Moreover, the German workforce today has the shortest working hours and longest holidays of any country. Asia-Pacific industrial competitors with wage costs per hour a sixth of Germany’s are an increasing challenge. And Germany is relatively more reliant on manufacturing industry than most advanced economies.
It is thus an open question how long present prosperity can last under these conditions. The temptation will grow for Germany to follow France in pressing the European Community in the direction of protectionism. But that would be self-defeating, since protectionism reduces the incentive for efficiency at home while stimulating it overseas.[123] It should be added that this analysis is by no means ‘anti-German’. Indeed, the more corporatist model of capitalism which Germany has come to represent only works as well as it does because of the remarkable qualities of the Germans.
THE TEMPTATION OF ‘STABILITY’
The attraction which the more regulated German model of capitalism offers is not solely the result of Germany’s own impressive economic performance. It also stems from that perpetual desire for security and stability which tempts policy-makers to abandon the risky unpredictability of free markets for the misleading reassurance of planned order. This explains the present tendency to argue for state intervention in industry long after the economic theories justifying it are discredited. It also explains two other current preoccupations — first, the search for a new framework of stable currencies policed by international institutions on the lines of Bretton Woods, and secondly the argument that full-blooded protectionism offers the only hope of withstanding the disruptive competition of new low-cost producers. Each of these viewpoints is advanced by distinguished advocates — in the first case Paul Volcker’s Bretton Woods Commission, in the second Sir James Goldsmith.
The pursuit of exchange-rate stability has done great damage during my political lifetime. Nigel Lawson’s shadowing of the Deutschmark between March 1987 and March 1988 undermined my own Government’s anti-inflation policy. Subsequently, the pursuit of rigid parities within the Exchange Rate Mechanism of the European Monetary System plunged Britain and other European countries into an unnecessarily deep recession. But in any case, as Professor Milton Friedman has pointed out, the experience of pegged exchange rates under the Bretton Woods system devised in 1944, which finally collapsed in 1971, hardly justifies the plaudits it sometimes receives.[124] In fact, it only worked as intended for eight years — from 1959 to 1967 — and even those years were not free from exchange-rate changes. Moreover, the inflation of the 1970s actually began in the last few years of the Bretton Woods system. Its final breakdown reflected both that inflation and the unwillingness of sovereign states to subordinate their interests to an exchange-rate rigidity which transmitted the inflation or deflation of other economies to their own. All experience has shown that attempts to peg exchange rates do not in fact increase stability — or, except in the very short term, confidence; they simply ensure that adjustments take place against a background of economic crisis and political discord. Talk of ‘recreating Bretton Woods’ is nostalgia which we cannot afford — and indeed we cannot even achieve. As Sir Samuel Brittan, a distinguished former supporter of the ERM has recently written: ‘Fixed, but adjustable, (pegged) exchange rates of the Bretton Woods or ERM types are probably no longer a realistic option; and a straight choice has to be made between floating and a full monetary union with partner countries.’ For reasons I advance elsewhere, my choice is firmly for floating rates. Sir Samuel will probably plump for the other option — but we both realize that there is no stopping at the halfway house.
I have more sympathy with the analysis of the international economic scene offered by Sir James Goldsmith.[125] Sir James is right to draw attention to the challenge posed to high-cost, overregulated European industry by foreign competition, which he sees as inevitably leading to falling real wages and soaring unemployment — unless we erect protectionist barriers around the advanced economies of Europe. Research suggests that competition from the emerging markets has indeed begun to depress real wages and in Continental Europe is also raising unemployment.[126] These are real problems with which we must deal.
But the benefits of free trade do not depend upon participating countries having similar cultural or institutional arrangements, nor on their having the same economic potential. The mutual benefit comes from exploiting the comparative advantages enjoyed by different countries. And Sir James probably exaggerates the immediacy and scale of what he calls ‘a completely new type of competition’ from four billion people who are coming into the world economy. The figure of four billion seems to include the entire population of the world outside the developed countries, men, women and children. Not all of these are coming on to the world economy any time soon, and the economic potential of the low-paid workers in China and the former Soviet bloc who are competing with us is very varied.
Of course, the experience of the Asian ‘four tigers’ suggests that some at least of these newly-industrializing countries will enjoy a very rapid rise in industrial skills and living standards. But two consequences will flow from that: they will cease to be low-wage competition, and they will increasingly provide a market for the exports of other nations, including Western nations. Competition will once again work for the benefit of all.
