New economic miracle takes great leap of faith

Remember the British economic miracle? When the lame British economy picked up its bed and ran. When Tory billboards showed the British bulldog baring his teeth at the French and Germans, proclaiming the turnaround. It was too good to be true, but with consumption booming and house prices soaring, the story was at least plausible at the time - not least to the electorate.

You would have thought that the recession of the early 1990s would have put paid to such talk, but now the cheerleaders are daring to show their faces again. We may be in the middle of a too-good-to-feel-good recovery which the Chancellor, for one, believes is too fragile to threaten with another rise in interest rates. But some economists are beginning to claim that the economic miracle that died lives again, and will transcend the first.

At a seminar organised by the National Institute and the Economic and Social Research Council earlier this week, some striking evidence was presented on the continuing underlying improvement in manufacturing productivity , for long the Cinderella of the economy. In a week that saw the launch of the Government's second White Paper on competitiveness, Michael Heseltine's chief economic adviser, Walter Eltis, claimed that three quarters of the productivity gap between Britain and France and Germany in manufacturing had been closed in the past 15 years or so. Productivity levels in French and German manufacturing were now only 10 per cent higher than in Britain.

Dr Eltis could easily be accused as trumpeting His Master's Voice - indeed one observer described his account as Panglossian - but a similar story was told by Nicholas Oulton, who studies productivity at the National Institute. Between 1979 and 1992, manufacturing output per hour had grown in Britain at two and a half times the rate in Germany. Britain had also managed to outperform Japan.

So British manufacturing, still largely held in contempt by the Ugly Sisters who count in society, has turned into a ballroom princess? Not quite. Manufacturing may be perfectly shaped now, according to the optimists, but at little over a fifth of GDP it is also small. Its productivity may be growing by leaps and bounds, but output has barely risen since 1979. And as the White Paper admits, the UK has a much bigger tail of poor-performing companies than Germany or the Netherlands.

Furthermore, much of the improvement has come through foreign direct investment. According to Dr Eltis, foreign-owned companies are responsible for a third of all capital investment in manufacturing - double the level per head in the British-owned sector. Foreign owned companies now account for 35 per cent of total manufacturing exports. They add 40 per cent more value per employee than their British counterparts.

This capacity of foreigners to find opportunities to which British businessmen and financiers are blind speaks of our weakness rather than strength. This point was made by Professor Michael Porter, the doyen of competitiveness, in his book, The Competitive Advantage of Nations. He argued that widespread foreign investment usually indicated the economy was not sufficiently competitive "because domestic firms in many industries lack the capabilities to defend their market positions against foreign firms".

On balance, foreign direct investment into the UK has almost certainly helped to boost productivity, particularly through the introduction of new ways of working that have spread through entire sectors, such as the car and components industry. But the influx of foreign capital has not necessarily helped total investment, which remained undesirably low as a proportion of output in the 1980s and since.

This is the more disappointing since, as Dr Oulton pointed out, one of the principal causes for the continuing improvement in manufacturing productivity is that investment costs have fallen. The destruction of Britain's paralysing crafts-based industrial relations system - one of Mrs Thatcher's lasting legacies - means employees no longer hijack the benefits of new investment: so there should be more of it.

Britain's unsatisfactory record on investment is all the more important in the light of new growth theories, which cast investment, including improvements in labour skills, as the principal means for incorporating productivity advances into economic growth.

Few would dispute nowadays the need to define capital formation in this broad manner to include human skills. Here, too, the cheerleaders had some encouraging news. Staying-on rates have jumped and the percentage of young people who leave education or training without any qualification at all has fallen sharply.

A more pertinent question is just how valuable many of these qualifications are. NVQs, in particular, are held in low regard, if not scorn, by many employers. Furthermore, any successes have occurred despite rather than because of government policy, which persists intrying to graft a German- style training system - witness the launch of the modern apprenticeship scheme at a cost of pounds 1.25bn over the next three years - onto a host body that rejects it.

Whatever improvements are now coming through to young people joining the labour force, we are left with the existing stock of workers, whose formal qualifications compare woefully with their counterparts. While it is likely that the informal gap in expertise is less marked because of experience gained at work, the need to upgrade skills throughout the labour force remains paramount.

To hear from Dr Eltis that the proportion of employees receiving job- related training rose from 10 per cent in the middle 1980s to about 15 per cent in 1994, is simply to confirm how far behind we are in tackling this problem.

For the DTI, the sudden rush of blood to the head about Britain's economic prospects may be a necessary antidote to the unnecessary gloom that currently envelops our perception of the economy. The truth is that the underlying state of the British economy was neither as good in the late 1980s nor as bad in the early 1990s as it was generally portrayed. One thing is clear: the resurrection of the British economic miracle won't be taken on trust this time - and neither should it be.

News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsSchool leaver's pic YouTube video features staging of a playground gun massacre
Travel
travel
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
News
Morrissey pictured in 2013
people
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Travel
travel
News
Robyn Lawley
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
people
News
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
News
people
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain