Innovation and Productivity Under Nationalisation

The First Thirty Years

Chris Harlow

• Publisher: Taylor & Francis
• Year: 2018
• Print ISBN: 9781138478596
• eBook ISBN: 9781351067003
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

Originally published in 1977, this book examines the choice of new production techniques available to the publicly owned industries during their first thirty years and the effectiveness with which these techniques were put to use. In the heat of political debate over nationalisation the basic economic issues involved are frequently obscured: this volume shows how the opportunity to gain advantages of scale offered by nationalisation and the new techniques which scale made possible were pursued by the public corporations through policies of innovation and the diffusion of technical advances.

1 Introduction

The core of this book consists of five main chapters. Each one deals with a different British public corporation and examines the way in which the corporation has introduced technical change in its capital equipment over a period of approximately thirty years.

The organisations chosen for the study were:

(1)the National Coal Board

(2)the British Gas Corporation (formerly Gas Council and Area Gas Boards)

(3)the European branch of British Airways (formerly British European Airways)

(4)the Central Electricity Generating Board (formerly the generation and transmission division of the Central Electricity Authority)

(5)the telecommunications service of the Post Office.

The industries in which these organisations operate are self-evident from their titles. Four of them actually dominate the industries in which they are located. The NCB, the Gas Corporation, the Generating Board and the Post Office have virtually a monopoly in the sales of coal, gas, generated electricity and telephone services respectively in Britain (England and Wales in the case of the Generating Board). The fifth organisation, BEA from 1946 to 1973 and the European division of British Airways thereafter, maintained a substantial share of the markets in which it operated throughout the thirty years covered by the study.

There are some differences in the corporate structure of the five bodies which need to be pointed out. The NCB is an independent corporation with a Board at its head and an autonomous financial structure. BEA was similar in structure up to 1973, but then became an operating division subject to the British Airways Board and without a separate financial structure. The Gas Corporation for most of the period of the study was constituted as the Gas Council and twelve Area Boards. The latter were autonomous in their finance and management but some functions were co-ordinated through the Council. The Generating Board has financial autonomy in the electricity supply industry and its own Board and management structure, but for the first ten years after nationalisation it was merged with the Central Authority as an operating division of the industry. The telephone service was also originally an operating division of the Post Office. During the 1960s it gained more independence in finance and management, but did not become a separate corporation. In the last part of this chapter these organisations and their development are more fully described.

Four out of five of the corporations came into existence within four years of the end of the second world war, as part of the Labour Government’s programme of nationalising Britain’s basic industries. The fifth, the Post Office, had already been in the public sector as a civil service department for more than 100 years.

For a variety of reasons, during the years following the war the five organisations were each separately launching upon technical policies and programmes which were of great importance for their techniques of production and the productivity with which factors of production were employed. In part, re-organisation and concentration consequent upon the transfer of the industries to public ownership brought about a scrutiny of the technology used by the industries. The wording of the Acts of nationalisation typically included at some point the duty ‘to develop and maintain … secure and adequate supplies of (coal, gas, electricity, etc.) in an efficient manner’. Rationalisation of the provision of public utility services had already been used by the Government and Parliament in one or two instances as a means of promoting greater efficiency in supply, which provided a precedent for the postwar corporations.¹

In addition, the condition of working methods and capital employed in some of the industries was such as to make men experienced in their operations more than ready to look for change. The transfer of the industries to a single controlling authority (or in the case of gas, to a small number of regional authorities) provided a structure within which it was easier to effect technical changes which were already felt necessary. Some of the technical changes described in the chapters which follow thus have their origins further back than the postwar period; but that is not to say that these technical changes raise issues of policy which were only relevant to the 1940s and 1950s, or which have long since been resolved. The technical programmes examined in the research for this book were programmes which were reaching a stage by the late 1960s where the results would be expected to be observable and the problems of managing technology which are demonstrated by the policies adopted have a continuing relevance.

The programmes which the corporations embarked upon were as follows:

(1)The National Coal Board’s major pre-occupation was, and still is, to raise manpower productivity in the underground mining industry which produces over 90 per cent of coal output. During the 1960s and 1970s it sought to do this by introducing innovatory machinery at the coal face in order to achieve very high rates of production at each face being worked.

