Conference Review: The 7th Annual Forum on The Economic and Business History of Egypt and the Middle East

Last week I attended the last two days of the 7th Annual Forum on the Economic and Business History of Egypt and the Middle East, which was hosted by the American University of Cairo's Economic and Business History Research Center, and ran from May 22-25th. I was invited to Cairo as part of a panel of British Business Historians put together by AUC's Abdul Azziz Ezzel Arab and the LSE's Terry Gourvish. Peter Lyth of Nottingham University Business School and Dilwyn Porter of De Montford University's International Centre for Sports History and Culture also attended as part of this party, while Chris Wrigley of Nottingham University's History Department attended independently. In addition, there were three well-known participants from the USA - the eminent Egyptian historian Robert Tignor (Princeton), Don Babai of Harvard's Center for Middle Eastern Studies, and Ellis Goldberg from the University of Washington. The intention was to forge closer links between western and middle eastern scholars in the field.

The outcome was somewhat interesting. Most of the discussions following papers moved into the area of political economy, and the argument that Britain had invaded Egypt in 1882 purely to stop development from occurring in Egypt. Indeed some of the academic papers from Egyptian scholars also tended towards this argument, notably Ahmed Elsherbiny (Cairo) whose paper on Cotton and Anglo-Egyptian Business relations in the second half of the nineteenth century, who argued that the UK exploited Egypt's cotton producers. Meanwhile Mohamed Mabrouk (Cairo) argued in a paper on Egypt's national bank that the bank was not truly an Egyptian national bank, being merely a British puppet, even claiming that the UK ran Egypt via the national bank, although providing relatively little evidence for the claim. Generally speaking there was disappointingly little interest among established Egyptian scholars in the role of actual firms in colonisation, as I discovered with my own speculative paper on Egyptian free-standing companies, which laid evidence from Australia, New Zealand and the USA before the Egyptian audience, before examining British FSCs in Egypt, hoping to gain some pointers from the audience about possible research directions - these did not emerge, as discussion instead seemed to focus on the political dimensions rather than the organisational ones. Egyptian historians also did not seem hugely receptive to a global approach. Terry Gourvish's paper on research directions in Egyptian Business History got a similarly off track reaction, although Peter Lyth's work on Thomas Cook in Egypt and Dilwyn Porter's work on the UK media's reaction to the Suez Canal crisis gained a more positive reaction.

Despite the distance in methodological viewpoint existing between British and Egyptian business history scholars, there were some positive outcomes. Tina Staples, the HSBC's chief archivist, gave a well received paper on preserving corporate archives to Egyptian businessmen, some of whom responded very enthusiastically. Cliometric Historians may be interested in Naglaa Abd Alagawad's (Banha University) work on Egypt and the 1907 Financial Crisis, which showed that the crisis had few economic knock on effects on the Egyptian economy. Younger scholars in Egypt seemed more receptive to firm level approaches and appeared to be extremely keen. Additionally, new personal links were forged for the future, and the profile of Business History as a distinct discipline was raised in Egypt.

BBC One productivity experiment: A productivity puzzle?

The credit crunch has presented the British labour force with many difficulties. This has come at the same time as the opening up of the UK labour market to workers from the 11 Central and Eastern European nations which entered the EU in 2004, and the subsequent admission of Romania and Bulgaria in 2007. The UK Office of National Statistics placed UK unemployment between October and December 2009 at 7.8%, or 2.46 million at the end of December. Meanwhile, with the next census not due until April 2011, no one knows exactly how many migrant workers are in the UK, nor which countries they come from, although some left-wing sources estimate the figure to be as high as 3.8 million, probably an over-estimation of the reality.

Extremist right-wing politicians, commentators, and members of the public frequently claim that it is very difficult for British workers to find lasting work in the UK because migrant workers undercut them, meaning that employers will not even consider employing a UK native. This is claimed to be particularly the case in low skilled jobs. BBC One TV tonight made an intriguing contribution to this debate by sending Business and Economics presenter (and sometime Economics Editor) Evan Davis to make a programme about the issue. The result was The Day the Immigrants Left. Davis selected twelve long term unemployed British workers, from all age groups, to work in four jobs, frequently filled by migrant workers for two days - as factory labourers, farm labourers, builders, and as waiters and chefs in an Indian restaurant.

