Only a week or two ago, Vermont Royster wrote that—and I quote— “Britain today offers a textbook case on how to ruin a country.” I do take some consolation that there’s only one small vowel sound between ‘ruin’ and ‘run’ a country. The small vowel sound is ‘I’. [Laughter and applause]
However, the rather fatalistic tone of much of what is written about Britain by commentators on both sides of the Atlantic is, I believe, misplaced. So I'm very grateful to the SocioEconomic Institute for giving me a splendid opportunity to try and put one or two things straight.
I think most outside observers have noticed that, amid our very well published difficulties, a new debate is beginning—or perhaps I should say an old debate is being renewed—about the proper role of government, the Welfare State, and the attitudes on which both rest. And may I stress that the attitudes are extremely important? Of course, many of the issues at stake have been debated on countless occasions in the last century or two and some are as old as philosophy itself, but the Welfare State in Britain is now at least thirty years old. So, after a long period in which it was unquestionably accepted by the whole of society, we can now do more than discuss its strengths and weaknesses in the abstract language of moral and political principles. We can depart from theory and we can actually look at the evidence and see how it has worked, what effect it has had on the economy, how we ought now to assess it, before we decide what to go on and do next.
The debate centres on what I'll term, for want of a better phrase, the ‘progressive consensus’. I should perhaps say here that things that are called progressive are not always progressive in practice—but of course some of them are. And the progressive consensus, I think, is the doctrine that the state should be active on many fronts: in promoting equality, in the provision of social welfare, and in the redistribution of wealth and incomes.
That philosophy is well expressed in a quotation, quite well known in my country, about social justice. Again, I pause for a moment to point out that if ever you see a word with ‘social’ in front of it, I think you ought to analyse it fairly carefully and see precisely what it means. Because one of the reasons, I think, we've got some things a little bit … not quite straight is that we haven't always been precise in our use of language. And if you're going to think straight, you really must talk straight and be very precise in the way in which you use words. There is a quotation on social justice and it says this: ‘It’s just because market forces tend towards growing inequality in incomes and property that massive redistribution is necessary if political freedom and other civilised values are to be preserved. So it should be the aim of the democratic state,’ the quotation continues, ‘to re-share out these rewards, to socialise the national income, if you like to call it that … There can be no doubt that by far the most effective method has proved to be, and is likely to prove increasingly in the future, the [end p1] instrument of public finance and in particular progressive direct taxation and centrally financed public services.’
Now, that’s the end of the quotation on social justice and the means by which that person proposed to bring it about. It so happened that that was written by a former Labour cabinet minister in 1962, but I’m not particularly interested in party politics tonight, because these views have been held in varying degrees by all political parties, in schools and universities, and among social commentators generally. It’s interesting that they’re now being questioned right across the same broad spectrum.
Now, it’s not that our people are suddenly reverting to the ideals of laissez-faire. Nor are they rejecting the social advances of recent decades. It’s rather that they are reviving a constructive interest in the noble ideals of personal responsibility, because in some respects the concepts of social responsibility have turned sour in practice. And we are making an attempt to identify and eliminate errors and fallacies and to consolidate and retrench before advancing further. And it’s in that constructive spirit, and as a former Secretary of State for Education and Science myself, that I'm speaking to you tonight.
Now, I'll try and concentrate on three broad issues, particularly in view of that quotation which I read to you a short time ago, which you’ll remember had some very strange phrases in it. The three issues I'm going to concentrate on are: What are the facts about the distribution of wealth and incomes? Secondly, to what extent is greater equality desired in Britain today? And thirdly, has the economy been strengthened by the promotion of more equality and the extension of the Welfare State?
Now, what I have to say involves quite a number of statistics, because you’ll realise that, with a mixture of a scientific training and a certain period spent in the revenue bar and on dealing with Treasury matters, one has tried to adduce a mass of evidence to support the case which one is trying to put. But I'll try and put the statistics in as human a way as I can, if that is at all possible.
