Richard Lambert’s background as a financial journalist and member of the Monetary Policy Committee has served him well as director-general of the CBI. His understanding of how the mechanics of the economy work is crucial, particularly during an extremely challenging time for all the CBI’s members across the business spectrum – not least those in the manufacturing sector
Interviewing someone with a strong journalistic, rather than corporate or political, background is different. Their answers to your questions tend to be articulate, to the point and devoid of flannel. In a long, distinguished career, which started as a reporter for the Financial Times in 1966, Richard Lambert has become very accustomed to clear thinking and expression. And he will have had plenty of recent practice fine-tuning his media skills. Apart from the annual winter round of business conferences and dinners he will attend, the organisation he heads – the Confederation of British Industry – has been under the public spotlight frequently, commentating on the financial crisis, manufacturing output, redundancies and other gloomy topics linked to the recession. The CBI is a non-profit lobbying group and consultancy whose objective is to represent the interests of its members, UK businesses, to government, policymakers and international legislators to help them compete effectively. Its membership by sector is broadly aligned with the UK economy, but a slightly higher proportion of its membership is in the manufacturing sector than the economy (which is 13%-16% of GDP depending on the source). It has considerable political leverage and should be an organisation that manufacturers feel will represent their views vocally.
Lambert took up the post of director-general in 2006, succeeding then Sir Digby Jones, now Baron Jones of Birmingham. Their backgrounds are starkly different: Jones was a businessman who had cut his teeth running companies in the Midlands, going on to become chairman of the CBI’s West Midlands Regional Council; Lambert had worked for the Financial Times for 36 years, becoming editor in 1991 after which he launched the US version of the paper, before joining the MPC in 2003. This background, he says, has helped him at the CBI.
“A spell on the MPC gave me a much clearer understanding of how the economy works, which is very useful just now. I have a much better idea of how the pieces fit together than I did beforehand. My time as a business journalist – it was there that I learned about the issues that matter, which are my bread and butter now – gave me a very wide perspective of business issues, so I can talk about e.g business security one moment and capital markets the next. Like all journalists, I know a little about a lot – and not a great deal about anything!”
Committed to get money moving
In recent weeks, manufacturing has received a lot of press, much of it negative. But there is a tangible feeling that the public eye is training on the sector once more, taking it more seriously than for many years. The oversimplified view is that, when the City is on its knees, how does UK plc make a living? This attention is magnified by the plight of the car industry and other big firm redundancies. To reflect this shift, has the CBI changed its service offering to the manufacturing sector? “We haven’t changed our central function at all – we remain committed to representing all sectors of our membership to promote and sustain conditions so business in the UK can compete and prosper,” Lambert says. “But there has been a stronger focus on manufacturing in the sense that the credit crunch has inspired people to look at the balance of our economy, and at how industry and manufacturers are very reliant on access to credit when they restructure to reflect falling demand.”
The CBI operates as a government lobbying organisation and one of its primary aims recently has been to urge government to action the state support packages for businesses announced over January. Lambert feels strongly that the CBI has a duty to encourage the delivery of this money to businesses soon. He has voiced concerns about the importance of the swift implementation of these measures several times, for example at the CBI Manufacturing Dinner in Birmingham on February 5 and in an article in the Financial Times that reported the Government had not (at that time) applied for European Commission approval for several support schemes.
“The concern that I voiced [to the newspaper] is that the Government has come up with a series of important innovations over the last few weeks and it is terribly important that it drives ahead with those and actually starts implementing them (see next page for more on this question).
