North Sea Fortune

With all the enthusiasm which an ornithologist might display on sighting a Dartford Warbler, the Financial Times a few weeks ago reported somewhat breathlessly that it had spotted a youthful example of that rare British species, the offshore entrepreneur. Steve Buxton, we were told, was a 28-year-old who had earned £500,000 in one year, drove racing cars (well, he would, wouldn’t he?) and had just bought a Peterhead Harbour site for £2.8 million. His rise to fame, fortune and notice in the financial press had begun in the pitch-black economy with a little moonlighting, a hired garage, a gang of welders and 100 flotation tanks. Everything he has touched (since his first business went bankrupt, that is) has turned into tenners. What a triumph for supply-side economics! The trouble, as Michael Jenkin tells us, is that there have not been enough Steve Buxtons hovering over the rigs in the North Sea. And in the absence of a sufficient number of home-grown entrepreneurs, ministers and civil servants have felt obliged to see if they could force a few into life with a bucket of departmental fertiliser.

Charles Wilson has argued that the main skill of the entrepreneur is the possession of ‘a sense of market opportunity combined with the capacity needed to exploit it’. The opportunities available in the North Sea since BP’s discovery of the West Sole gas field, and, more particularly, since the oil discoveries off the Scottish coast from the late 1960s onwards, should have been clear enough even to those with only a fraction of the Buxton dash and drive. We are already producing about as much oil as Libya and Kuwait. The Department of Energy’s latest estimates suggest that there are up to 4075 million tonnes of treasure left at the bottom of the sea. In the early days, when this was still known only to the Almighty, there might, as Mr Jenkin concedes, have been some excuse for industrialists being a little leery of the ‘large-scale investment and risk-taking required of companies wishing to enter the off-shore supply industry’. But there was no such excuse for timidity once the size of the North Sea market became common knowledge. According to Jenkin, ‘government intervened in support of the offshore supply industry in response to a variety of economic challenges centring upon the failure of British industry to rise to the opportunities presented by North Sea oil development.’ Of course, this is not the only example of the withering of the British entrepreneurial spirit (for which governments themselves bear a great share of the responsibility). The fact that this book was printed in Hong Kong is a reminder both of the failures of another native industry and of the fierce competition which virtually every British manufacturing company must now face from the super-entrepreneurs of Southern Asia.

Nevertheless, the tale Mr Jenkin tells is remarkable because of the scale of the early short-sightedness and foot-dragging of so many firms. ‘To date, about £8,000 million have been committed by the oil companies for North Sea exploration and development work and industry estimates claim that over the next twenty to thirty years a further £40,000-50,000 million will be spent on offshore activities around the UK coast. These totals place the offshore supply industry among the more important industries by value in the British economy.’ Why was it necessary for government to do so much to draw attention to this Eldorado?

Mr Jenkin spends more time describing what governments have done to help than examining exactly why they had to take on the task in the first place. He says just enough on this question to sound a few familiar notes. While some foreign firms, particularly American, began with a technological head-start because of their previous experience of offshore work, and while the foreign and multinational engineering and oil companies naturally tended to favour the old-boy network of which they were already members, British firms did little to help themselves crash into this hostile market except in one or two areas like offshore provisioning and service activities.

Many of the firms which did enter areas of the market acquired poor commercial reputations, apparently because of lack of competitiveness and competence. The oil companies and their major engineering contractors frequently complained that British companies tended to approach them without any clear idea of what was wanted, and offered products or services that were unsuitable, thus displaying lack of market research and ‘homework’. Furthermore, British firms also developed a bad reputation for late delivery and for not being able to deliver equipment that was ‘ex-stock’ on time. These were major failings as far as the oil companies were concerned.

Who can blame them? And who can blame the British motorist who buys a Datsun, or the housewife who buys an Italian refrigerator, after experiences of buying British which are not very different from those set out here by the oil companies?

