The business of government

We are always seeking to import business savvy into Whitehall, and our new prime minister is the first with an MBA; but does it work?

On Thursday, James Forsyth, the political editor of The Spectator, wrote in his weekly column for The Times that the new prime minister’s MBA (from Stamford) would give him an advantage in economic management and might allow him to have an edge over the Labour Party. Some people felt that Forsyth was a little less than forthcoming, failing to mention that he was at school with Rishi Sunak, that the prime minister was best man at his wedding to Allegra Stratton (formerly Sunak’s director of strategic communications at the Treasury) and that they are godparents to each other’s children. Nevertheless, Forsyth is an experienced journalist and is presumably able to erect Chinese walls in his brain.

I do not have an MBA, an admission which will be laughably obvious to anyone who knows me. My postgraduate master’s degree is in Reformation studies, so I have a rather different skills set from the prime minister, and all other MBA graduates. I am not best placed, therefore, to assess whether his studies will equip Sunak to run the government and manage the economy especially well, though I know enough about the syllabus of the degree (my oldest friend and my stepmother both have them) to hope that some of it—leadership, operational management, risk assessment, team working—will contribute to the prime minister’s tenure.

There is a wider implication, however, which is that training, experience or expertise in what we loosely call “business” (in Sunak’s case, investment banking and hedge fund management) has a great deal to teach Whitehall and will significantly enhance political leadership. This is an instinct which is easy to understand. We regard our governing class as an especially self-contained group, decrying the career path which goes from studying politics, through working for a politician or a think tank, to becoming an MP and later a minister without ever having to step into what we think of as the “real world”. The epitome of this, perhaps, is former foreign secretary David Miliband, who, after graduating, spent five years as the Institute for Public Policy Research, became head of policy for Tony Blair first in opposition and then in Downing Street, and in 2001 was elected to the Commons.

At the other end of the spectrum, however, there have been attempts to import business expertise into the political sphere, not just in the shape of politicians but in terms of advisers and administrators. It is worth, therefore, looking at some of those attempts to assess how successful they have been, to see if we can distil any lessons from them.

One of the most famous examples—though I use the word “famous” within the confines of political geekery—is John Davies. Having risen swiftly in the oil industry, from the Anglo-Iranian Oil Company to Shell-Mex/BP, in July 1965 he became the director-general of the new Confederation of British Industry, the representative body of employers and manufacturers. This position brought him into close contact with government, especially in the heyday of Wilsonian interventionism, featuring nostalgic bodies like the National Economic Development Council and the British Productivity Council. For a while, Davies was a subscriber to the prevailing orthodoxy, saying in a speech in California in May 1967 that the government’s efforts to keep pay and prices down were succeeding. But the devaluation of the pound later than year left him disenchanted and critical.

Davies had Conservative instincts, and during the last years of the 1964-70 Wilson government he grew closer to the opposition. In October 1969, he stepped down from the leadership of the CBI and was recruited by Edward Heath as a prospective member of an incoming Conservative government. He missed out on the nomination for the Louth by-election in 1969, and again in 1970 for the Cities of London and Westminster, but with the support of the party headquarters he was adopted as candidate for the safe Cheshire seat of Knutsford, and won comfortably at the general election in June 1970.

Edward Heath had devoted a great deal of thought to how Whitehall could be made more efficient, modern and, for want of a better word, “businesslike”. This was the age of the Fulton Report (Report of the Committee on the Civil Service) which in 1968 had recommended that the civil service be made much more professional, diverse and multidisciplinary and had resulted in the establishment of a Civil Service Department, nominally under the prime minister but in fact run by a junior minister and responsible for pay and management of the civil service (previously a Treasury responsibility). Heath had absorbed this atmosphere. He wanted to slim down the cabinet from the low 20s under Wilson and cut the size to 18 at first, and he had plans for widespread machinery of government changes. Clearly, then, Davies was an ideal recruit: he had a significant private sector pedigree, had been critical of Labour but also had engaged with Whitehall in his CBI days.

It did not take long for Heath to call on Davies’s experience. A month after the election, the brilliant and disruptive chancellor of the exchequer, Iain Macleod, died. He had been misdiagnosed with appendicitis in early July, admitted to and discharged from hospital, but was in fact suffering from pelvic diverticulum, and two days later suffered a fatal heart attack.

