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IS pOCUMT. IS THE PROPERTY OF HIS BRITANNIC MAJESTY' S GOVERNMENT.
ftGRET.
COPY HO.
9
H
i
,p. 57 ( 2 9 ) .
CABINET.
GOVERNMENT ASSISTANCE TO RATIONALISATION.
Note by the President of the Board of Trade.
The Prime M i n i s t e r has authorised me to c i r c u l a t e
to my c o l l e a g u e s the attached memorandum which I sent him
some time ago, for c o n s i d e r a t i o n i n conjunction with the
memoranda on Unemployment by the Home S e c r e t a r y , the
Chancellor of the Exchequer, and the M i n i s t e r of Labour.
P.C.-L.
Board of Trade,
2 4 t h February, 1929.
MOST^ SEC RET.
The frinie M i n i s t e r .
I have seen Mr, Richard Guinness as you asked me to do,
and I i n v i t e d S i r John Hindiey.. to be present at the i n t e r v i e w .
Mr. Guinness's scheme, which. I a t t a c h (Appendix I ) , i s more or
l e s s on the same l i n e s ( a p p l i e d to c o a l o n l y ) as t h e proposals
contained in my memorandum ( U . P . 5 ( 2 8 ) ) which I c i r c u l a t e d
to the Unemployment Committee l a s t J u l y .
I also a t t a c h a
copy of t h i s memorandum (Appendix I I ) ,
My. i n t e r v i e w with Mr. Guinness affords a convenient
opportunity for considering whether any Government a c t i o n , by
the use of c r e d i t or o t h e r w i s e , i s n e c e s s a r y or expedient i n
order to s t i m u l a t e r a t i o n a l i s a t i o n in i n d u s t r y , and p a r t i c u l a r l y
in co a l .
I say n e c e s s a r y or expedient because, even i f such action
i s not n e c e s s a r y , you may regard
at the p r e s e n t t i m e
i t a s p o l i t i c a l l y expedient
0
j^et me take the question of n e c e s s i t y f i r s t ,
You w i l l remember t h a t i n my J u l y proposals I recommended
t h a t , i f d e s i r a b l e amalgamations i n cotton, coal or s t e e l
were h e l d up for l a c k of f i n a n c e , the Government should provide
the n e c e s s a r y c a p i t a l , .
I l a i d down s t r i c t c o n d i t i o n s - which
are s e t out in paragraph 8 of my memorandum.,
The Government
should only i n t e r v e n e i f the n e c e s s a r y c a p i t a l could riot be
found through t h e usual f i n a n c i a l channels, t h a t the amalga­
matlons to be helped must be econoirdcally d e s i r a b l e ,
management e f f i c i e n t ,
their
t h e i r c a p i t a l i s a t i o n r e a s o n a b l e , and t h a t
Government money should not be used to improve the f i n a n c i a l
p o s i t i o n of e i t h e r c r e d i t o r s or c o n s t i t u e n t f i r m s , except i n so
f a r as t h e i r f i n a n c i a l p o s i t i o n was a u t o m a t i c a l l y improved
-1­
by the e x i s t e n c e of an e f f i c i e n t
amalgamation.
At t h a t time I was not v e r y hopeful t h a t o u t s i d e
money would be found, p a r t i c u l a r l y i n cotton, with which
I was immediately concerned.
But considerable p r o g r e s s
has been made s i n c e then and I cannot say to you today t h a t
I know p o s i t i v e l y t h a t d e f i n i t e amalgamations are held up
for want of money.
The cotton s i t u a t i o n you know.
There the Bank of
England has come in and found the n e c e s s a r y new c a p i t a l .
A l l my c o n d i t i o n s a r e secured.
The c a p i t a l i s a t i o n i s sound,
the management i s e f f i c i e n t , no one, e i t h e r c o n s t i t u e n t
companies or Banks, I s t a k i n g any cash out of the pool;
the Banks, indeed, are t a k i n g income bonds i n place of
debentures and surrendering t h e i r r i g h t s of f o r e c l o s u r e .
This i s v e r y s a t i s f a c t o r y , and i t would be d i s a s t r o u s i f
we did anything i n cotton which would p r e j u d i c e t h i s
s a l u t a r y scheme of r e c o n s t r u c t i o n .
In s t e e l , slow but steady progress i s being made.
You know the amalgamations which have taken p l a c e and
a r e on f o o t .
The VIckers-Armstrong - Canine 1 1 - L a i r d
amalgamations are complete; and Cargo F l e e t and South
Durham are f o r m a l l y amalgamated.
I g a t h e r t h a t the
d i r e c t o r a t e s of Dorman Long and Bolckow Vaughan are now
also a g r e e d .
