§ 3.5 p.m.
§ Viscount TRENCHARD rose to call attention to the continuation of conditions unfavourable to the creation of wealth and the recovery of British industry and to the reasons for that situation; and to move for Papers. The noble Viscount said: My Lords, may I start by congratulating the noble Baroness who is to reply to this debate on her new position—or can I say on her being made an honest woman, since she has replied to this kind of debate very competently in the past. I am sure that her new accolade will make very little difference in the future.
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It is very tempting, in view of topical events and yesterday's debate in another place, to divert the thrust of this debate from one which fits in with the longer-term series of industrial debates which we had last year to one which would concentrate on the immediate, short-term problems. In the main, I plan to try to resist that temptation, although the relevance of yesterday's Government statements is obvious and I will inevitably comment upon some aspects of those statements. The right honourable gentleman the Prime Minister said, not yesterday but in his New Year message:
We in Britain have no one to fear but ourselves. We are capable of doing anything we set our hands to".
This very much echoes the sentiment of my noble friend Lord Thorneycroft when he opened the second day's economic debate on the gracious Speech in November last. I believe, as must be clear from this Motion, that it is the conditions in which industry has been asked to lay its golden eggs that have become progressively more unfavourable over the past 12 years. The comparative trends in productivity and shares of world markets alone would have been catastrophic, and probably only North Sea oil and gas have prevented disaster.
§ I hope that we shall not spend much time in this debate on discussing whether or not things are slightly better this year than last year, or whether they will be slightly worse next year. I believe that we all know in our hearts that, but for North Sea oil, the strengthening of the pound and the terms of trade and, to give credit where credit is due, the reduction 964 in the inflation rate, we should be pretty well down and out. Our standard of living today is not much more than half that of leading competitor countries who were behind us in the 1950s. I also very much hope that when the noble Baroness comes to reply she will not dwell too much on whether there is complete proof that each item which I and other speakers may raise as potentially unfavourable to the creation of wealth has actually had a very serious impact. I had hoped, until the Government's statements in the other place yesterday, that she would be able to confirm that it was now the Government's intention to make sure that all conditions are favourable and so ensure that there was no impediment to the speediest possible recovery of British industry.
§ Although Government policy statements have increasingly recognised the need to give priority to manufacturing industry, the actual action taken has, in my view, amounted to little more than ceasing to increase priorities for other aspects of our national life; and even that statement proves to be a bit of an over-statement when it is set against yesterday's announcements. How can this be so? Have our Governments—and I deliberately use the word in the plural—been out of their minds? No, of course they have not, but I do believe that they have been blinded by two factors. First, I believe that the hearts and minds of many of those in high places in the last decade have afforded greater priority to spending on social and compassionate policies to improve the quality of life than to encouraging industry. The strength and profitability of industry has been taken—quite erroneously—for granted. Protecting the consumer, and more particularly the employee, has been seen as a necessary Government role. Protecting large industrial companies has not even entered the head.
§ Secondly, I believe that the eyes of those in high places have been taken off the ball by our necessary preoccupation with inflation. This quite correct obsession to deal with inflation has led us to accept many policies which are unfavourable to industry, and not just on the short term, as they were usually announced, but for a very long time. These have been accepted as the price of trying to obtain trade union acquiescence to an 965 incomes policy. They include nearly 12 years of price control, the erosion of differentials for skill and responsibility, in my opinion the daftest tax structure in Europe, and dividend control. The natural inclination towards social policies, which I mentioned just now, and the assumption that companies were all right has led to an unparalleled flood of legislation to protect the employee from his company, to strengthen to the nth degree the bargaining power of trade unions against the company and to protect the consumer and the environment at the cost of the company. Public expenditure has grown to half our GNP and this has inevitably taken an undue proportion of the nation's resources away from industry.
§ Additionally, this mountain of social legislation has brought considerable administrative burdens to industry and a diversion of time and attention away from wealth creation. In my opinion it has not yet been fully absorbed by Government, or even in some cases by leaders of industry, that the time that industrial management can spare from routine duties is very limited indeed, say 20 per cent. even in an ideal environment. The leaders of industry have been too reasonable in accepting on behalf of management one extra duty after another. Longer term improvements and the application of research and new methods consequently have been crowded off the agenda. In my opinion, management in industry is never an easy task at the best of times and even with the best management. If wealth is to be created, the task needs to be made as easy as possible and as attractive as possible. If we criticise the standard of our management, then the task needs to be made easier and more attractive.
§ Furthermore, I believe that history teaches us that in any large scale human activity a degree of incentive or a degree of discipline is necessary. Some stick or some carrot is necessary in the background. Communication and—the "in" word today — participation are not alone adequate in large scale activity. Both the stick and the carrot have been nearer to being totally removed in this country than in any other in the world. In some large factories it is no longer even possible for management to talk directly to their employees on important subjects.
