Philip Revzin
As you get ready to go to Bonn, we were wondering what your attitude is at the moment toward the idea of some sort of reflation of European economies, as perhaps, the US economy begins to slow down after the fabulous growth of last year.
Prime Minister
Can I ask you what you mean by “reflation”? Because, you know, it is a word with an indistinct meaning and if it means what I think it means, the answer is “No”, because it means printing money. Normally, it means printing money and that really is only the cause of future trouble. So as far as I am concerned, printing money is ruled out completely.
Philip Revzin
…tax cuts.
Prime Minister
You have to have sound finance. But one moment! You were going to say you have got to have tax cuts. What are you going to do, have equal revenue cuts? If you are going to have [end p1] tax cuts without public expenditure cuts, you are going to have to borrow more. Now, we cannot all borrow more simultaneously, unless the savings ratio increases, so you are then coming back to printing money.
What I am really saying is that printing money, as far as I am concerned, is out. It sows the seeds of future trouble and I think that most of us know that, and to do us all credit, have been trying to avoid that.
It also is a fraud on the savings of everyone who saves in money terms, and that really is not a good policy for any government to pursue—to say that if you are the sort of person who kind of does everything right, live within your income, save a bit for a rainy day, save it in money terms; then we are going to defraud of your savings by pursuing a policy of “reflation”—in practical terms, printing money. That is not a good policy for any government to pursue and what it does it sow the seeds of…well, last time, of course, one forgets…
Philip Revzin
…seven years ago…
Prime Minister
One moment! Before that. I always try to remind people that it was inflation that cracked and broke the Bretton Woods fixed exchange system, long before price increases in oil, and of course, it was inflation that creates immense problems, really, [end p2] for the whole fabric of society, for those who do save. It puts a premium on putting things in land and treasures and not into producing assets.
I will not go the inflationary route, is what I am saying.
Robert Keatley
But would there be a window or some leeway or a cushion, if you will, if the US economy both slows down and the US borrowing lessens? Would there be a chance for West Germany, France, Great Britain, to take up some of the slack in growth by a little more prudent borrowing. [last word indistinct]
Prime Minister
Well, what you are saying is that there is a certain amount of borrowing in the world because there is a certain amount of savings—if one borrows less, can others borrow more? The answer is yes, and of course if there is less demand for the world's savings from the United States, then let us hope there will be a lesser demand. The interest rates would go down and the interest rates going down would create a greater demand. You see the route I am going?
Robert Keatley
I am not sure.
[end p3]Prime Minister
Yes, look! Look! There are many people who cannot afford to borrow, although they would like to borrow to expand their business, because the profits from their business will not service the cost of borrowing. Now, if the cost of borrowing goes down because the demand from the United States is down, there are many people then who could afford to expand, because the lower interest rates make it easier to serve those loans and therefore, what was impossible becomes possible. So, if the price of borrowing goes down, it becomes possible for more people to contemplate borrowing. That is clear, isn't it?
Robert Keatley
I was referring more…in a governmental sense, is there then more room for you to have more leeway with your public sector borrowing requirement?
Prime Minister
I have not made myself clear, which is my fault, not yours.
I think that there is still a great demand for private sector borrowing and investment. That tends to be the borrowing and investment that creates the most jobs and the longer-term jobs, and has a greater possibility of expansion in the future. One must not do anything to crowd that out. At the moment, I see no sign of that failing in this country, and last year we had record investment in fixed assets. You have seen that the CBI is expecting that to be exceeded, to be equalled or exceeded, this year. [end p4]
Now, that really is the kind of investment we need, because it is the kind that will produce the jobs of the future.
You are much better than we are at forming new small businesses and having them grow. It is the aspect of your economy—this tremendous enterprise culture—that we seek to emulate most of all. But whatever I say, it is all against the background that I am not prepared to go a reflationary route.
I do not see a failure of demand for private sector investment at the moment and, of course, it was only if the savings ratio exceeded the demand for investment that governments do tend to come in and spend more, borrow the amount, but then the cost of borrowing is lower, you see, and it does make other things possible.
Robert Keatley
…President Reagan comes to the Summit asking all of the Europeans to do a little more to “take up the slack”, that your answer is going to be “No!”?
Prime Minister
What are you saying? “Take up the slack” of what? I am only saying to you exactly what I say at a Summit. Do not give me these general propositions. Say precisely what you mean.
Now, if President Reagan is going to get his deficit down, he is going to do it by one of two means: by his chosen preferred route of getting public expenditure down or by the [end p5] route which he does not want to take, because it is a route many previous governments have taken, putting up taxation, or a bit of each. Many governments tend to reduce their deficit by putting up taxation and to some extent, I have had to do that; if I could not get public expenditure down, I have thought it a better policy to cover most of my expenditure by taxation and reduce the amount of borrowing, than to go the other way.
Now, then it is going to release certain money; money which will be available for the rest of the world to borrow, either in the private sector or in the public sector. But I see no lack of demand for that money, really, with some of the enormous debt problems we have already.