If that, amalgamation comes off,
I have l i t t l e
doubt t h a t c l o s e working arrangements, followed, I hope,
by complete amalgamation, w i l l t a k e p l a c e between the
enlarged Cargo F l e e t and the enlarged Dorman Long.
In
Scotland, I understand t h a t the r e g i o n a l amalgamation we have
so long contemplated i s in s i g h t .
I do not know t h a t any
of these amalgamations are held up for lack of funds.
In
1 ?9
JL
U to
Viclcers and Cargo F l e e t , t h e r e i s , of course, no
difficulty,
as t h e r e i s p l e n t y of c a s h ; and I have had
no complaint from the o t h e r s .
You w i l l remember t h a t ,
when iviCKenna was suggesting Government money for cotton,
he s a i d t h a t he was q u i t e s a t i s f i e d t h a t a l l the money
r e q u i r e d for s t e e l amalgamations would be found, and
probably f o r coal a l s o .
I may add t h a t , a p a r t from amalgamations, I hope
t h a t the s t e e l i n d u s t r y i s a t l a s t going to s e t up a
s i n g l e export agency.
Now I come to c o a l , which i s more d i f f i c u l t .
i s a good d e a l of movement in t h e c o a l i n d u s t r y .
There
Actual
amalgamations have not been v e r y numerous, but t h e r e
have been some s u b s t a n t i a l ones, covering, I t h i n k , an
output of about 70,000,000 t o n s .
more progress i n d i s t r i c t schemes.
But t h e r e has been
Both the S c o t t i s h
scheme and trie S i x Counties Scheme, which embraces the
whole of the Federated Area and Lancashire, have now been
working for about a y e a r .
I hope these scnemes w i l l
l e a d to more amalgamations; and i n the long run I t h i n k
they w i l l .
The people who see t h e f u l l v a l u e of co-operation
want to draw t h e n e t t i g h t e r .
On the other hand,
t h e r e are no doubt a number of l e s s e f f i c i e n t o r
more
i n d i v i d u a l i s t i c people who find they can s t i l l l i v e under
a d i s t r i c t scheme.
I am a f r a i d t h a t , here a g a i n , I cannot g i v e you any
absolute evidence of amalgamations which are d e s i r e d by
the p a r t i e s ; but which a r e held up f o r l a c k of c a p i t a l .
I know of some which a r e held up because some of the
p a r t i e s want to be bought out in whole or p a r t ; but
t h a t i s no part of our b u s i n e s s ,
But, on the whole, 1
do think - and i n t h i s rfindley a g r e e s - that there are
amalgamations which ought to t a k e p l a c e , but which the
p a r t i e s do not attempt to set on foot today because they
know t h a t , to make the amalgamation a s u c c e s s , new
c a p i t a l i s r e q u i r e d which would not a t t r a c t i s s u i n g houses
or i n v e s t o r s on any f i g u r e s which they can produce^
I do b e l i e v e , t h e r e f o r e , t h a t , if coal stood alone,
Government a c t i o n might a c c e l e r a t e amalgamations.
Let
U d then see whether any a c t i o n other than the finding of
money w i l l h e l p ,
The p r o v i s i o n s of the joining Industry Act of 1926,
which enabled one or more companies to force t h e i r
neighbours into a combine, have not been much used.
Some amalgamations have taken p l a c e , because the p o s s i b i l i t
of compulsion was i n the background.
But,
generally
speaking, even those who are keenest on amalgamation
are u n w i l l i n g to take t h e i r neighbours into Court and
force an amalgamation
t h a t the
through.
Mines Department
I t has been suggested
should now t a k e power to promote
amalgamations and take the p a r t i e s to Court.
deprecate t h i s c o u r s e .
principle.
I still
I think i t i s dangerous i n
I do not see the answer to the man who s a y s ;
"here you a r e f o r c i n g 12 u n w i l l i n g people into a s i n g l e
combine when no one of those i s ready to assent or
t h i n k s i t a sound b u s i n e s s p r o p o s i t i o n .
do t h i s , i t must assume the f i n a n c i a l
If the Government
responsibility".
You might get some schemes where a few of the p a r t i e s
were w i l l i n g ; but, in t h a t case, If they are keen enough,,
they ought to go on by themselves and use the power
of the Act.
I a l s o deprecate t h i s p l a n on p r a c t i c a l grounds.
I have seen a good d e a l of the enormous d e t a i l e d work: which
a c o l l i e r y amalgamation i n v o l v e s , even where the p a r t i e s are
willing.
