My dear Prime Minister,

IMPERIAL CONFERENCE

I have now completed two more sets of notes, which I have numbered
3 and 4, and copies of which I enclose. [1] I have very little
idea as to what your reaction will be to No. 3, but it seemed to
me necessary to make some practical suggestion to meet the point
of view that is being expressed with increasing frequency, that
some effort analogous to the work of the Empire Marketing Board
should be undertaken to advertise British goods in the Dominions.

I shall be particularly interested to receive any comments that
you have to make on the idea. No. 4 is a quite interesting
analysis of the growing severity of American competition in the
world's markets. I have little doubt that you will find this
useful and interesting, and I certainly feel that the facts of the
situation ought to be fully presented to the Imperial Conference
when it meets. The League of Nations will be issuing a further
series of figures, bringing their comparative tables up to the
year 1927, but this will not be available until about March. I
shall then revise this statement in the light of the later
information.

As regards the use that I am making of these memoranda, the
position is as follows: So far as Australia is concerned I am
sending copies firstly to you, and also to Gepp [2], Rivett [3]
and certain of the notes to A. F. Bell. [4] In London I am
proposing to send the notes in a confidential and personal way to
Amery [5], Ormsby-Gore [6],Walter Elliot [7], Sir Horace Hamilton,
the Permanent Head of the Board of Trade, Sir David Chadwick' of
the Imperial Economic Committee, Tallents [9] of the Empire
Marketing Board, Whiskard [10] of the Dominions Office, and to
Casey. [11] I have arranged with Sir Horace Hamilton that he
should lunch with me next week to discuss the question of
preparatory work for the Imperial Conference, and I am thinking of
making this suggestion, to him, that quite informally and with no
commitments of any sort in any direction it might be worth while
to arrange for a monthly meeting, perhaps in the form of a dinner,
between the people mentioned above, together with perhaps two
outstanding men, one a banker and one an industrialist; and that
such a group, meeting monthly for the next six or eight months,
might do a great deal of useful thinking about Empire economic
problems and provide the Board of Trade with a whole series of
notes which could perhaps form the basis for the documentation of
the economic side of the Conference. All I am aiming at is to see
that a certain number of people start to think about the problems
in order that we may, in October 1929 or June 1930, have a much
more definite preparation than was the case in 1923 or 1926. I
feel fairly sure of your general agreement with this line of
action, and I would of course appreciate direct comment on the
idea.

It has occurred to me that perhaps you might find it expedient to
create some small and private committee or group in Australia to
discuss economic problems that may arise at the Imperial
Conference. If you should think well of such an idea the papers
that I am forwarding to you might provide some bases for
discussion on some of the questions. In the event of your thinking
such an idea a useful one and deciding to ask some men of ability
to constitute such a group, it would perhaps not be a bad idea
also to arrange for one member of the group to undertake to
correspond with me on the subject and to let me get some of the
Australian group's reactions to various points, and also to inform
me of other matters which they discuss.

BRITISH UNEMPLOYMENT

This morning's papers announced that over the fortnight from the
17th December to the 31st, unemployment in this country has
increased by 249,000. It is quite normal for there to be a very
big jump in unemployment figures over Christmas, but the enormous
increase that has occurred this year, on top of the long period of
increasingly bad unemployment returns, is a very formidable fact.

To-day there are 11500,000 unemployed-a total of 180,000 more than
on 1st January 1928. My feeling is that if the Government is
unable to achieve any sensible reduction in the unemployment
figures between now and the General Election, the forecasts which
I have sent to you may be vitiated and Baldwin's [12] Government
may be actually defeated. It is, of course, quite possible that
between now and the end of May there may be a reduction of three
or four hundred thousand in the number of unemployed-but should
the number remain at say 1,300,000 or over, the anti-Governmental
arguments which this would afford to the Oppositions would be
formidable indeed. It is a tragedy that Baldwin's Government has
not made use of its opportunities. So far as Empire Development is
concerned, apart from the action which they took in establishing
the Empire Marketing Board at the commencement of their term of
office, there has been little that they have done really to
assist. A thing that amazes most intelligent people is the way in
which Baldwin keeps men such as Cunliffe-Lister [13] in office
when there is such general and almost complete agreement as to
their ineffectiveness.

POSTERS BY WEST AUSTRALIAN ARTIST

By this mail I have sent to you one complete set of an Empire
Marketing Board poster series. These posters are the first that
the Board has had designed by an overseas artist who was actually
working in a Dominion. The Poster Committee of the Empire
Marketing Board has normally insisted on seeing rough sketches of
designs before finally commissioning artists. In this case Huxley
[14], who accompanied Amery on his Dominion tour, was impressed by
Mr. Webb's [15] work and, after obtaining the authority of the
Poster Sub-Committee, commissioned Mr. Webb to produce these
posters. The Poster Committee of the Empire Marketing Board is
very favourably impressed with Mr. Webb's work, and you will be
interested to know that this work by a West Australian artist will
next week be exhibited on 2,000 special frames throughout Great
Britain.

GERMAN-SOUTH AFRICAN TREATY [16]

The result of the by-election of the Transvaal which was announced
yesterday, recording as it does a victory for the South African
Party over Labour, appears likely to have considerable influence
on the effect of the South African-German Trade Treaty. It is
pretty certain to make the rest of the Labour members in the House
very nervous about supporting the ratification of the Treaty, and
should it lead to a refusal by the Union Parliament to ratify,
things will be much more satisfactory. From the various enquiries
that I have made among people interested in South Africa, I gather
that before this election result was known there was a general
feeling that Smuts [17] had just about a fifty-fifty chance of
winning the next Election. Presumably this by-election will tend
to slightly increase the odds in his favour. From your point of
view the return of Smuts to power before the Imperial Conference
and the presence of South African representatives keen on economic
co-operation within the Empire would be very satisfactory. If
Smuts is returned to power, I think it is becoming obvious that it
will be largely on the question of economic co-operation. Smuts
himself, members of his Party and the bulk of the South African
Press are giving a very great amount of attention to the work of
the Empire Marketing Board and to the importance of South Africa
retaining the preferences she receives and maintaining her
position in the United Kingdom markets. In this connection I am
forwarding a set of the Empire Marketing Board News Notes, which
are issued to members of the Board once a fortnight. I have marked
certain of the extracts which refer particularly to South Africa,
and would particularly draw your attention to the editorial
comment from the Cape Times in which the question of opposite
numbers in the Dominions to the Empire Marketing Board is
stressed. You may perhaps find it worth while just to glance
through some of the comments on the work of the Board which are
contained in this set. It is quite interesting to find that as
each set comes out the only hostile criticism of the Board comes
from British Liberals.

AUSTRALIAN EXPORTS TO THE CONTINENT OF EUROPE

Casey has sent me some views on the subject of Australian trade
representation on the continent of Europe, and the matter is
certainly one which ought to be carefully studied. I entirely
agree with his view that if we are to have any definite commercial
representation, it should be in close liaison with the British
Commercial Attaches, but on the other hand the possibility of any
large increase in Australian exports to continental countries is
somewhat dubious, except in regard to wool, wheat and meat.

As far as wool and wheat are concerned, it is doubtful whether
there is very much to gain from the presence of an Australian
Commercial Representative. Meat is rather a different question.

There is also of course some possibility of developing trade in
apples, but when one comes to the other commodities which normally
engage so much of the time of the Trade Representative, dried and
canned fruits, wine, butter, etc., I very much doubt whether we
are likely to develop much trade in the near future in Europe. In
each case in which a preference exists in this country, the mere
existence of the preference makes it normally a more profitable
market in the United Kingdom than in Europe. Then we have to take
into consideration the whole of the Empire Marketing Board and
Australian publicity in the United Kingdom. I certainly feel that
for the next five years, so far as the Australian exports of
butter and cheese, honey and eggs, dried and canned fruits, and
wine are concerned, we should concentrate upon the consolidation
of our position in the United Kingdom market rather than attempt
to make slight inroads into continental markets. I will, however,
go much more carefully into this matter and prepare a memorandum
which you may find of some use.

BUSINESS MISSION

This morning's paper contained the report of the Business Mission.

[18] The Times has given what appears to be a very good summary,
and as far as one can gather from this comment, the report appears
to be sound, practical and, I should imagine, useful from your
point of view. The very fact that the Business Mission has
actually issued a report seems to me to indicate that the Mission
has been a decided success. I imagine that, had the hostile
criticism which was rather marked during one of the stages of the
preparation for the Mission continued, you would not have asked
the members to present a written report.

It would be obviously stupid for me to attempt any detailed
comment on the report after merely reading over for the first time
the Times summary, but one thing struck me. I am a little doubtful
whether the members of the Mission have quite properly assessed
the value of Australian preference to British goods. Their remark
that if a decrease in the tariff led to an increase in Australia's
prosperity, it would be of such importance to Great Britain as to
offset any decrease in British preference which might be a
concomitant result, is, I fancy, not entirely sound. I do not
think that the members of the Mission have really studied the
growing severity of foreign competition, and my notes No. 4, which
are accompanying this letter, may prove an interesting comment on
this section of their report.

Let me just illustrate my point with a reference to one trade,
namely cotton piece-goods. Twenty-five years ago Great Britain
held the lion's share of the market in China, and probably
supplied 80% of the Argentine's requirements, and between 80 and
90% of Australia's. To-day Great Britain supplies less than 20% of
China's imports of cotton piece-goods, between 35 and 40% of the
imports into the Argentine, but still retains about 82 or 83% of
Australia's imports. It is impossible not to regard this fact as
indicating the very great value to Lancashire of the maintenance
of a tariff against the foreign piece-goods and, in this case, as
Great Britain supplies so large a percentage of our total imports,
the economic loss to Australia in the maintenance of this
particular preference must be very small indeed.

Yours sincerely,
F. L. MCDOUGALL