§ 11.23 a.m.
§ Mr. Stan Newens (Epping)
I beg to move,That this House, deeply conscious of the rapidly accelerating trend towards the formation of huge national and international companies as the result of mergers, takeovers and closures, with the consequent concentration of enormous powers over employment, the location of industry, investment and other vital issues of public concern in the hands of small minorities, sometimes not even domiciled in this country, notes that this process presents a serious long term threat to democratic government in so far as the policies of elected authorities are increasingly undermined by decisions taken by these minorities who are not responsible to the public: and considers that it is an urgent necessity to provide a comprehensive code of conduct for takeovers as an interim measure to safeguard workers, consumers and the community in general and to bring companies in a dominant position in the British economy into public ownership at the earliest possible date with full provisions for democratic control in their respective spheres by workers and the representatives of the community as a whole.It is a well-known fact which has attracted a lot of interest lately that the rate of mergers, takeovers and the creation of larger units in industry has been gathering pace in recent years. The exact estimates vary according to the definition of the nature of the takeovers, but whereas in 1958, according to one report which I have, the total value of subsidiaries acquired by other industrial organisations in this country was only £121 million, by 1968 it had reached over £2,000 million. The Board of Trade Journal of 24th January this year stated that in the first nine months of 1968 there had been 438 acquisitions and mergers involving an expenditure of £1,637,900,000 and there were a further three months to go when that count was taken.
The trend has not diminished in any way in 1969. In fact, according to the Sunday Times of 12th January, in the first eight working days of 1969, no fewer than 14 public company bids were made involving about £461 million, very considerably more than the figure for the whole of the year a decade ago. The tendency for small enterprises to be taken over, merged or wiped out is not new in a capitalist society. Lenin dealt with 853 it in his pamphlet entitled "Imperialism The Highest Stage of Capitalism" in 1912, and many other commentators have done likewise. The tendency to merge has continued from that period in most countries.
There are, however, certain new features which are apparent at the present time. First, there is the unprecedented acceleration of the process. Secondly, there is the tendency to form international companies—or transnationals, as they have been dubbed by some commentators. Thirdly, we have in this country the active support of the State through the I.R.C. for mergers as a means of increasing efficiency.
I raise very serious problems in my Motion, and I want to make it clear that I do not think that the Government can afford to be complacent, because the very nature of the democratic system of government is threatened by the sort of changes taking place under our noses. In my opinion, Socialism, which means the extension of public ownership with workers' control and other democratic controls, is the only way in which it will be possible in the long run adequately to deal with the problem.
I should like to say a word or two about the causes of mergers. There is no doubt that the fundamental cause of mergers is competition for markets and the fear of being knocked out—the very competition which hon. Members opposite laud so highly. My hon. Friend the Parliamentary Secretary to the Ministry of Technology, in a debate in the House on 20th February last year, quoted Mr. Arnold Weinstock on this matter. Mr. Weinstock had said:In order to remain in the telecommunications game, we must get 50 per cent. more output with 5,000 fewer workers in the A.E.I. telecommunications factions.The position is the same in many other spheres. It is the competition for markets which is forcing enterprises to consider merging into larger units.
The advantages of larger units are fairly obvious, but I should like to mention some of them. There is the advantage in marketing, in establishing nationally or internationally known brand names, which can be achieved by creating larger units. That is one consideration in the merger which is currently receiving 854 a certain amount of attention between Unilever and Allied Breweries. Secondly, and most important of all, there are advantages to be achieved in economies of scale, in production and distribution—that is, cutting down on overheads, labour costs, and so on, for the same amount of production. Thirdly, there is the possibility of employing new management systems—for example, in banks and television rental companies—based on computers.
These are the advantages which attract many people to mergers, but there are some others which are much more dubious from the public's point of view. Some people have said that it is advisable to go forward with mergers because this enables scarce top executive brains to be used in the management of larger organisations. But a large enterprise requires radically different techniques and attitudes, if it is to operate successfully, from those of a smaller enterprise, because the people at the head of a large firm must delegate authority and depend on subordinate executives. There is no question but that the dynamic bulldozing qualities which are often successful in building up a giant concern are completely unsuitable for operating it. This in apparent from many mergers.
The only example of a comprehensive study of mergers which I have found is one published by John Kitching in the Harvard Business Review in November-December 1967. He had undertaken a study of 69 acquisitions by 20 major corporations. It was clear that, after the initial advantages of acquisition of a huge capital asset comparatively cheaply, there had been enormous problems of integrating the concerns acquired into one unit. Over seven years, a third of these mergers were regarded as failures.
I believe that these difficulties will be made quite clear in the electronics industry. What is happening is that, in many of the former units which were successfully operated, there has been tremendous disruption. I have put before my right hon. Friend the Minister of Technology some details which apply in my area in Harlow, where orders previously supplied by goods manufactured in this country are now supplied by imported goods. I do not blame Mr. Arnold Weinstock or anyone for this sort of thing. I have tremendous respect for his 855 enormous abilities, but, in a huge organisation, one is dependent on the middle rank executives and this consideration has not adequately been taken into account in regard to mergers.
Other so-called advantages are not in the public interest. One is the acquisition of a capital asset, a factory, a plant or a group at below the real value. This is the driving force in the formation of so-called "conglomerates", the merging of firms in different lines of business under one holding company. An article appeared in the Financial Times on 15th February by Jim Slater, Chairman of Slater Walker Securities. He described the acquisition of Crittall-Hope, the metal frame people, the substantial rise in profits, and the methods by which this was done—by selling up loss-making activities at home and abroad, rationalising duplicated factory and sales depot facilities and by what he called "integrating" research and development facilities.
The criterion which Mr. Slater had all the way through was profit, and there is no doubt that he had been highly successful in this respect. In fact, in 1967, he said in that article, his organisation made £974,000 profit before tax. After taking into account the various costs of acquisition and all the rest of it, the profits were expected to go up in the following year to about £3,102,000, an improvement of £2,128,000 or 218 per cent. [An HON. MEMBER: "Very good."] That remark shows how hon. Members opposite so often consider this matter. When we are talking of a prices and incomes policy, it is fundamentally unjust that people in that position should be able to make these sort of profits while we sit and pontificate and argue about people's increases in income which are piffling and minute by comparison——
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Might not an alternative way out of the hon. Gentleman's dilemma be for him to stop sitting in this House and pontificating about a prices and incomes policy?
§ Mr. Newens
That is a frivolous, stupid intervention and I do not deign to waste time on it. I am talking about mergers. I hope that the hon. Gentleman 856 has come here for a serious purpose and not to make fun.
§ Mr. Newens
No, I will not give way if hon. Gentlemen are going to make those sort of remarks.
Such increases as I have just mentioned cannot be sustained over a long period, but there is no doubt, as an article in the Lloyds Bank Review by Merrett and Whittaker in October, 1957 showed, that profits as a ratio of capital in this country have been declining since 1950 and we should recognise that.
§ Mr. Speaker
Order. We cannot have a take-over of the debate by sitters on benches. If the hon. Gentleman wishes to intervene, there is a Parliamentary way of doing so.
§ Mr. Lewis
Seriously, the hon. Gentleman said that profits have increased because of mergers. What he did not say was that the merger which took place with Slater Walker was the gathering in of numbers of companies, which means that the shareholdings had increased. There were more people with shareholdings and, naturally, profits increased related to the increased shareholdings. The hon. Gentleman then went on to say——
§ Mr. Newens
Had it not been for the frivolous intervention of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) my point would have been clear. I was going to say that there is a possibility, in the short run, of making quick increases in profits. This is what Mr. Slater has done, but this does not guarantee that, in the long run, profits will be sustained at this kind of level. The figures show, I believe, a decline in the rate of profit because of increased competition. This is one of the factors which is driving firms more and more to consider mergers. This is one of the things which is fundamentally wrong 857 with this society and there is no contradiction in what I said.
I want to turn to the sort of criteria I use in judging mergers. Mr. Slater's criterion and that of all tycoons is profit and that is the criterion apparently of many hon. Gentlemen opposite. I am prepared to agree that, in a capitalist society, profit measures the efficiency of the use of capital, but profit is totally inadequate as a measure of the public interest. The sort of gains, often capital gains, which can be generated in present circumstances by these methods is an even poorer measure of the national interest.
There are three other criteria which are necessary to considering takeover bids besides the efficient use of capital. First of all there is that of the workers' interest, the interest of the workers employed in the concern. I do not mean merely shop floor people; I also mean the white collar workers and the managers, many of whom have devoted a lifetime to the building-up of their organisations. These people have a far more intimate knowledge in most cases of the true interests of their organisations than have the shareholders or the executives who have just moved in through a takeover.
The interest of the workers, including of course the managers, must be taken into account, and there is no measure of that in the sort of profits which can be gained by takeover. The interests of many people, not shop floor people only but also white collar workers, technicians and so on, who have devoted a lifetime to their company and building up the organisation, which has benefited from the contribution of their skills, are contemptuously thrown on one side by this process. So do not let it be said that it is only the shop floor people in whom I am interested.
Besides the workers' interest, there is the consumers' interest in these takeover bids, in which there is no consideration of the customers, no consideration, as hon. Members know, of allied firms, no consideration of retailers and distributors. It is merely a question of making profits.
Then there is the third question, and that is the community's interest in general. The community invests in many 858 areas—in housing, in roads, in new towns. In my own area, in Harlow, there has been invested a vast amount of capital. If an entrepreneur decides to pull out from an area he may be able to make additional profits, but that may mean that national capital which has been invested in that town is used much more inefficiently, and the result may be that the increased profit which is made by that organisation may be made at the expense of the community as a whole. This applies to many development areas, and so on.
I say quite clearly that I do not think that privately owned industry is at all able to consider these three aspects, namely, the workers' interests, the consumers' interests, and the interests of the community in general. Profit is supreme, and, therefore, the only question which is considered is the efficiency of the use of capital, and that consideration is not by any means adequate.
There is another aspect of this problem which is mentioned in my Motion, and that is the emergence of the international corporation. Mergers are taking place today on a scale which indicates that many organisations find that the State is not a large enough arena for their operation and, therefore, we have the formation of trans-national or international companies. For instance, in the oil industry there are Standard Oil of New Jersey, Shell and B.P.; in aluminium there are Alcoa and Alcan; in computers, I.B.M.; in food, Nestles, Heinz, and so on; in cars, General Motors, Ford's. There are many others which I could indicate.
However, the interesting thing is that, according to present-day trends, more and more trans-national companies will be created in the next few decades. Professor Perlmutter, quoted by Christopher Tugendhat in the Financial Times of 26th June last year, said that by the end of the century the world economy is likely to be dominated by 200 companies and no more. In the car industry Giovanni Agnelli, grandson of the founder of Fiat, quoted in The Times of 27th April last year, was forecasting that by 1968 there would be only 10 major car firms left in Europe. There are plans in many other spheres besides car manufacture for setting up international or trans-national companies.
859 The development of international companies puts vast power in the hands of small minorities of top executives who may, of course, not even be domiciled in this country, and who are responsible, in effect, to no one, and who activities are out of the range of modern Governments.
I want to point out how this applies in particular to Ford's and General Motors, who operate as Vauxhall in this country. In the first place, in the division of markets, the Ford Company has recently allocated the United States market for the Escort, which was being produced in this country, to Genk which is part of Ford of Germany, and thus, at one blow, vital markets to which we could export are being handed over to another part of the concern not in this country. We have been talking about Vauxhall workers this morning. Let us look at General Motors and the irresponsibility of that company; it has allocated the United States and the Common Market to Opel for export purposes. There was a letter in the Financial Times last week, 25th February, 1969, from an American citizen who, because of the rules of this company, could not import a Vauxhall Victor into the United States, although he wanted to buy one.
This is absolutely out of the range of Governments today, and the more that power is put into the hands of these minorities, the more we ought to beware and take certain actions about it.
There are other effects which ought to be referred to. Christopher Tugendhat, in that article in the Financial Times to which I referred, estimated that it is reckoned that 6,000 million dollars per year currently of United States export and 5,000 million dollars a year of United States imports are accounted for by internal transactions within international firms. If, therefore, Ford's of Europe decided it would be cheaper to manufacture certain components in Germany rather than in Britain, they could do it overnight and create a tremendous increase in the burden on our balance of payments, and the Government have practically no control over that.
It is a well-known fact that international companies are also blackmailing Governments. I do not know what the full story is of the Alcan pressure for the building of the aluminium refinery in this country. I should like to know. 860 But what is to stop an international company from saying to the Government, "If you do not let us do as we wish, we could invest so many tens of millions of pounds in one of your competitors overseas"? In other words, power is going into the hands of these small minorities. It is not justified. This is not theory but fact. Hon. Gentlemen who study this situation will know that what I am saying is absolutely true.
§ Mr. Newens
I am coming to my solution, if the hon. Gentleman will be a little patient.
The result of this process which is taking place is that United States industry, independent of the United States Government to a large extent, could become more powerful within the next decade than any European country, apart from the U.S.S.R., and the British Government will become impotent in many fields if decisions are taken beyond their control at Detroit, Dearborn and elsewhere in the United States.
This is where I come to the solution, that the only answer is an expansion of public influence, public control and public ownership in this field. We have to consider the changing character of our economy and our society. We can see that economic power is likely to be concentrated in the hands of small minorities, economic power of an extent which must have been beyond the dreams of monarchs and presidents earlier this century.
I am not against the greater efficiency which can be achieved by the new organisations, although I have said that we should not think of size as an automatic assurance of increased efficiency. We need to bring these new organisations under the control of the community, and Government action must be considered for this purpose.
The Government are earmarking considerable sums of money to titillate the takeover bidders to go ahead. Public money is being laid out at the rate of £2 861 million a day or more for private industry to lubricate the activities of the takeover bidders. One of the results is a merchant banks bonanza, as hon. Gentlemen opposite know.
The Sunday Times article of 12th January to which I have referred said that the advisory fees for deals proposed in the first eight days of 1969 amount to £2 million. No wonder Schroder's shares are rocketing up far faster than astronauts going towards the moon. They have five of the biggest deals of the year in their hands.
The Government are right to take action to secure greater efficiency, but references to the Monopolies Commission, which have been so few and far between and difficult to understand, are not the answer. As the Economist said so neatly, having played Aladdin to Mr. Weinstock's genie the Government are finding it difficult to stuff him back into his bottle, and this is the case with all the tycoons.
My solution is that we need immediate legislation for a proper code of conduct on takeovers, not a code of conduct merely for the City of London to guarantee the investors, but one to guarantee the workers, the consumers and the community. Full consultation is needed with workers, with the community, with local authorities and with regional economic planning councils, if they are not to become an absolute farce, before takeovers occur. We need to have proper redundancy arrangements, full transferability of pensions and proper retraining facilities. The ultimate answer is public ownership, with full provision for democratic control by the workers and representatives of the community as a whole in organisations which are dominating the economy. I am not talking about smaller enterprises at the present time.
This is a socialist solution, and a socialist solution which is perhaps not in the terms in which the word "socialism" is sometimes used in this House; but this is the real meaning of socialism. I am not asking that nationalised corporations should be created to be dominated by retired Service officers, company directors and civil servants plus an occasional trade union official. This is not enough. I am not interested in State capitalist 862 concerns. I want participation, which means real control by the community of their own interests.
This is what the present struggle is about at Fords. I take off my hat to the shop stewards at Fords who are carrying out a battle for democracy which will be recognised in the years to come as being absolutely vital to the future of this country and of the world. They are much maligned but——
§ Mr. Speaker
Order. I do not want to be discourteous, but many hon. Members wish to speak in the debate, and I hope that the hon. Member will not tempt himself into digressing in too much detail.
§ Mr. Newens
I will try to be brief, Mr. Speaker. We must, therefore, have public ownership with a real measure of industrial democracy, which will mean elected committees at the factory floor to deal with hiring, firing, safety, welfare and disciplinary matters and with training at workers' level, and so on. I am not in favour of a syndicalist solution. There must be a national plan to integrate the activities of large organisations.
I make no apology for raising this issue this morning. I regret that I have gone on for so long, but I have listened carefully in the House and I hope that people will not think I am brash in saying that I have not very often heard expressions on these lines of what socialism means, not even from my right hon. Friends on the Front Bench. What I have been saying this morning is what we mean when we speak of safeguarding Clause IV. We have spent too much time on the prices and incomes policy as a means of securing equality within the community, but we have allowed vast capital gains to take place which are inadequately controlled by present taxation provisions, and this makes complete nonsense of the policy.
Furthermore, mergers are creating unemployment which is not fully measured by the numbers of registered unemployed, since many of the older workers and women are not registered anyway. Difficulties are also being created in investment.
I have raised this issue not for narrow parochial reasons. I am concerned for my country as well as for my constituency, just as I am concerned for 863 all humanity as well as for the people of my country. I believe that socialism is the only hope for humanity, for using man's resources to serve man's needs. Mergers and takeovers show just where we are going, and I hope that hon. Gentlemen opposite will not regard what I have said as a doctrinaire plea. I have tried to argue the case as carefully as I can by reference to facts, bearing in mind the time available, and I apologise for having gone on longer than I had originally hoped.
I end by urging, begging and imploring my right hon. and hon. Friends on the Front Bench to recognise the situation and to accept that this is no time for delay. Action is necessary immediately if this problem is to be dealt with adequately, and we in the House have a right to demand that action should be taken forthwith.
§ 11.58 a.m.
