247

18th July, 1929

PERSONAL AND CONFIDENTIAL

My dear Prime Minister,

PREFERENCES AND THE IMPERIAL CONFERENCE

The 12,000 miles distance between London and Australia becomes painfully emphasized when one considers the different reactions in Australia and in London on Philip Snowden's [1] speech. Here his remark about the sweeping away of food duties was taken merely as a pious aspiration but in Australia, South Africa and Canada it has been taken at its face value and has apparently caused the greatest concern. [2]

There can be no doubt that your telegram [3] has had a profoundly disquieting effect upon members of the Government. I was amused to hear from Duckham [4], Ernest Clark [5] and Malcolm [6] that, in an interview which they had on Monday with Lord Passfield [7] and Graham [8], the President of the Board of Trade, Graham was anxious to explain that Snowden's words must be regarded as an expression of his own intense free trade faith, while Passfield airily remarked that to talk about abolishing the food taxes and to induce the House of Commons to provide the necessary finance to make that possible were two very different things.

Following your cable to Casey [9] about my receiving a copy of your telegram to the Dominions Office, I got Casey to show me a copy, although I have not yet heard from the Dominions Office about the cable. May I say at once that I unreservedly agree with both the manner and the matter of your cable and should like also to say that I do not think it could have been more effectively expressed. I very much hope that the Labour Government will give you some assurance that they do not propose to interfere with the preferences which are of value to Australia until after discussion of the whole Imperial economic problem at the Imperial Economic and Imperial Conferences.

I have now ascertained what would be the cost to the Exchequer of the abolition of the sugar and dried fruit taxes. The complete abolition of the sugar tax would involve a loss of revenue of 20,000,000. If, alternatively, the duty was reduced from the present margin of preference and Empire sugar was admitted free so as to maintain the monetary value of preference, such action would cost the Exchequer approximately 14,000,000.

In regard to the dried fruit duties, their repeal would cost half- a-million pounds.

The repeal of the wine duties-which is not, I think, even contemplated-would cost between 4,000,000 and 5,000,000.

While on the subject of preferences, I should mention that the'Times' asked me to write them something about the subject and I have sent them about a column article which has not yet been published but of which I enclose a typescript copy. You will perhaps be interested to see that I have been able to trace the dried fruit duties back to 1709 and to show that it is probable that the British Treasury has been in receipt of revenue from the taxation of dried fruits ever since the time of Elizabeth. I have also brought out the point that there was a 50% preference on dried fruits from 1817 to 1853 and that the people who abolished the preference had also despaired of the Empire. I think that these two pieces of information ought to prove of very considerable value in discouraging any malign intentions on Snowden's part.

With regard to your cable No. 18 of the 16th July to Casey in reply to his No. 30 from me [10], I quite understand that you will wish to await further developments before deciding as to whether there should be an Imperial Economic Conference in addition to the Imperial Conference, but the point I am keenest about is that if there should be an Imperial Economic Conference, it must be attended by Prime Ministers. I feel quite sure that no one else will have sufficient authority to deal with the British Government in the firm way that may be necessary. I would also point out that the interest in Empire economic affairs has become so keen in Great Britain as a result, first, of the steady educational publicity of the Empire Marketing Board and then latterly by the interest aroused here by the reactions of the Dominions to the proposed American Tariff, that an Imperial Economic Conference held in London will, on this occasion, create the most extraordinary interest and it seems also obvious that such a Conference will give you the opportunity of your whole career. It seems almost certain that you would be the great figure of the Conference and that you might be able to achieve many of the objectives for which we have been working so long.

EMPIRE FREE TRADE

Beaverbrook [11] and his various journals continue to make Empire free trade the dominating feature of each issue. Day after day the subject is brought up with streaming head lines and statements made by comparatively insignificant people are given tremendous publicity, provided they are in favour of the idea.

On Sunday last the 'Sunday Express' published an article by Melchett [12], of which I enclose a copy. There is, of course, a great deal to be said for a movement towards freer Empire trade through mergers and Empire cartels. This is really the same idea as the one which I developed some eighteen months ago in my memorandum on the 'Rationalisation of Industries on an Empire basis'. I am enclosing a copy of Garvin's [13] general comments on the position from last Sunday's 'Observer'. I am also incidentally enclosing a copy of the 'New York Herald Tribune' which contains a most interesting article by Dr. Julius Klein [14] on the importance of the Colonies to European Countries and particularly to Great Britain.

ECONOMIC MISSION

Yesterday a meeting was held attended by the members of the Mission, except Hugo Hirst [15], who again has gout, and by Oscar Thompson [16] and Colonel Manning [17], to discuss the memorandum prepared by Gepp [18] as a result of discussions with Oscar Thompson. The main point that arose was what action ought to be taken in order to get an amendment to the 34 million Agreement [19] so as to make money under the Agreement available for the application of the ascertained results of science to the primary industries of Australia.

After some discussion in which Oscar Thompson and members of the Mission all stated that they felt sure that any request received from Australia for assistance along these lines would be sympathetically regarded by the new Government, I made the point that this, in my opinion, was not enough. I said that if piecemeal requests arrived from Australia for various types of assistance, the impression which was already fairly definitely held at the Treasury that Australia was rather grasping would be confirmed.

Although the idea was completely unsound, having regard to the balances of preference and other factors as between Great Britain and Australia, yet an unsatisfactory atmosphere would almost inevitably arise. I therefore suggested that some action should be taken whereby the British Government should notify the Commonwealth Government that the submission of schemes of cooperation in the practical attack of improving the general productive efficiency of primary industries would be warmly welcomed and that the suggestion should further be made that Australia should consider the preparation of a scheme under the 34 million Agreement. I urged that if the initiative came from Great Britain, the psychological effect would be much better than through piecemeal requests from our side.

After some discussion, there was unanimous agreement on this point of view and it was decided that Oscar Thompson should raise the matter with the Overseas Settlement Department [20], assured of the strong support and backing of the Economic Mission in doing so.

MR. AMERY [21]

One of the consequences of Amery's speech on Safeguarding and Imperial Preference to the Amendment of the Address in Reply has been that suggestions are very current that he should retire from the Front Opposition Bench and take a seat in the Back Benches if he really intends to raise the banner of full blooded protection.

I had a request from Amery to go and see him and on Monday we spent an hour on the terrace of the House of Commons. Amery said that he particularly wanted to get my general point of view on his speech.

I told him that I thought that the line which he had taken in appealing to the less doctrinaire members of the Labour Party to cooperate in practical schemes for industry in Great Britain and for Empire Development was extremely sound but I went on to say that I thought he had made a serious mistake, from an Empire point of view, in stressing full blooded protection and preference as the only possible solution. I said that I thought that if he nailed the protectionist flag to the mast and insisted on sailing under that and no other colours, he would put back the clock of Imperial economic cooperation for at least five years.

Amery asked me why I felt so convinced that he would not be able to secure adequate support in the country to make the adoption of his plans feasible.

It was obvious that I could not reply that I did not think he had a sufficient personality to put it over but I was able to give him a reply which, I am convinced, he found effective. I said that if he nailed the flag to the mast, he would be supported by the most unintelligent members of the Conservative Party.

Amery looked a little crestfallen when I said this but after some thought he was reluctantly forced to agree. He went on to say that the trouble was that the younger and more intelligent Conservatives had all been brought up in an atmosphere in which free trade philosophy had been dominant and that he recognised that it would take a very great deal of time and work to convince them that the central basis of their economic thought was unsound.

I very strongly urged him to adopt a somewhat different platform.

I told him that I was convinced that if he and Neville Chamberlain [22] conjointly declared that now that all Parties had definitely accepted Imperial economic cooperation as the National policy, the problem before practical people was to find the right solution of each separate marketing problem as and when it arose; that he could go on to say that he personally believed that the tariff method was the simplest and the easiest but even on the tariff method, there was no need to consider a general tariff on foodstuffs and raw materials in order to give preference because, at the present time, some of the foodstuffs and raw materials produced by the Dominions were not in need of preferential assistance. On the other hand there were a number of commodities being produced in the Dominions in which the entrenched position of the foreign competitor was so strong that some form of direct assistance was essential if the Dominions were to be successful in marketing those products in the United Kingdom. He should then appeal for a spirit of cooperation in dealing with the marketing problems of these special commodities and suggest that, on the one hand, those with a strong tendency towards free trade should not irrevocably bar fiscal methods of solution where that solution was the most practical, the simplest and the best but that he and his friend, on the other hand, were quite prepared sympathetically to examine any alternative to preference, such as, for instance, a bulk purchase system based not on State trading but on British Government support to an amalgamation of all traders, provided those traders would make long term contracts to the Dominions for their products.

At the end of our talk, Amery said that he thought that I was right in regard to the Empire Development side of the problem. He was, however, still inclined to think that it would be possible in a really strenuous campaign to carry the electors so far as industrial protection where a home industry was concerned.

I replied that on that subject I did not profess to be able to form any sound opinion but that I felt that I ought to beg him not to confound, in the public mind, the question of the protection of local manufacturing industries with the wider and more important question of Empire economic cooperation and development.

EMPIRE MARKETING BOARD

Yesterday the first meeting of the Empire Marketing Board under the new Government occurred and I must say that the general attitude of Passfield, Drummond Shiels [23], the new Chairman of the Research Grants Committee, and William Lunn [24], the new Chairman of the Publicity Committee, was very satisfactory.

Apart from the routine business, I raised an important point. I referred to the statement of the House that the Government intended to give the Empire Marketing Board a statutory basis. I asked the Chairman [25] whether he would explain what he meant and added that if he had only meant that the Government will ask Parliament for a permanent and statutory backing to the grant of 1,000,000 per annum for the E.M.B. that would be extremely satisfactory but if, as one imagined might be the case, the underlying idea was to lay down rigidly the terms of reference to the Board and thus to subject the Board to a larger degree of Treasury control, I urged that any such action should be postponed until after the Prime Ministers of the Empire had had an opportunity of discussing the work and scope of the Board at the next Imperial Conference.

Passfield, in reply, said, firstly, that he really thought that Mr. Thomas had not quite clearly understood what he himself meant when he talked about a statutory basis for the Board and, secondly, promised to give the closest consideration to the suggestion that any delimitation of the Board's activities ought to await a discussion at the Imperial Conference.

I am sure that you will realise that, with the economic situation following up in the way it has done in the last fortnight, and also with the Imperial Economic Committee now working very hard to complete its important report on Pig Products and also with the Empire Marketing Board again in full swing, my time has been extremely fully occupied. For the last fortnight I have been working until early hours every day and under these circumstances it has been quite impossible for me to complete the report on the work of the Imperial Economic Committee and the Empire Marketing Board, which I had hoped to forward to you as soon as the Government's position in regard to the E.M.B. was clear.

I should like to make this letter fuller but that is impossible at the present moment.

Yours sincerely, F. L. MCDOUGALL

1 Chancellor of the Exchequer. See Letter 246.

2 The speech provoked protests in Australia, particularly from cane and fruit growers, and a statement by Bruce regretting the 'announcement'. Copies are on file AA:A461, B323/1/2, ii.

3 Bruce sent a cable of protest on 11 July. What appears to be page 2 of this cable is on file AA:A461, H326/1/4. This fragment suggests that Snowden's speech had damaged prospects of improved co-operation in trade between Britain and Australia. On 10 September, Bruce's reply to a question in the House of Representatives was that he did not intend to publish correspondence between the two Governments on the matter.

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

5 Sir Ernest Clark, company director; Permanent Secretary of the Treasury of Northern Ireland 1922-25; member of the British Economic Mission to Australia.

6 D. O. Malcolm, a director of British South Africa Co., Rhodesian Railway Trust and other companies; member of the British Economic Mission to Australia.

7 Secretary for the Colonies and for Dominion Affairs.

8 William Graham.

9 R. G. Casey, Commonwealth Government's Liaison Officer in London. On 16 July, Bruce asked Casey to instruct McDougall to see Bruce's protest cable of 11 July through the Dominions Office, 'as this will be indication to new Government of his standing'.

Bruce's cable to Casey is on file AA:A1420, 8.

10 Both cables are on the file cited in note 9. McDougall's cable, dated 12 July, discussed the timing of the proposed businessmen's conference and strongly recommended that Bruce urge holding simultaneous Imperial and Imperial Economic Conferences in London.

11 Lord Beaverbrook, Chief Proprietor of the Daily Express, Sunday Express and Evening Standard.

12 Conservative M.P; Chairman of Imperial Chemical Industries Ltd.

13 J. L. Garvin, Editor of the Observer.

14 Economist; Assistant Secretary, United States Department of Commerce.

15 Chairman and Managing Director of General Electric Co. Ltd.

16 Of the Aberdeen and Commonwealth Shipping Line; member of the Oversea Settlement Committee (see note 19).

17 C. H. E. Manning, Director of Migration and Settlement, Commonwealth of Australia.

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

19 See note 2 to Letter 212. The Report of the Economic Mission recommended that the scope of the Agreement be extended to include scientific research.

20 Presumably the Oversea Settlement Committee, a body of diverse membership established under the Empire Settlement Act 1922 to administer schemes promoting migration within the British Empire.

21 Leopold Amery, Conservative M.P.; Secretary for the Colonies 1924-29 and for Dominion Affairs 1925-29. See Letter 246.

22 Conservative M.P.; Minister of Health 1924-29.

23 Parliamentary Under-Secretary for India.

24 Parliamentary Under-Secretary for the Colonies.

25 The Chairman of the Board was Lord Passfield, but McDougall's reference is to a statement by J. H. Thomas, Lord Privy Seal, on 12 July. See House of Commons, Parliamentary Debates, fifth series, vol. 229, col. 1260.