INDUSTRIAL PRODUCTIVITY

HL Deb 04 June 1980 vol 409 cc1423-501

2.58 p.m.

Lord SCHON

My Lords, I rise to call the attention of your Lordships: to the urgent need for industry to increase productivity substantially in the interest of the country as a whole; and to move for Papers ". We see regularly in the newspapers, and particularly on Sundays, gloomy assessments of our economic situation. I am now retired from day-to-day business management, but the news I hear from friends who are actively engaged in industry is not encouraging. I do not want to repeat examples of what I am told, but in the general atmosphere of worldwide economic and political problems one is naturally inclined to be worried.

During my recent travels on the Continent I have also heard of the problems in other industrial countries. I would say that the two most important issues which are raised—and I speak here about industrial countries like Germany—are problems connected with the availability of energy, and the social problems arising from the introduction of the micro-processor. The introduction of the micro-processor is in many ways comparable to the effects years ago of the introduction of the electric motor which, looking at it now from a distance in time, was relatively painless and advantageous—possibly because in those days they did not have so many sociologists, economists and philosophers to comment about the problem. However, what is important is that I cannot get away from the fact that our competitors are introducing micro-processors and we will have to do likewise to remain in the game.

We are in a much better position than other industrial countries with regard to sources of energy. We have reason to believe that we have enough oil to cover the bulk of our requirements up to the end of the century, and we may even have a surplus for export in the next few years. We also have large reserves of coal. Still, during the first quarter of this year we were running at an annual balance of payments deficit of £2 billion. I am frightened to think what this balance of payments deficit would have been if we had had to import all our oil. That is one of the reasons why I have put down this Motion. To emphasise the point even more strongly, the fact that we have the oil conceals the seriousness of the situation.

There is a psychological factor which increases my apprehension. I was the co-founder of a chemical company in Cumberland, where I lived for 27 years during and after the war. In the mid-fifties I was chairman and chief executive of this company, which employed well over 2,000 people. On one occasion when we were faced with the improving performance of our foreign competitors I complained about the lethargy of the people I worked with. I had the honour and privilege to have the late Sir Henry Tizard as a non-executive member of my board, and while I was complaining he said to me, and I quote verbatim, "Schon, remember, the British are unique in one respect: they get worried only when the water is over their head; all other people get worried when the water gets up to their chin". Much later I was told another way of putting it: "The British sec the writing on the wall only when they have their backs to it".

If we accept that we are facing a difficult economic position, and if industry as the main creator of wealth has to improve its performance, we have to get moving now. In industry it takes a long time to get from the planning stage to the point where you can show profitable industrial achievement. We are in the unique position among industrial countries of being self-sufficient in oil and may possibly have a surplus in the 'eighties, but according to some of the present forecasts, we may become net importers of oil again in the 'nineties. The decade we have just entered therefore gives us our last chance to put our house in order.

Another reason why I have put this Motion forward is that, in my years in industry, I have seen that when the British are properly motivated and properly led they can hold their own with any foreign competitors, and the others can choose the weapons. I am anxious to approach this subject not on a party political basis but genuinely from the Cross-Benches and, above all, from the point of view of the country as a whole. I hasten to add that if my remarks appear too excessively patriotic, they should not be misinterpreted. What I am trying to say is motivated by self-interest. My family and my substance are here in this country and, as I have said on previous occasions, I owe a debt to this country which gave me hospitality at a time when I needed it. Moreover, I still believe that this country can play a major role in world affairs, but only if we are economically strong.

There are so many things to be done to improve our position. In the first instance, we have to increase exports and reduce imports. In this country the salesman does not really have the social standing he ought to have. We will have to promote our salesmen to the senior service. This, inter alia, should express itself in the importance which is attached to the feedback from the market place to the production manager in regard to the design and quality features required.

When I first entered business I learned that the customer is the boss, and that the experienced buyer looks for quality, price and service. I have been in direct contact with industry in this country for 41 years. I joined the National Research Development Corporation as a board member in 1967 and retired in 1979 after serving 10 years as its chairman, so I had a front seat, giving me the opportunity to assess the capabilities available in Britain to be innovative and to produce goods of the right design and quality.

With regard to price, which is based on cost, here we have problems. We are notoriously low in productivity. The strength of the pound is often used as an excuse for our lack of competitiveness, particularly in exports. When it comes to service, Britain has lost its reputation for reliability of delivery. Our record of industrial unrest is well known. This leads the buyer to doubt whether we can give service, because service depends inter alia on uninterrupted deliveries. It is reported that, in the first quarter of this year, days lost through strikes were up by 40 per cent. to 9–2 million working days, but to add insult to injury the publication of the figures in the Department of Employment Gazette was delayed by industrial dispute.

Despite all this, I am confident we can provide the right quality, price and service if only we would co-operate with each other. We have to bury the distrust and look at each other as human beings and partners. For too long management and unions have referred to each other as "we" and "they". What we have to learn is that "we" means all of us and "they" means our competitors, especially those abroad. This is the philosophy which our most successful foreign competitors adopt. I am certain on this point because I have heard about the relationship between unions and management in countries such as Germany and Austria. I am not arguing about the fact that every human being should have the right to withdraw his labour, but we have to realise that you cannot get rich by stopping work. I recently heard an eminent trade union leader on the Continent explaining in depth that to ask for more pay without more production is inflationary, and inflation is a forerunner of unemployment. He emphasised that if production had been increased it was his task to see to it that the men he represented would get a fair share of the additional wealth created.

We have also to bear in mind that the more sophisticated our industrial machinery gets, and the more capital-intensive industry becomes, the more important it is that plant should be fully used and not allowed to stand idle. Some plants deteriorate when they are not working; but all plants are a cost item in the price make-up of the end product, whether they are in use or not.

I am not claiming that my pronoucements are new, but what J am asking is whether we can put the message over that the time has come for everyone to realise that continuity of production is essential if we want to get more business. Let us work together in industry to match our competitors' efforts, which is, after all, in our own interest. Let us put the message over that we destroy our credibility whenever we talk about strikes, whenever we appear to be in conflict and when we fight among ourselves. Let us not forget that by 1979 the United Kingdom share of world trade had shrunk to almost one-third of what it was in the early 'fifties.

Many of our problems are due to the fact that, ever since the war, jealousy and envy have become prime motivating forces. I accept that jealousy and envy are strong motivators, but I am equally sure that they are never constructive. For the majority of human beings the two constructive motivators are, putting it crudely, the carrot and the stick. The high taxation that we have experienced since the war has reduced the carrot to insignificance, and unconditional social security has removed the stick. If management performance has been poor—and it has often been very poor indeed—the removal of the carrot has been partly responsible.

Obviously I am in favour of social welfare and therefore I wish for support and social security to be extended to those who are in need. I cannot overlook the fact that some of us are marginally cleverer than others. Some of us are willing to work harder than others. We can, as individuals, develop policies democratically together, but in industry, certainly, execution has to be on the basis of line responsibility. Able people—and we have got them—will perform best within the framework of a genuine meritocracy.

I know from my own experience in industry that we often accuse workers of being lazy and having no consideration for the importance of increasing productivity. I have found that much of the underlying opposition to increased productivity is due to a subconscious effort by the employees not to work themselves or their mates out of a job. I appreciate this point. The question therefore is, how can we increase productivity without reducing jobs? The only answer is to increase the volume of sales.

In order to increase productivity you also have to have a high and continuous rate of investment. And in order to increase investment you have to have profitability, which some of our foreign competitors have certainly achieved. We in this country must take responsibility for having created a low productivity, low wage, low profit, high cost economy. I have to admit that I do not know how, or where, to break the vicious circle. I am in favour of high wages, provided they are directly related to output. High output and high wages have some synergy, because if people are earning more, they can buy more, and that helps to provide the absorption basis for high productivity.

I appreciate that it is difficult to reduce all the points I have made to a common denominator. The problem becomes even more difficult when one bears in mind that unemployment is rising, and in this environment it is difficult to improve industrial relations. I have implied that wage restraint is essential if we are to achieve a reduction in inflation, which will in turn reduce the risk of unemployment. The question is: how do we convince each other that it is in our interest to co-operate and to make every possible effort to create an environment where we produce more, and, above all, where we sell more?

I am fully aware that I have been able to make only a few suggestions on what we should do to overcome our present difficulties, but I am sure that the wise counsel which those noble Lords who are to follow me will put forward will provide the basis for further thought and action, and that is why I have put down this Motion. My Lords, I beg to move for Papers.

3.13 p.m.

Lord BRUCE of DONINGTON

My Lords, your Lordships will be grateful to the noble Lord, Lord Schon, for having moved this Motion this afternoon, because it affords us an opportunity to consider in depth one of the greatest problems which confronts the United Kingdom at the present time. There is a tendency for productivity and the necessity for increased productivity to be discussed within a broad general political context. Everyone agrees that it is necessary to work harder. Much emphasis is laid on the need for incentives. Much importance is attached to the retarding effect of restrictive practices and to the general undesirability of any kind of bad industrial relationships.

I venture to suggest that in discussing the problem within that broad ambit, we are probably unlikely to arrive at any constructive solutions to it, and, with your Lordships' indulgence, I shall seek to narrow the points at issue, and to look at them rather more closely, so that we know the real areas in which some action needs to be taken.

Although in British industry we tend to be a little hypochondriac, we have to face the position where a very large number of our companies are functioning at profitability—I use the word "profitability"—and therefore productivity levels that quite easily match those of our leading competitors. If when your Lordships have time you refer to the Sixth Report on Competition Policy issued by the European Economic Commission, you will find that there are there listed the names of the 50 most profitable companies in Europe.

I say "profitable" because, in arriving at the order of profitability, regard has been taken not only of the total net profits earned, but also of the net profit/sales ratio, the net profit/own capital employed ratio, the cash flow/sales ratio, and the cash flow/own capital ratio. Of the 50 companies listed, no less than 25 were British companies, earning £1,270 million net profit in the year to which the report refers—

Viscount TRENCHARD

My Lords, will the noble Lord allow me to ask him how many of those British companies are multinationals, and can he say whether or not he is speaking of their worldwide profits?

Lord BRUCE of DONINGTON

No, my Lords; one is speaking solely of profits within the United Kingdom. The industries covered in this connection are electrical machinery, domestic appliances, electronics, pharmaceuticals, cosmetics, alcoholic and non-alcoholic beverages, building materials, paper, packaging, textiles, motor vehicles, accessories, rubber, tyres, plastics, aircraft, mining, oil, food products, construction, energy and power utilities, glass, pottery, china, and mechanical engineering. That covers a very wide spectrum of industrial activity in this country—

Lord HARMAR-NICHOLLS

My Lords, I am sorry to interrupt the noble Lord, but I think that this point is very important because it completely alters one's own thinking. Is the noble Lord saying that the 20 or so firms that he has quoted as being in the top 50 have had their earnings in this country separated from their multinational earnings, and that it is the United Kingdom earnings that put them in that top bracket?—because that is not the information that has been given to some of us from other sources.

Lord BRUCE of DONINGTON

My Lords, I am not in a position to particularise on that point because it is not disclosed in the European Economic Commission's Report. However, what I am satisfied on is that those companies are essentially under British management. They are British companies, and even if one made allowance for a certain degree of multinational income within them, nevertheless that does nothing to detract from the fact that these are British companies and that they in fact compete successfully with our leading competitors in Europe and indeed in the United States.

Incidentally, I am fortified in that by an observation which fell from the lips of the Secretary of State himself, Sir Keith Joseph, speaking in sunny California last week, as reported in the Daily Telegraph (which, as the House knows, is the house journal of the Conservative Party), on 30th May last. It said: Sir Keith also said strikes and bad industrial relations were almost unknown in modern British industries like electronics ". Then he said: Combine British lower wage rates with American high-productivity standards and labour costs become very competitive indeed ". He also went on to say: In Britain you will find plenty of skilled and adaptable labour". I think it has to be faced—not only faced, but accepted with admiration and gratitude—that there are quite a large number of companies in the United Kingdom, employing British managements, British directors and British operatives, which are in fact functioning fully up to competitive standards. I do not think any noble Lord would deny that. Also, in the field of farming, of course, there is once again a fairly high degree of productivity, which, as the noble Viscount, Lord Eccles, explained, quite correctly, in the debate in this House on 3rd July 1978, arises largely from the comparatively personal circumstances in which farmers and farm workers operate under conditions of innovation and under conditions of a reasonably assured market.

The question one has to ask here is this. Are the workers in the profitable industries any different in physique, in temperament, in character, in dexterity, in ability or in endurance from those who work in the unprofitable industries? What different, unique characteristics do those who work in the unprofitable and less productive industries have which are not present in those who work in the productive industries? Even the trade union structure is common to them all. In those areas which are covered by the profitable industries to which I have referred there are the same unions represented as in the less productive industries—the Transport and General Workers, the Municipal Workers, the Electrical Trades Union, the Amalgamated Engineering Society and so on. They are all represented right across the spectrum, and they are all spread right across the country geographically.

What, therefore, marks the difference between those industries which are so fortunately productive and competitive and those which are not? I would venture to suggest that one of the factors which we have now to take seriously into account is the quality of management. The production of goods is very often highlighted by reference to only the point of production at which the operative actually produces the particular article or the particular service; and the inference which is very often drawn from that is that if by some means you can get the worker at the point of production, actually engaged in the operation, to put greater energy and drive into it, then somehow productivity is going to increase.

Nobody will deny that greater effort at the point of production would have that result, but what that tends to obscure is the whole process of production, which encompasses very much more than the labour which is expended at the point of operation. Indeed, Lord Schon in his speech laid very great emphasis—and I think the House would agree with him—on the necessity to up-grade salesmen. Because, of course, there can be no smooth production, and therefore no sustained productivity, unless the flow of orders into a particular firm or into a particular company is sustained, and, if possible, increased. I very often think that Her Majesty's Government might bear that point in mind in their public expenditure cuts, which consist very largely of material and service purchases from outside firms and companies.

The whole production process not only involves working at the points at which the various operations are accomplished; it involves research, including market research, and it involves design. Let us take design as an example. What holdups can ensue, what unnecessary production effort can be expended and therefore what increased unit costs there can be, if there is a faulty design of the article, or series of articles or objects, to be produced—articles which, had they been properly designed, would have required far Jess operation and far fewer machine changes. In other words, an article has to be designed not only for the sake of appearance but also for ease of production.

Lord Schon mentioned investment, and I will not touch on that, except to say that many of us who have some memory of Lord Ryder's report on British Leyland will recall with some melancholy that, out of the £74 million profits earned within a period of five years, no less than £70 million was distributed by way of dividend and £4 million only devoted to investment, with the consequent obsolescence of the plant and the machinery which lies at the very root of many of British Leyland's problems today. There is also the question of finance; and there is the question of production planning and progress. Unless production planning and progress is carried out satisfactorily, no amount of extra effort at the point of production is going to result in increased productivity. This has to be done properly. Plant layouts have to be satisfactory; otherwise, there is unnecessary movement.

One of the aspects involved in any large process of production is materials-handling, and it is my own experience, as one who has been accustomed to applying work studies to various sections of British industry, that the materials-handling situation in very large sections of British industry as such is so disgraceful as to enhance the unit costs of the articles which are subsequently produced. Then, also, there is the other point of inspection. This is important, too, because unless inspection is carried out properly then delays can occur at a later stage about which the ordinary operative can do nothing at all if a faulty article arrives for him to perform the next function upon.

