Wealth Creation and Social Cohesion

HL Deb 21 February 1996 vol 569 cc1058-118

3.6 p.m.

Lord Dahrendorf rose to call attention to the Report on Wealth Creation and Social Cohesion in a free society; and to move for Papers.

The noble Lord said: My Lords, perhaps on this Ash Wednesday I should stand before your Lordships as a penitent in sackcloth and ashes. Who knows? That may yet be my state after having heard those who have signed up to speak today. For the moment, my only embarrassment is that I have burdened your Lordships with the Report on Wealth Creation and Social Cohesion in a free society which, while easier to carry from the Printed Paper Office than some other reports that come before the House, is nevertheless a document of some length. I feel all the more humble and grateful that time has been found for this debate and I eagerly await all comments, friendly and critical, not least the maiden speech of the noble Lord, Lord Pilkington of Oxenford.

The commission which produced the report, and of which I had the pleasure to be chairman, was set up by the Liberal Democrat Leader, my right honourable friend Paddy Ashdown. It had eight members of varied backgrounds and persuasions but with a common concern to build on the strength of this country, thus to bring about constructive change. The report ranges widely yet its central point is simple. The wealth of the nation is more than conventional measures of economic growth tell us. The objectives of economic policy must take account of the longer term and the wider context, notably of social cohesion and political liberty.

Those are not optional extras, luxuries which one can conveniently forget when the going gets rough. They are essential ingredients of sustained and lasting prosperity. The conventional measures of growth, gross domestic and national product, have proved valuable and useful. Economists and statisticians have long been aware of their imperfections, but for decades GDP/GNP figures gave us a good indication not only of where our economy stands in relation to earlier states and to other countries, but also of how people feel about their economic circumstances.

However, more recently, the two, measured growth and people's perceptions, have drifted apart. The first cause of such change was the discovery that GDP growth can have destructive side effects on the human habitat, the environment in which we live. That was dramatically, if somewhat misleadingly, highlighted in the early 1970s by the report of the Club of Rome on Limits to Growth. Twenty years later we make another discovery. GDP growth can be accompanied by the deterioration of our social habitat—the cities and towns in which we live; our involvement with the companies and organisations in which we work; and the whole fabric of social relations.

This is not just the vocabulary of the softhearted—although there is nothing wrong with that—let alone a romantic protest against the challenging world of international competitiveness. Our report describes this world without sentimental frills. Companies have to compete in markets which are no longer contained by cosy borders. Information technology and the near globalisation of financial transactions have seen to that.

The word "globalisation" is as yet an overstatement, but internationalisation there is. It is an overstatement also to say that all sectors of economic activity are equally affected by the process. Internationalisation can become a fad, an excuse for strictly unnecessary processes of alleged efficiency gains which in fact lead to deteriorating services. But when all is said and done, competitiveness in the harsh winds of world markets is the order of the day, and it is an opportunity as much as a threat. The fact that this country has been eager to grasp the opportunity has given it an advantage over many other old industrial nations.

However, while some of our major European partners now struggle with the exigencies of competitiveness, we—in some ways like the United States of America—are faced with a new set of social issues. Three sets of them stand out. First, your Lordships have on several occasions rightly expressed satisfaction with the continuing decline in the unemployment figures. However, the figures are still high and they are oddly resistant to growth. Increases in productivity often mean that fewer people produce more. Thus we are suffering from what has been called "jobless growth". But the problem runs deeper. Many of those made redundant actually find new jobs, but these are often—as in the United States—lower paid, less secure and generally less attractive than the ones that were lost. Along with jobless growth we have imported the working poor. Perhaps these are but symptoms of a profound transformation of the world of work. Over time there may be ways for individuals, employers and social institutions to adjust to the new condition. Initially, however, such change is disturbing and disruptive. People do not know how to cope. They fear that things will get worse because they find that all aspects of their lives are affected by a sense of insecurity. Of course it is hitherto protected middle class people who are hit hardest. Can anyone be surprised that the feel good factor remains elusive?

Secondly, companies are more than profit machines. As employers, as purchasers and suppliers, and as centres of community life, they are the nub of a network of stakeholders. Shareholders can dispose of their assets; stakeholders are at risk of being disposed of themselves. Are we right to concentrate on shareholders to the exclusion of all others?

"In a society which seems to want instant gratification, may it not be time to restrain the virtually unfettered freedom of capital to dispose—if the price is right—of this country's asset base?"— [Official Report, 22/1/92; col. 888.]

These are not my words but those of one among us who knows the subject intimately, and who to my delight will take part in this debate today.

The noble Lord, Lord Laing of Dunphail, said that in a debate which called attention to the importance of, an equitable balance in industry between the interests of capital and all other stakeholders".—[Official Report, 22/1/92; col. 885.]

He initiated that debate in this House on 22nd January 1992. At the time many of your Lordships showed much interest in the subject. Even the Government Minister who responded to the debate—the noble Lord, Lord Reay—confirmed, that other stakeholders, apart from the shareholders—customers, employees, creditors, suppliers and the general public—have legitimate and important interests".—[Official Report, 22/1/92; col. 922.]

He added—as does the report which we are discussing today—that these interests are not fine weather luxuries. He said, at the same column of Hansard, Any well run company now knows that it has to recognise those wider obligations as a condition of its success".

That is the point. Sacrificing stakeholder relationships on the altar of shareholder interest has a cost to the public and to social cohesion which before long rebounds on companies and on the economy generally.

The third set of issues has to do with the great new risk to civil societies; the exclusion of important categories from the labour market, and from social and political life more generally. Long-term unemployment is but one form of exclusion. When priests of the Northumbrian industrial mission invited me to the North East, one took me to a number of homes—if that is the word—in the poorest part of Gateshead. I talked to one mother of three about the nearby Metro shopping centre, to which eager consumers are drawn from faraway places. She told me, "They have hired security guards there to keep us out". By "us" she meant the excluded. Of course that is not why security guards are hired but it is what the excluded feel.

The noble Lord, Lord Borne, who will speak later in this debate, has chaired a commission which has produced an important report on social justice. I find it easy to agree with many of its findings. There is, however, an important nuance. The word "justice" suggests redistribution. On the other hand the report on wealth creation and social cohesion accepts a wide range of inequality as long as every citizen is on board, as it were. What matters is not equality but inclusion. The excluded—the underclass, many of the young, certain single mothers, and some members of ethnic minorities—present us with a threatening problem. Their predicament is morally unacceptable. It also demonstrates that we are not living up to the professed values of a civilised society. Can we be surprised if more and more people do not take these values seriously and violate them at will?

The excluded will not march on your Lordships' House or even the other place; they will not form the core of a new social and political movement; but they are a daily indictment of a society in which the majority tries, and probably tries in vain, to pull up the drawbridge around its castle to keep the minority out.

So what are we to do? I cannot put it better than one of your Lordships did a few days ago: I do mind about this country … I mind about it doing well and about its prosperity and cohesion. We need to try and work out this odd paradox of changing enough to compete and prosper and deliver quality of life, while at the same time allowing people to know where they belong and who they are".

Thus, the Lord Privy Seal and Leader of the House, Viscount Cranborne, in that splendid publication The House Magazine of 19th February.

I add one point of critical importance which your Lordships may well wish to debate more extensively on another occasion. Like Lord Beveridge in his Full Employment Report of 1944, we have included the phrase "in a free society". That was not merely a conventional add-on. What the noble Viscount the Leader of the House called an odd paradox is even more complicated today. There are those who praise countries which have achieved competitiveness and social cohesion at a cost to political freedom. That is the "Asia that can say no", to cite one of its eminent representatives—say no, that is, to the West. If I may for once quote the commission report: We do not share this belief, indeed, we feel that it must be fought … We are convinced that wealth can be created in a [democratic] context, and that the cohesion of a civil and civilised society supports the constitution of liberty".

How then do we square this circle? There is no need to despair. Indeed, the necessary new directions are quite evident. It is the first steps which are difficult. Encouraging sustained long-term investment is one of the vexing problems of the British economy. It is all very well to be the enterprise centre of Europe, but worrying to think that that is in part the result of the availability and acceptability of high profits on the back of low wages and social costs and could collapse as quickly as it emerged.

Contrary to the views of some members of my commission, I do not believe that there is one single cause or a simple solution to short-termism. The pressure of pension funds and similar institutions on distributing yields to shareholders is probably the most important factor. At the same time, funds which are available for investment are obviously needed. Above all, attitudes will have to change, and few things are more difficult.

I have already spoken of stakeholders in relation to companies. The use of the wider term "stakeholder society" seemed to us important in relation to social exclusion. Every citizen belongs and must be seen to belong. Horrible as it is to admit the fact, it is not easy to see how all those who have fallen through the net already can be brought back in the near future.

However, we must cut the supply lines to future exclusion. That means a new approach to education and employment which takes account of the changing world of work. Individual learning accounts are one way forward, and I am grateful to my noble friend Lord Rochester for having supported the idea in the employment debate in this House on 7th February.

Then there is the need for a new approach to the welfare state. Entitlements must be safeguarded by a new balance of employer, employee and taxpayer contributions, and they must be transportable, namely, attached to individuals rather than jobs. We agonized over the question of compulsory contributions, especially in the light of my earlier comments on a free society. In the end we came down in favour of a degree of compulsion. It is good to know that in another place these ideas are now taken further.

A socially cohesive country needs certain constitutional arrangements, in the widest sense. I believe that much of economic and social regeneration is local in character. Strengthening and recreating local power are of critical importance. Perhaps directly elected mayors would be useful precisely because they would detract from the power of central office holders and even of Members of Parliament. Beyond local power there is the crucial function of that space in our society for which it is so hard to find an attractive name, the "third" or "voluntary sector", which is the lifeblood of civil society.

Above all, there is one pervasive theme in all the solutions on offer. We have to change our economic culture. One aspect of that change is the language of economic debate. It is just not good enough to identify the wealth of the country with a few narrow economic indicators. Adam Smith knew that when he described the "progressive state" as: a cheerful and hearty state to all the different orders of society", although we seem to have forgotten it. A wealth audit as recommended by the Commission on Wealth Creation and Social Cohesion which adds environmental and social data to traditional national accounts would be a step forward. It is, of course, only a part of a wider task.

The question is, can we be prosperous and civil too? The answer must surely be yes. It is my sincere hope that today's debate will make a contribution to that objective. I beg to move for Papers.

3.27 p.m.

Lord Laing of Dunphail

My Lords, I congratulate my noble friend Lord Dahrendorf, whom I greatly respect, on his excellent introduction and thank him for giving us an opportunity to debate this very important subject.

The title of the debate poses at least two important questions. How much wealth is requited to sustain the reasonable expectations of people in a free society? And how is it possible to achieve a proper balance between the creation of wealth and the quality of life necessary to facilitate social cohesion? Almost every day it is brought home to us that we are not creating enough wealth to meet the expectations of our society. Why? Because of our chronic addiction to short-termism. It is widely recognised that we underinvest, carry out too little training and spend too little on research and development, all of which are vital to future prosperity and future jobs.

With our history as a great trading nation, why have we become so shortsighted? No doubt there are many reasons but, setting aside inflation, I see two as being most important. First, as the noble Lord, Lord Dahrendorf said, too much money is paid out in dividends to institutional shareholders—absentee landlords—who give too little weight to the importance of research and development and training—the longer term. Secondly, there is the failure of management to explain to the workforce how much wealth has been created and how it has been distributed. In my view it is management's role not only to manage but to lead and to educate. More attention to both of those areas would lead to more wealth being created and thus to greater social cohesion.

I turn now to leadership, and I quote Field Marshal Viscount Slim of Burma: Leadership is of the spirit, compounded of personality and vision: its practice is an art. Management is of the mind, more a matter of accurate calculation, of statistics, of methods, of timetables and routine: its practice is a science. Managers are necessary: leaders are essential".

Leadership is just as important in peacetime as in wartime, but is not perceived as being so.

I had the privilege of being chairman and chief executive of United Biscuits for nearly 30 years. When I retired it was the second largest biscuit company in the world with a turnover of nearly£3 billion and employing over 30,000 people in the United Kingdom. I mention that only because, in the interests of internal cohesion, I spoke to approximately 20,000 of our employees every year on all shifts, in groups of 300 or fewer, explaining company policy, threats to job security, what the added value was and how it was divided. I believed that that would lead to trust and internal cohesion and therefore could make a contribution to external cohesion.

Your Lordships may be interested in the split of the added value or the wealth that we created. Over a very long period of time when our return on investment was about 21 per cent., 70 per cent. of the added value went to our employees. Only 1 per cent. of that went to those earning over£20,000. Twenty per cent. was reinvested back in the company; 5 per cent. went to dividends; and 5 per cent. to tax. I used the visual aid of a jug of orange juice to represent the added value and four glasses for its division. The picture was very clear. I pointed out that with the 70, 20, 5, 5 split .the only glass available for extra money for pay if it had not been generated was the glass representing investment. It is taking money for pay from that source which has proved so damaging to British industry.

I offered a contract to our workforce. If they agreed that the first charge on our added value would be 20 per cent. allocated to reinvestment in the company and to work such investment efficiently and flexibly, then the company would guarantee 70 per cent. of the added value to employees and job security until retirement after 10 years' service. This contract would be reviewed every five years or more frequently if there were some very compelling reason to do so. Such policies require constant reconsideration to ensure that they maintain a contemporary ring. The contract offered by my company was turned down for a number of reasons. However, I can assure your Lordships that it led to a greater degree of trust and cohesion within the company. If anyone is interested in the personnel policies of United Biscuits they are outlined in a book entitled A Clear and Simple Vision, copies of which I have placed in the Library.

It seems to me that if all company chairmen and chief executives seek the goal of internal cohesion as being something they can control, this will inevitably spread cohesion to the wider community. Without internal understanding and corporate cohesion we will not attain the goal of national social cohesion.

In the sessions with the workforce I also explained our ethics policy on which management had responsibility for briefing staff. Among other things the policy stated that we would pay our bills on due date. Not to do so is a form of stealing. I asked our auditors to let me know if they came across any deviation. If clearly stated and adhered to, such an ethics policy helps employees to be proud of their company. Having pride in one's work and in one's company is essential for internal cohesion.

I made clear to our workforce and to the City that the company was run for the benefit of all the stakeholders which included the shareholders. The shareholders come last in this sense. If a company is fully backed by its workforce, reinvests at the necessary level to keep it internationally competitive, trains well, leads well and educates well, the shareholders will gain a better return than if the dividend is paid at the expense of those things necessary to maintain a vibrant company in the long term.

If all this sounds like paternalism, then I believe in paternalism. Laing's law is that everyone longs to be loved. We have swept away paternalism, putting nothing of value in its place except a myopic emphasis on the bottom line at the expense of nearly everything else except top managers' pay. That cannot win hearts and minds.

If what I have said sounds too simplistic, we should remember the story of Naomen who went to Elijah to be cured of leprosy and was told to go and dip seven times in the Jordan. Naomen went away angry because he had expected to be asked to do something difficult. Short termism is a form of leprosy because in the end it is fatal while there are simple things we could do to banish it, as I indicated.

I referred to stakeholders. Stakeholders obviously include the community. Mark Weinberg and I were responsible for setting up the Per Cent Club whereby 300 companies gave a half per cent. or more of their UK pre-tax profits to the community in one form or another. My company gave 1 per cent., or approximately £1 million per year. We seconded 15 managers for three years or longer to various communities which proved a very worthwhile period of training for them and was certainly welcomed by the communities. This meant that our management became involved in helping communities to help themselves. Communities do not want money alone. They welcome leadership from people intimately connected with their area.

Everything that I have said, I believe, would help to create more wealth and lead to a greater sense of belonging and from there to social cohesion. I believe we might all do well to remember the story of Naomen.

3.37 p.m.

Lord Borrie

My Lords, last year there emerged two publications under the name of the noble Lord, Lord Dahrendorf. One is the Report on Wealth Creation and Social Cohesion in a Free Society which we are discussing today. Given the amount of time we have, it is just as well that we are not discussing his other major work, The History of the London School of Economics. But there is a link. The link, I believe, is the late Lord Beveridge. The noble Lord described the late Lord Beveridge in his history as the greatest director that the LSE had. Lord Beveridge was, of course, also a great proponent of social cohesion, social solidarity and social welfare. In the days of the Second World War a special edition of the great report on social welfare which was published in 1942 was sent out to armed forces throughout the world. That report caught the imagination of the people, whether serving in the forces or otherwise, because it promoted social solidarity and gave people the feeling that solidarity—which had enabled them to fight and in due course win the battle against Hitler—could also be engaged in to achieve a fairer and more just society after the war ended. The post-war Attlee Government did indeed carry out the Beveridge belief that this was a time for revolutions and not just for patching, and social cohesion and welfare were established. Until quite recently, we have come to take them for granted.

