A Window on the West

It is a great pleasure and an honour to be invited to address you today. In May I was merely delighted to be able to visit Leningrad.

But in October I am thrilled to visit St Petersburg.

In deciding to change the name of your city you have demonstrated your wish to recover your history and draw on your country's roots.

That is always the best basis for progress.

As the acknowledged father of conservatism, Edmund Burke, once wrote:

“People will not look forward to posterity, who never look backward to their ancestors.”

Indeed, this is a lesson which people everywhere who have lived in thrall to Communism have been eager to learn.

As Marxism has crumbled, so ancient traditions, venerable institutions and old identities have been reasserted throughout Central and Eastern Europe and the old Soviet Union.

But here in St Petersburg your tradition provides you with an especially accurate pointer to the future.

For your city–as every school-boy (or indeed school-girl) knows–was built by Peter the Great as Russia's “window on the West” .

Today, though the methods employed in the service of reform are thankfully different from those of your city's royal founder, St Petersburg is again an open window through which the bracing blast of change is blowing.

All of us here today understand that, though the obstacles to progress are large, there is nothing remarkable or unusual about the Russian people's aspirations.

Time and again I have heard it said that people here wish, above all, to live in a normal country.

They want to enjoy the dignity, security and prosperity which they know we have in the West.

And they want their children to be able to look forward to a better way of life.

Strengthening Democracy

Since I was in your City earlier this year, the Russian people have demonstrated to the world their determination to continue along the sometimes rugged road of freedom. They did so in defiance of the tanks and in peril of their lives.

And they were inspired in their struggle by the heroic leadership of President Yeltsin, Vice President Rutzkoi and Mr Sobchak.

The defeat of the hard-line Communist coup in August has left democracy immensely strengthened.

Noone can now pretend that the people have become disillusioned with reform: indeed, they are impatient for more of it.

And no one can now suggest that the Communist Party, the Army or the State security apparatus should be allowed a kind of veto on progress towards democracy, the devolution of power and the dismantling of the command economy: for the people have shown they expect the State to be their servant, not their master.

Yet democracy must become still more deeply entrenched, until the institutions and attitudes which underpin it are viewed as being not matters for debate but well-known, well-loved features of the political landscape.

And you cannot rely on time alone to achieve this transformation.

In a young democracy, like yours, both vigilance and vigour are required, especially in the early years.

You cannot be satisfied with the form of democracy: you have to achieve the substance.

In so many areas of the world we have seen attempts to implant free political institutions which failed to take root: the former colonial countries of Africa are a case in point. States were artificially put together.

Institutions were created which inspired no one's respect.

And at the first disappointment–and disappointments are not ruled out by democracy or by any other system known to Man–freedom crumbled.

I do not believe that this will happen in Russia.

But you will want to guard against the risk.

And in doing so, you will–I suggest–wish to respond to three great challenges.

Political Parties

First, democracy will not work without strong political parties. Those parties have to be built around large issues of principle and philosophy–and you have to distinguish these from all those secondary details about which party members may and will legitimately disagree.

It is no good having a general name embracing many different political philosophies.

That is not a Party but merely a collection of people without a common belief or sense of direction.

Perhaps I can again quote Edmund Burke:

“Party is a body of men united for promoting by their joint endeavour the national interest upon some particular principle in which they are all agreed.”

We have to be vigorous in defending the notion of party politics against those inclined to denigrate it.

And if party politics do not always seem to fill your highest expectations, please remember that in this you are far from unique. Politics always reflects the character and calibre of those who practise it–and of those who choose them.

But democratic party politics alone can prevent the permanent and uncontested imposition of bad government on the people.

Uprooting Communism

The second way to strengthen democracy is to render its enemies isolated and powerless.

You know, as well as I do, that Communists are uniquely gifted in turning what seem fatal setbacks to their own advantage, exploiting good nature, distorting language.

Sometimes they appear transformed into social democrats.

Sometimes they use their positions and connections in order to gain financial or other advantage for themselves within the new post-Communist system.

And as always some are ready to use their old network to try to keep a hold on power–shielding their real purpose behind a front of respectability.