The appraisement of the a c t u a l and r e l a t i v e v a l u e s
of unworfced mines i s e x t r a o r d i n a r i l y d i f f i c u l t ,
and r e q u i r e s
weeks of work: i n any scheme by ablo mining e n g i n e e r s ;
and then, of c o u r s e , the accountants have to come i n .
I do
not b e l i e v e t h a t a Government Mines Department could undertake
t h i s work: on a l a r g e s c a l e , u n l e s s i t r e t a i n e d the s e r v i c e s of
most of the competent mining engineers i n the country.
I
am t h e r e f o r e a g a i n s t the Government undertaking to force
amalgamations.
I t h i n k i t might be p o s s i b l e and r i g h t to extend the
powers of Part I of the Act of 1926 to include s o i l i n g
organisations.
I know t h i s was objected t o at the time; and
I myself have advanced very cogent o b j e c t i o n s t o Government
a c t i o n - such a3, the p o l i t i c a l consequences i f the
Government f o r c e s companies i n t o a s e l l i n g pool, the
i n e v i t a b l e r e s u l t of which i B to put up the p r i c e of coal to
consumers.
But I t h i n k the country i s s u f f i c i e n t l y keen to
see the coal i n d u s t r y r a t i o n a l i s e d to ignore those
o b j e c t i o n s ; and I think: we could now s a f e l y extend the 1926
Act to cover s e l l i n g p o o l s .
I t h i n k , t o o , that t h e r e might
be more w i l l i n g n e s s to force u n w i l l i n g neighbours i n t o i
s e l l i n g pool than to force then i n t o a complete amalgamation.
Moreover, allowing one company to force i t s neighbours into
a s e l l i n g pool does not d i f f e r m a t e r i a l l y In kind from
f o r c i n g a neighbour i n t o a complete amalgamation; and d i s t r i c t
agreements are accustoming people to some co-operative control
over s a l e s .
I t h i n k on the whole, t h e r e f o r e , t h i s i s worth
trying.
The only other way of g i v i n g Government a s s i s t a n c e i s by
Government f i n a n c e .
From what I have s a i d above both on the
ooal i n d u s t r y i t s e l f ana s t i l l more on cotton and s t e e l , I
should be doubtful if Government i n t e r v e n t i o n was
on the s t r i c t m e r i t s of the c a s s .
these q u e s t i o n s :
justified
I n a t u r a l l y ask myself
What evidence i s there of a c t u a l schemos
held up., which w i l l j u s t i f y a departure from the d e l i b e r a t e
p o l i c y of the Government since the Trade f a c i l i t i e s Act
expired?
Would not Government i n t e r v e n t i o n d e t e r c o l l i e r y
companies from f a c i n g the s t r i n g e n t terras of r e c o n s t r u c t i o n
wnich are necessary t o bring i n outside finance?
W i l l not
outside finance i t s e l f be d e t e r r e d from what must be a l e s s
a t t r a c t i v e investment than f o r e i g n investments ready to
t n e i r hand?
What w i l l be the e f f e c t on other i n d u s t r i e s ?
W i l l not a l l i n d u s t r i e s i n need of money say that Government
money i s not only cheap money but easy money?
W i l l not the
s t e e l i n d u s t r y , for example, be i n c l i n e d to s i t back and ask
for 5-/i money without adequately w r i t i n g down i t s c a p i t a l ?
Will not c r e d i t o r s see a r a t h e r e a s i e r get-out than they
could otherwise obtain?
W i l l not shareholders say t h a t , i f
the Government i s coming i n , i t w i l l do something for them,
who have l o s t so much?
Lancashire has
b6en
W i l l not Lancashire p r o t e s t that
"under the harrow", that Lancashire has
the poorest shareholders (with c a l l s to meet); that
Lancashire must have as good terms as anyone e l s e ?
t h i s cause i n e f f i c i e n t
W i l l not
and uneconomic cotton schemes to
r a i s e t h e i r heads a g a i n and ask for cheap money to c a r r y on
under the old management?
If that i s so, w i l l the Governor of
the Bank be able to fceep the i s s u i n g houses up to t h e i r
p r o v i s i o n a l undertaking to find the money for the sound
Cotton Corporation?
As r e g a r d s cotton, i t may be s a i d that
the scheme i s s t a r t e d ; t h a t the backing i.z has r e c e i v e d
shows that, no Government money Ls needed; and that the
Government can refuse any finance to the cotton t r a d e .
I
t h i n k t h i s i s t r u e i n f a c t ; but e l e c t o r a l p r e s s u r e i s not
conditioned by s t r i c t r e g a r d f o r t r u t h .
I am bound to put these obvious d i f f i c u l t i e s to you.
