My dear Prime Minister,

ECONOMIC ISSUES AT THE IMPERIAL CONFERENCE

Between the middle of December and the first mail in February, I
sent you a series of letters and memoranda dealing with subjects
which appeared likely to assume prominence at the Imperial
Conference. On Sunday last I had a talk with Casey [1] on the
subject. We agreed that, although economic issues were almost sure
to predominate at the Imperial Conference, yet that it was useless
to hope for great progress unless a great deal of careful
preparatory work was done. I, therefore, decided to send you a
cable asking whether you would be good enough to let me have some
indication of your attitude to the general lines on which I was
starting to work. You may have felt that this cable was rather
unnecessary having regard to the time which must elapse before the
Imperial Conference and I fear that, in the present state of
politics at Canberra, you may have even considered the cable as a
nuisance.

My reasons for wanting some general reaction from you were that I
feel that now is the time to get the official elements here
interested in a preliminary way. From now until the General
Election [2], the officials at the Board of Trade and the
Dominions Office will have some time to think about Imperial
Conference subjects and as soon as the Budget is over, I can get
Sir Francis Floud [3] at the Customs interested. Immediately after
the General Election the Departments will be very much absorbed,
especially if there is a change of Government. What I hope to do
is to get the importance of the Economic issues clearly into the
official mind, and to arrange for some informal discussions of
projects so that, in October, when the Governmental position has
settled down and when official Departmental Committees will have
to be established to consider Imperial Conference questions, the
Heads of the Departments concerned will have some constructive
ideas.

In addition to the official people, it seems most desirable to
stimulate the commercial community through such bodies as the
Association of British Chambers of Commerce and the Federation of
British Industries. For all these reasons I felt that I ought to
obtain some reaction from you. I hope very much that your pressing
immediate cares will permit you to write fairly fully in the near
future as to your own general ideas about the Conference. [4]

There are, of course, two alternative policies in regard to
procedure which could be adopted. The first would be to work up
the best case possible but to reserve all the important features
until your arrival here for the Conference. In view of past
experience, I do not believe that great success can be expected
along such lines. The month or six weeks of the Imperial
Conference is too short to drive objectives home into unprepared
minds. The second method is to encourage the maximum of pre-
Conference consideration and discussion, with the object of
focusing attention upon the need for an Imperial Economic Policy
and in the hope that ideas would emerge, some of which might prove
to be practical politics.

What are the objectives which Australia will desire to achieve as
a result of the Economic Discussions at the Conference? So far as
the general statement of these objectives is concerned, your 1923
Imperial Economic Conference speech set them out pretty clearly.

It would, however, be extremely useful if we could get down to
bedrock and envisage certain objectives in concrete form.

These objectives might first be classified as
(a) General Imperial objectives (i.e. Empire Standards and
Simplification, reinforced Empire cooperation in Scientific
Research, improvements in Inter-Empire Communications and
Transport, including refrigerated tonnage, etc.);

(b) Consideration of the position of Empire industries vis-a-vis
American Economic Imperialism and European Export Cartels;

(c) Australia's objectives (see below);

(d) Great Britain's objectives. Improved markets for British
goods, homes for British people;

(e) Objectives of immediate interest to Great Britain and of long
range interest to Dominions. Improvement of living standards and
thus of purchasing power of India.

So far as Australia's own objectives are concerned, I suppose they
might be divided under two heads, namely Marketing and
Development.

Marketing

Under marketing, starting with the politically easier first, we
should, I take it, desire more effective preference on goods
already dutiable in Great Britain. Without increase of duties, the
British preferences on wine and sugar could be increased. There
will be a strong demand for sugar from other countries; on wine I
am doubtful whether South African interests will make any move for
they regard the present preference as substantial. If we have
succeeded in putting our wine marketing in order, we should be in
a stronger position to press any claims than we are at present.

Dried fruit preference cannot be made more effective without
increased duties but the case for some protection against the
dumping of Californian fruit, at below Californian costs of
production, is a strong one, and you staked out a claim for some
such consideration during the 1923 Conference discussions.

On Canned Fruit a new duty would be essential if preference of any
value was to be given, although the admission of Australian canned
fruit free of the sugar duty might slightly stimulate sales.

Coming now to the more politically difficult subjects so far as
Tariff Preference goes-I should suppose that Dairy produce and
Meat (especially Beef) are the lines in which assistance would be
welcome. In each of these lines we should have one serious
criticism to contend with. It would be alleged that our production
costs are unduly high due to lack of productive efficiency. In
regard to butter, if we could have commenced a zealous campaign to
increase the yield per cow, it would certainly be a substantial
point in our favour. The beef position still remains difficult.

In regard to apples, our main competition now comes from New
Zealand but if we could obtain for our growers a slightly larger
share of what the consumer here pays, it would make a substantial
difference. It might be useful if there could be compiled a list
of products on which Australia would like (if it were possible) to
receive tariff preference or some other form of effective
marketing assistance.

Development

The extent to which Australia desires British financial
cooperation in Development is a subject upon which I have little
information. I would, however, remind you once again of the idea
of a priority list of Empire countries based upon (a) the
percentage of their imports derived from Great Britain; (b) the
extent to which development would provide homes for British
settlers. If Great Britain adopted some such idea, Australia
would, if both categories were taken together, come with New
Zealand at the head of the list.

