My theme today–the Challenges of the Twenty-First Century–is a broad one but it is appropriate for this very distinguished audience. In addressing it we shall need to travel the globe together. But I want to start right here in Brazil, for the very simple reason that political and economic challenges, like charity, begin at home.
Brazil and Britain
Every first time visitor to a new country–and in my own case the first time to your continent–comes with his or her intellectual and emotional baggage. In the case of a former Prime Minister this is likely to be a heavy consignment. I see your extraordinary country–the fifth largest state in the world and the sixth most populous–from the perspective of eleven and a half years' experience in 10 Downing Street.
And I am struck by both similarities and differences between the situation I inherited in 1979 and that of your country fifteen years later.
First, the depressing similarities. There is the problem of inflation–though yours is far worse than ours ever was; the problem of excessive government borrowing and accumulated debt–and again things have been allowed to deteriorate further than under my predecessors in Britain; and the problem of too much state control of industry–though here I know you are beginning to make progress through privatisation.
But there is one crucial difference between the point at which we in Britain started to tackle seriously our economic problems and the point which you have reached now. In Britain a decade and a half ago there was a mood of cynicism bordering on despair about the country's future. There was a feeling that our destiny was downwards; not just relative economic decline as compared with our neighbours and competitors but absolute decline bringing with it ever lower living standards and embittered social divisions. In short we had come to accept that decline.
There is none of that feeling here.
The high rates of economic growth which Brazil has enjoyed over many years show that even with what have sometimes been fundamentally unsound economic policies your underlying strengths are immense. Already yours is not only Latin America's largest economy but tenth in the world league.
The success of the private sector in Brazil is remarkable, testifying to entrepreneurial flair and good old fashioned hard work. These differences are all summed up in the word “potential” . Brazilians and the world at large know that your country is a potential economic super power.
By contrast it is fair to say that when I took office in 1979 many or even most of the pundits had written Britain off. And we had to prove them wrong.
Hope is not only one of the three theological virtues: it is a great asset if you need to enthuse people about policies required to secure a country's long term future. You only have to be here for a short time to know that in spite of the disappointments and set backs Brazil is a land in which hope comes naturally.
But there is of course a danger in optimism. It can lead to a refusal to adopt painful measures and then see them through until they deliver results. In Brazil's case, your economy did so well even when your finances were run badly that I suspect too many were inclined to believe that sheer size and dynamism would deliver lasting success.
Moreover, for years we were never lacking “expert” development economists more than happy to explain away developing countries' economic difficulties in terms either of unpredictable world events or rich countries' selfishness. The other contribution which these experts made was to urge the adoption of almost every measure we now accept as self-defeating–the erection of high tariff barriers, curbs on foreign ownership and investment, state ownership and direction of industry and manipulation of agricultural prices. The wonder really is that so many developing countries managed to do so well in spite of the economic policies they followed for so many years.
I know that I speak for Brazilians too when I say that your country deserves more than “potential” . Brazil is a country of the future and you must resolve that the “future” is tomorrow not somewhere in the middle distance. And, as you are well aware, that means taking the tough decisions today.
The British Experience
In doing so, it clearly makes sense to draw lessons from the experience of others and perhaps I can share with you now some reflections on what we did in Britain between 1979 and 1990. We made Britain the testing ground of a quite distinctive approach to government and to the economy. It would be wrong to describe this as an “experiment “. The proof that our approach would work was already, I knew, to be found in the economic progress of the West. And the secret of that success could be summed up in just one word–enterprise.
The states and empires of bygone eras did not lack natural resources. They lacked the capacity to put them to good use. So too, may I add, the most successful economies of the world today are not necessarily those distinguished by possession of great mineral wealth or by their favourable geographical location. Russia, for example, is perhaps the most resource-rich state in the world: yet her economy produces only a poor standard of living.
By contrast, the Asian Pacific region states, many of which have relatively few resources, are achieving astonishing rates of economic growth. They have realised that the creative capacity of man should be respected, encouraged and used.
