Action, investment and planning – how to beat the recession

Interview with David Frost, Director General of the British Chambers of Commerce

The Chambers of Commerce have been around for well over a century. Roger Prentis asks David Frost, Director General of the British Chambers of Commerce if they still have a role to play and what should be done to get the country out of the recession.

q: You grew up in the North East and have ended up working in London – how has your perception of the UK changed?

a: I grew up in the North East, but I actually live in Birmingham now. I spend most of my working life in the West Midlands. I moved to Walsall in the Black Country in 1980 just as the country entered the recession of the early 80s.

As a result, I now see everything through the prism of what I saw happen between 1980 and 1983. It was an extremely difficult time, in fact a horrendous period. Literally every week during 1981 and into the start of 1982 businesses in the West Midlands and Black Country were just closing around me. Businesses that employed three to four thousand people were just going down – I recall one week when, in Coventry, more than 14,000 jobs went.

This period saw the demise of large-scale manufacturing in the UK. Steel works, engineering component and automotive component manufacturers were just being taken out one week after another. In parts of the Midlands and the North, this resulted in fairly substantial levels of unemployment and a complete sector being destroyed.

In the light of what happened during what was a very formative part of my life, I now see things in that context.

In terms of what is now happening, I would argue that we have a more balanced economy. We no longer have the huge manufacturing and industrial companies, apart from in the automotive sector. We have more Public Sector employees, more business services and far more financial services.

On the one hand, therefore, there is a more balanced economy, but on the other it means that all sectors are now being hit. During the early 1980s it was very much only the manufacturing sector that suffered – and hence the Midlands and North – and, in my view, it had a devastating effect. Some communities across the UK have never really recovered from it.

q: In some European countries, for example, membership of the Chamber of Commerce is a legal requirement. Is that a good idea?

a: In continental Europe you have different scenarios. They are all slightly different in how this is approached. The French, Germans, Italians and Spanish have what they term “public law” so there is compulsory membership with no option. That means that some Chambers, in Germany for example, will have 300,000 members and they are very powerful organisations. In France, another example, Chambers do not lobby on behalf of business – they essentially deliver on behalf of the Government.

I don’t see this approach as the next step for Chambers here in the UK. I think that we are a different economy here and I am not sure that compulsory membership would add anything useful at this stage.

q: How do you see the future of the Chambers in the UK?

a: My view couldn’t be clearer. Chambers have been going in the UK for more than 150 years: Chambers that I have been involved with grew up in the 1850s and the 1880s and they are still here now which is far longer than most businesses. Woolworths has just gone down after 99 years so Chambers have been around far, far longer. Why? Because they have developed and adapted to serve the needs of the business community.

So, I am highly optimistic about the future. Chambers will constantly refine and change to meet the needs of business, even during the most difficult times.

q: Are Chambers mostly the realm of large businesses?

a: No! That is certainly not my experience. What defines a Chamber is both a sense of place and a sense of pride - particularly a sense of pride about their local area. The business people that sit around the Boardroom table in the Chamber all have a passion and a pride in their local community, in that town or city – they want it to be the best.

The Chambers represent all sectors, all sizes of business, from the largest down to the very smallest, but at the heart are family-owned businesses – businesses of some substance. They could be second- or third-generation businesses – the owners live locally, their children are educated there, the family will be involved in the local community as school Governors or Magistrates. They really do believe in the local area and see the Chamber being at the heart of it, helping business to drive it forward. That’s what defines a Chamber to me.

q: How would you promote Chamber membership more, particularly during the recession?

a: We are known as the “ultimate business network”. We can connect businesses, not only in the UK, but through into Europe and globally through the Chamber of Commerce brand. What we are saying is that there is an organisation here that can help you, put you in touch with other businesses. It can give you access to markets and link you into similar businesses in the area to help your own business.

q: Do you think that Chambers are adequately recognised in the wider community?

a: Chambers around the country get a lot of media coverage. When a journalist wants to get a real feeling of what is happening in Newcastle or Southampton then they will come to us as we have the best spread of real companies on the ground who will know the answer to their question.

