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Speech to the CBI, Birmingham 1997

Paddy Ashdown (Liberal Democrat)

Location: Birmingham

There are two kinds of speech you can make on these occasions.

A showcase speech which displays your party’s policy.

Or a signpost speech which points the direction you intend to go.

This is a signpost speech.

Its aim is to outline the new policies Britain must develop in the years ahead and to commit the Liberal Democrats to the leading edge of that new thinking.

Let me start by telling you a rather personal story.

On the wall of my study at home I have a picture of my grandfather driving the first car in Ireland, which he had just brought back from the Paris Exhibition of 1897.

I have seen his diary from the time. In it he noted how most people dismissed cars as ‘a rich man’s toy’. But he believed ‘these things will change the world’.

He was right.

And now, 100 years later, we are on the edge of a second revolution which will affect our lives in the next century quite as much as the motor car has in this.

It is a revolution being fuelled, predominantly, by two things.

The first, the globalisation of the market.

The important point about this revolution is that it’s only just begun.

Increasingly, in the years to come, the effect of globalisation will reach into every nook and cranny of our economy. There will be no hiding place, as many in the service sector are now beginning to understand. Increasingly, Britain and its firms will succeed to the extent that we have tradable goods to sell in the global market, at the right price and the right quality. Yeovil, my constituency, will have to compete head to head with Yokohama.

There will be bigger markets, more competition.

There will be greater potential for growth than ever before.

And it will all happen at much, much greater speed.

Today traders and managers in London, New York and Tokyo can communicate more easily and quickly today than their equivalents in the same town could in the last century.

A machine part, designed and committed to digital code in a Derbyshire dale, can be being machined, checked, corrected and mass produced in a factory in, let’s say, Delhi, minutes later.

These two factors - globalisation and telecommunications - are having a deep impact on the nature of business and work in the world.

They are forcing us to change the whole way we look at industrial success and potential.

And - and this is the central theme of this speech - they are introducing a new source for the wealth of nations - the wealth that comes, not from labour, or from land, or from commodities, but from intellectual capital.

Listen to what Peter Drucker, the eminent management professor and writer has said:

“the acquisition and distribution of formal knowledge may come to occupy the place in the politics of the knowledge society which the acquisition and distribution of property and income have occupied in our politics over the two or three centuries that we have come to call the Age of Capitalism.”

Sound fanciful? Well, let me give you two facts, followed by two short stories.

Fact one. It was said at the time of John Milton, that he knew all the knowledge in the Western world.

But today, the sum of human knowledge DOUBLES every 18 months. 90% of knowledge in the fields of physics, chemistry and biology has been discovered in the last 30 years alone. And the rate of discovery is getting faster and faster and faster.

Fact two. US output, according to Alan Greenspan, chairman of the Federal Reserve, is only a little higher than it was a century ago. But its value in real terms is 20 times more.

So where has this come from? What’s the missing ingredient?

Perhaps the first story will help.

It’s about an American company; the Integra Life Sciences Corporation. Last year they became the first company to get a licence for the manufacture and sale of artificial skin.

Today 250 burns victims in 15 countries have been treated with the skin. And the world-wide market is estimated at three to four billion pounds.

This is a pretty valuable business. But where is the value?

It’s not in the land - one small plot in New Jersey. Not in the value of the buildings, or the machinery, or the company’s bank balance - all are relatively modest. It’s not even in the labour force which, though skilled, stands at just 140.

No - the wealth of the company is not in financial capital, or human capital. It is in intellectual capital. It is in the idea - developed 20 years ago by an engineering professor in Massachusetts, and the licence which allows the company to exploit it.

And here is the second story.

This company does not even make a physical product. Its tangible assets are negligible. It has no factories, no sales outlets and only a handful of staff.

It doesn’t have a product in the conventional sense. Only a concept and a contract. The company, Formula One motor racing, doesn’t own the drivers; or the cars; or even the tracks they use. Yet its flotation on the stock exchange next year could raise two billion pounds.

What is being marketed, hugely successfully, by Bernie Ecclestone who owns the company, is just a series of computer signals which transmit around the world pictures that people want to see and will pay for.

These two companies - Integra and Formula One - may sound very different. But they are both examples of the same thing: the huge and growing importance of intellectual property as a tradable commodity.

The intellectual capital revolution will be different from any that has gone before.

The old laws won't apply.

Unlike natural resources, the sum of knowledge is not reduced by use.

Nor is it diluted by distribution.

Nor do the laws of supply and demand apply - some knowledge actually increases in value, the more people who possess it.

Unlike with raw materials, machines and complex processes will be less important than brains with the power to turn knowledge into ideas and ideas into wealth.

Unlike with commodities or finished goods - we don’t need trains or ships or lorries, or sometimes even time to transport the products of intellectual capital. What you think one moment can be earning wealth on the other side of the world a milli-second later.

In the future the firms and nations best at managing and multiplying intellectual capital will win in the market place - and that market place will increasingly be global.

Geography will matter less, and boundaries, and borders, and entity, and nationhood, will matter hardly at all.

It will be easier to enter a market.

And easier to dominate it. But tougher to hold your market share.

The pattern of ownership will change.

So will the nature of competition.

And the way we have to regulate monopolies.

And our patterns of transportation.

And the organisation of enterprise and commerce.

And there will be no prizes for those who lag behind.

We can’t afford to sit back. Because intellectual capital, like human capital, needs to be unlocked. And that is where government comes in.

Look at history.

The agricultural revolution would never have happened without Parliament passing the Enclosure Acts.

The industrial revolution wouldn’t have happened without the bills setting up the railways, or without the development of the limited company and joint stock banking, or without the culture of free trade which was prevalent in the middle of the last century.

So what do we need to succeed in this new revolution?

We will need new policies for spreading and managing knowledge. And for increasing the nation's intellectual capital and encouraging firms to increase theirs, too.

We will need new industrial policies based on expanding centres of excellence, supporting basic research, promoting technology transfer, encouraging networks, and spreading intellectual capital into every corner of the nation and its businesses.

We will need new policies which encourage, support and capitalise on the new flowering of talent and creativity in Britain - in science, architecture, fashion, design, the arts.

Above all we will need new policies for education, which make it flexible and diffuse, rather than, as at the moment, rigid and centralised.

And for teaching which concentrates less on the knowledge you have, and more on how to acquire the knowledge you'll need.

Because education is the absolute key to reaping the rewards of this new revolution for our country.

The importance of education and skills to our economic future just cannot be overstated.

The American economist Lester Thurow has put it this way:

“Show me a skilled individual, a skilled company or a skilled country, and I will show you an individual, a company or a country that has a chance to be successful. Show me an unskilled individual, company or country and I will show you a failure in the 21st century.”

That’s why we Liberal Democrats said, at the General Election, that our children’s education is so important that, if no other way could be found to raise the extra £2 billion a year our schools need - to cut class sizes, hire teachers, buy books and mend roofs - we would find it by putting an extra penny on the standard rate of income tax.

Lifelong learning is the key. And that means education, not just in schools, but in the workplace, too.

Keeping ahead in the world market will mean keeping up to date in knowledge, skills and ability. The best firms will increasingly become learning institutions as effective as universities in their own right. And the best universities will team up with them to help them do so. The firm which treats the acquisition of knowledge by its workforce as seriously and professionally as the acquisition of capital and assets, will find that it is able to hang onto its workers better and build up knowledge capital in a way which provides a crucial trading advantage in the market place.

A skilled and creative population is necessary to harness the power of this economic revolution.

But it is not sufficient.

We will also need to create the kind of economic environment where businesses can grow and prosper.

What are these conditions?

First, a recognition of how vital regionalisation is in the development of a global economy. Our region is Europe. We must be in there, shaping Europe, not spectating from the sidelines. The Liberal Democrats will use our influence in this Parliament to ensure that’s what happens.

That’s why I welcome the clear declaration by the Government in favour of a single currency, and Britain’s membership of it.

I welcome less the hesitation and delay until after the next election. As St Augustine might have observed: ‘Give me EMU, oh Lord, but not yet!’

But this is a decision to be driven either by Britain’s interest, or by Britain’s electoral timetable. But it can’t be both.

Having made the decision in principle on monetary union, the Government will now, I believe, be pushed down this track faster than they are currently prepared to admit. And the Liberal Democrats will be one of the forces pushing them. At the risk of mixing metaphors, we will be a rock upon which you can depend, on Europe.

We challenge those in all parties, and business too, who want to see Britain playing its full part in Europe to work together in defeating Euroscepticism and winning the case for Britain’s constructive engagement in Europe.

The second condition we need is stability.

We’ve got the independent central bank Liberal Democrats have fought for for so long. But that’s just the first step. We need a much more rule-based approach to economic management.

A new Fiscal Responsibility Act, committing the Government to the ‘golden rule’ - borrowing only for investment - and consigning pre-election tax bribes to the dustbin of history. And we need a new role for the National Audit Office, acting as the people’s watchdog, helping build a new trust between tax payers and tax spenders, and making it harder for governments to abandon the path of probity when the electoral going gets tough.

Together with a single currency, that amounts to a ‘triple lock’ of stability. Interest rates. Tax rates. Exchange rates. Getting us out of the boom-bust cycle, and into the best possible stable environment for business investment and growth.

Laying the ground, in fact, for the third condition for a successful economy - a culture of long-term investment for business.

Fourth condition - a highly competitive domestic economy to grow the skills to prosper in the global economy. We should combine the Monopolies and Mergers Commission with the Office of Fair Trading to create one powerful body with the task of promoting fair competition.

Fifth condition - a strong and vibrant small industry and self employment sector. Despite the last Government’s welcome attempts to encourage enterprise, Britain’s small firm sector is still too small, and needs to be substantially enlarged.

Sixth, the successful economies will be clean economies. Efficient use of primary raw materials will be as important in the future as the efficient use of labour and capital.

And seventh, we will need a government that acts less as master and more as partner; that, in the famous phrase, ‘steers rather than rows’. Government that enables more and interferes less; that puts a greater emphasis on commissioning the actions it needs doing, and less on doing them itself. Government, in short, which does less, but does it better.

So, these are the conditions. Education. Active participation in Europe. Stability. A culture of long-term business investment. A highly competitive domestic economy. A strong and vibrant small and medium enterprise sector. A clean economy. Government which steers rather than rows.

There is just one final, connected point that I want to mention before I finish.

When I spoke to you in 1994 my main theme was that the business community was ahead of the political world in changing from a culture of adversarialism to one of co-operation. As an RSA report stated the following year, industry had begun to move from a zero-sum, adversarial approach towards one of win-win, shared destiny relationships.

In 1994, I said that Westminster would die before it changed to a similar partnership approach, and probably would!

I am happy to report that I may have been wrong.

The business community understand that it is perfectly possible to compete in some arenas and co-operate in others. We, as Liberal Democrats, do too. And promised to do just that at the election.

So we’ll oppose this Government where they are wrong, like on underfunding of education. And we’ll push them along where we think they’re timid, like on Europe. But we will work with them where we think they are right and working in the national interest.

There is a great project in hand. And I think it will take 10 years to complete. It is nothing less than the modernisation of Britain. The Liberal Democrats and New Labour - working with the business community - are natural partners in that project.

In business terms, we are involved in the politics of the joint venture. Who knows? perhaps even the politics of the reverse take-over - but don’t tell Tony Blair when he beams down later on today.

Thank you!

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