The Economic Situation and National Recovery

HL Deb 03 February 1982 vol 426 cc1310-89

3.57 p.m.

Debate resumed.

Lord Rochester

My Lords, perhaps it would be for the convenience of the House if we now resume our debate. From these Benches, I should like to join in thanking the noble Lord, Lord Beswick, for having introduced this Motion and, in doing so, to give him a large measure of support. Next, I must apologise to him, to the noble Lord, Lord Cockfield, and indeed to the House in general, for the fact that I shall have to leave before the end of the debate in order to fulfil a long-standing engagement elsewhere this evening. I think I can claim that this is the first time that I have misbehaved in this way, so I hope that for this once I may be forgiven.

I was perhaps a little disappointed that the first phrase of the Motion in the name of the noble Lord, Lord Beswick, was couched in somewhat negative terms, because in my experience if you seek a consensus, it is best, not so much to emphasise the differences, as to identify and build on areas of agreement. If that is not done, then those perceiving themselves to be under attack immediately attempt to hit back, and, in her charming way, that is what the noble Baroness the Leader of the House was doing just now.

I should perhaps begin by reminding the House that Liberals start with a certain predisposition in favour of competition and against monopolies. Having said that, we also believe that in the complex international society in which we live it is no longer sufficient simply to create what may be thought to be a fitting climate in which industry can flourish. In our view, there is also need for the Government to have a positive strategy which, as resources permit, aims to encourage the growing points of our mixed economy, as Governments do in successful industrial countries such as West Germany and Japan.

I of course recognise that it is not easy to develop such a strategy. In the essential restructuring of our basic industries, to which the noble Baroness referred—industries such as steel, shipbuilding and motor manufacturing—scarce resources are used up and employment problems arise. Indeed, perhaps here it is pertinent to recognise that for the foreseeable future. whatever the political complexion of the Government of the day, these problems of human and financial resources will remain, and we might as well all acknowledge that fact.

It is not customary to mention Members of another place by name, but I should like to add that for my part I admired the Lord Privy Seal for having the honesty the other day to spell out what this means in terms of jobs and living standards. If as a nation we continue to award ourselves increases in pay which grossly exceed improvements in productivity, so much the worse will it be for us all.

My Lords, one of the most damaging features of the last 35 years has been the absence of continuity in national economic and industrial policy exhibited most clearly by the incessant battle between socialists and the adherents of so-called free enterprise. My party—perhaps here I may speak also for Social Democrats within our alliance—would like to see much less time spent on squabbling as to where the public sector should end and the private sector begin and more on making the first more efficient and the second more profitable.

That anyway is at the heart of the work of the joint commission which has been established by our two parties to study problems associated with employment and industrial recovery. I have a great respect for the firm of Marks and Spencer, led by the noble Lord, Lord Sieff, not least because of the attention that that company pays to human relations in their successful day to learn that they have given £5,000 to help finance the work of the commission to which I have just referred, despite the fact that I understand that they also subscribe indirectly to the Conservative Party. This seems to me to be an excellent example of practical support for work directed towards the solution of industrial problems irrespective of party political considerations, and in my view the country could do with a lot more of it.

In the debate on the gracious Speech last November I said that it was, our greatest national need that ground should be marked out on which people of any political persuasion and of none can come together in a common endeavour to solve our problems ". [Official Report, 11/11/81, col. 250.] That is easily said, but on what basic objectives can we agree? I should like to suggest three which may commend themselves, I will not say to all noble Lords but at least to many irrespective of where they may sit in the House. The first is to control inflation; the second, by improving our productivity, to become more competitive; and the third to find new and constructive job opportunities. In discussing the measures needed to achieve those ends, we shall then, to some extent, have to part company, but not perhaps as much as might at first sight appear.

For example, in relation to the need to control inflation I was delighted to hear what the noble Lord, Lord Beswick, had to say on the subject of incomes policy. Incidentally, there are certain phrases which, in the interests of seeking consensus, I try to avoid. One of them, if I may digress for a moment, is " industrial democracy " because of its connotation with the ill-fated Bullock Report and the concept of workers' control. In my view the words " employee participation " are much to be preferred, and sometimes they even produce smiles on the faces of noble Lords opposite.

In the same way I endeavour, but I am afraid sometimes forget, to talk of the need not for an incomes policy but for the establishment, after appropriate consultation, of long-term arrangements for pay determination that are widely understood and accepted. I know that that never seems to cheer the noble Lord, Lord Cockfield, up very much, but it does ring a bell with certain members of the CBI and with so-called moderate trade union leaders. However, I will not pursue that matter further now, for your Lordships will be all too familiar with my views on the subject.

Even in the controversial area of the extent to which the law should play a part in the regulation of industrial relations, there are points on which many of us may be able to come together. For example, in the debate on the gracious Speech I warned the Government that in my view they would be most imprudent at this moment to mount any general attack on the immunities that trades unions have from being sued for damages. It is plain from the Employment Bill that has just been published that no such general attack is now contemplated, and for that at least I am grateful. For my part, I would have been happier if, before the introduction of further legislation of this kind, more time could have been given to see how the 1980 Employment Act was working out in practice and only then to remedy any remaining abuses that had been clearly identified.

My fear is that the Bill will do nothing positively to improve our industrial relations but may instead prove a happy hunting ground for mischief makers. Of course, when the Bill eventually comes to this House we, on these Benches, will endeavour to treat it in a balanced way, but in my view it is a matter for regret that it is likely to hinder more constructive developments that would now be opportune and indeed are sorely needed in this field.

For example—here I am looking for support particularly from the noble Lord, Lord Jacques—has not the current rail dispute clearly demonstrated the urgent need for an agreed code of practice aimed at achieving the more widespread introduction of negotiating procedure agreements, under which all disputes concerning the interpretation of existing agreements would be settled in the last resort not by conciliation that merely splits differences but by arbitration that both management and trades unions would agree in advance to accept?

This leads me to reaffirm that, in my view, the more broadly based policy for national recovery and the wider consensus of opinion sought in Lord Beswick's Motion will be achieved only when enough people have gained a shared understanding of the effects of alternative uses to which money is put, and the relationship between productivity, investment, pay, prices and employment. If I may say so, it seemed to me that this was largely what the noble Baroness, Lady Young, was herself saying, and I am glad on that point to agree with her.

But beyond that I continue to feel that our economic and industrial problems are now so deep-seated and so intractable, and the measures needed to solve them will prove so painful and so controversial, that they can be tackled successfully only when elements in all the major political parties are prepared to confront them together. That is surely the message which for some years now, but especially in the last few months, the British people have been trying to convey to us as party politicians. Who knows; the outcome of the next general election may show that they have at last succeeded. If so, I for one shall be delighted.

4.10 p.m.

The Lord Bishop of Lincoln

My Lords, I appreciated much that was said from both sides of the House by the noble Lord, Lord Beswick, and the noble Baroness the Leader of the House. When I was an industrial chaplain and in daily contact with people at all levels of factory life, I found I needed to coin for myself a definition of the word " justice "—because it was too abstract a word—and the definition I coined, and I think I would still stand by, is that justice means taking everybody's interest seriously, so long as you mean everybody and so long as you mean seriously.

It seems convenient for there to be some interests that one does not have to take seriously—because they do not have a voice or power—and that gives one elbow room, and in the short term being able to bypass those interests may seem to have results which are effective and efficient. But in the long term it is probably immoral and certainly inefficient because that sort of short-circuiting of interests always comes home to roost; they have a voice and they find power. I should have thought history showed that to be so, the history of industrial relations, race relations and north-south relations, let alone the history of every revolution that has ever happened.

In our national struggle for survival, I believe that in the short term we are tending to lose sight of that principle—of the need to take everybody's interests seriously if in the long term we are really going to survive—and my motive in speaking today is primarily not political; I want to think it is ethical, though I would be the first to recognise that the two get totally mixed up. If there are any principles that we can look to in order to get somewhere near something like the good life for our society, then ethical principles obviously come into the debate, and certainly seem to me to have a place in today's debate.

I wish to make three points. The first, is that taking everybody's interests seriously means that those concerned must do just that; they must maintain contact and have communication with one another so that they can hear each other, listen, talk, argue and negotiate with each other and the rest. That is how we take other interests seriously, by recognising that they are there and that they have a point. The extent to which that is not happening at present between the Government and the trade unions seems to me to be very serious indeed. It is serious for the country that such a gap as seems to me to exist should be allowed to develop. Something must be flying in the face of justice in those terms whenever a Government feel they must adopt a policy that is so extreme as to make conversation virtually impossible with a large section of the community. Whenever that happens, and I think it is happening at the moment, it must be going strongly against the grain of what actually enables a society to tick.

It can happen the other way round. Certain trade unions also can get out on a non-communicating limb. And, indeed, the public as a whole—public opinion, including the opinion of the Churches—often withdraws from political conversations into confusion and apathy. All those things are dangerous and damaging to our society, and the present Government have some responsibility for trying to bridge a serious gap which has grown up in the respects r have suggested.

The other two points I wish to make relate to unemployment. First, it is obviously understandable for a Government, when faced with an extreme crisis, to feel they must inflict pain on some to get out of that crisis. There is nothing new about that. But surely a Government so placed, if they are to get their politics right and do not struggle to get just the economics right, must do something for those who are most hurt. I have no doubt it can reasonably be said that the inefficient, the over-manned and those who resist necessary change, and probably others, need to be " hurt " because of the damage they are doing to the economy. But I believe that millions are being hurt who have done nothing to deserve it, and indeed have done everything to deserve a fair reward for sometimes a lifetime of honest work, with too little being done to relieve the pain they are having to feel.

I have in mind the ending this year of earnings-related unemployment benefit and the fact that the long-term supplementary benefit rate for sick and disabled people is 25 per cent. above the ordinary rate, yet unemployed people—who are, after all, suffering from a social sickness and disablement as great as any—remain on the ordinary rate. No doubt things can be said to counter that for certain categories, but it is the symbol of that that matters, the symbol of apparently not seeming to mind; and the Government need to look at the symbolic effect of some of the things they are sometimes not doing.

Of course, I am aware of the big new training initiative which the Government have started as an attempt to meet the pain and pick up the wastage among one section of the unemployed, and I greatly welcome it. The young catch everyone's imagination. The imagination is less sensitive for the 45-year-old low paid, unskilled, manual-working married man for whom the hoped-for recovered economy will probably not provide a job. The Manpower Services Commission Blueprint for Training certainly recognises the training needs not just of the young but of the long-term older unemployed also but its scales are not tipped greatly in the latter's direction. It is worth noting that remarkable things can be done in terms of retraining unskilled manual workers who are not young men.

My third point relates to that. If we are to have 1 million or more long-term unemployed for some time, then we are in a new game, a new society, altogether. So far, I see that the only thinking being done is that which belongs to the society we have been used to since 1945, thinking that belongs to cyclical rather than structural and long-term unemployment. If we are to take everyone's interests seriously, we must think in new ways with new imagination and with a new recognition of new moral priorities. I plead with the Government to put some real political horsepower behind this and to think long term and new, and especially to think in some detail about the huge range of work of, I suppose, a service nature of one sort or another that clearly could be and needs to be done if we had the finances to finance it.

I plead with management and trade unions in industry to see here a quite new motive for being far more urgent and morally responsible in sorting out their industrial relations problems and getting on with their job of production so as to create the wealth on which any extension of service industry must depend. In the end, it is only the employed who can come to the rescue of the unemployed; and Government, Parliament, management, trade unions and public opinion, including the Churches, must create and sustain a context of urgency to press and support them in their task.

In his remarks, the noble Lord, Lord Beswick, quoted words from the Prayer Book, and he showed how progressive he is by quoting this from the Alternative Service Book: Although we are many we are one body ". He did not finish the quotation, which continues: Because we all partake of the one bread ". It is that which we have not got right yet, and for which we must work.

4.19 p.m.

Lord Harris of High Cross

My Lords, I join with other speakers in congratulating the noble Lord, Lord Beswick, not least on the moderate-seeming terms of his Motion, which although presented as a call for Papers, was really in some ways a call for Mrs. Thatcher's head on a platter. I am afraid that I must start by expressing my regrets that the nearest thing that I personally face to a three-line whip requires my attendance at a meeting of the Political Economy Club later this evening, which means that I shall probably miss what might prove to be the bitter ending of this debate.

I should like, in a short space, to try to explain in very general terms why I profoundly consider that Her Majesty's Government are so far from deserving the well-worn strictures as a band of extremists hell-bent on turning the clock back to the heyday of 19th century liberalism. I believe that these charges show the danger of politicians being mislead by their own rhetoric, and sometimes by the rather robust rhetoric that we have from some members of the Government.

Over many years we heard a popular fiction, which the noble Lord, Lord Rochester, touched in his gentle way, a fiction especially dear to Liberals and Social Democrats: that since the war public policy has oscillated between the opposing poles of two distinctive ideologies. From where I sit on the Cross-Benches, it seems nearer the truth that, in the balance between market and Government, the pendulum that we used to hear about has increasingly been replaced by the ratchet.

Since 1945—I would argue in many respects since 1906—party politics have seen a cumulative, if you will, a progressive, shift away from the dispersed initiative of ordinary people in the competitive market, and towards an increasingly centralised direction of bureaucratic control and pervasive state power. To my imagination politicians often seem like mediaeval knights, with multiplying bands of retainers, all clad in such a weight of armour as to be deprived of the flexibility necessary for effective action. Thus in office they appear to wield great power, and yet so often in practice have proved impotent to achieve their most basic aims.

I think it right that this House should pay attention to the wisdom of the past, and therefore I bring your Lordships some words written more than 200 years ago by Adam Smith, in which he warned politicians against excessive intervention, in attempting which he said: they must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient … ". On this issue of the general superiority of the market it is not sufficiently understood that Keynes was more frequently in some agreement with his classical forebears. Significantly for this debate in 1926 he wrote an essay entitled, The End of Laissez-faire, in which he stated: Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative yet in sight ". That was in 1926. Lest it be thought that his General Theory changed all that, I should like to quote from his great work in 1936, when he wrote as follows: The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater perhaps than the 19th century supposed; and the reaction against the appeal to self-interest may have gone too far ". If that were true almost 50 years ago, how much further have we now strayed down the wrong road? So I would ask: where is the excessive reliance on market forces that haunts the Labour Benches? Take the labour market. It is perfectly true that the ending of prices and incomes policy has permitted much more flexibility for managements and men to adapt to changing economic realities. But there remains a fearful incubus of trade union monopoly power and legal privileges, added to what now appears the hollow mockery of employment protection, wages councils, rent controls, and, above all, the confused and conflicting operation of high taxes, social benefits and all kinds of subsidies that make it profitable for thousands of people to choose unemployment rather than work.

On top of all that, approaching a third of the entire labour force is locked up in the public sector. They are tucked up in the public sector—not tucked up in bed—but they are certainly mostly cushioned from the invigoration of market forces, and we know the results for over-manning and inefficiency are increasingly visible and indeed widely acknowledged. Before the eruption of Mr. Wedgwood Benn, the Labour Party saw itself essentially as a moderate movement. Yet by 1979 it had brought about far more extensive nationalisation in Britain than applies in such model social democracies as Sweden or West Germany.

I want to concede that the essence of a market economy is not simply the private ownership of industry, as some of its defenders imagine. The essence of a market economy is that production is guided by competition between alternative suppliers to serve the changing demands of consumers at home or abroad. The real fatal flaw of nationalised industry is that Governments, for political expediency, seek to shield it from competition, knowing that the domestic consumers or taxpayers can always be made to pay, no matter how high costs may rise—

Lord Raglan

My Lords, will the noble Lord permit me to ask a question? How is it, in his opinion, that the Renault car company in France—which I suppose is one of the best run motor-car companies in the world and the most profitable—works so well, even though it is nationalised?

Lord Harris of High Cross

My Lords, the Renault company is pressed into service very frequently, and I would advise the noble Lord to go to France and discover that they manage many of their arrangements far more effectively than we have been able to do. I believe that there is much less of the prejudice that has developed in this country as a result of the Labour Party's perpetual denigration of private enterprise.

The contrast between public and private industry stands out more starkly today than ever before. At a time when private industry—as the noble Lord has acknowledged—has been compelled by the hated market forces to transform productivity, we see a lagging performance in many of the nationalised monopolies; I would say in railways, coal, and postal services—and as a matter of fact I am not enamoured of gas and electricity. An instructive contrast is that where even a nationalised industry is faced by market forces in the form of foreign competition—as in steel, motor cars, or shipbuilding—determined management has been able to achieve some of the glittering prizes being won by private industry.

I readily agree with the critics here and elsewhere who say that market forces do not operate with anything approaching perfection. But I would strongly argue that the well-intended effort to remove every blemish has invariably led to a far worse situation. In a fastidious endeavour to cure a skin rash we have spread a bubonic plague of bureaucratic regulation into every crevice of the economy. One result at the end of the day is a standard tax rate, including national insurance, of 40 or 50 per cent. on wages as low as one third of average earnings. A quite different kind of outcome, which we shall witness in this debate through the early evening and perhaps into the night, is the politicisation of every aspect of economic affairs, with increasing contention and bitterness which in the world outside has led to a declining respect for politicians and indeed for the law. Of course, it is true that the market economy requires a framework of law for its operation, but that is a far cry from the present legal straitjacket into which it is clamped in so many respects.

I therefore conclude by saying that if the Social Democrats really want to break the mould they might start ostentatiously by burying the old consensus that has got us into so much difficulty. They might then join the intellectual vanguard of economists and others, including many disillusioned socialists, who are endeavouring to redefine a new public philosophy of limited but effective government that works with the grain of market forces. My Lords, market forces are only another way of describing ordinary men and women as consumers and producers, co-operating in competition to their mutual benefit. When noble Lords are not in this House to tell us about the cold and crude concept of the market, they go about their business as part of these market forces outside.

I conclude, so far as the Government are concerned, by urging them to continue moving more decisively towards the market, which is not only most fully consistent with individual freedom and responsibility but, as a direct consequence, offers the best springboard to lasting economic recovery.

4.31 p.m.

Lord Kaldor

My Lords, I, too, should like to begin with an apology that owing to a long-standing engagement I shall not be able to be here if the debate lasts until eight o'clock or longer, as it looks to me now, with the number of speakers, it well might. I should like to say that it was a pleasant surprise to me to hear such a moderate speech from the noble Lord, Lord Harris of High Cross, whom I expected to be anything but moderate. He declared that he is not a follower of 19th century liberalism; he admitted that markets are not perfect; and he admitted (if I heard him aright) that there are some things at least that the state can do better.

In that way, I think he was in line with the great economists of this country in the 19th century as well as in the present century. He quoted some remarks of Keynes in favour of the market mechanism. I could quote many other things by Keynes in a different direction, but I should like to quote the greatest of English economists of the late 19th century, namely, Alfred Marshall, who went out of his way to demonstrate that the doctrine of maximum satisfaction—which means that leaving things to the market leads to the best solution—is not true without strong qualifications. His greatest pupil in Cambridge, Professor Pigott, devoted his whole life to exploring the qualifications and the limitations of that doctrine in a systematic manner.

All I can do today is to illustrate by one or two examples how market forces can produce the worst results even in respects in which they are expected to produce the best results. The clearest example which springs to mind is what came to be called some 10 years ago the Dutch disease. I am not referring, of course, to the disease of elm trees, which is no doubt familiar to many of your Lordships. I am referring to the unfortunate and wholly unexpected consequences of the discovery of a great deal of natural gas under the sea near Groningen. On any rational grounds one would expect that this discovery would have been a great boon to Holland, just as the discovery of North Sea oil was supposed to have been a great boon to Norway and to Britain.

However, the reality turned out to be quite different. Gas was a new, additional source of income which added greatly to Holland's exports—90 per cent. of it was bought by other countries. But these exports had to be paid for, which made the guilder a highly-sought-after currency, driving up its value in relation to Dutch industrial costs sufficiently to make it possible for foreign countries to pay for their gas by increased exports to Holland and reduced imports from Holland. So the market mechanism, which automatically tends to bring exports and imports into balance, automatically also causes an improvement in the energy balance to be offset by a corresponding deterioration in the balance of trade in manufactured goods.

As a result, from 1965 onwards Holland experienced rapid de-industrialisation—even more rapid de-industrialisation than we are experiencing today—and industrial employment fell by 30 per cent., having risen substantially by 2 per cent. a year ever since the end of the second war. The result was that the growth of the national income, the growth of the GDP, very much slowed down. It was growing less fast than before gas was discovered. The huge income from gas served as a substitute for other sources of income—and an inferior substitute, to boot—and not as an addition to other sources of income, which it should have done. And since gas production, unlike manufacturing, requires hardly any labour, Holland became a country of heavy unemployment and declining real wages.

Many of us were afraid that we should catch the Dutch disease right and proper once North Sea oil came on stream, and that is precisely what happened. In terms of real GDP, oil brought no net benefit at all to this country. As the value of oil production went up, so the value of manufacturing production went down. Employment in manufacturing industry alone fell by 3 million—from nearly 9 million in 1965 to just under 6 million in June 1981, and it may have fallen by another 150,000 to 200,000 since. Manufacturing output, which reached its peak in 1973, has since fallen by 17 per cent.

All this is due to the same natural tendency of the free market to substitute one source of production for another, even if the new source is more in the nature of a new inheritance—something which in a properly functioning economic system should be a net addition to wealth and not, as in the British case, the cause of a net reduction. Given the fact that there was nothing that would expand total demand in line with the increase in productive potential which occurred just when a socialist Chancellor thought that an expansion of demand is the very devil, the net result of the oil and gas discoveries in Britain, just as in Holland, was that in the field of manufactures less and less was produced at home and more and more was procured from abroad.

That this sort of thing is not inevitable but simply the result of bad government—and I do not mind whether it is a bad Labour government or a bad Tory government; unfortunately, in this country we have had both—is shown by a comparison with a third country, Norway, which is governed on Keynesian principles and not on Thatcherite principles. Oil and gas loom far larger in the economy of Norway. The gross value of their oil and gas production is equal to the value of the whole of their manufacturing output, which is about 25 per cent. of the GDP, whereas in Britain oil and gas production together is, I think, around 6 or 7 per cent. of GDP. But, whereas employment in oil production is less than 0.5 per cent. of total employment, employment in manufacturing in Norway is 20 per cent. I suppose the propagandists of the present Government would say, " Hooray!—productivity in oil or gas is 40 times as high ". Output per man is 40 times as high in oil as it is in manufacturing—just because oil does not require labour, or requires very little of it.

Despite all this, thanks to a devaluation of the kroner (which the Government carried out in face of a very strong balance of payments and of strong currents driving up the kroner) and then to its subsequent maintenance at a low level in relation to costs, through extensive market intervention by the Norwegian Central Bank, in Norway manufacturing output and employment were maintained. Now at 2 per cent., Norway is the country with the lowest unemployment in Europe, if not in the whole world. It is only slightly exceeded by Austria which also kept unemployment very low as a result of a Socialist government in contrast to the high unemployment of right-wing governments.

Norway's example shows that there was no need to undergo the miseries of de-industrialisation or having millions of unemployed. All that it was necessary to ensure was that effective demand was high enough to utilise the available resources to the full—and the available resources were enlarged by North Sea oil and gas. That simple proposition no one in Whitehall could understand.

