This is not the Time to be Mealy-Mouthed: Intervention is Destroying us.
Upminster, June 22 1974
The Implications of Benn
Of course it is right that we should react strongly against Mr. Benn 's proposals to turn us into a nation of lame ducks.
[Footnote: The Regeneration of British Industry, Cmnd. 5710, 1974. This White Paper proposes the setting up of the National Enterprise Board (NEB) which will be on the same lines as the now defunct Industrial Re-organization Corporation. Industry Bill provides £1bn. to NEB. [Bill 73] HMSO, 1975.]
Mr. Heath 's formidable speech on Thursday exposed the dangers. But it is not enough just to stave off Benn 's preposterous proposals. The question we must all ask ourselves is how Mr. Benn was able to come within striking distance of the very heart of our economic life in the first place. How could it come about that the suggestions could even be made by a Minister of the Crown after a generation's experience of state ownership of a fifth of our economy? How could anyone expect that the idea of “more of the same” which has nearly brought us to our knees could be seriously entertained?
We must find a satisfactory answer to these questions if we are really concerned with our survival as a free and prosperous nation.
Of course, there is more than one answer. But an important part of the answer must be that our industry, economic life and society have been so debilitated by 30 years of Socialistic fashions that their very weakness tempts further inroads. The path to Benn is paved with 30 years of interventions: 30 years of good intentions: 30 years of disappointments. These have led the collectivists to say that we are failing only because we are taking half measures. The reality is that for 30 years the private sector of our economy has been forced to work with one hand tied behind its back by government and unions. Socialist measures and Socialist legacies have weakened free enterprise – and yet it is Socialists who complain that its performance is not good enough.
If we simply stave off Benn and carry on as before, I fear that we shall have more disappointments – and more assaults. We must work towards the conditions in which the private sector – free enterprise – can realise its full potential for the benefit of all. Only then can it create the well-being which alone will buttress its political standing and preclude further assaults of this kind.
There is no good reason why this country should continue to fail. We have ample talent, the same kind of talent that made Britain great and prosperous a hundred years ago, the envy of the world. We enjoy the objective conditions for success now as we did then.
Too much Socialism
This is no time to be mealy-mouthed. Since the end of the Second World War we have had altogether too much Socialism. There is no point in my trying to evade what everybody knows. For half of that 30 years Conservative Governments, for understandable reasons, did not consider it practicable to reverse the vast bulk of the accumulating detritus of Socialism which on each occasion they found when they returned to office. So we tried to build on its uncertain foundations instead. Socialist measures and Socialist attitudes have been very pervasive.
I must take my share of the blame for following too many of the fashions.
We are now more Socialist in many ways than any other developed country outside the Communist bloc – in the size of the public sector,
[ Footnote: Some 50 – 60 per cent. of Gross National Product passes through public institutions whose operations are determined independently of profit and loss. In 1973 UK Government expenditure (Central and local government) was £30,342m; 54 per cent of net national income at factor cost (£56.259m), National Income and Expenditure 1963–1973 ‘Blue Book.’ HMSO, 1974].
the range of controls and the telescoping of net income.
Comparison with our neighbours
And what is the result? Compare our position today with that of our neighbours in north west Europe – Germany, Sweden, Holland, France. They are no more talented than we are. Yet, compared with them, we have the longest working hours, the lowest pay and the lowest production per head.
[Footnote: Economic Outlook, OECD, July, 1974; Economic Surveys, OECD.]
We have the highest taxes and the lowest investment.
[ Footnote: Economic Outlook, OECD, July, 1974; Economic Surveys, OECD].
We have the least prosperity, the most poor and the lowest pensions.
[ Footnote: Economic Outlook, OECD, July, 1974; Economic Surveys, OECD.]
We have the largest nationalized sector and the worst labour troubles.
[ Footnote: Economic Outlook, OECD, July, 1974; Economic Surveys, OECD.]
