The Financial Foundations of Industrial Success

UK companies have to pay the same real interest rates as European and North American companies, but they are in general less profitable so there is less breathing space between profits and interest. Consequences include short‐termism by both the City which is reluctant to lend and companies which are reluctant to borrow when investment is so risky. Another consequence is that UK Boards of Directors are dominated by accountants rather than those who lead production, research and marketing. The real rate of return is best raised by increasing productivity more than wages and by moving up‐market where higher margins can be earned. Industry′s difficulty is that moving up‐market involves R&D which cannot easily be financed when profit rates are only slightly above interest rates. Emphasizes the advantages to industry of low inflation, low government borrowing and a tight control over public expenditure leading to internationally low tax rates.