My Lords, we are grateful to my noble friend Lord Hanworth for introducing this topic. I am afraid that I am not at all alarmed by the proposition that he has put before us. I will come to that in a minute but perhaps I may just recall an event many years ago when Peter Shore—later Lord Shore—was at the front of the battleground at the Department for Economic Affairs. He said, “What happened to the balance of payments crisis? Why aren’t we alarmed about whether our balance of payments is in surplus or in deficit? We used to battle month after month over what was going to happen, and the pound was always under threat”. I said, “We are now in a world of flexible exchange rates and we have free capital movements, so movements on the flow account are balanced by movements on the capital account, and therefore you can stop caring about the balance of payments”.
I still believe that that is the right attitude to take. For one thing, it cannot be said that this country is particularly impoverished. We are still in the G7 and, give or take a ranking here or there, we continue to be a rich country. Currently, we happen to be one of the fastest-growing economies among the G7 and our proportion of employment in terms of labour force participation is also one of the highest in Europe. Therefore, we have practically full employment. Of course, the recession was long and the recovery took some time but, compared with the eurozone economies and even to some extent the US economy, we are not doing too badly.
Obviously our manufacturing sector started shrinking more than 25 years ago as soon as the oil shock happened. The manufacturing industries of most European countries reduced in size—it happened in the United States and the UK and so on—but I do not think that is anything to be alarmed about. There is nothing sacrosanct about manufacturing as against anything else. We need to do the things at which we are more efficient than the rest of the world and, as long as we can find things at which we are more efficient, we should go on doing them.
There is a long-standing fallacy in this country—going back to Winston Churchill, if not before—that somehow industry is more important than finance. However, few people remember that the UK had a financial revolution a century or more before it had an industrial revolution. The industrial revolution came in in the second half of the 18th century, whereas our financial revolution came about in the late 17th and early 18th centuries. We were able to fight a number of wars, with France and other countries, because the City and our public finances afforded us better financial governance than there was in Europe. I do not think there is any particular virtue in saying that the City is bad and industry is good or that somehow, William Blake notwithstanding, we should have dark, satanic mills and not banks.
The important thing is that the most interesting innovations have happened in the financial sector rather than in the manufacturing sector, at least as far as the UK is concerned. My noble friend himself pointed out that the City has gone on to be a major player in mergers and acquisitions and in a number of intermediary arbitrage activities. That is the nice thing about the City—it moves from one specialisation to another depending on where the demand is.
One paradox is that, if we are in a trade deficit, why is the pound not collapsing? It is argued that the pound is overvalued, but one would like to see more proof of why the pound is believed to be overvalued—overvalued in respect of what? We have a trade deficit and we have financial flows to balance that deficit. The pound is free to float as it likes, and I think it should stay that way, without us getting into pegging it or anything like that. I do not think our exports are low because the pound is overvalued; our exports are probably low because the countries to which we sell are in depression. The whole eurozone is in a state of very low growth. Therefore, it is no wonder our markets are not as buoyant.
For some years now we have been trying to redirect our trade away from the eurozone and into the emerging economies. The visits of the Indian Prime Minister last week and before that the Chinese President are part of the UK’s effort to redirect our trade from the stagnant eurozone to the more dynamic emerging economies, and that is quite right.
My noble friend said it is shocking that various foreigners run our trains and our energy companies. That is fine. But I remember how our car industry came close to complete collapse in the 1970s. Who rescued the car industry? The Japanese. Who is the largest single employer of manufacturing workers? It is Tata Motors, which has rescued Jaguar Land Rover from shut-down. Right now, Jaguar Land Rover is a thriving business, thanks to management from Tata. Its management is a global team, because it also takes support from German, British and American firms.
This is a globalised world. There is no reason why we should settle for fortress Britain, in which only our capital will serve our industry. We have been through that, and we lost considerably playing that game. It was precisely because we lost—we were in a dreadful situation in the 1970s; that is all of the 1970s, during both the Conservative and Labour Governments—that we got out of it and decided that there are better ways of making a living than sticking to selling the family silver.
From the point of view of economics, I fail to see the problem here. There are problems as to whether or not we should have a different model of corporate governance, but that is independent of whether foreigners own our industries. All I will say about the continental model of corporate governance is that we are living under the scandal of Volkswagen. I would like to know why corporate governance on the continent failed so abysmally in the case of Volkswagen? We have not had any scandal like that.
There is also the problem of short-termism. Short-termism is not particular to British business; it applies to any business that has equity holders. Of course, some people are now saying that preferable to relying on public equity would be to go to private equity firms. If you are owned by private equity firms, you are free of stock market pressure, and some firms have gone that way. That may be a good recommendation if you want a long-term vision in our economy.
Without being complacent about it, I believe that the UK has always been a trading nation. It has always taken the view that one must not sentimentally stick to national ownership or particular restrictions. We should allow the best companies to provide our services regardless of whether they are British or foreign, just as British companies should be all over the world doing business, as they have done for the past 300 years. We should say, “Let the best people come and provide us with our services, and let the best companies from here provide services elsewhere”. That is as long as our living standards are high and rising and as long as we have an adequate amount of employment in the economy and can make sure that our productivity stays high. I know productivity problems are not particular to the UK; they are to be found all around the western world. A rising standard of living for our people is all that an economy should deliver, regardless of who owns what.