I have been asked to deliver a lecture which is both relevant to Cornwall and to Cornwall’s economic and business challenges, but links these challenges to some wider themes. So, being an obedient sort of person, that is what I will do.
But it has not, I have to say, proved a straightforward task – first, because I’ll openly admit that Cornwall is not one of the parts of the UK with which I have been most familiar; and second, because the more I did my homework, the more complex I found the picture. In part, that was because you sent me two documents telling a rather different story.
The first was your annual In Pursuit of Excellence publication, showcasing the many examples of Cornwall’s excellence and enterprise. And I can tell you quite honestly that of all the documents of that type that I’ve seen, it is the most impressive – the one that provokes the biggest favourable shift in one’s impression. It is so because the examples are diverse and asserting and exciting – from yacht makers to renewable energy, new oyster beds to precision engineering, electronics and horticulture to film-set facilities, packaging and printing to watersports, to the Eden project and cycleways – they all catch one’s attention, impress by their quality and excite and attract.
But it isn’t just the diversity that’s impressive. What’s also very striking is that the diversity is not random – that the diversity is held together by some unifying themes and by a unifying tone:
By the theme of clusters of combinations of small and medium enterprises which collaborate as well as compete, and which by concentrating in related industries build a depth of capability which is more than the sum of the parts. Sometimes that shared capability is in branding – the Cornish brand in food. Sometimes it’s in links with universities and research. Sometimes it’s because of supply chain linkages… but the impression of strong clusters is a powerful one and an attractive one. It leaves the reader thinking – there’s real depth in Cornwall in these segments.
The Blue Book is also held together by a theme, a tone which speaks of tradition allied with modernity. And that’s one of the most powerful combinations a company, or a region, or a country can project. People like products with heritage, with tradition, but they also want to know that products are made with best modern technology, applying the best of modern science. And it is this combination which In Pursuit of Excellence projects
– marine industries built on a heritage of the sea, but with innovating new materials, new technologies. Earth sciences building on Cornwall’s mining heritage, but focused on new scientific frontiers.
And finally, the publication is held together by a sense of harmony – of harmony between business and environment – and with a focus on some of the industries that we’ll need to help underpin that harmony into the future – such as renewable energy.
So it is an extremely impressive document. Perhaps it just tips a tiny bit over into hyperbole in its forecast of a Cornwall future so wonderful that – as it says at one point “There may have to be restrictions on who can emigrate to the new Garden of Eden”, but it does leave me with the hope that the speaker’s compensation for a Cornwall Lecture is a promise that you’ll exempt me from the immigration restrictions if you ever do have
to apply them.
And then I looked at the other document you sent me – Cornwall Now and in the Future – the consultation document on an Objective 1 programme for Cornwall, with its stark warning:
“Cornwall needs funding from Europe to arrest its alarming economic decline” – and the story of a county with higher unemployment than the UK average, income well below average, and acutely aware of its position on the periphery.
There can be no doubt that Cornwall does face a wide range of economic difficulties. Some of these are to do with your geography and position, some are historic. For example:
First, Cornwall is a rural area, with a much higher percentage of your workforce involved in agriculture than is generally the case across the UK – 6%, as opposed to a 1.8% UK average. And as a result, it has suffered under the long-term decline in farming, but also very acutely as a result of some short-term issues. The majority of Cornish farms are in the beef and dairy sectors – so the BSE crisis and scares over milk health have impacted heavily.
Fishing, too, has been a source of sustained economic decline – struggling with the problems of mechanisation and overfishing, and intense competition – two problems well familiar to other peripheral and rural areas of Europe.
And yet, unusually for a rural area, you have had also the problems associated with a declining manufacturing base. Your mining sector, and its associated engineering sector, have declined, with the last tin mine, South Crofty, now having closed and discussions on a possible alternative operation unresolved. Other traditional industries, such as china clay extraction and defence, though still significant, are not the generators of either employment or wealth that they once were.
And Cornwall clearly does have some problems of peripherality, of being away from the main centres of population, power, money, and trade. You face higher costs getting your goods to market, and equally importantly of getting business customers to visit you and see what you do. We often talk glibly of a world in which distance has collapsed, of global trade, of goods flowing around the world but actually, time to market and speed of response matter more than ever. Individual business and personal contacts matters and yes, that does mean that distance has an economic cost – an issue to which I’ll return in greater detail later.
And all of that helps explain why – despite all the excellence set out in the Blue Book, there isn’t yet a sense of opportunity to motivate enough of your young people. The population of the South West is growing by nearly one and a half times the UK average, but it is almost exclusively through migration of established families and retirees. Your young people, those in their late teens/early twenties, are leaving in large numbers – probably because the youth unemployment rate is around 17%.
And even those aspects of Cornwall that are essentially positive bring their own difficulties:
Your countryside is among the most beautiful in the United Kingdom. But this presents particularly acute problems when managing economic and environmental trade-offs. And away from the coastal areas, a full 1% of your land area is derelict – accounting for two-thirds of the derelict land in the whole South West.
And although tourism is a major business in the area, it of course creates problems of seasonality – both in terms of income and employment, but also in terms of resource capacity. Your shops, hotels, hospitals, roads – everything – have to cope with a population that swells by more than a third during summer months, leaving under-utilised resources the rest of the year, and therefore higher cost.
So there are problems and they need to be recognised. But they also need to be placed in context. For while your mix of problems and issues is unique, no one problem is in itself unique. And many of your problems are shared or have been shared by other regions of the developed world.
Many of your problems, but also perhaps some of the solutions, stem essentially not from Cornwall specific factors – but from overall trends in the world economy. To place the change which Cornwall is facing in context, I’d like to stress five key trends which have been and will continue to be powerfully at work within the economies of the developed world.
Firstly, technological change and its impact on employment patterns because two things are striking
as you look back over, let us say, the last century of economic change:
First, the relentless progress of technological change and automation, and the huge number of jobs destroyed thereby.
Secondly, the huge number of new jobs created in products and services we couldn’t even imagine at the start of the century.
In the Europe of 1900, about 50% of the entire population still drew their livelihood either directly from agriculture, or from activities closely related to it. Today, that figure is 5%. And if you had told many people in 1900 that it would be 5% by now, they would have imagined a world of truly mass unemployment. Yet, for all the problems of transition along the way, we end the twentieth century across Europe with 90% of those who do want jobs employed – not good enough, but still an extraordinary tribute to the ability of human innovation and entrepreneurship to find products and services to provide new customer demands to satisfy, as resources are freed from existing activities.
Technological change will roll on and it will produce changes in employment patterns over the coming decades quite as dramatic as over the past. But in different sectors. There isn’t going to be a massive shake out of agriculture, fishing or mining, because that’s already happened. Manufacturing will continue to automate, but in the big heavy industries most of the shake out has already occurred – British Steel at Redcar produces as much steel now with 4,000 employees as it did with 28,000 in 1970 – so, whatever happens, further reductions are only going to be a fraction of the past.
Instead, the big changes may be in the paper-processing environments – in retail financial services, banking and employment, and in the clerical and middle management layers of large corporations – where information technology is at last reaching the stage where it can transform the efficiency with which we manage information.
But we should no more worry about the long-term consequences of that change as we should have worried in 1900 about the long-term eventual consequences of the decline of agriculture.
An American technophobe, Jeremy Rifkin, wrote a book called The End of Work predicting that by the middle of next century a huge proportion of the population would be permanently and unhappily idle. But history says that, in the long-run, he’s wrong. We’ll go on shedding jobs – and we shouldn’t stand in the way of that process – but there is no limit to the new jobs a dynamic economy can create.
The second theme I’d like to highlight, linked to technological change, is the growth of the service economy. For the twentieth century has seen a relentless and still continuing growth of the service economy in every developed economy of the world – now reaching 70-80% of every developed economy and still growing. Some people regret this – they claim it is due to the hollowing out of our manufacturing base, that it is because low-wage countries at the other end of the world have taken our jobs.
But actually, it has very little fundamentally to do with global competition, and it would be occurring even if the developed world were the only world, and the rest of the planet didn’t exist.
It is happening for two essential reasons. First because as people get richer, they spend an increasing percentage of their income on services, not physical goods. UK consumer spending on services went up 93% in the last 15 years; on physical goods, it went up 42%. And even when people do purchase physical goods, more of the value added now lies in their distribution or servicing, and less in the plain fact of their manufacture.
And we are also seeing relentless pressure for increased spending on health and education – categories of expenditure which here in Europe we happen to provide primarily through the state, and where consumer demand takes the specific form of political pressure – but, underlying that, the key factor at work is still consumer preference. Quite simply, richer people want more restaurant meals and health care, more domestic services and high quality schools, more holidays and attractive retail store ambience, to a greater extent than they want another television set or fridge.
So consumer preference is one key driver of change – compounded by the other – which is differential productivity growth. Because manufacturing processes, particularly of things mass produced, are subject to such relentless improvement possibilities, faster than achievable in services, that even if volume of demand does go up, economic value added and employment, and total profit pools, do not to the same extent.
A third key theme – a shift to a higher value economy and to a knowledge – or skill-based economy. Because the relative shift from products to services isn’t the only story, equally important is the shift within products and within services, from volume increase to higher value. The developed economies aren’t going to consume more food as they now get richer, they’re going to consume better food, more high value food, more prepared food, more food whose farming methods meet consumer aspirations for environmental responsibility. They’re going to want better restaurant meals, better cars, better health care, more reliable products, better designed products. The weight of the economy is not increasing – the number of tonnes the economy weighs is not increasing; it’s flat and may start to decline – and more of the value added now lies in the design, the R&D, the brand, the appellation, the service characteristics, the speed of a product to market, the ability to tailor the product to a precise customer specification, and less in the actual process of physically getting things made.
And on the whole that means greater reliance on people’s skills as the key input to a company’s success, and on a company’s distinctive competence – its R&D base, its technical process, its brand strength – and much less reliance on low cost.
This has also tended to mean – at least in many sectors – a greater potential role for the medium and small size enterprise. Not, clearly, in all – the shift to R&D value added drives the need for global scale in the pharmaceutical or automotive sectors; as the shift to brand value added has driven the consolidation of the world drinks industry.
But in many other sectors, a focus on quality, on customisation, on service quality, has been driving increased opportunities for the small and medium enterprise sector. In all developed economies today, the share of employment in the top 100 or top 500 companies is falling, and new job creation is coming from small and medium companies.
And related to that theme – globalisation – or rather globalisation in some economic functions, but the very opposite of globalisation – de-globalisation –
in some others. Let me give you two facts that often surprise people.
Take the major blocks of the developed world… add them together and then think about their trade – but exclude from the calculation trade between them, the intra-block trade. What proportion of their total GDP is traded, imported or exported, with the world outside that block?
The answer is 5% and it has come down over last 15 years, not increased.
So the vast majority of developed country trade is with other countries of roughly equal income level, not with other countries of vastly different income level.
And the second fact – the fastest growing trade of all is between countries geographically close to each other – trade within the European Union has grown faster over the last twenty years than trade between the EU and the rest of the world.
And the fastest growing US trade is trade within NAFTA, with Canada and with Mexico.
The reasons for this are linked to the shift in the sources of value added I referred to earlier. Yes, in some segments of manufacture and service the conditions of trade have globalised, and lowest cost competition from around the world dominates. But in many others, other elements of value added are more important than basic manufacturing cost – and when what matters is customised design, speed of delivery, quality of service back-up, and speed of response to fashion trends, then geographical contiguity still matters – being in the same time zone still matters – cultural affinity matters. A mixed message, this one, for Cornwall, because if it should reduce your worries about being blown away by competition from the rest of the world, it might also confirm your worry about the problems of peripheral location in Europe.
But one final trend will pull at least partially the other way, and is certainly a major trend in itself – the trends in information and communications technology.