In short, those who talk about the necessity to increase productivity, rather than tending (and I put it no higher than that) to blame the whole thing on to the operative, would do far better to examine the whole structure, which, of course, is what the directors or the leaders of the various firms are there to do. There are three types of industrialist, and they are all self-styled. There are, at the top of the list, captains of industry; there are then what are euphemistically described as leading industrialists; and the third grade is the mere industrialist. Some of these gentlemen—not those, like the noble Lord, Lord Schon, and many others, who are engaged in successful industries—might do well, before they call themselves industrialists on the basis of a membership of the Institute of Directors, to acquaint themselves in greater detail with what actually happens on the factory floor before they begin wholesale denunciations of the workers themselves and the trade unions which represent them.

As any student of factory procedure knows, and as anybody who has indulged in the practice of work study should know, all the functions within a factory are categorised under five heads: the operation itself, the time spent in inspection or verification, time spent in moving, time for delay, which sometimes occurs through no fault of the operative himself, and time that the object itself is held in store, whether a sub-assembly store, a buffer stock or whatever. The whole production process, even in an office, can be categorised in varying degrees and in varying numbers over those five categories of activity.

Where excess costs arise they arise from the time spent in collecting materials, in cleaning, in lost time because of no materials being available or because of faulty materials or because of subassemblies not arriving on time, machine breakdown, power failure or unclear instructions on the original operating instructions and, sometimes, because of interrupted priorities. In small or medium-sized firms, very often a director will interrupt the complete production process in order to establish a new priority to please somebody he has met over lunch or somebody who phoned and pressed their claims on him. That results in a loss of productive time.

Then there is the question of the unbalanced team: the working up to manufacturing the products that have finally to be assembled can be done only on the basis of having balanced teams of carefully-selected individuals who can perform their work in reasonable time, so that there is smooth production all the way through the line and all the way through the further processes. Finally, there is the time lost through maintenance.

All these matters are under the control of management. In the 25 companies to which I have referred, and in many others, companies which function quite well and which must be above average in the whole of British industry, these are matters that receive careful attention by all enlightened managements. One of the greatest services that the Government could perform for industry where industry needs to be informed—and, in a very large number of fields, clearly it does—is to draw to their more specific attention the magnificent work of the British Institute of Management and the British Productivity Council.

I have in front of me a work which was prepared under those auspices as long ago as 1954 in collaboration with one of Britain's most successful companies, Imperial Chemical Industries. If the industrialists read this, read the documents that have succeeded it and assimilated them and if members of the Government attended a seminar to be arranged on their behalf by the British Institute of Management and the British Productivity Council, they would begin to have a rather greater insight into how productivity can be increased than is evident from the very broad, sometimes spiteful, political utterances that they may make. For their part, they should accomplish everything they can to ensure that these two bodies receive the prestige to which their efforts in the last 30 or 40 years have entitled them.

I return briefly to the question of restrictive practices. I would not wish to avoid it. Restrictive practices arise essentially from two main sources. The first is fear and uncertainty—something that is comparatively unknown to those of your Lordships and many outside who are accustomed to more secure and comfortable circumstances. Secondly, restrictive practices and bad industrial relationships are due to a degree of cussedness and resentment which operatives very often feel and which have three basic causes. I make the point seriously. First, they arise in many cases from a contempt for the more obvious incompetence of some managements with whom they are in contact and, secondly, the cussedness and bad feeling can arise from a sense of frustration about unremedied deficiencies in organisation and procedures to which management's attention has been repeatedly drawn without any result. Thirdly, they can arise from anger at the social arrogance of some of these managements who presume to lecture them on the virtues that they themselves do not obviously possess, bearing in mind some of them—and where the cap fits it can be worn—have very little direct knowledge of what goes on on the factory floor. These are all matters which cause resentment and cause fear.

The reason I have addressed your Lordships in these terms this afternoon is because I fear—to use the words of those who are responsible for the introduction of the new Employment Bill, in order, as they say, to redress the balance—that the balance of denunciation of the ordinary working man in this country has gone too far and that it needs to be balanced by a proper regard to even more crucial deficiencies among some—and I repeat: if the cap fits it can be worn—managements.

To this situation, regrettably, the Govenrnment are contributing very little. The Government's present policies are harassing all businesses, whether they be small or large, successful or unsuccessful. There is no doubt that the high-interest policy to which they have persistently and dogmatically kept is, as we are talking now, having a disastrous effect on productivity in the United Kingdom. In support, I would quote the warning repeated in the Financial Times by the chief of Vickers. Sir Peter Matthews says: Industry is not infinitely elastic. As a business shrinks it reaches a point from which recovery is either not possible or extremely slow. Many companies are forced to devote all their attention to the immediate impact of today's orders, cash flow and profits. As I hope, the noble Lord, Lord Schon, would endorse, the concentration on those more immediate objectives to the point of grave apprehension does not produce a factory atmosphere in which productivity can continue to grow confidently or in which increases in productivity can occur at all. I hope therefore that the noble Viscount will not take it amiss when I say to him that many of his fellow industrialists in the outside world, whether or not members of the CBI, and many supporters of his in this House and in the other place, are becoming increasingly apprehensive that the whole social climate within which, ultimately, production must take place in this country is becoming steadily poisoned by the dogmas to which the Government are so tenaciously holding. May I express the hope that even at this late hour the Government will be able to pursue and announce policies that are constructive in their purpose, that are non-diversive and encourage all the people of our country, whether engaged in management or on the shop floor, in a common productive purpose for the future prosperity of our country?

3.40 p.m.

Lord ROCHESTER

My Lords, from these Benches I should like first to join in thanking and indeed congratulating the noble Lord, Lord Schon, on having selected as the subject for this debate the need in the national interest to increase our productivity substantially. He could not in my view have chosen a matter more vital for our future. I particularly liked the way in which he treated this concept of "us" and "them". How right he was to suggest that we have somehow to get into the way of thinking of all of" us "as being together and of" them "as being our international competitors.

It is significant, too, that the noble Lord, Lord Sieff of Brimpton, should have decided to make his maiden speech today on this subject. This is surely an indication of the importance that he and his great company attach to the problem. I understand that there is one day in the week when, if one tries to enter one of his stores at nine o'clock in the morning, one cannot get in. The reason is that for the first half hour on that morning managers and supervisors consult and communicate with their staff. On the face of it, the time so spent must seem to be entirely unproductive; but I dare say that in fact in the long run the half hour or so spent contributes more to increased productivity than any other half hour in the week. However that may be, it is better that the noble Lord himself should add anything further that he may wish to say on that subject. We on these Benches—and I am sure that I speak for noble Lords throughout the House—look forward to his speech. I am only sorry that I shall not be in a position to congratulate him upon it after he has made it.

Regarding the remarks of the noble Lord, Lord Bruce of Donington, as someone who, until not so long ago, was a manager, I do not think that I am in the best position to counter what it was that he had to say. But if he will allow me to say so, I think that the line he was taking regarding management really does not contribute very much to the elimination of this problem of "us" and "them", to which the noble Lord, Lord Schon, was referring.

As regards his comments on profitability and productivity, aside from the questions that were asked of him by the noble Viscount, Lord Trenchard, and the noble Lord, Lord Harmar-Nicholls, it by no means follows that, because so many of our leading companies are as profitable as are many of the major European companies, their productivity is as good. Many of our companies remain profitable relative to our international competitors despite relatively low levels of productivity rather than because we are, in that particular regard, on terms with our competitors.

It is nearly two years since the noble Viscount, Lord Amory, introduced a debate in the House on much the same subject. In doing so, he said that he believed the level of our productivity was the most serious of our economic problems because it lay at the root of most of the others, and it was likely to prove in his view the most intractable of them all. It was in keeping with the wisdom and experience that we have come to expect of the noble Viscount that, in framing his Motion on that occasion, he related productivity to employment in such a way as to indicate his belief that new job opportunities could not precede but only follow improved productivity.

Just how serious and intractable the problem remains can be judged from the fact that many people still do not understand even the difference in meaning between productivity—whether that is measured as sales per employee, as I think the noble Lord, Lord Schon, would measure it, or as value added per employee—on the one hand, and production on the other. For example, from people who should know better we still hear calls for more investment of capital or for the employment of more people, without any apparent recognition that because we are a nation that is dependent on foreign trade, the investment of that capital and the employment of those people can be justified only if they provide a return that keeps us internationally competitive.

In my view, our productivity will increase substantially only through a change in attitude of ordinary working people which derives from a clearer understanding of economic realities such as those. On the need for this understanding and the means by which this can be achieved, I think I have said enough in our discussions on the Industry Bill. The noble Viscount, Lord Trenchard, may feel that I have said too much; but at least he and I are agreed on the importance of the subject, and that whatever part Government legislation and encouragement should play in that process, it is primarily one in which management should take the lead within industry. There have recently been some welcome signs, I suggest, in British Leyland, in the British Steel Corporation and, if I may dare to say so at this time, on the part of the Central Electricity Generating Board in the Isle of Grain, of that lead being given and being followed.

I will now add only one point arising from my earlier experience as a manager in a large company in trying to overcome resistance to improved productivity on the part of employees. It is that this resistance often proves in practice to be due to factors such as fear—and on that point I very much agree with what the noble Lord, Lord Bruce, had to say—habit; failure of communication; poor relationships and lack of trust. If such obstacles are to be overcome, this can only be done through frank discussion between management and employees or their representatives, starting from the perceptions not of those who are seeking to effect the change but of those who are to be affected by it.

If low productivity is indeed the most intractable of our industrial problems, then I suggest that continuing wage/cost inflation contributes very greatly to it. The main weapon which the Government are using to conquer inflation is the control of the money supply. On this matter, Professor Sir Henry Phelps Brown, whom I greatly admire as the author of the pamphlet Where Do Rises in Pay Come From?, recently made a number of most discerning points in a letter to The Times. I am indebted to him for a good deal of what I next want to say, although it will not take very long.

What cannot be foretold is how, over the next few years, people are actually going to respond to monetary restraint. The Government appear to think that the contraction of demand, increased unemployment and bankruptcies of firms which look like being the effects, if not the purpose, of their policies will bring about a lasting change of attitude. But is that what will really happen? Suppose that the coming recession, deepened by Government action, succeeds in reducing the level of pay increases and that after two or three years the vigorous revival of industry that is envisaged occurs: what reason is there to believe that pent-up pay claims will not then be let loose again in just the same way as has happened, it must be acknowledged, in the past following incomes policies which have, after all, been only makeshift affairs?

Moreover, in the meantime monetarism will not work constructively for, if restraint is not to be enforced indefinitely by unemployment, it must come to be accepted voluntarily through understanding; and a weighty argument in favour of a renewed attempt to develop an incomes policy is that it is educative and not divisive and that through tripartite, if your Lordships will forgive the word, meetings at the highest level and the development of procedures for working through the problem, incomes policy rests on an appeal to reason and the spread of information. Monetarism, by contrast, relies on impersonal market forces in a field of human relations and it deals with fellow countrymen at arms' length. In the view of Sir Henry Phelps Brown, neither monetarism nor incomes policy offers the immediate prospect of instituting a lasting order. An incomes policy works towards a change in attitude without which, in the long run, order cannot be kept.

For my part, I believe that in order to increase the nation's productivity what we now need to do in this field is, through consultation between representatives of the Government, of employers, trade unions and possibly others, to get as near as possible to agreement on two points: first, on long-term procedures for pay determination. For example, as the late Sir John Methven argued, the annual pay round should be conducted over a period much shorter than at present, and negotiations in the public sector should come at the end so that they follow those in the private sector where market considerations have to apply.

The second point on which I suggest there is need to seek agreement is broadly what, having regard to our productivity—or lack of productivity—the country can afford by way of overall pay increases. Here an essential element in the process is that discussion should be so conducted as to enable the public at large to gain a clearer understanding of what is at stake before a decision is taken by the Government. It is not necessary, nor, it seems to me, desirable, that a bargain should be struck. What is necessary is consultation. I accept that in formulating an incomes policy the last stage would be the most difficult on how to gain sufficient acceptance not of course of some rigid norm but on general guidelines, so that in a field where until now there has been no restraint on short-term interest these guidelines can if necessary be enforced with all the authority that Parliament can bring to bear.

So as not to beg the most awkward question of all, in the last resort, what sanctions should the Government use to ensure that their counter-inflation guidelines are not breached? Should the instruments to be used be taxation, the removal of immunity from legal suit of those taking industrial action to breach the guidelines, or what? I shall not attempt to answer those questions now but, just because they are extremely difficult ones, that does not seem to me to be a sufficient reason for not beginning to face up to them now in case before long they do have to be answered. Surely this Government, more than any, would be wise at least to prepare for themselves a fallback position more accommodating to improvements in productivity than the ice-hard rigidity of the total pay freeze that they may otherwise have to introduce before long. If their monetary measures fail over the next few years the only alternative to incomes policy that I can see is the imposition of widespread import controls. Those, in my view, would certainly not help to increase our productivity.

I am sorry to have introduced in turn what may seem to be a somewhat controversial note into this debate. I have done so only because in my view the need to increase productivity is not separable in the long run for the questions of pay, prices and employment; and sooner or later I believe we shall all have to come to that realisation.

3.57 p.m.

Lord SIEFF of BR1MPTON

My Lords, I should like to thank the noble Lord, Lord Rochester, for his generous remarks. As I rise for the first time, I am deeply conscious that my father made his maiden speech on productivity 14 years ago in your Lordships' House. I am sure your Lordships will show me the same indulgence as you extended to him. I beg your Lordships' forbearance for quoting what he then said, which was as follows: Lying at the core of our economic problem is the need for a special attitude of mind on the part of those engaged in industry and commerce, and an understanding of sensible co-operation. To break down the element of fear, suspicion and insecurity is a very difficult thing to do when dealing with human relations, but it has to be done if industry is to reach the high degree of efficiency which we all desire. "(Official Report, 26/4/66; col. 71). Looking back over these last 14 years, I see only very modest progress. Our present standard of living is due in no small measure to our oil and gas production, and not, I regret, to a generally good economic performance. The noble Lord, Lord Schon, has done a public service to call attention once again to the urgent need to increase productivity. I believe your Lordships welcome contributions to your debates based on personal experience. What I have to say is largely based on my experience with one firm, in which I have worked for nearly 50 years; but such progess as we have made would not have been possible without close co-operation with many companies in the field of manufacture, agriculture, building, transport and with many scientific and technological institutions. But, above all else, our progress and high level of productivity are due to the co-operation which has been built up between management and all other employees.

What have I learned in these nearly 50 years? The creation of wealth for all to share demands a high working performance of everyone and needs cooperation, not confrontation, between managers and other employees. Conflict solves nothing and benefits nobody except those who want to change our economic and social system in favour of some other system of a totalitarian nature, whether of the Left or the Right, and under such régimes living standards are low generally and progress and productivity poor. The great majority of people in the United Kingdom are moderate, law abiding and ready to work together, but most want to be treated as responsible individuals who merit respect. Many feel that they have a constructive contribution to make, and most of them have.

The kind of industrial leadership indispensable to a modern democratic society can only exist if top management is seen by its deeds to be committed to implementing in practice a policy of good human relationships with all employees. I use the term "good human relations" rather than the more commonly used term "industrial relations" because we are human beings at work; we are not industrial beings. Human relations in industry should, for example, cover the problem of the individual at work, his or her health wellbeing and progress, the working environment, profit sharing, It implies—and this is very important—good communications both up and down. These areas, additional to wage bargaining, are often inadequately covered by today's industrial relations procedures. It is my experience that all senior management, be it Government, trade union, private enterprise or nationalised industry, sincerely believe in the importance of good human relations. But, in fact, some top management merely pays lip service to it and does nothing about it; others believe in it, but do not know how to implement it. But those who understand and implement such a policy invariably create an environment where people work hard, work well and work together, where productivity is high, and the organisations concerned are progressive and profitable. They are creators of wealth in which everyone shares.

So management must recognise and implement its social responsibilities. But, if they do so, equally union leaders and employees have to recognise their responsibilities and obligations as well as accepting the benefits such a policy brings. I am glad to say that many do so. But unless the leaders of industry and trade unions pursue tenaciously but with patience a policy of good human relations and cooperation, we must not be surprised if our national productivity, our competitiveness, our standard of living and the quality of life fail to improve.

There is another problem which both sides of industry must tackle together; that is, the high and growing level of unemployment. During the last three months I have visited 14 major factories employing many thousands. They are concerned mainly with clothing production and food processing. They are modern and all have high productivity. All have one thing in common; investments in recent years of tens of millions of pounds into the most modern methods of production, computers, mechanisation and automation. Without this investment these plants would not have achieved their high level of productivity and profitability. They would not have been able to compete in either home or export markets. But there is a necessary corollary. This increased efficiency and high productivity almost invariably means that more is produced to a higher standard of quality with fewer people, so unemployment increases at least temporarily. If, however, the businesses concerned do not improve their efficiency and productivity, eventually they will lose their markets, cease to be viable, close down and everyone becomes unemployed. We have seen many examples of this in the past 20 years.

It is natural in such circumstances that some employees and some union leaders resist the introduction of modern methods and cling to outdated systems, which for a short time maintain unemployment, but in the end lead to greater unemployment as firms shut down. We must face up to this fact. How do we tackle the twin problems of increased productivity and unemployment? I cannot offer a solution, but I have one suggestion which could increase employment and alleviate the problem: that is, the development of entirely new industries based on modern technology for which there is, and will be, a growing market.

I should like to refer to the report of the Joint Working Party on Biotechnology, published by the Government in March this year. With your Lordships' permission, I will quote from the summary of conclusions and recommendations of these distinguished scientists and industrialists: We envisage biotechnology—the application of biological organisms, systems or processes to manufacturing and service industries—as creating wholly novel industries with low fossil energy demands which will be of key importance to the world economy in the next century. Over the next two decades biotechnology will affect a wide range of activities such as food and animal feed production, provision of chemical feedstocks, alternative energy sources, waste recycling, pollution control and medical and veterinary care. For the United Kingdom, biotechnology is an area of high technology with large potential growth offering opportunities for the renewal of various existing industries and the creation of new ones. It can be used by both "large and small businesses", The summary continues: British industry must respond faster to the challenge presented and grasp these opportunities to develop new products and processes and supply equipment and reagents in both home and overseas markets. Regrettably, by comparison with our competitors. West Germany, Japan, the United States, investment is low and opportunities have been missed". That is part of the summary of the report. I do not think that this report has received the publicity or the attention which it deserves. Biotechnology, which includes such developments as genetic engineering, could well be in the 80s and 90s what electronics have been in the 60s and 70s. For example, just as penicillin was the result of the application of biotechnology in its early stages, the production of interferon—about which so much has been written in recent months—on a commercial scale, with its huge potential demand, may well result from the application of modern biotechnology.

The working party, under the chairmanship of Dr. Spinks, made a considerable number of recommendations which, if implemented, would result in a well-organised and co-ordinated effort, not just by the research councils but including the universities, the Government, the CBI, many industries and trade associations specified in the report. I am told that the amount of money involved to give this impetus to the new high technological development is initially extremely modest and that later finance should be self-generating.

I believe that it is along these lines of identifying and opening up new opportunities for far-reaching innovations that one answer will be found to improve production, to develop the economic growth that the country needs, and to provide employment. But a high level of productivity in long-established industries which are now very sophisticated, or in the new industries of the near future, demands co-operation between all concerned, and this in no small measure depends upon management's attitude to human relations in industry. There is much that we can do to help ourselves.

4.11 p.m.

The Earl of SHANNON

My Lords, I regard myself as most particularly fortunate, in that it has fallen to my lot to be the first speaker to have a chance to congratulate the noble Lord, Lord Sieff of Brimpton, on his excellent maiden speech. He brings to your Lordships' House his great wealth of commercial and industrial experience, which is typified in the internationally famous company which he chairs with, I understand, great personal involvement, in that he arrives in his office before 8 o'clock in the morning every day.

That company's success is largely due not only to this exemplary management and the personnel relations, which he has described to your Lordships, but also to their enlightened system of strict quality control which they exercise over the products they sell, and the advice and guidance which they give to the manufacturers who supply them. It is this outlook which is an example so badly needed in many spheres of British industry and which qualifies him, as I know your Lordships will agree, as a major contributor in this afternoon's debate. I am sure I speak for all your Lordships when I say that I hope he will not confine himself to this debate alone, and that we shall often on future occasions have the benefit of his wise advice.

Like others, 1, too, should like to express my thanks to the noble Lord, Lord Schon, for introducing this debate this afternoon. We all ought to thank the noble Lord for keeping us talking about productivity. Too many of us say, "Of course, productivity is one of the main answers to our troubles. But there's nothing new or wonderful about that—nothing startling. We all know that. Let's talk about something else". It is most important that the noble Lord, Lord Schon, is wanting to keep us talking about productivity until somebody does something about it, and we should not start talking about something else.

There are many aspects of productivity, as previous speakers have already reminded us, and we all know that it is one of our major factors in defeating inflation. Much of our inflation is due to the fact that we have become accustomed to paying ourselves what we want; not what we are worth. I am afraid that there have been decades of weak government which have allowed this to happen, and we are now paying for it with inflation.

Whether the present Government's action is appropriate, I should like to leave the major political parties to argue among themselves. Personally, I believe that their actions are undoubtedly right. But as to whether the treatment is too right, too late, I suppose we shall have to wait and see whether the patient dies before it is cured. However emotionally upsetting it must be to those who spent at least a generation in satisfying social consciences out of the public purse, I think that the Government are right in avoiding, so far as possible, cutting assistance to the wealth-producing areas. If those wealth-producing areas collapse, then there will be nothing at all left for the socially satisfying, wealth-consuming areas.

As an indication of the international state of inflation, it might be interesting to look for a moment at the rates of improvement in productivity and pay for the fourth quarters of 1976 and 1979 respectively, those being the latest figures that I have been able to obtain. The United States improved productivity on a basis of output per person per hour by 2–2 per cent., yet they paid themselves 8 per cent. more for doing it. Japan improved productivity by 5–2 per cent. and paid themselves 5–3 per cent. more—nicely balanced. France improved productivity by 5–5 per cent. and paid themselves 13–1 per cent. for doing it. Germany improved by 3–6 per cent. and paid themselves 5–9 per cent. for doing it. Italy improved by 3–1 per cent. and paid themselves 17–9 per cent. for doing it—nearly 5¾ times as much as the improvement. The United Kingdom improved by 1.1 per cent. and we paid ourselves 14–4 per cent. more for doing it. We were, therefore, paying ourselves 13 times as much as we were really worth in improvement. Compare that, my Lords, with Italy's 5¾ times.

All this makes it obvious why we have inflation. So what are we to do about it? The solution is obviously not simple. There is no one universal panacea, and we have heard many good suggestions from previous speakers. We have touched on the subjects of labour relations, management, investment, rates of interest and bureaucracy crushing struggling small firms, but because of my own particular interest I should like to concentrate on the subject of innovation and the adoption of new technology.

I must emphasise that, in itself, it cannot be a sole, or even necessarily a major, answer, as any investment in new technology is immediately handicapped, unless steps are taken to use new equipment to the full and not leave it gathering dust and overhead charges for whatever product it produces, until the single shift condescends to come back and start work again. As a country, we are good at producing new technology. We are bad at adopting it in our industry, and we are equally bad at using it to its full potential, when, and if, we do adopt it.

I suspect that to-day in British industry there is far too much, of an attitude of saying "Well, let's shorten sail, batten down the hatches and wait till the storm blows over". I suggest that, even with this shortening of sail and battening down of hatches, industry will not survive this storm. It will steadily go down, unless it actively takes steps to get out of the storm and does not just wait for it to blow over. As the noble Lord, Lord Schon, has told us, this time it is for real. This is our last chance. This is not one of those periodic crises which we have had in recent years, which appeared to come and go—yet did not really go—and which mainly seemed to provide a stage for the major political parties to shout at each other. Each said the other was worse than itself and that the fault was really that of those who supported the other party. However much fun this has given to professional politicians, it does not help industry at all.

I suppose it must be a sign of advancing years, but I must observe that over the last few decades the captains and kings have departed, leaving the children to lead us. Oh, for real national leaders! Still, we must make the best of what we have got and try to instil some sense of national purpose throughout much of our industry unless we are prepared to abandon our present standard of living, to opt out and to become a nation of tourist guides, showing rich Chinese, Mongolians, Formosans and everyone else over England's green, pleasant and once great land as our only means of support, perhaps assisted by selling the remains of our North Sea oil to nations better able to use it than ourselves.

Nobody likes change. The adoption of new technology is bound to mean change and is bound to cause resistance. It is perhaps an unfortunate fact of life for some, that if there is to be unemployment through the use of new technology it is better by far to adopt the new technology and to be able to pay for the resulting unemployment than the alternative of not adopting the new technology and being unable to pay for the unemployment caused by being internationally uncompetitive in our industry. In fact, we have no choice.

However, not all new technology causes unemployment, but where it does we must have the wherewithal, through the wealth created by being internationally competitive, to absorb the unemployment either in new industry, as the noble Lord, Lord Sieff, has just told us, or in new or existing service industries. If I may quote the last director of the National Computing Centre, he said: If at the turn of the century we had decided against using the internal combustion engine on our roads on the basis of the number of ostlers it would put out of business, we would never have had a motor industry, or its ancillary service employment, or a competitive system of getting goods around the country ". In direct terms of new technology giving rise to new employment, may I ask your Lordships to consider this one small example? Development over the last 30 years has produced the small bore tubing and glandless pumps which have enabled central heating to be afforded by the average householder. This has created some 80,000 jobs in this new industry, jobs which did not exist 30 years ago. And the manufacture of ancillary control systems accounts for a turnover of another £100 million a year, with the creation of some 5,000 new jobs that certainly did not exist before 1950. That is only one example.

I should like to conclude by asking Her Majesty's Government one question. I suspect, I am afraid, that I know the answer and that it is going to be, "Nobody; we just muddle through as we always have". But in asking the question may I leave the thought with Her Majesty's Government that they might like to put in train the necessary actions that in future might provide a different answer to the same question.

As we spend very large sums of public money on research in universities, for a long time there has been agitation that their research should be industrially orientated. The Science Research Council responded with various schemes. Various universities, with varying degrees of success, have assisted industry, sometimes very successfully, with their facilities. I am not asking that any of this should be abandoned; I am not asking that the universities should be told what to do. What I am asking is this: is there anyone to whom the Minister can point his finger and say, "That is the person who has the responsibility for looking at the great wealth of results of university research, assessing their potential value to industry and taking steps to get them implemented?".

I know that the National Research Development Corporation has done much work in this field; so have research associations; so have private consultants; so have the requirements boards of the Department of Industry; and so have the universities themselves. However, the question is not, who has been doing it? but, who has the direct responsibility for seeing that this great national asset, in a field in which I would suggest that we are really rather good, is put to the best national advantage? The Department of Education and Science do not have this direct responsibility and I do not think that there is anybody who does. So my question could be an invitation to the noble Viscount who will be speaking on behalf of Her Majesty's Government in this debate to answer, "There is nobody, but I will accept it on behalf of the Department of Industry". For, in my opinion, that is where this responsibility should rightly and most profitably lie.

I hope that I shall be able to stay until the end of the debate. However, I have another long-standing engagement. If, therefore, I have to leave before the debate finishes, I trust that your Lordships will forgive me.

4.27 p.m.

Lord BOWDEN

My Lords, may I add my voice to those who have thanked the noble Lord who initiated this debate, thus allowing us to discuss this important subject this afternoon. There can be few, if any, men in the world more fitted to introduce a debate such as this. He came to this country impoverished, with nothing but his genius. He created industries and made districts of England, which might otherwise have been impoverished at this moment, relatively well off. I think that the country as a whole is greatly indebted to the noble Lord for the work he has done, just as this House is indebted to him for allowing us to debate the subject this afternoon.

I am also very grateful for the opportunity to congratulate the noble Lord, Lord Sieff of Brimpton, on a perfectly magnificent maiden speech. His firm is one of the most extraordinary achievements of this or any other country. I remember thinking to myself when I was last in Moscow, that were they to open up there they would do more to introduce true democracy into a communist country than anything else that could possibly be imagined under any circumstances. The noble Lord's speech was interesting, informative, and, so far as I was concerned, very precious. Therefore, I hope that we shall have many opportunities to hear him speak again.

Whenever I have the opportunity to discuss these matters with your Lordships, I like to try to concentrate on a particular and perhaps rather fundamental but most material subject. Therefore, I should like to discuss briefly some of the implications of the Government's policy as we have observed it in action so far, the most important one being the imposition of spending cuts. What have these done for industry? I should like to revert once again to the question of what they have done for the preservation of the infrastructure of the community upon which industry depends. On the last occasion upon which I addressed your Lordships I referred to an enormous hole, the size of a double-decker bus, which had appeared in Oxford Road, Manchester, on account of the collapse of one of the main sewers. Your Lordships will be glad to know, I am sure, that in the months that have elapsed since then the hole has been mended; but, unfortunately, another hole almost exactly as big has arrived in the middle of Market Street, Manchester, very near to one of the main department stores well-known to the noble Lord, Lord Sieff.

These catastrophes, for they are little less, are due to a wilful neglect on the part of many Governments of what in my day used to be called preventive maintenance. It is not enough to wait till the roof falls in before you mend the tiles; it is not enough to wait until successive large streets in Manchester fall in before you mend the sewers. Governments have in effect saved money by wilfully reducing the limited funds which are available to the community at large for the preservation of the main items of the infrastructure upon which civilised life depends.

I was talking the other day to one of the men responsible for the maintenance of the roads in a southern county of this country, which perhaps ought to be nameless. He told me that on present plans he hopes to be able to resurface the subordinate roads once every 325 years. I know from my classical readings that when the Roman Empire started to collapse the first sign of neglect was in the decay of the ordinary small roads along which ordinary commerce moved, while they kept the main roads along which the legions could march in proper working order. We are following this remarkable historical precedent 2,000 years later.

I think it deplorable that any Government—and I am not criticising this one more than any other—should have been so neglectful over a period of many years of what one can best call preventive maintenance of the infrastructure on which the whole community, including industry, depends. I have said in this House before, and I repeat it, that I believe in fact that the total cost of neglect can be great and catastrophic, but the total net cost of doing the work is very much less than people usually think, because of the fact that the men who are now unemployed could put their lives to good use. Furthermore, the machinery which is now rusting away could be brought out and properly used. I believe the net cost of doing some of the work so urgently needed would be relatively small.

