A few months ago we in Britain were delighted to receive Mr Muldoon as Prime Minister of New Zealand, and were particularly pleased that he had decided to visit us first before going to other countries.
No gesture could have stressed more effectively the ties that bind us together, and the ideals and values we share. These were expressed in the famous work “The Open Society” written in New Zealand by Karl Popper during the last War.
It is one of the most cogent defences of the Western Way of Life ever written. The author had had occasion to know and experience the alternative and to know it was to reject it. No one from Britain can arrive in New Zealand without feeling a stir of pride, and may I say so, of patriotism.
Pride because New Zealand represents so much of what the British people are entitled to feel proud of:
— The sense of adventure that first brought our ships and explorers to your islands;
— The courage of your early pioneers and missionaries;
— The tenacity and the vision of those who built up your magnificent farming industry; [end p1]
— The good sense of those who created out of your early years a nation of peace and harmony, incorporating more than one race, but unmarred by racial tension.
— The way in which your young men in two World Wars unstintingly gave themselves to fight for the cause of freedom, and for what they believed, and what many of you still believe, was the Mother Country, in her hour of need.
The measure of New Zealand's contribution to the saving of freedom is to be seen not only at Gallipoli and in the Western Desert, but on the roll-calls of honour in many a Royal Air Force and Royal Navy mess, wherever the British have served. And for this, I want to express the never-ending gratitude of my fellow countyrmen.
I first came to New Zealand in 1972 as Minister of Education and Science, and saw for myself some of the excellent work you were doing in both spheres. I was struck then by the similarity of our problems. At that time we were both assuming that you couldn't spend too much on education, and that all the expenditure would yield a good return.
The same reasoning involved us in heavy expenditure in other departments of state. “We can't afford not to do it” was the cry.
Taken separately, so many of the things we wanted to do were worthwhile; taken together they added up to more than the taxpayer was prepared to pay in tax and by borrowing heavily to meet today's bills we were already consuming the products of tomorrow.
Learning to live within your means when you have been living beyond them is a painful process, and the longer it is delayed the more painful it is.
“Truth is seldom friend to any crowd” —but it is still truth, and must form the basis for action. A decade or so ago, a favourite question on an economics student's exam paper would have run like this: [end p2]
“Can a nation's economy have simultaneously no growth, rapid inflation, substantial unemployment and a balance of payments deficit?”
The expected answer was that such a combination was only possible in an underdeveloped country! Examiners and students must have had to work hard to keep pace with changing answers in the last ten years!
Another unlikely economic duet has occurred.
In Britain in the last 2½ years public expenditure has nearly doubled (in money terms). But this has not cured or reduced unemployment. On the contrary, over the same period unemployment has doubled too. And yet, to increase public expenditure used to be the classic way of curing unemployment, not of creating it.
You will have read and listened to many excellent economic analyses of the cause of our problems, and marvelled at the complexity and variety of the answers. But what every politician knows is that however refined or sophisticated the economic theories become—and I believe we know a good deal more now than we did ten years ago—the decision on what to do is a political one.
Constraints on Politicians
For a few moments let me examine some of the constraints a politician faces and the kind of decision he has to take about the future.
To promise, or not to promise, That is the Question!
I should have thought that by now electors were disenchanted with promises and more likely to trust someone who didn't make many.
But most of us have our own favourite causes which we are anxious to help. [end p3]
Moreover, the fact that politicians can only fulfil their promises with other peoples's money does not seem to restrict the “What are you going to do for me?” kind of question. The danger is that the promises made during the course of an Election can add up to more than the economy can bear when we come to pay the bill.
The result is inflation, because by one means or another we are trying to consume more than we are producing.
Second—The Time Factor
This year, next year, sometime or never?
There has been a tendency to conduct politics in the present tense and to put off the difficult decisions until tomorrow. One familiar recipe has been to do little this year, warn of stern measures next year, which would bring us ‘home and dry’ the following year. I do not accept that politics is only about short-term measures.
