Industrial Production

HL Deb 11 May 1983 vol 442 cc480-505

3.53 p.m.

Lord Cledwyn of Penrhos rose to call attention to the Government's record on industrial production and to the need for new and urgent measures to stimulate industrial growth; and to move for Papers.

The noble Lord said: My Lords, when my colleagues and I chose this subject for debate today, we did not know that a general election was to be held in June. At that time there was a belief that the Prime Minister would "march right down to the end of the road" in a resolute fashion, as she had always given us to understand she would wish to do. Now we are told that the national interest demands a general election. The fact is that weeks of vacillation created uncertainty, and this in turn created a momentum of its own. The vacillation was clearly due to the fear of what may lie at the end of the road in the autumn and early next year.

The subject of our debate, however, is especially appropriate at this time. As I want to be perfectly fair to the Government at what is an unsettling time for them, I shall start by saying something upon which everyone in your Lordships' House will agree—namely, that Britain's prosperity depends on the success of her industrial performance. That success in turn depends on the one hand on the state of the world economy and on the other on the way in which the Government of the day conduct their industrial and economic policies.

It is also fair to say that all Governments since the war, and especially in the past 25 years, have been saddled with enormous problems. What are the words engraved on the hearts of Chancellors of the Exchequer? They are "devaluation", or "the balance of payments", or "inflation". They all reflect the instability of the economic situation, both here and elsewhere.

We in Britain have had to make major adjustments to our policies and attitudes. We have seen our enemies in a war which they lost become our successful competitors in peace. The reaction of some people has been to say, "There ain't no justice". We have witnessed the dissolution of a great empire. For all that it has gone fairly smoothly, this also had a fairly traumatic effect. Dean Acheson said: Britain has lost an empire and not yet found a role". We also lost extensive markets for our exports and the benefit of low cost raw materials. We have seen great technological change, and this is continuing apace, as was brought home to us in the Statement on advanced information technology the other day. Successive oil crises involving steep price increases have been another factor.

I have made these fairly obvious points in order to reinforce the argument that all post-war British Governments have had to deal with acute problems, and that various policies have been tried in an effort to resolve them. If I criticise the Government, it is against that background and with an acknowledgement that whichever Government are in power, the task remains a formidable one.

Four years have now passed since the last general election, and we are entitled to make a judgment on the Government's record, bearing in mind their election pledges. The Conservatives said, for example, that they would, concentrate more on the creation of conditions in which new, more modern, more secure, better paid jobs come into existence. They went on: This is the best way of helping the unemployed and those threatened with the loss of their jobs in the future". They were, as we can all recall, very critical of the level of unemployment under the Labour Government, as they had every right to he. We were certainly concerned about the level of unemployment then—although it is important to make the point that more men and women were at work in 1979 than there were in 1974, when we took over from the Government of Mr. Edward Heath.

The Party opposite criticised industrial output under the Labour Government. They said that they were extraordinarily sensitive to the needs of small businesses, and stated, again in their manifesto, To become more prosperous, Britain must become more productive and the British people must be given more incentive. This is what they said four years ago. Well, there it is. That was one of the main planks of Conservative policy upon which they won the 1979 general election.

The question we are entitled to ask in this debate is this: has Britain become more productive? Are we a leaner, fitter nation as Conservative propaganda describes it? A good many people are leaner, but I am sure they are not fitter. Largely as a result of this Government's policies we are a poorer, less productive, less prosperous and far more apprehensive nation than we were four years ago.

I do not believe that the noble Lord who is to reply to this debate, or the Prime Minister, or any of her colleagues can claim with any degree of conviction that their policies have succeeded. I venture to predict that when the noble Lord, Lord Trefgarne, comes to reply he will claim that Government policies are now beginning to work and that the suffering of the past four years has been necessary for the future health and prosperity of the nation. We must look very carefully at those two propositions.

After these four years, the facts are grim indeed. Just under 3.3 million people are out of work, with all that implies in economic and social terms. We must remember, too, that the method of calculating unemployment figures has been somewhat altered by the Government. Under the old formula they would have been more than 3.3 million. Furthermore, there are a very large number of women not registered for work who are employable.

Under this Government, manufacturing output has been at its lowest level for 15 years. This country, which was the world's first industrial nation, has been running its first ever trade deficit in manufactured goods. The one bonus we have, North Sea oil, tends to conceal the realities of the decline. We have been the victims of the politics of obstinacy, which have worked in a most damaging and callous fashion. In four years our economy has changed in a significant way. It has shrunk more than at any time for 50 years and changed shape faster than at any time since the millions returned from the war in 1945 and 1946.

I spoke of job losses in manufacturing industry, and I recognise that losses in some sectors are inevitable as industries become more capital intensive. If we take the years between 1963 and 1979, manufacturing employment shrank by an average of 0.7 per cent. per annum. Since 1979, the pace of decline has accelerated sharply to 7 per cent. per annum. Other jobs have also been affected. Between 1963 and 1979 public sector employment increased by 2.2 per cent. a year. Since 1979 it has fallen by 1 per cent. a year. We think that the public sector has a vital role to play in the recovery of this country. But even in the private services, where jobs were expanding by 2.4 per cent. per annum between 1963 and 1979, there has been a fall of 1 per cent. since the present Government took office.

My Lords, that is the dismal scene as we survey it this afternoon. No part of Britain has gone unscathed, while some have suffered more deeply than others. What is most depressing is that the region most dependent on manufacturing, the West Midlands, is the worst hit of all. I will come to the signs of possible recovery in a moment, but I must emphasise again that the fall in industrial output in Britain since 1979, with all its consequences in terms of unemployment, in terms of lost resources and of competitiveness, and in its long-term implications for Britain, must be the biggest single failure of this Government over the last four years. Great companies have suffered by contraction, among them firms like Courtaulds, Dunlop, Metal Box, ICI and GKN. One of the most depressing items on television every week is the catalogue of closures and job losses read out by the newscaster.

But it is the small companies which have suffered most, and, mark this, it is the small businesses which the party opposite specifically pledged themselves to help in 1979. We must not forget the Government's statement then: Too much emphasis has been placed on attempts to preserve existing jobs. Government strategies and plans cannot produce revival, nor can subsidies. Where it is in the national interest to help a firm in difficulties, such help must be temporary and tapered". As a result of this policy, a large number of small firms have gone to the wall; bankruptcies and insolvencies have increased. A record 12,000 companies failed in Britain last year alone. And it is not only the so-called "lame ducks" which have fallen by the wayside; it is good, promising, fledgling firms which might have succeeded with a little encouragement. There is not a noble Lord in the House who is not aware that that is the case. This has been particularly damaging in areas of high unemployment like Scotland and Wales and the North of England. The Government promised, in the person of the Prime Minister herself, to "maintain strong regional policies". But regional aid in this period has been cut by 44 per cent. by this Conservative Government.

The Observer newspaper published some very revealing information about the industrial scene generally last Sunday. They said that is was only desperate measures which had kept many companies going, and that companies making products which have been household names for over a century have closed down or been shut by their parent group. The majority, after a long struggle, have been forced into liquidation or receivership. The Observer says that in some cases—and I think this is a point that I must in all fairness make and concede— the reasons lie within the company, poor management, unwise expansion, failure to adapt to changing markets or foreign competition". But they go on to say that in nearly all cases the collapse has been accelerated by economic conditions.

Our charge against the Government is that, allowing for the known difficulties, they failed because of their blinkered monetarist approach to do sufficient to save good well-established firms and small promising firms from extinction. The Observer also gave a list of many of these firms; I will not repeat them now, though I have them before me. It is a depressing and frightening catalogue of firms throughout Britain, from John O'Groats to Lands End, of which we are all aware, which have been closed down not because the managers were incompetent or the workforce idle, but because the Government's policies failed to match up to the challenge of these difficult years.

This also needs to be said. If the private sector has taken a hammering, Britain's biggest losers have been in the public sector, steel, airlines, cars and ships. Here again, if the argument is that there was over-manning, which the noble Lord may say in reply, we say that the Government have allowed things to go too far into decline, in many cases beyond the point of no return. There are good firms which have closed their doors, where the buildings are empty, where the grass is growing on the tarmac, which will never open again. It is one of the most depressing features of our time. It is a terrible indictment.

Lord Orr-Ewing

My Lords, I am most grateful to the noble Lord for allowing me to intervene. As he appears to have left the criticism of policy in regard to the small firms, ought he not in fairness take account of the fact that every month in the last year 10,000 new small firms have started up to more than offset in many cases those that have closed down? In a fair presentation should not this be taken into account?

Lord Cledwyn of Penrhos

My Lords, if I may return to the weekly list which is catalogued by the newscaster on Independent Television, not only does that list give the names of the firms that have closed down and the numbers of men and women who have lost their jobs, it also gives details of the new jobs that have been created. Of course, we welcome the new jobs, but they are nothing compared to the jobs that have been lost, either in number or in quality.

My Lords, we have had enough of this scorched earth policy from the Government. Now that we have well over 3 million people out of work, now that the damage is done, the Government are prepared to spend large sums of money on youth opportunity and youth training. I do not oppose that. I support every reasonable measure which will help young people at this time. But I would say this to the noble Lord and to noble Lords opposite: if the Government had operated a more imaginataive policy, a more sensible and compassionate policy, over the last four years, by putting this £15,000 million to more constructive use in the regions and in help to smaller firms when they needed it, we should not be in the parlous state we are in today. The money would have been invested in jobs and not in training for an uncertain future. The criticism of the Government's present expenditure is that while it is a good thing for these young school-leavers to go into training rather than be on the streets, there is no guarantee of work for them at the end of the 12 months.

I hope I shall not be charged with being partisan when I say this, for it is advice which bodies friendly to the Conservative Party, such as the CBI, have been giving to the Government for the past four years. I will not go further into detail about insolvencies, but the House will be aware that the increase in the numbers is very deeply disturbing. May I say in passing that it is a matter of comment that the Government have done nothing about the recommendations of the Cork Report. Sir Kenneth Cork said that the Government—and I quote his words, they are not mine—would be "stark staring bonkers" not to take action to introduce new legislation. After all the time that has passed since the report was published no action has been taken by the Government in the industrial field on a report which was of the first importance to British industry.

There are other critics and, while they are not unfriendly towards the Government, they voice doubts about the firmness of a productivity breakthrough. I hope that we shall hear something from the noble Lord about this. For example, Mr. John Muellbauer in the Financial Times of 20th April, while acknowledging the breakthrough which began in 1980, notes that from the end of 1979 to the end of 1982 the rate of growth was below that for 1970 and that productivity growth is unlikely to rise above that of the 1970s unless there is a substantial recovery in new investment.

Again, the NEDC in a report of 30th March dealing with sector assessments has important points to make. To take just one example, the industrial intermediates such as chemicals, plastics, man-made fibres and so on, say they are experiencing the most severe problems. The report states that there are two particular United Kingdom problems: one is the high cost of electricity to energy intensive users compared with their continental competitors, and the second is that rationalisation has proceeded further in the United Kingdom than anywhere else in Europe. That is what has contributed to our unhappy condition today. The question that is raised here is whether the Government are ensuring that our industries are competitive with their European counterparts. The NEDC ends its report by recommending different supporting packages to assist the problems which the sectors face. The Government have not been taking account of what independent observers and advisers have been telling them over the past two or three years.

I turn now to the prospects of economic and industrial recovery. We must, of course, welcome any sign of real recovery, and I hope that it is well based and permanent. We are told that industrial production rose by 0.2 per cent. in January to its highest level for nearly two and a half years, and more than 2 per cent. above a year ago. The Central Statistical Office said that the underlying level of output, adjusted for changes in stocks, was little changed in the latest three months at 2 per cent. to 2½ per cent. above its lowest level in spring 1981. It is fair to note, therefore, that any recovery is from a very low point. The CSO also points out that the increase was entirely accounted for by a rise in North Sea oil and gas output and that over the same period other output has shown no change whatsoever.

The CBI has welcomed the apparent improvement but has also uttered words of caution. Its deputy president, Sir James Cleminson, stressed that the latest increases were from a very low base although he thought that industrial groups were showing a growth in confidence". We must all hope that this confidence is fully justified.

There is one matter of the utmost importance. No expert, pundit, or prophet, is able to give us any kind of assurance whatsoever that unemployment will be brought down much below its present appalling level. We believe—and I think this applies to all the Opposition parties in the House—that positive specific action should be taken to introduce measures to deal with unemployment. The truth is that we all think that the Government have gone too far in their adherence to monetarism. The lives of too many people, in terms of their right to work and their dignity, have been sacrificed on the altar of monetarism. If nothing is done there will be a grim harvest of discontent in this country.

We believe that there should be a national plan over five years to co-ordinate expansion and public spending. We believe that there should be a national planning council, involving managements and trade unions. One of the Government's major failures is that they have succeeded in creating a wide gulf between themselves and the unions in this country. They have alienated the very people whose co-operation they so badly need if this country is to recover. We believe that there should be co-ordination and planning with all the leading companies in this country and that regional development plans should be formulated and strengthened.

Our chief concern today, however, is with the Government in power. Let me remind the House once more of the chief results of their stewardship over four years. There are nearly 3,300,000 people out of work: one in seven of the labour force in Britain. That is the highest unemployment figure of any industrial country in Europe apart from Spain and is the biggest increase in unemployment in the whole of the industrialised world. There have been 30,000 bankruptcies in the past three years. The fall in employment in manufacturing industry has been deplorable. In metal manufactures it is 37 per cent.; in coal and petroleum products it is 35 per cent.; in textiles, 33 per cent.; in mechanical engineering, 22 per cent.—the heart and soul of British manufactures.

What of the young and the school-leavers? Forty per cent. of the unemployed are under 25, and two out of three school-leavers cannot find work. It is a grim and deeply worrying picture. To cap it all, this unemployment will cost £17 billion in tax revenue and benefits. On a conservative estimate, it costs £5,000 to £6,000 per annum to maintain an unemployed person in unemployment and social security payments, lost income tax, lost VAT and lost national insurance contributions. That is the cost, and that is where the North Sea oil revenues have gone.

I must remind the House, once again, what the party opposite said in its 1979 manifesto: The Conservative Government's first job will be to rebuild our economy and to reunite a divided and disillusioned people". I regret to say that after four years the nation is far more divided and far more disillusioned than it has been for many decades. The Government have had four years to test their policies. They have shown themselves to be obdurate and unimaginative. They have brought inflation down for the time being—and that is the great crusade they boast about—but at what price? Their medicine has controlled one disease but it is slowly killing the patient. The moment has come for new men and new measures and, more than that, for a great effort to unite the nation once again and to bring hope where there is despair. That will be our objective over the next few weeks. For Britain's sake, we must succeed. My Lords, I beg to move for Papers.

4.19 p.m.

Lord Thorneycroft

My Lords, it is a pleasure, as always, and certainly a great honour to reply to the noble Lord, Lord Cledwyn of Penrhos, who delivered an admirably argued speech to the House. It is a speech which is reinforced and elaborated in an admirable document I found in the Library, called New Hope for Britain. From the combination of the two, I should be able to muster a few tentative comments on the remarks that he has made.

The noble Lord is right to recognise the gravity of the issues that confront us. Perhaps it is not a bad thing that here in your Lordships' House we should have possibly a rather quieter discussion about some of those problems than may be taking place in the country over the next three weeks. He is right in saying that our prosperity depends in part upon what happens in the world outside but also on how we conduct ourselves against that background. It is about that—which is one of the large strategic issues—that I want to say a few words this afternoon.

The noble Lord asked me one question: are we leaner and fitter as a nation? In a way it is the easiest question to answer. We are leaner and fitter. Go anywhere in industry and you will be told the answer to that one. I wish to God it was the only question that had to be answered! There is an enormous parade of other problems, not least among them this massive unemployment. As the noble Lord said, it has not been under one Government or for a few years. For something like 20 years or more, our record has been less good than we would wish. On jobs, growth, productivity and competitiveness we have not matched our rivals in the world. It is time that we all had deep thoughts about how to tackle problems of that character.

I want to compress my remarks into one area, which is how we tackle the main trading structure of this nation. I agree with the noble Lord that, unless we get that right, none of the rest will work at all. We can all spend hours swapping statistics and taking the ones which look the most attractive for the moment. I am sure that that will go on a great deal in the future. But I want to talk about the strategy and the way we tackle the thing. I agree with the noble Lord that both private and public interests have a huge part to play. I think we are all delighted that Lord Ezra will be speaking in this debate. I have respected him, and the great contribution he made in the coal industry, for many years.

For my part, I want to talk about that structure. I want to talk about markets. Lord Ezra, with all his experience of coal, may agree with nothing else, but, if I may say so, he will agree that markets at least matter. If we do not have the markets, nothing else—no expenditure of money; no nothing—will help. That is the structure of world trade. I do not know everything about it, obviously, but I know a little about this subject. I was President of the Board of Trade for five years and Chairman of the British Overseas Trade Board, and I have worked in industry and exports most of my life. Even if I do not know all the answers, at least I know the topic.

To give just one short recollection, nearly 30 years ago I was a member of a British Cabinet, a Tory one. Winston Churchill was its Prime Minister. Leo Amery and the old guard of the Tory Party were great believers in imperial preference. At the party conference they had put down a motion attacking the General Agreement on Tariffs and Trade. I wanted to oppose it. The Cabinet thought I should lose, and I remember Winston saying, "Let him try". It is a rather dangerous thing to say just before an election, but there was always a good liberal element in Winston Churchill, and he was always for having a go. At any rate, we tried, and won. That moment marked—not my speech or that victory—a sea change in the structure of world trade. It meant the moving of this country out of the narrower world of imperial preference into the world of what was then known as wider trade and payments; and it is in that world that we live with international trade rules. Part of my argument now will be that the preservation of international trade rules is of immense importance to this country. Whatever our difficulties, they are likely to be made far worse if we abandon that trading system.

It seems to me that today we are at another such point. I shall try to describe why. The policy which Lord Cledwyn of Penrhos has been arguing (or the background to the speech that he made and which is contained in this Labour Party document) is to inflate the economy. I shall not do all the debating on inflating the economy which will no doubt be gone into. It is set out brilliantly in paragraph 10 of this document. I need not lend it to the noble Lord: I am sure he has it. But there is not the slightest doubt that they intend to inflate the economy, and the effects of this inflation are, as a matter of fact, admitted in the Labour Party document. They are not challenged. They are, I think, sometimes a little more obscured by the SDP, but they are admitted here. They are that there will be a demand for higher wages—that is openly said—and that prices will tend to go up. I shall not argue those areas—not today. The most important effect is that there would be a surge of imports, and that is acknowledged. They then seek to tackle the problem of that surge of imports.

What they propose to do is to stop them by controls, tariffs and quotas. All of that is in direct contravention of the General Agreement on Tariffs and Trade and the trading rules and regulations under which our export trade is conducted at the present time. They then go on to say they will leave the Common Market. I am not arguing in detail the rights and wrongs of all that. What I am saying is that it is inevitable in their policy that they say these things. Once you have decided to embark upon inflation as a policy, you are committed to these consequential events. You cannot inflate in this country and leave it under the trading system that exists today.

In a way I respect their frankness. I am bound to say that my vision of an inflated island economy protected against the rest of the world I view with horror, but I am not here to talk about the horror I feel. I am here to deal with the facts. I am saying that, once you embark upon this policy, you break those rules. I think it would probably be disastrous for this country. I think, incidentally, that it would be disastrous for the third world. If there is one fear that the third world has at this moment it is that the developed world may embark upon a continuing policy of protection. If I may say so to the noble Lord, Lord Cledwyn, for the Labour Party to be the leaders in that advance—or retreat, as I had better call it—into a protectionist world, is a matter to which I hope the British people will give the gravest consideration.

No country, not even this one, is an island. We export from this country about a third of everything that we make. I think Winston Churchill once said that if we stopped exporting like that, half the population would have to leave; and he pointed out that there might be quite a debate about which half. I cannot conceive of this country deprived of exports on that kind of level. We are—and I would ask the noble Lord, Lord Cledwyn, to follow me closely here—very vulnerable to retaliation, perhaps much more vulnerable than any other great trading nation in the world. We are vulnerable because we export much more. In this country our exports per capita are far greater than those of Japan, the United States of America, or France. So if we start the tit-for-tat battle of import quotas and the rest, we can be hit far harder than we can hit back.

At the moment, notwithstanding all the difficulties, the recession, and all that, in world trade this country is placed in a remarkably advantageous position. We have the rules of the General Agreement on Tariffs and Trade. There is no discrimination against us. We must pause before we enter a world in which everybody can discriminate against everybody else. That would be a chaotic world for anybody in which to trade, let alone one of the greatest exporters in the world.

Not only do we have that position. Within the general rules we have a big preferential area of trade in Europe. We have enormous advantages from that. If we leave Europe, what do we negotiate, and with whom? What on earth do we do? If we leave Europe, we cannot have a half preference area. We would never negotiate that with the rest of the world. If we think that we can just make any deal we like, irrespective of the world outside Europe, what happens to the General Agreement on Tariffs and Trade? Is it part of the policy of the Labour Party to renegotiate the General Agreement on Tariffs and Trade as well? It has never said so. I should be interested if anyone who is to take part in today's debate can give us a hint of what would be the broad parameters of such talks. I do not ask for an indication of what would be the results, but rather some idea of what kind of approach there would be to such negotiations.

We are not allowed to have, and no one would ever negotiate with us, a half preference area in Europe. Anybody with even only the most elementary ideas of what goes on in international trading would know that that was not possible. So, if we leave Europe, we are already in trouble, and, if we try to renegotiate, we are in far deeper trouble still. I would beg the Labour Party to think before it tears up this sytem of trading. When I was arguing with Leo Amery 25 or 30 years ago, at least he had a case. He stood for imperial preference. It was there. It was something; and he was doubtful about the GATT. But we are asked to leave the GATT and Europe for a dream. It would be the wildest gamble, and I believe that many noble Lords opposite know it. It is an action that should be considered before the Labour Party finally does it.

There are other consequences to consider. Production, growth, and jobs depend upon investment, and investment depends in part upon profits. But there is also a dependence upon foreign investment. Who is going to invest in this country as a small, protected island, inflating its economy, largely cut off from the world of wider payments and trade? Who is going to invest in such a country? Will the Americans put in money? Will the Japanese put in money? And what happens to the jobs? If the Labour Party want to fight the election on the employment question, so be it. Let it explain to those who are seeking jobs in this country how on earth their future is going to be secure in a narrow, separated, isolated condition of that kind—

Lord Molloy

My Lords, will the noble Lord allow me to intervene? I have listened with some fascination to his speech, bringing back memories of the 'thirties and speculating on what will happen if some of the courses which he has interpreted were to be Labour Party policy; for instance, disrupting the GATT, and leaving the Common Market. We are in the most disastrous situation we have ever been in since the end of the war; we are adhering to the GATT, and we are still in the Common Market. That is what this debate is about.

Lord Thorneycroft

My Lords, the noble Lord's point is a perfectly fair one. If as a nation we find ourselves in great difficulties, with grave problems, against a background of international trade such as it is today, we must not, for heaven's sake, worsen that background. I say, do not deprive us of such advantages as we have. Do not kick us in the teeth at the very moment when we want everybody to have the maximum advantages.

It seems to me that if those policies were pursued, we should lose large parts of our export trade. We should lose the preferential advantages of being in Europe. We should lose the benefits of the trading rules on non-discrimination, without which, frankly, I do not know how our exporters in this country would be able to exist. We should lose most of the foreign investment coming in. We should lose a good slice of our invisible trade, which hangs upon the success of international trade and is of inestimable value to us. We should lose jobs. I trust that, against that background, at least the noble Lord, Lord Ezra, and, I hope, some other noble Lords who are to take part in the debate, will urge caution before the policies which the noble Lord, Lord Cledwyn, has commended are pursued.

4.39 p.m.

Lord Ezra

My Lords, we all owe a debt of gratitude to the noble Lord, Lord Cledwyn of Penrhos, for introducing this very important debate, particularly at this time. I do not believe that your Lordships' House could be debating a subject of greater importance than this one, nor at a more relevant time. As a relatively newly-arrived Member of your Lordships' assembly, I regard it as a very great honour to be able to participate in the debate. I also regard it as a very great honour to be speaking after the noble Lord, Lord Thorneycroft, whom I have known for many years during the course of his very distiguished career. I have had the opportunity of working closely with him, particularly when he was the first chairman of the British Overseas Trade Board. I fully concur with his view, which he so eloquently expressed, that we must do everything within our might to develop our trading position in a free and liberalised trading world.

The acuteness of the industrial situation that faces this country needs no demonstration. I had come today laden with statistics, but I shall spare your Lordships a recital of them because I am sure that all the basic statistics are well known. The question that arises is what we are going to do about the situation from now on. That is the issue to which I should like to try and address my mind. In the first place, we need to analyse and decide clearly where we are. There are indications of some revival, but, on all sides of this House and throughout the country, everyone is uttering words of caution over how we treat this revival. We were caught out, about this time last year, when we thought that things were getting better, but they did not. Maybe, this time round, they will continue to get better, but the situation is undoubtedly very patchy.

There is a revival in a few sectors of industry, but not in most. There is a revival in some enterprises, but not in most. There are signs of revival in some parts of the country, but not in most. So this is apparently a very delicate plant.

Furthermore, I believe that one of the effects of present policies pursued by the Government may be stimulating the patchy nature of this revival. As emphasised in an exchange earlier in this debate, the Government have paid a great deal of attention to stimulating small businesses. No one denies that this is very important. Equally, they have devoted a great deal of attention and are spending a considerable amount of money on stimulating high technology. They have recently devoted, I believe, the very large sum of £350 million to the stimulus of research in the fifth generation of computers. That is very important. But the fact is that the vast mass of British industry lies between those two areas; that is, between the small enterprise sector, on the one hand, and the high technology emerging sector, on the other.

There are the large basic industries; there are the construction industries; there are the big engineering industries; and there is the bulk of manufacturing industry. It seems from the statistics that the maufacturing sector as a whole has suffered most. If you look at the published statistics—I hope I shall be forgiven for quoting one set of statistics—they show that, comparing the year 1979 and the year 1982, the last full year, activity in our manufacturing industries has diminished by 15 per cent. This figure has to be compared with those in France and Germany, our two main competitors on the continent, where the diminution has been of the order of 4 per cent.

Undoubtedly, the world situation has played its part. But the difference between us and our main comparable continental competitors suggests that there are other special factors on the British scene. One of those factors, in my view, is that as a result of various policies pursued in recent years we have had a massive reduction in the proportion of investment in our industrial sector. This is, I believe, the most serious aspect of our present situation. What can we do about correcting this without again rushing headlong into inflation? Undoubtedly, the conquest of inflation that the Government have achieved is very important. There are however other aspects in our economic affairs. The health of our industrial economy is also of vital importance. I believe that the time has come when we have to address ourselves much more seriously to that problem. How can this be done in a sensible and rational manner? No one can give a complete answer. If they could, I have no doubt that they would be the people most in demand in this country. At least, however, some suggestions can be made.

I should like to draw upon my own industrial experience to suggest what I believe can contribute. We have to start with our infrastructure, with the fabric of our country. I believe that the fabric of Britain today is reaching a stage of progressive decrepitude and that it needs renovation and repair. In your Lordships' House only recently there was an important and well-informed debate on the water industry. That debate, supported by Members from all sides, demonstrated that there is a progressive deterioration in the systems supplying us with water and dealing with sewage. But because it is largely unseen and still somehow working, nothing much has been done. Like the householder who can try to ignore the odd leakage through the roof hoping that somehow it will go away, we know from our own domestic experience that if we ignore the first signs of decrepitude the bill that we have to pay at the end of the day is very much larger.

Looking at the fabric of our country, consisting not only of water supply and sewerage systems but also of roads, railways, public buildings and edifices and public housing, it seems to me that these are all things to which we should now be giving special attention. We have given them diminished attention over the past few years. In a discussion with the Institution of Civil Engineers the other day I was shown conclusively how public sector construction and maintenance work coming to its members—all of them are in the private sector—has been diminishing radically over recent years. This question of the fabric therefore seems to me to be of vital importance, not only because it is sadly in need of repair but also because, in the present state of world economic affairs, this is precisely the right time to get the fabric right. If we wish to get the maximum benefit possible from what might he a slow but, it is to be hoped, certain recovery in the world economy, let us for goodness' sake start from a firm base. Let us not find that our efforts, in due course, are hampered by the fabric giving way.

I can say from my personal experience that when you try to do these things at a time of strong recovery the resources are not available. The construction resources and the skill resources will not be there; they will be tied up in other things that attract a quicker return. Those things I am talking about will only provide a slow return in money terms but a vital return in terms of' what the country can contribute towards stimulating recovery.

There is a related aspect to which I should like to draw your Lordships' attention, again based on my own industrial experience. If a really determined effort is directed towards major public investment projects, it is possible to have them supplied and constructed on a competitive basis from British sources. The effect of going into carefully-selected public projects, which will largely require the services of the private sector in order to get our infrastructure right, can be stimulated by positive purchasing policies. My own experience in the coal industry, which has a purchasing bill of £1,000 million a year, was that we set out deliberately to stimulate suppliers from Britain to quote and to get the business on a competitive basis. There was no question of buying British at any price. We must not fall into that trap. We must make sure that the British resource is a competitive resource, and, at the end of my time, on that basis we were obtaining no less than 97 per cent. of all that we purchased in the way of goods and services from competitive British sources. If we were to launch into a desirable, carefully coordinated series of capital projects to get the fabric (as I have called it) right, and if we were to make sure that competitive supplies and services were provided from within our own resources in this country, that could have an instant impact not only upon the creation of wealth but also upon employment.

There is a third related aspect to this which, again, I can draw on my own experience to illustrate. If we were to co-ordinate our work on major projects in that way, carefully thought-out, supplied and constructed on a competitive basis, we would build up—and I am sure that the noble Lord, Lord Thorneycroft, will appreciate this—an increased export capability. This was certainly the case in the coal industry in my time, because by making absolutely sure that we stimulated the technologies among the mining machinery manufacturers, all of whom were in the private sector, we were able not only to advance the technology within our own pits and to improve our performance but also to provide them with much increased export opportunities. Therefore, I believe that on the back of carefully selected major capital projects to improve, repair and renovate the basic structure of Britain we can ensure that this works its way through the industrial economy and that it gives substantial additional work at a time when it is needed to the sorely-pressed construction and engineering industries, and, through them, to their subcontractors. Thus it would work its way positively through the economy.

As a result of that we could also get increased employment at a time when it is obviously needed, and increase our export capability. I believe that the time has come for a positive, vigorous, carefully thought-out policy to be adopted along those lines. I believe that it can be adopted without risk of a renewed inflationary surge. On the contrary, I believe that such a policy could contribute to increasing our national wealth, increasing employment and increasing our overseas earnings.

4.53 p.m.

Lord Gallacher

My Lords, I have opted to speak on a somewhat controversial subject, as the debate so far has shown, but I hope to do this in a non-controversial way. If I stray over the narrow dividing line, I hope for the understanding which I am told your Lordships usually extend to first-year apprentices.

The main concern of employers and workers has been and is that, at a time of world recession, aggravated by the rise in world oil prices, Britain opted for strong deflationary policies which made the position difficult for the nation as a whole. Technological change, combined with dearer money, has meant considerable hardship for industry. Liquidity problems alone have forced the closure of many firms and serious reductions in the labour force of those continuing in business.

Unemployment figures are serious both in terms of their taxation cost and the unused resources which they represent. Business confidence is a fragile affair. Once lost, it is difficult to restore the willingness to invest. If interest rates are historically high, even those who wish to borrow are deterred because they are doubtful of their ability to meet lending charges.

If insufficient taxable profits have been made, there is no offset against loan charges, so the firm, be it large or small, is in a trading situation from which it is difficult to break out. Cheaper money is essential to recovery.

In another place a Question was answered on 4th May about the total industrial investment in Britain as a proportion of gross national product for the years 1962 and 1982. The reply indicated that, in percentage terms, United Kingdom investment in industries covered by the index of industrial production, including assets leased from service industries, expressed as a percentage of gross national product was 6.9 per cent. in 1962 but only 5.3 per cent. in 1982.

In the economic indicators section of British business for the period 6th to 12th May 1983 there is further evidence of the slow rate of recovery despite a more optimistic CBI industrial trends survey for the quarter ended April 1983. For example, in three months to February 1983 the manufacturing index was only 1 per cent. higher than in the previous three months and unchanged from the same time a year earlier.

CBI forecasts suffer from the absence of information about retailing, although I am aware that attempts are being made to provide for a retailing input. The abolition of statutory deposits for hire purchase in July last undoubtedly boosted credit sales of certain consumer durables, but there are limits to the extent of this, particularly on an on-going basis, as even consumers need to be confident before getting too heavily into debt. Thus consumers' expenditure on the Department of Trade's preliminary estimate and in volume terms was virtually unchanged in the first quarter of 1983, so the increases in the last quarter of 1982 are just about being maintained. In any case, a large part of consumer durables represents imported goods, so the benefit to British industry is reduced by the extent to which foreign makes are chosen. The same comments apply, unfortunately, to clothing and footwear sales.

Both the TUC and CBI have asked the Government for some reflation to ease the problems of workers and employers, but so far the response has not been significant. Of course, there are sharp differences between the TUC and CBI about the amount and nature of the expansion they wish to see, but there is mutual concern about the state of economic activity and there must surely be a more positive response by Government this year.

Industry feels that it faces an uphill task in a recessionary situation. If the pound is strong, exporting is difficult. If the pound weakens, particularly against the dollar, interest rates rise. In either event, industrial costs, particularly energy, seem high to manufacturers by comparison with those payable by competitors, especially in the EEC, which are poor in energy resources by comparison with the United Kingdom. There now appears to be an acceptance of the manufacturers' cost problems, but it has taken some years, much advocacy, and not a few business failures to obtain recognition of industry's need for a better competitive base.

The encouragement of small firms is particularly welcome in this the European year of Small and Medium Sized Enterprises. The Government's continuing assistance is both practical and timely. It represents a continuation of policies initiated by the previous Administration in which my noble friend Lord Lever played a significant part.

The new firm does, however, need a sympathetic economic environment if it is to flourish. Dear money and low demand represent a harsh climate for any business, but particularly for a new one. It is to be hoped that the Government will follow through what they seek to do for small business by giving them a fair economic wind in their early years. Without this, the failures could exceed the beginners so that their contribution to employment creation will be much less than everyone hopes. Large firms are still the dominant employers in the United Kingdom and they too need easier monetary policies. The tragedy of business failure is no less great because one is not personally touched by it. When established firms go to the wall, employment is lost and so, too, is capital.

Provision for bad debts by joint stock banks is a barometer of the state of the nation. Very substantial debt appropriations have been made by most banks in recent years. Although a large part of this relates to overseas lending, enough is in respect of United Kingdom firms to at least call in question the nature and extent of the recovery process which is said to be under way.

Perhaps the saddest feature of the decline in industrial activity is the manner in which it has spread throughout all regions. Britain now has problems in every region. This makes selective assistance on a geographical basis an arbitrary process. The longer recovery is delayed the greater will be the totality of the problem. The retail price index in March showed a year on year increase of 4.6 per cent. The cost of achieving this, in both economic and social terms, has been high, yet borrowing rates are still of the order of 12 per cent. to 13 per cent. even for good class risks. Surely this differential is too high.

Government is best able to prime the investment pump. It must encourage the country to believe that it is prepared to play a positive part in economic revival. At present, Treasury responses have been a disappointment, especially following the last tripartite meeting of the National Economic Development Council. The extent to which pump priming encourages capital expenditure over revenue spending is a matter for ministerial decision. What is certain is that too many industries have suffered, some grievously, and too many people who ought to be employed are unemployed. That coincidence of adversity may yet threaten the social stability of Britain, although no one wishes to see this.

5.1 p.m.

Lord Harris of High Cross

My Lords, it is a great pleasure to congratulate the noble Lord, Lord Gallacher, on his highly competent, well-informed, and cogent maiden speech. He said at the outset that he was launching himself on somewhat controversial waters, but I think we can all agree that he managed to keep upright, and we look forward to hearing from him again in our future debates. At the other end of the spectrum from the maiden speaker it was, as always, a joy to hear the noble Lord, Lord Thorneycroft, whom I commend to Lord Gallacher as a model of the old hand that none of us can ever quite emulate. I was particularly delighted, as a free trader, to hear his formidable case against the temptations—not only for the Labour Party but also for Conservative Ministers—to drift into the short-term expedient of restriction on trade.

I turn to the Motion of the noble Lord, Lord Cledwyn. I must congratulate him on the remarkable timeliness of this Motion criticising the Government's record at a time when we approach the full light, or it may prove twilight, of the general election campaign. As always, it is easier for me to admire the manner of the noble Lord rather than the matter. Indeed, as he got into his stride—and I listened to his decorous but effective battering of the Government—I was reminded of the Irishman who asked, "Is this a private fight, or can anyone join in?" I have a contribution to make that will, I hope, complement something he said, because he referred fairly briefly at the beginning to the long history of post-war economic difficulties which have enveloped Governments of all parties. But naturally he moved on quickly to the more controversial matters of the last Government's record since 1979.

My Lords, I hope it might be of service if I try to fill in something of the missing background to that speech, because we must go back well before 1979 if we are to make any kind of judgment on recent developments. For example, have any of us forgotten all the endless agonising in the 1960s and 1970s over the British disease? Does the noble Lord, Lord Cledwyn, not recall all the talk of the economic league tables which showed our progressive decline from among the leaders to a straggling laggard in real income per head of developed nations?

I doubt if anyone in the House easily remembers the post-war Anglo-American Council of Productivity which brought together the TUC and the Federation of British Industries in a rare search for ways of achieving greater efficiency. In 1953 it published a report with the hopeful title, We Too Can Prosper, which makes instructive reading some 30 years later. The author of this report was Mr. Graham Hutton, a lifelong friend of mine. I recently read again with special care that he attributed the better performance of United States industry chiefly to their more intensive use of modern machines through the greater flexibility and mobility of labour. In contrast, Mr. Hutton referred to the strong Luddite tradition of British trade unions which, allied to weak management, he thought had given rise to what he then explicitly called, "concealed unemployment". It is my view that it has been, above all, the failure of managements to tackle restrictive practices in industry that explains Britain's long relative economic decline.

Of course, over all that period politicians have made endless speeches about productivity. The Conservative Party, it may be remembered, invented the National Economic Development Council, and the Labour Party conjured up national plans without number, and largely without effect. Both parties multiplied subsidies; at one time for capital investment, and then for the employment of labour. But I would argue that no sustained progress was made until after 1979.

If we go back to 1964 when a certain Prime Minister was lighting his pipe by what he called, "the white heat of a technological revolution", at the very same time an American consultant, William Allen, hit the headlines in the Sunday Times with an article asking: Is Britain a half-time country, getting half pay for half work under half-hearted management? His bleak answer gave countless examples from many differing industries where it took two or three British workers to produce as much as one in other countries, often with similar plant.

Two years after William Allen's article there was a debate in this House in May 1966 when the noble Lord, Lord Byers, from the Liberal Benches opened a discussion on the need to increase efficiency. In that debate he estimated that, between 10 per cent. and 20 per cent. of the working population was under-employed". In the same debate, the noble Lord, Lord Shawcross, claimed that there was: concealed under-employment of at least 2 million men and women", and he went on to argue that they would be available in expansionary times for redeployment in other industries and services.

If all this is even approximately true of that period, we are bound to ask why was it that managements and unions failed to grasp the nettle of slack working habits. I believe it is a non-political revelation that these restrictive practices were deeply embedded in industry and indeed go back more than half a century to the birth of British trade unionism.

Lord McIntosh of Haringey

My Lords, I wonder whether the noble Lord would permit me, before he leaves the question of restrictive practices and William Allen in particular, to ask this question. Would he not recognise that Mr. Allen's success in the Esso refinery in Fawley shows that it was management that was at fault rather than the unions' restrictive practices?

Lord Harris of High Cross

My Lords, I must defer this argument to another occasion. I would by no means exempt management from a large share of the blame, but I am coming on to ask why did not management do something about it. I am saying, first of all, that the restrictions of which I talk were deep-seated and had come to be widely accepted. I want to remind noble Lords that when we look even in recent years to examples in printing, in the docks, in railways, in shipbuilding, even, alas! recently in the car industry, we find that where managements do tackle restrictive practices or overmanning they are in for costly battles which, in some cases, can set a term to the existence of their companies. But, above all, against the confrontation that would have been involved to tackle these problems, it was so much easier for the CBI and the TUC to get together at their cosy meetings and to press Government to stimulate demand for inefficient labour in the sacred name of Keynesian full employment policies. That is the nub of my criticism of that period. I believe it has been the major cause of Britain's record inflation, and I think it is also the explanation of Britain's poor record of growth and the consequent industrial decline.

The lesson that is ignored by today's self-styled "reflationists" is that monetary expansion—though again and again intended as a stimulant to employment and growth—simply acted as a sedative that sapped the will to tackle the root causes of our poor industrial performance. Even worse, these political pep pills became addictive, so that increasing doses yielded a diminishing effect on employment and output, with worsening side-effects on inflation. As Hayek has pointed out, more and more jobs became dependent not only on the continuation of inflation, but on its acceleration. That helps to explain why the Labour Government's success after 1974 in getting inflation down pushed unemployment up—under a Labour Government—very close to 1½ million.

It is true that the real wages of British workers rose more slowly than elsewhere, but they still rose faster than flagging output. Positive proof of this among a great many conflicting statistics is shown by the decline in the real rate of return on capital from an average of 10 per cent. in the 1960s to below 5 per cent. in 1979, which was an ill omen of higher unemployment still to come.

The crime with which this Government are charged is simply that they have refused to accommodate the higher inflation that would have been necessary to keep workers in over-priced jobs. The Government are not guilty of reducing or deflating demand, but only of allowing demand to grow more slowly to bring inflation down from above 20 per cent. to below 5 per cent. In the process of so doing, the concealed unemployment of the 1950s and 1960s has come out into the open and onto the register. I agree that it is nothing less than a tragedy that this long-overdue corrective for the enfeebling British disease coincided with a record world recession on top of a structural shift of industry into new products and new sources of supply for older products.

I conclude with the thought that there is a silver lining to the heavy clouds of unemployment. It is that in many sectors of industry there has been a dramatic rise in productivity since management and trade unions found that they could not take the soft option of inflating their costs and their prices. As I have said before, Mrs. Thatcher is like the wife who has hidden the gin—and that is not popular, especially among old soaks, who are by no means confined to the Labour Benches. I believe it gives us the best chance since the war to expand our production and employment as the world recovers from a recession which has been little more than a return to earth after the prolonged illusory joy-ride of international monetary inflation.

5.14 p.m.

Lord Jacques

My Lords, I first congratulate my noble friend Lord Gallacher on his maiden speech. It was just right in length, in content and in tone. I have known my noble friend for 40 years at relatively close quarters. I believe that because of his personal qualities and his experience he can make a substantial contribution to the work of this House.

Within the next few days we shall be starting an election, and one of the choices which our people will have is whether they want a managed economy or a market economy. A managed economy is not the same but similar to what we had in the first 20 years after the war. In spite of all the problems and all the criticisms that we may have of the first 20 to 25 years after the war, let us remember that it was that economy which gave us full employment: it was the economy which gave us the welfare state; it was that economy which doubled our standard of living in real terms. It did not do so badly.

The alternative is a market economy; that is to say, an economy in which we depend too much on market forces; so much so that for prolonged periods our resources are not fully used. Because our resources are not fully used, we cannot afford the welfare state except by frittering away our receipts from North Sea oil and by selling assets that we should retain because they would be useful to the nation. Those are the only terms on which we can keep our welfare state. Without those sources of income, the welfare state would have been devastated in the last four years.

Our unemployment is not primarily due to the international recession. The recession affects not only this country; it is international. The figures which compare our country with other similar countries show that our suffering has been greater. For example, our real gross national product has declined by 2.5 per cent. since 1979, but in other Western countries, plus Japan, which are members of the OECD, there has been an increase of 3.4 per cent. in their GNP; about 6 per cent. difference between their perfomance and ours. In 1979, our unemployment was only one half of 1 per cent. more than the average for the OECD countries. Now, it is 4½ per cent. more.

It is quite clear from these figures that the primary cause of our increased unemployment is not the recession. Nor, is it technical improvement, including the use of the chip, that increases productivity. Technical improvement reduces cost. It reduces prices. It increases our real income. It increases demand for other goods and services. It does not create massive unemployment.

The primary cause of our unemployment is the method that has been used to control inflation. There is a choice of method, but the method that has been used during the last four years has caused havoc. Due to over-reliance upon the control of money, we have had excessive interest rates. What does the phrase "excessive interest rates" mean? It means that the survival of a firm does not depend in its efficiency, but upon how far it is dependent upon capital at the current rate of interest. If it is not dependent upon borrowed capital, it will find it easy to survive, but if it is, it will find survival quite difficult, no matter how efficient the firm might be.

This policy also gave us a false exchange rate for sterling because it did not reflect domestic prices. Because the exchange rate did not reflect domestic prices, it was kept high to reduce the costs of our imports and therefore our inflation. However, at the same time, it made it exceedingly difficult for our industry to export and, at the worst period, our exporters were at a disadvantage of 50 per cent.—something which has not been known before in any industrial country. Even today, after the depreciation of the pound in the last few months, our exporters are at a disadvantage of 25 per cent. so that we have quite a way to go before they are put in a reasonable position for competing on the world market. These things have caused the unemployment, and the economic policy has been to rely upon these things causing the unemployment, because that was the way of controlling inflation. Unemployment damped down the demand for increased wages because of the fear of unemployment. Consequently, we had control of inflation by fear rather than a more constructive control.

There must be an alternative to that. It is uncivilised. I believe that this is the alternative. Instead of trying to put the trade unions in a straitjacket, which recent legislation has attempted, we should have consultation with them, consultation at national level. At local level, the members of trade unions should be treated as partners in the business. If we do that, then we shall get much better industrial relations and a civilised control over inflation.

I should like to commend to the House an industrial relations agreement negotiated between Toshiba, the Japanese electrical firm, and the electricians' trade union. Some time ago they negotiated an agreement on consultation and negotiating procedures and, in the words of the trade union officials, "It is an agreement in which our members are treated as partners and not as servants". That is the first thing that has got to be realised in any industrial negotiation. This particular agreement has embodied in it a clause which lays down that, in any difference on wages and working conditions between the company and the trade union, the matter shall be referred to an independent arbitrator who shall make an award either to the company or to the trade union, but shall not compromise.

That brings something new into industrial relations. It means that there is a discipline which may hitherto have been absent: both sides tend to be more responsible because, if they are not more responsible, then the arbitrator is likely to give the award to the other party. I believe that, by looking at agreements of this kind, we can improve our industrial relations and, if we improve our industrial relations, we shall be able to have methods of controlling inflation which are far more civilised than the method that we have used in the past four years.

Finally, I would say that the present indications of a sound recovery are not there. We are investing in manufacturing industry 26 per cent. less than we did in 1979. Equally important, we have 40 per cent. less apprenticeships in industry than we had in 1979ߝ40 per cent. less! This is not the stuff upon which we can rebuild the future. We need something much more positive than that. We certainly need much more investment and, on the supply side, we need to give confidence. I believe that we can give that confidence if we improve industrial relations on the lines which I have indicated. I believe that it is the biggest hindrance to reinvestment. On the demand side, we have to reduce drastically the rate of interest; we have to do everything necessary to reduce the rate of interest.

In particular, we have to have exchange controls so that the savings of our people in pensions and insurance are not invested abroad to take away their jobs. We want the money invested here. If firms and employees contribute to pension schemes, it is in their interest and in the nation's interest that the money should be invested here and that we should create conditions in which that money can be invested here. The choice of the nation in economic policy in the next few years is whether we are going to do these things consciously and manage them or whether we are going to rely abnormally upon the forces of the market.

5.26 p.m.

Viscount Trenchard

My Lords, let me add my congratulations to the noble Lord, Lord Gallacher. I hope that he will contribute often to our debates. Let me also say to the noble Lord—for whom I have great respect—who introduced this most important debate that I have sufficient regard for his timing in placing the Motion at this time to say that I think he has done the House of Lords a great service in putting on this extremely important debate on a subject on which we shall be no doubt hearing a great deal more throughout the election. In particular at this moment, our industrial recovery, the building of new wealth for this country, is the prerequisite of every desirable facet of national life. There can be no more important subject. Neither can the level of unemployment—which doubled in the final years of the last Labour Government and which has gone on increasing ever since—leave any of us other than most worried and determined to try to work out the best way to create real jobs.

Having said that, I confess that I was nearly speechless with astonishment at some of the remarks of the noble Lord, Lord Cledwyn of Penrhos. Fortunately or unfortunately, as you wish to view it, I was not quite speechless and, as a yesterday Tory "wet" Minister at the DoI, I intend to make some comments which should perhaps be entitled not so much The Confessions of a Wet as the The Conversion of a Wet. I am sorry that my noble friend Lord Thorneycroft, who made such a marvellous contribution to our debate today, is not present to hear me say that in fact I started to dry out at about the moment when he was reported to be experiencing a feeling of rising damp.

However that may be, let me come to the reasons for my astonishment that a man of the eminence of Lord Cledwyn—whom I have known for a long time and who was in ministerial office when I was outside it in industry—should have made some of the remarks that he made today. It was tenable to hold those views in, say, 1979; but I believe that they are not tenable at a moment when British industry generally is proving that it is internationally competitive for the first time in over 20 years. Of course, there is the patchiness that the noble Lord, Lord Ezra, mentioned and, of course, it is not in each and every industry; but, in fact, in a static and stagnant market we have levelled out; and you cannot do that if you are not competitive overall.

The noble Lord, Lord Hams of High Cross, made a valuable contribution on the hidden unemployment of the years in the '60s and '70s. I agree with the noble Lord, Lord Jacques, that our present problems are not all the result of the world recession, although the seriousness of that must not be underestimated. To me the important point, and the one I feel many of those in Government of both parties in the '60s and '70s have still not realised, is that during those two decades world markets doubled, and that this unprecedented and enormous growth—it was both of these two things, and I think that we shall not see the like of it again—alone saved us from massive unemployment many years ago.

In 1960 we had almost 20 per cent. of world markets for manufactured goods. By the later 1970s we had between 8 per cent. and 9 per cent., a half-share of a doubled market. The reason that it did not show was this growth. What did show was that country after country, once far below us, soared in this period of unique opportunity to levels of wealth and standards of living double, and even more than double, our own. Sixteen countries now stand above us in the table of GDP per head as a measure of national wealth. We are only just above Portugal and Spain. All this new wealth created in the '60s and '70s passed this nation by. We were blinded, however, because of this huge growth in the total world market. The truth was masked from our people.

I remember at that time the older factory employees saying to me, "It can't go on like this, can it, Guv'nor?" It did. They said that because the perceptive had noticed the growing flood of foreign motorcars, television sets and other consumer goods into our own market. Those who travelled abroad noticed others were getting richer, but for all that, life was not too bad for us; except in a very brief period in 1976 when our average standard of living dropped for the first time since the war. Your Lordships may remember that that was the year when a young Member of Parliament, as he now is, Richard Page, took the Workington seat, for many years the seat of the noble Lord, Lord Peart, a stronghold for Labour for years and years, with a 22 per cent. swing to the Conservatives.

However, that return to reality was short-lived. More money was printed by the then, as it happened, Labour Government—and our Governments have been guilty of this in the past, too—and the seeds of further inflation were again sown. Although there were many problems, as the noble Lord, Lord Cledwyn of Penrhos, mentioned, which faced all Governments in those years, it is in my view the fact that they were also, although they did not realise it, aided and saved by this enormous world growth. Their policies through the '60s and '70s, often labelled under the popular title of expansion, did little more than increase inflation and uncompetitiveness, and cause a further loss of market share. Subsidies and the unsustainable levels of public expenditure, for the wealth of the country as it was and is, resulted only in increased taxation which destroyed jobs and initiative; and the area of small business, which has been raised today, in my opinion had the worst results for any country in Europe. The brave steps which have now been taken are beginning to show what the inventiveness of this country can again do in small businesses.

One could go on and on talking about the follies of the policies of those years. The same policies today in a static market can only produce total disaster. They were the policies which led to our losing half our markets in less than two decades. I have tried to demonstrate why the public did not react to the Government's peddling of such dangerous policies or potions. In any normal decade, doctors prescribing these cures would have been strung up because the patient would have been nearly dead. Unemployment would have soared, as it finally did in the last years of the Labour Government and has gone on doing ever since.

But what of today? Our market share of approximately 9 per cent. is stable—if anything, it has grown a little. Overall we are at last proved to be competitive, first by holding a static volume in a static market as we did in 1981 and 1982, with the monthly ups and downs, and now by edging up in a market which is little more than static, which is only fractionally growing. I am aware of figures which suggest that we are less competitive than we were in 1978. They are proven wrong for reasons which I have given. As a one-time Tory Minister of the DOI, I know their base, because I had a large part to play in their introduction in an effort to make my then Secretary of State, Sir Keith Joseph, realise how great our accumulated uncompetitiveness was at that period, and with the exchange rates ruling in 1979 and 1980. At that time in fact I did forecast to him that we would lose between 15 per cent. and 20 per cent. of our manufacturing industry. That is what we did lose. Listening to the noble Lord, Lord Cledwyn of Penrhos, at times he gave one the impression we had lost a much larger chunk of our manufacturing industry. Against our accumulated uncompetitiveness, in a sense it is surprising that we did not lose more.

But our industry today is simply not comparable with that of 1978. That is why the comparisons with 1978—and I know their base—are not in fact valid. Some of the least competitive have gone; the product ranges have all changed. Premiums and not discounts are achieved in home and export markets, where the reverse was the case. We had to sell cheap because of our unreliability and failure to deliver on time and our resulting accumulated reputation. We are now getting premiums across the products of most of the private sector and some of the public. If we were still 20 per cent. uncompetitive, as Shirley Williams suggested on the BBC this morning, we could not have bottomed out and now started to rise; we would still be falling through the floor.

In retrospect, I have to admit as a former "wet" that I did not believe, with a pretty long, 30-year, full-time industrial experience behind me, that it was possible to change the attitudes of management and the workforce to increase productivity to new, all-time records, and I hope the Government Minister who replies to this debate will quote the figures of increased productivity which, at a time of static and in many indvidual cases of falling volume, are remarkable to a degree which I think most industrialists would have found incredible a few years ago. Indeed, we have transformed our competitiveness in just a few years in a way that I did not believe was possible.

The rough justice—and it was rough—the cruel and intense pressure on industry, the ghastly growing unemployment, in fact have made us overall competitive in a shorter period; and as to the long-standing ills which the noble Lord, Lord Harris of High Cross, recounted so clearly, which are recorded and observed by international and national observers, experts and economists over the years—perhaps only in this way could those ills have been put right in such a short time. My old Secretary of State, then Sir Keith Joseph, took much criticism for what he knew was extremely tough medicine but in my belief it has worked and he was broadly right.

What we need now is real and steady growth. We do not want excessive or fast growth caused as it would be in a plant, for example, by an undue dose of nitrogen, or the printing of money, which can cause quick growth, no roots and no substance to the stem. That kind of growth can and will wither and will only take us back into the world of uncompetitiveness from which we are just emerging. We can have real, steady growth. Our costs have gone up less than those of other manufacturing countries as a whole in the last few years—substantially less. With a little world volume growth and a little increase in shares of the markets our productivity will improve further. Volume growth on a real basis, as any industrialist knows, makes it so much easier in fact to get productivity increases.

There is no reason why we should lose the increasing momentum now. Of course industrialists, although they have all said that industrial recovery is now coming, are rightly cautious—and they must be cautious, as all responsible people are. Above all else, we must keep present attitudes and wage moderation if we are really to get our international competitors on the run; and, my Lords, we can get them on the run for the first time for 30 years. The time for catching up with their living standards—and we are far, far behind their living standards—must come after, and as a result of, creating new wealth and after we have won back some of our lost years of markets.

We are inclined to be cynical and, above all else, to be self-critical in this country after the long years in which we have been progressively left behind by other countries. Other countries, based on success, are openly proud of their industries, yet we still have the brains, the character and the inventions; and we now have the right attitudes on both sides of industry, created in a record short time. We have the attitudes once more to apply our own inventions and skills to our own products rather than watching them being applied to other people's.

Nothing now can stop our industrial recovery except gross misunderstanding of the history of the last 25 to 30 years and a return to the kind of medicine which lost us half our markets in less than two decades. High unemployment was caused in the years of fool's paradise in the 1960s and 1970s, under Governments of both parties. Where would unemployment be now if we had dropped not from 20 per cent. of world markets to 8½, but to 12 per cent.?—a big enough fall. Our record, which in fact since the world recession started is not so un-comparable with that of European countries anyway, would be far above theirs and our unemployment problem far less. Of course, we would still have problems in the centres of our oldest industries. We can now start to re-create real jobs; and I believe that the policies which have borne the brunt of criticism in a world recession—coming at the end of a unique period of growth which hid the truth—can rebuild the wealth of this country and, behind it, our standard of living and other desirable things.

5.45 p.m.

Baroness Nicol

My Lords, I rise with some diffidence to follow the economic, industrial and political giants of this House, among whom I number my noble friend Lord Gallacher, who has made a most impressive maiden speech, and I do congratulate him on it. I think we may have had enough statistics for one day. The situation has been described in great detail by a number of speakers and I do not propose to go over all that detail again. We must admit that the 4 million jobs lost since 1966 have not all gone under this Government; but this Government must take the blame for accelerating the process by their blind pursuit of monetarist policies.

Ownership and control in industry is in fewer and fewer hands. Decisions of vital importance to workers and the communities in which they live are taken apparently without consultation and apparently without any regard for the local effect. Industry should be efficient, but that aim cannot be divided from the needs of society. It is not efficient to pay more for people not to work than to work, as the noble Lord, Lord Cledwyn, has pointed out. The current cost of keeping one unemployed person is of the order of £5,000 per annum when you take into account the loss of tax, the loss of contrubutions and the benefits that have to be paid.

When you consider the social cost of unemployment, the amount becomes incalculable. Workers and their families are being tested to destruction by economic pressures, by the tensions that grow between them and by the mounting psychological effects of rejection and boredom. Unemployed teenagers suffer boredom and disillusion, too, but they at least can remember more stable times and can still have hope. If recovery is not too long delayed they may be able to readjust to a better situation; but younger children are having their childhood destroyed by insecurity and, in many cases, hardship. We can never restore those lost years to them and, in terms of damage to their personalities, we are creating a time-bomb for the future that will be very difficult to defuse.

In a democracy, governments are elected to manage our resources. They cannot escape that responsibility; nor can they escape the blame for their mistakes and their omissions. There is no shortage of sound advice which could be taken now in order to redeem the present grim situation. Noble Lords who have already spoken, and especially the noble Lord. Lord Ezra, have pointed the way.

I wish to emphasise one area which has not received enough attention; that is the creation of worker co-operatives. Co-operatives take many forms but their basic requirements of democratic control and voluntary leadership should appeal to all political creeds in this country. The degree of job satisfaction enjoyed by workers in co-operatives is high and the days when such organisations were either failed enterprises or trendy alternative lifestyles are being left behind, although there will always be some of those on the co-operative scene.

The role of the Co-operative Development Agency is crucial to the further development of the co-operative sector, and it is essential that it should be well organised and sensibly funded. The present Co-operative Development Agency has performed miracles on a very low budget. There should be strong support for the formation of more local agencies to offer advice and information, and local authorities should be encouraged to take positive steps to make premises available.

The Co-operative Party has recently commissioned a report on co-operative opportunity. I commend it to the next government, whoever they may be. They will have a mammoth task to revive our shattered industrial base and co-operatives are a valuable aid to that end. We need a whole new approach to the problem of unemployment. Workers' resistance to change and to new technology can be overcome if they can see that the benefits will be shared with them and not simply added to the profits of the few while more and more of the workers join the dole queue. In the end, there is no permanent way to industrial peace and prosperity except by understanding and co-operation.