Mr. President, your Excellency, your Grace, Premier Davis, Mr. Mayor, ladies and gentlemen. I am very grateful to you, Premier Davis, for your kind and generous remarks. I agreed with so much of then: that would be no surprise to this audience. I am here because we don't take relationships for granted. I agree that we share ideals, we share institutions, a respect for the rule of law, a similar character and that we know we're very specially privileged to enjoy all of these things. We are members of the same family and even families have to keep in touch and that's exactly what I'm doing to-day. And I am also very grateful to the Empire and Canadian clubs for giving me this opportunity to address you. Now as you know I had the pleasure of addressing the Empire club in 1975. Now, any speaker will tell you it's a compliment to be invited to speak to an audience once but it is a far greater compliment when your audience has heard you once and invites you to speak a second time, and then to bring their friends in the Canadian club along as well. I must tell then at home that this was a record attraction, it might help, you know!
May I say how pleased I am as well to be back in Toronto, this great city in Ontario. I understand that next year is the 200th anniversary of settlement in Ontario and the 150th of Toronto as a free city, and I understand also that the Empire and Canadian clubs are celebrating those anniversaries by having women as their presidents. My, my, things are moving. So have a marvellous year.
Even during this short visit it is clear to me that life has been very good to Toronto since I was last here. The dramatic changes in the Toronto skyline, I think, spell the message of success and prosperity, even to the most transient visitor and I congratulate you all on that success. Mr. Premier, it's witness not only to the right policies but to the initiative and leadership of so many who are in this room to-day.
So here, in the heartland of the Canadian economy and in the state of Ontario, which, as some of you heard last night, I trotted out the statistics, produces 40 per cent of the gross national product of Canada and 50 per cent of the manufactured goods. [end p1]
I want to talk to you to-day about responsible and prudent economic policies within countries, responsible and prudent financial policies between countries and about some of the issues which affect Canada and Britain. I thought it might be appropriate if I spoke about these things to-day and spoke about economic matters. When I chose to do that I didn't know you were going to have Professor Galbraith along next time, but I am jolly glad that I will be able to get my word in first.
Now yesterday in Parliament I spoke about our great tradition of political and personal freedom and what we need to defend it. But economic freedom also has to be defended. It can be sapped insidiously and sometimes from the best of motives. Indeed, one of the hardest things in the world is to stand tall and to shoulder one's own burden, one of the easiest is to succumb to the temptation of believing that the state, that kind of imaginary mother figure of our age, will be able to provide for all, to protect us from all harsh reality and to shoulder our burdens. And for some that belief is especially seductive because so much of what modern states are called on to provide, are the legitimate aspirations for every family, better education, you and I, Premier, noticed exactly what that means, better health services, better protection against poverty and sudden misfortune. And some provision is rightly made for all these things by every government. But the mother fugure can so easily end up not succouring but suffocating. And then energy is sapped, then initiative is stifled and then enterprise is destroyed, and what started as a help can end up as a hindrance, can end up as an obstacle to the acquisition of the very things which it intended to provide. [end p2]
So many of the older developed industrialised countries have trodden and indeed are treading this path. And Britain most certainly has, but so have many others. And we've had to learn the lesson that a higher standard of living comes not from the state but from our own endeavours. And we've had to find a way which enables our people, singly and together, to put forth their maximum effort, which rewards success and which thus encourages then to do even better, and I want to talk about some of the factors of national finance which can act as a background to help people to put forth their own maximum effort, and some of the things that we should do and some of the things that we shouldn't. And I think many people here will agree that the huge share of the nation's income absorbed by government is really at the heart of our problems. Not just in the United Kingdom but in most other advanced countries as well that share has increased year after year, so gradually that we've hardly noticed it happening, and as the state takes more the private sector has to make do with less, and yet it's the private sector that produces the wealth to support the public sector. And we can't long sustain a situation where less and less has to support more and more, that way lies disaster. And at home I've had to make it very clear that the state must never become a substitute for personal responsibility or for private initiative.
