Speech to the Welsh CBI
|Document type:||public statement|
|Venue:||Mold, Clwyd, North Wales|
|Source:||Thatcher Archive: transcript|
|Editorial comments:||Evening. Exact time and place uncertain.|
|Themes:||Industry, Employment, Economy (general discussions), Monetary policy, Pay, Trade, Strikes and other union action, Higher and further education, Taxation, Trade union law reform, Privatised and state industries, European Union Single Market, Foreign policy (general discussions), Foreign policy (Central and Eastern Europe), Foreign policy (USSR and successor states), Foreign policy (Middle East)|
Firstly I thank you, Mr. Chairman, for asking me to be here on this, your 25th anniversary. It's a great privilege, and it's wonderful to cut that cake with a sword, especially at this time! When I arrived, I was thinking of the last time I had been here, to the CBI. It was in Cardiff, it was in 1980, and I was thinking—just the same as you were, Mr. Chairman, it was rather a long time ago. However your Director Mr. Kelsall immediately came to my rescue and said, "Well I've been Director for twenty-five years so you've got quite a long time to go yet." I thought that was really a very good way to start the evening.
There aren't really many dinners that I go to where they've described an evening with [ John Major] the Chancellor of the Exchequer as "entertaining"! Well, I'm sure he was serious; I'm sure he was also entertaining. Thank you too for the very warm things you said about our [ David Hunt] Secretary of State. I think we've had three supreme Secretaries of State for Wales during my time, and this one's every bit as good as the other two and just the man for the future. David , you know; that is a good thing because the essence is "thinking of the future". Now, as I pointed out a moment ago, the last time I spoke to the CBI was December 1980, nearly a decade ago, and so I welcome this further opportunity to consider all that has happened in Wales over those ten years, and in doing so to put current events into perspective.
Since I last spoke to you—I just want to show how things have changed—since I last spoke to you, output in the United Kingdom has gone up by 30 per cent, exports have risen by over 50 per cent, and we have enjoyed one of the best periods of sustained growth this century.
Nowhere has the improvement in our economic fortunes been more evident or more remarkable than here in Wales. Since 1980 the Welsh people have seen more rapid, more fundamental change than in any decade since the industrial revolution.
At the end of the seventies, one in twelve people here still worked in coal or in steel. Livelihoods of whole communities depended, as they had for generations, on those industries. Yet the local newspapers were filled with stories of closures and threatened redundancies.
No wonder the workforce, knowing—sensing—that change had to come, looked ahead with fear, and not with hope. No wonder the question on everyone's lips was ‘Where will the new jobs come from?’ I used to be asked that question frequently. It was not always easy to answer, but I knew from the experience, if what technology had brought over the years to Britain that technology would bring the new industries of the future, provided we could revive the spirit of enterprise. That was the key to it.
Now we have the answer as to where the new jobs came from. Not in the old industries of the past, but in the new industries of tomorrow. If you look at the spectacular transformation in Wales you will see:
—New products from world leaders like Dow Corning, the leading manufacturers of silicon-based chemical products; and[fo 1] the new bio-sensors at Abbey Bio.
—New technologies like optronics at Pilkingtons—maybe I should have said that first, Mr. Chairman!—like spray-forming techniques at Osprey Metals and biotechnology at Polyclonal Antibodies.
—New financial service industries, including major headquarters of insurance companies, banks and other financial institutions, many of whom are here tonight—in fact they now employ as many as coal did thirty years ago.
So the result of all this—and there must be many companies that I have not mentioned (I knew I'd be in trouble if I mentioned some, but those are particularly the ones with the new products)—the result is a different, more diverse, more dynamic economy. There has been massive new investment in Wales. 750 new manufacturing plants have opened in the last ten years, employing nearly 50,000 people—one in five of all manufacturing jobs in the Principality.
Wales is now recognised as one of the best places, not just in Europe but in the world, in which to invest. Today there are double the number of overseas companies operating in Wales than there were in 1978.
