FUTURE BRITISH STRATEGY
HISTORY MAY NOT ALWAYS REPEAT ITSELF.....THOUGH OFTEN RHYMES
When Elizabeth the First sent envoys to his court in Delhi,
the Moghal Emperor Akhbar already raked in the equivalent of £ 17 millions annually,
more taxes than George the Third would collect two hundred years later.
The largest economy on the planet was China with 30% of global GNP.
Second largest was India with about 25% and third came Europe with about 23% of global GNP.
The largest European economy was France.
By the year 1700 the Indian economy was overtaking China and the Emperor Aurangzeb collected taxes worth £100 millions
– more than all the nations of Europe combined.
By 1800 the annual tax income of India was collected by the East India Company
– over £ 110 millions a year – and helped pay for Britain to defeat Napoleon.
During this century China may become the largest economy in the World –
For the first time since the Seven Years War over 250 years ago, the largest economy on the planet will no longer be a democracy,
instead once again an imperial state ruled by a single political party, effectively by an aristocracy.
EAST INDIA COMPANY LITE
This century resembles the beginning of the eighteenth. No longer do only three power blocs compete for control of the world’s resources. New players step onto the global stage. Some will struggle more than others to become wealthy and influential countries. Although natural wealth is a huge blessing, often its benefits are squandered through poor political and commercial management and institutional corruption.
Britain has the gift of reinventing itself and that gives our country enormous human energy. Our economic size compared with China and India is remarkably similar to that period three hundred years ago. Let’s reinvent ourselves as a strong player in this modern new world. Britain became the first super-power by breaking away from Europe. We became rich and powerful enough to keep the balance of power on the continent for two hundred and fifty years. Let’s break away a second time, resume a blue ocean strategy by encouraging science and research, new service products and new manufactures for exports, shipping and ship building. Britain could boost its free trade strategy by strengthening British trading communities overseas as a new version of the East India Company. British companies and residents living overseas are export beachheads. We should offer loyal trading partners a reliable friend. A little eighteenth century enterprise would do no harm. Our diplomats have been neglected and need proper resources. Ambassadors and High Commissioners should have the authority to act on their own initiative. Everyone’s trade needs safe oceans. The Royal Navy should quadruple in numbers and fighting power as we enter a time when freedom of the seas increasingly becomes challenged.
A LITTLE COMMON SENSE GOES A LONG WAY
Back to the Future
Margaret Thatcher always talked to the children on school trips to see 10 Downing Street and who, with a bit of luck, hoped to catch a glimpse of Britain's first woman Prime Minister. There were no steel gates and barricades in those days and only a single policeman took care of the front door. Like those before her during the last century, Margaret Thatcher wasn't afraid of the people, knowing she was one of them. As a young diplomat I used to exchange polite greetings with the Prime Minister when she was off to the House of Commons for Prime Minister's Questions - and I was heading for a less public meeting at the Ministry of Defence. One afternoon the PM noticed three young schoolgirls complete with maroon blazers and pretty straw hats shyly watching from the opposite pavement. She crossed the street and began chatting, just as I emerged from the Foreign and Commonwealth Office's small side door into Downing Street. ' Getting a sense of proportion, Prime Minister?' I enquired with a grin. ' No, dear, keeping it,' she shot back, clearly on form.
Whatever has been written about the Iron Lady, and she was not infallible, most certainly she was a great champion of collective responsibility - team work - through Cabinet government. Matters were considered either by the whole Cabinet or smaller committees of Ministers and officials directly involved with a particular issue. The Cabinet Office, effectively the nation's secretariat, drew on every involved part of HM Diplomatic Service, the intelligence services, the Home Civil Service and the Armed Forces for candid advice. This smooth running machine had been improved and refined during 250 years. During an emergency Ministers, officials and serving officers would attend the COBRA Committee - its acronym simply means Cabinet Office Briefing Room A - a largish room in the basement. That way the Ministers were briefed by those dealing with an emergency and action agreed with all involved departments. One's reward for long night hours in this room was that Scotland Yard provided fried breakfasts - policeman sized and more than tasty.
As Prime Minister, Margaret Thatcher led a traditional Cabinet government, assisted by her closest Ministerial colleagues and the Cabinet Secretary who was also head of the Home Civil Service. HM Diplomatic Service has its own Permanent Under Secretary. She kept a finger on the pulse of every department but there was nothing ' presidential ' about her approach to government. Ministers ran their own Departments. The Foreign Secretary really was responsible for our foreign policy right down to the last penny of the overseas aid programme. Ministers ran their own budgets, not the Treasury although the Prime Minister usually signed off any sum over £ 25 million pounds as good house-keeping. She preferred lively debate rather than a room filled with people who wouldn't speak their minds. She had close allies but decisions were taken in the proper way, openly, not behind closed doors with small cabals. The result was that Ministers and officials knew where they stood and the government machine ran smoothly. Her method bore remarkable similarity to Winston Churchill's. Britain regained international respect during her time in office.
