PRODUCTIVITY AND JOB OPPORTUNITIES

HL Deb 03 July 1978 vol 394 cc644-800

2.55 p.m.

Viscount AMORY rose to call attention to the dangerously low level of productivity in this country in relation to that of our main international competitors, and to the need to stimulate new and constructive job opportunities which would follow from an improvement in our national productivity; and to move for Papers. The noble Viscount said: My Lords, this debate fits in well with the one initiated so ably by the noble Lord, Lord Baker, two weeks ago. He dealt specifically with engineering. Today's debate goes rather wider, but the theme is the same. I wish to say how much I am looking forward to hearing the maiden speech of the noble Lord, Lord Roll of Ipsden. Many years ago he and I worked together when he was a distinguished civil servant.

I am not sure that I am the right person to be introducing the Motion. Though I worked in industry for the best part of 20 years, I have been retired now for quite a long time. I should therefore think that it would be an impertinence on my part to claim any longer that I have any first-hand knowledge of the subject which we shall be discussing. Therefore, I can speak only as an armchair critic. As such I shall confine myself to a few assertions which I fear your Lordships will not find reason to dispute, and then suggest some deductions which I hope noble Lords from all parts of the House will be able to throw light upon from their own wide and varied experiences.

I am moving the Motion because I believe that our current level of productivity is the most serious of all our economic problems, because it lies at the root of most of the others, and I fear that it is likely to prove the most intractable of them all. There is a mariners' saying about bad weather: Quick come, soon past; Long warning, long last". I do not want to introduce a note of unrelieved despondency, far less of despair. Our level of performance in terms of productivity of both manpower and machines is a matter entirely within our own powers to decide. We can improve on our current standards dramatically; and if we do, that will open the way to a higher standard of living, and in the long run to expanding opportunities for employment in ever widening fields of endeavour.

Nor do I want to indulge in recriminations; the blame for our performance does not lie with any one section of the community. What was done in the war, when this country organised itself for production to a greater extent than any other, shows what the nation can do when it decides that it must be done. I refuse to believe that our nation has changed its character in 35 years. So it is not an impossible or insoluble problem we are talking about, but, as so often when deteriorating performance has to be reversed, it is by no means an easy one to surmount. Our relatively low level of productivity is no new thing. It was noticed and commented upon in the very early days of the present century, and even before. It has not been brought about solely by trade unions' restrictions and attitudes, though those are sometimes serious factors. It is not confined to large manufacturing units, nor even to manufacturing. Perhaps it is an attitude which runs through broad sections of our national life.

It is most obvious in large manufacturing units because it is more easily measured there. For many years it was excused by a traditional pride in the accepted superior quality of British goods in terms of their durability and reliability, but I fear that this superiority cannot be taken for granted today. Then its existence was masked by a plentiful supply of manpower available, and by its relative cheapness, which made the use of manpower cheaper than the installation of expensive labour-saving devices. For a decade or two after the last war we were misled by a rapid increase in our standard of living—the fastest that had ever occurred in a comparable period—which concealed the still more rapid progress of our competitors. We began to believe that the problems of production were solved. Today our low productivity, relatively, is starkly exposed. It is so serious in some important sectors that it seems to postulate a continuous process of reduction in the value of our currency as a necessary condition for the competitiveness of our exports—and this when Germany and Japan, in spite of increases in the value of their currencies, seem unable to overcome their propensity to export.

I shall weary your Lordships with only three key statistics, as I fear that almost any tests produce the same answer. The exceptions are significant and worth brooding on. I have chosen three statistics to illustrate our plight; other noble Lords will quote others as significant. The first is in value added per man-hour in manufacturing. In 1955 four out of five EEC countries were above the United Kingdom by from 8 to 18 per cent. By 1973 they were above it by from 54 to 93 per cent. Then the Think-Tank sent a team to the Continent to examine car manufacturing and assembly plants. In every case examined, output per man on the Continent was at least 60 per cent. higher than in the United Kingdom, and often double as high. Thirdly, the statistic that Sir Ronald McIntosh, the former Director-General of NEDC, considers the most striking of all in relation to the British economy is the following. In 1953 our share of world exports of manufactures was 23 per cent., and Germany's was 19 per cent. Twenty years later Germany's share had risen to 23 per cent. and ours had fallen to under 8 per cent.

Some economists tell us that there is no prospect of absorbing the unemployed in manufacturing. If the volume of manufacturing is thought of in terms of existing products, this may well be true. But there is no reason to suppose that new products will not continue to come up over the horizon, introducing new and undreamed of jobs; and the demand for services of one kind or another is limited only by consumers' pockets. It may well be that it is in that ever-widening sector that the biggest growing demand for manpower will lie if we can get our costs competitively right. It is significant that only one-third of the working population in the United Kingdom are employed in manufacturing, whereas in the United States the percentage is 25 per cent. Fortunately, some services are exportable. In a recent debate my noble friend Lord Harmar-Nicholls quoted a figure which I found impressive. He said that there are about 800,000 small businesses in the United Kingdom. If each could expand their business enough to take on one extra employee, unemployment would be halved. In this matter, I believe the Employment Protection Acts, however laudable their objects, are doing a great disservice by discouraging small employers from running the financial risks of taking on extra employees unless they can be absolutely certain of the expansion of their business.

It is true, as Mr. Maudling wrote the other day, that our problem is not basically over-spending but under-earning. But under-earning cannot be put right by paying ourselves more for less output. That is the trouble with work-sharing proposals which otherwise might be sensible. Unless practised by our competitors too, they would put up our relative costs still further. However, we cannot regard one and a half million unemployed as tolerable, particularly when something like 40 per cent. of the registered unemployed are relatively young people. It is a national tragedy. Why is agricul ture such a notable exception? It is partly, I think, because of the revolutionary effects of mechanisation and the highly productive work of the scientists and the plant and animal breeders; but also almost certainly because of its organisation in small personal and intimate units, where satisfaction in the job is more prevalent and the boss identifiable and usually accessible.

Unfortunately, a higher rate of investment alone may not solve our problems. We are not always making the best use of existing investment, and our new investment does not always attain the productivity it ought. In December 1964 a joint statement of intentions in regard to productivity, prices and incomes was signed at Lancaster House. This sounded hopeful, but results to date seem meagre. So the answer does not wholly lie in simply more investment. Our volume of investment is not actually all that bad. The percentage of the national product has been broadly the same in Britain and the United States in post-war years. Does it lie in the quality of our investment, or do we dissipate the gains in overmanning or paying ourselves too much in cash or in social benefits? We do not need more investment as much as more productive investment. Recently I read some criticism of multinational companies for not investing more in Britain. Multinational companies, my Lords, would be quick enough to invest in Britain in preference to elsewhere if our costs of production were right.

I fear it must be admitted that the traditional attitudes of our trade unions to problems of overmanning in the believed interests of their members are often a severe handicap. Rarely indeed does one come on pressure from British trade unions, as I am told one does in some cases in the United States, for more efficient and economical production in the interests of their members. They are apt to say, "That is a problem for management", forgetting that it is the key to higher earnings for their members and therefore the most important thing of all for the prospects of a rise in real earnings for their members. Unless the trade unions can throw their weight behind efforts to increase productivity, and therefore pave the way for higher real wages, they are doomed in their efforts to win higher real earnings for their members. I hope that wider participation in industry may help in this vitally important matter.

Having said that, I do not want to imply that trade union restrictions are the sole reason for our low productivity—far from it. Management must also carry its fair share of blame. Much of our management, in both big and small firms, is as good as any; some is mediocre. Some has become discouraged by current difficulties, and has lowered its sights. Most managers work hard. What I think our managements need, across the board, is not replacement but practical encouragement and appreciation. Ambition is not given enough scope, and success is not adequately rewarded. We all know from history and from our own experiences how much the success of industry, as of any other collective activity, depends on the flair, the talents and the leadership of a minority of exceptional people. Does British industry today secure as high a proportion of the ablest young men and women as it needs as the main earner of our national living? I am afraid the answer is that it does not. Why? Is it because the rewards of entrepreneurial skills are much less today? Is it because industrial management is beset by frustration arising from industrial disputes or from over-detailed Government regulations? Is it because there is less public appreciation than there ought to be of the rÔle of industry? Are our educational aims and institutions to blame? I believe it is for all these reasons.

Research that I have read has shown that in the British car industry plant managers who were interviewed by the Think Tank told them that in England managers spend half of their total time dealing with industrial disputes and troubles as against the 5 per cent. to 10 per cent. quoted by their Belgian and German competitors. That is secondhand information and I cannot vouch for it. There are solid grounds for thinking that many of our traditional attitudes to education, and its existing patterns, are not attuned to the needs of industry or sympathetic to its importance. Too much first-rate ability gets diverted to other careers. Management training, too, is below that of our international competitors.

Governments must realise that no one is likely to invest unless and until they can see some return on their investment. They would be deluding both their shareholders and their employees if they were to do so. The reason why British industrial investment is not higher is the lack of the prospect of a reasonable return for efficient production in current circumstances. It must be right to give top priority to a continuing reduction in the rate of inflation and to emphasise the part that wage restraint has to play in this. We need some kind of incomes policy, but one which will leave room for differentials for skill and responsibility.

Government cannot itself run industry; Government cannot itself finance industry. Its task is to provide the economic conditions in which industry can do these things efficiently for itself. The biggest single disincentive of all, I believe, is the present level of direct taxation at all levels. Personally, as an old hand, I am in favour of a drastic reduction in direct taxation even at the expense of an increase in indirect taxation. Taxation of spending is better than taxation of earnings. A drastic reduction in direct taxation, incidentally, would help greatly in this problem of very high before-tax salaries. Our biggest handicaps, I believe, are the present penal levels of direct taxation and what I might call a lack of zest for adaptation and new attitudes. The two may well be linked. Our declining competitiveness, if it goes on, must lead to a steady devaluation of our currency, higher relative inflation, a lower standard of living, and a further sapping of morale.

For a nation that has to live on trade, competitiveness is the crucially important thing. The increasing trend towards higher manufactured imports is most discouraging. If we can get out productivity right, we can save enormous sums spent on unnecessary imports. If Ministers should be disposed to defend our productivity record—and I do not believe for a minute that the noble Lord the Leader of the House will do that unreasonably; he will speak carefully in whatever he is going to say to us—I would invite them to re-read the Treasury's economic progress report of December 1977. There, they will be reminded that in the most recent decade real earnings per head in manufacturing industries in every major industrial country, except for the United States, grew at least at twice the rate achieved in the United Kingdom. Unless we have the will to make the necessary exertions to face up to the changes required by a highly competitive international system, our relative standard of living must continue to fall. We must be competitive or die.

Very few of our people are happy with a second-rate national performance. An improvement in productivity per man-hour or per machine-hour will not immediately increase employment. In particular cases it will have the reverse effect. When an increase in employment comes, it may be in another kind of production. That is why understanding it is so difficult for those directly involved by redundancies. It is difficult for them to accept the necessity. Putting oneself in their position, one can fully sympathise with them; but it is, unfortunately, the only way to increase employment without reducing our standard of living.

The lesson that we have to learn is that higher productivity is the only practical way to higher real earnings and higher employment. I shall look forward to hearing the thoughts of the noble Lord the Leader of the House on these reflections. I hope that this debate may make a modest contribution to a better understanding of this, our most pressing economic problem. I beg to move for Papers.

3.17 p.m.

The LORD PRIVY SEAL (Lord Pearl)

My Lords, this is the second debate on an issue of industrial policy and the importance of enterprise and growth. May I say to the noble Viscount, Lord Amory, that I think he made a moderate and fair and, for that reason, all the more effective speech. I would not call him an armchair critic. After all, as an ex-Chancellor of the Exchequer and a distinguished Agricultural Minister, he has had a lot of experience, and he was right to point to some of the policies that we must think about if we are to improve enterprise in this country and overcome our economic difficulties. His speech was a good beginning to what I hope will be a very fine debate from all sides.

As I have said, this is the second debate on this subject and that indicates the importance which your Lordships place on the need for improvement in the international competitiveness of British manufacturing industry. The Motion before us today calls attention to two things: first, the low level of productivity in this country relative to our main international competitors; secondly, the need to stimulate new and constructive job opportunities in the light of success in improving our national productivity performance. This second requirement is a central objective of the industrial strategy programme. I will try to give the Government point of view in reply to the noble Viscount, and no doubt the debate will be taken up, different points will be assessed, and my noble and lerned friend Lord McCluskey will be winding up. May I say that I agree with the noble Viscount about our low productivity. Low productivity and unemployment, as he has said, are not problems which have arisen overnight; nor can they be solved overnight.

Our unsatisfactory economic performance since the war, reflects our relative failure to deal with industrial problems. After all, we were one of the first industrial nations; but, as the noble Viscount has said, we have been overtaken by many competitors. Probably the most revealing indicator—and he referred to similar figures and statistics—is the decline in our share of exports of manufactured goods by major industrial countries. In 1956 our share was 19 per cent.; in 1975 it had fallen to 9 per cent. All the original EEC countries have maintained or increased their share since 1963, whereas ours has fallen by 40 per cent. In 1963 Japan's share was half of ours and now it is 1½ times as great. I believe that we must take note of these figures. They are figures which are challenging and if we do not rise to a desire to overcome our difficulties, then I think we shall fail. The nation, the Government—indeed, all of us—must see that we go the right way towards economic recovery.

I believe that at no time in our history has the need for increased productivity been greater. It is ironical that Britain did so much in the past to help foster productivity in countries like West Germany. Many noble Lords know that after the war, for example, it was the British zonal authorities who helped create a sound trade union structure in Germany, and who put a tremendous surge of purpose into the West German economy by helping to plan and execute the 1948 currency reform. We now find our productivity lagging behind that of the West Germans. It has recently been suggested that if total United Kingdom productivity grew at 6 per cent. per year and West German productivity grew at half this rate, the United Kingdom would still not catch up with West Germany in terms of GNP per head until the end of this century. When one compares that 6 per cent. rate with our actual annual increase in productivity in recent years of 1 per cent., the extent of the task which confronts us is amply demonstrated. We now need to do for ourselves what we have been able to do for our present competitors in the past.

It is against this background that the Industrial Strategy programme was launched. The White Paper introducing the Industrial Strategy in November 1975 emphasised the importance of sustaining both private and public sectors as "vigorous, alert, responsible and profitable" and promised that, for the immediate future at least, the Government would give the development of manufacturing industry priority over consumption or even social objectives. I am sure that the noble Lord who moved the Motion today will not disagree with those main principles.

The Strategy is a new concept in industrial planning. It recognises that we not only have to tackle our immediate problems, but get to grips with the long term needs of British industry. From the outset, the Government rejected the approach of macro-industrial planning imposed on industry from above, and I think that we were right to do so. Instead, we committed ourselves to developing a national Industrial Strategy based on analysis and recommendations at sectoral level. I know that this has its critics; but those criticisms that I have seen have notably lacked any positive alternative and I believe that what we are doing represents the best way forward. The essence of the new approach was the development of an Industrial Strategy through tripartite co-operation: co-operation based on Government, management and trade unions working as equal partners.

As noble Lords know, some 40 sector working parties were set up composed of representatives of all three groups. They have spent two years working together, analysing the performance of their sectors, pooling their ideas on what is required to improve competitiveness and agreeing recommendations for action. Between them sector working parties cover some 40 per cent. of manufacturing output in this country, about 46 per cent. of manufacturing employment, and nearly half of all exports of manufactured goods.

I need hardly remind your Lordships that the Industrial Strategy was initiated at a meeting of the CBI, TUC and Government held at Chequers in November 1975: a time when the world recession and our home recession were getting deeper; the five-fold oil price increase was just beginning to bite; the unemployment rate was rising; there was massive price inflation; and several major private companies had virtually collapsed: Burmah; British Leyland; Chrysler; and Alfred Herbert.

The months following the launch of the strategy were just as difficult—our domestic situation worsened; corrective action had to be taken about our forward plans for public expenditure; and interest rates reached record levels. During all this time, nevertheless, the cornerstone of the Strategy was maintained and the numbers in employment have increased. This was the tripartite basis of Government, management and workforces seeking to reverse the relative decline in our industrial performance with its characteristics of low investment, low wages, a depreciating currency and low productivity. Corrective action had to be taken on our forward plans for public expenditure.

Lord ORR-EWING

My Lords—

Lord PEART

My Lords, if I may continue. There are over 30 speakers on the list. I do not mind, as the noble Lord knows, and I like debate and the type of procedure in another place; but I think, in the circumstances, I must give the Government point of view.

However, through it all, the Strategy and its objectives have remained intact. All the sector working parties have contributed to the work of the Strategy—some more strongly than others. The Clothing Economic Development Committee, for example, have done an ex cellent job in communicating the work of the Industrial Strategy to individual companies. Similarly, in the field of export promotion good progress has been made by the Mining Machinery Sector Working Party and the Food and Drink Economic Development Committee. The Mechanical Handling Sector Working Party has been particularly effective in the productivity field.

The first task of the working parties was to form coherent units out of disparate groups of people from management, trades unions and Government. It is to their credit that they have sought to put aside any past differences and to isolate and overcome the problems of their sectors. The sector working parties accepted that increased international competitiveness could only come through a shouldering of responsibility by both management and trade unions for improving performance.

Much of the early work of the working parties concentrated on short term problems which might hinder output as the economy emerged from recession. This work included identifying potential bottlenecks to growth which would prevent industry from taking advantage of any upsurge in world trade, and suggesting means of removing them. In the course of last year, the working parties have refined their provisional objectives for ambitious improvements in their sectors' share of home and overseas markets.

About half the working parties have quantified their objectives for exports and imports. These plans imply an immense improvement in the trade balance for their particular industries. If we could achieve an improvement in the trade balance of this magnitude, we could expand the economy faster and create many new jobs by 1980. But the achievement of the market-share objectives is conditional upon a marked improvement in performance to which high productivity must make a major contribution.

For their part the Government have responded positively and imaginatively to recommendations from the sector working parties. For example, a number of the working parties recommended changes in the facilities offered by the Export Credits Guarantee Department. As a result, some facilities have been extended considerably. For instance, the minimum value for contracts qualifying for support under the bond support scheme was lowered from £2 million to £1 million and has recently been lowered further to half a million pounds. As a result of comments in sector working parties' reports, the Government have introduced in consultation with industry, an export market entry guarantee scheme to help firms in manufacturing industry deal with financial risk and problems associated with a venture to develop a new export market. The noble Lord, Lord Soames, smiles at that. But this is positive work and a joint effort by management, trade unions and Government. It is very important and I know that he wishes them to succeed.

In their general management of the economy the Government have sought to provide industry with greater stability and increased incentives. This has been the theme of successive Budgets. The Government's economic objectives are sustainable full employment and a growing economy within which standards of private consumption and public provision are able to rise. Achieving these aims entails reversing the long erosion of our industrial performance that has led to our present problems. I agree with the noble Viscount, Lord Amory: there are no short cuts.

It is undoubtedly true that one of the problems that has beset our industry has been the repeated change of policies by successive and competing Governments. Not only has industry in the United Kingdom had to cope with the growth of world-scale markets but also with a mass of new legislation, some of it justified for social reasons. I believe, however, that the prospects are now improved with the development of the Industrial Strategy. The problems and prospects for manufacturing industry are being studied in much greater detail than ever before, with a view to developing strategies for improving the performance and competitiveness of each sector.

One of the crucial areas in which action must be taken, and indeed is being taken, by the Government and many others is in ensuring an adequate supply of well-qualified engineers and managers to take responsibility for developing our manufacturing industry. I was glad that the noble Viscount, Lord Amory, raised that point; and indeed in our previous debate there was great emphasis on the need to have good management and to attract engineers. To attract more of our ablest young people into engineering and management, we have to improve the image of industry and offset some of the attitudes that develop within our education system by a higher esteem for practical skills. There is still too much snobbery in that field. There is much to be done but Government, education authorities and industry itself, with the support of the trade unions, are working together and making significant progress in this field. The Department of Industry has set up a special Industry-Education Unit.

Schoolchildren are gaining a more positive interest through conferences on the "challenge of industry" run by local education authorities and by participating in competitions such as the "Image of Industry" run by the Guardian newspaper. The CBI has set up a project called "Understanding British Industry" to increase the flow of information available to schools. The Government are examining further ways of supporting and extending the careers service and strengthening individual company's links with their local schools. In higher education the same picture prevails.

At the same time we have, of course, to ensure that the qualifications gained by young people, both at school and at higher levels of education, are relevant to the types of opportunity in industry that they are learning about. New "enriched" engineering courses are being introduced at several British universities. These are high-level degrees for the very able, oriented towards manufacturing industry. The industrial training boards are introducing special fellowships for study in relevant courses, and individual firms are increasing their financial sponsorships for both students and courses. A scheme of some 100 scholarships jointly funded by Government and industry is to be introduced this year. The Government already sponsor a scheme of "Teaching Companies" to enable post-graduate students to work closely with industry.

These measures are already beginning to show some beneficial effects and the number of applicants for science and technology courses, at all levels, is increasing. Similarly, firms have reported over the last two years a significant increase in the number of applicants and are finding a higher proportion of these to be suitably qualified for recruitment. For the first time in many years, firms are reporting that the tide seems to be running in their direction. I am sure the noble Viscount, Lord Amory, will welcome this. The Government plan to support further the many initiatives which have helped to turn the tide.

Industry requires the prospect of sustained expansion if it is to invest and prosper. Through our policies, we have succeeded in creating a firm basis for this expansion. Thanks to the magnificent co-operation of the trade union movement, inflation is now down to 7.7 per cent. We achieved a current account surplus on the balance of payments of over three-quarters of a billion pounds in the second half of last year; results for the first part of this year are consistent with the Chancellor's estimate that we shall achieve a modest surplus in 1978. Whilst it is true that there was a temporary check in the increase in manufacturing investment in the first quarter of 1978, in real terms manufacturing investment was 8 per cent. Higher last year than in 1976 and, if iron and steel is excluded, it rose by 14 per cent.

One highly significant new investment has taken place in my old constituency of Workington. Thames Board Mills have invested £100 million to expand production of carton-board. This investment is evidence of the confidence that people have in the future of this country. The project has attracted an incentive of £10.5 million under the Government's Selective Investment Scheme, and the work on the project was inaugurated by my right honourable friend the Secretary of State for Industry at the end of May. This sort of project will help considerably all round and will lead to substantial orders for the construction and plant equipment industries. It should reduce imports and lead to an annual benefit to the balance of payments of some £30 million from 1982. In addition, in a development area some 300 new jobs will be created. This is what we want. This is why we believe it is right to give special incentives in areas where they are most needed.

The Department of Industry's latest survey of investment intentions supports the earlier expectation of an increase in manufacturing investment of 10–13 per cent this year, with a further increase in 1979. GDP is growing and, following the Chancellor's Budget, should grow by about 3 per cent this year. Of course, slow growth in the world economy is a major constraint on our own expansion and our prospects for a return to full employment. There are 16 million people unemployed in the OECD countries taken together. That is why, in the run-up to the July economic summit, the Prime Minister is working so hard for a programme of concerted action by major industrial countries to promote world expansion.

Our medium-term economic prospects have been substantially improved by North Sea oil. But this windfall could easily be frittered away. The Government are determined that it is not: the March White Paper sets out our priorities clearly, with investment in industry and improvement in industrial performance heading the list.

The United Kingdom has been a relatively slow-growing economy. Whatever reasons may be adduced for this, a slow-growing economy will tend to be one which creates new employment opportunities less readily than others. It also gives rise to a situation in which working people seek to retain existing jobs at the price of reduced productivity while management becomes unwilling to invest in the face of declining profitability.

A central objective of the Industrial Strategy is to secure an improvement in the productivity of the United Kingdom industry. Even if, initially, an increase in productivity greater than the increase in demand in a particular industry is reflected in a fall in employment, the resulting improvement in competitiveness should lead in due course to increased demand for the products of that industry and help to restore employment there. But if, for structural or other reasons, this does not occur, a reduction in employment in that industry still does not necessarily result in a sustained reduction in employment overall, because the initial rise in productivity will have favourable effects on real incomes and demand.

There is one aspect of productivity with which I am particularly concerned personally. That is the contribution to productivity which can come from the development and application of new technology on industry. Noble Lords will be aware that, within Government, I am charged with the general oversight and co-ordination of science and technology issues which span the interests of two or more Government Departments. To help me in this task, I have the invaluable support of the Advisory Council for Applied Research and Development; ACARD as it is known.

ACARD is particularly concerned at the moment with one area of technology with very great implications for productivity. This is the application of microelectronics and micro-processors, which, as many noble Lords w ill be aware, offer British industry tremendous opportunity both to cut its costs and to develop and supply a whole range of improved consumer and capital goods for the home and export markets. ACARD w ill shortly be receiving the report of a working party under Mr. Robert Clayton of GEC, which is looking at the whole question of applications of semiconductor technology. When this is received, it will be studied with a great deal of urgency by the Department of Industry and the other Government Departments concerned. They, of course, have already been doing a great deal of thinking and the Secretary of State for Industry will very shortly be announcing an initial scheme to assist British industry to take full advantage of the new technology.

But how will society adapt to these opportunities and what are the risks involved? The rapid development of micro-electronics, as well as being one of the most significant opportunities of our time, also presents us with a number of challenging issues including its effect on employment. Work is currently under way in assessing the likely impact of this new technology on employment, under another working party of ACARD chaired by Sir James Menter. The Department of Employment's Unit of Manpower Studies is studying the manpower effect of micro-electronics, and the Prime Minister has instructed the CPRS to act as the focus for dealing with the wider implications of micro-electronics technology.

It is essential that we look at all factors affecting productivity. To improve our industrial performance we must ensure that all productive resources are used to the full: materials, machinery, space, energy, time and finance as well as manpower. Under-use of capital and poor methods of work are clearly important influences on labour productivity. Other non-price factors also affect our international competitiveness. For example, although the United Kingdom has a well-deserved reputation for the quality of design, it has long been recognised that insufficient attention is paid generally to design and designers in many firms. As a result of the low status of design, it has become an area which now attracts too few of the more talented people. Our ability to design consumer products for world-wide sales appears to have declined over the past decade or so, particularly when compared with that of nations such as Japan, France and Italy. This situation needs to be altered.

I come very nearly to the end of what I have to say. One of the industries with the most remarkable records of improvement, as the noble Viscount, Lord Amory, rightly said, is agriculture. I am sure that the noble Lord, Lord Soames, as a former distinguished Minister will agree with him, as I certainly do as a former Minister. I believe that we have a wonderful success story there in an industry which has increased productivity, which was so much due to another famous Minister, Tom Williams, whose Agriculture Act in 1947 virtually revolutionised the British countryside.

When I look at agriculture today I see that man-hours per hectare of wheat declined from 82 in 1950 to 16.2 in 1976, while normal yields of wheat have increased by about 60 per cent. In milk production, labour requirements per cow in a herd of some 40–50 cows declined from 109 hours a year in 1955 to 59 hours in 1975. In the same period, the average yield per cow in this country increased by some 40 per cent. to over 4,000 litres. United Kingdom milk production increased from 9,700 million litres to 13,600 million litres, while the number of milk producers fell from 175,000 to 77,000

These increases in labour productivity have been reflected in national statistics. In the two decades from the mid-fifties to the mid-seventies, the net product of agriculture increased by more than 75 per cent. This has been achieved by a smaller labour force and a substantial increase in capital investment. The number of people employed in agriculture declined from 788,000 in 1955 to 380,000 in 1975—a decline of 52 per cent. All this has been achieved from a declining area of farmland. We must pay tribute to the industry and this is an achievement of which we can be proud. It reflects the greatest credit on all concerned—the farmers, the farm workers, the managers. the scientists and all those people in the Ministry. May I also pay tribute to the two Ministers who will be speaking in this debate. Each in his own way made a distinctive contribution which nudged agriculture forward, and which acts as a guide to what can be done if there is a will. The result is that British agriculture has developed a formidable competitive strength. I want to see this in other sections of industry, and I believe that it can be done. I feel that this is an important debate, and I hope that some of the facts and some of the indications of policy emphasis which I have given will be taken up. I believe that the Government will succeed and that we shall steer the nation through its difficulties.

3.45 p.m.

Lord CARR of HADLEY

My Lords, I should first like to join in thanking my noble friend Lord Amory for initiating a debate on this subject. I agree with him that it is complementary to, and a valuable enlargement of, the debate which we had a fortnight ago raised by the noble Lord, Lord Baker. Like my noble friend, I should also like to say how much I am sure we are all looking forward to the maiden speech of the noble Lord, Lord Roll of Ipsden, because most of us know of his great knowledge and experience in matters so closely connected with this subject. I am in no doubt that, in concentrating our attention on the poor level of productivity in Britain compared with other countries, we are, in fact, concentrating on the single most important factor underlying Britain's poor industrial performance. All the evidence, whether from economic or statistical analysis, or from direct industrial observation, shows that there is now a huge gap between the overall level of productivity in Britain and that achieved in other industrial countries.

Only just over 20 years ago, in the middle 1950s, it was estimated that our labour productivity in Britain was probably 15 per cent. better than that in France and Western Germany. But by the middle of the 1970s—only 20 years later—labour productivity in Germany and France was estimated to be about 30 per cent. higher than ours. This is a disastrous change in a mere 20 years. That, of course, is referring only to labour productivity. My noble friend, in opening this debate, quoted figures comparing productivity measured in terms of added value—a much more fundamental figure; and comparisons in terms of added value which he gave to your Lordships make our position appear even more serious.

That this disastrous deterioration in our productivity, compared with that of other European countries, as well as with the United States and Japan, has been continuing in the last few years is shown clearly in figures given by the Treasury in another place in Answer to a Question only a few weeks ago. I would refer noble Lords who are interested to column 556 of Written Answers in the House of Commons Hansard of 23rd May. It is only when we, at last, give real and effective priority to increasing our productivity that we shall be able to halt, and then to reverse, the dramatic and continuous fall in our standards of living compared with those in other countries. It is only then, as the Motion also states, that we in Britain shall be able to "stimulate new and constructive job opportunities without which we cannot solve our problem of unemployment.

