INDUSTRIAL GROWTH: EXPORTS AND INCENTIVES

HL Deb 01 February 1967 vol 279 cc958-1029

2.35 p.m.

VISCOUNT WATKINSON

had given Notice of a Motion to call attention to the necessity for a long-term policy for industrial growth, with particular reference to exports and to personal incentives for workers and management. The noble Viscount said: My Lords, I should apologise for the fact that my Motion does not appear on the Order Paper in the customary form. None the less, I trust that your Lordships will extend to me your indulgence and allow me to proceed. If I may, I beg to move the Motion standing in my name on the Order Paper, and to move for Papers. Also, I think I should declare an interest, for certainly I am a good deal mixed up in business and exports which will be, I hope, largely the subject matter of this debate. I do not seek to approach this problem in any partisan spirit, because the matter is too important for the future of our country. Whether our economic problems are to a degree self-inflicted or not, they still remain problems and they still have to be solved.

Perhaps, my Lords, I may say that to an ex-Cabinet Minister the present position is drearily familiar. We are on our way, one hopes, to solving the balance of payments crisis, but by methods which have been made familiar by successive Governments since the end of the war. As a result, the nation faces falling production and productivity, rising unemployment and reduced capital investment, due to loss of confidence in the future. Such a situation surely cannot be a permanent solution to our problems; and if prolonged it is bound to cause long-term damage to the British economy. So, surely, the most important question facing the nation is, "Where do we go from here?".

I am not seeking to argue, my Lords, that it was wrong to say, "Stop" six months ago, but I think it right to say that the Government have been extremely fortunate in the way in which their measures have been loyally supported by the trade unions and the employers. Neither of these partners in the State, as I know from my own personal experience, have found the task of saying, "No" to their members a very easy or agreeable one, and I think the country has been genuinely well served by the statesmanlike forbearance shown, especially by the trade union movement. Of course, this time there was legislative backing for what was done, but in a free society even legislative action will not for long restrain the normal desires of men and women to advance their activities and their incomes.

Severe restraint by legislation—I hope that we are agreed about this—cannot and should not be a permanent policy. In other words, unless the Government are now prepared to set their present restrictive measures against the background of a future policy for growth and give a firm commitment to do so, I believe they will face the collapse of many of their plans. I do not think that anybody who wishes our country well would advocate the immediate end of all restraint, but surely no one wants to see it staggering on under such a burden of controls and constraints that the enterprise and vigour of the British people withers and dies.

My Lords, speaking with some slight experience in the Ministry of Labour and in industry, I beg the Government not to go on with their future planning on the basis of compulsory powers. The choice for us all now is whether the British economy is to grow or further to contract, for it cannot stand still. I hope, again, that the Government and their advisers will not be so foolish as to believe that they have some particular form of magical planning which could hold the economy on a steady line between "Go" and "Stop". No business can do this; it has either to go forwards or backwards, and I believe the business of Government has to make a similar choice. In other words, the attempt to maintain a "nil norm"—to use these quite horrible words—across a wide spectrum of British industry would be a mistake in tactics and a mistake in practice, even if it were statistically justified.

It may be asked, "Why is it essential that the Government should proclaim their future policies now?" Well, my Lords, one does not have to look very far for signs of falling confidence in business circles and, therefore, the possible intensification of recession in key areas in the economy. There is, for example, a very sharp fall in the demand for executives right across industry, and this is really a very good yardstick with which to measure what business thinks about the future. Manufacturing investment continues to fall—not a very good sign in an increasingly technological world. Take as a specific example the British car industry. Here one sees many of the elements of a situation which is causing many business men grave disquiet. In this industry sales in the United Kingdom are still some 25 per cent. down. As a result, already some prices in the home market have had to be increased. Unless a fairly rapid improvement takes place in home sales, this increase in prices is bound to be reflected in the selling price of British cars abroad with disastrous results on the export figures for this industry. In the long term, I think all practical experience shows that we cannot base successful exports on a stagnant or retrogressive trade situation here at home.

There is to-day a further point. We must realise that, as industries strive for greater productivity, they are bound to become more capital intensive. This is obvious, but if they become more capital intensive, so they raise the break-even point of their operations to a pitch where even a relatively small drop in sales will turn a manufacturing profit into a loss, a loss that can then be recouped only by cutting back development. by increasing prices, or by doing both. Technological advance brings this penalty with it, that the more efficient and more automated a plant becomes, the nearer it has to operate to its optimum level of production in order to return a reasonable level of profit to those who operate it. This is saying nothing new, of course, but I believe that it is true that year after year our industry acquires a higher break-even point—probably it should—and, therefore, is the more narrowly based if excessively repressive measures force down production to a level where industry can no longer make a profit. or has either to raise prices or cut back on its programme for development and its expansion.

In this situation, surely it would be tragic if the Government did not indicate what their long-term plans are for resuming the steady growth of the British economy, and for providing the necessary financial incentives to back that growth: What should be done in these circumstances? Obviously, the main action must lie with the Government. They have access to all the economic facts and figures. But I can see no fact or forecast that should lead them at this moment to refuse to disclose as soon as possible a long-term plan for growth. The only factor that could justify such a refusal would be if a decision had been taken to try to remain in a permanent phase of severe restraint and this, as I hope I have already shown, means not "Stop", but in fact a rapid fall into a serious recession.

Although the pound is riding high at the moment—and I am sure all of us are delighted that this is so—it seems to me one of the few things in the economy that is riding high. I know that there are risks in going forward—there always have been—but there are much greater risks if we hold on to severe restraint too long.

To try to be as constructive as possible in what I hope will be a short contribution to this debate, I should like to put forward the possibility of one or two perimeters of a framework within which a programme for greater development may safely be achieved. First and foremost, the maximum priority must clearly be given to increasing Britain's exports. I am delighted that this is common ground among everybody. This is not going to be an easy task. As I have said before to your Lordships, we can achieve a satisfactory overall export performance only by selling to the world technologically advanced capital products, as well as easier things like consumer goods, and it is in the advanced field of capital goods that we are most vulnerable to our competitors. For example, in a market in which I have some interest, after two very good years for exports to the United States I fear that the current year, 1967, will certainly be a more difficult year to attain the sort of figures we have so far achieved, because we are not selling enough technologically advanced goods, like aeroplanes and generating sets. These bring in a great deal more money than consumer goods, however skilfully marketed, even in large quantities.

I believe that the Conservative Government created the right instrument for handling our export promotion in the British National Export Council, and the present Government have been very wise to back the Council and give it all possible help, as they have done. The Government must realise, however, that they, too, ought to operate on the same overall priority for exports that they ask the B.N.E.C. to observe, and in this context surely exports include" overseas operations". Here, I hope that the Treasury are thinking very seriously of amendments to the corporation tax that will avoid an unfair burden on firms who have built up profitable overseas businesses, remitting large sums of money to the United Kingdom, often on quite a small investment in the overseas market. I know that this matter is much debated, and it is interesting to debate the merits or demerits of overseas operations, but the fact is that this choice is not often possible. In most cases, there is no choice but to commit ourselves to an overseas operation or lose the market for good and all. So I hope that some consideration will be given to that suggestion.

At the risk of repeating the obvious, may I say that we should remember that practically the whole of the export effort by our country still depends on private enterprise. While I should be the first to say how much British businessmen owe to the devoted service of our ambassadors and consuls and their staffs overseas in the trade promotion field—we are getting immense help now from Her Majesty's services overseas, and I would say also how grateful the B.N.E.C. are for the strong backing which the Board of Trade gives them—none the less, in the end export trade depends on private firms who are willing at some risk to venture their own capital in this field and often take a lower profit margin in order to hold export business against tough foreign competition. These are the people who should be looked after, if we are to see our country grow on the correct basis of selling more abroad.

In passing, it would be interesting to cost the work of the B.N.E.C. on a man-hour basis. It would show that very large sums of money are being committed by the immense amount of time that many of Britain's business leaders are freely giving to the Council and to the work of promoting Britain's export effort as a whole. This service to the nation is willingly and, in my view, rightly given, and, as I see it, as chairman of one of the area committees of the Council, relationships between Government and the Council are good. I think that we are all trying very hard in this field.

But the point I now want to come to is that this satisfactory relationship would be damaged if the Government were to make some gestures to popular prejudice by making further moves towards economic egalitarianism for its own sake. I understand that Ministers will be under pressure, both in the House of Commons and elsewhere, to go on levelling incomes, wages and profits for the sake of levelling—for example, cutting of children's allowances or a wealth tax or some other tax which will bear heavily on the highly paid executive. Action on the wages front that seriously diminishes the proper differential that craft, skill and technological training commands would be just as unwise.

If we are to accept the need for exports, surely it would be an extremely foolish policy to discourage the very people on whom the success of our export trade depends. Therefore, I want to add a word or two about their rewards. I hope that your Lordships will agree that there is practically no incentive today for an executive to push his income above, say, £8,000 a year. Yet this figure, by United States standards, is away down the batting list of executive reward. Many of my American friends, when I talk to them, entirely agree that the largest single disincentive to growth in Britain to-day is lack of direct monetary incentive in the higher levels of management. Moreover, any move to increase tax burdens on the higher level of salaries is self-defeating, in all but purely Party political terms. The entire Exchequer receipts from surtax on earned income probably yield little more than £100,000 per annum. What the Government might consider, if they want to give more incentive to those exporting, driving hard, travelling hard and risking their businesses and their reputations in this diffi- cult field, is a reduction in surtax, which could be done at a relatively small total cost, bearing in mind the total tax burden. It would be a good incentive to those younger men on whom our industrial future so much depends.

Nor should the Government ignore the right of the skilled operative to high earnings. The more a man on the shop floor earns by his skill and effort, the better it is for him and the better for the nation. I hope that this will not be discouraged in any policy to try to raise the basic levels of the minimum wage earner. Levelling may have its attractions to some, but levelling down is no way to run a competitive economy; and I hope that the Chancellor of the Exchequer will have this in mind when he frames his Budget in due course.

Next, within the framework for future growth and development, I do not think any of us should be afraid of an unemployment percentage of 3 or 4 per cent. Having spent some years—some of the most rewarding years that I have ever spent—under the late Lord Monckton of Brenchley in the Ministry of Labour, I am not likely to accept that any unemployed man has not a human problem and is not a human problem. But provided unemployment is transitional and not structural, we may have to accept it from time to time, as indeed we are at the moment, as part of the price of adapting our industries to a rapidly changing world.

Those of us who seek to set a framework for expansion with reasonable safeguards should face the difficulty of trying by some form of control to get a balance between what we export and what we import. Under GATT or any other international rules, as I understand it, any country is entitled to take action to safeguard the future of its own currency. It might well be feasible to keep imports and exports reasonably in balance by tightening controls, not in a physical sense but on the provision of funds that go to the purchase of imports at times when the gap between what we export, plus invisibles, is widening against what we import.

There are several ways of doing this without reverting in any way to the use of general licences. One of the most interesting, and I think most hopeful, that is used by several other industrial countries is to require from the prospective importer a prior deposit with his bank. This deposit can be varied according to the need to restrict imports at the time. I hope that all these possibilities are being examined, because I personally believe that any idea that we can run this country, with its excessively small reserves. without some recourse to "Stop" as well as "Go" is quite unrealistic. Obviously, physical limitation of imports, or even campaigns to substitute home-produced goods for imports, do not really go very well at a time when we are trying to push our exports as hard as we can. But it is quite another thing to use the control of funds used to purchase imports to avoid the kind of gap in our trade figures that might lead to a dangerous run on sterling.

Lastly, and most important of all—and I ask this, again, with all the force at my command—are the Government going to base their future plans on voluntary discipline arising from free agreement between the three partners in the State, the Government, the trade unions and the employers? We shall all, in the end, sink or swim together, and in the present climate of opinion I think the Government have a real chance of carrying their two partners with them in a programme of sensible and voluntary restraint, provided only that the Government show that they are willing to phase this restraint into expansion in the long term. The continuation of restraint by legislation means the end—and I mean the end—of any fruitful collaboration. This is a chance that could now be taken and one which I hope will not be missed.

I hope, therefore, that the Government, for their own sake and that of the country, will indicate this evening that they reject further legal coercion on wages or prices; that they reject the concept of a long-term standstill on wages or profits; and that they will indicate, at least in outline, their plan to get Britain on the move again. Only on this basis can we now build on the foundations of reasonable co-operation that are so hopefully growing between the C.B.I. and the T.U.C. and, therefore, between employers and trade unions. Only in this way, and with a proper recognition of incentives for those on the shop floor, as well as in management, can we keep our export trade going and pay our way, and gradually get back to the kind of growth and expansion that is what this country needs to be a power in the world.

I raise this debate, not in the sense of being critical but in the sense of trying to face this question. I am sure that the Government are giving it their close consideration. I shall understand if they cannot be entirely explicit in their answers to-day. None the less, I hope that we shall learn that these matters are receiving their earnest consideration, and that this consideration is firmly based on the voluntary principle of working together that has brought our country through many difficulties in the past. I beg to move for Papers.

2.57 p.m.

LORD SHACKLETON

My Lords, the noble Viscount, Lord Watkinson, has given us an introduction to a subject in which many of your Lordships are rightly and naturally interested. I think he has made one of the most comprehensive speeches covering this wide field that has been delivered, and yet he has contrived to be so interesting and brief. Even so, the noble Viscount covered too wide a field for me to hope to deal with all the points that he raised. But I am proposing to reply to this Motion in precisely the same spirit in which the noble Viscount moved it.

No one is better qualified than the noble Viscount, Lord Watkinson, both by his direct industrial experience and his contribution under a pro bono publico hat, and no doubt his own contribution would add significantly to the cost if we costed properly the voluntary efforts of those who help the nation, especially in the field of exports. I shall not, as I say, be able to deal with every aspect of this wide subject.

When we have these economic debates, we find that there always tends to be a central core which is common to all of them, and which it is necessary to deal with, while at the same time focusing on particular areas which seem to be relevant to the particular wording. I shall try to follow as closely as I can the intentions of the noble Viscount, but the fact remains that I shall not cover all the ground. My noble friend Lord Beswick, at the end of what will be a lengthy and, I am sure, notable debate, will be prepared to deal with as many points as possible.

