AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE

AN INDUSTRIAL STRATEGY: HELP OR HINDRANCEAuthor(s): DAVID ORRSource: Journal of the Royal Society of Arts, Vol. 130, No. 5306 (JANUARY 1982), pp. 85-94Published by: Royal Society for the Encouragement of Arts, Manufactures and CommerceStable URL: http://www.jstor.org/stable/41373318 .

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AN INDUSTRIAL STRATEGY:

HELP OR HINDRANCE

The Trueman Wood Lecture by

SIR DAVID ORR , MC, LLD

Chairman , Unilever PLC, delivered to the Society on

Monday 9th November 1981 , with Sir Arthur Knight , formerly Chairman , National Enterprise Board , ш ř/zč Chair

The Chairman: It is an honour to be asked to preside for Sir David Orr's Trueman Wood Lecture. The Lecture commemorates Henry Trueman Wood, who was Secretary to the Society from 1879 to 1917. It was concerned originally with the application of science to industry. In more recent years its scope has been extended to deal more widely with industrial themes. The list of contributors includes many distinguished names. Sir David Orr's distinctions rest upon a variety of accomplishments : academic,

military, and in his business career with Unilever, in particular as its Chairman since 1974. He shares with others who have achieved eminence in that great company a capacity for analysis and exposition and a concern for wider public policies which is all too rare. Industrial Strategy embraces a wide range of topics which arise in the dialogue between Government and industrialists.

I am pleased now to invite Sir David Orr to address the Society.

Britain and half

exports the national

has together an open

income. are

economy. equal We

to export

more Imports

more than

Britain and exports together are equal to more than half the national income. We export more

of our goods and services than Germany, much more than Japan or the United States. We have to be competitive in the markets of the world in order to live.

What is required to make us competitive has been discussed ad nauseam ; higher productivity, consistent Government policies, lower inflation, better industrial relations, the litany is painfully familiar. I should like to concentrate to-day on one point, the need for an industrial strategy which would involve the Government in those cases where it is necessary, and equally firmly leave the Government out where industry is managing perfectly well on its own.

One strategy which has been much canvassed can be dismissed at the outset. Nothing will be solved by retreating into ourselves, setting up barriers against imports, leaving the EEC and breaking our obligations under GATT. For every job we gained in an uncompetitive firm or a declining industry, we would lose one in a growth industry or in one of those competitive

firms which export half or even more of their output. We cannot have import controls without putting up costs for our exporters. A siege economy may be possible for the USSR or the USA- It is not an option for us.

We cannot preserve our standard of living by withdrawing into our shell. We must earn growth by becoming as efficient as the best of our competitors. Only in that way can we get back more of our domestic market and stop the decline of our share of world markets. The alternative is unacceptably high unemployment, more and more social tension and no chance of finding new jobs for those displaced by technological advance. We have to make new technology an opportunity, not a threat, and for that we need a strategy.

Such a strategy would begin by recognizing that much of the economy can be left to the workings of the free market. The market can be left to decide which is the best detergent, whether it is worth putting in new capacity to make sprockets and which beer is the most re- freshing. The first rule is to avoid interference for interference's sake. We do not want a

85



JOURNAL OF THE ROYAL SOCIETY OF ARTS PROCEEDINGS

plethora of rules or a policy for industry based on saving jobs in marginal constituencies. Still less do we want a system by which nothing can be done without weeks or months of discussion with some Government department.

The consideration of what Government should do is, however, central to any strategy.

Some functions only Government can perform, though, now that we are members of the Community, some of them are as much matters for Brussels as for Whitehall. Government levies taxes, controls the money supply, lays down competition policy, sets the conditions for foreign trade, provides the legal framework for industrial relations and is responsible for appro- priate education.

The question is, how much farther should Government go ? How far should there be an attempt to create particular policies for individual industries which are thought important for the future of the economy ?

There are three obvious areas where a strategy of intervention may be helpful.

The first is small business, which often needs advice on such matters as accounts and marketing, which can find it difficult to obtain finance and which may be drained of the capital it needs by taxes, notably death duties. On all of these much has been done, for instance, by the loan guarantee scheme and by the tax concessions of the last few years, and I do not propose to go further into what more may be required. I will only say that no strategy will be adequate which does not aim to cancel out the handicaps of small businesses.

The second is the declining industries. It is important that we do not sap our strength by using up our resources on supporting lame ducks. We need to put our resources behind growth industries. But some support will never- theless be necessary for industries which need a breathing space while they re-equip, or which provide a large part of the employment of a de- prived region. It must be part of our strategy to make sure that, if the industry is not competitive even when re-equipped, it is not supported for ever.

I should like to concentrate to-day on the third area, the high-technology, but very often also high-risk, industries which are the hope of the future. Many of our competitor countries are making a determined drive to develop and exploit new technology. Unless we do so, our future will be dim.

