Speeches, etc.

Margaret Thatcher

Speech to Citibank in Lahore ("The challenges of the 21st century")

Document type: Speeches, interviews, etc.
Venue: Lahore
Source: Thatcher Archive: speaking text
Editorial comments: Embargoed until 1330 local time.
Importance ranking: Major
Word count: 3966
Themes: Conservatism, Defence (general), Economic policy - theory and process, Education, Monetary policy, Privatized & state industries, Trade, European Union (general), Foreign policy (Asia), Law & order, Religion & morality, Social security & welfare


On this my first visit to Lahore, I find it easy to understand why this beautiful city is described as the pearl of the Punjab. The long history and rich culture to which its magnificent buildings bear witness also remind us of something else, which is the subject of my speech today — the importance of economic success. In the times of the Mughal Emperors, or indeed of the British Raj, the state's priorities in spending were very different from those we share now. But the ultimate source of the wealth they spent has not changed from that day to this — it is the application of man's ingenuity to nature's resouces, multiplied by exchange and trade. Let's keep this in mind — even when we review with a realistic spirit Pakistan's economic difficulties — for it will allow us to benefit from a still more precious commodity: hope.

Pakistan's Economy

Pakistan still suffers, of course, from all too many of the classic problems of under-development.

— Over-dependence on agriculture, and on particular crops.

— A rather poor infrastructure and unreliable energy supply.

— An insufficiently educated workforce to meet the demands of economic change.

— And last but by no means least, enormous political pressures on government to spend revenues it does not have in order to overcome the crushing burden of poverty.

Simply facing up to challenges of this dimension would constitute a severe enough test for political leaders. But in Pakistan these difficulties have been increased both by political instability and, in the past, by a misguided adherence to schemes of economic planning urged on local politicians by Western advisers.

Thankfully, in recent years Pakistan has moved in a different direction. For all the strains, democracy has been taking root. And economic reform, applying the proven approach of the market rather than the failed nostrums of the socialist planners, has gathered pace.

— A far-reaching privatisation programme has been launched, which is due to cover energy, telecoms and the banks.

— Liberalised capital and stock markets are being developed.

— And (crucial to investor confidence), I understand that there are no restrictions on the ownership of Pakistani firms by foreigners, nor on the repatriation of dividends and capital.

It will take time and perseverance before people become widely convinced of the benefits of free market reform. It will also take clear explanation.

What Works?

For many peoples of the world the question is: what system of political economy will not only raise the standards of living in the West but create enough wealth to help raise others out of poverty?

For let us remember that countries are not ultimately rich in proportion to their natural resources. If that were so Russia would be the richest country in the world; she has everything, oil, gas, diamonds, platinum, gold, silver, the industrial metals, timber and a rich soil. Yet Russia struggles. No: countries are rich whose governments have policies which encourage the essential creativity of man who, in order to succeed, must work with others to produce goods and services which people choose to buy. So Japan, Switzerland, Hong Kong, Taiwan, Singapore and so on have no natural resources but are now among the most prosperous countries in the world.

And how have they achieved this prosperity? Through the market.

There are some commentators who criticise the market. But the market is not the invention of some academic economist. The freedom to buy, sell, and trade is one of the oldest freedoms known to man. Consumers decide what to buy, producers what to make, and competition determines the price.

People will always trade with one another under the most adverse circumstances. They did so even in the Soviet Union in the black markets which spawned today's new mafias. But it is only when the whole political, philosophical, legal and economic framework encourages liberty, rather than suppresses it, that the full benefits of what we call the “market economy” are felt.

As that great French observer, Alexis de Tocqueville, put it in the middle of the last century:

“Do you want to test whether a people is given to industry and commerce? Do not sound its ports, or examine the wood from its forests, or the produce of its soil. The spirit of trade will get all these things, and without it, they are useless. Examine whether this people's law gives men the courage to seek prosperity, freedom to follow it up, the sense and habits to find it, and the assurance of reaping the benefit.”

A Framework of Law

Note well that de Tocqueville emphasises the importance of a framework of law if markets are to work properly. No market worth the name was ever unfettered. Even in the earliest times there were rules regarding weights and measures, quality and honesty. Similarly, in our own times a successful market economy depends on a framework of law within which it can operate; the law of contract and of private property; laws to safeguard the consumer, to protect health and safety, to break monopolies and promote competition.

Not only a free market, but also a free society itself requires a rule of law. This is familiar territory to your country and to mine. Indeed, law takes on a quite new dimension in any society where Islamic values are important.

Long before we in Britain had a universal franchise (not until 1918 — or some would say 1928 when women had the vote on the same basis as men) we would have called ourselves a free people because of the strength of the rule of law.

