§ Order of the Day for the Second Reading read.
§ 3.0 p.m.
§ VISCOUNT HALL
My Lords, I am afraid it is too much to hope that I can 149 describe this Bill as a non-controversial measure, but there is one thing on which I think your Lordships will agree with me: that the Bill deals with a very important industry—that of cotton—and concerns the industrial life of a very important part of the country— namely, Lancashire. The cotton industry does not now play such an important part in the industrial life of that county, and the economic life of the nation, as it did some twenty years ago, when it gave employment to nearly 700,000 persons, and when in the spinning section alone there were some 600 firms employing 250,000 workers.
In 1935 the value of the output of this industry, in all its various sections, was some 4.5 per cent. of the total output of British industry and the value of its export was 14 per cent. of the total. To-day, in all sections, the industry still employs well over 200,000 persons —in the spinning section alone, 95,000—and it still provides some 7½ per cent. of our export trade. With the peoples of the various countries—including our own—clamouring for consumer goods, this total production could be very largely increased, were it not for the fact that the amount of labour available is insufficient to satisfy that demand. Following the depression of the 1930's much rationalization has taken place and many spinning firms have disappeared. But there still remain some 280 firms, many of them small and unco-ordinated, which comprise the spinning section of this industry. If the recommendations of the Working Committee, which have recently reported upon the cotton industry in Lancashire, are implemented, as they may well be, the number might be reduced to below 200.
In general, the industry falls into the following sections, though in some cases some firms may carry on several of them. First, there is the purchasing of raw cotton; secondly, the spinning of raw cotton into yarn; thirdly, the weaving of the yarn into cloth; fourthly, the bleaching, printing, dyeing and finishing of the cloth; and, fifthly, the marketing for the home and export market. The Bill, the Second Reading of which I am moving this afternoon, is concerned only with the first stage, that of purchasing, and the sale to the spinners of the raw material. Before the war the Lancashire spinner bought his raw cotton from merchants who operated the free market in Liverpool. 150 This system had operated for nearly one hundred years. It may have been a good enough instrument in the nineteenth century, when the products of many thousands of cotton farmers, subject to innumerable hazards, had to be brought somehow to thousands of freely competing small-scale spinning units, but during the past thirty years conditions have been changing; there has been a growing community of interest between the producer of raw cotton, the manufacturer, and, indeed, the consumer. This interest has been created with the desire and intention to eliminate what might be regarded as the parasitical middle-man. This development is not confined only to the cotton industry. The same can be said of some branches of agriculture, and, indeed, know it can be said of some selling of coal, even under private enterprise. I could give many experiences of the sales agent of coal who made almost double and treble the profit made by the colliery company which produced the coal—and, indeed, a sum on every ton of coal far in excess of the amount paid to the miner who had to produce it.
Thus the free market for some time was becoming far less indispensable than it had been in the nineteenth century. Even before the war some of the textile organizations were buying their requirements direct without using the market intermediary. It can be said that the Liverpool market has been notorious for speculation and speculators, many of them outsiders who had nothing at all to do with the cotton industry, either the production or the manufacture, and many of whom made considerable fortunes. Of course, as might be expected, some incurred losses as a result of the fluctuations in the price of cotton. These market fluctuations are of no benefit to the manufacturer. What the manufacturer needs is to be able to purchase the right kind of raw cotton at a stable price, so that he can safely make his contracts for months and, in some cases, for years, ahead.
The Liverpool Cotton Market was closed in 1941, owing to war conditions. Shipping, and to some extent currency, controlled the sources from which we could purchase, and limited the amount of our purchases of raw cotton. It was, therefore, essential to ensure that the cotton which could be imported was of the type most needed to provide for war-time re- 151 quirements. From that date the Government became the sole importer in the country of all stocks other than consumer stocks, which were requisitioned. Thus the continuance of either the spot or the futures market became impracticable, as neither could function without stocks of raw cotton. Since that time—and indeed to date—the Cotton Control of the Board of Trade have continued to import all requirements. During the war period the distribution to spinners was carried out by the merchants, as agents of the Control, and for this purpose they were paid a remuneration which, together with the buying brokerage paid them by the spinners, enabled a nucleus organization to remain in existence. At the end of the war the Liverpool and Manchester Cotton Associations pressed for a decision in favour of the opening of this market, but the Government decided, after very serious consideration, that cotton centralized purchase would be the best method by which this country could secure its requirements of raw cotton, and also that it was in the best interests of the cotton industry.
As I have said, the systems of private purchase and futures market which prevailed before the war were open to substantial objection. They gave opportunities for wide and undesirable speculation; in too many cases the dominant objective was to serve the interests not of the Lancashire spinner but of the gambler in cotton prices, and they failed to adapt their methods to the changing circumstances of the times. The Government are satisfied that the form of centralized purchase which has operated sucessfully during the war will enable the cotton requirements of the industry to be supplied in the future at least as economically as by private enterprise, and with a greater certainty and regularity. It will also, in the opinion of the Government, give the spinner that stability of price which is vital to him if he is to make firm quotations to his customers without the risk of losses due to market changes over which he has no control. The purpose of this Bill, therefore, is to continue the centralized purchase of cotton by establishing a Raw Cotton Commission substantially to take over the functions, now exercised by the Board of Trade, of buying, importing and distributing all the raw cotton required by the cotton industry and other users in the United Kingdom. It 152 prohibits the import or sale of cotton other than by the Commission. There are some exceptions —cotton imported for re-export, and sales for that purpose—but generally the position is that the Commission are the sole importers and the sole distributors. Thus it will be seen that merchants are prevented from acquiring stocks of cotton, and in effect any re-opening of the Liverpood cotton market is prohibited.
Clauses 1 to 4 of the Bill provide for such a Commission, giving it the necessary powers to carry out the functions to which I have already referred and to inflict penalties for contravention of those powers. Clauses 5 to 8 provide for the constitution of the Commission, which is to be a body corporate with the requisite legal powers and status. The Commission will have their principal office in Liverpool, with a branch in Manchester. This implements undertakings given by the Government that the Commission's administrative headquarters should be in Lancashire, to serve Lancashire and the great textile industry of that county. The Commission will consist of a Chairman and one or two independent members, who will devote their time primarily to their duties as members of the Commission. The intention is that while the Chairman may be drawn from outside the industry, the other two independent members should have cotton experience. One of them will probably look after the buying side and the other the distributing side. There will also be appointed part-time members of the Board, not exceeding ten in number. This will be a very representative body. Although the membership is, of course, not yet determined, it will possibly include representatives of the spinners, of the weavers or cloth merchants, of the cotton merchants or brokers, of the trade unions concerned, and also men of industrial, commercial, financial or administrative experience, together with a member of the Cotton Council when this is established. Clause 8 requires that the Commission should make an Annual Report to the Board of Trade as soon as possible after the end of the financial year. A copy of the Report will be laid before Parliament, and it will cover every aspect of the Commission's activities.
Clause 9 deals with research. It may be said that science has come to the aid of the cotton industry, as it has come to 153 the aid of all industries which are prepared to use it. The raw cotton is graded, selected and packed now as it has never been done before, and many spinners are content to buy on description. The value of research, properly directed and intelligently carried out, particularly to an industry such as this, cannot be overemphasized. The cotton industry is fortunate in having two organizations which, between them, cover the ground—namely, the Empire Cotton Growing Corporation and the Shirley Institute. The Empire Cotton Growing Corporation are shortly establishing a new research station in Uganda, which is perhaps the most important of our colonial cotton-producing territories. Its research covers the study of both plant breeding and the methods of production. It seeks to improve the yield per acre, the spinning qualities and, above all, to deal with the pest resistance of the cotton grown in the Empire, as well as to ensure the maintenance of soil fertility; that is, to see that cotton cultivation forms part of a sound system of peasant cultivation. The work of the Shirley Institute is really complementary to that of the Empire Cotton Growing Corporation. Its research is sponsored by the Director of Scientific and Industrial Research, under the Lord President, and it has no real counterpart anywhere else in the world, being uniquely equipped to investigate both the physical and other properties of every type of cotton and also its spinning qualities. Samples of new types of cotton are regularly submitted to the Institute for its examination and report, and its advice is continually sought, not only by growers and spinners but also by the Cotton Control. It is expected that the Commission will keep in very close touch with these research organizations and will make frequent demands upon their services.
Clause 10 empowers the Commission to continue the cover scheme, which was introduced in 1941 and extended in 1946. Under this scheme the spinners in the United Kingdom are protected against risk of loss arising from the changes in the selling price of cotton. At present, the scheme covers spinners only, but this clause empowers the Commission to extend a similar cover scheme to other sections in the industry should they think fit. Clause 11 provides that the Commission may act as agents for the Board in buying, importing, holding, and treating, so 154 as to render saleable cotton linters and cotton waste. We import almost all of the cotton linters, which are very important to industries such as rayon, plastics, paper, surgical dressings and felt, while nearly two-thirds of the cotton waste used in this country is produced from spinning mills and weaving sheds here. It is merchanted privately by the mills where it arises and is sold to merchants, who in turn sell to waste-spinning mills and other cotton waste users. It is not proposed to interfere with this arrangement. This clause also empowers the Commission to act as agent for the Government in supplying cotton to overseas countries. We have in mind here the need for some machinery to enable us to procure cotton for Germany during our occupation period, and possibly for other countries as well.
The remainder of the clauses provide for the transfer of cotton assets from the Board of Trade and include the financial provisions. The assets to be transferred are in two categories, the first comprising stocks of raw cotton, and rights and liabilities under contracts for the sale and purchase of cotton. It may interest your Lordships to know that at the present time the amount of cotton in stock in this country is some 1,500,000 bales, with 250,000 bales in transit and 500,000 bales bought in foreign countries—a very substantial amount. I do not propose to take up much of your Lordships' time in a detailed explanation of the financial structure of the Commission, other than to say that it is intended that they should have adequate resources, which will amount in the aggregate to about£200,000,000. It is estimated that the value of the stocks which will be taken over by the Commission from the Cotton Control may be about£80,000,000 in value, but they will start with little or no cash in hand other than the Reserve Fund, about which I will say a word later.
They will, of course, be receiving a steady flow of income from sales to spinners. The amount will be subject to alterations in selling prices, but it should maintain a fairly steady level. Outgoings on purchases, on the other hand, may well be extremely variable. With a seasonal crop like cotton there are tunes of heavy buying, and at peak periods large sums of money may be outstanding. Moreover, as the experience of the inter-war years shows, cotton prices are liable to very wide 155 fluctuatións. For these reasons, ample provision for advances must be made, and a power to borrow up to£85,000,000 over and above the value of the stock initially taken over seems to us to be reasonable. Advances on capital account are limited to some£10,000,000. Then there is a reserve fund which may amount to some£25,000,000. The Commission will be taking over their cotton stocks at a time of high prices, and at a valuation which reflects their appreciation since April of last year. The appreciation in price of the stocks, together with the profit made by the Control, amounts to a figure of some£24,000,000. This fund will enable them, if necessary, to write down these stocks when prices fall again, as sooner or later we expect they will. But owing to the rising prices and wise buying, profits on cotton sold by the Council during the financial year ended April 1, 1947, as I have already pointed out, are estimated to exceed£10,000,000. This sum forms a substantial part of the reserve fund.
There is only one test, which can be. applied to these proposals, and that test must be this: Can this Cotton Commission serve the cotton industry, the employers, the workpeople, and indeed the nation. better than could a return to the old method of speculative gambling which existed before the war? We think they can, and we think they will prevent many who made very little contribution to the wellbeing of industry taking large profits from the industry without taking any responsibility. It has been stated that the Liverpool and Manchester Cotton Associations received between them some£2,000,000 per year in profit. They employed some 350 principals and 3,000 employees to provide the raw cotton requirements for the spinners. This figure does not include the labour required for warehousing and handling. Someone had to pay the profit received and find the remuneration for the persons referred to, and there is no doubt that a substantial part of that came from the cotton industry itself. It is the view of His Majesty's Government that a single buyer will provide not only the service given by the Liverpool and Manchester markets, but will provide much more adequately and more cheaply the raw cotton required. The first example of that is that the actual staff to be engaged by the Commission 156 will be reduced to about one-tenth of the numbers employed under the old system. That will enable the buying to be much more economical and the spinner should get the benefit of this economy. Another advantage is that instead of prices of raw cotton fluctuating from day to day, as they did in the pre-war days, there will be stability and security given to the spinner.
§ VISCOUNT HALL
If the noble Lord will be patient I will inform him of the fluctuations over the last six years.
§ VISCOUNT HALL
Then the noble Lord knows the answer to his question. Security is what the spinner greatly desires and it is something which he has received since control commenced six years ago. It is interesting to note that there have been five—and only five— changes in price during the whole of that period.
§ VISCOUNT HALL
Two of the changes were to reduce the price of cotton and three were to increase it. So far as can be ascertained, there has been little or no complaint from the spinners about the operation of control. Some complaints, of course, have been made concerning the quality of the cotton delivered, and complaints have been made that the spinners were not able to have the wide range of quality which they desired. But, so far, of the administration itself there has been little or no complaint. So far as the quality was concerned, that was inevitable, as many of Liverpool's warehouses were destroyed by enemy action and others were taken for the storage of food. For years the bulk of our raw cotton stocks has had to be stored in open sites without adequate protection. There have been no facilities for sampling before delivery to spinners but, on the whole, spinners will admit that under war and post-war conditions they have had a very good deal.
It is the desire of His Majesty's Government that the industry should have every opportunity to re-establish itself, to increase in importance and to increase its output of consumer goods which are so urgently required by the people of this and other countries of the world. At the same time the Bill will ensure that there will be no opportunity for speculators to 157 dabble in the fortunes of this great industry and that the cotton to be provided to the spinners will be available without having to bear the expense of unnecessary passengers. I beg to move that the Bill be read a second time.
§ Moved, That the Bill be now read 2a (Viscount Hall.)
§ LORD CHERWELL
My Lords, As I said on a previous occasion, when a man chooses a quack doctor it is no use endeavouring to prevent him from trying to use the quack's nostrum. The only thing is to let him take a dose and hope that the patient will survive the ministration of his chosen practitioner and, having observed the failure of the promised panacea, will revert to a more sensible cure. Naturally I do not want to carry the analogy too far. I do not want to suggest that Ministers on the Government Bench are quacks in the sense that they are selling a panacea which they know to be useless, merely for the sake of gain. They have told us often enough how much they despise the profit motive. I maintain that they are deluded by their own catchwords and that they are administering to the unhappy British people a dose of the nationalization nostrum without any evidence as to its value or to its healing power. No doubt they honestly believe it will be beneficial. We feel equally confident that it will be deleterious. This determination to nationalize cotton buying is only one small instalment.
We do not intend to divide against the Bill, for two reasons: first, only bitter experience will convince the electorate of the futility of this fallacy; secondly, this particular piece of futile dogmatism is capable, we hope, of reversal and repair. Whether Liverpool will ever regain its pre-eminent position as the focal point of the cotton trade is another question. Those abroad may have seized this invaluable international asset. In the noble Lord's introductory speech I found no logical argument in favour of this measure. He has given us certain diatribes against speculators and the evils of speculation. They are like complaints about the man who insures his life for speculating upon the anxieties and dangers which beset him. You might equally well say that those who invest in a life insurance company or form a life insurance company are speculating to the disadvantage of those who insure their lives.
158 The noble Lord said one criterion should be whether this proposal will give the cotton industry a better service than before. On the other hand, the President of the Board of Trade withdrew consideration of this matter from the Cotton Working Party on the grounds that it was a political issue and did not involve an economic decision at all. We have yet to see any economic evidence that this proposed measure will give the spinners more cotton, better cotton, cheaper cotton, than they have had. It derives simply from the doctrinaire conviction that what is done by the servants of the State who are secure in their position is always well done, and that what is done by a man because it profits him to do it well is bound to be badly done. It is a very broad premise. You might almost conclude from it in logic that Ministers should have civil servants to deliver their speeches for them instead of speaking themselves. I do not think we have had any evidence in the speeches we have heard from the opposite Benches that people who make speeches on which depends the success of their jobs do it less well than if the speeches were read by civil servants.