It is a curious thing to say, but it may well turn out that the best buy open to the Government today might be, let us say, to mend the sewers in Wigan. I do not know. But the Government must take this sort of possibility seriously and contemplate the thought that by saving small sums of money in this way they are laying up not treasure in heaven but catastrophe on earth in the very near future. No great community can survive unless the infrastructure of roads, of drains, of water, electricity and gas are all kept in some reasonable state of repair. The Government are going to allow these things to decay at their peril. It is this sort of thing more than anything else, in my experience of Manchester and its environment, which discourages ordinary working people. They think to themselves "What is the use?". That is point number one.

The next point I should like to take up is the point made by the noble Lord, Lord Bruce of Donington. He spoke of the great profitability of English firms. The question of the profitability of English firms is at the moment a matter for vigorous, violent and passionate dispute among the accountants responsible for computing it. I would mention just one or two cases; for example, the case of TCI. I was lunching with the chairman and the finance directors a few months ago and they told me that if they calculated their profits in the usual way which the Government requires, namely the historic costs, they made 19½ per cent. on invested capital. But they also said that if they did the sums in such a way that they allowed appropriately for inflation, they made 5 per cent. of their capital. I want to know, if it is at all possible, from the noble Viscount who is winding up, on what basis the Government are going to tax these firms in future. And in particular I should like to ask the noble Lord, Lord Bruce, to let me know, perhaps in writing, whether 1CI was in the category of profitable firms, and, if so, on what basis was it calculated.

Another very large textile firm, well-known to your Lordships, made a profit of £16½ million, according to one basis of calculation. According to the other basis it lost £44 million. I have to say to you, my Lords, because I think it is desperately important, that we have in effect been taxing companies, and we have been encouraging them to pay out dividends, on profits they have not actually earned. The reason has been that we have obsessively insisted on the use of historic cost accounting long after the fact that it was misleading and dangerous had become apparent. J hope that, now that the accountants have at last come to some decision, the noble Viscount who winds up will be able to tell us on what basis taxes will be levied next year. It makes all the difference if you are taxed as if you have made £16½ million profit when in fact you have lost £4½ million instead.

I discussed this problem with the noble Lord, Lord Stokes, when he was chairman of British Leyland. He told me, and I am sure he was right, that in the last year before they were finally taken over the company made a loss of £45 million, but it was taxed as if it had made a profit of £50 million. I cannot elaborate on the details but Mr. Healey had not then introduced his allowance on stock appreciation.

Lord BRUCE of DONINGTON

My Lords, if the noble Lord will forgive me for intervening, will he tell the House whether he is aware of the provisions of Schedule 5 to the Finance Act 1976 and whether he has taken that into account?

Lord BOWDEN

My Lords, I am afraid I could not understand it, and I would be awfully grateful if the noble Viscount who is to wind up would say quite simply "We are to tax on historic costs" or "We are to tax on inflation accounting profits". It is a simple question and a simple answer. I may mention too that the EEC has published a complicated document on the nature of company accounts, from which I cannot discover what they really recommend.

The main point I want to make is that we are, perhaps not unreasonably, almost to the exclusion of all other matters, obsessed by inflation. There is no doubt that inflation is extraordinarily important and dangerous, but J regard it as being less important and less dangerous than the increase in unemployment which I see around me in the part of the country from which I come. Once a man has lost his job, once he has failed in fact even to do a day's work, the opportunity has gone forever. But inflation seems to me very often to be an abstract thing, and it seems often to be associated with the kind of individual who boasted, at a time when he was the blue-eyed boy of the party opposite, that he did not expect to make things, he made money instead.

We must never forget that the real things which matter are nearly all physical, material things, and that inflation does not of itself reduce the amount of coal in the ground or the skill of the workers. It may, if it is allowed to do so, destroy the companies for which they work, and it does so not because it is of itself dangerous but because combined with a system of accounting which never allowed for it it has produced a capital levy which has taken the capital of British industry ever since the end of the war.

When I was briefly a member of the Government in 1965 I was given a sight of a Treasury paper on the total amount of capital invested at that time in British Industry. They had compared the total amount of capital invested in British industry in 1952 and the amount invested in 1962. There had been an intensive investment programme throughout the whole of that decade, but the amount of money taken out of British industry because of taxes based on profits which did not really exist, was greater than the total investment which had been made during that time. In other words, there had been a capital levy even in the days when inflation was running at about 3 or 4 per cent., which was of itself enough to take out all the capital which was then being put in. Now that inflation has mounted, as it has done, goodness only knows what will happen to the capital in British industry.

We were told when I last looked at the figures that the nominal profits that British industry was making had risen to about 16 per cent. and the real profits were down to about 1.5 per cent. That was the situation last year, but I have not seen the figures for this year. It was upon that large, inflated, misleading and unreal profit that British industry was taxed and it was for that reason that it lost its capital to the Chancellor of the Exchequer. Moreover, that is why we have had a capital levy of enormous size wholly unknown to the people responsible for levying it and totally destructive to British industry in the meanwhile.

I hope that the Government will be able to take some positive steps to persuade people that it is worth while working, that there can still be opportunities for people, that companies can still be profitable in a real sense, and that the infrastructure upon which all these vast enterprises depend will be retained so that people can have some pride in the cities in which they live.

Sometimes I think that we speak almost as theologians. I listened to yesterday's debate which I found fascinating intellectually and in every other way, but in my view it was devoid of content in the sense that it did not impinge on any world that I knew or understood. The right reverend prelate who has just come in to the Chamber will doubtless remind us of the days when considering the nature of the Holy Trinity, someone declared the Father incomprehensible, the Son incomprehensible and the Holy Ghost incomprehensible; and yet there are not three incomprehensibles, but one incomprehensible! I cannot help thinking that people listening to some of the debates that we have had on the nature of the relationships between management and their employees will take the view that those debates have been as obscure in their conclusions as anything ever enunciated by the mediaeval schoolmen.

We are discussing a desperately urgent problem. I know of young men who cannot get jobs. They are competent, hardworking and ambitious people, but they are being destroyed by this situation. One of the reasons for it is that the Government have decided to save money by cutting back on their capital invest- ment programme. They have not supported industry, for example, in some of the contracts for the defence programme.

We speak of our failure to seize opportunities. I am sure that your Lordships must know the terrible story of what is probably the greatest invention that British industry has had to boast of for many years. The inventor was awarded the Nobel Prize for his invention, which was a new mechanism for X-ray scanning the body which produced a much more detailed analysis than could be had in the ordinary way. The company which supported him did extremely well and sold the machines in the United States, until President Nixon cut back on hospital spending. What happened, my Lords? We closed the business down and sold it off to the States. Could there ever be a greater opportunity which was more totally muffed by British industry? It was compelled to cope with taxation based on a system which I have said is meaningless. The Governor of the Bank of England said about a month ago that most profits these days are non-existent and illusory. But, let us think of it: a great inventor wins the Nobel Prize; he thinks that an industry will be based upon the work which he has done, but he finds that it is sold to the United States.

We cannot go on like this. We are failing—we are talking about abstractions. I try to bring our debates back to concrete matters like drains upon which, in the end, the whole of our society depends. We neglect them at our peril and we do so, I believe, in the totally illusory belief that if we could once conquer inflation everything else will be all right. I fear that by the time we have conquered it there will be nothing left!

4.45 p.m.

Viscount AMORY

My Lords, I always enjoy the opportunity of listening to the noble Lord, Lord Bowden. I remember very well when he wrung our withers with the sad story of the sewer in Manchester. When I realised that I was to follow him on the list of speakers this afternoon I rushed to the Library to read up about sewers but, of course, the noble Lord, Lord Bowden, has talked about something else. However, he told us a great many things that it is right we should listen to with respect. I disagreed with him when he described inflation as "an abstract thing". I think, in general terms, that it is very far from that.

I have no general quarrel with the remarks of the noble Lord, Lord Bruce of Donington. I thought that he deployed his considerable knowledge and experience of industry with skill until he came to his peroration, and there I must disagree with him sharply. But, we are all allowed a little licence with our perorations and they do not really matter because your Lordships, in my experience, never listen to them! However, I think that the noble Lord, Lord Bruce, was perfectly right to stress the importance of salesmanship, which I believe is not one of our strongest national points.

It was a real privilege to listen to my noble friend Lord Sieff of Brimpton, who is one of the ablest commercial managers in the country, and to find him in such magnificent form. How much we all look forward to hearing him on many occasions in the future. I have one sad matter to report to your Lordships—namely, that a year or two ago, I think as the noble Lord knows, my girth was found to be two inches in excess of the maximum circumference which the noble Lord's great company's research department had told him was reasonable for a civilised adult of my age, with the result that I had to go to another emporium to obtain the garments which I shall proudly, but with some regret, display to your Lordships if your Lordships would like me to do so!

I am sure that we shall all want to express our real gratitude to the noble Lord, Lord Schon, for introducing this vitally important matter to us this afternoon and for speaking with his great knowledge and authority. It was a pleasure to listen to a master entrepreneur, if I may so describe him, because that is a quality which we so much need in this country.

The noble Lord, Lord Rochester, was good enough to refer to a debate we held in this House nearly two years ago, and was kind enough to mention that I had expressed an opinion on that occasion that our level of productivity in relation to our international competitors was likely to prove the most intractable of our economic problems. Since then I am afraid that any progress that has been made has been minimal and hard to identify.

Whether our productivity is measured per person employed or per unit of new invested capital, our performance is relatively bad. Until we can get our productivity up, it is useless to talk about higher standards of living. In fact, there is no escape from a fall in our national standard of living. Let us hope it will prove only temporary. Not even the bonanza of North Sea oil can prevent it happening.

Twenty or 30 years ago our productivity was rising, though even then—now that we can look back on all the statistics—it was not rising so fast as that of some of our competitors. Unfortunately, as the noble Lord, Lord Schon, said, it is much easier to secure increases in productivity when business is expanding—and today it is contracting. Why is production contracting? In our case I think the main reason must be cost inflation, with its accompanying price increases. I say "cost inflation" because this time it cannot be what we used to call "demand inflation" 20 or 25 years ago, or more.

Of course other reasons play a part—world recession, the strength of sterling, import penetration; but in my opinion these are subsidiary to the main problem. We are suffering really from three diseases: inflation, low productivity and unemployment. When a patient suffers from more than one complaint simultaneously a good doctor sees whether one is symptomatic of or consequential on one of the others, and he treats the one which he believes is the fundamental cause. It is clear that on that analogy inflation is the cause and unemployment the serious symptom. If the cause can be eliminated the symptom will become less grievous. I believe the present Government have got their main priorities right. The prerequisite for bringing down unemployment must be the breaking of the vicious circle of inflation, to which the noble Lord, Lord Schon, referred. Without that, attempts to promote more employment will be frustrated.

Part of the cure is within our national control; part, such as the increases in oil prices, is not. But what are the main factors involved in combating our own internal cost inflation? Surely two stand out: one, a strict control of the money supply, which is not so easy as it sounds. To control the volume in its varied forms today is hard enough, but to measure the velocity of circulation must be still harder. In my opinion, strict control of the money supply by itself is not enough. If that were the only instrument applied to remedy inflation, by the time it had worked sufficiently, as is often said, the patient might be dead. One must be very careful in applying a tourniquet.

The other factor, surely, is the rate at which money incomes increase regardless of productivity. I believe that we as a nation now accept in theory that the standard of living we can expect will be what we can earn by our own efforts; but we still seem to expect that as inflation brings with it price increases we can fairly expect our own individual incomes to rise, at least by the same amount as the cost of living rises, and so insulate ourselves from the effects of inflation. That is a most dangerous delusion. Sadly, in our present circumstances, increases in wages and salaries equal to the rise in the cost of living index without corresponding increases in productivity is a sure recipe for continuing or even aggravating inflation. So temporarily our national standard of living has to come down. Indeed, it is coming down and it must do so—we will hope only temporarily.

Now I come to a factor which I want to deal with fairly and carefully—the attitude of our trade unions. I do not enjoy, and never have enjoyed, what is sometimes called "union bashing". When I was in industry I always, I hope, gave ready recognition to trade unions within our plants. I recognised their traditional role to work for their members' benefit. But, like others of us, they are by nature very conservative. With respect, they tend to pursue their members' short-term interests at the expense of their long-term interests. This often leads them to fight for levels of manning which are excessive and unrealistic in terms of what modern technology requires and other nations employ. So their traditional efforts are out of line with their members' real interests, and often result in their members being priced out of the market, thus resulting in additional unemployment.

What I am asking them to do is something which I realise will be very hard for them in view of their long traditions. It is no less than to accept a new role; to set out positively to help promote an increase in the efficiency of industry and thereby the security of their members' employment and real wages. That is the only way in which their members' real earnings can be got on to an upward path. Today, sadly, the policies of unions are often working in the opposite direction.

But, my Lords, you will ask, am I making this demand for a drastic change of attitude on the part of the trade unions alone? No, I am not. I suppose I have been something of a consensus man all my life. It is almost a dirty word, according to some of the fashions of today, but my experience in life has led me to believe that if one wants the people one is working with to pay attention to one's views, one must be sure that they are given an equally full opportunity to express their own views and, as far as is feasible, to participate in whatever cooperative effort may be needed in the common interest. So, there is a very real responsibility falling on management to manage efficiently, as the noble Lord, Lord Sieff of Brimpton, so well brought out in his speech, and the noble Lord, Lord Bruce of Donington, referred to, and I do not deny that in any way whatever. The responsibility of management is to secure that everyone employed takes as full a part as can be devised in the fortunes of the company, in the interests of all.

When human relations—and I agree with the noble Lord, Lord Sieff, that that is a better phrase than "industrial relations"—are really good, such an attitude comes almost naturally. Many companies are working really hard to bring about such relations. As the noble Lord, Lord Bruce, acknowledged, many are highly efficient but some still cannot believe that these human relations objectives are attainable. It is as usual a problem of mutual respect and of bringing the performance of the average nearer to the level of the best.

Finally, what of the Government's role? It goes without saying that with their responsibility for the supervision of the economy as a whole their task is clearly to try, within their proper responsibilities, to create the economic conditions most favourable to industrial and commercial expansion without inflation. It is a strategic role and the less they get involved themselves in the details of industrial administration, the better.

I see my noble friend Lord Harmar-Nicholls, in his place. I have mentioned before in this House something he said in an earlier debate which made a deep impression on me, when he reminded us that we have 800,000 small businesses in the country. If we can create conditions in which each of those businesses can feel a legitimate confidence in the future, sufficient to enable each to take on one more employee, it would make an enormous impression on the sad volume of our employment today. These are the conditions which alone will lead to the upsurge of new investment in British industry, which we all yearn to see.

One thing which it is very important to get understood is that higher productivity does not usually mean harder or more laborious work or longer hours, but more effective work. In the businesses that I knew best I had no complaint to make about idleness or laziness on the part of operatives on the shop floor. It was quite the contrary. Occasionally I perhaps felt grieved about their loyalties to out-of-date methods of which I, myself, may sometimes have been guilty.