It is a tendency for those who represent us in democracy to make greater and greater demands for expenditure on certain very, very well worthwhile things. The trouble is that the tax bill comes in and then you so often know that it has deprived the private sector of the very investment they would need to expand and to create the new wealth which we all need for a higher standard of living and for jobs for our young people. And so government has to be very careful about the amount of public expenditure and its proportion to national income. And in the United Kingdom we've at long last begun to reverse the trend. Our plans for public expenditure this year are to fall as a proportion of our national income. Next year we intend public expenditure as a proportion of national income to fall further. [end p3] I believe I shall still be there and therefore I believe it will.
You'll be very well aware, both at the top table and throughout this audience, that inflation, interest rates, levels of taxation are all part of this complex problem. And we have made great progress in inflation, so have you. It is very well down. Some progress, but not enough on interest rates and less than we would have wished on reducing taxation. In the last Parliament, because we believed that we had to set out to check the balance between the citizen and the state and that it needed correcting in favour of the citizen, we transferred from the public sector into private ownership companies like Cable and Wireless, British Aerospace, Britoil, that national freight corporation, we're ending the monopoly in the telephone industry and the commercial postal services. We encourage the public services to contract work out to the private sector whenever this helps them to cut costs and operate more efficiently. This may seem natural to you, I had to take over a country where the public sector had got far too big, where politicians had to run state nationalized industries and where the time had come really to reverse the trend and put more responsibility and initiative back to the private citizen.
Now I want to see further progress on all these fronts during my second term as Prime Minister and even more during my third. But we shall persist. You know, in life it's easy to start something—the great test is whether you can stick at it for it to succeed. [end p4] Now I spoke a moment ago about reducing taxation. I said that we havn't got far enough, as far as would have wished in reducing personal and company taxation. There was another way in which we could have done it and it was a way which I rejected and I'll tell you why. It would have been possible to reduce taxes by increasing public borrowing, but I believe that government spending should be financed largely from its revenues and that government should not resort to substantial and persistent borrowing, whether from overseas or from their own people. This is a sound principle of finance. Too much borrowing has been the undoing of many a good business. And yet even though we follow those policies of sound finance and even though they seem to be working as nothing else could have done, we continue to hear the siren call that urges both to spend more and, at the same time, to tax less. And those voices tell us that if we do that, then investment and savings, output and employment will all increase. To make it sound respectable policy they call it reflation. All it leads to is higher inflation and higher interest rates and it therefore stops the recovery and ultimately would lead to higher unemployment.
Now Mr. President, throughout history clever men—not all of then rascals—but none of them businessmen—have tried to show that the common sense principles of prudent finance don't really apply to this government or that institution, to this business or to that household. Not so, they always do, and especially to government. In the real world large and persistent government deficits haven't produced any cornucopia of full employment or rapid growth. On the contrary, we've seen country after country with substantial deficits run into serious problems of financial crisis and inflation. And to whom do they then turn? They turn to those countries and institutions who have persevered in prudent policies [end p5] and just as sound finance is vital for households and government, so also is it the essential principle of international finance. Now I hope that I am not telling you everything which you know, but I have been in politics too long to know how tempting the plausible half-truth is and long enough to know that it won't work, that it is only prudent and sound financial policy that will give you low inflation, lower interest rates and the bases for a good, healthy, expanding economy.
But we have one or two very serious problems in international finance with which you will be aware, and some of those have arisen also, because the wrong principles have been followed. And I want just to have a word about it because there have been voices recently, anxious about the volatility of the world's exchange rate, about the great accumulations of international debt, who've argued for a new Bretton Woods conference. Now I don't believe that a solution to those problems of international debt or the exchange control will be found by looking for a magic formula for the world financial system or by looking for new institutions or new instruments. They'll only be solved one way and that is by following the right policies.