But what do we see today? I do not think that we see very much social cohesion when one-third of our children are in poverty; one in five young men of working age and men in their forties and fifties of working age are not working; when one in seven of 21 year-olds are barely literate; and 1 million of our pensioners are having to seek income support. Of course, there is another unknown figure; namely, the number of those pensioners who are too proud to stand the stigma of applying for income support.

The Dahrendorf Commission, the Commission on Social Justice, which I chaired and to which the noble Lord has kindly referred, and another report which has not so far been mentioned—the Rowntree Report on Income and Wealth—all documented in the course of last year the widening gap between the rich and the poor. Each of those reports makes the very vital connection for the debate today between social injustice for a significant minority and economic disadvantage for all of us and for the country as a whole.

Your Lordships may recall that one of the members of the Rowntree inquiry was Mr. Howard Davies who was then director general of the CBI and is now deputy governor of the Bank of England. On the very day that the Rowntree Report was published, under his own personal byline he published an article in which he wrote that when growing numbers of people become detached from the economy—excluded, to use the noble Lord's word—that represents a significant waste of resources and increases other social costs in the health service and the criminal justice system as well as the social security budget.

The Beveridge plan of 50 years ago never intended that welfare should be a way of life. Today there is a great need to get people off welfare into paid work wherever possible. Hence the need—and it is impossible in the time available to elaborate any of these points—to ease the transition between benefits and paid work, to raise earnings disregards, to improve childcare provision and to promote active labour market policies, including the training that is so obviously necessary.

The creation of a two-nation Britain, a divided Britain, and the absence of social cohesion today can most obviously be seen in the areas of heavily concentrated long-term unemployment in so many of our major cities. They are simultaneously areas of low educational achievement, housing squalor, youth unemployment and limited choice of shopping and financial services. In the words of Professor Donnison of Glasgow University, they are "landscapes of despair" where, as some people say, even the rottweilers have to walk out in pairs.

Here the need is to address the problem of unemployment within a larger programme of community regeneration. We need to mend the social fabric that has so obviously been torn apart. As the noble Lord himself recognised in his speech today, it is not just a matter of economic proposals, important though they are. It is not just a matter of the issues to which the noble Lord, Lord Laing, has referred, important as they are. I refer to, and quote, the words of Dr. Tony Gibson who has worked in one of those areas of multiple deprivation; namely, Meadowell in Newcastle-upon-Tyne. He said that, economic and social decline can be reversed but only by using the untapped and potential skills of local residents".

It does not just come about because of more general economic regeneration in the country as a whole. Restoring social cohesion needs both changes in national policies and a bottom-up approach to a new partnership whereby central and local government share power with people living in the areas and through a number of tangible, albeit small, projects that have an immediate effect on people's quality of life.

I am most grateful to the noble Lord, Lord Dahrendorf, for initiating a debate on a report which has done so much to focus thought on the essential values of social cohesion.

3.45 p.m.

The Lord Bishop of Chester

My Lords, I am grateful to the noble Lord, Lord Dahrendorf, for his speech today and for his report. Had I been in a place of less decorum, I would have liked to stand on my seat to cheer the speech of the noble Lord, Lord Laing, because it was sheer practicality in the marketplace of Christian principles; and I rejoice in that.

I follow the line which the noble Lord, Lord Borrie, has taken. First, I need to say that the Church does believe in wealth creation. Very often there are suggestions that it does not. Perhaps I may quote from a speech made by the Archbishop of Canterbury to the Manchester Business School a year or so ago in which he said: Wealth creation is part of God's plan, inherent in the nature of his creation and as such a high calling".

He went on to say that, if the wealth is not created it cannot be spent on overcoming the appalling problems of world poverty and environmental degradation".

Yet we would wish to say, as has already been said today, that there is an enormous moral responsibility, not least, as this report shows, in the social impact on people.

Rabid individualism and greed in wealth creation destroy the social balance of society. But responsible wealth creation has to be concerned, as we would all agree, with the whole of society. Again the Archbishop of Canterbury said: We are all responsible for assessing continually from a moral viewpoint the overall results of seeking to create wealth within the current framework of laws and incentives".

Therefore, we welcome warmly the proposals in the report of the noble Lord, Lord Dahrendorf, that call, first, for a, new language of public debate about economic policy … which adds wider notions of wealth and of social well-being to traditional measures of growth".

Christians have a particular concern to stress the values of community and social cohesion. We believe that no one should be excluded from the communities to which they rightly belong, whether they are relatively small local communities or the community of the state. Made in the image of God, all people must be of equal worth before God. We stand firmly by that. We may not treat some as of more value than others. The evidence of social exclusion offered in the report of the commission led by the noble Lord, Lord Dahrendorf, and elsewhere must be cause for serious concern.

For many, insecurity of employment and income can be a very isolating, alienating experience. The report indicates that very clearly when it states that, the decline of full-time 'tenured' work, the emphasis on flexibility and competition, and the emergence of an excluded 'class' is creating an insecure and fractured society with fewer and fewer shared values and common interests. Social cohesion is under stress".

I see that first-hand in my very large diocese which stretches across the north of England from Birkenhead through one-third of Merseyside across to Stalybridge in the Pennines. I find that there are enormous differences. There are areas where there is very low unemployment. Indeed, one prosperous town has only 5 per cent.

unemployment, while in other areas there is well over 50 per cent. unemployment. We are involved in those different areas.

A little while ago I was instituting a new incumbent and it was in one of the depressed areas of Merseyside in my diocese in the Wirral. In my sermon I addressed the congregation and said: "One of your great concerns must be to reach out to the unemployed in this area". After the service was over I was surrounded by a large section of the congregation. They said: "We are the unemployed. There are only three people who worship in this church who are employed and one of them is the vicar". Seeing that on the ground in the eyes of people, I find it a worrying situation.

I was visiting another incumbent in the same area, Merseyside, who handles a large, soulless estate. He is a godly man, one of the finest priests I have in my diocese, of utter integrity and excellent in biblical exposition. He took my breath away when he said: "In this parish, as I visit and meet people and share with them, I see those who are putting in false returns for benefits. If I were in their position, I would do the same". That raises large questions. It takes one's breath away because there was a man empathising at the ground level where he lives with people in that situation.

It is the importance of community and social cohesion and concern about the divisive effects of unemployment that, noble Lords will be pleased to know, have led the Churches to set up their own inquiry into unemployment and the future of work under the auspices of the Council of Churches for Britain and Ireland and the leadership of the Bishop of Liverpool. In that way, the Churches will contribute further to the consideration of issues before us today. The working party will examine the topics of low pay, social security benefits, unpaid work, the community and the notion of the work ethic. The inquiry hopes to report late in 1997. We believe that the Churches' close contact with all sections of society—the Church is everywhere—gives them both a perspective and a duty to examine such large questions and to engage with the effects of social change and the moral issues arising from them.

In bringing attention to the subtle relationship between wealth creation and social cohesion, the noble Lord's report also brings attention to the need for men and women to be creative and productive in order for them to feel included and willing to participate fully in the life of society. Indeed, the very marks of humanity that we share in the image of God include creativity and the ability to stand outside ourselves to make moral and responsible decisions. As human beings in community, we must nurture interdependence and a sense of mutual obligation. In that way, we will also be nurturing the values of the Kingdom of God. I welcome the report.

3.52 p.m.

Lord Pilkington of Oxenford

My Lords, I feel honoured that I can make my maiden speech on the occasion of this imaginative and stimulating report. As we have all seen from reading it, it is a panoramic report which looks at a wide range of national life and suggests large solutions. I hope that noble Lords will excuse me if, in the spirit of Ash Wednesday which has been mentioned, I look at present realities rather than future dreams, at little acorns rather than the large oaks described in the report.

I am worried as to whether the present structures of education can support the imaginative vision that the noble Lord, Lord Dahrendorf, has put before us. 'That is the idea of individual learning accounts; an idea where every citizen has an educational bank account and cashes it in throughout his life, undergoing various training courses, adapting to a rapidly changing world. Such a vision demands that those courses are there, that there are institutions to support them and qualifications that are highly valued in the community at large. I wish to stress that the great weakness of our education system lies in its vocational provision. Unless that is improved, then the individual learning account holders will have nowhere to cash their vouchers.

Why is that so? I could suggest a multitude of reasons for our failure in vocational education. They go back a hundred years or more, but I shall only mention two. First, for too long we placed too high a value on apprenticeships. When many other countries in Europe had abandoned traditional apprenticeships, this country regarded them as the best way of training a workforce. One of the most horrific chapters in English educational history is seen in the minutes of the board of education of the first three decades of this century when vocational courses were deliberately downgraded in the interests of apprenticeships.

The second and possibly more important reason for the failure is that education in this country has become an ideological battlefield. Ideological battlefields are not good scenes to achieve progress in education. In the last century, French education was almost destroyed by the bitter battles between Church and state. We are doing the same in our own time.

We should be humble enough to look at the vocational provision of our continental neighbours. Though we may criticise Europe in many ways, I say dogmatically that in that area they have got it right. As many noble Lords know, the system there is simple. There is a two-route system post-16 years old. The age group choose whether to go to specific vocational colleges, part-time or full-time, or to gymnasium or lycée. On the vocational side, there are highly valued qualifications at the end: the professional baccalaureate in France and similar qualifications in Germany and the Netherlands. Have you ever seen a plumber in England put his qualification on the side of his van? Go to Copenhagen and you will see that that happens.

More important, there is parity of esteem and not jealousy between the gymnasium and the lycée and vocational colleges. I beg us to take a look at the system if we are to solve the problems which the noble Lord outlined in his report. I point out, first, that the continental system is valued equally by the Left and Right of the political spectrum. I say again that unless we can get a consensus over educational matters in this country we will be the poor man of Europe as regards education.

Secondly, the system ensures that more of the age group post-16 are in full-time training. Thirdly, the system would meet many of the worries of the noble Lord, Lord Dahrendorf, regarding the underclass because we would offer institutions that could meet their needs. I say this as the one element of controversy in my maiden speech, and many noble Lords may disagree: I have grave doubts whether one institution can train people ranging from brain surgeons to plumbers. They are both equally valued but need different styles of training. I also doubt whether one examination can be satisfactory for brain surgeons and plumbers at the age of 18. That is not the case anywhere in Europe.

I admire much of the vision of the report, but I urge that we should be pragmatic. We should try to reduce the political controversy in education and produce a structure that will support all the people of our country.

3.58 p.m.

Lord Beaumont of Whitley

My Lords, on behalf of the whole of your Lordships' House, it is my great privilege and pleasure to be the first to congratulate the noble Lord, Lord Pilkington of Oxenford, on his informative and helpful maiden speech.

I am a very suitable person to offer congratulations since I was the first of the so-called inferior clergy to be made a Life Peer. In fact, I may have been the first of the inferior clergy to be made a Peer. The Clerks can possibly go back further than that, but certainly one would have to go back a very long way. Indeed, when it was suggested that I should be made a Life Peer, considerable doubt was expressed, since the inferior clergy could not become Members of the House of Commons, as to whether they could become Members of the House of Lords. Jeremy Thorpe very cogently pointed out that, since the Government had got into the habit of making Life Peers of retired archbishops, the whole idea that clergy can be Life Peers in the House of Lords was then accepted. So I pioneered the way for the noble Lord, Lord Pilkington, and I am delighted to be able to welcome him, particularly after that extremely helpful speech on the subject of education in this particular context. We look forward very much to hearing him on this and other subjects in the years to come.

Noble Lords

Hear, hear!

Lord Beaumont of Whitley

Ruskin was one of those who best defined wealth. He said that "wealth" consists of things that are in themselves valuable, "money" consists of documentary claims to the possession of such things, and "riches" is a relative term expressing the magnitude of the possessions of one person or society as compared with those of other persons or societies.

Wealth is wealth, regardless of what other people may have, and I can be wealthy without other people being poor. Wealth implies well-being, and no society can be wealthy which has loads of money in the bank balances of the rich together with unemployment and life on the modern equivalent of the breadline for 25 per cent. of the population. That is why it is very important that we continue in this debate to discuss "wealth", and not either "money" or "riches".

To say that wealth is important and is a proper measure is not to say that it is the good that we ultimately seek, whatever that may be for each one of us. Wealth is merely a prerequisite to that degree of security, food and equipment we need in order to embark on the search for our own particular good. To use another terminology from one of the previous books by the noble Lord, Lord Dahrendorf, it is the ability to have "life chances" that we need as citizens.

I shall not repeat the remarks of the noble Lord, Lord Dahrendorf, about the inadequacies of our present measurements of wealth and gross national product. However, certain faults are worth pointing out. The first is that costs that are borne by the environment and by society and are not considered capable of expression in monetary terms, are not deducted from the total, but actually contribute to it in the employment of people to clean up oil slicks, or even of undertakers.

The second fault is that the depletion of natural, as opposed to monetary, capital figures nowhere in the accounts. If you use up a mahogany forest—or, which is much more likely, destroy a whole diversified forest in the quest for a few mahogany trees—that depletion appears nowhere in the sums; whereas the increased price of mahogany arising from the subsequent mahogany shortage does.

The third fault is that if you make do and mend, or use second-hand goods, those wealth-saving activities do not register; whereas if you put them out for the dustmen to cart away and buy new ones, the latter purchases do register, thus ensuring over-consumption. How many of your Lordships have cast away something that was broken when you were quite certain that if you had had a little more skill or could have got hold of the right person, it could have been mended? If you take it to someone to be mended, you are told that it is not worth it, that it is much cheaper to go and buy a new one. It may be cheaper in terms of money, but it is not cheaper in terms of wealth.

Obviously, some more accurate measure of what we receive in satisfaction which also registers depletion of natural capital is needed. There are various alternatives available. The "genuine progress indicator" produced in San Francisco, or the "index of sustainable economic welfare" pioneered by the Stockholm Environment Institute of which versions have been produced in this country. This would take into account the value of household labour.

For instance, Hazel Henderson has produced a diagram rather like a layered cake showing how real wealth is made up. The bottom layer is the natural environment, which must be preserved at all costs. It consists of resources and of sinks for the absorption of waste. The next layer up is a co-operative social economy: unpaid housekeeping; parenting; mutual aid; the voluntary sector; and production for use—for example, allotments. Neither layer employs anything but the minimum of actual cash. Above that we come to the still social but now monetary economy: defence; healthcare, including sewerage; schools; infrastructure such as roads and railways; and the administration of government. Only above that massive area comprising four-fifths of our life, do we come to the private area: employment; investment; savings; and commercial consumption. Much of that last layer is extremely fragile. The wealth consists mainly in the lower layers.

We are often told that the important thing in economic life is improving domestic productivity. But if that means merely producing more goods—which may be wanted but are not necessarily needed—more cheaply and with fewer workers, thus achieving more unemployed, poverty and crime, it is hard to see who is the gainer, except for a few fat cats. The economists say that is none of their business; it is the job of politicians to distribute the wealth and they merely tell people how to gain it. In fact, however, there is little or no extra wealth to distribute. There is only money. Whereas we are all in the first instance grateful if we are the recipients of some extra money, money is no substitute for wealth, as some winners of the National Lottery could tell us.

To gain true wealth for the planet we need to ration our mining of non-renewable resources, administer our agriculture and forestry on a strictly sustainable basis, maintain biodiversity, conserve non-renewable energy, make the most by education and training of the enormous capabilities of mankind, and encourage an ethical climate which will persuade us to diminish the extremes between rich and poor both nationally and internationally.

If we are to have more employment and stop increasing unemployment throughout the world, it is necessary to look more closely at the nature of unemployment. When we do so, what becomes immediately apparent is that there is no question of there not being enough work to do. It is the nature of the priorities of the work that is changing. The problem is that we have not found an economic mechanism for switching money into the new priorities.

The priorities 40 and 50 years ago had to do with the production of goods. How did we produce enough cars and dishwashers to meet the need, and when the demand flagged, how did we stimulate demand? Now there are more cars than society can deal with and many more people have dishwashers than need them.

The new priorities are obvious. We need teachers at a high ratio per pupil; we need nurses in hospitals and experts in preventative medicine in society; we need an increasing number of people who listen intelligently to their fellow human beings and who have learned enough about human nature and the ways of the world to help those who find modern life difficult—which is almost everybody—to pick their way through it.

These are no new needs. They used to be met by the extended family, at one remove by the GP, by the local pastor, and even on occasion by your friendly neighbourhood bobby. Now the cult of capitalist individualism has dispersed the extended family and overloaded the GP and the bobby. If we are to have a civilisation we have to put it together again, although it will take a different form. This involves recognising the roles as valuable and ensuring that those who perform them do not starve but can survive in modest comfort. A society where that happens, to use the important terminology of the noble Lord, Lord Dahrendorf, is an inclusive one and certainly a cohesive one.

