MRS THATCHER: THE FIRST TWO YEARS

On May 3 1979 the Tories were swept to electoral victory. Today, exactly two years later, Mrs Thatcher takes stock in an exclusive interview with Ronald Butt.

‘Economics are the method: the object is to change the soul’

Butt

Prime Minister your government's success or failure is going to be judged largely by its handling of the economy, and you can take cautious satisfaction at having brought down the rate of inflation. But this has been achieved at a huge cost in terms of lost jobs and bankrupt businesses. How can you win the next election and secure the second parliament you want unless you achieve a more positive kind of recovery than seems to be in prospect now—even if the recession is bottoming out.

Thatcher

I think that underestimates exactly all the right things that industry has been doing. It is not merely a question of getting inflation down, important though that is. Much, much more fundamental than that is getting industry and services, so that they can be competitive with any other country's in the world. Now inevitably that meant manufacturing industry in particular really getting rid of a lot of overmanning, really getting productivity up and really getting the place into a state of efficiency and co-operation that British industry has not known for years. It meant starting to do all those very tasks which industry has put off doing year after year.

Now you may say that gives me an unemployment problem. Yes it does. But if we hadn't insisted on that, those companies would not have survived in the harsh competitive world and we should have had a very much bigger unemployment problem next year. Now all over, there are signs of companies performing better. So let's not look at it as just getting inflation down, vital as that is. It is also getting our industry into a flourishing efficient state, such that it can compete with any other companies the world over.

RB

But it is only a partial recovery isn't it. I know your Treasury colleagues stress that there's going to be a recovery on the basis of the business cycle, and the CBI's latest report has, to a certain extent, confirmed this. But there's still no evidence of a real recovery in overall industrial activity.

MT

No. What I have said is a condition we have to meet to be able to take advantage of recovery at all. If world trade isn't going to increase, then we can only improve either by getting a bigger share of our trade at home or a bigger share of world trade overseas and that again makes it vital that we are competitive. But world trade will expand. And we will be in a position to take advantage of it.

Some people say to me—people have just been co-operative because they were facing unemployment. I don't think that is so. I think that people realise that their future depends on loyalty to and co-operation with, their own company. That's something quite fundamental, and this of course was my aim.

But I believe we shall get expansion in world trade. I think we are flattening out now; it will take a little time to improve, but you know there are a number of signs of success. Look, in February ICI reduced their dividend. Here they are, just a few weeks later, saying “our profits are increasing, we see encouraging signs of success.” That's just one company. There are many that are taking in export orders, many that now know they are in a much better condition to take advantage of increasing world trade and to go out and create the products which create that increase. Look at Sinclair, a new firm in Dundee, starting with a new idea, all those small pocket television sets. That's not an increasing share in world trade. It is creating a new product that will sell.

RB

But there is a wider problem isn't there? The assumption used to be that unemployment would be a disagreeable but temporary consequence of the application of monetary policy. But now it's a world-wide phenomenon and it looks as though we are going to have to live with unemployment on a higher level than anyone has been used to. How do we come to terms with that?

MT

Well, you would have a larger proportion of your national income going to services. Tourism is one of them. Look at the number of jobs it's created—in the aircraft industry, in chartered flights, in hotels, in holidays. Transport is a service industry. Insurance is a service industry. So is banking. They go world-wide.

Leisure itself is a service industry. It is part of your gross domestic product. So yes, I think that we shall probably have a smaller proportion of our people in manufacturing but a bigger proportion in services.

There is another point. We have been slower in embracing new technology than other countries because there has been a fear that when we went to the latest technological change the jobs would go. The irony is that countries that have gone hardest and fastest for technological change, notably the Japanese, have got very little unemployment because by welcoming technological change they are making products which were undreamed of 30 years ago—taperecorders, video, small calculators, electronic toys. What we have not got yet is the idea new technology creates new jobs.

RB

But all that notwithstanding—shall we find ourselves having to live with a much higher level of unemployment?

MT

I think in the short term, yes. In the longer run it will depend on the use people make of the opportunities.

RB

You are under pressure nevertheless from all sorts of people to expand. You and the Chancellor are both hinting at the possibility of further expenditure cuts. What would that do to the economy in the condition it's in.

MT

You really ought to have less government expenditure to make room for more investment at a lower interest rate to private industry. Industrial companies will only invest where they see a productive return. And by cutting the amount of current expenditure in government, you could be releasing resources for the private sector.

