halting_the_decline_of_britain's_manufacturing_industry

CONTENTSpage

Preface 2

1 The decline of Britain’s manufacturing industries 3

2 Why manufacturing matters 4

3 Why Britain’s manufacturing performance is poorcompared with other advanced countries 6

4 Why the current free-for-all relocation of manufacturing toless developed countries is unsustainable 16

5 What the government should be doing 18

6 What trade unions should be doing 30

7 Conclusion and Summary 34

8 Notes 39

Halting the Decline of Britain’s Manufacturing Industry | 1

Preface

This pamphlet is published by the Communist Party in support of the Left Wing Programmelaunched earlier this year, and as a contribution towards the on-going debate about an alternativeeconomic strategy for Britain,with particular reference to restoring the fortunes of Britain’smanufacturing industry.This, it is argued, is essential for an improved rate of economic growthand a more balanced economy, in which the different sectors support one another’sdevelopment. It should not be regarded as a blueprint,or an official statement of CommunistParty policy, but as a basis for a wide-ranging discussion and new thinking within the labour andtrade union movement and beyond.

It is very much a critique of prevailing neo-liberal policies,which are embraced by,or havebeen forced on, governments worldwide.Tony Blair and Gordon Brown, in particular, and theEuropean Commission,under the powerful influence of the European Round Table ofIndustrialists – a body comprising the chief executives of around 50 of the biggest European-based transnational corporations – have been at the forefront in championing such policies. It isan agenda that is intensifying the current world economic crisis.Apart from widening the gapbetween rich and poor, it perpetuates the problem of a majority of the world’s people being toopoor to provide a market for the goods and services capable of being produced and supplied,and which they need and want.This is also the primary cause of the world’s rapidly deterioratingsecurity situation, from which, invariably, it is ordinary people and the poor who suffer the most.

Moreover, it is an anti-democratic agenda.That is because under this neo-liberal regime,alternative policies – especially those involving various kinds of state interventions to manage acountry’s economy – are declared illegal,even if a duly elected government has been mandated tocarry out such policies.Thus,governments are no longer able to control the capital created by thelabour of a country’s citizens – on whose behalf governments are supposed to be acting – such thatit benefits the country as a whole,rather than the economically most powerful, as now.This neo-liberal agenda was even written into the proposed EU constitution.A constitution,normally,confines itself to how policies are to be arrived at, since even the best policies, invariably,need to bealtered as circumstances change.But not the EU’s.Fortunately, its launch has been aborted,following its resounding rejection in referendums conducted by the French and the Dutch earlierthis year after successful grassroots campaigns to reveal its written-in neo-liberal content,whichwas carefully covered up by the propaganda coming from the EU political elite.But we need toremain vigilant.They have not abandoned the idea.

Neo-liberal policies have largely been allowed to flourish by default, because the powersthat be have managed to crowd out any discussion of an alternative set of policies. It is time toput that right. Hopefully, this pamphlet, which advocates polices that directly contradict thecurrent neo-liberal agenda, will give a new coherence to the debate that must take place, and,in particular, set a new course for manufacturing industry to serve the needs of all people, notonly in Britain, but worldwide.

If you have any comments on any aspect of this pamphlet, these would be gratefullyappreciated.Please send them to the Economic Committee,CPB,Ruskin House,Coombe Road,Croydon,CR0 1BD,or email [email protected].

2 | Halting the Decline of Britain’s Manufacturing Industry


1. The decline of Britain’s manufacturing industries

Britain’s manufacturing industry is in serious crisis. Currently, it is going throughyet another bout of recession.1 Already, since 1997, more than a million jobs inmanufacturing have been lost. Only 12 per cent of Britain’s workforce of around

30 million people is now employed in manufacturing, down by about a third since the mid-1980s.2 In fact, manufacturing as a share of output has been falling in all theadvanced industrial countries. In France and the United States, for example, it fellfrom about 30 per cent in 1960 to around 16 per cent now, about the same as in Britain.In Japan and Germany, over the same period, it fell from 34 and 40 per cent,respectively, to 21 and 23 per cent now.3 Employment in manufacturing has fallenroughly in proportion.

Partly this reflects the fact that as economies develop, it is possible to achieve higherproductivity gains in manufacturing through investment in more productivetechnology than in other sectors. It is logical, therefore, that fewer people need to beemployed in manufacturing. In addition, there has been the trend of manufacturerscontracting out many services – such as catering, cleaning, secretarial work, printing,transportation – that previously had been carried out in-house, so that many jobspreviously classified as manufacturing, because that was the dominant activity of thecompany, are now classified as services. Furthermore, as incomes grow, people tend tospend more on services, thus creating more employment in those areas.

However, the trend also reflects the extent that manufacturing industries are beingrelocated to less developed countries, where wages are a fraction of what they are in theadvanced countries, enabling goods to be produced more cheaply (and more profitablyfor company shareholders). Up to a point, from the point of view of the advancedcountries, this is not a bad thing. We need underdeveloped countries to have industriesand to export to us so that they become more developed, because it means that they canthen provide more of a market for the products that we need to export to them for oureconomies to prosper. Moreover, if goods as a result of being produced inunderdeveloped countries are cheaper, we have more to spend on other things, whichcreates new jobs to fulfil that demand. However, if this process goes too far, underminingour economies, we will not be able to provide markets for their exports, so that everybodyloses out. As will be discussed, it needs to go ahead in a controlled and orderly way.

Although manufacturing output as a proportion of total output tends to decline asan economy develops, this does not mean that manufacturing output itself has todecline. It may just grow less fast than other sectors. For example, in France andGermany, since 1992, manufacturing output has grown by around 30 per cent. In Britain, however, over the same period, it grew by barely 6 per cent. In fact, up to1997, Britain’s manufacturing output was expanding at more or less the same rate as inFrance and Germany. It is only after new Labour came to power under Tony Blair as prime minister that it fell back, and then went into decline. Thus, since 1997,whereas in Germany and France, manufacturing output has gone up by around 20 percent, in Britain it has declined by 2 per cent.4

But does it matter that Britain’s manufacturing is declining? If a country’s strength isin services – for example, in the area of financial services, which is one of Britain’s mainstrengths – then surely in today’s globalised economy, that should be the focus, ratherthan manufacturing? Thus, it can be argued, that as long as manufacturing is beinginvested in and expanded somewhere in the world, which can provide the demand forservices elsewhere, and the wealth needed to support them, then it does not matter ifmanufacturing is being run down in some countries, and being expanded in others.Indeed, in some quarters, notably in the financial centres in the City of London, it started to become fashionable to draw a line between yesterday’s old economy ofmanufacturing and tomorrow’s new economy of e-commerce. However, this took a bit

of a knock following the collapse in 2000 of the dot.com bubble. In short, it is slowlycoming to be realised – at least outside City and government circles – thatmanufacturing does matter, even for Britain, which is what trade unionists in themanufacturing sector have been saying for the past several years. As will now beargued, putting its decline into reverse is the key to our future economic welfare.

2. Why manufacturing matters

Turning raw materials into finished products, which is what manufacturing isabout, is where the bulk of economic value in society is created. It is what providesthe basis for increasing the productivity of labour, enabling more goods and

services to be produced and supplied in ever-increasing diversity, utilising ever moreefficient technologies. Manufacturing in a modern economy does, of course, dependto a high degree on services such as transport and distribution, wholesale and retailmarkets, financial and business services, and education and training. Meanwhile,demand for those services, and others, and therefore employment in those activities,as well as employment in the construction industry and utilities, depends to a highdegree on manufacturing, and on those employed in manufacturing spending theirwages. This is particularly obvious in a locality when a major industry employing manypeople closes, which often leads to the closing of shops and other facilities, as well asthe general running down of the whole neighbourhood due to unemployment and thelack of tax revenue to finance local public services. In short, the prosperity of aneighbourhood, as well as that of countries, depends on having a judicious mix ofmanufacturing and services, so that the one can effectively support the other.

Of course, this does not mean that every neighbourhood, or every country should goout of its way to invest in a wide range of manufacturing industries. Indeed, in mostneighbourhoods, as well as in most small countries, it would be utterly impractical toinvest in manufacturing, except on a small scale. In general, countries andneighbourhoods should seek to invest in those productive activities – be theymanufacturing or the provision of services, including leisure – for which they have acomparative advantage related to their natural resource endowment and their pasthistory. However, although these will no doubt affect the choice of productiveactivities, they are not the be all and end all. Comparative advantage is largely created,rather than inherited. In particular, it is a function of a country’s evolving institutions –such as government policies, structure of markets, educational and training systems,business culture, and so on – that favour or support particular productive activitiesover others. In other words, comparative advantage is largely a function of a country’scomparative institutional advantage.5 This is well illustrated by Japan, which in the lastcentury was the most successful country in manufacturing, yet its industries aredependent almost entirely on imported raw materials and other inputs. This wasrelated to the support given to manufacturing by the Japanese government and otherinstitutions. Much the same can be said for Germany, and to a considerable extentmost other European countries, but less so for Britain.6

Although it is conceivable for small island economies or enclaves to prosper (as many do) more or less on services alone, such as tourism and financial services, inwhich a large number of foreigners are involved relative to the size of the economy, thisis not an option for larger economies. That is because many of the services upon whichpeople depend for their livelihoods would barely exist if it were not for manufacturing.In addition, most services are not tradable internationally, so that it would beimpossible to earn sufficient revenue from exports to acquire the manufactured goodsthat people and businesses need and want, if mostly these were no longer produced inthe country.



Furthermore, any sizeable country without much manufacturing lends itself open tobeing exploited by others – the more so, of course, at the moment, when the maineconomic agents, the global transnational corporations, are free to move their profitsand capital around the world at will, about which more later. The failure to develop awide range of manufacturing industries in underdeveloped countries is precisely oneof the major reasons why they remain underdeveloped, and are subject to such a highlevel of exploitation by the already developed countries. Meanwhile, the worldeconomy is not static. People in Britain now, and in other advanced countries, up to apoint, are benefiting from the lower prices of many consumer goods – and ofcomponents that go into their manufacture – as a result of relocation of theirproduction to countries where labour costs are a fraction of ours. However, in time,workers in those countries will become better organised to campaign for a larger shareof the resulting profits in the form of higher wages, so that goods from those countrieswill no longer be so cheap. And as these countries become more developed, they willbe in a position to have their own financial services sector, and be less dependent onfinancial centres such as the City of London to raise finance and insurance. Countriessuch as Britain, formerly strong in manufacturing, that allow their manufacturingsector to be run down, would then become extremely vulnerable. It would also bedifficult and costly to re-establish many of the industries because the skills neededwould have disappeared – which, as will be discussed, is already a problem in Britainfor what is left of our manufacturing industry.

There is a lesson here from the killing off of our coal mining industry, which no othercountry, not even the United States, would have allowed. It was linked, of course, with the vindictive short-term desire of the Tory government under Prime MinisterMargaret Thatcher to break the backbone of Britain’s trade union movement. As a result, we now import 70 per cent of our coal needs– mainly from Australia,Colombia, Poland, South Africa and the United States – whereas before we were moreor less self-sufficient. Even seven years ago, Britain produced 70 per cent of its coalneeds.7 One of the arguments produced as an excuse for the running down of our coalindustry was that it was cheaper to import coal than to produce it in Britain. But thiswas related first to the use of cheap labour (even child labour in Colombia), which, asjust argued, will not apply once workers in those countries become better organised topush up wages, and second, to our overvalued exchange rate (see below). Further, itwas related to restrictions placed on Britain’s publicly owned coal mining industry todiversify – for example, in the manufacture of its own equipment – and the extent thatit was deprived of investment by various governments using it to subsidise otherindustries and to control inflation. Meanwhile, the use of coal to generate electricityhas been run down. Coal now accounts for barely a third, having been overtaken bynatural gas, which now accounts for 40 per cent.8 But as the reserves of gas under theNorth Sea become depleted, again this will depend more and more on imports. An advantage of gas is that it is less polluting, but that is also to do with the lack ofinvestment in the development of clean coal technologies. In short, the running downof our coal industry will probably prove a costly mistake. And if present trendscontinue, our manufacturing sector will face a similar fate.

To sum up, in order to be reasonably self-reliant, and to minimise being held toransom, a country needs a diverse range of productive activities, such that a crisis inone or two areas due to some event at any particular time can be offset by incomegenerated in other productive areas. In other words, it makes sense for all countries asfar as possible to have a reasonable range of manufacturing industries, commensuratewith their size.

It is analogous to agriculture. Most countries recognise the importance of preservingtheir agricultural industries so that they are reasonably self-reliant in food. Note thatthis is not the same as being self-sufficient, which can make a country more vulnerableand less self-reliant, for instance, due to drought or some other catastrophe. Self-reliance in food means having a diverse range of productive activities and sources

of income, so that a country can deal with any contingency, one element of which, inthe area of food, is maintaining a buoyant agricultural sector. That is why every countryhas policies in place to ensure that agriculture thrives and is not undermined by cheapimports. This, of course, is the reason for the existence of the European Union’sCommon Agricultural Policy – though Britain no doubt would be better served by itsown similar policy tailored to its specific needs. Even these policies have been underattack by the neo-liberal ideologues acting on behalf of the transnational agribusinesscorporations, and many of the more vulnerable, underdeveloped countries have beenforced to abandon such policies in exchange for debt relief. But the main point here isthat just as agriculture is generally recognised as being of strategic importance, so mustmanufacturing, and we need to apply similar policies in order to protect it.

3. Why Britain’s manufacturingperformance is poor compared withother advanced countries

Britain, as the world’s fourth largest economy, and because it was the country thatpioneered the development of industrial technologies that form the basis ofmodern manufacturing industries, should be at the forefront of manufacturing

among the advanced countries. Why is this not so? The obvious answer is becausethere has been insufficient investment in manufacturing. The capitalist institutionsthat dominate our economy and which are responsible for making investmentdecisions, find it more profitable to invest capital abroad or to recycle it speculativelywithin the financial sector. Inevitably, this is at the expense of investment inmanufacturing. And successive governments over the years have done little to changethat situation – which they have every right to do, as representatives supposedly ofeverybody, not just the capitalist elite.

After all, that capital is created not by capitalists, but by the labour of all the people –or more precisely, by the surplus labour that they perform over and above that forwhich they are paid. It should therefore be the responsibility of governments to ensurethat this capital that people create is invested for the benefit of the whole of societyrather than allow the capitalists appropriating it to make money out of it at the expenseof everybody else. Meanwhile, because of the failure of domestic capitalist institutionsto invest adequately in manufacturing in Britain, governments have been increasinglyrelying on foreign investors to plug the gap, such that by the turn of the century,foreign-owned firms accounted for 25 per cent of manufacturing turnover in Britain.9

The trouble is, as will be discussed, foreign investors tend to be fickle, and cannot beregarded as a reliable basis for stabilising and expanding our manufacturing sector,which is what is needed. Moreover, the extent to which they have benefited the Britisheconomy has been wildly exaggerated.

Furthermore, the economic and political dominance of the financial sector inBritain has other consequences that militate against investment in manufacturing.These include the tendency for interest rates, and also the exchange rate of the pound,to be higher than they otherwise would be, and for there to be insufficient investmentin education and training in the skills needed for a successful manufacturing sector.These and other reasons for Britain’s poor manufacturing performance comparedwith other advanced countries will now be explored in more detail.

