiency; if it does not, then we can always switch to the competition.

In some key areas of the economy there is no competition, but even in these cases we have the ultimate option of refusing the service. If we don't like the way we are treated by the monopoly phone company we can always have the phone taken out; it may be inconvenient, but the choice is still there and we can make a stand if we so wish. Even the classic monopoly at least gives us the choice of opting-out.

With Government however we have a monopoly of a special kind: a compulsory monopoly. While we can protest the phone company's charges by rejecting the service, Government gives us no such option. Government does not offer a service which we are free to use or reject, then charge those who choose to use it. Government works on a very different principle; it taxes its citizens as of right, no matter whether they use any specific Government service or not. And Governments don't offer options; if you don't pay your taxes you go to prison and that's that.

Though we the ordinary citizens are the consumers who use and pay for Government services, we have little or no control over the conduct of Government. This in turn gives Government near-absolute power, power which has become corrupted over the years.

We in Britain do not generally suffer from criminal corruption in Government; but the system has nonetheless become corrupted in the sense that where there is no clear and strict discipline, there is little incentive to improve efficiency and productivity. As a result Government grows inexorably in size and cost with little or no relation to the services it provides or the wishes of its voting customers.

The need for discipline over those who rule us is clear; it is not a new idea. The concept of Constitution as a set of disciplines on absolute power goes back to the Magna Carta of 1215, and this itself was a confirmation of previously established citizens' rights and liberties. The object at that time was to limit the power of the Monarchy in favour of citizens' rights and the concept of consultation with the eminent men of the land, a concept which would later develop into the modern Parliament. Have we succeeded?

In 1215 we had a strong autocratic Monarchy and a weak Parliament. Today the situation is not so much remedied, as reversed.

Today we have a monarchy nominally heading our whole Governmental and Constitutional structure yet with powers reduced to ceremonial formality; and we have a Government in Parliament with powers which many see as near-autocratic. And as our Government grows uncontrollably in size, expenditure and breadth of powers, so the institution of our Monarchy seems to be disintegrating, perhaps through lack of any real purpose.

In 1992 those with a constitutional turn of mind might have celebrated 777 years since the signing of the Magna Carta, now widely held as the world's Constitutional Original. But what have we achieved in all those years? We have succeeded in replacing a costly, autocratic and ineffective Monarch with a costly, autocratic and ineffective Government.

In the face of this situation many see a need for Constitutional discipline over Government today every bit as great as was the need for constitutional discipline over the monarchy in 1215.

Britain is regarded by much of the world, including the United States, as the originator of Constitution, largely if not solely through the reputation of the celebrated Magna Carta. But the world sees us in the beneficial light of ignorance; only we know the reality of what little effective constitutional discipline we have over our Governments.

We should attempt to revive once again the spirit of Magna Carta and the American “Philadelphia Spirit” of 1787 by debating and fundamentally re-thinking the whole concept of Government: what it is, what it's for, and how it should conduct itself.

The application of the Principle of Liberty, that Government should fully define and protect Liberty while avoiding any further intrusion into oppression, would maximize Liberty in the Nation. Furthermore, this Principle can be so clearly defined that it sets its own obligations and limitations upon Government activity.

If Government were also strictly disciplined in its financial and administrative operations in such a way as to ensure that it fulfils its functions as efficiently and as cost-effectively as possible with continuously rising productivity, we would not only maximize Liberty, we would do so without incurring an over-burdensome tax on our earnings.

It may sound a utopian ideal; but it has been expressed before. Thomas Jefferson proposed these very same objectives in his first Inaugural Address given on March 4th, 1801:

“A wise and frugal Government, which shall restrain Men from injuring one another yet leave them otherwise free to regulate their own pursuits of industry and improvement, and which shall not take from the mouth of labor the bread it has earned: this is the sum of good Government necessary to complete the circle of our felicities.”

Today, nearly two hundred years later, most of America's good citizens would probably, if asked, say that a wise and frugal Government is an excellent idea... and one they are still waiting for. It is an idea which now appears increasingly relevant to our times. A fundamental reappraisal of the purpose, limitations and disciplines applicable to Government would not only be appropriate politically in terms of our general Liberty, it would also contribute to prosperity if Government's role were clearly defined and its operations rendered productive and efficient.

When we have reached decisions which accurately reflect our current needs and our present perception of Law, Order and Government, we should encapsulate our findings in a new Constitution.

If the process of debating and formulating a new Constitution appears too much for us, we should attempt it anyway. In the meantime however, there is no reason why any responsible political party aspiring to Government should not set out its own Constitution backed by a guarantee that following successful election it would have full and formal Constitutional status - unlike Party Manifestos which are rapidly abandoned. This idea is already paralleled in the process of Company formation; a company newly establishing itself with Limited status is required to set out its own articles of incorporation. Similarly a Unit Trust fund is required to set out the aims, conditions and limitations of its operation. In both cases the Articles, once registered, must be strictly observed.

Whether self-formulated by a single Party for its own use, or formulated through national debate for general application, Constitutions require independent monitoring and enforcement. This in turn would require the provision of an independent Constitutional Executive, given appropriate status and stability with our reigning Monarch as its titular head. Its purpose would be to review all Legislation or absence thereof in the light of the Constitution, and likewise to monitor the efficiency and consumer-orientation of Government operations.

While some areas of Constitutional Principle touch upon more sensitive issues relating to the fundamental nature of Liberty, others are clearly indisputable, particularly those relating to Government operational disciplines.

One of the most basic rules of Constitutional Principle is that Government should not be permitted to conduct its affairs in any way which would be unacceptable in the private citizen or business. That the Law-makers, either Monarch or Government, should be subject to their own Laws is one of the fundamental principles of Magna Carta. And yet if we apply this principle in the area of finance we can at once see the glaring disparity between the conduct of private sector business and that of Government.

Government can go into debt on its current account, then simply continue to go ever deeper into debt without any hindrance whatsoever. Conduct which the law would never tolerate in private citizens or business is, apparently, quite acceptable in Government - a sure sign of a lack of Constitutional discipline.

The United States Federal Constitution does not at present preclude Government deficits - though there are now strong moves to remedy that omission. However, in addition to the Federal Constitution, most of the fifty component States of the Union have their own individual State Constitutions regulating the conduct of State Legislatures. And several States expressly forbid their State governments from going into debt on current account.

Section 9, Article VIII of Montana's State Constitution, for example, is very explicit: “Balanced budget. Appropriations by the Legislature shall not exceed anticipated revenue.”

The major oil-producing State of Oklahoma, which suffered a disastrous plunge in revenues when the price of oil collapsed in the late 1970s, goes even further, having created one of the most stringent set of Budget rules. Its Legislature is not only limited to spending what it expects to earn: it can appropriate no more than 95% of anticipated tax revenues. The balance and any excess goes into an interest-bearing account to meet future shortfalls or emergencies.

The bottom-line issue of deficit versus balance is more fundamentally related to the way governments prepare and present their accounts.

Business and government practise very different forms of accounting. Business uses accrual accounting which in addition to cash transactions, shows assets, depreciation, and future obligations. Government uses cash accounting which concentrates mainly on cash expenditures at the moment they are paid out.

Cash accounting gives a false picture of government finances both present and future since it takes no account of future commitments such as pensions, and it does not distinguish between current expenditure and capital expenditure.

The Economist explains in its August l5th 1992 issue: “accrual accounting would provide a more accurate picture of government's financial position. But inconveniently for shifty politicians, accrual accounting would also expose all the financial tricks in conventional budget accounts, such as using asset sales to reduce the deficit.” When the government sells national assets (the family silver) into private ownership, cash accounting shows only the cash income, and not the nation's loss of its fixed assets.

This is a matter of detail. An important detail, but detail nonetheless. Of more importance is the principle that government should conduct its affairs and its finances in an honest fashion; at the very least it should be subject to standard legal and accounting practice, though given its paramount and monopoly position one would expect even stricter controls to be applied.

This state of affairs is administratively irresponsible, and inasmuch as a lack of discipline permits inefficiency it is detrimental to our overall prosperity. Where do we look for remedy? In answer we can only return once again to the inevitable conclusion that any question of discipline applicable to government must be a constitutional matter.

The Constitutional approach is essential, for the motivation to improve government efficiency and standards of business conduct is unlikely to come from inside government itself and even if it does, the disciplines thus created are likely to be more cosmetic than real. Governments frequently pay lip-service to improving productivity, but seldom make any real changes.

The National Audit Office for example is supposed to look at government efficiency, and it produces up to fifty reports a year; but it has to agree its reports with the departments concerned before they are published, which not surprisingly causes frequent delays. Furthermore, while the Office's reports identify problem areas they do not propose solutions; that is the job of Parliament's Public Accounts Committee, which may or may not take action, and which may even suppress the report altogether. As The Economist (July 4, 1992) points out, MPs are not, by and large, management gurus, so efficiency-improvement rarely generates much interest in Parliament. And one can hardly expect the civil service to enthuse over and actively promote cuts in its own staff.

Self discipline is a noble ideal, but discipline is always more effective when it is imposed from outside. And if outside discipline is to be meaningful it must originate from a power outside and above government, which in turn means Constitution. Governments make the laws which tell citizens what they may or may not do. Constitutions are the rules which tell governments what they must do, what they must not do, and how they should conduct themselves.

Socially Responsible Free Enterprise

The Principle of Liberty defines the duty of Government as: the formulation and enforcement of Legislation which will ensure that in the exercise of their Liberties citizens do not harm or infringe the Liberties of one another.

Law is brought into being to prevent those actions which are harmful or detrimental to others. But the Law is limited to providing the protection of Liberty from identifiable infringement, and should avoid oppressive or intrusive Law which itself constitutes a prime erosion of Liberty.

How would this Principle or Policy apply to the economy, business and commerce?

We have established the principle that Government should begin with a Presumption of Liberty, acting to limit our Liberty only when it is exercised in a way which is harmful to others. In business and industry this corresponds to a presumption of Free Enterprise as the basis of Government economic policy.

It is a serious mistake to believe that a Nation can become prosperous by any force other than the initiative and enterprise of its citizens. Government, or The State, cannot create prosperity; in fact quite the opposite, as the now ex-Socialist countries discovered and proved to the world. The potential for the creation of prosperity exists in the enterprise and initiative of each and every citizen.

While it is important to allow citizens' enterprise and initiative to realize its full potential in the creation of prosperity, it is equally important to ensure that citizens do not create prosperity at the expense of one another through unfair or dishonest practices. Thus Government should intervene promptly when necessary to ensure that business is not carried out in ways which are detrimental to co- workers, customers, or the environment.

But Government should be careful to intervene no further.

Experience in the ex Soviet bloc has shown us that the State cannot operate industry successfully. Another less obvious criticism is that Government ownership and operation of business invalidates Government's ability to legislate without bias; to whom does the citizen complain about industrial pollution when the Government owns the polluting industry?

This gives us a policy approach, not of unregulated Free Enterprise on the one hand, nor of Socialist takeover by the State on the other, but a policy falling between the two, a policy of Socially Responsible Free Enterprise.

Under the guidance of this policy the role of Government in the area of the economy, business and commerce would be clearly defined.

Beginning with the Presumption of Liberty which in economic terms translates as a Presumption of Individual Enterprise, the basis of economic policy is to allow enterprise, initiative, business and industry to get on with the job of creating prosperity.

The specific role of Government is to observe economic activity in all its aspects, and to intervene only when necessary to ensure that the enterprise of the Nation is developed to its fullest potential in a climate of fair rules and justice as between all participants: investors, employers, employees, and consumers, as well as the environment.

The job of Government is to provide the fair rules and stability in which enterprise can flourish in a socially responsible manner. If Government can truly ensure that Private Enterprise conducts itself responsibly, then there is no need for Government itself to engage in non-political business and industrial activities.

We have previously identified three major problem areas presenting three corresponding challenges for Government:

1. Recession and unemployment
2. Low productivity
3. Inadequate investment

Can government substantially affect these problem areas within the defined policy of Socially Responsible Free Enterprise? Can this policy contribute to the solution of our problems and set us on the road to prosperity?



SIX:
PROJECT-SECURED INVESTMENT

* revised 2012


Money and Investment

We need to consume. We need food, clothing and shelter, plus power, fresh water, communication facilities, and an ever-increasing inventory of products and services. Because we need to consume, therefore we need to produce, to add invention and labour to natural resources in order to provide ourselves with the goods and services we want and need to consume. The adoption of a monetary system, a common medium of exchange, facilitated the growth of specialization and mass production.

Money plays an important part in all our lives and it is easy to forget that the role of money is secondary. Real wealth and prosperity are created through the efficient production of goods and services which we can then consume and enjoy; money is simply a convenient medium of exchange.

Today we live in a highly complex society, an economic producing-consuming inter-relationship which requires an equally complex financial infrastructure which can provide facilities for daily account-keeping, for trade, for saving, and most importantly for investment in industry which becomes ever more specialized and capital-intensive, thus requiring adequate guaranteed investment.

To provide the necessary finance, the banks are authorized to create loans for personal requirements and industrial investment, secured by the borrower's collateral, and the bank's own reserves.

Because we accept without thought or question the need for a financial framework, it is natural to assume that the Banking System which currently provides that framework is also a part of the national infrastructure and is there to serve the nation – like the public utilities, water, power, and sewage disposal. And we blame the Banking System when its members act irresponsibly, building up huge gambling losses which require taxpayer bailouts.

But the banks are not a part of the nation's infrastructure, working to serve the nation and its citizens. The banks are private companies, in business to maximize profits, if possible on a quarterly basis, for their directors and shareholders, prompting them to engage in ever more risky and obscure ventures during periods of economic growth, and to reduce or eliminate loans during recessions. Thus the expansionary-inflationary effects of the upward slope are magnified, as is the depth of the ensuing recessionary trough.

Banks, from the smallest to the biggest, in the USA, Britain and Europe have bankrupted themselves through losses on hi-tech gambling and speculative property loans, requiring bailout from taxpayers through their governments – governments which are now themselves deeply in unsustainable debt which they are finding increasingly difficult to finance. Government bonds, once considered the most secure of all possible assets, are now viewed with caution by the bond markets which demand ever higher interest rates as added security against partial default. In several European countries, banks are being quietly pressured by governments to buy more government bonds – the irony of failing banks supporting bankrupt governments which support failing banks seems to have gone largely un-noticed.

In order to bring down their deficits, governments have resorted to the old familiar remedy: austerity, involving spending reductions and tax increases. The result is recession.

Debts of Banks and Governments

Ordinary folks want to consume. And to do that they need jobs. They are all willing and able to work, to produce the goods and services they need to support themselves and their families. They are not at fault. It is the now unsustainable debts of governments caused by waste, over-manning and low productivity, combined with banks' gambling debts and reluctance to support a troubled economy that are to blame. Indeed government regulators' demands that banks reduce their loans relative to their assets leave banks with only one quick and easy option: reduce and/or withdraw loans to business.

