London. No one is celebrating the bicentennial of Britain's Industrial Revolution, the one which showed those Americans and everyone else how to increase productivity by investing in new machinery.
Two hundred years later, Britain has ingloriously become the "sick man" of Europe. What it showed the world about productivity before, it shows the converse now. Britain's dismal productivity record is illustrated by the fact that it takes three British steel workers to accomplish the work of one Japanese worker.
No wonder few people want to be reminded of the Industrial Revolution. What is happening in Britain today resembles more an anti-Industrial Revolution. Workers are abandoning industry for the safety of deficit-ridden public services.
Since 1961, Britain has seen a remarkable 34 percent shift in employment from industry to services, notably public services. Despite the shift, there has been little improvement in actual services. Both the local education authorities and National Health Service are paying an increasing proportion for administration and less for teaching and health care.
"The shift in employment, from industry to services, and public services in particular, has no parallel in any other major western developed country," according to two Oxford University economists, Robert Bacon and Walter Eltis, in their just-published book, Britain's Economic Problem: Too Few Producers. All modern economies have seen workers shift out of industry and into services, but not at Britain's rate.
Nor have these economies seen the output of goods and services actually sold—whether by nationalized or private industries—drop so dramatically, from 56 percent of Britain's output in 1961 to 39 percent by 1974. The rest goes to defense, health care, and other "non-marketed" services. Last year the five major nationalized industries—electricity, post, coal, rail and gas—lost a grand total of $1.9 billion, evidence that these goods and services are not being "sold" either.
Britain's role as a spawning ground for industrial innovation has also disappeared. British business has become largely imitative, ballyhooing such "new" ideas as polyethylene bags for bread (most of it is still wrapped in old-fashioned waxed paper) and digital watches. The Post Office, responsible for a deteriorating telephone service, has nothing new to offer except push-button dialing—and it will still be years before the Post Office has switching equipment to make actual telephoning more rapid.
Britain is sinking to the status of an underdeveloped country—dependent on world booms for any improvement and yet unequipped to take full advantage of them. Unemployment is rising and widely expected to reach the 2 million mark, largely because the country is set in reverse. "In a successful economy," Bacon and Eltis write, "all workers who are made redundant by productivity growth and technical advance get jobs producing new and better goods…but net investment in industry has fallen by one-quarter in Britain since 1965. Hence, Britain is suffering from technical progress instead of gaining from it."
British business is also plainly not interested in producing mass consumer goods. This snobbishness is completely consistent with its history, illustrated by high-tickets like Rolls Royce and Lloyds of London. British insurance, for example, for too long remained the handmaiden of shipowners and those concerned with expensive disasters, and it was U.S. business which had the vision to turn insurance into a private welfare scheme for the masses.
The modern symbol of British enterprise is Concorde, a $2 billion supersonic airplane that is sending British Airways deeper into the red. Typically Concorde is transportation for expense-account customers, has only 100 seats, will fly only during daylight hours, and certainly will never pay back its full cost to Britain. Yet it is a symbol of national pride.
While financing Concorde, however, the British government turned its back on such mass-oriented ideas as jumbo jets and "Skytrain." Secretary of State for Trade Peter Shore told tiny Laker Airways that he will do everything to obstruct its "Skytrain" concept of cheap, no-frills, no-reservation service for low-income travellers. Shore told the House of Commons: "Anyone who knows anything about it at all knows that the great problem on the North Atlantic is massive over-capacity." In other words, why compete with ourselves?
The innovators are leaving Britain in response to attitudes like Shore's. Multinational companies like chemical giant Imperial Chemical Industries ($7 billion annual sales) say they have difficulty persuading their managers on the Continent to return to Britain, because it usually means a drop in pay. One ICI official in Brussels saw his take-home pay cut in half when he returned to London. A $20,000 per year manager in 1975 was taking home 16 percent less pay than a manager in 1970 who was earning $12,000 a year. It is no wonder that the biggest new market for unionization in Britain is the middle manager, who has been caught unprotected in the inflation buzzsaw.
For these reasons the world upturn, which started in the United States and is now spreading, may largely bypass Britain. According to a British Department of Industry survey, manufacturing investment will be down 15 percent in 1976 over 1974. The anticapitalist Secretary of State for Energy, Anthony Benn, says this investment trend could mean closing down 15 percent of Britain's manufacturing capacity by 1980.
Last year The Times turned its fire on Britain's anti-industrial strategy: "The appetite in this country for a nonindustrial society, in which low living is balanced by increased opportunities for high thinking and by enhanced appreciation of rustic amenities, does not yet extend far beyond a restricted circle of well-heeled intellectuals."
Prime Minister James Callaghan's Labor Party is pragmatic, and is getting high marks for bringing Britain's inflation rate down from 26 to 24 percent between July and December last year. Unfortunately, that was done by a wage control program that will have to be tightened even more this year. What happens when the controls are removed, or when individual trade unions decide they would fare better in a free wage negotiation market, is usually to reverse the gains.
Ironically, the falling profit margins of British business are the biggest threats to Callaghan's version of social democracy. Incomes policies and price controls have helped bring something called the "profitability rate" down from 7.3 percent in 1970 to four percent in 1974. "What it must have been under 1975's conditions does not bear contemplating," says the chairman of Finance for Industry, a group dispensing investment capital.
Recognizing this, last November former Prime Minister Wilson turned the Labor government around with a "new industrial strategy" which called for the government to put its "social objectives" in the background and to "give greater weight, and more consistently than hitherto, to the need for increasing the national rate of growth through regenerating our industrial structure and improving efficiency." The trade unions had never faced a tougher boss than Harold Wilson, who gave them a "workers not shirkers" lecture when they disrupted the Scottish plant of his newly-subsidized Chrysler U.K.
If the government continues its nationalization program (shipbuilding is next), Britain can expect worse. The trend among the social democracies of Europe is that governments become increasingly powerless as their ownership or control of business increases. West Germany's subsidized automobile company, Volkswagen, in 1973 was thwarted from building manufacturing capacity in the United States by worker-directors it is mandated to have on its board. The failure helped start Volkswagen's record sales decline, which might not have occurred had Volkswagen been a truly private company.
In Britain a Conservative government fell from power because it owned the coal industry, which wouldn't accept the government's incomes policy. If the coal industry were privately owned, the Conservative government might still be in office. Recently a Cambridge University economist "discovered" $10 billion of unaccounted-for public spending in 1974. How many private businesses have lost control of that kind of money?
The Labor government is currently relearning this lesson as it tries to phase out subsidies to nationalized industries, who in turn are trying to introduce economic pricing. Each time the electricity or postal rates go up, however, strong opposition builds and use invariably drops, nullifying the point of price increases.
Callaghan's government has an impossible job. The trend to deindustrialization and high-ticket technology will only be stopped when workers and investment stop moving all one way—to public services. And even this will not be dynamic unless there is enough risk money left over to finance such "crazy" ideas as Skytrain in every industry.
But the Labor government is still committed to public ownership and controls. The more it controls, the less it is in control. And despite brave talk of "backing winners," when the crunch comes the Labor Party is obligated to maintain stable employment, as in its support of a "loser" like Chrysler.
The prospects are bleak. Two hundred years from now, will schoolchildren be celebrating the bicentennial of Britain's anti-industrial revolution?