Of course, we’ve talked for years about the impact of information technology on business, and on personal communications, and on the importance of distance – and there’s a cynicism about such large effects so long foreseen and apparently so little present – yes, yes the Internet is all very exciting, but with an ordinary phone line connection, you still have to be a bit of a computer buff to enjoy sitting through the painfully slow process of search and screen refresh. And as for videophone, it was first talked about by AT&T about thirty years ago, but it’s still not a common tool of business.
But I think it would be wrong for anyone in business, or in the process of regional economic planning, not to work on the assumption that we are on the verge of a truly massive change in the application of information and communication technology. I don’t know whether it will take five years, or ten years, but I do believe that within that period, widescreen, highest quality, easily useable, cheap, person-to-person video conferencing will become the norm; that broadband access to the Internet will make it an extremely important tool of customer/business interaction; and that at least in some businesses, especially those where customer interaction and design and customisation are relatively more important, and physical cost and speed of delivery relatively less important, the economic costs of peripheral location will have declined, and the opportunity to choose business location on the basis of a lifestyle choice will have increased.
Relentless technology change and changing employment patterns; the shift to services; the shift to higher value added and the knowledge based economy; globalisation in some business activities but the dominance of the local in others; and information and communication technology on the verge of a major leap forward, not just an incremental improvement in capability; these are the five overall trends that have, or will, set the context for Cornwall’s economic situation and its challenges of the future. So what do they imply for Cornwall? Well, I’m tempted to leave that for you to work out, sticking myself to simply setting the context.
But let me try at least to pull out some ideas.
Firstly confidence in the future, even as some industries inevitably decline. Confidence because the history of developed economies should reassure us that as old industries decline, human ingenuity finds more things for people to do – but confidence in particular because I suspect the big adverse impact of technological change of Cornwall’s employment pattern is coming to an end – the next twenty years are most likely to see job shedding in financial services, in government bureaucracy, and in the large corporate staffs, while job shedding in agriculture, in fishing, in mining, is largely already complete.
And confidence because many of the companies which you have showcased in In Pursuit of Excellence are very well placed to succeed in the world I have described – medium sized companies, companies making quality products, companies building on knowledge, companies developing compelling high quality brands, companies in the growing tourism and leisure sectors.
Secondly, the focus on precisely those companies. Don’t fool yourself that the answer for Cornwall lies in getting some big high profile green field inward investors. You probably looked on with envy when Goldstar set up in South Wales, when Siemens and Samsung set up in the North-East, but actually it’s those large mass production functions which are most susceptible to global competition, to cycles of over-capacity in the world semi-conductor market, to the relentless process of productivity improvement and reducing employment needs in basic manufacturing functions. Focus on your high value clusters; if you want a role model, look to firms in Northern Italy which have established a dominance in fashion goods, ceramics, shoes and leather goods that appears totally impervious to low cost global competition, because it is based on design, speed of response, customisation, customer awareness and close collaborative links as well as on competition between a multiplicity of small and medium firms.
Thirdly, yes, pursue Objective 1 status. Cornwall does have special needs, and has an excellent case for funding which the CBI supports – but use the money wisely. Use it wisely, because it won’t last forever. It may run out in 2006 when this round of funding ends, and there will certainly be ferocious competition for funding after that, with the EU enlarging to the east. Focus on skills, on links between universities and business to build higher value, higher knowledge based activities. Get the key transport links in place – good rail and air connection to make it easy for business partners to come and do business with you here, as important as good roads for freight.
Fourthly, correctly analyse the implications of your peripherality – what is surmountable, and what is not. You can’t compete with products so low value, or undifferentiated, or with a very high transport cost intensity – unless they are differentiated – so don’t try.
You can’t compete in those supply chains where incredibly short supply times are vitally important to success – the automotive supply industry is bound to cluster around the major final assembly plants. But peripheral location is no barrier to competition in higher value products, particularly if you develop clusters that put you on the map in specific sectors, and provided you use information technology to get close to customers and business contacts.
And finally, keep on marketing Cornwall in a way which tells a story of confidence, which overcomes the perception and awareness problems of peripheral location, which projects a story of modern knowledge based businesses which nevertheless build on a heritage from the past. And keep that threat of immigration checks into the Garden of Eden hanging over people’s head, so that they feel they had better book their place early.