The dominance of the financial sector and its consequencesThe dominance of the financial sector in Britain at the expense of investment inmanufacturing has a long history going back to the eighteenth century, which is


related to our imperialist past.10 Thus, even when Britain was the world leader inmanufacturing, its profitability was overshadowed by the even greater profitability offinancial institutions based in the City of London. Money was made out of the exportof capital without it ever having to leave England, because it was spent on investmentgoods produced in England, after which new capital came flowing into the country inthe form of interest and the repayment of principal on the capital advanced. On top ofthat there were the profits from insurance and shipping.

London’s financial institutions received a new boost from the 1950s on whenLondon became one of the world’s leading offshore tax havens (second only toSwitzerland), as foreign companies sought ways of avoiding tax and other regulationsin their own countries. (British companies achieved the same object by making use ofother offshore tax havens.) Thus, London went on to become the world’s leadingcentre for foreign exchange transactions and the raising of finance for companies, andindeed, governments, all over the world. This helps to explain why the financial sectorin Britain, more than any other country, is so dominant, both in terms of attractinginvestment and of its effect on economic policy, which has been at the expense ofmanufacturing.

In contrast, historically, the major priority in other capitalist countries was to getmanufacturing established so that they would no longer be exploited by Britishcapitalists. And this focus on investment in manufacturing has to a greater or lesserextent remained a part of their culture ever since. Thus, institutional structures haveevolved specifically to support their manufacturing industries, such as networks andassociations of industries in particular product areas to serve their common interests,and mutually beneficial links with banks, as in Germany, or more state involvement incoordinating the interests of different industries, as in France.11 In particular,manufacturing industries in most other western European countries are lesssusceptible to the vagaries of their stock markets, because they are far less dependenton the stock market for raising investment capital. Firms therefore are in a strongerposition to invest for the long term, which is what is needed for modern manufacturing,because of the amount of capital often required upfront to undertake the research andinvestment necessary to develop new technologies and new products, and then toinvest in their production, before there can be a return on the capital invested. This hasbeen helped by the fact that many of the shareholders have a longer-term vestedinterest in the productive activities of the firms in which they hold shares.

All this is in sharp contrast to Britain where firms have to give priority to the short-term interests of fickle shareholders acting as ‘absentee landlords reaping the benefitsfrom a company while taking no interest in its management’.12 There is a conflictbetween the need to keep short-term share values high to please the stock market, andthe need for longer-term investment to maintain competitiveness of the company. Inorder to keep share values high, companies have to continue paying out highdividends, which, of course, is at the expense of investment, not only in moreproductive technologies and improved products, but also in wages. This acts as adisincentive for attracting workers with higher levels of skill, and for acquiring thoseskills in the first place, upon which a successful manufacturing sector cruciallydepends. In the 10-year period up to 1997, dividend growth outstripped investmentgrowth by a ratio of 3:1.13 However, during the 1990s’ stock market bubble that partiallycollapsed in 2000, share value was more important because of the capital gains to behad from the buying and selling of shares at inflated prices, but since then, dividendshave once again become more important.

The contrasting fortunes of the car industries in Britain, on the one hand, and inGermany and Japan, on the other, well illustrate the differing attitudes towardsinvestment. In the 1950s, Britain had a well-established British-owned car industry,but because its managers had to give priority to paying dividends to shareholders, itwas starved of investment, until eventually, it was run into the ground, no longer ableto compete. Today, Britain’s car industry is entirely foreign-owned. Meanwhile, the


German car industry in the 1950s, as a result of the Second World War, was totally rundown, with one of its most famous brands today, BMW, insignificant and bankrupt.But as a result of the steady ploughing back of profits over the years into investment,Germany today heads the league of world class cars, and its industry is entirelyGerman owned. A similar story can be written about the Japanese car industry. A studyin 1977 found that the capital intensity of the Japanese car firms, Toyota and Nissanwas $29,200 and $22,400 per worker, respectively. This compared with $15,500 perworker for Volkswagen in Germany, $15,100 and $11,400 for Ford and General Motors,respectively, in the US, and just $4,100 for British Leyland.14

However, it must be said, that the pressures of the neo-liberal agenda being pushedby the giant transnational corporations, including those based in Europe, is narrowingthese institutional differences, so that the above account is beginning to get out ofdate. But it still serves to explain why manufacturing in other western Europeancountries is in a stronger position than in Britain.

The extent to which Britain lags behind other industrialised countries in investmentis indicated by its low rate of fixed capital formation – that is the growth of physicalassets such as plant, machinery, schools, universities, hospitals, dwellings and otherbuildings, railways, roads and vehicles, and so on. Britain has been bottom of theleague for years, averaging around 17 per cent of GDP. For most other countries, it hasbeen above 20 per cent, reaching 30 per cent in Japan and Portugal in some years. And in China, over the last decade and a half, it has averaged 35 per cent.15 This has acumulative effect. If less is invested in one year, there will tend to be less to invest in thenext year, and so on. Therefore, as long as Britain lags behind in this respect, we willfind ourselves being overtaken by one country after another. These figures also help toexplain why growth in productivity in Britain is below that of other advancedcountries, which, of course, makes our manufacturers less competitive. Thus, labourproductivity in Britain is 60 per cent lower than in the United States, 40 per cent lower than in France, and 20 per cent lower than in Germany,16 which, of course, isrelated to the much lower capital stock per worker in Britain, as well as lower skilllevels, and lower expenditure on research and development. Expenditure on researchand development in Britain between 1985 and 1996 grew at an annual rate of barely 2 per cent, compared with 17 per cent in France and Germany.17

The export of capitalBritain is the world’s biggest net exporter of capital for direct investment – the UnitedStates exports more, but, on average, receives as much back from foreigners investingin the US, and, in fact, currently is a net importer of capital for direct investment.18

The amounts of capital exported vary considerably from year to year according toopportunities, but whatever the amount, it is obviously at the expense of investment inBritain. Over the last decade, it amounted to £570 billion. However, this was offset by£320 billion of foreign direct investment coming into Britain, giving a net outflow of£250 billion.19 On top of that, during the same period, nearly £2,000 billion of capitaldisappeared abroad in portfolio and other investment – spent mainly on the purchaseof foreign shares and bonds, and deposits by British banks. This was offset by £2,500billion coming into Britain from abroad.20 In other words, overall, Britain was a netimporter of capital. But since most of this is portfolio capital or bank deposits, it ismainly speculative, or used by foreigners for the purposes of money laundering andtax avoidance, taking advantage of the City of London’s status as an offshore tax haven.Therefore, mostly, it is not invested in manufacturing, or other physical assets thatproduce real goods and services. Even direct investment into Britain is often simplyacquiring already established businesses, so that it is not investment in any economicsense, unless, in addition, it results in new plant or buildings, or higher employment.Some foreign takeovers have actually been vehicles for disinvestment, the purposebeing to reduce competition or steal firms’ order books before shutting them down(see below).


The primary driving force for direct investment abroad is, of course, that it is moreprofitable than investing at home – or at least it is perceived to be, because, as manycompanies have found out, it does not always work out that way. For example,Stagecoach, the Perth-based bus company, which also owns South West Trains and 49 per cent of Virgin Trains, last year had to write off nearly £600 million on its ill-advised acquisition of Coach USA.21 Similarly, Scottish Power, in May 2005, ended upselling a major acquisition in the United States, Pacifcorp, at a £1 billion loss.22 Thereare many other examples.

The most obvious way of making extra profit, indeed, super profits, is to relocateproduction to less developed countries where wages are a fraction of what they are inthe advanced countries. But before that can happen, those less developed countriesdo need to have a reasonable infrastructure in place, and a well-trained workforce. The former centrally planned economies in Eastern and Central were a gift totransnational corporations in that respect. And China has made huge strides since theearly 1980s, and because of its huge supply of cheap labour it can undercut almosteverywhere. During the first six months of this year, over 21,000 new foreign-ownedenterprises were approved by the Chinese government, which is about average at themoment.23 This trend is enhanced all the more by the fact that the cheap importsundermine manufacturers that originally had chosen not to relocate, so that they arecompelled to relocate themselves in order to be able to compete. However, about threequarters of direct investment abroad from the advanced countries goes to otheradvanced countries. This is still motivated, of course, by the extra profits to be had, butthese will arise, if indeed they do arise, for reasons other than cheap labour.

Where the investments are made relates very much to the product, and to its markets.The cheap labour areas are most attractive for mass produced consumer goods, such astextiles, clothes, shoes, toys, small domestic appliances and other electrical goods, ormass produced intermediate products such as standardised components for industrialequipment, motor vehicles, aircraft, electronic goods, and so on. Even companiesmaking high-tech or specialist products, often tailored to the specific needs of usersworldwide, are increasingly subcontracting the manufacture of key components, if notthe whole of their production, to companies or subsidiaries in Eastern Europe or Asia –especially China.24 However, for more specialised productive activities, for example,bespoke parts for various industries, or bulky low value products, the motive is to belocated near their markets, in the hope of undercutting local producers by investing inmore productive technologies, or to have control over a natural resource upon whichthe industry depends. These are among the motives for the large-scale presence ofBritain’s two biggest corporations, BP and Shell, in the United States. BP took over theUS corporation Amoco in 1998, and shortly after Atlantic Richmond, and has had majorproduction assets in Alaska since 1969. For both companies, some 30 per cent of theircapital expenditure is in the United States.25

Another reason for companies to invest in other advanced countries is to get roundpotential or existing import restrictions. For example, the huge investment byJapanese car companies in the United States and in Britain (to serve the Europeanmarket) was motivated by the need to get round import restrictions applied to carsmanufactured in Japan. For similar reasons, currently, BAE Systems, the British armsmanufacturer is busily seeking acquisitions in the United States in the hope ofclinching lucrative contracts from the hugely expanding United States imperialisticwar machine. The company is already making sizeable profits from the necessarilymore modest imperialist ambitions of the Blair government.

One other motive for investing in subsidiaries abroad is that it opens upopportunities to avoid tax and various regulations by setting up ‘letterbox’ holdingcompanies in offshore tax havens, through which invoices (and bribes) can bechannelled – using the device of transfer pricing and the like – to move capital aroundto where it is most profitable, and least likely to attract tax, to the benefit of thecorporation as a whole.


For all countries, direct investment in manufacturing abroad is, of course, at theexpense of investment in manufacturing at home, and the extent to which this goes tothe cheap labour countries affects all the advanced countries, as well as Britain. But asshown by the figures given earlier, manufacturing in Britain is suffering more than inother advanced countries. This is related to the continuing dominance of financialinstitutions based in the City, and their branches in other offshore tax havens, whichattracts funds away from investment in manufacturing.

The export of jobs When capital is exported and invested in productive activities abroad rather than inBritain, this obviously is equivalent to the export of jobs. Since, as has just beensaid, about three-quarters of outward foreign direct investment from the advancedcountries, including that from Britain, goes to other advanced countries, that partof direct foreign investment is more or less jobs neutral – jobs exported arecompensated by jobs created by inward foreign investment from other advancedcountries. Britain, however, loses out because, as just discussed, it is the biggest netexporter of capital for direct investment among the advanced countries.Furthermore, direct investment covers both the establishment of new productiveactivities and the takeover of existing enterprises, when foreign firms acquire ormerge with firms already existing in the country. Only the former leads to morejobs, unless the foreign firm acquiring or merging with the local firm initiates a newround of investment. Alternatively, if the motive of the merger or acquisition is tocapture the markets of the firm already in the country, or to ‘rationalise’ productionbecause the market for the particular product is relatively saturated or declining,the foreign investment can lead to major job losses. How a country is affected isstrongly related to its labour laws, and how easy it is to sack workers. Again Britainloses out because of its pro big business, anti-union labour laws, which make iteasier, and less costly for companies to close down businesses here and expandthem elsewhere (see below).

The quality of jobs might also be affected over time by the interchange of directinvestment among the advanced capitalist countries. The big transnationalcorporations are in a position to set up their various operations worldwide accordingto where it is most advantageous to them. For example, a country with a highly skilledworkforce in a particular productive area will be favoured with the production of itshigher value products providing higher paid employment, whereas others with a lowerlevel of skill might be lumbered with its lower value products, with workers being paidless. And this will tend to perpetuate itself, because the opportunities are less forworkers in the latter case to acquire the higher level of skills. Again, because of its poorquality of training, Britain loses out, which is why many of the foreign-owned plantshave tended to be more in the way of assembly plants, with much of the value in themanufacturing of the components created elsewhere. Furthermore, if a country’slabour laws are weak, as in Britain, this is likely to attract that part of a transnational’soperations that are more susceptible to varying demand, so that the company is in astronger position to hire and fire workers, or reduce them to part-time, as and whenrequired, according to demand for the product.

The export of jobs is not just due to the export of capital from the advancedcountries. More often than not, the big transnational corporations already have astore of funds derived from the profits of their worldwide operations, and access tolines of credit, through their holding companies and subsidiaries based in offshoretax havens. For example, the second biggest source of foreign investment in Chinaduring the first six months of this year was the British Virgin Islands, a notoriousunregulated tax haven. This was just behind the leader, Hong Kong, which is also inpart a tax haven, and ranking seventh, eighth and ninth, after Japan, South Koreaand Taiwan, were the Cayman Islands, Singapore and Samoa, again all well knowntax havens.26


The fickleness of foreign investment in BritainBecause of the reluctance of home-grown big business to invest in manufacturingindustry, the previous Tory government and, since 1997, the new Labour government,have gone out of their way to attract foreign investors, often awarding them large cashpayments as a way of encouragement, courtesy of taxpayers. The trouble is that theworld’s transnational corporations have become adept at playing governments andworkers in different countries off against one another when deciding where to locatetheir various operations. BMW, for example, in 1993, after assessing 250 locations in 10countries, finally decided to establish its new plant in South Carolina in the UnitedStates after the state government had offered $130 million worth of incentives andsubsidies over a thirty-year period.27

The US car company, Ford, has been particularly skilful in its bargaining withgovernments in Britain going back a long way. For instance, taking more recent examples,in 1994, Ford persuaded the British government to grant it the equivalent of £64,000 perworker to expand its Jaguar plant, which it had acquired five years earlier.28 Only two yearslater, the government gave it another £80 million as an incentive to manufacture a newJaguar sports car saloon in Britain rather than the United States.29 And two years after that,after threatening to move its production line for Jaguar cars elsewhere, citing lower costs,Ford extracted another £43 million from the British government – amounting to £15,000per worker – to keep the plant in Britain.30 Then, after all that, Ford announced inSeptember 2004 that it was to close two of its three plants in Britain anyway, including thehistorical site at Browns Lane, Coventry.31 Meanwhile, in December 2004, it got another£4.5 million out of the government – equivalent to £10,000 per job created – as a‘sweetener’ to set up a new diesel engine plant at Dagenham.32 Ford not only gets moneyfrom the British government. In 1999, for example, it got the equivalent of £450 million forsetting up a plant in Brazil.33 This was after the progressive government of Guiba, in theBrazilian State of Rio Grande do Sul, after coming to power, rejected a similar scheme onthe basis that the subsidies and tax-breaks that would have gone to Ford would haveoutweighed the benefits of the new employment generated. It had decided that themoney would be better spent in other ways. Perhaps Britain should learn from that.

