208

30th January, 1929

PERSONAL AND CONFIDENTIAL

My dear Prime Minister,

SIR JAMES COOPER [1]

I have no doubt that Sir James Cooper will be writing to you this week about the new work which he is to undertake and the amount of time he is able to devote to the London Agencies of the Control Boards.

The position that has arisen is a very flattering one to Cooper himself. The Governor of the Bank of England [2]has definitely asked him to devote as much time as he (Cooper) can give to special directorships on behalf of the Bank of England in such industrial re-organisations as the Bank desires to support.

Cooper tells me that the Governor suggested that he should give the whole of his time to this type of work on behalf of the Bank but that Cooper had replied that he did not desire to give the whole of his time as he would prefer to keep two directorships and to retain his connection with Australia. He told me that he had promised not to undertake any additional work over and above these two directorships and the Australian jobs.

I have known for a long time that the Treasury had the highest opinion of Cooper's qualities and I am by no means surprised that, when the Bank of England, acting on the initiative of the Government, decided to take a hand in assisting the re- organisation or partial rationalisation of some of Great Britain's industries, they should have called on Cooper to act as financial watchdog for them.

From your point of view, it is rather satisfactory that your judgment in regard to Cooper should have been so substantially backed by the Governor of the Bank of England.

As regards the three London Agencies of Australian Control Boards, of which Cooper is at present Chairman, the position seems to be fairly simple. He has already made arrangements whereby he will be doing a good deal less than in the past year for canned fruit. So far as dried fruit is concerned, I shall be able largely to deputise for him. In regard to dairy produce, neither the Board in Australia nor his colleagues in London have ever made any substantial call upon his time or energy. Under the circumstances I see no reason why the present position should not be left until you come over here for the Imperial Conference fifteen months hence. Cooper himself, however, may be making some suggestions to you on this subject of which I am not aware.

So far as the Imperial Economic Committee is concerned, Cooper definitely desires to sever his connection and I am sending you a cable today to inform you that the real activities of the Main Session will be from the middle of March until July and to ask whether you have given any consideration to the appointment of a second Australian Representative.

While on this subject, I should just like to mention that if you are appointing an Australian representative, I do not think that it is at all necessary to distinguish between a senior and a junior. That is not the practice with the other delegations and I cannot think that any really useful purpose is served by so doing.

If a very distinguished visiting Australian was asked by you to serve and consented, it would put me in a rather invidious position if he was definitely appointed as the senior representative; while if you appointed a less distinguished person, I should certainly have no desire that he should be regarded as my junior.

ECONOMIC ACTIVITIES OF THE LEAGUE OF NATIONS

On Monday last, Mr. Loveday [3], the head of the Statistical Branch of the Economic Organization of the League of Nations, happening to be in London on some special work, got into touch with me and was fortunately able to have dinner in the evening. We had a long and very interesting discussion about the League of Nations Economic activities and especially about tariff matters.

Loveday, who is an academically trained economist, and almost of course a free trader, expressed some rather interesting and, to me, novel views about the way in which the League might bring about some reduction in the very high level of tariffs, particularly in Europe.

I was glad to find that he entirely agreed with me that any direct approach by the League to nations with requests that they should reduce the level of their tariffs would be tactically wrong and might even lead to the League receiving a series of extremely awkward rebuffs. He suggested, however, two methods which he thought might prove efficacious. The first is, I think, of comparatively little interest and indeed I personally doubt its wisdom. He points out that there are a considerable number of tariff items in the tariffs of most countries which serve practically no useful purpose, either for the protection of local industries or for revenue and that a suggestion might be made that such items might be eliminated from the tariff altogether with some nett effect on the reduction of the tariff level index.

His other suggestion was much more interesting. He said that he thought that the really hopeful way of getting a decrease in the number of tariff barriers in the world would be to encourage preferential systems. He suggested, for instance, that in Europe the Danubian countries might be encouraged to enter into customs arrangements whereby, to begin with, they gave specially favorable treatment to one another's products, leading perhaps to the gradual formation of a definite customs union. His idea was that Austria and Hungary might form the first nucleus and that later the arrangements might be extended to include Roumania, Yugo- Slavia and Czecho-slovakia. Such an idea is distinctly interesting but very contrary to the traditional British policy which, of course, is in the direction of trying to get as many countries as possible to adopt unconditional Most-Favored-Nation clauses in their Commercial Treaties.

It so happens that today I have seen Sir Sydney Chapman, the Economic Adviser to the British Government, and who is the British representative on the Economic Committee of the League. I mentioned to him Loveday's idea about the encouragement of preferential systems on the Continent of Europe and he immediately exclaimed-'What damnable heresy'. He said that should any such development take place, the result would be to provide to the nations forming such preferential groups a weapon whereby they might be able to make a serious gap in the British Empire preferential system. My talk with Chapman was particularly interesting and I shall refer to it again later in this letter.

Here I will just say that it is extremely interesting to find that Chapman is now so profoundly impressed with the importance of the British Empire preferences to Great Britain that he regards the maintenance of the British Empire's right to conclude such arrangements as being a cardinal point in British economic policy.

He told me that he was sure that Germany would do a very great deal and might be prepared to make quite substantial temporary sacrifices in order to make a breach in the Imperial preferential system. He also said that at Geneva and at other Economic Conferences he had always taken the line that this was a matter which the British Government was not prepared to discuss as inter- Imperial arrangements were purely domestic affairs.

NATIVE DIETETICS

I do not think that I have drawn your attention to the possible importance of the work which has been carried out in Kenya, under the general supervision of Dr. Orr [4], into the dietetics of the natives.

A Sub-Committee of the Committee of Civil Research has been considering this matter for some years and the reports have been forwarded to the Commonwealth Government from time to time. The last report on this subject was sent with a covering despatch from the Dominions Office on the 18th December 1928.

It seems just worth while to mention that this work in Kenya may have some important bearing on the health of the native inhabitants of Papua and New Guinea.

From conversations with Dr. Orr and Walter Elliot [5], who was Chairman of the Sub-Committee of the Committee of Civil Research, I gather that there are two important aspects of the native dietetic question. Firstly there is the incidence of disease and of heavy infantile mortality among the native tribes and, secondly, there is the question of the efficiency of native labour and the effect of an improved diet to increase that efficiency.

So far as the labour factor is concerned, the position, as I understand it, is that, although the natives' ordinary diet may be sufficient in quality and quantity to keep them in health when they are merely engaged in their normal occupations, the same diet may prove quite unsatisfactory when they are expected to work in plantations, on road making or any other activities foreign to their natural life.

It would seem to me just possible that you might regard the carrying out of some investigations in Papua to parallel the work that has been done in Kenya which might have useful results to the natives themselves and to the efficiency of labour. Such action might also provide a useful object lesson in Empire team work and scientific problems and might prove an additional feature to some report which the Commonwealth could make to the Mandates Commission of the League of Nations so far as New Guinea is concerned.

MOST FAVORED NATION CLAUSES

In one or two of my recent letters I have referred to the extent to which the Most-Favored-Nation clause in the Commercial Treaties of foreign countries affects the possibility of a Dominion obtaining in the market of such foreign countries specially favored conditions for the marketing of the produce of the Dominion. The more that I have thought about this subject, the more important it has appeared and I have come to the conclusion that it would be a most useful subject for a confidential discussion at the next Imperial Conference. I have, therefore, prepared a brief preliminary statement on the subject which I am enclosing with this letter. You will notice that I have marked it 'Personal and confidential' as it seems to me undesirable to circulate these notes to anyone except yourself until I have received some reaction from you on the subject. I have sent a copy to Casey [6] asking him to regard it as a confidential document for the time being. In the meantime I shall try to get together further information and build up a memorandum shewing the effect of Most-Favored-Nation Clauses in the Trade Treaties of some of the really important potential purchasers of Empire produce. At the moment I have in mind an examination of the Trade Treaty position of France, Germany, Belgium, Italy, Japan and the United States of America.

The impression that I have gained at Geneva, and more particularly from various conversations with Sir Sydney Chapman, is that sooner or later the countries of the British Empire will be compelled to defend the Imperial preferential system against the protests of foreign nations. It may be comparatively easy to override protests but a much more serious danger may be that foreign countries may offer temporary advantages to various parts of the British Empire in the hope of breaking down the system. Whatever may eventuate, I feel sure that you will agree that it is highly desirable that we should have a clear appreciation of the actual position and I imagine that you will think that it is a subject particularly suited for the Imperial Conference.