Philip Revzin
You mentioned Bretton Woods. Do you think the time is ripe for more thinking about a reform of the world monetary system, either along the lines that President Mitterrand seems to be talking about of a tripartite approach with the dollar, the ECU [and the yen]?
Prime Minister
I read these things and I read all sorts of ideas tossed out. I have not read one that has really been thought out yet. Forgive me for saying so bluntly, but generalisations do not get you far, particularly when you go to Economic Summits. You just have to say: “Now, exactly what do you mean?”
If you were to have a tripartite approach, it would mean [end p6] that the ECU would have to have a fixed relationship with the dollar and with the Yen. Well, right now, I do not see a possibility of that happening, and so I think before you go to one of these proposed things.…you see, when people do not know what to do they propose to have a conference about it. It is not really very constructive; it is an admission of failure. And I really think that before you set up conferences—and do not forget that when we had the Bretton Woods Conference, we set up the world agencies of the World Bank and the IMF. We have got those now. We do not need any new international fora; they are there; they are working. And if there are any new ideas, those are the places to work them out.
What everyone wants is: right, let us have a fixed exchange rate, but we have got very different economies. You have got enormous increases in technology; you have got enormous variations in the use of commodities. Just look at what the improvements in technology have done to changes in the requirements of commodities!
Just take one single example. Look when you went from having masses of wire going all round enormous computers. Look what happened when your big computers went from big metallic computers with masses and miles and miles of wire to the small micro-circuitry. Look what it did on your demand for steel. Look what it did on your demand for copper.
Look what the incidence of new materials to replace the heavy steel, to replace some of the metals, has done to your demand for commodities. It has shifted demands into other [end p7] spheres.
Now, there is no way in which an exchange rate system can cancel out all of these things. An exchange rate system has to respond to the underlying changes, and if you are seeking a fixed exchange rate system, what are you going to do, ossify the changes and ossify progress? You cannot do that.
And even on a fixed exchange rate system you have to have provision for revaluation and devaluation and that got so fast and then, when you got variable inflation…and look at some of your Latin American countries—400%;, 500%; inflation—you cannot overcome that by an artificial fixed exchange rate system. It would crack within 24 hours.
And this is why I get a little bit impatient about this generalised jabberwocky. It will not do!
I think I made myself clear!
If you have got some good ideas we will look at them. I have not found them. The only one I know, and the one I regularly preach, is that when everyone runs their economies in a sound way, that is taking your savings and using them to invest and generate in the future, borrowing only the amount you can service out of income properly and repay.…and when you get developing countries being much more willing to take the savings of the developed world to invest in those countries and give a guarantee that those assets will not be taken over.…I remember being on my way to the Lusaka Commonwealth Conference in 1979—I had only been Prime Minister for two or three months. In came the news that Nigeria was going to nationalise BP. Well, if [end p8] those developed countries are going to solve some of their debt problems, frankly, it would be far easier to do it by taking some investment into their countries from the Western World, and they would have much more chance of developing more employment. But people are not going to put it in from the developed world if, all of a sudden, those industries and monies are going to be confiscated or taken over or replaced by paper that is not worth the amount the investment was worth.
So we do try to get an international investment protection code of practice. Of course, it is not proof against people taking you over.
Listen, all the interviews I have seen you do come out extraordinarily short and this looks already very long. Compress it! Make it grammatical!
Philip Revzin
May I just go back very briefly. Is this Summit Conference a forum in which anything useful can be done that would have the effect of maintaining or stimulating economic growth in the main economies? Or is it more for general discussion?
Prime Minister
This is the 7th Conference I have attended. I think they have done two things. I think they have enabled Heads of Government to stick to policies of what I would call genuine growth, that is to say, not growth founded on printed money, [end p9] which can only falter and undermine the value of the good money.
So they have kept us, I think, on sounder financial policies on the whole.
Now, certainly, the United States is taking a large proportion of the world's savings, but everyone in the United States knows the deficit has got to get down. I think they have kept us from having another “boom and bust” policy which, as you know, as I said, is a fraud on savings. And this one, I am sure, will do the same thing, because as you know, the communique always comes out: “We are committed to non-inflationary growth” because, of course, inflationary growth is not genuine growth.
And I think that protectionism would be worse than it is if we did not have these conferences, because we all know, the Western countries, in our heart of hearts, that the way to high employment and greater prosperity is to try open up the world's trading markets and not to close them down.
Now, naturally, in each of our countries, when one particular industry falters—for several reasons—in yours because of a very strong dollar, some of your export industries are faltering and some of your home industries are faltering because imports are cheap.… there is a fantastic demand for protectionism. I went through it here when you will recall when the pound at one stage would buy $2.50. I can tell you this: that is the time when your industries become really efficient. They have to. They become really efficient. They cut their costs to the bone; they look at their processes; they [end p10] cut their energy costs; they cut their overheads; they cut out those operations which are loss-making; they concentrate on the profit-making ones; and actually, your industries can come out of that kind of period stronger.