RB

Isn't there a danger that the underlying cause of inflation remains uncured? Wage settlements have only come down because jobs have been priced out of the market.

MT

People price themselves out of the market by saying, “come what may, I must have more money.” There are times when they have created their own unemployment. Or if they are in some of the nationalised industries they have said “we're a monopoly; we can demand what we like, we'll shove it on the price.” And then people who, for example, depend upon enormous supplies of comparatively cheap electricity have lost business because other people have taken so much in extra pay and have been careless of the price of a monopoly product. It is not all either government's fault or government's responsibility. If you want an omnipotent government, you will not have a democracy for very long.

RB

But how do you propose to deal with wage bargaining and industrial relations in an expanding economy if workers try to get back what they reckon they have lost?

MT

In that case, they'll price themselves out of jobs again. People in Germany and Japan condition their wage demands to the amount they have earned in increased productivity. If our people say, “to hell with what I produce, I demand a certain wage,” then there soon will not be a job in their industry and they will have created their own unemployment.

RB

But how do you set about explaining or persuading people not to do so?

MT

They are learning.

RB

You mean that, in one sense, it's their problem. But it's also your problem, because if the economy begins to expand again and workers take the wrong attitude during expansion, then we are back where we started, aren't we?

MT

Yes, and then I shall say, “yes, I can give you examples of companies where employees have struck themselves out of jobs.” And I say to them, don't blame your unemployment on to me. It is your fault.” People are realising that we live in a competitive world and we shall always be up against that reality.

RB

Shouldn't government do more to win the minds of ordinary people, who may be disillusioned with trade unionism but have no reason to be attached to capitalism? Shouldn't it encourage people to feel identified with their place of work, as the Germans have through works' councils? [end p1]

MT

I entirely agree. I would like works' councils, but I don't believe that the whole success of the German economy is due to them. I do believe it is due to a lot better management, and to the fact that employees at all levels recognise that their jobs depend on loyalty to their company, not to their union. We have a totally different union structure here from in Germany. I wish we could have a different union structure, but we are saddled with the one we've got.

RB

Nevertheless, are you not afraid that old attitudes towards wage settlements will revive with expansion?

MT

Excuse me what makes you think that life will ever be easy in the world we are going to live in. The Germans are going to compete for business; the Japanese, Singapore, Korea, the French, the United States, some of the new South Americans.

I think many of our employees know the harsh realities and most of them far prefer to do a decent day's work for a decent day's pay, if they can shake themselves free of some of the union structures they have had.

RB

What about the government's approach to the size and shape of the public sector? You have pruned a bit here and there but you haven't changed the fundamental shape.

MT

We are desperately trying with nationalised industries. I think you underestimate what one's done in two years. British Aerospace has been floated off; Cable and Wireless is shortly being floated off; the monopoly is being taken away from telecommunications; the National Freight Corporation will soon be floated off. And the Transport Bill going through the House now gives powers to make British Rail sell off some of their subsidiaries. We simply cannot do everything at once. We are right up against the monopoly nationalised industry inheritance of socialism. Whatever I'd wished to do with British Leyland I could not do at a time of rising unemployment. Eventually one hopes to be in a position where one can sell the whole of it off and get rid of it. We have not stood still. We have done quite a lot fundamental with steel. 70,000 redundancies. All right, it has cost us a bit. But we have not just gone on piling money into steel regardless of performance. Nor into shipbuilding.

RB

I know you have been disappointed about the past failure to cut government spending enough. But isn't the deeper problem that it is usually cut by pruning functions and not by taking functions away from the State or by changing the method of financing public enterprises? For example, you could have tackled the problem of how the health service is financed.

MT

As a matter of fact we have increased the national health contribution, the direct contribution as distinct from the social security contribution. The only other thing to do is to go to a total insurance system, which alters the entire structure of the national health. You insure yourselves, so you can always afford to pay hospital fees. It would be a major change and you would need to be certain you have public opinion behind you before you do it. The other way of doing it is by having lower taxation and by relieving tax on the employer's contribution to things like Bupa. You say we have done nothing. We in fact took the tax off the employers' contribution to such schemes. The labour party had it put on. No, we have not done enough. But we've only been in two years. I must just remind you that Michael Edwardes has taken three years to turn BL round, and isn't exactly in sight of success yet.