Of course it would have to guard against the dangers of bureaucracy and over-regimentation but it would cultivate the values of conviviality. Above all, it would recognise the different contributions made by different temperament types and different natural gifts. It would train people to work together in ways which respected each other's gifts and needs. The most obvious and simple example would be the formation of teams using the talents of both extroverts and introverts with understanding. That this may sound somewhat Utopian shows just how far our educational system lags behind our understanding of human potential. That it will need a massive transfer of money and a certain transfer of wealth over a period of time is undeniable. But the difficulties have been wildly exaggerated, largely by those who would be at the dispensing side of the transfer. To put it at its crudest, Professor Peter Townsend calculated not all that long ago that 17.4 per cent. of income transferred from the top 20 per cent. of the population, in income terms, would double the incomes of the bottom 20 per cent. No political party is really tackling this problem at all. The only one section of the Conservative Party which has it in its tradition to do so is the so-called "one nation" side, a phrase coined not from the one nation itself but from the ''two nations" of Disraeli's Sybil which still exist in our country today.

The obvious machinery for starting the movement is a "citizen's income" which would ensure a minimum income as a right for every citizen. The noble Lord, Lord Desai, will perhaps talk about that. It is an idea already widely accepted. There appear to be two objections which prevent it going further. One is the cost and the unreadiness of the rich to shell out for others. The other is the suggestion that it creates an entitlement mentality instead of an obligation mentality. That comes richly, I may say, from some of those who advance it but, in the context of which I am speaking, it loses most of its validity in that a civilisation aware of the need for sustainability—and our Government are committed to sustainability—will have taught itself an obligation mentality anyway. The inclusive society is one which will take seriously the needs of others. The word "needs" is used advisedly and strictly. It is not a question of gratifying people's desires but of assuring them of the possibility of leading lives as whole human beings.

4.13 p.m.

Lord Roll of Ipsden

My Lords, I should like to follow the noble Lord who has just sat down in congratulating the noble Lord, Lord Pilkington of Oxenford, on his maiden speech. It was a most interesting speech, if I may say so, on an extremely important subject. I am all the more happy to congratulate him because I particularly agree with what he said in comparing our educational practices with those on the Continent which we are often only too ready, as with so many things, to dismiss out of hand.

I join with other noble Lords in thanking the noble Lord, Lord Dahrendorf, for introducing the debate and for the report which was produced by a group of independent experts under his chairmanship. Despite its modest size and appearance, it is a most important document and is, I believe, an extremely valuable addition to a happily growing volume of studies, referred to in the report and mentioned also by the noble Lord, Lord Borrie. It enables us increasingly to look at the connection between the wider social issues raised today and in the report and the more mundane, if you like, nitty-gritty task of wealth creation.

Although much has been said about inadequacies in our real surroundings, particularly by the noble Lord, Lord Borrie, one might have gained the impression from today's debate that at any rate intellectually and in the perception of the intimate, indeed the organic, connection between social cohesion and wealth creation, everything is well. I wish that were really so. Alas, it is not generally so and, curiously enough, from time to time every generation or every second generation has to try once again to sweep away old fallacies and old prejudices. The report should enable us to do that. One of the reasons why it is particularly apt today is that in recent years the emphasis put by opinion formers and policy makers in regard to economic activity has been very much to stress the need for wealth creation and for macro and micro-economic policy to be directed to that end. I entirely agree with that. It is entirely right and perhaps necessary to put the emphasis there. But too often the urge for individual gain from the process has been extolled as the single most important or perhaps the only engine of wealth creation. Patently that is not the case. The urge for individual gain is natural. It may not always be approved of from a moral point of view, but it is natural and, I believe, a useful and necessary ingredient in the process of economic advance. However, to make it the exclusive engine and to address macro and micro-economic policy almost exclusively to that end is in the end counter-productive.

It has not helped to solve many of our problems and it is, in the end, not particularly conducive to wealth creation itself. When combined with such thoughtless statements as there is no such thing as society

which fly in the face of the facts of our human habitat, it produces excrescences which are not only aesthetically and morally repugnant but plainly stupid—excrescences such as "the yuppie culture" or the "I'm all-right Jack" attitude. Alas, these things do reappear from time to time. Sometimes it is argued that the best way to redress the balance is to introduce a greater element of compassion into our affairs. Compassion, or sympathy, as Adam Smith called it in his famous list of six wellsprings of human conduct, is a very noble and a very virtuous sentiment. But it is not the issue. I am happy that the report produced by the commission of the noble Lord, Lord Dahrendorf, does not really approach the subject from that point of view.

It approaches it in a much more rational and hard-headed way in producing a case for the connection between social cohesion and wealth creation.

The report seems to me very relevant to at least two issues plaguing us today. I want to mention particularly competitiveness and the welfare state. As regards competitiveness, one would have thought that we had long since abandoned the fallacy that poor working conditions, the absence or inadequacy of public services and the absence or inadequacy of social provisions somehow or other represented a low unit cost of production. Of course they do not do anything of the sort. We have long since realised that when this country ceased to be the workshop of the world in the last century and when the great new industrial powers of Germany, the United States, France and even Italy arose, it was not by maintaining our dark satanic mills, child labour or the Victorian sweat shops that we met the new challenge.

I remember well when I was an undergraduate in the late 1920s and then later when I was a teacher and researcher in the early 1930s people were at a great loss to discover what was the real cause of the economic difficulties of that time, particularly our lack of competitiveness—very similar to today. You could pay your penny and take your choice. Was it the absurdly low wages in India that were destroying our textile industry? Was it the inventiveness and talent of Japan in imitating western manufactures that were causing the troubles in many of our manufacturing industries? Or was it the high technology of Germany in the chemical industry, the electronics industry, and steelmaking that was our problem? All those very different reasons were put forward.

It was said too at the time that if only every Chinese worker could afford one extra pair of blue cotton trousers Lancashire would be saved. Indeed, in a manner of speaking that is what happened—not exactly with blue trousers, but it happened. So when we look at competitiveness today, we must be extremely careful—alas, one often is not—especially when considering the growing industrial countries of Asia, in putting the emphasis not on the persistence of low wages and poor working conditions here and there but rather on the increasing standard of living in those countries (for example, China, to a great extent, India, and the countries of south east Asia and the Pacific) as the ultimate way in which we can resolve those problems.

The report is equally variable in approaching the problems of the welfare state which so agitate us today. I have often wondered whether the words "welfare" and "welfare state" have outlived their usefulness and whether they are perhaps counterproductive. They smack somewhat of the "do-gooding" attitude, of which I spoke earlier, so often applied whenever anybody mentions the words "social" or "social cohesion" in connection with economic activity. Moreover, the present debate on the welfare state too often lumps together elements of very different character which, to my mind, require a different approach.

The great public services of health and education, for example, should not be regarded as a cost only. On the other side of the balance sheet must be set lost working hours, lost productive powers and lost security and the essential basis of putting one's best into one's work. Obviously, the financial cost to public funds is much more easily calculated in one case rather than the other. But it is very important to consider those other issues. That is without prejudice to the continued examination, review or revision of arrangements so as to make them as effective as possible but at the same time as economical as possible.

The social provisions, the so-called transfer payments—the support of the old, the unemployed and the poor—admittedly present a more difficult problem. But again a great deal of work has been done—for example, that in his later years by James Meade, one of our most eminent economists and one of the very few British recipients of the Nobel prize who has only recently been taken from our midst. Some of his work is sometimes dismissed quite wrongly as utopian. In all kinds of ways he tried to discover arrangements, practices and even legislation by which such transfer payments could be made as effectively and as economically as possible and above all so as to prevent the kind of social divisiveness which sometimes arises when those who happen to be in work and earning a modest income—both, alas, rather precarious these days—resent having to support through the tax system those who are out of work or otherwise in need of support.

In conclusion, let me refer to one other subject which I know is highly controversial. It is not directly included within the subject of the report we are debating but it has a certain family relationship with it; namely, the relationship between what we do here and what is happening abroad. Not so very long ago in certain quarters it was quite common to hear the view expressed that our social provisions and public services were far and away the best in the industrialised world, far and away the costliest, and therefore a great burden on our competitiveness. That was not true. The provisions in Germany, France and even Italy mostly were as good as ours and often better. The fact that those countries are now grappling with the same problems as ourselves should not dispose of the basic facts to which I referred. Certainly it should not be a cause for schadenfreude, which is not only an unworthy emotion but, in this case, a stupid one.

The economic problems of our best trading partners on the Continent are certainly of no comfort to us. Certainly, if they can solve their problems, we shall be all the better off, not only in solving our own problems but in our own economic activity. I fear that what distinguishes the way in which they tackle these problems is that they are trying to achieve a solution by consensus. Alas, consensus has become a somewhat unfashionable word in some quarters here. That is very wrong and not conducive to finding the right solution. For example, just the other day in Austria agreement was reached by the political parties and the trades unions on a package which will maintain social provisions of all kinds at a very high level but with some saving and with a budgetary package which, I assume, will be accepted by the Austrian parliament. In Germany the same thing is happening; I hope that they succeed.

Above all the report invites us to look with a fresh eye and an open mind at problems to which we have all too often given an instinctive and prejudicial answer. It should enable us to free our minds of what the 19th century sociologist Pareto called the "residues" in our thinking—the sort of sludge at the bottom of our minds of which only too often we dredge up obsolete answers to new problems.

4.27 p.m.

Lord Beloff

My Lords, the House will be grateful to the noble Lord, Lord Dahrendorf, for having initiated this debate. There are two reasons for that. First, it has given us an opportunity to hear the noble Lord's reflections on our economic and social predicaments, and it is always instructive for this House to hear his views. Secondly, it has impelled me, and no doubt other noble Lords, to read the report, which otherwise we might not have done. Having read the report, we have learnt something of great importance; namely, the extreme conservatism of the centre Left in this country.

The report makes statements with which no one can seriously disagree but it fails to look at matters which are a great deal more worrying than its authors appear to believe. That is possibly because, if they directed their attention to them, they would find that that collection of the intelligentsia who would be so welcome any evening to any dinner party in Islington do not like to think about ordinary people.

Let me give the House a few examples of what worries me. Yesterday, the inhabitants of New Hampshire put Mr Pat Buchanan, an isolationist and protectionist, at the top of their list as favourite for the Republican nomination. It may be a small thing; nevertheless, it is worrying. On a larger scale, a few years after we were proclaiming that the free societies had rolled back communism for good, there is hardly a country in the former ex-communist world—there are only one or two exceptions—which has not elected a communist or near-communist government. Someone reported from Moscow the other day that the one thing certain about the Russian presidential election is that they will elect a communist; the only question is what his name will be. That should make us think. Why would people want to go back to institutions which were rightly condemned as oppressive?

When one looks at this country—after all, we are supposed to be talking about our own fortunes—what worries me most (it has already been referred to) is the alienation of the young in particular, but of many sections of society, from the whole political process. The fact that eminent politicians believe that they must appear on stages with pop music bands—the very corrupters of youth—in order to stimulate political interest in the young, is a damaging reflection on our society and the way in which the young are brought up.

I do not go in for statistics; they are not my strong point. But I heard on the radio this morning the latest report from the Rowntree Trust which says that we in this country have too many two-income families and too many no-income families. There must be a relationship between those two facts.

It is a product of recent years that we have overlooked—I thoroughly agree with the noble Lord, Lord Dahrendorf, and his colleagues in this regard—the sense of what ordinary people mean by "wealth"; that is, security of employment, adequate shelter and adequate food. Those are the main requirements of civilised living. What do we find in our policies? We believe it to be more important to put a computer in the hands of every primary school child than to see that every primary school child is fed.

We find reversals of values. We dig up the streets of London, to do what? It is to enable us to watch more television channels as though four were not more than enough for any reasonable person. We invest large sums of money—not only we, but also other countries—in the latest development of information technology, the Internet. What does the Internet do for the ordinary citizen? It enables Mr. George Soros to make money; it enables Mr. Nick Leeson to lose money; but that is not much help if one is trying to bring up a family on a small income.

The Internet has "fringe" benefits, to use a fashionable term. It enables Chinese peasants to watch Dutch pornography and one may ask: should they be denied those simple pleasures? It is a symbol of the way in which we not only do not produce enough, but also devote so much of our energy and skill to producing things which are of the second order.

Much has been said about exclusion, and it is correct that the usual figure is four-fifths included and one-fifth excluded. The Americans are beginning to look at it in a different way, with 20 included and 80 excluded. That is the secret of Mr. Buchanan's appeal. Ordinary people feel that hard work and traditional values are not sufficient in a society, the direction of whose talents is dictated by a small cross-section indulging in what a famous sociologist once called "conspicuous consumption".

That goes very deep. It is important, as the noble Lord, Lord Pilkington, said in his maiden speech, to which we all listened with attention and pleasure, that technological skills should be more widely spread. The question is: what technology and to what end? People rarely point out that there are branches of industry of great importance in which we—this is true also of other industrial countries—have been a total flop. Why is it that residential buildings—tower blocks—which were built to such a fanfare of applause 30 years ago, are now being blown up, not by terrorists but by the ordinance of local government which first commissioned them? Is not that a reflection of our inadequacy in a major technology?—namely, the provision of shelter. Will that be in any way improved by the direction in which we are pushing technology in other forms?

I come back to the view that, if anything, the report underestimates the real difficulties that we face. There are various calculations as to how much extra residential accommodation of decent quality will be needed by the beginning of the next century. It seems unimaginable that we do not possess in this country the talent to design those homes and the people to create them. We have not found a way—this is true of all political parties, none of which has produced a genuine solution—of matching our human resources to our material needs. We shall certainly not bring about the civilised society to which the noble Lord, Lord Dahrendorf, referred, unless we begin by housing people properly.

We hear a great deal about advances in the biological sciences. Yet recent figures suggest that the world output of edible grains is actually falling at a time when world populations are still increasing. What are we doing with our biological skills? One can see that that kind of blockage makes it difficult for anyone seriously to advance solutions. What we need most in this country is not economics; it is the pen of Jonathan Swift. We live in a society which has had an absurd reversal of values; which has not found any way of absorbing into its bloodstream the important and valuable advances in our knowledge of the natural world which explains the advance of the global economy and the other structures with which we are confronted.

In the end it is the preferences of people that will decide. The Russians appear to feel that they would rather go back to a guaranteed roof over their head, a guaranteed meal, even of a poor quality, and guaranteed employment even if largely fictitious, than see the spectacle of a society dominated by the culture of western consumerism.

In our own society we have this alienation, particularly of the young, and I doubt whether the abstract and admirable, but still abstract, opinions and sentiments expressed by the authors of this report and by other noble Lords, are really going to trigger a new social consciousness. I agree with the noble Lord, Lord Roll, that we ought not to rejoice in the hardships which are now befalling our continental neighbours since the immediate economic repercussions will be serious for us. However, as these things are now happening in Germany it somewhat cuts the ground from some of the references in the report to what I believe was called by the noble Lord, Lord Roll, "consensual capitalism". It may be that all of us have got it wrong and not just the British.

Perhaps I may end on my usual Euro-sceptical note. The commitment of this report—admittedly, it was written as long ago as last July—to the Maastricht Treaty and all that kind of thing is very old-fashioned. That also is a feature of the past. I would argue that if one wishes to inspire in the younger generation of this country a return to the idea of public service and the public domain, one has to persuade them that if they attain political power through our political processes, through Parliament and elections, institutions will be created that do in fact make the decisions and are not subject to institutions in Brussels over which they cannot have, and never will have, control. There is a lot to be said for adding innate patriotism to an innate sense of social solidarity if we are to make any progress towards the goals which we all share with the noble Lord, Lord Dahrendorf.

4.42 p.m.

Lord Desai

My Lords, it is always a pleasure, and something of a problem, to follow the noble Lord, Lord Beloff. I start by apologising to the noble Lord, Lord Dahrendorf, that I may not be able to be here towards the end of the debate. I have an engagement elsewhere which I could not rearrange. We shall see how the debate proceeds.

I have always enjoyed reading the noble Lord, Lord Dahrendorf. He is my friend and he used to be my boss. As he knows, there is much in which I agree with him. A literature is emerging. Indeed, as the noble Lord, Lord Roll, pointed out, there is the report of the Commission on Social Justice chaired by my noble friend Lord Borrie, there is also the Rowntree Report and the report which is out today from the Policy Studies Institute. They are now describing a consensus, not on the solutions, but at least on the problems.

Therefore, I shall spend my time talking not about what I agree with but what I disagree with, because that will be a better use of my time. Perhaps I may, first, point out one or two major omissions from the discussion today. I shall mention them briefly.

First, the problems we are talking about are those of the rich countries. They are the countries which have 15 per cent. of the population and 85 per cent. of the resources. In these countries, after 50 years of continued prosperity, there is beginning to appear high unemployment. Everyone is talking about the end of work. Work has not ended. It has not ended for the Chinese, the Indians, the Malaysians or the Indonesians. That is not to say that there are not problems in the third world. There is a great deal of work going on out there. The last development report from the World Bank showed that the number of people in work is increasing. We must put into perspective the fact that these are serious problems but they are problems of the minority in the world and not the majority. The minority may have to learn to live in a different way, as the noble Lord, Lord Beaumont of Whitley, pointed out in his very interesting speech.

