§ 3.2 p.m.
§ Lord Mancroft rose to call attention to the importance of wealth creation, in view of the impact of new technologies on employment, and the long-term demands on public services; and to move for Papers.
§ The noble Lord said: My Lords, one of the joys of 19th century politics was that the subject of the economy rarely raised its ugly head. This was not, as your Lordships may be forgiven for assuming, because most politicians knew nothing much about economics, a situation that might possibly continue to this day, but because, throughout the entire period of our nation's greatest economic and political growth, there was no need for prolonged economic debate, because there was only one accepted way of running an economy; and that was the capitalist way, the way of the free market.
§ It was only in the 20th century, with the growth of communism and its offspring, socialism, that politicians, and then voters, were seduced into thinking that there may be another way. But now the wheel has turned full circle, and although the Labour Party still seems to be wrestling with its trade union paymasters and still debating the desirability of a state-owned development bank, nobody seriously believes that there is any way to run an economy except the capitalist way.1282
§ However, to the casual observer of British politics it might almost seem that this extraordinary development had not taken place. Looking back at the last general election campaign, the old antagonism seemed not to have faded one jot. But closer examination reveals that the arguments about which the parties fought were largely spurious. The Liberal Democrats, for instance, fought on what we might call the "education ticket". They maintained, and they may easily have been right, that what we need in this country is to concentrate our efforts, and indeed our cash, on developing better education and better employment training. Big deal. Did anybody ever say that we should not improve our education services? Of course we should.
§ The Government and the Labour Party clashed, if noble Lords remember, on the subject of NHS spending. Labour tried to persuade the voters that the Conservative Party planned to sell off the NHS; the Government just denied it. At one point, in the second or third week of the campaign, it began to sound like a Punch and Judy show. "Oh yes you will!", cried Labour; "Oh no we won't!", screamed the government party, in a manner not calculated to enthuse the electorate with either's ability to rule. We know now, if we did not know then, that what was happening was that the Labour Party was trying to frighten people, particularly old people, into thinking that the Government were going to privatise the health service, and that they would consequently be denied free health care. And the Government, I have to say, were too cowardly to admit what we all know, which is that they were searching, and still are searching, for ways to bring commercial disciplines into an organisation whose cost has spiralled out of control, and far, far beyond our ability to fund it.
§ So in place of the debate that should have taken place between the parties about how to control expenditure, and how to find alternative funding proposals, we fought the general election campaign on the different ways of cutting up the national cake, without mentioning that that same cake is no longer big enough to meet the demands made upon it. For three weeks 1,800 and more parliamentary candidates enthralled the electorate with their plans for spending the electorate's hard earned wages, without any mention of the fact that how ever well they are spent there is no longer enough to go round.
§ There is a view that no party really won the last election but that the party that lost most was the one that had failed to take account of one of the most important lessons of the 1970s and 1980s. Under the last Labour Administration we discovered the hard way that there is a level of taxation that completely stifles growth and takes more out of the economy than any amount of expenditure can put back. But under the more recent prudent stewardship of my noble friend Lord Howe we were able to discover the level at which incentive returns and growth is encouraged. To have discovered that ceiling of taxation is a vital lesson, and one that future governments would be very unwise to ignore.
§ Of course, knowing your income is one thing; but you then have to match your expenditure to it, which, 1283 as we all know, is a very different problem. Conducting successful election campaigns on the basis that the winner is the party that can best bribe the electorate with its own money is a very risky business, as the Labour Party found out to its cost last year, and the Government will discover now. During the boom years of the 1980s the Government could get away with this policy, knowing that income was rising to meet the cost of it. But that has now changed.
§ Whether or not my right honourable friend the Prime Minister should apologise for causing the recession I do not know, and history will judge better than we can. But what all those who were elected last year from all parties must accept is that they are at present held in lower esteem, collectively and individually, than at any time within memory, and that they have no-one to blame for that but themselves. For it is they who endlessly drummed through the voters' heads that they have the right to this service and that service, and better this and better that, but have never once pointed out that all these wonderful things must be paid for. The result is that we currently have a social security bill of £80 billion a year and a health service bill of£39 billion a year. Legal aid is soaring out of control from £900 million last year to £1.1 billion this year, a rise of more than 20 per cent. We are going to spend more on our road building programme than ever before.
§ However, it is not part of my purpose this afternoon to attack the Government's spending programme. Individually, I have no doubt that there are very compelling reasons for each and every item of expenditure. But it is the way that plans are made, and the perception of government as having an obligation to meet all perceived needs, that I question. Public spending cannot and must not be planned on the basis that the strongest, loudest or most politically correct pressure group earns the largest chunk of the budget. Does anyone now doubt. for instance, that the £886 million that has been spent on AIDS was as a result of political pressure, as opposed to the cool, calm assessment of need that it should have been?
§ Indeed, it is becoming apparent that the only budget that the Government are prepared to cut is the defence budget, the one that most voters, regardless of political affiliation, are keenest should not be cut. Of all the services that government supply, the one which is universally acknowledged as a world leader, and the very best there is, is our armed forces and it is they that are to be reduced to a state where their ability to respond to any call above their day-to-day duties is now in some doubt. However much the Government deny it, it is quite clear that these economies are entirely Treasury led and that no assessment of the future role of the armed services has been made—certainly not in public.
§ The real political debate and the one which we should be having; the one which our elected representatives seem to have studiously avoided having, is about how we are going to balance the ever-increasing demands on government services that 1284 society has been taught are its of right, and our economy's ability to meet those demands, particularly when the assessment of them appears so haphazard.
§ That is the nub of the problem with which we are confronted. On the one hand we have a ceiling on the amount of revenue which government can raise through personal, and indeed corporate taxation. On the other hand, we have a population which demands better health care, better education, more social services, more and higher levels of benefits, more roads, more policemen and a burgeoning legal-aid requirement for those tiresome occasions when a policeman catches us driving too fast down one of those splendid new roads. This year the gap between what we intend to spend and what we can afford is a cool £35 billion. Next year it will be £50 billion and the year after—well, who knows?
§ If that were not enough, there is an added dimension. As each year goes by the technology that increasingly governs our lives produces more and more machines and more and more computers to do our jobs for us which means that we have fewer and fewer jobs for people to do. Cardinal Spellman once asked Pope John how many people worked in the Vatican. "About half", the Pope replied, sadly. Let us hope that that state of affairs is never repeated in this country.
§ I know that there is a school of thought which suggests that increased technology actually creates jobs by generating increased business activity. But there can be no area of our economy which has seen a greater increase in technology than agriculture. But that increase in technology has caused a reduction in the workforce of around 90 per cent. during the past two generations.
§ Economists tell us that any fall in employment as a result of increased technology is compensated for by a rise in jobs within service industries. I suspect that a survey of the employment patterns in villages which used to be primarily agricultural may well show that to be true, but few of those employed within those service industries will be the same people who have lost their jobs through increased mechanisation. Those poor people will be living in cities, either working in industry, if it exists any more, or unemployed.
§ The idea that all those made redundant as a result of 20th century innovation can be employed in the services simply does not hold water. The example which is often given to support that is that of the Japanese economy. But even the Japanese economy is now slowing down at last as the markets for its phenomenal industrial output finally dry up.
§ We need to start facing the truth. There is unlikely ever to be full employment again in this country—at least employment as we currently understand it—regardless of the economic climate, and regardless of which party is in government. For example, we already know that the ratio of those in work to those in retirement, currently 3:4, will fall over the next generation to 2:4. As a result, the contributions of those in employment will be unable to meet the pension requirements of all those in retirement. Likewise, as the number of people in full-time 1285 employment falls, there will be less revenue to fund the unemployment benefit of those for whom there are no jobs.
§ It is a pretty grim picture, but it is made more so by the ostrich-like attitude that appears to be politically fashionable at the moment. Yet there are solutions, but only within a capitalist economy. Nothing would be more destructive than a return to socialist supply-led economics of the kind favoured by previous Labour Governments.
However much he may be criticised at the moment —by God he has been criticised!—my right honourable friend the Prime Minister deserves credit for identifying inflation as the number one enemy. He was right when he said that every attempt we have made to develop our economy since the war has been crippled by inflation. But the honesty for which the Prime Minister is rightly renowned reminds me of General Smuts' assessment of Stanley Baldwin:
When playing chess it is not enough merely to be honest; one must also know how to play chess".
§ Although my right honourable friend the Chancellor of the Exchequer certainly won no prizes for tact and diplomacy when he said that unemployment was a price worth paying, he was, I am sad to say, right. Of course unemployment is an appalling blight and no one doubts that, particularly for those who are going through it. But it must be recognised that inflation causes unemployment quicker than anything whereas unemployment does not cause inflation. But what does cause inflation is a rise in public spending in a deliberate attempt to create jobs which the market has not demanded. That is what Labour Governments did again and again—short-term engineered booms leading to inflation, downturn and more unemployment. That is a path which must never be travelled again.
§ What we must do is first and foremost conduct a full review of public spending. Of course I am aware that my right honourable friend the Chief Secretary has embarked on one, but I am not talking about the kind of review which we have had before which searches for waste in the Civil Service. We have been down that route before as well. What is needed is a full-scale public debate led by our elected representatives, to determine which services could and should be better funded by being contracted out. For instance, there is little doubt that virtually all health care that is not mainstream can be done to a higher standard and at a cheaper price in the independent sector. I have learnt that myself at first hand.
§ The announcement that we are at last to have toll roads is to be welcomed, but why has it only come now? We have known for years that we needed alternative ways to fund our road-building programme, and yet we have avoided the obvious answer far too long. I suspect this issue was side-stepped because it was seen as potentially unpopular, Is it really true that our political leaders are now so spineless that they will do anything to put off making difficult decisions rather than risk telling the electorate the truth?
§ I have never believed that unemployment leads to crime, and, indeed, have always considered that 1286 concept to be an insult to the unemployed. But I am convinced that the current benefits system has created a dependent, purposeless underclass, that is obliged to leech off the rest of society.
§ It must by now be clear that some form of national service—not military, but a form of community work, both at home, and abroad, as a part of our overseas aid programme—could be a very desirable component, partly because we cannot afford to pay people to do nothing any more, and partly because it is clearly so demoralising and degrading for the individuals concerned, to eke out an existence on the dole.
§ It is no part of the Conservative philosophy that I grew up with to enable people to perpetuate a life of unfulfilled destructive mediocrity on state handouts. As a nation we can no longer afford a blaming society of the kind which seems to be developing. It has reached the stage where either we teach those people to swim, or they will drag us down with them and drown us too.
First, to allow the welfare state to continue as it is at present, without massive reform, is to avoid confronting our greatest social problem, and our greatest public expense. Secondly the Government must, as a priority, work to remove the shackles of regulations that are currently throttling commerce. Napoleon called us a nation of shopkeepers, and was then furious that we took it as a compliment, for we were then, and throughout the last century, the greatest trading nation in the world. It is no coincidence that the rise in socialism has been mirrored by a gradual decline in our trading capacity, and our ability to develop world markets. It is vital that the Government look to our past to learn how to foster the entrepreneurial spirit that still exists. They may even learn from the tale of the tourist in France who was charged 100 francs for a single egg. He asked the shopkeeper if eggs were scarce in that part of France.
No, Monsieur", the man replied, "eggs are not scarce. But tourists, they are very scarce indeed.
§ The more Government tamper in industry and commerce, the worse they get. The lesson is a simple one; politicians should get back to the business of politics, and leave business to businessmen, particularly when so few members of another place have any practical experience of commerce. We have to accept that the other place is full of a new breed of professional politicians. Look what they have done to politics; imagine what they might do to industry!
§ Thirdly the Government should seek to reform further our system of taxation. There is a strong case for the abolition of national insurance which could then he replaced by increased tax on profits. It must be madness to make it more expensive to employ someone than it need be, and certainly more expensive than it is for our competitors. This would be an immediate incentive to enlarge the workforce, leading to increased production, and would make British industry more competitive.
§ Further reductions in inheritance tax would allow small businesses, family farms and principal residences to pass down through the generations. This reform, spotlighted by my right honourable friend the 1287 Prime Minister, and since then for some reason forgotten, would do more to give confidence to those who create the wealth of the nation than anything. For it is high taxation and inflation that have destroyed our entrepreneurial spirit more than anything. People need to know not just that they can earn enough to live, but that they can keep what they have earned, and pass it on to their children; it is the security that that knowledge brings that creates the basis for a strong society.
§ We have now, therefore, huge problems to face: some problems of our own making, caused by our own advances, others by circumstances beyond our control. But we also have the means to solve them if we are prepared to be ruthlessly honest in approach, casting aside all political correctness.
§ There is a collection of ideas that contains solutions to most of these problems: the problems of burgeoning public expenditure, the problem of developing a vital industrial training base, free of regulatory shackles, and most of all the problem of a society too many of whose members seem to have lost their way. Both the Government and the Opposition would do well to note these ideas and to debate them publicly. These philosophies, broadly speaking, are capitalist and if properly adhered to they result in sound, competent government. Historically they have been adopted and followed by one political party in this country. It is called the Conservative Party, and I commend it to the Government and to this House. My Lords, I beg to move for Papers.
§ 3.20 p.m.
§ Lord Desai
My Lords, I thank the noble Lord, Lord Mancroft, for introducing such an important topic which allows me, so soon after my return to the happier realms of the Back Benches, to indulge in some speculations on a subject that is close to my heart. I hope that I shall be forgiven if I use some of the ideas that I wrote about in that well known journal Tribune—now compulsory reading for the Tory Cabinet—which I think are very important.
The noble Lord undertook a wide-ranging survey of the issues, but I should like to emphasise some of them more than others. I shall leave aside altogether the question of taxation. Budget deficits are budget deficits and we must get on with the discussion of wealth creation which I think is more important than anything else. The noble Lord was right to draw our attention to the importance of wealth creation because the questions that it raises—not only for Great Britain, but for Western Europe as a whole—such as those relating to the emergence of new technologies and their impact on employment as well as on the demand for public services are questions that will not go away and to which there are no simple, partisan solutions.
