WSJ
There are a number of areas that have interested us and Alan has indicated some of those that we thought we would try to get to during this period that you said you would see us. A number of the questions tend to look at economics both within the UK and international economics, but in addition we hope we will have some opportunity to also ask a bit about your thoughts about developments in the Middle East, about missiles, and about some other non-economic issues. Well, I thought perhaps we could begin however with some specific questions about the British economy and that we then might develop into some broader issues from there. Since last week's Summit meeting the pound has been fluctuating quite a bit. It steadied some today, there's been a lot of question about interest rates, about whether there is going to be a return of inflation: at the same time you have gotten some very good news.
PM
Now if you are going to ask six questions in one, could I have a piece of paper … so I don't lose the thread?
WSJ
OK, well I think that … . since the Summit there have been some very interesting developments in the foreign exchange market with regard to the pound, some questions about where interest rates are going. At the same time some quite cheering news about the latest economic survey of the CBI and I thought perhaps you might give us your view at this time of where you see the economy heading, whether you have concern about the state of the pound, whether you think intervention will have to be returned to sustain the pound or whether you are comfortable with the way things are going as they are right now.
PM
Now on the pound, first things didn't start at the Summit last week. The dollar has been very strong against all European currencies for quite a time. As you know quite a number of them … . Deutschmark expecting to be revalued, but during my office as Prime Minister there have been two almost opposite phenomena to cope with—a very weak dollar during which time the pound went [end p1] up to $2.40 and over that, and then a very strong dollar and I think that eventually the dollar will weaken. It is as strong at the moment because of the deficit, partly because of the deficit, partly because people realise that in order to finance that deficit they'll probably have to offer considerable interest rates to do it, and because the money supply figures in your country have been such that people believe that with the deficit and the money supply there is a chance of inflation rising and that tends to put up your interest rates and therefore money tends to go to the dollar. There is always a background reason as well. In times of uncertainty money tends to go to the dollar. That is because the United States being a free enterprise economy, a very strong powerful enterprising economy and underlying strength is a characteristic of the American economy. Whatever temporary problems they may have there is an underlying strength in American economy—an enterprising country. There is no fear of a socialist government and it is a politically stable country. So that is the underlying reason why in an age of uncertainty things tend to go to the dollar, and then you have got the temporary reason which I indicated. And so you have at the moment a very strong dollar, in spite … [words missing] balance of payments, and it is strong against all European currencies so we have weakened against the dollar. In fact in my term of office we have actually strengthened against the rest of the EMS currencies, particularly against the French franc, not against the Deutschmark, but taking the basket of EMS currencies we have strengthened against the basket as a whole. So it is a complicated position. In my view eventually the dollar will weaken … . I believe … . two phenomena—a weak dollar and a strong dollar—both have an effect on sterling, but it is very important for all of us to try to get and keep interest rates down. We Cannot over stress that, it is so important—extremely important. If you don't keep them falling then you shall just strangle your recovery. Your constructions [sic] have got to have lower interest rates in order to give them confidence to go ahead, to build up stocks or inventories as you call them, you've got to have lower interest rates, to do expansion and investment you have got to have lower interest rates, it is absolutely vital. We struggle hard to keep ours lower. You asked me then, when you have got this kind of underlying situation you can't say that we are going to defend any particular [word missing] of your currency, because what happens, [end p2] you simply put in reserves after reserves and your reserves are minute compared with the vast tons of money which are … . round the world. You just can't do it, all you can do is to intervene to keep an orderly market and that is all. It is very ironic when I think that we have no trouble with public spending—that is to say it is under control—we've got a small budget deficit and we have inflation falling, and it will still go on—the underlying rate falling, we have managed to get our interest rates down, we have managed to get our bureaucracy down—I've the smallest Civil Service for fifteen years, we've managed to get our industry very very much more competitive. To do all of those things, indeed some of my fellow Heads of Government will say look you don't seem to have the problems that we have, and we don't because we've got sound financial policies. It is very very ironic that against that background the pound is weak against the dollar. And with a balance of payments surplus.
