Mr. President, ladies and gentlemen. Thank you, Mr. President, for your very warm welcome. May I say how delighted I am to be in Bombay, the business capital of India, and to have the chance of speaking to you. I am afraid you will find a certain duplication between the President's speech and mine, because of the fact that we both feel very similarly about the opportunities for the future and about collaboration in a number of projects. Nevertheless, I shall try to get through mine as quickly as possible so we can then go on and have questions so that I know what is really in your mind and can attempt to answer the things you wish to hear.
In my two previous visits to India I learned a good deal about Indian industry, science and agriculture. There is never enough time, but I have taken the process a little bit further on this occasion, and yesterday I saw something of your agricultural advances near Delhi, and saw just what a lot of work had been done to improve the yields of the crops, and how successful is the quality. This morning I paid a fascinating visit to the Atomic Research Station at Trombay. I very much wish I had been able to spend more time with them in that very impressive centre. But I was very impressed with the work they are doing. [end p1]
I am confirmed in my view that India is the scene of one of the most exciting development processes in the world, and I would like to say how very much I admire your success in developing an advanced industrial, commercial and scientific apparatus. And I admire the way in which you have applied these advances to the massive problem of rural poverty.
In Delhi I had very valuable talks with Mrs Gandhi and also with other members of your government. Of course, We spoke mainly about the international issues of the moment, including the international economic situation. But we also paid special attention to practical measures to improve both the size and balance of Indo-British trade. I want to say something about each of these factors in turn. [end p2]
First, a few words about the international economic situation. We all know the problems—inflation; recession; balance of payments problems; serious problems of debt, and poverty; and in some ways two of those things, inflation and recession have a different origin from some of the others. As far as inflation is concerned, it is largely up to each country to do its best to see that it's economy is run in such a way that it reduces inflation, and I would like to say very firmly indeed that I economically have made a reduction of inflation, and perpetually keeping down inflation, I have made that top priority in our British economy strategy. Unless we do that our people will have no confidence for the future. They will find investment very difficult, and above all, unless we do that we risk running into a kind of indexed-linked society which could be its own engine for the production of inflation and which could damage the whole confidence of people in their currency and in investment for the future.
World recession has been brought on the second time in the decade by a very rapid increase in the price of oil. Extremely worrying, it means that because we have to spend so much more on oil, we have less to spend on other things, and many companies that were otherwise successful are therefore not able to produce. I must say that the private banking system was very successful indeed at recycling the money from the first oil crisis. It is providing much more difficult during the second oil crisis which is one reason why we find the world recession deeper than it was last time. Some of the other problems, balance of payments problems, serious problems of debt, poverty, have become part of the international effort at dealing with these matters, and that international effort has come to be known by the term the “North-South Dialogue” . I confess that I don't like the term very much.
It suggests a world neatly divided into two—the developed countries on one side of the table, the developing countries on the other side. A visit to Bombay suggests that that picture is not accurate nor helpful: just out to sea we see from here offshore oil rigs and on the mainland the new oil receiving terminals. Modern technology in a field where Britain and India have been developing in parallel these last few years. [end p3] —Your city is the centre of a sophisticated banking system. —You are the home of high technology industries and impressive industrial research centres, like the one just up the road operated by the Indian affiliate of Unilever, which I am sorry I was not able to visit, although I received a warm invitation. —a few miles away is the Tata Institute of Fundamental Research. There work is done, sometimes in collaboration with British cosmologists, on the deepest problems of the origin of the universe.
These, you will agree, are not the usual hallmarks of a developing country. But then the so-called South of the North/South dialogue does contain countries which have resources which many countries of the North lack. And some countries grouped with the North for the purposes of the dialogue are in fact located in the South, such as Australia and New Zealand. [end p4]
More seriously, the term North-South Dialogue has come to have an overtone of opposites and even of confrontation. That does not help. We need a true analysis of the problems and a concerted effort to try to deal with them. This effort will only be effective if it is concentrated on the creation of new wealth rather than the redistribution of existing wealth. I cannot make that point too strongly. In so many political issues whether at home or internationally, people assume that someone will have created the wealth for them to redistribute. It is not so. That is to misunderstand the role of the economics of the creator of wealth and because we concentrated far too much on redistribution and far too little on the production and creation of wealth we have not enough resources with which to relieve the poverty that we would want to relieve, both in our own countries and in the world as a whole.
