The Path to Power

NARROW INTERNATIONALISM

Once a politician is given a public image by the media, it is almost impossible for him to shed it. At every important stage of his career, it steps between him and the public so that people seem to see and hear not the man himself but the invented personality to which he has been reduced.

My public image was on the whole not a disadvantageous one; I was ‘the Iron Lady’, ‘Battling Maggie’, ‘Attila the Hen’, etc. Since these generally gave opponents the impression I was a hard nut to crack, I was glad to be so portrayed even though no real person could be so single-mindedly tough. In one respect, however, I suffered: whenever the topic of Europe arose, I was usually depicted as a narrow, nostalgic nationalist who could not bear to see the feudal trappings of Britain’s ancien régime crumble into dust like Miss Havisham’s wedding cake, when the sunlight of Europe’s rational modernity was turned upon them. I was ‘isolated’, ‘backward-looking’, ‘rooted in the past’, ‘clinging to the wreckage of Empire’, and ‘obsessed with the outdated notion of sovereignty’. And virtually all my statements on Europe were read in that light.

In fact, of the three underlying reasons for my scepticism about European federalism, the most important was that the European Union was an obstacle to fruitful internationalism. (The other two were that Britain showed that established and ‘satisfied’ nationalisms were the best building-blocks for international cooperation; and that, as I argue elsewhere in this chapter, democracy cannot function in a federal superstate where the multiplicity of languages makes democratic debate and democratic accountability mere slogans.) The European federalists are in fact ‘narrow internationalists’, ‘little Europeans’ who consistently place the interests of the Community above the common interests of the wider international community. The EU came near to sabotaging the GATT; it has sparked a series of trade disputes across the Atlantic; it has prolonged the instability of Central and Eastern Europe by maintaining absurdly high trade barriers on their infant export industries; and it threatens to divide NATO with premature and militarily incomprehensible plans to establish a ‘European pillar’ or ‘European defence identity’. And most of these obstructive initiatives make no sense in their own terms; they are launched solely in order to bring nearer the day when ‘Europe’ will be a fully-fledged state with its own flag, anthem, army, parliament, government, currency and, eventually one supposes, people.

I am not alone in warning that this could stimulate both the US and Japan to safeguard themselves by forming similar protectionist empires. The world might then drift towards an Orwellian future of Oceania, Eurasia and Eastasia — three mercantilist world empires on increasingly hostile terms. In the process the post-war international institutions which have served us well, like NATO and GATT, would be weakened, pushed aside and eventually made irrelevant. That prospect is still alive and should worry us.

If we look ahead still further to the end of the twenty-first century, however, an even more alarming (because more unstable) future is on the cards. Consider the number of medium-to-large states in the world that now stand poised on the edge of a freemarket revolution: India, China, Brazil, possibly Russia. Add to these the present economic great powers: the USA, Japan, the European Union (or, with only a slight amendment of the scenario, a Franco-German ‘fast lane’ bloc). What we are possibly looking at in 2095 is an unstable world in which there are more than half a dozen ‘great powers’, all with their own clients, all vulnerable if they stand alone, all capable of increasing their power and influence if they form the right kind of alliance, and all engaged willy-nilly in perpetual diplomatic manoeuvres to ensure that their relative positions improve rather than deteriorate. In other words, 2095 might look like 1914 played on a somewhat larger stage.

Whether your favourite nightmare is Orwell’s tripartite division of the spoils, or this vision of 1914 revisited, the key to avoiding it is the same. Neither need come to pass if the Atlantic Alliance remains, in essence, America as the dominant power surrounded by allies which, in their own long-term interest, generally follow its lead. Such are the realities of population, resources, technology and capital that if America remains the dominant partner in a united West, then the West can continue to be the dominant power in the world as a whole. And since collective security can only really be provided if there is a superpower of last resort, the rest of the world (apart from ‘rogue states’ and terrorist groups) would generally support, or at least acquiesce in, such an international structure.

Britain’s role in such a structure would, I believe, be a disproportionately influential one. That is not, however, my principal reason for supporting it. My reason is that such a world best meets the needs of international peace and collective prosperity. It would also be a liberal world — politically, economically and culturally — and far more so than a world dominated by either Asian or Eurasian blocs, remarkable though their achievements have been in history and in recent years.

Let me stress again, however, that it will not come to pass unless America is persuaded to remain the dominant European power militarily and economically. That means we must ensure that American troops remain in Europe for the foreseeable future, and in particular for the next few years when budgetary pressures will tempt the US to withdraw. In these circumstances, the EU’s creeping tendency to establish itself as a separate ‘third force’ risks alienating America and sending the legions home. The stakes are high. And to divide the West and move closer to permanent world instability in order that Europe may enjoy a modest increase in status as one independent superpower among seven or eight seems to me the most mischievous and irresponsible form of nationalism.

TOWARDS MAASTRICHT

One of the few things I still regret about the timing of my departure from Downing Street was that it prevented my coming to grips with the rapidly changing scene in Europe.[63] In the autumn of 1990 the groundwork was being laid for what would be the Maastricht Treaty, designed to set in place the framework for a federal United States of Europe. I had fought many battles within the European Community since becoming Prime Minister, but I had never before faced one of this scale and importance.

It had, of course, been increasingly clear to me that the European Commission and a number of heads of government held a quite different view from mine about the purpose and direction of the Community. It was as a warning against the way in which statism, protectionism and federalism were advancing relentlessly that I delivered the Bruges speech in 1988. At Bruges I had argued against attempts to fit nations ‘into some sort of identikit European personality’, calling instead for ‘willing and active cooperation between independent sovereign states [as] the best way to build a successful European Community’.

From then on I had been ever more preoccupied with the need to spell out and win domestic and foreign support for an alternative vision. It was by no means an impossible task, but the difficulties were legion. Within the Conservative Party there was a large minority of irreconcilable Euro-enthusiasts, willing to welcome almost anything stamped as made in Brussels. The Single European Act, contrary to my intentions and my understanding of formal undertakings given at the time, had provided new scope for the European Commission and the European Court to press forward in the direction of centralization. For their own different reasons, both France and Germany — and the Franco-German axis was dominant — were keen to move in the same direction. In the United States the Administration had made a crucial error of judgement in believing that promotion of a united Europe led by Germany would best secure America’s interests — though the experience of the Gulf War undoubtedly caused President Bush to question such assumptions.

In spite of all this, I remained confident that given singleness of purpose and strength of will the Bruges alternative could be made to prevail — for three long-term influences favoured it. First, the need to accommodate the newly liberated countries of Eastern Europe created difficulties for the narrow Europeanism of the federalists which their high-tax, high-regulation, high-subsidy system could not ultimately meet. Secondly, global economic changes, which dramatically widened horizons in finance and business, would reduce the relative importance of the European Community itself. Thirdly, not just in Britain but increasingly in other European countries, the popular mood was moving away from remote bureaucracies and towards recovering historically rooted local and national identities. It might take a decade. But this, I felt, was a cause with a future.

In my final speech to the House of Commons as Prime Minister on Thursday 22 November 1990 I taunted the Labour Party with its studied ambiguity on the large issues:

I was not at that point to know, and indeed I would not have wanted to imagine, that precisely the same would soon be said of the Conservative Government led by my successor. I knew that John Major was likely to seek some kind of compromise with the majority of heads of government who wanted political and economic union. That had become clear from our exchanges when John was Chancellor.[64] Moreover, I could well understand that after the bitter arguments over Europe which preceded my resignation he would want to bind up wounds in the Party. But I was not prepared for the speed with which the position I had adopted would be entirely reversed.

In December the Foreign Secretary, Douglas Hurd, publicly advocated a distinctive European defence role through the Western European Union (WEU), which I had always distrusted, aware that others, particularly the French, would like to use it as an alternative to a NATO inevitably dominated by America. Then in March 1991 the Prime Minister announced in Bonn that Britain’s place was ‘at the very heart of Europe’. This seemed to me a plain impossibility in more than merely the geographical sense, since our traditions and interests diverged sharply in many areas from those of our Continental neighbours. For instance, in trade generally, and in agricultural trade in particular, Britain is both more open and more dependent on countries outside Europe than are our European partners.

I wanted to avoid appearing to undermine my successor. I knew that his position was still fragile and I wanted him to succeed. I had faced sufficient difficulties from Ted Heath not to wish to inflict similar ones. As a result and paradoxically, I found myself even more constrained in what I was able to say after my resignation than before it. But I could not in good conscience stay silent when the whole future direction of Britain, even its status as a sovereign state, was at issue. So although I had the gravest misgivings about the reported shape of the draft treaties being discussed by heads of government, I sought to be positive, setting out in public the kind of Europe I wanted, while giving the Government the benefit of the doubt for as long as possible.

In March 1991 I made my first major public speech since leaving office — in Washington at a meeting arranged by several American conservative think-tanks. I steered clear of the more sensitive areas for British domestic politics and concentrated on the European Community’s geo-political role.

It was, of course, particularly apposite to make these points in the United States which had, more or less consistently over the years, been pressing Britain towards closer integration in Europe. That approach was based on a double illusion: first, the assumption that a politically united Europe would be friendly towards the United States, relieving her of some or all of the burden of defence. In fact, the most committed European federalists quite consciously seek to move away from America, to create another superpower that would be the equal of the US and, because it would have distinct interests, eventually its rival in world affairs. This has already had practical effects. The growing protectionism of Europe provoked a series of trade skirmishes across the Atlantic even when the Cold War restrained such rivalry. Since the collapse of communism, and the draw-down of American troops in Europe, disputes over trade have become more serious, as in the US-EU row over GATT. And almost every expression of the European Community’s foreign policy-making, from the 1980 Venice Declaration on the Middle East[65] to the Community’s early and futile interventions in the Yugoslav war, have been designed to distinguish Europe from the United States, sometimes expressly so. Over time, such disputes are bound to erode the cultural and diplomatic sympathies that have hitherto underpinned Atlantic defence cooperation. At the same time, these disputes are the inevitable results of the development of a united Europe along federalist lines.

The second false assumption made by US policy-makers was that such a European superstate, moulded from separate nations, separate cultures and separate languages, could be ‘democratic’ in the American (and full) sense of the word. I answered this point directly in my Washington speech.

Since the British Government’s stance, rhetorically at least, was similarly hostile to a United States of Europe, these were, in domestic political terms, easier points to make than criticisms of economic and monetary union, where the Government’s position appeared far less clear. Indeed, actions were already speaking louder than words ever could. In 1991 it was clear that economic policy was now principally determined by the parity of sterling with the Deutschmark, rather than by considerations of domestic monetary policy. At the same time the Exchange Rate Mechanism (ERM) was being used as a vehicle towards economic and monetary union, which was quite contrary to what I at least had intended on entry. Nor was this impression diminished by anything that the authorities had to say on the matter; the possibility of currency realignment was dismissed, and indeed it became Government policy that Britain should move to the narrow (+ or-) 2.25 per cent band rather than the present 6 per cent.

Yet I was conscious that in criticizing what was now occurring, I was bound to open myself up to criticism. Just as defenders of the Maastricht Treaty maintained that it was I who had sold the pass in signing the Single European Act, and that they were merely dotting ‘i’s and crossing ‘t’s, so those who were now forcing the British economy into the straitjacket of a politically determined exchange rate claimed that I had no right to criticize this, since I had taken sterling into the ERM. I knew that I had good answers to both these charges. The Maastricht framework which now looked like emerging was fundamentally different from the — in practice unsatisfactory — arrangements reached as a result of negotiation on the Single European Act. The ERM was being used for a purpose of which I not only disapproved but which I had made clear within Government I would never implement.[66] Equally, these arguments were not likely to deter the critics.

So, speaking to the Economic Club of New York on Tuesday 18 June 1991, I put my argument against managed exchange rates both in an international context and in terms which frankly admitted the mistakes which my own Government had made.

It is fair to say that this analysis was not much appreciated by the Government. But some fifteen months later it was proved to be all too correct. Yet the reaction to my interventions confirmed just how difficult it was to tread the narrow line between general support for the Government and vigorous disagreement on a central aspect of what was emerging as Government policy.

One could just about get away with such a strategy outside Westminster. But it is one of the strengths of the House of Commons that speakers are pressed in debate to reveal their true opinions; and, beyond a certain point, I had neither the intention, nor, after all those years of speaking my mind, probably even the ability to dissemble. The impossibility of the situation was brought home to me by the House of Commons Debate on the European Community on Wednesday 20 November 1991. In my speech, which would in fact be my last in the House, I supported the Government’s motion, attacked the Labour Party’s policy on a single currency and dealt with the criticisms levelled against me for signing the Single European Act. But I went on to question whether any ‘opt-out’ for sterling from a single European currency would be worth much in practice, bearing in mind that the Maastricht Treaty would still require us to sign up to the goal of a single currency and the institutions designed to prepare the way for it. Repeating an idea which I had floated in interviews during my leadership election campaign almost exactly a year earlier, I called for a referendum if there was a decision to abandon the right to issue the pound sterling. This, however, was something which the Government refused to promise.

Events now moved swiftly and, as far as I was concerned, in the wrong direction. Although for some time it would prove difficult even for Members of Parliament, let alone members of the general public, to obtain the full text of the Maastricht Treaty, its provisions were agreed and the Prime Minister made his statement on it on Wednesday 11 December. Those who knew me well also knew that I could not ultimately go along with Maastricht. I could never have signed such a treaty. There were well-meaning and increasingly desperate attempts to persuade me that I could and should remain silent. I would dearly have liked to comply.

An embarrassing little occasion the day after the Prime Minister’s statement illustrated how far wishful thinking would go. I was delighted that John Major was able to come to Denis’s and my fortieth wedding anniversary party at Claridge’s on Thursday evening. We chatted amiably about everything other than what was on our minds. But when I went out of the hotel to see the Prime Minister to his car I was faced by a whole battery of cameras and asked how I felt about his performance at the Maastricht Council. I replied that I thought he had done ‘brilliantly’. And I did indeed believe that as a political operation designed to present his approach in the best possible light he had shown great skill. But naturally my remark was taken as signifying agreement with the Maastricht Treaty itself. As I read the newspapers the following day I resolved that there could be no more misunderstandings of this sort, however painful for all concerned the consequences might be.

THE MAASTRICHT TREATY

Article A of the Maastricht Treaty — viewed superficially at least — nicely combines the two alternative views of Maastricht’s purpose and effect.

The phrase ‘ever closer union’ is repeated from the original Treaty of Rome, though it is worth noting that in the Rome Treaty it was in the Preamble. Maastricht elevated it for the first time into the substantive treaty text as part of the Treaty’s objectives clauses. But, in any case, the concept of a ‘Union’ is clearly a major extension of that — ‘a new stage’, in fact. Moreover, Articlefsets out clearly the objectives of this Union, including ‘the establishment of economic and monetary union, ultimately including a single currency’, ‘to assert its identity on the international scene, in particular through the implementation of a common foreign and security policy including the eventual framing of a common defence policy, which might in time lead to a common defence’, and the ‘introduction of a citizenship of the Union’. Understandably, therefore, Chancellor Kohl has commented:

On the other hand, the phrase ‘in which decisions are taken as closely as possible to the citizen’, combined with the removal at British insistence of the phrase ‘federal goal’ from the earlier draft Treaty, gave the British Government a pretext for claiming that Maastricht actually devolved power from the centre to individual governments responsible to national parliaments. The flurry of interest in ‘subsidiarity’ similarly stemmed from the British Government’s desire to give the impression that Maastricht was a liberalizing rather than centralizing measure. Indeed, a new Article 3b was inserted by Maastricht into the Treaty of Rome:

This wording has rightly been described by a former President of the European Court of Justice as ‘gobbledygook’. The past behaviour of the European Commission gives no reason to believe that it would constrain that body’s activities. Initially, the Commission itself determines whether the matter is something to be devolved under the subsidiarity rule. It is extremely unlikely that the rule would be enforceable in the European Court of Justice to any practical extent. In any case, it would not apply to those areas which do fall within the Community’s ‘exclusive competence’, thus ruling out its application to wide areas of Community law such as most of the internal market measures and many social provisions. Anyone who reads the Treaty closely and intelligently will see that Chancellor Kohl’s interpretation of it is a great deal more accurate than the British Government’s. And that, perhaps, is why it was initially made so difficult to gain access to the full text of Maastricht and why generalities and slogans were the preferred means of its exposition.

In fact, the attempt to portray Maastricht as the opposite of what it was met with only limited success. Anti-federalist Conservative MPs supported it only insofar as they felt it necessary to support the Prime Minister. The real argument therefore came to centre on the ‘opt-outs’ which Britain obtained. In practical terms, the best that could be said for Maastricht was that not all of it applied to us. Unfortunately, it is not at all clear how effective these exemptions will prove to be either in law or in practice.

It will be recalled that when John Major and I had been discussing the tactics required to resist pressure towards economic and monetary union in the summer of 1990, I had been quite prepared for the other eleven Governments to negotiate a separate treaty for Economic and Monetary Union (EMU). Under this, Germany and France would finish up paying all the regional subventions which the poorer countries would insist upon if they were going to lose their ability to compete on the basis of a currency that reflected their economic performance. I also thought that the Germans’ anxiety about the weakening of their anti-inflation policies, entailed by moves towards a single currency and away from the Deutschmark, could be exploited in negotiations. Above all, we must be prepared to use our veto — and be known to be prepared — if we were to bring our Community partners up against the harsh realities which would make them think twice.[70] Precisely how matters would have gone if this strategy had been pursued is, of course, now impossible to say. But there was no practical reason to worry about our being ‘isolated’, despite the hysterical incantations to that effect. We could have continued benefiting from the Single Market under the existing Treaty arrangements — while still having to tolerate the CAP and the incursions of the European Court. The only Götterdämmerung was in the frenzied imaginations of panic-stricken Tory MPs.

The problem with John Major’s alternative approach was that although it initially won plaudits, it left the fundamental problems unresolved. Under it, we would effectively abandon our attempts to win support for our alternative vision of the Community, going along with a new European framework which did not suit us, while relying on special exemptions which ultimately depended on the goodwill and fair dealing of people and institutions whose purposes were radically different from ours. Arguably, the changed approach actually made our position worse by accepting important points of principle about the Union’s future direction, for example by acceptance of the general objectives set out in Articles A and B, which will make it more difficult for Britain to argue for its own conception of Europe in the future.

As it turned out, Britain succeeded in negotiating two special ‘opt-outs’. The first exempted Britain from the regulations on workplace and trade union rights contained in the ‘Social Chapter’, and the second allowed us to opt out of the third and final stage of monetary union. The Government was absolutely right to resist the social provisions, which would have increased business costs, reduced flexibility and competitiveness and destroyed jobs. But this exemption relates only to new provisions and not to other directives on social policy under the Treaty of Rome amended by the Single European Act. These still offer a means of imposing the high social costs of Germany and France on Britain by the back door. A particularly important example, which has indeed become a test case, is the June 1993 ‘working time’ directive, which laid down a maximum forty-eight-hour week. This was introduced as a ‘health and safety’ measure under Article 118a to which qualified majority voting applies. The Government has mounted a legal challenge in the European Court. But the directives — whether on maternity leave or part-time employment — continue to flow. All of these measures would have one main effect — and arguably also have one main objective — namely, reducing the flexibility and competitiveness of British industry, to bring us into line with Europe.

Moreover, there is no doubt that the French, in particular, will do everything in their power to prevent transfers of investment and jobs to Britain because of our lower social costs. This was illustrated by the outraged French reaction to the decision by Hoover-Europe to transfer production of vacuum cleaners from Dijon to Cambuslang near Glasgow because, as the President of Hoover-Europe explained, in Scotland total remuneration costs were 37 per cent lower than in France. A large part of that difference reflects the cost of social benefits required by French law. What Britain regards as a desirable policy of keeping the burden of regulations and costs on business down the French denounce as ‘social dumping’. In these circumstances, the pressure on Britain to accept regulations which will damage business will continue and intensify.

Similarly, the ‘opt-out’ on monetary union is less than meets the eye. It has only given us the right to opt out of the third stage of monetary union, not the first or second stages. The precise degree to which the first two stages of the process limit Britain’s economic freedom in practice is debatable, though on any view it is considerable. Member states are required to ‘regard their economic policies as a matter of common concern’; guidelines on economic policy are to be established by the Commission and the Council of Ministers, and member states are then to be monitored for compliance with those guidelines through a system called ‘multilateral surveillance’. The Commission has acquired a power to monitor the public sector deficits of member states and to initiate procedures against the member state if it considers such a deficit to be ‘excessive’. During the second stage of monetary union, member states must prepare their central banks for independence (as Britain has already begun to do) and adopt and adhere to a ‘multi-annual convergence programme’ designed to align currencies for eventual monetary union.

Finally, each member state is required to ‘treat its exchange rate policy as a matter of common interest’. There is a danger that this will be interpreted by other member states and by the European institutions as imposing an obligation on Britain to rejoin the ERM and again to subordinate its monetary policy to the maintenance of an external parity. Although the effective shattering of the ERM in 1992/93 makes the future course of convergence towards EMU less predictable than at the time of the signing of Maastricht, the widened 15 per cent ERM bands are likely to be interpreted as being ‘normal fluctuation margins’ for the purposes of the Treaty’s so-called ‘convergence criteria’. This would permit an inner core of member states to proceed to the full currency union of Stage 3 with only limited slippage to the original timetable. And the basic problem with the British right to opt out of Stage 3 remains. Once an inner core had entered Stage 3 and formed an ECU currency bloc, Britain would come under strong political (and ultimately legal) pressure to maintain the pound’s parity against the ECU in accordance with its continuing Stage 2 obligations, and so to follow ECU interest rates. And if some member states enter into full monetary union, Britain would have no seat on the European Central Bank Board which sets the interest rates we would be expected to follow. In these circumstances the temptation for Britain to go the whole hog and move to the third stage of monetary union would be very great. The Maastricht Treaty makes it clear that Stage 3 is ‘irreversible’, which means that we would, at least under Community law, have no right subsequently to withdraw and issue sterling again. That would be a fundamental and crucial loss of sovereignty and would mark a decisive step towards Britain’s submergence in a European superstate.

The argument that this will never happen because the break-up of the ERM demonstrated the folly of fixed exchange rates in a turbulent world overlooks two important considerations. First, the history of the acceleration of moves towards federalism in Europe demonstrates that the federalists are not to be dissuaded by circumstances from pursuing their project: indeed, each blow to it only confirms them in their desire to move further and faster towards an irrevocable conclusion. Secondly, it would be possible to avoid much of the instability caused by speculative flows across the exchanges which caused the break-up of the ERM by moving directly to locked currencies and EMU. Of course, the consequences for the weaker national economies would be even more disastrous than they were as a result of overvalued currencies in the ERM. Large regional variations in economic activity, industrial decline and soaring unemployment on the periphery would follow in due course and these in turn would prompt heavy migration across frontiers.

But we would be brave to the point of foolhardiness to imagine that such consequences would necessarily lead to the abandonment of the venture. For such a favourable outcome would depend upon the health and responsibility of democratic institutions in Europe. But national political institutions are losing their powers to centralized European ones on which there is no real democratic check. In any case, it is an abdication of political leadership to expect hostile circumstances over which one has no control to relieve one of the responsibility of pursuing policies in the nation’s long-term interest.

My dismay about Maastricht reflected my concern about its effects internationally almost as much as the risks it posed to Britain. Although in the Bruges speech in 1988 I spoke about the distinctive strengths of British traditions and institutions, I was equally concerned about the effects on other European countries and on the outside world. Ultimately, of course, it is up to the Germans, French, Italians and others what kind of economic and political relations they want with each other. But anyone who does not sound the alarm on seeing great nations in headlong pursuit of disastrous goals is grossly irresponsible — and indeed a bad European.

It makes no sense for Germany to abandon the Deutschmark; nor for France to settle down permanently to playing second fiddle to its dominant eastern neighbour; nor for Italy to be distracted from the task of domestic political reform by looking to the European Union for solutions; nor for Spain, Portugal, Greece and Ireland to rely on subsidies from Germany in exchange for abandoning the opportunity to make the best of their lower labour costs; nor for the Scandinavian countries to export their high social costs to other European countries rather than cutting them back. As for the former communist countries of Central and Eastern Europe, how can they be expected to live with the high-cost regimes which the monetary and social policies of the Community would place upon them? It is difficult to see them being anything other than distant, poor relations of a Delors-style European Union. For the members of the Union, therefore, such a policy offers economic decline. For its neighbours it offers instability. For the rest of the world it provides a momentum towards protectionism.

For a treaty which threatens so much harm to all concerned, Maastricht has not even had the promised effect of uniting the Conservative Party. Indeed, it split the Conservative Party in Parliament and in the country, undermining confidence in the Government’s sense of direction. Because the strategy of which it was a part rested essentially upon proving to our partners that Britain wished to be ‘at the heart of Europe’, it led directly to the unnecessarily deep recession caused by trying to maintain an unsustainable parity for sterling within the ERM. The humiliating circumstances of our departure added to the political damage to the Conservative Party. And all of the fundamental problems will surface again as we approach the 1996 Inter-Governmental Conference.

I could foresee enough of this in November 1991, even before the full details of Maastricht were known, to understand that I would have to oppose it root and branch. For the reasons I have already outlined, this was bound to be more embarrassing for all concerned if I remained in the House of Commons. Moreover, it seemed likely that the result of the general election, whenever it came, was likely to be a reduction in the large majority we had obtained in 1987. This would make it more difficult for me to speak and vote as I wanted. In any case, although I had taken the same seat on the backbenches that I had occupied some twenty-five years earlier — and I had enjoyed my time as a young backbencher — I now felt ill at ease. The enjoyment of the backbenches comes from being able to speak out freely. This, however, I knew would never again be possible. My every word would be judged in terms of support for or opposition to John Major. I would inhibit him just by my presence, and that in turn would inhibit me. So I decided to stand down as Member of Parliament for Finchley and accept a life peerage.

My mixed emotions about this were compensated by the happiness I felt in Denis’s baronetcy. With the Conservative victory in the April 1992 general election, a result achieved in equal measure as a result of my record, John Major’s admirable grit and the Labour Party’s egregious errors, I felt newly liberated to continue the argument about Europe’s future.

ANOTHER EUROPE

The Bill to implement the Maastricht Treaty was announced in the first Queen’s Speech of the new Parliament. Ten days later, on Friday 15 May, I was due to speak in The Hague. My speech-writing team and I wrestled to include within one framework all the main elements of the alternative to a Maastricht-style Europe. I deliberately intended it as Bruges Mark II. Of course, I could not expect that it would have the same impact; after all, I was no longer a head of government. But for that very reason I hoped that the ideas could be developed more provocatively and would help to alert the more open-minded members of Europe’s political élite to new possibilities.[71]

I began by likening the architecture of the Berlaymont building in Brussels — the home of the European Commission which was due to be demolished — to the political architecture of the European Community, ‘infused with the spirit of yesterday’s future’. Circumstances had so changed since the foundation of the Community that major rethinking was required. Looking back at its origins and development, I distinguished between two different economic traditions — those of liberalism and socialism. The time had now come when Europe had to choose between these two approaches. Maastricht’s federalism was essentially the child of socialist thinking. It involved a degree of centralized control which the wider Europe created by the fall of communism made outdated. In fact, what was involved, I argued, was:

On the basis of this analysis, I argued for two specific changes. The first conclusion I drew was that there was no reason why every new European initiative should require the participation of all Community members. If Europe did move into new areas, it must do so under separate treaties which clearly defined the powers which had been surrendered:

Second, far from giving the European Commission more power, it should have less. In fact, it was not needed in its present form and it should cease to be legislative in any sense; rather it should become an administrative body, not initiating policy but carrying it out.

Still more outrageously, I mentioned the issue which was on everyone’s mind and no one’s agenda in Europe, ‘the German Question’. I expressed admiration for the German achievement and, indeed, agreement with several distinctive German policies, for example on monetary matters and on recognizing Slovenia and Croatia. But I argued that we had to face up to the fact that the power of a reunited Germany was a problem. The Germans themselves realized this; it explained, for instance, why Chancellor Kohl and the German political establishment were so anxious for their country to be ‘anchored’ in Europe and restrained by institutions of federal decision-making. Tying the German Gulliver down within a federal European Community was no answer, however, because Germany’s preponderance within it was so great that federalism itself augmented German power rather than contained it. In place of this vision, we had to return to the politics of the balance of power which would ensure that individual nation states, like Britain and France, would be able to act as a counterweight to Germany if it pursued policies which were against our interests. Meanwhile — and this was perhaps the most important element in any modern balance of power politics — the American military presence in Europe was a guarantee against any European power being tempted to assert its interests beyond a certain point.

This frank analysis was condemned in some quarters as antiGerman. In fact, it was nothing of the sort. It was my firm conviction that it would be in Germany’s interests as much as those of her neighbours for the realities of power politics to be reflected in diplomatic relations, rather than concealed behind a veil of federalist political correctness. Germany is a rich and powerful country in which there is much to admire. But because of its size, geographical location and history, it presents a problem. The Germans discuss this problem quite freely and responsibly (even if I happen to disagree with the particular solution they have found for it). There is no reason why we should not do the same.

As I had in Opposition all those years earlier, I found it easier to express even these controversial points about international relations abroad than at home. My every word in Britain was scrutinized for possibilities of misrepresentation. I was always conscious of the feeling, with which I could sympathize, that John Major should be left free to lead the Party and the country in his own way.

I made my maiden speech in the House of Lords in a debate on the UK Presidency of the European Community in July 1992. It was a slightly strange experience and I realized that it would take some time before I became used to the style of the Upper House, where formal courtesy and diplomatic consensus are so much more evident than anything that could be called lively debate. On this occasion, I was able to point to what I described as ‘the very sharp change in attitudes’ brought about by the Maastricht Treaty in Europe. The Danes had just voted in a referendum to reject the Treaty. Opinion in Germany had hardened against a single currency. The French were to hold their own referendum. Backbench Tory MPs had started to articulate the anti-Maastricht sentiments which were becoming more evident in their own constituencies.

But it was not until the autumn that events demolished far more effectively than I ever could the credibility of the European federalist project in the eyes of all but its most enthusiastic advocates. As 1992 progressed, the ERM came under increasing strain and the consequences of an overvalued exchange rate for Britain and other countries became more serious. Finally, on Wednesday 16 September, after an estimated £11,000 million pounds of reserves had been frittered away in a vain attempt to frustrate the intentions of the money markets, and after real interest rates reached a disastrous 8.4 per cent (with 11.4 per cent in prospect for the following day), sterling was withdrawn from the ERM. Panic was palpably in the air. Politicians and journalists behaved as if the Four Horsemen of the Apocalypse had just charged through the Bank of England. Government ministers sought to shift the blame for the crisis onto the Bundesbank. Commentators, unconvinced by this ploy, tried to shift it back onto the Government.

By a nice coincidence, I was due to address a CNN financial conference in Washington on the Saturday following the Wednesday (‘black’ or ‘white’, according to taste) on which Britain had left the ERM. I was staying at the British Embassy in Washington, working on my speech when the news came through. My original draft had to be abandoned, and my schedule of speaking engagements was so heavy that I found myself starting almost from scratch on the Friday evening. I worked through the night in a room down the corridor from where the Chancellor of the Exchequer, Norman Lamont, in town for the IMF Conference, was fast asleep. At least I heard no singing from the bath. He may have guessed what I was going to say:

The Washington audience greeted this speech very warmly and the reaction even in the British media was favourable, if divergent at points: ‘Mag-nanimous’ said the Sunday Express, ‘Maggie Gets Her Revenge’ said the Mail on Sunday. ‘An elegant I told you so’ said the BBC, splitting the difference.

But partly for reasons of injured pride and partly because so much political capital had been invested in the Maastricht project, the Government refused to rule out sterling’s return to the ERM. At the time this refusal did not seem too significant. The circumstances of our departure from it convinced most Conservative MPs, a large majority of public opinion and, significantly, most of the financial world that pegged exchange rates were deeply damaging. It seemed that events themselves had ruled out a return to the ERM and therefore a formal undertaking was not needed. Almost overnight I found that the attitude towards my viewpoint had changed. I was ‘right after all’. Unfortunately, by then the damage had been done — not least to the standing of the Government and the Conservative Party.

Appropriately enough, the pursuit of a policy towards Europe designed to comply with foreign rather than with domestic expectations had now led us into the extraordinary situation whereby the controversial Maastricht Bill’s fate was itself determined by foreigners. Although the Irish, the Danes and the French were permitted referenda, the demand for one was consistently refused by the British Government. Yet it was made clear that if the French voted against Maastricht in their referendum, the Bill would not go ahead in Parliament. I had discreetly done what I could to encourage the anti-Maastricht campaign in France. I found it enormously encouraging that the three main right-of-centre opponents of Maastricht — Philippe de Villiers, Philippe Séguin and Charles Pasqua — were clearly among the most dynamic and charismatic French politicians, and that in spite of media bias their campaign quickly struck a chord with the immensely patriotic ordinary people of France. In the end, however, it was not quite enough, and by 50.95 per cent to 49.05 per cent the vote went in favour of Maastricht. And so if 269,706 French voters had voted against rather than for, Britain would never have implemented the Maastricht Treaty.

The European involvement in the agonies of ex-Yugoslavia provided in its way as devastating a commentary on Maastricht as did the collapse of the ERM. It will be recalled that Article B of the Maastricht Treaty envisaged a common European foreign and security policy leading to a common defence policy and perhaps common defence. A strengthened role for the Western European Union (WEU) was envisaged and a start on ‘common defence’ was made with the Franco-German ‘Eurocorps’. And it was immediately realized, not least by the framers of Maastricht, that the crisis in ex-Yugoslavia on Europe’s south-eastern border would be a crucial, indeed decisive, test of these aspirations. As Jacques Poos, Foreign Minister of Luxembourg, then heading the ‘troika’ of European foreign ministers responsible for directing the common foreign policy, graphically put it, this was ‘the hour of Europe’. Setting out with his Dutch and Italian colleagues to mediate, he went on: ‘If one problem can be solved by the Europeans, it is the Yugoslav problem. This is a European country and it is not up to the Americans. It is not up to anyone else.’[73]

Nor was it merely that the Europeans proved incapable of grasping, let alone altering, the realities of the war of aggression which Serbia and the communist-dominated Yugoslav national army were waging; Community diplomacy actually made the situation worse. The Community continued to support a policy of keeping Yugoslavia together long after it had become clear that what effectively amounted to a Serb coup against federal Yugoslav institutions had occurred. The Community ‘monitors’ became sucked into the complications of war and failed to denounce the aggressors clearly. Even when the Yugoslav army withdrew from Croatia it was allowed to station its heavily armed forces in Bosnia, the obvious next target for aggression. When an exasperated Germany finally insisted that Slovenia and Croatia be recognized at the start of 1992, against the wishes of most other Community members, the last nail was hammered into the coffin of an effective European foreign policy — let alone a common defence policy — based on consensus.

A NEW BEGINNING

Not only have the economic and political aspirations of Maastricht been discredited: a Government which started with a small but satisfactory working majority has come perilously near on more than one occasion to being forced into a general election as a result of divisions on the issue on the Conservative benches. Since the Maastricht Bill became law in the summer of 1993, an attempt has been made to bridge divisions with a return to the rhetoric of Euro-scepticism. The trouble is that rhetoric is not enough. We now have to have a clearer strategic objective and a cleverer tactical game plan than for Maastricht.

The essential starting-point for this is to weigh up honestly and objectively our negotiating strengths and weaknesses. We should not be under any illusion that we are ‘winning the argument’ in Europe. It is deeply unpersuasive to say at one and the same time that one subscribes to the objectives of one’s partners, while trying to change them. In any case, argument is of little importance in European Community decision-making. While France, Germany and a sufficient number of other Community members remain intent on federalism, expositions of the virtues of the alternative are, for immediate practical purposes, wasted effort. This situation will not necessarily last for ever. But it would be altogether unrealistic to assume that the balance will alter between now and 1996.

It is equally necessary to learn from experience. Ever since Britain joined the EEC we have seen European institutions, supported by other European governments, placing a systematically different interpretation on texts than those which we accepted. From ‘ever closer union’ in the Treaty of Rome, to ‘economic and monetary union’ endorsed as the official objective at the Paris European Council in October 1972,[74] to the Single European Act where the new majority voting provisions intended solely to implement the Single Market were used by the Commission to extend its regulatory powers, our experience has been the same. Vague declarations, which we assumed at the time had no practical implication, are subsequently cited to justify the extension of Community powers into fresh areas of national life. Consequently, in judging whether further verbal concessions to federalism should be made in the Maastricht negotiations, we had no excuse for naivete about the extent to which they would be exploited and indeed twisted. Maastricht was a treaty too far. Even without Maastricht, moreover, it would have been necessary to revise some aspects of earlier agreements, going right back to the Treaty of Rome, if the unwelcome momentum was to be resisted.

This is especially relevant to the activities of the European Court of Justice. Most of us, including myself, paid insufficient regard to the issue of sovereignty in consideration of the case for joining the EEC at the beginning of the 1970s. There was, of course, a basic intellectual confusion, when phrases about ‘pooling sovereignty’ were used, resting on what Noel Malcolm has described as the failure ‘to make any distinction between power and authority’.[75]

But beyond that there was a failure to grasp the true nature of the European Court and the relationship which would emerge between British law and Community law. The latter is directly applied through the courts of member states which, in the event of a conflict, are bound to give Community law, as interpreted by the European Court, precedence over domestic law. This was demonstrated by the Factortame case, brought against Britain by Spanish fishermen who had found a legal loophole by which they could register their ships in Britain and make use of British fishing quotas, thus thwarting the intentions of the Common Fisheries Policy. In 1988 Parliament passed a Merchant Shipping Act to close the loophole, but the subsequent litigation went against the British Government and resulted in the suspension and ultimate setting aside of the Act by the British courts, following reference of the case to the European Court.

What makes this legal situation all the more significant is that the European Court is a far from impartial interpreter of the treaties and Community laws. It makes no bones about being a force for European integration. Its opportunities for extending the powers of Community institutions are still greater under Maastricht. Above all, it will be for the Court to decide on the reality of the opt-outs on monetary union and the Social Chapter which the Prime Minister obtained for Britain. Its past attitudes and activities give little cause for comfort.

Against all these difficulties, however, Britain has even more important negotiating strengths, as long as we are prepared to use them to the full. The first and most important is our trading position and opportunities. Our trade balance with the Community has been consistently in deficit. Not that there is anything wrong with that in itself. But it does establish that other EC members have a clear interest in continuing trading with us and so puts into perspective the exaggerated fear that if we do not comply with their wishes, they will find ways to cut us off from their markets.

In addition, the European Community’s relative importance as regards both world trade and Britain’s global trading opportunities is diminishing and will continue to diminish. Our politicians should become less concerned with European markets, whose most dramatic expansion has probably now been achieved, and more interested in the new opportunities emerging in the Far East, Latin America and the North American Free Trade Area. The disposition of Britain’s massive portfolio of overseas assets — over £1,300 billion in 1993 — provides an insight into the judgement of the private sector on this question: over 80 per cent are held in countries outside the EC, and the proportion in the emerging markets is expanding vigorously. The share of our total trade with countries outside the EC, and particularly with the Pacific Rim, is increasing and will continue to do so.

Moreover, although some of the investment which comes to Britain doubtless does so because we are within the European Community, investment will also increasingly go elsewhere than to Europe because of the EU’s regulatory inflexibilities and high social costs. Both by tradition and because of the pre-eminent position of the City of London as an international financial centre, Britain is naturally a global rather than a Continental trading country. But we need to retain the right to hold down our industrial costs if we are to compete successfully in the new global market. None of this is to say that we should lightly pick quarrels with our European neighbours. But it does suggest that we must stop speaking as if Britain’s economic future primarily depended upon proving ourselves to be ‘good Europeans’.

Secondly, it is also important to recognize the important non-economic strengths Britain possesses, which give us a special weight in European negotiations. In spite of the present chill in relations between the US Administration and the British Government, the ‘special relationship’, depending as it does upon shared experience, traditions and sentiments, is still an important underlying reality. My own experience of Anglo-American relations in the run-up to the Gulf War convinces me that, whatever the calculations of officials in the US State Department or the British Foreign Office, when serious work has to be done we all know that the US can rely only upon a handful of well-established nation states with a global outlook and a willingness to uphold international order. That means, principally, ourselves and the French; and the French, though they played a gallant part in the Gulf War, have generally been suspicious of American-led ventures. The Anglo-American relationship is itself, of course, closely linked to the unchallenged predominance of English as the language of the twenty-first century. There are, therefore, good strategic reasons for shrewd Continental European statesmen to wish to keep a mutually satisfactory, or at least tolerable, relationship with us.

Finally, our partners should not assume that we will always want to sign an agreement in the end. Although we prefer cooperation, we should be quite prepared to be very un-cooperative indeed. If there are attempts to steamroller us into further steps towards federalism, or indeed if our demands for revision of existing arrangements which have worked against us are ignored, we must be prepared to exercise our veto and resolutely use all avenues of non-cooperation open to us under the existing treaties. We have reached the point at which a Gaullist mantle may fall fittingly on Anglo-Saxon shoulders.

Years of fighting for Britain’s interests at successive European Councils, not least at my final Rome Council in October 1990, caution me against believing that it will be simple, let alone easy, to achieve a successful outcome in 1996. The pressures will be applied in different ways and from different quarters well in advance. The proposals from the German CDU in September 1994 for a ‘hard core’ of European states committed to monetary union demonstrate that the process of softening up has already begun — though, as I shall suggest, the concept of a ‘two tier’ Europe should certainly not be dismissed out of hand. In the detailed negotiations it will be important to combine tactics and toughness in order to achieve the best outcome for Britain. But even at this stage it is important to spell out just what such an outcome would be.

All but a small minority of convinced Euro-federalists recognized that Britain’s entry to the European Economic Community involved a balance of advantages and disadvantages. Although strategic considerations were not without weight when the frontier of communism cut through the centre of Europe, this balance was essentially economic, as the EEC’s name suggests. On the one hand, we gained unhindered access to a large Western European market which we envisaged would develop both as our economies grew and as policies of internal free trade prevailed. On the other side of the ledger, we would be large net contributors to the Community budget which reflected the disproportionate costs of the Common Agricultural Policy. We were aware that France’s inclination towards subsidies and protection threatened to push the EEC in the wrong direction; but we blithely thought that these could be restrained and perhaps reversed. More seriously, we did not foresee the impulse towards centralized decision-making as a result of the ambitions of the Commission, nor the spread of interventionist social regulation from Brussels, nor the scale of the challenge to parliamentary sovereignty and to the law of the United Kingdom. How can the balance of advantage be tilted back in Britain’s interests?

The initial step requires only the bare minimum of consultation or negotiation with our European partners and should not be delayed. It is not good enough to say that the issue of whether we are prepared to abandon the pound sterling and sign up to a single European currency is simply one for the future. To make such a decision at any time would be to take the heart out of democracy by removing (in theory at least ‘irreversibly’) the central aspects of economic policy from the control of the British Government. Certainly, such a far-reaching decision should not be contemplated without a referendum. Still better, if the Government were now to declare against a single currency, that would both reassure the public and demonstrate our principled dissent from the federalist objectives of most other European governments. Similarly, it should be made clear that there is no question of sterling’s return to the ERM or any successor system. To make such statements now would both lead the rest of the Community to take us more seriously and increase the pressure for other governments to reveal their hands to their electorates. It would also do no end of good in restoring support for the Conservative Party.

It is also necessary to clarify our attitude towards the project of a ‘two tier’ Europe in which the inner bloc embraces economic and monetary union, a high degree of social regulation and common foreign, security and defence policies. The immediate reaction in Britain to this project was hostile, but for a variety of sometimes confused and even mutually contradictory reasons. Some critics view it as a further unacceptable step towards a federal Europe whose agenda is dominated by the Franco-German axis. But others oppose it because they hanker after Britain being part of that ‘hard core’, for example on defence matters. In neither internal nor external European relations, however, is it in our interests to subordinate our autonomy further; in fact the reverse. There should certainly be no question of placing our defence decision-making under European control. The proper — indeed the only militarily practicable — international framework for this is NATO.

But the new situation also provides us with an opportunity. It is essential to make clear that if we were to permit amendments to the existing treaty framework which would allow the proposed development to go ahead, then our own interests would have to be accommodated. If there were an attempt to construct such a ‘hard core’ without respecting our fundamental views and interests, then we should be fully justified in pursuing every measure of obstruction and disruption open to us. An absolutely essential requirement would be to ensure that the ‘hard core’ countries were not able to impose on other members their own priorities on questions, like the operation of the Single Market, where their interests might well turn out to be different from ours. The price of our agreement to changes which those countries seek might further include the unbundling of a number of provisions in existing treaties which work to our disadvantage and, incidentally, to that of other member states.

An obvious priority involves addressing Britain’s financial contributions to the European Union. In any case, it is difficult to see how the present Common Agricultural Policy (CAP) could continue if the Central and Eastern European countries where agriculture remains of considerable importance are admitted to full membership, as is eminently desirable. The CAP is not only a financial drain; it also significantly increases food prices above general international levels and so increases labour and business costs. It would be open for debate what, if anything, should be put in its place to support British farming. Similarly, the so-called ‘Cohesion Fund’ designed to compensate the weaker economies for the financial and monetary rigours envisaged by Maastricht should be another target for revision.

Secondly, we should try to reverse the growing protectionism of the European Community, which almost derailed the GATT round, and significantly reduced its scope, and which costs Britain wealth and jobs. Unfortunately, the protectionist mentality is only likely to grow as increased costs, resulting from Community social policy and lack of labour market flexibility, reduce the ability of industries in Europe to compete successfully. Yet the European Union can afford such protectionism less than ever because of the shift of advantage from Europe to the Americas. This has been well observed by Professor Patrick Messerlin:

If this does not happen — and worse if, as I have suggested, it moves further towards protectionism — Britain will be the worst affected. That is why it is so important that we should work to establish special arrangements between the European Community and the North American Free Trade Area.

What we need here is something like a North Atlantic Free Trade Area, which would incorporate the emerging market democracies of Central and Eastern Europe as well as the EU itself. It would have a number of important economic and political benefits. First, it would provide unimpeded access for Britain and other European countries to the rapidly expanding markets of the Americas. All the same arguments used to justify our entry into the EEC in the early 1970s and then the creation of the Single Market in the mid to late 1980s — namely the expansion of trade opportunities — apply here. Secondly, by involving the Americans, with their tradition of free enterprise and open trade, in the new transatlantic trading framework we would shift the balance away from the Continental European emphasis on subsidies and protection — to Britain’s advantage. Within such a grouping we would be less likely to be a lone voice for free markets. Thirdly, the establishment of closer economic relations between Europe and America would help underpin NATO, whose raison d’être has been called into question by the end of the Cold War. A North Atlantic Free Trade Area would help create the conditions for a continued American commitment to Europe’s defence, while reassuring other European countries concerned about the predominance of Germany. Finally, the new Free Trade Area would be the most powerful — but also the most liberal — bloc within the GATT. As such, it would be able to insist that the global trend was towards free trade rather than protectionism. Britain is well placed to argue on both sides of the Atlantic for such an approach; moreover, our particular interests and identity as an outward-looking, open trading nation with a traditional commitment to strong links with America would be well served by it.

Finally, in planning the route to 1996 we cannot continue to ignore the erosion of our parliamentary sovereignty. As Lord Denning has said:

How precisely the British Constitution — which is what is ultimately at stake — can be protected against this ‘tidal wave’ needs now to be considered. Certainly, it can only be done by the explicit exercise of parliamentary sovereignty; moreover, the sooner the initiative is wrested from the European Court so as to clarify British judicial thinking, the better. There is a strong case for amending the 1972 European Communities Act to establish the ultimate supremacy of Parliament over all Community law, making clear that Parliament can by express provision override Community law.

Britain would not be alone among Community countries in protecting the ultimate supremacy of its domestic law. Germany, for example, does not acknowledge the power of Community law to override its constitutional law, as the Federal Constitutional Court made clear in the Maastricht Treaty case. France likewise maintains the ultimate supremacy of its constitutional law, and its conseil d’etat evolved doctrines and procedures which limit the practical application of Community law in cases where the interests of the French state so require.[77]

We in Britain should also set out rules relating to conflicts between Community law and Acts of Parliament which unintentionally arise (as in the Factortame case), and establish a procedure whereby an Act unintentionally in conflict with Community law can be suspended by Order in Council where necessary rather than by the courts, so discouraging the drift in court decisions and judicial thinking towards narrowing the scope of parliamentary sovereignty. There should be a reserve list of protected matters where Parliament alone can legislate, to include our constitutional arrangements and defence. Finally, we should take reserve powers, exercisable by Order in Council, to enable us in the last resort to prevent specific Community laws and decisions taking effect in the United Kingdom.[78] These various powers would, one imagines, be used very sparingly; but their very existence would act as a disincentive to European encroachments. But the debate about how rather than whether such actions should be taken is overdue.

It is not possible to predict precisely where this process of negotiation would end. Whether Britain would be part of an outer tier Community membership, whether we would have some kind of association agreement similar to that enjoyed for years by the European Free Trade Area (EFTA) countries, and later by the European Economic Area (EEA) countries, or whether the European Union would be transmuted into a series of bilateral or multilateral agreements between countries under new treaties in some version of ‘variable geometry’ — all of these are possibilities.

In any case, it is not the form but the substance which is important. What is clear is that a point has been reached — indeed it was reached even before Maastricht — at which the objectives and perceived interests of the different members of the Community radically differ. A clear understanding that this is so and that our strategy for 1996 must be planned accordingly is the essential foundation for success.

Nor do I believe that such an approach is incompatible with the long-term interests of other European countries. If it is allowed to continue on its present course the European Union will fail at all levels. It will exclude the post-communist countries of Central and Eastern Europe by imposing conditions for entry which they will not be able to fulfil. It will condemn the south European countries to debilitating dependency on hand-outs from German taxpayers. It will be a force for protectionism and instability in the wider world.

If the Franco-German bloc decides to go ahead with the recreation of a modern equivalent of the Carolingian Empire, that is its choice. The consequences will almost certainly be traumatic. In a world of re-awakened nationalism it is hard to imagine Frenchmen accepting in perpetuity their country’s relegation to being a German satellite — any more than it is easy to conceive German taxpayers providing ever greater subsidies for failing regions of foreign countries, as well as housing, health and other benefits for immigrants driven by economic necessity across Germany’s borders, and losing the assurance of the Deutschmark to boot. All this against the background of a shrinking share of world trade and wealth, as investment and jobs moved away from Europe. At some point, the electorates of those countries will rebel against policies which condemn them to economic disruption, rule by remote bureaucracies and the loss of independence.

There is only a limited amount that Britain can do alone to prevent these unwelcome developments. But it is not inappropriate to quote the aspiration of Pitt the Younger to the effect that Britain ‘has saved herself by her exertions, and will… save Europe by her example’. In the meantime, the best service which can be done by those committed to the ideals I set out at Bruges — of freely cooperating nation states which relish free enterprise and welcome free trade — is to gather together all those politicians, jurists, economists, writers and commentators from the different European states to relaunch a movement for transatlantic cooperation including a wider Europe and the Americas. As I urged at the end of the Bruges speech:

EUPHORIA PUNCTURED

By contrast with European Community affairs, the overall path of events in foreign policy at the time I left office continued initially much as I would have wished. That may seem strange, even callous, in view of the fact that preparations were under way for a war in the Gulf whose exact course we could not predict. Yet I was convinced that the action taken was both right and necessary and that the West or, as we tactfully preferred to describe it, ‘the international community’, would prevail over Saddam Hussein and reverse Iraq’s aggression against Kuwait. Moreover, the crisis had led to a re-establishment of that vital ‘special relationship’ between the United States and Britain which I regarded as central to my approach.

Of greater long-term importance, however, was the end of the Cold War, or again more precisely if less tactfully, the defeat of Soviet communism in that great conflict, without which indeed the relatively smooth passage of events in the Gulf would have been impossible. I had unsuccessfully resisted the reunification of Germany. But the course of events which led to the landslide victory of Solidarity in the Polish elections of June 1989, the fall of the Berlin Wall that November, the overthrow of the Ceausescus in Romania in December, the election of Vaclav Havel as President of a free Czechoslovakia in the same month, and the victory of non-communists in elections in Hungary in April 1990 — these I regarded as tangible and profoundly welcome results of the policies which Ronald Reagan and I had pursued unremittingly through the 1980s. And I had no doubt that the momentum was sufficient for the process to continue, for the time being at least. Where that would leave Central and Eastern Europe and the Soviet Union it was as yet impossible precisely to say. I knew enough of the complex history of these regions to understand that the risks of ethnic strife and possible attempts to change borders were real. At least the rejuvenated Conference on Security and Cooperation in Europe (CSCE), the result of the Helsinki process, could provide, we then thought, a useful diplomatic framework for resolving disputes. Events have, however, disappointed us.

I had seen for myself in Ukraine how strongly the nationalist tide was flowing against the old Soviet Union.[79] As I told Jacques Delors at the outset of that final European Council I attended, I did not believe that it was for West Europeans to pronounce upon the future shape of the Soviet Union or its successors — that was for the democratic choice of the peoples concerned.[80] But the fact that I did not believe we could see into the future, let alone be confident in shaping it, did not diminish my satisfaction at the changes which were taking place. Millions of subjects of the Soviet Empire and its client states who had been deprived of their basic rights were now living in free democracies. And these new democracies had abandoned their aggressive military alliance, armed with nuclear weapons, against the West. These were great human and security gains. Neither then nor later did I feel any nostalgia for the diplomatically simpler but deadly dangerous Cold War era.

The increasing preoccupation of a weakened, fitfully reforming Soviet Union with its own huge internal problems enabled other regional conflicts to be resolved. The ending of Soviet-backed subversion in Africa meant that reformers in South Africa had a new opportunity to reach agreement about that country’s future. In fact, whether it was in Africa or the Middle East, in Central or South America, in the Indian sub-continent or in Indo-China, the end of the Soviet pursuit of a long-term strategy of global dominance opened the way for progress. Suppressed desires for political and economic freedom were brought to bear on corrupt and oppressive regimes which could no longer argue for support from Moscow (or indeed from Washington) lest they go over to the other side.

An old world order — a bi-polar world divided between the Soviet Union and the West and their respective allies — had passed away. But had a new world order been born? Certainly, there was a temptation in the immediate aftermath of the collapse of communism to believe so. And statements welcoming it can be quoted from across the political spectrum. In retrospect, however, it can be seen that two quite different visions obtained. My own view of it was a Pax Americana in the camouflage of United Nations Resolutions. This would require strong US leadership, the staunch support of allies, and a clear strategic concept that distinguished between real threats to Western interests and international order on the one hand, and local disputes with limited consequences on the other. I still think that this prudent approach could have created a durable international order without open-ended obligations. Unfortunately, it became confused with a more messianic, and consequently less practical, concept of a world order based on universal action through multilateral agencies untainted by strategic self-interest. This is, of course, a more idealistic vision; but as Macaulay remarked: ‘An acre in Middlesex is worth a principality in Utopia.’

Even in the days after the Gulf War when euphoria about the possibilities of the New World Order was at its height, I was left feeling uneasy. I suspected that too much faith was being put in high-flown international declarations and too little attention paid to the means of enforcing them. Oddly enough, it was in preparing for my visit to South Africa in May 1991 that I started to read more deeply about the ill-starred League of Nations, one of whose principal architects was the South African Jan Smuts. The rhetoric of that time struck me as uncannily like that which I was now hearing. Similarly, Smuts’ own conclusion, when the League had failed to take action against the dictators and so prepared the way for the Second World War, struck me as equally damning of the kind of collective security upon which the future of post-Cold War stability and freedom was supposed to be based: ‘What was everybody’s business in the end proved to be nobody’s business. Each one looked to the other to take the lead, and the aggressors got away with it.’

Of course, it could be argued that the situation now was different. After all, Saddam Hussein had not ‘got away with it’ — though he did ‘get away’. But I thought it of vital importance to understand why this had been achieved. It was because, contrary to the experience of the League of Nations, America had asserted herself as the international superpower it was her destiny to be, and self-confident and well-armed nation states such as Britain and France had acted in support, that success was obtained in the Gulf. Yet there were all too many commentators and politicians prepared to deduce quite the opposite — namely that the United Nations should itself become a supra-national force, with the authority and the resources to intervene at will, and that nation states should accordingly abandon their sovereignty. The UN’s ambitions to become a world government would only, if encouraged, lead to world disorder. But with much subtlety and to considerable effect, left-liberal opinion in the West was able, with the naive collaboration of many conservatives, to turn the circumstances arising from the end of the Cold War to its own advantage.

I spoke out against these trends in a speech to UN Ambassadors in New York in September 1991. I defended the ‘new nationalism’ which was apparent among the constituent peoples of the Soviet Union and Central and Eastern Europe. This was itself, I argued, a reaction against the tyranny of communism; most of those who embraced it were convinced democrats; and, to the extent that there was a risk of excesses, these should be seen as proof that attempts to suppress national identity were both bound to fail and would result in even stronger national passions when they eventually did fail. That had important implications for the future of the UN.

In fact, by the time I spoke in New York it was already becoming apparent that all was not well with the New World Order. I was deeply concerned about the West’s failure to see what was at stake in the former Yugoslavia, where Slovenia’s and Croatia’s bids for freedom from the oppressive impoverishment of communism were being challenged by armed force. For me, rights of national self-determination and self-defence (indeed human rights more generally) lay at the heart of any just international order — and, at least as important, of any stable international order. Stability is a conservative value in foreign policy: anyone who doubts that should be given a one-way ticket to Mogadishu. But stability should not be used as an excuse for upholding a status quo that is itself inherently unstable because it suppresses social forces that cannot ultimately be contained.

It is perhaps significant that on each of the three occasions when I felt compelled, since leaving office, to intervene publicly on the subject of foreign affairs (other than as regards Europe), it has been my conviction that both moral and practical considerations required a change of approach. The first was when in April 1991 I was moved by what I heard from Kurdish women, who came to beg me to speak out in order to gain relief for their compatriots bearing the brunt of Saddam Hussein’s merciless attacks. Parliament was in recess and there was no minister available to see them. I am glad to say that — doubtless coincidentally — action was subsequently taken at least to set up safe havens.

The second occasion was when, on the occasion of the coup in the Soviet Union in August 1991,1 was dismayed by the willingness of some Western leaders apparently to ‘wait and see’ whether the coup leaders were successful, rather than give full moral support to the resistance gathered around Boris Yeltsin at the Russian White House. So, as soon as I had checked what had happened, I held a press conference outside my Great College Street office and went on to give a succession of interviews.

I said that it was quite clear that what had happened in Moscow was unconstitutional and that the Russian people should now take their lead from Boris Yeltsin as the leading democratically elected politician. In this new and dangerous situation our own planned defence cuts must not now go ahead. But I warned against assuming that the coup would be successful. The Soviet people had now developed a taste for democracy and would be reluctant to lose it. They should protect democracy by acting as the peoples of Central and Eastern Europe had done — by taking to the streets and making their views known.

The following morning it was already starting to become clear that my optimism that the coup would not succeed was being borne out by events. The news was of huge protest rallies in Leningrad and Moscow. I thought it was worth trying to speak directly by telephone to Mr Gorbachev who, according to the coup leaders, had had to step down ‘for reasons of health’. But I was hardly surprised when the Soviet Ambassador told me this was impossible. I had assumed that telephone contact would have been cut off by the KGB — though in this I soon learned I had overestimated the coup leaders’ competence. Later in the day the Conservative MEP Lord Bethell, a great expert on Russian matters, contacted my office to say that he had with him Mrs Galina Staravoitova, an adviser to Mr Yeltsin on a visit to London. I immediately asked them to come in and brief me. I related how I had failed to make contact with President Gorbachev. Mrs Staravoitova then asked me whether I would like to speak to Mr Yeltsin instead. After searching through her handbag, she came up with the number for the direct line to his office in the Parliament building and after several failed attempts — to my astonishment — I was put through.

Mr Yeltsin and I spoke for some time, with Lord Bethell translating. It was clear that the outlook from the besieged White House was grim but also that Mr Yeltsin and his supporters were in good heart. He asked me if I would chair a commission of doctors to investigate the truth about Mr Gorbachev’s allegedly poor health, which had every appearance of a classic Soviet diplomatic illness. Of course I agreed, and the rest of the day was spent in cooperation with the Foreign Office and the Department of Health trying to compile a suitable list of distinguished doctors. Luckily, it proved unnecessary, for the coup by now was crumbling fast.

I was duly denounced in the press by British Government ‘sources’ for my call to the Russians to come out into the streets to stop the coup, and for my call to our politicians to stop Western defence cuts. But I had no regrets. Democracy has to be fought for and if necessary died for; and indeed three brave young men did die for it. Their sacrifice is remembered by Russians today.

But the issue on which my view and that of the Western foreign policy establishments differed most was Bosnia. What seemed to me so tragic was that, like anyone else who had bothered to follow events — and I was regularly briefed both by British experts and by others from the region — I could see the preparations for Serbia’s war of aggression against Bosnia being made. The West’s feeble and unprincipled response to the earlier war against Croatia made it almost inevitable. Indeed, with Western acquiescence the Yugoslav army was able to withdraw its heavy armour from Croatia into Bosnia.

I was working on Volume I of my memoirs with my advisers in Switzerland in August 1992 when I learned that Bosnian Vice-President Ejup Ganić wanted to see me: he was desperately trying to summon help from abroad for Bosnia, having slipped out of Sarajevo.

Because of the privations of Sarajevo, I had laid out a substantial afternoon tea for our meeting. To my surprise he refused all food as he gave me a thorough briefing on the political and military situation. But when I went into my study to telephone the Foreign Office to arrange a meeting for him, my colleagues again pressed him to eat something — whereupon he wolfed down several sandwiches at a go. He then explained to them that, having lived in an underground bunker for months with little to eat, he had not trusted himself to eat politely in front of me.

What he told me confirmed all that I had heard and read, and I now decided that it was my moral duty to act. I would take the highest-profile initiative I could, but focusing on the United States — for after many fruitless conversations with the Foreign Office I despaired of a hearing in Britain. In the New York Times and on American television I sought to awaken the conscience of the West by arguing that by doing nothing we were acting as accomplices. But I also covered the strict practicalities.

It is argued by some that nothing can be done by the West unless we are prepared to risk permanent involvement in a Vietnam- or Lebanon-style conflict and potentially high Western casualties. That is partly alarmism, partly an excuse for inertia. There is a vast difference between a full-scale land invasion like Desert Storm, and a range of military interventions from halting the arms embargo on Bosnia, through supplying arms to Bosnian forces, to direct strikes on military targets and communications.

Even if the West passes by on the other side, we cannot expect that others will do so. There is increasing alarm in Turkey and the Muslim world. More massacres of Muslims in Bosnia, terrible in themselves, would also risk the conflict spreading.

Serbia has no powerful outside backers, such as the Soviet Union in the past. It has up to now been encouraged by Western inaction, not least by explicit statements that force would not be used. A clear threat of military action would force Serbia into contemplating an end to its aggression. Serbia should be given an ultimatum to comply with certain Western demands:

For a short while it looked as if the argument might be won. I believe that within the White House, the State Department and the Pentagon there was some genuine reassessment of strategy. But then the military and foreign policy establishments recovered sufficiently to offer any number of reasons why large-scale intervention by ground troops (which I had never suggested) was too risky, why the arms embargo on Bosnia must stay (which ensured that the victims were deprived of self-defence) and why air strikes would not be effective (possibly true on their own, but plainly false if conducted in support of well-armed Bosnian forces as a means of altering the military balance).

Since the summer of 1992 there has been some movement in the direction I urged, but too little and far too late. Very limited air strikes under absurd restraints have occurred, but always against the background of protestations of the reluctance of the UN and NATO to go further. As a result of American pressure, there is some possibility of the arms embargo on Bosnia being lifted — but not before the moderate Muslim leadership had been forced into dangerously close reliance on Islamic powers such as Iran in the absence of Western help. Above all, whereas in August 1992 there was no official Russian involvement, the Russian government has now become a major player in the deadly game, thus raising the stakes in precisely the way I feared. Finally, British troops and the other forces in the United Nations Protection Force (UNPROFOR) are stationed in vulnerable situations in Bosnia, potential hostages to the Serbs if the West does at last become serious. The shameful failure in Bosnia has not only diminished our credibility and moral stature: it has now precipitated the most serious breach in NATO since Suez.

It is, though, important to regard the Bosnian fiasco as a symptom and not just a cause. There was an almost unreal quality about much discussion of international affairs over the whole of this period which was characterized by the rise and fall of the concept of a ‘New World Order’. The foreign policy thinkers were still engaging in arguments about whether ‘history’ (in the Hegelian sense) had ‘ended’ — whether we had reached, in the words of Francis Fukuyama’s stimulating essay, ‘the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of government’.[82]

In contrast to Mr Fukuyama’s thesis has been the later prediction by Samuel Huntington that international politics will henceforth be dominated by a ‘clash of civilizations’ with the ‘world [being] shaped in large measure by the interactions among seven or eight major civilizations… [in which] the most important conflicts of the future will occur along the cultural fault lines separating these civilizations from one another’.[83]

The sense of unreality was emphasized by the contrast between these ambitious concepts of the intellectuals on the one hand and the hesitancy of the practitioners on the other. It was increasingly clear that the end of the Cold War — and only two years passed between the fall of the Berlin Wall and the official obsequies over the Soviet Union — had left Western politicians disoriented. It was not simply that security structures, above all NATO, and defence strategies had to be rethought. It was the whole justification, purpose and direction of foreign policy itself which seemed at issue.

PRINCIPLES OF CONSERVATIVE FOREIGN POLICY

Bismarck once remarked that asking him to pay attention to political principles while conducting foreign policy was like asking him to walk through a dense forest with a twelve-foot pole between his teeth. And this view is supported by some conservative theorists who ask us to consult only the national interest when formulating foreign policy. In fact, the apparent logic of their approach dissolves upon examination. How do we recognize our vital interests? How best can we pursue them once identified? Do they include freedom and democracy in other countries? How do you persuade your own citizens, or other governments, to join in the pursuit of your chosen course? To what extent is some structure of international order also a specific national interest? And if it is, what degree of sacrifice should we make for it? These and similar questions cannot be answered without reference to principles.

For me, the conservative approach to international affairs rests on five tenets, which in different degrees and combinations can be applied to the challenges we face.

The first of these is that collective security can be upheld only if it is guaranteed by a single power or an enduring alliance which is strong enough to dwarf challenges from other powers. In our present world, this means that America must remain the single superpower. This will not be achieved without cost, which American taxpayers alone should not be expected to bear. Nor will it be without friction: Russia and in due course emerging great powers like China, India, Japan, Brazil — not to mention the hypersensitive Europeans — will all resent this. But for the sake of peace and stability it is overwhelmingly the least bad option.

The fact that the United States cannot maintain this dominant status alone over time, as other countries emerge more fully as world powers, does not negate this point — although it does amend it. In the first place, there is a time lag. Military superiority does not automatically go to the most advanced economic power, particularly when, as now, it is military technology — where the United States excels — rather than simply the volume of resources committed to defence, which is critical. In any case, it is important not to underrate the economic potential of the United States, as the prospect of a vast free trading zone embracing not just North but South America as well opens up.[84]

Still, America will need dependable allies, willing to share — and share fully — the burden of world leadership, if it is to be prolonged into the twenty-second century. Exactly how this might be achieved — by investing NATO with proper burden-sharing arrangements, especially for out-of-area operations, and underpinning it economically with an Atlantic Free Trade Area — is perhaps the most important topic for us to discuss over the next decade. But, whatever institutional form this burden-sharing takes, and however the burden is distributed between America and Europe, world leadership will still entail heavy obligations. They will nonetheless have compensating advantages: in particular, international arrangements and the decisions of global institutions will tend to reflect American, and by extension Western, interests. Indeed, unless this is so, democratic electorates, especially in the United States, will simply not be prepared to pay the price.

My second tenet is that in foreign policy we should recognize the value of the balance of power in regional contexts. This is an important qualification to the first assertion, regarding America’s global role. The operation of regional balances of power will help to reduce the number of occasions when American-led interventions are necessary. When, in pursuit of its own interests, a state allies with other states to counter and contain a regional power which threatens to become dominant, a generally beneficial equilibrium is achieved: and the temptations and opportunities for misbehaviour open to the most powerful state are reduced. It was, of course, British policy for many years to promote such a balance of power within Europe; and, as I have explained, this still makes sense when a major, if unstated, objective of policy should be the containment of German power.[85]

American policy-makers have generally rejected the balance of power principle — partly because of America’s own overwhelming strength, and partly because idealism and ideology have seemed so important and the balance of power was seen by Wilsonians as amoral. More generally, the competitive jockeying for dominance has been held responsible for a succession of wars — above all the First World War. And a powerful contemporary argument has been that in a world where possession of nuclear weapons makes the risk of all war unacceptable, the tensions resulting from operation of the balance of power cannot be afforded.

These arguments are not without merit. But the US State Department has had almost fifty years of operating in world politics in ways that have tempered the principles of Woodrow Wilson with the realities of local power balances, from the Middle East to the Indian sub-continent. Secondly, as long as there is one ultimate superpower which, if necessary, can determine the outcome of regional disputes, then there are limits set on the competition between states. And the fact that the US is, in nuclear terms, more powerful than any other state, enhances its ability to set these limits. It is under these conditions that the balance of power is a force for good.

Arguably, the most important area in which the balance of power — supplemented by a sufficiently strong American presence — can help resolve future problems is in Asia and the Far East. The sometimes hysterical discussion of the ‘threat’ posed by Japan to the American and European economies leaves out two considerations. We are extraordinarily lucky that, both for historical reasons and because it is protected by the American nuclear umbrella, Japan does not wish to be a military as well as an economic superpower. And there are three Asia-Pacific powers which either have, or will shortly have, nuclear weapons: China, Russia and India.

The precise size and growth-rate of the Chinese economy is disputed; since China’s prosperity is occurring largely in spite, rather than because, of decisions made in Beijing, probably not even the Chinese know the truth. But that the potential is huge, that it is being ever more effectively exploited by the industrious Chinese people (and the wider Chinese diaspora) and that China is building up its defences while the rest of us are running ours down — these things are known.

Russia, preoccupied with its internal economic and political problems, will nevertheless strive to remain a Pacific power. Given its nuclear armoury and mineral wealth, the Bear cannot be counted out. And it has quarrels with China over borders and resources that might yet be destabilizing.

India is large enough and, as long as present policies and trends continue, will in due course become wealthy enough to emerge as a major regional power. This is something the West should welcome and encourage: for example, if it is felt that the UN Security Council should be enlarged — and there is much to be said for leaving well alone — India is a strong candidate for inclusion. For all its religious and ethnic problems, India is a democracy with an established rule of law. In the old pattern determined by the Cold War, India was under the influence of the Soviet Union. This must not now blind us to the fact that she is the Asian power with which it will prove easiest to do business.

So, in the Asia-Pacific region, there will be a balance of power between three large nuclear states and one state enjoying the nuclear protection of the US. Any one of these powers is likely to meet opposition from the others if it attempts to expand its territory or sphere of influence. And in addition to providing nuclear security for Japan, the US is also available to throw its nuclear and conventional weight into the scales if any local power seems likely to upset this balance. The US already performs a similar balancing act conventionally on behalf of smaller Asian states like South Korea, Taiwan and the Philippines. This serves as a demonstration to the larger powers that they should not risk drawing America into a conflict between them. That is all the more reason why the US must now secure a favourable outcome in its dispute with North Korea over the North’s nuclear programme.

NATIONS, NATION STATES AND NATIONALISMS

The third tenet is that nationhood, nation states and national sovereignty are the best foundations for a stable international system. Superficially, that is a paradox. Is it not true that nationalism has disrupted European peace in two world wars? In fact, in most important senses the answer is ‘no’. The instability of multinational empires was the background to the First World War, and transnational secular religions like communism and Nazism gave rise to the Second. And in both wars only strong nation states were able to resist and to defeat aggression.

But in any case there is no point in arguing that a world without nations — and the loyalties, frictions and institutions they generate — would be desirable, since for the foreseeable future such a world is a plain impossibility. Politics, as conservatives recognize, is about making the best of the world which exists, not in vainly devising blueprints for what it cannot become. Admittedly, xenophobic prejudice can result in concentration camps, torture and ethnic cleansing. But such crimes are usually the result of suppressed and distorted nationalisms or, in our own day, of nationalisms hijacked by communists. They are no reason why we should not be proud of our own country nor why we should disapprove if others are proud of theirs. The Mafia is based on the institution of the family; but that does not mean that the family is a pernicious institution.

For the conservative, of course, the nation (like the family) has also a profound and positive social value; around its traditions and symbolism individuals with conflicting interests can be encouraged to cooperate and make sacrifices for the common good. Nationhood provides us with that most essential psychological anchor against the disorientating storms of change — an identity which gives us a sense of continuous existence. Consequently the man who shrugs off his nationality, like the man who discards his family background or (as G.K. Chesterton famously observed) who abandons his religious faith, is a potential danger to society for he is apt to become the victim of every half-baked ideology or passion he encounters.

Some nationalisms, it is true, are disagreeable and even dangerous because some nations have committed historic crimes. Even then it is questionable whether a nation which has deliberately turned its back on its entire past is any more reliable a neighbour than one which dwells on it. A more mature response is to discover in one’s history those noble episodes and themes on which a more decent and open sense of nationhood can be built. Otherwise, it is the unbalanced revolutionaries who are left to take up the national cause.

Even the artificial states, which take in different nations with different languages and traditions, pay a kind of involuntary tribute to the power of nationhood by seeking to forge a new national identity. This was tried in the Soviet Union and in Yugoslavia; it is now being attempted in the European Union. Such enterprises cannot work, and generally break down amid acrimony and mutual hatred. But their very artificiality often inspires the ideologues to extremes of doctrinaire chauvinism, alternately ruthless and ridiculous, from Stalin’s mass deportation of peoples to the promotion of a European version of Dallas.

It is therefore wrong to argue, as diplomats are still prone to do, that striving to keep large multinational, multicultural states together by all possible means makes for stability. It is, of course, quite possible that several distinct peoples will live within the frontiers of a single state for a variety of reasons — security, economic resources, geography, or lack of any alternative. Developing a liberal political and economic system is the best way to persuade them to do this, as Switzerland’s extraordinarily decentralized structure illustrates. But in the artificially constructed states — founded on an ideology (like the Soviet Union) or a mixture of diplomatic convenience and fear of greedy neighbours (like Yugoslavia) — it is all too likely that centralized power and the use of force will be relied upon to keep the unit together. And this — again as with the USSR and Yugoslavia — only increases national fervour and the aspiration to national independence on the part of the component peoples.

So while it is not inevitable that nation states should everywhere succeed multinational states — for example, the Kurds seem unlikely for many years to gain statehood because of the number of other states this would adversely affect — that is bound to be the trend. Or at least it will be the trend as long as the two other current trends, those towards democracy and open trading, themselves continue.

Both of these make for the emergence and viability of smaller units. Democracy is the political system that most comfortably fits the nation state. It requires a common language if it is to function really effectively — and this the nation state provides. Once established in a multinational state, moreover, democracy fosters the drive towards national self-determination. That helps explain why most multinational states are not democracies or, if they are, are perennially disturbed by linguistic and cultural disputes, as in Canada and Belgium. Similarly, free trade means that political boundaries need not be co-terminous with economic boundaries. We can thus combine political decentralization with economies of scale. As Adam Smith pointed out two hundred years ago: ‘Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire.’

There are two main practical arguments advanced against regarding the nation state as the basis of the international political system. The first is that the concept of the ‘nation’ is something which makes little or no sense outside Europe, because it is itself rooted in and a construct of a long and distinctive European history. This has some force. It is clear, for example, that nationhood has to be understood in a somewhat different way in the Middle East or Far East or Africa — or even in North and South America — from in Europe. In some cases religion, in other cases tribe, and in still others ‘culture’ (as Samuel Huntington has argued) will shape and mould identity. Moreover, nations can slowly emerge as, for example, in India. And they can equally disintegrate and die.

But the failure of attempts to ignore national identity when putting together diplomatically convenient artificial states or dividing a nation into several states on ideological grounds is a common feature of our times in every continent. In Europe Yugoslavia was destined to fail, and even Czechoslovakia, where the tension between the constituent nations was not as great, has now been peacefully dissolved. In Africa, the Central African Federation was assembled from Northern Rhodesia, Southern Rhodesia and Nyasaland; the Sudan was put together ignoring the ethnic and religious differences between the majority Arab and Nubian population of the north and the Nilotic and Bantu people of the south; and Nigeria was created out of three constituent peoples, the Hausa, the I bo and the Yoruba. Each of these has been riven with difficulties. In the Middle East, attempts to create a unified Arab state based on an Arab nationalism that owed too much to socialism and not enough to Islam have always come to nothing. In the Far East the division of Vietnam was ultimately unsustainable as, in all probability, is the division of Korea. By contrast, in every continent it is the states which most closely correspond to national identities — and are thus able to mobilize them — which are likely to prove the most successful: that is true from Britain and France in Western Europe, to Poland, Hungary and the Czech Republic in Central and Eastern Europe, to Egypt and Iran in the Middle East, to Japan in the Far East. Not that a sense of national identity is necessarily enough to ensure peace, prosperity and stability: but without it states will be faced with even more serious — and perhaps terminal — difficulties.

The second and perhaps the most frequent practical argument deployed against making nation states and nationalism the basis of our international political system is the problem of ethnic minorities. But in arguing for nation states I am not suggesting that it is possible, or even desirable, to seek to ensure that frontiers correspond exactly to boundaries of nationhood, let alone, of course, implying that national minorities or other groups should be shifted from one area to another to make politicians’ lives simpler. In a well governed, reasonably prosperous state in which individual rights and, where appropriate, local autonomies are respected, there is no reason why national minorities should suffer oppression or have a destabilizing effect. And international conventions and bodies like the Council of Europe could ensure this.

Western politicians are all too inclined to believe that the experience of the post-communist states of Central and Eastern Europe and the Soviet Union demonstrates that nationalism is inherently dangerous. A closer investigation suggests the opposite. Yugoslavia is not the rule but the exception. For example, Hungary, apart from a small minority of extreme nationalists, has learned to accept the territorial losses of seventy years ago under which some two million Hungarians live in Romania, 600,000 in Slovakia, 400,000 in Yugoslavia and 200,000 in Ukraine. The Hungarians understandably insist on fair treatment for their diaspora. But they are a sufficiently mature democracy to understand that the principle of ‘all Hungarians in one state’ would lead to catastrophe.[86]

Similarly, although there are forces in Russia which would like to exploit the situation of the twenty-five million Russians living outside Russia in states which were once part of the Soviet Union, so far this has been a matter of rhetoric rather than reality. Although the Russian minorities certainly face some problems, it seems unlikely that most of them feel sufficiently threatened to wish to destroy the states of which they are now part: indeed, in many cases they voted for the independence of those states from the USSR.[87]

To what extent does the case of the breakaway Chechen Republic and the ensuing crisis cast doubt on the principle of nationhood as a sound basis for stable order? The Chechens certainly have solid claims to self-determination: they are a nation with their own language and religion and have long striven for independence since being forcibly absorbed within the Russian Empire in the last century. The argument that the West should overlook — or even support — the brutal military action taken to crush Chechnya in order to keep Russia together and Mr Yeltsin in the Kremlin is deeply flawed. It is not for us to determine the shape of Russia; states cannot ultimately be kept together by force, they have to create the conditions for national and regional minorities to stay within them; and when the West overlooks the abuses of human rights and breach of international (CSCE) treaty obligations which have occurred, we undermine the forces of democracy in Russia, not assist them. There is, of course, no neat democratic solution to the problems which plague the sprawling entity that is Russia. But its component peoples have the right to be treated with respect — even if, as is alleged of the Chechens, some of their members are involved in criminal activities. And if ultimately the Chechens wish to go their own way, Russia will gain nothing by seeking to prevent their doing so.

Of course, as with Chechnya, the history of past struggles influences the present. It is not my purpose to suggest that all nationalisms are good, let alone safe. But much is blamed on them which is attributable to other problems — in general, primitive political cultures retarded by communism and, in particular, lack of respect for human rights and democracy. Moreover, the record of supra-nationalisms is at least as mixed as that of nationalisms proper and their potential far more dangerous.

ADVANCING FREEDOM

This brings me to my fourth suggested tenet of a conservative foreign policy, which is that we should persistently seek to advance freedom, democracy and human rights across the world. The reasons why are, above all, practical. Democracies do not by and large make wars upon each other. Regimes which respect human rights at home are more likely to forswear aggression abroad. In practice, even the most cynical practitioner of realpolitik judges the threat from different quarters not only according to military technology but also according to the nature of the regime. It is, for example, at least as much because North Korea is a totalitarian dictatorship as because it apparently possesses a nuclear capability that its behaviour has rightly caused so much concern. The values of freedom give even culturally different countries a common understanding of the need for restraint, compromise and respect. That is why it is an essential part of foreign policy to encourage them.

The so-called Reagan doctrine, which Ronald Reagan developed in a speech to both Houses of Parliament in 1982, demonstrated just how potent a weapon in international politics human rights could be. His view was that we should fight the battle of ideas for freedom against communism throughout the world and refuse to accept the permanent exclusion of the captive nations from the benefits of freedom.[88]

This unashamedly philosophical approach and the armed strength supporting it transformed the political world. President Reagan undermined the Soviet Union at home by giving hope to its citizens, directly assisted rebellions against illegitimate communist regimes in Afghanistan and Nicaragua, and facilitated the peaceful transition to democracy in Latin American countries and the Philippines. Of course, previous American governments had extolled human rights, and President Carter had even declared that they were the ‘soul’ of US foreign policy. Where President Reagan went beyond these, however, was in making the Soviets the principal target of his human rights campaign, and in moving from rhetorical to material support for anti-communist guerrillas in countries where communist regimes had not securely established themselves. The result was a decisive advance for freedom in the world.

In this instance, human rights and wider American purposes were in complete harmony. But do human rights have an independent value in foreign policy? There are two classic attacks on the idea that they do. The conservative critique is that a human rights policy amounts to a dangerous intrusion on the sovereignty of other countries; and the liberal thesis is that it is flawed because based upon an inadequate conception of human rights.

Of the conservative view, one can say that it is a partial truth that we should take into account in formulating policy. Societies plainly differ in their social and economic development, their religious traditions, their political consciousness. Where a fledgling democratic movement really exists, we can foster and encourage it — and to a limited degree protect it against government suppression by protests, public diplomacy, and similar measures. Where there is no such popular movement locally (or where it is limited to a few Western-educated intellectuals in the capital), we cannot implant democracy from outside. However, although we must necessarily pick and choose the cases where Western influence can usefully accelerate a peaceful transition to democratic ways, some abuses of human rights, notably torture, are so flagrant, so egregious, and so offensive by any national or cultural standard, that we will always be justified in opposing and deterring them. The main question in such cases is how best to do so — by economic pressure, or by speeches and motions in international forums, or by quiet diplomacy. In any event, a conservative human rights policy, applied as it must be with prudence and discrimination, will always fall short of a crusade.

The liberal criticism is that Western human rights policy, by concentrating on such ‘procedural’ rights as freedom of speech or freedom from arbitrary arrest, neglects the more important ‘substantive’ rights such as freedom from hunger or the right to a decent education. The international documents to which appeal is generally made on questions of human rights themselves illustrate this drift of thinking. For example, the Universal Declaration of Human Rights (1948) not only affirms, as I would, that everyone has the right to life, liberty, equality before the law, property and so on: it also affirms the ‘right’ to an adequate standard of living and education and to social security — which are plainly in a quite different category. Other subsequent documents go even further. The International Covenant on Economic, Social and Cultural Rights (1966) includes the ‘right to work’, the right to the ‘continuous improvement of living conditions’, the right to be ‘free from hunger’ and ‘the right of everyone to the enjoyment of the highest attainable standard of physical and mental health’.

Of course, as soon as we discuss freedom in terms of rights rather than duties, classical liberalism slips easily into soft socialism with all kinds of ‘rights’ being claimed with little regard for the cost or even the possibility of fulfilling them. These ‘rights’, to the extent that they are even theoretically attainable, can in practice only be fulfilled if the state coerces other individuals by regulations, controls and taxes. By this point one has, in fact, moved the whole distance from liberalism to socialism. Moreover, by granting outside bodies the power to intervene on almost the whole of domestic social and economic policy, the liberal human rights approach does not so much intrude upon national sovereignty as abolish it outright.

If then advancing human rights as traditionally defined is a legitimate aim of foreign policy, what in general is the best way to achieve it? We are fortunate that in the post-Cold War world, new opportunities for freedom have opened up. As the revolution in the technology of communications, the opening of world markets and the opportunities for greater mobility of capital and people all put authoritarian rulers under greater pressure, it will be increasingly hard for them to resist pressures to liberalize their regimes. This, in fact, is why in seeking to advance democracy and human rights, high regard must be paid to the wider impact of economic freedom.

Even countries which maintain a fairly free economy — with a sound currency, limited government intervention, low taxes, private property and mobility of labour — but which for a time experience authoritarian rule, as for example did Chile under General Pinochet, find relatively few difficulties in developing political freedoms later. But, as the experience of Russia shows, without a framework of law, an understanding of the limits of government, private property and a living tradition of enterprise, it is extremely difficult in these conditions to build democratic institutions. Recognizing this, the conservative — as opposed to the liberal-left — enthusiast for human rights will not make the mistake of underrating the progress towards the goal of political freedom which the growth of market capitalism brings with it.

It is this consideration, quite apart from my concerns for the long-term future of Hong Kong, which has led me to oppose linking human rights issues in China with trade issues. We need consistently to press the Chinese to end human rights abuses and to observe civilized standards in their dealings with Tibet, the Christian churches, and dissidents if China is to enjoy the full practical benefits which a relationship of respect brings with it. But it would be counter-productive to slow down the rate of progress towards an open, free economy by seeking to cut China off from trade, investment and outside influence, since these are roads to freedom.

Having said all of which, I would note that policy in regard to human rights is a great deal more complicated in theory than it is in practice. Politicians and diplomats generally know by instinct the cases in which Western influence can be usefully exercised and how best to exercise it. I must add, however, that they sometimes need a kick from public opinion.

STRONG DEFENCE

These four principles have one thing, above all, in common: they can only be given effect by a fifth principle of strong defence. The same arguments which Ronald Reagan and I used during the 1980s still apply. Defence spending is an investment in peace because it is not armaments of themselves which cause wars: wars arise because potential aggressors believe they have sufficient military superiority to succeed in their aggression. Such investment has to go on year after year, even when threats seem vague or remote, because high-technology defence programmes only yield results over a lengthy period. And the only ‘peace dividend’ we have a right to expect from victory in the Cold War is peace itself — rather than the opportunity to spend more on welfare benefits and the dependency culture.

Admittedly, it was right that Western countries should reexamine their defence spending as a result of the dramatic changes which flowed from the fall of communist Eastern Europe, the ending of the Warsaw Pact and finally the disintegration of the Soviet Union. But I now believe that the plans for reduced spending which were announced when I was Prime Minister as Options for Change went too far; subsequent announcements have, of course, gone further still. Personally, I did not share all the optimism which characterized political discussion of defence at that time. But I did overestimate the rate of likely progress in turning the Soviet Union (or Russia) into an ‘ordinary country’, a stable liberal democracy which posed no special threat to the West.

We cannot know whether Russia will ultimately go in the direction of democracy and free enterprise. If Russia were to embark on a course of restoring the old Soviet Union as a new Russian Empire this could not happen peacefully. Nor could it leave Russian relations with the West unchanged. In any event, it would clearly be against our strategic interests if Russian power were once again to move close to the heart of Europe. Similarly, Russia’s commitment of scarce resources to any such imperial strategy would inevitably mean abandonment of the continuing tasks of economic reform and political liberalism. We could thus expect both external and internal policies to revert towards those of the old USSR. And Russia is still a formidable military power.

Already, the various crises and disarray which affected the countries of the former Soviet Union have resulted in a large outflow of advanced weaponry, which was then eagerly acquired by other rogue powers, further increasing the threats we face. Clearly, the West must maintain its defences.

Since 1989/90 it has not been possible to base our defence calculations almost exclusively on assessment of the threat from just one direction — the USSR and the Warsaw Pact. That necessarily makes the task a good deal more complicated. In such circumstances, the temptations are great for politicians to try to balance the different lobbies rather than to take a long-term strategic view of likely threats and the required response. A further difficulty has been that it is not just Britain but also the United States, France, Germany and Italy which have been cutting back. Those in a position to know now claim that even if we had the front-line equipment to intervene where required, there would be big problems in supporting and supplying it. Combined with the unsatisfactory outcomes of UN-authorized interventions, these cutbacks have given the impression of a weakness of resolve and commitment.

Another element of uncertainty has concerned the future role of NATO. As I have suggested, it was right and necessary for this to be re-assessed. In particular, the political impact of NATO as a force for stabilization and strengthening transatlantic links had to be more fully exploited and developed. This has not, however, occurred as I envisaged. In particular, partly as a result of federalist impulses in Europe and partly as a result of different approaches over Bosnia, NATO is no longer satisfactorily fulfilling the crucial task of sustaining American commitment to Europe’s defence. Indeed, NATO itself has been seriously undermined.

NATO should also have welcomed the Central European countries — Poland, Hungary, the Czech Republic and Slovakia — into full membership, as they requested. Combined with the European Community’s slow and hesitant approach to bringing those countries in as full EC members, NATO’s decision has come as a blow to the pro-Western democratic forces in the region. Partnership for Peace, which treats a country like Poland as having the same relationship with the West as, say, a member state of the former Soviet Union like Kazakhstan, only serves to confuse the degree of commitment NATO is making. The fact that NATO has allowed Russia — or more precisely the anti-Western influences in Russia — to determine its decisions on this matter is all the more serious. It does Moscow’s democrats no good to bend in this way, because it suggests that those who threaten are more likely to be listened to than those who cooperate.

Expanding NATO would be more than a military move. It would confirm the independent and ‘European’ status of the Central European states. Even countries, like Ukraine and probably the Baltic states, which would not (initially at least) be on the right side of the ‘line’ that NATO would draw on its eastern border, have now lost out. It has been well argued that ‘merely having NATO close at hand… would affect the political psychology in the belt of states between the Baltic and the Black Seas, imparting more confidence to their liberal political forces’.[89] All these developments would have tended to put European peace on a much sounder footing.

They are all the more desirable because the Gulf War demonstrated something which I had already believed necessary — namely that NATO forces must be able to operate ‘out of area’.[90] The range of potential serious threats is now truly global. That does not mean that NATO forces should be deployed whenever some local crisis in a far-flung country occurs. But it does mean that major regional threats must concern us. Some potentially serious risks are already apparent.

And where there is a clear case of aggression and our interests are involved, military interventions, whether under UN, NATO or other auspices, should be strong, swift and effective. Objectives must be clear, risks weighed and as far as possible countered and the resources deployed sufficient. Of course, every international crisis is different. Rules have to be adapted to circumstances. But the temptations to guard against are always the same — namely, ill-thought-out goals, too much reliance on total consensus before action, and the use of insufficient force.

Unfortunately, in their different ways all the major military interventions carried out under UN authority since the end of the Cold War have suffered from some or all of these problems. The Gulf War left Saddam Hussein in power with sufficient weapons and resources to terrorize the Kurds and the Marsh Arabs and continue to test the international community’s resolve. This crucial misjudgement was principally the result of a lack of clarity about objectives and excessive emphasis given to the search for international agreement rather than victory. But at least Desert Storm was effective in ensuring that Iraq yielded up Kuwait.

As I have suggested earlier, in spite of the personal qualities and, on occasion, the heroism of some of those involved, little can be said in praise of the international intervention in the former Yugoslavia. The justification for intervention was at least as clear as in the case of Saddam Hussein’s invasion of Kuwait. A well-armed aggressor — Serbia initially acting under the institutional guise of Yugoslavia — attacked first Slovenia, then Croatia and finally Bosnia. But what should have been a clear policy of arming the victim and assisting him with air strikes on military targets was distorted into a peacekeeping and humanitarian venture.

This policy was an illusion. There was no peace to keep. Hence the humanitarian force would either fail to aid the victims or come into conflict with the aggressors. A Western diplomacy that forswore effective military action had no real power to force an aggressor to negotiate seriously, and an arms embargo, impartially applied, meant in effect intervening on the side of a well-armed aggressor against an ill-armed victim. In fact, there is hardly a moral principle or a practical rule which has not been broken in handling this crisis: it should at least provide the next generation of statesmen with a case study of what not to do.

Was it shame at events in Bosnia and Croatia which prompted the UN, under American leadership, to intervene in Somalia in December 1992? No one could criticize the humane impulse to step in and relieve the appalling suffering created by — what was in this case accurately described as — civil war. But insufficient attention was given to the political and military problems involved. It soon became clear that the humanitarian effort could not enjoy long-term success without a return to civil order. But there seemed no internal force able to supply this.

Hence, the intervention created its own painful choice: either the UN would make Somalia into a colony and spend decades engaged in ‘nation-building’, or the UN forces would withdraw in due course and Somalia revert to its prior anarchy. In the former case, since the Americans have no taste for imperial ventures, the UN would have to vest any new trusteeship either in a local power like the Egyptians or in a former colonial power, presumably in this case the Italians. If this is unlikely to happen — and it is — then the job of feeding the hungry and helping the sick must in future be left to civilian aid agencies and private charities. Military intervention without an attainable purpose creates as many problems as it solves.

The combined effect of interventions in Bosnia, Somalia and, indeed, Rwanda has been to shake the self-confidence of key Western powers and to tarnish the reputation of the UN. Yet a dangerous trend is increasingly evident: over the last few years, culminating in the latest intervention in Haiti in September 1994, the Security Council seems prepared to widen the legal basis for intervention. We are seeing, in fact, that classically dangerous combination — a growing disproportion between theoretical claims and practical means. All this may have further unwelcome consequences in the longer term.

If there is now a threat approaching the gravity of the Cold War, it is that of Islamic fundamentalism. The concern of policy-makers is certainly justified. The implications for Europe, the Middle East and Russia alike if more moderate or secular Muslim countries should fall under Islamic extremist regimes are indeed serious.

But it is one thing to estimate a danger, quite another to know how best to overcome it. The West has in the past disastrously misjudged the political potential of Islam. It has been well observed that: ‘The two Middle East countries most torn apart by violence and civil strife since the mid-1970s were among those previously regarded as the most stable, modernized, and Western-oriented — Lebanon and Iran.’[91] There is a risk that in discussing ‘fundamentalism’ we will come to regard conservative-minded Muslim countries as inevitable hotbeds of Islamic revolution. Yet the success of Islamic parties does not always reflect the religious commitment of their supporters; rather, it reflects the fact that communism is now discredited, leaving Islamic oppositions to benefit from discontent with the incompetence and corruption of existing governments. In fact, the umbrella of ‘fundamentalism’ shelters a range of distinct and often mutually opposed phenomena, from Gulf and Lebanese Shiites with links to Iran, to the Sunni Muslim Brotherhood of Egypt, to the mish-mash of elements woven together in Colonel Qaddafi’s ‘Third Way’ — quite apart from many pious Muslims who are only ‘fundamentalist’ in that they are seeking a return to austere Islamic practice.

Within the Islamic world, Iran has, of course, a special position. It has acquired — and continues to acquire — weapons of mass destruction from Russia, Ukraine, China, North Korea and elsewhere. It has moved into nuclear research. It has close links with terrorist organizations and seems to feel no inhibitions about intervening to achieve its objectives from Lebanon to Argentina. And in addition to these material threats, Iran is the standard-bearer of a kind of Islam that is both revolutionary and traditional and that puts it at odds with most Arab rulers. Like Revolutionary France, Iran is the bearer of what Burke called an ‘armed doctrine’. The international community has no ideal way of dealing with this phenomenon. But the best available model seems that of containment.

Otherwise, the tensions between Islam on the one hand and modern, Western liberalism on the other will ultimately have to be worked out by Muslims themselves. The West, for its part, must respect the values, traditions and beliefs of Islam — while insisting that basic human rights should be honoured and aggressive policies forsworn.

I have set out what I consider the tenets of a conservative foreign policy should be. But there is really no substitute for commonsense. In my years as Prime Minister I was always convinced that aggression must not be allowed to pay. If it did, automatically the threat to our peace and security would increase. I also reckoned that would-be aggressors are a great deal more rational than most people imagine. They ask themselves whether those of us likely to oppose them have the weapons to do so, the means of deploying those weapons sufficiently quickly, and above all the resolve. So we must make our resolve plain.

And finally, there was what I came to call Thatcher’s law: ‘No matter how well prepared you are, the unexpected happens.’ How you cope then remains, of course, the real test.

A CONTINUING DEBATE

Social issues usually loom larger in political debate when economic problems, particularly the problem of inflation, are less of a worry. Low inflation and rapid economic growth were the background to the preoccupation with the environment, urban renewal and the Health Service which dominated politics after the 1987 general election. Low inflation and resumed economic growth in 1994 have had the same effect.

There are, however, three differences between the two periods. First, whatever the economic future holds, it seems unlikely that the arguments about social policy (which have opened up on both sides of the Atlantic) will peter out inconclusively, because too many raw nerves have already been struck. Secondly, in contrast to the years 1987 to 1989, these debates are now taking place on the traditional conservative territory of law and order, welfare dependency and the family. Thirdly, there is a new understanding of the economic consequences of crime, unchecked expenditure on welfare benefits and family breakdown. Company executives are unwilling to move to areas of high crime and delinquent schools. The explosion of spending on one-parent families forces Social Security budgets — and ultimately taxes — inexorably upwards. Above all, there are fears that the growing welfare dependency will demotivate and demoralize young men and women on whose contributions in the workforce industrial expansion and advance depend. Even hard-nosed men of the world, more interested in growth rates than crime rates, are having to take social policy seriously.

It is, therefore, the more surprising that with a few notable exceptions, political leaders have been reluctant to frame policies based on the remarkably similar analyses of academics and commentators; partly, perhaps, because those who have tentatively sought to do so have incurred instant vilification on both sides of the Atlantic. Vice-President Quayle and Peter Lilley were similarly pilloried for saying things which are now generally agreed to be commonsense: namely that the growth of single parenthood is bad for the children growing up without a father, and imposes heavy costs on society. Yet as long ago as 1987, for example, Michael Novak and several other distinguished scholars of different viewpoints agreed a number of challenging conclusions in a publication called The New Consensus on Family and Welfare. Among these were: ‘money alone will not cure poverty; internalized values are also needed’ and ‘the national ethos must encourage self-reliance and responsibility’.

Talking honestly and intelligently about such matters has been obstructed — in slightly different ways — on both sides of the Atlantic by a combination of prejudice and vested interest.

Most senior politicians and professionals in the areas of penology and social work rightly feel some measure of responsibility for the liberal policies pursued since the 1960s, and are understandably reluctant to confess their failure. Or if they do make such an admission it is generally qualified by the suggestion that although present approaches may not work, nothing else will work better. This is, of course, a strange justification for a hugely costly and vastly complex system operated at the taxpayer’s expense. Secondly, there is an understandable human reluctance on the part of comfortably-placed politicians to adopt a social analysis that places some of the responsibility for their condition upon the poor themselves — in the jargon, ‘blaming the victim’. This reluctance is especially marked, again understandably, when the poor in question are drawn disproportionately from racial minorities. Paradoxically, however, policies which shrink from placing the responsibility where it belongs help to create more victims.

If this is not always recognized, it is because the forces of ‘political correctness’ also muddy the waters, particularly in America, but covertly and increasingly in Europe. If, for instance, a disproportionately large number of black people are in prison, that is automatically taken as proof of racism in the criminal justice system, and policies that require more incarceration become suspect. If the traditional nuclear family is seen as an institution which enslaves women, policies discouraging single parenthood are unlikely to find favour. Only two conditions can allow such powerful obstructions to be overcome. The first, which is increasingly evident, is the refusal of the general public to tolerate the personal, social and financial cost of continuing as we are. The second is to gain wider understanding of what has been happening and why.

CRIME HAS RISEN

The starting-point for all such discussion must be the rise in crime. For many years Home Office orthodoxy was to deny or at least to minimize it. Attention was, instead, focused on the ‘fear of crime’ which, on the basis of the incidence of recorded offences, was shown to be exaggerated, particularly among such victim groups as the elderly. The unspoken implication was that if commentators talked less about crime, unnecessary fears would subside and the public would feel safer on the streets and in their homes. Within the constraints on government applied by a free society, systematic propaganda of this sort is largely impossible and so rather less is now heard of this patronizing argument. Rightly so, for the only way to diminish fear of crime is to diminish the threat of crime. Where the threat is real — and where the potential victim is frail — fear is a rational and prudent response.

A second and more substantial point which has been made is that the figures for recorded crime suggest a larger increase than has in fact occurred. At first glance, the Home Office British Crime Surveys (BCS) carried out in 1982, 1984, 1988 and most recently 1992, lend some substance to this. The BCS asks 10,000 people directly about their experience as victims of crime, whereas the official crime figures depend upon the number of crimes reported to the police. The recorded crime figures nearly doubled between 1981 and 1991; but the BCS suggests a lower rise of about 50 per cent. The inference is that the willingness to report crime to the police has increased. Particularly in the case of crimes like sexual assault, where police treatment of victims has become much more sympathetic, this is easily explainable. It also suggests a degree of confidence in the police to which the latter’s critics rarely draw attention.

What must also be borne in mind, on the other side of the argument, is that victim surveys undercount the real number of violent offences, particularly when violence occurs within the family. On violent crime, therefore, we cannot be certain which of the two sets of figures is more accurate (though both point to a large increase, differing only in the matter of degree). As for other crimes, the sharp increase in recorded burglaries since 1987 is supported by the Survey. All in all, therefore, the BCS does not cast serious doubt on the fact of a large increase in real crime in recent years. But, it is not only the level — or more precisely the rate — of crime from year to year which bothers the general public; it is the long-term trend. That has been dramatically upwards. The figures for recorded crime — which are of course subject to some changes in recording practice over such a long period but which form the only continuous series — paint a very clear picture. And the fact that such a picture conforms closely to popular received wisdom makes it all the more convincing.

During the last half of the nineteenth century there was a marked fall in the crime rate, both as regards property and violent crime. The crime rate — that is the number of criminal offences per 100,000 of the population — did not increase substantially until the late 1950s. It then rose ever faster. The crime rate is now ten times that of 1955 and sixty times that of 1900.

Although of scant comfort, the explosion of crime since the 1960s is not just a British phenomenon. In the United States between the mid-1960s and 1990 the crime rate trebled and the rate of violent crimes quadrupled. The United States — more specifically life in America’s big cities — is still more violent than in Britain and Europe. Partly this reflects the number of guns on the streets (as opposed to in American homes, where the evidence is that they probably deter burglary); partly it reflects the number of murders and attacks associated with drug dealing. With these important exceptions, however, the picture is similar on both sides of the Atlantic. Property crime rates are now at comparable levels throughout the West. And we in Britain have to rid ourselves of the complacent assumption that we are immune from the trends we deplore in the United States because of our allegedly gentler, more communitarian culture. For example, in 1981 the rate of burglary in Britain was half that of the United States; in 1987 it equalled it; it is now higher.[92]

It is possible to quibble about the legitimacy of comparing statistics, both between periods and between countries. But the fact of what has happened in Western society over the last thirty years cannot be denied. Nor should its significance.[93]

Theorists and practical men alike have generally agreed that the primary purpose of the state is to maintain order. It is highly desirable that order should be upheld under law and that law should respect rights. But unless the state has the will and capacity to ensure order, not only bad but eventually good people will flout its authority. The law-abiding are demoralized when they see criminals getting away with it. Citizens and local communities tend to turn inwards, away from national institutions, losing confidence in the law-enforcement authorities and relying on degrees of vigilantism to protect themselves, their families and their neighbourhoods. And once that process of disintegration goes beyond a certain point it is all but impossible to reverse. This is the deeper reason why governments in Western countries should be concerned about the trends of rising crime and violence.

THE GROWTH OF WELFARE DEPENDENCY

If the sharp rise in crime over the last three decades is one startingpoint for social policy, the barely less dramatic onset of welfare dependency is another. (I shall suggest some connections later.) Since 1949, when the British Welfare State was effectively established, public spending on social security has risen seven times (in real terms), up from under 5 per cent of GDP to about 12 per cent now; it constitutes almost a third of total public expenditure. This real increase continued when I was Prime Minister, and since. Of course, to lump together contributory and non-contributory, universal and means-tested benefits — retirement pensions, housing benefit and Income Support for single parents — is somewhat misleading.

But these crude figures show two important points.

First, insofar as the share of public expenditure and GDP taken by a particular programme reflects the importance collectively attributed to it, British society (or at least British government) is asserting that Social Security is not only more important than other programmes — its relative importance is actually increasing. The Social Security budget is twice as large as the next largest, that is spending on health. More significantly, perhaps, it is six times as large as the budget for law and order.

Secondly, in spite of the large general increase in prosperity over the last forty years, there are more people making larger demands on the taxpayer to sustain their or their families’ living standards than ever before. Against this, it has been argued that in spite of the economic advance since 1979 ‘the poor have got poorer’. The latest official Households Below Average Income (HBAI) statistics suggested that after housing costs were taken into account the income of the bottom decile of the population between 1979 and 1991-92 fell by 17 per cent. But before housing costs it remained constant. And even without that gloss the figures are so misleading as to be materially false. ‘Incomes’ in this series of statistics do not reflect the real resources available to this group; in particular, they are not the same as living standards. Only about half of the group (excluding pensioners) were on income-related Social Security benefits. Many of this group who said they were earning nothing actually spent above the average for the population as a whole. And 70 per cent of those with ‘zero incomes’ before housing costs (according to the HBAI statistics) were in the top half of the nation’s spenders.

It is anyway probably wrong even to think of these people as a ‘group’. Its composition is constantly changing, as people’s circumstances change. So the figures provide no evidence that particular people’s incomes have dropped; and there is a great deal of evidence to suggest that their standard of living has risen. Most significantly, ownership of consumer durables — fridges, washing machines, central heating, telephones, videos and so on — in this group has increased dramatically. Given these facts, the crude picture painted of ‘the poor getting poorer’ is just not credible. By contrast, it is reasonable to conclude that the Social Security budget encourages anti-social behaviour, including dependency, and needs serious reform.

As in the field of crime, so in that of welfare dependency it is largely American scholars who have asked the boldest and most important questions. Charles Murray’s pioneering study, Losing Ground — American Social Policy 1950–1980, has demonstrated how benignly-intended Federal Government policies in the United States aimed at reducing poverty have actually had the perverse effect of increasing it in recent years. In making it less worthwhile to work, and less troublesome and more financially advantageous to have children outside marriage, while reducing the penalties for crime and weakening the sanctions against school misbehaviour and truanting, government has changed the rules of the game. Those with the shortest time-horizons and the least self-discipline or support from their families have responded all too readily to this new framework and have begun to form what Mr Murray and others have described as an ‘underclass’. In subsequent surveys of the British scene he has detected a similar development here, with its attendant signs of increased illegitimacy and crime rates.

In the ‘dependency’ debate most attention has focused on the impact of the tax and Social Security systems on families and the hidden encouragement to single parenthood. But ensuring that young men have the motivation, skills and opportunity for work is equally important. Here in Britain since 1979 we sought to ensure this in several ways. We felt that a period of subsidized idleness would be the worse start in life for these young people and a bad example for their fellows. So a two-year training scheme is guaranteed for every sixteen-and seventeen-year-old school-leaver who is without a job and not in full-time education; and simply going on to benefit is not generally a permitted option. The Restart programme, introduced in 1986, focuses on those who have been unemployed for more than two years and is mandatory for benefit recipients who do not take up the other employment and training options. Those undertaking the courses who do not seriously look for work, moreover, may have their benefits reduced. Incentives to work will be further strengthened by the new Jobseeker’s Allowance which further tightens the rules on the conditions for receiving benefit.

It is generally necessary to reinforce offers of assistance with the threat of sanctions in cases of non-compliance in order to prevent people opting out of work while drawing benefit. They may do this for several reasons — because of low morale, or because they consider it is not sufficiently worthwhile to work, or because casual employment in the black economy pays better. Furthermore, if we want to make real jobs available to people starting out, we must forswear minimum wage laws or any other regulations which destroy low-paid and less skilled employment.

We shall, however, never devise or implement the right policy programmes to keep people out of welfare dependency if we entertain wrong assumptions about ‘the poor’. It is again an American scholar, Gertrude Himmelfarb, who has done most to investigate the historical background to our current ideas about poverty.[94] From at least Elizabethan times, a distinction had been drawn, both in popular understanding and in administrative action to relieve poverty, between the ‘deserving’ and the ‘undeserving’ poor. And although softened and attenuated, not least because people understood the disruptive stresses of urbanization, such a distinction continued to be made, even though the safety net of benefits widened and deepened. Indeed, for anyone who remembers the pre-war period in Britain the notion that ‘the poor’ constituted one identifiable, homogeneous group would have seemed quite unrealistic.

In Grantham and in similar towns up and down the country, we understood that there were some families where the breadwinner had fallen on hard times and who were going through great difficulties but who would never accept charity — even what they saw as charity from the state — being determined at all costs to keep up their respectability. ‘I keep myself to myself and I’ve never taken a penny piece from anyone’ would be the way many a dignified pensioner would express it. Taken to the extreme, this sense of independence could certainly lead to suffering. Neighbours would tactfully do what they could. Unfortunately, however, some individual cases of proud hardship are the counterpart of avoiding welfare dependency.

By contrast, there were others — and I came across this far more once I moved to London — for whom independence and respectability were of little consequence, who willingly accepted dependence on the state and who were unwilling to make the extra effort to improve their own lot or give their children a better start.

The fact that status in society accrued to the first of these groups and stigma to the second meant that social pressures were generally benign in the sense that people who fell, as most of us do, somewhere between the two were more likely to find a job and provide for themselves and their families. Set down like this, such an approach may seem harsh. But a society that encourages such virtues as effort, thrift, independence and family obligation will tend to produce people who have greater self-esteem, and are thus happier (as well as not being a burden to others), than the people living in a society which has encouraged them to feel useless, demoralized and frustrated. Even if that were not the case, the state and society must be just as well as compassionate. To treat those who make an effort in the same way as those who do not is unjust; and not only does such injustice demoralize those who are benefiting from it, it also foments resentment among those who are not.

At some point in this century, which it is difficult now to distinguish precisely, too many Western policy-makers began to talk and act as if it were ‘the system’ rather than individuals — or even luck — which was the cause of poverty. We fell into the trap of considering poverty — and there is no need here to enter onto the minefield of distinctions between relative and absolute poverty — as a ‘problem’ created by economic policy which the redistribution of wealth and income could ‘solve’ by various ingenious methods. We kept on returning to the idea that poverty was a cause rather than a result of various kinds of irresponsible or deviant behaviour.

Most of those who spoke in these terms did so for the highest of motives. No one’s motives were higher than Keith Joseph’s, whose speech of june 1972 to the Pre-school Playgroups Association when he was Social Services Secretary constituted the most sophisticated version of this approach. Drawing on recent research, Keith suggested that a ‘cycle of deprivation’ was at work in which ‘the problems of one generation appear to reproduce themselves in the next’. In this Keith was breaking important new ground in drawing attention to the way in which ‘bad parenting’ has an impact not just on the children of those parents, but on their children. But Keith did not question whether the state by its welfare policies was acting as a third bad parent by sapping personal responsibility and self-help. Indeed, he advocated, alongside initiatives to promote better parenting and more family planning, that the government should intervene by way of different benefits and a possible tax credit scheme. When a clear analytical thinker like Keith gets the analysis right and the prescription wrong (as he later accepted), it is indeed a good illustration of the way in which on both sides of the Atlantic both right- and left-wing governments created the conditions for our present problems. Right wingers concentrated on ‘targeted’ benefits, which went to those whose behaviour was most likely to be adversely affected by them; left wingers increased the global burden of Social Security benefits, which hard-pressed and even ‘poor’ taxpayers then had to meet.

Much less research on welfare dependency has been done in Britain. But knowing what we do of the size and rate of increase in our Social Security spending, and seeing what has occurred in the United States, we should expect to see some similarly unintended consequences of government social policy here. And indeed we do — which leads on to the third development, the weakening of the traditional family.