(2)The gas industry was faced in the 1950s by stiff competition from electricity and steadily mounting costs caused by dependence upon coal. After a long period of experimentation, the industry developed a process based on oil in the mid-1960s which completely changed the economics of gas production.

(3)British European Airways was in the difficult position of trying to operate profitably over stage lengths which were on average much shorter than those of its competitors. BEA therefore devoted much attention to developing, with the British aircraft manufacturers, specifications for profitable short haul airliners to be built by the British industry.

(4)With the aim of improving fuel and capital productivity in generation, the Generating Board (and the generating division of the CEA before it) has steadily increased the size and thermal efficiency and advanced the technical characteristics of generating plant. In the mid-1960s the development of advanced gas cooled nuclear reactors (AGRs) was added to the development of conventional plant to further this objective.

(5)The switching technology employed in the vast majority of Post Office exchanges was, and still is, Strowger switching. First installed in the UK in 1912, Strowger switching requires a high labour input and is technically unsatisfactory for many modern telecommunications applications. In the latter half of the 1940s the Post Office engineering department began to consider what type of switching should replace it, and there followed a thirty-year programme of development directed at the solution to this problem.

There are three main objectives of the research upon which this book is based: first, to examine how each technical programme came to be incorporated and associated with the organisation’s more general business objectives; secondly, to look more closely at the decision points at which the organisations became further committed to the techniques which had been under development; thirdly, to consider the means by which the technical programmes were pursued. Overall the purpose is to show how technology was applied to the problem of factor productivity, to seek understanding of why objectives were not always reached, and to assess the contribution made by the innovations described.

In each of the five chapters which follows the procedure adopted has been to sketch the industry’s circumstances during the late 1940s and to show what pressures were working upon the corporations to introduce technical change. This is followed by a narrative of the main technical developments which were sponsored by the corporations, paying attention to the role of internal agencies, such as research and development laboratories, and to the contributions of the manufacturers supplying the capital equipment. Short sections of discussion are included in the narrative, which analyse the factors bearing upon important decision points.

In the typical case there might be a number of such points. First of all there is the need to analyse correctly what the technical problems are which confront the industry, and this would be followed by the choice, in the area of technical policy, of a strategy which would enable the organisation to identify possible solutions. Thirdly, experimental development would be needed to establish the probable operating characteristics and economics of solutions. The fourth stage is to determine on full development of the new technique and, finally, there has to be a decision to invest in it.

Not all these stages of decision are distinguishable in the technical programmes described below, but it is helpful to consider each of the policies against such a pattern of decision procedure. If, for instance, the organisation appears to be starting at stage three, by concentrating development upon one line of technical advance, it is useful to examine the whole programme by considering what the technical problems were and what alternatives had been rejected, even if these were not explicit decisions made by the organisation. Stages four and five also may not be separately distinguished. The organisation may fuse the two decisions by placing a commercial order for a technology which is not developed to a commercial stage.

It was noted above that all the organisations studied are in the public sector of the economy. In principle there are no reasons for supposing that technical change would be managed in a systematically different way by public corporations, but it was actually the case with the organisations studied here that public ownership created special conditions. In the first place, the corporations have had to cope with the influence of government in the formation of general policies for the industries concerned. At some times this took the form of direct intervention in decisions upon technology. At other times government influence acted so as to reduce investment plans, restrain price increases or otherwise affect the business planning of the corporation. In the second place, the corporations operate in a special market structure. Conditions approaching monopoly in the markets for the products of the corporations are paralleled by conditions approaching monopsony in the markets for the capital equipment bought by the corporations. It is argued here that these conditions give the public corporations more power to determine the rate and direction of technical change.

In a more fragmented industrial structure different technical solutions may be adopted by different operating organisations. The successful solutions tend to become distinguished by market forces. Where one major corporation embraces virtually the whole industry, this regulating influence is absent. As a consequence, much more responsibility rests upon the corporation to ensure that it chooses new techniques carefully.

There are some features of the public corporations which made them especially attractive for a study of this nature. In spite of some structural change during the period studied, the management and control of the organisations remained conveniently stable, embracing approximately the same range of operations at the end of the thirty years as at the beginning. This stability allows the development of long-term technical policies to be traced more easily than would be the case if continual changes in management and scope had taken place. The statistics applying to the industries are readily available, comprehensive and generally consistent over time, a feature which applies to few other industries. Finally, there are regular records of the activities of the corporations presented in the Annual Reports, originally published as Parliamentary Papers.

