Interviewer
Since you led the charge since the mid-to-late 1970s, there seems to have been a switch in Europe and in the West to more right wing or more conservative types of governments. The pendulum does seem to have swung.
Do you see that shift lasting longer? How fundamental is it? How long will it last further and is it just temporary or because of the prices that are associated with it, fairly or unfairly—primarily unemployment—will there be another shift of the pendulum to the left?
Prime Minister
I think it is a fundamental shift, because the policies that we have been putting into practice are fundamentally sound financial policies and they are fundamentally sound industrial policies; because you have got to have sound finance, you have got to live within the constraints of a budget—you cannot go on living beyond it indefinitely. You [end p1] cannot go on and have just a little inflation: it gets bigger and bigger and people recoil from it. You cannot go on having industries that are overmanned and full of restrictive practices, because they soon get uncompetitive. You cannot go on, in other words, trying to convince people that they can go on indefinitely getting something for nothing and that you do not need people to create wealth.
What happens so frequently with socialist governments is that they assume that someone else creates the wealth and it is there for them to distribute. They concentrate on distribution; they concentrate on trying to convince people there is a lot there to be had just by voting for them, and very soon you find the distribution runs out, the deficit is enormous, they get into the hands of the IMF and they then have to come down to sound financial policies. They duck the fundamental questions as long as they can—as ours did—but sooner or later you have to run things soundly, whether it is your finance—and we are—, whether it is your industry.
You referred to unemployment. We would have been infinitely worse off, as far as unemployment is concerned, had we not dealt with inflation at a time when most other people had dealt with inflation. We should have had far less exports had our inflation been let rip; we should have gone uncompetitive, and also our goods would have gone uncompetitive if industry had not, helped by our own [end p2] legislation, put its own house in order and become efficient. Yes, there are unemployment problems. We have not got quite such an enterprising culture as the United States. I think you probably will ask about that later, but the employment problems would have been much much worse had we had rampant inflation, been totally unable to live within our budget, had inefficient industries. We should have been in an economic crisis and we should have been in the hands of the IMF and then had to come back to sound financial policies.
So I think it is quite a fundamental shift.
Interviewer
And do you think that this shift is also true of many other countries as well?
Prime Minister
Oh yes.
Interviewer
A lasting shift?
Prime Minister
Look at Spain. The government has been returned in Spain, but you look at the financial policies they have been running; getting their borrowing down, their inflation [end p3] down, putting a great deal of emphasis on the efficiency of their industries and these are because they really are fundamentally sound in handling money, and fundamental common sense policies in handling industry.
As I say, the enterprise is something that we really are trying to work on.
Interviewer
Do you perceive any similarities in terms of the voting public—it is obviously very dissimilar—but in terms of people feeling that they have been through enough in the past seven or eight years, that it is now time for a quieter time, that you can ease up a little bit, sort of 1945?
Prime Minister
If there is that, then we simply have to make it perfectly clear that if a business, when it has been successful, eases up it will soon be out of business. You do not have a successful company saying: “Well now, we have done the right thing for seven years. Now we can let up. We do not need to do the research. We do not need to put so much emphasis on design. Our budgeting can go haywire.” Of course you do not! It is the same things which keep a business successful that made it successful; the same attention to fundamentally sound policies, the same attention to the new [end p4] products of the future equivalent to the times; the same kind of efficiency in the future that you need to have. You do not find your Sears or your General Motors or your big companies saying: “Well now we can just afford to discard all of the fundamental rules which make a business successful!” and it is like that in government. Just let me give you one or two examples:
Why do people have fantastic confidence in Swiss currency? Not because after seven years she will say: “Well now we can let up!” but because the fundamentally sound things have got into the bloodstream of the country and because people have confidence that those will continue—continue from government and continue on the part of the belief of the people.
Because people have fundamental confidence that Germany, the Deutschmark will stay efficient; that her people will not go on strike if it puts the future of their company, of their business, in jeopardy. Any strikes they have do not last long; that they will be hardworking, that they will be efficient. That their banks, which have as you know a good deal of control over the money supply, will be sound; that you will not have rampant inflation in Germany.
You get that reputation by doing things in that way for a long time, so that it becomes part of your habits of life, part of your confidence as a nation, part of other people's [end p5] confidence in you. That is what I am trying to build up. We have only had seven years at it yet, so we will go on.