She was probably the best educated British Prime Minister with degrees in Chemistry and Law. She could keep the most amazing amount of detail in her head. One legacy of her premiership is that government departments became used to referring questions or informing Number Ten about a much wider variety of matters. This worked so long as Margaret Thatcher was Prime Minister. Previous prime ministers other than Winston Churchill during the Second World War spared themselves from a mass of detail - Ted Heath would go sailing over summer weekends and remain out of contact until he returned to harbour on Sunday evening. He regarded nuclear war as very unlikely over a summer weekend! None of Margaret Thatcher's successors has been blessed with same intellectual power as herself, three soon swamped by her normal workload, the fourth too idle to look into choices properly. Taking decisions on a sofa with a tiny coterie or making up policies with a small clique in the Treasury are not serious approaches to high responsibility, indeed dangerous, leading to deception of the voters and allies, as we have seen.
Future governments should make decisions through Cabinet Committee although even that isn't fool proof - the present Government and its Opposition resembles a gathering of expensively educated clones and salon revolutionaires. Their worst characteristic is habitual dishonesty. Thus, if we want to spring clean the country, we must start by overhauling the way we govern ourselves.
Britain has a system of government in need of radical change, unable to resolve crises, strategic decisions left to a House of Commons that lost public trust after the Sunday Telegraph newspaper exposed institutional fiddling of expenses by many members.
Our system of governing ourselves evolved during the 17th century and for a largely disenfranchised population. Throughout the last three centuries the House of Lords underwent several stages of reform and logically, perhaps should become an elected body - save that life peerages recruit people into Parliament who, thank the Lord, were not politicians. An elected upper chamber would lack the scientists, doctors, bishops, industrialists, entrepreneurs, diplomats and spies, military officers and sportsmen, landowners and environmentalists who make the present House of Lords such a treasure chest of wise counsel. The present government wishes to elect the House of Lords - create a dumping ground for beyond shelf life and retired politicians rather than keep an upper house akin to the Canadian senate - though not proportionately increase the Lords' powers. Logically an elected upper house should have the last word rather than the House of Commons as now. Almost certainly an elected House of Lords packed with aging politicians will spend most of its time grabbing powers from the House of Commons.
In contrast the House of Commons has not reformed itself and shows no sign of any intention to reform. Only the voting laws have been reformed, first in 1832 with the Great Reform Act, second in 1867 with the Representation of the People Act, third in 1918 with votes for women although not until 1928 did all women obtain a vote. Finally the voting age was reduced from 21 to 18 in 1970. The House of Commons regards itself as a model for the entire world. The record - it has shown itself quite incapable of safeguarding our industry, our banking system, our trade, our merchant navy, our farmers and fishermen, our diplomats and intelligence services and our Armed Forces.
The unsung bonus from the Brexit debate is that both main parties have thrown up healthy revolts among their own MPs because the people will have the last word through voting in a referendum. We need more of this strong medicine.
A rare success story of Parliament is the role of Select Committees, another remains the House of Lords. Both should have much greater authority as have the Senate and its committees across the Atlantic.
Changing the voting system, reducing the number of MPs are simply window dressing and not democratic; neither tackle the short-comings of an isolated and remote House of Commons stuck in a seventeenth century parliamentary tyranny.
There is a strong argument for taking the most serious matters away from Parliament and giving these decisions to the people as in Switzerland, apart from conquest by Napoleon, a democracy for over 800 years.
While we're at it, let's copy the Swiss and shift to local income tax as well. This would require reversal of the present way the government raises money. Local communities would charge their own tax rate and pay an agreed proportion to the county. In turn the county would collect an agreed tax rate on behalf of the Central Government. A great advantage is that local authorities compete with each other for residents and that has improved the standards of local authorities in Switzerland. People have a much greater stake in their local community and demand good service at reasonable prices.
Central Government deals with such matters as foreign policy, defence, trade negotiations, the law, national transport rather than trying to buy votes with largesse from the taxes. Federal taxes are clearly shown on your local tax bill. Even so, popular votes are required before taxes may be raised or lowered, before treaties may be signed or the defence forces reduced or increased. Power is disbursed. No power grabbing Chancellors in a Swiss government. The Swiss have long learned not to trust their Federal Parliament with anything important.
INTELLIGENCE AND DIPLOMACY
Foreign policy, intelligence gathering, defence, overseas aid, trade and cultural diplomacy are all parts of a single national effort. Intelligence has long been pooled via the Joint Intelligence Committee. This well oiled machine has run for decades as a group of sub-committees with the Secretary of the JIC, usually a talented diplomat, pulling everything together. The JIC's job is to collate and assess intelligence gathered from all sources both human and technical.
The Prime Minister thinks that calling an official the National Security Adviser instantly creates a national strategy. So far this comparatively recently created position has lacked a person with a grasp of what is meant by strategy. Instead the post has been filled by diplomats of average talent and consequently has been reduced to co-ordination between departments. Across the Atlantic the National Security Adviser is a political appointee with a reputation for imagination and wisdom. As a result at present we have no national strategy, a casual attitude towards defence, intellectual blindness about the worthlessness of EC membership and its extortionate cost, not to mention two foreign policies - the real one and the overseas aid programme. Without controlling the aid budget and severely weakened armed forces, our diplomats lack sharp teeth.
Budgets for all these activities should be pooled and overseas aid managed by the Foreign and Commonwealth Office.