The Economist 20 May 2012 reports “In Portugal loans to non-financial companies fell by 5% in the first quarter compared with the same period last year. One of the conditions of the country's bail-out programme is that banks should reduce their total loans to 120% of assets. The quickest way to do that is to avoid making loans. Spanish businesses are experiencing similar financing problems.

“Conditions are little better in Italy. The province of Varese, near Milan, is a manufacturing heartland: its factories make plastics, textiles and a range of engineering products. The local bosses' association says that 40% of firms were hit by lowered borrowing ceilings between January and March, and 15% were told to pay back loans. Banks turned down 45% of requests for new funding. If firms cannot borrow from banks they lengthen payment terms to their suppliers, exacerbating the credit problem. Fashion is Italy's second-largest export industry, but no sector has a higher level of non-performing loans.”

Stuck in a recession with little prospect that the Banking System will lift a finger to get us out of it, and governments looking to save money rather than hand out grants for infrastructure, we need to explore alternatives. More specifically, a nation in recession needs investment in industry and infrastructure, work which will create jobs now so that people can pay down their debts and start spending, so increasing tax revenues to reduce government debt. But governments and banks are neither able nor willing to provide the investment needed. They got us into the trouble we're in, and neither is capable of getting us out.

Stock Markets to the Rescue?

So what about the stockmarket – surely this has always been the classic source of capital for industry. Indeed, stockmarket traditionally, and ideally, exists to provide companies with equity capital and to give investors a stake in economic growth. But over time that simple truth has been forgotten or abandoned, both by companies and savers as potential shareholders.

Companies have tended to reduce their equity capital (via share buy-backs and takeovers) over the past ten years, rather than increase it. In Britain, new issues have been fairly rare and the larger flotations have often been foreign companies seeking the prestige of a London listing. Indeed, there has been an international trend for companies to finance their investment plans with debt or from their own resources. Even when companies do float (like Facebook), their aim in raising money is to let seed investors realise their stakes, rather than to finance expansion.

Nor are shareholders exercising their traditional role of supervising the capital-allocation process of corporate executives. Investors failed to restrain the reckless acquisition strategy of the Royal Bank of Scotland or the aggressive expansion of Northern Rock's balance-sheet in the past decade. Domestic pension funds and insurance companies, which occasionally did act as a brake on management, now own only 20% of the market, compared with 50% as recently as in 1991. The time when savers scanned the company reports in the financial papers, selecting steady, well-managed companies as a vehicle for longterm investment and steady dividends is long past.

Today's participants in stockmarkets are not savers researching and investing in well-managed companies. Stockmarkets are now peopled by traders seeking quick profits, as participants engage in high-frequency trading powered by computers swapping shares with each other every millisecond. Even the more serious investors expect positive returns every quarter, and drive down the share price when the figures disappoint.

Yet the demands of industry for secure longterm investment remain as strong as ever; thus there is a clear need to review the requirements of the nation's financial infrastructure and the extent to which they are fulfilled, or not, by the current financial system.

Project-Secured Investment for Industry

The basic principle of banking is that credit is generated to finance investment in productive enterprise based on some form of security, currently the borrower's collateral, and the bank's own reserves. But new business does not necessarily have sufficient collateral to provide the equipment necessary to maximize quality; and as for the banks' reserves, many banks are still holding a toxic mix of bad real estate and the bonds of deeply indebted governments.

An alternative way to ensure the security of investment credit is by relying on the project itself, thoroughly researched, then backed by on-going monitoring. This is by no means a new idea. Founded in 1956 in Basque Spain, the Workers' Bank of the Mondragon Cooperative provides investment as a local development bank, the loan based on and secured by the project itself, thoroughly researched and supported with technical and financial advice, its progress monitored after startup for production, quality, and financial performance in a process of ongoing cooperation and partnership.

This also assumes longterm commitment, ensuring finance for secure long-range planning and productivity investment, research and development into new-generation products and services, in conjunction with apprenticeships and higher education which are also sponsored by the Cooperative. The group now employs 85,000 workers with a turnover of 15 billion Euros. Similarly, investment secured by the project itself and its anticipated revenue can also be used to finance infrastructure and urban development.

Tax Increment Financing (TIF) is already established as an effective investment tool for a city to create jobs and promote economic development. Finance is provided in the form of an investment loan to be repaid through an increase in tax revenues resulting from infrastructure improvements. The City of Chicago estimates that TIF funds have created and generated more than a $12 billion increase in property values throughout the City since its inception in 1984. Chicago now has 158 such zones, covering 29% of its land and 13% of its property by value.

Applying this technique of Project-Secured Investment we can take action today, right now, to create jobs, improve infrastructure, and provide industry with the adequate, longterm finance it needs to maximize productivity and most importantly, maximize quality. A network of Regional Investment Agencies, authorized to provide industrial and business investment based on thorough research and on-going monitoring of the recipient business, can spread growth across the nation, creating jobs and providing the wherewithal for existing companies to increase their competitiveness, as well as for infrastructural improvements. Investment targeted regionally can bring industry and growth to traditionally backward areas.

Investment Criteria

The Regional Investment Agencies would thoroughly research each loan proposal from design to production, management and sales, calling on outside expert advice and assistance where necessary, followed by a close working and constructive partnership with the successful loan recipient, then continuously monitored with an ongoing flow of performance data.

Many of today's successful businesses grew over many years and a long hard climb, starting with minimal capital, operating on a shoestring, and reinvesting every penny of profit. Regional Investment Agencies can provide sufficient capital for a good business venture to start at full operation, properly equipped for maximum productivity. Indeed, conditional insistence on the highest standards of product and service quality can increase competitiveness, and the high level of productivity which creates real and lasting prosperity.

Regional Investment Agencies, their loans firmly secured on the assets and ongoing monitoring of thoroughly researched industrial and infrastructural projects, can create jobs and industries NOW, with genuine, repayable investment loans, avoiding the need for deficit-increasing grants. Individual homes can also benefit from investment loans, for example to install double-glazing or roof insulation, work which itself provides further employment. Such loans would qualify as investments, being repayable from savings derived by the borrower through lower energy bills.

Regional Investment Agencies, through Regional Housing Corporations, can also provide lowcost financing for new housing, for rental or lease “at-cost”. The Housing Corporations would acquire “grey” ex-industrial, or unused agricultural land at its current price, rather than the inflated “with planning permission” price for the construction of quality, environmentally attractive cluster housing, yet built using techniques of fast-track mass-production. Availability of at-cost housing would make it possible once again for young families to afford that most basic of all needs: a decent home in pleasant surroundings.

A major element in the economic and financial disaster of 2008-11 was the phenomenal rise and catastrophic fall in house prices which also made a major contribution to the Great Banking Crisis. A pool of lowcost rental housing would provide an “anchor” to slow down the next housing bubble.

The wider concept of banks and financing facilities established specifically to provide investment for industry and infrastructure is by no means new, and many precedents can be found.

Historical Precedents

Napoleon III became President and self-styled Emperor of France in December 1852 at a time when industrialization and scientific discovery were already gaining pace in Europe. This in turn required that banking should promote industry and infrastructure, in contrast to the existing banking system in France which was almost exclusively, and very conservatively managed under Baron James de Rothschild.

Under the direction of the Pereire brothers and the patronage of Napoleon, the newly established Crédit Foncier and Crédit Mobilier financed and promoted investment in the expansion of the textile, chemical, steel and metallurgical industries, and the modernization of agriculture. The rail network was increased from 3,000 km in 1852 to 18,000 km in 1870, and the complete renovation of Paris between 1853 and 1870 was undertaken by the Seine prefect, Baron Georges- Eugène Haussmann. The addition of further large banks focusing on industry ensured strong economic growth and industrial development.

In 1818 the Swedish government offered 160,000 Taler to Westphalia as reparation for damages incurred during the Napoleonic Wars. This money was decreed the property of all Westphalia by its President, and the Westphalian Hilfskasse, or 'Assistance Bank' was established to develop the region's economy and pay for public-works projects.

This proved highly successful, prompting the King of Prussia to order that a similar Bank be created in the Rhineland in 1847. Both Banks later became Landesbanken (Regional Banks), and were instrumental in making the Rhine-Westphalia region one of the most productive industrial areas in Europe.

In the post-WW2 years, the Landesbanken again played a major role in the creation of Germany's 'Economic Miracle', in particular through the provision of secure on-going finance to the German Mittelstand (small and medium-sized companies) in their respective regions. With 3 million mid-sized businesses, the Mittelstand industries employ more than 70% of German workers and contribute roughly half the country's GDP.

In the USA, the Bank of North Dakota (BND) is unique in being a State-owned bank, dedicated to promoting commerce, industry and agriculture. BND offers numerous low-interest loan programs in collaboration with a lead lender to meet the financing needs of any qualifying new or expanding business. The Bank provides financing to stimulate economic development in the State for both business and agriculture.

Now India's second largest bank, ICICI Bank Limited was incorporated in 1955 as the Industrial Credit and Investment Corporation of India Limited at the initiative of the World Bank, the Government of India and representatives of Indian industry, with the object of creating an industrial development institution to provide medium-term and long-term project financing for Indian businesses.

The concept of Dedicated, Project-secured Development Investment based on, and secured by the project itself backed by continuous monitoring is basic, and simple. It can create jobs, economic expansion and enhanced productivity anywhere without increasing government debt.

Regional Investment Agencies can spread growth across peripheral regions, creating jobs and providing the wherewithal for existing companies to increase their competitiveness. And the benefits will stretch into the future as a thriving, broadly based economy sends a positive signal to young people providing the prospect of a challenging, well-paid job as the sure reward of education.

In these days of hi-tech gambling, mis-reporting of assets, and under-cover manipulation of interest rates, morality and scruples are no longer a part of the banking tradition, now replaced by a culture of 'profit at any cost'. And as for banks' assets, government bonds, once considered as 'gold-plated' are now themselves being downgraded.

It is the responsibility of government to ensure the proper functioning of the nation's infrastructure services, among which banking is arguably the most significant. Regional Investment Agencies can create jobs and industries NOW, with genuine, repayable investment loans, avoiding the need for deficit-increasing grants.

During the Great Depression years following 1929, Britain's Lord Melchett, prominent industrialist and politician, stressed that banking should be at the service of industry, rather than industry at the mercy of the banking system. His words are equally true today: “While banks take a short-term view for reasons of security and liquidity, business is conducted on a long view. We must alter our banking and economic system to suit the necessities of industry”.



SEVEN:
MAXIMIZING QUALITY AND PRODUCTIVITY


Productivity: Potential and Reality

The Regional Investment Agencies (RIAs) provide secure, long-term capital for new and existing industries and services which the current banking system fails to do.

Unlike the Banks, the RIAs do not require the deeds of applicants' houses, but rely for the security of their loans on two elements: first, a thorough initial assessment of the project in view, in which the Agency will call upon outside advisers specializing in the project under review, as well as its own in-house assessors and analysts. Second, the RIA will follow-up with a flow of data and regular meetings with recipient businesses in an on-going partnership.

One especially important feature in the investment conditions is that the recipient business must at all times and in all its operations observe and comply with the highest international standards. Only thus will its success in national and world markets be assured by high quality goods and services at competitively low prices.

Britain's current position in the global quality and productivity league is relatively low, a situation for which our condition of semi-permanent recession must take some of the blame.

But if Britain were able to set itself on a course of sustained economic expansion, would we all rapidly and unhesitatingly rise to the challenge? Would the whole of Britain's business from industry to office work and retailing begin at once to transform itself into a high performance workplace? Likely answers to such questions might range from the dubious to the negative.

And yet economic expansion without an immediate revolution in quality and productivity will prove short-lived and disastrous. Increased purchasing power will simply draw in superior foreign products leaving Sterling devalued yet further and our own industry precisely where it always was.

If we are going to benefit from the potential rewards of sustained expansion, management and workforce must learn to work together in a new spirit of teamwork, with quality maximization as a universal objective. And this lesson must be learnt rapidly, for expansion offers not a long easy road but a window of opportunity which if not quickly seized will be lost.

There are three stages through which standards of quality and productivity in management and production are raised. These three stages are the development, dissemination, and application of new methods and techniques which will allow us to produce more and better goods at lower prices.

Better ways of doing things are constantly being developed. For this blessing we can thank two enduring characteristics of Human nature: we are greedy, and we are lazy. Because we are greedy we want more; because we are lazy we want to get more with less work. To be fair we might also add that most people take a pleasure and a pride in doing a good job. This combination provides the motivation by which we continuously strive to make more and better goods for less work, or in other words, to increase our productivity.

We can improve designs, production techniques and management methods through specific, purpose-directed research. Improved production techniques can also result from a process of continuous day-to-day improvement, by doing a specific job repetitively and realizing that with a little rearrangement it could be done better and with less effort. This latter process is dependent largely on worker involvement encouraged and supported by advanced management practices. The inventiveness of Human nature will always seek improvement, especially when positively encouraged to do so.

Once developed, tested and proved, new techniques and ideas can be disseminated, informally through trade journals, and more formally through the central national Standards Institute which receives, tests, adopts and publicizes new ideas and techniques.

To bring the process to fruition, available techniques must be applied. Manufacturers, industrialists and businesspeople throughout the entire spectrum of commerce and production must make themselves continuously aware of the latest ideas and technology, and be prepared to put them into practice at the earliest possible opportunity.

Development, dissemination, application. If Britain is currently backward in world competitiveness, in which of these three stages can the failure be found?

The answer lies clearly in the third stage: application. There is no shortage of tried and tested techniques for the improvement of management methods, which if put into practice would lead to more collaborative industrial relations, worker involvement, smoother production and better quality. And there is no shortage of technological innovation in every field of business and industry which if adopted would yield immediate and dramatic improvements in productivity. The trade magazines are full of them, and British Standards issues its own regular reports and updates to its members.

The ideas and techniques are there in abundance, and readily available; the problem is that we do not bother to inform ourselves of them, or to make use of them.

Although this problem may be more apparent in Britain it is by no means confined to Britain alone.

A quick browse through the Business Section of any American bookstore or a selection of management-oriented business magazines will give the impression that all of America's industry is buzzing with total quality management, worker empowerment, teamwork, and all the other toys supposedly found in the high-performance workplace. But in fact only a handful of American companies are putting these techniques to practical use. Most employers stick to the old ways, with hierarchical management, "walled-in departments", and assembly lines with their typically repetitive and undemanding jobs performed by disinterested and unmotivated employees.

The American Society for Training and Development estimates that as of 1992 only 13% of American companies employing a mere 2% of the labour force have actually created a functioning high-performance workplace. The ideas are there; but who is using them?

