But, you know, the idea that foreign affairs and economics at home are two separate compartments is really wholly false. You can't compartmentalise policies at all, any more than you can departmentalise the life which you lead. It's all part of the same thing. But if I tell you that what permeates my whole approach in foreign affairs is really the ideal I have of democracy and liberty under the rule of law, I know that none of you will be surprised. But it does permeate it. It comes out in East/West relations. But it's really about more than that. It is in the future, the battle of men's minds in the future. And it affects us, because the more democracies we have in the world, the more likely we are to be able to live at peace with one another. And the threat to democracy and our way of life at the moment comes, more than any other, from the Soviet system, which is why I never, never cease to look critically at the increased armaments they have, at the way in which they pursue their objectives.
But it isn't anti-Soviet or anti-Russian. It is this passionate belief I have that the best way of life for people—ordinary human beings—is to live under a democratic system and whenever that comes under threat, there am I, ready to defend our system—to defend other democracies—to see that our way of life is increased and that the democracies go on the offensive. Just one word or two—you might think it's a little bit offbeat—but I was extremely interested to see what happened to Vietnam at the end of what she would call her period of trouble, after America left. I personally thought it was right to fight Communism then. After America left, Vietnam had a fantastic opportunity. Here she was, a Communist country, with peace for years. She could have shown the world what Communism would do for ordinary people—give them peace, try to get a higher standard of living, get their agriculture organised, get them growing more, get them living together. What she did was most interesting—as an example of Communism. She did none of that. She attacked her neighbouring [end p1] Communist country. Now, why do I say therefore? The East/West and the democratic ideal dominates my view of foreign affairs. Of course it does. You know, since the war, you haven't found democracies fighting one another. No two democracies have fought one another. But you have found Communist countries fighting one another and you can get democracy versus Communism fighting. But it does dominate—no, not dominate—permeate everything I think of in foreign affairs. And, as I am profoundly thankful that we haven't been in a Third World War, nevertheless, I am very concerned indeed at the number of hostilities and barbaric hostilities that you're getting right across the world, which is a different way of fighting the same battle. You will wonder why I put so much stress on that. It dominates or permeates not only my view of foreign affairs, but also my view of the European Economic Community.
Now, last week we were having a battle about the economics, about the finance, about the contributions. I can go on about statistics, economics and finance with anyone. But in the end, what really makes me a dedicated European is this is: Nine nations, each with a democracy, who must learn and demonstrate that they can live together. And if they don't—if they don't demonstrate that they can live together in a free world—then it is a very great blow to the hopes of the free world. And all the difficulties we have to me are subordinated to that need to keep the free world together in a treaty, if you look at it, it's the only treaty in the world that, in fact, demonstrates the economic structure of liberty. Most of the other great declarations have been about human rights. They've never had human rights underpinned by the economic structure of liberty. And that does have the economic structure of liberty. So when we get into difficulties about the budget—and we are in difficulties about the budget, and we do pay far too much, and we are a country that believes in equity and the rule of law—what in fact always activates me is—now I must have a look at the longer field, I must not in getting short term advantage, damage the interests of my country, my people and my children, and their children (except they're not married yet, mine, but probably they will be … .) … . what one does in the short term. And I find it sometimes very interesting [end p2] that we are, in Britain, both. Well, we are a long term country as well as a short term. The fact is that we really are, I think, a bigger bastion of liberty than almost any other country short of the United States. And if anything happened to us, if we'd done anything to damage them, then we would be damaging our prospects in the whole of the future. And we would be damaging the standing of Britain, which matters to me.
So that's the background against which I work. Now, never think that foreign affairs and economics are separate. They're not. Of course, when you get to Dublin you discuss economic affairs which, again, are common to us all.
The oil situation—heaven knows—is difficult enough. You have a 65 per cent increase in the price of oil since the beginning of the year? But don't look at it like that only. The significance of the oil situation is the total uncertainty that it introduces into the economic lives of nations and therefore their capacity and their confidence in the future. This is the real thing that's bothering us. You see, if you look at the dry statistics now, you'll find, in fact, that demand is slightly down and supply is slightly up. So prices ought to be falling. Why aren't they? I'll tell you. Because everyone is so uncertain, so miserable, so unhappy about it that they're trying to get enough oil into their own countries to give them a good [missing word] to tide them over whatever may befall them. And this uncertainty at a time when you've got hostilities across the world from East to West and the uncertainty of the oil situation is a new, very big factor in politics, add to this, the situation in Iran. And we have, I think, a more uncertain period ahead because of that, than we have for many a long year and it does mean that we do face it very calmly and with a certain amount of wisdom.