And in the last five years alone, some three hundred inward investment projects have come to Wales. Local telephone directories now read like a ‘Who's Who’ of internationally world famous companies with names like Bosch, Ford, Matsushita, Sony, and Toyota and many others. All this in the last eleven years; some of it in the last five.
We also find that manufacturing productivity has shown very strong growth in recent years. In fact the manufacturing output per head in Wales is the highest in the United Kingdom. That is a fantastic record. I think it owes a great deal to two things: one, the Government getting the right background legislation, and two, the people taking advantage of it, and you have both here, in Wales. And yet despite this massive growth, despite this enormous diversification in the Welsh and the United Kingdom economies over the last decade, quite suddenly voices of gloom are to be heard in some parts of the land.
Newspapers talk of world recession; a return to stagflation; and an end to the United Kingdom economic miracle. Every new figure, including the latest CBI Survey, is given the most pessimistic interpretation—as heralding the onset of a major economic downturn.
We must ask ourselves why, after years of sustained progress, of the right philosophy, of the right policies, is this self-doubt assailing some of the business community—or perhaps more accurately, the Press? Why should people think that we have somehow lost the recipe for economic success; or that we have forgotten the hard-won lessons of the past decade; that all the investment and radical restructuring count for nothing?
There is no doubt that we are entering a more difficult phase.[fo 2]
Certainly there are more people in jobs; and they are earning higher pay than ever before. But many are spending not only what they are paid, but also as much as they can borrow. So demand has been growing too fast. And the supply of money, instead of going into increased output, has been going into increased prices.
Productivity is no longer rising fast enough to cover the cost of the higher wages. As a result, our unit labour costs are rising much faster than those of our competitors. So our ability to compete is being damaged.
Consequently, we must now expect a period of slower growth in order to get on top of inflation.
But the comparisons which some commentators are drawing with 1981 are utterly false. Let us keep the present position in perspective. Business, indeed the whole spirit of enterprise in the economy, is in a much healthier state than it was a decade ago. That's why I started as I did, by giving you some of the facts. While some of our companies are reporting poorer results, others are going from strength to strength. Glaxo, Kingfisher and Sainsburys have all reported record sales and record profits in recent months. And Allied Steel and Wire, which I visited earlier in the year, a splendid company here in Wales, recently reported a further rise in its pre-tax profits for the first half of this year.
What we are finding, Mr. Chairman—and it is an uncomfortable lesson for us all—is that inflation once rekindled is difficult to put out. The task is now being made even more difficult by events in the Gulf and their effects on the price of oil. But, even before that, the underlying level of inflation was too high. And it must be brought down.
The defeat of inflation requires high interest rates to make borrowing more costly and savings more attractive. I know those interest rates are a burden for many businesses and for many people. But we cannot reduce them until their job is done. Britain has tried soft options before and they only landed us in greater difficulty.
For heavy borrowers, high interest rates do add to costs. But not by nearly as much as increased wages. A one per cent increase in earnings adds nearly three times as much to costs as an extra one per cent on interest rates. And over the last three years, earnings have gone up by over 9 per cent per annum at a time when inflation was very much lower.
We are beginning to see more evidence from the CBI Surveys as well as from the monetary indicators, that inflationary pressures are beginning to abate, although it will take time to show up in the headline inflation rate itself.
But business can help to bring forward the reduction in inflation—and so avoid high and unnecessary unemployment. For the speed at which inflation comes down will depend crucially on wage settlements from now on.[fo 3]
Wage inflation can't always be passed on to the customer. It must be absorbed as far as possible by increased efficiency. As one of the companies I visited in Switzerland pointed out last week, and I quote:
"No product and no process is ever perfect. Optimisation between input and output is a never-ending task. The potential for increasing efficiency is a long way from being exhausted";
And that, I might say, was from one of the most efficient companies in the world, that also has three subsidiary companies in this country.