Interviewer
Do you feel that the reforms that you have been making, have made and still need to make can survive a change in leadership? I mean, in Germany, you can have Helmut Schmidt or you can have Helmut Kohl and there are changes but the D-mark did not …
Prime Minister
Well Helmut Schmidt, as I often said to him, was rather more to the right than I am! He said: “Do not say that in public!” but he was; he was very sound financially Helmut Schmidt and Helmut Kohl of course. … the same policies.
Interviewer
In the past, there has been confidence, as you say, about the Swiss or even until recently about the Germans, that a change in government does not necessarily mean a violent change in economic policies.
Prime Minister
I would not necessarily say that is so the whole time. Helmut Schmidt was a very unusual leader and the Social [end p6] Democrats were very fortunate to have him.
Gonzalez, I mean, they have had to, they have had to do certain things because they are the way to success. I never understand a government that says: “Inflation is our policy!” because what they are saying to every person who has saved is: “We are going to plunder your savings!” It does not seem to me to be a fundamentally sound policy. “What inflation is is that we are going to make jolly sure that the purchasing power of what you have saved is going to diminish year by year”. Well, you know what happens very soon after that—people do not save in money; they go and save in goods.
Interviewer
Your Government has made fundamental changes which neither a Conservative nor a Labour Government in the previous thirty years would have dared to do or tried to do. Look what happened to Wilson in 1969 and 1970 on Labour legislation.
Prime Minister
Harold WilsonHe tried, he tried—“In Place of Strife”—and backed off and Edward HeathTed tried. [end p7]
Interviewer
But can these changes that you have brought about in so many areas live beyond you?
Prime Minister
Well I hope so, I hope so, because what one is trying to do is not only to make them, but to get them entrenched. As I say, get them into the life blood of the nation, that this is the kind of people we are, this is the kind of people we have got to continue to be to be successful, to continue to export, and we still have the problem of unemployment to tackle.
I am not quite certain whether our problems are the same as yours in the States. Some of them are. We all at the moment, because we are all living in the same time, have the problem of the enormous technological revolution. It is a really big technological revolution. That means that you can produce far more goods in manufacturing industry with far fewer people, so can we, so can they in Japan. We all have that technological revolution, which means that there are fewer jobs in manufacturing industry proportionate to production and you are very rapidly turning over to far many more service industries than we are. You still have problems say, for example, in Pittsburg, where the demand for steel has changed—the demand for fundamental, primary products or raw materials has changed because of the technological revolution. [end p8] You go into a factory now, it is not so much big clanking machinery; it is small push-buttons, fewer plastics, less clanking machinery. Look at the size of that compared with what it used to be! So you have not got the same demand for the old things. You have got all of this process of change and the first effect of change tends to be that it throws people out of jobs and therefore still have redundancies. That is one change.
A second change from which many of us are also suffering is the newly-industrialised countries are taking over some of our traditional products: shipbuilding; steel itself is one. The big plant in Korea that is producing so much steel is the most fantastically modern, up-to-date, high-investment, computer-operated plant; layout superb, as I have seen. So a lot of our business is going to the newly-industrialised countries, just as textiles went many years ago. We have got some of them back because of good design. Steel, shipbuilding, quite a bit of cars too also going.
Now, as you know, they have advantages in GATT we do not have, so we have lost some of that business and you too have problems with steel, so we are suffering from that; that means loss of jobs.
Another factor that we are suffering from—and they all come together, that is why I am explaining about unemployment [end p9] here—is that we had a lot of hidden unemployment. We were overmanned, grossly overmanned because of restrictive practices in unions and people thought overmanning saved jobs. It did not do that. It made them so uncompetitive that we could lose whole factories, indeed almost whole industries, and we did. So we have had a lot of extra unemployment as the redundancies have come out and now factories are really efficient. We have still got some more coming out on ship-building, still some more coming out on coal—on those big industries where there were restrictive practices and where subsidies were poured into save them.
So we have that, which is causing us problems now on unemployment, which I do not think you do have, and certainly some of the European countries did not have.