It goes without saying that the opening words of my speech will be that the major objective of the Government's economic policies is to strengthen our industrial position, and to improve its efficiency in one way and another. This expression of opinion has been stated by successive Governments, and there is, of course, no point of difference between us here. Your Lordships will not, I hope, object if I go over a little of the background of the present problems before I come on to the long-term issue.

For the past two years our main short-term problem has been how to deal with the worst balance-of-payments crisis with which this country has ever been confronted—and I state this as a matter of what I believe to be a statement of fact, without political implication of any kind. That crisis arose, like the others before it. because of the fundamental structural weaknesses in our economy; and we are determined to put them right. In saying that, I do not suggest that this Government have a magic wand, and we should not wish to deceive ourselves or anyone else into thinking that we have a magic wand. But it does mean, of course, that short-term measures of deflation and restraint have proved necessary. But, at the same time, we have never stopped pressing ahead with long-term policies to improve industrial efficiency and to create those conditions in which faster growth can be sustained without moving into balance-of-payments troubles.

There is one thing that I should like to state very firmly now. Because in recent months there has been a certain amount of loose talk about the abandonment of planning, I want to make clear that the Government have not abandoned planning, and we believe that it would be disastrous if we were to do so. And I think that on this industry is in full agreement with us. When the First Secretary recently discussed future planning operations with the National Economic Development Council, they took the occasion to reaffirm their strong belief in the continuing value of planning, and I am sure they spoke for all the best-informed and most forward-looking people in industry. And I believe that this would broadly represent the consensus of view in your Lordships' House.

Following his discussion in the N.E.D.C., the First Secretary indicated the Government's view in a reply that he gave in another place. He said that, while events in the middle of last year had necessitated revising many of the figures and assumptions in the 1965 National Plan, the concept of planning was in no way invalidated. Indeed, it was more than ever necessary to push ahead with the action programme which the Plan put forward, and to work to plans which would enable us to resume at the earliest possible moment progress towards growth of the kind which the 1965 Plan had envisaged. This means we want to look forward, rather than back, and it was for this reason that we decided against publishing any review of the 1965 Plan, in favour of concentrating on preparing the groundwork for the future. This is, in fact, what is being done now.

The Department of Economic Affairs and other Departments are now working to establish a framework of assumptions about the development of the economy over the next few years, and on the basis of which a further planning operation could be mounted. This work is not yet complete, and when we have carried it further forward internally we shall want to discuss our conclusions with the N.E.D.C. and with other organisations so as to establish the kind of planning operation which will be most valuable to industry and to the country as a whole. I think that in saying this I am to some extent meeting the very important point the noble Viscount has made about a consensus and voluntary co-operation. This is clearly fundamental to the success of this kind of democratic planning.

There are, however, many important questions which cannot yet be resolved. We have to consider very carefully both the timing and the pattern of our future growth. The Government have stated that we do not intend to take action to this end prematurely. We do not want to revive all the old problems: renewed balance-of-payments difficulties, labour shortages, inflationary pressures on prices and incomes, and so on; and we do not want to lose all the ground gained in the past year. Therefore, reluctantly, we must wait a little longer, until the balance of payments has clearly returned to surplus, before we take more expansive decisions of this kind. Again, we have to ensure that, in relaxing the present pressure on restraint, we do so on a controlled and, I would stress, selective basis, so that our renewed expansion is firmly based. Also, we need to be clearer about the possibility of Britain's entering the European Economic Community, since our forecast of plans for the future is bound to be different according to what assumptions we make on that score.

There are a great many uncertainties, and I have often thought, both since I have been in Government and during previous Governments, that when one begins to look at the list of the uncertainties one wonders whether there is any point in making the effort to plan one's future at all. But, my Lords, I am convinced it is unnecessary that we should do so, although it would be premature at the moment to commit ourselves in detail to a revised plan. We do not welcome this delay, and we realise its inconvenience for industry and others who want to formulate their policies in relation to the policy of Government. I am therefore particularly glad to have the opportunity to say this, and it is a further reason why the noble Viscount's Motion is so timely. It would be wrong, we believe, to commit ourselves to a premature effort which would not be soundly based and would not command the confidence of industry.

However, we shall be continuing with the planning work, and as some of the uncertainties are resolved we expect to be able to give at least an outline of the way we think the economy will go over the next few years and of the possibilities that are open to us. I do not want to speculate too far, and, clearly, I cannot give any firm commitment either as to when this document will be vailable or as to what form it will take. But the point I want to emphasise is that our belief in the value of planning is un-diminished, and certainly in our forward planning we shall be looking well into the 1970s.

It is worth remembering that, while many of the statistical assumptions and forecasts have had to be modified or abandoned, the action programme, as I have said, is continuing and, I believe, beginning to achieve valuable results. Planning does not consist simply of making forecasts or setting targets or deciding what we should like to happen. It also means contributing and, if possible, ensuring that things do happen. That, again, is why close co-operation among industry, trade unions and Government is so necessary.

Perhaps I may now say a few words about growth and this difficult question of international productivity comparisons. It is, of course, obvious that we have to plan for a faster rate of growth, because on the whole our economic and industrial performance has fallen well short of that in other countries, and well short of what we believe it could be. But I appreciate that comparisons of growth performance are at times somewhat oversimplified and, furthermore, apt to be used on a selective basis for Party political purposes. I still recall a memorable speech of Mr. Quintin Hogg, then Lord Hailsham, when he inveighed against the whole concept of growthmanship; and, clearly, there are many other factors that influence the need to be taken into consideration in judging, if not national performance, at least national virtue. I sometimes feel there is a certain moral aspect to this. But I should not wish to suggest—and I am sure there are none who would not agree—that there are not, in fact, comparisons which give us very serious grounds for thought; and there are aspects of growth of a more complicated kind, in particular in relation to the deployment of our research and development effort on which a great deal more work and thought is necessary.

Nevertheless, the fact remains that, for whatever cause, the level of productivity in industry, and the rate at which it has grown, have been well below the performance of our competitors. We know, at the same time, that the best in British industry is at least equal to anything overseas. But here again, of course, it is the best who are most aware of their own limitations, and it is here that perhaps the better improvements will come.

My Lords, the Government are anxious to do all they can, in co-operation with the trade unions and management, to help British industry to achieve greater productivity. One of the main components in this drive is the National Economic Development Council. I could speak at length—indeed, there is much that I should say—about the National Economic Development Council, but it is so well known to your Lordships, and certainly to the noble Viscount, that perhaps all I need say is that it is no mere advisory Council, and that it is involved, along with the "little Neddies," in developing the type of co-operation between Government and industry that we all seek; and it has wide terms to assist in this.

My noble friend Lord Beswick, will, I hope, if time permits, have something to say about the work of the "little Neddies" but I should like to turn to one aspect of industrial efficiency which I believe often receives less concentration than it deserves. It receives a great deal of attention but not always concentration. It is the whole question of industrial management. The Government must do everything possible to help United Kingdom manufacturers make themselves more competitive, on our home market and overseas. But while the role of Government is crucial over a wide area (and I take the noble Lord's point with reference to the taxation policy, and shall hope to deal with it later), the fact remains that the Government's authority and influence is still necessarily limited. This is true in the management field even in a Communist society which goes in for the sort of totalitarian planning that we reject in this country. Therefore we must recognise that in the last analysis it is for much of British industry itself to tackle these problems in the boardroom, in the negotiating chamber and on the shop floor and, not least, in the accounting offices and the stockrooms.

The simple fact is that in certain areas management is still not able to employ the more sophisticated techniques, the use of which is essential to more sensitive and relevant judgments, and these techniques are not always as well understood as they should be. I know of firms who are not yet aware of the best way to operate, or the possibilities of operating, systems of financial control, or of the potentialities that modern costings and budgetary systems can make available to them. One example is in the field of stock holding, where there is undoubtedly waste in both manpower and resources. Difficult commercial judgments are involved, but there are techniques available; and though none of them will replace the basic judgment of manage- ment, their use would lead to economies. This is one area in which one of the "little Neddies" is itself making a special contribution.

We have had a great deal of Government exhortation for many years, and every debate we have of this kind reminds me of the exhortations we had in the late 1940s and recent years. I would not want to suggest that real progress has not been made, but here again, when we look at some of the reports from the "little Neddies", we see the scope for further improvement.

Again, the Export Hindrances Survey, undertaken by the marketing services unit of a well known firm of management consultants, suggested, among other things, that marginal costing techniques and the importance of volume production in relation to reduced costs were clearly not, as yet, fully understood. I only mention this to show that there is a great body of evidence produced by industry in this field. Of course, overcoming these obstacles is not something that can be achieved in a short time, and it is not possible here to give anything like an exhaustive account of the many factors which affect' the efficiency of management. However, I think we are agreed that there is an ever-increasing need in British industry for effective, up-to-date medium and longer term management planning on all aspects of industrial life. Of course the better United Kingdom companies already provide as good models in this respect as any that are to be found.

My Lords, this brings me directly to the point raised by the noble Viscount, Lord Watkinson; namely, the question of incentives. His Motion refers specifically to incentives. I do not believe that this is a subject which could be adequately or equitably dealt with purely on the basis of providing marginal inducements for particular categories of people. Indeed, when we begin to examine these marginal inducements, of which we have examples, we find that comparisons are exceedingly difficult. This has to be seen against the background of the whole of our industrial and fiscal arrangements, including, not least, the successful working of the prices and incomes policy: and my noble friend Lord Beswick will also he dealing with this matter.

If this policy can be made to work, we can sure that the rewards of greater enterprise and productivity are real and not merely part of the inflationary process. So a firmly based and widely accepted incomes policy is as important as many of the so-called incentives—and, I believe, more important—which in practice become little more than a pretence to reward the powerful at the expense of the weak; or, equally, to dress inflationary wage settlements in the guise of perhaps even phoney productivity agreements—though I am not suggesting that this applies to the majority of productivity agreements.

Of course there is a need for incentives, but they must be applied where they are needed, and this means incentives to business possibly more importantly than to individuals. The export rebate scheme, the investment grant scheme, the remodelling of our taxation scheme, which we have begun, are all part of this. The use of taxation as an instrument of economic management has developed gradually over the last few centuries. For many years, and particularly in the heyday of the 19th century, laissez faire taxation was a necessary evil. The purpose was to raise revenue to pay for wars or other essential Government expenditure. Of course this has remained, but the role is different—or perhaps I should say that there are many additional new roles.

We have started to use taxation in a much more purposive way than in the past; as an instrument of social policy and a means of macro-economic control. To this has been added a fourth function: to discriminate (and here I admit we are going into a difficult field) between different types of industry, asset, activity and location, so as to encourage the economy to operate in the social interest without needing direct Government intervention. The selective employment tax is an example of this—and, let me admit, a controversial example—which I do not propose to debate now. But I should like to set the concept against the background.

The desirability of an influence of this particular kind in our economy is surely not arguable by the majority of noble Lords interested in planning. In this country we are tending to follow the United States of America, where a growing proportion of the wealth produced by all the modern aids has led to a filtering off of resources from secondary to tertiary industries. Some of this is no doubt a right and proper product of greater affluence. There is some evidence that this is a factor in the slower growth rates of manufacturing output in the United States and this country, which may in part account for, to me, the very definite paradox that it is these two countries which have the largest investment in research development. This is a difficult field in which further research is necessary, but I believe this is fundamental to the more sophisticated and directed and effective planning that we shall hope to adopt in the future.

There is another aspect of incentives, which is this. To my mind, the most important incentives to efficient work and high quality are not solely financial, or related solely to questions of wages, salaries and taxation. Here there are some interesting figures, and I expect the noble Viscount saw the comparison in the Financial Times last October. Also, a number of figures were given in another place yesterday which suggest that personal taxation in this country is on the whole rather parallel, in the middle range, to that in other countries. The phrase from the Financial Times suggests that direct taxation in the United Kingdom only begins to be significantly more penal than that in any other major industrialised country on incomes above £20,000. I will not go into the details of these arguments because there are all sorts of computations which are necessary, but by and large it is fair to assume that there are other countries, and some of our competitors, which are at least as highly taxed as we are.

In any case, the money incentive is not the only one, important though it is. And let me say straight away that Her Majesty's Government accept the importance of this, as they accept the importance of profits—and I think it is necessary to repeat this—as essential for the working of this co-operative economy of ours. But there are other incentives. Wage-related sickness and unemployment benefits, efficient management, industrial morale, and status in society generally, are all elements which have to be taken into account.

An important element in the Government's strategy for economic and industrial growth has been the encouragement of technological advance throughout manufacturing industry, and this aim has been stated many times by the Prime Minister and other Ministers. There is a wide field of industries where action is being taken by the Ministry of Technology, and some of the examples are well known. Indeed, they are so well known that I hesitate to mention even computers and advanced machine tools again. But apart from the" hardware" side of technology, one of the most important aspects of this question is the fact that we do not regard it simply as a problem of engineering, and we are endeavouring to bring about a marriage between engineering and economics.

A technological policy must be selective so that scarce resources which are put to seeking out and applying new technologies are used to the most efficient purpose. We must first be more selective—in so far as the nation is able to exercise this without grossly interfering with industrial decision-making—in choosing those projects which are on the threshold of technological achievement, and of course the computer industry again is an example. We must be able to look ahead and identify those sectors which are most able to benefit from improved technologies, and also to see whether the structure of those industries enables them to keep abreast of modern developments. We must seek out ways of adapting these technologies to industries and situations where at first they may not seem applicable.

Above all, in all our activities we have to investigate the various economic and social costs and benefits of such activities. This is an area where purposive planning is still only in development. A greater effort will be necessary if we are to understand and put to the best use the resources that should go into research and development. This is a subject which I hope we shall be able to debate at greater length, perhaps on the Motion that stands in the name of the noble Earl, Lord Bessborough.

There are important lessons to he learned here, which will demand closer collaboration between planners, economists and scientists. Cost benefit studies, which are still really in their infancy, could provide a valuable key, particularly in the fields of research and development. Some efforts are being made, and these can be of great importance in relation to lead time, a concept of which is just as important in traditional industries as in the more normal science-based ones. As Professor Galbraith has pointed out, the awareness of the role of research and development in industrial planning is an outcome of the growth of the large corporation in the United States, and while there is not time to discuss the structure of industry, or indeed to qualify that statement, it is certainly true that in many areas larger industrial units are a necessity. It is here that the I.R.C. has a very important role to play.

We still have to establish, at least on a guideline basis, the appropriate threshold in relation to the size of firms and the scale of their output below which research and development may fail to be effective and thus be wasted. Some of your Lordships will have read the very detailed studies which have appeared recently, both in the United States and, more notably, in the Report of the National Institute on this subject. There was one particularly interesting study in relation to the electronics industry.

All this will impose on us the need to face up to one of the most difficult and, at the same time, one of the most important issues; namely, the need consciously to select or reject certain areas in which to press on with research and development so that they may yield the maximum economic return. It might be possible to produce a most splendid electronic left-handed fountain pen which, none the less, would not significantly add to the economic wealth of this country, however attractive and rewarding it might be to the engineer and scientist who designed it. It is in this area that decision-making, sensitive and delicate, is going to be necessary. I commend to your Lordships a very interesting address by Professor Cottrell which was delivered at the British Association last year.

A great deal is going on both inside and outside the Government in connection with these problems. The setting-up of the new Central Advisory Council for Science and Technology, under the Chairmanship of Sir Solly Zuckerman, Chief Scientific Adviser to the Cabinet, containing the most authoritative experts—indeed, it was a problem to choose: there were so many—on scientific and technological policy, is further evidence of the Government's aim to make the best use of our knowledge and ability in this field. There is much more that I could say on this subject and on the relation between Government research and the universities and research institutions. I have mentioned this only to show that I personally believe that this is a very important aspect of the future growth, and steady growth, of this country on which more work is necessary, both within industry and in Government.

Our economic policies, as I have said, are still at present dominated by the immediate need to rectify the balance of payments, and this has meant taking measures to slow down growth at home. These culminated in the severe restraints imposed in July of last year. As a result, although some elements of demand, notably public investment and, more recently, exports, have been rising strongly, output as a whole has probably not risen since the middle of last year. Wage rates have risen scarcely at all during the standstill, and at the same time prices have risen much more slowly than in the past.

So far as the balance of payments is concerned, I think we can see that the July measures have helped to check the rise in imports which took place in the early part of 1966. At the same time, the slowing down in exports after the fourth quarter of 1965, intensified by the seamen's strike, has given way to a strong rise. My noble friend Lord Beswick, when he comes to wind up, will deal in more detail with what has been done recently to encourage exports. I will only say here that the magnificent performance of our exporters over the past two years, encouraged not only by the noble Viscount, Lord Watkinson, but also by Her Majesty's Government, has resulted in the biggest increase we have had in any two years during the past decade. The export drive is in the forefront of the Government's economic policies, and there it will remain. The slower growth of imports and the rise in exports have led to a big improvement in the current balance of payments, compared with the first three-quarters of the year. Thus, the immediate objectives of policy are being fulfilled and are laying the foundations for sustainable growth in the longer term.

I should like now to say a few words about the prospects for 1967. I think it is clear to your Lordships that we still have to pursue a moderate and careful course during the next year or few months. We shall need at all times to have regard to the supreme importance of a healthy balance of payments, and, especially, of course, to the commitment to pay off our debt to foreign central banks and the International Monetary Fund. This means that we must not only be in surplus, but must stay in substantial surplus for the next few years. This does not mean, and could not mean, that the brakes must remain on for ever, but it does mean that measures to promote renewed growth must be selective so that we can increase our output without relapsing into external deficit.

My Lords, I think I have said enough to indicate what is in any case pretty generally known, the lines 'on which further advance can be achieved. There are now strong forces making for growth in the economy. In regard to exports, if world trade continues to expand, the prospects are good and will be enhanced by any cost advantage we gain from the incomes and prices standstill. Then, public expenditure, both current and capital, will rise. Much of this is directly related to our future growth potential: investment in the publicly-owned industries. Although personal consumption has been reduced, both by direct measures and by some fall in real incomes, the effects of the restrictions will wear off and thus tend to raise consumer spending. Wage claims caught in the freeze will be met, and current grants from the Government will increase; these will again add substantially to consumers' incomes.

Finally, the selective employment tax refunds and premia (again, I will not go into the ethics of this) will undoubtedly at this moment ease the liquidity position of firms in manufacturing industry, and payments of investment grants will begin to flow by the middle of the year, though the increased grants announced in December will not be paid until mid-1968 and later. These built-in expansionary forces must not be underestimated in considering the need for further specific Government action.

What I have said confirms, I hope, that the Government are fully aware of the necessity for a long-term policy of industrial growth with particular reference to exports and to personal incentives for workers and management. Moreover, I hope that what I have said indicates that we are more than aware—we are taking action. Again, these broad but fundamental directions of policy which I have described have been followed up over the last two years against a balance-of-payments crisis of which we have been all too aware. Despite the measures taken to deal with that crisis—many of them restrictive, and certainly inhibiting to growth—we have pressed ahead with our positive policies to ensure a firm basis for future growth. The measures and the planning and thought, aided by the enthusiasm and co-operation of industry, will, I believe, achieve what the noble Viscount asks for in his Motion which he moved so ably.

3.36 p.m.

LORD HARLECH

My Lords, as the wording of this Motion makes clear, the problem for this country is not just how do we expand production, but how do we expand it without running into a balance-of-payments crisis. This was a point which was most forcefully made by the noble Lord, Lord Shackleton, in the early part of his speech, and to which he came back in a notable passage towards the end. As my noble friend Viscount Watkinson said, it is no good us blinking at the fact that the solution to this problem has baffled all British Governments of both Parties since the war, and it has baffled not least the present Government.

In spite of the Prime Minister's boasts in 1964 that under a Labour Government things would be quite different, and steady industrial expansion would be assured—I would agree with the noble Lord that he did not actually claim to have a magic wand, but he went far in that direction—here we are, two years later, with industrial production no higher than it was when the Government took office. Despite the efforts of this self-styled, modern and dynamic Government, we are now in the middle of a good old-fashioned recession. Unemployment is rising, production is down, and there is every indication of a fall in capital investment, particularly in the private sector of the economy, possibly by as much as 10 per cent. I therefore agree entirely with what my noble friend said, that it is by no means too soon for the Government to indicate the strategy they intend to pursue when the moment comes to encourage economic expansion again.

I have used the word "strategy" rather than "plan" deliberately. The last thing in the world that we want from the Government is another mammoth document purporting to set out how much we shall all be producing and spending in five years' time, and purporting to tell us where we shall all be working: a document which, shortly after publication, would go to the top of the current fiction list and then be withdrawn.

The noble Lord, Lord Shackleton, had something to say about the kind of planning in which the Government are now indulging. He used some vague terms. He said that targets and forecasts were not everything. He used a rather delightful phrase, "the framework of assumptions that were being worked on". I am bound to say that the tenor of his remarks seemed to coincide much more with the sort of planning with which we on this side of the House might find ourselves in agreement. What we need is an indication of those measures which will make it safe for us to expand without once again running into balance-of-payments difficulties. In this connection, I welcome the particular reference to exports in the Motion before us.

I want, therefore, to start by putting forward some ideas which I suggest might be examined, and possibly even implemented, which could give us a better chance of keeping exports expanding at least as fast as imports during the next period of reflation. First, I suggest that the Government should give serious consideration to switching to a value-added system of indirect taxation, the whole of which tax would be refunded on goods for export. It seems to me that such a system would have the following clear advantages. It is a system which is allowed under the rules of GATT; it has operated most effectively in a number of countries which have been conspicuously successful in their export efforts; and it provides a direct incentive to industries to export.

Secondly, I suggest that the Government have a good look at the possibility of moving to a more flexible exchange rate for the pound, once we have got our balance of payments position right and sterling is again strong and secure. Allowing the exchange rate for the pound to fluctuate through a wider spectrum is not devaluation, and it would at least provide some automatic corrective at an early stage if we again ran into balance of payments difficulties. Put in its simplest terms, it would mean that as the rate for the pound fell, our export goods would become cheaper thus making them more competitive, while the cost of imports would rise correspondingly making them less attractive. I myself should prefer this—though I know it is a far-reaching proposal—to the methods suggested by my noble friend Lord Watkinson, although they might have a part to play; and, of course, in certain circumstances it might even be necessary to look again at the question of import quotas if we ran into a really serious financial crisis.

Finally, I think that the Board of Trade and the Foreign Office should look to see what more can be done to ensure that our consulates and commercial staff in all overseas posts are provided with the money and the equipment to do their job in the most effective possible manner there I should like to echo the tribute paid to these people by my noble friend in his opening speech. This would involve more generous expense allowances, and in many cases it might require the provision of an official car and a driver in order that the man could effectively cover his territory. In some posts it would be worth paying for additional manpower. It is really a question of casting our bread upon the waters; hut our most successful competitors do it, and I believe that the additional cost would be repaid many times over by increased orders for British goods.

Here perhaps I may make a further comment which is somewhat outside the scope of this debate. One of the most severe handicaps we have been operating under ever since the last war is that our reserves have been too slender to enable us to ride out temporary weaknesses in sterling. It therefore stands to reason that the United Kingdom would benefit enormously from an improvement in the international monetary system, and I hope that the Government will increase the effort and the determination they have already displayed in order to bring this about.

I now wish to turn shortly to the domestic scene. Although my noble friend has said he did not wish to be partisan in his approach to the problems to-day, I am afraid that, in this field, it is inevitable that we on this side of the House must part company, at least to some degree, with those who sit on the opposite Benches. We, for our part, are convinced that the burden of personal taxation which has been so substantially increased since this Government came to power is now far, far too great for our economic wellbeing. This weight of taxation not only discourages effort and enterprise, but there is little doubt it is also adding to the serious brain-drain which is giving us all so much concern. In this respect many noble Lords will have read during the past two days, in the Evening Standard last night, in the Daily Mirror to-day and in a leading article in The Times, more gloomy news on this particular front. I have not the slightest doubt that increased incentives to both workers and management would change significantly, and for the better. the economic climate in this country. I am sure that if our levels of personal taxation could approximate more closely to those in the United States and in West Germany, where they have sustained growth rates of 5 per cent. per annum, a new buoyancy would make itself felt in our society.

I quite appreciate what the noble Lord said, that one would have to take up a great deal of time if one wanted to arrive at a precise and accurate comparison between the levels of taxation on personal incomes in different countries, but from articles which I have read and from a study of the figures I have reached no other conclusion than that, as compared with both West Germany and the United States, in the middle ranks upwards there is undoubtedly a greater disincentive of taxation in this country. When the noble Lord says that in some ways the performance in this country is roughly comparable with the performance in the United States, I wonder how up to date those figures are, because certainly since 1960 the rate of expansion of the economy of the United States has been pretty spectacular. They have averaged about 5 per cent., and in some years have gone over 6 per cent. We have not approached that figure, least of all during the last two years. Conversely, additional tax burdens which are now being freely discussed in the newspapers would be only a further handicap to British efficiency. Much else might be done in tidying up the whole tax structure, and at the top of the list I would put the abolition of the selective employment tax, which was damned on all sides on its introduction and has been steadily losing friends since.

My next suggestion is that we should press ahead with all possible speed on management training schemes. Almost every outside expert who has examined the plight of our economy has concluded that, with some honourable exceptions, management in British industry is neither very up to date nor very efficient. In the light of this I am sure that the expansion of facilities for the education and training of management should be regarded as a crash programme with the highest possible priority. It would very soon begin to pay us dividends as a country.

Finally, I would say that the British economy would benefit from the spur of increased competition. Both sides in industry have expended too much effort in trying to eliminate competition, and Governments—possibly Labour Governments more than Conservative Governments—have aided and abetted them. There has been too great a tendency to cosset and subsidise the declining industries, too great a concern to protect even thriving, industries. Of course, as the noble Lord has said, our entry into the Common Market would be one way of ensuring that the British industry faced increased competition; but if our own membership of the E.E.C. is delayed—I, for one, certainly hope that it will not be—we must promote action on our own to bring about this increased competition.

I am not suggesting that any one of the ideas which I have put forward this afternoon would solve the problem of bringing about expansion while maintaining our external equilibrium. But what I do suggest is that the combination of increased competition and increased personal incentives at home, coupled with a switch to a value-added tax system and a more flexible exchange rate for the pound, could provide the formula for getting Britain moving again—and moving again in safety.

3.50 p.m.

LORD KINGS NORTON

My Lords, I must first of all apologise to your Lordships, because I shall be prevented by a long-standing engagement from being present during the later stages of this debate. Secondly, like the noble Viscount, Lord Watkinson, I must declare an interest in industry and exports and, in particular, invisible exports. It has been widely assumed—and has been assumed, I think, in the opening stages of this debate—that our exports are capable of further expansion, and I agree with this assumption. But I believe that if we are to achieve the expansion we want in the most efficient way, we must get a clearer idea than most of us have of the character of our potential. Secondly, when we know something of that, we must determine how best to convert that potential into performance.

I have been privileged to see, as a member of the committee which advises the Prime Minister on the Queen's Award to Industry, the inner working of that most imaginative scheme. Your Lordships will remember that it is for technological advance and for export performance. Your Lordships, and thousands of others, will recall something of what the Award winners have done to get their guerdons. What cannot be so well-known is the large number of entries for the Award which did not quite gain an Award, but which were still of tremendous merit.

I have gained an impression of great technological talent and exporting skill spread over a great variety of industries. I have gained an impression, too, that success attends the efforts of those organisations which know how to recruit, how to research, how to develop and how to marshal] their efforts; and I have gained the impression—admittedly, not entirely from being associated with the Queen's Award—that we are capable of spreading that kind of efficient performance further across the present fields of endeavour and into new ones. The potential is real and its dimensions are significant. It is difficult to quantify this potential, but I think we all know that, in the acid test of the balance of payments, the percentage changes demanded in overall effort are not large and, in my opinion, they are easily within our grasp.

In the matter of exports, some of the success stories have been remarkable, and I believe that those published can by their example provide a great incentive. But I think it is most important to realise the great potential which there is in invisible exports, represented by wise overseas investment and by the maintenance of our position in expanding economies, not only those of underdeveloped countries.

In his constructive opening speech, the noble Viscount, Lord Watkinson, made a number of telling points, and I want particularly to refer to two of them. He rightly associated improved export with technological advance. Not all the marketing techniques, the business schools, the subtle salesmanship of which we are capable, will avail us one jot, unless our commodities are competitive or, best of all, technologically better than those of others. Technological advance is of the essence. I said earlier that I thought that, good as we undoubtedly are in many areas of technology, we could do better. I want to mention one particular way in which we could improve our performance—a way of which the noble Lord, Lord Shackleton, is clearly not unaware.

In our impressive array of universities and colleges of technology, we have well-equipped post graduate departments of technology, or applied science—call it what you like. They are staffed by intelligent and often brilliant men, and they are frequented by the students who are intellectually the best equipped. They already contribute, of course, to technological advance, but I suggest that they represent a great potential as well. They are, naturally, already in touch with industry, but I should like to see that contact developed into something much more intimate. I suggest that part of the industrial policy which the noble Viscount wishes to see defined should be a plan for bringing these great potential sources into the closest possible touch with manufacturing industry, not only so that their efforts can be geared as closely as possible to the desirable industrial objectives, but so that their talents can be applied to helping industry to determine what those objectives should be.

Taking the other point in the opening speech of the noble Viscount, Lord Watkinson, on which I seized, when he urges the Government to base their future plans on voluntary discipline arising from free agreement between the three partners in the State—the Government, the trades unions and the employers—I want to add, at least in the fields of technological advance which are so vital to our performance, another partner: the applied scientists in the universities and colleges, and the other places such as research stations, whose work can be so much more closely co-ordinated than it is at present with the industrial effort.

But as the noble Lord, Lord Shackleton, said, technological advance is not enough. We want technological advance for the benefit, in the short, middle and the long-term, of the economy. I think that over the years industry has developed a good understanding of the workings of the home market. I feel it has still a lot to learn about the workings of overseas markets. Tremendous advances have, of course, been made by the splendid teams under the banner of the British National Export Council, but I dare to suggest that there is another and complementary effort still to be made.

Once again, in the world of academy, there are groups of economists and others interested in the working of markets, whose efforts are not sufficiently intimately geared to the practical objective of improving the balance of payments. They are another source of potential energy, of potential strength. The pure economist, like the pure scientist, must be left to pursue his path to the stars, but the applied economist wants to attack the problems of more immediate practical import—or export

It is necessary to examine, in relation to export markets, the effects of inducements and incentives; to corn pare the operation of our inducements and incentives with those of other countries, to analyse export successes and failure histories; to identify the restraints hindering export success, and to prescribe for their liquidation; to develop educational patterns for people destined lo work in the export field; to understand the reciprocal effects of home and overseas trading—to find out, for example, whether squeezing at home produces dividends from abroad—and to investigate how overseas investment in one industry can stimulate export in another.

Now these problems, some of which were touched upon by the noble Lord, Lord Shackleton, and many other problems have already been taken up in a modest way by a group combined of industrialists and academics, called the Export Research Group. This is a cooperative effort, the extension of which could, I believe, he of the greatest value to industry, and its encouragement is worthy, I suggest, of inclusion by the Government in their plans for industrial growth.

The object of my remarks has been to identify two areas of potential strength to our export performance. Neither can seriously affect short-term performance. But the Motion before us relates to a long-term policy, and in the long-term—indeed, I believe, in the middle-term, by which I mean three or four years'time—I believe that marshalling the efforts of our applied scientists in the way I have indicated is a matter of major importance.

4.0 p.m.

LORD RHODES

My Lords, may I apologise to the noble Viscount, Lord Watkinson, for not being in the Chamber when he made his speech? He probably knows where I was. I was speaking at the Savoy in connection with "The Best of British" Week which Macey's are putting on in 1968, so I hope he thinks that I was well engaged. I was sorry to miss the noble Viscount's speech. I have followed the course of his Motion on the Order Paper with great interest. Although I have twelve points that I am burning to express, I am proposing to talk to only three; and, as the Motion is concerned with long-term policy, it is that to which I am going to direct my comments. I do not think anybody needs to be bashful about speaking on this topic in a debate either in this House or in the other House, because if we were all so wildly out in our prognoses or in what we had to say that we were proved wrong in twelve months' time, we should be in good company so long as the Front Benches on both sides remain where they are.

We have talked about the Plan. There is nothing dishonourable in having failed at the first attempt, but the lessons to be learnt we must learn forthwith. I think this country has made a brave effort to come to terms with the new economy of the post-war world. Years of patient work and sincere effort by people in this country have gone into removing the deeply-entrenched restrictive attitudes of the 'thirties. All that effort is at risk because of the cold draughts of balance-of-payments crises. Embers of doubt in the minds of those who remember can be fanned by such draughts—the fear of unemployment, the fear of working yourself out of a job, and all the rest of it, which I do not propose to pursue now because everybody knows it.

I would urge the Government, when they are putting forward the next Plan, or whatever one likes to call it, to get the priorities right and to remember that, without any question whatever, the first is the balance-of-payments problem. Because the mistake that was made this last time was to talk about growth before really settling this question of the balance of payments. I would put the first priorities as follows: putting right our ability to compete abroad; the heavy load of our international obligations in defence and aid; and our attitude to change. If we are not competitve enough to achieve all the export targets we need to achieve, our imports are bound to rise faster in relation to output. This is absolutely indisputable. If we are internationally competitive, the movement of capital in or out presents no problems at all.

The N.E.D.C. set a target of over 5 per cent. I do not want to be gloomy, because there is no point in being gloomy; it is just a matter of facing up to the position. Since 1958 our share of world markets has steadily gone down. In 1958 it was 18 per cent.; it is now 13 per cent. Since 1958 our prices have gone up by 18 per cent. Compare this increase with 13 per cent. for Germany, 10 per cent. for the U.S.A., 6 per cent. for France, 8 per cent. for Japan, 6 per cent. for Italy and a world average of 8 per cent. Our increase has been 18 per cent. Yet we know that the latest studies reveal that there is a definite relationship between price and export performance—perhaps even greater than anybody who is not in touch with this study can realise. It can even amount to as much as a 5 per cent. increase in volume for every 1 per cent. reduction in price.

Let me take the problem of our share in world markets, for instance. Mention was made by the noble Lord, Lord Harlech, of the older industries. We have been too slow in switching to what the markets of the world need and want. We have all heard the platitudes: you have to find out what people want, you must have it at the right price, you have got to deliver at the right time. These all fit into what I have to say. Germany was, and still is, the leader in the switch from light to heavy or old to new. She did not follow us as deeply in those industries which developed after the first flush of the Industrial Revolution, such as cotton and the rest.

A year or two ago I went to Japan under my own steam because I had something on my mind that I wanted to investigate, and that was where power resided. I sat next to one of the old Zaibatsu at a lunch which I was addressing in Osaka, and I asked him about this subject as an opening gambit. He said, "Well, it is very difficult. Power resides in the hills, and the difficulty is to know which hill to climb". It so happened that after my speech to them in the Anglo-Japanese Club they wanted to know something from me. So I swopped them my opinion as to why they had not got a public opinion in Japan such as we had in Britain, for some information which was not vouchsafed to the ordinary visitor—and this is what they led me to. So I got to the point where I was admitted: but I had some shocks. They were quite brutal in drawing attention to the way in which Germany had made a quicker and earlier switch into heavier industries than Britain had done, and this is what they said in their official foreign trade white paper: The speed of adjustment of the export structure of these two countries greatly affected later developments. In particular, it will be known that this became an important factor in leading the British economy into long-term stagnation. The Germans and the Japanese have for a lone time realised that the underdeveloped countries will sweep into the export markets of the world for light industrial production. There is nothing we can do to stop it, nor is there any reason why we should try. Consider how embroiled we are with the constriction of some of our old industries and compare this situation to that obtaining in those Far-sighted 'countries that switched in time. This switch is going on and will continue.

What do we need to do? What are the lessons to be learned? First, I suggest that we need to get our statistical machinery right. For a great industrial country the statistics are woefully inadequate. If anybody were to walk outside this Chamber and go to any place which has any statistics at all and ask for the trend of world trade by commodity, he would eventually be channelled to O.E.E.C. in Paris, who give their assessment on a six-month and twelve-month basis—not by commodity but by gross exports. We have a small and very efficient unit at the Board of Trade. It struggles with a mountain of day-to-day demands. The Treasury itself palms off the job of statistics to the National Institute of Economics and Social Research. But it is mainly from day to day—useful perhaps for the next year, but not in the context of what the noble Viscount, Lord Watkinson, had in mind when he was moving this Motion. There might be objections from top civil servants who are very apprehensive about adding to the list of things that need to be investigated and for which statistics have to be produced. They have had experience of the thousand-and-one sets of statistics that need to be got out to run a country; some of which never see the light of day. Some are never read; plenty are useful; but plenty are useless. A central statistical office is necessary, with a thorough-going spring-cleaning of the form and needs of the present statistic position from old to new.

But if the switch is to be done, it must be done on a scientific basis; and the studies must be done, too, on various items in the main markets of the world. The trend of demand must be checked against our own performance. The Japanese call this a specialisation index. And we must apply it for ourselves. For example, if 5 per cent. of world trade is in chemical goods and 5 per cent. of our exports are chemicals, too, then our specialisation index would be one. I give that as an illustration. When world demand for particular items is rising, we should become worried if our index, too, is not going up. Stemming from this, there is no question about the greater use it would be to our investment programmes and to our incentive programmes than the omnibus type of assistance, in terms of machinery grants, and the difference between one area of the country and another in terms of non-development areas and development areas. We should really know where we were.

My next point is a different one, not often discussed in this House. Perhaps it is that we do not think we should get much of a hearing if we aired it; but I am chancing it. During this last fifteen months I have been to Mexico, America, the Far East, Saudi Arabia, Israel, Bangkok, Indonesia and Malaya. I know the field. I said to one man in Bangkok: "What do you do, lad?" He said, "I sell toffee." As it happened, I knew his firm; it was not far from where I lived. He said," I sell cough drops. I sold half a million pounds' worth last year, and I shall sell a million pounds' worth this year. But," he said," we have been taken over. An American firm has bought us out. They wanted a subsidiary for marketing."

My Lords, there is no doubt about it. We must improve on our marketing. When I first began in business in the wool trade, my first export was a piece of saffron-coloured cloth for Buddhist monks' robes. In those days they used to wear wool: they do not do so now. Whom did I sell that to? I sold it to an indent house. That has all changed. Then came the period of the agency business where you would go out and see your agent and show him what was what, explain the quality of the stuff and even do some marketing on the spot. You had to educate him. I believe that the excellent experience I have had still has value. In my view, we ought to encourage the gaining of this kind of experience, through the visits of business men abroad, to quicken their imagination so that they can really set to work to export. And I believe that it can be furthered by schemes such as those which have been sponsored and chaired by the noble Viscount.

But, my Lords, in the long term—and that is what we are discussing this afternoon—this system cannot stand up against the international subsidiary companies. Those companies that hold a substantial share of a particular market in consumer goods overseas have done it through the medium of subsidiary companies. Take the position of the pharmaceutical industry in this country. Seventy per cent. of it is controlled from outside. And this can happen not only in the case of consumer goods hut, in the immediate future, in the case of motor cars and electrical goods of all sorts. One might say that in this island we have a severe handicap. That is so; but I hope it will soon be remedied, in terms of size, in the near future by our going into the Common Market.

Observe the giants in the United States and what has happened in the long story of change. Last week we were discussing the Companies Bill in this House. About every generation, or every 23 to 25 years, public opinion decides that a change is needed. It is not unremarkable that in 1965 we put through the Monopolies and Mergers Act. If we look at this matter historically, we find that the Americans put through the Sherman Anti-Trust Act in 1890. Their Clayton Anti-Trust Act was put through in 1914. We put through our Monopolies legislation some fifty years later. This was not because we are technically backward, or because we have not as much brain-power as the Americans—not a bit of it. It is just the historical accident of size. As I said, foreign-owned companies have a 70 per cent. share of the United Kingdom pharmaceutical market. In motor cars there are Fords, Vauxhalls and Rootes, and we are fighting for our lives over the computer industry. We must take them on in the same sort of way. I do not know whether it might be possible after we had entered the Common Market, when we should have the size and could dc it with the assistance of those on the Continent. But clearly we have to set about this. It may be that, for balance-of-payments reasons, short-term, we cannot get on with it at present.

Let me give an illustration of what is happening now. In Malaya we have plantations which are as good a source of earnings as any. Yet when we bring in our fiscal policies we do not give sufficient consideration to what will be the effect on our companies which are earning sterling overseas. This aspect is important, and I am speaking about it because I promised to put it before your Lordships' House. What happens? We bring in a corporation tax and we lessen the profits to be distributed. Prices on the London Stock Exchange go down. What is now happening is that the" sharp boys are watching, and they are buying up the companies. They will fragment them, and that will be no good to Malaya or to us.

Wherever I went I was at considerable pains to put over to Governments the value to them of what has been done by people running the companies to which I have referred. These people have developed the resources of the countries concerned and have done a good job, not only for those countries but for Britain and the world. They have done a magnificent job. I went to some pains to try to show the Governments of the countries concerned that it was not just new money that was valuable to them. What others have been doing for a considerable number of years is also of value. Our investments abroad amount to £6,000 million, and I say definitely that we are still in the running; but this is a time of a new business revolution and we cannot neglect it. This also provides part of the answer to the problem of the brain-drain. Certainly it is the answer to our exporting future.

I have one or two more comments to make, and then I will sit down. I must pursue this question of size, because it is something I promised to do for groups of business, fine men, who are upholding the flag for Britain and sweating it out a long way from home. They are people of whom we should be proud. I say without any question that co-ordination and size will provide the answer to Japanese domination in the Far East. The lack of size and co-ordination between big firms—though not big by American standards—lost us a generating plant contract at Port. Dixon. Many of the firms which might have been concerned were engaged with the Central Electricity Generating Board in preference to seeking work abroad. I do not blame them. if they find it more lucrative to go for work from the Central Electricity Generating Board, or the Post Office, one cannot blame them. What they need is a trimming of costs so as to be more competitive in the world markets; and that is my theme.

The same thing goes for the cable requirements and the demands of the Post Office. These firms are not geared; and they need to be. Lack of size and lack of co-ordination lost us an order for 7,200 lines of cross-box exchange equipment in Bangkok. The provision of 86,000 lines of cross-bar exchange equipment is coming up. The lack of co-ordination and size and get together—on the basis that if one firm cannot do it another will—will lose us that order, because the Americans are on to it. The American Government are making themselves the agent for all kinds of feasibility studies. They farm out the work to their own consultative engineers, and when that is done the engineers get the job. They do the agency work and the feasibility studies for nothing, but, my word! they charge when it comes to the main claim.

I had this experience in Saudi Arabia. In October, 1965, the Americans drew together from all over the world a group of countries interested in desalination on behalf of a symposium in Washington. The man who discovered the modern method of desalination was brought over to read a paper. The Americans were very kind to him. President Johnson went to the last session and said, "How d'ye do?", to all the principal people from all over the world and told them what a terrific blessing the Americans were going to confer on everybody. Then he got hold of Prince Mohammed, of Saudi Arabia, and promised to do a study. They also promised to do a study about electricity. This is how the situation is working. We are a little asleep over this sort of thing, but I was fortunate and was able, in respect of desalination in Saudi Arabia, to interpose a British consultant engineer. I was able to do the same about electricity. Before I went, it was all "sewn up" that they should go over in their supply from 50 cycles, 400 volts, to 60 cycles, 120 volts, which would have had the effect of putting right out of the question any chance of getting electrical equipment into that country any more—and it is a country which pays cash. The same happened in Mexico, and it is happening all over the world.

I would endorse what the noble Lord, Lord Harlech, said about more power to the elbows of our Embassies throughout the world. I have no fault to pick with the Embassies. They are really on the mark. They are incisive and they have got this internationally-minded competitive spirit. But they are understaffed. They could do without another seven in Bangkok, for example. Do your Lordships realise that in two countries they knew nothing whatever about the provisions of the Board of Trade about E.C.G.D., not because the Board of Trade are at fault, or the individual manufacturer who goes out there, but simply because it is now in new dimension? When I was at the Board of Trade I had it all explained in a pamphlet. When one sees in the morning paper in Kuala Lumpur banner headlines saying that Japan has given a loan of 140 million dollars to Malaysia and analyses it, one finds that it is nothing more than setting out the credit terms. The stuff has to be bought before the loan is made. Why cannot we do the same? We should have a real drive to sell what this country has to offer on the credit terms offered by the Board of Trade's E.C.G.D., which are not appreciated because more often than not it is the businessman's job to get the trade. It should be done by bilateral agreement.

I have a lot to say, but I will finish on this point. My noble friend Lord Shackleton mentioned a selective approach to technical subjects. Let me give him this one as an example. I went into an engineering works in Belfast. There were three young fellows there, every one of whom I should have been proud to have as a son. There were 6,000 employees and they exported 85 per cent. of their machinery, worth £27 million. They were not bothered about Queen's Awards and I could not persuade any of them to serve on any committees. But what they have done during the last 18 years is to increase the productivity of their machines by 250 per cent.

We should start at grass roots in terms of the appraisal of world markets. Unless we do that, we are dodging and messing about all over the place. I have no time to develop this theme, as I should dearly like to, but it is in what this Belfast factory has done that we reach fundamentals. It is in the productivity of the machine that true productivity resides. If we cannot do more with less cost and with less labour, we shall not achieve it.

I travelled yesterday on the bus from where I live to Manchester. Two men got on. One of them said to the other, "Eh, Joe, what do than reckon about this productivity they've been talking about?". This was the reply:"I think it's when we get a rise in wages and a shorter working week and need more people to do our jobs. "I thought," My God!, I could just do with them coming to your Lordships' House and listening to what we are saying." It proves the need for education. I think that this time round we have really to go to town and make certain that we are clear of any balance-of-payments crises in future. We have to set to work to bring in the fundamentals, which we know are working in other parts of the world. I am certain that if we set about it we have the resilience and the courage to do it.

4.37 p.m.

LORD ARWYN

My Lords, the noble Viscount, Lord Watkinson, has opened the gate to a very wide field and I am grateful for the opportunity to plead once more for the need to develop our own mineral resources and thus reduce the cost of imports of raw materials. In my first speech in your Lordships' House on March 18, 1965, I drew attention to the fact that 75 per cent. of world tin supplies came from East of Suez and that the once rich alluvial deposits of Malaysia, Thailand and Indonesia are rapidly being depleted. I asked the Government to consider very seriously the need for incentives comparable with those existing in Eire and Canada to encourage the revival of tin-mining in Cornwall.

My noble friend Lord Rhodes, who was then a member of the Government, assured me in his reply that the Government were "thinking seriously about this problem and hoped that a satisfactory outcome could be achieved. Since then, there have been some additional tax allowances, from which the metalliferous mining industry is one of those entitled to benefit, but there is no guarantee that these allowances will continue from year to year. They are not specially defined incentives such as those in other countries. In this country, there is little incentive to exploit the natural resources of tin, lead, copper and other metals, because of the very unfavourable tax situation, though the mining of these metals would provide employment and tax revenue and help our balance of payments.

The tax situation is unfavourable because successive Governments have failed to recognise that the mining of deep deposits is fundamentally different from other industries, for two reasons. First, when a manufacturing or retailing business is set up, its profitability can be assessed in advance, whereas the profits to be earned by mining can be established only after a great deal of money has been spent over a period of several years on preliminary exploration, shaft-sinking and underground development. That expenditure may prove to be fruitless and the money lost. Secondly, whereas manufacturing or retailing business can go on indefinitely with a continuing supply of raw materials or goods, a mine has a limited life. When all the ore has been extracted, the mine must close.

If these two special features of mining are recognised, it is clear that if the industry is to be able to compete for new capital with industries and businesses which do not suffer from these inherent disadvantages, it should be given appropriate tax relief. The exact form that such relief should take must be a matter for careful consideration, but it would seem reasonable that all pre-production expenditure should be recouped out of any profits that may arise before there is any liability for corporation tax, and also that it should be recognised that distributions of profit are in fact partly a return of the capital which was invested in an enterprise which in time will be worthless. As such, they should not be taxed as if they were entirely income. As the Treasury should know, tax concessions granted ten years ago to companies in Eire have resulted in a great resurgence of mining activity.

My Lords, following my first speech on this subject, I again drew attention to the need for a thorough examination of all our natural mineral resources. In order to have confirmation of my views on the subject, I appealed to Professor David Evans, Head of the Department of Geology at Nottingham University. The reputation of Professor Evans in this field is among the very highest. His response was in the form of a very comprehensive report. In September of last year I passed this report to the Ministry of Technology, and I still hope that some day we shall hear that action will be taken. But I have not heard anything more about that report. All this is most frustrating.

I happen to be one of the few—maybe there are two or three of us—who have knowledge of the mining industry in the South; and we feel that we are fighting a losing battle. The interesting point about Professor Evans' report is that it confirms all the recommendations of the Mineral Development Committee of nearly twenty years ago, of which I was a member. We sat for some two and a half years and produced a very comprehensive report. Nothing has been done about it. We forecast the need in the coming years to develop our own resources to counteract inevitable world depletion of key minerals. Do these pleas from those who are intimately connected with international conditions fall on deaf ears; or is it that among the various Ministries involved there is no one with sufficient vision and courage to challenge rigid departmental philosophy?

In your Lordships' House we have a reputation for wide and expert knowledge. Many of us involved in large industrial concerns are willing and ready to make serious contribution to discussions backed by our long, specialised experience. I often wonder whether or not some of us are wasting our valuable time, and that perhaps we could spend it much better back in our own industries, where we can be of more use and use that experience to ensure action.

My Lords, I maintain that frustration has a far greater grip on our young men than we realise. I should like to see the pundits of science and technology coming out of their labyrinth of councils, to stop building their paper forts, and tell the youth of this country what they themselves are prepared to do and what they expect of our young men, who to-day see nothing before them but a life of frustration. This is where the brain drain starts. This cold war between industry, the people and bureaucracy is becoming the chief cause of frustration. The young men will not stay here to dream their dreams; they are not going to be misled by the glamour of computers or the evils of atomic explosions.

No one can solve the problems of increasing exports unless we first make the location and supply of our raw materials our top priority. We start with the geologist, and he then collaborates with the scientist. Everything comes from the earth, and we are soon going to feel very naked indeed. The scientist then starts his investigations. My Lords, I should like to see us starting all over again, and with a far saner outlook than we have shown hitherto.

4.45 p.m.

LORD SHERFIELD

My Lords, I shall limit the few observations that I have to make to the subject of personal incentives in relation to economic growth, and I will confine myself mainly to a limited class—that of the young and middle-aged manager and executive in business and industry and the professional man. This was one of the subjects referred to by the noble Viscount, Lord Watkinson, in opening the debate. In so limiting my remarks, I do not overlook the need for better incentives at every level of industry, on the shop floor as well as in management.

In approaching this question it is difficult to disentangle the theoretical from the practical and the fiction from the facts. A prevalent theory is that of the egalitarians or levellers, and it is this which seems to affect most strongly the recent policies of the Government in a number of their decisions, particularly those relating to taxation—and not only to the taxation of the mining industry, referred to by the noble Lord, Lord Arwyn.

The trend appears to be to limit the rewards and benefits of various kinds which the energetic and resourceful young and middle-aged man can secure for himself and his family, and to remove the more distant spur to rise to the very top owing to the penal rates of taxation which prevail in that area. It seems to be quite widely assumed that in a well-ordered society it is somehow wrong or anti-social that anyone by his own efforts should do better than anyone else, and that every impediment must be thrown in the path of such achievement. This applies both to earning and to saving. It is also, apparently, quite widely assumed that a man or a woman should be content to work for a modest return, either for the world's own sake or for the good of the State or society. We all know, as the noble Lord, Lord Shackleton, said, that there are many excellent people who work for the love of their work or for some ideal, and others who, on the whole, are not very interested in monetary reward. But this is, I fear, not generally true, especially perhaps in the business and commercial world, where there are not normally the compensations which many people find in the political and administrative spheres. Financial incentive to secure independence and freedom of choice in ways of life, education and so on is still the strongest spur to effort for most people.

It is arguable, I think, that the growth element in a modern economy depends to a disproportionately large extent on the efforts of a relatively few able, energetic, forceful, go-getting types of people, for whom a driving force is the efficiency, the expansion and the success of a business measured in terms not only of the return to the business itself but to all those who are engaged in it; and it is this type of person who is most discouraged by the financial and economic straitjacket in which he is forced to work in this country. Many enterprising professional and executive persons are driven to seek employment in other countries, or alternatively are discouraged from putting forth their full powers at home. It is much more agreeable to go quietly home for the week-end than to fly off somewhere in search of difficult export business.

When the present Government came into power I believe it was their vision of an efficient, streamlined, modernised Britain, with many of the so-called outworn privileges removed, that was particularly attractive to the younger people in every walk of productive life. Many of them felt that they would have an opportunity by their own efforts, and on merit, of improving their position in proportion to their success in their chosen industry or profession. But it is precisely this type of young or middle-aged person who could see that he might quickly attain, if successful, a salary in the lower or middle parts of the surtax range vi4ho has been the principal victim of the successive tax and other measures which have been introduced in such profusion in the least three years; and it is among such persons that, in my limited experience, I find discouragement and dissatisfaction.

Perhaps this would not be so important if it were part of a general trend in the world and did not affect our competitive position. Almost any conclusion can be drawn from the welter of statistics about the comparative awards and emoluments of executives of various grades in different countries. In another place the Financial Secretary to the Treasury recently attempted to demonstrate that, in comparison with some other countries, we were really very moderately taxed here. And that was a little difficult to follow. I have seen the figures to which the noble Lord, Lord Shackleton, referred and the noble Lord, Lord Harlech, mentioned this point also. But there is no doubt, I think, that at the top and near the top the penal provisions of the British tax system are paralleled nowhere else in the world. In the lower and medium executive and managerial range there are considerable variations between countries.

It is probably true to say that in the most rapidly advancing industrial countries, including, I believe, even the Soviet Union, the trend is away from egalitarian concepts and towards admission of greater incentives of a financial and economic character related to the performance of the individual person, firm and industry; whereas in this country the trend seems to be in the opposite direction. This is a controversial matter, but I think it could he said without too much fear of contradiction that for the managers, executives and professional men, the prospects of increases in net pay are worse in this country than in any other advanced industrial country. The sharply progressive nature of our tax system is, of course, the result of political decision, since, as the noble Viscount, Lord Watkinson, pointed out, it would not cost a great deal to moderate the surtax rates.

There are various other factors which I suggest hold down the awards and emoluments in the higher range. It is perfectly natural that the higher paid employees should be the last to get a rise in pay. That used to be the case for many years in the Civil Service, and I am glad that in this sector at least there has recently been a marked improvement in salaries for higher grades. But there exists the compression of differentials which occurs at all levels in the industrial field.

Another factor may be the slower growth record in this country in recent years compared with our industrial competitors, to which reference has already been made, because there may well be a relationship between the growth of a company and the rewards of its executives. Finally, there may be some kind of feeling in this country that high salaries and emoluments are somehow wrong in themselves. Here, again, we are probably odd man out among our competitors.