But the idea is totally new to those so recently freed from communism.

“What do you mean by a rule of law?” they ask when I speak in Moscow or St Petersburg — for they have none. (Nor for that matter is there a rule of law in China.)

“Not the dictats of a Communist Party” , I usually reply, “but laws based on custom, or made by a freely elected parliament and administered by an independent judiciary. And all of this based on principles of fairness, equity and of redressing grievances” .

So for free enterprise to flourish, laws have to be clear, comprehensible, and just.

Regulation must be no heavier than is strictly necessary.

And taxation must only be levied in order to meet genuine needs which private citizens, individually or collectively, cannot themselves meet otherwise. That, of course, was de Tocqueville's point when he spoke of: “the assurance of reaping the benefit” .

Role of Government, Strong but Limited

In a free society our overall aim must be limited government. This does not mean weak government. Quite apart from its role of providing a framework of law, government has many functions which cannot effectively be carried out by the private sector — though private enterprise may make a contribution.

Education, for example: I believe that children must be taught all the subjects which are essential to modern life and all of the good things for which their country stands. Above all, for children of families living in poverty, education unlocks the door to a better future.

I know that there is general agreement in Pakistan about the priority which needs to be given to primary education, and particularly to improving the literacy rate. The aim must clearly be to achieve the classic virtuous circle: economic growth providing the resources for better schooling, and better schooling providing the human resources for still greater economic growth.

But as you strive to do more for education do not succumb to the virus which, for a time, undermined the quality of education in the West. One of our most distinguished British headmasters has said that “our schools have agreed too readily that what is contemporary but second rate, is preferable to what is first rate and has stood the test of time; and that a shallow television culture is replacing the study and understanding of what is truly great.” As we have rushed towards the new, we have too often forgotten the very values which lie at the heart of a fulfilling life. Education must always challenge the pursuit of the trivial. The only test of what is suitable to teach is not whether it is “politically correct” , but whether it is great.

Whether in the West or Asia, in Britain or Pakistan, the values we learn in our family and at school guide us for a lifetime across the moral map. They are the Pole Star by which we chart our course through life. That is why education must concern itself not only with the useful — though it must also do that — but also with the beautiful and the true.

Beyond education, the state must provide a safety net of benefits to help the really poor. It must ensure a basic infrastructure for transport, energy and water. It has to concern itself with sanitation and health. Crucially, it must ensure sound finance and a stable currency.

Finally, of course, to these duties of government must be added the need for a strong defence — as Pakistan knows so well and puts into practice. We must never let our guard down — it is weakness that tempts an aggressor not strength.

But, for all that, the state must be the servant of the people and not the master. There must be no drift into paternalism. Paternalism is the enemy of freedom and responsibility. Although it adopts a smiling, human face it is like all kinds of interventionist government: it smothers worthwhile effort; it stifles enterprise; it encourages dependency and it fosters corruption. By doing so it holds back the wealth creation required in order to pay for hospitals, social benefits, schools, and roads. And that is as true in poorer countries as in richer ones.

Transition to a Free Society

There will be strains and stresses aplenty when a country chooses to move from a command economy to free enterprise. For such transitions are never easy. They are particularly difficult when, as with the former Soviet Union, there is no living tradition or recollection of freedom. Fundamental economic change involves painful decisions and much disruption of people's lives. And there is also plenty of opportunity for policy makers and businessmen to make mistakes. Crime may flourish in circumstances where the ambition for self-advancement, by fair means or foul, outstrips the sense of responsibility and the resources of law enforcement.

But standing still — or even slowing down — provides no sort of answer. In fact, it is the countries which have moved furthest and fastest towards the free economy that have obtained the best results — though even the slow coaches have been better off than they were with state planning and over-regulation.

Curing the British Disease

The recent history of my own country confirms the economic truths.

The Government which I led for eleven and a half years systematically put socialism into reverse then we went decisively forward, into first, second, and, eventually top gear. For our objective was positive. It was to re-create that political economy of freedom which had made Britain a great industrial and trading nation in the past, and which could do so again.

So we curbed public spending.

We cut income tax, particularly at the penally discouraging higher rate.

We removed controls on prices, incomes and dividends.

We abolished exchange controls.

We cut back the privileges and powers of trade unions, which in recent times had become more powerful than the government. 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. And a wise politician will never under-estimate the innate common sense of the people.

Every Man a Capitalist

Most important of all perhaps, we set about privatising state-owned industries. And I know this is a subject of immediate, practical importance here in Pakistan.

Let me emphasise that privatisation for us was not simply an aspect of economic policy — let alone merely a matter of funding state spending without raising taxes. It was part of a much broader approach.

I passionately believe that private property should be spread as widely as possible, as a bulwark for the liberty and independence of the people, and to enhance a sense of responsibility to future generations. Every man a capitalist was my purpose; privatisation and home ownership were two of our methods.

By the time I left office the state-owned sector of industry had shrunk by sixty per cent. Equally important, and largely as a result of the wider share ownership schemes which accompanied privatisation, about a quarter of the population owned shares.

The practical benefits were legion. Privatisation of loss-making industries absolved the taxpayer from the need to finance them. It was cheaper to provide public money in the short term to settle their financial problems so as to make them viable propositions for private sale than to go on year after year with subsidies. It was also easier to provide substantial sums in redundancy payments to workers whose jobs were fated to disappear, rather than to continue paying them to produce goods that customers did not want to buy. Privatisation allowed the businesses themselves to raise finance in the private sector without the constraints applied by government.

The impact on the economy as a whole was also profound. Opening up large industries to competition increased their efficiency. Ending the heavy burden which loss-making firms imposed on the taxpayer allowed us to reduce taxes thereby encouraging new, small businesses, and new jobs.

The effect of these policies in the eighties was precisely what we intended — and what our critics thought impossible.

Inflation fell.

Economic growth rates increased.

More businesses started up and expanded.

More jobs were created.

Property and share ownership expanded.

Living standards rose.

Productivity, upon which all the rest ultimately depends, raced ahead, faster than our main competitors.

Had Britain not made these fundamental changes to reverse socialism and apply the principles of the free economy when we did, the country would have been in even worse straits than in 1979. For we all have to consider ourselves now, far more than previously, as part of a truly global economy. In such circumstances, attempts to close off our economies from outside influences are even more counter-productive than in the past.

This means that trade protectionism will ultimately fail — although I regret to say that the European Union is highly protectionist.

It means that exchange controls will fail.

It means that attempts to spend and borrow one's way out of recession will fail.

By contrast, it means that investment will flow into countries whose governments create the circumstances to attract them, rather than planning, directing, or subsidising their way to a collectivist nirvana.

The Benefits of Free Trade

Governments must also promote and nurture trade.

It is no accident of history that the great cities grew up on the vigorous trading highways of their age. They drew their riches from the caravan routes, river crossings or natural harbours on which they were situated. For centuries trade, wealth and power went hand in hand, and the most successful trading states were the superpowers of their day. Here in Lahore, astride the Grand Trunk Road and on the old Silk Route you need no reminder.

Trade has also proved the most effective vehicle for spreading prosperity to small and large nations alike. A small nation can still thrive as long as its businesses have access to the larger world market, where they can compete on equal terms with the commercial and political giants. You only have to look at the success of Hong Kong, Taiwan and Singapore to know this to be true.

But, of course, large, populous but economically less developed countries, like Pakistan, are equally potential beneficiaries of open trade. They are able to specialise and develop their natural resources by access to foreign capital.

Since the signing of the first GATT accord, total world trade in manufactured goods has grown by a multiple of twenty three. This represents the largest growth in history, benefiting not only the well established trading economies of the West but also the developing countries, for whom trade is their lifeline to prosperity.

Of great importance to Pakistan is that the GATT — more precisely the World Trade Organisation — has now extended its scope beyond manufactured goods to cover services, intellectual property rights and agriculture.

And I am as glad as Pakistan is that the decision has been made to phase out the Multi-Fibre Agreement on Textiles. This discriminated against many countries, like Pakistan, which were unable to take advantage of their lower labour costs. As such it was unfair: the various other protectionist schemes which are surfacing in the West at present are unjust too. Every country in the world has pulled itself up by selling what its people made. Who are we in the West to deprive others of this chance? How otherwise will the less developed countries earn the money they need to equip themselves for economic progress? Or, indeed, how will they otherwise come to provide markets for Western goods?

Protection by the West is selfish. Prolonged protection by the less developed countries is folly. And in both cases, though it may get instant plaudits from vested interests, it is self-defeating.

Our ultimate objective should be global free trade.

The Moral Case For Capitalism

For, Mr Chairman, history's lesson is clear. And we must never fail to put these comtemporary economic arguments into the broader historical context.

States, societies and economies, which allow the distinctive talents of individuals to flourish, themselves also flourish.

Those which dwarf, crush, distort, manipulate or ignore them cannot progress.

You and I must also continue to make the moral case for our beliefs — at the heart of which is liberty itself, or what the United States constitution describes as life, liberty and the pursuit of happiness.

Economic freedom is real freedom. Just as coercion exercised on economic grounds is no less real coercion. But don't take my word for it: listen to one of the world's great religious leaders, Pope John Paul II in his Encyclical, Centesimus Annus where he talks of the collapse of Communism, as “not to be considered simply as a technical problem, but rather as a consequence of the violation of human rights to private initiative, to ownership of property and to freedom in the economic sector” . Indeed, as the Pope continues, “today the decisive factor is increasingly man himself, his knowledge, especially his scientific knowledge … and his ability to perceive the needs of others and to satisfy them” .

Perhaps we in business have been too slow to point out that capitalism is therefore not only about material things, it is about the human spirit and its creativity. In seeking to liberate people from poverty and servitude it is the business ethic in action which is the cutting edge of progress.

Free enterprise works because, like democracy, it gives real power to the people. Indeed it can be described as economic democracy. It limits the power of government by maximising the power of the people. As such, free enterprise capitalism is a necessary — though not a sufficient — condition for political democracy itself.

Democracy and Asia

This connection between the free economy and the free political system that we call democracy is of much more than theoretical importance in Asia. Over the last few years, the conditions have been created for a profound shift of economic power.

The age of automation has been even more radical than the age of mechanisation. “Smart” machines now transfer technology instantaneously from one country to another. Developments which used to take years can be achieved in months.

Hence the economic miracles in the countries of Asia, both large and small.

Today the Asia Pacific region has the highest growth rates in the world.

Just as the scene shifts in a play, so I think the next Act in world history will be played out more in Asia than in Europe, more in the Pacific than the Atlantic.

But this very fact means that the whole world must be concerned to ensure that the rising economic powers achieve the political maturity which democratic institutions provide. Both Pakistan and India offer proof that there is nothing exclusively Western about political and economic freedom. It is not just that human rights are universal: so are human requirements and aspirations. As one of the world's largest Muslim nations, Pakistan demonstrates clearly that her faith is at one with freedom, stability and peace.


Rather, it is China whose political development at this moment provokes the greatest anxieties.

But of all the countries of Asia perhaps it is China whose economic advance is most astonishing the world. It has, of course, taken a different path from its Communist neighbour, Russia, on the road to reform. Since 1978, Deng Xiaoping although refusing to give personal and political liberty has steadily encouraged a market or enterprise economy with economic freedom. “I wish we had started that way” , the Russian leaders used to say to me — but historically, the Russians had little taste for enterprise and their brief experience of it was snuffed out by Lenin in 1917. Moreover, while China benefited from investment from Taiwan, Hong Kong and Singapore, Russia has had no such diaspora to help her.

Viewed from the outside, China appears to be a large but single market. In fact China is a union of many, possibly as many as forty, economic units. A good number of its cities are larger than many countries and the average-sized province has a population of between 50 and 60 million people. Of course, with a total population of 1.2 billion there are bound to be variations in the rate of growth. But with a willingness to devolve economic power I do not share the opinion of some commentators who see mainland China breaking up, like the USSR.

Nevertheless, I myself believe that you cannot have economic freedom without a mounting demand for political freedom. Open the door to new investment, and you also let in new ideas. Dismantle controls over what people buy and sell and you have less control over what people think. So in spite of the menacing tactics recently pursued by the Beijing Government in its quarrel with Taiwan, which is to be congratulated on its first democratic election for President, I believe that the long-term momentum for freedom and democracy in China will prevail.

Pakistan's Future

Each country has its own traditions and beliefs, its own history and characteristics. I believe that overwhelmingly Muslim countries like Pakistan are right to develop their own way of doing things; and these have to be taken into account when making major political and economic changes.

But we should not try to re-invent the wheel. We know that everywhere the free market formula works, and that its collectivist opposite does not. We have seen that the generation of wealth has to precede any attempt to redistribute it - and that if such an attempt goes too far, the flow of wealth generation will dry up.

Although Western culture and Western countries originally demonstrated the truth of these propositions, we had to re-learn them in the 1980s. But they are now embodied still more strikingly in societies based on very different values.

Pakistan is now applying these lessons in order to improve the living conditions of her people. Traditions, culture and faith will provide a bulwark against those more socially subversive elements which often accompany the beginnings of economic progress. But the ties of family and community do more than this: they offer an extra incentive for material success. You in Pakistan are the first to understand that the great dynamo of progress is man's desire to work for his family, for people and purposes he knows, for local causes and facilities. And, of course, Pakistan is also blessed with a hard-working and adaptable people, as is shown by the large contribution which remittances from Pakistanis overseas make to the national economy.

All these considerations are grounds for hope — and indeed expectation — that a far more prosperous and successful future awaits this country.

As your great leader Mohammad Ali Jinnah said in 1947:

“we are going through fire: the sunshine has yet to come. But I have no doubt that with unity, faith and discipline we will … compare with any nation of the world.”