WSJ
But does that mean that you can let the pound continue to slide without … [inaudible] don't you have to face the possibility that at some point you are going to have to …
PM
The pound I think is already very low indeed against the dollar and I have indicated why. Our actual performance on the economy and everything which I have said—in inflation, in control of public spending, in small deficit, in balance of payments—is strong, and it will warrant a higher pound against the dollar … . But it is still important to try to keep interest rates down because unless we do—if we let them rise—unless we struggle to keep them down we shall just strangle the recovery.
WSJ
Do I understand correctly then that you would only see yourself … . in maintaining an orderly market.
PM
That is a … . yes, maintain an orderly market … isn't any one … supporting the pound—we just don't have the reserves, and I don't know any country that has the reserves to defend and keep a specific rate and that's why we have to go afloat. I don't need to tell you from the Wall Street Journal that the sums of money that move around the world are infinitely larger than the reserves in any one country—infinitely larger. [end p3]
WSJ
We've had these faults long before our recovery—are you [inaudible]?
PM
It looks to me as if the chances of this one leading to a sustained recovery are greater than the one we had in this country at the end of 1980—where was it, the beginning of last year. And because several of us seem to be coming out of it together and we have a number of indicators which are good and I am not only talking about the classic ones which I have indicated—the inflation, etc. etc. and the balance of payments, but there is more optimism here, and also in Germany and also in the United States. We were coming out of it slightly earlier before—our [inaudible] went up slightly last year, and we were all of a sudden hit first by the steel problem, which is a world wide problem and second because the recession undoubtedly hit the continent later than us and pulled us down again, just as we were starting to pull out. So I think the fact that the optimistic signs, in construction, in retail sales and export orders and in orders generally are happening in two or three countries simultaneously leads one to be more optimistic than one was a year ago. A year ago I think what happened, as you know, was that people had run their stocks down and then they had to replace those stocks, and that was what you got—there was a small apparent recovery, but it was not sustained. There is a greater chance of this one being sustained, because we have got a very good construction business too, than the previous one.
WSJ
But the figures all along have shown that as people here have more spending power, more disposable income, the large percentage of it seems to go on imports rather than on British goods.
PM
Some of it goes on imports, but you have to analyse your import content and I think you will see that quite a lot of imports are semi-manufactures, and quite a lot of replacing raw materials—there is quite a lot of timber for example coming in now. Quite a lot of semi-manufactures and that also is quite a good sign because it means that our manufacturers are importing a certain amount of raw materials, a certain amount of semi-manufactures again to enable them to complete their product, some to be exported. [end p4]
WSJ
So this doesn't mean these figures … .
PM
Certainly on cars I am always worried about the amount of imports of cars but that I think is a question of getting designs right—we have now got new designs of cars—the Jaguar is doing well—the Maestro is doing well—the Metro is doing well, and of course some of the new designs from Vauxhall are doing well, and Ford … . I know, but strikes are not unknown in your country—even on the railways.
WSJ
But the recent realignment of the European currencies and all the anguish over that weekend—did it make you feel any more or less disposed to take Britain into the monetary system?
PM
No, I think we have this different thing from the rest of the currencies, and oil is only 3.6%; of our GNP, but it does have quite an effect on our currency, a balance of payments effect, because we don't have to import oil—we are self sufficient, and so we don't have to import oil, well we do import it, but then we export an equal amount. It has an effect on our currency which is one of the reasons partly why we strengthened so much against the dollar at one time, and one of the reasons why the price of oil is a little uncertain … . So we have a totally different factor from any other European currency—the nearest to us I suppose is the guilder … no I don't think the time is right to go into the EMS.
WSJ
Do you see a time at some point?
PM
There may be but I certainly don't think it is now.
WSJ
You have recently made … .
PM
Incidentally, we do put reserves with the EMS, we just don't … we are partly in, but not in the exchange rate scheme—I am so sorry.
