...and the other lame ducks

Gerald Frost

As Sir Don Ryder considers further ways he can help the ailing motor giant which as an IRC member he helped cobble together, he might spare a thought for firms which in the past have enjoyed the nation's largesse.

The record of government aid to firms in financial difficulty is not an encouraging one. Indeed, it would seem that unless Sir Don is an even greater optimist than one might suppose from his choice of employment he must surely conclude that it's no accident that what was' intended to be life-saving resuscitation so often turned out to be the kiss of death.

If he were of a philosophical frame of mind Sir Don might go on to ponder why this should have been so. But Sir Don is a businessman with a job to do, and he will probably conclude that the cash dosage prescribed to ailing firms was wrongly administered or it was simply inadequate in amount. If the former, he will find even more ingenious and complex ways of dispensing the taxpayers' money; if the latter, he will increase the dosage, causing an even greater drain on the public purse. It can therefore do no harm to remind him of the corpses and sickly survivors which lie strewn in the wake of ten years of state interventionism in private companies which failed.

A fairly conservative estimate based on research by Mr Frank Broadway for the Centre for Policy Studies shows that excluding regional and modernisation grants, approximately £200 million has been spent since 1966 on 'rescuing' firms in financial trouble — admittedly small beer if we compare it to the £2,859 million debts written off by the nationalised industries between 1962 and 1972. But the cash is now flowing faster and in greater quantities than hitherto, and given the record of the present Secretary of State for Industry it seems inevitable that this is a trend which will become even more marked in the future. Yet of all the sixteen or so firms 'rescued' since 1966 it is hard to find a single one which has thrived or done more than keep its head just above water.

Fairfields which received £1.5 million in 1966 no longer exists as such. Neither does UCS which was patched together from largely disparate elements, including Fairfields, in much the same way as British Leyland was created. During its short but spectacular life from 1968-71 it consumed a grand total of £19.8 million.

Govan, which rose phoenix-like from the ashes of UCS — with £35 million to get it airborne — can at least claim that it has lived up to expectations: the losses which it expected to make over the initial period have been triumphantly recorded. There is less confidence in the shipbuilding industry about its ability to live up to its other prediction: profitability by 1976. In

Spectator January 18, 1975 contrast, the old John Brown yard, reborn as Marathon with the aid of £12 million public money, has been consistently profitable. But then Marathon, a private company, made a fresh start as a privatelyowned producer of oil rigs with a new control and work force.

Harland and Wolff which has consumed a grand total of £67.5 million since 1966 is now queuing up with others for more, and will no doubt receive it. The readiness of Westminster politicians to satisfy the shipyard's rapacious thirst for public money will no doubt endure as long as the province's state of civil disorder. Indeed, it would be a dogmatic man who, for the sake of economic principle, was prepared to put on to the troubled streets of Belfast 10,000 redundant men from the city's toughest Protestant areas. But it should not be overlooked that after all the aid, the 'rationalisation,' and the modernisation, output per man is roughly half of what it was before the handouts started.

Most rescue operations have taken the form of loans or grants such as those made to Rolls-Royce, UCS, Harland and Wolff. But the more sophisticated bail-out operations involving forced mergers or reorganisation have not been much more successful.

Norton Villiers Triumph, which received aid as part of a government sponsored merger between BSA and the motor-cycle subsidiary of Manganese Bronze, does not lopk the healthiest of companies today. Herbert-Ingersoll, which the Industrial Reorganisation Corporation took upon itself to 'expand' and which received a £1,000,000 IRC loan in 1970 showed how much it had benefited from the expansion when it subsequently closed. Alfred Herbert, which survived it, is still in dire difficulties.

Perhaps the reason why so many bad decisions have been taken in this area is that the sense of high drama and panic induced by announcements that a big firm may go bust brings out the worst in

iics, o It course, unemployment and its attendant consequences that politicians fear most. Newspaper and television bulletins

about possible closures or bankruptcies invariably begin, "Ten thousand jobs Were in jeopardy tonight with the disclosure that X company is in considerable financial difficulty," or words to that effect. The following morning trade unionists are queuing at the door of the Department of Industry to demand that not one job should be lost.

But industrial plant does not

disappear from the face of the earth if a company goes into receivership or orders a drastic reduction in its activities, nor are large numbers of jobs necessarily lost. The profitable parts' of the business will continue to operate since there are always buyers for going concerns.

In many cases a firm — even an industrial giant — can fail because it obstinately persists with a single unprofitable activity — in the case of Rolls-Royce the continued development of the RB-211. Once they have been freed of an increasingly

heavy millstone the profitable parts of the concern stand a greater chance of flourishing. Given the present political uncertainties, Sir Don may be slightly anxious about his imme diate master Mr Wedgwood Benn's reputation for being radical. Al though they derive from the eight eenth and nineteenth centuries, his views on public accountability and workers' participation may possi bly be deserving of the term. But as others have pointed out, in econo mic terms 'Bennery' tends to be highly conservative since it con firms companies in their old unpro fitable ways and encourages them to maintain existing work forces. Moreover, bailing-out operations have an unfortunate effect upon trade unions. The widespread belief that the Government will be bound to rescue any sizable enterprise undoubtedly has the effect of encouraging them to submit excessive wage demands — witness the fact that UCS was forced to pay the highest wages in the industry at a time when it was plunging even deeper into the red. By contrast the certain conviction that the Government will allow a firm to go bust moderates the mind of a militant wonderfully. There is one further point which Sir Don might bear in mind. British Leyland is not just an absurd and unwieldy aglomeration, it is an aglomeration of a uniquely British kind. It was cobbled together because a number of business People as well as politicians thought that the British car industry should .compete with the giants, Ford, Volkswagen, General Motors — indeed were morally obliged to do SO, Such exercises are not merely humiliating, they are economically disastrous since they divert funds from healthy and profitable enterPrises to either freaks or industrial Cripples. In fact, Britain's recordlof aid to industry would suggest that sometime about 1966 the philosophy and thinking of the Social Services Department suddenly took root at the Department of Industry. As Sam' Brittan has argued in Capitalism and the Permissive Society it is not of course necessary that a firm should collapse amid tears and a gnashing of teeth, only that such aid as is given should be of a temporary and diminishing kind. The aim behind it should not be to preserve the outdated or unprofitable but to soften the impact of redundancies and generally reduce hardship. Far from being evidence of cruel heartlessness, its motivating force should be a sense of compassion.

Such truths were, of course, Perceived by the Men of Selsdon, but for various reasons, not least the political inexperience of Mr Davies, the philosophy of non-intervention was thought to be blind to the personal misfortune or tragedy that can result from bankruptcies. It should not have been so. In almost every case in which firms have been artificially kept alive been public funds it would have been cheaper to make extremely generous redundancy payments and to retrain workers for other

and more secure work. This point has never been made clear. Moreover, the philosophy of intervention should have been more vigorously attacked as a fundamental cause of industrial and regional decline, redundancies and

Gerald Frost, formerly of the Yorkshire Post and Press Association, is at present engaged on economic research for the Centre for Policy Studies