| | By Mick James
It’s clear that growth
and innovation are going
to define much of the
debate around consultancy
this year, so it was
highly apposite that the
MCA chose the title New
Opportunities for Growth
for its second annual
lecture, delivered by Sir
Howard Davies, former
director of the London
School of Economics and
inaugural chairman of the
Financial Services
Authority.
“I was asked to be
cheerful,” Davies told a
packed audience at
London’s Haberdashers’
Hall. But while he was
definitely in good
humour, there was not
much cheer in his
message. Or at least, as
much cheer as you can
pack into a dire warning.
Davies painted a
picture of a country
which, having ridden the
wave of financialisation
and indulged in an
unsustainable public
spending on the back of
it, faced the prospect of
drowning now the wave has
broken.
In the aftermath, he
said, there was a
“surprising degree of
consensus” among
politicians that the UK
economy needed to be
“rebalanced”. But this
consensus was not around
the “seven lean years” of
rebalancing between
investment and
consumption, which only
those not seeking
re-election, such as Bank
of England governor
Mervyn King, were
prepared to call for.
Rather it was a “return
to Victorian Values” in
the sense of making “real
things” again.
“Rebalancing in that
sense is a romantic
delusion, which risks
damaging those areas of
the economy in which we
are globally competitive
and which could help the
UK compete in the
future,” said Davies.
“It’s based on an
imagined set of
advantages that we don’t
have and are unlikely to
obtain.”
He pointed out that
only just over a third of
our current manufacturing
base was “promisingly
defensible”, in terms of
being hard to shift
overseas.
“We would do very well
to sustain the
manufacturing we have,
and the chances of growth
are very small,” he said. | |
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| | However, the UK did have
other strengths, provided
that governments could
rid themselves of this
obsession: “There’s
nothing inherently
virtuous about making
things rather than
financing them or indeed
advising on making them,”
he said.
The UK’s strengths
revolved very much around
ease of doing business,
with such assets as the
English language, an open
economy, flexible labour
markets, political
stability and a robust
legal system. In sector
terms, we have a
world-leading creative
sector, a world-famous
independent education
sector and, of course,
the financial services
industry.
In these terms much of
our recent activity seems
paradoxical. The arts are
being cut instead of
fostered. Foreign
students are a massive
long-term source of
invisible earnings, yet
visa restrictions are
predicted to cost the
country at least £2.45bn
a year. And a decision to
focus university funding
purely on STEM subjects
(science, technology,
engineering and maths)
seems out of kilter with
the way our economy has
developed. Finally,
London is still the
world’s leading financial
centre, yet there is a
significant animus
against it.
“It’s more realistic
to build on these
strengths than make a
quixotic attempt to knock
the Germans off their
perch,” said Davies.
In terms of what
governments should do,
Davies suggested “as
little as possible”,
beyond not making
damaging cuts and
potentially addressing a
few of our more glaring
infrastructure problems,
such as communications
and transport. He pointed
out that there never was
a government for the City
of London or for
universities’ “strategy”
as such.
But I was particularly
struck by one point he
made, which was that in
comparison with our
rivals, the UK was far
more centralised, with
our regional authorities
having far fewer powers
and less money than their
equivalents in, say
Germany. Greater local
autonomy might well
encourage our regions to | |
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| | shape their own destiny,
and perhaps create those
clusters of competitive
firms which have proved
so successful overseas.
I can’t say Davies
exactly cheered me up,
but I did feel I had a
surer grasp of the
issues. Certainly, our
policy of replacing lost
manufacturing jobs by
exporting central
government workers on
national pay rates has
proved disastrous for the
regions. But that in turn
has led to a sort of
cargo cult based on the
inevitable return of
manufacturing to areas
whose main strengths were
a combination of
first-mover advantage and
access to pools of labour
and resources which have
long been matched
elsewhere.
But if not that, what?
Davies is right to say
that the UK’s reinvention
as a “services entrepot”
was not a bad thing, but
more of that is only
going to lead to even
more overheating in the
South East and London ‒
and we’re still not going
to repeat the growth of
the last boom. I am sure
his arguments about
universities and the
creative industries are
bang on, but it’s going
to be politically
impossible to fund ballet
companies and chairs of
mediaeval literature
while benefits are cut
and public libraries are
closing. Furthermore, the
public hostility to
anyone (from a hedge fund
owner to an insurance
broker) who could
reasonably be termed a
“banker” seems to more
than outweigh the fact
that we will be cutting
off our nose to spite our
face if we drive those
operators away.
Davies did point out
that in the 1990s we
seemed condemned to
permanent double digit
unemployment, yet somehow
we groped our way out of
it. Michael Portillo made
much the same point in
his inaugural MCA lecture
a year ago. Now we are
back in the same
situation and the future
is equally murky. It
seems unlikely our
salvation will come from
the macro level ‒ so it’s
over to the micro: client
by client, project by
project, innovation by
innovation. Hopefully,
we’ll be reporting on a
bit more of that before
the next MCA lecture. | |
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