John Mills: Economics interview on Money Talks
Liam Halligan: During the years I've spent as an economics journalist, I've met many interesting business leaders. One of the most thoughtful, in all seriousness, is John Mills, who set up and owns a retailer called JML, which employs hundreds of people, turns over tens of millions of pounds every year and sells mainly household goods, often via shopping channels all over the world.
Mills is genuinely one of the UK’s most experienced and respected importer / exporters. He's also a trained economist, and his many essays and books on economic policy are influential across Westminster, Whitehall and beyond. And on top of all that, perhaps unusually for a business titan, John Mills is the Labour Party's biggest private donor. Only the trade unions fund the party to a greater extent. He's often appeared on ‘The Money’ as a panellist so I thought it was time I sat down for a proper ‘Money Talks’ chat with John Mills.
John Mills: Well, I'm an economist by background, but I've always earned a living in the commercial world. I was involved in manufacturing for about 25 years, but that fell apart in the 1980s when the exchange rate got so high, it was just impossible to operate. And ever since then I've been involved in buying and selling all over the world, but with goods made in the Far East, and the fact that you can get things done so much more cheaply in the Far East, compared to what it costs to get goods manufactured in the West has done a lot to colour my views about what ought to be done about economic policy. So the two have linked together really quite importantly.
LH: And what kind of a business is JML? What does it do?
JM: Essentially, what it sells is high volume consumer products, all of which require some sort of point of sale explanation, which is the unique factor, and we sell in stores, we sell direct to the point of consumer, we sell internationally. It's all driven by audio visual films, and it's a kind of niche business. This operates all over the world, but we're really the leaders in the UK.
LH: So you sell basically by shopping channels around the world. Is that fair to say?
JM: Yes, we do sell in a lot of shopping channels. I think last count it’s about 70 different countries because once you've got a film that really works and sells the product, then everybody wants it.
LH: And what sort of products do you sell, John?
JM: Household products, electrical, DIY products, health and beauty, the sort of stuff that you see in big stores all over the place. But they're all products that require some sort of explanation at the point of sale, so that's the unique factor about them.
LH: And can you give us an idea of the extent of your turnover, the number of people you employ, the ownership of the company?
JM: I still own about 80% of the company. We've got about 240 employees. The turnover’s varied. It’s about 70 odd million at the moment. It came down a little bit because we used to have a lot of foreign subsidiaries which we got rid of. So the turnover came down a little bit, but it's been pretty steadily profitable over the last 25 / 30 years.
LH: Tell us how your business experiences, John, your manufacturing experience in the 80s, maybe you can tell us a little bit about that - have shaped your view of how economies work?
JM: Well, I certainly have a pretty strong view about what makes economies grow. I think that the main drivers of economic growth are actually quite a narrow range of investment opportunities around mechanisation and technology, and power. My involvement in getting products made all over the place gave me a real insight to how powerful and how effective these sorts of investments can be for huge amounts of additional output they can produce over really quite a short period of time, compared to lots of other sorts of investment in housing and schools and hospitals, road and rail, where actually the returns are very low.
You’re never going to get the economy to grow very quickly by investing in these sort of things, and that's true also for a lot of the private sector as well, in shopping malls and office blocks, and IT. It just doesn't produce much in the way of economic growth. What does is this narrow range of opportunities for technology, mechanisation and power, and my experience of running a business and actually having to get products made is what drove me towards that conclusion.
LH: And what happened with your manufacturing career in the 80s? What were you making, and where?
JM: We were making very much the same sort of products as we sell now, but we were making them in the UK rather than in China, and the cost base in those days, I mean, the exchange rate went up enormously in the early 1980s. Round about 70%, at the same time as China was devaluing, and the gap just widened.
LH: That meant your exports got hammered, right?
JM: Exports got absolutely hammered. Importing became ridiculously cheap, and cheaper and cheaper. China devalued by 75% between 1980 and 1993, and the cost of goods from China just halved compared to what it was in the West, and the difference was just astronomical.