What we should do if we were rational and clever would be to build up our export capacity in manufactures by a large-scale industrial investment programme, a major programme of industrial regeneration and modernisation, organised from the centre, on much the same lines as in Japan. The central Government there organised post-war industrialisation. Investment was carried out in businesses run by private enterprise, but the whole thing was planned by the Japanese Government. Private industry without central planning (what the Japanese call administrative guidance and direction) cannot be expected to undertake this. On a narrow view, it does not appear to be a profitable thing to do. But the interests of the nation and of the shareholders of the companies are not identical; or, rather, they do not appear to be so. Each company acting separately and individually may be justified in thinking that a major programme of modernisation and capacity extension would not pay. It would be throwing good money after bad. But, if all companies undertook such a programme simultaneously, they might well be justified in terms of profit as well as of a higher and more secure employment in the country and a higher real income for the nation as a whole.

Moreover, our own problem of expanding and modernising our export industries is far more urgent than that of the Norwegians. Norway's proved oil reserves are sufficient for a hundred years to come at the permitted maximum output of 75 million tonnes a year—which they do not expect to reach until 1990. Some Norwegian oil experts say that since the greater part of the Continental shelf has not yet been explored, oil might last for another hundred years or even longer.

But this is not true with us. Our own oil reserves are expected to be exhausted somewhere in the early decades of the next century. Therefore, it is far more important that we should have something to replace oil in order to pay for our imports. That is to say, we should use this time when we could afford to build up and modernise our export capacity.

I have given but one example of the general proposition that you cannot rely on market forces to generate sufficient demand which alone can ensure the optimal use of resources. This is one thing that the markets cannot do. Nor can you rely on the foreign exchange market to secure a satisfactory balance of payments. Anyone who listened to the speech of the noble Lord, Lord Soames, in the debate in this House last week will have been convinced that, in the matter of foreign exchange, reliance on market forces is a total absurdity. Another major respect in which we cannot rely on market forces—and this is the last point that 1 shall make—concerns the stability of wages and prices. The present Government regard price stability as the supreme objective of national policy. Whether they are right in this—to give inflation or the absence of inflation such a high priority—is a matter of argument But, whether the priority is high or low, they haven't a clue of how to achieve it. They have an id¹e fixe, which perhaps is not as widespread now as it was a year ago, that in some mysterious fashion, which is completely unexplained, it will come about automatically through control of the money supply. In fact, as experience has shown, they cannot control the money supply. I am sure it would not have made any difference, even if they had succeeded.

The only way to make some real sense of their policy—one cannot assume that one's masters are half-witted—is to suppose that they believe in the curative powers of unemployment; that, if you create enough unemployment, the working classes will be hungry enough and the trade unions will be weak enough not to have strikes, not to have absenteeism or recalcitrance, and not to have wages rising faster than productivity. The example of ASLEF in the last few weeks has shown that 3 million unemployed are not nearly enough. It may need unemployment up to 5 million or 6 million to reduce the working classes to that state of obedience. And what a waste! What a lot of contrived misery on the large majority of the nation that depends on work for earning a living.

All this is because the Prime Minister and her friends are ideologically opposed to controls. I am convinced that their policies will fail. In our present era, the late 20th century, inflation has become endemic to the capitalist system. It is present in all capitalist countries and, moreover, it has now spread to communist countries as well. It cannot be got rid of without a consensus policy on income distribution which allows effective and comprehensive controls over prices and wages. The noble Baroness, Lady Young, said quite a lot about how impractical this was; but she did not tell us what her alternative is or whether she has an alternative.

My Lords, a final area in which it is hopeless to rely on market forces is foreign investment. This is only an aspect of the more general issue of whether private profitability is a good or a bad guide to national profitability. It may be profitable for a British or a multinational firm to transfer its activities abroad where labour is cheaper or the exchange rate more favourable; but it is against the interest of the nation as a whole. The Chancellor of the Exchequer in another place the other day argued against the view I have just put forward by saying that, if we controlled outward investment, we could not expect to get the benefit of inward investment. What he did not say was that this is a poor argument because United Kingdom investment abroad in manufacturing industry is 10 times as large as foreign investment in Britain; so that we do not get benefits from foreign investments which are comparable with the losses to Britain through investing abroad rather than in this country.

In other words, to restore the British economy, and with it the health and morale of the nation, we must adopt policies to look after both the supply side of the economy—that is, the capacity to produce—as well as the demand side. The present Government, with their blind faith in market forces, disclaim responsibility for both.

The papers are full this morning in trying to puzzle out the meaning of the Lord President of the Council's extremely pessimistic speech two days ago. Some say that it was to support the " wets " in the Cabinet and in the Tory Party and their call for a more expansionary Budget. Other papers say that, on the contrary, he was warning the country that we must tighten our belts much further—thus really supporting the very " dries ". My own explanation is much simpler: he was just describing what would happen if Mrs. Thatcher were re-elected for another five years.

4.51 p.m.

Lord Taylor of Gryfe

My Lords, I should like to apologise to the House for the fact that I must leave tonight by 8 o'clock. If the debate goes on that long I will for the first time in this House—like the noble Lord, Lord Rochester— have to exercise this discourtesy which I do not normally apply.

I should like to congratulate the noble Lord, Lord Keswick, on the temper and content of this speech. If that were the Labour Party policy some of us might not be on these Benches. The speech which he made this afternoon is much at variance with party manifestos and with some of the speeches that have been made in the past few weeks in another place. So I support him wholeheartedly in the Motion which he has put down. I condem the over-reliance on market forces. I support a broadly-based policy for national recovery, and we on these Benches with our friends in the Alliance hope to establish a national consensus on policies that will lead to economic recovery.

I travel almost every day past Linwood. It is a ghost city; it has something like 35 per cent. unemployment. There is a larger car factory nearby which is empty and the contents have just been sold off. The unemployment in Linwood comprises not only the young people who have left school, but the 40 and 50-year old men who have been discharged and see no prospect of further employment.

When there is unemployment to that extent in other parts of the country as well as in Linwood people begin to call the whole system in question. As a very young man, in 1932 and 1933 I lived in Germany. They had a situation in which there were some 8 million unemployed. The people began to say: " If this is what Weimar democracy means, then we need a new system ". It was not simply a new Government but a new system. I believe that if unemployment goes much higher more and more people in the country will be calling in question the system on which western democracy has been built.

It is for that reason that I joined the Social Democratic Party, because it provided some alternative to the doctrinaire views of Right and of Left. But time is running out. If we can get a broad consensus, not totally committed to any party doctrine, we may still save ourselves. The alternative is the system enshrined in Clause 4 of the contribution of the Labour Party, of general common ownership of all the means of production.

The example of countries which have applied that principle are not encouraging. Poland is perhaps the greatest example of a totally controlled state economy with its consequent lack of growth, its consequent centralised bureaucracy and, finally, its destruction of personal freedom. In the present situation we all have a responsibility for working out some kind of alternative basis for our society.

It will not be cured by an over-reliance on the market forces. It will be cured by clearly defining the duties and limits of the state, which are twofold: one, to ensure that the state sector, which will always be a large part of our total economy, is efficient, well run and sensibly financed. Secondly, it will require to create the climate for economic growth in the private sector. That is where the real growth and the real dynamism should lie.

In our case we can do this in a number of ways—a large variety of opportunities for state intervention. But we must always be careful to limit state intervention and not dominate the economy with state direction. I hear people talking about the state directing investment of bank and pensions funds, for example. I regard that as a very dangerous doctrine, as well as endangering the prospect of pensioners who might have entrusted their savings to their pensions funds.

That was the only part of Lord Beswick's speech where I felt that he was less than fair—in his strictures on the financial institutions which conduct useful and profitable financial management to the advantage of the invisible exports of the United Kingdom. The state has a responsibility for establishing the conditions for growth. This can be done in a number of ways. For example, the rate of depletion of North Sea oil—which makes a massive contribution to the Treasury revenue today—is an important factor in controlling the exchange rate and interest rates. If we develop a substantial balance of payments surplus based on a rapid depletion of North Sea oil, that will have unfortunate consequences for interest rates and make business more difficult. That also applies in relation to the exchange rate.

In determining the interest rate one has not complete power. Very often the interest rate will reflect the world situation and world competition for money. Certainly the high interest rates of the United States are disastrous at this moment from that point of view. If we can induce our allies in the United States to bring in more sensible interest rates, it will certainly help the conditions for economic growth in this country.

We should try to create a climate for growth not only with incentives but in the financial field, exchange rate and interest rates. This has consequences, as I say, for North Sea oil and the effect on the balance of payments. Regional policies are another area in which the state has a valid role to fulfil, to ensure the maximum use of our national assets. Mergers and monetary control to ensure competition is another area on which the Social Democrats agree. We have to have a degree of free competition in the economy in order to generate efficiency and growth.

The big debate in politics, in the other place as well as in this House, in the next six months will be concerned about nationalisation versus privatisation. In my view, that debate will contribute nothing to the solution of the economic problems we have just been discussing. The only thing that can be said in support of the privatisation of some of the state industries is that it will take them out of the straitjacket of the public sector borrowing requirement. That is a very complicated way of taking them out of the external finance limits and the PSBR which have been laid down by the Government.

The public sector in this country is a very important part of the total economy. Its output is £18 billion per annum, which represents 11 per cent. of the GNP; its investment is £5.8 billion per annum, which represents 16.5 per cent. of the total national investment in this country; and it employs 8 per cent. of the total number of employees. I am not talking about local government but about the public sector.

For one group of politicians in this country to say: " We are going to denationalise that tremendous group of assets as promptly as we can," and for another group of politicians to say: " When we get into power we will renationalise them," is total irresponsibility. These sectors are so important to the whole of our national economy and our national wellbeing that they should be taken out of the area of doctrinaire debate. What is happening at the moment is that the limits on investment by the nationalised sector and the failure of the Treasury to distinguish between revenue and capital investment in calculating the PSBR are stifling not only the nationalised industries, some of which have great potential for growth, but also a large number of private industries which depend on supplying the state industries—for example, Plessey in relation to the Post Office and Telecommunications industry, GKN and BICC, which the other day had to dismantle its expert team on electrification because there appeared to be no prospect of the railways investing in the immediate future in the electrification programme.

Therefore, what we are doing when we put the state sector into this straitjacket is stifling the whole health and wellbeing of large areas of engineering and technological industry in this country. So I would commend to the Government a document published the other day by a group of chartered accountants called The Hundred Group—chartered accountants, some of whom are in the state sector but who are mostly in the private sector. They made a survey of a number of countries which have large state investment, and they came to the conclusion that this was the only country in the world which applied the kinds of principles which are at present being applied by the Treasury in relation to nationalised industry investment.

To take France as an example, it has the largest nuclear development programme and recently built a new rail-line between Paris and Lyons and put a new train on it—a vast public industry investment—but they did not cripple it, stifle it or limit it by saying that it would offend the EFL or the PSBR. They permitted the state industries to have access to the market in order to finance that kind of investment. Strangely enough, among all the industries which have no access and no right to go to the market in this country only BL and Rolls-Royce, for some reason, are excepted. All other state industries come within the limits laid down by the Treasury. The One Hundred Group as well as identifying the difference in financing between the state and private sectors in all other countries—Italy, Germany, France, Australia and so on—also appealed to the Government to say that the methods of financing State-owned industry need radical reform in the light of modern economic and financial considerations. They said—and this is a totally non-party body —that the industries should have the normal commercial freedoms appropriate to major trading bodies, subject only to safeguards as necessary in case of market or production dominance.

The state-owned industries finance much of their investment internally, but the collective forecast of virtually 100 per cent. self-financing is quite unrealistic. Government borrowing places a heavy burden on the gilt-edged markets; yet the Government insist on this method as a means of funding state industries. This causes market distortions, and so I would appeal to the Government to look once more at the whole basis on which they organise the financing of state industry, examine the recommendations of the One Hundred Group, because this could have major implications not only for the creating of employment in the state industries but also for the related supporting and supplying industries.

One final point: The noble Lord, Lord Beswick, talked about consensus. May I make one suggestion in this regard? We have at the moment only one forum for the development of economic policies. There are a whole lot of little private groups and bodies which do a great deal of research and discussion, but on a national basis we have NEDC, in which the trade unions, the Government and the employers sit down together to discuss economic policy. I suggest that the Opposition and minority parties in this country should be invited to that forum so that we could try to devise policies based on consensus and a general acceptance of national targets in the national wellbeing. This may be a way of achieving some kind of common objectives such as are set out in the Motion before us.

I would also support the proposition that we must have an incomes policy, but we cannot develop that at great length tonight. What has been encouraging in the last few days, with the notable exception of the " suicide " leadership of ASLEF, is that we have had a response from working people who recognise that wage levels and productivity have some relation to employment and redundancy; and that has been accepted because it has been explained and understood. It may be that we are at the beginning of a stage where we could develop some kind of common understanding of the importance of an incomes policy. But may I say this: an incomes policy will not he accepted by the mass of the working people in this country unless they feel they are operating in a free and fair society; and some of the golden handshakes, for example, that have been paraded in the last few weeks in the financial press do not encourage understanding by working people—some of whom are accepting drastic reductions in their standards of living—of the responsibilities of a national incomes policy. So from these Benches, with our Liberal allies, we will continue to conduct a campaign to secure that national consensus, and we are encouraged by the by-election results to feel that people are responding.

5.9 p.m.

Lord Boyd-Carpenter

My Lords, the noble Lord, Lord Taylor of Gryfe, as he was speaking, recalled to me, as it may have done to others of your Lordships, the late Mr. Ramsay MacDonald. He has so attractive a voice that it is only after he has finished speaking that one comes to the conclusion that he really has not said very much. That was the characteristic of that great man in his later days and I hope the noble Lord, Lord Taylor of Gryfe, will allow me to say that of his speech this afternoon. He told your Lordships that he and his friends, for whom he indicated he was speaking, were all in favour of a great new development—of developing a consensus which would get this country out of all its problems. But I do not think I am alone among your Lordships in being no wiser now than I was when he began to speak as to what that consensus would actually set out to do.

I hope he will allow me to say—and he will confirm this when he reads his speech in the Official Report— that he confined himself to generalities of a very agreeable and civilised nature. But when it came really to indicating what he and his friends would actually do if they carried the kind of responsibilities that my noble friends on the Front Bench carry—day-to-day responsibility for handling the immensely difficult problems which face this country and any Government that it has—then, I am bound to say that he left me with the impression, either that he and his noble friends do not know what they would do or, for some reason or other, they prefer not to share that knowledge with us.

I could not help recalling as he was speaking, flanked by his noble friends, some lines of Kipling which I think apply to his party: Here we sit in a branchy row, Thinking of beautiful things we know. Dreaming of deeds we mean to do, All complete in a minute or two. Something noble and grand and good, Won by merely wishing we could. How we are going to, never mind". May I turn now to the noble Lord, Lord Kaldor. I was interested, as I am sure the House was, in his analysis of the problems occasioned by North Sea oil, which, if he will allow me to say so, he described with great clarity if not with complete impartiality. But it did not seem to me, if he will allow me to say so, that he succeeded in doing what he was trying to do, which was to demonstrate that market forces were, in the language of 1066 and All That, a Bad Thing. The noble Lord, Lord Kaldor, knows better than most of us, perhaps even better than his noble friend Lord Balogh, who was here a moment or two ago, that market forces have not been allowed to operate in respect of North Sea oil.

We first had a system of Government licensing of the areas for exploitation. Then his political friends imposed the BNOC, with the additional advantage of including the noble Lord, Lord Balogh, in the membership of its board. Then successive Governments—and I would distribute blame fairly equitably between them—have imposed special and discriminatory taxation on the output of the North Sea. It is, at least, as arguable as what the noble Lord argued, that if Governments had allowed market forces to operate, this country, and British industry in particular, would have had the advantage, which they appear to have been denied, of cheaper energy than their European competitors.

We have not only North Sea oil; we have our own supplies of coal and gas and it is not wholly satisfactory that in that situation—and I must disclose an interest as being concerned with a part of British industry which is very energy-intensive—we have to pay more for our energy than do our Continental competitors, coming from countries that do not have these natural advant- ages. I will concede to the noble Lord, Lord Kaldor, that there is a criticism there, first of his own political friends who started this policy and, secondly, of mine who have continued it. But whatever else it demonstrates, it does not demonstrate that market forces have been allowed to operate and have created the damage to which he referred.

What are the market forces to which the noble Lord, Lord Beswick, referred so slightingly?—and so, indeed, have one or two other noble Lords. Surely, the essence of allowing market forces to operate is simply concentrating on producing those goods or services which customers are prepared to pay for, at a price which they are prepared to pay. I was recently on business in the United States and I visited a works in Pennsylvania. Up there in those works was a large poster which read, " Customers make pay day possible ". In the characteristically succinct American way, that makes the point; and it is no coincidence that the country in which that philosophy operates gives to ordinary people the highest material standard of living of any country in the world. The American economy is market force orientated. Those on both sides of industry—and they do not look upon it there as " both sides "—in whatever capacity they work, realise that their living depends upon satisfying the customer. That is what market forces means. It is more than coincidence that those who follow that policy enjoy the highest material standards that the world has seen.

So I come to the noble Lord, Lord Beswick, and his Motion. If he will allow me to say so, his Motion is infinitely less attractive than his speech and, indeed, there were moments in his speech when the exact relationship between the two was not immediately apparent. He began—and this can only be intended as a serious criticism of the economic policy of Her Majesty's Government—by denouncing over-reliance on market forces and suggesting that these have had bad consequences, social and economic. He then went on, blandly, to refer to a broad-based policy—I am bound to say that, so far as I can recall, he did not tell us what a broad-based policy is—and added that there should be a consensus.

Obviously, a consensus would he a good thing, if it were a consensus on a sensible policy. But a consensus, in itself, as an ideal, and completely unrelated to what the policy to which it relates is about, is surely a nonsensical concept. The right intellectual process is, surely, to try to work out what is the right policy for this country in its present situation, and then to use all your powers of persuasion, of argument and of dialectic to establish a consensus in support of it. But what the Motion of the noble Lord, Lord Beswick, is seeking to do is the other way round—to set up a consensus as the ideal thing, and then leave us, apparently, to accept whatever policy there can be a consensus about.

Of course, there could be very easily established a consensus on the lines of the speech of the right honourable gentleman the Leader of the Opposition at Cardiff last summer, in which he advocated that he would simultaneously reduce taxation, increase public expenditure and cut interest rates. The Leader of the Opposition did not explain to the audience at Cardiff how you could do that, or whether those policies were consistent. The only logical conclusion one can draw is not that he would, as one would have suspected, finance his proposals by borrowing, because if he was increasing expenditure and cutting taxation he could not lower interest rates; he would have to heighten them. Therefore, if he was going to do all three, all he could do would be to print money.

You could easily have a consensus on that. Every social service would be improved; every one of these terrible cuts of which we hear would be reversed; public expenditure would rise and taxation would be reduced, earning the gratitude of the taxpayer. You would have an enormous body of consensus on that until the hills came home in, perhaps, 18 months' time. We have been over this ground before. In a sense, it is the ground that we went over and which paved the pathway of the economic decline of this country almost steadily from 1964 to 1979, with a brief interruption when the IMF intervened in, I think, 1976 or 1977.

As I say, we have been over this ground before. We have seen that you can get a considerable degree of support if you will borrow or print money to maintain services and benefits at a level that you are not earning. But I cannot believe that the noble Lord, Lord Beswick, who has had a very distinguished career in government and who was the most effective head of a public corporation, is advocating that. However, I suggest to your Lordships that some of those who support the noble Lord have not applied their minds to this problem. We are facing—

Lord Beswick

My Lords, if the noble Lord is leaving this point of consensus, could he tell me whether I am to gather from what he has said that he agrees or disagrees with what his right honourable friend the Prime Minister said?

Lord Boyd-Carpenter

My Lords, if the noble Lord will tell me to which of my right honourable friend's many interesting, inspiring and stimulating observations he is referring I shall be in a better position to identify, but he will appreciate that, warm supporter as I am of the Prime Minister, I should not like to give him a completely blank cheque of that nature.

Lord Beswick

My Lords, I did take it that the noble Lord had listened to my speech and that he had heard me quote carefully, slowly and clearly what the right honourable lady the Prime Minister said in Melbourne.

Lord Boyd-Carpenter

My Lords, I thought that what the Prime Minister said at Melbourne made very good sense and was very rightly said at that place. If that is what is worrying the noble Lord, I can reassure him at once. If I may come to the point that I was on, this country is facing a situation of the very greatest difficulty. The Government are having to do unpopular things, and no doubt as a result of that are unpopular. This touches on a point of very great seriousness indeed which goes beyond our present troubles. It does not seem to me to be 100 per cent. certain that parliamentary democracy as we know it and a prosperous, free enterprise society can necessarily continue to co-exist. There is an inveterate temptation for politicians to meet the electorate's appetite for eating the seen corn. It is such a temptation. Those of us who have been in another place have all been subjected to the temptation to obtain support by not insisting upon resources being put by for investment and instead handing them out for good causes, like excellent social services—excellent things in themselves—but to an extent and a degree which prevents adequate resources being available for the necessary investment to provide for the future. That is the greatest problem of all and it rears its head very conspicuously at this moment.

On this point let me recall to your Lordships' memory a speech made in another place by a very great, perhaps the greatest parliamentarian of our generation, Mr. Aneurin Bevan. It was made when he was a dying man. On 3rd November 1959 he said this: There is one important problem facing representative parliamentary government in the whole of the world where it exists. It is being asked to solve a problem which so far it has failed to solve: that is, how to reconcile parliamentary popularity with sound economic planning.… I would describe the central problem falling upon representative government in the Western world as how to persuade the people to forgo immediate satisfactions in order to build up the economic resources of the country. Let me put it in another way. How can we persuade the ordinary men and women that it is worthwhile making sacrifices in their immediate standards or foregoing substantial rising standards to extend fixed capital equipment throughout the country? This is the problem and it has not been solved yet ".—[Official Report, Commons, col. 862.] It has not been solved yet. In the light of that, I hope that those who criticise every reduction in public expenditure, be it on education, social services, housing or health, will bear those words of Mr. Bevan in mind. It is a fatally easy temptation to seek to suggest that there are resources for doing popular things which can be applied to those popular things without eating the seed corn. I find those words of Mr. Bevan, made, as I say, in rather dramatic circumstances—his last speech in the House of Commons—intensely moving and wholly relevant today. That is the problem which faces this Government at this time: How to secure that sufficient resources are moved into investment, into preparing for our future, and the extent to which therefore it is necessary to curtail otherwise popular expenditures. Such a situation was referred to, but I shall not weary your Lordships by quoting it, in very fine words by Mr. Denis Healey in 1976.

This situation imposes an enormous strain upon the Government and their supporters. It means that they have to face unpopularity, the exploitation of every grievance, the stimulation of every appetite and stand firm in the long term interests of this country. It imposes, above all, an extreme burden on the Prime Minister. Twenty years ago I had the honour of serving in the same department as she, and that experience convinces me that in this crisis she will neither falter nor fail.

5.28 p.m.

