Anthony Hilton: British business and what went horribly wrong

But few are worth reading, not so much because they are sanitised, but because they avoid talking about the real issues facing businessmen in Britain today.

None will tell you why Lastminute.com failed to develop into Airbnb or why Friends Reunited did not become Facebook, though both were in the field first and might have.

Still less do they tell you why Lucas, Dunlop, ICI, Alfred Herbert, GEC, Tube Investments, Turner & Newall, Baker Perkins STC, International Computers, ERF, Foden and the entire motor industry, plus thousands of other engineering companies have disappeared in the last 40 years. But these questions matter. What are we doing that is wrong?

Almost everything according to a new book.*

It explains how and why government’s attitude to industry has done so much damage, how and why business sees the City as venal and destructive, why British management is so mediocre and what needs to be done to help that slice of the population which has lost its work ethic.

The book’s author, Tom Brown, has worked in business all his life, running a variety of listed and unlisted engineering companies and being a director of many more.

Over the last 40 years he has not just had a ringside seat but has actually been a player in the alarming decline in power and influence of British engineering.

In “Tragedy and Challenge: An inside view of the UK Engineering Industry’s decline and the challenge of the Brexit Economy” he tries to explain why so much has gone so horribly wrong.

The Prime Minister would do well to read it on the flight home from Florence —assuming she is not on Ryanair.

Part of it is our history.

The British class structure, reinforced by the educational establishment, channelled the brightest people into the professions and the City rather than engineering and industrial management.

Once inside the companies, the brightest were unlikely to be those who got their hands dirty.

Production and operations were in large part run by people who started on the shop floor and received almost no training when promoted to management even though they were in charge of the one area on which the company’s life depended.

The class divide meant that those who understood the job had no voice in strategy and those who decided strategy had no understanding of the job.

Then, into this unholy mix, was injected an unwarranted respect for accountants.

Because operations were “below the salt” head offices instead ran their subsidiaries purely on the basis of the numbers, without taking the trouble actually to understand the detail of the businesses or what opportunities each faced.

There was no incentive to go for top-line growth. Instead success was measured by financial ratios like return on assets.

The accountant basked in the picture of short-term prosperity, and failed to notice that the plant was clapped out, as it would be when everything mitigated against the heavy investment and long-term research and development which was needed to ensure long-term competitiveness.

Similarly, there was little investment in skills and training to improve the quality of the workforce because it did not deliver an easily measured return. Britain’s industrial decline correlates strongly with the increase in the influence of accountants.

This failure of ambition was made worse by government. Politicians decided early on that success at the polls was more likely if consumers were happy so they began to run the economy with this uppermost in mind. Interest and exchange rates were hiked or cut to keep consumer demand under control.

No thought was given to how disruptive this was for a manufacturing company. Minor changes in consumer demand become massive swings when fed back up the pipeline to the manufacturers who would be abruptly told that new orders were cancelled while old stocks were cleared. They in turn pulled the rug on the equipment makers and engineers who supply them.

Repeated doses of boom and bust sapped ambition. While Germans looked for new worlds to conquer, UK management wanted to survive.

Then there is the City.

Two problems here. First, it is unremittingly short- term, knowing little about the companies in which it is invested, and caring less. There is a constant demand for short-term performance, no understanding of the rough patches that all firms experience, no encouragement to think long-term and a ludicrous emphasis on takeovers and disposals as the solution to every problem.

The City’s values have also corrupted the business community, Brown says. After Big Bang 30 years ago, finance gradually moved from being a servant of the economy to being an end in itself.

Its greed was copied in Britain’s boardrooms. Not only has this been bad for business, it has damaged the whole fabric of society, a negative too often overlooked when people talk of the advantages of housing the world’s biggest international financial centre.

There is more but Brown’s central message is that productivity is the key to wealth creation and investment in capital and skills is the key to creating the satisfying jobs society craves.

Britain has a 40-year record of being lamentable at both. His book may not make for comfortable reading but only when we understand the problems and are honest about them can we have any hope of putting things right.

*Tragedy and Challenge by Tom Brown. Published by Troubador Publishing Ltd £19.99