A QUESTION OF SELF-INTEREST

Peter Morgan on why industry must stand and fight against Europe for British independence

I READ Howard Davies' apologia for Europe in these columns (`Thoughts from a "dangerous man" ', 5 September) with fascinated horror. His recantation would have made the Counter-Reformation proud but I doubt whether the European Commission's inquisitor who branded him a 'dangerous man' would have gained much inner satisfaction from it. Mr Davies' 'go with the flow' explanation of his con- version to the European Community mas- terfully concealed any shred of his convictions.

Like Mr Davies, I too was in Paris in 1975 starting a six-year course in 'La Civili- sation Francaise' via my appointment as director of marketing for IBM Europe. In those years I worked closely with col- leagues from all over Europe and devel- oped both great affection and respect for the subtleties and effectiveness of their dif- ferent management cultures.

We operated rather like a 'European Commission' for IBM's European Com- munity. The experience was instructive. A corporate directive written in American could be translated more or less word for word into English with no loss of meaning, while in French, German or Italian it could take on virtually the opposite sense.

My experience made me a confirmed supporter of the Common Market but it also alerted me to the strength of econom- ic self-interest in the member states. It convinced me that we too needed to be armed with a highly developed sense of our own self-interest. In that context the first 20 years have been disappointing and costly.

First of all, along with the Germans, we remain one of the EEC's two net contribu- tors to the Community budget. Most of this money goes on the Common Agricul- tural Policy which puts a surcharge on the household shopping basket equal to the cost of the Community Charge.

Second, we pay through our trade deficit. More than half of our trade deficit is due to food imports from sunny north- ern Europe — the countries which benefit from the CAP. Our engineering industries have been overwhelmed by Europe, leav- ing us with a large deficit and a narrow manufacturing base. While we have enthu- siastically opened our doors to our Euro- pean partners they have not been so keen to let us in. In services and utilities, where we are pretty competitive, European mar- kets are still mostly closed to us.

Even with 1 January 1993 so close, pub- lic ownership and state subsidies cast a long shadow. Artificially priced electricity subsidises heavy industry; artificially priced bank loans subsidise aggressive acquisition programmes; loss-making air- lines distort markets with state support und so weiter.

We need to be clear about our econom- ic interests. Many British-owned compa- nies are global leaders in their sectors. They continue to develop their interests in the Anglo-Saxon world. They have large holdings in the United States and main- tain Commonwealth links. They are not helped by a two-dollar pound. They have a vested interest in the successful comple- tion of the Gatt round — stalled because French and German agricultural interests have more powerful advocates than they do.

'The king is in his counting-house, Counting out his money; The queen is in the parlour, Eating bread and honey. The prince is in the nursery, Playing with his bunny; The fool is in the rec-room, Trying to be funny.' Foreign-owned companies with sub- sidiaries in the United Kingdom are here to do business in Europe. Fortress Europe barriers against the output of their UK fac- tories are against our interests. The United Kingdom's position at the edge of the map of Europe does not make inward investment here naturally attractive. That is why we need to establish a clear competitive advantage with a favourable social, fiscal and legal framework. We can- not afford simply to agree to every har- monisation proposal from Brussels.

Our partners have their own special interests too. Germany's Drang nach Osten' is in the long-term best interests of Germany. But it is damaging to British eco- nomic interests. While we disinvest and down-size our companies Germany is pay- ing out massive subsidies for new modern plants in the east. The result is that their manufacturing will move even further ahead of ours. We are paying for these investments by high interest rates, reces- sion and unemployment.

The net effect of the lie down and let it happen approach to the European Com- munity is like economic unilateral nuclear disarmament. It is about time it was recog- nised that Britain does have real economic interests to defend and that they need to be defended as our partners defend theirs. It is simply not good enough to drift with the tide. Boats and aircraft have rudders to allow their pilots to steer them. We need government and business organisations .to give our economy direction. Mr Davies may not mind too much about a minimum rate of VAT, but I doubt if his members would be keen on a minimum rate of cor- poration tax — a proposal currently doing the rounds.

Mr Davies' Treasury experience con- vinced him that we were bound forever .to make a milky bed-time drink out of price stability. His Treasury indoctrination has convinced him that 'an independent Bank of England was never on offer'. Those of us without the sign of the Treasury on our foreheads may beg to differ. Of course the Treasury always gets it wrong. That is because it is part of the political process, as is the Bank of England. An independent Bank would stand outside the political pro- cess.

Politicians, in the perennial auction for votes, are reluctant to let it go, but with CBI support independence could be won. After all, the CBI lobbied hard for the United Kingdom to join the ERM and the Government acted. If it made as much noise about an independent Bank, no doubt we would succeed.

Mr Davies may be persuaded that many British economic interests are a 'lost cause'. Not having the benefit of Mr Davies' Foreign Office training, I prefer to keep my faith and to fight for it.

Peter Morgan is Director General of the Insti- tute of Directors.