The Manufacturer asked Lambert what the CBI would say to manufacturers that are in financial difficulty. Can he, for example, offer companies any reassurance that the support packages will be implemented soon, and will be adequate? “I don’t want to pretend to offer answers I don’t have nor sound patronising; it is a very serious situation.” He finds the question awkward and it’s clear we have a misinterpretation of the CBI’s specific role, as a voice for business not as a policy-maker or advisor. “Our job at the CBI is to press the government into urgent action to deliver the access to credit that it says it is committed to do,” he says. “I’ve no reason to think it’s not doing this, but it needs to demonstrate its sense of urgency more clearly than it has done, because perfectly viable companies are now facing serious difficulties. So I would address my remarks to government rather than to the manufacturing sector about what needs to be done in the next few weeks. The Bank of England on Friday [Feb 6] announced step one of its plans to buy non-financial corporate bonds and syndicated loans – that’s an important first step. We now need to see the other proposals falling into place as rapidly and sensibly as can be achieved.”
Manufacturing the future
Lambert acknowledges the scale of the problem facing British business without hyperbole, but he also articulates the case for optimism well. “Obviously the UK economy is going through an extremely stressful time and people are having a hard time and losing their jobs. And no doubt for the next year or two things are going to be extremely tough. If you look forward 5-10 years you could see a different sort of economy growing, one in which the UK develops real strengths, and in other [non-traditional] sectors. Strengths around, in the case of manufacturing for example, rebuilding our power generation capacity, and building our renewables industry with a more competitive currency and more highly skilled manufacturing workforce. I see no reason why there shouldn’t be great opportunities there for our country going forward.”
Despite his lack of an industrial professional background like his predecessor at the CBI, Lambert comes across as believing very earnestly in the importance of manufacturing to the economy and the country.
“I think it’s likely in the years ahead we will see a greater emphasis on manufacturing as a driver of economic growth, partly because the past engine of growth – household consumption and public spending driven by borrowing – have ground to a halt,” he says. “And partly because the financial sector is likely to contract in the next few years. My sense is that if you look at where growth is going to come from in the years ahead it will be from business investment and from trade, and manufacturing is a key component of that. What’s helpful is that obviously with the weakness of sterling over the last few months will make our manufacturing exports more competitive in the future.” Lambert is quick to identify that, aside from the wholesale fall in global demand, part of the problem for manufacturing in recovering sales is the enormous inventories that many companies, particularly automotive, have accumulated in recent years. “There is massive stock liquidation globally and that is having an effect on industrial demand from the UK. I’m confident that when that stock runs out and stability comes, the UK will become a more competitive manufacturing base in the world than it has been.”
Lambert has to go, he has an interview for Sky News and the CBI Manufacturing dinner starts in one hour. The CBI is faced with a big ask – mediating between the demands of business in a recession and the help that a government stretched to its limit can provide. But the CBI appears to be in good hands. As an ex financial journalist, Lambert has an objective, open and intelligent mind with no obvious axe to grind, politically or in business, someone you would want on your team when the demands on that team are so high. Knowing “a little about a lot but not a great deal about anything” can be a virtue when you must provide measured answers to questions from multiple quarters in difficult times.
Richard Lambert on manufacturing
A condensed summary of questions asked before and after the CBI Manufacturing dinner in February. The full interview is online at: https://www.themanufacturer.com/uk/content/8914.
The UK now has a low value currency but exports are falling. Is this a function purely of a downturn in the global economy and less demand, or is there more to it?
It is clearly that [lack of demand]. We are seeing a synchronised downturn in demand across the world and what’s amazing is the speed and the uniformity of that – in the last two or three months we’ve seen car sales in Brazil drop by 25%, we’ve seen consumption of electricity in China fall by 7%, we’ve seen the German economy has slammed on the brakes. This is happening all over the world simultaneously. Part of that is to do with companies all over the world hoarding excess stock, so there is massive stock liquidation globally and that is having an effect on industrial demand from the UK.
I’m confident that when that stock runs out and stability comes, the UK will become a more competitive manufacturing base in the world than it has been. My own view is that sterling has been overvalued for most of the last 12 years and that has cost our manufacturing sector dearly in terms of jobs in particular.