My Lords, I will not labour my theme further, especially as it is one which is likely to fall on deaf ears. But I do not think that the country can have it both ways. If we are to achieve the objectives which are in principle endorsed by our leaders, of a modernised, efficient, growing industrial society, then opportunities and incentives must be provided for the individual person and firm which will enable him or the firm, if he and it are successful, to do better than the less energetic and the less enterprising. If, on the other hand, we continue, in the name of social justice or social policy, to try to ensure that nobody can be better off than anyone else, then initiative, both in individuals and in firms, will be discouraged and enthusiasm dimmed. We shall continue to lose brains and skills to countries where there is less prejudice against a merit system or rewards for enterprise, and I fear we shall slowly fall back in the race for excellence in the modern world.

4.55 p.m.

LORD BOWDEN

My Lords, I find it a most memorable occasion that your Lordships' House should be addressing itself to the problems of industrial growth. Because for so long this has been a word hardly used by Government, we are apt to forget how recently we first became concerned with it. I was recently looking at the prices of equities in America and in England 35 years ago and to-day. Their value at real prices has been computed as it has changed during this interval of 35 years. One finds that the prices of shares bought in 1930 in this country have since fluctuated down to about 50 or 60 per cent. at a minimum, and now after this immensely long time they have come back to the figure from which they started—100 per cent. During the same time the value of shares in the United States, bought in the same way, has increased three-fold. Here is an astonishingly different achievement by two economies which at one time were not so completely dissimilar.

I think that in a way one can understand why this situation should have come about. I recall that on the first occasion when I ever heard a Chancellor of the Exchequer speaking in public he said that the three priorities he had in his mind were to maintain the position of the pound sterling, to stop inflation and, finally, to improve industrial production and further growth. I remember how my heart sank as he said it, and how much more it sank as I heard the round of applause given to him by the audience, all of whom obviously agreed with him. I thought then, and I have thought since, that had the priorities been exactly reversed, had increased production been put first, the position of sterling would by this time have been assured and the total income of everyone in the country would have been significantly increased.

I am reminded that about a hundred years ago, in a similar period, the population of this country had doubled, and the production of coal increased fivefold, of iron ten-fold, and of textiles fifteen-fold. Here was growth of a dramatic and extraordinary type that has never been rivalled since then. It was achieved, let us remember, by people who were not being exhorted by Government, who did it entirely on their own, and whose achievements were in large measure ignored by the world until finally they astonished it by their success. I have sometimes thought that if any man could devise a system for achieving a similar change in the last few years of this century he would not merely be howled down as absurd but would be driven out of public life. It is only in the last few years that the idea that we should be seriously concerned with production has taken hold of us. Let us hope that we shall be able in future to remember it at all times as the essential condition for the growth of our society, and in fact for its maintenance as one of the more advanced countries of the Western world.

If one looks at the achievements of America, one sees that they are startlingly different from those of our own country. But most unfortunately we find a similar discrepancy between our achievements and those of other Western Powers, and it is appalling to discover in how many respects our achievements have fallen short of those of our competitors. For example, if one contrasts the amount of money spent per head of population on new telephones (these figures are tabulated every year), I recall no year in the last twenty in which we have spent anything like as much money as the average. In most years we have spent less than every other country from which comparable figures can be obtained. In a similar way, we spend less on housing, per million of the population, than any of the great countries of Western Europe. The same is true of the roads we build, am speaking from memory, but I think I am right in saying that in the last ten years we have built only nine inches of road for every new car which has been sold and licensed.

Again we fall lamentably short of the achievements of almost every other country in Western Europe. Since all these things are directly under the control of the Government, the only consistent explanation one can find for this lamentable and universal shortcoming must be that there has never been an adequate or appropriate assessment of the cost effectiveness of the work which has to be done. The only item I know in which we spend more than any other country in Western Europe per head of the population is defence. We must ask ourselves if our true defence is anything other than our economic strength, and we must ask ourselves most anxiously how we can devise systems for reapportioning our enormous investment programme and making it more effective and more productive.

It seems hardly conceivable that anyone throughout the past twenty years could have failed to be impressed by the fact that we were failing as a country to spend our resources on those things which are necessary for any healthy economy and for the growth of any society of any kind. Communications, in both telephones and roads, are obviously essential for economic growth, and we have consistently neglected them. I can only think that the failure has been because we have not made effective cost analyses of the benefits to be expected from investments. We must ask ourselves whether this is true, and, if so, whether the situation can be remedied.

To-day, of course, we have many other problems confronting us. As your Lordships will remember, about a month ago, when we discussed the brain-drain, we established the fact that we are probably doing more to benefit the developed industries of America than we are to benefit the developing industries of all the underdeveloped countries in the world. Switzerland is spending 30 to 40 million Swiss francs a year on educating men to go to America, which is comparable to the amount that she spends on helping the underdeveloped countries. Here is a problem which we must solve.

However, this is a relatively recent development. The source of our troubles lies much deeper in the past, and presumably we can solve them by remedies which we could devise by following the example of those countries which, over a period of twenty to thirty years, have been so much more successful than we have been. It is not possible in a short time to enumerate all the things we could do, but a few stand out as obviously possible and necessary.

In the first place, I must draw your Lordships' attention to the fact that the Government are already in an extraordinarily powerful position. They have their hands on the levers of power, and they have been extraordinarily timid in the way in which they have used that power. The Government are responsible, either directly or indirectly, for the control of something like 40 per cent. of the gross national product, which is about as much as the corresponding figure in the United States of America. But in the United States of America the Government have taken an extremely positive and purposeful view. They have said that if they control such vast resources they should be in a position to introduce into industry modern ideas and techniques, by a process of appropriately chosen purchases, appropriately chosen research contracts, and by a process of infiltration and advice.

I should like to give at least two examples, which may be unfamiliar to your Lordships. The Americans are at the moment starting on a major expansion of hospitals. To everyone's surprise it was discovered that the largest single builder of hospitals is the Defence Department. It has to build them, of course, for every country where they send their troops as well as building hospitals in America. They decided to establish a major research programme into the best way of designing, building, equipping and staffing the hospitals. Here was an immense investment and this was the best way to ensure that the money was spent to good purpose. No really comparable studies have been made in this country although we, too, are on the brink of the largest development in hospital expansion that we have seen for many years.

I will give another example. The American Government itself makes very little use of machine tools in its own agencies. On the other hand, it is responsible for buying enormous quantities of industrial goods which are made by machine tools. They have therefore decided, as a matter of policy, that they will give contracts to firms if they use the most modern types of machine tool, which they could not normally afford to instal, and they have imposed conditions in ordinary contracts which demand that firms shall make use of modern techniques of manufacture and modern types of machine tools. Even where there was no difference between the product as made in the new way and in the old-fashioned way, they insist that new production techniques should be devised and used. And thereby, they improve the whole of American industry.

We could do the same. The Post Office, the Defence Departments and all the other Government-spending Departments between them could make an immense impact on industry by using this technique, if they had the courage, the initiative and the resources to decide what type of production should be stimulated and how to do it. The Government have immense potential power to change the economy, if only they would use it. Other countries have astonished us by their industrial achievements, most notably Japan. The United States of America and Japan have had one thing in common, which is something we have never had. It is a policy which in America is called the "Buy American Act", and in Japan it is given a similar name. Both countries have stimulated their industries by demanding that new projects of great technological significance should be built by native labour in native factories to native designs, even if they are available more cheaply on world markets from other sources.

I was recently in Australia, and I went into the laboratories of several industrial firms and universities. I was told that even ten years ago almost all the equipment they used was bought in England but, they said, "To-day we buy from Japan. The Japanese product is cheaper, delivered to time and, in our opinion, it is better". Why has this come about? The reason is that Japanese universities and Japanese Government establishments needing new apparatus—for example, electron microscopes—were required to get them made locally. Having established a design, the Government was able to provide credits with which more of the instruments could be built, and, having got them, they sold them the world over.

The whole of the defence procurement of America is dominated by American companies, primarily because of the insistence of the Government that all the equipment which is used inside America for defence must be American made. In practice they insist that virtually any equipment to be supplied to any of the armed forces anywhere in the world (which hypothetically might be taken home to America) must be bought from American firms. We have never imposed a similar regulation or restriction. In the old tradition of the laissez-faireLiberals in the Gladstonian era, we have often tried to buy both weapons and important new technological equipment of all kinds from the cheapest source of supply.

We have sometimes enforced a "buy British" policy, but we have never done it with the consistency, the force or the success which has been achieved in both America and Japan, and on the occasions when English firms have tried to sell in competition with America it has often proved extraordinarily difficult. There was an example only the other day when ejector seats, which had been bought from England for Phantom aircraft in America because they were the best in the world, provoked the wrath of Con- gress. Mr. McNamara had to defend his choice against very strong opposition. These seats are made by Martin Bakers in Uxbridge, not very far from here. But their success is very exceptional.

It is most important when we consider the long-term future of this country that we should take the advice and follow the example of countries which have been more successful than we have, countries which have insisted for many years on the importance of growth as a concept and countries which have dramatically exceeded our achievements by exploiting techniques, many of which are in our hands and many of which we ought to use and could have used years ago.

The noble Lord, Lord Kings Norton, stressed the importance of close collaboration between universities, industry and Government. I am quite sure this is true and I am glad he raised the matter. I feel that one of the greatest single sources of success in industrial innovation in America and in Germany, has been the interaction between universities and industry. It has been facilitated by a number of small administrative processes, all of which are at our disposal but none of which have been used. Such institutions as M.I.T. and Cal. Tech have done work which has enriched the whole economy of the country and has created entirely new industries, particularly around Boston and San Francisco. In the process it has enriched professors themselves, many of whom have become millionaires. American universities encourage their staff to devote a significant part of their time to consulting work. They allow them about one third of their working lives for this purpose and have devised a special academic year to make it easy for them. This is a simple administrative process we have never adopted here.

We always undertake major programmes of research for our Government in specialised research institutions, such as Farnborough, Malvern, Harwell and so on. In America most of this work has been done under the ægis of the universities. It is very significant, to take a particular case, that radar, which was developed in specialised Government establishments in England, was put into the M.I.T. because the Americans think that a university is the right place to do work of this kind. I believe much could be done if we were to adopt the same sort of policy. We always seem to make a distinction where there is none to be made between the process of research and teaching. A man who is to become an engineer can only do so by practising real engineering and serving his apprenticeship to a great industrial firm or to a great engineer in a university laboratory. The Americans and the Germans have exploited this system to enormous advantage. We could do the same.

Perhaps I can give one example which may help your Lordships. When I was last in America, three years ago, M.I.T. was asked to accept two major tasks for the Government. One was to help to devise a new railway system between Boston and Washington and to be responsible for the total design study involved. They are now working on a very large scale indeed. Another task was to help other universities to make a complete investigation of the total water resources of the North American continent. Neither of these tasks would ever be entrusted to an English university.

It is significant that the survey of the economics of the Morecambe Bay barrage has not been entrusted to a university or to a consortium of universities but to a firm of civil engineers. Their terms of reference seem to me to debar them from considering all the relevant factors, and they are almost certain to produce a report which is so incomplete as to be most misleading. It is not enough to establish that water can be retained in Morecambe Bay without the barrage capsizing; the fundamentally important thing is to decide what it would do for the economy of the North-West as a whole. Will it make it possible to transform the whole of Western Cumberland; to provide new roads; to provide cooling water for reactors and power stations; to provide more land, and perhaps even to provide an amenity, and facilities for boating and fishing, which might be almost as important as the rest? The terms of reference which have been given by my right honourable friend the Minister for Land and Natural Resources have been so restrictive as to make it almost impossible for the consultants to consider the project in the round and in the whole. This kind of exercise in other countries would be entrusted as a matter of course to a consortium of universities. They would themselves employ such professional advice as they felt to be necessary in the circumstances.

My Lords, I have said that the economy of this country has grown appallingly slowly. Many of the remedies are in our own hands. It seems to me that many things that have held us back in the past are due to administrative processes which we could easily change, and it seems to me that if we changed them our potential for growth would be as great as that in any other country in Europe.

5.18 p.m.

LORD COOPER OF STOCKTON HEATH

My Lords, I do not think you will be surprised that, as the General Secretary of one of the largest unions in this country, I should have a particular interest in the subject of economic growth. I take the view that despite the short-term problems that we are now dealing with, the Government have remained true to the great economic conception put forward in the Labour 1964 Election Manifesto, The New Britain. Indeed, as I hope to show, the most creative work of this Government has been in forging and improving the new instruments which are necessary if we are to get the sustained economic growth which we all want.

Reference has been made to the past low annual increase in the economic growth of this country, and it is, I think, worth while repeating—not for political reasons, as you will see as I go along. Under Conservative Governments, from 1951 to 1964, despite the fact that for much of that period the terms of trade were in our favour, we sustained only a 2i per cent. average growth in gross national products over 13 years. This seems most insignificant when one looks at the record of our competitors. West Germany, France and Italy, for instance, all averaged 4 per cent. or more.

I would also remind those who now berate the Government over the present recession to look back to two economic crises of the late 1950s. We had a balance-of-payments crisis in 1957, which was followed by the raising of the bank rate to 7 per cent. and in restrictions on capital investment. By January, 1959, domestic production had fallen back and over 620,000 people were unemployed. Then we had the balance-of-payments crisis of 1961, followed by the Selwyn Lloyd credit squeeze and wage squeeze; and by February, 1963, domestic production was stagnant and there were 878,000 unemployed. I quote these figures just to demonstrate that all this is so very familiar—the same dreary cycle of balance-of-payments crises; the cutting back of home demand, stagnant production and unemployment. Now we have the same experience once again.

I do not bring these skeletons out of the cupboard for Party reasons. I am merely trying to illustrate from past experience that, no matter how much we talk about the need for economic growth, we are facing deep-rooted economic problems which have been with us for a long time and which successive Governments have found difficult to solve. For my sins, I have to talk to trade union branches, and have the very difficult job of explaining the economic problems of this country. I appeal to the sporting nature of my members. I talk about three main handicaps from which we suffer, over and above our normal relationships with other countries.

All Governments in advanced industrial countries are trying to combine full employment and economic growth with a balance-of-payments equilibrium. It is always a most difficult exercise, but we in Britain, as I say, have three exceptional handicaps over and above that common objective. First, it is often forgotten that we export four times as much of our gross domestic product as the United States does, and twice as much again as the Common Market. The reason for this high level of exports is, of course, well known: that we need it because we import so much of our food and our raw materials. The second handicap, which has been referred to in this debate, is the cost of overseas commitments. We have heavier overseas commitments, in the form of defence costs and aid, than all our foreign competitors except the United States.

Then, thirdly, we are the banker of the sterling area. On the News this morning there were some suggestions, or indications, that the French are convinced that, at a time when we are anticipating going into Europe, our position in sterling is in rather bad shape. I do not think any of us expect this position to change unless there is world-wide monetary reform. Therefore, so long as we are the sterling bankers we have to struggle to keep a sufficient surplus in order to behave as bankers. In fact, our immediate problem is to keep sufficient reserves in order to right the frequent balance-of-payments problems that we face. Here I feel that I must quote the Economist, because other figures have been quoted to-day. In the Economist of September 8 last, Sir Roy Harrod said that before the war our investment income alone paid for 35 per cent. of our imports. The position at the present time is that only 2½ per cent. of our income from investments contributes towards our imports. So, as a nation, we have a formidable task to perform.

There are no easy solutions. It would be marvellous if we could somehow remove these burdens. But the truth is that we have to grapple with them and face up to the real problem. We shall have to continue to export a high proportion of our gross national product. I cannot take time dwelling on this point, but I must say that by a voluntary system a terrific and successful effort has been made in regard to exports. This is one of the things on which we can pride ourselves, though no one would say that we still do not wish to see a much higher export trade contributing towards the possibilities of economic growth. We can certainly cut down on our overseas commitments. But this is no simple job. It requires a great deal of time and thought. One has only to reflect on Malta to see how a precipitate decision can cause all sorts of difficulties. It is most interesting, in the political world, to see pacifists almost advocating that we ought to continue being a little more generous in regard to Malta.

Again I do not wish to enter into this controversy, but I think it is true that wherever the decision is made to cut overseas expenditure, one finds trouble and an endeavour to modify any Government policy in that direction. As I say, there is little immediate prospect of our terminating our position. As the sterling bankers we earn a great deal; and I am not unmindful of this. But it creates a special problem in addition to the normal problems from which all advanced nations are suffering. So it would seem that we must search for new methods and new tools to manage the economy.

It seems to me that this is an open question and one to which nobody is going to find an easy answer. I think your Lordships' House would perform a great service by remaining rather objective about this, and in considering the ways in which we might proceed in order to stimulate greater growth in the economy. It is generally recognised, I believe, that the old methods have not proved successful. The monetary and fiscal weapons on which we have relied since the war are too broad in scope to remove some of the restraints on faster growth, and too blunt in execution to avoid some unpleasant side-effects. We all know that cut-backs in credit and demand hold back investment in new plant in both export and import industries. Anybody who is concerned with the economy must be terribly worried at the present time at the falling off of investments. Its immediate impact does not matter; but it will affect the economy in two or three years' time.

Little wonder that our investment record is so bad! Between 1955 and 1964 Britain devoted only 15.8 per cent. of her gross national product to investment, while Japan invested 28.8 per cent., West Germany 23.7 per cent., Italy 21.8 per cent. and France 19.2 per cent. Much as we like to discuss personal incentives, I think that the greatest single contribution to growth is investment. I suggest it is one of the main determinants of economic growth. Yet the net effect of reliance on traditional monetary and fiscal weapons was to slow down our investment, and thus hold back our growth. As I say, this is happening once again. Therefore, I think there is a general acceptance that new instruments are needed. Most of us in industry now accept that we must have planning, not only of investment and production, but also of demand. The most important results of this concept so far have been, on the one hand, the setting up of the National Economic Department structure and the Department of Economic Affairs, and, on the other, the prices and incomes policy framework, following upon the Declaration of Intent which was signed by the trade unions, the Government and industry.

We all now recognise that this new approach, which I suggest is necessary, has not been confined to one Party. This is the interesting thing. It may be that there have been occasions recently when pronouncements by one or two leading Conservatives have seemed to herald the return to the "pure milk" of Adam Smith. But in fact, in power, Conservative Governments began their own tentative search for new instruments of economic management. On the prices and incomes side, as long ago as 1957 a Conservative Government appointed a Council on Prices, Productivity and Incomes, under Lord Cohen, which was under a general brief to keep under review changes in prices and productivity. In 1962 the Conservative Government set up the abortive National Incomes Commission. On the investment and production side, again it was a Conservative Government which set up the National Economic Development Council. Its terms of reference were to explore "the obstacles to economic growth".

It is my view that, with the aid of these new instruments, and by adopting new approaches, we shall be able to break out of the deadly "Stop-Go" cycle. Already the Economic Development Committees have done good work in industry. This morning I attended a meeting of the National Economic Development Council, and I listened to a report by one of the chairmen of the small "Neddies". It was interesting to hear him say (I will not mention the actual industry of which he was speaking) that one of the great virtues about the economic development committees for industries is the fact that they are manned by and representative of industry. They take an objective view of the whole of the industry concerned and come up with some pretty good ideas.

At a lunch to-day I said—and I hope your Lordships will forgive me for repeating it—that the number of instruments for diagnosing what is wrong with British industry is more than adequate. The great problem is how we can translate into practice what we know is wrong. I will be quite frank with your Lordships on this. It is not one side of British industry that is wrong. We are up against old, long-standing traditions. I do not entirely agree with my noble friend Lord Bowden that Government Departments with power to do so ought necessarily to take British industry by the neck. I think I have now come to the view that British industry is a delicate flower, and if we are going to re-shape it and alter it, the best way to do so, as we still know, is the good old democratic way of change by consent. In other words, those who diagnose the problems have to persuade industry that these are real problems so that industry in turn has to find its way out.

VISCOUNT AMORY

My Lords, so far I have found myself in complete agreement with everything the noble Lord has said, and with the statistics he put so clearly before us; I agree with him that a great many diagnoses are being made. I think he will agree with me that it does register great progress, in that we are now finding ourselves more in agreement about what is wrong than I think has ever been the case before.

LORD COOPER OF STOCKTON HEATH

I thank the noble Viscount, and I am delighted that it should be he who has asked me that question. As I go along, the noble Viscount will see that he has anticipated me slightly.

VISCOUNT AMORY

I am sure the noble Lord will agree with what I have said.

LORD COOPER OF STOCKTON HEATH

I entirely agree, and I intend to pinpoint where hope lies in the new situation. We have had many studies by the "little Neddies", and this matter was debated in this House a little while ago. The studies on imports savings and a number of really fresh approaches to industrial problems have been carried out with great success by the "little Neddies".

Another matter which one must have in mind is the increasing development of training in industry. For about six years training was done on a voluntary basis and was not generally successful; in detail, in particular instances, there was great success. But now one has compulsory levies on industry where training is obligatory, and in the long term this is going to pay dividends. The great pity is that the time factor has always to be considered. The need for growth is urgent, but the fashioning of these new instruments, the training of people to be more competent in their jobs, will take some time. At the moment, we are only in the position of training those people who are going to do the training, for the job is so colossal. All these things which I have suggested to your Lordships are new instruments.

The incomes policy has, of course, a great bearing on this problem, and the concept of an incomes policy has been accepted by the vast majority of the unions. In spite of criticisms which we hear from time to time in regard to certain sections of workers in industry, by and large the policy has been accepted. We have accepted that a prices and incomes policy is necessary if we are—and I quote from the Declaration of Intent— To achieve and maintain a rapid increase in output and real incomes combined with full employment. We also accepted, though naturally with reluctance, that a period of standstill was necessary. In spite of all the criticisms, we made it work, which I would suggest is a remarkable thing. Since the standstill the average level of wages, as we saw from a report published the other day, has risen by a very small amount. Therefore if, as I hope, the standstill makes a significant contribution to improving the relative position of our exports, it will in part be due to the goodwill of the trade unions and their members.

Looking ahead, the trade unions are anxious to co-operate to sustain a faster rate of growth. This is the only way in which real incomes can be increased. The T.U.C. and the Confederation of British Industry, however, are both concerned about the crucial question: at what point do we act in a voluntary way; at what point does Government intervention cease? I have spoken many times about this great tripartite move forward between Government and the two sides of industry, but I think that the T.U.C. and the C.B.I., probably with very good reason, take the view that, when it comes to applying the remedies, the appropriate bodies should be industrial and not Government.

I should think that there is a clear answer to this—and it follows very much upon the Motion of the noble Viscount, Lord Watkinson. If we are to have growth, if we are to have new methods, and if we still want the voluntary system to operate, I think—and I do not hesitate to say this—that both sides of industry must grow up. They must be capable of taking responsibility; and if they cannot take responsibility, then I find it difficult to see how they can avoid Government intervention at some point.

Therefore, unless a voluntary prices and incomes policy can be seen to be having a stabilising effect, both on internal prices and the prices of our exports, the Government are bound to step in. In my view, the prospects for an economic breakthrough are better than they have been for a long time. I should think that the most promising factor of all (and I have been associated with industrial relations for some forty years, which is a long time, and this factor pleases me very much), is that the T.U.C. and the C.B.I. are now getting together to talk positively about what they both can do to put British industry on its feet. Here lies great promise, but we must tackle the matter. If we fail, we cannot grumble if somebody else tackles it for us.

5.40 p.m.

VISCOUNT HANWORTH

My Lords, I should like to speak this evening about the human side of this Motion. I believe that there is a danger of our concentrating attention too much on the time-honoured incentives of the carrot and the stick. The stick which we wield to-day is too often too small to be fully effective, even if we wanted it to be otherwise, and carrots have lost some of their appeal when other food is plentiful. In any case, we are considering sophisticated and emancipated human beings.

We may think of the big stick as a thing of the past, and that it is applied only as an extreme sanction for really unsatisfactory work. This, I am sure, is largely true so far as the blue-collared workers are concerned, but it still plays a part in the control of middle and senior management, and I think it often inhibits their creative and modernising potential. Management are particularly vulnerable, because they have become accustomed to a higher standard of living, where unemployment benefit is only a small compensation for loss of a job. It is not only the individual who will suffer from a reduction in income, but the wives and families. One can be brave oneself, but not always at the expense of one's dependants.

I am not advocating a sort of job security provided by the Civil Service—we all know where that can lead. I am, however, saying that there are many areas of management to-day where fear inhibits the blossoming of some of our best talent, and discourages the modernisation which is so necessary for this nation's success. I shall come back to this point in a little more detail later on.

Although this is a material age, I believe that we arc tending to put too much emphasis on financial incentives to the exclusion of the other factors which can motivate people. In nearly everyone there is a wish to try to do something worth while which may not directly benefit the person concerned. This, if it can be invoked, is probably the strongest of all motives. It finds extreme expression in the man who is willing to die for a cause, but there are many other lesser examples of persons selflessly working in poorly-paid jobs because they feel it to be worth while. The probation service and the trade union officials, I should think, are very pertinent examples of what I mean.

The old artisan frequently regarded the quality of his work as being more important than the financial reward. He might have expressed this by saying that he took a pride in his work. Human nature has not changed, although mass production and modern conditions have tended to decrease job satisfaction. In spite of this, much of the lost ground could be regained if top management would try to inspire those working under them with a sense of purpose, and try to encourage a loyalty to the firm for which they work. That, of course, implies that people must be kept informed about what the firm is trying to do, and how it is trying to do it, and this is simply not done enough to-day. In the Services this is called leadership—an unpopular concept in industry, perhaps because its potential and techniques are simply not appreciated or understood. Or could it, perhaps, be that in general we are not getting enough of the right type of leaders at the top?

The incentives for top management are many, but financial reward is still important. This has been said many times in the debate to-day, and I do not disagree with it. But I was amused recently, when discussing with a senior executive how British industry could be made more competitive, to be told that the fault lay in excessive taxation which made higher profits and salaries not worth working for. Then, almost in the same breath, he castigated the workers for not caring about the quality of their work, but only about their pay packets. Of course, high rates of surtax have acted as a disincentive, and they have put a premium on capital gains which now have to be taxed in order to level the balance. Some of us think that perhaps this extra interference might not have been necessary had we not pursued this policy of high taxation for the higher incomes. I do not mean this in any way as having political implication. I am merely putting it forward as a possibly interesting point for discussion. However, for many of us a sense of fulfilment, the exercise of wider responsibilities, and the interest value of a job and its challenge far outweigh increased financial rewards, and I think that sometimes to-day we are apt to forget this.

I have so far dealt with the problem of incentives on a somewhat philosophical approach, but I believe that many practical measures would stem from this philosophy. We must try to consider a company more as a partnership of shareholders, management and workers, and to develop a greater sense of involvement in all ranks of employee. This in fact is the real message behind the "Q and R Year" which we are just entering. We must seriously consider according staff status to all workers, and making sure that the responsibilities which go with it are fully understood. Collective bargaining, as it is known in England to-day, is, I believe, the law of the jungle. We must move towards proper agreements, not negotiated under duress, legally binding on both sides, for reasonably lengthy periods. We need to look again at piecework incentives so that they will tend to encourage men to produce good work with a minimum of scrap.

Managing directors must encourage ideas from younger managers. It is usually the policy to accept suggestions from blue collared workers, but how often are the far more important ideas from management welcomed when, as is usually the case, they have some effect on another department? In my own experience I have seen firms which have been in difficulties, where they had all the talent in the management to put these things right, but who were not given a lead from the top. The young guard is often there, together with the ability, but the top does not always use them. We must cultivate an attitude of divine discontent where what is right to-day must always be questioned tomorrow. By doing so we can keep the interest of managers in their work.

A manager of one of the leading and most efficient firms in this country expressed this concept succinctly by saying that ten years ago they thought they ran an efficient firm. Since then they have made improvements in almost everything they do, and they.now know that they were not efficient. Attendance at well run courses and seminars can do a great deal in stimulating new thought because, after some time in a similar job, it is fatally easy to accept the routine and cease to think. Somehow or other we failed to get across the message that restrictive practices, protective rackets, or whatever you like to call them, do not work to-day in anybody's interest. This must be done, and the financial incentives must be geared to work in this direction. This, I think, is what might almost be called a matter of public relations. It is not the workers' fault.