§ Sir Stephen McAdden (Southend, East)
I congratulate the hon. Member for Epping (Mr. Newens) on his good fortune in securing the first place in the Ballot and upon the way in which he stated his case. It is a long time since I have heard the authentic voice of Socialism, either in this House or elsewhere. We have become so used to the intellectual eggheads and the university boys telling us what Socialism is about while preaching something entirely different, that it is quite refreshing to recognise the kind of Socialism that I was brought up to try to combat.
I confess that when I saw the short title of the hon. Gentleman's Motion, "The need for a Socialist policy on mergers", I thought that this morning's debate would be rather interesting, though I would have thought that mergers between financial interests would not have held out any particularly good hope of a Socialist solution.
Harking back to the days of political controversy, there used to be a mnemonic which I am sure some hon Members will remember that Socialist speakers always found very useful. They used to talk about "R.I.P.". They intended to abolist rents, interest and profits. They have not done it yet. Rents have never been so high, interest rates have never been so high, and profits seem to be pretty high, too. The progress which 864 has been made under successive Labour Governments towards a Socialist mil-lenium has not been very rapid.
However, there is no reason why we should not try again. If the hon. Gentleman and his colleagues are to tour the country at the next General Election preaching the authentic voice of Socialism, advocating public ownership of the means of production, distribution and exchange and the nationalisation of our major industries, I shall welcome it. It will make even more assured the success of the Conservative Party.
The fundamental disagreement between the hon. Gentleman and hon. Members on this side of the House is rooted in his obvious hatred of profits. He thinks that they are terrible, and if he does not he ought to. If he is a good Socialist, he knows that we ought to produce for consumption and not for profit. As a good Socialist, he believes that profits are evil. However, they are the life-blood of industry and, when he quotes the enormous profits made in the various regroupings about which he complains, he quotes the gross profits. He does not say how much was taken away by the Government in taxation, thereby creating the funds necessary to provide so many of our social services.
Profits are the lifeblood of industry, and the fundamental opposition of hon. Gentlemen opposite to the idea of profits shows that they do not understand business life. I can remember having to point out in this House nearly 20 years ago that the purpose of running a railway was not to provide jobs for railway employees. It was to provide a means of transporting passengers and goods from place to place, at an economic rate, and, incidentally, it provided employment for people in the service. So it is in business. The objective is to make a profit. The bigger the profits, the better I am pleased, the better the Government are pleased and the more money they get in taxation. I am delighted to hear that firms are making profits, and the workers should be pleased about it. Any trade union leader conducting negotiations knows that he has a better chance of improving the conditions of his workpeople if he negotiates with an industry which is running profitably. Therefore, it is in the workers' interests that profits should be made as well.
§ Mr. Newens
But does not the hon. Gentleman realise that many of these vast profits are being made at the expense of extinguishing jobs for many workers and making them redundant? No one can be pleased about that.
§ Sir S. McAdden
The hon. Gentleman is now moving to a different point. He criticises the fact that some firms involved in mergers are producing more goods with less staff. But that is what is known as improved productivity, and the Prime Minister has been thrusting that down our throats ever since he became Prime Minister. Now the hon. Gentleman is saying that increased productivity is bad.
In spite of the burdens of taxation, firms are able to produce more effectively and, while it is true that in the process of reorganisation they improve production methods so that more goods can be produced with less labour, which is what the whole programme of the Government is concerned to see, that cannot be anything but good and something to be encouraged.
Then we are told that the customer's interest is never considered. That is ridiculous. People can make profits by producing goods only if those goods are wanted.
I hope that the hon. Gentleman will not get too worried about the international aspect of the problem. Certainly I do not want to see too many vast enterprises in this country which are internationally influenced. I should like to feel that we still maintain a majority shareholding in our vast industrial undertakings. But do not let us look down our noses at those who indulge in international financial or industrial operations, because we are one of the biggest in the business. Our overseas investment is round about £15½ billion, which is second only to that of the United States of America. We are big boys in this business, and the Chancellor of the Exchequer is very pleased about it. He is delighted that we have all this international investment built up not in the lifetime of this Government but in that of the previous Government. These investments are of tremendous value today.
It was interesting to see that, under pressure, the hon. Gentleman's only solution 866 for all these troubles is the one which the Labour Party used to believe in but has long since thrown overboard under its new type of leadership. The Labour Party no longer believes in public ownership of the means of production, distribution and exchange. If it had anything to commend it, surely this Government would have put it into effect. Let no one imagine that the people would visualise with pleasure a future in which industries which depend upon being alert, inventive and far-seeking were run by some kind of organisation like the gas or electricity boards, or any of the "outward-looking and forward-looking organisations" which at present do a job which does not hold a candle to the magnificent work being done in the sphere of private enterprise. Private enterprise has its faults and failings, and they should be corrected, but it is doing the most efficient job of wealth production so far discovered. Certainly it is doing a much better job than could be done by means of the solution advocated by the hon. Member for Epping.
§ 12.8 p.m.
§ Mr. George Darling (Sheffield, Hillsborough)
Having listened to the hon. Member for Southend, East (Sir S. McAdden), I regret that in my younger period of Socialist advocacy I never came in contact with him and had the kind of debate with him that we had between the wars when we talked in far more theoretical terms about Socialism than we do today.
When the hon. Gentleman chided my hon. Friend the Member for Epping (Mr. Newens) about his references to profits, it was interesting to note that the hon. Gentleman referred repeatedly to people "making" profits. He never once referred to people "earning" profits. I am all in favour of private enterprise, so long as it exists in our mixed economy, earning profits. I am not in favour of private enterprise exploiting a dominating position in the market. I have no objection to profits, so long as they are earned. If I were a trade union negotiator, I would much prefer the company with which I was negotiating to have plenty of money in the kitty rather than being on the verge of bankruptcy.
867 However, I want to confine myself to that part of my hon. Friend's Motion where he says that he… considers that it is an urgent necessity to provide a comprehensive code of conduct for takeovers as an interim measure "—and I will not quarrel about that—to safeguard workers, consumers and the community in general.I thank my hon. Friend for using his good fortune in the Ballot to initiate this debate on a very important subject. It will be clear to my hon. Friend and to the House that I have been waiting for some time for this opportunity to say something about our monopolies and mergers legislation and how we deal with mergers generally. Therefore, I am extremely grateful to my hon. Friend.
I do not want to go over the ground covered by my hon. Friend in what I think was a usefully provocative speech—a very good speech, too. I agree that many mergers need to be more thoroughly examined than appears to be the case under the Monopolies and Mergers Act. I wholeheartedly support my hon. Friend's demands for full consultation with the appropriate unions whenever mergers of firms are contemplated. I also agree that, in addition, the workpeople concerned should be fully informed of the reasons for the mergers, the plans for reorganisation that are being considered and the consequences in terms of pay, jobs, working conditions and so on.
Most of what I should call useful mergers have taken place for very good reasons. Such mergers in the past two or three years have gone ahead smoothly, without any friction of discontent, because the managements concerned have behaved sensibly. They have kept the unions and their workpeople informed and have taken note of the views of the unions. I can give many examples from my own experience. They have shown, in discussions with the Board of Trade officials, that their customers would benefit in lower costs and prices and improved services. This is what we mean by the public interest. At least, this has been my experience.
When I was at the Board of Trade and there seemed a likelihood of redundancy arising from mergers or takeovers that the Board of Trade on examination had approved, I used to write to the top managements concerned in some cases 868 —with the full approval of the President of the Board of Trade—reminding them that they were expected to explain what they were doing to the unions and to their workpeople and to have discussions with the appropriate trade union officials about any rationalisation schemes coming along.
I think that this obligation, this requirement, to inform and consult should be accepted everywhere as part of our industrial reconstruction. But at the moment we merely expect managements to consult and to inform, and that expectation, so to speak, is not legally enforced. If my hon. Friend thinks that it ought to be written into the law, I agree with him. I think that this obligation should be there.
I have two main criticisms to level at the various Acts governing monopolies, mergers, industrial reconstruction, industrial agreements, and so on. They are all parts of what should be a consistent system of control and supervision of industry and trade—what The Times has recently called… the exercise of State powers in the marketplace".My first criticism is that, because of the way the legislation has been built up—piecemeal, usually in response to new circumstances and new developments that have arisen—taken as a whole it is riddled with anomalies. Parts of it are in conflict with other parts. We have the I.R.C. promoting mergers and the Board of Trade, ostensibly at least, trying to stop them. It is muddled, uncertain, and often produces contradictory results. I do not think that I need give any examples. We all know that this happens.
As my hon. Friend has pointed out, it leaves out of account—at least so far as the law is concerned—the rights of employees. It does not specifically lay down what should be done for the benefit of the public generally, the consumers and customers.
I am sure that few people engaged in the management of industry or commerce, despite what the hon. Member for Southend, East has said, want a system of completely free and unfettered competition with no rules, no guiding lines, no codes of conduct, no supervision in the public interest and no sanctions—[Interruption.] I am waiting for the hon. Member for Oswestry (Mr. Biffen) to intervene at some time.
§ Mr. John Biffen (Oswestry)
I was merely going to intervene to say that at no point in the speech of my hon. Friend the Member for Southend, East (Sir S. McAdden) was it suggested that the State should have no supervisory rôle or no requirement to hold the ring within which a free market should operate. Surely that is misrepresenting my hon. Friend.
§ Mr. Stanley Orme (Salford, West)
I think that my right hon. Friend was trying to land the fish behind.
§ Mr. Darling
I was trying to be slightly provocative. I am sorry I mentioned the hon. Member's name. No doubt the hon. Member for Oswestry will explain what he means by free competition. There may be a few exceptions, but I think it is generally accepted that no one wants free competition without rules, without codes of conduct, without supervision and without sanctions to protect honest enterprises from the dishonest practices of unscrupulous competitors.
We in Parliament have the task of laying down the rules and the sanctions. There may be differences of opinion about the scope of the rules and sanctions, but I think that we all want rules and sanctions. I am sure that hon. Members on both sides of the House agree that the rules that we impose on trade and industry must be consistent, comprehensible and certain.
As it is, we have industrialists who, for good and acceptable reasons or motives, get involved in mergers, in rationalisation schemes, in common marketing arrangements, in sharing of research and developing and other co-operative activities, all of which are useful and in the public interest, but who are all too frequently plunged into a state of utter confusion if what they are seeking to do appears to be against the rules, comes within the terms of the Monopolies and Mergers Act, and has to be sent to the Commission by the Board of Trade for examination.
I will come to the Monopolies and Mergers Act in a moment. If what they are seeking jointly to do appears to be in conflict with the Restrictive Trade Practices Act, the Registrar will tell them to stop what it is they are doing or threaten them with court proceedings. He will 870 take them to court even though what they are seeking to do co-operatively may have the approval of their Economic Development Council, or may be something actively promoted by a Government Department.
I know that the Board of Trade now has the power to steer agreements and arrangements of this kind away from the Registrar and the court. I take some credit for this very desirable move. But so far I have seen very little sign of the new powers of the Board of Trade being used. I hope that my right hon. Friend, before he intervenes, will try to find out from the Board of Trade and tell us how many and what kinds of arrangements have so far been approved by the Board.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
I believe that so far there has been one arrangement affecting the waste paper industry which has been approved under Section 1 of the Act. However, I should be interested to know whether there are any more.
§ Mr. Darling
I hope that my right hon. Friend can find out. This is the kind of thing which is happening. I have been told by the Motor Agents' Association, which is a very good and reputable trade association, that in trying to give advice to its members—the garage owners, car salesmen and so on—about Government legislation and how they should fit into it and give advice upon new trading practices that are growing up, it has found itself in conflict with the court. It has had to withdraw quite a lot of good advice which it had genuinely and honestly offered to its members. It has been involved in legal expenses on a scale which, quite frankly, is frightening to many smaller trade associations which might get involved in this kind of thing.
For instance, it was asked by its members to give advice on whether they should get involved in trading stamp activities. The Association was asked to give advice on how they should deal with the Hire Purchase Act, 1964. I think that the nadir of these activities was when the Association advised its members on how to keep prices and charges down to keep in line with the Government's policy. These are registrable agreements, and the Association has had to drop them. It cannot go on giving advice to its members. And now the Association is worried about 871 what advice it should give to its members under the Trade Descriptions Act, because this kind of advice, too, may become a registrable agreement. I think that we are getting into a thoroughly cockeyed, idiotic state in the way these things are being handled under our legislation.
I propose now to say something about the Monopolies and Mergers Act. The Act provides for the examination of mergers by laying down that they must first be brought to the notice of the Board of Trade. Board of Trade officials, who are extremely well-informed on business matters—after all, the Board of Trade is the repository of business information in this country—then give the proposed merger a thorough examination. Most of the mergers which have been examined by the Board of Trade have gone through this sifting process and have been approved. This means that the Board of Trade has come to the conclusion that the proposed mergers are not contrary to the public interest, but the Board of Trade cannot advise on whether the mergers should take different forms to be more in line with the public interest. The Board of Trade cannot plan mergers. It can look only at those which have come along for its examination. Indeed, apart from the promotion of mergers by the Industrial Reorganisation Corporation, no planned reorganisation of industry, or sections of industry, however desirable that reorganisation may be, is going on anywhere in the country.
What happens if a proposed merger looks as though it is contrary to the public interest, and it is referred to the Monopolies Commission? It is examined by the mergers panel of the Commission. This is a judicial process, and, if the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) remembers our discussions when the Bill was going through Committee, he will recall that criticisms were levelled by hon. Members on both sides against the judicial procedure. Indeed, the hon. Gentleman and his hon. Friends asked for the appointment of a registrar, to get mergers properly registered, laid down, and examined. I do not know whether, from that point onwards, the hon. Gentleman and his hon. Friends have supported the 872 kind of judicial examination which now takes place. I had an open mind about whether a registrar should be appointed for this purpose. I do not want to continue the argument, but I am convinced that the judicial procedure of examination is wrong.
The most important task which the Commission has in this matter is that of fact-finding, of getting the facts straight, of finding out what would happen if the two firms involved in a merger—or several firms if it is a wider merger—were to merge, what would be the resulting scale of operations, and what would be the new organisation's standing in terms of finance and profits. I would go further. I think that the fact-finding operation ought to follow the lines suggested by my hon. Friend, and include an inquiry into how employees will be affected.
What we need for a fact-finding operation as comprehensive as my hon. Friend and I would make it is not a judge and a bench of lawyers, but accountants, businessmen, trade union people, people with experience in industry, and so on, but at the moment such people are pushed into the background.
The partners in a merger, however desirable the merger may be, are brought along and treated almost as though they were criminals in the dock, to be cross-questioned at length. What we do not get in the reports of the Monopolies Commission is the evidence that has been taken, but anyone who has had an opportunity to look at the evidence of the cross-examination of the top management of concerns involved in mergers must be rather surprised at the type of question that is asked, and also at the length of the questioning. It is costly, it is time-wasting, and I do not think that it is an efficient way of getting at the facts.
§ Mr. Patrick Jenkin
I am a little puzzled about what the right hon. Gentleman is saying. In the debates to which he has drawn attention we drew a distinction between the judicial procedure of the Restrictive Trade Practices Court, and the inquisitorial procedure of the Monopolies Commission. The right hon. Gentleman has used the word "judicial" to describe the proceedings of the Monopolies Commission. It might clarify the position if the right hon. Gentleman 873 were to draw a distinction between judicial and inquisitorial procedures.
§ Mr. Darling
I think that the distinction is a very fine one, but I understand what the hon. Gentleman is getting at. There is on the Monopolies Commission—and this is no attack on the person concerned; he is carrying out the terms of the Act—a very learned lawyer. Because of this and because the top management of the firms involved have to go through this inquisitorial procedure—I accept the word—they have to brief counsel. I accept the distinction made by the hon. Gentleman. The Restrictive Trade Practices Court is a formal court set up by Parliament, and all the court procedures are observed. I have called the proceedings of the Monopolies Commission judicial, and I stick to the term in its proper sense, but I agree that the distinction drawn by the hon. Gentleman between the two is right, and I shall call this an inquisitorial procedure. It is to that that I am directing my remarks, because I think that it is the wrong procedure to adopt.
I say that particularly because, under the new Companies Act, companies have to disclose a great deal more information than ever before about their activities, and what we need for this purpose are accountants. In many cases the facts are there. I know of a case—I have seen the evidence, but I do not have permission to mention the name of the firm—in which a firm gave the Monopolies Commission the full facts about its operations, and also about those of its competitors, which had only a very small share of the market, but that information was not accepted. Instead of the matter being examined by accountants to make sure that the facts were right, days and days were spent in the court merely examining whether the information given by the firm was correct. This is wrong. I agree that we need an inquiry into how customers and workers are likely to fare under a merger. We do not need a vast number of lawyers to find out where the interests of the workers, the customers, and the public lie.
We talk loosely about looking after the public interest. When a proposed merger comes to its notice it is the job of the Board of Trade to consider it and make sure that it is not contrary to the 874 public interest. If the Monopolies Commission inquires into a monopoly situation or a proposed merger it is supposed to take into account and ask whether the public interest will be damaged if the monopoly situation continues, or the merger goes ahead.
I do not believe that the Restrictive Practices Court, or any court of law—or the Monopolies Commission—can decide what is in the public interest. Parliament should decide what is in the public interest. I am sorry that there are no Board of Trade Ministers here at the moment. A Minister was here, but he has disappeared just when I wanted him. I deeply regret the fact that my right hon. Friend the President of the Board of Trade has referred to the Monopolies Commission the proposed merger of Allied Breweries and the Unilever foods processing activities.
