Author: johnredwood

 

           It is often easier to get into office than to be in power. The kind of politicians who are good at easing and charming their way into an official position, sometimes cannot remember why they wanted to be there by the time they make it. Some may never have had anything particular in mind to do. Some are happy to adopt whatever agenda the civil service, the EU or a past Minister left lying around for them. Some are soon hit by an unexpected crisis. Free of ideology in such circumstances can mean bereft of an  anchor or set of principles by  which to steer and judge.

         This was not true of Margaret Thatcher. She always knew there was a country to save and dragons to slay. She did not rest content with being the first woman Prime MInister, or feel that the state of the UK in 1979 was broadly acceptable, requiring just a little tinkering and bit of management. She wanted to create industrial peace in place of the endless strife. She wanted many more people to enjoy what had been the privileges of the few. She wanted to end inflation and make saving and investing worthwhile.  She wanted to tackle the communist threat from without. She was not radical when it came to the NHS or comprehensive schools or even welfare.

         My predecessor(but one)  at the Policy Unit, John Hoskyns, ran a small unit of three people. He specialised in the Union issue and helped her with the first important  steps towards Trade Union reform. He was often at variance with the official civil service and found getting into other matters than the central economic reform difficult. Taking over from Ferdy Mount, I inherited and recruited  a unit of ten people, with a remit to engage  with all policy areas with the exception of foreign affairs, and intelligence. The Prime Minister for her second Parliament in office, wanted better back up and analysis from a home team. I was careful to position and run  the unit as a civil service unit, with two official civil servants, two former Political Advisers, one former journalist,   three seconded business people, one person directly recruited from  from business,  and one recently retired senior accountant. We did not attend political meetings, nor brief the media (save for an occasional  background brief on big issues which I did for the lobby at Bernard Ingham’s request)

         I set about studying what the Prime Minister needed. Often she was called upon as a judge, to adjudicate between departments in dispute over an issue. In such a role she needed help in assessing the strength of the various cases put in, in establishing lines of questioning to probe the differences, and suggested criteria or principles for coming to a judgement.  Quite simply at times she needed a translation and precis service, to turn hundreds of pages of leaden civil service prose into something clear and focused for a busy woman.

         More importantly, I wanted to help her  to be strategic. She did not need to  intervene in dozens of issues where a Secrerary of State should be free to make his own decisions. I wanted to help her  influence or decide the big calls that would shape the government. I wanted her to ensure progress and success where the governing politicians had promised to take action as a Cabinet or political group. I also wanted her to be able  intervene to stop some legislation and administration that lobby groups or the civil service favoured which had no great cause behind it. All too often the so called apolitical ” necessary” or “tidying up”  bill sparked a bigger row than a very political measure, without delivering any great national gain.

        She agreed  that we would have a weekly bilateral meeting. I would send her a list of the main policies and actions being taken in each department and where they had got to. I would highlight major issues where the Manifesto had promised action or she had expressed a wish to do something. I would also list any bigger items planned by departments where I thought there could be political and financial cost for no obviously good reason.

           She liked this system. I always sought to arrange regular bilaterals for her with the  leading Secretaries of State, so they could be sure in private of any important view she held, and could tell her what they intended or explain why they were doing what they were doing. There had to be plenty of  private talking to ensure common aims and success.

           One of the nicest things she ever said after this system had been working for sometime was she welcomed the service the Policy Unit gave, because she could get so much more done.

 

       Let those who are never divisive cast the first stone.

       In some senses all democratic party politics are divisive, as parties seek to differentiate their policies and achievements from the others. The Church of England can also be divisive, when it decides to intervene in party political debates.

       The 1970s were no haven from divisions. I seem to remember the punitive tax and spend policies which forced us to borrow money from the IMF, and forced large public spending cuts on us as a result, were very divisive. So too was the winter of discontent, when the Trade Union movements turned against the wider public and against the Labour government.

      The noughties were also divisive. The Iraq war was bitterly opposed by many. The boom and bust policies were oopposed by a few of us in the boom phase, but by many when so many suffered from them in the bust phase. Bankers were then made the scapegoats for a wider failure of the government, Central Bank and regulators as well as of the bankers.

 

          In the 1990s when I was making the case against the UK joining the Euro, I came up with the analogy that joining it would mean taking out a joint bank account with the neighbours.

          I explained that I like my neighbours. We meet for drinks or social events. We would help each other out in an emergency. We have never felt ready to have a joint bank account. I would always worry that just when I wanted to spend I would find my neighbours had already used the money I had put in the account. All of us involved would be concerned in case one neighbour ran up a huge overdraft and left the rest of us to pay it off.

