The Opposition view

‘Our reluctance, as a nation, to allow our current living standards to fall in order to make increased investment possible is a major cause of our present discontent …   . reinforced by a tragic failure to understand the role of profit in a mixed economy. Businesses will not invest adequately unless profits can be restored’.

The Style of Economic Management of this Government, and especially of Mr Wilson, is to concentrate on the solution of immediate problems. The result is that there is too much emphasis on day-to-day issues. A week may be a long time in politics but, in the development of the British economy, it is the merest twinkling of an eye. We must lift our attention from our immediate difficulties and consider how to grasp the opportunities inherent even in the present crisis.

UK MUST BE MORE PRODUCTIVE

Many of our economic and political problems arise from the same fundamental cause—that we are not as productive as countries like France, Germany or Sweden. If each of us produced as much as the average man in those countries, how much easier our problems would be to solve. With more goods and services to share out, we could enjoy a standard of living closer to the one we seek.

We should no longer be driven to the self-defeating chase after more and more paper money that has plagued us for the past year. We have printed more and more pounds, each worth less and less. And while our private standard of living could be raised if Britain were more productive, there would also be resources left over to improve public services like health and education. How different our attitude to life, and to each other, would be, with more goods and services to share. The jealousies that lie behind our social and political tensions would ease. [end p1]

To break out of the vicious circle of low output, low investment, soaring prices and a weak pound will not be easy. It will call for patience, intelligence and determination. But what better time to start than the present, with unemployed and underemployed men and women available, to grasp tomorrow's opportunities.

To raise output per man, which is what prosperity requires, will call for a contribution from both labour and management. We need to recognise that to consume more, we must produce more. We need to reduce manning levels. We need to see that the fear of working oneself out of a job does not prevent us producing for prosperity.

CUSTOMERS MUST BE GIVEN WHAT THEY WANT

That prosperity will be possible only if we all accept that our role is to give customers products and services that they really want to buy, at the times when they want them, and at prices they can afford. We shall prosper only by understanding and serving our customers at home and overseas. It is they, not we, who by their purchases show whether buying British is really best.

More enthusiastic and more effective work are only part of the answers to our problems. In all prosperous modern economies every man and woman is supported by more plant and machinery than in Britain. To be as prosperous as they are, we must be as well-equipped as they are. We have spent too little on plant and machinery to make goods that the world wants to buy. This is the root cause of our problems, and of our economic difficulties.

TOO LITTLE THOUGHT FOR FUTURE

We have resisted the short-term sacrifices that investment in business implies, and have discriminated too much against the profitability which makes such investment possible. To achieve a higher level of investment per worker will require temporary deprivation. We can devote more resources to equipping each of us with more and newer equipment only if, for a time, we devote less to satisfying more immediate wants.

In recent years, we have worked in the other direction. We have used too many of our resources to bolster today's standard of living, leaving too few to raise tomorrow's.

Unfortunately, there is a paradox here, and one we find hard to understand. To insist that consumers take more of the national output today will indeed give a higher standard of living in the present. But because it reduces investment in new equipment, it also reduces the national output available tomorrow.

Other countries have shown, that if one can devote 5 per cent more of today's national output to productive investment in plant and machinery, this will lead to a much higher standard of living within a decade or so. A sacrifice of a little of today's living standards can give a substantial increase in prosperity within a short time.

PAYING OURSELVES MORE DOESN'T WORK

This is the most important lesson we must learn. For failure to learn it lies at the root of our inflation. By increasing the price of oil, the oil producers have reduced our living standards—transferring wealth from us to them. We have tried to resist this by paying ourselves more money. This is a major reason for our inflation.

From now on, we shall have to allow more of our resources to go to eliminating the balance of payments deficit, accepting lower living standards as a result. It will be difficult for us to go further and simultaneously devote more resources to investment. Yet this is what we must do. This is the price we must pay if we are to grasp tomorrow's opportunity for greater prosperity.

To fail to invest in this way would be disastrous. If we do not do so, we shall guarantee that Britain becomes increasingly poor in relation to other industrial countries. The political and social difficulties to which that would give rise do not bear contemplating. Unless we can ensure that our development is in line with that of countries like France and Germany, we shall face increasing political and social tension.