Without giving too much away about the film, the results were mainly mixed, with the skilled builders performing best, but those workers in the factory, at the farm, and in the restaurant proved to be slow to learn the nuances of the jobs and generally proved to be inefficient in them. Some, particularly the younger workers, failed to turn up for work at all, calling in sick. Perhaps most interesting was that none of the employers interviewed admitted to paying below what would be considered a living wage for a British worker - agricultural workers were paid around £44 per day on a piecework basis (the Brits managed only £25 or so at best), while the builders were paid £150 a day. All four employers noted that the foreign workers they employed generally seemed to be very productive compared to the workers they could find on the UK market, something that the programme's findings seemed to support. This was most notable in the agricultural sector where the British workers were employed to pick asparagus, with the short six-week nature of the season making the ability to pick crops quickly crucial.

It would be interesting, therefore, to see if this experiment could be repeated, for a longer period with a larger number of workers, say at least 100, to see if the results would be statistically significant. Its clearly impossible to say that British workers really are less productive when only a very small sample size was used working across only two days. Perhaps the BBC could consider commissioning a series on this, or this could even be a good quantitative academic experiment. Such an experiment really would be a useful exercise, and could help to inform the debates around migrant workers and long term unemployment, as well as perhaps silencing more extreme right wing political elements.

Cadbury sale not the last sweet in the packet

Today the Cadbury's board finally caved into an increased bid by the US food conglomerate Kraft. Unable to trust its shareholders to resist Kraft's offer, the UK chocolate manufacturer's board announced its support for the £11.5bn bid, worth 840p per share. This is a reminder that companies exist to create shareholder value, whatever their cultural role may be. The sale has not been popular in the UK media and with the UK government, with Enterprise Secretary Lord Mandelson, and then the Prime Minister himself warning Kraft that they do not want to see cuts in employment or production in the Cadbury business. However, perhaps Mandelson and Brown should not panic. We have been here before. Although Kraft purchased Terry's of York, the manufacturers of chocolate oranges in 1993 only to close UK production down in 2005, overseas multinationals generally have good form in the UK confectionery industry. In 1988 Rowntree Mackintosh, then the second largest UK manufacturer after Cadbury, was purchased by Nestle. Although Nestle stopped the UK production of Smarties at the Rowntree factory in York in 2006, the company continues to manufacture such best sellers as KitKat, Aero and Rolo chocolates in York, along with other sweets such as Fruit Pastilles, among others. Its also worth mentioning that the US company Mars has been producing chocolate at its Slough factory since 1932, with little production moved abroad. While chocolate is a commodity product of sorts, to improve the bars still relies on high level food science of the sort found in advanced economies such as the UK. Access to local supplies of milk is also important, while Cadbury's Bourneville factory in Birmingham remains ideally placed for food distribution. The UK remains an advanced market which demands luxury foodstuffs such as chocolate and there is little sign that demand is decreasing. Chocolate manufacture is an industry that is likely to remain in the UK for a long time to come.

Research Note: The Business Archives Council is currently acting to secure the Cadbury's archive.

The End of the Abbey Habit

Today saw the Spanish Banco Santander Group announce that it will be re-branding its UK subsidiaries Abbey and Bradford and Bingley as Santander UK with immediate effect. For Abbey, once an industry leader in the mortgage and savings market, and a pioneer of building society de-mutualisation in the late 1980s, this seems a sad end for a once well known British brand.

Abbey can trace its roots right back to the National Permanent Mutual Benefit Building Society established in London in 1849, in compliance with the 1836 Building Societies Act which allowed the creation of societies to lend money from subscribers to fund house building. In 1874 the Abbey Road & St. John's Wood Permanent Building Society was formed in north west London. In 1944 this society, now the UK's second largest merged with the National, by this point the sixth largest society, to create Abbey National, with assets of £80m, to exploit the expected post war building boom. The society, rooted in the affluent south east, prospered; by 1968 the society had assets of £1 billion and a network of 150 branches. Despite the poor economic conditions of the 1970s the society continued to prosper, compiling assets of £5.8bn by 1979, supported by a network of 500 branches. The brand was also a very strong one, with its clever logo of a couple holding up an umbrella that was also a house roof, while youngsters were told to 'get into the Abbey habit' (habit, Abbey, monks), later, saving with Abbey was 'the habit of a lifetime.'

In 1989 the Abbey National was the first building society to take advantage of the Thatcher government's de-regulation of banking, converting itself into a bank by granting its members shareholdings proportional to their savings. It would be easy, and lazy to suggest that the demutualisation of Abbey was what led to its eventual purchase by Santander in 2004. Like industry contemporaries Halifax and Northern Rock, there was nothing inherently wrong with Abbey National's business model as it stood. However, the company diversified into new operating areas in which it lacked experience, notably wholesale lending and the insurance industry. Exposure to the Enron collapse of 2001 coupled with a slowdown in the wholesale lending market damaged the Abbey National. In an attempt to fight back the company restructured in 2003, with new Chief Executive Luqman Arnold expensively re-launching the consumer brand by dropping the 'National' from the name, and introducing a new logo and colour scheme, to try to paper over the cracks. Consumers were not convinced by this however, despite the aim of the rebrand being to make the Abbey a more radical, friendly bank.