When you have a low currency, there is a great tendency for your industries to rely on that devaluation, which often turns out to be temporary, for its competitiveness, and not to rely on its own innate efficiency.
But you will get these demands for protectionism, and we all get them, and by talking and meeting together I think it helps us to reduce them from what they would otherwise be, because we all operate a certain amount of protectionism. The United States is not half bad at it! All your coastal shipping. Do you allow other people to do your coastal shipping? Not on your life! I want British Airways to come over to New York and then go over to Denver and over to San Francisco, can they pick up your passengers in New York and fly to Denver openly? No, you have a total internal monopoly of American airlines.
You have got a coastal shipping monopoly. Some of your tariffs on, say, woven cloth, are quite heavy and that affects us. And I am not blaming you, because we have some too. Heaven knows, the United States is always telling me about the protectionism of European agriculture and they are right. I am always trying to reform the CAP too!
We are all guilty too. We have a common external tariff, but you see, I have no restrictions on coastal shipping and people [end p11] are always saying to me: “why don't you reserve our coastal shipping for our ships?”—and we do not!
Robert Keatley
Do you think if there is not an agreement at the Summit for a new round of trade talks, that there will be increased protectionism in all of these countries?
Prime Minister
I think that is really what many of us think…that the various demands… and another aspect of it is that there is an international agreement…consensus agreement…on what credit terms we shall offer for orders overseas. That is broken every day. You will find the Japanese are always offering longer credit at lower interest rates among others, and that agreement is, I am afraid, honoured in the breach.
I think many of us feel that we have each of us got various protectionist pressures and some countries are very much against a GATT round because they want to stick to their bits of protectionism, some of which are tariff barriers, some of which are non-tariff barriers.…and if we do not get to the wider forum, then I think we shall get ad hoc protectionism, which could be very bad and therefore I would rather we got to a wider forum. We have a multi-fibre agreement operated through textiles. You have high tariffs; we have a multi-fibre quota agreement, so I am not blaming someone else for having something that we do not have. I am saying we have all got it. [end p12]
I would rather go into a big international conference and say: “Look! We have got this bit. We will lower our bit if you will lower yours!” because then we are all moving in the direction of lowering the barriers and trying to increase world trade.
Philip Revzin
It is important that they start right away…next year.
Prime Minister
I would like, myself, to fix a date. I saw from the interview in your newspaper that M. Mitterrand said he would not fix a date. That is why I thought all your interviews were short. That he would not fix a date until the agenda had been fixed, but you know, you always have a preparatory meeting. You set a preparatory meeting to fix an agenda, but you are much more likely to fix an agenda if you fix the date of the real meeting, otherwise your preparatory meeting becomes an occasion for delay and throwing spanners in the works, rather than positively creating. We sit down and make out an agenda you know.
Philip Revzin
But at present, you do not seem certain whether there will be a fixed date at the end.
[end p13]Prime Minister
No I do not. I would support a fixed date, but I am not quite sure whether we shall succeed in getting it. I will support it. I think that perhaps Canada will support it. I expect Japan would support it, because I think we have all got our protectionism. Some of the underdeveloped countries are not very keen to have it and some of the newly-industrialised countries which have it all ways up. Goodness me, they can all export to us, but some of them are not very keen on having it. Not Hong Kong. Hong Kong is of an open market; she is marvellous.
Miss House
As you know, President Reagan is in big trouble for going to Bitburg. Is there any thought by any of you other Western leaders trying to help him out by going with him?
Prime Minister
I do not think that would help Ronald Reaganhim out. I do not think there is anything one can say that can really he helpful. As you know, he is the kindest man, who wants reconciliation and world peace, as much as anyone of us until the maximum extent possible, and I think it is his fantastic desire for the future peace of the world and for reconciliation that has probably led to this.
I have known him for many years. He is one of the… he is a really good man in the things that he wants. He is one [end p14] of the nicest possible people and whatever the problems, it will only have been done from the nicest possible motives and the most constructive motives.
Philip Revzin
Would it not be a powerful aid if yourself and President Mitterrand and Prime Minister Craxi, for example, showed up as well at the ceremony?
Prime Minister
We also have very good motives as well, but our motives would have taken us to do different things and not that one. But that is the only difference. Our motives take us to do different things and not that one.
Robert Keatley
Do you think he is right to go ahead and do it now that he has said he would?
Prime Minister
I think it will be acutely difficult now, whatever happens, and I do not think there is anything more constructive I can say except to say that he is one of the nicest, kindest, really good people and his motives will be of the highest possible and, after all, no-one could be a better friend of Israel than President Reagan. When you see a person is in that trouble from the nicest kind of motives, I think then you should be very very sparse with any criticism.
[end p15]Miss House
You have said that you support, if I recall, that you support research. Do you believe that your country ought to be involved in research directly with the Americans or in some European context?
Prime Minister
Well, I would be quite happy ourselves to be directly involved with the Americans, because after all it is not unknown for us to do research with the United States; not unknown for quite a number of our people to be over there. After all, we did with the original atomic bomb, as you know.
I mean, some of the people from this country are over there working on your marvellous space programme. Do you know the name John Hodge? He was in charge of the Gemini programme. I think he is still on one of the programmes, whether it is a space shuttle or space station I do not know. He came from my constituency.
When I first went to NASA in the 1960s, I was introduced to this man in charge of the Gemini programme. Of course, I already knew that he had been there about 7 years at that time, a naturalised American. I know one or two of our people who were over there said to me: “Do you think we were wrong to come and work on this?” I said: “No. We could not have given you those exciting possibilities in Britain of working on that”, and I am only too happy that some of our people who have these tremendous talents should have the chance to work at these things.
So I am quite happy myself to do it correctly, because we have quite a long experience and because our research workers [end p16] know very much how the United States work, and so on, but we might do some collaboration with Europe, if that is what they want–not collaboration, coordination.
Miss House
You are not interested in President Mitterrand's idea of let us all get together with a special…and offer it to the US as opposed to the US pick-off?
Prime Minister
I do not think the United States is going to pick-off. As you know, some of our research is absolutely first-class. I have only got to reel off the number of things that were discovered, both the scientific principles and the inventive genius, in this country, and we ourselves could come to, I am sure, an arrangement which would be suited to the very considerable talent and genius of our own research people in what is an immensely exciting sphere. That research is going to be immensely exciting.
I do not like the idea of there being anything confrontational between Europe and the United States. We are part of the Western Alliance. Therefore coordination to me, means that we all coordinate together.
Philip Revzin
You are not worried that the United States will somehow get ahead? They will develop this technology and Europe.…
[end p17]Prime Minister
The United States …
Philip Revzin
…will once again fall behind.
Prime Minister
…is bound to get ahead in some of the technology, but we have various agencies in Europe, we always have our various research establishments and there is a European Space Agency. It is nothing like yours at the moment, but having those collaborative projects within Europe, yes, we already do that.
We have the JET thing here, which is thermonuclear fusion. You must also have a thermonuclear fusion plant in the United States. Russia has one. There are three of us working on it. That actually is very good, because you know, having the spur of competition is quite good for research people too.
Yes, you are bound to go ahead from that very space programme; from the work you are doing now, both on lasers, on electronic pulse beams, on anti-satellite capability, on computers. You have always been ahead on computers and we are always trying to catch up, but you know the vertical take-off aircraft was invented here; the jet engine was invented here; cloning was discovered here, put out in a research paper, because we have a rule that anything published in a research paper cannot be patented. We were not able to get the universal benefits for this country by patenting and that is an aspect I have got to look at.
We are not so good at turning them into profit as you are.
[end p18]Mrs. House
You do not seem to be nervous as I detected the French…
Prime Minister
We are behind in technology.…
Mrs. House
.…technological fall-out from SDI and if we do not get our own research act together we, as Europeans, are going to continue to fall further and further behind.
Prime Minister
We could not, in Europe, mount an operation in time of that size. We can accept President Reagan's invitation and also accept his very kind invitation, which he gave at the London Summit, when we had the space station model there and he invited us, if we wished, to take part in it; he had arranged a part of it which we could take part in. That was a very generous offer, and again gave our scientists an excitement. That is going through the European Space Agency, to which we all contribute, and we are all doing the feasibility studies at the moment to see whether we can go on to the next stage.
But yes, in some things you are ahead and we therefore have to go for certain specialities over here. Yes, I do think that Europe, together with its joint…when we get Spain and Portugal in…we will bigger in population…I am not quite sure then whether we shall be quite as big in gross national product…I suspect not, because some of our areas are still very poor. [end p19]
Yes, we must work up the potential. We must do it not only as Europe; we must do it as part of the Western Alliance. What I can never stand is people suggesting that it is America or Europe or, as you heard me say in my Congress speech, there are two super powers and they are both equal. We are part of the Western Alliance and the Atlantic Community, the United States, Canada, on the one side and Europe on the other…the Atlantic is such a small ocean compared with the Pacific. This is the centre of the Free World and really must work together.
So, yes, I will work separately with the United States or will work with Europe, but we are working together, not in a confrontational way.
Philip Revzin
May I ask a bit about the Eastern Alliance. You have met Mr. Gorbachev twice and you have said he is a man you could do business with. What causes you to say that and what do you mean by it? What kind of business?
Prime Minister
Point No. 1: You do not have to agree with a person to do business with them. Indeed, the very nature of contracts is often that you are doing business with people who have something to offer which you want and you have something to offer which they want, and therefore you have an interest in common.
Now, I am the most ardent advocate, alongside President [end p20] Reagan and other leaders of the Free World, on our way of life, and I yield to no-one in saying that it is the best way of life, both for the dignity of man and for the prosperity of man, and I do not like the system of communism, which I think gives neither dignity nor freedom. But if we have got something in common, it is in the interests of his people and for the people whom we represent that there should never be another conflict between our peoples and on that, I believe that is what he wants. I know that is what we want, because NATO is a defensive organisation. It is not an attacking one. And therefore I can do business with him.