The problem is not confined to industry. Americans are currently exploring ways to reform their education system; but is there really a shortage of bright new ideas? An autumn 1992 education summit held in Washington DC concluded that "reformers of America's badly ailing education system don't lack for clever, effective solutions; the main problem is translating them into action. The problem lies not in a lack of better ideas about how to educate children but in the failure of these ideas to spread even when they have been tried and their success proved."

If our world generally and Britain in particular is considerably poorer today than it should be, it is not for lack of innovative technology and management systems there for the taking, but rather our failure, for whatever reasons, to make use of them.

Why does this failure exist? Are there no commercial, social or political factors at work to maximize quality and productivity?

In theory we currently have two supposedly potent commercial forces working towards efficiency. We have the authority of the shareholders, which reaches through a descending hierarchy of command, threat and supervision from board of directors to shopfloor. And we have the competition of the market place.

Are these two forces effective in maximizing efficiency?

We can answer this question fairly quickly by mentally scanning our own places of work. Do we practise the latest management and production innovations? Does our company keep up with the newest techniques in our industry and promptly put them into practice? Are we aware of world trends and prepared for their possible impact? These are simple questions we can all ask, and the answers will in the majority of cases be in the negative.

Similarly we can look around the local superstore or department store at the range of products. Do British-made products immediately stand out as leading examples of design quality, exuding that confidence which a product subtly displays when it is well designed for efficient trouble-free use and precision-made with care and quality? Perhaps we'd better "pass" on that question.

Whether as workers in poorly organized factories or as consumers confronting less-than-best British quality we are faced with the sad fact of life that at any given time technology has a lot more on offer than we ever make use of. Clearly the combination of shareholder authority and market forces does not provide sufficient motivation to ensure the maximum utilization of existing techniques let alone further development.

Quality and Social Responsibility

If the free market provides no satisfactory solution, how would a policy of Socially Responsible Free Enterprise respond?

This policy-approach begins with free enterprise; it identifies areas in which unregulated or insufficiently regulated economic activity can be detrimental to other participants, then acts to limit or eliminate such practices.

Is less-than-maximum efficiency and productivity in business and industry detrimental to other participants, to suppliers, co-workers, investors, community and consumers? A case can be clearly be made in the affirmative.

Co-workers at all levels depend on one another. Design, production and marketing departments are mutually interdependent; and none of them will want to be put out of work by errors in the accounts section. High standards of quality and efficiency in the overall management of the firm are reflected in improved working conditions, production planning, personnel management, and ultimately, security of employment. The maintenance of high standards in any business is clearly in the interests of all its co-workers, and its investors.

Business and community are also interdependent: business wants a capable workforce and a functioning infrastructure, the community wants a dependable employment source. We cannot avoid the need for evolutionary change; if an industry becomes outdated then it must be replaced with something new. That is disruptive for the community, though inevitable. But if a viable business stumbles or collapses through incompetent management, the host community not only suffers, it suffers unnecessarily.

In the wider context, businesses and industries are highly dependent on one another, for the supply of materials and components, for subcontracted work, for marketing and distribution. So the quality and reliability of one business affects, and is affected by that of several others.

The consumer is the ultimate recipient of the product or service; indeed, since we produce solely in order to consume, the consumer must be the most important element in the process. Good design, economical production, efficient and stable administration; all these factors have a direct bearing on the product or service as it is presented to the consumer. And it is the consumer who suffers when a product fails to perform as it should, or when its quality and service fall below the standard of which current technology is capable.

This total integration and inter-dependence of co-workers at all levels and in all departments, together with investors, suppliers, distributors, host community and consumers clearly reflects the reality that incompetence in any part of the chain affects others adversely if not disastrously.

Suppliers and distributors, as well as co-workers at all levels and in all departments should have the right to expect from one another the highest standards of professional conduct.

And consumers should have the right to expect that products and services reflect and embody the highest currently known and recognized capabilities in efficiency, quality and reliability.

A policy of Socially Responsible Free Enterprise would recognize this interdependence, and the obligation which it places on all participants in economic activity to strive continuously for quality and productivity maximization. How can the fulfilment of this obligation be assured?

Mandated Productivity Standards

The interdependence of all participants in business, industry and commerce makes it possible for the conduct of one participant to have an adverse effect on others.

If there is any way in which a department, a machine or an operation can be run more productively, if there is any way a product or service can be made better for the same work-input, these improvements should be adopted. If they are not, then the productivity and longterm safety of the firm will be compromised to the detriment of co-workers, suppliers, distributors and investors; and the consumer will not be getting the full value of which technology could be capable.

We already have the ability to receive and test centrally all new ideas and techniques through the work of the British Standards Institute, then through the BSI and trade journals to disseminate Standards and information throughout the economy. This can and must become a powerful dynamic force to bring out the best and exploit it to the full.

Socially Responsible Free Enterprise would obligate every business to designate an individual or a department with the duty to make itself aware of the latest techniques of design, production and management relevant to its particular field, and would further require that such Standards and practices should be applied at the earliest practicable moment. In case of persistent non-compliance consumers and co- workers at all levels should have ultimate recourse to law.

Not all techniques promising improvements in management, quality or productivity will be relevant to a particular business. And even when relevance is established, it may not be possible for new ideas and Standards to be adopted at once; major changes even when accepted as being appropriate in principle may have to await amortisation of existing equipment or factory reorganization before practical application.

The law cannot simply require blanket application of all new methods, techniques and Standards. However, management would be under legal obligation to establish a formal procedure whereby the latest relevant techniques and methods are obtained and studied for possible application. This obligational framework for continuing review combined with the ultimate backing of law in cases of clear non- compliance should provide sufficient impetus to change our way of thinking so that the continuing development, monitoring and adoption of potential improvements becomes not the exception but the rule. Recourse to law may be considered a harsh solution; but is the alternative of business failure and general competitive decline really preferable?

There are three main categories of participant who can suffer injury from failure to maximize productive efficiency. They are the employees, whose working conditions and jobs are jeopardized, the consumers who obtain less than best possible quality, and the investors whose capital is at risk.

Investors would, as now, have the ultimate option of withdrawing their capital; but destroying a business is hardly a remedy for inefficiency, and if all else fails recourse to law would be preferable.

In the case of consumers, let us say that a Consumer Report finds a major fault in a product. Generally speaking the most they can do is To suggest that their readers should not buy the product. This does nothing for the consumer who must now find a perhaps less suitable alternative, or for the company which simply goes on turning out a bad product. Here again, ultimate recourse to law will ensure that consumers' complaints are taken more seriously.

Examples abound in the workplaces of Britain where blatant inefficiency and poor organization, seriously detrimental to working conditions, productivity, quality and ultimately the entire company's future, are clearly in evidence; yet managements do nothing, and workers remain silent because no one has thought to involve them. Here again the ultimate recourse to law adds a new dimension more likely to produce results.

Management Structure

Economic expansion provides the opportunity. Mandated Standards would provide the ultimate impetus. But the productive groundwork must take place in every business, office and factory, and this in turn will only come about through a fundamental change of structure and attitudes at all levels, providing a foundation of teamwork and cooperation, and reinforced by the application of specific systems and techniques to improve performance, quality and productivity.

The maximization of quality and productivity requires action at three levels: management commitment, total teamwork, and quality systems. The first step has to be a clear, wholehearted and irrevocable long-term commitment on the part of top management to sustained High Performance, and to its achievement through the second level: a process of total teamwork. Only then can appropriate systems be reviewed and put in place for the improvement of quality and productivity.

It is particularly important in Britain that we should revise our management attitudes and industrial relations; and this must essentially begin at the top.

In the fulfilment of its function business is a collaboration of many component parts: significant suppliers, outside advisers, co-workers at all levels and in all departments, managers, investors, and consumers, as well as the host community and those concerned with training and educating new generations of co-workers and participants. This reality could be reflected in an executive Supervisory Board representing these major interest groupings, similar to the German Aufsichtsrat.

Day-to-day management should also shift its emphasis in a move from the traditional hierarchical, to a more collaborative corporate structure. Present Management sits figuratively at the top of a pyramid, presiding over its hierarchy of subordinates. Adopting a more collaborative style, Management would be sited symbolically in the centre of a circle, surrounded by the various activities of supply, design, production, administration and sales located around the circle. These functions inter-act among themselves around the circle's circumference, and are coordinated at the centre by Management which should include representatives of departments and employees at all levels. Much of Japanese business is structured in this way, a format which is reflected in the physical location of management in the centre of the work area thus maximizing contact with every aspect of the production and administrative process.

As a regular summarizing of business activity, the simple quarterly profit-and-loss account presents at best a narrow, and at worst a positively misleading view of a company's condition. New attitudes and objectives could perhaps be reflected in a more comprehensive Total Performance Audit, recording and publicizing monthly data in such areas as quality, customer complaints, safety record, work environment, innovation, industrial pollution and so on.

Such criteria are highly significant; it is precisely the company's performance in these areas which can give an accurate indication of its present management quality and its future viability. Companies which can achieve and maintain high ratings in these areas will indeed create a High Performance Workplace; more importantly they will survive, and thrive.

Creating a Team Spirit

The importance of changing attitudes, both on the part of management and workforce cannot be overstressed, particularly in Britain.

Small businesses and worker cooperatives tend to succeed in Britain because people are working together. We must learn to do the same in our major industries too, if we are to compete internationally and create prosperity at home. Until a spirit of teamwork has been created as a foundation, any attempt at introducing quality control systems will fail.

A brief glimpse of a Triumph or an MG sports car in mint condition brings back proud, nostalgic memories of the days when the British car industry actually produced British cars which British people bought. But the human memory can sometimes be misleadingly selective; the British car industry was also famous for its abysmal industrial relations and poor quality.

Managements naturally blamed the workers; but if the workforce was entirely to blame, why do British designed and engineered racing-cars have a world monopoly today, prized for their originality, quality and reliability? Most probably because now they are built by small companies with a good team spirit.

And why has Britain attracted most of the Japanese investment going into Europe's car industry? Mainly because Japanese managements recognize the potential skills of British workforces, and set about encouraging and developing those skills through highly competent organization and a spirit of teamwork.

Embarking on the road to good industrial relations and teamwork requires first and foremost a simple commitment of principle. Many cheap and ready ways of creating the basis of teamwork can be initiated right away, such as the elimination of all traces of us-and- them-ism, segregated facilities and subtle dress codes, to be replaced with shared and improved canteen and social facilities. Work environments naturally reflect their different requirements of production or administration; but fresh air, daylight and cleanliness should not be the sole prerogatives of management and administration.

Ultimately the spirit of teamwork must go deeper, until it reaches the very root of industrial relations, removing all social barriers and uniting the total business into a motivated, integrated team.

Sir John Harvey-Jones realized the importance of teamwork during his early days with ICI, as he relates in his book "Getting it Together": “I suppose the biggest lesson of all was learning how much more our people knew and understood of what they were doing than we gave them credit for. We always knew that we relied on them to carry out their duties well and effectively. But we tended to believe that we, who understood the theory of what was happening, knew better in some way than those who wrestled with the practice. More often than not, the experience of doing the job, day in and day out, had enabled our people to learn all sorts of short cuts and wrinkles, many of them good and only odd ones undesirable. The built-in learning process and urge to simplify that everyone has, came through very strongly.

“When I eventually became the manager of the supply department I instituted what was the forerunner of briefing groups and quality circles. Every ten days or so, I would ask the whole of one of my sections into my office for a chat about their work and our problems. Although it was looked upon as an eccentric waste of time, the pay-off in terms of involvement and commitment was immense.”

Under its new chief executive Paul O'Neill, American Alcoa lays particular stress on "the right kind of relationships between people". Alcoa has had plenty of experience with the wrong kind: Britain is not the only home of confrontational industrial relations. A few years ago labour relations at Alcoa were so bitter that disputes erupted almost weekly. O'Neill began a campaign to obliterate corporate class distinctions. As a start he scotched his company car and driver. He is also striving to give hourly workers more managerial responsibility particularly in safety. Overall, a senior Union negotiator sees “a tremendous change in the attitude of employees and a completely different management attitude” - and productivity has improved correspondingly.

Teamwork also implies a greater reliance on individual workers, on cultivating their potential talents by giving them improved training and responsibility.

Four years ago a factory in Virginia USA wanted to build a new automobile fuel injector that wouldn't clog up. But many of their production workers had spent a lifetime doing routine assembly work, and lacked the skills in teamwork, communication and statistical analysis needed to run sophisticated new machines and handle innovative ways of organizing work. The management decided to abandon the old hierarchical “do-as-you're told” attitude and take the teamwork approach, realizing that this would mean investing in their employees so that they would have the skills necessary to play their part effectively. In collaboration with a neighbouring college the company developed a specially devised training programme called World Class Manufacturing. The result? Quality has been pushed ever higher until it exceeded the maximum tolerances specified for many of the production machines; sales of the new injector have been rising by 40% a year for three years, and the number of production workers has nearly doubled. The company comments: “Cheap labour is available to your competitors too, so it's not a long-lived advantage. The only sustainable advantage is an adaptive, productive workforce team.”

A national consensus on pay, profit and prices would remove the traditional bone of contention between workers and managements. With a spirit of teamwork securely in place, previously antagonistic managements and workforces, and even Trades Unions, could now join forces in a common objective: the maximization of product and production quality.

Some examples of Union-Management cooperation in the cause of productivity can already be found. In the early 1980s, American Xerox was losing market share to the Japanese and closing factories. Fearing the worst, Union leaders offered to explore ways to improve quality and efficiency.

Union members threw themselves into the task of making Xerox a world-beating competitor. When the company announced that it would close its wire harness manufacturing unit (with a loss of 240 jobs) and buy instead from Mexico, the union formed a team to identify ways to lower costs and make a competing bid. The goal was to locate $3.2 million in savings. They found $3.5 million.

Now Xerox is winning back market share it lost in the l980s and, most important for the Union, increasing employment. Xerox manufacturing jobs have grown from a low of 2,600 in the early l980s to 4,100 in 1992.

The Quality Effect

As the spirit of teamwork is created, so improvements in production systems can be put in place. This is important. Quality and Product Excellence are fine objectives indeed; but they will not be achieved simply by stating them or by putting up workshop slogans. Indeed, mere words and slogans can be counter-productive, making workers nominally responsible for processes over which they have no control.

Quality and productivity can only be achieved through the careful and methodical application of statistics and systems: statistics to provide the basis of facts, and systems to bring processes under control then continuously improve them. This requires not only the selection and institution of appropriate systems, but also the involvement, training and encouragement of the workforce to put the systems to use.

Dr W. Edwards Deming was an American widely credited with the introduction of quality criteria into Japan after the Second World War; indeed he is still regarded by major Japanese business leaders almost with veneration and Japan's leading quality prize is named after him.

Dr Deming was a statistician, who believed first and foremost that all processes and their variations must be measured and recorded before improvements can be made. And improvements can only be made by managements providing the systems, the equipment, the training and the encouragement so that operatives can produce quality with pride, which as Dr Deming observed is everyone's natural desire.