The link between productivity and pay and prices is, of course, very obvious. In the long run, it is clear that we cannot pay ourselves more in real terms than we earn by our production. In the long run, it is also obvious that if our productivity is low our prices must be high, or higher than they would otherwise have been. Equally fundamental, however, although not so obvious, is the link between improving productivity and reducing unemployment. Indeed, of course, the fear at shop floor level, and among those who represent shop floor level in the union leadership, is that increasing productivity will actually increase unemployment, not reduce it. This fear is, of course, understandable and we must face it head on and with understanding. We must make a great effort to explain the true position and the true factors at work affecting unemployment levels in this country, because although low productivity and over-manning may indeed save jobs in the short run, in the long run they make a whole company or a whole industry uncompetitive in world terms and therefore condemn a whole industry or a whole company to decline and perhaps even to extinction.

Take just the three examples of what has happened to British shipbuilding, the British car industry and the British steel industry. Can anyone doubt that these industries would be able to employ far more people than they are employing today if only their low productivity had not caused them to lose a substantial share not only of their overseas markets but also of their home markets? A recent study has shown that the 10 British industries with the highest growth in productivity since the war have all increased their employment. That is the lesson, that is the moral which we must explain, with great persistence, understanding and ingenuity, to the shop floor.

In more general economic terms we can see how our low productivity prevents us from stimulating our economy in order to increase employment. It is primarily because of our low productivity that when we increase consumer demand here at home we have such a strong propensity to buy imported goods rather than British-made goods. It is also primarily because of our low productivity that over a period of years we can keep British goods competitive in world markets only by a progressive, continuous devaluation of the pound, which in turn puts up the domestic cost of our imported food and raw materials, and therefore in turn is an important cause in increasing our rate of inflation compared with that in other countries.

It is true, of course, that the unprecedented and still increasing rate of technological development, and therefore I hope of productivity, means that many manufacturing and other types of commercial industries as well, will need to employ substantially fewer people in the future and that as a result we shall face increasing unemployment, unless—and this is the key to it—we can take up the slack by creating more jobs elsewhere. The vital point is that it is only if our industries match the productivity and efficiency of their competitors in other countries that these high technology industries will be able to employ as many people as possible themselves, and, even more importantly, it is only then, if they do match other countries in their productivity, that we as a country will possess enough national wealth to be able to afford to create the alternative jobs in the non-wealth creating services in both the private and the public sectors. Thus, however we look at it, we see that our bad productivity compared with other countries sets off the vicious circle of rising prices, rising unemployment and falling standards of living. It is literally only if we can halt and reverse our deplorable record in productivity compared with other countries that we shall break the vicious circle in which we are trapped and instead start a virtuous circle.

To set about improving our productivity ought I believe to be made the major objective of national policy and effort, the top priority of politicians of all Parties, of trade union leaders and of managers. How can we do it? What is the agenda for action? I do not want to enter into needless controvery across the Floor of the House in this debate. In fact I agreed with almost everything that the noble Lord the Lord Privy Seal and Leader of the House, said. What disturbed me, however, was, with respect, that I believe the Government are missing so many of the fundamentals. I do not doubt their good intentions, but the sort of policy they are talking about is a policy which is rather like a doctor trying to cure measles by rubbing out the measles spots and not getting down to curing the disease.

I do not disagree with the industrial strategy. Some of my colleagues may and some people in industry may, but I do not; nor, to be fair, do the CBI, for example, and many others. It is important but to imagine that that is the main engine by which we are going to reverse the trend of our productivity record is, frankly, to live in Cloud Cuckoo-land. The sooner we get out of Cloud Cuckoo-land, the sooner we shall have some hope of making progress.

First, and above all, what we have to attend to is the use we make of our capital equipment. That is the source of wealth creation in a modern industrial society. The most commonly heard cry now and for years has been the need for more investment in industry. Of course that is important, but to a large extent that is a facile and false argument with little foundation in fact. Study after study shows that lack of new investment is not by a long way the major cause of Britain's low productivity. Still less is it caused by any lack of finance available for new industrial investment. These facts are clearly shown and closely argued in an important article by Mr. Joel Barnett, the Chief Secretary to the Treasury, which was published in the Sunday Times on 25th June, and any noble Lord who has not read it I hope will go to that article because, from the Government itself and a Cabinet Minister, it destroys the dangerous myth that all we want and need to do is to increase our investment.

The first and real need is to make better use of the capital equipment we already have. That is so fundamental it ought to overshadow all other needs, because if we could do that we should, among other things, be doing more than anything else perhaps to create the atmosphere in which both home and overseas industrialists would want to come to Britain and to undertake more new investment here. But study after study has shown that even with the equivalent or sometimes with exactly the same plant and machinery, productivity in British factories is far below that achieved abroad. Often it is only half what is achieved abroad, and sometimes much less than half. Sir Terence Becket, the chairman and managing director of the Ford Motor Company, recently said that— there is a chance of increasing our output by say 25 to 30 per cent. as a country. In my own company alone"— that is, Ford's— with existing facilities and the existing labour force we certainly have that opportunity". But what do we have to do to release that opportunity? Above all, I suggest that we must face up to the fact that we need to work our plant for longer hours.

The present levels of unemployment, and the fear of still higher unemployment threatening us in the future, make, and naturally make, trade unions and their leaders think in terms of work sharing. Fundamentally, I agree with that feeling. I am sure that this world is going to come to work sharing. Indeed, if that is not what technology leads us to, to less hours of work and more constructive leisure, I am not quite sure what it is all about. But it is the rate at which we come to it, and the manner in which we come to it, that matters. Above all, we in this country in our position certainly cannot lead the way. We cannot cut down hours compared with other countries and therefore still further weaken our productivity performance. The straight reduction in working hours that is being talked about at the moment as part of the prospective bargaining round next year would be disastrous.

Our guiding motto in Britain should surely be: Work our machines for longer hours and our people for shorter hours. That of course means more shift working, which I know is not popular, but I believe we have to look at it. I am not necessarily, in regard to most industries, referring to 24-hour round working. In some industries that is essential and is done already, but that is not what I am thinking of generally speaking. I believe that with imaginative planning by management and trade unions one can devise shifts that fit in well with modern life and leisure. When you have some money to spend—and our people nowadays, compared with the past, do have some money to spend, are educated to enjoy leisure, and have ideas about what they want to do—to have some weeks when you do not work in the mornings, and other weeks when you do not work in the afternoons and evenings, is not an unattractive way of life. I did it myself many years ago and, contrary to my expectation, I found it a very satisfactory way of life. It gave me much more opportunity for constructive leisure than I had with a normal working day.

We must look at the situation. One point is certain: more shift work would increase employment substantially and might well be applied in a considerable number of industries with the result of higher rather than lower overall productivity if we more effectively combine use of labour with use of capital equipment. It is quite clear, on the other hand, that a straight reduction of a single-shift working week would produce far fewer extra jobs in the short run while in the longer run it would create still higher unemployment because it would further worsen our competitive productivity record compared to other countries. Our comparatively poor utilisation of our existing equipment is by no means merely a matter of the total hours for which we nominally work it; it is also a matter of the amount of time for which our production lines stop, for one reason or another. In that, too, we compare unfavourably with other countries. One reason is our system of maintenance. This was brought out very clearly in the study published a month or two ago in the Sunday Times—a study of what happens in Ford factories in Britain and in Europe with similar equipment. It was shown to be the maintenance system and the working habits of maintenance men which had a very big effect. It was not only bloody-mindedness on the shop floor which had a big effect on the number of hours that our production lines worked compared with similar lines in the German factories and the Belgian factories.

Another reason, of course, is our record of frequent and unpredictable, even if usually short, stoppages due to industrial action that we have referred to in several debates in your Lordships' House during the last two years. I shall not go into it again now, except to say that we really must ask the unions—I am coming to management in a moment—to take a new lead in doing what Mr. Jack Jones has said in public on several occasions in the last two years; that is, finding ways of talking in rather than walking out.

It would be a fatal mistake to imagine that improving productivity is just a shop floor or trade union problem. It is not: it is very much a management matter as well. The working out of acceptable shift systems and the organisation of maintenance—the two matters I have just been talking about—are both matters in which good constructive management is essential. The most angelic reaction from the trade unions in these matters would be no good without good management leadership, first-class production planning and control, product design, to say nothing of marketing, purchasing and financial control systems, and the control and limiting of non-productive overhead ex- penditure, which are all essential ingredients of high productivity and are all primarily responsibilities for management and managerial skills. So, too, is the development of genuinely creative participation between all who work in industry.

In these matters the best in Britain may equal the best in the world, but I am afraid there is too much evidence that our average standards in these managerial skills may still fall below those of other countries. So in our campaign for higher productivity neither capital, management nor unions are in a position to sit back and point the finger of blame at each other. All are in this together and each part of industry has plenty to do. There are other important areas of action which I cannot go into today.

There is need for reform in our system of collective bargaining, which your Lordships debated in April; there is a need to increase the intake into industry of more and better trained engineers and technically trained people at many levels, which your Lordships debated a fortnight ago. There is the need to increase the understanding throughout the country of the value and vital need for wealth-creating activities and the regard in which industry is held, particularly by our best young people thinking ahead to the kind of careers they wish to follow. Your Lordships also debated that subject in February of last year.

Most of the matters to which I have referred in my speech require action within industry itself, by management and trade unions alike. They cannot be imposed by direct Government action and intervention; indeed they can be and are being impeded by excessive and wrong-headed Government interference. What I believe Government can and must do is to keep up a constant pressure on industry—on the CBI and on the TUC and on their constituent individual members—saying to them that it is their duty to put their own houses in order in these matters. Much of this pressure from Government and industry could, as I said in the debate on collective bargaining in April, be well done in private rather than something which might be seen as an attempt to pillory people in public.

I believe that the Government have that duty. What they have not got a duty to do is to try to do the job for industry and discourage and disenable industry from doing it themselves. The Government have their own direct responsibility and it is a vital one. It is to provide an encouraging economic environment. To change our ridiculous levels and pattern of personal taxation; to put first the reduction of inflation, as my noble friend said; to have greater stability of policy in this country. Industry will not flourish so long as policies change as frequently as has been common in this country since the war. The Government also have the duty to undertake a deliberate holding back for the time being of public expenditure on non-wealth creating services until our productivity, and therefore our wealth creation, in this country has been substantially improved.

The Government have as well the deliberate duty to abstain from cost-raising and productivity-reducing legislation. There has been too much of it already. The Government also have a duty to ensure that educational and training services and all forms of assistance to encourage mobility of labour between one job and another are further increased in scale, quality and relevance. Although we have made big strides in this country over the last 10 years in these respects, in my view we are still seriously behind what is provided in these matters by countries such as Germany, France, Sweden and many others. We must catch up.

Above all, the duty of the Government is political leadership, because although I have spoken mainly about the technical policy needs, the real requirement—and we all know it in our hearts—is to summon the national will. As the noble Viscount, Lord Amory, said, our present position is our own responsibility. It is our fault that we are in this present position, not the fault of others or of our situation.

I sometimes wonder—no doubt my noble friend Lord Soames may tell us—what other countries think when they see us making such a mess of our own affairs and daring to lecture them on what they might do. It is within our power to put our own affairs right if we have the national will, and it is the prime job of political leadership to create that national will. This requires speaking bluntly to our people about our position; not pretending and encouraging people to believe that failures are successes; not pretending that we are on the verge or in the early stages of an economic miracle when everyone else can see that we are not. It needs blunt speaking, but that blunt speaking needs to be combined with encouragement. I make my appeal to the political leaders of all Parties to unite in making this country realise that unless and until we raise our productivity to something nearer international levels we are fooling people if we promise them a better material life, and we are probably fooling them too if we promise them greater satisfaction in their way of living.

4.9 p.m.

Lord ROCHESTER

My Lords, from these Benches I should like to join in congratulating the noble Viscount, Lord Amory, on having initiated this debate, and to say how much we, too, are looking forward to hearing the maiden speech of the noble Lord, Lord Roll of Ipsden. It is in keeping with the wisdom and the experience of the noble Viscount, Lord Amory, that he should have gone straight to the heart of the matter in selecting low productivity as the most intractable of our problems, and the one that is the most important for us to solve. In particular, he has been right in his Motion not simply to have related productivity to employment but to have done so in a way which shows that he believes that new job opportunities will follow and cannot precede improved productivity.

Until five years ago my life was spent in the chemical industry, and indeed in a particular part of that industry, a particular company which I continue to feel is the finest in the land. I shall speak with that industry in mind, not simply because I have close knowledge of it—which I have taken care to try to bring up to date as far as possible in this matter of productivity in preparing for this debate—but because it has been a successful industry, and it is important that we should try to build on success.

In part, the success of that industry has undoubtedly been due to the way in which during the last 10 or 15 years leaders have steadfastly insisted, gradually and, therefore, painlessly, on reducing manning levels to match those of their competitors, in contrast with the failure of other industries so to do. What is the use of keeping too many people employed in a particular factory if later the whole works has to close? And is not that just what has happened during the same period, or may very well soon happen, in the car, shipbuilding, steel and other industries? Surely it is better, to put it at its lowest, in the long run to safeguard through improved productivity the jobs of the majority, than later to lose the jobs of all because overmanning has made a company or an industry inefficient and uncompetitive.

Even in the relatively successful chemical industry, in which in recent years the ratio of growth to other manufacturing industries' growth has been higher in Britain than anywhere else in the world, and productivity measured as sales per employee has risen at a striking rate, absolute productivity is still lower than that in other countries and we remain competitive only because we pay such low wages. If that is so in the chemical industry, how much more true is it of British industry in general?

Why is our productivity so low? Superficially, as has been said, it is due to a number of things: to restrictive practices on the part of trade unions, particularly, but not exclusively, on the part of craftsmen in maintenance work; to lack of adequate financial incentives for responsibility and skill; and no doubt also to failings of management. But, beyond these, I believe it is due primarily to two factors that are deep-seated: the fear of unemployment, and resistance to change It follows that if we are to solve the basic problem we must face up to these two things.

Supposing that productivity in this country were improved, would there be more or fewer jobs? In the particular firm or industry it seems to me there would clearly be fewer. More than that, in my view, in the future there are going to be fewer jobs in manufacturing industry as a whole. That does not mean necessarily that there are going to be fewer jobs available overall. On the contrary, the more that we increase productivity, and thus improve our competitive position in manufacturing industry, the brighter the prospect of generating more wealth in other sectors of the economy; the more profitable a company or industry becomes the more it can invest, this providing additional jobs elsewhere. For example, in the company for which I used to work the current investment programme is providing work for 40,000 people in the construction and engineering industries.

Still in the field of employment, I am sure that in his Motion the noble Viscount, Lord Amory, has been right to emphasise the need to stimulate job opportunities that are new, and here I am thinking particularly of service industries, operations like transport, communications, finance, entertainment, tourism and so on. These industries, too, create wealth, in supplying market needs, in producing profits that are taxed to pay for social services, in providing employment and earning substantial amounts of foreign currency. But there are great difficulties. The loss of jobs in manufacturing industry means that people will be redundant in particular localities where their skills cannot be matched by existing jobs in service or other industries. And here the Government, instead of concentrating, as must be the strong political temptation, on saving jobs in dying industries, must seek to create the conditions in which new ventures, and particularly small ones, including those co-operative enterprises that some of us were talking about in your Lordships' House recently, are encouraged to develop and to prosper.

Above all—and this was a point emphasised by Lord Amory—inflation must be reduced still further, and there need to he reductions in the levels of direct taxation on both individuals and companies, even if this means taxing more highly items that we may enjoy consuming but which by no stretch of the imagination can be called necessities. It may not be electorally popular to say this, but if we really want to solve this problem of low productivity rather than just talk about it, I believe that in the next phase of pay policy there ought ideally to be no increases in wages and salaries at all, other than those needed to correct the most blatant anomalies and to restore in part the erosions in differentials for responsibility and skill that have accumulated in the last few years.

But when all this has been said I fear that it may not be enough altogether to solve the problem. With so many more young people leaving school, with the effects on employment of the current developments, as the noble Lord the Lord Privy Seal was saying, in microelectronics technology and so on, it seems to me that in the foreseeable future at least there are simply not going to be enough jobs to go round, and that increasingly it is the least skilled and the most disadvantaged who are most going to get hurt.

I have reluctantly reached the conclusion, as I noted the noble Viscount, Lord Amory, and the noble Lord, Lord Carr of Hadley, have done, that at least at this stage in our development the answer is not to be found in reducing the length of the nominal working week; and I say that because all my past experience goes to show that those calling most loudly for that development will not be prepared in practice to accept the reductions in pay that would have to accompany it if productivity is not to suffer and unemployment to rise still further.

However, speaking for myself, but also in support of noble Lords who have before now canvassed this idea—I think that I am right in saying that the noble Lord, Lord Hunt, is one—I believe that one item that should be explored and costed, if it could be done with sufficient agreement among Members of all Parties and none, is some form of voluntary national community service. That, among other things, might give young people some greater sense of common purpose and of worthwhile endeavour than it has so far been possible to achieve, despite the valiant efforts of the Manpower Services Commission and others operating in this area. Obviously, the cost of any such scheme would depend on its nature. However, it occurs to me that some work may already have been done to estimate the cost. If, when the noble and learned Lord, Lord McCluskey, comes to reply—I have been able to give him short notice of this matter—he could give me any information on this point, for example, however roughly, what any such scheme might cost in comparison with, say, the Commission's new special programmes, then I should be most grateful.

I said earlier that in my view resistance to change was a further basic reason for our low national productivity. That is the factor which most sets us apart from our international competitors, and I think that it stems from the failure to recognise that we all share in the need to increase the size of the national cake before we start arguing about how it is to be sliced. How are we to surmount this handicap, which I believe to be self-imposed? In my view, it can be done only through better leadership and through long-term education and training—especially the training of shop stewards from which it seems to me that both management and trade unions stand to gain and in which they should therefore join together. My experience in this area leads me to suggest that in such combined activities there should be frank discussion of the problem from the viewpoint not of management, but of employees and their representatives, and that an analysis should be made of the obstacles which stand in the way of accepting improvements in productivity so as to establish whether they derive from fear, habit, poor communications, bad relationships or other factors—all that with the agreed aim of trying to work through the problem together towards a mutually acceptable solution.

I said that better leadership was essential to improve national productivity, and that calls for politicians to govern in the long-term national interest, for trade union leaders to display courage and for management, overtaxed and over-burdened with industrial legislation though it may be, as always to accept responsibility. Again from experience, I know that training in leadership can be given and that the most progressive of our companies find it worth while to spend a great deal of time and money in supplying that training.

I well remember that nearly 15 years ago, when my own old company made an agreement with the trade unions which, putting it in its crudest form, traded increased productivity for improved pay, conditions and status, that agreement had first to be tried out in certain factories. I remember that when in one of those factories it was finally successfully implemented, the works manager said to me that he thought that the factor which had most contributed to its success was the training of management and supervisors, not in technical matters but in the management of people.

I recall also the main elements in that training as the agreement of which I speak came to be extended to other factories. The main elements were as follows: training to improve productivity through what might broadly be called participative management; training in the formulation of objectives that were clearly defined, understood and, as far as possible, accepted by those who had to fulfil them; identifying and making use of the talents of all the people in the team; training in leading group discussion in finding some systematic approach to problem solving; identifying the factors that would improve the motivation of the workforce—matters like responsibility, achievement and the recognition of achievement and the need to build those into the jobs of the workforce; and, finding from painful experience what was the effect of personal behaviour on other people. In short, it is all those things which are needed if one is seeking not to manipulate. but to produce through consent changes in the attitudes of people.

I share very much what has already been said by the noble Viscount, Lord Amory, and the noble Lord, Lord Carr of Hadley, in that I believe that it lies in our power to improve our productivity but, in the last resort, as they have said, it is a question of whether or not we have the will in the national interest to do so. I fervently hope that this debate achieves wide publicity and that in some measure it does, indeed, help us to find that will.

4.26 p.m.

Lord ROLL of IPSDEN

My Lords, since I had the honour of becoming a Member of your Lordships' House, I have let perhaps an unusually long time elapse before venturing to participate in your Lordships' debates. I have hesitated despite the indulgence which I know your Lordships always show to a newcomer and which I trust will be forthcoming this afternoon, because it has seemed to me that in those matters on which I might hope to make a contribution to your deliberations—economic and financial matters—it is becoming increasingly difficult to obey the traditional injunction to a maiden speaker to be both brief and non-provocative.

However, when I saw the Motion proposed by the noble Viscount, Lord Amory, under whom I had the privilege of serving when he was Minister of Agriculture, I decided that, despite the constraints on a maiden speaker and the collateral hazards, I would try to make a few remarks on a subject which is clearly of surpassing importance for our economic future. It is moreover one which seems to me, despite the uncertainties which surround it—or perhaps because of the uncertainties which surround it—to be peculiarly fitted for a dispassionate approach. I do not believe that a facile diagnosis will serve, nor treatment by nostrum; I fear that there is no panacea for the multifarious manifestations of this particularly insidious disease.

Not that all sectors of the British economy are afflicted by it. Reference has already been made to agriculture. I should like, if I may, to add my voice on this subject to that of the noble Viscount and the noble Lord the Leader of the House, because agriculture is often overlooked in this particular context, but it is clearly an example of a very remarkable productivity record. It also seems to me one where one very difficult relationship—that between the market and the State—has been resolved in an effective manner; one which alas! has not always been possible quite so effectively or harmoniously in other respects. Of course, in agriculture too we need the market mechanism; we need the spur to efficiency and to lowered cost which competition provides. But we also need security of supply in peace and war. This requires economic security for those working on the land and, incidentally, as has already been mentioned, the great contribution to civilised values which a prosperous countryside can make.

Therefore, I doubt whether even the most ardent advocate of the free market mechanism would deny the vital role which the great Agriculture Act, 1947 and its worthy successor 10 years' later—the Act for which the noble Viscount, Lord Amory, was responsible—made to the productivity in our agriculture which, as I hope is now well known, has grown over many years at a much faster rate than it has on the Continent. I am not saying for one moment that what has been done in agriculture can simply he copied elsewhere. But I am quite sure that the noble Viscount, Lord Amory, the noble Lord the Leader of the House, the noble Lord, Lord Soames, and the noble Earl, Lord De La Warr—all of whom have had ministerial responsibility for agriculture—will agree that if by one means or another we could achieve in manufacturing industry the relative level of productivity which we have in agriculture, our fortunes would be greatly improved—at least in relation to our competitors on the European Continent.

Thus, it is in manufacturing industry that our real problem lies. Here I do not have much to add about the facts of our situation to what has already been said by the noble Viscount and other noble Lords who have spoken so far. Many of these facts are now widely known, thanks to an increasing volume of very serious economic research which has been stimulated by, and which has, I think, in turn greatly served, an increasingly active debate concerned with public policy in regard to this problem.

Since the work of A. T. Jones, which was published last year in the Economic Review of the National Institute, I think that we have all become distressingly familiar with international comparisons of labour productivity. These show rates of increase in the two decades, 1955 to 1974, in continental countries of between 170 per cent. and 230 per cent., against for the whole period, at best, a stationary situation in our country. This is especially significant when we recall that our productivity was measurably higher than that in France, Germany and considerably higher than that in Italy at the start of that period.

Unfortunately, the total picture does not look any better when we make a closer comparison of specific industries, or when we look at companies operating in a number of countries, such as the multi-national companies mentioned in the course of this debate. The report on the automobile industry, which was prepared three years ago by the Central Policy Review Staff—to which the noble Viscount, Lord Amory, has already referred—showed that although wages were often higher and although in all cases total labour costs were higher in other countries, the number of vehicles produced per employee-year was not only substantially higher in the United States, which we would have expected, or in Japan—though 20 years earlier this was certainly not the case—but also significantly higher in Germany, France and Italy. I regret to say that it is the current experience of companies operating, for example, both here and in France that this state of affairs continues, sometimes in respect of the production of identical models.

Of course, the picture is not uniform. A comparison of annual rates of growth of labour productivity in all manufacturing industry as between Germany and ourselves is uniformly unfavourable to us in each quinquennium since 1954. But there are some industries in which the discrepancy is very small and, indeed, there are some in which the discrepancy is in our favour. Naturally, faced with this problem one seeks an explanation by trying to identify other differences in the industrial and economic circumstances in which we find ourselves and those of our principal competitors, which could somehow account for these great differences in performance. A large number of these have been adduced from time to time. For example, differences in the relation of the volume, as well as the up-to-dateness, of capital equipment to the size of the work force, differences in the size of plants, differences in the length of production runs, differences in management practices and perhaps, above all, more recently, differences in industrial relations.

Our arrangements for vocational training before, and perhaps more significantly during, employment, have also been compared unfavourably with those of Germany where, as we all know, there is a compulsory system of vocational training on the job. Each of these factors can, in one instance or another, offer, if not a complete explanation, at any rate an important part of it and may therefore lead to appropriate remedies. But some baffling features remain.

Some highly interesting work is being done at this moment by Professor Price at the National Institute, which is comparing the relation between productivity and plant size in Germany, the United States and Britain. Unfortunately, this, too, as far as the initial results go, seems to dispose of any simple explanation. Thus, in some light industries—such as brewing, tobacco or biscuits—our plant sizes are not only generally not smaller, but in some instances even larger than those in the other two countries. Yet the productivity comparison is still generally very unfavourable to us. This is so, as we know, in the case of the other countries' heavier industries—for example, steel, chemicals, automobiles—where plant sizes are medium or large.

Again, as far as industrial relations are concerned, I think it is well known that the total number of days lost through disputes in the United States is in most years generally considerably higher than it is in this country. But the difference is that whereas our record is particularly good by comparison with the United States' record in small plants, it is immeasurably worse in the case of large plants, and it is precisely in those mass production industries where productivity is particularly unsatisfactory and where international competition is most acute.

With this multiplicity of factors to be taken into account, it is not surprising that many commentators have tended to look for what nowadays are called "macro-economic explanations". and "macro-economic remedies": exchange rate policy, fiscal policy, monetary policy, and so on. One eminent Japanese economist, Professor Tsuru, for example, has made his country's "economic miracle" depend to a very important degree on the fact that at a very early stage after the war the Japanese consciously adopted on exchange rate policy deliberately designed to direct their economy decisively towards exports.

All this is a very contentious area into which I certainly must not venture today. I shall only say that it is worth remembering de Mandeville's dictum of 250 years ago: Let the value of Gold and Silver either rise or fall, the enjoyment of all Societies will ever depend on the fruits of the "Earth"— and today we might add "and the North Sea"— and the Labour of the People". I do not for one minute decry the importance of macro-economic policy. Bad economic policy, whatever that may be, may erode and eventually completely destroy highly productive industry. Good economic policy, whatever that may be, is therefore essential. But in my view it will be of no avail in the end if the factors that make for high productivity are not tackled. The noble Lord the Leader of the House has referred to the work being done by the "Little Neddies" and the sector working parties in the general context of the Industrial Strategy. I agree that these have the promise of making an important contribution in at least one way in which it can be made to have lasting effect; that is, by patient, detailed, specific effort in which both sides of industry are deeply involved. But the task remains formidable despite that. Therefore, there is all the more reason to set about it with vigour and without delay. We must, therefore, all be most grateful to the noble Viscount, Lord Amory, for having given us this opportunity of reminding ourselves of what lies before us.

4.41 p.m.

Lord McCARTHY

My Lords, it falls to me to begin by offering congratulations to at least two of the previous speakers; first of all, to the noble Lord, Lord Roll of Ipsden, on his maiden speech. I can only say to him that he need not have waited so long before speaking to us because he managed to combine brevity, clarity, and absence of superficiality, and I hope it will not be so long before he speaks to us again. I hope, however, that next time he speaks after me, because when he has spoken there really is so little to be said. Nevertheless, we have many more speakers and we have to press on.

Secondly, I should like to congratulate the noble Viscount, Lord Amory, for initiating this debate. It seems to me that his speech fell into three parts. There was the part that no man could disagree with, and I do not disagree with that; there was the part that only an unreasonable man could possibly disagree with, and I do not disagree with that; and then there were one or two things where I think he got it wrong. I should like to start with the first two parts, where no man could disagree and only an unreasonable man could disagree.

It is clearly correct, as has been said by virtually all the speakers in this debate, that we have dangerously low levels of productivity in this country, and they are dangerously low in relation to our major competitors. It is also quite clear, in very broad terms—and there is a considerable body of literature, some of which has already been mentioned—that output per man is twice as high in the United States as it is in this country, and 50 per cent. higher with most of our major European competitors. In very broad terms this is true, and quite clearly it is something which, if it continues indefinitely, or indeed, if it continues much longer, is extremely serious for us.

The question is, why this should be so, and how we can apportion the blame for it being so and for it continuing to be so. I am pleased to note that in this debate this afternoon the major cause has not been found in systematic overmanning. Nobody has said that it has been systematic overmanning—systematic in the sense that it is deliberately, consciously planned and organised, for example, as a result of trade union activity—which is at the bottom of this problem. Nevertheless, there is overmanning.

There is overmanning in terms of international ratios, and in terms of any objective standards, and there is overmanning in many of the areas where trade unions are strong. But, as many international and national studies show, there is also overmanning in areas where trade unions are weak, or even in areas where trade unions are non-existent. There is considerable overmanning, for example, on the white collar side. There is considerable overmanning among foremen, among supervisors, and some studies indicate that there is considerable overmanning among management itself in international terms.

Most studies show, and have in fact shown since the war—the Anglo-American productivity studies, the NEDO studies, studies which have been mentioned in this debate, and the studies of Pratton and others—that roughly 50 per cent. of the difference between productivity levels in this country and productivity levels in our major competitors, is not really related to even the broadest form of overmanning, in the sense that this is something consciously and deliberately, or even unconsciously, operated autonomously by the labour force itself.

It derives from a complex series of managerially rooted reasons: from various kinds of organisational malfunction. Short runs, diverse product mixes, absence of cost control, defective rectification procedures, all kinds of different organisational malfunctions, including that most common of all, which was mentioned by the noble Viscount, Lord Amory, and is called in the car industry an "absence of bits"; an excessive amount of "down time", or waiting time; an absence of the appropriate mechanical means to carry forward production, which many studies have shown is in some ways the single most marked contrast between the production processes in this country and the production processes in many of our major competitors.

Now if we ask ourselves what can be the reasons for these organisational malfunctions, the answer which is frequently given—and I am bound to say it has been given to some extent from the other side of the House today—is that it derives from an absence of incentives; and, particularly since we are talking about managerial efficiency, it derives from the absence of managerial incentives. It derives, in particular in recent years, from the compression of pay structures from which we have suffered as a result of a series of incomes policies; it derives from excessively high taxation; it derives from Government interference with entrepreneurial freedom; it derives from a whole series of things which mark this country out at the present time, and have to a broad extent marked this country out since the war, from the situation which appertained in this country in the 25 years or so before the war, and of course in most of the periods before that, and particularly the 25 years before the First World War.