Now that is setting out the pitch. When it comes to him as a person, yes, I did find it easy to talk with him. So often, when you talk to Soviets, you know, they have about three pages of closely typewritten script which they read out in a dull monotone, it is deadly dull and you have heard it all before, and you have seen it a hundred times before and your eyes glaze over and your mind sort of thinks about something else until it comes to your turn to speak, and when you go back you cannot get a discussion going. It is not like that with him. You start to talk about things and he talks about them, and you answer them and he answers you, so you get down to a discussion. Extremely well-informed, extremely articulate, very good at discussion, debate and argument. Now, I can do business with a person like that, because you can get down to the nitty gritty. You know, you do not sort of dance a diplomatic minuet and go out and say “We have had useful discussions”.
[end p21]Question
What kind of business do you want?
Prime Minister
I said you could do business with him if you could really start serious negotiations. I find it very difficult when they are negotiating in Geneva to be quite frank, if you get kind of negotiations with the columns of “Pravda” or in great speeches. If you have got proposals to make, the place to make them is the Geneva negotiating table.
Also, yes, I do think it helps if more of the younger generation of communist leaders come to the West. Look! They have never known any other system than communism. They have never seen it in operation. If you say to them: “Tell me, how does one of your factories know what to produce?” A simple question. They say: “We tell them! What and how much!” And then you say: “Why?” and they do not even understand why you ask the question, because they could not comprehend how a factory would know what to produce or how much if they were not told. Now that is the depth of the chasm between us and if you start to talk about the rule of law to them or citizens having rights against a government, to take a government to court, they would not understand, because to them, there are not any God-given human rights. There are only the laws that the government makes. So you see the depth. You sometimes use the same word but it does not mean the same things.
I felt, which is originally why I asked Mr. Gorbachev over here, that we ought to have far more visitors from the Soviet Union, really to comprehend what we mean when we talk about these [end p22] things and to see a different way of life and to see that if you do not tell factories what to produce and how much, they actually produce far more of what the people want and that it will sell.
As I say, the rule of law is another one. And also, to get across to them what is the single most difficult thing, I have always found with the Soviet Union: that the United States is not going to attack them or their satellites. And do you know how difficult it is to get that across. “You say Nato is a defensive organisation. You say you will not use nuclear weapons first. We are much more fundamental than that. We are not going to use any of our weapons except in response to an attack on us. Do you not realise what that means?” “We may disagree with you, but we are not going to attack you. You have nothing to fear from us. Step across our line and that is different!” But do you know how difficult it is to get this across? Practically impossible! And then George Bush says the same thing to him. But they do not fully believe us, and I think it is only when they come.…democracies are peace-loving by their very nature, because you know, in freedom you want to get on with your own lives and getting a better standard of living…but you have no idea how difficult it is to get that across to them, because it is part of their thesis that communism will extend to the whole world and therefore they are thinking all the time of extending their borders. You say to them: “Look! Let me put it to you a different way. The United States was once a collection of colonies. Do you really think they are going to start to try to conquer the whole world? Of course they are not!”
[end p23]Question
Did you find it necessary to repeat that conversation with Gorbachev or has he gone beyond that?
Prime Minister
I repeat it the whole time, because I am always told “We are in danger from the United States.” Yes, yes.
Question
He has now a greater understanding.…
Prime Minister
He is, you know, the first person to be the leader of the Soviet Union who has got a university degree and so has Raisa Gorbachevhis lady wife, so you are going into a person who I believe would look at things, when he encounters a new depth, a new level, of experience, but just remember this: whoever gets to the top of the Soviet Union, Soviet communism—not Chinese communism, they give much more latitude—Soviet communism is the most rigid political system I have ever encountered, absolutely rigid. Everyone who is at the top has got there by virtue of that rigid system. Everyone who has got to the top reckons they will survive by virtue of that system, and if you look at his Acceptance Speech, which I looked at, it was very very interesting. It indicates to me the fundamental dilemma of communism and it is their dilemma and they have got themselves into it; it is this: communism is not working to produce the goods the people need; it is not working. Therefore, you must have some initiatives, but the initiatives must not lead to any [end p24] deviation from communism; they must only be the sort that makes communism work efficiently. Do you see the dilemma? Communism is not working, therefore we must do something different, but it must not deviate from that same thing, and this is their dilemma. They know, some of them, and some of their academics know, because some of their academics talk to all our academics, that the way to make an economic system work is actually to deviate from communism. In the satellites, insofar as they have got better conditions, as for Hungary, it is because they have deviated a little bit—not that far—deviated a little bit from communism. Now this is their dilemma. They know that they have to depart from rigid communism if they are going to get the prosperity—but what happens once you start the departure? Can you stop it? I mean, that is the fundamental dilemma.
Question
In your view, does he have the self-confidence and the knowledge and the standing in his country to make those deviations?
