Thatcher, UK manufacturing and a lesson from Japan's lost decades.
For many the election of Thatcher heralded an end to what some saw as a dark period of industrial strife and, as many on the right believed, an urgent need for militant unions to be dealt with and for managers in British industry to reassert their authority.
Something had to change and car companies like British Leyland (BL) needed to learn from Japan - which is what occurred when it developed a longterm collaboration with Honda in the early 80s.
Japan was using state-of-the-art equipment and techniques that did not require the management of change and huge organisational cultural shift that was frequently required here in Britain.
If UK industry was to survive then it would need to sort itself out and should not expect to rely on government intervention.
But where Mrs Thatcher can be criticised is her apparent lack of faith in manufacturing as being absolutely integral to the future of "Britain PLC". Many industrialists could be forgiven for believing that Whitehall was more partisan to the developers and financiers of the new retail parks and industrial estates (often simply being used for factoring and warehousing).
Finance and property, we were led to believe, would make us a wealthier economy. But, as we now know, this turned out not to be the case.
Japan's very success in exporting its goods gave it a sense of hubris. By 1989 it was the second largest economy in the world (after the US) and its GDP was the highest per capita.
The fact that all of this had been achieved in less than 50 years allowed investors to believe that nothing could derail Japan's inexorable economic development.
With spooky resonance to the causes of the global financial crisis of 2008, investors borrowing at record low interest rates poured money into Japanese stocks and property in the belief that the inexorable economic development would never end.
Share and property prices went up at eye-watering speed to the point at which a crash became inevitable.
In an effort to slow the collective hysteria of investment madness, Japanese interest rates were raised in 1989, which caused panic. Once this happened, the crash soon followed when investors realised that they had bought false dreams.
And so began what has become known as the "lost decades" whereby nobody was willing to invest and the economic expansion of the 1980s stopped. What is significant is that Japan has suffered 24 years of effective economic decline and, in a desperate effort to sell to domestic consumers the prices of goods have fallen. This has created a classic deflationary spiral.
Japan's world leading companies also now have to compete against Asian Tiger economies, most notably China.
Japanese manufacturers cannot reduce their prices to compete with these low-wage economies and instead must continue to invest in innovation and the belief that its products have better value-added.
But this takes investment which has not been forthcoming.
This may partly explain why Japanese cars do not appear to be as bulletproof in terms of quality and reliability as they were once were.
Worse still has been the impact of the credit crunch which has reduced the demand from customers in traditional export markets such as the US and the Europe.
So any hope of economic recovery based on exports has been dashed with the consequences of falling wages, reduced living standards and rising unemployment.
In an effort to kickstart the Japanese economy the new governor of the Bank of Japan, Haruhiko Kuroda, has recently announced a massive programme of so called quantitative easing to ensure that inflation goes up to two per cent within two years, a policy that was formulated by new premier Shinzo Abe giving rise to what is known as "Abenomics".
In particular, Kuroda will create 1.4 trillion dollars of investment by doubling the amount of money in circulation and buying 7 trillion yen of government bonds each month.
The desired effect of this is that as well as more money being available, inflation will supposedly create demand, and any consequential fall in the value of the yen will make imports more expensive.
This attempt to use Keynesian theory to increase demand through monetary supply is certainly brave - especially given that Japan spent over a trillion dollars on infrastructure projects in the 1990s that did not work.
All of the above is depressing and demonstrates that however bad things have been for us here in the UK in recent years, we should be thankful that our banks were saved and the policy of quantitative easing in the UK to stave off the deflationary cycle that has beset Japan for over two decades.
However, coming back to Mrs Thatcher's approach to manufacturing, it has been pointed out that under her rigid adherence to monetarism more than 15 per cent of our industrial base disappeared.
While those who lost jobs were often able to find new careers, such opportunities were frequently on lower pay. Indeed, if Mrs Thatcher had any strategy as far as industry was concerned it was that the market should decide and unless you were sufficiently fit you didn't deserve to survive - so called laissez-faire.
The decision in the early 1980s to reduce investment in universities carrying research and development undermined the culture of creating growth through innovation which put us way behind European competitors, especially Germany.
It is notable that the last time we had a trade surplus was in 1982 when Mrs Thatcher made her mark by retaking the Falkland Islands.
As the Japanese discovered in the late 1980s you need a balanced economy and we should have put more effort into maintaining and developing our industrial base.
If we had done so, our ability to escape the consequences of the global financial crisis would be so much better. Unfortunately, though, as Japan found to its cost, when you fall behind it is extremely difficult to regain the preeminence you once enjoyed.
But it doesn't mean we should not try.
Dr Steven McCabe is director of research degrees for Birmingham City Business School
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|Publication:||The Birmingham Post (England)|
|Date:||Apr 18, 2013|
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