Finally, I should like to take up one point which the noble Lord, Lord Bowden, made in his speech. He pointed out how many things were done a great deal better in America; and the implication was that we should copy many of them. I think that this is a very dangerous philosophy. By the time we have got round to copying the Americans, almost certainly they will have moved one stage ahead. What we need to do is look at what they are doing now, and to make one jump further ahead. If we try to copy them with the different traditions we have in this country to-day God help us in the future!

5.50 p.m.

LORD CAMPBELL OF ESKAN

My Lords, I listened with great interest to the noble Viscount, Lord Watkinson, opening this important debate, because his considerable experience in the fields of successful business and exporting, as well as in politics, demands close attention to his views. But I want to approach the subject of the debate from a viewpoint rather different from his and from that of other speakers. Speaking late in the debate, I had hoped that previous speakers might have shortened my speech, to the benefit of your Lordships and myself, by saying a great deal of what I was going to say; but I am afraid this has not happened, probably due to the eccentricity and wrongheadedness of my views. And it occurs to me that. as a businessman, I should declare an interest in the subject of this debate.

Nobody can deny Britain's vital need for a long-term policy for industrial growth; nor, as part and parcel of that, our imperative need for exports. I do not believe that any Government has done more than the present Government to try to hammer out such a policy, or done more to try to stimulate exports. But I am certainly not going to claim that this Government has anywhere near solved the problems of industrial growth. In fact, it seems to me that the main problem is that the problems have not even been properly defined and posed, let alone solved. The noble Viscount spoke, and most ether speakers have spoken, as though industrial growth were an end in itself. My starting point is that industrial growth is not an end in itself, any more than exports and financial incentives are. Industrial growth is, or should be, a means to civilised human ends. If it were an end in itself, it would be a highly questionable one. It would be wholly materialistic, dealing essentially with the quantity of life and not its quality at all.

We seem to be circumscribed by a maze of intersecting vicious circles, and I want to concentrate on two of them. The first is that we all want health, wealth and happiness, but wealth, at least, is attainable by the 50 million inhabitants of Britain only through industrial growth; and while we want the fruits of industrial growth, the fact is that an awful lot of people, consciously or unconsciously, shy away from the demands on health and happiness that the production of wealth makes. The second vicious circle is the balance, or I should say the unbalance, of payments; because until we can pay our way abroad we cannot put first things first at home.

I have not time, without boring your Lordships for even longer than I otherwise shall, to speak about personal incentives, which the noble Viscount, Lord Watkinson, and the noble Lord, Lord Sherfield, have rightly raised, except to take two things. First, in the field of business management, whether we like it or not, status and money go hand in hand; and the competitive drive affects personal considerations as well as business activity. This leads to the present ludicrous situation in which companies, in order to attract and keep key men, have to pay very high, sometimes astronomically high, salaries, only to see them taxed away to smithereens, leaving the recipients little better off than people apparently paid far less.

Secondly, I am sure that scarcity of talent, exceptional skill and endeavour, responsibility, hardness of work and high productivity should reap special and just rewards—on the shop floor as well as in the boardroom. There ought to be a valid and visible relationship—a relationship which makes sense to the men and women on the job, at whatever level—between take-home pay and the quality of performance and achievement. The Government can tackle these problems, as my noble friend Lord Shackleton said, only in the context of a socially acceptable incomes and prices policy.

This, my Lords, brings me to what I see as the most vicious of the circles which circumscribe our policies and actions: the conflict between quantity and quality. Industrial growth makes demands on the health, happiness, leisure and freedom of men and women, and imposes disciplines and pressures which they would hardly choose in an ideal world. It can deface the countryside, pollute air and water and make day and night hideous with noise. It can distort people's desires, impelling them to want what they do not really want at all, and persuading them to buy a great many things which are either worthless or positively harmful. Greed, aggressiveness and fear, including the fear of unemployment, can all be applauded in the interests of industrial growth.

The point is that industrial growth is not an end in itself. It is a means, an inescapable means, to generally acceptable human ends. These ends can and must be identified, and this is the business of politics and Government. It was well said by M. Mendes-France that "to govern is to choose". To choose: not to wag fingers, nag, exhort and brandish sticks and carrots. What the Government should do, and what I believe this Government are trying to do, is to tell us for what human and social ends we must have industrial growth, and what we shall suffer if it cannot be achieved. The Government must not, as it were, condemn us to industrial growth as though they were inviting us to commit suicide in the uncertain hope of resurrection. They must tell us how we can be saved by it, and what we shall be saved from.

The fact of the matter is that if the economy stagnates or recedes, we shall be deprived of all sorts of things that we want and need. We shall not be able to improve the quality of life in these Islands, or even to maintain such quality as it now has, without creating industrial growth. I am sure that some noble Lords on both sides of the House must be thinking, "He is waffling about Utopia". I do not believe in Utopia any more than they do: but I do believe in ideals. And, although individuals may go about their lives fraught with the practical problems of living, nothing is more real in the life of a community or a nation than the ideal. The United States, Germany and Japan have been mentioned in this debate. My Lords, those countries are highly motivated by ideals, whether we happen to approve of their ideals or not.

What are Britain's ideals to-day? What is the aim of our existence? Let the Government tell us what they think the shape and purposes of Britain's ideal society should be; what our role in the world and our priorities should be. Let them tell us, and go on telling us, in unmistakable terms, what is needed to bring them about, and what they mean to do about it. It is no good urging everybody to be more efficient, productive and growth manlike in disembodied economic jargon. I am the last person to decry efficiency: efficiency is vital in Britain to-day. But the question must always be kept before us: Efficiency for what human ends? Nor is it enough for the Government to assume—and this was the burden of the ill-fated National Plan—that if people are efficient and produc- tive a natural growth rate of, say, 4 per cent. will result, and then we can have all that and heaven too. Because it simply is not true. With any practicable and foreseeable rate of growth, any Government are going to have to make hard choices between various forms of socially desirable expenditure. It seems to me that the Labour Government must choose now, and declare their choice, of social priorities.

My Lords, how can we all be expected to bestir ourselves unless we are told in unmistakable terms what we shall suffer if we do not bestir ourselves, and what we shall benefit if we do? The Government should tell us how much their ideal plans would cost in terms of human, financial and physical resources—for instance, their plans for housing, education, transport, health (very much including mental health), old age, and their attack on poverty, national and international, with its tragic effects on individual human beings. They should tell us which plans, and to what extent, they put first, and why. They must tell us what we must do and what we must be prepared to give up, and how much we must be taxed to meet the demands of their priorities. They must tell us what resources have to be deployed, and how we should deploy them.

Our problem is not that we lack the knowledge, the skills and the resources required for industrial growth: our problem is that we do not have the national will at present to deploy them. The Government, it seems to me, should use every imaginative means of propaganda at their disposal to ensure that we take the point of their social priorities and the means of achieving them. Social priorities are not dull stuff. They are the very stuff of humanity and they can be intensely exciting and inspiring. The youthful Winston Churchill—I believe, of social security, illuminating the subject—said: It brings the magic of averages to the rescue of millions. Industrial growth is the only means of raising the average for the millions.

My Lords, this brings me to the second of my circles. We cannot go full speed ahead at home until we have brought our overseas payments into balance; because not only must we have industrial growth to enable the Government to translate social priorities into a full-scale programme of action and expenditure but the Government are inescapably inhibited from putting social things first and driving for a high-wage society—which is what we ought to be doing: high wages and high skills—unless, or until, we can pay our way abroad and bring our overseas income and expenditure into balance.

Here, as everybody knows, is the vicious circle, or, I suppose, the vicious spiral: social expenditure and higher wages mean more demand at home and so fewer goods for export and more demand for imports, which worsens the balance of payments; which necessitates deflation to reduce demand; which means less industrial investment; which means Britain has a lower share of world industrial investment causing higher unit costs, which further aggravates the situation—which brings us back to where we came in.

My Lords, how do we get out of this spiral, from which we must extricate ourselves before long-term policies for industrial growth and social development can be put into practice? The answer must lie in one or more of only a few alternatives: reducing imports, increasing exports, cutting overseas Government expenditure and private investment overseas. First, let me take imports. It is tempting to suggest that imports should be, for a time, physically controlled, but it seems almost impossible to do this after the existence and removal of the surcharge. The trouble is that deflation is an extremely expensive and inefficient way of reducing imports because it requires £;5 of deflation to reduce imports by every £1. Secondly, exports: I accept that we must all cheerfully "export or die", and, as I have already said, the Government are evidently working very hard indeed, and encouraging everybody else to work very hard indeed, to stimulate exports. And with great success, as the figures show: total exports for 1964 were £4,412 million; for 1965 they were 7 per cent. up at £4,724 million; in 1966 they were another 7 per cent. up at £5,037 million—which is real success.

Thirdly, there is overseas expenditure and investment. We are at present spending £350 million in foreign exchange on Government expenditure overseas, ex- cluding aid. Surely the Government's commitment to reduce this total by £100 million must be soon and visibly implemented, and I should hope—even taking the shrewd point of my noble friend Lord Cooper of Stockton Heath about Malta—there might be a further reduction of another £50 million. Aid is costing us about £75 million in foreign exchange. I do not want to see this cut. Indeed, I regret the cut of £20 million that has been made in total aid; and I am most unhappy about the decision to treble overseas students' fees. I fear that it will prove lamentably shortsighted. Casting one's bread upon the waters, as the noble Lord, Lord Sherfield, said in another context, is always a fruitful undertaking; and, in my view, aid to developing countries should emphatically be, for a Labour Government, one of the social priorities I have been discussing. But the bread that is cast upon the waters must be well kneaded (in both spellings) and well directed in every sense of the term.

Finally, private investment overseas at present amounts to something like £400 million a year. Here again, my Lords, I must declare an interest, as chairman of a company with relatively large overseas investments. I know quite well that there is an unresolved conflict of views between the people who think that, on balance, overseas investment is harmful to Britain in our present plight and those who think that it is, on balance, most beneficial. I myself am convinced that overseas investment, provided it is discriminating and properly controlled, can bring great advantage to Britain's overseas earnings through remittance of profits and through its generation of visible and invisible exports. And in developing countries—as it were, depressed areas—I believe that private investment should be a concomitant of aid. But I certainly do not see why for the next couple of years, while the British economy is struggling back to an even keel, private overseas investment should not be cut by a least £150 million each year.

I would suggest that this be done by a specially-constituted version of the Capital Issues Committee. I would suggest that the Government form a body of professional men, businessmen and civil servants, well-versed and expert in overseas investment, and charge them with the powers and responsibility for restricting overseas investment to not more than £200 million for each of the next two years. If such an idea were acted upon it would be necessary for the Government to give this regulating body for overseas investment guidance as to the criteria for authorising or postponing investments, export stimulation, developing countries, and so on. This would seem to me to be a better way of controlling overseas investment than, as at present, by hoping for the accidental and harmful side-effects of the corporation tax.

My Lords, by reducing Government expenditure and private investment overseas in these ways, we could in the short term restore our balance of payments and so recover some freedom of action in our domestic economy. But really adequate freedom of action for the British Government to pursue its own social priorities without always looking over its shoulder must, whether we like it or not, depend upon international confidence and a strong pound. These depend on more than a short-term solution to our balance-of-payments difficulties. And this brings me back to what the creative circle, as against the vicious circle, should be. It should be the choice by Government of its social objectives and priorities for Britain; the exposition of and positive encouragement to the industrial investment and the industrial growth needed to support these. There must be a continuing and increasing stimulation of exports. Overseas Government expenditure, other than aid, should be cut by £100 million or even £150 million a year. Overseas private investment should be temporarily—and I emphasise temporarily—reduced by at least £150 million a year. A prices and incomes policy, concerting rises in incomes with rises in productivity, must be sustained by voluntary means, if possible, but by legislation, if necessary, until employers and trade unions learn that the law of the jungle is utterly self-defeating.

Industrial growth should thus be regenerated, by the Government's inspiring the British people with the recognition of the relationship between the production of wealth and its translation into better and fuller lives: into health, happiness, and hope. If I am rightly told that wealth cannot bring health and happiness, I would reply that it can at least bring a social climate and a quality of life conducive to creative well-being rather than conducive to conflict, strain, ugliness, false values and indifference, and so to national disaster.

6.9 p.m.

LORD SOMERS

My Lords, I had not intended to intervene in this debate, because I am neither a businessman nor an expert in economics; but I feel there is one point that should be emphasised, that is, the quality of our goods, apart from the quantity. We have had a good many debates on business in this House and, so far as I can remember, practically the entire emphasis has been on the quantity of our exports rather than on the quality. I feel—

LORD SHACKLETON

My Lords, would the noble Lord allow me to intervene? In fact we had a debate a few months ago on quality and reliability.

LORD SOMERS

My Lords, I must apologise. Either I was not here, or I did not hear—one of the two. But there is no doubt that this question of quality is extremely important. A short time ago I bought two articles from two countries whose exports have increased enormously during the last few years, Japan and Italy, and I was very interested to find that in each case the quality of the material was excellent, the design was as good as it could be and the finish was absolutely perfect. I wonder of how many of our products we could say that today. There was a time when the words "Made in England" stamped on anything was almost equivalent to a hall mark. It meant absolutely first-class quality; but alas! I am afraid that is no longer so. If we do not improve the quality of our goods we shall not sell them abroad, because we have now too many competitors who produce first-class articles and they will be the first to gain the market.

I will give your Lordships another instance of the sort of thing I mean. There is a certain well-known German car and one very often sees models on our roads. I compared the turn-over on the front wing of one of these cars with a car of our own make of more or less the same price. The German car wing was made of good, solid steel and obviously was intended to last for years. The English car wing, I regret to say, was as thin as paper and obviously would have corroded within about a year's time. I dare say that a great deal of the trouble is the cost of raw materials; but, my Lords, if we do not find some solution to this problem, I feel that in the end we shall he beaten by competitors who can produce better grade material.

House adjourned during pleasure.

House resumed.