Let me have a look at the other side of the oil, which is the plain, straight economic side … the other side of oil and the other point which we discussed very much in Dublin. It is [end p3] inflation. It is, in fact, again, characterising the economies of almost all of the free world. Germany's been more successful in combatting it, and Switzerland, than most other countries. Now, what can governments do? Governments can do a great deal. The question is whether governments will. And, you know, the real cause of inflation, I think, is not the economic force. The real cause of inflation is because Governments and politicians haven't been able, or willing, to face the people with the realities of sound money. At election after election they tended to promise more than the people have themselves produced. Now, this is why we concentrate so much here on saying we're not going to print money but I know that that does have consequences for high interest rates. And the most difficult decision I have had to take, since I've been in office was to let the interest rate rise to 17 per cent. Why did I have to do it? Because the situation reached with borrowing as big as it was, with Government borrowing as big as it was, meant that 17 per cent was a symptom of the problem and not a cause. And, unless we let it go up to 17 per cent, we should not have got the money in to finance even the limited expenditure we're undertaking and we should never have been in a position to tackle inflation in eighteen months' time. If we printed money now, we should in fact have been saying “we're prepared to have inflation in eighteen months' time.” That is a most difficult decision I have had to take. There was a symptom of the underlying trend. There were two underlying trends. You have to have high interest rates if the public expenditure is too high. If public expenditure's too high as a proportion of your national income your borrowing is too high. But everyone wants to borrow and if the borrowing is not backed by goods, you have to get the interest rate up. That's why we have to get public expenditure down as a proportion of national income. It's very interesting when I look back at the political balance book that in the last ten years we had two very successful exercises on things, which, if I said now, my opponents would say I was reactionary and right wing. The one on balancing the budget, the only time the budget ever balanced in Britain in the post-war period was under Roy Jenkins, when we actually had a surplus, and if we'd got a balanced budget now, we wouldn't have any problems—we balanced it with a tax rate too high. The only time we've been ever really successful in cutting expenditure was when the IMF came in and we got 6 per cent off in one year. [end p4] What I am trying to do now is to encourage Britain to take the steps that she'd have to take if we were in a crisis, but I want her to take the necessary steps so that we don't get into that crisis and that really is the whole of our strategy and it leans on money supply, it leans on public expenditure but it leans also on some taxation incentives to turn the economy round. So that's one thing we have to do. Now the other thing—and I think we're being successful, even more successful in this—is to encourage people to take more of their own decisions themselves.
Now, I put this point to you. We abolished the price control, dividend control, exchange control and there's no longer a Government pay policy in terms of a specific norm. Do you know that is the first time in the post-war period that we've ever been without those four restrictions all at the same time. The first time we've ever been without those restrictions. That in itself is a very considerable achievement. Added to that, tax rate lower. And what we're saying to people is this: We're going on steadily to do the things which we, as a Government can do. After that, it is over to the people to take advantage of the opportunities. I believe there are really encouraging signs. You know, people won't have to sort out pay claims on my doorstep for beer and sandwiches or something like that. When they have really difficult industrial relations, they're sorting them out themselves. But that's what they ought to be doing. They ought to be getting together and talking to each other. And so the Charing Cross Hospital belatedly but they sorted it out themselves. British Leyland started to sort it out themselves and you know, that is what democracy is all about. Not us at the centre taking decisions, but people taking personal responsibility for the only decisions they have to make of recognising that they're part of a community. And I just think there are no better signs of economic realism permeating through, and willingness of people, too.
I need hardly say how pleased I was at the result of the miners' ballot. Again, without Government interference but, by saying to people: Look, [end p5] we believe it is people taking their own decisions and taking more responsibility for themselves. I started off by saying what motivated me is my passionate belief in democracy, liberty and the dignity of the individual and my determination that it shall continue. Mr. Chairman, we've done six months but we'll be a lot further along the road in another sixteen years (Applause)
Q.
The miners' vote. How does this bode for the future of pay settlements in this part of the sector?
A.
The answer to the first one is that that really will be giving you a scoop. For what pleased me was the aspect with which I have indicated, because I've watched British Leyland and I knew that I must not interfere because Michael Edwards is the Manager of it, the Chairman of it, and you back your Chairman or you say all right we'll pay. When it came to coal, of course coal is absolutely crucial and vital to the nation's future, it's even more crucial and vital with oil prices rising and I knew that if my policy and beliefs were really to come into operation, that we must not go along and interfere and say “do this or do that.” We had to fix the Cash Limits which we did. You know the Cash Limit of coal is £600,000 a year. It's quite a lot, we hope to get a lot of money out of oil but on coal we put a lot of money in. We fix the Cash Limits, that's just but a small proportion of their income, and then we say now look you must negotiate. Well now they have, which also I think reinforces my faith and belief in the secret ballot. Now all right, it might have come out on the wrong side but the point about the secret ballot is that you really do know the feelings of those who work the nearest to it. Although you don't support it necessarily because it always will come out the side you want, but because again that's the way in which you ought to operate. So I am cheered, it is I think one of the signs that our philosophy and belief strikes a chord in the hearts of most people, most ordinary folk understand my economics far better than Economists, but then I never understood Economists. But they do understand mine because mine are sound.