These were periods when there were much wider differentials, much lower levels of taxation, much less Government intervention, and of course much lower levels of investment and much lower levels of productivity. The remarkable thing is not that our productivity is low in absolute terms, and certainly not that it is low in historical terms because in historical terms we have in the 25 years or so since 1950 passed through a most remarkable period of sustained increases in activity. The remarkable thing, as the noble Viscount, Lord Amory, has said, is that in relative terms in comparison with our major competitors—all of which have been passing in the post-war period through a period of quite high Government intervention, quite high levels of Government taxation, periods of incomes policies, in many ways similar to ours—our competitors have been able to combine these things with higher levels of productivity improvement than we have been able to do since the war. So this is the problem that we have to solve.

One suggestion, if we dispose of the notion that it is due to a simple lack of incentives, is that we face a situation in which the great majority of the British workforce—including the management, because they are part of the British workforce, the supervisors, and the middle management—really like this rather easy-going, slow, stop-go kind of production process, that it is part, in fact, of our way of life. There may be something in this argument.

The problem with this argument is that, even if it be the case, it is doubtful whether the British workforce, in its broadest sense, has not only thought through the fact that it is consciously and, in a way, deliberately selecting this way of life, but that it is also rejecting the alternatives and taking on board the consequences, in the medium and long run, of continuing with this kind of way of life. So that even if this is an argument, even if we face this kind of problem which is, in a sense, a conscious choice for a particular style of easy-going production system, we have to struggle against this and point out the consequences.

I personally do not believe that we can say that it is simply a feature of this kind. It seems to me that most of the people who have spoken in this debate have mentioned a complex series of social, political, and economic factors, quite apart from any cultural disposition on the part of the labour force itself, which go a long way to explain what we are seeing in this country. I will simply add an extra one, one which has been raised before but has not been given sufficient importance. In this country we are addicted to what may be called a concept of occupational or task-oriented excellence, as against what many of our competitors have, namely a concept or organisational or resource-oriented efficiency.

It can be seen most clearly if one discusses the position of the average British craftsman, who believes that efficiency consists of him carrying out his historical, traditional, occupational tasks with the greatest degree of excellence and precision that he has been trained to do. Therefore he insists on having a mate, because one does not know a man is a craftsman unless he has a mate; that is part of his occupational identity. He insists on a full apprenticeship, because one does not know he is a skilled man unless he has been through a full apprenticeship. And if, when he is on the job, he is not required to use one tenth of those skills, that is management's fault; it is management not being able to use his occupational task-oriented excellence. He insists on producing whatever he is required to produce to the ten-thousandth of an inch standard he is capable of producing, even if all one needs is for him to produce ten times as many bits to one-thousandth of an inch—because to ask him to work in that way would be to deny his notion of occupational excellence, which has very little to do with the manager's notion of organisational efficiency.

I mention this in terms of the traditional craftsman because people find it easy to take on board the concept of occupational excellence when we talk about craftsmen. However, I suggest that the notion of occupational excellence is virtually universal in this country. It is, for example, extremely strong in the higher reaches of the medical profession. Anyone who has sought to organise and use the resources of doctors and make the most effective use in the National Health Service of their true skills knows that the notion of occupational excellence there stands in the way of the notion or organisational efficiency.

It is, I suggest—dare I say it in this House?—very close to the heart of the great British Civil Service. It is one of the main reasons why the Civil Service always resist any change in their promotion system, or any change to introduce specialism—sticking to one's last—because that is contrary to the notion of occupational excellence, which I suggest is a mile away from the notion of organisational efficiency.

In case anybody should consider that I am doing some special pleading, let me say that I consider the notion of occupational excellence is one of the main reasons why we have the lowest form of input-output ratio in British universities of any university system in the world. Thus the notion of organisational efficiency needs to be stimulated, not simply in industry and not simply among management, but in this country in general. The problem is how to do it.

A great deal is often said about the enormous efforts that were made in this country during the war, a period in which we raised our level of productivity in the most remarkable way. I suggest that was a period when the notion of organisational efficiency was allowed to become more important than the notion of occupational excellence. Because people could see the reasons why they should co-operate in raising efficiency and putting aside all their traditional concepts of what their own occupatoins required, that was one of the main reasons why we were able to raise productivity in the way we did during the war. It is also one of the main reasons why it has not been possible to sustain it; it is extremely difficult to sustain that kind of feeling for a long post-war period.

Despite what has been said from the Benches opposite about leadership, and what has been said or may later be said about patriotism, I do not believe that a return to that kind of approach or appeal would do much to resurrect the notion of organisational efficiency. It is also clear that we cannot legislate for it; it is not the kind of thing one can do by Act of Parliament. I used to believe that we could do it by education—that we could set up management schools in which we could preach the virtues of organisational efficiency—and I still believe that to some extent, but I am concerned about the fact that so many of our management schools require academic respectability, and so they are seduced into the notion of academic excellence, which usually means that they must talk in incomprehensible language and produce all kinds of knowledge which is not much use to the practising managers who go there.

In other words, I am not very certain about inspiration, about legislation, or about education. I think something can be done through the Government's industrial strategy if the aim of that strategy, and the money they spend and the support they give, is not simply designed to give support to particular industries or firms but to particular men. If the industrial strategy could become so organised that we were looking intelligently for the right men to put in charge of the right enterprises, then that strategy would have an important rôle, but once again we must say that the record of the bureaucracy in the Civil Service in selecting the right men to put into the right risk operations is not all that good.

I come, finally, to the force of example; we might be able to do something by the force of example. If we were to look at the political system, at our own procedures and ways of running Government and Parliament, and if we were to ask ourselves whether we do not give too great an emphasis to and focus on occupational excellence rather than organisational efficiency—in other words, if we were to set an example to others—I think we should produce some very substantial changes in the way this House is run. I do not see how the concept of organisational efficiency can possibly be compatible with such ancient traditional notions as Question Time and late-night "Lobby fodder". Of course they are dear to the heart of occupational excellence, but without some force of example I do not think we have much right to call on others to change their ways.

4.58 p.m.

Viscount ECCLES

My Lords, my noble friend Lord Amory has put us in his debt by introducing, by one of his wise and calm speeches, a debate on a subject which is stormy with emotion. We are also in his debt because he gave the opportunity to the noble Lord, Lord Roll of Ipsden, to break silence, and I am sure your Lordships will agree that when he comes to make a controversial speech we are really going to hear something, because his non-controversial speech must have been one of the clearest and most interesting we have had for a long time.

I find this a very difficult subject to talk about because I am ashamed, as I dare say many other noble Lords, are of the record of British performance, and I do not like to be ashamed of my country in any way. I think we can agree on the major facts, but whether we are going to agree on the share of responsibility which each of us undoubtedly has, and the share of our political friends as well, remains to be seen. I can start with something about which we can surely be in agreement, namely that the productivity in the engineering and metal-using industries in this country compares very badly with the productivity in the same industries abroad.

Lord Amory said productivity was unsatisfactory in other sections of the economy. That may be so, but the comparisons with other countries are much more difficult to make; we can measure the failure in engineering, although I do not wish to trouble the House with many statistics. I just ask why, when someone, early last November, ordered a British motor car of a well-known make, he has still to wait for delivery? Why is it that when we want to get something repaired it is often so difficult to get hold of the spare parts? It is those kind of things that prove to the ordinary public that our productivity is poor.

I was very interested when my noble friend, also the Leader of the House, and also Lord Roll of Ipsden, compared manufacturing productivity with the good record of agriculture, and gave figures, which I shall not repeat. The reasons for the success of agriculture, and certain features which mark it out from manufacturing, are worth examining for a moment or two. The units of production are small and manageable; the farmer I and his men know each other and are able and willing to do all kinds of jobs as occasion arises. There has not been any trouble about new machinery which required a reduction in the labour force. And so in agriculture we have small units, flexibility at work, openness to innovation, and a stable market for the products. In greater or less degree all these characteristics are absent from large-scale manufacturing.

Perhaps there is a further reason for farming's good record, not much talked about, but which your Lordships may think of some significance in the context of this debate. The farmer is not a salary earner. His reward is his profit after tax. He has many expenses which he can legitimately set off against his tax—allowances which are not available to an industrial manager on a salary. And so—and I know it myself—if a farmer can earn a larger gross profit the chances are good, even under a Labour Government, that he can keep substantially more for himself and give bonuses to his men. The financial incentive is still there. The financial incentive is not there in industry to anything like the same extent, and productivity suffers as a result.

Returning to engineering, the outlook is depressed. Certainly it is very depressed compared with agriculture. By and large, our manufacturing industry is on the defensive. Profits are inadequate and the British share in world markets, for example in engineering goods, has gone down, is going down, and most managers and workers see no prospect of it ever rising again. In those circumstances, can we wonder that young men do not become engineers? They have seen for themselves that those who represent the workers in the industry would rather share out the work that is going than make a serious effort to raise productivity. Of course, for a short time our depreciating pound conceals this fundamental weakness. But now work-sharing in this country has reached the proportions of a national disaster. Far more production is lost by deliberately going slow than by all the strikes we hear so much about. That is a fact. But one wonders whether the unions accept it. One understands why not, if they do not, because work-sharing is a human aim. It springs from a deeply-felt concern for one's fellow workers. I can imagine nothing worse than to be unemployed. But, as practised by unions today, work-sharing is acting like a drug that reduces the pain but progressively weakens the body on which the future level of employment and our standard of life must depend. We are, if you like, in certain industries, committing slow suicide.

Unfortunately in this country the tradition of work-sharing, which is very deep, and goes beyond unions right through the country, has been joined to the political doctrine that capitalism must be smashed because it is believed that profits are made at the expense of the workers. I remember the late Lord Feather—for whom I had a great personal regard, as I think did all of your Lordships—about 15 years ago saying at St. George's House, Windsor, that conflict between management and labour had been, and would remain, the one sure road to progress for the workers. As long as the view is held that conflict is essential to progress, we should not be surprised that so many members of trade unions think it right to do less work for more money. In a struggle to secure the downfall of private enterprise—and we can see that happening in Fleet Street every week—productivity is bound to be a foremost casualty. Any Western country which does not follow this policy will continue to outstrip us in world markets.

The Motion mentions other countries. It is interesting to look at the attitudes of their trade unions to this problem. Are they the same as ours? In France, it looks as though labour conditions are becoming rather more difficult. But the edge is taken off the conflict with the employers by the bitter quarrel between the big unions themselves, so we do not find the trade unions in France so single-minded to push their economic and political objectives. In Germany, the unions are much more part of the establishment than they are here. German unions are industry-wide and, since there is usually only one in each factory, agreements on productivity are easier to make and much easier to stick to. In the United States the unions are not interested in politics. They have never encouraged their members to look forward to the end of capitalism. They have always seen that high wages and high profits go together. If you want the one, then you must also have the other.

From all these comparisons it seems to me that one point stands out. In Britain our unions have a much stronger tradition of sharing work and are far more skilful at doing so than are the unions in any other country. Naturally, an attitude of that kind costs us much more in a period of recession. Remembering the contrast between the conditions in agriculture and the conditions in engineering, what can one say about the quality of British management? I agree with my two noble friends who have spoken on this, that sometimes it is very good, but by no means always. We should recognise that, and recognise that it is a large contributory factor to low productivity.

The weakness in design and production engineering has been mentioned. One purpose of design is to make a more acceptable product with less labour. Where 40 nuts and bolts are used, given a better design only 20 are needed. But if the attitude of the work people is that labour is not to be reduced, then why bother about a new design? Why not, like the TUC and the Cambridge economists, press the Government to introduce measures of protection against imports, so that our overmanned and low productivity firms may be cushioned? On production engineering, my impression is that we do not always organise the work well enough to get as much output with the same equipment as do some of our competitors.

But worst of all, the private sector has to carry the burden of an ever-growing and ever less efficient public sector. The consequent weight of taxation, and the vast borrowings of the State, cripple industry at all levels, and certainly put a brake on productivity. As your Lordships know, men are like donkeys; if they feel that they are overloaded, they stand stock still and refuse to budge, unless some part of their load is taken off them. Taxation in this country has passed the point where the load is tolerable, and so productivity suffers because many people do not see the point of doing any more work.

I often wonder that people do not see the connection between an incomes policy and low productivity. If there is nothing for anyone to go for beyond 10 per cent. or whatever, the Prime Minister's new ceiling may be, two things must happen. The first is that differentials must be further squeezed; so why bother to learn and practise a difficult skill? The second is that under an incomes policy, however efficiently anyone works, he will get only the same rise as someone who has never had the slightest intention of working any harder. If that does not put a brake on productivity, I cannot imagine what would. All the arguments for an incomes policy with the same ceiling for everybody are short-run arguments concerned with the immediate need to arrest inflationary wage claims. But we shall never cure inflation by means which encourage low productivity; and this must be the result of uneconomic work sharing, and the absence of incentive for skill continued from year to year as official Government policy.

What can we do, having regard to the awful problem of unemployment, which is not going to go away? I believe that we should maintain a high level of unemployment benefits, but obviously the first requirement is to run the economy better. It is not necessary to repeat all the mistakes that Governments have made since the war. Governments need not overspend and inflate the public sector to the extent that requires them to borrow £500 million or £600 million a month. Governments should have set an example in not overmanning the public services. They should have increased incentives to those who can create new jobs. As it is, anywhere outside the City of London one finds that the British economy is considerably depressed.

Only last week a very intelligent graduate, who has a very good degree, said to me, "What a choice I am faced with—either I go to America and try to make a fortune, or I stay here and become a civil servant, safe and satisfied with an indexed pension and a little power without much responsibility". How do we change that young man's attitude? How do we change the union's attitudes towards work sharing, which are leading us on to further poverty and further unemployment? Of course it would be easier to start a change in attitudes if the economy were better run than it is today. I still believe in a not impossible future, in which we all pay more attention to getting on with each other and producing more, rather than spending money that we have not got. I must finally admit that the pessimism today runs very deep, and such optimism as I have, I must also admit, depends on the result of the next General Election.

5.15 p.m.

Lord PLOWDEN

My Lords, it gives me great pleasure to be able to congratulate the noble Lord, Lord Roll of Ipsden, on his thoughtful and constructive speech. He and I were colleagues many years ago as civil servants, and I learnt then of his high intelligence and wide-ranging mind. I hope that he will speak often in your Lordships' House. I must apologise to noble Lords who are to speak later in the debate for not being able to be present to hear all of them, but I am to be host at a dinner, the date of which was fixed over six months ago.

Productivity is a subject that has been debated ever since the last war. It was, I think, Sir Stafford Cripps who, as President of the Board of Trade, set up the joint working parties of trade unionists and managers to go to America to see what we could learn about productivity in the United States. Since then there have been many studies, visits and so on. The only point on which I think everyone is agreed is that our productivity, when compared with that of our main competitors, is too low. Disagreement comes when we try to find out what causes it. There are, I suspect, four main causes that are in the minds of people: low investment; bad management; Government policies; and the fault of the trade unions. I wish briefly to look at all these four.

First, I wish to take investment. Of course we all want more investment, but perhaps more important than getting more investment, is to use more efficiently the investment we already have. Sir Terence Beckett, the chairman of Fords, to whom I spoke last week, authorised me to say: In Fords' experience productivity per man in Germany is one and a half to two times as great as it is here, using comparable plant and machinery, and making the same kind of motor car". The chemical industry, which is one of the most efficient industries in this country, has the same experience. In making comparisons with Europe it found that productivity per man is about 30 per cent. higher than it is here, while in the United States it is about twice as high.

Secondly, I shall deal with poor management. There are far too many badly managed firms in this country, and all of us in industry could name a number without much difficulty; but there are also far too many badly managed firms abroad. However, we seem to be slower at putting them right or allowing them to go bankrupt. There seems to be a tendency to hope that things will get better, rather than to grasp the nettle. We have our fair share of good and bad managers; and undoubtedly we need more good managers. All of us—industrialists, trade unionists, and politicians—should, as the noble Lord the Leader of the House said, support the various initiatives started by the Secretary of State for Education and by various organisations, to persuade the teachers and academics that education has to be relevant to the needs of society, and that in commerce and industry there is an opportunity of worthwhile careers for more of the better brains that are being turned out. I know from experience as an industrialist that good managers in British industry are just as good as those elsewhere. If we need any confirmation of that, it can come from the activities of the headhunters who are always trying to seduce the best ones away in order to go abroad.

I can illustrate, I think, from the experience of my own company. Some years ago we bought a company on the Continent which was making losses, and we sent three young men there who had first of all to learn the language. In two or three years they turned that company round into making profits, and it is continuing to make profits. I do not think that any of those three young men would claim that they were geniuses: they were good managers of a kind of which there were others in the company which employed them. But a great deal of the energies of our managers, as has already been touched upon by some noble Lords, are devoted to dealing with labour problems and problems that follow from them. Sir Terence Beckett says that, in the Ford organisation, line managers in the United Kingdom devote anything up to three-quarters of their time to labour problems and about a quarter to solving the problems of production and planning better productivity, and that on the Continent it is the exact opposite. This, again, was found in much the same way by the chemical industry when they compared the conditions here and in Germany. All this falls most heavily on middle and junior management.

Thirdly, Government policies. Successive Governments, of both Parties, have done a great deal to try to promote investment and to improve productivity. Indeed, we probably have the highest and most extensive investment incentive schemes in the developed world; but, as the noble Lord the Leader of the House said, what is lacking is stability. There are too many changes; all the schemes are changing. I will not weary noble Lords with the number of times that purchase tax and VAT on durable consumer goods has changed since the war, but it is a great many; and it is an inhibition to more investment and increasing capacity. There is an excessive number of regulations which bear particularly heavily on smaller firms. It is better now, but up to quite recently the difficulty in getting industrial development certificates in areas like Birmingham really has inhibited growth; and we have seen some of the results in that area now. High taxation has undoubtedly inhibited innovation by individuals and growth in small firms. It is absolutely essential that, if we are going to provide jobs for those people displaced from declining industries—and they are already being displaced—we have got to foster innovation and the development of small firms, because that is the only way in which we shall get growth in employment.

Finally, labour relations. I do not think anyone could deny that recent legislation has greatly increased the strength and the power of the trade unions vis-à-vis management; but, over and above that, the complexity of our industrial processes today can so easily be disrupted by quite a small group of workers. It is the failure of trade union officials on so many occasions to control their members and to insist that they abide by the agreed procedures for settling disputes that has been so disruptive. It is not weak trade unions; it is strong and responsible trade unions that are needed.

None of this is to suggest that the British strike record is the worst in the world. In 1976, the number of days lost per thousand employees was better in this country than in Canada, Australia, Italy or the United States, though it was worse than in France and Germany. Moreover, only 2 per cent. of manufacturing units were affected by strikes. But strikes in this country, particularly unofficial ones, are more disruptive of production than strikes in competitor countries.

As industrialists, or even as newspaper readers, we all know of the overmanning, the restrictive practices and the inter-union rivalry which exists in certain industries. This malaise, as certain noble Lords have already said, is much greater in large firms than in small ones. Indeed, Sir Terence Beckett said in a lecture recently, that two of the small Ford units in this country were more efficient than their comparable units on the Continent. Furthermore, various noble Lords have called attention to agriculture, and the noble Viscount, Lord Eccles, pointed out that this is where you have a close contact between manager or owner and man. The same thing happens in small firms, that you get better relations and, I claim, better productivity.

Now, what should we do? I think it is most important that we all, particularly management, recognise that the attitude of men and women on the shop floor and in offices has changed, and is changing. When I worked on the shop floor before the war one did what one was told at once and without argument; but, today, people want, and rightly want, to have a say in what affects their daily working lives. They want to participate; they want to be involved. We all know from the opinion polls, and best of all from our experience if we are in industry, that most people are indifferent, or even hostile, to two-tier boards, worker-directors and all the paraphernalia of Bullock and quite a lot of the recent White Paper on Industrial Democracy. To some, including myself, most of the proposals seem to be about trade union power, and not about democracy; and many trade union leaders appear to share these misgivings.

My Lords, if we are to meet the aspirations of the people who work in industry and commerce, we must make a reality of participation. It is something that must be built up step by step, and which will happen only if management really sets out to make it a reality. It is something in which all members of a firm, whether or not they are trade unionists, must take part. The arrangements must be formalised in all firms larger than, say, a certain size—perhaps 2,000 employees. There must be a code of practice; and there must be back-up legislation so that either side, if they are dissatisfied, can apply to a special agency whose duty it would be to ensure that proper participation arrangements were brought into effect if the majority of the employees in a firm voted for it. I believe that participation agreements, flexible and tailored to the needs of individual firms, are critical to the good performance of the business and to the satisfaction of the people who work in it. They can, I believe, be a major factor in securing a shared commitment to the success of the enterprise; and, by better understanding, lead to improved productivity. The major responsibility for this rests on management, but—and it is a very important "but"—there must be an acceptance of change by the members of the workforce who work in industry.

5.29 p.m.

Lord LEE of NEWTON

My Lords, like the noble Lord, Lord Plowden, I, too, have an engagement later. In my case it is with those engineers who have been discussed so much today. I hope to get back before the winding-up speeches, but there is no lack of courtesy in my leaving. My Lords, I join other noble Lords in congratulating the noble Lord, Lord Roll of Ipsden, on his maiden speech, which was so clear. It was was an excellent maiden speech, and one which I thoroughly enjoyed. The noble Lord, Lord McCarthy, who followed him, said that he found it difficult speaking after him. After what Lord McCarthy said about civil servants, I think it would have been very interesting to all of us to have heard the noble Lord, Lord Roll, if the noble Lord, Lord McCarthy, had spoken before him. I see present a number of eminent ex-civil servants with whom I have had the pleasure of working. I do not think that they deserve some of the things that have been said about them.

May I also congratulate the noble Viscount, Lord Amory, on introducing this subject. It is a subject which those of us who have inhabited both Houses since the end of the war are not unfamiliar with. I should have thought that it was a subject that we have debated more than any other single subject that we could possibly discuss. On many occasions I have ventured to offer my own views on the economics of all this in both places; and I have begun to wonder whether the problem is purely an economic one or whether, in part, it derives from an attitude of mind. One reads in the newspapers, sees on television and hears on the radio newsreels, a series of accounts of unmitigated gloom about the prospects for the British economy. Indeed, if I may say so in the presence of my noble friend Lord Kaldor, last week we had a further dose of gloom from the very pessimistic forecasting of economists at Cambridge University concerning the project in the Department of Applied Economics. They seemed to come up with the dismal prospect that, even if we took such reflationary action as to cut the standard rate of income tax from 34 per cent. to 20 per cent., or if we abolished the whole of VAT, we should still have 2.7 million unemployed by 1985 and that that would not prevent the virtual collapse of the vehicle and engineering industries.

This is a remarkable prospect (is it not?) to expect millions of working people to accept that which we all know to be true: that only by increasing productivity can we obviate the dangers that we all know are present. Now, the CBI monthly survey tells us that, despite a strengthening of our export orders, the orders on which our lifeline depends, we expect production to fall during the next four months. The same sort of thing is coming from at least half a dozen of the economic forecasters which I have been reading, forecasters as far removed as stockbrokers, on the one hand, and the London Business School on the other. So we find it very complex. A few months ago, when the pound was falling in value, we were told that we faced sheer catastrophe; and when it recovered the same people were sure that the "bow-wows" had got us. How on earth do we expect men in employment, or hoping to retain their employment, to react to that kind of thing?

It seems to me that the media dredge up every bit of industrial trouble—especially stupid and unnecessary strikes led by tin-pot Napoleons who could not hope to seek election for a full-time trade union position. Are these really the priority issues which people want to hear on the newsreels? It sems to me that we are now in the hands of the public relations people, and that they are doing inestimable danger to our hopes of economic recovery when this is the kind of thing that we listen to every day of the week. It almost reminds the older ones among us of the character in Tommy Handley's radio programme who was named "Mona Lott" who, after dispensing a great deal of despondency and gloom, always finished her act with the words: "It's being so cheerful that keeps me going."

My Lords, the more obvious causes of low productivity, such as the shortage of capital investment or the lack of man power, are not presented; although I think the problem of the insufficient number of skilled people (about which some of us have been complaining for a very long time) is causing hold-ups and actual unemployment in a number of our industries. However, I am sure that it will be conceded that the present Government are engaged in a huge training and retraining programme at very considerable cost, and I hope that we can have an assurance that no future Government of any Party would wish to cut down on it.

My only criticism in this field of activity is that, while we are seeing this great programme of training and retraining, we are falling further and further behind a number of our competitors on the Continent in the amount of day release and block release for our young apprentices upon whom we must rely for the future. When one reads of the huge percentage of young people in Germany and Sweden and in other European countries who automatically get day or block release against the miserable percentage here, we cannot hope to compete effectively with those other countries.

I do not necessarily like compulsion; but I think that the best firms in Britain who can compare on very favourable terms with any firms throughout the world, have for too long seen their products creamed off by others who have done precisely nothing to produce quality apprentices in this country. If we had a system of compulsion, I am sure that they would feel far happier about their own efforts; and those who have simply induced the apprentices away when other firms have trained them would have to play their part in the job of getting rid of this awful anomaly of a huge unemployment problem that we face now, and an equally large demand for non-existent technologists and craftsmen. It is a fantastic situation to have got ourselves into.

My Lords, we face the problem which, I think, was mentioned by the noble Lord, Lord Carr, of a falling percentage of our workforce in manufacturing industry; and, of course, this is a feature which has been going on in many of the manufacturing nations. I do not know whether we are getting to a danger level or not when we get down to 30 per cent., but it seems to me that, if we are to plan our future requirements in this sector, we cannot afford to permit the rather stupid bias against such careers. Indeed, from an engineering angle one is almost made to feel a second-class citizen. It is this in big degree, I feel, which is detracting from the ability of the manufacturing industries to get promising young men to take up careers in engineering and other comparable industries.

The noble Lord, Lord Carr, mentioned that which I have mentioned, an attitude of mind. I wonder whether the greatest question that the nation must answer is whether we really want parity—and are prepared to do the things necessary in order to achieve it—with those nations which have the highest living standards in the world today. I do not know whether this can be resolved merely by economic argument. We are all capable of screaming of how badly we are done to; but none of us seems able to adjust to the fact that, whereas in the 19th century we led the manufacturing world, we are miles away from that now.

Unless we have the capacity, the courage and the guts to face that and to do the things necessary to bring ourselves back to that level, we have no right to complain that we are not able to get the same standard of living as others. It seems to me that that is the decision we all have to take. If we want to jog along complacently, as a second or third rate nation, that is fair enough. Indeed, there is an argument for that going on today. If one decides on that, one should not moan about not getting the returns that other people get. Quite frankly, it is rather contemptible to do so.

We know that it is certainly not a shortage of capital for those employers who chose to accept it for purposes of modernisation, and there certainly is no excuse for trade unions to hang on to out-of-date restrictive practices. I thought that the noble Viscount, Lord Eccles, was unfair on this matter. My background is as a shop steward in engineering. I have never come across these restrictive practices that everybody else seems to know so much about. I was a works convenor in a factory of 30,000 people. I do not know of any occasion when deliberate restrictive practices were practised. It is the case that because of structural problems there have been occasions when men knew that the one job they had was the only one in sight and they would hang on to it. But with progressive management, who know that you cannot easily get together a highly skilled team of people, they themselves do not wish to see a team disrupted because of a temporary hold-up.

Industries such as those we know in Fleet Street have been mentioned. But they are not typical of the vast mass of British industry. Indeed, my old friend George Isaacs, whom the noble Viscount, Lord Eccles, will remember, used to tell me, when he was general secretary of NATSOPA, that those restrictive practices were begun by the Press "barons" in order to keep other people out of the industry, and that he as secretary of NATSOPA was obliged to accept them for that reason. When we look at these problems we find that the fault is not all on one side.

Viscount ECCLES

My Lords, I think the noble Lord was asking me whether I knew of any restrictive practices. What would he say to this? In a Government office when an electric light bulb fails one is not allowed to replace it. One has to send, not for one man, but for two from the Department of the Environment.

Lord LEE of NEWTON

My Lords, again, my experience is different. I have put plenty of electric light bulbs in lamps in the three Departments that I have served. Maybe it was because I had an engineer's card in my pocket.

It is not true, either, that productivity is enormously low in this country in every industry. We have heard the argument about agriculture in which we lead the world in mechanisation. That could not have happened but for the nationalised electricity industry pushing electricity to the countryside. I was privileged to work with the coal industry. There is no other coal industry in Europe which increased its productivity so much or so rapidly as the British coal industry. Indeed, as a consequence of the way they have worked, the accident rate in the British mines is less than in any other in the world. At the time when we were asking them to accept mechanisation, there was no going slow. They knew perfectly well that their numbers would be decimated. They accepted it, and increased their productivity. Do not let us be full of the idea that every industry in Britain is despondent in these important matters. Take the gas industry, for example. By the time they stopped carbonising coal and went over to oil, they increased productivity annually by 11 per cent. over a long period of time. Now they do not make gas any more; they just distribute it. But that again was a record of which they and we were entitled to be proud.

I do not know whether it will surprise some of your Lordships to know that, to workpeople, the main point about going to work is to get wages to have the standard of life which they wish to enjoy. I have oftened complained of the lack of a credible and understandable policy on incomes from the Party opposite. I repeat that criticism today. Whether or not this is the last opportunity we shall have of being informed by them of where they stand in this vital issue, their present position is rather unworthy of a Party which is aspiring to Government.

In May of last year we heard from their Leader that the social contract was in fact a social "con trick". We were informed that only a free-for-all on wages would be appropriate. A little later, strikers were to be subjected to the referendum procedure. Well, we can all laugh at that one. But the latest effort from Mrs. Thatcher is far more serious—I mention this because it is relevant to the issues of whether or not we get productivity increased. We are told that a Tory Government will allow free collective bargaining without Government restraint in the private sector, but the wage increases in the nationalised industries would depend on efficiency and productivity deals, while the local authorities, the Health Service and education would be kept within strict spending limits which a Tory Government would impose. If ever there was a recipe for decreased productivity, that is it.

How is it supposed to work in practice? Are the workers who are interested in the private sector of the shipbuilding and repair industry to base their claims on a free-for-all, while the members of the same branch of the union who work in the nationalised sector of the industry are to be instructed by Government as to what they can have? It would be a very interesting branch meeting, would it not? I am no admirer of the way in which negotiations are conducted in British Leyland, but if they are to be told that they cannot be permitted to have similar scope to that in the other parts of the car industry, industrial strife is an absolute certainty.