Unsung heroine of the Cold War and every hot war since the 1950s. Probably the most successful spy-plane built with over 50 years patrolling hostile airspace the Canberra shows what the British can do when their government backs the aerospace and defence industry. The Canberra bomber first flew in 1949 - causing a sensation at the Farnborough Air Show that year. Along with our future Queen, as a 9 year old, I watched Roland Beaumont take her straight off the runway and into a vertical climb followed by aerobatics which none of us had ever seen performed by a bomber. During the Canberra's early service, many deniable missions were flown over the Soviet Union and Warsaw Pact countries. In 1957 she took the World altitude record reaching over 70,000 feet. This record held for decades until the MIG 25 zoomed to 100,000 feet and SR71 Blackbird flew level at 85,000 feet. Only the Blackbird rivals the Canberra's operational record. Canberra's have flown missions over many countries; Argentina, Iraq and Afghanistan to name only three recent wars. The last Canberra PR 9 aircraft finally retired in 2006 after 57 years operational service.
THE NEED TO KNOW
The first requirement for a sound plan is reliable intelligence.
Britain has a high reputation for gathering intelligence from human sources. Our history of gathering signals intelligence goes back to Room 40 of the Admiralty during the First World War and the code breakers at Bletchley Park played a crucial role during the Second World War. My generation kept secrets, today GCHQ has almost daily media cover. Much of the material is gathered by our closest allies, particularly by NSA in the United States.
Today's British diplomats and military planners must decide whether it's wise to remain so heavily dependent on the United States for eavesdropping and space reconnaissance, or, whether we ought to regain the political and operational freedom that, within living memory, including mine, British leaders regarded as normal. Achieving greater national independence for eavesdropping and space reconnaissance activities would require significant investment in satellites and alternative technology - such as high altitude pilot-less aircraft with limitless endurance through solar power. BAE have produced a prototype long range pilot-less aircraft which may offer a less expensive alternative to space platforms. This does not mean that we should take less material from the National Security Agency in the United States, rather that we ought to gather and contribute more such intelligence ourselves.
For all the billions spent on spying by ourselves and our partners - USA, Canada, Australia and New Zealand - not one major international crisis was foreseen during the last 65 years; perhaps a little investment in more analysis staff would not go amiss. The UK has a very good reputation for its analysis staff so it's by no means a lost cause.
Modern diplomacy and military operations also depend on satellite technology for communications. When the UK Defence Minister declares that Britain is unlikely to undertake major military operations independent of the United States this is a further reflection of our reliance on US assets for our command and control systems. This limits our freedom to act independently of the USA and one can argue that we should certainly invest in our own space communications.
One can also argue that a strong alliance from time to time inevitably will involve political restraints. NATO and our close alliance with the USA bring enormous benefits, not least keeping the peace in Europe and allowing us to intervene in the World's trouble spots largely on our terms. Therefore any strategy must weigh up the advantages of greater independence over the substantial rewards from our present dependence.
Any military alliance requires that it brings benefits to both parties. That implies that the UK contribution is sufficient to make its continuance worthwhile for our strongest and closest ally. Though it saves us a great deal of money on research and IT infrastructure and protection from cyber attack, we become a much more valued ally when possessing a reliable intelligence machine and strong forces able to mount large scale independent operations anywhere in the World.
OUR GLOBAL FUTURE
Within a decade the British Isles will have overtaken Germany as the fourth largest economy on the planet. Should we leave the EC and its restraints on our economy we may well close up on Japan. The price will be a much greater emphasis on technology, diplomacy and defence, particularly high technology industry, free trade and naval power.
JUST OVER THE HORIZON
The government needs to provide our diplomats with enough resources to understand the world and spot potential seismic shifts. This does not mean the ability to predict that a Mubarak is going to lose his Presidential Palace the following week. Rather, our spies and diplomats should be able to recognise trends, spot simple facts that may point to an imminent profound change - a decade ago the sacking of the Iraqi officer corps by Paul Bremer created the future command structure of the modern version of the Dervish empire throughout Iraq, Syria and Libya. Nobody listened to the warnings from American and British officers at the time, the discovery that former Iraqi officers led the invaders from Syria was not the surprise portrayed by the western media.
This present Government has spent six years dismantling our network of diplomatic posts and sacking their superb local staff. We need to rebuild the whole network of large and small posts. Top notch diplomats and local staff are essential for a country free of the EC straight jacket and once more deciding its own destiny. Exports won't hit a trillion pounds a year until once again we have our teams of local commercial officers ferreting away in the market places of the world.
FREEDOM OF ACTION
The world has become dangerous very fast. The whole Arab world suffers from anarchy compounded by the collapse of the oil price. Shale oil and gas already free the United States from the desert oil sheiks. We and the Poles are sitting on top of vast reserves of shale oil and gas, far more in our case than ever hid beneath the UK sectors of the North Sea.
Russia has become an odd mixture - a mafia state with nineteenth century imperial ambitions governed by former KGB thugs. The economy depends on oil and gas and Russia desperately wants the world prices to recover. The EC's diplomats led by Baroness Ashton blundered into the Ukraine and started meddling in east/west diplomacy, offering Ukraine an arrangement which included security, plainly NATO business. When the cold war ended, Ukraine became independent. As part of the deal, Ukraine gave up its large nuclear arsenal and in return Russia, Britain and the United States guaranteed its integrity. NATO assured Russia that we would not invite Ukraine to join the alliance. Ukraine was not considered a full democracy. The EC decided that they knew knew better - soon resulting in war between Ukraine and Russia, invasion of the Crimea, swiftly leading to a resumption of the Cold War. RAF fighters are based in Estonia and the United States is building airheads in Poland. NATO navies exercise in the Baltic and neutral Sweden may join NATO. President Obama wisely decided to shake up David Cameron and push the UK government into meeting the NATO target of 2% of GNP on defence - which was a UK proposal. Although the UK government has fiddled the figures, none-the-less, more money is going on defence, already there are two new RAF fighter squadrons.
Russia moved into Syria partly because David Cameron's woolly approach to Syria and the House of Commons' consequent doubts about the government's common sense created a strategic vacuum. like other European members of NATO, Britain had disarmed, leaving the burden of defending Europe to the United States. Russia wasted no time, based aircraft in Syria and launched thousands of air strikes against rebels supported by the west. Another tidal wave of refugees soon began pouring into Turkey - governed a despot whose motives are murky - and Russia hopes this flood will bully the EC into abandoning sanctions co-ordinated by the United States. The EC remains in panic mode, offering Turkey access to Europe for its 75 million citizens. The Sultans would roll in their graves if they knew how easy it has become to over-run modern Europe. No John Sobieski stands in the way of Sultan Erdogan. Frankly, the simplest solution to the Russian air power problem is to allow US and UK special forces to take SAMs into Syria, given that we can't trust such weapons in the hands of the rebels.
Far away to the east China threatens freedom of passage through the South China Sea. This is a powder keg just waiting for a casually thrown away match. China's leadership is desperate to steal the resources of the sea and its bed from their much smaller neighbours - Taiwan, South Korea, the Philippines, Vietnam, Malaysia and Indonesia. China's actions so far violate both the spirit and the letter of the UN Law of the Sea Convention which set up Exclusive Economic Zones for coastal states. The United States and the UK are firm advocates of freedom of the seas for naval vessels sailing international waters. China would like to impose a notification regime. This kind of brinkmanship leads to shooting wars.
China is a huge market. Potentially it's enormous. That won't happen unless we and the Americans are prepared to help the Chinese win their struggle for a free society. We are not going to enjoy any help or support from the EC member states. We will have support from a number of Commonwealth countries; some African peoples suffer under dictators kept in power by Chinese money in exchange for their countries' food and natural wealth.
To survive this dangerous era we need freedom of action, plenty of diplomatic and military space in which to move and that means breaking free of the EC albatross hung around or national neck.
By quitting the EC, we strengthen NATO overnight. Europe's strongest military power will no longer be hampered by its neighbours. On the other hand, they will become more dependent on our goodwill. No longer will the EC meddle in NATO security business without consulting ourselves and the United States. Moreover, there is another bonus; the present government's freeloading on the Americans must cease forthwith. This will happen after the EC referendum when, regardless of the result, Cameron is removed as leader by his own party.
LIFE REALLY IS SWEETER AFTER BREXIT
Ignore the doom watchers. Forget all the threats. No member state has quit the EC - until now - we will decide the rules. Let us assume the people vote to end our membership of the EC. Parliament has to pass a simple act repealing the original act that allowed us to join. The remaining EC members can do whatever they wish, holding votes all over the place, including one hears, referendums in regional assemblies in Belgium! I have no doubt that during the two years transition period the continentals will do their utmost to dream up all sorts of unpaid bills and financial claims. The UK should not hand over a penny unless we regard it as a legitimate financial obligation. So we'll need a much tougher Chancellor than little Osborne.
Even the mandarins in Whitehall are beginning to leak that exit from the EC will herald a kind of spring cleaning of UK rules and regulations for business and industry. Life will become simple again, starting and running a business much easier. For the last forty years we have run a trade deficit with the EC. This worsened until the financial crisis left us carrying the EC through a £ 60 billions deficit in goods. The UK has become the largest export market for the rest of the EC, larger than the USA and Japan combined. Our taxes feed children in Poland. Over three million EC citizens have national insurance numbers, most numbers issued during the last five years. This is not sustainable.
We have a large home market and freed from EC standards creative people will be able to design and manufacture new products for a new regime of UK standards. Let's sell to the wider world but import substitution with home manufactured products provides significant help when removing a trade deficit in goods. The doom watchers claim that the pound will sink. A lower value pound will not help exports because it's already 40% lower to the Swiss franc and nearly 30% lower to the US dollar than before the banking crisis. Most of our goods export business takes place in US dollars - with the USA and throughout the Far East where the US dollar is the trading currency. The problem is not high prices but low levels of demand. This applies particularly within the Euro zone where the German economy with a structural surplus has very effectively devalued its currency and now undermines the weaker Euro zone economies and undercuts the UK economy. This will not change but rather become more dangerous for our economy.