Lord Jacques

My Lords, first may I congratulate my noble friend Lord Beswick on the terms of his Motion but more especially on the quality of his speech. It was a pleasure to see Frank Beswick back at the Dispatch Box. I am to be followed by the noble Lord, Lord Thorneycroft. The last time we were in the same debate I followed him and had great fun. I understand that he is looking forward to following me.

In the post-war period, our Governments have been elected by a declining percentage of the electorate. I need not go into the reasons. We know the reasons. But there has been one compensating factor: a willingness on the part of the elected government to consult with other institutions within the State and to take their views into account. We had that willingness until 1979. Since the election of 1979, consultation has been at the minimum. Consequently, there has been less and less consensus. I would say to the noble Lord, Lord Boyd-Carpenter, that consensus at least has one inherent merit: it generates goodwill and it minimises friction, which is very, very important.

If a Government, elected by something substantially less than 50 per cent. of the electorate, act in the way which the present Government do, then they can have no grounds for complaint if in a few years' time we have an extreme left wing government which act in the same way. But I am sure there would be great protests. I can almost hear the screams which would be heard.

I would plead for greater realism in our policies, particularly our economic policies. For example, we talk—and we have done so this afternoon—and act as though we have completely free markets. But in almost every market, whether it be the markets for energy, transport, commodities, finance or labour, we have institutions which have considerable market force. Not monopolies, but certainly semi-monopolies. In these particular circumstances monetarism, not in my words, but in the words of Galbraith, has become a design for combining unemployment and recession with continuing inflation. That is the lesson which has not been learnt. If the present Government had given half as much attention to the retail price index as they have given to the money supply, they would have been much more successful in controlling inflation. The retail price index is a primary consideration in all wage negotiations. It generates future inflation. Because it generates future inflation, it is a factor that is greatly taken into account in determining the rate of interest—which again increases the retail price index.

Similarly it is often said that the Government cannot spend their way out of inflation. But every Government in a welfare state spend themself out of inflation, and they have no choice about that. At the present time, unemployment is costing us £12,000 million in unemployment pay and lost taxes. We are spending it, whether we want to spend it or not. It is not a question of choice—we have no choice. I would remind the House that unemployment benefit is not just a social security benefit. It is a cushion against deeper recession and against higher unemployment; because if there was no unemployment pay, demand would be less and consequently the recession would be far deeper. It has a dual purpose.

I would remind your Lordships' House, too, that a large part of the hard-core of the unemployed are not people who have combined together to price themselves out of the market. A large part of the core of unemployed comprises unskilled, low-paid workers who very often have had very poor conditions of employment. The choice is not whether we spend, but how we spend; whether we spend on keeping people in, very often, demoralising idleness, or whether we spend a little more and rebuild some of the social assets which we shall need badly in the future. Expenditure on those social assets would generate employment in the private sector. The public sector buys its materials and services from the private sector, and the people who are employed in the public sectors spend their wages in the private sector—and expenditure of that kind would generate increased employment immediately. What is equally important is that in the long run it would replace some of our social assets and put us in a better position after we are out of the recession. We have many social assets which require replacing; some of our sewers were put down in the 19th century and ought to have been replaced long ago.

We are in a better position for reflation than we have ever been since the war. Two factors are needed. First, do we have the spare capacity'? According to the CBI we have 16 per cent. spare capacity. More important still, what about our balance of payments? Our balance of payments is protected far better than it has been at any time since the end of the war because of the present and future North Sea oil receipts.

The risks in reflation are negligible compared with the perils of 3 million unemployed for a decade, and that is what we are faced with. We arc dividing our country into two nations; those who are fortunate enough to continue in work and who, because they are able to continue in work, have much the same real wages as they did before, and those who are unfortunate enough to be out of work and living on the poverty line. There is no stability in that situation and if there is one thing we need, it is stability.

In industrial relations also, we have a lack of realism. The question of the immunity of trade unions, the closed shop and similar questions are of fringe importance. They are negligible. The real issue is whether we as a society can settle industrial disputes by the civilised method of conciliation and arbitration which is binding. That is the real issue. That is the issue in which the public are interested, and not in the kind of things which are in the Employment Bill, which is before the other House.

I would direct the attention of your Lordships' House to an article in today's Manchester Guardian by Mr. Denis Landau who is at present the chief officer of the Co-operative Wholesale Society and who was formerly the chief officer of Cadbury Schweppes. He tells us there that the Co-operative Wholesale Society has had a closed shop since 1919. It has suffered a minimum of dislocation through industrial disputes because it has enjoyed good relations with the trade unions and it has agreed procedures for the settling of disputes. He goes on to point out the very considerable difficulties which his organisation will face in its industrial relations if the Employment Bill, which is before the Commons at the moment, passes into law. There is a danger that the Bill will cause friction and will make things much more difficult. There is one thing in particular which I should particularly like your Lordships' to bear in mind. It has been said, not by the TUC but by the chairman of the Conservative trade unionists, that the Government have no mandate for this Bill. If the Government have no mandate for it, I hope this House will bear in mind that when the Bill comes here it will not have the protection of the Salisbury doctrine. I am sure that if the other Party had been in office and those had been the circumstances, they would have said that it did not have the protection of the Salisbury doctrine. Indeed, they did that over the shipbuilding and repairing Bill.

I would commend the Government for what they are doing and are proposing to do about industrial training. but I cannot reconcile this with the cuts in universities and polytechnics. I should have thought that with the retraining that is necessary, the universities, and in particular the polytechnics, were necessary more than ever before. This seems to me to be a considerable inconsistency.

During the period of full employment, when we had entirely different circumstances, we had methods by which we gave a subsidy to investment; to investment which very often replaced labour. Most of it did replace labour, and we taxed employment. We are still continuing to do that. I would join with the noble Lord, Lord Boyd-Carpenter, in saying that these things must be reappraised; that we must have another look at them. What was good in the days of full employment are not good today, and certainly it is not satisfactory to subsidise moves which replace labour and to tax the employment of labour when we have 3 million unemployed.

I would make one final suggestion, not to the Government but to both sides of industry. It is likely that in the future there will be a desire for more shift work because of the very high cost of equipping factories. It has been the practice in the past to compensate shift-workers by higher earnings. I should like to suggest that in the future both sides of industry should look at the possibility of compensating shiftworkers by shorter hours. That would be much more satisfactory in our present state. For example. a four-day week of eight hours, making a total of 32 hours, with staggered rest days, is a good way of getting shift work and spreading employment.

In conclusion, I would agree with my noble friend Lord Beswick that there is not the slightest reason why this country should not be the richest and the happiest country of Europe. Only one thing prevents it, and that is that we are polarised, that sectional interests dominate rather than the interests of the community. My great criticism of this Government is that they have increased that polarisation.

5.42 p.m.

Lord Thorneycroft

My Lords, I welcome the chance to speak for a few moments after Lord Jacques and to agree very much with the final sentence of his speech, that if we can avoid polarisation in this country we shall make a substantial contribution to the solution of our problems. Which brings me to say to the noble Lord, Lord Beswick, that I start from a position of some sympathy with his approach. He asks for broadly-based policies. I agree with him. He speaks with moderation; he is not a man who searches for extremes, and I think all this is common ground between us. So I do not set out on the basis of picking quarrels with him. I will not use the word " consensus ", which seems to me too controversial and uncertain; but if I can find a consensus with him, not necessarily about the policies but about the facts of the situation, I think that might be quite a start. Where I part company with the noble Lord, as others have, Lord Harris and Lord Boyd-Carpenter and others, is the peg upon which he has hung his argument, the over-reliance in this country on market forces.

If the noble Lord put this Motion down in Poland he would have a very much better chance of carrying intellectual conviction. I say this not in criticism of the poor Poles, for whom I think everybody can only feel pity and compassion at this moment. But there was a country which for years under a Left-wing policy has failed to extract coal from the mines, food from the farms or goods from the factories, and provoked a revolution or counter-revolution, and has now swept back under a military dictatorship to the application of the market mechanism in the most ruthless form—prices 100 per cent., 200 per cent., 300 per cent. up—in order to wring the coal from the mines, to persuade the farmers to part with the food. If you want market mechanisms in a ruthless way, that is an example.

But, my Lords, the noble Lord is talking not about Poland but about here, and it seems to me that one might perhaps persuade him that the situation is a little different in this country—and not only under his party but under all parties. The market mechanism is a term of art in which buyers and sellers meet together and decide the price of something in what the economists call a situation of perfect competition. It is a lovely dream world in which they live—two pigs, one buyer, pigs cheap; one pig, two buyers, pigs dear. There is a delightful simplicity about the economists' theory. I always like to say that.

We in this country suffer from many ills, and I dare say the noble Lord and I would agree about quite a lot of them. But one of the ills I should have thought we certainly do not suffer from is over-reliance on market forces. He could have chosen almost anything else as a peg to hang it on but not that, and I hope to persuade him very shortly of the real limitations of the argument. Several noble Lords have argued the case of what happens in the real world. I think Lord Jacques was talking about wages. Do not say that wages in this country are subject to any recognisable system of market forces; the market is wildly distorted. For over a century not just the Labour Party but the Conservatives and everybody have been passing laws which have savagely tilted the bargaining weapon in wage negotiations, until you have a situation in which a great trade union can extract the maximum advantage to itself with the minimum cost, and to the maximum damage of everybody else concerned. That is under the law as we have established it; not just the Labour Party, but all of us have gone along with this. I am not saying things are right or wrong. I have got to that stage in life when I sometimes doubt whether I know what is right or wrong, and I am less confident than some about how to govern the country. I am talking about the facts as they are.

Whatever else that is, it is certainly not the use of market forces. It has disastrous consequences. The activities of ASLEF at the moment are probably losing more jobs than anything else in this country. It is doing terrible damage to young men. But that is the fact; that is what we have established. Take jobs in the ordinary world; take young men going into jobs, or anybody. They have a meeting of the National Wages Council. I happen to be familiar with the Catering Wages Council. They meet and they decide what wages should be. It is all right for big firms such as those I represent; Trusthouse Forte pay, and I suppose the customers pay too. All that goes up, with inflation and so forth. And hundreds of people in hoarding houses in Scotland are hurled out of work because nobody can afford to pay the higher wages. That is not market forces; it is part of this enormous system which we have built up, which is really relevant to an utterly different age from the one we live in.

Take the terms of employment. In the old days one could say, " Why not give Billy a chance, see if he is any good, get him into the shop and see how he carries on ". You do not find many small businesses doing that today. You have got this curiously termed Employment Protection Act where you have to pretty well marry the chap. Nothing to do with market forces, nothing whatever. I assure the noble Lord, Lord Beswick, that I am not saying this is the wrong way to run a country, and it is probably far too late for me to try to change it. Over the years I have been in public life I suppose I must have done a lot of these things by accident or not knowing, but that is certainly not market forces. I remember when a young married couple wanted to set up house, and they had not got a baby; they went and rented a flat. But we all came along and said, " We have got to control the rents; we cannot turn them out ". Successively we all did it. We pretty well eradicated rented accommodation in this country for the married couple; there is not any accommodation to go into. But that is not market forces. That is why it astonishes me that the noble Lord should have chosen this approach.

Take the question of starting a business. I should think there are more planning controls for starting a business in this country than anywhere else in the world—national regulations, local government regulations; it takes months to get through these. Let us take the example of building factories. I do not know whether noble Lords have ever seen a factory built in the United States of America—it goes up almost overnight. But not here: everybody is called in. There are people marching up and down measuring and recalculating; there are 18 sets of drawings, some for central Government and some for the Department of the Environment. Everybody is in on it. It is not the free play of market forces.

When it comes to profit and loss we subsidise. I think we plan to pay £2 billion next year for business; £2 billion for the manpower commission; and £2 billion for loans for nationalised industries and the rest. It is not wrong: it is part of the system. As regards the coal industry, I heard this morning that every household pays £27 for supporting the coalminers, and it is probably, quite right. We give them an artificial monopoly as well because we have stopped the import of coal. Against that they seem to have behaved extremely well; I think that the noble Lord would agree about that. It may be a very high wage, but at least they have rejected the more extreme advice. But none of this has very much to do with market forces.

I have spoken about a few of the matters involved. When it comes to the real life that people lead, we long ago abandoned market forces altogether. As regards the necessities of life, the idea that market forces should come in is simply out. I suppose that the type of thing that a willing buyer and a willing seller could always agree about would be the education of the children. Any number of parents would pay anything—not the noble Lord, but me, everybody—but for years education has been free, and very largely compulsory. Imagine the row that takes place if you catch anybody paying for music lessons. It is a shocking thing to pay for music lessons in this country; the most frightful issues of principle are involved. As regards employing a private doctor, I do not know whether the noble Lord wishes to abolish all private medicine, but some people go to great extremes. The SDP—if I may look at the Liberal Benches—wish to abolish even the possibility of subscriptions to educational charities. What a proposition! They really should look to some of their allies in matters of this kind.

I only mention those matters to indicate the type of world in which we actually live. I am not saying what is right or wrong or how we ought to do things, but I do say that as we are looking at the problem and trying to find a consensus about the facts, let us look a little deeper. Let us recognise that whatever else is the cause of our ills it is probably not that one and, let us try to look for some other one.

I shall not embark upon that matter this afternoon, but I want to mention one area of market forces that has not been mentioned hut which does seem to me to be the most relevant: world market forces. They do matter and for some reason we have not touched on them. World market forces matter a great deal. The Lord Privy Seal said the other day that we are in the middle of a deep and continuing recession. The President of the United States said it a fortnight ago; the CBI said it yesterday; the TUC have said it; and even I have said it—not that that perhaps makes very much difference to the situation. But almost everyone upon whom you can rely—let us put it that way—seems to have a fairly clear idea that there is a large and continuing recession in the world, and I think that the Government know that as well. It is not something that we can easily resolve.

It is true that we were very unfit to meet that recession when we entered into it. It is true that at present, thanks to it, and thanks to the policies and to the courage of Her Majesty's Government, we have made ourselves very much fitter in that situation than we were before. Businesses are infinitely more efficient, and I speak with knowledge of those with which I personally am associated.

As regards exports, it is incredible that over the years people have said, " Ah, these exports; they are doing all right at the moment but they will fail very quickly ". But they have not failed. British business and British workers have battled on and somehow, in the teeth of a world recession, they have managed to sell more and more overseas. It is a credit to all—unions and everybody concerned—that somehow or another labour costs have been held down. It is very difficult to do that in a boom: it has always been considered well nigh impossible to achieve it in a slump. Yet we have succeeded in doing those things.

So there is much going for us. I do not know how the future will turn out in this matter. I believe that we are going to stay in a very rough world for quite a long time and I think that it is right that we should say so. I believe that it would be helpful towards a consensus if we all agree that we are likely to remain in that condition for quite a time. While we remain in it we ought to talk together about the best steps we can take, but the room for manoeuvre is incredibly narrow. When the debates are over, when it comes down to the actual decision of what we can spend and what we cannot, very narrow limits lie in front of us. I myself think that in positions of very great difficulty Her Majesty's Government have got it about right, and I wish them well.

5. 57 p.m.

Lord Soper

My Lords, the House is grateful to my noble friend Lord Beswick for introducing a topic in which we are invited to think rather more in depth than perhaps some of these debates invite. I find particular satisfaction in the emphasis which I believe can be laid, and must be laid, upon the thinking in depth about a political situation which I believe is unprecedented, and I deplore—although I claim no profundity myself—the erosion of such thinking in depth.

It is a very long time since in the open air I have heard much about dialectical materialism and the labour theory of value. It is a very long time since I have heard much constructive theological debate on the emergence of " born again " people and so forth. Without emphasising the point too much, it seems to me that this has applied to the Labour Party in its various activities over the years, and it offers a good deal of the explanation as to why there has been a split and why some people have now gone off to the SDP.

This debate in depth would be valuable, I think, at all times. To me it is particularly imperative in the light of the problem, the evil it seems to me, which overshadows all the others. I would be untrue to myself if I were not to spend a moment or two in declaring my abomination of the present level of unemployment and the sorrows and distresses which it brings to so many people, most of whom are largely innocent, most of whom are inarticulate, and all of whom I believe present a moral problem to any society which would make the claim to be civilised.

What is even more disturbing to me is that it seems to me that this condition of unemployment is not only worldwide, but is endemic in terms of the kind of society in which we live today which in many respects is unprecedented. In the unprecedented condition of labour from the jig tool, to the donkey engine to the various issues that are now associated with the silicone chip, we have entered upon a world of which there is no antecedent and there is certainly no correlative information that we can derive from previous eras in our history. It would seem to me reasonable to suppose that, inasmuch as it is unprecedented, a great many of those proposals which were adequate, or semi-adequate in past times, need not necessarily have anything to do with the present situation and can contribute practically nothing to it. When you add to that situation the also unprecedented situation of power—in which we now have the capacity to blow ourselves to pieces as a human species—and other issues, which though they may not sound so important are also of great significance—the two-career family which has revolutionised much domestic finance and much domestic life—and if these are issues which are beyond dispute, then I look at the system which traditionally and in this House this afternoon has been advertised as in principle the system which can deal with them.

I was fascinated by what my noble friend Lord Beswick had to say about interest. It is significant to me that the point, which was made so majestically by Tawney in his Religion and the Rise of Capitalism, makes the difference between the negative " interest ", which was permissible in the days of the medieval Church and the positive " interest " which is now accepted existentially in the world in which we live today. It may interest your Lordships, if you do not already know, and I do not possess any particular ability to describe it in detail, but I remember from my own scholastic days that interest was permitted in the medieval world if there was a condition of lucrum cessans, which means that if your money was in peril, you were entitled to draw out some interest in order to keep that money up to scratch; and the other was that you were entitled to take interest if there was a situation of damnum emergent which sounds quite impressive in Latin and which is just the same if translated: that if you were in danger of losing money because you were lending it, you were entitled to utilise the processes of what they called usery and what we call interest. As everyone knows today, interest is a positive expression factually justified; after all, our capitalist fathers were the mother and father of existentialism, not Sartre—existence precedes essence, and you evacuate from the whole concept of interest the moral proposition which obtained in the years of the Middle Ages in particular.

It struck me as significant that the noble Lord, Lord Thorneycroft, admitted a Freudian slip when, in the midst of his exuberant explanation about the conditions which prevail in a society, which he was quite right in saying is not activated entirely by market forces, he turned aside and said that he did not really know which was right or wrong.

What has happened in the capitalist society is that the moral dimension has been evacuated and Tawney's claim, which I think is irrefutable, that what happened when the capitalist system became established is that instead of a basis of moral law, the capitalist regime makes its own laws in order to fit in with the habits which it increasingly committed. It is that which I believe would constitute the gravamen of the charge against the particular system of government and the particular system of political and economic operation on which we are invited to make our comments this afternoon.

I am a little distressed that throughout this debate so far the word " socialism " has not been mentioned. I find that peculiar. I happen to be a socialist, but I think that it is necessary to advocate at least that thinking in depth about what is the alternative to this morally debased system. I do not subscribe to the principle that you can derive a socialist philosophy from a mixture of Feuerbach and Hegel. I do not believe it means the totalitarianism of a state system as operates in Russia. I believe that there is a Christian socialism which is derived from an understanding of the Sermon on the Mount and I see no reason why, as a member of the cloth, I should not advocate that as the alternative to the morally debased system under which we now believe that something like market forces, laissez-faire, are to prevail just because they exist. I find that intolerable.

Therefore, I shall delay your Lordships a moment or two in order to say a little more about that alternative which to me offers the only hope for my grandchildren and anyone else's grandchildren for that matter. It is to complete what has been said, first, by my noble friend Lord Beswick and then by the right reverend prelate that, although we arc many we are one body because we partake of one bread. I would beg to remind this House that that bread is given. The essence of the socialist case is not nationalisation; it is the recognition of the family table and that the things which are required and necessary for the sustentation of life are those things which ought to be commonly enjoyed, particularly as the only society that as yet is worth calling a true society is the family table and the hearth fire. Here you have a revolutionary programme required for an entirely revolutionary age.

I know that in the advocacy of what I have just been saying I speak to a very small minority of people, traditionally nurtured in the Christian faith and now I think heavily in difficulty about the compromises and the maladjustments that have made the proclamation of this faith even more difficult than it has been in the past. But I do not believe that such a debate as this ought to be carried on without such a proclamation and, however badly I have said it, I am quite convinced that what we need is a revolutionary concept of politics in which the moral issue is brought back into the forefront. Whatever the hazards that can be prophesied by those committed to a monetarist programme, to care for those who are now denied the opportunity to give is the most economic proposition of all.

Only in so far as human beings can learn that the only creative activity we have is to impose our powers upon the raw materials we believe are God's providence and thereby create the wealth for our own sustenance, is the open door to the kind of world in which the immeasurable resources of science and technology can at last benefit all those who are the children of God.

6.8 p.m.

Lord Allen of Fallowfield

My Lords, I am sure that this debate comes at a time when a growing number of people in our community at large are very restless and seriously concerned about the present strategy being pursued by the Government. The noble Lord, Lord Thorneycroft, in a robust way, attacked the mover of the Motion for staging it in the setting of a debate about over-reliance upon market forces. All right, if one accepts that, may I say in plain, simple terms, that the debate is about the strategy of the Government and the disasters that that strategy is causing. That is what is understood outside by the term, " over-reliance on market forces ", if it is understood at all.

The longer I spend in trying to reconcile problems involved in our economic, political and industrial life, the more concerned I am at the failure of this Government—yes, with acknowledged difficulties, but still failure to date—to match promise in Opposition with achievement in office. Whenever I look—and I am sure that this applies to others—at the Government's present policy, which by implication is being challenged after close on two and a half years in office by a growing number of its leading personalities, I, like countless others in our community, am obliged to count the cost of what I can only term this ideological dogma and lost opportunity.

It is a deliberate and coldly calculated betrayal of working men and women in all walks of life by the attack on their living standards and job prospects. I use the term " betrayal " with a great deal of caution, but I was listening the other night, as I suppose were others, to the television programme " Two Nations ". There we saw a number of casualties of this strategy. One in particular was the wife of someone whom I would describe as being previously involved in middle management, who had been a casualty of the policies which are being supported by the Benches opposite. That lady used the term to the Secretary of State for Industry, " Your Government has betrayed us ". A harsh and uncompromising term, but in her mind no doubt true as she saw it.

A policy which denies over 3 million men and women who are willing and able to work the right to work cannot be right at any time in any healthy democratic society, irrespective of what Government are in office. Policies which are mainly responsible for this are wrong economically, socially, ethically and morally. Policies which seriously disturb and, in some cases, are totally destroying the family unit must stand condemned for all time. This world is about people, and people are the casualties. On that indictment alone a strong case is made out in my considered opinion—and I am sure in the opinion of many others, too—for a more pragmatic and less doctrinaire approach in our attitude towards the creation of wealth, the requirements of industry, both private and public, and of course to investment.

It is against that backcloth that I see no evidence of constructive purpose in the policies now being pursued by the Government; no genuine appreciation of the needs of our people; indeed, no hope for the nation for as long as the present policies are pursued throughout the life of this Administration. That surely must be the construction that the nation must place on these policies; an opinion which seems to have been reinforced by those who have recently been dismissed from the Cabinet, those who have resigned from the Cabinet, and those who are still of the Cabinet, if not expressly so, by implication.