The other week, along with numbers of noble Lords, I listened to Sir John Methven speaking about incomes policies. I agreed with about 95 per cent. of what he said. It certainly had no relationship to what we heard from Mrs. Thatcher the other day about what the policy would be. We know the CBI do not want that; we know that the trade unions do not want that. Who does, my Lords? I know that there are many Members of this and of the other House who are Conservatives who do not want it, either. Quite frankly, this sours the whole face of industry. If one is trying to find the greatest degree of agreement, the greatest degree of certainty for the future, it is very wrong indeed to introduce that.

Indeed, when one looks at the comparison of what is to happen in the private sector and then in the public sector—and I have taken part in arguments about incomes policies, with which I thoroughly agree, for upwards of forty years—one sees the difference. This is the first time that I have ever heard in one sentence an advocacy of both. It is utterly ridiculous and impossible. We are entitled to an answer from the Dispatch Box. It is not good enough.

We are going into Recess. This Parliament may not reassemble again; I do not know. But to go into a General Election with people who aspire to Government with the kind of diatribe to which I have referred is quite wrong, unjust and unpardonable. I believe that we must press forward with what is to me one of the utterly vital issues when we are talking about whether British industry can begin to compete on equal terms with our competitors. It certainly will not with that kind of approach. I want to see the greatest possible unity between both sides of industry. I am very proud of the fact that in the huge factory in which I was convenor we never had an industrial dispute which we did not settle ourselves. We have never had a strike throughout the whole of that factory. It is a record and, if I am proud of anything, it is that. I believe that, unless we can get a clear exposition of where we stand on this vital issue for the future, we cannot expect to see men put their backs into huge increases in productivity—and I agree with all the people who have said that this is the only way we can survive.

5.50 p.m.

Viscount WATKINSON

My Lords, my noble friend, with his skill and authority as well as his charm, has really made the case about productivity. He has been supported by so many other noble Lords who have made quite excellent speeches that to embellish the argument as such would not add much. Few people, either inside or outside this House, would challenge what has been said here today; but what should cause us a great deal more alarm than it does is that, although these facts are not challenged, very few people indeed regard them as a challenge which requires them to do something about it in their own lives.

I have tried to think deeply about this growing malaise, as I am sure other noble Lords have done. I have asked myself: is it the fault of industry or is it the political frame in which industry has to operate? I think one is forced to believe that our truly lamentable performance—for lamentable it is—springs at least in part from wrong national policies, for which I suppose all of us in this and in the other place are to some extent responsible. No doubt there will be sharp disagreement as to where the blame lies: I would only say that on this political point certainly Left Wing activists bear a very heavy responsibility for it.

What we have to face today is that we live politically in a complex society. If you want proof of that, you might perhaps have taken note of what the noble Lord, Lord Lee, has just said. He gave a completely garbled account of what the Leader of my Party has recently been saying about industrial affairs, and he made the most of it: fair enough. But the question one has to ask is: is this confrontation entrenched in our political system really a good thing? Inevitably, it conditions industry and we cannot excuse it. I think, by saying that it is right and that any alternative is some kind of corporate State. Whatever one may feel about a conflict of Party politics—and I have indulged in them myself for a good many years—and whatever one thinks about them as the frame in which our beleaguered industry has to work, I have to say that in any case I believe that such a conflict becomes increasingly irrelevant. My first political master, Winston Churchill, used to say in some of his more Puckish moods that he liked to mar the symmetry of Party recrimination". That is what we should try to do in industry and in industrial matters in the political field. Of course, as an old politician I am not unrealistic enough to believe that we shall make much progress with this doctrine over the next few months.

Yet again, it ought to be said that in the electioneering atmosphere in which this country will inevitably remain now until an Election, business has to go on, orders have to be obtained from foreigners, who think our political system is a little odd, to put it mildly. What are we going to be doing? —debating various versions of "the English disease" which, whatever the rights or wrongs of the case may be, tend to increase the controversy. That, I have to say, is what my old friend, the noble Lord, Lord Lee, who has just sat down, has just been doing his best to do.

All I can say is that this really will not help our exports. Productivity springs not from confrontation but from co-operation and participation, as the noble Lord, Lord Plowden, said. You cannot, and indeed will not, get increases in general productivity unless you can sink some of your differences and work together; the shop floor, management and directors. I hope I am not thought to be advocating a kind of namby-pamby Election campaign, because I am sure we shall not have one; but I think it is right that somebody who has spent 50 years in and out of industry and politics should look in this debate at what industry and those who believe in industry might cling on to at present which would make it possible for the next Government to encourage the very great leap forward that we know we must have in productivity and efficiency if we are to survive. I am driven to believe—I have said this before, but I still believe it to be true—that the rallying point has to be found first in the National Economic Development Committee. It was, after all, invented by my old friend, Selwyn-Lloyd, so surely it must be agreeable to my noble friends.

Now we come to the Industrial Strategy. Like the noble Lord the Leader of the House, I was in this from the beginning, at the Chequers meeting, and we both saw it develop, and so on, I do not disagree with what my noble friend Lord Carr said about it. Therefore, if Sir Harold Wilson and the present Prime Minister wish to take some credit for it, they are entitled to do so. Perhaps, therefore, one might hope that there could be found some slight bipartisan respect for NEDC and for some kind of industrial strategy—because I am by no means saying that the present one is the right one—as being the place where a new Government must start if we are to get the improved productivity that we all know we must have.

Just a word now about the Industrial Strategy, if I may: as I said, I do not disagree with what the noble Lord the Leader of the House said about it, but it has been much undervalued in some ways and in other ways it has been made into things which it certainly is not. One cannot expect miracles from this sort of exercise. I believe there are now over 1,000 businessmen and trade unionists deeply involved. If you meet the sector working parties—and I have met most of them in my time as President of the CBI—you cannot but be impressed by the fact that, although they are making slow progress, very few of them would say that they are making no progress at all.

What is happening there? Managers and trade unionists are trying to face together the present and future problems of their own industries and, thus, of their own jobs. So I hope that in the campaign to come at least these two propositions are not going to be condemned out of hand. I believe that sector working party reports, if properly handled, could be the real tool that a Government needs to judge how best to frame Government policy in such a way as to help, and not hinder, industry. This is the right kind of planning exercise and not, if I may address myself to the noble Lord the Leader of the House, the Party political device of planning agreements.

Therefore, let us hope that the Industrial Strategy, in one form or another, survives; but to survive it must continue to attract the strong backing of industrial management and it will not do that unless it is allowed to develop free of Party political interference. For example, if the Labour Party wish to wreck the whole concept of a joint approach at industry level to seek increased productivity and efficiency, they have only to commit themselves to a doctrine of "packing" company boards with trade union nominees. That will ensure no co-operation from management, by making the issue a Party political one both during and after the Election. Perhaps it is impossible for us to avoid this issue but, as the noble Lord, Lord Plowden, so rightly pointed out, there is here a gateway through which one could go to get the real productivity that we need, through better participation and better working together. It just cannot be done by the enforced "packing" of boards on an "old boy" basis by trade union nominees.

One other point, my Lords: many noble Lords have talked about unemployment and the problem of jobs. The noble Lord who has just sat down talked about those things and I have known him long enough to know how sincere he is about that. We have already too much employment-prevention legislation, hampering managers and, in particular, hampering the small business. I think any new Government have to look very seriously now at the burdens that are laid on small businesses, making it almost impossible for them to consider taking on more people and certainly making it quite impossible for them to take on people "on spec", in the hope that business will get better, in the way they used to do in the old days. So I have to say again that if what I may call the Industrial Strategy is to succeed, it has to grow in a mixed economy where the mix is left relatively alone, and where the present burden of legislation, particularly on the smaller firm, is certainly not increased, and, if possible, diminished. I hope that on this basis some strategy of this kind would continue to be backed by the CBI, and by all the trade unionists involved in it.

I would also just mention here a very interesting initiative in productivity that deserves a compliment in your Lordships' House; that is, the spur initiative of the British Institute of Management, which is trying to show a real case history of how, firm by firm, you can make progress in this very difficult field. I should like to make one more political point, trying to think of this subject in terms of politics, as I believe one must. Joint bodies, such as sector working parties operating through Neddy, are not, in my view, the creation of some kind of corporate State. If Parliament thinks that it is in any way by-passed by bodies of this kind, it has the remedy in its own hands—one to which the CBI, at least, is committed—that is, that Parliament should set up a powerful Select Committee to oversee the whole work of a body such as the NEDC, and link Parliament firmly with it.

Finally, we need a much greater emphasis on productivity, to deal with the other great hindrance in getting our industrial affairs in order. I myself feel, and I think that many of my colleagues in industry feel, that although we see the dangers of eroding differentials, although we see the difficulties—and I quite agree with my noble friend, who said that if you have a wages policy you tend to diminish productivity—none the less, if we put the conquering of inflation as our first national priority, as I believe we should, we have to look forward to another year of some form of pay restraint. This is quite inevitable. I see no reason, therefore, why the Government, who are now the paymaster for something like 30 per cent. of the working population, should not very firmly disclose their hand and I hope that they will.

However, there is a way around this. Productivity, properly used, could get us out of the difficulty of beginning to pay the proper rate for skill and craftsmanship, even in a general wages situation that has to be based on only a very small increase in basic wages. I shall not stand in the way of the many other noble Lords who want to speak on this problem; it is well-known. But provided that productivity schemes are genuinely earned and really self-financing, provided that they are measured in value-added terms, there is really nothing very difficult about finding ways, or going towards ways, of increasing skill and widening differentials—and I mean for management as well as for skilled craftsmen—by the use of carefully tailored productivity agreements. I hope that this work will go on, and that both the Government and the Opposition—or the present Government and the present Opposition—will be doing their homework on this subject.

There is one point which has come through this debate, and which it is sad that we cannot impress on the public mind. I should probably be in a minority of noble Lords if I said that nobody listened to us, but perhaps I might be in slightly less of a minority if I said that not enough people listened to us. But it is a pity that, at a time when, presumably, the nation soon has to choose another Government, they do not understand that if we cannot do better than we are doing now, even with the bonus of North Sea oil, even with any short-term advantage arising from a seriously depreciated currency, we shall be the sick man of Europe, we shall be below Italy in the batting league and, in the end, even Europe will get tired of putting up with our lack of contribution to the club. That is the real issue that the country ought to be debating in its mind, and the country ought to be much more grateful to my noble friend than I suspect it will be.

However, let us hope that somebody listens and that, in the battle that lies ahead, in which, no doubt, all of us in our own small ways will take part, we shall try not to foul the nest for the next Government—which I think will not be of the colour of the present one—and will enable it to get on with this job of working through established existing bodies, such as the NEDC and the SWPs, and building the productivity that we must have if our country is to survive.

6.5 p.m.

Lord KALDOR

My Lords, like my noble friend Lord Lee of Newton, I must begin by begging the indulgence of the House for not being able to attend this debate until the very end owing to a long-standing engagement; something which I regret all the more because of the unusual quality of the speeches that we have heard so far, and because of the other speeches which are still to come. I should also like to add my congratulations to the many we have already heard on the maiden speech of the noble Lord, Lord Roll of Ipsden. He gave a bird's eye view of this whole complex of problems and spoke, in a space of 12 minutes, with a clarity and precision that were worthy of the best practitioners of our common profession. I do not think that I can give higher praise. I can only hope that, now that he has made his maiden speech, he will be a frequent contributor to our economic debates.

The noble Viscount, Lord Amory, did us a great service in telling us of the extremely critical situation in which we find ourselves. From the speeches that I have so far heard, it seems clear that there is no difference between the two sides of the House about the disastrous outlook that awaits us if we do not succeed in reversing the present adverse trends in productivity and employment, and the continued decline in the net balance of trade of manufactures, which leads to progressive de-industrialisation. In the course of the 10 speeches before mine, so many points were covered that it is rather difficult to say something new. Therefore, I shall concentrate on particular aspects and try to avoid repetition as much as possible, though of course I cannot guarantee that I shall succeed.

I take my cue from one remark of the noble Viscount, which was not repeated by subsequent speakers—that the problems of slow growth and lack of employment opportunities are not new problems so far as this country is concerned. Indeed, they are of very long standing, and among the leading industrial nations one can say that they are peculiar to Britain—however unfortunate it is to have to say that. We have suffered from them, with certain interruptions, ever since 1873. During the last 100 years, fast economic growth, combined either with full employment or with rapidly rising employment, occurred in peacetime on only two occasions. The first was during the five years, 1932–1937, when manufacturing output increased by no less than 8 per cent. annually, and industrial employment increased by more than 4 per cent, a year—something which was quite unprecedented in a five-year period in the history, not only of this country, but of most other countries, with the exception of Japan. It is no less remarkable because this period started at the bottom of a recession.

The second interruption was the period of 19 years after World War II, when we had continuous full employment, with unemployment well below 2 per cent., in all years except one when it was 2.1 per cent; when our manufacturing production increased not at the fantastic rate of 8 per cent. but still at a very respectable rate—even in comparison with all the other European countries—a compound rate of 4 per cent. a year. Since 1965 13 years have elapsed, and during those 13 years we had a four-fold increase in unemployment. from 330,000 to 1⅓ million, and the growth of manufacturing output slowed from 4 per cent. to 1¼ per cent. per year. Indeed, since 1970 the growth in our manufacturing output has been well under 1 per cent. a year, and since 1973 we have had a net decrease in output of 5 per cent. As the noble Viscount alluded in his opening speech, these figures cannot be explained by the prevailing world economic recession because all other industrial countries did very much better than this and now have levels of production which far exceed the previous cyclical peak, while in our case we are well below it.

The manifestations of this exceptionally bad record in the last 13 years are essentially the same as those of our very bad record in the 40 years from 1873 to 1913. I consider this to be a very important point since in all other respects our present situation—our present institutional framework, our present way of life—is completely different from what it was in the late Victorian or Edwardian age. The common feature of these two periods, the 40 years before World War I and the last 13 years, is that in both periods the progress of our economy was put in jeopardy by the rapid growth of the imports of manufactured goods which led to economic stagnation. As Sir Arthur Lewis has shown in a book just published, from 1873 up to the end of the last century the increase in the growth of manufactured imports more than offset the growth in our exports so that the value of net exports actually fell from £158 million in 1873 to £118 million in 1899.

In the period since 1965 our net exports rose substantially, if you take them at current prices, but that is nothing more than a reflection of the rapid inflation. If you take the value of net exports at constant prices they have diminished by no less than one-third in the 12 years 1965 to 1977. In other words, they have been falling by over 3 per cent. a year, and that is despite the fact that in the three years following the 1967 devaluation we had a very substantial growth of net exports. In the 40 years up to the First World War our productivity rose very slowly and it was just as bad, in relation to the record of Germany and the United States—in fact, worse—as our relative productivity record after World War II, to which many noble Lords have alluded in this debate. It grew by less than 1 per cent. when that of the others grew by 2½ to 3 per cent. Job opportunities were very hard to come by. Indeed, jobs were so hard to come by that in the 30 years from 1880 to 1914 no fewer than 6 million people emigrated from Great Britain alone because of the inability to find jobs. In those days there was no unemployment insurance and no comprehensive record of the volume of unemployment.

What was the cause of all this? If one reads economic historians, if one reads the contemporary records, reports of the numerous Select Committees and indeed Royal Commissions that were appointed to deal with the problem at the time, they read awfully like what we have heard this afternoon—very like it indeed. It is all put down to slowness in adopting innovations, to the innate conservatism of our manufacturers, and later it was also said that it was due to our dogmatic adherence to free trade. At least the free trade aspects of our ill fortunes were brilliantly brought out in the speeches of Joseph Chamberlain during the famous tariff campaign of 1902.

As a result of our stagnation, or for other reasons, we were not able to participate, or not fully, in the new technological revolution which followed the invention of electricity, the motor car and synthetic dyestuffs. We relied on our traditional staple exports—cotton textiles, pig iron and machinery—and in these we were driven out from one market to another as a succession of countries industrialised behind protective tariffs. But those newly industrialised countries established also the newer industries requiring more sophisticated techniques, and in the course of doing so made a far greater and far more deliberate effort to raise education in advanced technology than we did. This was very much a cause of worry, as is testified by the numerous committees that Government and Parliament appointed in this matter in order to make up the gap in higher education in technology in this country.

The First World War changed all that. Under the stress of national emergency governmental planning, directed by the unique energies of Lloyd George, there were established hundreds of new factories and dozens of new industries. It also brought a radical change in the outlook of our manufacturers in the production techniques employed by industry. In the words of a departmental committee which reported in 1918: Until the war opened the eyes of manufacturers to the advantages of manufacturing in large numbers [there was] generally an absence of totally new works with an economic layout". I fully agree with the noble Viscount that our achievements in the Second World War were just as great and just as notable as our achievements in the First World War. And they only go to show that the people of this country are second to none in organisational ability and in brilliant improvisation when it comes to a national emergency such as a war. This was shown twice in the lifetime of one generation.

However, the benefits of this new outlook on industry, and of the new capacity created, were frittered away for a time by the deflationary policies adopted on the recommendations of the Cunliffe Committee which reported in 1920 whose recommendations were relentlessly pursued by the Bank of England and the Treasury right up to the restoration of the gold standard in 1925. Even so, despite heavy unemployment of a million and a half, productivity showed a very much higher rate of growth than anything seen in this country since 1860, and then laid the foundations of the rapid economic advance which amounted almost to a second industrial revolution in the 1930s, and which alone put us into a position to face Hitler in the Second World War, and which was followed by continued high levels of industrial investment in the full employment era which succeeded World War Two.

During all that time import penetration went sharply into reverse. The 1913 level of manufactured imports was not regained until 46 years later, in 1959, when the national real income was twice as high as it was in 1913. So even when we regained the 1913 level of imports, our import propensity was only half as high as it was prior to the outbreak of the First World War. But since 1959 the imports of manufactured goods have raced ahead again. Their volume increased nearly sixfold in the course of 18 years. As a result industrial growth fell very sharply, industrial investment fell, and despite a large boon conferred by natural gas and now by oil, we are still in a difficult position to make ends meet in the balance of payments, despite a greatly diminished capacity utilisation. In fact, although there was never any formal pronouncement the objective of full employment has been abandoned. It is something which, for balance of payments reasons, it is quite impossible to aim for in the present situation.

What conclusions can we draw from this? There is clearly something wrong with British industry which is not just a reflection of national policies. So much I think would be agreed by most noble Lords on both sides of the House. For example, German industry does not suffer from rising import penetration. On the contrary, their import ratio has been falling despite the temptation afforded by high and rising exchange rates.

Although our industry was greatly strengthened and modernised during the earlier decades of this century it now appears to suffer from the same kind of deficiencies relative to our competitors as it did before the First World War: a lack of practical expertise in high places; the supremacy of amateurs, whether accountants or so-called "administrators", in top industrial jobs; slowness in adopting innovations and developing new products, and many other factors. It would take many lectures and not a speech to go into these and their causes in any detail. I will merely quote one statistic which in my view sums up our present situation. The percentage of the total workforce in the engineering and other metal working industries represented by qualified engineers and by scientists in 1974—I repeat, 1974 and not 1874—was 6.6 per cent. in Sweden, 5.7 per cent. in West Germany, 5.3 per cent. in France, and only 1.8 per cent. in the United Kingdom. I think those figures more or less explain the basis of all our industrial troubles.

Finally, we must beware of being seduced by the temptation to seek attractive-sounding but phoney remedies, not to speak of soothsayers. Contrary to what some prominent members of the Party opposite proclaim, not perhaps in this House but in some other place, our basic deficiencies will not be cured—they may even be aggravated—by large cuts in public expenditure and large reductions in taxation. If this were not so, how would one explain that other countries whose taxation is even higher than ours have not suffered from low productivity growth? Perhaps even more important, how does one explain that we suffered from the same deficiencies in the late Victorian age when taxation was certainly very low, when income tax was seven old pence in the pound—that is to say three new pence—and yet productivity growth was only less than 1 per cent., industry was stagnating, incentives were lacking, innovations were hardly being introduced, we lost out on new industries, and so on.

In the same way I do not think our problems would be cured by balanced budgets, by limitations of the so-called money supply—whatever that term may mean; or by retreating from the Welfare State, or even by emasculating if not abolishing the trade unions. If this particular cure would work how would you explain the success of West Germany, whose Welfare State is very much more comprehensive than ours and whose trade unions are at least as powerful? Nor will they be cured, for example, by abolishing—a matter referred to by some speakers—the Employment Protection Act. Otherwise how would you explain the success of Japan, which has a super-employment protection Act, much worse than ours—or much better than ours, according to the way in which you look at it—because it offers guaranteed life employment to every worker? Yet Japan is not conspicuous for the sort of deficiencies that noble Lords have been talking about.

We shall not solve our problems by going back to the free market system of the late nineteenth century, which in Britain if not in all other countries proved to be a recipe for disaster. The true remedies, wherever they are found will surely be found somewhere else. And they are almost certain to involve as a necessary but by no means a sufficient condition a breathing space in the form of the protection of our home industries in much the same way as this was recognised to be necessary both before and after the First World War.

Viscount MASSEREENE and FERRARD

My Lords, would not the noble Lord agree, with reference to his remarks about the low productivity of the latter half of the 19th century, that it was not a real danger to this country then that we had poor visible exports because we had an enormous income from overseas investments? We had vast invisible exports, we had protected markets in the Empire, and of course the pound sterling remained stable for 100 years. You cannot really compare the end of the 19th century up to the First World War with today; they are two completely different things.

Lord KALDOR

My Lords, if I may quote a distinguished member of the noble Lord's Party, Joseph Chamberlain, he gave the perfect answer to this. He said the worker is not in the same position as the manufacturer. The manufacturer can help himself by investing abroad, but the worker depends for his living on the labour of his hands; and if that labour is taken from him, he cannot live on foreign investments". So the wonderful position in which we found ourselves in the period the noble Viscount refers to may have been wonderful for the property-owning classes, but the property-owning classes were not identical and certainly were not co-terminus with the people of Britain at large.

6.32 p.m.

Lord SOAMES

My Lords, I, too, would like to join your Lordships in congratulating the noble Viscount, Lord Amory, for originating this debate. Its importance is shown by the speeches that have already been made in your Lordships' House and by the long list of speakers to come. I will be as brief as I possibly can be. The debate has also been highlighted by a speech from the noble Lord, Lord Roll of Ipsden. It took a year to get him to come and do this, and it took a debate of this character on such a subject, and this in itself is a matter of honour for the noble Viscount. He said that he knew the noble Lord, Lord Roll, when he was a distinguished civil servant. I must have known him sooner, because I knew him when he was an undistinguished civil servant, but it was quite evident then that it would not be long before he became a distinguished civil servant. He then moved on to other things, and he certainly rendered great services to the nation. It was a wonderful speech that he made, and we look forward to hearing from him again.

The noble Lord, Lord Kaldor, began his speech by saying there was no difference between the two sides of the House, apparently, to judge from this debate, about the danger to our country if we do not cure the problem of low productivity. But it did become most evident as the noble Lord continued that there was a good deal of difference between the two sides of the House about the means necessary to cure it. I should like to concentrate on offering a few thoughts to your Lordships on the part that Government can play, and should not play, in trying to overcome this. Since for eight years I have been working and living across the Channel, I feel I can view the British scene, and the changes that have taken place in recent years, without going back into history to the extent the noble Lord did, with some of the objectivity of the foreign observer, though without his emotional detachment.

I would invite your Lordships to remember the reasons which led the French Government to veto our first application to join the Community in 1963. That was only 15 years ago. It was because we were too strong economically, not because we were too weak. It seems hardly credible today that that could have been so. I remember that one of General de Gaulle's Ministers put me on notice to beware, that for the moment there was only one cock in the European hen-roost, and that if we entered there would at best be two, and at worst there would be one and it would not be them; so this was not very interesting for the General. As I say, it seems hardly credible that this was only 15 years ago.

In the past 10 or 15 years what has happened is that we have had the lowest increase in national wealth of any of the Community countries, despite all the advantages we have had in recent years from North Sea oil and gas. The main reason for this, of course, is that we have had the lowest level of productivity. Indeed, over the years it has been roughly half that of our partners in the Community. If we could get that right, then we would be well on our way to curing our economic ills. On the other hand, if we do not, then woe betide us as a nation. We all know all too well the glaring discrepancies of productivity in certain of our industries as compared with our competitors. We all have our own knowledge and we all have our own figures. I will not weary your Lordships with that. Suffice it to give just one figure, that in 36 productivity comparisons of industrial groups with Community countries Britain, alas, comes bottom in 34.

Small wonder, therefore, with productivity about half that of our major competitors, with our level of inflation in the middle '70s running wild, that the effective value of the pound should be today only some 60 per cent. of what it was in the early '70s, but much worse than that in relation to the strongest currencies. When we were living in the world of fixed parities, devaluation was a major political event. Many of your Lordships will remember what happened when there was a devaluation—a Statement in the House, followed by a debate the next day, everybody going on television. I remember Harold Wilson telling us that it did not mean the pound in our pockets was devalued. We all remember; it was a major political trauma. But in the last few years what has happened. It has drifted down. There has been an effective devaluation in real terms of some 40 per cent., and almost without more comment than if it had been an April shower. This is dangerous.

One of the changes that I see is that serious things seem to be happening without people apparently being sufficiently aware of the dangers. People rightly felt at a time of devaluation that it was a signal that all was not well, a signal of national failure and a weakening of the British economy. There was that feeling about it. But when the disciplines of fixed parities were removed industrialised countries really had two choices open to them in a general manner, one was to impose disciplines as it were voluntarily, without the risk of having to come before their Parliaments and admit devaluation; they had to impose their own disciplines, of a monetary, of a political, of an institutional, of a personal character, necessary to sustain high levels of production and productivity and to contain inflation and public expenditure. Those who did that, those countries whose people were persuaded that these were the right policies, have been rewarded with a high standard of living and have been better prepared to face the cold winds of recession. And of course they have strong currencies.

The alternative open to industrialised nations was to pursue weaker policies, to allow the disciplines to go hang and to let the strain be taken up by the exchange rate. For instance, in 1975 wages in this country increased by 30 per cent. and inflation by 25 per cent. or more, while production remained stagnant. It was, of course, the exchange rate that had to take the strain to a very high degree. For my money, that was to abuse the system of floating rates which is a delicate system, rather like freedom: if you abuse it, it can be highly dangerous. Indeed, if you abuse it too much it becomes little more than the monetary equivalent of the permissive society. So, for a lack of political, corporate and personal disciplines, and in particular because our productivity has fallen further and further behind that of our competitors, we have seen the value of our currency ebb away and a consistent haemorrhage of our industrial and economic strength.

Seen from across the Channel, it seems hardly credible that we are now so comprehensively out-performed by those countries which only a generation ago we played so noble a part in freeing from a tyrannical enslavement. It seems to them that out most booming industry is tourism, with foreigners flocking to fill their shopping baskets with our goods— which, with less than four marks required to buy a pound, seems to them exceedingly cheap—and to view the vestigial remains of our great past. How come? they ask. How has this come about?

It is certainly not the fault of the mass of the people. A nation with a history as long as ours does not lose its qualities and its resilience in one generation. It is often said that an army is as good as its officers. So is a nation like ours as good as its political and industrial leaders encourage it and permit it to be. One of the prime duties of Government surely is to alert the people to dangers, be they internal or external, and to keep them constantly aware of what is required of them in their best interests. We are lucky in that our people have always reacted well to the truth, however hard. What is dangerous is to delude them. The temptation for Governments—not just for one Government, but for Governments in general—to yield to that is, I am afraid, strong. There is a very dangerous temptation, especially by leaders in whom they have confidence, either to try to delude the people or to lull them into a sense of false security. We have plenty of examples of that in our history. However, recently, I believe quite honestly, there has been too much of it.

I remember that some years ago it was the fault of the foreign bankers—commonly known as the "Gnomes of Zurich"—that sterling was being offloaded, while the truth was that our own poor economic performance virtually forced those abroad who are responsible for money management to switch out of sterling. It took unacceptably high interest rates to bring the money back again. Then all and sundry have been blamed over a period for not investing more in industry, while, as many noble Lords have said in this debate, the truth is that the investment will only come about when it is seen that the new machinery will be used and profitably used, and its advantages will be reflected in the balance-sheet of a company. Next, the institutions have been blamed a great deal recently for not buying more gilts, while the truth is that by incurring such a heavy borrowing requirement the Government were signalling loud and clear to the money market that interest rates would need to rise again.

Now the Germans are being blamed a good deal, including in a recent debate in this House, for not reflating their economy sufficiently to increase their import demand. I should like to say a few words about that. I should like to tell your Lordships what I believe the German authorities say. They say that they have run a tight and disciplined ship for many years now. By encouraging their people to work hard and effectively and make sacrifices they have built up their economic strength and an enviable prosperity. They have resisted political temptation to offer their people more than they can afford. So, without any miraculous discoveries of indigenous oil or gas, they have been able to weather pretty well the storms of the energy crisis and the recession by holding inflation firmly down and sustaining productivity.

I believe that very shortly they will make it clear that of course they would like to help us—indeed, it is in their interest so to do, for reasons both of interdependence in general and of Community solidarity in particular. But they will ask us that, in return, we should show an unequivocal earnest of intention to restore our economy to a more healthy state in a competitive world. That spells economic disciplines and productivity. I must confess that I do not think that it would necessarily be harmful for us if that were to be suggested, for it seems that it is when outside pressures are brought to bear from the IMF, for instance, that the Social Democratic dog finds it easier to control the Marxist tail; helped of course by an election being in the offing, which apparently tends—if I may mix my metaphors—to make the tail keep their heads down. Why, we have hardly heard a squeak out of them for months now; they only seem to talk about foxhunting these days!

I, like the noble Viscount, Lord Watkinson, hope that productivity will be a major theme in the next Election. I think that it is bound to be because it is so vitally important to the future of the people of our country, both in regard to their happiness at home and, let us not forget it, to their influence abroad. Both will depend upon their success in the creation of new wealth. That in turn should lead people to ask themselves—this is proper at Election time—which Party will put the creation of new wealth highest on its list of priorities, and which Party is more likely to create the conditions most conducive to increased productivity and to the creation of new industries and new business? That will be a major argument and a feature of it will, of course, be the different attitudes and approach of the two Parties towards taxation—above all, towards its purpose and therefore to its levels.