FAMILY MISFORTUNES

The family is clearly in some sort of crisis: the question is what. There are those who claim that the family is changing rather than weakening. At one extreme some of these people view any household unit, such as cohabiting homosexuals, as a ‘family’ deserving the same degree of social recognition and respect as a married couple with children. Rather more would argue that an unmarried couple living together in a ‘stable’ relationship, who may or may not have children and may or may not in due course get married, should be so treated. Still more, doubtless, would regard serial monogamy, couples who marry and divorce lightly, as simply an ‘alternative lifestyle’ (divorce rates have risen rapidly in Britain as elsewhere in the West since divorce laws were reformed in the 1960s). And happily there is still the traditional family of dad, mum, youngsters and relatives.

As is frequently the case with profound social change, it is much easier to distinguish specific more or less disturbing features than the way in which they will react together. It is, for example, possible that we are seeing a long-term demographic change with large and undesirable consequences. The fall in the birth rate and the increase in life expectancy, which is a general feature of our time and by no means one limited to or most evident in Britain, will result in a smaller working population sustaining a larger elderly one. People of sixty-five today are generally fitter, healthier and more capable of remaining in work — indeed younger — than their counterparts of fifty years ago. Many of them, possibly most, would prefer to carry on working and resent enforced retirement. Eventually new social arrangements will have to reflect this, among them a raising of the retirement pension age. Until that happens, the fact that in Britain retirement pensions and other benefits are not ‘funded’, but rather financed on a ‘pay as you go’ basis, means that the burden on those in work will at some point be significantly increased. It is a matter of speculation how they will react.

Most public attention to changes in the demographic structure has, however, focused on the case of the teenage single parent. Understandably so, for this ‘lifestyle’ is an exceptionally irresponsible one, which both levies heavy costs on the taxpayer and imposes severe disadvantages on children growing up in conditions of relative poverty and without a father’s guidance.

Moreover, it is a problem that is getting worse. The number of one-parent families with dependent children as a proportion of all families with dependent children in Britain has approximately doubled since 1976. Of course, this group includes widows, divorced and deserted single mothers — and fathers — as well as the group which is the main focus of this discussion, the never-marrieds. It goes without saying that although the circumstances of these different one-parent families are superficially similar, they arise from very different causes and, as we shall see, require very different responses. To over-simplify greatly, widows with children require financial help; the never-marrieds need that — plus a change of outlook too.

That said, the number of single parents, though growing, actually understates the problem. Very often single mothers are concentrated either in a particular area or a particular ethnic minority. In these circumstances, complacent talk about relying on grandparents or the ‘extended family’ is quite unrealistic. For there may be no older married men in the narrower local community at all. Not only in such circumstances do children grow up without the guidance of a father: there are no involved, responsible men around to protect those who are vulnerable, exercise informal social control or provide examples of responsible fatherhood. Graffiti, drug trafficking, vandalism and youth gangs are the result and the police find it impossible to cope. There is also the financial cost. Of the 1.3 million single parents in Britain nearly 1 million depend on benefits, costing the tax payer £6.6 billion a year.

Charles Murray regards the dramatic rise in the rate of illegitimacy as a crucial predictive indicator of problems to come. Over the last ten years the proportion of births outside marriage has more than doubled, reaching one in every three live births. Never in Britain’s recorded history has there been anything like it. It cannot be explained solely by urbanization — the catch-all explanation or excuse for most behavioural deterioration — because in Victorian Britain, which saw the most sweeping change in that direction, the illegitimacy rate, like the crime rate, actually fell. The attempt is sometimes made to minimize the significance of this change by noting that three quarters of today’s births outside marriage are registered by both natural parents. This is supposed to demonstrate that the child has been born into a stable home. But a young child needs above all the total confidence that both his parents will always be there. If the mother and father do not have sufficient commitment to each other to enter into marriage, it would hardly be surprising if the child doubts their own commitment to him. And children are much quicker on the uptake than many adults understand.

As with crime and welfare dependency, so with family structures. Policy-making must be firmly based on analysis of what we know to be the facts. These do not show that everywhere the family is in retreat, or that most young men are criminals or that all those on means-tested benefits have accepted the culture of welfare dependency. Contrary to what the liberal-left would like to think, most children still grow up in a traditional family; most people marry; and most of these have children. In fact, no amount of philosophy, theology or social theory can provide stronger support for the argument that the family is the natural and fundamental unit of society than its resilience in the adverse climate of opinion and perverse financial incentives of the last thirty years. But this is no ground for complacency.

Changes in behaviour which may be limited and containable within society as a whole may have dangerous and dramatic effects when localized in small communities. It is far from clear that a capitalist economy and a free society can continue to function if substantial minorities flout the moral, legal and administrative rules and conventions under which everyone else operates. What is clear is that at present we are moving rapidly in the wrong direction.

A CYCLE OF CRIMINALITY

We could argue indefinitely about the precise relationship between crime, dependency and family breakdown: this is an area in which more research will be valuable. But there is now little doubt in the minds of most professionals — and none, I suspect, in the minds of the rest of us — that such a connection exists and is of the highest importance.

Take the large and important subject of juvenile delinquency as an example. The reduction of juvenile crime is not only of obvious importance in any strategy to reduce crime as a whole: it is also crucial to halt a budding career of crime in its tracks before it leads to serious and repeated offences. Discussions of the ‘causes’ of crime, both juvenile and adult, often end up in a cul-de-sac of generalities. The tendency to evil in human nature and the multiple opportunities for its expression are part of our ordinary experience. We can, indeed, do something about reducing the opportunities, by crime-prevention techniques such as ‘Neighbourhood Watch’. But in a world of greater mobility (where miscreants can more easily achieve anonymity and make their escape) and greater prosperity (where there is more to steal), the results of such strategies are bound to be limited. Moreover, although crime prevention may reduce the amount of ‘opportunist’ crime, it is only likely to displace the crime committed by determined habitual criminals from one area to another. Consequently, attention is increasingly focused on crime prevention at the level of the individual — the actual or potential delinquent — rather than on the physical environment in which a crime takes place.

Research carried out in both the United States and Britain has illuminated the connection between crime, the dependency culture and family breakdown.[95] British research suggests that juvenile delinquency is associated with low intelligence, impulsiveness and troublemaking at school. As regards background, common factors appeared to be low income and poor housing. The parents of these troublesome children were inclined to administer erratic discipline and poor supervision, in short either not to care or to care impulsively or ineffectually. They may well be separated or divorced or teenage mothers and have criminal convictions in the family. The small proportion of boys who became persistent offenders, continuing into adulthood, and who constitute the real criminal menace, apparently showed the same characteristics but generally in a more extreme form.

Of course, this analysis does not seek crudely to ‘prove’ the ‘causes’ of crime. Rather, its purpose is to allow tendencies to delinquency to be predicted and — far more difficult — acted upon at an early age. But it is clearly also entirely compatible with the view that both dependency (which I suggest is more relevant than ‘poverty’) and family upbringing are crucial to any understanding of what has happened in the last thirty years to the crime rate.

The evidence of research from the United States is still clearer. A US Department of Health and Human Services study of 1988, which surveyed the families of more than 60,000 children all over the country, found that children who were living with a never-married or divorced mother were, at anything other than the highest income level, substantially more disposed to troublesomeness at school, and emotional and behavioural problems. The latest quinquennial survey of prison inmates by the Federal Bureau of Justice showed that two thirds of chronic violent offenders and a half of all inmates had come from a background other than a two-parent family; and 37 per cent of all inmates came from a foster home or child-care institution. More than half of the chronic violent criminals reported that an immediate family member had served some time in prison. Keith Joseph’s ‘cycle of deprivation’ thus becomes a ‘cycle of criminality’. The evidence about violent chronic offenders is particularly significant, because no group is perceived by the public as more of a threat.

In a free society there are limits to what government should seek to do to change people’s behaviour, particularly the behaviour of families. It is in considerable part because the state has intervened, on the basis of necessarily inadequate information and without proper consideration for the long-term consequences, that we are faced with so many intractable problems. But it is not only compatible with but essential to a free society to create a cultural, financial and legal framework which upholds, not undermines, the attitudes and institutions on which freedom rests.

What then is to be done? Aiming at improvement rather than Utopia, and without wishing to deny that there are other initiatives which the fertile minds of social scientists and policy-makers might usefully devise, I propose the following four-fold approach.

VIRTUES TO COMBAT VICES

The first, most important and most difficult area is the moral and cultural ethos. A functioning free society cannot be value-free. Down through the ages the most profound thinkers have recognized this. For me, Edmund Burke sums it up with a clarity and sweep no one else has managed:

Similarly, although those who framed the American Constitution chose to rely on ambition countering ambition, rather than the virtues, to preserve liberty, the fathers of the early Republic were well aware that virtue could make a significant difference. As the great patriotic American hymn puts it:

The character of the citizen both reflects and is reflected by the character of the state. This is an encouraging fact, for it reassures us — as it reassured me in the late 1970s — that if a people is better than its government a change of administration can release undetected talents and open up undreamt-of possibilities. But it is also a warning. For even a well established system of free government is vulnerable to any profound changes in the outlook and mentality of the populace in general and the political class in particular. Character, both individual and collective, is of course formed in many ways: it develops within the family, school, church, at work and in our leisure hours. Traditionally, the good and useful habitual characteristics which are the outcome of this process have been called the ‘virtues’. Although these virtues are by definition always good, their usefulness depends on the requirements of the situation. So, for example, some of the virtues extolled by Jesus in the Sermon on the Mount, though they will help get us to Heaven, may be of less practical use in our business or civic lives. Consequently, when we urge a return to those traditional virtues — for example, thrift, self-discipline, responsibility, pride in and obligation to one’s community, what are sometimes called the ‘Victorian virtues’ — we are not necessarily suggesting that only mass re-evangelization will pull Western society together. After all, it was the ultra-humanistic ancient Greeks who originally identified the key or ‘cardinal’ virtues of temperance, fortitude, practical wisdom and justice in the first place.

That said, I find it difficult to imagine that anything other than Christianity is likely to resupply most people in the West with the virtues necessary to remoralize society in the very practical ways which the solution of many present problems requires. Although I have always resisted the argument that a Christian has to be a Conservative, I have never lost my conviction that there is a deep and providential harmony between the kind of political economy I favour and the insights of Christianity.

I tried to explain this connection in a speech at the church of St Lawrence Jewry in the City of London in March 1978.

I do not generally hold with politicians preaching sermons, though since so many clerics preach politics there seems no room in this regard for restrictive practices. So from time to time I did return to this theme. Ten years later in May 1988 I addressed the General Assembly of the Church of Scotland in similar vein. To the disquiet of some of those present, I emphasized that Christianity provided no special blessing for collectivism.

Near the end of my time as Prime Minister, I became increasingly conscious of and interested in the relationship between Christianity and economic and social policy. In Michael Alison, my former PPS, and Brian Griffiths, the head of my Policy Unit, I found two committed Christians as fascinated by these matters as I was. The discussions I had and the papers produced for them formed the basis of the book of essays Christianity and Conservatism to which I contributed an introduction and which appeared in 1990 shortly before I left Downing Street.

Not long ago it might have seemed unrealistic, to say the least, to envisage the return of an intellectual and moral climate conducive to the practice of the traditional virtues. Now, however, such matters are at the forefront of much serious debate about social problems.[97] Furthermore, at least some Church leaders, the people on whom much of the task of reshaping attitudes must depend, are having second thoughts about the beneficent effects of state provision and intervention. For example, Pope John Paul II in his Encyclical Centesimus Annus notes:

Rome never seemed so close to Grantham.

The outcome of today’s ‘culture wars’, as they have been called in the United States, is still in doubt. As with so many other developments, the conflict of ideas and attitudes, which shows no sign of abating on the other side of the Atlantic, is bound to spill over into Britain and Europe. And with good reason. For it is as necessary for conservatives to win the battle of ideas in social as in economic policy.

Without this the likelihood of even limited initiatives succeeding is remote. But there must be such initiatives in the other three areas of social action — crime, welfare dependency and family break-up — with which I began.

CUTTING CRIME

When we turn to our second area, crime, recognizing the scale of the problem is an essential start. But rejecting the counsel of despair that ‘nothing works’ is almost as important. Since 1979 there have been large increases in the resources available to combat crime, including 16,700 more police officers and twenty new prisons. Yet far too often, critics of conservative criminal justice policy are allowed to get away with the argument that since crime has continued to rise, in spite of large increases in police numbers and prison capacities, some other unspecified but more liberal approach should be tried. This is, of course, a non sequitur — unless the critics are seriously arguing (and hardly any even of them would go so far) that extra police numbers and more prison facilities either have no effect or actually result in increased numbers of criminal offences. It is far more likely that crime would have risen still higher if these extra resources had not been provided.

The limited evidence available, supported by common sense, suggests that most professional criminals make recognizably rational calculations, weighing the likelihood of being caught and the length and discomfort of the sentence on the one hand against the perceived benefits (material and psychological) of crime on the other.[98] It would have to be shown conclusively that this was not the case before the traditional penal approach and remedies were abandoned. Moreover, Ernest Van Den Haag, a criminological expert in the United States, has made the following persuasive and significant observation:

As he concludes: ‘one may wonder why crime rates did not rise more’.[99]

I would not wish to suggest that more police, stiffer sentences and increased prison places are the whole of the answer to increased crime. There are certainly modest but real benefits to be derived from both more effective crime prevention and better-targeted policing. But the fact remains that the most direct way to act against crime is to make life as difficult as possible for the potential and actual criminal. This cannot be done cheaply. Increasing the number of police officers on patrol, providing the most up-to-date technology to assist detection, building and refurbishing prisons are bound to require continuing real increases in spending on law and order services.

Law and order is a social service. Crime and the fear which the threat of crime induces can paralyse whole communities, keep lonely and vulnerable elderly people shut up in their homes, scar young lives and raise to cult status the swaggering violent bully who achieves predatory control over the streets. I suspect that there would be more support and less criticism than today’s political leaders imagine for a large shift of resources from Social Security benefits to law and order — as long as rhetoric about getting tough on crime was matched by practice.

CURBING WELFARE DEPENDENCY

Third, as with formulating an effective conservative approach to crime, so with welfare dependency. We have both to combine forgotten traditional insights with modern techniques and up-to-date research. In an earlier chapter I have described the system inspired by the Beveridge Report and its merits.[100] Beveridge argued for a safety net of universal benefits largely based on and funded by social insurance, with means-tested benefits providing the remainder. The scale and complexity of Social Security nowadays means that a ‘return to Beveridge’ is hardly practical. We can, however, apply the perspective of Beveridge to our present difficulties. First, his Report made the assumption that if the state intervened too much it would reduce the willingness of individuals to provide for themselves — he was a great believer in thrift and the insurance principle. And enlarging the possibilities for individuals to insure themselves against sickness and old age is highly desirable today. Second, he was extremely conscious of the need to see the large extension of benefits he proposed soundly financed. Third, Beveridge described his objective as being the elimination of ‘five giants on the road of reconstruction’: ‘Want… Disease, Ignorance, Squalor and Idleness’. It is significant that his giants are moral, not just material; they reflect behaviour and not just circumstances. Reassuringly, we find that such an analysis fits in very well with the conclusions reached by American writers on welfare policy today.

If it is the financial burden of welfare spending which is the main concern, universal rather than means-tested benefits may be the main target for savings. If the wider ‘dependency culture’ is the focus, we are likely to be more wary of means-tested benefits, since they reduce the incentive to seek work and practise thrift. Nor will we be concerned with Social Security and tax only. Some means-tested financial benefits may also make recipients eligible for linked in-kind benefits such as free prescriptions, free school meals and cold-weather payments. If the recipient were to lose the original benefit, therefore, he would automatically be compelled to lose others, often a considerable financial sacrifice.

Moreover, a welfare recipient is likely to find himself and his family experiencing the most run-down local authority housing and the worst local authority schools in a disorderly and crime-ridden environment. The terrible paradox of the dependency culture is, therefore, that it offers people very considerable financial incentives to lead lives of idleness, squalor and despair. And we should especially honour those brave people who make the effort. But it is up to government to help them by removing, or at the very least scaling down, the temptations.

Some piecemeal measures to erode the dependency culture have already been taken. The 1988 introduction of Family Credit, paid to working families on low incomes, was an important step in dealing with the worst effects of the ‘unemployment trap’ (where people are better off out of work) and the ‘poverty trap’ (in which people lose benefit as their income increases). Alongside the Youth Training and Restart programmes, already mentioned, this has helped alleviate some of the problems of welfare dependency. It has dissuaded people who are fit and of working age from dropping out of the workforce. Whether it would be worth developing further initiatives such as Workfare is an open question. In principle, those who are ready to make heavy demands on society should be equally ready to fulfil some obligations to it. But US experience suggests that Workfare can be both expensive and frustrated in practice by bureaucratic obstruction. In these circumstances, probably the most important task is simply to curb public spending in general and welfare spending in particular, while reducing regulation and taxes, so as to make it more worthwhile to work and earn.

SHORING UP THE FAMILY

Our fourth objective, strengthening the family, must begin with the treatment of single parenthood in general and the never-married mother in particular. It is important not simply to concentrate on the financial cost of single parenthood. Even more worrying is the effect on all concerned, above all the child, but also the mother and (absent) father too. It is possible to give a good upbringing to one or more children alone, but the dice is loaded heavily against. A girl who has become pregnant and left the parental home — either deliberately in order to get a council flat or because of silliness which went wrong — is suddenly confronted with the demanding, draining task of looking after a baby. And, particularly if the baby is a young boy growing up without a father, the problems are likely if anything to get worse. Of course, some find the inner resources to cope; some are lucky enough to find the right professional or voluntary help. But human nature being what it is, even the instinctive love of a mother for her child is likely to be swamped by depression and difficulties. Nor, incidentally, is it just mother and child who suffer. It is the serious commitment of marriage, particularly marriage and children, which is the making of many young men. Perhaps for the first time in their lives they have to raise their sights and consider their responsibilities to others and the longer-term prospects which will allow those responsibilities to be fulfilled. Without such demands, they often find that the only way they can express their masculinity is through the life of the street, through crime and through getting other young women pregnant. This pattern of behaviour is most clear in the American ‘underclass’; but traces of it can be seen in other classes and other countries.

Although, as I have suggested, the moral and cultural climate is of overarching if unquantifiable importance, the benefit and local authority housing allocation systems themselves have created the conditions for increasing single parenthood.[101] The argument is sometimes advanced that, given all of the difficulties likely to ensue in subsequent years, no one would make the rational calculation to become pregnant simply in order to receive housing and benefits. But this is in fact an over-simplification of any one person’s rational calculation. There may, for example, be many prior or contributory reasons for taking the decision — misunderstandings with parents, paradoxically a desire for ‘independence’ and, of course, all of the instincts since the apple was eaten in Eden. The provision of cheap (even free) housing and of social benefits removes disincentives and penalties which might otherwise have deterred. The fact that this short-term calculation leads for the most part to long-term unhappiness does not mean that calculation is absent or irrelevant. It merely means that the calculator has a short time-horizon.

How best can we deal with this? We must first distinguish between the widow and the divorced wife with children on the one hand, and the never-married single parent on the other. Whatever benefits are available to single parents must be paid to the widow or ex-wife in whatever family circumstances she finds herself, as now. The never-married single parent would, however, receive the same benefits under certain conditions: very broadly, if she remains living with her parents or, alternatively, in some sort of supervised accommodation provided by a voluntary or charitable body with other single parents under firm but friendly guidance. In such an environment, young mothers could be helped to become effective parents, young children could be cared for under proper conditions for part of the day if the mother went out to work, and undesirable outside influences could be kept at bay. Together with quicker and better procedures for adoption, this approach would safeguard the interests of the child, discourage reckless single parenthood and still meet society’s obligations to women and their children who, for whatever reason, are in need and distress.

Of course, strengthening the traditional family involves more than altering the position of never-married mothers. The very large increase in the rate of divorce is also a clear threat to the family. Some divorced women have savings, a substantial marital home and a reasonable income and are consequently well able to provide financially for children. But large numbers receive little or no maintenance and have had to rely on the state. The new Child Support Agency’s attempt to enforce decent levels of provision for an abandoned family, although the Agency’s approach clearly has shortcomings (now being remedied), is a response to the scale of the problem.

In the circumstances of divorce, as in the case of never-married mothers, the children are disadvantaged. But the main disadvantage to such children is the trauma of family break-up itself and the emotional turmoil involved in subsequent conflicts of loyalty between two separated parents. I have always accepted that in some circumstances the best option for all concerned is to end a bad marriage, particularly one where there is serious violence. But all too often the comfortable notion of a ‘clean break’ for the sake of the children conceals a large amount of adult selfishness. Recent research confirms that divorce itself is bad for children, leading to lower educational achievement, and worse employment and emotional prospects; nor do these consequences just apply to the children of poor parents.[102]

It would be difficult to reverse the reforms of the 1960s, which in nearly all Western countries made divorce easier. But it is reasonable, knowing what we now do about the trend towards early marriage break-up and the effects on children, to reconsider the whole question. Divorce does not just concern two individuals; the stability of other people’s marriages is affected too. That should certainly count against the Law Commission’s proposals to remove considerations of ‘fault’ from divorce altogether. We ought also to consider whether a clear distinction should be made between divorce where there are no children or the children have grown up, and divorce where dependent children are involved. ‘Putting the children first’ and keeping the home together will sometimes require ‘putting off the divorce’.

Strengthening the family means more than fending off the most obvious threats to it. If we are serious about the family as the fundamental unit of society, that has implications for economic policy too. It should, for example, be reflected in the tax system. It used to be axiomatic that tax should take into account family commitments. That principle was displaced when tax allowances were abolished and universal Child Benefit, paid at a flat rate, was substituted. Child Benefit at least pays partial tribute to the principle of taking responsibility. But I believe that child tax allowances should be reintroduced as part of a fair and effective system of child support.

Equally, it is vital that, taken together, other tax changes do not squeeze the traditional family further. And unfortunately this is now occurring. Mortgage tax relief has been substantially reduced. A 3 per cent tax has been placed on insurance, which obviously bears heavily on home owners. The value of the married couple’s tax allowance has been cut by failing to correct it for inflation. To encourage the traditional family means more tax relief and not less.

Modern Western society has proved more successful than any of its predecessors. It has created political and legal institutions which have extended personal freedom, generated economic ideas and structures which promote prosperity, and given birth to a bewildering array of cultural achievements. Indeed, with only limited accommodation to local traditions and conditions it has ceased in any geographically meaningful sense to be ‘Western’ at all, having penetrated almost every country on every continent. But such large and imposing structures require good foundations: and these are always ultimately moral and social, not material. The task which confronts us now — to keep those foundations well shored up against the tremors and pressures which threaten — is as demanding as any we have ever tackled.

