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Turnover perked up with signs of some overseas interest.As expected, Orange, the mobile telephone group, stormed into Footsie becoming, it appears, the first company to join the exclusive blue chips club without going through the process of producing any figures. United News & Media and Next (after an eight-year absence) also won promotion with Foreign & Colonial, Greenalls and Rexam relegated.Railtrack just failed to make it but with Blenheim, likely to disappear soon if United News takeover talks come to a successful conclusion, and newcomer Millennium & Cop- thorne Hotels, it joins the supporting FT-SE 250 index.TI Group, the engineer often linked with Lucas Industries, gained 13p to 541p following a dinner with 12 fund managers, hosted by Henderson Crosthwaite. Shire Pharmaceuticals helped the higher temperature by letting it be known in investment meetings that its Alzheimer treatment will be the subject of a presentation in Japan next month. Pick of the majors, said Mr Plag, was Glaxo, “fundamentally the cheapest”.A deal which showed the bio babes can actually make money also helped sentiment. Celltech gained 37p to 645p; it has sold for pounds 42m its manufacturing off-shoot and Lehman Brothers has set a 1,000p target price. The decision to adopt a more positive stance seems to be based on routine considerations such as the sector’s apparently low political risk, the consumers’ need for drugs whatever the economic climate and “good dividend and earning potential”. They closed at 1,398p, a 12p gain.Talk of a Swiss bid went the rounds but there was also support for the theory Glaxo Wellcome, up 20.5p to 857.5p, was wondering about buying Zeneca, partly for its highly promising drugs pipeline.

SmithKline Beecham, another seen as a Zeneca predator, rose 11.5p to 694p.Mr Plag, the top-rated drugs analyst who switched from NatWest Securities to BZW, was said to have moved his stance to “neutral/overweight” from “underweight” which, stripping out the jargon, could be interpreted as going to a cautious buy from sell.Often when an analyst moves house he sharpens his new employer’s view. The takeover story, not for the first time, involved Zeneca; the analyst in the heat of the action was Steve Plag of Barclays de Zoete Wedd who changed the securities house’s recommendations.
Option activity re-awakened the Zeneca bid stories At one time the shares were up 29p at 1,415p, a peak. Britain’s competitiveness and prosperity can be improved either by reducing the number of badly educated people employed – the pattern in recent years – or by educating the workforce better.Labour costs comparedTotal hourly labour costs in manufacturing, 1995Index, Germany = 100Germany 100Japan 75France 61US 55UK 45Hungary 10Czech Republic 7Singapore 23Korea 19Malaysia 6Source: BIS. A heady cocktail of takeover rumours and analytical support provided a shot in the arm for drug shares which have been showing signs of stress and strain in recent weeks. But it concluded that attainment levels lagged well behind those in our main competitors.

Not surprisingly, the Government’s skills audit published yesterday reached the same conclusion.No doubt today’s White Paper will contain another list of pledges on education and training It needs to. “Relatively low levels of human capital probably were, and continue to be, one of the main factors explaining the low level of per capita GDP in the United Kingdom,” compared with other industrial countries.Government measures had cut the number of unqualified 16-19-year-olds entering the jobs market, the OECD noted. Here Britain trails most other industrial coutries in both quality and numbers in further education.The Organisation for Economic Co-operation and Development – a big fan of the flexible labour market – recently pinpointed upgrading the skill levels of the workforce as the main challenge facing Britain. Reducing union power and introducing more flexibility have, arguably, raised productivity and potential growth.The institutional framework in which businesses operate is one aspect of the economy a government can try to change to enhance productivity Another is education. As well as innovations in technology this also includes new efficiencies. One example was the organisation of production in assembly lines earlier this century.Another more recent – and more contentious – example would be the shake- up of labour market institutions by Britain’s Conservative governments.

The lesson of history is that in the long run living standards rise in line with productivity growth.Economists tend to describe anything that boosts productivity – anything that produces more output per unit of input – as “technical change” But it is more complicated than this makes it sound. Looking at export performance or Britain’s declining share of world trade in manufactures is a diversion. As wage inflation has been low by historical standards in Britain, productivity performance must be the key.This detour through trade as a way of measuring national competitiveness has returned to the point at which economic theory would have begun to monitor a country’s prosperity. In Italy they rose 2.6 per cent in 1993 but then fell 2.7 per cent and 4.3 per cent.

Germany and Japan, both strong-currency countries, have suffered a deterioration in this measure since 1990.The growth in unit labour costs is equal to wage inflation less productivity growth. It increases when pay rises are not matched by improvements in productivity. The reason is that unit labour costs rose in the UK in 1994 and 1995, whereas they declined in most other industrial countries.Unit labour costs in the UK fell 0.2 per cent in 1993, but were flat the following year and rose 3.3 per cent in 1995. The pound might have risen a pfennig or two recently, but over the long term its history is one of unremitting decline In 1970 a pound bought nearly DM9 worth of German goods. However, a fall in sterling does not boost exports if it is mirrored in higher domestic inflation. The exchange rate adjusted for inflation rates here and abroad has not sunk as dramatically, for British inflation has been higher on average than that of our competitors.The Bank for International Settlements this week published its estimates of real exchange rates calculated using growth in labour costs per unit of output rather than price inflation.