One of the most important things that we must face is that for some time now—and especially for the past 15 years or so—we seem to have interpreted "wealth" rather narrowly. By "wealth" we have meant "financial wealth", very often elevating the pursuit of paper assets above the creation of real wealth. Indeed, 1288 the City of London is littered with names which once upon a time were thought to be very rich when fortunes were made in real estate, by exchanging our assets from public ownership into private ownership and by creating a false credit boom. However, at the end of those 14 or 15 years, we have not created more wealth as such. We may have shuffled the deck differently and given more money to the rich and less to the poor, but we have not created either wealth or the feeling of being rich. If your Lordships go out into the world you will see that, in the main, people do not feel that they have been enriched, but that they have been impoverished. If your Lordships look at the streets of London and see the homeless, you will not think that this is a rich country any longer.
I do not want to be partisan about this, but I believe that we must understand that "wealth creation" means creation of real, useful products and services and not "wealth" as defined in the inflationary climate in terms of an amount of money. One does not create wealth by pursuing false credit booms which, as it happens, we have done at least twice in the past 20 years (first, in 1972 and again in 1987–88). We must concentrate on the creation of real wealth.
John Ruskin said that people are the real wealth of a nation, and I shall take that to be the central idea that we must pursue. Let us consider what is about to happen to us. For a long time we relied on the growth of industrial technology not only causing a growth in productivity, but on the fact that that growth in productivity would not threaten the growth of jobs. Incomes created by greater productivity pass to the largest possible number of people. However, we are now about to enter a phase in which the nature of the technology is such that although productivity will increase, jobs will not be created. We are about to enter an era of jobless growth. The experience of even the past decade has been that although there has been growth, the number of jobs has not grown. The productivity growth is there, but the growth in output is not sufficient to create the jobs which should accompany that productivity growth.
We shall soon emerge—I think that we have already partially emerged—into a world in which very little labour will be employed in the manufacturing sector. Each person employed will be highly productive because he or she will be highly trained, highly skilled and highly educated. Manufacturing will demand only a highly skilled and educated labour force. Already only 21 per cent of the labour force is employed in manufacturing. Not so very long ago the proportion was twice that, and I dare to predict that that 21 per cent. will be down to 15 per cent. within another 15 years or so. That 15 per cent. of the labour force will be highly trained and highly skilled. It will be complementary to capital; it will not be a substitute for it.
However, what will not happen is that the bulk of jobs that manufacturing used to provide for the relatively low-skilled and the relatively young will not be created. As productivity grows, the people who are relatively older—and I say "relatively older" because they will be younger than me; people in their forties—will be thrown out of work because they will become 1289 obsolete unless care is taken to retrain and reskill them. Therefore, we seriously face the prospect that not more than 15 per cent. of the workforce—highly paid, highly skilled people—will be employed in what we used to call "wealth creation"; that is, in the business of producing things that we can sell.
Many people today—58 per cent. of the labour force—are employed in the service sector. That has been a great transformation in the British economy, but let us remember that only half of them are employed in what I would call the well-paid private service sector, such as banks, finance houses and estate agents. Those people also are complementary to expensive capital. They use the new technology and benefit from it. In many cases, they are highly educated.
However, surrounding that enclave of about 30 or perhaps 35 per cent. of the labour force are many other people. The question that we must pose ourselves as more and more wealth is created is: How will a society in which 30 to 35 per cent. of its members are employed in profitable commercial private activities finance the jobs of the other 50 or 60 per cent.? I am not saying that anybody whose job falls outside that well-paid private sector is not doing a useful job, but that person is not doing a job for which the market is willing to pay. The dilemma facing public finances throughout developed capitalist countries—not just the dilemma facing the United Kingdom's finances; I do not want to take a narrow one-country view on this—will be: How can we finance the many useful services that will be required which, although useful, are hard to produce via the market?
This is not a matter for a doctrinal debate between capitalism and socialism. We shall come to that next week when I shall tell your Lordships all about socialism. What is important is that we must find the devices within our public finances whereby the people who have and who earn the money are willing voluntarily (and because it is in their own interests) to part with a sufficient amount of it to allow jobs to be created. I would call those jobs "carers' jobs". They could be in the health service, or in education. It could mean looking after the elderly or the mentally ill. Many of those jobs demand person-to-person attention, care and devotion. Those jobs are hard to do. They are not well paid, but they are essential. As the NHS improves, the demands upon it also increase. It is not indulgence or a matter of pricing health correctly which causes that. There is a constant demand for better quality public services, more attention, more care and more compassion.
The dilemma we face is that the 35 per cent. of highly paid job holders will have to be persuaded somehow to see that the other 60 per cent. of jobs are worth doing. They are in the more labour-intensive sectors. They have to be, because they provide face-to-face services. The growth in those services will provide the real challenge to job creation. It is not that full employment will be difficult to create—I agree with the noble Lord, Lord Mancroft, that we may not have jobs in the old fashioned way where people started in the job market at 15, 16 or 17 and went on 1290 to 60 or 65—but there may need to be a great deal of flexible working. People may have different episodes of part-time, full-time and self-employment. At the end of the day, we must generate incomes for people who are doing useful work. We can do that provided we use imagination when organising our social arrangements.
There is another danger which we must face about which I wish to talk. We have noticed how much the UK economy and other developed economies are facing competition from the newly industrialised countries of East Asia, South-East Asia, Latin America and so forth. That is not surprising because most the products we used to make so well can now be made by other countries where labour is cheaper. The answer is not to cheapen our labour, to so cut British wages that we can compete with Taiwan or Korea. That is a delusion. Given our culture, habits and history, there is a limit to what people will tolerate by way of low wages. The answer is that we shall have to move on to a different set of products. They will have to be new products requiring a great deal of research and development and innovation. They will have to emerge somehow so that we can move up the ladder of technologically sophisticated products and sell new ones.
Until we find new products to sell and new technologies to market, competition will shrink even further the number of well-paid manufacturing jobs in this country. The challenge is not just to take the new technologies for granted and find solutions to the problem of the people who will need jobs in the public sector, but to ensure that we have sufficient investment in terms of research and development, education, taxation arrangements and so forth to enable us to encourage innovation and the quick implementation of new inventions so as to keep our lead in new products, thereby protecting our jobs.
The noble Lord introduced an important topic. We shall have to think of wealth differently: not in terms of total income, as such, but in the way that income is distributed. Unless we distribute income properly, the quality of life in this country will deteriorate. A country is not wealthy if its people are poor, homeless and illiterate. It is not just that, because if people are illiterate, homeless and unhealthy the country will not become wealthy.
§ 3.34 p.m.
§ Lord Holme of Cheltenham
My Lords, the House is greatly in the debt of the noble Lord, Lord Mancroft, for introducing the Motion which is ambitious in its scope. He was ambitious in the way that he tackled it. He was most interesting too, if I may say so. We on these Benches have a great commitment to higher quality public services, but I shall confine myself to the wealth creation part of what he has put before us. Perhaps I may say how nice it is to see that the noble Lord the Leader of the House will be responding to the debate. It will be interesting to hear what he has to say. I take it as a sign of the importance that the Government now ascribe to this vital subject. Finally, to be even-handed, the House will note the position from which the noble Lord, Lord Desai, 1291 spoke. It might share my sympathy for him in that the rewards for intellectual adventurousness are that he finds himself at the very back of the Chamber.
The subject of wealth creation is of essential importance to the British economy. We have a looming balance of payments crisis. It is noteworthy—I am sure that noble Lords will recognise this—that in a recession we have had a balance of payments deficit, something which is almost unprecedented. That has worrying implications for the future. The Government are planning to borrow next year about £50 billion to balance the books. Another way of expressing that is that the Government will be borrowing £50 for every family in Britain each week of next year. It may be that that is inevitable and the only thing to do in the circumstances, but if we look to the future, we cannot continue to live like that as a trading nation.
That can only be exceptional, and yet we have this endemic balance of payments problem. In the end it is about the competitiveness of British goods in the world market, for we are a trading nation. It is worrying, for instance, that in the recent World Economic Forum measurement of the prowess of the various industrial nations, Britain came 13th in competitiveness in the OECD league table.
Perhaps I may say parenthetically that if we need to be more competitive as a country—we on these Benches believe that we need to be—it is a shame that the privatisation of utilities, which in many ways has been one of the most significant changes in the British economy in the past decade or so, seemed to be so much driven by the Treasury in terms of the revenue achievable on sale rather than by the need to create competition in those privatised utilities. The swap of a utility from a public monopoly to a private monopoly cannot in itself be said to enhance competitiveness.
What would make British goods more competitive? Because that is something that we have to do. If we look at our share of world trade we see that it has dropped from 9.5 per cent. in 1960 to about 5 per cent. 30 years later. If we were able to be more competitive, the effect would not merely be seen because we were selling more British goods abroad; it would be seen by the fact that we were replacing imports with products produced at home. We all know that Britain now has a high import propensity. The products, processes, components and machinery used in large parts of British industry are imported. If we could become more competitive, we could not only sell abroad, we could produce a better share for our own domestic market.
Broadly speaking, what is needed to become more competitive is of course that, first, we should be a higher skilled economy in which through our skills we can add value to the products and services that we sell so that people want to buy what we produce at a competitive price. In the wake of the recent spectacular devaluation it has been suggested that price is somehow the only factor in competitiveness. Of course price is a factor. It is an important factor, but it is not the only one. What matters as much, and indeed may matter more, is the quality of the goods 1292 that we sell. There, the reference made the noble Lord, Lord Mancroft, to education, training and re-training is crucial. It was nice of him, in a slightly double-edged way, to mention the Liberal Democrat commitment at the last general election to putting a penny on income tax to pay for education. Of course, people may believe that that is the kind of thing which parties say during election campaigns. However, I was struck by the fact that the response to that single policy was the best given to any single policy during the election. There was an extremely positive public response to the idea that education and training are an overwhelming priority for the future of the country.
Perhaps we may look briefly at the employment side of the equation. In a world of great competition and change we shall be able to keep our people in work only if we are able to be competitive; and we shall be competitive only by adding value. It is noteworthy that in the survey which I mentioned, out of 22 OECD countries we were measured 13th for competitiveness, but 20th for educational strength. That is a feature of weakness in the British economy and in British society.
Secondly, we must have a dedicated concentration on quality. The noble Lord, Lord Desai, mentioned competition from East Asia, the Pacific region and Japan. Perhaps when we were younger some of us may have patronised those societies for producing second-rate goods which were imitative of western products. However, they now lead us by a large margin on consistent control of quality. We need to look at our design skills and to bring those together in added value. Above all, we need in British industry a process of continuous and relentless innovation. It is to that subject that I wish to address my concluding remarks.
We need continually to innovate, first, in order to catch up and then to move ahead of our foreign competitors. The omens for British industry as innovator are not particularly good. It is true that this country has great historical strengths in research and development, although it has been over-dependent on defence-related research and development. With the end of the Cold War that will be of little consolation to us. We need more government support for science and research and development. In that context I wish to inquire of the noble Lord, Lord Wakeham, whether the science White Paper will be published soon. There will be considerable interest in its contents.
Let us assume for the moment that we have good scientists. We certainly have great companies—for instance, in the pharmaceutical industry—carrying out a great deal of interesting and original research and development. However, the problem is one of application. The recent joint study by the CBI and DTI shows that we have increasingly fallen behind on the registration and application of patents to what we develop and we do not have a good record of investment in new processes and technologies.
In the area of innovation we need, first, a greater emphasis on bench-marking and best practice so that we learn from the best not only in Britain but from around the world. We must see who is performing well and we must do our best to measure up to those 1293 bench-marks. That must be done systematically. It has been said that the perfect market for innovation is one where close to the firm there is competition but a little further away there is collaboration where people exchange ideas and best practice. Secondly, we need a greater speed to market; we are rather slow in taking good new ideas and moving them forward to the market place. Thirdly, we need to keep consistently close to our customers. The successful manufacturing company will be one which in a sense works as the product development section of its main customers and works closely with them. It will be a collaborative model.
The Government could do more to communicate to private industry—and industry should communicate within itself—the fact that innovation has important rewards within a capitalist system. A London Business School study which was published last year took 539 British companies and compared the performance of the innovators—I am afraid to say that there were only 98—with that of the 441 non-innovators. The study showed that the innovators enjoyed profits which were 7.4 per cent. higher than those of the non-innovators and growth rates which were 5.6 per cent. higher. The exact statistics do not matter; what does matter is that the rewards of innovation to the firm are potentially considerable.
If there are rewards to the firm it would be prudent to do a great deal more to share those rewards with its employees. It is fair to say that in recent years the Government have made progress towards the idea of profit-sharing and have given some incentives for that. But, frankly, we shall not succeed as a competitive trading nation until we get out of the automatic pay increase mentality and into one where a major consistent attempt is made both at participation and profit-sharing within the firm. In that case people's extra reward and enhancement in their standard of living will be directly related to the further progress of the firm; there will be a sharing of rewards and burdens within the firm.
Finally, I turn to the role of the DTI in respect of which we have something of a problem. Members on these Benches have been heartened to see that the new team of Ministers at the Department of Trade and Industry—that is the President of the Board of Trade, the Minister for Trade, and the noble Baroness, Lady Denton—are committed to a pro-active approach on the part of the department. That is good news. Some of us may say that it is long-overdue news because for a long time it has not been the case. At last the invisible hand has been given a bit of a rest. That is probably a good thing too because after 14 years I should think that the wrist of the invisible hand has become tired. We are now fortunate enough to have such a group of Ministers in the department. Potentially that department is much more important to Britain's industrial recovery than the Treasury. In that case, why cannot they talk much more openly about an industrial strategy and an industrial policy? It has become the policy that dare not speak its name. I hate to make a partisan point in this House of all places, but it appears that that has something to do with the theological disagreements in the governing 1294 party about whether it should all be left to the invisible hand or whether there is a constructive, pro-active role for the Government to play in a successful economy.
As evidenced by the innovation initiative in the area that I have mentioned, I believe that that is now the case. It would be so much better if the Government's plans, strategies and policies were published so that we could understand them and so that companies could adjust their behaviour according to the help that government can give. Government can give real help without handouts; they can do so much.
In conclusion, it must be apparent that we are talking not only about a change in policies but about a change in culture in this country. It must be a culture which welcomes innovation. Innovation is extremely uncomfortable. It is human nature to find a rut and to get stuck in it. Therefore, the process that I have described of continuous innovation is not comfortable. On the other hand, it is an essential process and one which can be exhilarating. It would be very nice to see the Government openly taking a lead in that.
§ 3.49 p.m.
The Earl of Halsbury
My Lords, I am grateful to the noble Lord, Lord Mancroft, for introducing the subject and for giving me the opportunity to exchange thoughts with other noble Lords. I am grateful too for the pleasure of being able to speak in the same debate, in the same place and at the same time as the noble Lord, Lord Desai, with whose views I strongly agree.
