Edit of Margaret Thatcher’s speech to the American Enterprise Institutes’ conference June25th as per DT feature.
When I was Prime Minister I was not always popular. Reformerrs rarely are while their reforms are going through, though if we struggle on we reap the rewards later. Among those who criticsed my approach in the 1980s were people who considered that socialism merely needed some modifications in order to deliver all that socialists habitually promised. Some halfway hose between collectivism and the free market was thought preferable. But, as Vaclav Klaus, an immensely creative and successful Czech prime minister, once remarked, the "Third Way" leads only to the Third World.
There was an alternative European model on offer, something described as "the social market", which involved a large state sector and a fair amount of planning, but also a significant role for private enterprise. There was also an alternative Japanese model, with a smaller state sector but even more corporatism, and complex intervention exercised by government officials.
Compromises of this sort are never attractive. If one really believes, as communists once believed, that the state knows best how to generate wealth, collectivism is the answer. If, however, one reckons that prosperity and jobs flow from the interaction of individual consumers and independent businessmen, government should be kept to the bare minimum. In any case, the jury is no longer out. We know now that it is free enterprise capitalism that works best to foster innovation and create jobs. We know that the more statist economies of Continental Europe are not so successful. And we know – as a result of worrying developments in the Fart East – that the Asian brand of quasi-capitalism has even greater flaws.
Not so long ago we were all inclined to overlook the weaknesses of the Far Eastern economies and concentrate on their strengths. Those strengths – industrious workforces, enterprising businessmen and excellent design and engineering skills – are still there. But they have now been overtaken by still more pervasive weaknesses: corruption and cronyism bred by incestuous interventionism, lack of transparency in the financial sector, and a failure to develop the political framework and skills needed in advanced industrial and post-industrial societies. These, of course, are generalisations, but the analysis generally holds true.
Those of us who always preferred the model of limited government should take careful note of what has happened, but we should also resist any temptation to gloat. In particular, the travails of the Japanese economy, still probably the second largest in the world and the source of 60% of Asian output, constitute a greater potential threat than is suggested by changes of a point or two in global GDP. Japan needs to take urgent action to cut taxes and to press ahead with making its financial affairs more transparent and open to competition. It also needs a complete re-capitalisation of its banking and financial system. But to achieve this it also needs decisive political leadership. That is very difficult within the apparently consensus-oriented, but actually faction-driven, world of Japanese politics, In due course political change will have to accompany economic reform.
That is also true elsewhere in Asia. In South Korea and, most recently, in Indonesia economic crisis has led to political upheaval. There is no doubt of the dynamism of the Chinese economy, which in the years since Deng Xiaoping’s reforms has grown, until recently, by perhaps 10% a year. But neither should we doubt the immense problems which Prime Minister Zhu Rongji has still to face. The comparison is sometimes made between China and Japan, but Japan’s problems are those of a highly sophisticated economy. China’s successes are those of a rudimentary quasi-capitalism.
Mr Zhu may have to cut by as much as half the number of central and local government employees, which means finding jobs for some four million people. Still more important is the need to create a clear, stable, honestly administered legal system.
There is also the question of human rights, which was the focus of a good deal of debate in America before President Clinton’s visit, and which has caused us in Britain much heart-searching over a longer period because of Hong Kong. We have, I suggest to be "cunning as serpents and innocent as doves", which, like many Biblical injunctions, is not easy to practice. Our interests require that, in all senses, we "do business" with the Chinese. But we do have a moral duty to the dissidents, persecuted Christians and slave labourers in the prison camps that must not be shirked.
Chinese history is largely a tale of more or less cultured tyranny. During the horrors of the Great leap Forward and the Cultural Revolution it is estimated that between 40 and 80 million people died. I believe there is a reasonable prospect of some kind of democratic rule emerging in China. The Chinese government has, after all, seen just how successful is the combination of British-style rule of law and the Chinese flair for enterprise. That is why the Chinese have been so careful to try to maintain confidence there since the hand-over. I am optimistic that the lessons of Hong Kong’s success will slowly permeate into China itself and at least ameliorate the unacceptable aspects of that regime.
Japan’s current problems and its historical baggage rule it out for the present from asserting a leadership role commensurate with the size of its economy. But it should not be overlooked, let alone disparaged. China is, of course the fastest emerging superpower and we should be concentrating on China’s military capability and intentions.
Looking farther northwards, Russia is still a major military power in Asia, for all its grave economic difficulties. North Korea remains a real menace: the Japanese believe that it is capable of firing nuclear warheads to reach their country and Pyongyang has certainly been selling ballistic missile technology with abandon. It is not surprising that in such circumstances, with mighty China on its border, India should assert its claim to be a nuclear power – nor that, in view of long-standing rivalry, Pakistan should aspire to this as well. It is faintly absurd and hypocritical for the five permanent members of the UN Security Council to react with such pained outrage to their tests.
It is arguable that possession of nuclear weapons makes war, including conventional war, unthinkable; applying that to relations between India, Pakistan and China, we might be tempted to welcome what has happened. But we don’t need to welcome it, merely to react sensibly. Part of that is recognising that no amount of huffing and puffing about test bans and non-proliferation is going to stop major regional powers, and possible future superpowers such as India, becoming nuclear powers.
I don’t necessarily urge the abandonment of all attempts to deal with proliferation by diplomacy: just that we should accept that success will at best be limited. The difficulty of trying to force Iraq to comply, even after a severe military defeat, should prove the wisdom of that observation. Our priorities should be to take all necessary measures to ensure that rogue states do not develop weapons of mass destruction, and to ensure that we have adequate ballistic missile defence systems greatly to reduce the threat of strikes by these powers.
America’s engagement in the area’s future, most importantly through it’s commitment to Japan’s security, is a vital guarantee against some Chinese adventure that might go terribly wrong. For that, it must receive the full moral and material support from it’s allies that it has the right to expect. The single most important lesson of developments in Asia , as elsewhere, is stark: it is that there is no new world order and that the world now is more similar to that of the Cold War than liberal optimists expected. True, there is no global confrontation between two opposing superpowers, economic systems, social models and political ideologies. But the risks themselves are not so different – risks of unsound economic policies that undermine prosperity risks of government interventionism that diminish liberty and most of all risks of military unpreparedness that leave us vulnerable at best to blackmail and at worst to annihilation.
In fact, the world is the kind of place in which conservatives are still needed.