In my view conglomerate mergers should be considered not by taking one example—an inappropriate one—and trying to build up principles, or a code of conduct, or rules simply on the basis of that proposed conglomerate merger. In my view we should appoint a Select Committee of this House. If anybody says that we have too many, I disagree. I want more Select Committees inquiring into more and more subjects. The way in which we are building up our Select Committee procedure is very good. We are, as we gain experience, doing a better job.
I should like to see a Select Committee set up to examine conglomerate mergers and the possibility of their concentrating increasing power in fewer and fewer hands over a wide range of industries. This is a question that we must examine. But the time has come, because of the large spate of mergers that have occurred in the last few years, for my proposed Select Committee also to review the workings of monopolies and mergers legislation.
I want to tell the House why I believe it to be wrong to refer to the Monopolies Commission the proposed conglomerate merger—it is a horrible phrase, but I must use it—of Allied Breweries and Unilever. It is grossly unfair to pick out one proposed merger and to make the firms concerned face the expense of cross-questioning and an inquisitorial procedure in order to lay down a code of conduct for all other proposed conglomerate mergers. I do not know how 875 many directors of both concerns have been taken away from their jobs to spend days and days before the Commission, but it is altogether wrong that they should be involved in this way.
There is another side to this matter, and here I must declare a rather tenuous interest—the only one that I have in the matter. One of Unilever's food processing plants—Batchelors—is in my constituency, and Allied Breweries have a bottling plant—which does some exporting—and a brewery in my constituency. I have not discussed this matter with anybody, but I have read accounts in the Press to the effect that one of the advantages of this merger would have been that, since even in respect of their overseas marketing arrangements Unilever and Allied Breweries are not complementary, each firm's organisation could have been used by the other to extend their joint overseas marketing.
Because of the character of the industry concerned I am convinced that if this merger had gone ahead with the approval of the Board of Trade it would have led to increased employment, because it is already capital-intensive and if it were extended more workers would be required. But my real objection is to the fact that the two firms should have been used as guinea pigs for an inquiry that should have been undertaken by a Select Committee and not the Monopolies Commission.
I largely agree with my hon. Friend's views on the matter. I have confined my remarks largely to the monopolies and mergers position, and have pointed out that there is confusion in this matter, which should be removed as quickly as possible.
I do not know whether it is too late to withdraw the reference to the Monopolies Commission of the Allied Breweries-Unilever merger, but if it is possible it should be withdrawn. We should review the whole legislation covering monopolies and mergers, and that could best be done by a Select Committee. In future, whenever our rules for mergers appear to conflict with the public interest we should find some way of examining them here, and not send general references to the Monopolies Commission.
§ 12.36 p.m.
§ Mr. John Biffen (Oswestry)
I congratulate the hon. Member for Epping (Mr. Newens) for his good fortune in coming first in the Ballot and having chosen a subject of such prime importance. I only regret the fact that we have to have a philosophical debate on a Friday. Debates of this nature ought to preoccupy hon. Members for a great deal more of their Parliamentary time. The House all too rarely has an opportunity to indicate in broad terms the lines along which it would like to see Government economic policy pursued.
The vacuum created by the inadequacy of the House in this respect—and I take the point made by the right hon. Member for Sheffield, Hillsborough (Mr. Darling) about the possible future rôles of specialist committees—is all too readily filled by the kind of quasi-governmental bodies that have grown up in recent years. It is particularly apposite that today's debate should occur when, this very morning, the Financial Times carries a letter dealing with the question of conglomerates. It is a brief letter, from a gentleman called Mr. Oliver Philpot, and it says:Sir, The gratuitous advice with dictatorial undertones handed out by people operating in the shadow-land between the legislature and industry these days is as prodigious in volume as it is insidious in establishing a total governmental control of everything the citizen does. Now it is reported that Mr. Catherwood says that 'conglomerates' should be 'actively discouraged.' What business is this of his?I shall not quote the full letter because I do not want to make a long speech, but that is precisely the point which should exercise the House. We should be grateful to the hon. Member for Epping for giving us this chance to refer to it, because it is from here that legislation should emanate.
My answer to the right hon. Member for Hillsborough is that I believe in a framework within which a market should operate, but it should be a framework of law, and not of indicated Government approval. I can assure the hon. Member for Epping, in respect of some of his hostile comments about the City Takeover Panel, that he need have no fear about receiving support from many hon. Members on this side of the House. We shall be with him entirely. If a code is to be established which will have the sanction of law it should form part of our Statutes.
877 Business is not primarily a gentleman's occupation. Those who go into it in the belief that there are Queensberry Rules will soon find out otherwise. I could not help but reflect, with some amusement, that, in the great News of the World battle, the party that lost immediately squealed that the rules had been bent. But there were no rules. It was a question of who got there first. If we want competitive enterprise to be operated within certain disciplines, it is up to this House to set those disciplines and not to Mr. Aubrey Jones or Mr. Catherwood or many of these other quasi-governmental bodies.
I thought that there was a touch of the millenium about the hon. Member's speech, and I was reinforced in this conviction when he began with a quotation from Lenin. What I would like to know is whether what he is advocating, and on which the House will be expected to decide, receives the assent of the Government Front Bench. He is advocating a policy… to bring companies in a dominant position in the British economy into public ownership …".At the moment, we have developed a system of what I would call managerial Socialism. It cannot be Socialism as that would have been understood by many of those who fought with the Labour Party in pre-war days, but a Socialism essentially based on a growing compact between Government and what are believed to be dominant managerial interests in the private sector——
§ Mr. Biffen
It is a form of corporate State, as the hon. Gentleman says, and I know his anxieties on that point, which, when extended to cover trade union relationships, excites the intense antagonism of the right hon. Lady the Secretary of State for Employment and Productivity. I have been privileged to listen to her anxieties on that matter.
What was being advocated here was much more fundamental, but it was not very long ago that it was the declared policy of the Labour Party to take within Governmental control and ownership the "commanding heights of the economy". It is a perfectly reasonable proposition to ask, with the divorce of ownership 878 from control which, in so many instances—although not all—characterises the modern industrial society, are the Government now convinced that the commanding heights of the economy are controlled effectively by the relationship which they have with management, thus obviating the need to take over the equity? That must lie at the heart of the complaint of the almost enthusiastic fervour, if tinged with some doubt, with which the hon. Member for Epping spoke on this subject.
Not only does he, because of a splendid speech, deserve an answer, but the House as a whole would be interested to see this as a signpost to the future development of Socialism. It would not be expected that I would agree with the hon. Member for Epping, although the dissent by no means falls within the neat symmetry of so much party caricaturing of recent years. There are two aspects of extending public ownership of industry which leave me with a great deal of disquiet. They are particularly contemporary. I could elaborate on all the points on which I disagree with public ownership, but will stick to two at this moment.
Clearly, the formation of the capital requirements of the nationalised industry must now come out of taxation. This is one of the consequences of the very severe disciplines exercised on the Government by the International Monetary Fund. If the nationalised industries are being financed substantially—that may be to understate my argument, but I would not say "absolutely", although I defer to the knowledge of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley)—out of taxation, this means that the British public are captive shareholders in their capacity as taxpayers and this has a consequence on the level and structure of taxation. Inasmuch as both the level and the structure of taxation are unacceptable to me, that is one compelling argument, for me, to return the financing of those industries to the market.
The second point is the great difficulty, with a publicly-owned nationalised industry, of distinguishing between economic and social objectives. All companies have social obligations. I believe that there is a history of this House placing upon companies certain codes of conduct, from 879 the Factory Act onwards. That is why I could never accept the caricature which the right hon. Member for Sheffield, Hillsborough was trying to present of those of us in the Tory Party who place possibly more emphasis on free enterprise than some others.
Of course one accepts that there is a strong legislative tradition of imposing upon companies certain general obligations. What is very dangerous is that it becomes the objective of what ostensibly is an economic activity no longer to be in the business to make profits so much as to provide employment at a certain place for a certain period. I do not believe that that is even in the interests of those employed in the industries, because the loss-making public enterprises are generally bad payers, offering low wages. All the pressures exerted by the Government are to limit the deficit financing and therefore the pressures must be to limit the wages.
After that, I want to make one constructive comment. One point touched on by the hon. Member for Epping is at the heart of the evolution of industrial society, whether on this side of the Iron Curtain or the other. We must test our own respective political philosophies against that evolution. The hon. Gentleman could argue reasonably that the times are coming around to his form of Socialism. I happen to disagree with him profoundly, but he can argue that it stands a much better case of intellectual conviction than the sort of managerial socialism of the last few years.
But what we must ask ourselves is, do we welcome the international company? I am not a great devotee of the inevitability of history, but no one, seeing the terrific growth of trade between neigh-bouring countries of roughly comparable industrial and economic standards, can but be convinced of the likelihood of companies wanting to extend their structures to cover their increasingly natural markets.
This is where I found a kind of unreal nationalism running through so much of the implied philosophy of the hon. Gentleman. He will find that companies will inevitably want to become international because they cease to have all the British market as their natural domestic market. The right hon. Member for Sheffield, Hillsborough made the point 880 very well in respect of Allied Brewers and Unilever. The Western European market will be the natural domestic market for a large number of countries based in this country and this country will be a natural domestic market for many companies now based in Western Europe.
We have, therefore, to ask ourselves whether we have the institutional framework which most sensibly recognises this development, and which rôle we are to play in the House in facilitating this development and accommodating ourselves to it. I do not think that the question of a common European company law is of overwhelming importance, although there may be advantages in some reciprocity. But the question of taxation is very important, because when the flow of profits and dividends from invested capital passes national boundaries, not merely from this country—it is equally true of European countries—it attracts an additional cut of taxation. That is not a satisfactory situation, and I hope that it will occupy the constructive thoughts of those who wish to further European co-operation.
While we see increasing trade by this country with its neighbouring European countries, we find that capital mobility does not extend in that direction at all. Here we suffer from an historical incubus in being landed with a sterling area with a preferential capital view for countries which, I think, clearly do not have the same trading relationships with us as those which they once had. For this reason I would place among top priorities for Government action moves for the full convertibility of sterling.
But at the end of the day we are left with the essential political task of how we reconcile national political institutions. For once I agree with the Prime Minister, who said yesterday that this country is not ready now—nor do I believe it will be ready in my lifetime—for a Federal Europe, a Federal European Parliament or a strong European civil service. I believe that we shall still have to operate within the framework of national political institutions, and yet we shall have to accommodate ourselves to internationally operating companies.
In these circumstances what ought to worry us most is exactly that which worries the hon. Member for Epping—the 881 concentration of power into the hands of the small handful of top executives, as he described them. I believe that this concentration of power carries with it the immense danger of bringing together in some kind of cahoots the power of governments, concentrated, as it is, in our institutional arrangements, and the power of top executives. That is immensely dangerous. We ought to be seeking to call into being, if I may mischievously quote Galbraith, countervailing authorities who will seek somehow or other to balance the immense concentration of power which we see today both in private corporate industry and in Government.
This places upon the House the responsibility of calling in the countervailing power of consumers and shareholders. The libertarian rather than the collectivist view of economic organisations is the most satisfactory answer to the remoteness and the power of modern Government and modern business.
§ 12.54 p.m.
§ Dr. Ernest A. Davies (Stretford)
Congratulations are due to my hon. Friend the Member for Epping (Mr. Newens) on having given us an opportunity to discuss the question of mergers. He has drawn his Motion very widely so that we can discuss the whole range of topics which come under the heading, but I know that many of us—and I speak certainly for myself—are very concerned not only about the general problems of mergers but about the particular problems of a merger which is in process between the General Electric Company and the English Electric Company.
In my constituency in Stretford and Urmston there is a factory which employs about 16,000 people which at one time belonged to A.E.I. In the first phase of the merger between Associated Electrical Industries and G.E.C., it passed into G.E.C. Having just settled down after that experience, it is involved in the next stage, the merger between G.E.C. and English Electric. A total of 16,000 people represents a very large work force of all kinds, with all kinds of skills. Not only the 16,000 people who go through the gates each morning are involved but also their families at home and their future prospects.
Many of the people to whom I have referred are my constituents and many 882 come from neighbouring areas, as Trafford Park stands on the outskirts of Manchester and Salford. There are many other hon. Members whose constituents find their employment in this large factory. I see some of my hon. Friends from the area present in the House, and I know that there would be Manchester Members present, who would make contributions to the debate if they were sufficiently fortunate to catch your eye, Mr. Speaker, and who would speak for their constituents who work in this and other factories in the area, but for the fact that they are in conference this morning with Manchester City Council.
I have made it clear from the outset that in principle I support the merger. Anyone who, like me, has worked in the heavy electrical industry cannot have failed to notice that perhaps even from the late 1950s there has been a rundown in business and in employment in that industry. A good deal of the business on which the industry relies has been in foreign markets and in the Commonwealth. We also know that in recent years, in particular, it has been essential to our country's prosperity that we should export a large number of the goods made in this industry. A large element of the export lies in the skill and craftsmanship which go into their manufacture. Over the last 10 years or so I have seen the Trafford Park factory run down from employing over 20,000 people to employing the present figure of about 16,000 people. Not by any means all of that has had anything to do with the present or the recent mergers. It has arisen from a number of circumstances on which I shall touch.
If we are to have an efficient and effective electrical industry, which can go into the markets of the world or retain its place in the markets of this country without artificial support, it must be an industry which is capable of standing up to the giant companies such as General Electric or Westinghouse or other companies on the Continent of Europe. That is why I feel obliged to support the merger in principle. I believe that if this company can be formed to go out and fight and win markets in the world and can genuinely earn its profits—I emphasise, as my right hon. Friend the Member for Hillsborough (Mr. Darling) said, "earn 883 its profits"—and make sure that it shares its profits generously with the people who make the goods which the company sells, and if we in the House, through the instrument of Government, make sure that there is an adequate share for the community through proper taxation policy, this merger will prove to be of benefit to the country.
The heavy electrical industry and the associated parts of it must face up to a number of difficulties. They are facing not only the prospect of reduced business because of lack of activity in markets but technical problems concerned with design and new technology. These are having an impact, particularly on employment.
An example of this can be seen in the factory at Trafford Park where, among other things, are manufactured steam turbines and electric generators for the power industry. These are large and complicated machines. It was commonplace a few years ago to produce a machine with an output of 50 megawatts to the grid of one shaft. It is now commonplace for such machines to be designed to produce 500 megawatts on a single shaft; and there are plans afoot in the United States and elsewhere to produce machines capable of 1,000 megawatts on a single shaft.
Although the capacity of these new machines is vastly greater in terms of generating power compared with machines produced only a few years ago, the amount of work required to build them cannot be multiplied by the same factor. For example, a machine producing 500 megawatts requires only about double the amount of work involved in producing a machine with an output of 50 megawatts, partly because of the new materials which can be used in the manufacturing process.
This example of increased output without the equivalent increase in workload can be multiplied a number of time, not only in the heavy electrical industry but in other parts of the industry; for example, the substantial use of very large numbers of racks of glass valves and their replacement by comparatively small pieces of semi-conductor materials in so-called microcircuits. Faced with this sort of problem and considering the duplication of manufacturing facilities in different 884 processes throughout the United Kingdom, particularly in the electrical industry, it is inevitable that there must, in the face of this technological change, be rationalisation and reorganisation.
The merger to which I referred is bound to highlight this problem because a number of factories in different parts of the country are involved in the same type of work. As a result, one problem which will have to be solved is the reconciling of the needs of one region with another. As I explained, at Trafford Park we produce heavy generating equipment. Similar goods are produced in Stafford and elsewhere. If, as a result of this merger, there is a unification of these manufacturing processes, there could be competition between Staffordshire and Lancashire, and I have no doubt that the same considerations could be applied to other areas and other products. We have already seen this happening following recent announcements about the rationalisation of switch-gear manufacture.
These difficulties must be considered not only in terms of creating an industrial unit which is capable of meeting the manufacturing requirements of the nation in both the home and export markets, but through the eyes of the many individuals who are involved in this process. It would be wrong for these people simply to be manipulated by those who happen to be in control, either as owners or managers. There must be the closest possible consultation at all levels and the needs of every worker must be taken into consideration.
This question of consultation is a vexed one. Consultation has been urged on the parties concerned in this merger by the Ministers involved, and my right hon. Friend the Member for Sheffield, Hillsborough said that it is becoming normal practice for consultation to occur. He suggested that it should be obligatory, and if we could find the means to make it so I would agree with him.
A question which constantly arises is the point at which consultation should start. Should a manager say to his workers, "We have decided this, that and the other and we are now consulting with you about the most convenient and acceptable way to you and to us to get it done"? Consultation at that stage is too late, and at too low a level.
885 When management is considering broad policy, it should find avenues for consulting, at that stage, with those who will be affected and try to draw them into the whole process. After all, it is their lives and the lives of their families who will be affected, in addition to the interests of management. Consultation should, therefore, take place at the earliest possible stage.
If consultation is to occur, the people involved must be provided with the necessary information. They should know what is going on, what is likely to be proposed and the foundations on which decisions are to be taken. In this merger, about 250,000 workpeople and their families are directly involved. There is no reason why they should be kept in the dark, suddenly to be presented with a fait accompli.
Not only those directly involved in an industry should be informed. Members of Parliament whose constituents are affected should be given the fullest possible information at first hand. I beg those who are concerned with these matters to heed my suggestion, if for no other reason than it might prove a useful public relations operation.
If this merger goes through, as it must, and if individuals are to be considered, we must take steps to see that those disturbed by changes suffer as little as little as possible. We cannot have reorganisation of this magnitude without some disturbance, but every consideration must be given to individuals in plant and factory. I am glad to say that at Trafford Park there has been a good deal of consideration given to the transferring of workers from one department to another to avoid redundancy, by stopping recruitment and people have been placed in jobs which suit their particular skills at the sort of wage they have previously earned as far as is possible.
I hope that this will continue and that vigorous action by the trade unions will be taken to ensure that it does. There is not reason why, when this reorganisation takes place as it will, for the benefit of the community, the burdens and the problems which will arise should be laid on the shoulders on those who have served the company, and will continue to do so if required.
886 There is the question of the protection of the public interest when these large firms are brought into existence. I share the view of my hon. Friend the Member for Epping that it would be far better to have such companies under public ownership. The hon. Member for Oswestry (Mr. Biffen) would not agree. He said that the public would be obliged to dig into their pockets to provide working capital for publicly-owned industry through taxation. His phrase was that we would be captives of taxation. At least such a captive can walk to the ballot box to end his captivity, but the consumer has no conrol over market forces. The hon. Member said that these were savage and uncontrolled forces. The consumer is the slave to capitalism, whether he is working at the shop counter or on the shop floor. Whether this slavishness is enjoyed or is regarded as a hardship is neither here nor there. It is better to be the captive of taxation in this way than to be under the control of those other forces.
§ Mr. Ridley
The hon. Gentleman may be aware that taxation could be £1,000 million a year less if it were not for the drawings of the public sector on new capital. Is he advocating that it should be increased, which would be the natural consequence of an extension of public ownership.
§ Dr. Davies
The hon. Member makes a common confusion. He imagines that money in the public's pocket can somehow be divided. Whether we have to pay for capital as a consumer or a taxpayer, it is the same money. The question arises as to who controls its proper use. The hon. Gentleman has not got to the heart of the matter.
There is a reference to a code of conduct in the Motion. It would be a good thing to impress on all parties in industry that the savagery of the market place is not the kind of thing that we are prepared to continue supporting, but that we must have a code of conduct to encourage civilised behaviour. The problem arises as to how we can ensure that such a code is followed. Already we have at least four Ministries directly involved with mergers.
If we had a code of conduct, who would be responsible for seeing that it was observed? There is a need for a clearing-house to follow these mergers 887 especially as large as that which I am discussing. There is probably a case for a panel of referees who could act as progress chasers on the mergers, and as a clearing-house for information. It could bring each of the Ministries into action when needed. And I put this idea forward for consideration by my right hon. Friends. When all the broader issues have been debated, we still return to the fact that in one way or another it is the impact of these measures on individuals and their families which is crucial.
Those carrying through mergers should have this in the forefront of their minds. If they will take people into their confidence, if they will hold consultations as early as possible, if they will try to stem the continual rumours which create needless anxieties, then the mergers can go through satisfactorily and create units of the kind needed in the electrical industry.
§ Mr. E. S. Bishop (Newark)
I agree with my hon. Friend's point about a code of conduct. Would he not go further and say that no merger or takeover should be ratified until a compulsory code of conduct had been investigated to ensure that workers had been safeguarded?
§ Dr. Davies
I would go some way with my hon. Friend, but I am talking about a particular merger in progress. It may be necessary to adopt the procedures my hon. Friend suggests, but it is difficult to see how they could be injected into this merger. It is essential that those in control of proceedings should consider, at all stages, the effect on the lives of ordinary people and behave accordingly. It is the duty of this Government and this House to see that they do so.
§ 1.20 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
The hon. Member for Stretford (Dr. Ernest A. Davies) must face one difficulty, namely, an extension of public ownership involves an extension of taxation. He said that he did not see that it mattered whether people paid for capital out of their pockets as consumers or as taxpayers. I assure him that the taxpayer thinks that it matters a very great deal. It is not fair that those who do not fly in airlines should 888 be taxed in order to provide new aeroplanes for airlines. It is not fair that those who do not travel very much should pay taxes so that others can.
§ Dr. Ernest A. Davies
Nor is it fair for people who can only just afford to keep their families to be taxed to provide for cigars which they do not smoke, yachts in which they do not sail and Rolls-Royces which they are hardly likely to drive.
§ Mr. Ridley
The hon. Gentleman is so right; but that is what he is proposing. He would have some difficulty in explaining to the poor people in his constituency why they have to pay taxes in order that holiday hotels in Cyprus might be built, which is what is happening.
Apart from this difficulty, the hon. Gentleman came out of his tussle with his conscience about whether to support the A.E.I.-G.E.C. merger relatively well. I imagine that he has been subjected to great pressure from his constituents and that, unlike the hon. Member for Epping (Mr. Newens), he is prepared to acknowledge that efficiency must be allowed to prevail. The only disappointing and unconvincing part of the hon. Gentleman's speech, which was in every other respect full of things with which one could agree, or disagree, was his complaint that mergers would tend to increase redudancy, turnover and change. It is the grasping of the point that modern, evolving technological society will have to change a great deal more than some hon. Members have been prepared to accept which lies at the heart of the solution to our economic difficulties.
The essential reason behind the need for mergers is greater efficiency. But the reason against mergers—[Interruption.]
§ Mr. Deputy Speaker (Mr. Sydney Irving)
Order. The hon. Member for Oswestry (Mr. Biffen) contravenes the rules of the House if he reads a newspaper.
§ Mr. Ridley
The reason which is advanced as to why mergers should not be allowed to go forward is the curious reason that good management must be allowed to take over bad management in order to achieve efficiency. The curious thing is that if good management 889 takes over bad management the good management may, in turn, become bad. It is no guarantee that good management will last for all time. The right way to achieve good management is to reform the pressures within the company. The influence of shareholders—whether they be public in the form of the Exchequer, or private shareholders—must be brought to bear much more on the managers so that they respond to pressure for greater efficiency.
The debate has singularly failed to bring out the crux of the question, and that is competition. The only reason why we have any doubt about the wisdom of mergers is the need to leave a competitive system in each industry. We must be responsible for maintaining competition wherever we use private industry as opposed to public industry as a means of providing goods and services. In the private enterprise system, the capitalist system, it is essential to have real and meaningful competition which works. That is something which we cannot do without. To say that the competition is not working is an admission that the rules and regulations have been unsuccessful.
That brings me to the stupidity of having a Government agency—the I.R.C.—to bring about mergers for the sake of making mergers, for no apparent reason other than to put together in marriage companies which otherwise would not be put together—a sort of industrial Gretna Green for the sake of making marriages. What we need to do is to study the effects of the tendency for companies to merge on the provision of truly competitive conditions.
Market size has altered. With many industries, market size is now world wide. In defining the field of competition, we must bear in mind that in many instances it is no longer a town or country but a continent or even the whole world. This is where the Government have gone wrong in their economic policy. They have been too constricting on British companies which have tried to invest and develop abroad and to export capital. Their attitude to the international company has been one of doubt, hesitation and mistrust. The result has been that our balance of payments on the invisible 890 side has not responded as it should have done because they have restricted foreign investment.
However, we cannot have a suspicious attitude to the growth of large companies because it is always more efficient for foreign countries to set up a subsidiary rather than to buy goods from the country of origin. We will not be able to continue exporting physical goods on the scale that we would like because in every instance countries would prefer to have the work set up in their own country, because this brings them control to a greater extent over their own sources of supply. Therefore, although we are but a small country—we are not part of the Common Market, or N.A.F.T.A. or any wider trading arrangement—we must build into our monopolies and merger legislation the considerations which arise from this fact. One factor which we must take into account is the size of the market in which the merger is to operate.
Where we have gone wrong—and here I respond to the point of the right hon. Member for Sheffield, Hillsborough (Mr. Darling)—is to confuse what we in the House should be doing about it. I do not believe that the right hon. Gentleman was right when he suggested that there should be a Select Committee to investigate proposed mergers. We must make up our minds on the rights and wrongs of mergers in general, and to pass a law saying what companies may and may not do so that any company which wishes to merge will know the law and can act accordingly. The House of Commons is not a court to decide what is right and wrong in industry.
To suggest that we should become amateur merchant bankers presented with the facts and figures, and to give our blessing or refusal to mergers and takeovers, is totally to misconceive Parliament's function. It would be as if the right hon. Member for Hillsborough had said that in matters concerning fraud and forgery and misapplication of money, we should not make laws but appoint a Select Committee and that if we feel like picking on members of the public who we thought might have committed forgery we would send them before a Select Committee. That is the implication of what the right hon. Gentleman said.
§ Mr. Arnold Gregory (Stockport, North)
The interesting point, I understand, in the hon. Member's analysis is that Parliament would become rather wise after the event. Surely, our legislation, however imperfect, has at least established the Industrial Reorganisation Corporation to study the trend or to analyse the effect of a merger before it takes place. Surely, it is right to have this power.
§ Mr. Ridley
I am putting the contrary doctrine, under which the Americans have framed their law, which I believe to be the right one, whereby the function of the law is to define what people can and cannot do. We have the courts to interpret whether people have or have not broken the law.
I wish to quote from a speech by the President of the Board of Trade in which he spoke about our tradition. The right hon. Gentleman said:Successive Governments have taken the view that we must retain complete freedom to judge in each individual case what benefits and detriments there might be and what factors might or might not be relevant. Thus, the 1965 Act on mergers reflecting this agreed philosophy gives the Board of Trade absolute discretion and neither lays down guidelines itself nor requires the Board to do so.We have, therefore, a situation in which there is no law and no guidelines but absolute discretion to a Minister to say "Yes" or "No" to a merger. That is the situation which causes all the confusion.
The Americans, on the other hand, define clearly what a monopoly situation is. They define the market, they define the term "market share" and there is a whole gradation of definitions about what is and is not a monopoly. If there is a prima facie case of a monopoly, a merger can be prevented from taking place. The reason, I stress, why the Americans act against mergers is that monopoly thwarts competition. If we had a similar basis, we would have none of the difficulty about knowing whether to refer a potential merger to the Monopolies Commission or to the Restrictive Practices Court, whether the Board of Trade should make a decision on its own or whether a Select Committee should be appointed. It is an extraordinary way for Members of the House of Commons to try to control the destinies of our industrial future to take each decision ad hoc on its merits as it arises. We must try to lay down guidelines 892 and define what the market should be, what is a monopoly share of the market, what will be allowed and what will not. The present situation leads to the sort of political difficulties, a sort of jerrymandering almost, which are beginning to be heard concerning the whole subject of mergers and monopolies.
It is a thoroughly wrong tendency for the Government to leave open the question of what is right and what is wrong. We must make clear what we are trying to do, what methods we employ to do it, what the rules are and what will be allowed and what will not, and stop using the appalling power of discretion on the part of the Government, who are not responsible to anybody, which is not explained on any basis and is merely confusing the issue as well as confusing and retarding industry.
§ 1.33 p.m.
§ Mr. Ronald Atkins (Preston, North)
I am not prejudiced against mergers. I acknowledge that some mergers have been beneficial—for example, the British Leyland merger, which was beneficial because it was of an expansionist nature. In the case of Courtaulds, in my constituency, the large size of the firm and its agreement on rayon, for instance, have been beneficial and have probably kept the rayon industry in this country when it might have been replaced by Japanese imports.
It is wrong, however, to suggest that size alone is beneficial to an industry. For example, the British Motor Corporation was originally made big in order to become efficient. At one time, I believe, it had most of the home market, but as the years went by it became less and less efficient after the merger and declined relative to other motor firms. It became so bad that the merger of Leyland and the B.M.C. was in order to replace an inefficient top management with the efficiency of Lord Stokes. Therefore, we should not regard size alone as being all-important.
It is true that certain economies can come from size in research and development, but there can be great disadvantages as well. If size alone were to be considered a factor in efficiency, before the current merger of G.E.C., A.E.I. and English Electric one would have thought that the most efficient unit in the group was A.E.I. If, however, one takes profits 893 as the sole criterion, as, perhaps, the hon. Member for Southend, East (Sir S. McAdden) might regard them, A.E.I. was certainly not doing well, although it was by far the biggest of the three.
A.E.I.'s profits stagnated after 1962 at a level of £19 million or £20 million a year, but 1967, the year before the merger was considered, ended with a minus figure of £4½ million. It is not surprising that the workers in the English Electric factory at Preston, when they heard that the existing English Electric directors were to be replaced by directors from A.E.I., regarded the new team as an undertakers' team to close the factory. Indeed, there have been so many redundancies since the change that they may well be right.
One suspects that the chief motive of firms which merge is rationalisation. This sometimes brings advantages, but it can also bring disadvantages. I think it is fair to say that rationalisation occurs where various companies overlap; they close factories and sack men. For example, where two factories in a group are doing similar work and each is employed to only 50 per cent. of capacity, it is a saving and a maximising of profits to close one factory and to employ the other to 100 per cent. of capacity.
That is very good for profits, and it might even mean increased productivity from labour, but it has its disadvantages from the point of view of the community. For instance, when two factories are not working to full capacity, there is an incentive and an urge to get more business. It is certainly true that when there have been complaints about the dumping of electrical goods from countries like Italy the Italian or other companies have tried to get the maximum productivity by running their factories at 100 per cent., thereby lowering the cost per unit of production and, therefore, being able to send electrical goods to this country at below the cost at which they can be manufactured here.
It is also true, too, that one of the greatest problems from which this country has suffered for so many years and under so many Governments has been stagnation, as compared with other countries. What happens if a factory is closed? It means a grave reduction in capacity. When we consider that many more successful 894 countries are, year by year, increasing their national production by amounts ranging from 5 per cent., 6 per cent., 7 per cent., even 20 per cent., there obviously is a need for that kind of spare capacity to be used if we are to get among the pace setters again. I suspect very often that many of our company managements are not concerned with that sort of thing.
We hear stories about German companies being willing to export for very low profits. Ultimately, they benefit from that; they capture markets; and because of their increased production they reduce costs. On the other hand, we have heard that British companies are concerned only with maximising profits and that very often they are willing to drop certain markets which are not so profitable. There is grave danger, if we are concerned only with profits and not with capacity, that the country's interests will suffer, as I think they have been suffering for many years indeed.
Let us look at this merger, and I want to spend some time on it because it affects my constituents so very much. The firm was the most important employer in the town, especially for men. It has a fine reputation. The factory employed over 3,500. That number had fallen about 4 weeks ago to less than 2,000. I do not know what the present figure is because we are losing hundreds every week—40 this week, 150 at the beginning of April. So this is most important to my constituents.
As I said, if we are to remain in the race and competition with other people we have to have the capacity. In a statement, which was in The Times, on 7th October, 1968, Lord Nelson, arguing the case for the merger, said:The merger will mean less redundancy than otherwise because of increased orders which the new company may win in competitive overseas markets.But what has been happening? The workers have complained about the redundancies, and there have been many, of course, as a result of the A.E.I.-G.E.C. merger; 5,500 jobs were lost at Woolwich and Trafford Park, and then it was announced that 3,500 redundancies were expected, and, as my right hon. Friend knows, it has meant the closure at Newton-le-Willows and probably means the closure of the Preston factory as well. 895 When the workers ask, "Why? Why have we these redundancies?" what are they told? "There are no orders abroad." Yet the purpose of this merger was to increse exports, to get more orders from abroad, because of increased efficiency. Yet we are letting this capacity dissolve away. How are we to supply those markets in future if we close our factories?
No doubt profits will be all right for the merged companies for reasons which I will explain later and also because of ruthless cutting down. There is no doubt about it whatsoever that since the merger there has been a new, ruthless attitude to the men. When—oh, when—will managements as well as hon. Members learn that industrial relations are human relations?
Under the old English Electric Company, with great encouragement from Lord Nelson, there was set up the best convalescent home I have ever known, Thorpe Hall at Thorpe-le-Soken, Essex. I visited constituents of mine convalescing there last summer, and I promised them that I would write to the management saying how good this was. Many ex-patients, of whom there were many, from the company had a feeling of sympathy with the management because the management could produce that kind of convalescent home. I kept my promise rather late. I wrote to Lord Nelson saying how good this home was and what a good thing it was for the factory to have it. I received a most charming letter back from Lord Nelson, because he liked the home as well, but by this time the merger was in being, and he said—and the coincidence is remarkable—We are now considering closing the hall because it is too costly.It has not been accepted cost-benefit-wise by Mr. Arnold Weinstock because of the rather peculiar attitude he has towards relations with workers. I foresee a worsening of industrial relations as a result of this merger which is now in being.
What I think is likely as a result of this merger is that the company will turn more and more to the home market. It is already beginning to ignore foreign orders. It may well do that because it is in a splendid position to do so. It has a monopoly in the ten main sections of the electrical industry. Let me give some figures from no less an authority than 896 the I.R.C. in a statement of 14th September, 1968. It surprised me, after that, that the Board of Trade did not decide to put this merger to the Monopolies Commission, but there is never given any reason which is acceptable.
The new monopoly has 90 per cent. of the home market in traction equipment; 70 per cent. in graded switchgear; 50 per cent. in turbo-generators; 50 per cent. in process control and automation; 50 per cent. in defence electronics—I suspect the taxpayer will lose a bit from that, in defence electronics; 45 per cent. in transformers; 40 per cent. in smaller switch-gear; 40 per cent. in electrical machines; 40 per cent. in telecommunications—and I expect that the G.P.O. will suffer from that; 40 per cent. in industrial valves and tubes; 30 per cent. in consumer goods; and 30 per cent. in cables. It is quite clear that whatever the company loses in foreign markets it will still have something to keep its profits going.
A monopoly like that is of concern not only to the workers and producers but also to the consumers, and I really cannot understand why this case should not have been put to the Monopolies Commission. Perhaps it was because in the past they were thought to have been the blue-eyed boys with innocent records. But that is not the case. Far from it. They have been involved at different times in the last few years in various rings—the lamp ring, the cable ring, the transformer ring, and the telephone ring. And notoriously.
There have been submitted to the Monopolies Commission electric lamps in 1951, cables in 1952, electronic valves in 1956, electrical plant in 1957 and special electrical equipment for vehicles in 1963. That is not the end of the list. In January 1968, which is getting pretty close for those people with short memories to the proposal for the merger at the end of that year, a subsidiary of the G.E.C. and a subsidiary of Plessey, which monopolised the traffic-light signal market between them, were each fined £500 for wilfully suppressing price lists which should have been notified to the Registrar of Restrictive Practices. They are certainly not blue-eyed innocent boys, are they? The consumer market is wide open to them. Is it thought that this monopoly in which there is so little competition is likely to increase efficiency? It is rather frightening.
897 Other things besides profits must be considered, one of which is the national interest. Looking at the past and at what is happening at present, there is not much of a future for the nation in this merger. The attitude is that workers' interests and the national interests can go to hell.
I congratulate my hon. Friend the Member for Epping (Mr. Newens) on his splendid speech, and I express gratitude to him for introducing this subject. He demands safeguards which must be provided before we can accept this merger, otherwise let the Government take over, lock, Weinstock and barrel.
I am not doctrinaire about this. I have signed the declaration in support of Clause 4, but so has the Prime Minister and my hon. Friend the Member for Pembroke (Mr. Donnelly).
§ Mr. Atkins
Then he is excused from it. My workers are not particularly doctrinaire, but they are thinking and talking about nationalisation for the first time, and they cannot be blamed for doing so. It may be that I am biased. I like to see my constituents with money in their pockets and able to enjoy themselves at weekends. It cannot be said that their wages are too high. Indeed, no less an authority than the Prime Minister, in speaking in the City and referring to people like my constituents, said that the majority of people earn less money in their whole life than some of the people to whom he was talking net in a year. And those people are doing so at the expense of my constituents.
To hear some people talk, one would think that workers like unemployment, that they are malingerers and like to live on the State. When I tell my workers that they have the Redundancy Payments Act to help them out, they are not impressed; they prefer to work. Unemployment is demoralising, and as long as it happens to my constituents I shall be biased.
If no one will listen to me because I am biased, I will quote what was said by someone who is not so biased, a Government adviser, Mr. Fred Catherwood, 898 who is Director-General of the National Economic Development Council, in his speech to the Royal Institute of Public Administration, which claims to be an unbiased body. Mr. Catherwood is reported to have said this:… mergers were one reason for the lack of new investment growth. When two giants merged they wanted to rationalise their production and markets, forcing them to 'hold everything' until they made a joint examination of their capital programme.In the past three years one worker in five had been involved in a merger. 'Is this mergermania, or is there economic sense behind it?'. It must be said that many mergers have not. in fact, achieved their objective of making merged companies more efficient and more profitable, and mergers are no panacea. There is evidence that our large companies are less efficient users of their resources, especially capital resources, than some of our medium and small companies.It was easy to be over-excited by the attractiveness of size for its own sake, but it was likely on present trends that in 20 years' time some 600 international companies would be responsible for most of the activity of the non-communist world.Lord Goodman, another Government adviser, is no more favourably disposed to many mergers, as can be seen from his article in the Sunday Times on 12th January.
I therefore thank my hon. Friend for raising this matter and demanding the safeguards that are required. If they are not forthcoming then we must go on to make the ultimate decision which we promised our electors.
§ 1.56 p.m.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
I begin by adding my voice to those who have extended their congratulations to the hon. Member for Epping (Mr. Newens), not only for the quality of his speech, although I hasten to add that there was much in it with which I am unable to agree, but also for the wisdom of his choice in having given us an opportunity to discuss for a few hours a subject which is without doubt causing a growing volume of concern among hon. Members and in the country.
Having extended plaudits to the hon. Member, I will deliver a mild but nevertheless significant brickbat to the Government. The Minister who is primarily concerned with the control of mergers, and who has made many major speeches in the country in the last few months, 899 is the right hon. Gentleman the President of the Board of Trade. Great as is my respect for the right hon. Gentleman the Chancellor of the Duchy of Lancaster, I am critical that the debate will not be answered by a Minister at the Board of Trade. Indeed, for only about five minutes during the debate has there been a Minister from the Board of Trade in the Chamber. This is in distinction to the Department for Employment and Productivity, whose Parliamentary Secretary has listened to a great deal of the debate although he is not at the moment in his place.
The Board of Trade is the Department which maintains the major responsibility in this sphere, and it is unfortunate, to put it no higher, that the President or one of his Ministers should not feel it appropriate to reply to the debate.
I have a particular reason for making this point. Like my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), I wish to refer to the important speech made by the President of the Board of Trade to the Manchester Chamber of Commerce on 28th February. I wish to comment on what he said, to use it as a peg on which to hang some criticisms of the Government's policy, and to comment on the interesting suggestions which have been made from both sides of the House during the debate.
It may come as a surprise to hon. Gentlemen opposite that my main comment on the speech by the President of the Board of Trade is that I find a very great deal in it with which I am in 100 per cent. agreement. I welcomed his approach, and I welcomed the main points which he sought to make.
We all agree that the public interest is involved. The public is concerned in the whole subject of monopolies and mergers. This is the one area in which I make no excuse for regarding a policy of intervention as being wholly justified, and I do it on the broad philosophical grounds referred to by my hon. Friend the Member for Oswestry (Mr. Biffen). Of course, it is the Government's responsibility to hold the ring and to make a competitive system work. Every country which has contained within it a system of competitive private enterprise has found it necessary to set up a 900 more or less elaborate system of controlling not only the operation of monopolies as they exist, but, increasingly, the potential creation of new monopoly situations.
Here, perhaps I distinguish myself in some way from one or two of the remarks made by my hon. Friends, because I accept the main proposition of the President of the Board of Trade of the impossibility of making generalised statements about monopolies and mergers. I am sure that he is right when he says that every case must be judged on its merits, because they are all different. These are immensely complex questions, and to attempt to fit them on to a Procrustean bed, as it were, is bound to give rise to greater difficulties, anomalies and evils than the difficulties which undoubtedly arise under the procedures necessary to examine each case on its merits.
If one accepts that it is impossible to lay down generalised rules, inevitably that demands a policy with a great deal of flexibility. I think that the President was right to say that that has been the approach of Governments of both political colours since the war. I hope that it will continue to be so.
Thirdly, I endorse the President's main criticism of the monopoly situation, not that it is exploiting the consumer, though in some cases it may, not that it is battening upon the public or abusing its powers, though we have had examples of this shown up by Monopolies Commission Reports since the war, but that it is the monopoly company which has the great temptation to become, in the President's words, the "sleepy company". The danger is inertia and slackness.
The right hon. Gentleman quoted with evident approval the words which I first read in the Bow Group's pamphlet "Monopolies and Mergers", published eight or nine years ago, though they were obviously quoted before. I refer to Professor Hicks's aphorism,The greatest of all monopoly profits may be a quiet life.I welcome the President's assertion that that is his approach.
One can demonstrate the truth that it is impossible to make generalisations by referring to the Monopolies Commission's 901 Report on the Pilkington Glass Company. There was a company which held an overwhelming share of the market and which suffered from the criticism which many right hon. and hon. Gentlemen opposite direct at family companies, because it is true to say that it is the biggest close company in the country. The Monopolies Commission was able to give it a completely clean bill of health in its sphere of enterprise and innovation. It has to its credit a number of remarkable inventions which have not only been invented, but exploited and developed. That demonstrates the importance of the individual approach.
I welcome, too, the President's emphasis on the importance of management. Provided that it is not made too strongly, a case can be made for utilising the skills of a proved management team to get a better use of resources where bad management may for a period have under-utilised resources. Many hon. Members opposite, including the hon. Member for Epping, referred to the advantages which come from mergers by getting lower unit costs through greater scales of production, marketing, management resources, and also research and development. Increasingly, in the technological industries it is the resources which can be devoted to research and development which may provide the biggest single item for the creation of large units, because it is only the large units which can afford the enormous sum necessary to embark on them. Examples such as the Concorde show that this has to be done not only across national frontiers, but in some cases even with Government support.
§ Mr. Newens
While agreeing with the hon. Gentleman entirely, would he, in turn, not agree that there is also a considerable need to be sure that large companies do not prefer to get new methods by buying new processes under licence? We cannot ensure that that will not be done so long as it is left to private enterprise.
§ Mr. Jenkin
That is a fascinating subject on its own. We are a country which derives a considerable volume of overseas income by licensing processes to others. It is impossible, even in these huge organisations, that every company should cover the whole sphere. I would 902 anticipate, as an inevitable feature of the growing technological revolution, an increasing volume of licensing. It would be most unfortuante if any expression of opinion went out from this House that it is something to be regretted, though clearly the company which sought to rely wholly on cannibalising other companies and doing nothing itself would obviously be open to criticism. In any event, a company which does not undertake any research is not well fitted to judge which are the best licences to take. Some research is necessary to qualify it to do that.
However, I have handed out a number of palms to the President, and now I will criticise what he said in his speech. I deal first with a point which has recurred over and over again in the speeches which we have heard today. The President made this extraordinary statement that one of the reasons why mergers must be most carefully scrutinised is that they give rise to substantial capital gains. I think that that is an entirely unacceptable reason. One the contrary, the bigger the capital gain, the greater has been the under-utilisation of resources in the past and, therefore, the more important it is that those resources should be taken out of the hands of the present management so that a proper return can be earned. As my hon. Friend the Member for Southend, East (Sir S. McAdden) said, the higher the profits which can be made, the greater the advantage to the company, those who work in it and, through taxation, the community at large.
It does not make sense to argue that a situation where assets are being inefficiently and badly utilised should be prolonged because to change that situation will earn a capital profit for those who use their entrepreneurial enterprise to improve the situation.
§ Mr. Julius Silverman (Birmingham, Aston)
Will the hon. Gentleman deal with this point on capital gains? On 30th August last year, G.E.C.'s £1 ordinary shares were quoted at 127s. 6d. By 9th September, in something like 10 days, they had improved by 20s. 3d., which is an increase of something like 17 per cent. How can that capital gain be justified, and how does that show an increased utilisation of capacity? Is it not just something for nothing?
§ Mr. Jenkin
I beg to differ from the hon. Gentleman. The reasons why stocks and shares move on the Stock Exchange are many and complex. Of course they are—so that a market will be there. Many hon. Members will remember the aphorism: the market is the finest computer of the lot. The rise in share values which follows a bid is a good thing, because it recognises the extent to which the assets have been under-utilised in the past and the important fact that someone is to do something about it. I think, therefore that this is a bad reason for interfering.
The President went on to refer to merger fever. Again, we have had echoes of this in the debate. In one passage in his speech at Manchester he, at any rate, hinted that perhaps this had gone too far. The remarks of Mr. Catterwood, which the hon. Member for Preston, North, who is not now in his place, ended his speech by reading to the House, are perhaps an even more graphic statement of the view that this has got out of control. I like the quotation from the Economist which the hon. Member for Epping quoted about the genie who escaped from his lamp and could not be pushed back in again.
It is right that we should look to see the extent to which Government policies have created this merger fever—this merger mania. The creation of the Industrial Reorganisation Corporation was expressly in order to achieve this. I believe that the I.R.C., which was set up for this function, has tended to regard any merger it was to examine which had the effect of creating a unit of bigger size as having a strong probability of being a good thing. Therefore, there is an exaggerated view in the country and in certain industries and, indeed, in board rooms of the importance of size. It is relevant and in many situations it is important, but it does not have that universality of importance which has, I fear, become too much a feature of industry. I believe that, if there is merger mania, the I.R.C. and the philosophy which gave it birth bears a good deal of the blame.
But it does not stop there. The Government have pursued other policies which were bound to give rise to a growing tendency for mergers unrelated to increased efficiency. Corporation Tax, with the distinction which it draws between 904 retained and distributed profits and the penalties imposed on distributed profits, the tendency which we saw under the old Profits Tax and which we see in the new Corporation Tax for companies to plough back and not be subject to market pressures but to get low yields and, therefore, poor utilisation of assets, is bound to create situations where ripe plums will be had for the picking.
Then there is the close company legislation. The tax penalties imposed on the small family company are so severe that many of those companies, which could perfectly properly continue in existence and, for themselves, their workers and for the national interest, continue to operate, cannot afford to do so. Therefore, they go hunting found for someone to take them over to take them out of the status of being a close company. I believe that this is a growing pattern of development which has most unfortunate repercussions.
It is linked with the argument about size. As the President rightly says, there are many small companies which have been, and are, the pace setters in their industry. I regard it as very unfortunate that their taxation positions should be so difficult that they are driven to merge as being the only way in which——
§ Mr. Orme indicated dissent.
§ Mr. Jenkin
The hon. Member for Salford, West shakes his head. But is he aware of the effective rate of taxation on a close company because of the disallowance of directors' remuneration over a certain amount, because of the disallowance of interest which is paid to participators, because of the other tax penalties which affect close companies, and because of the requirements of the Inspectors that they should distribute up to 60 per cent. of the profits? These impose savage fiscal penalties which it is worth paying a considerable amount in terms of loss of independence to avoid.
§ Mr. Orme
I accept the taxation proposals which the hon. Gentleman says are imposed on these moderate companies. These companies are fully utilising their capacity, they are earning good profits, and they are producing the type of things that we want. However, they are still susceptible to the merger mania. This is what is so worrying.
§ Mr. Jenkin
I do not necessarily agree with what the hon. Gentleman says, and I do not expect him to accept my strictures on the close company legislation. Perhaps I may move on.
An important point about the merger and monopoly position is that it is most important that we should continually emphasise the rôle of the newcomer, the invader. The potential threat from an invader into an industry is often the most effective limitation on monopoly. Even where mergers have happened and big concentrations have been created and perhaps been allowed to become sleepy on that account, the invader coming in can once more generate a competitive position. This is surely the case for the conglomerate. Very often it is the conglomerate, the organisation with a highly sophisticated and skilled management, which is in a position to provide the most effective invasion from outside the industry. There may be one large sleepy firm and a number of smaller ones in the industry. None of these can create the challenge, whereas the conglomerate very often will do just this.
I was most interested when the hon. Member for Epping quoted, what I regarded as a very useful contribution to this whole debate, Jim Slater in the Financial Times of 15th February. There he makes the point:Inefficient companies which are the largest in their field are in most cases immune from takeover by their smaller competitors in the same industry. They would also be immune from external forces.2—Sleepy multi-product companies would be immune from acquisition by far more efficient companies.These are situations where a conglomerate like Slater, Walker Securities can provide an enormously valuable stimulus, which is illustrated by the figures which the hon. Member for Epping quoted—an enormous increase in the profitability of a firm because the assets are to be much more effectively and efficiently utilised. I am astonished that the hon. Gentleman should regard it as a subject for criticism. On the contrary, this is a subject for criticism of the former company having allowed this situation to go on, but praise for the system that allows it to be dealt with rapidly and efficiently.
§ Mr. Newens
Will the hon. Gentleman explain how this process can serve the 906 public interest, particularly in view of all the points Mr. Slater makes in that article? How can this serve the public interest? I concede that under capitalism this serves to measure the efficiency of the use of capital.
§ Mr. Jenkin
This is the difference between the hon. Gentleman and myself. I regard myself in a way as voting when I go into a shop to buy. This "slaves to capitalism" argument referred to earlier, is the sheerest doctrinaire nonsense. A free market with consumer choice is made more effective by the efficient utilisation of resources and the resources which the individual consumer can deploy on his purchases. This makes the public case.
I do not draw a distinction. We are all members of the public—we are all consumers. In the last resort the beneficiary of competition is the consumer.
My hon. Friend the Member for Cirencester and Tewkesbury seemed to suggest that we ought to import into our law the same sort of rather more rigid distinctions which we have seen in America where the Securities Exchange Commission has been deploying new rules about the activities of conglomerates. I think that this would be a mistake. We have always rejected the rigid doctrinaire approach of the Americans, and they will admit that they pursue the goal of competition even where it can clearly be established as being to the detriment of the consumer. I cannot believe that that is right, but they can afford to do it in an enormous economy like theirs. I am certain that the approach advocated by the President of the Board of Trade is much better.
I am glad that the right hon. Member for Sheffield, Hillsborough (Mr. Darling) is back in the Chamber. Surely the real criticism of the situation into which we have got ourselves is not so much philosophical—I have indicated the extent of the common ground between the President of the Board of Trade and myself on this—as the appalling institutional tangle into which we have got ourselves because of the growing pattern of intervention, particularly during the last four years, some of it undertaken when the right hon. Member for Hillsborough had some responsibility for these matters. The right hon. Gentleman used language which was a good deal stronger than anything I have read in the Press. He described it as a cockeyed, idiotic state, 907 and I do not dissent from that, because that is a fair criticism.
The case was well deployed in an article in the Sunday Times on 10th November, when we had the portraits of the various chairmen of organisations—though no mention was made of the Ministries—which are active in this respect—the Prices and Incomes Board with Mr. Jones, the Monopolies Commission with Sir Ashton Roskill, the Restrictive Trade Practices Court with the Registrar, Sir Rupert Sich, and the Industrial Reorganisation Corporation with Mr. Villiers. The Commission for Industrial Relations may well have some functions in this respect. There is the N.E.D.C, and the little Neddies. Added to that, there is the Board of Trade with its sifting procedure, the Department of Economic Affairs with its responsibility for the I.R.C., the Ministry of Technology, the Industrial Expansion Act, and the Department of Employment and Productivity which has drawn up a code of conduct on the consultation procedure, and so on, which will be necessary. This is a monstrous proliferation of institutions, and it is scarcely surprising that we have found the sort of tangles, anomalies, and difficulties to which the right hon. Gentleman drew attention with such eloquence.
There are obvious criticisms which can be levied against the system. As the right hon. Member for Hillsborough knows, we were involved together in the 1965 legislation which conferred a duty on the Monopolies Commission to examine mergers referred to it by the Board of Trade, and yet we have seen the most important merger of all, one with enormous implications for thousands of people, the G.E.C.—A.E.I, merger, taking place without getting anywhere near the Monopolies Commission. This was all done quietly and hurriedly by comparison, under the aegis of the I.R.C., with the result that thousands of people cannot view with the same equanimity as the hon. Member for Stretford (Dr. Ernest A. Davies) the belief that this is in the best interests of the country. We have not had anything like the sort of examination which there ought to have been into this merger.
The Prices and Incomes Board is sometimes described as a sort of mini Monopolies Commission. The first 908 reference to it was the case of the Road Haulage Association, for recommending rates for road haulage. It is a function of the Monopolies Commission that it can look at services. Perhaps this is what it should do.
Then there is the astonishing position of the overlap. Some industries have been subjected to at least two inquiries at the same time by different bodies. The detergent industry was being looked at by the Monopolies Commission and by the Prices and Incomes Board at the same time. Nobody could conceivably defend this as a rational way of approaching this problem.
There has also been great confusion about objectives. These bodies all have different objectives. The Prices and Incomes Board is supposed to look at the relevance of the incomes policy and the pricing policy, whereas the Monopolies Commission is supposed to look at the effect on the consumer and on public interest of monopoly situations.
Here we come to the question of guide lines. When one is dealing with mergers, should there be a laying down of guide lines? My hon. Friend the Member for Cirencester and Tewkesbury said that there should be, as a matter of law. I disagree. I think one can say that there is a total gap between industry and the public on the one hand, and on the other what the Government are trying to do. This is a failure of communciation, and I like the suggestion by the President of the Board of Trade that what is needed is a much fuller explanation of the principles on which the Government are exercising their rôle in deciding which mergers to refer to the Monopolies Commission, and which not, and on what basis they accept the recommendations of the Monopolies Commission. I think that this would be right and helpful, but this information, it is communication, it is not in any sense attempting to lay down tramlines.
There has been a lot of discussion about the human consequences of mergers, and quite rightly so, because they can be catastrophic for the family and for the individual concerned. Clive Jenkins said in an article that the news of a bid is greeted by employees with butterflies in the stomach. "What is it going to mean to me?" is the usual question. Anybody who has been in this position, as I have, 909 knows and sympathises with the sleepless nights that follow if one's job could disappear. The question usually is, "What happens if there is not a place for me in the new organisation?"
§ Mr. Jenkin
Yes, of course.
The real concern must be for the older men, who will find it very much more difficult to get new employment if they are made redundant. I recognise what has been done, but I think that even now more must be done for older people. There must be provision for early retirement, and so on.
The transferability of a pension is enormously important. I never fail to remind everybody that the first action that I took in the House was to introduce a Bill to provide for the transferability of pensions, but such is the procedure that I was not able to say a word about it during that Session. This is a vital matter, and it is good to know that this will come, but I hope that it will come sooner than seems likely under the new graduated social security White Paper.
Reference has been made to the takeover panel. My hon. Friend the Member for Oswestry said that the take-over panel and the code which is being suggested should be strengthened and have teeth. I have grave suspicions about this. I do not think that we ought to set up new bodies—in this case presumably with only a shadowy connection with the Government—which may have powers to levy enormous funds, and virtually to deprive people of their livelihood for breaking rules which have been drawn up by an outside organisation, although perhaps with the blessing of the Board of Trade. I do not like this approach. I prefer the approach of saying that we have to create remedies for those who are hurt, and here we are talking principally about minority shareholders. Without committing himself on this, is not there a case for the importation of the system which works in America, that of giving minority shareholders the right to sue the directors of a compay if they engage in a practice which prejudices the interests of the minority shareholders? Is it not much better to give an individual a civil remedy of that sort than to impose a collective 910 penalty administered by some outside body? Combined with more disclosure of information—Mr. Slater strongly recommended this—this is the way to deal with the minority shareholder problem and the desirability, as it must be, of directors engaging in merger or takeover operations conforming to a system with which decent people would agree and not underhand methods. It is the effect on minorities which is so damaging and which must be remedied.
My main conclusion is that, although I have grave criticisms of the manner in which the present law in this field is being handled and the powers of the I.R.C. and of some of its activities, as well as of the tangle of institutional arrangements into which the Government have got themselves, and that the balance between size and competition has swung, I believe, too much in favour of size, to the detriment of competition I greatly welcome the philosophy of the President of the Board of Trade and the fact that, after the uncertainty of three or four months ago as to which way the Government were going—who would have the power: an enlarged Prices and Incomes Board or, firmly, the Monopolies Commission—with the President of the Board of Trade on the one side and the Secretary of State for Employment and Productivity, the Minister of Technology and the Secretary of State for Economic Affairs on the other, the President of the Board of Trade has come out on top.
I appreciate that this may give little comfort to the hon. Member for Epping. It does not bear much relation, as the President of the Board of Trade said at Manchester, to the objectives which the hon. Member has in his Motion, but, provided that we can get this institutional tangle and some of the other points I mentioned right, the nation will proceed much more effectively and happily on the system of the President of the Board of Trade than it would on that advocated by the hon. Member.
§ 2.32 p.m.
§ The Chancellor of the Duchy of Lancaster (Mr. Frederick Lee)
There can have been few more fascinating debates than this for a considerable time. I join those who have congratulated my hon. Friend the Member for Epping (Mr. Newens) for choosing this subject after 911 his luck in the Ballot. We are all trying to get the answer to the kind of problem in which, to create the efficiency which we need now, we may have to create temporary hardship. Yet we all know that, unless we do create that efficiency, we will create permanent disaster for many people. That is the conundrum to which we are all addressing ourselves.
I do not accept what the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said about the absence of a Board of Trade Minister. One looks upon this subject as far wider than simply a discussion of monopolies and mergers legislation. Indeed, the Motion goes far wider than that, so it would not be the answer for which my hon. Friend was looking to discuss it simply in that context.
The Government have done many things in which I do not recognise the contradictions which the hon. Gentleman described. I thought that my right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling), with his great experience at the Board of Trade, condemned the limitations of the monopolies legislation rather than of the wider aspects of economic policy. I would have thought, then, that our consideration of this subject should be framed in a much wider economic perspective than merely monopolies legislation.
The assessment to 1972 which my right hon. Friend gave the House last week puts it in that correct perspective. That describes, surely, our national economic objectives, which are the achievement of a substantial and continuing balance of payments surplus and a steady improvement in our competitive efficiency and in the regional balance of the economy, which again is precisely what the House has been discussing.
In the Green Paper, we read:Major changes in the structure of the economy are necessary. A larger share of the nation's resources will have to be exported and used to replace imports. In other words, the total export/import ratio of the growing economy must improve; and this can only be achieved if each individual industry and firm improves its own export/ import ratio, and therefore its balance of trade. To do this, the economy and industry must be more competitive in the future than in the past. More plant must be modernised; labour and capital used more efficiently; new 912 technologies introduced on a wider scale; marketing at home and abroad improved; and management generally strengthened. Money costs must be kept down. Unless all this happens the country will not achieve a lasting improvement in economic performance.That is the setting in which the Government are now producing an economic policy. Government must not believe that they of themselves can do the job. We can create the setting in which the job can be performed far more efficiently. With the work which we are now doing and the follow-ups which we intend to do with industry, a great deal will depend on the efforts of management and the unions in achieving that.
We ask, putting considerable stress on the discussions which we will have with individual industries, both in their E.D.C.s and elsewhere, about the action which should now be taken to achieve the performance which is essential to realise our broad economic objectives. It is widely recognised that considerable changes are needed in rationalising and modernising our industrial structure if we are to improve our economic performance. We need to move resources of manpower and capital out of industry for whose products home and overseas demand is declining and into those for which it is growing. We need to improve the production and marketing performance, especially for export, of the mass of medium and small-size firms who will, I am convinced, continue to provide a great part of the national output. We need to develop industrial units with resources sufficient to sustain not only the necessary effort in research and development but the trained and specialised staffs required to exploit the market results of their efforts.
The hon. Gentleman implied that some sort of action or inaction for which the Government were responsible had resulted in this spate of mergers, which was a different conclusion from that of my hon. Friend the Member for Epping, who, rightly, quoted Lenin in 1912 on the merger situation which was even then beginning to show that it would become an exaggerated element in the development of capitalism. It is some time since I read my Lenin, but that is my recollection of how he made the point. Certainly, since the First World War, mergers have played an important part in developing our industries and enabling them to adapt to changing conditions.
913 My hon. Friend the Member for Preston, North (Mr. Ronald Atkins) who is suffering from the same merger as I am, mentioned three large units, all of which came into being as a result of mergers. So it is no good the hon. Gentleman giving the impression that suddenly, one fine day in the last four years, a spate of mergers appeared. Indeed, I would say that the development of the British private economy is one long sequence of amalgamation and mergers. I cannot think of many large companies in Britain today which came into being other than as the result of mergers.
I agree that it would be wrong to believe that size equals efficiency, but I would remind the House that even in the case of the merger that we have been discussing—the G.E.C. and A.E.I. merger—the combined organisation will still not be one-third the size of General Telephones and Electronics in the U.S.A. My hon. Friend mentioned Leylands. Even after the merger Leylands will be only about half the size of Volkswagen. If it were purely a question of size our whole economy would be in grave difficulty.
Many of our largest industrial units are in the public sector. The public sector has a vital part to play in improving our economic performance. I had something to do with the merger that produced the nationalised steel industry. Here again, I argue that without that merger and the potential which it brought into being the British steel industry would have been quite unable to compete with the large units with which it had had to contend in the United States, Germany, and so on.
We also need to strengthen the private sector, and that includes most of our major exporting organisations. We must improve their performance. We must improve the structure of the private sector and also foster enterprise within a framework which secures our economic and social objectives. Private industry must not only be allowed, it must be encouraged, to make the necessary adjustments for changing markets and technologies.
As a Government we have taken a number of very important steps to help in this process. The I.R.C. has been given the special function of searching out opportunities to promote rationalisation 914 schemes which would yield substantial benefits to the national economy. I do not agree with the hon. Member's interpretation that the I.R.C. runs around seeing where it is possible to work a merger even if that merger is not an improvement upon the structure of existing industry.
The Industrial Expansion Act empowers the Government to assist industrial projects which are calculated to improve efficiency, to create, sustain or expand productive capacity or to promote technological improvements. The N.R.D.C. develops or fosters promising new lines of production—carbon fibres and the universal vegetable harvester spring to mind in this respect.
Having outlined what I regard as the positive side of the changes now taking place in the industrial structure of our economy I want to make it clear that the Government recognise the need to preserve a balance. We realise that we must balance the need to create stronger units of production with the need to ensure that the interests of the workers or consumers are not sacrificed, and that the supplier should be able to exploit increased industrial power, which is so much a part of my hon. Friend's Motion.
Greater economic strength often brings with it greater size, but also greater financial and economic power and the risk of this power being misused or abused. I agree with my hon. Friend that there is a clear political and economic need for industrial power to be effectively watched and, where necessary, controlled in the interests of the community. We have a close concern with the ways in which power in private hands is exercised, and we realise that this has important implications for the Government's employment, regional, economic and social policies. We are continuously alive to these problems, as our record has shown.
We have always recognised that there is no intrinsic merit in size as such, especially where large organisations may be managed inefficiently, in which case they could hold back rather than accelerate technological progress. They may fail to undertake research or to build up overseas markets. They may maintain restrictive practices at home.
§ Mr. John Lee (Reading)
Will my right hon. Friend clear up one of the 915 questions that most exercises our minds? Have the Government any clear criterion for deciding which private monopoly should become public? We are in some doubt about the Government's intention in this respect.
§ Mr. Lee
That point was made in detail by my right hon. Friend the Member for Sheffield, Hillsborough. There is the legislation on monopolies. There are the activities of the I.R.C. and various other organisations that I have mentioned. We cannot take any number of potential mergers and say that they are right or wrong. I was trying to point out that the key question in this matter is whether a merger will bring greater efficiency rather than a restrictive, profit-making application of its powers. It is not possible to say that mergers, as such, are right or wrong. We have to examine the conditions applicable to each.
§ Mr. Lee
In 1965 we took the necessary powers to strengthen the statutory control of monopolies. I repeat: for the first time power was taken to enable the investigation of an actual or prospective merger involving either a statutory monopoly or gross assets exceeding £5 million, with further power to prevent the merger from proceeding if that proved necessary. I would have thought that that, coming for the first time, was a positive step by the Government in the direction advocated by my hon. Friend.
About 10 mergers have been referred to the Monopolies Commission for detailed examination, including the largest in our industrial history—the proposed Unilever-Allied Breweries merger. My right hon. Friend does not think that that proposed merger should have been referred to the Commission, but it certainly was.
The 1968 Restrictive Trade Practices Act has been the culmination of a process undertaken by successive Governments, of outlawing agreements between firms to cover competition and to maintain prices at artificially high levels. The Prices and Incomes Act, 1966 gave the Government power to refer to the National Board for Prices and Incomes, for examination, 916 many matters bearing upon various aspects of company performance, questions relating to pay, prices, salaries, fees, dividends, rents, and so on. We have taken measures to secure improved distribution in industry, from the national point of view. Finally, there are the continuing contacts between the various production Departments of the Government and the major firms in the industries for which they are responsible.
We have recognised that in a period of rapid industrial change it is a prime duty to ease the hardship which may fall upon individuals. Statutory redundancy payments have been introduced, Government training centres have been set up, and industrial training boards have been established which will soon cover about 30 sectors of industry and commerce, and a total of 18 million employees.
Surely these are all ways in which the Government have attempted to reduce any disparity there may be between the private and public calculation of what may constitute social justice in our modern industrial society; in particular to minimise the potentially harmful effects of any such disparity.
I would not deny for a second that there is still a long way to go and a great deal of progress to be made. For example, we must improve the application of the code of procedure to be followed in cases of threatened redundancy which has been agreed by my right hon. friend the First Secretary with representatives of both management and unions. Where decisions about necessary closures are taken at head offices remote from the factories concerned, we must ensure that there are better communications, both on the side of management and on the side of the trade unions, so that the fears and anxieties of the workers whose livelihoods may be directly affected are taken fully into account before the final decisions are reached.
May I enlarge upon that? I am thinking specifically of the merger which has received much attention today. In my constituency, Vulcan Foundry have been making locomotives for 140 years. There has been maximum co-operation between trade unions and employers in the discussion of 1,001 issues which arise in the factory. Then the merger takes place, and decisions on vital matters are taken 917 at the national headquarters. There is no consultation at local level. The first thing the chaps in the factories know about it is that the decision has been taken.
§ Mr. Lee
I would not necessarily say that. I am giving only one example of a number of mergers where this can take place. What happens is that there is consultation at the national level, in this instance between Mr. Weinstock and his colleagues and national trade union officials. It may well be that in the course of those discussions the trade union leaders are told of matters confidentially. They cannot pass down the line to the people in the locality whatever it is that the discussions reveal. Therefore, in place of first-class consultation at local level, all that we are told is, "A decision has been taken to close X department." That is very far from being an improvement because of national consultation. Indeed, it is a great deterioration.
§ Mr. Silverman
I believe that in this case the national representatives of the trade unions were told on the Friday. The men's representatives were told on the Monday of a decision which, for management, was a fait accompli. In what way can that be considered to be consultation?
§ Mr. Lee
My hon. Friend has put precisely the complaint which I am making. Because I happen to live in the vicinity and am well known there, I was told on the Sunday night. My complaint arises from a comparison of that procedure with the procedure of a good works committee organisation which existed in that factory prior to this incident. Men are dumbfounded at the thought that their jobs can simply be ruled out with a stroke of a pen in London without even the vestige of consultation with any of them in the Newton-le-Willows factory—and the same situation applies elsewhere.
A great deal of work has to be done if we are to get the code of conduct right in this respect. I have discussed these matters with my constituents. I am sure that other hon. Members have the same problem. The hon. Member for Wanstead and Woodford rightly talked 918 about a failure of communication. One of the great problems is that we seem to have reached a point at which men calculate in this way: a merger equals redundancy, therefore no merger equals no redundancy. That is a very dangerous way of assessing the situation because, if we are to secure the efficiency which we all demand, there is undoubtedly a need for a great deal of restructuring throughout so many of our older industries.
Let me give an example to show how wrong is the kind of calculation which I mentioned. In my tasks in the North-East, I was engaged a few weeks ago in looking at the problem of the Furness shipyard, a thoroughly modern shipyard, which was due to be closed. Discussions had taken place to try to keep it open, but apparently nothing could be done, and 2,500 to 3,000 jobs had practically disappeared. But we kept those 3,000 jobs in existence. How? By getting the right type of merger.
In other words, it is not necessarily the case that a merger implies the kind of redundancy which we all fear. That is why I claim that within Government policy, it must be efficiency that is the determining factor. But in any event, efficiency which is bought out of the sacrifice of thousands of jobs, when men have never even had the opportunity to discuss the future, is basically wrong. Therefore, I am not satisfied, and the Government are not satisfied, that as yet we have managed to reach the situation in which the code of conduct is doing all that we want it to do.
The I.R.C. has been concerned to assist the Government's regional policy. For example, the acquisition of the Donside Mill by Bowater and Reed, which was sponsored by the I.R.C, will help to preserve 600 jobs in the Aberdeen area, as well as bringing about the more effective use of existing capacity for the production of coated paper. Equally, Whessoe's acquisition of Ashmore, Benson and Pease has helped to improve the employment prospects on Teesside. Those are two examples of employment benefit which can stem from mergers. Mergers and rationalisation schemes can sometimes result in redundancy, but I emphasise that this has formed only a small fraction of total redundancies, and schemes which strengthen the competitive position of our industry can not only help 919 to prevent redundancies which might otherwise occur but in some cases can create employment opportunities.
May I quote from the first Report of the I.R.C., published last May:The I.R.C. is well aware of the need for companies contemplating rationalisation to ensure that any resulting redundancies are planned to take place in an orderly manner in close consultation with the trade unions and the Government Departments concerned and to take account of the unemployment situation in the affected areas.I have shown that the Government have tried and will continue to try to create a setting in which economic expansion can take place. In our discussions we shall ensure as best we may that, where rationalisation takes place, it will be from the constructive point of view of increased efficiency and not merely a step which brings about unemployment without any increase in our economic strength for the workers.
I congratulate my hon. Friend on his Motion. I feel that this is by no means the last discussion which we shall have on the subject in the House. I congratulate him, too, on his speech. Indeed, I have very similar views to those which my hon. Friend expressed. Like him, I believe that in the end only the efficiency which comes from the Socialist ideal and the Socialist method will succeed. I believe that the palliatives which we must temporarily use cannot in the end be any substitute for the kind of society in which we think of the dignity of men and of their labour, as well as the efficiency with which we utilise that labour, as the true incentives which must guide us all. In that spirit, I accept my hon. Friend's Motion.
§ Mr. Speaker
Order. I remind the House that five hon. Members have been in their places throughout the debate trying to catch my eye. If speeches are brief, I shall be able to call all five. Mr. Nott.
§ 3.0 p.m.
§ Mr. John Nott (St. Ives)
I join other hon. Members in congratulating the hon. Member for Epping (Mr. Newens) for raising this important and topical subject. I agreed with a great deal of his analysis of the situation, but if I did 920 not agree with his solutions he will understand why; it is only because his are Socialist solutions and mine are Conservative ones.
The Minister was right to say that we are discussing the problem of reconciling the long-term prosperity of the nation with the short-term fears and problems of many individuals. He was also right to say that the Government must create the setting and environment in which companies can be successful.
The right hon. Gentleman spoke with the greatest feeling when he put aside his admirably prepared brief and spoke from personal experience of the difficulties which were confronting his constituents and the fact that decision-making at plant level had been taken away from local unions and employers.
Unfortunately many of the Government's policies have been calculated to that end. For example, although we are not debating the prices and incomes policy, that concept has taken out of the hands of local people the ability to decide matters affecting local conditions and wages. I therefore agree that we must get back to plant bargaining and local discussion and consultation, with more information being given to people working in individual factories. I regret that in so many spheres the Government's centralising policies have militated against this. The right hon. Gentleman was right to say that it is too easily assumed that no merger must mean no redundancy. I suspect that more redundancies take place as a result of companies gradually running down than as a result of mergers.
I will not cover the ground already covered by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), except to reiterate that the Government are open to criticism for the machinery which they have created to supervise mergers. I will not list the bodies and Ministries to which my hon. Friend referred, but it is unsatisfactory that we should today be debating such an important issue with the representative of only one Ministry in his place.
After all, the Board of Trade is responsible for monopolies and mergers; the Treasury is responsible ultimately for the way in which international companies conduct their business; the Department of Employment and Productivity is responsible for the problems which the 921 Minister outlined; and the Ministry of Technology is vitally concerned with certain industries.
We must try to bring about the existence of a single body or Ministry to unify the functions which these many Ministries and bodies now perform. Obviously the Department which should be responsible ultimately for all these affairs is the Board of Trade.
Competition is, of course, the greatest protection available to the consumer. If the hon. Member for Epping feels that the nationalised undertaking is the greatest protector of the consumer—that it provides the same degree of protection as competition in the market—I suggest that his view would not be shared by the many constituents who write to me about electricity and gas tariffs and by the many industrial concerns which complain about the amount which they must pay for steel and about the many other problems which are created by public monopolies.
Competition is a great protection for the consumer and that is why I want to centre all these powers on the Board of Trade and make it the Department ultimately responsible, in conjunction with the Treasury.
Unfortunately, I did not hear the speech of the right hon. Member for Sheffield, Hillsborough (Mr. Darling), but I believe that it was concerned with the need for fresh legislation on monopolies. I entirely agree, because the need is first of all to re-define precisely what a monopoly is. Also, within the definition of "monopoly" we must try to work out some definition of what I would broadly describe as the "long purse", the company which, by virtue of its huge size and economic power, is able to buy up other companies. This is the problem of defining monopoly in its rather wider sense.
We must have far greater information, not only for people working in the factory but for the shareholders and the Press. I had the pleasure of sitting on the Committee examining the Companies Act. We still want far more information on the way in which public companies conduct their business. The Government have been in office for four years, but still banks are not required to disclose their profits, shipping companies are still able to conceal their reserves. There is 922 no excuse for this, either in a Socialist or Conservative philosophy. There are so many areas in which the Government have been slow to move.
Employees should have far more information too. I ought to declare an interest in that I act as a consultant to a merchant bank, and also to one or two international companies. I also sit on the boards of two companies on the Continent, where there is a system in which employees attend our board meetings. Although in theory this is a very good idea it does not work so well in practice, in Germany or France, in the way many hon. Members opposite believe, because all the important decisions are made outside the board room.
Nevertheless, in practical terms, something of this sort places upon directors a constant burden to inform their employees, as far as they are able, of what the company is doing. It is information which people want rather than control. I do not think if we were to go to the chap working on the factory floor that he would say that he wanted to control the business. He often recognises that other people are better fitted to do that, but he does want information. He wants to participate in the sense of knowing how the directors come to the decisions which affect his interests.
This merger craze has gone much too far. Before I came to this House I worked for eight years with a merchant bank which was one of the leaders in this business of mergers in this country. In spite of this I now believe that the merger craze has gone too far. I am a great critic of the A.E.I.-G.E.C. merger. It was handled in a quite improper way by the Government. It is inexcusable of the Government not to have referred a merger of that sort for examination of its monopoly power. We know that, even if big companies are required for competition in international markets, a merger can create a monopoly within the British domestic market.
I concede that there may be an economy of scale in international terms which is greater than the economy of scale required in domestic terms. I know something about the way Westinghouse and G.E. of the United States operate in international markets because I act as consultant to one of their competitors. 923 But I know so well that the size and power of G.E. and Westinghouse are not that much of a help to them, as many Ministers pretend. They are big organisations. Their decision-making, by virtue of their size, is slow. Often they are bureaucratic. They cannot move at the pace of the small or medium-sized nimble company.
I do not accept that G.E.C. needed to merge with A.E.I. in order to compete with Westinghouse or G.E. of the United States or Brown Boveri or Siemens or any other company. G.E.C. was big enough already. I do not think that we have any right to create a prima facie monopoly in the domestic market in order to meet the economies of scale of G.E. and Westinghouse in the United States.
The personal problems created by mergers are very serious and that is why we need to consider again the present redundancy provisions. These provisions should be improved. The worst redundancy provisions of all are in the nationalised industries. In my constituency, the biggest employer in Penzance is British Rail. I am shocked at the number of long-term servants of British Rail who come to me and say that they have worked for 38 years on the railways and are now being declared redundant two years before their pension is due with no decent provision at all for them.
We need also to introduce mobility payments as of right, to make it easier for the man who is declared redundant to move to another part of the country and to find another job. A man can move himself, but his family cannot move so easily. Often there is not enough housing in another place. Therefore, we must provide financial help to enable a man to move. Things are becoming increasingly difficult too for the executive over 45 years of age. We must find a way of protecting by private insurance the man over 45 who becomes displaced as a result of a merger and who finds it almost impossible to get another job. Transferability of pension rights is one way whereby we can help.
I wish to make two small further points. I do not go the whole way with my hon. Friend the Member for Wanstead and Woodford against a new panel with teeth. Like my hon. Friend the Member for Oswestry (Mr. Biffen), I think we need 924 legislation to set up a panel which has teeth and that the functions exercised by the Stock Exchange and by the Bank of England should be drawn together under its control. Such a body should have sanctions and should police mergers and take-overs in a consistent way within the context of legislation. This happens in the United States although I do not go the whole way in wanting an S.E.C. We cannot go on with a situation in which companies are policed by the Stock Exchange Council, which is a collection of jobbers and stockbrokers. What conceivable right have jobbers and stockbrokers to police the actions and activities of industrial companies? We must have a framework of legislation and an independent panel which will control the way in which companies behave in takeovers. Probably my hon. Friend goes some way with me, and I do think there is a lot between us.
I was one of the few hon. Members on this side of the House who were lukewarm supporters of the Industrial Reorganisation Corporation when it was set up. In its early years, it could have done a worthwhile job, but I regret to say that it is now regarded as a partial body which has an axe to grind, which is empire-building and which has motives for its actions. Its usefulness has been destroyed, so I would destroy the Corporation. No longer do industrial companies have confidence in its impartiality and judgment.
I think that the international companies perform a vital rôle. The hon. Member for Epping is right: they can blackmail the Board of Trade concerning industrial development certificates. But the answer is to create the environment in which British companies can become international too, which is exactly what British Petroleum is doing in the United States. Under Treasury controls, British companies are restricted. They are tightly controlled in a way which the companies of our competitors are not. We must enable British companies to be become multinational companies as well and do exactly what American and other companies are doing. They are performing a useful function for the country. We live in an increasingly international world and our companies must be allowed to participate in it, which they are not allowed to do at the present time.
925 I have said only about half of what I wanted to say, but I will conclude. I congratulate the hon. Member for Epping on his speech and I hope that we shall have another opportunity of debating this subject at greater length on a future occasion in the near term.
§ Mr. Speaker
Again, I remind the House that four hon. Members have sat throughout the whole debate. I would like to call them if I can.
§ 3.15 p.m.
§ Mr. Julius Silverman (Birmingham, Aston)
I join other hon. Members in congratulating my hon. Friend the Member for Epping (Mr. Newens) on his initiative in having this debate, as well as on his speech, which has produced an extremely interesting discussion.
The hon. Member for Oswestry (Mr. Biffen) described the debate as one which touches broad philosophical matters. Of course, it goes beyond that. In my constituency, I have been affected twice at the plant at Witton, which is in the Aston constituency of Birmingham. At the time of the first G.E.C.-A.E.I. merger, there were redundancies amounting to 1,650 and new redundancies have now been announced which will amount to about 1,300. Here is a plant which for many years was part of the industrial structure of Birmingham but is being reduced by more than half in a matter of a few years.
What alarms me most is the feeling which one finds throughout the whole group—not merely at Aston, Willesden, Liverpool or Manchester—of uncertainty and fear—a feeling which pervades the whole of the group and its quarter of a million employees. This is an alarming situation in which one cannot get the morale and the assurance of the future which it is necessary to have to get proper production.
These people feel they are being moved about or thrown out of work. Plants close down and people are moved from one location to another like pawns on a board, sometimes for balance-sheet reasons and sometimes not even this, but merely at the whim of a small group of people who control the industry. This is an extremely unhealthy feeling to pervade an industry.
926 Not only that. I have already mentioned briefly the other side of the picture while the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) was speaking. Let us see what happened to G.E.C. shares when the merger was announced. On 30th August, the £1 ordinary shares were quoted on the Stock Exchange at 127s. 6d. They improved by 20s. 3d. per share in 10 days. One joint holding swelled by no less than £4,704,048 in a matter of a few days. I could go on quoting examples of capital accretions like that.
§ Mr. Silverman
That may be, but a person who bought could make an enormous profit in a few days with no productivity bargain tied to it. I do not know how this ties up with prices and incomes policy.
The worker inevitably contrasts his lot, as an employee who is dispensable and can be thrown on the scrapheap, with the shareholder who, out of the very announcement of the merger, can make substantial profits for no services whatever to the community. This sort of comparison is bound to be made, and is made. I know mergers will take place, Government or no Government. It is profit which accounts for the fever for mergers, much more than any Government initiative in the matter.
Nevertheless, I ask the Government to examine carefully, where are we going in this matter? A lot of things have been said about it. Does mere size produce efficiency? A number of hon. Members have spoken of that. Is the Government's method of analysing the economic consequences of a merger adequate? The Government ride two horses, for there are two main organisations. They can either jump on the back of the Monopolies Commission to stop a merger, or they can get the I.R.C. to promote a merger.
I would agree with hon. Members that we want one organisation to examine from every possible point of view of the national interest not merely the question of profitability, and of productivity, but the question of redundancy and the question of the consumers' interest—to examine all these aspects—instead of having different bodies considering 927 mergers from different points of view. I think that this should be initiated at the earliest possible moment.
Another thing. Once the Government have decided either not to refer a merger to the Monopolies Commission or positively to promote the merger, the Government's capacity to intervene has gone. They cannot do anything more about it. There is no public accountability whatever on the part of the companies. The Government cannot say anything about the policy; they have no representative on the board; they have no further right to intervene in the matter whatsoever. I believe there should be a continuing public accountability, a continuing right of the Government to intervene in the national interest even after a merger has taken place.
I say again that I am not condemning every merger, although for some of the mergers I do not know the reasons why, and I am very doubtful about the G.E.C.-A.E.I.-E.E.C. merger. I do not know, for instance, why, of the two separate cases mentioned today, the G.E.C.-A.E.I.-E.E.C. merger was sanctioned by the Government and the Allied Breweries-Unilever merger was not. There does not seem to be any reasonable basis for a comparison between them. I have a constituency interest in both. There is a G.E.C. plant in my constituency and there is one of the big breweries of Allied Breweries in my constituency, but I cannot understand the basis on which there is this decision. Most important of all, if the Government take any decision upon the matter they ought to have the right to continue to do so afterwards.
In addition to the Government's having a right, this Parliament ought to have a right, and in this respect I welcome the suggestion by my right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling). He suggested that this matter should not be considered by some extra-Parliamentary body but by a Select Committee of the House. That is a good idea. Hon. Members know the Sherlock Holmes story of the dog that did not bark. This House is a watchdog which barks very often, but very often barks too late, after decisions have been made, and we do our criticising afterwards. I would have thought that a Select Committee of this House actually investigating 928 these matters as they come along could serve an extremely useful purpose, and that that would be an extremely useful function for this House to embrace among its activities.
The Minister has mentioned retraining schemes. Whilst he may make a fair comparison between the present retraining schemes and those which existed before the Government came into power, the present schemes are not adequate to deal with the situation. In my constituency and in his, skilled and versatile people in Newton-le-Willows and in Aston are being displaced. Is there an adequate Government agency to assist their redeployment, to retrain them where necessary and to channel them to new employment to ensure that their skills are not lost? But we must first ask whether it is necessary for these closures ever to take place.
I hope that the Government will think again about mergers and that they will embark upon a policy to make these gigantic companies, embracing huge empires—a quarter of a million people in this case—accountable to the public. At present they are not. The position is rapidly arising when these huge conglomerations will make decisions upon questions of labour, employment and wages, leaving the Government behind. These great empires, whether or not they are created with Government assistance, should be accountable to the public, the Government should be able at any stage to intervene to ensure the public interest and that there is adequate consultation upon the employer-worker level.
§ 3.27 p.m.
§ Mr. Kenneth Lewis (Rutland and Stamford)
I congratulate the hon. Member for Epping (Mr. Newens) upon his speech and upon bringing this subject before the House. He had obviously done a great deal of homework on the preparation of his speech. Although one may not agree with everything that he said, it was an interesting speech to listen to.
Although he was complaining about mergers, the proposals which he put to the House would lead to bigger monopoly undertakings than we have already either in the private sector or in the national sector. With the increase in nationalisation which he and his hon. Friends were proposing, one came to the conclusion 929 that the private industry left outside the national sector would be quite unable to compete with the large monopolies that would be created.
Much has been said on both sides about the A.E.I.-G.E.C. merger. I hope that hon. Members will reflect upon the reason why the Government did not put this merger to the Monopolies Commission, as they should have done. The truth was that the Government wanted the merger of G.E.C. and A.E.I. to enable the Government, through the Central Electricity Generating Board, to purchase at a cheaper rate than was possible with the three companies, A.E.I., English Electric and G.E.C. This was the motivating force behind the merger, and I believe that that was the reason why the Government did not put it to the Monopolies Commission. My view is that every proposed merger should be referred to the Monopolies Commission.
In that connection, I hope that the hon. Member for Epping recognises that a great many forced takeovers are inevitable with the present regulations on close companies. Many of our smaller companies are being forced out of business and find that they have to sell off to the big boys because they can do nothing else.