If we propose not to vote against the Second Reading of this Bill, we do so because we think the country must be allowed to taste and test the medicine of their preferred practitioner. It is our duty to point out that we believe it will have most unfortunate results and to give the reasons why we take this view. We believe the closing of the Liverpool Cotton Exchange is most foolish for two reasons. First, it will hamper and handicap the cotton spinners, and secondly, it will cost the country a very large amount in foreign exchange which we know cannot be afforded at the present time. First let me consider the handicap to the cotton spinner. When the Cotton Exchange was functioning, any increase in the demand for any particular type of raw cotton could be met by increased purchases in the countries producing the particular types in question. Constantly varying requirements were reflected inconstantly varying day-to-day purchases, and a steady equilibrium could be and was achieved between supply and demand. By a highly developed process of buying and selling futures, in the admittedly to some extent speculative futures market, it was possible to insure against any change of price 159 between the date of the contract and the date at which the raw cotton was used. Thus, the spinner could be sure of effectively getting his cotton at the price ruling at the time when he had to quote for the yarn, no matter what fluctuations of price might occur.
How does the Government propose to deal with this? As I understand it, in place of this simple method an elaborate Government scheme is to be introduced. Every Saturday every spinner is to send to the Commission a list of all his holdings of cotton of each type, and his liabilities as determined by his outstanding contracts for yarn. If prices are raised he is to be credited for every pound of cotton he holds in excess of his liability; if they fall he is to be debited correspondingly. I dare say that by this means the spinners may insure against price fluctuations, at the cost of an immense amount of paperwork and bookkeeping. But who will pay the piper? I should say the Cotton Commission, because unless they enjoy a most highly developed second sight, and foresees exactly how much of each of the various types of cotton will have to be purchased, they must buy an excess of every sort, and carry gigantic stocks of every variety in warehouses in Liverpool. But, quite apart from questions of the cost of storage and depreciation, any such endeavour would be bound to result in enormous wastage of unwanted varieties purchased in excess. And unless the Treasury are to subsidize cotton buying and make the taxpayer pay the difference, the loss incurred in this way must be added to the average price of cotton sold, which means that the spinners will have to pay more for their cotton than would have been necessary under the old system. That would be greatly to the detriment, obviously, of their power to compete in the export markets.
I have been assured that we have an instance of the result of Government intervention of this sort in the wool trade. Under bulk buying the wool was sorted into ten or twelve grades, each of which was put on the market at a standard price. Naturally, the buyers selected the best samples in any one grade, since they had to pay the same price for it whether they needed the higher quality or not. The result is, I am told, that the Government are now landed with large quantities of 160 wool of low quality in each of the grades, which they find very hard to sell. This is the sort of thing that is bound to happen with cotton. The noble Viscount has told us that fluctuations of prices brought no benefit to the manufacturer. That is perfectly true, but how are we going to abolish them? He said that what the manufacturer wanted was stable prices. These, he said, were vital. That also is true, if you can ensure them all over the world. If you are dealing with England alone—that is, the home country—then the Commission can fix the prices and the consumer can pay accordingly.
But what is to happen when the manufacturer has to deal abroad, if the Cotton Commission price is above the price ruling abroad for his competitors? Then he will not be able to compete in the export market and we shall have depression and unemployment in the cotton industry. A stable price in this country, if world prices fluctuate, will mean fluctuating employment and unnatural boom-like conditions alternating with slumps in the export trade. Surely that is not a desirable state of affairs. The more stable prices are on the home market with a material which is exported to the extent that cotton is exported, the less stable will be the employment position. It is no use saying that the cotton spinners approve of this Government plan with its bulk buying. They had enough experience of that in the war years, and the vast majority of them voted against the proposed suppression of the Liverpool Cotton Exchange. I believe that only, o8 per cent. voted in favour. Some 79 per cent. voted against, and 19 point something did not answer the questionnaire.
Perhaps even more important than the spinners' difficulty of securing the desired type of cotton from the Government and insuring it against price fluctuations is the fact that the Government will certainly have to pay far more for cotton and, therefore, charge far more than would be necessary under the old system. Everybody knows that the yield of cotton is subject to enormous fluctuations. The amount planted depends upon the whim of thousands of small growers all over the world and the amounts harvested are enormously influenced by vagaries of the weather, insect pests and the like. We have been told that the Liverpool Cotton Exchange was a medium for gambling. Bulk buying in cotton is probably the 161 most stupendous gamble that any Government has ever indulged in. When we rind they have got to have a fund of£210,000,000, so as to secure themselves for purchases which at present amount to something of the order of£50,000,000 or so a year, it shows that they have very little confidence in the certainty of securing their material at cheap prices.
Of course, in war time, the conditions and Government control mattered very little. Prices were unimportant; markets for yarn were assured and, in many cases, insatiable. But for the Cotton Commission to go into the market, buying in bulk, without knowing exactly how much will be required of scores of different varieties, and merely guessing what the yield per acre will be, even if they know how many acres have been planted, is a speculation such as nobody in the City would dare to embark upon. When we remember that the price of raw cotton frequently fluctuates within a few months by 10 per cent. or 20 per cent. and that in pre-war years we bought something like 500,000 tons of cotton, which to-day would cost about£80,000,000, it is plain that merely by buying one month too soon or too late the Government might easily lose£10,000,000 or£20,000,000 of foreign exchange, mostly in hard currency. In April, 1937, for instance, the price of cotton was 6o per cent. higher than in October. When we remember that the turnover in a year—if ever our cotton industry revives, as we all hope it may, in spite of Socialist help—might easily amount to t£80,000,000, it is clear that we might lose more than 100,000,000 dollars in one year if our civil servants misjudged or mistimed their bulk purchases in this one commodity—100,000,000 dollars, enough to pay for all our tobacco!
The private trader, dealing in a small way could insure against such fluctuations, thanks to the existence of this considerable speculative market in cotton which reflected the varying ideas of the operators, with all their sources of information and experience, about the future position of supply and demand. The private market could safeguard itself against violent fluctuations because it was possible, through the futures market, to revise prices every day. The price finally paid for a consignment was the result of chain, buying and selling, re-buying 162 and re-selling, and so on, over a period of three months or so. But is it seriously suggested that the Government can go in for speculating on such a vast scale on the New York market, or wherever it may be, so as to insure against varying prices? It could not happen—not more than once anyhow. But unless they do, they are exposing the country, as I have said, to the risk of losing incalculable amounts of foreign exchange.
Another point of great importance is, of course, that prices will be subject to political pressure. When you have innumerable merchants haggling with producers, no political or international question is raised. But when the Cotton Commission, appointed by the British Government, comes into the market, the whole situation changes. Bulk buying inevitably leads to bulk selling, as we have seen in the Argentine and elsewhere to our cost. Prices are then not fixed by supply and demand, but by arguments round a table. The producers put forward an admirable closely-argued case concerning the cost of production, based on statistics which they alone can check, including all sorts of Overheads which the buyer cannot control. Our politeness, our fairmindedness, our credulity, are all enlisted against us, and prices emerge which have little relation to world figures. And non-commercial political reasons are used to prevent our standing out for fair prices. We have only to remember what happened a few days ago in connexion with the wheat agreement, or the tea position, or the linseed oil scandal, to realize how important dais is. I have a list here of certain commodities bought by the Government. The noble Lord said that he hoped the prices of cotton would fall, but let us take a few of these materials. The lead price on April 4, 1946, was£45 per ton. On July 1, it was raised to£55 per ton, and on January 1, 1947, to£70 per ton. On March 31, 1947, it had been raised to,£90 a ton.
There is a world shortage of lead, and but for controls, prices would be much higher.
§ LORD CHERWELL
The noble Lord is achieving an omniscience which we all envy. Then take the case of spelter. In 163 four consecutive rises it went from£39 5s. per ton in April, 1946, to£70 per ton in January, 1947. Copper rose from£72 per ton in April, 1946, to£84 a ton in July,£98 in December,£117 in January,£127 in February, and£137 on April 1.
§ LORD CHERWELL
I am quoting the prices charged on the British market. The noble Lord will know the case of linseed oil. In September, 1946, the price was raised from£65 to£135, and on February 2, 1947, it went from£135 to£205.
§ LORD SHEPHERD
Would the noble Lord kindly say whether the figures he is now quoting of prices in this country are higher than the prices outside this country in countries where they have no controls?
§ LORD CHERWELL
I am not concerned at this moment to prove what happens in other countries. Rubber, the only substance which has been decontrolled, has fallen and not risen in price.
§ LORD SHEPHERD
The noble Lord is seeking to prove that prices have gone up because of controls. I would like to know whether the prices now being quoted are the prices charged throughout the world or only in this country.
§ LORD CHERWELL
All I have been saying is that the noble Viscount said he hoped that prices of cotton would fall; yet here we have four commodities which have been under Government control where prices have multiplied manifold. I think it is a case once again of hope triumphing over experience. I think the Cotton Commission will be extremely lucky if they are not forced to pay prices 10 per cent. or more above average competitive prices. Quite apart from the loss of millions of pounds, how can our cotton industry possibly compete in the world markets if they have to pay 10 per cent. more for their raw material? The only remedy would be an export subsidy at the expense of the taxpayer—if that is allowed by our international commitments. I wonder if our people will think it worth adding more to the cost of 164 cigarettes and beer, merely in order to pander to the Socialist obsession for bulk buying.
In addition to these huge prospective losses owing to the extra cost of cotton bought by the Cotton Commission, there is absolutely certain immediate loss of profits from commissions, arbitration fees, and so on, which has been admitted by the Chancellor of the Exchequer to be a loss of about£1,000,000 of foreign exchange a year. To a Minister who accepted with a shrug the loss of£60,000,000 through what amounts almost to malfeasance in Germany, a mere£1,000,000 of foreign exchange may seem a small price to pay to salve a colleague's susceptibilities. When one recalls that it would pay for one-thirtieth of our tobacco, it seems slightly more serious. Enough to buy the tobacco for 3,000,000,000 cigarettes, one hundred for every adult, is just thrown overboard, for no reason at all except to please the doctrinaire Socialists who wish to ram their fad down the throats of what used to be our most important exporting industry. Such action taken at the very time when all the members of the Cabinet have been exhorted to pipe in unison the tune "Export or Expire" really savours of a form of obsessional neurosis.
I have left to the end the simple human problem of the people who have been thrown out of work by the Government decision. Of course, there are not a great number of them. But injustice is just as great if it hits only a few as if it affects many. I do not know whether the word justice still makes an appeal to the noble Lords on the Benches opposite. Some weird variant or hybrid called "social justice" seems to have displaced what used to be one of our most cherished possessions. Social justice, apparently, allows the Government, with a clear conscience, to treat an individual unjustly for the advantage of the majority. This is not the place to discuss the ethics of that point of view. I can only say that I personally detest it; but unhappily it is becoming very prevalent. Reading the debates in another place on this Bill, I have seen no justification whatever for the Government's refusal to give any compensation to the unhappy people, many of them ex-Service men, who, after spending their lives in the Liverpool cotton market, to the great advantage of the cotton industry, are now forbidden to 165 practise their trade. The argument of the Government spokesman sounded like a caricature of the mid-Victorian capitalist of fiction—the march of events, let them go on the dole, and so on, was the theme. Unfortunately, since it involves expenditure of money, there is little hope of putting this gross injustice right in this House, but I think it should be put on record that the Opposition consider the Government's conduct in this matter to be reprehensible in the highest degree.
As I said at the outset, we do not propose to divide against this Bill, but we are convinced that this country will have cause to regret its passing. We are convinced that the cotton spinners will not have such good service under the arrangements proposed. We hold that the arrangements contemplated, far from producing cheaper cotton, will compel the industry to pay higher prices for raw cotton than their foreign competitors—unless, of course, they get a subsidy from the taxpayer. We consider that it will involve a considerable increase in our expenditure of foreign exchange—the last thing we can afford, according to the Government's own White Paper. Finally, we condemn the unnecessary hardships inflicted by this decision upon a large body of men working in the Liverpool cotton market, who have rendered valuable service in the past to the community, merely in order to put into practice the doctrinaire obsession of the Government in favour of bulk buying.
§ 4.0 p.m.
§ LORD FARRER
My Lords, even after listening to the eloquent speeches we have heard this afternoon, I do not think that anyone can seriously say he knows anything about this trade unless he has worked at it, or lived amongst the people concerned. The commodities themselves do not matter in comparison with the characters of the people who deal in them.
I make an apology for venturing to address your Lordships because, quite obviously, I know nothing about it. If any of your Lordships survive what I have to say, I hope that you will agree with me at least on that point. I was a little bit cheered by the fact that the noble Viscount who opened the debate this afternoon made exactly the same point. He found himself rather disturbed by these figures, with that infernal decimal point 166 which occurred in all the documents dealing with this matter.
Since Christmas time I have been through shoals of documents dealing with this subject. I confess that the impression left on my mind was that this was not primarily a commercial question. Dividing the question into various aspects, it is one of the grossest cases of injustice which I have ever seen. The more I read the more strongly did that conviction become impressed on my mind. As has been pointed out, the question of the abolition of the Liverpool and Manchester Cotton Exchanges was not put forward at the General Election and requests for a discussion were refused in an extremely peremptory manner. We were told that it was a "political" question and would have to go to the Cabinet. In March, 1946, the decision was announced. I confess that personally I think that is not the strongest argument against this measure. The figures slowed that 0.8 per cent. of the spinners and others were in favour of the Government's scheme. The position seems to depend entirely on the merits of the opinions of 0.8 per cent.; the mere fact that there were only 0.8 per cent. is not a conclusive argument. I know that I am very Victorian in my way of looking at things, and it may be that that is not conclusive, but people do attach importance to majorities.
Then again, this proposal was not in the Government's Election address. This proposal was apparently settled at a meeting of His Majesty's servants at the highest level, and the matter is a closed issue, although the constitutional lawyer might have something to say as to the theory underlying it. The Cabinet as a body is of comparatively recent legal existence, but that point is one which may be left to more learned people than I.
On the question of compensation, if you introduce such violent changes as this into an old-established trade which, on the whole, has served this country well and faithfully, it seems to me that with the amount of disorganization and ruin involved, affecting all sections of the trade and industry '(and do not forget that it includes a large number of women, so that it is doubly unfortunate), you are liable to cause far more harm than if you left it alone. There ought to be some provision made for compensation. I suppose that people who have a direct knowledge of mill-hands (and no doubt 167 some of your Lordships have a much greater knowledge of them than I) have formed a definite affection and admiration for them, and want to help them. This Bill, it seems to me, applies such arbitary penal measures to the channels of the cotton trade that it is rather like making cotton "contraband of peace." Your Lordships may remember that in the autumn of 1915 and 1916 there was a great deal of discussion in economic papers as to whether or not it was possible to make cotton contraband of war. The penal clauses of this Bill seem to me almost to be making cotton a contraband of peace. These clauses make it a criminal offence for British subjects to practise their calling; they are liable to a fine of£200 or three months imprisonment on summary conviction; or, on conviction on indictment, to a fine of£500 or two years imprisonment. That seems to me rather harsh treatment for a British subject daring to practise his own calling.
I seem to remember having been taught in my infancy of the existence of the document called Magna Carta, which historians have since tried to denigrate, saying that it was of no importance. It seems to me perfectly iniquitous that a British subject should be treated in that way.
I will leave the question of prices to those more accustomed to dealing with such matters than I am. As I see the position, if we have a buyers' market, instead of a sellers' market, the Government may find themselves in a very difficult position in the years to come. May I next say that I feel the tendency to use military analogies in matters of trade and commerce is a very dangerous one? I had occasion, at one period of my life, to study the question of the Japanese cotton industry. I remember my chiefs telling me how wonderful that industry was, how it was all organized on a military basis with a General Staff. That was long before the days in which there was any thought of the atom bomb. I do not think that those people would make that kind of statement now. It is true that the Japanese industry was very efficient in buying cotton, in manufacturing it and perhaps, one might say, in selling it. That very efficiency proved its undoing because under their absolute necessity to sell every yard of cotton which they wove they were always trying to get behind the back of 168 the immediate purchaser. It was like their system of poultry feeding whereby they cram chickens by machine, which seems to me to be a very cruel thing. That is what the Japanese did to their markets. With the exception of one or two rather odd cases, as is well known, they simply squeezed us out of the markets which we regarded as very important. That was all done under their system of more or less State control and ownership, but worked, of course, through the big merchant firms.
I have a fear that, as the noble Lord, Lord Cherwell, pointed out, foreign customers for our cotton goods, or those who sell us the raw cotton, will tend to say, if they are to have the pleasure of dealing with His Majesty's Government instead of with individuals whom they know by their names and even by their nicknames, and who are in fact their friends, that they will cut us out altogether and go straight to other countries instead of coming here, and we shall in that way lose a good deal of trade. I do not think enough attention has been given to the export aspect of this matter. I am sorry to say that I have noticed among people in Lancashire a tendency to take rather a defeatist attitude since their businesses have from day to day been overshadowed with the risk of being confiscated. They say: "What is the good? Take cotton right out of our county. Never let cotton be any more associated with the name of Lancashire." After what they have been through, I am not altogether surprised that those symptoms are discernible. I hope that by some miracle—I do not see what we can do—they will get better heart.
Finally, there is the question of quality, which the noble Viscount who supported this Bill raised. I think that is one of the most important things, as anybody who is in the trade will appreciate. The numbers of bad gamblers and speculators were very many fewer than has been suggested. I hope the noble Lord, Lord Hawke, will explain the arithmetic of this much better than I can, but the idea behind purchases and transactions of this form is, as a rule, not that of doing something astute, or of betting, but of evening out the risk. I am rather afraid that no Government Department can possibly have the knowledge of the character of the people from whom they are buying their cotton, or of the quality of the cotton when delivered, that independent people who have spent their lives in the industry possess. For 169 instance, pests have been mentioned. Pests are, of course, a highly specialized subject. I believe that one of the worst pests is called the pink bollweevil. I would call your Lordships' attention, I hope respectfully, to the fact that this pest is pink.
§ 4.15 p.m.
§ LORD DARWEN
My Lords, I welcome this Bill, and I congratulate the Government on their courage in introducing it in the face of a very well-worked-up opposition. I speak as a member of a cotton firm, and as the chairman of a firm of manufacturers. I have been engaged in the cotton industry all my working life, and I therefore claim to know a little about it.
Would the noble Lord let us know whether it has been as a spinner or a manufacturer? There is a very important difference.
§ LORD DARWEN
I said as a manufacturer. The manufacturer takes the yarn from the spinner and weaves it into cloth. I think it is necessary to be precise in your Lordships' House this afternoon. I would like to say, in answer to the noble Lord who has just sat down, that I think the defeatist attitude in Lancashire to which he referred is largely due to the immense amount of ill-informed criticism which has been poured upon Lancashire, and upon the cotton trade, by people from all over the country who really know very little about it. I say, emphatically, that I do not accept a large part of that criticism. In my opinion, the trade has not been anything like as inefficient or as incompetent as has been stated. Nevertheless, a great many changes are being proposed, and I am afraid that, owing to changed times, many of those changes are inevitable. First, there is to be a change in the organization in the industry—the amalgamation into bigger, and supposedly better, firms and units. I want to point out that that change, though it may be necessary, means a very real loss of something of value in the personal relationships between the employer and the employed. My firm is a family, firm. It has been in the family now for three generations, and there is a very valuable personal relationship between the employers and the employed that will inevitably be lost when this scheme of amalgamation comes into force.
Secondly, there are to be very big developments in the matter of equipment 170 and machinery. So far as manufacturing is concerned, there is a movement to automatic looms. I want to point out that, while that also may be necessary, it entails a great loss to the worker in respect of craftsmanship. Some of your Lordships may be surprised to hear that there is such a thing as craftsmanship in weaving, but I can assure you that there is. I would like to tell your Lordships one of the most moving stories that I have ever heard. One of our weavers was dying of cancer and had been off work for many years. She asked if she might go back into the shed before she died, in order that she might once again, for the last time, see her four looms. The secretary took her into the shed at a time when nobody was working there, and it brought tears to his eyes to see her patting the looms and talking to them as if they were beloved companions. There is that affection for the factory in Lancashire, and there is going to be a great loss in that respect when we get our more efficient industry. We shall also lose much in the social attractions of the factory itself; and the two-shift system—which will be absolutely essential if automatic looms are to be worked— disturbs the social life of the community. I feel it is a very tragic thing that, as our great powers of producing wealth are growing, so we are all the time more and more destroying the joy in work itself and even the joy in the community outside the working place. Those changes may be necessary, but those losses are inevitable if the changes are made. Their purpose is to get greater efficiency to get higher output per man hour, to make the most of the reduced manpower (or womanpower as it largely is in the weaving industry) of Lancashire, and to raise wages (which is a thing badly needed in Lancashire, because the cotton trade has always been a horribly low-paid trade), and to recapture the export trade.
When I first went into the industry, the export trade was 87 per cent. of the whole; we never made a piece in our factories for the home trade. It seems to me that it would be grossly unfair—and I do want noble Lords to face up to this —if all the changes that we were making for the sake of greater production were to mean sacrifices by the workers, and if we were to refuse to consider any changes in the marketing system, which would mean sacrifices by other people. That is the first point I want to make. I believe 171 that the marketing side of the cotton industry has been far more inefficient than the producing side, and I am quite certain that much greater savings can be effected in marketing than any possible changes in the production side can bring about. I am looking hopefully at this Bill as the beginning of an organization of marketing in the cotton trade, although it is not absolutely the beginning. When the noble Lord who has just sat down was talking about the question of compensation, there came into my mind the picture of all the yarn agents who were dispossessed of their trade during the war, and who were completely blotted out owing to the refusal of the Cotton Control to allow commissions to be charged. But this is another big step forward in improving the marketing system, and I hope it is the beginning of a complete organization of marketing in the cotton trade.
The next point I want to make is that although the saving which this Bill will effect may seem to noble Lords to be very small, it must be understood that the cotton trade is a trade which works on infinitely small margins. I do not think there is any other industry in the country which works on such small margins, or which has achieved anything like such cheap products. I may tell your Lordships that I myself have refused orders, which were badly needed by the mill at the time, for as little as a halfpenny a piece on a thirty-eight yard piece of cloth; and that halfpenny a piece was equal to 2½per cent. on the capital of the concern. There would be 61b. or so of yarn in such a piece, and therefore one-eighth of a penny per lb., or even one-sixteenth of a penny per lb., on the yarn is a vitally important matter, at any rate in the export trade. In a great many of the bulk cloths which are made for export the cost of the raw cotton and cleaning is equal to something over 40 per cent. of the total f.o.b. cost of the cloth, so that a small fraction on the cotton is a very material matter when it comes to selling cloth for export. That is the second point—that margins are so small that a very small saving effected by this Bill on the purchase of cotton will matter very materially to the industry.
The interests of the trader are not the same as those of the producer. The trader wants a fluctuating market so that he can make his profits, but the producer wants a 172 stable market. Cotton has been, as we have heard repeatedly this afternoon, the happy, or unhappy, hunting ground for almost all the speculators in the country. They have had no concern whatever with the industry, or for it. They have certainly increased the fluctuations in the price of cotton and made trade more difficult for legitimate traders and legitimate users. It so happens that about three years ago I set out to make an inquiry into the running of the cotton trade under control, and I asked several of my friends on 'Change if they would send me a memorandum setting out what they thought about the control. I may say that I did not know the political colour of any of these men whom I asked for these reports. One leading spinner sent me some very interesting figures, which prove how badly the Liverpool cotton market served the industry and the nation in time of war, and why the Government were forced to take control of the cotton market in the spring of 1941. While this was war-time, I think it is fair to say that the same irresponsible factors have always been at work disturbing the cotton market and making it more difficult for traders and producers. The spinner I have referred to wrote:On the raw cotton side, the object of the control has been to prevent an unwarranted rise in prices, and to reduce purchases requiring dollar exchange and stimulate the use of African and Indian cottons. No direct control was placed on the sale and purchase of cotton on the futures market until April 1, 1941.I want to give the figures which show the history of the cotton market during those first war years, and which show why the Government were compelled to take over control in April, 1941. On August 31, 1939, October futures closed at 4.72d. —or, for those who do not like these "dots", nearly 4¾d. On September 1, the next day, it was 4.99d.; on Monday, September 4 (that is, the next trading day), 5.95d., or nearly a 1d. rise.
