Javid’s jump start for Business
WHEN management consultants McKinsey move into an organisation the starting point for their team is to ask how the place would look and operate if budgets were slashed by 40pc.
It then works through a series of options down to 20pc or so, depending on the perceived appetite of its clients for change. As a former investment banker charged with helping to lift the nation’s lagging productivity, this would be a good starting point for new business secretary Sajid Javid in his new department.
His predecessor, Vince Cable, was hamstrung in the job in that he was a junior partner in the Coalition and viewed with some suspicion in the Treasury. Such splashes as he did make as a policymaker were on the fringe of his portfolio, such as clipping the wings of the banks, improving representation of women on company boards and making votes on executive pay compulsory.
All of these were admirable initiatives, but not absolutely core to making the economy grow. If Javid really intends to focus on productivity he should begin in his own department, which over the decades has grown in a topsy-turvy manner, and adopt the McKinsey approach.
There are some things that he could do better.
He could empower and better resource the Business Bank so it is able to help innovative start-ups and bring them to maturity. He could follow the example of one his predecessors, Peter Mandelson, who looked to the ‘start-up’ nation of Israel, second only to Silicon Valley, as a model for backing high-tech and life sciences start-ups.
The loss of 3i to the private equity sphere means that Britain really lacks a German-style KfW Group.
Picking winners in Britain became unfashionable because of the disastrous experience with British Leyland. It also is worth remembering that computer giant ICL (now part of Fujitsu) and the former GEC – large parts of which are now part of BAE Systems – also came out of industrial policy of that era.
The Bank of England has described Britain’s productivity as ‘puzzlingly weak’. It fell by 1.4pc over the past three years.
Britain’s efficient labour market has created huge numbers of private sector jobs since the great recession. But it is less good at training the workforce and investing in modern production. It is cheaper to hire and fire than invest for the longer-term in IT and new equipment.
The spending by Britain on research and development amounts to just 1pc of total output – about half that in Germany and the US.
Moreover, there is a willingness in the UK to allow our high-tech and software companies to fall into overseas ownership rather than invest and make the productivity gains that take them to the next level.
The current battle for control of British-based data operator TeleCity is a case in point. It could follow a host of UK tech firms, including Logica, Misys, Umeco, Motorola Solutions and Psion, which now rest in overseas hands.
There are already signs that exports are responding to the tender loving care of the Government. But there is more to be done.
Javid could help clean-up the image of business by being more aggressive in using the Companies Act to clamp down on sharp practice by private equity and use his department’s powers to ban directors of firms that let down free enterprise.
Buggins’ turn
AFTER an accounting scandal that has soaked up £326m of shareholder funds and caused immeasurable reputational damage, it is hardly surprising that Tesco has dumped auditor PwC after 32 years.
One of the mysteries about this is that PwC is also the auditor at one of Tesco’s main competitors J Sainsbury. Inspection of Sainsbury’s annual report appears to show a far more rigorous process of checking supplier deals than at Tesco.
How such discrepancies can occur at the same firm doing audits at grocery competitors is distinctly odd. Bringing in Deloitte was a nobrainer for the Tesco board, in that it was the firm that uncovered the alleged misdeeds now being probed.
It was in December 2013 that another high street retailer, Marks & Spencer, also replaced PwC with Deloitte. The Co-op Bank ended its 40-year relationship with KPMG after the fiasco of its near collapse and brought in Ernst & Young.
In an age when the big audit firms have proved so unreliable, the problem with rotating audits is the lack of choice beyond the Big Four.
Another problem on Javid’s desk.
Shadow banking
IS THERE life after central banking? Three decades after Paul Volcker left the Federal Reserve he is still engaged in setting public policy. He has been able to do so by avoiding private sector conflicts other than a short period as chairman of boutique bank Wolfensohn & Co.
Contrast this with recent incumbent at the Fed, Ben Bernanke, an adviser to fund manager Allianz and hedge fund Citadel. Even the ferociously free market Wall Street Journal regards this embrace of the financial fringe as a little tacky.