Mr Jenkin’s analysis of government assistance in the development of this new industry is thorough and relatively detached. I do not suppose one could reasonably expect this academic study to be a more entertaining read, though one feels at times that the author has deliberately driven all the political and industrial excitement out of his narrative. He also tends to be repetitive, in an attempt to bludgeon home a few general truths about the wider relationship between government and industry. However, as a case study of one particular segment of this relationship, the book is extremely valuable. He notes how the oil price explosion in the wake of the Arab-Israeli war, and the later dust-up with the National Union of Mineworkers, led to a temporary shift of emphasis from helping the development of the offshore industry to encouraging speed of extraction: there was less pressure on the oil companies to ‘buy British’ and more pressure on them to get the oil ashore as quickly as possible whether they used British equipment or not. Later on, the growing SNP challenge to Labour in Scotland placed greater emphasis on the offshore industry, with the Nationalists claiming that Scotland’s very own bank account was being looted. Mr Jenkin points out how difficult governments and civil servants found it (unlike their French counterparts) to favour one or two firms rather than give everyone the same chances, and how the development of orthodox and unorthodox policy instruments, like monitoring purchasing policy and venture management, lured Whitehall deeper and deeper into day-to-day involvement with the industry. What started as exhortation and the removal of obstacles inevitably became a much more sophisticated and detailed operation which was often beyond the capacity of a Civil Service brought up to other tasks and in another tradition. To help industry to be more entrepreneurial demanded a more entrepreneurial style on the part of the departmental sponsors: civil servants have more excuse for the deficiencies in question than do those they are trying to help.

There is a relatively happy ending to the story. British industry has greatly increased its share of the North Sea market: it had risen to an estimated two-thirds by 1978. ‘The value of goods and services which UK companies produced for the North Sea increased by several hundred per cent between 1973 and 1978. By any standards this is a substantial improvement in the position of British offshore suppliers.’ How much of this is the result of government policy is a difficult question to answer. The oil companies have been more prepared to buy from British firms as these firms have become more expert, and their expertise and competitiveness have increased as their experience of the market has grown. It would, however, be churlish to deny any credit to government policies, particularly the pressure exerted through the auditing of oil company purchases.

Mr Jenkin is anxious to draw general lessons from his study and we can be excused for a similar enthusiasm. First, much of the political argument about the relative roles of the state and of the private sector of industry is totally irrelevant to what actually happens in the world of profit and loss. There is no fixed and immutable frontier between public responsibility and private enterprise. We need a thriving market economy and such an economy needs, as Andrew Shonfield argued long ago, intelligent, sensitive and coherent government support, for which no one should apologise. There are admittedly some areas where market forces must by and large be given their head, and others where different criteria will properly apply. But failure to identify correctly what works best in given circumstances, insistence on subordinating such decisions to fly-blown dogma, and a refusal to accept the interdependence of public and private endeavour, are all guarantees of impoverishment.

Secondly, governments will always be driven by a number of considerations to intervene in industry: to protect a strategic interest, to alleviate the problems of decline, to promote technological development. Sensible politicians usually finish up doing the same broadly sensible things, though they will be subject to pressures of party manifesto and party conviction which will make them lean a little more in one direction or another. As Mr Jenkin argues, ‘the policies of both governments demonstrate that conventional analyses which portray Labour governments as collections of dirigiste planners and Conservative governments as champions of free market orthodoxy are both dated and inappropriate. Each of the two governments intervened extensively in the affairs of the offshore supply-industry.’ Labour’s policies in this area after 1974 grew naturally out of those pursued by the previous administration. Who has, in fact, spent more taxpayers’ money on supporting British industry – Tony Benn or Peter Walker, Eric Varley or Sir Keith Joseph? If only a lot more energy had gone into establishing a workable and lasting framework for the relationship between government and industry, and a lot less into the foredoomed attempt to breathe life into the economics of laissez-faire and State Socialism.

Thirdly, once again we can agree with that most perceptive if frequently impenetrable political scientist Ghita lonescu. Some multinationals can be tricky to deal with: they occasionally infringe the sovereignty of governments. British governments needed the expertise and the resources of the oil companies to develop the North Sea. They had, therefore, to be a bit careful when it came to trying to push them around. But the idea, with which Mr Jenkin flirts, that it would all be different if we went in for a bit more nationalisation in the energy field à la Norvège is sadly naive. Whoever it is who commands the already nationalised heights of the economy, it is clearly not Government or Parliament. Who can challenge, for example, Rooke’s rule in the world of gas? (In seeking to do so incidentally, which is really another story, the Government would be well advised to take up Professor Colin Robinson’s proposal and reduce the British Gas Corporation’s monopoly and monopsony powers in the purchase of North Sea gas, instead of snipping away at the High Street showrooms.)

All these lessons are central to the job of salvaging British manufacturing industry, or what is left of it. There is one view of our North Sea fortune which suggests that all this oil wealth should be used to help run down industry and to turn us into the sort of rentier culture about which a modern Proust might write with facility. According to this argument, we should be more relaxed about the decline of British industry and invest the oil riches in profitable enterprises abroad, not at home. Apart from the devastating social effects of this approach, its economic justification is skimpy, as the Governor of the Bank of England noted in his Ashridge lecture last year. There is no salvation by that route. Economic and industrial revival will depend on our doing a little bit of everything, doing it well and doing it consistently over several years. We have tried almost everything else.