POLITICAL

I have spent the last two evenings in the House of Commons and have had some interesting talks with members about the Election prospects. The views I heard came from members holding London, Lancashire and Scottish seats. I gathered that Labour hopes to secure 300 seats, while the Liberal hopes fluctuate between a fairly modest estimate of 60 and a more extravagant one of 80. If these hopes were realised, the Government would be in a minority of from 105 to 145. I found, however, that the Tories feel that they will come back with a majority of from 50 to 70.

In order to get some basis for another estimate, I have looked carefully at the results of the 1923 and 1924 Elections. These results seem to indicate that the Tories hold 246 seats, which might be regarded as safe under normal circumstances, the Labour Party 108 safe seats and the Liberals 20. There are at least 50 seats about which one can prophesy almost certain Labour gains and that, together with another 52 seats now held by Labour, would make a total of 210, but it is probable that Labour will win another 30 seats so that the total Labour gains would be 80 and the strength of the Party roughly 246. The Liberals may win from 15 to 20 seats in the West of England and in the East of Scotland but are almost certain to lose from 10 to 15 of their present seats to Labour. This might give the Liberals a nett gain of 10, making their strength in the new House 52. This estimate would mean a House of 615 divided into 318 Conservatives and 297 Opposition or a Government majority of 21. It certainly seems as if the prospects pointed towards something very like a deadlock.

CHAIR OF IMPERIAL ECONOMIC RELATIONS

A proposal that the Empire Marketing Board should take the initial steps in the establishment of a Chair of Imperial Economic Relations at the London University, or more narrowly at the London School of Economics, has been discussed by the Research Grants Committee and will come up to the Board at its next meeting. I am sure you will agree that this is a very interesting idea and that if it was possible to get hold of a really suitable man to lecture and do research work on Imperial economic relations, a very considerable step in advance will have been made. I also think that it would be very much better that such a Chair should be associated with the London School of Economics rather than that it should be placed at Oxford or Cambridge. This for two reasons:

firstly because the present tendency of the London School of Economics is towards economic internationalism to which the Professor of Imperial Economic relations might prove a useful corrective and, secondly, because I feel that, in economic matters, the London School has a much more definite political influence than would be achieved from Oxford or Cambridge.

The Empire Marketing Board itself is not anxious to find all the money for the endowment of such Chair but we are willing to make an annual grant for a maximum of five years and to make some contribution towards the sum needed for an endowment, and I feel that if the right man is selected and makes a good shewing during the first two or three years, it ought to be easy to get some wealthy man, keen on Empire matters, to find the comparatively small sum which would be needed for an endowment. I am enclosing the Research Grants Committee paper dealing with this matter.

Should the Chair be established before the Imperial Conference, it might be desirable for the Conference to take a note of its existence.

A NATIONAL CAMPAIGN FOR THE DAIRYING INDUSTRY

Last week I wrote to you about the idea of an intensive drive to increase the productive efficiency of the Australian dairy industry and enclosed a memorandum on the subject. In that communication I said that I would get Mr. Fitzpatrick [7] to prepare a note about the 'Battle of the Grain' in Italy. He has put some notes together which I now enclose.

EMPIRE BUSINESS CONFERENCE

By last mail I sent you a short letter dealing with the relationship between the proposed Empire Business Conference and the Imperial Conference. I am now enclosing a letter which appeared in today's 'Times' from Mr. Vyle [8], who was last year's President of the Association of British Chambers of Commerce. From this you will see that the Association has definitely in mind holding the Business Men's Conference in advance of the Imperial Conference but I am quite sure that no one has given any thought to the immense difficulty of carrying through the preparatory work and holding a Business Men's Conference before May 1930, by which date we should be right on top of the Imperial Conference itself.

I met Sir Robert Horne [9] in the House of Commons yesterday and had a short talk with him on the subject. it was obvious that he had been impressed with the idea of holding the Business Men's Conference in advance of the Imperial Conference but, after we had had some discussion, he altered his opinion and said that he felt that under all the circumstances it would be much better to have the Imperial Conference first and to try to get the Imperial Conference to remit certain questions to the Business Men's Conference. He raised some queries as to the way in which a really representative Business Men's Conference might be summoned and we discussed to what extent the precedent of the World Economic Conference might be followed. You will remember that at the World Economic Conference there were no persons present acting as the representatives of Governments, in fact the Governments were not represented but, on the other hand, the representatives of each country were selected by the Government to represent the industrial, the commercial and the educational communities of each nation.