But that is not to decry the international efforts that are already being made to accelerate development in the poorer countries of the world. I would like to stress that we in Britain are playing our full part. We are a major contribution to multilateral organisations like the World Bank. We operate one of the largest bilateral aid programmes in the world and India is the largest beneficiary of it. When planning for the year 1981/82 we set aside nearly 2000 crores of rupees (£1 billion) for overseas assistance—a very substantial sum. [end p5] The total transfer from Britain to the developing countries—aid plus private flows—has in recent years been nearly three times the one per cent of GNP target set by the U.N. That is a true measure of our practical contribution to international economic problems.
There is a great deal for governments to do. In August, twenty or so Foreign Ministers will meet to prepare the Mexico Summit. In September, Commonwealth Heads of Government will meet in Melbourne. In October, the Mexico Summit itself. I hope to meet Mrs Gandhi at both Melbourne and Mexico. And I hope that these meetings will produce some practical new ideas to deal with the problems. [end p6]
But these things are not exclusively for governments. We should all be aware of that, those of us who are in politics. Governments can and should create the right conditions. It is then for individuals and companies to take advantage of them. So we both have a role. Government to set the right economic framework, but when we've done that it is for individuals and companies to rise to the occasion. And if one believes in free enterprise, if one believes in individual talent and ability then those things will surely follow. The statistics show that it is the businessman, the banker, the trader and the consultant who contribute most to the flows of goods, services and money which keep the world going round. And I would like to pay a tribute to all of you here who in fact do that so effectively.
My pre-occupation in Britain is to create the conditions for growth. Our circumstances are very different from yours but let me mention one or two things. [end p7]
British experience over the past twenty years has taught us the importance of a clear and firmly based economic strategy. We now have one. It is, in plain terms, that we can only achieve lasting growth by getting our inflation down to at least that of competitors, and by promoting a renewed spirit of freedom and enterprise.
Now what's happened in the past is that for years, British governments tried to spend their way to prosperity. The result was something quite different—because with spending, all the emphasis on spending, we got mounting inflation, balance of payments crises and low growth.
Our policy is to spend what we can afford, and to give people the incentives and opportunities for risk-taking and success. [end p8]
But we are getting inflation down. Our industries are being forced to become more efficient. Indeed, it says much for their underlying strength that the volume of our exports has held up, despite difficult world trading conditions and a strong exchange rate.
There are now signs that our recession is coming to an end. We shall then look for continuing growth—continuing because it is not going to bring inflation with it if the Government holds the money supply and will not have to be stopped in its tracks. We shall then be able to take more imports and contribute more through exports and aid to the development of other countries. This will help India. [end p9]
We have watched your recent efforts to lay the foundations of greater prosperity. The new Sixth Plan contains some tough policy decisions. Last summer's industrial policy statement gave new encouragement to the private sector and showed your government's determination to make better use of industrial capacity.
Indo-British Trade
Mr. President, you have already given quite a lot of the statistics of our Indo-British trade that I was going to give. I will not repeat them. They are good but not so good that there could not be room for improvement and it is that very improvement that we seek. We import well from India, we export to India and we hope that the two-way trade will continue to better. So let me drop that bit from my speech.
May I just say a word about international trade because in a way one of the great contributions that we in Britain try to make to international prosperity is to keep our markets open, and to persuade other countries to keep their markets open. The British economy is now almost entirely open. Can I just emphasise the controls which this Government, my government, has abolished. Because I believe in getting government out of a lot of business activities and not putting government in business activities. On the whole I do not find politics littered with successful businessmen and superb industrial managers. So I do tend to leave those things to the industrial managers and give them the right economic background. We have abolished price controls, income controls, dividend controls, all controls on foreign exchange dealings. And a very good step forward that was. It was the first time in forty years that Britain has been simultaneously free of all those things.