So when I became Prime Minister in 1979 I already knew what worked. Limited government, a just rule of law, sound money, low levels of taxation, the minimum of regulation, a spirit of enterprise–this is the combination which has given the West standards of living enjoyed by no other society. There was no reason why these things should not be made to work in Britain too. I was convinced from all that I knew of the people that I came across that they were better than the pessimistic politicians and doleful bureaucrats believed. They had it in them to succeed. They had in the past succeeded. They could do it again.
So the vision we had was positive. But the first things we had to do seemed very negative indeed. Some were extremely unpopular with a lot of powerful interest groups including the trade unions, and one of the first things I had to do in this respect was to reform trade union law. Time and again I had to give that most necessary and least popular monosyllabic reply ever invented “no” . “No” to printing money as a way of cushioning business from the impact of excessive wage awards. “No” to demands to intervene to stop uncompetitive firms and factories closing. “No” to calls for ever higher public spending and borrowing on any number of excellent causes. We set limits to government–but we sought to ensure that government performed effectively those functions which are government's alone.
Let me emphasise this point. I do not believe in weak government, but rather strong and limited government. Government must be strong to uphold the rule of law, strong to hold the ring against cartels and monopolies, strong to keep the finances sound, strong to set an affordable minimum of social benefits at a level which guarantees a decent life, and finally strong to defend the nation.
The result of this approach in Britain was that our economy was transformed. Modest as it may seem by historic Brazilian standards, our growth out-paced almost all European Community countries in the 1980s. So did our business investment. So did our productivity. The number of small businesses multiplied. New jobs were created and living standards rose. We made mistakes, in particular by allowing inflation to rise again at the end of the decade but we took the necessary steps to deal with it.
So what the British record shows is that free enterprise policies work.
In Brazil, with its wealth of natural resources and its growing labour force, you can look forward to economic progress and international influence on a scale far beyond anything your country has so far enjoyed. Brazil can be the new great power of a new great continent. But there is no need to seek a new answer to the old question of what makes for economic success. We now know the formula. The challenge is to apply it.
You are beginning to do just that. Your Finance Minister, Senor Cardoso, has devised a programme to deal with inflation and to cut the budget deficit by spending reductions and tax increases. Whatever changes are necessary in order to establish effective control over the money supply and steadily diminishing public expenditure as a share of national income, they must have top priority.
Rampant inflation will always favour those who have land, possessions and hard currency. It will destroy the middle classes on whose confidence and effort the stability of a country depends, and it will have devastating effects on the poor and rob them of all hope. We only have to look at the history of Germany after World War I to learn the grievous consequences of hyper inflation.
I am also aware that you wish to give new impetus to your privatisation programme. One reason to do so is simply to raise money to cover borrowing and finance some spending. But that is not the main justification. Privatisation of state owned industries is important because it is an essential part of creating the structure of a successful free enterprise economy. State owned industries are a drain on the public purse, lack the competitive spur to success and are unresponsive to customers. The state has far too many other testing functions to perform without also being in the business of running businesses.
Different countries with different financial systems and traditions will approach privatisation in different ways. But generally it must take place so as to maximise competition and to promote wider shareholding, the balance between these two varying from time to time. There is now a wealth of experience, not least from Britain which was so frequently in the vanguard, on which those faced with thorny privatisation problems can draw. In Britain we had our own special difficulties. A deep recession in the early 1980s made it more difficult to sort out the industries' finances and bring them to the point at which privatisation was possible. There was also fierce trade union resistance in some cases: but by that time the changes we had made to trade union law were beginning to have some effect. We privatised telecommunications, a freight company, bus companies. We privatised some local government services. We privatised technology companies, the motor vehicle industry, steel, ship building and eventually gas, water and electricity.
It was a huge success. Privatisation put a stop to the idea that inefficient management would always be subsidised by the taxpayers. Once in the private sector, business had to lower its costs to keep customers. Henceforth, shareholders provided the capital for investment that had hitherto come from the taxpayer. So money raised by taxes could instead be spent on schools, roads and hospitals.