Now you know what happened. Over a period, especially in the late 1970's a number of major countries borrowed substantial sums to finance their industrial investment. Now they weren't the poorest developing countries, in most cases they have economies with considerable natural resources and often good record to industrial growth. And they're also at a stage of development where it is normal to import capital from abroad, and that is a very healthy trend. The process whereby investors in one part of the world finance profitable investment elsewhere is a fundamentally healthy one and we should all welcome it. What happened, then, in those 1970's? it's clear really that the lenders went too far and lent too much and that many of the borrowers' plans were over-ambitious. The lenders, some of them, misjudged the risk and then the borrowers were left poorly placed to handle the aftermath of the 1979 oil price increase and the rise in interest rates. And the situation was made worse where those countries—they were both developed and developing—sought to delay the necessary adjustments to their economy and sought to delay the reduction in their budget deficit. And Mr. President, the longer those things are put off the worse they get. [end p6] Now the major borrowing countries of the 1970's are now putting their finances in good order, the programmes agreed with the International Monetary Fund. It may be painful but it is the only way to a secure future. I've spoken about those two aspects today, about running a sound finance at home, about applying the same principles to international finance, because I believe that had we done that over the years we should not have the big international debt problems that we have to-day. We should never have suffered from that terrible inflation which had such dreadful consequences for the savings of so many people and it would have been very much more helpful to most of the economies of the world had we had prolonged periods where governments had pursued sound finance, produced a steady, good, stable background against which industry would then have confidence—confidence to invest for the future, confidence in their currency and confidence that they could build up new and prosperous industries, because it is you, ladies and gentlemen, who create the wealth and not the governments which serve you.
Premier Davis is going to agree with all of this because we're very good premiers and Prime Ministers, he and I, and we run very sound economies.
Now I wanted to talk about these things and I believe it's timely to talk about these matters to-day because of the depth of the world recession which is bothering us all, because of the tragic unemployment which it has brought in its wake, and the dangers in the world's financial system have greatly increased the pressures on government to intervene to protect their people. That is understandable and we're all of us under similar situations in which governments [end p7] must provide protection, unemployment among the young for example. In Britain we have introduced a scheme to ensure that all sixteen year old school leavers who don't go into a job or into further education should undertake some form of training for a year which will give them the habit of work and a skill which will help them to find a job later. I think the worst thing for young people is for them to have nothing to do and to feel that they're unwanted and we hope that this massive training programme in which industry and commerce has been wonderfully co-operative, will give them a much better start. And then there's also you know, the human factor, that if companies and small businesses have taken on these young people and the young people have done well, there is a great hope and chance that those young companies, with the very human people who run them, might keep on those young people into more permanent jobs.
And there will always be some companies and some industries in special circumstances which make the pressures for protectionist measures very strong. Every country in the world has some such measures, Canada, Britain, the United States, Europe, the developing countries, we've all got some. But ladies and gentlemen, government must think long and deeply before we go further down that path because the open trading system has served the world well, it is part of economic freedom and we must resist every encroachment upon it because we shall be poorer if we don't. We all want growth but we must recognize that much of it comes from new products, new designs, new technologies and new services. Some old industries will die or their product will be manufactured more cheaply in the less developed economies, and if we try to insulate ourselves from change, if we try to hide behind tariff walls or artificial restrictions industry will become uncompetitive and that will be bad for all those who work in it. It would also, if we were to do those things, become entrenched in areas of falling growth and areas of no growth and it would fail to take advantage of what is new and expanding. [end p8]
New industry does bring new jobs, you have seen that in Toronto, I have seen it at home, but it is very difficult to explain to people when they say where do the new jobs come from, very difficult to explain that the new technologies will bring them. Many feared indeed that the great development in the electronics and computer technology would destroy jobs. That tends to be the initial effect but the greater and later effect is to create all kinds of products and jobs which did not previously exist. And already in Scotland where so many Canadian families have connections, more people are employed in electronics than in the traditional industries of steelmaking and shipbuilding put together.