Secondly, I do not see raised prominently in the report the exclusion which happens in any case on grounds of gender and race. If one is to create a multi-racial and just society, those dimensions will have to be brought in specially and not just en passant.

The noble Lord mentioned GDP as a measure of wealth. His critique is well taken. A number of developments are taking place across the world in which people are adopting new measures. The World Bank has recently produced a report which takes into account an estimate of what it calls, "natural capital and human capital", as well as ordinary money capital. I have had something to do with the human development index of the UN development programme. It points out the non-income dimensions of well-being that the world should look at. The new economic commission has produced indices which emphasise natural and environmental considerations and so on.

In all these respects perhaps the commission is pushing at an open door. However, my problem is that, while all these measures are very good and tell us something, they will not solve our problem, which is capitalism. Its revival in a dynamic and vigorous form at the end of the 20th century was the least expected event of, at least, my lifetime. Over about 30 or 40 years, we have got used to a different kind of capitalism created by Keynes and Beveridge. That at least is the simple story. But I believe that we have forgotten what it means to be involved in seriously competitive capitalism which is innovative and dynamic. Indeed, our 19th century forebears would know it perfectly well.

As perhaps I have said before, today's world would be very familiar to both Karl Marx and Gladstone. It is a world in which governments cannot do very much, if anything. The costs of living in a dynamic market economy have to be paid in order to derive the benefits from that economy. Any cushioning that we may want to provide—because we are all very good people—has to be very carefully applied so that it will not disrupt the working of that market economy. It is easy to say, "a dynamic market economy", but its destructive forces are as important as its constructive ones.

Perhaps noble Lords have heard me say before that we have now entered an era in which wealth creation is no longer accompanied by job creation. Because in the market economy the number of jobs will shrink while wealth expands, we shall have highly skilled people employed in manufacturing, finance and other tradable services. That will leave a great many other people who have useful things to do, but they will not be the kind of things which will afford rising incomes.

The problem of redistributing income in one way or another from those who will have the good jobs to those without them, let alone those who will not have any jobs at all, is a central issue. If we do not face up to the problem of wealth redistribution, we shall have a continual erosion in our quality of life as well as an increase in the cost of the welfare state. Indeed, the welfare state is costly because it is mean, inefficient and niggardly and because the problems have not been thought through. I shall return to that later if I have time because the noble Lord, Lord Beaumont, has already mentioned my penchant for a citizen's income.

However, before I get into that, perhaps I should point out that where I profoundly disagree with the report is its critique of the British economy and especially the idea that something is wrong with the City and this country's financial structure. It is often said that we would all be much better off if only we could have a financial structure similar to that of many other countries. The paradox is this: the debate on the British disease has been going on for about 100 years, while in the past 50 years we have had the best growth rate of the past 200 years, historically speaking. Since the Second World War the United Kingdom has enjoyed a very high growth rate. It is true that there were two recessions in the 1980s and one at the beginning of the 1990s, but apart from that we have had a better growth rate than ever before. The City has been around for ages and nobody has been able to explain to me why, given the same City and the same educational institutions, we have somehow managed to get a much better growth rate now than ever before.

There is some confusion not only in the report but also in much other literature about exactly what are the longer-term problems of the British economy as opposed to its immediate short-term and cyclical problems. I believe that many of our problems are very short term in their nature. The noble Lord, Lord Roll of Ipsden, has recently written a learned book pointing out how many macro-economic failures we have had in the past 50 years. I believe that many of our problems are capable of simple solutions. They do not require drastic solutions. That may come as something of a surprise to your Lordships.

In particular, the paradox is that the UK's most successful "industry" is the City. It can take on global competition. It is quite the most efficient of our activities. However, everybody seems convinced that we should have less finance and more manufacturing. For the life of me, I cannot understand why. What does it matter how we make our living? All that matters is that we do make a living. Britain had an agricultural revolution and a financial revolution before it had an industrial revolution. Unfortunately, economics was born after the Industrial Revolution and as a classical economist I got stuck with a liking for solid things which labour can create. We have all been hung up on the idea that we should be nervous if we are not making solid things.

However, we would cause great damage if we unthinkingly tried to modify the City. I am not saying that it does not need regulation or that there are no problems. There are problems and they need to be thought out. But I do not believe that the problem with British industry is that we pay out too much in dividends and have private bankers serving on the boards of our companies. Each country has its own culture, as the report rightly points out. The UK has a different way of making its money and of having successful finances. Therefore, I do not think that we should swallow too easily criticisms about short-termism. Although there is a lot of short-termism in macro-economic policy-making, I do not think that we can go too far into that.

I part company with many of those who criticise by saying that the German or Japanese way of doing things is somehow better than the British way. After all, for the past five years the Japanese have had severe problems with their banking structure. The Germans are also having problems, although perhaps only temporarily. The problems facing the German and French economies do not relate solely to the social chapter. They are facing the problems which the British economy went through in the early 1980s. When it happens to less developed countries, it is called "structural adjustment". It is called "restructuring" here. It means that you have savagely to revise the employment structure of your companies to make them more globally competitive, and that means downsizing. There is no escape from it. The Germans will have to grasp that fact. Although it is a harsh thing to say, I believe that what we suffered in the early 1980s when the British economy had a severe shock may well stand us in good stead in the late 1990s in relation to many other countries.

Increasingly we shall have to realise that the creation of economic and financial wealth requires few people. We shall have to find ways of diverting some of that wealth so that we can employ people to do other things which are more socially useful.

As I have already spoken for 13 minutes I shall make only one or two comments about a basic income. I believe that the current welfare state is both wasteful and mean. Paradoxically, the solution to the problem is not to spend less; it is perhaps to spend more, but to spend it properly. Of the£90 billion that we spend on the social security budget—there are in addition health and education costs—about£60 billion goes on personal transfers under a variety of classifications. We have created many pigeonholes with different classifications with a benefits difference of only 50p here and there. We insult our citizens and invade their privacy while all too often discouraging people from claiming. I honestly believe that a universal citizen's income, expensive though it is, is the best solution to the problems of the welfare state.

I suggest that citizens should have an entitlement to income irrespective of whether they are employed or unemployed, old or young. That could fall within one's taxable income. That would help to tackle the problems of fraud and moonlighting. We also have to consider people in jobs which are dirty or low paid. All those issues become less important with a universal citizen's income, which would also solve the problems inherent in a minimum wage. A universal citizen's income would also mean that many people who currently do jobs just to get a little in income could spend their time doing worthwhile things for which there are no paid jobs available. There is much cross-party support for that idea, including from within the Conservative Party. I refer to Mr. Alan Duncan. Other supporters of the idea are, among others, James Meade and Sam Brittan. I think that its time will come, although it is not yet. I am sure that the Minister will ask whether my party is prepared to spend money on that. The noble Lord well knows that I do not speak for my party, so I hope that he will not try that ploy. However, I believe that we shall have to start thinking along those lines.

Perhaps I may say in tribute to the noble Lord, Lord Dahrendorf, that his report and that of my noble friend Lord Borrie have made us think seriously and adventurously about such issues, which is why I welcome this debate.

4.59 p.m.

Lord Holme of Cheltenham

My Lords, perhaps I may add my thanks to those of other noble Lords to my noble friend Lord Dahrendorf not just for a most readable and interesting report but for having promoted this debate to which there have been so many interesting contributions. It is a great misfortune to follow the noble Lords, Lord Beloff and Lord Desai, who speak without notes and hiss like firecrackers. I was taken particularly by the characterisation of the noble Lord, Lord Beloff, of the centre Left's conservatism. Fortunately, he redeemed himself by scrambling back to the right of us with his wonderful attack upon such new-fangled notions as pop music and the Internet.

The debate is timely. This is a country which once had a notably stable society, a successful industrial economy and an unrivalled set of international connections throughout the world. There will be no noble Lord on any side of the House who does not acknowledge that to some extent, as an economy and society, we are in the doldrums. If one reads the opinion polls, let alone trusts one's own judgment, there are low levels of self-respect and national respect in this country; there is every sign of shattered social cohesion; there are high figures of the brightest and best of our young people wanting to emigrate; and, on the margin, there are minorities which are by no means the same, both of the excluded, of whom my noble friend has spoken, and of the new barbarians who do not share the values of a common society and have a low social affect.

If we then look at the economy in which of course there are many bright spots but which as a whole is operating below par, under-investing and too often producing goods and services of indifferent quality, the question is whether there is a link between those phenomena. I believe that there is. We should do what those in industry do, which is to benchmark against best practice. We should look at what some of our best companies do. That is the subject about which the noble Lord, Lord Laing, with his great expertise, talked. If we look at the best companies in this country there are lessons for the rest of industry and for the country as a whole to learn. How would one characterise the country's best companies? I would say in three ways. There is a high level of shared trust; there is a real pursuit of excellence; there is a sense of responsibility. I do not speak of all companies. Would it were so. I speak of the best, whether large or small.

I shall talk about trust for a moment. What form does trust take in a modern industrial company? Those noble Lords whose experience of industry is long past or derived second-hand should know—I am sure many noble Lords do know—that modern companies work on the basis of openness, shared information, flattened hierarchy, team working, and with a great deal of devolved initiative. That characterisation is the characterisation of a good company.

I mentioned excellence. What of excellence? Again, similar companies will be addressing themselves to how they add value; how they pursue quality, whether through total quality management or other quality programmes; how they instil a sense of pride in each individual employee in what he or she does each day.

There is then the third characteristic I mentioned, which is a sense of responsibility. That applies internally to employees and externally to suppliers, longer term relationships with suppliers, not relationships of mutual exploitation but of mutual understanding. The whole theory with which some noble Lords will be familiar of "just in time" depends upon there being the greatest possible co-operation and responsibility along the supply chain.

I wonder whether we should not try to relate those three characteristics of trust, excellence and responsibility to the wider society and economy. Some of your Lordships will have read the new book by Mr. Fukiyana entitled Trust. It is called Trust, and it is about trust. He makes the point that successful economies are based upon trust; they depend upon trust; they depend upon the trust that contracts will be honoured, that the truth will be told, that people's words are their bonds, that institutions are responsive and accountable. They depend upon trust. Is there not something of a breakdown of trust in our society? How do we rediscover it? How do we rediscover that sense of the shared experience, and the shared life? One of the routes must be through a rediscovery of the idea of equal citizenship.

I am by no means opposed to, or uninterested in, the idea of the stakeholder society which my noble friend Lord Dahrendorf advanced, and which has been picked up so notably by the Leader of the Labour Party. The notion of a stakeholder is an important and helpful one, but there is an older and more fundamental idea: that we are equal citizens in this society with what someone talked about earlier as parity of esteem. That leads in certain directions. It leads, as my noble friend Lord Beaumont of Whitley said, in the direction of ensuring that there is some safety net of a minimum income under every citizen, that every citizen is protected against disaster, that there is information, that there is freedom of information, that there are equal rights, that there is a Bill of Rights. It depends upon citizenship education in our schools.

There is then the notion of excellence. There is the hymn: Who sweeps a room as for Thy laws Makes that and th'action fine".

It is the idea that whatever people do at work is worth doing for itself as well as it can be done. I wonder how well we, as a society, have taught our fellow citizens that.

If one thinks of excellence, in a modern competitive world it must mean better education, more investment in education, the higher acquisition of skills, the individual learning accounts, with which my noble friends Lord Dahrendorf and Lord Rochester have concerned themselves; vocational skills, to which the noble Lord, Lord Pilkington, in his notable maiden speech referred; and the notion of building on our human capital.

Finally, to try to apply the notion of responsibility to the wider society, I am struck that the Government, at least in their earlier incarnation, were keen on the idea of spreading ownership—ownership of shares, ownership of houses—those aspirations somewhat dented no doubt by the fact that Sid seems to have left the stage and house prices are not what they once were. Nevertheless, it was a cardinal objective of earlier Conservative governments.

I often wondered why they did not, with the same enthusiasm, try to spread the idea of shared ownership in our society. Citizenship means ultimately that we all own our society and our institutions. They are ours. In the political dimension that accounts for a great deal of the alienation felt by so many people. There is a responsibility which cuts in all directions—between government and the citizen and between citizens.

We must forget for ever those rash words which I am not sure that the noble Baroness, Lady Thatcher, meant: There is no such thing as society".

There clearly is such a thing as society. We all live in it. We have to share it. We have a common nexus in that society.

Those who doubt the case on exclusion made by my noble friend Lord Dahrendorf should just look at Northern Ireland with which from these Benches I have to interest myself. There is a history of 50 years in which the minority was excluded systematically from social and economic power, and, in some ways, even from basic civic rights. We are now living with the consequences. The only society that can work—economically as well as socially—is one in which there is a sharing of rights and responsibilities.

5.9 p.m.

Lord Skidelsky

My Lords, perhaps I may congratulate my noble friend Lord Pilkington of Oxenford on a characteristically forceful and erudite expression of his views. We all look forward greatly to hearing what he has to say in future.

I was overwhelmed—almost defenceless—against the barrage of high-minded sentiment and noble rhetoric with which the debate started—an atmosphere happily dissipated subsequently by the realism and caustic wit of my noble friend Lord Beloff.

Two noble Lords said that they thought that the remark made by the noble Baroness, Lady Thatcher, that there is no such thing as society was the most stupid that has ever been made. But I thought, no, it is an essential corrective to the kind of opacity that this subject too often generates. Although it is not a complete social philosophy it is very important that it was said when it was said. I fear that I shall forfeit all sympathy by having defended that remark.

Naturally, I welcome the Labour Party's conversion to stakeholding. The idea of stakeholding is pure Conservative doctrine expressed not in that particular language but in the language of a property-owning democracy based on the wider ownership of homes, shares and pensions. The noble Lord, Lord Holme, asked why.they did not extend that to the notion of a shared ownership of society. But ownership of such assets is a means to a shared ownership of society. The ownership of houses and shares is a stake in the economy through which people acquire a shared stake in society.

It seems to me nonsense, therefore, to say that we on this side of the House did not ever believe in a stakeholding society and that it was a new thought recently discovered by the Leader of the Labour Party on a lightning trip to Singapore. It is a very old tradition and one that I support. The issue is not stakeholding but the kind of stakeholding, the degree of compulsion and the kind of institutions which best embody the idea of a socially accountable capitalism.

Although the debate is about wealth holding, no one has mentioned competition, yet that is the best form of social accountability. Competition is the real guarantee that people will not be exploited either as consumers or as employees. Consumers can switch between different suppliers, and workers can switch between different firms. That is the guarantee that a free economy offers against exploitation. It is a very powerful guarantee too.

From the point of view of a socially accountable capitalism it is true that a great hole in our political economy is the insecurity of employment. The freedom of workers to switch jobs is less valuable if too few jobs are available and they are of too poor quality. However, less secure patterns of employment are not the fault of this Government. They are the result of world economic events, in particular of changes in technology. We have lived through such periods in the past and always when we encounter them people despair of any possibility of a return to full employment. Yet there always has been a return because improvements in technology generate extra wants and demands which provide extra jobs. That has been the history of industrial society since the start of the Industrial Revolution. I see no evidence to suggest that this is not a transitional period through which we are living and that we shall not secure a return to full employment if our institutions allow us to do so.

One problem is special in the developed world as a whole. It is that the supply of unskilled jobs has fallen faster than the supply of unskilled labour. That is what is driving down the wages of unskilled labour, and we need to address the problem through education, particularly through education in the basic skills of literacy and numeracy which will equip our population with the ability to sustain high waged employment. Unless we do that we shall risk an increasing number of people falling to a wage level that is below the level of poverty. I agree with all that side of the analysis.

However, we must also be honest enough to ask ourselves how far the social arrangements which many Opposition spokesmen have been urging on us do not contribute to the exceptionally high levels of unemployment which are current in Europe today. In that connection, I wish to point out that our own levels of unemployment, though much too high, are lower by two percentage points than the average on the Continent of Europe and are falling.

The main cause of high European unemployment is practices which price people out of jobs; for instance, non-wage costs, social security contributions and taxes, hiring and firing costs and so on. Therefore, we need more flexible labour markets—and that should not be contentious—not more social chapters.

At the same time, I accept the need for some element of Keynesian policy. I accept the need for government and central banks to promote a growth of spending in the economy sufficient to support non-inflationary growth but not so much as to finance a resumption of inflation. I believe that a stabilising role still exists for governments and, if they were in a position to carry that out, many of the social problems which we have been experiencing in this period of transition would recede. World interest rates are still too high and they need to come down.

The noble Lord, Lord Dahrendorf, spoke of the global economy. He rightly said that it was not so much global as international. We now have global capital mobility and increasingly mobile tax bases. They make it more difficult for governments to manage their national accounts with the independence which they once considered was their right.

A more decentralised economy is a more insecure economy and for that reason it is right that we should maintain our welfare state. No noble Lord on this side of the House would deny that. However, I should like to see the return of a more austere tradition. It is right that people should have a choice of lifestyles, but is it right that everyone's choice should be financed by the taxpayers? That not only discredits the idea of the welfare state but it also creates tax resistance which leads to public finance problems.