So wage settlements need to be lower. It is quite wrong for settlements simply to follow the latest Retail Price Index. That is no indication of what a business can afford. And may I add there is no point in urging lower wage settlements on others unless management is prepared to follow its own advice. Leadership comes from the top.
For our part, as Government, we will be helping with the right financial policies. Right to get inflation down. Right to sustain progress. Right to keep our economy going forward for the longer term.
For there can be no doubt about the underlying strength, the greater flexibility and the impressive resilience of business and the economy today.
Let me give you a few examples, so much stronger than eleven years ago. A few examples of the new flexibility, the new strength, the new resilience:
—Of the top 50 companies in a recent survey of Europe, no fewer than 28 are British. Come on—I want a round of applause here! That's due to you, as well as to me! More to you—we only provided the opportunities; you took them, and we are eternally grateful. Well, it's good that no-one's got more in Europe than we have.
—And second, after years of decline, not only are exports of British cars rising but we are at long last winning back more of our domestic market. Thank goodness—that means we are getting a lot of import substitution.
—And the third thing. There were fewer strikes last year than in any year since before the War. Got it? Yes! I think they should ask that question on "Any Questions?": Under which government do you think there were fewer strikes in the post-War period, and see how many would get it right!
—And fourth, our exports have been growing at an annual rate of nearly 5%; p.a. for ten years. That's very good.
—And fifth, I want to mention particularly our universities and polytechnics—and they are excellent—are working more closely with industry than ever before. Record numbers of young people are being taken into both sectors this year and that augurs well for the future. When I am overseas asking for more[fo 4] inward investment I do notice people saying, your universities and your science and your polytechnics are good. This is all investing in the future, and so it augurs as well for the future as the last eleven years.
So let us keep the problems in perspective. We like the rest of Europe are encountering short-term difficulties. They can be overcome provided we stick to the principles and policies that have made the economy sounder and stronger over the last decade.
Freedom for business to manage its own affairs—and good management and leadership are the key to so much of our success in industry.
Freedom from prohibitive rates of corporation tax on profits. We now have one of the lowest rates in Europe. Now when you make the profits you keep a bigger proportion. There are some—not very many, but there are some—who still deride profits. To do so is utterly absurd. Profits tell you that your goods are right for the market and that your company is competitive. They are the main source of funds for innovation and investment. Security lies not in the past but in making profits today in order to develop and finance the products of tomorrow.
And the next part of the recipe: freedom from prohibitive rates of personal tax. Do you remember when we first came in, the top rate of tax on earnings was 83 per cent? The top rate of tax on savings was 98 per cent. Now the top rate of tax on gross is 40 per cent. Freedom from prohibitive rates of personal tax. For industry is a living structure of individuals with their own hopes and ambitions. They too need incentives.
The next thing: freedom to develop good human relations throughout the company. We have reformed trade union law to secure a true balance between the interests of the employer and the employee. So many of you used to tell me before, you couldn't resist a strike—the whole of the law was tipped in favour of the employee and the trade unions against the employer. You've got now a true balance, and that's one reason why we have far fewer strikes than ever before, and better industrial relations. Management should ensure that everyone has a good understanding of what keeps the company in business and its employees in good jobs.
And for that, good training really counts. In a seminar on training we had at No.10, it was noticeable that the better the training the higher the productivity of the company. Training also means higher wages and the multi-skilling needed for future jobs.
As I go around the country, I notice that an increasing number of successful companies have the same status for all employees. All have salaries. All are paid by cheque. All enjoy the same sickness and retirement schemes. Many are owners through shareholdings in the company. Each one takes responsibility. Each one matters. It is pulling together in this way that builds a successful and happy company.
And the final part of the recipe is the freedom to compete on a[fo 5] fair basis.
We have privatised and turned round a whole sector of the economy. State-owned industries that used to require substantial subsidies and guarantees to keep them going, now compete and they make a profit. They don't compete with taxpayers' money for subsidies for themselves, competing with health and education for that money. They make a profit and therefore they contribute to health and education and pensions and other parts of the economy.