I want to tell you just how upbeat, up-to-date, a step ahead some of British industry is. Two weeks ago in London I inaugurated the Magnus oil field which will bring new supplies of oil from seas hundreds of miles to the north of Britain. The big new oil rig uses the largest and heaviest steel platform ever installed in the North Sea. That platform is three times the height of Big Ben—that puts politicians in their places—three times the height of Big Ben, built to withstand winds of a hundred miles an hour, and waves a hundred foot high. It is predominantly British built—over eighty per-cent, and I may say it was built exactly on time and, wait for it, below budget. Now the engineering skill, the technical innovation, the electronic technology incorporated in that platform are absolutely breathtaking and the offshore oil industry which employed only a handful of people fifteen years ago, today provides jobs for over one hundred thousand people in Britain. It is a great story, a great advertisement for free enterprise in Britain. [end p9]
So we mustn't be afraid to face change. Somebody said—or if they didn't they should have—life does change, that's what makes it different from death. Now in these advanced industries there is plenty of scope for Canada and Britain to work together. Indeed, we are doing a lot of work together in space and a lot of work on sending up a new very advanced space satellite. I warmly welcome the Ontario government's initiative, Premier Davis, in promoting the recent seminar in London which highlighted many of these opportunities and I would like to see more trade between us. Britain is already Canada's third largest customer, but no doubt you could sell more to us and we could certainly sell more to you. I would also like to see the flow of investment between our two countries, already substantial, grow further. Just as a free movement of trade is good for prosperity and employment, so, I believe, is the free movement of capital. In the United Kingdom we have abolished all foreign exchange control. Indeed, under my government we abolished all income controls, all prices controls, all controls on dividends and all exchange controls and that was the first time for forty years we have been without all of those controls together. We particularly took the plunge to abolish all foreign exchange controls. The jeremiahs told us that it would lead to a massive outflow of United Kingdom capital to other countries. They were right—it has. And an enduring source of strength to the United Kingdom it will prove to be. The statisticians may call the income from that outflowing capital “invisible income” but there is nothing invisible about the benefit to the United Kingdom economy. And those from outside who invest in the United Kingdom will find the same. There is no restriction on your bringing profits home, there is no control on income profit or dividends now either. We are a very good place to invest, I repeat, Britain is a very good place for Canadian investment. We welcome the technology, the management and employment which your investment brings and those who have invested in Britain have told me how delighted they are, not only with the access they've obtained to the great European market but also with the co-operation and productivity their management has achieved from the British work force. [end p10] Now freedom of investment has brought, not, therefore, disaster as some predicted, whereas some of ours went out so a lot came in and we must encourage this free flow of capital, this free flow of trade, only then are we going to get maximum expansion of world trade and only then have each of us got to see that we get a very good share of it. Freedom of investment has been the springboard to a new prosperity. Now, anyone who has studied the history of the 19th century would have predicted that that's what would happen. Where would Canada have been to-day if people had not had the incentive, the freedom and the confidence to invest here?
Mr. Premier, some want to believe that at the end of the rainbow is a crock of gold. Of such stuff are the dreams of some politicians made— “reflate” says one, “import controls” says another, “exchange control” says another and “a new Bretton Woods” says another. But they are dreams which fade when the dawn comes and once again we face the realities of the world in which we live. We mustn't delude ourselves into thinking that there is some magic formula, nor must we turn aside from the challenge which the real world poses. That is the challenge, to run our affairs prudently and honestly. The challenge to exercise discipline, to show wisdom and understanding. They call it “Thatcherism” . I must tell you we need more of it. It's not an easy task but if I may quote Lord Halifax, who gave his name to another great Canadian city, he said “ease is seldom got but with some pains, yet seldomer kept without them” . The reward is not only in greater freedom and opportunity to provide for our families, but to enjoy life and all it has to offer, whether our interests be in music and the arts or in the world outdoors and the preservation of wild-life or in the conservation of our heritage and all that is best in our common civilization, but also in the sense of personal satisfaction and fulfillment in a job well done.
It is in that sense and that spirit that once again I come to Canada. That we continue this wonderful, fruitful relationship between Canada and Britain, that I come to renew it.