People have emphasised the idea of a job friendly welfare state but I should like to see a family friendly welfare state too. Only if we support the family as a unit of self-help and social support can we hope to stop the increasing nationalisation of welfare which has sent the social security budget ever higher.

The noble Lord, Lord Dahrendorf, spoke also of the importance of freedom. Freedom means, among other things, the freedom to spend as much of one's wealth as one has earned, subject to the necessary tasks of the state for which it compels compulsory contributions. But we must not end up believing that the state is the only benevolent actor in a world of greedy capitalists, because that way is the road to perdition.

My idea of a stakeholding society is one in which there is widespread property ownership, flexible labour markets, a social safety net which helps to adapt people to changing circumstances, and government attention to the state of effective demand.

I wish to conclude by talking about another kind of stakeholding. It is the kind of industrial stakeholding on which Opposition spokesmen are particularly keen. In currently fashionable jargon, the company is supposed to be responsible not just to its shareholders or its workers but also to its suppliers, to its consumers, to the local community, to the national interest, to uncle Tom Cobbleigh and all. That seems to me to have no operational meaning whatever and is simply a charter for management to do what it likes without any accountability.

Of course, I believe that the noble Lord, Lord Laing, is an excellent employer. I should like to see more employers like him. But I do not believe that good employership can be fostered by state regulation or control. The inward investors to our society—the Japanese and German companies—may come here partly because wage costs are lower, but they are good employers. They are good employers—the results show that, though their employees' may start on lower wages, their productivity increases faster than in British-owned companies, and that is the basis for paying higher wages. Therefore, the encouragement of inward investment itself, of which we have more than the whole of the European Community put together, is a very powerful way in which to increase stakeholding in our society. The great advantage of a traditional company is that managers are held accountable to a definite goal; namely, to maximise the profits of the shareholders.

My answer to the inclusive society is a free society. Provided that our resources for self-help, association and compassion have not been fatally eroded by compulsory benevolence, I should prefer to leave it to the operation of freedom to decide how much inclusion and how much social cohesion we should have. I would certainly not impose it.

5.21 p.m.

Lord Ashburton

My Lords, all your Lordships will know how daunting it is to rise to speak at such a late stage in a debate like this when very nearly everything that one felt one wanted to say seems to have been said by somebody else.

I join all noble Lords in welcoming the report and in saying what a pleasure it has been to read it. It is a great pleasure too to be able to participate in this debate. Why do I welcome the report when I do not agree with all of it? There are two main reasons. The first is because its tone is optimistic and not depressing. It outlines some depressing characteristics of our society but it looks forward and tries to suggest ways in which they can be improved. It is cheerful and, as I said to the noble Lord, Lord Dahrendorf, in the Library yesterday, it is not grumpy. A great deal of what one reads at present is grumpy. Last but not least, it seems to avoid very successfully the more strident party political flavour which makes serious discussion of so many social issues today very difficult and frustrating.

The very first sentence of the preface seems to me to offer as succinct a definition of the meaning of wealth creation as I have seen. It states: Creating wealth means enhancing well-being".

Anyone who has used the expression "wealth creation" in discussing the importance of economic activity with someone who is not naturally at home with economic and social terminology will know, as I do, and recognise the expression which so often greets the term. To many people, wealth creation conjures up a picture of individuals busily and single-mindedly amassing their own fortunes. It is a term which needs rescuing, and the phrase: Creating wealth means enhancing well-being

is most helpful in that respect.

I welcome also the report's explicit avowal that social cohesion and wealth creation should be the product of individual co-operative activity. and, wherever possible, at local level. The state's role is not to be heightened but rather held at arm's length and lightened. Moreover, the firm is seen as a good and valuable organisation in all this. I find that a realistic and practical point of view.

It has always been clear, but too little publicly discussed, I believe, that the measurement of prosperity by financial yardsticks and nationally by more or less crude GDP or GNP figures gravely understates the reality of a prosperous society. The intangibles of our lives are of crucial importance, but they are very difficult indeed to measure. In some important ways, one man's intangible prosperity may detract from that of other sections of society, if not literally from his neighbour's.

Sainsbury's, Tesco, Asda, Marks and Spencer and United Biscuits—to bring in a topical subject—and their competitors have done huge good in improving the range of foodstuffs available to ordinary people, but at what cost to small shopkeepers and to the shopping life of many city centres? There is a balance of advantage in the changes that those great grocers have brought about. Explaining otherwise to our fellow citizens and suggesting that we should return to what there was before would be impossible. But it is a balance of advantage and not an unmitigated good.

Another good example is the way in which the fantastically cheaper air travel now available has brought overseas tourism within the reach of ordinary people everywhere. Places like Florida, California, the Seychelles, Africa and the whole of the Mediterranean littoral are all within the reach of people who live very ordinary lives in this country. Our tourists and those of other countries have brought great material prosperity to the people in those areas but at what cost to their intangible well-being, when one looks at their coastlines?

The idea of a wealth audit has an attractive ring to it, precisely because it sounds as though it will address the measurement of just that intangible prosperity that I have been talking about. But I must confess that I am not entirely convinced that such an audit could be made sufficiently objective to satisfy the diverse opinions which are bound to exist about the value to be put on the varying forms of intangible wealth. It is a lovely idea, but can it, for example, hope to differentiate between the good investment referred to in the report and the investment which, on balance, would do more harm to intangible prosperity than good to the GDP? Would its feet really be on the ground? Is it practicable? Could it be communicated widely, comprehensively and seriously? I have no doubt that the noble Lord and his fellow authors will be putting flesh on the bones of that idea and I hope to be convinced.

There are a number of other points and issues raised by the report, most notably of course the obstinate persistence of unacceptable levels of unemployment which increasingly affect the whole of Europe and which the extension of the European Union will, at least at first, make worse. Much good analytical work has been done on that but members of the public have to rely on what they see on television and what they read in the newspapers. They are not often told more than the headline figures. They do not see that significant numbers of people are unemployed because they go from one job to another over a quite brief period; but the number of jobs created each year is just as significant for understanding the problem as the number of jobs lost, which are dwelt on with gloomy foreboding and far too uncritically.

We are and have been going through a very difficult transition period which has sharply affected many of the largest companies—and I speak with direct experience of BP, where I had the good fortune to be chairman until recently. Large numbers of employees and employers have been facing these problems, but what has been happening in many cases is a redressing of overstaffing which, had it been avoided in the first place or dealt with year by year as it became apparent, would have seemed nothing like as dire as it does when it occurs like a Niagara of ill fortune.

I know it is easy to appear as if one believes that little can be done about unemployment, but it would be not only faint-hearted but also wrong to do so. However, public understanding of the problem is vital if solutions are to be found. The role of the media—which we certainly do not have time to discuss now—is a matter which our society needs to try to address. I should like to see the importance of long-term currency stability recognised as an important help towards getting long-term investment. I should like to see brought into the material versus the intangible prosperity equation the fact that, as we become more materially prosperous, we take up more room and more space. We can drive cars and we can get in each other's hair. Where populations are increasing, that effect is multiplied. This means once again that my increase in material well-being can all too easily impinge unfavourably on your intangible but vital enjoyment of life.

Finally, I must refer to this "magic" stakeholder concept. It is enjoying great popularity at present and there is a great deal to be said for it. I most sincerely pray that the worthy concept will not be asked to bear more weight than it can withstand. For those of us from the business world the idea that customers, employers, the local community and the nation as a whole have a stake in our activities—or perhaps an interest in our activities—is not a new one. The word "stakeholder" sounds prosperous, comforting, inclusive, and even powerful. All the groups I have mentioned, and others, are vital to the economic and social success of any business. But nine out of 10 of the people who decide to start businesses—if not 99 out of 100—do so not to employ others; not to provide better services or widgets; and not to benefit the local community. They do so to earn a living or, if they are ambitious, to build up capital and improve their material lot. Large businesses grow therefrom and are mostly well aware of their responsibilities, even if on too many occasions they fail to fulfil them.

In all these matters we have to be realistic. We have to keep our feet on the ground, and that, on the whole, this report has done. It is not perfect by any means but it is good as a means of widening debate on the subject. We owe the noble Lord and his fellow authors sincere thanks for enabling us to debate it, not least because it has brought forth what I would regard as a high level of speeches today from all sides of the House.

5.34 p.m.

Lord Griffiths of Fforestfach

My Lords, like other Members of your Lordships' House I, too, wish to congratulate the noble Lord, Lord Pilkington of Oxenford, on his maiden speech. It was characteristically eloquent and forceful. I am sure that with his distinguished record in education and the Church, we shall hear combative speeches—indeed fireworks—from the noble Lord. I also wish to thank the noble Lord, Lord Dahrendorf, for chairing the commission which produced the report which forms the basis of this debate. I acknowledge, as did the noble Lord, Lord Desai, that the noble Lord, Lord Dahrendorf, was once my former boss. He was an outstanding director of the London School of Economics who I believe has made a real contribution to the intellectual life of this country.

The subject of globalisation and its effects on our society is extremely important. The report has many interesting things to say and novel proposals to make. In his opening speech the noble Lord, Lord Dahrendorf, gave vivid examples of what exclusion meant. That is the core of the debate and I consider it the most important issue in our society when one contemplates the people who are excluded and who have a sense of total despair and meaninglessness in their lives. It is important for anyone who is involved in public life to address that issue. However, I not only felt compelled to read the report, but also to reread it, and to reread again certain sections of it.

I find it difficult to be totally enthusiastic about it because as I read the small print I found reference to higher taxation—the report suggests we should break the taboo on discussing higher taxes—and to compulsory contributions by employers and employees to individual learning accounts. The report suggested that there should be no more privatisation; that we need more public investment in large-scale projects and that we should make it more difficult for takeovers to occur. The report indicates that we should increase the powers of stakeholders in business and that we should create a host of new bureaucracies from community education trusts, to local investment agencies and to those managing individual learning accounts. Then it is suggested that we should have an expansion of the activities of local education authorities and an employment service with a more far-reaching mandate.

It is impossible to comment on everything in the report. I wish to single out three issues and comment on those. First, I do not share the report's enthusiasm for its definition of a stakeholder society. In fact I believe that it is bristling with difficulties. The report recognises the strengths of British experience and the strengths of the economic institutions of this country which it labels shareholder capitalism. However, it contrasts that unfavourably with stakeholder capitalism. I believe that a number of points are raised by the discussion in the report of stakeholders. There was a glaring but highly significant omission in the report's list of stakeholders. We read about employees, employee organisations, banks, suppliers, local communities and about the rather ugly sounding expression, civil society organisations. However, I was intrigued to notice that there was no mention of the consumer. The consumer is a sort of residual and marginalised stakeholder in this report.

Secondly, I noticed that each of those stakeholders has a direct financial interest in raising his stake. For example, employees do so by means of more compensation and more security in their jobs. Banks do so by increasing their return on capital. Local communities do so by ensuring that in those communities there are jobs and prosperity. Civil society associations—the little platoons of our society, as Burke called them—do so through patronage and sponsorship. Suppliers do so through higher prices and long-term contracts. Therefore I thought it was odd for the report to conclude by drawing a sharp distinction between a shareholder society where the shareholders are only interested in individual gains and profit, and a stakeholder society in which the stakeholders are interested in long-term social benefits. I suggest that that distinction is false and that shareholders, along with every other stakeholder, have as much of a long-term interest in a stable society as others.

Thirdly, nothing was said about the fact that shareholders in our society are primarily pension funds and insurance companies whose objective is to secure long-term returns in their investments in order to match their long-term liabilities. I am not as critical of short-termism as some. I draw your Lordships' attention to an article which appeared in The Times Business News by the chairman of Mercury Asset Management, which itself is one of our great success stories, on why the company sold its stake in Forte to Granada. It was a model statement, indicating how the senior executives of Mercury Asset Management had agonised over whether to sell the company's 15 per cent. in Forte and the principles on which they had done so. It was clearly not short term or purely for individual gain; the executives were acting as trustees in the long-term interest of pensioners and those who save through them.

Fourthly, and most important of all, I believe that any attempt to strengthen and enfranchise stakeholders by law must lead to higher costs for business. It will either mean higher wages, higher redundancy payments, a higher cost of capital or higher taxes. In a global economy—and the report starts with globalisation—with increasing competition, higher costs in this country, where the prices are being determined globally, must lead to a reduction in employment, which exacerbates the problem with which the report begins.

Therefore, as I see it, if you pass legislation which empowers stakeholders you end up doing precisely the opposite of what you want to do. In that sense, in my judgment, the movement to a stakeholder economy is a dead hand on wealth creation which has shades of the social chapter about it.

The second aspect of the report to which I would like to draw your Lordships' attention, is that I believe it does not recognise sufficiently that the shareholder economy is itself rediscovering the importance of values in shareholder companies. The kind of statement that I found difficult to accept was the following: The shareholder culture of British economic institutions is inimical to the values of the public domain".

There are two clear domains in the report: there is the market domain in which people respond to monetary incentives and the public domain where they serve the needs of others.

Your Lordships may remember a famous book written 20 years ago by Peters and Waterman entitled In Search of Excellence. That was written as a response to the Japanese invasion of the American market. That book asked what distinguishes excellent companies from less excellent companies in America. It found that of all the levers that management could pull, whether strategy, structure or the skills of the workforce, the key factor which characterised excellent companies was what they called shared values.

Certainly in terms of the service sector, which I know a little about, I believe that all of the thinking today is on the importance of service itself. The logic is very simple. It is that profitability in a typical service business depends on customer loyalty; that customer loyalty comes from a perception of value for money; that value for money depends on employee productivity; that employee productivity depends on employee loyalty; and that employee loyalty depends on employee satisfaction. In other words, profitability comes directly from an ethos of service and a recognition of the self-worth of employees. Hence the emphasis on training, the dignity of work, the values of the company, backup technology and so on.

One reason for mentioning that—and I declare an interest—is that I am a director of an American company, which is now a global company, which is one of the leading service management and consumer services companies in America. We manage part or all of more than 1,000 hospitals and more than 600 schools, colleges and school districts, including the public schools of Washington DC. As one can imagine, that is a very tough assignment. Some employees remain as part of the public sector institution but are managed by us. Other employees are employed directly by us.

I asked myself whether, if some are directly employed by us and others still belong to the public sector institution, it makes sense to make such a sharp distinction between the market domain and the public domain. I do not believe that it does. I believe that successful firms now recognise that service is fundamental to good business. I also believe that it was that, and recognising the value of business, that led the Government to introduce changes in education, health and affordable housing. It was recognised that those areas would never be privatised, yet those values which were being renewed in business could play a key role, so, for example, giving choice to parents and patients, delegated budgets for schools and GPs, providing innovation in institutions such as grant-maintained schools and quality through the Citizen's Charter, and so on.

I therefore find the report too negative and stark from that point of view. I should like to suggest that the spirit of the report should give greater recognition to the fusion of the public domain and the market domain, because I believe that the market domain is changing fundamentally.

The third issue to which I should like to draw the attention of the House is that the report recognises the importance of values. The report argues that social cohesion in our society ultimately means changed values. It argues that we will change values by changing structure. If only we can create stakeholders and citizens we will, in consequence, have a much greater sense on the part of all of us of responsibility, of obligation and of service.

I wonder whether changing structures is enough. I was very impressed by the remarks of the noble Lord, Lord Holme of Cheltenham. I should like to refer to the publication to which he referred, namely, Professor Fukayama's book, Trust. He argues that social cohesion depends critically on trust and that trust itself is not something that one can easily engineer but that one has to dig deep into the wells of tradition, history and even religion. He calls his final chapter: The Spiritualisation of Economic Life".

I believe that that is a very important subject, one which is much greater than this debate. However it should make us aware that many of the other subjects that we are discussing in your Lordships' House are indirectly relevant to this subject.

In conclusion, I welcome the report. Even when my blood pressure was rising slightly I still wanted to carry on reading and re-reading it. Regretfully, I cannot give three cheers for the report, but I can give two.

5.48 p.m.

Viscount Thurso

My Lords, I too begin by congratulating my noble friend Lord Dahrendorf and his colleagues on the commission for the publication of a report which is, I believe, not only central to the future of our society but also concise and readable. I should like to thank my noble friend for the opportunity to debate it today.

Having listened to so many distinguished noble Lords today, I rise with a certain trepidation to give what can only be called a worm's eye view. There are two areas on which I should like to comment. The first concerns my business life and the second my home life in the north of Scotland.

I was particularly interested to hear the views of the noble Lord, Lord Ashburton, and the noble Lord, Lord Laing, because I believe that they are representative of many in business. I am confident that the report and many of its conclusions will be warmly welcomed by businesses of all sizes. Social stability must be a primary requirement for businesses to flourish. This point was made most forcefully to me yesterday by the deputy chairman of one of the largest companies in this country. He expressed his deep concern at the social divisions in our society and foresaw that social unrest would become a major threat to his company's profitability in the future. This was one of our country's most senior businessmen, endorsing the view that economic growth must never, as the report says, lose sight of the social habitat which is an essential condition of the wealth of nations".