966§ In other debates we have discussed the uniqueness of the British position in so far as industrial relations and collective bargaining are concerned, and I did not plan to over-emphasise this area today, except to say that many of those who doubted its importance are still perhaps influenced by the kind of survey that was published during the Recess by the Department of Employment, showing that the number of days lost in strike in the United Kingdom is not exceptional compared with other countries. It has still not been fully absorbed that there are inevitable natural economic limits on both the employer and the employee to the number of days of lost production or wages that can be afforded by either of them. Thus figures of days lost in strike have very little meaning. What is important is the balance of the bargaining position before strike and the constant "strike threat" position. That is where the position is unique in the United Kingdom, and it is that that bears on inefficiency, productivity and on the rate of inflation.
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I hope your Lordships will bear with me if I try to remove the note of gloom from this debate—a note of gloom which has been so obvious in our industrial debates in 1978—and if I do so by taking a flight of fancy to make my point. Can you possibly imagine that I am a chronicler writing in the Economist on 1st January 1990 and that my article, if action is taken now diametrically opposite to that announced by the Government yesterday, could still be entitled, "The British Economic Miracle of the 'eighties"; I believe it could run like this:
It is indeed a thrill to record the achievements of the past decade. Starting from a position where the world has written us off as an industrial power, we have increased our productivity by nearly 100 per cent. and our real wages, due to our strong currency, by 120 per cent. Our share of world markets, although not up to the 23 per cent. we held in the 'fifties, has risen from the 8 per cent. low of 1978 to 14 per cent. It may not take more than another half decade at the present rate to overtake German living standards once more. Our population is on the increase and notwithstanding immigration our unemployment problem has not existed since 1983".
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My Lords, I believe that my 1990 chronicler could perhaps continue thus:
The miracle started in 1979 when the old style incomes policies had all but broken down and when a new Government was elected".—
he did not say what!—
But perhaps the key was the change of
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attitude of the British trade union movement to one of recognition of the need to create new and greater wealth in order to achieve their new target of doubling their members' real wages in a decade. They played a leading part in the reforms of the British trade union system and the collective bargaining practice. It had been perceived that these reforms were as necessary as the control of the money supply, which all had come to see as an essential prerequisite for economic success. Thus the removal of the need to secure acceptance by the trade union leaders of the 'seventies of an incomes policy had made all the other changes, now described, politically possible".
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I believe that my chronicler would first turn to price control. He would say:
Price control, as distinct from monopoly control, was abandoned in 1980. Although more was claimed by the Price Commission the real impact on prices had probably been about 1 per cent. of sales value. This, however, represented up to 20 per cent. of profit in many industries and had thus been a real hindrance to investment. It had become clear that the distortions of production flow away from market requirements over 12 years of price control had been very great. It was also a major diversion of the brains of industry away from the market and it weakened competition. Over 600 people in the Price Commission were able to ask enough questions to keep the equivalent of tens of thousands of industrial brains engaged in answering, and worse, spending time agreeing with competition on how to answer".
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Turning to differentials, my chronicler of 1990 could, I think, say,
By 1979, nearly 12 years of incomes policy had seriously eroded differentials for skill and responsibility. The spread of British incomes, along with Sweden, had become the most egalitarian in Europe and North America. Concern for the low-paid in what had become a poor country, the consequent actions of wages councils, the flat £6 increases of 1976, and the sheer influence of the weighting of union membership had ensured that, notwithstanding certain lip service to the contrary, differentials had been continually eroded. The return of freedom to industry to reward skill and responsibility, together with the major changes in tax, proved that the chronic shortage of skilled workers was only half real, as the moonlighters returned to their industries".
§ My Lords, I believe that our chronicler would then quickly have recorded that the brain drain was reversed, that Britain, as a highly conducive place, both psychologically and materially, to work in, became a recipient of immigration; that talent to fill our gaps, both skilled workers and management alike, flooded in; that the problem of getting the best of the nation's young to enter industry ceased in the early 'eighties; that apprentice schemes for skilled workers blossomed once more, and that our traditional lead in many areas of basic science and research was at last progressively exploited at 968 home across the whole spectrum of industry, and not only in wars and in selected areas where we had continued to be successful.
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My 1990 chronicler would turn to tax and profits, and I believe he might be able—I hope he would be able—to say something like this:
The protest that greeted the major tax and social security payments changes in 1980, when the start rate was reduced to 20 per cent. and the top rate to 55 per cent., were soon forgotten. This was because by 1983 greater company profits and personal wealth led to the tax take from these two sources far exceeding the level from those sources in 1979. VAT, which had been temporarily raised to 10 per cent., was reduced to 8 per cent. after only three years. The return of real profit levels to those of the 1960s, from the pitiful 3 to 4 per cent. return in real terms to which they had sunk, allowed savings in direct Government aid to industry and this removed a further cause of distortion. Investment increased at a faster rate than the rise in profits might have suggested, even after taking account of the removal of the long absurd dividend control".