Forty years ago when I was managing director of what is now the British Technology Group there was a big kerfuffle in the press about something new called "automation". My chairman of the day, then Sir Alan Saunders, asked me what it was all about. I said, "I can tell you exactly what it is about because I have just come back from a visit to the Ford Motor Company at River Rouge trying to sell them a computer and it is simply transfer machining as pioneered by the Morris Motor Company in 1923. The ratio between capital services and labour costs in those days rendered it uneconomic but times have changed and it is now economic and the Ford Motor Company are operating it". He said, "Well, if that is the case, all this talk of a new Luddite movement is politically mischievous. I wish that you would do something about publicising your views".
That happened to coincide in point of time with an invitation from the Institution of Production Engineers to give a talk about the subject at one of its annual conferences. I did so. The speech received a certain amount of publicity. Before I knew what was happening, I found that I was regarded as an expert on a non-subject. I was talking about the advancing front of production engineering in whichever field it was applied to—the motor industry, the oil refining industry, and so on. It was a non-subject.
In 1776 two things happened more or less simultaneously. There was the Declaration of Independence in America and Adam Smith published the Wealth of Nations. His doctrine was that wealth is measured by the national consumption represented by 1295 production plus imports less exports, which you sacrifice to pay for the imports so that positive or negative balances may establish themselves.
Expanding the economy means, at constant workforce, advancing productivity. That brings us back to the advancing front of productivity, or whatever your Lordships may like to call it. Between the middle of the 18th and the 19th centuries Britain was the workshop of the world. One of our most important products was cotton cloth. But, exactly as described by the noble Lord, Lord Desai, other people can make cotton cloth especially if we are selling them the textile machinery with which to make it. That means that exports of textile machinery are growing, but even that, again, can have an end to it. We could have followed the Italian lead in high quality textiles but we missed the bus there.
The days of our age are three-score years and ten, but the days of our employment are somewhat shorter than that. From school-leaving age at 16 to retirement age at 65 is 49 years. Let us call it 50 years because that is a good round number. Therefore, at constant population, 2 per cent. of the workforce is retiring every year and 2 per cent. is maturing and becoming ready for employment. There is a constant redeployment of the workforce which, because it is constant, is not noticed. Redeployment of the workforce is available at the rate of 2 per cent. per annum. Boom and slump are not due to redeployment of the workforce but are due to mismanagement of the economy, and in particular to the mismanagement of leads and lags.
My reminiscence went back 40 years so I shall now advance to some 30 years ago when I was a governor of the BBC. The governors of the day paid a state visit to the BBC research laboratories. There I saw an astonishing display which I shall try to describe to your Lordships in familiar terms. Part 1 of the display was a television camera which was looking at a television display set to which it was connected. Of course, it was transmitting what it saw but it saw nothing so that it did not transmit anything except a little white noise; a pattern of black and white dots which you see when a station is off the air. If you connect them with a delay line, the most extraordinary phenomenon manifests itself. The odd white noise organises itself into moving patterns of black and white oozing across the display tubes, sometimes organising themselves into a vortex and sometimes reverting to banded patterns, but always in motion.
That was 30 years ago. It has now become fashionable. Mathematicians and statisticians are fascinated by what is now called the theory of chaos; that what starts as chaos can, by some mysterious means, apparently non-causative, organise itself into patterns. That has been taken up, particularly in America, by economists who are fascinated by the idea that the economy has a kind of will of its own. The need is always for foresight. To manage is to foresee. If, as the noble Lord, Lord Holme, said, we want a better-educated workforce we must begin to organise that now for the future. It is no good waiting 1296 until such members of the workforce are in short supply and then say, "What a pity it is that people are not well educated". Foresight is what is called for.
As regards new capital investment, we need an earthquake at the Treasury which will distinguish between capital and revenue expenditure. It is wrong to balance the house books by borrowing money. It is not wrong to borrow money to build a house provided that it is written off to revenue at the appropriate life of the asset. Until we manage our investment better, we shall never be able to afford to train the teachers who will be the technologists of the future. On that note, it is time for me to sit down.
§ 3.56 p.m.
§ Lord Carr of Hadley
My Lords, I fear that what I am going to say will not be as enlivening or as interesting as the speech of the noble Earl who has just spoken. When he spoke about watching television sets at the BBC in the 1930s, I remember in a much less grand way as a schoolboy at Westminster watching a television set, that wonderful thing, in the physics laboratory. I recall that one of those watching it with me was somebody who I realised was much cleverer than I was but I did not fully appreciate quite how clever he was. He was the present Sir Andrew Huxley, later to become a most distinguished scientist and Nobel prize winner. However, I am afraid that that was not for me, although I have never regretted my scientific education.
Like other noble Lords, I wish to thank most sincerely my noble friend Lord Mancroft for raising this subject in the debate today. It rather complements the useful debate which we had last week on manufacturing industry. It reminds me that when I first became a Member of your Lordships' House we had a series of Back-Bench Motions on deep industrial matters which I thought were extremely helpful and valuable. Perhaps the debates of last week and this week will be the beginning of another series of debates which could be extremely helpful. They may help us to arrive at what is most important for this country at present; namely, some sort of consensus. That consensus may not necessarily be about the methods of achieving the objectives but a consensus of view about the objectives themselves.
Most of my political life has seen a situation in which the main political spotlight and controversy was focused on the subject of wealth distribution rather than wealth creation. Of course, I do not under-estimate the importance of wealth distribution because it is, and always will be, important. However, except in the very short term, it is not nearly as important as the subject of the creation of new wealth. One thing that has pleased me in the past few years—and the 1980s saw it happen—is that now there is a much higher concentration on wealth creation. Trying to distribute and redistribute more fairly an over-limited supply of wealth leads to much frustration and a great deal of bitterness. This country urgently needs a more ample supply of national wealth both for its material and social benefit.
All my life I have held a very strong belief that the overwhelming first objective of economic policy is to 1297 achieve economic growth; that is, the creation of new wealth. Of course, economic policy should not always override other policies because, in the end, the economy is made for man and not man for the economy. But in so far as we are dealing with economic policy, and whenever we are, it seems to me that in economic terms growth must always be a clear objective.
It seems strange to me that economic growth in recent history has quite often been a rather dirty word. Environmentalists objected to it for their own reasons and some economists also seemed to object to it, presumably because they always equated it with inflation or, perhaps, because some of them believe that it is a matter of principle so deep that a policy of economic growth directly pursued will lead to some intervention in the pure free play of market forces. I believe profoundly that both those objections to making growth an objective are wrong. They urgently need to be superseded by a clear, overriding determination to achieve economic growth and new wealth creation.
Of course, you cannot drive the economy with the accelerator all the time; there must also be brakes. Certainly inflation is the worst enemy of sustained economic growth that one can imagine or experience. Therefore, sitting on inflation is and always will be a matter of prime importance. But however hard one is sitting on inflation it is also important to remember that it is a means to an end and not the end itself. Over recent years I have felt sometimes that the means and the end were getting a little confused. I have a feeling that that mistake is now behind us.
I am glad that the Motion asks us to consider the question of wealth creation in the context of employment and the demands of public services and of modern technology. As regards public services, although anyone suddenly brought back to life who died 50 years ago would be amazed with the quantity and quality of public services available, we are only too aware of how inadequate they still are in relation to some of the great personal and general social needs that we see around us.
When I was Home Secretary in the Cabinet of Sir Edward Heath, then Prime Minister, I remember him asking me—I do not know whether it was an official part of my duties—to preside over a small team to try to form some estimate of the developing cost of social service policies about 10 years ahead on the assumption that no further improvements or additions would be made to them. That was a pretty improbable assumption. But, when one did so, and although it was impossible to get accuracy, it soon became obvious, as an order of magnitude, that we were looking at a projected increase in social expenditure which would be far beyond the wealth of our economy to bear. I believe that we are grappling with that problem at present. I am glad to see that the Labour Party in opposition are looking at the social services. I hope that they are looking at them from that fundamental point of view. I also hope that the present Chief Secretary to the Treasury, Mr. Portillo, 1298 is doing likewise. We cannot go on in this way: wealth creation has to take higher precedence in this country than it has in the past.
I turn now to unemployment. I suppose that my chief political motivation—and that again refers to my school days at Westminster—came from seeing and hearing unemployed marchers in Jarrow, South Wales, and so on, and thereby forming a determination that something had to be done to ensure that unemployment was removed and did not recur. There was a time in the 1950s when it seemed that mass unemployment was a problem that no longer existed. Unfortunately, as we now know, that is not the case. While it is thankfully true that unemployment today is not the crude cause that it was 50 or more years ago, it is still a cancer in society which we would do well not to underestimate. It is more serious than it appears to be on the surface.
In that context, I welcome technology. Although, superficially, it may appear to be one of the causes of unemployment, in fact it is something much more constructive. There is no shortage of work to be done in this country, if only we had the wealth to pay for it. Modern technology increasingly enables us to produce the wealth with a smaller and smaller proportion of our working population. Provided that the wealth is there and has been created, it enables us to pay people to do those things as well as increase the monetary value of our public services, which are wealth consuming not wealth producing. Therefore, if we look at it aright, it is a virtual beneficial circle and not a vicious one. That is the way we should look at the matter.
To me, all that points to the urgent need for us as a country to give utmost priority to wealth creation. I hope that the message of today's debate to the Government is that they should put clearly before the country the objective of wealth creation as the major—certainly one of the most major—overall objectives of the Government. They should put before the country a clear strategy for achieving it, so that the country as a whole can see what the Government, and all of us as the people of this country, are trying to achieve.
As we come out of a very deep and serious recession there will be some economic growth; indeed, some is already appearing in real terms. But the question I ask myself is: for how long and how much will it amount to? Surely we must not allow it, yet again, to come to a sudden stop as it runs into the buffers of inflation. I submit that what we need is a clear strategy for sustained, non-inflationary growth in the country. There is no evidence I can see from the past to encourage us to believe that that will happen naturally while the Government stand and look on.
The achievement of that non-inflationary growth requires positive, pro-active government leadership which will enable it to happen. It should be monitored as it happens and policies should be adapted as a result of such monitoring. All of that should be done most openly and in public view. Please note that I am not—I repeat not—calling for detailed government intervention, for subsidies to sick companies or for 1299 Whitehall to start spotting industrial winners. All that has been tried and has been shown to be a hollow means of achieving nothing.
I am talking about the need for a clearly declared, comprehensive and properly correlated Government strategy which can be seen and understood and which will capture the attention of the whole of the Government and all interests in the nation. I believe that such a strategy must be owned and supported by the whole Government; it must not be just the policy of the Department of Trade and Industry (The Board of Trade). It has to be just as much the policy of the Treasury and, indeed, of all departments.
That is why I am asking for a Government declaration of strategy, subscribed to by the whole Government and to which the whole Government are committed. I believe that a public statement is necessary. I am not talking about a great, detailed five-year national plan—Heaven forbid! I am talking about a strategy statement listing some of the main issues of policy that must be carried through by the Government and by the various interests in the country, and which can and will be publicly monitored.
Last week's debate on manufacturing industry was a relevant part, but only a part, of that about which I am talking. I believe that such a strategy, presented to the country, would be received by the country as part of the leadership for which the country is looking and which I believe the Government wish to give.
Time does not allow me to go into the details of that strategy but I shall give one example of something that needs deep and public, open discussion; namely, the effect of the taxation of profits and dividends on wealth creation. Do we have, or do we want to have, a taxation policy which encourages the distribution of profits or encourages the ploughing back of profits into new investment? That is a big question. Some years ago, for reasons I cannot go into now, there was too much ploughing back and too little distribution. But now the pendulum has swung. We need more ploughing back and less distribution.
I believe that dividends in this country are relatively high compared with other countries. Among other things this means that the cost of raising new capital is relatively high compared with other countries. These are not tactical matters but deep strategic matters and they are the considerations that I believe need to be spoken of openly within government and between government and the outside world of industry and academia.
I could give many more examples but I shall merely say "Hear, Hear!" to the reference of the noble Earl, Lord Halsbury, to the Treasury learning to distinguish between capital and revenue expenditure. I welcome the hopeful remarks made by the Chancellor in a speech at the Mansion House last autumn. I hope we shall all play our part in turning those remarks into reality. I hope this debate will result in the Government thinking deeply about the publication of a strategy for this country for sustained, non-inflationary growth.
§ 4.11 p.m.
§ Lord Elton
My Lords, I join my noble friend Lord Carr of Hadley in thanking my noble friend Lord Mancroft for initiating this timely debate. I also join my noble friend Lord Carr of Hadley in his encouragement to the Government for a particular area of strategy. However, having said that, I ask your Lordships to stand back from this issue and to look again at the Motion on the Order Paper and to see it in a different perspective. The Motion asks us to consider the importance of wealth creation. One cannot do that out of context. The context is, I think, a good deal wider than your Lordships have so far considered.
I go back in my mind to a conference held some four years ago in Oxford. That conference was addressed by, among others, a returned space traveller who stood beneath an enormous photograph of the world as seen from outer space. That led one to ask a number of questions. For a start even at that short distance—it was less distant than the moon —the divisions between nations were invisible and it became shatteringly clear that this world, beyond which we so rarely cast our imaginations, let alone our hopes, is one single entity. Surveying it against the vast, barren expanses of space swept by nothing but the solar wind, it is shatteringly clear that even within our insignificant galaxy, let alone the unimaginable depths of the universe, it is a very tiny particle of matter indeed. That is our home. That is the context within which we must evaluate the importance of wealth creation.
As seen like that many of the questions asked this evening look perhaps a little peripheral. Just two stark questions remain and the order in which one asks them depends on one's point of view. If one's concerns are primarily material, one will ask first: can mankind survive? If one's concerns are primarily spiritual, one will ask: what on earth is it all for? It seems to me that whatever our answers to the second question, we can all agree as to the first. Survival is necessarily the prime aim of the human race, collectively as well as individually. The prime duty of government is therefore to secure the survival of the nation and to contribute to the survival of the species.
What are the characteristics of survivors, and do we have them? The first thing one notices about communities that survive is that survivors tend to co-operate. They compete with other communities to secure the survival of their own, but competition between themselves within the community is friendly and aimed at assisting, not eliminating, their rivals. Secondly, they tend to prize what they have in common. Where they have differences they value them because it means that collectively they can muster a greater range of responses to whatever challenges they meet. Thirdly, they recognise what they have in common as being more important than these differences. Fourthly, they recognise that the welfare of the group transcends their own, and they are prepared to make sacrifices for it. Indeed the freedom of debate that we are enjoying here and now was paid for by thousands of such people not so very long ago.