In these high technology industries, the best course is for the firms concerned themselves to make up their minds to take the risks involved. If they do commit themselves, we found in the

Wilson Committee that they can usually get the finance. However, where totally new technology is involved, where risks are unusually high and where even if success is achieved, the payoff is long deferred, management is not always ready to make the commitment necessary for new industries to be developed. We may have a good deal of know-how in some of them like tele- communications or advanced passenger trans- port or biotechnology. But that is not always enough to make a firm commit what, for it, may be a large amount of capital and an even larger proportion of its scarcest resource, its skilled people, to a proposition with a fair chance of failure. And when one is dealing with the new, there is always a fair chance of failure or at least of being pipped at the post by a competitor.

If we are not, therefore, to miss our chances as we have done with so much of sophisticated engineering since 1945, something must be done to create a policy for these special cases.

This is not a revolutionary idea. A great ma- jority of our competitors have at least elements of such a strategy. The Japanese have their 'Vision of the 1980s'; the French have both a general five-year plan and detailed plans for certain industries ; the Germans have the Kreditan- stalt für Wiederaufbau - a development bank funded from public and private sources increas- ingly involved in industrial investment. The Dutch have recently channelled some of the revenues from their natural gas resources to the National Investment Bank to provide 'capital credit' to industry in the form of long-term loans under favourable terms.

The United States alone looks as though it has no formal industrial planning whatsoever. I suspect this is more apparent than real since the procurement policy of the government, whether it be in the defence area or others, seems de- signed to stabilize or enhance industries and companies thought to be of strategic importance. Anyway, American resources are so abundant that they can afford to be wasteful, to experi- ment in many directions, scrap the failures, and still remain in the forefront of technological development.

In Britain, with the adversary emphasis of politics, there has been no discernible strategy and so intervention by government has been haphazard and sometimes disastrous. The story of Concorde is a warning. It is a brilliant technological achievement but a commercial failure. A proper strategy must set as much weight on commercial success as on technological break- through.

We have every right to be wary of cnational plans' ; certainly nothing proposed by successive

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JANUARY 1982 AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE

Governments so far has added up to a strategy. But we must recognize that private enterprise has not done well in the exploiting of high technology. We must evolve a better system. We need some mechanism by which we can select the main directions of future growth and through which we can enable our industry and society to take advantage of the advances in science and technology which are now taking place, many of them fired by British inventive skills.

A national industrial strategy will have to be based on three clear premises :

1. It would have to be a co-operative effort between Government and industry, both employers and trade unions. The major initiative would have to come from industry, where the relevant knowledge and experience are concentrated. Those firms which have shown their ability to succeed in the world market would have an especially large contribution to make.

2. The aims of the strategy would be to create commercially successful products, not prestige products which have so often turned into albatrosses.

3. The strategy should concentrate on a limited number of areas. Where the market functions adequately, where finance is available and the decisions of individual firms coincide well enough with the public interest, there need be no Government interference. This would cover most of our economy. There are only a few areas of potential growth where, as the National Economic Development Office says, 'concentrated effort is required if industry as a whole is to grow in line with the more advanced technologies'.

There are risks in any industrial strategy we may develop. However full the consultation, however great the use of the experience of industry, however experienced the people making the decisions, there will be mistakes. Winners are not easy to pick or we should all be rich. Areas of growth are not always profitable, as we have seen with airlines and car manufacture.

There are no simple immediate answers. No one sector of our society, whether it be Govern- ment, industrialists or trade unions, can alone have the solution. Our society is complex. The various strands in our economy are all so inter- twined that improvement will only come from co-operation between all parties. Unless everybody realizes how necessary this is, nothing effective can be done. But co-operation cannot operate in a vacuum. It needs some sort of agree-

ment on goals; a clear sense of direction - in short, we are back at an industrial strategy.

A blueprint for a limited strategy which might achieve this consensus would require :

First, identification of the areas of promise. Secondly, educational reforms to make sure we can produce the people they need. Thirdly, the necessary research and development, and, Finally, some system of support for those cases where the investment is too big and the risk too great for any single firm to carry. Such a strategy, I repeat, cannot be worked

out by Government on its own. Government's decisions are too often distorted by political pressure directed to easing the pain for firms and regions in decline. They have votes - industries yet to be born do not.

Any strategy has to be worked out by a larger partnership. The knowledge on which it has to be based exists primarily in industry itself. In- dustry must therefore have the lead part in deciding where to go. But it cannot be a solo part. The industrialist does not have a monopoly of knowledge; the research scientist in the university or government laboratory, the trade unionist and the civil servant all have their contribution to make. The politician too has his place. Politicians are elected to decide for what social ends to use the taxpayers' money and how much of it to devote to any one purpose.