It is that kind of cynicism which has led to delay in tackling inflation. Whenever you deal with inflation, a small increase in unemployment occurs. Any loss of jobs is unwelcome and the temptation is to put off the required, measures hoping that something will turn up. But inflation doesn't just go away. Left alone, it gets worse, and quite quickly.
Before long, prices have risen so much that people buy less and unemployment then rises much higher than it need have done. The result of letting inflation go on going up to keep full employment today, is much higher inflation tomorrow and severe unemployment as well. But tomorrow always comes, and it is far better to risk today's unpopularity for tomorrow's betterment than to duck every difficult decision.
Third—The Demands for the State to do more and more
The increasing role and power of governments is the outstanding feature of the post-war period. In several Western countries, total public expenditure has risen towards 50 per cent of the GNP, and in Great Britain it is over 60 per cent. [end p4]
For some years part of the increasing role of the state was financed from the fruits of expansion. Then the expansion stopped but expenditure went on rising. Taxation and borrowing rose sharply. When this occurs, an increasing number of the decisions about economic, political and social matters are taken out of the hands of the citizen and transferred to governments and bureaucrats.
More people look to governments to solve their problems and fewer to their own effort and ingenuity. Demands for special subsidies increase. It is time to heed the warning of Thomas Mann who, writing of the German inflation, said that was when:
“The Germans forgot how to rely on themselves as individuals and learned to expect everything from politics, from the State, from destiny …”
Rampant inflation was the first step on the path to the tyranny which so very nearly engulfed the free world.
Industry—the basic Social Service
Most of you in this room today are involved in commerce and industry, and I include agriculture. You will be producing or marketing goods or services. You and the people who work with you create the prosperity on which the rest rely.
Many of today's difficulties arise because there are too few producers to support the number of consumers dependent upon them [end p5]
In Britain there has been a massive shift in employment out of industry into the public sector. Employment outside industry increased by over one third (34%;) relative to employment in industry over a period of only thirteen years (1961–1974). Over the same period employment by local authorities rose by 54%; and by central government by 9%;.
Other democratic societies have suffered similar problems, but none on this scale or at this speed. All of us accept a significant public sector in an economy like ours, but it has to be of a size which free enterprise can carry; otherwise both will suffer. A few minutes ago I referred to experiences in the education and scientific worlds.
What concerned me then, and it still does, is that so many people in our universities and colleges put productive industry and commerce low on their list of desirable jobs. Some of them seem to view it as the enemy of the public sector, and not as its foundation. They search elsewhere for work to fulfil their desire to help people, and think that their purpose can only be achieved by working in the social services.
But in one sense of the word—and I admit it is an unusual sense—a flourishing industry and commerce is the basic social service. It may surprise you that I use the term that way, but just look how much depends on industry's success.
1. The first need of any adult is a good job. Without that he can't begin to build a future, set up a home or support a family. Jobs aren't created out of nothing—but by people producing and selling goods and services which others are prepared to buy. And so you provide the basic, and in a way the social, requirement of a young person from school or college. [end p6]
2. Out of your profits you will provide for renewal and expansion so that your workforce can look to the future of their firm and therefore their job, with confidence.
3. Out of your profits you will also pay taxes—doubtless too many. Those taxes will finance the welfare services, education, health; indeed the whole public sector, those who work in it and the benefits paid out of it.
4. Out of your profits (and by this time it should have dawned on everyone that you need good profits) you will pay dividends or interest, many of which will go to pension funds and be paid out in pensions or insurance.
The fact is that the standard of living of everyone, whether in the private sector, the public sector, whether in receipt of wages, pensions, welfare payments or subsidy, depends upon a thriving free enterprise. To work in industry or commerce is to keep the life blood of the nation circulating. Disregard that, and the health of the whole system will suffer.
And now after the general comments I have made about politics and economics, I turn more precisely to the subject which I suspect interests you most—the present condition of Britain. Bearing in mind that Britain is still by far your biggest export market, taking about 70%; of your lamb and 80%; of your dairy products, and that you are one of our large and valued customers for goods and services, we have a mutual interest in each others continued prosperity.