Transnational corporations even play regional or local governments off against oneanother. For example, the Korean transnational, LG, decided in 1996 to set up twoplants in Britain, one manufacturing computer chips, and the other television parts.After first investigating what was on offer in Scotland and North East England, LGfinally opted for South Wales after managing to negotiate a subsidy of £248 million –equivalent to £40,600 per job – from the Welsh Office.34 This was supposed to have beenfor the creation of 6,100 new jobs. In the event, LG never opened the state-of-the-artchip plant – built, incidentally, in opposition to local planning rules.35 (This plant hassince been sold on to another Korean transnational, Hyundai, which has mothballedit.) Fewer than 2,000 people were ever employed, and by 2003, this number haddwindled to just 300.36 In addition, LG closed its plant in Southport Merseyside, whichmade chemicals for its television tube production because they became availablemore cheaply from Chinese sources.

Another major recipient of state aid in 1996 was the German transnational Siemens,for setting up a semiconductor plant in Wallsend Tyneside, employing 1,567 workers.Only two years later, following a downturn in the semiconductor market, the plantclosed down. Siemens was originally meant to have received £50 million,37 but, in theevent, got only £18 million, which it has since paid back.38 A survey conducted by theFinancial Times in 2003 found that half the £750 million state aid offered to 50 projectsover the previous decade had gone to just 16 transnationals that have since closedfactories or failed to reach employment creation targets. Of the rest, only seven showedevidence of creating or safeguarding all of the jobs promised.39 Imagine if all this aidhad gone towards helping local enterprises to set up or extend their businesses,especially if they were co-operative ventures, which had a vested interest in providingemployment for, and serving the local community.


Meanwhile, in June 2005, South Wales was hit by the closure of another televisionplant, first established in 1973, owned by Sony, the Japanese-based transnational, withthe loss of over 650 jobs, already whittled down from the 4,000 it employed in 2000.40

Sony had also been a recipient of state aid – £7 million in 1996, and £16 million in2000.41 Sony blamed the redundancies on the downturn in sales of cathode ray tubetelevisions in favour of slender flat-screen types. The former will be concentrated inSony’s factory in Slovakia, where wages are a fraction of what they are in Britain. Why doesn’t Sony transform its plant in Bridgend to make flat-screen televisions?Because that side of its business is taken care of in its plant in Barcelona, which servesthe whole of Europe.

In short, under the current neo-liberal regimes which Tony Blair and Gordon Brownfavour so strongly, the world’s transnational corporations – with state aid if they canpersuade governments to oblige – are allowed to set up their operations, and close themdown, as they see fit, according to their own best interests, never mind the effect it hason the local community. Their fickleness when it comes to their investment plans is wellsummed up a recent headline in the Financial Times: ‘No fixed abode for the modernmanufacturer’. The article was about the criteria transnationals apply when decidingwhere to locate their operations, noting that ‘smart companies are splitting productioninto stages and carrying it out in different countries’.42 Needless to say, this is hardly abasis for a government to plan the long-term future of its manufacturing industries,upon which the welfare of working people everywhere ultimately depends.

Meanwhile, foreign companies that do set up in Britain, not only transfer the profitscreated by British workers abroad, so that they are not available for reinvestment here.They also contrive to pay little or no tax through complex accounting devices, such asexporting products on the cheap to subsidiaries in other countries, or borrowing largeamounts from their subsidiaries and offsetting the supposed interest paymentsagainst tax.43 Of course, British-based transnationals are guilty of the same tricks,which is one reason why they find it more profitable to invest abroad rather in Britain.

The effect of Britain’s anti-union labour laws Britain’s pro big business, anti-union labour laws make it easier for workers to besacked than in most other advanced countries, apart from the United States. It istherefore easier to close down enterprises, and relocate production elsewhere,perhaps where labour is cheaper, almost with impunity. Indeed, Britain has the worstemployment protection in the EU-15.44 On top of that, Britain has longer workinghours than any EU-15 country, and the government has pledged to keep its uniqueopt-out from the EU Working Hours Directive. Britain also has the lowest benefits for the first year of unemployment of any advanced country – more so even than the United States.45 If laws made it more costly to sack workers, as in France andGermany, companies might have more incentive to invest, making their plants moreproductive, or to diversify, allowing the redeployment of workers displaced by more productive technologies, or shrinking markets for particular products.

Even when workers are more productive than their counterparts in Europe, this is noguarantee. For example, Corus – the Anglo-Dutch steel company formed in 1999following a merger between formerly state-owned British Steel and Hoogovens in The Netherlands – sacked 1,300 workers in 2000, even though its British plants weremore efficient, simply because it is cheaper to make workers redundant here.46 Similarly,in 2002, the US company, Arco, that owns the tractor firm Massey Ferguson was able toclose its Coventry factory, which had been starved of investment, with the loss of 1,100jobs, and transfer production to its plants in France and Brazil.47 And, in 2004, Heil TrailerInternational, the US-based manufacturer of tanker trailers, closed down its WestMidlands plant with a loss of 100 jobs, transferring production to Thailand, Poland andArgentina48. Just before that, the biggest US food company, Kraft, unceremoniouslyannounced the closure of its Terry’s chocolate factory, which it had acquired in 1993 –and which had been making chocolate in York for nigh on two centuries – with the loss of


over 300 jobs, transferring its production to elsewhere in Europe49. At the same time, theworld’s biggest food company, Swiss-based Nestlé, with a worldwide turnover in 2004topping £50 billion50, announced the closure of its Staverton plant making desserts,which had been a key employer in the town for 120 years, with a loss of 120 jobs, havingpreviously closed down its Halifax factory with the loss of 270 jobs.51

One of the most scandalous closures must be that of Biwater Pipeworks, in Claygate,Derbyshire, with the loss of all 700 jobs, the day after its acquisition by the Frenchtransnational, Saint-Gobain.52 This was in spite of a full order book for the next twoyears. The object of the whole operation quite clearly was to drive out the competitionand take over its market. What made it all the more scandalous was the fact that theOffice of Fair Trading knew about the plan, but failed to reveal it because of‘commercial confidentiality’ – and also that Stephen Byers, the Trade and IndustrySecretary at the time, failed to intervene.53 At the time of writing, Saint-Gobain is tryingto take over the British plasterboard manufacturer, BPB.54 Workers at BPB – be warned!Another scandal that has blown up, purely the result of our anti-union laws, is thesacking of 670 workers – by loud hailer – by Gate Gourmet, for refusing to take a wage cut. The company produces in-flight meals for British Airways. It was formerlyowned by British Airways, but is now owned by the US Private Equity firm, TexasPacific, which has a history of similar actions in enterprises it owns in the UnitedStates.55 As the Morning Star put it at the time: ‘Too many workers in Britain have beendumped on the cobbles by hard-faced employers, while trade unions are held hostageby anti-union laws and Labour ministers wash their hands Pontius Pilate-style’.56

Workers are dumped as so much rubbish with no thought at all that these are peoplewith families to support, and lives to live.

These a just a few ‘highlights’ among very many instances of what are coming to beeveryday events for workers in manufacturing up and down the country on the way Britain’s anti-union laws are used by companies to ‘rationalise’ production amongtheir plants around the world. Then there are the threats of transferring productionabroad to downgrade pay and employment conditions, or to reduce staff so that those remaining have to work longer or more intensively. For example, in August 2005,TRW Automotive in Pontypool was trying to ditch 156 workers out of a workforce of 600, and increase working hours of those remaining ‘to improve competitiveness’,with the threat that if this was not accepted, the company would transfer assemblywork to Poland.57

The mythical benefits of Britain’s ‘flexible’ labourThe reason why the government refuses to repeal much of the anti-trade unionlegislation introduced by the Tory government under Margaret Thatcher in the 1980s issupposedly to encourage investment, both domestic and foreign, through Britainhaving a ‘flexible’ labour force – a euphemism for anti-labour laws making it easier tosack workers or force them to work long hours or part-time. But as the figures givenearlier on capital formation clearly demonstrate, this has had little effect, with Britain,if anything, placed at a disadvantage compared with its Western European neighbours.Meanwhile, research undertaken this year by John Edmonds, former general secretaryof the GMB trade union, and now research fellow at King’s College London, andAndrew Glyn, fellow in economics at Corpus Christi College, Oxford, has shown thatthe extra 550,000 private sector jobs created since 2000 are more or less entirely due toincreased government spending going to construction companies to build newhospitals and schools, companies supplying such things as new equipment, drugs andschool books, and private service contractors involved in catering, cleaning and otheractivities.58 Earlier, research based on output data for 20 manufacturing sectorsbetween 1984 and 1992 carried out by the Cardiff Business School similarly showedthat the supposed benefits of foreign investment in Britain have been greatlyexaggerated.59 Moreover, it was found that foreign investment often had a negativeeffect on industry because of the extra competition for local British-owned


companies, with some seeing their productivity decline as their business activitiesdropped off. In short, Britain’s anti-labour laws have not had the effect of encouraginginvestment at all, domestic or foreign, as is claimed.

The problem of the pound being overvaluedA further reason for the decline of manufacturing in Britain since 1997 is that the trade-weighted exchange rate of the pound in 1997-98 jumped by nearly 25 per cent.This made our exports more expensive and therefore less competitive, and at the sametime, imports cheaper. Thus, manufacturing industries both for export and for thedomestic market were undermined. This problem has eased slightly more recently,especially with the recent rise in the value of the dollar, which facilitates exports to theUnited States, one of Britain’s major export markets. However, the value of the pound isstill higher than it otherwise would be due to our interest rates being higher than inother advanced countries. This makes it more profitable for international currencydealers to hold their stocks in pounds, which increases the demand for pounds, andtherefore its price in terms of other currencies. The much-publicised quarterpercentage point cut in base rates to 4½ per cent in August 2005 was trivial. The eurozone base rate is 2 per cent.

The negative consequences of high interest ratesApart from this adverse impact on the exchange rate which underminesmanufacturing, higher interest rates also make it more costly for manufacturers toinvest or borrow to buy inputs from other manufacturers – especially as they oftenhave to pay much higher rates than the Bank of England’s base rate. Ostensibly, thereason for higher interest rates is to control inflation. But one of the factors that makesBritain’s economy more prone to inflation is insufficient investment – which in part isdue to the higher interest rates. So it is a vicious circle.

Many people on the Left blame the higher interest rates on the decision of theChancellor, Gordon Brown, to give independence to the Bank of England for the setting of interest rates. However, even if monetary policy had remained with theTreasury, it is doubtful if it would have made any difference, because interest ratedecisions would still be determined by the same criteria. In fact, other things beingequal, the setting of interest rates to control inflation is largely a technical decision – ormore precisely, a professional judgement among experts attempting to take intoaccount the various uncertainties involved. In any case, the Bank of England, in thelast analysis, still has to do what the government says, though, to be sure, it could bemade more accountable by Parliament being given the power to vet nominations forthe Monetary Policy Committee, the body responsible for setting interest rates,including their past professional history and publications.

The trouble with over-focusing on Brown’s decision to grant the Bank independenceis that it actually detracts from the main issue. That is the government’s decision – inline with the neo-liberal ideology that dominates its thinking – not to use otheravailable methods for controlling inflation, such as credit controls to limit consumerdemand when necessary, or subsidies financed from revenues from other economicsectors to stimulate investment in productive activities that open up supplybottlenecks – which, ultimately, is the primary cause of inflation. In a way, thegovernment has been lucky, because the main reason for the relatively low rate ofinflation at the moment is due to the chronic overcapacity worldwide for themanufacture of a large range of consumer goods (or more precisely, due tounderdemand, because most of the world’s people are too poor to afford them).However, the underlying problem of insufficient investment as a cause of inflation hasrevealed itself very clearly in the huge escalation of house prices.

The myth of Britain remaining outside the euro as a problemThere are some in the trade union movement, and especially at the TUC head office,


who somehow believe that Britain would benefit from closer ties with the EuropeanUnion by joining the eurozone. One supposed advantage is the current low interestrates in the eurozone. First, there is no guarantee that that will always be so. Interest rates are low at the moment because of the need for European Central Bank tostimulate investment in the depressed economies of Germany, France and Italy (Italy in particular, needing even lower rates). In fact, other countries in the eurozone,such as Ireland, Spain and Greece, need interest rates to be higher, because that is theonly tool that the EU allows for the control of inflation – under EU rules, thesecountries are not permitted to use other methods, just mentioned. They have to acceptthe ‘one-size-fits-all’ decision of the European Central Bank. Moreover, nationalgovernments are not allowed any influence on European Central Bank decisions. Atleast, ultimately, the Bank of England is answerable to Britain’s Parliament. TheEuropean Central bank is answerable to nobody but itself.

Even the most pro euro advocates, if they go into the issues in any depth, have toadmit that there is no economic advantage to Britain joining the euro, and most smalland medium businesses, as well as the powerful financial sector see it as a distinctdisadvantage. Only the large transnational corporations based in Britain stand to gain,giving them even greater flexibility than they have already to set up or close downoperations within Europe as they see fit, using their huge financial resources to pushout smaller competing businesses. Practically the only plank that supporters of theeuro within the labour movement have to stand on is the so-called Social Chapter. But they should take note of what Keith Richards, Secretary-General of the EuropeanRound Table of Industrialists – comprising the chief executives of around 50 of thebiggest European-based transnational corporations – had to say about it. (The ERTwas largely responsible for drafting the Single European Market agenda and theMaastricht Treaty.) ‘The Social Chapter’, he said, ‘would not affect the functioning ofthe single market’ and would be ‘a large waste of time’. ‘But if politicians feel it isimportant to get the chapter referring to the desirability of full employment and theythink it will help public opinion we don’t really object. It won’t help jobs, but it won’t domuch damage providing of course that it remains related to aspirations’.60 It could notbe put much better! But even that was too much for the Tory government to accept,and it opted out of the Social Chapter. The new Labour government, under Blair, has, of course, since signed up to it, but has still retained an opt-out on the WorkingHours Directive.

The problem of skill shortages In spite of the inadequacies of government economic policies, some manufacturinghas managed to prosper, mainly in high technology areas, such as highly tailoredproducts that need to be produced close to where their British customers are, orproducts based on locally supplied inputs. The industries that have suffered the mostare those which can easily be relocated to less developed countries where wages arelow. As mentioned already, if controlled, this need not be a bad thing, because if theireconomies develop as a result, they will provide bigger markets for our exports. Whatshould be happening, and is happening to a greater extent in other advancedcountries, is that as some manufacturing activities are relocated, others producingmore specialised products at a higher technological level should be taking their place.In other words, it need not involve workers in manufacturing losing their jobs at all.Workers could simply be retrained and redeployed in new productive activities,preferably within the same enterprise. But a major inhibiting factor in Britaincompared with other advanced countries is the shortage of skills at various levels. Lastyear, for example, according to the Department of Work and Pensions, there were58,000 vacancies in manufacturing largely due to difficulties in attracting staff with theright qualifications.61

Partly this reflects the general crisis of education in Britain, which has suffered fromchronic underinvestment. In contrast to Britain, other advanced countries have long-


established and well developed systems of comprehensive education, which do nothive off children from the upper classes to elite schools. Therefore, everybody,especially those with political clout, has a vested interest in ensuring a decent level ofinvestment in the state education system. In Britain, too many people leave schoolwithout the basic education needed to learn the technical skills required for working inhigh technology industries and in research and development. In particular, it isrelatively easy for school students in Britain to opt out of scientific and technicalsubjects, which are perceived as more difficult because of the jargon that has to belearned, and generally because studying such subjects demands more rigour.

