LONDON — Leading Japanese industrialists with big investments in Britain — especially in the automobile industry — have launched a chorus of complaints in recent weeks.
Their concern is that the pound is both too high and too volatile against the euro and that this makes their operations uncompetitive. They may, they say, have to switch future investments elsewhere. They want the British to join the euro currency system soon, preferably at a nice low rate, and scrap the pound for good.
Is it wise for these important investors to involve themselves in what is in British domestic terms, a super-sensitive and major political issue?
Regrettably, the answer must be an emphatic “no” — and for four main reasons.
The first is that it is never very prudent for foreign investors anywhere to take sides very visibly in local political matters. If there is lobbying to be done with the host country, it should be quiet and discreet. This is a lesson most big multinational firms have long since learned, and it seems that it now needs learning in Tokyo.
The second reason is that exchange rates come and go. The pound may have been “high” against the euro, but it has been slipping recently. Who knows? In a year from now it may all be the other way round. The problem, anyway, is not the “high” pound, but the persistently weak euro — a phenomenon that has its roots in the unsound political structure underlying the whole euro project, which may or may not correct itself eventually.
Meanwhile, against the dollar, the pound has been remarkably stable, in sharp contrast to the euro. So for all transactions from Britain in dollar-denominated items — which is a large percentage — euro membership would have been extremely disadvantageous.
Moreover, a “high” exchange rate is two-sided. It may mean tougher export competition, but it also means lower import costs. And for modern globalized industries such as automobile manufacturers, the import content is very high, bringing as many benefits as penalties, if not more.
It is, anyway, extraordinary to hear that big, long-term, manufacturing investment decisions should be influenced by short-term exchange rates. Surely, other factors, such as location, quality of the workforce, local costs and taxes, general ambience and support, are far more important. Is it seriously being suggested that massive vehicle-building installations should be rolled around Europe to keep pace with currency trends? Or is this all part of a quite different argument — namely, that in the longer term most auto manufacturing will have to be shifted to emerging countries with very cheap labor costs or to the former communist countries of Central Europe, where skills are high but wages low (but for how long?) ?
The third reason why industrial leaders would be prudent to keep quiet is that their actions do not match their words. Nissan may have been grumbling about high British costs and seeking more subsidies from the British taxpayer in compensation (in a much publicized meeting with Prime Minister Tony Blair). But Honda is doing the opposite and announcing huge investment plans to build the new Civic model at its Swindon plant.
Matsushita may be muttering about plant closure ( although this was later denied), but Mitsubishi says it is increasing investment in Scotland. The president of NEC has said that the pound-euro exchange rate is not a big issue. While Toyota has said that it wants its British suppliers to bill it in euros, the firm also plans to raise its British production by 30 percent next year.
Overall, despite all the moaning, the latest figures show that Japanese investment in Britain, along with foreign investment generally, is powering ahead as never before. So what is gained by pretending otherwise or threatening that it is all going to go sour?
The fourth reason why publicized complaints about the pound do Japanese companies no service at all is perhaps the most serious one. It is that people begin to change their attitude toward inward Japanese investment generally.
Hitherto, most Japanese investment in Britain has been given glowing approval by the public. This has been so much so that the impact of Japanese investment may even have been favorably exaggerated.
However, once the moaning begins, the local mood becomes more critical. It emerges that total Japanese investment in Britain is really very small — about 4 percent of total foreign investment and much less if services and property investment are excluded. And if Japanese bosses back in Tokyo are starting to blow hot and cold, then people are bound to ask whether this matters — or whether it is perhaps it is time to switch to more constant friends.
This is a great pity. Large or small, Japanese industrial investment in Britain over the last three decades has been skilfully conducted and highly supportive of the British economic renaissance. Everyone appreciates that the auto industry worldwide faces tough decisions, but to tangle these up with the complex issues of currency arrangements in Europe, and with the heavy political and technical issues that lie behind the whole debate, is a huge mistake.
Japan’s true friends should be pointing this out.
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