Through such wide co-operation the National Economic Development Office (NEDO) has already been able to draw up a list of industries which can be expected to grow and those which cannot. Any such list must be tentative and looked at again at regular intervals but at least it is cheering that growth industries identified by NEDO range wide, from the excitement of fibre optics and biotechnology to such staid areas as waste water treatment and glass.

NEDO sector working parties can go further by analysing the opportunities in these growth industries. A good example is provided by the report on electronics where, under the chair- manship of a leading academic, the leaders of the industry and the trade unions pooled their knowledge and ideas and came up with a clear picture of where, in their field, the greatest po- tentialities lay. Such exercises can do a great deal of good, by making industrialists and trade unions detach themselves from the preoccupa- tions of every day in order to think about the future, by providing an opportunity for the cross-fertilization of ideas, and by making possible a subsequent public discussion based on something more than prejudice and newspaper reports.

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Exercises like these, by focusing our minds on particular objectives, are of special value for a medium-sized country like the United Kingdom. Our resources are limited. We have under one- half the national income of the Germans, we have only one-third as many research scientists and one-sixth as many university-trained engineers as the Japanese. If we spread our resources too thinly we will achieve nothing or, as has hap- pened so often in the past, we will make the discoveries and others will develop from them the saleable products. Our industrial strategy must confine itself to identifying the major areas of advance and change and to deciding in which of them we wish to be amongst the leaders.

The Department of Industry's encouragement to information technology including, it is hoped, a micro computer in every secondary school by the end of 1982, is useful ; so has been the commercialization of university research by the National Research Development Corpor- ation, now amalgamated in the NEB, to form the British Technology Group, a name which is itself significant of a shifting in ideas in the direction I am advocating. But what is being done is still fragmented, not integrated enough to form a strategy. It does nothing for instance, to meet the general problem of the decline in the resources devoted to research and development over the 1970s and the much higher percentage of research money which is spent on defence in this country as compared with Germany or Japan.

When we have identified the growth industries, we have to make sure we have the people to man them. The new industries we are talking about are all high-skilled industries. We need more highly qualified engineers, more fitters who can deal with complicated automated machinery, more MBAs, more management accountants. At present, more people study management in New York University than in all our universities put together. Nearly all our engineering courses are considerably shorter than those on the Continent. Very few of our econo- mics courses have any accountancy content and most of our accountants have learnt no eco- nomics. We have 300,000 students doing eO' level mathematics, but only 10,500 doing computer studies. Too many of our craftsmen are trained by serving time; their skills are often too narrow and far too frequently untested by any examination. In our higher education, we have too few centres of excellence in learning of industrial value like the London Business School, or Cranfield for automation. Our whole educational system places too little emphasis on the full qualification of people for work. It is ex-

ceptionally successful at the enrichment of leisure, but that is not enough, we also have to make a living.

Changing the educational system will, however, take years. Meanwhile any strategy would provide for more ad hoc measures, from special courses in skills of which we are going to be short, like systems analysts, to the improvement of skills for craftsmen who served their appren- ticeships when machines were simpler, to an extension of courses in business of many sorts.

As a more detailed example of what is required let us look at the computer industry.

It is important to have a computer hardware industry. It is still more important to have a computer software industry. It is most important of all to have in every firm people with the skill to know when and how to use computers. They have to be able to identify what operations can profitably be computerized, to know how to judge the quality of a consultant and for what level of teething trouble to provide.

Given the predominant rôle the State plays in education and training, the State must of neces- sity have a central part in ensuring that there are enough of these skills and that they are spread widely enough in our society for industry in general, and not just a few leaders, to be able to make use of them. We must applaud, for example, the programme to make a wide range of managers aware of the possibilities in micro- chips. Twenty Inmoses will be of limited use to us if industry does not know how to use their products. There may even be a case for a period for a general subsidy for experiments with certain new and crucial techniques like computer de- sign, or with such developments as numerically controlled machine tools. Industry has to decide in the end what use it can make of such innova- tions, but some Government seed-money en- courages it to do so more quickly.

So far, I have suggested nothing very new. NEDO is already busy on identifying and analysing growth areas. The Department of Educa- tion and Science is committed to improvements in training for industry.

It is much more difficult to suggest ways of stepping up the level of high-risk investment.

Here we have much to learn from others. We might not wish our banks to have the same inti- mate relationship with industry as has been built up by the Germans over a century or so, but they should at least make themselves better qualified technically to judge high technology propositions. The relationship between the Japanese Government and industry is too close for our taste, but we could imitate the willing- ness of the Japanese Government to base policies

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JANUARY 1982 AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE on industry's needs and opportunities as seen by industry itself. The country whose system is nearest to ours, however, is France, and we could well gain from adopting some of the methods France has found so successful.

The French have an interministerial committee to pick out the industries in which they feel France must be successful if it is to keep in the fore-front. But on the whole, these are the obvious industries, robotics, telecommunica- tions, electronic office equipment. That is not the important part of the procedure.

