The Economy

We would like to comment on 4 matters: the importance of full employment, making the economy more efficient, taxation, and future trends in work

Full Employment

We believe one of the most important measures of a successful economy is that it provides full employment. We are delighted that although party policy in the 1992 and 1997 elections only promised full "employability" Paddy has now called for new ideas to help the country return to full employment. The trauma of unemployment, leading to the loss of financial independence and the denial of social dignity, make us certain that everyone who needs a job should expect to be able to find one.

We believe Liberal Democracy is synonomous with a "Responsible Society", a country where people work together and have responsibility one to the other. This means that companies have a commitment to their employees and their consumers of equal weight to their shareholders. Our view is at total variance to the Thatcherite dogma of "everyone for themselves". It means that governments work with companies to support and reward innovation and hard work, to provide as stable economic conditions as possible, and that, in return, companies expect to operate within a framework which is environmentally sustainable as far as possible, and socially just.

We can describe this as a "framework market" rather than a "free" market (framework being similar to but sounding better than "regulated" or even "social"!). It is "mutuality" in practice if not law. Some companies, Marks and Spencer being a good example, understand this. Private enterprise is encouraged, but takes responsibility for both social and environmental factors.

Consider this recent statement from the chairman of Mitsubishi Heavy Industries: "Our profit margin is going to be 6 per cent - no higher, no lower... If we make too much money on what we produce, it drives up the price of other products, which is bad for everyone. The social effects of what we do must be our primary consideration. We will not, I repeat not, give our shareholders precedence. .. If our stock has no appeal for investors they can sell it straight away. Our employees have no such freedom of choice, and it is primarily for them that we exist." (Ref: Independent 18.4.98)

There has been substantial acceptance of environmental standards and attempts to "internalise" environmental costs to limit the need for regulation. So far there has been little progress on the social equivalent, even though it is obvious that a company that puts 2000 employees on the dole imposes a huge social cost on the community (often assessed at c. £10,000 per person, not including extra health and other costs) just like the environmental cost of a toxic waste spill into a river.

The Labour government has concluded that jobs can be created by insisting the unemployed make positive efforts to search for them. This is necessary but will only go so far. Companies and others still have the potential to make decisions which can increase, or decrease employment. We will list five.

Companies can choose:

1. To re-invest profit in new enterprises instead of distributing it
2. To slow down capital investment which substitutes machinery for labour
3. To proceed with projects offering say a 15% rate of return when at present they want, say, 20%
4. To authorize projects with a 2 year pay back instead of say 18 months
5. To cut working hours rather than cut staff. (For example they could be encouraged to allow young parents, in particular young mums, the opportunity to limit their working hours. This would allow them to "keep their hand in", to maintain their place on the career ladder, to retain confidence, earn a little money, and still have the energy and time for their children. A similar option could be offered to the over 50s. With children left home and the mortgage mostly paid many would be happy to work a 3 or 4 day week. The company would retain the employee's know how, and would probably get better value for money for the fewer hours).

Making the Economy More Efficient

Items 2 to 4 above are largely stop gap measures. It might be possible to limit dividend increases (on companies cutting jobs or failing to create new ones) to force them to take these stop gap measures, but it would be better to create jobs in a more positive way. It is a natural progression of things that this country will lose relatively "low tech" industries to developing countries with lower labour costs, and lose other jobs through gains in productivity. Somehow these jobs have to be replaced, and this can only be done through innovation in both new products and different services.

Thus we are very concerned over the country's willingness to be content with short term profits from low risk enterprises. It is a worry too that the increasing takeover of British companies makes us vulnerable to decisions out of our control. We believe a seismic shift in attitudes has to take place. This has at least 7 components:

1. As engineers and scientists we would be expected to say that one key to success is well funded research and development. As the graph shows we spend significantly less on R+D than our competitors. A study by PA consulting some time ago found that less than 15% of British manufacturing industry was holding or improving global market share, whilst 85% was in decline.
2. The successful industries like aerospace, chemicals, pharmaceuticals, heavy electronics and electricals were doing so only because their expenditure on R+D was comparable with their competitors. Overall we not only need to spend at similar levels to our competitors, but to spend more to catch up. We believe R+D needs to increase by at least 4 times.
3. Engineering and science are both hard work. Both need high quality students but these will only be attracted if the way technology changes and improves society is understood, and the contribution which engineers and scientists make to the comfort and excitement of life, is valued.
4. It is also crucial that as engineers and scientists move up the career ladder, those with director potential are given opportunities to gain the experience necessary for the boardroom. It is imperative they are there, because they are more likely to understand the potential of research developments, and "back the right horses". In the recent British Biotech fiasco it was noted that the company wouldn't have got into its present difficulties if more of the directors had understood the science. 67% of directors in the most successful industrial nations have engineering or science qualifications (85% in Japan). It is nothing like that in the UK.
5. Our cultural attitude to technology has to change. In the US investors are looking at the internet to see how to make money from it: we in Europe are looking to regulate it. The Americans are pushing ahead with genetically modified food. We are fearful of it, and some in our party would be happy to forbid research altogether! Making progress means taking risks, and if we as a country are frightened of taking risks we will lag behind.
6. We have a long history of conflict across the workplace between management and unions. There has been a kind of institutional drag in everything we have done because employees fear co-operation will actually cost their jobs. This is why the full employment commitment is so important.
7. It is ludicrous for profits re-invested in company R+D to be taxed. Unhappily many large British companies have a poor track records at investing in new technologies in any case, partly through lack of know-how in the boardroom and partly through the culture of short termism. GEC for example, has missed out on the internet and things like "granny alarms". Hanson Trust has grown through asset stripping and acquisition, not innovation. There is a clear need for very favourable tax treatment for investment from both the market and large companies into new "start-up" companies developing innovative products and services. (Much of the previous "guardian angel" money disappeared into property development). Even 3i often pulls the plug too fast.
8. Start up businesses have the problem that they are confronted with the same plethora of legislation (employee, health and safety, COSSH, environmental, planning) as everyone else, but without the money to employ specialists like a large business. There is an excellent case to give more help to potential growth businesses at least in the first 5 years of their life, with good quality free or subsidized support provided through, for example, Business Link. It would be the equivalent of CABs for small business.
9. We have to find ways to reward creativity and release ideas. Two Israeli researchers found ways to compress computer data. A Briton improved them and his company, BT, took out a patent. Unisys bought the patent to use in modem software. Some time later Unisys saw it was being used in other software for all .GIF and .ZIP type files. Their lawyers are now trying to get 1% of every programme using this type of file. The Israelis received $100. Unisys could earn $millions.

At present the whole area of intellectual property rights (IPRs) is a minefield. Patent law can be used to milk unearned profits, and frustrate and delay development. Given the pace of development these days we believe the period of patent protection should be halved and the whole issue of IPRs subject to urgent expert review.

Taxation

We believe the party's policy on tax - to be more redistributive than at present, and to move the burden from taxes on income to resources - correct. As the party has already recognized, there is substantial revenue to be collected from a carbon tax on fossil fuel use, and additional taxes on fuel used by transport varied by the amount of harmful emissions produced.

Generally, because there are relatively few resources in short supply, resource taxes are more easily justified on reducing pollution rather than use. We have suggested in our environmental submission a levy on the sale of plastics, and there is potential to set limits for various emissions to air such as SO2 as has been done in the USA and auction the available quantity. The problem with licences is that useful capacity can be hoarded, frustrating better use. There is a good case to raise revenue from annual "rents" for water abstraction rights, industrial discharges to river, use of the radio spectrum, landing rights at airports, and so on. There is a good case too to continue the squeeze on waste disposal by raising the landfill tax.

There is an excellent case to review the easy-to-avoid capital gains tax on land changing from farming to building land, to make green belt less attractive to developers. Every £ raised through resource taxation means a £ can be withdrawn from income taxes, potentially making labour costs lower.

Future Trends in Work

The world in which we are living is changing increasingly rapidly. For many goods and services the market is truly global. Multinationals can switch production from one country to another. Economic sovereignty is slipping away whatever the eurosceptics claim, and the need to forge a common EU approach is ever more urgent.

The old Liberal demand for free trade is better interpreted nowadays as fair trade. For example we have to stand up to some of the bullying restrictions demanded by America. We have to assist the 3rd world, and we have to impose equalizing duties on countries which flout good environmental practice.

We must also be aware of the trends in manufactoring. Manufacturing increases productivity by using fewer but cleverer machines to replace manpower. This means it will be concentrated in fewer and fewer centres leading to geographical gains and losses in jobs. One option is to continue the dispersal of civil service offices and encourage head offices of more large organizations to re-locate to areas losing manufacturing jobs such as, for example, Cornwall. One advantage of the telecoms revolution is that most offices are no longer restricted by geographical factors: they can be anywhere in the country.

Another trend will be the growth of internet shopping. Much more shopping will take place directly between consumer and manufacturer. Retail and wholesale jobs will reduce, though distribution jobs should increase. "Front end" knowledge (eg from long degree courses) will be less important than attitude, and the ability to keep learning. There is another problem that because the internet knows no geographical boundaries more goods can bought from abroad, and it will become very difficult to collect VAT.

A Reflection

We have assumed so far that the country's main objective is to provide steadily increasing material wealth. If that is what the electorate wants, engineers and scientists will help provide it. However we would like to question whether we wish to follow America down this primarily materialistic road. Are we content, for example, to accept telephone selling as essential (technology can be introduced to stop it), Sunday opening, junk mail by the tonne, advertising everywhere? Do we want a pressurized life style, where every moment is spoken for? Or might we prefer a society where people have more time for each other, where we have time to reflect and think and explore some of the art, literature and history, people, places and customs, this fascinating world has to offer? Politics is not the same as economics. We can choose if we wish.

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