No one can pretend that we are yet combining our national strengths or all pulling in the same direction. On the contrary, we are dividing and exhausting our strength by sectional conflict and meaningless disputes. Our friends overseas, who respect our character and believe in our potentialities, are amazed and concerned at our suicidal antics. The time has come for us to take a grip on ourselves, and, by a national effort and a combined national resolution, to correct our failings—a task which I believe is well within our powers—and show the world again that example in industry and commerce which it used to be our proud boast to display.

5.2 p.m.

Lord SPENS

My Lords, I want to add my congratulations to those already given to the noble Lord, Lord Sieff of Brimpton, on his maiden speech. It was a marvellous speech to listen to and it made a deep impression on me on two counts. First, he suggested that we use the phrase "human relations" rather than the phrase "industrial relations". Briefly, I should like to tell of an example of the human relations which emanated from the noble Lord's firm. A cousin of mine worked in that firm for many years; he then became ill and the firm looked after him; when he died the firm took care of his widow. We could not expect greater human relations than that. The noble Lord's other suggestion was that new industries based on the new technological progress that is taking place must be encouraged. I am quite certain that that is something which we must all watch and help.

I should also like to congratulate my noble friend Lord Schon on introducing this debate. I think that it was inspired by the closing words of the maiden speech of the noble Lord, Lord Scanlon, which was made on 27th February. At column 1365, he said: In my view we have but a short five or 10 years in which to re-establish ourselves as a leading industrial nation". Those words hit the headlines in the press and certainly made a profound impression on all who heard them, because, as we all know, the noble Lord, Lord Scanlon, is a very great expert in his own field of engineering and the engineering trade unions.

I come to productivity. It is very easy to think of productivity as just a question of getting the workers to work harder. I agree with the remarks made by the noble Lord, Lord Bruce of Donington, that it is not only the workers who have to work harder. They do; they work very hard. Of course, they must ensure that the quality of their work is maintained. But in order to have increased productivity, everyone must work harder; not only the workers, but management, the unions and the Government.

I should like to suggest how I think we can achieve that from those other three sources. First and foremost is management. Management must have the overall responsibility for obtaining higher productivity from its workers. I believe that at present management is failing to communicate sufficiently with the shop floor. That comes out more particularly when one considers that nearly all strikes happen in the largest industries, where the distance between the top level of management and the shop floor is very great, or in the public services, where again the distance between the top floor and the shop floor is very great. There is very seldom a strike in a small industrial firm where management knows its workers, knows all about them and is continually watching how they behave and how their families behave, and looking after them in the way that the firm of the noble Lord, Lord Sieff, always does for its employees.

Therefore, I believe that management must take a great responsibility for increases of productivity. It was very pleasing when I was at a meeting of our Select Committee which was trying to find remedies for long-term unemployment, for me to hear Sir John Greenborough and his fellow officers from the CBI give evidence before us. We spoke about this problem of communication in management, and Sir John Greenborough told us that it was a subject which the CBI was taking very seriously indeed. They consider that it is now almost the most important subject with which they have to deal—to try to get management more professional than it has been in the past. So management must take a very great responsibility for obtaining greater productivity.

I then come to the unions. They also have to do their share. What comes to mind immediately is the problem of their restrictive attitudes. In a way, the noble Lord, Lord Bruce of Donington, dealt with those points, but he did not convince me that that was all that mattered. There is still a much too restrictive, even almost a Luddite, attitude in some unions about the introduction of new technology, and an example of that was brought to my attention only to-day, although I would have known about it had I read the relevant law report in The Times on 4th March.

The matter was brought to my attention by somebody who knew I would be taking part in this debate. It is the case of a company called Health Computing Limited, which failed to get an interim injunction against NALGO when they were trying to introduce computing services into the National Health Service and would, if they had been able to do so, have saved the NHS millions of pounds. But NALGO refused to work with them and instructed its members not to give any orders to that firm and not to act with any products which the firm received. That application for an interim injunction failed because of the huge immunity of the unions in civil law, a subject which we are discussing on the new Employment Bill. The result of that failure to get an interim injunction has been that that firm has now gone to America, so we shall not get the benefits which it could have given to us if the union had not been so utterly restrictive in its attitude. I feel that the unions must change their minds over restrictive attitudes.

The unions are also letting down their members by trying to keep people on in unproductive jobs. As we have heard from earlier speakers, including the noble Lord, Lord Sieff of Brimpton, that in the end leads only to the failure of the firm concerned. Instead, they should be helping those of their members who must become redundant to find new jobs, and what worries me about the whole nature of trade unionism to-day is that it is far too paternalistic. You join a union and the union looks after you so long as you are in employment and a member of that union. You do not have to bother to think for yourself. But now, when huge redundancies are occuring and employees are receiving quite large sums in redundancy payments, they do not know what to do; there is nobody there to help them either to set up for themselves or find other jobs. They wait for somebody to come along and offer them another job rather than going out to look for one. That, I believe, is because the unions have been looking after them too carefully, so not enabling them to take decisions of their own. Therefore the unions should be responsible in a great way for helping to increase productivity.

When we come to the role of the Government, even the present Government, with their almost laissez faire attitude concerning industry, have several responsibilities. First, they must give leadership, not only at the very top but far lower down the line, and I should like to think that part of that leadership will enable the Government to encourage the suggestion made by the noble Lord, Lord Sieff, that new industries based on the new technology will be developed. Leadership is necessary there, and of course I am thinking in particular of the problem of the microcomputer manufacturing corporation Inmos, which is still awaiting a decision from Government about its future. That is not leadership. We need leadership quickly.

The Government should also be ready to help some of our industries which are quite flourishing but suddenly find themselves seriously affected by imports from other countries, and I am thinking in particular of the fishing industry and our apple growers, troubled by the French. When the French people were troubled by our lamb they took action straight away. What are we doing for our apple growers and the fishing industry? Nothing at all. The Government might consider introducing some form of emergency procedure—which the Americans have and which they are quite prepared to use temporarily—to prohibit imports for a short time, put an extra tariff on imports or in some way stop the large flow of imports of a particular character for a temporary period. The old Defence of the Realm Act might even be the base on which such an idea could be founded.

I have already spoken for too long. I had intended to talk about one area in which I think industry could help itself—that is, by making use of the rail freight system—but I do not have time to develop that now, so I will leave it to a later debate.

5.18 p.m.

Lord RHODES

My Lords, we are grateful to the noble Lord, Lord Schon, for raising this subject. It is nearly 30 years since he came to the Board of Trade when I was the Minister there pleading for assistance from the Government to start that wonderful enterprise that bears part of his name. In those days he did not have quite as big an expanse of shirt and I do not think he knew anything about Marks & Spencer. Suffice it to say that what was agreed between Government and the Schons has reflected not only great credit on the Schon family but also on the then Government who made it possible.

The noble Lord, Lord Sieff of Brimpton, is one of the latest candidates for us to take notice of in this House, and may I say how much we all enjoyed listening to him, because behind his speech were years and years of practical experience of a family whose name is renowned throughout the world. I echo what the noble Viscount, Lord Amory, said: that it would be marvellous if the noble Lord came to this House and spoke often on a subject that he knows so well.

A few years ago I attended the 100th anniversary celebrations of the Co-op Bank at the Mansion House and after the reception on the first floor I gravitated in order to see if I could find anybody to talk to. There I met a man who had created an empire in the mail order field. I knew him when he was in Manchester, and I asked, "How's the manufacturing part of your concern going on?" He replied, "It isn't. Only a fool manufactures today". I have never forgotten that; it hurt me. I have been working in manufactures now for 73 years, because I started when I was 12, and during the whole of that time I have never seen a situation as serious or as severe as that which arises today and that will have its effect on the people of this country for years ahead. It is now that industry wants some backing, support, leadership, understanding, and some statements that will help it.

The noble Lord, Lord Sieff, said that he had visited 14 factories during the past few months. Well, in my humble way I have visited three factories during the last 10 days. I started off at a factory that normally exports 80 per cent. of its products. As I went through the works I could see various things which could have been improved from the productivity point of view. But the stark fact was, and is, that that firm has no more than three weeks' orders. It is not so much productivity they want at the moment; it is orders.

We have heard about this question of productivity time and time again for years. We are reciting the same kind of points that we have recited for years. Perhaps the odd new point comes out, such as the suggestion of the noble Lord, Lord Sieff, about what should happen to the findings of the Spinks Committee—matters of that kind. But what we have never really got down to is understanding, and being able to cope with, the results of productivity; because every productivity deal really means that there is someone along the line who cannot accept its provisions because they will put him out of work. The noble Lord, Lord Sieff, was right; this is part of human nature. It is very difficult to get people to agree to their own redundancy.

I visited firm No. 2 on Monday of this week. I went through the factory. I know the type of product that they make—and have done ever since I was a lad. One could not improve the productivity of that factory wherever one went in the world. It is superb. They asked me to go there. I did not know why they had asked me to go, but I soon found out. They had foremen, managers, directors and customers to meet me. That firm is producing primarily for the home market. Now because of monetary policy, on the one hand, and free collective bargaining, on the other, the home section has not suffered as much as the exports section. Why do I say that?—because the figures show it.

Do your Lordships realise that two months ago this country was for the first time a net importer of manufactured goods? In 1965 we exported three times as much as we imported, and gradually throughout the years the figure has come down until two months ago, when we were importing more than we were exporting. This is an absolute scandal for a country that is supposed to be a manufacturing country. It is shameful for everybody. We should bear the responsibility.

The firm's home trade order books are not as short as their export order books. But what is happening? The noble Lord, Lord Sieff, knows this better than anybody. The manufacturers' customers are being forced out of business for a variety of reasons, whether they be high interest rates or the inability to export because of the value of the pound. Everybody connected with the second firm that I visited had grave apprehensions as to what is to happen because in the last three months two or three of their important customers have gone out of business.

My third visit was to a large company with millions to spend on research, backing it up with money where their mouth is. They are ordering new machinery at colossal expense, but they have grave doubts about whether it will be profitable due to reasons outside the ability of people in this country to correct. This situation arises because if the firm had been operating on Canadian costs our fuel bill would be approximately £4–9 million against an actual cost of £11–9 million, based on United Kingdom prices. The prices noted in the document are those which were operative on 1st April 1980, both in Canada and the United Kingdom and are converted at the current rate of exchange, which is approximately Canadian dollars 2–60 to the pound sterling". These figures demonstrate the facts, and I have every reason to believe that they are true. That is because of the group pricing system which is permitted in the United States of America. Any amount of productivity will not bridge this gap, and this must be thoroughly understood. The gap is too big for productivity at the present moment to do anything about, and my plea this afternoon is that we should be as energetic and as determined in keeping our industries here alive, ticking and growing as the countries on the Continent, such as Germany and France, and Japan, have been in the last 20 years.

I do not want to speak for long, but I come now to another point. A friend of mine was declared bankrupt a week or two ago. He was an entrepreneur, a manufacturer. Over the years he had gradually built up first-class productivity. He had invested all his money in a plant, but, then, interest rates were at 8 per cent. He went out of business a fortnight ago because interest rates were at 18 per cent., or whatever they are. His bank manager had said, "Yes, you are an ideal person to lend money to". The same bank manager has seen him out.

Now I come to a point about which I want to make a plea, but before I do that I want to say this: growth is difficult to generate. All the time you are bedevilled by inflation. What can we do about it? I am going to make a suggestion. If you look back at the history of this problem over the last 20 years, you will see that we have had periods of free collective bargaining lasting about 18 months before an incomes policy has had to be introduced. It has happened with every Government, and it is going to happen with this one.

There will be a partial U-turn before the end of the Summer Recess. Then you go on for about two or three years—look it up in your Parliamentary history—when you will again have free collective bargaining after the incomes policy has been thrown out. These have been abrupt changes, and they have been matched by abrupt changes in attitude to Government intervention, too—witness the Edward Heath scrapping of the Prices Board and the Industrial Reorganisation Corporation. Then after the familiar 18 months the Edward Heath Government brought in the Industry Act, when free enterprise policies did not work. Then, when we came into office in 1975, we set up the National Enterprise Board and introduced planning agreements—and here we are, back at the old game again.

Today, industry makes a despairing appeal for a political consensus. It stands well away from this ridiculous idea that "the other Government were wrong, before we came in". You cannot possibly have growth of the kind that we need unless there is a political consensus about some of the basic principles that we need to operate. You only need to look at the competing countries in Europe to see that what I am saying is true. Countries like France, Germany and Japan have established a political thrust behind their industrial policies which survive all Government changes, and until we can get into that kind of scene we can whistle—and it has got to be done. What has been done for France, for Germany and for Japan, surely it is not beyond the wit of man to do here. We live in desperate times. We need pluck, determination and skill; we need human understanding—all those things that go to make relationships stick. We have not got them yet. It is up to everybody to pursue such a course of conduct in what they do as to attain such an end.

5.36 p.m.

Lord NELSON of STAFFORD

My Lords, may I add my thanks to the noble Lord, Lord Schon, for introducing this debate this afternoon. I think it is a most valuable debate at just the right time on a desperately important issue and that has been emphasised in his usual vigorous way by the noble Lord, Lord Rhodes. Let us hope that this debate will help us all to understand this problem a little more thoroughly and the need for all to work together for its solution. These islands will support our population only if we are able to be successful in world trade and all noble Lords, most of whom are involved one way or another in world trade, know that this means competitiveness in price, in delivery and in design.

We had a very interesting debate a few weeks ago on the Finniston Report on the matter of the quality, supply and training of engineers. During this debate noble Lords will remember much was said about the importance of design, and I think it is very appropriate that so shortly after that we are today debating that other important issue—productivity. The noble Lord Lord Rhodes, has just emphasised the importance of this problem to manufacturing industry and I agree with him wholeheartedly.

May I remind noble Lords, to add one or two figures to those already mentioned this afternoon, that earnings in the United Kingdom increased by 14 per cent. in 1977–78, by 16 per cent. in 1978–79 and currently they look like increasing at 20 per cent. Without increased productivity, this must mean inflation. I think lack of productivity leads to inflation rather than the other way round, and in the end these increases in earnings do not mean real wages increases at all but an erosion of savings and an erosion of confidence.

These conditions are also coupled with an appreciating exchange rate with all the problems that that brings with it, including a deteriorating competitive position. I read some startling figures only two days ago which estimated that our competitiveness had decreased by 20 per cent. since 1979 and by 35 per cent. since 1976—frightening figures by any standards, my Lords, which illustrate the size and desperateness of this problem. There are many factors involved in this situation, but I believe that increased productivity is a very important one. I do not believe we can look to reaching a solution of increased competiveness by basing it on low wages policy. This must be completely unacceptable, emphasising once again that increased productivity is the only way of approaching it and all should recognise this. I am glad that an earlier speaker, the noble Lord, Lord Spens, referred to the importance of productivity in all activities. The terms of this debate relate specifically to productive industry; but the problem is not only in the productive industries but also in the non-productive activities as these are the overheads of the productive industries and therefore the principle applies throughout. I shall direct my contribution wholly within the context of productive industry.

Here may I agree with the noble Lord, Lord Bruce of Donington, in his opening statement. He referred to industrialists or industrial leaders or captains of industry. I suppose that I myself come into one of those categories—I am not sure which; but clearly one of the categories to which he referred, as being one of those who knows what it means to work on the shop floor and knows what the shop floor thinks about it. I agree with him in saying that the problem is primarily one for management. It is management's job to put this right. But having said that, may I add that it is management in co-operation with all others involved whether it be Government, trade unions or top management—and I say, "top management", because when I say it is a management problem, I mean at plant level, at business level, at factory level. I say that particularly because they are the people who know what is going on and they are people who can have the understanding of the problem of all workers involved and so obtain their co-operation. It is in fact the accumulative achievement of individual managements at that level having success in tackling their problems which creates high productivity for the nation as a whole.