RB

Turning to overseas questions—how important do you think it is to establish a common European voice on foreign policy? The Americans sometimes seem suspicious about this, for instance, over the idea of a European initiative on the Middle East.

MT

I think there was an awful lot of misunderstanding. I think they thought we were trying to compete with them and thought we could solve the Middle East problem without them, which we can't. You can't solve the Middle East problem without America playing the most prominent role in that solution. I see a role for in that solution. I see a role for Europe, not in competition with the United States, but in harness with them.

RB

You are shortly going to see Chancellor Schmidt. Are you going to talk to him about the future of the EEC?

MT

Oh, we have to. We've still got the very big problem of the European budget. The fact is that Germany is by far the biggest contributor, and we're the next biggest. There are two peoples who keep Europe going financially, the Germans and us. This state of affairs cannot go on. And he is the first person to say that. Because they feel deeply what we were feeling, that they in fact are financing nations some of whom are richer per head than the Germans themselves. We feel it too and that's where we have got the big big restructuring of the Budget to come. And that's why the Germans are saying, “we will not give up to the budget more than 1 per cent VAT. We say, “right, we support you, but you have got to stand on it. It does no good your saying that to me and then retreating.”

RB

But are you not up against what you might call the Schmidt-Giscard axis?

MT

It won't stop me from fighting Britain's corner or from saying things which I know, and I think Chancellor Schmidt knows, have to be done for the future of Europe as a whole. We can't go on with this sort of budget. I think we shall have a long drawn out battle on refashioning the budget I think we shall succeed because most of us think it's more important that Europe continue, than that we just fall out over a Budget.

RB

Do you think now that détente has any meaning at all, or does the word encourage illusion?

MT

If people have become accustomed to it working only one way, it encourages illusions. But we have done quite a bit about that, saying it has to be two-way. That's why we monitor Helsinki. Maybe we don't get very far. But the satellite countries at the monitoring conference in Madrid see for the first time the Soviet Union put in the dock by the West. They see a way of life they might not otherwise see, and that is enormously valuable. The Russians have been slightly more oppressive in the past year, and yet they have to let some people go now who might just have disappeared.

RB

How do you see our own defence policy developing? Can we, for instance, afford the huge cost of updating nuclear defence after Polaris?

MT

Europe and the United States have a gross national product greatly in excess of Soviet Russia, and therefore we should be able to afford both the men and the equipment. To some extent it is a question of resolve and of working together to see that we get as much out of our expenditure as the Soviet Union gets out of theirs, and also to see that each of us concentrates on putting in the particular effort in which we excel. There are times when we need to look to see we are getting the best value out of what we are spending and not duplicating.

RB

Do you think nuclear defence is going to be made much harder by the revival of the campaign for unilateral disarmament, which seems more persuasive for many people than at any time since the war?

MT

I think that's because the alternative campaign has not really yet got going. I personally don't find any difficulty with it at all. I wish to goodness nuclear weapons did not exist. But they do, and the fact is that the Soviet Union has some of the most sophisticated nuclear weapons in the world, more advanced than the Americans. The SS20 is targeted on Europe, and if you really value your way of life and wish to pass it on to your children, you'll do everything possible to see that the Soviet Union does not use those on us. The only way to ensure that is to make certain that if she did, the consequences for her would be so catastrophic that she would not do it.

RB

Coming back home, how do you view the second half of this parliament, and what are your priorities?

MT

On the economic side, we have to continue with the policies we have started, which are now working. In the last few weeks there are signs that some companies are expanding and new ones starting up. There is a lot which will grow in the coming two years. It will still leave me with an unemployment problem. I don't think the expansion will come fast enough. What we have to do is give relief where we can, and we do indeed do it. That is what made me very, very angry over some of the protests about 20p on a gallon of petrol. Because really, if those of us who have jobs can't look after those who haven't, then I think it is a great pity.

What's irritated me about the whole direction of politics in the last 30 years is that it's always been towards the collectivist society. People have forgotten about the personal society. And they say: do I count, do I matter? To which the short answer is, yes. And therefore, it isn't that I set out on economic policies; it's that I set out really to change the approach, and changing the economics is the means of changing that approach. If you change the approach you really are after the heart and soul of the nation. Economics are the method; the object is to change the heart and soul.