Why coasting on past gains will leave us washed up
By Ed Crooks and Michael Skapinker
Published: January 23 2003 4:00 | Last Updated: January 23 2003 4:00



The British economy can no longer afford to coast on the gains from the last two decades of reform if it is to keep up with leading economies, one of the world's most admired business academics has told the government.

Michael Porter, who heads the Institute for Strategy and Competitiveness at Harvard Business School, made his remarks as he delivered his first findings on productivity to Patricia Hewitt.

When he was asked by the Department of Trade and Industry, which Ms Hewitt heads, to prepare a report on competitiveness, it was widely assumed that his mission would be to blame managers for any weaknesses.

But speaking to the Financial Times in London yesterday, Professor Porter took the sting out of any criticisms with some equally pointed observations about government.

Britain's problem, as he saw it, was that the gains from the past 20-odd years of reform were running out.

"This was a nation in decline: its competitiveness was dreadful and worsening, the relative standard of living of citizens in the UK was declining," he said.

"And really doing business has been transformed . . . it's just palpable. So I think the first conclusion from our review is that something remarkable has happened in the UK that is quite rare, and there ought to be a great deal of satisfaction and pride in that."

However, as chancellor Gordon Brown's as-yet ineffectual attempts to boost productivity had suggested, further efforts were delivering diminishing returns.

"Simply the opening, the privatising, the making things more efficient: that era I think is starting to play itself out," Professor Porter said.

"Now the challenge for the UK is to move upmarket, to create higher-value products and services, to be more innovative, to come up with more unique strategies and ways of competing. And in order to do that, we face a new set of constraints."

Among those constraints are the skills and attitudes of British managers, particularly at the lower levels.

"We see a fair amount of evidence that UK companies are really not devoting enough energy and resources to innovation," said Prof Porter.

"UK companies have not been as aggressive in adopting some of the more modern managerial practices: supply chain and the aggressive application of IT, and so forth."

So the quality of management was "a genuine issue, and needs to be addressed with a genuine strategy".

But often, when managers appeared to make bad decisions, they were responding quite rationally to the environment they faced.

"We don't subscribe to the view that we can say that it's management that's the cause of the problems of UK competitiveness, or that it's government that's the cause of the problems," Prof Porter said. "These two things are inextricably intertwined."

Unsurprisingly, he identified transport and other infrastructure, workforce skills, and the support for basic science and technology as the three most obvious problems for government.

"The problem in the UK now is the asset base: decades and decades of under-investment in the asset base," he said.

But while governments had not invested enough, they had dictated too much, restricting the growth of the rich links with schools, universities and trade associations that supported US business.

"Companies in the UK are not particularly oriented towards working outside, they are not very much engaged in their communities," he said.

"The history here has been government is very top-down, centralised: government has taken responsibility to run things, to make things happen."

His conclusion was that government should "back off and be less paternalistic".

The European Union also should be persuaded to restrain itself. While tougher regulation was not necessarily bad for innovation and growth, he said, the regulations coming out of Europe threatened to undermine Britain's strengths.

"There is a bit of a tug of war here, and the UK has to be very, very forceful in trying to not just accept what Europe dishes out, but to influence the thinking about European regulation and how it's implemented."

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