Training is particularly important. In 1991 Corning's ceramics factory in Erwin, New York introduced a whole package of quality control systems and worker empowerment. But without clear and explicit training workers were unable to meet the challenge. The company responded by investing in worker training. Two years later the results were impressive: productivity up, waste down, and product defects had declined by 38% over the previous year.

Once systems have been put in place for measuring and recording quality and its variations, consultants, managements, workers and suppliers can then concentrate on improving quality by reducing the degree of variation. The reduction in variation is clearly important as an objective in principle; but it gains in importance when the cumulative effect of quality variations in the finished product is considered. Each component forms a part of a total product, and even small variations in the quality of individual components can be compounded into major quality variations in the finished product.

Ford learnt this valuable lesson when their US factory couldn't keep up with transmission orders, forcing them to subcontract to Mazda in Japan. Discovering that customer response was better for cars with Japanese transmissions, Ford engineers matched Japanese transmissions with their own. They found that although all conformed to specifications, there was 60% less variation among Japanese units. The American engineers also observed the care with which the Japanese components were crafted; as (then) chief executive of Ford later commented, “they were almost works of art”. The Japanese transmissions were not only quieter, but the cost of repairs under guarantee was ten times lower than with the American products.

The procedure whereby the best aspects of competing products are identified and used to spur improvements is known as benchmarking. This process is becoming increasingly popular in the USA where a recent survey conducted by the American Quality Foundation found that 30% of US businesses regularly benchmark their products and services.

How do our methods and products compare with the competition? Is there a better way of doing things? Can we learn from others? These are the questions which benchmarking can attempt to answer. One simple method of benchmarking is to locate the best competing products, analyze all their features, then select the best features from each for use in your new design or model.

So widespread has the process of benchmarking now become in the USA that numerous specialist associations, councils and consultants have sprung up to coordinate and widen benchmarking practices. Ford says that as many as fifty companies visit them each year to see how their benchmarking works and how it can improve their products, services and processes.

Management commitment, teamwork, statistical control systems, worker empowerment and involvement, benchmarking, all form part of a total programme of quality and productivity enhancement which can ensure the safety and long life of the company and its dependents, as well as quality and low price for the consumer. But most important is the spirit of dedication and commitment with which these aims must be pursued.

All too often managements today regard Standards as a nuisance to be ignored; where the law or consumer pressure makes compliance a necessity, minimum compliance for most of the time would probably be considered a satisfactory achievement.

lf prosperity is our goal even minimum compliance will not be enough. Quality can never stand still. If it does, prosperity will stagnate also.

As products become more sophisticated and consumer expectancy rises, within tolerance limits is no longer good enough; tolerance limits should be continuously challenged and reduced, just as quality and productivity standards must be continuously improved.

In Japan, Quality Assurance in its widest possible sense is understood as a process through which new standards are not just to be observed, but continuously challenged, revised, and replaced by newer and better standards. While most western workers and managements see Standards as fixed goals, Japan's Quality practitioners view Standards as the place to start for doing a better job the next time. High Performance is not a fixed goal which once achieved can be forgotten; as a company objective it requires a continuous process of improvement which can be never-ending. As standards rise so consumer expectations rise; the successful company does not simply keep pace with consumer expectations, it stays ahead by setting the standards of excellence which other, lesser firms attempt to emulate. The improvement of prosperity is the reward, and it too is open-ended.

Though the realities of interdependence provide significant justification for broadly mandated Productivity Standards, such a move would undoubtedly be regarded by some managements as a burden and an imposition. Certainly compliance, let alone continuous improvement, will not be easy in a nation of industries accustomed more to a survival strategy of keeping up with the pack rather than leading it. But it will not be impossible. Some have already begun.

When employees bought-out car component manufacturer Unipart in January 1987, Unipart's main Oxford factory was decidedly third-rate, stocked with drab workshops and elderly machine tools. The new management believed the Oxford factory could survive, but only if it adopted Japanese methods. Honda (which had a tie-up with Rover) introduced Unipart to its supplier of fuel tanks in Japan, Yachiyo Kogyo Company, and Unipart sent a team of shopfloor workers to Yachiyo in the summer of 1987 to study its manufacturing methods. They found that the Japanese stressed quality and the reduction of waste far more than sheer output quantity, and that Japanese shopfloor workers assumed far more responsibility for their factory's efficiency.

In late 1988 Unipart installed new production machinery purchased from Yachiyo; but the most crucial investment Unipart made was in its workforce, in new management methods, improved production systems and layout, and in worker involvement. Indeed many of the older machines in the factory have been retained because the factory's workers have devised better work methods, including new and faster ways to set up the 50-year-old stamping presses resulting in greater production flexibility. The firm's contribution circles have worked on about 80 projects and helped cut Unipart's annual costs by some £2 million.

There are indeed companies in Britain achieving world-class standards of teamwork, manufacturing environment and quality of output, reminding us that British managements are quite capable of maximizing standards and that British workforces are equally capable of high quality output given the right tools, training and environment. Such cases however remain a small minority.

There are other companies which feel a strong need to improve their production methods and human relations but lack the skills in organization and communication necessary to do so. This would indicate a demand for advisers in this field, mature and experienced managers and executives with additional specialized training in management and production standards, who could form an essential bridge between companies, and the High Performance to which they aspire. Sir John Harvey-Jones has shown how this sort of mature and informed advice can help companies, as illustrated in the television documentary series Troubleshooter.

There will also be many businesses which, if the truth be squarely faced, will only respond to the ultimate pressure of law. A start can be made by introducing universal compliance with BS 5750 (ISO 9000 is a similar international standard) which provides official certification and monitoring by the British Standards Institute of individual company or industry—group Quality Assurance Programmes.

In addition to any formal legal requirement, a major national move to improve quality and productivity will clearly require management initiative, and a basic attitude adjustment throughout each and every business at every level bordering on revolution. But the rewards would quickly outweigh any initial misgivings with a rapid and positive effect on British business and industry.

As firms move to adopt the newest and most productive techniques in their own field, so the quality influence spreads. Their own quality spreads outwards to their customers, be they retail or trade customers. Quality comes back to them as their own component suppliers become more productive and quality-conscious. Call it the Quality Effect. As designers and inventors become more confident that genuinely good ideas stand a reasonable chance of being put to productive use, talents will develop.

And as the whole country becomes more efficient, more productive, so our competitiveness and our own domestic prosperity are enhanced.

Maintaining the highest possible standards in management, quality and productivity will maximize job satisfaction and job security for suppliers and co-workers, while as consumers we will all enjoy the use of products and services which reflect a continuous improvement in quality at progressively falling prices.

That, in a word, is prosperity.



EIGHT:
PAY AND PRICE EVALUATION


Rules or Dispute?

A previous analysis in Chapter Two established that our Pound Sterling monetary unit, in common with all other world monetary units, has no inherent, or standard defined value. Money today has value only in terms of pay (how much we get), and prices (what we can buy with what we get). But pay and prices have no fair or stable definition either, being determined by rule-less and often acrimonious disputation.

The result is a structurally unstable monetary system which, when spiced by mistrust and overlaid with the universal desire for greater personal wealth, produces inflation. In current economic practice inflation can be held in check only through monetary restraint, recession and unemployment.

This situation gives rise to the Economic Cycle's chain reaction: recession - expansion - disputation over pay and prices creates upward pressure - money has no definition and so exerts no stabilizing influence - resultant inflation - back to recession.

If we are to eliminate recession and unemployment we must find an alternative cure for inflation, preferably by removing the root cause of inflationary pressure, rather than trying to contain it. And the root cause of inflation is the instability and upward pressure caused by our present unstable and divisive wage-price disputations. Removing the root cause would require that we replace disputation with a fair and stable measurement system for defining and evaluating pay, prices and our monetary unit.

Apart from its inflationary pressure, a rule-less system of disputation has its own adverse effects on our prosperity, and indeed our whole social fabric. Without fair rules we have industrial anarchy in which individual interests are left to fight for themselves as best they can: the very condition from which government should protect us.

Though we may grace this process with the respectable title of "Free Collective Bargaining" it is neither fair nor even civilized. It is quite simply a condition of anarchy in which, being without rules, people are compelled to fight it out between themselves, This in turn clouds our whole industrial climate with mistrust and discourages that very collaboration which is essential if we are to maximize our productivity and our prosperity. It creates monetary instability and permits inflationary pressure which in turn prevents economic expansion.

A policy of Socially Responsible Free Enterprise requires Government to replace anarchy, wherever it may exist, with fair rules. And if Government were to be charged with providing a foundation of fair rules for industry and commerce, a first priority would have to be the provision of a system for establishing pay, profits and prices by measure and consensus.

Without such a system we are faced with a degree of anarchy, acrimony, monetary instability and the ever-present danger of inflation.

With a system in place for evaluating pay, profits and prices by measure and consensus we would establish a basis of fair reward for work and the real possibility of industrial peace and cooperation.

And we would establish a basis of monetary stability from which we could expand our economy to full employment and increased productivity.

Fair rules, fair rewards. These are noble objectives. But what is a fair day's pay?

This is not a difficult question. Instinct, logic and our own inner sense of justice provide a ready answer.

Your pay is fair if it is an accurate reflection of the work you have contributed. Your fair pay is related directly to the work you perform.

But it must also relate to the work and the pay of others. Your pay is fair if others doing similar jobs are paid the same; your pay is fair if others doing more work are paid correspondingly more. Your pay is fair if others doing less are paid proportionally less.

Pay must relate to work done, both by yourself and by others.

If pay is to be related to work done, we will need to develop a system for measuring and evaluating work. If we can measure work, then the work amount or work value of each job can be reflected in the pay received for doing that job.

Impossible? No. We are already doing it. Solutions have already been found, tried, tested, and put into practice with fully acceptable results.

Job Evaluation: the Basis of Value

The Science of Job Evaluation, which already exists in industry, is a process for defining, evaluating and measuring the different work characteristics demanded of a job, and expended in the fulfilment of that job.

How does Job Evaluation work? The process of Job Evaluation sets out to measure the work involved in any specific job. Work means many different things; each and every kind of work, or work component, must be identified and quantified.

The list of work types or characteristics will include such basic elements as previous training, skill, concentration, responsibility, physical exertion, working conditions, job satisfaction (or boredom!), health and safety hazards, and so on.

The list need not, indeed should not at any time be conclusive. New characteristics must be added as they are identified, developed, or called into being by new techniques. Technology does not stand still; new jobs are being created, new demands made upon human skills and effort. The process of identifying these elements must likewise be continuous. Today we have computer fatigue; twenty years ago we didn't even have computers. And in the management field, new management styles are beginning to place greater stress on leadership skills, flexibility and the ability to work well with others.

Once identified, each work type or characteristic is given its own scale of measurement. For example, training and skill can be measured in terms of training time and working experience, as well as formal qualifications where applicable. Physical exertion can be measured as a direct expenditure of bodily force, with refinements reflecting infrequent heavy movements, or frequent lighter movements.

Responsibility can be measured in various ways; one method measures the value of goods and equipment for which the operative is responsible, or alternatively stated, the cost of an operator error in handling or judgement. Another method in current use measures the time span of responsibility – the length of time over which an employee's decisions have effect; it could be day-to-day for a section manager, a “season” for a store buyer, or it could be several years for those concerned with longer-term strategy involving the planning and purchase of new equipment. It is presumed that responsibility is greater when the consequences and repercussions of decision stretch far into the future.

Finally these work characteristics and their individual measurement scales must be related to one another. We need to establish, for example, the relative worth of one unit of physical exertion as against one unit of training. With the different characteristics valued against one another, and the individual scales broadly compatible, the total work involved in any particular job can then be measured in terms of one single basic work unit.

The end result is that a job is evaluated in terms of the work it contains. The value thus established then determines the job's pay.

The application of a system of Job Evaluation throughout a company or organization ensures that each individual's pay relates to work contributed, and to the pay which others in the organization receive for their work contributions. Job Evaluation has been widely used for many years to bring system and consistency to the pay structures of major organizations and companies in both the public and private sectors.

A Tried and Tested Science

In 1970 the city of Eau Claire, Wisconsin, instituted a Job and Pay Evaluation programme to replace the existing “bargaining” process. The system was well received, and as a published report confirmed, "the greatest benefit is that the city is utilizing an objective and fair method of evaluating job classifications." The City continues to use a point evaluation process as of June 1992.

The Ontario Provincial Government in Canada and the Government of the State of Washington in the USA are among the many public bodies in North America seeking remuneration stability and consistency through the use of some kind of Job Evaluation system.

One major influence in the development of Job Evaluation has come from the growing movement towards equal pay for work of equal value as between male and female workers.

That male and female personnel working side by side doing identical jobs equally well should get the same pay is no longer disputed. But advocates of` equal pay for women have also established that certain jobs generally done by women, such as secretarial work, tend to receive lower pay than jobs generally done by men yet having identical qualifications and requirements. Hence the campaign for equal pay for work of equal value: men and women doing jobs which are different but require broadly similar input and effort should be similarly rewarded. This objective logically requires a system for evaluating each and every job; equal pay for work of equal value cannot be achieved without a system for determining value on a consistent basis which permits a clear comparison.

Standard Chartered, a major British-based International Banking group, has long utilized a system of Job Evaluation. The Bank's Personnel Manager confirms that “most major companies have accepted this process.” Over 500 British companies, a large proportion of them in the Times 1000 list and including Standard Chartered, use the Hay Guide Chart Profile method copyrighted and practised by Hay Management Consultants. Introduced into Britain in 1962, the system has been refined, but not radically changed since it was first validated by research in the USA in the early 1950s. Indeed it has now become stabilized to the point where Hay Management have been able to introduce computer-assisted job evaluation. The Company supports its system with an extensive data base of pay/job relationships, allowing broad comparisons which in turn can further refine the process of reaching consistency. Their system can be successfully applied to any kind of work at any level.

Hay Management explains the basic motivation for the use of Job Evaluation in simple terms: “The overwhelming truth remains that, for most organizations, logical internal relationships are essential for the rational management of people and jobs.” The principle applies with infinitely greater significance at national level; without logical relationships between work and reward, there will be neither industrial nor monetary stability.

The common objective in any job evaluation system is that all jobs within a company using the system are evaluated fairly and consistently, giving each job a meaningful value in relation both to the work involved, and to other jobs within the company, through a common scale of definition and measurement. The job-value thus established can then be related directly to remuneration. Job Evaluation becomes Pay Evaluation.

The concept and fundamental basis for work-job-pay evaluation is here now, up and running. It is a respectable, well-documented and widely practised science producing fair pay and consistency within individual companies.

At this stage we already have a fair and stable measurement system for defining and evaluating pay. Indeed we have several competing systems. In one sense this is counter-productive, since it creates problems of inconsistency between companies using different systems. On the other hand it provides a wealth of experience and input which could form the basis for a single National Standards System.

The general problem of inconsistency between differing systems is neither new nor insurmountable and has been dealt with successfully in numerous other fields. We are accustomed to formulating and establishing Standards covering a wide range of products, services and systems from electrical and telecommunications equipment to quality management systems. There is no reason why a National Standard Job Evaluation System could not be formulated to produce a unified, National Standards system for those who may wish to make use of it.

Indeed if the creation of a National Standard Evaluation System were to be conducted through the widest possible debate, participation and consensus, the very process itself would clarify issues and build mutual understanding between different occupations and skills, as we begin for the first time in history to place objective values on the working conditions of a miner, the responsibilities of a train driver, or the stresses of nursing in a mental hospital. And as we move imperceptibly but inevitably towards discussion of principles rather than personal self-interest, the process would effectively lay the foundation for a new kind of national unity.

With a National Standards System of Job Evaluation the ideal of a fair day's pay for a fair day's work would be within our reach.

Dispute is not the only way.

All Levels of Remuneration

With the existence of a National Standards System it would be reasonable to expect a natural trend towards its increasing use, which would in turn exert a stabilising influence, justifying pay increases where they were fairly due, discouraging those which were not.

Any such stabilising influence would, however, be limited if the system were restricted to that part of pay narrowly defined as wages. Restricted application of the system would reduce its value in terms of standardisation and fairness.

Thus in principle the system would have to be applied to all forms of remuneration at all levels from shop-floor to boardroom.

As The Sunday Telegraph pointed out in a major article (September 26, 1993), boardroom pay is one of British industry's most emotive and vexatious issues. The controversy has been boiling in the City for years but recent big pay rises and multi-million pound "paid to fail" golden handshakes have combined with recession and pay freezes lower down the income scale to turn directors' pay into a subject of national debate.

“Management” in many companies still sees itself as somehow separate from staff and workers, its members unencumbered by any obligation to be paid in relation to their contribution. While most pay analysts assume that captains of industry should be paid according to company size and performances, Incomes Data Services, researching British companies in the autumn of 1992, found that of the firms surveyed 26 saw a major fall in profits over the previous year; yet in 23 of these cases the highest-paid directors were awarded pay increases.

In a highly critical article (Spring 1993) Sir Owen Green, former BTR Chairman and one of Britain's most successful industrialists, wrote: “How a director who has just had an 18% rise dares to tell his workers to show restraint and accept less than 5% I cannot understand. Perhaps those workers understand all too well. It suggests an almost Papal separation of the leader from his flock. This distancing means executives lose touch with the people who actually do the work. It is not that the executives are objects of envy, though they may be. What they have lost is respect.” The article was uncompromisingly entitled "Greed: the curse that is corrupting Britain's bosses". Unfortunately it is corrupting more than Britain's bosses: it is corrupting and has corrupted the entire spectrum of industrial relations. What this does for teamwork, productivity and prosperity needs hardly be said.

If we are to replace confrontation and mistrust in the field of remunerations, we must formulate and adopt a Standard System of remuneration evaluation based on work contributed. And if the system is to succeed in achieving the twin objectives of industrial and monetary stability, it must be applicable to all remunerations, for work done at all levels and in all fields.

We must also ensure that the system is fully comprehensive with no marginal issues left open to potential dispute.

The bonus, yearly or monthly, for individuals or production groups can legitimately be included as an integral part of work-evaluation if it is a genuine reward for that final, extra amount of effort which can often produce disproportionately valuable results. However, the bonus should be clearly defined and relate solely and strictly to work-evaluation.

All forms of "perks" as well as holidays, works pensions, health insurance, and any other forms of non-monetary payment should also be included as part of overall remuneration evaluation.

A National Standard System of Job and Pay Evaluation consistently and universally applied at all levels: it is an objective well within the realms of possibility. Based on a firm foundation of existing knowledge and experience of Job Evaluation in practical use, the process could be taken step by step towards a single national standard, with ample time for reflection, for thorough analysis and revision.

Once we have established a National Standards capable of universal application and with all the marginal nooks and crannies thoroughly explored and resolved, the gradual adoption of the system would be a natural outcome. Ultimately it would give us fair pay, right across business and industry.

But even if we include pay at all levels, pay is only a part of the solution; for pay has value only in terms of purchasing power, or prices. So fair pay has full and real meaning only in terms of fair prices. This leads to a parallel question: what is a fair price?

The Pay-Price Gap

A factory's, or a business's total costs consist of three elements. First, the cost of bought-in raw materials and components; second, the direct labour added in the factory; and third, the costs of capital write-off overheads and finance.

These are the costs of making a product, of supplying a service. From these costs a Unit Production Cost can be calculated for each product or service supplied. If this Unit Production Cost then becomes the Selling Price there would be a direct and fair relationship between cost and price, and therefore between pay and purchasing power.

But the Unit Production Cost is not normally equated with the Selling Price. The difference between the two is commonly referred to as the profit and will remain a matter of potential contention thus threatening or even invalidating any progress made in achieving pay stability. Completion of the stabilization process which began with a standard system of job evaluation would require some kind of consensus on the disposal of profits, for this is the only way we can achieve fair prices.

How is the profit currently disposed of`?

The prior claim to profits comes from investors, or shareholders. It is worth examining this claim and its status in detail for it relates to our most fundamental perception of industry, the role of` the different participants in it and their responsibility for its success.

Our present view of industry originated with the industrial revolution in the late 1700s and early 1800s as machines and mechanized processes gradually displaced traditional crafts and hand labour.

The machinery became the main productive component, and with the development of mass production techniques the man who operated the machine was simply performing a mindless and totally unskilled repetitive task for a minimal wage. The high status of the machinery accorded a correspondingly high status to the investors whose money had purchased it. This gave rise to the classic order of financial priorities: minimize costs of everything from bought-in components to machinery maintenance and labour, and maximize prices, thus maximizing profits which are then distributed as dividends to the investors. The priority and open-ended status of the dividend symbolizes the basic proposition that the investors are the major contributors to, and should thus be the major beneficiaries of profitable industry.

Two hundred years after the Industrial Revolution we are still using broadly the same system with the same basic outlook. But things have changed. Today it is not just machines but people who make a business work.

Investment is vital, so also is the equipment it provides; but the machine is no longer the exclusive source of productivity and indeed its operation can be rendered useless without the intelligent participation of the operative. The reality today, accepted profitably in Japan though not as yet in Britain, is that the people who work in an enterprise are equally vital: their inventiveness, their enterprise and initiative, their attention to the job in hand, their commitment to quality, their extra thought and effort... these are the factors which if encouraged and harnessed can turn investment into productivity and prosperity, and which can turn a company's fortunes.

The success of a company in a modern economy is dependent as much on the skill and commitment of its workforce as on the capital invested, and if we ignore this vital fact in our remuneration relativities we are jeopardizing our industrial relations and the productivity of our industries as well as potential monetary stability.

Thus we return once again to the need for consensus in pay and prices, and if we are to attain this objective no form of remuneration or reward paid out by a company can be allowed to escape the need for scrutiny and settlement by logic and consensus. The dividend paid to those investment sources not negotiated in terms of fixed interest should be clearly and openly defined with average or upper limits.

This is not pie-in-the-sky idealism (though a major dose of new idealism would not be out of place in Britain today). It is a reflection of the real inter-dependence of all the players within a business, a factor which is already being recognized by the more far-sighted senior managers.

Under Paul O'Neill, American Alcoa, the world's largest aluminium company is undergoing a fundamental restructuring - not just technological, but social too. One aspect of relevance here is a new profit-sharing plan that puts workers and shareholders on more common ground. ln a novel dividend policy, Alcoa shareholders have been promised a small fixed dividend, but with a year—end bonus percentage of profits if things go well. And employees now divide up 17% of any return on assets above 6% as their year-end bonus, reflecting the philosophy that workers should also participate in the rewards when their efforts pay off O'Neill believes firmly that management and reward structures should express “the philosophical notion that we're all in this together”.

In Britain, the number of employees in profit-related pay schemes has risen from under 200,000 in 1988 to almost 1,200,000 in March 1993.

Apart from investor dividends and worker bonuses, the other major destination for the disposal of company profit is re-investment, either in research and equipment or increased working capital. The advantage is that in-house or self-generated investment comes without future servicing cost or commitment to repay.

There is one more claimant to a share in the profits, and that is the customer. Indeed with the growing recognition of Pay and Price Evaluation the profit would increasingly be perceived as a "tax" on the price over and above its production content, and should therefore belong to the consumer as much as to anyone. With this view a substantial claim on profits would come from the consumer in the form of lower prices.

The objective should be the establishment of public policy for profit distribution. This could take the practical form, first, of an overall profit ceiling. The Health Service already assesses prices for new drugs and services before certification; the ideal of a fair price resulting from a fair profit is hardly revolutionary.

Of the profit made, broad percentage bands could be established and gradually stabilized, distributing profit according to a pre-set formula as between co-workers at all levels, investors, and the internal needs of capital for reserves and re-investment.

As it does today, government would continue to require that companies prepare in timely fashion properly audited annual accounts. But instead of assessing the total profit in order simply to "take a cut" for its own benefit, government would be examining the profit in order to ensure that it is apportioned according to a consensus formula which respects the claims and contributions of consumers, investors, co-workers, and the future security of the business itself.

Productivity and Negative Inflation

The stability resulting from Pay, Profit and Price Consensus would produce some interesting social, monetary and economic results. In particular we would need to revise our ideas on inflation.

Humans are naturally inventive, constantly seeking ways to produce more for less. This is the process we know as increasing our productivity. As we increase productive efficiency we are producing more for less, which means that we are reducing the work-content of the product. When the price of the product is directly related to its total work—content, a reduction in the work-content brings a reduction in price.

We already see this process of cost- and price-reduction happening in electronic products, hi-fi and computers, where continuing improvements in productive efficiency have been reflected in steadily falling prices in real terms over the years.

With Pay, Profit and Price Consensus we would see this same process at work over a much wider range of products and services.

As overall national productivity increases, the work-content of products and services is reduced, and prices are reduced correspondingly.

Say that the country were to achieve an average increase in overall productivity of 5% in a year. This means that it now takes 5% less work to make the average product, and since price is based on work-content, average prices must also fall by 5%. Prices would thus fall year-by—year, by an amount reflecting the average increase in national productivity. So everyone enjoys an increasing standard of living and purchasing power through steadily falling prices. This steady fall in prices might be popularly viewed as negative inflation.

As the cost of living steadily falls, individuals can choose how they wish to enjoy this increasing standard of living.

They can work less and get paid less; but with increasing purchasing power they will be able to maintain the same material standard of living, and now have more leisure time to enjoy it.

Or they can maintain their existing work and pay levels; they would however enjoy an increasing material standard of living since their pay would have an increasing purchasing power, thus of course creating a demand for new products and services and generating further jobs.

With a secure foundation of Pay, Profit and Price Consensus, economic expansion can take place without inflation, employment can be maximized and productivity can be constantly improved, progressively lowering prices by decreasing the work-content, resulting in the real and lasting prosperity of full, and productive employment.

We would also acquire the sole international distinction of having a stable, defined monetary unit.

And if we could replace confrontation and dispute with system and consensus many might feel that we have advanced the progress of civilization.



NINE:
ESSENTIAL AND WELFARE SERVICES


Non-government Business

If we look back to the heydays of nationalization in postwar Britain we can find the spirit of the times summarized in the term commanding heights. It was felt that the State should operate the commanding heights of the economy: the essential welfare services such as healthcare, services requiring national coordination like public transport, and our national infrastructure services of electricity and telecommunications. These services, vital to our national wellbeing, could not be left to private enterprises which might fail to deliver the required quality. Or they might take advantage of their position to overcharge the public.

That our welfare and infrastructural services are essential cannot be questioned. That they should be run efficiently, responsibly and fairly is likewise indisputable. But is the socialist-style takeover and operation of these services by government an appropriate answer? Socialism may have been rejected in the Soviet Bloc, but the lessons of Socialism's failure do not appear to have been fully assimilated in the West.

Americans like to say that they have “won the Cold War”. This is not quite correct; America did not win it, the Soviet Union lost it. And even that is not fully accurate; the Cold War was lost not by the Soviet Union, but through the failure of the system on which the Soviet Union relied, the State Socialist system.

And why did Soviet Socialism fail? The list is long and would include factors such as central control, excessive bureaucracy, inflexibility, inability to change, no competition, little individual worker incentive, a lack of responsiveness to consumer needs, and abuses of services by consumers who did not respect them because they were “free”.

What is interesting is that all of these potentially damaging characteristics can be found in our currently Government-run welfare and infrastructure services.

Our education system is in the doldrums. Why? Make a list of problems and it exactly replicates the list of socialist failings identified above. It is a monolithic government-run enterprise centrally controlled and directed, inflexible, unresponsive to changing needs, and overweight in bureaucracy.

Similarly our Health Service is collapsing under the weight of bureaucracy, uncompetitive management, and customer abuses.

But the question remains: if Government-run services are inefficient and generally unsatisfactory, what should be our remedy when private industry conducts itself in a manner not considered socially responsible, especially in areas of essential national services?

President Clinton was voted into office in 1993 largely on his promise to reform America's costly private-enterprise healthcare system. In spite of their famous Free Enterprise tradition most Americans had accepted that a measure of social control over the sky-rocketing costs of healthcare services was desirable if not considerably overdue.

If business conducts itself in a manner which may be considered socially irresponsible, business itself is surely to blame; but it is as much or even more the fault of Government for permitting socially irresponsible commercial activity to take place. Government should define and prevent irresponsible business conduct; if it did so, the National economy would enjoy the benefits both of free enterprise initiative, and socially responsible business conduct. Nationalization and Government-run services would then no longer be necessary.

When Government operates industries and commercial services it generally does so with less success than private sector companies, and by involving itself as an active participant in business it invalidates its own capacity to legislate without bias.

Under a policy of Socially Responsible Free Enterprise, Government would operate no services save those which are directly connected with the defining and the defence of Liberty.

Non-political business should remain quite separate from Government, autonomous in finance and in management. Government can then exercise its judicial function fully and freely, its true function of observing business and providing the framework and rules necessary to ensure that business conducts itself in a socially responsible manner.

A strong case may be made, however, that government should exercise special supervision over Essential and Welfare Services, given these services' frequent monopoly status as well as their paramount and strategic importance in the proper functioning of the nation.

Transport, telecommunications, healthcare, education and job training... these and similar welfare and infrastructure services are essential to our overall efficiency as a nation, as well as to our prosperity and well-being. Their conduct and operation should be closely monitored by a specially created Essential Services Supervisory Commission in three major respects.

First, through a process which may be called market simulation, Government should ensure that free market conditions and customer choice exist wherever possible in the provision of essential and welfare services; Second, Government should ensure through strict performance supervision that the rules applicable to all business and industry are applied with particular rigour to our Essential Services; and Third.Government would also need to adjudicate in matters of charges and subsidies for such services, whether charges should be levied by direct user-fees or indirectly through national or community charges, or supplemented by subsidies from non-users.

Market Simulation

The policy-approach of Socially Responsible Free Enterprise begins with free enterprise services operating in an open market. Essential and welfare services should be structured in such a way that they have full financial and administrative autonomy, thus positioning them formally in the open market.

With financial autonomy they can retain proper control over their investment and operating finances, and financial performance can be clearly monitored by an unbiased, administratively independent government. Similarly, with managerial autonomy they can run their own businesses efficiently, and be held accountable by an independent Government.

Autonomy need not be equated with privatization, nor with the dangerous dismemberment currently proposed for our railway system. With genuine autonomy and the stricter supervisory controls imposed by the strategy of socially responsible free enterprise performance can be audited regularly and in detail, ensuring that the quality and productivity of service is maximized.

From the point of view of the business itself autonomy allows it to operate like any other private sector business, with the greater sense of security which results from having its own future in its own hands, both with regard to investment and long-term strategy. It is also important that the managements of our major essential services should be both creative and aggressive in maximizing the exploitation of their assets; railways for example should develop station sites both city and rural, thus providing ongoing income and enhancing their transport business by making railway stations centres of residential or commercial development.

The spirit of autonomy should also encourage managements to look for economies, to recycle, to expand slowly and incrementally, and to look for value.

Essential services must become autonomous in principle, as in the private sector. However, many essential and welfare services will of necessity be partial or full monopolies; many may be financed by indirect charges or subsidies; some, like sewage services, will be compulsory.

It may be necessary therefore, to review and to modify the structure of these services through what may be called market simulation, a process which attempts to create and integrate, where possible or applicable, beneficial “free market” features such as consumer choice and competitive supply.

In many cases the creation of free market conditions may be neither possible nor desirable. Our national road system, for example, does not obviously lend itself to competition.

But other opportunities for useful restructuring exist, as for example in our overall education system.

Parents and students should have full choice of schooling and training. This not only implies the ability to choose a school; it requires that we liberate our currently constrained education system and open it up to a flood of new ideas and educational systems.

The process we call education is broadly the same now as it was a hundred years ago, and it is broadly the same in Britain as it is in hundreds of African villages: a teacher stands in front of a class of some forty pupils and talks. “We know based on research that students remember about l0% of what they hear, 20% of what they see, 40% of what they discuss, and 90% of what they do,” says Adam Urbanski, vice president of the American Federation of Teachers. “But we still largely use one teaching style: I talk, you listen.”

Encouragement should be given to the development of “Education Systems” in the widest possible sense, ranging from technology-based systems to personality development programmes, offering a selection of clearly defined Programmes or Systems which can compete with one another or complement one another. Today with the growth of audio-visual systems, computers, and student-computer question-answer interface, the scope for technology-based Education Systems development has never been greater, with potential benefits both in education quality and cost. Video and computer oriented programs allow a greater freedom for individuals to choose their own pace and exploration paths. And students appear to enjoy and prefer them. Teachers would have more time to help, guide and encourage on an individualized basis.

Those who believe unquestioningly that education must always be labour-intensive should recall the basic fact that improvements in prosperity come directly and solely from improvements in productivity, offering better products and services tomorrow with less work than today. In industry we are looking at investment and inventiveness to reduce the cost of products through increasing productivity; in distribution the equivalent is the bar-code scanner which has revolutionized the supermarket by giving the consumer a better, more detailed receipt and the manager a constantly updated stock control, all for considerably less input of work. Education too must open itself to the benefits of labour-saving technology.

Other Education Systems might take a different approach, looking more at the moulding of character and the creative development of intelligence. Training in conjunction with real work experience is also important, and here too, new approaches can be developed.

The main point is that we should liberate initiative and encourage enterprise in the development of diverse systems. Consumers can then choose the system or establishment appropriate to their needs, and in so doing exert that vital consumer discipline which helps to ensure a high standard of service.

Similarly, our overall Healthcare system should be structured to permit the widest possible exercise of consumer choice and preference. This means not only the exercise of choice as between this or that doctor or hospital; it means that the growing preferences for the so-called “non-establishment” medicines and treatments should also be respected and provided for in a properly regulated environment.

Among many other options for market simulation, the local Council might open domestic refuse collection to private tender, while at the same time competing itself for the job, a system used very successfully in Phoenix, Arizona.

These examples serve to illustrate how, even in services presently viewed as monopolies or no-choice services, restructuring can seek to simulate free market conditions and consumer options. This subject has been thoroughly and admirably explored in the American best- seller "Reinventing Government" by Osborne and Gaebler (Penguin).

Performance Supervision

An overall economic policy of socially responsible free enterprise as already described would seek to ensure social responsibility through three specific channels: Pay, Profit and Price Consensus; Mandated Productivity Standards; and the direction of System—generated Credit according to openly established priorities and into firms observing management and productivity Standards.

Such considerations should naturally apply to Essential and Welfare Services; but given their importance these services should be subject to the strictest possible disciplines.

Pay, Profit and Price Evaluation should be rigorously applied.

In the area of management and productivity Standards, it has already been proposed earlier that as a regular summarizing of business activity, the simple quarterly profit-and-loss account presents at best a narrow, and at worst a positively misleading view of a company's condition. New attitudes and objectives should be reflected in a more comprehensive Total Performance Audit, showing data in such areas as quality, customer complaints, safety record, work environment, innovation, industrial pollution and so on. A specific Performance Audit should be established, with regular updating, for each and every Essential and Welfare Service. Such audits should be formulated and published monthly, and closely monitored by the Supervisory Commission.

As a further measure, the grading of services and the specification of standards with subsequent rigorous supervision would ensure that the customer has the maximum freedom of choice and that services are operated responsibly and reliably.

In the case of Healthcare for example, insurance companies, health management organizations and individual healthcare providers such as hospitals should offer their Plans and Services according to specifically defined Standard Grades, so that customers can make informed choices knowing that certain defined services will be supplied, and that the specified performance in each grade will be continuously monitored.

Company Pension Plans might be considered an advantage for the employees, but being closed funds with captive consumers they are not always operated to the highest professional standards, nor are they immune from “raiding”. In addition, an employee changing jobs will often find it impossible to take the full pensionable value with him or her. If companies wish to offer a pension plan as a part of employee remuneration there is no reason why they should not do so; but such plans should be open to the public and subject to any standard applicable rules, and employees should have the option of placing their contributions with any other pension fund.

A substantial portion of the family budget is also preempted by Rates and other local administrative charges.

Government should ensure through the appropriate channels of debate and assessment, that Standards are set, reviewed and revised for local authority administration and urban planning. Local Authorities too must offer value for money, through continuously rising productivity and the efficient functioning of our towns and cities.

Essential and Welfare Services must remain fully autonomous and separate from government; but government must take extra care to ensure that they conduct themselves responsibly through the rigorous application of appropriate quality and productivity standards.

It should be emphasized in this connection that it is the total quality and productivity of service that is important, rather than nominal ownership. This applies with particular relevance to our railway system; the efficiency of public transportation lies in its coordination and breadth of coverage, neither of which is likely to be furthered by the present concept of privatization. lf quality and productivity are what we want, we should aim for these objectives directly.

In the case of priority planning and investment, the Essential Services Supervisory Commission would also ensure that essential services are fully represented and provided with necessary investment appropriate to their economic status; an efficiently functioning infrastructure providing power, transport and communications is itself a factor contributing significantly to a country's overall productivity. It is particularly important that adequate investment be available to services required by law, such as sewage treatment and fire protection.

Charges and Subsidies

The financing of public works, essential infrastructure services and welfare services is a subject surrounded and obscured by considerable confusion. The public would have it so: it is one of Human nature's enduring beliefs that if you don't understand a process you just do what you want, hope for the best, and everything will turn out right.

Following this noble principle, individuals, communities, regions and nations make wish-lists of desirable and "essential" institutions, then "call for" the necessary funds. Little thought, and even less concern is given as to where these funds come from.

Schooled by Socialist ideas we say that services are "needed", they "ought to be available to all", possibly "free", and that's that. Turn the other way and the money will be there.

Reality, unfortunately, would have it otherwise.

There is no such thing as a "free" service unless those who supply it are prepared to work for nothing. Every product or service has its cost, and that cost must be paid somehow, by somebody.

Similarly with health insurance and pensions; the popular will is that contributions should remain low while benefits in the form of better healthcare and index-linked pensions should freely flow. Again we must return to reality. Whether private or public, healthcare, pension, welfare and any other kind of insurance funds cannot, for any length of time, pay out more than they receive in contributions.

The present Health and Welfare accounts must eventually be restructured to reflect reality. That this will have to be phased over a fairly long period does not alter its necessity. We cannot indefinitely run counter to reality, a fact which Sweden is currently discovering as its Health and Welfare costs rise uncontrollably, requiring a near- intolerable tax burden.

Every product or service has a real, inherent cost.

In the normal course of free market transactions, products and services are offered and the price, reflecting that inherent cost, is stated. lf consumers are interested at the price, atrade takes place. The customer pays the required price for the product or service, and makes use of it. This is the direct user-fee.

Direct user-fees charge the cost of the service to those who use it. This acts as a realistic discipline in that consumers are aware of the true cost and can make their own judgements and choices as to its benefit to them; so-called free services tend to get used whether people need them or not, that's human nature. Direct user-fees also act as a discipline on suppliers; they must be constantly alert to the preferences of consumers who may perhaps over time demand a higher standard at a higher price, or perhaps a lower more economical service at a lower price.

We also need to consider indirect user-fees.

There are cases where direct collection of user fees is inconvenient or undesirable. Few people would want to put a Pound in a machine at their garden gate every time they went out, to pay for the paving and street lighting. In this case an indirect user—fee is preferable; but it is important to note that the essential supplier-customer relationship remains. The supplier supplies a service to the consumer, and charges for its use.

There are also cases where it can be shown that people benefit indirectly from a service even when they are not directly using it. A basic education benefits the immediate students; but benefit is also gained by the nation as a whole. There can be little doubt in today's economies that a well educated nation is substantially better placed in the creation of overall national prosperity from which everyone benefits. In this case a national indirect charge could be justified.

Indirect user-fees may also be justified as a form of compulsion to use a service. Paying for waste collection and sewage disposal through a community charge ensures that everyone pays for it - and that everyone uses it. In this case the indirect charge is justified on the grounds of a legal obligation to dispose of waste materials in an environmentally acceptable manner.

In the case of direct user-fees, this system represents normal market operation. In the case of indirect user-fees adjudication by the Essential Services Supervisory Commission would be necessary to determine the justification for, and the just apportionment of such fees levied on the community or the nation at large. In principle all indirect user-fees should be justifiable on the grounds of clearly identifiable indirect use or benefit.

Of greater complexity is the issue of subsidy.

Those who want a service and who are unwilling or unable to pay its price but who want it anyway must face the fact that the only way they can obtain it is if someone else pays for it.

While a civilized society may feel it necessary to support collectively such services as are necessary to ensure a minimal standard of well-being and rehabilitation for those who fall upon unfortunate times, we should be wary of making demands for subsidies to support those favourite services we consider personally desirable, such as cultural programmes, but for which we are unwilling to pay the viable cost.

Many may feel, for example, that it is "right" for Government to subsidize "the arts". In reality Government subsidizes nothing. We should not make the mistake of thinking that Governments subsidize products and services using funds created out of thin air. When Governments subsidize products and services they do so from funds collected through taxation.

More specifically, those who enjoy “the arts” can be privileged to do so at a less-than-viable price only because those people who prefer to spend their leisure time mountain climbing with their children are compelled to pay a subsidy. This is enforced charity, and viewed objectively it is a form of enslavement since a person who does not use a service is being compelled to support another who wants the service but is unwilling or unable to pay its true cost.

The fortunate recipients of subsidies may close their eyes to reality, but reality does not thereby disappear or lose any of its validity. When subsidies make claims on government revenue, Government can make one of three choices. Either some other programme must be dropped; or taxes must go up; or Government must increase its debt, which thereafter claims an increasing portion of tax revenue in interest payments. The money has to come from somewhere.

Nor should we assume that the collection and redistribution of subsidies is done without charge or cost. Governments are not staffed by legions of benevolent civil servants working without pay; re- distribution programmes cost money to operate, increasing both the size and influence of government. Taking a wider view, when subsidies are used for the permanent distortion of national or world markets, productivity is penalized; and when this happens we are all ultimately the losers.

Direct user-fees, indirect user-fees, and subsidies. In many cases of infrastructure and essential services decisions as to method of funding must be made.

In some cases the issues are simple; in others they are more complex. Public transport is an example.

Inasmuch as public transport reduces pollution, urban congestion and accidents it may be argued that everyone in the community benefits to a certain extent from its existence and is thus an indirect user, even when not personally using it. This could justify an indirect charge on the community in general, to supplement the direct user-fee.

But doubts persist, largely because so many people question whether public transport can ever be fully relevant to their travel needs. Further exploration of this problem leads into a wholly new area, and it will be argued in the next chapter that the inability of our public transport systems to function viably results directly from the failure of government to supply proper and informed planning guidance in urban land-use, compounded by the lack of research and appropriate Standards relating to effective urban design.

It is nonetheless relevant to point out however that when governments talk about road versus public transport costs and subsidies, all is not necessarily what it appears to be. The Financial Times transport correspondent, writing in the 13-14 February 1993 weekend edition, points out that when policing, accidents and environmental costs are added, the result is a net deficit on the road system about four times as great as the more widely publicized call on taxpayers' money made by the railways.

Positive Welfare

Finally, there will inevitably remain cases where genuine hardship requires some sort of welfare safety net. And yet even here, we can adopt a positive attitude and aim to create opportunities for self-help and self-regeneration.

“Young professionals often come to the gates of this upscale housing complex with its picture-postcard view of San Francisco Bay to ask if they can rent or buy property here.” Thus the American Architectural Record opens its description of a new housing block, sympathetically designed and adorned with many pleasing architectural details and colourful window boxes.

But the enquirers will be disappointed. They can neither lease, rent nor buy. And few of those asking would qualify for an apartment anyway.

This is the headquarters of Delancey Street. Almost everyone living here is a recovering addict or has committed a serious crime. To stay here, they have agreed to learn social and working skills, take vocational training, and work successfully in the community for a minimum period of time for no pay.

Delancey Street is well known in American rehabilitation circles because it accepts no government funding and has no professional staff. Instead, senior residents help new residents rehabilitate themselves in “bootstrap” fashion.

The complex has 177 two-bedroom apartments, food service, and workspaces for the income-producing businesses that fund the foundation's work. Around the outside perimeter at ground level are retail shop spaces including a popular 400-seat restaurant operated by residents.