1301 It is the absence of that spirit of co-operation, of that valuing of people for their differences and of that spirit of self-sacrifice that makes me wonder whether, even within our own borders, our own small society is not now becoming too sick to survive in the long term. I believe it is, and I believe it has to change. For a start we need to recognise again, and teach our children, the moral values that were commonplace in this country between the two world wars and which were largely responsible for our surviving both those wars. Those moral values embrace most of the qualities that I have just listed. However, the context of that lesson has gone beyond war, I am glad to say. We must look at this nation and look at the Europe of which it is already and inescapably a geographical, an economic and a cultural part. We must consider the way we view Europe and speak of it. We almost always speak about it in terms of what we can get and hardly ever in terms of what we can give or even achieve in co-operation; that is, we look at the countries of Europe not as co-survivors but as deadly rivals.
There is so much that is hugely wrong. It is true that within the United Kingdom our institutions and our laws are designed towards unity, both of purpose and regard. But what fuels our press and, to a lesser extent, our TV is not our unity, even within this Kingdom, but everything that drives us apart. The treatment by almost the whole press of almost the whole of the rest of the world is designed to fill us with a mixture of ignorance, fear and contempt for everything beyond the Channel. When we come to debate the press, I hope that we shall consider how to encourage in it some regard both for truth and for the national interest as well as the respect for individual privacy that is so much in our minds at present.
The British people will not be, cannot be and should not be the only people to survive. Indeed the British people as such are invisible from the standpoint that we have taken up. Just as individuals need certain characteristics to survive as a nation, so nations need similar characteristics to survive as a community. Perhaps we should begin to think that communities of nations may need the same characteristics for the survival of the human race.
During the war when our national survival was clearly at risk, it was enough to know a man's nationality to know whether he was one's friend. A Briton abroad had only to see another Briton to see a friend, but even that small achievement now eludes us. We are further than ever from seeing friends and allies among our fellow Europeans. To be fair the same can probably be said about their view of us. As for the rest of the human race, most of us regard it, understandably I fear, not as an ally but as a threat.
The day must surely come, if mankind is to continue in the unravelling of history, when it is not just a case of where I see a "United fan" I see a friend, or where I see a Briton or even a European I see a friend, but where I see a human being I see a friend—a friend for whom, in the interest of survival if nothing else, I am prepared to make sacrifices. So much is, I believe, necessary, secular common ground for the human race. That alone dictates a programme for this nation and a role for it in the world 1302 community that is perhaps a little different from the one we now aspire to and which gives a purpose for wealth generation which is a valid exercise beyond the bounds of our nation state.
That is an intellectual but not a compelling idea. It is not an idea for which one goes to the barricades or even is prepared to pay more income tax or join and serve under the colours. To breathe life into it one has to recognise the spiritual dimension. That is where noble Lords will go in different directions. But to me there is a transparent relevance in the Christian faith which underlies the statutes of this country and to which we have recently returned again and again in our legislation on education.
I believe that if this nation were to recognise the extraordinary way in which the Christian faith turns everything upside down it would be a different and stronger place. Where else does one learn that the way to become rich is to give everything away? Where else does one learn that the way to be first is to be last? Where else does one learn that the way to be the greatest is to be the least? Where else can one expect the greatest man who ever lived to wash the feet of tired and dirty fishermen as a demonstration of what kingship is about?
I do not want to wander into theology or to be carried away by my own enthusiasm. But I believe that the context in which we look at the generation of wealth will be entirely lopsided if we do not recognise that that wealth has to be put to a purpose which serves the whole of the nation and the whole of mankind and that we shall not be fit to discharge that function if we do not again recognise those values on which we stood in two world wars and which are fit for an eternity of peace.
§ 4.21 p.m.
§ Lord Wade of Chorlton
My Lords, following my noble friend Lord Elton, who has drawn our attention to more important things in life than merely the use of wealth, I am prompted to begin my remarks by saying that I started life as a farmer and thought in the 1960s that that was all that I would be. I became involved in public life in the early 1970s because I was concerned that there were many people in society who were not able to benefit from wealth as they should have. I was concerned that we seemed to be creating a society in those days when although we believed in capitalism it was an elitist capitalism which gathered the wealth of the nation in too few hands. I became involved in public life in the hope that I could make a small contribution to ensure that everybody in the nation had the benefit of wealth, but with the clear understanding that the only way to create that wealth was through the free market.
In the early 1970s I was concerned that many of the problems relating to wealth creation were caused by a socialist approach—which was possibly not confined to one political party—and an attitude towards wealth creation which worked against the creation of wealth and more people becoming better off rather than achieving what it was intended to achieve. Here we are 20 or 30 years later debating how we can continue to create wealth for the benefit of everybody.
1303 As I have had the privilege of sitting in this House over the past three years it has occurred to me on a number of occasions that we are still inclined to be elitist in much of what we talk about in this House. We see education as the preserve of people who have been to the top universities rather than considering the importance of education for everybody. We are still inclined to regard the privilege of being protected from environmental problems and having our own security in life in an elitist manner, which does not consider how we might open up the benefits of our society and our country to everyone. Therefore, when I speak of wealth creation I believe that it should ultimately be aimed at raising the standard of living of every person living in our country.
It is not just a question of our country. Within this wide-ranging debate one cannot help but consider for a moment that since the middle of this century the population of the world has nearly doubled and now totals some 5 billion people. By the middle of next century it will double again to some 10 billion people. Enormous problems will arise because that increase in population will not occur in strong economies where there are means of coping with it but in weak economies where there is already a shortage of resources to feed the existing population. We have to look at the future position of Britain, as a relatively prosperous country, and the difficulties of wealth creation in the years ahead in the context of our role in a world in which more and more people will see the Western world as a place to be envied. We should be concerned with how we redress the balance. That is one aspect to which I may return.
I turn now to the need for greater wealth in this country. A number of noble Lords have already referred to the enormous burden of cost placed on the Government and the rest of us by the demands of certain sections of society. This year alone 45 per cent. of our GDP will be spent by the Government. The continuing demand for resources is now reaching the point where the 55 per cent. who are producing cannot carry the burden. Increasing demands are now being placed on the health service. The social services, invalidity pensions and single parent families now cost more than £1 billion a year. There is a continuing feeling in society that the demands can increase without it ever being considered who will pay for them. I welcome this opportunity for noble Lords to express their views as to how that can be stopped, because once one starts giving something to people they never think of its value or where it comes from.
I was interested to read today that the health service is concerned about the amount of theft it is suffering. That cannot be a surprise. Generally, if something can be stolen it is stolen. Certainly, when people feel that all the resources they see around them are not theirs but that when the present items have gone the Government will replace them the attitude to property and its cost floats away. People think of it as something they can use for themselves.
What is wealth creation? Surely we only create wealth by producing products for somebody else to use. When we eat a sausage in the canteen next door 1304 how many of us think of how that sausage is produced—the agriculture industry, the cattle breeders, the cereal producers, the technology to produce better cereals, plastics, and the vast amount of technology which has been developed to produce the little machine that sits behind the bar in which the sausage is cooked? So much of what we do in life generates the attitude that that is just a sausage without our realising that it is an important wealth creator. The only way we can create wealth is to do things for other people. We should do more of it and open up opportunities, as the noble Lord, Lord Desai, said. We should look for better sausages, different sausages, or something that is an alternative to a sausage. From their reaction obviously noble Lords like that idea.
How can we generate that capacity to start producing very many more products within our own nation, find a home for them and produce them at the quality which is necessary? One of the interesting aspects of our economy, compared with the other economies of Europe is that some 80 per cent. of our GDP is produced by about 2,000 listed companies. Yet there are 3 million companies in this country, the vast majority of them one-man bands. We are unique in that so much of our GDP is produced by relatively few companies. That may be the result of some of the socialist attitudes on the development of taxes and pressures on individual companies in the 1950s, 1960s and 1970s. Such attitudes have forced out some of our smaller businesses and put pressure on the growth of large businesses. I like large businesses; I do not wish to decry them. However, much innovation and development evolves quickly from smaller companies. Nearly 2 million companies in this country are one-man companies. One man alone is involved. Think, my Lords, of the pressures on him in making a living while at the same time having to consider the development of the company.
Not only in Government but as a nation we shall have to push more strongly the philosophy of the importance of small businesses and of supporting them in their growth in ideas and development. That is where wealth comes from. It is surely for Government and society to understand that wealth comes from those factors and to encourage them in the knowledge that that is how we attain the products that we wish to consume.
Let us turn for a moment to an aspect referred to in this debate on technology and its influence. I refer to a range of new technologies which will have an enormous impact. Perhaps I may refer to four companies with which I have been involved. UMIST—the University of Manchester Institute of Science and Technology—recently set up a company called UMIST Ventures Limited to join with financiers and entrepreneurs to use new technology products in order to start new companies. In the past few years that body has developed over 15 major companies. Each company has created a new business, new jobs and a new set of products. That matter was raised by the noble Lord, Lord Desai. That initiative was taken by free enterprise to combine such knowledge with business in order to create new opportunities.
1305 Waverley Pharmaceuticals is a company in the north west. About five years ago it was in desperate difficulties. It employed about 34 people and was losing about £300,000 a year. The company decided to exploit some new German technology which it brought into the country at relative low cost. It has been able to develop its pharmaceutical products in such an efficient way that it now employs 250 people and makes a profit of £1 million per annum. That is a direct benefit arising from new technology and employing many more people.
Another company, Weston, makes computer-controlled machine tools. Recently it was asked by a non-UK company to quote for a machine tool which would undertake a certain job. Using modern knowledge the company would have expected to provide some 14 machine tools for which some 60 specialist technicians would have been employed. Weston spent some time on research and development over a period of 12 months and developed one machine which would undertake the work of 14 machines but with no need for the 60 technicians. The machine has now been marketed and is at present being installed. The non-UK company has not had to employ the 60 technicians, but the company in Manchester which invented the new machine employs many more new people because it now has a market which it would not otherwise have had.
The impact of technology upon employment and wealth creation has to be the positive, right way forward. It is possible to argue that the utilisation of robotics technology will result in the loss of jobs. However, I believe that through technology we shall develop new products and new markets. Although one set of jobs may be lost even more new jobs will be created. It is essential within our economy that we produce higher value products, as the noble Lord, Lord Holme, stated. We shall be able to do that through the use of technology.
The key to the use of technology is not so much the prime development of technology but its comer-cialisation. Most of our resources come from banks which are lenders and not risk takers. There is a great importance to create an environment in which more venture capital can be encouraged to invest in new technology.
It is important that I refer to the new biotechnology which will clearly have an important impact on food production over the next 20 years. It will give an enormous opportunity to reduce the number of people employed in the agricultural industry. I do not refer so much to this country but to the developing countries of the world. As the biotechnology opportunities increase, one can foresee problems developing of a highly increasing technology in the West which creates more wealth, with a greater use of our technology in the developing countries reducing their employment levels. Again, that changes the balance.
The final point must surely refer to the politics of such changes. Quite clearly our Government take a positive view towards wealth creation and the need for finding a better balance between their increased cost of government and creating the wealth to govern. My right honourable friend Mr. Michael Portillo has 1306 made several references in another place for a need to find a better way of balancing the books in the future. Therefore, it is for us to encourage the nation to understand where wealth comes from, the need to create it, and the need for growth. There is a feeling among many people in this nation that growth is wrong and that it creates more problems than it solves. That cannot possibly be true. It is beholden on us in this House, on society and Government to give a lead. Now is the time to change that approach. The only way forward for British society in the next century is to have an economic system which creates wealth from which all can benefit. That will come through our better use of technology and our understanding of the needs of the world.
§ 4.36 p.m.
§ Lord Vinson
My Lords, I am sure that we are all grateful to the noble Lord, Lord Mancroft, for calling this timely debate. I believe deeply that the key to compassion lies through the creation of wealth, but I wish to take up one point he raised; namely, regulation and the effects of overregulation on the wealth creation process.
I was lucky enough to start my business when I was 21 in what was then a relatively regulation-free society. The business was a little noisy. It certainly created a bit of smoke; and there were by-products which we disposed of by burning. In practice it was in a nissen hut next to a railway yard, and our environmental offences were marginal compared with those of the diesel locomotives and steam engines next door.
I make the point because I was lucky enough to see that business turn into an organisation employing over 1,000 people, and it eventually won the Queen's award for technological innovation.
The sad aspect is that it would be impossible to start that business today because even though its level of so-called pollution was low, the cost of complying with today's regulatory obligations would have made the business quite uneconomic in its early years, when, like any struggling business, it was making very small profits.
We live in a much more environmentally sensitive world. While we may pride ourselves on how conscious we have become of this and how green are our industrial valleys, it is becoming more apparent that the environmental gain may well be at substantial long-term economic cost to the economy.
The enthusiasm for regulation is like a tidal wave, often emanating from Brussels and then unfortunately enhanced and embellished within the UK. We may all bless the green movement, but anything when overdone becomes harmful. I do not believe that there is a Member of this House who has not had some practical experience of the harmful effects of over-regulation on his or some other business. The road to a safer environment is paved with bankrupt small businesses and businesses that never started. The true cost of over-regulation that no one takes into account is in jobs denied to the unemployed.
But the pendulum is perhaps swinging back. Canvassers at the Newbury by-election reported that 1307 many voters were fed up with irksome regulations, and it is now good to hear, from my right honourable friend the Prime Minister downwards, that talk of deregulation is in the air.
But how can we turn those brave words into deeds? Law enforcement officers have a natural self-interest to empire build. They protect their own flanks when they over-interpret rather than under-interpret the law in case they are criticised by their superiors for not doing their job properly. Likewise, the self-financing regulatory authorities have even greater incentives to expand their empires and raise their charges.
Meanwhile, behind all this lies the motherhood and apple-pie brigade, who simply do not understand the harm caused by the unintentional and unforeseen results of well-meaning legislation. Harm it often does, to others rather than to themselves.
Perhaps I may give some instances: petroleum regulations that insist on the same environmental standards as apply to motorway service stations being applied to on-farm pumps in rural areas; slaughter-house regulations enforced with such zeal that 157 small slaughter-houses around the country have been closed down, even though the local environmental health officers who dealt with them for years could find no fault; bee-keepers now forced to batch and date-stamp honey—itself a sterile material which could never poison anybody. The list is endless, and it grows. There appears to be a total lack of proportionality in the application of regulations and precious little mechanism for unscrambling stupidity, and such regulation is introduced without sensible cost-benefit analysis as to the overall public gain.
I do not for one moment suggest that we do not need hygiene laws or health and safety regulations. But no one in his right mind could have expected the zealotry—indeed the new puritanism—with which those regulations are being enacted. Few realise that for every crumb of good that they may do, they inflict real cost on our community, a cost that is often wholly disproportionate to the increase in safety or hygiene obtained and the underlying risk in the first place.
Proportionality simply must be brought back into this equation. The regulated feel powerless and helpless. It is encouraging, therefore, that the Government have set up deregulatory units to examine the whole question, and that that is happening against a change in public opinion that may now enable sensible deregulation to take place and sensible appeal procedures to be set up. As often as not the problem arises because regulatory laws are drafted to deal with one situation and are then interpreted in a manner that is quite unsuitable for another. Indeed, the regulatory authorities will argue that they have no power to exempt installations and little if any flexibility.
I believe that there are various ways that the matter could be met. It could be met, say, by an annual deregulatory Bill. But I fear that those in favour of regulation would fight tooth and nail. It would become a tedious business to unscramble legislation in that way. An alternative might be to introduce a general enabling facility that would give power to the 1308 regulatory authorities to make commonsense de minimis interpretations of the law and for them to be encouraged so to do. Once regulatory authorities were obliged by law to interpret the law sensibly, then they would indeed be open to be challenged through the law for failing to be reasonable. At the moment, the regulatory authorities hold all the cards. They can inflict untold economic damage on a business and walk away from it without penalty.
What I suggest is that the balance of power is corrected by putting the ability to litigate back into the hands of the consumer—the regulated. It is important that penalties should fall on that authority and be seen to hurt the appropriate officers both through pride and through their departmental pocket. We shall never change the attitudes of regulatory officers until they have something to lose as well as something to gain. Currently there are simply not sufficient statutory checks and balances which allow the regulated to appeal except at excessive cost in time and money.
But good precedents exist. The Inland Revenue, which has handled such matters for years and knows how to interpret laws flexibly, is a good example. Here disputes can be settled out of court with the special tax commissioners—laymen knowledgeable in their sub-ject. Such a precedent, I suggest, should be introduced by the Health and Safety Executive and other comparable regulatory authorities. In parallel with that it might be possible to graft such a mechanism onto the Citizen's Charter, and indeed such a concept would give that charter a double purpose.
I believe this to be a very serious matter, and I hope that on a future occasion the House will return to it. History is littered with examples of societies that have literally pulled themselves down by over-taxation and over-regulation. I fear that unless we do something soon, this could well apply to our own society.
In conclusion, perhaps I may leave noble Lords with the image of Gulliver in Gulliver's Travels:No one silken thread held him down but thousands of them made him immobile".The threat to wealth creation is no less real.
§ 4.46 p.m.
The Viscount of Oxfuird
My Lords, the Motion tabled by my noble friend Lord Mancroft gives us all the opportunity to consider this most important subject of wealth creation—a subject which affects us all collectively as a nation and which has certainly exercised my own mind on a more personal level as I approach retirement.
I am sorry that my noble friend Lord Joseph is unable to be with us this afternoon. I am sure he would regard the Motion, to use cricket parlance, as "a batting wicket". But how right my noble friend was to link this subject with the equally important matter of the long-term and increasingly onerous demands placed on us by the growing requirements of our public services. Much as noble Lords on all sides of this House would like to see an improvement in the benefits provided for our state pensioners, our schoolchildren, our unemployed, and our sick and needy, we can only afford to give what we can afford 1309 to pay for. With the national current account deficit approaching £50 billion, this has become an urgent problem that we must urgently address.
I have to confess that I do not often agree with Mr. George Bernard Shaw, but I agree with him when he wrote in 1898 in his play "Candida":We have no more right to consume happiness without producing it than to consume wealth without producing it".Let us then consider this important subject of wealth creation and link it particularly to the impact that the new technologies may have on patterns of employment in the future. Wealth creation is about identifying unfulfilled demands, and sometimes dreams, from the market and finding practical and affordable means of satisfying them. However, I believe that wealth creation in the context of this debate is rather more than that. It is about increasing our gross national product per head of population. It is therefore concerned much more with making things or adding value to things than with merely providing services. If we need a clue, we should look to our own Industrial Revolution of the 19th century, or come right up to date and look at the Singaporean economy of today. Singapore, a tiny nation with almost no natural resources, is able by sheer hard work, exploitation of new technologies and motivation to take on the rest of the world and in many cases to win. In doing so, it has created a very enviable standard of living for its whole population. It is the only country that I know which has two dustbin collections per day.
I believe, therefore, that the future lies in providing far greater encouragement to the rebirth of our manufacturing industries, which is a subject that has been very seriously neglected in recent years. That neglect is reflected in the statistics published in 1991. They indicated that less than 7 per cent. of graduating students were seeking jobs in the manufacturing industry whereas over 30 per cent. of them were seeking their futures in media-related employment.
It is encouraging that about a year ago the Confederation of British Industry launched its manufacturing initiative. It is even more encouraging that that theme has been taken up in recent months by my right honourable friends the Prime Minister and the President of the Board of Trade. The National Manufacturing Council of the Confederation of British Industry in its recent report Making it in Britain made it clear that, although United Kingdom manufacturing improved significantly in the 1980s, very significant additional improvement will be required to achieve world class standards. As a nation we face a performance gap of some 20 per cent. to 40 per cent. against our major competitors on a range of factors including productivity, investment, research and development, stock turn, time to the market, training and others. That points to the urgent need for British industry to increase its industrial competitiveness by attacking all those areas that have been shown to be deficient.
One of those areas is investment in new technologies. We must face up to one of the dilemmas implied by the Motion for this debate. New technologies mean greater productivity and therefore fewer jobs, leading perhaps to higher unemployment 1310 and even greater demands on our overstretched public services. What is the answer? The answer is not to bury our heads in the sand and hope that the problem will go away. It is to make the investments, overtake our overseas competitors and in so doing open up new markets, getting and leading to greater output, higher gross national product and more jobs.
I turn to the related matter of innovation, which has already been mentioned by the noble Lord, Lord Holme, and research and development. That is an area in which we as a nation have a real opportunity to lead the world. The report entitled Innovation in Manufacturing Industry, published a year ago by your Lordships' Select Committee chaired by my noble friend Lord Caldecote, made it clear that leading British companies were of world class stature in this area. We can do it if we put our minds to it. There is a whole range of potential new technologies in which, the world looks to the British academic community to take the lead. The world is hungry to take up our ideas and exploit them. Let us encourage our industries to do the same and in doing so to create new industrial sectors and new jobs to replace those which technology is replacing in the more mature industries.
Perhaps I may now address the long-term demands on our public services. Fortunately we are all healthier and living longer. But by doing so we are placing an increasing burden on that diminishing portion of our population who are working and producing wealth. Let me suggest what is maybe a seemingly heretical thought: since we are all living longer, perhaps we should all work a little longer to reduce the burden that we place on the nation and to contribute tangibly and incrementally to our national wealth.
I am sure that Members of your Lordships' House have read the recent note in the newspaper in which Voluntary Services Overseas is recruiting people in the age group 50 to 70. I believe that there is also a real case for better targeting of our state benefits to those who really need them. I await with interest the review that is currently being undertaken in this field by my right honourable friend the Secretary of State.
My noble friend Lord Mancroft mentioned National Service. To many people that is anathema to discuss today. But thinking back to the days of National Service—I am sure many noble Lords enjoyed that privilege—there is a warmth in the memory of the comradeship and shared experience of men with many shades of opinion and personalities whose lot had been cast together under service discipline. There is no opportunity for that to happen in the civilian world today except for brief courses. Perhaps we should seriously address the problem in another way—not by National Service but by service for the nation. I am sure that it would do much to create a society which is more at one with itself and less reliant on the state.
In the area of health care itself I believe that there is a further opportunity for wealth creation. Our teaching hospitals, nurses and doctors are acknowledged as world class. We could do much more in that area in the field of training and by the further export 1311 of medical training expertise around the world, thereby earning a positive contribution to our balance of payments.
So what is the outlook? We stand at a crossroads of real opportunity. We know that we can create wealth as a nation. We have done so in the past. We know that we have the new technologies to exploit and that if we have the courage to do so and market their output successfully, it will create rather than destroy jobs. There are greater demands on our public services but, properly managed, with better targeting and a little common sense, a way forward should not prove beyond us. Finally, thanks to the events of White Wednesday last September, the pound sterling is pitched at a level at which our goods and services are priced competitively against our principal overseas competitors.
I conclude by quoting an amusing verse, written by Hilaire Belloc in 1911, which is particularly relevant to this debate.Lord Finchley tried to mend the electric light,Himself. It struck him dead: and serve him right!It is the business of the wealthy manTo give employment to the artisan.Wealthy or not, we all have a part to play in the rebirth of our nation's competitiveness. When we succeed, we shall all benefit.
§ 4.58 p.m.
§ Lord Archer of Weston-super-Mare
My Lords, I thank the noble Lord, Lord Mancroft, for introducing this debate. The Motion is very wide-ranging, and I shall deal with one aspect; namely, the problems that we shall face in the social security world in the next generation.
At the outset, let me say that I approve of wealth creation because it produces the possibility of paying for so many other things. Let me pick up one point made by the noble Lord, Lord Mancroft, about Members of the other place; namely, that the other place gets the people who are willing to stand and be elected. The tragedy is not that there are not more businessmen in the other place; the tragedy is that there are not more businessmen who will stand in the first place to be considered as candidates.
A report was recently produced by the Carnegie Institute suggesting that in the problem we face there are four ages of man. The Carnegie Institute on that occasion was led by Sir Kenneth Stowe, but took most or a considerable part of its evidence from the French who also suggested that there were four ages of man. Before I read it I began to wonder whether it was a plot against William Shakespeare to prove that there had never been seven ages of man.
As your Lordships will remember, the first age is the age of the child. At the present time the child, through child benefits, is costing the wealth creators £6 billion a year. I am among those who believe that if we are to look for cuts, if we are to consider where money can be saved and used better, then in the future we shall have to consider that when people can afford to pay for certain things they should do so. There should not be an across-the-board payment just because it has a name like "child benefit".
1312 In Shakespeare's second age of man we come to higher education. All those who have been attending the Education Bill debates will know that this year higher education will cost £32 billion. I mention figures simply because in the end we must come to the conclusion that someone must pay. I will go on to try to prove my case, to show which age group it is that will have to pay. I want to get the message to my noble friend sitting on the Front Bench who will be replying to the debate that because of the problems we will face in the years 2010, 2020 and 2030, if we do not do the thinking now, if we do not come up with some bold ideas now, we shall leave those who follow a legacy which will be impossible to deal with financially.
Shakespeare's third age of man is that of the lover. I am bound to say that however much research I did in the Libraries, I was unable to find any benefits at all that were received by lovers.
The fourth age is the soldier. At the moment our defence budget is £23.5 billion. It may interest the House to know that in 1946, just having finished a world war, we spent a mere £1.7 billion on defence. But that was 19 per cent. of GDP. We are now up to £23.5 billion and it is only 3.7 per cent. of GDP.
I make the point because we are cutting back in many areas in order to pay for health and social security, for pensions and for education. But there will come a point when there is nothing else to cut back on; when there is no new money available. That must surely be the important point. For example, when the National Health Service was introduced, it cost £39 million. We are now spending £39 billion. The figures are astronomical.
The figure I want to impress upon the House concerns unemployment. I take the point made by my noble friend Lord Mancroft. The late lain Macleod stood at the Dispatch Box and criticised the Labour Party with all the venom and power he had for allowing unemployment to reach 500,000. He received screams of delight from the Conservative Benches but screams of "You do not understand" from the Labour Benches. Unemployment has now reached 3 million. We would be totally unrealistic to imagine that it will ever return to 500,000 or 1 million in the age in which we live.
In 1947—I say this to any Treasury Minister who will listen—unemployment cost £15,235,318 4s. 6d. When I telephoned and asked how much unemployment would cost the Government this year, the "estimate" was around the £18 billion mark. That is the state we have reached with finance. We give estimates of £18 billion. One must admire the Labour Government of 1947 for being able to calculate it right down to 4s. 6d.
The Carnegie Report went on to show that three of the four ages of man produced no income for the nation—or very little—and that the main age, between 25 and 55, was where wealth creation lay. It indicated how that would be the power for the future. Indeed, that age group would pay for the first, second and what it called the fourth age group. They were the people who would have retired and have the right to 1313 a decent life after retirement—not having to wonder what happened to their money and how it would all end.
That is why I say to my noble friend Lord Wakeham that we must make bold decisions now or those who come later will find that there is no money. I do not say that simply because in the year 2015 I shall be 75 and looking forward to whatever pension I am able to obtain. On a point raised by my noble friends Lord Carr and Lord Mancroft concerning inflation, I should perhaps say that I wrote to the lower house fees office to ask how my pension was developing. I received a letter in the following terms,Dear Lord Archer, thank you for your pension inquiry. The value of your pension when you left the House in October 1974 was £360. Your pension has attracted annual cost of living increases and is currently valued at £2,346. But as you will not be receiving this pension until you are 65 and you will have annual increases, we are unable to tell you what the amount will be".That brings home the importance of inflation and the importance that this Government placed on bringing it down to the lowest in Europe.
The biggest problem with which we shall be faced is sheer numbers. That is one of the reasons I agree with so many noble Lords who have spoken about raising the retirement age. At present the situation is that 30 people in every 100 in our nation are retired and living on benefits. In the year 2010, 49 people out of 100 will be living on benefits, the group aged between 25 and 55 still being the group that will have to pay for them, provided it is the Government that are still paying for pensions. Unless we have the courage to say to our people that they must make their own provisions, there will come a stage when no government on earth, of whatever colour or power, will be able to pay the bill. That is the point I should most like to emphasise to the House.
A short point the House may like to keep in mind is that in the year that Her Majesty the Queen came to the throne, 1952, she sent out 201 telegrams to those people reaching 100 years of age. In the year 1992 she sent out 2,738. I naturally hope that many of your Lordships will be receiving those telegrams. Indeed, my noble friend Lord Wakeham, the Leader of the House, will be receiving his in the year 2032. Perhaps I may say how delighted I am because it is the same year in which the Leader of the Opposition will be receiving his telegram from the Queen. I hope that both men will still be sitting in the seats in which they are sitting today. But the problem is that someone will have to pay for those two men when they are 100. Of course, they may be the only two who are lucky enough still to be in employment and have not yet fixed their retirement age.
My point is a serious one. The Government and the Opposition too must understand the problem that will be faced early in the next century by our old people. Whether the French and the Carnegie Institute think that there are four ages, or whether Shakespeare was right when he said that there are seven, I say to the House that I do not want that to be for our people. As the great Bard suggests, sans teeth, sans eyes, sans taste, sans everything; let us not have a situation where the Government have created sans meaning, 1314 sans pensions and sans ability to keep our people in a way they have grown accustomed to. It is this Government's responsibility to make the last age—whether it be, in the view of the French, the fourth, or whether it be, in the view of Shakespeare, the seventh—one they can be proud of.
§ 5.11 p.m.
The Earl of Dundonald
My Lords, I also take this opportunity to thank my noble friend Lord Mancroft for initiating this debate. I for one very much enjoyed his opening speech. I do not agree with all of it but I do think that my noble friend has some ideas that the Government would be well advised to take to heart.
The noble Lords, Lord Holme of Cheltenham and Lord Wade of Chorlton, have already picked up on a theme that I intend to be more specific about—that is, the financial support of high technology/biotechnology products and how they are taken to market. However, I feel that my contribution to this debate, bearing in mind the speeches of other noble Lords, will be rather small.
I, for my part, wish to turn my attention to a particular area of wealth creation, an area which I think is very much overlooked by the Government but is of critical importance to the country's medium to long-term economic prospects. This area is "true venture capital" or investment in "start-ups" and, in particular, investment in high technology, biotechnology and manufacturing. I say "true venture capital" because it is my belief that venture capitalists in this country should properly be called development capitalists of supporters of MBOs or MBIs. There is nothing wrong with this, only that there is little or no money being channelled into start-ups. Without them, where will our medium or indeed large-sized companies come from in 10 to 15 years time? This point was eloquently portrayed by the noble Lord, Lord Wade, earlier. Britain will suffer desperately without them and we cannot afford to lose people with ideas to other countries. Time and time again I hear of people with good ideas who cannot raise money in this country and who end up going to the US where they are welcomed with open arms. The wealth generated from British ideas more often than not ends up in other people's pockets. This is not the right recipe for our future.
I should like to draw your Lordships' attention to some figures that I managed to pull together from the Library. Noble Lords will, I hope, forgive me if some seem a little out of date but these are the most recent published figures. First, I should like to draw your Lordships' attention to the financial year 1990–91 and the BES published figures. Of £323 million raised in this financial year only £13 million was invested in high technology, biotechnology or manufacturing. I do not suppose that the figure will be any better in 1992–93.
Secondly, I should like to draw on figures from the 1992 British Venture Capital Association report. A total of £1.25 billion was raised and invested during the calendar year. This figure includes all equity, mezzanine and bank finance. Of that, £874 million was invested in sectors other than manufacturing, high 1315 technology or biotechnology: £302 million was invested in industrial products companies, communications, construction and manufacturing; £91 million was invested in electronics, high technology and biotechnology; and only £82 million was invested in start-ups as a whole.
If one extrapolates the figures further—I am afraid that I cannot vouch for the accuracy because no official figures are available—one might make the following observation. Thirty-one per cent. of total investment using venture capital money is made in manufacturing, high technology and biotechnology. If one applied the same percentage to start-ups then only £25 million per annum would have been invested in this critical area of start-ups. Taken together with BES money, therefore, it is likely that less than £40 million was invested in the whole of 1992 in start-ups in high technology, biotechnology and manufacturing. I do not have comparable figures for the US or any of our European partners, but I cannot believe that they are any less; and I suspect that the difference between the UK and the US is an order of magnitude of two. I should therefore like to suggest a way of encouraging investment in this critical area. I do not suppose that it is the only or the best way, but I believe that it is worth putting before your Lordships' House and the Government.
Investment is all about the ratio of risk and reward. Currently, there are not too many people taking risks, including, regretfully, the professionals—the venture capitalists—although I now believe they are putting far more funds into manufacturing but not in the start-up phase. The Government BES scheme finishes at the end of the year, and as I have already pointed out, little or no money is being invested in the area with which I am most concerned. Although there are no official figures published for the 1992–93 fiscal year, I believe that more than £800 million was raised through BES and almost all of it went into private rented housing with guaranteed buy-back clauses issued by the builders concerned. Perhaps, therefore, we can persuade the Treasury to offer a really decent tax incentive package to investment companies or private individuals who invest in start-ups in the sectors that really count for our future—high technology, biotechnology and manufacturing.
If an individual, or group of individuals, with a product or concept wished to start up a business they could contact a high net worth individual or investment company. They, in turn, might pump prime the new company and be able to write off their initial investment 100 per cent. against tax in the first year. I suggest that this should be done in an unregulated fashion so as to mitigate the amount of money being directed to professional fees in the start-up phase. An investor of this kind is likely to be "street wise" and already have good advice to hand. Additionally, investors may wish to form clubs to spread their risk better, as they do in the States. They are better known as business angels.
Initially, investors will be difficult to find for two principal reasons. They have had it too good with asset-backed BES schemes and they will have to have 1316 time to adjust to the risk-reward ethos, more prevalent in the United States. I am, however, sure that given time investors will start backing this critical sector. I would hope that the one-stop shop proposed by the DTI might form a useful forum for investors to meet inventors. The loss of revenue to the Treasury would be minimal and it would put back the onus of investing in our country on the individual rather than always turning to government. I believe that a scheme such as this would be of enormous benefit to the future of our economic well being as a wealth-creating nation.
I am sure that the Treasury can think of many reasons why we should not look at this option, but so far I have not heard anything but silence regarding a replacement for BES. And although this scheme latterly was derailed, its original aims were laudable. If we simply leave a vacuum, how can new business start up with only £25 million to £40 million being available each year to this critical sector?
In conclusion, perhaps my noble friend on the Front Bench and other noble Lords, will try to persuade the Treasury that this proposal, or a suitable alternative, is worth taking forward. I should like once again to thank my noble friend Lord Mancroft for initiating this debate.
§ 5.20 p.m.
My Lords, there was a report issued recently under the auspices of the National Economic Development Office, which suggested that for a mature country like ours some two-thirds of economic growth comes from innovation. In view of the comments on innovation from many noble Lords, perhaps there will be some agreement with that.
The report goes on to say that economies cannot rely on growth in labour and capital alone to increase the living standards and the competitiveness of the countries concerned. On the contrary, firms must introduce new products, new processes and organisational structures to support those new products and processes if they are to succeed.
Successful technological change, it suggests, is more likely to be market-led than science-led. So we have the suggestion, not just that new products, as has been mentioned, but rather that new products combined with new ways of processing them and new organisational structures, are driven by the market, driven by what the customer needs, and that that is the way forward. Those were the suggestions of that report from the experts commissioned to research into the matter. Of course there is no proof that that is correct, but with my 40 years' experience in commerce, it smells right.
The key words in the Motion today are "wealth creation", "new technologies", and "public services". I should like to focus not on the general, as so many people have done, but move sharply and specifically to one existing innovation which touches on all those three key descriptions. There is a major need for our business leaders today to harness the power and productivity of electronic networking. To do so they 1317 need to manage the conflict of interests which the move from manual processes to electronic ones so often brings with it.
Why is electronic networking productive? Basically, it is because whenever two or more parties need to pass on information, there is an enormous productivity from doing so electronically by the use of single data entry. Single data entry means that the first person who needs the information enters it electronically and nobody else needs to re-enter it. The benefits of that (which are very significant and very simple) are, first, that it saves the cost of the second and subsequent entries; but, secondly—and even more importantly—it avoids the errors which are implicit in manual re-entry. Thirdly, it reduces, and possibly eliminates, the amount of paper documentation needed for the transaction. Fourthly, it reduces transaction times because there is less paper or perhaps no paper, passed between the parties. Fifthly, it cuts storage costs, particularly archival, which is old storage costs. The costs of storing electronic data are very much less than those vast paper mountains buried in damp basements many miles away. Sixthly, it improves the time to recover such information from archives. Perhaps more importantly it is more likely that you will actually recover it. Those of us in commerce have much experience of not being able to find documents which are 10 or 15 years' old.
Some of those benefits will clearly occur within the single company. One small example is that when I entered my own profession of insurance broking in 1951, I found myself having to enter the same information about a claim on at least five different documents. But today's recruit in my company is much more lucky. He has only to enter once the information about the claim. He does not have to enter information about the policy at all because he retrieves it from an existing electronic data premium file. So there is a real saving there.
I suggest that there is an even greater saving when two or more companies are part of an external electronic network. But to get those savings they will only come about when the leaders of the networking community concerned recognise that they must adapt the processes to fit the electronic means. It is not any good just using electronic data for an existing manual method; you have to change your manual methods. The adaptation required means that leaders have got to manage change.
We have recent proof in fact of just how hard some of these decisions are to make and how hard they are to make on a timely basis. We read recently a Financial Times report on the problems of TAURUS. According to the Financial Times, it would have been possible five years ago for someone to explain to bank registrars that they were not going to be needed in a system which involved paperless share certificates, although there was not anyone there—or perhaps there was not anyone there with the right authority at the time—to do so. They fell into that most common of traps; they computerised something according to the existing methods with the added complexity and cost and finally it died.
1318 New technology is tough on service providers. I remember that in 1987 that we had to tell the insurance brokers that the arrival of networks meant that it was going to be easier for insurance companies to deal direct with clients without their services. We used a picture of King Canute with his courtiers, telling him to stop the waves coming in, to illustrate the fact that it was not any good the insurance broker pretending that the network did not exist. It was much better that he went out and looked for new services to offer based on electronic data means.
In fact, the commercial insurance market was perhaps luckier than the Stock Exchange on its computerisation in as much as there were already in existence three manual processing centres acting as key points between the 200-plus brokers and the 300-plus underwriters in the commercial market. Because of that we perhaps avoided some of the worst excesses that can go wrong on networking. However, it is 12 years since we started and the market has about 50 per cent. of its claims handled electronically with great productivity. The very long time to reach this stage has arisen principally because there has been only one method by which we could get it up and running and that was consensus.
It is perhaps interesting that it has taken the business crisis at Lloyd's to produce a new management and a business plan where it is stated emphatically that there will be electronic networking. There will be no more hanging around. Lloyd's say that they cannot afford to wait for consensus. I believe that that is a lesson for all of us.
What lessons can we learn? We know that a company can very easily network internally. It simply requires the executive act of its managing director. We have seen supermarkets that can handle electronic networks just as easily. They say to their suppliers "Join our network or else" and the suppliers join in droves. So it can be done. We now know that formal marketplaces such as the Stock Exchange or the commercial insurance market, find it harder to achieve because there has been no obvious organisational structure to see that the hard decisions are taken at the right times. Perhaps that is changing and it is hoped that lessons are being learnt.
What then about informal marketplaces? Last year I listened to a chief constable who was calling for an English data bank for fingerprints. He complained that there had been a Scottish data bank for many years, but he could not get an English one. The only way in which he could achieve it, as far as he could see, was through consensus because there was not any other structure by which that could be achieved. I have not followed that up; but as far as I know, he is still trying.
I move to another public service. We are all familiar with those ladies in a local surgery who handle thousands of files, bulging in the corners. One of them told me that her practice straddles two area health authorities. They have to fill in the same type of form for each of the two authorities. But the forms are different. Their content may be approximately the same, but the way in which it is requested, the lay-out of the form and even the paper size is different at 1319 times. What a massive opportunity for an increase in productivity by that most primary of methods, standardisation. Those are just two of the public services encompassed in the Motion. Neither appears to me to have realised the network possibilities which alone could achieve the organisational structure that is required to achieve such primary productivity.
So to create wealth, the United Kingdom needs innovation. In my view, electronic networking is a very underdeveloped innovation. It is underdeveloped because not enough of our business leaders understand its potential, and those who do understand it need to organise the right structures across the networking participants and then direct—because we cannot wait for consensus.
Where marketplaces are informal, there may well be a need for government intervention to give the legal authority to those who must implement change. I am happy to report that by a fortunate coincidence I received a letter this morning from the Department of Trade and Industry responding to a letter that I had written to the DTI along those lines. It agreed with what I am saying in general and added in particular:I agree with you that changing the attitudes of UK management is evolutionary, and requires consistent and sustained argument based on real business benefits. DTI recognises that in order to maximum these benefits, it is often necessary to re-engineer the business process".We need to take that message to everyone concerned with networks—formal or informal—in order to improve our wealth creation.
§ 5.31 p.m.
§ Lord Ezra
My Lords, I am pleased to follow the noble Viscount, Lord Chelmsford, in his interesting speech on electronic networking, which is an area of technology that he rightly considers we should be developing. We are, indeed, indebted to the noble Lord, Lord Mancroft, for the subject of today's debate. In fact, he has given us the opportunity to debate three subjects in one: the importance of wealth creation, the impact of new technologies on employment and the long-term demands on public services, on which many of your Lordships have spoken. I should like to deal with each of those three issues, bearing in mind the comments made in previous speeches.
I entirely agree with the noble Lord, Lord Carr of Hadley, when he said that this is the second in a series of important speeches on economic issues in which your Lordships have demonstrated their particular skill of riding above party polemics and expressing objective views which, put together, demonstrate a remarkable consensus. What we need to do, however, is to follow up the words of wisdom that are uttered so frequently in this House. No doubt the noble Lord, Lord Wakeham, will indicate how that is to be done.
Let us start with the question of wealth creation. What struck me was that we have now come up with a definition of wealth creation which has been missing in recent years. It was the noble Lord, Lord Desai, who made the important distinction between nominal wealth creation and real wealth creation. During the late 1980s we were creating nominal wealth. There was 1320 massive inflation of property values. Enormous benefits were earned in the financial markets, and real wealth creation was lost sight of. Manufacturing industry was rarely mentioned from Government Benches in those days. I am glad to see the noble Lord, Lord Aldington, in his place because it was his report on overseas trade that brought that matter to the fore in the mid-1980s.