Suffice it to say—the noble Viscount, Lord Watkinson, put this point very succinctly, but I should like to add to it—that if one were to set out (and this has been growing over a large number of years, it has not just happened since last year) with the specific, stated objective of designing a tax system which would act as the maximum disincentive to effort at all levels of society, which would penalise and deter thrift, energy and success, it would be almost impossible to do better than the one we have in this country today. The taxation system has led us unwittingly, I am sure, but none the less alas! effectively, into being a cash and "perks" society; and so it has contributed, I fear, to debasing not only the currency of our nation but its character as well.

That leads me to put a point to your Lordships on the much talked of question of the likely attitude of the trades unions if, at the next Election, the people were to opt for a Conservative Government, with the emphasis that I suspect the Conservative Party will put upon wealth creation and productivity during the course of the Election. I do not believe that responsible trades union leaders see confrontation with Government as their rÔle or purpose; but, more important still, is the fact that the mass of trades unionists would not see this as being in their interests. I believe that it was the first Duke of Wellington who made the excellent remark that interest never lies. I believe, in fact, that the contrary would be true, and I should like to suggest to your Lordships why I believe this to be so.

I noticed the other day in a report on the AUEW conference that Mr. Terry Duffy, their new President, called for German wage rates for British workers. That is all strength to his arm. It shows a shift in emphasis away from anxiety to keep up with the Jones's to an anxiety to keep up with the Schmidts and Duponts. Of course, no one knows better than Mr. Duffy, that to sustain high wages in anything but the short term, they must go hand in hand with high productivity.

Increasing numbers of trade unionists must be asking themselves questions of this sort. They are not totally dissimilar to the questions which the noble Lord, Lord Kaldor, put before us. They must be saying that the British trade union movement is, after all, the strongest of any in the world and carries by far the most political muscle of any in the world. A Labour Government which, rightly or wrongly, are historically considered to be the political champions of the movement, have been in power for 10 out of the last 14 years. In deciding on their policies they have harkened to the desires and advice of trade union leaders. There has been a notable redistribution of wealth, to a point where the band of net income for over 95 per cent. of the British people is narrower than it is in any other industrialised country. Differentials have been considerably, and even dangerously, reduced.

Yet where has all this got us? Why, then, should our wages be so low compared with the wages of every other major industrialised country? Why should our standard of living be so low? Why, year after year, should our growth rate have been the lowest of our partners in Europe? Why is our currency so weak that we can only get good value for our pounds by visiting the poorer, less well-endowed Mediterranean countries of Europe? In short, why do we have to be told that our economy is in such a mess? He would have the agreement of the noble Lord, Lord Kaldor, in considering that it cannot be just the recession; for, as he said, that has affected every country, and why should others have weathered it better than we have? Could it be that the policies and attitudes that we were brought up to believe in are now out of date and that, when given the chance in modern times, have not proved to be as satisfactory or effective as we had hoped? Perhaps it is no longer right to think of the unions and their bosses in terms of "we" and "they". Could it be that in 1978 the "we" are those in all sections of society who want to see our economy grow and prosper; and that "they" are those who want to destroy it?

Increasing numbers of people must be asking themselves questions of this kind, and be not only willing but keen to see the Government doing more to encourage the creation of wealth. What is certain is that whatever Government are in power in the coming years, their main priority has to be economic growth without growing inflation and, in particular, greater productivity. For what is at stake here is whether 60 million people can continue to live in these Islands with anything like the standard of living that they have been taught to expect as their due, or whether they cannot and will not be able to in the future. That is a great deal to have at stake, and failure would be intolerable.

6.55 p.m.

Lord ROBERTHALL

My Lords, may I begin by associating myself with everyone who has spoken in welcoming the initiative of the noble Viscount, Lord Amory. It must be very gratifying to him that everybody who has spoken agrees about the immense importance of this subject. Despite all the remarks that have been made about my old friend and, over many years, my old colleague, Lord Roll of Ipsden, I must also say a little about him. I greatly agree with what has been said about the distinction of his speech and hope that we shall hear more from him.

We are obviously going to have a long debate and I shall try to be brief. I hope that I can keep my remarks to two points. The first is that we know extremely little about how to increase productivity. The second is that industrial relations have something to do with it. My experience goes back to 1947 when I had the privilege of working under that great man, Sir Stafford Cripps, to whom the noble Lord, Lord Plowden, has already referred. As the noble Lord said, he was very anxious to increase productivity and did a great number of things that he hoped would help, including sending teams of workers and employers to America to discover why they did things so much better than we did. He also did a great many other things. I remember very well at that time Vincent Tewson, who was then the Secretary of the Trades Union Congress, spending a great deal of time and trouble going round talking to trade unionists and trying to persuade them that now that they had full employment and guarantees of jobs, they need not worry about working themselves out of jobs, which in those days was considered a very strong deterrent to people helping to improve productivity.

Since then every Government have spoken out strongly and firmly in favour of increasing productivity. They have all taken various steps. I remember that when the noble Viscount, Lord Amory, was Chancellor, he put back the investment allowances which Mr. MacMillan had removed during what he thought was a critical period. That is one example among a wide range of measures that have been taken to try to help and encourage investment. There has certainly been no trouble whatever about finding finance for investment, as several noble Lords have already said. Mr. Selwyn Lloyd, as he then was, started the NEDC and since then, as we know, we have had the "Little Neddies" and the working parties on which I think the noble Lord the Leader of the House is pinning some of his hopes for the future, and so on. There is not the slightest doubt that at least people like us have been worried about productivity; the Government have been worried about productivity.

What is the result? As so many noble Lords have already pointed out, our record, compared with that of our competitors, is very bad and is, in fact, deteriorating. From 1960 to 1973—which were both years of high employment—I doubt whether our productivity increased by more than a little over 2 per cent. a year, which was a little worse than in the 1950s. Since then it has hardly risen at all. It is no excuse to say that we have been in recession because all OECD countries, except Sweden, have done better in that period than we have—and most substantially better.

It is clear that try as we may we do not seem to be able to do much about it. That is why I say that we know very little about how to improve things. I very much agree with the noble Lord, Lord Roll of Ipsden, when he says that he does not think there is any panacea for it. Probably a number of factors are involved and, indeed, from listening to the debate tonight we have had nothing like a consensus of opinion about what we ought to do.

That brings me to the second point I want to make; that is, about industrial relations. I hope that I shall not give the impression that that is the only thing wrong with us; it is just that this is the subject I am going to talk about. We had a good debate about industrial rela- tions introduced by the noble Viscount, Lord Trenchard, whom I am glad to see is going to speak tonight. It was about seven weeks ago. At the end of his opening speech he ventured the opinion that if we could get a better system of industrial relations we could at least double the standard of living in ten years. I do not think that that is an over-optimistic prediction on the assumption that we could improve industrial relations.

Everybody with industrial experience, but particularly those with experience of very large firms, must be conscious of the extreme difficulty that exists in introducing any kind of change that it likely to increase productivity; whether it is redundancies, or the closure of plants, or the redeployment of people to other jobs, or getting a more rational pay structure or, as one noble Lord said a few minutes ago, "sticking to procedure agreements". I do not know whether it is innate conservatism, as the noble Viscount, Lord Eccles, said, but there is not much doubt that it is difficult to introduce changes. There was a horrifying figure from the chairman of Ford's, quoted by the noble Lord, Lord Plowden, that it takes us nearly three-quarters of our management time to deal with industrial relations problems, whereas in Germany they spend only a quarter of their time on that, and the other three-quarters they can think about productivity.

Why is this? I think that it has a great deal to do with the fact that we have inherited in our industrial relations the tradition of conflict and struggle which came in the 19th century, in the days when the workers were much weaker and solidarity was the only thing that it seemed would save them. This is brought out very well in a book called Conflict or Co-operation by the industrial editor of the Financial Times, Mr. John Elliott. He is very much in favour of the unions, and a good deal of the book is about the need to introduce the Bullock recommendations. He brings out clearly the persistence of this struggle/conflict mentality in our industrial relations; the feeling that anything you get from the boss is at his expense and that any concession you make to him is at your expense.

If this is right or if, at any rate, it is an important contributory factor, is it not time that the trade union movement woke up to the fact that we are not living any longer in the 19th century and that the whole scene has changed? The unions are now a powerful force in the community—in some respects, in my opinion, the most powerful force. They have got into this position partly by the consistent tilting of the law in their favour and against the employers, and partly by the development of our industrial structure which has made it increasingly easier for a small number of people to inflict great damage on the community. It is the solidarity that enables them to do this, because even when they are going to damage a lot of other workers they are still supported in their industrial action by the others.

Is it not time that the trade union movement told us what they are going to do with this power that they have? You all know the old story about the two miners after the nationalisation of the coal mines. They were talking about it and sayings, "What are we going to do now we own the mines?" The other one said, "Well, don't you think we can sell them?" The trade unions ought to say, "What are we going to do now we have this power?" If it is to be more of the same—more struggle and conflict— then it is likely that we shall go on having high inflation and low productivity. Do they want to introduce Bullock and get directors on to main boards? which Mr. Elliott, to whom I referred, would like to do.

I think that the Government are putting forward the view, in their plea for something like the Bullock Report, that having workers' representatives on the Board would tend to remove the atmosphere of conflict and promote one of co-operation. But at least some of the advocates of this are putting it forward in the hope that once the unions have got representation on the board they will get more ammunition for use in other struggles.

I shall end my remarks by saying that when people talk about industrial democracy, when the Government talk about industrial democracy in this context, it is not really democracy that they are advocating; it is only one leg of democracy. We live in a democracy and we think of it partly as the fact that it means that one man has one vote, and everybody has a vote for his representative in Parliament. But the other aspect of that is that you vote for your man, and then you agree to be bound by the majority decision of the elected representatives; and when the majority decides on a policy or passes a law, the others might not like it but they do not opt out and refuse to obey the laws or pay their taxes. They have to wait until the next election.

Is it often said that we ought to have workers' representation because shareholders have representation. But it is not a good parallel at the moment because the shareholders have votes, it is true, but the majority of the shareholders elect the directors and then the directors have the responsibility of carrying out the policy. I do not see much sign at present of the unions agreeing, if they should get something like Bullock, to treat their representatives as the shareholders treat the directors or as the electorate treats Members of Parliament. That is the spirit that would be necessary if we are to get away from this trouble of conflict and confrontation.

The unions ought to ask themselves what they are going to do with their power, and how things have changed. It is not now a matter of squeezing any more out of the rich; it is not a question of squeezing any more out of employers. If you get higher wages and no increase in productivity, the increase gets passed on. The result of extravagant wage claims is higher prices. So far as we suffer from inflation—and I am sure we do—it is the mass of the people who suffer from it, and even more with low productivity, as has been pointed out so often by speakers tonight.

Unless we get increased productivity, our standard of living is not going to rise, and in this case it hits everybody. The great bulk of people are workers or dependent on workers, so that conflict which you think is against the employers, or against the rich, when you analyse it is in fact conflict with yourself. That is something that we ought to try to realise, although I am sure that the realisation is going to be a slow job and it is very difficult to feel much optimism about, at any rate, the near future.

7.10 p.m.

Lord GREGSON

My Lords, the difficulty of entering a debate at this stage, after so many excellent speeches, is that the points one had intended to make have already been made. Because I wish to be brief and not repeat what other noble Lords have said, I shall abandon the notes I had originally made. I am, in other words, taking the hint of the noble Lord, Lord McCarthy, and abandoning excellence of employment for efficiency of organisation. I wish at the outset to congratulate the noble Viscount, Lord Amory, on initiating this debate and so enabling many important issues to be raised. I also wish most sincerely to congratulate the noble Lord, Lord Roll of Ipsden, on his maiden speech. I sympathise with him because I, too, spent a good deal of time in your Lordships' House before making my maiden speech. I was full of admiration for the noble Lord's speech and its content.

I have noted with surprise that the role of the trade unions and the rÔle of Government have been the two legs stressed on the question of productivity, while the role of investment has been somewhat suppressed in terms of its importance in relation to productivity. The noble Viscount, Lord Amory, and the noble Lord, Lord Carr of Hadley, played down the importance of investment in regard to productivity levels, though amazingly, having done that, both of them proceeded to give the shining example of agriculture in the United Kingdom. Unless I am greatly mistaken, the comparative statistics of this country's agriculture compared with the rest of the world show one point standing out above all others; namely, that the level of investment in United Kingdom agriculture has been the highest in the world for many years.

In manufacturing industry, however, notwithstanding what has happened in the recent past, the level of investment has been the reverse, with manufacturing industry almost at the bottom of the league table in terms of investment. Lord Amory made the point that in recent years the level of investment in United Kingdom industry has been running just below the levels of some leading nations. The fact remains, as my noble friend Lord Kaldor pointed out, one cannot make up the negligence of 100 years by running at the same speed as everyone else when they are so far ahead in the race.

Another leg of this aspect of the argument is the number of times Germany and Japan have been quoted as examples of the leading nations in the productivity race. We should not forget that after World War II they started from scratch and received a great deal of assistance from those countries which were supposed to be the victors of that war; namely, America and, partially, the United Kingdom. There was massive investment and that was the starter for the investment programmes in those countries which have remained at high levels ever since.

I suggest, therefore, that the rate of investment is the one factor which needs to be examined very carefully in this equation, because if one looks at it in terms of the role it plays in providing the means by which productivity can be increased, one sees that this country lags far behind the leaders in the race in terms of applying adequate money for research and development, product development and manufacturing equipment compared with Germany and Japan.

I agree—strangely, perhaps, from this side of the House—with the President of the CBI. Writing yesterday in the Sunday Times, he said, in effect, that given investment, given leadership and given understanding he would put the British workforce second to none, and from wide experience of manufacturing industry in Europe, in the Americas and even in the Eastern bloc, I would completely and utterly agree with him in that sentiment. I believe the key is investment.

I turn to another subject, although the theme is fundamentally the same, and it relates to what my noble friend the Leader of the House said regarding the importance of what I believe to be a massive step forward in technology that is just beginning to unfold before us. Some 16 years ago, Dr. Williamson and I developed the first computer control machine tool. We recognised at that stage, in the early development of advanced mechanisation by the use of computers, that the limiting factor would always be cost, and therefore the complexity of the computer element in that situation. What has happened in micro-electronics, particularly with the advent of the silicon chip which creates and provides the microprocessor, is an enormous reduction in the cost of providing the inbuilt intelligence and nervous system of any automated equipment.

This is an advent in technology which has no equal in terms of any other step we have seen to date in human history and it will have a considerable effect on the whole of human endeavour, particularly manufacturing industry because the incentive is always there. I suggest that we may now be presented with perhaps a last chance, and I hope we will take the advantage of this enormous step forward in technology while it is still in its infancy, that we will grasp it and turn it to our favour. If we do not, we shall be taking another enormous step backwards, and this debate will become almost a milestone in history as being a debate at the time of an historical situation when we had such a tremendous opportunity presented to us.

I congratulate the Government on the lead they have been showing in this important technological step. The Prime Minister, the Leader of this House and the Secretary of State for Industry have shown considerable leadership in planning for the advent of this technology and in trying, in co-operation with industry, to bring about in this country the introduction of this technology. It is to be hoped that we shall find the past reversed and that at last, after a lack of initiative for so long, we shall begin to show leadership in a technology which could be essential for the economic well being of this country.

7.20 p.m.

Lord SELSDON

My Lords, when I listen to successive general economic debates in your Lordships' House, it is hard for me not to feel both impressed and depressed. Automatically, one is impressed at the breadth of vision, experience and knowledge, but depressed because although one may believe that a problem has been identified, one cannot see any real solution.

I am always conscious, as I move towards passive middle age, that opportunity is gradually disappearing from my life and that enthusiasm dies. And yet, on one occasion, which is today, I do believe that there is some hope. But I doubt whether any government—this Government or successive governments— may have either the courage or the ability to take the steps that are needed. Today, in the nine minutes or so in which I hope to speak, I shall try to get down to a number of specifics.

First, there is no doubt that our economy has declined, is declining and will continue to decline in relative terms. We have gone from being a rich nation to a poor nation. We are probably one of the only declining developed countries in the Western World. This does not mean—as we have heard today—that the ability, the potential and the resources are not there. If one tries to analyse the economic situation, one finds oneself drawn continually to various economic theories of demand-push or consumption-pull economies, and I am neither a neo-Keynesian, a neo-Victorian, nor a neo-feudalist. Nor do I necessarily subscribe to the views of Milton Friedman, or Professor Laffer, or others, who may try to advance economic theory. However, I believe—it is a view to which I hold quite firmly—that when we have a poor and declining situation there is automatically a polarisation of political views. This does not mean a swing to the Left or a swing to the Right, but generally a demand by one side that in order to put matters right we must take central control and do it from the centre; and a demand from the other that we must have a form of laissez-faire capitalism, and let things move freely with free market economies.

The situation with which we are faced in this country probably prevents either of those solutions, and therefore leads to the dangerous element of compromise. As a result we make no progress, discuss permanently why we have made no progress, and forget above all the Dutch elm disease of our economy—inflation—which, often unbeknown and unseen, destroys from within.

I would put the view to your Lordships that it is time we thought less about government and economic theory and more about people. The noble Viscount, Lord Amory, with customary perceptiveness, put his finger on the two points: productivity and employment. It is a pity that we have to think about employment, because surely, logically, productivity should come first and employment would logically follow. But we cannot cut off the past. We are therefore faced with the thought of considering a workforce in the United Kingdom of some 22 million, of which incidentally 9 million are women. We are forced to say that we cannot tolerate a higher level of unemployment than the levels we have at the moment. Yet, if we go on trying to buy jobs, we are pouring seed corn down the drain. Therefore, I should like to begin on the question of jobs and productivity and try to lay a number of ghosts to rest.

It is all very well to try to swim against a tide. It is always expensive, dangerous, and one can often lose one's life. We are faced with a rapid transition in labour, initially away from an agricultural economy and towards an industrial society. I should like to remind the noble Lord, Lord Peart, that productivity in British agriculture, is, as he points out, second to none. But it only employes 1.8 per cent. of the total labour force. It is interesting to note, as a result of my analysis of trying to find examples of productivity over the past two years, that agriculture comes out above all, particularly in the monthly digest of statistics—from which I note that the number of rams and bulls in service always declines under a Socialist Government but in general the number of sheep and cows remains fairly constant, which is obviously a sign of increased productivity. I therefore dismiss agriculture because it is doing well, with considerable difficulties, notably from above in terms of climate. I move to manufacturing industry, which has lost something like 1.2 million people over a five to six year period. Manufacturing industry employs only one-third of the total workforce, and total productive industries employ about 40 per cent.

Increased productivity in manufacturing industry will undoubtedly create increased unemployment in those sectors. It is fair to say that manufacturing industry in the United Kingdom is probably between 22 and 27 per cent. overmanned, compared with that of our competitors. People may blame lack of investment for this. My German friends point out that the British people are the best in the world at working with out-dated machinery and equipment. One may blame investment. I do not say that it is lack of investment that causes the problem, but lack of initiative. There is no problem when it comes to money. When one asks banking friends, "When did you last finance a new plant to make something new in the United Kingdom?" very few of them can remember. There are odd plant extensions here and there, but nothing new.

The decline in jobs in manufacturing industry is bound to continue, particularly if we have increased investment and modernisation. That we must take as read. Then one comes to the balance of the economy, where 50 per cent. of employment is in the service industries. Service industries have one great advantage in that they tend not to be too capital-intensive, and tend to have a high level of employment. If one looks at the service industries over a period of time, with one minor exception one finds that all of them have increased the number of employees in their sectors, quite substantially in some cases. I do not necessarily speak here of insurance or banking or the financial world, but of tourism, hotels at one level, or even transport or services that go with it at another.

One must look at the general trend in this matter. If one analyses it in economic terms, it is the desire to move from being a blue-collar to a white-collar worker. Probably we are faced with the fact that everybody, if they could have their way, would not want to work in heavy industry with their hands It is logical that everybody expects their children to do better than they did, and that every child hopes to do better than his father. Therefore, there is a logical movement towards a better type of job, a white-collar job.

Government initiatives in trying to support development areas in general have cost jobs. They have often destroyed productivity. Once upon a time one remembers Wolverhampton and Sheffield as being the centres of the engineering industry. When development areas were created, in good faith people enticed work away from the productive centres into other centres, where it ceased to be productive. In employment I therefore suggest that many of these things should go by default. We should no longer look for special development areas. There are high levels of unemployment. For instance, there are 304,000-odd people unemployed in the South-East—the largest number on a regional basis. If we are looking at jobs as a whole, I believe that there should be a complete and utter rethink of area policy because we cannot buy jobs and have good productivity at the same time.

I now move to the second area, which is the question of productivity itself and why we do not have good productivity. If one asks, as I did today, a whole range of people, "What is wrong? Please tell me so that I may say something about it", they come back to the same thing—incentive. It may be because they have heard the word on the radio. Maybe they have heard the word somewhere else. But in general they say, "Why do we work?" It is not a question of asking why companies work. It is a question of what will motivate and encourage the individual to work, set up a new business, expand his area of operation within a company, or his area of operation on his own. That inevitably must be a carrot. It must be profit in one form or another, or a better way of life.

If we take a poll around the country at the moment we shall find to our surprise that very few people have any disposable income at all. That is what work is about. One should not be working just to maintain the roof over one's head. One should be working in order to have enough disposable income at the end of the day to improve one's standard of life, the standard of life of one's family, and that of others around one. I come here, inevitably, to the question of taxation. I refer to the Californian situation, and perhaps momentarily to Professor Laffer who pointed out that if taxation is nil, you cannot have a Government; if it is 100 per cent., people will not work. Between those levels lies a mean, above which the law of diminishing returns, in terms of productivity and other matters, sets in, and if taxation reaches that level it is disadvantageous to the country. The first sign of that is when people start to criticise the centre and accuse it of being paid too much. Perhaps it is fair to point out that people say that MPs are over-paid, but our MPs are the poorest paid people in the world. This criticism of the centre depends more upon emotion than upon fact.

I should like to try to suggest a shift in taxation, not necessarily towards VAT or those areas, but away from the indi vidual in employment and more towards profit, dependent of course upon the creation of profit in productivity. Currently every year the Government receive about £38 billion, and spend £44 billion. It is interesting that the debt service costs are almost as much as the total tax which the Government receive from company profits. The Inland Revenue's total revenue is about £21 billion or £22 billion a year, of which, surprisingly enough, only £3 billion is from companies, while £18 billion is from the individual. That amount has trebled since this Government came to power; it is no criticism of the Government—it is partly inflation and other factors. I have much sympathy with the staff of the Inland Revenue, faced with having to absorb three times the amount of revenue from the individual, and very little from the corporations. It goes further down the line: the big companies no longer pay tax. Because of the tremendous taking with one hand and giving back with the other, in real terms the level of taxation on the larger companies is relatively small; and yet they cannot absorb a higher level of tax because of productivity.

The burden of this lies on the individual, the smaller companies, the man seeking to build a business. I suggest that it is not a question of laissez-faire capitalism, or working from the centre downwards with increased bureaucracy; and it certainly costs more money to take with one hand and to give it back with another. It goes back to the grass roots, to creating the same feeling as perhaps occurred in some small way in Jubilee Year; in persuading the individual that he wants to build a better way of life for himself and his family, and giving him the means whereby to do it.

7.32 p.m.

Lord KILMARNOCK

My Lords, there are two propositions contained in the wording of the noble Viscount's Motion. The first is that our productivity is dangerously low in relation to that of our main international competitors. We used to know exactly who they were, but these days new members are constantly joining the club without, one might say, the formality of being proposed or seconded. Anyone who saw the extremely revealing Granada Television programme on South Korea on Tuesday, 20th June, will have a good idea of this new type of membership. We were shown the means employed for the production of footwear, cutlery, cars and steel, and we were given some idea of the enthusiasm of the workforce. Next week your Lordships will be debating shipbuilding, and South Korean competition is bound to figure prominently in that debate. Not only has the EEC Commission come up with a proposal for the rationisation of the Community's shipbuilding industry—shedding some 60,000 jobs—but it is now drawing up proposals for a cartel to control the production of synthetic fibre. It is also expected to issue a general proposal on the so-called "crisis cartels" during the summer.

All these proposals and emergency measures very forcibly suggest that we shall have to carry out a phased withdrawal from our old labour-intensive industries, or at least rationalise them in such a way that much manpower will be shed along the route to competitive efficiency. Some people will say that that is not such a disaster, and that what we ought to be doing is reinvesting in fields where high skill and high technology are required. Clearly, better productivity in industries for which there is a market is the only way to stay in the international industrial league at all. But I should like to pause here and ask not only myself, hut all of your Lordships, what is the object of productivity, or indeed of industrial activity of any kind? It is surely to provide a stable and acceptable way of life, with adequate earnings, adequate services, and adequate leisure for the whole of our population; not just for a part of it, but for the whole of it. The question that follows is: How far will increased productivity contribute to this?

This brings me to the second part of the noble Viscount's Motion, which stresses the need to stimulate new and constructive job opportunities which would follow from an improvement in our national productivity But, my Lords, with great respect, would they? I do not want to be repetitive. The noble Lord, Lord Selsdon, has touched on the question of jobs, but this is so important that I feel that I must mention it, too. I have here a publication, which I am sure many of your Lordships have read. It is the Manpower Services Commission's Review and Plan published in November 1977. In it the commission admits, in rather small print, at the bottom of a graph on page 21, that they expect a "crude job gap" of 2,320,000 in 1981, if there is no net increase in jobs on offer by that date. This appears to include an allowance of 300,000 unregistered unemployed; but it is still a frightening figure, which would give rise to the most horrifying social consequences. And it is almost certainly an underestimate. The Manpower Services Commission is in the job creation business, and is bound to err on the optimistic side. According to an article in The Times of 24th June, the Cambridge group of economists has come up with a forecast of 2.9 million in 1985. I think that the noble Lord, Lord Lee of Newton, gave a figure of 2.7 million; that was possibly for an earlier year. The Institute of Manpower Studies at Sussex University has come up with a similar figure. The Institute of Management, Berlin, thinks that the 3 million mark might be reached in this country by 1980, discounting special temporary Government schemes to create jobs.

The Manpower Services Commission admits the difficulty of closing the gap, even if it is contained within their own lower estimate. After a graph showing the number of additional jobs that would be needed to reduce unemployment to various more acceptable levels by 1981, they go on in Chapter 2, paragraph 20, to concede: …that it is improbable that in the medium term employment will increase at the rate implied in the last paragraph". In Chapter 2, paragraph 23, the Commission say: Though the depth of the current recession makes it difficult to separate cyclical from structural factors, it appears that changes are taking place in the world economy which are likely to have a significant effect on British industry and commerce …". This is a very welcome recognition, though I feel that the word "recession" is question begging, as it predicates an improvement that may never take place, at any rate in terms of employment. In Chapter 2, paragraph 25, the Commission indicate their support for the Government's strategy, which they say is intended to improve competitiveness. However"— they continue— there is a dilemma in this policy. The industrial strategy depends on high productivity, growth and investment, which will not necessarily increase employment in the short term…". I am not trying to attack the Manpower Services Commission. Given their terms of reference, I think that they have stated this dilemma with commendable honesty. However, the question forcibly poses itself: If the strategy will not increase employment in the short term, why should it increase it in the long term? In Chapter 2, paragraph 26, they go on to recognise that technological advance is at the heart of the dilemma. In spite of low investment"— they write— there has been a consistent trend in British manufacturing industry towards new technologies and more capital-intensive methods of production, and this trend is, in our view, likely to continue. The next five years are likely to see advances in computer and systems technology, not least micro-processing"— which was referred to by the noble Lord, Lord Gregson. The Commission goes on: In the major manufacturing concerns which are at the frontiers of this new technology there may well be a reduction in job opportunities…". But is this the only area in which there will be a reduction in job opportunities? It is sometimes suggested and argued very cogently—it has been argued in this House—that a kind of spearhead or elite corps of highly competitive, high technology, high value-added industry should he developed in order to bring in the profits which could then be spent on an ever-widening range of service industries, providing jobs for everyone. This sounds very attractive; but is it feasible? Is it not likely that the new technology will penetrate the service industries, including the retail trade, just as much as it will penetrate manufacturing industry? In the last of the four recent Times articles specifically on unemployment we read: Mr. Barrie Sherman, research director at the Association of Scientific, Technical and Managerial Staffs, is one of those who believe that service industries such as banking, insurance and retail distribution are highly vulnerable. Electric typewriters, with a memory allowing typists to correct, edit and repeat previous work, are, with other advances, likely to send much routine office work 'very much up the spout'"— his words, my Lords. No fewer than 800,000 people are currently employed in secretarial work alone.

I do not want to be a Jeremiah, and one does not have to take as gospel every forecast, as they are all necessarily based on some unquantifiable and unknowable factors. But when that is said and done, there can be no doubt that we are in an area which should be causing very grave concern. The serious Press shows some awareness—witness The Times articles. The media show some awareness—the Granada Television programme I mentioned is a case in point—and the universities are aware of it. But is the political establishment really aware of it; and, if so, is it taking it to heart? In chapter 3, paragraphs 10 to 13, of its review, the Manpower Services Commission itself indicates some of the questions which it thinks should be asked, but stresses—and I quote— that it is not for the Commission to lead the debate". That is a perfectly proper stance for a Government agency, and I do not dispute it. But who, then, is going to lead it?

In the debate initiated by the noble Lord, Lord Hanworth, on the 15th May, I ventured to suggest a Select Committee of your Lordships' House in the next Session on the subject of unemployment, and I have received some support for this proposal from noble Lords on all sides of the House, for which I am grateful. Others have felt strong misgivings about the width and range of the subject. The noble Viscount, Lord Amory, himself is one of these, and his great experience and wisdom can never be disregarded. It has also been suggested that it is properly a matter for a Royal Commission. But even if that should be the eventual outcome, I cannot get it out of my head that your Lordships' House should at least start the process by clearing the ground of some of the scrub of misapprehension and wishful thinking with which it is covered at present.

I take very much to heart the danger of too wide a focus, but there are a good many facts and forecasts now available, and more, it appears, are on the way. For instance, the social and economic implications of micro-electronics have, we are told, been fed to the Think Tank; and a similar study is under way by the Advisory Council for Applied Research and Development, which will also consider the manpower consequences of the new technologies. The latter body has been referred to this evening by the noble Lord the Leader of the House, and it is welcome news.