So let me start with the facts. All of you in either science or law—and the wiser ones in politics—will know always one says, ‘First find the facts.’ Now, most people say that the distribution of incomes in wealth in Britain is highly inequitable, that it’s changed little despite the steps taken by government to even it out. And from that assertion, it’s only a short step to two complementary arguments; either that redistribution would greatly swell the incomes of the average man, or that the wealth of the rich is sufficient to finance the substantial extension of the role of the state. I think both are conducive to the attitude that there is something that you can redistribute to make us better off, or, if the state spends more, it’s not we who pay but somehow it’s the other people—neither of them attitudes which I think we would particularly wish to encourage in the modern state.
Now, fortunately for my purpose tonight, a major study has just been published by the newly created Royal Commission on the Distribution of Income and Wealth and it gives the first proper statistical picture of the changes that have taken place in Britain between the last war and the year 1972–73, the latest year for which figures are [end p2] available. So may I now quickly tell you its findings? Because these are the facts on the distribution of income and wealth in Britain.
Let’s start with income, and of course the relevant income is income after tax. And we find that, in 1972, incomes after tax in Britain were divided up roughly as follows. At the upper end of the scale, the top one per cent of income earners got four per cent of incomes, or four times the average. If you take the top ten per cent, they had twice the average. And if you take the bottom ten per cent, a bit under half the average. Now, if you look at it, from half the average income at the bottom to four times the average income at the top, is not really a very wide range of incomes. It’s not dramatic by any set of rules. Indeed, research has shown that the distribution of incomes in Britain is surprisingly similar to that in Poland—which is a rather shattering conclusion to reach.
Now, that's where we were in 1972. So let us have a look at the changes over the previous forty or so years. And you find then that, taking account of tax, the share of the top one per cent of earners, which used to be 12 per cent, now has … is now 4 per cent. So it’s come down over forty years from about 12 per cent to about 4 per cent. And the share of the taxable income of the poor has not increased to quite such a great extent, but they're markedly better off in relative as well as in absolute terms than they were before the war. Because by 1972 the tax free benefits in cash and kind added about a half to the pre-tax income of a typical household in a bottom ten per cent, and for poor families with many dependants the gain could be nearer 100 per cent.
Now, those are the income figures. They show quite considerable changes over forty years, but at the moment in Great Britain the range of incomes is not unduly wide.
Now, let’s turn quickly to have a look at wealth. Of course, capital assets have been more unevenly spread than incomes in Britain, and this is so in most countries, and for this reason they have been the chief target of the egalitarian critics. Because in Britain it has become almost an undisputed truth that ten per cent of the population owned 80 per cent or 90 per cent of all the assets. But in fact that is not so, because the Royal Commission has now really set out the actual figures. And you find that the top ten per cent of the population over eighteen own less than half of personal wealth when state pension rights are counted as an asset, as they should be.
As you’ll appreciate, even these figures can be misleading, since wealth is normally unevenly distributed between the old and the young and often unevenly distributed between husbands and wives. If these distorting factors were properly allowed for, the picture could look still less extreme. But as with income, there've been enormous changes over the last forty years. Let me just give you some indication. In 1911, the top one per cent of the population owned 69 per cent of the wealth. By 1938, it had come down to 50 per cent. By 1960, it had come down to 38 per cent. And by 1972, it had come down to 28 per cent and to 16.5 per cent if pension rights are included in wealth holdings. So you have had again an enormous redistribution of wealth over the years.
So, if one looks at that, you find that the facts about economic inequality in Britain are these: that the rich are getting poorer and the poor have so far got richer. It’s due both [end p3] to market forces and the actions of government through the tax system. But if you look at the scope for further redistribution now, there's very little left, because it’s no longer the case that taking further money from the rich will make a significant difference to the wealth of the bulk of the population. We've come to the end of that road. Nor will taxing them more heavily pay for much more government spending. So those are the facts on equality over the years and the redistribution of wealth and income, and most of us believe that we have now come completely to the end of that road. So that is the first section: What are the facts?
