Manufacturing Productivity and Jobs

HL Deb 04 May 1988 vol 496 cc571-638

3.8 p.m.

Lord Joseph rose to call attention to the gap between British and North-West European manufacturing productivity, its implications for British earnings and for public and social services, and the case for more entrepreneurs to provide more jobs; and to move for Papers.

The noble Lord said: My Lords, I hope that your Lordships will agree that normally I am ready when necessary to make party points, which is an indispensable part of democracy. Today, I seek an equally valid aim, which is to reach towards a common diagnosis of two problems: why have we become the least prosperous of developed countries; and why do we still have so much unemployment?

Even if we were to reach a common diagnosis there would still be ample scope for party arguments on how to shape policy. Today, I do not propose to blame any group—management, trade union leaders, trade union members or even governments. During 1974 to 1979, the years of a Labour Government, unemployment doubled; it doubled again during the years of Tory administration from 1979 to 1986, and it is now falling.

Since 1979 our average manufacturing productivity has improved compared with our past and with competitor countries. However, their average manufacturing productivity is still far higher than our own. Since 1979 entrepreneurship and self-employment have grown, but to provide more jobs in the North and in the inner cities we need many more entrepreneurs and jobs. Noble Lords will realise that the more productivity rises the more jobs and entrepreneurs will be needed to return us to full employment.

I accept that greater prosperity does not necessarily guarantee more individual fulfilment, but certainly it is better than greater poverty. I want all countries, especially poor countries, to grow more prosperous, as I am sure noble Lords do. I do not seek that we should be the most prosperous of all but that we should be among the top group; and we are not, now.

Noble Lords will be relieved to learn that I shall use no statistics. We have reduced the average manufacturing productivity gap but there is a still a long way to go. We have reduced unemployment but there is still a long way to go. Perhaps we should all avoid magic wands. I undertake not to argue that if we were to have earnings and housing flexibility we should have much less unemployment. I ask that others of your Lordships will try to avoid arguing that our problems stem from low investment. Our problem is, and has been, low output from investment, whether new or old. If anyone doubts that, I refer them to the 1975 Central Policy Review Staff Report on the British car industry.

Noble Lords may ask why the Motion refers to manufacturing productivity. The answer is simply because the statistics are available. I am not an economist but I am aware that the precise criterion that I am using is productivity per unit of resource per hour in the economy as a whole; but I shall call it productivity for short. Finally by way of prelude, I acknowledge that I am neither a manager nor an entrepreneur though I understand and value the important function of each.

Noble Lords will realise that there are two interconnected limbs to my Motion. The first is the need, if we are to compete and prosper as we would wish, to improve average productivity; and the second limb is the need, as we improve productivity, to have additional jobs via more entrepreneurs so as to continue to reduce unemployment. Of course I am not arguing that productivity is all that matters. Research and development, marketing, design, value for money, quality and servicing are all crucial. I simply wish to emphasise that productivity is crucial too.

The future for our prosperity and our employment depends on our performance in productive activity. Either we can continue to improve our productivity and to increase our entrepreneurship, in which case our standard of living, our help to those who cannot help themselves, our public services and our employment are all improved; or, if we do not, recent progress will be reversed and unemployment will rise instead of falling. Incidentally, I express surprise that those concerned with low pay do not give more attention to the low productivity that is often involved.

The propositions on which my Motion rests are, first, that average prosperity reflects average productivity, and that the greater our average productivity the greater will be our prosperity and the greater the buying power of average earnings. Secondly, jobs depend on customers. It is the entrepreneurs—alas, we do not even have such a word in English—whose function it is to identify and to serve groups of customers in the hope of profit but, because of competition, at the risk of loss. The entrepreneur does this self-interested service, if successful, by mobilising resources to provide the goods and services that people at home and abroad want at prices they can afford.

It is customers who provide jobs. I should love to be able to create an aphorism that would ring round the country so that this was widely recognised. I tried to put the proposition briefly and crisply: fuss over jobs and jobs vanish; fuss over customers and jobs multiply. I wish that this truth could be more widely recognised.

Public sector jobs depend indirectly upon customers too, since public services are largely financed out of taxes and most taxes are paid by businesses or people who work in business. We have, relative to all developed countries, low average buying power because our average productivity is low. In competitor countries real earnings are higher, yet, because of higher productivity, unit labour costs are lower. This is a platitude: we should aim to become a high earning, high productivity, low labour unit cost economy instead of being, as now, a low earning, low productivity, high unit labour cost economy.

Even if North-West European average manufacturing productivity growth rates remain, as they have recently been, favourable to the United Kingdom, it will take us years to catch up with the standard of living and the public and social services of North-West European countries. However, there is a cheerful aspect even if they accelerate: they will then be even better markets for us and cheaper suppliers. Some people, even in your Lordships' House, may fear that new technology—even robots—will lose jobs. If our productivity rises we can win new markets and be ourselves a larger market for others with, it will be thought, less labour use. But I wish to argue that as productivity rises we shall be able to afford more of the good things of life, including a shorter working year and longer paid holidays.

I draw the attention of colleagues to the problems ahead in raising productivity and in reaching the flexibility, the erosion of job demarcation, that firms in competitor countries take for granted. I shall read four brief paragraphs from a recent issue of Income Data Services Study No. 360, which is in the Library: With very few exceptions, the process of achieving full-scale flexibility has hardly begun. There are exceptions, and we look at some of these … But in general, progress has been limited. The gap between the few advanced companies and the large majority is considerable. Many agreements which look impressive on paper are enabling agreements. They establish the possibility of change, often over a long period. Normally they begin the process—often by cutting numbers employed—but the real tests are in the future. Extensive change requires change from higher management as well. Management restrictive practices and demarcations, for example between production and engineering, need to be eliminated as the pre-condition for any major change. However, demarcations and 'restrictive practices' are not just the result of trade union defensiveness—they have also arisen because of managers 'guarding their own patch', even in factories where unions have never been recognised".

How far there is to go appears also, I gather, from an article in tomorrow's issue of the Industrial Relations Services Review by Dr. Michael Cross, which, I understand, will also be available in the Library.

Your Lordships may ask: what can the Government do about all this? Much has already been done. I do not wish in any way to withhold credit for what has been done over the last nine years. However, making even further progress in removing disincentives to work is a continuing task, and that remains to be completed. Improving education and training are two others. Countries at every stage of development are busily improving the capability of their work forces. However, the prime responsibility is upon management. The least that they must do, surely, in their own interest, is to inform staff directly, not indirectly, and with great regularity, of the competitive position, and of the scope for and threat to jobs. Unions have in most cases tended to emphasise production rather than productivity and producers rather than consumers. Yet consumption is the sole purpose of production. How can government help managers to do their jobs effectively? Above all, I would argue, by competition, including free trade. But what about those quotations that I read from IDS 360?

Do people realise, I wonder, how rapidly jobs can go, can vanish, if key factors go wrong? There have been all too many examples. Could not government—here I speak to my noble friend the Secretary of State—secure the examination by academics or consultants and the publication of case studies to put in the hands of managements and their staffs examples of job suicide, of firms' suicide, of subsector suicide and of sector suicide, and more case studies of success in holding and gaining markets and jobs?

I turn to the second limb of my Motion—the need for more entrepreneurs. The great function of entrepreneurs is the perception and pursuit of customers and thus more jobs. I used to think that entrepreneurs were needed only to start new firms. I have come to realise that nearly every department of every division of every existing business needs entrepreneurs if current customers are to be held and new ones attracted. In the past we have used some very effective ways, alas, to discourage entrepreneurs—snobbery about business; over-taxation; over-regulation, and overmanning.

We are now trying to improve matters. My noble friend has set himself the task of reducing over-regulation. I now ask the crucial question: shall we generate enough entrepreneurs ourselves within this country to continue the decline of unemployment, especially in the North and in the inner cities? I accept that there is need for changes in taxation and further changes in taxation and welfare law if we are to reduce—I hesitate at the word, but I must use it—the incentive to be unemployed in combination with other forms of income receipt.

I am talking about the number of entrepreneurs. The framework created since 1979 has led to a sharp rise in the birth rate of new businesses. Clearly, self-employment has risen also; but there plainly are not yet enough entrepreneurs to absorb the existing unemployed and there seems to be a particular shortage in the North. Moreover, the inner cities, whether they know it or not, are crying out for more entrepreneurs. If the Government can discover more ways to encourage more entrepreneurs internally, so much the better. But supposing Ministers think that there is no more that they can effectively do. Why not then consider encouraging more entrepreneurs from abroad? What a transformation more entrepreneurs from abroad might bring to inner cities and the North in the provision of new jobs. Would the Government perhaps be willing to consider focusing the business initiatives of such immigrants on a limited number of inner cities?

I do not presume to suggest how it might be done. We already admit businessmen from abroad with money to invest. Perhaps passports might be made conditionally available on evidence of performance. I understand that Canada is trawling for entrepreneurs and so are some other countries, including the United States. Evidence of entrepreneurial capacity is most vividly shown by financial success, associated with job creation. If a financial qualification were to be considered repugnant by Her Majesty's Government, let them consider whether their understandable fastidiousness might be eased by the condition that five years' success in job creation here would be necessary. Moreover, should they balance the interests of the unemployed against their repugnance?

Underlying these two themes of higher productivity and more entrepreneurs is an even deeper issue. Why is it that in this country, full of intelligent, well-meaning people and where the Industrial Revolution began, we have been so overtaken in prosperity by countries which, even a few decades ago, were far poorer than we? Why is the need to be profitably competitive, if we are to prosper and to be fully employed, not more widely perceived? Why do some managements lose markets by their own failings, by lack of drive, lack of attention to the marketing skills, and why do some workforces often help managements to lose markets by obstructing the efficiency on which profitable competitiveness depends? With John Bolton I set up the Foundation for Management Education in 1959 which does not begin to meet the need. I accept that management education needs much expansion and I welcome the vigorous expansion now contemplated.

Tentatively to answer my own question, I suggest that the opinion formers, the intellectuals, the academics, the teachers and the journalists all too often tend to have ignored the foundations on which a prosperous, fully employed society of free individuals must be based. What we need is, in the magic phrase of de Toqueville, "self-interest rightly understood".

Perhaps it would help if more nationally accepted figures among the opinion formers and in the trade unions were willing to point out that bad management and restrictive labour practices inflict widespread damage on those concerned and on far wider sections of the public. I quote from Graham Hutton, writing in 1980: The truth is still … that we can easily raise our economic performance, our standard of living and our leisure by a steady marginal reduction in unit costs, and by increases in regularity, quality, productivity, added value per occupied worker, however you care to measure economic efficiency. It requires the will, and the legal, social, political setting. We have the ability. We can do it with scarcely any extra effort, at most with some extra attention".

Much has been done in the past nine years, but the scope is still immense.

My Lords, I beg to move for Papers.

3.26 p.m.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My Lords, the House is indebted to my noble friend for raising in his Motion issues of such fundamental importance to the future prosperity of this country.

There is a logic in the Motion of the noble Lord, Lord Joseph, which I find irresistible. That logic is that growth in efficiency is the essential foundation of a rising standard of living, both in private wealth and in public services; that our nation must therefore raise its productivity in industry and commerce; and that the source of our future productivity and wealth lies in the enterprise of individuals.

The Motion calls attention to the gap between British and North-West European manufacturing productivity. The available evidence suggests indeed that our level of productivity in manufacturing remains below that of our major competitors, including France and Germany. But in recent years we have made significant progress in closing the productivity gap.

In the 1960s and 1970s the United Kingdom was at the bottom of the productivity growth league; now in this decade it is at the top. Productivity then in our competitors was on average around 3.5 per cent. per annum throughout both the 1970s and 1980s—well above the UK of the 1970s, with productivity growth averaging about 1.5 per cent. a year but below the growth of this decade, with productivity growth averaging nearly 5.5 per cent. a year.

What has happened? Since 1980 firms have overcome some of the barriers to change. They have invested in new technology. They have brought in greater flexibility in working arrangements. They are reaping the advantage of a better climate in industrial relations. But a gap in productivity still remains. There are arguments about the size of the gap, but I suspect we may still be as much as 30 per cent. behind some of our major competitors. Better productivity is not exclusively about the cheapest and most effective production system. Our notion of productivity has to be updated from the mechanistic production of more to the imaginative production of new and better—better design, better quality, better reliability. To achieve that we cannot do without the spur of continuous improvement and innovation. That spur is the enterprise of individuals.

Our task in government is simple. It is to spread best practice even further across British industry and commerce. I identify three areas as critical in achieving higher levels of productivity. The first is innovation and particularly the effective application of the best techniques to many of our firms. Technology transfer forms a major element in our innovation policy. It will probably have the greatest impact on productivity as new technology is introduced. It need not necessarily be new technology but more and more small and medium-sized companies adopting existing technologies. For that reason the enterprise initiative plays an important part in the policies of my department.

The second—and I believe that this covers common ground across the whole of your Lordships' House—is the need for industry to invest in training both at a technical and managerial level. That has been continually emphasised by the Government. I believe that recent developments in creating the National Council for Vocational Qualifications, through the charter group now emerging through the CBI and the British Institute of Management, will help to give the essential infrastructure towards encouraging individuals to develop a career pattern and to encourage companies to recognise the simple value of training. The responsibility is clear: it is on employers to invest in their own people.

The third—and it follows from that—is the involvement of employees. We have played some part through tax incentives for employee share schemes and profit-related pay. I believe that benefits to companies of closely involving their employees in the direction and success of the company account for major differences in productivity levels between businesses. When the Japanese came to these shores they brought with them not only investment, money and technology but methods of involving their employees. They have shown us what can he achieved by paying close attention to detail. Akio Morita, the head of Sony, put that well when he said: The fate of your business is actually in the hands of the youngest recruit on the staff Such changes do not require major financial investment but good management and a business strategy centred on the people who make up that business.

All those elements—innovation, training and employee involvement—add up to greater flexibility, better use of resources and therefore higher productivity. Many companies have achieved such changes but, alas, many have not. Even those who have remember that our international competitors have not stood still and have continued to improve. Therefore I fear that I must agree with my noble friend. The scope for our industry to raise its level of productivity remains considerable and is ever present. If we can achieve higher productivity we shall provide the basis for improved competitiveness, stronger growth, higher earnings and in the end lower unemployment.

However, those goals are not achieved automatically because competitiveness is relative. Even if our productivity growth if 5 per cent. faster than that of our competitors, I fear that if we give ourselves pay rises of 5 per cent. more than our competitors we shall not improve our competitiveness. If higher productivity is simply reflected in higher earnings there is less scope for increased profitability. Without that profitability there is not the scope for investment, innovation, increased training or any of the other changes needed to provide the foundation for long-term prosperity and security of employment.

All noble Lords should welcome the fact that profitability in manufacturing is now at its highest level for nearly 20 years. However, even today it remains below the levels consistently achieved in the 1960s. Worse than that, it remains well below the rates achieved by our competitors. We need higher levels of profit to increase the incentive to invest. Too often in the past people invested either overseas or in low-risk financial assets within the United Kingdom. We shall change that only with higher profits—a better return for investors—in UK industry.

One of the few points which I find difficult about the Motion is its emphasis on manufacturing productivity. I understand the explanation given by my noble friend for choosing that particular index. However, our standards of living and the ability of our economy to generate the wealth which can provide the public services we all want depend on the productivity and efficiency of the whole economy and not just the manufacturing sector. We know that both our industries and services must be efficient.

Indeed, if we put all efforts into higher productivity in manufacturing, and the growth of earnings in that industry matches the growth of manufacturing productivity, the much larger service sector may find itself burdened with significantly higher labour costs as higher pay claims spread across from manufacturing industry. Such a burden would not assist the growth of profitability in services, which is just as vital to our future wealth as that in manufacturing.

If one were to examine the issue surely one would find that the key difference is not that between manufacturing and services but between wealth consumption and wealth creation. At the beginning of the decade our nationalised industries were enormous consumers of taxes. Today those same companies are as a whole creators of wealth. They contribute towards our increase in living standards and many are now operating profitably in the private sector. That is where they belong and where, I suspect, they should not have left.

We all recognise that the resources which we can put into our public services depend on an efficient economy. We should all recognise too that the level of public services is not just a result of the resources put into them; it is also a question of how efficiently those resources are used. Indeed, we should concentrate not on inputs, which seems to have been an obsession of the media and of many people in public life, but on outputs and what we receive for government investment. That is the relevant factor. The Government have put considerable effort into improving the efficiency with which public-sector resources are used. We have tried by contracting out services and by setting clear priorities, objectives and performance standards within the public sector.

Our concern in this debate is essentially the best way to encourage a successful economy which will provide our people with the goods and services which they need. I have long held the belief that widening the scope given to the enterprise of individuals, their skills, ability and initiative will provide the way.

In 1979 we set ourselves the objective of encouraging enterprise. No doubt my noble friend will have long forgotten that yesterday was the ninth anniversary of the day on which he saw me as his first appointment on becoming Secretary of State for Trade and Industry. On that occasion he was reckless enough to appoint me as his industrial adviser. We have come a long way since then. I recall that one of my first actions on joining the department was to ask for a survey on the birth of new businesses. It disclosed that we had one of the lowest birthrates in Europe. Since that time—since the beginning of the decade—the number of businesses has been growing week in and week out by over 500 a week. Today we have over 180,000 more businesses than on the day when I first saw my noble friend.

The number of self-employed people has increased by almost 1 million, an increase of almost 50 per cent., since that day in 1979. The enterprise allowance scheme has seen 330,000 unemployed people setting up their own businesses. I listened with great interest to my noble friend's suggestion about finding more entrepreneurs, and I shall certainly pay attention to what he says.

The whole climate for wealth creation and enterprise has changed. The changes in the tax system have put more emphasis on incentives, rewards and the risks both for individuals through lower personal taxation and for businesses through initiatives such as the business expansion scheme. In some ways, equally as important, the links between education and the needs of industry have been changed by TVEI, the National Council for Vocational Qualifications and the Open College, which have brought back into the forefront of our lives the need for individuals to improve their skills. Those schemes that I have already mentioned to your Lordships' House to help people to start their own businesses through the encouragement of the network of local enterprise agencies have had their effect.

We are endeavouring in some small part to lift the burden on people in business through lifting the burden of regulations, although I suspect that were it possible to do an objective test we should see that all we are actually doing is lifting those imposed by ourselves. I should not like to say whether they improve the position. Finally, we are encouraging businesses to flourish through opening up professions, encouraging competition and removing companies and their markets from state control.

We have come a long way and we are seeing the return of enterprise to our economy. However, we have much more to do, and much more to do to ensure that the enterprise culture is given a chance, a chance to become part of our way of life, a chance to work with industry and increase our efficiency and competitiveness.

I am sure that my noble friend will not disagree with me that it is not the task of entrepreneurs to create more jobs. Indeed, John Harvey-Jones made the point that: In this country, uniquely, industry is looked upon as a means of providing jobs, and that actually isn't the job of industry. The job of industry is to create wealth". That is quite so. The job of enterprise is to create successful businesses. Those successful, profitable businesses will create more jobs. They have created over 1½ million more jobs since 1983 and we have seen the results in the recent unemployment figures. The job of government is to provide a climate in which our people can use their enterprise and skills to develop the businesses which can compete on ability.

Therefore, today we have a Government committed passionately to encouraging enterprise. We have people with the talent and initiative to develop new ideas, new products and new ways of working. That is a winning combination which has succeeded, is succeeding and will succeed.

3.43 p.m.

Lord Williams of Elvel

My Lords, the noble Lord, Lord Joseph, in moving his Motion, said that he was not anxious to raise party political points. Indeed, we are grateful to him for putting a rather philosophical speech before your Lordships—if I may express it in that way. The Secretary of State added his own government gloss to what the noble Lord, Lord Joseph, had said. Other noble Lords will no doubt wish to pursue the various themes raised by the noble Lord and, indeed, by the Secretary of State.

In the spirit of cross-party co-operation, I should like to state—it may be a platitude but it is a sensible platitude—that I agree wholeheartedly when both noble Lords say that it is the ability of the United Kingdom or, indeed, any country to generate wealth by its own efforts that determines, in the end, the quality of the social services we can afford. If we do not deliver the goods, then we cannot look after our people. That is a very simple platitude, but I believe it to be true.

The argument revolves around how we are to deliver the goods; whether we are delivering enough goods relative to our competitors, for example, in North-West Europe, to which the noble Lord has referred; whether we are delivering the right goods; and whether we shall continue to deliver the right goods. All those matters are raised by the noble Lord's Motion. We must be grateful to him for putting the Motion in a wide form that enables us to discuss them because they are the proper stuff of political debate.

I start with the gap in manufacturing productivity that exists between Britain and North-West Europe. The Secretary of State said that the figures were somewhat difficult to come by; indeed, they are. I have tried to dig out some figures to show—as they do show—that in terms of output per man hour or output per employed person there has been a shift in our favour in the present decade. That is wholly welcome provided we are manufacturing products which will continue to sell. However, that is not the whole story. When we look at total factor productivity—that is, the productivity of capital and labour—the picture is somewhat different. In the period from 1979 to 1985, according to OECD, Belgium was the leader in this category, followed by Sweden—I am picking North-West European countries for this example—with the UK, Germany and Norway bunched in behind.

The implication of the differential growth of labour productivity and total factor productivity gives rise to results we would not altogether wish for and, indeed, to results to which the Secretary of State referred. Let us take Belgium, Sweden and the UK. Wages per head in the period 1980–86 rose by 36 per cent. in Belgium, by 63 per cent. in Sweden and by 75 per cent. in the UK. In other words, it was the welcome increase in labour productivity—and here I join with the Secretary of State—that financed rises in earnings while a much poorer return on capital was ignored.

Of course, there are the knock-on effects in the non-manufacturing sectors. Everyone involved in economic management over the last few decades has been faced with the problem of the relationship between incomes in sectors where the market cannot operate, such as education, law and order and defence, and earnings where the market can operate. In my view, no one has succeeded in achieving a balanced relationship that survives the test of time. The result is what we have witnessed over the last few weeks: rises in earnings in the trading sector provoking pay protests from teachers, nurses and so on, ending in decisions, I am afraid, of a purely political nature designed to head off Government Back Bench revolts.

The fundamental difficulty which has been with us for a long time, and which remains, is how to allow earnings in manufacturing to rise in some relation to manufacturing labour productivity without provoking the political problem of depriving people of the services which they themselves politically demand by the expression of their political views through the ballot box. It seems to me that we are as far from a rational answer to that problem as we have ever been.

I said a moment ago that the increase in labour productivity was most welcome in manufacturing provided we were producing goods that would sell and continue to sell. It is clearly no good producing last year's model, however efficiently we do so. Here again, there is cause for concern. It cannot be said too often that industry is simply not spending enough on civil research and development. In 1985 our industry funded civil research and development to the extent of 1 per cent. of the gross domestic product compared with America's 1.3 per cent., Germany's 1.6 per cent. and Japan's 1.8 per cent. If that continues, the new products will not come through and our present products will grow obsolete.

Our training programmes are still lamentable. Even with the present wholly unacceptable level of unemployment, the number of British manufacturers expecting shortages of skilled labour to affect their output has almost doubled in the past year. There are particularly acute shortages of professional engineers, computing information technology specialists and craftsmen. The people required to develop and market the new products are simply not there. It is perfectly possible to argue that this would not matter if the whole world were playing the same game and all markets were wholly free. But they are not—not even in the USA which in its own way is as protectionist as it appears to be liberal.

We can say that the only criterion for judging the public interest in a takeover is the competition criterion. But nobody else does. So Nestlé or Suchard can take over Rowntree but GEC cannot take over Brown Boveri because the Swiss simply do not play the same game and nor do France and Germany. Anyone who thinks that 1992 is going to change that is living in some kind of dreamland.

Therefore, to be successful as a nation, since it is competition between nations that we are talking about, we must study the example of other nations. Many commentators have focused attention upon Japan. I should like to take up the noble Lord's Motion; it is to North-West Europe that I believe we have to look to see what lessons we may be able to learn.

What are the characteristics of North-West European countries that we might look at? First, I would argue that it is the commitment to social cohesion which is based upon several principles: the interest of productive industry, encouraged and stimulated in partnership with government; a high level and quality of collective provision in health, education and income maintenance and, as the Secretary of State, said, a commitment to investment in people through exceptional education, training and retraining.

Perhaps I may give an example. Sweden was the second largest producer of ships in the 1950s. Today its shipbuilding industry is virtually dead. But the rundown was achieved without resorting to mass unemployment in the shipbuilding areas because of planned investment location, active involvement of the labour force in seeking new opportunities, and major retraining policies. What a difference in the way we have collapsed our own shipbuilding industry.

Next, there is equal commitment to participation and democracy, not only through local democracy and local and regional government, but also the involvement of the workforce in major investment decisions and in legislation relating to the working environment. None of those commitments seems to be present in this country. We have abandoned the goal of full employment. The financial markets dominate productive industry and the non-financial service sectors. Our institutions are adversarial in nature and in many cases inefficient in practice. Local democracy is being killed off by the death of a thousand cuts.

But the noble Lord and the Secretary of State may argue entrepreneurs are flourishing; should not there be more of them? Before answering that question, I am not entirely clear what the Motion, or indeed what the noble Lord, Lord Joseph, means by the expression "entrepreneur". I am not sure that the noble Lord himself was entirely clear. I believe he said that he had changed his mind over the years as to the meaning of that expression. That was a very interesting remark. If the word is used in the way in which the French use it, it is probably best expressed by the third definition given in the Oxford English Dictionary: A contractor acting as intermediary between capital and labour". Of course, I disregard the first two definitions which are: The director or manager of a public musical institution and, One who gets up entertainments". If the meaning I have quoted is the right one it is by no means clear that the entrepreneur creates jobs. Indeed, the record of job creation in some of our larger companies run by major entrepreneurs, some of whom are Members of your Lordships' House, is far from heroic. Companies that grow by acquisition—which is the favourite method of our entrepreneur—normally engage in destroying jobs by what is politely known as rationalisation of the labour force.

Nevertheless, entrepreneurs come in all shapes and sizes. The start-up venture to which the noble Lord, Lord Joseph, referred, is one which, in our view, grows organically. It is a job creator and must therefore be welcomed. My response to the question of whether there should be more entrepreneurs is, yes. Many entrepreneurs are flourishing; in some cases, the wrong ones. Yes, we should have more of the right kind of entrepreneur. But even if that is achieved, as I hope, we must recognise the problems. Small businesses do little to help our trade balance. In the competition between nations in which we are engaged, that will be the crucial indicator of success or failure.

If the only result of the years of North Sea oil is to lead us back to where we started, with regular payments deficits and sterling crises, then the whole exercise of the past few years, which has only been possible thanks to the oil, will turn out to have been a dreadful failure. Conversely, if payments deficits do not recur after the oil has run out, then the Government can legitimately claim a success. Until then the jury is out.

A second problem associated with entrepreneurship is more of a social nature. The active encouragement of what the noble Lord, Lord Joseph, called self-interest properly understood, which I would prefer to call possessive individualism and others would call the promotion of the rat race, has some unpleasant side effects. I quote part of an article in Monday's Guardian by a distinguished novelist: A new tyranny of fear has been born from today's unequal society. Britain, we are repeatedly told by the press and the politicians, is richer under Thatcherite monetarism, with the newly released competitive energies of the market place, than it has been for decades. How odd, then, if this is so, that we should be so nervous, so alarmist, so frightened of walking the streets at night or taking public transport of an evening. Should we not feel safer, more protected in the citadel of our own money? We are not, we know, and we know although we do not admit it, that we live in a society so unjust and unequal that groups within it declare unofficial war on other groups. Equality of opportunity, the career open to the talents, these are as black a joke to the black youths of Brixton or Broadwater Farm as the same concepts seemed to George Bernard Shaw in the Edwardian heyday of the belle époque. Choice is still restricted to those with educated talents and long purses". We believe that in these matters too we can learn from North-West Europe. We need a sense of national cohesion and of purpose. We need to work together, not adversarially against one another. We need a government who lead and persuade, not centralise, harass and bully. Above all, we need to ensure that the youths of Brixton and Broadwater Farm have the opportunity to exercise the same freedom of choice that is now only open to what is still a minority. That is the proper task of government in the 1990s; and that is the task we expect the Government to undertake for the good of the whole country and the survival of us all.

3.58 p.m.

Lord Ezra

My Lords, we are particularly indebted to the noble Lord, Lord Joseph, for introducing a Motion which enables us to do something which I believe this House is fairly skilled at doing: namely, pondering over a major issue of policy. We have had important contributions from the noble Lords, Lord Young and Lord Williams, on this subject and we shall have many other important contributions to follow.

I believe that it is quite right—this is not the first time—that we should be looking at the problems of productivity in manufacturing industry. It is perfectly true that in spite of improvements in recent years we are still lagging behind most of our competitors in Western Europe. The noble Lord, Lord Young, pointed out that the figure could be of the order of 30 per cent. In fact the CBI has mentioned in regard to West Germany a figure of nearer 50 per cent. Whatever the figure may be, there is a large gap. This, regrettably, is reflected in levels of pay. Although there have been substantial increases in pay in recent years, the absolute levels compared with other countries showing this higher productivity are much lower. Therefore within Western Europe we still demonstrate the features of a low pay, low productivity economy.

Another serious feature—and it is important to tabulate these features at the beginning—is that while the manufacturing capacity of our competitors has increased quite noticeably during the past decade, ours has still not caught up with where it stood a decade ago. So we have a reduced manufacturing capacity, relatively lower productivity and relatively lower levels of pay. These features are beginning to work their way through to our balance of payments. In this respect we have had some nasty shocks in the first two months of the year. In the most recent month the position was a little better, but the Treasury is now forecasting a deficit of the order of £4 billion for the year as a whole, and some fear that it could be larger.

All these issues were raised in the report of the overseas trade committee chaired by the noble Lord, Lord Aldington, who I am glad to note will be speaking in the debate. There have also been more recent references to this problem. In fact in another place on 11th March there was an important debate on the need to develop engineering performance up to and above the standards of leading industries overseas. Members of another place skilled in engineering identified this as one of a number of sectors where we still have some catching up to do.

Noble Lords who have already spoken have indicated how they feel this problem should be dealt with. But I should like to draw attention to one difficulty which we face and on which the noble Lord, Lord Williams, touched. In trying to find a solution to this problem, which is essentially of a long-term nature, we are limited by a tendency towards short-term thinking which is still rife.

I can demonstrate this by personal experience. I happen to be connected with a large enterprise involved in the manufacture of building materials. After a great deal of thought we decided to invest a large sum in a new enterprise, building on a green field site. It was going to take two to three years to mature and obviously there would be a cash outflow problem in the meantime. As soon as the analysts heard about it they wrote down the value of the shares. Had we instead acquired a company in order to do what we set out to do, which would not in any way have added to the total resources in the sector, I am quite convinced that our shares would have gone up overnight. It is most regrettable that this view should be taken. Short-term acquisitions are in; long-term investment seems to be regarded with a degree of suspicion by those who judge these matters and influence the level of share prices. This in turn has an influence on the success or failure of companies.

In my opinion, we have to take a long-term view in this matter.The three areas of particular importance are investment, training and research. The prime responsibility in these three areas lies with industry, but industry has to act within a framework laid down by government. That is what we have governments for. It is in connection with the framework that some degree of confusion has recently arisen. At the moment the Government's policy on the exchange rate is by no means clear. This is of considerable importance to manufacturing industry if it wants to export. There is also uncertainty on the related question of the level of interest rates. That in turn has its impact on the balance of payments.

Here, I am afraid there is also uncertainty about the validity of the figures published on the balance of payments. We have been told that there were changes in the EC methods of identifying the various sectors that are collated, but more recently I have heard—no doubt this can be corrected later on if it is wrong—that, as a result of cutbacks in the statistical staff in the government department concerned, there has been a much less thorough collation of these figures than in the past. This perhaps explains why at some time much after the end of the year very substantial corrections are brought to bear on the balance of payments figures. The balance of payments figures are of vital importance.

Lord Young of Graffham

My Lords, if the noble Lord will allow me, I believe that these corrections at the end of the year have been taking place since time immemorial. The process has to do with the way the figures are collated and does not arise because of reductions in government staff.

Lord Ezra

My Lords, I am glad to be reassured on that point. I can only point out to the noble Lord that this point was recently mentioned. If it is incorrect that there has been a cutback in statistical staff, that should be made known officially.

The CBI made a good comment on the problem when it said in a recent publication that, relying on exchange rates and interest rates to squeeze out inflation puts at risk investment in the manufacturing sector and exports. There is the feeling that there are some in government at any rate who want to use the mechanism of exchange rates and interest rates solely for the purpose of squeezing out inflation or what they consider to be the risk of inflation—we all agree that inflation must be kept down—but that this could be carried to the point where serious risk could ensue for manufacturing industry. That view is expressed by the CBI.

Another worrying factor in the macro-economic scene is the continuing high level of consumption financed by credit and accompanied by a very low savings ratio. I am sure your Lordships are aware that the savings ratio in this country is now at the lowest level since 1959. It has fallen progressively from more than 15 per cent. in 1980 to as low as 4.25 per cent. in the fourth quarter of 1987. This puts us lower even than the United States, which traditionally has had a low savings ratio.

These are all matters of serious concern and fall within the domain of government to some degree and of individuals and companies responding to government policy. It is against this background of some uncertainty and one or two disturbing factors that the questions of investment, training and research have to be addressed. There are gaps in each of those. Those gaps have to be closed if we want to get our manufacturing industry and performance up to the level of that of our major competitors.

On investment, I tend to agree with the noble Lord, Lord Joseph, when he said that what is important is not so much the amount of investment but the use made of it. The two go together. A good deal of investment has been under-utilised or badly used. The country must obviously improve in that respect. The total level of investment certainly lags behind other countries, as statistics compiled by the CBI freely reveal. On training, reference has already been made by the noble Lord, Lord Williams, to skills shortages. It is a sad reflection on the performance of our country since the end of the last war that every time we have had a period of growth we have run into the bottleneck of skill shortages. I hope that progressively we shall be able to overcome that. Other countries manage to overcome it: otherwise how do they have the goods that we do not appear to have to send to us in addition to meeting their own requirements? So this is an area which still requires a lot of attention.

Finally, on civil research we have had many debates in this House on that subject. It is very clear that we have a long way to go to close that gap. These are clearly the problems which we face and these are clearly the matters which have to be attended to in order to resolve these problems. I concur wholeheartedly with all three noble Lords who have just spoken: we in this country have all the ingredients that are necessary in order to solve these problems, whether human or material. What we have to do is to find the right framework within which, and as a result of which, the right responses can be achieved.

4.11 p.m.

Lord Boyd-Carpenter

My Lords, I am sure all your Lordships are deeply indebted to my noble friend Lord Joseph, both for introducing this debate and, if he will allow me to say so, for the deeply thoughtful and penetrating speech with which he opened it. I think I can make no better comment on that speech than saying that it was what one would expect from a Fellow of All Souls. It is a debate which deals with the fundamentals—not so much the fundamentals of economic and financial policy, but the fundamentals that lie behind those policies and determine them or ought to determine them. So far, this debate has been concerned basically with those matters.

Again, it has been the sort of debate which it is difficult to visualise taking place in any assembly other than your Lordships' House, not least because of the immense wealth of experience and practical knowledge which your Lordships collectively possess. My noble friend Lord Joseph made the point very early in his speech—a point which I should very strongly like to support—that employment, development and wealth creation depend not merely on producing efficiently but on finding customers. I could not help recalling, as he was saying that, an experience which I had when I was chairman of Rugby Portland Cement and visited one of the factories in the United States in a subsidiary company which that company had acquired. In the works there were great placards saying: "Customers make pay-day possible." Even with the vigorous phraseology with which one is accustomed in the American language, you could hardly put the matter more vividly from the point of view of comprehension of ordinary people. I am sure it had a real effect, and I judge that from the conversations I had with the people who worked there. It had a real effect on them; they wanted to see customers and they wanted to see those customers pleased and satisfied with their product. As a result, I am glad to say that not only that subsidiary company but the great company which owns it are doing extremely well to this day.

I would also join with my noble friend Lord Young in saying that perhaps the only qualification one might add in respect of the speech of my noble friend Lord Joseph, was that he concentrated perhaps too much on manufacturing industry. Very often, if I may say so with respect, it is the failing of noble Lords on the Front Bench opposite that their questions and their approach are very much concentrated on manufacturing industry. But it is the experience of all advanced countries that as they develop and advance a larger proportion of their populations are engaged in the service industries and therefore a smaller proportion in manufacturing industry. I was very glad that my noble friend Lord Young made that point. We in this country are at least as dependent on our service industries as we are on manufacturing industries. We want them both to succeed and to be prosperous. It would certainly be a mistake if in this debate we allowed the discussion to relate solely to manufacturing industry.

However, so far the only very mildly and courteously discordant note has been struck by the noble Lord, Lord Williams of Elvel, who seems at the moment to have absented himself from the Chamber. As he has spoken so recently, I do not think I shall err if I nonetheless in his absence seek to comment on what he said. The noble Lord seemed to me to be suggesting that there was some deep flaw in the policies being pursued by the present Government because of the real threat of disorder and violence which exists in certain parts of our cities, particularly at night. He seemed to suggest that it was because a certain section of the population felt that they were denied any opportunities that they resorted to violence.

I think, with respect, that is a quite superficial argument. Violence is to be found not only in this country. In the United States, where wealth and opportunity are perhaps greater than here, there is a great deal of violence. That is also true in the countries of our friends in North-West Europe, covered by the Motion. Undoubtedly it has been complicated by the problems created as a result of large-scale immigration over recent years, but it is really not true to say that there is some sort of justification for resort to violence by young people because they feel they are denied opportunities. There is the Youth Training Scheme, with which my noble friend Lord Young of Graffham will always be associated, gratefully, by his fellow countrymen. And there is the enormous expenditure on education, but I will not start to discuss education as your Lordships will certainly have had enough of that subject, certainly in a few weeks' time. But with the youth training opportunities and the opportunites for education, it is difficult to see that there is any excuse for any young man or young woman who wants to develop himself or herself, or to train himself or herself and wants to work, not taking advantage of the opportunites and feeling that they are entitled to resort to violence because of frustration. Of course they need leadership, and of course there are parts of our country where they do not get that leadership; there are parts where they are not helped as they should be by their seniors. But really to suggest, as the noble Lord, Lord Williams, seemed to, that there was a major defect in our economic policies because this thing happens, as it happens in most of the other leading industrial countries in the world, is, it seems to me, a wholly unfair and unsustainable argument.

In fact, in making all thse provisions, we come down to the question of wealth creation. Some people in this country are apt to feel that because of our nice blue eyes we are entitled to one of the highest standards of living in the world and that all sorts of good things should be provided, including improving standards, year by year. But the reality—and it is this reality upon which our debate hinges—is that all this depends upon wealth creation.

What are the best methods of creating the wealth from which all these other advantages can be drawn? That is really the question, and there are basically two philosophies. There is the philosophy of state control, carried to its most extreme in the communist world; and there is the principle of expansion of entrepreneurial enterprise to which this Motion relates. One has only to look round the world to see which produces the better results.

Let us take, for example, the simple comparison between two great countries: the enormously higher standards of life and wellbeing in the United States, which is the country of entrepreneurial activity, as compared with Soviet Russia, which is the country where state control rules. It is indeed not without significance that that highly intelligent man, Mr. Gorbachev, seems to have appreciated that point and to be moving, as fast as his somewhat reactionary colleagues will permit, towards loosening the ties of state control and thereby providing more opportunity to individual enterprise. Many of us will follow that situation with interest and wish Mr. Gorbachev success—no doubt he will need every bit of luck in the process!

However, I return to the question of which is the best method of securing the creation of wealth. If one looks around the world all the evidence is in favour of the entrepreneurial principle.

That leads me to a further point. One of the differences between the two sides of this House and, still more acutely, between the two sides in another place, is on the issue of taxation. In my view—and I think in the view of many of my noble friends—the present Government have acted with great good sense in making drastic reductions in taxation. The reaction of noble Lords opposite has been not only to reject that policy but, through the mouths of their leaders, to pledge themselves to restoring the cuts in taxation now being offered.

It is most difficult to reconcile those two points of view. Noble Lords opposite always seem to me to take the line that virtually all earnings—all income—are at the disposal of the state which graciously allows a certain number of people to retain a certain proportion of their earnings and income. Hence all the remarks about "giving money to the rich" with which we have become extremely familiar over the past few weeks.

Our approach is a different one: that it is necessary to levy taxation, and to levy it as fairly and intelligently as one can, to finance the necessary public services, but that taxation of itself is not a good thing; it is a bad thing and should be kept within limits so far as is possible. That policy is not founded on any theoretical basis; but it is common experience that the higher the rates of taxation the more discouragement one gives to enterprise.

If one is to risk one's small capital in setting up a small business, one does so because in one's judgment it will pay off. However, that judgment—as to whether the risk is worth taking—must be very much affected by the knowledge of what it does pay and what amount one will be allowed to retain. If one knows that one's efforts—the risk one has taken and the investment one has made—will, however successful, result in one only being able to retain a comparatively small proportion of what one makes, that will discourage one from taking the risk, facing the anxieties and exposing oneself to the strain and the problems of building up that business. Equally, it may encourage one to go abroad where levels of taxation are lower; or, having gone abroad, it may encourage one to stay in countries where one is allowed to retain a large part of one's earnings. Noble Lords may care to be reminded—

Lord Peston

My Lords, may I interrupt the noble Lord for just a moment so that I may ask him to clarify what in fact he is saying? Am I right in thinking that he is not actually discussing taxation; he is discussing income taxation? Can he tell us about indirect taxation, national insurance contributions and such matters, so as to give us a broader view of the taxation changes over the past decade?

Lord Boyd-Carpenter

My Lords, I am always anxious to oblige the noble Lord opposite and if, within the reasonable time that I allot myself, I can pass on to such forms of taxation then I shall gladly do so. However, I must return to the point regarding the stimulation of entrepreneurial activity. It is direct taxation on incomes which is directly relevant. The other forms of taxation, especially in the case of national insurance contributions, have a certain relevance, but the crucial point, from which I do not wish to be led, is the effect of income tax on enterprise.

I was about to remind your Lordships that as recently as 1979 on really high incomes, if you include the investment income surcharge, the rate of taxation rose to 98 per cent.; and the lowest rate of taxation was at 35 per cent. Therefore it is not surprising, in those circumstances, that enterprise was discouraged. It is one of the reasons for the success of this Government that they have been able to secure expansion to the enormous number of businesses to which my noble friend Lord Young of Graffham referred in his speech. The figure—which was certainly new to me—was 180,000. In this freer atmosphere people are encouraged to earn, to take risks and to build up enterprises. They are not encouraged to go abroad, whether it is to the United States or to the Channel Islands.

Therefore I say to the noble Lord that that form of taxation is relevant to the debate, although, if it gratifies him, I must say that I too regret taxation and believe—having some experience of this, following two terms in the Treasury—that it is right to keep it as low as possible, provided that one can adequately finance the public services from it.

I do not want to be distracted from my main point. It is wealth creation which is the key to the solution of our problems. It is also the key to implementing all the improvements which your Lordships wish to see in the social services. For some years I was Minister of Pensions and National Insurance. From that experience I know that the amount of money one can usefully put into social welfare is absolutely unlimited. There are hardships which one can relieve and there are good deeds one can do, but one has to restrain that expenditure within the limits of what can be earned by the national economy, and earned by it without discouraging such earning by excessive rates of taxation. I beg the noble Lord, who is, I believe, an economist, to reflect upon that fact.

I have only one further point to make. The policy of the Government is plainly paying off. The improvements which we heard about today are real. However, there is—if I may paraphrase the words of my noble friend Lord Young of Graffham—still a long way to go. In important respects we are still behind our North-West European competitors, and that factor becomes even more serious with 1992 looming up upon us. I hope therefore that we shall hear from the Government that they will continue along the lines which plainly have been shown to be right.

Further, I hope they will not be deterred by the observations of a certain right reverend Prelate to the effect that their policy was "wicked". That was indeed a strange word to use, coming, as it did, from a right reverend Prelate who presumably can be said to be using it with technical expertise. As I understand it, wickedness is not just error of judgment, it is not even pursuing a policy with which one happens to disagree; it is the deliberate doing of something which one knows to be wrong and which one then persists in doing. As a comment on the policy of a government, who may be right or who may be wrong but who at least have been successful in that policy, it is so grossly unfair—I would dare to say so grossly improper—that I thought fit to mention it this afternoon, having given due warning to the right reverend Prelate that I would do so. If we are to talk of wickedness, there is perhaps an adjective more appropriate for someone who would take high office in the Church, with a duty to strengthen the faith of believers while openly questioning two fundamental aspects of that faith.

4.30 p.m.

Lord Harris of High Cross

My Lords, as the only Cross-Bencher taking part in the debate I feel that I offer a rather thin sandwich between two such practised parliamentary hands as the noble Lords, Lord Boyd-Carpenter and Lord Aldington. I was delighted to hear an old Treasury hand say—I believe I have written this down correctly—that all taxation is a bad thing. I treat that as a good first approximation. I was trying to think of some obscure respects in which taxes might help to strengthen our economic performance, but that requires all kinds of assumptions about the difference between the impact and the incidence of those impositions.

Such is my admiration for the noble Lord, Lord Joseph, that when he invited me to take part in the debate I am afraid that I accepted on the spot and then found that I had a binding commitment which may prevent me from staying until the final speeches. I apologise to noble Lords, and as a penance I shall keep my remarks well within my customary 10 minutes.

I have long had the highest admiration for the noble Lord, Lord Joseph, as the chief intellectual architect of the transformation of our economic prospects since 1979. But instead of resting on his laurels and basking at least in the prospect of growing approval for his past efforts, he brings this uncomfortable Motion before us. Instead of complacency at what the Sunday Times recently called the "British productivity miracle", the noble Lord is anxious that we should further close the gap between the performance of British industry and that of our leading European competitors.

I wish there were time to explore with the noble Lord, Lord Peston, some definition of entrepreneurship which would be acceptable to both of us. I think that it would have less to do with what the noble Lord, Lord Williams, called "contractor" and must include an important element of risk-taking, of a readiness to do new things, to get out new products and to try new methods. That potentially fruitful activity will blossom under one kind of political and economic framework more than under another. My view coincides approximately with that of the noble Lord, Lord Boyd-Carpenter.

All I want to do this afternoon is to try to draw some lessons from Germany's post-war history which I think might serve both as encouragement to the noble Lord, Lord Joseph, and as a warning to many other noble Lords, not only on the Labour and Liberal Benches. It seems to me wholly uncontroversial to say that the emergence of Germany to European economic leadership was based on the reforms of a professor of economics named Ludwig Erhard after 1948. It is perhaps a shade less uncontroversial to say that his secret was nothing more than the dissolution of state socialism in the potent brew of a free market economy. Guided largely by the incentives of competitive prices and incomes, German effort and enterprise rose like a phoenix from the ashes of defeat in war.

For three decades growth in output, exports and incomes justified the title of a German miracle. Alas, as we have recently seen in Britain, economic success is too easily taken for granted. Politicians are everywhere better at dissipating the fruits of economic success than at maintaining the conditions for its continuance. Thus even in Germany the vigour of its earlier resurgence is being enfeebled by government intervention.

I have two prime witnesses for that observation, both outstanding economists whom I have known well for many years. They were both members of the German Council of Economic Experts in the heyday of the Erhard miracle. The first is Professor Herbert Giersch of the Kiel Institute of World Economy. In a Wincott lecture 18 months ago he offered a gloomy picture of a slowing down in German progress. He diagnosed what he called Eurosclerosis, which appears to be a mild European version of the "British disease" that we suffered before 1979. Its principal symptoms are a slackening rate of growth and rising unemployment. Its causes, Professor Giersch believes, include subsidies for declining industry and agriculture, job protection, national wage setting and even the beginnings of rent control. Above all, he argues that the German labour market is increasingly impeded by non-wage labour costs—social security taxes and other impositions—and high social benefits, which have led, as in Britain, to unemployment and a growing black economy.

My second witness is Professor Armin Gutowski of Hamburg, who sadly died last year in his prime. In an eloquent paper to a Cambridge conference in 1984 he compared Germany's record under Herr Kohl unfavourably with Britain's sustained progress under Mrs. Thatcher. His explanation was the power of sectional interest groups in gouging favours from weak politicians such as we remember in the 1960s and the 1970s. Most revealing was his attribution of a major cause of weakness to the appealing catch-phrase of the "social market economy" which like "compassion" in Britain has become the main pretext for undermining the work ethic, even in Germany, and substituting a pervasive, perverted form of welfare ethic.

That brief account of trends in Germany is meant to encourage the noble Lord, Lord Joseph. We may have more time to put our house in order and further to close the gap between our economic performance and theirs. But it is also intended as a warning to others against the ever-present nostalgic efforts to depreciate economic striving and wealth creation in favour of indiscriminate welfare and the dissipation of wealth. I was encouraged by the noble Lord, Lord Williams, who said that wealth came before welfare, although he went on to spoil that effect by denouncing the rat-race and sundry other Guardian obsessions.

We see the danger in the continued trade union opposition to change, yesterday in Dundee, today in Dover and every day in the sheltered public sector. We see it more widely in the superficial debates we have had recently over social benefit and the National Health Service. The common confusion is to set at nought the intellectual discipline essential for the efficient production of tomorrow's wealth and to indulge the emotional spasm of concentrating on the feckless joys of redistributing today's wealth.

It cannot be said too often that in a world of changing markets and methods the primary discipline is to shun the soft option and to adapt, however painfully, to the challenge and opportunities of the future. To succeed against all-corners, from Europe and less developed countries, we need less of the backward-looking conservatism beloved by the Liberal and Labour Benches. We also need more of the market discipline that the noble Lord, Lord Joseph, has injected into the modern Tory Party to great advantage. The lesson of debates such as this is that we stilt have a long way to go.

4.40 p.m.

Lord Aldington

My Lords, I always enjoy listening to the noble Lord, Lord Harris of High Cross, even when, speaking after me, he is as unkind to me as he has just been to the noble Lords, Lord Ezra and Lord Williams of Elvel. However, I have learnt much from him, and I take some of his words with a pinch of salt, even today.

I wish to join all noble Lords in expressing admiration and thanks to my noble friend Lord Joseph for introducing the Motion and for the very thoughtful way in which he led us on. Many of your Lordships have had the advantage over the years, although perhaps not quite as much as I have, of listening to the noble Lord both privately and publicly and of being challenged by the thoughtful way in which he approaches the problem and his refusal to think that he or anyone else has done perfectly in the past. That is very good for us.

My noble friend Lord Young of Graffham applauded the logic of the Motion, and so do I. I cannot understand why my noble friend never misses an opportunity of decrying the special importance of British manufacturing industry, and he simply could not do it today in his comments upon the wording of the Motion. I happen to agree with the wording of the Motion as it stands and with the importance of productivity in manufacturing industry to the whole area of wealth in Britain, to our standard of living and what we can afford to spend on public services; and to the chance of success of entrepreneurs and eventually the creation by them of jobs. Incidentally, I agree with my noble friend that the purpose of an entrepreneur is to provide wealth, and the result of providing wealth is to provide jobs.

The vital question—for vital it is—of the relationship of the productivity of our manufacturing industry to the productivity of manufacturing industry in the principal North-West European countries which compete with us is all the better discussed against the background of a healthy growth in our economy, a generally sound financial situation and world confidence in our policies and our money. We have to thank the Government for that. It is a good background against which to explore what needs to be done to close the gap that undoubtedly exists between our productivity and that of our competitors.

Some noble Lords have pointed out that it is very difficult to find figures to quantify the gap. Some mentioned the figure of 20 per cent., others referred to 30 per cent. and some put it higher. I have a range of figures from the OECD affecting 1985 based on constant 1980 pounds that put it rather lower. I think that that is because the figures were taken when the pound was high. That the gap exists I think none of us doubts. The only question that we may ask ourselves is how urgent it is to close the gap as quickly as possible. In 1985 there were those of us who got into trouble with some of your Lordships for, in their view, overstating the urgency. I still regard it as urgent to get a faster improvement in our productivity, even with the splendid record of the last 18 months or so, than we have so far achieved and as a result a faster increase in the total output of British manufacturing.

Whatever view may have been taken of that in earlier days, your Lordships must surely be affected, as I am, by the proximity of the single market in Europe by the end of 1992; and we must surely be affected by the steadily declining position in the balance of trade in manufactured goods. When the Select Committee on Overseas Trade was set up, the balance of deficit was around £2 billion. When the committee reported, it was £4 billion. This year, 1988, it was £2.8 billion in one quarter—I think that that may be for special reasons. It was £6.5 billion last year and £5.3 billion the year before. That troubles me. If the trend goes on, it will trouble even my noble friend Lord Young of Graffham.

I mentioned the splendid improvement in productivity in recent years, and splendid it is. However, as a result, some people have come to believe that the gap about which we have talked has been almost closed. The great value of the debate is to bring about a consensus in the House that the gap has not been closed, that we have a big job to close it and, to use a phrase of my noble friend, that there is great scope for improvement.

Your Lordships will have in mind that we are talking about averages, not about particular manufacturing companies and enterprises. Some of those we well know are as competitive as anywhere in the world, whether in North-West Europe or in Japan. There is a great difference in the efficiency and productivity of factories in this country inside great firms. The noble Lord, Lord Ezra, will remember being told by the then chairman of Ford, Europe, that of his four factories in the United Kingdom two—they happened to be the two smaller ones—were at least as efficient as any of his factories in Europe. We know of other very efficient companies in this country. Some of your Lordships had the chance recently to go round the machine tool trades exhibition in Birmingham. Some very fine new products were displayed that according to what one was told are selling well and invading markets in North-West Europe. We know therefore that it can be done.

The question that we have to solve is how more of our businessmen can become more efficient. The increase in productivity that we have seen has owed a good deal to the elimination of overmanning. For the future I guess that we shall not be able to rely so much upon the elimination of overmanning in improving our productivity. We shall have to look to other factors, all of which have been mentioned by noble Lords in one way or another. They are better management, which is always vital; investment in new plant and tools; investment in R? and the more perfect use of the products of those investments. I agree that the one is no use without the other. Last but not least more skills among the workforce and better training in those skills are required. We have to do better there.

Your Lordships may remember that the Select Committee's report referred to a study which had been carried out in 1985 by the National Institute of Economic and Social Research entitled Productivity, Machinery and Skills in a Sample of British and German Manufacturing Plants. It stated that labour productivity was 63 per cent. higher on average in the German case and it was concluded that lack of technical expertise and training was the major stumbling block to better performance by the British plants.

The national institute has produced further studies. In the most recent one that I have available, which is the February study, it has studied the training of foremen in Britain and Germany. Among the conclusions of that study, all of which are worth reading, is this: About seven times as many foremen in Germany acquire technical and organisational qualifications of a high standard; the steps taken in recent years in Britain towards bridging that gap have still a long way to go". There is some very good and interesting material in that study. All these points apply to British industry and not directly or even indirectly to the Government. But they need support. As we said in the Select Committee's report two-and-a-half years ago, the main support that they need is in a change of the national attitude towards manufacturing and towards enterprise generally. I agree with the noble Lord on that point. There is no doubt that change has begun in a welcome way.

Snobbery was mentioned. The snobbery element is going but it has not altogether gone. Efficiency is now admired. I think that the Government have to continue to take a lead. I much admire the lead given by my noble friend the Secretary of State in the enterprise initiatives that he is taking all of which are of enormous importance, and the effort that he is putting in to help management to help itself.

I much admired too the leadership that my noble friend gave in training and the leadership that my noble friend Lord Joseph gave when he was Secretary of State for Education in getting attitudes altered in that regard. All that is progressing well, and the Bill that we have been discussing on other occasions and which we discussed until a very late hour this morning is relevant to all of this and to the improvement of standards.

But I have to ask myself some questions. Frankly I do not know the answer to them. Why is it that we are constantly told—and the figure sheets show this—that our manufacturers do not invest as much in new plant and tools or in research and development as most of our competitors? That is what we are told and I do not think that I am being misled, by the figures. Why is that? Are the figures wrong or are our competitors wrong? There is something to examine there.

I ask myself too whether the instability of the exchange rate of the pound over recent years discourages and interferes with enterprise and plans for the future. It is very odd, particularly for me, to appear to criticise the pound when it goes up. But the increase from 72 to 78, which is roughly the increase of the past nine months or so in the "basket rate" as I call it, eliminates a great deal of the advantage of an increase in productivity and competitiveness elsewhere. That must affect peoples attitudes to investment.

Is the still rather high rate of interest—it is high compared with the rest of North-West Europe—coupled with the constant warnings from economic pundits that it will rise again unsettling investment plans? I acquit the noble Lord, Lord Harris of High Cross, on that score. I must ask again whether we suffer from "short-termitis" in investment. All these points have been made. I put them to your Lordships again. There must be something in all of them. How much there is in them I cannot say. There is something in their effect upon productivity and through that in their possible effect on the key point which my noble friend made, which is the need for more and more entrepreneurs. I think that he would couple with that the need for existing proven entrepreneurs to do more and more in terms of expansion and extension. Obviously the absence of skills will affect that and all the other factors which affect investment.