But, i f i t i s thought wise to offer Government h e l p , I
think t h a t wo could hedge round our offer by such s t r i c t
c o n d i t i o n s t h a t loose schemes could be r e j e c t e d and only
those would get through whoro thero was a r e a l need.
This,
indeed, w i l l be e a s i e r i f we merely announce our p o l i c y
before the e l e c t i o n and c a r r y i t out a f t e r w a r d s .
Still,
even so, the very f a c t t h a t the Government i n t e r v e n e s at
a l l must have some d e t e r r e n t e f f e c t upon p r i v a t e endeavour,
both on those who ask for money and those who have to find
it.
Let me here make i t p l a i n t h a t , while I should not be
opposed to an offer of Government finance to a s s i s t
approved amalgamations, subjeot t o the c o n d i t i o n s I have
o u t l i n e d , I am u t t e r l y opposed to loose schemes, such as
those advocated by S i r Richard Kodraayne,
This gentleman
has f r e q u e n t l y proposed t h a t Government c r e d i t should be
a v a i l a b l e for any c o l l i e r y which w i l l improve i t s p l a n t .
I think t h i s kind of proposal thoroughly v i c i o u s .
Here
i s no reward f o r m e r i t ; hore i s no encouragement to
amalgamate;
i t only means t n a t i n d i f f e r e n t
undertakings
w i l l be able to get cheap money t o maintain t h e i r
i n d i v i d u a l e x i s t e n c e when they ought e i t h e r to d i e or be
absorbed i n other and more e f f i c i e n t
concerns.
You w i l i next ask me what w i l l be the e f f e c t on
employment i f the Government offer f i n a n c i a l
for amalgamation.
assistance
I must say at once t h a t the e f f e c t
191
X0
cannot
be
Cabinet
considerable.
during
the
r a t i o n a l i s a t i o n
at
the
must
to
in
and
Without
and
But
therefore
while
shall,
can
in
Even
do
so,
anything
I
of
t h i s
i n
order
they
found
were
in
general
to
the
being
If
decided
and
I
on
set
were
i t s
in
will
unit
the
i s
t h i s .
diminish,
Given
per
an
r a t i o n a l i ­
of
e f f i c i e n t
that
case
i t
which
output,
industry
and
for
is
w i l l
your
make
that
desired
be
i n
saying
t h a t
policy,
to
industry
your
the
i n t e r v e n t i o n
be
no
r i s k
of
for
lack
you
c a p i t a l
that
the
You
merits,
I
of
capital
in
in
this
should
as
8
or
-
that
i n d i r e c t l y ,
I
could
have
be
in
r e f e r r e d
memorandum.
measure
propose
to
i f
hot
state
former
p r a c t i c a l
n a t u r a l l y
certain
alone
assume,
my
that,
amalgamations,
which
of
a
coal
c a p i t a l
I
conditions,
saying
of
approved
also,
departure
process
necessary
would
terms,
d i r e c t l y
in
a
the
preferred
paragraph
considering
announce
general
prepared,
in
to
i t
l i m i t i n g
out
strong
do
i f
market.
the
can
delayed
or,
would
a
and
you
may
s a t i s f i e d
terms
above
i f
necessary
the
as
work
grounds.
would
i n d u s t r i e s , -
provide
p o s i t i o n
possible,
these
there
Government
have
reasonably
you
that
the
men
industry
i n d u s t r i e s ,
putting
employed.
run
The
find
power
and
long
can
many
j u s t i f i e d ;
that,
kind,
the
foreign
competitive
as
you
employer
i t
In
employment.
fewer
men
a d m i n i s t r a t i v e l y
with
be
of
r a t i o n a l i s a t i o n
that
will
employ
i s
r a t i o n a l i s a t i o n
the
our
employ
think
on
take
of
number
of
emp 1 o y .
you
j u s t i f i e d
basic
way
shall
I
e f f i c i e n t
benefit
the
process
of
output.
number
people
f a c t ,
Government
most
i s
true
the
effect
employed
the
t o l d
greater
competitor
the
e co nomi c a l l y
the
w i l l
maximum
we
that
a much
to
the
fewer
y e a r s
numbers
r a t i o n a l i s a t i o n ,
sation,
we
the
continually
immediate
e f f i c i e n t
employs
industry.
The
industry
a more
i t
t h r e e
proportion
r a t i o n a l i s e d
becomes
have
absorb
time.
reduce
i n d u s t r i a l l y
a
l a s t
cannot
present
be
I
that,
to
be
i
before taking any d e c i s i o n , the Chancellor of the Exchequer
and I should see the Governor of the Bank and the Chairman
of the J o i n t Stock Banks.