WSJ
You recently have made some progress on budget issues with regard to the EEC. I wonder if with the budget issue behind you, there is any appetite for raising more seriously questions of [end p5] agricultural subsidies and the effect they have on British farmers and on their…
PM
Part of our problem with the European budget is the way in which the Common Agricultural Policy operates, because it produces surpluses which we don't want and can't eat. And we are the first to say that we need to change the CAP, but the difficulty is to persuade one's partners that this is the case. We have been saying this for some time. It is ridiculous to run the CAP in that way—… . to come up against the limit of the budget—the budget gets its money from levies on imports … and from 1%; Value Added Tax. In fact, the agricultural side of our operation is taking up so much and is expanding so fast—rather faster than our resources—that there very soon comes a time—possibly next year—when the resources we have is not sufficient. To meet the requirements of the agricultural budget if they stay on the same basis as now. And that I think will bring about the reassessment of the CAP. It's an actual price tag to put on the CAP.
WSJ
Do you see there being a major goal of your Government at this point … .
PM
It always has been.
WSJ
Do you see it intensifying now?
PM
Well no, I think I see—when you come up against necessity, then people are prepared to look at changes in a way they're not prepared to before they've seen necessity. Coming up to the ceiling of the European Budget means that other countries will have to limit.
WSJ
What do you see as the shape of Britain's relations with the Community? Do you see changes? It obviously will be an issue in the next campaign of the Labour Party.
PM
Well we shan't make it an issue because we're well and truly and firmly in, because we've made it in our interest to be in. In the interest of the democratic countries in Europe to stick together. In the European Economic Community. And that's the main reason why we're in to stay in. Being in, we fight our corner. [end p6] Because the Budget as it is organised at the moment is unfair to us, and any other country which had the same problems we have would take the same attitude we do. So we shall fight our corner on that—we'll fight it and be well and truly in. All our industry's geared to being a member of the Common Market. 43%; of our exports go to Europe.
WSJ
Why not make it an issue, because it seems to me it is the British membership in the Market, because it is one that according to your own figures is applicable to British economic well-being …
PM
I shan't make an issue … . case for staying in if anyone else is giving it for coming out. You see the other thing—the really big case—which those who wish to take us out ignore is that we should cease to get a lot of inward investment that we get now. Many people regard us as the best base from which to sell into Europe, and therefore a lot of our inward investment comes in on that basis.
WSJ
I was thinking that it is an issue which is easy to slogan-eer on, and takes a lot of education to present … .
PM
If they're going to make an issue … we shall fight, really sturdily on this issue to stay in, but for the moment I assume we'll stay in. We've fought this kind of election before. … you know was to renegotiate to stay in. But I don't think they'll win. I do think it's in Britain's interest to stay in.
WSJ
D'you think Britain thinks that now—the majority?
PM
I think so when it's properly and effectively put to them. You see, really the problem we've got to sort out now—the main problem of the European Budget—you've got to sort it out—the fisheries policy and many other things. The big remaining one is the Budget. When we get that sorted out I think—as when we sorted out three years before—a lot of resentment went. [end p7]
WSJ
What do you see as the main needs of the Williamsburg Summit? What message do you hope comes out of there?
PM
In the end you really can only cooperate together—most effectively when you're all running your economies in a sound way. And you see that we've had to have a re-alignment of the EMS. Because different people mind their economies in different ways. But you simply cannot get an international formula which will overcome any lack of running your own economy in a sound way. There's no substitute for running your own economy in a sound way. I think it was put quite well, you know, at the Versailles Summit, on the economic section was very good. I think it's absolutely vital for us jointly to pursue policies which enable us to … .
WSJ
Are you thinking of any countries in particular?
PM
Well I have. We're getting and keeping inflation down—there will be fluctuations because of the changes in the exchange rate—in dollars, because obviously at the moment when you go right down against the dollar—at the same time the price of oil is coming down, so that goes the other way. We're all right on deficits. We've got public expenditure under control. We're all right on balance of payments. We really have got inflation coming down. We really have run our economy in a sound way. So if I might say so has Germany. Inflation down, public expenditure under control, deficit reasonable, money supply reasonable, we're still on course with the strategy—so's Germany.
WSJ
Some of the other members—the United States for example, still has very large deficits.
PM
The United States [deficit?] causes problems. I indicated that last weekend. Undoubtedly causes problems. It's not for me to indicate how they should get it down. The Ronald ReaganPresident is the [end p8] person most anxious to get it down.
