Will Britain be the Taiwan of Europe?: Amid accusations by EC rivals that it enjoys an unfair edge, the UK is grabbing a growing share of jobs and inward investment

Russell Hotten,Sarah Lambert,Julian Nundy
Saturday 22 October 2011 23:24

HOOVER, the electrical goods maker, may not have expected to ignite an almighty Euro-row when it announced on Tuesday that it was moving 400 manufacturing jobs from Dijon to Glasgow. But with unemployment rising across the Continent, it was only a matter of time before the issue of jobs in Europe caught light.

A day later, electronics giant Philips fanned the flames with news that it was shifting production of television cathodes to Britain from Holland. Much- needed jobs will be created in Blackburn, but that is no compensation for the 160 workers of Sittart.

In response to these announcements, unions went on the march in France, Holland and Brussels, their placards denouncing Britain: its politicians accused of running sweat shops; its unions accused of betraying the European labour movement; and its Government charged with devaluing its currency to make investment by foreign companies cheaper.

The big guns of the European Commission also swung into action. Jacques Delors, the EC President, accused Britain of not playing fair by opting out of the Social Chapter and its legally binding protection for workers. The Competition Commissioner, Karel Van Miert, said: 'You cannot play football when one player is playing with his hands. That is what is happening in Britain.'

To many on the Continent, Britain has become a poacher of jobs.

Even in Britain, this view is echoed by some. One union official said: 'You could say we are the Taiwan of Europe. We can be kicked around, but unions have to do what is necessary to secure our members' jobs. Take DAF: in Holland, state money is being used to help the company and workers. In Britain, the receivers struggle to find funding. The unions are also victims.'

What the critics cannot deny, however, is that Britain is now a more attractive place for companies to invest than many European countries. British workers are cheaper to employ, more flexible, and easier to hire and fire. Mr Major says it is a triumph for Britain's competitiveness, proof that the Social Chapter destroys jobs.

The Government is reinforcing these strengths by keeping interest rates as low as possible and allowing sterling to fall.

'It's not just the 20 per cent that the pound has lost since September but the 7 per cent that it has lost in the last three weeks that should be worrying people on the Continent,' said a British diplomat as criticism of the UK reached a crescendo last week. Sterling is also weak against the dollar and has hit an all-time low against the mark and the yen in the past few days. A weak pound not only stimulates exports but makes it cheaper for foreign companies to invest in Britain.

So it is hardly surprising that the pace of inward investment is quickening, particularly from the high-cost production countries of Western Europe as the remaining trade barriers come down. Despite the slowdown in the European economy, the number of new continental investment projects in the UK rose to 158 last year from 139 in 1991, according to the Invest in Britain Bureau. German firms alone stepped up UK investment from DM1.5bn ( pounds 627m) in 1988 to DM5.5bn in 1990.

Overseas companies in the 1980s took advantage of the pool of relatively skilled labour from Britain's declining industries: Nissan on the Tyne, Bosch in Wales, Siemens and Toyota in the Midlands.

But there have been scores of other investments: from German foundry companies or French and Italian motor component firms that have snapped up British rivals rather than expand domestically.

As Professor Douglas McWilliams, chief executive of the Centre for Economic and Business Research, said: 'The big investors recently in the UK have been the Europeans, while Japanese and US investment has gone off the boil. The Europeans are finding that Britain is a good place to make things.'

Nestle may have decided to switch production of chocolate bars from Scotland to its advanced site at Dijon, but the move is against the run of play.

Inward investment used to be for specific reasons. US companies wanted a slice of North Sea oil, or the Japanese needed to diversify internationally to service markets within the European Community from massive production plants.

But the new fear is that Britain is becoming little more than a convenient place to assemble products. For Jean-Pierre Cot, leader of the European Parliament's Socialist Group, Britain is engaged in social dumping; the idea that in the single market, investment will flow to countries where labour is cheap and flexible.

A 1991 report from the International Labour Organisation, a United Nations body, said that someone employed in Britain worked longer hours and had less job security and fewer trade union freedoms and rights to claim unfair dismissal than in almost any other European country. The disparity will widen when the Social Chapter of the Maastricht Treaty comes into force in most EC countries.

But it would seem inevitable that in a free and competitive market companies will go where labour costs are cheapest - and in the UK they are up to 30 per cent cheaper than in France or Holland. European salaries are higher on average than in the UK. But the real cost burden is not basic salary but non-wage costs, such as pension, redundancy and sickness benefits.

Comparative statistics from the US Department of Labor estimate that the total hourly compensation for UK workers in manufacturing is dollars 12.49 ( pounds 8.70). This compares with dollars 15.23 in France, dollars 18.22 in Holland and dollars 21.53 in Germany.

As well as being cheaper, British labour tends to be more flexible. German industrialists in Britain last week were startled by what they found. Machines can run seven days a week, unlike in Germany. Bosch's factory in Britain has a no-strike agreement, and management structures are more efficient than in Germany.

The drawback for inward investors is Britain's low productivity. In 1991, average UK productivity was 70 per cent of Germany's, though the gap is expected to narrow in the mid- 1990s. According to Ford, employees on its Fiesta production line at Dagenham needed 52.2 hours to build a car in 1990, against 33.3 at Ford in Spain and 29.9 in Cologne.

For Duncan McKenzie, a manufacturing expert at the Confederation of British Industry, Britain is simply playing to its strengths. 'If productivity is lower, you are not in a position to demand higher wages.'

But we should not get hung up on competitive wage rates, he says, when there are so many other reasons firms are investing in Britain. 'The UK has historically fostered an open door climate. It has developed the right infrastructure through development agencies and the Invest in Britain Bureau. For example, the French have been typically more resistant to foreign influence and the UK more welcoming.'

The willingness of government to release greenfield sites is important, as is regional assistance. Investment in assisted regions by foreign enterprises accounted for 49 per cent of the UK total in 1989. Britain being home to the international business language is also relevant.

In the best cases, firms such as Toyota look to Britain as a base, spreading a multi-million pound bonanza of contracts to UK auto suppliers and helping to raise engineering standards. But such examples are rare, according to Brian Small of engineering consultants Ingersoll.

'There is an outdated logic in this country, which took root under Thatcherism, that manufacturing is just about employment. We have believed for a decade that it is OK to import the screwdriver plant but ignore the importance of research and development. We must have our share of the intellectual know-how as well, or we become a second-class country.

'The Hoover and Philips decisions are fine, but they should not be a smokescreen. If we are to be an advanced industrial nation, we must play our share in designing things. Are we to be the originator of the products or are we just an employment generator with a screwdriver?'

(Photograph omitted)

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

View comments