OVERSEAS AID AND THE BRITISH ECONOMY

HL Deb 07 August 1980 vol 412 cc1714-53

8.43 p.m.

Lord HATCH of LUSBY rose to ask Her Majesty's Government what part the promotion of increased purchasing power in the developing countries plays in their strategy for reviving the British economy.

The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, first of all may I welcome back the Minister who is to reply, hoping that during his tours he has been able to see something of the peoples that we are talking about tonight and the way in which they live. At the same time, I would extend to him my sincere sympathy. Not only has he to take two debates running, but, quite frankly, without any personal affront to him, I do not believe that he is the man who should be on the Front Bench answering this debate. This debate is an economic debate, and it is not the responsibility of the Foreign Office to answer for economic policy. I hope also that, following the various exchanges we have had between each other, I can make it quite clear at the beginning of the debate that I am talking about economics, economic policy and their consequences for this country and the rest of the world; I am not talking about aid, although aid will also come into it.

We are holding this debate in a world situation which has been described by two notable economic reports in the past few months in these terms. First, the Brandt Commission Report stated that the 1980s could witness even greater catastrophes than the 1930s. Secondly, the Commonwealth committee of experts set up by the Commonwealth Conference in Lusaka last year has reported in similar terms: There is anxious questioning whether we are on the brink of an economic disaster comparable to the great depression of the 1930s".

It is in that context that I want to put the Question that is on the Order Paper in my name. At the moment we see one stark, central fact in the world economy. It is that there are in the industrial world about 20 million people unemployed—calculated by the OECD to rise to 23 million by 1981—whereas, on the other hand, 15 million people in the third world are dying every year from nothing more than lack of food. This is an horrific commentary on the state to which we have brought human society.

I am asking the Government what part their economic strategy has to offer for the rest of this century to the British position in this situation. So far as I can summarise it—and I would be happy to be corrected if I am wrong—the present Government's policy is based upon what they call the control of the money supply in order to cure inflation; and they always put the cure of inflation as their first objective. It would appear that, in order to do so, their strategy is to move resources to the rich, as we saw in the first Budget they introduced last year, in the hope that the rich will invest in British industry. At the same time, of course, this had to be paid for, and was paid for principally through the raising of VAT.

Secondly, the Government appear to believe that in order to control the money supply they must maintain high interest rates; that sterling must remain expensive in the world money markets; that public service prices should be increased; that the power of labour, through the trade unions and through industrial relations, should be reduced; that wherever possible Goverment should be withdrawn from the economy, except, of course, when it comes to increasing armaments; and that if the consequence of this is, as it has been over the past 12 months, rapidly increasing bankruptcies and unemployment, that is part of the price that must be paid. And even if, as, again, has been seen during the past 12 months—it is now forecast to increase over the next 12 months—this policy is to reduce industrial production in this country, and the public services, then that is also a part of the price that has to be paid.

Of course, there are hiccups. We have seen recently Government money allocated to firms like Dunlop, and, I believe, Bowaters, the paper people. We have seen the subsidies to Inmos, and we have seen the establishment of enterprise zones, all of which brings the Government and Government money into industry. What basically I am asking is: if this is a fair summary of the Government's economic policy, what then? What reason is there to suppose that after this policy has been followed through to its ultimate this is going to lead the British economy into any fixed state of recovery? Indeed, at what point in this continuing policy are the Government going to say, "We have now done what we set out to do; now we can see a recovery in growth in industry, in exports and in the economy as a whole"? That is the question which I never heard answered. I have put it to a number of economic Ministers and I have seen no rational answer to the question of why this policy should lead to economic recovery. But in the meantime it certainly has effects on trade and on our exports.

We have seen only this week the announcement that the British Overseas Trade Board is going to have its resources so reduced that next year Britain will have only a half of the trade missions sent abroad that it has had in 1980. The employers' organisation, the CBI, has forecast a 3½ per cent. drop in production this year. Again, as I have emphasised so often from these Benches, the money that has been released to the rich does not normally go into British industry; as we saw in the years 1970–72, it leaves the country. Since the exchange controls were lifted last October £3½ billion have left this country. The Government often say that that is investment abroad and that we get some returns from it. It is not wealth-producing. Much of this money goes into the property market in the United States and on the Continent. Most of this money always goes to the developed countries, not the developing countries, as has been our historic experience since the 19th century.

So we are to see our industry quite deliberately decimated. We are to see real economic growth deliberately cut. Again the CBI is forecasting that economic growth will be cut by 5 per cent. by next year. Do we not see in this the insidious beginnings of the demand for protectionism to defend our industries and our industrial workers against the competition from abroad? Protectionism is the death knell of Britain as a trading nation and the opportunities which I shall mention later on which are open to us. Again, surely the Government have seen by now that, however much money they may release to the rich sectors of our community, that money is not put into risk capital.

The risk capital in this country today comes very largely from the multinational companies who can move their money about and who, for example, in microelectronics have already begun to get a monopoly control of the market. I give you the example of titanium which, noble Lords will remember, we were talking about a few weeks ago. The Government had to put money into the production of titanium because it was at risk on Teesside and no private company would go into it. But when it comes to the larger area of micro-electronics we there see a shrinking number of large multinational companies taking control of it. So we are to see, apparently, as a result of this policy, an ever increasing small hold over the vital development areas of our industry and the future industries of this country, the risk industries, depending on a Government that are not prepared to subsidise them.

There have been alternatives offered to this scenario. The Brandt Commission was one and the Commonwealth experts' report was another, but the Government have continued to display the same attitude in international economics as they are displaying in domestic economics in this country. For example, in their reply to the Brandt Commission they say that the international capital markets can continue to play the primary role in recycling OPEC surpluses, dead against everything that the Brandt Commission has analysed. After all, the Brandt Commission was composed of some very distinguished people in the world who, I would think, know as much as, if not a great deal more than, the Government's economic advisers.

The Government say further in their memorandum: The Government believes strongly in the merits of the present economic system". They showed that belief at the Venice conference when, along with the Americans, they blocked the consideration of the Brandt Commission Report, which was supposed to be and which was announced by the Germans as being one of the principal objectives of that conference. In this Government reply, which was published and which came from the Foreign Office, there is a completely negative attitude to everything suggested or analysed in the Brandt Commission Report. It has been described in the words of the Observer as a "miserable document", "mean", "callous", "short-sighted", "pompous", "mealy-mouthed". It has been described by the Sunday Times as one of the shoddiest documents ever produced by a British Government with fatuous bromides about keeping faith in the needs of the present world economic system.

If the Government believe, as they state in this document, in the present international economic institutions, then two-thirds of the world's population are doomed to a very bitter future. In the developing countries we have already seen the mounting debt that is inevitably built up among the non-oil-producing developing countries as the price of oil rises and as the price of manufactured imports rises, too. Let us have no doubts about this: much of that debt is owed to commercial banks in Europe and in North America. Let us not forget what happened when banks began to default at the end of the 1920s and the consequences for the world throughout the 1930s. It is by no means unlikely that, unless either the present international institutions are reformed or replaced by more relevant ones, then we shall begin to see the defaulting of commercial banks on the same scale as we saw at the end of the 1920s.

Have the developing countries to rely on the IMF as it is at present constituted and as it at present operates? If they have, then they are doomed to a policy of deflation, which means immediately that they are unable to sustain their purchases of imports from this country and from the rest of the industrial world. They are also doomed to massive unemployment. Remember, my Lords, that between now and the end of the century, 2,000 million more people will be living in this world and 80 per cent. of them will be living in the third world. Already—and this figure means almost nothing—there are 59 million registered unemployed in the poor world. That is only the tip of the iceberg of the massive unemployment that one knows exists in every one of the developing countries.

What does that lead to? What did it lead to in the 1930s? What arose then from the starvation and monetary collapse that we saw at the end of the 1920s?— violence of every kind: civil, internal violence, and eventually international violence. And it is this policy which has led some of the developing countries to begin to talk about what is known in technical terms as "de-coupling". All that "de-coupling" means is that there is a strong movement among some developing countries to break away from their interdependence with the industrial world, to break away from that world and to go it alone. It is not very far from the attitude that has been taken by OPEC already, and there are other countries producing commodities like copper, tin and rubber, who are looking for the same kind of solution as the oil-producing countries have done. I do not believe that is going to help them, but I am certain it is not going to help us.

I want to put briefly, and finally, an alternative; and I admit fully at the beginning that I am not here trying to provide a panacea for all the economic ills of the world. I am suggesting a part—I believe an important and indeed a crucial part—of what can be done in these circumstances in order to revive not just our economy but the world economy, and the British economy as a part of that world economy.

We have to open the bridge between the growing number of unemployed in this country and those who are starving in the third world. We have to set our minds against indiscriminate protection. I admit there can be a case made out for a measure of protection for certain sectors of our industry as they change from one stage to another; but that must be discriminatory protection, always keeping the door open to the third world countries.

I will give one example, in order to dispel a myth. It is normally very widely considered that our textile industry in this country is being undermined by competition from the third world. The average British family spends £250 a year on clothes. Of that £250, £190 is spent on clothes made in Britain, £35 is spent on clothes made in the developed world —mainly Europe, Japan and North America—and only £25 out of the £250 is spent on clothes made in third world countries. So let us get rid of that myth. The real competition which industry faces in this country comes from the developed world, the industrialised world in Europe, North America and Japan, and not from the third world.

I would suggest that we might consider tonight—I hope the Government will consider it—that there is a special responsibility on Government to give a lead in a new economic direction, and I would base my plea on the authority of the former leader and Prime Minister of the Conservative Party. I would ask the Minister who is to reply—I should like to ask the Members behind him, but they do not appear to be very interested in this subject—whether or not the party opposite are repudiating what Mr. Heath said in the speech he made in another place on the Brandt Commisson Report. All the way through that 37-minute speech was the emphasis: "This cannot be left to the private sector: this is Government responsibility".

What is Government responsibility? It is, first, to increase the resources and techniques of the research and development sectors of our industry in order to discover how our ageing, traditional industries can be transformed into industries which can supply the kind of goods that are desperately needed and can be sold in the third world. Secondly, it is to provide the risk capital which is essential for new technological development which is relevant to the needs of the third world; and to invest and to use what we set up—the National Enterprise Board—in order to take the risks that, in the short term, are essential if a long-term trading policy is to be developed.

I would suggest very seriously—indeed, I hold both parties responsible for the lack of such a policy in the past, although I believe that we were getting towards it in the latter years of the last Parliament—that the Government get together with employers and the TUC and work out a strategy of retraining so that, instead of trying to maintain industries which are doomed in the next 10 years, we find the means of retraining workers to take part in industries which have some prospect of success. I suggest that we imitate some of our industrial competitors, by giving interest-free loans for exports which can produce the kind of trade resurgence for which I am asking. I ask that it be con- sidered whether tax concessions can be granted to export-oriented industries.

I also ask that the Government recognise, as is seen all the way through the Brandt Commission's Report and the Commonwealth committee report, that the industrialised world must sit down around the table with the OPEC countries—and remember, my Lords, that we are now an oil-producing country—and, indeed, with the Eastern European or communist countries, to look at this world situation and see how we can get a stable, though undoubtedly increasing, price for our energy, without damaging the third world and providing the third world, from the profits of the oil-producing countries, with the wherewithal for their economic health to enable them not just to thrive, but to buy our goods.

Above all, I ask the Minister to respond to the specific proposal made in the Brandt Commission's Report that there should be a small—and I emphasise "small"—summit meeting early next year, because from what knowledge I have, and the contacts I have had, that summit will take place. It will take place either with British co-operation or without Britain being represented.

I said at the beginning that this was not a debate about aid, but that aid must come into it. As we know, aid has been cut by this Government. All I would say about aid is that it is already providing the workers of this country with about 40,000 jobs per year, but that—and I emphasise this point to the noble Lord, as I have done so many times before—if aid is linked with trade and with industrial development, it becomes much more valuable both to the third world peoples and to ourselves. Certainly, it is a much greater safeguard for the future of the people of this country than the monies spent on cruise or Trident.

There is a great opportunity here, if only we have the imagination to see it, for a world that is at present outside the market, a world which consists of virtually two-thirds of the human race. I believe that in this year of 1980 we, as a human race, are standing on a precipice. We have two choices. We can go forward and as a human race fall on to the rocks below, or we can turn around in time to plough the land that is now untilled.

9.11 p.m.

Lord GLADWYN

My Lords, As I was coming up the stair, I met a man who wasn't there. He wasn't there again today, I wish, I wish he'd go away. The man who was not there is the ex-Chancellor of Germany, Herr Willy Brandt, and I am afraid that he is going to be there for a long time to come. In fact, as they used to say about the poor in the old days, I greatly fear that he will be always with us. So I make no apologies for restricting my brief remarks to the Brandt Report. I know that we have had one debate about it, but I want to regard it tonight from a slightly different angle from that employed by the noble Lord, Lord Hatch. More especially, also, I should like to end up with what I hope will be a constructive suggestion which I trust will appeal to the Government, though I must say I doubt it.

I think we might concentrate for a moment on what I might call the anti-Brandt movement which is, I fear, becoming increasingly popular in this country. This seems to me to be two-fold. First, there is the right wing or true blue assault, which we might call anti-Brandt "A". This contends broadly, if my interpretation is right, that there is no need for the West, or the richer or the "industrially developed" countries to do anything to assist the poorer ones, more especially those in Africa and in the Indian sub-continent. If those countries are over-populated and poor, it is chiefly their own fault. Other Third World countries, such as Taiwan, South Korea, Singapore, Hong Kong and so on, have made the grade by their own efforts, so why should not the rest? More especially, India is usually singled out. If she would only rid herself of her cows and her corrupt administration, she might profitably follow the example of China, which has never received any aid at all, beyond a little from Russia in the late 'forties, but, nevertheless, has at least succeeded in feeding her 1,000 million people adequately and is now organising herself industrially on what seem to be profitable lines.

In any case, the great bulk of the poorer countries—I am still explaining the anti-Brandt "A" thesis—are now run by dictators, usually soldiers, who know how to put aid to their personal advantage and who deal with any uprising on the part of their starving subjects by purely military means. So why should we transfer resources on a huge scale to these people, who will only pour them down the drain or use them for prestige undertakings, or even for tribal wars, or wars against a neighbouring country? Why, in other words, should we lower our own standard of living without effectively raising that which, in the modern jargon, is known as the under-privileged third of the human race? They were much happier when they were ruled by the West; now that they have chucked us out, it is up to them to face the consequences; they have got to trade with us, anyhow. That is the hard-boiled, anti-Brandt "A" thesis.

What I call the anti-Brandt "B" thesis is rather different. It is that of the extreme Left, as I understand it. This denounces the authors of the report as conscious, or unconscious, capitalist promoters of industrialism and, hence, of wage slavery for the masses in the developing lands which should, theoretically, hermetically seal themselves off from all corrupting Western influence and concentrate on pulling themselves up by their own bootlaces. Mainly agricultural communities should also, no doubt, make arrangements for disposing of their raw materials by barter means, in economies run by the equivalent of the Chinese "Gang of Four".

I rather doubt whether the anti-Brandters of all tendencies have really absorbed the report's central message. That there are, and that there have been, many abuses in the administration of aid is certain. That it invariably has a qualitative effect is questionable. That the inhabitants of many new "liberated" nations were, from a purely material point of view, better off under colonial rule is demonstrable. That the West, by introducing modern hygiene and discouraging tribal wars and such practices as suttee were, with the best intentions, responsible for the population explosion is undoubted.