Fundamental to French planning is their recognition that it is individual firms, even individual products, which are the winners, not whole industries. The industry section of the Eighth Plan, therefore, emphasizes the importance of creating an environment in which the individual firm will produce the outstanding product.

There is no attempt to plan industry in quan- titative detail. The Plan confines itself to a general approach. Its main importance is that all sides of the national life are involved at a very senior level in working out that approach and there is, therefore, a widespread consensus on it.

The French, much more often than ourselves, act to achieve these generally accepted ends by specific rather than universally applicable means. The Govenment makes a contract with a firm or firms by which they get certain defined aids in return for certain promises of performance. This contract may cover research, development, regional incentives or capital grants, but it always lays down in detail what has to be achieved, and there are penalties for not achieving it. The method can be, and is, applied to firms of all sizes, but it is especially successful in inducing the major firms to take risks and invest for the future in ways they might otherwise consider imprudent. The eventual aim is nearly always commercial; the project has to make a profit in the end; but the assistance recognizes that there is a social benefit as well in some projects, and that it is reasonable, therefore, that society should bear part of the risks.

I believe that we in Britain need as close an involvement of industry in the making of strategy as the French have. In this country we already have a pretty adequate range of supports for industry. Some of these should continue to be available for all firms meeting specific conditions - training grants, depreciation at choice, regional grants and so on.

But something extra is needed for the special support of selected companies in important growth areas. This might include loan finance

(long-term or subsidized), tax allowances and, most importantly, research grants. Above all, we might adopt the French idea of a contract between the State and the individual company.

Government must decide the general scale of assistance to be given to the industries to be supported, but the actual choice of these industries must be made a partnership of all those concerned, industrialists, trade unions, the scientific community as well as politicians and civil servants.

Then come the questions : - which firms to support - what form the support should take - what performance conditions are to be

laid down. These decisions must not be directly political

or they will be changed with every U-turn of policy or change of Government. Within a clear brief, they might be delegated to a new independent body composed primarily of people from industry. Such a body could invite proposals from firms, could decide which was the best proposal and could negotiate a contract under which support would be provided in return for specific performance. It would have much to learn from the experience of the University Grants Committee and of the Research Coun- cils, which also serve to take some difficult choices out of the political arena/Its objectives would be twofold - to see that official support is provided as a package to the company which can best use it, and to monitor the use of official funds so as to be able to reinforce success.

No help should be given unless the firm is prepared to commit a considerable amount of its own resources, 50 per cent, for instance, in a normal development contract.

There would have to be a strict review of performance against the contracts, carried out through some form of independent audit. The tax-payer must be satisfied that his money is going to implement the agreed strategy, and will be used for no other purposes.

A modest strategy of the type I have outlined would aim to concentrate our strongest resources of management and technical skill into a limited number of high technology, high growth industrial sectors. It is important to select the right sectors ; it is even more important to choose the right companies to back. If we don't we will continue to waste our money and our talents.

No matter what Industrial Strategy we follow, no matter how well we identify and support the growth companies of the future, our industrial performance will not be adequate without a more constructive approach to the effective employment of people. The co-operation which is

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evident in some of the best run British companies has to become more general if we are to succeed as a manufacturing country.

That means, first, proper information and consultation, secondly, less uncertainty, freedom from the constant worry about which little issue will produce a walk-out of some key staff or an instant unofficial strike.

There is already much information and consultation going on voluntarily in British industry. Many of our companies have made a promising start with Company Councils. These councils are fully representative of all employees. They meet the Board of the company regularly and are given full information on the state of the business, the company's marketing strategies, the sales targets it has to meet, its capital expenditure plans and the reasons for them, future technological changes and the likely effect upon employment. Ideally there is consultation on agreed topics before decisions are taken. These Councils have, however, not yet spread as widely as one might have hoped. Only 60 per cent of British companies have Works Councils. Fewer have regular meetings between employee representatives and the Company Board.

British industry will have to move faster than this to develop the voluntary arrangements to which it is dedicated if it wants to avoid the legal imposition of a system incompatible with its traditions. Unless industry can demonstrate the will and the ability to share relevant operating information with the representatives of its employees and to consult them on agreed topics before decisions are made, the case against legal compulsion will fall by default.

Where information and consultation is in- adequate, the result is an uncertainty about the company's intentions which creates anxiety in the employees and their trade unions, and that in turn produces a reluctance to give up what is familiar and an unwillingness to move from en- trenched positions.

