Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 100 - 119)

TUESDAY 11 JULY 2006

MR RICHARD EXELL, MR SIMON DUBBINS AND MR NICK CLARK

  Q100  Mr Mudie: The TUC seem to be calling for government help to offset the difficult effects. Community development funds, earnings insurance schemes and the globalisation adjustment fund, could you just tell the Committee about those? Certainly, the first two are things you have suggested; the others European.

  Mr Exell: Yes. The earnings insurance scheme is more in the nature of an interesting idea that we would like to look into further rather than a well-developed plan, but certainly the globalisation development fund is one that we have welcomed, as has the European TUC. The difficulty is that the level it is set at at the moment, €500 million, I think works out at about €1 a year per head of population in the European Union. It is not a fantastically generous level, so we would like to see the UK Government investing more in it. An example of the sort of approach that we would like to see came up recently in Denmark. Denmark has a textiles industry which has come under the same sorts of pressures as we have had. We have lost tens of thousands of textile jobs in this country. The Danish response to it was really interesting. There the employers, the unions and the municipal, regional and national governments all got together on a plan to cope with the competitive pressures, so instead of just closing down the company, they had a plan for upgrading the skills of workers who were going to go lose their jobs, of moving to more value-added production for the company itself though with fewer workers, and with public subsidies to enable the company to upgrade and for the workers who are going to lose their jobs to upgrade their skills. The end result of all of that was, instead of global competition being a threat to all the workers concerned, that everyone ended up with a better job than they had had before. For that, you need the sort of institutional strength that Denmark has got including, in particular, well-developed traditions of social partnership, collective bargaining and trades unionism.

  Q101  Ms Keeble: This might be practical for the Amicus rep to answer this. When we went to India recently, we saw some examples of outsourcing some of the functions of the financial services industry. I wondered how concerned your union would be about what might be seen to be a "race to the bottom" in terms of labour standards for companies that outsource in developing countries?

  Mr Dubbins: I think we are obviously very concerned about the way it is being done at the moment for a number of reasons. We have witnessed thousands and thousands of jobs of our members being transferred, particularly to India as you mentioned there. While we would understand part of globalisation, redistribution of wealth and economic growth are going to entail some of that, what we are particularly concerned about are a couple of factors. One is the fact that sometimes the savings that the companies envisage have apparently not always come through, and we sometimes see the repatriation of those jobs; the other issue is the loss of skills that go with that as well. More importantly we have managed to get globalisation agreements with a couple of companies, such as Axa, Lloyds and Barclays, that have engaged in those activities. Those have tended to deal with re-training though and no compulsory redundancies and so on, so it is the issues at this end. What we are much more focused on now is trying to get a commitment from those companies that they will respect trade union rights, the rights to organise and the right to bargain collectively in those countries because if there is going to be a transfer of work, what we need to make sure is that the people taking up those jobs are at least entitled to have proper working conditions and healthy and safe environments.

  Q102  Ms Keeble: That work in getting the international level playing field is very important, but would you accept that, first, it can mean then in some instances, because they cannot frankly provide cheaper labour rates, that undermines the ability of developing countries to attract jobs and, secondly, it can also lead then to jobs being outsourced to countries and by companies which are prepared to support decent labour standards and, therefore, you get a much more dramatic erosion of workers' rights and protection?

  Mr Dubbins: I do not think we are na?ve enough to think that we will have equality of wages in the short run or anything like that in those countries.

  Q103  Ms Keeble: No, it is protection.

  Mr Dubbins: Yes, it is much more about making sure that those basic ILO standards and trade union rights and so on are adhered to and respected. That is very much the case in a number of developing countries where there are obviously not those safeguards in place and where unions are not fully developed. It is also the case in other countries, such as the United States, where basic labour standards are also not observed or respected.

  Q104  Ms Keeble: I was going to ask you about that because would you not accept that one of the reasons why the UK has been quite successful in competing in the globalised world is that we have had more flexible labour markets? How do you regard the balance between protecting some traditional practices and ensuring we can be competitive? Where do you think the balance should be struck in the interest of securing our long-term economic benefit?

  Mr Dubbins: I think you need to be careful with the argument and be sensible in that respect in competing globally and so on. I think in manufacturing, coming back to that debate that was being discussed earlier, we have not been very successful in investing long-term and protecting our position there, whereas countries with much more regulated labour markets, such as Germany or the Nordic countries, have had a far slower erosion and, as Martin Wolf was saying, they have been very successful in attracting long-term investment. I think there tends to be a rather na-£ve assumption sometimes, and it is very much based on the dominant neo-liberal agenda at the moment that flexiblisation, deregulating labour markets and making labour very vulnerable is the way to maintain competitive advantages, and I do not think that is borne out in reality.

  Q105  Ms Keeble: When I say "successful", I mean we have got 71% employment in the UK. We are the only EU country which is above the Lisbon target, I think I am right in saying. It is about how do you strike a balance between being able to compete and ensuring that you respect standards in a globalised economy?

  Mr Dubbins: I think, again, with those figures you also need to take into account things such as fixed-term contracts and part-time work which in the UK are far higher than in other countries and the protections in comparison with European countries have not been there. I think we obviously need to have the basic ILO standards, the real minimums that need to be applied everywhere which are a healthy and safe working environment, the right to form unions and the right to bargain collectively and see how things develop on that basis. I think the other side of it that is missing is very much often seen that the labour market regulation is negative, something which is a barrier to further employment and yet, historically, that has not really been shown to be the case. Highly regulated markets, like Austria and the Nordic countries, have had very low unemployment. Social partnership involvement in the long-term planning of the economy has produced a lot of good and a lot of benefit, but it is often forgotten at the moment.

  Mr Exell: It is important to remember the assumption that Britain leads Europe on dealing with the globalised world is mistaken. We lead Europe on imports per head of population, we account for a sixth of EU imports, but we only account for an eighth of EU exports. We do well to match German standards of export performance.

  Q106  Mr Love: Can I take us back to a couple of questions ago. I have been reading Joseph Stiglitz's book on globalisation and his basic pitch is if we are to maintain political support for globalisation—and there has to be redistribution from those who are benefiting from globalisation to those who do not benefit—a number of options have been put forward: Tobin tax, a lot of people think is unrealisable, if I can put it that way, at a European level. I think George mentioned the globalisation adjustment fund, but that is pretty small beer. When Richard talked about the situation in Denmark, he talked about the institutional strength of the Nordic companies, accepting that in this country we do not have a tradition of institutional strength. What do each of you think are the best practical ways in which we can redistribute from the benefits of globalisation to ensure we keep the political support for it in this country? Let us start with you, Richard, since you want to talk about institutional strengths and weaknesses.

  Mr Exell: One of the reasons that we are interested in the idea of re-adjustment insurance is it would be a way for companies that benefit from globalisation to compensate those of their employees who lose out. It is an idea that has been developed by some American economists and for about 4 or 5% of the gains to a company from globalisation it could invest in insurance for each of its workers to be invested in re-training as their skills become in need of updating or upgrading. One of the advantages of this is that when someone gets a new job, they then have a pot that they can take on to their next employer. Certainly, we would see companies which gain from global trade as being one of the vehicles which should be paying towards the cost of adjustment, but all of us gain from it to some extent. When you see steam irons for a fiver in Tesco, that is the rest of us gaining to some extent. The old idea which has always underlain the welfare state of society's duty to pay to help people who face redundancy is still relevant here. At the moment our welfare state and, in particular, our social security benefits are at such a low level that it is not providing anything that could be seen as a fair compensation for people who lose out.

  Mr Dubbins: On the structural fund, again I would echo what Richard said. I think it is a welcome development that and I really think long-term, even broader than Europe, there is room to have some sort of fund like that to make sure the losers are also compensated and there is some re-distribution there. I think again that fits very much into that broader agenda—Make Poverty History, the whole aid-trade debt debate—but the reality is we have got a lack of adequate infrastructure at the global level which is aimed at redistributing wealth and making sure that we are combating poverty and tackling the adverse effects of globalisation. I was interested to hear Martin Wolf again saying that something like the Tobin tax or at least a tax on finance and speculation is not something which is impossible. I am not sure we have really explored to the fullest extent we can the possibility of moving in that direction. I am not sure if you are aware as well that the ILO recently produced a report, A Social Dimension to Globalisation, and I think there are a number of issues in there that would be useful to look at as ideas we can take forward about trying to make sure there is a more equitable distribution.

  Q107  Mr Love: Anything to add, Nick? Do not repeat the same.