UK exports of goods - manufactures and so forth - vastly exceed exports of financial services. A modest percentage increase of manufactured exports would bring about a trade surplus. Back in the 1950s the UK had a trade surplus from manufactured goods of 10% of GNP. Today our exports to Germany are less than our trade deficit with the Germans. The same story applies to almost all the EC member states but in our case trade with the UK generates a quarter of Germany's global trade surplus. And the sectors are equally important, motor vehicles and industrial machine tools to name only two. Every fifth car made in Germany is bought by somebody in the British Isles. This trade pattern will grow more unbalanced unless we summon the courage to rip up the EC treaties and take bold strategic action and drastically improve the terms of trade.
Leaving the EC would dramatically lower the cost of everything in the UK. Food prices would drop by almost 20% and the economy would be freed of a significant layer of costs imposed by EC membership and calculated to cost £ 35-40 billions a year. Mass migration from eastern Europe would drop overnight and thereby arose the claim that Brexit would cost a million jobs. Yes, it would, because a million immigrants from the EC would no longer arrive at Dover seeking low paid jobs in the retail and food sectors. Without any devaluation the real cost of German cars and machine tools, French agricultural products, Dutch pills, Polish televisions, would rise against much less expensive alternatives from the UK economy and suppliers from beyond Europe.
UK exporters must look for new markets outside Europe as a matter of urgency. Small and medium sized companies - most of which don't export but should and could - need help from diplomats and local commercial staff to break into emerging markets with UK products and technology at the right prices. At present our trade in goods with the EC is a mess that's out of control. A deficit in goods of £ 13 billions before the financial crash hit over £ 100 billions last year. This is not sustainable, not even in the short term. Europe will doubtless survive without us - we won't survive unless we break free from the EC which resembles an economic Dracula sucking the life out of a still healthy economy.
Let's assume the British have the courage to break free. Where should we look for role models as successful economies?
Young people enjoying Friday evening in Myong Dong, Seoul and the business skyscrapers along Shanghai waterfront
EASTWARDS LOOK, THE LAND IS BRIGHT
From 1961 to 1997 the GDP of Hong Kong grew 180 times and GDP per capita grew 87 times. With a population of seven millions and a work force of three millions, Hong Kong has a larger economy than Israel or Ireland. For the last seventeen years Hong Kong has ranked as the World’s freest economy in the Wall Street Journal and Heritage Foundation Index of World Economies. Low levels of public spending yet plenty on schools, roads, hospitals, led to low foreign debt and accumulated reserves of $ 280 billions. Only mother China's communists are a danger to this success. This is the direction we should look when seeking modern blueprints for our economic future.
Do our Continental partners in projects such as Airbus, Typhoon, the European Space Agency, want import tariffs added to the base costs of the finished aircraft or scientific project? The same applies to energy groups and rail franchises. The Hong Kong approach may result in assembling finished aircraft in business friendly, duty free Britain rather than France with its complex and expensive employment rules. We will be able to design simple rules for setting up a business, running a business, employing people, not to mention taxing a business. The present US negotiating team say that tariffs are the least of their problems while negotiating with the EC – access and protection are much trickier.
Other countries we can learn from are Singapore and South Korea. Between 1980 and 2011 the GDP of Singapore grew eleven times larger. Like its sister former British colony, Hong Kong, the island state has a reputation as the most free, honest, business friendly economy on the planet with a highly educated and motivated work force, huge numbers of whom speak English: more English speakers than any other country in the region unless you count Australia and New Zealand. Singapore was eased out of Malaysia only three years after independence for the whole Malaysian Federation. The island has survived exit from a larger economic unit, managed to stay friends, and done rather well. We should learn also from their approach to health insurance, pensions and indeed housing which are all covered by the Central Provident Fund. Contributions are levied at 16% for the employer and 20% for the employee. While the scheme may not slide smoothly into the British economy, there must be lessons we could learn and apply. Always remember that Lee Kuan Yew, the man who created modern Singapore, quit the LSE for Cambridge where at Fitzwilliam College he gained a rare double starred first for Law. Indeed, one must add, Singapore has only two natural resources – its geographical position which since the days of Raffles has made the island one of the main cross-roads on the global sea lanes, and its amazing people.
South Korea has a population of 50 millions living on a mountainous peninsular the size of Scotland and Northern Ireland joined together. Rather like Scotland, most of the people live in big urban sprawls along or near the coast. The largest is the capital, Seoul, combined with the port of Inchon and other satellite cities with no less than 26 million people, known as the Seoul Capital Area. Imagine that Edinburgh, Stirling and Glasgow are one huge urban and industrial sprawl with several times more people and you have an idea of the size and impact of Seoul on the rest of South Korea.
No peace came to Korea in 1953 and ever since an armed truce has existed with the peninsular cut into two halves by a no man’s land strip four kilometres wide and stretching two-hundred-and-fifty kilometres from coast to coast. All the coal mines and steel works lay in the north-eastern part of the northern half. There was no industry in the southern half. Even by 1962 the southern half’s GDP was less than $ 3 billions yet over the next forty years this economy grew at an astonishing speed and today GDP touches $ 1.8 trillion. Compare this with North Korea’s GDP estimated at possibly $ 40 billions but possibly much less and an estimated per capita annual GDP of $ 1800 from about twenty-four million people as opposed to the fifty million souls in South Korea. We might not want to adopt the entire bag of tricks that brought South Korea to its present economic power ( such as barely disguised military rule at one time combined with long hours for low wages and massive cash crises ) but there’s much we can learn from their strategic grit, intellectual curiosity, imagination, team spirit, zeal and pride. The Japanese regard the Koreans as unruly farmers – but the latter now build half the world’s container ships. Not bad going in less than fifty years.