An entrepreneur by himself does not make an economic summer. They need a team, they need tools and they need confidence so that they can compete with other countries particularly in North-Western Europe. In order to do that they will need to have economic conditions at home equally favourable to those which other governments give to their competitors. I think that they should feel comforted with what they have. Certainly the drain of entrepreneurs for tax reasons should now have ceased altogether. The Government are to be congratulated on that. Certainly too the newly expressed attitudes to innovation support, export credit support, management education support and other such matters put out by the noble Lord should give them comfort. I have constantly to say in this regard that I hope that the Secretary of State will always be prepared to match support given by other governments to important competitors, because that is what our people have to deal with.

At the present time we have policies which should comfort and give confidence to entrepreneurs who are and entrepreneurs who will be. I congratulate the Government on that. I am sure that it will take time to close this gap and that we can make faster progress than we have already. If I am asked to place my priorities in order of what needs doing and what we need to pay constant attention to, it would be these three factors: first the continued attention of the nation to the importance of manufacturing productivity and enterprise; secondly, the need for more skilled people and more training of them; and thirdly—and this is what is so important about this Motion—a constant attention to the attitudes and methods of our competitors.

4.59 p.m.

Lord Pennock

My Lords, I regret to say that I begin with an apology. It is an apology for the fact that owing to a long-standing engagement which was fixed many months ago and my unsuccessful efforts to have it changed I shall not be able to stay until the end of the debate. I hope that the House will accept my apologies.

I am grateful to my noble friend Lord Joseph, as are many noble Lords, for the prescience which he has shown in introducing the debate, especially at a time when he has the pressure of many other preoccupations. In my ICI days I remember being involved in a job evaluation scheme to decide what was and was not important in jobs. The art of disparate attention received the most marks in the evaluation. My noble friend Lord Joseph would undoubtedly have earned high marks, not only because of his disparate attention but even more significantly because of his disparate projection.

Having said that, if I am honest I must say that I was somewhat disappointed in that the erudite and penetrating analysis which he gave of our situation today seemed to me to give a message of yesteryear. If it had been delivered in 1980, it would have been received with rapt attention. I recognise that it is part of our psyche as a nation to be somewhat lugubrious and full of self-denigration, which in times of difficulty gives us balance. However, in times when we are beginning to succeed one wonders whether we have the necessary perspective.

For the last four years I have been involved, first as president and more recently as past president, in UNICE, which in a nutshell is a confederation of CBIs in the countries of the Community and EFTA; numbering 17 nations in all. The presidents of those associations and the businessmen that I meet have one constant question: How is it that the British disease has been replaced by the British miracle? How have we achieved the tremendous change in attitude to which the noble Lord, Lord Aldington, has referred?

I find that the Scandinavians continually ask me questions concerning our self-employed schemes and small business development. I find that the French look at us quizzically and say, "C'est formidable!", and not much more. The Germans watch with respect because perhaps their progress has been slowing of late. American newspapers are full of analyses of the reasons for what they call the great transformation. Even in Australia, which has a government of a different persuasion from our own, tribute is constantly paid to the turn-around that has taken place. Therefore, I am mystified that it has not been recognised with sufficient force in this country.

What are the facts? As many noble Lords have mentioned, they are difficult to come by. From those which I have been able to gather from the CBI and elsewhere, my recollection is that last year—I choose my words carefully—in rate of progress for that year we were top of the league. We were top of the league in GDP. We were significantly top of the league in productivity. Our profitability returned to a position of approximately 12 per cent., compared with 3 per cent. when I first became involved with the CBI in 1978. Our export trend, which has gone down over several decades, has been reversed.

I believe that that could and should be a fundamental change. My recollection over a business life of almost 40 years is that in the 1950s we had a pretty comfortable time. The rest of the world was recovering and picking up the pieces. We had very little difficulty in competing. In the 1960s the rest of the world began to catch up and life became fairly difficult. However, there was considerable world growth at that time. I note from the figures that I have that at that time we were bottom of the productivity league. Nevertheless, there was world growth, inflation was kept under control and business developed quite reasonably.

In the 1970s, with the oil price rise and the inflation that followed, we plummeted to an all-time low. I remember that Rab Butler said in the middle 1950s that it should be the aim of a progressive democracy to achieve a doubling of the standard of living within 30 years.

Noble Lords

Twenty-five.

Lord Pennock

I beg your Lordships' pardon: 25 years. When I first became involved in the CBI 25 years later, I took the opportunity to check the figures. The standard of living in real terms of the man on the shopfloor had doubled. At that moment the profitability of manufacturing industry in this country was 3 per cent.

What has happened since? First, as I said, the GDP, productivity, profitability and export trends were reversed. If we look further at the figures of unit cost per tonne for manufacturing industry generally in this country today, we will find that we are competitive with the rest of the world. We have not reached the level of productivity of our European neighbours. However, I take issue with the noble Lord, Lord Ezra. We are not lagging behind but rather catching up. The level at the present time is perhaps 25 per cent. below that of the Germans and 10 to 12 per cent. below that of the French and the Italians. That is much better than it was eight years ago.

In terms of unit costs we are now competitive. That is true for two very important reasons which have to do with our labour costs. I have an analysis from a Swedish confederation which I shall give to noble Lords who may be interested. I find it quite fascinating. It says, quite correctly, that our wages are lower than those of our colleagues in Europe. They are not significantly lower compared with our productivity. However, they are lower, although in the last decade they have been catching up because we have on the whole had higher wage rate increases than our competitors.

The significant factor of which many of my employer colleagues in industry are not aware is that the social charges which are paid by British industry are approximately half those which are paid in the other countries in Europe. The figures are roughly that the social charges paid by employers on the last figures which were available were 43 per cent. of wages. In Germany, France, Holland and Belgium the figure was between 70 and 80 per cent. Perhaps I may say in brackets, looking a bit further into Europe, that in the United States the figure was 38 per cent. and in Japan it was 18 per cent. Armed with that tremendous help, we have become competitive in unit costs. That is a major factor in the improvement in exports, GDP and productivity.

There are lessons to be learnt from that. However, perhaps I may speak briefly about jobs. We cannot depend on the major companies to relieve our unemployment situation or to create more jobs. If we look at the annual reports of companies such as Shell, BP, ICI, Unilever and the other top 100 companies, we will find that year after year they have been reducing the overall figures. Most of them employ something like 30 per cent. or even 50 per cent. fewer people than they did at the beginning of the decade.

Jobs rely vitally not only on new industries but also on small companies. Figures which are up to date are difficult to come by, but in the period 1982 to 1984 a million new jobs were created in companies employing fewer than 20 people. Between 1979 and 1987 the percentage of self-employed in our country increased from 7½ per cent. to 12 per cent. That again represents approximately 1 million jobs.

In our lugubrious moods we often hear stories of vicious circles. Let me tell the story of the virtuous circle which I think has now begun to come into play. I hope that if we can keep the momentum going it will help to solve the problems and create the situation which all of us are looking and hoping for.

As the noble Lord, Lord Joseph, has said quite rightly, it begins with productivity. As a result of improved productivity we become more competitive. When we become more competitive we increase our volumes, we increase our margins and we earn better profits. As a result of earning better profits we pay better wages and we have a motivated workforce. We also invest more in new technology to become more competitive, to earn more profits and to continue the virtuous circle.

That circle began in 1980 and is growing in momentum. Although figures could be produced to show that it may take another decade for us to catch up with the levels of productivity of our European competitors, I believe that if the momentum is growing we shall catch up more quickly.

It is as well to analyse why these things have happened and perhaps to emphasise them more for the future. Here I begin by paying tribute to the employees in most of manufacturing industry. There has been a greater, more intelligent and more understanding appreciation of what we roughly call economic reality. Many of our trade union leaders have recognised that economic reality and I believe that many of them deserve more credit than they appear to receive in an age which seems to me naturally inimical to them.

As a result restrictive practices have been reduced and new arrangements whereby jobs do not become the right of individuals have taken their place. I think that that has been the biggest single factor in improving our productivity. There have been fewer industrial problems, the cynics will say because of the unemployment rate but others like myself will say because of a keener recognition of economic reality. However, believe me, there is still room, particularly in large organisations, for a considerable further improvement in the abolition of restrictive practices.

Sir John Egan reported succinctly in a Sunday paper two or three weeks ago that in 1980 in his organisation one car was produced every one man year. Today four cars are produced per man year. In the case of Mercedes and BMW the figure is six cars. That is not a set of figures which suggests that we are lagging; it is a set of figures which suggests that we are catching up.

Finally, I would say something to my fellow employers. I believe that in the years—and the years were long—when we were up against the collar and profitability was low we tended to become shortsighted. We tended to cut back on training. We certainly cut back on research, and the figures have been mentioned. We tended to be hesitant about investment. I would say to employers that with the profitability we are achieving today that is no longer justifiable. It is not enough to say that it depends on government and ask what the Government are doing about training.

Sir Richard O'Brien produced some interesting figures in the Financial Times today or yesterday comparing the Swedish situation with our own. I think the reason he gave for their unemployment being so low was somewhat facile. Whether that is so or not, there is no doubt that their continuing, continuous and assiduous application of training, training, training has had a desirable effect on their productivity and also on their unemployment figures.

I close by saying that we have come a considerable way. I echo the message of others that we still have a long way to go. However, I feel that we are beginning to get there and I am somewhat disappointed at the lugubrious air which some of my colleagues have adopted.

5.16 p.m.

Lord Basnett

My Lords, perhaps I may first of all welcome the manner in which the noble Lord, Lord Joseph, introduced the debate. It is a manner which I hope I can reflect in what I have to say.

I welcome the Motion because it allows us to say a wide range of things about our economic situation, as of course we have heard. I particularly welcome it because it allows us to draw a contrast between the situation pre-1979 and post-1979, a situation in which the role of trade unions has changed tremendously. Therefore, I want to consider first whether the usually simplified and politicised reasons given for our failure to improve productivity substantially are acceptable. I do so not because they have been raised in the debate but because I think that by answering them we begin to see the route by which we can make improvements in the future.

I then want to consider whether the current policies offer escape from the possibility of low productivity and low remuneration remaining self-reinforcing in the United Kingdom. Having listened to the noble Lord, Lord Pennock, I still believe that that possibility exists. Lastly, I want to end with some thoughts on the route not yet tried in this country but practised by those in Western Europe whose productivity has risen substantially in the post-war period.

The noble Lord, Lord Joseph, mentioned Graham Hutton and quoted from We Too Can Prosper. Perhaps I may give another quotation from that book. Graham Hutton said, near the beginning, that the British are a traditional, tradition ridden, conservative people. They dislike change. That is one of the roots of our problems and why other nations have reacted to change better than we have, both in our management and in our workforce from time to time.

The cause of our failure is complex. It is certainly not due to many of the much publicised reasons given during the post-war period. It is not due, for instance, to excessively high earnings. Hourly earnings in the United Kingdom had fallen by 1970 into the bottom half of the league table, where they have since remained. In relation to total labour costs, by 1986 the United Kingdom had gained the dubious distinction of having the lowest total labour costs of any advanced industrial economy.

Of course it can be argued that the more that governments and employers have sought pay restraint as a solution to industry's problems, the weaker has been the incentive to invest, innovate and modernise. That is not to argue for unrestrained settlements but rather for an organisational and economic environment conducive to rising high productivity and remuneration compared with what we have had for most of the post-war period; namely, an environment characterised by a vicious, self-perpetuating spiral of low wages and low productivity.

Three arguments, of which there are still echoes, have been used in the past to explain that spiral. It has been argued that trade union obstructionism prevented producers from responding adequately to trading opportunities; that employers and managers lacked the skills and entrepreneurial flair to cope with the challenges; and that by interfering with market forces successive governments promoted inefficiency. All three arguments share the same weaknesses. There is a tendency to concentrate on one element of the system of industrial relations, whether it be the trade unions, employers or the state, though the system of industrial relations—I shall return to this point later—is of vital importance. There is also a tendency to ignore the varying structures and constraints under which we all operate, and by implication there is a tendency to offer simple reasons for a complex series of problems. That is something which I feel we still do.

I shall not examine the case against the trade unions, which has not been raised and which has never been the subject of systematic empirical inquiry, but I should like to say that we have never created the structure or removed the constraints which could have allowed us in the United Kingdom to take advantage of three facts in relation to the trade unions. First, unions are not opposed in principle to productivity enhancing innovations. Indeed, if anything, the official position of most unions is to welcome and indeed to encourage new investment. Secondly, there is some evidence pointing to a positive relationship between productivity and unionism. Thirdly, in so far as unions are able to close off certain options available to management, such as low wages and unreasonable conditions, they can and do act as a positive force for modernisation and change.

Those observations suggest that a more complex view is warranted. Most striking is the fact that separately and together all three—employers, unions and the state—have failed to generate sufficient pressure to bring about the high productivity, high remuneration economy that we all claim to seek. Separately and together they have helped to perpetuate structures and constraints that inhibit change and innovation.

The question is: has all that changed since 1979? The evidence that has so far been presented can scarcely be said to confirm that that has happened. There has been a marked improvement in productivity, particularly over the past five years, as has been mentioned by a number of noble Lords. However, that improvement has to be seen against the sequence of changes involving a massive slump in output, an even larger collapse in employment and, only around 1982, a recovery in output.

Another feature of the post-1979 period has been the acceleration of closures and plant rationalisation. In general, plants and firms with below average performance were eliminated first, and, as marginally efficient firms disappeared, overall performance improved irrespective of whether or not the surviving plants and firms improved. A more serious aspect of this period was the sharp decline in the rate of new capital formation and investment in education and training. As a percentage of the gross domestic product in manufacturing, investment is still lower now than it was in 1979 and 1980, with an alarming similarity in education and training.

As a consequence, the United Kingdom's long-standing problem of having an underskilled and poorly qualified workforce by comparison with international competitors has been exacerbated. The fact that investment in new capital stock and new human skills has proceeded at such a slow rate since 1979 is a serious matter the significance of which remains undiminished by any claims of a cure or a miracle in Britain. Without that investment there is no cure. In practical terms, it implies that recent advances are unlikely to be sustained, for while there is scope for improved productivity in the current situation there are limits to the gains which can be secured from labour intensification.

I agree with the noble Lord, Lord Ezra, that potentially the state can assume a pivotal role guiding and, if necessary, underwriting new investment and modernisation. Broadly speaking, that role defines the German and Japanese approach; or, in terms of Western Europe in total, most of the Western democracies and most of the Scandinavian democracies. In each of those countries there is a close consensus on industrial policy and to a greater or lesser extent a microeconomic policy. There is no such consensus in this country; nor have we ever had a substantial consensus in industry. We have no co-determination such as in Germany, France and Sweden, and little employer-motivated involvement. Maybe, after all, one of the important problems is an industrial relations problem.

In the past, intervention has been at the macroeconomic level or at the level of the industrial sector—from the top downwards. We have never built up, as have Germany, France, most of the Continent and all Scandinavia, close consensus involvement through the introduction of co-determination. In this country we have never seen among employers the substantial promotion of involvement that has been introduced by the Americans and the Scandinavians—intervention from the bottom upwards. Co-determination and consensus in industry will not solve our problems but could provide the pressure that we need to begin to create the climate to encourage the investment and build the long-term rise in productivity and remuneration that we all want.

5.30 p.m.

Lord Harmar-Nicholls

My Lords, if a sub-editor wanted to sum up in a headline the call made by my noble friend Lord Joseph it would be right for him to say, "The noble Lord, Lord Joseph, calls for more entrepreneurs". That sums up the message that my noble friend tried to give. He spoilt it a little by saying he was sad that there was no English word with the same meaning. The noble Lord, Lord Williams, said that he did not know what the word "entrepreneur" meant, either. I do not have much difficulty. By "entrepreneur" I mean two easily understood English words: the risk takers. They are the ones who are prepared to take the risk. At a time when we are moving into a new world, with new technological approaches, and new areas to be covered, people who have the courage and ability to take the risks and to get away with it are pretty important. I support my noble friend. We want more of those risk takers.

I did not quite understand the noble Lord, Lord Ezra—if I heard him aright. He was talking about one of the businesses with which he had been connected that he felt was inhibited, or had some problem, because the share price had varied. I do not know that the share price has anything to do with an ongoing business.

Lord Ezra

My Lords, I did not say that it was inhibited by the share price having gone down. I said that, it having made a completely green field new investment, the analyst took a dim view because it was long term. That is the point I was making.

Lord Harmar-Nicholls

My Lords, I do not see what the share price has to do with it. It is the end result that decides whether the business is a success or failure in terms of employment and profitability.

I took on the chairmanship of a company when the profits were £300,000 a year. When I gave it up—because I had reached the magic age of 70–16 years later the profits were more than £40 million a year. If we had paid any attention to share prices in the period in between in which they varied, we should all have been in the madhouse. However, we were satisfied that our knowledge of the business was such that the rise and fall of share prices was not as important as the end result. However, I take the point.

The noble Lord, Lord Basnett, was a little grudging in that he did not accept wholeheartedly that there had been improvement in productivity. I do not think that there is any doubt about it. The productivity figures are very clear. They have been repeated many times. However, for what they are worth, taking a base of 100 in 1980, the productivity figure in France by 1987 was down to 99. The productivity figure for the Netherlands remained at 100. The productivity figures for Germany and Belgium had increased to 106. The productivity figure for Britain had increased from 100 to 109. One can argue that it could have been better, and that we might have been happier if it had been. But I do not think that one ought to be grudging about the fact that we are catching up and taking up some of the slack of previous years.

I do not wish to make any party political points. In opening the debate my noble friend made it clear that his intention was nothing to do with party thinking or party divisions. That is the spirit in which we have to continue. If those productivity figures are factual, the Government's prudent control of the nation's finances since 1979 means that industry and business generally have been given an opportunity that was not there before. However, those of us who know anything about business have to reiterate the important point: we are not there yet. We may not be even half-way towards the pre-eminence that we used to have and that I believe we have the ability to regain in the future. If we have had success in the past eight years is is absolutely vital that we continue in the same direction for at least the next seven or eight years. We are then likely to have returned to the point that is attainable, whichever personality happens to be in the driver's seat, and whoever is in the Cabinet.

I enjoyed the very practical speech of my noble friend Lord Pennock. He was absolutely on the ball when he stated that, whatever views some of us in this country may have about how good or how bad the general government leadership has been, it is the view throughout most of the rest of the world that what was supposed to be the British disease has turned into the British miracle. I never felt that more vividly than during the five years I spent as a Member of the European Parliament. When I was there in 1979, one felt the almost patronising way in which the representatives of all the other nations were expressing sorrow at the way Britain had gone down, with such remarks as, "You may get on better in the future, but bad luck, old chap". I compare that with the back-slapping and the plaudits that I received—as though I was responsible—from members of the EC six years later when the improvement that I am claiming was known to the world. We ought to bear that in mind.

My message is that there is no doubt that unearned pay increases raise costs and cost jobs. Unless we keep the costs of production at a commonsense level, we cannot attain and continue the success that we seek.