Now, however, the consensus is moving in the other direction. There is a recognition that wealth must be created in real terms—in real goods and services—and not in nominal terms. I regard that as one of the most important aspects to have come out of our debate today. I believe that it is a view that is increasingly shared by Government. It is a view on which there is now very little difference of opinion.
So we move on to the next issue, which is how we create that real wealth. Here, regrettably, perhaps because we ignored the creation of real wealth for so many years, we are not doing as well at it as our competitors. My noble friend Lord Holme referred to a recent report issued under the auspices of the Confederation of British Industry and the Department of Trade and Industry—impeccable authors of a document which has shown that, as my noble friend said, on the competitive scoreboard of world trade we come 13th of the 22 OECD countries. But what is even worse is that in certain areas we fall well below that. In infrastructure, for example, we are in 16th place. As my noble friend said, in education and training, we occupy 20th place. So, there is a very long way to go if we want to create the real wealth on which we are all agreed.
Another measure was produced in a further report, also published by the CBI at that time. I refer to patent indicators. In the period 1985–1990, if one looks at the change in patent activity between the different leading competitive countries, one sees that there was a rise of 7 per cent. in Germany and of 3.5 per cent. in both the United States and Japan. In France there was a fall of 2 per cent., but there was a fall of 6.5 per cent. in the United Kingdom. Again, that should indicate to us the ground that we have got to make up. I am not saying that for reasons of pessimism or lack of faith in our ability; I am merely saying that that is the situation in which we happen to be. If we are really keen on wealth creation and on the development of technology, that is the route along which we must move.
One aspect of the technology section of the Motion has perhaps not been dealt with very much so far. I refer to the impact of technology on employment. The accepted wisdom seems to be that as we move into more and more technology, fewer and fewer people are needed to produce the goods. Perhaps I may quote the noble Lord, Lord Desai, again. He told us that whereas 21 per cent. of the working population is in manufacturing today, his guess was that in five or 10 years' time that proportion could fall to 15 per cent. Normally, I entirely agree with him, but I should like to express a different opinion. Does improved technology necessarily mean reduced manpower?
Perhaps I may relate an experience of my own to your Lordships. I was in the mining industry for many 1321 years. During that period and subsequent to it, the number of face workers employed per face fell dramatically. When I joined the industry, it was something like 30; and when I left, it was under 10. I am sure that the figure is lower today. That meant a massive increase in productivity, and in turn meant fewer men employed on the number of faces that were operated. But how did they achieve that improved productivity? They achieved it because of the availability of massive coal-cutting machines, heavy-duty powered supports, and heavy-duty chains which drew all the material along the face. And where did that come from? It came from an entirely new industry that was set up to produce that equipment. In my time in the industry—I am sure that this has been continued since—we gave that indigenous coal mining equipment industry every possibility for exporting. We supported it in every way that we could and by the end of my time there it was exporting 20 per cent. of its total production. The effect of technology, to my mind, in that instance meant a redeployment of people and not necessarily an overall reduction.
Let me take another example which is not to our advantage. It concerns improving the environment. For many years in this country we resisted the concept that acid rain was a harmful emission. On the Continent it was accepted as something that was serious. In Germany, in particular, they introduced high standards for limiting acid rain, or sulphur emissions, and they developed the equipment to deal with it. In due course we had to accept that there was an acid rain problem. We were left behind, because we had not anticipated the market demand for that particular form of technology. So I feel that the challenge of technology is to anticipate the demands, get in there with the equipment and the software (in the case, for example, referred to just now by the noble Viscount, Lord Chelmsford) and develop the production capability not just to meet home demands but to have sufficient over for export.
On the question of employment and technology, I was for a number of years on the advisory board of a large Continental energy group. I remember having a chat with the chairman and chief executive of that group during the recession of 1979–80 when people were being laid off left, right and centre. He said, "I would like you to know that I have told my executives that in future their salaries will be reviewed on the basis of the additional people they have taken on on a productive and profitable basis". That is an interesting concept.
When we talk in this country about companies that are now lean and efficient, the term "lean" unfortunately has come to be synonymous with laying off labour. I believe that we should be thinking about a different way of expressing industrial success: not laying off labour, but producing opportunities for new jobs and new technologies. Why do not we look upon the problem in that more positive way? I believe that we should revise fundamentally our views on the impact of technology on employment.
Let me turn finally to the third part of the Motion:the long term demands on public services".1322 Of course one of the main objectives of wealth creation is to be able to use part of that wealth for services which can be better performed by the state: of a social nature, in the health sector, helping people who are disabled, education, and so forth. We are worried at the moment with our high PSBR and having to reduce it. The noble Lord, Lord Archer, told us in graphic terms what the various ages of man—I presume in that he included women—are costing us. There is no doubt about that. I hope that it will be for a short time only that we have to look at those essential services as something that we have to slim down and have to make lean, as the word is, and that we can soon benefit from the increase in real wealth creation upon which we are all agreed.
There was another aspect which was referred to by the noble Earl, Lord Halsbury, who so often lets us benefit from his accumulated wisdom. It was something about which we have all worried for a long time in public expenditure: the lack of distinction between capital and revenue. There is a large part of the public services which is essential for the success of wealth creation. That part includes the transport system, the essential buildings in which education and so forth can be conducted—the educational services themselves. There is of course the revenue part—the essential social part which has to be paid for.
I am pleased that in advance of their Budget, towards the end of the year the Government are to be introducing, as I understand it, the distinction between capital and revenue expenditure. I hope that then the view will be expressed that just as capital investment in the private sector has to be encouraged, so there are segments of the public sector where we have to increase capital investment. That could give us an entirely more balanced approach to those important matters.
I should like to thank the noble Lord, Lord Mancroft, for having given us the opportunity to tackle these issues. I support the noble Lord, Lord Carr, and my noble friend Lord Holme in asking the Government why they are so reluctant to bring out a White Paper on industrial policy. In 1990, they brought out a remarkable White Paper on the environment. They are shortly to bring out a White Paper on scientific research and development. Would that not be effectively complemented by a White Paper on industrial strategy, which we could all debate and upon which I very much expect, in the light of today's debate and the debate we had last week, this House could quickly reach a consensus?
§ 5.46 p.m.
§ Lord Richard
My Lords, perhaps I may start, as have other speakers, by congratulating the noble Lord, Lord Mancroft, on initiating the debate. It has been interesting and revealing, and, in some respects, a fascinating debate. I was delighted to hear my noble friend Lord Desai and pleased to see that on the Back-Benches he displayed that independence of mind and freedom of spirit which so characterised his time on the Front Bench. I am bound to say that I also found myself in great agreement with much of what he had to say. We heard the noble Lord, Lord Archer, 1323 that Atlas of the social security system, supporting upon his productive shoulders the combined weights of the Leader of the House and myself. I would only point out to the noble Lord, Lord Archer, that when his noble friend and I are 100 he will be 93. How productive he may be at that age, I know not. I hope the support will continue to be offered.
It has indeed been an interesting debate, and it comes at a time when the country is clearly eager for an economic recovery and the new opportunities to create wealth that may come with such a recovery. But there are questions that have to be asked. It is also a time of great anxiety. Is there really a recovery yet? Will it be too quick? Is it just another loop on an economic-roller coaster? How long will the wealth created over the next boom last? Who will suffer most when the next bust comes?
The Government may believe that wealth creation is a subject that those on the Conservative Benches can discuss cosily, pleasantly, with enthusiasm, and without any trace of the anxiety that Ministers must feel when other issues are raised: those intrusive issues such as schools testing, the size of the PSBR, the Budget, unemployment, Europe, the Criminal Justice Act, the Serious Fraud Office and county councils. The list is long and goes on and on. The Government must surely feel that wealth creation, the traditional preserve of the Conservative Party and its supporters, is a safe topic for debate, so what on earth can the Labour Party find to say about this apparently most capitalist of subjects?
I regret that Ministers' confidence may be misplaced. The Labour Party has never been opposed to wealth creation or indeed to new technology. It has never sought to inhibit prosperity or to insist upon manual labour when machines will do the work as well. But it can, and it must, ask questions about what is to he done with the wealth and how the new technology is to be employed. For whose benefit are the money and machines to be used?
No one can deny that now some people are better off than they were 14 years ago. There are the chairmen and the shareholders of privatised utilities whose salaries and dividends seem to keep well ahead of the cost of living at a time when pay freezes are demanded of others. Other people are wealthier than they used to be: for example, the foreign currency dealers who left the Treasury reeling last September and those people who sold their properties at the height of the market and who held on to the proceeds. Such people are better off under this Government, but whom has their wealth touched and how has it been used? As far as one can tell it has been used for few except themselves, their friends and in some instances the funds of the party opposite.
The vast majority of the people of this country are left with scant memories of the fragile prosperity of the boom years of the 1980s. What wealth have the Government created for 3 million unemployed who are struggling to make their benefit last the week and to feed their children; or, indeed, for the repossessed homeowner, still being pursued by the mortgage company for the money which he still owes on the 1324 home that he has now lost; or for the victims of negative equity wondering whether their homes will ever be worth what they paid for them and how on earth will they ever be able to move on?
Nor has much of that wealth been invested in British industry. Investment levels in this country are behind those of Germany and Japan and even of the newly-industrialised countries of the Pacific rim. In 10 of the 13 years since 1979 the rate of new investment has been less than the rate at which old plant and machinery were being scrapped.
Our manufacturing industry is in deficit for the first time in three centuries. There has not been much wealth creation there. Consumer spending, such as it is, is going abroad and that situation is bound to worsen if consumer confidence grows and spending on manufactured goods increases. Where, too, is the wealth creation and the lasting prosperity for the small businessmen who have been losing their livelihoods at the rate of 1,500 a week? What wealth have the Government created to enable pensioners to survive as their fuel bills rise first by 8 per cent. and then to 17.5 per cent. with the imposition of VAT?
After 14 years of Conservative Government the abiding memory of the ordinary people of this country is not one of wealth, of opportunity and of a brave new world of technological innovation. I have to say to the party opposite that it is one of struggle, depression and waste.
The Motion appears to assume in its terms—and it came through in the speech of the noble Lord, Lord Mancroft—that new technology must result in the redundancy of workers replaced by machines, those workers then becoming a burden on the state. The noble Baroness, Lady Carnegy of Lour, shakes her head. I can say only that that seems to be the clear implication of what the noble Lord, Lord Mancroft, and others were talking about. The workers who are being replaced by machines will become a burden on the state. That is a burden which, according to the noble Lord, Lord Archer, the country will be increasingly unable to bear. That is an unnecessarily gloomy scenario. I find myself in great agreement with the points made by the noble Lord, Lord Ezra.
Technology is a useful servant. It liberates human beings from laborious and dull tasks, but that does not mean that human labour will not be needed in the future. To accept that the new technology inevitably signals job losses seems to me almost to encourage a Luddite attitude to the introduction of that new technology instead of ensuring that people embrace it as being complementary to the tasks which they must perform. Just as improved productivity should not be achieved simply by employing fewer workers—as seems to be the pattern of the party opposite—but by producing more goods, so improvements in technology can be achieved not just by using machines instead of people but by using the best combination of both. I agree profoundly that the future belongs to those nations which possess new technologies and which can turn them into products that other nations want to buy.
In the past Britain excelled at that. We were inventive, energetic and successful. Given the chance, 1325 I believe that our people can again establish Britain as a leading industrial economy but not without backing by the same investment in machinery, training and skills as well as co-operation from government which industry in our competitor countries receive. I agree with the quotation of Ruskin, which my noble friend Lord Desai quoted, that people are the real wealth of a nation.
In today's world people are the key to economic success and to wealth creation. I am not sure whether the Government fully appreciate the importance of the people of Britain when they allow more than 3 million to be unwillingly idle and give millions more no prospect of lasting fulfilment in the jobs that they hold.
The failure is a result not just of the operation of vested interests, not just of the creation of wealth for a select few who attach little significance to the long-term building of economic strength, but a result fundamentally of a wrong economic approach. Again, I agree with much of what was said by the noble Lord, Lord Ezra. There is a mistaken belief that except by their absence government have no constructive part to play in wealth creation and individual opportunity. That was echoed by the noble Lord, Lord Carr, and expressed by the noble Lord, Lord Mancroft, in his opening speech.
We have had 14 years of a Government committed to non-intervention. After 14 years of a non-interventionist policy, letting the markets do their best or their worst, depending on where one views it from, experience must show that that approach is wrong. We must now go beyond the old battle between state and market and between public and private interests to address a more central question: how should we be investing in the future and what should we be looking for?
The answer is surely a partnership between public and private sectors, with a market assisting efficiency and providing consumer choice but within a framework of necessary regulation, encouragement and intervention. It is the role of good government to ensure that the market is working in the public interest and not against it. It certainly does not follow that the market is always right. Indeed, the strategy which the noble Lord, Lord Carr, had in mind, is the kind of policy for which I am perhaps imperfectly groping.
We must distinguish between competition without regulation or standards, which leads to wealth only for those who are part of a short-term process, and competition accompanied by proper regulation, which can lead to prosperity for society as a whole.
Instead of wealth creation for the benefit and enrichment of a few, we must surely pursue the advancement of individual opportunity and potential. Only in this way can we achieve the modernisation of the British economy and our industrial base, the reversal of decades of national economic decline, the long-term creation of wealth which benefits the whole nation and the ability to develop new technology and to turn it into the products which can be sold in a global market. It is people and their skills which will enable Britain to seize these opportunities.
1326 We believe, for example, that only constructive intervention by government can ensure that industry, and especially manufacturing industry, will be able to resist the pressures to cut back investment in research and development in order to maintain short-term dividends. Long-term strategies to develop new technologies are essential. Surely the Government have a role here and an initiating role. They have not merely a regulatory function but the function of encouraging industry to move in the direction in which all of us would wish it to go.
By definition manufactured goods—manufactured by utilising the new technologies—are tradeable and vital to any return to a balance of trade surplus. Every reduction in our manufacturing capacity increases Britain's dependence on imports for modern goods and technology but at the same time it reduces our ability to export in order to pay for them.
This new industrial revolution which we face is based on internationally accessible raw materials, inventions and capital. In that revolution the resource of skilled people and educated minds is the true determinant of national competitive advantage.
The real challenge for us now is how to enhance the true value of individual labour. That is a policy objective which is the key not only to the realisation of individual potential but also to a successful economy.
That objective of a high skilled, high tech, high productivity and high wage economy embraces both social justice and economic efficiency. The message seems to me to be clear: as individuals succeed by virtue of those skills, companies and countries succeed too.
