28

27th August, 1925

PRIVATE & CONFIDENTIAL

Dear Mr. Bruce,

IMPERIAL ECONOMIC COMMITTEE

I am enclosing two articles from last week's weekly reviews on the reports of the Imperial Economic Committee.

I am drawing your attention to these two cuttings because, although written from diametrically opposite points of view, they both contain essentially similar criticism of the basis of the Economic Committee's Reports.

The one from the 'New Statesman' is from a Labour standpoint, and was actually written by Mr. G. D. H. Cole, the well-known economist.

The article in the 'Outlook' is written from a Conservative Imperialist standpoint. [1]

I should particularly appreciate it if you could find time to let me have your candid criticism of the General Report and the Meat Report. I hope, for a variety of reasons, that we shall be able to make the fruit report a much more interesting document than the meat report. Firstly, we shall have more time and secondly, there has been no previous enquiry into Empire fruit, whereas the Empire meat supplies have been frequently considered, and therefore the Committee was travelling over old ground. Thirdly, the direct connection between fruit and migration is more obvious than is the case with meat.

I hope to be able to get the Committee to establish in their report the view that it would be a very wise policy on the part of the British Government to go a very long way definitely to guarantee the British market to British and Dominion producers of such commodities as are produced under close settlement conditions, i.e., fruit, wine, butter and pig products, and it seems to me that the fruit report would present the best opportunity for stating this case.

I am writing to you separately about another matter connected with the Imperial Economic Committee.

LONDON AGENCIES AND EXPORT CONTROL BOARDS

From my various letters and particularly from the correspondence with Mr. Amery [2] and Major Isidore Salmon's [3] opposition to the Dried Fruit Export Control Board, and also from many other sources, you will be, I am sure, fully aware of the importance of a circumspect attitude on the part of the London Agencies of Export Control Boards. [4]

It seems to me clear that there ought to be some co-ordination so far as the general policy is concerned. This quite naturally brings one back to the suggested Australian Producers' Council in London which I discussed with you at Frankston. [5] If the time is not ripe for any such development I would suggest that it would be of considerable value to have some link in personnel between the London Agency of the Dairy Produce Export Control Board and the London Agency of the Dried Fruit Export Control Board.

THE GRAVE ECONOMIC POSITION OF GREAT BRITAIN

I have no doubt that you are generally aware of the very serious economic position in which this country finds itself at the present time. I have put together a memorandum for your information, which I enclose herewith. The memorandum is not a connected whole, but rather a series of notes.

Firstly, it shows that the National balance sheet, taking into consideration the whole of the 'invisible' exports from Great Britain, has steadily gone from bad to worse, until in the first six months Of 1925, it represents living on capital.

Secondly, I have given you the latest figures of the British export and import trade showing the tremendous proportionate increase of imports during the last three years.

Thirdly, I have compared the ratio of imports to exports of France, the United States of America and the United Kingdom from 1922 to 1925. This table does not, of course, take any account of 'invisible' exports, but I think the figures are extremely significant. They have not been got out before, so far as I am aware. I particularly suggest your noticing the steady increase in the ratio of manufactured imports into the United Kingdom in relation to manufactured exports.

Fourthly, I have just noted the increasing importance of the Empire as a market for British exports. This really is only a further elaboration of the general case set out in Chapter 2 of 'Sheltered Markets'. [6]

Fifthly, I have got together some figures that I have been wanting to get out for a considerable time, viz.:-comparative price levels of manufactured as compared with primary products. I think this movement may become of very great significance, and even in the figures given in my table you will see that in the three years there has been, in every case except one, a substantial decline in the price level of the manufactured product, and in every case an increase in the price level of the primary product.

The recent fall in the price of wool may alter that one item, but it does seem to me that this table, if it illustrates the probability of the next decade (and I am advised that it does), is of striking interest to both Great Britain and Australia-to Great Britain because it will mean that in face of intensified competition in the markets of the World, she will have to sell a greater quantity of manufactured goods in order to obtain the necessary supplies of food and raw materials-to Australia, because it indicates a rising purchasing power for the produce which she has to export.

The whole memorandum appears to me to have this added significance for Australia-that Australia with her enormous resources and limited population can choose whether she will concentrate generally upon primary production or whether she will insist upon the rapid development of secondary industries. If she chooses the former, she will put herself in a position to obtain goods and services in return for her exports on a very favourable basis.

If, on the other hand, she is determined to push ahead on her secondary industries, she will have to do so behind a high tariff barrier, because of the intensified competition which the industrialised countries of the World are now entering into for World markets for their manufactures.

I think it is quite clear that Australia must maintain and protect her established secondary industries, provided that she can secure a guarantee of efficiency in return for protection. That, I know, is the view that you strongly held. I do think, however, that so far as new industrial processes are concerned, the Australian policy should be one of 'festina lente'.

Surely Australia has everything to gain and nothing to lose, except perhaps a little time, if she, while maintaining the full protection of established and efficient industries, concentrates her main endeavours upon primary production, and recognising even from a selfish point of view the enormous importance of the maintenance of the economic strength of Great Britain, determines to do everything in her power continuously to assure as large a proportion as possible of her import trade to Great Britain.

Yours sincerely, F. L. MCDOUGALL

1 Though both writers supported the Committee's aim of fostering Empire trade, both strongly criticised the proposal to stimulate voluntary preference by means of publicity for Empire goods. The writer of the article in Outlook urged 'the simple and well-tried expedient of a tariff', while G. D. H. Cole advocated research and organised marketing, commending in particular the suggestion of bulk purchasing proposed in McDougall's book Sheltered Markets.

See the New Statesman, PP. 518-20, and Outlook, pp. 115-16, both dated 22 August.

2 Leopold Amery, Secretary for the Colonies and for Dominion Affairs. A separate Dominions Office had been created on 11 June 1925.

3 Conservative M.P.; Chairman and Managing Director of J. Lyons &

Co. Ltd, caterers.

4 Salmon objected to the provisions of the Commonwealth Dried Fruits Export Control Act 1924, whereby dried fruit could be exported from Australia only by licensed exporters, who were then required not to sell below prices fixed by the Dried Fruits Control Board. McDougall explained to Amery that an appraiser who was appointed by the London Agency of the Board, and advised by a committee of importers, valued fruit parcels in accordance with ruling prices subject to revision in line with current market trends. The system had been established to maintain prices in a market which was highly specialised and variable and in which Australian fruit had often been sold to speculators well below its market value.

5 The location of Bruce's home, near Melbourne.

6 McDougall's book. See note 10 to Letter 15