Having said that what does it add up to? Looking at it from the plant level, it adds up to two things: Have you got the right plant and are you using it properly? These two are intimately tied together. If you are not using it properly, you cannot afford to buy the plant and, vice versa, you must use it properly if you are to be able to justify the investment in the new plant and maintain it and replace it. These are the factors which must be studied and looked at jointly at the workshop and plant level.

Looking first at the problem of utilisation of plant, what does this mean? You cannot afford new and modern plant unless you get maximum output from it. There are high capital charges, high standing charges associated with the plant. If you cannot maintain an adequate cash flow, you cannot maintain that plant and keep it up-to-date, nor replace it—so you must use it properly. You must get the maximum amount of hours from it with the minimum of manning levels and get the highest quality of production with minimum wastage. These are things which must be worked out together by management with the people involved at the shop floor level. My experience is that if this is done in this way it is surprising what can be achieved. You can get good plant manning and flexible working if people understand what it is about. It cannot be done from on high but by the people who know what the problem is and what is involved. There is also the question of keeping the plant running—this can be vitally important particularly on continuous process plant. This means the highest possible collaboration between the productive operators and the supporting services, whoever they may be, maintenance staff and others. Here I think there is a lot more still to be done. We must sec much closer working between those who are the so-called productive workers and those who are the support workers. They are all the same. What is the difference? In order to keep the plant going, let the productive workers and the maintenance workers work together. If there is a breakdown, everybody should work together to get it going as quickly as possible and not say or ask whose job it is. This is where I think, looking at continental experience, some of the biggest advances can be made without any serious loss of jobs or anything else, thus ensuring better utilisation of the plant that we have.

I should now like to touch on the question of plant investment. Modern plant is sophisticated—that has already been mentioned—and costs a lot of money. I am glad that reference was made earlier—I think by the noble Lord, Lord Bowden, who is no longer in his place—to the question of depreciation of plant and to the tax treatment. You cannot afford plant unless you make money, and for this you must have profit; you must have real profits which are profits after allowance for inflation. If there are no real profits, there is no cash flow, and if there is no cash flow there is no investment. This is a very important matter. I hope that the Government will be looking at this problem. It will be particularly important now that we all have to produce shortly current cost accounting figures. These will be particularly interesting from this point of view, as it will show who is making a real profit and a positive cash flow into the business. This is what will determine whether we can afford to continue the investments which are required. I think this is tremendously important.

We have a situation where higher productivity needs greater plant utilisation and greater investment, equally. You do not get this unless you get a cash flow and higher productivity. There is the vicious circle. How are we to break that vicious circle? I do not know. A number of speakers have touched on that this afternoon. This is the biggest problem of all. I would make this contribution. One hears it said that British industry is short of modern plant and investment. Up to a point, it is; but, on the other hand, it has a lot of modern plant and very good plant, so that I think the first thing is to see whether we are using properly the plant that we have. I think the answer to that is important. In the first place, the answer must be, No. Surely, therefore, the thing that we must do right now is to see if we cannot obtain greater productivity from the plant that we have. This will lead to greater competitiveness and greater cash flow, and therefore work and cash for more plant in the future.

Another problem already mentioned, if we are going to obtain the co-operation on the shop floor, is what happens to the people who are thrown out of work as a result of increased productivity. This is a real dilemma, in my opinion, and one of the major problems. When you talk about productivity there is a lot of uncertainty, there is a lot of lack of confidence, there is a lot of fear that what you mean really is redundancy and loss of jobs. In certain cases that may be the case. I think that those cases are where management has not done its job over the years—unfortunately. Where management is doing its job, where it is looking ahead and studying the problems as they arise, these things can be adjusted without the trauma of lack of confidence or future difficulties which arise. There is wastage going on all the time. There are people who want to change their jobs, there are new job opportunities coming up, there are some people who would not mind retiring earlier if given the opportunity. All these are steps that management can take whereby these matters can be moderated so that they do not blow up into a serious and intractable situation leading to the conditions touched upon by the noble Lord, Lord Bruce of Donington, in his opening speech of lack of confidence and—to put it crudely—bloody-mindedness which can come out of these things.

So it comes right back to where I started: on the shop floor, with management doing its job with the co-operation and support of all those with whom they are working. If this is done, I think that we can achieve higher productivity. I think that we must do so and only in this way, to my mind, shall we get inflation under control and get real wages maintaining their purchasing power or even increasing it. Only in this way shall we get the greater job stability that we all want to see or a reduction of unemployment through increasing competitiveness. Therefore, I support others who appeal today for everybody to pull together and realise that we are all in this problem together and that we must all seek to find its solution, because it can be found if we tackle it together.

My Lords, I must conclude by adding an apology to that of a previous speaker: I also have an engagement this evening and the time is advancing. I hope that I may be able to stay to the end of this debate, but if I do not I hope that your Lordships will excuse my absence.

Baroness GAITSKELL

My Lords, before the noble Lord sits down, may I ask him a short question? I have listened to his speech with great interest. It was fascinating. I thought that at the end he slid over the problem of unemployment rather too easily. What made him do that? There are bound to be millions of men out of work; we cannot take it quite so easily, can we?

Lord NELSON of STAFFORD

My Lords, I agree that I did slide over that because it is a very sensitive and difficult question. I think the situation can be mitigated and if people understand the problem then they will realise that higher productivity will lead in the end to a rise in employment and greater stability of employment. In the end it is the only way which will lead to the solution of the unemployment problem, but there is a difficult interim period which can only be surmounted by people understanding what it is all about.

5.53 p.m.

Lord HANKEY

My Lords, how valuable it is that we have people like my noble friend Lord Schon and the noble Lord who has just sat down, who can give their vast experience in industry to Parliament and, in particular, to your Lordships' House. We are most indebted to my noble friend and I must apologise to him that, owing to my train being late, I missed his opening words.

One answer to the interesting point raised by the noble Baroness, Lady Gaitskell, is to be found in Sweden where there is a good state of co-operation between the trade unions. When there is an industry which is declining, such as textiles, the unions co-operate in switching workers out of the declining industries as quickly as they can be trained to go into other industries which are expanding. The result of that is that the workers in the declining industries are not so numerous and can be paid more, with any luck, and the workers who are redundant are sure to find employment in other industries.

Unfortunately, we do not always seem to have that state of affairs here. I should like to think that we could move towards a state of greater co-operation between industries, between trade unions and between all sections of the community—in particular to greater co-operation between management and unions. Personally, I share the view which has been expressed by so many people in this debate that if we have an atmosphere of confrontation throughout industry we are never going to get a rise of productivity. I entirely agree with the noble Lord, Lord Rhodes, whose speeches are always so very stimulating, that we should try to get a better state of co-operation between the political parties.

There ought to be certain issues on which all parties are agreed. After all, for the most part, we agree about the main lines of foreign policy. We agree about many defence questions. There is a lot of agreement regarding the work of the Home Office. I should have thought that in this matter of restoring the earning capacity of the United Kingdom there must be vast areas where our common interest ought to come out and bring us together.

An enormous amount of work has been done by OECD and, before that, by OEEC, on measuring productivity in precise ways and in bringing together all the scientific elements of a study of productivity. I should like to quote the latest figures for the decade 1969 to 1979 because they really are alarming—and I mean really alarming. The productivity of Japan has increased by an average annual rate of change over that whole decade of 5–2 per cent., France by 3–5 per cent., Germany by 3–6 per cent., Italy by 2–6 per cent., and the United Kingdom comes nearly last with 1–5 per cent.

I want to add a point that I made in a previous speech though not with this particular statistic. The United States is behind the United Kingdom with an average rate of increase of productivity over the decade of only 0–7 per cent. If this continues, the United States will suffer the same fate as the United Kingdom. This would be really disastrous for the world in which we live.

So, my Lords, what is going to be done about this trend? One has to look around. One lesson that comes out from the fascinating debate to which we have listened today is that this is a very wide problem. I should like to widen it a little further if I may do so without being boring. A great many of our Ministers have not been very interested in production. They are interested in the financial and social aspects. I am not speaking about a particular political party; this goes for all parties. Many of them regard economics as rather a bore. If we could persuade Ministers to be more interested in production, that would really be very helpful. I do not think that it is sufficient just to get the financial aspects right. If one gets the financial aspects wrong—which we have done in an alarming degree over the past 10 years—everything goes to pot. But is one gets the financial aspects right—and I hope that the present Government are going to do this, and they have my warmest good wishes—it does not follow that everything else is going to be right unless one knocks away the props that stop the ship moving on the slipway—and there are an awful lot of them.

Businessmen with whom I have been in considerable touch are extremely worried about the instability of public policy. This is partly a reflection of the confrontation policies to which my noble friend Lord Rhodes drew attention. They never know which way things are going. Taxes change in an alarming way and they are always in trouble with planning delays. Any ecology group which can object to anything seems to be able to hold things up and even disrupt the public inquiries before a factory can be built. It is very alarming to the businessman; he does not know whether he is coming or going. This has a great effect on the low level of investment which is now typical of our country.

I should like to come back to the Government for a moment. The Government are going to have to reconcile themselves to giving leadership. A number of our colleagues in this House have said this today. I give an example. Take the fast breeder reactor, which went critical 22 years ago, to my certain knowledge—22 years ago. The prototype reactor for commercial production has been producing power for the grid for about 12 years but nothing has been done about it. Why did not the Secretary of State for Energy—it was Mr. Wedgwood Benn, I think—get on with it and get that moving? Had we had the cheap electricity which the north of Scotland has enjoyed owing to this—it is the only part of the United Kingdom where the price of electricity did not go up because it comes from the fast breeder reactor—it would have been a great help to productivity in our industry. But, no, the Ministers were worried—perhaps they were worried about the miners. I do not know what Mr. Benn's reasons were, but I protest, without being personal in any way, that the Government really should have given a lead in this matter. They have failed in their responsibilities, and I hope that the present Government will not fail to meet this challenge soon.

I will come back to the Government's having a policy, but I want to come now to the trade unions. I do not know whether your Lordships saw the television broadcast about 18 months ago when a senior delegation of Soviet trade union leaders came over to this country and were received by the TUC. I have always been very interested in Russian trade unions. The TUC representatives began by welcoming their guests and saying, "Perhaps you would like to tell us what is the main function of the Russian trade unions?" The Soviet leader said: "Well, of course, it is to increase productivity". The expression of sheer amazement on the faces of our countrymen was very amusing to behold. They said to the Soviet delegation: "Surely, are you not interested in increasing the well-being of your members?" The reply was: "Oh, yes, of course we are; but how can we do that unless productivity rises?"

My Lords, when you have nationalised your production the Government want higher productivity—in fact they jolly well have to have it; otherwise everything goes down—and the trades unions have to have that too. I hope we are not going to reach the state of nationalisation like that, in spite of some ideas which are cooking in certain sections of the Labour Party, but I think there is a lesson to be learned there: that behind the Curtain they are really trying to mobilise the trade unions, and are succeeding, to increase productivity. Their productivity generally—because I am interested in Soviet industry—is amazingly low. Ours is much higher, but the fact remains that they have got a systematic approach by the trade unions to productivity, which is very helpful.

I warmly agree with everything the noble Lord, Lord Nelson, said in his very interesting speech about the importance of personal relations on the shop floor and letting the chaps get on with it with goodwill. I do not know why we cannot do more of this in our country. The list of disasters is so appalling. There was that magnificent textile factory at Skelmersdale with the most up-to-date machinery, which failed because apparently the workers in the Liverpool area would not work it properly. There is another similar factory which is also run by Courtaulds in another part of the country, which is very productive and makes a handsome profit; but in the Liverpool area it could not be done. There is the sad story of the Speke factory which closed: these are all in areas fairly close to the heart of the noble Lord, Lord Rhodes. I was very sorry when that closed, but that was also due to extremely low productivity.

I will just mention other disasters we have had. We have spent an enormous amount of money on the Llanwern Steel-works; for 18 months they could not be opened. There was the long delay over the Glasgow rail terminal some years ago—a disaster. There was delay over the Tilbury container docks. We invest money but we do not get the co-operation of the workers in getting these things going, and I believe it is necessary that somebody should try to bring the common interest we all have in this matter to focus on these problems in a productive and forward-looking way.

Turning back now to the Government, I want to say that in times of inflation it is no good thinking in terms of having a nice bank account, because it is losing its value all the time. The most valuable thing we have in a country like ours is the tremendous manufacturing capacity and skill that we possess. If you do not allow it to operate efficiently and if you allow it to be undermined slowly by one factory after another going out of action and by the new processes—my noble friend Lord Spens mentioned a very disastrous case—just going abroad to other people who develop our inventions, obviously this country is going down. It is going down: we have a growth rate of 1–1 per cent. at the moment and almost everybody else has got a higher growth rate. We are being overtaken by almost everybody and we have to do something. So I come back to what was said earlier: the Government, I think, really have to give a lead. I believe they should do even more than they are doing—and they are doing a great deal—to see what can be done to help industry.

Very encouraging developments are going on, and I want to see more of them. I would be really sorry if the Government, for what I regard as ideological reasons, abolishes the National Enterprise Board. I am not in favour of nationalisation. I think it has failed in our country, except in certain industries where it is necessary; but I am quite certain of one thing, which is that the Government must have a tool which can be used in order to spur industry on. I think that the National Enterprise Board is such a tool and if it is abolished the Government will probably have to end by creating another. Let the tool be used to increase productivity.

Finally, I want to say that I share the view which one speaker has expressed: that the Government will almost certainly have to reconcile themselves to having some sort of policy for incomes. It was no good the last Government having an incomes policy limit of 5 per cent. I have an indexed pension and in the winter, when everybody was being told they could have only 5 per cent., my pension was indexed at a considerably higher figure. I thought that really knocked the logic out of the Government's policy, although I did not advertise it at the time. We have to be sensible about these matters: we really do.

The most important thing to be sensible about is this. The man on the shop floor has not got so much water under the keel as the director in the boardroom and when prices go up at the rate they are going up now, he is worried about the future. He does not quite know whether he will be able to pay for his motor-car, or his mortgage or other things. We have to face the fact that he is going to require an increase in wages during the year which will be somewhere approaching the increase in the retail price index. It is no good trying to avoid the question: he has to have it. At present we have a system and we say: "We don't admit that you have to have this ". All right: he goes on strike. Productivity goes to hell, we lose our markets and we fail to fulfil our delivery dates—and, having had a great deal to do with export industries, I am very conscious of this aspect. I promise your Lordships that the delay in fulfilling our export dates is one of the most telling considerations in our loss of markets.

If you run your wages system in such a way that you force this lack of productivity on industry, of course you get into trouble. And so when the Government are going to face the approaching necessity of having an incomes policy of some sort I want to make the following highly controversial suggestion. I know it is highly controversial, but I shall make it all the same. The idea should be that wages will be enabled to rise and everybody will be expected to increase wages to something like 75 per cent. of the retail price index every year. The remaining 25 per cent. will be fought for, but the fight should be made to depend on the increase of productivity in the preceding year—I repeat, the preceding year.

