Economic and Industrial Policy

Part of the debate – in the House of Commons at 8:20 pm on 5th February 1981.

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Photo of Michael Meacher Michael Meacher , Oldham West 8:20 pm, 5th February 1981

The Prime Minister again insisted today that in the face of the biggest slump since the 1930s, and an even bigger manufacturing collapse than in the great depression, the Government would still not reflate the economy. The reason that she gave for rejecting proposals such as those of the TUC were that reflating meant printing a lot of money and simply pumping it in, which would lead to hyper-inflation. On that ground she has yet again claimed that there is no alternative to the Government's current policies.

I believe that that view is wholly misguided, that patently there is a viable alternative, and that a steady expansion of the economy can be achieved without an intolerable surge of fresh inflation, which I agree is quite unacceptable. I believe that there is a fundamental flaw in the economic policy that has bedevilled Western economies over the last 30 years. It is that during slumps such as the present one Governments of both parties have concentrated on stimulating the demand for goods, both by tax cuts and increased public expenditure, in order to spend their way out of a recession, while neglecting to ensure that the supply side of the economy was correspondingly increased.

Governments have assumed that the market could deal with the supply side. It has not, and it cannot. Instead, it has produced higher and higher inflation, which has filled the gap, but it has not taken us out of recession. As we all know, the result has been "stagflation". When Governments have hitherto put money into people's pockets in order to increase the demand for goods, the big companies have not correspondingly increased production, investment or the supply of goods—certainly by nothing like the same degree—because in the upturn, which I suggest is the real reason, there is no co-ordinated responsibility for investment decisions. Each firm holds back for extremely good reasons, because at every expansion phase since the war there has been a huge inrush of imports. Growth has been choked off by deflation within 12 to 24 months, and stop-go has rapidly been replaced by go-stop.

A unified agreement to move forward together steadily has never emerged, and the investment drive which all Governments have wanted simply falters and fails. Therefore, we need contractural agreements with leading companies to the effect that if the Government reflate the economy by so much they for their part will guarantee to expand their production and investment by about the same degree.

Such agreements are needed not for any theological reasons, but for plain, down-to-earth, good economic common sense reasons. This is not an unreasonable demand to make. After all, the economic contract has two sides. It is not just about wages, even though one may have thought that from listening to the Prime Minister. If workers are expected to show restraint in the national interest—and I understand the justification for that—management should be expected to play its part in co-operating to raise production and investment where it is needed in the national interest and follow the Government's lead. That is not a lot to ask, when British companies have the worst investment record in Western Europe, and when manufacturing investment is some 25 per cent. down in real terms below the 1970 level.

For a long time, there have been two main objections to the sustained—that is the key word—expansion of the economy which all post-war Governments have sought in vain. One, which the Prime Minister has reiterated constantly, is that it will lead to excessive or even intolerable inflation. As against that, we are suggesting that the key to growth, without undue inflation, lies in agreements with lead companies in each of the main industrial sectors which will secure co-ordinated expansion on the supply side to match the Government's expansion on the demand side of the economy. It is that "systematisation" of those negotiated contracts across most of the economy, with customers and suppliers being involved as well as the companies themselves, that enables companies to agree to expand, whereas it is too risky to expand in isolation. It is the role of supply management, in conjunction with demand management, that will enable the Governments—no doubt in the end it will be a Labour Government—to regain control over econimic forces which in recent years have proved devastatingly destructive when left purely to the market to resolve.

If the alternative to Thatcherite monetarism is a policy of balanced growth, I recognise that there is a second, real objection to this policy. It is that on the precedents sustained expansion may well generate an ever-increaing trade gap and an unsupportable balance of payments crisis. Our answer is that if there is no way to achieve sustainable expansion other than by limiting the growth of imports in line with the growth of exports—not a cutback—that is a policy that we should accept, especially when overseas countries would do better than under current policies.

There is already a major control on imports, which, as we all know, is called unemployment. It is because other countries would gain rather than lose from a steady expansion of the British economy that all the glib talk about retaliation is to a large degree misplaced.

The overriding argument for these proposals is that only they—not the Government's current policies or those put forward by any other British political group—will produce a substantial and continuing fall in unemployment without an unacceptable surge in inflation. Because of the guaranteed expansion of domestic markets, only these proposals can be expected to produce a steady rise in manufacturing investment which we all agree is the lifeblood of the country.

Above all, it is a policy of hope. Certainly no Conservative Member can claim that in respect of current Government policies. Not only are they policies of despair; they are policies of destruction and absurdity. Is it not absurd that right at the centre of current Government policy the PSBR has been enormously increased to pay for the hugely swollen requirement of unemployment benefit? A huge PSBR increase leads to further cuts in public expenditure, which leads to higher unemployment, which in turn requires an even bigger increase in the PSBR to pay for it.

It is because I believe that more and more people are coming to realise this nonsense and that the Government are destroying the country in a self-defeating spiral of decline that I am certain that if these policies are not changed this Government will not survive.