Wednesday, 8 May 2019

Why doesn’t Britain have a Huawei of its own?

Aditya Chakrabortty in The Guardian

Chances are that you have learned rather a lot about Huawei. That the Chinese giant is one of the world’s most controversial companies. That security experts, those people we pay to be paranoid on our behalf, warn its telecoms kit could be used by Beijing to spy on us. That Theresa May was begged by cabinet colleagues to keep the firm well away from our 5G network – yet ignored them. And that one or more senior ministers were so eager to prove their concern for national security that they leaked details of their meeting, thus breaching national security.

So you can already guess what will happen when Donald Trump’s secretary of state, Mike Pompeo, meets May and her foreign secretary, Jeremy Hunt, on Wednesday. Once the pleasantries about Harry and Meghan’s baby are over, top of America’s agenda will be to warn No 10 of the threat Huawei poses to British privacy – and to restate that Washington may retaliate by freezing London out of its intelligence network.

Maybe you recall whistleblower Edward Snowden and his revelations, published in this paper, about how US surveillance services are themselves harvesting millions of people’s phone calls and internet usage. Or possibly you are too busy gasping at the haplessness with which a Conservative-run government has allowed itself to be dragged into an escalating trade war between Washington and Beijing. Many are the questions raised by this affair, but among the largest is one I have not seen asked. Namely, where is Britain’s Huawei? How does one of the world’s most advanced economies end up without any major telecoms equipment maker of its own, and having to buy the vital stuff from a company that enjoys, according to the FBI, strong links with both the Chinese Communist party and the People’s Liberation Army?
Well, the answer is that the UK did have one. It was one of the largest and most famous industrial companies in the world. And it was finally killed off within the lifetime of every person reading this article, just over a decade ago. It was called the General Electric Company, or GEC, and the story of how it came to die explains and illuminates much of the mess the country is in today.

At its height, in the early 80s, GEC was not a company at all. It was an empire comprising around 180 different firms and employing about 250,000 people. It built everything from x-ray machines to ships, and it was huge in telecoms and defence electronics. At the helm was Arnold Weinstock, who took the reins in 1963 and spent the next three decades building it into a colossus, securing his place as postwar Britain’s most renowned industrialist.

The son of Jewish Polish immigrants, Weinstock never quite slotted into his role in the British establishment. He was known to be fanatical about cost-cutting, terrible at managing people, and only really lit up by breeding racehorses and visiting Milan’s La Scala opera house. Journalists visiting his Mayfair headquarters found the carpet threadbare and the paint peeling off the walls. A correspondent for the Economist more used to convivial three-bottle lunches with captains of industry came away complaining that GEC’s guests “have never been known to receive so much as a glass of water”.

That Economist profile was headlined Lord of Dullest Virtue, which sums up how both boss and business were seen: steadily profitable yet cautious and utterly unfashionable in the Britain of the 80s, which fancied a turbocharge. Weinstock went unloved by Margaret Thatcher, who preferred the corporate-raiding asset-stripper James Hanson (or Lord Moneybags, as he was dubbed). The post-Big Bang City bankers glanced at GEC’s vast spread of unglamorous businesses, out of step in an era of specialisation, and its shy boss better suited to a Rhineland boardroom – and buried both in plump-vowelled disdain.

Perhaps the pinstriped jeering got to Weinstock. Even as he protested “we’re not a company to render excitement”, he too began indulging in the 1980s business culture of “if it moves, buy it”. Between 1988 and 1998, academics found that GEC did no fewer than 79 “major restructuring events”: buying or selling units, or setting up joint ventures. But it was after Weinstock stepped down in 1996 that all hell broke loose. His replacement was an accountant, George Simpson, who had made his name, as the Guardian sniffed, “selling Rover to the Germans”. The new finance director, John Mayo, came from the merchant-banking world detested by Weinstock. Together the two men looked at the giant cash pile salted away by their predecessor – and set about spending it, and then some.

They sold the old businesses and bought shiny new ones; they flogged off dowdy and snapped up exciting. In just one financial year, 1999-2000, they bought no fewer than 15 companies, from America to Australia. Suddenly, GEC – or Marconi, as the rump was rebranded – was beloved by the bankers, who marvelled at the commissions coming their way, and the reporters, who had headlines to write.

Then came the dotcom bust, and the new purchases went south. A company that had been trading at £12.50 a share was now worth only four pence a pop. In the mid-2000s, Marconi’s most vital client, BT, passed it over for a contract that went instead to … Huawei. Weinstock didn’t live to see the death of his beloved firm but among his last reported remarks was: “I’d like to string [Simpson and Mayo] up from a high tree and let them swing there for a long time.”

This is not a story about genius versus idiocy, let alone good against evil. Weinstock was not quite as dull as made out, nor did he avoid all errors. But it is one of the most important episodes in recent British history – because it highlights the clash between two business cultures. On the one hand is Weinstock, building an institution over decades; on the other is the frenetic wheeler-dealing of Simpson and Mayo, mesmerised by quarterly figures and handing shareholders a fast buck. The road GEC took is the one also taken by ICI and other household names. It is also the one opted for by Britain as a whole, whose political class decided it cared neither who owned our industrial giants or venerable banks or Fleet Street newspapers, nor what they did with them. That is why our capitalism is today dominated by unsavoury, get-rich-quick merchants in the Philip Green mould.

Firms such as GEC and ICI used to invest heavily in research and development, notes Sheffield University’s pro-vice-chancellor for innovation, Richard Jones. Now the UK has been overtaken in R&D by all major western competitors. Even China, a vastly poorer economy in terms of GDP per capita, is more research-intensive than the UK.

Now Britons laud businessmen such as James Dyson who make most of their stuff in Asia. As a result, we rely on the rest of the world to come here and buy our assets. And even on something as relatively simple as telecoms equipment, we can’t help but be pulled into other countries’ strategic battles.

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