Only too often people have paid lip-service to productivity agreements and they have said "Oh well, we'll pay an extra 10 per cent. and that will be made up for by productivity". They do not get the productivity. It is no good making an agreement like that. The thing turns out to be inflationary. You have got to do better. You have got to base it on the increase in productivity in the preceding year. I know this can be attacked logically, but on all practical grounds I believe it would be more likely to yield results.

I know exactly what the noble Lord who is going to reply to this debate is going to say about this. He is going to say that this is a form of indexation, it is abominable, it is a sin, the Treasury will not have it and so on. But I conclude with the words of, I think, Oliver Cromwell: I beseech you in the bones of Christ, ye may yet think whether you are not mistaken ".

6.12 p.m.

Lord SANDFORD

I start by thanking the noble Lord, Lord Schon, for introducing this Motion; congratulating the noble Lord, Lord Sieff, on his maiden speech; and paying tribute to both of them and to other noble Lords who have taken part so far, for furnishing the debate with so much of their own valuable first-hand experience. I am not any sort of industrialist of any rank or level, and I have little or no insight into the inner workings of commerce or industry. But I take productivity to mean broadly making the most of what you've got, and to be capable of a wider interpretation than the factors of production in the actual industrial process itself.

I want to talk about making the most of the physical resources of the environment in which industry operates, making the most of human resources coming out of the schools and the colleges on which it has to draw, and making the most of the resources of the communities in which industry and commerce are set. At this time in this small island, it seems to me we cannot afford to be profligate of any aspects of our environment, particularly our land. We cannot afford to leave idle precious urban waste land which is fully serviced with roads, sewers, power supplies, even if holes develop in some of them in Manchester from time to time!

It is true that because we were first in the industrial revolution a lot of our industrial infrastructure is elderly. We cannot afford for it to be wasted. We certainly cannot afford to sterilise any more of our agricultural land for industrial development. So productivity, it seems to me, involves not just efficient use of the factors directly involved in production, but efficient use and conservation of the surrounding physical environment too, and in a way that can be sustained throughout succeeding generations.

It is for that reason that I particularly welcome the proposals recently announced by the Government for enterprise zones in which industry is going to be encouraged to make greater use of some of our inner urban areas. There are a number of measures proposed to encourage industry to go back. I should like to say, in the context of encouraging industry to make better use of our precious urban land that is lying waste at the moment, that Her Majesty's Government should also consider removing VAT from the repair and conservation of industrial and other buildings in the areas that are selected as enterprise zones. But before leaving enterprise zones I want to make the point that, of course, it is not enough merely to remove the constraining hands of bureaucracy in the enterprise zones—this is the main effect of what the Government propose. It is also necessary to inspire enterprises to go back and to make good use of them. I will return to that point.

The second resource which I am sure we must make full and better use of if we are to get a general rise in productivity are our human resources, and we must learn to develop their talents and harness them better. Others in industry and commerce are far better qualified than I am to talk about the professional craft and other skills that commerce and industry need and require from the schools and from the colleges.

I want to comment on my experience now going back three or four years in helping to deal with the problems of unemployment as they affect those young boys and girls immediately they come out of school and college, because there are a tragic number of those, who are unemployed from the very moment they leave school. Some of those, many of those, leaving school and college are undoubtedly well trained and have already the skills and crafts which industry needs. But the sad fact of the matter is that the operation with which I have been concerned—namely, the implementing of the special programme of the Manpower Service Commission for the young unemployed—revealed that a horrific number of children leave home after 16 years and leave school after 10 years not really able to write properly, not really able to read properly, not really able to count, not very willing to work, many of them hardly able to converse, and a lot of them unable to keep clear of the law. This is a sad state of affairs and it is hard to see how industry can possibly be as productive as it should be if so much of the material available to them is of this character.

But the tragedy is compounded by the fact of our experience which is that a year of proper management under one of the MSC's special programmes, undergoing training and doing work properly geared to the personal needs of these young people, is in many cases enough to make good these defects with which we find we have to deal some of these boys and girls as their come out of school. If that can be done within a year after they leave school, it does make one wonder what on earth must be going on in some of the homes, in some of the schools and at such great cost. It does seem to me to call into question the preparation of so many of our young people—not, of course, the huge majority; only a minority. It must fall considerably short of what industry and commerce require.

I turn thirdly to the resources available in the local community for the support and encouragement of enterprise in commerce and in industry. Last September, I was invited to speak at the annual dinner of the Swansea Chamber of Commerce.

Heaven knows why, but I was. That chamber was established among the earliest ones in 1846 and its purpose then, as it has always been there and everywhere, was the preservation of free competitive enterprise—very much the thing we are talking about this afternoon. Indeed, that purpose it certainly fulfilled in 1846. Swansea was then the metallurgical centre for the whole world and it flourished exceedingly in that capacity for many years with many different industries contributing to its prosperity, and thanks very much to the enterprise of the famous firms established in that famous valley. Of course, there were mistakes and the derelict and polluted state of the Lower Swansea Valley today has borne testimony to some of them. But at least in that city in that century, as in so many other cities in that century in this country, the firms of Swansea were masters of their own fate. Now some things, many things, are, of course, better than they were then. But the firms in Swansea like the firms in Liverpool, Newcastle and many others of our great but depressed cities in the assisted areas, are no longer the masters of their own fate, responsible for their own destiny and success, and standing or falling on their own decisions. Much of the local employment in such places now is public service, not creating wealth at all but absorbing and consuming it, and much of the wealth-creating activity that is in those places is not indigenous. It has been imported from elsewhere and is made up of branches of larger companies whose policies are dictated from elsewhere, sometimes even from outside this country.

Of course, this kind of employment is better than no employment at all. The conditions of work are better than they were 100 years ago. But I should like to suggest to your Lordships that a whole dimension of local enterprise has been lost over the years. That is one of the factors which is leading to the problems which so many noble Lords have analysed and identified during this debate. It seems to me that before Britain can once more produce her best again, that dimension of local enterprise must be recovered and rekindled, as my noble friend Lord Amory has said.

It is for this reason that the local enterprise trust movement needs to be welcomed and encouraged. It does not matter very much whether it is stimulated, as it has been, by large firms such as Marks and Spencer, or by chambers of commerce, central Government, local government, groups of small firms or even by individual initiative. I am glad to be associated in a small way with this movement, particularly in the business of preparing young people temperamentally to appreciate its importance and to participate in its development. In fact, I look forward to joining the noble Lord, Lord Schon, in getting something more going along these lines in Cumbria before long, in the county to which he has already made such a big personal contribution.

My noble friend Lord Trenchard will know that part of the package of measures agreed in Brussels last week includes proposals to make an increase of expenditure in this country from the regional fund. He will also know of the proposals made late last year by the Commission, for the first use of the non-quota part of that fund in areas of this country which are affected by the decline of shipbuilding and steelmaking, in particular. I have given notice to my noble friend of this question, but I apologise for originally giving him the wrong reference; it was 9808/79 of last year.

It seems to me that these proposals have special and topical merit in the context of what we are talking about this evening, in that they were not designed to offer grants towards particular industrial or commercial investment projects—the normal way in which regional policies operate—but rather to be in support of strategic and comprehensive programmes of industrial revival and of regeneration of local enterprise over whole areas of actual and impending unemployment. As the noble Lord, Lord Sieff, and the noble Lord, Lord Nelson, pointed out, something of that kind—the regeneration and revival of fresh new enterprises—has to be in hand or in prospect, if the fears of those adversely affected by measured productivity are to be allayed.

Therefore, it will be interesting to hear from my noble friend, when he replies to this debate, of the extent to which Her Majesty's Government now intend to take full advantage of this proposal and others like it, and of the way in which Her Majesty's Government intend this Commission proposal to be adapted to our current national need—the need to return to much higher levels of industrial enterprise and productivity.

6.25 p.m.

Lord HOUGHTON of SOWERBY

My Lords, I must first apologise for having had to leave the Chamber for one hour earlier in the debate, but I had to keep an appointment with a Minister. Of course, I heard the admirable opening speech of the noble Lord, Lord Schon, and also the most impressive maiden speech by the noble Lord, Lord Sieff. The noble Lord, Lord Schon, entertained us for a few minutes with a couple of jokes about the characteristics of the British. Your Lordships will remember that one was that the British never see the writing on the wall, until they have got their backs to it. I brought something back from America, which I visited recently, and I will present it to the noble Lord, Lord Schon. They were saying that the future is not what it used to be. The more we ponder over that, the greater the truth we may discover in it.

We have had to use the much overworked words in the vocabulary of industry, human relations and so on. I wish that we could get rid of the term "industrial relations", and I was very grateful to the noble Lord, Lord Sieff, for proposing that. We have several days to go considering the Employment Bill. If we could make a vow to use the term "human relations", instead of "industrial relations", we might get on a little better, because that is really what it is all about.

Incidentally, I once compiled a small dictionary of the jargon of discontent, which I got from the opening words of resolutions passed by trade union conferences—This conference is alarmed, disappointed, discontented, disgusted, and so we went through the whole range of expressions of discontent. Some of it, I thought, was almost congenital or, at least, inseparable from the kind of gatherings from which it came. "Productivity" is such a pedestrian, worn part of our jargon in these matters.

We have had several suggestions made. The noble Lord, Lord Sieff, spoke of "high working performance". That is three words instead of one. As a means of alternating from one word to another, "output" is probably not a bad word to use. But, of course, "productivity" does not really define what we are talking about. In some contexts, we are talking about efficiency. In other contexts, we are talking about equipment and what people are using. What is "productivity", if all you give to a road-mender is a pickaxe? What is his productivity? He wants technology. What about the man on the pedal-cycle? What is his productivity? Are you asking him to pedal faster? He will say "Give me a motor-bike", and then he will say, "I want more pay and shorter hours". The more we talk about these simple words, the wider the range in which we have to put our thoughts.

Another word is "co-operation". It is like saying, "All we want is love", and then giving the wife a new electric sweeper to do more housework in a shorter time. We do not get these things merely by saying that they are needed or that we want them. I was very glad that the noble Lord, Lord Sieff, addressed himself very substantially to management. There is an old saying, in which there is a good deal of truth, that there are no bad soldiers, only bad generals. Certainly, management has its full share of responsibility for whatever happens in industry.

Just recently, I was asked to take the chair at a conference on the electronic office. I sat through it for the whole of the day, having made at the beginning what was described as a keynote speech. I discovered that we were talking about a neglected field of concern to us all—the offices of the land. Of those in gainful occupations, 37 per cent. are white-collar workers. We tend to think of productivity as something which is confined to the shopfloor, to the worker who is turning a machine or who is doing a manual operation of some kind. But there are aspects of productivity and efficiency in the office.

The late Lord Stamp, the father of the present noble Lord, Lord Stamp, when he was chairman of the London, Midland and Scottish Railways, said at a conference of the Royal Institute of Public Administration: No organisation of diversified activities can move faster than its forms will allow ". After long experience in the Inland Revenue, I can tell your Lordships that that is as true today as it was when he said it 45 years ago. May I remind your Lordships that the coding notices in the Inland Revenue, which many of your Lordships now receive, are written by hand, on the same sort of form as when they first began to be issued in 1943? The only new technology in use in connection with Pay As You Earn is at East Kilbride in Scotland, and it has never got any further. Why? Because of the point raised by my noble friend Lord Rhodes and the noble Lord, Lord Hankey, only a few moments ago: the instability of public policy. The computerisation of Pay As You Earn was first mooted 21 years ago and it is no nearer completion today than it was then, except for the pilot scheme in East Kilbride, Scotland.

What about productivity? There are 30,000 jobs at stake, and in a moment I shall come to what may happen to them if Pay As You Earn is computerised. Let us take the Department of Health and Social Security. There have been 17 years of shilly-shallying and chopping and changing about the kind of state superannuation scheme we should have. Noble Lords should consider that over that period the Ministers concerned were the noble Lord, Lord Boyd-Carpenter, myself, Dick Crossman, Sir Keith Joseph, Barbara Castle; and I think that my noble friend Lord Gordon-Walker and my noble friend Lord Stewart of Fulham came somewhere in between. What could be expected to come out of that assortment of Ministers, with little direction as to where their Governments wanted to go on this enormously important question? So the whole of the insurance world, pension schemes, occupational interests of all sorts and kinds were held up until eventually a compromise scheme was reached. And we have now got it, 17 years afterwards. An enormous waste of money is involved.

Lord INGLEWOOD

My Lords, the noble Lord referred to Ministers who did not know where they were going. During that period, Parliamentary Secretaries, I would submit, did know where they were going. It is a pity that Ministers did not listen to them.

Lord HOUGHTON of SOWERBY

But, my Lords, they were not there long enough to get anywhere. That is the problem. I think Dick Crossman knew where he wanted to go but he did not arrive. The then Prime Minister decided to dissolve Parliament while the Crossman scheme was in full spate in the House of Commons. As the former chairman of the Public Accounts Committee, I will tell your Lordships this: it is Governments who waste money, and occasionally civil servants save it. That is something to bear in mind when we are talking about productivity in the public sector.

May I return to the electronic office, the paperless office, the fascinating prospect of just watching things happen without doing anything yourself and without seeing a single bit of paper in the waste-paper basket. But where will all the clerks have gone when this has been accomplished? There is no more cooperative section of the working community than office staffs. They give less trouble than any other section of workers, barring perhaps the clergy. We must show some concern about what is going to happen to people who are displaced by the new technology. That is why I think it is desirable for us to have some public understanding of how the country is going to get through this transitional period. We cannot criticise those who say, "I prefer to go on doing the job as I am doing it now, because if you bring in anything else I shall probably lose it". The noble Lord, Lord Sieff, said that if you cling to your old methods you will be out of work anyway. But their reply is: "If I adopt the new ones I shall still be out of work. So what?"

We have got to find the answer because the white collar unions are busy now. They have prepared interesting booklets about office technology and they have given some very good advice to their members about how they are to meet the new situation. They are told that this is the model agreement. First, so far as the ongoing requirements as to monitoring the introduction of the new technology are concerned, that is all right. Secondly, they say that they want a model agreement on employment. One of the important things about that requirement is that there will be no job loss as a result of the introduction of the system. Then they go on to say that in the light of the increased productivity anticipated, the company should agree to negotiate on a reduction of the working week towards the goal of a 30-hour week of four days without loss of pay, improvements in holidays and a lowering of the retirement age on full pension. That is the prescription for the introduction of the new technology into office life.

What are the consequences? They are not so out of this world as they might sound. If clerks are going out of big offices by the dozen or by the hundred, or even, as in the case of the Inland Revenue, by the thousand, what have we to say to those who adopt the new technology when they say, "Well, something must be conceded to those of us who embrace the new world". They want training. Well, that is understood. They want health and safety safeguards. That is understood as well. They also want machinery for dealing with grievances. And naturally they want to know why the new technology is being brought in. Improved services, new services or products, more competitive prices—there can be half a dozen reasons why the new technology would be economic and could be fully justified on the ground of profitability. But these people are not machines. They are human beings, with all the conservative reactions to change that that implies.