A further disincentive to the studying of the natural sciences and technical subjectsis the perception, not without grounds, that one can earn more in ‘business’,‘management’, or ‘accountancy’. This reflects also the bias in Britain towards thefinancial sector at the expense of manufacturing. In fact, there is something of a Catch-22 situation here. If the manufacturing sector is perceived to be declining, which it isright now, this is not going to provide much incentive for young people to invest theirtime in acquiring education and skills that might in the end be worthless, or when therisk of loss of employment opportunities that require those specific skills is high. And the shortage of people coming through with the skills needed for a healthymanufacturing sector puts a further nail in the coffin of manufacturing.

But the shortage of skills is also to a considerable extent a problem of Britishcapitalist owners of industries’ own making – namely their reluctance to invest intraining workers in transferable skills who might then go on to sell their newlyacquired skills to ‘free rider’ competitors. In contrast to Britain, Germany has anelaborate network of industry-wide employer associations and trade unions tosupervise a publicly subsidised training system. This helps to ensure that firmsinvesting in training will not have their workers once trained poached by companiesthat do not make equivalent investments in training. Conversely, a worker undergoingtraining is assured that it will result in lucrative employment. In short, by pressurisingmajor firms to take on apprentices and monitoring their participation in suchschemes, these associations limit free-riding on the training efforts of others.Meanwhile, by negotiating industry-wide skill categories and training protocols withthe firms in each sector, it is ensured both that the training fits the firms’ needs andthat there will be an external demand for any graduates not employed by the firms atwhich they apprenticed.62

4. Why the current free-for-allrelocation of manufacturing to lessdeveloped countries is unsustainable

Before considering what the government should be doing to halt the decline ofBritish manufacturing, it will be useful to examine some of the contradictions ofthe current free-for-all to relocate industries to less developed countries where

wages and therefore labour costs are low. As implied already, up to a point, Britain andother advanced capitalist countries benefit from this trend because it means that wehave access to high quality goods at cheaper prices, giving us more to spend on otherthings, especially services. And the extent to which high quality jobs in services replacemore mundane jobs lost in manufacturing, we benefit from that too. Furthermore,investment in manufacturing in underdeveloped countries needs to be encouragedbecause it is precisely the deficiency of such investment that causes these countries toremain poor and underdeveloped. Again, we also would benefit because the more thatis invested in manufacturing in these countries, and therefore, the more economically


developed they become, the more they will be able to provide a market for the goodsand services that Britain and other advanced countries need to export to theunderdeveloped countries for our economies to prosper.

However, this assumes that the huge profits arising from investing in manufacturingin underdeveloped countries due to the low wages at least remained in theunderdeveloped countries so that they were available for re-investment in thedevelopment of their economies. As the former Secretary for Trade and Industry,Patricia Hewitt, was fond of pointing out, that is indeed how South Korea turned itselffrom one of the world’s poorest countries to a major industrial country. But what herpropaganda omits, either through ignorance or to deliberately distort, is that in SouthKorea virtually all its industries are owned by Korean companies, which, along withcapital controls, ensured that the profits largely stayed in the country, and weretherefore available for reinvestment in other productive activities. In contrast, in mostother underdeveloped countries, the industries being established are largely foreign-owned, or are joint ventures, so that most of the profits disappear abroad, facilitated byvarious accounting tricks – especially transfer pricing, through the overinvoicing ofimported inputs and the underinvoicing of exports. Thus, even when involved withjoint ventures, transnational corporations are able to transfer profits abroad, whichmeans, in addition, that they get away with paying little or no tax. That is why, in spiteof the new industries, the economies of less developed countries remain relativelyunderdeveloped.

Meanwhile, because of the underdeveloped state of their economies, andconsequently the high levels of unemployment and underemployment, workers inmost underdeveloped countries are in severely weak bargaining positions. Not onlyare wages forced down to rock bottom, but also workers’ rights are practically non-existent, and Victorian-like sweatshop conditions prevail, with workers in some casesforced to work a 10-hour day or more. Furthermore, almost invariably, trade unionsare banned, or are mere arms of governments wanting to keep down wages. Apart fromthis obvious abuse of human rights, it perpetuates the underdeveloped state of theireconomies because the low growth of economic demand locally provides littleincentive to invest in the domestic market, so that there are fewer new employmentopportunities, which means that economic demand continues to remain at a lowlevel. When manufacturing industries are transferred to underdeveloped countriesunder these conditions, therefore, our manufacturing base is undermined not onlybecause we lose the industries that get relocated, but also because, as long as theeconomies of the underdeveloped countries remain relatively underdeveloped, theycannot provide much of a market for the products of the manufacturing industriesthat we do manage to retain.

The logic of current trends is for all manufacturing to migrate to China, because thatis where labour costs are lowest, and therefore is where manufacturing is mostprofitable, and also because, unlike some other underdeveloped countries wherewages are even lower, it now has a well developed infrastructure to supportmanufacturing industries. And, as noted already, even now, the shift of manufacturingto China is by no means confined to low-tech products, and its industries arebecoming ever more sophisticated by the day. That is why China is fast becoming the‘workshop of the world’ – once Britain’s epithet. On that basis, our wages will have to bepushed down to the same level as China’s for our manufacturing industries to becomeprofitable again! However, in time, this might be moderated to some extent, hopefully,by Chinese trade unions pushing up wages in China so that its workers get a biggershare of the fruits of their labour. But even before that, and presuming that tradeunionists in the advanced countries were unable to prevent wages from falling, whichwould require forcing upon governments a change of policy, we would be faced withan intensification of the current crisis – that is low wages globally and insufficienteconomic demand to provide markets for the goods and services capable of beingproduced and supplied. Thus, if there were a slump in wages in the advanced


countries too, which would cause economic demand to decline, and markets tocontract even more, it would lead to more and more businesses closing down, moreunemployment, and a further slump in economic demand, and so on. In other words,it would lead to a prolonged and self-perpetuating economic depression, with all itsnegative repercussions – indeed, a situation not too much different from what prevailsin most of the world, even now, which is causing so much suffering. All these trends, ofcourse, are a consequence of businesses only being able to act in their own interests. In fact, they cannot act in any other way. It is not their role to deal with the combinedeffects of their actions on whole economies. That is the job of governments. But as longas governments cannot be weaned from acting in the interests of the shareholders ofbig financial institutions at the expense of the rest of society, then these contradictionswill intensify.

In short, the extent to which the higher profits from investment in manufacturing inunderdeveloped countries are not retained in those countries and therefore not re-invested in their economies, is a major cause of the world’s current economicproblems, as well as the social, political and security problems that are getting evermore serious. This will only be resolved by governments everywhere taking it onthemselves to regain control over the economies that they are charged with, and to actin the interests of everybody rather than privileged groups, such as the shareholders oftransnational corporations, which currently are being given a free rein.

5. What the government should be doing

Halting the decline of Britain’s manufacturing industry – which is what is neededfor a more balanced and more prosperous economy – will require a wide-rangingpackage of measures, and a multi-pronged strategy. In particular, the

government needs to go out of its way to support British manufacturing enterprises –the opposite of what it appears to be doing right now. Most of the measures needed asproposed here fly in the face of the prevailing neo-liberal ideology that currentlydominates economic policy, and therefore could be considered controversial.However, many would have been regarded as perfectly orthodox in the 1950s and1960s (and in some countries, into the 1980s), and were part and parcel of governmentpolicies everywhere. And this was when economic growth was at an all-time record,peaking in 1973 when world output rose by 6.7 per cent in a single year.63 Today’s neo-liberal policies have never achieved anything like those growth rates.

It is beyond the scope of this pamphlet to analyse fully the causes of the demise ofthose policies in the 1950s and 1960s, which were loosely based on the economictheories pioneered by the British economist John Maynard Keynes (1883-1946).Suffice to note that they did not address the underlying contradictions of capitalism,which are of a class nature. At first, relatively full employment in the advancedcountries as a result of those policies enabled organised labour to push up wages. And it allowed primary commodity producers in less developed countries, especiallymembers of the Organisation of Petroleum Exporting Countries, to raise prices. Ratherthan increase investment in response to the growth in economic demand thatresulted, many businesses – in some countries, such as Britain, more than others – inorder to sustain short-term profits, cut back on investment. This initiated a spiral ofinflation, which increased profits in the short run, but which had a massivedestabilising effect in the long run. Meanwhile, other businesses sought moreprofitable investment opportunities abroad, bypassing the capital controls that werethen in force, by making increasing use of offshore financial centres or tax havens,which mushroomed as a result. This, in turn, undermined the capacity of governmentsto control investment and capital flows, exchange rates and interest rates, which had a


further destabilising effect. Furthermore, it led to a huge growth in the speculativefinancial sector, which attracted funds away from investment, thus further fuellinginflation. This was added to by irresponsible governments (notably that of the UnitedStates to finance its war against Vietnam) attempting to manage their growing deficitsby printing money or otherwise increasing money supply, and by unregulated banks inoffshore tax havens (actually branches of banks based in the advanced countries)advancing credit to an increasing extent, until it was unsustainable. All these factorsgave rise to intensifying political struggles during the course of the 1970s, and a newgeneration of right wing monetarist governments came to power, first in the UnitedStates, and then in Britain and elsewhere. These introduced sharply deflationarypolicies, freed capital movements and sought to run their economies with muchhigher levels of unemployment, thus powerfully reducing workers bargainingpositions. The result was a sharp increase in inequality in all countries, a massiveincrease in the development gap between the more advanced and less developedcountries, and a huge slowdown in growth of economic demand – and an absolutedecline, in many countries.

Prevailing neo-liberal policies have extended all those trends with a vengeance, and,as noted earlier, are leading to a deepening of the world economic crisis. It should alsobe noted that in essence these policies are a resurrection of those which prevailed inthe early part of the last century and which resulted in the worldwide depression of the1930s – and to which Keynes’s economic theories were largely a response. We shouldtherefore have no qualms about challenging current orthodoxy.

Some of the measures proposed here demand concerted action by governments –most obviously the reining in of offshore tax havens and the negotiation of a newinternational trade policy. But as the failings of the neo-liberal agenda become moreobvious, it is likely that more and more governments can be won round, providedthere is a large enough campaign, led by the organised labour movement and itssupporters, with a coherent alternative agenda that can counteract the powerfullobbying forces of the world’s transnational corporations that currently influencegovernment policy-making.

Although the following measures are primarily geared to rescuing Britain’smanufacturing industry, many have a wider application. Meanwhile, if they led to ahealthier manufacturing sector, this would pave the way for a more healthyeconomy as a whole, because it will lead to a more sensible balance betweendifferent economic sectors that can support one another. There is a certain logic tothe order in which the measures are presented in that to a greater or lesser extentthose discussed later depend for their effectiveness on the measures consideredearlier being implemented. But, in any case, all of them should be regarded as apackage. Each on its own is not enough. The combined effect of these measureswould no doubt reduce markedly the profitability of so-called investment in thefinancial sector (actually not investment in any economic sense, but the speculativeshifting of capital assets from one form to another). This should mean thatinvestment in manufacturing, as well as in other productive activities that produceand supply things that people and businesses need and want, will become moreattractive, the more so as the economy grows as a result. The financial sector will nolonger be the tail wagging the dog.

Finally, it should be pointed out that the following measures do not particularlyaddress the underlying contradictions of capitalism just mentioned, merely the worstexcesses of neo-liberalism. But they do pave the way for the other political strugglesnecessary to bring about a more equitable, socialist economic system based oncommon ownership embracing co-operatives and publicly owned industries andservices, because it would become clearer what else needs to be done. Moreover, thesemeasures would not be irrelevant to such a system. On the contrary they would need tobe part and parcel of it. So, from a progressive point of view, campaigning for thesemeasures serves three purposes.


The case for import controls, and a new international trade policyAll governments need to control imports. Indeed, it is their democratic right. No country, including Britain, has established a manufacturing industry, or reachedan advanced state of development without import controls. Mostly, this has beendriven by private companies seeking to prevent their investments being underminedby foreign companies with a competitive advantage – for instance, because they hadbeen in the business longer, had more experience, or better technology, or because ofthe availability of cheap labour. Private companies and governments acting on theirbehalf only champion free trade from a position of strength. What is needed is forimport controls to be subject to internationally agreed rules or guidelines, so that theycan be applied in an orderly way to the advantage of all concerned.

The first point to stress is that controlling imports does not mean a ban on competingimports, which is what opponents of such controls almost invariably make them out tobe, and which, unfortunately, governments have sometimes practised. In fact, it is self-defeating. First, countries need to allow in imports so that other countries have themeans to import from them. In other words, it is a question of keeping the balance rightso that all countries benefit. Secondly, allowing in competing imports, up to a point,tends to enhance quality and efficiency of production, so that consumers benefit interms of both quality and lower prices. The different devices for controlling importshave advantages and disadvantages (see Box 1).

A major problem with all types of controls on imports is their tendency to remain inplace long after their original purpose has abated because they entrench vestedinterests, which become a powerful lobbying force on governments to prevent theirremoval. An internationally agreed rules-based system would help to avert this.

One such agreement was the Multi-Fibre Arrangement first put in place in 1974,


BOX 1: Pros and cons of different measuresImport tariffs.These are a tax on imports,which may be ad valorem (a certain percentage ofvalue), or on a specific basis (as an amount per unit).Tariffs have the advantage that they areeasy to administer and alter as circumstances change, and are transparent – that is, the degreeof protection can readily be calculated and therefore the economic effects assessed.Tariffs canalso generate revenue for governments, a part of which, if derived from imports fromunderdeveloped countries, could be channelled back to those countries in the form of aid tohelp diversify their economies.

Import quotas. These limit the amounts of a particular product allowed to be imported,normally through a system of import licences. Quotas have the advantage that protection ismore certain. In contrast, the effectiveness of tariffs depends on how people choose to spendtheir income.Also, the prices of imported goods tend to be lower than if tariffs are employed.On the other hand, import quotas require a substantial bureaucracy to implement, and lendthemselves to various kinds of abuse, ranging from the bribery of officials in order to obtainlicences, to importers overstating their requirements in order to profit from the sale oflicences or the sale of resulting excess imports on the black market. It is also more difficult tojudge their overall economic impact, especially as an economy becomes more complex, andgovernment bureaucracies, even with the best will in the world, are not necessarily the mostreliable judges of the amounts that should be imported.

Countervailing duties. Also known as anti-dumping measures, these are a tax onimports designed to offset export subsidies or products being exported at prices lower thanthose prevailing domestically.

which allowed all countries to import and export textiles and clothes subject to acomplex set of quotas. In spite of flaws, it enabled many underdeveloped countries toestablish a manufacturing base in these activities, without it undermining too much the established industries in other countries, which were encouraged to switchto higher value products. It is only now, since January 2005, when it was abolished (a sop to the neo-liberal agenda) that its relative success is beginning to beappreciated. Thus, many poorer underdeveloped countries, as well as advancedcountries, are discovering that their textile and clothing industries are beingundermined by the new free-for-all that overwhelmingly favours China, which has thecapacity to produce such products more cheaply than anywhere else. Indeed, almostimmediately after the MFA was abolished, the EU has re-imposed emergency quotasbecause of the pressures from European manufacturers, but it has caused chaos.Retailers and wholesalers, in anticipation of the end of the MFA, had long beforeplaced orders for this year’s winter stocks. By August 2005, most categories had alreadyexceeded the quotas that had been agreed between the EU and China in June, and, at the time of writing, amongst other things, there were 59 million sweaters and 17 million pairs of men’s trousers piled up in warehouses in Europe unable to bereleased because the quotas had been exceeded.64

Out of this mess, perhaps, there is a chance for trade unionists in differentcountries to push for concerted action to the get the Multi-Fibre Arrangementrenegotiated and re-introduced, and to extend such a system to other goods. Thiswould enable all countries to develop to a greater or lesser extent and preserve abroad manufacturing base, and at the same time gain from the benefits ofinternational trade. It would allow the beneficial, stimulating effects of competition,but prevent the extremes of cutthroat, dog-eats-dog competition, which is what the


Non-tariff barriers.These are rules and regulations that make it more difficult or expensivefor a country to export to another. Such regulations may be quite genuine – for instance,if a country has democratically decided that it does not want genetically modified foods in thecountry for safety reasons. Others may more cynically be measures to protect domesticindustries, ranging from deliberate delays or obstructionism at customs facilities, andcomplicated paperwork, to requiring imports to conform to particular standards which favourdomestically produced products,perhaps banning some imports altogether on spurious healthor safety grounds.

