Speeches, etc.

Margaret Thatcher

Speech to Citibank in Jakarta ("Economic and Political Challenges of the 21st Century")

Document type: Speeches, interviews, etc.
Venue: Jakarta, Indonesia
Source: Thatcher Archive: press release
Editorial comments: Embargoed until 1930 local time.
Importance ranking: Major
Word count: 4226
Themes: Conservatism, Defence (general), Defence (arms control), Economic policy - theory and process, Privatized & state industries, Trade, European Union (general), Foreign policy (Asia), Foreign policy (International organizations), Foreign policy (USA), Foreign policy (USSR & successor states), Trade union law reform

ECONOMIC AND POLITICAL CHALLENGES OF THE 21ST CENTURY

Indonesia revisited

I first visited Indonesia as Prime Minister in April 1985. It was, indeed, the first ever visit by a British Prime Minister, and so long overdue.

I was deeply impressed by what I found on that first visit — by the single-mindedness of the Government's commitment to sound financial policies, by the achievements of the Indonesian economy and by the warmth of welcome I received from Indonesia's famously hospitable people. Indonesian hospitality is, of course, legendary. When Sir Stamford Raffles wrote his History of Java and its people, he recorded that “hospitality is universal among them. It is enjoined by their most ancient institutions and practised with readiness and zeal” . I can tell you from first-hand experience that the zeal has in no way diminished.

So many impressions from my last visit remain vivid. One is simply of the breath-taking size of Indonesia: the whole of Europe would fit comfortably into your confines. Indeed it would probably perform much better if it were to be re-positioned here: we Europeans would have to get rid of all the restrictive practices and regulations, which hold us back while Indonesia and Asia, more generally, forge ahead.

Another impression I retain was of the youthfulness, the vitality, the sheer energy and bustle of your country. There was no doubt in my mind — even on a brief visit — that Indonesia was destined to achieve astonishing success as a modern industrial and trading economy. I am not sure whether Indonesia is classified as an Asian Tiger or an Asian Dragon — but it combines the best of both.

Those achievements are above all a tribute to the talent, enterprise and energy of the Indonesian people. But they also pay tribute to the sound government and stability provided under President Soeharto's outstanding leadership. His commitment to Pancasila underpins the unity and tolerance which Indonesia has built under his leadership. I was regarded as an exceptionally long-serving Prime Minister after only 12 years. I believe President Soeharto has held office for 27 years — so far. That is a remarkable record and one which has benefited Indonesia and indeed the whole South East Asian region enormously.

The political struggle of the century

Today I want to look ahead to the economic and political challenges we face as we prepare for the millennium. Crystal ball gazing never offers certainty about the future. But one advantage we enjoy today is that the relationship between economics and politics is now much more widely understood than in the past.

Countries which have weak economies but powerful armies can be dangerous for a time. But ultimately they will fail. By contrast, power and influence will generally flow to those countries which manage their economic affairs successfully and so fulfil the aspirations of their people.

This, in the briefest form, encapsulates the struggle between capitalism and communism, America and the Soviet Union, during the Cold War. That great East-West confrontation, as we in the West described it, was the dominant feature of my political lifetime.

The importance of economic success in this post-Cold War world is still greater, as wealth not arsenals, technology not manpower, enterprise not over-regulation, increasingly distinguish the greater from the lesser powers. In this economic race another East-West discord, though of a peaceful variety, has shown signs of emerging.

The end of the Cold War allowed tensions on trading relations which had previously been suppressed because of the common military threat to come to the top of the international agenda. Accordingly the talk in the years since the fall of the Berlin Wall has been too often of trade blocs, protectionism and managed trade. Frequently the language is that suitable to the battlefield not the market place. On both sides — though as consumers we are all on the same side — there is a lack of appreciation of our inter-dependence, both as members of the global trading community and as members of a global political community where dangers are always lurking.

So Western politicians and businessmen are wrong to see the rise of the Asia-Pacific as a threat. Similarly those in this region, who may be tempted to believe that they would be better to form exclusive blocs in economic or security matters, are equally in error. Co-operation will work to our mutual interests as long as it is on the right terms and is guided by the right principles.

Perspectives have changed

Since the time of my first visit to Indonesia in that Spring of 1985 so much has changed. That was, we can now see, a crucial moment in the Cold War. Mr Gorbachev had just taken over as Soviet leader. The strains and stresses which ultimately caused the system to implode had begun to work. They would soon force the Soviets to suspend their objective of global domination. But it would take several more years of Western military build-up and effective diplomacy to ensure that they abandoned them altogether.

Inevitably, a decade ago Western leaders saw the whole international scene through the prism of the East&/West rivalry of the Cold War. Indonesia's growing economic strength combined with its firm anti-Communist stance, born from bitter experience, were, of course, encouraging signs in the geo-politics of the day. But few Western leaders grasped at that time that the Asia-Pacific countries were creating conditions for the seismic economic shift from West to East which is now happening. The end of the Cold War has put all these things in better perspective.

… And so have the economies of the Asia Pacific

But let me briefly recall a few of the more startling facts. Today the Asia Pacific region has the highest growth rates in the world. By the end of this decade, East Asia will have an economy larger than either North America or Europe — and it will be growing much faster. Across the region, output per person is doubling every ten years. Savings rates are running at over 30 per cent of GDP.

Between now and the end of the century the number of people in the crucial 20-39 year old age group will decline in the United States. It will decline in Japan. It will decline in Europe. But in the Pacific Rim countries it will increase by some 80 million, representing a huge advance in buying power and the capacity to produce more goods and services.

In the past thirty years Japan has led the way for the Asian revival — and Japan, of course, accounts for about 40 per cent of Indonesia's total foreign investment. Rather than undertake the fundamental research themselves the Japanese had the genius to take the technology and scientific research of America and Europe and turn them into products the world wanted. Those products were very well designed and very good value for money.

A similar strategy has been applied by the other countries of the Pacific Rim — Taiwan, Hong Kong, South Korea, Malaysia, Singapore and here in Indonesia where you have a very vigorous policy of harnessing science and technology.

An example: Indonesia's economic achievement

So when I returned to Indonesia in 1992 the extent of economic progress was already apparent. And now it is still more so.

Indonesia's economy continues to grow at a rate — of 7 per cent a year — which Western countries envy. And Jakarta's sky scrapers seem to grow at least as fast. Foreign investment — including I am glad to say investment by British companies — is increasing: and the faster that controls and regulations are removed or reduced, the greater that investment will be.

Moreover, the sheer scale of the resources, both human and natural, on which Indonesia can draw ensures that this country will be an increasingly important regional power, exerting influence as part of the wider international community. This is still not fully appreciated by some Western analysts. But again a bare recitation of the pertinent facts — doubtless well-known to this audience but less so elsewhere — should leave no one in any doubt. For Indonesia is the world's fourth most populous country. It is among the world's top twelve oil producers and is the largest exporter of liquid natural gas. It is also richly endowed with coal, tin, nickel, copper, bauxite, rubber and timber. It is, in short, a country of vast potential.

Hardly less impressive is the way in which — with some blemishes — Indonesia has managed to ensure its social cohesion. With over 200 ethnic languages and composing members of all religions and none, that is a remarkable achievement. And the growth of a prosperous and self-confident middle class now taking place will in the long term both entrench and accelerate that progress.

Indonesia's achievement is, as I have suggested, partly explicable by its natural advantages and resources. But that is not the main, let alone the whole explanation. After all, if countries automatically became rich in proportion to their natural resources, Russia would be the richest country in the world. It has oil, gas, diamonds, platinum, gold, silver, the industrial metals, timber and a rich soil. And yet Russia still struggles painfully to achieve a decent standard of living for its people. So if I were to seek some single explanation of the success of Indonesia and other Asia-Pacific countries I would look beyond local circumstances to the ethos and the system of free enterprise capitalism which permitted their development.

Free enterprise: the vital ingredient

The West grew rich in the past and the Pacific Rim countries are growing richer now by mobilising enterprise. For it is not the state which creates wealth, but the talent and energy of the people. If we forget this — and it was forgotten in the West during most of the post-War years — we will fail to satisfy our people's expectations.

Arguments are always being advanced for state intervention and controls, and there are any number of vested interests — from cosy cartels to corrupt bureaucrats — anxious to advance them. They must be resisted, whether in the West or the East — or indeed the North or the South — alike. We in our day have seen the socialist future in all its forms and heard the numerous excuses for its performance: we know that it does not work — anywhere. It produces neither dignity nor prosperity

Free Enterprise works wherever it's seriously tried

It is quite wrong to say, as some do, that the classical liberal model — of small government, low taxes, limited regulation, a wide distribution of private property, and a rule of law — is something which only suits wealthy Western countries.

It is in large part because countries like the United States pioneered that model that they became wealthy. And it is because others did not adopt it that they remained less developed. Moreover, it remains a good rule of thumb that those economies in which the state takes a smaller share of the national income forge ahead — and those in which the state's share swells towards or even beyond a half of GDP soon get into trouble.

Of course, that is not the whole story. There are indeed social, cultural and political reasons why some countries are more enterprising than others. But you have only to look at nations which have been divided and lived under free and unfree systems to see which flourish the more. West Germany compared to East Germany before the fall of the Berlin Wall, South Korea compared with North Korea, and Hong Kong compared with China. Just reciting the names proves the point.

It also worked in Britain during the 1980s

Nations can also learn from the experience of Britain. The government which I led for eleven and a half years systematically put socialism into reverse. We curbed public spending. We cut income tax, particularly at the penally discouraging higher rate of 83 per cent on earned income. We also removed controls on prices, incomes and dividends. We abolished exchange controls — in those days that was an almost unheard of revolution.

We cut back the privileges and powers of trade unions, which in recent times had become more powerful than the government. Our aim was to get a better balance in industrial relations; for we understood that excessive union power is not just measured in working days lost, but in restrictive practices retained, in profits squeezed, in investment postponed and in jobs aborted. I knew that if I got those trade union reforms right I would have a majority of trade unionists on my side, for they too had become tired of being pushed around by their own leaders.

Most important of all perhaps, we set about privatising state-owned industries. And I know that this is something on which the Indonesian government has already embarked — and which I hope will go further.

Capitalism should not be the prerogative of the few but the experience of the many. Every man a capitalist was very much part of my belief, and I used privatisation as a method of achieving it. Not only could ordinary people buy shares but those working within the industry being privatised had a special allocation of shares which they could purchase at preferential prices.

By the time I left office, the state-owned sector of industry had shrunk by sixty per cent.

And in the process British merchant banks became expert in privatisation which they helped export world wide. Equally important, and largely as a result of the wider share ownership schemes which accompanied privatisation, about a quarter of the population owned shares.

Add to that the number of people who had bought their own homes and we were well on our way to achieving my dream.

New challenges have arisen — both economic …

The economic challenge facing European countries now is to make themselves more competitive internationally. That means proceeding further and faster in the direction of reducing the burdens of government, controlling spending and balancing the budget, cutting taxation and reducing costs. We now live in a genuinely global market in which capital, technology and skilled people move quickly across national boundaries in search of the most favourable economic and social climate. So there is more reason than ever before for governments to pay the closest attention to the requirements of business.

So it is a great pity that the European Union seems intent on pushing its members in precisely the opposite direction. The burdens and social costs being placed on business are making the European Union a high cost area — which is one good reason why Britain should keep clear of its regulatory clutches.

… And political/security challenges too

Britain must always think and act internationally. But rather than rely on our “influence” within the confines of a narrow Europe I would have us fulfil our destiny as a nation with global interests and a special understanding of the world derived from our history.

The Common Market fulfilled a useful role in the Cold War years by providing an economic foundation to the European pillar of the Atlantic Alliance. It also gave us, the European countries, access to each other's markets. But the world has since changed.

Relying on Europe to provide either a defence or security framework or an economic framework in which all our needs are satisfied would be the height of folly. We should be more imaginative and more ambitious.

No such thing as a New World Order

Following the collapse of communism, some people described our modern global political and security environment as a New World Order: my friends, there is no such thing. What we face today is a world ordered in a very different way where economic progress is increasingly followed by democracy.

The good news is that in the ideological battle of the century, free enterprise and democracy have triumphed. For 73 years communism was tried and tested in the “Evil Empire” . Its collapse was the most important and beneficial event of my lifetime.

But the bad news is that we find ourselves in a more disorderly world now that the Cold War is over and the Soviet Union no longer exerts control over its former client states. There are dangers of nuclear proliferation as former Soviet weapons, materials and expertise find their way to unstable and aggressive regimes. There are renewed national and ethnic tensions. The failure of the international community to uphold basic moral and legal principles in dealing with events in the former Yugoslavia has also set the worst possible precedent — though I am glad that the United States is now taking a lead in the search for a solution. Europe should support this. Indeed it is shameful that the leading countries of Europe did not take a stronger moral stand.

In this differently ordered world, the Asia-Pacific region enjoys by comparison enviable peace and stability. That has been the basis for its growth and prosperity. But there have been more than enough conflicts in the past — in Korea, in Vietnam, in Cambodia — to underline the importance of every country maintaining strong and well-equipped forces to defend itself, as Indonesia does.

For Thatcher's law of politics is that the unexpected happens and we must always be prepared.

It would be quite wrong to be misled by the present favourable situation into imagining that there will be no future threats to peace in the region. The most dangerous threat comes from North Korea's nuclear ambitions. It is very far from clear that these have been successfully checked.

Indeed the agreement reached between the United States and North Korea is in reality a tacit acknowledgement of North Korea's nuclear status. It is also a signal to other regimes with potential nuclear ambitions, say in Baghdad, Tehran or Tripoli, that breaking the Nuclear Non-Proliferation Treaty is a profitable activity; in other words it signals that crime pays.

One only has to think of our experiences with Iraq to realise that dictators can never be trusted. Only now, after five years of inspections and following the defection of one of the most senior members of the Iraqi regime, do we finally know how close Iraq was to having nuclear and biological weapons. We know too that it continues to try to acquire them.

What confidence can we have that we know North Korea's true intentions? They could yet pose a risk to the security not only of the Korean peninsular but of the whole region.

A balance of power between Russia, China and Japan is evolving

But the crucial element in preserving security will be the emerging relationship between the three largest powers in the region — Russia, China and Japan — each of them very different countries with very different strengths and weaknesses.

Within Russia, although there are signs of economic progress, the political situation is confused and worrying and not made any easier by concerns about President Yeltsin's health. Russia still has the weaponry and the reach to cause problems across half the globe — including the Pacific — if it is so minded.

The time has probably passed when outsiders could make much impact on Russia's internal economic and political evolution. I would have liked the West to have done more and sooner. I also believe that the West is now too keen to appease Russian demands, whether as regards the issue of the expansion of NATO membership or as regards Bosnia.

Generous-hearted firmness rather than penny-pinching weakness would have been a better policy.

For all her difficulties, Russia is still a powerful and potentially rich country. Like the United States, she is also a continental power, which faces both the European-Atlantic area and the Asia-Pacific. Although for the time being Russia has virtually abdicated an effective role in this region, we shall surely in due course witness a resurgence of Russian influence. With one-third of the world's economic activity now in the Asia-Pacific, and major Russian security interests at stake in her relations with China and Japan, she will inevitably be drawn to play a role.

But the greatest change will undoubtedly come as a result of China's natural ambition to have a bigger voice in the security of the region. It already has three million men under arms and a sizeable nuclear arsenal. And it has shown itself ready to use the implied threat of that military power in its action over the Spratly Islands and sabre-rattling over Taiwan. Given the pace of China's economic growth, its military strength is bound to increase, even if the proportion of national wealth spent on defence does no more than keep pace with its economic growth. In practice, it is going to be a much more formidable military power than it is today.

This is not necessarily a cause for alarm. The question is how that military power will be used. While China has always been vigilant about its borders and has occupied Tibet, it has not historically been an expansionist power with territorial designs on its neighbours.

In recent years, it has muted its various border conflicts and played a more constructive part in the United Nations Security Council. Even so, the other regional powers will need to be reassured that China's expanding forces and capabilities will not become a threat to them.

Their judgment will be affected — and rightly — by how far China's phenomenal economic development is matched by greater liberty, because democracies very rarely go to war with each other. At present China has no legitimate political institutions and no rule of law. Yet can that great country really go through such far-reaching economic change without allowing greater political and personal liberty? Sooner or later her people will surely demand a more open and representative form of government and broader political participation; and if it comes, that will be the best possible reassurance to China's neighbours.

We need to strike a balance in dealing with China between support for democracy and deepening China's economic links with the outside world. Those links represent the best guarantee of responsible Chinese behaviour towards its neighbours. It is a policy, not of containment but of engagement.

The third player, Japan, is already an economic superpower. In recent years she has also been strengthening her defences. For reasons of history, Japan will probably remain reluctant to exercise military power in the region — provided always that her crucial security and defence links with the United States are preserved and do not fall victim to disagreements on trade and economic issues.

But of the regional players only Japan will have, for the forseeable future, the size and technological sophistication in conventional forces and the economic might to balance China and ensure that no single country can achieve regional dominance.

… only the United States can guarantee peace

In Asia there are no multilateral defence institutions, no equivalent of NATO. Nor can you rely on the United Nations to hold the ring. Recently we have expected the UN to fulfil a role for which it is ill-suited and ill-equipped but as we have seen when it comes to action there is no substitute to the leadership of the nation state.

Stability will therefore depend very much on a balance of power between the great countries, and most importantly on a continued American presence.

The principle of the balance of power — in which several weaker forces combine to counter-balance a stronger one — is often under-rated. In fact it makes for stability. But there also has to be one global power — a military power of last resort — to ensure that regional disputes to do not escalate to uncontainable levels. That power is and can only be the United States.

With the end of the Cold War, America is the only superpower. It is in all our interests to keep her committed to upholding international order, which means remaining a Pacific and indeed a European power.

That requires encouragement and support from America's allies and those who benefit from America's presence.

It would have been a rash person who would have predicted at the end of the Vietnam War that America would still have substantial forces in Asia two decades later. But thank goodness America has had the stamina and resolve to stay, because its presence is the critical element in the Asian security equation —the more so because she provides a nuclear umbrella for Japan and South Korea. While the countries of the region remain confident that America will not permit any one country to dominate militarily, they will feel secure. If on the other hand the United States were to withdraw, the balance would be upset and an arms race would inevitably follow.

So once again the world puts a big premium on America's wisdom and staying-power. The counterpart is that America must not be excluded from the benefits of economic cooperation in the region. The omens in fact look quite promising, with APEC assuming a larger role in the region's affairs. Indeed, the multilateral regional organisations such as APEC and ASEAN, in which Indonesia plays a leading role, will have a vital part in creating a sense of interdependence. That will improve the sense of security of all the countries in the region. The key to their success is that their members are not being asked to surrender sovereignty, but rather to work together as independent countries to pursue their common interests.

Prosperity and Peace

It is on the basis of these two guiding principles — keeping the United States as a willing and capable superpower to act as an ultimate guarantor of peace, and keeping the world's markets free and open — that we can most effectively manage the changes and uncertainties which confront us. In this way, we can ensure that America is not seen in the Asia-Pacific region as an overbearing intruder, but rather a force for freedom and peace. We can also ensure that the dynamic economies of the Asia-Pacific region, such as Indonesia, do not appear to Westerners as a threat, but rather a challenge to improve performance and, indeed, as future markets for Western businesses. This is the way to prosperity. It is also the way to peace.