Prime Minister
First, may I thank you very much for this kind invitation today to talk to the British business community in Riyadh. I thought I'd say a few words about the purpose of my visit to the Kingdom of Saudi Arabia and later to the Gulf and also previously to India. Perhaps you will have been aware that this Government does take a very active role in foreign affairs, has certain very definite views about things that matter. Consequently, we do spend a good deal of time going about the world to try and ensure that we can see things not as if we were in someone else's shoes but as if we were them in their shoes. There is, of course, a kind of difference in that. So often one looks at things that have been reported and you think how I would see them if I were there. That is totally the wrong way to look at foreign policy in the first place. One has to have some greater understanding about how those people see the world and see foreign affairs from their vantage point, in their country, with their background and cultural beliefs. And there's only one way to do that and that is really to go around and meet and talk with them all. You can get so much from telegrams, you can get so much from documents, but you can really only discover for yourself by going to talk.
Now I think in this part of the world we in Britain have not hitherto given sufficient attention to visits at the highest level. When I first planned this trip I was absolutely astounded to learn that I was the first Prime Minister in office who had actually visited the Kingdom of Saudi Arabia. That seemed to be totally wrong. We were, of course, fortunate when Her Majesty the Queen visited this area a couple of years ago. One does feel one has a tremendous record to follow up in the Kingdom of Saudi Arabia but the purpose is to try to become closer to the Government in Saudi Arabia, know their viewpoint, to try to take all these things into account in planning the policies which the British Government will follow. There used to be a time when foreign affairs were thought to be a thing apart. No longer. What happens in almost every country in the world will have an impact on our principles wherever they are in the world. [end p1] And also will have an impact on the British people in the United Kingdom. For that purpose we must make it clear that Britain's voice will be heard loud and clear, we must give a lead on things in which we believe very firmly. We must also consult with our friends and allies, consult more widely in the international field. We do attend rather a large number of summit meetings over the course of the year. We have three in Europe with Heads of Government, we have one Economic Summit for Western countries, this year to be held in Ottawa. We have a Commonwealth Conference in Melbourne—a totally different group of countries—and a different group yet again, with twenty-four countries, a mixture of the developed and developing countries, in Mexico next October. The better you are prepared for those, the better to be able to plan policies to take into account the views of many other countries whose own views and whose destinies will affect our future.
I am very happy to say that we had an extremely cordial welcome in Saudi Arabia. I was absolutely delighted with it and the arrangements which have been made will enable us to see a large number of people and to talk and see as much as we can while we're here.
And may I next say a word of praise to those of you here. I know that a large number of you are engaged in the export business. Last year our exports to Saudi Arabia were £1 billion. Apart from Europe and the United States, this is the second biggest export market for Britain and I know that we could never have achieved this without the tremendous efforts which you people make here. Some of you are here year in, year out, some are here on much, much shorter assignments. There are, of course, many opportunities in the Second Five-year Development Plan and we look forward to Britain grasping a large number of them. We do, of course, come with a very different capacity from a number of our European partners. After all, we are not dependent on countries either here or in the Gulf for our oil supplies. And I think this perhaps puts us in a somewhat different category. We come not only with the oil interest, but we come really because we have a basic interest in this country and in the region. Of course, Mr. Chairman, you would say that we do import oil from Saudi Arabia. Of course we do. We are [end p2] self-sufficient in theory in oil in the United Kingdom. I do want to take one moment to say that development of the North Sea clearly was a tremendous achievement for private enterprise. I remember that we allocated licences for exploration. In my first Parliament, 1959–64. In those days you didn't know how much there would be in the North Sea. We knew that if there were oil there it would be a very difficult job to get at it because of the depth beneath the North Sea and the inclement weather. We allocated the first licences for exploration in 1964 and we have achieved self-sufficiency in oil consumption in fifteen to sixteen years—I think that is a tremendous achievement of which we should all be proud. Just suppose we had nationalised the lot at the beginning, we shouldn't have brought it ashore half as quickly. But we are at the moment self-sufficient in quantity but not in fact. Half of our oil has to be exported and the other half we require at home. But we also need to import a different grade of oil in exchange for ours and we do in fact import a lot of it from Saudi Arabia, indeed £2 billion worth from Saudi Arabia. My point in specifying the figures is that we export £1 billion to Saudi Arabia and we import £2 billion from Saudi Arabia. If, when I come next time, you have closed that gap, I will be very grateful.
