There's no longer any need to listen to the CBI

Surely businesses are supposed to compete against each other, not form political alliances
Click to follow
The Independent Online

CBI conferences have a curious mid-20th century tone to them. They were started as a "me too" because the unions and the political parties had conferences, but now hardly reflect what businesses are really about.

The odd name, the Confederation of British Industry, does not help. Confederation is "a loose alliance of political units" according to the Collins dictionary. But surely businesses are supposed to compete against each other, not form political alliances, however loose?

British? Well, yes to some extent, but half the profits on the FT 100 largest companies come from abroad, many of the biggest companies have more than half their shares owned abroad, and 30 per cent of those Footsie companies have a non-British chief executive.

Industry? The word has a lovely ring to it, but manufacturing industry is now less than 20 per cent of the economy and employs only 3.5 million people, far less than finance or hotels, catering and distribution. Not only is manufacturing employment shrinking; it has to shrink in order to release labour for the new services, private and public, that we consumers demand.

Given this, what should we make of this year's CBI conference? Three propositions. One, it shows that the Government is anxious to rebuild its relationship with the business community. Two, what matters is what businesses do, not what they say. And three, the ghosts at the banquet, the low-cost suppliers in China and India, are more important to all our futures than the policies of this or any other government.

The conciliatory tone of Tony Blair on Monday and the stress on enterprise by Gordon Brown yesterday have been genuinely helpful. The business community has allowed itself to be ground down by the increases in taxation and regulation. The general perception is that we had a competent government that listened to business in its first term but that both its competence and its willingness to listen have declined in the second.

This feeling is so widespread that there must be some merit in it. But if one were to listen to, for example, German or Japanese business executives, you would get a much louder blast. As Patricia Hewitt rather sensibly said on Monday, the business community gave the Government credit for its overall management of the economy but was critical of some of its other policies, such as those on transport. In Germany or Japan it is the macro-economy disaster that is destroying business confidence. Great railways; shame about the economy.

There is a further presentational problem facing the Government: many of the policies disliked by the business community are beyond its control in the sense that they have been mandated by the European Union. But the Government cannot really say that the Brussels is damaging British business, for to do so would put it into the same box as the Tories.

In a situation like this the best policy is to do what the Government has been doing: emphasise the positive and sound conciliatory towards the negative. The danger is that the damage that it has done to business confidence will have a lagged effect. It will not effect investment or employment plans now, but in three or four years' time both will be lower than they would otherwise have been. But listening is a start.

If the Government has an image problem, business has a credibility one. For example, it opposed the minimum wage, arguing that this would increase unemployment among the low-skilled. If that has indeed happened the effect has been very marginal. Some businesses (usually foreign-owned) warned that Britain's failure to commit to a date for joining the euro would damage their investment plans. As it has turned out, sterling has been a much more stable currency than either the dollar or the euro, and there is no evidence of investment plans being cut back.

As a result, the Government has come to take what business says with a pinch of salt. Until quite recently, private-sector employment continued to rise, and even now is not falling to any significant extent. Unemployment, of course, is very low - there are parts of the South-east where it is below 1 per cent. Even the rise in National Insurance contributions last April does not appear to led to much trimming of the workforce. While the shift of jobs from manufacturing to services has continued, there have been interesting examples of the rise of craft manufacturing, such as the Rolls-Royce assembly plant at Goodwood.

Besides, the companies represented at a CBI conference tend to be big ones, and big companies, as a general rule, tend not to be the main focal points for growth. It is an over-simplification, but big businesses tend to shed jobs while small ones create them. Small and medium-sized businesses are more usually represented by the Institute of Directors, or simply don't bother to sign up to these organisations at all. The big companies get the headlines, the small ones create the clusters of future growth.

This principle of looking at what businesses do, rather than what they say, would certainly suggest that there are grounds for concern. For example there are parts of the country, such as the North-east, where new business creation lags badly. There is some sort of productivity gap with other developed countries - a particular concern of the Chancellor - though the productivity numbers for services are notoriously difficult to read.

The central point here is that business may be feeling a bit bad-tempered but it is not in general doing at all badly. Were private-sector employment to start to fall sharply, then the Government should worry. But in the short-term the reverse looks more likely, particularly since demand in Europe is at last picking up a bit.

That leads to the third big issue, the ghost at the feast. There has been a spate of stories in recent weeks about the rise of outsourcing to China and India, and quite rightly there is concern about this. But, maybe because I have just returned from China, my own focus would be to see this as much as an opportunity as a threat. Indeed, I think the continued rise of low-cost producers of goods and services is both inevitable and desirable. It is a threat in the sense that our businesses have to find new things to do. But Britain, arguably more than any other European country, has been nimble at getting out of low-valued-added activities and switching to higher-value-added ones. Cheap labour from Asia is only a threat to the extent that we cannot replace the jobs that are being lost to Shanghai and Bangalore.

This raises issues such as the future of university funding - there are 70,000 Chinese students in the UK at the moment, more than any other country - and the links between scholarship and venture capital. It raises the challenge to our high-valued-added financial services industry from ill-considered regulation. It raises questions about the development of our creative industries, which seem to be gaining global market share at the moment. These are all areas where we have a competitive advantage, and a reasonable chance of retaining it.

Ultimately what matters is that we can find new things to do that will not only justify our high wages, but enable us to increase those wages in the future. That is our future. I would love to think that CBI conferences helped us towards it - but I'm not sure I do.