How the new democratic Russia and the other republics wish to deal with those who for so long committed crimes against every norm of human decency is up to them.

But justice should be seen to be done and no one should be intimidated out of it by specious talk of witch-hunts.

The tragedy of the Seventeenth Century witch-hunt was that because there were no witches the innocent were persecuted.

But you do not need me to tell you that there are Communists, guilty of crimes against humanity, and that their only similarity to witches seems to be their ability to disappear!

Capitalism

The third way to strengthen political freedom is to establish the economic freedom known as capitalism.

Over the years, the failure to understand that political and economic freedom are but two sides of the same coin has done incalculable damage to our economies and our societies.

It is no coincidence that democracy and capitalism were both on the retreat in the 1970s–nor that now they are both advancing together.

I know that here in Russia capitalism has been given a bad name because it has often been associated with corruption and the black market.

But there is only a black market when your economy is based on centrally applied controls which produce shortages.

Those are the conditions under which corruption flourishes.

The capitalism which I support–and which is practised in the West–is not a free-for-all in which the powerful are able to exploit their position at the expense of fairness, decency and the common good. Capitalism can only function when there is a strong and just rule of law, to which everyone, including government, is answerable.

Corruption is almost entirely absent from public administration in the West; in the rare cases where it occurs it is severely punished.

And we set the highest possible standards of impartiality for our courts of justice. All these things are not qualifications or modifications to capitalism.

They are essential to it. Capitalism, above all, requires confidence in order to operate.

And such confidence can only be created by a just rule of law applying to everyone equally.

Capitalism not only needs a rule of law to underpin it, it shares a common root with democracy.

And, like democracy, it gives real power to the people.

In even the most active form of political democracy, individuals are not asked to cast their votes on the performance of politicians more than once or twice a year locally, or after a period of years nationally. Yet in the market-place, men and women, through the goods they buy, are making economic choices every day.

Free enterprise capitalism is economic democracy.

It limits the power of government by maximising the power of the people. Free enterprise capitalism is a necessary–though not a sufficient–condition for political democracy itself.

And once you permit personal choice to rule through the market, it will in time extend to the ballot-box too.

In these three ways–by promoting real party politics, by rooting out communism and by creating a free enterprise economy–democracy will be strengthened.

But at a certain point the political argument has to stop.

Free discussion is a necessary condition for reaching the right decisions on economic as on other matters.

But it seems to me that the overwhelming need in Russia today is for speedy and effective implementation of economic reforms. You do not need me to tell you how important it is that people soon see a tangible improvement in their standard of living.

We cannot expect high principled heroism alone to see the country through to better times.

What the West can do

That is why I believe that we in the West have a heavy responsibility to help create the conditions for economic progress here.

This means that we must continue to provide technical help and expertise, for example as regards the distribution of goods. We must help to create the structures of liberty–a truly impartial and independent judicial system, a clear and sensible contract law, banks and other financial institutions.

We must provide selective credits. Above all, perhaps, we must open up our markets in the West to goods from Central and Eastern Europe and the Republics of the old Soviet Union.

I have been strongly critical of the refusal of the European Community to admit agricultural and industrial products from Eastern Europe.

These countries and yours will need to become accustomed to developing and selling products in competitive Western markets if you are to improve the efficiency of your industries and raise people's living standards.

Twelve years ago, we in the West would have given anything to bring about the changes which have already occurred. So, we must not speak as if in all this we were practising a kind of philanthropy.

It is in our interests to see free enterprise and democracy take root in the lands which once knew communism.

It is in our interests to have access to the raw materials they possess–the mineral wealth in Russia is enormous.

It is in our interests to build up prosperous societies which will in due course offer us new markets and investment opportunities.

The Value of Enterprise

So I want to see the West doing more to help.

But it is the decisions which are made here which will be crucial.

The starting point for all economic reforms must be an understanding that it is only when enterprise satisfies customers that wealth is created, jobs become secure and incomes rise.

This is not just economic theory: it is born out everywhere in practice.

As you know, from Russia's own case, a country is not rich just because of its natural resources.

If this were so, your country would already be one of the richest in the world.

But countries are prosperous only in so far as the system of government encourages the enterprise of the people.

For it is enterprise which creates wealth.

Indeed, the countries with few natural resources–such as Switzerland, Japan, Hong Kong, Taiwan and Singapore–are the most prosperous, because there enterprise is encouraged.

There are no short cuts available. And there are no comfortable half way houses to rest in on the way from a command to a capitalist economy.

As one of the boldest reformers in Eastern Europe put it, the “third way” leads only to the Third World.

From my own experience in tackling a much lesser legacy of socialism in Britain, I know that the faster, the more radical and the more coherent your programme of economic reform, the sooner it will yield benefits and the greater these will be.

Like most medicines, it is unpalatable at first. But you persist until it brings about a cure.

Five Priorities of Economic Reform

It is for the government of Russia and of the Republics, not for me, to say what precisely should be in such a programme of reform.

But let me suggest five priorities.

A: A Sound Currency and Prudent Finance

First, you have got to establish a sound currency in which people have confidence, both as a means of exchange and as a store of value–and this requires a sound banking system to control the supply of money.

Inflation unstemmed leads to hyper-inflation and destroys people's confidence.

Moreover, anyone who thinks that just a little inflation is permissible will be sharply disillusioned.

The apparently beneficial effects of a small amount of inflation quickly wear off and a new larger dose of inflation is required to keep old, unviable industries afloat and jobs in existence. And then it does not take long before inflation, like any addictive drug, totally undermines the basis of the economy–in due course threatening political and social stability as well.

B: A Framework of Law

The second priority must be to establish a framework of law within which business can operate.

One of the main obstacles to foreign investment–whether directly or through joint ventures–has been in this area.

There has been and still is confusion about which laws and regulations apply.

These have been subject to unpredictable changes.

Sometimes agreements have not been honoured and it has been difficult to obtain redress through courts of law.

Of course, the problems which businesses face in Russia today largely reflect the legacy of Communism.

Bureaucrats so easily get into the habit of manipulating and changing regulations either to meet targets or for other purposes.

They have to know that they are answerable, in the same way as anyone else would be, to the courts.

And those courts must not be staffed by biased judges.

So, as you create the framework for true democracy under a rule of law you will also help to create a framework for prosperity.

C: Privatisation

The third priority is privatisation.

I have no illusions about the huge difficulties you face.

In Poland, which was never so subject to the central planning of the communist system as was the Soviet Union, I have seen for myself how great are the changes which people have to face as overmanned, out-of-date industries must be transformed into viable and competitive private businesses.

Yet it has to happen.

If you lock up the available credit, technology and labour in industries which, in their present form, have no future, you will starve other businesses of the resources they need to create wealth and jobs.

Some state owned businesses may be able to be run, at least in part, by managers and workers who become shareholders.

Others–at the right price and on the right conditions–may be suitable either for joint ventures or for acquisition by foreign companies to get the necessary investment. Still others–possibly many others–will have to go out of business because their products cannot compete.

These changes are bound to be disruptive.

But once they occur–and sooner than you might imagine–new businesses, new products and new jobs grow up in their place.

And for that the “Know-how Funds” should and do help.

The quicker the transition, the sooner the rewards will appear.

D: Private Property

The fourth priority must be to give as many people as possible the real opportunity to become property owners.

Wider personal ownership brings great political, social and economic benefits.

It gives people independence against the State.

People have an incentive to work hard.

Owning property develops responsible habits and attitudes including respect for the property of others.

And so the more people who do own property, the more stable and prosperous a country will become.

In recognition of the immense advantages which wider ownership of property bestows, we in Britain have pursued policies to create a real democracy of ownership to sustain and strengthen our political democracy.

We gave public sector tenants the right to buy their homes at a preferential price.

And we used our programme of privatising state owned industries, which was necessary in order to improve Britain's industrial and economic performance, to widen share ownership.

The number of individual share owners in Britain has approximately trebled since 1979.

By ensuring sound money and so safeguarding the value of savings, we helped hundreds of thousands of poorer families to build up something to hand on to the next generation.

