The Germans have an excuse - what is ours?
Friday 07 February 1997
But not so fast Mr Lang.
Germany - and most of the rest of continental Europe - does have a serious structural unemployment problem. German labour costs are too high, its employment laws too rigid, and its social obligations unbearably onerous. Astute German companies can and do easily uproot and pop across the border to Poland or the Czech Republic, slashing their labour costs. Meanwhile, rigid labour laws have been slowing recruitment and job creation. As Hans Tietmeyer, president of the Bundesbank, recently conceded, Germany is in need of a strong dose of deregulatory medicine.
But this is not the only cause of Helmut Kohl's discomfort. The Germans are several years behind us in the economic cycle, having experienced an inflationary boom in the early Nineties on the back of unification, just as Britain was struggling at the bottom of recession. Germany has also had to cope with the huge costs of unification as well as, until very recently, an unduly high exchange rate.
So that's the German excuse. What's ours? Spared the costs of unification, freed from the bounds of tight monetary policy in the run-up to Maastricht, comfortably endowed with a flexible labour market, and several years on in our economic cycle, we should be laughing. Employees kicked out of one job should be dancing straight into the next one.
Instead, our job creation record is about as tame as our European colleagues. Unemployment is falling, but that is mainly to do with our relatively advanced position in the economic cycle and the numbers leaving the labour market altogether. Nor is there much sign in Britain of the entrepreneurial and corporate rennaisance that has been such a powerful feature of the US economy. Britain may be well ahead of the wave in terms of deregulation, liberalisation and privatisation, but Germany still has plenty to teach us about long-term investment in training, skills and capital.
Enough of the boring world of white pigment
You could call it Imperial Paints Industries. At a pinch you could even call it Imperial Materials Industries, though that sounds worse still and would invite confusion with IMI, which already exists. A new set of initials is probably not at the top of Charles Miller Smith's agenda at ICI and anyway it is surely unthinkable - a betrayal of 70 years of history, culture and proud tradition.
And yet what else are we to make of yesterday's announcement that ICI is exiting from the boring old world of white pigment as part of a "selective but significant" withdrawal from industrial chemicals?
Paint and polyurethane may not exactly set the pulse racing either. But once ICI is shorn of the Tioxide business, together with the unwanted bits of its chlorine and polyester operations, it will no longer be chemicals that truly drive the group.
The plan to dispose of businesses worth pounds 1.5bn over the next two years amounts to ICI's demerger Mark 2. This is literally the case since it intends to dispose of Tioxide through a stock market flotation. But it is also the case in a wider sense. The 1993 demerger saw ICI part company with its pharmaceuticals arm, Zeneca, since when the latter has soared while its older, uglier brother has struggled to outperform the market. Now ICI intends to extract itself from the highly cyclical and ferociously capital-intensive industry that is bulk chemicals.
That should not be altogether surprising. Since he arrived from Unilever, Mr Miller Smith has been chipping away steadily at the old ICI, disposing of 38 businesses worth some pounds 600m.
He has also been working hard to deliver something called the "value gap", which means doing things more efficiently with less working capital. Unfortunately, just as ICI was getting somewhere, another gap closed on it - the one between what it pays for raw materials and what it can charge its customers - leaving lots of nasty red ink that no amount of titanium dioxide could hide.
Supposing ICI can get Tioxide away at a reasonable price, the next cyclical downturn will be someone else's worry. What ICI then has to focus on is whether it wants to remain in industrial chemicals at all.
Where the customer is always treated like dirt
Scottish Amicable no doubt has some good reasons for having failed thus far to write to policyholders about the future of their company. A very credible one is that although policyholders are the owners of the company, they are not like shareholders; life assurance and pension policies are not easily tradeable, so no purpose is served by circulating policyholders with every twist and turn in the developing story of the company's demutualisation.
Yes indeed ... very credible. However, it does suffer from one rather serious flaw, for although this seems fair enough if there is only one proposal for policyholders to consider, it seems positively cavalier if there are viable alternatives. That is precisely what has happened in this case.
ScotAm executives continued to plough ahead with plans to circulate policyholders with their own proposals as if the Abbey National alternative was no more than an invention of the press. Callers to the ScotAm hotline would have learnt nothing about the Abbey National approach. It was not until there was yet another proposal, from the Prudential, that ScotAm finally had the good grace to put its own demutualisation plans on ice.
If this had been a publicly listed company, ScotAm could not have behaved in this way. However, there is a rather more basic reason for this behaviour which goes beyond the lack of a rule book. It is, to be frank, that life assurers have on the whole always treated their policyholders like dirt. The proprietary companies are no better either. Policyholders at Sun Alliance have yet to be notified formally by the company of its merger, long since consummated, with Royal.
There are few businesses where customers would or could be treated in such an offhand manner. If those customers also happen to be the owners of the business, as in the case of a mutually owned life assurer, such behaviour becomes positively insulting.
Life insurance companies are on the whole run by well-intentioned people. They don't mean to be rude; it's just that they are very used to managing the affairs of their policyholders as they see fit. It is they who are doing the public a service by selling these policies, you understand, not, as in most businesses, the other way round. And just in case you feel like protesting in time-honoured fashion by removing your custom, don't bother, for if you do, early surrender penalties will kick in and you'll lose half your money. What an industry.
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