Such issues are often made a part of party ping-pong. The noble Lord, Lord Boyd-Carpenter, spoke about the tax reductions that have taken place over recent years. Their effects on people's incomes are equivalent to a 2 per cent. increase in average wages. When pay negotiations take place this ought to be taken into account, and not ignored as it now often is.

I agree with my noble friend Lord Pennock that for those of us who live in the industrial Midlands and who know a little about business there, it is gratifying to see the great improvement that has taken place in the responsibility by the workforce, and the improved leadership that we see in so many of the trade unions. That is an advantage that I hope will continue. However, we would be very foolish if we felt that that battle had been won.

When we came up against the problem in Dundee, we saw that the old-fashioned intransigence was still there and could produce dangers. I am very conscious of that. For 25 years I was Member of Parliament for Peterborough, which housed the great Perkins Diesel Company. It won the award for exports year after year. When I first went to Peterborough as a candidate, that company employed 30 people in a little shop in the centre of Peterborough. When I left, it was employing thousands of people with the great advantages, to which I have referred, of its export success.

I hope that the Government will keep their fingers out of much of this. My noble friend who moved this Motion so admirably said that he had no management or entrepreneurial experience on which to build. He was talking as one who has examined the position. He spoke with some authority. However, we have to leave it to people who are on the job every day and know something about it. This is what my noble friend Lord Pennock, with his vast experience in a great industry, was trying to say. It was for that reason—it was not pleasant; I like to be loved, like everybody else—that I incurred the displeasure of the House at Question Time by wanting to speak a second time in order to make the point.

The point is, as my noble friend said, that we want to attract entrepreneurs from other countries to come here so that we can have the advantage of their risk-taking. If we do that then we must not sour the atmosphere by giving the impression that every time a firm wants to come here we look at it full of suspicion. I was sad when I heard a colleague on these Benches say that before a company comes there ought to be a debate in both Houses. That would mean politicians trying to tell those who have to make the decisions what those decisions should be. That is the kind of lesson that the Government must keep in mind.

The reason I put my name down to say a few words today was that I wanted to represent what I believe is the feeling of the West Midlands. The West Midlands and the Birmingham area used to be the workshop of the world and the successful part of this country, which because of its diversification through good times and bad always managed to maintain its success. What changed that, even during this new period of technical improvement and change, was government interference.

Both sides were guilty—the Government I supported and the other side, with their industrial development certificates. They said: "For social reasons, although you believe that your works extension ought to be there where you think you can turn it to good account, it has to be moved somewhere else". I was involved in Peterborough when Perkins Diesel, which I spoke about a moment ago, wanted to build an extension but could not get an industrial development certificate. The extension had to be moved to Whitehaven, said the Government. If the company could have had its extension in Peterborough, it was only a matter of building an extension to an already existing plant, with the administrative offices and the power houses already there. But it was told that it had to move to Whitehaven, and in the end the company agreed to do so.

A great hoo-ha occurred when I, as the Member of Parliament for Peterborough who was gallantly giving up this extension in my constituency went to meet the Labour Member of Parliament in Whitehaven. We shook hands at the back of a great big hoarding which said that Perkins Diesel was moving to Whitehaven to help employment at the expense of Peterborough.

Perkins Diesel had made that arrangement and wanted to honour it. It had arrived at its figures by examining the wage rates and the general conditions that then existed in Whitehaven. It was on that basis that it wanted to agree to the changes asked for by the Government, against the company's own wishes. But before the ground was dug for the foundations the unions let it be known that they wanted it to be clearly understood that the wage rates to be paid at Whitehaven had to go and the famous words used—I think the noble Lord, Lord Jay, was the person who used them—were, "We shall want parity with Peterborough".

Parity with Peterborough rates would have made all the difference to the calculations that were made about whether the company should move. It never did. The company knew that if parity was given with Peterborough, the Peterborough people would immediately say, "We want parity with the works in Coventry". The minute that was achieved, the Coventry people would have said, "We want parity with the works in London". That would have upset the whole bag of tricks, and I have no doubt that my noble friend Lord Pennock who has had to deal with many such matters understands how disruptive is that kind of thing.

For that reason I want to lobby my noble friend about putting in his oar where it is unnecessary. We want no more industrial development certificates of that kind, even to the disadvantage sometimes of the West Midlands. In the South, where there is much business, if it is better for the nation's interest that a development should be there, let it be there. We should stop trying to put forward social arguments which interfere with the general efficiency of the running of businesses, which is the only way of producing the profits and the jobs that follow.

I have a survey taken in the West Midlands from the people on the spot. I do not particularly want to put this to the House, but I want my noble friend the Minister to understand it. As it is mainly the Government I wish to inform in order for them to keep the whole matter in perspective, I shall not bore the House by reading the results now, although I had hoped that I might be able to do so. I shall send the details to my noble friend. When he receives this information I hope that he will pay heed to it.

5.45 p.m.

Lord Crickhowell

My Lords, I had hoped to be here until the end of the debate, but I have a longstanding engagement and if I slip away before the end I hope the House will accept my apology.

I very much welcome the debate. My noble friend Lord Joseph continues to hammer home a lesson that he had been teaching us since the early 1970s. He is absolutely right not to relax his efforts. My noble friends Lord Pennock and Lord Harmar-Nicholls were equally right to emphasise that it would be a mistake to ignore the revolution that has taken place and which has produced an enormous improvement in our industrial performance.

My noble friend Lord Joseph deserves great credit for the major part that he has played in achieving that improvement in performance. It is an improvement that is now acknowledged throughout the industrial world, where those who once regarded us with some degree of contempt now speak of the British industrial miracle. The process has been painful, but it was necessary both for our survival as an industrial nation and, not least, if we were to maintan and improve the social services and meet the rising costs of our increasingly elderly population.

My noble friend Lord Joseph will remember the anger and the bitterness which greeted us both as we toured South Wales when he was Secretary of State for Industry at a time when the British steel industry was having to face up to a drastic reduction in manpower. I wish my noble friend had been present with me at the works dinner at Llanwern, soon after the coal strike ended, to enjoy the warm welcome, the enthusiasm and the passionate dedication of a workforce which knew that it now worked for an organisation that was among the most competitive in the world and was determined to keep it that way.

As my noble friend the Secretary of State observed, we moved from a position when some of the nationalised industries have ceased to be consumers of wealth but have become creators of wealth. As a Minister I watched with pride the wide variety of industrial and commercial enterprises that began to match the transformation achieved by British Steel. Today, as president of AMDIA, the Association of Manufacturers of Domestic Electrical Appliances, and a director of a number of companies, I observe daily the progress that is being made.

In my own firms there are few things which I find more exciting than observing the entrepreneurial drive of managers, many of whom previously have found themselves stifled in nationalised industries. The process of privatisation has played a large part in the drive for productivity and entrepreneurship. There is still much to be done in that area. In the port industry it is absurd that we should still be shackled by the archaic distortions of the Dock Labour Scheme. In the energy industry the Government cannot hope to achieve the full potential for competition and performance in electricity generation without allowing the private sector a large and increasing role in the financing and production of our enormous stock of indigenous coal.

Although we have made so much progress, my noble friend is right to remind us that we cannot afford to be complacent. The Secretary of State confirmed that we still have ground to make up. In a multi-continental, fast changing, competitive world we have continually to move forward in order to maintain, let alone increase, our share of the market.

The noble Lord, Lord Williams of Elvel, and my noble friend Lord Aldington, reminded the House that we still live in a trading world distorted by restrictions and subsidies. Although it is probably right that we should seek to remove these international distortions, in the meantime we cannot allow our industries to be put at a disadvantage.

Earlier this afternoon my noble friend Lord Bruce-Gardyne raised the issue of subsidies in relation to Mr. Tikkoo's supership. Approximately 20 years ago Mr. Tikkoo was an example of the immigrant entrepreneur about whom my noble friend Lord Joseph spoke earlier in the debate. I suspect that the issue is not whether that particular ship will be built, but where it will be built. In the end Harland and Wolff may be able to satisfy Mr. Tikkoo and the Government of its ability to carry out the work efficiently, competitively and on time. I hope that it will be able to convince both parties.

However, the Government may decide that they do not wish to subsidise the British shipbuilding industry. They are entitled to look at those issues with an open mind as we look forward to having the Government's views in due course. However, they must recognise that the French, Italians and others may take a different view if we decide to move out of subsidies altogether. I believe that we are entitled to ask that that is one factor to be taken into account when the decisions are made. I hope that it will prove possible for Mr. Tikkoo to build his ship in Britain.

Industrial productivity is by no means just a matter of wage rates. It is the consequence of the effective use of investment, technology, management and good labour practices. If the combination is right the workforce is entitled to higher earnings, just as much as are the managers and shareholders. The taxpayer also obtains his or her reward. Over the week-end did I see—and can it be true—that the increase in tax revenue during the past year is a result of the increased output exceeding the entire yield of taxation that results from North Sea oil? That seems to me to be the implication of improving productivity for public and social services. The falling borrowing requirement and the increased resources available to fund social services arise because we have been improving our industrial efficiency. If there is still a gap between our performance and that of others the rising tax revenues are evidence that it must have closed considerably.

I do not believe that it matters enormously whether the wealth is created by the manufacturing or non-manufacturing sectors. I do not wish to become involved in the little quarrel between my noble friend Lord Aldington and the Secretary of State. I believe that both sectors are important. I find it hard to believe that in his long and distinguished career in the service sector my noble friend Lord Aldington did not believe that he was contributing to national wealth. Let us not quarrel about whether it is the manufacturing or non-manufacturing sector; I attach equal importance to both.

My noble friend Lord Joseph calls out for more entrepreneurs. They are springing up everywhere, even in previously depressed regions, and the Secretary of State gave us the figures. There are a number of essential conditions for success where progress has been made but where there is still enormous room for improvement. In Wales I observe a transformation in attitude and confidence. Only a few outdated politicians winge on thrusting out the begging bowls. Much has been done and is still being done to improve the infrastructure. There is even a sign of a strengthening of professional and financial services and of a closing of the gap between the City and the regions which a few years ago I identified in a speech to the Cardiff Business Club. The gap is less vast than it was, but it still exists. There is no substitute for local knowledge and local initiative. They played a large part in our earlier era of industrial greatness and there are lessons to be learned from that past experience. It is just as important that attitudes to the regions change among those in the prosperous South-East as it is that attitudes in the regions continue to change and develop.

The obstacles to entrepreneurial activity can still be too great. Too many people make a lifetime's practice of opposing almost every new initiative. Dare I say that I sometimes believe that there are even one or two people who may accept that that criticism lurks in this House? It is so much easier to be against something than to create something. Planning procedures are still far too cumbersome and take too long. The machinery of government, particularly as regards the Treasury, moves far too slowly. The avoidance of error rather than striving for achievement still seems to be the principal aim of too many people in the public services.

In the private sector the financial markets, confronted by uncertainty, reveal how easily confidence can be lost. There is a real risk that in the City a combination of legal activity and the new Financial Services Act will stifle business development. We must be most careful that in providing safeguards against abuse we do not make business almost impossible. I am now helping to bring a new company to the market and I had not begun to realise the immensely burdensome undertaking that would prove to be. This week a Canadian businessman involved observed to me that in Britain there seems to be a lack of business sense in everyone except business people. Several noble Lords have referred to the changing attitude to industry and the decline in snobbery about those engaged in it. However, I fear that that Canadian's comment still has a grain of truth about it.

I share some of my noble friend's anxieties and impatience. However, perhaps more than he I take encouragement from what has been achieved. I am delighted to have an opportunity to pay a tribute to him for the major contribution that he has made towards the achievement of the British miracle during the past two decades.

5.59 p.m.

Lord Houghton of Sowerby

My Lords, I am sure that the noble Lord, Lord Joseph, will always have a more sympathetic audience in your Lordships' House than he had in the other place. We are more used to noble Lords, with their finely-tuned intellects, grappling with the problems of the day and giving us the benefit of their reflections. They do so without necessarily being dogmatic about what we should do or where we should go.

I have watched the noble Lord, Lord Joseph, ever since he came into Parliament. I have admired the thought and zeal that he devotes to his contemplation of national affairs. I wish that he did not agonise so much with himself, but that is his temperament and that is one of his endearing qualities. He knows that I have always attended on his activities in Parliament with a great deal of sympathy. When he first came into the other place we established a great deal of mutual interest on the future of the social services.

I do not know whether the noble Lord realised that this debate would be sandwiched between the first two days of the Committee stage of the Education Bill. It is probably coincidental and it might even have been opportune that it is so placed. It occurs to me that we might have regarded today's debate as an opportunity for expressing the concerns of industrialists, employers and those engaged in industrial and economic affairs with the product of our educational system. I felt very depressed after yesterday when we had a Government that wanted to put the economic, industrial and social requirements of the nation first in the review of the educational system, and yet we had religion dragged into the forefront to occupy the first day and had the repetition of the controversies of the four Education Acts of this century, and so much attention was given to that aspect of the matter.

I also feel that if we let slip today, as we have done, putting our spoke into the education debate on the real purposes of our review of the education system, they may become lost in the debate that follows. As soon as we are off the subject of the curriculum then we are into the field of administration and we are there for a very long time. Educationalists love administration, controls, democracy and bureaucracy. It is endemic to the educational system. However, I shall leave that. I do not want to continue yesterday's debate in my own interests.

However, we shall not come out of this education debate with the fulfilment of our purposes unless we let it be made clear that out of the educational system of the future we want something better in the equipment of our young people in the lives they have to lead and the living they have to earn. I believe that nothing else can replace that in the field of philosophy, mysticism, religion or anything else because that will be the condition for our survival.

We all agree that we have a long way to go. Goodness me, we are only rising out of the trough. I thought that the noble Lord, Lord Harmar-Nicholls, was becoming a little beside himself with the praise that he is receiving from colleagues overseas, but let him not become too "uppish" about that. I am sure that he has heard me say that I always remember the legend over the headquarters gymnasium at Aldershot which said: Be not wise in your own conceit. There is more hope of a fool". I believe that we should bear that in mind when we are becoming strapped up on the backslapping on our recovery. When my friends in America ring me up late at night and say, "Are things in England as good as they say?" I say, "Do not believe all you read in the papers". I believe that we can examine the reality of what we are doing, satisfying as it is up to a point, with greater candour and realism than our friends overseas.

Perhaps I may offer a few reflections on the present situation. There are still a good many discontents around in the country. What is the mood of the people? What is the state of the nation? Are we getting the requisite sense of purpose, unity, endeavour and co-operation? It was an extremely discouraging experience to go through all the legislation on trade unions which put restraints on trade union leadership and on trade union activity without a word of goodwill or appreciation of the role of the trade unions in the industrial development of the future, as if the trade union movement was some kind of fifth column which unfortunately would not go away but which should be put in wraps or straitjackets to prevent it becoming too troublesome.

In my view, that was not the spirit in which the Government should have introduced that legislation. In this debate only my noble friend Lord Basnett and I have had Trade Union Congress connections. I regret that more of my noble friends on these Benches have not entered into this debate. It is not a matter entirely for the satisfaction and decision of noble Lords opposite; we are all in this. What is the morale of our workforce? Who is contented in Britain today? Will our institutions stand what we may yet have to go through?

I still believe very firmly in the future of this country in Europe. I believe that there is no alternative to it and that that is where the destiny lies of this country and of other countries in Europe. However, there will be serious problems to go through before we are comfortable and satisfied with our association with other European countries. We must face an element of difficulty in 1992, and I see no drawing back from that if we are to establish the kind of economic unity which is an essential condition of the EC.

What else is there? There are social benefits and taxation. If one reads the new spapers, there is a good deal of discontent with the Government. Is that real, or is it merely that they are the marginal wants or grievances of the people? That may express itself in some form or other in the election results tomorrow, but at present I believe that is very difficult to assess.

I believe that more attention should now be given to the future of industrial relations in this country. Practically nothing has been done to encourage a betterment of industrial relations in this country except to make it more difficult for unions to go on strike—if that is for the betterment of industrial relations. I believe that we have a great deal to work on there. The trade union movement is going through a period of considerable self-examination. I believe that should be encouraged. I think that a great deal about the organisation and so on of the trade union movement should be changed.

Will our other institutions stand the strain of the changes that lie ahead? Will Parliament itself do so? It is a strange situation, and in my view not a healthy one, when the Government of the day, without the clearest mandate from the electorate, can ignore completely what an Opposition want or suggest or hope for because of their superior position in the procedures of Parliament, and only give way to meet objections and difficulties when there is a revolt inside the governing party itself. That is not a healthy situation. After all, our electoral system does not give adequate representation in Parliament to the different elements of thought and conviction in the political sphere. Therefore, it is most important that governments which attain office on the quirks of our electoral system should use the power which they have in a less arrogant fashion. I believe that is an essential condition of the country feeling confident that the Government and Parliament will be representative enough of opinion generally to carry the nation with it into the future. There is no immediate prospect of that.

It seems to me that even your Lordships' House should not be left entirely as it is. I believe that our debate this afternoon would have been improved if more active industrialists had taken part. When I go around and do my little commercials in favour of the House of Lords one of the things I say—I am not sure whether I am right—is that there are more active industrialists in the House of Lords than there are in the House of Commons and that that is one of its virtues. We are almost all yesterday's men—

Noble Lords

Oh!

Lord Houghton of Sowerby

I said "almost", my Lords. People who are actively engaged in industry today, on both sides for that matter, would improve the quality and the authority of our debates. I presume we shall have to continue as best we can. I hope that those who are elevated to membership of our Lordships' House will feel increasingly under an obligation to come and give the benefit of their experience, especially if they are actively engaged in industry.

Where does this all take us? I believe that we need more sensitive Government administration, more regard to minority opinion, more understanding of the role of institutions—which the Government may dislike but which are essential to the life of the nation—and generally to adopt a softer approach to the issues of the day, so that we have a stronger feeling of unity in the country in the efforts that we still have to make. That is the message I give, and although it is not a very striking one I feel that there is an undercurrent of discontent with the Government at present which does not equip them to take us through what may well still be the problems and difficulties of the next three years.

6.12 p.m.

Lord Beloff

My Lords, I hope I shall be forgiven if I do not immediately follow the train of thought of the noble Lord, Lord Houghton of Sowerby, because after our marathon last night I have not the mental agility to cover so many themes in so short a time.

I must therefore go back to the origins of our debate this afternoon and the Motion which has been moved to our satisfaction by the noble Lord, Lord Joseph, and which has produced some important and interesting reflections on our economic situation. I was attracted to speak in this debate because of the noble Lord's use of, and the attention paid to the word and the concept of, "entrepreneur". Looking at economic history and development over the past three centuries or so, the most obvious feature is that there are great and continuous shifts of economic activity between regions, countries and sectors of the economy.

This has largely been the product of new men—call them entrepreneurs or risk takers—who have embarked upon the belief that they could do well for themselves by meeting, or in some cases even creating, new needs among consumers. The noble Lord and my noble friend the Minister have both made a point of the importance of encouraging entrepreneurship in our own society. The difficulty seems to be that we do not actually know how one encourages this human attribute.