People of the United Kingdom cannot accept that the Government are right when they try to run away from their share of the blame for the recession in our economy. If the Government of the day, irrespective of who that Government are, are not at all times responsible for the economic health of this nation, then I ask who is? Incomes policy was referred to in this House earlier today. This is not the time to debate the merits or otherwise of an incomes policy. I happen to come from a stable of the trade union movement which some would describe as being moderate. I want to say that if it is right to hold the Government of the day responsible for balance of payments surpluses, for inadequate spending here, there and everywhere, it is equally right to acknowledge that the Government have the right of a substantial input into how much goes into wages, how much goes into salaries, how much goes into profits and dividends, and I see nothing wrong with that apportionment of responsibility. My problem today is that there is no attempt in our economy at the present time to get to grips with those very real issues. There is, as I have said in this House before, a dialogue of the deaf, and I hope that in what I want to say later that this House at least will acknowledge that, that the Government will acknowledge that and take steps to try to apply a suitable corrective.

I do not believe that the Government can run away from their responsibilities, nor do the people in this great nation of ours. What is worse in the minds of many people, particularly among the casualties of these policies, is that they see a Government with so few fresh ideas and, above all, see their stubborn refusal to accept that there are alternative policies which they could take on board as suitable correctives to the present economic and social climate.

What is missing in our society today—and I hold the Government mainly responsible, and I emphasise " mainly ", for this deficiency—is the absence of any consensus. We have already heard comment about the term, " consensus ". Let me say what I mean by that term. I mean an element of agreement, consent, or understanding on implementation of what the noble Lord, Lord Boyd-Carpenter, calls sensible policies. It is a matter of deep concern to a number of people—and I count myself as one of them—that no such consensus is seen to obtain in Britain today at workshop floor level, but more particularly at the level of the tripartite National Economic Development Council that I had the privilege to serve for close on 17 years. I believe that there is a basis on which policies and alternative policies ought to be examined in depth, exhaustively, in an attempt to reach some consensus in this nation.

There are immense numbers of salt-of-the-earth people on both sides of this fence who genuinely want to see Britain succeed; who genuinely want to see a programme of economic recovery, not in a few years' time, but now. People are not happy with the thought: " It will be all right tomorrow; it will be jam tomorrow". They know that tomorrow, in the setting in which it is discussed, we are all dead. In that sense, it is totally inadequate to accept that people ought to believe that as a reason why they should support policies of which they are themselves the casualties in many respects.

I do not wish to comment on what I see as two important pillars which are central to any reconstruction in this nation of ours. First of all, I refer to the level of investment. No one will challenge the view that investment is about, and for, the future. This, of course, is a fact of life in the case of companies who borrow to finance their industries in the same way as public enterprises borrow to finance their activities. I hope that in looking at the public and private sectors we shall rid ourselves of the view that if you happen to be public in this society you are wasteful and inefficient, but if you happen to be private you are efficient and prudent. That is a piece of nonsense that needs debunking, and the sooner it is debunked in our society the better. It divides society; it does not consolidate it.

Regrettably, the level of investment in the United Kingdom is significantly below that of Britain's major competitors. Investment in new capital equipment has slumped since the latter part of 1980. Indeed, manufacturing investment was projected to decline by as much as 18 per cent. in 1980. The major reasons for this, we are told, are the continued effects of Government policies, which have depressed demand, driven up interest rates and cut profits. Profitability, believe, is at an all-time low. It is clear that marginal improvements in cost competitiveness will not overcome the depressing effects of those factors.

One of the consequences of high interest rates and the course of lower profits has unquestionably been the high exchange rate. In this context I would say, as chairman of the Chemical Economic Development Council, that I have seen, heard and talked with representatives of well-established organisations acknowledged to have a tremendous record of achievement in this country in the chemical industry complaining bitterly of the effects of those policies on their trading practices.

I am of course aware that the Government have argued that the high interest rates will actually have positive effects on the industrial structure and improved productivity; as it will, so it is argued, encourage a shift to high technology and high value-added products. The logic of that argument is not clear to me. There is, however, clear evidence that the high exchange rate has squeezed profit margins as firms have struggled to hold on to market shares. That in itself has produced severe constraints on the ability of firms to introduce new technology as—we all know this—the British banking system has been reluctant in the past to lend high risk capital for that kind of development, and any noble Lords who doubt that should read the Wilson Committee's report on Finance for Industry, which committee I was able to serve for a number of years. All the evidence is clear that the amount of money for high technology of the kind we are talking about was not forthcoming for the reasons stated in that documentation.

My further supportive evidence for this view is a survey undertaken by Incomes Data Services in July last. They did not find any large-scale introduction of new systems in the present recession. In the few cases where technology had been introduced, it was planned in advance of the present recession. The significance of the failure to introduce new products and processes is that it assumes that the United Kingdom is already producing the right products in the right markets. All the evidence suggests that that is not so. Even if it were, many firms have so savagely cut back output by closing plants and reducing product ranges that there will be considerable problems in meeting any substantial increase in demand. Additionally, the nation will suffer from the severe effects of the recession on training, which will tighten that constraint. I understand that the industrial training boards report cutbacks of up to 50 per cent. over the past two years and a rapid increase in redundancies among apprentices during their training.

One could go on to categorise the strong objections one has and to pinpoint the damage being caused by the policies that are at present being pursued. In that setting one is interested and pleased to see that there are members of the present Administration who are equally doubtful about the value of those policies, now and in the long-term, as are others in this House.

I accept that we are in need of a new deal. I have been critical about the absence of any consensus and any fundamental aim and objective between the parties about the economic health of this nation. I firmly believe that yesterday a powerful and serious overture was made on behalf of the TUC to help create an agreed consensus with the Government and to end the dialogue of the deaf between them. I strongly appeal to the Government not to spurn discussing the package with the TUC in the manner in which it was put forward. It is clear that we need a sustained expansion, if for no other reason than to get our people back to work.

6.27 p.m.

Lord Robbins

My Lords, I wish to begin, with great respect, by correcting an important historical statement made by the noble Lord, Lord Soper. He was right in saying that the medieval theologians permitted damage incurred in respect of a loan, the famous damnum emergens. But he was wrong in arguing that they permitted lucrum cessans. Lucrum cessans was denounced by St. Thomas Aquinus and it was only with the development, if you like, of early capitalism in Florence and elsewhere that it began to be permitted. It was only at the Reformation, when Luther took St. Thomas's side, so to speak, and Calvin took the side of lucrum cessans and Molineous, who was a Catholic, that he made his celebrated plea that the prohibition of lucrum cessans was all nonsense.

Lord Soper

I can only suggest, my Lords, that there has been such wide disagreement among reputable theologians on this point that the issue is not necessarily as the noble Lord states. I would quote Dr. Laffan in my defence. I do not know who the noble Lord would quote in his.

Lord Robbins

My Lords, as the most easily accessible, I would quote De Rouver who is internationally famous as a specialist in the history of economic ideas in the Middle Ages and early Reformation. I cannot come to the main theme of my remarks without, in common with other noble Lords who have spoken, first expressing admiration for the introductory speech of the noble Lord, Lord Beswick. One may not always agree with him, but one can always admire his sincerity, moderation and his great record of public service.

I regret to begin on a slight note of disagreement. I find myself completely in agreement with the noble Lord, Lord Thorneycroft, in his objection to the term " over-reliance on market forces ". I do not propose to enlarge upon that because I think that the noble Lord, Lord Thorneycroft, certainly demonstrated that in all kinds of ways over-reliance applies not to market forces, but to the contrary acts of Government.

But, so far as the market is concerned, I am not sure that I know what definition the noble Lord had in mind. If he had in mind those thinkers who have placed exclusive reliance on market forces to the neglect of the essentials of law and the strong state, I would surely agree with him. I certainly, and the great classical tradition in which I was educated—I hasten to say not of Latinity, but of economics—would certainly have repudiated the conception of an exclusive reliance on market forces. That, after all, was the way of philosophical anarchism. Shelley's father-in-law, William Godwin, in his youth, perpetrated a book called Political Justice, in which he argued that if the law relating to property and the state were abolished, poverty would disappear, disease would be eliminated; and he even hinted that men might become immortal.

That is not the classical tradition; and the classical tradition which I should like to render explicit to your Lordships is well rendered in modern times by no less a person than John Maynard Keynes, whom the noble Lord, Lord Harris of High Cross, brought into play in a slightly different connection. Keynes' definition of the functions of the state, which incidentally is not frightfully different from Adam Smith's definition, was that, the functions of the state relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the state does not make them ". I would conjecture that among those functions which are made by no one if the state does not make them Keynes would have included, let us say, the planning of certain aspects of the physical layout, the relief of various kinds of distress, the creation of tendencies to equality of opportunity and broad stabilisation in the growth of aggregate national expenditure.

That being my attitude, I wish to argue that the existence of the market must play a vital and essential part in any healthy society. I am not sure whether the noble Lord would deny this. I hope he would agree with me that in all but the most primitive societies, or a society committed to total war (as I was during the Second World War), the market permits of decentralised initiative of both production and consumption; and decentralised initiative is extraordinarily important. Just think, my Lords, of the plight of the collectivist system of our day behind the Iron Curtain. Think how, for want of a proper system whereby prices and costs may be estimated, they get into the most hopeless muddles. Yet any attempt to imitate a truly decentralised initiative is rejected as being incompatible with the ethos of the system. The noble Lord, Lord Thorneycroft, made an allusion to Poland in that respect. I would make allusion to the even more frightful things which happened in Czechoslovakia.

I sometimes think that objections to the market system as such—I shall come to its deficiencies later on—rest upon ideas relating to the distribution of income. Well, the market as such is a mechanism which, on the consumption and the investment side, responds to whatever net distribution exists. It is true that consumption and investment, if they are not interrupted, determine the gross incomes which arise from the various productive services involved. But what determines the gross income, as distinct from the net, is the tax system, about which opinions may differ—and I am sure they do differ among your Lordships. It is certainly not determined by market forces in any straightforward sense of determination.

I admit that there remains a good deal of inequality after tax in the freer societies of this world, although the aggregate for redistribution can very easily be exaggerated. But it must also be remembered, and remembered in this particular context, that there is marked inequality between the rulers and those whom they favour in unfree societies. It must also be remembered that Stalin himself introduced piece-rates wherever that was possible.

My Lords, I freely admit that in our society markets do not always function well. There are straightforward evasions of the law, which the courts exist to punish. There are monopolistic restrictions, both of capital and of labour. So far as the monopolistic restrictions on the side of capital are concerned, we now have the Monopolies Commission and the law relating to restrictions—not always functioning pretty well, but a step in the right direction. But at present we deal with monopolies of labour very imperfectly. I do not think it is open to question that the law in this country gives greater latitude for socially-damaging practices than is the case in most other free societies, and the smooth functioning of the economy is continually endangered by that.

Then there arc the nationalised industries, which in some respects, not all, impair the workings of the market. I freely admit that some public control of the so-called natural monopolies is inevitable, and that presents very great and, up to the present, unsolved problems of policy. But in the mixed economy prevalent at the present day the complications are far greater. The nationalised industries, at any rate in this country, are protected from competition as regards prices. Moreover, the nationalised industries cannot go bankrupt; they are redeemed from the discipline of the market in this respect. Some of them are heavily subsidised; and the fact that this is possible gives rise to what I call the mythology of the bottomless purse. It is no accident, my Lords, that the degree to which, with few exceptions, earnings outrun productivity at the present day is much greater in the public sector than it is in the private sector.

This brings me to the last point that I wish to make. The proper functioning of the market depends on rough stability in the value of money. If prices fall, as in the 'thirties, there is one kind of misallocation of resources. If prices rise, as they have done since the war, particularly since the Heath Government, there is another, more complicated kind of misallocation. I do not wish to dwell on this fundamental platitude; so often in the last 20 years have I bored your Lordships with the evils wrought by inflation.

But in all friendliness I put it to the noble Lord who introduced this Motion that some at least of the frightful perplexities which beset us at this moment, far from being due to over-reliance on market influences, are due mainly to under-reliance on the prime essential of a successful market system; namely, the control of aggregate expenditure, the failure to achieve which, since the second war, rests fairly and squarely on Governments from both sides of your Lordships' House, and the remedying of which must inevitably involve very painful experiences.

6.48 p.m.

Lord Oram

My Lords, I was fascinated by the introductory exchange which the noble Lord, Lord Robbins, entered into with my noble friend Lord Soper about the historical justification for interest. Though fascinated, I do not claim fully to have understood. Indeed, that took me back 50 years, when, as a very immature student at the London School of Economics, I listened to my first lecture on economics from the already renowned Professor Robbins—and I must admit that even on that occasion I was both fascinated and failing to understand.

May I turn to the things of which I have some glimmer of understanding and which have been introduced into this debate by my noble friend Lord Beswick. I think he is to be complimented on having conceived the Motion. I do not accept the critical remarks about its terms which have been voiced from the Benches opposite. I also think—and I believe noble Lords on all sides of the House will agree with me in this—that he is to be congratulated on making the kind of speech he did in introducing his Motion to the House. In large part, I think that my noble friend was presenting to us what Mr. Edward Heath in an historic phrase once called the " unacceptable face of capitalism ". Mr. Heath was then referring to one of those financial scandals which from time to time reveal the worst side of the market economy and show that some practitioners of private enterprise—excessively private and excessively enterprising—can make or, at least, attempt to make massive private gains while keeping on the fringe of legality but operating well beyond the pale of social morality.

To me, it is not one particular face of capitalism or one particular manifestation of its principles which is unacceptable. As with my noble friend Lord Soper, it is the system itself which is unacceptable to me—and there are many reasons for this, many of which have already been expressed in speeches in this debate. But the outstanding reason, the one that makes the greatest impact on my mind, is one that is unfortunately and tragically topical: it is that capitalist society is proving itself incapable of employing its workforce. In economic terms, that is ruinous; in human terms, it is criminal. I believe that one of the most fundamental of all human rights is the right to work. A human being is endowed with physical and mental powers which need to find outlets of expression and, above all, must be expressed through an individual's opportunity, on the one hand, to ensure the economic and social wellbeing of himself and his family and, on the other, to contribute as an individual to the common wealth of society.

The system of society such as that in which we live which denies that freedom—not just to a few, but to 3 million of its workers—is a society which, in my view, stands condemned and a society that must be fundamentally changed. And a Government within that society whose leader and whose Ministers wring their hands in frustration and sympathetic despair while proclaiming that unemployment is due to some external recession about which they are powerless to act, is, again, in my judgment a Government which also stands condemned.

Let us recall that this Government was elected on the basis of a very special campaign, one in which the noble Lord, Lord Thorneycroft, played a very prominent part. In the course of that campaign, the virtues of private enterprise were presented to the electorate in their simplest and most naïve form. A picture was painted from the hustings of would-be enterprising businessmen being over-burdened with taxation, insufficiently rewarded for their efforts, trammelled and encumbered by the dead weight of bureaucracy, on the one hand, and by disruptive trade unionism on the other. The slogans were: " Let us set the business man free! Let us cut his taxes! Let us increase thereby his profits! Let us free him from regulations and curb the power of the trade unions which oppose him! If we do these things, all will he well ".

It was suggested that these enterprising businessmen will then prosper, that they will then invest their increased wealth in new enterprises and that the workers will benefit, too. They will join in the new prosperity and they will enjoy the rewards from the new economic miracle. We all now know, only too well after nearly three years, that the outcome is very different from that which was presented to the electorate during the election. Of course the tax cuts were received with thanks. But the new investment did not come about. Instead, there has been that dismal, almost daily, record of disinvestment in the form of closed factories. The workers, many of whom were led to vote in this Government on the basis of that false prospectus, 3 million of the workers, have become the direct victims of the worst unemployment crisis with which this country has been afflicted.

Yet, my Lords, despite this, despite the daily evidence, the Government pursue their doctrinaire path. They stick to monetarism, they insist on privatisation, they seek to weaken trade unionism both through unemployment and by legal curbs; and by these means, while no doubt quite genuinely believing that ultimately it will make things better—and I believe that is what they really think—it is, in fact, all too rapidly making things worse.

The Government, in particular, have adopted a destructive attitude towards public enterprise. They have seized upon the weaknesses of the public sector—and I acknowledge that there are weaknesses; and I will say more about that in a moment—and they have exaggerated them in the public mind and are pursuing methods of privatisation (or " denationalisation ", which was once the term) which, in the long term, cannot be but destructive of the essential infrastructure of the nation's economy. My mind went back to Orwell's Animal Farm in which the pigs taught the animals to chant, " Four legs good, two legs bad ". Likewise, and with as little justification, the Conservative Party tries to induce people to chant, equally thoughtlessly, " Private sector good, public sector bad ". Of course that is utter nonsense.

There are some industries and services which can be sustained only on the basis of public enterprise and I believe there are some industries and some services which can be sustained only on the basis of a state monopoly. And successive Conservative Governments since the war have accepted that this is so—not necessarily in their pronouncements and in their ideology; but, in practice, Government after Government have accepted that proposition. The practical situation today is that the public and private sectors of the economy are inextricably linked and the prosperity of the private sector depends to a large extent on the provision of basic services by the public sector. Where the present Government differs from previous ones is that this Government are recklessly undermining the public sector by selling off the most easily profitable parts, such as British Rail hotels or North Sea oil, leaving the most difficult parts in public hands; and then cramping investment in them and thus, by a downward-plunging vicious circle, threatening to bring whole parts of the economy to a halt.

I referred earlier to my acknowledging that there are weaknesses in the public sector. I should like to expand on that point for a few moments. Ever since the days of the Labour Government led by Clement Attlee, I have been an insistent critic of the Labour Party's methods, when in Government, of implementing the famous Clause 4 of its constitution—the point to which the noble Lord, Lord Taylor of Gryfe, referred in his speech earlier.

May I first remind your Lordships that Clause 4 does not, as is so often suggested, proclaim the need for the nationalisation of the means of production, distribution and exchange ". It calls instead for the " common ownership " of those things. That can be something very different. Of course, " common ownership includes nationalisation, and I have always been a warm supporter since that Government of 1945 of the nationalisation of those industries and services for which that is the appropriate form of common ownership. But the public sector can be and should be much broader than the nationalised sector. It can and should be highly diversified. There can be state-owned and partly state-owned enterprises within industries still left largely in other forms of ownership. It can include co-operative societies both of consumers and producers. It can include locally and regionally organised as well as nationally unified services.

All those can be within a broader common ownership or public sector. Too much thought and attention has been given to the nationalised sector and not to the broader parts of the public sector. Referring to the nationalised sector, I have always thought that there have been two fundamental weaknesses in the various measures of nationalisation which we have seen since the 1945 Government. As I have indicated, I have always accepted the overwhelming case, as I see it, for the nationalisation of the fuel, power and transport industries. But, whereas those activities, through the instrument of the state, have come to be owned by the public, not nearly enough effort has been made in devising the proper internal structures or in the conduct of public relations to make the public conscious of its role as the new proprietor. The public does not feel that it is the owner of those nationalised industries and it ought to be enabled to come to that realisation.

In other words, in my view, both in terms of industrial democracy—that is, the role of the worker within the nationalised industry—and of consumer democracy, nationalisation has so far largely failed. Neither the workers as providers of the services, nor the public as consumers of the services, have been enabled to develop a radically different attitude to the enterprise from that which prevails in private industry. We see this in the present difficulties in the railways. It is still the bosses on the one hand (albeit a different kind of boss) and the workers on the other. The consumer is still the outside recipient of the service—good, bad or indifferent—rather than a participant in determining the quality of the service, as the consumer can and should in my view become an active participant.

I am not saying that the achievement of either form of democracy is easy. I have given a great deal of thought to this and I am very conscious that what I am suggesting is not easy. What I am saying is that no sufficient effort has been made by Governments or by the industries themselves to make these industries publicly owned in the fullest sense of the word. What I am urging therefore—and I believe this to be the implication of my noble friend's Motion—is that we should adopt a much more positive and constructive attitude to the problems facing the public sector of industry and rid ourselves of the destructive and negative attitudes of which the present Government are guilty.

In their dogged pursuit of freedom for competitive forces in the market-place the Government see trade union power as their principal obstacle. It says little—and certainly does little—about the behaviour of those who exercise irresponsible power over the use of capital and who through that power can determine the fate of whole communities. We see no proposal to diminish that power in current legislation, but Parliament is to spend much of the current session in a largely irrelevant and harmful attempt to detract from the power of trade unionists.

The intention is that the combined effect of mass unemployment and of legal curbs will he to force organised labour into a position of weakness. A major aspect of the competitive situation that the Government seeks to bring about is competition for jobs, with worker competing with worker, and in that process to reduce the labour costs of industry. But it is my forecast that this will not happen. Action in human affairs produces reaction. Men and women who have learnt the lessons of history, and in this particular case the lessons of trade union history, will not submit. They will fight. As one of my noble friends (I think the noble Lord, Lord Kaldor) was saying, it is not 3 million that will reduce the working people to an attitude of submission, it will have to be far more before the workers will get into such a situation. They will fight both against unemployment and against any attempt to deprive them of their collective power to defend their living standards. If—as I fear from the utterances of the Secretary of State for Employment—it is the case that the Government have made up their mind to confront the trade unions once again, they will not win. There will be no winner. It will no doubt be said that if in the coming months the trade unions resist the Government in the way I suggest, then they will be their own worst enemies. Their actions will further disrupt the economy. More factories will close. More jobs will be lost.

That may all be true, and it may be that we now face a summer of discontent. But in that event the blame will by no means be all on the side of the trade unions. The blame will rest still more on those in the Government who fail to recognise the changing role of workers in all economic enterprises. That is something which is inevitably coming about. The move towards industrial democracy is inevitable and Canutes in the Cabinet cannot roll it back. Working people will increasingly claim that their stake in any business is even more vital, and even more due to be recognised—in practice and in law—than is the stake of those who provide the capital. Until that is recognised our economy will not recover because no Government can bring about an economic and social revival in this country without the co-operation and goodwill of the trade unions. That may he an unwelcome fact to supporters of the Government, but I believe it to be a fact none the less, and the sooner it is recognised the better it will be for all of us.

Indeed, so far from depriving the trade union movement of any of its existing powers, as the present Employment Bill proposes to do, I believe that the trade unions should be given a fuller and more responsible role in industry. I recognise that it may itself be reluctant to take on an additional role but I believe that its members should become involved in the ownership as well as the control of industry. I believe that trade unions could with advantage employ their resources and their pension funds in the actual ownership of the enterprises in which their members work. Just as, on a small scale, groups of workers are forming their own workers' co-operatives and creating their own jobs, so on a larger scale and in larger factories I believe the workers and their trade unions should he involved in the actual ownership of enterprises. The TUC are bringing forward proposals for an investment bank, which may be a useful instrument for bringing this about.

Therefore, what I am asking for is economic democracy and for the recognition that in economic affairs the same principles of democracy should apply as have been established over the years with respect to political affairs. Power should rest in the hands of economically enfranchised workers—workers of all kinds: managerial, white-collar and artisan—and not in the hands of those whose function in industry has been merely the provision of capital.