Santander steered Abbey capably through the financial crisis of the late noughties, notably avoiding exposure to the US sub-prime mortgage market. What remains less clear is how well Abbey's customers, and those of other banks, will take to the Santander name, so far only known in Britain via the company's sport sponsorships, notably in motor racing (Abbey's corporate identity has been identical to Santander's since 2004). One thing is for certain; the disappearance of the Abbey name is a reminder that nothing in business is permanent, even in 'permanent' mortgage banking.

Lord Mandelson sets out his path to UK recovery; is it the right one?

This blog enters 2010 with a look into the UK's industrial future. Today the Business Secretary Lord Mandelson showcased his new policy agenda 'Going for Growth: Building Britain's future economy' in a lengthy speech at the Work Foundation. This blogger was pleased to be given an invitation, and duly took it up. This speech has got a little lost among the news noise of a possible Labour leadership challenge and bad weather in the UK, but it remains important, and also suggests that the government are at least aware that economic growth is the way to get the UK out of debt.

In terms of business policy Lord Mandelson is broadly suggesting that the UK should look away from solely relying upon the financial sector for economic growth and tax revenue. Government will aim to set up new partnerships with the private sector to drive capital investment, while the government will attempt to pressurize firms to improve the links between pay and performance. The sectors to be concentrated on will generally be knowledge intensive, such as electronics, the nuclear industry, plastics, biotechnology and low carbon industries. A regional approach will be pursued, with Regional Development Agencies working closely with Universities in their areas to establish new R&D centres of excellence. These will include a plastic and electronics centre of excellence in County Durham and a nuclear centre of excellence in Yorkshire. Herman Hauser, mentioned on this blog previously in his role as co-founder of Acorn Computers, will report on the possibility of the UK emulating the German Fraunhofer Society to establish a new research concentration. Universities will also be expected to commercialise their work further.

A new Technology Strategy Board will direct all these new research activities, as well as the new Innovation Investment Fund, which will make grants to SMEs of between £2-10m. Some funding will also be given to infrastructure development, although this will require private sector co-operation, but will involve the further expansion of broadband internet access and railway electrification among other projects. Lord Mandelson also has lofty aims for corporate culture; with former Courtaulds Chairman, and present Chair of the Financial Reporting Council Christopher Hogg having undertaken a review of corporate governance. Among the most striking of proposals was that any company making a major acquisition would have to set out a full manifesto for the future of the assets, including what would happen to the head office and R&D functions as well as the productive assets of the company. We were also told that the fiscal plans now set out by the Conservatives suggest that they have no real plan for the future beyond cutting public spending, prolonging recession. An interesting policy agenda for sure, and one which Mandelson claims will see a 'new politics of production and growth.'

But how realistic is this policy agenda? Very little was said in the speech about the future of the service sector, surely now the most important element of the UK economy (and infact the most important element of the economy since at least the mid-nineteenth century). It is true that British manufacturing, while continuing to shrink in employment terms has become more productive, and also true that the UK continues to have a good record in scientific research. The UK also already has a good record in knowledge industries, particularly the niche low-economy-of-scale parts of them. It may also be the case that under such a research intensive policy a lot of highly skilled and high earning jobs will be created, but its less clear that the UK will be able to capture the longer term rents of these inventions. The UK already has a fantastic historic record in invention, with inventions as diverse as the steam engine and polyester fabric historically emerging from its economy. However in both fields it has been clear that just because a country invents something, it does not confer permanent competitive advantage upon that country in manufacture, with today very little polyester fabric manufacture remaining in the UK. The UK is also likely to be unable to competitive advantage in the manufacture of these new products for long, at least for the mass market; as the adoption curve for a new technology rises, the returns per unit from its production fall, and maufacturing is likely to move to developing countries.