An even more serious source of uncertainty is the virtual impunity with which unofficial action can be taken. This has disastrous effects upon

efficiency. It is difficult for a manager to resist unreasonable pressure over some small but immediate matter when the alternative is instant industrial action and heavy cost. It is not the big dispute over some major matter which damages industrial efficiency in this country. Many companies abroad suffer more days lost through strikes than their counterparts in the United Kingdom. What puts many United Kingdom companies at a disadvantage are the numerous day-to-day trivial concessions that are made to avoid some small dispute resulting in a stoppage of work. When British managers work in con- tinental factories, they find far less of their time is taken up by shop floor industrial relations problems. Far more of it is spent in solving technical and production problems. I believe this is one of the major reasons why the productivity of foreign competitors far too often exceeds what even the very best managers can achieve in this country.

What we need is some sort of bargain ; more information and fuller consultation in exchange for the certainty that nobody will go on strike except as a last resort and after all procedures have been exhausted. I do not think we are at the stage where this should be laid down by statute. There is a great deal of discussion, negotiation and clarification of what would be reasonable to be done, before we can contem- plate bringing in the law, but the time is ripe for serious talks between the CBI and the TUC and between individual firms and their unions.

Any industrial strategy, if it is to succeed, needs co-operation, not only from day-to-day in the factory, but at every stage, in the choice of industries to be concentrated on, in the measures to be taken to help them, in actual implementation. A strategy requires a partnership between Government, industrialists, trade unions, scientists - a partnership sufficiently firm for the strategy once chosen to last. The one thing industry cannot live with is a change of policy every couple of years. If we want to reverse Britain's industrial decline, we must not only choose a path; we must stick to it.

DISCUSSION Mr. Kenneth Marshall, ma: Has Sir David Orr considered, in the formulation of high technology policy, the contribution made by the smaller companies who, given adequate finance, do produce very high technology in their way ? For many years up to the nationalization of iron and steel I was Director of the Joint Iron Council. We had a com- plete setup there for linking research, the unions, productivity, training and all such aspects on a

collective basis. It was not an ideal arrangement but curiously enough it seemed to work because we financed it ourselves without any government subsidy. This all came to an end on nationalization, so I regard 1964-5 as a very sad year. But I do feel that there is room for extracting the honey, or pollen rather, from a number of different flowers. I do not understand exactly what Sir David means by an industrial strategy. I am a little fearful that what

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JANUARY 1982 AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE

may be a growth strategy for to-day may become rather conventional and rigid. I should like to see an evolutionary policy, rather than a strategy, which may fit this particular year.

The Lecturer: I entirely agree about the innovative capacity of small businesses and that is why I am very much in favour of any steps that can be taken to preserve a healthy small business sector. Part of the vigour of the American economy is pro- duced by such a sector. But I do suggest that when it comes to developing the areas of high technology and high growth, the sums of money and the resources involved go beyond what a smaller business can provide even if it gets government support. If we are to be in the forefront of, say, telecom- munications or biotechnology, although some of the original ideas may very easily come from small businesses with high innovative capacity, when it comes to the actual building of the production centres and the wide research necessary, I think it becomes a matter for the large company if we are to compete in the world league.

You mentioned proper co-operation between the steel companies before nationalization, I am sure that there was, and what you say reinforces my point that unless we have co-operation between management, employees and industrial associations and trade unions, we will not make progress. One of the advantages of the small company is that it is possible to get that sort of co-operation because you have a personal relationship, the boss is known and he walks around the shop-floor and knows who is likely to have a good idea about development. But in the really big league that sort of co-operation has to be extended.

Finally you questioned my concept of the need for strategy. This is really quite simple and very limited. In this country we have limited resources of money and skilled people, and unless we decide in what areas we want to excel and put our resources behind those areas for a reasonable period of time, we will fritter our skills away and start good ideas which someone else will take up and develop. A company that has been successful in competing abroad is surely the one we should be backing. That is my strategy.

Professor John Heath (London Business School): The main emphasis in your industrial strategy is concentration on individual firms. The civil service in this country has always been reluctant to promote individual firms and has preferred to support individual sectors or industries without prejudging which firms should take up the benefits on offer. Should the NEDO itself, which does excellent studies, take a more active rôle in helping to make these decisions ? In the NEDO you have industrialists, trade unionists, Government representatives, but they do not actually make any decisions. Is this what you have in mind ?

The Lecturer: I am sorry if I was not clear. There is no doubt that politicians, and I suppose the civil servants, have always fought shy of sup-

porting individual companies. There would always be a tremendous controversy on why they selected firm A rather than firm B. All the MPs in whose constituencies the factories of firm В lie will protest that you have given the job to firm A. So politicians want to steer clear of that sort of controversy. That is why, having decided upon the area, there should be an impartial body to select the best companies in that field.

You then raised the rôle of Neddy. If we did not have Neddy we should have to invent it. Neddy is the one forum where politicians, industrialists, employees, and civil servants can get together to hammer out the strategy we need. I think Neddy should be given teeth, should be given support, should be encouraged to decide which are the industries to which the resources of this country should be devoted. The Government must decide how much money is available to be put into the selected industries.