          The government and other proponents of joining the Euro at the time claimed this analogy was not a fair one. They stumbled to find a soundbite that could put down my thought. They sensed my comment was a poor characterisation, but  could not explain how or why.

         As we watch the Euro scheme unfolding, it seems ever more apt to say joining a single currency entails taking out a joint bank account with the neighbouring countries. Each country or neighbour that has overspent does indeed expect the rest of the zone to pay its bills for it. We have seen Greece, Portugal  and Ireland so far obtain extra money to keep them going. There has also been an even bigger transfer of money through the European central Bank, where the joint bank account is kept. Euro 3 trillion has been rooted into the weakest commercial banks around the zone. The German banking surplus is recycled in this way.

          The case of Cyprus illustrates just how crucial the common bank account is to the functioning of the Euro. The unwillingness of the neighbours to send extra money to Cyprus meant people in Cyprus could no longer draw their money out of their banks. In practice they no longer belonged to the Eurozone during their crisis, as they no longer have freely convertible Euros in their bank accounts. In order to get their deposits out of their banks with each Euro having its normal value, the ECB has to restore Cyprus to sharing the joint bank account. If the ECB does not honour the Cyprus accounts in full, they no longer have full value Euros to withdraw.

         The political battles in the Eurozone are all about the extent to which the richer neighbours can control the spending habits of the poorer neighbours, and the extent to which the richer neighbours will allow the poorer neighbours to use their money. So far, with a bad grace, the richer neighbours have come up with the money it takes to keep the higher spending neighbours going, except in Cyprus. For their part the poorer neighbours are putting themselves through big tax rises and spending cuts in an effort to curb their appetite for their neighbours cash. Some think this will prove self defeating.

          It has produced plenty of ill feeling between the neighbours. It has damaged the Franco-German alliance at the core of the project. Joining the Euro is just like having a joint bank account with the neighbours. Anything short of a full happy marriage makes it very difficult for such financial closeness to work.

 

           I was not expecting Germany to suddenly welcome the UK idea that we might have a  new relationship based on trade, freed of many of the burdens of the EU. That will take time to shift France and Germany, as our referendum approaches and as it becomes clearer UK people will vote for exit if we do not get a very different approach from today’s.I will continue to press for an acceleration of the timetable. In particular a Mandate referendum soon could be a game changer, if the rest of the EU was suddenly confronted by a very large vote in the UK for a new relationship based on trade.

           What  I do expect is more Anglo-German agreement and co-operation. Germany is suddenly more lonely. Hollande is seeking to make France the leader of the subsidy seeking south, rallying countries to the cause of opposing German led austerity. Meanwhile at home Frau Merkel for the first time faces a serious political challenge from Eurosceptics. The new Alternative for Germany party wants a break up of the current Euro. They will campaign long and hard against more German money being used to bail out overspending countries and bankrupt banks around the zone.

            Whilst I do not   presume to tell people how to vote in other countries, I wish Professor Henkel well. The founder of the new party, he lobbied me to get the Uk to join the Euro in the 1990s. More recently he has written a book explaining why he was wrong. He kindly came to the Uk to apologise in person to a few of us who had resisted his case. He is an able, well briefed expert on currency matters, who has changed his view in the light of experience.

         Meanwhile, Germany has just had to agree to an extension of the debt union which lies behind the Euro. Ireland and Portugal have been given longer to repay, which means a further softening of the terms of their loans. Cyprus is seeking  more assistance. The Euro can only carry on all the time Germany and a few other richer countries are prepared to lend or grant  others more of their money. As some countries cannot afford the loans, more of it will end up as grant.

 

       The ending of the Cold war was a fitting falling curtain on Margaret Thatcher’s decade in office. It accounts for why she was so much more widely respected and loved abroad than at home. To many in Eastern Europe she was the clear voice, the unswerving authority in the west alongside President Reagan, who had forced the communist leadership of the USSR to confront their problems and change their system.

 

        Her actions to do this had sometimes been contentious at home and disliked by some of the European partners. She had backed the US in deploying  modern missile systems on European soil, to show the USSR that  the west would not be bullied. She had backed and encouraged the US Star Wars development, which offered the opportunity for the west to lift the fear and spectre of possible  nuclear assault by offering us all protection. It worked. President Gorbachev concluded that the Soviet system had fallen too far behind the west’s wealth, technology and defensive capability. He decided to change the Soviet system.