While it is worth investing in R&D to the extent that it will generate TFP growth in the UK, it seems that Lord Mandelson may risk placing Britian's eggs dangerously in this basket too, perhaps creating the risk of a UK based 'green technology' bubble reminiscent of the Californian dot-com bubble of 1999-2000. To reduce this over-dependence, surely Lord Mandelson should be looking to further development of the UK's service sector away from manufacturing. Most of the value of products is actually created through their distribution and retailing, not their manufacture. Additionally, in an online world services are becoming increasingly exportable, while knowledge can remain an important input. The UK should also target research resources towards service industries to help them to remain a competitive source of employment in the UK, not just attempting to create a new manufacturing sector which is unlikely to have a great life expectancy. The UK can have a vibrant economic future which need not only mean relative economic decline, but this will only be possible if growth comes from all the sectors in which the UK is strong, not just some of them.

The end of the Swedish Car Industry?

This blog has followed recent events in the car industry closely, with an eye to the long-run viability of car manufacturing in mature economies. The last week has seen massive changes affecting Saab and Volvo, Sweden's two biggest car manufacturers.

Last Friday the majority US government owned GM, the owners of Saab, which is trying to restructure itself as a precursor to an IPO, announced that it was unable to find a buyer for Saab and would wind the company down. Saab, which stands for Svenksa Aeroplane Aktie Bolag, which actually means Swedish Airplane Corporation was established in 1938 as an aircraft manufacturer to build planes for the Royal Swedish Air Force. After 1945 the company diversified into car production, focussing on affordable cars, eventually selling its car subsidiary to GM in 2000. GM had owned a 50% stake in Saab's car subsidiary since 1991; however this investment has turned out to be a very poor one as Saab cars have failed to make a profit since 2001. Now Sweden's government have rightly refused to bail out Saab, although attempts are continuing to sell the company to a performance car maker, Spyker of the Netherlands. Such a sale would however probably mean the end of Saab as a volume manufacturer.

Over at Volvo, established in 1927 as a spin-off company from the ball bearing manufacturer SKF the future of the company as a volume manufacturer in Sweden also looks dubious. Volvo was purchased from the rest of the Volvo group, which continues to make commercial vehicles and construction equipment, by the Ford Motor Company in 1999. Volvo had continued to be a strongly independent subsidiary within Ford, continuing to specialise in safety and engineering innovations in-house. However Volvo's continued reputation, particularly for making high end family cars has not been sufficient to sustain its position in the western market, with sales falling 18.3% in 2008. Ford, itself struggling with the downturn, has now decided to sell on Volvo to Geely, a Chinese manufacturer. While Geely may choose to keep Research and Development in Sweden, with production costs, particularly wages, being very high in Sweden it seems unlikely to keep Volvo manufacture in Sweden for long.

No doubt some manufacturing will continue in Sweden for the European market, but as Volvo production is increased at lower cost for the Chinese market for how long can this be expected to continue? Or could Volvo be a rare case in which the country where the product is made counts, given Sweden's general reputation as a country which manufactures quality products? Not if the case of furniture retailer IKEA, a company which for many consumers embodies Swedish design and quality, is taken into account; it has successfully sold 'Swedish' furniture made in China, among others, for many years now.

Cadbury - end of ethics?

This week the UK chocolate and confectionery manufacturer Cadbury, manufacturer of the iconic Dairy Milk brand among others advised its shareholders to accept a hostile take-over bid from US food conglomerate Kraft Foods. With Kraft's US rivals Hershey also entering the fray it would appear that Cadbury's existence as an independent is likely to come to an end after 185 years. British chocolate eaters will fear that the distinctive taste of Cadbury's products may be under threat; however the ethical stance of Cadbury's, something relatively rare in the food market, may also be under threat.

Quaker Chocolate maker John Cadbury first opened a shop in Birmingham in 1824 to sell drinking chocolate. By 1831 he had started manufacturing; the company remained a family concern and by 1879 Cadbury's sons established a new factory on a green field site at Bourneville, on the outskirts of the city, where it continues to manufacture today. At Bourneville the company established one of the 'model villages' of the nineteenth century for its workers, building detached houses with gardens (unusual in what was otherwise a crowded industrial city), as well as providing pension schemes, education, training and health schemes for employees.

It seems likely that such benefits were not extended to the firm's suppliers in the then British colony of Ghana in West Africa; but under ethical pressure in early 2009 the firm announced that it was moving to Fairtrade certification of its Dairy Milk brand. The Fairtrade Foundation aims to guarantee that farmers working for Cadbury in Ghana receive a fair living wage. Cadbury are rare among mid market chocolate makers in adopting Fairtrade, which is usually reserved for the high end manufacturers. It will be interesting to see whether or not Kraft or Herschey will value the Dairy Milk brand enough to retain its Fairtrade status; if they are wise they will continue with this as part of a premium international image for Dairy Milk, as well as continuing its manufacture at Bourneville, a crucial part of its 'Made in Britain' image.