§ 7.3 p.m.
§ LORD SHEPHERD
rose to ask Her Majesty's Government whether, having considered the proposed merger of Imperial Chemical Industries and Courtaulds, they will in the general interest refer the proposition to the Monopolies Commission. The noble Lord said: My Lords, although the hour is late and the attendance is thin I feel that I should proceed to put the Question standing in my name on the Order Paper. At the beginning of this week an announcement was made by the Chairman of Imperial Chemical Industries to the effect that, after friendly discussions, there was the intention to create a merger between Imperial Chemical Industries and Courtaulds. The Financial Times of yesterday described the matter in this way:The take-over bid that I.C.I. has made for Courtaulds is a major event in the history of British business".I believe the issue is such that Parliament should give some consideration to it. This is not an ordinary take-over. It raises considerable matters of policy, and I believe that in the interests of the shareholders of Courtaulds it is well that 811 we have a statement from the Government of their position. We could hardly wait until we returned after the Recess, because then the merger may have been completed.
I personally am not against take-over bids, as such. I believe that by certain mergers much good has been done, and certain firms have been made more virile by the finance that has become available to them following a merger. But I believe that when very large organisations which play a vital part in our industry become involved in takeover bids or mergers careful consideration should be given to the position not only by the Directors of the company but also by the Government. The Conservative Government have always made their position quite clear. When Mr. Peter Thorneycroft was introducing the Restrictive Trade Practices Bill in the other place on March 6, 1956, he described it asreinforcing the system of free and flexible competitive enterprise which we on this side of the House foster and sustain.I must put the question whether a monopoly of such a magnitude as will be created through the merging of Imperial Chemical Industries with Courtaulds will provide the competitive enterprise that the Government wish to sustain.
I think we should consider the position of these two companies. I would, first of all, make it quite clear that my remarks are in no way intended to be critical of these companies. Both are very successful and virile, and they have done a tremendous amount for British industry, particularly in the field of research. It is perhaps for that reason that they hold so much influence and power. This is not the first occasion that we in this House have expressed disquiet about take-overs and mergers. Not so long ago we had the question concerning newspapers; then there was the Guest Keen & Nettlefold merger with Delta Metals, and there have been others. We have seen over the years. and particularly of more recent months, a great concentration in industry. I would remind the House of the merger between Tube Investments and Raleighs, when over 80 per cent. of the production of bicycles came under one control. I have to ask noble Lords whether they are happy with that situation.
812 To come back to I.C.I. and Courtaulds, I.C.I. have net assets of £695 million; they have 95 subsidiary companies, 54 of which operate abroad. Courtaulds have net assets of £207 million: they have 78 subsidiaries, 42 of which operate in the United Kingdom and the remainder abroad. These companies are not, as many people believe, companies that are producing simply one line of production. They are very large groups. In many ways their productions and interests are twined and intertwined. They have grown up by force of circumstances. The Imperial Chemical Industries were started as a chemical firm, and by force of nature and force of circumstances they were driven into textiles and other lines, such as paint, plastics and paper. Courtaulds, who were initially a textile firm, again by force of circumstances, have moved into chemicals.
If this merger goes through, in the man-made fibres industry, which is basically a chemical industry, the new group will account for over 90 per cent. of production in this country. If it goes through, in the paint industry, the subsidiaries of both these groups are, I believe, the biggest producers of paint in this country, and they will be responsible for from 25 per cent. to 30 per cent. of production. In the case of plastics and paper, their position is equally important. But what is interesting to note is that throughout industry, and particularly in the items that I have just mentioned, both Courtaulds and Imperial Chemical Industries are themselves responsible for the production of the raw materials. If the proposal goes through, the group assets will be in the region of £900 million.
But I do not believe that is the real issue. I think the real issue lies in their interests, in their production, and the question of distribution. It is said by the Chairman of Imperial Chemical Industries that the purpose of this merger is that it will make them strong to face international competition, particularly when we enter the European Common Market. I think there is some truth in that. But it is interesting to note that in the man-made fibres, the nylons and the Terylenes, there is very little physical transfer of goods to any part of the world. Most of the production is done under licence. Imperial Chemical Industries have a licence for 813 Terylene, and they also grant sub-licences to other parts of the world. In fact, in 1958 I believe only 10 per cent. of the entire production of man-made fibres was exported. Therefore, it would appear at the present moment that the main distribution for man-made fibres will be in the United Kingdom.
