212

20th February, 1929

PERSONAL AND CONFIDENTIAL

My dear Prime Minister,

I have now read the British Economic Mission's Report. [1] On the whole it seems to me to be a most useful document and quite remarkably well written. The policies which you have stood for are supported to a remarkable extent and I was particularly pleased by the extremely cordial references to the Development and Migration Commission and to the Commonwealth Council for Scientific and Industrial Research.

I thought the best parts of the report were the sections dealing with Protection. They were tactful but clear and should prove illuminating to those who have not really thought about the subject; in other words, to the vast majority of business men and politicians.

I was a little perplexed by the suggestion that the 34,000,000 agreement [2] should be extended to cover Scientific Research for, at the moment, I fail to see how more than say at the outside 500,000 per annum could be spent even on very large scale demonstrations of the value of research.

The paragraphs advocating intensive rather than extensive development were entirely in harmony with the point of view I have come to hold for some years, and I consider their remarks about Migration as useful and judicious. My only major criticism is that the tone of the report is rather negative. To those with knowledge to read between the lines, this is more apparent than real, but, to the uninitiated, the negative insistence upon economy will be the main effect.

There is one very general criticism of the policy of Economy and I do not think that here the problem has been fully faced. The British case may, perhaps, afford a useful illustration for Australia.

For the last six years at least the declared policy of each successive British Government has been economy. This policy aims at a reduction of taxation, a series of successful conversion loans, etc. in order to reduce the cost of production which is the main handicap of Great Britain in her oversea trade. But Great Britain has, through her social services, through the power of her Trade Unions in the sheltered industries, and through the heavy War taxation, a very long way to go before she can reduce costs to European standards. It therefore follows that a policy of economy to be successful must be ruthlessly carried out over a considerable period of years. The question that has not been faced is whether a modern democracy will endure the strain? Take the history of the last six years in England. The official policy has been economy but Governments have been forced to increase social services, to give the coal mining subsidy, to face the losses and expenditure of a General Strike and the Coal stoppage and to contribute to an Unemployment fund which has tended to increase, rather than diminish. Is there any reasonable prospect of a better state of affairs during the next three or four years? Assuredly not, for the country is almost sure to be faced by political deadlocks and by a series of General Elections, occurrences not conducive to Governmental economy. It therefore seems as if the Government ought to consider whether an Economy policy can be effective under all the conflicting stresses of the present times.

What is the alternative policy? Is it not a policy of development at home and in the Empire? May it not be better to recognise that, in a modern democracy, one cannot go back upon social services;

one can only reduce standards of living at the cost of grave political crises.

The object of the economy policy is to reduce costs of production and thus to enable the country to compete more effectively in world trade. This object could perhaps be obtained through a wise policy of development. If the country's resources were used to speed up developments such as the electricity schemes, and above all to assist in the development of those Dominions and Colonies which obtain a great proportion of their imports from Great Britain and also those which prefer to receive British settlers, might not the result be to give a larger taxable income, and thus to reduce taxation, and to decrease costs of production by the encouragement of a greater output per unit with lowered overhead charges.

These points seem to me matters which the Government here ought urgently to consider but they do seem to have some bearing upon the British Mission's report. The policy recommended is not a pure Economy policy, such as that to which British Chancellors of the Exchequer pay lip service, but it has large elements thereof.

Curtailed extensive expansion, calling a halt in protection, etc.

I believe both these points are sound but I also feel they can only be made acceptable to the democracy of Australia if, simultaneously, we carry out a bold and vigorous policy of intensive development. This the Mission has recommended but has not emphasized, perhaps wisely. [3]

It is probably true that if things go on in their present way, we shall, within 30 years, double the production of wheat, of butter, of mutton and lamb, and of other agricultural crops from our present settled areas. If this can be done in 30 years, can we not, by effort, achieve the result in 5, and thus secure the benefits of cheapened production, and a substantially increased population without having to attempt to discipline the people to stand up to a severe economy campaign? Perhaps schemes, such as the one I sent you on the Dairying Industry [4], might be adopted, probably many others far better will occur to you. Intensive development should require far less expenditure than extensive. It should yield much more rapid returns, it should involve less risk but it will require the cooperation of the scientists and the practical man; in short it will require far more brains and energy than the policy of extensive development which we have in the past adopted both in regard to our primary and indeed also to our secondary industries.

Yours sincerely, F. L. MCDOUGALL

1 Report of the British Economic Mission', Commonwealth Parliamentary Papers 1929, vol. 11, p. 1231. In a letter dated 30 April (file AA:M111, 1929), Bruce described the Mission as a great success, noting that the members' policy of confining investigation to private interviews with a wide cross-section of Australians had overcome the initial hostility of Labor politicians and the press. The Report was 'an extraordinarily good summary of the present position in Australia' and had been well received.

2 An agreement drawn up in 1925, under the Empire Settlement Act 1922, whereby the British and Commonwealth Governments jointly subsidised loans to the States for development schemes, on condition that one immigrant be taken for each 75 of principal, and one new farm established for each 1000.

3 In the letter cited in note 1 Bruce agreed: '... the world is now so far advanced that we have to recognise we must face great expenditures upon social amelioration, and the only way to solve our problems is ... expanding our turn-over rather than imagining we can solve our difficulties by reducing our expenses'.

4 See Letter 205.