But, irrespective of aid, the unfortunate thing—the thing that will not go away—is that, as things are, some thousand million people will by the end of the century probably be both starving and under leaders controlling areas of great interest to the industrialised West by reason of their possession of vital raw materials essential to the development of the West's economy. And what happens if, long before then, they repudiate the debts to the West by means of which, up to now, world trade has been largely financed? What happens to our own exports then? Will not a slump be upon us, compared with which the present recession will be looked back upon as a period of great prosperity? Unless the fully industrialised States propose to reconstitute their old empires by physical means, which is not, I think, actually suggested by even the most hard-boiled anti-Brandters, there is a real problem which must be faced, somehow.

But if we reject both anti-Brandt "A" and anti-Brandt "B", it is still clear that the general application of the Brandt remedies, the remedies as proposed in the Brandt report, will be extremely difficult. That is no doubt why the Government in their commentary, if not damning the report with faint praise certainly praise it with faint damns, fully accepting hardly any of its major proposals, or at least only those which, they say, have already been substantially adopted. For even in the event of the major thesis—that is, the really massive transfer of resources—appealing to the industrialised West, which seems quite unlikely, it will also necessarily involve, for its success, the willing co-operation of those former third world but now extremely rich countries, the members of OPEC.

A widely held view in these countries, unless I am wrong, is that since the war the immense increase in the gross national product of the industrialised States in OECD—the "Western miracle" as it has been called—has been largely the result of very cheap energy supplied by them under contracts entered into when they were still exploited, as they would say, by the imperial powers and their agents, the big oil companies. Now they are, perhaps not unnaturally, intent upon getting back some of the money to which they feel they were previously entitled. And, of course, at the back of their minds is also the thought of what they are going to do when the oil runs out or, conceivably, is replaced by other forms of energy.

Obviously, despite this, the best solution, which I think can hardly be denied from the point of view of everybody, would be so to recycle the colossal sums accruing annually to the OPEC countries in the shape of petro-dollars that the poorer third of humanity will be able to continue to provide the industrialised states with the raw materials they need—no doubt at a profit which will enable them in their turn to develop some kind of industry—and the industrialised countries will thus be enabled to keep their factories going in order to turn out the goods and services that many of the OPEC and other countries need and can only get in this way. After all, what is the point of accumulating huge surpluses if you cannot get the things you want and more especially if, owing to the effect of a world slump, in many currencies you are not sure for how long your investments will retain their intrinsic value?

For a few years after 1973, at the beginning of the crisis, this recycling worked to some extent owing to the admirable activities of the private banks but now, for various reasons which I need not go into, it is becoming increasingly difficult. In fact, this broad objective, if acceptable, can probably now only be achieved—and I hope the Government will accept this thesis—by some high level negotiated settlement between the three broad groups involved in the OECD, OPEC and the poorer and developing countries.

The other point that I wish to emphasise is that successful negotiations would clearly have to involve concessions by all three groups. In other words, as I see it, the West will have to content itself with less growth and hence with a somewhat reduced standard of living; the oil countries will have to be prepared to reduce their present enormous profits from oil and to moderate at least to some extent their instinct to conserve, and the poorer developing countries, whether they like it or not, will have to forgo many of their original ideas about industrialisation and be largely content with labour-intensive projects involving the continued maintenance of their vast and increasing populations on the land. To that extent there may even be something in what I have called "anti-Brandt B". Here the example of China is one which might well be followed. After all, China contains about two-thirds of all those people in the world enjoying an income of less than about 300 dollars a year. Naturally, in such a reorganisation of the trading systems of the entire non-Communist world the great multinational companies will have to be brought in and will have to play a major role.

Whether all this is possible is another matter. The example of UNCTAD, where after many years of discussion there has been no agreement on some new world trading arrangements under which the poorer countries could find a more profitable market for their goods, is not encouraging, to say the least, although perhaps Lomé may have pointed the way. At a moment when the West has simultaneously to cope with unemployment and inflation and I am afraid that on the whole OPEC seem to be after what they can get, such a conference might indeed be impossible to organise. It would certainly be worse than useless to summon it unless there was a reasonable chance of success. Even at this distance of time we might be warned by what happened at the World Economic Conference summoned by Mr. Ramsay Macdonald in London in 1933, although at the same time we can hardly disguise the fact that the failure of this conference was followed after a few years by World War II.

So perhaps things will have to get worse before all concerned are forced to consider the concessions that all will have to make and in the meantime we can only continue with the aid that we are contributing, however inadequate that may be. Aid by OPEC countries, already considerable, may perhaps be stepped up—we can only hope it will be—and the Fund and the Bank, as the Government point out, will no doubt expand their activities even more, and of course I agree with the noble Lord, Lord Hatch, that trade is much more important than aid. So we shall go on, although I greatly fear that we may be overtaken by events. In that case the great beneficiary will of course be the Soviet Union. There are many more potential Cubas on the horizon besides Nicaragua, and the Russians will certainly know how to exploit them in order to increase their already great power and influence in the world.

What then can we do to prepare people in this country for what is likely to happen to us, whatever Government may be in power? I think it should be continually emphasised that nobody owes us a living and that, in spite of North Sea oil, hard times are ahead. We obviously cannot, so to speak, buy ourselves out of a world slump by paying ourselves more money, and, in emphasising this, the Government—whatever may be thought of their techniques—are clearly right. But we might, I think, encourage all concerned to agree that a streamlined and efficient British industry, perhaps running with the emphasis on new rather than on old-established lines, is necessary if we are going to survive as an independent nation. Nor is there any reason to doubt that the EEC, if it had the sense, would with the aid of the European Parliament, approve great schemes for rationalising production of certain goods for which there is a world market, such as aircraft. That, I think, would help us to weather the storm.

What is rather depressing is the way we seem to be preparing, as a nation, for the difficulties that obviously lie ahead. You would have thought, for instance, that one of our chief objectives since the war would have been to build up a body of competent technicians in all branches of industry who would, under good management, have been able to get things moving and the most capable of whom would occasionally have been able to move up into management itself. Maybe I am misinformed, but, as I believe, the Germans and certainly the Russians have been far more successful in this line of business than we have been. Perhaps it is our fault; perhaps it is our whole system of education that is at fault. Certainly some experts seem to think so, alleging that we are producing an elite of arts graduates, higher mathematicians and scientists on the one hand and a mass of nearly unemployable illiterates on the other.

My Lords, I have strayed a little, I fear, from the central theme of the Motion moved by the noble Lord, Lord Hatch, but I think I am justified. For, unless we can organise ourselves better we shall be less able—in spite of North Sea oil—to withstand the shock to our social system which will be administered by the threatened super-slump, always supposing that we cannot solve the major triangular equation to which I have already referred. So, to sum up, I would not myself accuse the Government of being ill-intentioned, they will be delighted to hear. I suspect that their intentions are entirely good. I listened to Mr. Hurd giving evidence to the House of Commons Select Committee the other day, and of course he was impressive, a very impressive man. But what I fear is that they have not the imagination to see that existing international structures, established in very different circumstances nearly 40 years ago, are probably incapable, unless reinforced and greatly strengthened, of containing the new forces now abroad in the world, which, unless harnessed, may produce—will produce, I am sure—some kind of explosion.

I do not say that other governments in the highly industrialised states are much more imaginative than Her Majesty's Government. In all democracies governments cannot go very much ahead of public opinion, which has certainly not as yet come to the conclusion that hard times, in the present condition of the world, are inevitable, and holds, rather, that increased prosperity is only just around the corner if only the Government pursue the right kind of policy.