WSJ
An article which referred to him as a “Neo-Keynesian” suggesting that the only true commitment to keeping deficits was really more here than in the US …
PM
I think the President is very very anxious to get Budget deficits down. He says there are two ways of doing it. One is by reducing your expenditure as a proportion of your GNP, and the other is by putting up tax. And for years people don't like putting up tax, and he obviously wanted to do it by trying to keep down expenditure. I couldn't fault that argument. … . the United States, it's not for me to interfere.
WSJ
There's another country whose economy seems to be going in a somewhat different direction—that's France. Do you see any impact of the change in the course of direction in the last week for your economy?
PM
I know it hasn't affected me. At last they're starting to fight inflation. The phrase “you must fight the evil of inflation”, and they're not so badly off with their debts. Balance of payments deficit is very very considerable and they have problems with their social security scheme—have had to take steps to balance that.
WSJ
Their foreign reserves also have been …
PM
Indeed. They're bound to if you have balance of payments problems.
WSJ
A lot of the international banking systems seems to be—the right word coming from the Wall Street Journal is over-extended or what, but there certainly are a lot of loans which must be worrisome. How much does this worry you with so much in the … .
PM
Is there much concentrated here in London? I think you'll find that we're not so extravagant as some other countries. Mind you, any experience is worrying, but I think [end p9] you'll find that … . Yes, it was worrying.
WSJ
Any ripples anywhere, whether it comes from New York …
PM
We all stand together in a way because obviously any problem that affected one group of banks or bank just repercusses throughout the whole system. So yes, it is a problem. And one is making every effort, first to steady the price of oil, because that could give enormous problems,—one made every effort to try to get the countries that were in difficulty have a tough regime with the IMF, and the IMF has insisted that it should be tough, and that is the basis of course on which the commercial banks will lend in addition to the IMF, that the regimes that are in difficulty should not conduct their affairs in the way that led them into difficulty, but should in fact conduct their affairs in a totally different way to restore them to solvency. And I think that the IMF have made a very good job of it, in relation particularly to some of the Latin American countries. You obviously have to watch very very warily indeed, and that again is why I'm anxious that—one should try to do everything one can to stabilise the price of oil. We can't do it ourselves. You look at the market. Russia produced eleven million barrels of oil a day, the United States eight million barrels, Saudi about five million and the Gulf considerably. Then I think we're about sixth—two million barrels a day. It can't affect the market. You've got Russia at eleven million barrels a day, US at eight million … . on the stock market at Rotterdam, but I'm sure that a falling oil price as far as it has fallen, has been in the interests of the world, and any sudden changes … and I think now the need is to try to get stability. And also you've got a multiple effect of it on many many countries.
WSJ
What does that mean for British oil?
PM
It means nothing except that the rules are that [words missing?] British oil, by statute. The only thing we can do is to follow the market. [end p10]
WSJ
You can lead the market also.
PM
I'm sorry we can't lead the Market because our Statute is such that we have to purchase at the Market price. We cannot lead the Market. BNOC. We can no more control our oil price than the Ronald ReaganPresident can control that of the United States.
WSJ
To change the subject … apparently the President is about to make his new missile proposals. Do you know what these will be?
PM
The United States consults extensively on all disarmament matters … . very extensive indeed. I'm not going any further than that. The dual track decision was that we have to modernise and deploy Cruise and Pershing on an equal basis as the Soviet Union has SS20. After that dual track decision, the Ronald ReaganPresident came out with the Zero Option—obviously very much the best option. If we're not able to achieve that—and obviously we have to try on the base of the dual track decision—to achieve equality of SS20s with Cruise and Pershing, not counting the independent French and British attachment to the strategic—not a land based missile but a strategic one—and also based on equality of non-verification as well. So I'm sure it will be another case—a Zero is a special case—but the principles are clear.
WSJ
We were talking about Geneva. And since you don't want to say whether you know or whether you approve, do you have any doubts that whatever comes up tomorrow or whenever the President makes his next proposal—that negotiations will not proceed fast enough or successfully enough? Don't you think it's almost inevitable that missiles will be deployed in Britain this year?