Both bodies come into the category of advisory bodies within the framework of Government. Will they publish reports; and, if so, what independent body is going to draw together all the evidence and all the studies and give a balanced view? Surely it would be of some value if we were to review them and make an estimate of the upper and lower limits of unemployment in the medium and the long term. Next, should we not set out and summarise the various remedies which have been proposed to date, which include longer education, less overtime, sabbatical years, work-sharing, earlier retirement, labour subsidies and (a theme which appears to command considerable support in your Lordships' House) the encouragement of small businesses—and, I would myself add, the self-employed? If we went no further, I believe we should be doing a useful job.

Personally, I should also like to see a committee come up with some recommendations on where we should be directing not only our thoughts but our actions. But I accept that some noble Lords with far greater experience than mine feel we should not be too ambitious, and if that were the majority feeling I would settle for a ground-clearing operation. But whatever form our inquiry takes, if it takes any at all, there is no doubt in my mind that we are at present reacting with crisis measures towards phenomena which stem from fundamental changes taking place in the world economic and social order. Unless we are extremely honest with ourselves and far-sighted— and, perhaps I might add, shrewd —unemployment will inevitably grow and spread, rotting the whole fabric of our society and destroying the beneficial results of any improvement in productivity or improved competitiveness which may be achieved. I believe it is the duty of this House to warn the Government and the country of this appalling danger.

7.45 p.m.

Lord COLLISON

My Lords, it is getting terribly late. I assure your Lordships that I have been outside scratching out from my notes as much as I can, so if I sound disjointed your Lordships will know the reason why. I should like to thank the noble Viscount, Lord Amory, for introducing this debate. In my past capacity as General Secretary of the Agricultural Workers Union, I have had dealings with all three of the ex-Ministers of Agriculture present tonight. I conceive Lord Amory and Lord Soames to be personal friends, if not in the way that one uses the word "friends" in this House, while my noble friend Lord Peart, the Leader of the House, is my friend on both counts; and it has been a pleasure to listen to them. Although Lord Roll of Ipsden is not here, I should like to put on record my appreciation of what he had to say to us this evening. It was excellent, and I hope it will not be another year before we hear him again. We should like to hear him very often.

Agriculture has been mentioned several times during this debate, and I am sure your Lordships will forgive me for mentioning that industry again because of my personal interest in it. I conceive that in all the speeches we have had, many of them ringing a little of doom, agriculture has been an exception, in the sense that it is a success story. Indeed, the facts show us that agriculture's production record is something of which the industry can be proud. I think this is recognised by the general public. One hardly ever hears a criticism of the industry and of those people in it. One also hears very little about problems arising from industrial disputes in agriculture, because there have not been any; but perhaps I can mention later what I feel to be the reason for that.

Over a period of time the area of agricultural land has been declining. Indeed, over the five years to 1972–73 the average loss of agricultural land in the United Kingdom was about 144,000 acres per year, much of which was good agricultural land, despite the Ministry's efforts to conserve it. Of course, it went for urban development, for industrial development, for recreational purposes and for the making of more and more roads. But despite the loss of this productive potential from all that land over the past 25 years, the agricultural production of this country, of our industry, has more than kept pace with the growth of population in the United Kingdom. Farmers and farm-workers have increased their contribution to the nation's food supply to about two-thirds of the total supply of the types of food which we can produce here. Furthermore, as has been mentioned already, this has been done with a very much reduced workforce. Output per head, at constant prices, increased, on average, by some 6 per cent. per year between 1960–61 and 1974–75. The increase is still going on; and, although it has been reduced over the past two years, this is due to a conglomeration of adverse factors for which the industry is not responsible. Indeed, it included two years of bad weather conditions, including drought. As I say, the people in the industry were not responsible for that; and, indeed, I understand now that productivity in agriculture is back to the pre-drought levels. I hope that this is so.

If one wishes to make a comparison with the EEC, the Agricultural EDC report, the "small Neddy" report, published last year, makes it clear, as they say, that Although precise comparison is extremely difficult, it is broadly true that United Kingdom agriculture is a relatively efficient producer in European terms"; and that, over the past decade, United Kingdom production has grown as rapidly as the average rate for the EEC, excluding Holland which has done better than any of us in the Common Market.

Finally, my Lords, the proportion of home-produced food as a percentage of total food consumption has risen from 49.3 in 1960 to 52.8 in 1975. On any count, that is a good record. Of course, I know, we all know, that much of the success is due to the introduction of more and better technical practices, due to research and, in particular, to the fine work done by the Agricultural Advisory Service, and also, if I may add this, by the Agricultural Training Board which the union, my old union, and I, myself, fought so hard to get established in years gone by. Great credit must go to these sources, but also to the people in the farming industry who have adjusted themselves quickly to the use of modern technology, modern machinery and to all the demands of what is now a highly sophisticated industry.

Speaking for a moment for the agricultural worker, it is clear that he has played his part, although I think that most people will agree that, so far as his remuneration is concerned, he still stands pretty low in the tail of the queue. His basic wage is still only £43 a week and, although we have a wage structure now (another thing for which my union and I fought strongly) the craftman's rate is only £47.30. As Mr. Bert Hazel said in his presidential address to the union's conference last May, there is still only one-third of the full-time labour force in possession of a recognised craft certificate. He added—and I agree: This is a deplorable situation in the light of the known skills and responsibilities of our present-day workers". That is not much encouragement for the workers, is it? Yet despite this (one could feel) disincentive, Mr. Charles Jarvis, the chairman of the British Farm Produce Council, writing in Country Life of June 29th—and I happened to read it —was moved to say: I hope very much that the number of professional farm workers will not diminish but, if anything, increase. They will be vital if we are to substitute imports with home production and at the same time maintain the beauty and interest of the countryside. Besides… I should like to think that the happy and satisfying relationships enjoyed by so many farmers and their men may continue for ensuing generations and set an example for others to follow". This is where the point of my speech comes alive. We have something in agriculture which would clearly be of advantage in other industries. Some, the cynics, would say that because of this friendship between the farmers and the workers, the farm workers are at the lower end of the queue when it comes to remuneration. If that were so, it would be a disgraceful thing.

But I would rather make another point. I should like very much to see industry as a whole moving away from the chaotic jungle which is now thought to imply that muscle alone can achieve what people deserve and what they ought to have. Is it to be wondered at? One must not forget the history of the working people in this country: for many years having to fight for union recognition and having to wrest from unwilling employers a reasonable standard of living and having to use any weapons they could find. Those old concepts, those old wounds and scars still sometimes ache. Even today, you see time and time again a trade union putting in a claim, the employers resisting it and only conceding something when there has been a strike or the threat of a strike. That leads people to believe they have to learn that if you want to get anything in terms of wages and conditions of employment you must have muscle. I want to get away from that. I would rather see a situation where work people got what they were entitled to in terms of their dedication to the job, their responsibility and their skill—with no argument. I do not want to see people who have been left behind—including my own union and many others likes nurses—having to bring up the tail of the queue.

It can happen. I am sure it can happen. I am one who is optimistic enough to believe that industry is moving in that direction. That statement in Country Life may have been naive; but I think it is true. There is, I think, a very good reason why it is true that farmers and farm workers get on so well. In farming, the labour force is small and employment on each farm is limited. You often find just one farmer and one farm worker; sometimes two or three; and, rarely, a dozen. The result is that the farmers, employers and workers, walk the farm together. They discuss what needs doing. If the farmer changes his policy, he explains to the workers why he changes it. The workers give advice and often argue; but they know what they are doing and why it is being done.

This is good communications. I spent years on the Royal Commission, the Donovan Commission; and if I learned anything there, it is that if you want good industrial relations, you must have good communication. I believe that men are sensible and that if they understand, on both sides, what is going on and why, then you will get agreement and a good co-operative effort from both parties. That is one of the reasons why I believe that agricultural workers and farmers get on so well. Let me say clearly again that if advantage were to be taken of that in order to keep the farm workers down, that would be disgraceful. I must be quite adamant and clear on that.

In agriculture, there is something else. In agriculture, you are working on the land with Nature. It is a humbling experience. If you forget you are working with Nature and have got to go her way and not yours—you can improve her; but it must be in terms that Nature is prepared to accept—woe betide you! That is a humbling and salutary experience. Perhaps it is not quite the same in a huge factory where all that you do is to press a button and hundreds of horsepower are at your disposal. Farm workers and farmers are in close touch with the essentials of life. This must mean that they are very close to the job which they are doing. You sow the seed, you tend it, you watch it, you fertilise it and you bring it to harvest. You wean a calf and you see it grow to maturity to produce milk. You are involved in what you are doing from start to finish. That involvement gives something rather special. It gives people a real job satisfaction when it is done—despite anything and everything else. That is what I want to bring out this evening. I will not go on. I am not an industrial person. I have never worked in a factory. I am sure there are people about, consultants and management organisations, who could find ways and means of bringing into other industries this closeness as between what employers are wanting to do and communicating to workpeople how it is done. I repeat, good communications are of the essence, and if one could get involvement by both managers and staff, that too would change the pattern of our industrial relations set-up.

I am a profound optimist. I believe that these things are going to take place. The noble Lord, Lord Soames, asked: Is it not time that we moved away from the idea of "we" and "they"? I think so, too. It can be done only if employers are prepared to concede that workpeople are entitled to have all the information which they ought to have and to go down with them on the shop floor and make it clear that they are not looking at it in terms of "we" and "they". If this example of agriculture is of any help and can be transmitted to broader industry, then what I have said this evening may be of some use. I can only hope so.

8.2 p.m.

Earl DE LA WARR

My Lords, it is impossible, in the very short time that I shall allow myself, to cover the whole spectrum of the problem that is posed by the noble Viscount's Motion. We agree that productivity is far too low, not because of any absolute measurement but simply by comparison with our competitors. This country is at the moment taking a terrible beating from all our competitors in Europe, the United States and Japan. I can see no end to this beating, and I can see it getting worse before it shows any signs of getting better.

It might be useful to mention some of the more glaring examples. The motor bicycle industry, for instance, has already disappeared completely. The same applies in a very large measure to transistors, transistor radios and other electronic audio goods. It applies to the extent of 75 per cent. to refrigerators; and the television industry—if I may mention something that is my concern—is having a very hard time of it in small screen sets. Will anybody doubt that the invasion of our domestic motor car market is still growing very fast indeed? Why is it that we in this country are producing so much less than we could, even given the inadequacies of some of our plant and machinery—a very real factor? Does management, first of all, bear a share of the blame? Yes, of course it does. There is nobody who does not bear a share of the blame.

I should like to pick out from among a number of things that I could use, one facet of the inadequacy of management, because it appears to me to be among the most important. This is its failure to communicate, and this is the point on which I agree so strongly with the noble Lord, Lord Collison. Every organisation—and this starts right at the top—must have the machinery, and the will to work it, by which policies and plans are fed down the line so that every manager and man knows what he is doing and as much as possible of the context in which it is being done.

I believe it is a first line manager who has the most difficult time in this respect. He is in day-to-day contact with the labour force. To my certain knowledge, some of them have to spend up to 30 per cent. of their time dealing with complaints from shop stewards. I noted that the noble Viscount talked about 50 per cent., and the noble Lord, Lord Plowden, talked about 75 per cent. I believe that they were dealing with the motor car industry, whereas I am not, so that may provide some reconciliation. But if the first line manager is not fully briefed by his superior, he is not given the best chance to deal with his shop stewards; nor is he able to do his best in the job of communicating to the workforce. There are far too many cases where the supervisor does not know what is happening and he is told by his shop steward instead. That, in terms of communications and efficiency, is something which is very, very bad.

Why are sickness and absenteeism at their present level? I believe that these two together are responsible for a much greater loss of output than is commonly realised. I know of no single reason why these things occur, nor would I attempt this evening to give your Lordships any analysis. I know of one company where, on an average per man with holidays of 20 days, public holidays of eight days, absenteeism at 16 days and sickness at 11 days, 55 days out of 250 are lost. Effectively that means that the company is already on a four day week. That is an example which speaks for itself. As to sickness—and I am sure that no noble Lord will accuse me of suggesting that everybody who goes sick is a malingerer—there must be many who will understand what I mean by "rota" sickness, whereby in a particular unit or gang a proportion will go sick each week. This, together with straight absenteeism, gives the most obvious example of the failure by those who are guilty to realise the seriousness of their actions. It represents too, I suggest, a fearsome lack of managerial discipline.

Why do we settle so many of our disputes only after unofficial strikes? I do not believe that there are any more mistakes made by management or employees in this country than abroad. We all have our grievance procedures. The difference seems to be that our foreign competitors carry on producing cars while the grievance is being dealt with. Too often in this country tens of thousands arc forced to stop work, frequently against their will, until a grievance involving perhaps a handful of men is settled. I make no bones about putting the blame for this fairly and squarely at the doors of the trade unions, who must put these matters to rights and must do it very quickly.

We do not get to the heart of the matter until we come to restrictive practices, refusal to work at more than a cer tain rate—and the noble Viscount, Lord Eccles, talked about going slow—the refusal to do another man's job or to let another man do yours. What is behind these things and what, too, is behind the constant refusal to agree to reduce manning levels on new machinery? Let no one be in any doubt that this is going on all the time in British industry.

It is my own view, without any doubt, that the fear that to give way in these matters is to increase the chances of losing one's job is fundamental to the whole question. Perhaps it is a head-in-the-sand attitude. Certainly I believe it to be so, and I think that most of your Lordships would agree. But until we recognise it for what it is, and until we recognise it with sympathy and even with compassion, we have no chance of putting these attitudes to rights.

The fact of the matter is just this: this country could have more jobs and more productivity. What it cannot have is less productivity and more jobs. Any industry which consumes more labour than its foreign competitors in making a similar product will inevitably be unable to sustain itself, and so the jobs will disappear. And it is no answer at all to think in terms of import restrictions or Government subsidies. So we in this country must embark on a sustained campaign to get these factors across. The British Institute of Management is doing considerable and admirable work in this direction. That is good, but it is not nearly enough. Government employees, and particularly the trade unions, must do it as well, for without an increase in output per head we shall find ourselves slipping ever further down the standard-of-living league.

8.13 p.m.

Lord GORDON-WALKER

My Lords, it is getting late and I am getting hungry. In the public interest I have thrown away half my intended speech. To the noble Earl who has just spoken, may I say that his was an extremely managerial speech. Over-manning on new machines can be the fault of management as well as of trade unions. I remember a firm in my old constituency which introduced some expensive new machines which were going to involve a great change in working arrangements. They spent three months talking about it with the trade unions, and then it all went smoothly. If they had put it into force straight away there would have been a hell of a row and probably the whole factory would have conic out. I should like to congratulate my old friend, the noble Lord, Lord Roll of Ipsden. Every possible favourable thing has been said about his speech. I would only say that those of us who know him best were not surprised at the extremely good speech he made.

There has been a good deal of mutual congratulation during the course of this debate, but I must say that, especially in regard to the earlier speeches, I have never experienced such a cold douche of inspissated gloom. I can see, especially in the earlier speeches and also in that of the noble Lord, that this is one convenient way of attacking the Government when you are getting near an Election. The noble Viscount, Lord Watkinson, described this debate as being in an "electioneering atmosphere". I am sure that is so.

One matter which I do not think has been mentioned during this debate is the important factor in the shaping of the economy of the prevailing economic theory of the day. The present fashionable theory is the monetarist theory, and that has affected our fate quite a lot. Like all previous fashionable theories, such as Keynes and so on, it is suited only to the special circumstances in which it has arisen: namely, the depression caused by the phenomenal rise in oil prices. That has not been mentioned much in this debate, but it has been an important factor in the world depression. It took wealth out of the oil importing countries which has not yet been recycled. It imposed great strains on the world economy, and it created the recalcitrant and unprecedented problem of simultaneous high inflation and high unemployment. That is something we have never had before, and I am sure it is due to this special new factor. In these special circumstances, the monetarist theory has helped to cope somewhat with high inflation, but it has done nothing to reduce unemployment. Indeed, the application of the theory has led rather to an increase in unemployment.

The only countries which have escaped the more serious consequences of this depression caused by high oil prices have been Germany and Japan—partly because with their more modern post-war equipment they could achieve very high exports and could therefore afford to pay for their high oil imports. But even Germany and Japan have not escaped altogether from the effects of the world depression. The special circumstances that gave monetarist theories a measure of validity will change as the lost wealth is fully recycled. Then, as usual, I suppose the outdated theory will go on and be applied, and will do a great deal of economic damage.

No single country, obviously, can solve the present problems alone, and it seems to be extremely difficult to get an international solution, because no country is prepared to take the lead in reflation. We can do something—and here I support the speeches made mainly from the other side of the House—towards helping productivity by reducing taxation still further. I was very interested in the speech of the noble Lord, Lord Selsdon. I had not realised how much could be put on profits and taken away from our personal pockets. I approve of that, but we should also have to increase indirect taxation, of course, because otherwise we should never manage to balance the Budget and we should run into a huge deficit. The reason why—

Lord SELSDON

My Lords, I wonder whether the noble Lord would permit me to make a point: provided the profits are created.

Lord GORDON-WALKER

Very well, my Lords; I shall not pause. I will go on. The reason why we ought to substitute indirect taxation to a large extent for direct taxation is that people prefer taxes they are not directly conscious of and which they can, if they wish, escape by consuming less of the article that is taxed. What people do not like is putting their hands in their pockets, writing cheques, or seeing a deduction from their pay cheques. They do not like to see money actually taken out of their possession. They do not mind the same amount of money being taken out of their whisky, beer, cigarettes and so on. Perhaps this is not good sense, but it is the psychology of people, and one ought to adapt economic policy to the psychology of people. It is the only way we can get more out of people—we have all been talking about how you can get more out of people—and one way you do not get more out of them is to flout their psychology, and do things which they do not want you to do when you could do something else which they would not mind nearly so much.

For this reason, my Lords, I favoured the 2½ per cent. surcharge on the employers' contributions to National Insurance, together with a reduction in income tax. As the levy will be passed on to the consumers, this will be tantamount to an indirect tax replacing a direct tax, and it is a rather ingenious way of doing it, because people will be even less conscious of that tax than of most indirect taxes. I can understand the political considerations which have compelled the Government to reduce the surcharge to 1½ per cent., but I deeply regret the necessity.

8.20 p.m.

The Earl of HALSBURY

My Lords, like everybody else who has taken part in the debate, I should like to thank the noble Viscount, Lord Amory, for his initiative in placing upon the Order Paper the Motion that we have today, more particularly as a long-standing engagement prevented me from attending the debate on an associated Motion of my noble friend Lord Baker, a couple of weeks back. I should also like to add my congratulations to those of others to the noble Lord, Lord Roll, for an extremely elegant maiden speech, delivered in a style highly conformable to your Lordships' taste. I am sorry that I missed the beginning of the speech of the noble Lord, Lord Carr, because both he and I, in our salad days, used to be works managers with the shop floor as our bailiwick, and I am always interested in anything that he has to say, but I shall read the report of his speech in Hansard tomorrow.

Twenty-five years ago, when I was managing director of the National Research Development Corporation, my chairman, then Sir Alan Saunders, asked me to take the trouble to go on trade union platforms and talk to them about the inter-relation between productivity and innovation—which was very much my business at the Corporation—and its influence on employment. This I did, and I was given friendly invitations on quite a wide scale, as a result of which I had to work out for myself the doctrine of what I was talking about. About five years after that, I found myself President of the Institution of Production Engineers. Once again I realised that I had a job of public relations on my hands, and once more I had to work out my doctrine on this subject. There is a mental block in trying to receive this doctrine. I cannot argue my case; it would take too long and the time is late. All I can do is to pretend that I am Martin Luther nailing up his thesis on the door of Wittenberg Cathedral and state my conclusions—

Lord GORDON-WALKER

There were 94 of them.

The Earl of HALSBURY

Mercifully, my Lords, there will not be so many points in mine. I shall try to be as brief as I can about it. I start with the picture of a static economy in equilibrium at full employment. The conditions of equilibrium can then be stated quite simply. The private and corporate spendings should balance the output of consumer goods, and private and corporate savings should balance the output of capital goods. That would be static, assuming that next year's production was exactly the same as this year's. That, of course, is an unreal model. If anything happened to disturb it—and something would be bound to disturb it, because reinvestment and replacement is always on more productive equipment, so that the economy would tend to grow even if it was static to start with—you would have to manage four things.

You must have a policy for employment. How are you going to transfer people across the economy, from one kind of employment, such as the production of goods, to another kind of employment, such as the discharge of services—redeployment? You must have a policy for unemployment if it happens. You must have a policy for innovation and productivity, which should be linked to your policy for employment. Then you must have a policy for investment, which, again, must be linked to innovation and productivity. Any attempt to settle policies for these things in isolation from one another can only produce progressive disequilibrium, and no economy ever is in equilibrium. It is always growing or receding, or one sector is growing at the expense of another, or the terms of trade with its trading partners are altering. It is subject to the unexpected eruption of domestic events in one country or another; sometimes international events.

If I say that no management is 100 per cent. efficient in dealing with this, I am not concerned to attribute blame. I am concerned only to isolate the cause. OPEC comes along with a 5 per cent. increase in oil prices, as the noble Lord has just told us, and the whole thing is thrown into disequilibrium. It does not follow, because the Government of the day fails to manage the situation, that it is necesssarily blameworthy. But we must all be clear what it is we have to manage.

Because of managerial inefficiency we are always in a state of either inflation or deflation, running from one to the other —inflation which may accompany or may not accompany unemployment; and deflation which certainly can cause unemployment. But, currently, we are suffering from "stagflation", in which we have the worst of both worlds—unemployment coupled to inflation. The important point to remember is that, unless we drive the industry in capital goods to saturation at full employment, the purchasing power of its employees will be reduced, it will fail to load the industry in consumer goods and the whole thing will spiral downhill with sad consequences, unless plans are concerted in advance. It is no good waiting for the unemployment figures to rise before asking ourselves: what are we going to do about it? We must know in advance what we are going to do about it.

Let us look at some of those who will suffer from it. The first casualties are the marginally employable, the not very good employees. They are the first to be got rid of, when people are being got rid of. If a man is only marginally employable, and spends the next two or three years in the dole queue, he will then be totally unemployable. That is how we recruit a small core of unemployable people to the permanent damage of society, inflicting a wound upon it. The next to suffer are the school-leavers and freshly graduated university students. It is totally demoralising for a young man to start his career in the dole queue. Good social work could be found for all of them. The young would queue up to do it, if they felt that they were making the world a better place to live in. There are two centuries of squalor, due to an uncontrolled, unenvironmentally-minded, pioneer industrial revolution. But if the bulldozers in mothballs are not waiting to be driven at the word of command, it will be too late to do anything about it.

The next point with which I want to deal is one which was touched on by the noble Lord, Lord Rochester, and which I want to expand; that is the difference between imaginary and real dangers. The point about the abominable no-man, in his capacity as a manning negotiator, and the abominable snowman of the Himalayas is that they both have their heads turned backwards on their shoulders, so that they can run away from danger. The reason why you cannot catch an abominable snowman is that, because he is not looking where he is going, he falls into a crevasse so that you never find him. In precisely the same way, the abominable no-man of the negotiating table runs away from imaginary dangers —that is, the creation of unemployment, due to technological innovation and rising productivity—slap into the jaws of real unemployment, due to mismanagement on the economic front, notably of the capital sector.

In case anybody needs to have this point more emphasised, think, my Lords, of all that has happened in the last 30 years. That takes us back to 1948. The war was over and demobilisation was more or less complete. We had very much the same workforce as we have now. The population has been growing only very slowly, about one-half per cent. per annum. I do not make any allowance here for immigration. Look, my Lords, at all we have now, compared with what we had then. Where has all the labour to make television sets come from? Where has the greatly expanded motor industry got its labour from? What about the boom in reproduced music, transistor radios and so on, which the noble Earl, Lord De La Warr, is so busy getting into a bad condition. What about all the computers, the washing machines, the washing-up machines, the spin driers and other things we make now. Where does the workforce come from? It simply comes by redeployment from more traditional industries whose productivity has been rising. It can happen in no other way. So that novelty does not create unemployment.

What does matter is the structural unemployment that occurs in the capital goods industry, because capital goods need readily accessible steel, and steel needs readily accessible coal. So that at every coalfield you have the regional problem that they are all in it together, and there is no means by which one can be redeployed into another. This is what happens through failure to manage the investment rate in relation to employment on the capital goods side. There are the groundless fears and there are the well-grounded fears, and I have always come up against a block in trying to explain this. I have explained it on union platform after union platform. I have explained it as President of the Institution of Production Engineers, at lecture after lecture in academic societies. I can get it through. I can probably get it through to your Lordships tonight. I have got it through, over and over again, to my old friend, the noble Lord, Lord Collison. He and I sat together on the North Thames Gas Board for 12 years, and he knows very well my views on this. But when it comes to getting through the barrier, it seems to stop.

That was a point touched on by my noble friend Lord Roberthall, who told us the story of how Vincent Tewson tried to put this point across but he did not seem to get it through. It gets as far perhaps as the more responsible leaders in the TUC and the more statesmenlike chairmen or secretaries of unions, but it does not get through, and that is the real problem we have to solve. It is partly connected with our union structure. It is quite different from the West German union structure. The extraordinary thing is that the flotsam and jetsam of the prewar German labour movement came over to this country after the war and took the advice of the TUC. They said, "We've got to have a grass roots reconstruction. Advise us how to do it". What they got on the advice of the TUC was 16 sectors of the economy and one union per sector. That at once solves demarcation disputes. The union takes responsibility for pay differentials, and so on. I shall not elaborate on that point because I would merely be repeating what I said in a debate about three or four weeks ago and I refer your Lordships to Hansard if you would like to see that argued in more detail. Why can we not take our own medicine? "Physician, heal thyself". That is our problem, my Lords. We have to try to get it across.

The best seed-bed for innovation is a prosperous, profit-making industry. No lame duck ever hatched an egg, not even if another duck laid it. I remember an old story of a chap who visited a lunatic asylum. He was rather intrigued to see one of the lunatics hitting himself on the head with a hammer. He went up to him and asked him why. And the chap said, Because it's so nice when you leave off!" We will stop doing lunatic things when we recognise what is the structure of the problem that we are faced with and the need to get this across somehow, either through a reconstructed union movement or the union movement as it now is. "To foresee is to govern". Those words were engraved on the lintel over the door to a boardroom where I have had the honour to sit for some 20 years. I commend them to your Lordships' House and to the world at large.

8.32 p.m.

Lord COCKFIELD

My Lords, may I too join in congratulating the noble Lord, Lord Roll of Ipsden, on his speech. I have listened to him on other and more informal occasions and what he says is always both interesting and constructive.

We face, as the Motion says, a very dangerous situation. It is not pessimism to say that. Unless we are prepared to recognise it and face up to it we will never solve it. The seriousness of the situation can be illustrated by one fact only. Over the last 10 years output per head has increased by a total of 20 per cent. only. That is a compound rate of growth of less than 2 per cent. per annum. If we may now translate that into actual hard cash, at the current level of earnings it represents an increase per man of £1.50 a week. Any increase in pay above that level is simply an addition to inflation. A £10 increase in pay—and I am talking about the longer term; I am not trying to single out a particular pay round—is an £8.50 contribution to inflation and a £1.50 increase in real income. That illustrates another point; namely, that all of our problems are in fact linked to one another, and what links them together is the dangerously low level of productivity. Inflation, unemployment, the balance of payments, arc all in the end linked to low productivity.

I want to speak in detail about one subject only; that is, the level of industrial investment. Some years ago it was fashionable to say that all we needed was more investment, and we had a great paraphernalia of investment incentives introduced. As soon as one failed another one was introduced and that produced no better result, either. It has now become fashionable—and my noble friend Lord Carr of Hadley referred to this—to say that what we need is to use our existing equipment more efficiently.

There is some truth in both of these assertions but they are essentially only the two sides of the same coin. It is perfectly true that if we cannot use existing equipment efficiently we are not likely to use new equipment efficiently, either. But equally, if we go on using old and outmoded equipment, we will never match the level of productivity of our competitors. In fact, what we are dealing with here is not a single phenomenon at all; we are dealing with an immense number of individual firms. The circumstances of these firms vary very much. There will be some firms which are already efficient, which have good labour relations and where what one needs is an increase in the amount of physical investment. There will be other firms which are inefficient and which possibly have poor labour relations, where the first thing that one has to do is to improve the level of efficiency and the labour relations.

There is therefore no single solution. There is a variety of problems, and a variety of solutions is needed. Investment depends ultimately upon four factors: First, the need for a market for the output; secondly, upon the willingness of the workforce to operate the new equipment efficiently and without unreasonable conditions; thirdly, upon the finance to provide the investment—preferably generated by the company itself, and I am going to come back to that in a moment; and, fourthly, upon the investment showing a proper return on the capital employed and—and this is most important—on providing the funds for its own replacement in due course.

I am not going to comment on the labour-relations side of this problem. A great deal has already been said on that; a great deal has appeared in the Press, and a great deal is known about it. I want to comment on the quite common allegation today that there is no difficulty about providing finance. There is no difficulty about providing the finance that people do not want to use. But that is not the real problem. We have lived through a period—not only in this country but also elsewhere, although it has been worse in this country—when the rate of return that is earned on capital has been steadily declining, and at the same time the cost of raising new capital has been steadily increasing. It is not surprising, in those circumstances of a diminishing return and of a rising cost, that there should be more money available than people are willing to borrow. It is only by putting those conditions right that there will be created conditions in which investment can be undertaken.

There is a job here of course for everybody to do. This is not just the responsibility of Government. It is not just the responsibility of the trade unions. It is not just the responsibility of industry. It is the responsibility of all three. So far as Government are concerned, the most valuable thing they can do is to undo a lot of the things they have done over the last few years. Indeed, one of the more hopeful signs is that in some small measure since last October they have started undoing some of these things.

One cannot expect to find drive and motivation on the part of the management—and a great deal of investment depends upon the motivation of management—with the kind of taxation regime we have at present, any more than one can expect to see the same motivation on the part of the skilled worker, if his position is eroded both by pay controls and by the pattern of taxation which has grown up, over the last few years, partly deliberately and partly as a result of inflation. So there is a real and a valuable part for Government to play here, but largely a part in taking action to put right damage which has been done.

There is a very important part for the trade union leadership to play, because they have to bring home to their members that in the long run the wellbeing and the prosperity of their members can only come from a rise in productivity. One of our major problems as a nation is the wish to maintain a standard of living, both public and private, which is higher than our level of output justifies. This has been the source of so much of our trouble, so many of our difficulties, from inflation onwards, and this one we can only put right by getting up the level of productivity. This is one of the things on which the union leadership must convince their membership. The benefit of higher productivity in the end goes to their own members.

But, finally, there is an immensely important part for management to play here, because in the end management means leadership, and the duty of a leader is to lead. There has been a considerable amount of comment this evening about the quality of management. My own experience is that in the largest companies the quality of management in this country is as good as that anywhere in the world. It tends to get patchy as one goes down the scale but, strangely enough, one of the biggest deficiencies, and in respect of capital development one of the most important, is in the field of financial management. The number of cases where companies have come close to disaster, and in some instances have actually met disaster, because of lack of good financial management is probably greater than the number of companies which have got into a position of insolvency as a result of poor technical management. This is a very strange deficiency in a country such as this, where we have immense financial expertise, both in the City of London and elsewhere. I have raised this point because in the end the planning of investment is as much a financial operation as it is a technical operation, and investment will only come if it is planned over a considerable period ahead.

In conclusion, I want to repeat that this is a very great problem which faces us. It is one where we shall find a solution if everybody in the economy is prepared to pull together to try to find the answer.

8.44 p.m.

Lord WIGG

My Lords, it is my loss that I did not hear the speech of the noble Lord, Lord Roll of Ipsden, but it adds to the interest with which I shall read it tomorrow morning in Hansard and I most certainly echo the hope, which has been expressed by almost every speaker who had the pleasure of hearing him that it will not be long before we hear him speak again.

Also I should like to add my voice to those who have expressed their thanks to the noble Viscount, Lord Amory. He and I have known each other for a long time. I have never made the mistake, which many of his colleagues have made on the other side of the House, of underestimating the subtlety of one of the most acute political minds that I have ever met. Today is a very good example. He has earned the approbation of all of us, but of course he has provided a platform from which the Tory Party can launch its earlier attacks in the General Election—and a subtle performance it was. Perhaps it would have been more appropriate in the pantomime season because it involves the parade of a sheep in wolf's clothing. Of course, the wolf growls and makes noises for the benefit of the Tory faithful about the iniquities —endless, unnamed, catastrophic—of the trade union movement. On the other hand, should by some mischance the public be beguiled by this and a Tory Government be returned, then the wolf's clothing would go into store and the sheep would come out and the sheep would be only too willing to be very nice and very polite.

I am not persuaded by it. I am not deceived by it. I have been through it all before. I was very much struck with the speeches of the noble Viscount, Lord Eccles, and the noble Viscount, Lord Watkinson, because at the end of those speeches both of them made it perfectly clear that so far as they were concerned the only remedy for all our ills was the return of a Tory Government. The problems, however complex they may be, fade into insignificance compared with the importance of that fact.

The other thing that struck me was how often, in choosing their arguments, noble Lords were a little selective in the way they presented them. I have said on so many occasions over a long time something which I will say again—and I apologise to those of your Lordshps who have heard it before: Defeat never comes like a thief in the night, be it economic defeat, diplomatic defeat, or military defeat. It comes after a long period of errors, of vacillations, of lack of purpose, but no one single item can be isolated so that one can say, "It is that". My noble friend who shared many years with me in the House of Commons mentioned oil prices. But oil prices stem from the Yom Kippur war. The Yom Kippur war came about because vacillations of our Middle Eastern policy, stemming from the early fifties—the shooting up the Ismalia post office, the subsequent invasion of Suez, and so on—weakened our position to the point where the world was not prepared to face up even to the consequences to Britain of giving up voluntarily a position which at one time was unassailable and for which we had fought in the First and Second World Wars to maintain our position in the Middle East. When that went, because nature abhors a vacuum, something was going to take its place and whatever took its place was not going to be friendly to us. So we paid the price.

Again, points have been raised about the German miracle, but there has been no mention of the fact that German industry was flattened and then rebuilt with American money. No mention was made that the British public, under a Labour Government, actually imposed bread rationing to sustain the German workers, or that again millions of workers from Eastern Europe and from Turkey poured into Germany. That is the basis for the German miracle. Again, I was interested in the speech made by the noble Lord, Lord Soames, who spoke about de Gaulle refusing to let us enter the Common Market because we were strong and they were weak. But why was that position reversed? Because General de Gaulle had decided that at all costs the Algerian war had to be ended. He took France right to the barricades to bring about that fact, and when the Algerian war was ended the basis was laid for a revivification of the French economy. And so one could go on.

But what particularly interested me today was this—and one of my troubles is that I have a very good memory. My mind went back three or four years. If the debate had taken place then, what would have been the great motive? It would have been something not mentioned today—the Common Market. We were told from the then Conservative Government Benches, "Go into the Common Market and there will be a great capital flow from Europe into the British economy and the British economy will be revivified by our membership." Some of us doubted it, I certainly did. I did not doubt about entering the Common Market but about putting the roof on before the foundations were laid. So today the Common Market is not even mentioned, yet our problems are with us and I am not an optimist. The only reason for optimism will arise when we face the facts fairly and squarely.

I am a supporter of the Government in their current policies because there is no alternative. The noble Lord who has just spoken is right. Often the Government have to do something which makes situations worse, because of the very situation in which they find themselves. The Government have been struggling since 1974 to liquidate the appalling problems that they inherited from the previous Conservative Administration, including those in the realm of labour relations. They have successfully done it, but in doing it they have paid a very heavy price, and the country has paid a very heavy price.

Now the issue will be: what are we going to do in the future? The facts have to be faced, and not the facts which are convenient to us. We cannot be selective; we cannot pick out one and say we will do that because the answer may be attractive to us. We have to face the facts fairly and squarely. In my judgment, this country—indeed the Western world, but this country in particular—is facing a revolution. I was particularly glad that the noble Lord the Leader of the House mentioned the action the Government were taking about electronic automation. I do not believe that the consequences of this are being squarely faced by the country as a whole. It is indeed gratifying to think that the Government have at least done something.

To my mind, for a long time it has been clear, to all those not blinded by refusal to face what is basically an unpleasant political fact, that the rapid and remorseless advance of electronic automation has caused large-scale, long-term unemployment to become a permanent feature of our society. It is something that is here, is growing, and will continue to grow. Its unpleasant consequences are plainly visible. It is a process that cannot be reversed and it cannot be wished away. Unfortunately, there is a very convenient counter-argument, namely, that automation in some form or other has been with us for a long time and we shall no doubt survive its consequences as we have done in the past. I believe that argument to be utterly false. The falsity springs from a failure to distinguish between mechanical and electronic automation.

It can be argued that mechanical automation started with the introduction of the power loom and reached its peak with the development of the assembly line techniques of Henry Ford. That development covered a period of increasing prosperity, and its consequences therefore were hidden. It must be noted that the development and spread of mechanical automation took place within the context of a basically expanding economy, and, its impact was consequently cushioned. But the pace and extent of its development was always limited by another major factor, which is not operating today, by the fact that the equipment required for mechanical automation was large, it was heavy, and it was extremely expensive.

On the other hand, electronic automation, which is revolutionising our society in front of our eyes, is not simply a continuation of the development of mechanical automation but is an entirely new phenomenon, distinguished from its predecessor at every point. The basic equipment of electronic automation is small, it is light, it is portable, it is very cheap and it is becoming progressively cheaper. It is capable in principle of being made to control, almost entirely unsupervised, almost every activity by which men and women may earn a living. Because it is so small and so light, many firms engaged in producing it find it economical, for example, to fly components to the Far East or to other areas where there is cheap labour to be found, have them assembled there by the cheap local labour, and then fly the finished product home again. The characteristics of smallness, lightness and consequent cheapness are being progressively extended into the equipment which the central devices control. I am told—and I make it plain I am not an expert—that purely electronic machinery is itself much smaller and lighter, and indeed simpler, than its mechanical equivalent, and it is these factors which make it much cheaper to run, because the reduction in the number of moving parts makes for a drastic reduction in power consumption.

Electronic machinery is also far more reliable. Most striking is the claim now being made for micro-processors that if one had been switched on at the time when Henry VIII married his first wife, and had been left running continuously since that time, there is a 95 per cent. chance that it would not yet have made a mistake. The micro-processor is at the heart of the automation revolution, and it is in fact the entire central mechanism of a computer which is usually, so I am told, called the micro-processor, since it is that which carries out all the arithmetical operations and related functions. It is now made by etching the whole of the circuitry on to the surface of a chip of silicon about the size of one's thumb nail.

The implications of this were vividly illustrated by the experience of the friend who acts as my mentor in my endeavours to understand electronic automation and its consequences. He tells me that the first computer which he had was a Ferranti Mark I^*, itself the first major achievement of the British computer industry. It occupied a room with 1,000 square feet of floor space and required 27 kilowatts of power. My friend, now having retired, has bought a Hewlett-Packard computer 9815. It cost him about £2,500, which has to be compared with the nearly £100,000, at the then value of the £ in 1954, which was the cost of the Ferranti machine. It is about the same size as a typewriter, is as powerful as the Ferranti, and will even store as much information as the Ferranti did. At the heart of the Hewlett-Packard is a micro-processor, and the entire machine, including the magnetic tape and printer, requires less than 150 watts—about as much power as is required by a fairly large electric light bulb.

Considerations of cost, power, size, weight or portability no longer present any barrier to the application of these devices to automation in any field in which it is introduced; and above all, making that difference which is fundamental in kind and not merely one of degree, is the fact that the micro-processor, being a computer, may be programmed to control any task to whatever degree of autonomy is required. If a programme can be written to describe what the device must do, the device will do it.

The consequences of this are revolutionary, for the only people who can now consider their livelihood to be safe for the foreseeable future are those connected with the handling of physical objects—postmen, dustmen, butchers, garage mechanics and the like. Even some of the workers who may think they are immune will soon be feeling the first chill, which stems from our refusal to face up to the logical consequences of the processes which are making nonsense of our current political and economic thinking.

The point I am seeking to make is illustrated by the fact that there is currently in the course of development an electronic arm, computer controlled, which can assembly eight typewriter components in 45 seconds, and developers are working at the development of command languages for the control of such processes. Because the components are so cheap a great deal of development work is being undertaken by enthusiastic amateurs who can, at negligible cost—since they do it for pleasure—produce new applications, many of which will most certainly be taken up commercially.

It has just been announced that the Government are proposing to invest about £50 million in the development of domestic micro-process industries to counter the present American domination of the market. In my view, and in the view of those who advise me, this is too little and much, very much, too late. Even if it is successful its main consequence will be the addition of another shovel to the digging of Britain's economic grave. It does not really matter who makes these devices, the steady erosion of employment possibilities stems not from their manufacture, but from their application. By the same token, it is pointless for the so-called Think Tank to consider the problem which the Prime Minister, I understand, has just ordered it to consider. There is little for the Think Tank to think about except the social and economic implications. The decisive events have already happened and cannot be reversed. Moreover, the growth of automation is on a world basis, so a 20th century Luddite Movement in Britain would be more than a waste of time; it would hasten national suicide.

There is no comfort to be derived—indeed, there never was—from the notion that those who are displaced by automation can find employment in design and construction of the machinery of automation, since that task in itself is being progressively automated. The prospects may thus be summed up. It can now be assumed that any task which would in principle be performed by or under the control of electronic machinery will presently be so performed. Because the basic devices are so cheap the development costs in any given case may be relatively modest, and many activities now being undertaken by do-it-yourself enthusiasts will most certainly be taken up commercially. If, as a last refuge, it is hoped that a particular activity may be safe on the grounds that the task of writing the basic computer programme for controlling it is too difficult, then there will always be suitably equipped individuals who will undertake the task of solving that problem for the intellectual pleasure of doing so.

I apologise for detaining your Lordships, but during the Recess I went to the United States of America. I went to two great cities of the North-West: Seattle and Vancouver. Seattle has the advantage of containing within its boundaries the Boeing factory. In those two great cities there is 20 per cent. unemployment. Many young people with university degrees will never work again because there are no jobs for them. A Ph.D. who has a job cleaning shoes told me that she considered herself lucky. That is the picture. That is the mirror in front of us. It is a challenge not of words, but of deeds.

I do not anticipate for a moment that any of your Lordships will take any notice of what I say. So be it. I am quite used to that in different fields. However, I have studied this matter; I have tried to understand it and I do not believe that I shall be performing a duty either to this House or to the society which I have tried to serve during my political life, if I did not spell this out. The dangers are not dangers over the horizon; they are dangers that are present now. They can only be tackled and turned to our advantage to the extent that we understand them. That is my apology for detaining your Lordships this evening.

9.5 p.m.

Lord MOTTISTONE

My Lords, it is a great pleasure that for the first time out of the many times that I have followed the noble Lord, Lord Wigg, in debates in your Lordships' House, I am able to say that I very largely agree with practically everything he said towards the latter part of his speech. It has been my good fortune to be associated with electronics in the past, and 10, 15 or 20 years ago one was studying the sort of implications that the noble Lord has been telling us are just around the corner. I would not be in the least surprised if he were not absolutely right, although personally I do not think that it will come about quite as quickly as he thinks. It will certainly come within the next 25 years and, as he said, it is something that we must take very seriously.

I must, of course, thank my noble friend Lord Amory for putting down this Motion. As many other noble Lords have said, he has put his finger on the most pressing problem for this country today. The speeches which we have heard have indicated the seriousness with which so many noble Lords take this subject. I should also like to congratulate the noble Lord, Lord Roll of Ipsden. I thought that he delivered his maiden speech very well. Indeed, it was an excellent speech. It will be even more fun to hear him when he does not feel in any way inhibited by the convention of not being controversial. Let us hope that we hear the noble Lord again in the future.

I hope not to speak for long, because so much of what is important has already been said. However, I should like to draw attention to one or two points which I believe to be particularly important, and some of which have not perhaps been given the emphasis that I think they should receive. I do not propose in any way to deal with all the ideas about why the present situation has come about. Apart from the fact that I am not nearly so knowledgeable as those noble Lords who have spoken, I think that all possible explanations have been covered, and if we read Hansard tomorrow and put them all together we might get some idea of the causes. Nor do I seek to spend much time giving advice to the Government, because that has been given in good measure.

However, I should like to take up a point made by my noble friend Lord Soames. It really is time that Governments—I am not being Party political—told the absolute truth. I am not saying that they are deceitful—although my noble friend did so—I am saying that for many years people have been misled by hopes of what might come about if this, that or other Government action were taken. It is part of the paraphernalia of politics to make those kind of promises, and I should not have thought that this was the time to continue with that type of thing.

I should also like to suggest to the Government generally that they should steer away from over-centralisation, not only in the Government themselves, but in all the bodies which they encourage—the trade unions, the CBI or whatever. I notice that the noble Viscount, Lord Watkinson, has stepped out of the Chamber; perhaps he thought that I was going to anger him. I must confess that I do not particularly agree with encouragement for things like the sector working groups, and in my view we have too much over-centralisation.

I should like to turn your Lordships' attention to one or two basic things at the working levels. My noble friend Lord Cockfield said that we are looking at a great many individual firms, all with different problems. I would strongly agree with that. I would go further and say "Let us look at people". We are talking about how to improve productivity and although, of course, some of that is in improved processes of mechanisation, much of it is in improved contributions by people.

First, what worries people more than anything else at this stage is job security. Job security is very difficult to match with improved productivity. It seems to me that this is a fundamental difficulty which we must grasp. I know of one or two firms which are already toying with the idea of some sort of guaranteed employment to relatively long-serving employees, which matches the Japanese idea which the noble Lord, Lord Kaldor, mentioned. Maybe there is room for something there, but it will be difficult to apply.

The next important point is that people require incentive. Incentive for many people, particularly for those who are even moderately skilled, is matched with improving differentials when it comes to the pay figures. I should have thought that in particular we want to realise that this is a very important factor. if people are to work more skilfully, they will require to feel that they are being rewarded for it. Even if they are not being rewarded they need to feel it, and that is not as bogus as it may seem.

The next point I would raise is the dullness of de-skilled work. The tendency of all the modern equipment, particularly the sort of electronic machinery to which the noble Lord, Lord Wigg, referred, is that it de-skills the job for the ordinary person. This is dull to an extreme, though surprisingly enough there are some jobs which seem terribly dull to me —and I expect they would to most of your Lordships—but which seem to satisfy, in particular, women workers very well indeed. Therefore, it is not an impossible problem. However, job satisfaction is obviously important. The noble Lord, Lord Collison, touched on this by explaining how agriculture has, almost uniquely, been successful in developing its productivity. I think that in the last resort—and there may be great friendships between farmers and their employees, but that is another factor of very small units on which I shall not touch—it is also due to the fact that they work in much more congenial surroundings. What is more, the average farm worker has a great measure of independence in which he can use his own initiative and skill in the way he thinks best.

The next point I would touch on—it has been touched on, although I do not think nearly enough—is the problem of the middle managers and the need for their authority to match their responsibility. I do not want to talk for too long to your Lordships, and I can expand on this for a very long time, but the fact of the matter is that because it obviously suits the trade unions to talk to top management of larger firms when they can, this has the appalling effect of reducing. and in some cases removing, the authority of the middle manager. This is not only bad for him in the sense of his own personal amour propre, but is also bad for his authority with his subordinates. This is very serious. It leads me towards the solutions to these problems.

I would have said that the most important one—which, again, has been touched on and which has come up in your Lordships' House in other guises—is participation. There is no doubt at all that to increase measures of participation within firms must be effected if we are to organise things in such a way as to get the maximum contribution out of all the people who work with us. I say who work "with" us rather than work "for" us. However—and this is an important point—in the experience that I have managed to gain in that field it is not something that can suddenly be switched on by the flick of a switch; it is not something that can be suddenly enacted by new legislation. It is something that has to grow from within. The best company that I deal with has reached its present state, which is ahead of most people but not by any means of all, after seven years of painstaking hard work, experimentation, education and improved communications. It is something that it is improving all the time. But it does not believe that it would have got this far if it had not been painstaking, slow, and working, as it were, from the bottom upwards.

There is a great problem. We are in real trouble. Things have been allowed to drift. People have false expectations as to the possibilities of various solutions, political and otherwise, which have been put before them. But the reversal of this process, the improvement of the situation, cannot take place overnight because attitude changing is involved and that, in my experience, takes a long time—perhaps as much as seven, eight or 10 years. From what one would gather from many noble Lords who are much more knowledgeable than I am, we have not got that time to play with. Although on the whole I am an optimist, and I am quite certain that in the last resort we shall sort it out somehow, I am not very happy on this particular occasion on this particular very serious subject.

9.15 p.m.

Lord ROBBINS

My Lords, the hour is very late, but I cannot resist the temptation to take 30 seconds to congratulate my dear friend, the noble Lord, Lord Roll of Ipsden. Lord Roll began his career as a professional colleague of mine. He was a professional economist. Since that time he has filled a great variety of distinguished positions, but I think those of us who listened to him this evening will realise that as regards his first specialisation, his hand has not lost its cunning.

I only wish to underline certain points which have been made in the course of the debate, although perhaps not exactly from the aspect in which I suggest they need footnotes. I do not need to underline the fact that the problem which the noble Viscount, Lord Amory, has raised is a real one. The statistics which have been adduced at various stages in the debate are evidence enough of that. At the same time I am sure that your Lordships would agree that it is also a very complex one. Evidence of our virtually stationary productivity is unmistakable, if one takes average or global figures. But we must not ignore the fact that not all branches of economic activity are behind the rest of the world. The City—dare I say it?—still earns massive additions to our national income by its export of invisible services. Agriculture, as many noble Lords have said, shows a degree of prosperity and productivity which certainly would not have been expected in the 1920s or the 1930s when, because my father was President of the National Farmers' Union, I used to be in quite intimate touch with that industry.

As regards tourism, while doubtless some of that is due to the extreme cheapness of the pound sterling and the desire to see the vestiges of our historic past—so often neglected by Ministers of both Parties—I think too it may be urged that the excellence of our performing arts in the opera, ballet, theatre, and concert halls adds quite considerably to our balance of payments in that respect. Although our main preoccupation is with manufacturing industry it is surely mistaken to regard all manufacturing industry as being equally below par, or in fact not equal to or ahead of manufacturing industry elsewhere. Think, for instance, of the performance in recent years of GEC.

There is no doubt that the main problem is in manufacturing industry, and the statistics which have been cited are overwhelming evidence of that. As for the causes, it is desirable to emphasise the point made by several noble Lords; namely, that the explanation which was fashionable a few years ago—a gross deficiency of investment as a percentage of the gross national product—is fallacious. Doubtless it would have been better if investment had been greater, but investment considered from that statistical aspect is not so much worse than it is in other parts of the Western World.

There are three groups of causes which need enumerating and which fall under the headings of restrictive practices, management and government. I will not dwell on the subject of restrictive practices. The noble Lord, Lord Lee of Newton, declared, I think to the astonishment of the House, that in his industrial experience he had never come across a restrictive practice. I am sure that if he wandered along Fleet Street when the national newspapers are being printed he would come across examples of demarcation insistence which might surely be described in that way.

Indeed, I would say that quantitatively considered, if by a wave of the wand, which is utterly impossible to conceive, the restrictive practices prevalent in various parts of manufacturing industry were suddently abolished, it would not be out of the question to think of, say, an almost continuous increase in productivity. The dictum of the head of Ford's that there was 25 per cent. spare capacity in his establishment may perhaps be regarded as an exaggeration of the state of affairs which prevails elsewhere, but I would certainly not think 15 per cent. an exaggeration.

So far as management is concerned, there are only two things which need emphasising and the first is to dispel a fashionable mythology. The publicists who enlighten the listeners on radio and sometimes on television occasionally suggest that the deficiencies of management can all be explained nowadays in terms of class, the "old boy" network and so on. No one in his senses would contend that influences of that sort were not prevalent 50 years ago and no one would contend that they do not play any part at all now; but I suggest that those who brandish that explanation as the main explanation of the deficiencies of management are several decades behind the times. Many of the leaders of industry nowadays have come up the hard way; lawyers, accountants and engineers are conspicuous figures in the running of industry, efficient or inefficient, today. I say, inefficient or efficient. I am inclined to believe that in the best companies the efficiency of management is comparable with the efficiency of management elsewhere. But what I would also urge, and what was, I think, touched on by the noble Viscount in introducing his Motion, is the overall deficiency of first-class talent in management as compared to elsewhere.

Only a fortnight ago, when speaking on the Motion introduced by the noble Lord, Lord Baker, the noble Earl, Lord Gowrie, reminded us of a sample investigation which he and his wife conducted a couple of years ago, in which each person enumerated the 20 people who, at university age, had impressed them, respectively, both in this country and in Germany. The result of the sample was that, of the 20 most impressive people in Germany, 10 had gone into industry, whereas in Lord Gowrie's own sample, of the 20 most impressive people he had known at university age only one went into industry. That was a small sample. However, having during a considerable part of my life been associated with higher education in one form or another, I think that there is something in the reproach. It would take a long time to analyse. I am not sure that I should be capable of doing it. I think that there is something in the atomsphere of higher education in this country which is inimical, for some sensitive people who otherwise would do very well in industry, to their considering such a career.

Then, finally, Government. Your Lordships will have heard quite enough, by this time of the evening, about taxation. I feel moved, however, to add this footnote. So many noble Lords on this occasion, and on occasions when we have discussed these matters previously, have insisted in broad terms on the overwhelming weight of our taxation as compared with that of other Western countries. That is a misapprehension. Taxation indeed poses special problems in the shape that it assumes in this country. But the general burden of taxation has not compared so badly with that of the other Western countries. What do compare badly are the high marginal rates of taxation, which means that above a certain income there is almost no incentive in seeking an increase. Last week we saw the less reputable organs of public opinion exhibiting their true nature by referring to the recommendation of the Boyle Report to remedy obvious injustices—gross instead of net figures, which makes all the difference in the world.

However, enough of taxation in that respect. I wish to say a few words about the threat to investment. Taxation is levied not only on earnings; it is also levied on income from wealth. In that respect, in the higher reaches—up to 98 per cent. of income—it is, in my judgment, a standing temptation to consume wealth, rather than to create it. I also wish to draw attention to the effects on the disposition to invest of threats to nationalise still further sections of the economy; threats to nationalise the City; threats—which I was pleased to see were slightly discounted from the Government Front Bench this afternoon by the noble Baroness, Lady Stedman—to nationalise, in some form or another, the construction and building industry. I cannot forebear to comment on the fact that the method of compensation adopted in the last round of nationalisation—a method which was the subject of serious warnings in this House from some of us who had no conceivable financial interest in it—was bound to lead to trouble; and trouble has arisen. With one thing and another one cannot wonder that more lively spirits in this country are looking for companies in which to invest which have interests abroad and which are not so likely to be interfered with as interests in this country. Furthermore, some of the younger of these people, whom I know, are looking for jobs in that direction.

The noble Viscount, Lord Amory, was surely right to emphasise the points to which he drew our attention. Productivity is surely not the only matter which is wrong in this society or in others which one can think of. But productivity is the source of income. There is precious little superflous cash to be gained now by squeezing the rich. The investigation of Professor Henry Phelps Brown, and the figures produced by the invaluable Diamond Commission are incontestable evidence of that fact. I agree with the noble Lord, Lord Cockfield, that in so far as there is pressure for money incomes the real value of which exceeds the real value of productivity, the result must be either further inflation or further unemployment.

9.34 p.m.

Viscount ROCHDALE

My Lords, first, I wish to thank my noble friend Lord Amory for introducing the debate, and I also want to add my sincere congratulations to those already extended to the noble Lord, Lord Roll of Ipsden, upon his magnificant maiden speech. Like other noble Lords, I shall do my utmost to curtail what I had planned to say, and I propose to confine my remarks largely to matters concerning people. So much has been said about productivity that one might think that there was nothing more to say; yet I would venture to suggest to your Lordships that, in talking about increased productivity, we want to remember the effect of fear that it may have on a large number of people who may misguidedly think it will do them harm. They fear that, with higher productivity, unemployment will rise (and, as noble Lords have pointed out, it probably will) and they will lose their jobs; and they fear that, even if they keep their jobs, with lower manning scales they will perhaps have to work harder—a fact that is probably quite the reverse of the truth.

I suggest that what higher productivity may well mean for those people still in work is better directed, better planned, steadier work, without interruptions for whatever reasons they may come. It will mean, of course, the acceptance by the individual of the need for change which may affect him; it will also mean the acceptance, all round, of a degree of collective discipline and pride to achieve the improvement sought. Indeed, I think that, for some, the workload may even be lighter with higher productivity. The success or failure in this direction will of course depend primarily on management. Although unions, too, will of course have a big responsibility here, it will rest primarily on management, and on whether management can engender and justify the confidence and trust they need if they are going to be successful in managing. I have no doubt at all that we in this country have the brains; we have the inventive genius; we have the skill (latent though some of that may be, but that is another question altogether); and, as many noble Lords have said, we have the cash for investment. What we seem to miss, somehow, is the something which will weld all those assets together so that we can take full advantage of them.

There is nothing new in all this, and there are a great number of people up and down the country who spend the whole of their time trying to solve these problems in industry. That brings me to one of the main points I want to mention. I think we want to be very careful indeed to make sure that in referring, as the Motion does, to "the dangerously low level of productivity "—and that, of course, is true in certain industries—we do not condemn the whole of industry; because nothing would go further towards discouraging those who are doing an enormously good job for work and nothing is more likely to lower productivity than to have to work in an atmosphere of discouragement. There are, of course, a number of firms who have a very dangerously low level of productivity. The trouble about that is that they are the ones which hit the headlines and tend to qualify the opinion of the public in general about what is going on in the whole of British industry; and that, I think, is harmful and not at all helpful to what we all seek. Indeed, I think it is sometimes a source of astonishment to our competitors overseas that we allow this terrible picture of ourselves to emerge in the way that it does. I am sure that many things go wrong in industry in other countries, but we do not hear of them nearly so frequently or so pointedly as they do of ours.

There are, of course, industries which have a low level of productivity for reasons not always of their own making —maybe worldwide conditions. There are other industries which apparently have ideal circumstances in which to live and yet seem unable to make a success of high productivity. I need not mention them; they are all too often in the newspapers, as they have been recently.

But there are certain problems common to all our industries and I should like to say a word on them. Inflation has been mentioned, taxation has been mentioned, price control and other forms of control have been mentioned, all tending to make it more difficult for management. But what I want to refer to particularly, a very much more sensitive area, is what I describe as the social legislation relating to industry, the legislation that relates to employment, conditions of pay, safety and health at work, redundancy and so on—largely a Government responsibility. I know that I am treading on very delicate ground here; but I wonder whether, in our straitened circumstances, we have tried to go rather too fast with some of this legislation, desirable as it may be in itself; so fast, in fact, as to make recovery more difficult than it need be.

I suggest that those of us who, in either House of Parliament or in Government, can in any way feel themselves responsible for legislation of this kind or can influence it in any way, need to be very careful that in trying to stop up every crack and to close every loophole to deal with the irresponsible minority in industry—and when I say "irresponsible minority" I am referring to the irresponsible and thoughtless management section of industry—we are not succeeding in creating for ourselves something of a straightjacket which, in fact, impedes the efforts for the majority to surge ahead.

I know that I am laying myself open to being accused, possibly, of taking a callous view of what should be the circumstances in which workers work; but that would be absolutely wrong. I would be the last to take a carefree or thoughtless attitude, for instance, to health and safety at work and related matters. I would believe that most employers in this country take a pride in feeling that they are perfectionist in this aspect and try to do their best for their employees. But it leads me to suggest that there are certain questions on this type of legislation which we want to ask ourselves. There is a vast amount of it: so much that a great deal—and some figures on this have been quoted this afternoon—of management's time and, particularly, senior management's time has to be spent on dealing with legislation, seeing whether the company is complying with it, seeing whether, in fact, it can be complied with in their specific circumstances, when that management should be spending far more time on producing, on selling and on tryng to get away from the obsession of dealing with these internal domestic problems and not on looking outwards, overseas, to much wider markets and opportunities which is their real function.

The two questions on this legislation that we ought to ask ourselves are: whether we should aim our legislation for industry on minimum standards to eliminate the least satisfactory and most objectionable practices in management; or whether we should aim that legislation to set standards which are really perfectionist targets for all to try to achieve. I believe that if we aim for the latter we may be, in fact, making things more difficult for management. The second question is whether the bias in our industrial legislation should be directed to helping industry get on with its work or whether it should be directed to safeguarding the consumer against the alleged abuses of industry. There could be a fine balance between these two alternatives, but they are not necessarily incompatible. Personally, I think in the situation in which we find ourselves in industry today we ought to go for the least restrictive forms of legislation on management.