Chung Ju Yung, founder of Hyundai Corporation, liked to tell the story of how a small family construction business turned into a global corporation. When the Korean War started the Americans were desperate for airfields. Chung and his brothers put in a bid to become the main contractors. Although they did not mention it, they owned not a single bulldozer or piece of plant that could build an airfield, nor had they any more than a tiny work force. Once the Americans gave them the contract, everyone supplied what they wanted and men lined up for jobs even though at that stage they could not pay for anything including wages. After the Korean War they started taking on construction work overseas and ventured into steel making and ship building. By 1967 they had recruited George Turnbull, former MD of Morris Motors and his team of five other British carmakers to launch the Hyundai Motor Company. When I knew the Chung brothers during the 1980s they built ships, cars and big construction projects in the Gulf and had just launched Hyundai Electronics.
They were helped by a strong Confucian tradition as the foundation for the politics of South Korea. Strong government by former generals backed by approved political parties. Opposition allowed so long as it knew its place. These cleared the way for central planning and allocation of money, land, resources. Research institutes, industry and trade associations were set up according to the central plan. Everyone knew the plan and their place in the strategy. Wages were kept low and most imports kept out. Education became the first rung on the ladder to a better life but even the best educated women found it near impossible to land a responsible job other than medicine.
The Lee family built up Samsung during the same era. Two other conglomerates were Lucky Goldstar and Daewoo, respectively starting out making white goods and ships. These big conglomerates are known as Chaebols by the Koreans. As with Chinese manufactures today, Koreans had to learn some hard lessons – Koreans joked that QC stood not for quality control but for ‘ quite close ’ in their factories. Health and safety did not feature on most production floors. Local markets often became flooded with surplus production. Street vendors would give you packets of socks or Polo label tennis shirts for change rather than money. None-the-less, we should learn from their team work over strategy, their determination to wade ashore and grab beachheads in foreign markets, their hunger for knowledge and the drive to make themselves leaders with technological breakthroughs such as chip capacity. After all, Samsung’s Galaxy mobile phones may not do everything their rivals can, but they perform well enough for Samsung to capture the largest share of the global market.
Nor do the Koreans put all their eggs in one basket. They now have the most wired up society on the planet but manufacturing represents 24% of their economy. Again, we can learn. The Koreans make the steel for the ships and cars they build. They make the electronics that go into everything from ships to mobile telephones. They keep control over the whole production line from start to finish. They do not sell strategic industries like steel production to a Dutch Group only for the British steel maker to be shut down. Koreans, quite rightly, look upon this as pretty dumb business, making a few quick bucks for somebody while losing a vital national capacity and its skilled workers. And, if the British bankers are not capable of understanding this, then our government should do what the Koreans would – invite somebody else to open an industrial and business banking sector and start issuing bank licenses. Bring in new faces with smarter brains.
We know it works – look at the amazing growth of Silicon Fenn through the financial guidance and backing of the Cambridge Network. Some 24% of venture capital in the UK goes into Silicon Fenn. The annual turnover of the high technology industry around Cambridge is now £ 14 billions and this is expected to double within the decade. Nine more Silicon Fenns would raise economic growth to around 10% a year. Of course, Cambridge University is a world leader, but already Imperial College has started to build a similar incubator at White City in London.
‘ Without manufacturing you cannot lead innovation and lead the market.
Of course, the trend is moving towards software but without the foundation, without hardware, you won’t be successful in software.’
Wise words from Boon Kyun Yoon, the CEO of Samsung Electronics who make and export all those mobile phones.
Our trade with South Korea provides a good example of what is possible with imagination and hard work. When I arrived in Seoul in spring 1986 our exports were about £ 290 millions, a large proportion GEC's contract to build the Seoul Subway. South Korea was governed by generals in suits. I had known the president in Vietnam when he was the newly arrived colonel of the Korean Airborne Regiment - and socially a bit stiff and stuffy for my Francophile friends of the South Vietnamese Airborne Division. Industry and business in South Korea was run by large family owned conglomerates - chaebols in Korean - such as Hyundai, Samsung, Daewoo, Lucky Goldstar with smaller rivals such as KIA building markets. The media was almost entirely government controlled with only the redoubtable old Doctor Kim Sang Man holding onto the Chosun Ilbo, the great economic newspaper of Korea as a lone torch of free speech. Just as the Koreans yearned political democracy so the economy needed opening to the world before ordinary Koreans could enjoy their nation's success.
Most of the time the approved political parties kept the business suit junta in power. Regime change was ruthless. President Park was murdered by his own security chief, shot across the dining table at the presidential Blue House. Power was grabbed by my war acquaintance, General Chun Doo Hwan, and all protest crushed; hundreds of protesters were shot during two days of demonstrations in the south western city of Kwanju. The main opposition leader was placed under house arrest. On the few occasions when he was released, Kim Dae Jung survived attempts on his life. The opposition parties kept their powder dry – until the generals won a bid to host the 1986 Asian Games. Holding the games, calculated the generals, would put them in the running to host the 1988 Summer Olympic Games. Hosting the latter, they firmly believed, would put South Korea on the global map as a modern country. The forecast was that within three years from 1986 the country’s GNP would double. As leading Korean businessmen said at the time, ‘ We have opened our shop window but nobody comes into the store. By hosting the Olympics Games the whole world will discover our store.’