The fact that we are present right across the UK really makes a difference. We can immediately give views, for example, on how manufacturing is doing in the Midlands because I can pick up the phone and talk to five, six or seven Chambers that are involved at the local level and get a real picture.

Another important issue is that we are not just London based – we are driven by the Chambers all round the UK who actually feed into us. We particularly represent what I would term “middle Britain” not just big businesses. And when it comes to media coverage per se, if you were sitting in Wolverhampton you would be reading about your local Chamber of Commerce in the Express and Star and the Midlands Chamber of Commerce in the Birmingham Post and then you would be reading about BCC in the national papers. The concept of the Chamber gets a lot of coverage nationally at all levels.

q: Do you see the collapse of the manufacturing sector as a major contributory factor in today’s problems?

a: I have a very, very real concern about the loss of our manufacturing capacity. In every previous recession, whether it was in the 80s or 90s, when recovery started, the message has always been that manufacturing is now lean, mean, hungry, capable, diversified and ready for global markets. In short, ready to weather what may come and in a strong position for growth.

My concern now is that I am seeing a hollowing-out of UK manufacturing. Yes, we have good quality companies out there. Undoubtedly we have some world-class manufacturing companies. The bottom line, though, is simply that there is not enough of them.

The issue for me becomes, how do we get out of this?

The big growth area over the past decade has been in Public Sector jobs. About a million extra jobs have been created and that has compensated for, no, hidden, the million lost from manufacturing. We are now seeing all sectors being hit – financial services, construction, business services and manufacturing – and the issue for me is what is there to help pull us through and get us out of this recession.

It certainly will not be financial services or more Public Sector employees coming in, so what is going to do it? Unless we have a strong manufacturing base, this will be a very protracted recession.

q: Do you think that the weak Pound will help – of course it makes what exports we have more attractive?

a: Undoubtedly the Pound will help. But this is a global slowdown, not just in the UK, so it is hitting all sectors. Automotive components is a prime example. We have an excellent component business, but with the global effects – falls in business of 20 to 25 percent or more – that will impact on the demand. We have seen what is happening to car production around the world.

As you say, is there enough there to take advantage of the markets anyway?

q: The French Government recently invested quite a lot in their manufacturing sector. Do you think our Government should follow this example?

a: What we have to ensure is that the good companies that are around now, during these difficult times, are still around in two years time. To get us out of this, we are going to need good manufacturing businesses. If they go due to a 25% or 40% fall in demand, such as in the automotive components I mentioned before or construction equipment, we will simply not have the capacity and the industrial base to pull us out of the recession. The bottom line is that the Government has to intervene in certain key sectors. I don’t think that there is any other option.

So, do I think that the French are right – yes I do. Why is Germany in such a strong position? Because Germany has a very strong manufacturing base and I think now politicians of all sorts are, at last, waking up and understanding that manufacturing has been their Cinderella for far too long, with a lack of investment, and now the time has come for serious investment.

q: With a hollowed-out manufacturing sector, do you think that we still have sufficient left for our future?

a: I think that there are two things. If some of these businesses go, they will never come back – as we saw in the 1980s. Also, the times of high levels of foreign direct investment into the UK and Europe, I think, are passed. Investment is now going into Central and Eastern Europe and the Far East.

Once manufacturing businesses have gone, they have usually gone for good. We have no choice but to look after them.

In certain parts of the country we may well, therefore, have to go back and start all over again. Going back to the early 80s there were concepts such as Enterprise Zones that were established and developed to stimulate investment. For example, if it was for the development of a steel works, a line would be drawn round it and there would be no business rates, land taxes, concessions on corporation taxes, etc. That is the only way to encourage and stimulate the required investment.

q: With the collapse of the banking industry we have witnessed the Government stepping in and taking major shares with tax payers’ money. How do you see the future in terms of privatised versus public ownership?

a: Finance oils the wheels of business. We have to have it, so we need to get the relationship between the banks and business working much better. It is clear from the evidence that we have coming through that this relationship has to get a lot better.

The bottom line is, as we discussed earlier, that when we come out of the recession, we have to have enough good businesses across the UK to form a core to pull the country forward. If good businesses go down because of a lack of finance – because the money is not there or the banks don’t understand business – then the recession will simply be far more prolonged.