My own business is right at the other end of the scale. As the managing director of a small but expanding leisure company, I have to say that I rather expected that this would be a dry and dusty tome laden with jargon and of perhaps little relevance to my business. Instead, I found it so gripping and relevant that I was able to read it straight through and, like the noble Lord, Lord Griffiths, to read it again. It articulates precisely many of the concerns which face struggling small businesses. I venture to say that all businessmen who read the report will find themselves in agreement with the majority of its conclusions, irrespective of their political affiliation, in particular in respect of the sections on human resources and investment.

My business, which is in the provision of luxury leisure, is obviously a people business. It is a people business because all luxury hotels and leisure businesses depend on giving high quality personal service to their clients. For that they depend on highly trained quality staff to deliver those services. In my business the labour cost is 50 per cent. of our turnover. More than most, my managers see both the potential of the human resource and the weakness and inadequacy of the current education and training system for the exploitation of that resource to the full. Perhaps because we are in a people business, we regard it as self-evident truth that investment in people and not simply in skills training, but also in personal education and development, is a direct driver for future success and profits within the company.

I therefore welcome the report's comments and conclusions as outlined in, I think, Section 3, paragraph 4 with regard to the creation of a department of human resources.

Another section which will strike an immediate chord with many managers is that which comments on the inadequacy of the capital markets in this country when it comes to funding investment in small and medium companies. Anyone who, as I have done, has spent time trooping from institution to firm to institution in the City trying to raise venture funds or equity for a small company, knows intimately the frustration of having researched and prepared a comprehensive business plan only to fail because one could not meet the internal rate of return requirement of perhaps 30 per cent. with a guaranteed exit after four years.

In my business I am lucky. I have investors of sufficient wealth and confidence in my team to have invested in an expansion programme that will continue over some five or six years without the need for either City or bank finance. It is perhaps telling that my investors are from overseas.

I met recently an old friend who is a senior director of a small but well known merchant bank in the City. It was his opinion that 90 per cent. of the business done in the square mile is generated by some 100 of the top companies on the Stock Exchange. Furthermore, over the past decade investment by individuals had declined markedly as investment by institutions had grown. As a provider of capital he decried that trend since, as the report so clearly underlines, institutions are by nature short termist in their investment decisions—I believe that investment managers are judged mostly on their quarterly performance—whereas on the whole individuals tend to hold shares longer and to be more loyal to management and long term strategy.

The sporting metaphor of a level playing field is often used in respect of the market. But those who use this metaphor would do well to remember that for the game to proceed the playing field must not only be level but the lines marked and a referee and linesman present. The lines of the field and the rules of the game are adjustable by the governing body to meet the objectives of the game. So, too, with markets. The lines and rules can be amended to meet the overall objectives of society. Any government which fail to act in that capacity have abdicated a primary responsibility. The market is not part of the divine natural order. It is a man made device and should operate for the benefit of all.

The report highlights to me the grotesque inversion that has taken place in our society, where the rule of the market has become the master of human endeavour rather than its servant. I know from my own work on various trade committees that many other chief executives share my views; and I am certain that the report will be welcomed by those businessmen.

The other area on which I should like to comment is one to which the report refers in its conclusion but which, as it states, has not been pursued in depth. I refer to democracy and in particular local democracy. I was very glad that in his opening speech my noble friend made reference to this issue and its importance.

A central theme of the report is citizenship and the need for inclusion. An important part of inclusion, or another definition of it, must be participation. It is a symptom of the failure of our democracy that participation in local democracy is at an all-time low and local institutions are held in such poor esteem. Here I make two points. First, in my home in Caithness the seat of local government is now more than 120 miles from my door. That is roughly the equivalent of asking an inhabitant of Westminster to go to Bristol to attend a meeting. I would hardly call that local.

On page 96 the report states: 'The regeneration of local power itself may well be a necessary condition of wealth creation and social cohesion in Britain. This has to do with local government, with sources and levels of local finance, and with encouraging local initiatives of many kinds".

If that is to come true, then surely local government must be based on communities rather than population density.

Secondly, it is imperative that power be returned to local governments so that they may properly be held accountable by their own electorates for their own actions. Surely the time has come to trust local people to take local decisions for which they can be held accountable. If the doctrine of subsidiarity is so good for this country in Europe, why is it so bad for local government in this country? Inclusion and citizenship must be founded on participation, which in turn must begin with local democracy.

In its preface, the report begins with a clear statement of the case for a new vocabulary, which I wholly endorse. However, it ends with the statement that, the principle stands that the people must have the ultimate say in their own affairs, that governments and citizens alike are bound by certain rules, and that no one knows all the answers … We are convinced that wealth can be created in such a context and that the cohesion of a civil, civilised society supports the constitution of liberty".

If the conclusions of this report are implemented, then many of the fears that I have for my children will be unfounded. I congratulate my noble friend on this uplifting, optimistic but, above all, realistic report.

5.58 p.m.

Lord Vinson

My Lords, I, too, am most grateful to the noble Lord, Lord Dahrendorf, for bringing the report to our attention, not least because it gives me the opportunity to hear again the noble Lord, Lord Laing. It may amuse the House to know that about 20 years ago I was touring his factory with him under the auspices of the Industrial Participation Association, of which I was chairman and he a prime member. I asked one of his employees what he thought of the business. He replied, "Sir, working here is better than a religion". I say that because the example of my noble friend Lord Laing of the quality of leadership in management is one from which we could learn much.

Returning to the report, it makes an honest effort to look at many of the intractable problems that inflict all modern societies. It speaks in a tone of olympian wisdom, but I am afraid it appears to be rather thin on diagnosis and remedy. I wish to try, albeit inadequately, to remedy that deficiency in one area in a spirit of constructive criticism. At this late hour, I wish to talk about employment alone.

The report repeatedly stresses the need to stimulate investment in order to create jobs, and there is nothing wrong in that. But, no doubt due to the composition of its membership, it totally dodges the issue when it comes to the question of the non-financial obstacles to economic growth which many of us, certainly on this side of the House, believe to be a primary cause of unemployment.

Any analysis of the economic growth of this country and America shows that jobs are being created in the small firm sector, while being shed by the larger corporations. It is inescapable that we have to look to the small and medium enterprise to create the jobs of tomorrow. That point was well made earlier in the debate by the noble Lord, Lord Ashburton.

There is a whiff of mothballs and corporatism about the report and it fails to address the fundamental issue that in the past year in this country 250,000 new businesses were formed but over the same period 195,000 businesses closed down. That is a failure rate equivalent to some 80 per cent. of the new starts. Manifestly, anything that can be done to improve the survival rate of small businesses will improve employment. Most large firms were small firms once upon a time.

The reason so many businesses fail is not hard to find. The sheer complexity of running a business today is bad enough when one has others to whom to delegate, but it is virtually a nightmare when one is on one's own. Small firms easily drown in the regulatory morass. They are operating in an increasingly hostile bureaucratic environment. If the survival rate of small businesses could be improved by some 25 per cent., literally hundreds of thousands of new jobs would happen without a pennyworth of government subsidy going into them. The report misses a huge opportunity by failing to touch on that subject.

The problem could not be better illustrated than the case earlier this month of a hotelier who advertised in the jobcentre for "chamber persons". Perhaps we are all Chamber persons here! After interviewing a number of candidates who were sent to him by the jobcentre, he phoned up the clerk and said: "Please don't waste your time and mine by sending me any more scruffy men with rings in their noses. How about sending me some presentable young girls who might make good waitresses?". That honest remark brought the hotelier before the Equal Opportunities Commission, where he was warned, but fortunately not fined, for being in breach of the equal opportunities Act. Bearing in mind that any employer still, just, has the right to pick and choose those put in front of him, that prosecution was monstrous. The Equal Opportunities Commission acknowledges that the employer is entitled to exercise choice but not to express it—not even to the agency attempting to help him. How farcical.

Under the circumstances, it is a wonder that he felt like carrying on his business at all and did not decide to pack it in. What we shall never know after reading about a case like that is how many potential small business people were put off and, as a consequence, how many jobs are not created. That type of case could be repeated a thousandfold. The macro-economy is often the micro-economy writ large. It is at that lowly level that we need to look to uncover some of the constraints of job creation.

I have talked to many small businessmen and I make a point of asking them why they do not take on an assistant, a mate or an apprentice as they used to. Why do they just battle on by themselves? Invariably their reply is that it is not worth the hassle. The cost of dismissing staff and the threat of prosecution over unfair dismissal (often because the employers have technically failed to give statutory written warning when they should have done—something that is difficult to do on a one-to-one and one-to-two basis in a small firm) all make it so unpleasant that they cannot face doing it again. They would rather soldier on alone. As a consequence, hundreds of thousands of potential jobs remain unfilled today in this country.

If we make it more expensive and difficult to employ people, the employer—particularly the smaller employer—will employ fewer and consequently it will be more difficult for those out of work to get themselves into work. The report dodges that fundamental issue. It is over-regulation that is destroying employment in mainland Europe and beginning to do so here. Governments need to recognise that one of the primary sources of new employment is self-employed people turning themselves into small businesses and small businesses taking on additional staff. Every effort should be made to assist and not hinder that process.

Those who call for more Euro-style regulations claim that they merely want more fairness for workers. But in fact a regulatory fortress is being constructed for the benefit only of those in work, greatly to the detriment of those out of work. The report is an opportunity lost because the whole subject lies at the very heart of employment. A job is the first step in creating a socially cohesive society, the goal of which unites all of us throughout this House.

The development of resident small businesses in inner cities is the only hope of creating jobs locally in those areas. With those small businesses comes the regrowth of local communities and the local community spirit which lies at the heart of social cohesion. That is one of the only practical routes to let the excluded become included. That is why the treatment of small businesses matters so much. I am grateful for the opportunity of this debate to make that point.

6.7 p.m.

Lord Ezra

My Lords, as we draw to the close of this stimulating debate, we owe a double tribute to my noble friend Lord Dahrendorf. The first is for having chaired the commission that produced the report; the second is for having chosen this moment to introduce it for debate in your Lordships' House, thus providing us with a subject for which I believe, in our collective wisdom—if I may use the word "collective" without anyone objecting—we are well suited to debate. The experience this afternoon has shown that. What has been remarkable is the very small intrusion of political views. Almost all speeches have been from the point of view of the experience of the speaker and of bringing a positive contribution to this vital subject.

The other point of particular interest which was referred to by the noble Lords, Lord Borne and Lord Roll, is that the document forms part of a widening area of literature. Among the various benefits of the document I found that on page 106 there is a description of material for further reading. What is impressive about it is the number of important reports on the subject which have been produced in the past two to three years. We are reaching quite a historic stage of rethinking where we are going. Such stages have been reached in the past. I can think of the period before the French Revolution—not that I suggest that we are heading for revolution—when the Encyclopédistes, Diderot and the others, were questioning the way in which society was going in those days. We have reached one of those historic moments of questioning. The question has been well put in the report before us today.

Many views have been expressed. The advantage of the report, which is short, succinct and to the point, is that it also contains a very large number of crucial elements that one can pursue. One of the important threads running through it is the emphasis on the need for an economic strategy which can not only create wealth but contribute to the environment and be socially cohesive.

I take a leaf out of the book of the noble Lord, Lord Pilkington, who gave us such an admirable maiden speech, and try to be practical on the subject. In seeking to achieve the objectives set out in the report, we have to start from where we are. There is no point in constructing something which, while ideally desirable, represents a major change from where we are at the moment.

In its economic appraisal the report was very fair. It states that much has improved in the UK economy in recent years. It cites higher productivity, greater flexibility—which the noble Lord, Lord Skidelsky, emphasised—and adaptability, better export performance and low inflation. All are positive developments. The two major weaknesses in economic terms identified by the report are the relatively low level of investment and the relatively low level of research and development.

The report points out that a very large proportion of growth was consumed in the 1980s. Something like 86 per cent. of GDP was consumed; and the residue that was invested was much less than in other competitor countries. There was also a noticeable fall in public investment during that period—from 4 per cent. in the 1970s to 2 per cent. of GDP in the 1980s, and still falling. In recent years the UK has shown a capacity to adapt and adjust, but it has lagged behind in investment and therefore, literally, in growth creation.

Suggestions on how to put matters right was the theme that I tried to follow in reading the report. The first point made, with which I imagine we all agree, is that there is a need to avoid volatility in economic policy. We are reminded that in the past 30 years we have suffered three devaluation crises, two excessive booms which led to slumps and five major shifts in economic policy. Obviously, to continue along that path does not hold out much comfort in relation to sustained growth.

We need to put in place a stable macro-economic policy, especially on inflation, on which a start has indeed been made. That is perfectly true. However, all our western European neighbours are achieving the same thing at the moment. These things tend to go in cycles. The proof of the pudding on inflation will be when a more disruptive period emerges and some other countries become more prone to inflationary pressures. Shall we then be able to hold our own?

The report states that we need a new framework for public investment and essential infrastructure. It is not just a question of spending more in those areas but of identifying where expenditure should take place more effectively. We have had many debates in this House on that subject. I feel that at times there are cut-backs where there should not be and perhaps more expenditure where, equally, there should not be.

I am also a little concerned about the development of the Private Finance Initiative. It is an excellent idea, to which all parties subscribe. Unfortunately, however (and my own firm is involved in this), the procedures that have been put in place—the cost of tendering and the bureaucratic paraphernalia that must be gone through—are beginning to deter us from doing as much as we would do in that area. The need is for it to be made more accessible and less bureaucratic, less dominated, as we feel, by the Treasury, which lays down such strict rules on public expenditure and investment. These rules are now being applied to the private sector entering the public sector. That needs to be looked at very seriously if we want to move further in that direction.

Next, I refer to the financial framework, particularly in the City, to which reference was made. Undoubtedly, taking the financial centre of the City in its totality, there has been an enormous success. However, there are aspects that are worrying. Reference was made by my noble friend Lord Thurso, in a very impressive speech, to the difficulty that small firms have in raising money in the City. It is perfectly true: there is very great difficulty. Unless they have other sources of investment, it is difficult for them to build up their businesses. During the housing boom the owners of small firms took out second and third mortgages on their homes. But that is no longer available to them. The banks and financial houses are being very difficult. Unless small companies are as lucky as my noble friend in having friends abroad who have faith in the business and invest the necessary money over a long enough period, they could have difficulty in surviving. This therefore raises the question of whether there should be some financial instrument—a matter that has been debated many times in this House—for the particular support and investment of small firms, such as is done in France and Germany and has been for many years.

On a wider point, the City ought to be showing more commitment to managements that have a long-term strategy. The noble Lord, Lord Laing, mentioned that in connection with his own, very important company. I had the great pleasure of visiting him there during my time with the Coal Board. I am glad to say that I had a dual interest. We supplied his company with fuel. (I do not know whether it still uses coal now, as it did in those days.) Also, our pension fund had, quite independently, decided that the company was a good investment. I therefore thought that on both grounds it was a good idea to go along to see what was happening. Most impressive it was. The noble Lord has started something quite remarkable.

He is committed to the long term. He emphasised that he had persuaded the workforce that more of what the company earned should go into investment. Unfortunately, I do not believe that the City is all that interested in companies that devote themselves to long-term development.

I take a slightly different view from that expressed by the noble Lord, Lord Griffiths, of the recent take-over of Forte. We saw a great company, representing a very wide range of hotels in this country and abroad and contributing to the tourist and leisure markets, being broken up as a result of judgments that seemed purely directed to what has been referred to as "shareholder value". Because the value to the shareholders for the time being could be increased that mighty company was being dismembered. I have no financial interest in either business. I have no shares in either—perhaps unfortunately, since I should have done very well! It dismayed me that a number of major City institutions could make a judgment related to so-called shareholder value rather than to the longer-term interests.

Finally, as referred to in the report, we need to build on sectors where we are likely to see specific advantages. We have certainly built on the advantage we have in the City. We have built on the advantages we have in the pharmaceutical sector. But there are not many other sectors we can say that we have built on. Germany has built on its skill at capital equipment: it leads in that. Japan, as we know, leads in consumer electronics: that is the sector on which it is concentrating at the moment.

There are other sectors we could look at and try to build up by creating the right framework. I should like to refer in particular to the subject raised in the Unstarred Question put by my noble friend Lord Beaumont as recently as the 13th of this month about the environmental industries sector. Here is a market of enormous importance. It is already very large, as was pointed out in that debate, exceeding in world terms the total value of the aeronautic market, and it will grow substantially in the years ahead. For example, it is estimated that by the year 2010 this could be worth£400 billion and is now worth something in excess of£150 billion. We have great skills in this area in Britain, but the leaders in the market are America, Japan and Germany. The reason that they are leaders is that they have recognised that this market demands large-scale projects. We have a very fragmented sector. We are incapable therefore of meeting competition in these large-scale projects. I think this is an area that we should seriously look at. This is a growth market, a highly desirable market, in the technological sector. We have great skill at it, but at the moment we are behind the others because we have not recognised the nature of the market overseas, or indeed at home.