Now, let me look at the second section: To what extent is more equality desired in Britain today? Because some of the statistical myths led directly to the claim that there was a wide a sense of resentment and injustice over the current degree of inequality in our society and great enthusiasm for its further elimination. But the political judgement is closely linked in many commentators' eyes with the quite separate proposition that class divisions in Britain are severe and reinforced by economic inequality. My own experience in politics has always made me doubt that argument and now fortunately more work has been done. And we've had a massive survey by Political and Economic Planning Group and it’s shown this—it again reported in July 1975. This is what it showed:
‘Our findings show little spontaneous demand for the redistribution of earnings across broad occupational categories and suggests that such redistribution would in itself provide no solution to any problem of pressure on pay. Neither is it necessary to allay any general feelings of injustice in society … It may be little consolation to the government in present circumstances that the chief requirement for maintaining general satisfaction with incomes and earnings is steady economic growth … rather than massive redistribution … This point is a crucial one to be met by those who suggest that any problem we have is one of distribution rather than of resources or growth.’
Whatever ordinary people actually want, there does remain in Britain a powerful and vocal lobby pressing for greater equality, in some cases even, it would seem, for total equality. And one tries to analyse what is it that impels them to do so. Well, of course, one imp- … one pressure is the ordinary desire to help our fellow men. But often the reasons boil down to an undistinguished combination of envy and what might be called ‘bourgeois guilt’. Envy is clearly at work in the case of the egalitarian who resents the gap between himself and those who are better off, while conveniently forgetting his own obligations to those poorer than himself. Bourgeois guilt is that well-known case of guilt and self-criticism that affects people, not only the very rich, when looking the other way at the position of those poorer than themselves. It’s not for me as an individual to criticise their doubts and worries. But as a politician, I must criticise the attempts of such people to impose on others a programme of impoverishment through the medium of the state. Because that brings happiness to no one, except to those who impose it. Because, in a free society, they can give away as much as they want to, to whom they want to, and whenever they want to. They don't have to say, ‘I will only give mine away, if I can compel you to give yours away too.’ [end p4] In a free society, if they believe in pooling their possessions with others, they're welcome to do so.
Now, the point of this section is that it has been shown there is a far less general desire for equality, as opposed to equity, in Britain today than is often claimed. And that is the end of that section. We've looked at the facts about equality. We've looked about whether the people want it—and they don't appear to want further distribution. They're more interested in growth and the creation of wealth.
Now, can I turn to the third section? A vital one: Is what is called ‘socialising’ the National Income good for the economy? Because we rarely have the evidence to look at. The promotion of greater equality, of course, goes hand-in-hand with the extension of the Welfare State and state control over people's lives. Universal and usually ‘free’—in inverted commas—social services necessarily transfer benefits in cash and kind from the richer to the poorer members of the community. So taken together they define rather well this process of socialising the National Income, which occurred in my first quotation.
Now, how far has that process strengthened the economy? Because, if it hasn't strengthened the economy, you haven't the means to carry on, let alone improve your welfare. And one of the lessons we are learning in Britain is that you must, first of all, have the creation of wealth before you can put so much attention on to its distribution.
Now, of course, the public sector has been a large part of the British economy since the early post-war years. And what's happened has been—and I think the figures will amaze you—the government share of the Gross National Product has steadily got higher and it’s been higher than in Britain than in most other countries and today the state controls well over half our National Income. In fact, this year it is about 56 per cent of the Gross National Product is controlled and spent by the state.
Now, of course, the bill has risen sharply too particularly for the private citizen. And in the later fifties and sixties, the increase in tax and social security payments in effect knocked about one per cent off the growth of private spending each year. This is a characteristic of the massive transfer of resources from the private to the public sector and, corresponding to that, an enormous increase in taxation. And this, we think, has been probably one of the major sources of inflationary pressures, because, if you look at the taxes paid by the average wage-earner, you find that the proportion he's paid to the state—that is, the proportion over the control of which he cannot decide; the state does the spending of his money—the proportion steadily increased.