My Lords, the issues raised by the Brandt Report are so grave and so fundamental that I wonder whether the Government might not find it useful to have them considered by some all-party Parliamentary body. It might be some joint permanent commission of Lords and Commons—I think that might appeal to the noble Lord, Lord Peart—which could consider this fundamental set of questions, taking the advice of experts of every political complexion and reporting periodically.

Many of the difficulties raised by the Government in their paper may be insuperable—I admit that—but on other points perhaps their opinion might become less negative when studying the periodical findings of a body such as I have described. Is this a foolish suggestion? The Minister who is to wind up this debate will no doubt tell me that it is! I am quite used to the rejection of my bright ideas. But I have been told by responsible parliamentarians that it might be a starter.

It will be seen that, while I entirely recognise the difficulties of the Government—or indeed of any British Government—when confronted with Brandt, I suspect that they are so daunting as to promote a strong desire to brush the whole thing firmly under the carpet. For instance, I can well imagine a Government Whip, pestered by a young man eager to reform the world along with that rather doubtful monetarist, Mr. Edward Heath, having recourse to the immortal words of the old song: Can't you see your mother doesn't like it? Wotcha wanta talk about it for? That is an attitude, a state of mind, which I feel might at least be modified, if not reversed, were my proposal for an all-party re-examination of Brandt to be by any chance adopted—although I must say that I doubt whether it will be.

9.32 p.m.

Lord SOPER

My Lords, the House will be grateful I am sure for the opportunity to discuss a matter of such vital importance as that which has been introduced in this particular Unstarred Question by my noble friend Lord Hatch of Lusby. Earlier today it was reported that the noble Lord, Lord Carrington, speaking in Mexico, said that the economic situation in the world dwarfs every other consideration, even that of Afghanistan. I believe that the significance of this Motion will be judged in relation to the words of the noble Lord, Lord Carrington, rather than by the number of people engaging in this debate in your Lordships' House at this comparatively late hour.

I would presume to begin at a point which has not as yet, I think, been stressed, but for me it is the right beginning. Perhaps owing to the ministrations of television, certainly because of the publicity which these matters have aroused, there are millions of people in the world today who are acutely conscious of the deprivations of life and livelihood, of the sheer poverty and destitution, of millions of our fellow creatures. It is from that standpoint that I believe the ultimate virtue of a debate of this kind can emerge.

I would break a gentle lance with my noble friend Lord Hatch. We are really talking about aid; what we are not talking about is alms. The strictly Islamic concept of alms, as a moral obligation in a static relationship to poverty, which alleviates the suffering of those who are impoverished and spiritually blesses those who engage in this Godly activity, is to me, no answer—in some senses it is a contempt—for the real problem which must be seen, I believe, in a dynamic situation in which aid is an ongoing process, which not only benefits those who receive it, but progressively, by a geometrical progression almost, increases the viability and the welfare of those who exercise it. That is the thrust of the Brandt Commission's Report to which I shall continue to refer.

It relieves, it seems to me, a great many people from the dreadful sense that there is nothing that can be done except the provision of alms, of charity. However, the Brandt Commission, perhaps for the first time, sets forth in conclusive language, at least to me, that the benefit which can accrue from raising the standards of living among those who are impoverished is itself a contribution to the welfare of those who discharge this responsibility. That seems to me to be the point of departure for such a debate as that in which we are now engaged.

My trouble is that I do not believe that, even if the Government have carefully read the Brandt Commission Report, they have assessed its true significance. At least the debate in the other place—as far as I was able to understand it—revealed that they were talking in terms of a continuation of a situation to which they had been committed, rather than accepting the revoluntionary concepts of the commission, which indicated beyond all peradvanture that we were now living in a revolutionary age, in a different kind of society, and that the traditional methods— whether they be monetaristic, which I abominate; whether they be laissez-faire; whether they be the traditional uses of IMF and the World Bank—are no longer competent to deal with an ongoing situation in which the real problem requires an entirely different approach to world poverty.

It is this which commands my attention, and I would presume to say a little more about it from the standpoint of the Brandt Commission. We must encourage people to believe that a Government must do more than Governments have traditionally been able to do—you cannot make people good by Act of Parliament, but you can make it much more difficult to be bad. What is so much more required today is the promotion of a sense that ordinary people, through their governmental authority and power, can in fact do something about the terrible consequences of this poverty and, to me, the insufferable conditions which are portrayed on the television screen and against which, even hardened as I am, from time to time I feel compelled to close my eyes. To me this is the point of departure. For I believe it is possible, if the Brandt Commission's recommendations are put into operation, that through governmental activity we can in fact satisfy that increasing sense of obligation on the part of millions of decent people throughout this world to do something practical about the poverty and destitution which is such a terrible curse, and an avoidable one at that.

The Brandt Commission and, indeed, Mr. Edward Heath are quite convinced that individual action from a monetaristic or traditional standpoint will certainly not meet the case. I should have thought that those who have read the commission's report with assiduity would be left in no doubt that that is so. It demands Government activity, and the very processes whereby the Brandt Commission proposes that we should embark upon such activity are the absolute contrary to those processes which are now being advocated in the present Government as the solution of our own domestic troubles. Those troubles will not be solved until we see, as the Brandt Commission suggest, that we live in one world, and whatever may be the programmes which are envisaged and put into practice in one place, they must correspond in essence with the programmes which are universally applicable, or they will certainly not survive the test and the opportunity to succeed. Therefore, the Brandt Commission proposes—and not with particular precision—that there should be an attempt to create a world conservation of energy and a world development fund, as it could be, in such a way as to increase the capacity of those who are now impoverished not only to benefit themselves, but, as they benefit themselves, to produce an increase in the trading facilities upon which we depend.

To me this is an absolutely important and fundamental issue, and I hope that it will be sufficiently recognised by a Government, of whatever colour, that the Brandt Commission was not some Socialist gathering committed to some kind of Cloud Cuckoo Land of promise and Utopia, but a very practical and in many cases a conservative one which, when confronted with the evidence, was honest enough to recognise that, whatever its preconceived notions, the evidence was more important.

I would venture to make one or two other remarks. One of the troubles of the present situation, as is advertised in the report of the Brandt Commission, is that if you stimulate the capacity of underdeveloped countries to produce and, therefore, to purchase from the developed countries, the outcome all depends on what you persuade them to purchase. Unless there is a radical reduction in the whole arms business over this planet, these underdeveloped countries will be encouraged to use their resources, and their increasing resources, not to feed their hungry but to provide the weapons ultimately of their own destruction and everybody else's.

Therefore, into this debate I believe the whole question of disarmament naturally must flow. For unless we can provide an opportunity of stimulating trade in those things which are peaceable and required, rather than in this hectic and calamitous rush to impoverish those who are already poverty stricken by the added burdens of an increasing arms race, we shall indeed have developed the capacity of some of these underdeveloped countries to require our commodities. They will require the means of death, and will not survive in any cataclysm in which they and we are involved.

Finally, the Brandt Commission recommends that there should be a world conference. It seems to me that this is at least the simplest and the basic requirement. I am well aware, quoting again the noble Lord, Lord Carrington, that an exchange of rhetoric is no substitute for a real approach to the problem that confronts us. But I believe that there is an increasing willingness—and in this I would include even the Soviet Union—to recognise, perhaps belatedly, that the kind of world in which we now live does not permit, even with modifications, the application of the traditional concepts of world finance, and that that act of beneficence, which has so often been regarded as "alms and charity", can now itself be a means of progress. To that end I commend to the Government the strength and the swing of this particular Brandt Commission Report as it affects the particular notion to which we are invited to pay our attention today. Our good and our benefit ultimately depend on sharing with others, and as we increase their capacity to live, so we ourselves are blessed.

9.42 p.m.

