The Downing Street Years

by Margaret Thatcher

  So in 1990 we legislated to give British citizenship to 50,000 key people in the Colony and their dependants — though the essential purpose of the scheme was to provide sufficient reassurance to persuade them to stay at their posts in Hong Kong where they were vitally needed. We were also brought under strong pressure immediately to accelerate the process of democratization in Hong Kong. There were, in any case, strong moral arguments for doing so. But all my instincts told me that this was the wrong time. The Chinese leadership was feeling acutely apprehensive. Such a step at that moment could have provoked a strong defensive reaction that might have undermined the Hong Kong Agreement. We needed to wait for calmer times before considering moves towards democratization within the scope of the agreement.

  If it was China’s recognition that she could benefit from extending the notion of ‘one country, two systems’ to Hong Kong which allowed the Hong Kong Agreement to be reached, something more would be needed in the long term. At some point the increasing momentum of economic change in China itself will lead to political change. Keeping open the channels of trade and communication, while firmly pressing for human rights in China to be upheld, are the best means of ensuring that this great military power, on the verge of becoming a great economic power, becomes also a reliable and predictable member of the international community.

  Japan

  Japan is not only a great economic power and a leading democratic nation in the region, but of great importance to Hong Kong. The confidence of Hong Kong is much affected by the confidence of Japanese investors there, who also regard it as the gateway to mainland China. For reasons of wartime history, the Japanese were shy of making public statements about China. But they had close contacts with and a deep insight into what was happening there. So I always sounded out Japanese politicians on their impressions of thinking in Peking.

  However, the main subject of (often difficult) negotiations with the Japanese during my time as Prime Minister was trade. We pressed the Japanese to open up their markets to our goods, to liberalize their financial and retail distribution systems and to work towards the reduction of their huge and destabilizing balance of trade surpluses with the West.

  Much of the criticism of the Japanese was unfair. They were everybody’s scapegoat. The Japanese should not have been blamed for prudently saving more — and so having more to invest at home, overseas or, indeed, financing the US budget deficit. Nor should the Japanese have been blamed for producing first-class cars, cheaper video recorders and advanced cameras, bought eagerly by western consumers. Yet in both cases they were.

  Far more important was to ensure that their markets should be as open to our goods as ours were to theirs. In fact, in addition to tariffs, which of course were subject to GATT regulations, there were two big obstacles. The first was that their distribution system was inefficient, fragmented and overmanned and their administrative system was difficult to get around. The second was a cultural difference. For example, Japanese consumers automatically prefer to buy home-produced goods: government action can do little to change that. More potentially amenable to international pressure was that the Japanese offered terms of aid which we could not match and so secured foreign contracts.

  The Japanese have also regularly been pilloried by western governments for not taking a more active international role in upholding security when we — and even more so Japan’s immediate East Asian neighbours — would not wish Japan to rearm and act as a great or even a regional power. As was shown in the Gulf War, Japan is increasingly willing to pay for others, particularly the United States, to uphold international order and security. The fact that, in both the economic and security fields, much western criticism of Japan is unfair does not, however, mean that we should be anything other than tough-minded and realistic in dealing with Japan. But the Japanese must also be treated with genuine (and deserved) respect and their own sensitivities understood.

  My second visit to Japan was in the autumn of 1982 on my way to China and Hong Kong. It set something of a pattern. I stressed to my hosts — both politicians and businessmen — my concern at the difficulty which British companies faced in penetrating Japanese markets. The Japanese themselves had promised action to deal with this, but it was a long time in taking effect. There were, though, more positive elements to the visit. I met members of the Keidanren — the Japanese CBI — and was struck by the fact that the top Japanese industrialists I encountered seemed often to be engineers, people with a practical understanding of the manufacturing processes of their firms and able to contribute to innovation. This was in marked contrast to Britain where, all too often, ‘management’ seemed to be qualified in administration and accountancy. It was, I thought, a clue to Japanese industrial success.

  While in Japan I met the President of Nissan, whose company was considering at that time whether to go ahead with the construction of the plant it eventually built in Sunderland. We had a useful talk, though I could not at this stage draw from him any explicit commitment. Negotiations were at first known only to a small group. But agreement was finally reached in January 1984. I was convinced that the Nissan project made as much sense for Japan as it did for us. By exporting investment to Britain they would undercut protectionist pressures against them, bring in income for years ahead as well, of course, as providing incomes and jobs in the recipient country.

  During my visit I also went to the Tsukuba Science City. This was fascinating. But I thought the decision to concentrate scientists in one particular location away from the great industrial centres was questionable. Interestingly, I found a number of Japanese who shared that view. This is all the more important because Japan’s research is often on the technological side, whereas, by contrast, Britain’s emphasis is on basic science. (Most of Japan’s advances in industry have come from the application of well-established scientific principles.)

  At this time the export of Japanese machine tools to the West was one of the most vexed issues of dispute. At Tsukuba I saw just how advanced the Japanese were. I was photographed shaking hands with a robot and, to my astonishment, found that it even had smooth, delicately jointed fingers. It was a demonstration that the Japanese not only had advanced electronics: they had managed to develop and apply that technology far more successfully than we had.

  Under Prime Minister Nakasone, Japan began to play a more active role in international affairs. So, when he made a visit to Britain in June 1984, I felt that I was dealing with a Japanese leader who understood and sympathized with western values and had shown that he was prepared to make steps in the right direction on economic policy. The talks I had with him in the morning and over lunch on Monday 11 June 1984 could, therefore, concentrate as much on wider international issues as on Anglo-Japanese bilateral trade disputes. Mr Nakasone gave me an account of his dealings with the Chinese. I told him about the state of our negotiations on Hong Kong. This was, of course, nearing the end of that period of freeze in the Cold War which preceded the advent of Mr Gorbachev. Mr Nakasone showed a shrewd understanding of what Japan’s role in these circumstances should be. He said that the Soviets would come out of their hibernation only when they decided to do so and that the West should wait for this. But he had continued to urge on the USSR the need for dialogue. He believed that the Soviets would need Japanese expertise and capital to develop Siberia and that this would in the long run be a powerful influence. In fact, this accurate and imaginative approach, which could yield enormous benefits, has still not been applied, mainly because of the dispute between (now) Russia and Japan over the Kurile Islands. I also discussed with Mr Nakasone Japanese investment in Britain. He said that half of the Japanese companies now established within the European Community were in the United Kingdom. ‘Not enough,’ I replied. ‘I would like two dozen more.’ He went away in no doubt about the welcome Britain would accord to Japanese investment.

  My next visit to Tokyo was for the G7 economic summit in May 1986. The main issues at the summit were not economic at all but rat
her political. In the wake of the US-Libyan raid, international terrorism was the principal item on the agenda. The appalling consequences of the nuclear disaster at Chernobyl were also still being assessed and discussed. On terrorism I was determined to support the Americans with a strong statement in the communiqué. I was glad to learn from President Reagan when I saw him in Tokyo on the afternoon of Sunday 4 May, on the eve of the summit, that he could go along with what I proposed.

  Both President Reagan and I were keen that the summit should be a success for the Japanese. The President was a strong supporter of Prime Minister Nakasone and was rather more inclined to be optimistic about the changes which had been promised in Japan’s economic practices than I was. But I had to agree with him that Mr Nakasone had the right instincts in international affairs and it was important not to endanger his position.

  In fact, there was not much practically to show for the vigorous efforts we had made to have the Japanese open up their markets. There was, for example, still heavy discriminatory tax on imported liquor. Whisky was the fourth largest single UK export to Japan. This being my own favourite nightcap, I felt a truly proselytizing zeal to encourage the taste for it. The former Governor of the Bank of Japan, Mr Maekawa, had also produced a report on ways to reform the Japanese financial and commercial system so as to allow the reduction of Japan’s huge trade surplus. But it was better on generalities than specifics.

  Japan’s trade surplus was sharply up again in 1986. But the Japanese had allowed the yen to rise in value, something which was far from popular among Japanese industrialists, and this would probably be the most important factor towards achieving a better balance of international trade relations in the future. The other good news from our point of view was that by now forty Japanese manufacturing companies were operating in the UK, creating over 10,000 jobs; and the Nissan plant was expected to start full-scale production that summer with total employment of around 3,000 people. On the cultural level, contacts between our two countries were good. The Japanese had begun a policy of endowing teaching posts at British universities. The eldest son of the Crown Prince of Japan had recently completed two years at Oxford University. Our own Prince and Princess of Wales were due, in turn, to visit Japan.

  I talked to Mr Nakasone shortly after the end of the summit. After congratulating him on the organization — which was far better than the previous Tokyo summit I had attended — and discussing the inevitable subject of Scotch whisky, I said that I wanted to try to ensure that in future relations between Britain and Japan were not dominated by the trade imbalance. That was still not possible at the moment. Some sizeable purchases by the Japanese of aircraft would help. But I was clear in my own mind that we must get beyond these issues to those of wider international importance if Japan was to play her proper role in world affairs.

  Japanese politics are sui generis. Leaders ‘emerge’ from negotiations between factions. Decisions are taken through gradually developed consensus rather than debate. And in spite of his achievements in establishing Japan as a major player on the international stage, Mr Nakasone was unable to buck the convention by which the nominees of other factions in the governing Japanese Liberal Democratic Party (LDP) must have their turn in office.

  It was his successor, Mr Takeshita, as head of the largest faction in the LDP, who took the most important decisions to make structural changes in the Japanese economy. Of most importance from our point of view, it was he who removed the discrimination against Scotch whisky and opened up the Japanese Stock Exchange to two of the best-known British stockbrokers who had been excluded. I said to Mr Takeshita when he came to London to see me that he was the fourth Prime Minister with whom I had raised the issue of the Stock Exchange. He promised action but asked for time. And he proved as good as his word. I did not have to raise it with a fifth. Partly as a result, however, of public resentment at the introduction of a new, though modest consumption tax and partly as a result of political scandal, Mr Takeshita resigned in May 1989. His successor, Mr Uno, after just a few months in office, soon resigned too. So it was the comparatively young and relatively unknown Prime Minister Toshiki Kaifu who was in office when I made what turned out to be my last visit to Japan as Prime Minister in September 1989.

  Mr Kaifu was to host a meeting of the International Democratic Union (IDU) — the international organization of Conservative Parties which Ronald Reagan and I had founded. Inevitably, the IDU comprised a variety of right-of-centre parties: but it had the advantage over its junior partner, the European Democratic Union (EDU), that it was not dominated by the Christian Democrats and included the American Republican Party. (The star of that year’s conference was undoubtedly the Swedish Conservative leader — since Prime Minister — who delivered a speech of such startling Thatcherite soundness that in applauding I felt as if I was giving myself a standing ovation.)

  Mr Kaifu had his own domestic reasons for wanting the occasion to be a success. He had no strong power base of his own within the LDP and needed to cut something of an international figure in order to win back alienated LDP voters before the forthcoming general election. For my part I wanted to help him as much as I could. He was strongly pro-western, a man of integrity, and not at all in the somewhat reticent, introverted mould of some Japanese politicians that I met. I had not really got to know Mr Kaifu before I came to Japan — though he had been to see me at No. 10 as part of a group on previous occasions. I was told that his favourite sayings were: ‘politics begins with sincerity’ and ‘perseverance leads to success.’ It seemed an uncontroversial philosophy.

  I had a long talk with Prime Minister Kaifu on the afternoon of Wednesday 20 September. Some of the worst causes of disagreement between Japan and the West, including Britain, were by now being overcome. Japan’s external surplus had begun to fall somewhat — though the fact that the yen had depreciated against the dollar threatened problems with the Americans in the future. Japanese investment in Britain was now greater than ever: in fact we were attracting more Japanese manufacturing investment than anywhere else in the European Community. Japan had become one of Britain’s fastest growing major markets. My discussions with the Prime Minister covered that perennial topic, Scotch whisky — where the ever ingenious Japanese had devised whisky ‘lookalikes’ to circumvent the tax changes which had been introduced.

  But we were also able to range much more widely over international and indeed Japanese domestic affairs. Mr Kaifu had twice been Education minister and so we had something special in common. He spoke eloquently about social issues, in particular the decline of the family and the need to come to terms with the demographic factor of a rapidly ageing population. These were matters which were also increasingly preoccupying me. But I felt that Japan’s highly developed sense of community and ability to combine material progress with an attachment to traditional values in some ways equipped them better to face these challenges than did our western culture. I have always connected this with the fact that Japan has the lowest level of violent crime in the developed world.

  At the end of our talk I gave a television interview jointly with Mr Kaifu about global environmental issues, an area in which the Japanese were beginning to play a large role. I hoped that it would boost his standing, and was told that it had done so. But after the customary two years, Mr Kaifu was soon in his turn to join the ranks of former Japanese prime ministers whose international achievements were an insufficient antidote for factional weakness.

  By the time I left office, the West and Japan were beginning seriously to come to terms with the question of where Japan’s future lay. Only with the end of the Cold War has the full importance of this become apparent. Japan can have a huge role in bringing Russia to prosperity and stability by providing the capital and technology for the development of Siberia. At the same time, Japan has very close links with China. Japan’s attitude to East Asia, where newly industrialized countries’ economies are racing ahead, is also of great importance in determining whether the dominant
approach will be one of free trade or protection. Above all, relations between the United States and Japan are vital to the security of the region, and indeed on a global scale too, where Japan has the resources and America the technology — and enjoys the trust — to support any kind of ‘new world order’.

  East Asia and Australia

  British policy ‘East of Suez’ still matters. Indeed, there is a strong argument that it will matter more and more. East Asia contains some of the fastest growing economies in the world. The newly industrialized countries of the Asian Pacific region, like South Korea, Taiwan, Indonesia and Singapore — which, together with Hong Kong, make up the five ‘little tigers’ — have to be fully integrated into a global free-trading economy if our industries are to compete effectively. They will increasingly provide us not just with competition but markets. They would all welcome more European — particularly British — contact as a counterweight to the other dominant influences in the region — the United States, China and Japan. In the longer term it is still unclear if and when countries like (an eventually reunited) Korea and Indonesia (with the world’s fourth largest population — and the largest Muslim country) will develop wider political ambitions.