Should Britain crash the pound?
That was the proposal put forward by John Mills, founder and chairman of JML Direct, at a breakfast which he hosted and paid for. His argument went like this: the U.K. exports a startling small amount, compared to other countries. In particular, manufacturing has almost disappeared because it is too expensive. While it's a pain in the neck to manufacture in China, JMP Direct does so because it's cheap. So if we could make UK manufacturing cheaper, that would drive exports, create jobs and re-balance the economy so that it more closely resembled Germany's mittelstand. And the way to make UK manufacturing cheap and attractive is to devalue the pound to around $1.10.
His proposal received a mixed reception. Pretty much everyone agreed that UK business is characterized by short termism, that CEOs are overpaid and incentivized to pursue short-term wins over long term growth. And this interesting array of economists, journalists and entrepreneurs all expressed profound skepticism around our so-called recovery.
But crash the pound? Several immediate problems spring to mind. First, a cheap pound makes for expensive imports: that's your olive oil, Nike trainers, cell phones and laptops. Inflationary perhaps, politically unpleasant certainly. More worryingly, an aggressive devaluation might provoke other countries to follow suit, setting off a currency war where everyone competes to be cheap. That can't end well.
I'm also not persuaded that manufacturing is the solution it's regularly portrayed to be. Sure, it would help to have a less lopsided economy. But automation is replacing manufacturing jobs almost as soon as they're created. And these are rarely great jobs with terrific career prospects. The danger here is that we're still stuck in an 19th century industrial revolution mindset.
That Mills is one of Labour's biggest donors suggests - or confirms - a terrible paucity in the party's economic thinking. Apart from a misguided prayer that competition can fix banking and the energy market, Labour's economic policies are currently either a well kept secret or mired in confusion and history. Zoe Williams has written bravely and with insight about the degree to which Tony Blair's war record has strangled party thinking and debate around his wider legacy. But that a big crude devaluation would save the day is the kind of idea gaining attention because there are so few around.
I'm not convinced that the way to reignite British business is to keep it eternally focused on cheapness. If the only reason people buy our goods is because they're cheap, then someone else will always make them cheaper still. This race to the bottom has characterized some of the nastiest industries - and industrial policies - in business today. The unbridled drive to low prices is why we don't know what's in our meat, it's why we have so many people on zero hours contracts and it's one reason why, increasingly, we can't tell whether newspaper articles are written by humans or algorithms. In all that I've researched and written about companies driven to make products more and more cheaply, I've learned nothing that inspired the belief that this is a great strategy. Costs never just vanish; they have to go somewhere and mostly they're pushed down to those who can least afford it. Competing on price is profoundly, inherently unsustainable.
And there are better, smarter ways to grow a business. Take American Apparel, a clothing company that proudly labels itself "sweatshop free." You may not like its ad campaigns but you have to admire its business model. Employees are paid nearly twice the minimum wage, offered subsidized public transport and meals, low-cost health insurance and can participate in a bike lending scheme. Its founder, Dov Charney, compares cheap clothes to the Outspan oranges his mother would never let him eat because they symbolized the injustice of apartheid. And Charney believes the race to the bottom is doomed. As wages and transport costs rise around the world, he argues, competing on cost alone won't be good enough. It's to the long term advantage of any business not to get cheaper but to get smarter about what consumers really want and how to make it well. Make goods people want and pay for because they're excellent.
Should we crash the pound to revive manufacturing? I'm not convinced. I am persuaded that we need to do a lot more to inspire British business leaders to think long term and to care about building high quality companies that can endure. I live for the day that I hear a British CEO echo the words of Henry Ford: "It ought to be the employer's ambition, as leader, to pay better wages than any similar line of business, and it ought to be the workman's ambition to make that possible...What good is industry if it be so unskillfully managed as not to return a living to everyone concerned?"
Margaret Heffernan's new book on competition and collaborationA BIGGER PRIZEis out now.