One thing to bear in mind in this field, and in many others, is that man is not a rational being. He is an emotional animal. His brain gives him a lot of bother and he prefers not to use it. That is why so many people believe so much nonsense; they cannot be bothered to think it out for themselves. I am beginning to think that it is not economists we want. It is anthropologists; it is socio-biologists. I am finding much more interest at the moment in reading Edward O. Wilson's On Human Nature than any I would get in reading what has been written by my noble friends on economics.

Seriously, though, how are the interests of workers to be reconciled with the need for change? Is it unemployment? Is the policy of the Government full unemployment? Is that what it is? The new leisured classes—is that what it is? If so, what are to be the conditions for the new leisured classes, those who are out of jobs because they have been replaced by new technology and who have to get through life, like the rest of us, as best they can? These are quite serious and great problems, and I do not think we are addressing ourselves sufficiently closely to them. I know that at the end of the day we are all yearning for entry into the kingdom of heaven but the probability is that when we get there the future will not be as it used to be!

6.44 p.m.

Viscount TRENCHARD

My Lords, may I add my thanks and the thanks of the Government to the noble Lord, Lord Schon, for introducing this, the latest in a long series of debates, both on productivity and on economic affairs, of which a major content has usually been discussions on productivity. In my opinion it has certainly lived up to its predecessors in the quality of the contributions that it has drawn, and I am quite sure that it will repay reading by all concerned who have listened to it and by many others who have not. That is up to this point, when, as usual, I try to sum up from notes made, rather than from a brief, and from hereon it may not be worth reading to the same extent.

The majority of comments made by all speakers—and the noble Lord, Lord Schon, was no exception, although he told us that we must get moving now—were of a longish-term nature. What is causing the problem? Why have we not put it right? What can we do to put it right? Thus I can assure the noble Lord, Lord Rhodes, that I shall come to the short-term extremely tough time which industry is undergoing, but I will come to it later. If I may, I will start by trying to reply to the debate in relation to the analysis of the British problem in a slightly longer-term way.

I agreed so much with the noble Lord, Lord Schon, when he said that we have not applied the carrot or the stick. I shall return to human nature a little later, against the background of the remarks made by the noble Lord, Lord Houghton of Sowerby, and the possibilities of changing it, but I have said on previous occasions—and I will say it again now—that I am convinced that if we had had the same degree of incentive to work, to work hard, to work rather than not to work, to take responsibility, to take risks, as the Japanese have had for 30 years, we might well be talking about the British work ethic to-day.

Let me join those who have congratulated my noble friend Lord Sieff. I told him when I saw him at lunch that this was perhaps a unique occasion in that for once I was able to have the last word. Actually that is quite an unfair allegation because as a very junior manager in industry, when I wanted to challenge the policy of the noble Lord, Lord Sieff, he gave me something like three hours and a whole morning with his staff present in order to do it, and I think on that occasion he allowed me the last word. I think perhaps that sums up the unique person that he is, and I just want to add my view that his contribution to this House, which he started this afternoon, can be of immense value. I hope that somehow he will find time from all his great responsibilities to come and make a contribution on future occasions.

My Lords, perhaps in order to have the last word the only thing I found myself thinking as the noble Lord spoke—and spoke about his proved management methods in his company—was that, no matter how we try or how any other country tries, we shall not have all our companies run by Marcus Sieffs and we have to have systems which will accommodate the average and the great spread of management which one will find—and does find—in industry in every country.

In this series of debates which this House has had there has never been any difficulty in the last two years, or possibly three—before that there was some disagreement—in agreeing that the record of this country in productivity was lamentable and was very much worse than everybody else's. So I am not going to produce the new or old statistics which have been produced before, and indeed various contributors to this debate have already underlined our bad record. At the end I will make the odd point about evidence of improvement, of which I believe there is now some sign.

While there has been agreement in all these debates that our record is very much worse than that of our main industrial competitors, there has been a variety of emphases on the reasons for the poor British performance; and as the debate wore on I noted sales, marketing, design, implementation of development, but the engineers did not receive quite so much time today as usual. Normally the Members of this House who are extremely well qualified in the engineering profession add their view that this is a major cause of our lack of productivity. Then of course there are the more general ones: lack of investment has been mentioned again to-day; the standard of management, the trade unions, our human relations system. The lack of enterprise culture is very often raised and the anti-industry cult of this country has been raised in previous debates. It is the first time that I have heard the suggestion that it is due to a lack of socio-biologists, but that adds yet another possible aspect.

My noble friend Lord Amory tried to separate causes and symptoms, if I understood him correctly. He did it mainly in relation to the economy rather than the non-productive state of industry, but the two overlap. Therefore I will rest on what he said—and I believe him to be much better qualified to judge than I, with all his long experience. He said that we must keep inflation as enemy number one; that we must pull inflation up, and that, if we do not do so, unemployment will rise to a very much greater level (if I understood him correctly), and furthermore that the tough time that industry is indeed having at present is an inevitable consequence of getting the overall economic priorities right in relation to inflation.

In trying to use the medical analogy of causes and symptoms I noted down, "Let us look first at the condition of the patient"—the patient being British industry; and let us from that try to speculate on causes, on the one hand, and on symptoms, on the other hand. Before I start on this analysis, I think the American saying that anybody not confused by the issue may not have understood the situation is probably true. I believe the condition of British industry at the moment is one of very little money—for shorthand I have written "no money"—and little or no time.

Let me explain what I mean under both those headings. In describing the little or no money I find myself dealing with the point raised by the noble Lord, Lord Bruce, in relation to profitability. I will look up the EEC document that he quoted and I will communicate with him on that document. The work that my Department regards as most authoritative in com- parisons of profitability between different countries is that of Professor Hill; this is on an inflation-proof basis and refers to manufacturing industry. The last year in which this was done—because it is a scholarly work—was in fact 1975, and, although there was a small improvement in this country after that, and probably in other countries, it is generally agreed by economists that we are back to roughly the same position in 1980. The United Kingdom return on capital on an inflation-proof basis was 2–8 per cent. in that year; in the United States it was 18–6 per cent.; in Japan 13–9 per cent. and in West Germany 11 per cent.

Of course I agree with Lord Bruce that there are good companies which have maintained profitable records right up to the present time, and there are some sectors—the oil sector perhaps clearly leading at the moment—which are much stronger than others, but those are the overall figures given by what we believe is the best assessor. I believe they show very clearly that for quite a time now British manufacturing industry has been starved of profits and thus has undoubtedly been short of capital. I do not believe that this decline has been going on for a very long time as some commentators often suggest. It is true, of course, that if you measure performance by shares of market, we went down from 40 per cent. in 1880 to 29 percent. in 1913; in 1938 we had 22 per cent. of world markets; in 1955 we were still at 19 per cent.; then over the last two decades came the real slide, and we ended up with 8–8 per cent. in 1974.

Let me explain very quickly what I mean by "no time". I believe that in this country we have so complicated our management task with a mass of intervention, with a mass of legislation and in recent decades with a degree of necessity for constant trade union negotiation not found to nearly the same extent elsewhere in Europe that managers, who actually have a pretty full-time job in running a factory—and I have done that—have in fact been extremely short of time, as well as money, to attend to the longer-term matters, and even to the necessary degree of explanation and communication which has been mentioned today. This has been particularly true in our very big factories, which are a much more time-consuming job to run.

They have more problems of communication, and it makes it much more difficult to reach the ideal which the noble Lord, Lord Sieff, mentioned of communicating with every employee.

If, therefore, I can suggest to your Lordships that the condition of the patient has been that he has had little or no money and less time, certainly, than his competitors overseas, let us go back to the list of possible scapegoats which have been mentioned in this debate and in others and try to separate causes from symptoms. I suggest that the symptoms of the original list clearly include the marketing and sales, the design questions and the implementation of development. The lack of investment clearly stems to a degree from the "no money" situation, although, of course, almost miraculously British industry has kept up a rate of investment not so far removed in relation to GDP from its competitor countries. So in the main the problem is the utilisation of investment. I suggest that all of those are almost certainly symptoms of the "little time" and "little money" situations. And I suggest that those have been caused by the clobbering of British industry over the last two decades with controls, price controls, income policy (to which I shall return in view of the comments made in this debate) and by the erosion of incentive and the burden of taxes.

I think a contributory cause has to be our unique trade union position which we have taken steps, debated in the House this week and again next week, to try to improve. I would not for one moment contradict the views of all those who have said that the co-operation of all employees depends upon the quality and the activity of management as well. The question of the enterprise culture and education has been well debated in the Finniston debate and I shall not go back over it today. I think that the management position does have to be dealt with to a degree. It is not true that other countries do hot have a variation of standard of management. Everything in my personal experience, and in the time I have had to supplement that in my present position, indicates that there is a big variation of management in all industrial countries.

Of course the manager is responsible for performance and there can be no gainsaying it, and thus the adage mentioned today, that there are only bad officers and no bad soldiers, is eternally correct. But you can have a situation where the officers have been discouraged, where the time available to them to improve things in the longer term has been diminished; consider the amount of consultation they have to do in order to take a single management decision. The differences here have been shown by published studies on multinational companies and the amounts of time necessary to be taken in negotiation in factories making the same product and staffed to the same management standards.

These things can make performance, particularly in our larger factories—which are the majority and do affect the overall productivity figures more than anything—else extremely difficult for average and variable management. As I said in the Finniston debate, we have undoubtedly got a shortage of technical management. I would willingly suggest that we swop some accountants, who are doing very well overseas in many areas running many companies, for some engineers, now that our tax rates are sufficiently low to be able to do it, which we could not do a few years ago; bring in engineers to fill the short-term gap while the longer-term measures are taking effect.

It has been suggested in this debate and many times before that the Government's policy is a single strand, one of controlling the money supply only. I have talked about the carrot situation and the tax incentives which we have brought back. The Employment Bill is proceeding through the House at present. Money supply is not alone in our admittedly non-interventionist policy, because we really believe that the variety of situations in industry is not assessable centrally, or to any great extent improvable centrally, except by providing the right conditions.

One other matter which is working steadily towards improvement—and I shall come to any signs of improvement in a moment—is that there really is a spreading realism throughout industry, management and on the shop floors. My noble friend Lord Amory said that our standard of living must fall. I believe that in many parts of industry which are not competitive that is a correct statement and that we do depend upon the spread of realism for that most unpalatable fact to become accepted. That contrasts slightly with the noble Lords, Lord Rochester, Lord Rhodes and Lord Hankey, who supported the incomes policy concept.

The noble Lord, Lord Rochester, described the incomes policies that have been tried in this country as makeshift affairs. I do not think that those who brought them in would be very pleased with that description. Indeed, if the noble Lord, Lord Harris of High Cross, were here I think that he would give your Lordships 2,000 years of economic history to show that no incomes policy has ever stuck for long, even when in medieval years they tourtured people in order to try to enforce them.

In contrast to the noble Lord, Lord Rhodes, I believe that it is a question not of saying that the other Government got it wrong, but that the weight of economic history is against the incomes policy route in this and in every other country. The noble Lord, Lord Rhodes, brought in other countries to support his argument, but in my view he changed the argument. Other successful countries such as Germany and Japan—and the United States has stayed with it for a second—have not had incomes policies. I have some sympathy with his thought that certainly past Governments may not have worked so closely with British industry in a national way as have those of some competitor countries. I hope, having spent 30 years in industry, that I can make a small contribution to try to improve the situation. I do not believe, and nor do the Government, that flexible incomes policies and guiding lights can solve the problem, and nor are they practical in the myriad of industrial situations in a big industrial economy such as ours.

Let me turn for a few moments to the problem of improving productivity when volume is static or even when it is being reduced. This relates very closely to the question of new technology causing job loss. From all the longer-term surveys it is perfectly clear that individual firms and parts of industry that have invested in new technology and have kept up to date are those which are employing more and not fewer people. The problem comes when both through world economic stagnation, and more particularly loss of British share of market, companies that have not invested in new technology start losing their share of market heavily. Overall in this country we have a backlog where undoubtedly in order to catch up it is not possible to adopt the suggestion of the noble Lord, Lord Schon, and say: "Increase volume and then we can increase productivity". Overall we must carry out a major de-manning in order to become competitive. It is not true of every industry or of every company. I admit that this is, indeed, the hardest human problem and the hardest thing for people to accept.

On other occasions we have discussed the various measures that we take where obvious major de-manning becomes necessary and we shall no doubt discuss them again. We have kept policies and developed some to encourage new growth, new training and retraining and to foster an increase of small businesses to try to relieve the problem and provide new employment when we pass through the short, tough time. The noble Lord, Lord Bowden, is not present, but I point out that tax next year will be on an historical basis with stock allowances still allowable, and I shall follow that matter up in writing.

Let me turn quickly to the understandable worries of the noble Lord, Lord Rhodes, about the short-term situation caused by the strong pound and the interest rates. I think that in his Budget speech my right honourable friend the Chancellor of the Exchequer showed very clearly that he understood those fully and he has given priority so that the interest rate is likely to be able to be reduced at the earliest possible date compatible with pulling up inflation. It was made clear in the last few days that the interest rate has a relationship to the strength of the pound. The strength of the pound, of course, is extremely valuable in helping to get inflation permanently, not temporarily, under control.

I turn briefly to the important point made by the noble Lord, Lord Sieff of Brimpton—these are all technological points—on biotechnology. We are spending money; we are examining the report of ACARD and of others; and we plan to come to decisions as to how much more support should be given to that area during the summer. There is no question of its importance not being recognised by the Government and I think that we shall see that develop. I am very interested in the noble Lord's remarks and view on the very pervasive effects of that new technology.

I have spoken about Inmos before, and we shall hold that decision up for only long enough to carry out responsibly, or allow others to carry out, negotiations which we would have been irresponsible not to allow. The fast reactor is receiving a great deal of research and development. Our research and development expenditure in the energy area is high. Yes, we are still strong in inventions. In the analysis of my department the trouble concerns our application post-development. That matter, rather comes back to the point—" no money ", no "time".

There are improving signs and perhaps I may quickly mention them. First, in 1979—and I have said that we cannot be held responsible for much in 1979 while noble Lords opposite have said that we should be held responsible for everything in 1979, so I think that we should split it 50–50—there was a 2 per cent. improvement in manufacturing output per employee over 1978. The Financial Times survey shows for the first time that industry is expecting to de-man to a greater extent than its volume problems would apparently require and that has been shown by the last two surveys. There are many individual examples—which time prevents me from giving, but which are known to my department—of quite substantial improvements in productivity, both in better use of existing investment and in the introduction of new technology. With the widening spread of realism, I believe that this process will continue.

I believe that we must give time for the Government's policies to encourage industry to take major steps forward to match European productivity levels. If we do that on a total scale, on my calculations we could carry the present pound exchange rate and interest rates. I believe that we must speed up this process by every means known to us. Time prevents me telling your Lordships more of the possible ways in which the Government hope to encourage that trend.

Lord SCHON

My Lords, I promise to be brief. We have had a very interesting debate. I should like to thank all noble Lords for having participated, and in particular I should like to mention my old friend the noble Lord, Lord Sieff of Brimpton. Like others who have preceded me, I should like to say that I hope that we shall hear his wise counsel often in your Lordships' House.

I have tried, in the national interest, to convey that we should produce more—and I was speaking about higher productivity—on the basis of selling more in exports, and of a reduction of imports—all that on the basis of quality, price and service. That is all I wish to say in summing up. In conclusion, once again I should like to thank all noble Lords for participating in this very important debate in this time of economic difficulties. My Lords, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.