Of course, it will be said that this is a will-o'-the-wisp and that to put power in the hands of ordinary working people is to court disaster, because they are incapable of understanding the issues involved. But those were the arguments which were used over the last two centuries by those who opposed political suffrage. It was said then that ordinary people were not capable of exercising their votes in a responsible way. It is true that they often make mistakes; they are led to use their political power for the election of unwise governments, and of course if they are given power in economic and commercial affairs they will make mistakes there too. But when one looks at the defects of democracy, whether in a political or economic sense, I believe that, despite those defects, alternative systems are inferior to the democratic method. I have no doubt that we face a long and difficult road before we reach that kind of new suffrage for ordinary people, just as the path to political universal suffrage was a long road and a long struggle. But I believe that in order to face the kinds of problems the nation is facing today, that is the path which we need to tread with determination and the will to win.

7.14 p.m.

Lord Alport

My Lords, the noble Lord, Lord Oram, has made, I think, one of the more controversial and indeed, from our point of view here, one of the more provocative speeches in this debate. If I had the parliamentary skills of my noble friend Lord Boyd-Carpenter I would be tempted to try to reply to it in kind; but I am sure the noble Lord will forgive me if I do not follow his arguments but merely content myself, to start with, by following the very courteous traditions of this House and saying that I am sure noble Lords on all sides are grateful to the noble Lord, Lord Beswick, for the opportunity he has given us of carrying out one of the roles with which we are entrusted: that is, to consider and discuss the wider problems facing the country. It certainly makes a change from the legislative treadmill which this House is so regularly required to operate throughout the year.

I do not think that any of us who will speak in this debate expect to influence directly the Chancellor or the Prime Minister. The most we can do is to try and create a climate of opinion in which the financial and economic policies of the Government are carried out; and we have the consolation of knowing that no Government in a democratic society are immune from the pressures of public opinion.

When the present Governent came into power, the principal anxiety in the public mind was certainly inflation. The official diagnosis of the cause of this was the inefficiency of British industry and the ever-increasing demands made on national resources by Government expenditure in general and the public sector industries in particular, especially the exorbitant demands for higher wages without increased productivity. We were at the same time treated to a barrage of criticism, alleging the inefficiency of British management and to some extent the fecklessness and idleness of the average worker. It is perfectly true that there was a serious need to tighten industrial discipline, for more entrepreneurial management and for the generation of a national effort to pay our way in a world in which Britain's historic advantages in the captive markets and sources of raw material of a worldwide Commonwealth, technological superiority and international political muscle had largely disappeared.

There was one factor in the inflationary process which until very recently the Government seemed reluctant to mention—I remember challenging my noble friend Lord Cockfield on this point—that is to say, the huge increase in the price of oil. However, the right honourable gentleman the leader of the House of Commons, and indeed the Prime Minister herself, have recently admitted that that was a major factor in the development of the inflationary situation. I do not think we should forget that it has also been a major factor in the maintenance of the surpluses in our overseas trade balances that we have enjoyed in recent months.

The fact is that, although inflation was a prime concern of the public when the Government came into power—since it was a phenomenon which this country had not experienced except in wartime since the 19th century—inflation did not undermine the social fabric of the country to the extent to which classical economists might have expected. The assumption that our troubles were unique and due to our industrial inadequacy was not borne out, since every industrialised country in the western world, and in the communist east as well, are experiencing the same troubles to a greater or lesser extent. In any case, we perhaps can- not equate the industrial and economic environment here even with that of our neighbours in Europe.

Somewhere in G. M. Trevelyan's study of Britain in the 18th century, he notes that the British worker congenitally expected a higher standard of living in exchange for less work than his French counterpart. It may be that was true, and that it is true today; but in the last 300 years that has not prevented this country achieving a record of historical and industrial success. I suppose I am a British chauvinist by nature, but I frankly do not believe that the British workman has any less integrity or skill than a German or Japanese worker, or that British management is inferior to American, or that this country with its splendid assets, inland and offshore, cannot, with the right leadership, continue as a prosperous country and a major influence for peace and progress in the world.

The first conclusion of my argument, therefore, is this. While the startling and, indeed, frightening phenomenon of inflation was understandably the first priority of the Government at their election, their diagnosis of the reasons for it was, perhaps, faulty and the consequences of inflation have been different from those which we were all at that time entitled to expect. It has not, as I have said, made a serious impact on the social fabric of the country; it has resulted in an unplanned, but I believe not unhealthy, redistribution of wealth; it has injected—most important of all—a much-needed realism into the whole field of material values, which had been distorted by the false financial climate created by what I would call the cult of credit. While it was right that it must be contained by prudent Government policies in the monetary sphere, it represents, as I have tried to argue, the world-wide process of economic adjustment which was made necessary by the political and technological changes which followed the Second World War.

I am given to understand that Ministers who decide the Government's policy on economic and financial affairs, have decided that the reduction of inflation remains the first priority of their policy. They fortify their view with the knowledge that some of the economic indices on which they rely are favourable. No one should deny us that consolation and, indeed, thank God for it! But if your Lordships read the Financial Times of last Friday, you will see a report from Paris which says: Optimism grows in French industry as recovery continues ". Across the Channel, under a socialist Government, there are the same welcome signs that the situation is improving. There, as here, industry is more optimistic, production levels are gradually increasing and order books have been filling since November.

It would take a better man than I am to analyse all the reasons for this, but I personally have no doubt that there will be some upturn in the economic situation here, as in other western countries. It has always happened before, and what reason is there why it should not happen again? Indeed, from my experience it is always the same. When there is a slump, everyone thinks that it will go on forever; and when there is a boom, every thinks that there will be permanent prosperity. Each time we learn and we forget the same lesson. What is happening, as I have tried to say to your Lordships, is that the process of adjustment is beginning to work through national economies, which is largely independent of monetarist policies or political dogma or, indeed, the contemporary level of inflation.

What does remain, however, is that there are in this country 3 million people unemployed and, on the present projections, there are likely to be 3½ million or more out of work and dependent upon state support and relegated to a minimum standard of living for an indeterminate period ahead. I have confessed to your Lordships on more than one occasion that my political attitudes over the last 20 or 30 years have been power-fully influenced by the 1930s. I make no apology for this. All of us, I think, navigate our public careers by certain stars and, as one gets older, I suppose that some stars become more firmly fixed, and in other cases they disappear, perhaps forever, below the horizon. For me, the Commonwealth is a fading star; but the social consequences, the sheer waste of national resources, the human misery caused by mass and long-term unemployment, is a star which burns as brightly in my political firmament as it did 50 years ago.

The difference, I sense, is that the prospect of long-term unemployment in the 1930s for 2 million or, perhaps, 3 million fellow citizens, caused a feeling not only of anxiety and fear, but of guilt. Of course, I know that things today are different. There are many who will say that unemployment is the result of bloody-mindedness or inadequacy or sheer idleness—" work-shy " was the word used in the 1930s—and that, if the figure of the Manpower Services Commission of 3½ million by 1985 is reached, £14 billion a year will be spent on their maintenance, which, after all, some will argue, should salve our consciences. So why should we worry? Why should we feel any guilt? Or as the labour editor of the Observer asked on Sunday " Who cares? ".

In the Sunday Telegraph on the same day was one of the most brutally cynical pieces of journalism that I have ever read. The writer said: Enjoyment of leisure probably requires greater self-discipline and self-discipline is something which our society has rather lost sight of. But humans, no less than animals, adapt to their circumstances. Without this deliberate attempt to sanctify outdated guilts and anxieties, the unemployed would soon realise that apart from the grosser consumer satisfactions, the whole world is at their feet: music, literature, languages, philosophy, drama, all science, art and technology and even travel ". It went on: This may not yet be the moment to urge them to behold the fowls of the air, which sow neither do they reap, or to consider the lilies of the field which neither toil nor spin. But politicians and leader writers might at least encourage them to try lotuses for taste ". If anyone had written that in the 1930s, he would very probably have been lynched. That anyone could publish it today in a leading Conservative paper has a significance which is quite irrespective of the notorious irresponsibility of the particular journalist concerned.

What I am trying to say to your Lordships is that, unless the Government and those who support them, either in this Parliament or in the country, realise that the first priority for their financial and economic policies is tackling not inflation but unemployment, then they and we, as a country, will be in very great trouble. Happily, the ordinary man and woman who provide the raw material for the Gallup Poll have started to give a lead. Seventy per cent. Believe that the Government should give greater priority to reducing unemployment than to curbing inflation. The answer to the Observer's labour correspondent is, " Yes, people do care."

I have always felt that in times of prosperity and boom, the object of a Government should be to let the economic processes—market forces, if you like—go ahead without getting out of hand. But in times of depression, high unemployment and general insecurity it should, within the narrow limits of the options which any Government in a free society have at their disposal, seek to mitigate the economic, social and human consequences with which the nation, in those circumstances, is confronted.

I do not pretend that I am equipped to offer your Lordships any outline of a programme of action, but there are certain steps which, for the sake of argument, I shall put before you. First, the mitigation of the present level of unemployment must be tackled—and here I repeat what the right reverend Prelate and other noble Lords said earlier in this debate—by the Government, in partnership with the leaders of organised labour—the TUC, The policies and actions of individual unions have undoubtedly contributed, as the noble Lord, Lord Oram, said, to creating the present situation. If the Government decide to make the conquest of unemployment their first priority, then the trade unions must do the same. In my view, it is not simply a question of whether £1,000 million, £5,000 million or £8,000 million are pumped into the economy. Unless there is parallel action—co-operation; consensus, if you like—by the trade unions, management and Government, so that the trade unions on their side contribute to this by the modernisation of their out-of-date attitudes, of which we have a very good example today in the rail strike, by wage restraint and by reasonable flexibility, any sum of money that is provided from public funds for this purpose will, at best, be a palliative and, at worst, money down the drain. Of course—this is something which the CBI clearly understand—management and industrial leadership must play their proper part.

Under Government leadership, industrial management and organised labour must seek what Mr. Pym called " new approaches to the very concept of employment and a job for life "—a new work ethic. I believe that while the dialogue and negotiation proceed, some things should be done. I see no reason why there should not be differential interest rates to encourage industrial development. I would certainly concentrate tax reductions on encouraging industrial investment rather than reducing personal taxation. In particular, I would reduce the prices for energy used by United Kingdom industries to the equivalent of those paid by our European competitors. For electricity we are still paying up to 16 per cent. more than West Germany and 28 per cent. more than France. I would invest more in industrial training, education and research in high technology. I would direct defence spending to our own industrial production. Indeed, I would do anything I could to try to convince the nation that the Government are determined to use every instrument at their disposal to mitigate the social and human consequences of long-term mass unemployment and to make that the primary object of their policy.

We must remember—in some ways the noble Lord, Lord Oram, going back into the past of his party, reminded us of this—that neither today nor in the past have the people of this country, at any rate within the last 100 years, been content to accept the idea that laissez faire, the market economy, Adam Smith, Gladstone, or what you will, should be left to determine solely their economic destinies.

If on the present basis we are committed to having 3 million to 4 million unemployed and we do nothing effective about it, they will seek to find a political solution for themselves which none of us in this House would be willing, today, to contemplate. The Chancellor's Budget and the policies of the Government over the next two years will be judged, I suggest to your Lordships, by the electorate as to whether they regard inflation or unemployment as the first priority. If they choose wrongly, your Lordships and I, at any rate, will know that at the next election our writs of attendance on Her Majesty at Westminster will still be forthcoming, though perhaps my noble friends and I may not be sitting on this side of the House.

7.33 p.m.

Lord Stewart of Fulham

My Lords, we are all indeed grateful to my noble friend Lord Beswick for having launched us on a stimulating debate of this kind. I fear that he may feel a little disappointd in not having reached much in the way of consensus, but at least I think we have got this far: we are all agreed that the allocation of resources and distribution of income in this country is determined to a large extent by market forces. We also agree that those market forces are mitigated and altered by acts of state in the interests of social need, greater justice or long-term interests which matter to the nation as a whole, but not, possibly, to the immediate generation of people in charge of resources. I think we would all agree that no only is this so but that it ought to be so. I think also, though with a little less certainty, we would all agree that the trend of policy of the present Government is to try to shift the emphasis to market forces and away from social and other considerations.

The point at issue is whether the Government are right in trying to do that. Some of them do it with a robust enthusiasm and talks about anybody who relies on non-market forces and who is so miserable as to live in a council house or to make use of the National Health Service as though he were a kind of parasite. Others of them do it in a more apologetic tone and, as they cut repeatedly the various social services, explain that it is not really quite so bad as we think and that they will try to put it right in time. That seems to be what is happening.

I will not attempt to try to set out a general programme for economic recovery. I want to take two particular fields where this line of Government policy, this shift towards market forces, has been in operation and to consider what are likely to be the social effects, in particular its effects on the general feeling of unity and mutual understanding in the nation. The two fields I have in mind are education and housing.

I think it will be admitted that in both of those services it is essential that market forces should be very considerably mitigated by public action: by the subsidising of health, of housing and of education. The noble Lord, Lord Thorneycroft, seemed to speak of the happy days before we had rent restriction. Whether or not you found those happy days all depended upon how much income you had. In fact, this country introduced rent control because it jolly well had to, since the situation of a great many of our fellow countrymen would have been impossible if they had not done so.

The same is broadly true of education. If we left it purely to market forces, the standard of education which many people get would he totally inadequate to the needs of society, and the degree of inequality between the education of the richest and the education of the poorest would be such as to produce a really dangerous cleavage in society. They are both, then, necessarily services in which you do and ought to interfere with market forces.

What have the Government been doing? Let us take education. Their very first step, the key to their whole policy, was to reduce taxation on the richest people in the country. This meant that they would be in a stronger position to buy private education. The problem in education is that there are a limited number of resources—of buildings, of trained teachers and so on—and that if there is more money made available to those who can buy private education it will be, in part, at the expense of the rest of the population.

Having taken that step on the one side, the next step which they took was to cut the public education service on the other. Then the Tory journalists get to work and say that more people are trying to buy private education. If you have given wealthier people a bit more money in their pockets and if you have tried to damage the quality of public education, there is likely to be an increased demand for private education. That indeed was the result which it was intended to produce. It will mean that there is a greater cleavage between the educational provision enjoyed by different classes and between, therefore, the whole way in which they look at life and feel towards their country. Then you put in an additional bit: You have what is called the assisted places scheme. I think we shall find that very few really poor parents benefit from it. It will be those who already are a little better off than their fellows who will get this extra hit of public money handed to them.

There is a similar development in housing. First, as I say, you reduce the taxation of really wealthy people so that some of them are able to house themselves more abundantly than before. After that, you cut housing programmes so that the plight of people right at the bottom in housing and on the waiting lists will be worse than before. Then you make it possible for some council tenants to buy council houses. But this will mean that among council tenants it will be those who are more prosperous who are able to buy. They will buy and therefore extract from the housing pool the nicer and the more attractive council houses. Again you will have put a wedge between the more fortunate and the less fortunate. Those who already were not doing so badly will be helped to become better off, while those at the bottom will be pushed further down.

You can justify all this by saying—if you can induce yourself to believe it—that this will stimulate people to work harder so that they will have larger incomes and can buy their children private education and themselves nice houses. One can believe it; as the White Queen said, if you try really hard, you can believe six impossible things before breakfast, and so I need not really bother too much about that. What the Government arc doing—and this is part of their whole philosophy—is widening the gap between the richer and the poorer and trying to create a general atmosphere that says that the really good people, the really top citizens, are those who do not need to rely on the welfare state at all. They do not think of it as a welfare state; they think of it as a last resort and a safety net. It is this that is socially damaging. Apart from the help that the welfare state gives to the poorest, it is a good thing in itself that one should try to make the difference of educational, housing and health provisions between the more fortunate and the less fortunate narrower—that one should try to bring people nearer to one another in their standards of these essentials of life. That helps to create a more united society, and we may find that the need for a more united society is very much greater in the years to come than we are aware at present.

The right honourable gentleman the Leader of the House of Commons, has told us that things are going to get worse. While there seems to he some argument as to whether he was wise to say it, there seems to be precious little argument about whether he was right. Everyone seems to agree that that was so. As he put it, standards are going to go down. Whose standards? To judge by the philosophy of the present Government so far, not the standards of the richest. Therefore, we rely on them to do all the investing and to make the wheels go round. It will not be the more successful and better-paid workers, because their trade union power will be too formidable. It probably will not even be the pensioners, because an injustice to pensioners is very soon observed and there are many of them, and they all have votes. It will tend to be the poorest people in each section; the badly paid with an over-large family. It will be those who are already pretty desperately up against it. It will be they who will be worse off. That is to say, the division that the present Government are already creating will get steadily worse. That can have some very unpleasant results.

I was very interested to hear the noble Lord, Lord Alport, quote the Sunday Telegraph. I hope that the noble Lord will acquit me of a charge of plagiarism, but I was going to do exactly the same thing myself, but not using the same article. When I was a boy, it was widely believed by many middle-class people that when building council houses, there was really no point putting baths in them because the inhabitants would not know what to do with them. One view was that they kept coal in the baths. A more charitable view was that some of them kept ducks. I assure your Lordships that this was seriously believed by a surprising number of people who had quite considerable educational advantages. I remember also when I was a boy seeing an advertisement on a bus for a firm of moneylenders saying that they arranged loans for ladies, gentleman and clerks of either sex ". This was not thought of as being in any way remarkable. That was how people looked upon their fellow citizens on those days. I should have thought that, in the terrible discipline of war and in the more generous atmosphere after the war, we would have got rid of that kind of thing. We now find it returning, and returning not in an organ of the gutter press but in the columns of the Sunday Telegraph—a paper with some pretensions to educational standards and sometimes even to moral standards. If I may take a minor example, an article supposedly dealing with local government finance stated quite calmly that council tenants do not pay rates. This was a piece of rubbish that people who do not like council tenants used to believe and say about 20 years ago, and now it is cropping up again.

More seriously, another article referred to a very unpleasant incident; the incident concerning a young woman who made a complaint of rape to the police and who was then subjected to extremely harsh and brutal questioning with the use of foul language. The article in the Sunday Telegraph pointed out that no one need make a fuss about this because ordinary folk—the kind who have not been to public school—usually use foul language when addressing their womenfolk, and so the girl would have felt quite at home and there was nothing to worry about. If noble Lords doubt what I am saying, they can look up this article in the Library. In a way it is comical, but it is also rather frightening that this kind of thing could be returning. I beg the Government therefore to consider that the objections some of us have to a society based increasingly on market forces is not a mere sentimentality but that the claims of justice, humanity and equality are as powerful in the long run as those of economic efficiency. It is this that the Government, to our great danger, are forgetting.

7.46 p.m.

Lord Underhill

My Lords, until a few days ago it was my intention only to sit and listen to this very important debate, but I am pleased that I am taking part, if only to congratulate and thank my noble friend Lord Beswick for initiating this debate, for opening it in such a constructive way and, if I may say so, for reminding us of the basic philosophy with which many of us joined the Labour Party. I am sorry that the noble Lord, Lord Taylor of Gryfe, is not here, but it was a socialist philosophy which enables us to keep in the Labour Party in order to work out policies which are relevant for the particular time.

I decided to take part in the debates because when on Friday I saw the publication of the Government's Transport Bill, I was incensed when I saw a provision (as in other Government Bills which we have debated in your Lordships' House) that the National Bus Company should set up subsidiaries with a view to disposing of them; and when I heard the Secretary of State's press statement that he had his eye on the National Express coach company services in particular—one of the profit-making areas of the National Bus Company which enable the National Bus Company to meet other commitments.

Carrying on this same fetish, there was a proposal to hand over to the private sector the testing of heavy goods vehicles and public service vehicles—a proposal condemned by a Select Committee in another place and which was almost unanimously condemned by the operators of road haulage and operators of road passenger transport, whether public or private. I will not go into the whole public ownership argument, because that subject was debated at some length a year ago, again on a Motion initiated by my noble friend Lord Beswick.

In the Labour Party, we stand for a properly balanced and integrated mixed economy. I should like to ask the noble Lord the Minister who is to reply a question I have asked before. What are the parameters which the Government and the Conservative Party accept for public ownership? What are their criteria for public ownership? I had a Question for Written Answers to which the noble Lord, Lord Cockfield, replied but, frankly, I did not get a proper answer. If one listened to some of the speeches made today, there is still this general feeling that public ownership is wrong and that people should do their best to discredit it. The Government's general position is seen quite clearly in Bills which have passed through this House over the past two and a half years and has been exemplified on our debates on British Telecom and the Post Office where, quite clearly, if any sections are to be hived off it will be the profitable sections, and the rest of the publicly-owned industry will have the bits and pieces_ One of the big purposes of public ownership is that we look at things from a community and national aspect, which enables us to separate services so that we can bring in those areas which otherwise might not he covered. This would be the situation if the Government had their way on public transport. It is only because we have publicly owned services that we have unremunerative routes financed by others.

To listen to some noble Lords, one would imagine that the publicly owned key industries were perfect prior to public ownership. Reference has been made to the gas industry. If noble Lords cast their minds back to what the gas industry was before we took it into public ownership, there were tiny units, many of them local authority owned, all higgledy-piggledy. There were works which were a disgrace. Now it is one of our thriving industries. Again, it is a tragedy that we find a thriving industry dealt with as the Government have dealt with the Wych Farm. There was an initiative; there was a discovery by a publicly owned industry. We are also waiting for the Government's decision whether to do away with the gas showrooms, which are a great asset to the consumer. Of course, as my noble friend Lord Oram has said, there are defects in public ownership, and none of us here would claim that everything is right. But public ownership comes under very close scrutiny. There is scrutiny in the other place through their Select Committee on Nationalised Industries and their Public Accounts Committee.

References have been made by at least one noble Lord to the car industry. One must pass the comment: how did British Leyland and Rolls-Royce come to the position that public ownership was necessary? That was not due to public ownership; it was due to other factors, well removed from public ownership, that it had to be done. Let us look back prior to the war to our thriving motor-cycle industry and ask why that went west. That was not public ownership; that was errors and faults in the private management at the time.

I should like to echo what other noble Lords have said, if we really believe that market forces are the only thing that should dominate our economy you just cannot exclude the question of wages. A reliance on market forces in wages means the devil takes the hindmost. It means that the lowest paid sections of society are left behind again. If we believe that market forces should dominate wages, how also do we deal with the non-producing areas?

I agree with some other noble Lords that we have to proceed, maybe slowly, towards consideration of some kind of incomes policy. But if we are to do this, it must not be confined to wages; it must take into consideration incomes of all kinds, and other factors. That is why I, without any apology, fully support the type of proposals that came forward with the Labour Government, and were successful for some two and a half years, with the social contract. That sort of understanding is vital. The proposals that are coming forward in the Government's Employment Bill will not assist an attitude of mind which can lead us to some consideration of incomes policy. It will do just the opposite.

My noble friend Lord Beswick referred to some of the resentment felt by sections of workers when they see some of the extravagances that are reported day by day in the newspapers. Naturally, none of us would support a policy of resentment and envy, but one reads of million pound houses, and of a chief executive of a big company receiving last year £477,100, which is almost double what a skilled man will get in 40 years of work. Then we have the case where one family is likely to receive £20 million as a result of the sale of a property on a hospital site at Hyde Park Corner. These things make people resentful. If we want to get the co-operation of workers for a sort of incomes policy and other matters we have to do our best to eradicate that sort of extravagance, which basically is immoral to any civilised society.

I listened to what the noble Baroness the Leader of the House said. I believe she recognises, although it was not apparent in her speech, that the improvements in productivity have been as a result of agreement with the unions. Otherwise we would not get that improvement. In many cases the unions and the workers have agreed to new technologies which have had the result of taking their own jobs away. This has to be acknowledged.