But we a r e considering the
p o s s i b i l i t y of t h i s a c t i o n on the ground of expediency.
What
would be the a t t i t u d e of these gentlemen i f we saw them? We
may assume t h a t the Governor would be d e f i n i t e l y and
i r r e v o c a b l y opposed.
He would bury h i s new p r o j e c t s and
reproach you with the e p i t a p h "Plura m o l i e b a t u r T h r e e of
the other Bankers would follow h i s l e a d .
Goodenough would
be of the same opinion for other l e s s good reaoons, which he
would no doubt s t a t e i n order to show that he was independent
of the Governor.
Your one hope would l i e i n t,cKenna, who
might decide to take an opposite view; but I am not sure
even of him.
He wanted Government money for cotton; but,
having seen the Governor get away with t h a t , I am not at a l l
sure that he would support Government finance elsewhere.
If
then you wish to a c t , i t would probably be wiser to produce
your l i m i t e d offer of a s s i s t a n c e without c o n s u l t a t i o n with
anyone.
After a l l , you would be saying t h a t the Government
only offered to come i n where ordinary finance could not be
found; and you would not have to t a b l e a l l your p r e c i s e
c o n d i t i o n s before the g e n e r a l e l e c t i o n .
If a c t i o n i s contemplated, t h e r e i s a f u r t h e r con­
si d e r a t i o n , which i s more for the Chancellor than for myself,
namely, whether the more convenient course
for the Treasury
i s to r a i s e the money by guaranteed l o a n s , or by d i r e c t
borrowing and ad.VB.nces to u n d e r t a k i n g s .
The advantage of
Trade F a c i l i t i e s was t h a t , the Government being merely a
g u a r a n t o r , i t was e a s i e r for the Government to step out of
t h i s c l a s s of business when t h e i r a s s i s t a n c e was no longer
required.
l o a n s have
But i t must be admitted t h a t Trade F a c i l i t i e s
:
from the investment point of view, been r a t h e r
an anomalous c r e a t i o n .
They a r e , in e f f e c t , a Government
s e c u r i t y , but t h e i r market p r i c e does not j u s t i f y t h a t
prestige.
However, I have w r i t t e n so much about the other
a s p e c t s of t h i s question t h a t I p r e f e r to l e a v e t h a t to the
Chancellor.
P.
C-L.
12.
2.
29.
ISO
"SRY CONFIDENTIAL.
APPENDIX I.
A PLAN TO BRING ABOUT LARGE SCALE AMALGAMATIONS
IN THE COLLIERY BUSINESS AND TO MODERNISE
AND RATIONALISE THE INDUSTRY.
1.
It i s assumed t h a t the advantages of amalgamation
and r a t i o n a l i s a t i o n are admitted.
2.
At present amalgamations are proceeding very slowly,
p a r t l y because of the i n d i v i d u a l i s t i c and r e a c t i o n a r y outlook
of many
C o l l i e r y Owners, Chairmen, D i r e c t o r s , Managing
Directors,
and p a r t i c u l a r l y of the O f f i c i a l s as d i s t i n g u i s h e d
from the S h a r e h o l d e r s , p a r t l y owing to the n a t u r a l r e l u c t a n c e
of a C o l l i e r y t h a t i s not l o s i n g money to amalgamate with a
C o l l i e r y t h a t i s , and p r i n c i p a l l y because general opinion
holds t h a t no amalgamation Is worth while u n l e s s money can
be had a t cheap r a t e s to c a r r y through modernisation and
rationalie ation,
3.
However s t r o n g l y the Government and popular
opinion may advocate amalgamation, i t i s not thought possible
for a Conservative Government to force It on u n w i l l i n g Owners.
Moreover, the t e c h n i c a l c h a r a c t e r and extreme v a r i a t i o n of
value between C o l l i e r i e s presents almost insuperable
d i f f i c u l t i e s to any rough-and-ready s o l u t i o n of t h i s problem
by a formula a p p l i c a b l e to the i n d u s t r y as a whole.
4.
N e v e r t h e l e s s , i t i s submitted t h a t a Government
could induce Owners to amalgamate by o f f e r i n g c e r t a i n ad­
vanatages to amalgamations that complied with c e r t a i n
definite requirements.
I t Is suggested t h a t the c o n s t i t u e n t
u n i t s to any amalgamation must have a sound economic b a s i s ,
and therefore t h a t any amalgamation should comprise
approximately 50% of
(a) e i t h e r the t o t a l q u a n t i t y of the d i s t r i c t , or
(b) the q u a n t i t y of s i m i l a r q u a l i t y of Coal mined within
the D i s t r i c t .
5.
