Investing people

BUSINESS VMWPOINT' F. E. JONES

'ger. E. Jones. FRS, is managing director of 'Milliard Limited, and was chairman of the 'Working Croup on Migration which produced tliPi3rditi'Drain Report.'

'The present annual worth of goods and ser- Vices produced by the United States is about £350,000 million, produced by a working population of about seventy million. The com- • parable figure for the United Kingdom is about f50,000 million, produced by a working popu- lation of about twenty-three million. The selling prices of many products made by the Ameri- cans form the basis of world selling prices— this certainly applies in large areas of the elec- tronics industry with which I am familiar and I think would apply, too, to such goods as motor-cars, aircraft, foodstuffs, computers, etc. The value of goods and services of £5,000 per annum produced per employee in the United States, as compared with the figure of just over £1,300 per employee in the United Kingdom, is a measure of how much greater is the efficiency with which wealth is created in the United State as compared with this country.

Having produced this wealth, the average man in the United States can expect to be about three and a half times better off than his counterpart in this country, and we all know that, more or less, this is borne out by the facts and that many people here would like to see us make an effort to get our standard of living up nearer to the American standard. In fact, where the Americans open their doors widely to sections of our own skilled people, such as engineers, scientists and doctors, many of our people opt for the American way of life. There is little doubt that if the American doors were opened to a wider variety of people, even more would wish to go.

I suggest that no one has really analysed is a quantitative way just why the Americans create wealth so much more efficiently than we do. Many people have views on it—capital investment per man, management, abundance of raw materials, horsepower available per worker—there are as many views as men- to express them, but from my observations I suspect that most are emotional rather than factual. However, one fact which emerged from a very limited analytical investigation into one or two companies in the United States which have been kind enough to supply me with some of their innermost secrets, is that there appears to be a very direct relationship be- tween the performance of a company and the investment that has been made in the educa- tion .of its employees, i.e. the length of time

theyhave spent in full-time education beyond

the school-leaving age. In this respect it is interesting • to note that of the available em- ployees.,in the United Kingdom, 30 per cent work, for, the• ,Government and 70 per cent private .undertakings. However, the Gov- ernment( 30, per cent includes 70 per cent of

Peorde..,who have had full-time education beyond The achool-leaving age and, conversely, the 70..perivent in the private sector includes

Only.30tper cent of people who have had full- ,t►me education, beyond the school-leaving age... Ale can-make,some comparisons.of sales per employee as below, and while we know that

what is available for distribution in wages and salaries depends on how much is absorbed by various expenses, including research, develop- ment and -marketing and the cost of services and materials, in practice a balance of about 30 to 40 per cent remains for distribution in wages and salaries. These are thus related directly to the sales per employee, which will in turn depend on the efficiency with which the company creates wealth.

The following are published figures, com- puted at present-day exchange rates for the foreign companies, for a number of United States and United Kingdom electronic com- panies, and a major European undertaking in- cluded for comparison.

Plessey Company (UK based)

Sales 1966 £128 million. Pre-tax profits £12.1 million. Employees 65.000. Sales per employee £1,971. Profit per employee £186.1.

FC/AEI (UK 13(&%1) '

Sales 1966 £423 millloii.-Pre-tax profits '126.91 million. EmptOsees '162,000. Sales per employee £2,610 Profit per employee £167.

English Electric / Elliott itK based)

Sales 1966 £307 million. Pre-tax prnfi•s ±18 million. Ernployees '103.000. Sales pe' • employee £2,980. Profit per employee •• £174.8.

Philip (Dutch based) Sales 1966 £927 million. Pre-tax profi's £98 million. Employ ees 244.01X). Saks n

employee £3,800. Profit per employee 1.4ivi

RCA (US based) Sales 1966 £1,049 million. Pre-tax prow. £104 million. Employees 124,000. Sales o r employee £8,460. Profit per employee 1.8119 GE (US based)

Sales 1966 £2,953 million. Pre-tax profits £277 million. Employees 350.000. Sales per employee £8,440 Profit per employee £791.

Westinghouse (US based) w. Sales 1966 £1,062 million. Pre-tax profits £93.3 million. Employees 125.350. Sales per ^11.4 employee £8,470. Profit per employee £745.

Perkin-Elmer (us based)

Sales 1967 f47.5 million. Pre-tax profits £39 million. Employees 6,380. Sales per employee £7,250. Profit per employee £613.

The (tic/Art and English Electric/Elliott amounts are the separate figures for 1966 added together.

The indication is that there is almost no difference between the large American com- panies. The performance of Perkin-Elmer would indicate that there may be a size factor, but all are appreciably above their UK counter- parts, with the performance of Philips lying intermediate between the UK and the us corn-

panies. Possibly the star performer of all manu- facturing industry is the us General Motors, with sales of £842,000 million in 1966, employ- ing 745,400 people, giving a sales per employee figure of over £11,300. This rate of creation of :realth is undoubtedly what permits high wages fn the car industry in the United States and

1111 turn leads to people paying higher taxes (for igher wages are related to high taxes in all countries), and thus to the well-known saying that 'what is good for General Motors is good tor the United States.'

- It would seem to me that these figures would indicate that if, as we indeed do, need more money for education, for hospitals, for roads, for research and so on, then the way to raise money is not by higher rates of taxation but by creating conditions such that people can earn more money and so pay more taxes —by improving the efficiency with which we .5.1eate wealth. Fortunately, we don't have to aim for perfection. We have perhaps only to tudy in detail how the Americans achieve their gure and then aim to reach an equal standard

lf efficiency. This is not only a job for the private sector of industry, but for the publicly owned one as well—the average sales or receipts per employee of our railways is only £1,000 per annum and of our post office only £2,000.

• Certainly the average American worker does not work three times as hard as our average employee—I don't know whether he works any harder at all—but he certainly works more efficiently. It is in this area of efficiency that management, scientists and engineers have a key role to play, for it is undoubtedly true lhat the average worker will go on producing 'the same produots in the same way next year as last unless someone injects new products and new processes of manufacture into the .oystem. It is for this reason that in the recent feport on the 'Brain Drain,' with which I was aosely associated, we said that it was not good ?or the country that 42 per cent of our newly ejualified engineers and 23 per cent of our scientists were leaving the country to help create better standards of living elsewhere— Particularly in the United States. There is little cloubt that these valuable people would stay with us if they could see a determined effort tieing made to close the already large, and Probably increasing, gap between our per- formance and that of the United States.

, To convince these young men we, as leaders of industry, must work out strategic plans for our companies which will result in increased sales per employee and increased profits per employee, and make these plans known so that employees know how they can play their part. We must bury our pride and study in detail how our American competitors create wealth so efficiently that they can pay three times our wages and still sell their goods at competitive prices. The government must recognise that industrial performance creates the standard of living for all—including civil servants! It would te worthwhile government legislation being ad- justed to regard industry as a racehorse to be groomed to win races at home and 'abroad, rather than as a carthorse to be loaded with every ministerial fancy that arises. Where the kovemment has stepped in and now runs large .,eotions of industry on a monopoly basis it has to be reckoned that the performance of the industries must be judged on a straight Comparison with their American counterparts.

Finally, it must be recognised that in these matters there are basically only two variables —men and money—and of the two, men are the more important.