§ 4.14 p.m.
§ Debate on Second Reading resumed.
§ THE EARL OF LUCANMy Lords, not a great deal needs saying on this Bill, chiefly because it is only about six months since my noble friend Lord Ogmore—who is unfortunately abroad on professional business and cannot be here for this debate—moved a Resolution on the working of the Colonial Development Corporation. The ground which was covered then is in fact the same ground as is covered by this Bill, and to avoid repetition there are only a few points that need to be made.
I believe we can all say that the Bill, so far as it goes and within the limits imposed by the Government's policy, is one that we can welcome. We can welcome the scope—the very limited scope 793 —allowed to the Corporation in the countries which have achieved independence. We can wonder, all the same, how that limited permission can be consistent with the Government's view that such countries should stand on their own two feet. Nevertheless, it gives some small scope. In the same way we can only applaud the decision to increase the upper limit of borrowing from £100 million to £150 million. It should be made quite clear that we on this side of the House—the Party to which I belong—profoundly disagree with the policy of the Government towards the Corporation and towards the scope of the work of the Corporation, and in particular to the question of the Corporation's ceasing work where a country achieves independence.
At the risk of some repetition, I think it should be made quite clear why we disagree with this. The reasons that have been advanced by the Government at various times are, I think, three. In July of last year the noble Earl, Lord Home, said that it would be no contribution to the independence and status of those emergent countries to give them the impression that they can rely endlessly on the British taxpayer. Nobody has ever suggested that they should. The period following independence in ex-Colonial countries: is obviously a difficult one. The period preceding the grant of independence naturally means the emergence of political Parties, political disputes and possibly racial disputes within the country; they all find expression in that period, and there is in various degrees political instability. That, clearly, would be a factor which would militate against the obtaining by the country of private capital from external sources. We are told that they should be encouraged to achieve credit-worthiness as soon as possible after independence. By all means they should; but there must be an interim period when help towards the development of their economies should continue from the original source; and, of course, there is no question but that the Colonial Development Corporation operates only with the consent of the receiving Government.
The question of attracting outside capital to a territory that has newly achieved independence is one that we cannot accept as a matter for the country itself. Time is needed for the country not only to 794 achieve political stability but also to show the rest of the world that it has achieved that stability. I cannot fancy, for instance, in our own history, that England emerging from the Wars of the Roses would have been a very attractive proposition for outside capital, and it is in that sort of context that one must look at the countries which are emerging to independence.
Secondly, we have been told by the noble Earl, Lord Home, and by his Under-Secretary in another place, that the independent countries themselves do not want help from their former masters. My Lords, there has never been any evidence in support of that statement. Indeed, the only evidence we have seen is directly to the contrary—the evidence printed in the Colonial Development Corporation's Report of last year. I cannot believe that there is any substance in that argument, or that any serious objections have been raised. Indeed, all experience shows that independent countries are quite ready at any stage of their careers to accept economic help, provided, of course, it is without strings. We know that the Colombo Plan has resulted in Eastern countries receiving large amounts of help from Western countries.
Finally, there is the argument that the Corporation should concentrate all its resources on the remaining colonial territories and not divert its resources outside. People speak as if this were an expansion of the work of the Corporation, whereas in fact it makes no difference at all. A country that has been receiving help as a colonial territory becomes independent; it needs no more capital and no less. If help to independent countries is cut off, then indeed there would be more of the resources of the Corporation left to spread among the colonial territories. That certainly is so. But that has to be balanced against the proved needs of the emergent territories. For all those reasons, we want to make it clear that we profoundly disagree with the present Government's policy.
We disagree also with the Government's view that finance for colonial development should come primarily from private sources. Clearly, that comes out in every speech from noble Lords and others on the other side. But all experience shows that private capital flows not to where it is most wanted but to where 795 it can earn the greatest profit. That, surely, was the source from which sprang the need for Government assistance. It became clear that private capital could not do the job. The Corporation was set up to cover just that field where private enterprise would not have entered. And yet the Corporation, having been given a commercial task of working at a profit, has been denied the commercial structure which would have enabled it to carry out its task.