Moreover by reserving a bloc of shares for employees which they could purchase at a discount we were able to go some way to achieving our dream of everyman a capitalist. For the strength and stability of a country resides so much in the vitality of its middle-classes whose size increases as trade and industry prosper.
Of course, there are always faint-hearts. When water was privatised some of them said “look she's even privatising the rain which falls from the heavens” . I had to retort that the rain may come from God but he didn't send the pipes, plumbing and the engineering with it!
So the first of the challenges which you are facing is to apply the proven remedy of capitalist reform to Brazil's economy and to keep up the prescribed dosage. Quack cures are no substitute. And once the medicine begins to work Brazil will find herself enjoying not just stability and prosperity but the place in world affairs which her friends have long reckoned she was destined for.
Defence and Security
This brings me to the wider international scene in which Brazil will have an ever greater interest and which constitutes the second challenge.
I seem to detect in some international quarters a peculiar nostalgia for the atrophied certainties of the Cold War world. I do not share it. Of course, in a sense life was simpler then. Where a balance of terror keeps the peace; where national identities are supressed by police states; where power bloc politics prevail over issues of justice and self-determination–this is a world which politicians and civil servants find easier to manage. But it could always have gone wrong even in terms of the “stability” which seemed to prevail.
In many parts of the world–including Latin America–the “Cold War” was far from being “cold” . Revolutionary violence was promoted by the Soviet Union in every continent. Its appalling legacy is still felt. Above all, the monstrous evil of communism not only denied the fundamental rights of human beings to self-expression and self-development: it actually sought to change the nature and instincts of human beings, corroding loyalty to family, love of country, respect for truth, the belief in religion.
So I assert that the fall of communism through most of the world between 1989 and 1991 was the most profound and beneficial revolution of our times.
This victory over communism in the Cold War was only achieved because the United States, staunchly supported by its allies including Britain, remained strong and because we had the will to use that strength. It was right that there should be a reassessment and some reduction in the West's armed forces once the threat from the Soviet Union receded and then the Soviet Empire itself crumbled. But we still have to ensure that military superiority–particularly technological superiority–remains with nations (above all the United States) which can be trusted with it. We must never allow the sanction of force to rest exclusively with those who have no scruples about its use. There is now a real danger that in one of those periods of false optimism to which Western democracies are all too prone we will cut back our defences too far.
For there is no shortage of threats to peace–indeed the skies are darkening. So far, we in the West could not have done more to demonstrate our weakness in the face of future threats by the way we are all rushing to disarm and showing such grave divisions and such wavering will-power over the fate of Bosnia–an internationally recognised sovereign state in the heart of Europe. The fact that even at this belated hour the threat of air strikes against the Serbs besieging Sarajevo had such a salutary effect demonstrates how much earlier decisive action could have achieved. Now the Russians are installed in Sarajevo at the historic fault line of East and West. There are significant problems over Ukraine and the Baltic States. In Russia itself there are signs that the reformers are out of favour and influence. Although I have every confidence in President Yeltsin, prudence both on our own behalf and on behalf of the sincere democrats in Russia therefore requires that we prepare for whatever may happen even though working, hoping and praying for the best.
Nor, of course, can we always hope to foresee where the next threat will arise. We know something–enough to be seriously alarmed–about the military capabilities of the dictatorship in North Korea. But how many more tyrants thrown up by some brutal totalitarian creed, some fundamentalist fanaticism or some primitive dream of national glory or racial destiny will we see in our times? How many more in the century about to unfold?
People often talk about the so-called “peace dividend” . It is an expression which can be misunderstood. The peace dividend is not the quantity of money and resources available to be used on other things because peace is now secured and defence can be reduced. That is the wrong way around. Peace is the dividend that comes from sustained and heavy investment in weapons and defence technology. For peace is guaranteed not by weak but by strong defence in the hands of peace loving powers.
Perhaps the single greatest imperative in the Western world today is to reassess our defence requirements on cold, realistic and even pessimistic assumptions and to apply ourselves urgently to fill the gaps.
The poet T.S. Eliot put the point so well in his Choruses from ‘The Rock’:
“It is hard for those who live near a Police Station To believe in the triumph of violence. Do you think that The Faith has conquered the World? And that lions no longer need keepers? Do you need to be told that whatever has been, can still be?”
The Benefits of Trade
But if one temptation is that which Eliot describes, namely to drop one's guard, another to which our democracies are prone is to believe that greater economic benefits flow from protectionism than from free trade. These inward-looking tendencies are reflected again in the world today.
The strains and stresses which almost led to failure in the recent GATT negotiations show how far we still have to go in convincing continents, countries and pressure groups that open trade is in the interests of all. And the quarrels and threats which have arisen even before the GATT Round was signed are a warning that liberalisation is little more than skin deep.
Brazil has, until recently, been a fairly closed economy in which trade accounts for a relatively small proportion of GDP. But you are now cutting tariffs and removing restrictions to trade. As the experience of Chile shows, once the initial shocks have passed, the competitive pressures and lower prices from cheap imports which characterise an internationally open economy lead to growing prosperity. Brazil will find itself increasingly dependent upon satisfying international markets and therefore with an ever stronger interest in ensuring progress towards global free trade.
Brazil will also, I hope, learn from Europe's mistakes. We in Britain joined the European Community and were at the forefront of creating the Single European Market because we saw it as a means of expanding trade. Sadly, in recent years, the contrary trend towards keeping imports out of the Community and towards over-regulation have been in the ascendant. It was shameful, but all too predictable, that the European Community should have proved so obstructive in the GATT Round.
Brazil with Argentina, Paraguay and Uruguay has established a “Common Market of the South” (MERCOSUL). Such regional trading arrangements, and there are some 85 in all, are excellent as long as they take place within the GATT rules and are a spur towards lowering world wide tariffs, rather than part of a movement towards competing protectionist trade blocs.
For open trade is not, I insist, just to be regarded in terms of the dry statistics of balance of trade and theories of relative advantage. Trade is a vibrant, living thing which brings movement, variety and colour to great trading nations. Moreover, free trade brings three huge benefits.
First, it is a force for political cooperation, harmony and peace. It is no mere chance that rising protectionism in the 1930s preceded global conflict. By contrast peace flourishes through the freer exchange of goods and services.
Second, free trade allows small enterprises and indeed smaller countries to compete on equal terms with the commercial and political giants. With free trade you can also have both large-scale economic efficiency and small-scale political decentralisation.
And finally through free trade poor regions and countries can penetrate international markets and raise their peoples' living standards. If just a part of the energy put into arguing for redistribution of resources between rich and poor countries had been invested in elaborating ways of getting poor countries access to rich countries' markets there would be a great deal less poverty in the world.
So for all these reasons we have to honour the GATT, but also go beyond it. Our trade policies should be enlightened and imaginative, not confined to narrow horizons. The West's post-War prosperity could never have been achieved without the liberalisation of trade. Let us now resolve to sweep away the remaining obstacles: there could be no greater contribution to prosperity and indeed to peace.
The final challenge I want to mention goes beyond economics and even beyond politics, as usually understood. For want of a better phrase I shall call these the “behavioural problems” . The experience of modern times confirms that prosperity, higher standards of education, better housing, better health, improved sanitation–undoubtedly good as all these things are–do not themselves assure progress or even maintenance of the basic standards of civilised life.
I have no time for the superior critics of what is wrongly called “materialism” . It is our task to help people out of poverty to a more rewarding and fuller life. And impressed as I am by the efforts that Brazil is making to conserve its ecological heritage and indeed the world's environment through effective management of the rain forest, I am not one of those who thinks that we have to give up on growth and dash the hopes of those who depend on it for a better future.
My point is different. It is that too often we have failed to take human nature itself into account when devising our social policies. Just as socialism ignored the basic drive to improve one's own living standards and provide for one's family and so failed to grasp the importance of incentives in economic policy; so the state today is failing to take account of the darker side of human nature in devising its approach in other areas. Family breakdown, juvenile delinquency, street violence, the so-called drug culture–these are all symptoms of a sickness in society which we cannot just shrug off or ignore if we are to live in secure prosperity in the next century.
In Britain and the United States there is a lively debate about the values required to sustain political and economic freedom. We are conscious that in many ways we have provided too many incentives for irresponsible behaviour and have removed the painful consequences of it. The state has taken too much power and left individuals with too little. It has dwarfed the individual human being and impoverished his sense of duty.
Of course, politicians and the state can do relatively little to reform human nature. But we can try to create the framework in which we bring out the best and discourage the worst in people. This does not involve radically new thinking.
Rather, it requires a return to age-old assumptions. For too long, the Left has been setting the agenda on social policy. I know that that is just as much the case in Latin America as it is in Western Europe, perhaps more so.
Wealth Creation is the Way Forward
In particular, there is the fashionable argument that calls for the redistribution of wealth as a priority over its creation. This view draws apparent strength from the very real misery of poverty found in many South American countries including Brazil. Of course, it is right that there should be a minimum below which no one can fall and that the weak and vulnerable, in particular the very young and very old, should be cared for. But redistribution is not the answer.
It involves high taxation and sometimes confiscation, both of which penalise the very effort and talent that we need to build up more business, thereby providing more jobs and creating more wealth.
Let us remember that it was Marxism, the creed of the intellectual not of the people, which took away all property and all freedom and ultimately produced a world of fear, misery and servitude. The purpose of the free enterprise economy, under a rule of law, is to bring people out of poverty by making and selling goods and services to others. For this approach to succeed it requires low regulation and comparatively low taxation, especially on modest incomes–and it works!
Of course, there is some poverty in capitalist societies: but there is far more poverty–as well as far less freedom–in socialist ones. And capitalist societies create the resources to provide the infrastructure and conditions of civilised life which everybody, rich and poor alike, need.
Upholding the Law
The main area in which the state must be strong is in upholding the rule of law. Those who speak as if the rule of law–operating through a freely elected legislature, impartial and independent courts and an effective and noncorrupt police force–were something that matters more to the rich than the poor could not be more wrong. In all our countries, it is the poorer and more vulnerable members of society who are most likely to be the prey of crime and violence and it is sheer nonsense to suggest that such crime and violence stems from social idealism rather than human wickedness.
When all is said it is the values by which a society lives which really matter. Like many of you I came from a Christian home. But whether they were practising Christians or not most of my generation accepted that Christian values were right. Thus they were equipped with a compass of values by which to steer their lives.
Caring for the Children
One of those values is Charity, the third of the theological virtues–the obligation to do as you would be done by.
It was one of the accomplishments of my time in office that voluntary donations to good causes doubled–a sure indication of a strong sense of duty and community.
In Brazil, I know, you have a great problem with children who have been abandoned by their parents and who have never known the care and guidance which you and I take for granted. Each life is a trust and those of us who have received so many blessings in our own lives must give those children a chance to develop their latent talents through experiencing the kindness and care which we can provide and the benefits of a good education which it is the duty of government to make available.
Let us be clear, there is a case not only for the voluntary spirit but also for the state to intervene to protect children from malign parents and adults.
Fortunately, most young people have a great desire to attach themselves to good causes and as Professor James Q. Wilson has reminded us, people “have a natural moral sense, ..... [which] shapes human behaviour and the judgments people make of the behaviour of others.” This wheel does not need to be reinvented–only set in motion.
Towards the Future
Brazil is a country which has a strong distinctive sense of identity and a quite unique culture. This gives you great strengths to which in good times as in bad you have to hold. You are also blest with a land of great beauty.
As Amerigo Vespucci, who was lucky enough to give his name to two continents, remarked when setting foot in Brazil:
“If there is a Paradise anywhere on earth, it cannot be very far from here” .
Perhaps even the warmest of your country's admirers would hesitate to describe Sao Paolo as Paradise. But Brazil is a country about which hyperbole clings. Its size, its natural wealth, its growing population, its enterprise–and that word with which I began today, its “potential” . The time has surely come for that potential to be realised. The century on whose edge we stand must be the age when Brazil fulfills the hopes and dreams so often placed in her. The time to work for that to happen is–now. And who knows then how great the role Brazil may play?