Although subject to the shortcomings which formally compiled reports demonstrate, these Reports far exceed in their standard of disclosure anything which is available in the private sector.² They were used as one of the main sources of material for the study, which relied almost exclusively on published information. The other major sources were special publications of the corporations, the journals of engineering institutions and technical magazines.

THE CORPORATIONS

National Coal Board

The Coal Board started off as one of the largest employers in Britain, with over 700,000 on the payroll in the postwar period. Subsequently, retrenchment in coal output and the increasing productivity of the employees cut the total to 250,000 by the mid-1970s. It was difficult at the outset to know what type of structure to impose on this size of organisation. In fact the Board chose to set up a headquarters with three, and often four, levels of responsibility below it. Below HQ there were eight Divisions, geographically spread over the main coalfields. The Division was in turn divided into anything from four to ten Areas, each Area containing a number of collieries which were relatively close to each other. There were originally approximately forty-five Areas with an average of 20 collieries each; in many Areas there was a further level of responsibility between Area and colliery, because groups of collieries would be further allocated to Area agents.

Within this structure, the main functions of the Board, such as production, marketing, planning, investment and technical development, were directed from headquarters. However, with so many levels of responsibility a good deal of executive authority had to be delegated to the Area management or below to the agent or the colliery manager. The determination of a research programme and the establishment of objectives for technical development were the responsibility of headquarters. An establishment at Stoke Orchard near Cheltenham was set up for research, while the development of mining techniques was at first conducted in the field. As the years went by, new R and D facilities began to take a lead in the conduct of the technical programme.

In 1967 a three-tier organisation was substituted for the previous five-tier one. Seventeen Areas were created with an average of about twenty collieries each; each Area reported directly to the headquarters. This was the main change during the first thirty years of the Coal Board’s operations. Most of the Board’s functions continued to be directed centrally from Headquarters or from agencies responsible to headquarters and the effect of the re-organisation was to improve control. There had been frequent criticism of the Coal Board’s management organisation in the first ten years of its existence, and a series of changes took place in the methods used to formulate general policy and to control the performance of the industry. However, the overall nature of the organisation, with its emphasis upon centralised management, remained largely unchanged.

Gas – the Council and Area Boards

Up to the year 1973 the gas industry under public ownership consisted of a central Council and twelve Area Boards. The production and distribution of gas before nationalisation had been in the hands of nearly a thousand local undertakings. The effect of nationalisation was to introduce concentration, but on a regional basis, so that the federal structure was somewhat in contrast to that of the Coal Board. Each Board was responsible for gas supply in its area, and thus each Board managed the production and distribution of gas as an autonomous body. Each Board operated its own production processes, purchased its own supplies of coal and other feedstocks, set its own prices and was responsible for maintaining its own financial viability. The whole industry employed 140,000 in 1950. By 1974 this had shrunk to 103,000, even though output had increased by a factor of five.

At the head of the gas industry was the Gas Council. Composed of a chairman, deputy chairman and twelve others who were members by virtue of being the chairmen of the Areas, its role was to co-ordinate gas supply and its executive functions were few. With a small administrative staff, the Council considered issues of national policy and represented the industry where matters of interest to all the Boards were concerned.

Thus it was the Council’s business to conduct negotiations with the sponsoring Ministry. For instance, in the field of investment, Area Boards prepared their plans for new plant and equipment and then passed them on to the Council, which put together a programme for the industry. The overall level of expenditure had to be agreed with the Ministry and it was the Council’s task to present the industry’s requirements. In addition, the Council kept a watch on the overall financial position of the industry and composed consolidated accounts as part of the Annual Report. Discussions over price changes or any questions about the statutory role of the Boards were also negotiated under the auspices of the Council. During the period of fuel shortage, coal allocations to the industry were agreed between the Ministry and the Council.

Perhaps the most important executiv...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• 1 Introduction
• 2 Aircraft Innovation and its Effect on Productivity in BEA
• 3 Power Station Performance: Policies for Development 1945–75
• 4 The Choice of Automatic Telephone Switching Techniques
• 5 Process Innovation and Growth in the Gas Industry
• 6 Mechanised Mining and the Growth of Labour Productivity
• 7 Productivity and Technical Change
• 8 Conclusions
• Index