Now you asked me my view of the future. May I therefore tell you a little bit about things at home. You know a lot more about daily life here than I do and therefore I think it advisable to tell you how I see the political economy at home. We are of course suffering as is the rest of the world from a world recession. The prime reason for the world recession was the rapid increase in the price of oil, since the difficulty with Iran which took out a whole country from the production of oil and put up the price very substantially indeed. The price of crude oil the day I was elected Prime Minister was $11 a barrel, whereas today the price is $35–$36 a barrel and you can see that colossal increase in the price of oil, and what it did to world trading. It meant that money which had been available for spending on other goods and services had to be diverted to the increased price for oil. Therefore among the companies which were otherwise excellent companies who were in fact producing goods and services there were some who went out of business or had to reduce their products very considerably. Now we are all of us suffering from that, whether developed countries or lesser developed countries. Worse in countries like India and Brazil because an increasing [end p3] proportion of their exports had to go to pay for oil. But even insofar as we are concerned, it reduces our capacity to help others and puts a number of our companies in difficulty. Now we are all suffering from that and you will know it has caused higher unemployment, to some extent higher inflation. But in addition to the world recession, what we also face in Britain are other things which make it more difficult for (unclear) but I have to tell you that I think we are now through the worst. In addition to the world recession we have to face higher inflation than our competitors on the continent have been used to. I have been in Parliament twenty-five years and have watched the rate of inflation gradually increase. When I was first in Parliament it was about 3–4 per cent; then in the 1960s and 1970s it tended to go up to about 6–7 per cent; early 1970s, when we got in again, 9 per cent and it went up to about 26 per cent in 1976 and it really has been a great fight to get it down in a way which enabled us to keep it down. The purpose of keeping inflation down is two-fold. One is if you have a higher rate than your competitors, then they get the overseas business and you don't; two, if you have a high rate of inflation all confidence in capital investment goes so that by the time you make your stand to getting them into action the price has gone up so much all the costings have changed. Those two things—quite apart from the third one of course—Lenin said that if you want to destroy a country you destroy its currency in the first place. In fact inflation is a cheat and a fraud on those who save their money in currency.
So the first battle has been trying to get inflation down and keep it coming down in a way that will retain the reduction and steadily go on. Economically it hasn't been easy. The formula is easy. But once it starts to work it can't be done without a certain amount of hardship. There are always people who say ‘All right go back to the old way” . We are trying to get inflation down and the first thing is that it causes a certain amount of unemployment. If you go back the other way and spend money to get extra temporary jobs then there are those who say we will be all right. Well, we won't. It would be temporary and we would finish up by having a higher rate of inflation. [end p4]
So firstly, we are tackling the rate of inflation—its highest rate just over a year ago was 22 per cent. We are now down to 12½ per cent and as far as the future goes I believe it will fall further through the rest of this year. We are at home still suffering from other factors. One of the other reasons which makes it more difficult to ride the world recession—well I can think of two others. One you will be aware of is that there was severe overmanning in British industry—severe overmanning. You have only got to look at the number of people, or how many cars one person produces in England, compared with Germany, Japan. In British industry we tended to use three people to do the job where other countries were using two.
Now we could not compete if that went on. So once again we had to run a fairly severe financial policy to get rid of that overmanning because if we hadn't we should not have been able to compete in world markets, bearing in mind that in order to survive 30 per cent of our national income has to be exported. So getting rid of the overmanning, there is a bigger problem with unemployment than other countries have had. That is why our rate of unemployment tends to be higher than other European countries with the exception of Belgium, which is even higher than ours and Denmark which is just under. We are, in a fashionable phrase, shaking out overmanning. You have probably read in the British papers that many industries now think they are in better trim to compete and they are certainly getting better delivery dates than they have had for a long time.
This effects you good people but I think you can have much much greater assurance that we can be competitive in price, that we can deliver on time on any of the orders we secure here. There is one further reason which may be more difficult to ride the world recession in Britain and this was that for years we had restrictive practices and considerable resistance to technological change. You know full well that work is invested in the newest and latest equipment in British industry, we could not manage at minimum manning levels because the union rule was that you must have virtually the same number of people on the new machinery as the old or they would not get it done fast enough. [end p5] Once again forcing us to compete has meant that people have been much more ready, have now had to accept, technological change and take steel for example, in fact … . 50,000 people on redundancies another 20,000 this year, to get our manning levels equal to elsewhere, to get rid of some of the restrictive practices which we are now doing and some of our plants are as competitive as any in the world.
I have gone into that in some detail because you obviously want to know how we are doing … . What I want to say is this. Things are being dealt with, they are being dealt with in a way that will make our industry much better, much leaner, much fitter, much better able to perform and compete with everyone else in the world. There are a number of other problems. You will be familiar with the rising expectations which I think affect almost all countries everywhere that incomes will go up regardless of performance. It is strange. One meets it in the United States, one meets in Europe, one meets it in India. The idea that you negotiate an increased wage, say, every year regardless of productivity and whether production has gone up or not. We, I am afraid, have one of the worst records. I looked at the figures for 1975 onwards for Parliamentary Questions the other day—I have to answer Questions every Tuesday, every Thursday and I never know what is going to come up, where it is going to come from, what people are going to say. In 1979 and 1980 we had actually paid ourselves 100 per cent more for producing 2 per cent less. Other people have paid themselves more for producing more and they have the closest relationship between pay and production. Germany had a much closer relationship than we had. Now this again we are having to deal with and this has I think been the effect of having years of incomes policies in Britain. Incomes policies seem to mean “I am entitled to more every year and I am not going to take anything less than 10 per cent” . Now we have had to turn round and say with plain straightforward reason—look if you have more than your company is putting in or you are putting into your company, it can only come out of someone else's pocket and it can only be met by printing money which means that we have inflation. So we are constantly fighting these battles but I believe that we are in fact beginning to win it. Wages claims are not as great as they were. I hope in future we will be able to keep them more closer than ever to increased output. We do [end p6] of course have problems with those who have industrial muscle, whose services are so important that they can, I am afraid, demand more or we stand likely to be without some of their services. I am the first to admit that we have not yet fully solved this problem. We have to point out to them that they are not in any way getting money out of Government, they are in fact getting money out of the pockets of their neighbours.
Now all of this means we are not really, preaching any new doctrine. I am often accused of being a monetarist. You know monetarism started the day money was produced as a means of exchange—there is no inflation in a barter society. We have money as a means of exchange. Once we have money as a means of exchange, someone cottoned on to the idea that all you have to do is produce more money and you will have a better standard of living. They started to do that back in Diveletian [sic] times. They realised that printing more money did not produce a better standard of living, printing more money produced higher prices. We are still fighting this fundamental battle. What I am doing is not producing any new doctrine but really urging people to have fully for the first time a sound doctrine which we ought to have operated many years ago.
