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