It could be, admittedly, that the West, even while prospering in absolute terms, might fall behind these new competitors in relative terms. That would be no great tragedy; but in any case for several reasons it is unlikely to happen. The most important one is that, the more advanced an economy, the smaller labour costs are as a proportion of total costs — especially in manufacturing industry where the developed world is allegedly most vulnerable. (This is one beneficial result of the automation revolution, which poses problems in other respects.) And in both advanced manufacturing industry and in services, where the West also has a relative advantage, investment in human capital tends to be disproportionately important. Here, again, the West scores, since our unskilled labour tends to be more skilled than their unskilled labour — not to mention that developed countries produce many more scientists, technicians, engineers, economists, accountants, bankers and other professionals at the very highest level. Indeed, many of their ablest competitors in developing countries emigrate to Western countries when they are allowed to do so.
None of which is to say that the developed world will not fall behind the Pacific Rim countries if it continues to pursue policies which neglect or positively waste the talent available to us. Sir James himself argues vigorously, and I heartily concur, that well-intentioned policies of indiscriminate welfare ‘reduce the self-reliance of citizens and of their families by converting them into dependants of the state’. We are in danger in Britain and other European countries of following the example of the United States and creating a large permanent ‘underclass’ living off a combination of crime, welfare and the black economy. Such policies are increasingly under fire from informed opinion, but they are so entrenched politically and supported so stubbornly by special-interest lobbies that only the cold wind of economic reality will persuade us to reform them.
Sir James’s prescription — tariffs and quotas to protect European Union industries — would actually be a temporary barrier against this reality. It would reassure both management and workers that they need not significantly improve their efficiency, and government that it need not cut excessive benefits and regulations. At the same time, it would stimulate our Asian and other competitors to cut costs and improve their products precisely in order to leap over the barriers we had raised. A decade later we would be worse off as a result. Again, that is not to deny that there are real problems with which we have to deal. But to the extent that the jobs of unskilled workers in Western countries are jeopardized by low-cost competition, this requires still greater labour-market flexibility, well-directed training and retraining programmes and targeted help for the living standards of the poorest households of the sort given by Family Credit
at present.
One must also ask why the dividing line between allegedly beneficial and non-beneficial trade should coincide with the external frontiers of the European Union. Within the Union itself there are large differences of development, of potential and of labour costs. The logical end of Sir James’s argument would be national, or even regional and sub-regional tariffs: yet it was precisely because such impediments to trade were removed that the conditions were created for the Industrial Revolution on which our prosperity was originally based. Tariffs and quotas have other undesirable consequences. As Brian Hindley points out, they discriminate against exporting industries by pushing up the exchange rate.[127] They also run the risk of provoking retaliatory action by other countries. And they contribute to international tensions to the extent that at a certain point it may be worthwhile for a poor (but militarily strong) power excluded from markets to break its way into them by force.
Welcoming as I do Sir James Goldsmith’s intervention in the debate about the future of Europe and agreeing with his support for sovereign nation states, I also find it ironic that he should be prepared to allow central European Union institutions so much power over trade and industrial policy. The decisions about which industries to protect or not are precisely those for which politicians and bureaucrats must be held tightly accountable. Such policies of discrimination encourage patronage, corruption and abuse of power. They would certainly be exploited to the full by the federalists of whom Sir James is rightly suspicious, and they have a long record of failure. So I disagree. But Sir James has forced me and other conservative free traders to re-examine our arguments in the vastly changed circumstances of the post-communist global economy.
This century has seen an unprecedented political and economic experiment. The centrally controlled model has been tried in various forms — ranging from the totalitarianism of communism and Nazism, through various brands of social democracy or democratic socialism, to an un-ideological technocratic corporatism. So has the decentralized liberal model — most notably in Britain and the United States in the 1980s. The balance sheet of the century which can now be drawn up conveys one irresistible message: whether judged on political, social or economic grounds, collectivism has failed. By contrast, the application of classical liberal principles has transformed countries and continents for the good.
The tragedy is, of course, that this great experiment was unnecessary. State monopoly and the command economy could never in the end mobilize human talent and energy. And nor could their milder coercive equivalents.