I should like to conclude by saying that this report has stimulated a great deal of thinking in our debate today, and it will certainly continue to do so. This is part of a rethinking process which is going on much more widely than in your Lordships' House—to which we have, however, contributed very valuably today. What is needed in effect is a three-pronged strategy: to maintain economic stability, to achieve environmental sustainability and to bring this about in a socially inclusive way.

6.22 p.m.

Lord McIntosh of Haringey

My Lords, this has been a fascinating debate. It has not been lacking in contributions from noble Lords who have spoken from their own experience in business and society, and it has not been lacking either in political controversy and the range of political views which have been expressed. However, it has been unusual in that respect, in that a lot of people, despite strong political convictions, have spoken for themselves rather than following a party line. I wondered at times whether it might not have been better if we had spoken under Chatham House rules rather than in a public forum in this way. Certainly people have not been afraid of expressing views which do not necessarily fall in with political correctness. I personally have been grateful for that.

The noble Lord, Lord Dahrendorf, is a worthy descendant of a worthy school of thought, which has had very great and deserved influence in this country and in the western world this century. He is a worthy descendant of Keynes, Beveridge and the late lamented James Meade, and he has brought up to date in many ways their thinking about society and about the economy. I thought it was most unfair of the noble Lord, Lord Beloff, to call this the extreme conservatism of the centre Left, but it is fair to say that there is a point at which that liberal strand of thinking tends to gather up its skirts and not to get quite to the heart of the matter.

It was all very well for Beveridge to talk about full employment in a free society when he had the possibility, which had been demonstrated by wartime experience of a particular form of full employment—that form which consisted of a very large number of people who stayed in the same job all their working lives and who had that social cohesion not only because they had jobs but because they had the same jobs or they worked for the same employer, whether public or private. That no longer occurs, and we have to think way beyond the options which Beveridge put to us and which we rightly adopted in the postwar years.

I thought that the most interesting point in the approach of the noble Lord, Lord Dahrendorf, was not so much in the report itself but in the article which appeared in the Guardian at the time the report was first published in July last year, when he said that he: was not primarily concerned with inequality or social justice".

He confirmed me in my views about that by saying this afternoon that for him social justice implied redistribution. That, I think, is the difference between the noble Lord and my noble friend Lord Borrie, who does not shrink or gather up his skirts in his report and who does not fail to recognise that social justice and redistribution is indeed part of the solution, just as the absence of social justice is a very major part of the problem. That is the centre Left strand of thought, one might say, which is represented by the report. In so far as it goes—and I shall return to that in a moment or two—it has some valuable things to contribute.

However, it is contributing these things in the context of the intellectual dominance over a number of years of the radical Right. We have had a number of expressions of the views of the radical Right this afternoon. We have had the noble Lords, Lord Skidelsky and Lord Griffiths; I am sorry he is not in his place because I have been remembering a point he made in the House on 1st March last year and I should have liked to quote it against him. I would wish to have done it while he was here, but maybe I will do it regardless.

The point about redistribution is that the radical Right has had the opportunity to achieve redistribution over the last 15 or 20 years and the redistribution it has achieved is in favour of the rich and against the poor. If we take the period between 1980 and 1994, the poor—this is not just in relative terms but in absolute terms, excluding housing costs—have lost out by 14 per cent. and the rich have gained by 50 per cent. The poor, I may say, are the bottom 10 per cent.; and so the whole thrust of social policy in this country, in the United States and to a lesser extent in many European countries, has been what Marx foretold as "progressive relative immiserisation". The poor have got poorer and the rich have got richer. It is in that social context that we have to look at economic policy and at social cohesion. There are perfectly good reasons for it and we can understand them.

I have quoted J. K. Galbraith in this House before about the way in which there is a contented majority in most Western countries now, whose whole views are coloured by their need to retain their privileges and to justify them because they believe they deserve their privileges and the enjoyment of them. They believe that it is better to sit tight and let things go by rather than to take longer-term protective measures against social exclusion, because short-term measures might involve tax rises in the short term. They believe that the state is a burden. We saw that in New Hampshire yesterday. They believe that the state is a burden, except when it comes to farm subsidies or tax relief or support for bailing out financial institutions. But all the aspects of the state which go to benefit the poor are a burden on society. It is only the measures which benefit them that are not. The Right-wing intellectuals who justify those comfortable conclusions of the comfortable majority are the ones who have those "highly convenient" social and economic doctrines, as Galbraith put it.

I am glad that the noble Lord, Lord Griffiths, has returned to the Chamber. I want to quote from what he said in this House on 1st March last year. He said: To the extent that governments try to stop the trend—

he meant the trend to inequality— and try to compress wages, unemployment rises".—[Official Report, 1/3/95; col. 1510.]

I had no opportunity to reply to that statement at the time because I was not taking part in the debate. But have not heard anything which was quite so directly the reverse of the truth. In point of fact, over the period in which the intellectual domination of the noble Lord and his friends has been so powerful not only has inequality risen but unemployment has risen. The two have very much gone together. It is exactly the reverse of the claim that the noble Lord made at that time. That is important because we must recognise that unemployment is the key to the problems recognised by the Dahrendorf Report.

In addition to those two trends—the centre Left and the radical Right—I say with a good deal of trepidation that there is the Left; there is still a Left. It may not be a radical Left in the sense that it was in Marx's day, but it is concerned not only with wealth creation but with social justice and dealing with inequality. The report of my noble friend Lord Borrie, which has had some, but nothing like enough, attention in the course of this debate—it has had plenty of attention in the country and deservedly so—has completed the argument in the way that the Dahrendorf Report has not. It recognises the extent to which Beveridge's analysis 50 years ago of social policy is no longer adequate. It recognises the way in which Keynes' analysis, which has been abandoned, ought to have further recognition now. Nobody says that we should go back to a command economy. Nobody says that that version of socialism is still appropriate. But in what is now a post-industrial society, surely we no longer need to talk in terms which are descriptive of an industrial society. Even my noble friend Lord Desai will, I hope, recognise that the problem is not quite capitalism. Capitalism was one way of describing one form of an industrial society. We have a different form of society which is the problem now. It is no longer suitable to talk of command socialism or capitalism in the way in which it may have been 20, 50 or even 100 years ago.

I turn back to the report and the issues of wealth creation and social cohesion. The noble Lord, Lord Roll, quite rightly said that wealth creation was a much wider issue than individual gain and that it was not the exclusive engine for wealth creation. He did not say so but I feel that his remark recognised, that wealth creation is not necessarily only in the hands of the private sector. Many things that society does collectively create wealth and they ought to be recognised as wealth creation in the same way. Governments—at any rate governments of the Right—tend not to recognise that.

We have a tendency to think that, because the industrial revolution in the 19th century came about without state support and, indeed, sometimes against the state, the post-industrial revolution in which we are involved now can continue in the same way. I do not believe that that is the case. What we see in the post-industrial revolution is the dominance of financial services and the standards imposed by finance. We see a split between finance and business—all that is properly documented in the Dahrendorf Report—and we see a continuation, at a time when people thought that it might have gone, of the adversarial capital/labour divide.

Incidentally, I ought to have said in response to the noble Lord, Lord Laing, that I see him as being intellectually in the centre Left tradition that I have described. He and United Biscuits are the acceptable face of capitalism. But I am sure that even he would agree that United Biscuits may have changed and other companies certainly as well as other forms of employment have changed much more. The kind of admirable things that be described can hardly apply to the break-up of the Hanson Trust empire or the Granada/Forte fight, which the noble Lord, Lord Ezra, described. Nor can they apply to what has happened to the way in which the employees of privatised industries are now being handed around to Wisconsin transportation companies or French water companies, as though they were just parcels to be moved around.

What is quite clear now is that wealth creation itself is not necessarily accompanied by an increase in jobs. That brings me to what I believe ought to be the theme of this whole debate, not just in this House this afternoon but outside; namely, the issue of unemployment. A report which has not been mentioned at all and was not even included in the index of the Dahrendorf Report, is the Delors Report at the end of 1993. It was called Growth, Competitiveness and Employment. That report starts with the phrase: The one and only reason"—

for the White Paper, in other words— is unemployment";

or, as Bill Clinton might have said before the last election, "employment, stoopid!" That is what it is really about. The value of the Delors Report is that it rejects many nostrums, most of which have had a very low profile in the debate today. It rejects the nostrum of protectionism for the Western world; the nostrum of the dash for economic freedom; the nostrum of the Left, I have to say, of cuts in working hours or job-sharing; and above all, the nostrum of cuts in wages and social protection to make us more directly competitive with the Asian Tigers. I thought that only the noble Lord, Lord Skidelsky, approached advocating that particular nostrum, although perhaps the noble Lord, Lord Griffiths, did also.

If we are to do something about unemployment as the principal cause of social exclusion, which I believe it is—there are plenty more—then we must take the Dahrendorf Report very seriously. But we must also take the Delors Report seriously and ideas which appear to have been kicked into touch. The Dahrendorf Report rightly says—I am sorry that nobody expanded on these points—that in stimulating investment we have to find better ways of promoting physical investment which will involve collaboration between the public and the private sectors. He has a very sensible, thoughtful and constructive passage about ways of achieving investment by increasing the savings ratio. By that, he means, and I would mean, proper pension schemes. He has a very sensible section on investment in human resources.

The noble Lord, Lord Pilkington, whose excellent maiden speech was very appropriate on that point, spoke about education in the sense of expanding the role of vocational education rather than reducing other education simply to being vocational education, as some people believe.

What Delors said, which expands on the lessons of Dahrendorf, is that we should be seeking to improve the competitiveness not only of Britain, but of Europe. I know the Eurosceptics will turn away from that, but it contains sensible points. We should use the benefits of the World Trade Organisation achievements, just as 50 years ago we used the benefits of the Bretton Woods agreement. We should encourage competition by harmonisation in the European Community. "Harmonisation" is often a dirty word; but its purpose is to open up markets, to make room for wider markets. That is another reason, in my view, for supporting that, among other aspects of the European Union.

We should provide a trans-European infrastructure—for example, in transport and energy—to cut down barriers to competition which are themselves barriers to employment and to wealth creation. There is a specific section on small and medium enterprises. As one who ran a small company for 30 years, I simply do not recognise the obstacles described by the noble Lord, Lord Vinson. I never found that bureaucracy was the obstacle. As the noble Lord, Lord Ezra, said, swings in economic policy and economic achievement were the problems and therefore it was the competitiveness of our clients that was the real difficulty.

That leads on to the social policies necessary to complement the economic policies described in the report. I do not have time to go into them. I urge Members of this House to read the report of my noble friend Lord Borrie, Social Justice, even though it weighs 305 grammes as against the 85 grammes of the report of the noble Lord, Lord Dahrendorf. It goes a lot further. We ought to go a lot further. We should build on and welcome the analysis of the Dahrendorf Report, but we should not think that there is or can be an automatic or secure connection between wealth creation and social cohesion.

6.42 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, we have had an interesting debate this afternoon and are all grateful to the noble Lord, Lord Dahrendorf, for introducing it. I am not sure that I am totally grateful. I thought that this week I would have a rest from the Dispatch Box and that your Lordships would have a rest from me until I saw the Motion down on the Order Paper and realised that neither of us would have a rest from my voice.

Despite that small reservation, as always I enjoy these debates that come to me as part of my brief to speak up for Her Majesty's Treasury. I always enjoy them because of the large number of economists that come to them. I must say to your Lordships, and I have said it before, that I often think to myself quietly that I am glad in retrospect that I never studied economics. I am afraid I would have found some of their lectures rather dreary. At the risk of damaging his career yet again, that never includes the noble Lord, Lord Desai, of course.

We were all pleased to hear my noble friend Lord Pilkington make his maiden speech. It was an excellent maiden speech. I noticed that he began by saying that he wished to discuss present realities rather than future dreams. I echo that and will come back to it, if I may, when I turn to education. I am sure that we all look forward to hearing him many more times.

The first part of the report of the commission of the noble Lord, Lord Dahrendorf, is about globalisation and the fact that the world has changed. In fact the world is always changing. Anybody who looks back in history can see that. Those noble Lords who know the countryside will know that one can see in many places the housing that was required not all that long ago to accommodate those who worked in agriculture. Today there is perhaps a farmer alone with part-time help, whereas even 50 years ago the farmer would probably have had, in Aberdeenshire terms, a grieve and that grieve would have had a number of other men working on the farm. That change has taken place in my lifetime. Greater changes have taken place in some of the lifetimes of your Lordships who have been around a little longer than I have.

The main point that I want to underline in relation to globalisation is one on which the noble Lords, Lord Dahrendorf and Lord McIntosh, and myself will be in absolute agreement; that is, we realise the importance of an open trading world. My noble friend Lord Beloff, in his usual spirited speech, mentioned the lessons that we ought to learn from the rise, if I can call it that, of Mr. Pat Buchanan, who preaches protectionism in America and the dangers that that would cause to the world economic order. That is certainly something on which we can all agree.

We all see new and exciting opportunities which come to us from the increasing interaction between nations. That is why we in the United Kingdom and this Government are active members of the organisations in the world of nations—the international ones, the European ones and the Commonwealth ones. Our aim is always to influence the debate from the inside. On the question of globalisation and the need to guard against protectionist blocs, the noble Lord, Lord Dahrendorf, in his report at page 6, goes on to say that: The choice for Britain is either to be an active member of the [European] Union, or to stand apart protecting its own limited national space, while at the same time being affected by a Union whose development it cannot influence".

The noble Lord's commission has no doubt that the right approach must be engagement. As I have said from this Dispatch Box on a number of occasions, usually in answer to noble Lords opposite, though occasionally to some of my noble friends, in that regard the Government are absolutely in agreement with the noble Lord. It is important to be fully engaged in Europe. But that does not mean that we necessarily need to sign up to every article of faith being put out by the European Commission or by some or all of our friends. I know that the noble Lord, Lord Dahrendorf, agrees with that position; indeed he goes further. In a recent interview with Der Spiegel he went a good deal further than I ever go from this Dispatch Box and said that monetary union was a great mistake; an adventurous, daring and misguided goal that divides Europe rather than unites it. One or two noble Lords—one or two rashly not opposite me this evening—may be interested in that new recruit to their view.

The Government take a simple view, with which I believe the noble Lord, Lord Dahrendorf, would agree. We must wait to see whether it works. As I said in a rather long speech last night outside this House on this very subject, it is not only important for the United Kingdom that it works if we join it; it is important that it works if we do not join it. However many people join it, if it is going to start and run, it is essential for the whole European Union idea, the single market idea, that it does work and that it does not damage the single market we have worked so hard to build up.

We believe that we ought to contribute and are contributing positively to the debate. That does not mean that we shall always agree with our European friends—far from it—any more than my positive contribution to this debate means that I shall agree with everybody who has spoken in it. It is true that European governments in recent years have not had a good record in relation to job creation. Employers have been deterred from creating jobs by excessive regulation, high social charges and over-powerful trade unions. Recently there has been a marked shift in the European agenda, with the recognition that labour costs are too high and that labour market flexibility is an important factor in reducing the high levels of unemployment in Europe. I shall come back to them in a few moments.

Perhaps I may say that the noble Lord, Lord McIntosh, does the noble Lord, Lord Dahrendorf, a disservice. At page 106, one of the key reports—I am not sure that it is not the first key report—is that of the Commission of the European Communities, Growth, Competitiveness, Employment: the Challenges and Ways Forward into the 21st Century.

Lord McIntosh of Haringey

My Lords, I take the opportunity to apologise to the noble Lord.

Lord Mackay of Ardbrecknish

My Lords, when my attention was drawn to it, I even thought that I might read a little about it. The report attempts to address the poor employment record of the EU and measures to improve economic growth and competitiveness. I am not sure that I always find myself agreeing with M. Delors, but I certainly do agree as far as that is concerned.

I believe that a flexible labour market is an inclusive one. It is a market which maximises employment and therefore maximises involvement. An individual is more likely to enjoy long-term success in the labour market if that individual is actively involved in the labour market, rather than being outside it and unemployed. That is why the Government place such emphasis on removing unnecessary barriers and restrictions from the labour market and reducing costs on employers.

The noble Lord, Lord Roll, said that we should not find pleasure in the problems that some of our European friends are currently having. Certainly, I do not, for the very reason that he stated: these are our major markets. If they are in some trouble then they may be unable to buy our goods and services in the way that we would like. But while we should not find pleasure, as my noble friend Lord Beloff pointed out, we should learn lessons and look carefully at their experiences. The noble Lord, Lord Roll, gave Austria and Germany as examples of countries that were attempting to address these problems—I am not entirely sure that Germany has as yet done enough to address them—but I noticed that he missed out Italy and France. In both, unemployment is leading to considerable government turmoil. Addressing these problems is not proving easy for them. It is certainly not easy for them to keep their societies cohesive.