(There is much to be read and written on the significance of Macleod’s unexpected death. He was a brilliant orator, a sharp mind and a champion bridge player, and his absence robbed the Heath government of one of its heavyweights, especially in economic policy. The other cabinet grandees were by then somewhat semi-detached: Quintin Hailsham unexpectedly returned to the Lords as lord chancellor, the former prime minister Sir Alec Douglas-Home supreme but isolated as foreign secretary, and the home secretary Reginald Maudling disappointed, bored and shadowed by scandal. After Macleod’s death, Heath was too dominant in cabinet and his unchecked authority contributed to the disastrous decline of the government.)

Macleod’s death caused a hasty reshuffle. Anthony Barber became the new chancellor, Geoffrey Rippon replaced him as chancellor of the duchy of Lancaster and Davies was appointed to the consequent vacancy as minister of technology. The Ministry of Technology (colloquially known as “MinTech”) was a Wilson creation, a perfect encapsulation of the spirit of the 1964 Labour victory which had even had C.P. Snow as a junior minister. When Anthony Wedgwood Benn (as he was then still known) took over as minister of technology in 1966, the department flourished: as well as dealing with government assistance to industry, it absorbed the Ministry of Aviation in 1967 (thereby inheriting responsibility for the Concorde project) and the Ministry of Power in 1969. Its technical and commercial interests were a good fit for Davies.

Heath, however, was intent on shaking up Whitehall. In October 1970, the Ministry of Technology was merged with the Board of Trade to create a new Department for Trade and Industry, and Davies became secretary of state for the new institution. Its responsibilities were extensive: trade, business growth, innovation, employment, energy, monopolies and mergers and regional development, among others. Heath favoured ‘super-ministries’ (at the same time he created the Department of the Environment) and at the back of his mind was an attempt to clip the wings of the Treasury, a recurring trope in Whitehall history.

Davies’s first major speech as trade and industry secretary was at that year’s Conservative Party conference in Blackpool. In front of the party faithful, he reiterated the Heath government’s determination to avoid one of the Wilson administration’s policies and stressed that there would be no more intervention in the private sector to support, prop up or save failing industries. The following month, he put it even more explicitly to the House of Commons.

We believe that the essential need of the country is to gear its policies to the great majority of people, who are not ‘lame ducks’, who do not need a hand, who are quite capable of looking after their own interests and only demand to be allowed to do so.

It was the sort of rhetoric which would be familiar from Conservatives a decade later, but for its time it was radical talk. The phrase “lame ducks” caught the imagination, and would come to haunt Davies and the whole government.

Heath was, among his other many faults, an unlucky premier, and it seemed as if Fate was toying with him. In early 1971, Rolls-Royce, a significant manufacturer of aero engines and a key defence contractor, ran into financial difficulties caused by the expensive development of a new engine. The government, contrary to its stated policy, supplied the company with some subsidies, but in February it entered voluntary liquidation. The government stepped in to take over its assets and in May it was nationalised as Rolls-Royce (1971) Limited. Davies had shied at the first fence.

Matters grew worse. In June 1971, the Upper Clyde Shipbuilders, a consortium of five major Glasgow shipyards, applied for and was refused a £6 million loan from the government. Here was another huge test of the indifference to lame ducks. In a development which no-one could have predicted, the workers, led by the charismatic and articulate Jimmy Reid, staged a “work-in” to prove that the company was productive and that the trades unions were not holding it back. The workers’ efforts caught the public imagination, leading to mass demonstrations and support from Wedgwood Benn, Billy Connolly and John Lennon, among others.

The government was at a loss. By February 1972, it had to climb down and provide support for the shipbuilders. It created a company called Govan Shipbuilders with a subsidiary called Scotstoun Marine Limited, which encompassed most of the yards involved. It came at a cost of £35 million (vastly more than the loan which the Upper Clyde Shipbuilders had originally requested). This represented an almost-wholesale reversal of the government’s entire industrial policy, and, for good measure, was a defeat by trades union action. In that it was a grim foreshadowing of what was to come.

In November 1972, Davies was moved from the Department for Trade and Industry to be chancellor of the duchy of Lancaster, with responsibility for relations with the European Economic Community which the UK was due to join in January 1973. His two years in charge of business and industry were woeful. The lynchpin of government policy, non-intervention, had collapsed almost at the first pressure, and, worst of all, the department had waited long enough to concede that it had ended up paying more than if it had agreed at first to support the industries in question.

Davies would go on to serve in the House of Commons until 1978, chairing the European Scrutiny Committee and then being somewhat unexpectedly summoned by Margaret Thatcher in 1976 to be her shadow foreign secretary. He resigned two years later, terminally ill with a brain tumour, and died before his life peerage was granted. He has been seen since then as a cautionary tale, an example of a successful businessman transferring to the political world and finding nothing but failure. Why was this?

It was certainly true that he never adjusted to the flexibility and nuance of the Commons. He failed to grasp, for example, that the Labour Party would be instinctively angered by job losses, and his failure to express sympathy was a black mark against him. He was a flat-footed parliamentary performer, and had spent hardly any time on the backbenches before he was promoted to cabinet, which robbed him of the opportunity to learn the intricacies of the Commons. That mattered. When policy started to go against him, he had no reservoir of goodwill upon which he could draw, and so was exposed fully to the consequences of his reverses.

More generally, his business background may have given him an approach to implementation which was too black-and-white for politics. He had made a very clear statement of the government’s industrial policy in 1970, and that was potentially an enormous hostage to fortune. Months later, when matters started to unravel and the government decided to act in a wholly contradictory matter, he thought he was acting in a logical and pragmatic way, but that was an unrealistic expectation. He failed to see, in a way which someone more steeped in politics would have done without hesitation, that this was a catastrophe for the Heath government. Its 1970 manifesto had promised a fresh start, non-interventionist, free market-orientated and distanced from Wilson’s socialist policies. By 1972, the great Heath U-turn took place. Davies was never regarded as a front-rank politician again.

The spectre of Davies’s career hung over politics for many years. But Margaret Thatcher, always impatient with conventional wisdom and sceptical at best of established Whitehall practice, was open to experimentation. David Young, originally a solicitor but by the 1970s a successful entrepreneur across property, transport and finance, caught the eye of the government-in-waiting late in the decade as a dynamic, capable and innovative man of business. In 1979, the new industry secretary, Sir Keith Joseph, appointed Young as his adviser on privatisation (in this context, an ironic counterpoint to Davies’s activities under Heath). He also had experience in vocational training, and in 1981 Norman Tebbit, employment secretary, made him chairman of the Manpower Services Commission, a Heath-era creation which coordinated training and was intended to combat the high levels of unemployment.

His chairmanship of the MSC drew Young into the web of government and he became noted for his sympathy for Thatcherite economic policy. This ‘dry’ approach endeared him to the prime minister, and in 1984 Thatcher created him a life peer and made him minister without portfolio in her cabinet, with the task of helping to tackle unemployment at the highest policy level. Lord Young of Graffham, as he had become, was a symbol of Thatcher’s willingness to think laterally and approach outside experts to advance her revolution.

In September 1985, unusually for a peer, he replaced Tom King as employment secretary. As he was a departmental chief in the House of Lords, the capable Kenneth Clarke was made paymaster-general and the department’s spokesman in the House of Commons. He suited the Thatcher approach perfectly. She would famously say “Others bring me problems. David brings me solutions.” Moreover as a peer he was no threat to the prime minister’s position, “a political eunuch” as he described himself.

Unemployment, which had soared to levels previously unimaginable after 1979, had peaked in 1984 at 3.2 million. Under Young’s watch, with innovations like the Youth Training Scheme and an increasingly successful economy, the trend was reversed; slowly at first, it was true, but the numbers fell for the rest of the decade. Thatcher rated Young highly, and after winning the 1987 general election (in which he, although a peer with no experience of campaigning, had been intimately involved), she promoted him to trade and industry secretary.

Initially still teamed with Kenneth Clarke as his Commons spokesman (replaced in 1988 by Tony Newton), Young addressed himself to the unfinished business of privatisation. Rolls-Royce (back to John Davies again) had been returned to private hands just before the election, and Young pushed ahead to privatise Rover Group (formerly British Leyland) and British Steel. Regional water companies would follow. The process of privatisation transformed the economic landscape. In 1979, there had been three million shareholders in the UK; by 1990, when Thatcher left office, that had risen to 10 million. It was a vast democratisation of commercial ownership.