So you have the first two stages of the strategy: the selection of the areas by Neddy, the provision of money by the Government. The decision on which company to back should be removed from the political arena. Set up a group of industrialists, because they are objective people and know something about it, and say to them, 'Now you invite tenders and propositions from the companies in those areas for the work to be done and you judge which company to support and make a contract with it. For example, if you do the research to develop a particular field of biotechnology, we will provide all of the aids which the company may need for longer term development.'

The identification of the sectors should be a consensus job. The amount of money we can afford must be decided by government, but the selection of the outstanding firms to do the work should be taken outside the political arena. After all, that is what the University Grants Committee does. It has an allowance and decides which centres of learning should receive the funds. I am delighted that when it had to make cuts it did not just do an arithmetical cut of $ per cent for everybody. There is a lot of controversy as to how the cuts were allocated but at least it was attempted on the basis of where the money would be best spent.

Sir Adrian Cadbury (Cadbury Schweppes Ltd.): Could I thank Sir David for the very clear analysis he has given us ? The point I should particularly like to come back on is continuity. I can see that through the contract system you are getting a degree of continuity. I think that the experience of all of us is that it is the consistency with which you pursue a strategy rather than the strategy itself which is essential in achieving success. You said that the politicians are in Neddy, but in fact only government is there and you made the point about adversary politics. I am wondering, in addition to the contract system, what other changes you feel we ought to be working on if we are to achieve consistency in our industrial strategy ?

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JOURNAL OF THE ROYAL SOCIETY OF ARTS PROCEEDINGS The Lecturer: You have more experience of

working on Neddy than I have. Certainly I did emphasize the point of continuity. If you set up the sort of body I have in mind, awarding longish-term contracts reviewed regularly, I do not see how that can be easily interfered with politically. Of course we always run the risk that a new government will turn everything on its head, and so there is a great temptation to bring the Opposition into Neddy. That is a gloss on my system which could certainly be considered. I do not know how you can legislate for continuity and not just exhort people to work for continuity. If you establish systems that are difficult to overthrow, such as the contract system, you hope to avoid discontinuities. Fortunately, so far, all the political parties have continued to support Neddy. Its operation has not altered, although there may have been periods when it has been more progressive and more effective than others. I think we can take it that Neddy as a mechanism is likely to continue and I certainly hope so.

Mr. C. E. Mellor (Metal Box Ltd.): There is another dimension to continuity and industrial strategy on which I would welcome the speaker's view. There is a great need for the regeneration of mature industries, not necessarily lame ducks, without the glamour of advanced technology, and I very much question whether in this field it is enough to look to the UK economy. If we wish to remain in the world league with Japan and the USA we need to think much more of West European initiatives. I question too whether some of the initiatives for mature industries can be taken within those industries alone, because there is a high degree of depen- dence on other industries : French agricultural and food policies have integrated the farmer, the food processer, the packer and distributor, and have very largely succeeded in taking over neighbouring markets in Holland and Germany. I see great problems in achieving that kind of continuity with Neddy broken down into a number of sector working parties. In the field with which I am concerned there are no less than four which are relevant. Only if there was an agreed strategy between those four do I see us starting to match the achievements of the French.

Mr. Michael Haines (Member of Council of the Society) : Under the Industry Act of 1972 the government established a framework for just what you have been advocating ; in fact I was seconded to the Department of Industry for two years and I think Sir Adrian was on the Industrial Development Advisory Board which is just the sort of body you were talking about. Certainly industry schemes were set up as a result of the initiatives of the NEDO working parties to achieve in a modest way certain parts of the industrial strategy. From my experience the difficulty was that the government always put in too little and played safe. I was interested to hear various people saying that the government and civil service do not involve themselves in individual companies. Far from that being the case I think that the

industry divisions within the Department of Indus- try are only too anxious to recycle the money through the same old favourites so that there would be no failure and they would not face any problems with the PAC. The framework is there, but what is needed is the political will to commit more money and not play so safe.

The Lecturer: Although we have had the sort of supposed plan to which you refer, there has been no proper mechanism for implementation. You mentioned the Advisory Board in the Depart- ment of Industry, but that is exactly it - they are advisory. I don't want an advisory board, I want a board that can actually decide how this money is allocated, and so far I have not seen anyone do that except civil servants against a framework that has never been properly spelt out. There has been a very worthy lot of advisers just advising instead of people who actually have the muscle and the money to allocate to specific purposes. We must pick out a small number of growth industries of the future. It is no good thinking that some government action is going to rescue all our companies, or that the government should say that the farmer ought to be integrated with the food processer, that the food processer should talk to the retailer. We have to do that for ourselves.

There have been failures of management, and we won't succeed, no matter what strategy we have, unless we manage our businesses well. We cannot be nannied at every stage of the process. In order to put the great resources needed into high risk, high technology projects, we must have a more precise strategy and a different mechanism. I cannot pre- tend that it will apply to 90 per cent of the companies in this country - they have to do better what they are trying to do now - but if we are not going to continue to fall behind in some of the important new high technology industries we will have to put special resources into them.

Mr. A. T. Shadforth (Inco Europe): I could not agree more with what Sir David has told us. I think it was a very clear exposition of what needs to be done. The problem now is how do we get it done, because it is my experience that there is no pressure on government to achieve these steps. I was with a Minister of the Department of Industry last week, trying to persuade him to operate a mini strategy for my own modest neck of the woods and it is clear from that and other contacts that I have, which must be common to many industrialists, that we are operating under a regime where our Depart- ment of Industry is dominated by the Treasury. It is preoccupied with how to bail out British Leyland and Rolls Royce, whereas the previous government were prepared to foist planning agreements on us that were counter-productive. What should the rôle of industrialists be ? Is there something more positive that we can do, either individually, or collec- tively, using such organs as the CBI ? Quite clearly it is not going to happen if we leave it to the political process alone.

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JANUARY 1982 AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE The Chairman: The CBI, of course, at its

Conference did have a proposal that it should get involved in 'strategy-forming'. I think it is fair to say that up to now the CBI with 15,000 members has not canvassed its members on this kind of rôle.

The Lecturer: I think our CBI representatives on Neddy have a particularly important rôle to play, but you ask by what mechanism ? Well I am here to-day to try to revise the process. I think we should incidentally pay tribute to what Geoffrey Chandler is trying to do in Neddy; he has given that body positive leadership and I think he would agree with some of the things I have said.

The Chairman: I had a letter from Geoffrey Chandler regretting that he could not be here this evening, telling me that he had seen Sir David Orr's text and that if he had been here he would have given three cheers.

Mr. Shadforth: Your mention of Geoffrey Chandler reminded me that one of the things that the CBI did, or proposed - although they seem to have gone off the boil - is a national economic council which would have a part to play in the prosecution of industrial strategy. I wonder whether you support that activity as Geoffrey Chandler did ?

The Chairman: I think perhaps Adrian Cadbury could speak here. The CBI was dicsussing a forum on incomes.

Sir Adrian Cadbury: The idea was not to come up with some sort of wages norm but, on the basis of West German experience, to try to achieve greater understanding of the basic economic framework within which we all have to operate. It was in fact to set the scene, so that individual decision makers would come to their decision with better knowledge of the likely consequences.

Lynda King Taylor (Times, Special Reports): As less than 60 per cent of people have industrial councils who are even prepared to talk about information technology, and as a lot of unions at a time of high redundancy are not prepared to talk about it in 1982, and as the banks do not back high-risk high technology industries, and as less than 50 per cent of British companies are even using information technology to help us to be more productive - where does the average manager in an average industry in Britain begin in 1982 ?

The Lecturer: In many of the best companies there have been some good advances in the whole participation process of involving employees. I do not think that the trade unions are so reluctant at this particular time ; many of the more enlightened trade union leaders are ready to look forward and say, 'This is a very rough time and we do not like the way you are having to lay off so many people, but we are prepared to talk about the way we can use new technology to be more competitive, because the choice is between fewer jobs and no jobs'. We have found in our company a more realistic approach

to this than you suggest and I do hope that management will recognize that we must get on with talking now, not waiting and hoping that when there is an upturn things will be easier.

Dr. F. H. Hansford-Miller, msc, fss: I seem to be in a minority in not agreeing with the strategy. I really cannot see that what is advocated differs much from what we have suffered for the last thirty or more years. Is it not just centralized state control. Is it not Marxism ? We can remember surely, just after the war, when the great problem was to revitalize our inner cities, so we passed a planning act with 'teeth'. And what is the result, Mr Chairman ? The biggest disaster that we have ever had in our inner cities, which will take many years to put right. Do we not have centralized planning already and has this not led to the three million unem- ployed that we have at the moment ?

One further point : we have freedom in the com- puting industry and our computer scientists, analysts and programmers are wanted all over the world. Surely more freedom, not less, is the answer? I think the fallacy in this high-powered body with 'teeth', that is going to dictate to everyone which companies are going to succeed, is that there a re just not the geniuses about that can make those decisions. If there were, they would be running the companies themselves and they would be millionaires through implementing their ideas in a free enterprise society, not sitting on the board of a government body.

