Bombay - A Beacon of Enterprise
Bombay is a bustling city: vibrant and colourful. One glance at the buildings of Nariman Point, India's mini-Manhattan, and the visitor immediately recognises that this is a fast moving, affluent, industrialised city - a city thriving on a talent for enterprise. Bombay is a gateway through which the rest of the world gains access to India and India pours out to the rest of the world. And here on the very edge of the waters at Apollo Bunder stands a great gateway, a physical reminder of Bombay's outward looking philosophy and of our shared imperial past. Bombay is a city built on trade. Who could have thought 400 years ago that the marshy home of the Koli fishermen would become the economic powerhouse of the sub-continent. The British East India Company quickly realised the importance of Bombay as a port, moving the headquarters for their West coast activities here in 1708. But the British were not the only ones who recognised the opportunities which the city offered, for by the end of the 17th Century it was also the home for the energetic Parsee community which has contributed so much to your development.
The Magic of India
India has a magic for me, as it does for so many English people. I gleaned my first knowledge of it from the marvellous poems and stories of Rudyard Kipling, with their vivid descriptions of real life, and he remains to this day my favourite source of quotations. From his poems we learned that essential wisdom and insight into human nature which is still relevant in today's world. But I remember something else as well when I was young: and that is the pride we all felt in India: in her splendour, her mystery, her colour and the indefinable affinity we felt with her people. And perhaps that is not so surprising because each of our countries has a strong tradition and a long history, which gives us both a confidence and a sense of continuity.
So strongly was this felt in my family that when, like most children, I was asked the question “What would you like to do when you grow up?” my reply was “To become part of the Indian Civil Service” . To which my father had the foresight to reply (remember this was the mid-1930s) “There probably won't be one by the time you are qualified” .
It was only much later that I had my first direct experience of India and that was when I visited your country as Secretary of State for Education and Science in the 1970s when I saw a very different side of India: the huge reservoir of talented people, your ancient prowess in mathematics and science as described so vividly in the Festival of India in 1982, the advances in medicine, in computing and in civil nuclear power.
I came to India several times as Prime Minister and had the privilege then and subsequently of getting to know three of your own Prime Ministers. The first was Indira Gandhi with whom I instinctively felt a very special personal affinity. Even though we certainly didn't agree on everything, we were able to talk things through with a frankness and understanding which was matchless. Both of us knew and understood the loneliness of office. Later I made the sad journey to Delhi for her funeral, the victim of an assassination. It was particularly poignant, for only three weeks before I myself had so narrowly escaped injury in the bomb blast in Brighton and Mrs Gandhi had sent me a note of sympathy for those who had been killed in which she expressed her horror that such things should happen in a civilised society.
Then of course I knew Rajiv Gandhi well. He fearlessly took up the challenge of terrorism and eventually paid with his life, but only after he had infused Indians with a renewed pride in their country and enthusiasm for India's future opportunities.
Lastly and most recently, Prime Minister Rao who, together with Finance Minister Dr Singh, is carrying through the immensely difficult task of reforming and liberalising India's economy within an established framework of democratic politics.
I have some experience of that myself.
In the Eighties in Britain we had to rein in the power of the trade unions and make them democratically accountable to their members. We had to get government out of running business, for which it has no talent or qualifications, and give management the power to manage, through our programme of privatisation. We had to cut regulations to reduce the overburdening apparatus of central government and cut public expenditure in order to cut taxation and increase the incentives to effort. All these changes were vital for Britain's future and for ending our nation's decline. So I know both how difficult the tasks facing Prime Minister Rao are and how vital it is for India's future that he should succeed just as it was vital for Britain's future that I should.
The Great Experiment
This century started with so much hope and yet it has seen the two worst tyrannies the world has ever known:
Nazism, which your country and mine fought against in war.
Communism, whose denial of liberty of all kinds, personal and economic, was the utter negation of the human spirit.
Nazism and fascism were defeated but Stalin's Russia continued to pursue its ambition of world hegemony. As Winston Churchill observed, an Iron Curtain was brought down, dividing the world in two.
On the one side, the way of freedom.
On the other, communism, the way of coercion.
For 70 years they coexisted, indeed it seemed as though the world had unwittingly entered into a great experiment to decide which was the better way of life for our peoples. Then the Communist system collapsed and its cruelties and poverty of spirit became clear to all. The Free World could point to the failings of Communism to deliver material progress or human rights as proof positive that the diametrically opposite system - of free institutions, free enterprise and a free people - was the key to the success of the democratic world.
The Moral Case For Capitalism
Having won the great ideological battle, we now face a new argument: one that says that our way is too materialistic. The people who propound this view have forgotten that it was Marx who described religion as the opium of the people, he and Lenin who denied freedom and regarded the people merely as cogs in their political machine. Theirs was a wholly materialistic creed.
Nevertheless, you and I must make the moral case for our beliefs - at the heart of which is liberty itself, or what the United States constitution describes as life, liberty and the pursuit of happiness.
Economic freedom is real freedom. Just as coercion exercised on economic grounds is no less real coercion. But don't take my word for it: listen to one of the world's great religious leaders, Pope John Paul II in his Encyclical, Centesimus Annus where he talks of the collapse of Communism, as “not to be considered simply as a technical problem, but rather as a consequence of the violation of human rights to private initiative, to ownership of property and to freedom in the economic sector” . Indeed as the Pope continues “today the decisive factor is increasingly man himself, that is, his knowledge, especially his scientific knowledge, his capacity for interrelated organisation as well as his ability to perceive the needs of others and to satisfy them” .
What Communism's intellectual creators ignored was that the market is not just an invention of some academic economist. The freedom to buy and sell, to trade and barter is the oldest system of exchange known to man. It is not merely an economic practice but also a vibrant social activity: there is a constant interplay of new ideas and new people. It brings people together in a community of work. The market is made up of individuals, but they prosper through co-operation.
Free enterprise works because, like democracy, it gives real power to the people. Indeed it can be described as economic democracy. It limits the power of government by maximising the power of the people. It removes industry and management from the hands of the state by selling off companies and businesses to those who will buy them, mostly through the stock market. Free enterprise capitalism is a necessary - though not a sufficient - condition for political democracy itself.
Perhaps we in business have been too slow to point out that capitalism is therefore not only about material things, it is about the human spirit and its creativity. In seeking to liberate people from poverty and servitude it is the business ethic in action which is the cutting edge of progress.
As Alexis de Tocqueville, that remarkably shrewd and prophetic observer, wrote in the middle of the nineteenth century:
“Do you want to test whether a people is given to industry and commerce? Do not sound its ports, or examine the wood from its forests or the produce of its soil. The spirit of trade will get all these things and, without it, they are useless. Examine whether this people's law gives men the courage to seek prosperity, freedom to follow it up, the sense and habits to find it, and the assurance of reaping the benefit.”
The Role of the State
Thatcherism has never been about crude “laissez faire” . It has been about creating a framework within which individuals and firms can compete on fair terms, to the benefit of the customer and the nation.
The role of the state should be limited but strong to do those things which only Governments can do.
First government should be strong to keep the finances and the currency sound. We need to preach and practice the wisdom of thrift as a virtue in itself, and of high savings as necessary for high investment and that public spending must be strictly limited. This is common sense.
Every businessman and housewife knows that they have to live within their income. The laws of arithmetic are not suspended merely because you are working in billions - or because you are in government.
But these things do not come naturally to all politicians. Interest groups are very strong and vociferous, particularly in the public sector, and there is a constant temptation to increase public spending to appease them or to postpone awkward decisions. This is what I found I had to resist when I was Prime Minister. And as a result over the years the share of the national income taken by public spending shrank and budget deficits were converted into several years of surplus - thus redeeming debt and reducing the burden on future generations.
Frequently I found that the most useful word in politics was “No” . And I must say that women are much better at saying it than men.
“No” to calls for ever higher public spending on and borrowing for any number of excellent causes.
“No” to demands to intervene to stop uncompetitive firms and factories closing.
“No” to allowing the trade unions to continue their outdated practices which were stifling the economy.
Finance Minister Singh who is imaginatively charting India's economic course is right to have a faster pace of reform as his ambition. He is cutting the top rate of personal tax from 45 per cent to 40 per cent, although doubtless you will want him to consider the modest income threshold at which it applies. Let me say that when I became Prime Minister the top rate of tax was 83 per cent. We brought it down to 40 per cent. This incentive to effort was so great that at the same time the proportion of total income tax paid by the top 5 per cent of earners actually rose.
Your corporate taxes are down too and the government has announced that it will overhaul and simplify the system of indirect taxes. India is also recognising that the key to an enterprise economy is incentive.
Incentives matter to everyone whether they are already in the higher tax brackets or whether they aspire to get there. New inventions, new business, good top management - it is these things which create not only the wealth of individuals but, as Adam Smith put it, the wealth of nations.
Second, government must be strong to uphold the rule of law, independently administered. The importance of a rule of law is often difficult to explain to those who have emerged from totalitarian regimes and whose experience of the law was confined to the diktat of the Communist Party, changeable at will. India has no doubt as to its importance. We share an understanding that the law must either be consecrated by time and custom, that is the common law, or enacted by the democratically elected representatives of the people.
In Britain we called ourselves a free people long before we had a universal franchise because we were protected under a just law.
Unfortunately the absence of a rule of law, as we understand it, is the greatest lack in the countries of the former Soviet Union and in China. Where there is no law, corruption reigns and the people have no place from which they can receive justice and fair play.
Third, while no-one has an automatic or inalienable right to be kept by the state they do have a right to an education which enables them to make the best of their abilities. It is only through education that we can show children the marvels of science, the wonders of the arts, the struggles of their forefathers, the speed of change and the advances which have come about in the last century.
In other words, I believe that children must be taught all the subjects which are essential to modern life and all of the good things for which their country stands. For children of families living in poverty, education unlocks the door to a better future.
India has achieved so much. Literacy rates have risen from 18 per cent in 1951 to 57 per cent today and you have one of the best educated elites in the developing world - indeed for many families education is a passion.
But as you strive to do more do not succumb to the virus which, for a time, undermined the quality of education in the West. One of our most distinguished headmasters said that “our schools have agreed too readily that what is contemporary but second rate, is preferable to what is first rate and has stood the test of time; and that a shallow television culture is replacing the study and understanding of what is truly great.” As we have rushed towards the new we have forgotten the very values which lie at the heart of a fulfilling life. Education must challenge the pursuit of the trivial. The only test of what is suitable to teach is not whether it is “politically correct” but whether it is great.
Family, faith and school, guide us across the moral map. They must be the Pole Stars by which we chart our course through life. Without them we have no guide.
To these duties of government must be added the need for a strong defence - for the potential for new dictators and perverted creeds to arise and perpetrate new horrors is and always will be there.
If the state performs these core duties well then a framework is established in which enterprise, initiative and diversity can flourish. But all too often the state is tempted into activities to which it is either ill-suited or which are beyond its capabilities.
Privatisation - Transforming Britain
Perhaps the greatest of these temptations is government's desire to concentrate economic power in its own hands. Too often it believes that it actually knows how to manage business. Let me tell you, it doesn't - as we discovered in Britain when nationalisation and prices and incomes policy together deprived management of the ability to manage. And when we came to privatise and deregulate it took some time before these skills came back.
A system like state control which is fundamentally bad because it denies people the power to choose and the opportunity to bear responsibility for their own actions, can't be made good merely because it is run by “clever” people who make the arrogant assertion that they “know best” and that they are serving the “public interest” - an interest which of course is determined by them.
Privatisation shrinks the power of the state and free enterprise enlarges the power of the people.
Our policies were fiercely opposed. Too many people and industries preferred to rely on easy subsidies rather than apply the financial discipline necessary to cut their costs and become competitive. Others preferred the captive customers that a monopoly can command or the secure job in an overmanned industry, rather than the strenuous life of liberty and enterprise.
Free enterprise has a universal truth at its heart : to create a genuine market in a state you have to take the state out of the market.
For Britain, the 1970's was a decade of decline: even worse than that, our people seemed to accept it. Our nationalised industries were inefficient, overmanned and weakened by restrictive practices. Government had no business being in business.
We tackled privatisation in the way which best suited us.
First, we had to put the balance sheet of the industries we wanted to sell in good order. Where redundancies had to be made because of overmanning we were determined to ensure that those who lost their jobs would receive a capital sum related to the length of their service. For the first time in their lives this put capital into their hands and each industry helped them to find other jobs or to set up businesses of their own. This made clear our concern to look after those who were losing their livelihoods as well as those who were staying on.
Second, I saw it as part of my purpose to have a policy which extended ownership of capital more widely. It is most people's ambition to have something to pass on to their children. In doing so, it links the generations and gives us a deep and abiding interest in the future. We wanted those remaining in the newly privatised industries to have a greater stake in their companies. We reserved a block of shares for employees which they could purchase at a discount.
Third, those companies which could not be floated on the stock market were sold to companies who were willing to buy them.
Fourth, some industries were so thoroughly out-dated that they would have cost too much money to modernise. Others such as shipbuilding had lost their markets as business had moved to the Asia Pacific. The subsidies required by our shipyards each year were equal to their entire wage bill, and we were told that we could not stop them because people would lose their jobs. Clearly we could not go on that way. Some shipyards had to be closed, others were offered for “sale” .
It was an unusual type of sale, buyers were not asked to pay anything for the land or for the plant. They were even offered substantial capital sums to cover the necessary redundancies and to help build a modern effective industry in the private sector. This recipe worked. Shipbuilding was not the only industry helped in this way.
In Britain we faced opposition, particularly when we came to privatise the public utilities, but the facts show that they too are much more efficient in private hands.
Altogether, we were successful in re-building an enterprise society and we showed that privatisation worked. It is better for the consumer, better for the taxpayer and better for the health of an industrial and commercial country. Many others have followed our example.
Indeed as The Economist put it recently:
oqq;Nationalisation, once all the rage, is out; privatisation is in. And the followers of the new fashion are of the left, the right and all hues in between.”
Privatisation and the Global Perspective
The sheer scale of global privatisation is still not widely appreciated. The countries of Latin America were the first to follow - Chile, Mexico, Argentina and now Brazil. In Europe, France and Italy are making the biggest privatisations in the next two years. In Asia, Japan and Malaysia have already raised considerable sums through privatisation.
Over $500 billion of major sales have taken place or are in progress and the total number of employees transferred from the state to the private sector is probably equal to the population of a medium-sized country such as Thailand.
Asia - Great Expectations
The world has never seen such a rapid economic expansion as it is witnessing today. The age of automation has been even more radical than the age of mechanisation. “Smart” machines now transfer technology instantaneously from one country to another. Development which used to take years can be achieved in months.
Hence the economic miracles in the countries of Asia, both large and small. A hurricane of change has swept across Asia, carrying millions out of poverty and bringing new hope. The peoples of the Asia-Pacific are out-stripping much of the rest of the world in growth, investment, new technology and trade.
That should not surprise us, for the importance of trade and prosperity are rooted in the ancient history of your continent, whether it be with the Chinese traders from the north or the Arabs from the west.
Today the Asia Pacific region has the highest growth rates in the world in spite of the world recession.
1. By the end of this decade trade within the Asia/Pacific area is expected to exceed trade within Europe.
2.Across Asia, output per person is doubling every ten years;
3.Savings ratios are running at over 30 per cent of GDP - providing ample resources for investment.
4.Asian banks hold over one third of the world's foreign currency reserves;
In the past thirty years Japan led the way for the Asian revival. The Japanese had the genius to take the technology and scientific research of America and Europe and turn them into products the world wanted. Those products were well designed and competitively priced.
A similar strategy has been applied by the other countries of the Pacific Rim, Taiwan, Hong Kong, South Korea, Malaysia and Singapore.
Hong Kong with only 6 million people (up from half a million immediately following World War II) has become the world's 10th largest trading economy and the world's busiest container port. What a marvellous advertisement for free enterprise. She has full employment and an economy that has grown four-fold in the last 20 years. Alas, although a colony, independence was never an option because the terms of the lease mean the land returns to China in 1997.
The performance of the Tiger states has proved that countries are not rich in proportion to their natural resources; if that were so Russia would be the richest country in the world; she has everything, oil gas, diamonds, platinum, gold, silver, the industrial metals, timber, and a rich soil. Countries are rich whose governments have policies which encourage the essential creativity of man who in order to succeed must work with others to produce goods and services which people choose to buy. So Japan, Switzerland, Hong Kong, Taiwan, Singapore and so on may have no natural resources but are now among the most prosperous countries in the world.
There are also some who fear that the growth in Asia will place an unbearable burden on both investment and natural resources. But they ignore the fact that this new economic dynamism will in itself generate new wealth which in turn can be invested. They ignore the high savings ratios in these countries and they forget that the pace of technological change, as you know in India, is providing us with new ways to unlock resources all the time. Therefore we should not see either East or Southern Asia as a challenger for ever fewer resouces but a generator of new ones.
Just as the scene shifts in a play, so I think the next Act in world history will be played out more in Asia than in Europe, more in the Pacific than the Atlantic.
China
Of all the countries of Asia perhaps it is China which is most astonishing the world. It has taken a different path from its Communist neighbour Russia on the road to reform. Since 1978,Deng Xiaoping although refusing to give personal and political liberty has steadily encouraged a market or enterprise economy with economic freedom. “I wish we had started that way” , the Russian leaders used to say to me - but historically, the Russians had little taste for enterprise and their brief experience of it was snuffed out by Lenin in 1917. Moreover, while China benefited from investment from Taiwan, Hong Kong and Singapore, Russia has had no such diaspora to help her.
Perhaps the greatest difference between the Russians and the Chinese is that the Chinese are born traders. Today, in world trade terms, the “Chinese Trio” of China, Taiwan and Hong Kong, is behind only the United States and Germany. The World Bank estimates that the East Asia region as a whole imports $800 billion of goods annually - more than all the imports into the US and growing at a rate of 15 per cent per annum.
Viewed from the outside China appears to be a large but single market. In fact China is a union of many, possibly as many as forty, economic units. A good number of its cities are larger than many countries and the average sized province has a population of between 50 and 60 million people. Of course with a total population of 1.1 billion there are bound to be variations in the rate of growth but with a willingness to devolve economic power I do not share the opinion of some commentators who see China, like the USSR, breaking up. Her people have a cohesive political will which should hold the country together through the turbulence ahead.
None of us can forget the events in Tianamen Square, but I noted the recent hopeful report that Deng Xiaoping had commented “we restored order but we lost the hearts of the people” . In the end tanks cannot overcome the will of a determined people.
I myself believe that you cannot have economic freedom without soon giving political freedom. Open the door to new investment, and you open the window to new ideas. Dismantle controls over what people buy and sell and you have less control over what people think. As the Governor of Hong Kong has said, “People want to be prosperous, but they also want to be free” .
India - Looking Ahead
What does all this mean for India, for her place in the wider world?
Your influence and example are crucial to the future.
While Russia has democracy but struggles for economic reform,
China has economic reform but resists democracy.
But India has the advantages of both economic reform and an established democracy.
In some ways this may makes reform even more difficult as every move is publicly debated and sometimes the arguments are distorted. Nevertheless, once the decisions are taken they are all the stronger because of the openess of parliamentary democracy.
Also you have a large, enterprising middle-class, with an enviable capacity to exploit the advance of science and to attract the requisite investment. Add to that your international trading links and it would seem from the outside looking in that your success is assured.
India has developed her own way of doing things. While there are certain principles that are universal and rights that are inalienable, each country has its own traditions and beliefs, its own history and characteristics, all of which have to be taken into account, especially when making systemic changes. You are the first to understand that the great dynamo of progress is man's desire to work for his family, for people and purposes he knows, for local causes and facilities.
Take away too much in tax and that incentive, that responsiblity will be diminished, and economic progress and the hope it brings will be retarded.
India is a power for stability in the world. And the dominant power in this region.
In addition to the turbulence on your borders, there are worries:
that although the communist system may have collapsed there are still too many communists about working to re-establish their old privileges,
that other authoritarian regimes remain, and will arise in the future,
that there are religious fanatics who utterly distort their creed, pursuing their ambitions through violence, which as scholars point out is without sanction from the true religion,
that there is a real danger of nuclear proliferation.
You have a strong, non-political military tradition, an understanding that peace is the dividend which comes from a strong defence, but a taste for reasonable agreements in preference to conflict.
India's Example. Above all, you have proved the interdependence of political and economic liberty, of freedom and the free market. And what better place to say this than Bombay. For today Bombay can rightly be described as a stronghold of free enterprise. You have the busiest port in India, handling nearly 50 per cent of your country's overseas trade, and its busiest international airport.
You manufacture everything from cars and bicycles to pharmaceuticals and petrochemicals.
You are the centre for India's world renowned textile industry and the financial hub of South Asia.
What city can be a better introduction to the “new” India which is emerging? A new India which will play an increasingly powerful international role. I welcome that. And I believe that with India in the vanguard, the philosophy of liberty under the law will extend its influence and prevail.