I was glad to read that in another place both the Secretary of State for the Colonies and the Under-Secretary referred to the matters connected with the reconstruction of the Corporation's capital structure, and said that these are subjects for investigation and consideration at present. The noble Earl has told us just now—at least I understood from his speech—that there is still no news that he can give us of the result of those investigations and considerations. I should like him when he winds up to tell us what the prospects are of reaching some finality on these investigations, because, as he can imagine, this is a matter that seriously affects the Corporation and the whole future of its work.
A good deal was said by the noble Earl just now about the raising of outside capital, and although he emphasised the desirability for the Corporation to raise capital from outside sources, non-Treasury sources, he was not very helpful in suggesting under what conditions the Corporation would be allowed to borrow. He mentioned that on the question of the pledging of the assets of the Corporation each case would have to be judged on its merits. On the question of whether a Treasury guarantee would be given, I think he said it would be considered in the light of all the circumstances. Can he really not give rather more serious guidance as to the conditions under which the Corporation would be able to enter the golden field that he sketches out for them, with all the private capital waiting to be garnered and used for the purposes of the Corporation? I think we should like a little more firm hope and firm guidance upon what the Corporation can expect. Subject to those limits and the disagreement on policy, this Bill does some good and we shall support it.
§ 4.30 p.m.
§ LORD MILVERTONMy Lords, in rising to say that I support this Bill, I want to make a certain number of critical comments, partly on what is in the Bill and partly on what is not in it. I find myself in considerable agreement with the speech of the noble Earl who has just sat down. There is one thing he said, though, that I do not agree with; and that is his comment about avoiding repetition. I agree with him that almost everything that could be said on this subject has in our past debates already been said, but I am not so pessimistic as to think that the Government are entirely impervious to reason, and once more I want to make one or two points which I think ought to be made in that connection.
In looking back over the debates of the last few years on this subject one is apt to remember the proverb, or the saying, "Knowledge comes but wisdom lingers." My Lords, we have bought a lot of experience over the Colonial Development Corporation, and surely it would be no shame to us now to admit that the 1948 Act was imperfect in conception and unrealistic in its provisions. But apparently we continue to move about in worlds not realised, and if one looks back on many of the debates they are rather confused by eulogies of colonial achievements and so forth which, however true, are not relevant to the subject. Looking at the history of the Colonial Development Corporation I am reminded of waters, which were once familiar to me, of North Borneo, which are strewn with reefs, every one of which bears in its name a record of a ship that struck it in the uncharted days and sank. The early history of the Corporation is strewn with wrecks; with hopes that foundered on inexperience and haste that mistook rashness for enterprise. But I deplore recriminations on past mistakes. Indeed, I can hardly stand here and recriminate about them, because I myself was for several years a member of the Board of the Colonial Development Corporation, and I was present and therefore participated in some of the mistakes that were made. But I think we ought to try to avoid dogmatic determination to maintain conditions which multiply the possibilities of future failure.
