Speech at Poznan Academy of Economics
|Document type:||public statement|
|Source:||Thatcher Archive: speaking text|
|Editorial comments:||Embargoed until 1100 local time.|
|Themes:||Conservatism, Economy (general discussions), Higher and further education, Public spending and borrowing, Taxation, Family, Foreign policy (Central and Eastern Europe), Foreign policy (USSR and successor states), Law and order, Religion/Morality|
Rector Magnificus, Members of the Senate, Ladies and Gentlemen.
I am greatly honoured to accept this degree of doctor honoris causa and am very grateful for the kind things you have said about my period as Prime Minister. It is always a delight for me to come to Poland. This nation's epic struggle for freedom must inspire in the heart of any lover of liberty a very special admiration. And we British will never forget the gallant service performed by Polish airmen in defence of Europe's and our own country's freedom fifty years ago.
I am particularly glad to be here in this ancient city of Poznan, now so central to the economic transformation of Poland, and indeed at Poznan's University of Economics, which can do so much to make that transformation complete. It is significant that when this institution was founded–seventy years ago now–it was by the Poznan Chamber of Commerce and Industry. Economics should flow from enterprise. And when theoretical economics starts to lose touch with the practical world of commerce it risks becoming exactly what a famous but bluntly spoken Englishman\=Thomas Carlyle\ once described it–the "dismal science".
The Role of Polish Universities
From medieval times Poland has been famous for its universities and the scholarship that has flourished in them. The pursuit of learning for its own sake, the enlightened discourse of cultured men (and women), the enrichment of civilization–these are perpetual tasks for universities the world over. Indeed, the breadth of that mission is encapsulated in the very word "university". But in countries where values have been systematically distorted by the grossest kind of materialism–that is Marxist materialism, which didn't even result in material improvement–there, universities are still more vital. For by their own existence they proclaim that there is a wisdom higher and nobler than that offered by the state.
Much of Poland's historical predicament has been even more unenviable than other victims of Communism–sandwiched as Poland has been between two expansionist powers, and buffeted by storms of competing ideology. Under successive regimes, and in successive centuries, Poland saw its history stolen and its culture denied or suppressed in order that its memories of freedom should fade. Ultimately that proved a futile venture; no national consciousness worthy of the name is susceptible to such tactics. Throughout the bloody history of Europe, and even during the present time in which monochrome bureaucracy is in the ascendant, attempts to deny national identity have almost always failed. Now through the rebirth of liberal learning in your country, and especially in your universities, the Polish nation can reclaim its past and thus achieve a clearer focus on its future.
The Teaching of Economics
But a university today has other roles as well, which it must pursue without losing sight of its long term mission. It is right that the modern university should educate young people in the more directly useful sciences, among which is to be counted economics. For this, our economists need not apologise: after all, without a strong economy there is precious little flourishing of the arts and culture, or indeed money to spend on health, education and the conservation of our built and natural environment. Poverty impoverishes in so many different ways.
The teachers and practitioners of economics can make another claim for their field of study. They can point to the fact that in the course of this century economics has been as much the battleground for opposing intellectual forces as have philosophy, politics, culture or religion.
Economics and the Collectivist Experiment
This century of ours has witnessed a giant and frequently tragic experiment in which our nations have, with greater or lesser degrees of willingness, taken part. In this experiment, two radically and diametrically different systems have competed. One system was built around the individual. The other around the state. The competition between these two views was carried on at different levels and at different times.
Sometimes the challenge to liberty came from the Left in the name of equality. Sometimes it came from the Right in the name of order.
Sometimes the collectivists promised us a world where "social justice" would reign. Sometimes they promised one in which a race of supermen, genetically determined titans, would march forward to some higher destiny.
And without exception they all offered the one fruit which those who value sanity know must not be eaten–they offered Heaven on Earth. The mass graves and gulags of Europe remain as a monument to their lies.
By now the statist view of politics has–quite literally–been tested to destruction. The worshippers of the state have had their chance. They have tortured, embittered, impoverished, corrupted and polluted their way into history as exponents of a system that totally failed.
And let's not forget the role of economics in the collectivist experiment. As we gaze with concern at the wastelands of the oviet economy, it is extraordinary to recall that this system promised to bury the West economically. Even in post-War Western Europe the socialists embarked on their programme of expropriation and control, by claiming that they would modernise our allegedly backward industries. So economics has always been a crucial battlefield between the statists and–in the classical sense–the liberals.
The Economics of Freedom
That was true even in the eighteenth century, when the founder of market economics–indeed of modern economics–Adam Smith, explained how the Wealth of Nations was developed by the operation of a "hidden hand". He observed that it was "not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest". This insight, removing at a stroke the justification for high-minded interference in much of people's ordinary lives, has always been deeply unpopular with politicians and bureaucrats. And so, not surprisingly, the proposition has been vigorously contested. It was claimed that the free market was too unpredictable and chaotic to work unassisted; that "market failure" would obstruct desirable outcomes; above all, that only the state knew enough and cared enough for the common welfare to be entrusted with economic power. And down through the years, those of us who explained that "there is no art which one government sooner learns of another than that of draining money from the pockets of the people" we have been attacked for lacking that most nebulous of virtues–compassion.
In fact, there is (and always will be) a tendency for government to spend beyond its means. That is the inevitable counterpart of having the power to tax. But when economic profligacy becomes systematised, when politicians, bureaucrats and economists convince themselves that a beneficent state is able to suspend the laws and buck the rules which govern the behaviour of mere private individuals, something more dangerous sets in. At this point, government aims not just to influence the myriad decisions which constitute the market: it increasingly imposes a command economy in which all power resides at the centre with an all knowing, omnipotent state. Such a system can't, of course, permit economic freedom. Nor, ultimately, can it permit the other freedoms either. It runs square up against human nature and strives to change it. Homo sapiens thus becomes Homo Sovieticus.
Economists therefore have a duty, as much as the rest of us, to expose the follies and dangers of going down that path of interventionism. This is something which people like Friedrich Hayek clearly understood. Hayek combined in a powerful fashion observations based on experience and conclusions based on theory. In particular, Hayek explained how the apparently benevolent business of setting over-all social goals to be achieved by all-encompassing economic plans can't be compatible with liberty and the rule of law. Similarly, Milton Friedman, whose seminal work on the role of the money supply has transformed macro-economic policy, has always grasped the vital importance of living, breathing, free enterprise–of the "market", understood not just in an abstract but in a human sense.
The cases of Hayek and Friedman illustrate an crucial point, and one relevant to the work of this institution in Poznan: it is that although in economics the technicalities are important, they are not everything.
Yes: it is important to know how to measure the gross national product. But it is even more important to know where wealth comes from. And it "comes from" businesses satisfying customers, not from apparatchiks ratcheting up the targets in an economic plan.
Yes: it is important to ensure that sufficient is invested in the infrastructure, in education and in basic science. But it is even more important to recognise that, however worthily such money is spent, the government itself has no money –only other people's money, which it confiscates by taxation, devalues by inflation or borrows to be repaid by future generations.
Yes: it is important to investigate a country's natural resources in order to analyse its economic future. But it is still more important to recall that without the spark of invention, the flair of entrepreneurship and a climate which encourages initiative, none of that country's potential wealth will actually make its people wealthy.
The Application of Market Economics
Wherever free market economics have been applied consistently over any period, the results have been an advance in living standards. Wherever collectivist economics have been enforced, the results have ranged from the merely dismal to the truly catastrophic. That is so when we compare regions, or countries or periods. It was true in the past–and it is true now.
Both our countries' histories show it. The radical reforms, by which the first post-communist government of Poland dismantled the socialist command economy, have given your country today's economic success. It is vital that those policies continue. Political argument about how to balance priorities is, of course, part of a healthy democracy. But no amount of political argument will change the hard facts of economic reality.
In Britain, the government I led also dismantled socialism, whose roots since the War had become almost as deep as in the Eastern bloc states. We brought order to the public finances, cut income tax, privatised industries, reduced trade union power and removed controls. As a result, Britain is now a country which attracts foreign investment, which has good labour relations, and which enjoys low unemployment. In the seventies, we used to be called the "sick man of Europe". But though you may recently have observed some over-wrought disputes about the health of our cattle, it is the competitive challenge of British industry that now most alarms our neighbours–and it is we British who do not want Europe's economic "sickness" of over-regulation to infect us. But we, like you, must reject the peddlers of economic illusion and advance vigorously further down the path of free enterprise.
Indeed, all European countries need to remind ourselves that we have to compete and succeed in a genuinely global economy. That is an economy in which technology, capital and skilled labour are ever more mobile. In such an economy, the consequences for any country, or group of countries, which pursue unsound and unrealistic economic policies are both more direct and more dramatic than in the past. The need to apply consistently the full rigour of free market disciplines, without deviating into soft socialism, is therefore paramount. The Poznan University of Economics will, I hope, raise up economists who have the integrity to remind politicians of that. But market economics alone is not sufficient to ensure progress.