The generals won the final bid; Seoul would host both games and from 1986 onwards the global spotlight swung on South Korea. What the generals had not allowed for, swiftly became apparent. By winning the contest to host the 1988 Summer Olympics the generals had created a priceless hostage – the Olympic Games - and those who dreamed of real democracy now held much stronger cards. Seoul as a venue was not without controversy. The Cold War still divided the World, nowhere more so than on the Korean Peninsular. North Korea immediately began constructing a larger Olympic stadium in Pyong Yang, demanding the games should be shared between both capital cities. Two thousand tanks and eighty-thousand special forces troops stood ready for war along the North Korean side of the DMZ - Seoul’s northern suburbs are within artillery range from North Korea. Add to this daily rioting and tear gas battles for democracy on the central streets and sooner rather than later the doubts returned over whether Seoul was a wise choice of venue for the summer games.
Moving the games somewhere calmer would have involved huge loss of face for President Chun Doo Hwan and his government. Throughout winter, spring and summer of 1987 the demonstrators, mostly students, withstood tear gas and riot police batons on the streets of Seoul. The riot police had been students themselves only recently and were policemen for three years rather than soldiers for two years. Their hearts were not wedded to the job. At that stage all one could do to help was to reduce the violence through a large western media presence in the city. I had a close relationship with the British media, particularly the BBC and ITV, whom my staff assisted for two years with their Olympic preparations. BBC News and ITN became great allies in our campaign at home to reach the owners of small and medium sized companies in their own living rooms and persuade them to come to Korea and let our superb local staff help their products break into the market. When Trevor McDonald arrived with an ITN News crew and turned up at my office on a Wednesday morning there were three western news crews in the city. I helped Trevor to meet the right people in the right places at the right times. That night his report from Seoul took up nine minutes of News at Ten. By the weekend there were eighty western television news crews in Seoul. The government began to wobble. Chun Doo Hwan stepped down and his deputy won the Presidential election but the ruling political ship was holed below the waterline.
From our point of view, a great victory had been won, because democracy also meant that workers no longer accepted the equivalent of $ 100 a month for twelve hour days and longer. Within months $ 400 a month became normal. All sorts of manufactures from Britain suddenly became less expensive though far better quality than the equivalents made in Korea. Within a year of democracy we could sell car brakes and steering gear – made by Otter Auto Parts with three factories on the Welsh border employing mostly married ladies who didn’t want to work any over time and were highly efficient during a six hour day. We began to sell finished manufactures, not just mink skins for Jindo furs. We started to reverse the absurd situation where we supplied raw materials which the Koreans turned into value-added goods. When my family and I left Seoul for Kingston, Jamaica in the summer of 1989 our exports were £ 630 millions a year ( more than double and we had worn out the commercial department offices! ) and on the way to closing the trade gap. Over the last twenty-five years our superb local staff, many highly educated ladies, kept up the good work. Small and medium sized companies need embassy staff who are not frightened to negotiate on their behalf. We didn't charge UK firms for our help - after all, they'd already paid enough taxes. Thanks to their efforts nowadays we have much stronger trade with South Korea and last year saw a UK surplus.
Eventually Kim Dae Jung was voted President. Today the daughter of General Park is the President. South Korea’s gnp per capita touches more than $ 30,000 a year compared with the British at $ 38,000 and the Americans at $ 51,000 ( the Swiss are at $ 54,000 ) a year. A single Chinese produce $ 9000 a year, their position on the ladder rather like that poor South Korean back in 1986 toiling away 12 hours a day for $ 100 a month. British politicians visiting China dare not raise human rights and democracy for fear of offending their Communist hosts – the FCO mandarins have told them such insolence to the great peasant emperor undermines our ambition for more balanced trade. This is nonsense. The Tibetans yelled their heads off when the Chinese Emperor visited Bern. When he protested, his hostess, the Swiss President, explained that her country has been a democracy for eight-hundred years and most countries, including China, were still catching up. This has not stopped China signing up to a worthwhile trade deal for both countries. China’s students dared not attempt an Olympic coup as did the Koreans but we should never relax the pressure on the Communist Emperor – it’s very much in our diplomatic and commercial interests to probe and open fresh windows towards freedom whenever we find a chink in his armour. The best gift that we can give the ordinary working people of a China - and factory workers in the UK - is a sustained massive cyber attack on the Communist party's apparatus of censorship and suppression.
With effective management, most problems can be solved and quickly.