The basic goal in economic policy is surely the fulfilment of individual potential as the equal right of all. The principal enemy of growth now is the failure to employ the skills, energies and talents which exist in this country today. The obstacles which threaten our goal include a lack of education and work opportunities and mass unemployment.
In the 1960s everybody believed, wrongly as it turned out, that the key to growth was the application of technology alone requiring fewer and fewer skilled people. In the 1990s, it is clear that it is the application of skills to technology which matter more, requiring more and more skilled people.
I agree profoundly with those who have participated in the debate who have made the point that the pattern of working life has now changed. Indeed, the number of instances in which someone can leave school with a skill, or be trained in a skill, and then look forward to a life for 50 years employing that skill, reaching the age of 65 when he can retire with a gold watch and pension, seem to be extraordinarily limited if they exist at all. People must be trained to become more and more adaptable during the course of their working lives. They must be trained not only at the beginning of their working lives but as new technological opportunities open up during that time, there must be proper opportunities for them to be retrained and for them to understand and appreciate new skills.
This has been a helpful and useful debate. It has exposed a number of views. Perhaps it has exposed a 1327 degree of agreement or almost a consensus—at least an understanding —that there is a need for the state to play a more active, interventionist and encouraging role as regards the economy. We should not be quite so afraid of the new technologies as some noble Lords would have us believe.
The key to wealth creation in the sense of lasting prosperity not just for a few but for the whole nation really lies in expanding the skills of our people and expanding their job and training opportunities.
§ 6.3 p.m.
§ The Lord Privy Seal (Lord Wakeham)
My Lords, I should like to begin by congratulating my noble friend Lord Mancroft for moving the Motion which we are debating today: it covers admirably the challenges which will face the UK economy over the coming years, and which are central to the business of this Government.
The Motion before us highlights three important matters: the importance of wealth creation; the challenge of new technologies; and the need to ensure that the long-term demands on public services can be appropriately met.
My noble friend Lord Carr said how much he appreciated this type of debate. I remember having a conversation with him just about a year ago when I first arrived in your Lordships' House when he said that he thought that we should have more debates of this kind. Perhaps it has taken a year to get round to it, but having had two debates in succeeding weeks, I think that I can say to my noble friend, who made a very interesting speech, that he may have been rather ahead of us but I hope that he believes this to have been a worthwhile debate. I am sure that all noble Lords believe that it has been worthwhile.
Before I respond to the many interesting points made in the debate, I should like to say a few words about the three propositions that make up the Motion. I shall try to deal, first, head on with the point made by the noble Lord, Lord Richard. At no time has it been this Government's policy to have a hands-off approach as regards the economy.
The primary objective of this Government's economic policy is to restore sustainable growth to the economy. We are pursuing simultaneously a macro-economic and micro-economic policy: a macro-economic policy directed at continuing the downward pressure on inflation; and a micro-economic policy designed to make the economy work better, and thus generate more jobs.
My noble friend Lord Mancroft and others stressed the importance of the downward pressure on inflation. I agree with what he said. I agree with much else of what he said although my style may not be as quite as robust as his. I agreed also with my noble friend Lord Elton. Wealth creation is important, but even more important is what we do with that wealth. I share my noble friend's view of the central importance of the Christian faith but we must recognise also that it is not only Christians who approach these issues from a 1328 moral point of view. However, your Lordships will be grateful to my noble friend for putting forward his views so clearly in the debate.
We know that persistently high inflation is disastrous for an economy, and our acceptance for many of the post-war years of inflation above the level of our competitors did untold harm. It is sometimes suggested that in the current economic situation, the Government should pay less attention to inflation and more to the level of activity. But we believe that an environment of low and stable inflation is the surest way to get sustainable growth in the long term. Underlying inflation at 3.5 per cent. is good, but still not good enough. It is vital that as the economy grows, companies continue to keep costs—and above all wage costs —firmly under control.
It was this Government's achievement in bringing down inflation in the early 1980s, to below 5 per cent. in 1983, which gave us the foundation for faster growth in the mid-1980s than our major EC competitors, France, Germany and Italy. This together with the supply side reforms which we introduced—above all the important and overdue reforms in industrial relations—led to the great improvement in the underlying efficiency of the economy. This has concrete effects. The fall in unemployment in the past two months—while still a tentative indicator—suggests that our labour market reforms in the 1980s have reduced the time lag between economic recovery and a fall in unemployment.
The ability of this economy to create the levels of wealth which we should like in the next century will depend on individuals and companies realising their own potential for wealth creation. The role of Government is to create the conditions in which people have the freedom and the incentives to exploit opportunities to create wealth. What we should not try to do is to take over entirely the activity which common sense and history tell us is better undertaken by private enterprise.
My noble friend Lord Mancroft and other noble Lords highlighted the anxieties that exist about the effect of new technologies on employment. Such fears are of course understandable. Everywhere, machines seem to be replacing workers. Accounts are maintained by computers. Robots paint cars. Microprocessors print newspapers. But, nevertheless—and here I agree with the noble Lords, Lord Ezra and Lord Richard—at the same time employment is growing, up 1.4 million in the past 10 years, and a far greater number of women have entered the market for jobs.
Therefore, it seems a pity that the noble Lords, Lord Richard and Lord Ezra, and I disagree with the noble Lord, Lord Desai, as regards part of a very interesting speech. I believe that the right way to refer to the noble Lord's return to the Back-Benches is to say that what might be seen as his right honourable friend the Leader of the Opposition's loss from the Front Bench may be our gain as he will be able to address us on a wider range of subjects from the Back-Benches in the future. I look forward very much to hearing him speak from that position.
1329 We must not fear the impact of new technologies. They need not go hand in hand with higher unemployment. Take the example of Japan, at the forefront of new technology in the electronics and motor industries, but with the lowest unemployment rate of any major industrialised country. Who would argue that the South-East Asian economies are not benefiting from technological progress? Far from causing unemployment, new technology can create jobs.
Moreover, the use of new technologies, the new products and higher productivity which they bring, have driven a vast increase in living standards. The great majority of the population have seen a long, sustained improvement in their quality of life: working hours are shorter, work is less onerous and more interesting, housing conditions are better, access to consumer goods is vastly greater and life expectancy has increased.
The future is uncertain and brings risks as well as opportunities. We cannot hide from that. But we must respond to the challenges that the new technologies bring.
The market place for goods and services is always changing, and individuals and businesses in the UK must change too if they are to be successful. Our success at meeting the challenge of change will depend on the skills and talents of our young people. It is bizarre that we are debating at present whether or not to test our children in schools. Such a debate would not take place in our competitor countries. They recognise, as the Government, that to achieve high standards one must set high standards; and test whether they are being met.
The surest way to increase employment in Britain is for our industry to become even more competitive in international markets. The success of our exports—which are at record levels—has been built, above all, on improved productivity.
The noble Lord, Lord Holme, referred to our share of world trade which had been falling for many years but which stabilised in the 1980s. After decades of decline, it is now increasing. During the 1980s UK manufacturing productivity growth was the fastest of the major industrialised countries; and it has held up well since. Our success is based on two key factors: first, a willingness to embrace new technologies and new ideas; and, secondly, a government that have put in place a framework that allows British companies to be as competitive as possible. I very much agree with my noble friend Lord Oxfuird who said that the best of the British companies are among the best in the world. Our collective task is to help some of the others reach a degree of excellence achieved by the best.
One of this Government's key aims is the improvement of public services. The Citizen's Charter is at the heart of the Government's drive to improve quality, choice, service standards and value for money in public services, within a tax bill which the nation can afford. The policy is pursued through a number of means: privatisation, contracting out, more competition, published performance targets, more effective complaints procedures and better redress. We must, however, ensure that the role of the state in the provision of public services is appropriately drawn.
1330 Again, my noble friend Lord Mancroft, was the first to emphasise the control of public expenditure as did other speakers, especially my noble friend Lord Archer of Weston-super-Mare who, in his own inimitable style if I may say so, stressed those problems. The Government have set up a long-term spending review under the Chief Secretary to the Treasury which will eventually extend to all areas of government. It is currently examining health, education, social security and the Home Office. It is exploring the question of whether the Government are currently doing much, or concentrating scarce resources in the wrong areas. That review, together with our firm commitment to bring down public spending as a percentage of GDP—a commitment that was underlined by the new system of public spending control introduced last year—will ensure that in the 1990s, as in the 1980s, the Government will not spend more than the country can afford.
In a most interesting speech, the noble Lord, Lord Holme, spoke about the importance of utilities and the lack of competition. However, if I may say so, I believe that he missed one aspect of what the Government believe to be developing competition; that is, the competition between different types of fuel for energy production. What we need is a level playing field. We believe that competition between different fuels on such a level playing field will produce the best protection for consumers.
In that context, I am afraid that I cannot resist a reference to the electricity industry. It is also important to recognise that the privatisation of the electricity industry was set up with a very significant transitional period and that period was of course established particularly because we recognised—and, perhaps, this part was well thought through—that the coal industry would have considerable difficulty in adjusting to the new situation. In some ways, part of the problem has been that competition has come too fast; that is, before the industry would necessarily be able fully to cope with it. That is an important addition to the other comments made by the noble Lord.
The noble Lord, Lord Holme, also asked me about the White Paper on science. I remember one of my noble friends from the Front Bench saying earlier in the week that that would be published soon. When pressed hard—I think extremely hard—he said that the word "soon" meant soon. I do not think that I can add anything more to what he said. However, as it has now been said about four times, the noble Lord can take it that it will be published soon.
The noble Earl, Lord Halsbury, made a most interesting speech. I know that the House has listened to him over many years because of his great experience. I am very honoured to find myself president of an organisation of which he was president up to a short while ago. I listened to him with particular interest. The House especially enjoyed his explanation of the chaos theory. From my relatively short time in this Chamber perhaps I may say that, if any group is admirably suited to impose order on the chaos of politics, it is your Lordships.
1331 I was very pleased to hear the contribution made by my noble friend Lord Vinson. I remember him starting up his small business in Guildford when I started up my own not many miles away. The difference was that mine remained a small business rather longer than his did. But, nevertheless, my noble friend was right to talk about deregulation. I can tell him that the Government are very serious about the matter. I thought that some of my noble friend's suggestions as to the practical way in which we might approach some of the problems, especially his suggestion about the way that the Inland Revenue approaches some of them, were well worth while. I shall draw them to the attention of my right honourable friend the President of the Board of Trade who, as. I am sure my noble friend knows, has set up seven task forces from the private sector which are at present studying about 7,000 regulations on the private sector to see whether they are appropriate in this day and what can be done about the situation. The task forces have the duty to report to the Prime Minister every eight weeks.
My noble friend Lord Dundonald was quite right to stress the need for more real venture capital. I think it is fair to tell my noble friend that there is more than there used to be. However, I recognise the problems. I was a Minister in the Treasury working with the late Lord Ridley of Liddesdale when we devised the BES scheme which my noble friend talked about. I believe that that measure has achieved some good in the area of the creation of venture capital. But I also think he was right to say that over the years too much of the capital went into the kind of projects that we did not have at the forefront of our minds when we were setting up the scheme. These matters are not my direct responsibility, but I shall pass on the comments of my noble friend to my right honourable friend the Chancellor of the Exchequer.
As regards my noble friend Lord Chelmsford I was a little out of my depth. When I was at the DTI I was the chairman of a committee that was called the Focus committee. I believe I was a Minister in that department for only six months, and I spent five of those six months trying to find out what I was supposed to be doing on that committee and what the committee was supposed to be achieving, before the noble Baroness, Lady Thatcher, moved me away. However, that does not mean to say that what my noble friend said was not important. He demonstrated another factor that I have learnt in the year I have spent in your Lordships' House. Your Lordships appreciate noble Lords who speak from real knowledge of a subject. Today my noble friend told us about the application of new technology in the industry that he knew. He described how that new technology could be adapted in other fields. I am glad to hear my noble friend tell us that my colleagues in the relevant government departments know his views and appreciate them.
It will be clear from my remarks that although I believe the role of government to be limited, I think it is vital that the Government should manage our economic affairs so that inflation is low and people can 1332 conduct transactions with confidence about the value of money. The Government need to keep a firm control on public expenditure so that the wealth-creating sector does not bear an undue burden. The Government need to invest public spending where it will do most good—in capital projects for the future and in the training and education of young people and the workforce. The Government need to widen the market sector and strengthen and protect competition within it. We must make our markets more efficient and flexible, removing unnecessary regulations and state intervention.
We must encourage enterprise, particularly on the part of small businesses and the self-employed. I agree with my noble friend Lord Wade of Chorlton that small businesses form a vital part of our industry. Some 400,000 new businesses were started in this country even in 1992, which was a depressed year. One can see the contribution they make—I am confident they will continue to do so—to the economy as we move out of the recession. We must continue to ensure that Britain can compete with the best in the world in the years to come. These aims are the basis of a strategy which this Government have been following throughout the past decade and which we shall continue to follow into the next century.
§ 6.23 p.m.
§ Lord Mancroft
My Lords, we have had a wide-ranging debate. I am grateful to all noble Lords who have taken part in it. It was too wide-ranging for me to attempt to pull together all its threads, even if I had the inclination to do so. I thank my noble friend the Leader of the House for the courtesy he showed me in answering the debate today. I, too, heard with pleasure the speech of the noble Lord, Lord Desai, delivered from the other side of the House. However, my pleasure is tinged with a little sadness that none of his noble friends felt able to take part in what is after all an extremely important debate.
The noble Lord, Lord Ezra, on the Liberal Democrat Benches made a most telling remark when he pointed out the consensus from all sides of the House on the huge range of subjects we have covered today. That range was added to by his noble friend Lord Holme of Cheltenham in discussing the balance of payments problem. That matter was not directly stated in the Motion but it undoubtedly needs to be carefully considered.
If I take one thing away from the debate this afternoon, apart from Lord Halsbury's dictum about order arising out of chaos—like my noble friend the Leader of the House I found that statement comforting—it is the advice that my noble friend Lord Oxfuird gave when he mentioned an amusing verse concerning Lord Finchley. I believe it may be unwise to change a lightbulb! I shall follow those instructions very carefully. When, as we do it again, as the noble Lord, Lord Richard, put it, and create a huge industrial trading base as we had in the past and could have again—I agree with the noble Lord that we will have it again—I shall know when we have arrived because we shall have two dustbin collections every 1333 day as is the case in Singapore. The noble Viscount, Lord Oxfuird, mentioned that. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.