Our annual rate of inflation is still 13%; far too high, higher than our major competitors, but a good deal lower than the 25%; of a year ago. [end p7]
I don't believe that a democratic society could carry on if year by year the rate of inflation were to stay at the “double digit level” . You will have gathered from my general comments earlier that our main economic strategy must be a sustained attack on inflation.
The methods required are similar to those you are so courageously and resolutely adopting here; economies in public expenditure, leading to a reduction in our vast borrowing requirement. One of our growing problems is a rising level of unemployment (1½ millions or 6%;), and it is particularly tragic among school leavers.
In spite of a series of subsidies to help employers to keep their young employees, or to take them on, the only real hope of solving the problem is a steady expansion in world trade leading to a renewal of confidence and rising investment by our own firms. Unfortunately the resources to invest are not always readily available or the interest rates are too high.
Over the period 1960–74 the real rate of return on capital fell from 12%; to 4%; and profits have been insufficient to finance new investments on the scale required. If there is one lesson to be learned from Britain's performance over the last few years, it is that you cannot have a flourishing industry without good profits.
The existence of a very strict price code for a period of over three years has undoubtedly stopped industry from getting the returns it should, and we are paying for it now. One message we need to hammer home is—you can't have more investments without more profits [end p8]
We need to educate every citizen that industry doesn't get into trouble when it makes good profits—but when it doesn't. Although strikes and industrial disputes receive a lot of publicity, the fact is that the vast majority of our industry has rarely if ever experienced a strike, and industrial relations in those firms are good.
Most strikes occur in the public sector and in large firms like the car industry which has been riddled with trouble. There seems to be a direct correlation between size and strikes. The bigger the company, the bigger the number of strikes. In human terms it is easy to see why. We have another problem which is now permeating all income groups—high direct taxation.
Our starting rate of income tax on earned income at 35%; is the highest in the world, and we have one of the highest top rates (83%; on earned and 98%; on savings income). 30%; of the earnings of the average family man in manual employment will go in taxes of one sort or another.
The situation is such that, while inflation has meant a higher rate of tax on lower real incomes, thereby depressing the take-home pay of low wage earners, social security benefits have been adjusted upwards to take account of inflation. Moreover unemployment and sickness benefits are not taxable.
Consequently, there is a band of income within which it doesn't pay to work. I remain convinced that given proper incentives, people will work harder, but it is not surprising if they feel bitter resentment at those who get more from not working than they get from working hard.
Our scientific research and inventiveness is as good as ever. One day I hope to come here by Concorde—an aircraft whose only problem is that it is too advanced! [end p9]
As a nation we receive a higher number of Nobel prizes in proportion to our population than most other countries, and many of them are in physics, chemistry, physiology and medicine. We have good supplies of oil in the seas around our shores and the adventure story of its discovery and extraction within a period of twelve years is one of the technological success stories of the century, and a brilliant feat of private enterprise.
We have discovered new rich seams of coal, so our energy supplies are assured for many years. Our agriculture is so efficient that it rivals yours! True, our farmers always grumble, but did you ever meet a farmer who didn't? This year however they have just cause, because we have experienced the most serious drought since weather records were kept. Perhaps we are relearning the fundamental laws of nature, that ultimately water is even more valuable than oil and agricultural produce more vital than consumer goods.
Mr. Chairman, the fact is that in the long term Britain has all the ingredients of success. But it needs a good cook to bake the cake right. After I have received a few tips from your new Robert Muldoon‘chef’, I should be ready to face the heat in the kitchen! Beginning of section checked against BBC Radio News Report 0800 8 September 1976
Britain will come through her present troubles for the same reason that she has come through previous ones. Because there are a lot of ordinary folk who, when the time comes, won't stand by and watch everything we have stood for destroyed by those who seek to establish an alien creed. Nor would we have it said that those of us who believe in freedom are any less vigorous, any less resolute in the pursuit of our ideals than those who believe in Marxism. [End of section checked against BBC Radio News Report 0800 8 September 1976.] What we would resist if it came to the sound of gunfire, must not be allowed to come by stealth. In this silent battle there is no substitute for victory.