EUROPE (INVESTMENT AND REGIONAL AID) (Hansard, 10 December 1971)

§ Mr. Christopher Tugendhat (Cities of London and Westminster)

I beg to move, That this House urges Her Majesty's Government to initiate discussions for the more effective provision of investment incentives and regional aid with other European governments. I have been very flattered by the references to me made by Labour hon. Members from time to time. But I think that the ideas I shall develop in the brief time left to me are not precisely as some of them suggested.

It is very difficult to make a completely non-controversial statement in the House even when there are as few hon. Members present as there are now. But I am sure that everyone will agree that one important thing this country needs is more investment. That was the theme of the debate which has just ended. Because the country needs more industrial development, there is a great danger here and in other countries that Governments will find themselves in the impossible position of competing against each other for the mobile investments of international companies, investments which could be placed in one of several countries. We could see a situation developing in Western Europe, which we have already seen in the United States and the Third World, of Governments finding themselves competing with each other to attract companies to put their plants in the area for which those Governments are responsible.

The danger arises from the nature of modern industry itself. I attribute no sinister motives to the industries concerned nor even to the Governments concerned. The danger arises because modern economies are so very dependent on quite a small number of very large companies operating on what Lenin and subsequently Aneurin Bevan described as 1778 the "commanding heights of the economy". One thinks of motor manufacturers, the oil, chemical and computer industries, for example. These industries do not, of course, account for the overwhelming bulk of investment in a particular economy nor even for most of the jobs. But they do create the investment on which the rest of the economy tends to be based.

When a very large company like Shell announces an expansion at one go of £200 million in its chemical activities, or Alcan builds a smelter worth over £40 million, the effects of these orders are felt through the economy. It is not simply the jobs which Shell creates on the site on which it is expanding; it is the effect which its order has in generating demand for components, raw materials and supplies right across the economy.

It is estimated that in the Federal Republic of Germany one in seven of the working population is in one way or another dependent on the motor industry. Obviously, the bulk of them are not actually working for Ford or Opel or one of the other big manufacturers but for companies which supply them. Therefore, it is true to say that the effect of Ford and Opel on the German economy is out of all proportion to the scale of their own investment or the number of people they employ. Precisely the same applies in this country.

Another way in which these very large companies have a very important effect on the economy is the fact that they are in a position to allocate exports to one country or another. There was a time in the 1960s, before the introduction of the American compact cars, when Ford supplied the American market with cars built in the United Kingdom, while General Motors supplied the American market with cars built in Germany. The result was that the British subsidiary of General Motors was unable to supply that large American market, while the German subsidiary of Ford was, in its turn, unable to supply it either. This is, indeed, a tidy example of the allocation of markets and it is something which occurs all the time and which one understands. A company obviously does not want its own subsidiaries competing with each other all over the world all the time.

1779 But the effect of such a decision has profound polictical implications. By the scale or economic importance of their investment, and by their ability to allocate export orders, these companies have a profound impact on a modern industrial economy, and there is, I think, as a result, a great danger that Governments will find themselves competing for the favours of such companies. Indeed, one does not have to say that there is a great danger. Some of the more outspoken or perhaps least tactful of business men have from time to time mentioned this advantage. I am thinking in particular of M. Arnaud de Vogue, President—at least, in January, 1970—of the French-owned St. Gobain. He said: There is a little game which consists of a multi-national company doing the rounds of all European countries to find out which will offer the most advantageous terms for a given implantation. The States find themselves competing with each other. That situation is still to some degree exceptional and applies in large part only to the very small countries. But when one sees very small countries in this position one feels that perhaps the larger countries may not be far behind. One has only to look at the newspapers, especially those aimed at the business community in particular, to see countries like, for example, the Republic of Ireland advertising quite openly the extent to which their tax systems are tailored to meet the demands of business, which might prefer to set up there rather than in this country.

But taxation is not the only area in which this danger can exist. My right hon. Friend the Secretary of State for Trade and Industry, when interviewed on television in the "Money Programme" not long ago, pointed out that there is also a danger that countries would tailor their pollution control, their industrial safety regulations and various other matters of this kind in such a way as to attract particularly the favours of large companies with international mobile investment. We all need and want these investments, they bring jobs and export orders and they spread technology and provide a great many benefits of various kinds.

But it is important that the traditional relationship between the Sovereign, the 1780 Government, on the one hand, and the subject, the company on the other, should be retained. If this traditional relationship between the Sovereign and the State is to be maintained in this context then it is essential, if business is multi-national, for Governments to some degree to operate across frontiers, too. Obviously a national Government cannot expect that its writ should run beyond national frontiers. That would be quite impractical. What can be expected is that Governments should co-operate to a greater degree in ensuring that they do not compete with each other in their investment incentives and efforts to secure the favours and investments of large companies.

It is not necessary for there to be any particular international institutional framework within which this co-operation takes place, but at the same time it is clear that it is easier for Governments to operate in matters of this kind when there is such a framework within which they can co-ordinate their activities. As the moment one of the most suitable frameworks within which this Government can operate is the European Economic Community.

Fortunately the European Commission is already seized of the dangers of Governments competing with each other for internationally mobile investments and it recently announced the first steps towards a common policy which is due to come into effect in January, 1972. It is designed to limit the extent of incentives to ensure that they can be compared with each other and to ensure that the development areas in the Community—that is the Community of the Six, but it would also apply in a Community of Ten—are helped by incentives rather than the central areas. Obviously in any such policy it is essential to ensure that development areas, whether in the North of Scotland or the South of Italy, should be the ones to gain rather than the central areas whether they be the South-East of England or the Ruhr, Benelux and so forth.

It is a good thing that the Commission has realised the importance of this policy and it is one of the areas in which I would expect this country to stand to gain the most from joining the Common Market. It is also important to realise that the Common Market by 1781 itself, even a Common Market of Ten, is quite inadequate for this purpose. No policy designed to deal with the problems created by the spread of international companies can possibly be effective if it is restricted to 10 countries. It can be effective only if it also includes Canada and the United States, Sweden and Switzerland and the other industrial countries outside the Community. This policy will be helped by Britain's membership of the Community but Britain must continue to seek international co-operation in this matter, not only in the Community but beyond it.