HC Deb 26 July 1990 vol 177 cc711-8

2 pm

Dr. Mike Woodcock (Ellesmere Port and Neston)

I am grateful to you, Mr. Deputy Speaker, for calling me to speak in one of the last debates in the parliamentary Session. I am equally grateful to my right hon. Friend the Minister for Overseas Development for being here with so few of us to see the sun set on the Session.

Perhaps it is fitting that one of the last debates should be about the momentous events that have unfolded in eastern Europe. I wish to speak on the methods by which we can assist enterprises in the emerging democracies in eastern Europe and to suggest how some initiatives, particularly on the know-how funds, can be geared to management training, especially that which is concerned with the values of free enterprise. Those values are not easy to define, but a definition is possible.

My personal interest in eastern Europe was aroused some three years ago when a book that I had co-authored was published in Hungary. It was essentially about management in western economies. It seemed to me that if a book written by a Conservative Member of Parliament—and a fairly dry one at that—was being used to train managers in a communist country, something fairly fundamental was happening.

I do not know whether anyone could have predicted the pace of change since then in eastern Europe, but by the late 1980s it was becoming apparent that the Soviet bloc could never really compete with the west. At last, fundamental Marxism was being seen as illogical when viewed against the facts of human behaviour and organisational success. Change was becoming irreversible and was spilling over from one country to another. People were no longer willing to accept the low standards of living that they had had to endure; they were no longer willing for their economies to be geared to meeting the needs of the Soviet Union. The rosy dream of state socialism had turned into a real-life disaster.

Thankfully, pragmatism is now replacing ideology. The transition to free-market economies will be painful in eastern Europe, but there is no alternative. The sooner that people in eastern Europe accept that pain, the sooner they will be able to reap the benefits. The degree of pain will differ from country to country.

Hungary is now trying to model its economy on western lines. It has a per capita income of only 55 per cent. of the EC average; it has an immense foreign debt. But it is well on the way to democracy. It is well placed to achieve commercial success.

Czechoslovakia has an average per capita income of 70 per cent. of the EC average. The recent elections there assure moves towards a free market. Czechoslovakia was once one of the world's leading industrial countries, and one of the world's richest countries with a long entrepreneurial tradition. It now has few products that can compete in world markets. It was the first country to manufacture motor cars, but now its industry is a shadow of its former self. In true socialist tradition, industry in that country has been bled to provide short-term production at the expense of long-term investment. But Czechoslovakia is also reasonably well placed to achieve success.

Perhaps the best chance of success is held by East Germany because of its links with the Federal Republic. It already has a per capita income of 75 per cent. of the EC average. It has the advantages of a pool of well-trained workers and massive investment from West Germany.

By contrast, Romania has a per capita income of only 35 per cent. of the EC average. It was once one of the richest agricultural countries in the world, but it is now dependent on food aid from the west. However, the problems there were not so much the problems of Communism but the problems of a feudal tyranny where truth simply did not exist and where the economy was based on lies and pretences. It now has a massive foreign debt, and the task that lies ahead is daunting.

Bulgaria has an income of 45 per cent. of the EEC average. Foreign trade there is still dominated by the Soviet Union, but it is taking tentative steps towards a free market economy.

Poland has an income of 40 per cent. of the EEC average. There, as we all know, the Communist party has been disbanded. There are bold moves towards a free market. Unprofitable enterprises are being closed, job security is being abandoned, monopolies are being abolished and privatisation is being vigorously pursued. Shock therapy in Poland is being applied to the results of state socialism. It is perhaps the bravest of all east European countries.

By contrast, Yugoslavia has an income of 45 per cent. of the EC average. It has traditionally had a much more liberal political regime. Over the years it has tried to pursue a halfway house. It has had free competition based on joint ownership of the means of production. However, it has been no more successful than its neighbours. Socialism in yet another form has failed and great changes are needed.

It is probably within the Soviet Union that the greatest problem lies. President Gorbachev knows that, in reality, there is no alternative but to introduce a free-market economy. His problem is in persuading the Soviet people of the short-term sacrifices that will be necessary. He was rightly credited with creating many of the opportunities for change in eastern Europe, but they came from a realisation on his part that the Soviet Union had no alternative but to withdraw from eastern Europe. He has a massive job to do. He said that even after many years of tried reforms Soviet workers continue to pretend to work and the state continues to pretend to pay them.

We hear a great deal about the level of financial support that will be needed from the west for eastern European countries. It is clear that private sector investment, particularly in newly emerging private companies, will be essential. However, money alone is not the answer, and nor is the straightforward transfer of technology. As Abraham Lincoln said, one cannot help people permanently by doing for them those things which they ought best to do for themselves. We in the west have to help them to facilitate change.

My hon. Friend the Member for Wokingham (Mr. Redwood) is well known for his views on eastern Europe. He has listed some of the things that he believes that east European countries have to do. He said that they must be serious about private property, reform the food supply system, achieve stable banking and monetary control, and institute massive privatisation. I agree with all those things. However, none of them will be possible without the right management skills.

The privatisation process in those countries is a colossal task compared with the privatisation programme carried out by this Government over the past decade. It needs a new breed of manager. Managers must understand free-market systems. It needs individuals and organisations which are free to take their own financial decisions; and, above all, it needs entrepreneurial attitudes and activity. The transition from command economies to demand economies will not be possible without the right attitudes, and that must mean management training on a gigantic scale.

I want to suggest seven preconditions for management training to be successful. First, it must be easily understood. Most managers in eastern Europe lack the depth of education and training that most western managers have. Secondly, it has to be non-bureaucratic. Managers in the eastern bloc have had bureaucracy and they want no more of it. Thirdly, it must be practical. It must be in a form that can be readily applied in organisations in eastern Europe.

Fourthly, it must be experiential. There is not the time or resources available to train managers in a formal sense. The training has to be largely on the job. In any event, experiential learning is much more cost-effective and achieves a much better transfer between learning and organisational change than formal education and training. Fifthly, it must impact on as many levels of organisations as possible. Seeding will be vital at all levels of organisations.

Sixthly, it must be geared to market economics. History shows that free-market systems usually bring freedom and prosperity while planned economies generally fail. Finally, it must be based on entrepreneurial values. Eastern Europe needs managers who are risk taking, pioneering and have the capacity to seize opportunities. The fundamental task is to develop managers who hold values consistent with the free market and who have the competence to steer organisations through the turbulent waters that lie ahead.

The values of capitalism are different from the values of communism and socialism. What are the values of capitalism, and what values will managers in the east need if they are to be successful? I believe that four major and fundamental tasks lie ahead of them. First, they must re-establish the proper role of management, and in doing so they must address three issues. They must address the issue of power, because in demand economies only managers can manage. The state must let go of the management process and managers must take charge of the destiny of their organisations They must address the issue of elitism.

In successful economies, management's role must be seen as vital. Organisations in the east need to understand the importance of getting the most able people into management and of continuously developing their competence. As they rid themselves of political elites, it may be hard for them to understand that, in some senses, they must create managerial elites. They must address the issue of awards. Organisations succeed because they identify what constitutes success and rewards it. Successful managers must earn more than unsuccessful managers. There is an old saying that organisations that pay peanuts get monkeys, and there is no room for monkeys in management.

The second major consideration of organisations in the east is taking charge of the task. In any organisation, results count, and in eastern Europe the system has often overshadowed the task. Bureaucracy and false assumptions have generally inhibited accomplishment. They must address issues such as effectiveness. Market-led organisations must set their own objectives and focus on the right issues. They must also address the issue of efficiency. It is not enough to focus effort on the right things; resources must be used efficiently.

Eastern European organisations have been characterised by an inefficient use of resources and they must address the issue of accountability. The principle of the profit and loss account gives commercial organisations their ultimate measure of success. Everything costs money and someone somewhere must pay. As Milton Friedman says, there is no such thing as a free lunch. The third major task that organisations in the east must undertake is to establish effective relationships within their organisations. Organisations are essentially about people, and without commitment no task gets done. They must address the issue of concern. Management, by its actions, greatly affects people's lives inside and outside the workplace. Experienced managers in the east need to use power with compassion and to build trust and commitment. They must address the issue of synergy, because well organised and motivated groups can achieve much more than the sum of the individuals who comprise them. Successful organisations must derive the benefits of team work, and they must address the issue of justice. Every community must have a framework of laws that regulate conduct, and successful organisations must develop such a system. That will not be easy in countries that do not yet have justice at national level.

The fourth major task they must address is external relationships, by which I mean relationships with the free market. Organisations in eastern Europe, which have lived in command rather than demand economies, have not yet faced up to the real world. They must address the issue of threat because in every commercial organisation talented people are planning how to expand their business at the expense of the competition. They must address the issue of competitiveness because that is the only sure-fire recipe for survival. In the world of free markets, the fittest survive and the weakest go to the wall. They must address the issue of opportunity, because, despite the most brilliant planning, it is inevitable that the unexpected threat and the unexpected opportunity will occur. As most Ministers and Governments will be able to testify, no one can afford to ignore the unexpected. Successful organisations are committed opportunists.