Let me take a typical earner: a man and wife with two children on average industrial earnings. Typical. You find that since 1963, not very long ago, the state has increased its take from the average salary from a negligible 5 per cent to about 25 per cent today. Now, that's the chap on average industrial earnings. In 1963, he used to pay in taxation, direct taxation, 5 per cent of those average earnings to the state. Now, he pays 25 per cent to the state. And, of course, you can imagine what's happened. He's said, ‘Well, I want to keep my net taxed income intact.’ And therefore it has been [end p5] quite a strong factor in his demanding more wages and salaries to replace what in effect he… has been taken away in tax.
So they've press their employers for ever higher wage increases, and this has lead to a relentless acceleration of cost and price increases since that time, since the mid-1950s, when it was 2 per cent per annum rate of inflation, to now when you told us, Mr President, reminded us that it’s 25 per cent. And so, of course, they have also pressed not only for increased pay but for increased growth sometimes financed by inflationary policies. Because, of course, it’s one thing to have increased government expenditure when you've got genuine increased growth. It’s quite another thing to go on increasing government expenditure when you have got no growth. And this is one of the things which, of course, has put many of our budgets into a very difficult position now.
Now, there are many who regard the desire for private spending as rather irrational and unworthy. ‘After all,’ they say, ‘the taxes have financed a substantial growth in the provision of public goods.’ Any economist will tell one that this is a part of increased living standards, but what you find is, that people want to spend their own money to buy what they want when they want it. And they do not regard the substitution of state provided services as equivalent to spending their own money and in their own way.
In a curious way, the attitudes in calling some things ‘free’ has led to the belief that the state services are really an absolute right and a kind of manna from heaven. Now, we've come to the end of that time. They're not manna from heaven. Government expenditure is private taxation or borrowing for which the citizen has to pay. I know you will find that this has a familiar sound with some of the problems that you have to deal with now.
So that is how the average person has reacted to what is called ‘socialising’ the National Income. And you've got this paradox: please, he expects the benefits to come from somewhere, but he's not prepared to go on paying more for them himself. He'll demand increased wages and salaries and sometimes inflationary financed growth to do so.
Now, we've also had a curious effect on the economy on the labour market. Because, as you have more of the expenditure capacity transferred to government—and remember I said that in Britain government controls 56 per cent of the expenditure of the Gross National Product—so more of your people have moved out of the private sector into the public sector employment. And so, when we have had a period of growth in Britain, we've no longer had a pool of labour for your manufacturing and productive industry to draw on. And this, of course, has also had a great distorting effect on the labour market itself. So you've got the difficult effect of taxation. You've got the distorting effect on the labour market itself.
You've also had very heavy taxation on companies. Companies have suffered from a number of factors. First, their profits have steadily reduced. Secondly, they have had to pay increased corporation tax. You found, therefore, that the entrepreneur has been [end p6] able to get less and less back for his effort, and he's not in fact prepared to put the money into his own company or to risk the money in equity, if he's not going to get the return for his effort.
Now, you're aware in Britain that we have had a great wage inflation. And it has been thought impossible, in fact, ever to put on any form of wage restraint, unless at the same time you put on restraint on profits, restraint on prices, restraint on dividends. That also has had a great effect on the economy. If you put restraint on profits, you found, in fact, that you were not making sufficient profits properly to invest for the future. If you put restraint on prices, as we have also done, the prices were not high enough to enable the companies to make enough profit. And so you consequently come up against the position whereby our companies have not been able to get the prices, because of price control, to make the profits which are necessary to make the investment which is necessary to provide the growth and the jobs tomorrow.
Now, can you see where they cycle's got us to? Taking too much into public expenditure has meant trying to raise extra taxes. People have rebelled against that. They therefore have demanded extra wages. The companies have suffered, because we've had to have a certain amount of wage control, with price control, with profit control, so that companies have suffered also from extra taxes, also from loss of profits.