Another thing that we have—I am not sure how it fits in with what you have got in the States—is we had a very big baby boom in the Sixties, which in a period of ten years is now coming out in the number of school-leavers wanting jobs. So we are going through a period of ten years, which ends at the end of this decade, and we already have one-and-a-half million more people in the population of working age than seven years ago because this big baby boom is now coming on to the labour market and it happens to be at a time when because of war, the number of people retiring is comparatively small. So we have got an increase in the population of working age, [end p10] a considerable increase. Added to that, I think we have got the same as you have, of your population of working age, a bigger proportion of them, namely your women, want to work, and so a lot of the new jobs we have been creating have not been going to reduce those on the unemployment register, but have been taken up by people who did not previously think of working—a large number of women who are now working.
Those four things are concentrated. Some are common to other countries, some are different, and we have in the last three years—the figures will seem small to you, but remember that our population is about one-fifth of yours—the creation of a million new jobs since 1983, a million net new jobs, but because of the things which I have indicated, it has not begun to make inroads on to the fundamental register. If it goes on at that rate, we shall, particularly as the demographic thing changes in the future, but even then, we have this other thing: we have 140,000 more businesses, we have far more self-employed, so the enterprise is coming back, but for years we had Socialist controls and people forgot how to manage; they forgot how to be enterprising; their prices were controlled, incomes were controlled, dividends were controlled, exchange rate was controlled, development certificates had to be obtained. Management almost forgot the enterprise but we are getting it back. [end p11]
Interviewer
Do you feel that you underestimated the difficulty of turning around an economy like this when you first came in? Is it taking longer than you thought?
Prime Minister
I think we have done a fantastic amount. I have indicated the things on unemployment. You add to that the colossal word recession we had because of the sharp increase in the price of oil from which we all suffered. Everything came together, and therefore, I think that one did not expect to have the levels of unemployment because, as I say, the world recession came and very sharply added to everything, and the combination of the other things means that we have had to tackle, in a world recession, more problems than some other countries who did not have our kind of union practices, and do not forget, as you so rightly said, Harold Wilson tried to tackle with his Paper “In Place of Strife” in the Sixties; he was moved off it by the unions. Edward HeathTed tried to tackle it in the early Seventies; he was moved off it. We tried to tackle it and we are succeeding, and we now have to get the creation of new business and small business, new products, new designs, faster than we are going. It is coming. Some of our businesses will rival any in the world, our pharmaceutical businesses, our chemical businesses, are quite outstanding. Some of our steel plants now will rival any in the world. [end p12] Some of our specialist business is absolutely first-class, becoming extremely good on design, and this is all right. We want more small businesses and we are getting that.
I must confess that with your new tax bill, which looks as if it will go through, obviously I cannot ignore the fact that our lowest rate of income tax, 29%;,—I have been saying this for some time in the House of Commons—but I only got down to 29%; this time—is above your top rate of 27%;, and we did our company reconstruction before you did. We brought down our rate of profits tax, our 52½%;, down to 35%;, and we did it in a similar way, by in fact altering the release of depreciation, because what was happening—I do not know what was happening in the States, I can tell you what was happening here—a lot of decisions were not being taken on ordinary commercial grounds; they were being taken on: “Well, where can we get tax relief?” That is not a good basis. So we did that. Actually, we were ahead of you, and down to 35%; is really very good.
When it comes to personal tax reliefs, frankly, they are not really so great. You see, I do not know whether you still continue to have, but you have tax relief for interest on any personal loan, don't you?
Interviewer
That is right. [end p13]
Prime Minister
Well we do not. The only tax relief we have is a tax relief on £30,000 towards buying a house. That is the only tax relief, on the interest, which is very small, so we have not got those personal reliefs to get rid off and therefore we have not got the leeway to bring down the actual personal rate of tax. We have to have a look at our expenditure and our growth. The only way we can get our tax down is by getting the growth and having a bigger proportion of the growth going into tax relief, which is what we have been trying to do, and try to look very carefully at our public expenditure. The Ronald ReaganPresident is the first to know how difficult that is, and you are the first to know that however you wish to do that, you are circumscribed by what you can get through your democratically elected chambers. It is always very interesting to me that your democratic system and our democratic system began with the representatives of the people putting a constraint on the propensity of the executive to spend. They are finishing up by adding to the propensity to spend. Democracy has done the greatest U-turn. Is that not right? From the Boston Tea Party to the formation of our first initial Parliament seven hundred years ago.
They all say: “It will be someone else's money.” [end p14]
Interviewer
On taxation, as you know, many American conservatives say that the high tax rate is the price for working, a price on initiative. It is a hurdle. Why don't you lower especially the top rate where, even in the United States, it was demonstrated when we reduced our top rate from 70%; to 50%;, we had, despite a recession, an immediate increase in revenues? In this country, as you say, the personal taxation is higher. Why don't you just cut the rates? Why have this obstacle in the way of the economy?
