53

10th February, 1926

PERSONAL & CONFIDENTIAL

Dear Mr. Bruce,

AUSTRALIAN PROTECTION

In your personal letter of January 4th you were good enough to tell me that you appreciated my letters and wanted me to give you regularly the fullest information. [1] Naturally I shall be most happy to continue to do so without expecting to [receive] answers from you. There are, however, a number of points upon which I should particularly appreciate some expression of your present point of view. One is the question of Australia's policy of Protection. My understanding of your view includes the following points:

(a) You believe that the protection of secondary industries is essential to build up a nation in Australia.

(b) You hold that Protection or other Government help must not be used to shelter inefficiency either in primary or secondary industries.

I find myself in complete agreement with both points, but the question on which I should very much appreciate a private expression of your view is this-what do we mean by efficiency in industry? Taken by and large, I suppose it is fair to assume that the average Australian secondary industry needs a duty of from 25% to 30% to protect it from the competition of long established industries which have a world market to cater for instead of a very limited home market and which pay lower wages than the Australian industries.

For the sake of my point, let me assume that 30% would represent the mean essential protection. I recognise that in special cases extra duty of from 10% to 15% may be required to protect from special advantages possessed overseas, but I cannot easily see how duties of about 50% can be justified. The extremely heavy special duties recently imposed upon cheaper woollens and on hosiery are cases in point, Protection against the depreciated currencies of France and Italy can be obtained under the Industries Preservation Act [2], and it would, therefore, appear that, so far as woollen cloth is concerned, a tariff of 30% ad valorem plus 1/- per yard (which might easily be another 35% ad valorem) is necessary to meet ordinary British competition in an industry that has been established in Australia for the last thirty years.

Naturally I am often taken to task about this extreme protection and I should be very much obliged if you could let me know what are the reasons which can be advanced to show that these special duties are protecting efficient industries.

NEW SECONDARY INDUSTRIES IN AUSTRALIA

I hear from time to time from Herbert Brookes [3] and he has sent me a copy of the Tariff Board's last report. From this source I gather that there is every intention of encouraging every possible secondary industry to start for itself in Australia.

This does make one pause and wonder if it is at all sound policy.

There are, it seems, three points to consider: Australia's interests; the Empire's interests and Great Britain's interests.

From a purely Australian point of view, looked at from a rather narrow economic standpoint, I suppose it is advantageous to establish by means of the tariff any industry that has a reasonable chance of becoming effective in a few years with say a 25% tariff. If the industry is likely to need 40% to 60% protection in order to compete, then I cannot believe that its establishment can be justified upon any grounds other than defence. The danger is that the Tariff Board will say that 27 1/2% will be enough to establish an industry and then, when it has been going for a year or two, demands for a 15% increase will be pressed. For these reasons I feel that Australia should strive to develop her primary production rather than her secondary and when population has increased a little, the chances of the successful establishment of new secondary industries will be far better.

I suppose there is no doubt that the tariff does increase the cost of production of the primary industries. The extreme protectionist appears to say 'what matter if it does, we shall establish so many industries in Australia that we shall consume all our exports'.

This amazing attitude brings one to the Empire point of view.

Philip Kerr [4] and the 'Round Table' are going to press the view that Great Britain and the Dominions are tending to be too sectional in their economic development; that if we are to meet the future economic pressure of the United States of America and of Western Europe, based on a reorganized Germany, the idea of the Empire as a whole must become prominent in each of our economic policies.

This view seems pretty sound and suggests two stages of Empire economic development to me:-

(1) that if Great Britain will assist Dominion primary products, the Dominions should be prepared voluntarily to slacken the pace at which new industries are established behind the tariff, and that their secondary industry policy should be to bring up those of their secondary industries as are reasonably efficient to a high level of efficiency by increasing output and so reducing 'overheads'.

(2) that the development of the Crown Colonies should be under the joint interest of Great Britain and the Dominions so as to provide increasing outlets for (a) British (b) certain Dominion secondary products and, as the standard of living of the tropical worker rises, outlets for Dominion foodstuffs; the Crown Colonies thus becoming increasingly important suppliers of raw material for British and Dominion secondary industries.

Finally you have Great Britain 'the weary Titan' upon whom we all (except Canada) depend. If the Dominions are going to concentrate upon a policy of economic self containment, what is to become of her? I will not attempt to elaborate this point for it is so very obvious. In my view the solution of all the problems I have touched upon in this section lies in one thing. First, foremost and the prelude to anything else, Great Britain must 'show willing' so far as Empire products in British markets are concerned.

Granted this first point, then Great Britain can clearly point out to the Dominions the importance of an Empire Economic policy, and the folly of self containment. My strong belief that Great Britain must make the essential first step towards an Empire economic policy explains my irritation with the procrastination of the present Government.

H.M. GOVERNMENT AND ECONOMIC COMMITTEE

On Monday I heard further disquieting rumours in regard to H.M.

Government's attitude on the first report of the Imperial Economic Committee and after thinking the matter over carefully, I decided to send you a cable setting out the position clearly and suggesting that you should cable again to urge the Government to action. I felt that no harm could possibly be done by sending you such a cable and that you would weigh the circumstances and decide what action, if any, you felt disposed to take. The cable was as follows:-

Reference British Government and Empire Trade. Election pledges prevent extension tariff preference, Anglo-German treaty [5] prohibits use of systems based on import licences, effect of coal subsidy on public opinion renders use of subsidies other than 1,000,000 grant undesirable therefore voluntary preference only means whereby British Government can assist Empire marketing for some years. Fear this situation not thoroughly grasped here.

Consider most useful purpose served if you again cabled Prime Minister urging early and favourable decision on first report of Imperial Economic Committee.

ANGLO-GERMAN TREATY

I have no doubt that your office has a copy of this Treaty but I am enclosing a copy of the 10th Article and Clause 3 of the Protocol. There is a note of explanation from a Board of Trade official in brackets. I think you will agree that the Board of Trade are right in advising that these clauses, taken in conjunction with most favoured nation treaties with other countries, do render the application of any import licence system so difficult as to be beyond the range of practical politics.

MIGRATION DEBATE

I learn that next Tuesday a debate on Migration will be taken in the House of Commons on a Motion by Lord Apsley [6] supported by John Astor. [7]

Capt. Shaw, who accompanied Astor to the Empire Press Conference, came to see me today to obtain points for Astor's speech.

EMPIRE SHOPPING WEEKS

Cunliffe-Lister [8] is very interested in inducing Municipalities and other bodies to hold Empire Shopping Weeks.

There is to be one started in Prestwich (Manchester) on Saturday and a meeting has been organized on Friday night to launch it.

Sandeman [9], the Member for Prestwich, has asked me to be the principal speaker on this occasion and I have reluctantly consented.

RT. HON. J. R. MACDONALD [10]

Mr. MacDonald gave an interview to the 'Manchester Guardian' on Monday in which he attacked the idea of preference. I wrote an answer to him, which I felt it was better that the High Commissioner [11] should sign. I enclose a copy thereof.

IMPERIAL ECONOMIC COMMITTEE

Since my last letter there has been little progress on the main report. Last week Gubbay [12] and I told the Chairman [13] that we could not waste our time while he read drafts through for the first time and vigorously suggested that he should digest the mass of material that the Secretary [14] and ourselves had provided and rough out his own ideas before summonsing us again. This action may result in some days delay but I feel that the action had become necessary. I gather that, during the last three days, the Chairman has devoted himself with a little more zeal to his task.

I hope that we shall finish the drafting work next week and that the report will be signed before the end of the month. Frankly there has been no reason why the report should not have been signed by now except that Mackinder has been unwilling to put in the necessary time and energy.

In the meantime, the Banana Sub-Committee have just about completed their report. On this point I should be glad if you would let me know as to whether you approve of my giving a small proportion of time to helping problems connected with Crown Colonies.

I have felt that it is desirable for a Dominion Representative to show active interest in the Crown Colonies.

MANUFACTURE OF TIN PLATE IN AUSTRALIA

A few days ago a representative of the Welsh Plate & Sheet Manufacturers Association came to see me. He told me that the Broken Hill Proprietary Co. had asked the Australian Tariff Board to increase the deferred duty on tinplate up to 105/- per ton in order to make the establishment of a tinplate industry in Australia possible. He gave me a great deal of information.

I told him that I was not directly concerned but that as I took a very considerable interest in the whole question of tariffs and their economic effects, I should appreciate a memorandum on the subject. I am enclosing a copy of this memorandum for your information. I feel that tinplate is a highly specialised product and that Australia would be wise to consider very carefully before using the Tariff to establish production. Australian experience, especially in iron and steel products, has very frequently been that Tariff rates have had to be advanced in order to maintain production. I feel that tinplate is a case in which this would be almost sure to happen.

I hope you will find time to read the enclosed memorandum. This question of tinplate appears to be a very good example of the general question of whether speeding up secondary industries is a wise policy for Australia, to which I have referred in the earlier part of this letter.

THE YOUNG CONSERVATIVES

In previous letters I have referred to the existence of a strong section of intelligent left wing Tory feeling on the Government back benches. I have been constantly in touch with two or three of these members, such as Col. Angus McDonnell and R. J. G. Boothby.

As a result of the enthusing of Philip Kerr, a group of these highly educated young members are inviting Kerr and myself to dine with them in the House to discuss what action H.M. Government should take. Noel Skelton, Capt. H. MacMillan, Major O. Stanley (son of Lord Derby) are some of the members of this group, and because they are all on the left side of the Tory Party, they carry a good deal of weight with Mr. Baldwin. [15]

I enclose a copy of a memorandum which I have prepared for this group. My hope is that I can induce them to bring every form of pressure to bear on the Government to do something worthwhile.

ECONOMIC CONFERENCE

I enclose a parliamentary question and answer. I drafted the question for Wardlaw-Milne [16] and suggested the supplementary which brought out the Prime Minister's answer 'obviously'. [17] I do not think that the Prime Minister really meant to imply that the Government was proposing to hold a separate Economic Conference.

I sent the article on 'British Trade and the Empire' (a copy of which I forwarded to you last week) to Leo Maxse [18] for the 'National Review'. He was keen on it and it will probably appear in the March number.

MR. GORDON BROWN [19]

I enclose cutting from the British Australasian about this gentleman. I met Mr. Brown at lunch today and found that he is leaving for Australia on February 19th by the 'Oronsay'. He is keenly interested in your proposals for the Northern Territory and by next mail I hope to be able to forward you some further information about him.

Yours sincerely, F. L. MCDOUGALL

1 In congratulating McDougall on the award of his C. M. G., Bruce had described it as 'some small recognition of the invaluable work you have been doing in Britain during the last three years' and urged him to continue to 'give me all the gossip, and atmosphere you can, and do not hesitate to set out your own ideas at the fullest length'. The letter is on file MM:111, 1926.

2 The Customs Tariff (Industries Preservation) Act 1921 provided for the imposition of special duties on imported goods which the Tariff Board believed might threaten an Australian industry.

3 Victorian businessman and pastoralist; Australian delegate to the 1923 Imperial Economic Conference; member of the Commonwealth Tariff Board.

4 Later Lord Lothian; Editor of the Round Table 1910-16; Private Secretary to Lloyd George 1916-21.

5 See Letter 50.

6 Conservative M.P.

7 J. J. Astor, Conservative M.P.; Chairman of The Times Publishing Company.

8 Sir Philip Cunliffe-Lister, President of the Board of Trade.

9 A. N. S. Sandeman, Conservative M.P.

10 Ramsay MacDonald, Leader of the Labour Opposition.

11 Sir Joseph Cook. The letter was published on 10 February.

12 M. M. S. Gubbay, representative of the Government of India on the Imperial Economic Committee.

13 Sir Halford Mackinder.

14 H. Broadley.

15 Stanley Baldwin, Prime Minister.

16 J. S. Wardlaw-Milne, Conservative M.P.

17 Wardlaw-Milne asked whether Dominion governments had been invited to participate in an Imperial Conference in 1926, to which Baldwin replied that his government was in communication with the Dominions with a view to fixing a suitable date. Wardlaw-Milne then added his supplementary question: 'May I ask if, as a result of these communications a date is fixed for the Imperial Conference, that will include the Economic Conference at the same time?'. See House of Commons, Parliamentary Debates, fifth series, vol. 191, col. 317.

18 Editor of the National Review.

19 Australian businessman; formerly general manager of Mozambique Industrial and Commercial Company. Brown applied for the post of Chairman of the North Australia Commission, established in 1926 to develop resources in northern areas of the continent.