Leading Article: Better ideas on British business

'Competitiveness' was the wrong title for the White Paper published by Michael Heseltine yesterday. Firms in a single industry compete with one another, and the success of one is often at the expense of another; but the same is not true of countries. The rise of Japan has made the rest of the world better off rather than worse. And the fall of Germany into recession has depressed demand for the imported goods that her consumers used to buy. What the White Paper is really about is identifying the best practice from abroad that can make Britain's economy more efficient.

Yet there is one sense in which Mr Heseltine was right to use such a pugnacious word. Thinking of international trade as a battle makes emotional, if not intellectual, sense. Extending the Japanese proverb that 'business is war' from the corporate to the national level can encourage companies and individuals to improve themselves - just as runners run faster when there are others ahead to overtake.

The question facing Britain - what can be done to make the economy grow in the long term at a high but sustainable rate, and to make British workers increasingly productive - is easier to pose than to answer. As the President of the Board of Trade conceded in his speech to the House of Commons yesterday, there can be no quick fixes, 'no simple agenda' to transform the UK from a middle-ranking European trading economy with some large, world-class firms but a depressing number of mediocre ones, to a broader powerhouse of productivity and innovation.

It was for this reason that Robin Cook, the Labour spokesman on trade and industry, was able to tear into Mr Heseltine with such savagery. The White Paper offered little new money, sought to pick no new industrial champions, established no new public investment banks. The absence of such headline-grabbing measures, however, was no deficiency - every pound of public funds spent on making British companies better is a pound that must ultimately be paid by the companies themselves or their workers. Instead, the White Paper concentrated on the four core components of a more realistic strategy.

The first essential, a stable macro-economic background, is too often overlooked. When inflation, taxes and the exchange rate are unpredictable, companies will inevitably be less keen to invest in new ventures. Britain's performance since the ERM exit is a start: inflation remains low and stable, interest rates are favourable to investment, and the stirrings of independence in the Bank of England raise the prospect that monetary policy will be less subjected to political whim than hitherto. In time, the Bank must be freed altogether, and chancellors must return to the Nigel Lawson principle of making tax simpler and less distorting of incentives.

The second essential, human capital, is the area in which Britain has long lagged behind other industrial countries. Higher education serves a narrower proportion of the population than that of both the United States and Japan; attention to the needs of the youngest children lags behind continental Europe. So far, the Government's attempts to improve the quality of training have been half-hearted. The White Paper's proposals for revamping training and vocational qualifications - and its attention to retraining workers already in jobs - marks a new seriousness which now needs to be built upon.

On the third essential component, the promoting of competitive markets at home, there is less ground to make up. Privatisation and deregulation have made the British market a tougher proving ground than many countries in continental Europe. If Britain is to breed more world-class companies, however, it will need more than the export promotion programme outlined in the paper. More aggressively pro-consumer policies should be introduced in expanding industries from telecommunications to air travel.

The fourth component of a strategy to make British business better must be benchmarking: encouraging firms at home to look at best practice wherever it may be and absorb it. The large stock of investments by US and Japanese companies in the UK is a very helpful start, for foreign-owned factories around the corner are far easier to learn from than those on the other side of the world; improved infrastructure, benign tax policies and human capital will be the greatest magnets to future inward investment. The White Paper's measures to encourage the flow of ideas - such as subsidised consultancy and the promotion of quality standards - may prove its single most effective ingredient.

The private sector, however, accounts for little over half the British economy. It was therefore appropriate that the White Paper should review the 'business of government', looking for ways to deliver improved services at lower cost, whether by privatisation or by tighter management in the public sector, and to remove unnecessary regulatory burdens on industry.

There are no great secrets about what makes some economies work better than others. The virtue of Mr Heseltine's White Paper is that it links together the micro and the macro in way which is far more coherent than anything we have heard from the Government for some time. If Labour is to make itself convincing as a party of competent economic management it must do more than jeer when when the Governnment for once gets something more or less right.