Prime Minister
I think that in the early years—and I think this is what we are seeing now—we shall see absolutely the straight up and down communist doctrine, both internally and externally. Whether it will change later or not, I do not know, but I think for the early years that is what you will see. Absolutely straight up and down standard communist doctrine, internally and externally.
[end p25]Question
You may just have answered my next question but in the broad sense, what did you feel that he wants and what kind of relationship does he seek with the West?
Prime Minister
I believe—and I also believed with Chernenko with whom I had a similar conversation—this generation in the Soviet Union including Mr. Gorbachev, because he was a child and a I talked to him about it, still does remember the terrible privations which the Soviet Union suffered in war-time, and they will still talk to you today about the siege of Leningrad with tears streaming down their cheeks. They still remember it.
Now, believe you me, the practical memory of a war is the greatest deterrent to ever getting involved in another one, and this is why I felt with Chernenko…I did not actually meet Mr. Andropov…I think actually it was a much more significant step for the Soviet Union to have chosen Mr. Andropov than most people realised, but it did not work out because of health…but this is why I feel that there is a chance of getting through at Geneva, because we still have that generation there and in spite of all the propaganda, I believe that they want an agreement which will reduce nuclear weapons through the reduction of weapons, and a balance, because you do need a balance if you are both to be sure.
We want to be sure of our defence. They, although we do not like their system, they want to be sure of their defence, and if we want to be sure of ours, we have got to acknowledge that they must be sure of their defence, so you have got to have some [end p26] kind of balance between us and I believe that on the basis of mutual respect you can get through and I believe they want to get through, and therefore, we do have to be very patient and we do have to act as quite shock absorbers, you know. It is really just like being in the House of Commons when you have all sorts of allegations flung at you, none of which are true, but you have just got to act as a shock absorber and let it wash it off, because of the much more important things you want to do. So we have to take a little bit of propaganda that we are really simply really terrible people and this, that and the other. We have to take it. The important thing is we get through.
I do think that he wants that, because he is passionately interested in agriculture. He does know that Russia is not producing the food she should and if there is going to be any sort of modification, I believe that that is where it would come.
Question
Not for several years?
Prime Minister
Well, very gradually.
Question
Can I turn you just briefly back home. In the almost exactly six years now that you have been in this building, do you think that you have been able to change the course of Britain or have you just arrested a decline into socialism that you were talking about when you first took office?
[end p27]Prime Minister
Well I think we have changed the course of Britain quite a lot. We have taken government out of a lot of things that it should not have been in. Not quite so many people think that they have a divine right to have a government subsidy however badly they do. You see, we were getting to the stage before when if a company got into difficulty, it simply went to the government and said: “You cannot let us go. We must have a subsidy!” And of course, if you cease to make people responsible for their own actions you will soon cease to have a responsible society.
Question
Does that move the country forward or has it just stopped it getting worse?
Prime Minister
We now have efficient industries that we would never have had otherwise. Yes, we have unemployment that is far too high, partly because the disguised unemployment in the form of over-manning and restrictive practices in bygone days was enormous, and that now, I am afraid, is on the unemployment register; partly because of the advance of new technology which still continues and now gets into the office as well as on to the shop floor. It is causing us to be able to produce far more goods with far fewer people, because productivity is getting higher and this is why what we have not yet got back…we have done the denationalisation, the de-regulation, the lower taxation…do not forget when I came in we had not got a good manager willing to stay here…we were in danger of losing them…because when I [end p28] came in the top tax on savings was 98%;, top tax on earnings was 83%;. All right, I took it down to 60%; and have been blamed for it. And we have done a lot of de-regulation and we have in fact given ordinary members of trade unions far more rights against their own trade union, which they deserve.
Now, obviously, it is absolutely vital that this should continue, and we have been running sound financial policies. It is absolutely vital that it should continue. I believe it will. I believe we have a good chance of getting in again next time.
Question
Are there special factors, such as class distinctions or call it what you will, that prevent Britain from emulating the United States as you so often say?
Prime Minister
Well, you Americans always come across and talk about class distinction. The only people I ever hear talk about it here are the extreme Left who want to perpetuate it. But for that, you do not really hear it talked about.
Question
That is not a hindrance to creating small businesses?
Prime Minister
Oh no, oh no. I mean, look! The characteristic of British society has always been the ease with which you can move, just like yours, from the bottom to the top by virtue of your own [end p29] effort.
Question
Yet people do not really seem to be interested in doing it.
Prime Minister
Well, quite a number of them do, but the statistics show that we do not have the rate of formation of small businesses on the part of little people that you do. We are getting more. We have got more self-employed now than we have ever had. We have got 100,000 new businesses formed during our time and survived, but it is nothing like as fast as yours.
At first, we thought that the thing to do was to have a Small Business Bureau like yours, so we give enormous help to small businesses and will continue to give them help. But I gather that your Small Business Bureau has helped very very few of your small businesses and it certainly is not that. Whether it is that the whole basis, the whole foundation, the whole structure of the United States was that you went there to have freedom to do your own thing in your own way and therefore you expected to exert your initiative and all you wanted was a framework which would enable you and give you the opportunity to do that, whereas I am afraid that in the countries that have had socialism they tend to think that either the country or someone else owes them a living and it is getting rid of that.