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I believe that my chronicler would then emphasise that full realisation of the need for industry to work single-mindedly for efficiency if new and extra wealth was to be created led to much more separation of social policies from the market system; that, as long as industry had been asked to share out work, save jobs, avoid redundancies, increase the pay of the low-paid, protect the consumer and the environment better than the richest countries in the world, the task of reducing costs had been made much harder, and that the employee or trade union-orientated legislation and the uniquely strong union pressures of the 'seventies had enormously added to the problems of British management. He would, I think, state that the essential limitation of management time outside essential routine duties was finally recognised, and all possible steps to lighten their load of what had been gleefully called new tasks or challenges in the 'seventies had become the objective, both in legislation and in the repeal and amendment of some of the flood of legislation of the 'seventies. I believe he would continue thus:
It is pleasing to record that many of the social problems of the 'seventies had disappeared, or been much ameliorated, with the rise in general prosperity. Reverse income tax has been a great help to the needy, without distortion of the market system. The higher quality and feeling of responsibility of industrial management in the freer market system have disposed of other social problems. The greater prosperity, and the larger taxation take, albeit at lower percentage rates,
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has ensured that our police and defence services are in better order than ever before. Our social services, although orientated more towards those in need, have increased in real benefit terms by 70 per cent. over the decade".
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My Lords, I believe that with the benefit of hindsight our 1990 chronicler might then search for reasons for our follies of the 'seventies. I think he might say,
Looking back, it seems that the informed public in the 'seventies did not realise what a myriad of price and wage changes had been necessary to preserve the efficiency and dynamism of the market economy. In truth, in the 'seventies many had begun to doubt whether competition could in fact be an efficient force. They were obsessed with the size of many corporations and with the lack of short-term price movements as an indication of the working of the market system. The economic textbooks had described as perfect competition what was in fact only the nature and kind of competition contemporary to the writers of those books. It thus included prices changing by the hour in street markets and the like. It came as a surprise when the dangerously low level of profits of even major corporations proved that these things and phrases like 'market dominance' and ' price leadership', were unreal, and that competition, although of quite a different nature to that described in economic textbooks, and often on a longer term basis and on a worldwide basis, was nevertheless no less strong a force across the great bulk of industry than it had always been".
§ My Lords, you can imagine that our chronicler of 1990 then summarised the distortions, diversions and disincentives of the 1970s which he said had rendered British management both demoralised and incompetent. He gave primary credit for the revival of our fortunes to the trade union leaders of the previous decade, noting that most of them were now in the House of Lords where they left no stone unturned in their encouragement of conditions favourable to the creation of extra wealth.
§ My Lords, I hope you will not regard this fictitious sketch which I have given this afternoon as flippant or impossible. It could become true. If it even half became true we should be fairly well off. It really could become true if we realised how desperate our plight is and if we now really allowed industry to become as single-mindedly market orientated as possible, as indeed it was when we had the Industrial Revolution. I do not think we shall make the same mistakes again. It is a different age, and we have the ability to look after social problems in a different way. Just as we led the world with the original Industrial Revolution, and perhaps with the post-Industrial Revolution mistakes, let us start a new industrial revolution. 970 I agree with the Prime Minister's quotation in his New Year message: we can do anything to which we set our hands.
§ The new trade union attitude recorded by our chronicler and the trade union reforms mentioned are the key to the economic miracle. The content of the reforms clearly needs to be the subject of another debate after my chronicler has perhaps published a detailed review of the reforms on 7th January 1990. They need a debate on their own. However, I must just comment on what was said yesterday by Government spokesmen in the other place about the impracticability of removing some part of the trade union immunities from law in this country and the suggestion that the change in law would be flouted. Are we so unique as to suppose that we alone can find no place for either normal or special law in this area? Is little old John Bull now the only one in step on his road to ruin?
§ As regards yesterday's announcement of more pay for the low paid, however desirable that thought may be, how can it do other than further erode differentials, make wealth creation even harder, and in the end hit the lower paid even harder? Finally, the removal of price control profit safeguards announced yesterday leaves one speechless. What kind of priority for industrial recovery is that? How mad can we be? A fall in real profit levels from the pitiful 4 per cent. in real terms can only help to complete the destruction of this country as an industrial power.
§ Against the background of 30 years of management experience, for more than 10 of which I have been responsible for companies in a good number of different countries, I make the following plea to the British trade union movement: let your political Party off the hook; reform will sooner or later come to you finally either from the dictatorship of the Left or from the reaction to the Right; anarchy can never be more than transient; give a lead from within and middle up the situation now. My Lords, I beg to move for Papers.