THE DIPLOMATIC AND DEFENCE SHIFT - WHERE TO PUSH ( UNDER THE EDITOR'S PENCIL )
I have long maintained that the pay bill to retain professional forces eventually gobbles the resources for equipment. At the moment the bill for service pay consumes thirty per cent of the budget - half with the civilians' pay - leaving forty per cent for equipment and the remainder for running costs. Somehow we have to increase the manpower without further reducing the money available for equipment programmes. There is no question that the defence budget needs more money. Take the trouble to ask the present Service Chiefs and they will tell you that an increase of just £ 2 billions a year on the present annual defence budget would allow them to carry out all operations and purchase all the new equipment they need. Our armed forces struggle because the government has reduced all three below the point of critical mass. All three are too small for the present, comparatively modest operational tasks. A quarter of a century ago the Royal Navy put together a strong task force and despite the lack of vital capabilities - no long range early warning nor close defence against missile and aircraft attack - liberated the Falkland Islands. This was possible because NATO obligations forced the government to maintain the fleet at a certain strength. Today we're back where we were - no ship patrols the islands. Rather like the owner of a quality sports car who neglects the regular services, every time they venture onto the highway, something breaks down and the journey stops for emergency repairs otherwise avoidable.
One sees the same pattern with our diplomacy. The money exists. Only, the FCO budget is relentlessly trimmed - since three decades - while over £ 9 billions a year vanish through an aid budget run as a separate foreign policy and which pays only passing attention to our national interests. You cannot have our diplomats conveying the tough messages to corrupt governments while a rival outfit smiles like treacle and hands over ready cash, no questions asked, no favours returned. We pump one and a quarter billions into Africa each year because many countries still cannot govern themselves. It is no accident that South Africa has a huge problem with illegal immigrants from its neighbours. Worse, over the last five years £ 1 billion pounds has been spent on propaganda to British voters about the need for aid. Leaving aside what this money spent on domestic propaganda would buy in a developing country it could add a frigate to the fleet every year. China receives nearly £ 40 million a year from the aid budget - China has $ 3 trillion foreign exchange reserves and a huge trade surplus. The head of the Commonwealth Development Corporation is paid £ 1 million a year from the aid budget. More aid billions without reforms will simply go into the same bottomless swamp. Aid remains poor people in rich countries giving money to rich people in poor countries. This must stop.
If our media paid as much attention to the aid budget as they do to defence costs the government would have been forced to justify this brainless generosity on our behalf. There is obvious duplication with separate diplomatic and aid staffs. Moreover, our aid effort in Afghanistan should be shared between our diplomats and the Royal Engineers, a formula with wider applications. To put all this in proportion, we could pay for the Diplomatic Service and the Intelligence Services plus the British Council, globally, twice over, with the money given away as aid each year. Put another way, the same money would buy two aircraft carriers or twelve type 45 destroyers, annually. We have to look at the national effort as a single task and logically the budgets for diplomacy, international aid, defence and intelligence are linked together.
We reach a second conclusion - our defence and aid strategies should be driven by our diplomatic objectives based on sound intelligence. When I say diplomatic I stress that our diplomats spend most of the time on promotion of our trade in goods and services and investment. We go back to Winston Churchill's wise words - the purpose of diplomatic relations is not to confer a compliment but secure a convenience. Governments harvest more progress for an aid dollar/pound spent in a well managed country than in a corrupt one. However, all too often, threats to international stability force NATO governments and the EC Commission to prop up corrupt regimes rather than allow shaky states to collapse altogether. One can argue that the best investment we could make with our aid budget is to first remove a corrupt regime and only afterwards invest in the country. Zimbabwe's people have suffered misery because liberal politicians and diplomats lacked enough moral courage to mount a Commonwealth police operation. Global raw materials are finite, competition for them brings danger alongside wealth. Honest governments across Africa and Latin America trade in a market place where the rules are made by their corrupt neighbours. If we want such nations to supply us in the foreseeable future, we must prove ourselves capable of protecting them from regimes with little interest in human rights and less in conservation. Already the ability to mount long range interventions is vital for global trade.
A glance at the US Foreign and International Development budget provides an education. Some $ 40 billions cover all US Diplomacy and International Development Aid. The latter has a budget of $ 18 billions for every country on the Globe including all forms of assistance to both Israel and Iraq. The dog wags its tail. The US Defence budget this year is $ 515 billions from a Federal Budget of $ 3 trillions from a US economy calculated at $ 14 trillions for this fiscal year. Compare these figures with the UK government and one sees how, despite gobbling 40% of the annual gross domestic product, foreign policy and defence are starved of cash to support an aid budget out of all proportion to the overall effort, intellectually out of control. Look no further than Canada with its enviable record as an aid donor. The largest recipient of aid from Canada is Afghanistan. Frankly, my impression is that the removal of the aid budget from the Foreign and Commonwealth Office simply allowed Tony Blair and Gordon Brown to strut the world stage, posing like aged pop stars before a horde of media sycophants. Aid funding is best driven by projects - water, sanitation, health, power, education, rather than random and meaningless percentages of gross national product. Aid projects can become self-supporting. The British Council receives a grant of £ 189 millions from the FCO but earns 60% of its £ 500 millions budget from book sales and examination fees - a measure of its success is that both Russia and Iran want to close down the Council in their countries. For all this ' presidential ' posturing Number Ten still managed to hoist the union jack upside down on the table when Gordon Brown and the Chinese premier faced the World's television cameras.
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' When you're on the phone to Downing Street this morning, Adrian, remind the lady who ordered all those ships that she's sending south.'
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