Therefore, I think the Government must consider whether this merger is going through for future development in overseas markets, or whether it is being created to bind tighter the already existing agreements and arrangements that there are, not only in this country but overseas, and perhaps, as far as this country is concerned, in regard to the Restrictive Trade Practices Act. It is interesting to ask—and this is again a question which the Government must face—if this merger goes through, where will it end? In recent months and last year both these companies have been absorbing virile organisations. Courtaulds amalgamated with one of its main competitors, British Celanese. The whole progress has been to concentrate power into these two organisations. To what degree there was competition between them it is difficult to assess. But it is again interesting to note that they had a 50/50 partnership in British Nylon Spinners.
It is true, on one side, that Courtaulds were on nylon viscose production (again, I am talking of man-made fibres) whereas I.C.I. were on Terylene. It may well be said that they competed with each other. But if this merger goes through there will be no competition. The policy of the Board 'obviously will be to relate both productions for the market needs. I would submit that, if this merger goes through, in the manmade fibre industry the monopoly will be complete. I should remind the House also that, apart from these restrictive arrangements, this industry is also well protected by tariffs. As an illustration, rayon and nylon yarns coming into this country from the Continent 'have a 20 per cent. ad valorem duty, plus 9d. per lb. weight. From the Commonwealth and E.F.T.A. there is a slightly lower tariff. But it is quite a high tariff on such a bulk item. Therefore, we have the position that, if this merger goes through, in the man-made fibre industry 814 you will have a complete monopoly protected by high tariffs.
I will not go over the other items where these two companies have arrangements, and where the arrangements will become complete through the merger. But I feel that the question I must put to the Government is this. Are they themselves satisfied that the benefits they wish to see in industry—virile competition, from which efficiency and low prices will arise—will flow from this merger?
On an Unstarred Question I have no right of reply, and therefore to some extent I must anticipate the reply of the Minister. I understand that the Monopolies Commission are not in a position to study or rule upon a hypothetical question and that this present case is hypothetical in that the merger has not been completed. I think that is true. Equally, a Monopolies Commission in practice takes a good deal of time in making its Report. In this particular case and in others which no doubt will arise—because the whole trend of 1960 and 1961 is one of increasing mergers—it seems to me that the Government will need new machinery, because if this type of proposition arises, an urgent, prompt decision must be made, not only for the benefit of the company, but also for the benefit of the shareholders. I believe present trends definitely show and justify that a fresh look by the Government should be made in the machinery that is available.
I feel that I have been guilty of going rather wide of the Question, but this is the immediate issue. Two large companies of national importance may merge with or without the consent of the directors. The arbiter may be a question of price or profit to the shareholders. A complete monopoly on a certain side of the industry will be created. May I remind the noble Viscount, Lord Hailsham, of some words that he uttered on November 7, words which I thought had a good deal of wisdom in them. He said [OFFICIAL REPORT, Vol. 235 (No. 4), col. 339]:Excellent as our system of negotiating may be, I must testify personally that in the five years in which I have been in the Government I have seen case after case where agreements have been made between employers and employees, or awards have been made by 815 arbitrators after hearing arguments between employers and employees, in which the public interest could not possibly have not been made a determining factor in any of them, and where nobody was present to argue the case for the public interest where what determined the matter was not what the public economy would stand, but only what the parties were willing and able to pay ".That is probably, in context, a little wide of the subject but I think it is clear what was meant.
I submit that in cases like this, if it applies to wages it certainly applies to the question of capital and industry. I think that where an issue arises in which the public and the nation may be in a position of loss through the creation of such a monopoly, there should be some quick, flexible machinery, and if it applies to wages I certainly feel it should apply to industry and capital.
§ 7.22 p.m.
§ VISCOUNT HAILSHAM
My Lords, the noble Lord, to whom I am much indebted for the way in which he has asked this Question, has raised a number of very wide issues and, as he said, he put a number of questions to the Government. While I welcome, as will emerge I hope in my reasonably short remarks, the raising of these issues, the only question he has asked the Government is whether, having considered the proposed merger of the two companies, they will in the general interest refer the proposition to the Monopolies Commission. Really, therefore, there are two kinds of question which I have to answer, one the Question on the Order Paper and secondly, the kind of general reflection with which the noble Lord introduced it.
Now I am glad that this question has been raised in Parliament, because the issues are obviously important and deserve public discussion. I am also glad that it has been raised in this House of Parliament, because I think there is a genuine danger that these issues, which are really very complicated and important, might become the subject of rather stereotyped Party attitudes. Those of us who support competition—among whom I would certainly number myself —are rather apt to think of competition in 19th century terms, between relatively small units of production or distribution, and not to realise that in the modern world advanced technologies 816 may involve a somewhat different conception, which I shall try to examine very shortly. On the other hand, I think those noble Lords who favour what I think they themselves describe as Democratic Socialism—and I make no attempt to-night to define either term—are rather apt to think again in the terms of the evils of the capitalism of the 19th century, and of a national corporation or national machinery, as the noble Lord has referred to it, as the right remedy for these evils. I think in truth and fact we are up against something different and more fundamental than either Party is prepared to acknowledge at the present time.