LH: Tell us about your thoughts on Britain as a manufacturer before we come on to your policy recommendations, which I'm keen to go into in detail, but what are your thoughts on Britain as a manufacturer?
We're still, I think, eighth or ninth in the world in the list of leading manufacturers. Manufacturing still employs many thousands of people in this country, often on good wages, in parts of the country where it's quite hard to get high waged jobs. Do you think we're still a world class manufacturer? Can our manufacturing sector grow as a share of our national income in the years ahead?
JM: Well, I think we do have some firms which are world class, which have survived really well. Some of them are just really very well-managed, some of them are in niches. So it's not a total disaster area, but what has happened is the proportion of our national income coming from manufacturing has gone down from about nearly a third as late as 1970, to about 9% now. And if anything, it’s still drifting down.
So the writing's really on the wall, and although manufacturing is still quite an important part of the UK economy, we’re growing much more slowly than other places in the world. So UK manufacturing as a proportion of total world manufacturing has sunk down and down and down. Even as late as 1950, on some measures, about 25% of all manufactured exports came from the UK factories. Now it's about 2%. I mean, that gives you some idea.
LH: Unbelievable! 25% worldwide?
JM: Yeah, to 2%. It gives you some idea of the catastrophic reduction there’s been. We're still dawdling along growing now at maybe 1% per annum, compared to 7% or 8% in the Far East.
LH: We'll talk about macroeconomics in a moment. What else do you think we need to do to tweak the policy levers in order to enhance our manufacturing performance in the years ahead?
JM: Well, there is a supply side agenda, which is familiar to everybody on education and training, patient capital, involves money spent on R&D and all this kind of thing. My analysis is that at best in a slow moving economy can produce an increase in GDP of about half a percent per annum.
LH: It's quite modest.
JM: Very small. Also, if you invest in the relatively low return areas which I referred to earlier on, like schools, hospitals, road & rail, office blocks, and so on, you're getting a return of maybe 5% per annum. So even if you had 10% of your economy devoted to it, it gives you half a per cent growth. What really drives the economy is this narrow range, and this is really what produced the change that generated the Industrial Revolution, is this narrow range of investment opportunities with much, much higher returns in technology and mechanisation and power.
My concern about the British economy is that most of that sort of investment finds its natural home in light industry, which tends to be owned by the private sector and involved in international trading, and this is what gets trounced if the exchange rate is too high. I think it's too strong an exchange rate that's really been the undoing of British manufacturing.
LH: You have written about this for many years, haven't you? So tell us about your ideas on how we need to run the macroeconomy differently in order to engender more growth? Since the global financial crisis Britain’s grown by 1, 1.5% a year on average, as opposed to 2, 2.5%. That makes an enormous difference. It makes an enormous difference to our living standards as our population grows. It makes an enormous difference to our national accounts. There's a lot more red ink on the Exchequer’s balance sheet when you're only growing at 1 to 1.5%.
JM: I think that's right. Now just as a precursor on that - I mean, I think we've got some very expensive problems coming down the track on climate change, on health care, on social care, on restoring training cuts, on pensions, all of which are going to impact on people's incomes. Unless we can get the economy to grow more quickly, I think we're really facing a period of falling incomes, which is going to be very difficult to overcome. So I do think getting the growth rate up is really very, very important, but I think the only way we're going to do this is by getting new industrial capacity installed into UK.
I think that to get the economy back to any sort of reasonable balance, what we need to do is to get the proportion of GDP coming from manufacturing up from about 9% where it is at the moment, probably to around about 15% Not necessarily as high as Germany or Japan or Singapore because we've got a very strong service sector with about a 5% GDP export surplus every year. So we're very strong in that. We need to make sure we maintain that strength, but we need manufacturing to fill the gap.
LH: And your big thought is about the exchange rate, isn't it? So tell us how you think a stronger pound damages our manufacturing sector and what you would do about it, John?