Now, we've sought to maintain an open, competitive environment. That is why the Japanese, American and European firms investing in Wales know they will get just as high productivity here in Wales as they get at home in their own country, and they will make a good return. That is how to encourage investment for the future.
But some other countries still protect their markets against competition from our firms by methods that are often subtle and difficult to overcome.
Nearly 30 per cent of the so-called private industry in some of our European competitors is in fact part-owned by the State and thus in receipt of guarantees or subsidies that make competition unfair. Unfair. We are pursuing this matter vigorously in Brussels.
We cannot have a single market if we have unfair competition from some of those countries. A single market must be based on fair competition. We cannot let hidden subsidies allow them to come along to buy up our companies over here. That is why such attempts are now more likely to be referred to our Monopolies Commission, to weed out those companies, partly State owned, majority State owned, coming to make bids for our companies which are privatised over here. We thought that was wrong, and unfair, and so we are referring far more of those bids to the Monopolies Commission. But we also want fair rules so that we can challenge them over there. It's not right they should be able to come over here to buy up our companies and we can't go over there and buy up theirs on a similar basis.
Indeed I would go further and say that we will only have a truly fair single market in the European Community when their markets are as open and free as ours. Then we shall be the equal of the best. And sometimes better than that best. After all, remember, we had 28 of these top 50 European companies. The Germans managed just two. And the French eight.
If we stick to those principles and policies, then the United Kingdom and Welsh economies can face the future with confidence.
It is the spirit of enterprise and the will to succeed which builds a sound and forward-looking economy. You have both in abundance. And when we get over these problems and when we get fair competition we shall go ahead, and no-one will be able to beat us.
Now that's the end of the Press release![fo 6]
May I just say a few extra words, that I would like to say. On your behalf, I go around the world: to the Soviet Union, to East Europe, to the United States, and we have problems in the Gulf. Now I'll just refer to those briefly. I want to make this point.
We wouldn't be able to go around the world, in the Government I lead, as we do now, commanding the respect and being listened to as we are now, unless we had got that transformation of the economy to which I have referred.
You can't go and say some of the things to other countries that I say unless you're prepared to be very candid, outspoken, and to get things right at home. And you can't do it unless the policies have a response, and people go and say to me, you have in fact transformed things in Britain in a way that has enabled many other countries to do the same and follow in our path. That is very good, but it could not have been done without you, and we will not continue to be listened to unless we follow those principles unswervingly, unrelentingly, because they are the ones that have given you success. So that's why I have spent so much time on the economy.
Now just let me tell you about some of the visits that I've just come back from: Eastern Europe and the Soviet Union. They have a much much bigger task to turn round their countries than we had. Very very big indeed.
Let me put it this way. The only freedom they have every known in the Soviet Union this century and East Europe in the post-war period is freedom from responsibility. You cannot build a prosperous or successful society on that basis. Everything has been centrally controlled and they have had instructions. There are no statistics. They don't know their inputs. They don't know their outputs. Why should they? Everything was done from a great big brown building in Moscow, which told them as producers what to produce, how much raw materials to buy, how much of what goods to make, how many people to employ, what to pay them and where to deliver the goods. They don't think in terms of customers; they just think in terms of being told what to produce. And if it goes on the shelves because no-one wants it, that's where they get their kind of inflation.
There has been no company law, there are no structural accounts, there is no rule of law, there was only the diktat of government. There was nowhere where an ordinary person could complain of his treatment. Where do you go? The local Communist Party who runs everything? And says, well you … . The K.G.B.? They do not know what a rule of law is. So the turn-round referred is enormous. I remember in my younger political days reading quite a lot of George Bernard Shaw, which might surprise you. Our freedom incurs responsibility. That's why many men ... So that they know that they have to go to a market economy because they want the prosperity. But you know for years their only way of hitting out at Communism—which they hated: Communism is only for the rulers; it's awful for the people. You want what I stand for, for the people, because that is magnificent prosperity. But their only way of hitting out is not to work very hard. They[fo 7] usually have a joke: they pretent to pay us and we pretend to work.