It is perfectly easy to see how one discourages entrepreneurship in an economy. The difficulties which the East European countries now face in trying to rediscover entrepreneurship after one generation or, in the case of the Soviet Union, more than two generations in which this attribute has been highly disregarded, show that it is easy enough to destroy and difficult to create.

But that does not get us very far. If one looks at the history of entrepreneurs—and this was referred to obliquely by the noble Lord, Lord Joseph, and also by the noble Lord, Lord Pennock—it appears that one common feature is that they do not come from whatever are the most esteemed or privileged classes within that society. Diasporas are the great source of entrepreneurship. I take one simple example; namely a family of peasants in Gujerat. For generations they proceed with traditional methods of subsistence cultivation. Any little capital that they accumulate goes on golden ornaments for their women.

They follow the call for unskilled manual labour in East Africa. Within a couple of generations they play an important and vital role as entrepreneurs in the development of the East African economy. In the next generation they then suffer, under President Amin of Uganda and other local potentates, a further expulsion and they come to this country. So one has, as it were, a double diaspora and one is told that there are by now 100 Patel millionaires in this country.

Plenty of other parallels can be given; for example, the Lebanese in the Lebanon cut each others' throats whereas the Lebanese in West Africa perform an essential role in the economy. One could say that the United States, which is the country that one looks to for lessons in entrepreneurship, has been the constant beneficiary of a succession of diasporas. One is now told that the latest of these, the Vietnamese, are beginning to play an important role in those parts of the United States where they have settled.

One cannot wish for human misery to be the source of profit in that way, but it is also true if one looks at the native population of particular countries. For example, take our own. It is I believe a truism that the entrepreneurship of the industrial revolution of the late 18th and early 19th centuries and many of the great developments of British industry and commerce were the product of those who had been excluded, very often for reasons of religious dissent, from the established ranks of English society at that time. Some have felt that later on one of our weaknesses was that their descendants found the prospect of entering those ranks too tempting. I do not make a great point of it. However, if some people are to be believed, the fatal blow to British industry was given when religious tests were abolished in Oxford and Cambridge and the dissenting academics no longer played their original role.

One has to ask this question: Are there now in this country other elements—and I have given the example of recent immigrants—who might play an increasing role in providing the entrepreneurs that our economy obviously requires? It strikes me that one possibility may be in the largest group that regards itself as discriminated against. I refer to women. I have a feeling that there are a number of women entrepreneurs, although not as many as in the United States. However, it is a considerable number which may well increase. If it does, it will no doubt have the same useful effect and do a great deal more for the cause of women's equality than any number of quangos.

I come now to a question that I should like to put to the Minister. Is he—and it would be useful if he were—monitoring the response of people to the various enterprise initiatives and the other ways in which his department is trying to promote entrepreneurship? Is he doing so not merely in the sense of statistics but in the sense of getting the feel of where this works and where the appeal actually finds an echo? Who are the people willing to act in partnership with or under the encouragement of government in taking such risks? Given his past role in the Manpower Services Commission and his constant interest in training, can he say where are the successes and failures in attracting young people in particular to the various institutions for youth training that have evolved over the past few years? We need to know a good deal more about both those facets of the problem before we can fully assess whether the hopes expressed by the noble Lord, Lord Joseph, will be fulfilled.

The noble Lord, Lord Williams of Elvel, made some remarks with which I felt a degree of sympathy. However, I have a rather different explanation. I have sympathy with his view that entrepreneurship has its less pleasant side. That is inevitable. It can too easily become a mere search for material profit without much regard to the direction in which the economy and society as a whole are likely to benefit. When I see what is booming in the industrial and commercial world I sometimes wonder whether we will have something of a shock when any yuppie sitting in his bathroom can communicate at ease with another yuppie sitting in his bathroom in Tokyo. When all that has been fixed up, what do we do next?

Where my explanation would differ slightly from that of the noble Lord is that it may be that the entrepreneurs of today, and in particular the young entrepreneurs who are important on this scene, are less concerned about social development and contributing with their wealth, time or energy to the public good than were the great benefactors of the Midlands and the northern cities who made their wealth in the first stages of the Industrial Revolution and whose monuments are the town halls, the civic buildings and the universities which they donated to the towns and regions from which they drew their wealth. The reason I give is that they start with a feeling that what they are doing is not applauded as it was in Victorian times, but is regarded from the beginning as something disreputable.

There is some evidence that our education system—one really ought to keep education out of the debate today—tends at times to instil in young people the view that fairness of distribution is a noble thing and in some cases is the only thing that one should worry about in society, and that the production of wealth is either taken for granted or is considered to be a disreputable activity in which nice people should not be involved. This is another point I put to the Minister. How far do those who interview young people for training courses in the various schemes find that this kind of thinking has had a impact on them? This may make them more reluctant to receive the training that would make them either potential entrepreneurs themselves or members of that skilled workforce upon which the entrepreneurs will ultimately depend.

Those are important questions that relate to many aspects of our economic life. We should be most grateful to the noble Lord, Lord Joseph, for having brought them to our attention.

6.28 p.m.

Lord Dean of Beswick

My Lords, like previous speakers, I should like to express my appreciation to the noble Lord, Lord Joseph, for introducing this subject for debate.

In his speech the Secretary of State referred to the fact that our performance has improved. Unless it continues to improve we shall be at a disadvantage when the single market comes into being in 1992. I should like briefly to refer to a debate which took place in your Lordships' House just over 12 months ago. It was introduced by my noble friend Lord Cledwyn, and in reply the then Leader of the House, the noble Viscount, Lord Whitelaw, said: Productivity, perhaps the great weakness of British manufacturing in the past, has improved by no less than 40 per cent. in the last six years—a rate of improvement matched by none of our major competitors. And cost competitiveness has improved also—by 15 per cent. since the Overseas Trade Committee reported—making Britain a much more attractive country for manufacturing industry".—[Official Report, 11/3/87; col. 1061.] When the Secretary of State comes to reply, will he say whether the general approach of the noble Viscount was correct? If that trend is continuing it is very welcome. We must continue with that improvement and try to accelerate it, because if we do not we shall be operating at a disadvantage in 1992.

The noble Lord, Lord Joseph, frequently mentioned the words "entrepreneur" and "entrepreneurial". It is all very well having a country full of entrepreneurs but they cannot do the job on their own. They only germinate ideas and start them moving. If you do not have the workforce to put the ideas into action the project will not take off. For instance, at the beginning of the last war in Manchester they developed a "Manchester bomber" and they thought that was going to be a resounding success; but it never had the power to be a success so they had to redesign the aircraft. They produced the Lancaster bomber, which was a success. The point I am making is that unless there are sufficient bodies to produce the goods the ideas will fall on stony ground and be wasted.

I was myself employed in the largest manufacturing section of our industry, which was the general engineering industry; and of course it still holds that position because in terms of manufacturing industry it employs more people than any other sector. During past debates in your Lordships' House I have tried to point out the significance of the tragic reduction in the numbers of young people coming into engineering in general for training, mostly in factories. It has already been said, and clearly underlined, that members of the CBI and related associations such as the Institute of Directors and so on are finding an increasing scarcity of skilled labour of the type that is needed to do the job.

I should like to say that when people are trained as engineers it does not follow that because their particular line of engineering becomes out of date they cannot quickly adapt to another particular line of industry that is about to take off. For my sins, I spent most of my life up to the age of 40 as a locomotive engineer working on the manufacture of locomotives. Coal was dated then because at that time there was available an abundance of cheap oil. I had to change my stance in order to maintain my family, and I had to go to the other side of Manchester and become a turbine engineer. It did not take me very long to do that because I was on piecework and if I did not produce very much I did not get a very good wage. Eventually I managed to produce the necessary goods in quantity and so obtained a good wage.

I feel that the necessity for basic training can sometimes be overplayed because people, once trained in a skill, are very adaptable at deploying their skills in a new way if they are given the chance. That, as I know, has always occurred in manufacturing industry. People move around within the industry; for instance, people involved in machine tool manufacture will move to other forms of industry without very much disturbance.

However, what worries me, when the entrepreneurs have got their ideas and they are in competition with our German and French colleagues in Europe, is the basic approach regarding our seed corn. It is well known, I think, that there are political differences between us. Some of us have said in the past that we think that Government have gone too far in wasting our seed corn when it should have been nurtured. I have said before, and still say, that the best way to train somebody to work in industry is to give them a good grounding within the industry itself. Although the present training schemes in themselves are excellent, in my opinion they should be used only to supplement the training of a person in the particular type of industry in which they will be absorbed.

I should like to give some indication of the competition that we face in this respect. Our rivals try to make sure that they have a reservoir of young people coming in who will be available at the right time and in the right place. I have figures here which show that at present the average British company spends on training only one-sixth of what would be spent in a company in a competitive country. That is a quite dramatic figure: for every one that we train, Germany or France will be training six.

It is easy to criticise, but I wish to be helpful and try to give some indication of the dimension of the problem facing us. The figures also show that every year in West Germany some 750,00 young people enter high-quality three-year employer-based traineeships. Wherever possible these traineeships should be employer-based, because the employer is the best barometer of what training the employee needs. He is the man who is looking ahead and he does not want to train youngsters for lines that are going out of existence in a few years' time. He wants to be training them for the future, for things that he knows will be successful.

The figures also show that in 1986–87 10,000 British youngsters started apprenticeships or their equivalent. That may sound good until you look more closely at the figures. I have given these figures before in your Lordships' House and they relate strictly to my own particular industry, engineering. The figures show that in the engineering industry the number of training board apprenticeships has fallen by 65 per cent. since 1979, from nearly 23,000 to about 8,000. Once again, those are quite dramatic figures. I am not saying for one moment that the whole of that decline was avoidable, because many of those youngsters in past years would have been employed in industries that are now outdated. However, we should be making a grave mistake if we did not take this fact on board.

The Government may have to offer employers in the so-called "sunrise industries—even if the sunrise seems rather distant—some encouragement so that youngsters may be taken into the factories in conjunction with a training scheme, to try to make sure that we are not operating at such a disadvantage in the future as would appear from the figures I have given.

If I may, at this stage I shall be a little critical of the Government. I am rather sorry that they broke the bipartisan agreement about the training boards, and diminished the numbers of trade union representatives, with an increase for the employers. I think that was rather unnecessary. I would not be one of those who suggest that trade unions should opt out because they have met with adversity of that kind. I think they should always be in, even if the Government make a mistake, as in this case, by diminishing their role. There has to be a great deal of goodwill from the trade unions for schemes, if they are really to succeed.

I know that some criticism arose from a recent event in Scotland, but your Lordships will make your own judgment as to whether the Ford Company was in the right in their view of what happened, or whether responsible trade unionists were right when they disputed that view, and we will not go through that today. In many industries now, the trade union movement has seen the light regarding the question of demarcation. I used to think it was nonsense when ships were on the stocks and nobody seemed in a hurry to finish them because of demarcation disputes. That type of thing is going and I believe that the trade union movement now recognises that there must be single-union agreements based on fair play and an agreement between the trade union involved and the employer they go to work for.

I would hope to see more of these agreements. There must be some attraction when we see the large investments made in areas of this country by countries like Japan, which are really an example to everybody of how to conduct this type of exercise. I think the fact that such people are prepared to invest huge sums of money in those areas says a lot for the history of the British workman.

I happen to come from one such area that had a good industrial record. Wages were never extremely high but, nevertheless, they produced the goods. However, at the time unfortunately it was done with machines that, by comparison with those of their competitors, were totally archaic. For example, the factory where I worked until well after the war had machines which were still started by pulling a rope and moving a belt off a loose pulley which would ultimately drive the machine. Some of those machines were still running when the factory closed down in 1960. Therefore, is it any wonder that that factory could not change its product and thereby compete in the wider market?

I noted the remarks of the noble Lord, Lord Boyd-Carpenter, in his comparison between the Russian system and that operated in the United States of America. I am not for one moment indicating that I favour the Russian system or that I should like to live under it. However, I think you have got to get the position regarding America right, because it is not, in some respects, the great entrepreneurial nation. America has a house full of problems, such as we have, and finds them insoluble.

Recently I happened to be in the company of some American people in your Lordships' House. Some of those people coined a phrase which I had not heard before. They came from an area called the Rust Belt. It was explained to me as being similar to what we started to term our smoke-stack industries; that is, the dying traditional industries that, whether we like it or not, have died for all time. Nevertheless, America with all its wealth and application of entrepreneurial skill and finance to invest still has substantial areas which are as bad industrially as the worst black spots in Great Britain. It is no good anyone trying to hide the fact that there are parts of America where deprivation, in its widest sense, is at its worst. I thought that the record on that issue should be put right.

However, there have been some tremendous successes in America, such as its refurbishment—one of the most outstanding examples of which is the city of Boston and the way it tackled its problems. We are hoping to learn from that type of example. But we cannot assume that America has the answer to everything, because it has not. In fact, American markets are increasingly being penetrated by people such as the Japanese and the South Koreans at a substantial rate. I am not an economist but I have enough sense to know that the American economy at present is only carrying on because the country is living on the biggest tick bill ever. It is running a record balance of deficit payments. Further, should it even dare to try to balance that situation the unemployment prospects in America would be absolutely horrendous.

Lord Boyd-Carpenter

My Lords, will the noble Lord allow me to intervene?

Lord Dean of Beswick

Yes, of course.

Lord Boyd-Carpenter

My Lords, I think the noble Lord misunderstood what I said. What I was saying—I apologise if it is obvious—was that the standard of life in the United States was infinitely higher than that in the Soviet Union; that is, of course, if one excepts the privileged ruling class there who are in a different position altogether. However, I was not seeking to make a general comparison or to suggest that all parts of the United States were prosperous.

Lord Dean of Beswick

My Lords, I accept the point that the noble Lord has made. However, I must say that whatever the system which governs a country may be, I have never found any shortage among what he termed the ruling class. The ruling class, in any system, do not walk about in sackcloth and ashes; they are usually at the top of the tree, whatever the system. I was trying to make the point that in some respects America is very good. However, in others its patchwork quilt is not a good example and does not provide the answers. In fact, the country would like to find them.

The debate has been an interesting and objective one which has given us some room for thought. It also indicates we have some mileage to make up before we can start to compete upon a pound-for-pound basis, in colloquial terms. I hope that the present trend continues and that we are successful. However, we have a long way to go and the worst thing we could do at present is to become overoptimistic and complacent about our position. The figures quoted last year by the noble Viscount, Lord Whitelaw, show a tremendously successful trend. As I have already said, I hope that trend continues.

I conclude by thanking the noble Lord, Lord Joseph, for giving us the opportunity to debate such an interesting and vital subject.

6.45 p.m.

The Viscount of Oxfuird

My Lords, I too should like to thank my noble friend Lord Joseph, first, for inviting me to speak and, secondly, for initiating the debate on this most important of subjects. I say that especially because it is he who has throughout his political life, and increasingly since 1979, done so much to stimulate the environment which has led to the entrepreneurial approach to job creation.

In taking part in the debate I must declare an interest, inasmuch as I have for the past 24 years been employed by Lansing Bagnall (a manufacturer of materials handling equipment), a firm whose history is acknowledged as one of the great industrial success stories of the post war years, and which has manufacturing plants in the United Kingdom, West Germany and France. It is a company which is in a prime position to experience the practical problems posed by the debate.

The materials handling industry in the United Kingdom is one of those industries that has been under attack, not only by the Japanese but also even more severely from Sweden and West Germany in the very centre of North-West Europe. Having been involved with the export of materials handling equipment to over 60 different countries during this time, I have found that the maintenance of continuously improving productivity standards requires a higher level of expertise and energy as every year goes by.

I must confess to having felt a little daunted when I first read my noble friend's Motion, and I suspect that his years at the Department of Education and Science led him to word it rather in the style of a question in the new GCSE examination. I have tried hard to do my homework.

I should like to say a few words on the subject of job creation. As my noble friend said, the creation of an environment for the development of small businesses is one of the best ways of accelerating the creation of new jobs. Professor Birch of the Massachusetts Institute of Technology has, in a number of publications, underlined that it is within small business that the most dramatic job increases can be gained. He concludes that the job generating firm tends to be small, dynamic or unstable—depending on your viewpoint—and it tends to be young. His research has shown that small businesses are important to employment growth during both recovery and recessionary periods. The contributions of small businesses of less than 20 employees are particularly evident during recessionary periods, when employment at medium-and-large-size firms will be declining. His research, admittedly based largely on work in the United States, but I suspect equally relevant here and in North-West Europe, concludes that employment growth in small businesses is not confined to just a few industry sectors but occurs generally across all industries. In fact it was work carried out by Professor Birch which stimulated the Department of Trade and Industry's sponsored conference on job generation in 1984 which resulted in a paper being published on behalf of the Small Business Research Trust confirming many of his findings.

There is no doubt that the positive attitude taken towards small businesses by Her Majesty's Government today is having a continuing effect on reducing the unemployment levels in this country. However, we must have concern for the future. That future will be severely affected if we are unable to supply our industry with the right level of trained personnel.

Today there is a plethora of statistics providing international industry comparisons, and in the recent past we in the U.K. have been struggling to achieve improved productivity when compared to our rivals. Your Lordships have referred to direct vocational training or similar schemes. Our rivals in North-West Europe have a very much more positive attitude compared with our own. There has been much written on this subject, but a recent discussion paper published by the National Institute of Economic and Social Research, covering the vocational training in France and Britain of mechanical and electrical craftsmen, highlighted many of the existing problems today when it said: Both in mechanical and in electrical engineering work, France today trains between 2½ and 3 times as many qualified craftsmen and technicians per head of workforce as Britain, to standards which are as high, and often higher, than equivalent qualifications here". I do not think there are many of us who is our own domestic lives have not suffered from the failure of service engineers, mechanics and other craft technicians when servicing the ordinary domestic equipment that is in daily use. However, when that failure is translated into the production areas of our industries, we come to face with a severe drawback which our manufacturing entrepreneurs face when competing with equivalent companies in north-west Europe. France has made very remarkable progress towards a vocationally qualified workforce; in engineering skills it is on the road to emulating the Germans and the Japanese. All three of these countries produce two to three times as many qualified craftsmen and technicians per head of the workforce as Britain. I am sure that there is no one in your Lordships' House who does not recognise the urgency of redressing this situation. On the question of productivity, there are both similarities and differences between ourselves and our north-west European competitors.

My noble friend Lord Aldington referred to a report in 1985 published in the National Institute Economic Review on productivity, entitled Machinery and skills in a sample of British and West German manufacturing plants. The further comment was made: The average age of British machinery was not very different from that found in German plants, but it was less technically advanced, was subject to more frequent breakdowns and breakdowns took longer to correct. Productivity is higher in Germany in each of the 45 matched product groups and the importance of skills at all levels was apparent". The key to some of our productivity problems is the failure to invest in new technology. Everybody should be given the best available tools to do the job. My own employer is heavily engaged in upgrading our production processes. Our factories are redolent with the jargon of the new technologies. Words like CAD (Computer Aided Design), CAM (Computer Aided Manufacturing), CIM (Computer Integrated Manufacturing), JIT (Just in Time component supply) are forever in my ears. Investment in equipment and trained personnel to operate that equipment is essential to survival. But equally important is a change of attitude at all levels of the organisation.