I am convinced that here in Russia you can and must achieve something similar.

When farmers begin to buy, sell, and accumulate private land it will again be properly cultivated and become productive.

Nowhere did the Bolsheviks and, above all, Stalin do such harm to Russia as in the forced collectivization of agriculture.

When people are able to own their homes–whether completely or in part–you will see a transformation in the condition of housing.

When families are able to buy even a few shares in flourishing businesses and to build up savings there will be a new understanding and acceptance of popular capitalism and a desire to make it work.

The change from all state-owned property to private property is one of the most fundamental that you can bring about.

It gives people new hope, new dignity and new opportunity.

It is a clear signal that there are better times ahead.

E: Attitudes

This leads me on to my fifth and final priority for economic reform–the encouragement of attitudes which favour free enterprise.

In a command economy all initiative has to come from the State. So it is the attitudes of those who control the State and implement its decisions which ultimately count.

But in a capitalist economy initiative belongs with the individual.

And, although government can and must create the conditions for success, it is ultimately the flair, energy and commitment of the people which determine the rate of progress.

Countries like Britain, which lived under socialism for much of the post-War period, still suffer from the effects of a socialist mentality long after choosing the path of free enterprise capitalism.

So it would not be surprising if those who have lived under that extreme variety of socialism which is Communism for all of the post-War period continued to exhibit its psychological scars much longer. Yet, whether in the West or in the East, these attitudes have to change if the full benefits of capitalism are to be enjoyed.

Let me give three practical examples of what I mean.

There is an anti-enterprise culture which socialism in all its forms encourages.

This leads people to believe that there is something less respectable and less public spirited about running a business rather than sitting in an Academy or in a Parliamentary debating chamber.

Once young people with the talent to be entrepreneurs become discouraged from going into business and diverted to other employment the whole economy suffers.

Let us remember that a nation's political, cultural and even spiritual life depends upon a degree of material prosperity–and that prosperity can only come as enterprise flourishes.

There is no more public spirited act than to build up a successful business and so provide good jobs for the majority of people who cannot or do not want to start up on their own. So we have to make a positive effort to encourage an enterprise culture through schools, universities and indeed throughout public life.

A second example of an attitude which undermines economic success and indeed social stability is that of excessive dependence on the State. When people become totally reliant on government for their jobs, their income, their housing, their transport, their pensions–and when high taxation and regulations discourage efforts to break free of the web of State dependency–a nation becomes poor, both materially and spiritually.

In Russia you have had seventy years of good reasons to distrust the State: a healthy suspicion of government is as valuable in post-Communist Russia now.

My final example is the need to ensure the widest possible understanding that as people have different talents and abilities so they have the right to be unequal.

As long as the rules under which wealth is acquired are fair–and as long, of course, as those who genuinely cannot cope are cared for–inequality is not only just, it is necessary to freedom itself.

The sight of someone making a success of his life and acquiring wealth and property can have one of two effects. Either it can prompt envy, so that we try to prevent that person enjoying a better standard of living than we have.

Or it can prompt effort, so that we try to raise our own standard of living to a higher level.

The first reaction–the reaction which socialism relies upon–is a prescription for poverty, the second one for prosperity. And if envy, rather than effort–a mean spirited desire for equal outcomes rather than a love of liberty–is what determines the country's level of taxes and regulations, the whole country will be the poorer.

Conclusion

Just as there is no better place in Russia than St Petersburg to talk of these things, so there is no better audience than one of businessmen.

It is business success which Russia needs if her people are to enjoy the standard of living to which they aspire.

This means that government has to create a climate conducive to business success–and it means that businessmen themselves must demonstrate the practical and ethical superiority of the free enterprise system in everything they do.

We in the West know–though on occasion in the past we have forgotten–that only countries which have strong economies, because they value and foster enterprise, wield true influence within the international community.

So I believe that, as you build a free enterprise economy in this great country, you will also lay the basis for a re-birth of Russia's influence in the World–and an influence which will uphold those high values of freedom and democracy in which you and I so passionately believe.