That is the agenda for management in eastern Europe—four principal tasks and 12 key issues. Let me suggest 12 golden rules that need to be applied in management in eastern Europe if management is to be successful. Managers must manage. The cream in organisations must be at the top. Rewards must relate to performance. Objectives must be clear. Enterprises must be efficient. Financial reality must be established. Enterprises must care. All must play as a team. Justice must prevail. Enterprises must defend themselves. They must strive to be the best. They must be committed opportunists.

These are essentially the values of the free market. In my view, the emergence of re-emergence of those beliefs will determine the economic success of eastern Europe and the Soviet Union, but we in Britain can and should play a part. Much has already been done, and I commend the Government for what they have done, but if we focus on financial help, there is a danger that those systems that need to go will be shored up by it. We need to gear our help much more towards management training that is concerned with the values and beliefs which I outlined.

As we all know, Britain has a long entrepreneurial tradition. In the past decade, we have gone through some of the change processes that eastern Europe will have to go through. We in this country have re-established the dominant role of the free market and have cut bureaucracy and carried forward our privatisation programmes. Our industry is much leaner and fitter. Our managers have regained the right to manage. Our products are now competing again in world markets.

But the task in eastern Europe is massive compared with the task that the Government faced in 1979. The opposition that people in those countries will face will be a good deal stiffer than the opposition that the Government have faced since 1979. I want the Government to give them all the help that they can, but it must be of the right kind. The emergence or re-emergence of free market values is the key to success. It is the process of re-establishing the values of the free market that we in this country should, above all, encourage.

2.17 pm
The Minister for Overseas Development (Mrs. Lynda Chalker)


Mr. Deputy Speaker (Mr. Harold Walker)

Does the right hon. Lady have the leave of the House to speak again? That being so, she may proceed.

Mrs. Chalker

Thank you, Mr. Deputy Speaker.

I am delighted that my hon. Friend the Member for Ellesmere Port and Neston (Dr. Woodcock) has secured this debate, and I congratulate him particularly on the seven preconditions for the establishment of economic success which he posed.

Much of central and eastern Europe is now settling down to parliamentary democracy after the elections, but those newly installed democratic Governments have to tackle the most daunting economic problems in the world, or they will face further drift, decline and, at worst, even explosions of disappointed expectations. Their success will depend principally on their efforts, but it is very much in our interests that they should succeed, thus consolidating democracy, building up prosperity, expanding the potential for trade and ultimately enhancing our security. Conversely, a failure of economic reform in eastern Europe could lead to political and possibly military instability. We and other western Governments are therefore absolutely determined to do what we can to encourage reform and to strengthen democracy.

What, then, is the role of western Governments? Private sector companies from the west can provide much-needed investment, management and know-how and multilateral bodies can provide the necessary capital flows. The role of western Governments is to provide short-term assistance and technical co-operation and to help the new Governments to set up their own systems and institutions. We are concerned with not only economic but constitutional and civil institutions to ensure good government. But all of those need good management. That is why my hon. Friend's stress on management is so important.

We are concerned to provide a liberal trade regime, which will help eastern European countries to integrate into the world economy. That will help them to reduce their crippling dependence on the old communist barter trade system.

It is an essential part of our approach that there should be the most effective possible international co-ordination of the various national efforts to help central and eastern Europe. We have therefore played a full part in the work of the G24—that is to say, the group of 24 OECD donor countries under the chairmanship of the European Commission which is now responsible for co-ordinating national assistance programmes for Poland, Hungary, the German Democratic Republic, Czechoslovakia, Bulgaria and Yugoslavia.

We should not do this in an indiscriminate way, regardless of how committed the Governments of eastern Europe are to real political and economic reform. Differentiation—that is, matching the help that we give to the reality of reform in the country concerned—is a key element of our policy in the region. Following the disgraceful events in Bucharest on 13 and 14 June, we vigorously supported the decisions not to proceed with the EC's proposed trade and co-operation agreement with Romania and not to invite Romania to the meeting of the G24 Foreign Ministers on 4 July. I believe that to be absolutely right. But if we see evidence of moves towards genuine democracy and reform, including full rights for opposition parties and movements, we shall, of course, be prepared to reconsider.

What can we do to help? My hon. Friend recommends much stronger management training. But let us look at what we are doing already. Our multilateral assistance focuses on four institutions. First, the European Community has taken various far-reaching decisions, but, most crucially, it intends to give reforming central and eastern European countries improved access to the Community market. That must be the single most important means of integrating the countries into the liberal western trading system and thereby underpinning their economic and political reforms. The EC will soon begin talks on more advanced association agreements with the most reformed eastern European countries—Poland, Czechoslovakia and Hungary.