Maintaining an undervalued currency. This is not specifically a measure to controlimports, but it makes imports more expensive, thus favouring domestic producers, as well asmaking exports more competitive. In other words, if taken to extremes, it undermines othercountries’ exports, and can lead to retaliation, and a ‘beggar-thy-neighbour’ trend of successivecompetitive devaluations among countries, as happened in the 1930s, with no country in theend becoming any better off.

Public subsidies for domestic producers. Again, this is not strictly an import controlmeasure, but it has the same effect of enhancing the competitive position of domesticallyproduced products over imports, and, also, if the resulting products are exported, theyundermine other countries’ exports. At the moment, one of the major grievances ofunderdeveloped countries, which cannot afford subsidies, is the extent that theiragricultural exports are being undermined by the huge subsidies given to farmers in therich countries.

to control imports

neo-liberal regime encourages to the disadvantage of everybody apart from the bigtransnational corporations.

When tariffs are deemed more appropriate and more efficient to administer, againthese should not be set at prohibitive levels, which, as in the case of highly restrictivequotas, would be self-defeating. For instance, tariffs on manufactured products fromless developed countries when exported to the advanced countries could be designedto offset partially the lower labour costs, but only up to a point. This would allowdomestic industries in the advanced countries, as well as imports from less developedcountries, to flourish, thus giving the latter a chance to diversify their exports. And countries with low incomes per capita, or other disadvantages – such as resourcepoverty, or being land-locked or a small island economy – could be alloweddispensations to charge higher than average tariffs.

In short, it would be beneficial to all concerned if tariffs, and other controls onimports, were applied according to an internationally agreed set of rules thatpromotes trade, rather than the opposite, and which strike a balance betweenremoving all restrictions on international trade as far as possible in the long run, andpreventing trade from undermining countries’ manufacturing industries, andtherefore the process of economic development, in the short run – especially inunderdeveloped countries, upon which the future expansion of world trade depends.Thus, it needs to be accepted that all countries, whether rich or poor, at different times,do need, and should have the right, to protect their economies from certain imports ifthey are having an adverse impact on their economies, and that poorer countries needthat kind of protection more than richer countries. Furthermore, it needs to beaccepted that governments are bound to have differing priorities, hopefully arrived atdemocratically, and that therefore a reasonable degree of flexibility needs to be builtinto international trade rules.

The easiest and most transparent way of achieving those aims would be to allow every country an average tariff or equivalent in some sort of proportion to itsGDP per capita, leaving it up to each country to decide how the tariffs were distributed.Less developed countries would have the higher levels of protection that they need, and they would be able to impose high tariffs on imports, such as luxury goods,or products being produced locally for the first time, offset by very low tariffs, orperhaps even subsidies, on imported technology needed to develop their economies.More developed countries, meanwhile, could use their much lower ‘allowances’ tolimit imports of products tending to undermine employment in certain sectors, givingenterprises a chance to adjust, cut costs, or diversify. Obviously, much detailed work isneeded before such a scheme could be put into practice – but that surely is what wepay economists at the World Trade Organisation and in governments to do.

A new Bill of Rights for employeesThe government should abandon its focus on making Britain an attractive place forcompanies to do business through so-called ‘flexible’ labour and anti-union labourlaws. This not only downgrades pay and working conditions, but also allowscompanies, at little cost to themselves, to close down businesses here and relocatethem elsewhere, mostly where wages, and therefore labour costs, are much lower. And it allows foreign companies to buy up British competitors in order to capture theirmarkets, and then run them down, before transferring production elsewhere. In anycase, from the research cited earlier, the evidence is that these pro big business, anti-union laws have contributed little towards encouraging investment in manufacturingindustry, either domestic or foreign, which supposedly are their aim.

Instead, new employment laws making it hard for companies to sack workers needto be introduced. An introductory measure would be to make it illegal for a profitablecompany to sack workers – unless, of course, trade unions negotiate sizeablecompensation packages agreeable to the workers involved. But, for the long term,following, say, a three-year probationary period, during which time workers would


receive training and their progress monitored, workers should expect to be offeredpermanent contracts until retirement age. Of course, workers’ performance could besubject to periodic peer reviews, and if, after several warnings, workers were found notto be pulling their weight, they could be forced to resign, or downgraded to lessdemanding duties. But the emphasis should be on helping workers to overcome anyproblems so that they can perform to the best of their ability. Such security ofemployment would also enhance innovation. The most likely source of new ideas in acompany – new product ideas, improvements in the production system that wouldraise quality or enable more efficient use of resources, and so on – is the workersthemselves. It is they who are at the frontline of production and sales. However,workers are unlikely to advance new ideas if they believed that it could lead to them, orsome of their colleagues, being made redundant. Finally, such laws would also forcecompanies to invest in diversification to enable workers displaced by advances intechnology, or products becoming obsolescent, to be redeployed in other productiveactivities within the company. All of these points were well illustrated during theheyday of the manufacturing boom in Japan, whose major companies operated a jobs-for-life policy.65

Note that with import controls in place, all the arguments about such lawsincreasing costs and reducing competitiveness with foreign imports would disappear.Furthermore, import controls would make it easier to raise substantially the minimumwage. Of course, this would still bring howls of protest from employers – backed byspurious arguments (as when the minimum wage was first launched) – who can onlysee it from their own narrow perspective. But if all firms pay higher wages, there isgreater economic demand, and therefore a bigger market for their products. Withoutimport controls, of course, higher wages would tend to suck in more imports at theexpense of local firms, but once in place, there is no such excuse.

New measures to deal with insolvencyThese new employment rights would need to be backed up by new laws on insolvencyin order to deal with the problem of company owners simply deciding to opt out of thenew labour laws by closing the business down and setting up elsewhere, as well as thatof firms genuinely becoming insolvent. First and foremost, a new state insolvencyagency should be established at central government and local government levels (to deal with businesses on multiple sites and single sites, respectively) to act asreceivers in place of the major accountancy firms, which currently perform thatfunction, and which invariably top-slice high fees at the expense of creditors.

Secondly, a new state insolvency bank should be established with a revolving fund,whose function would be to advance low cost loans to help re-establish failedbusinesses where possible, perhaps, in a new productive activity, aimed atmaintaining employment, making use of the skills of the workers involved. In manycases, the best option would be to convert such enterprises into worker-owned co-operatives, which would have the advantage that they would only have to coverworkers’ wages and the costs of inputs, equipment, maintenance, and marketing, andwould not have to generate the high returns demanded by outside shareholders orprivate capitalists.

Thirdly, new laws need to be introduced to require companies to make theiraccounts more transparent and available to workers and their advisors, and givingworkers the powers to prevent asset stripping, and companies being deliberately rundown, thus making insolvency less likely. This, together with other measures toimprove investment decisions, would be greatly assisted by requiring all companies,large and small, to establish a management board and a workers’ council. The functionof the management board – comprising representatives from shareholders, managers,trade unions, frontline workers, and, if a major employer in a particular locality,representatives from the local community – would, among other things, be to initiateand approve investment decisions. To preserve commercial confidentiality, these


need not be made public. The function of the workers’ council – which for small firmscould be the whole workforce, and for large firms comprising elected representativesfrom different sections – would be to act as a forum for workers to discuss issues ofconcern and make proposals for workers’ representatives to put before themanagement board.

An expanded role for the National Audit OfficeAt present, the National Audit Office has powers only to investigate the accounts ofcentral government departments and agencies (with the Audit Commissionperforming a similar role at local government level). Its role needs to be extendedto the auditing of the consolidated accounts of transnational corporations, andmajor domestic businesses with multiple subsidiaries. At present, this isperformed mainly by the big four accountancy firms. The trouble is theseaccountancy firms have major conflicts of interest in that at the same time as theyact as auditors, they collect large consultancy fees from the same companieswhose accounts they are auditing (the fees charged for auditing often acting as a‘loss leader’ to secure the more lucrative consultancy business). Moreover, a largepart of their consultancy business is helping transnational corporations tomanipulate their accounts among their large number of subsidiaries, includingaffiliates and holding companies in offshore tax havens, in order to avoid tax. The more successful they are in this regard, of course, the more this is at theexpense of other taxpayers, including competing businesses that do not have thefacility to avoid tax in these ways. Bringing the auditing of accounts of thetransnationals under the auspices of the National Audit Office – in effect,nationalising the auditing side of the big accountancy firms – would not only makeit more difficult for them to avoid tax, thus boosting government revenues, butalso would become an important source of income for the National Audit Office, sothat it would be better able to perform this important new role. The auditing ofaccounts of the large number of smaller, domestic companies could continue to becarried out by the smaller accountancy firms, as now.

A new campaign to abolish offshore tax havensThe existence of offshore tax havens arguably is the single most important factordistorting the world economy, and the way in which the capital created by theworld’s workers is utilised. First, of course, they deprive governments of taxrevenue, and therefore place a greater burden of tax on ordinary people andbusinesses that cannot avoid tax. Secondly, the large-scale tax avoidance thatoffshore tax havens encourage means that governments have reduced resources toinvest in public services, including education and training, transport infrastructureand utilities, upon which the health of an economy, and manufacturing industry inparticular, depend.

Thirdly, by allowing transnational corporations to store a large part of theirworldwide profits offshore gives them the power to invest those profits in the form ofaccumulated capital according to their own vested interests rather than in theinterests of the workers who created that capital in the first place. Moreover, moreoften than not, it means that investment is skewed away from where it is most neededfor developing a balanced economy and optimising economic growth, which mayrequire investment in areas that are not at all profitable, and therefore unattractive totransnational corporations.

In other words, allowing transnational corporations to make use of tax havens inthese ways deprives a government of its democratic right, acting on behalf of itsconstituents, to control the way in which the capital created by the country’s citizens isutilised. Indeed, as noted earlier, it was precisely the mushrooming of offshore taxhavens that was a major factor that undermined the capacity of governments tocontrol capital flows in the 1950s and 1960s, and therefore their ability to control


exchange rates and interest rates. This ultimately led to the demise of the economicpolicies that up to then had been performing remarkably successfully.

To be sure, the City of London, which is the world’s second biggest offshore taxhaven, would lose out if dealings with institutions based in such centres were madeillegal, and this could have an adverse impact on Britain’s economy. But if othermeasures as proposed here were implemented, this would be offset easily by astronger manufacturing sector, and an all-round, more healthy economy, becausecapital would be invested in the production and supply of real goods and services thatpeople and businesses need and want, instead of much of it being gambled away in theCity’s financial institutions, as now. Small island economies that had carved out aniche in offshore finance, which would lose out, could be compensated by theinternational community helping them to diversify.

The case for re-introducing capital controlsFirst and foremost, it should be the democratic right for any country to be able tocontrol what happens to the capital created by the labour of its workers, which is thesource of all capital. More particularly, if large amounts of capital are disappearingabroad, it is at the expense of investment in the country where it was created, thustending to slow economic development and undermine the establishment andexpansion of manufacturing. As noted earlier, Britain, currently, is the world’s largestnet exporter of capital, which is a major reason for the decline of our manufacturingindustry compared with other advanced countries. But, in proportion to the size oftheir economies, it is underdeveloped countries that suffer most from the loss ofcapital abroad, including that disguised through transfer pricing (underinvoicingexports and overinvoicing imports), which is largely why they remainunderdeveloped. And this, in turn, affects the economies of the advanced countriesbecause, as noted already, countries remaining underdeveloped means smallermarkets for our exports.

Note that capital controls are not the same as exchange controls.66 Capital controlsapply only to a country’s capital account, which deals with future claims through thetransfer of cash stocks or credit, and other financial assets, and the creation ofliabilities. Exchange controls apply to both a country’s capital account, and itscurrent account, which deals with payments and receipts for more or less immediatetransactions, mainly the export or import of goods or services, or currency forforeign travel.

As with import controls, capital controls do not necessarily mean a total ban on international capital transfers, but merely that they are kept under control. Capital controls may be restricted to particular kinds of assets, and can be appliedeither to outflows or inflows (especially to curb speculative inflows), or both at thesame time. And they may be in the form of quantitative restrictions, includingoutright bans of particular kinds of assets, or price-based controls, which seek toimpose costs on capital flows, perhaps in order to discriminate against one class ofassets in favour of another. Or they may be a combination of both. There are, ofcourse, pros and cons of these variations according to different circumstances, butthese are essentially a technical matter, and will not be discussed here.67 The mainpoint is to establish the principle of a government’s right to make use of capitalcontrols as it sees fit.

Finally, it should be re-emphasised that a prerequisite for introducing capitalcontrols is the abolition of offshore tax havens, and the opening up of the consolidatedaccounts of transnational corporations. Without those two things, it would be easy to get round capital controls, aided and abetted by the big accountancy firms, which have their bases in tax havens, including the City of London. Indeed, one of themajor reasons for the City becoming one of the world’s biggest tax havens forforeigners was the strengthening of capital controls by the United States governmentin the early 1960s, as US-based businesses sought ways round them. In short, the re-


introduction of capital controls ideally requires concerted action from all the majorcapitalist countries.

In fact, there have been some official stirrings that offshore tax havens and the lack of capital controls are causing major distortions, which could be fanned. For example, researchers at the Organisation for Economic Cooperation andDevelopment in the 1990s made a strong case for opening up tax havens, but,although some progress was made, their efforts were diluted considerably by themajor capitalist governments – a measure of the extent to which they are in thepockets of the big transnational corporations that benefit so much from theexistence of the tax havens. Furthermore, the 1997 crisis in East Asia, when it becameobvious that it was caused by the fickle movement of international capital seekingshort-term profits, led many economists and commentators previously sympatheticto neo-liberalism to backtrack, especially after the incompetent handling of thecrisis by the International Monetary Fund was exposed for all to see.68 And since1998, a major international organisation for the first time, namely the UnitedNations Conference on Trade and Development, has been calling for nationalcontrols on capital movements, and it has praised the IMF-defying strategy ofMalaysia, which succeeded in reviving its economy through lower interest ratesbehind a shield of capital controls.69

The need for capital controls for an independent monetary policyAnother major argument for restoring capital controls is that they enable agovernment to operate an independent monetary policy. For example, without capitalcontrols, if a government chooses to lower interest rates in order to stimulateinvestment, capital will tend to move out to other countries offering higher interestrates, at the expense of investment. However, with capital controls in place, this allowsgovernments to maintain differential interest rates and credit controls to favourinvestment in particular productive areas, especially, perhaps, directed towardsbottlenecks that need opening up to create a more balanced economy.