Mr. Chairman, many of you are involved in some form of international trade or another. I want you to know this. We do in fact give a lot more attention as Ministers to contracts—big contracts—with other nations than we used to. The reason is not hard to see. A lot of international contracts work is done not by straight competition between companies—either companies in one country, or between companies in one country and another, or between consortia put together—quite a lot is also done at the political level. There are often some subsidies or different rates of aid involved. And you can see very clearly that the battle was at times not between company and company but also between country and country as regards what facilities were offered. So we also have to be in the business of international contracts. [end p7]
First we feel very obviously that we have to support those of our own companies who are trying to compete for big contracts elsewhere and a lot of other Governments like to know that the British Government is behind the companies who are in fact competing for the contract. So we do spend a considerable amount of time on this. Some, although this will not affect Saudi Arabia obviously, Saudi Arabia is an enormous aid-dealing country, and very generous with it, we do sometimes add some aid to a project if it goes to a country which will be a suitable recipient for it. But we are negotiating for big contracts and I would like you to know that frequently the Government does stand behind your efforts and we too at Cabinet level try to give a good deal of attention to this aspect of our affairs.
You asked me, Mr. Chairman, how I see the future. I think one can see that in the next two or three years and in this year coming out of recession and I hope embarking on a period of expansion once again. That will not wholly depend on Government. I think as far as getting inflation down is concerned with the monetary side, there is a right thing as far as the tax system is concerned that there-should still be incentive in the system. This is vitally important. We have got rid of a number of controls, on prices, statutory incomes controls, exchange controls. But in the end when we have done all of these things, we have to rely on people themselves to take advantage of the opportunities by starting up new companies at home or expanding them or starting them up overseas—wherever they find opportunity. It has always been my belief that if we got the overall economic climate, people themselves are far, far better at creating the wealth than any Government. I must tell you about a similar meeting in Bombay the other day. I don't notice our Government is littered with top managers from industry who really have industrial experience. Politicians tend to be expert at politics. Therefore it is far better to leave the management to those who are skilled and have experience in it. Moreover, managers are directly in touch with their people eight hours of the day. They are responsible for the organisation, they are responsible for the [end p8] design, they are responsible for getting the product on the line. But in the end, the future depends upon the response of the British public to what we have done. It depends upon taking advantage of the taxation opportunities, of the very good enterprise package in the Budget last time in order to build up the new businesses and expand others. That is the only place really where increasing jobs are going to come from. In the meantime we have mitigated unemployment by having a very big programme for youth (Unclear passage).
Provided people respond to the opportunities, provided they do not take out more in pay than they are putting in in increased production we can stay competitive, we can use for the first time our enormous innovative and inventive experience for the prosperity of the next generation.
One word about that. We in Britain, as you know, have been supreme in research and prototype development, supreme at it. We have produced more Nobel prize winners in proportion to our population than any other country in the world. But we have not been supreme at turning research and development into spectacular commercial success. That is now the challenge which we are taking up and it is a challenge to which I hope many of our people will respond.
Many people say to me that we are running an economic experiment in Britain. They call it the Thatcher experiment. I was very interested when I went to the European Council and described what we were doing. I mentioned that I had been brainwashed to think that what I was doing was the Thatcher experiment and one of my fellow Heads of Government said “It is what I call economics and commonsense” . We are trying once again to get things on a sound basis, on a basis which offers a future for free enterprise in our country. Alongside that we are running a very active foreign policy. No one has the slightest shadow of doubt about what I think about the possibility of the Communists establishing (unclear) No one has the slightest shadow of doubt that we have an active foreign policy in Africa and we did a great deal in sorting out the Zimbabwe problem and struck a blow for the future of democracy in Africa—a blow which if we hadn't struck, democracy might not be nearly as flourishing there. Democracy might not have had the chance to grow there as it has how. We have got an active [end p9] foreign policy in Europe. We fight our corner for Britain as well as going along with European ideals. If the democracies of the world cannot in fact co-operate together then there is not much hope for the world, it would be very unstable.
So, Mr. Chairman, I hope you will be reasonably optimistic about the future, not unoptimistic, but reasonably optimistic about the future. And I leave you once again with the thought that it depends not only on Governments doing the right thing but people doing the right thing and I have every belief that the people of Britain will.