The banks are central – whether they are in the public or private sector is immaterial – the issue is that they just have to get the money flowing and have the confidence to lend. That’s what is mostly lacking – the confidence.

q: What are the main problems that the UK faces?

a: This country is over-fixated with financial services and the housing market. People thought that financial services and the housing market were the answer to everything. Clearly they are not – it comes back to the point that we need a strong manufacturing sector in the UK. That would feed into everything else – the infrastructure – transport, etc.

We should be saying, what do we need, not in the short-term, but in the next ten years? We need the Government to develop an industrial strategy. For example, we are going to need a high-speed rail line; we are going to need nuclear plants. We can’t afford everything now, but we need to ensure that when we come to build them that it is UK companies and UK employees that will benefit from the work. For that, UK employees will have to have the right skills to do the job.

There has been some investment in rail, for example, with the recent completion of the West Coast line. That’s good, but we need to be thinking about more. There’s talk about a high-speed rail line, but let’s start planning for it now. What is the proposed route, what is the time scale, do we have the required skills – the companies to build the lines, the signalling, the trains, the stations around it. That’s what we have to do.

The Government has a role to work with businesses to identify the skills that we will need and if there are skills gaps then we need to ask how we will work with Universities and how we will develop the skills that we do need.

q: Governments are ephemeral – will any have the courage to commit to such a relatively long-term strategy?

a: They absolutely have to. There is no option.

q: Do you think that our education system is up to the task?

a: I saw some statistics the other day that showed maths and science results were improving. If you go to a good University, it is as good or better than any in the world. The real problem is the vast number of young people leaving school at 16 without qualifications and the question is, what future is there for them in a global 21st century world?

Basically we have to accelerate the improvement of educational performance. The answer is not to send everyone off to University, but also to develop high quality vocational skills and high level apprenticeships.

q: What do you consider are the most important things for the Government to address now to get the economy back on track?

a: Clearly it has to instil some confidence back into the market whether that is by the banks starting to lend to each other or to businesses and individuals.

The Government has to do all it can to nurture the development of new businesses. It has to make absolutely sure that we keep what we have already in terms of high-quality engineering and manufacturing. It has to invest public money in infrastructure projects – housing, construction projects, roads, rail, airports and schools. If we start to do that we will come out of the recession sooner rather than later.

For example, we need more airport capacity. We need a Government that will take hard decisions. One that gets on and does it and ensures that UK business benefits from the opportunities created along with the necessary infrastructure – rail links etc. We need the third runway at Heathrow. Other sites may be possible – the Thames estuary, for example, but that would just take too long and need too much infrastructure development. It would take 30 years and we need something now.

It is time for investment – not just any investment, but investment that will benefit business.

q: You are involved with the National Council for Graduate Entrepreneurship?

a: That is to encourage more graduates to become entrepreneurs. We lag the US – many students have entrepreneurial interests when they go to University, but lose them by the time they graduate. We need to encourage people to develop entrepreneurial skills, to start their own businesses.

It is probably a cultural issue, but we need to address it and help young people understand the benefits for them and for society as a whole.

q: Do we need to do more to encourage novel ideas to be turned into commercial propositions?

a: There is a lot of work going on at the moment in this field. University Enterprise Networks are spreading and there is a lot of work being done on the STEM subjects [Science, Technology, Engineering and Maths]. I am encouraged by what I am seeing.

q: Other areas of the world seem to be faring better. China and the Middle East – do you see that as a threat or challenge?

a: You only have to look at where the wealth is. Those areas are and will become more of an economic driver. They have wealth and have a role to play in driving the global economy forwards. And that can only mean terrific opportunities for UK businesses.

q: Do you have anything positive to say for our readers in these times of doom and gloom?

a: The message I have is that history tells us that we will come out of this!

It is really a matter of hanging on in there – not looking inwardly in the business, but looking out for opportunities. There are businesses that do phenomenally well in recessions.

We have to ensure that when we come out of the recession – and we will come out of it – that businesses are in a strong position to take advantage of the opportunities. I think that we will start emerging in 2010 and, hopefully, we will speedily pick up again.

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