Lord RITCHIE-CALDER

My Lords, I always find it very difficult to follow my noble friend Lord Donald Soper because I feel so totally inadequate. But I want to take up from him where he left off. Beyond any question whatever, as Lord Carrington pointed out in Mexico, the situation we are facing throughout the world in economic terms is much more serious than our anxieties, which we may be able to avert, about the situation in Iran or the situation in Afghanistan. This lemming-like process towards an economic collapse is visible and clear. All the time we are saying, "When and how?". It is not a question of "Now or if"; it is, "when and how".

The answers we have to find. The answers we are discussing here in this Unstarred Question tonight are quite clear. They are what my noble friend Lord Hatch said: this is an economic question. May we just stick with the emphasis on what are the economic issues involved. Let me be quite clear: the situation in which we see the world today is a confrontation—and this is quite clearly the reason why we had the Brandt Report—between the haves and the have-nots, between the so-called North and the so-called South, and between the third world and the highly-developed world.

Over the last years, as many of my noble friends may have done, I have sat in on many discussions on the New World Order. It is what in fact the Brandt Report is trying seriously to rationalise. Implicit in the Brandt Report is the acceptance of the arguments of the New World Order. The old world order is not standing up. It cannot do so, and all the patching and applications of Band-aid that we are using in the present situation are not staunching the haemorrhages of the world economy.

This is something I have lived with in a positive way for the past 30 years. As I have previously told your Lordships, I have travelled many millions of miles in consideration of the problems involved in the development of the developing world. From the word "go" it was clear that any idea that we could impose our self-evident wisdom on the developing world was quite wrong. With the best intentions we tried to do it; we tried to transfer our preconceived ideas of what would be good for them without asking them what they really wanted. Over those 30 years we have seen genuine, decent and proper attempts by the aid systems of the world—by the United Nations agencies and all the other aid means—to try to stimulate the capacity of people to help themselves.

That is the essential point, and that should appeal to the party opposite. While we have been trying to do that, let us remember that we are talking about a situation—we know this to be true—where there is a vast bog of world poverty in which people are submerged. I remember that we talked glibly about what we called a leap across the centuries. It was the developed world's intention to help. We committed ourselves to help them, as Truman did when he committed the American people in what was known as Point Four. We all wanted to help to make a great advance from the past into the present-day and into prosperity.

But if you are going to leap, you must have solid ground to leap from. I am talking—indeed, we are still talking—about an impossible bog of poverty throughout the world, a bog from which they cannot leap. At least we—the United Nations and its agencies and others —have been trying over the years to put down not a bridge between the past and the future, but the planks and duckboards on that bog so that the peoples themselves could struggle out. The trouble is that we have taken away the duckboards. The present Government are cuttng down the United Nations development programme to one-half, and it is the UN programme that I am specifically talking about: trying to put the infrastructure into the developing countries in ways that those countries cannot do in terms of capital and expertise. They are trying to put that infrastructure in to enable the peoples concerned to help themselves, yet we are depriving them of that opportunity.

The Government have spurned the Brandt Report. As I say, they have sneered at the New World Order, which I assure noble Lords with all the passion at my disposal is no longer rhetoric; the New World Order is a force in the world. It is the working creed of the third world and it will presently become, if we leave it, an instrument of OPEC, and we see OPEC trying to take over. As I say, this Government have diminished the functional capacities of the United Nations and its specialised agencies. And while the phrase we used to use was "a great leap across the centuries", we have tripped them up on the way.

We hoped in those days, and I still believe—I shall continue so to hope and believe during the life I have left to me—that we can, with the help of the well-off and technologically advanced countries, give the developing countries (without imposing ideas on them or putting on what we call technological fixes, and without delivering them over to the multinational corporations) the capacity to help themselves. They can come into the 21st century, and the Brandt Report has shown us positively how they can do so.

This is incredible. This country of Britain had an Empire and a Commonwealth on which the sun never set. It was a Commonwealth embracing every race, colour, and creed; every geographical feature in the world; every geological resource. It was a colonial Empire that fed our factories with materials and our people with food, and which provided our commercial empire and bought our goods. That great dispersed area, which is now co-terminous with a great part of the third world, was the basis of our authority, our prosperity and our wealth. It also gave us an experience of dealing with people, of understanding their needs and aspirations. They are no longer our subject peoples, but we must never disown them. We need the help of the third world peoples and they need our help.

I say with all deference to, and affection for, my noble friend Lord Soper that what I am talking about is not charity, not even alms, because the beggars' thanks is almost invariably the beggars' curse. People do not like to be beholden. It is not charity. What we are talking about tonight is positive, enlightened self-interest. It is investment in our industrial future, as we once invested overseas in our industrial past.

Why on earth cannot the present Government see that the clear and indicative role of Britain in this world today is to be as we were in the 19th century, the positive leaders. Think of how we did it. Think of how we capitalistically exploited the world in the 19th century. We in our factories, in our industries, in our steelworks, built the railways of Latin America, and from Latin America we got our frozen meat. We exploited the countries in this sense by providing the means by which our factories could produce their goods. I believe that this is still true. I am not talking about capitalist exploitation. I am talking about the positive lead of this country to find its outlets, real outlets, in a creative way, which we are capable of doing.

Every one of us who has been in the developing field knows that every situation in the developing world is a new situation. One has to think about how things can be developed, and one has to improvise to meet them. We have that capacity. We have the insight of our colonial experience. We know what we ought to be doing about the situation, yet we are throwing it all away in a most ridiculous way. It is ridiculous that we are not using the wasted resources of our country today to develop the kind of appropriate technology by which these people can in fact help themselves.

9.54 p.m.

Lord BROCKWAY

My Lords, at this late hour I hope to speak briefly. I believe that I shall be able to do so following the series of excellent speeches that we have already heard. I want to express gratitude to my noble friend Lord Hatch of Lusby, not only for initiating the debate, but also for the very thorough and constructive contribution that he has made. I was shocked to read the White Paper which the Government issued in comment upon the Brandt Commission's Report. It rejected entirely the basis of the report's recommendations, and made very incidental and superficial suggestions about how probably the greatest problem in the world today, the poverty of the majority of people on this earth, can be solved. I find it difficult to believe that the noble Lord, Lord Carrington, endorsed that. Indeed, the speeches which he has delivered on the same subject have been so different in their approach and in their spirit to the terms of that Paper as to amount almost to an official repudiation of it.

There are two reasons why all Governments must now face this problem. The first is the fact that we are living on a planet where a third of the population are existing in hunger. I often find it difficult to tolerate in one's own personal life conditions of comfort, and sometimes of luxury, when one knows that so many millions of people on earth are facing starvation. Only this morning The Times states that in the sub-Sahara area of Africa, from Gambia to Somalia, a thousand people are dying every day from hunger. The Times reports that, according to the United Nations Food Council, at least 60 million people are suffering from food shortages in the world at the present time. This is in contrast to the extraordinary fact that the technical methods of production of food and all that is necessary for life have now reached a stage which has never previously been approached in the history of man. We have become more technically efficient, and yet more people are hungry.

As I have said, there are two reasons why our Government and all Governments have to face this issue with a new urgency. One is the fact, which I have already stressed, of the hunger in the world. I ask the Government to look at this related subject for one moment. The Governments of the world are spending their millions of pounds every day in preparation for the destruction of life. A mere fragment of what we spend on military expenditure in the world, according to the Brandt Report, could end hunger and poverty within a decade; and the most urgent issue in all political life today is to seek to transform the money which we spend on preparation for death to the cause of the cultivation of life.

I want to make one particular appeal to members of the unaligned nations of the world. It is to the OPEC countries. Some of them are contributing considerably in policies to end hunger in Africa and parts of Asia. They are doing so mostly to those territories which have Moslem populations. But if my voice could possibly reach them, I would say that the millions which they are now making because of their control of oil supplies in the world they should be devoting to their fellow unaligned nations to end the poverty which exists in those countries. I just hope that some echo of my voice tonight may reach the unaligned nations of Western Asia.