The role of capital controls in the stabilisation of exchange ratesCapital controls are also needed to protect a country’s currency from speculativeattacks and exchange rate volatility. At present, the current free market system offloating exchange rates, which sometimes give rise to wild fluctuations, tends todiscourage international trade because of the uncertainty of how the prices of exportsor imports might be affected between the time contracts are placed and when they arefulfilled. At present, in order to protect themselves, international traders have toengage in costly hedging operations through currency dealers and the like (who, ofcourse, thrive on the uncertainty, and do much to create it). This has an adverse effecton trade because it makes imports and exports more expensive than they otherwisewould be.

In addition, once governments are in a position to control exchange rates, they canbe managed to achieve other objectives. For example, in order to encourage exports, acountry can opt for a lower exchange rate, which will also discourage imports in favourof domestically produced products. Alternatively, perhaps to control inflation, acountry can opt for a higher exchange rate, which would make imports cheaper.However, a problem in the past when governments have had control of exchange rates,especially in less developed countries, has been that they were often subject topowerful political pressures – in particular, directed towards keeping importsdemanded by the elite, including imported inputs for industries, cheap, or, if a countrywas heavily dependent on imports, as a means to control inflation – so that currenciesoften became exceedingly overvalued. This distorted investment away from domesticproduction, and generally the direction in which economies were going. In general,the best advice is for exchange rates to be determined by technical criteria, aimed atkeeping the purchasing power of a country’s currencies more or less in line, on


average, with that of other currencies, and to use other devices such as importcontrols, or production subsidies, to influence investment decisions, or controlinflation, or whatever. In any case, as pointed out earlier, the manipulation ofexchange rates by governments has its limitations because it may invite retaliation,thus defeating the object.

In the long run, exchange rates need to be subject to internationally agreed rules andregulations – preferably coinciding with the introduction of a new internationalcurrency unit independent of any country or group of countries for the purposes forinternational trade. This was what was originally proposed by John Maynard Keynes,when the International Monetary Fund was being set-up in 1944, but it was opposedby the United States government.

Tax and subsidy policiesAs discussed earlier, government aid has been used many times in an attempt toboost manufacturing industries. More often than not, it has been used by companiesto invest in things that they would have had to undertake anyway, rather than boostjobs in manufacturing. On occasion, it merely allowed companies to invest moreabroad than otherwise. Furthermore, the expectation of aid being made availablehas been used by companies to blackmail governments, with the threat that theywould invest elsewhere if aid were not forthcoming. Meanwhile, the trouble inBritain with all such aid has been that the government has had virtually no controlon what the company did with it. The very least one should expect is that the aidwould be in the form of shares in which the government – that is taxpayers – get areturn on the investment, and that government appointees on the board of directorswould have the power of veto on how the money was spent. In addition, one wouldexpect the government to require companies – perhaps in confidence forcommercial reasons – to make their accounts, including those of their overseasoperations, available for inspection before any monies were advanced. But evenwith such aid being made available – which, in any case, has severe restrictionsunder EU legislation – there is no reason to suppose that it will persuade Britishcapitalists to invest in British manufacturing if more profitable opportunities existabroad. In other words, all the measures discussed so far need to be in place beforegovernment aid, including tax breaks, can play a significant role in rescuing Britain’smanufacturing industries. One way for the government to raise finance and directinvestment towards where it is most needed for the benefit of the economy as awhole, including the boosting of exports, would be to raise the rate of tax on profits(that is, corporation tax) to, say, 50 per cent, and give rebates and subsidies tocompanies in productive areas that need boosting for the benefit of manufacturingindustry, and the economy, as a whole.

The case for extending the public sector In many cases, public ownership of certain industries would better serve the interestsof manufacturing, as well as the public interest in general. The most obvious are publictransport and the utilities, at least their infrastructure.70 Since privatisation, theseindustries in particular have been starved of much-needed investment in order toensure high rates of return for their shareholders. And, as noted previously, many havesquandered large amounts of capital, and management time, on what turned out to bemajor loss-making acquisitions abroad, often egged on by asset managers andinvestment banks earning large fees in the process.

In the past, there has been huge propaganda in Britain against publicly ownedindustries, which have been accused of inefficiency and low productivity. But this islargely a myth. Academic studies have shown that in terms of output per worker, therewas no difference in productivity before and after privatisation, or, previously,between privatised industries in the United States and their publicly ownedequivalents in Britain.71 And when wider benefits are taken into account, for both


service users and workers, publicly owned industries have been found to be moreefficient by a considerable margin. The losses and supposed inefficiencies of publiclyowned industries were essentially artificial, because governments used their powerover them to restrict prices to combat inflation, and to provide cheap power, transport,coal and steel to private industries.72 Thus, the real subsidies were from the publicsector to the private sector. In short, there is a strong case for bringing large parts ofthose essential industries back into the public sector so that they can better serve theinterests of manufacturing industry as a whole, preferably before they are completelyrun into the ground by privateers.

Publicly owned industries have also provided the basis for stable long-terminvestment in equipment, research and labour skills – at least relatively speakingcompared with the private sector today.73 For example, the most productiveperiod of some of Britain’s shipyards was in the 1970s, when they were publiclyowned. Since then shipbuilding in Britain, once the champion of the world(which as a maritime nation it should be) has now all but disappeared. Another example is the revolutionary RB211 turbine developed by Rolls Royceafter it had been nationalised by a Tory government in 1972. Moreover, on thewhole, the old publicly owned industries tended to be run professionally byhighly qualified and experienced technical experts. A major cause of the Railtrackdisaster, for example, was its decision to sack most of the technically qualifiedmanagers and replace them with accountants who knew nothing about running arailway. This indeed is a major problem for manufacturing industries in Britain ingeneral – the extent to which they are run by accountants that move from onecompany to another rather than engineers and technical specialists who know inside out the production process and the markets for their products. In thecase of Railtrack, it led to the outsourcing of maintenance and construction tocompanies with little experience of rail work and an ill-trained workforce. Only now, following what amounts to the re-nationalisation of Railtrack, nowNetwork Rail, has a programme of apprenticeships been introduced after tenyears of neglect following privatisation.74

Finally, as mentioned earlier, state involvement in manufacturing in the futureshould be extended to taking over insolvent manufacturers (and, over time, otherbusinesses) so that they can be re-established as worker-owned co-operatives, whichcan be run more efficiently, among other reasons, because they do not have togenerate the high rates of return demanded by outside shareholders or privatecapitalist owners.

The role of the Department of Trade and Industry The Department of Trade and Industry (DTI) has the potential of playing a key role inthe regeneration of Britain’s manufacturing industry, especially channelling resourcesinto the development of industries at the top end of technology, orientated towardsproducing high value products needed for the future. The energy sector is an obviousexample, perhaps directed towards harnessing the sun’s energy more cost-effectively,such as developing cheaper materials for photovoltaic cells, or developingbiotechnology industries for generating hydrogen. Is it possible that at last the DTImight be getting the message? In August 2004, it announced grants totalling £18 million for research into nanotechnology – the science of manipulating minuteparticles – which will be shared by some 25 schemes ranging from anti-corrosioncoatings to water purification, covering up to 50 per cent of costs.75 But this is a drop inthe ocean compared with what is needed.

Another important role the DTI could play would be to help wean armamentsmanufacturers away from producing their instruments of death towards things thatare more useful to humanity. At present, 12 per cent of research and developmentexpenditure by companies in Britain goes on aerospace and defence, which meansmostly armaments, and reflects the continuing imperialistic orientation of the present


government. In the world as a whole, only 4 per cent of expenditure on research anddevelopment on average is in this area.76 The leading area of research and developmentexpenditure by companies in Britain was pharmaceuticals and biotechnology, whichaccounted for 40 per cent. But to a considerable extent, this high figure reflects the lackof expenditure on research and development in other important sectors. In the worldas a whole, the top three areas of research and development, each accounting for 18-19per cent of expenditure, were IT hardware, automotive, and pharmaceuticals andbiotechnology.

The DTI needs to emulate (not necessarily copy) the famous Japanese Ministry ofTrade and Industry (MITI), which, in its heyday, was responsible for transformingJapan into one of the most technologically advanced industrial economies in theworld.77 For example, MITI scoured the world for the most recent scientific andtechnological developments, and systematically made the information available toJapanese companies. Secondly, MITI invested in a wide-range of research anddevelopment activities, which Japanese companies, through membership ofresearch clubs, were required to help finance, and from which they benefited,though the consensus is that this was a little uneven, thriving in some areas and insome periods, and less so at other times.78 This was because the leading companieswere already heavily engaged in research and development on their own account,but often the activities acted as an incentive for companies to embark on researchand development in a new area. MITI also played a major role in many other areasthat gave Japanese manufacturing industries the edge over industries in othercountries. Unfortunately, during the 1980s, the Japanese government allowed thefinancial sector to get out of control, which produced a huge bubble of speculationin shares and property (as well as more arcane things such as golf clubmemberships). 79 That is why, over the past dozen years since the bubble burst, itseconomy has been in the doldrums – though its main industries are still thrivingreasonably well considering the circumstances.

At present, the DTI in Britain is hampered by all the factors discussed earlier thatmilitate against manufacturing in Britain. For example, if effective capital controlswere in place, companies would have a greater incentive to invest in research anddevelopment, because it would be less easy to make money through the export of capital. And any resources the DTI directed towards companies in support ofresearch and development activities in particular areas would more likely benefitthe British economy, because it would be less fungible – companies would be lessable to use it to offset foreign investment abroad. Furthermore, if less capital wasdisappearing abroad, so that there would be fewer opportunities to avoid tax, thegovernment would have more resources available, among other things, forsponsoring research and development – in public research institutes, universitiesand joint ventures with associations of manufacturers in particular product areas.Once our economy was more focussed on manufacturing, associations ofmanufacturers could play a much bigger role, as they do in Germany,80 working outwhat sort of generic or near-market research is needed to improve theirproductivity or help diversification, so that funds forthcoming from thegovernment would be distributed more effectively. The same network ofmanufacturers’ associations could be used to develop a more effective trainingstructure, again along the lines of Germany, as described earlier. At the moment,what support the DTI does give to manufacturing, according to a survey conductedthe Engineering and Machinery Alliance – which brings together over 4,000companies in nine manufacturing trade associations – is undermined by the‘negative attitudes of the Treasury towards manufacturing’, and high interest rates.81

The same survey also revealed an excessive amount of bureaucracy, with manyoverlapping schemes that made it difficult for small companies to work out whichones in theory could help, all of which reflects the whole lack of a coherent policytowards manufacturing on the part of the government.


6. What trade unions should be doing

Trade unions need to focus on what they are best able to do – that is defendingworkers’ interests, and organising collective and solidarity actions to achievelimited objectives, but which add to other pressures for changes in policy that can

enhance manufacturing, and economic development in general.

The campaign against anti-trade union lawsFirst, trade unions, through the TUC, need to toughen up their campaign againstour anti-trade union laws not only because it is a matter of basic human rights, butalso because it would make it more difficult to close down plants and transfer themelsewhere, and therefore benefit the British economy. This government, nominallyfrom the political party specifically established by trade unions to representworkers’ interests, should have repealed the anti-union measures, as they saidthey would, long ago. Now that they are clearly in the pockets of big business,perhaps it is time to organise industrial action of the type used in the 1970s to putpressure on right wing governments. Formally, of course, under those very anti-union laws, such action would be illegal. But it has to be remembered that thewhole history of trade unionism the world over is littered with examples of tradeunionists having to break the law in order to gain recognition and extend workers’rights. Meanwhile, a natural progression to stepping up action to get these anti-union laws repealed would be the campaign for a new Bill of Rights for employees,and a completely new set of employment laws, as outlined previously. This wouldgive workers proper job security, and a greater say in how enterprises weremanaged. This, in fact, as noted already, is a prerequisite for workers and tradeunionists to become more of a resource for improving productivity andencouraging diversification – which is what manufacturing in Britain needs –because there would no longer be the concern that any suggestions would puttheir, or their colleagues’, jobs in jeopardy.

The campaign to enforce international labour standardsNext, trade unions need to step up their campaign on behalf of the millions ofworkers not organised in trade unions, first and foremost, of course, here inBritain. This is partly a matter of recruitment, because the more that workers canbe drawn into the trade union movement, the more resources there will be, bothhuman and financial, to defend workers’ interests everywhere, and to campaignfor alternative policies. But the trade union movement should also be seen to becampaigning on behalf of all workers, irrespective of whether they are members oftrade unions, which might be for some very understandable reasons. But equallyimportant, if not more so, working through the international trade unionmovement, both formally and informally, is the need to step up the campaign fortrade union recognition and rights in the rest of the world, especially inunderdeveloped countries, where workers are in extremely weak bargainingpositions. This applies even more in countries where, in defiance of theInternational Labour Organisation to which most governments are signed up,belonging to a trade union is illegal or otherwise made impossible throughintimidation and so on. This is not just a matter of justice and human rights. It is inour vested interests in the advanced countries, because the more the bargainingposition of workers in underdeveloped countries can be improved, thus pushingup their pay, the less this will undermine our productive activities, and the morethis will create new economic demand, and therefore investment andemployment, and economic growth in general, in those countries, which is whatwe need to expand markets in these countries for our exports.

Trade unionists in Britain and elsewhere also need to do much more to bring


together workers worldwide employed by the same transnational corporation sothat it is less possible for them to be played off one against another. This would implysome opening up of the internal accounting mechanisms of transnationals. Thus, trade unionists have a vested interest in the campaign in Britain for anexpanded National Audit Office to become involved in the auditing of theconsolidated accounts of British-based transnationals instead of the big fouraccountancy firms. As noted previously, these have a vested interest in pandering tothe demands of transnational corporations to manipulate their accounts – makinguse of obscure holding companies and the like based in offshore tax havens in orderto avoid tax and other regulations – because of the high consultancy fees they cancharge for other services on behalf of the corporations. This could become part ofthe campaign to get offshore tax havens abolished, in which trade unions couldfocus on the issue of transnationals making use of them for ‘creative accounting’ tokeep down workers’ wages.

The need for more sophisticated support structures for trade unionistsAnother major need is for the TUC and individual trade unions at national level todevelop a more sophisticated support structure for their leaders and members atenterprise level. First, in order to be better able to defend their jobs and workingconditions, workers need to be helped and encouraged to gain a betterunderstanding of how their enterprises or workplaces are performing in relation tothe ever-changing worldwide economic environment in which they operate. This could be facilitated by organising training seminars and briefing sessions forshop stewards and other trade unionists on the tactics of gleaning information frommanagers at different levels, and using the pooled knowledge of workers in differentparts of the production process, including marketing, and in different plantsbelonging to the same company. This could perhaps be reinforced by more generalseminars that examine the economic situation for particular industrial sectors. This would put workers in a stronger position to confront or pre-empt managementattempts to undermine working conditions, pay, and employment – or, indeed, theenterprise itself, if their employer’s ultimate aim is to close it down in order to transferproduction elsewhere.