Prime Minister
Do not forget we took our top rate on investment income from 98%;, top rate on savings income, from 98%; down to 60%;, and from earnings income from 83%; down to 60%;. At that time, 60%; was about the median of the free enterprise industrial countries.
Obviously, I am worried that we have many fantastically able scientists here and fantastically able young people in the entertainment world. We are tremendously good. You know, our shows come on to Broadway, we are very good on the discs, we are marvellous in some of our cultural works, stage, music.
Interviewer
And the sciences as well. [end p15]
Prime Minister
And in the sciences, and obviously, I am desperately worried that some of the scientists, our biggest wealth creators, may say: “We can do better for our families out there,” and of course, because at the moment you are a wealthier society, the scientists say: “We have access to more laboratories,” and I am constantly saying to them: “Look! We shall not be able to break through to lower tax unless you stay here and help us to grow into it.”
We have this argument. They say: “It is more public spending rather than tax cuts.” I say: “Don't be so absurd. You say more public spending. You see the jobs that are created by it. You forget that the money you put into more public spending, first is churned through a money-go-round the bureaucracy is, so less comes out than was put in, and you see the jobs it creates. Why don't you take into account the jobs that it kills from the money that people had and would have spent on goods and services or would have loaned to other young people to start up businesses, or would have loaned to companies to expand?” You see, they forget the number of jobs that are killed by high taxation and high public spending. They forget to take that into account.
We have also got share options here, a very good share option scheme, to encourage those people to stay here, but I just have to talk about what you are doing in tax and say: “Look! If our need is for more wealth creation and more [end p16] jobs, then we have got to take this into account.”
But you know, people can hold different ideas. Yes, we need more jobs, more jobs. Therefore do not take down your tax; spend more public money. And I say: “Look, if public expenditure would have lowered unemployment, we would all of us have full employment for many many years.”
Interviewer
But why don't you—you know, either Sir Geoffrey Howe Howe when he was in or Nigel LawsonLawson now—propose in the Budget a substantial cut in income tax rates?
Prime Minister
Because I have to get it through the House and I cannot propose a substantial cut in tax rates without having a look at our public spending. Thank goodness, we have kept a low deficit. We are not like the United States. The United States can finance its deficit by drawing in money from all over the world.
Interviewer
England is an exporter of capital. Why don't you keep it and have that capital invested at home? [end p17]
Prime Minister
You know, being a businessman, that if you have got a balance of trade, then in order, as the night follows the day, a current balance means an export of capital. It just follows on arithmetic. That is why Japan has got an export of capital. You cannot have a current balance of trade and have capital flowing in. Of course you cannot. The two are mutually incompatible. The books have to balance on capital and current account.
When we do our expenditure, we do finance the overwhelming majority of it by taxation, because the more we borrow as government the higher the interest rates are, and we crowd out private investment. Already, if anything, the interest rates are higher than one would wish them to be, but also, having had a low borrowing requirement each year and having got it down, has enabled us to ride any storms that come along. A low borrowing requirement, contingency reserve. We got through Falklands without any extra public spending because we took it on our contingency reserve. We did not have to borrow any more. We got through a year's coal strike with prudent finance. We have lost five to six billion pounds in income. That is a lot, a big proportion for us. And we are still riding the storm, because we had prudent policies, and that is absolutely vital. [end p18]
Would money come to this country as it comes to the United States? Not in the same way, no. First, the United States: look at its geographical position. Marvellous. It is not surrounded by socialist countries—we have the iron curtain across our continent—so its defence is sure because it believes in defence and it has Canada to the north and it is right out there in the Atlantic.
We have the frontier of freedom across our continent, which is your frontier of freedom too. We also have socialist parties in this country which have come into power, which have been very adverse to wealth creation and to those who wish to create wealth. That limits the amount of money that will come here. If there were never to be another socialist government in this country, it would make an enormous difference. That is why—which is part of what I regard as my job—you know, to go on being returned with sound financial policies which benefit the people, on the fact that they too can become every man a capitalist, popular capitalism, which they would never do under Labour. Labour is controlling the people. We are saying: “Look! We want people to be independent with their own resources” so we could not get that amount and America is the haven of last resort for everyone. It will always be a free society, a free [end p19] enterprise society. It may have ups and downs and it will always defend itself, so it is a haven of last resort. Geographically, beautifully situated, strong in its belief, strong in its enterprise, strong in its leadership.