BEHIND ECONOMICS

Economics is too important just to be left to the economists. It is no reflection upon the economist’s expertise or integrity to suggest that his approach will reflect the non-economic values which make him the person he is. John Maynard Keynes famously remarked that: ‘Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.’

But extant economists are no less the slaves of outside influences. That was true of Keynes himself — a member of the ‘Bloomsbury’ set whose rejection of the Victorian virtues in their own behaviour was subtly but surely echoed in the abandonment of the classical liberal rules and restraints in economics with which ‘Keynesianism’ became synonymous.

So too my own views on economics flowed from personal experience of the world in which I grew up. My ‘Bloomsbury’ was Grantham — Methodism, the grocer’s shop, Rotary and all the serious, sober virtues cultivated and esteemed in that environment. Doubtless, there are a hundred ways of coming to convictions about economics, as there are to convictions about politics or religion. But for me, experience of life in the Roberts household was the decisive influence.

For the truth is that families and governments have a great deal more in common than most politicians and economists like to accept. Although the consequences of flouting fundamental rules are somewhat different for states than for households, they are still ruinous — indeed, more ruinous in the case of states because they have the power to bring whole nations down with them.

Nor was it only an understanding of what government could not do that my upbringing and early experience left with me. I also gained a sympathetic insight into what I would later come to think of as ‘capitalism’ or the ‘free-enterprise system’. Whereas for my (usually somewhat older) political contemporaries it was the alleged failure of that system in the Great Depression that convinced them that something better had to be found, for me the reality of business in our shop and in the bustling centre of Grantham demonstrated the opposite. For them capitalism was alien and harsh: for me it was familiar and creative. I was able to see that it was satisfying customers that allowed my father to increase the number of people he employed. I knew that it was international trade which brought tea, coffee, sugar and spices to those who frequented our shop. And, more than that, I experienced that business, as can be seen in any marketplace anywhere, was a lively, human, social and sociable reality: in fact, though serious it was also fun. There is no better course for understanding free-market economics than life in a corner shop. What I learned in Grantham ensured that abstract criticisms I would hear of capitalism came up against the reality of my own experience: I was thus inoculated against the conventional economic wisdom of post-war Britain.

Primarily under the influence of Keynes, but also of socialism, the emphasis during these years was on the ability of government to improve economic conditions by direct and constant intervention. It was held that the state, if its huge powers were directed in an enlightened manner, could break free of the constraints and limits which applied to the lives of individuals, families or businesses. In particular, whereas a household which spent beyond its income was on the road to ruin, this was (according to the new economics) for states the path to prosperity and full employment. Of course, matters were never expressed quite so crudely. Government deficits, for example, were intended to be ‘counter-cyclical’ — that is to compensate for the effects of recession — rather than open-ended. Lip-service was paid to the need to avoid setting welfare benefits at levels which discouraged work. But behind all this was an almost universally held view that government spending was both morally and practically preferable to private spending, because it was directed to higher and more rationally established objectives. Before I ever read a page of Milton Friedman or Alan Walters, I just knew that these assertions could not be true. Thrift was a virtue and profligacy a vice; and the world would not make sense if the laws of human behaviour could be suspended by political fiat. Perhaps the single greatest change which occurred over the years in which I was Leader of the Opposition and then Prime Minister was that the great majority of policy-makers (and even economists) came round to the view which I held.

There is now a general understanding that the effect of increasing government borrowing is to raise interest rates higher than they would otherwise be. This is particularly so if it is expected that the larger deficit will raise future money supply growth and so inflation. In this way, allowing budget deficits to swell arrests rather than accelerates economic growth. The 1981 Budget, which I have described elsewhere, was based on understanding of that truth.[103] The 364 economists who published a statement attacking the strategy we adopted had no doubt that it represented a direct challenge to the prevailing orthodoxy. The challenge succeeded. Economic recovery was heralded by figures in the summer of 1981 and confirmed by others in the following quarter; by 1983 economic conditions were so buoyant that, along with reaction to the successful outcome of the Falklands War, they ensured me my smoothest general election victory.

As with government borrowing, so with inflation. After decades during which governments fine-tuned the economy on the assumption that there was a ‘trade-off’ between inflation and unemployment — the so-called Phillips Curve — it is now widely agreed that in the long run it is micro-economic changes, affecting the structure of the economy — for example, deregulation — rather than macro-economic manipulation, which determines the number of jobs. And hardly anyone now professes to believe that ‘some’ inflation is economically desirable. For whereas in the past governments thought they were sufficiently clever and wage bargainers sufficiently stupid for the former to reduce the latter’s real remuneration by inflation, we now know that the boot has for years been on the other foot. Not only was future inflation discounted by wage bargainers — they frequently overestimated it and increased their demands accordingly. As a result, competitiveness was worsened, not assisted, by the so-called ‘money illusion’. Worse still, those inflationary expectations are immensely difficult to remove from the system, which is why the benefits of low inflation take many years fully to come through.

The great advantage I had over many of my contemporaries in politics was that whereas they had first to be persuaded of the theoretical advantages of monetarism, free trade and deregulation, the technical arguments and insights were so completely in harmony with my fundamental instincts and early experience that I was much more easily convinced — and my convictions helped me to convince others.

BRITAIN IN THE 1980s

As Prime Minister between 1979 and 1990 I had the opportunity to put these convictions into effect in economic policy — and I was fortunate to have three extremely able Chancellors of the Exchequer, Geoffrey Howe, Nigel Lawson and John Major, to assist me. We intended policy in the 1980s to be directed towards fundamentally different goals from those of most of the post-war era. We believed that since jobs (in a free society) did not depend on government but upon satisfying customers, there was no point in setting targets for ‘full’ employment. Instead, government should create the right framework of sound money, low taxes, light regulation and flexible markets (including labour markets) to allow prosperity and employment to grow.

As for government finances, there was, it is true, some limited continuity with the period before 1979. The Labour Chancellor Denis Healey’s £6 billion real cut in public spending between 1976/77 and 1977/78 the terms of the agreement with the IMF in December 1976 which marked the first overt use of monetary targets to guide policy, were significant steps towards the kind of approach in which I believed. But they were implemented from necessity rather than conviction and would have been jettisoned at the first available opportunity. Indeed, that jettisoning had already begun, as public spending was allowed to rise again in Labour’s final year. Moreover, the sound elements of policy pursued under IMF tutelage were not combined with the other crucial, complementary aspects — substantial cuts in marginal income tax rates, reform of trade union law, privatization and deregulation. They were, therefore, only half the remedy, for the vital ingredient of promoting enterprise was missing.

I came into 10 Downing Street with an overall conception of how to put Britain’s economy right, rather than a detailed plan: progress in different areas would depend on circumstances, both economic and political. For example, the priority in our first Budget was cuts in income tax — both because marginal rates, particularly on those with higher incomes, had become a deterrent to work and an incentive to migrate, and because we had made such a firm pledge in our manifesto. But when political and economic imperatives pointed in opposing directions it was the economic requirements which came first — as when we put up personal taxes in order to control the deficit and beat inflation in that unpopular but crucial 1981 Budget.

The economic strategy had four complementary elements. First, in time and in importance, was the fight against inflation. Inflation had become deeply rooted in the British political and economic system and in British psychology. It had risen to successively higher peaks in the post-war years and had, as I have described, come perilously close to hyper-inflation in 1975. As a result, it was all the more difficult to eliminate. Only a sustained policy to reduce monetary growth and change expectations would suffice. So from 1980 onwards monetary policy, supported by a fiscal policy which reduced government borrowing, was conducted within the framework of a Medium Term Financial Strategy (MTFS). Like any strategy worth the name it had to adapt to circumstances. When, for example, problems arose with one particular monetary aggregate as a measure of monetary policy, it was necessary to look to others as well. Again, like any strategy, it did not of itself remove the risk of error. But it limited the scope for such errors and, as it was adhered to in passing years and in spite of difficulties, it gained a credibility which itself inspired wider economic confidence. Between 1981 and 1986, when the MTFS was most consistently at the heart of policy, inflation was brought down from a high point of 21.9 per cent (May 1980) to a low of 2.4 per cent (summer 1986). During the mid-1980s it averaged around 5 per cent, until the shadowing of the Deutschmark in 1987–88, to which I was opposed, set off a sharp increase.[104] It rose rapidly until it peaked at 10.9 per cent in October 1990. It had begun to fall the month I left office, and it came down rapidly during 1991, by which time the high interest rates of 1988–90 had brought monetary growth under control once more. The assessment of domestic monetary conditions remained the final determinant of policy on inflation until I left office.

A month beforehand, however, the MTFS was supplemented by sterling’s membership of the Exchange Rate Mechanism of the EMS. This was intended to demonstrate to the financial markets that our commitment to low inflation was unshakeable. But then maintenance of a parity within the ERM became an end in itself, as the ERM became both a more rigid system and a conveyor belt towards a single currency. This led to a monetary overkill which certainly brought inflation down very rapidly, but at the price of inflicting an unduly severe recession in the British economy. In the end, the policy proved unsustainable and Britain had to leave the ERM.

Since then the Government has pursued a prudent policy to keep down inflation by a return to a sort of domestic monetarism. This is a tribute to the importance which the Government rightly gives to getting as near as possible to price stability. The need now is to re-establish a credible framework much on the lines of the original MTFS, which will be a permanent damper on inflationary expectations. That should not involve sterling’s rejoining even a reformed ERM, since the markets know full well that what you have left once you can leave again. Nor should it entail giving new autonomy to the Bank of England. Ultimately, it is politicians who must be accountable for economic policy. But they have to learn from the mistakes of the past, so that they and their successors are not condemned to repeat them.

The second priority in the 1980s was to bring Britain’s public finances under control. In 1975/76 public sector borrowing as a share of GDP had reached 9.25 per cent. Under the impact of the IMF measures, the Labour Government reined it back, though it had started to grow again by the time of the 1979 election when it was over 5 per cent of GDP at the high point of the economic cycle. The 1981 Budget established a firm grip on public borrowing, which never loosened while I was Prime Minister. Between 1987/88 and 1990/91 we actually repaid £27,000 million of debt, reducing government debt as a proportion of national income to a level not seen since before the First World War. As for public spending, though the deep recession of 1980/81 pushed it up as more people became unemployed and government revenues fell, we reversed the previous long-term trend. Public spending as a share of GDP fell steadily between 1982/83 and 1988/89, when it reached a low point of 39.25 per cent. In 1989/90 and 1990/91 the proportion crept back up by 1 per cent, to 40.25 per cent — partly because of a massive overspend by local authorities (which knew that they could put the blame on the Community Charge), partly to ease the way for the NHS reforms introduced in 1990, and partly because the economy was moving into recession. Over the whole period, however, public spending as a share of GDP fell from 42.6 per cent in 1979 to 40.25 per cent in 1990.

The firm grip on public expenditure over these years also allowed tax cuts. Geoffrey Howe’s 1979 Budget cut the basic rate of income tax from 33 per cent to 30 per cent, shifting the balance from direct to indirect tax. The top rates of income tax were cut from 83 per cent to 60 per cent and from 98 per cent to 75 per cent on investment income. Nigel Lawson’s 1984 Budget made the fundamental changes in corporate taxation, cutting both capital allowances and corporation tax rates so as to encourage more efficient use of business investment. Nigel’s 1988 Budget completed the programme of income tax reduction, bringing down the higher rate to 40 per cent (for savings income as well as earnings) and the basic rate to 25 per cent. Sound public finances and low marginal tax rates were the goals in the 1980s: and they were achieved. Shortly after I left office, decisions were taken which led to large increases in public expenditure: in particular, the uprating of Child Benefit and extra money for the NHS, transport and local authorities. Combined with the recession, deepened as a result of sterling’s overvaluation in the ERM, this increase in public expenditure has also led to a succession of large budget deficits — peaking in 1993/94 at £45,000 million, over 7 per cent of GDP — and tax increases amounting to over 2 per cent of GDP. Clearly, the sooner both of these can be reversed the better: that will require keeping a stronger hold on public spending and judicious use of the most useful monosyllable in a Prime Minister’s vocabulary, ‘no’.

Some of the ground won in the 1980s has been ceded to the spending lobbies, but the significance of that decade’s rigorous public expenditure control has not diminished. Because we controlled public expenditure effectively in the 1980s — particularly by linking the basic retirement pension and other long-term benefits to prices rather than incomes and by scaling back the State Earnings Related Pension Scheme (SERPS) — Britain already enjoys an advantage over other European countries which failed to take such action, as the table below shows.

The potential advantage for Britain will indeed become greater as the years go by. Other European countries generally have much more adverse demographic trends, with a rapidly increasing proportion of elderly people being supported by a smaller workforce. They will be faced with the necessity of large increases in taxation. Professor Tim Congdon has argued that as a result of these trends ‘in the late 1990s the tax burden could be 15 per cent to 20 per cent lower in the UK than in the rest of the European Community’.[105] Lower taxes, combined with a more favourable regulatory climate for business, will reinforce Britain’s position as the dominant location for inward investment into Europe.

The third element of our economic strategy in the 1980s was to promote private enterprise and ownership. I wanted to shift the balance away from the state for both economic and political reasons. Privatization had a crucial role to play in this. In 1979 the only specific pledges of denationalization were those of the aerospace and shipbuilding industries and the sale of shares in the National Freight Corporation. But we got bolder and we learned as we went along. One by one, state-owned industries were brought into better financial shape and, in an improving economic climate, were prepared for privatization. By the time of the 1983 election, the list of candidates for privatization had lengthened to include British Telecom, British Airways, Rolls-Royce, parts of British Steel, British Leyland and the airports. After British Telecom, other utilities were privatized with differing structures and regulatory systems — gas, water and electricity. By the time that I left office the state-owned sector of industry had shrunk by 60 per cent and, largely as a result of the wider share ownership schemes which accompanied privatization, about a quarter of the population owned shares. I had set out to recreate a predominantly freeenterprise economy and to encourage a capital-owning society: I felt I had gone a long way, further even than I expected, in achieving both.

Finally — and, of course, cutting marginal tax rates and privatization were also a part of this — there was a wide-ranging programme of structural reforms to make markets work more efficiently, what has been called a ‘supply side revolution’.[106] From 1980 we pursued a ‘step-by-step’ programme of trade union reform, of which the 1982 Employment Act which reduced trade union immunities was the most crucial. The outcome of the 1984–85 miners’ strike effectively cemented the new order in which jobs had to depend upon satisfying customers rather than wielding collective power to extort subsidies. There was a corresponding improvement in industrial relations. In 1990, my last year as Prime Minister, the number of industrial stoppages was the lowest in any year since 1935. Trade union reform was supplemented by Norman Fowler’s 1988 reforms of Social Security to make it more worthwhile to work by reducing the so-called ‘poverty trap’. Wages Councils which used to set minimum pay rates that priced people, particularly the young, out of work were reformed to exclude those under twenty-one, and have since been abolished. When I was first Leader of the Opposition the great debate in economic policy was between proponents of incomes policy and ‘free collective bargaining’. By the end of my time in office incomes policy, with all its cumbersome distortions, had been laid to rest and wage bargaining was far less ‘collective’. The proportion of the labour force in trade unions had fallen from 50 per cent to 35 per cent, an important cause (and indicator) of greater labour market flexibility.

But, of course, our reforms to make markets work better were not confined to the labour market: they touched every market. We abolished exchange controls, and controls on prices, incomes and dividends. We promoted greater competition in financial services. We reduced controls over private rented housing to encourage supply, and gave public-sector tenants the right to buy their homes at large discounts. Further measures to promote competition — and so improve value for money and widen choice — in the public sector were made in education, the NHS and local government.[107]

Our objectives — bringing down inflation, controlling the public finances with its concomitant of tax cuts, privatization and supply side reforms — were in varying degrees achieved. Moreover, each was valuable in its own right, not least as part of reducing the role of the state and giving people more control over their own lives. But how far can it be said that the economic programme I pursued in the 1980s fundamentally improved the performance of the British economy? There is a large body of persuasive evidence, which is still accumulating, to suggest that it did.[108]

Productivity is the key. Countries with sustainably improving living standards are countries whose labour and capital are productively employed. Countries which fail to achieve high rates of productivity, although they may — and should — take some of the strain on their exchange rates, cannot in the long term enjoy high living standards. This is borne out by Britain’s experience. Before the Second World War there emerged a major productivity gap between us and the United States. Europe also rapidly overtook us in the 1950s and 1960s. And our performance in the 1970s was by far the worst of any leading industrial nation.

But the 1980s marked a major change. US Bureau of Labor Statistics figures for output per hour in manufacturing show UK productivity growth since 1979 to be faster than that of any other major industrial country, and particularly so since 1985. There is good reason to think that the long-term prospect for productivity growth has been permanently improved and that we have not just seen a one-off, ‘catch-up’ effect. Although the productivity growth was particularly dramatic in manufacturing, it occurred in services too. Output per worker in the UK non-oil economy as a whole grew by 1.7 per cent a year between 1979 and 1989 (that is over the economic cycle), compared with 0.6 per cent a year between 1973 and 1979.

A range of other evidence also suggests that the policies of the 1980s have resulted in structural changes in the British economy which, as long as they are not reversed by wrong policies, will put us in good shape in the year 2000.[109] One measure of an economy’s success — and of course the most politically sensitive one as well — is its capacity to create new businesses and new jobs. Although the immediate effect of an increase in productivity may be to shed jobs, productivity growth is essential to enabling businesses to compete and so to providing secure, well-paid employment. So it is no surprise that the number of people in jobs rose by 1.5 million in the 1980s. It is also significant that the peak in long-term unemployment reached at the end of 1992 was more than a quarter of a million lower than its peak in the last economic cycle.

In Britain, as a result of our long-standing commitment to deregulation, we are also less badly affected than our neighbours by the European disease of controls, high taxes and corporatism which has aborted jobs that would otherwise have occurred. It would, though, be highly damaging if a future government were to sign up to the Maastricht Social Chapter, let alone move back towards minimum-wage regulations which would condemn us to Euro-sclerosis when what we need is American-style flexibility.

Along with inflation, industrial efficiency and job creation, the final significant criterion of economic performance is, of course, economic growth. That too confirms the overall picture of improvement. To reach a fair judgement one has, naturally, to try to allow for the effects of the economic cycle. When we do this, we can see that whereas Britain’s non-oil GDP grew at less than 1 per cent a year between 1973 and 1979 (compared with an EEC average of 2.5 per cent), it grew at 2.25 per cent a year in the 1980s. This was contrary to the international trend: the OECD area as a whole experienced no improvement in performance in the 1980s.

It is important to restate such facts about the 1980s — and not just to get the record straight. Undervaluing what occurred then may well lead governments to turn to alternative approaches which are in fact reruns of the disastrous prescriptions of the 1970s.

There is a parallel with the United States. There the attempt by leading Republicans to distance themselves from the Reagan years gave the opportunity to the Democrats in 1992 to claim the centre ground and successfully fight an election on the theme that it was ‘time for a change’. Only now has the Republican Party perceived that it is by developing rather than detracting from ‘Reaganism’ that success will be achieved. The economic record of the 1980s in both our countries — low inflation, more growth, more job creation, rising living standards, lower marginal tax rates — shows what works; and the 1970s show equally conclusively what does not.[110]

WHY THE WEST?

But of course the prescriptions of free-enterprise economics cannot be properly understood, let alone effectively applied, in a vacuum. They depend heavily for their success upon political and — as I have described elsewhere — social conditions.[111] Precisely why modern Western civilization uniquely gave rise to the sustained growth of prosperity which has transformed lives and prospects over the last quarter of a millennium is fertile ground for debate. The Marxist explanation is now clearly discredited: economic growth is not simply a mechanical result of combining capital and labour. Nor can economic progress simply be ascribed to advances in science or technology, which are not just engines of growth but are also themselves stimulated by cultural and other conditions. Just as significant, in fact, is the way in which science and technology are valued and exploited — and this is something which does indeed mark out modern Western civilization. The Chinese, for example, invented gunpowder and the mariner’s compass, but unlike the West they did not use them to build a maritime empire. The Tibetans discovered turbine movement, but were happy to use it for their prayer wheels. The Byzantines invented clockwork, but employed it as part of court ceremony to raise the emperor above visiting ambassadors.[112] But cultural/religious conditions do not offer a total explanation. The moral significance attached by Christianity to the responsible individual was undoubtedly an important element in the distinctive Western growth of liberal political and economic institutions, but its impact has clearly been very different in the Orthodox East. The Protestant Reformation and the values of Nonconformity also probably played a part — but this does not explain the growth of medieval banking and commerce or the rise of Venice. And, of course, any ‘explanation’ which overlooks the role of the Jews in the growth of capitalism would be no explanation at all.

But two special factors do stand out as of crucial importance — and not just as parts of a wider historical explanation, but also as pointers to future policy. The first is the growth over the centuries of a rule of law, which provided the confidence necessary for entrepreneurship, banking and trade to develop. This clearly has important implications for the strategies being pursued now to establish free-enterprise systems in the former communist states. The second vital condition was the fact that in the crucial period ‘Europe comprised a system of divided and, hence, competing powers and jurisdictions’.[113] As a result, no single government was in a position to pursue policies which frustrated the impulses of economic (or indeed political and religious) freedom without fear of loss of resources. Although the difficulties and cost might be considerable, talented individuals could ultimately take their skills and their money to some other more welcoming state. Today also competition between governments and their differing legal, fiscal and regulatory systems remains a check on the scope for abusing power and thus for impoverishing societies. There is an obvious lesson for those who now wish to submerge European nation states in a United States of Europe where a centralized bureaucracy, by harmonizing regulations, allows no enterprise to escape its clutches.

LATIN AMERICA

Within the broad framework of ‘the West’ there have, of course, grown up different kinds of political economy. A particularly instructive case is that of Latin America, because two different and opposing models have been tried. The first, which the economist Hernando de Soto has described as ‘mercantilism’, has the longer and less glorious tradition. Originating with the Spanish and Portuguese colonial administrations, subsequently perpetuated by corrupt authoritarian regimes of Left and Right, and then all too frequently sustained by international bodies promoting ‘development economics’, it was based on centralized economic power wielded in the interests of powerful individuals and groups and protected against foreign competition. It bears the main responsibility for the fact that Latin American countries have not enjoyed the advancing prosperity of North America. Mr de Soto’s pioneering study of economic conditions in Lima, Peru, showed that as a result of corrupt, unpredictable over-regulation it was now the so-called ‘black economy’ which was operating to sustain the needs of the people for housing, markets and transport.[114]

Most Latin American countries had to spend much of the 1980s paying off debts incurred in order to finance the misdirected policies of the 1970s. But, with Chile leading the way, followed by Mexico, Argentina, Brazil and now Peru, there has been a fundamental change of direction away from ‘mercantilism’ and towards limited government, sounder finances, privatization and deregulation. Significantly too, this new direction apparent in Latin America, like the successful Asia-Pacific economies, has occurred often in spite of rather than because of advice and assistance from international institutions.