The Lecturer: I have been misrepresented, Mr Chairman. My system is an entirely free enterprise system and in fact the people who take the decisions will themselves be entrepreneurs and perhaps some of those successful men will become millionaires. They will be deciding to put the money that the country can afford into the industries and the companies that have already proved successful. It will be done as I would suggest on a tough performance-related basis. Companies will get support (and after all our competitors everywhere are getting this sort of support) but they will be stringently judged on their success in using these funds profitably. So I think my system is entirely compatible with free enterprise. I am sorry I spoke of giving Neddy 'teeth'. All I meant was that out of Neddy we should develop consensus planning on which industries we should select for support. Our present efforts are so widely scattered that we are not succeeding in any industry.

Mr. Denis Haviland, cb (Chairman, Tech- nology and Innovation Exchange): In my middle career I was concerned with the vast programmes on aerospace and electronics. I think, despite one or two remarks this evening, that it was possible for civil servants, despite the laborious government machinery, to pick firms for particular jobs on their merits. However, I do like the proposal before us tonight, to get away from the laboured procedures of government and therefore to get a great deal more speed and effect into it. It used to appear to me in

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JOURNAL OF THE ROYAL SOCIETY OF ARTS PROCEEDINGS the days when I was handing out money that if we could have distributed it more quickly we would have got a better return.

I think that one of the tragedies of R & D generally in the United Kingdom is that we have been good at research, we have developed many projects effectively, but we have been bad at putting them into production. I would hope that in future, via schemes such as you suggest, we shall lose less of the product of our research and get more out of production.

Professor J. S. Halliday (Dept. Of Indus- trial Studies, University of Liverpool): I wish to reinforce the point just made. I am somewhat apprehensive about Sir David's remarks on research contracts unless they cover the phases beyond basic and applied research, and go well into product and production development. It is galling that an industrial scientist should have received a Nobel prize for the development of the brain scanner, and yet his Company had to sell the commercial operation to an overseas company. I strongly support Sir David's view that companies should be identified for support in the development of high technology, indeed I would contend that it is high performing individuals who have to be supported. However, much of the Japanese success has been due to their concentration of technical and financial resources upon product reliability, higher productivity and better delivery dates. In the past such matters have been regarded as too mundane to be included within the concept of a research contract. I would press for their inclu- sion and would appreciate Sir David's comments on this.

The Lecturer: As a marketing man I am happy to endorse what you say. In my idea of contract I emphasized research, but I also had development in mind, and by that I mean bringing the first product into the production process. We as a country have got to be better at the next stage in the chain. I don't think we can expect official funds for that because it is so difficult to measure what is done. My proposition is that the pump priming for which government money is necessary should be done on this selective scale. We have all got to improve our processes down the line.

Mr. Gerry Richardson (I CEC): I am not usually given to finding a difficulty for every solution but I wonder whether the effect of the government's giving contracts for research to companies may not be to inhibit the companies already engaged in research. I wonder whether you have considered the idea of some additional means of giving either post facto grants or capital allowances to the people who undertake research without a contract from government in a particular area, provided it is docu- mented properly and comes to fruition ?

The Lecturer: I think there is a limit to the amount to which we can depend on government. I would be very reluctant to introduce the subject of government having a place in planning and government being part of the strategy. There are a small number of areas in which government funds are necessary for pump priming. In many areas industry has to stand on its own feet and I hope that I did not give any different impression. Companies have to continue to invest in research and take industrial opportunities, and I do not think we can find ways of catering for every single advance by every company. I hope that progressive companies will go on doing research, but the cases I was considering are a small number of high technology, very expensive, long pay-off projects that need this type of assistance. I want to limit what I propose to a very small number of highly important industries.

The Chairman: I said at the beginning that Sir David Orr has a capacity for analysis and exposition and a concern for the wider public policies which is all too rare. This evening's audience has had an opportunity to test that assertion for themselves.

Four points I should like to make. First, the importance that Sir David Orr attached to the market and the market system as the primary engine for making the economy run properly. Even in the area which he is discussing, it is firms which are the initiators. Point two: his reference to Neddy; I am glad to have been able to read Geoffrey Chandler's letter because this has been a very timely discussion here this evening. We are seeing Neddy, I hope, engaging in the kind of a ctivity David Orr has been talking about, after long disappointments. For the first time there does appear to be a fair wind behind us. Thirdly - and the really innovative part of what David Orr has to say - the notion of an independent body which can make its choices brings us up against the need for continuity. As a nation we have gone from one enthusiasm to another in the space of the last thirty-odd years. In addressing himself to this mechanism for safeguarding what is being proposed from party political pressures he is attempting to see that his proposal does not become yet one more of those fashionable things of which we have seen so many. The notion is a difficult one, but I would commend it to you as the element in his lecture which addresses the biggest single problem in handling selective intervention. Finally, his emphasis on the need inside business to involve workers and to get them and the unions concerned with what is going on is of course one of the key elements in what is being proposed.

I am sure, in conclusion, that this meeting would wish to express appreciation to Sir David Orr.

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AN INDUSTRIAL STRATEGY: HELP OR HINDRANCE

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