PM
I cannot see, because I cannot see Russia agreeing to a Zero Option this year. How many will be deployed is another matter. Because as you know they're deployed over a period of five years. How many will have to be deployed will depend on [end p11] how far the Soviet Union will bring hers down. All that is to pay for. I cannot blame you asking me straight our whether I can see, whether I can foresee the Soviet Union to take down all their SS20s this year. No, I can't.
WSJ
As the zero option is, according to you, such a desirable goal or proposal, why do you think the US has been doing so poorly in the propaganda war?
PM
We have a public opinion which enables the protestors to get a great deal of publicity. The Soviet Union has no public opinion at all and the nature of democracy is often that the protestors protest but those who are quietly with you don't let their voice be heard on such a basis. It is the greatest inequality in public opinion, the greatest imbalance in public opinion ever known.
WSJ
But I am not just talking about the public opinion within Britain, say, as against the public opinion …
PM
No, no what I am saying … is … public opinion—it's between the NATO countries and the Warsaw Pact countries. They have no public opinion which can give expression to its views.
WSJ
Right, they also then, the Warsaw Pact countries seem to be doing very very well in mobilising public opinion within the NATO countries.
PM
Well, I wonder if you are right.
WSJ
I frequently do!
PM
Yes, there has always been a nuclear pacifist and pacifism in Western countries, an inter-pacifism and a fundamental pacifism in Western countries that can express its views. You don't need to have many people feeling that to get together quite large demonstrations. Do you know in Darlington we have just had a by-election—I don't think missiles played any part in that by-election at all. Very interesting. [end p12]
WSJ
How much do you think is due to the image of our President as some sort of cowboy, trigger happy, that sort of image?
PM
I don't really think so. People have seen Ronald Reaganhim on television frequently—he is a marvellous communicator, and usually manages to express himself in language which everyone understands. What happens is that the protestors get at it first and of course the protestors always get more publicity than those of us who come in to back up. I am saying every day in the House that you really ought to address your objections to the Soviet Union who won't take down the nuclear weapons, not to us—we are the genuine nuclear disarmers. The protestors get more publicity and then more noisy. I do not think in the end that has most influence I don't think you must judge influence by the amount of noise these protestors make. Sometimes people get absolutely fed up with them.
WSJ
The President last week in the course of a speech made some proposal to … .
PM
You see I don't think he's got a cowboy image in this country. I mean, he is President Reagan.
WSJ
He talked about some futuristic defence … . ballistic missiles, space … did you have any advance warning …
PM
It is not futuristic. It's a theory—it can be done in theory, in practice you'll need years and years of research and then we don't know whether it can be done.
WSJ
The whole area of nuclear, conceptions about nuclear deterrents and so forth, the idea of being able to have a kind of fortress to be able to defeat incoming missiles is a rather new doctrine and in its own way can be as destabilising as having new … .
PM
Oh no, it is not a new doctrine at all. There was a time of course when the great thing was, did we all go on to the next phase, which after all is the anti-ballistic missile, or a means of knocking out the incoming missile. And then there was the Anti-Missile Treaty—we can do certain things with missiles now, [end p13] a limited number of things, and the Treaty was that we each had one area which aided ABMs, but this is, one is not talking about an anti-ballistic missile now, but about something else, about something electronic which can in fact knock out the operating mechanism.
WSJ
Does it violate the spirit of the Treaty?
PM
No, it doesn't violate the spirit of the Treaty at all. As President Reagan said in his speech, and I would think that if we didn't do the research we might be fearful that the other side might do the research. You see then, if only one side had got this first, then it would alter the balance, but there is an enormous way to go between starting to do the research and even seeing if it is feasible. What always bothers me is that you get a suggestion, you start to embark on research—it might be thirty, thirty-five years and promptly people assume that you can do it and then that you make your disposition as if you already have that capacity and you haven't.
WSJ
But I think the President himself made it sound a little more imminent than you are making it sound.
PM
Well not really, he said, at my recollection, embarking on research to see if we can do this because if you can do it there is no point in having these things. But the thing with the time scale we are talking about is thirty, forty years ahead. … . You don't like what I am saying, I can see that.
