British manufacturing: they think it’s all Rover

The collapse of the Birmingham-based car company points to deep structural faults in British industry.

‘Quite inadvertently we let the impression build up that we were only interested in something called the “new economy” - the dotcoms, the internet and all that. And that we weren’t interested in traditional manufacturing - which was part of the old economy. With no future in the modern economy. This is nonsense.’ (1)

UK trade and industry minister Patricia Hewitt was correcting a false impression created by…the Department of Trade and Industry (DTI). The White Paper that started the doubts was Our Competitive Future: Building the Knowledge Driven Economy, written for the DTI by Charles Leadbeater. Somewhat ominously, Leadbeater had made a reputation writing about the new era of ‘post-Fordism’ for the Financial Times and Marxism Today, where he dismissed manual workers as victims of ‘the decay of the old social-democratic order of Fordism’ (Marxism Today, October 1988).

In his popular book version of the White Paper, Living on Thin Air, Leadbeater argued that the ‘new economy will reward celebrities and stars, gamblers and entrepreneurs, but it will offer less, at the moment, for a very large swathe of people who would have had stable jobs under the old order’. Among those are the 6,100 employees at the Rover Car Company in Birmingham, which went into administration a week ago.

The DTI has been busy talking down traditional manufacturing as much out of desperation as out of spite for its ‘old labour’ workforce. Britain’s manufacturing base has contracted considerably under New Labour. The high pound has often been blamed for the poor performance of British exports, but it would be truer to say that that had only revealed the underlying weakness of investment in British industry. Apologists say that there is no reason in principle why cars should be made in Britain and they are right - except that Ford and Toyota seem to manage just fine. Of course it is true that job-losses in industry have been more than compensated by the growth in the service sector, but with wages typically much lower the shift represents a defeat for the workforce.

The writing was on the wall for Rover in 1994 when it was bought by Bayerische Motoren Werke AG (BMW). BMW was keen on the Rover brand but quickly discovered that profits were not enough to cover Rover’s substantial debts, especially the pension fund. In 2000 BMW gave away £385million worth of unsold cars, a £112million cash injection, an interest-free loan of £427million repayable by 2049 all in exchange for £10 - but then Rover’s debts had already cost it £2.85billion.

The Phoenix consortium set up by former Rover executive John Towers won the support of the then DTI minister Stephen Byers after promising to keep volume car production there (though department officials warned him to let the market decide). Today local Tory MP Julie Kirkbride thinks that a chance was missed with the venture capital company Alchemy’s bid. But the truth is that Alchemy’s John Boulton, with his slogan ‘turn base metal into Gold’, was a bit of a joke, a former executive of Parker Pens and Hornby Model Railways, adept at restructuring the Fatty Arbuckle restaurant chain or Four Seasons’ Health Care, but out of his depth in the car industry. More to the point, Alchemy planned to close volume car production and sell off the assets, leaving the MG sports car business employing around 1,000. It was the contrast between Alchemy’s asset-stripping and the Phoenix Consortium’s commitment to cars that decided the issue in John Towers’ favour.

But the Phoenix management has left everyone confused about whether it is trying to return to the golden age of car production, or to engage in a bit of asset-stripping itself. Rover directors sold off £200million worth of land to meet the company’s continuing losses. They paid themselves a whopping £40million in executive pay and pensions. It was beginning to look more like a legal version of the conspiracy they call ‘the long firm’ - use the company name to borrow, while taking assets out, before dumping the company on an unsuspecting market. The Phoenix group invested only £100million in a new production model. On 14 April, Which Car found Rover bottom of the league when it came to owner satisfaction.

Fingers were pointed at Patricia Hewitt for forcing the pace of Rover’s receivership. But the truth is that the Phoenix directors were refusing to face the truth about the state of the books. One hundred years after Britain grabbed China’s offshore trading outposts for itself under the ‘unequal treaties’, everyone was waiting for the Chinese to rescue British industry (2). But the Shanghai Automotive Industry Corporation negotiators had looked into the £400million pension fund black hole and were demanding guarantees from the British government.

The government should meet the costs of keeping Rover open to save the jobs of the workers there. But the long-term problem is the poor levels of investment in the British economy, of which Phoenix’s failure to rise from the ashes is all too typical.

James Heartfield is a writer based in London. See his website here.

(1) Speech to the Institute of Public Policy & Research Manufacturing Project, 23 September 2002

(2) See ‘China’s comprador capitalism is coming home’, James Heartfield, Review of Radical Political Economy, 2005, p2

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