The second reason why we have to deal with this problem so urgently is the fact that there is no way out of the world recession and unemployment, no way out of dealing with unemployment in our own territories, except by increasing the purchasing power of the masses of people in the world. I was a Member of another place in the early 1930s when we passed through a similar recession to that which we have today. It was then admitted that the cause of the recession in the world was the diminished purchasing power of the peoples of Africa, Asia and Latin America. I am not saying tonight that that was the cause of the present recession in the world. But I am saying, emphatically, that there will be no way out of world recession unless we succeed in increasing the purchasing power of the majority of the population of the earth which is in Africa, Asia and South America.

These are the two reasons why we are asking the Government tonight to reconsider their policy. Their Paper on the Brandt Report is something of which every person of human feeling ought to feel ashamed. I hope that the appeals which have been made in this House tonight—not only in the presence of the noble Lord, Lord Trefgarne, but, I am quite sure, reaching the eyes if not the ears of the noble Lord, Lord Carrington—will cause the Foreign Secretary to think again and seek to make the contribution which many of us believe he is seeking to make within the Cabinet of this country for a policy which shall be more realistic and shall be more humane.

10.3 p.m.

Lord BIRDWOOD

My Lords, the last thing I expected when I came to the House late this afternoon was that I would find myself on my feet making this, almost the last day of our Session, even longer; but I saw how may people on my party Benches were prepared to contribute to a debate which, albeit a short one, I consider to be in its quiet and very unfashionable way, on one of the most important topics raised in this House in the last few months. I am not going to say I am ashamed of my party—of course I am not. It seems extraordinary to me that I speak on this topic from the Government Benches of, let us say, the seventh most important industrial power in the world. I am not going to keep noble Lords very long.

Listening to people speak, I was puzzled that noble Lords—except for the last speaker—did not concentrate on what seemed to be the core issue of Lord Hatch's Question, which was increased purchasing power. That is the central issue. I cannot help but be reminded of a conversation that I had with Herman Kahn a short time ago. I am sure everyone knows he is from the Hudson Institute. He said to me—and he said it as vehemently as he knew how—that it is far more destructive to watch while world trade withers to nothing than it is difficult to rebuild after a war. That is exactly what we are doing. We are watching while protectionist barriers go up again in a way that historians can only know about from reading archives of the 1860s.

I also recall in this House, I believe 10 years ago, I reminded noble Lords that the ratio in terms of value added was that we in this country were exporting engineered products with a value of £600 a tonne and importing at £3,000 a tonne which—to use Lord Ritchie-Calder's words—from the point of view of enlightened self-interest was complete madness as regards the ultimate industrial health of this country. Nothing has changed. I should imagine that we can now extrapolate those figures. It is no harm that we are exporting products with a low value added ratio because we are exporting them to countries which, with any luck, will start to make those products and remove our markets altogether.

If I leave your Lordships' House tonight with a single point it is that this country must continue to crank up its technology —our value adding must be higher and higher—because if we do not we shall have no markets. We have very little else to offer a developing world—and offer we must.

10.9 p.m.

Lord ORAM

My Lords, I am glad to follow the noble Lord, Lord Birdwood, and compliment him on having briefly filled a noticeable gap in the list of speakers with which we have been provided. We listened to his words with appreciation, coming from the only Conservative Back-Bencher to have joined in this debate.

Like other noble Lords, I very much appreciate the initiative which my noble friend Lord Hatch of Lusby has taken in asking this Question tonight. During my time in your Lordships' House I cannot recall an Unstarred Question which was more pertinent or more important, as others have said, than the Question which is before us tonight. It points directly to the essential message of the Brandt Commission Report, namely, the interdependence of the economies of the developing and the developed nations to a degree, which is a critical degree, which has never been the case before today. I hope that when the Minister replies he will be able to produce evidence that the Government have at last taken that message to heart, because I must say that there is little, if any, evidence to that effect in the Government's memorandum commenting on the Brandt Report. As other noble Lords have said, the Government's White Paper is most disappointing.

The Brandt Report analysed in a masterly fashion the whole series of economic and social problems which face the peoples and Governments of the world. It pointed both to the enormity and the urgency of those problems, and for that reason much of it made depressing, even frightening, reading about the future. Yet, despite that, it is a document of hope. It puts forward a whole series of positive proposals, aimed not only at the economic development of poor countries of the world, as so many reports and proposals have been in the past, but at avoiding in the rich nations the economic calamities which face us all if nothing adequate is done. For example, something must be done about the vast debts owing to us, a problem to which the noble Lord, Lord Gladwyn, drew our attention; something must be done about the arms race, which devours our resources; something must be done about the energy crisis, which affects us all; something must be done about the hungry millions in today's world and the many more hungry millions threatened for tomorrow's world. These are no longer only the problems of the Southern Hemisphere; we are now all involved.

There was a time, not so many years ago, when it was possible to say, as did the official recently quoted in The Sunday Times, "They have their problems and we have ours". But how sadly wrong he is in today's world. It was once possible, for example, to look at India, to see the millions there without jobs or with only seasonal jobs, and say, "Mass unemployment is India's problem; ours are the more sophisticated problems of affluence". But today we know only too well that their problem is our problem, too. Not so long ago we looked at the countries of South America, and it was scarcely believable that the so-called banana republics—again, not so very many years ago—should be suffering from inflation rates and interest rates of the order of 20 per cent. That struck us almost as comic. That was the problem from which we thought we were mercifully immune. But, indeed, things are different now. We could look at the countries of Africa and pity them for their stagnant economies, low growth, low productivity, lack of energy resources. Those were their problems; ours were different. But, again, is it not true to say that today our problems are the same as theirs?

What my noble friend Lord Hatch has done by asking his Question this evening is not just to point out that economic problems are now global and not sectoral, but to show that we cannot overcome our problems unless we overcome the problems of the developing world as well. We need their markets if our people are to have jobs. We need to sell to them if our industrial life is to revive. At the same time they can only be real markets if the international monetary system is reformed in the way in which the Brandt Commission proposes, and only if there is the substantial increase in the transfer of resources for which the commission calls.

That is why I found, as my noble friends have repeated, that this Government's White Paper is a bleak and disappointing document. Far from facing up to the need for a new approach to development finance, we are told that the Government believe strongly in the merits of the present world economic system. Far from recognising the need for increased aid programmes in the interests of our economy as much as that of the developing world, the Government bluntly refuse to accept the targets of 0.7 per cent. of GNP by 1985 and 1 per cent. by 2000 AD.

Indeed, one reads this White Paper in vain to discover what positive steps the Government propose to take either in the home economy or abroad in response to the challenge of Brandt. The only answer that I can discern is that the Government propose to remain complacent and to be satisfied with what is already being done, or rather is not being done. In paragraph after paragraph one reads that the Government are already doing this, that or the other thing, apparently ignorant of the fact that current policies are leading us to doomsday and that the Brandt Commission has spelled out with great clarity the need for a change in direction and a fundamental change in the relationship between the nations of the North and the nations of the South.

In the paragraphs which summarise or purport to summarise what the Government are doing—and I have read them with great care—I can detect nothing that was not being done already or would not in all probability have been done if the Brandt Commission had never been formed and had never met. The Brandt Commission has made no impact upon the thinking of Government Ministers. The only passages which strike a note of confidence are those in which the Government are urging someone else to do something. "Let the developing countries adopt different policies", our Government say. "Let private investment be the means of development. Let the multinationals serve the interests of the underdeveloped world. Let the private banks provide more finance. Let OPEC come to the rescue. Let other people do things", say the British Government, "but please include us out". We are too busy perhaps turning Britain into an underdeveloped country to be able to do much for the rest of the world.