WSJ
No, it is not a question of liking or not liking, it is a feeling that the President for his reasons made it sound a good bit closer than you are.
PM
No, you can't make that sound close. You have only got to ask anyone in the business and you know it's not close. Again I am astounded that you said the idea is new—there was a great period, ten or twelve years ago, when one was talking.
WSJ
I am sorry, I think since the SALT Treaty this seems to be the first new …
PM
… anti-ballistic missile treaty, but what one is going to [end p14] say is, is there another way of knocking out effectively the nuclear warhead so that in fact it could not reach us? I am always pleased at research of this kind, because someone is going to do it in the end. In the end, you know, if you don't have nuclear weapons, that's fine by me, provided we none of us have them—that's the objective.
WSJ
… . ask about an unrelated Treaty, but one that also involves several years from now. As you know, in addition to the Wall Street Journal Europe, and a Wall Street Journal United States, we also have an Asian Wall Street Journal which is published in Hong Kong, and over the last year there has been a lot of questioning in the Colony about the status of negotiations with China. Is there anything you can tell us about the, about where the discussions with China are going, or about the future of Hong Kong?
PM
No, there is nothing further I can tell you. We had to open up the subject because the lease in 1997—it ends in 1997 and we are soon going to come to the time when people are going to worry about what the future was, particularly with property on the scheduled territories. But we have to open up the dialogue now but there is nothing that I can tell you further than what was published in the communique at the time. I do think that we are all very keen to keep the stability and prosperity of Hong Kong if we possibly can. That is compounded of these two remarkable things—the Chinese character and the present administration—that is where we have to start.
WSJ
Do you think the communique had a stabilising effect?
PM
It is always difficult to know. What the communique did was to set out agreed objectives—the communique was agreed between Deng Xiaoping and myself, and the statement was agreed to by the two of us after considerable discussions. The objectives still remain and I just hope that we can reach agreement on how to do it, because if … . think we should. And really when you have got this remarkable thing you would really think that China and ourselves could reach some agreement on how to preserve it—it is a remarkable achievement. [end p15]
WSJ
I assume, Mrs. Thatcher, that you are not going to tell us when the election is going to come.
PM
I don't know.
WSJ
In fact I was wondering whether you could … tell us what are the factors that will finally shape your decision, and secondly assuming you win re-election, as the polls seem to suggest, what will be the shape of Britain after eight, nine or ten years of … .
PM
We will carry on in the course which we have already adopted and the fact was that in this country we have gone very very much further towards socialism than most democratic countries in Europe, in the extent of the public sector, with the nationalised industries and the amount of control and to some extent in attitudes. We have to turn that back, in other words the centre had gone to the left—the centre is always the mid-way between two points, and the whole of the political debate had gone to the left, so the centre had moved to the left and I think we are now well on the way to pulling it back towards the centre, but one wishes to go further. Some of the decisions we have to take about public sector industries are some which politicians ought never to have to take. You don't have to take them in your country because there aren't any big public sector monopolies. Big nationalised industries. It's not a good way to run an industry—you have to vary trade union law because there is not the slightest shred of doubt that the law made the trade unions too powerful in relation to the employers. It was out of balance and we shall continue to do that. We very much hope that as we get growth that we can reduce the burden of taxation, that we can reduce income tax, and increase the amount of genuine free enterprise and business enterprise. We have a smaller proportion of small businesses than most other democracies I think this again is partly because the attitude grew up that we have a problem therefore government must solve it. But now we have a record number of people who are self-employed in this country. Just a … . direction in which things are going. We had a problem I think unique in the democratic world—a third of our houses were municipally owned, council houses. I don't know of any other country on the continent, in the free world, that has that. [end p16] And so we had to start to get, to give the people who lived in those houses the right to buy them, so now we have a record number of home-owners, a record number of dwellings in owner-occupation—very good. All the way going more to the person being independent, more people being property owners, more people having their own enterprise. Reducing the size of the public sector genuinely because we have done quite a lot in that way, with the denationalising, and where we haven't been able to denationalise, denationalise a part of something, or a part of some monopoly sectors. We shall continue in that direction, we have also put more resources into law and order, the effect takes some time to come through of course, and to continue … . and I want now somehow to influence, to increase the influence of parents, for example, on the education system. Ours is run rather differently from yours, and we are seeing how to set about that. Another thing we are embarking on fantastic training programmes for young people, we simply must see that we have training for the next generation of products. Now let me just mention one or two things—we have got micro-computers at schools, we have got computer training centres for the unemployed, we have now got thirty eight working and plan to have a hundred. There are fourteen courses—we have found the youngsters will go into them and when they see some point in learning they will learn much faster than they will at school. We have the big training scheme which starts in September, and every young person that hasn't got a job who leaves school will have a year's training and we are doing it with industry and commerce, we have got to find nearly 500,000 places and we succeeded in doing it. But all of this is going much much more towards the restoration of the personal responsibility, the independence, with every man a property owner, every man a capitalist, much more concept, getting away from the Head of State [sic] having such a big sector, such a big voice, and of course running our financial affairs soundly so that the task of Government is to create the climate in which enterprise can flourish, and we have made a very considerable amount of tax changes to that effect.