In my conversation with Sir Sydney Chapman the subject of the Empire Business Men's Conference also arose. Chapman was very interested in the idea but was emphatically of opinion that a great deal of preparatory work would be necessary if the Conference was to be of real significance. He thought that the views of Duckham [10] and Hugo Hirst [11] should be taken as soon as they returned to London and that once the general objectives had been visualised, arrangements would have to be made for special Committees in each part of the Empire to prepare the ground work for the Conference.

Chapman's view was that had there been a two years gap between the present time and the next Imperial Conference, he would have considered it probably best to have the Business Men's Conference first but, as the time was now so short, he felt that it would be impossible to get an effective Conference before the Imperial Conference and he did not think the idea of the two Conferences sitting concurrently would be at all happy from the point of view of any of the Prime Ministers, a view with which I felt myself in general agreement.

I shall closely watch the developments here in regard to the Business Men's Conference and, if necessary, will cable in order to ascertain your point of view, particularly on the question of whether this proposed Conference should, if held, precede or follow the Imperial Conference. Meanwhile I shall look forward with great interest to hearing from you about the whole matter.

SHIPPING DELEGATION

Yesterday I lunched with Sir Archibald Hurd [12] at the Athenaeum Club in order to meet Mr. Maurice Hill [13], of the Chamber of Shipping, who is being leaned by the Chamber of Shipping to accompany the Australian Shipowners on their visit to Australia.

[14]

Earlier in the week I had met Sir Alan Anderson [15] and Oscar Thompson [16] rang me up yesterday to say that he wanted to come in and have a talk before he leaves. Maurice Hill appears to be a decidedly capable man who should prove of considerable use to the Delegation. To Sir Alan Anderson I emphasized the point of view that Australia is, on her own initiative, seriously reconsidering her economic position and that any strong statement of the academic free trade point of view from prominent British visitors might have an unfortunate effect in causing a considerable reaction. I thought it only desirable to say something of that sort to Sir Alan Anderson because he is very apt to preach the pure gospel of free trade both in season and out of season.

I promised to let Maurice Hill have some information about the way in which the Empire Marketing Board is helping cold storage research and to shew him the extent to which this research work may be expected to assist the shipowner in regard to refrigerated cargoes. I shall send you a copy of my notes to him on this subject by the next mail.

The outstanding feature at the moment in London is the very heavy incidence of fortunately a rather light form of influenza. People seem to be down everywhere and two members of my small staff are ill.

Yours sincerely, F. L. MCDOUGALL

1 Company director; Chairman of the London Agencies of the Commonwealth Dried Fruits, Canned Fruits and Dairy Produce Control Boards; representative of Australia on the Imperial Economic Committee.

2 Montagu Norman.

3 A. Loveday.

4 J. B. Orr, Director of the Rowett Institute for Research in Animal Nutrition, Aberdeen.

5 Parliamentary Under-Secretary for Scotland; Chairman of the Research Grants Committee of the Empire Marketing Board.

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

7 A. S. Fitzpatrick, McDougall's technical assistant. See Letter 206.

8 Sir Gilbert Vyle.

9 Philosopher, barrister and Conservative politician; President of the Board of Trade 1920-21; Chancellor of the Exchequer 1921-22;

chairman and director of major firms.

10 Sir Arthur Duckham, chemical engineer prominent in the coal industry; leader of the British Economic Mission to Australia 1928.

11 Chairman and Managing Director of General Electric Co. Ltd;

member of the British Economic Mission to Australia 1928.

12 Member of the editorial staff of the Daily Telegraph; author of articles on naval and shipping matters.

13 Assistant General Manager of the Chamber of Shipping in the United Kingdom.

14 British shipowners had announced an increase in freight charges from Australia to take effect from 19 January 1929. Believing that the increase, following the controversial sale of the Commonwealth Shipping Line to private interests in 1928, might lead to the downfall of his government, Bruce appealed to shipowners to delay implementation pending a conference between representatives of the Commonwealth Government, shipowners and exporters- The Conference, held in April, was intended to increase stability in the industry and to minimise factors necessitating higher freight charges. A cable to Lord Inchcape, Chairman of the P & O Line, sent through Casey on 12 January and setting out Bruce's fears in some detail, is on file AA:A1420, 7.

15 Of Anderson, Green & Co., managers of the Orient Line.

16 Of the Aberdeen and Commonwealth Line.