Q.
If the Prime Minister will be kind enough to say again that we have to get public expenditure down as a proportion of [end p6] national income. Given that national income is likely to be reduced next year and the present public expenditure white paper that is to be debated this afternoon, holds it level, does it follow that further cuts must be implemented in 1980/81?
A.
I am asked about public spending economies—the year 1980/81 is the year you're discussing. I think what we've got in that is absolutely the maximum the nation could afford, but I think there is one point which we haven't fully taken on board, there is still that £1,000 m. to Europe which will be substantially reduced, of that I have no doubt. It will be substantially reduced and gives us just a little bit more leeway. I wouldn't necessarily have said that we are going to have much lower growth next year. During the history of forecasts since I've been there, long before I was there, history of the forecasts since about May has been that a recession is coming and everyone so had their eyes on this blessed recession that they failed to note that the borrowing economy for the retail industry is still booming. That employment is still holding, they've so had their eyes on this recession which is looming that they have failed to observe what has been happening. But I must tell you that I'm getting to be a much more sceptical forecaster. Do go through that report if you're interested but do go through the margin of error. You have? Well you know my point. (Applause)
Q.
May I ask the Prime Minister if she could switch for a moment to a Scottish question? That there is a feeling among Scotch MPs and there has been expressed on the floor of the Commons that because they—Labour—have the majority in Scotland, they find a Labour majority in Scotland, that the Prime Minister has not all that sympathy on Scottish issues.
A.
Absolute nonsense, I spent a good deal of my time on them and I think possibly visit Scotland as a part of the UK more than anywhere else. The Scottish Office was one of the first departments that I actually went around. First I happened to go to Energy, it seemed right for me to go the Energy-there seemed a certain empathy (Applause)-after that I did go to other departments but I reckoned my job as [end p7] Prime Minister is to know what's happening in departments. So first of all I went to Energy, the second one we went specifically on a visit to Scotland and around the Scottish Office, and so that is totally untrue, and I go there for pleasure too not only for work. (Applause).
Q.
You emphasised the importance of sticking by the monetary policies. Does that entirely rule out other economic measures if in fact things do get worse on the barometer?
A.
Yes, mere monetary policies won't work. Monetarism was never enough, just to quote Keith Joseph. (Applause) Nor indeed would it work unless you get your public expenditure down as a proportion of national income. But that's what I might call the negative side, that's the side of holding inflation. You see you could, in fact, put your budget into balance by putting tax up, but that would take your positive side away which is your incentive side. You have got to do the things to hold inflation, which is holding your public expenditure down and your money supply, but you've got to have the incentive side to run up the smaller businesses to be bigger ones. You know my view on a formal incomes policy, it never works for more than about two years and it leaves you with monstrous problems afterwards. I hope what we've got to do now is get through by showing that people are prepared to take reasonable responsibility for their own pay claims, relate them to output, because if not the consequences could be very painful. Some people are going to take it all out for themselves and you're going to hold your money supply, but then they are going to cause very painful unemployment consequences for other people. And therefore the policy I run is bringing people hard up against the consequences of their own decisions. So formal incomes policy I think in the long run is damaging to the country, because it just delays the consequences. You've had it three or four times now and it doesn't work, so let's see if we can get over this difficult period and come to the kind of decision which you have got in other Continental countries where they know there are plenty more wages to be had if they give the output in return. [end p8]
Q.
Is the Prime Minister worried about the danger of war in South Africa? Is she prepared to invervene personally, if necessary, if that looks like happening?
A.
No, I'm not worried at the moment about the danger of war in South Africa, but I'm worried on this particular day about whether we're going to get a final settlement on Rhodesia. Because don't forget there have been hostilities and very damaging ones there for a very long time. But I hope that our contribution to that part of the world is to be able to see to the perpetuation of democracy, to get full democracy in Rhodesia on the basis of the Constitution we've given, and to expect it to continue. You would recognise it, being the Morning Star, my belief in democracy and the importance of getting democracy in that part of Africa. (Applause)