Secondly, the European Training Foundation and the TEMPUS scheme will forge closer links between universities in Poland and Hungary on the one hand and those in Community countries on the other.

The third institution is the European Bank for Reconstruction and Development, which we discussed on Tuesday. The new bank will play a vital role in developing the private sector in eastern Europe. We are delighted with the decision to site the EBRD in London. We shall ratify the agreement shortly, and I hope that the bank will soon be ready to start effective operation—always insisting that the projects in which it becomes involved are, indeed, well managed.

Finally, we have the IMF and the International Bank for Reconstruction and Development. All the eastern European countries are either members of both bodies or are working towards membership. The IBRD will be the biggest single source of capital assistance for central and eastern Europe.

Our bilateral assistance programme, on which my hon. Friend focused, is aimed at helping the countries to build up their democratic institutions and giving them technical assistance and training, especially in areas such as financial services but also in law, in which Britain has something special to offer. All those things are necessary, in addition to the matters of which my hon. Friend spoke.

Our main effort is channelled through the know-how fund. The know-how strategy has been to make sure that the fund provides British advice, skills and training. We concentrate on the sectors in which we have particular expertise and take account of the specific Governments' expressed priorities. The strategy is also aimed to push investment by United Kingdom companies which, with their experience, can work alongside people from central and eastern European countries, for so long denied not only democracy but a market-led economy. Our companies can teach them and help them to find ways of realising how to be successful.

The know-how fund has some priorities which will please my hon. Friend—the banking and financial services; the generation of new jobs for those who lose their jobs as the industrial restructuring gathers pace; advice on setting up small businesses and entrepreneurial activity; help for the energy sector, particularly in Poland and Czechoslovakia; establishing permanent links between Britain and central and eastern European institutions, particularly in management education and training. That is going on apace, but we cannot stop there. We have to do other things as well.

We shall be giving considerable help to combat the serious environmental problems faced by central and eastern Europe. For example, British electric utilities are co-operating with Poland and Czechoslovakia on ways of conserving energy and reducing the environmental damage caused by burning brown coal. I am sure that there will be many other such instances where the management and technology developed in the west is shared with those countries as they emerge into a new situation.

My hon. Friend mentioned the Soviet Union, and I want to make special mention of that country before I conclude. It is not the Government's intention to shore up any country in eastern Europe by giving it money. My right hon. Friend the Foreign Secretary described it exactly when he said that one does not give money to a man who has a pocket which is not sewn up, but rather a needle and thread and show him how to sew it up first and think about investing the money afterwards.

It is important that we see real economic reform coming first in the Soviet Union and elsewhere, but particularly in the Soviet Union where the need is so desperate, before we become involved in any question of investing money. We shall be extremely careful how we proceed. We are considering know-how funds for the Soviet Union in future, but at present we want to see economic reform. Then we can add to that.

In the English language we have an unrivalled means of extending British teaching and influence in eastern Europe. Our aim in each country is to replace Russian by English as the natural second language. We shall take full advantage of every opportunity to widen our cultural contact with eastern Europe. We plan to spend almost three times more this year than we did last year on awards for students for eastern Europe and the Soviet Union.

We have also enabled the British Council to spend an extra £2.25 million in central and eastern Europe. It will now be able to pursue its plans to set up cultural centres outside embassy premises. We are negotiating cultural agreements, which are just as important as the training and the financial know-how on which the development of the industries and the market economy in those countries will fall.

The British Council is developing a major initiative for a network of teachers in eastern European countries who have had British training and use British methods which they can pass on to others. The scope for expansion of British cultural activity and teaching is enormous. Given the resources, I am sure that the British Council will rise to meet the challenge.

Our bilateral help to central and eastern Europe is separate from and additional to our overseas aid budget for the developing countries, which is growing in real terms. No existing aid recipient will be penalised by the new activities that we are undertaking in eastern Europe. It is critical to underpin what they are seeking to do for themselves.

My hon. Friend spoke clearly from his wide experience in developing management education skills. Wherever there are opportunties to share our skills, business should seek to take them because that is a sound investment for business, not just for Government. We have said throughout that we want to stimulate the private sector in every way. That is why we are firm supporters of the European Bank for Reconstruction and Development. We want to stimulate the private sector, not just with investment but with know-how. That is why we have called our funds the know-how funds and why our response to events in eastern and central Europe was the first in the field. Our aid to eastern Europe this year alone could exceed £250 million, including debt rescheduling.

We have played an energetic and generous role in multilateral activities. We shall do that also in our bilateral activities. I assure my hon. Friend that management training and sound management methodology will be to the fore among all we do with the know-how funds.