There is another aspect of market forces that I would mention to your Lordships. I saw in The Times only this Monday an article which referred to an editorial which appeared in the Lancet, urging tighter control over the growth of private health schemes. It referred to 35 private hospital schemes awaiting planning permission. It referred to a 100-bed private hospital at Southampton which is facing a National Health Service hospital. The Lancet in its editorial said that there was competition for scarce resources and specialist services, and that heed should be taken of where market forces are taking us. The same Times article referred to a change of view apparently in the Royal College of Nursing. That article said that the College used to believe that the private sector should be allowed to expand according to market forces. They are now getting increasingly worried as to what is happening to the National Health Service as a result of this. What we must ensure is that market forces do not lead us to a second-rate National Health Service, on which the great mass of the people depend.

I do not regard the Motion moved by my noble friend as in any way an attack on the private sector. What it is saying is that we must not have over-reliance on market forces. I recognise—I think all noble Lords recognise—that the one essential thing is consumer choice. It is one reason why we support a mixed economy. So often Ministers on the Front Bench opposite have referred to a mixed economy, but by their actions we have seen no acceptance of the position of public ownership in our society today.

I believe there will be general agreement that one of the problems over the years has been the failure to have adequate investment in industry. That is not just a Labour view; it is a view which has been put forward on all sides. If that is so, how can we leave that solely to market forces. I am sorry that the noble Lord, Lord Boyd-Carpenter, is not here. He referred to a quotation from Nye Bevan. I think you will find that what Nye Bevan was really urging was effective planning of the nation's resources; that is what he was really advocating, both investment and other things as well.

My Lords, we have available manpower, over 3 million of them wanting to work. During the unfortunate situation of the rail strike we have seen the efforts that people are making in order to get to work to carry on their jobs. We have available properties; we have spare capacity. What we have to consider is how we can use these resources for the benefit of the community. It is clear that we must stimulate investment, and it has to be stimulated where really needed, in industry, The noble Baroness the Leader of the House said that there is need to have trade boosted by customers. Surely, that means also that we have to stimulate demand—not a consumer spree, because that would be dangerous and would suck in imports.

What has the CBI said? In a survey mentioned in the press this week—a survey of some 1,700 manufacturing companies—93 per cent. of those firms said that a shortage of demand would limit their production in the coming period; 77 per cent, are still operating below full capacity; four in every five of those manufacturing companies have less than four weeks work on their books, and 42 per cent. of them expect to cut jobs in the next four months. Alongside that position in industry reflected by the CBI, we have the report in yesterday's paper, the annual survey of the National Housebuilding Council, that the number of new houses started in 1981 was 155,000, the lowest figure since the 1914–18 war. Yet we have a vast number of unemployed construction workers.

Yesterday, both the TUC and the CBI published their proposals. I shall not mention the details because all noble Lords will have read them. However, the TUC claim that their proposals—this is their claim—would result in 677,000 new jobs which would, they admit, lead to 1.1 per cent. rise in inflation, but also 4 per cent. growth. I believe that the policies that the Labour Party advocate will be those needed to cope with the situation. But we must deal with the situation as it is today. I am certain that no one who talks about consensus believes that all the political parties will give up their own particular views and aspirations and all agree on a consensus. But I believe that there are matters upon which we can agree now, even though we might go our different ways when the election comes.

It is clear that there are similar threads running through the CBI and TUC statements. It is also clear that there are sections of Members of Parliament on the Government Benches who have running through their views threads similar to those that are running through the CBI and TUC statements. I am certain that that is true of many noble Lords in this House. Therefore, I should like to see some sort of general agreement—not necessarily on all the TUC proposals—some sort of discussion as to what can be done, and where there would be proper spending investment on constructive works and not on those that would encourage a consumer spree. That would give jobs and work to the private sector as well as obtain materials for the private sector.

I believe that there must be a reduction in energy costs for selected industries. I was interested to see that the generating board only yesterday made certain proposals in this respect which I believe they have conveyed to the Government, but as regards which they are awaiting a reply. There obviously must be rather urgent efforts to deal with the interest rates which are preventing many industries from gaining their necessary finance and there must be the fullest development of investment for training and technology. However, last of all, if we really want to succeed there must be the fullest consultation with the trade unions in order to carry through a proposal of this kind, and in order to get their support on the technology changes which are so urgently needed.

8.2 p.m.

Lord Marsh

My Lords, the Motion of the noble Lord, Lord Beswick, for which all of us are grateful, places some stress on the need to achieve a consensus. If I may say so, at the risk of sounding impertinent, as a new Member in this House I am impressed with the speed with which the House has reacted to such an appeal. It is clear that on all sides there is no one in favour of unemployment. That does not surprise me because having had some experience of both Houses of Parliament I have never found anyone in British politics who was in favour of unemployment. However, at least having reached that degree of consensus it now means that we accept with it that there is not a greater degree of moral rectitude and compassion on one side of the House than there is on the other, that the problems we face are the problems which concern and worry all of us. As has been stressed, everyone is concerned—and there has been a consensus—about the state of the British economy. That does not surprise me either because in every debate that I have heard over the last 25 to 30 years politicians of all parties have been expressing concern about the state of the British economy.

The noble Lord, Lord Stewart of Fulham, made reference to various statements which appalled him. They were statements of great bigotry. I think that everybody would also express their abhorrence of those statements too. So in the course of one afternoon in your Lordships' House we have found this area of consensus. It is very easy; there are no problems at all. And if that were all that we were seeking to do this afternoon we would be able to go away not having solved any of the problems but all agreeing that our hearts are in the right place. However, I suspect that that is not simply the purpose of the debate and I find this a somewhat nostalgic occasion.

I joined the Labour Party at the age of 15 because I believed that a Labour Government would take control of the economy, that they would take it out of the hands of a small band of brutal capitalists who were determined to grind the oppressed workers into the ground. I had been influenced, as are many of your Lordships—all of us are at various times—by my own experiences. I make no boast about it, but at a time when some of my contemporaries in my former party were very worried about the behaviour of the staff and the jolly japes they got up to at their public schools, my father was unemployed for two years. We lived in a house which did not have a bathroom. Indeed, I never spent a night in a house which had a hot-water tap until I was 20. Therefore, one tended to judge politics at the age of 15 in the 1940s, by what happened in the 1930s. I think that you could get agreement nowadays by most people that you could find very little support for what happened in the 1930s on any side anywhere. I was only 15, which was a justification if you are only 15.

Then, in 1945 we were on our way. We arrived at the gates of the new Jerusalem. We won the election and I was enthusiastic. Great industries were taken into public ownership and there was enthusiasm throughout the land. We had a massive majority. But our policies did not work. After a period of time came the 1950s and the very workers who had elected us—I give only a personal view of history as I saw it—with a massive majority decided that whatever else we had done for whatever reason, we had not been able to meet the hopes and the aspirations of the people who had supported us. I say that as a fact because they then promptly invited the Conservative Party to return to office in our place, which I had really not thought would happen in the beginning.

However, I persuaded myself, as did many others at that time, that there were many reasons for the problems and indeed there were many reasons. The problems went back many, many years. They were not the problems of the Labour Government specifically: they were problems which sprung out of having been an imperial power, problems which stemmed from the war, and a whole range of other things. I persuaded myself that we would get another opportunity, that the workers had got it wrong and that it was only a matter of time before the Conservative Party was swept out and we could once and for all return to get down to the task of constructing a properly planned economy.

In the event it happened, but it took rather a long time. It was 13 years before we got back. But after 13 years of Conservatism the Labour Government then returned to office. In 1964 I was honoured I appreciated it—to enter a Labour Government and in 1966 I entered the Labour Cabinet. My colleagues in that Cabinet—many of them now in this House—like Ministers in most Cabinets in my experience, were sincere and were desperately anxious to be able to achieve all the things for which they had fought so hard and in which they desperately believed. At the lowest level they wanted to stay in office; at the highest level they wanted to achieve things and do things which were of value to the nation in which they lived. They worked in that Cabinet and that Government as hard as probably any other Cabinet and any other party has worked before. We tried to plan our way to an economy which would at least stand comparison with our overseas competitors in countries of similar size, in countries of similar resources. But again those policies did not work.

One of the extraordinary things that I have found about our debate this afternoon is that I have listened to speeches which make me wonder whether some of the meetings in which I sat ever took place. It was said by a number of speakers that it is important that we should get together a greater dialogue, a better working relationship with the trade unions. That is another area of the consensus upon which we can all agree. Nobody doubts that. It has proved a bit of a problem, but none the less we all agree. In fact, the Labour Government found that its relationships with the trade unions were, in reality, at least no better than they had been with previous Governments. We had all the problems which arose at that stage. We found ourselves forced to devalue; we found ourselves forced, by events totally outside our control, at meeting after meeting to sit down—as did our Conservative successors—planning how we could cut back on the plans we had drawn up for the social services. We were forced by events, not because we were wicked men, not because we were insincere men, but because we found ourselves increasingly faced by forces over which we had no control and before which we had to bow. We found ourselves saying among ourselves—as I am sure did other Governments—" Thank God for the International Monetary Fund ", whose officials forced policies upon us in public which we welcomed in private because we could not get them across of our own volition.

In 1970 we were again thrown out by Labour voters. No one who has left a political party will ever underestimate the degree of commitment which one has to individuals and to an ethos and environment in which one has lived. If we could not satisfy the very people on whom we relied, we had no purpose, because they were the people we were there for; they were the people who justified and made purposeful everything that we had been doing and saying. If we could not satisfy them, there was not much point in the exercise. The slogans and the oversimplifications with which some of us had indulged ourselves for years, were simply no longer convincing to ordinary people who worked in the shops, the offices and the factories.

It is a fantasy to believe that there is some great gulf with one side of the divide inhabited by rich, powerful capitalists, and on the other side the oppressed workers. In this country the electorate splits roughly down the middle, as it has at almost every election since 1945. There is as much a cross-section in the Labour Party of middleclass and wealthy people as there is in the Conservative Party. It is nonsense to look at 12½ million voters and retreat to a fantasy world, pretending that they are an alien race combining together to defeat the other half of the nation. It was, in fact, the very people for whom we worked who decided that they were disillusioned with us.

It was at that stage that I, personally, decided to leave the Labour Party. Not because at that stage it had swung to the Left. Indeed, today the Social Democratic Party, in so far as I understand its policies, is to the Left of the Labour Party I left 12 years ago. So I resigned a safe seat eight miles from the House of Commons, with a place on the Opposite Front Bench, because, on the evidence that was before me, the policies which I had supported and in which I believed, the policies which constituted the framework of my political life, no longer seemed tenable.

I did not realise at that time that there was within such a decision literally hours of television time available; that one could waive one's conscience like a brave flag around the nation. It seemed to me that if you had fallen out of sympathy with the party of which you were a member, you resigned from it. It was much later that I discovered you turned this into a sort of religious crusade. At that stage it seemed clear to me that the determination to ignore market forces had reacted to the disadvantage of the great mass of the population; that an acceptance—and I make this point—of market mechanisms does not mean a total lack of Government intervention any more than a belief in personal freedom accepts the right of every individual to have total, uncontrolled freedom to do whatever he wishes.

The argument is bedevilled by people who seek to see in the argument in favour of a greater acceptance of the market mechanism, a greater degree of inhumanity. Nowadays, quite properly, no one will get political support who does not accept that there must be a basic standard of living for people; no one will get support who believes that you do not have an obligation and a duty to support people who are disadvantaged in various ways. That is not what the market mechanism is about. It is a belief that you cannot run a country on the same basis as that on which you run a corner shop.

Several noble Lords

Hear, hear!

Lord Marsh

My Lords, that is exactly why you cannot plan it like that. Complex organisations have to react to outside events, and there is very little convincing evidence to anyone who takes a dispassionate look at the British economy that attempts to manage it in detail—what I believe the Treasury mandarins describe in their wilder moments as the " fine tuning " of the economy—under either party, have been a conspicuous success.

But the other nonsense is to suggest that the economic problems which we face today are economic problems of the last two and a half years. Whether or not one agrees with the present Government, it is quite clear that the economic problems we face result from a consistently poor economic performance over the last 30 years, and under both Governments. Indeed, it has not been simply Labour Governments who have sought to plan the economy. Mr. Heath, as Prime Minister, was one of the most interventionist, enthusiastic planners we had. He was matched on the other side by Mr. Healey, who was one of our first monetarists. So both sides have had their spokesmen on this.

However, we still have suggestions that a change of Prime Minister or even a change of Government would make a major difference. I think that this is a total nonsense. The fact is that the problems that we have faced have arisen basically because, as someone said, the market is about customers, whether they be nations or whether they be individuals. We have not been able to sell; we have not been able to earn the sort of living which our competitors have had because of price, quality and delivery dates. In many cases we have been faced with gross overmanning. Before that is turned into a party argument, I am bound to say that as a former Minister of Power, as a former Minister of Transport and as a former chairman of British Rail, everyone of my colleagues, including those in this House now, enthusiastically supported as a priority the need to de-man the gross overmanning in some of the nationalised industries.

One of the causes of the size of unemployment today is that if you de-man by millions in the public sector, it is not surprising when you do that in contracting industries that many of those people are not mopped up by other jobs. But certainly all Governments were agreed on the need to reduce the manpower levels in those industries. In the last 30 years we have tried every conceivable method. We have tried pay freezes; we have tried price freezes; we have tried discussions with trade unions. One of the problems of which many noble Lords on this side of the House are aware is that general secretaries of trade unions do not have the power and the authority to deliver their members, and they know that when Governments seek to get their agreement to these matters. We have tried to ameliorate trade union pressures by using legislation to provide unions with privileges and protections unknown to any other section of society. The fact is that once again it has not worked.

We have poured billions of pounds of public money into declining industries and more millions into organisations designed to stimulate the growth of new industries. All this, not under one party, but under all parties for 30 years or more. Governments have enlisted the aid and advice of every eminent economist on whom they could lay their hands. I am bound to say that the efforts of all these gentlemen to find new and ingenious ways to reverse the economic and industrial trends in this country make the efforts of his late Majesty King Canute seem positively modest in comparison. It seems to me that the evidence is overwhelming that in a free society market forces will always prevail in the long run, whether one likes it or one does not. Indeed, that should not be surprising because the market is basically the customer.

I have some sympathy—and I finish on this point—with the Polish authorities even, because if you have a State-controlled society which seeks to control the market rather than to give people that which they are demanding, at the end of the day you can only impose that policy by force. To seek to have a centrally-planned economy in a free society is to seek a fairytale land, which was defined clearly by the noble Lord, Lord Beswick—and which is peopled increasingly by candidate-members for the Social Democratic Party.

8.21 p.m.

Baroness Lockwood

My Lords, like other noble Lords who have preceded me, I should like to pay tribute to the noble Lord, Lord Beswick, for enabling us to have this debate this afternoon and evening. I do not propose to follow some noble Lords and enter into the controversy about over-reliance on market forces—a subject with which the noble Lord, Lord Thorneycroft, had great fun and caused us all to have some welcome amusement. I want to concentrate on that part of the Motion which is concerned with shaping the future society of this country.

I think that all your Lordships would agree that we are really facing two parallel problems; separate but interrelated problems. The first is the short-term recession. Short-term, one hopes, despite the speech of the Leader of another place, which has been referred to during the course of the debate. The features of the short-term problem are high unemployment, Government expenditure cuts, and inadequate industrial development. The long-term problem is the process of changing over to a high technology industry capable of supporting the nation's needs.

The features of this problem are a smaller but more highly educated industrial workforce, high investment in automated systems and new technology, and the development of the supporting service sector. We cannot look at these two problems in isolation because inevitably they affect one another. For example, the present problem of unemployment is exacerbated to some extent by moves to more automated production and improved productivity. Equally, there is a resistance to entering into new methods of production because of fear of unemployment.

Again the economic squeeze means that there is not enough investment in the future development of our capital resources and our human resources. These are just a random selection of a few of the problems and inconsistencies which are facing us. But we must not forget that every time we employ a short-term economic remedy to current problems we inhibit our capacity to lay the foundations for a better and more prosperous long-term society.

There is therefore a need for a strategy that reconciles these two contradictory elements. I would suggest that there are two priorities involved in this. The first is to deal with the modernisation of our industrial infrastructure. There is a need here for capital investment, and there is also a need for investment in scientific and technical education and training. The Government can give a lead in both these respects. There is a consensus between the CBI and the TUC on the need for Government investment in the public sector of industry. Both sides of industry are of the opinion that an input of Government investment here would stimulate investment in the private sector.

Again, on a Government lead I would ask that we could reconsider the policy towards higher education in this country. Given the fact that we are already well behind the United States, Japan and most of our European neighbours in the numbers of young people who are involved in higher and tertiary education, it seems absolutely nonsensical that we should choose this time to cut our investment in higher education. I think that it was the noble Lord, Lord Boyd-Carpenter who referred to the appetite of the electorate to eat the seed-corn, but there is another problem; that is, casting the seed-corn aside. A time when we shall be reaching a peak in the numbers of 18-year olds coming out of the schools, is surely the time when we should be thinking of investing in them. They are the seed-corn of the future.

1 accept what the noble Baroness the Leader of the House was saying when she spoke about the need for industrial recovery to come first, before we could think of investment in the social services and the service sector. The second priority—and 1 would put it not far behind—is that we must accept that really the industrial and the service sector go hand in hand. They must proceed in tandem, and they must be developed in tandem.

I read recently that Japan has 10,000 industrial robots. Britain has only 500. But I also understand that GEC is to be one of the world's three leaders in the manufacture of industrial robots and automated factory systems. That means, one would hope, that not all the products of GEC will be exported but that some of them will be used here in this country. That of course has implications for capital investment. But apart from that, it raises the human problem that other Members have raised: what is going to happen to those industrial workers, those manufacturing workers, who would have been employed had it not been for the introduction of the robots? That is why it is absolutely essential that we should be examining just how we can develop the service sector.

There are two sides to the service sector. There is that part which is essential to industry and to manufacturing, and then there is the social part of the service sector. Both of them are of concern to us and need to be developed. We should be asking ourselves: What kind of an education system do we need for the future? While I accept that there is a need to concentrate on the scientific and technological side of education at the present time, nevertheless I hope that we shall not neglect too much the arts and the humanities, because the kind of society we are going to create if we neglect this aspect of education is a frightening one.

We should also be asking what kind of personal and social services need to be developed. I would suggest that many people are of the opinion that instead of spending money on redundancy benefits—and one has in mind the enormous sum that has been put on one side, or been allocated, for university academics who are likely to be redundant under the present system—and on unemployment benefits and all the other costs involved in supporting the unemployed, it would surely be more sensible to be looking at the development of the service sector to see how we might use the spare manpower resources which will be available to us and how we might meet the very real needs of the community—needs in terms of education, all the medical services, the care of children, the disabled and the elderly.

I would enter a cautionary note here. There are some who look on the future workforce as being much reduced in size and almost entirely male. They also look on the caring role in society as being a purely female role within the context of the family. I suggest there is no easy solution like that available to us; it is neither equitable nor practicable. The 10 million economically active women in this country rightly regard themselves as just as essential a part of the labour force as their male colleagues, with the same needs for access to higher education and training.

What worries me, apart from the overall worry and concern about the cutback in higher education, is the fact that because our schools are not yet geared to turning out as many girls as boys with A levels in maths and science, the girls will lose out in relation to the reduced number of places that will be available in the universities and colleges of technology, because it is in the areas where the girls are qualified now where the greatest number of cuts will come.

I did not want to develop that theme tonight; I wanted to concentrate on the need for us to have an overall concept of where we want British society to go in the future—to look at our short-term and long-term problems together in parallel so that each solution that is put forward can support, rather than undermine, the move towards progress. I am convinced that unless we have such an overall conception of where we want to go in terms of industry, employment, education and the personal social services, we shall just stagger from one short-term problem to another. As has been pointed out, there appears to be no clear conception on the part of the Government that they have those two major considerations in mind and that they are making a concerted effort to deal with both.

8.34 p.m.

Lord Balogh

My Lords, I am grateful to my noble friend Lord Beswick for calling attention to this matter because, in my view, we cannot discuss it enough in an effort to try to impress on the people who are in command of the situation how we feel about these problems generally. Unemployment stands at levels which are now becoming very dangerously infectious. If we cannot reverse the situation in our schools and universities—the noble Baroness, Lady Lockwood, dealt with that part of the problem—we shall see a downward spiral where cause becomes effect and effect becomes cause, and after a time it will be impossible to know whether we can get out of such a dreadful situation.

The history of economic theory is closely knit to the history of economic systems. As basic situations change, economic theory follows suit. Contrary to earlier hopes, economics has not been able to lead to an improvement in policy decisions. The violent economic fluctuations of the 60 years before the First World War show that conclusively, and of course we are now about to repeat the unprintable, because we have been pushed from one side to another.

After the politically settled repudiation of Marxism, the neo-classical equilibrium theory suggested a model for the analysis of mixed market economies. I assure noble Lords that I must make these points now because my later political argument will depend on my having made these points. That model claimed that there was an inbuilt automatic stabiliser in the system and that the market economy was the only rational solution to our economic problems. By the end of the 1920s that view was generally accepted in the non-Soviet orbit.

That model, however, did not work; the crisis of 1929, which became the Great Depression, proved it to be wrong and it led to the rise of the Keynesian revision of the old principles and policies. It looked, however, when those were applied immediately after the war, that there was a definite view, held in common, that had been arrived at. Indeed, from the end of the Second World War until 1970, an uninterrupted in- crease in production took place, incomes rose and the need for a lessening of inequality seemed about to be achieved.

Alas! the actual history was very different. In Britain, the Labour Party, which had adopted Keynesian doctrines, was twice brought to its knees by a continuous increase in prices—that is by inflation—and the two great parties seemed completely unable to produce a well-thought-out policy package which might at least have proved acceptable to both sides of industry. In the Anglo-Saxon countries on both sides of the Atlantic, unions, employers and Government stood out against an orderly prices and incomes policy which would have eliminated the yearly dogfight over wages. The result was irreparable damage to the economy, and very few dared to state frankly that only a compact on salaries and wages, as part of a social policy package, could stop the continued deterioration of the economy with its incalculable social and political consequences.

The Labour Party, in its last attempt in 1978–79 to cope with the problem, was unable to obtain sufficient support from the trade unions, and it was forced by the International Monetary Fund to pursue pre-First World War policies, leading to the party's loss of power in 1979. The victorious Tories openly repudiated all idea of an incomes policy, and the hopes which had foolishly been based by the general public on a return of confidence which would automatically start an upward spiral were woefully disappointed. The fall in production which succeeded the steady advance under Keynesian policies was aggravated by further cost in inflation.

The new attitudes led to an increasing amount of inter-class bitterness. The great monetary experiment has already cost over the country vast unemployment and billions in loss of production and income. Most economists, despite the worsening situation in all our countries, must feel relieved that there can be no possibility of excusing the failure of this experiment on the grounds that it was not thoroughly applied. We shall know beyond peradventure the value of monetarism as a basis of policy making.

Mrs. Thatcher's favourite gurus have given the game away. Both Hayek and Friedman obviously tried to dissociate themselves from her policies. Both, but especially Friedman, are consummate experts in wriggling out of tight intellectual situations. The asperity of the tone of their exchanges suggests disenchantment on both sides. Professor Hayek blames his friend Milton for softness, for trying to persuade Mrs. Thatcher to seek a gradual solution. Professor Friedman in his turn tries to shift responsibility for the blunders of Friedmanite Ministers on to the stupidity of the Treasury and the Bank of England.

Only expansionary force in the United States seems to come from the vastly increased defence expenditure which has its own deadly but not economic dangers. The world depression which is used by both Reagan and Mrs. Thatcher to explain and excuse the grave malaise which has struck us, is precisely the result of their policies. It will stay with us as long as they remain in command.

The British problem is no longer a question of the temporary interruptions of progress, of a fluctuation of the economy which heals itself. The destruction of firms, indeed of whole industries, is in the balance. Yet with unemployment at its staggering levels further cuts in Government expenditure are demanded by the monetarists. They continue to cling to the idea that the control of money supplies not only a necessary but also a sufficient basis for re-expansion.

I must emphasise that the present policies will lead us into a situation in which the balance can be maintained and inflation avoided only at the cost of having a large perpetual labour force idle. It is the clearest vindication of the Marxist theory of the reserve army and the failures of capitalism. It is extraordinary that this should not be realised by the economists who have been touting this insane doctrine, or by the politicans who have accepted it.

The measures which now seem to be contemplated by the Tory Government, instead of easing the demand situation which is tight, are doing exactly the opposite. They are squeezing demand further, as if one could rectify a situation in which there is insufficient demand and idle real resources, by deflation. We need an orderly and civilised way of influencing income, but that cannot be achieved without a balanced policy package, a package far beyond the mere determination of wages. It must embrace general social and financial policy and prevent inflammatory grants of huge proportions as golden handshakes to hide high salaries. If anybody thinks that free collective bargaining will bring about a balanced structure of wages, according to the market, whereas an incomes policy will lead to distortion, he must be a Rip van Winkle.

It is astonishing that so many intelligent and well-meaning people can embrace a faith which purports to be able to regulate a system as complex as the British economy by one single indicator which also purports to be a target. It is not difficult to see why this foolish faith was embraced by so many and such differing people. It absolves personal responsibility. Policy is dictated in a mechanical way by a sort of computer.

There are further considerations about the consistency of the money supply itself which would prevent any sane person from using it for policy-making purposes. The difficulties arise because the money supply itself is a fluctuating entity, because of the substitutability of other things for money. If you squeeze one type of money, another type of money is introduced. For instance, when the Germans lost the First World War and the German mark deteriorated, cigarettes and bully beef acted as money.

It is one of the odder aspects of the present situation that Mrs. Thatcher and Mr. Reagan regard this monetarist policy as establishing a secure base for re-expansion. What Mrs. Thatcher has done is sufficient to cause embittered demands by the unions as soon as their bargaining powers were restored by an increase in demand. Much the most important conclusion of this analysis is that mixed economies are basically unstable. They are set to be pushed by an alternation between inflation and depression, if not by both at the same time. The outlook is darkened by the fundamental change which is taking place of economic institutions and their functions.

Manufacturers, and a growing number of services, can, I believe, benefit by a higher scale of output; in other words, economies of mass production because of the vast overhead costs of research, development and production. Only close co-operation between the main industrial countries and the basis of agreed principles might avoid devastating fluctuations. Far from Professor Hayek's assertions that there is no such thing as a cost-push inflation, all signs point to the opposite. With oligopoly in manufacture, cost-push inflations have become the rule rather than the exception. In that configuration orthodox monetary and fiscal policies will not result in an optimal distribution of resources but in an ever increasing series of crises. We are not living in their never-never land of perfect competition.

In my opinion, if the present policies continue they will not only further increase misery but will also limit the capacity for recovery. Before the present slump Britain already suffered from a deficiency in capital investment. Its shrinkage has been accelerated by a policy which relics on ultra high interest rates. If a recovery occurs the unions will be embittered and set to regain their earlier power. What is almost certain to happen is a deepening of the slump and more acutely bitter class feelings. Thus, full employment tends to lead to inflation because the income distribution does not take into account the increased power of the unions. The attitude to income distribution relates to a past situation. Without a solution, which must be political, of the base programme of wage costs inflation, the end of the crisis is not in sight.

8.50 p.m.

Lord Boardman

My Lords, the noble Lord, Lord Balogh, has ranged over a wide economic field, and I hope he will forgive me if I do not attempt to follow him in this tonight. Perhaps I shall be wiser when I have had the opportunity of reading it and of considering it more fully, as I shall tomorrow.

My Lords, I think the kernel of this debate really is whether market forces are a good thing or a bad thing. There seems to be general agreement in all parts of the House as to the problems which afflict our economy at the present time, but on occasions there were the implications expressed in the speeches of noble Lords opposite that many of these problems—whether they be the interest rates, unemployment or whatever it might be—flowed from an over-reliance upon the market economy. I should have said straightaway to the noble Lord, Lord Beswick, how happy I am to have the opportunity to take part in this debate, and I congratulate him on bringing it forward. But I think the emphasis on the allegation or suggestion that the ills can flow from having an over-reliance upon a market economy does not tackle the question which was posed by my noble friend Lord Boyd-Carpenter earlier, as to no noble Lord having suggested what the alternative should be.

Indeed, since my noble friend spoke I have waited with interest to know whether there was a proposal as to what should replace this over-reliance on the market economy. Because if there is an over-reliance upon that, then there must be an under-reliance upon something else, and to right the balance we must inject something else into the economy and into the particular planning. Logically, that must of course be some centralised bureaucratic planning, with all the controls and paraphernalia that go with it—price control, quality control and the like. Indeed, at one stage in his speech the noble Lord, Lord Beswick, referred to certain wartime controls. I am sure he would not be suggesting that the over-reliance upon the market economy should now be replaced by the utility schemes, quotas, coupons and the rest that there were; but that would of course be a logical alternative to the market economy if that is in fact failing to serve its purpose.

Indeed, it is an alternative. It is an alternative which is used—and many of us may believe it is excessively used—already in a part of the economy; that is, in the public sector. The public sector is largely insulated from the market economy, and it has to be so because there is no scope, or very limited scope, for competition between utilities. The market economy does not play an effective part in the controls there. As I think my noble friend the Leader of the House said in her speech, we have yet to find a discipline which will enable that part of our economy, the public sector, to respond to consumer choice and consumer wishes, because indeed it is that which I believe is the imperative that we must obtain.

I contrast the impact of the alternative systems that there are in existence. If we take the world scene, my noble friend Lord Thorneycroft referred to the great prosperity in the United States of America—an economy which is devoted to the competitive market. Contrast that with the sort of economy which applies in Russia and in others of those sad countries where freedom of choice and the rest do not exist. Indeed, in Russia, which has no competitive market environment, they are unable to feed themselves, to obtain the grain; whereas the United States of America, with its great surpluses, is able to feed itself and to export a massive surplus.

At home, too, there are many contrasts. The noble Lord, Lord Rochester, who explained why he could not be here this evening, referred to the impact of Marks and Spencer. But there are many stores—and, indeed, many little corner shops in back streets—where the competitive environment in which they operate, the way in which the customer can shop around and go next door, means that we have an efficient service and good value for money. Otherwise, the shopkeeper, whether he be Marks and Spencer or the corner shop, will not survive.

If one contrasts that with those places where no market forces operate—which, as I have said, are largely in the public sector—I ask whether any householder really believes that he or she gets value for money from the rates they pay or the electricity bill that they have to meet. They may well do so, and I am sure that many rates are reasonable; but because they have no choice but to pay, they can never remain satisfied that they are getting value for money. If I could quote an example, there are the ratepayers of a place like Bassetlaw, which managed to put up its rates by 180 per cent., and yet the shopkeepers there, if they attempted to put up their prices by anything other than a small percentage, would find that they were phased out of business.

My Lords, in 1981 public sector prices, which are largely protected from the market, rose three times as fast as those in the private sector. Surely that can be neither socially nor economically desirable—words which are used in the noble Lord's Motion. The problem is not over-reliance upon the market; it is, as my noble friends Lord Boyd-Carpenter and Lord Thorneycroft said, under-reliance upon the market. As the noble Lord, Lord Marsh, said in a very interesting speech indeed, Governments—he said successive Governments but I would suggest primarily Labour Governments—have legislated against market forces.

Indeed, Lord Rochester said that those engaged in the public sector tended to be criticised. I would dissociate myself from those criticisms. I share with him the belief that those engaged in the public sector, leaders of the nationalised industries and the like, have no less competence or ability, or will to work, than those in the private sector. But they do operate in a different environment; they have a different motivation. The jobs of those in those industries do not depend upon giving better service or their customers will go to the shop next door. There is no shop next door. 1 believe that this contrast between the efficiency and effectiveness, and regard for those who are supplied, of the competitive market sector, as compared with those who come from the public non-competitive sector, is a very stark one indeed.

The noble Lord, Lord Beswick, has of course had considerable ministerial experience of the consequences of ignoring the market economy. He had the task of reviewing steel plant closures in the mid-'seventies, and, as he will recall, he proposed a deferment of the closures of many of those steel plants and recommended that they should be kept in being—providing, in fact, in the result, far more capacity than the market could then absorb. I will give way in a moment, but perhaps the noble Lord will allow me one moment to finish. I can sympathise with him in the problems—I had the same problems at one time—and the dilemma which faces any Government in such conditions. But I think the noble Lord may agree that the social and local problems that those closures would have incurred weighed on him more heavily than the economic viability of those plants continuing in operation.

Lord Beswick

My Lords, since the noble Lord seems to be making a point of this, may I tell him that the trouble then was under a plan devised some years before. The smaller sites were to be closed down on a certain time-scale but the bigger plants had not come on stream. I was advocating an extension of the smaller plants simply because the bigger ones were unable to meet the market at that time.

Lord Boardman

My Lords, I accept what the noble Lord has said. T believe—and I give him credit for this—that the social and local implications of closure weighed very heavily on his mind, as they must on that of any Minister faced with that choice. And they weighed heavily on this Government, too. The point that I wish to make is that at the end of the day the consequences of not recognising the market forces mean that the closures become more severe, unemployment becomes higher and losses greater. It is a problem which faces Ministers and those concerned with running large industries in the public sector.

I accept that there are whole sectors of the economy which cannot operate the market forces. The idea of a mixed economy is accepted by this Government as by other Governments. In every way possible, the thrust must be towards the competitive choice, the consumer choice, as the best discipline and the best way to serve the consumer, the best way to secure efficient suppliers and to ensure that suppliers survive and retain their employees and provide them with a career structure.

The greatest number of unemployed in recent years has come from these industries that were too long protected, which have been kept alive by public subsidy until the burden became intolerable. It is from them that the greatest number of unemployed has come. if market forces had been allowed to operate then, I think, the shift would have been more gradual, the hardship less severe and the measures that had to be taken less acute and less resources would have been wasted.

Lord Balogh

My Lords, the noble Lord says " market forces ". What market? Does the noble Lord think that the market for wheat, for instance, is not different from that for automobiles, and that again different from others? The whole reaction and counteraction in these markets depends upon the form of the market. Just to say, " the market forces " is not enough.

Lord Boardman

My Lords, I believe—and I am sure that the noble Lord will not disagree—that very large sums have been paid to industries to keep them in being at a time when they had ceased to be economically viable. The history of our country's economy, followed under successive Governments, shows this. And it has been done for the best of motives: because of a reluctance to accept social consequences that would otherwise flow. My argument is that had successive Governments been prepared to allow market forces to operate, instead of retaining a force which suddenly ceased to be viable after carrying a burden for too long, then this sudden impact of closure would not have happened. That was my argument.

It is not entirely a question of nationalised industries. The noble Lord, Lord Taylor of Gryfe, referred to Linwood as an example of where, he said, market forces had operated extremely badly. I would remind the House that the choice of putting a plant at Linwood and the continuation of a plant at Linwood was the result of Government intervention and Government subsidy. It was not because market forces were allowed to operate.

My Lords, we live in a world of market economy. We cannot put a ring fence around ourselves. We must compete with the Americans, with the Japanese, with the Germans and the like. Without being able to secure the world market, then the social and economic impact on this country will be very grave. Our overseas customers are not really concerned with the social arguments that we deploy in this House and in the other place. They want the goods; and they want them on time and at a price and of a quality that they demand. If we cannot supply, then they will go elsewhere. But we are succeeding. My noble friend the Leader of the House referred to some of the successes, to some of the achievements of industry and commerce in the last year or two. I believe there is a growing pattern of success stories that will come forward.

If the noble Lord, Lord Beswick, says that this is defective because we are over-relying on market forces, then he will have to address his remarks to our overseas customers, to the overseas nations, and try to convince them (if he can) that they should pay a higher price to us than they would have to pay elsewhere to support a socialist philosophy which the noble Lord put forward with moderation, but which, in another place and elsewhere, is put forward in different tones; whether that philosophy be the full-blown philosophy that we hear from some parts of his own party or the half-blown or half-deflated policy now beginning to be adopted by the Social Democratic Party, it is the overseas consumers that he must convince to pay more and not we, ourselves, in this country.

9.7 p.m.

Lord Davies of Leek

My Lords, I missed only two speeches. I went out because I was famished and I am not lucky enough to have a dinner waiting for me where I am going to stay tonight. Whatever one may say about this debate, from both sides of the House every bit of it was worth listening to and the reality of the debate needs to be highlighted. Unfortunately, I was hoping to get a policy from the SDP but there was only one speaker and he is not here now. I suppose we shall have a brilliant exposition and a solution of our economic problems ultimately. There are two great stalwarts of the Conservative Party sitting opposite. To use a rugby term, they were in the scrum in the boiler house of the Tory Party. They are the noble Lords, Lord Boyd-Carpenter and Lord Thorneycroft—always worth listening to and always meticulous in trying to destroy the arguments of the Opposition. They did fairly well, but they did not complete it today. Looking at what we are talking about is worth while even at this late hour. I shall not be too long—I am tired, too. Our debate is to call attention to the economic and social effects of over-reliance. We are not denouncing the need for the market place. There is a need. It refers to the over-reliance on market forces in shaping our society and getting a more broadly based policy. What kind of broad based policy?

I took the trouble to look at a Lloyds Bank report to see what they thought of the Prime Minister's policy. The latest article (and I receive these regularly) says that the main economic policies of Mrs. Thatcher's Government—and notice the delicacy of language, my Lords—are (a) to control the money supply and set medium term financial targets; (b) to control--and again we get these acronyms—the PSBR, the public sector borrowing requirement; (c) to control incomes in the public sector—(they are doing well on that)—and to back a very tough stance on pay increases generally. They are doing well on that. It says some strikes have in effect been broken. That is correct. Steel and Civil Service strikes were the clearest examples. That is a reality. The report continues that this has been an important factor besides the record level of unemployment, leading to the reduction in strikes. That is one of the factors.

I saw the situation in 1931 as an underprivileged schoolboy with a scholarship to a university in Wales. Let us remember, my Lords, that men do not come out on strike just as easily as that. The wife and the family discuss the issues even in the toughest miner's home. All over the mining areas of Britain even now—and I could mention names—there is a discussion going on: " We do not want to come out on strike ". It must be something vicious that brings them out on strike. In other words, the drop of a hat does not bring the British working man out on strike.

We are talking of the system of society in which we live. There is all this concern about trade unionism in Poland. What about trade unionism at home? What would they do to the trade union movement in this country if we had the Solidarity movement as they had in Poland at various centres? In other words, a little balance is needed. Nobody is justifying what is taking place in Poland, but do not let us use it like the stupid propaganda this week from one side of the world to the other that intelligent nations refused to receive.

Taking Mrs. Thatcher's priorities, the report says that in this event Mrs. Thatcher gave priority to the monetarist strategy. Everybody has tried to explain it. but even the originators never seem to get it across clearly. Interest rates were raised, and in the 1981 Budget indirect taxes were increased and so were direct taxes. So. No. I, it is an elementary fact that the cruelist kind of taxes can often be the indirect ones. We have shifted the burden more and more from the higher income levels to the lower income levels. It can be seen in all kinds of ways.

The bank report said that Budget indirect taxes were thus increased so as to reduce the public sector borrowing requirement. Gross domestic product has thus fallen. So taxes as a percentage of the gross national product have risen. This too is true. Taxation is higher than ever we have known it. Therefore, incentives for the average taxpayer have been reduced. If these incentives are being reduced, it has an effect on the business element. It has an effect on the small businesses. I will come to that point later. The prospects for the coming Budget 1982–83—I do not know what the answer is going to be tonight because we will not get any leaks about the Budget—are that it will not leave much room for reducing taxes in the coming year without a change in the medium-term financial strategy or sharp cuts in public expenditure.

The truth is that we in Britain have lost control of our own lives. Despite the massive advance in technology and within industry, the military industrial complex which we have has more real control over the matter that is now affecting our daily lives. It is strange that we have gone right through this debate without one utterance on military expenditure—and, of course, nobody gets to the truth—and I can quote that because I was chairman of an estimates sub-committee examining military expenditure in the Middle East, Africa and the Far East in 1964–65. I think I can quote the date of the report. We have never been able to fathom out the relationship of military expenditure to our own budget relationships. So this is the cross on which we are impaled. The Government promise future prosperity. Like a parcel today with wrappings, everybody says, " We are breaking through "; then you take another piece of paper off this wonderful parcel; you go deeper and deeper and you never get to the present or that light—I have never known of a light being in a tunnel, at the end of a parcel, because that is a mixed metaphor—but you never get to whatever is in that parcel; you move onto something else.

Let us take the eulogy of the Common Market. We were told—there was a marvellous advertisement in the New Statesman and everybody believed it—that if we joined the Common Market it would be worth £7 a week more in wages. That advertisement was in the New Statesman some years ago, and you can look it up; and the propaganda that was given was one that built our prosperity completely on the activities of the Market. We were told that if we moved into the Common Market there would be a great area of investment. We are finding it has not been so easy for agriculture or for us to get into those markets. Today, when we talk of leaving things to the market, we ask about Japan. Nearly every other house in Britain is either showing a television set or a little car outside by the garden gate or in the garage, or equipment of some sort that comes from Japan. What do we do about it? Have we the right, or are you going to say under pure Conservatism, " We will not interfere with Japanese goods coming in here "? Once you start asking these questions we are saying you must do something about it, unless you wish British industry to be completely killed. Are we aiming for a de-industrialised Britain? Are we aiming for what a pamphlet in 1963 said was the aim of the Common Market—to get the industrial area for the whole of Britain?

Now we can no longer say that we are alone. This Government, whether it becomes a Labour Government, an SDP Government or a Conservative Government, can no longer make decisions without having to face—and here I do not know the answer—the complex problems of the inter-relationship of man's exchange of goods. I do not know if it will be accepted—it is over-expressing it a bit, but it is now almost an axiom—but the system of society that we call capitalism can give full employment only when you are at war or preparing for war. The noble Lord, Lord Marsh, in his analysis admitted that we in this noble House came forward—one has only to go down to the Royal Gallery, where every day they turn over a page of the names of Members of this House who laid down their lives to build a new Britain, to see that they were as honest and sincere in that desire as the humblest squaddie or seaman. This noble House, from the days of Waterloo or before, always thought of building a British system of society, giving freedom and giving freedom from contempt. That is the most important of all the four freedoms—the fifth—that I once put in a pamphlet—freedom from contempt. Today Britain is looked upon by some people outside in a form of contempt. Why are we in this position? I have been speaking for eleven minutes and I will take two more because it has been a tiring day. I should like to go on for another ten; but no.

I believe we have forgotten very much of the importance of our history. You see the magic and the jargon that is used today, the worship of the over-reliance on the market forces to bring us out of a slump. We are told that we can do this and we are told in language that bewilders many of our people. But we are not in control. Our Government honestly thinks it is going to do something about inflation. If you opened the Financial Times this morning you would see a heading that Reagan is increasing rates of interest—rates of interest are about 16½ per cent. In other words, we are no longer in control of our destiny. I therefore believe that we should be seeking alternatives to monetarism. I have heard many people say: " International conferences are not of much value ". Whether they are or not, we want a concerted move in Britain to try to solve our own problems and, strangely enough, the first place where I would begin is seeing that British agriculture and British energy are getting the attention that they deserve.

We can thank God for British oil because, without that, this country would today be in the worst economic position that it has been in since the time of the Black Death. It is only North Sea oil that is enabling this Government, and will enable any other Government, to face the problems. Behind the shelter of that, we have enough support, and enough concrete backing, to work out a policy of our own, which may not be so much controlled by the outside forces of the industrial and military complexes of either America or Europe.

9.21 p.m.

Lord Bruce of Donington

My Lords, this has been a long and very absorbing debate, and one that has had its occasional diversion. No debate in which the noble Lord, Lord Boyd-Carpenter, quoted my late right honourable friend Aneurin Bevan in support of his argument could be without interest. Indeed, no debate which contained an account of a former Labour supporter, the noble Lord, Lord Marsh, and the story of his rise to the room at the top, could he without interest either.

There was a disposition in the earlier part of the debate to say that my noble friend Lord Bewsick was wrong in having called attention to the social effects of over-reliance on market forces. The suggestion was made by the noble Lord, Lord Thorneycroft, that, of course, Governments had intervened most decisively in the economy. But that was not my noble friend's point. We know perfectly well that the present Government have intervened, and intervened most decisively, in the economy. Our complaint is not that, nor is it the complaint of my noble friend. Our complaint is that, having created all the havoc that they have done by their own actions, they now expect market forces to take over and secure the recovery. That is the gravamen of our charge.

I well recall the earlier days, and a series of amiable exchanges with the noble Lord, Lord Cockfield, who regularly gives the same account of the Government's policies—of how, in the early stages, the Government relied on reducing the rates of taxation, leaving more money to fructify in the pocket, and of how that, itself, would revivify the economy and provide more incentives. That was one intervention which the Government made in the economy. But, apparently, that was not enough and it had to be in conjunction with the control of the money supply.

Here the noble Lord, Lord Cockfield, and his Treasury colleagues found themselves in some difficulty. First, they did not know what it was and could not define it, and they are still unable to define it. But having got a fair approximation of what they thought it was, they proceeded to use it, or tried to use it, and discovered that they could not find the instrument to control the thing which they did not know very much about. So that finished that one. The noble Lord proceeded also to enunciate the virtues of steadily reducing the public sector borrowing requirement—of course, until they found out that that was irrelevant, too, until they found out that the effects of so doing were almost precisely the opposite of the effects that they had in mind. So it is quite true to say that the Government have intervened in the economy.

As I have said, our complaint is that, having intervened, they are now leaving the market forces to take over. Having mutilated the lip they expect a sort of natural healing process to come in after them and repair the damage. The noble Lord, Lord Thorneycroft, put it very well in the course of the debate on 12th November 1981 when he said: The idea that the national Government of one small country can really have a decisive effect upon what happens to the economy over the next two years is a proposition which does not really hear very close examination ".—[Official Report: col. 3600.] The noble Lord is there trying to enunciate as an excuse the fact that Governments cannot do very much, anyway. And implicit in that argument, the damage having been done by that time, is that market forces must take over. We on our side know that there has been Government intervention on a massive scale and that the whole thrust of the actions of the Government has been directed to one end only—to free capital of all constraint so that capital may flow freely wherever it goes, no matter if it takes only five seconds to do it. In order that capital can be free, for reasons that I shall show, it has been necessary at the same time (and, indeed, has been part of the process) to create that degree of unemployment which is going to break wage resistance and is deemed to be effective in lowering labour unit costs. This is the main thrust of the whole of the Government's policy.

In the speech which she made today from the Government Front Bench the noble Baroness went a little further than she went on the previous occasion when she addressed the House on the economy. She said then that unemployment was in fact unperceived overmanning. She has gone a little further today and has said that unemployment is the price we are paying for past uncompetitiveness and past overmanning. Since the term " competitiveness " is now looming so large in the Government's policy pronunciamentos, it is perhaps necessary to deal with this question head on: what the Government themselves have done to make British industry more competitive; what capital, freed of its constraints, has done to make British industry more competitive.

Those of your Lordships who have had experience in industry and commerce will know that the unit cost of an item is not quite the same as its labour cost. The cost of any article that is manufactured comprises the cost of its raw materials, the labour cost applied to it, the energy cost that may or may not be used in its production, and a factory on-cost which comprises in the main the rent and the various services in the building. But, of course, including the machine on- cost means that proportion of the capital cost of the machine which on a time expiry basis, and on the basis of its replacement, is due to enter into the prime cost of the article itself.

It follows, therefore, that if for any reason machinery becomes obsolete—and much of British machinery has become obsolete—the proportion of the labour cost related to the factory on-cost goes up. It also follows that notwithstanding the cost of an item including all its on-costs, raw materials and everything else—such as its financial charges and administrative costs—the price is ultimately determined, after having added on the profit, by the amount which it is supposed to be able to get in the market. It is presupposed very often that the consumer has the choice; that the consumer choice determines the price. This in the main over British industry is quite untrue. The prices of most items are in fact based on a series of planned assumptions, normally made one or two years before the product arrived on the market at all. It presupposes certain labour costs and presupposes other costs which enter into the final costs of production. But it is planned, and it is planned at a price that is determined in advance.

Then the problem becomes to persuade the consumer to pay that price. The consumer does not choose the price. The consumer is not consulted about the price. The price is determined by the producer. Over the vast majority of large-scale British industry, consumer choice does not enter into it at all. In fact, in 1980 £2,252 million had to be spent on advertising in one form or another in order to persuade people to exercise the demand which it was alleged they would have to make freely. It is, of course, nothing of the kind. We are very largely in an economy where, although on the periphery consumer choice does operate to determine prices, the prices of most commodities in the United Kingdom, especially consumer durables which are produced by large enterprises are predetermined.

As the European Commission reports have shown and as the Maldague Report showed in 1975, it is very often the larger scale enterprises that have contributed to inflation by their advance and planned high expectations, which the population were then persuaded by mass advertising media to buy at a higher than necessary price. These are the mechanics of it and exactly how it works.

Now what has happened, owing to the removal of exchange controls of the Government, but above all to their deliberate raising of the rates of interest, which is not the mechanistic affair that the noble Lord, Lord Cockfield, would now have us believe it is? It is has all been " automatic " from the noble Lord, Lord Cockfield, over the past two or three weeks but my noble friend Lord Beswick was kind enough to remind us of the time when it was regarded as an instrument. The raising of the rates of interest in the latter part of 1979 sent rates of exchange right up. I have the table here of the rates of interest and the movements compared with the purchasing power parities of the various countries concerned. What it did immediately was to make it more difficult for our exporters to export. What it did at the same time was to put the manufacturers abroad into a position, due to this, in effect, exchange subsidy, where they could undercut practically every British manufacturer in the same market. That is exactly what happened. The move to increased exchange rates to the level that it went acted as a subsidy for imports from most other countries, particularly all other European countries.

That was aided further, I would remind the noble Lord, Lord Boardman, by the direct intervention of the Government into the pricing policies of the nationalised industries, by increasing the electricity and gas prices in this country on the basis that the prices were not economic. What happened after that is a matter of history. The policy of high interest rates had the effect, first of all, of acting as an import subsidy for manufacturers abroad and making our exports more difficult; in addition, it was an additional factor of cost in the domestic market here suffered by British construction engineers, British engineers, British farmers even (which surprised one), British manufacturers, British industry in all grades. On top of that they had the higher interest charges, which they still have. The Government now complain that British industry is not competitive. They are the ones who have deliberately made it less competitive by their own actions.

Once the process starts it of course snowballs, because the import penetration grows, and anybody in the textile industry knows this perfectly well. Imports from Taiwan and Hong Kong, financed by British capital freed from capital restraints, have almost massacred the textile industry in this country. What happens then? When unemployment grows it has a multiplying factor. For every operative put out of work you can reckon that will be two and a half unemployed. Demand falls for domestic products, whatever the total level of consumer demand may be. This means that British manufacturers now have a fall-off in demand. What happens then is this. They have smaller batches of production; smaller batches of production mean higher unit costs, and so they become less competitive again. And so the whole process accumulates. On top of that there is the fact that in regard to the machinery required to be used in most of the manufacturing industries, but not all, in this country, you have the element of non-competitiveness.

The noble Lord, Lord Boyd-Carpenter, drew my attention to a speech made by my late right honourable friend Aneurin Bevan, when he said: How can we persuade the ordinary man and woman that it is worth while making sacrifice in their immediate standards or foregoing substantial rising standards to extend fixed capital equipment throughout this country? This is the problem, and it has not been solved yet ". Then he said: We failed to solve it. We frankly admit that. In the years immediately after the war we made very great efforts to build up our fixed capital equipment and sacrificed our parliamentary majority ". That is precisely what happened. Under the Admini- stration of 1945–1950 there was a very high level of investment indeed because the Government of that day, which I had the honour to support, deliberately held down the consumption of consumer goods in this country in order to pursue capital investment to build up our post-war industries. Ever since that time we have, in fact, been doing what the noble Lord, Lord Boyd-Carpenter, pointed out: we have been living off the fat and we have been eating the seedcorn.

As I have said many times before in your Lordships' House—and as the noble Lord, Lord Cockfield, knows very well indeed—the levels of investment in the United Kingdom as compared with those in France and Germany have been absolutely shocking. They are 30 per cent. below what they were in France; 40 per cent. below those in Germany and roughly 60 per cent. below the investment levels in Japan. Therein lies the lack of competitiveness. Precisely because there has been a lack of capital investment in this country, so there has been a greater reliance by manufacturers in this country on the use of labour, and the use of as cheap labour as possible, in order to compensate for the lack of investment. If one looks at the comparative tables that have been published by the European Commission, one finds that, measured in terms of real purchasing power, this country's wage levels are, in fact, much lower than those of our continental colleagues.

That then is the position—and that is the position into which we have been driven not accidentally, but quite deliberately, in order to restore the power of capital; and, owing very largely to the forbearance of the working people of this country, they have been able to maintain themselves at a standard of life to which their own individual qualities and work in the community as a whole do not necessarily entitle them. That then is the battle of the party opposite. That is the line that they propose now to continue. They will not intervene any more; it is not necessary. They think that the damage has already been done and is sufficient. Indeed, the noble Lord, Lord Alport, gave I think a little ominous warning to his colleagues today as to what the likely consequences will be.

My noble friend Lord Beswick should, in my opinion, stand astounded at his own moderation. He made what is generally thought to be in the House a speech which was friendly in its form; which called for the utmost co-operation between all sections of the community; and he made what is called a statesmanlike speech. Progressively as one gathered the response to the very moderate statements that he made, progressively the more angry I myself became because, of course, the party opposite has no use for moderation save in its words. It has no use for consensus; it requires only domination. One thing is certain: before very many months are out it will dearly rue the fact that it has given the British economy almost a mortal blow. That is its record, and I hope that in due course it will be proud of it.

9.45 p.m.

Lord Cockfield

My Lords, the noble Lord, Lord Beswick, moved the Motion standing in his name on the Order Paper in a spirit of moderation and restraint. He covered a very broad canvas. Most of what he said would be echoed in many parts of your Lordships' House. But perhaps the most striking point about his speech was the sense of nostalgia which pervaded it. He was not looking back in anger but in regret for times long since past and for policies long since outgrown. Even his new economic deal took its name from Franklin D. Roosevelt, not that that is any criticism of Franklin D. Roosevelt, or, indeed, of the noble Lord, Lord Beswick.

But one really wonders what relevance policies fashioned for a bygone age have to the very different problems of today. The achilles heel in the noble Lord's speech and in the Motion he moved lay in his reference to " over-reliance on market forces ". I suspect that when the noble Lord came to draft his Motion he found that it could well be read as supporting the Government rather than criticising it, and that he hastily added these words and this reference to the market place to protect himself from his own Back-Benchers.

My noble friend Lord Thorneycroft, in a powerful and entertaining speech—and there is no more effective speech than one which is entertaining—demonstrated with complete conviction that what we suffer from is no t an over-reliance on market forces; that our troubles, if anything, are due to market forces being given too little play. The same point was made by my noble friend Lord Boyd-Carpenter in a speech of great penetration and insight. I was particularly struck by the phrase he used, that market forces meant producing the goods that the people want to buy at the price they are prepared to pay.

The noble Lord, Lord Bruce of Donington, endeavoured very gallantly to rescue his noble friend Lord Beswick by reinterpreting his phrase, which he claimed not to mean what it plainly said on the face of the document; but what he really meant was that the Government had intervened in market forces and it was only now that they had changed their minds and begun to rely upon market forces. Although I greatly admire the noble Lord's ingenuity and courage, and indeed his gallantry in coming to the rescue of his noble friend in this way, I hardly felt that he made a convincing case.

What, in fact, we as a Government have done is simply to roll back, in a very modest way, the frontiers of state power which, in our view and in the view of most people in this country, have grown excessively; and to curb the exercise of power by organisations with monopoly power, whether they are labour unions or whether they are monopoly industries. Our objective is to increase the freedom of the individual, whether it is his freedom as an individual, his freedom at work, his freedom to carry on his own trade or profession. We are not engineering a revolution; we are simply restoring a better balance of power within the various sectors and interests in our community.

I do not quite know whether we should treat the Liberals and the Social Democrats as one party or two. I suspect that they do not know either.

Lord Boyd-Carpenter

My Lords, none of them is here.

Lord Cockfield

My Lords, in that event nobody can enlighten either myself or the noble Lord, Lord Davies of Leek, who also felt that he had waited in vain to hear what their policy was. The noble Lord, Lord Rochester—and he was good enough to let me know that he would be unable to stay—in a typically thoughtful speech analysed our problems in some depth. Much of what he said—for example, the need to control inflation; the need to improve productivity; the need to provide new and constructive job opportunities—we would all agree with. But when he came to remedies, to policies to secure these aims, all he could offer were the policies that had been tried before, but with no great success. The best he could do was to tell us that the Alliance had set up a commission to study the problem. Unfortunately, in Government we have to solve problems, not merely contemplate them.

His ally—if I may be forgiven for using such a term—the noble Lord, Lord Taylor of Gryfe, was similarly very long on analysis but very short on solutions. He left me with a very clear impression that he was against sin and in favour of virtue. But where that led him, I was none too clear. In the Thousand and One Nights Abanazer went through the streets of Baghdad crying," New lamps for old ". The best that the Liberal/SDP alliance can offer us is, " Old lamps for new "!

Let me deal briefly with the question of the finance of the nationalised industries. This was raised by the noble Lord, Lord Taylor of Gryfe, and it has been touched upon by other noble Lords. The money borrowed by the nationalised industries carries a specific or implicit Government guarantee. Most of the nationalised industries—I am not saying all of them, but most of them—quite frankly could not borrow a brass farthing (let alone the much maligned halfpenny that the noble Lord, Lord Davies of Leek, was talking about on the Currency Bill) on their own credit. They are in the public sector. They enjoy the benefits of being in the public sector, including the benefit of being able to borrow money on public sector terms, and no juggling with the statistics and no alternative definition will change the reality of this situation. Unfortunately—and one has to say this—not all nationalised industry investment has been profitable. What we need in this country is profitable investment which will pay its way.

Provision was made this year for the nationalised industries to spend 15 per cent. more in real terms on capital investment. In real terms again, this will be the highest figure since 1976–77. We are anxious that the nationalised industries should improve their efficiency. I am sure that, in general, they are equally anxious to do so. We believe that there are activities which could be better carried on in the private sector than in the public sector. But this does not mean that we are prejudiced against the nationalised industries or that we have any interest in denigrating their achievements. Our interest is in encouraging them to do better. As my noble friend Lord Boardman has said, there is a real problem in trying to replicate in the public sector the forces of competition and the disciplines which apply in the private sector.

The prosperity of our people depends upon our being able to sell our products, the goods we manufacture and the services we provide, at home and abroad. This quite simply is what our problem is. If one looks back over the last 20 years, then our share of exports in international trade has been halved, and over the same period imports have increased at double the rate of growth of our gross domestic product. The answer must therefore lie both in increasing our productivity in real terms and in ensuring that we get better value for money.

Productivity in real terms in this country is only one-half of what it is in the United States and Germany, three-quarters of what it is in France and Japan. In money terms, unit labour costs have doubled in this country since 1975; in Canada they have increased by one-half; in the United States by one-third; in Western Germany by one-sixth; and in Japan not at all. What lies within the power of Government to do is limited. The answer to the problems of productivity and the control of costs must be found primarily by individual managements and individual workers. There is a great fund of experience and expertise in this country and a great fund of enterprise. We should not in any way deprecate the very great abilities that our people have, both on the management and workers' side.

The Government's function is essentially one of providing the stage on which the play is enacted. That is not to deny the part of Government; it is both to put it in perspective and to stress that there is no easy way out by the Government waving a magic wand. It really passes all belief that, at this stage in our affairs, serious politicians should think that we could solve our problems by massive injections of public money. Indeed, all that separates many of our critics is the size of their ambitions; one says £5 billion, another £10 billion, another £20 billion. If all that stood between us and prosperity was a few noughts, we should soon solve our problems. It has been tried repeatedly and failed.

It is no good, I say with respect, the noble Lord, Lord Jacques, saying that the risks in reflation are negligible. It has been tried repeatedly and failed. It has bought not increased output but simply increased inflation. That is demonstrated conclusively by the fact that in the 10 years between 1970 and 1980, money GDP increased by 345 per cent.—that is, it multiplied by nearly four and a half times—but all it succeeded in doing was purchasing a 17 per cent. increase in output; money went up twice as fast as output.

The first thing we need to do is to increase our productivity. That means changes in working practices and the reduction or elimination of excess manning. The hardship that imposes on the individual who loses his job is obvious but, frankly, it is the only way we can survive. It is better in the end that some should go than that the enterprise as a whole should collapse and everyone lose their job. The major improvements which are now taking place in productivity are beginning to show in the figures. In the first nine months of last year, productivity increased by 10 per cent. It would not be reasonable to expect that we could maintain such a rate of increase in productivity, but it is essential that we should maintain the momentum towards higher productivity.

The second thing we must do is to improve our productivity measured in money terms, to enable us to give better value for money both to our own people at home and to our customers overseas. We must reduce our costs, and if we cannot do that, we must at least reduce the extent to which our costs increase. That is why it is so important to moderate pay settlements. Not far short of 70 per cent. of our total costs are ultimately labour costs. Those costs which appear as material costs, if analysed, ultimately break down mainly to labour costs as well. The cost of coal is essentially a labour cost, although when the coal goes into the steel industry it appears as a material cost. The cost of steel itself is a labour cost, although when that goes into engineering it appears as a material cost.

The way that our labour costs have increased relative to those of our competitors lies at the heart of so many of our problems. Here, too, progress is being made. After a run of years with double digit increases in unit labour costs, in the year to October unit labour costs increased by only 2 per cent. That is a considerable achievement, and we must continue to make progress on this front.

The Government's fiscal and monetary policy is designed to help along this process of improvement. We recognise the difficulties. There is no question of our abandoning these policies, as the noble Lord, Lord Bruce of Donington, endeavoured to suggest. But it is only if we maintain a firm fiscal and monetary policy, only if we restrain the level of our own demands by way of public expenditure and borrowing, that we create the right environment in which excessive wage increases are discouraged, and in which if they are conceded, it is difficult for them to be passed through in price increases. Curbing inflation is an essential and inescapable element in any policy which sets out to improve our competitive position in the world. This was recognised by a number of noble Lords who spoke, including my noble friend Lord Thorneycroft, and the noble Lords, Lord Rochester and Lord Robbins.

I should like to make one or two comments on the exchange rate, to which the noble Lord, Lord Bruce, referred. He claimed that the appreciation in the pound acted as a subsidy for imports and as a penalty on exports. In those circumstances it is perhaps rather remarkable that we have achieved a very large balance of payments surplus exceeding £3 billion in 1980, and another large balance of payments surplus in 1981. In fact, despite all the difficulties, our exporters have done remarkably well, and that is something for which we ought to pay tribute to them.

It used to be thought that devaluing the currency would provide a solution, as indeed the noble Lord, Lord Bruce, seemed to suggest. But if we go back and look at what happened in 1976, we see that the Labour Government then succeeded in getting the pound down to 1.56 dollars, and but for the IMF, it would have disappeared from view altogether. Did that solve any of our problems? All it did in fact was to increase our inflation.

We see the same effects today. The exceptionally high level of the pound last year created great difficulties for our exporters; that we recognise. But the fall in the pound which has occurred since then is primarily responsible for the recent—and temporary—rise in the rate of inflation.

We realise the very heavy burden imposed by the present high rates of interest. I am at one with the noble Lord, Lord Beswick, in deploring both the present level of interest rates and the burden that that level places on our national budget. But the primary reason why we pay so much interest is that we have borrowed so much over the years. That is why it always surprises me that we do not have the noble Lord's wholehearted support in our efforts to restrain the amount of the public sector borrowing requirement and thereby to reduce the extent by which the burden of interest rises.

Perhaps I might make this one comment in reply to the right reverend Prelate the Bishop of Lincoln, who quite rightly expressed great concern about those in our society who suffer from particular disadvantage. Total Government expenditure as a proportion of the national income has increased quite sharply under this Government. It was 41½ per cent. in 1978–79. This last year it had risen to 45 per cent. of our total national income; and this is certainly not the action of a Government who do not care. What in fact we have had to do is to struggle against the ever-rising cost of programmes which were taken on, very often many years ago, without adequate regard to their long-term costs.

I should like, my Lords, to make a few comments on the question of consensus, because this featured in the speech of the noble Lord, Lord Beswick, and there were references to it in the debate by a number of noble Lords. The term " consensus " has become a fashionable term lately. It has been taken up by all sorts of people. Like fashions in clothes, it comes and goes and it comes back again. Of course, what really matters is not so much the clothes but who is wearing the clothes, as indeed Red Riding Hood discovered when she peered closely to see who was wearing grandmamma's dress.

Let me illustrate my point by reference to the social contract which was entered into between the Labour Party and the trade union movement in 1974. That, no doubt, is what noble Lords opposite mean by " consensus ". I have myself on a number of occasions spoken critically of the social contract, but on this occasion I will not repeat what I said; I will merely quote what was said by Mr. Joel Barnett, a member of the Labour Party Cabinet at the time. What he said was this: The only give and take in the contract was that the Government gave and the unions took. The disastrous social contract "— that is his term, not mine— may have helped to secure our election victory, but it did nothing to prevent, and some would argue that it ensured, the 27 per cent. growth in earnings that followed ". That is the end of the quotation, and all I would add is that it also ensured the 27 per cent. inflation as well.

It was in regard to this type of approach to the question of consensus that my right honourable friend the Prime Minister was talking in the course of what she said in Melbourne, to which the noble Lord, Lord Beswick, referred. It was in relation to this type of consensus, which leads to the sort of results to which I have referred. Of course there is an obligation on Government—and we recognise this obligation—to explain their policies fully, carefully and frankly, and to carry the mass of the people with them. This is what democracy is, and this is how democracy works. There is great value in a forum such as Neddy. There is great value in a debate of the kind which has taken place in your Lordships' House today.

My Lords, I have left unemployment until last simply because it is the most important issue of all. What matters in the end is providing employment. This is the only way that unemployment can be reduced on a lasting basis. There will always be a place in times of difficulty for special employment measures. We are spending a great deal more on such measures, more this year than last year, and more next year than this year. But they do not solve the problem. The problem can only be solved by job creation; and permanent jobs can only be created by producing goods and services at competitive prices. You cannot create permanent jobs by being uncompetitive.

This is why we place such emphasis on the need to improve productivity, on the need to keep costs down; why we have removed controls to lighten the burden on industry; why we have taken measures to improve the working of the labour market and why we have introduced a whole range of tax incentives to help new firms and, particularly, the small firms: the Venture Capital Scheme, the Business Start-Up Scheme, the Loan Guarantee Scheme, and why it is so essential to create a climate in this country in which enterprise is recognised, encouraged and rewarded.

I have said on many occasions that we cannot expect in future over a sustained period the kind of growth that we saw in the 1950s and 1960s. No one will, neither in this country or in the world at large. But do not let us underestimate how much can be done with a modest rate of growth if we conduct our affairs reasonably and responsibly. What we cannot do is to have everything all at once. What we must not do is to consume the fruit before we have produced it. Over the last three years, we have had to face a world recession with no parallel since the 1930s. This occurred just at the time when we were taking the first steps to correct the long accumulated failures and shortcomings of the British economy.

There are, and have been, many people who would say that we ought to have waited for better times. But unless we were prepared to act, these better times would never have come. As it is, we are now beginning to emerge from the recession, slowly but certainly. Output is up and has been rising steadily since summer; productivity has increased sharply; new construction orders are up; engineering orders have increased, export orders and engineering show a very healthy increase. Exports generally are well up; non-oil exports, for example, show an increase of 3½ per cent. in volume terms on 1980. The cyclical indicators continue to confirm that recovery is under way. The Industry Act forecast published in December indicates that we can expect this modest but welcome recovery to continue. It is towards sustaining and encouraging that recovery that the Government policies are directed, and it is to that end that we must all of us bend our efforts.

10.13 p.m.

Lord Beswick

My Lords, this has been a remarkable debate if only because of the number of noble Lords who thought it worth while making a contribution. I have heard every speech, I think, but I shall look at Hansard with great interest tomorrow and I have no doubt I shall have a lot to learn. I have made a note to send a copy of Hansand tomorrow to the right honourable gentleman, Mr. Pym, because I am certain that he is not quite aware of just how well the Government are doing. I think that he really ought to read the speech to which we have just listened.

There are a number of points in the speech of the noble Lord, Lord Cockfield, that I should have liked to refer to. For example, I should have liked to ask him how it comes about that labour costs have gone up so high, as he told us, but, at the same time, our exports have maintained so well, as he also told us. I should have liked to ask him how he reconciles the statement that it was not his intention to denigrate public industries when he also said that some of them could not borrow a brass farthing. The statement which I should like most to take up with him is the statement that the Government policy is designed to restore freedom to the individual. I am not sure that that statement ought not to go together with the article from the Sunday Telegraph which was quoted by the noble Lord, Lord Alport. I must resist those temptations. At this hour I can do no better than thank noble Lords for taking part in this debate, thanking particularly those who have stayed until the end. My Lords, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.