JM: Well, I think the reason it damages it is because it means that the rate at which we're charging out all our overhead costs is too high for the rest of the world to shoulder. The fact that that's the case is shown dramatically by a) our drop in share of world trade which has gone down, including new service and everything else from about 10% to 2.5% over the last 30 or 40 years. Huge drop there. And also, the cost of manufacturing as a proportion of our GDP has gone down and down as well.
It’s manufacturing which tends to produce the increase in productivity, which drive living standards. So if you have very little in the way of manufacturing capacity, you finish up with a very low growth rate. I think we're facing a period if we're not very careful where our growth rate - once we recover from COVID - is going to be 1% or something per annum. With all these additional costs coming down the track, we're going to be in really bad shape.
LH: In recent years the pound has bobbed around between roughly $1.20 / $1.30 / $1.40, somewhere around there. Where do you think the pound should be, and how would you get it there?
JM: Well, I think that for manufacturing if you're going to have a manufacturing arrival, you’ve got to get the pound way down to roughly parity with the dollar. The problem we've got in the British economy is that the service sector, which is not terribly price sensitive, where we've got all sorts of natural advantages in our language, our geography, our universities, and our trade labour force, that can exist quite happily at $1.50 or something to the pound. Manufacturing can't, and we've got this difference between the two sides of the economy, which required different treatments.
Now the reason why I think we should give priority to manufacturing is because services are difficult to sell in sufficient quantity throughout the world. Manufacturing is much easier. If we're going to get the economy rebalanced, the way to fill the gap is not to try and do it on sales or services, but to do it on manufactured goods.
LH: So what active steps would you take to lower the value of the pound? Pretend I'm Rishi Sunak, and you've got an audience with me, and you want to convey the world according to John Mills. Let’s say that the Chancellor accepts your view that the pound does need to be a bit weaker. How do we go about it?
JM: Well, there's a number of things you can do. First of all, if you have a balance of payments deficit, which we have year after year after year, this has to be matched by a capital surplus. The capital surplus tends to come from selling off British assets, companies in particular. We've just had Morrisons being sold for whatever. All that kind of thing just pushes up the exchange rate. So you can put some sort of public interest test at the very least.
LH: So you'd be much more stringent about allowing the sales or British firms to overseas investors?
JM: Yes. You could afford to have a withholding tax which made holding British assets less attractive. You could have a sovereign wealth fund, like Norway and China did. One of the ways in which China got the exchange rate down was to have a huge wealth fund. It’s the biggest in the world, well over $2 trillion worth. And we could do that. You could get the Bank of England instructed to keep the exchange rate down, rather than keep it up. There's a whole range of different things you could do.
The fact is that lots of other countries in the world do this all the time. Japan, for example, between about 2011 and 2013, they got the exchange rate down by about a third by doing exactly the sort of things I've been talking about. So it's not impossible. What you need is a complete change of attitude by the authorities as to what the target for the exchange rate should be. At the moment we don't have a target.
LH: How much of Germany's economic prowess when it comes to manufacturing do you think is explained by the fact that Germany is in the Euro, and thus its exchange rate is much, much lower than it would be if Germany was still operating standalone with just the Deutsche Mark?
JM: Well, I think that's exactly what the situation is. And as a result of the competitive export that Germany's got, all the southern states in Europe can't compete.
LH: Because the exchange rate is too high for them. But it’s wonderfully low for Germany, so its exports are very, very competitive.
JM: But the trouble with Germany is that the result of all this is that the German export markets go to pieces. And as a result of this, although the Germans have got a huge export surplus…
LH: About 9%, 10% of GDP, isn’t it?
JM: Ridiculously high. Actually it's not growing very fast because Spain and Italy and Greece are all in a very bad shape. Germany's natural home market is just not growing.
LH: What would you say, John, if I argued back to you, if you bring down the exchange rate imports become more expensive. We import a lot in this country at a time when inflation is coming down the track, that will be damaging.
