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