Having dealt with that general point, there are two specific matters which I wish to raise. There are mergers, and there will be other mergers. It is interesting that the climate of opinion as expressed on both sides of the House today has changed somewhat. Only a few years ago, both sides of the House were saying that in order to compete on scale it was necessary for private industry in this country to merge. That was why the I.R.C. was set up. It is useful and desirable that there should be this swing the other way. Clearly, if it can be said that industry can be too small scale, equally it can be too big, and one has to seek a balance.
Accepting that there are mergers and will be more, it is important to make it clear to companies which are merging that it is in the national interest to preserve their separate identities. In the last few months, we have seen the takeover of Bristol Engines by Rolls-Royce. Having amalgamated, the two companies now say that there will no longer be such a product as a Bristol engine. It is a 930 name which is world-wide and a product which can be sold because of a reputation which has been built up in the past. It is a name regarded highly by workpeople in Bristol. I understand that they are extremely disappointed that this should have happened. When firms get together, it is to be hoped that they will try to keep the separate identities which the workpeople have been used to over the years, because it will not affect any increase of production by scale.
My second example is also taken from aircraft production. The Hawker Siddeley company has taken over De Havillands. The name De Havilland is to disappear. That world-wide name is to go. The well-known De Havilland Dove is now to be called the Hawker Dove. This is disappointing to the executives of De Havillands, and it is equally disappointing to the workpeople. Most of all, it does not help us in our world sales. I do not know what would happen if someone took over Marks and Spencer's. If the name "St. Michael" was to go, presumably the least that would happen would be another crisis in the Middle East. But if we are to have these mergers, it is important that the names of well-known products which are exported should be retained.
My second point touches on the question of redundancy. When companies merge, it seems that the first thing they think of is to get rid of the over-40s, and certainly the over-50s. This applies particularly among the technical and administrative grades. Such decisions throw on to the market people who are difficult to assimilate elsewhere, if for no other reason than the problems which arise with regard to their pension arrangements.
The companies that have merged keep the young men. If this situation continues we will have the position where merged companies have all the young men and others who have not merged are expected to make do with the over 40s and 50s. I suggest to some of these companies that it might be in the national interest, and therefore in their own interest, to dispense with people on a broad spectrum of age. They should get rid of some of the young men as well as some of the older men. If they get rid of some of the young men they will be providing industry with the kind of men that it wants. 931 It means that they can keep some of their young people and also some of their older men who have been with them for many years and, at the same time, put upon the market a mixture which will easily be assimilated by industry outside.
Finally, I do not think that mergers purely for the home market are justified. I hope that the Government and the Monopolies Commission will look with a very jaundiced eye at proposals for the amalgamation of companies not involved in export. I think that mergers of companies involved in export to highly competitive markets overseas, whether in Europe, America or elsewhere, can be justified. But what the home market wants is competition. If we are to allow mergers of companies not involved in export, we will reduce competition. With more competition on the home market we can keep prices down, help the national economy, and also assist in the stimulating of exports by those involved in exports.
With those comments, I again thank the hon. Member for Epping for enabling us to discuss, without making party points, the problems of mergers.
§ 3.38 p.m.
§ Mr. Laurence Pavitt (Willesden, West)
The Motion has concentrated on one of the winds of change which is blowing through industry in this country. In my constituency this wind happens to be a hurricane, so I am grateful to my hon. Friend the Member for Epping (Mr. Newens) for giving us an opportunity to discuss it. My hon. Friend brings to this subject a tremendous sincerity which burns through everything that he says, which I found not only illuminating, but certainly adding to the warmth of friendship that we have in this House.
Time precludes me from picking up many of the points which have been raised. I am sure that the hon. Member for Rutland and Stamford (Mr. Kenneth Lewis) will forgive me if I do not follow him too closely. However, I want to deal with Rolls-Royce later. The hon. Gentleman has a notable record for resisting takeover bids for small counties the County of Rutland in his own case.
I should like to pick up two small points raised by the hon. Member for 932 Wanstead and Woodford (Mr. Patrick Jenkin) who concentrated our minds on the anxiety which runs from top to bottom of the industrial ladder within all factories affected once a merger is announced. This is one of the key things which has run through most of the speeches since eleven o'clock this morning. Both he and his hon. Friend the Member for Oswestry (Mr. Biffen) claimed that there was nothing wrong with capital gains. I should like to point out that there is the possibility, when there is a takeover bid, of realising assets which have been written down in the books over many years but the sale of which may give an immediate capital gain, but which may nevertheless reduce the productive capacity which is possible in future years.
The second small point is that the hon. Member for Wanstead and Woodford claimed that the Stock Exchange is one of the best computers for assessing industrial needs. Before I became a Jack-of-all-trades in this House, I had a number of trades outside. When I ceased to be the boy who made tea in a stockbroker's office, I went on to the Floor of the Stock Exchange. I can assure the hon. Gentleman that the last place from which to expect accurate computerising is from the stockbrokers and stock jobbers if one wishes to assess some of our industrial projects.
I agreed with many of the comments of hon. Members for St. Ives (Mr. Nott) on my right hon. Friend's speech from the Front Bench. One of the tragedies of a mixed economy is that we often have a mixed speech from the Government, and I felt that nine-tenths of the speech of my right hon. Friend's would have been very much the same had it been made by the hon. Member for Wanstead and Woodford had he been on this side of the House. But I warmed to my right hon. Friend when he talked about matters in his constituency, and when, in his peroration, he dealt with the real and basic points referred to in the Motion. My right hon. Friend became alive and passionate when doing that, and if he can persuade his right hon. Friends in the Cabinet to move along these lines, we shall get much more progress towards the objects of the Motion than we have seen so far.
933 Both the Chancellor of the Duchy of Lancaster and my right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) talked about the need for adequate consultation. I suggest that what has happened in this whole spate of mergers and takeovers is that we have not gone in depth into what is meant by consultation. What happens is that the management makes a decision, and only after the decision is made is everybody called in, not to decide whether the decision is right or wrong, but how best to run down the factory and make arrangements which are the most humane to deal with the situation.
I suggest, therefore, that before a decision is made about closing a factory because of a proposed merger, or because of rationalisation, there should be a complete examination, not just from the point of view of profitability, but into the way in which the proposed action will affect the workpeople, the community, and the nation generally. As my hon. Friend the Member for Epping said, at the moment profitability seems to be the only criterion. Most of us are concerned with social and local consequences, and what happens in that respect is the last thing that seems to be considered when a decision is being made.
A large bill is often paid by ratepayers and taxpayers because of what happens to the community being altered in its industrial context. A classic case of this is the way in which, just after the war detergents companies made a bomb out of selling things that made more soap suds than anything else. As a result, in the 'fifties the community had to pay for rivers to be cleared of sludge due to our inability to control the amount of effluent discharged as a result of large scale domestic use.
Mine is a highly industrialised constituency, but if we are not careful, Willesden will become a waste land. I have in my constituency two large factory estates on which factories are closing left, right, and centre. The difficulty is that because of bad planning in previous years we cannot suddenly switch the buildings and sites vacated to the necessary houses, hospitals, and other things that the community needs. This is because the way in which Park Royal and North Circular industrial areas are laid out do not permit 934 the building of residential accommodation. There are five large Employment Exchanges in Willesden—Wembley, Harrow, Camden and Marylebone. My constituents may be working in any of these areas, in the same way as the constituents of the hon. Member for Wembley, South (Sir R. Russell) may be working in Willesden. Since July 1965, 37 factories have closed in Willesden alone, and 5,817 people have been made redundant. In addition, thousands have been made redundant through rationalisation and redundancies in factories which remain open and in concerns which are not factories, such as Radio Rentals, which has a large number of employees. What is happening is that an area which had a certain balance, no longer has that balance and if we are not careful the social consequences will be extremely severe. This is not just a question of redundancy payments, but of the way in which the community is so altered that it is not as viable as it was before.
One of the biggest closures was due, not to a merger but to a takeover. I have in mind the E.N.V. engineering company which, in 1962, was taken over by an American firm, as a result of which 1,366 people were made redundant. In 1962 I raised with the President of the Board of Trade the fact that as control rested in America, would this affect workers in my constituency. The Board of Trade under the Conservative administration gave me a reassuring reply that this take-over was a good thing. Three years later I found that the factory was being closed because of a decision taken not here, but somewhere in America. I have here a long list of closures covering two pages, giving instances where decisions were taken purely on the basis of profitability and without any regard for social consequences.
The hon. Member for Rutland and Stamford referred to Rolls-Royce, and I want to refer to a specific case affecting my constituency. Nearly 600 people will be made redundant as a result of the closing down of the Rolls-Royce factory in Stag Lane, Edgware, where many of my constituents work. As the hon. Member for Rutland and Stamford said, this was originally De Havilland's; it was then taken over by Hawker-Siddeley and then Bristol-Siddeley, and then by Rolls-Royce.
935 The possibility of rationalisation was discussed inside the factory a year ago, and as a result the management told its workers and various design teams engaged by it, "Providing we can have a sensible approach and co-operation in improving efficiency we think that we shall be able to keep the factory open." Co-operation was forthcoming 100 per cent.—so much so that two days ago on the notice-board was pinned a telegram congratulating the workers on their tremendous efforts, which had enabled the Concorde to fly last week. Nevertheless, in spite of all their co-operation and collaboration, 600 people are likely to be out of work shortly. Thank you for the telegram, and thank you for co-operating to keep this factory working; nevertheless, the decision has been taken upstairs that the factory cannot remain open.
This, coupled with the rumour that Sir Denning Pearson is in Japan to try to find production potential for Rolls-Royce products or subsidiary component parts, when we are desperately seeking to improve our own industrial capacity to export, makes nonsense.
I want to refer briefly to the point made in the Motion concerning the safeguarding of the consumer. We have had the Monopolies Commission since 1948. It has now reached its majority and gets the key of the door. It is 21 years old. It has cost between £1 million and £1½ million to keep going. When I asked a Question last week to find what it had done to protect the consumer I was told that it had considered 51 reports in 21 years—just over two a year—and had taken action in only four cases—in respect of dental goods, imported timber, a certain arrangement within the tobacco industry, and Solus petrol. If this is regarded as protection for the consumer in return for the expenditure of £1½ million under an Act of 1948 I consider that there is good reason for putting down a Motion such as that which we are now debating.
I welcome the fact that only in the last few days the membership of the Commission has been increased by my right hon. Friend the President of the Board of Trade, and that there are now 20 Members. My right hon. Friend has strengthened 936 the Commission, and I hope that it will be more effective. The fantastic thing is that once again the Commission, which is supposed to protect the consumer, has only one consumer on it. The other members come from different spheres, mostly from industry. It seems to me that although we are trying to obtain a measure of control over the Establishment, if the Establishment cannot beat us it joins us and, as a result, in spite of all our good intentions in putting legislation on the Statute Book we are back at Square One. This happens time and time again. When Sir Solly Zuckerman suggested setting up a committee on audiology to advise on questions of audiology in the National Health Service a committee was set up with 15 people who were not audiologists and only one who was.
My Government have tried to solve these problems, but on every occasion the action taken is sans teeth and sans almost everything. This brings my Government into disrepute, and I do not like it. In four-and-a-half years the Government have sought to improve matters in respect of monopolies and mergers, but whenever they have grappled with the Establishment the Establishment has always won. Whenever we consult the "interest" the interests win. They persuade the Government to take a different course of action.
I agree with my hon. Friend the Member for Epping. The debate has been first-class, because we have discussed vitally different philosophies. The contributions of some hon. Members opposite, expressed from a Conservative viewpoint, have been first-class, because the differences between the two parties have been put into proper perspective. I have had enough of "me-too-ism".
It is time that we were able to show in this House the difference which exist between us. It is time that we stopped euphemisms and talking about public accountability, general participation and public partnership. My hon. Friend the Member for Epping was right. He talked about Socialism. That is what the Motion is about.
We cannot afford to have our teams of skilled workers, who have done so much for the country in exports, broken up because profitabilty is the only criterion. 937 We want not only to own, but to control the ownership of industry and the direction in which it goes, in the interests of the nation. That is what matters and not whether it suits one small sector. It is the Government's responsibility to ensure that that is done.
The Motion puts us fairly and squarely back to the principles for which we stand. It is not something which we talk about at Labour Party conferences once a year. It is like religion: to be meaningful one does not observe it only on Sundays but seeks to practise it in positive action. If the Motion means anything, it means that when action and decisions of practical importance have to be made, they are taken by a Labour Government in the light of its faith. I wholeheartedly support the Motion.
§ 3.51 p.m.
§ Mr. Arnold Gregory (Stockport, North)
I join my hon. Friend the Member for Willesden, West (Mr. Pavitt) and other hon. Members on both sides of the House in thanking my hon. Friend the Member for Epping (Mr. Newens) for an excellent introduction to the debate.
We can take into account the words which have been used today in describing how serious a matter this is in all parts of the country. One hon. Member described it as merger madness. I was listening closely to the words of my right hon. Friend the Chancellor of the Duchy of Lancaster when he described how near this sort of problem had approached his own shores—the very problem of takeover, the ever-expanding size of industry and the ways in which that problem presents itself.
In the few remaining minutes, I wish to refer to the kind of language which is now associated with mergers. My right hon. Friend said that efficiency was rather a guiding light. When my hon. Friend the Member for Epping introduced the debate, he stressed the humanitarian side of the problem. That is the aspect which concerns me.
When we deal with mergers in the North-West, they are not only over a wide range of engineering, in which we have also seen the agonising developments since the war of diversification in all forms of engineering in the North-West, but we have seen the effect of takeovers and mergers in the cotton industry.
938 We are, therefore, battling for survival in the North-West on two fronts: in the more sophisticated industries which have cost a lot of money in investment and capital development, and in the struggle to allow the cotton industry to survive. We know what it is like to see rationalisation, modernisation and compensation and other schemes developed in influencing the trend of industry in the North-West.
It is significant that in the debate today we have had two or three speakers on this side of the House from the North-West. One was my hon. Friend the Member for Stretford (Dr. Ernest A. Davies), whose constituency is so near to the big A.E.I. complex in which I served my engineering apprenticeship. I know only too well the influence of that great factory on constituencies like mine, probably ten miles away from it, and what its massive intake means to that kind of conurbation build-up. We are naturally concerned when this kind of thing goes on, whether in textiles, aircraft or nuclear engineering. We certainly look closely at what Mr. Weinstock said in his annual report on reorganisation following the A.E.I. takeover.
It is the language of the thing which matters and question of effective communication. One of the difficulties of moving things from the corridors of Whitehall to local level, to trade unions and factory bodies, is that we are always struggling for language to communicate with people who are struggling for a living in industry. We have seen this in the cotton industry and now in reorganising the engineering industry.
I should like to quote the language used by Mr. Weinstock on the reorganisation following the A.E.I. takeover. He said:The management of your company operates on the basis that it is obliged, regardless of personal considerations and separate traditions and habits, to ensure as quickly as possible the best use of all resources committed to its charge.What did Mr. Weinstock mean when he said "regardless of personal considerations"? Was he speaking of the shaping of company policy or was there a suggestion of ruthlessness which followed the cutting down of the A.E.I. organisation?
We are not arguing that we should hold a labour force without consideration of market requirements. We know that 939 industry will depend on the markets. But I have already pointed to our vulnerability in the North-West because of the change from traditional industries to new industries. We need to look at the kind of engineering industry which has developed in the North-West. In this respect it was interesting to read an article in The Times on this subject in the middle of last year, in which the writer said:Lancashire, Cheshire and the High Peak District of Derbyshire account for about one-eighth of the total capacity of the engineering industry of the United Kingdom. At least one in every eight workpeople in engineering is employed in the North-West. Of the region's working population of three million some one in six are employed in some branch of engineering.It is interesting to see what kind of engineering provides this employment. When we note what is happening with A.E.I.-G.E.C, we recognise the rôle of the big organisation, and the kind of industrial performance required and its relationship to the ordinary man in the North-West seeking to earn a living. There is textile machinery, electrical machinery, mechanical handling equipment, wire and cables, agricultural machinery, ships, aircraft, commercial vehicles, locomotives, telecommunications, equipment and machine tools—all heavy goods, all large intake capacity workshop goods involving very high capital cost and demanding large internal purchases and overseas customers of equal magnitude. On the other hand, only a relatively small proportion of the engineering activity is concerned with the direct manufacture of such consumer goods as radio sets, television sets, refrigerators, vacuum cleaners and bicycles.
940 In the North-West we are looking for humanity in industry. We want to ensure that there is not too rapid a change of the industrial structure as a result of the kind of industry which we have seen developing there. We have seen the replacement of old industries and we have seen considerable diversification, as well as the running down of the cotton industry.
Hon. Members have not spoken today of Courtaulds' bid for English Calico. That merger is suspended in order that the report may be considered by the House and those bodies responsible for policy, but we have to bear in mind what is happening in the recasting of the textile industry in the North. The productivity aspects of that report will have a vital bearing on the future of the industry. Sir Frank Kearton and Courtaulds will no doubt consider the report and say what the next stage should be in Courtaulds' rôle in the textile industry.
But do we really welcome what happens between G.E.C. and A.E.I. and what Sir Frank says about the takeover deal of English Calico? The more important question is the kind of say that we have. This is the challenge which hon. Members on both sides have faced today. We are asking for accountability, for greater democratic control within the industry and certainly the right of Parliament not only to have the ability to anticipate and react to what happens——
§ It being Four o'clock, the debate stood adjourned.