My employer survived the recession of the '80s because we had taken care of industrial relations during the troubled '70s, but my point is much more than that. It refers to a fundamental change of attitude by every person in all parts of an industrial unit, a common will to break down the demarcation of us and them.

For the past nine months I have been engaged in the introduction of a programme called TQM (Total Quality Management) within our company in the UK. TQM is just another jargon word coined by PA Management Consultants, who have been helping us. Other companies have used other names for similar programmes. British Airways refers to it as putting people first. Sir John Egan of Jaguar did not call it anything—he just did it. In both cases, loss-making nationalised industries have been turned around to the point where they have become realistic investments for the institutions and private investors.

Dr. Edwards Deming, the creator of the quailty management philosophy, once made the statement: Defects are not free. Somebody makes them and gets paid for making them". The philosophy of quality management is based on the principle of prevention, not detection. A policy that allows inspection to take a larger share of quality costs often creates an unquestioning acceptance of the inevitability of quality failure. A policy that is tolerant of quality failure is likely to be extremely expensive. The initiative must come from management. It must encourage others by example and guide the actions that follow, through successive levels of the company. Everyone is responsible for quality. You cannot inspect quality into a product. Making other people responsible for quality is less effective than creating a climate in which people are willing and able to take responsibility themselves.

The total costs of quality are usually not visible in company records. Most accounting systems fail to isolate them, and yet quality can be measured. There are three elements to the cost of quality—prevention, appraisal and failure. Prevention is the cost of getting it right first time. Appraisal is the cost of checking and inspecting whether we have done it right. Failure is the cost of not doing it right, and that is expensive. Right first time is the standard by which we must evaluate quality performance. The aim is for zero defects. To achieve that, people must be trained and it is in this area that further investment needs to be directed. Opportunities for quality improvement abound in every part of every company. Quality is needed in marketing, in personnel, in administration—indeed, in every department—not only in manufacturing.

My view, therefore, is that by concentrating on the quality of all aspects of everything that we do, we in industry can work towards improving our levels of productivity up to and beyond those already pertaining in north-west Europe. That, coupled with the encouragement of entrepreneurialism in the creation of new firms, often small firms, will lead to an environment in which new jobs can be born. The road will not be easy. Nothing worthwhile is easy, but I am convinced that it is possible, and with the help and good will of all parts of industry, management and the shopfloor alike, this country can succeed.

6.58 p.m.

Baroness Seear

My Lords, I too like to thank the noble Lord, Lord Joesph, for introducing this debate. For two days running we on these Benches have had reason to be grateful to the noble Lord, Lord Joseph. We are grateful to him, first and foremost, for his frank presentation of the position on productivity in this country. The Secretary of State tells us—he will forgive me for saying this—repeatedly about the great increases in productivity. What he tells us is of course true and much to be welcomed. However, the noble Lord, Lord Joseph, put that into perspective when he emphasised how far there still was to go.

As the Secretary of State knows perfectly well when he gives us the figures of percentage increases in comparison with other countries, it is much easier to achieve a percentage increase if one starts from a low base rather than a high base. If one's level of productivity is already high, it is far more difficult to get a 10 per cent. or even a 5 per cent. increase that if one starts at a low figure.

Lord Young of Graffham

My Lords, I said that we are still as much as 30 per cent. behind some of our major competitors. I did not seek to hide that.

Baroness Seear

My Lords, if I may say so, the Secretary of State was probably prompted into making that statement by the information that the noble Lord, Lord Joseph, had already given us in some previous presentation. We have not had the point made quite so clearly before. It is valuable that it has been done today.

The noble Lord, Lord Joseph, did the House a great service in underlining the deep cultural and attitudinal problems that lie behind our difficulties and that are probably more important than any other single factor about which we have talked. There is among those in all sections of society in this country a deep suspicion of people who make money. I have never made money myself. I should have no objection to doing so if I knew how. Indeed, I should greatly welcome it. Whether this stems from the old aristocratic tradition—about which I know very little—that to display wealth is the most vulgar thing that one can do, or from people who have been brought up on the principle that property is theft and that that is the end of it, there is a deep suspicion that anyone making money is, by definition, up to no good. If we could get over this it might help considerably.

There is also considerable hostility to wealth-creating jobs. This may come from the university lecturer who guides his better pupils away from anything that has to do with industry and the wealth creation process. Years ago when I was in industry I had a reference from a headmaster who said quite simply, "She is a perfect fool, but she will do for you". That kind of attitude has led the most able people in the country and those who have benefited from the best that our education system has been able to offer—and very good it has been—away from wealth creation and into other kinds of activity. Although worthy in itself, this has not helped to increase the country's prosperity.

The noble Lord, Lord Joseph, was surely right when he said that, in the past, we have been too much at the mercy of sectional interests powerfully organised to bring pressure to bear on governments. This could have been the professional interest of employers wanting protection and the ability to maintain monopolistic practices or the sectional interest of trade unions reluctant to break down divisions between jobs so that labour mobility has been made unnecessarily difficult. Such organised sectional interest is heavily in favour of the producer—the employer producer and the worker producer—and biased against the consumer. It has surely been a great handicap that we should overcome, and we are grateful to the noble Lord for bringing it to our attention.

Those are some of the important points that the noble Lord, Lord Joseph, has made. He rightly stressed the importance of increasing productivity and of wealth creation in the country if we are to maintain and, better still, improve, the standards of living of all people.

Like the Secretary of State, the noble Lord, Lord Joseph, is in favour of the entrepreneur and attaches great importance to the small entrepreneur. We must pay tribute to the Secretary of State for the amount he has done to encourage entrepreneurship. One finds that it is taking root and beginning to bear fruit. From time to time I earn a more or less honest penny doing some interviewing of young people for a company scholarship scheme: they will benefit from the company's help in going to university. I have been doing this recently. One young woman was excited and enthusiastic about the youth enterprise scheme in which she had been the production director. She was very proud of the fact that she had made a profit. That could not have happened 20 years ago. This young woman of 18 talked intelligently about how she had run a business producing personalised stationery. It had made £1,000, which it paid back to the shareholders. This is a revolution. I found that of 35 students—I always ask what they will do when they leave university—four wanted to run their own business. That would not have happened years ago. Perhaps I may add, to amplify what the noble Lord, Lord Joseph, said, that two of them were young Asians.

The further value of the noble Lord's speech was to underline the importance of a global economy—that is really what he was talking about—and the fact that we have to be entrepreneurial on a global scale. The old protectionist Little Englander approach gets into a frightful state if it is suggested that foreign capital should come into a company in this country—the Government are by no means Simon pure in this respect—and that people coming here with the potential to set up businesses should be allowed to compete. There is no room in a world with a global economy for such a Little Englander approach. The noble Lord underlined that to great advantage.

This progress in understanding the importance of enterprise can only be to the good. The Secretary of State talks a great deal about the entrepreneurial culture. This gives some people—it is probably unfair to the Secretary of State—the feeling that the only thing that matters is gaining money. I know that the Secretary of State believes that enterprise, wealth creation, is a means to an end and not and end in itself. However, constant talk about the entrepreneurial culture leaves the feeling that that is the end of the exercise and that is what it is all about. That is not what it is all about. The Secretary of State does not believe it, but some of the young who have been influenced by the good new attitudes talk like that.

For my sins, I took part in a Conservative club debate. A speech made by a brilliant young man who had been president of the Oxford Union gave everyone the impression that, provided one made money, that was the end of one's obligation to society. The Conservative Member for the constituency, who shall be nameless, finished up—I do not say that I appreciate this—by saying to me, "he sounded like an old-fashioned Manchester Liberal and you sounded like a Christian Democrat." Perhaps I may observe that the old-fashioned Manchester Liberals existed only in the realms of theory; they did not find their way into practical politics in the sense that the term was then used.

If people are to accept that being entrepreneurial and wealth creating is important, they must have an objective beyond that. The objective is the good society.

The Government, in pressing wealth creation, must by their words and deeds press also the importance of the creation of a good society. I shall not expand on what I mean by that now, but at least it means that there must not be an under-class. We have such an under-class now—the Secretary of State knows this—and it will grow unless we take action to deal with it. The trickle-down policy will not in time reach the under-class. Those people feel, and will feel to a greater extent in future unless something is done, that they do not belong to society and that they owe it nothing, for it has done nothing for them. There is a middle way between simply leaving people to stand on their own two feet and nannying them with a nanny state in a way that all of us I think today reject. But if this could be brought out more plainly it would be very much in the interests of the development of true entrepreneurship.

There are a few rather more practical points that I wish to suggest to the noble Lord for future entrepreneurial development. We have already referred to developments in industrial relations. The Government boast that industrial relations have greatly improved, and in many ways they have over recent years. Certainly the strike record is very much reduced. But if one looks at the figures one can see that the number of days lost in strikes is always very low at a time of high unemployment for reasons which are crystal clear to anyone who thinks about it for five minutes.

What we now have to consider is how good industrial relations are to be generated and maintained when we no longer have the threat of unemployment, which is and has been an instrument in keeping industrial relations relatively tranquil. A great deal needs to be done. The Secretary of State referred to the involvement of people in the place of work. His Government have done a considerable amount in the development of employee share ownership. Those are both objectives which we from these Benches have advocated for at least 60 years. I shall not dwell on that for the moment as I have dwelt on it often enough in the past. But I think that the time has come to have a really systematic look at the kind of industrial relations systems which we wish to see developed in the more prosperous future that we hope lies ahead of us.

Then there is the question of where we can find the new entrepreneurs. From time to time I do not altogether agree with the noble Lord, Lord Beloff, and he does not always agree with me. But I found today that I was agreeing with a good deal of what he said, particularly when he mentioned that an important source of potential entrepreneurs is among women. Women in this country in comparison with American women have taken very little part in the new entrepreneurial growth. It is again time that we had a good look to see in what ways we can stimulate more women to take part as entrepreneurs.

I shall not say that this is a characteristic of women because I do not believe that such generalised characteristics exist, but many women are entrepreneurial pretty well every day of their lives although no one ever applied that term to them. Could we not rather more systematically see ways in which we could develop the entrepreneurial skills of women?

I want to make another suggestion which I know will seem somewhat way out to noble Lords. It is about bringing into entrepreneurship some of the least likely candidates in our society. The Secretary of State knows that the enterprise scheme, with the £40 a week, has been very attractive. I wonder whether we could reflect on that and see whether there is not something rather more permanent that we might with advantage offer. It may be possible for even a quite small basic citizen's income, which would not disappear with increased earnings, to be paid out. Therefore there would be no disincentive to enterprise and to earning. If it were possible to guarantee that I believe that one could pull into entrepreneurship a number of people who would then have nothing to lose by earning more and much less to risk because they would have a cushion behind them, however small.

Some of this has been shown to be valuable in connection with the community programme where there was some guarantee to people to come and make a contribution, or even more appropriately where there have been local community enterprise schemes in which there has been some safeguarding of the position of the person taking part in them. They have learnt to be entrepreneurial on the basis of a small guaranteed income.

Finally, needless to say I want to stress, as everybody has stressed this evening, the great importance of training. But I want to do that with a degree of urgency that perhaps has not been pressed on all sides. In the area in which I am involved with the MSC I am glad to say that the unemployment rate is now down to under 5 per cent. Our problem is not finding jobs for the unemployed; it is meeting ordinary labour market needs for skilled people which we cannot meet. I know that the Secretary of State says that training is industry's job, apart from what it is doing in the new job training schemes and in YTS. There is a lot in the argument that industry should be spending much more money on training. It should be anticipating what it needs and taking steps to deal with that but it is not doing that. The Government's own publications show plainly that industry is not doing that. Surely in this country what we have is a relatively small number of companies which train extremely well but a considerable number, which includes a lot of the smaller organisations, do not know what modern training is.

I ask the Secretary of State to think again as to whether it is not better to find some way of encouraging—it does require financial encouragement—those companies which can train to take on far more people than they need for their purposes and to do the training job. Why should they do that unless they have some financial assistance? Otherwise it will be too late. We cannot find the people for these jobs. That has already happened.

There is money available at the moment for training the unemployed. There are differences of opinion about the scheme but let us say about that, so far so good. But a ridiculous position is developing in my part of England where there are unfilled vacancies and money around for training schemes, yet we have to say to a young man of 18, "We cannot give you this training until you have been six months unemployed. You have to kick around for six months and then we can give you training".

The jobs are there if we could train that young man for them and the money is there. But we are not allowed to do that. There is something quite mad about that. If that money is not to be used for that purpose, can we not have some money for it and get on with the job? We could do it if only we had the money.

There is one other point I wish to make and I do not wish to finish on a disagreeable note, although I have talked for far too long. I just say to the noble Lord, Lord Boyd-Carpenter, that it is not my job to defend the Bishop of Durham. I do not think that I would have used the word "wicked" but there are sins of omission as well as sins of commission. Some people at least would see some acts of this Government as ranking as sins of omission. As regards the noble Lord's final comment, I wish just to say that there is a kind of courage which I greatly admire and appreciate in tackling the doubts, difficulties and problems of many people who wish to share the faith of the bishop but who find it difficult to do so because he opens up certain questions and he offends many of the orthodox belief. But he brings great comfort to many very sincere people.

7.18 p.m.

Lord Peston

My Lords, how pleasant it is to get away from the turbulence of the Education Reform Bill, albeit for only a day, and enter the tranquil waters of applied economics. We are indebted to the noble Lord, Lord Joseph, for allowing us to do that.

In preparing for the debate and interpreting its subject I felt that what we were really discussing was the wealth of nations or the wealth of our own nation. Therefore I thought again and went back to look at my Adam Smith, which one always reads with great pleasure.

It is odd that I had forgotten that 1990 is the bicentenary of the death of Adam Smith. The Secretary of State may well bear that in mind with respect to some commemorative activity. But the odd fact about Adam Smith for most people who do not read him and do not know what he actually said is that he had some quite relevant things to say about the present day.

I listened to the noble Lord, Lord HarmarNicholls, with great interest, as I always do, and I remembered Adam Smith's famous remark, that businessmen are always complaining about wages and their effect on prices and always omit to mention the effect of excess profits on prices. That is not to say that the noble Lord is wrong about wages and the need for them to be at an appropriate level. However, as Adam Smith was well aware, it is easier to blame the workers than to accept blame oneself. On the subject of trade unions, Adam Smith knew that people found it easy to blame combinations of workers and forgot all the "natural" (as he called them) combinations of merchants that he saw throughout the society in which he lived and which he deplored.

One of the two most interesting things about Adam Smith is his famous distinction between productive and unproductive labour. That is very much our distinction today, with the emphasis on manufacturing and the need to recognise the service sector. As an economist, one has always said that Adam Smith was wrong to distinguish productive from unproductive labour. Anything that fulfils a demand or a need is productive and simply to concentrate on manufacturing is wrong.

Nonetheless, one could interpret Adam Smith in another sense as saying that in terms of growth and productivity, the manufacturing sector is the easier sector to use as the engine for growth. That is a point well worth bearing in mind. However, my heart lies with the balanced view of the matter and not in saying that one kind of economic activity is superior to another, other than that it ought to meet the demands of consumers. I believe that the noble Lord, Lord Joseph, said that the sole purpose of production is consumption. Consumption is the original Adam Smith dictum.

The noble Lord also mentioned the unemployment problem. I should add that in the best of all worlds one would want to be a producer in order to consume. In other words, unless you are fortunate enough to inherit—which most of us are not—you have to earn an income. You would rather earn an income to consume and you would rather not be on benefit. That is another point which is well worth bearing in mind.

I could go on endlessly with Adam Smith quotations. However, I shall get down to the business of the debate. Perhaps I may say to the noble Lord that I accept what he called his common diagnosis, which is of several dimensions. There is no doubt that the rate of growth of output in manufacturing and GDP per capita in our country in the last few years has brought us back to the original trend of the 1960s. However, in the 1960s, we were doing less well than our colleagues in North-West Europe and the OECD. We are now well above average. Equally, when we look at levels we see that we are still a long way behind, as the noble Baroness, Lady Seear, pointed out.

The noble Lord, Lord Harris of High Cross, is not in the Chamber at present. However, he referred to Germany and it is true that the growth rate in Germany in the last few years is lower than ours. However, German output per capita, depending on how it is measured, is between 50 per cent. and 100 per cent. higher than ours. That is an important point. For noble Lords who are interested in other economic indicators, I believe that the German inflation rate is currently 1 per cent. per annum. That is slightly—perhaps even more than slightly—less than ours. I do not have the exact figures to hand. However, I believe that Germany has the second largest balance of payments surplus in the advanced world. Therefore, although Germany has some problems, I do not think that the average German would be looking to our country to find an economic miracle.

I turn now to a question which again relates to Adam Smith and upon which I have been reflecting since I noticed that we were to have this debate. It is the question of entrepreneurs. I accept the view of the noble Lord, Lord Harmar-Nicholls, that we see in them the risk-taking function, the seeking out of new opportunities and market demands unmet and the ability to make profits. Certainly the Wealth of Nations contains countless examples of that and of its desirability within a centralised system.

However, there is also the management view of what is wrong with the economy: the correct decision, the precise decision, the highest standards—all the matters about which the noble Viscount, Lord Oxfuird, was talking. I put it to the noble Lord, Lord Joseph—I do not think that our state of knowledge is such that we can decide the matter—that it is not obvious that it is the lack of entrepreneurs which has been the cause of our relative economic failure. Alternatively, it may have been the rather low level of management and of management ambition. During the education debate the noble Lord referred to the low level of expectation that some children have or that we have for our children. My experience of management has been that managers also have low levels of expectation as regards what they can achieve. I emphasise that I do not know the answer. Is it entrepreneurs, is it management or is it both? But I respond to the noble Lord's approach to the matter by saying that it is worth debating. I hope that we shall return to the subject.

Turning to the question of entrepreneurs more generally, one must ask where we get them. I accept the view of the noble Lord, Lord Beloff. The extent to which the entrepreneur has been the outsider is amazing. The United States is as good an example of that as any. I agree with several noble Lords who have said that we should not reject outsiders in our society. The interesting question is whether we can produce entrepreneurs ourselves. Are they born or are they made? Judging by certain statements made by the Government in regard to education, I believe that their view is that they can be made. They say that if we adapt our schools or universities we can somehow make entrepreneurs.

I am not convinced. It does not make much sense to me. That relates to a point which the noble Baroness, Lady Seear, made, which also applies to me. I am not naturally entrepreneurish. Risk-taking is the thing that I hate most in the world. I always want a fallback position; I want to make sure that any room I enter has an exit door. When I meet people who are entrepreneurs, I find a spirit there. Economists have looked at the concept of the so-called natural spirit. Keynes talked in such terms. I am not suggesting that the Government are mistaken in asking those of us in education at least not to take a negative view of entrepreneurs. However, I am not at all convinced that we shall be able to manufacture many of them.