JM: If you have a devaluation, import prices are bound to go up. But all sorts of other things will act the other way. Interest rates tend to be lower after devaluation. Taxation tends to be lower. You tend to get longer production runs. And if you look at the figures - I was always taught when I was at university, about economics, that devaluation always produces inflation. I was amazed when I looked at the figures and found this didn't actually happen and every devaluation is different. But very frequently you get less, or at least sometimes you get less inflation rather than more.
For example, when we came out of the Exchange Rate Mechanism in 1992, inflation went down from about 5% to 1%, exactly the opposite to what everybody said was going to happen. So you need to look at the figures.
LH: And you do, I know from reading your books and pamphlets over the years. One really common theme from your economic writing, John, isn't only that you feel Sterling is too high, it's that you feel investment in the UK is too low and has been systemically too low for a long time.
So what would Chancellor John Mills do in order to provoke more investment in the British economy? You say you're not so keen on investment from overseas given the exchange rate implications. So how would you get more domestic capital invested into productive assets in order to generate growth?
JM: Well, I think it's all a question of incentives, how you make money, what opportunities you've got. And I think that what you need to do is to create conditions where you've got an export-led boom where exports are really easy and profitable to sell abroad, and to use that to drive the economy. I think that if you provide people in the UK with investment opportunities which are profitable, they'll take them.
The problem at the moment is the exchange rate being where it is, it just isn't profitable to invest in huge swathes of the most productive forms of investment. And that's why it just doesn't happen. Because we've got a low amount of growth, we've tended to shore up resources for the other sorts of investment which you need for social reasons. So I think what we need to do, just to give you some numbers, is to get the proportion of our national income which we invest - which is around about 16% or 17% at the moment, up to somewhere around about 25% which is the world average.
About half of that I think needs to go into social investment, with a low rate of return. Half needs to go into the investment with a really high rate of return, and then on average you can get the growth rate in the economy up by about 2% per annum from where it is at the moment. And that would make a massive difference. If we, over a 10 year period, had a growth rate of 2% per annum, or plus what we've got at the moment, say 3%, you're 30% better off in 10 years’ time, whereas if you just moulder along the way like we are at the moment, we're probably not going to be any better off at all.
LH: Now you're a proud member of the Labour Party. You've been involved with the party for many years, you've donated money over the years, and yet you were unlike a lot of people in the Labour Party, a staunch supporter of Brexit. What was it about Brexit that made you think it was a good argument? What was the basis of your supporting leave?
JM: Well, I supported leave because I thought that we were paying too much into the EU. I thought that the culture was wrong, that we'd be better off if we were outside with our own track. I must say, I have been disappointed by the extent to which the EU has put all sorts of difficulties in the way, and as a result of all this I don't think the benefits that I hoped were going to come through, have come through yet to the extent which they might have done. I hope that will change. I hope we'll get onto a better footing of a relationship with the European Union, and I think then there's every reasonable chance - especially if we adopt the sort of policies which I think the independence we've got does make possible - that we may be able to steam ahead. I very much hope that's going to happen.
LH: Do you think with Kier Starmer the Labour Party is still suffering from the fact that he was so obviously involved in attempts to reverse Brexit? Do you think he should apologise?
JM: I'm not sure apologies are what’s required. I think he's got a difficult road to hoe in some ways because there's a large section of the Labour party with h voters and supporters in the country that did support and still does, Brexit, but it has got a lot of people on the other side who are very keen on remain. So there's a difficult bridge to hold in place there. I think we've just got to move on. We've decided to go for Brexit. We've just got to make a success of it now, and I think Kier Starmer does realise this, and so does Rachel Reeves and all the other people involved. That was very much the theme of the conference speech.
LH: I was impressed with Rachel Reeves’ speech, the shadow Chancellor. I've written about it extensively since the fact that she and Kier Starmer pledged to scrap business rates, which is a very important tax particularly for small and medium size enterprises. I haven't seen the Tories respond, but it seems to me Labour in that part of policy at least, is making the weather?