The advantage offered by Government should take
the form of a loan a t a moderate r a t e of i n t e r e s t .
The following are suggested as conditions of the
loan:
(a) I n t e r e s t should not exceed 5%;
(b) The amount loaned to any Corporation, Association
or Group, should not exceed, say, 7/6d. per ton
of annual p o t e n t i a l output;
(c) The proceeds should be earmarked for the development
of the p r o p e r t y , modernising I t s p l a n t , the
e r e c t i o n of Coke Ovens and By-Product P l a n t , and
the r e s u l t a n t d i s t r i b u t i o n of Gas and other
forms of power.
No p a r t of the money i n question
should be used for the l i q u i d a t i o n of the present
c a p i t a l commitments;
(d) The loan should be repayable by a sinking fund
s t a r t i n g only i n the 4th or 5th y e a r and redeeming
the loan in 25 y e a r s , provided, however, t h a t the
l i f e of the C o l l i e r y i s e s t a b l i s h e d a t a longer
period; ­
( e ) A percentage of p r o f i t s over an agreed datum l i n e
should be a l l o c a t e d to a betterment fund and to a
fund for the b e n e f i t of the wage e a r n e r .
It i s
suggested t h a t 5% of such p r o f i t s should be
a l l o c a t e d to betterment and 5% to the workers'
fund.
The e f f e c t of t h i s plan would be t h a t , while no
p r e s s u r e i s brought on any C o l l i e r y to amalgamate, y e t
the advantages of doing so would become so obvious t h a t
i t would be impossible to r e s i s t them.
In a short time
the r e p r e s e n t a t i o n of the Coal Industry would be in
r e l a t i v e l y few hands, c o n t r o l l e d by men of high c a l i b r e and
i t i s thought t h a t not only would producers be able to control
the export business and, If found d e s i r a b l e , enter into
i n t e r n a t i o n a l agreements, but t h a t a much more e n l i g h t e n e d
p o l i c y in r e g a r d to the labour problems would be pursued.
In t h i s r e g a r d , i t i s thought g e n e r a l l y b e t t e r c o n d i t i o n s ,
both as to pay and perhaps a guaranteed week, might ensue.
F u r t h e r , such an amalgamation would be able to
modernise the p i t s , close bad p i t s , work f u l l time on good
p i t s , spend money on r e s e a r c h and develop what many people
b e l i e v e s t i l l to be the cheapest r e g u l a r supply of power
in the world.
I t -yould be easy to develop e l e c t r i c i t y ,
g a s , and in due course o i l , from c o a l , and other i n d u s t r i e s
"rhich depend on cheap poorer, a l l at the p i t ' a mouth,
6,
If the whole of the i n d u s t r y accepted the terms,
the amount of money r e q u i r e d would be about £90,000,000
to £100,000,000, but i t i s not thought that anything l i k e
t h i s c a p i t a l would be r e q u i r e d , and a more probable e s t i m a t e
puts the maximum sum at about £20^000,000 to £25,000,000.
The whole of t h i s sum would be spent on labour and B r i t i s h
m a t e r i a l s , and would immediately give employment.
7.
The Government should lend the mcney to the companies
a t 5% plus agreed Sinking Fund based on
development.
each i n d i v i d u a l
The Exchequer should make t h e i r own arrangements
as to i s s u i n g Stock to finance the o p e r a t i o n .
Seeing t h a t
C-overnment c r e d i t to-day i s on about 4 ^ b a s i s , in t h i s
way the Exchequer should make a p r o f i t and i t should remove
the o b j e c t i o n t h a t Government c r e d i t was being used for the
b e n e f i t of c a p i t a l i s t s without remuneration.
APPENDIX I I .
U . P . 5 (28).
VERY SECRET.
1
In any scheme designed to h e l p depressed I n d u s t r i e s
6
our o b j e c t i v e should be to make those i n d u s t r i e s achieve
the most e f f i c i e n t o r g a n i s a t i o n for production and s a l e ,
i . e , what i s l o o s e l y c a l l e d r a t i o n a l i s a t i o n ,
2,
Taking the long view, e f f i c i e n t c o n c e n t r a t i o n w i l l
produce and s e l l the maximum amount p o s s i b l e , a t home
and abroad, and w i l l therefore provide the maximum of work
under the best c o n d i t i o n s ,
Moreover, any encouragement
to l e s s e f f i c i e n t u n i t s to continue i n independence i s mere
dope;
i t must postpone the i d e a l c o n c e n t r a t i o n , and i t
is
even doubtful whether any immediate advantage i n the a g g r e ­
gate of employment i s secured.