 

           I was surprised to hear Malcolm Rifkind in his articulate and generous tribute to Margaret give the Foreign Office  the credit for identifying the Gorbachev change . I recall reading a passing reference to  a Gorbachev speech that surprised me during my time as Chief Policy Adviser at Number 10. I asked the Foreign Office  about it. They thought it of no significance. I asked to see the speech. They sent me over a copy in Russian. Ever persistent, I explained to them that my education had not run to fluency in Russian and I needed a translation. One was eventually sent over.

 

          It was electrifying. There in this speech you could see a Soviet communist leader wrestling with the sad truth for him that the western system was delivering better defence and higher living standards. Some phrases, sentences and arguments echoed the belief in free enterprise that Margaret herself enjoyed. The USSR President was preparing the ground for an embrace of a more capitalist system.  I took the speech to her, read out the crucial passages and surprised her as well as myself by the change they represented. It seemed possible, for the first time in the long Cold war, that change could come from the USSR which we could encourage and reinforce.  She immediately  saw the importance and  the implications. She made the first move, which the Foreign Office of course  assisted. She wanted to meet and talk to Gorbachev, and was in due course prepared to go to Moscow to do business with him.

 

             Her much later visit to Moscow was a triumph. The welcome of  people on the streets was very warm. She stood up well to a tv grilling, which won her more sympathy  from many Russians. The world was treading a path to the collapse of the Berlin Wall. Margaret Thatcher’s relationship with Reagan was important, giving him much needed European support for his determined stance against the USSR threat.  Her  relationship with Gorbachev was pivotal, allowing new exchanges with a changing regime.

 

          Her voice was heard in Eastern Europe.  As the subject peoples of communism stumbled out into the warmth of democratic freedom, it was her image they often had in their minds. WhenI travelled to Eastern Europe as a Minister to assist them in the immediate aftermath of the collapse of communism I was touched by their warmth towards the UK in general and Margaret in partricular. In Romania, travelling in the Ambassador’s car, a lady came up to the vehicle when stopped at traffic lights, and kissed the small Union flag we were flying.

 

   

 

      When senior  figures of other parties  have died I have not thought it right to use their funerals  as an opportunity to go over  the disagreements I had with them in life.

        I would just remind Margaret Thatcher’s critics that she won three General Elections with large majorities. Everything she did was approved by Parliament, and  subject to challenge in Parliament by the opposition of the day. The main opposition to her later  had thirteen years with large majorities of their own when they could overturn or correct anything they did not like from her past actions.

        She did not cause the banking crash of 2007-8, the deep recession of 2008-9, nor the decline of industry of the last decade. The whole financial regulatory framework was changed by the new government in 1997. The Labour government  chose not to renationalise privatised industries, not to restore free milk in schools (which they had taken  away from secondary pupils), not to change most  of the new Union laws, and not to put the Income Tax rates back up.

Years ago I visited Tokyo near the top of boom at the end of the 1980s. One of my Japanese hosts proudly showed me the sweep of the grounds of the Imperial Palace. He stressed the royal and enduring importance of the site, but then let slip the famous jibe at the time, that the land of the Palace and its grounds was worth more than the state of California.

When I got back to the UK Embassy I told them of the remark, and quipped that if that was true it was time to sell the Emperor’s Palace site and to buy California. It would have been the investment switch of the century had it been possible. California was poised to embark on the digital and internet revolution. Tokyo property values were about to plunge from their crazy heights, as the extreme Japanese bubble burst.

In the 23 years since the Japanese economy has struggled to grow. The Tokyo Stock Exchange is still 70% below its peak. Property prices are still well down on bubble levels. Japanese banks still struggle to finance a strong recovery. Property which in the dearest areas reached $20,000 a square foot, fell by as much as 90%.

It’s not all bad news. The Japanese population is ageing and declining. Adjust the National Income and output for this, and the per head performance is of a little progress over the last two decades. Japan started rich at the end of the 1980s, and is still a wealthy society by world standards, ranked now at 25th by the IMF for per capita income. Japan still has a range of successful manufacturing companies making cars, electrical products and other consumer items. For most of the past 23 years Japan has run a balance of payments surplus based on good exports. The Japanese save a lot, so they have been largely able to finance their own government’s large deficits. There has been no inflation.

Japan is very unlike the USA or the UK in three important respects. There is no large inward migration, adding to the workforce. There is little propensity for people to borrow to spend beyond their means. The society is much more self sufficient and inward looking culturally and financially.
Next week  we will  look at some of the similarities with the west- the money printing and high levels of state borrowing.