797 The noble Earl who moved the Second Reading said that the financial conditions and position of the Corporation were under consideration, and he left us with the vague hope that, at some unspecified distant future, the Government might make up their mind to meet some of the criticisms. I do not think that that is enough to induce one not to say, once more, what one considers to be the weakness in the Corporation's financial position. Surely it is not businesslike to have a 100 per cent. loan structure for the fulfilment of risk-taking tasks. May I once more remind your Lordships of what was said in the 1951 Report of the Corporation? It read like this:
The Corporation is constituted to operate commercially, but its financial circumstances and conditions are at variance with commercial practice and purpose; the crucial distinction lies in the fact that the capital structure includes no ordinary shares, hut only debentures; the crucial result is inelasticity; moreover, any loss—the normal result in the first phase of development—means failure to fulfil the obligation to pay interest and principal.No margin is left in this structure for investigations and pilot schemes for which, surely, some part of the capital should be available with no fixed obligations as to interest or repayment of capital. There are special losses of over £8 million, lost on pre-1951 jobs, that were abandoned wholly or in part. Those still have to be repaid, and interest runs on. How can new projects which have difficulty to do more than service their own capital do any of this in addition?The C.D.C. is also designed to serve certain political and social ends of public policy while, at the same time, remaining a commercial instrument. If it does not make money, at least it must not lose it. In such circumstances special rates of interest would seem to be justifiable. After all, these incompatible components, idealism and 10 per cent., are not the businesslike approach which is laid down in the Act to restrict the activities of the Corporation. The Corporation does operate, as we know, in a marginal field, and it is handicapped by the interest rules laid down for it. When once the estimated capital requirements for a project have been sanctioned, advances are made in instalments as the work proceeds. The rate of interest is that prevailing at the time of such advances, and remains so for the full term of the advance; so that original estimates may be falsified 798 by a subsequent unforeseeable rise in interest rates. I have been speaking largely of things that are not in this Bill before us but which, in my view, ought to be there. We have been told that the Corporation's financial structure is under consideration and review. But can the Government tell us a little more explicitly when this review is likely to be completed, and whether it is proposed to introduce, for instance, any amending legislation this Session? Such a declaration would at least relieve some misgivings.
Now to look briefly at the provisions of this Bill. If we grant that the Government's myopia is incurable, the three purposes of the Bill at least are welcome, so far as they go. One is glad that in the newly independent territories existing projects, those started before independence, may continue, and that in approved circumstances fresh capital may be injected into such projects. One is also glad that managing agency business or advisory services may be performed in an independent territory; also that the C.D.C.'s long and medium term borrowing powers are increased from a maximum of £100 million to £150 million, and the Government's power to make advances similarly from a maximum of £100 million to £130 million, leaving £20 million, plus £10 million (temporary), to be raised otherwise. I have just sketched in that picture, because I wish to make some comments on it.
To return to what I have called "Government myopia," is it not regrettable that, at the time when they most need help—that is, on achieving independence—the emergent territories should be excluded from new projects? Why close that door? The Colonial Development Corporation is known and is experienced whereas these other organisations—the Commonwealth Development Finance Company and the rest—are not constituted or fitted for a similar purpose. After all, the control of the Secretary of State and the Treasury over the operations of the Colonial Development Corporation is, ultimately, complete, and they can regulate what sort of project is to be supported. It is surely chiefly in the emergent territories that opportunities will occur. The diminishing residue which will consist of smaller and poorer Colonies are more suitable subjects, I 799 suggest, for Colonial Development and Welfare help. The Colonial Development Corporation is meant to be a business organisation: it is not a charitable or poor relief channel. I appreciate that private enterprise and self-help must do the bulk of development work in these emergent territories; but surely it is precisely the job of the Colonial Development Corporation to help colonial territories, whether past or present, to reach an economic stability which will be sufficiently attractive as a field for private enterprise.
I know that the original purpose of the Colonial Development Corporation is to help territories where we have a special responsibility, but surely this should include territories where, owing to too rapid political development, we have left our economic work incomplete. As I see it, help to such territories would not be, as has been suggested, a diversion from the proper course of funds meant for colonial territories but, so far from that, would be a fulfilment of original hopes and intentions in relation to these territories. Incidentally I cannot for the life of me see what can be the objection if we follow the example which has been set in other cases. If the name constitutes any obstacle, what objection can there be to changing the name to the Overseas Development Corporation? We have changed "Colonial Service "to" Overseas Service" and there are instances of similar changes. I see no reason why we should boggle if it is necessary to alter this one.
To turn to subsection (2) of Clause 1, dealing with the management agency, surely the provisions here are quite unrealistic. Will any Government employ the C.D.C. in such a capacity if it is itself prevented from putting any money into the business? I quite understand that the bulk of development will come from private enterprise, but, as I have tried to say, the function of the Corporation is to help to create the economic strength which will attract private enterprise and always, if possible, to stimulate the participation of private enterprise and the local Government itself in a tripartite partnership.
Lastly, about borrowing powers, presumably the Corporation will be allowed to use money borrowed from 800 sources other than the British Government to finance new development in emergent territories, though, as was said in another place, it may be necessary for them for that purpose to form a subsidiary company. If that is the case, what is the objection to increasing tile borrowing "ceiling" of the Corporation so that more money can be borrowed for this purpose? I should like to repeat a question. Will Her Majesty's Government tell us in what circumstances the Treasury will be prepared to exercise their powers to guarantee Corporation loans? In introducing the Second Reading the noble Earl, Lord Perth, gave a somewhat vague reply on that point. If I interpreted him rightly, he said that it would all depend on the circumstances at the moment, and that no-one could say in advance what would be the attitude of the Treasury. If that is the case, we might at least be told what criteria the Treasury would use in determining whether to give their consent to the amount, source, or terms of such borrowing. I understand that the C.D.C. cannot borrow outside their assets, because those assets are already pledged to the Treasury. On what security, then, can the Corporation borrow? If it is not contemplated that a Treasury guarantee should become the normal accompaniment of loans which the C.D.C. may secure from sources other than the Exchequer, what security can the C.D.C. offer other than such assets as may be created by such a loan?
I am aware that in these discussions the idea of Commonwealth participation has constantly been mooted, but, like the idea of a Colombo Plan for Africa, it does not seem to me that that can be relevant to a Bill such as this, because such plans would inevitably involve supersession of the C.D.C.—not its enlargement or amendment, but its complete supersession. Obviously, too, such an organisation could not work under the control of the Secretary of State and the Treasury; and in any case, as one knows, countries like Canada would want to manage their own investments in their own way and at their own time.
I suggest that those who talk of a Colombo Plan for Africa must also remember that the Colombo Plan for help to undeveloped territories is primarily concerned with helping them to help themselves and is not hampered by the need to make money or at least to "break 801 even", as is the C.D.C. I suggest that the C.D.C. should undoubtedly have a separate fund of some kind to spend on investigation and pilot schemes. If, as is frequently the case, it were found that the proposed scheme when examined, could not proceed without the provision of roads, communications and services of other kinds, then, it seems to me, the Government of the territory should be approached and asked to make such provision, whether out of its own resources or with the help of Colonial Development and Welfare funds. It should not be part of the responsibility of the Colonial Development Corporation to do work of that kind, which I suggest is essentially Government work. And so, my Lords, I support this Bill, regretting only that the chance has not been taken to broaden its principles and enlarge its scope.
LORD SAYE AND SELEMy Lords, I should like to draw attention to one small word which was used by the noble Ear; speaking from the Front Opposition Bench. I claim no special knowledge of high finance or colonial affairs, but the noble Earl referred to these emergent nations as either wishing or not wishing to borrow money from their former masters. It struck me very forcibly that the term "masters" is a very old-fashioned one to use to describe our present relations with these other people. I do not imagine that the noble Earl intended for that word the meaning with which it struck me.
§ 4.50 p.m.
§ THE EARL OF PERTHMy Lords, this is, in a sense, an enabling Bill, and therefore, although various points have been raised by noble Lords, it is satisfactory to know that after making their various points they have given it their blessing. I would take one or two points which were raised both by the noble Earl, Lord Lucan, and by Lord Milverton. The first was the question whether the Corporation should continue to operate in countries after they have achieved their independence. I think there is a good deal of—I do not know whether the right term is "wishful thinking" about this situation or whether it is "unreality," but the fact is that the countries about which we are speaking, or the ones about which I assume we are speaking—namely, Ghana and Malaya—are 802 both pretty well off. There is not any great problem, so far as they are concerned at this moment.
Also, I think we must keep a sense of proportion. The Corporation, generally speaking, makes advances of one kind or another—investments of perhaps £5 million or £6 million a year. The total investment in the Commonwealth is about £200 million, so that what we are talking about is, at best, some 3 per cent. of the total. The two countries to which I have referred have, in fact, resources of their own. There was some talk about the Wars of the Roses, strife and so forth, in them, and I must say that on their record that does not hold true. Whether one considers Ghana or Malaya, over the years before they became independent they both handled themselves in a way which one would expect.
Which is the country which has such a prospect in the near future? It is Nigeria. And Nigeria also happens to be rich—we are very glad about that—and has large sterling balances. Therefore, I think that all this talk about leaving these poor countries out in the cold once they have become independent has a good deal of unreality about it.
The second point raised was that of the noble Earl, Lord Lucan, when he said that his Party did not believe that private sources should provide the main investment for the Colonies. The implication from that was, I think, that it had not worked very well. When I consider the Colonies and the countries which have become independent over the more recent period of time, I should think that it worked very well—in fact, quite remarkably. We ought to have a sense of proportion about this matter. Gross capital formation in the Colonies in 1956 amounted to about £450 million. The greater part of that came from the Colonies themselves. They were able to make a tremendous investment themselves because, over the years, private sources of capital here had helped to develop them. But about £90 million of that £450 million did come from outside sources, and the greater part of that came I from the United Kingdom. Again, however, almost all of that money came from private sources, and quite rightly too. We believe that private investors have done a very fine job; they "know their stuff"; 803 and I certainly think it would be a disaster if at this time we tried to change a trend which has been so well established and so successful.
Private sources invested in the Colonies fourteen times as much as the Colonial Development Corporation in the years 1954–56, and Colonial Governments on the London market raised four times as much as the Colonial Development Corporation invested. This, my Lords, is no criticism of the Colonial Development Corporation—far from it—but I think it is important that we should maintain a sense of proportion and appreciate what great work has been done by all those who have developed not only the Colonies, as we know them to-day, but also the Commonwealth; and that has been done through private venture and private sources.
The third point that was raised was on the question how the Corporation could borrow from outside and what the terms would be. Lord Milverton asked whether the Corporation would be able to pledge its assets. I did, as a matter of fact, choose my words on that point very carefully, and, rather than repeat what was a fairly long statement on that matter, perhaps it would be sufficient for the noble Lord to look at the record to see what I said. But, further on this point, it is very difficult to give any exact guidance or to lay down any principles. It really must depend largely on the circumstances and on what the Corporation itself may want.
I know that in some ways the whole of the question is tied up with the other point which noble Lords have raised—namely, that of capital reorganisation. Therefore I will just turn to that point and leave the question of whether and how the Corporation could borrow from outside. What I said previously was based on the recognition that in some measure it depends on the capital reorganisation, which I am going to speak upon now. I think that in order to make the record clear, however, I should say that I understood the noble Lord, Lord Milverton, to say that he assumed that the Corporation would be allowed to lend to emergent territories money which had 804 been raised from outside sources. If the noble Lord said that (and that was what I understood him to say) I would say that that is not correct. Their powers are laid down in the Bill and they can invest in territories which are no longer Colonies only if it is for the purpose of continuing a project which has already begun or for the purposes of an already existing project which may be modified or extended in some small degree.
I turn, lastly, to the question of capital reorganisation. First let me say that, far from not wanting to hear the various points raised by the noble Lord, Lord Milverton, I think it is an excellent thing to have them repeated, because that puts a new slant on a problem which we are considering very carefully at the present time. I am not able to say exactly when we shall be able to make an announcement on what may be or may not be possible. It is one of these very difficult questions. I said this in my earlier statement, and I think I should repeat what I said: that on the capital reorganisation, we understand very well the anxieties of the Corporation. Points such as special losses or interest charged are important and they are recognised as such. But they raise very difficult matters of accounting and policy. At best they will take a good time to work out.
My Lords, we thought it would be better to go ahead with what we knew was the wish of everybody, particularly the Corporation, and to get the present Bill through rather than to wait for an unspecified time to deal with these other points as well, because we wanted the Corporation to get on with its job and to have the powers to do it. So there we are. It is a subject of which we are very well aware. We have a great deal of sympathy with the Corporation and its anxieties. I do not think I can say any more. Therefore, my Lords, it is my pleasure to wish this Bill well in what it sets out to do. I know that the Corporation will employ its new powers and its new funds to useful purposes. I beg to move.
§ On Question, Bill read 2a; and committed to a Committee of the Whole House.