We put no restrictions on British businessmen wanting to invest in India. India being one of the main countries to invest. There are very few restraints on Indian imports [end p10] into Britain. There are, as you know, some textile quotas which we operate with the EEC. I may stress that some of those quotas to Britain from India are not in fact filled so far by imports. [end p11]
The scope for expansion of trade in both directions is there. In January the John BiffenBritish Secretary of State for Trade invited a mission of senior business people from India to come to Britain and tell us about India's real industrial strength and the goods you have to sell to us. I repeat that invitation today.
I urge too that we look jointly for ventures in third countries. Birla Brothers and British companies are involved in a recently announced pulp and paper project in Nigeria. I know that many other Indian and British companies are embarking on similar joint ventures in third countries. [end p12]
But I want to make one or two things clear. You can see my philosophy. Governments provide the economic circumstances, that of inflation down, incentives continuing, the right to own private property and the climate for free enterprise. That in fact is being done and will continue to be done. Then we pass over to businessmen in the free society in our developed economies. Now what we [word missing] is that in a good deal of international trade governments have become involved. And this is the one point that I would like to say to you. The world is not run in a way that it is pure competition between the best companies. There are all sorts of impediments to international trade and one of the things when I talk about free trade that I always say, is that trade will not stay free unless it is also fair trade. And it must be fair conditions between companies and countries in the international trading market. There are a number of really big projects, very big projects, for which we all compete, we set up consortia to compete, those consortia often go across countries—from a company of one country forming a consortia to a company in another. It does mean that Governments too have to get involved in these really big trading deals. And I want to say this to you, insofar as consortia are formed and sometimes they are formed between companies in Britain and companies in India, the British Government is very anxious to have more such consortia and that's [sic: backs?] with all its power and influence, the activities of those consortia in competing for foreign contracts. I want to make that very clear. We all have export credit guarantees and we have to make certain that the interest rates are no higher than those charged by other countries. We also are able sometimes to put a certain contribution of aid towards those contracts which helps towards securing them. So should you be in any doubt about that before you came to this luncheon please don't be in any doubt in the future. Yes my philosophy is, a soundly run economy giving scope for free enterprise. [end p13] My philosophy also is to use the influence of Governments to back those of our companies and consortia who I believe are worth some of the best contracts which are going. And who can carry them out in the most competitive and satisfactory way.
One final thing. My industries and commerce in Britain have had a pretty tough government for the last two years. They needed it, we all needed it. They have responded magnificently. I believe we are now more competitive than we have been for years. Our delivery dates are coming up on time and many, many businessmen in my country you will know are saying they are in better trim than they have been for a long time. It wasn't quick to turn round but it's getting better and better every day. And with the kind of energy backing we have got we shall be formidable competitors.
Now can I just say in conclusion how delighted I am to be with you today. I'm very glad to have had this opportunity to talk to you. I do now look forward to receiving some of your questions. I don't mind how candid those questions are, if you don't mind how candid the answers are.
[end p14]Q
In view of the fact that Britain has been so successful in the exploration of oil and its production, is there any likelihood that Britain can use its position as a major oil producer to help to keep down prices of the oil to help other countries?
PM
Now, let me explain to you the basis on which the exploration of the North Sea took place. It is of course very inclement in the North Sea, it was a fantastic achievement of technology to get at the oil so far below the North Sea in cold and very very wintry waters. The conditions for those companies which explored in the North Sea and still explore in the North Sea, was that they should be able to sell their oil when they got it out at world prices. Now of course you're quite right, the world prices prevailing then were a good deal less than now, although I must stress that had the world prices of oil stayed at $2 a barrel in the happy days gone by we should never have been able to develop the North Sea, we couldn't have afforded to. But in fact those are the terms of exploration, we got industries into the North Sea, companies into the North Sea, to develop it on that basis so we in fact have to purchase it at world prices. And those of you in the oil business will know that the cost of exploration has mounted with inflation. The cost of holding stocks of oil has also mounted and so the companies would say that they in fact could not function unless they could get that price. So therefore we cannot artifically hold down the price of oil. I may say that we do try to use our influence as much as we can—our oil is of the same quality as that of Algeria [words missing?]
We cannot artifically hold the price of oil down. So that I trust is the answer to that question.
Q
Shipping has gone through very bad times. British shipping perhaps more than many other… Can you please tell the position of the British shipping? [end p15]
PM
When you refer to British shipping, are you referring to carrying goods or are you referring to shipbuilding?
Q
Carrying goods.
PM
Carrying goods. Well, as you know, we used to have one of the biggest merchant fleets in the world. You know what has been happening. One or two countries, not belonging to the Conference of Shipping, have been very severely undercutting and of course people have been using those ships to carry their goods. It is of course a worry to us but I hope we shall still continue to have a considerable merchant fleet but we do of course abide by the rules of the International Shipping Conference. And we must seek to make others abide by them too.
Q
You have many times, by word and by action, stood firm by your belief that business must look after itself without support of the government. Yet in two major cases your government has come to the aid of the automobile and steel industry which have been in distress. Why has this been done and what will be the possible outcome of such a departure from your stated policy?
PM
I can tell you precisely. At a time of world recession, which has hit Britain very severely, we have higher unemployment than we've had in the post war period, I could simply not have let either of those great big industries go out of being. In the Midlands, you're referring actually to continued support of British Leyland. British Leyland is absolutely vital to the whole economic structure of the Midlands. Now had one let that car factory go out of existence it would have affected the components industries, it would have affected all of the sub-contractors who supply to components and who supply to British Leyland. There's another thing one has to remember about small business, about how small business exists to supply bigger business. And therefore the total effect of the collapse would have been colossal. Now even so I would not have done it and gone in to support them again unless they had shown enormous improvement. And they have, British Leyland. It has got very much better designed cars, the Metro looks like being an outstanding success, but also it's made considerable progress in [end p16] getting rid of over-manning. Now I might tell you it's got rid of some of the worst of its Communist shop stewards really by the workforce and the management being firm, tackling Derek Robinson, and things really went rather better since that happened. It's getting rid of the worst overmanning. The workforce have been prepared to take increases in wages way way way below the price of inflation, and we've got a Michael Edwardesgood manager, and you know in human terms—and you and I will understand this, won't we?—life isn't all economics. In human terms you try not to hit a company when it's doing better and at a time of world recession, and at a time of repercussions on other countries. So yes, we did come in to support British Leyland, and I hope that British Leyland will repay that support. I'm always telling them they must and should. They're not yet making a profit, as I constantly remind them. Now British Steel, if I might put it this way, my political opponents made a great mistake in ever nationalising British Steel. It would have been far better for it had it remained in its component companies, and they would have been far more prosperous, they'd have done their slimming down as they should have done a long time ago. Now the slimming down process of British Steel Corporation was delayed for some five years, and we were doing the worst of all things, pouring in money to new investment, keeping that new investment overmanned and underloaded on production, while at the same time we kept in the old steel works because no one liked to lay off the people. Now that's no way to run a business. You can't keep the out of date overmanned companies in at the same time as underloading the new plants. And so we had to face a very big job. We had to put substantial closures into steel, and we have. I got one of the best people in the world to come and run British Steel, Mr. MacGregor, we're paying him a bomb—he knows it, I know it, everyone knows it—and I just hope that it repays. And I said well right, by the time we've finished we'll have a really good modern up-to-date steel company. We've put out the old plants, we've made something like 50,000 redundancies last year, another 20,000 redundancies this year, we're now getting the production into our new companies. Some of the new companies which were heavily overmanned are now outstripping the productivity of any other plant in the world, and they are really responding. There's still some time to go to profit-making because redundancies in our country are very expensive, as those of you who practise in [end p17] Britain know. But it is working. Just one point I want to make. I was not subsidising and will not subsidise to give [sic] old out-dated old-fashioned overmanned companies in existence. I will only subsidise if they are willing to come right into the 20th century and preferably into the 21st century, and now. And that's the philosophy behind my Government aid to industry. It's not to stop change, it's to facilitate change. It's to make it as humane as possible we can for those people who are put out of jobs.
Q
I think you have shown by your [words missing] given a lead to the countries of the world as to how not to pamper the fat unit and slim them down, by even taking the very difficult step of reducing employment, and cutting down on employment. You have also taken the lead and shown how to reduce expenditure of the Government, especially on social security schemes, which is a very unpopular thing to do in a country which is used to all these things. They must have [words missing] a certain amount of unemployment and how are you tackling it, what do you plan to do so that these people who are out of unemployment, and you said just now to be more human to those who have just lost their jobs? How to get them back into new employment to create new work, not insist so much upon the redistribution of the work which is having something all governments would like to do, but don't have the ways and means, or even know the ways and means of doing it. Would you lead on this point?
PM
We have cut down the planned growth of public spending as a whole. It's not easy to do, but we're spending something like £5 billion less this year than was otherwise planned. But that is to try to keep more money in the private sector to develop well than would otherwise be there. In fact the unemployment has tended to come not quite so much out of the public sector although British Steel is nationalised, and it's come there. But the majority of unemployment, I'm afraid has come out of the private sector in world recession. Part of it because of world recession, because some quite good companies may have gone out of existence because of the factors to which I referred, the enormous increase in the price of oil and therefore less money available to buy other things. But others have gone out because they were not competitive, [end p18] because they were overmanned, not well managed or they had never put their own industry in order. And that's where the unemployment has come. In the public sector you do not get so much unemployment because you can always reduce your recruitment. There's a tremendous amount of wastage each year, and if your recruitment of people coming in is a good deal less than your people going out, then you ultimately reduce those engaged in the civil service and in local authorities. But in fact the only real genuine jobs for the future are going to come from the private sector, they're going to come from small businesses starting up and others expanding. And we have in fact to try to wait for that to happen. But in the meantime I am particularly anxious that our young people should not be left without jobs. So we have created what we call a Youth Opportunities Programme that guarantees that every school-leaver who has not got a job, and they mostly leave in July, who's not got a job by the following Christmas, which is within five months, has the chance to go to work for a company or a business or sometimes some of the organisations or agencies in the public service and what we call work experience. Now companies are responding extremely well because they would rather these young people had a job than are left with nothing to do and altogether we have something like nearly half a million places for young people on this scheme, 440,000, we have to increase it. But they go there for six months or a year, really to get some idea of what it's like to work in that company or in commerce. And I'm particularly anxious that they should go commercial or industrial because it does give them a different facet of experience from any they would get if they worked in the public sector. They have an allowance given to them by the State, it's much, much less than they would earn if they were in a full time job, but it is a form of training and experience. In that way we are trying to help our unemployment. We also have an early Job Release Scheme for older people and then try to substitute a younger one. So we are trying all the time to mitigate the effects of change. But we can never resort to taking so much resources and putting it in the public sector for there isn't enough left for the private sector, because if we do we shall not get the growth we need.
Question missing.PM
Now there are two parts to that question. First that you [end p19] had thought that I was not satisfied with the response of British industry. In really over two years now they are turning round and turning round well. Of course there's always a resistance to change. Many people want to carry on in the old way if they can and until you force them for long enough to change they will tend to carry on in the old way. I knew we couldn't and would have to drag them on to the new way and they most certainly have done it. Don't think it has been easy, it hasn't been easy for them and I after all have had to take pretty nearly the whole of the criticism and have taken it. I think the way to success is to carry on long enough with your policies to prove their worth. The danger in politics is that you turn round once again and resort to the short term policy for popularity at the expense of the long term, real interest of the people for improvement. I think we're sticking to it long enough to get the turn-round. On technology, applied by chemical industry and oil exploration absolutely superb. A good deal of avionics superb, quite a lot of electronics. Some of our great increases in exports are coming from electronics. We do put quite a lot of money into both pure research and into technological research. I think you've alighted on one of the weaknesses of the British economy which I talk again to my scientific people about. We can produce both engineering triumphs in the laboratory and a record number of Nobel Prize winners. But to try and make those into commercial and industrial success is a great deal more difficult for us. Time after time we'll have the engineering breakthrough, the engineering genius, being British we'll publish it all in some journal and some-one else will patent it. Although I have an organisation to pick up all the results of research. I have an organisation, the NRDC, the National Research Development Corporation, to pick up all these ideas. We have an idea that science is international. Some of my marvellous academic people, the latest thing was in molecular biology, we did the cloning on the genes, we learned how to clone on genes. All published—we got the Nobel Prize and some-one in America patented it. And it went to [word missing] corporation and they are doing extremely well and now you know we have to translate the thing into a real success. We have not been quite so good at that. We are getting again very much better, we are stepping up the help to innovators, inventors and innovators. We do have a programme in which there is a certain amount of money given from Government. [end p20] It's real money to inspire the giving of money elsewhere. Because we do often find that if we allocate a little bit of money for this and we will give a certain amount of money, the banks and other financial organisations will follow. We haven't quite got to the American system where you get venture capital positively going out for success organised privately, expecting there to be failures but knowing if they back a lot they'll get one winner. We are trying to do something for government but it really is my great ambition to get the tax system such that more and more private industry, commerce and banking, will give more for venture capital because that's the way to get new things started. This last Budget we did a venture capital package and enabled people, if they put so much into a small business to have that deducted from tax. It's a start but we're going more and more private enterprise, more and more venture capital, helped by government where we think we can act as a catalyst in the process.
Q
We've seldom heard so much good sense from a politician. And I would say without fear of exaggeration that in the post-war world the economic experiment which you have started in Britain is the most important. I'm not aware of any country in the world where an economic experiment has been started of such dimension, the results of which would be of the most far-reaching importance on the economic thinking, not only in Britain but in many, many countries of the world. So you have all our best wishes and we are all watching with bated breath the results of your experiment. I have just two questions to ask. One is, when the time comes for election, and I do hope it will mean your re-election, what according to your present plans would be the rate of inflation? And secondly, what according to your present plans would be the figure of unemployment? Because I believe that if you succeed we shall be able to dispel once and for all the illusion that good economics is bad politics. I firmly believe that you are right in what you are doing and I am sure I am voicing the views of most of us here when I say that we think this is the right way to take a country forward. We just want to know what your predictions are as to inflation and unemployment. [end p21]
PM
Thank you very much. I am going to give you the classic answer I always give on Tuesdays and Thursdays to the members of my own Parliament. I'm not in the business of crystal gazing and I don't crystal gaze. What happens to the rate of unemployment and the rate of inflation—inflation we can do a certain amount by the money supply but not everything. Some of it depends on government and some of it depends upon the response. Now, for example, if we're going to get enormous wage claims on the part of the union, way above anything warranted by production, you will get increases in prices in a certain sector, they will then price themselves out of the market and then I'll get an increase in unemployment and that happens as sure as God made little apples, if you say that thing in India, do you? A lot of the unemployment will depend upon what companies and what trade unions and other employees do. They must get out of the idea that everything depends on government. A lot depends upon them. And part of our job is to get this across and it is going across. People know that high wage claims, not matched by high output, lead first to inflation and then to unemployment. Now inflation will come down during the course of this year, we can predict with six months with reasonable accuracy, it will continue to come down. Unemployment will be a much longer business to get down because the whole of technology is against one. Although in the end new technology creates new jobs but in the intervening period it doesn't. So we really do rely on the creation of new small business and expansion. So my guess is that inflation will be down to about the level of our competitors, I hope below, unemployment takes longer to get down therefore I will have to continue with those youth programmes because I think the worse thing is for young people to be without something to do for a time. But let me reassure you, it is my belief that we can get the economics right, for the politics to operate right, and I mean Right, for the next election.