Interviewer
But as you know, in the 1970s, no-one wanted to touch our currency with any other. We had a very weak period.
Prime Minister
Yes, you did have a weak period. Fortunately, you got over that completely and I think people now would look to say even if you went through a weak period, the natural enterprising spirit and self-reliance and enterprise culture of the United States will reassert itself—and has.
Interviewer
But now, getting to whether you can afford to reduce the disincentives to work.
Prime Minister
I think President Reagan has done a fantastic job in restoring the total confidence in the leadership of the United States. [end p20]
Interviewer
When we reduced our taxes in 1981 through 1983, that 23%; cut in tax rates, government revenues as a proportion of GNP did not change. We have, like other countries, a problem on spending, but the revenues held up.
Prime Minister
That is right, but do not look at revenues. Life consists of a series of double entries. You cannot just look at one side. You do not just look at what your revenue is. You look at your expenditure. The two are related.
Interviewer
But the tax cuts did not hurt revenues.
Prime Minister
No, but at the same time, you put your public spending up.
Interviewer
Yes, we will not defend that although the bulk of it went for defence which should have been done in the 1970s and we needed to catch up in the 1980s, but the point is that a substantial reduction in income tax rates did not reduce government collections. [end p21]
off the record material removedPrime Minister
Don't forget we also increased our defence expenditure. We also increased our law and order and [end p22] pensions have also gone up because we have got more pensioners, but no-one gives us credit. Pensions have also gone up; we have got 900,000 more pensioners and the pension is higher than it was in real terms, but we had to get down some of the expenditure on our nationalised industries and less on public sector housing because you see we have got a factor which you have not got—not only the Health Service—but 30%; of our housing belonged to the public sector. What we are trying to do is swing things over to the private sector, but please, you alarm me when you say only look at one side of the balance sheet and not at the other. I even … off balance sheet financing and say: “How much is there there these days?” because that too is important.
Interviewer
It hits you at some point. So on the question of tax rates, you have the problem of one, you cannot afford what you call the three-year gap between the benefits from lower tax rates and the…
Prime Minister
I am not sure it would necessarily work that way here. I think it depends upon how many people you find in each particular tax band and I would need to look at yours because what you have got to do is to have a look and see. Do not [end p23] forget you are a big spending society. Your savings ratio is smaller than ours. I have forgotten what your savings ratio is now. What is it, 5%;?
Interviewer
It is, which is a misleading number in the sense that if you take total capital creation from business and individuals and … .
Prime Minister
We have a much bigger savings ratio than you, nothing like as big as the Japanese, which is one reason why the Japanese have so much currency all over the world now, but you also have to look at the habit and custom of the savings ratio because if by taking down your taxation you do not get the spending, then you do not get the revenue back in. I think your equation is… the Laffer equation is that people then spend the extra money on things which attract the sales tax or whatever is your equivalent of that. Now you need to study the savings ratio and the expenditure patterns for this and hitherto it has always been thought that those on high incomes in fact save a bigger proportion of their income and it goes perhaps into investment, but does not necessarily go into things which would give a high indirect tax revenue in return. [end p24]
Interviewer
But it did work that way, not for spending but after the … . despite the 1982 recession, the collections from people in top brackets was estimated to go down 10%;. Instead, it went up 10%;.
Prime Minister
What was the effect on—I am very interested—the numbers of people in your top bracket?
Interviewer
It must have been a million in terms of the number of tax. …
Prime Minister
Well a million is quite a lot … the number of taxpayers?
Interviewer
Yes.
Prime Minister
Well, how many people moved up into the higher brackets? In other words, what was the number of people in the brackets, and later, because you have got to take that into account. [end p25]
Interviewer
I do not have an answer here. Just what the Treasury estimated from their computers what would be the revenues and what the revenues actually were.
Prime Minister
I wish it were as easy as that. I really do. We have got it down, certainly. I must have a look at what relationships we can get, but certainly it used to be thought that the higher income groups would be the people who would save more and invest more, and therefore many of the investments do not attract the indirect taxes obviously.
You know, we put down our personal taxation and put up the indirect taxation of VAT. Unfortunately, like in the United States, the tendency of public expenditure is to rise even when you keep a firm grip on it, and we take the view we have to finance that honestly, otherwise you find that a bigger and bigger part of your public spending, although not your planning totals which are different, goes to financing your present and past debt. Now this is the problem you are going to come on in the United States. It is a problem that I have avoided, that a bigger and bigger part of your annual expenditures go to financing the accumulated deficit. Now, I had to watch that very carefully and therefore I am better off in that respect than you are in the United States and I think it is a factor which must concern you because when you come [end p26] to look at your expenditure, if your debt servicing is going up very fast then really it must give you cause for concern in how much new debt you are going to have to raise not merely for new capital, but new debt you are going to have to raise to service old capital. We are getting highly technical. Do you think Forbes are going to read all this?
Interviewer
Very definitely.
Prime Minister
Denis ThatcherMy husband is an accountant so we always look at both sides of the balance sheet.
Interviewer
Many Americans believe the future growth—the great growth—will take place in the US and in the Pacific Basin; that Europe does not have the old fervour and vitality and energy. How do you feel about that sort of turning away from Europe? Is it something you think will change as Europe gets its house in order?
Prime Minister
The main thing that Europe has to do and is now doing is to make certain that when we get our new technological [end p27] developments and we are—after all, you have got Sir Frank Whittle over there, but he invented the jet engine. We had the first computer. There are many many things. Things get the same large market in Europe as American inventions have in America. At the moment they do not. We still tend to do our own technological advance and each of us tends to favour our own industries. Now, you can see what happens. If France tries to favour her purchases from her own industry, and Germany from her own industry and we from ours, we have not, in spite of years of the European Community, got the new technologies having a market as big as yours. In theory it happens; in practice, it does not.
This is what we are trying to do with the new Eureka project. Some of the products you produce these days are too big for the markets of any one western industrialised country. If you are 55 million, it is not a big enough market. In theory, we have a market bigger than yours. In theory, we have a market of 350 million; in practice, it is not working that way, so we are doing more collaborative projects now and I will be making a speech about it on Monday morning. It is absolutely vital that the politicians say that when we have now got the companies going across, and one has to get people to think internationally, the world is our market, not only our own people. We said when we set it up we would get the companies going across countries. It goes beyond the [end p28] Community, because some of the collaborations go either across to the United States as well or across to Japan, but they must have equal access to the market of all countries in the Community. Otherwise, we are not going to get the advantage of total runs and lower costs, which a bigger market gives you.
Interviewer
Do you see that side of things like the Eureka Project enough progress being made where you can find Europe getting back into the race in a meaningful way, where Europe will not be seen as always in third place?
Prime Minister
I seem to remember the vertical take-off in Harriers was a British invention, which the United States has thought fit to buy. Fantastic! And quite a number of other things as well.
Interviewer
Yes, but Britain has always been perceived as having great inventors, inventions and computers, but let us face it you are lousy salesmen! [end p29]
Prime Minister
It is more fundamental than that, much more fundamental than that. There has tended to be, over the years, some kind of intellectual snobbery that it was nice to go into research but not so good to go into industry, and that is what we are overcoming now. It has taken years to come. The education thing was geared to the best thing you could do was to go to university and for years the best thing you could do was to stay to do research at university, and we do lack this cross-fertilisation that you have again, in your bloodstream, between industry and universities and it is one of our greatest lacks, you are absolutely right.
Marketing—we do not even get them into making the project. Cloning. We produced molecular biology. Cambridge, cloning system. What did they do? Blew it to the whole world by writing a research paper about it. They did not even patent it! The first thing I knew about it was when I came over and visited one of your companies over there. I said, “But we discovered this,” but they said: “But you did not patent it”! It is the culture. It is part of the enterprise culture, but you see, everyone went to America, not for a subsidy—there were not any—but to be free to pioneer, free to live their own lives, free to be self-reliant, free to make and create their own future, so you have got a self-selection of reliant people, a bigger proportion [end p30] and over here, you know, we look after people who are not self-reliant very well, so you have got a bigger self-selection, but you are quite right; it is part of the enterprise culture which we are getting back. I have seminars here. I get industry in, I get the academics in. Now we are saying: “Look! We will give something to universities, provided industries will give something to universities to get the right courses, to get the right collaboration.” But it is hard going, but it is coming.
Interviewer
So you feel the reason we have created more jobs, not only in the last three years but even going back fifteen years during our troubled times is enterprise culture?
Prime Minister
This is enterprise culture. I envy tremendously when I hear President Reagan say: “And do you know this remarkable enterprising country of ours, these people, have created nine million jobs in the last 3½ years!” Isn't that marvellous? Do you know what mine say? “This unemployment; what is the Government going to do about it?” What do I say? We have taken down tax on top people; we have got share option schemes; we have taken down the control; we have taken them [end p31] off the prices, the incomes, the dividends, investment, the IDC, the development controls. We are cutting the red tape. We are in fact giving grants to young people to start up on their own, but we can only create the conditions. Do not expect me to ask politicians and bureaucrats to turn out from Whitehall offices, bowlers and brolleys in their hand, to go and set up a dozen small businesses in every hamlet in the country! They would not know how to do it. It is not their job. Ours is to get the conditions right and then it is over to the people and there is no way in which we shall get prosperity unless the people respond. But the response is there, because we were first into the Industrial Revolution. We have been first into many inventions and the response is coming. So they have done a million jobs in the last three years. They have got more small businesses. We have got more self-employed and the falling numbers of self-employed which was the consequence of this terrible control system we had, is being reversed. It is only seven years and it is slower here, but it is coming.
Interviewer
Do you feel—you mentioned earlier the twist of history where representatives were once a check on what was then royal spending; now today they seem to be… . [end p32]
Prime Minister
Indeed. But you have the same in your country.
Interviewer
We have the same problem. Can a democracy inherently have sound finance?
Prime Minister
I now say, when I talk to audiences, some of the polls can be very misleading because they depend upon how the questions are put and everything [sic] thinks that if they think public expenditure ought to get more jobs they think they ought to say that, but then if you say to them: “Look! You have more money in your own pocket! That also gets more jobs, because you spend it!” When I say to people in an audience: “Look! I watch the debates on public expenditure and taxation but in the sort of society in which I believe, I do not think we should have the kind of society in which governments are so generous with your money, that you are not left with enough of your own money in your own pocket with which to be generous to your own children and your own parents!” and I will get a wave of applause because that they understand. That in spite of all that is said about it, they look at … how do your wage chits go, that way or that way? They look at the figure. This is your wage for this week, this month, the beginning. [end p33] Deductions, deductions, deductions, and they look at the end. What they quote is a net take-home pay. If their net take-home pay is not enough, they put in for bigger wage increases, so they are interested in bigger net take-home pay, but the only way to get bigger net take-home pay without increasing wage costs is to reduce your direct tax, and when I explain it to them we get it; all the people coming in saying: “No, no, no. Don't having any more reductions in tax!” I always say “Well I bet you are in the upper third of people and you have had your tax reductions already, but believe you me the bottom half are paying too much in tax and you ought to feel guilty about that! Anyway, if you think you are paying too much [sic] tax, I can give you a dozen charities which will really very much like to have more of your support!”
Interviewer
After seven years of this kind of message, and Mr. Reagan has been at it for more than five years, Congress and the House of Commons still respond in the same way—they always want to spend more. How can you turn that around?
Prime Minister
I do not know. I think you turn it round—as in a way we were able to turn it round—when in fact the direct tax [end p34] taken from people is so great that they just really rebel against it, but then you have, even on your lower rate of taxes. I do not know a single country in the western industrialised world which does not have what we call a “black economy”. You have got a black economy, a cash economy, an underground economy, and I will tell you what that means. It means that when people see a direct relationship between the effort they put in and the money they get out, my gosh they are enterprising. So the enterprise is there and it also means that the rate of taxation is too high. People are prepared to pay reasonable rates of tax. They know they have to for defence; they know they have to to look after people who are unfortunate, who are disabled, who are sick.
Interviewer
A safety net.
Prime Minister
Yes, they know, and they are perfectly willing to do that. They know they have to give some money for helping lesser developed countries and they do and they are generous. They are prepared to pay what they regard as reasonable rates of taxation. They do want to see that the money is effectively used, is effectively spent, as it has to be in a [end p35] private business, so they are prepared to pay reasonable rates of tax.
There has to be some extra spending on some things, obviously, but you do have to look at the total and in my view it is quite wrong to give the impression that you succeed insofar as you get more expenditure out of the Treasury. You do not get any more expenditure out of the Treasury—you get it out of people's pockets one way or the other, and the people are the people next door; you ought to say: “Look! it is coming out of your pocket!” You ought to be absolutely frank.
Interviewer
There is a perception in the States that Europe is more anti-American now than it might have been twenty or forty years ago. Is that true?
Prime Minister
I think what it is is that we are so close that sometimes you get family quarrels, but you know they are only family quarrels, but, you know, when there is something quite fundamental, then we know that we stand together. As my predecessor said: if Britain and the United States and the United Kingdom stand together, the world would always be free. [end p36]
Interviewer
Why was there the reaction in Europe to our raids on Libya?
Prime Minister
I think that democracies are slow to react with force, of course they are, because we believe in the rule of law and not in a rule of force, so it is natural that democracies are slow to react with force, but there is no international rule of law in the same way that can be enforced as a rule of law in each of our own countries, and therefore, if you get a country that is exercising as a matter of state policy, state terrorism, then obviously you cannot withhold force in self-defence because otherwise they will go on and on, and I think we had to explain this, but you see the first pictures that came on our television—and do not forget there was censorship from Libya—were pictures of children, the effect of bombing on children. Well, naturally, people said: “Look! Democracies do not bomb children!” You had to explain, go on to explain: “No, the targeting was very very carefully done” and of course as we know later, the bombs that did not go on the targets came from a plane that I believe was hit by a missile, and that was I am afraid one of the risks that happens, but otherwise the targeting was extremely carefully done and some of the planes, because they could not do the targeting, came back without having released their bombs. But the first [end p37] impression they got was: “Goodness me, what are we doing, having caused the death of some children?” Now, in a way, you would expect that kind of reaction because democracies are slow to respond with force, but then we had to duly explain it in much more detail and I believe now that there is much more support.
Interviewer
Do you or the Europeans feel that the Administration is not as sensitive as it should be to Western Europe's concerns about the Soviet Union? Western Europe lives closer to the Soviet Union obviously than the US and there seems to be a perception in Europe that we are somewhat too casual.
Prime Minister
I think you are the first person who I have ever heard say that. We try to keep very closely together through NATO with the Ronald ReaganPresident in his discussions, for example, with Mr. Gorbachev and the President has been marvellous on consulting and of course we were consulted before the last talks and he came also to see NATO on his way immediately after those talks to the United States, so we do keep closely together. I think you would do much better if you would regard any differences we have as sort of differences within the family and you know, [end p38] families can have differences, but they normally stick together on the fundamental issues. I think that we do discuss closely. You see, we have the Economic Summit and it is a very valuable thing. It is not only an economic summit but we spend two days discussing all matters very closely together and it is important that we do carry on as many discussions together as we can.
Interviewer
One last question, Prime Minister. Looking to the future, what do you see coming out of Treasury Secretary Baker's efforts to have more coordination between economic policies of the major nations?
Prime Minister
I think that that particular effort was a very successful one. It was with the G5 and from time to time we will have two other countries joining in. I think it was a step forward, because a country even as great as the United States and as powerful as the United States is affected by the rest of the world economy and therefore we do have more consultations. You cannot do everything. You cannot go fundamentally against market forces, but you can do some things at certain times to influence things in the direction in which [end p39] you wish them to go and that was a very carefully timed operation at a time when it was possible to achieve those results and it was a very successful operation.
Interviewer
But you do not see this as leading to some new formal international monetary system?
Prime Minister
You know, you cannot have exchange rates which are wholly different from the underlying economy, you cannot. It just does not make sense. People often strive to have an exchange rate which does not reflect the underlying economy. You cannot do that for very long. The speculators will move around and your speculators are a force and with all the new financial technology they are a new factor which has to be reckoned with, but the idea that you can fix exchange rates and make them stay there regardless of the performance of the economy is just a will of the wisp—it is not possible, so you have to try to get your economy in sound condition first—then you will find your exchange rates are much better. We are all of course subject to the enormous sums that move round the world and can move round at the press of a button. [end p40]
Interviewer
It is extraordinary what happens.
Prime Minister
And it can make quite a difference to the way in which we have to operate and it has made quite a difference to some of the figures upon which we previously relied, and we are all aware of that and we are aware of the need to cooperate more closely and I think it is a great thing that the United States is prepared to share that consultation and cooperation. That is a great advance and it is to the benefit of us all.