A few years ago when Helmut Schmidt—that rare person, a Socialist who believes in the market economy—visited this country, he was compared by The Times to “the headmaster of a famous public school, come to give out the prizes at a struggling comprehensive” . He uttered a few obligatory words of encouragement to us. But what startled the papers was the painful detail in which he compared the living standards of our two countries.
Nothing in the last few years has happened to improve these gloomy comparisons. Indeed, according to a recent Parliamentary Answer, gross domestic product per head in this country is already less than half, and will by 1985—on unchanged growth rates—be only 40%; of that of West Germany.
Most European countries already enjoy better pensions, better housing, better hospitals and higher living standards. On present trends, the gap will soon become a chasm, and we will have difficulty in maintaining even our present standards.
That is the danger if we do not rectify our basic and persistent weakness—underlying all our other problems—our low productivity, too little output for each man hour.
Recent discussion has made us familiar with some of the grim statistics of British productivity—how a Japanese steelworker produces five and a half tons for every one produced by a British steelworker. Or how it takes almost twice as many man hours as on the Continent to assemble similar cars—and at the same time output from each assembly line is far less. [end p1]
When will we learn that over-manning does not save jobs. Indeed, it is quite futile to attempt to preserve jobs by making them uncompetitive. The only jobs preserved by British over-manning are German jobs, or American jobs, or Japanese jobs.
We must understand the paradox, that it is only by having competitive levels of manning that employment can increase. If the British Steel Corporation had competitive levels of manning, then it would be able to increase its market share, to invest more and to generate new jobs and orders, not just for itself but also in the engineering and machine tool industries which supply it.
The question we must ask ourselves—if we are not truly to become the poor man of Europe—is whether attitudes can be changed. At present people want the fruits of change without change.
We know how not to increase productivity. Productivity will not be increased by more government intervention and subsidies. Increased government intervention in industry is not the answer; too much government intervention is the problem diverting resources and manpower into areas of lower or negative return.
Some protest that this is because the intervention has been mismanaged. But there is no reason why the State should be able to see more opportunities for investment than do industrial managers.
Nor is there any hidden supply of entrepreneurial talent available to the N.E.B. National Enterprise Board which private industry cannot tap.
Of course the Government has an obligation to cushion the impact of change, or for instance to ensure an orderly contraction as a Conservative Government did with the textile industry. But assistance in those rare cases where it is necessary should be both temporary and tapering. Intervention should be, as one German put it, in the form of “measures which are in a position to render themselves superfluous” .
The second sure way not to improve productivity is the “industrial strategy” approach, which we saw at the much publicised talks at Chequers recently. [end p2]
I am not making any criticism of those in industry who take part in the talks. For the “industrial strategy” may fulfil one important function; that of educating unions and employers about each other's problems, and teaching governments about the facts of industrial life.
But no-one quite knows what the Government's industrial strategy is. If it means what Ministers claim it means, then it is hardly the recipe for a prosperous future.
It is certainly not the function of Ministers to determine what the level of investment should be, let alone in what private sector industries it should be made.
That will be decided by the consumer in the democracy of the market place. And it is quite futile to try to force the citizens to support as taxpayers, for any length of time, industries which they will not patronise as customers.
The basic fallacy of the industrial strategy is the belief that decisions in industry are taken at the level of the sector. They are not; they are taken at the level of the firm; and all the talk about remedying this difficulty, and the need to carry the strategy down to the level of the firm, would only make it even worse. We will then be on the road to detailed, full-blown Socialist planning for each and every company.
Only yesterday it was reported that a joint committee of the Cabinet and Labour National Executive had been set up to examine ways of using existing legislation and sanctions to impose planning agreements on firms. In other words, the black listing powers that have been so misused in the past few months could be deliberately misused again, to impose Socialist plans on British industry.
The third way not to improve productivity is to go on running the nationalised industries as we have done in the past.
The nationalised industries are basic to our overall economic performance. [end p3]
If only a part of the productivity improvements now being talked about in a motor and steel industries were achieved, it would make a dramatic difference.
We will not achieve these increases unless we allow management in the nationalised industries to perform its function, which is to manage.
It is one of the crucial objections to nationalisation that inevitably the State-owned industries are thrown into the political arena.
Mr. President, these are the ways not to increase productivity. But the choice for this country cannot be just a negative one.
We will only overcome our problems if we know where we want to go.
It is not free enterprise that has failed. It is governments that have failed to create the conditions in which the free economy can do its work to the benefit of all.
Much of what we want must be done by persuasion, by building upon the common ground of NEDO National Economic Development Office.
It is also essential for management to explain to all employees the facts as they affect the present and future prospects of their companies. That duty cannot be abdicated.
But Government must set the framework by its policies also.
Firstly, we must restore the motivation, morale and authority of management.
Managers need clarity of objective, payment by performance, freedom to think and act—all these are today fettered by Government interference and controls.
Far more important than the NEB National Enterprise Board vainly attempting to spot winners, is whether the managers can pick the right projects and back them. [end p4]
No group is more important, and yet none has been so put through the mangle and flattened between the rollers of penally progessive taxation and discriminatory incomes policy.
And it is not even as though British management was well remunerated at the start.
Every survey indicates that it is among the worst paid in the world.
We must restore incentives to work for all who contribute through their efforts to the prosperity of our country. [end p5]
That is why the top priority of the next Conservative Government will be to cut direct taxes so that hard work, responsibility and success can be properly rewarded.
Secondly, we must restore profitability. The rate of return has fallen in many countries, but in this country it has fallen so far so fast, that if it falls any further the very existence of the mixed economy would be endangered.
Profit figures as reported in the newspapers often appear high; indeed, some have been rising slightly but from a very low base, which when corrected for inflation is far too low for expansion and investment.
The Price Commission boasts of the millions of pounds saved to consumers in price increases which have not been granted, but these are millions of pounds taken out of profits of companies.
Competition, not the Commission, is the best watchdog on prices.
It would be difficult to invent a greater deterrent to risk-taking than price controls.
Why should anyone go through the tribulations of launching a new product, if success in the form of higher profits is penalised, while failure continues to carry a penalty.
The rapid decline in profitability in recent years has been reflected in our low investment.
Profits are a signalling device. They help to guide investment to the areas of highest return and the greatest customer satisfaction.
We must return to a world where the signals are a lot clearer.
Thirdly, we need measures to enable the labour market to work and to encourage mobility.
Some of our social policies, like the sale of Council houses, will encourage this.
There are also certain changes which are needed in legislation like the misnamed Employment Protection Act, which is turning labour into a fixed cost and freezing recruitment. [end p6]
Nor can the labour market work properly with rigid pay controls of the type now in force.
Differentials get squeezed and shortages of skilled labour develop.
There is no incentive for labour to move from the unsuccessful companies to prosperous ones; whilst good management may be forced to move from prosperous companies, just because its talents cannot be recognised.
Throughout industry, effort and initiative are discouraged.
No, the only way to determine pay is through responsible, realistic collective bargaining: according to the circumstances and prospects of the company concerned, and within the overall constraints of the money supply.
Realism in pay bargaining means facing up to the realities of industrial life.
Facing up to the fact that to pay good wages and to be able to invest for the future a company needs to make profits; that the more prosperous a company is, the better wages it can pay; that nowadays not only a man's earnings but also his income in retirement depend on the profitability of British industry.
What we should be seeking is not pay restraint imposed by Government interference but pay restraint engendered by a growing understanding, on both sides of the bargaining table and among the public at large, of these fundamental realities.
It is for the Government to ensure a balance between the bargaining powers of labour and management; a balance which many of us feel does not exist at present.
And it is for the Government to convince the bargainers that they cannot look to be rescued with taxpayers money if they risk suicide through excessive wage settlements or futile industrial disputes.
Mr President, the role of Government must be limited. It must provide a stable and consistent framework so that management can plan ahead beyond the horizons of most politicians.
It must safeguard industries against dumping and genuinely unfair competition, and try to open up protected markets overseas. [end p7]
Of course, it also has the crucial task of promoting and strengthening competition at home.
Our opponents will try to claim that our policies of disengagement will increase unemployment—truly Socialist effrontery when unemployment has risen in this country in the last three and a half years, so much faster than on the Continent.
Our best hope of reducing unemployment is by increasing our competitiveness, and therefore our sales. A one per cent increase in our share of world trade would represent 400,000 extra jobs.
Mr Healey has talked of a million jobs being provided in the next few years.
It could happen, but not his way.
It could happen by raising profits, cutting taxes and bureaucracy, freeing the labour market, encouraging managers, raising investment, and getting more value out of existing investment.
The private sector can certainly generate new jobs provided Governments don't prevent a market rate of return. Jobs lost in declining industries can be replaced by new jobs elsewhere.
From 1959 to 1972, hundreds of thousands of jobs were lost in textiles, the mines, the railways, and the docks, and yet total employment during that period was increased by 1.2 million.
But it wasn't Whitehall that created the jobs which appeared: in new businesses, in chemicals, private services, construction, distribution and private transport, all wealth-creating activities. This can happen again.
What we need is not a Socialist industrial strategy, but a Conservative strategy for profits, a strategy for disengagement, a strategy for letting free enterprise work.
That is our way which worked in the past, and still works today in Germany and the United States. It can work again in this country because it corresponds with the deepst needs and aspirations of human nature.
And because it rests on a principle enunciated by President Kennedy. ‘Freedom is not just an abstract idea, but the most positive instrument for improving the condition of the people’.