It is as necessary, then, to improve our inflation rate as our trading performance, and pay policy is the key. But in the medium term we shall not achieve the necessary improvement in either our trade or our inflation unless we also improve the competitiveness of our manufacturing industries. This is the third improvement we need to make. Price competitiveness is critically important; but we must aim to achieve this not through a lower exchange rate, which carries such a heavy cost in prices and living standards, but through higher productivity—by producing more goods for the same cost.
No less important is to improve what I have called "non-price competitiveness". By this I mean better product design, higher quality and greater reliability, allied to better salesmanship, delivery times and servicing arrangements. In the longer run, it is only by doing better in these aspects of competitiveness that we shall win and maintain an increased share of home and foreign markets. And only through increasing our market share shall we have a secure prospect of a return to sustained full employment and rising living standards.
British industry must respond better to economic opportunity in future than it has in the past. That is why in the industrial strategy we have embarked on a joint effort to improve our industrial performance, involving management, the unions and the Government, and are concentrating in particular on key sectors of manufacturing industry. This will take time, but it is already achieving results and we are determined to carry it through, and so are our partners.
As I have said, each of the three improvements we need in our economic behaviour depends on the other two. For example, if our industrial performance fails to improve, our balance of payments will deteriorate, and then we should be faced with a choice between a deflation which throws men and women out of work, or a depreciation which raises prices.