  Mr Clark: No, I certainly will not. We need also not get seduced by the idea that the sole beneficiaries are corporations. There is an awful lot of very wealthy individuals who have made their money out of global trade and I think we need to look at levels of income tax, personal income taxation as a realistic definitive. We also need to be clear that the benefits, such as they are, even in developing countries, are very unevenly spread. If you look at somewhere like Bangalore, where a lot of the IT industries are based and where a lot of call centres are based, just down the road in that state farmers are so crippled with debt because of global commodity markets, they are committing suicide at record rates. I think we have to talk not just about the damage done by global trade under the current circumstances to people in this country but also to people in the developing world as well.

  Q108  Mr Love: Martin Wolf poured, in my view, some cold water on the levy which, as I would I understand it, is a policy of each of you sitting there. If I am reading between the lines, he suggested that since it is likely in the future people will have to change jobs on a regular basis and re-skill regularly, it may not be quite appropriate for the employer to take on as much responsibility as the levy would suggest. I wonder what your response to that would be and how you think we can ensure that the levels of skills training is carried out in order to respond to the changes that globalisation is producing. Richard, perhaps you could comment?

  Mr Exell: One very brief point on the levy is that employers' opposition is, to a large extent, misguided from the point of view of their own self-interests. If you look at America's advantage in terms of global competitiveness, there is a strong body of evidence to suggest that where America does well in skills utilisation is in the specifics of linking individual skills to the company context. Now, you can only do that when a large and important bit of the training is being done by the company itself. That gives the company the opportunity to make sure that its workers' skills are relevant to the way in which the company is developing. A levy, by focusing companies' minds on how best to make use of training that they have got to pay for, would be a tremendous opportunity for getting British industry to develop some of that sort of advantage that American companies have got at the moment.

  Q109  Mr Love: Can I shift us on to manufacturing. Again, Martin Wolf seemed to be suggesting that mass manufacturing, looking specifically at the motor car industry, may well have reached its zenith in future investment by the major automotive companies which shift, he suggested, mainly to Eastern Europe. Perhaps I will start with Amicus because I know you have major interests in the car industry. What is your view about what the future holds for the motor industry and for mass manufacturing, and how we can ensure that Britain remains in that particular marketplace?

  Mr Dubbins: We just produced a document which we lobbied MPs with as well about the graveyard of the UK motor industry and the closures that have been going on in recent years, such as Jaguar and Peugeot now more recently, General Motors is in problems in Ellesmere Port. The total output, as I understand it, of numbers employed has remained fairly constant there, but what we have certainly seen with Peugeot, for example, is relocation towards the East. There seems to be more and more incentive to do that on the basis though of increasing profit levels. The plant at Ryton, for example, as I understand it, makes millions of profit per year. The incentive to relocate to Eastern Europe is going to push that profit margin even further. If that is the case, it is not really boding particularly well for the future if the incentive will be to relocate to maximise profits. The other side of that, the aerospace industry, for example—

  Q110  Mr Love: Before you go on to that, let me ask, what do you say to the argument that a lot of people use that the production of a car in Eastern Europe will be mainly to satisfy the new emerging market that will develop in Eastern Europe for car purchase and that, overall, Britain will not lose out because we are expanding the marketplace for those cars even though we are moving production to Eastern Europe?

  Mr Dubbins: I am not really sure that is the case. Certainly, we had a conference a couple of months ago with the European Metal Workers Federation, and the indication we are getting from a lot of the   companies is that there will be further rationalisation of their production centres, some of them are talking about having perhaps one or two major production centres on each continent. Okay, there might be an extent to which they can satisfy a growing demand in those countries, but certainly I think if the production is concentrating, as was indicated earlier, it is likely to be shifting towards those low-wage countries where the returns on that are going to be much more. The question the companies and the broader society have got to keep asking is: "If you shift production away, to then feed that back into developed markets, who is going to have the money to keep buying those products if we are moving towards service-sector jobs which are considerably lower paid?"

  Q111  Mr Love: How do we stall that process without cancelling the benefits of globalisation, Richard?

  Mr Exell: The answer has got to be in making sure that Britain is in a position to move up the value chain. At the moment we have got a tendency to concentrate on low-value added, low-skills input, cutting down on the costs of inputs including labour as a competitive model, that is the labour element of success. We need to upgrade to a high-road approach, high investment, high wages, high skills plus compensating the individuals who lose out as we change the mix of production that we have got in this country. That is a very short version of a complicated argument.