Perhaps I may turn to the question of employment. I agree that employment, or the lack of it, is the base of the problem of people who feel themselves excluded. We have debated that on a fair number of occasions. I do not want to repeat a lot of the arguments about income-rich families, job-rich families and job-poor families; about the simple fact that there appears to be a relationship between one of the spouses not being in work while the other is, and the other finding it easier to get work than when both are out of work; and about all the undoubted problems that have been identified. We are trying to tackle them.

I shall not point out particular noble Lords. I wrote down a Scottish expression—"dismal Jimmy"—while I listened to one or two speakers. One of your Lordships looked rather gloomily at the United Kingdom and rather optimistically, I believe, over the fence at other countries. I know that the noble Lord, Lord Desai, had to go. He pointed out that the structural adjustments which have caused us pain—and we went through that pain in the 1980s—are now beginning to show themselves in countries as strong as we thought Germany was. There, a mighty company like Daimler Benz is having to face some of the difficulties and pains that a number of our mighty companies have been through.

It is well worth saying that our unemployment rate in the United Kingdom is almost 2.5 percentage points below the European Union average. It is three points below that of France, four points below that of Italy and the same as that of Germany. Unlike Germany, we are moving downwards while they are moving upwards. The United Kingdom has the lowest rate of female unemployment in the European Union.

Youth unemployment is a particularly difficult problem and perhaps one to which we could devote a whole debate. While I would not stand at this Dispatch Box and say that I am entirely satisfied with how we are doing, I certainly would not look across the Channel for examples as to how to do better with regard to youth unemployment. The rate in the United Kingdom is a whole five percentage points below the EU average. In France, youth unemployment is 28 per cent., in Italy, 37 per cent., and in Spain, 38 per cent.

The right reverend Prelate the Bishop of Chester drew our attention to one of the problems of unemployment. He pointed out that it can occur in very large pockets. One of the interesting factors that we are seeing in this country compared with, say, 10 years ago is a narrowing in the range of unemployment between one region and another. I fully accept that the right reverend Prelate was talking about very small areas. I accept that there are areas where there is very severe unemployment. However, looked at from the point of view of the regions of the United Kingdom and Scotland, the unemployment divergence has come together over the past few years. Before anyone jumps up and says that is because the unemployment rate in the better areas has gone up, it is because the unemployment rate in what were the worst areas has come down.

Lord McIntosh of Haringey:

My Lords, if the noble Lord is going to speak at such length about unemployment, perhaps I may say that his own Government recognise that we measure claimant unemployment. Comparisons between our unemployment levels and those of other European countries are bound, on that definition, to appear to favour us.

Lord Mackay of Ardbrecknish

My Lords, while the figures do not exactly match, the trends and patterns are still there when one looks at factors such as the figures collected by the ILO. Its figures are collected under a system which it prefers. I believe that unemployment is the key to the social exclusion problem. If I am accused of speaking about unemployment at too great length, I am sorry.

A noble Lord mentioned long-term unemployment. In the United Kingdom our long-term unemployment is below the EU average and has fallen by 266,000 since January 1994. Long-term unemployment in the last recession peaked at 250,000 below its peak in the mid—1980s. I am not saying that we have resolved the problem, but the position is certainly improving.

We have to beware of Luddism when looking at the question of employment. As my noble friend Lord Skidelsky pointed out, new technologies have always been historically associated with increases in wealth and employment and not the converse, which people always believe when we enter them. They believe that new technologies will create unemployment. They change the nature of employment, but they certainly create more wealth and more employment.

In order to stimulate the labour market and support the reforms to it, we have to look at training and education. We set up the Training and Enterprise Councils in the early 1990s. We substituted private sector involvement for government direction. The programmes are more effective as a result. Some 40 per cent. of Training for Work leavers now find a job. Our new scheme of modern apprenticeships for the young will help to fill the gap in qualifications at technical level. By the end of the century, 70,000 young people a year should be achieving NVQ Level 3 through modern apprenticeships.

Nearly one in three people now go to university in Britain compared with only one in eight in 1979. Interestingly enough, a higher proportion of young people here complete their first university degree than in any other major European country. Twenty per cent. of the relevant age group graduate in the United Kingdom compared with 13 per cent. in Germany and 15 per cent. in France. Although other countries put more people through university, we have more graduates at the end. That is a record about which we can be very pleased indeed.

I said that I would return to the maiden speech of my noble friend Lord Pilkington. He made a very good point, which I can sum up. I believe that the figures—I can give others—suggest that we are not making a bad fist at educating the top end of the ability scale. As my noble friend rightly pointed out, I do not believe that we are making nearly so good a fist at educating the bottom end. There are very many worrying statistics to highlight that point.

My noble friend suggested that we should look at the situation in France and Germany, where they accept quite early on in a child's life that the reality is that some are potentially capable of going on to further and higher education and others are not and will therefore have to be educated in a way that will give them the opportunity not only to get jobs but also to gain satisfaction with their education and find it stimulating.

I try to avoid education because of my background in it. But I have never been in any doubt that the non-selective process in secondary schools has condemned many decent children at the tail end to an education suited to a brain surgeon rather than to a plumber, as my noble friend has said. I very much hope that a consensus is beginning to emerge between us as the party opposite recognises that the totally non-selective comprehensive system has not in fact served that tail at all well. I do not believe that one need necessarily go so far as having different schools but one certainly needs to look at a much more rigorous selection of pupils and courses within the schools themselves. That is terribly important because, as my noble friend Lord Skidelsky rightly said, the number of unskilled jobs is falling faster than the amount of unskilled labour and if we do not do something to make sure that the next generation of potentially unskilled labour is skilled labour, we shall not begin to address that very difficult problem.

Perhaps I may advise my noble friend Lord Pilkington that I hope that the merger of the Department for Education with the Department of Employment will begin to take us down a better road in relation to the problem that he identified.

Looking at UK plc as a whole, I listened with interest to the noble Lord, Lord Ezra, who always seems to manage to be extremely pessimistic about these matters. Being a Scotsman, perhaps I may look at the half full bottle of whisky—

Lord Ezra: My Lords, I thought that I started and ended on a very positive note, but in between there was a degree of doubt.

Lord Mackay of Ardbrecknish

My Lords, I shall look at the middle of the noble Lord's speech and refer to the point of view of British business and how we are doing. The United Kingdom attracted one-third of all the stock of inward investment into the European Union. We are not doing that because we are the worst in the European Union—or anything like that—we are doing that because we are seen to have major advantages. A recent Financial Times survey of the top 500 companies in the world showed that the United Kingdom had 11 of Europe's top 25 quoted companies by market capitalisation and 16 of the top 25 by profitability. So, for all the difficulties that I freely accept that we have, for goodness sake let us not ignore for a moment our considerable success as a competitive manufacturing and servicing country, not only for our own people but for markets around the world.

Our macro-economic policies are aimed at delivering low and sustainable inflation and sound public finance. Commitment to the inflation target has given us much credibility in the financial markets. I am afraid that that leads me to reject the report's call for targeting nominal domestic demand because I believe that such a target implies a weaker commitment to low inflation.

My noble friend Lord Laing made, as always, an interesting speech. He made a terrific success of United Biscuits and I must advise him that, unfortunately, my doctor told me that my cholesterol rate and eating biscuits were incompatible and I was instructed to stop eating them, which seemed to me to be a profoundly bad idea. Perhaps that is why United Biscuits is not doing so well now. In the hope that this does not go further than your Lordships' House, perhaps I should add that 1 occasionally fall from grace in terms of avoiding the products of United Biscuits—

Lord McIntosh of Haringey

Chatham House rules!

Lord Mackay of Ardbrecknish

Yes, Chatham House rules. I thank the noble Lord for that.

My noble friend talked about R&D and took what I thought was a rather over-pessimistic view. The G7 average for R&D expenditure as a percentage of GDP is 1.3 per cent. The United Kingdom's R&D expenditure is 1.4 per cent. I freely admit that the R&D expenditure of the United States and of Japan is 1.9 per cent., but although my noble friend could rightly say, "Could do better", I do not think that we should be as pessimistic as his remarks suggested.

Other problems were drawn to our attention by the noble Viscount, Lord Thurso, and my noble friend Lord Vinson. I refer to the problems facing small and medium companies which are in many ways our seedcorn future employers, large, medium and small. My noble friend Lord Vinson drew attention to the danger of over-regulation. The noble Lord, Lord McIntosh, did not think that that was a problem. However, when I sat through our debates on the Jobseekers Bill and listened to the impositions which some noble Lords wanted to place on businesses in terms of who they could or could not employ, I recognised the problem outlined by my noble friend and not the situation outlined by the noble Lord, Lord McIntosh, who does not think that there was any great problem with over-regulation. As my noble friend knows, through the deregulation initiative we are attempting to reduce the burden of regulation. We shall continue to do that vigorously.

In his interesting speech, the noble Viscount, Lord Thurso, talked about not doing enough for small companies. One of the problems is whether to help such companies by capital allowances and so on or by having a low burden of taxation. We have chosen to go for the low burden of taxation. The net result is that corporation tax in general, which stood at 52 per cent. in 1979, is 33 per cent. now. For small companies the corporation tax rate has been reduced from 42 per cent. in 1979 to 24 per cent. today. That reduction to 24 per cent. in the 1995 Budget will help something like 300,000 small companies. We also have a range of help for small firms seeking finance, and we are seeing considerable success in bringing finance to small and growing companies where they want it.

The other important issue in the report of the noble Lord, Lord Dahrendorf, is what I call "social security"—perhaps that is because I spend most of my life in that department—rather than "the welfare state" which I think encompasses a wider blackboard including health and education, which I do not want to go into any more than I have already. The noble Lord referred to where the social security system and the wealth creating system move together or clash. My right honourable friend the Chancellor of the Exchequer recently outlined that relationship. I agree with him absolutely when he says that our aim as a government is to foster an enterprise economy while ensuring that the welfare state provides positive support to that economy. My right honourable friend is also right when he says that it is vital that the system remains affordable and is therefore as efficient as possible. Our system provides an income for those who cannot earn because of sickness, disability, unemployment or old age. I believe that the social security system will remain a great reassurance to people, providing a safety net and reducing fear of change.

The noble Lord, Lord Borrie, discussed the problem of moving from unemployment into work. As he will know if he has heard me before on the subject, we recognise that there is a problem and have taken considerable steps to attempt to improve it. One way is through the family credit system, which helps with the wages of those with family responsibilities. It helps about 600,000 families, encouraging them into work in the knowledge that they will get help with their family obligations if they need it. We have also attempted to remove the uncertainty in the period between unemployment and a new job by means of a run-on of housing benefit, the new back-to-work bonus, and by fast-tracking decisions on family credit so that people will not have to wait for a while once they have started a new job before they know to what help they might be entitled. By the national insurance contributions holiday we are encouraging employers to take on people who have been unemployed for two years or more.

We had an interesting speech about a citizen's income from the noble Lord, Lord Beaumont of Whitley, who "set up" the noble Lord, Lord Desai, so that the noble Lord would have to pursue the issue. I do not want to go into that in any great detail, but I presume that the idea of a guaranteed minimum income of some kind for pensioners—a guaranteed minimum pension—would be a subset of a guaranteed minimum income.

Indeed, the Leader of the Labour Party, Mr. Blair, said in his conference speech last year that the aim of the policy (on social security) is to remove the stigma of means-testing for ever and to guarantee a minimum income that provides dignity in old age. "That is New Labour", he said—but it was not New Labour for very long because in The Times of 20th February this year I read a letter on page 15 from Mr. Chris Smith, the Shadow Secretary of State for Social Security. He states: Contrary to the assertions in your editorial Tilley's logic' (February 8), Labour has not made a commitment to a guaranteed minimum pension, though we certainly do not share the Social Security Secretary's complacency about the adequacy and coverage of support which is available for today's pensioners".

Despite the caveat, he makes it clear that he no longer agrees with the speech that his right honourable friend made last year. Interestingly enough—this brings me on to pensions—the letter goes on to say: We do not propose a second-tier pension with additional compulsion, and we have specifically ruled out the Singaporean Central Provident Fund model".

So all the holidays in sunny Singapore over the Christmas and New Year period were in vain. We could have told them that and saved them the air fare.

The subject of pensions is important. I note that the report suggests—I read it with more care because of my involvement—that there should be a change in what has been the position since 1980, where the basic pension has been uprated in relation to prices rather than earnings. A change to uprating in line with earnings, as well as prices, or some sort of half way house, would be expensive. The change we made in 1980 has saved about£7 billion this year. That means that instead of£90 billion the social security budget would be pushing up towards£100 billion.

We believe that the way to go on pensions is to encourage people to take out their own pensions. We have had considerable success in that. We have invested£600 billion in invested and funded pension funds in this country, which is more than the total for the whole of the rest of the EU put together.

My noble friend Lord Griffiths quite rightly took up a point made by my noble friend Lord Laing and the noble Lord, Lord Dahrendorf, who talked about short termism and the fact that too much in dividends was paid to institutional shareholders. Many of the institutional shareholders are the pension funds which are paying out pensions to pensioners who have seen their standard of living improve hugely over recent years because of the increasing number of occupational pensions.

This has been an interesting debate. I told myself that I would finish after 30 minutes. I apologise to other noble Lords if I have been unable to take up some of the interesting points that they have mentioned.

I want to conclude by mentioning that the noble Lord, Lord Holme of Cheltenham, spoke about shattered cohesion, and used several other expressions, including sackcloth and ashes, something about which—dare I say?—the noble Lord, Lord Borrie, also spoke. I remember the late 1970s when we had great problems leading to the winter of discontent. Learned newspaper articles were asking: is Britain governable? I was not then one of the dismal Jimmies, as I described them. I believed that Britain was governable. All it needed was a government led by my noble friend Lady Thatcher. Equally, I am not pessimistic today. I know that all that is required is continued government by my right honourable friend John Major.

The noble Lord, Lord Ashburton, talked about people holidaying in France. When I was a young boy we thought that the local doctor's wife was the most adventurous woman in the village, because she went abroad to France for her holidays. The only other people in the village who had been abroad were those who had come back from the Army. In that village, as in every village throughout the country, great numbers of our fellow citizens go abroad and expect to go abroad. They go much further to much more exotic places than France nowadays. That is part and parcel of the huge increase in the standard of living of ordinary people that we have seen in this half century. Of course there are some problems. Of course some people are excluded, but do not let us paint a picture which is totally false and without foundation.

7.14 p.m.

Lord Dahrendorf

My Lords, it remains for me to thank not only all those who have taken part in the debate for their contributions, but those who have listened to it. It was a thoughtful, informed and constructive debate. I shall remember the powerful maiden speech of the noble Lord, Lord Pilkington of Oxenford. It would be in breach of the rules of the House were I to go over again the ground which we have covered. I have learnt to respect the rules of the House in the short period during which I have had the honour to be a Member.

I was naturally grateful to noble Lords for their generous comments on the report which we have been debating. I go away thoughtful about a number of criticisms which have been made. I would not claim that we have found the Holy Grail. The attempt was to contribute to the debate, and the debate will go on.

I was a little apprehensive when the Minister began with his research into my publications in other parts of the world, and grateful that he did not extend that research to provincial Italian newspapers and certain other publications in which I have occasionally written, and perhaps just a tiny bit puzzled when my friend, the noble Lord, Lord Desai, mentioned something about the banks and the City which is not in the report, although it is in the best selling book which one of the members of the commission published and which has no doubt found a much wider audience.

It is rather important, for me at any rate, to make it clear that in my view there is no simple explanation of a tendency towards short-termism, but I worry—I say ibis to the noble Lord, Lord Griffiths—about the role of institutions in that process. I am a trustee of one of the largest pension funds in the country. I am also the head of an Oxford college who sees, incidentally, the same fund managers and talks to them in much the same way. For someone like myself, it is a dreadful dilemma to see, on the one hand, how those funds are handled by fund managers, what their motives are, and what they do not say about companies, and to believe, on the other hand, in the longer term perspectives which I have advocated here. I have no simple answer to that. There is no simple answer. It is a worry for those of us who find ourselves, as it were, on both sides of the fence.

One way of expressing the worry would be to use the interesting statistics introduced by the Minister about the number of British companies, I believe he said, among the top 25 European companies in terms of market capitalisation and profitability. That is entirely correct. There is the vexing question of how many British companies are among the top 25 in terms of turnover. If the Minister were to extend his research to that question, he would make an odd discovery. I have looked at the top 100, and there are 34 British companies in the top 100 in terms of market capitalisation and 11 in terms of turnover; in other words, there is an attitude to profit and profitability which is significant for the progress of companies and of the economy of Britain, but which is significantly different from the fundamental attitudes and structures elsewhere.

However, I am now beginning to be in breach of your Lordships' rules. I am deeply grateful to all who have contributed. I go away, as I hope many noble Lords will, trying to think further about constructive answers to problems which are real, but which can be resolved if we build upon what we have at the moment. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.