[end p30]Question
Is the dole still too comfortable?
Prime Minister
Well, the United States would say that because some of us in Europe have a system which enables some people who are living without a job to live almost as well as some people who are working, that that is something which stops people from going for the lower-paid jobs, and there are certainly quite a lot of people who say: “I am not going for that job. I can live as well without it.” The United States would say that is a rigidity in our society, which we choose to have, and we choose to have that rather than getting more jobs.
I sometimes look at the view which our trade unions take and think, well, that may be so, because you have seen Mr. Willis, in the last few days, said they are not going to work for lower wages. But you see, in the United States between '74 and '84, on average, real wages went down in the United States, unemployment went up enormously. Real wages went down by about 10%; and unemployment went up by about 21%;. In Britain, real wages went up by about 4%; or 5%;; employment went down by about 19%;. You have got the figures from the question we did. So it actually works. There are a lot of jobs in Britain that are still—born because the wages that they could bear are not such that people will go and get those jobs. Now, we are trying to change it for young people, because people will not take on young people. If they have got to pay them 60%; of the adult wage they cannot afford to. So we are changing that with the Youth Training Scheme and that is working. And we also have a social [end p31] benefit system which, if wages are low, actually tops them up, so that you would get a basic reasonable standard of living, but then, there are some people I think whom that “why work?” syndrome does affect, and again you would call it a structural rigidity, which it is. But I do not think that we could rapidly change it. What we are trying to do is raise the tax thresholds, so the lower-paid man pays less tax and also to ensure that the social security contributions he has to make are much lower. We are trying to widen that gap.
Question
Do you think that Europe is on the decline and that when history looks back at this period it is going to see America and Japan moving further and further away from Europe? Not away politically but away technologically. Or is Europe going to be able to maintain.…
Prime Minister
The question is whether Europe can revive her traditional inventiveness and genius, because I think various countries in Europe, having played with Socialism, have concentrated on trying to keep people in yesterday's jobs and yesterday's industries, and that concentration we are paying for now and paying for dearly, and it still tends to be operative. But, if you are to get in tomorrow's goods and industries—and let me say this for Japan and also I think for many firms in the United States: it is the duty and responsibility of management to engage in product [end p32] development through their research and development, and if you do not, you will find sometimes that a very very loyal work-force efficiently producing goods that cannot be sold.
Now, in Japan, your management would say: “Good Lord! We have got to come out of shipbuilding, it has gone to Korea, it has gone to Taiwan; we cannot compete! Now what if we get out of ship-building? We make a plan to get out of ship-building? What are we going to make to employ our work-force?” and they would start the search for new products and you would have that loyalty to their work-force as well. I do not think sufficient management regards it as its duty to do product development here. I think perhaps more in the United States. Or, alternatively, you have got so many people doing it. I am told the Massachussetts Institute of Technology sets up three businesses a week, people from the academics and business there. You have got this thrusting, thriving thing, so that as businesses go out, more are coming, more are coming on the same time. We have not got either thing to a sufficient extent in Europe. Our good employers our good, efficient industries do a fantastic amount of research and development and our job is to bring more up to the level of the best.
Question
Will that happen? Are you confident…
Prime Minister
It is happening slowly, but of course, they had such a big [end p33] job to do in getting rid of the obsolescent parts of their business, which was necessary first to get rid of your loss-making, to give you the profits to enable you to do the development. It is happening slowly. I want it to happen more quickly.
But, I mean, not all your firms are perfect either!
So we are judging ourselves by your best, not all yours are perfect.
Question
Will history look back at this as a time in which Europe did recapture its inventiveness and move forward?
Prime Minister
I think the first thing you have to do is be aware of what is wrong and set about putting it right. We certainly are here and I believe that quite a lot of countries follow what they are pleased to call “Thatcherism” now. The most difficult thing to get rid of is the ingrained attitudes. Now, there is quite an attitude in parts of our country that work, for a man who has been used to heavy engineering consists in working in a heavy engineering plant and it is quite difficult to get them to go to much ligher things, although once you persuade them they are fine; they like it very much better. But there is a feeling that they want big, heavy conveyor-belt industry, and the future now is not so much in that. As you know, the future is in the smaller industries and one of the thing that the new technology has brought us, all the micro-circuitry, is that it does not cost you anything like as much to start up in a small way, because you have [end p34] not got this massive capital for big clanking conveyor-belt industry. You start in a smaller way. There are smaller electrical things to develop and look, incidentally, what that does to your commodity market and steel market. But it should be easier, certainly for your academic people, to start up now, because you have not got to bring massive great chunks of capital and re-tooling and everything.