If all this was motivated by good old-fashioned selfishness, there might be something to be said for it. If it served the interests of the British economy one could at least understand, if not accept, that we should be asked to eschew altruism. But the truth is that the policies that are being pursued are in the interests of neither Britain nor the third world. And I suggest that my noble friend has done well this evening in calling attention to the interdependence of both sets of interests which, as I have said, is the central and urgent message of the Brandt Report.

I invite the Minister, in answering my noble friend's Question, to point to any change in Her Majesty's Government's policies which has arisen from the two years' work of Herr Brandt, Mr. Edward Heath and their colleagues. I do not believe that he can point to any such change or any such result but, if I am wrong, then I shall be delighted to be contradicted.

10.21 p.m.

Lord TREFGARNE

My Lords, I want to start by thanking the noble Lord, Lord Hatch, for his understanding in connection with the timing of this debate. As the noble Lord knows, it was not possible for me to answer him on the day he originally selected, and although I know he regards me as second best on this occasion I very much appreciate his agreement to postpone his Question until today. I welcome this debate. We have considered today a number of ideas for improving the conditions of the developing countries and how these might relate to our own economic policies. Many noble Lords have referred to the ideas in the report of the Brandt Commission. I can therefore take this opportunity to repeat the Government's concern about the troubled prospects for the world economy over the coming years and about the dangers which this creates for developing countries in particular. I made clear our concern in the debate in your Lordships' House in March this year; I reaffirm it today.

Furthermore, the Government fully subscribe to the view set out in the Brandt Commission Report that all countries, rich and poor alike, will benefit from progress in dealing with these problems. As my noble friend the Secretary of State said in Brasilia a week ago: We face a common challenge. It is to ensure that the world economic system adapts and evolves so that it works efficiently to the benefit of all". The noble Lord, Lord Hatch of Lusby, has asked Her Majesty's Government: what part the promotion of increased purchasing power in the developing countries plays in [our] strategy for reviving the British economy". The Government strongly subscribe to the view that one of the most potent forces for increasing economic growth, whether in Britain, other developed countries or the developing world, is by the increase of international trade. If we buy more from developing countries, that increases their export earnings and gives them greater purchasing power, enabling them to buy more from us and others. We have always relied on developing countries for the supply of many raw materials and increasingly they are sending us their exports of manufactures. Developing countries, in turn, are important markets for our capital goods and for our financial and other services.

The Brandt Commission have made this point well on page 68 of their report, where they say: There is ample historical evidence that expansion of trade is and has always been one of the mainsprings of the world economy. For most countries, balanced trade expansion is a less inflationary form of raising the level of economic activity than stimulation through increases in domestic public expenditure". The Government have always participated actively in international negotiations designed to remove obstacles to world trade, to increase the volume of flows in both directions, and thus to enlarge the purchasing power of developing countries and of our own citizens. I will mention four sets of recent negotiations which are relevant. The first are the multilateral trade negotiations concluded in 1979 in the GATT, which will come into operation during the 1980s. These negotiations not only brought about a reduction in tariff levels, as earlier GATT rounds have done; they also made important progress in reducing non-tariff barriers which inhibit trade flows.

The second is the conclusion in 1979 of the Lomé Convention between the Community and its member states and 58 countries of Africa, the Caribbean and the Pacific. We hope that this convention will enter into force later this year. It will provide for duty-free entry to the Community market for the 58 countries concerned for virtually all their trade, both in manufactures and in agricultural products. The convention also has an important aid element. The third area concerns the European Community's Generalised Scheme of Preferences, which provides preferential access to Community markets for manufactures and certain processed primary products from developing countries. The Community is currently reviewing the structure of this scheme, and we shall be active in discussion with our partners in seeking ways of directing its benefits more effectively to the poorer developing countries, while limiting preferences for the better-off and most competitive beneficiaries. Fourthly, we welcome the conclusion at the end of June of the negotiations to set up a Common Fund for commodities.

All these events will benefit developing countries, by helping them to increase their purchasing power through higher trade flows. They will also benefit us. This fits in with the pursuit of mutual advantage advocated in the report of the Brandt Commission. In this context, I should recall that the Government have been criticised for defending the existing world economic system and reliance on market forces. But the advantages which I have mentioned have been gained by adapting the existing economic system, as the Government favour, and not by overthrowing it. Furthermore, the benefits have largely been achieved by a reduction of barriers to trade, for the most part erected by Governments, and allowing greater freedom for the market to operate.

These benefits have been achieved, furthermore, at a time of great economic difficulty for many countries, including the United Kingdom. At such times, pressures for protectionism increase. But the Government have always made clear their determination to continue to resist protectionist pressures to the maximum extent possible and to maintain the open trading system. Some sectors of the British economy are in serious trouble and need some temporary help. But our objective is to limit such special arrangements to the minimum.

Some progress has been made, but I readily admit that there is room for more. We could do more to promote increased purchasing power in developing countries in one very simple way—if we created a larger market for their exports. If the British economy grew faster, we would help the developing countries as well as helping ourselves. The Government are determined to revive the British economy so as to achieve more durable levels of growth. But we must control inflation first. Inflation not only infects our own economy; there is a further penalty which directly affects the developing countries. Inflation drives up the price of the goods which they need to buy from developed countries, and shifts the terms of trade against them. The developed countries have often been reproached, with justice, for not bringing inflation under control. The overriding objective of the Government's strategy has therefore been, and remains, to reduce the rate of inflation. Without such a reduction there can be no prospects of restoring the confidence and stability essential for investment to flourish so that Britain's long-run economic decline can be reversed. This kind of approach is very much in line with that of other industrialised countries. As the Venice Summit Communiqué said "inflation stifles growth" and the Communiqué stressed the need for determined fiscal and monetary restraint … to break inflationary expectations". The Government's economic strategy is a strategy for the medium-term. Our intention is progressively to reduce the growth of the money stock to about 6 per cent. a year by 1983–84, and we shall pursue the policies necessary to achieve this aim. A key element in this strategy is a reduction in public expenditure. The plans announced in the public expenditure White Paper show a reduction of 4 per cent. in the volume of public expenditure between 1979–80 and 1983–84. This will allow a progressive reduction in the PSBR as a percentage of GDP from 5 per cent. in 1979–80 to about 1½ per cent. in 1983–84.

Inevitably the period ahead will be a pretty painful one. There will be a temporary loss of output and jobs as the economy adjusts to a lower rate of inflation, and this, coupled with the impact of world recession and worsening competitiveness, will squeeze both demand for our goods and profits. But attempts to relax fiscal and monetary policy would quickly be revealed as self-defeating, leading not to sustainable increase in output but to extra inflation and a worse long-term problem.

The most important single factor governing our competitiveness, and so the outlook for profits, output and jobs, is the level of pay settlements. Over the past year—partly reflecting the backlash of the previous Government's rigid pay policy—pay settlements have been much greater than the country can afford. But we do not have to go on in that way; the quicker wage negotiators recognise that excessive pay increases lead not to high pay but to fewer jobs, the less painful the process of adjustment will be.

There are growing signs of realism in pay settlements. CBI figures indicate that half the workers in manufacturing are settling for 15 per cent. or less, and another CBI report recently told of many single figure settlements in the West Midlands. People are realising that excessive pay increases mean lost jobs, and they have taken the sensible course and lowered their sights. In the engineering industry and the textile industry there are numerous examples of low settlements which have been influenced by concern about lost markets and redundancies. So people are beginning to put jobs before pay increases by concluding realistic settlements.

Another sign that the Government strategy is working is the slowdown in the rate of inflation. The increase in the retail price index has peaked and there will be a big fall in the July figure. The Government's strategy for the revival of the British economy is clear and it is working. It will lay the economic foundations for the sustainable increase in economic growth that we all want. But I have not concealed that it will be difficult and painful.