Since I am adopting a rather academic view of the matter, I recall that either the noble Lord, Lord Joseph, or the Secretary of State referred to the opinion formers and their influence. That is a subject which has been studied and there is quite a lot of research into it. The answer again is that we do not know. In almost all the advanced industrialised world the opinion formers—the high-class intellectuals and those sort of people—are against producers, capitalism and making money. They are against them not only in this country but in the United States, Germany, France and so on. That is a characteristic of intellectuals. Therefore, I doubt very much whether the explanation of Britain's relatively poor economic performance since the war can be our opinion formers. However, I do not push the point. It may be true that our opinion formers, including our professors, are more antipathetic to those things than they are in other countries. However, what research there is does not support that view.

Perhaps I may make two remarks in connection with the speech of the noble Lord, Lord Boyd-Carpenter. One is of disagreement and one is of total agreement. I disagree with the noble Lord's views on taxation. If there is one subject that economists have studied, it is the effects of taxation in those areas. The evidence simply does not support what one would like to believe. However, whether or not one accepts that, I find it hard to believe that the tax cuts of the present Government have achieved the productivity improvement which we have seen in the last few years. There must surely be a time lag in the effect. I shall be coming to a view on the future in a moment. If the Secretary of State believes the tax cutting view, he would be taking a very optimistic view about the next five years rather than trying to find an explanation of the past five years.

Lord Boyd-Carpenter

My Lords, will the noble Lord study not merely academic theorising on this matter but also the practical experience of the 1950s and 1960s when a succession of tax cuts resulted inter alia in increased yields for taxation, thereby increasing possibilities for improving the social services?

Lord Peston

My Lords, those were periods when our economy was growing pretty rapidly. It was a period during which both the government of whom the noble Lord was a member and a supporter and the Labour Government were in power. A great deal of that situation was not dissimilar to what we are observing now. In his day the buoyancy of the economy generated tax increases. I do not say that that is wrong; I am simply saying that it is an argument which has been investigated and which does not seem to stand up. What does stand up is that we must look at the fundamentals behind our economy. I agree very strongly with the noble Lord on that point and believe that Adam Smith would also have agreed with him.

To stop at the level of economics is almost certainly to make a mistake. We have to ask about our institutional arrangements and the kind of society in which we live. On that point I agree with the noble Lord entirely. Due to lack of time I cannot follow him in that direction, but it a fundamental matter.

Perhaps I may say a word or two about industry, productivity, and what we are seeking. These remarks relate also to the remarks made by noble Lords about education and training and in particular to those of my noble friend Lord Williams of Elvel and the noble Baroness, Lady Seear. In so far as we are operating in the manufacturing area it seems to me that there is a choice. We could opt for low wage costs—the creation of a small amount of value added in certain sectors, devaluing sterling and so on. We could generate competitiveness that way. The alternative is to go into the quality, high value added area where success becomes almost independent of price. It is a marvellous paradox that if one gets into the right area one can almost charge what one likes and one can have highly successful industry with a very high sterling rate.

If someone asks how one does that I cannot give an answer. I can only say that given the choice in my view the high value added approach is the correct approach. That approach is predicated on civilian research and development, and as the noble Lord, Lord Williams, has said, vocational training of the highest quality and so on. I emphasise that point.

I do not wish to detain noble Lords too long from hearing the Secretary of State's reply, but I am afraid that I have to make several negative remarks. I do not think that in looking at the state of our economy we can avoid the present state of the balance of payments. As someone who believes in high growth and does not want to see the present improvements peter out, I hope that we do not run into a balance of payments constraint. However, I am worried about the annual deficit on the current account. I refer to the current account and not to the trade account. The current account deficit is £4.3 billion. Over the past 12 months we have already achieved what the Treasury feared. That worries me. The trade account is £12 billion in deficit, but we should not look only at the trade account. I am interested in the short-term outlook for the inflation rate. I agree with noble Lords opposite that it is something that cannot be neglected.

Most of all I am extremely worried about unemployment. I worry that we have become complacent about it. I worry that we are prepared to live with the current figure. I am worried that we say that we dare not risk expanding the economy because in the area to which the noble Baroness, Lady Seear, referred we already have virtual full employment because of the constraint on skills. Therefore the rest of the economy is not allowed to move forward because we feel that we cannot go too fast. That worries me enormously.

We must all surely agree that the money spent on unemployment benefit is a total waste. I do not mean that we should not spend it as a matter of social policy, but it would be infinitely better for those people to be at work or for that money to be used for training and so on. What worries me about some of the changes in the social security arrangements is that we are not using the money for that purpose. In particular I understand—although I am slightly out of my depth here—that the so-called 21-hour rule under which young people could spend time learning while still receiving benefit was applied with a rather generous view about their availability. It seems absurd to tighten the availability doctrine so that they can no longer study for 21 hours and do nothing instead. They become the very people whom the noble Lord, Lord Williams, and others have mentioned who live in the inner cities, are alienated from our society and feel they have nothing to hope for in the future.

I conclude with two remarks. One concerns the trade unions. My noble friends Lord Dean, Lord Basnett and Lord Houghton have pointed out—and one forgets—how much of our economic success has been helped by trade unions rather than hindered. It seems to me that in the past few years we have been going through a critical phase. Rather as Dean Acheson said of Britain generally, the trade unions have lost a role and need to find something. It seems to me that trade unions need to think through what their role will be. I do not intend to go into detail on that point. I remain fully committed to trade unionism and I should like one day, I hope in the near future, to take part in a debate in your Lordships' House on trade unions. I think that we might find some interesting points to explore.

Lastly, I should like to go back to what my noble friends Lord Williams of Elvel and Lord Basnett have said. We have managed to get through this debate without a great deal of politics although there has been some. One or two noble Lords seem to have strayed slightly over the line, particularly in relation to some remarks about nationalised industries. On the whole we have behaved ourselves. I adopt that view about policy-making in general. I and my noble friends stick to the consensus approach to these matters. If I were asked to say what we can do in this country which would most help us move forward it would he that we must return to consensus decision-making in this and other areas.

7.37 p.m.

Lord Young of Graffham

My Lords, with the leave of the House, I believe that I speak on behalf of all in your Lordships' House when I say that the debate has lived up to the promise foreshadowed by my noble friend Lord Joseph in his original contribution. We have had a long but interesting and discursive debate in which, I would agree with the noble Lord, Lord Peston, politics has not appeared unnecessarily. Of course politics is always there because we are talking about essentially political matters.

The noble Lord, Lord Williams of Elvel, said at the beginning that he was convinced because the records showed, and I agree with him, that in 1985 industry itself was not spending enough money on research and development. That is true. Information since then indicates that as profitability has been restored to manufacturing industry in particular and industry in general expenditure on R&D has gone up. That is something that we shall have to see as the figures become available. Of course it is only in the past 18 months or so that we have seen profitability return. I live in hope that we shall see the sums spent on research and development equal those in other countries.

Where I fear I cannot join with the noble Lord is when he says that wrong entrepreneurs flourish but right ones do not. It seems to me that in making value judgments about entrepreneurs—

Lord Williams of Elvel

My Lords, may I correct the record? There are too many wrong entrepreneurs in the sense of people who live by acquisition. We are trying to encourage the right sort of entrepreneurs. That does not mean to say that small entrepreneurs and right entrepreneurs do not flourish at all. I wish merely to make that clear.

Lord Young of Graffbam

My Lords, the noble Lord has just confirmed my worst suspicions, because he is making value judgments about entrepreneurs. Indeed, it may be part of those attitudes to which the noble Baroness, Lady Seear, referred in her speech. I hope not.

The noble Lord referred to the balance of payments, about which he was worried, as did the noble Lord, Lord Ezra. I should like to assure both noble Lords that at a time when our net overseas investments stand at some 160 billion dollars and are going up steadily, we can afford to take a slightly more relaxed view about the balance of payments in that this position contrasts very much with the situation some 15 years ago when our net overseas investments were non-existent.

The noble Lord, Lord Ezra, was concerned about long-term investments. He referred in particular to his experience with one of the companies in which he was interested and to the market reaction. Yet surely last year we saw one of the best examples of successfully funded long-term investment in the Channel Tunnel. That is something which has a very long investment date. It is something which has not been attempted before. Yet the Channel Tunnel was funded, and successfully funded, by the City. The noble Lord tends to worry a little about manufacturing investment, but investment in manufacturing industry has been breaking United Kingdom records year after year over the past four years and there is every indication that it may well break another record this year.

My noble friend Lord Boyd-Carpenter referred to an American saying, "The customers make pay day possible". Since we live in a monarchy I prefer the expression, "The customer is king"; but both expressions have exactly the same connotation. I now try to persuade my department, parts of which have undertaken customer-care training in many cases, that we should look after the customer. I believe that that is something on which we must concentrate and spread the message throughout industry and commerce.

My noble friend looked at the relationship between the United States and the Soviet Union. I prefer to take the example of East Germany and West Germany, both of which started in exactly the same position in 1945. One of them had the advantage of a planned socialist economy and the other developed its entreprenuerial society. I believe that those countries demonstrated very clearly and quickly over a few years the advantages of one economy compared with the other. Attention has been drawn to the disincentive effect of high taxation. I shall come back in a moment to that point because I fear that I cannot agree with everything that the noble Lord, Lord Peston, had to say.

I am afraid that my noble friend Lord Aldington has a weakness, which is that on occasion he misunderstands me. I did not decry industry; far from it. I gently pointed out that we have to impose an improvement in productivity across all sectors: the manufacturing sector, the service sector and not least in government. In all those areas we must look toward improved productivity.

I hope that the noble Lord will not be upset about what I have to say, but he was concerned about instability in exchange rates and drew attention to the way in which the basket had gone from 72 to 78. I have no wish to enter into any controversy about exchange rate policy but I should point out that only a few weeks ago I was in Japan. The Japanese are enjoying a manufacturing and export-led boom. Japan has seen the exchange rate of the yen change from 260 to 121 in two years. It now stands at about 125 or 126. Yet industry managed to live with that and did very well indeed. I believe that that is an example to us. If one looks back over the years, even Germany (which has figured largely in the contributions to the debate today) has seen the deutschmark go from about one-fifth to five times its normal value over a long period of years, and the Germans have managed to find ways of dealing with that situation.

The noble Lord, Lord Basnett, asked whether things had changed since 1979. He tried very hard and to my surprise succeeded in finding some figures to demonstrate that things are worse now than they were in 1979. If the noble Lord believes that attitudes to links between training and education and industry are worse today then they were in 1979, I fear that we live in slightly different worlds. The world in which I live is one of tremendous change. The noble Lord asks why consensus in industry does not exist today, but I point out to him that it takes two to reach a consensus. I believe that there are changes in attitudes taking place both in the north and in the south of our land and in many other areas where we should aim toward working together. I hope that the recent changes that have occurred will bring about that situation.

Lord Basnett

My Lords, perhaps the noble Lord will forgive me for interrupting, but I have been accused of being reserved about the Government's achievement. I acknowledge the growth in productivity. I made reservations about the failure in investment and in particular the reduction in the percentage of GDP spent on training. Nobody would dispute both those facts.

I agree that there is a joint responsibility in consensus but I said that we had failed to create the structure to make it happen in this country. We should do so, and that is the responsibility of government.

Lord Young of Graffham

My Lords, this is not the occasion to enter into a debate on training. However, I would argue with the noble Lord because I feel very strongly that today training is much more relevant to the world of the future than the training that existed in the late 1970s. At that time in the main the spend went down the apprenticeship route and into similar areas. However, that is another matter. If the noble Lord wishes to raise it on another occasion I shall be more than happy to discuss it then.

My noble friend Lord Harmar-Nicholls recounted the changes in attitude that occurred in Europe during his spell in the European Parliament. I can understand that, because I can recall some not very pleasant memories of what it was like to go to Europe 10 years ago and I know how pleasant it is to go there today.

My noble friend Lord Joseph asked me to keep out of business decisions. He admitted that he had not been an entrepreneur and said that he would not intervene. In my slightly chequered past I have been an entrepreneur, and I have promised my noble friend that I shall not intervene in any circumstances, if only because I suffered too much in the past from the intervention of my predecessors in office some decades ago.

The noble Lord, Lord Houghton of Sowerby, drew attention to the need for reform of education and said that we should look at its quality. I say to the noble Lord that we should look at the quality of output. That is one area in which we should begin to examine very strongly indeed the way in which young people who will be coming out of the school system can be more fitted for a realistic contribution to the world of the future. We should look at the combination; that is to say, not only at the changes in the education system but at the contributions made by TVEI and YTS and other initiatives. I believe that we are seeing a qualitative change in the way in which young people who leave school look toward the world of work.

My noble friend Lord Beloff asked how one encouraged entrepreneurs. Perhaps I may give him an answer to that question from the point of view of a presently non-practising entrepreneur. The answer is simple: stop discouraging them. I believe that entrepreneurship is part of human nature. All over the country, particularly perhaps in areas such as the North-East where old traditions have disappeared in the past few generations, there has been a return of entrepreneurship. We have seen people whose fathers, grandfathers and great-grandfathers worked in steel, coal or heavy industry suddenly come forward with entrepreneurial talent which no doubt has been brought out by the rigours of unemployment in the early years of this decade. They have come out and built up new businesses. Such entrepreneurship is part of human nature. I believe that it has always been there. It is latent and has to be brought out. I should favour some academic research, if we can find ways of doing it, to discover ways in which we could best encourage entrepreneurship.

I have much anecdotal evidence from travelling up and down the country and speaking to young people to show that more and more people are interested in becoming entrepreneurs and working for themselves. It is not necessarily entrepreneurship in the sense of money-making, but they are entrepreneurs in the way in which they look at their work in local government or in large firms, and in their attitude to life as well. One could put it shortly. I suspect it is the difference in an attitude of "can do" and one of "cannot do".

The noble Lord, Lord Dean of Beswick, drew attention to the figures given by my noble friend Lord Whitelaw about a year ago. I can confirm that productivity has increased by some 50 per cent. since 1980. Indeed, cost competitiveness increased by some 30 per cent. between 1981 and 1987. I do not wish to disguise the fact that we are still behind some of our neighbours, but at least we are catching up. That is something, because for a considerable time we had been falling behind them.

The noble Lord drew attention to the United States and to the Rust Belt. I have been to parts of the Rust Belt and have seen enormous changes. But the United States is an entrepreneurial society. Its citizens have the ability to move to other parts of the country and to revive industry. Indeed, when I last spent some considerable time in the United States in the middle-to-late 1970s Massachusetts was an area of decline and decay. People were leaving to go to the South East and South West. Since that time it has become one of the most entrepreneurial areas of the country. People who had left have returned. We have seen unemployment fall from 11 per cent. to 3 per cent. That is part of the entrepreneurial society.

Lord Dean of Beswick

My Lords, I am grateful to the Minister for the way in which he has dealt with the point I raised. I used the term "Boston". Boston is the heartbeat of Massachusetts and its recovery has been phenomenal. However, perhaps he will agree that there are parts of the United States—in Virginia and parts of the old mining belt—that are still as bad in almost every aspect as the worst places here. That is the point that I was trying to make.

Lord Young of Granam

My Lords, I accept that. However, we should look as a whole, rather than in part, at an economy that has created 22 million new jobs in 10 years.

My noble friend Lord Oxfuird referred to the importance of quality. I refer my noble friend to the enterprise initiative. He may have seen reference to this with some of the media. There is indeed a quality initiative. The words he read out are almost word for word what we have in this booklet. If my noble friend wishes to draw this fact to the attention of his company perhaps that will contribute in some way, although I suspect that that firm is indeed too large for such a contribution.

My noble friend also referred to a 1985 report, which was probably based on evidence from the early 1980s. I believe that there are now considerable improvements and that the figures that my noble friend quoted would not represent the changes that have taken place in the last few years.

I am grateful to the noble Baroness, Lady Seear, for her confirmation that enterprise is taking root. I accept what she says about an entrepreneurial culture. Although we talk about an entrepreneurial culture, it is in order to right the balance. Not many years ago young people were part of the "flower power" generation who thought that they could squat, or whatever and the world would take care of them. In talking of an entrepreneurial culture, we wish to right the balance. We are not a nation of Phillistines. We wish to see a balanced society. I believe that we shall see a balanced society. It is by balancing the concern of wealth creation with the demands of wealth consumption that we shall achieve a balanced society. It is not one or the other, but both.

I do not often disagree with the noble Baroness, but I doubt whether there is a correlation between industrial unrest and high unemployment. However, I have seen figures earlier in this decade when there was high unemployment and a very considerable amount of industrial unrest. I suspect that the issue has a great deal to do with the present position in which trade union members now have more control of their fate in their unions. I shall consider the suggestions made by the noble Baroness and pass them on to my right honourable friend the Secretary of State for Employment within whose province they come.

I thought that the noble Lord, Lord Peston, was today a little underhand! It is out of character for him to quote Adam Smith against us, or with us, all the time. However, I accept what he says. As in two years' time it will be the 200th anniversary, I promise faithfully to have read his book by then—and I shall find some quotations! However, I should like to explain to the noble Lord why I believe it is so important for our society to have a supply of entrepreneurs. We had had few new businesses as I found when I went to the Department of Industry in 1979–80. I wish to explain why that had made our economy stagnant.

I believe that businesses are organic. They have a growth period, a period in which they flourish, and then decay and die. We need a continual supply of new businesses. One business in 1,000 may employ 100, 500 or 1,000 people in 20 years, but we need that continuing one in 1,000. I believe that it is now more accepted that this is an important basis on which we should look to the future.

I fear there is one area on which I cannot agree with the noble Lord. If the researchers find that there is no correlation between tax cuts and enterprise, then I suggest that the research is wrong. I have known many people in the world that I left behind me. It was a world in which enterprise and entrepreneurship were carried out as acts of faith because tax rates were so high. I see the attitudes of many people today who realise that the Government are not taking all their hard earned money from them. I find a tremendous correlation. I look forward to continuing to see it. I accept that the noble Lord may well say that the results from the tax cuts of the last Budget will show in the next five years. I hope that the academic research will show the results of the tax cuts from 1979. If not, I shall have to find some more researchers or do the research myself.

Lord Peston

My Lords, I did not wish to press the point too strongly. It is worth making the point because it is interesting in economic terms. If tax rates are cut it is easier to make money. It is therefore not obvious that one puts in more effort to make money. One might put in less effort. That is a central proposition of economics. That is the difficulty that people in this field have had to face. I do not press the point but it is worth noting.

Lord Young of Graff ham:

My Lords, I hope that the noble Lord will accept this comment in the spirit in which it is offered. I suspect that that is the observation of an academic and not of an entrepreneur. I do not find that attitude.

However, I wish to end my contribution to this debate on a good note. I agree totally with the noble Lord. I believe that in the future we shall go up-market, be of high value, and quality added. We live in a world where the industrial revolution started some 250 years ago, some 250 or so miles from where we are today. But it has yet to touch half the people in the world. For the first 150 years we made a very good living out of the industrial revolution because we were able to earn. In the 1850s we had half the world's steel and textiles. We were the greatest trading nation. However, gradually such trade has spread. If we are and the whole of Europe are to keep our position, we need to look towards our competitiveness. We need to look towards high added value. That is a matter on which I believe all sides of your Lordships' House would agree.

Lord Joseph

My Lords, I am very glad that the Motion has led us to so many thoughtful speeches. I am very glad that the Secretary of State has listened to every one of them. I thank all noble Lords who have taken part. Every speech from first to last has been significant. My Lords, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.