Economic freedom works because it is in tune with human nature. But human nature also demands a fuller, more rounded freedom if it is to flourish. This is the freedom which is today called "democratic"–that word which has been so misused, not least in the so-called "People's Democracies" of this part of Europe.
The political foundation of democracy is that of strong but limited government, subject both to regular judgements by the electorate and above all to the rule of law. I say "above all" because almost every other condition can be lacking for freedom, but when there is a predictable rule of law some liberty survives. In truth, no matter how many elections are held or majorities achieved for some political programme, without a rule of law there can only be oppression. A rule of law must apply equally to all (including government); it must be fairly administered by independent, honest judges; it must be known and sufficiently understood for the citizen to respect and obey it.
And, of course, such a law is also a precondition for continued economic prosperity. When either wayward politicians, or corrupt bureaucrats or criminal mafias operate outside the rules that businessmen and foreign investors feel are equitable, enterprise is diverted into black markets and foreign investment flees elsewhere. Sadly, that has so far been the fate of much of the former Soviet Union.
Democracy requires a social basis also. The traditional unit of the family, which in all our countries is under such pressure, is the rock upon which both freedom and order rest. It is the family which educates a person for responsibility. It is for the family that the bread-winner works. It is for the family's next generation that we make sacrifices that may not be rewarded in our own lifetime. And through these families we reach out to form other bonds–we create the voluntary groups and build up the neighbourhoods that make up civil society. Through such cooperation we ensure that there is an alternative in social as in economic affairs to relying on the state to do everything that the individual can't. And it is no surprise that both the family and the fabric of civil society have suffered so grievously at the hands of the totalitarians for whom all dispersed power is a threat to their position.
Freedom and the Virtues
Further, and this may seem a paradox to some, both democracy and economic freedom need to be nourished by something deeper which is not itself subject to them: in order to become entrenched they require virtues which are absolute, not relative, and which can best be described as Biblical or Judaeo-Christian. It must at once be admitted that this is not how it has seemed to many in the past. But I can pray in aid of this proposition your own Polish [Pope John Paul II] Pope, whose encyclical Centesimus Annus five years ago should pave the way for an end to these outmoded philosophical and political conflicts. In it, for example, he says that...
"... besides the earth, man's principal resource is man himself. His intelligence enables him to discover the earth's productive potential and the many different ways in which human needs can be satisfied ... Important virtues are involved in this process, such as diligence, industriousness, prudence in undertaking reasonable risks, reliability and fidelity in interpersonal relationships, as well as courage in carrying out decisions which are difficult and painful but necessary, both for the overall working of a business and in meeting possible set-backs."
It is many years since free marketeers have heard such a positive assessment of business–and we should all push the analysis still further.
Thus free marketeers should be more willing to accept that without the Biblical virtues markets could easily descend into an economic war of all against all. Correspondingly, Christians should also recognise that the dispersal of power and the enhancement of individual dignity, which characterise markets, both provide guarantees of freedom for the Church and allow people to act in their families' best interests. Too often in the past the true friends of liberty have been divided, allowing false friends to undermine it.
"Bread and Freedom"
Rector magnificus, members of the Senate, Ladies and Gentlemen.
In this address of thanks for the great honour you do me, I have ranged across topics which are sometimes considered beyond the scope of economics. But the economics of freedom–like the politics of freedom–can only be understood if we are also prepared to wrestle with the larger problems of human thought and existence.
For freedom is indivisible–whether instilled in the lecture hall, argued in the debating chamber, defended on the battlefield, preached from the pulpit, or practised in the market. If the world loses sight of that, it risks a new dark age. If Poland lost sight of it, it would not be truly Poland–nor would Poznan be truly Poznan.
When, forty years ago almost to the day, the workers of Poznan marched into the city centre, demanding "Bread and Freedom"–only to be cut down in a hail of bullets–they were but part of a centuries-long procession of Polish freedom fighters. The Polish banners of the last century, which were to be found in the heat of battles for liberty across the continent, were inscribed with the words "For Your Freedom and Ours". But the slogan of the workers of Poznan–"Bread and Freedom"–was no less apt. For "bread"–that is material well-being–can ultimately only come with "freedom", since only freedom is creative, productive and satisfying. And so we see that the very same structures, values and attitudes which secured the Western world its liberty have also made it rich beyond our forefather's most optimistic imaginings. Therefore, the aim of Poland's friends–and of all those who study in this university–must now be to see freedom in all its fullness take root, flourish and bear fruit in the ancient soil of this great nation.