Designed by professional architects, the complex was built as a cooperative venture between an overseeing construction company, the San Francisco Building Trades Council, and the Delancey Street residents, using many donated materials and services but not one cent of public money. Of the work contributed by the residents, the contractor stated that “in terms of technical work they were equal to any contractor I've ever worked with; they wanted it to be right and it shows.”

Even in the best-run societies there will always be those who from time to time fall upon misfortune. It is in the interests of the whole nation that we should all have the opportunity to give of our best, and a welfare safety net must inevitably be provided.

But welfare services must be structured for creative and positive rehabilitation, not simply to sweep unacceptable economic and social facts under the carpet. Welfare services should assume that the people they are serving want to return as quickly as possible into the mainstream of society, and services should be structured and directed to that end.

It may seem unrealistic or out of place to dwell solely on the more serious cases of welfare recipient. After all, the majority of those receiving various forms of welfare support these days are neither ex- addicts nor recently released criminals. They are ordinary folk who are both willing and perfectly able to provide for themselves and their dependents. That they are unable to find work is a matter of some shame to them; but in a society currently boasting three million unemployed they can hardly be held entirely to blame. They receive their “welfare” payments discretely; their State "handout" is not something they take with pride.

Nor indeed is it something that Government should be proud to hand out; three million unemployed is hardly the reflection of competent economic management.

The vast majority of current welfare payments should not have to be made, simply because the conditions which give rise to their necessity should not exist in a civilized and well-ordered society.

In conditions of full employment and ample opportunity for personal career development we could all provide for our own welfare insurance from current income and according to individual personal preferences.

Health insurance, retirement pension, insurance to cover job retraining in case of redundancy, these services would be provided by competing private organizations, graded according to nationally defined Standards to simplify consumer choice, and strictly government-supervised to ensure productive and honest administration.

Again in conditions of full employment, it would not be necessary to put aside such a high proportion of one's working remuneration for those long years of retirement. A fully employed economy would not waste talent and experience through total enforced retirement, but would offer part-time opportunities for continuing contribution, thus bridging the gap between fulltime work and total leisure and lessening the reliance on pensions.

Full employment is an attractive idea; only the experience of it can fully reveal its wealth of unexpected benefits.

A Well State

Within a strategy of socially responsible free enterprise, Essential and Welfare Services would be fully autonomous in administration and finance, structured to provide maximum customer responsiveness, and subject to particularly stringent government supervision.

Essential and Welfare Services should offer the best possible quality and maximum productivity, and should where appropriate be paid for directly through direct user-fees. Indirect user-fees would also be appropriate where indirect benefit to the community can clearly be established. State insurance services, for unemployment, retraining, health and retirement should be autonomous and self-financing.

Subsidized Welfare Services should seek to rehabilitate, not perpetuate. We all have talents; the more we can use and develop them the more prosperous we will all become, individually and as a nation. Investment can help to minimize the need for welfare, and the Welfare Services should make their own recommendations for and claims upon national investment for specific services such as affordable housing, or for job investment in depressed areas.

Ultimately it must remain our overall objective to ensure that everyone has the opportunity to do a rewarding job for a fair wage, which can then be exchanged for quality goods and services at fair prices.

We rarely if ever consider the obvious fact that 10% unemployment is 10% loss of production and prosperity. Similarly, we rarely consider the irony that the major part of public sector expenditure now engulfing us in debt is not the fundamental Governmental function of Legislation and Enforcement, but the Welfare support services made necessary because we have been unable to create the economic conditions in which people can all support themselves.

With the right rules, teamwork and productivity, everyone from their own employment should be able to enjoy a decent affordable home in a pleasant and healthful environment, and we should all be able once again to look forward to the prospect of a steadily improving future.

A Welfare State may be a current necessity.

Better a Well State.



TEN:
PROSPERITY AND THE ENVIRONMENT


This Green and Pleasant Land?

This island of Britain, if we could imagine it now as Nature originally bequeathed it to us, would make a justifiable claim as one of the world's most beautiful places. Its rolling hills and woods, its streams, lakes and coastline, even the man-imposed fields bordered by hedgerows or stone walls and the villages nestled in valley hollows - this is Britain as it was, should be, and indeed could be. But it is not the Britain many of us know today.

Much of our land has fallen victim to the ravages of destruction which began with the industrial revolution when our Victorian ancestors built smog-enveloped cities of factories and mills surrounded by rows of cramped back-to-back dwellings designed to house the armies of workers as cheaply as possible.

Then came the suburban sprawl, with its rapid encroachment over I agricultural and amenity land. New motorway building and road widening destroyed natural beauty and historic buildings creating noise, pollution, and traffic jams both on highways and in town centres, their historic character in many cases further disfigured in the 1960s by insensitive slabs of curtain-walled office blocks.

Our natural and urban heritage, which we too readily take for granted and for which we generally show scant respect, is rapidly being destroyed.

Despite its enormous capacity for improvement in every aspect of our lives, any substantial growth in prosperity is likely to have further adverse effects on our environment and our heritage if its potential power is not carefully guided.

Before prosperity comes our way it would be as well to establish some basic guidelines which will permit us to expand the beneficial use of land for improved housing, leisure and recreation while respecting and not inflicting further damage on our environment and our heritage.

Use of the words “we” and “our” implies some kind of collective responsibility for, and control over the uses of our resources and environment, and this in turn points to government either national or local. But it may be argued that the government's role in resources-use planning is not at present clearly defined. It certainly appears that while we are overloaded with planning constraints, decisions are often made arbitrarily; and the end-result as we see it today does not always recommend the planning process favourably.

It is therefore important that we consider from first principles the fundamental question of what is or should be the Government's role in apportioning resources uses and coordinating infrastructural services such as transport and communications. The question of Government responsibility for the protection of our environment and our heritage both rural and urban must also be considered. To what extent can we attribute to Government the responsibility, and the blame, for past environmental indiscretions, and thus attempt to avoid any future repetitions?

Historical Development of Resources-Use

Sitting on a hilltop on a clear summer's day enjoying the view, or leafing through the pages of a Beautiful Britain calendar we take for granted the familiar pattern of houses, gardens and streets, the fields bordered by walls or hedges. We rarely think to question how these borders and boundaries, these subtle overlays of ancient rights covering every square inch of our island were originally established. Let us therefore “begin at the beginning”.

While a person may be considered to have an inherent right of ownership over the products of his or her own creation, the natural resources pose a different problem. They are, as the name implies, natural; they are not the creation of any individual or human agency, therefore they do not naturally belong to anyone. From this basis it is clear that rights to the use of natural resources must be created or apportioned.

In the older nations of Europe, the King claimed ownership of all the lands within his Kingdom, awarding lands and titles to those who supported him with money and troops to fight his foreign wars.

In the early formative years of the United States the Government claimed all land title then gave it away, in plots to those who would settle and farm, or in large tracts to the Railroad Barons. But it wasn't always an orderly administrative matter of handing over legal titles. In 1892 the last big tract of land was declared open for settlement in Oklahoma. The claimants and the speculators mounted their horses and lined up for the “off”. They raced for the good land and the water holes, banged in their stakes, then rushed off to file a legal claim with one of the men in hats and suits standing on boxes labelled “Law Office”.

Once initial titles of ownership had, by whatever wild, devious or bloody means been established, they could then in the free market tradition be transferred from one user to another by the market mechanism, whereby a current user sells to the highest bidder.

"Ownership" was virtually absolute. If you owned a piece of land, you did what you liked with it or on it.

As population densities grew, as people became more urbanized requiring higher standards of urban coordination, and as our perceptions of good social behaviour and environmental awareness developed, we began to accept the increasing imposition of social qualifications on land and resource use.

Today the principle of private title and free market transfer remains, but the older concept of ownership in the sense of unqualified right to use has gradually been overlaid with a web of planning and environmental restrictions which grow ever more complex.

But this process of social control as currently practised is not clearly defined either in its detail or in its overall objectives. It has been built up piecemeal in the form of reactions to isolated errors and often public outcry, rather than being based on clearly established definitions and objectives. The result is our present multiplicity of negative planning constraints on everything from home improvements, to new housing estates and High Street re-development.

The planning “peace” is an uneasy truce. We fight our battles and retire; but tensions remain.

Then the floodgates open under pressure and we wake to find a substantial block of our city buildings replaced with a new development which is out of scale and out of character; or we find that several fields have been given over to the bulldozers for housing while ex—industrial wasteland remains unused. Or we find that a new motorway is to be built across our front garden. And so once again tempers rise and the battle rages. More serious is that behind it all there is a clear absence of public consensus founded on overall vision.

Government and Resources-Use Planning

The historical concept of once-and-for-all distribution of land and resources with unqualified ownership and free market transfer has subsequently been rejected in principle, in favour of an on-going assessment of uses and their appropriateness both to changing demands and to evolving perceptions of how we should treat our environment.

Whatever the medieval Kings of England and the great American Railroad Barons of last century may have thought to the contrary, we are now returning to the basic truth that land is a product of Nature, not of Man. Nature does not belong to man and never has done. And the uses which we need to make of the land and all natural resources must be settled by mutual consent and guided by respect for the environment, not once in ancient history, but as an on-going, constantly revisable process.

By what precise mechanisms can these requirements be assured? This brings us back once again to the fundamental definition of the Government's role.

It has been proposed that law should be based on the Principle of Liberty; on a basis of presumed Liberty, the duty of Government is to identify and prevent through legislation those actions which are harmful or detrimental to others.

We therefore begin with the individual's freedom to use, according to his wishes and benefit, land to which he holds or may legally obtain title. The duty of Government is to review individual uses of resources in order to identify and prevent those which are detrimental to other users or to the environment.

The fulfilment of this responsibility requires a three-stage process involving the assembly and continuous updating of information showing (a) resources availability, and (b) actual and projected needs. On this basis an overall guiding strategy can be established.

Government must first prepare a comprehensive national database of all existing resources: mineral deposits, agricultural land, land suitable for habitation and cities, strategic land suitable for airports and harbours, and areas of outstanding natural beauty.

Land has its own inherent potentialities. Certain areas may offer excellent agricultural soil while others conceal significant mineral deposits. Some areas are outstanding in natural beauty, while certain forest or river systems make their own demands for special treatment on ecological grounds. Clearly government cannot fulfil its role as adjudicator unless and until it is fully informed as to the detailed nature of our total natural resources.

The second stage requires the preparation of an ongoing assessment, based on a thorough and fundamental analysis, of demands upon the resources both current and anticipated.

This assessment would look at populations and their predictable needs for urban living, trade and cultural facilities; it would consider agriculture, mining and basic resource needs, and demands for recreation and retreat.

Once we have identified Availability, and assessed Demands, we can begin through a process of analysis and debate to produce an overall National Resources Plan. On this basis, clear guidelines and definitions of fair and equitable uses can be established through which we can minimize waste and environmental impact whilst ensuring efficiently functioning urban development and adequate provision of agricultural and amenity land.

But it is not only our Human requirements that we must consider.

We need to use the natural resources, certainly. But we must do so within the limitations of environmental responsibility, and we must give back the equivalent of what we take through our stewardship and enhancement of our environment.

This necessary approach to our relationship with our environment can be formalized and brought into the overall resources-use planning process by the simple expedient of according to the environment the status of a legal entity, having its own rights in law to respectful and responsible treatment and to good stewardship, rights which must stand as equals in law to our own competing Human claims. Just as children are represented by Counsel in Courts of Law, so our environment should be permanently represented by an Environmental Protection Council operating under Constitutional authority.

The new National Resources-use Planning process would by its basic definition be, and remain, open and disciplined rather than closed and arbitrary.

The current process has grown up piecemeal and arbitrarily. Neither its ends nor its means have ever been properly and fundamentally defined. Thus basic planning decisions are made behind closed doors, decisions which are neither wide enough in their overall vision nor fundamental in concept. The result is well known to anyone who has ever been involved in a public enquiry, attempting perhaps to stop a new motorway destroying urban character, rural beauty or natural habitat. We all know that it is almost impossible to fight "the powers that be" and win. One major problem is that citizens are rarely allowed to question the planning assumptions on which the Government's case rests; in all probability the real truth of the matter is that there are no presentable planning assumptions, but rather an almost complete lack of any coherent national urban and infrastructural strategy.

With a basic overall resources-use strategy based on a thorough fundamental analysis and open at all times to criticism and correction, provision could be made for all our needs and uses: from cities, transport, agriculture, industry and leisure, to the peaceful village and mountain hermit's retreat.

Re-thinking the City

A more strictly defined and competently operated planning process would require a far more thorough assessment, both of resources availability, and of present and anticipated requirements.

Most of our major problems in resources-use tend to centre around urban development. Homes, factories, offices, shops and the street patterns which interconnect them do after all account for a major and a complex part of our land-use requirements. And yet when we look closely at our towns and cities the lack of basic planning is clearly apparent.

Many leading and basic questions regarding urban demands on the resources have never even been asked in the official planning process: for example, what is a city, how small or how large should it be, are there upper and lower size limits to its effectiveness? What are the basic transport patterns within and between cities? How can towns and cities be built to use the minimum of land surface while still providing privacy and access?

Many of our villages and small towns are too small and do not function properly in the sense that essential community services cannot be supported. Even some larger towns seem to offer insufficient employment opportunities and facilities for personal growth.

And when we come to our major cities we run into every kind of problem: dead inner cores, areas of wasteland, fragmented suburban developments, transport chaos and pollution.

Homes, jobs, shops, agriculture, leisure facilities, all of these and the many other needs of a civilized society are part of what may be called community, and transport is the vital link which holds together the community's component elements. Random development of individual elements without a proper consideration of their relationship to the whole will not create communities that work, as past policies have clearly proved.

We need to re-think the whole community concept and provide some fundamental working definitions.

Let us begin from basics and ask: what is a community? The word is derived from two elements: con meaning with or together, and munity which comes from the Latin munire meaning to fortify. Our word community means literally to fortify together. How did this meaning come about?

People lived their private, scattered lives in villages, farms and remote smallholdings. But in times of danger they could come together to the town or city for the purpose of mutual defence. All the old towns and cities of Britain and Europe had their stockades or walls, and many of these old city walls with their massive gateways remain intact today. In those medieval times the community was a place in which people came together for mutual defence and protection. Community. Con munire. To fortify, together.

As time passed, the need to fortify became less important. Towns and cities let their old walls and gates fall into ruin. In 1848 Vienna demolished its entire fortification complex of walls and gates and replaced them with the Ring Strasse, a treed boulevard encircling the city lined with fine cultural, administrative and commercial buildings.

This was the new city: a city in which people came together not for defence but for commerce, trade and culture. The need to fortify is gone. But the con, the together aspect remains, reflecting one of the most fundamental facts of Human nature: that Man has two sides, a personal individual side, and a social side.

People want to have a quiet home, a place where they can retire and be themselves. But they also want to come together in order to do those things they can only do as a group: to manufacture and to shop, to use and to enjoy libraries, exhibitions and concerts.

