Mad Management: A tale of national development in two cities and three countries

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As I conclude my study tour of Eastern Europe with Prague and Dresden – two cities which, like Sheffield, are in beautiful surrounds – it becomes increasingly clear the extent of our successive governments’ ignorance of the real political economy compared with Czech and German politicians.

Skoda, based in Prague (right), is the firm the Czechs are most proud of. The communist regime ran it right down but, once they departed, the new government put it out to tender. VW won by demonstrating that they best able to deploy the company’s undoubted engineering expertise – and by showing respect for the prevailing economic circumstances in the Czech republic. Skoda would continue to exist as a brand and the company was incorporated as a full member of the VW Group. (Note: Skoda did not make the fatal mistake of calling in a McKinsey or PMG or PwC as the NHS has done.) VW acquired 31 per cent of the shares, while the Czech state retained 69 per cent. VW was eventually to acquire all the shares, with the Czech government continuing to be represented on the Skoda. As well as paying a fair price for the shares (DM 620 million for the 31 per cent) VW pledged to invest several billion Deutschmarks in the modernisation and development of Skoda. In a nutshell, VW brought in leadership, finance and, most of all, their management system to capture the skills of a willing workforce. But VW’s management system did not stop at the factory gates. It applied to their suppliers as well. In 1991 Skoda sold 150,000 cars. Today that is about one million. The value to the country is immense, Prague is thriving and the citizens are really proud of the Skoda name, as can be seen, not least by the numbers of Skodas in the city. A great example of government and private industry in the right relationship. Another fine example is just down the Elbe river in Germany to the once ruined city of Dresden, the capital of the free state of Saxony. Note, “free state” means it has institutions of democratic local self-administration that are independent from central government. The city, which has about the same population as Sheffield, is nearly restored to its former glory as one of the most beautiful in the world. Here the major employment industry is construction, not unexpectedly, together with tourism. There are signs everywhere of really careful planning and magnificent craftsmanship in the restoration process. But, it is also called the “Silicon Saxony” as it is home to several hi-tech industries, drawn here not least by the esteemed Dresden University of Technology, one of the ten largest in the country. It also has a newer University of Applied Science, which like Sheffield University, cooperates with local and international manufacturing companies and research institutes. So, why have these cities been able to recover from the devastation of war and a communist regime and thrive, while cities like Sheffield, Liverpool and Newcastle struggle? The explanation is partly that both cities, but Dresden in particular, are beneficiaries of generous and wise governments. We are not. Also Germany really does understand the management of the political economy, mainly by not tampering with the public sector. Jane Jacobs, another great female economist, captured these contrasts in a book she wrote in 1992 called Systems of Survival. (I quote extensively from a 2008 article by the excellent business journalist, Simon Caulkin). Her theory was that humans had developed two ways of gaining a living; taking and trading or conquest or commerce. She also found that each of these survival systems had a corresponding moral syndrome, built out of precept and tradition, modified over time. For example, its hardly surprising to find that commerce thrives on a syndrome of honesty, a degree of competition, respect for contracts, initiative and enterprise, willingness to collaborate, and avoidance of force. This is Czech and Skoda. The other syndrome, the guardian syndrome, derives from territorial protection, by contrast emphasises loyalty, honour, tradition, prowess, exclusivity and the distribution of largesse. Commerce is foreign to it. This syndrome governs the behaviour of governments and their bureaucracy, including police, armed forces and judges. This was embodied in the genius of Augustus the Strong in the 1700’s and Angela Merkel today. The syndromes work firstly because they are what works, as evolved over time. Second, though mutually exclusive, they are also interdependent. Commerce needs guardians; (the state) to establish and police the rules, and guardians need commerce to provide wealth and, of course, taxes. Finally, and crucially, they are systems. The parts work together and are self-reinforcing. Being a system makes it impossible to change or remove individual elements without causing really bad unintended consequences. In this case, so sensitive to tampering are the syndromes that they become what Jacobs calls monstrous hybrids deformations, with the perverse property of turning virtues in one syndrome into vices in the other. This is the UK and the NHS. Only the USSR had tampered more with its institutions than for, example, New Labour, who, in 2008, prescribed 198 targets for local government, numbers and postings of junior doctors, reading methods for teachers in primary schools, cleaning techniques used in hospitals and how GPs should organise their appointment diaries. Then came Jeremy Hunt who spent the last five years concocting a really “monstrous hybrid”, culminating in the dragon called “Accountable Care”. Where is St George when you really need him?

The parts work together and are self-reinforcing.