State support approval by the European Commission has not yet been applied for some of the Government’s support packages for industry*. Is this worrying for many companies? (*this was so on February 5)
The Government has come up with a whole series of important innovations over the last few weeks and it is terribly important that it drives ahead with those and actually starts implementing them. With the important ones there’s concern that we don’t know when these initiatives will start kicking in.
We understand that it’s very complicated to develop credit guarantee schemes of a broad nature, its complicated to do insurance to mange the toxic loans in the financial system – but the longer we delay on all this the greater the lack of confidence and the problem now is about confidence.
Delays to accessing credit now means that, particularly for SMEs that are dependent on that money being available now or by the March 1 deadline, companies will be forced into cost cutting which means job losses.
Yes – we’re calling for a greater sense of urgency. I don’t think it is right to say that the small and medium-sized enterprises are the most vulnerable. Some are clearly, but a lot of them are rather conservatively financed and have pretty solid relationships with their banks. One should be equally concerned about are large companies who don’t have investment grade rating and need to refinance their debt, who are finding it increasingly difficult to do so because of the withdrawal of overseas bankers and other recent lenders. That’s why we thought the most important announcement came on January 19, when the Government promised credit guarantee schemes. The Financial Services Authority gave clearer guidance on capital adequacy for the banking system to allow it to free up capital to lend more, and outlines were announced for this insurance scheme that were intended to free up capital to lend more broadly.
Do you see any evidence that production is returning to the UK from low cost economies due to supply chain risk, and the recession reducing the cost base in the West such as a lower pound?
I can see the potential for this. We went to see a large company yesterday which had closed its last factory in the UK at the end of last year and has shifted the last part of production to China, and was regretting that it had done that. I would say the cost base has changed considerably, or rather the cost calculations because of what has happened to sterling. There’s also a concern about the security of supply from central and eastern Europe in countries like Hungary, Latvia, Bulgaria and Romania, where one can see I’m afraid the risks of political and social strains building up as a result of the combination of the credit crunch, recession and the need to restructure their economies. We’ve seen already in countries like Latvia for example serious social disorder.
Do you see an opportunity for the CBI to get involved in and encourage retraining and new skills, as part of a wider commitment to retrain manufacturing skills [to make] the products of the future, such as low carbon goods?
We are now involved in discussions with the Department for Energy and Climate Change on their [potential] green paper, which will come out in the next few weeks, on a low carbon economy. That will be the next important step on that front and we hope that will be suitably auspicious and practical. We have a dedicated team working on the climate change message and we are making recommendations about the regulatory, fiscal and other arrangements that we intend to push to get this agenda going.
Are there any low carbon area of manufacturing that you feel confident government will back to contribute to the future economy? For example, the manufacture of renewable energy plant such as wind turbines? Or is it more a general commitment to do more?
There are some areas that stand out. Nuclear is one and the Government has set up the Nuclear Development Forum which is intent on bringing together companies in the supply chain which is going to be a very important part of the logistical puzzle going forward. There are several companies with real comparative advantage in the supply chain for nuclear power plants in this country, so that’s an important one. Then there is transport, Crossrail is going to need many thousands of engineers and as you know there are now exciting and important discussions about fast trains going north.
Does the UK need to make more things, for domestic and foreign trade, as a bigger proportion of GDP?
I hesitate only because people have been saying this for donkey’s years and they haven’t been right.
I think that we may be uncomfortably near a tipping point that if we lose important parts of our manufacturing infrastructure other bits start to become vulnerable, so I would hate to see it getting any smaller. Where I see our future is here: over the last 10 years we’ve lost one million workers in manufacturing down from 4m to 3m, but the 3m are much, much more productive, more highly qualified, producing much higher value-added goods and products. That must be the way ahead in a globalised world – a higher value, knowledge-based manufacturing sector.
For example if you look at the machine tools sector, most of the companies that I knew 20 years ago have disappeared. But now we have a high value, high precision machine tool industry, not household names, but still producing world class products. That must be the way forward – competitive commodity business within high precision, high value manufacturing.