WSJ
In all this, when does unemployment stop?
PM
Yes indeed, but unemployment is a world phenomena as you know, [end p17] of the recession which started … let me say in this country because the very sharp increase in the price of oil led to a redistribution of income in favour of the enormous oil producers against those who were purchasing from them, whether it be the industrialised western world or the lesser developed world. So the money was not there to purchase other products, because the countries which got the increase in oil revenues were not able to put that all back in purchase products for their countries, so you had a withdrawal of purchasing power from the international community which led to world recession. If you ever have a sharp distortion like that it's bound in the end to start to correct itself. Because you have that enormous distortion in price. Obviously it started to correct itself, and people reduce what they buy. It takes some time, for industries have to change their equipment. People have to insulate. They purchase less, they look for different industrial processes which use less energy. They look for different forms of energy, so you gradually start to correct, and you have world recession. That came at the time of a very substantial technical revolution that is affecting the whole world—the computer and electronic and silicon chip revolution, the first effect of which is to substitute people by machines. The second effect—with every technical revolution—which takes a time to come is that that will make possible the creation of new products. It is already. But you're producing some of them in the States, quite a lot in Japan; we've just started in this country. So you've got world recession, technological revolution, I would say your third, a very major technological revolution. The first effect is to reduce the number of jobs; the next effect will be to increase them because of time lag. That's the second effect. The third problem which hit us particularly in this country was—there's another third problem which affects the whole of the western world—a totally new pattern of international trade has developed because of the newly industrialised countries which are now producing many of the goods which we formerly produced. We used to regard them as our markets—they not only produce for themselves—they're exporting to traditional markets to which we used to. So that's a third factor. And you've got the fourth factor which in this country—we went into this recession very heavily overmanned, I'm afraid because of years of overmanning because of the grip of trade unions on certain industry. Overmanned [end p18] and restrictive practices; and also I'm afraid, characteristically again of this country, that increases in pay had been out of all proportion to the increases in output. Paying ourselves more and more and more for producing the same amount of goods, and that was particularly so in the decade of the 1970s to the 1980s, particularly so.
We had all of those things hit us simultaneously. I had to cope with them all. Now it would have been difficult enough to cope with any one of them: to cope with them all was particularly difficult. Now common to the world, it's the world recession. The newly industrialised countries hit you differently according to your pattern of trade. The technological revolution hits us all. The overmanning, restrictive practices, trade unions, and the pay hit us particularly badly. So, but if you look across the world you will find that we're not the highest unemployment in Europe. If you take into account that almost every other country in Europe has compulsory conscription, and we don't. That takes a whole generation of youngsters off the labour market. Germany has it, France has it, nearly every other country has it, save Luxembourg. We don't. It wouldn't go with a swing in this country at all. We have highly professional forces as you've seen here—unsurpassed the world over. And also, the Germans of course returned nearly half a million of their Gastarbeiters some time ago. Take those into account, you'll not find that much difference with your … . [Transcript ends.]