LACK OF UNDERSTANDING OF PROFIT

Our reluctance, as a nation, to allow our current living standards to fall, in order to make increased investment possible, is a major cause of our present discontent. It has been re-inforced by a tragic failure, on the part of too many in Britain, to understand the role of profit in a mixed economy.

Unless we are prepared to embrace the nightmare of a totally nationalised industry, we must ensure that efficient private businesses earn sufficient profit to make investment possible. No one wishes to defend excessive profits, but British industry has traditionally found most of the funds it needs for investment from its own profits. Inflation is raising the price of plant and machinery along with all other prices. Businesses [end p2] will not invest adequately unless profits can be restored to something nearer 1973 levels. Only then can they afford to re-equip.

The reports of the Price Commission show that profit margins in the UK are only about two-thirds what they were in the summer of 1973. Yet many on the Left of British politics ask for even tougher price control. Of course, many of these people would be happy to see a squeeze on the profits of private industry, which was severe enough to lead to the nationalisation of all major British firms. Those of us who do not accept such a fate as inevitable must make our views felt. We must insist that to continue price control and the taxation of profits with the existing severity is unacceptable. Only if British industry is able to invest in more and better equipment, from ploughed back profits, can we grasp tomorrow's opportunities for greater prosperity.

RELAX PRICE AND TAX CONTROL

We must relax tax and price control arrangements to allow an increase in investment. To finance this investment, at least some Government funds will be required. Since a general increase in taxation is unthinkable, perhaps we should now determine that every penny of the revenues accruing to the Government from North Sea oil will be devoted to investment in industry and commerce. Otherwise we shall squander a valuable national asset in supporting current living standards and shall fail to guarantee future economic strength.

Because the present situation is so difficult, unusual measures are needed. Past experience shows that British business normally invests only to increase its capacity only when an increase in demand is assured. This means that it is prone to invest too late. This time we need to invest ahead of increasing demand, to be ready to grasp the opportunities for increased sales at home and abroad which will arise in the rest of the 1970s. The Government has a responsibility to make this happen, even though it will mean abandoning its doctrinaire opposition to profit.

MANAGERS MUST GET REWARDS

The Government will also have to soften its attitude to Britain's middle and senior managers. It is on their skill and enthusiasm, especially in strategic planning and in marketing, that we shall have to rely. Yet, at present, they feel increasingly oppressed by greater Government intervention in business, by a tax system which becomes increasingly penal as they try to offset inflation by earning higher incomes and a pay policy which can offer them only a rapidly falling standard of living in 1976. They must be assured that, at the least, an end to the erosion of their status and living standards is in sight.

It is one of the tragedies of our relatively poor economic performance that in an effort to protect the living standards of the population in general, we attack more sharply the living standards of those who can do most to improve our future prosperity. We shall never grasp tomorrow's opportunities unless we reward most those who—on the shopfloor and in the boardroom—have made a positive contribution to our economic recovery.

Nor, of course, shall we prosper unless the performance of business as a whole continues to improve. The great effort which has gone into management training and education over the last 15 years will bring increasing results. But an essential stimulus to business efficiency is competition. It is essential that we should pursue an effective competition policy. It is also essential to resist the growing demands for import controls. British business is more likely to be efficient through competing in world markets with all-comers, than by shrinking into a siege economy.

PATIENCE; MORE ACTION, LESS TALK

If we are to grasp tomorrow's opportunities, two things are needed. First, we must be patient. For a year or two, we must increase the proportion of our resources going into restoring the balance of payments and the re-equipping of British business. A period of restraint—used in this way—will pay big dividends. Second, we must spend less time in talking and more in acting. We must use our intelligence and skill to improve the performance of the British economy. We must seek out and satisfy profitable market opportunities throughout the world.

The time for talk is over. We need a national effort to engineer the resurgence of Britain. Let us subordinate selfish and sectional interests to this objective. Let us each resolve to play a positive part in restoring Britain to its rightful place in the world as a strong, prosperous nation. Tomorrow's opportunities are there. Let us grasp them.