Young left government at his own request in 1989 (though he would have an Indian summer as David Cameron’s enterprise adviser from 2010 to 2014). By the metrics of the Thatcher administration, he had been a success. He had checked unemployment and then driven forward the government’s economic policy in terms of industry. Undoubtedly he was helped by his relative isolation from the dust of the arena in the House of Lords, and the three years for which his Commons spokesman was Kenneth Clarke, an exceptionally able debater and canny political operator. But, in a way which Davies never had, he had attracted the fundamental trust of the prime minister and developed a reputation for no-nonsense delivery. Achievement drives reputation but in turn is driven by it, and Young was able to access this virtuous circle.

In the 1990s, another successful businessman decided to have a tilt at reproducing his success in politics. Archie Norman had learned his craft with legendary management consultants McKinsey & Company, where a young William Hague had been a protegé. The relationship would prove to be important. At 32, Norman became group finance director of the retail giant Kingfisher plc, before becoming chief executive of Asda in 1991. He had transformed the supermarket’s fortunes, making it the second-largest in the UK and an irresistible proposition for the American giant Wal-Mart, which bought it in 1999.

Norman had been a Conservative candidate in council elections in the 1980s, without success, but in 1996 he was persuaded to apply for the candidacy for Tunbridge Wells, a safe Conservative seat being vacated by Sir Patrick Mayhew. He was elected against the Labour landslide, and his former charge William Hague became party leader, assuring Norman’s access to the party’s senior counsels. In June 1998, Hague appointed him chief executive of the Conservative Party, and he brought his full business rigour to the post, sacking a third of the staff, introducing a new process for electing the leader and targeting a 100 per cent increase in membership.

The new chief executive introduced characteristic management innovations. He introduced a “no jacket” rule for Central Office, prescribed dress-down Fridays and enforced “black bag Mondays”, whereby staff were to clear their desks at the beginning of the week to encourage open-minded and creative thinking. It was a disastrous approach. He failed to grasp that what had worked in a strictly commercial atmosphere at Asda was doomed to flounder at a complex organism like Conservative Central Office, which relied on modestly paid interns, activists and volunteers. He quickly became a hate figure, and clashed with the party chairman, the veteran Lord Parkinson, who remarked acidly, “Just because the Asda check-out girls smile at him, he thinks he's got the common touch.”

A year later, he was moved to be shadow Europe spokesman on the opposition front bench, but here too he did not shine. His Commons performances were flat-footed and halting (sound familiar?), and his reputation followed him from Central Office so that he had little support from colleagues. Some gleefully reported that he was one of the worst speakers in the House. In 2000, he became shadow environment, transport and the regions secretary, opposing John Prescott, but his performances did not improve. Frustrated and making no headway, he left the shadow cabinet when Hague resigned as leader, and stepped down from the Commons in 2005.

There is a substantial correlation between John Davies and Archie Norman. Neither mastered the vital bearpit of the House of Commons, and both lacked political sensitivity. Norman had the misfortune to learn these hard lessons in opposition, without even the salve of executive office, and left politics in a sour mood. Much more than Davies, he felt he should have had greater success, as for him all the stars seemed to be aligned: stellar business success, a close relationship with the party leader and a sympathetic reformist atmosphere. But he was inflexible. He saw himself as a new broom, and was not willing to make any allowance for the landscape he was trying to change. What had been a raging success as a McKinsey consultant was a howling failure as a leader who had to persuade.

There are other careers I could look at: Arthur Cockfield, former managing director of Boots who was briefly trade secretary under Thatcher; Digby Jones, the CBI head who was made a trade minister in the Lords by Gordon Brown; or the succession of business leaders who have served as commercial secretary to the Treasury from 2010. But they do not disprove a general rule.

Success in business stems from skills which are clearly distinct from those required in politics. To that one should add two caveats. There are overlapping or transferrable skills of leadership, management and economic expertise; and it is not impossible for those with one set of skills to adapt to another. However, that degree of flexibility is rare. If David Young had it, he was inestimably assisted by his close relationship with Thatcher and his cocoon in the House of Lords. More often, early promise has foundered on the rocks of political reality. Those who seek to transfer private sector expertise directly to Whitehall should, therefore, be cautious.

We began with Rishi Sunak and his MBA. He must be given time, of course, but the lessons of the past suggest that the skills he learned at Stanford may contribute to his leadership but much more will depend on what he has learned since his election to the Commons in 2015. It is his ability to manage difficult teams, speak persuasively in the House and in the media and his political judgement which will determine the fate of his premiership. But as the first master of business administration to occupy Number 10 Downing Street, he is, at least, an interesting case study.