But some noble Lords have argued that we could short-circuit this painful process. It is suggested that we could restore growth without fuelling inflation and escape from recession by massive transfers to developing countries. These transfers would enable the developing countries to purchase additional goods from us, which will provide work for unused capacity in our countries. This would be of advantage to the developing countries, by increasing their purchasing power, but also to developed countries, like the United Kingdom, by reducing unemployment and surplus capacity. Noble Lords have argued that this is a further example of the mutual advantage which the Brandt Commission Report recommends. This is an attractive suggestion. I wish I could follow it without hesitation. But it is, I fear, like the pot of gold at the foot of the rainbow. The closer you get the further it recedes.

There is no doubt that extra transfers, provided they are put to productive use, would be extremely helpful to developing countries, especially the poorer countries without access to private finance. But there is great uncertainty about the impact on developed countries. The fundamental question is this: what would be the origins of this massive transfer? It would chiefly be, as I understand it, official finance. This is additional public spending. How would this additional public spending be financed? There are only two ways. This additional public spending could only be financed either by increasing the burden of taxation or by extra public borrowing. This could jeopardise the slow-down in monetary growth which is essential if inflation is to be lowered. There is no guarantee that extra public spending on aid by the United Kingdom would lead to higher output and employment in this country. There is a risk instead that it would lead merely to depreciation of the exchange rate and higher inflation.

The Government are already committed to a substantial aid programme. Of course, the economies we have made in public spending, to which I have referred, have obliged us to make cuts in that programme. But of the seven summit countries, we gave in 1979 the second largest share of our GNP in aid. When health has been restored to the British economy, the Government hope that aid will increase again. The restoration of the economy will also mean the revival of an active private sector in Britain, which is the driving force for economic growth. It is very largely the private sector which imports and exports, for the benefit of developing countries. Furthermore, that same private sector will also be free to invest overseas for the benefit of developing countries, particularly since the Government have removed restrictions on outward investment.

What I have said about aid policy, my Lords, refers to Britain and reflects the very severe inflationary constraints upon us. When other countries, whose economies are stronger than ours, can increase their aid spending, we welcome and applaud their actions most warmly. The German Government, for example, have recently decided on a substantial increase in their official aid. This amounted in 1979 to 0.44 per cent. of GNP, a lower proportion than for Britain, which contributed 0.52 per cent.

Lord HATCH of LUSBY

My Lords, will the noble Lord allow me? I think this is a very important point which should be got over to the public. The figure which the noble Lord has just given—and I am sure he does not want to deceive anybody—is a figure which has been changed at its basis since the election. As I understand it, and as the noble Lord's right honourable friend in another place has indicated, the present percentage of GNP calculated by the Government as official aid includes promissory notes, whereas before it did not do so. Consequently, the figures which the noble Lord is now giving should not be compared with the figures that were given by the previous Administration, because they are based on different criteria.

Lord TREFGARNE

That may well be, my Lords, but I was using the figures as a basis of comparison between ourselves and West Germany. Since Germany was last year the second largest western aid donor after the United States, this increase makes an important contribution to meeting the needs of developing countries. But the German Government are enabled to take this action because their inflation is only at 6 per cent.

We have also supported increases in the resources available to the international financial institutions, notably the increase in the capital of the World Bank, by an extra 40,000 million dollars (no less), and the replenishment of the International Development Association by 12,000 million dollars, to which Britain will contribute 10 per cent.

I turn now to the various points (or as many of them as I can manage) that have been raised during the debate this evening. In his opening speech the noble Lord, Lord Hatch, said that overseas investment went chiefly to the developed countries. I understand that figures are not available for the period since the removal of exchange controls, but direct investment by British firms in developing countries has risen from £359 million in 1975 to £800 million in 1978.

The noble Lord, Lord Hatch, also asked about the Government's attitude to a possible North-South summit. May I answer him by quoting the words of my noble friend Lord Carrington, speaking in Caracas earlier this week, when my noble friend said: A 21-nation summit meeting to consider the world's economic problem has been proposed. The problem certainly justifies discussion at the very highest level. My Government would give its full support to a summit designed to inject impetus and co-ordinate realistic action towards a solution of the many difficulties I have described, but such a summit must be prepared carefully and should not be the occasion merely for a further exchange of rhetoric". I fancy that every noble Lord would agree with those sentiments, and I certainly think that our reception of that proposal is not the cool one which has been described. In parenthesis, may I recall that the noble Lord, Lord Gladwyn, on that particular point, reminded the House that the late Mr. Ramsay Macdonald had mounted such a conference in the 1930s, followed swiftly by World War II. I hope the noble Lord was not seeking to draw any comparison between then and now.

The noble Lord, Lord Gladwyn, also asked if the Government would consider setting up a joint commission of both Houses to examine the issues raised in the Brandt Commission Report, Perhaps I may reflect upon the noble Lord's proposal, but in another place the Foreign Affairs Committee has already begun consideration of this subject and has held a session with a Foreign Office Minister, to which the noble Lord referred, and we would certainly not wish to complicate that committee's work.

Lord GLADWYN

My Lords, if I may explain my proposal a little further, I quite realise that the Brandt Report is being examined by that House of Commons Committee. My proposal for a joint commission would be to examine the longer-term issues and to report periodically over a period of a year or two.

Lord TREFGARNE

My Lords, I am obliged to the noble Lord for that further clarification. As I said, I will consider what the noble Lord has said, and write to him in due course.

The noble Lord, Lord Soper, I think supported by the noble Lord, Lord Brockway, stressed the contribution which disarmament could make to the development of the poorer countries. The Government recognise the disparity between defence spending and aid. We are, furthermore, committed to the pursuit of measures of arms control and disarmament by international agreement. But arms control must be balanced and disarmament measures must have verification provisions. The massive military spending of the Warsaw Pact obliges us to insist upon this.

I would not wish it to be thought that the Government are being unreasonable or unthinking in their response to the proposal for massive transfers, while others are ready to subscribe to it. This is not the case. I would like to quote to you a passage from the report of the Group of Independent Experts from Commonwealth countries on the world economic crises which was published during July. The relevant passage is as follows: The view that what the industrialised countries are at present suffering from is a deficiency of aggregate effective demand in the Keynesian sense is strongly disputed by many knowledgeable observers. On their view, additional aid would certainly be inflationary unless it was financed by additional taxation. Advocates of a greater aid effort would need to prove their point that more aid, whether financed from taxation or from expansion of money supply, is preferable to more domestic government expenditure. In other words, in the short-run the case for a larger aid effort must rest on public expenditure priorities; it derives little if any support from macroeconomic demand management considerations except under conditions of deep depression".

Lord GLADWYN

My Lords, if I may intervene for one moment, is it not a fact that the report says that this project for a transfer of resources should be largely based on taxation, for instance, on armaments expenditure, or even on certain forms of trade?

Lord TREFGARNE

My Lords, I think, with respect, that that is another point.

I would sum up the Government's position in the following terms. We have examined with care the proposals for massive transfers which have been proposed and expounded by noble Lords this evening. We doubt that, in our present economic circumstances, we can benefit from them. The control of inflation must be the first priority of our economic policy. We are now achieving this. The restoration of the British economy to health is the best contribution that we can make to improving conditions for the developing countries. If the United Kingdom becomes a growing market, the purchasing power of developing countries will be increased by their expanding sales to us. My Lords, I yield to no one in my confirmation of the assiduity of the noble Lord, Lord Hatch, in this and related matters, but I hope the noble Lord will agree on reflection (and having regard to what I have said) that our policy is the right one.

Baroness RYDER of WARSAW

My Lords, before the noble Lord sits down, could there please be a further debate on this vital Brandt Commission Report, which affects all mankind, in the next Session of Parliament?

Lord TREFGARNE

My Lords, there have been two such debates, I think, in your Lordships' House and others in another place. I cannot think that there will not be more.