Chile, of course, because of the international hostility directed towards General Pinochet’s regime, was forced to take unilateral action to restore its economic fortunes by applying liberal economic prescriptions. These have subsequently continued under democracy. Monetary growth was curtailed to bring down hyperinflation; tariffs against imports were cut; foreign investment was welcomed; privatization was promoted (350 state companies have been sold) — even to the extent of bringing privatization to bear on the social security system. The beneficial results have been widely felt. Export-led growth has been consistently strong. Moreover, Chile’s economy is better balanced and more diversified and so more able to withstand adverse conditions: almost complete reliance on copper exports has given way to the export of computer software, wine, fish, fruit and vegetables, to such an extent that the European Community is clamouring to keep Chile’s products out. It is a remarkable transformation and a dramatic demonstration of how liberal economics makes the difference.

Mexico’s experience is similar. For decades the quasi-authoritarian corporatist regime kept Mexicans poor. At the time of the ‘North-South’ Summit, which I attended at Cancún in 1981, Mexico was still determinedly misdirecting investment into large capital projects, hiding behind tariff barriers and pursuing redistributive social policies. It was, indeed, a highly appropriate location for the Third World rhetoric of which so much was then heard. But the country I since visited in 1994 had, under President Salinas, undergone a huge and welcome change. Inflation had been brought down, the public finances were in order, tariffs had been cut, trade union powers had been curbed and 996 of the original 1,155 state-owned companies had been sold, merged or closed down — including the sale of eighteen state banks, representing the largest mergers and acquisition process ever executed in the financial services sector anywhere in the world. The recent Mexican currency crisis, which had ripple effects both within and beyond Mexico, was the result not of these reforms but of a traditional pre-election monetary splurge. When this ran up against the constraint of Mexico’s pegged exchange rate there was a flight of capital and the peso collapsed. What this experience establishes is that micro-economic reforms need sound money and orthodox finance if they are to be securely established.

At the time of my second visit in 1994, however, Mexico was on the verge of concluding its agreement on a North American Free Trade Area (NAFTA) with the United States. Such an initiative would have been unthinkable in earlier years when anti-American feeling and protectionist leanings were dominant. The NAFTA initiative has a wider significance. In the past, regional trade agreements in Latin America were generally a means of closing borders to wider international trade competition: nowadays, as with the Andean Group (Venezuela, Colombia, Ecuador, Peru and Bolivia), the Central American Common Market and the southern grouping of Mercosur (Brazil, Argentina, Paraguay and Uruguay), they are seen by the participants as vehicles for freer trade.

Whatever the Argentineans thought about it at the time, defeat in the Falklands War provided a shock which brought first democracy and more recently, under President Menem, the economic benefits of free-market policies. Inflation has been brought down. A far-reaching privatization programme has been undertaken. Subsidies, regulation and tariffs have all been cut. Economic growth has sharply accelerated.

Brazil — the world’s fifth largest and sixth most populous state, with enormous natural resources — undoubtedly has the greatest potential. Even when in the past fundamentally unsound policies were pursued, its growth rate testified to this. A serious start has now been made with policies to curb inflation and government borrowing and to promote privatization — though there is much still to do in order to limit the worst excesses of over-government and its concomitant corruption. Economic optimism tempered with political caution is also the appropriate reaction to events in Peru. Free-market economic policies are beginning to yield results, with a successful privatization programme and strong economic growth; but political stability will be necessary if the full benefits of free-enterprise economics are to overcome the legacy of ‘mercantilism’.

THE ASIA-PACIFIC REGION

The most successful economies in the world are in the Asia-Pacific region. They have the highest growth rates with output doubling every ten years, and savings ratios running at over 30 per cent of GDP which provide ample resources for investment. It is, of course, necessary to distinguish between systems, cultures and states. For example, Japan’s emphasis on decision-making by consensus, its social orderliness, its intricately interlocked financial and industrial complex and its relatively underdeveloped distribution system distinguish it from the classic model of Western capitalist economy. South Korea’s economy is similarly dominated by industrial conglomerates with close relationships with government.

But the picture is by no means uniform throughout the Asia-Pacific region. The rapid economic advance in China, though triggered by government decisions at the end of the 1970s to allow first in agriculture and then more generally the rise of a de facto private sector, is now advancing with a momentum of its own and independent of central government. Not only is its course unplanned: its final destination is unpredictable. Indeed, the Chinese people have shown themselves to be uniquely entrepreneurial throughout the region — as witness the success of Singapore, Malaysia and Taiwan. In Hong Kong Chinese flair operates within a British framework of political and financial institutions. With only six million people, Hong Kong’s lightly regulated and free-trading economy has the eighth largest share of world trade.

Yet, for all the differences between them, the Asia-Pacific economies have certain characteristics in common. Government spending, borrowing and taxation as a share of GDP are low. They are unencumbered with swollen welfare states. Workforces are highly motivated, efficient and increasingly well rewarded — the caricature of Asia-Pacific economic success achieved on the back of low wages rather than high productivity becomes ever less representative of reality. Even the relatively more regimented systems of Japan and South Korea are a far cry from the mildest socialism: government forswears social engineering, is keen that success be rewarded and values the role of small, independent business. As with the evolution of modern Western capitalism, cultural factors play an important part: but the fundamentals of economic success are the same.

The case of India, on the edge of the region and an emerging great power in its own right, is also instructive. Britain’s legacy to India was mixed. Among the benefits were a rule of law, a tradition of honest administration, a common language and, of course, an established democratic system. Corresponding disadvantages, however, were excessive bureaucracy, an overmanned state sector and LSE/Oxbridge socialism, which influenced two generations of indigenous politicians. Policies of wealth redistribution, industrial planning, subsidies, price and exchange controls, monopolies, import licensing and almost insurmountably high tariffs had the same result as in other countries and continents — poverty. The first steps away from this self-destructive economic regime began with agricultural reforms in the late sixties. They continued intermittently under Rajiv Gandhi. But it was only the jolt from the economic crisis of 1991 — and the appointment of Narasimha Rao as Prime Minister and Manmohan Singh as Finance Minister — which set India firmly on the right road. Tariffs have now been cut sharply and are due to fall further. Foreign exchange controls have been liberalized. Foreign investment is encouraged — and foreign firms are taking full advantage of the opportunities. With the removal of controls on farm prices, grain production has increased and farmers can begin to afford up-to-date equipment. A new, self-confident middle class is emerging. India’s economy is growing strongly.

A similar economic experiment has been taking place at the other edge of the Asia-Pacific region. Australia and New Zealand were infected by socialism á I’anglaise long before India. Public (often monopoly) ownership and effective trade union control over the labour market went further in Australia. But in New Zealand too ‘socialism without doctrines’ had become the dominant slogan even before the First World War.[115] Both countries were able temporarily to withstand the debilitating effects of collectivist policies pursued by both left-and right-wing governments because of their ability to export commodities, in particular minerals and agricultural products, with which they were endowed. But by the early 1980s the extent of relative economic decline was apparent to all: a new course was required.

In Australia a Labor Government removed many financial controls and, most important, abandoned protectionism, though for political reasons the excessive controls on the labour market remained. This limited opening-up of the Australian economy to competitive pressures reversed the spiral of decline as regards economic growth; but the fact that this was not accompanied by measures to free up the labour market has kept unemployment relatively high.

New Zealand, first under the Labour Government’s Finance Minister, Roger Douglas, and subsequently under the National Party Government’s Finance Minister, Ruth Richardson, has gone much further — and the results have been that much better. Financial controls were lifted, import restrictions abolished, tariffs lowered, foreign competition in services welcomed, unemployment benefits reduced, income tax cut and the emphasis shifted to indirect taxes. Also — and crucially — unlike Australia, the labour market has been freed up. The result has been annual growth at over 4 per cent, more new jobs, falling unemployment and very low inflation, while productivity has increased and business is investing. The traditional similarities between New Zealand and Britain make the former’s success — achieved by following the same general policies as I implemented in Britain in the 1980s — of particular significance.

THE AFRICAN PROBLEM

Even more than Latin America or India, African countries have suffered from misdirected economic policies associated with the collectivist concepts of ‘development planning’.[116] But, as elsewhere in the Third World, the same implicit reason (or, depending on one’s point of view, excuse) for believing that the laws of economics can be defied with impunity is consistently advanced, namely that Africa is somehow ‘different’. A wide range of arguments was used to justify this — general underdevelopment, lack of local investment capital, over-dependence on a single commodity, the encouragement of ‘infant industries’ or, even more dangerous in its quasi-racist implications, the ‘special’ character of the African himself and his culture. It is, of course, true that cultural factors have played a role in Africa’s problems, particularly when departing colonial governments took insufficient heed of tribal and religious differences in putting together African states.[117] But, as Peter Bauer, above all, points out, experience in Africa (and elsewhere) shows two things. First, if two peoples live under the same regime of liberal capitalism, one will usually out-perform the other; but if one people lives under two regimes — capitalism and collectivism — that portion living under capitalism will out-perform its cousins. A commonsense conclusion is to choose the (capitalist) regime that makes everyone better off, even it if also allows some relative inequalities between ethnic groups with different cultural aptitudes. So anyone who understands the consequences of abandoning the tried and tested model of limited government, a rule of law and free markets can also understand why the post-colonial economic performance of African states is so abysmal.

And abysmal it certainly is. Per capita output in Africa actually declined during the 1970s and 1980s and, as a result, Africa is poorer than in 1960. Yet Africans in the 1980s received per capita a larger share of development aid from the West than anyone else. Price controls imposed on agricultural products in order to subsidize urban élites undermined agriculture, as did the confiscatory policies associated with export marketing boards and brutal forced collectivization of farms. Foreign imports and investment were discouraged. Mountains of international debt were accumulated in order to construct ill-conceived prestige projects. Finally, over-centralized power had the inevitable result of turning government in many African countries into a giant kleptocracy. As a result of this catalogue of failure, there is a tendency to give up on Africa. This must be resisted. In any case, Western countries should recall that the record of institutions like the World Bank and the contribution of those Western development economists who prompted such follies hardly inspire pride.

Moreover, closer examination of the realities of African economies challenges some preconceptions. Take South Africa, for example. In terms of mineral wealth, economic development and institutional sophistication it is outstanding. So far, the worst fears about a breakdown of order have not been realized, for which the country’s leading political figures deserve great credit. But it does South Africa no good at all to minimize the economic problems or to suggest that large inflows of foreign investment are likely to overcome them. There has been too much state direction of investment and too little competition. Industrial conglomerates have been immune to the beneficial threat of takeovers. The powerful general trade union COSATU has pushed up real wages, which in industry are about the same as in Taiwan, rather more than in Korea and about double those in Brazil. Not surprisingly in such circumstances, investment has gone into labour-saving equipment; and unemployment — with its resultant poverty — is very high. Unfortunately, socialist rhetoric and unrealistic expectations fuelled by the less responsible members of the ANC in the election campaigns will make these problems more difficult to solve. But the way forward is still to apply the same prescriptions as we would for any other over-collectivized economy — keeping down inflation and taxation, curbing public spending, cutting back regulations, promoting competition and avoiding protectionism. The only way to pay for the improved education and better living standards which the black population of South Africa need is to achieve the right conditions for wealth creation. Alas, there is no alternative — and no short cut.

Other states’ experience confirms that free-enterprise economics can be just as effective a source of progress in Africa as elsewhere. A quiet revolution has been taking place in East Africa — so quiet that its lessons may not be learned.[118] Traditionally, Kenya, the most industrialized and economically advanced East African country, was the exception to the generality of mis-government in the region. But now Uganda, Zambia and Tanzania — all previously impoverished by incompetent and corrupt regimes — are moving ahead fast. Uganda has curbed its inflation, turned a budget deficit into a surplus, all but abolished exchange controls, welcomed foreign investment, privatized the agricultural marketing boards which had wreaked such damage on cotton and coffee production, and now plans to establish a stock market. Zambia, though its privatization programme is only proceeding slowly, has made major progress in bringing down inflation and has opened a stock exchange. Tanzania has reduced tariffs, ended price controls and has a vigorous privatization programme. Of course political instability still risks jeopardizing economic progress in many of these countries. But economic progress also itself creates the conditions for stable democratic government. And one of the most effective ways of entrenching liberal political systems in that continent is to promote liberal economics.

CENTRAL AND EASTERN EUROPE

Perhaps the most decisive test of the creative potential of capitalism has been its application in the ex-communist countries of Central and Eastern Europe and the former Soviet Union. For a number of reasons, Russia and the other states of the former USSR are in a separate category from the other new democracies of Central and Eastern Europe. (The Baltic states, because of their history and traditional Western orientation, must though be regarded as closer to the latter than the former: and the striking success of their economic reforms emphasizes that.) Although Russia enjoyed swift capitalist growth in the half-century between the end of serfdom and the First World War, there was only a very limited period — essentially after the 1905 Revolution — in which liberal institutions and attitudes could take root. Communism extinguished these memories and also destroyed the still small middle class who were capitalism’s hope. Seventy years after the Bolshevik Revolution, communist economic planning has bequeathed its own legacy of misdirected investment, wrongly located factories and power plants, ossified technology, ex-bureaucrats posing as industrial managers, an unmotivated workforce and ecological catastrophe.

More should have been done — and earlier — to help Russia, Ukraine and other ex-Soviet states to build free-enterprise economies. In particular, we should have been prepared to provide backing for a currency board to bring some stability to the Russian rouble. The Russian people rightly had no trust in their government’s ability to provide a stable currency. The only solution was to take it out of the government’s hands, introduce a ‘hard rouble’ and set it firmly in the institution of a currency board similar to that which we set up in Hong Kong in 1983.[119] The currency board, preferably buttressed by representatives of the IMF or the Federal Reserve Board, would always exchange hard rouble currency for US dollar notes at a fixed rate of exchange. History shows that such transparent systems work, even under the most trying circumstances. To make this feasible Russia needed sufficient dollar reserves to give over 100 per cent backing to the hard rouble notes; the West could have found no more worthy form of aid than to have provided such backing.

The secret of successful economic reform is always to ensure that all of the components work together, because then the process of adjustment is easier. On these grounds, some now criticize the Russian reformers of 1992 for freeing prices before breaking up the state-owned monopolies which dominated the economy. But at least price liberalization brought goods into the shops at a time when there was talk of Muscovites simply not having enough to eat. In any case, a far-reaching privatization programme using the voucher method pioneered in Czechoslovakia has since transferred large swathes of industry to the private sector. More than 70 per cent of Russian workers are now in the private sector. True, uncertainty about property rights, excessive bureaucratic regulation, high taxes and widespread corruption are still major problems, deterring foreign investment and driving enterprise into the mafia-controlled black economy. But, for all that, the most gloomy prognostications seem unjustified. Unreliable figures for the decline in production are more than balanced by others suggesting large increases in private consumption — which is in any case precisely the re-orientation which transformation from a production-led to a consumer-driven economy requires. And unpleasant as many of its manifestations may be in a situation where the law is not properly administered or upheld, no one visiting Russia today could claim that its people are failing to respond to the opportunities for entrepreneurship. In fact, the most important message which Westerners must impart in Russia now is that fully fledged capitalism requires a rule of law. Without that, private ownership in Russia will lack legitimacy and therefore stability.

The economic challenges facing the ex-communist states of Central Europe, though formidable, are of a lesser dimension. East Germany, of course, was able to merge with the most economically powerful state in Europe. Hungary had already advanced some way towards a Western-style economy in the last years of communist rule. It is, though, significant that the two most striking success stories — Poland and, still more so, the Czech Republic — occurred where governments took the boldest and earliest decisions to move from socialism to capitalism.

Poland’s great advantage was that the communists had largely failed to collectivize agriculture. Communism thus failed to gain total control of the economy — just as in the face of resistance from the Catholic Church it failed to gain total control of society. Communist attempts at economic reform, however, failed: indeed, their most significant legacy was hyper-inflation. The architect of the successful reforms achieved during the Solidarity-led Government, Leszek Balcerowicz, deliberately chose a radical course — the simultaneous introduction of measures to eliminate price controls, tighten monetary policy, cut the budget deficit and remove almost all restrictions on international trade. Inflation fell dramatically. New small businesses started up. Goods flowed into the shops — certainly, at prices which people found difficult to afford, but much of the alleged drop in living standards was a statistical fiction, since previously Poles had faced crippling shortages.[120] Subsequently, a programme of privatization added the final element to the reforms. The private sector now comprises 55 per cent of the economy. Success has not been unalloyed, however. Budget deficits under the burden of unchecked welfare spending seem likely to continue. The privatization programme appears to have slowed since the Left gained power in 1993. Partly in response to the European Community’s failure to open up its markets sufficiently to Polish produce, there has been a tendency for Polish tariffs to rise once more.[121] On balance, however, the successes of reform far outweigh the failures: to such an extent that Poland’s economy in 1993 and 1994 grew by some 4 per cent and looks likely to repeat the performance in 1995. Nor should the Right’s defeat in the 1993 elections necessarily be attributed to popular discontent at the reform process itself. The fragmentation of the anti-socialist vote among small competing parties under a system of proportional representation (adopted thoughtlessly by most of the new democracies) must bear most of the blame.

The success of economic reform in the Czech Republic is also notable — as is the contrast with Slovakia, which has deliberately retained a more socialist orientation. The Czechs, of course, inherited a tradition of industrial success which not even forty years of communism could extinguish. Before the Second World War Czechoslovakia was one of the world’s most advanced economies with an income per head equal to France. Moreover, the Czech reformers, unlike their Polish equivalents, did not inherit hyperinflation; nor were they inhibited by the necessity to seek communist support for the reform measures. Under the determined leadership of Vaclav Klaus, first as Finance Minister and since as Prime Minister, a radical strategy was adopted with no concessions made to demands for a ‘third way’ between capitalism and socialism. Price controls were removed, subsidies cut back, public spending sharply reduced and the currency made convertible for trade purposes. A pioneering scheme of mass privatization through vouchers has transformed the pattern of ownership, with 80 per cent of Czech assets now in private hands. After the traumas of change, economic growth (at 2.5 per cent in 1994) has begun on a sound footing and, in spite of the shake-out of labour from old inefficient industries, unemployment (at 4 per cent in 1994) is low. Unlike in Poland and Hungary, those who pushed through the necessary economic reforms have in the Czech Republic also reaped the political rewards — which itself is the best guarantee that those reforms will continue.

Yet it is perhaps the example of the smallest and poorest of the former Eastern bloc countries, Albania, which best illustrates the creative potential of uninhibited capitalism. Indeed, what has happened since the fall of communism gives a quite new understanding of Schumpeter’s description of capitalism as a process of ‘creative destruction’. Albania had lived in a time warp, cut off from political or economic contact with the outside world, without decent communications, burdened by hopelessly outdated industries, its agriculture totally collectivized, the landscape dotted with bunkers built by its paranoid rulers. The only way forward was to start again from scratch; and this is what happened. A sudden huge emigration, though presenting immediate problems for Albania’s neighbours, has since resulted in a substantial inflow of remittances which, with overseas aid, allowed the beginnings of a consumer society. Small businesses mushroomed everywhere. Everything which could be salvaged from the collective farms and the bunkers was dismantled and used in new private farms which sprung up and which — the government having abolished price controls — were soon able to feed the population. Albania is now achieving what almost everyone considered impossible: its economic growth has been in double digits for two years running — though, of course, from a very low level. Foreign investment is taking advantage of low wage costs, lack of regulation and the country’s mineral wealth and potential for tourism.

The different rates of economic progress, therefore, in the former communist states bears out my central thesis — namely that although political, social and cultural factors are not without importance, the free-enterprise formula works whenever and wherever it is applied. Moreover, its application is crucial to the entrenchment of democracy too. As a recent survey of public opinion in ten ex-communist countries shows, in nearly every case nostalgia for the old communist regime is associated with failure to make a rapid transition to a free economy.[122]

TWO MODELS — THE UNITED STATES AND GERMANY

The economic reformers of Central and Eastern Europe naturally sought to study the most successful models of the capitalist system which they intended to recreate. Many of them looked to Britain, particularly in order to learn techniques of privatization, though these have had to be adapted to different circumstances. But it was the examples of the United States and Germany which have had most influence.

There are significant differences between the American and European versions of capitalism. The American traditionally emphasizes the need for limited government, light regulation, low taxes and maximum labour-market flexibility. Its success has been shown above all in the ability to create new jobs, in which it is consistently more successful than Europe. Since the 1960s employment has grown on average by only 0.3 per cent a year in the EEC, compared with 1.8 per cent a year in the USA; moreover, in the US, by contrast with Europe, most of the jobs were created in the private sector. Over 40 per cent of the unemployed in the EC have been out of work for over a year, compared with 10 per cent in the USA.

The European model — in particular the German version — has, however, recently attracted much sympathetic consideration by policy-makers in the American administration who favour an interventionist approach to training, industrial policy and managed trade. It is, therefore, particularly important to understand the weaknesses as well as the undoubted strengths of the European system as exemplified by Germany. For if the world’s greatest example and exponent of liberal capitalism were to turn away from it in either internal or external economic policies that would have momentous implications for the free-enterprise system generally.

West Germany’s emergence as the major European economic power in the post-war years was rightly described as an ‘economic miracle’. A combination of very low inflation and high productivity characterizes the German success. This reflects both the character of the German people and the policies pursued by the German government, particularly in the 1950s and 1960s when the emphasis of the ‘social market’ approach was on ‘market’ rather than ‘social’. The 1970s and 1980s saw something of a reversal in that balance with a growth of state intervention and joint decision-making (Mitbestimmung) by unions and management. There was also a large increase in the tax and regulatory burdens on employers which, it has been suggested, now approach 100 per cent of wages. Although the German economic performance has been impressively consistent, under both these burdens and the shock of a not very well managed enlargement to take in the ex-communist East, some of the characteristics of German capitalism which made for past successes are already leading to serious problems — problems that threaten to get worse. Industrial consensus has degenerated into a more rigid corporatism, which reduces the ability of German industry to adapt flexibly to challenges from Asia and Central Europe. This applies both at the level of individual German companies and in sectors. Significantly, German employers agreed to raise East German wages to West German levels by 1994, which attempt proved deeply damaging — and ultimately practically impossible. But such a decision was only possible in an economy where centralization of wage bargaining was the accepted norm.

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: