217

12th March, 1929

PRIVATE AND CONFIDENTIAL

My dear Prime Minister,

ECONOMIC ISSUES AT THE IMPERIAL CONFERENCE

Between the middle of December and the first mail in February, I sent you a series of letters and memoranda dealing with subjects which appeared likely to assume prominence at the Imperial Conference. On Sunday last I had a talk with Casey [1] on the subject. We agreed that, although economic issues were almost sure to predominate at the Imperial Conference, yet that it was useless to hope for great progress unless a great deal of careful preparatory work was done. I, therefore, decided to send you a cable asking whether you would be good enough to let me have some indication of your attitude to the general lines on which I was starting to work. You may have felt that this cable was rather unnecessary having regard to the time which must elapse before the Imperial Conference and I fear that, in the present state of politics at Canberra, you may have even considered the cable as a nuisance.

My reasons for wanting some general reaction from you were that I feel that now is the time to get the official elements here interested in a preliminary way. From now until the General Election [2], the officials at the Board of Trade and the Dominions Office will have some time to think about Imperial Conference subjects and as soon as the Budget is over, I can get Sir Francis Floud [3] at the Customs interested. Immediately after the General Election the Departments will be very much absorbed, especially if there is a change of Government. What I hope to do is to get the importance of the Economic issues clearly into the official mind, and to arrange for some informal discussions of projects so that, in October, when the Governmental position has settled down and when official Departmental Committees will have to be established to consider Imperial Conference questions, the Heads of the Departments concerned will have some constructive ideas.

In addition to the official people, it seems most desirable to stimulate the commercial community through such bodies as the Association of British Chambers of Commerce and the Federation of British Industries. For all these reasons I felt that I ought to obtain some reaction from you. I hope very much that your pressing immediate cares will permit you to write fairly fully in the near future as to your own general ideas about the Conference. [4]

There are, of course, two alternative policies in regard to procedure which could be adopted. The first would be to work up the best case possible but to reserve all the important features until your arrival here for the Conference. In view of past experience, I do not believe that great success can be expected along such lines. The month or six weeks of the Imperial Conference is too short to drive objectives home into unprepared minds. The second method is to encourage the maximum of pre- Conference consideration and discussion, with the object of focusing attention upon the need for an Imperial Economic Policy and in the hope that ideas would emerge, some of which might prove to be practical politics.

What are the objectives which Australia will desire to achieve as a result of the Economic Discussions at the Conference? So far as the general statement of these objectives is concerned, your 1923 Imperial Economic Conference speech set them out pretty clearly.

It would, however, be extremely useful if we could get down to bedrock and envisage certain objectives in concrete form.

These objectives might first be classified as (a) General Imperial objectives (i.e. Empire Standards and Simplification, reinforced Empire cooperation in Scientific Research, improvements in Inter-Empire Communications and Transport, including refrigerated tonnage, etc.);

(b) Consideration of the position of Empire industries vis-a-vis American Economic Imperialism and European Export Cartels;

(c) Australia's objectives (see below);

(d) Great Britain's objectives. Improved markets for British goods, homes for British people;

(e) Objectives of immediate interest to Great Britain and of long range interest to Dominions. Improvement of living standards and thus of purchasing power of India.

So far as Australia's own objectives are concerned, I suppose they might be divided under two heads, namely Marketing and Development.

Marketing

Under marketing, starting with the politically easier first, we should, I take it, desire more effective preference on goods already dutiable in Great Britain. Without increase of duties, the British preferences on wine and sugar could be increased. There will be a strong demand for sugar from other countries; on wine I am doubtful whether South African interests will make any move for they regard the present preference as substantial. If we have succeeded in putting our wine marketing in order, we should be in a stronger position to press any claims than we are at present.

Dried fruit preference cannot be made more effective without increased duties but the case for some protection against the dumping of Californian fruit, at below Californian costs of production, is a strong one, and you staked out a claim for some such consideration during the 1923 Conference discussions.

On Canned Fruit a new duty would be essential if preference of any value was to be given, although the admission of Australian canned fruit free of the sugar duty might slightly stimulate sales.

Coming now to the more politically difficult subjects so far as Tariff Preference goes-I should suppose that Dairy produce and Meat (especially Beef) are the lines in which assistance would be welcome. In each of these lines we should have one serious criticism to contend with. It would be alleged that our production costs are unduly high due to lack of productive efficiency. In regard to butter, if we could have commenced a zealous campaign to increase the yield per cow, it would certainly be a substantial point in our favour. The beef position still remains difficult.

In regard to apples, our main competition now comes from New Zealand but if we could obtain for our growers a slightly larger share of what the consumer here pays, it would make a substantial difference. It might be useful if there could be compiled a list of products on which Australia would like (if it were possible) to receive tariff preference or some other form of effective marketing assistance.

Development

The extent to which Australia desires British financial cooperation in Development is a subject upon which I have little information. I would, however, remind you once again of the idea of a priority list of Empire countries based upon (a) the percentage of their imports derived from Great Britain; (b) the extent to which development would provide homes for British settlers. If Great Britain adopted some such idea, Australia would, if both categories were taken together, come with New Zealand at the head of the list.

On this development side, it would be useful if, taking the idea of the more intensive use of our partially settled areas as a basis, plans were worked out of methods whereby Great Britain could cooperate with Australia in speeding up such development. I have no doubt Gepp [5] is working on such plans but it would be very useful to know to what extent ideas about cooperation in agricultural development would be a part of an Australian case at the Conference. [6]

The very important question of the rationalization of industries on an Empire basis may also arise. About a year ago, you appeared to think the time not yet ripe for any discussion of that subject.

Apparently the Economic Mission has prepared the ground to a considerable extent in Australia and it would be useful to know whether this question would be one which you would raise. [7]

Personally I should like to see the Imperial Conference carry a resolution to the effect that the growing competition of the United States of America and Europe rendered the meeting of the industrialists of special Empire industries desirable, in order that plans to meet this competition might be cooperatively discussed.

Such a resolution would give a useful lead to the proposed Empire Business Conference.

I feel that all the foregoing is pretty dull but I should like to get some idea of the sort of things which Australia might put forward should the atmosphere of the Imperial Conference prove favorable. This must be my excuse.

THE ALTERNATIVE BRITISH POLICIES

It will probably be more useful for me to set out the possible ways in which Great Britain can help Empire Trade in her own markets.

First of all one can now say that Great Britain has at last come to realise to a very considerable extent that (a) an Empire economic policy is essential to herself; (b) that Empire preferences are extraordinarily beneficial. The latest evidence on these points appears this morning from a most authoritative source.

The Committee on Industry and Trade (The Sir Arthur Balfour [8] Committee) after sitting for 4 1/2 years and spending 30,000 in investigations, printing, etc. has issued its final report. [9] In this document the Committee, which includes Labour people, Free Traders as well as Conservatives, makes the following statement:

After referring to the importance of Empire markets and to the preferences afforded to British goods, the report states:

In view of the facts it cannot admit of doubt that the preservation and development of these advantages must be one of the cardinal objects of British commercial policy. [10]

What policies then can Great Britain adopt to secure this 'preservation and development'? The Balfour Committee is vague and non-committal. There appear to be three main lines of thought which could to some extent be combined (a) Voluntary Preference;

(b) Tariff Preference; (c) Purchase Boards and, in connection with all three, the problem of wholesale retail margins.

Voluntary Preference

It is unnecessary to describe the work of the Empire Marketing Board in this direction. This work could, however, be made far more effective by strong Ministerial backing. Today only Amery [11] wholeheartedly supports the campaign, little of encouragement comes publicly from Baldwin [12], none from Churchill. [13] The necessary corollary to Voluntary Preference, namely the Merchandise Marks legislation [14], has been passed but so far without any indication of serious intentions towards enforcement (a matter I am taking up quietly through the Empire Marketing Board).

A very definite way in which the Government could assist this form of preference would be to make the use of Government funds to all institutions, whether Government, Municipal, or semi-private, dependent upon the purchase of Empire goods and to demand explanations whenever foreign goods were bought. I personally believe that the main value of the Voluntary Preference campaign is to educate people here to realise what the Empire means and thus to prepare them politically for more direct means of assistance.

Tariff Preference

It is useless to discuss this subject until the results of the General Election are known. I fear that the Tories will unequivocally pledge themselves not to place any fresh taxes upon foods. If the Tories lose, we shall have to defend the existing position from Snowden. [15]

Purchase Boards

The way in which the Labour Party proposed to assist Empire marketing and British Agriculture is through Purchase Boards either run by the State or, as is now more frequently suggested, run by Public Corporations under licence from the State.

You may remember Baldwin's curious proposal of some such scheme in June 1924 but I do not believe the Tories would ever stand for such a policy. If, however, Labour should be in power at the Imperial Conference, it would be necessary to decide our policy towards these proposals. I see no reason why we should not take the line of saying that, while we understand and much prefer the Tariff method (if we do!!) it is not for us to lay down the methods whereby Great Britain will reciprocate and that if the Purchase Board method or the Import licence method recommends itself, and if it can be made effective, we shall welcome any such form of help.

The further refinement of 'Stabilization of agricultural prices by Purchase Boards' has not been much discussed lately. It may, however, revive if (a) Labour wins; (b) Hoover [16] hits Canadian agriculture hard.

Wholesale and Retail Margins

The last point I want to touch on in this already over-long letter is the proportion of the retail price absorbed by the distributive trades. In some cases it is undoubtedly large, i.e. apples, meat;

in some very large - woollen goods, etc.; in others reasonable i.e.

butter and dried fruits. There can, however, be no doubt that if margins could be reduced, Empire and British agriculture could be helped without increasing costs to the consumer.

I should like to know whether you are likely to feel inclined to touch this aspect for, if so, a reasoned case must be prepared.

This last point, i.e. the preparation of cases, is a further excuse for this long letter. It will be impossible adequately to prepare the information you may need from this end of the world unless one knows a good while before hand as to what your lines are going to be. If you will let me know I can arrange to prepare a good deal myself, I can indirectly incite the Empire Marketing Board to prepare certain points, and if you approve, I could get the cooperation of Faraker [17] and his staff on other items. I hope, therefore, that you will have time to arrange for me to receive some definite indications of your ideas.

Yours sincerely, F. L. MCDOUGALL

1 R. G. Casey, Commonwealth Government's Liaison Officer in London.

2 Held on 30 May.

3 Chairman of the Board of Customs and Excise.

4 Bruce replied at some length in his letter dated 30 April (file AA:M111, 1929), having already sent McDougall a cable indicating general agreement with the line he was pursuing. Bruce wrote that McDougall's letter had raised 'very big issues', that he had read it with very great interest and that McDougall certainly need not apologise for having cabled on such matters. Bruce had appointed a committee to examine important issues for the Conference. See note 15 to Letter 221.

5 H. W. Gepp, Chairman of the Commonwealth Development and Migration Commission.

6 Bruce proposed intensive, rather than extensive, development, with 'a considerable measure of financial co-operation between Australia and Britain'.

7 Bruce believed it would be possible to develop a rationalised industrial structure which would eventually be controlled by a reciprocal trade treaty between Australia and Britain. He hoped to have considered the question more fully by the time of the Conference.

8 Industrialist; chairman and member of many government advisory committees.

9 The Committee published seven reports from 1925 to 1929, covering overseas markets, industrial relations, industrial and commercial efficiency and the textile and metal industries.

10 Final Report of the Committee on Industry and Trade, Cmd. 3282, 1929, P. 23.

11 Leopold Amery, Secretary for the Colonies and for Dominion Affairs; Chairman of the Empire Marketing Board.

12 Stanley Baldwin, Prime Minister.

13 Winston Churchill, Chancellor of the Exchequer.

14 The Merchandise Marks Act 1926 required an indication of country of origin to be given to specified imported goods.

15 Philip Snowden, Labour M.P.; free trader; Chancellor of the Exchequer 1924.

16 Herbert C. Hoover, President of the United States. See note 7 to Letter 192.

17 F. C. Faraker, Commercial Officer at the Australian High Commission.