This approach, of course, is quite opposite to that embodied in the notion of‘partnership’ that was, and perhaps still is, in vogue in some parts of the trade unionmovement, which increasingly is being shown to be a fool’s paradise. As long as abusiness is doing reasonably well, employers and managers quite happily go alongpaying lip-service to it. But when the crunch comes, it goes straight out of thewindow without a second thought, and the true antagonistic class character of the relationship between workers and management comes to the fore. This couldnot be illustrated better than by the case of Sony in South Wales, discussed earlier. At one time, the firm was held up as a model of ‘partnership’ in action. But when thedecision came from on high – that is the top managers in Japan – to close down the television plant, and concentrate production in Slovakia and Spain, ‘partnership’was shown to be worthless. The workers were gob-smacked. They should never havebeen led up the garden path of ‘partnership’. Instead, they should have been helpedto gain a better knowledge of their plant’s finances, and Sony’s worldwideoperations, so that they would have been in a position to defend their livelihoodsmuch earlier on, when they might have been able to insist on the plant investing indiversification immediately when the decline in demand for traditional televisionsfirst became apparent.

Over the last decade or two, there must have been hundreds of instances when, ifsuch a structure had been in place, workers would have been in a much better positionto defend their livelihoods, and kept workplaces open that have since closed.Furthermore, the huge amount of information that would accumulate from suchactivities and from feedback from workers involved in actual confrontations or during


training or briefing sessions would provide wide-ranging information to fuelcampaigns to protect jobs in particular industries or regions.

Worker takeovers as a strategy for keeping work places open A second major role for this proposed support structure could be to help workerswhen faced with closure of their plant or whatever, to keep their enterprisesrunning as worker-owned co-operatives. The ultimate goal would be for a newlaw to be introduced to make it illegal to close down profitable, or potentiallyprofitable enterprises, with workers having the automatic right to take over theirenterprise if threatened with closure. In the meantime, no doubt, more directaction would be required, including occupation of the premises to prevent assetstripping. This is not an easy option, but if the workers involved are up for it, theywill need all the support that they can get – from the local community, from thetrade union movement, both locally, and nationally, local politicians and so on.Organisation of such wide-ranging support would be greatly facilitated if a localtrade union support structure were already in place. Moreover, if workers win theright to run the plant for themselves, they would almost invariably need thatsupport all the more. They are likely to need help in identifying where to go forsuch things as financial and legal advice, and the recruitment of financial ortechnical experts to help manage the enterprise, and so on, upon which its futuresuccess would likely depend. The way things are going at the moment in Britain asfar as manufacturing is concerned suggests that workers in more and moreenterprises are going to have to take such steps if they are to retain their jobs,livelihoods and skills, especially if Britain’s economy, and, indeed, the globaleconomy, deteriorate, as seems likely.

There are lessons here from Argentina, when capital flight and currency devaluationunleashed economic depression at the end of 2001, which led to thousands of failingbusinesses or businesses abandoned by their owners. But by mid-2004, over 200 ofthese in various parts of the country were occupied by workers and re-opened asworker-owned co-operatives, employing some 15,000 workers. The co-operativesranged from a fast-food outlet, now Nubecoop, in the main bus station of Rosario, to arefrigerator factory in Tierra del Fuego, schools in Buenos Aires, an auto-parts factoryin the city’s suburbs, a newspaper in the city of Córdoba and the largest ceramicsfactory in South America in Zanón, Patagonia. Almost all of these co-operatives werethe end result of struggle, with workers often living in their bankrupt businesspremises to resist eviction and lawsuits from the former owners. They faced all mannerof roadblocks to stop them formalising their co-operatives and getting them up andrunning. Their main support came from the National Movement of RecoveredBusinesses. The legal battle was often the most ferocious and the most important.Although the occupations had popular legitimacy, it is legal expropriation that givesthem the protection. One of the main tacks of the movement’s lawyers in bankruptcyproceedings has been to make the case for the workers as ‘priority creditors’ – they areoften owed hundreds of thousands of pesos in back pay. With 20 per centunemployment, and widespread public fury with politicians, city and provinciallegislatures frequently found this a convincing argument. Thus, in case after case,legislation handed failed businesses over to the newly formed co-operatives.82

One of the most successful worker takeovers in Britain was that of Tower Collieryin South Wales in 1994, following the onslaught against the British coal miningindustry by the Tory government under Margaret Thatcher. The remarkable story,which is summarised in Box 2, gives a valuable insight into what is involved in aworkers’ takeover, and its recipe for success.83 As will be seen, it received supportfrom some surprising quarters, but notably absent was support from the tradeunion movement at national level, and from the co-operative movement. If we areserious about protecting our industries and workers whose livelihoods are underthreat, this must change.



This did not involve an occupation, though a local MP,Ann Clwyd,demonstrated her supportfor the miners, by bravely staging a 27-hour sit-in deep down the pit until the managerstricked her into believing that they had made some kind of an offer to the miners.The pit wasto have been closed down along with hundreds of others in Britain as part of the Torygovernment’s strategy to privatise the industry.Miners were having to accept new contractstypically with 30 per cent less wages coupled with 30 per cent higher output targets. Pitsdeemed insufficiently profitable to attract privateers even under those conditions weresimply run down and closed, including many that only ten years previously had been declaredto have a productive life of 100 years.At Tower, as in other pits earmarked for closure, thelocal managers did all in their power to paint a negative picture and coerce mineworkersinto accepting early retirement.They ran production down from 960,000 tonnes in 1992 to330,000 tonnes two years later to make it look as if the pit was running out of coal.They saidthat the coalface was gassy with a high level of methane that affected production and safety,and that the pit had geological flaws.And they said that there was no market for the highquality anthracite that the pit produced. However, the mineworkers knew different.Theyknew that there was plenty of coal, and that there was a market for it.

Led by Tyrone O’Sullivan, NUM branch secretary for 22 years, the 239 mineworkersstood up to the managers trying to force them out of their jobs, in spite of various dirtytricks and bribes from state-owned British Coal, and they eventually bought the mine outof their redundancy money. The mineworkers drew support from some surprisingquarters.After being turned down by other banks, including the Co-operative Bank, theyobtained a £2 million loan from Barclays. In the event, only part was used, and it was all paidback within a year. Price Waterhouse, ironically the accountancy firm that the governmenthad used to sequester NUM funds during the strike, agreed to act as financial adviser, theirfees dependent on the success of the bid. And John Redwood, MP, Welsh Secretary,normally considered way out on the right, supported them at Cabinet level. Lastly, and notleast, they got important support from the Wales Co-operative Development and TrainingCentre. But the miners received no support, if not outright hostility, from the managers ofwhat was after all a publicly owned industry. In short, they had to be pragmatic on whom toturn to for support.

Now, ten years on, the worker-owners are still running the mine, at a profit, havingdoubled production since they took over. They have contracts to supply coal to powerstations, over a hundred local schools and other public buildings, and for domestic use, notonly in Wales, but also in Belgium,France, and Spain.They have formed a joint venture with aheating engineering company, offering total energy packages of fuel supply, heatingequipment, installation and maintenance.And they have installed a system for capturing themethane from the mine, which is used to generate on-site electricity sufficient for theirentire needs. None of these initiatives would have been possible under British Coal, which,like the rest of British industry, had always been run along hierarchical lines by supposedprofessional managers who treated any ideas coming from workers with utter contempt.

In addition, as often in mining, there have been mishaps to deal with. On one occasion,following an earth tremor, large amounts of methane entered the mine.This was eventuallypumped out using four miles of domestic pipe bought from all over the country to preventlocal prices escalating. The mine was out of operation for three months, but they stillmanaged to fulfil contracts out of their stockpiles. On another occasion, the coalfacecollapsed, burying their £1 million cutting machine. In the old days this might have meantclosure of the mine. However, the miners devised a way of digging it out and getting itworking again, thus saving the mine and their livelihoods. Finally, it should be noted that thesuccess of Tower has benefited the local economy by an estimated £10 million, employingpeople in the supply of inputs and as a result of miners spending their wages.

Box 2: Workers’takeover at Tower Colliery

7. Conclusion and Summary

This pamphlet, hopefully, makes a powerful case for supporting manufacturingindustry in Britain, upon which our whole future welfare depends. Ten majorreasons for the decline of manufacturing in Britain are identified. All are a

consequence of, or are exacerbated by, the prevailing neo-liberal agenda that has beenfoisted onto the world by the major capitalist governments, on behalf of big businessand the world’s giant transnational corporations. This agenda, and the worldwidetrends to which it has given rise, have adversely affected the manufacturing sectors ofall the advanced countries to a greater or lesser extent, but Britain’s has suffered themost. This is related to the institutional structures that have evolved in Britain as aresult of its imperialist past, which has led to a tendency for the capital generated byworkers, and appropriated by the various capitalist institutions, to be invested abroadat the expense of the domestic economy, especially manufacturing. Meanwhile, thereturns from the investment abroad coming back to Britain remain largely withinthose same capitalist institutions, giving rise to a bloated financial sector that has adisproportionate influence on government policies that tend to discriminate againstinvestment in manufacturing. In order to halt the decline of Britain’s manufacturingindustry, therefore, this dominance of the financial sector has to be challenged.

A major priority eventually must be to restore controls on capital outflows, thus toensure that more capital can be made available for investment in manufacturing, andin the domestic economy as a whole. However, as long as big business and thetransnational corporations are free to make use of the secret world of offshore taxhavens – through which some say half the world’s money passes – such controls areeasily bypassed. In other words, for the re-introduction of capital controls to have anymeaning, these offshore financial centres will have to be opened up, and their money-laundering activities declared illegal. This will require the concerted action of thegovernments of all the major economies. In fact, abolition of these tax havens shouldbe in the vested interests of governments everywhere because of the considerable lossof taxation revenue to which they give rise. It should therefore be possible, through aconcerted campaign by the international trade union movement and otherprogressive forces, to make some headway on this issue. Indeed, recently someinternationally agreed restrictions have been imposed on these centres, but thesemainly affect wealthy individuals aiming to avoid tax, leaving the money-launderingactivities of transnational corporations largely untouched. It is a priority to tackle thisissue, because as long as these offshore financial centres are allowed to operate inthese ways, no government will have democratic control over the capital created by thelabour of the country’s citizens on whose behalf it is supposed to be acting.

Meanwhile, there are a number of other measures that a progressive government inBritain could take to protect and support manufacturing industries. First andforemost, must be to repeal the Tory anti-trade union laws. This would make it moredifficult, or more costly, for transnationals to close down plants here and relocateproduction elsewhere. In addition, a new law should be introduced making it illegalfor profitable companies to sack workers. Ideally, it would be part of a new Bill of Rightsfor employees, ultimately leading to life-time contracts, and higher levels ofconsultation and involvement in firms’ decision-making processes. This wouldstimulate innovation and diversification, which is what manufacturing needs.

Transnationals could get round these changes by deliberately running down plants inBritain, depriving them of investment, so that they become insolvent, meanwhileinvesting in plants elsewhere where they stand to make more profit. Indeed, this isalready going on. One way of pre-empting this would be to require the consolidatedaccounts of transnational corporations in Britain to be audited by an expanded NationalAudit Office, instead of by one or other of the big accountancy firms. At present, thesefirms have a vested interest in colluding with transnational corporations whose


accounts they audit in order to secure lucrative consultancy contracts later. Ending thisconflict of interest would not only make it harder for the transnational corporations tomanipulate the financial transactions among their innumerable subsidiaries to themaximum advantage of the corporation as a whole, at the expense of workers inparticular plants, but also make it harder for them to avoid tax.

A second important measure would be to introduce a new set of insolvency laws andprocedures, ideally with new government and local authority agencies speciallycreated for the purpose, again taking over from the big accountancy firms thatcurrently are responsible, which often collect large fees at the expense of creditors.Where appropriate, this could be extended by such agencies having the power andfinancial resources to take over insolvent concerns, and prepare them for selling on tothe workforce to re-start as worker-owned co-operatives. These have the advantage,among other things, that they do not have to generate the high returns demanded byoutside shareholders or private owners. In some cases, it might be more appropriate,following such a takeover, to retain them as publicly owned companies.

Since these measures would require a progressive government coming to power, forthe time being they are essentially campaigning issues with the object of getting themadopted as policy for inclusion in election manifestos. In the meantime, workers inplants under threat, and in general, in order to protect their livelihoods, must becomemore vigilant about their employers’ transactions in order to pre-empt the runningdown of their workplaces. In addition, it would be useful to build-up a communicationnetwork to liaise with their counterparts in other plants owned by the same companyboth in Britain and abroad. Workers in the different plants would then be in a strongerposition to help one another, facilitating various kinds of solidarity actions, whenrequired. A further measure would be to have in place contingency plans in the eventof employers suddenly announcing the closure of a plant, including, whenappropriate, occupation of the plant in order to prevent asset stripping, and with theaim eventually of getting the plant operational again as a worker-owned co-operativeor publicly owned enterprise.

Trade unions need to set up a support structure to help workers in these activities.This should include training schemes for shop stewards and local trade union leaders,so that they know what to look out for, and to help them with contingency plans. And trade unions should establish a special department concerned with occupationsso that they can give workers practical support, such as legal and financial advice.Furthermore, trade unions should use their international connections to help workersset up systems of communication with workers worldwide in the same transnationalcorporation. This same network could be used in the campaign to enforceinternational labour standards, which, is not just a human rights issue, but also amatter of economics. That is because if workers worldwide are better paid, there willbe bigger markets for their products, thus stimulating investment and employment intheir production and supply, which would further expand markets, and so on. In thelight of experience, all this, arguably, is a more realistic approach than that of‘partnership’ between trade unions and employers, which has been championed bysome elements in the trade union movement.

Turning to another important issue, since the early 1980s, manufacturing industriesin Britain, as in other advanced countries, have been undermined by cheap importsfrom countries utilising more or less similar technologies, but where labour costs are afraction of what they are in the advanced countries. This applies not only to massconsumer products, but also, less conspicuously to a large range of standardisedindustrial components and other inputs for incorporating into final products – such asindustrial machinery, motor vehicles, electronic products, and so on – which makethem cheaper than they otherwise would be. Up to a point this benefits our economy.First, we have more to spend on other goods and services, which stimulatesinvestment and employment in their production and supply. Secondly, the newindustries established in the exporting countries generate foreign revenue, and help


develop their economies and raise incomes, which provide an expanding market forour exports.

However, as long as current neo-liberal policies prevail, these beneficial effects areunsustainable. First, because of underinvoicing exports and transfer pricing scams,the prices these less developed countries receive for their exports are often a fractionof the prices paid by final consumers in the advanced countries, so that the bulk of theprofit from the manufacture of these products ends up abroad, mainly in the coffers ofthe transnational corporations via offshore tax havens. In other words, they are notavailable for re-investment in the exporting countries whose workers actually createthose profits, so that their economies grow far more slowly than they otherwise would.Apart from the injustice of people remaining poor as a result, this also means thatthese countries can only provide a much-reduced market for our exports.

Secondly, the wider the range, and the higher the level of sophistication of the products manufactured in cheap labour countries that are imported into theadvanced countries, the more this undermines what remains of manufacturingindustry in the advanced countries. And the more this has an adverse impact on theeconomies of the advanced countries, leading to higher levels of unemployment, the less these countries will be able to provide a market for the products from thecheap labour countries.

In short, both groups of countries would benefit in the long run if imports ofmanufactured goods from less developed countries were regulated, either throughquotas or tariffs, to allow a certain amount in, but without swamping the market. Lessdeveloped countries would earn the foreign exchange needed for their imports,without it undermining too much the economies of their main markets in theadvanced countries. In addition, less developed countries could earn much more ifthey were helped to do something about the large-scale appropriation of profits fromtheir countries by the big transnational corporations. Meanwhile, less developedcountries also need to control their imports to favour items such as equipment thatcould help to develop their economies, rather than luxury consumer goods thatbenefit only the elite. Ideally, a new international trade policy needs to be negotiatedthat allows all countries to control their imports up to a point, with less developedcountries being given greater leeway, in relation to their GDP per capita, and takingother disadvantages into account.