That is the modern Vienna, and that is the purpose of our modern community: a place where we can live as separate individuals, and come together to do those things we can only do as a group.

These two basic needs, for individual privacy, peace and quiet on the one hand, and for social inter-activity on the other, define the nature and purpose of the community. Around the outside, we live in isolated homes or small village neighbourhoods in quiet countryside, or perhaps around the perimeters of small towns or larger cities. We come together to the town or city centre, for purposes of joint social and economic activity, along lines of movement like the spokes of a wheel.

A theoretical pattern of outer habitation and central communal facilities, with radial interlinking movement is thus established.

In more practical terms: the home, with its individuality and privacy, is a single unit. 500 homes or so link to form a village with its general store, church, kindergarten and recreational green; the town of 5,000 or more with its linked surrounding villages offers a wider choice of goods, services employment and activities; and finally, at the centre of the region, a city of say 500,000 inhabitants would provide those highly specialized employment opportunities, goods, services and activities which can only be supported by an overall regional market approaching a million or more.

The totality is the County/Region of about three-quarters to a million people, self-sufficient in jobs, in choice of goods and services, cultural and intellectual amenities, and with surrounding land offering space for market-gardening, leisure and recreational facilities.

The fundamental definition of the community, its nature and purpose recognizes that the community or county is not simply an assemblage of unrelated parts, but is in its own right a coherent service which needs fundamental planning if it is to function efficiently whilst preserving character and a pleasant livable environment.

The importance of establishing Regional Centres lies in focalizing commercial development at the centre and providing coordinated transport links. Without this sense of urban focus, industrial, commercial and retail developments spring up haphazardly. American cities once suffering from freeway congestion at peak times and on roads into and out of the city only, are now experiencing similar problems on circular and cross routes as people drive between work in suburb A, shopping in suburb B, college in suburb C and medical centre in suburb D. The phenomenon of cross-route congestion has now become a major, day-long concern.

Urban Development and Transport

The movement pattern within the County/Region is radial, reflecting the interdependence of the Region's component parts.

But each Region in itself is self-contained; thus the movement pattern between Regions is more efficient on a grid basis, allowing travel from any Regional Centre to any other with equal convenience.

The question of transport mode is also important, and here we are faced with two choices: the private car versus shared public transport. Each system tends to perpetuate itself with its own chain of results and influence.

When habitation and urban functions are widely, thinly and haphazardly spread, the individual private car is the only practical solution. But the car itself tends to perpetuate and increase urban and rural spread. The private vehicle system "opens out" housing development densities with its land-consuming roads and sight-lines; it spreads suburbia over a wide area, and it breaks open towns and cities with its demands for roads, intersections, and not least for parking. This in turn makes walking impractical and unpleasant, and makes shared public transport unviable.

But with the identification of Regions each with its centre and defined Regional movement pattern, combined with a move towards more compact residential and urban developments, shared public transport becomes viable and convenient. Public transportation can be frequent, comfortable, and technically innovative, with convenient interchanges between inter-city and Regional services, and electric hire cars at major stations.

With shared transportation playing a larger role, town scale can be humanized and centres pedestrianised with improved amenities; walking now becomes practicable and enjoyable. The environment both urban and rural is improved; shared transportation makes smaller demands on land and fuel; old and young now have full access to transportation and thus to town or city amenities.

Central urban planning should stress compactness, the concentration of development at the core and the exploitation of unused or waste land within that area. Commercial centres can be reinvigorated through environmental enhancement, pedestrianisation, and full integration with public transport facilities.

On the residential side, a major need in Britain today is for high quality affordable housing so that young people entering the market can have a home of their own. A home is basic to prosperity; today house prices are inflated beyond the means of new buyers, despite the fact that a substantial part of our housing stock was built to minimal standards in the 19th Century and is no longer worthy of a civilized society.

More houses: more land?

Not necessarily. We have a considerable available resource of vacant and derelict land in our urban centres currently estimated at some 150,000 acres; we should use what we have before building on green fields. Rural Britain on the other hand is often sparsely populated, making life difficult for existing residents in small villages or isolated areas. This situation can be improved with small new developments in sympathetic style around country stations, thus strengthening the viability both of the village and of the public transport which serves it. Country stations can be developed as social centres for the surrounding neighbourhood, offering perhaps a village shopping centre, sub post office, a pub or cafe, and a few budget hotel rooms for walkers and tourists. Regional transport should also link up with country footpaths, parks, rural leisure facilities, lakes, and scenic spots to provide a pleasant day's outing.

By concentrating rather than sprawling new urban and residential developments and by linking them with the Regional transport system we can provide both transport for the community, and customers for the transport.

Is it right that we should concentrate on the extension and improvement of public transport? Many still see the car as the ultimate reflection of personal freedom of movement, and public transport as a rundown, over-subsidized anachronism.

In addressing this question the major point to consider is the ultimate workability of the car/road system. Leaving aside the issue of pollution and the accident rate, we should perhaps look at Seattle on the Pacific Northwest coast of the USA for an example of the road system's questionable viability.

Seattle is not an exceptionally large city famous for its traffic problems like Los Angeles, and it has all the toys that motorists could wish for in the way of motorways and wide urban streets. Yet the road system fails to provide reliable transportation.

Average motorway speeds are down in the teens, bumper-to-bumper traffic jams can be expected in every rush hour, commuting times are lengthening, pollution is growing and tempers fraying.

By the spring of 1993 a new Plan for Seattle's wider Puget Sound Region had been formulated, and included upgraded public transport in the form of new heavy and light rail commuter lines, increased buses and dedicated bus lanes. It was discussed in a two-hour programme produced by a local television station. The upshot was that for a total cost of nine billion dollars, the city would achieve nothing more than a two-year breathing space. In other words, it would be putting itself back to the pollution and traffic-jam levels of two years ago. A 'stop- gap' solution if ever there was one, and costly too.

The fundamental cause of Seattle's transportation problems lies not just in the mode of transport but the planning process which permitted scattered and widely dispersed development over the last twenty years.

The problems are similar in Britain. An editorial in Light Rail (September 1993) illustrates just one example. “Cambridge has a buoyant economy that attracts commuters and shoppers from miles around. At Stevenage and Peterborough, footbridges lead directly from the station into the shopping centre, and many shoppers and office workers come in by train. But the Cambridge railway station is a mile out of town, remote from the shops, so most people come in by car. Cambridge should have left the historic centre to the University and the tourists, and concentrated shop and office development around the railway station. Having made successive mistakes over the past 150 years planners should not expect the transport industry to rescue them from the results of their errors. Good transport depends on good planning.”

We in Britain do not realize just how fortunate we are financially and environmentally in having an extensive rail system already in place, together with many disused rights-of-way which can be returned relatively cheaply to public service. But transport must be planned as an integrated whole, and transport planning must be coordinated with the planning of the commercial, residential and leisure developments and facilities which the transport system is expected to serve.

Can public transport pay its way? Or will it need massive subsidies? Public transport can pay its way if it is efficiently designed, built, and operated, and widely used. Japanese private railways prove this point quite conclusively. But the high usage, and to a considerable extent the efficient operation of public transport services, requires the full coordination of transport services with compact residential and commercial developments.

The existence of an underlying National Plan based on a thorough analysis of available resources and Human requirements, together with improved urban planning and a policy of compact development, would provide the guidance and the discipline at National and at local level necessary to ensure efficient functioning of transport and community.

On this basis an appropriate part of the investment potential of economic expansion can be made available, giving a new impetus for the urban environmental improvement and new housing which Britain so badly needs. The added discipline of preserving scale and heritage where appropriate would ensure the enhancement of our traditional living environment.

If we can muster our best creative talents to enhance our environment and our heritage we would be well on the way to restoring the traditional beauty for which our country was once, and still is in part, justly famous.

Britain's current housing and urban needs could require the construction of two or three new Regional County centres in remoter areas. These new Cities with their dependent towns, together with the reinvigoration of public transportation, would provide opportunities and challenge for inspired innovation within the disciplines of environmental respect and enhancement.

But new housing, heritage preservation, environmental improvements, protection of our environment and our many areas of outstanding natural beauty... all of this depends on our ability to expand our economy towards full employment and maximum productivity. And to do this we must return to the beginning, analyze our current problems, explore new solutions, and be ready to give them a try. A major challenge indeed. In British terms, nothing short of revolution.


The Prosperity Revolution

The word revolution is generally associated with those dramatic changes of government we have seen so often in central America and more recently in the ex-Soviet bloc.

But revolutions can also be peaceful. And they can bring much-needed change when change is due.

In its basic definition the word revolution comes from a Latin word meaning to turn. Revolution is defined in the Oxford Dictionary as complete change, reversal of conditions, fundamental reconstruction.

Britain is in decline, and has been so for some years. Few if any are the signs of improvement. Recession, unemployment, inferior competitiveness, almost non-existent investment, and declining relative prosperity are our present reality and future prospect.

These circumstances clearly indicate the necessity for a complete change and reversal of conditions, which in turn can only be achieved through fundamental reconstruction, or to use terms found increasingly in American business and industry, re-structuring or re-engineering.

This will not be easy, particularly in Britain, where conservatism (with a small c) and precedent are valued and revered. If something has been done before, then better carry on; no matter that it has brought us to the brink of disaster. If something has not been done before: forget it. Better the Devil we know. There's safety in past experience.

But when a Daily Telegraph poll taken in early 1993 shows that half our fellow countrymen would emigrate if they had the chance, that is hardly a recommendation for the continuance of the economic and political policies pursued to date. Indeed our country has now reached the point of decline where only a new and substantially different approach could be credible.

Revolution we need. And not just one.

We need three major revolutions: a revolution in value, a revolution in quality, and a revolution in investment.

We need first and foremost a revolution in VALUE, in the way we determine Pay, Profits and Prices.

At present, Pay, Profits and Prices are determined by a process of disputation. This process pervades our industrial relations with mistrust, suspicion and antagonism.

Even more seriously, the process of disputation exerts a built-in upward pressure on pay, profits and prices which produces inflation unless held in check by permanent recession and at least 10% unemployment.

It does not require a brilliant mathematician or statistician to see that 10% unemployment represents an immediate loss of 10% production and potential prosperity.

And the damage does not stop there; the existence of permanent and substantial unemployment causes people with jobs to oppose productivity through fear of job losses. And when we oppose productivity, we are opposing prosperity.

The alternative is that we should determine Pay, Profits and Prices through system, fairness and consensus, by debating, and finally formulating an on-going National Standard Evaluation System.

This revolution, this fundamental change of direction in the way we value ourselves, our work, our goods and services, can turn our whole economy towards the real prospect of prosperity.

Pay, Profit and Price Consensus removes a fundamental antagonism in industry, replacing it gradually with the cooperation which is essential if we are to improve productivity.

With Pay, Profit and Price Consensus we will also achieve stability of monetary value, removing the threat of inflation, and permitting a steady economic expansion to permanent full employment and full productive capacity.

A REVOLUTION IN VALUE.
Objective: That PAY, PROFIT and PRICES should be established, not by disputation, but by SYSTEM, FAIRNESS and CONSENSUS.

We need a revolution in QUALITY.

The major part of British industry produces poor quality at high prices, as evidenced by the steady relative decline in the value of our currency over the years.

To prosper, we must produce high quality at low prices. And this requires a revolution.

It requires a revolution in management attitudes; it is with management that the resolve and the empowerment necessary to maximize quality must begin.

Resolve, re-organization, systems, equipment, worker training and motivation; work patterns must be changed, new equipment installed and properly maintained, quality control systems put in place and workers trained and encouraged to use them.

It is nothing short of a whole new philosophy.

And yet this is not a pioneering revolution. The leaders are many. One man alone, Dr W Edwards Deming, revolutionized postwar Japanese quality; now his system and philosophy are doing the same for many industries and services in the United States, and could revolutionize quality in Britain if we but chose to apply it.

The techniques are there, the systems are there. If we do not apply them our decline will continue. Businesses will fail, jobs will be lost, we will not compete, we will not prosper.

We need a revolution in quality, and this must apply not only to Private Sector business, services and industry but also to Government, and to our essential infrastructure and Welfare services. We need to restructure Government from its very foundations, asking what it is there to do, then making sure it does it effectively and productively.

A REVOLUTION IN QUALITY
Objective:That both Private and Public Sector should offer goods and services of optimum QUALITY and PRODUCTIVITY at the LOWEST POSSIBLE PRICES.

We need a revolution in INVESTMENT

In present circumstances economic expansion is rarely possible due to the threat of inflation. Pay, Profit and Price Consensus would permit economic expansion without inflation.

Economic expansion is powered by an expansion in the national credit base, the quantity being regulated by the Bank of England in accordance with productive capacity.

This credit expansion can be used as a powerful force for job creation and productivity; but on past experience it has found its way mainly into property and financial speculation.

In order to direct expansionary credit into productive investment we need to apply criteria, not only of total quantity, but of quality and priority: we need to channel investment into firms and new projects which will observe Standards and maximize productivity, and the channelling of investment must be guided by openly established priorities formulated through a process of bottom-up coordination and forward planning.

Everybody working, everybody working productively: that is the simple formula for prosperity.

The Pay, Profit and Price Revolution can remove the obstacle to expansion; it enables us to grow towards prosperity.

The Quality Revolution encourages the growth towards productivity, and thus prosperity.

But it is the Investment Revolution which empowers job growth and productivity. Without the careful channelling of investment guided by priorities into quality-committed enterprises, our expansionary potential will be dissipated in non-productive speculation.

A REVOLUTION IN INVESTMENT
Objective: That INVESTMENT should be channeled into projects and Companies maintaining the highest THE HIGHEST STANDARDS of PRODUCTIVITY and QUALITY guided by a NATIONAL PRIORITY STRATEGY.

Prosperity may seem a remote prospect in Britain today. But there is no mystery about it; certainly there is no magic to it.

In a family, a business, a community or a nation, if everyone is working to the fullest extent of their desires and capabilities, and if everyone working is doing so as efficiently and productively as current techniques and technology allow... prosperity will not only be possible, it will be inevitable. This is not a matter of economic science; it is simply commonsense.

Simple commonsense... but to achieve it will require a fundamental change of thought and attitude.

Substantial unemployment will not create prosperity. But we cannot expand our economy to full employment and full capacity, nor improve industrial relations, until we replace disputation with system and consensus as our method of evaluating pay, profits and prices.

Nor will we achieve prosperity until the maximization of quality, productivity and teamwork has become universal throughout British industry, services and business.

And economic expansion through a corresponding expansion in the national credit base will generate prosperity only if it is purposefully directed into job-creation and productivity-enhancement, guided by an overall national priority strategy.

New ideas; new ideals. A need for change. Ultimately a Nation on the path of decline can only be uplifted by some new ideas, new ideals..... and the courage to adopt them.




Further New Age Politics and Economics reading:

The Art of Good Government and New Age Government


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