If that is so, it means that we have to be prepared to place greater reliance on an individual's judgment and less on the fear of legal sanctions. It also implies that in industry, as never before, we need a far greater share of the cream of our your men and women coming into industry, and we should do everything possible to encourage that. The noble Lord, Lord Robbins, who spoke just before me, mentioned this point.

Noble Lords may have noticed that for some weeks now I have had in the Minutes a Motion under "No day named" on this very subject. I hope that some time we may be able to debate that Motion, which is broadly to encourage young people to want to come into industry, to help them and give them a proper image of industry so that they will do so. I believe that there are many who would share my view. I do not know when we can debate this subject, but perhaps we ought to spend some time in digesting the tremendous debate that we have had today. An opportunity may come in the autumn; at any rate, I hope so. It may be that getting more of the cream of our young people will be advantageous in the medium and longer term—and we have also been discussing today the shorter term—but it is important that we should try to get the very best of our young people into industry. There can be no doubt about it; there is an inhibition on this today.

The noble Lord, Lord Rochester, with a Motion on 9th February 1977 initiated a very interesting debate on this very point. I read it right through from beginning to end recently. I like to think that certain action has been taken as a result of that debate. That excellent organisation, Understanding British Industry, has developed further on this and I should like to congratulate the Department of Industry Which produced a most valuable discussion paper last June, entitled Industry, Education and Management. That goes to show that this is a subject about which people are well aware. But we cannot leave it there; it must be pursued. In days gone by when industry was simpler and we had captive markets, the problem was a far less acute one for industry. But today the priorities and pressures have changed, and unless industry can rely on a solid background of our most able young men and women, we shall neither have the planning nor the provision of the most suitable and advanced equipment, nor the ability to administer this to the best advantage.

That leads me to my last point: today in our young people we have an impressively acute social conscience. Industry wants to build on that. We need to project an image of industry to them so that they will come to recognise that there is no better way of serving their fellow men—and that is what so many of them want to do—than a career in creative industry. If they use their technical and administrative knowledge, they can also do something else: they can establish a real sense of community purpose, which in my veiw is needed more than anything else for achieving the high level of productivity which my noble friend and all of us desire.

9.50 p.m.

Viscount TRENCHARD

My Lords, may I, in all humility, add my congratulations to the noble Viscount, Lord Amory, on introducing this fascinating debate, and to the noble Lord, Lord Roll, on his magnificent maiden speech. Anyone put down to bat at No. 29 clearly should not be playing at all, particularly at this hour of the evening. My one consolation lies in remembering that bowlers are put in late in the batting order!

Everybody has agreed about the enormous importance of this subject and there has been, at any rate to me, a note of gloom. I suppose that because of the great importance of the subject and its huge size, people are inclined to find it very hard to suggest that there is certainly not just one cure but even any set of measures which can produce a cure in time. Let me try to reverse some of the gloom and say again what the noble Lord, Lord Roberthall, quoted me as saying in a previous debate: that there really is no reason why wage-earners in this country, and indeed in the whole community, should not double their standard of living in little over a decade. And if we did that we still would not have caught up Germany, of whom we were ahead not so many years ago. So there is real self-interest at stake for every one of us and for every trade union member.

I believe that the "British disease", as it is called—it exists abroad but is less virulent—has been caused by our wandering away to a greater extent than other people from an economy regulated by market values. I think the distance from market values to which we have wandered in Great Britain can best be illustrated by doing a little arithmetic as to what would happen tomorrow if, as far as possible, wage-earners in various economic activities were paid according to the comparative productivity of their industry with their main competitors in other countries. I think that we should find that farmworkers, who have been well mentioned today, would have double the current pay; and, even thinking of the relatively small percentage of labour in farm costs, if you doubt the ability to do that, you have only to remove those market value interferences, namely, the false exchange rates and the green pound, to enable farmers to do it quite easily and to make a very good profit.

On the other side of the equation, I think it is quite clear from the statistics which have been quoted today that, according to market values—at least as judged by productivity, often in the same firms with the same equipment—there are areas in our large employment industries, our car industries and others, where some should be earning only half. I am not suggesting that one can, or even that it is desirable to, get back at a stroke to an economy regulated by market forces; it is obviously impossible. But I believe those differences are far greater, certainly than in more successful competitor countries.

Clearly this diagnosis is completely different from that advanced by the noble Lord, Lord Kaldor, today and, two weeks ago, by the noble Lord, Lord Balogh, during the very interesting debate which was introduced by the noble Lord, Lord Baker. Both of them trace our industrial decline from the last century, and tie it to the degree of import penetration. They tie our relatively successful short periods to the degree of protection.

The first thing that has to he said is that the decline that we are talking about, starting 15 years ago, is so much greater than the longer term decline, as described by the noble Lord, Lord Kaldor; that we should stick mainly to discussing this appalling fall in recent years. However, there are always other correlations. I am not, I am afraid, sufficient of a student of economic history, but just as heart disease can be correlated quite closely with television sets, I believe that these correlations are very dangerous.

I believe that there was a catch-up period. After we were first with the Industrial Revolution a number of our industrial competitors tended to catch us up. There were periods when we were strong enough to get away with—and I am not against getting away with—a little protection. But there are other factors that should be taken into account. We passed legislation, in 1871, 1875, and 1906, as a result of the mistakes we had made in the Industrial Revolution, quite different from that which exists in any other economically strong country of the Western world. The next factor that one could bring into play is the build-up to, and the fact of, the General Strike, and let us pray that we never have that kind of thing again. Nevertheless, the period which the noble Lord, Lord Kaldor, mentioned, between 1932 and 1937, has to be taken against the background of the aftermath of the General Strike and the mild legislation of 1927. Then, of course, there was more legislation of great importance in 1946 and, again, in recent years.

I do not want to attribute the whole of our problems, because that would not be correct, to this scenario. But it is a fact that there are bigger differences between us and other countries, in the structure and atmosphere around our trade unions and our collective bargaining, than there are in any other aspects of the industrial world. I believe that economies regulated by market values do the best in free societies, for all elements of the population. I believe that, in our day, we have proved that, and that the USA, Germany and Japan have also proved it. I also believe—and I note that my noble friend Lord Amory, in introducing this debate, did not quite accept this—that our main problems in productivity lie in our large employment areas and our large factories. Most surveys tend to show this.

Of course, our large areas are very important as a percentage of the whole. This is why, when you look at sector statistics, you tend to find nearly all the sectors looking poor against European or American performance, and this is because of the weighting of the large elements in them. It will be very interesting to see the study by Professor Price, which the noble Lord, Lord Roll, mentioned, when it becomes available. Certainly, in so far as they are meaningful, the strike statistics are quite clearly in the larger factories as a whole. In my experience, it is clear that we get problems in large factories in this country at a smaller size than, say, the Germans, the Americans or the Japanese. I think that this is because of our lack of structure and of legal background in this whole area.

I am all for what has been said by various noble Lords in terms of the importance of pushing small and new enterprises. Growth is vital and the small and the new areas should be one of the main contributors to that. But our big areas are far too big for us to be able just to look at the small and the new. We must get our productivity right in our large employment areas; that is, if we are to maintain, let alone to improve or double, our standard of living.

There has been a good deal of talk about culprits and I will not comment on the obsession of the noble Lord, Lord McCarthy (if I may call it that), with occupational excellence. I wish that the business world perhaps still had that obsession with occupational excellence, but I think that has gone, together with many other things, and I wish we had a little more excellence as well as a little more productivity.

We clearly have good areas and bad areas for investment and there is no question that that will be found in all other countries as well—certainly in the businesses of which I have had experience. There is no doubt that we use our investment poorly. I think it has been said very clearly already by greater authorities than I that finance is not the answer. Finance available to British industry is certainly as good as to our main competitors. We must improve our management; there is no question about that. We must improve the image of business so that we get a higher proportion of the best out-turn of our education. That was covered, particularly in the technical area, very well and very fully in the debate introduced by the noble Lord, Lord Baker. For all that, it is certainly my experience that this is not the main difference, and I say that against the background of having imported management to do jobs in Britain and having exported management to do similar jobs abroad, for a considerable period of time. I cannot believe that our success areas—and they are considerable—are those where we happen to have somehow attracted all our best managers and somehow have left all our poor managers in the large factories and other areas where our productivity is deplorable.

I feel, therefore, that one cannot shrug on one side the area of industrial relations, the trade union structure and collective bargaining. The trade unions in this country have greater power than anywhere else. In many areas they are still exercising extreme responsibility, but a great deal of that power lies at shop floor level, and in this situation it is quite different from anything of which I have seen or had experience abroad. Strike statistics are really not meaningful and they are used often to say that we are on a par with other people. There is an economic law which means that unless you are a very rich country or a very rich company you cannot afford more than a certain percentage of strikes, so that what matters is the balance of bargaining power before a strike. The threat of strike in our "no-agreements-powerful-shop-steward-situation" in this country, is constantly pressing on the managers of our very big factories.

Let me return to management for a moment. It is very easy to say we must solve all this by having a new type of manager who is capable of consulting everybody and carrying everybody with him. Time has been mentioned today by the noble Lord, Lord Plowden, and by the noble Earl, Lord De La Warr. Various percentages of time that English factory managers must take on negotiation and discussion with unions have been mentioned and they have been far higher than on the Continent.

My way of saying this is as follows, that in a good industrial relations situation I believe it is a struggle for a factory manager to spare up to some 15 per cent. of his time actually to change things and improve things and move the show forward. If more than that 15 per cent. of time is taken up with negotiating with everybody on everything, then the show will move backward and not forward and management will appear incompetent, and over the lunch table here we shall complain about not getting our motor cars or the spare parts for them. I should have liked to say to the noble Lord, Lord McCarthy, that I believe some of the points which he attributed to management come from this problem of their not even having time to do more than half their routine duties effectively. It is a question of carts and horses. I have noticed that wherever one gets problems in large factories one of the first things that goes backwards is the speed of application of new developments. It just sticks, and that is because all the main managers are fielding day-to-day problems.

I do not think we shall get a great deal—much as I want the subject to be pushed on—out of Neddy and the sector working parties and the productivity deals tied to incomes policies. I will cut short what I was going to say by saying that I will take a bet with any noble Lord—within my financial capacity, which is not very large—that when we get the production statistics out for the Phase 3 period we shall find that two-thirds of the productivity deals have in fact been bogus. I do not mean that they have been fraudulent; they have been put in with the best intention in the world; they have been justified to boards of directors of important companies and then with the CBI and the Department of Employment. But in fact I have seen a good deal of this, and I will take a bet that at least two-thirds of those deals will not be matched by extra production per man.

Participation can play a main part, and the only comment one must make is that we should take the opportunity, while encouraging and pushing on with participative management, to make sure that it and industrial democracy are based on true democracy, either on well-controlled, regulated democracy of all employees, or that we use the opportunity to suggest that where they are based on trade union organisation, where that is very strong, that we ask trade union leaders to make sure that regulated true democracy is practised in those unions.

I will end with three quotations: two academics and one trade union leader. First, Professor Hayek: If we want to preserve the market economy our aim must be to restore the effectiveness of the price mechanism. The chief obstacle to its functioning is trade union monopoly. It does not come from the side of money, and an exaggerated expectation of what can be achieved by monetary policy has diverted our attention from the chief causes. Though money may be one of them if it is mismanaged, monetary policy can do no more than prevent disturbances by monetary causes. It cannot remove those from other sources. Frank Chapple, in an open letter of May 1977 to the Reader's Digest, said: British trade unions have long enjoyed legal immunity for many of their actions, and recent legislation has given the movement unparalleled privileges. If we are to live up to this new status we must work for a corresponding increase in democratic responsibility. Yet while Parliamentary democracy has developed scrupulously regulated machinery for electing and removing MPs, unions have clung to antiquated or rudimentary electoral procedures that bear little relation to 20th century thinking. Professor Beresford Dew, of the University of Manchester, speaking on German trade unions and the evidence they gave to a recent inquiry said: Their dedication to the profitability and the productivity of the firm, their insistence on the firm's need to accumulate capital through profits is what struck him more than anything else. I believe we can quite easily double the standard of living in this country, and I do not think it would take much more than a decade, if trade union leaders would go with industry leaders to study the positions abroad, and to recommend reforms not to copy but to parallel those systems.

10.10 p.m.

Lord McCLUSKEY

My Lords, may I briefly but with warmth echo the thanks which many noble Lords have expressed to the noble Viscount, Lord Amory, for raising this subject, and also the congratulations expressed by many to the noble Lord, Lord Roll of Ipsden, for his dispassionate, eloquent and informed speech. The noble Lords, Lord Gordon-Walker and Lord Wigg, thought they detected a political motive behind some of the speeches in this debate, and the presentation of this debate. Be that as it may, I believe the debate itself has been essentially constructive and non-partisan, and I believe there has been an almost total absence of carping criticism of any one particular group or body, whether it be the Government or the trade unions or management or investors or whatever.

It is my privilege to reply, as briefly as I can, to this rather long debate, on behalf of the Government. I cannot hope to answer every single point, and indeed some of them I do not require to answer because they have been answered in the course of the debate, or were anticipated by the Leader of the House when he spoke at the beginning of the debate. In that speech my noble friend Lord Peart drew attention to the importance which your Lordships would place on the need for an improvement in the international competitiveness of British industry. He outlined the work being undertaken in the Industrial Strategy programme. It is a fact that the economy has been moving along an uneven path of recovery since the autumn of 1975. We need a stronger expansion, as does the rest of the world. We must try to avoid the sharp but short recovery seen in some past cycles. We need a sustainable expansion, and this is what we are working for.

The noble Lord, Lord Carr, noted the limitations of the Industrial Strategy—and indeed he has been echoed in that respect by the noble Viscount, Lord Trenchard, a moment ago—the limitations that the Government themselves cannot bring about the much needed improvements in productivity, and that changes in attitude are necessary at shop floor level. These limitations exist and the Government have always recognised them, but the noble Lord, Lord Carr, did not appear to me to give sufficient weight to the efforts which individual sector working parties are making, their efforts to emphasise to their sectors the importance of all aspects of productivity, good design, improved product development, quality control, and limiting what my noble friend Lord McCarthy described as the shortage of hits. Of course, there is no simple solution. Each sector working party has to direct itself to the particular circumstances of its own industry. But I should not want noble Lords to consider that the Industrial Strategy is remote from the changes that need to be made, as it seemed to me the noble Lord, Lord Carr, indicated.

In this respect it is right, too, that I should acknowledge what the noble Viscount, Lord Watkinson, said, and I am happy that he spoke so warmly in favour of the Industrial Strategy, which, as he said, has been undervalued. It is true that its achievements may be slower than we would wish, but they are not slow, and they are certainly steady and they are certainly real. A number of noble Lords have expressed, in the course of the debate, comparisons in labour productivity between this country and other countries. Data problems limit the comparisons which can validly be made between sectors of industry, but on the statistics available for the 1970s it is evident that the United Kingdom has shown significantly lower movements in labour productivity only in the past few years.

The productivity changes in a few countries have been compared between the years 1963 and 1973 for some 15 sectors. Japanese growth rates are almost invariably much higher than those in the other countries shown, probably partly because in the early part of that period at least Japan was absorbing technology already developed elsewhere; that is to say, catching up with Western productivity levels. There are substantial differences in productivity growth rates in individual sectors between the United Kingdom, France and West Germany. The United Kingdom appears to have performed particularly poorly in metal manufacture, especially iron and steel; vehicles, especially motor vehicles and fabricated metal products; but it has done well in scientific equipment, chemicals, industrial engines and electronic computers. The German performance, for example, in clothing and footwear, looks poor, while the French do not seem particularly bad in any area, but stand out as successful in mechanical engineering. So one gets an odd pattern when one looks at the details of the comparisons.

The relationship between productivity and employment is far from simple, and many noble Lords have stressed this in the course of the debate. Long-term changes in industrial employment levels are the result of the simultaneous and interacting operation of a number of economic factors. However, I believe that there is increasing recognition of the importance of productivity, especially manpower productivity, in alleviating longterm unemployment and stimulating growth. The combination of present high levels of unemployment and widespread fear that increasing manpower productivity will lead to reduced demands for labour, both in the short and long term, does not provide an easy background for any initiatives to improve manpower productivity. However, there is some evidence that, in the medium to long run, those industries which have high levels of productivity also provide more jobs.

I should like to refer to some details. Recently the Department of Employment published a survey about research on productivity trends in manufacturing industries. That indicates, among other things, that the 10 industries with the largest growth rates in productivity increased their employment by a net 165,000 during the period from 1954 to 1973 when total employment in the 82 industries surveyed fell by some 600,000; 124,000 of that net increase was in radio and computers. So that survey seems to point in the direction that I have indicated.

The Department is also undertaking further analysis of a selection of industrial sectors with a view to identifying interplant differences, and possibly to pinpoint the reason for the range of manpower productivity identified. It is hoped that the analysis may provide more information on the relationship between high productivity growth, on the one hand, and increasing employment, on the other.

However, overall it is, I believe, important that we should consider the problems of low productivity in a realistic, but not unduly pessimistic way. The noble Viscount, Lord Amory, referred to the fact that many more multinational companies would invest in this country if we could get productivity right. However, while it is indeed our experience that one of the first questions asked by any businessman thinking of coming to invest in the United Kingdom concerns productivity, I believe I can say quite categorically that any new firm coming to Britain can start up without difficulty at the highest international level of productivity by negotiating appropriate manning levels and working procedures.

For the new enterprise, productivity creates few problems. Indeed, there is actually an advantage just because Britain is one of the lowest wage cost countries in Europe. The Government hear from their confidential discussions with companies that there are many examples of companies which have experienced this by bringing their investment to the United Kingdom.

I should like to say a few words about personal taxation. It has been argued by several noble Lords that the key to stimulating enterprise and producing jobs is a massive reduction in personal taxation. Without going so far, in his 1977 Budget Statement my right honourable friend the Chancellor of the Exchequer acknowledged that the incentive to work may have been weakened by the effects of inflation on the tax system. He acknowledged that too high a proportion of the tax burden fell on income tax payers—making a point similar to that made by the noble Lord, Lord Selsdon—and tax was imposed on too low a level of income and too many people were subject to the higher rates of tax.

My right honourable friend has begun to remedy the situation, and hopes to continue to make progress in adjusting the balance of taxation and reducing the burden of income tax. Perhaps I might illustrate the point. In the past year and a half income tax has been cut by over £5 billion. A substantial start has, therefore, been made in moving the burden of taxation away from direct taxation towards indirect taxes, and the real burden of direct personal taxation has already been greatly reduced. My right honourable friend also indicated that he would have liked to do more for managers and skilled workers, who were mentioned during the course of this debate, but the increase in tax thresholds and the lengthening of the basic rate band has meant that the point at which the higher rates are reached has been raised quite substantially, more than enough to offset the effects of recent inflation.

Several noble Lords—and I think the last of them so to do was the noble Viscount, Lord Rochdale—spoke about there being too much legislation and about the problems that that creates for management. Of course, there are a number of complaints and I do not think that any noble Lord was very specific about legislation, other than perhaps the Trade Union and Labour Relations Act 1974, and the Employment Protection Act, although perhaps other noble Lords had in mind the Redundancy Payments Acts.

Perhaps I may take, briefly, these Acts. The Trade Union and Labour Relations Act 1974, as the noble Lord, Lord Carr of Hadley, will acknowledge, re-enacted the provisions contained in the Conservative Industrial Relations Act 1971. The only point I seek to make on that is, that in their approach to the problem of unfair dismissal there is nothing substantial between the two Parties. Of course, the 1975 legislation went a little further in giving the tribunals the right to order reinstatement of anyone who was unfairly dismissed. But I do not think that there is a deep Party political point between the noble Lords opposite and ourselves in relation to the principle of securing workers against unfair dismissal.

I should like, generally, to say something about that legislation. I believe that the fear of change—and this was mentioned by several noble Lords—the fear of unemployment and the fear of inhumanity in the ordering of our economic and industrial affairs are important factors in producing and sustaining the climate in which low productivity becomes chronic. It is surely right that these fears should be tackled by Government. Indeed, that is why I believe that both Parties, when in power, have introduced legislation of this kind against unfair dismissal.

However, having said that, the Government are certainly conscious—and I want to reply to the noble Viscount, Lord Rochdale, on this—that increasing legislative and administrative requirements impose a cumulative burden that can add both to industrial costs and make undue demands upon management time, even although the individual measures may be seen to be individually justified. So, when they come to formulate new policies, the Government must look not just at each measure, but at the totality.

I should like to give one further instance of what the Government are doing in this field. It is an initiative with which your Lordships may well be familiar. However at the Department of Industry, my honourable friend the Minister, Mr. Huckfield, has recently announced a rationalisation of the forms sent out by the Business Statistics Office. Indeed, similar work is being done under the auspices of my right honourable friend the Chancellor of the Duchy of Lancaster. I should say a word or two about industrial democracy, which was touched on recently and also by the noble Lord, Lord Plowden. He introduced the matter into the debate and criticised proposals that were, as he saw them, proposals to increase trade union power. However, he praised worker participation.

The Government's proposals for extending industrial democracy are based on the same belief—the belief that employees have a right to share in the decisions which affect them. We are also convinced that greater participation will help towards our objective of creating a more constructive relationship between management and workers. In achieving this goal the Government hold the view that flexibility is the key so that companies and their employees may make arrangements which they deem appropriate to their own particular circumstances. We think that a great deal can be accomplished in this way by voluntary action which builds on the structures for consultation which already exist. But we do not believe that we can altogether rely on voluntary progress, and it is for that reason that the Government have proposed that in companies employing more than 500, or 2,000 respectively, employees should have certain statutory fall-back rights to discussion of all major proposals which affect them before decisions are taken, and also to board level representation.

It is a truism, as has been acknowledged in the debate, that poor industrial relations have contributed in some way to Britain's industrial decline. We believe that one way to improve this situation is by involving people more closely in the decisions which affect them. The experience of our European neighbours, some of whom have made much greater progress in industrial democracy than we have, contains not the slightest hint that greater participation is detrimental to the interests of efficiency.

I want to say one word about work sharing because it is a matter which is certainly of interest outside the House, and because it was mentioned in several speeches in the course of this afternoon and evening. The Government see it as quite understandable at a time of high unemployment that there is pressure from the Trades Union Congress and others for measures to share work among a larger number of employees and so to reduce unemployment. But we should, however, have to be very cautious about adopting any approaches which would increase industrial costs, and therefore put at risk our prospects of economic recovery upon which the provision of more permanent jobs depends. That is why we have carefully considered the proposals for reducing normal hours and compared them with other measures to reduce unemployment, such as the special employment measures about which I shall say a word in a moment.

I can agree without qualification with the noble Lord, Lord Carr of Hadley, that because of the dangers to our competitiveness work sharing and reducing standard hours is best considered on an international basis. Work sharing measures are now being studied in the EEC, and it would be best to await the outcome of those studies and avoid any action in the meantime which might weaken our competitive position and damage our longer-term prospects. I believe that the social trend towards shorter hours and longer holidays will no doubt continue for future years, and rightly so, for the reason that the noble Lord, Lord Carr, said: if it is not about improving the quality of life, then what is it all about? As measures to reduce unemployment, work sharing measures do not seem to us to compare favourably with our own special employment measures.

On pay policy rather contrary views were expressed by the noble Viscount, Lord Eccles, who rather inveighed against pay policy as the enemy of increased productivity, and the noble Lord, Lord Rochester, who argued for a still more rigid incomes policy than we have had in the past. I regret what the noble Viscount, Lord Eccles, said in criticising pay policy because it has played a considerable part in reducing the inflation rate to the figure we have now of 7.7 per cent. That is a figure which is down from levels several times higher just three or four years ago. One could hardly describe the present rate of inflation, as the noble Lord, Lord Soames, did, as running wild. I think the noble Lord, if I recall him correctly, said in the middle 1970s we had inflation running wild. Certainly it was running wild. We believe that, by the pay policy, we have made a substantial move towards bringing inflation under control. For that reason I deplore the ease with which the noble Viscount, Lord Eccles, sought to dismiss it.

May I say just two words about the pay policy. It provides some limited room for adjusting differentials for skill, and the present policy also provides scope for self-financing productivity deals. The noble Viscount, Lord Trenchard, was prepared to take a bet with the noble Lord. I do not bet, and therefore I shall not follow him in that. But these schemes are examined by the Department and by the CBI. Both the Department and the CBI are satisfied that the great majority of productivity schemes of which they are aware, which at the moment number several hundred, are indeed genuine. It is impossible to say whether or not they are. I can only say that they have been examined, that they are examined with great care and that they are continuing to be monitored. One hopes that the noble Viscount is wrong and that if anybody takes on the bet with him he will lose.

Very little has been said about one aspect of the Motion; namely, the part dealing with new and constructive job opportunities. I should, therefore, in the few minutes remaining say something about that. The Government are using the existing means at their disposal to create new job opportunities through the modernisation of British industry. To give examples of that, in 1976–77 under Section 7 of the Industry Act 1972, no fewer than 855 projects costing over £1,000 million were supported with assistance of some £90 million. As a result, 56,000 new direct jobs are expected to be created over the next few years and a further 35,000 safeguarded.

Section 8 assistance is not specifically employment-linked; it has to be in the national interest and employment factors are taken into account. Schemes such as the accelerated projects scheme, the 14 sectoral schemes and the selective investment scheme are concerned with a wide variety of economic and industrial benefits. Even so, it is estimated that projects approved so far under those schemes should lead directly to the creation of some 22,000 jobs and the safeguarding of many thousands of others. Indirectly, those projects should safeguard tens of thousands of jobs through improved performance throughout many sectors of industry.

Finally on that point, selective financial assistance provides substantial benefits for employment through the inducement of investment and orders for United Kingdom companies. For example, the 118 projects costing some £640 million induced under the accelerated projects scheme should lead to some £500 million worth of orders being placed with the United Kingdom construction industry and plant and equipment manufacturers, with a resulting 70,000 man-years of work for those sectors. These are not achievements to be ignored or left out of account on a proper view of all the matters raised by the noble Viscount.

I should also say something, as I said I would, about special employment measures. We are now operating a wide range of special employment measures supporting some 310,000 people, and I need not detail them to your Lordships because I think they are reasonably well known. However, these measures continue to be developed and we expect them to be supporting some 400,000 people by March 1979. All the measures are now reviewed each year against the unemployment prospect and the programme will be continued so long as unemployment remains at a high level. I want to emphasise that point because the special employment measures demonstrate our concern to take action to reduce unemployment. Only higher and sustained economic activity here and in the world economy will solve general unemployment, and that is the aim of the Government's policies; but we cannot leave people unemployed so long as there are sensible ways to offer them employment or training opportunities, often at little additional cost to maintaining them in unemployment. That is why we have given priority, and will continue to give priority, during a time of high unemployment to developing a wide ranging programme of special measures.

I was asked to say something in reply to the noble Lord, Lord Rochester, who was kind enough to give me notice of his interest in voluntary national community service. This proposal has already been made on a number of occasions. It is a very difficult proposal to cost without knowing the volume of volunteers and the sectors in which they might work. However, the Government believe it is a less efficient and probably more costly way of helping young people than the MSC programmes, and those programmes concentrate particularly on that 10 per cent. of young people who do not move into further education, into jobs or into training some six months after leaving school. They provide those young people with a variety of opportunities, some of them in social services but others, successfully, in work experience with employers in all sectors.

I want to conclude on the general matters raised by saying one word about the implications of the Industrial Strategy. Much of the debate has been of a very general character, with wide-ranging philosophical, historical and economic considerations in mind. But the Government must produce policies to be implemented here and now in the actual situation.

I want to underline the importance of the work which is currently under way in the Industrial Strategy programme, to which the noble Viscount, Lord Watkinson, referred. The sector working parties have been continuing work on quantifying their home and overseas market share objectives and the implications for output and resources. Many sector working parties have refined their objectives for an increased share of world trade and have been asked to look at future manpower requirements. About half have been able to do so, so far. Unfortunately, preliminary conclusions suggest that, even with the achievement of the sector working party market share objectives, it is unlikely that there will be any significant increases in employment in the industrial strategy sectors between now and the end of 1980. For those sector working parties which have quantified the employment implications, there may be some small net increase, but some of the sectors where, I fear, the largest declines might be expected, have not quantified their estimates.

Much work is being done, and I should just conclude on this subject by saying that the current activities include attitude surveys, plant meetings to encourage the formation of productivity action groups, international productivity comparisons, and the establishment of a Clothing Industry Productivity Resources Agency, with financial support from Government. These sound like small details. But the problem is not going to be solved by great sweeps of the hand or philosophical utterances. It will be solved only by hard, detailed work.

This has been a very interesting debate, although I believe that many of the things said in the course of it may have been said before—indeed, have been said before over many decades. The long-term aims of the Government strategy remain a return to full employment and sustained economic growth. But of course we see improved productivity as essential to the achievement of these aims. In the short-term it is difficult to fight successfully inflation, low productivity and also unemployment. It is particularly difficult in the adverse conditions which prevail in the whole industrial world at the present time. But we believe that the Government's approach at the present time achieves the best balance that is available and that there is no real alternative. We believe that we are building by our industrial strategy, by our present taxation policies, by our employment and incomes policies, a sound and stable base for improved productivity and for economic growth.

10.38 p.m.

Viscount AMORY

My Lords, I am delighted to thank the noble and learned Lord, Lord McCluskey, for the courteous way in which he wound up our debate. When I spoke earlier I said how much we were all looking forward to the maiden speech of the noble Lord, Lord Roll of Ipsden, and certainly none of us was disappointed. He gave us a most excellent maiden speech. My noble friend Lord Soames and I were deducing that the excellence of the speech was no doubt due to the training he received at the Ministry of Agriculture, Fisheries and Food when we were both there years ago.

I shall make no attempt to sum up this wide-ranging debate. What was remarkable was the degree of agreement as to the seriousness of the general level of our productivity and the fact that an improvement in it is a prerequisite for maintaining our standard of living and increasing a sustainable level of employment. It only remains for me to thank all those, on both sides of the House, who have participated in the debate. When the idea of this debate was raised I assured my Whips that I envisaged a brief, brisk debate of three hours or so. I now know one thing. I shall never again he allowed to introduce a debate in this House! Having said that, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.