In the meantime, various arrangements for specific products could be negotiatedalong the lines of the long-standing, but recently abolished, Multi-Fibre Arrangement,in which the imports of textiles and clothing from each of the less developed exportingcountries were subject to a quota. This benefited both the advanced and the lessdeveloped countries, and especially the least developed countries. It is only since theabolition of the Multi-Fibre Arrangement, in line with the prevailing neo-liberalagenda, and the chaos caused when, after only three months, the United States andthe EU were hurriedly forced to re-introduce quotas on an ad hoc basis, that thebenefits of the Multi-Fibre Arrangement began to be recognised. This surelystrengthens the argument for negotiating a new Multi-Fibre Arrangement, andextending such a scheme to other product areas, including primary commodities,using tariffs or quotas as appropriate, which would be of particular benefit to the leastdeveloped countries. If this could be achieved, it would begin to undermine the wholeneo-liberal agenda that is causing so much damage to the global economy – andhuman suffering due to its adverse effect on the poor – paving the way towards a morerational approach to solving the world’s economic problems.

Once some progress had been made on the implementation of these variousmeasures to defend manufacturing industries, policies for supporting manufacturingcould become more effective. For instance, a system of taxes and subsidies could beintroduced to favour investment in particular manufacturing sectors that open upbottlenecks or are likely to benefit the economy in other ways, or which favourparticular regions that are relatively underdeveloped or suffer from high


unemployment. In some cases, major public investment may be required to overcomeconstraints and ‘market failures’. This should take the form of equity stakes, withrepresentatives of the public’s interest being appointed to the board of directors, toensure that ultimately taxpayers benefit from such investments – unlike now whenthere is no control on how companies receiving government aid spend the money. Inother cases, it may be in the public interest and more efficient for industries to bewholly publicly owned. This particularly applies to the utilities and public transport,and to arms manufacturers, so that their technical expertise can be shifted towardscivilian research and development, and the manufacture of products of benefit tohumanity rather than the reverse.

Finally, the government’s Department of Trade and Industry could play a muchbigger role in the revival of Britain’s manufacturing industry. First, it should monitor,and act as a clearinghouse and database of technical and scientific developmentstaking place around the world, making such information available to the specificindustries to which they apply. Second, it should sponsor on a much larger scalescientific research in universities and specialist research institutes, and generic andnear-market research and development activities in specific areas where needed,preferably through a network of associations of manufacturers in the variousmanufacturing sectors, which could be expected to jointly fund such activities. And third, through the same network, it could promote a system of training andaccreditation of apprentices, technicians, engineers and applied scientists, and so on,to ensure that industries have a sufficient supply of technical expertise to draw on.

All the measures proposed in this pamphlet for halting the decline of Britain’smanufacturing industry more or less challenge the prevailing neo-liberal agenda andthe policies of the European Union, which nominally would render them ‘illegal’. Butall countries are suffering to a greater or lesser extent, so these institutions need to bechallenged. Why shouldn’t Britain, the world’s fourth largest economy, take the lead? Itsurely would not be long before the world’s other major economies, that are alsosuffering, would come on board. And it would pave the way for a new world economicorder that is so desperately needed, so that once again democratically electedgovernments can be in control of their countries’ economic policies.

END


Summary of main proposals

Immediate goals■ Repeal the Tory anti-trade union laws■ Campaign to abolish offshore tax havens■ Negotiate a new Multi-Fibre Arrangement and extend such an arrangement

to other major manufactures and primary products■ Require transnational corporations in Britain to have their accounts

audited by an expanded National Audit Office■ Introduce new insolvency laws and procedures and establish a new

government agency to facilitate worker takeovers of insolvent businesses■ Strengthen the International Department of the TUC to facilitate

communication between workers employed by the same transnationalworldwide and the enforcement of international labour standards

■ Establish a new department within the TUC to facilitate worker takeovers ofworkplaces threatened with closure

■ Bring arms manufacturers under public ownership to facilitate conversioninto civilian research and development, and production

Longer-term goals■ Re-introduce capital controls■ Introduce a new Bill of Rights for employees■ Negotiate a new international trade policy that promotes trade without

undermining countries’ economies■ Expand the role of the Department of Trade and Industry enabling it to

support manufacturing at every level■ Abolish the European Union, and turn it into a European Association for

Co-operation and Development■ Move towards an economy based mainly on common ownership, including

publicly owned enterprises and worker-owned co-operatives


Notes1 ‘Manufacturing leads slide as industrial output hits nine-year low’, Financial Times,

10 May 2005; ‘Economy growing at slowest rate for 12 years with industry inrecession’, Financial Times, 23-24 July 2005; ‘Data offer little hope of manufacturingrecovery’, Financial Times, 2 August 2005; ‘Business and financial services eclipsemanufacturing’, Financial Times, 20-21 August 2005.

2 Labour Force Surveys, Office for National Statistics.3 World Bank, World Development Report 1980, Washington, 1980; World Bank, 2004

World Development Indicators, Washington, 2004.4 Richard Brooks and Peter Robinson, Manufacturing in the UK, Institute for Public

Policy Research, London, 2003; p. 19. [Data from Eurostat and the EngineeringEmployers’ Federation.]

5 Peter A. Hall and David Soskice (eds), Varieties of Capitalism: The InstitutionalFoundations of Comparative Advantage, Oxford University Press, Oxford, 2001; p. 36ff.

6 Ibid.7 Financial Times, 15 August 2005.8 Ibid.9 TUC, Britain Can Make It: A Strategy for Modern Manufacturing, London, 2000; p. 7.10 P.J. Cain and A.G. Hopkins, British Imperialism (2 vols.), Longman, London, 1993; B.

Fine and L. Harris, The Peculiarities of the British Economy, Lawrence and Wishart,London, 1985.

11 Pepper D. Culpepper, ‘Employers, Public Policy, and the Politics of Decentralizationand Cooperation in Germany and France’, in Hall and Soskice, op. cit.; pp.275-306.

12 TUC, op. cit., p. 21.13 Ibid.14 Charles J. McMillan, The Japanese Industrial System, 2nd revised edition, Walter de

Gruyer, Berlin and New York, 1985; p. 31.15 IMF, International Financial Statistics Yearbook 2004, International Monetary Fund,

Washington, 2004.16 Mary O’Mahony, Britain’s Relative Productivity Performance, National Institute for

Economic and Social Research, 1998; cited in TUC, op. cit., p. 6.17 Ibid.18 UNCTAD, World Investment Report 2004, United Nations Conference on Trade and

Development, Geneva, 2004; Table 6.2.19 United Kingdom Balance of Payments: The Pink Book 2004, Chapter 7, ‘Financial

Account’; p. 76ff.20 Ibid.21 Financial Times, 1 March 2004.22 Morning Star, 23 June 2005.23 Beijing Review, 28 July 2005, p. 43.24 The global significance of this trend will be discussed more fully below. 25 BP Annual Report 2002; Royal Dutch Shell Annual Report 2002.26 Beijing Review, July 28 2005, p. 43.27 Business Week, 27 September 1993, pp 98-104; cited in David C. Korten, When

Corporations Rule the World, Earthscan, London, 1995, p. 130. It was infamous inBritain, of course, for cherry-picking the Mini, following its acquisition of the lastremnants of the British-owned car industry. However, in fairness, in contrast to thefour cowboys under the name Phoenix, who acquired it for £10 later, BMW probablydid have the intention originally of doing something with the rest of it, until it foundthe decades of underinvestment by the former British owners, including the state atone time, too much to overcome.

28 UNCTAD, World Investment Report 1995, United Nations Conference on Trade andDevelopment, Geneva, 1995.

29 Financial Times, 2 February 1996.30 Financial Times, 3 February 1998.31 Financial Times, 18-19 September 2004.32 Financial Times, 17 December 2004.


33 Financial Times, 12 July 1999. 34 Financial Times, 10 July 1996, and 11 July 1996.35 Molly Scott Cato, The Pit and the Pendulum: A Cooperative Future for Work in the

Welsh Valleys, University of Wales Press, Cardiff, 2004; p. 65.36 Financial Times, 23 May 2005.37 Financial Times, 1 August 1998.38 Financial Times, 23 June 2003.39 Ibid.40 icWales, website, 30 June 2005.41 Financial Times, 23 June 2003.42 Financial Times, 17 August 2005.43 ‘Multinationals find tax relief abroad: Shifting resources around countries

through their international operations has saved big US groups billions of dollarsin a year of rising profits’, Financial Times, 2 February 2004; ‘Counting the cost ofglobalisation: how companies keep tax low and stay within the law’, FinancialTimes, July 21 2004; ‘The big squeeze for governments: how transfer pricingthreatens global tax revenues’, Financial Times, July 22 2004.

44 John Edmonds and Andrew Glyn, ‘Public spending alone explains Britain’s jobsgrowth’ Financial Times, 30 June 2005.

45 Ibid.46 Financial Times, 22 July 2000; Scott Cato, op. cit.; p. 71.47 Financial Times, 26 June 2002.48 Morning Star, 13 August 2004.49 Financial Times, 20 April 2004.50 ‘FT 500’, FT Magazine, 11 June 2005.51 Morning Star, 22 April 2004; Financial Times, 20 April 2004.52 Morning Star, 26 October 2000.53 ‘A Third Way to misery’, by Harry Barnes [the local MP at the time], Morning Star,

24 November 2000.54 Financial Times, 4 August 2005.55 Bill Benfield, ‘Gate Gourmet’s big dirty secret’, Morning Star, 19 August 2005. The

billionaire owner of the parent company, Texas Pacific, David Bonderman spentseveral million dollars on his 60th birthday party in Las Vegas.

56 Morning Star, 23 August 2005.57 Morning Star, 25 August 2005.58 Edmonds and Glyn, op. cit.59 Financial Times, 30 September 1999.60 Cited in Brian Denny, Politics of the Euro – The Economics of the Madhouse,

Campaign against Euro-federalism, Merseyside, 2000.61 Financial Times, 14 July 2004.62 Hall and Soskice, op. cit.; p. 25.63 John Mills and Austin Mitchell MP, Back to the Future: Collectivism in the Twenty-

first Century, Catalyst, London, 2002; p. 9.64 Financial Times, 23 August 2005.65 Charles J. McMillan, The Japanese Industrial System, 2nd revised edition, Walter de

Gruyer, Berlin and New York, 1985; p. 88. To be sure, not everything was rosy –small firms and their workers who were suppliers to the big firms, were oftensqueezed by the big firms (though, in many cases, the larger firms helped thosesmall firms which were their suppliers, both technically and financially, toupgrade their technologies). And working hours and living conditions frequentlyleft much to be desired, which was a reflection of the weak trade union movementin Japan.

66 Kavaljit Singh, Taming Global Financial Flows: A Citizen’s Guide, Zed Books,London, 2000; Chapter 6, ‘Capital controls: An idea whose time has returned’.

67 See Singh, op. cit.68 Joseph Stiglitz, Globalization and its Discontents, Allen Lane, 2002; Chapter 4,

‘The East Asia crisis: How IMF policies brought the world to the verge of a globalmeltdown’.


69 UNCTAD, Trade and Development Report 1998, United Nations Conference on Tradeand Development, Geneva, 1998.

70 Malcolm Sawyer and Kathy O’Donnell, A Future for Public Ownership, Lawrence andWishart, 1999. The Railways in a Third Term: Integrated, accountable and publiclyowned, Pre-election briefing, Catalyst, London, March 2005.

71 Sawyer and O’Donnell, op. cit.; Chapter 3, ‘Comparative performance of public andprivate ownership’. A.D. Smith, D.M.W.N. Hitchens and S.W. Davies, InternationalIndustrial Productivity Comparisons of Britain, America and Germany, CambridgeUniversity Press, Cambridge, 1982. R. Millward, ‘The nationalised industries’, in M.Aretis and D. Cobham (eds.), Labour’s Economic Policies 1974-79, ManchesterUniversity Press, Manchester, 1991. L. Hannah, ‘The economic consequences of thestate ownership of industry, 1945-1990, in R.C. Floud and D.N. McCloskey (eds.), TheEconomic History of Britain since 1700, Vol. 3, 2nd edition, 1994. Jean Shaul,‘Railpolitik: The financial realities of operating Britain’s national railways’, in FrancisTerry, Turning the Corner?, Blackwell, 2004.

72 Sawyer and O’Donnell, op. cit., p. 59.73 John Foster, ‘What’s so wrong with public ownership?’, Morning Star, 23 June 2005.74 Financial Times, 15 August 2005.75 Financial Times, 24 August 2004.76 R & D Scoreboard, Department of Trade and Industry website. 77 Chalmers Johnson, MITI and the Japanese Economic Miracle: The Growth of Industrial

Policy 1925-1975, Stanford University Press, California, 1982. Roland Dore, TakingJapan Seriously, Athlone Press, 1988.

78 Roland Dore, Stock Market Capitalism:Welfare Capitalism: Japan and Germanyversus the Anglo-Saxons, Oxford University Press, Oxford, 2000; p. 42. Michael E.Porter, Hirotaka Takeuchi and Mariko Sakakibara, Can Japan Compete?, MacmillanPress, London, 2000; p. 41-2. Ulrike Schaede, ‘The benefits of Shinboku: leveraginginformation exchange in Japanese industry associations’, in Horst Albach, UlrikeSchaede, and Rita Zobel (eds.), Information Processing as a Competitive Advantage ofJapanese Firms, Sigma, Berlin, 1999. Ulrike Schaede, Cooperative Capitalism: Self-Regulation, Trade Associations and the Antimonopoly Law in Japan, Oxford UniversityPress, Oxford, 2000.

79 Christopher Wood, The Bubble Economy: The Japanese Economic Collapse, Charles E.Tuttle Company, Tokyo, 1993.

80 Hall and Soskice, op. cit., p. 25.81 ‘Policies for industry do more harm than good’, Financial Times, 7 May 2003.82 Joseph Huff-Hannon, ‘The pollen and the bees’, New Internationalist, No. 368, June

2004 [Special issue on co-operatives].83 For a more detailed account of this dramatic and inspirational story, from the horse’s

mouth, as it were, see Tyrone O’Sullivan with John Eve and Ann Edworthy, Tower ofStrength: The Story of Tyrone O’Sullivan and Tower Colliery, Mainstream Publishing,Edinburgh and London, 2001. See also, Scott Cato, op. cit., Chapter 7, ‘Tower ofStrength, Beacon of Hope: A Case Study of Tower Colliery’, and Michael Thomas,Death of an Industry: South Wales Mining and its Decline in a Global Context, ColbenSystems Pte. Ltd., Singapore, 2004, Chapter 18, ‘ The Miners’ Next Step – and TheirFinal One’. In addition, an opera has been written about Tower by the Welshcomposer, Alun Hodinott. It had its premier in the Grand Theatre, Swansea, on 23October 2000, and has played at several other venues in Wales since. Furthermore, aFrench documentary film, Charbon Ardents (Burning Coal) has been made by Frenchdirector Jean-Michel Carré, and at the time of writing, a British feature film, scriptedby Colin Welland, is in the process of being made.


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