3c
The f a c t must be faced t h a t r a t i o n a l i s a t i o n may a c t u a l l y
i n c r e a s e unemployment i n some f i r m s ,
But, u n l e s s we can
produce the maximum we can s e l l under the most e f f i c i e n t
c o n d i t i o n s , employment a s a whole cannot be improved.
4.
I t i s important t h a t any a c t i o n by the S t a t e should
not r e t a r d any combinations which would take place without
S t a t e h e l p , or deter outside finance from p l a y i n g i t s p a r t .
5.
I suggest t h a t t h i s r i s k can be almost e n t i r e l y
prevented i f Government a s s i s t a n c e i s only given i n c a s e s
where we are s a t i s f i e d t h a t normal finance i s not a v a i l a b l e ,
and where the p a r t i e s combining e x t r a c t no advantage for
themselves other t h a n the advantage of combination; I e
0
0
i s e s s e n t i a l t h a t the combining p a r t i e s should leave a l l
t h e i r a s s e t s i n the b u s i n e s s .
6,
I propose t h a t the Trade F a c i l i t i e s Act should be
r e s t o r e d for the purpose of guaranteeing l o a n s to e f f e c t
approved combinations i n s e l e c t e d i n d u s t r i e s ,
A total
sum would, of course, be f i x e d both i n order to l i m i t the
it
extent of Government l i a b i l i t y and to encourage prompt
applications.
I suggest that the i n d u s t r i e s s e l e c t e d should be Coal,
Iron and S t r e l , and Cotton.
I should be w i l l i n g to
include the Woollen, and "Worsted t r a d e s i f I thought t h e r e
was a r e a l prospect of amalgamations t h e r e .
The Government guarantee would only be given where i t
(the guarantee) was n e c e s s a r y to bring about an approved
amalgamation.
Before approving an amalgamation the
Government would have to be s a t i s f i e d ­
( a ) That the amalgamation was economically d e s i r a b l e ,
I . e . t h a t the combination would be an economic u n i t .
(b) That the management of the combine was reasonably
efficient.
( c ) That c a p i t a l i z a t i o n was r e a s o n a b l e .
(d) That no constituent firm should take any cash out
of the e x i s t i n g funds or new money of the combine, i , e ,
each firm would bring into the pool,and leave t h e r e a l l
i t s a s s e t s , f i x e d or f l o a t i n g .
(e ) i h a t the scheme w i l l not be used to Improve the
p o s i t i o n of c r e d i t o r s at the expense of the S t a t e , i . e .
t h a t no c r e d i t o r should be b e t t e r off because of the State
guarantee than he would have been without i t .
I realise­
t h a t t h i s i s easy to say and d i f f i c u l t to enforce; but I
am q u i t e c l e a r t h a t we must stand for the p r i n c i p l e , t h a t
we are not going to allow S t a t e money to improve a
c r e d i t o r ' s p o s i t i o n more than i t would be improved in a
sound business arrangement to which the S t a t e was not a
party.
In the l a s t r e s o r t , the r e s u l t might be achieved by
l i q u i d a t i n g the companies and r e c o n s t i t u t i n g them on
ama1gamat i o n .
The Government would act on the advice of a small
but very strong committee.
I should not l a y down the nature
of the charge to be c r e a t e d In favour of the S t a t e ; but,
as under the previous Act, I should leave the committee to
recommend the amount, c h a r a c t e r , and p r i o r i t y of the
Government guaranteed l o a n ,
10.
I submit the f o l l o w i n g c o n s i d e r a t i o n s as
justifying
this revolutionary proposal:­
( a ) Without Government a s s i s t a n c e , I do not b e l i e v e
t h a t necessary amalgamations w i l l take p l a c e .
I know t h a t
the Cotton Yarn A s s o c i a t i o n i s about to represent to me t h a t
an economic amalgamation can take place i n the American
S e c t i o n , provided t h e r e i s some Government a s s i s t a n c e to
r a i s e working c a p i t a l .
They w i l l represent t h a t the firms
concerned have exhausted p r a c t i c a l l y a l l t h e i r working
c a p i t a l ; t h a t the members cannot provide more c a p i t a l
themselves, t h a t outside finance cannot be obtained; and
t h a t , i f the present e f f o r t f a i l s , the movement to secure
combination In t h i s i n d u s t r y w i l l d i e .
Ve may c r i t i c i z e
the people who c o n s t i t u t e the American Section of t h i s
t r a d e - and they deserve a f u l l measure of c r i t i c i s m ­
but c r i t i c i s m won't r e l i e v e us of a cotton s i t u a t i o n which
w i l l become almost i n s o l u b l e if we cannot h e l p now.