On this development side, it would be useful if, taking the idea
of the more intensive use of our partially settled areas as a
basis, plans were worked out of methods whereby Great Britain
could cooperate with Australia in speeding up such development. I
have no doubt Gepp [5] is working on such plans but it would be
very useful to know to what extent ideas about cooperation in
agricultural development would be a part of an Australian case at
the Conference. [6]

The very important question of the rationalization of industries
on an Empire basis may also arise. About a year ago, you appeared
to think the time not yet ripe for any discussion of that subject.

Apparently the Economic Mission has prepared the ground to a
considerable extent in Australia and it would be useful to know
whether this question would be one which you would raise. [7]

Personally I should like to see the Imperial Conference carry a
resolution to the effect that the growing competition of the
United States of America and Europe rendered the meeting of the
industrialists of special Empire industries desirable, in order
that plans to meet this competition might be cooperatively
discussed.

Such a resolution would give a useful lead to the proposed Empire
Business Conference.

I feel that all the foregoing is pretty dull but I should like to
get some idea of the sort of things which Australia might put
forward should the atmosphere of the Imperial Conference prove
favorable. This must be my excuse.

THE ALTERNATIVE BRITISH POLICIES

It will probably be more useful for me to set out the possible
ways in which Great Britain can help Empire Trade in her own
markets.

First of all one can now say that Great Britain has at last come
to realise to a very considerable extent that (a) an Empire
economic policy is essential to herself; (b) that Empire
preferences are extraordinarily beneficial. The latest evidence on
these points appears this morning from a most authoritative
source.

The Committee on Industry and Trade (The Sir Arthur Balfour [8]
Committee) after sitting for 4 1/2 years and spending 30,000 in
investigations, printing, etc. has issued its final report. [9] In
this document the Committee, which includes Labour people, Free
Traders as well as Conservatives, makes the following statement:

After referring to the importance of Empire markets and to the
preferences afforded to British goods, the report states:

In view of the facts it cannot admit of doubt that the
preservation and development of these advantages must be one of
the cardinal objects of British commercial policy. [10]

What policies then can Great Britain adopt to secure this
'preservation and development'? The Balfour Committee is vague and
non-committal. There appear to be three main lines of thought
which could to some extent be combined (a) Voluntary Preference;

(b) Tariff Preference; (c) Purchase Boards and, in connection with
all three, the problem of wholesale retail margins.

Voluntary Preference

It is unnecessary to describe the work of the Empire Marketing
Board in this direction. This work could, however, be made far
more effective by strong Ministerial backing. Today only Amery
[11] wholeheartedly supports the campaign, little of encouragement
comes publicly from Baldwin [12], none from Churchill. [13] The
necessary corollary to Voluntary Preference, namely the
Merchandise Marks legislation [14], has been passed but so far
without any indication of serious intentions towards enforcement
(a matter I am taking up quietly through the Empire Marketing
Board).

A very definite way in which the Government could assist this form
of preference would be to make the use of Government funds to all
institutions, whether Government, Municipal, or semi-private,
dependent upon the purchase of Empire goods and to demand
explanations whenever foreign goods were bought. I personally
believe that the main value of the Voluntary Preference campaign
is to educate people here to realise what the Empire means and
thus to prepare them politically for more direct means of
assistance.

Tariff Preference

It is useless to discuss this subject until the results of the
General Election are known. I fear that the Tories will
unequivocally pledge themselves not to place any fresh taxes upon
foods. If the Tories lose, we shall have to defend the existing
position from Snowden. [15]

Purchase Boards

The way in which the Labour Party proposed to assist Empire
marketing and British Agriculture is through Purchase Boards
either run by the State or, as is now more frequently suggested,
run by Public Corporations under licence from the State.

You may remember Baldwin's curious proposal of some such scheme in
June 1924 but I do not believe the Tories would ever stand for
such a policy. If, however, Labour should be in power at the
Imperial Conference, it would be necessary to decide our policy
towards these proposals. I see no reason why we should not take
the line of saying that, while we understand and much prefer the
Tariff method (if we do!!) it is not for us to lay down the
methods whereby Great Britain will reciprocate and that if the
Purchase Board method or the Import licence method recommends
itself, and if it can be made effective, we shall welcome any such
form of help.

The further refinement of 'Stabilization of agricultural prices by
Purchase Boards' has not been much discussed lately. It may,
however, revive if (a) Labour wins; (b) Hoover [16] hits Canadian
agriculture hard.

Wholesale and Retail Margins

The last point I want to touch on in this already over-long letter
is the proportion of the retail price absorbed by the distributive
trades. In some cases it is undoubtedly large, i.e. apples, meat;

in some very large - woollen goods, etc.; in others reasonable i.e.

butter and dried fruits. There can, however, be no doubt that if
margins could be reduced, Empire and British agriculture could be
helped without increasing costs to the consumer.

I should like to know whether you are likely to feel inclined to
touch this aspect for, if so, a reasoned case must be prepared.

This last point, i.e. the preparation of cases, is a further
excuse for this long letter. It will be impossible adequately to
prepare the information you may need from this end of the world
unless one knows a good while before hand as to what your lines
are going to be. If you will let me know I can arrange to prepare
a good deal myself, I can indirectly incite the Empire Marketing
Board to prepare certain points, and if you approve, I could get
the cooperation of Faraker [17] and his staff on other items. I
hope, therefore, that you will have time to arrange for me to
receive some definite indications of your ideas.

Yours sincerely,
F. L. MCDOUGALL