Leading Article: Unfit to compete

IT HAD to come eventually. Fall down a very deep hole and you will eventually reach the bottom. So, as the signs of recovery pile up, John Major at last carries what newspapers report as 'a buoyant manner'. 'Britain is on the up,' the Prime Minister asserts.

But, if we are on the up, it is only in the sense that a drowning man is on the up before he sinks for the third time. The truth is that Britain cannot afford another consumer boom. It could not afford the last one. Because we were not earning enough money ourselves, we paid for the boom by importing. We paid for the imports with IOUs. We still have to redeem the IOUs. We must do so by exporting more than we import. The Government has implicitly recognised this by introducing deferred tax measures that will restrain home consumption from next year. Thus, we have the first recovery in history where action to damp it down was taken before it had officially started.

This ought to surprise nobody. For most of the century, the economy has been chronically incapable of supporting the living standards to which people aspire. Hence, each boom must be followed by a roughly corresponding bust. An outsize boom, such as that of the late 1980s, must be followed by an outsize bust, such as that of the past three years. But the late 1980s boom was so disproportionate that, this time, we cannot really be allowed the next one. Ministers promise no more boom-bust cycles. They have reason: the prospect is of bust-bust cycles, with insignificant intervening recoveries.

Why should Britain be in this bind? Low manufacturing investment, bad industrial relations and lack of coherent government intervention have all, at times, played their part. But the most consistent reason is the most uncomfortable one: the mass of the workforce is not clever enough. It is not clever enough because it has not been properly educated or trained. So we have to use less sophisticated machinery than our foreign competitors. When production encounters some minor problem, it has to stop while a specialist is fetched because the average worker is incapable of fixing it. When we introduce some new production process, it takes longer for our workers to get to grips with it. This is not armchair speculation: it has been exhaustively demonstrated in a series of reports from the National Institute of Economic and Social Research, comparing factories producing the same goods in Germany, France, Japan, the US and Britain.

A typical British firm cannot compete on quality of goods; it must therefore compete on price. This is why the Government's strategy is to reduce wages and other overheads - by, for example, abolishing statutory councils that set minimum wages and by allowing employers to shed labour more easily. It is also why ministers remain so determined to resist the social chapter to which other EC countries agreed at Maastricht. But this strategy entails competing with the emergent economies of South-east Asia. These countries are gradually adopting the higher skill levels that Britain neglects; but they will be succeeded by other developing nations. The logic is that British wages and working conditions decline to those of the Third World.

The alternative strategy is to raise the skill levels of the British workforce. (One set of figures here: 27 per cent of British workers have technical qualifications, against 63 per cent in Germany, 57 per cent in the Netherlands, 40 per cent in France.) Remarkably, ministers show no sign of grasping this necessity. The Government's only approach to the manifest inadequacy of vocational training is to keep changing the names of the various schemes. 'The tragic reality,' said a report from the Centre for Economic Performance at the London School of Economics last year, 'is that, despite all the rhetoric about new initiatives, real expenditure on off-the-job vocational education and training has if anything fallen over the last five years.' Further, the Government provides free tuition, and a combination of loans and grants, for students on degree courses but charges fees for the vast majority on vocational training.

Britain on the up? Until ministers remove the low-skill shackles from the workforce, Britain will be almost continuously on the down.