  Q112  Mr Newmark: I just have a brief question for Simon because it seems that the argument you are giving is the main motive for a company shifting from, let us say, the UK to Eastern Europe is a profit motive. I am trying to understand what is wrong, from your perspective, with a profit motive other than your particular angle where you clearly see job losses here. From the manufacturer's standpoint, if the quality of the goods being produced is just as good here, but they can produce it in an economy which has a lower wage structure, I am curious as to why the company is at fault for making that rational, economic decision.

  Mr Dubbins: I think it pretty much depends on whether you think the companies have got some sort of broader social responsibility as well, or if they exist simply to maximise their profits and that is the end of the story. The reality I would argue there is okay, they are moving production to increase profits from £10 to £20 million out of a particular plant, and yet the social responsibility, the taxes that would help retrain them and so on are no longer in the place where they are leaving the workforce unemployed there. We have seen also the situation with Jaguar—I think it is in the TUC report—most of the people who have found work again have found it with considerably lower wage rates. We have got to ask ourselves is globalisation here to serve the companies or populations?

  Q113  Mr Newmark: To serve the consumer, the consumer wants cheaper and cheaper goods.

  Mr Dubbins: As I was making the point a moment ago, if we keep moving production in that way, we will have nobody left on wages to be able buy those sorts of products.

  Mr Newmark: People shift to the service sector from manufacturing which is what has been going on in this country.

  Chairman: An ideological rift here.

  Q114  Mr Gauke: May I ask Mr Clark about the issue of outsourcing the public sector, and I know you were present for the first hearing we had, but I will make the same point again. We saw some very impressive companies in India which were doing lot of work with private sector companies in the UK: reducing costs for those companies, improving, therefore, shareholder returns and reducing costs for consumers. Why can the same principle not be applied to the public sector?

  Mr Clark: The interesting distinction between government and private companies is that private companies do not have to ask anyone about what they are doing or to be accountable to anyone but their shareholders. I think if you ask most consumers about where they wanted their call centres, they would pretty soon say, "We do not want them in India", for a variety of reasons, one of them being is they think it is less to do with the service to them. Anyone who has spent 20 minutes on the line listening to a recorded message would say the same, they do not think that the way call centres are being set up has their interests at heart, but, of course, the boards of directors, as long as everyone else is doing the same, are immune from public opinion whereas a government is not.

  Q115  Mr Gauke: I would argue to the contrary, that companies have to be accountable to their customers because if customers do not like it, they will go elsewhere. There is a bank that runs its marketing campaign on that point, so there are commercial pressures there that make companies more accountable. There are huge savings that appear to be made by outsourcing.

  Mr Clark: Presumably, this is information you have had from the companies who provide the outsourcing?

  Q116  Mr Gauke: On the basis that the private sector goes out there.

  Mr Clark: They are not going to tell you it costs more, are they?

  Q117  Mr Gauke: They are not going to do it if it costs more.

  Mr Clark: They may very well do on occasion. The system is not perfect; they get their fingers burned, they sometimes come back as a result of very bad experiences. There is a broader social context for it as well, that a lot of people are not particularly happy about it. To be honest, it is very hard to find, for example, a privatised energy company which has not got call centres remote from where you are, sometimes it might be in the UK, sometimes it might be in Europe and sometimes it might be elsewhere, but the option of not having a call centre no longer exists. You cannot go to a gas showroom and get anything done, you cannot go to an electricity board, those options do not exist and I think if you ask people they would say it should. It is rather like the arguments about what you are offered on the shelves of supermarkets is driven by customer demand. I do not think anyone really believes that.

  Q118  Mr Newmark: The market will shift. If you look at banks, the banks are doing exactly that, they are going back on the high street from having been so remote because the consumer is driving that demand. Banks are shifting.

  Mr Clark: That tends to suggest that the idea of going to call centres in the Far East was not a good one and those issues were driven by cost considerations.

  Q119  Mr Gauke: The point I am trying to make is the private sector—and we heard Martin Wolf make the case—has to respond to market pressures whereas the public sector responds to political pressures.

  Mr Clark: Democratic pressures, you could call them.


 
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