It would be nice to believe that these lessons had now been fully absorbed, that mankind will avoid these terrible errors in the future, and that in economic policy at least we will stick firmly to principles which experience has shown to be valid. Unfortunately, as one of our greatest poets reminds us:
As it will be in the future, it was at the birth of Man —
There are only four things certain since Social Progress began:
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return![128]
Epilogue
In May 1993 I visited Warsaw as guest of honour at the reopening of the historic Bristol Hotel. It was, in its way, a significant occasion. The Bristol had been one of the great hotels of Europe. Opened in 1901, owned by a company whose principal shareholder was the pianist and Polish President Paderewski, famous for the highest standards of cuisine and elegance in the elegant society of pre-1914 Europe, the Bristol had fallen on evil days when Poland itself fell on evil days under first Nazism and then communism. It had closed its doors in the early eighties. Now it had been restored to its full splendour with the help of a British company, and I had the great pleasure of reopening it. One felt that it was another sign that a high style of life was returning to its natural home in Central Europe. I also formally opened the Warsaw offices of my Foundation which I hope will help to entrench democracy and the free economy in the post-communist world.
But my visit was memorable for a far deeper reason. It coincided with the fiftieth anniversary of the Warsaw Ghetto uprising. That Saturday afternoon I walked the perimeter of the now razed quarter with the oldest survivor of the uprising as my guide, after which I was taken to see still photographs of the Nazi destruction of the city’s Jewish community. It was a harrowing experience, especially so when I reflected that these terrible events had happened in my own lifetime when I was a young student enjoying Oxford.
The following morning I attended mass at the Church of the Holy Cross. The atmosphere was one of intense devotion and the ceremony elaborate, both very different from the restrained piety of Anglican services and the resolutely simple Methodism of Grantham. Every nook and cranny was packed. And the choral singing of unfamiliar Polish hymns was all the more uplifting because I could not understand the verses: it forced me to try to imagine from the music what the congregation was asking of God. Foreign though much of this experience was, it also gave me the comforting feeling that I was one soul among many in a fellowship of believers that crossed nations and denominations.
When the priest rose to give the sermon, however, I had a sense that I had suddenly become the focus of attention. Heads turned and people smiled at me. As the priest began, someone translated his words. He recalled how during the dark years of communism — that second totalitarian affliction suffered by the Poles — they had been aware of voices from the outside world offering hope of a different and better life. The voices were many, often eloquent, and all were welcome to a people starved so long of truth as well as of freedom. But Poles had come to identify with one voice in particular — my own. Even when that voice had been relayed through the distorting loudspeaker of Soviet propaganda, they had heard through the distortions the message of truth and hope. Well, communism had fallen and a new democratic order had replaced it. But they had not fully felt the change, not truly believed in its reality, until today when they finally saw me in their own church.
The priest finished his sermon and the service continued. But the kindness of priest and parishioners had not been exhausted. At the end of mass I was invited to stand in front of the altar. When I did so, lines of children presented me with little bouquets of flowers while their mothers and fathers applauded.
I had always believed, during the long struggle with the Soviet Union, that my firmest allies were the ordinary people of the Eastern bloc. Although real differences divide people from different nations and cultures, our basic needs and aspirations are very similar: a good job, a loving family, a better life for our children, a country in which a man can call his soul his own. I knew, simply knew, that communism and socialism either denied or corrupted these aspirations, and so the people living under them would always be in a state of rebellion. My friends in exile from Eastern Europe had assured me this was so. The popular revolutions of 1989 and 1991 confirmed it. Until the people in the Church of the Holy Cross treated me as a dear friend to whom something was owed, however, I had not really known. Now, all the general propositions favouring freedom I had either imbibed at my father’s knee or acquired by candle-end reading of Burke and Hayek were suddenly embodied in the worshippers and their children and illuminated by their smiles.
A reader who has survived through both volumes of these memoirs to this point will have read the record of a busy, productive and, on the whole, happy life. I hope it will carry on being all three for some time yet. But the very act of writing memoirs has forced me not only to be more introspective than I like, but even to look at my life as some sort of completed work, as if the publisher’s deadline had a higher significance. So what is the best
epitaph that a living politician can reasonably aspire to? The question answers itself — dustily. But a fair verdict must begin with asking what is the most that any human being can achieve in life.
We are told on good authority that all human achievement is built on sand. Both our triumphs and our tragedies are transient. We cannot foresee, let alone determine, the future. The most that we can achieve in our private lives is to hand on better prospects to our children; it is up to them to build on those prospects. Similarly, as Prime Minister, the most I could aspire too was to hand on to my successor a better country than the one I had inherited in 1979’s Winter of Discontent. I worked hard to do so and, along with some disappointments, I can claim many successes. By 1990, the British people were freer, more prosperous, less torn by civil strife, and enjoying better prospects for world peace than at any time since the First World War. But there are no final victories in politics. Will these gains prove permanent? Will they be reversed? Will they be overwhelmed by new issues or clouds which now are no bigger than a man’s hand?
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