JM: Well, I think there is a lot of thinking going on in the Labour party now about what to do, how to handle the economy over the next few years. There obviously are going to be difficulties. If there is much in the way of economic growth, it produces some really difficult choices, real problems about where you're going to avoid having austerity. I think it's a very daunting task that's got to be, but is a lower exchange rate a way of solving the problems an easy sell?
No, it isn't. And I think we’re caught in a very difficult dilemma in this country between gentlemanly sentiment on the whole, which is very much in favour of a strong pound and all that goes with it. But the downsize that there's produces of basculating the industry, training talent out of manufacturing, producing a sluggish economy. We’ve got some very difficult choices to make.
LH: We still see the exchange rate as a kind of virility symbol, don’t we? It’s kind of a macho thing. We need a strong pound, whereas of course anybody with an ounce of economics training knows it's very much a double edged sword, a strong exchange rate. It can really hamstring a country, can’t it?
JM: It has, and I think one of the problems about this country is that we haven't got anything like the German business federations which fight for competitive currency. The same thing applies in many other countries, a real force for trying to get the exchange rate down to a more competitive level. In this country, there's almost uniformity in favour of a strong pound, and in really discussing the exchange rate at all is just sort of beyond the pale, off the agenda. It's not something that really discussed very much at all, whereas I think if actually people faced the facts and looked at all the statistics in the way that I've certainly done over the years, you come to a very different conclusion.
LH: Well, it’s certainly part of the on the money agenda, John, to discuss these things, and it's great that you're discussing them with me now. I want to ask you finally about COP 26. I know you’ve thought a lot about these issues of decarbonisation, and you also think a lot and write a lot about the crucial role that energy plays in the economy, and particularly expensive energy.
And a lot of our manufacturers, steel makers and so on have dealt with expensive energy for many, many years now, way before the current energy crunch, which of course has seen prices spiral. To what extent do you think the political and media class actually understand the costs of decarbonisation and the extent to which they fall on businesses, and also on ordinary households?
JM: Well, I think there's a great illusion that the greening of the economy and climate change is going to be a big business opportunity and everyone’s going to make lots of money out of it. I'm sure there will be some people who make money out of it, but I think generally speaking it’s just going to be a heavy cost. How heavy? My guess is probably somewhere around about 3% of GDP every year, for 10 or 15 years. Very, very expensive.
I think that the cost is going to fall partly on taxation, which people are going to pay more money for. It’s partly going to fall on the higher prices, but it's going to be a really tough call - and this is just going back to what I was saying earlier on why I think economic growth is so important. You need to offset all those costs against growth coming from other areas. If that's not going to happen, then you're going to have a huge chunk of the economy who's going to come out of people's living standards.
LH: You've been a distinguished participant in our national debate on the economy for a long time, if I may say so, John. What do you think of the calibre of our economic debate at the moment among the political and media class, the calibre of the debate you hear in the House of Commons, and the House of Lords, when it comes to these complex issues that are of massive national importance?
JM: Well, I think it's depressingly low. I think that all the focus is on the supply side. None of it or very little of it’s on the demand side. I think the debate is very unbalanced. I must say, I think economics hasn't helped. It's got no really clear directives to the policymakers about how to achieve economic growth. I think we're aiming for the wrong target in trying to keep inflation down to 2% because the implication of all this is to keep the exchange rate too high and cause all these other distortions that we've just been talking about.
I think the level of debate is really pretty low and it needs to widen. It needs to encompass a much wider look at the way we run the economy. I mean, can we really afford to have it as dominated by services as it is at the moment? Can we really afford to have the financialisation that we've had? Can we really afford to have manufacturing just turning into smaller and smaller and smaller? I just don't think we can. I think we're heading for an economy which is more and more unbalanced, and we need a national debate on how to stop that happening.
LH: John Mills, so good to have you on the show. Thank you for joining me on ‘Money Talks.’