Our education, our social services, our health services – our cultivated barbarisms – all give cause for concern. We find it more difficult than our neighbours to give the right treatment to the disabled and good rewards to such groups as teachers and nurses.
Moreover, unlike our neighbours we are and for some years have been a disinvesting nation. In real terms, we are consuming our capital stock faster than we replace it – our physical capital and our moral capital, the values built up and transmitted over generations. We have been eating the seed corn, neglecting our shrines.
True, some of the countries whose performance I have compared favourably to ours have been governed, at least partly or part of the time, by Social-Democratic parties. But the fact is that some Social-Democratic parties abroad are far more realistic in relation to private enterprise, to the essentials of economic policy, to the limits on government's power to intervene for good, than we here have been sometimes.
The lessons for us
Mr. Benn 's new offensive should make us pause to think. But in the event, re-thinking has begun anyway. I have been entrusted by Mr. Heath with drawing lessons from the relative success of these countries. To enable me to do this on the scale and depth the subject deserves, I am setting up a small policy study centre.
I hope that in the months to come we shall be producing a flow of papers and presentations, which will deal comparatively and analytically with various features of our economies.
But there is another instructive contrast – between the position as I have described it and our own good intentions. No one intended the present state of affairs to come about. Never in the course of this nation's history have so many good intentions by so many people created so many disappointments.
Then, what has gone wrong? I suggest four main answers.
Short cuts to Utopia
First, for the past 30 years in our party competitive efforts to improve life, we have overburdened the economy. We have overestimated the power of government to do more and more for more and more people, to re-shape the economy and indeed human society, according to blueprints. We have tried to take short cuts to Utopia. But for lack of a really good map, because we were in too much of a hurry, we have finished up further away than ever. In the social services, alas, we seem to have generated more problems than we have solved. I was very conscious of this when I was the Minister.
We have found it harder than our neighbours to keep the overall level of demand – so important to the economy and to society as a whole – at about the right pitch. Too low – and labour is wasted: too high, when we try to mop up the last pockets of unemployment amid labour-shortage – and inflation is the result.
Not only have we most of the time over-burdened the economy but for 30 years industry has been distracted and harrassed by constant and often unpredictable changes in policy and taxation and in the framework within which business has to operate.
During 30 years we have tried to force the pace of growth. Growth is welcome, but we just do not know how to accelerate its pace. Perhaps faster growth, like happiness, should not be a prime target but only a by-product of other policies.
The lean kine
Secondly, for 30 years, levels of state expenditure have been greater than the economy could bear. The private sector, the productive sector, has been weighed down by the burden of taxation, by the burden of subsidies to nationalized industries. The public sector has been draining away the wealth created by the private sector – labour, capital and management together.
[ Footnote: Failing the Nation: Record of the Nationalized Industries, George and Priscilla Polanyi , Fraser Ansbacher , 1974; Comparative Returns from Investment in Nationalized Industries, George Polanyi , IEA, 1968.]
We have achieved what seemed impossible. We have poured never-ending flows of real resources into coal, rail and shipbuilding, among others, yet after 30 years they are as ailing and problematic as ever. We want healthy, well-paid, self-sufficient industries – giving good service to the public. Despite huge spending we still do not have them.
These are the lean kine which, as in Pharaoh's dream, are eating the healthy cows – the productive sector of the economy – and yet remain as hungry as ever. For 30 years we have tried to buy social peace at the expense of economic efficiency; predictably, we have got the worst of all worlds, inefficiency, hence poor performance and hence social discontents.
We can all write a list of public expenditure which we would call in question. Has it been wise, for instance, to devote taxpayers' money to tourism – putting hotels before homes? Has it been wise to pour money and skilled people and growth firms – all needed desperately in our big cities – into new towns? Has it been wise to expand our universities quite so fast? There are many other forms of expenditure which need to be re-examined. They all placed burdens on free enterprise – the only creators of the resources we need for general prosperity.
I fought my colleagues hard for extra resources. But when we place too heavy a burden on the private sector, we stall the engine.
Third there are the trade unions. Workers here seem to co-operate less in creating prosperity for themselves than do the workers of north west Europe. Our shop stewards and those they lead tend to be more resistant to change, less ready to improve techniques and more prone to strike, more given to damaging wage claims, than workers in north west Europe.
The reasons go back deep into social history. As Tories we have to understand that we are dealing with real people with their own views, habits and prejudices. We certainly do not ask them to neglect their own self interest. But we do invite them to transmute it into enlightened self-interest as their colleagues abroad have done. We must show that it is in flourishing profitable private firms that they can earn the most in the best conditions.
The Socialist vendetta
And fourth is the running vendetta conducted by the Socialists against our free enterprise system and those who manage it. Throughout the years a large section of the Socialist leadership has been downright antagonistic towards our wealth producers and towards the industry – national and multinational, large and small – which provides so high a proportion of our jobs, our exports and our tax revenue.
[ Footnote: Socialism and Nationalization, Fabian Tract 300, 1956, Hugh Gaitskell , Capital Transfer Tax, Cmnd. 5705, 1974.]
They have condemned the profit motive and attacked profits indiscriminately though for years profits have been too low for industrial health.
Indeed profits are the source of economic progress and, through their linkage with investment, of increased earnings and social services. Low profits today mean low earnings and low pensions tomorrow.
Profits earned within the law and in competition are thoroughly to be welcomed. But this has not been Labour's attitude over the years. A football team could not perform at its best if it were treated in the way that Socialists have treated British management.
It is pointless to argue about the level of investment when existing investment cannot be used properly because of poor labour relations, inflation, unpredictability created by continually changing government expedients. It is the quality and direction of investment that counts. We have destroyed or are destroying the market criteria for investment and production and have yet to produce another set.
These are the four main reasons why, in my view, things have gone wrong.
There are other reasons too. Rent controls and local authority housing have almost destroyed the ability of people to move.
[ Footnote: Verdict on Rent Control, IEA, 1974.]
Our well-intentioned social workers and misguided left-wing teachers have between them helped to erode the will to work.
Public opinion and prosperity
I do not believe that our neighbours in north west Europe suffer the same difficulties. Trades unions, governments and public opinion understand to a greater degree than here the value of thriving private enterprise and provide therefore a more sympathetic and workable climate in which it can operate.
This much we can already learn from one or more of them: that poverty is not ended by levelling down: that great prosperity has no link with public ownership: that high earnings are bred by co-operation not by conflict.
It was Schumpeter who said that free enterprise would die only because it would by its very success lack defenders.
[ Footnote: “The flow of earned income – of rent, interest and profits – is the root evil of capitalism; it represents the toll laid upon the workers by the owners of capital … The existence of unearned income is wrong in itself irrespective of how it is distributed”, Capitalism Socialism and Democracy, Unwin , 1970.]
How absurd it would be if now, with the success of private enterprise and the failures of any alternative exposed before our eyes, we were to allow fashionable Socialism to continue to impose its prejudices.
We have inherited a mixed economy which has become increasingly muddled, as we tried our best to make semi-Socialism work. Its inherent contradictions are intractable. Judging from the past 30 years and paraphrasing Lincoln we have to ask “can a country prosper, half collectivist, half free?” Certainly we couldn't prosper if we were even more collectivized.
The only practicable basis for prosperity is healthy, competitive free enterprise – a market economy within a framework of humane laws and institutions.
We must decide whether to go down with Benn or on to a more rational economy.
It is the Conservatives' job to try to bring about conditions in which free enterprise can carry the country and its standard of life and of social services forward to the levels that others nearby are enjoying.
We have the big task of opening the public's eyes to what is practicable. Governments are only free to act within the constraints set by public opinion. It is my job and the job of the Centre for Policy Studies now being set up to show what can be done, indeed what has been done, in nearby humane societies.
Upminster, June 22, 1974.