Now just you imagine a man turning round and being told now, you've got to stop them on your own factory; they have no experience in management. They have no complications(?) of law; there is no such thing here as private property.
Now in East Germany, which is being unified—it won't [sic] be on October 3rd—I might put it this way: they are lucky. They plunged straight in: an accountancy system, a banking system, the law—a companies' law—and a whole lot of European legislation.
The others—in Hungary and Czechoslovakia and Poland—don't. They're having to begin to fashion their law, and it's not going to be easy for countries to go in until they know precisely where they are. And the most important thing is to get the powers distributed out from the centre to some of the separate republics so that they in fact can take some of the economic decisions for themselves.
But it will take quite a time to turn around. Remember that in the Soviet Union there has been more freedom urged upon them from the top. Most revolutions come up from the bottom. In Poland it came up from the bottom and they are being very courageous and very very tough on the economy. They reckon it is better to face the hardships right at the beginning so that they can then get it straight quickly. Czechoslovakia is a beautiful city—Prague, may I say—absolutely lovely city. We in this country will always have a special affinity for Prague because we feel the Munich settlement deeply. It is an absolutely lovely city, but it has been now for some time part of the Soviet Union, and what the Soviet Union has done is to put a whole lot of their armaments industry into the Slovakia part of Czechoslovakia. They have not got to diversify the economy at all, and all of a sudden their orders have gone. They are searching for help as to how to tackle this new problem which faces them, and very anxiously too.
Czechoslovakia again—the revolution, the demand, came up from the bottom. Hungary it came up first in 1956 and was snuffed out. And then, for years the Communist government there was trying to get a bit less Communist each time. And so you have about 15 per cent of their economy in private hands; and they just have some understanding and knowledge of how to deal with these matters. And they have a government which is really tackling this whole-heartedly.
But the problems are enormous. But the prizes—and we must help as much as we can by showing them the know-how, and we are—the prizes are terrific. Just think, if we can get democracy: the United States across the Atlantic, all the way across Europe, across East Europe, right the way across the Soviet Union, it will be the biggest prize, the biggest opportunity we have, and this century will have been a remarkable century; the century which will have seen the birth of Communism and the death of Communism within the same century. We really have a fantastic opportunity in the last decade of this century.[fo 8]
I have taken too long. Just one thing about the Gulf. We ought by this time to have learned clearly—and I believe we have, and it's a question of keeping us to it—we must never let an aggressor gain from his aggression. He won't stop. He'll go on and on. And in any case to invade one country by force, to treat its people abominably, take hostages, every single day that lasts, it is a new aggression, a new force, a new invasion of the lives of those people.
And I look back at some of [ Winston Churchill] Winston's sayings—I have just found one, 1928, he was always a remarkable person, and he said, "If you let aggression stand, there is no end to the humiliations you will have to endure."
The United Nations has been resolute in condemning it and saying that the Iraqis must withdraw and a legitimate government be restored. The United States, ourselves, and other countries are in fact implementing what the united resolutions say—they are the words, we in fact went straight in there to see. And all right, he got that far first—he's not going to get any further. And then he got the sanctions imposed. And the tighter those sanctions are the more likely they are to work.
Now I do just want to say this to you. You will find a lot of propaganda saying, "Look, we want more food in for this that or the other group." The moment you weaken sanctions the less likely they are to work, and the fundamental point is this: if more food or other things are wanted, the answer is this—get out of Kuwait and food flows and everything else starts again.
One final thing. I sound like an opera singer. Final call. We were able to go to the Gulf quickly because we have always been resolute in the end. We knew that even if it looked that one danger was diminishing we weren't going to know where the next one would come from, and unless we have all the defence equipment, by the time the next problem came it would be too late to get it if you hadn't … .
To add to our reputation, the staunch and true allies are these: the fundamental and strongest bastions of liberty, justice and democracy.
Toast to the CBI.