You have done two things simultaneously in the United States. You have gone in big to all the new technology, the latest high-tech, really big, in your small businesses and in your big businesses, but you have gone in for the new science-based industries, but big. But you also, at the same time, as they have been flourishing, so your ordinary service industries have developed, and therefore you have had a market for the semi-skilled but very enterprising, vigorous businessman to start up in all the service industries. So you have got both the jobs for the real high-tech and the jobs for the semi-skilled service industries and, of course, like yourselves, you have got the jobs for the arts graduates, the cultured service industries. You have got all three going simultaneously.
Question
Can you do that without the reform of the internal market that you are so strongly…
Prime Minister
On services I feel deeply and strongly that we are extremely good on services. Because we are good on [end p35] services, can we get our European partners to get a free market in services? No, they fear us! Nevertheless, because they are good on car-making, they expect to sell cars to us freely.
And Germany, who espouses to be a real free market economy, is real protectionist in services. I say, we have all got skeletons in the cupboard, in the wood-shed at the bottom of the garden, when it comes to.…
Question
Do you think that is going to get worse or better?
Prime Minister
We are going to bombard them until it gets better. We can buy a car anywhere over Europe. You cannot buy an insurance policy anywhere over Europe.
Question
They are going to hear about that in Brussels?
Prime Minister
Oh, they have been hearing about it and I might tell you they are very protectionist in terms of agriculture and Germany who wants, in spite of surpluses, to put up the price of agricultural products.
[end p36]Question
This is switching subjects and I know we are running out of time. Can I ask you on defence, which has been one of Mr. Wilkins (phon.) Reagan's key…
Prime Minister
Yes and quite rightly so. He has restored the whole confidence of the United States and the confidence of the rest of the world in the United States.
Question
Britain has been very good on keeping up the NATO defence spending, but now you are going to have a zero…
Prime Minister
Zero or 1%;. We cannot go on adding to that defence budget. It has been the fastest-growing budget. We had to put more into defence, for the same reason as you did, and more into law and order, for the same reason as you did, and when you have those two enormous increases in your budget, in cutting your public expenditure—and you came across the same thing—has to fall and there are certain parts of your social security budget you cannot touch, because they are pledged. Then your cut in expenditure falls very heavily on a few Departments and that is the problem that you are having. But we have given tremendous priority to defence; again because we had to. Well, because it was policy to do so, and we felt we had to. But we cannot go on giving that extra priority to defence.
[end p37]Question
So what do you say to General Bernard RogersBernie Rogers?
Prime Minister
Just that. I have got really to try to get our private sector going very very hard indeed. Otherwise we do not generate the wealth which in the end will create the wealth to do more for defence and more for other things.
Question
Does this reduce your ability to honour your NATO commitments?
Prime Minister
No, it does not reduce our ability. We shall honour our NATO commitments but we cannot go ahead with an increase of 3%; in volume terms. You see, an increase in 3%; in volume terms often turns out to be more than an increase of 3%; in real terms.
Question
…a cut back in conventional forces because in increasing years—three or four years hence—more of your defence budget will be…
Prime Minister
The Trident is the cheapest way to buy extra deterrence that there is…
[end p38]Question
But&.hellip;conventional arms…
Prime Minister
No, but that money buys me far more deterrence on nuclear because it gives us an independent nuclear deterrent, than spending that same amount of money on aircraft and tanks. I mean, that would not give me any more deterrence. The Soviet Union would still have an immense superiority in conventional and the extra conventional would not give me the deterrence of being able to inflict upon her unacceptable damage if she dare come for us. We do not have mutually assured destruction. We never have. Ours is unacceptable damage and a few nuclear weapons getting through would be unacceptable damage to anyone. Anyone who started a war, even if there were no nuclear weapons, do not forget, even if there were no more nuclear weapons in the world, if a war ever got started, the race would be on to get the latest nuclear weapons first and we would be just exactly in the same position as we were in the last war, and it was a race who got the nuclear weapon first. So do not think you can ever act as if nuclear weapons had not been invented. You cannot.
Question
Even with the development of SDI?
Prime Minister
No, some would always get through. Every single weapon you have had in history you try to develop a defence against, and that makes sense. You have an aeroplane carrying a bomb, so you [end p39] have anti-aircraft guns; you have radar; you have missiles and then the aircraft develops possibilities which throw off some of them, but some of the missiles get through and some of the aircraft get through. Less aircraft get through and therefore perhaps less devastation than otherwise, but you never have a 100%; [sic] system. It would be a great comfort to many people to know that the weapons would be…
Question
Would you as Prime Minister, would you be willing to use your nuclear forces?
Prime Minister
There is no deterrent unless someone is prepared to push the button. If you are even asking that question, what you are querying is whether your nuclear weapons are a deterrent, because do you think they are a deterrent if you go and persuade your politicians that they would never push the button? It is not a deterrent at all. It is only a deterrent because the Soviet Union believes that yes, if we were attacked, we may push the button, and as there are three of us, the likelihood of someone pushing it is greater than if there were only one. Your nuclear weapons are not a deterrent if you ever get the feeling about them no-one would push the button. All that you are doing then is increasing the possibility that tyrants would attack with impunity. End of sermon!