Laissez-faire Capitalism: Thoughts

OK. This is a bit rough around the edges,  unfinished and a month after I wrote it, but here goes…

7th Feb 2012: I’m writing this post in response to Will Stirling’s interesting piece in The Manufacturer  on “Manufacturing and the broken model of laissez-faire capitalism” , while it is still fresh in the mind. So here goes.

Tom Lawton, head of manufacturing at BDO, spends a lot of time in Asia and is one who questions whether the UK approach to laissez-faire capitalism is now defunct as a modern model for manufacturing.
 
“One of the things I like about China is the focus by the state,” says Lawton. “There is an absolute focus and intention for things to happen in the way they want them to happen. Much of the funding that goes to the big state banks will be released to companies, including manufacturers, whom the state wants to receive it. They [the state] are directive on the regions and what they want them to manufacture – for example the Eastern seaboards are now more expensive, so the flow of lower value-add work is directed to the west of China, which alleviates low employment there.
 
He adds: “Some of this state direction – we might call it interference, they might call it model – is very interesting, because it has been so effective in creating this powerhouse. Without becoming a communist state, are there lessons that the UK can learn in applying some aspects of that framework?”
 
Tom refers to the oft lamented absence of a long term, sustainable framework for manufacturing growth in the UK. The Chinese model, of selective manufacturing support, is authoritarian and undemocratic but, in a world facing a second recession, it has been extremely effective. “How can we find a framework and make it last for 20 or 30-years, without being interrupted by political changes?” says Lawton. “We ought to have an industrial platform that has a lifespan that is a lot longer than the political lifespan.”
 
 
Is this possible? Look to Germany. Several manufacturing-centric policies, such as the more regional-focussed lending terms of the Sparkassen banking system, are enshrined and will be continued whichever political party comes to power, notwithstanding a few tweaks.
 
 
Capitalism has worked and raised living standards across the world. But pure, laissezfaire capitalism with no state intervention has not worked for UK manufacturing. As all countries look to making and trading things to pull them out of the mire, it’s time for intervention and a far more strategic approach to what and how the UK manufactures.

We should remember that the UK was not always so apparently rudderless on it’s maunfacturing policies and behaviour.

– A continued common purpose links government policy, cultural norms & outcomes (in the long term) e.g. imperial ambitions and entrepreneurial spirit (industrial revolution and beyond), rebuilding after war (WWI & II spring to mind), depression (here again ?) and cold war rivalry.

– The UK’s move away from tangible production to focus on the intangible, where money can apparently be won and lost at the touch of a button (even if this is not actually the case) has served to weaken the connection in people’s minds between activity, work and physical transformation of materials, and the generation of wealth (in all it’s forms)

– West Germany’s imperatives after WWII were clear : re-build, re-build, re-build (oh, and by the way, prevent the USSR from invading), for which it recieved considerable finance and backing, but building on a mean cultural determination for the nation’s long-term financial and physical security. The UK’s were similar, but with loose-ends from Empire and needing to pay the US back for it’s help.

– The US only strengthed it’s belief in it’s (almost divine) right to be the land of the free (and the entrepreneur), which of course …. blah b;ah

In China, it is long-term policy and strong control that dictates economic behaviour

In Germany, it is strong culture that drives behaviour – a historical senses of order, supporting manufacturing, a relentless drive for exporting and a long-term view – it is “cultural givens” not necessarily rules that dictate economic and financial behaviour.

In the USA, it is also string culture that drives behaviour – an almost divine right to entreprenuerism and to be the best, through generations

In the UK … hmmm. Hey, well. We’ve got the Royal Family. We had an economically driven Empire (which we still keep on about), not disconnected with the Royal dimension. We have professional politicians, who haven’t got a clue. (I’m looking for some positives, really) 

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About Dr_JAH

Independent Researcher
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2 Responses to Laissez-faire Capitalism: Thoughts

  1. “We’ve got the Royal Family. and professional politicians who haven’t got a clue.” If it wasn’t so true it would be comical.

    Nearly a year after writing this ‘Last Word’, I read John’s thoughts on his blog for the first time. Little has really improved in the strategic thinking agenda, although the UK does now have an industrial strategy apparently, and (while it is easy to quip from the sidelines while not working prove the efficacy of devise a better system) – low and behold – the UK has just lost its AAA rating.

    There isn’t much growth anywhere, to be fair, but two year’s of zero growth is lamentable and with the pound about to fall heavily, a big worry IMO.
    Manufacturing/engineering/ technology all hold part of the key to enabling more growth. Quite simply, we need to design and make more things – and crucially, at scale, like the Germans – to sell to people around the world who want them. How are we doing this? Surprisingly well in many, small examples of innovative British companies showing admirable ingenuity, tenacity and oomph. But it is STILL not being mobilised truly strategically with anything like the ‘holistic’ thinking or urgency that is required.
    Increasing the Annual Investment Allowance to £250k for 2 years, activating the Patent Box and improving R&D tax credit claim procedures are really useful measures. BUT to get decent companies growing we urgently need to:
    focus on helping the ‘M’ companies in SME become ‘large’. Too much focus is placed on helping Small firms and national champions but it is the Ms that can provide a big solution;
    devise a more robust and better funded overseas trade strategy – perhaps by doubling UKTI’s budget and appointing more qualified manufacturing leaders as ‘trade champions’ to work beside & even within UKTI;
    not be ashamed to ‘pick winning sectors’, if picking winning companies is too unappetising. All our competitors do.
    insist that there are some engineers and ex-manufacturing leaders in government, if they would enter politics – and make it more attractive to them if they are reticent – and:
    “insist” that every secondary school in the United Kingdom has a fully vetted businessman or woman – preferably a manufacturer – on their board of governors = a campaign that The Manufacturer is running in 2013.

    The last two wishes may seem idealogical, but so what? It beats some of the other policies successive govts have introduced to stimulate growth.

    The UK economy does not have to become more like Germany or more like China to be more successful. But it does need to look at the best bits of business models like Germany’s and learn lessons from them. There is no shame in learning and applying lessons from your neighbours.

    • Dr_JAH says:

      Good piece.
      Some thoughts. OK perhaps moans…
      When we say ‘UK Policy’, more often than not when one reads the small print, or indeed most data, it actually only refers and, critically, is applied to England. Both ‘UK’ (now read English) & devolved govts have been complicit in this, either actively or through ignorance.
      Devolved govts get a share of money for similar manuf policy activity, but don’t have the resources & expertise (or political will) to use it effectively for the benefit of their now unwittingly ‘devolved manufacturers’ e.g. A manuf. in Chepstow is not allowed to access help from willing MAS capability 10 miles away in Bristol, despite the advertising. It’s own govt disbanded MAS several years ago, and is now concentrating ONLY on the top of the pyramid i.e. what it calls ‘advanced manufacturing’ e.g. with ASTUTE. I’ve had direct experience of trying to get funding for a company – who I soon realised actually really needed fundamental help – but not surprisingly, it fell outside the advanced criteria.

      The bigger point is that we have fallen into a situation that undermines a holistic approach to UK Manufacturing e.g. impoverishing those manufacturers who have found themselves on the wrong side of a border, and/or not de rigueur to their own administrations narrow or under-resourced policies.

      So much of ‘UK Manufacturing’.

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