§ LORD DARWEN
Liverpool prices for American cotton. On Tuesday, September 5, the directors of the Liverpool Cotton Association did not open the market until 11.30, instead of 10 0'clock, and ordered that the maximum rise must not be more than 25 points over the previous day's close, and that the maximum fall 173 must not be more than 50 points under the previous day's close. Under those conditions, for several days, there were no transactions; but by September 12 October futures had reached 6.41d. and then they' fell to 5.60d. in October. After that there was a steady rise, until on January 5,1940, January futures reached 9.09d.
Then the Allied Armies collapsed in France, and speculators began to sell. By the middle of May, May futures were down to 6.97d. and markets closed because it was feared that continued selling would mean that many Liverpool merchants would not be able to continue in business, since their clients would not be able to pay their differences. The market was closed from May 20 to June 13, when prices were resumed at about 7.25d. Then at the end of September, 1940, it again became apparent that the futures market was not fulfilling its purpose. The closing price of September cotton on September 3 was 7.97d. By September 25 it had gone up to 8.42d. On Thursday, September 26, the market closed for three days, and on October the next trading day, maximum and minimum prices were fixed. The October maximum was 7.97d. and the minimum 6.86d. So the Government went on trying to control the market one way or another, till eventually, on March 31, with March at 8.64d., the market was finally closed, and on the next day all the stocks not actually in spinners' hands, and all cotton arriving after that date, became the property of the controller at the prices ruling on March 31.
I think that any unbiased person looking at that record would say: "This is a clumsy way of governing the price of a raw material essential to all these many workers in the industry." I asked one of my friends—himself a cotton merchant—to say something to me about this matter of control, and to my complete surprise he said: "If you want an honest reply, I can only say that they (the Control) have done the job better than we ever did it." That was a man speaking absolutely against his own interest, and that is my answer to some of the statements made by the noble Lord, Lord Cherwell. This same cotton merchant also sent me a statement in writing, backing up and elaborating that statement which he had made to me on 'Change. He pointed out that if any man had suggested before the war that the cotton trade 174 could possibly manage without the futures market, that man would have been considered a lunatic; yet experience of control had shown that the cotton market was a clumsy expedient, it was an evil, and that it exposed an important and indispensable commodity to the whims of speculators not even remotely connected with it. He asked in this written document: "Why should our export prices of cloth be often at the mercy of the bookmaker. the money lender, the banks and the speculator?" I do not think this man is a Socialist.
He went on to say that, of course, the speculator helped to make the market, and that if it had not been for the speculator there would not have been the fluidity of the market that was necessary. But he pointed out that the Control had found an alternative which was far less cumbersome, far less costly and more satisfactory. This was about three years ago, and he said that although it was totally against his own personal interests, his opinion was that the cotton market should never come back, and he believed that it never would come back.
There has been one quite unnecessary luxury in the cotton market which the Control has swept away; and that is overspecialization. People who know nothing about the cotton trade talk a lot of nonsense about this over-specialization in cotton. Under the old contract the spinner could demand in the most meticulous detail an exact regularity in all his cotton; bales must be more alike than peas in a pod, and he could reject them if they were not. The result was that the cotton merchant had to over-cover his spinner's contracts by something like 20 per cent. Somebody had to pay the cost of that risk the spinner took, and all the classification that had to be made—it was not done for nothing. The Cotton Control swept the contract out of existence, and they substituted a short typed sentence which ruled out all these possibilities of making claims because the cotton was not exactly up to the previous standard.
I am not going to say that that has not produced any difficulty in Lancashire, because it has produced some difficulties here and there; but the extraordinary and astonishing thing is how small that difficulty has been, and how remarkably well the cotton trade has been able to adapt itself to the new conditions. When the 175 noble Lord, Lord Cherwell, was speaking I wondered if he knew why it was that spinners went out searching for all these queer brands of cotton. Believe me, it was not in order to get any particular quality or colour; it was in order to find some cotton that had not yet been established on the market, and was therefore cheaper than other cottons because most people did not know anything about it. That was the main reason for going to seek those queer brands of cotton. And when they became established on the market, and began to get their full price because of their value, then the spinners who had first discovered them, in nine cases out of ten, dropped them and went to look for another cheap cotton. It is not really necessary—and it will be far less possible with the amalgamations into larger firms and the setting up of automatic machinery—to have all these queer brands of cotton.
In my opinion this fanciness in the cotton trade, which has crept in only since the First World War, has been a real disadvantage to the trade in many respects, and so far as cotton is concerned I am sure the Commission will be well advised not to try to restore the old position. Now, as to the question of trading, I say quite frankly that in my opinion a great deal of the success of the Japanese cotton trade was due to their centralized buying of cotton and to the fact that they bought very heavily on big crops.
Would the noble Lord say whether in fact there was any centralized buying of Japanese cotton? I know of none, and I have worked in the cotton industry.
§ LORD DARWEN
The noble Lord perhaps is right in his correction. Centralized buying was perhaps the wrong term. "Bulk" was undoubtedly the correct word.
§ LORD DARWEN
They bought heavily on big crops, and I hope the Raw Cotton Buying Commission will buy heavily on big crops. I also hope the Buying Com- 176 mission will be able to make hay while the sun shines, and in a time like the present, when the trade can well afford to buy above world prices for cotton, I hope the Commission will charge above the world price in order to amass a financial reserve which will enable them to let the trade have cotton in the slump period at less than world prices. From what has been said this afternoon, I do not know whether noble Lords really realize that centralized buying, bulk buying, has not the same advantage in a sellers' market, such as we have to-day, as it will have when we return to a buyers' market. When we come to a buyers' market it will mean that the export trades of this country will need all the help they can get. It is then, when they need all the help they can get, that bulk buying will place us in a very strong position; and in spite of any international enactments there may be, I hope the authorities will be strong enough to encourage the development of mutual trade, which I think would be in those times a great advantage.
Before I sit down I would like to mention Clause 22, which gives the Commission power to make regulations for enabling them to obtain all such information as appears necessary. I would beg the Minister to look into this matter of asking for information. I agree that information is necessary and it is quite right that it should be asked for, but, speaking for the cotton trade as I have known it, I would say that that industry has worked on very small overheads and with very small clerical staffs, and the returns and statistics which are now being demanded by a growing number of authorities are a serious burden, if they are to be made accurately, and if they are not made accurately then they are of no use The point I wish to make is this. What is basically the same information is asked for in a slightly different form by two or more authorities. That means it has to be all worked out afresh in each case—or guessed afresh. If the Central Statistical Department were to collect and co-ordinate all the inquiries—I underline that word—of the various authorities, I am sure the demands for information could be very much simplified and replies would be more accurately made, and a great deal of work would be saved both to industrial firms and to the Civil Service. In conclusion, I would say that I believe this Bill will 177 serve the cotton trade and the country well. I believe it will provide cotton at less cost, that it provide a steady market both for consumer and grower, and that it will enable the country to save dollars by stimulating the use and therefore the growth of cotton from non-dollar areas.
§ 4.41 p.m.
§ LORD TEVIOT
My Lords, I have listened with the greatest possible interest to the noble Lord who has just sat down. I am not a manufacturer; I am a wearer, and I am sure, from what he told us this afternoon that, I, like a great many other people, will have to continue to be a wearer of austerity garments. I want now to ask him this question—he evidently has been in the manufacturing world for a very long time and knows all about it. If the system, which he considers was for many years before the war so unsatisfactory, had been reintroduced and this proposition had been put up, would he have said: "Yes, we must get a return to and adopt the socialized system"? That is what he suggested to-day. Again, I am rather shocked that, for a second time this afternoon, he seemed to think that profits were things which were all right. He even said something about 2½per cent. A rate of 2½per cent. A rate of 2½per cent. is looked upon to-day by the Chancellor of the Exchequer as sufficient profit for people to make on business or on anything else. It appears that though the Government are so unfavourable towards profits, there is now a suggestion that profits ought to and must be made to carry on any kind of organization.
The noble Lord talked a great deal about war conditions, but he did not mention a fact that seems to me very important—namely, that under war conditions there is only one customer. Now we are facing a world where we shall have a tremendous amount of competition, and we have to supply goods that the customers want. If we cannot, somebody else will. Therefore, I feel that the arguments which he brought forward this afternoon regarding war conditions and the various prices he quoted are not very analogous to the conditions and prices with which we are going to be faced in the years to come. I shall say only one word about bulk buying or hulk selling. Let me put it rather crudely. Suppose your Lordships were all members of 178 a pig club, and said: "We are going into the local market where a lot of pigs are coming up for sale." And suppose we advertised that we were going to buy them all: what hope would there be of getting them at a reasonable price? That is what will happen with bulk buying or bulk selling. It will be exactly the same. Along comes the dear old British Government to buy or sell, and everyone will say: "We are on a good thing now." Up will go prices or down will go prices accordingly. You cannot get away from human nature in this or any other country.
I listened with great interest to the noble Viscount who moved the Second Reading. It seemed to me as if there was a degree of uncertainty in his mind, as in the mind of the noble Lord who has just spoken. He said it was "hoped this," and "the Government thought that," rather than—as I would much prefer to hear at the outset of a great adventure of this sort—that it was "confidently anticipated." I would like to hear the Government spokesmen say they are sure that this or that will happen. I am afraid that this Bill, like other legislation by this Government, is in the nature of a gamble. It is the same sort of thing as we have had with regard to Cable and Wireless. Here is an industry which has been built up over a period of many years. It has established a market, and that market has been in existence, I believe, for a hundred years. Now we are going to knock it on the head. The same applies to Cable and Wireless. That piece of legislation is another gamble on the part of the Government. As I say, they seem very uncertain about this matter. It appears to me that they are saying they "hope this" and they are "expecting that," but they do not say: "We are assured and quite certain that this is going to happen, and that it is going to be for the great benefit of the country."
Your Lordships may remember that I spoke on this subject last May—just about a year ago to-day. I had a Motion then on the question of nationalization, and I think I said at the time that there were two industries which I thought should be exempt from nationalization, if any industry should be exempt. Those two were the cotton industry and Cable and Wireless. And I said so for this reason: that in each instance you have an inter- 179 national industry, and how in the world you are going to nationalize what is essentially an international industry is beyond me. In these days we are in a very difficult position as regards foreign exchange. We used to get a great deal of foreign exchange through the cotton business. That will now cease. The noble Viscount said, with, it seemed to me, a certain amount of sarcasm and bitterness, that these wicked bankers, these wicked brokers, these wicked exchange dealers and other wicked people, are going to be, so to speak, knocked on the head. I have not that low opinion of the people who have been concerned in this great industry in Liverpool. If they were the type of people the noble Viscount depicted, they would not have been trusted by foreign customers. But, on the noble Viscount's own showing, those foreign customers sometimes did not bother to come here themselves. They simply gave their orders, being assured that they would get an honest deal. I regret very much that the noble Viscount expressed such an opinion of his own countrymen in that part of England.
Last Friday something fell from the lips of Sir Stafford Cripps, in another place, which I thought was very appropriate. He was rather driven into a corner—I think it was by the honourable member for Daventry—and when he was properly in the corner he said that this was a matter which he thought ought to be settled in the House of Lords. That is a splendid tribute to this noble House, and I am sure that your Lordships here to-day will be delighted by it. I believe that this Bill is one of the Bills that ought to be settled by the House of Lords. As Lord Cherwell has said, we are not going to divide upon it, but the spirit of division will be in the minds of most of us, even if we do not actually do it.
On the question of stability of prices, I understand that growers all over the world had complete confidence in the Liverpool cotton market. They knew that, generally speaking, so far as it is possible to have stability with regard to any such commodity as cotton, what they grew would be sold at a reasonable price. This confidence is one of the things that is going to be completely wrecked. Here we are going to create a great Government monopoly. If the Government make a loss (and in my view they are certain to 180 do so, for I do not believe they have the capabilities, the experience, or the knowledge to run a great industry of this sort), who is going to make good the loss? It is, of course, to be met by the taxpayers—every one of us. We shall have to pay by direct or indirect taxation—that is the only way in which losses can be made up. I will not say any more about the question of buying. It has been demonstrated by previous speakers how very delicate a matter is the buying of the various types of cotton that are required. It is rather curious, I think, that the late Lord Mayor of Liverpool, who is a Socialist, should take such a strong line as he has done with regard to this Bill. It was interesting to see the stand he took. I compliment him on it. He showed great independence of mind politically, which is something that is greatly needed to-day.
Now I wish to put this question to the noble Viscount. The Government are going in for bulk buying, and there will be a price at which, I take it, everyone in this country must buy from them. Everyone who buys from them will have to pay a certain price. Suppose it should be possible to buy more cheaply in other parts of the world, is anybody here to be allowed to do it? Are people to be allowed to buy cotton cheaper abroad than we can get it here, in our own country? The noble Viscount shakes his head, so I take it that they will not be allowed to do so. But I can visualize our competitors abroad jumping in and buying cotton cheaper than we here can do, and what chance then will our manufacturers have to sell their goods in the markets of the world, if they have to pay so much more for their raw material?
Up till now, I have been quite unable to see that the Government have made out any case to prove that the cotton market at Liverpool was bad for the country, or was a bad asset for the country. Nor have they made out any case in justification of this complete alteration in dealing with compensation—a matter of which I think the noble Lord, Lord Farrer, spoke. The noble Viscount knows that there are families, members of which, generation after generation, have been in the business—in all walks of it. If you are going simply to throw those people out, without regard to their great interest in the business and the fact 181 that it is the basis of their whole family life, heedless, too, of any question of the goodwill which so many of them have established; if you are going to turn them out and give them nothing by way of compensation for doing so, that will be the most tremendous act of injustice which any Government could perform anywhere.
I would like, further, to ask this question. I understand that some of the permanent officials in the Treasury and the Board of Trade—of course, this is all hearsay, but no doubt the noble Viscount will answer, if he knows whether it is so; I do not see why he should not—are by no means of one mind on the question of the elimination of the Liverpool cotton market. Is that really so? I do not know whether the noble Viscount feels inclined to answer that. I have heard that these gentlemen do not by any means agree on this policy. Of course, they are not politicians; they are civil servants, and they may have more open minds about the matter. There has been, I understand, a great set-out concerning Sir Frank Platt. His opinion was just one man's opinion, ard it may be that the whole of his board did not agree with him. With regard to the figures of the impartial ballot that was taken, I am told that 20 per cent. of those concerned did not vote at all, 0.8 per cent. were in favour of the Government's decision, and 79.92 per cent. were against it. That seems to me to explode completely the idea put forward by the Government that the industry as a whole wants this scheme. I do not believe for one moment that that is so. I believe that if a plebiscite were taken in Liverpool you would find that there was an overwhelming majority against this undertaking.
§ LORD CHORLEY
Will the noble Lord indicate when the Government suggested that the employers in this industry were on the side of this Bill?
§ LORD TEVIOT
I thought it was quite clear that on many occasions the Government have announced something of that sort in the other place. I think I am justified. I have not a copy of Hansard with me, but I will certainly look it up, and I will let the noble Lord know. I understand, and I have it from a very authoritative source, that the Government 182 claim they are moving with the approval of a reasonable proportion of the trade. I believe that is not true.
§ LORD TEVIOT
I am told that is what the noble Viscount, Lord Hall, said. Now that the noble Lord draws my attention to it, I believe he did say exactly that this afternoon. The noble Lord, Lord Cherwell, has dealt so fully with many questions with which I was going to deal that I will not repeat what he said. But there is just this point. I understand that the world value of cotton recorded a very serious decline in a few days in the New York cotton market. I think it was in October last year, or the year before that; I am not sure.) I understand that the price fell to the extent of about£12 per bale, and—though I stand to be corrected on this—that on the stocks we had we showed a loss of about£30,000,000. If the noble Lord could say whether that is true or not I would be grateful. Then we hear a great deal about this question of profit. I will not deal with that, except to say that I am glad the Government are now coming round to the idea that profits must be made in any business.
If there is any Socialist member of this House who has any business, and understands business methods, and who has had business experience before the war in normal times, I should like to hear him give really cogent reasons why he wishes to depart from the practice which was carried on before the war, and say why he is in favour of what is proposed here. We are giving away one of the most important assets of our country. The cotton exchange was not a national affair; it was an international affair. It employed thousands of our people, either directly or indirectly, and gave us a great position in the world. I see that the noble Lords opposite shake their heads, and are probably saying, "What a wild man." I may be wild in making these statements, but I would like to hear some of the noble Lords opposite give some cogent reasons why we are justified in passing this Bill. I ask some of them to shake off the shackles of their political Parties, and come out and tell us if they have any reasons, why they are supporting this Bill; and I would suggest that they should lead us into the lobby against it.
§ 5.5 p.m.
My Lords, I have no connexion with the cotton trade to-day, but for some twenty years I had experience of it, as a merchant overseas or as a Government servant, and this Bill has come to me as a profound shock. Frankly, I do not believe the Government know what they are doing, and they are committing, in effect, an international crime. I propose to leave others to deal with the effect the Bill will have on Lancashire, and to confine myself chiefly to the effect upon the cotton growers, and upon international cotton prices, of the abolition of the international cotton market in Liverpool. Liverpool was the best commodity market which man has yet devised. The noble Viscount who moved the Second Reading of the Bill said, I believe, that we were 2,000,000 bales bull of cotton at the moment, in stock and in sight. This fills me with considerable alarm, because cotton prices at present are three times what I used to consider to be reasonably safe. If we are 2,000,000 bales uncovered bulls we may come a very nasty cropper. Moreover, the noble Viscount has not consulted me, so far as I can see, in committing me to my twenty pounds share of it.
I am not going to follow the noble Lord, Lord Darwen, in all his arguments. I have little doubt that from time to time I sold his cloth, and perhaps sent back the cotton which he wove. I think that he and I probably differ on almost everything, and particularly if we were searching for inefficiencies in the pre-war structure of the cotton trade. I should certainly look for them in the weaving section of the industry which he represents, whereas he would come to my house—the distribution —to find the same points. Cotton is largely a small man's crop, whether in the United States, India, Egypt or elsewhere. Ever since the American Civil War the proportion of cotton grown outside the United States has been increasing rapidly. Immediately before the war less than half the world's crop was grown in the United States, and much less than half the world's exports came from that country. The United States, the most expensive producer, has been forced to subsidize production and exports.
This tendency over many years has, of course, increased the importance of Liverpool as a market where all varieties of cotton could be bought and sold, and in 184 this respect Liverpool's position was unique. It was in Liverpool that the impact of the outside growths from numerous countries was felt, and it was from Liverpool that the alarming effects of frost and bollworm in the cotton belt were mitigated by sales from less affected lands. Now that the Liverpool Cotton Exchange will be no more, New York will rule the world. For political reasons inherent in the Loan Agreement, we shall have to continue to draw a large proportion of our cotton from the United States. Our other suppliers will claim that the price in New York is the world price and, if they do not get prices based on New York, feelings will be roused and political trouble will develop. Without the salutary influence of Liverpool the American bulls and bears will rampage all over the world and the American Government Cotton Bureau monthly forecasts of the crop will be suspect.
May I now turn to the growers? Cotton is grown, as I said before, by small men. It is picked for some four months of the year, but used the whole year round. The pre-war machinery for disposing of the crop was roughly this. The grower sold at or before harvest, either to a merchant or direct to a ginner—the man who removes the fibre from the seed. The ginner worked his factory for perhaps six or eight months in the year on stocks brought from merchants or accumulated by himself direct from growers. He sold his cotton as and when demand developed through merchants buying to supply the mills of the world. Those most insistent on quality tended to be the first to buy, and the ginner both sold before he bought and also had to carry large stocks.
In the part of the world I know, all these processes were very highly competitive. The ginners competed strongly for cotton to keep their machines running, and in turn they competed strongly to sell cotton to the mills. The margin of profit at every stage was very small indeed and would not permit of running the risk of market fluctuations; hence the futures markets were used freely by ginners and merchants. The local futures markets provided a means whereby mills, ginners, merchants, and even some of the large growers, could buy or sell without fail at any time in any reasonable quantity. These futures markets alone made it possible for the whole trade to be highly competitive; in other words, the grower could get a very full price. The margin 185 between the price the mill paid for ginned cotton and the price the grower received in the field barely covered the cost of the various operations of handling and transport—and all this because the market risks could be unloaded on a futures market. The local futures markets were not self-sufficient. They were harnessed to world prices through Liverpool. If the local price rose or fell too much—if, for instance, Indian cotton in Bombay became too dear, compared with American cotton in Liverpool—straddle operations would develop and the margin could be ironed out.
These operations, of course, would have a salutary effect on Liverpool, which, in turn, would be transmitted to New York. The chain of marketing and risk-taking from the field to the mill was complete and perfect. It was most rare to find an occasion when cotton could be bought in the field and sold to the mills of the world at a profit. I know that noble Lords opposite may not believe this, but I can assure them from my experience that that is absolutely true. Cotton could always be bought and sold at the correct price of the day on the futures markets. There was no question of there being only buyers or only sellers, and Liverpool provided the ultimate re-insurance in this respect. A cable to Liverpool, and the sender knew that he was covered as buyer or seller for any quantity at the price of the minute. I do not think that the world's secondary futures markets could have functioned as well as they did without this ultimate recourse to Liverpool.
Curiously enough, I have some experience of working the same growth of cotton, both with and without a futures market. Twenty years ago there was a certain variety of cotton for which there was no futures market, and the price for which depended entirely upon the size of the particular crop and the demand from the mills of the world for its particular characteristics. At that time the merchant shippers could buy their cotton locally and sell it to the mills of Europe at the very handsome margin (for cotton) of some 5 per cent. Some enterprising people decided to start a futures market. From that moment onwards that cotton became just as competitive as any other, and it was no longer possible to do simultaneous business at a margin.
186 We are apt to turn to Japan—and Japan has been mentioned this afternoon —for lessons in the cheap production of cotton goods. In pre-war Japan there was intense competition among the few big houses and the very many small houses, but was it a coincidence that at Osaka they had a cotton futures market, a yarn futures market and even a cloth futures market? In my opinion, the very cheap prices and very quick delivery that japan could always quote for export business owed a good deal to the existence of this yarn and cotton futures market. I think all this goes to support me in maintaining that the more perfect the system of futures markets—and in cotton the system was the most perfect of all the commodities—the more competitive is the handling of the commodity and the smaller the profit of distribution. The President of the Board of Trade is always allergic to the cost of distribution, and I cannot help thinking that if he had time to consider the subject he would have been clamouring for more futures markets rather than fewer, and he certainly would not have been throwing away the great natural advantages of Liverpool
For Liverpool had great natural advantages. It was a great port; within a hundred miles, 10 per cent. of the world's cotton was spun; and within another 1,000 miles or so a further 20 per cent. It had no domestic cotton crop to complicate matters. It was backed by an important agreed international banking system. It had a sound currency. It was run by men of long skill and experience, with that peculiarly phlegmatic British temperament so suitable for the management of commodity markets. There used to be an old Liberal doctrine, with which I have much sympathy, that nations should busy themselves in those activities in which they enjoy the most advantages and display the greatest talents. There are many old Liberals on the Government side to-day, yet so far from their being encouragement to all those merchanting activities, at which both our friends and foes acknowledge our pre-eminence, there is positive discouragement—even prohibition.
The Economic Survey gave but a cursory glance at those activities comprised under the heading of our invisible exports, which would include, of course, the proceeds of our international cotton 187 trade, yet all those invisibles are thought to have produced before the war nearly as much foreign exchange as our total exports of merchandise. Surely, instead of setting export targets so very unrelated to probabilities, we should be making a greater effort to increase our invisibles, and to enlist the skill of the men who produce these invisibles. Their production of foreign exchange per head can be far higher than that of industry, yet they are not receiving much encouragement to-day. By this Bill one of the most skilled sections of our community is being more or less put out of business—surely the economics of "Tomtopia."
I have endeavoured to show that without the Liverpool futures market the profit of distribution of cotton is likely to increase, that prices are likely to be more erratic, dependent on American weather, and that the ordinary tug-of-war of business exchanges is likely to be replaced by the more dangerous contest of diplomacy—perhaps even open diplomacy. We can only hope that the Government will in due course take advantage of the loophole provided by Clause 10 and allow an embryo futures market to be re-created in Liverpool, so that the great skill and experience of that city may be harnessed towards helping us to pay for our daily bread. In doing so, it will be conferring great benefits on what I believe to be the largest trade in the world, and not least on a million or more humble cotton growers, many of whom are citizens of the British Empire.
§ LORD AMMON
My Lords, perhaps this would be a convenient moment to adjourn for the Royal Commission.
§ House adjourned during pleasure.
§ House resumed.