Now, you've had a third economic factor which I must just refer to briefly. Because government couldn't raise all the money it wanted to from taxation, it’s had to resort to borrowing. Because it’s had to borrow so much, it’s had to compete for limited funds, and the interest rates have gone up. Because people could not get a good return from equities, because of profit, price and dividend control, they have often preferred to put their money into government stock. That has again starved the private sector of money with which to develop.
You might think this is all very economic. Of course it is, because what I am describing is the actual experience of thirty years of concentrating on distribution, too much, really at the price of not putting enough into the growth of the economy and creating wealth. And so you can see that we've had problems really brought about by transferring far too much from the private sector into the public sector.
Now, these factors are there for all to see. There have been a number of other problems. You can imagine that if pension funds and insurance funds have not been able to get sufficient back in dividends, that they are in difficulty with keeping up the pensions with the rate of inflation. And one has to remember that the vast majority of dividends, certainly in my country, don't go so much to private holders of equity as to institutional holders of equity for their insurance and pension funds.
Now, these in fact are the economic effects of what has been happening in Britain. Now, you can't in fact ever carry on improvements—and I as a Secretary of State for Education and Science often wanted improvements, often wanted more money for science, for scientific research—unless in fact you get the growth, unless in fact you concentrate on creating the wealth. And, if you're going to take the heart out of people [end p7] by taking away so much of them [sic] in tax, you will find very quickly that you will not have the incentive to get the extra growth.
There is just one other effect that I would like to refer to in Great Britain about the incentive effect of taxation. It has been particularly damaging on middle and upper management, because we've found that the level of tax—and I must remind you that the top level of tax on earned income in Britain is 83 per cent and on unearned income or savings income 98 per cent—the level of tax has been such, that it’s not been possible for our companies to pay our management as much as they could get in other countries in net taxed income. And so we have found that, supposing you took a manager who is on a net taxed income of some eight thousand pounds per annum, and his company wanted to promote him to a top job and give him a net taxed income of twelve thousand pounds per annum. So you'd take him from a job he's in at the moment to a top job, from eight thousand net to twelve thousand net. How much in Britain would you have to give him extra? The answer would be an extra fifteen thousand pounds per annum. And, of course, it hasn't been on.
What you find is, that if you look across the continent in France, you will find that they've been able to pay their managers less but get a much higher net taxed income. And the result has been that if, in fact, British companies put some of their top managers into Europe or elsewhere on French salaries at French levels of tax, they couldn't get them back because we couldn't in fact pay them a big enough gross salary to give them the net income.
Now, all of these in fact have been the economic effects of pursuing far too much equality, and I think we have very much now come to the end of the road. And, in fact, we find that the persistent expansion of the role of the state, beyond the capacity of the economy to support it, and the relentless pursuit of equality has caused, and is causing, damage to our economy in a variety of ways. It’s not the sole cause of what some have termed the ‘British sickness’ but it is a major one.
Now, what are the lessons then that we've learned from the last thirty years? First, that the pursuit of equality itself is a mirage. What's more desireable and more practicable than the pursuit of equality is the pursuit of equality of opportunity. And opportunity means nothing unless it includes the right to be unequal and the freedom to be different. One of the reasons that we value individuals is not because they're all the same, but because they're all different. I believe you have a saying in the Middle West: ‘Don't cut down the tall poppies. Let them rather grow tall.’ I would say, let our children grow tall and some taller than others if they have the ability in them to do so. Because we must build a society in which each citizen can develop his full potential, both for his own benefit and for the community as a whole, a society in which originality, skill, energy and thrift are rewarded, in which we encourage rather than restrict the variety and richness of human nature.
Now, holding these views as strongly as I do, you can imagine that I was particularly interested to read a description of some of the problems in Czechoslovakia. And the description went like this—and I'll tell you the year to which it referred in a moment. ‘The pursuit of equality’—I'm quoting—‘has developed in and unprecedented manner [end p8] and this fact has become one of the most important obstacles to intensive economic development and higher living standards. The negative aspects of equality are that lazy people, passive individuals, and irresponsible employees profit at the expense of dedicated and diligent employees, that unskilled workers profit at the expense of skilled ones, that those who are backward from the viewpoint of technology profit at the expense of those with initiative and talent.’
End of quote. That wasn't written by a quiet capitalist who'd escaped from Czechoslovakia. It was a quotation from the action programme the Czechoslovakian Communist party adopted in the Dubcek days of 1968. Unfortunately, of course, Dubcek went. But the lesson is that even they had learned or were learning that the unbalanced pursuit of equality leads to an insufficiency of resources.
Mr President, nothing that I'm saying tonight should in any way been seen as a diminution of our recognised responsibilities to those people who through physical, mental, or social handicap suffer disadvantages. Rather, it is a consciousness that unless we have incentive and opportunity, we shall not have the resources to do as much as we want to do. And having been a Secretary of State for Education, I am the first to understand that.
Second, our second lesson, we must strike a proper balance between the growing demands and powers of the state and the vital role of private enterprise. Private enterprise is by far the best method of harnessing the energy and ambition of the individual to increasing the wealth of the nation, for pioneering new products and technologies, for holding down prices through the mechanism of competition, and for widening the range and choice of goods and services and jobs.
Finally, we must measure the economic and political demands of some of our people against their consequences, and we must have regard to their effect on our political and social framework. In the coming months in Britain, we shall all be thinking particularly of the achievements of the United States in the two hundred years of it’s existence and of the lessons your country can teach the rest of the world. May I therefore conclude with a modest hope that you will also spare a few minutes to learn from our recent experience? Because it shows how essential it is to escape from the facile arguments, which both our countries have experienced, and to reaffirm before it’s too late those true values which both our countries traditionally have shared. Those values have never been more important than they are today.
How about the rest of the world? What do you think of multi-national corporations? Where does England fit in the rest of the world? I've been saying to my friends that we in the United States are probably down the social road twenty years behind England, and I think this is what we have to face, but I think you've gone so far. And I spent three years at Oxford and I love England. My first wife was English and I have a lot of… I have a number of English clients. But I just don't see where you are going. All you said, Mrs Thatcher, was brilliantly said, was an internal, an internal [end p9] statement about England's problems internally. But England is now faced back, having lost the Empire, to a small island with fifty-five thousand people and where—fifty-five million, I beg your pardon. I think you understood that. But, er, but where are you going individually, assuming that you are only with yourself? And where are you going with respect to the multi-national corporations, the Common Market, and the rest of the world?
Yes, now, Mr Wells, if I've only given you the impression that I've given an account of internal things, I haven't got the message across. Because the message really is twofold and it applies to all democracies. First, that although in the early stages you probably pursue equality to reduce inequality, you've got to balance equality with equality of opportunity. The two are entirely different. Equality is one thing. Equality of opportunity is another. The other thing you've got to balance is the demands of the public sector with the kind of incentives that you've got to give the private sector. Now, those are really universal lessons.
Now, what has happened in Britain, I think, is certainly that we have not balanced the latter two. We've got far too much in the public sector and far too little left in the private sector. You have not gained sufficient incentive in the growth sector, which is the private sector, because in Britain 97 per cent of our exports come from the private sector. You also have gone too far in that you've not given enough attention to equality of opportunity, and you've given too much attention to redistribution of incomes. Now, those are universal lessons.
I've tried to outline the way in which I think we should go to try and get our economy right. We mustn't spend money we haven't got. We have been doing quite a lot of that, and I understand that even in parts of this great country you might have problems in that direction, and there are therefore universal lessons.
Now, as far as we are concerned, we certainly have to get our economy back onto a good course, a course where we concentrate on the creation of wealth. Where are we going in the rest of the world? We are, and have geographically been, a part of Europe for ages. We're now more economically tied in with Europe, by the choice of the British people, than we have been before. We are still a part of a Commonwealth and we have very much brought the needs of that Commonwealth to the attention of Europe. And what we call the Lomé Convention, which was a convention of the underdeveloped nations with Europe, preceded the new international economic order which is being debated in the United Nations at the present time and which was similarly debated in the Commonwealth Conference at Jamaica, when we put up certain plans for commodity agreements which have been discussed here and taken up. Unless we had done that preparatory work, unless we'd got the co-operation in Europe, unless we'd had the widespread Commonwealth contacts, we should not, I believe, have got as far along the road as far as we've jointly got, as developing … as developed nations … along the road as far as we've got as developed nations with helping the underdeveloped nations as you've got down the road at the United Nations, and I hope that they'll complete the job tonight. [end p10]
So all right, we have problems. We have spirit to get out of them. But in the meantime we have been doing quite a good fair international whack in international negotiations, and we're going absolutely along the right road, both as far as commodities are concerned, as far as conserving the use of commodities is concerned, and on recognising that, as well as a redistribution of wealth within nations, there is also going on a kind of redistribution of wealth between the developed and developing nations. We must recognise that and we must in fact see that it goes at a rate that will satisfy their demands and in fact be acceptable to our own peoples. All international negotiations are a matter of acceptable compromise. Please, we're not doing too badly. All right, Mr Wells? [inaudible response]. Oh, you're a great sceptic! [laughter].
I'm for you!
You’ll be the next Prime Minister! [applause].
Please, and then I'll turn to my left.
Ma'am, Mrs Thatcher, I think this has been a perfectly exciting evening. I've enjoyed it enormously and your statement of the problems and the policies have been perfectly wonderful. One thing that you overlooked, and which we've had a great problem in the United States, is the fact that, er, we have these little pressure groups who have changed our whole government. They have asked for more than they were entitled to and been able to receive it. The great majority in America has not been organised. As I listen to you this evening, I hear no evidence that the British people, as great as they are, and I'm sure that the great majority want to have the kind of a world that you're talking of, are not organised. How can we get the majority … the majority over-ruling the pressure groups who have special interests beyond anything else?
I think you've touched on a very vital point and we politicians have a responsibility. I think perhaps for years it’s not only been the pressure groups but it has been the politicians who have encouraged the view that you could in fact go on having rising incomes and having rising expenditure and having rising expectations. There have on the other hand been other politicians who have regularly said, ‘Look, you cannot and must not live beyond your means. If you do, you will have unsound money that will lead to an unstable society.’
Now, I went back very carefully over all the economic speeches of the post-war years and I found that sometimes politicians had been saying the right things ever since the end of the last war—‘You cannot live beyond your means’—and then promptly providing budgets where nations did live beyond their means. And what [end p11] happened was that the people said, ‘Well, you say we can't live beyond our means, but for thirty-five years we have been going on expanding our expenditure.’ And then, all of a sudden, they're quite surprised when fundamental truths do actually turn out to be fundamental truths and when reality arrives. Because over-spending gets cumulative and you are now up against reality.
Now, reality is always the best time for politicians to get sound views across. It is also a thing which neither the politicians nor the people can ignore, because it’s a time when you have to take active steps to put things right. And I think the reality has arrived for us. I think, in certain geographical townships and cityships in the United States, reality might have arrived here too. But, you see, it does mean that we too as politicians—and economists, because economists also have a responsibility. There was a school of economics which said, ‘A little inflation is a good thing. It lubricates business,’ and a little got a little bigger, and a little bigger, and a little bigger, and then it got a lot, and then it got out of hand.
Just have a responsibility to return to your sound financial rules. See that they're practised and see that you do get the growth before you get the rising public expenditure. In the end, it will give a higher standard of living and it will give a much better standard of genuine welfare to those genuinely in need. Of course in the welfare services there are other problems of incentives, and those who are not perhaps necessarily those who are quite so genuinely in need as others, and the problems, the gap between what you can earn if you work and what you get without working, which is a fundamental problem too.