britain’s disadvantages -- 10/11/22

Today's selection -- from The Competitive Advantage of Nations by Michael E. Porter. In his breakthrough work, The Competitive Advantage of Nations (1990), author Michael Porter set a new standard for analyzing the economic strengths and weaknesses of leading nations. Here is an excerpt from his critique of Britain, much of which remains valid more than 30 years later:

"Where Britain has fallen down is not so much in the starting pool of factors but in the mechanisms to create and upgrade them. The result has been a major barrier to upgrading and even to sustaining competitive advantage in industry. The British educational system has badly lagged behind that of virtually all the nations we studied. Access to top-quality education has been limited to a few, and a smaller percentage of students go on to higher education than in most other advanced nations. Education for the elite has stressed humanities and pure science in favor of more practical pursuits, and many talented people in Britain have avoided practical disciplines such as engineering. Consequently, the proportion of university students in technical areas is lower than in other advanced nations. Even engineering has been treated in a theoretical way at the leading universities.

"The more serious problem is the education of the average student. British children are taught by teachers less qualified than those in many nations, receive less training in math and science, put in fewer hours, and drop out more. The thrust of educational reform until the Thatcher years was to make the system more egalitarian rather than competitive. Standards have fallen and the performance of British children with them. The educational system has also both reflected and reinforced British tendencies toward noncompetitiveness in personal terms. British people tend to downplay their accomplishments. Moreover, once they are out of secondary school the alternatives are thin. Technical colleges still have low status, and there is no well-developed apprenticeship system as in Germany. The government­ supported Youth Training Scheme, still poorly linked to the needs of industry, has not compensated.

Paternoster Square, home of the London Stock Exchange

"The result of such an educational system is a study in contrasts. On the one hand, there is a pool of outstanding people well qualified for professional services, consultancy, software, publishing, and the like. The upper tier of the human resource pool remains well trained and low cost compared to other nations. Outstanding thinkers and scientists continue to graduate from the top British universities. On the other hand, there is a serious problem confronting the bulk of industry. The British workforce is well behind in education and skills compared with that of many other advanced nations. Managers in Britain are also much less likely to have college or university degrees than are those in other advanced nations. There is a shortage of managers trained in technology entering manufacturing industries, and a technical background has been uncommon in top management.

"Most British companies have done little in-house to offset a weak educa­tional system. Investment in training by industry is estimated at far less than one percent of revenues (.15 percent in 1980) in Britain, compared to 2 percent in Germany and 3 percent in Japan. The pool of human resources that starts out more poorly educated only falls further behind. The net result is that Britain has lagged badly in upgrading the average quality of human resources. This is in many ways the most fundamental problem for the nation's economy, as it has come to be in the United States.

"Britain makes a significant investment in research. Most of it is oriented toward pure science and especially to defense. Much of British public R&D spending has been defense-related. In 1987, for example, 50 percent of government R&D was for defense purposes compared to about 12 percent in Germany, 5 percent in Japan, and 34 percent in France. As in the United States, this has had limited benefit for industry and sometimes dis­tracted British firms from commercial opportunities. Public R&D spending in all fields has long been under pressure because of a chronic need to reduce government expenditure.

"British companies have been aggressive investors in R&D in some indus­tries, such as chemicals and pharmaceuticals. Here, they have established close links with university researchers in related fields. In most industries, however, British companies have been outspent by foreign rivals. Many firms have lacked organized R&D. Overall, private sector R&D spending in Britain as a percentage of GDP (1.19 percent in 1986) is well behind Japan (2.19 percent), Germany (1.60 percent), and Sweden (1.71 percent). Total British nondefense R&D spending as a percentage of GDP, at 1.8 percent in 1986, compares unfavorably with 2.8 percent in Japan, 2.6 percent in Germany, and similar figures in several other advanced nations. Numerous industries have gradually lost technical position. The pace of decline accelerated with the advent of electronics, new materials, and ad­vanced manufacturing techniques.
"Selective factor disadvantages were once a principal driver of innovation in the British economy. Britain was a relatively small island nation that depended on many raw materials from abroad. This helped propel Britain initially to become a great trading nation. British firms established a far-flung trading system, including associated industries in finance, shipping, and insurance. Later, British scientists and engineers created many advanced product and process technologies to upgrade imported raw materials and create new, advanced goods.

"As British prosperity grew, rising wages led to pressures for process innovation that fueled technological leadership in many British industries. Many new forms of automation were pioneered. Britain originated and devel­oped strong positions in many machinery industries.

"In the postwar period and before, however, the process has been working in reverse. Until the development of North Sea oil and gas, devaluations took pressure off industry. As British wages have lagged behind, the impetus to innovate and automate declined compared to nations such as Germany, Switzerland, Italy, and Sweden. Union restrictions on work practices have further blunted change. Over time, many British manufacturing industries drifted toward competing on price with obsolete or lower-quality products and processes. Instead of overcoming selective disadvantages, British firms have slowly harvested market position."



Michael E. Porter


The Competitive Advantage of Nations


The Free Press


Copyright 1990 by Michael E. Porter


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