Jeremy Warner's Outlook: MoD in dogfight over £1bn trucks contract

There are lies, damn lies and job creation estimates. When it comes to military procurement contracts, there is also the fog of war. While it would be unfair to say that truth was the first casualty of the £1bn battle to supply the Army with 5,000 new cargo trucks, it appears that someone, somewhere has been economical with the actualité.

There are lies, damn lies and job creation estimates. When it comes to military procurement contracts, there is also the fog of war. While it would be unfair to say that truth was the first casualty of the £1bn battle to supply the Army with 5,000 new cargo trucks, it appears that someone, somewhere has been economical with the actualité.

The Birmingham-based van maker LDV is furious with the Defence Procurement minister Lord Bach for awarding the contract to none other than a German company. In its anger, LDV has managed to stop short of mentioning the war, but only just. According to LDV, the consortium it was involved in, although US-led, would have offered the best outcome by a long way for UK jobs and UK industry. It has even persuaded two union leaders to believe it, too.

Not so, thunders Lord Bach, who just in case you suspected a connection, is totally unrelated to the 18th-century German composer of the same name. To Lord Bach's mind, the LDV bid came in a poor second on all counts - job creation, cost and capability - to the reliable Germans at MAN ERF. MoD sources add that this was partly because the British component of the LDV bid was secretly watered down in order to make it more competitive. According to the MoD, the LDV bid would not, as claimed, have created 600 new British jobs.

For good measure, the MoD also takes a pot shot at the other unsuccessful bidder, the US truck maker, Oshkosh, for claiming that its truck would have offered the best performance and value for money, as well as 600 jobs in the Welsh valleys. Au contraire, says Lord Bach, the bid was not even compliant.

The outcome of military procurement contests are more often than not decided on who manages to cloak themselves most heavily in the Union flag. Pork barrel politics also frequently play a big part. Battles are won as much in the arena of public relations as hard fact. The truck order is one of those rare occasions where hard nosed commercial decision making seems, for a change, to have ruled the day.

Lord Bach's irritation with the losing bidders is understandable, (see letters, page 40) when the MoD thinks it has worked so hard to produce a solution which balances the interests of job creation and operational requirements. But in venting his anger at the half truths propagated by LDV, Lord Bach cannot afford to alienate unsuccessful bidders too far. He needs these people as much as they need him. Competitive tendering for MoD contracts is widely regarded, outside the defence industry at least, as a charade. To work, it has to be seen as fair, transparent, and worthwhile.

It's an odd sort of ranking that places Finland, Sweden, Denmark, Norway and Iceland among others above Britain in terms of international competitiveness, but then the World Economic Forum's Global Competitiveness Report has always been a little eccentric in its findings. The UK comes in at only number 11 in the latest report. This is admittedly four places higher than last year, but with Germany only marginally lower, it will still have Gordon Brown choking on his cornflakes.

Yet there are some implied criticisms in this report that the British Chancellor would probably agree with. The WEF assesses competitiveness not solely on the basis of macroeconomic performance. Other factors, such as educational excellence, technological preparedness, and the state of a country's infrastructure, gain equal weighting. On all these factors Britain scores relatively poorly. The Nordic countries, by contrast, seem to be getting these things right, though I wonder whether the report's compilers aren't a little behind the times in ranking Finland as number one. Finland's once leading position in mobile telephony is being trounced by the smarter technologies of the Far East.

With the notable exceptions of the United States (ranked number two), and Japan (number eight), all top ten in the WEF rankings are small economies with relatively small populations. Not all small economies perform well. Yet within the developed West most of them do, this for the obvious reason that political and social consensus is much more easily achieved among a small number of people than in a bigger one.

Again the notable exceptions are the United States and Japan. Both countries have managed to achieve a high degree of economic cohesion, the former around a red in tooth and claw belief in the galvanising power of free markets, the latter around a more co-operative and communitarian approach to business, government and social management.

Great tracts of the Japanese economy remain hopelessly inefficient. If Japan's doors were opened fully to global competition, these industries would be wiped out, yet there's no appetite for the structural reform or outside influence that might make them competitive. Even so, educational standards are incredibly high, the skills base of the work force is second to none, and Japan has more internationally competitive global corporations than perhaps any other country in the world. Moreover, Japan remains highly innovative. It's a strange paradox which the WEF competitiveness index neatly manages to recognise.

All the same, I refuse to believe Britain is less well placed to compete than Sweden, Norway and Finland. If that's the case, how come so many Scandinavians are so keen to work and live here? Britain's key competitive advantage has always been that it is open to international influence and propagation. Our skills base may be relatively poor, but we seem to have no difficulty importing the talent and wealth we need. The Government interferes with this virtue at its peril.

King's nice decade

In describing the 1990s as the "nice" decade - that is Non-Inflationary Consistently Expansionary - in a speech the other night at the Eden Project, Cornwall, Mervyn King, the Governor of the Bank of England, seems to have forgotten that the beginning of the decade was not nice at all. For many people it was extraordinarily unpleasant, what with relatively high levels of inflation, rising unemployment, recession and negative equity. It wasn't until the mid-1990s that the economy began to get going again on a stable footing.

Mr King also managed wholly to ignore in detailing the reasons for low inflation the key reason for it - globalisation of product prices, and in recent years, rapid industrialisation in both China and India. Instead he chose to concentrate on the Bank of England's own role, the concentration of inflationary expectations around the inflation target, and oddly, migrant labour, which I wouldn't have thought has had much impact at all. I suspect he also underestimates the effect of productivity improvements.

As Mr King points out, the official statistics show little improvement in UK productivity. My hunch is that this is one of those instances of the data lagging the reality, for the anecdotal evidence is of very considerable leaps in output per man hour. This is as much fed by the threat of Chinese price competition as its reality. B&Q, for instance, has managed to halve the retail price of paint in nominal terms over the last decade. The position is not as extreme in other products, but in most cases there has been sharp price deflation. That's been achieved not by importing the stuff from China, but by persuading European manufacturers to reduce their prices in return for the promise of much higher volume sales. These supply chain improvements are common to most British retailers.

Regrettably, the same thing cannot be said about the cost of services, where in many cases inflation remains quite high. Indeed the benign face of the official inflation numbers disguise a much more worrying reality - the price of goods is generally flat or deflating, yet the price of services is continuing to inflate at a fair old clip. Mr King reckons that the "nice" 1990s will be hard to replicate from here on in, but he predicts a "not so bad" decade none the less. With nearly half of it gone already, the worry is that it will turn out to be the reverse image of the 1990s - that is starting sunny, turning cyclonic.

jeremy.warner@independent.co.uk