Again, i n c o a l , I am s a t i s f i e d t h a t t h e r e are amalgama­
t i o n s which ought to take p l a c e , where once the amalgamation
has taken place new c a p i t a l for improvements i s
but where outside finance w i l l not be a v a i l a b l e .
justified,
The
amount of outside money which w i l l be put Into the c o a l
t r a d e w i l l be confined to more a t t r a c t i v e - , or r a t h e r l e s s
unattractive, propositions.
(b) If t h i s plan i s r e j e c t e d , we may w e l l be d r i v e n
i n a short time to f a r l e s s economic e x p e d i e n t s .
( c ) In t h i s p l a n , as d i s t i n c t from a l l our s u b s i d i e s ,
Government a i d i s given only as a reward of m e r i t ; i t
is
given only to those who w i l l set t h e i r own house i n o r d e r .
Thus, we should get a s the p r i c e of our help a more
e f f i c i e n t Industry and one b e t t e r able to hold i t s own.
(d) I am reasonably s a t i s f i e d t h a t , safeguarded as
s t r i c t l y as I propose, Government a c t i o n w i l l not d e t e r
outside f i n a n c e .
I have sought c o n f i d e n t i a l l y the advice
of one who i s able to give me the best p o s s i b l e opinion of
t h i s i n the Coal i n d u s t r y .
His view i s t h a t the plan on these
l i n e s would not deter those who are c o n s i d e r i n g
coal schemes from pursuing those schemes.
financing
On the c o n t r a r y ,
the f a c t t h a t other amalgamations were going forward with
Government a s s i s t a n c e might r a t h e r encourage finance to
come into the i n d u s t r y , as i n d i c a t i n g a h e a l t h i e r t o n e .
11.
I have considered whether Government guaranteed loans
should be made a v a i l a b l e f o r the renewal of p l a n t .
not propose t h i s , a t any r a t e a t t h i s s t a g e .
I do
Once the
Government made a general o f f e r of t h a t kind, i t would be
unable to confine i t to firms which are economic u n i t s ,
in s i z e and management.
"."e s h a l l get the r e s u l t we want
i n improvement of plant b e t t e r by g i v i n g our help to f o s t e r
amalgamations, whose new c a p i t a l i z a t i o n w i l l , as part of the
scheme, include s u f f i c i e n t c a p i t a l to spend on the necessary
r e - c o n d i t i o n i n g of p l a n t .
12.
I am s a t i s f i e d t h a t we need not f e a r the charge t h a t
we are attempting to c r e a t e t r u s t s and monopolies, or t h a t
we s h a l l have any d i f f i c u l t y In r e s i s t i n g a claim for
a n t i - t r u s t l e g i s l a t i o n based upon ou* a c t i o n .
In c o a l ,
cotton, and s t e e l , productive c a p a c i t y i s so enormously
In
excess of demand t h a t I t must for many y e a r s be the object
of these i n d u s t r i e s to s e l l the l a r g e s t p o s s i b l e output.
13.
What a c t i o n ought we to take a t the present time?
I t i s Important t h a t we should not a c t u n l e s s Government
i n t e r v e n t i o n i s n e c e s s a r y ; but we should be ready to a c t
promptly i f i n t e r v e n t i o n i s r e q u i r e d .
The opponents
of Government i n t e r v e n t i o n w i l l say t h a t ordinary finance
can do the work.
I t i s very d i f f i c u l t to check t h i s ,
as at present t h e r e i s a sort of s t a l e mate.
The
f i n a n c i e r s are i n c l i n e d to say t h a t they can do e v e r y t h i n g .
The I n d u s t r i e s are alow and r e l u c t a n t t o act at a l l , and
excuse t h e i r i n a c t i o n p a r t l y because some of them say that
they know they cannot get p o s s i b l e f i n a n c i a l termsj o t h e r s ,
l i k e many of the s t e e l makers, say t h a t they cannot offer
any adequate prospects without a d u t y .
I think we want at
the same time to encourage the i n d u s t r i e s and to t e s t the
financiers.
I s u g g e s t , t h e r e f o r e that the Government should
s a y at t h i s s t a g e t h a t i t i s ready ( i n d i c a t i n g the general
l i n e s and l i m i t a t i o n s ) to give help by means of guaranteed
l o a n s , i f n e c e s s a r y amalgamations are held up for l a c k of
finance.
I assume t h a t , before any announcement was made, the
Treasury and the Board of Trade would d i s c u s s the matter
w i t h the Bank of England and the J o i n t Stock Banks.
But I
t h i n k the g e n e r a l scope of the proposal might w e l l be
considered by the Unemployment Committee i n conjunction
w i t h the other schemes which have been submitted to i t .
P.C-L.