However, before I consider these wider philosophical questions of general policy perhaps I may call them that—I must deal with the question on the Order Paper and some of the practical constitutional points raised by it. Since the war, two main Statutes have been passed to deal with monopolies and restrictive practices; one by the Labour Government and one by the Conservative Government; and they are, respectively, the Monopolies Act, 1948, and the Restrictive Practices Act, 1956. Together they form, and are intended to form, part of the Code. One is a complementary Statute to the other. Neither Government have so far thought it proper to ask for, or to receive from Parliament, statutory power to interfere with the purchase and sale of shares in the public market, although, of course, both Governments retain restrictions on the export of capital abroad, which gives them some power to control mergers if control or money were to pass outside the country. This is a subject I am not going to deal with to-day.
Clearly, therefore, there could be no question under any existing Act of Parliament of referring the desirability of the purchase of shares—what is popularly called a take-over bid, which covers a multitude of activities, whether sins or not—to the Monopolies Commission or to any other existing body. The noble Lord really admitted such when at the end of his introductory remarks he said that what was needed was some kind of "quick, flexible machinery ". There is nothing which could be referred to the Monopolies Commission in 817 accordance with the suggestion in the Question. Whether, should the merger go through, there will be anything which it is worth referring to the Monopolies Commission is, of course, another matter which I must leave open until the merger has gone through and until my right honourable friend the President of the Board of Trade, at whose discretion it lies under the Act of 1948, has had time to consider the implications of the subject. Probably the House will come to the conclusion on both sides that, even if there is something to refer to the Monopolies Commission, it is not really the important question which the noble Lord has raised.
If I may go back to the Statute for a moment in order to illustrate that point, the situation its as follows. The Monopolies Commission was created by the Labour Government following, I think, the recommendations of my noble friend Lord Woolton, when he was Reconstruction Minister during the war, in order to deal with a state of facts which could exist as a result of a merger, but something on a very much smaller scale and of quite a different order from that which the noble Lord was really dealing with in his introductory remarks. Reference can be made to the Monopolies Commission, if monopoly conditions prevail—that is to say, if control of, say, one-third of the supply (I think that is the proportion mentioned in the Act) is in the hands either of a single concern or of a series of inter-connected concerns.
Now the position in this field—I am going to ignore paint, where I do not think it will happen, either before or after the merger arid other activities which I do not think really matter for the purpose of my present answer—is that monopoly conditions already existed in the field of man-made fibres, independent of the proposed merger. The result of the inter-connected shareholdings of the two firms concerned, and in the third firm referred to, in relation to nylon spinning, is that monopoly conditions already existed because of the interconnected shareholdings of the two firms. Therefore, it would be possible for my right honourable friend, quite independently of this merger, to refer questions in the 818 field of man-made fibres to the Monopolies Commission. The effect of the merger, if it takes place, will in this field, I am advised, be only marginal, so far as the creation of monopoly conditions is concerned, precisely because they already exist. The effect will be that, instead of its being true, as it is, that monopoly conditions exist in a series of man-made fibres such as terylene, nylon 66, and so on, it will be true that in man-made fibres as a whole monopoly conditions will exist, because the manufacturers of the different fibres will by that time have merged or amalgamated.
The effect of that, strangely enough, will, I think, be only marginal. It will reduce the amount of competition only to this extent. At any rate in theory, there are a number of fibres which the consumer—by which I mean the user of the end-product—could select as suitable for his particular purpose, a choice between terylene and nylon, and to that extent the monopoly conditions will be accentuated by the merger. But this is relatively rare, since in actual practice the particular fibres concerned are different kinds of fibre, used not for competitive purposes but for different purposes; that is to say, they occupy different areas of the field. The result is that the monopoly conditions which already exist, which cover the entire field, fibre by fibre, will not be very materially increased as a result of the merger.
This, of course, does not mean at all that my right honourable friend may not think at some stage that there is something to refer to the Monopolies Corn-mission. Where monopoly conditions prevail and he considers it would be worth while, he must obviously have that question in mind. But I should not myself think that it really determines any of the particular issues raised by the noble Lord, because the truth is that the Monopolies Commission is not the kind of animal which was created for the purpose of discussing these very wide issues which the noble Lord has raised. It is obvious that where monopoly conditions exist in, say, the manufacture of electric light bulbs or car tyres, the Monopolies Commission would have a say. But we are dealing here with a merger of companies with £1,000 million of capital, and it was not 819 the purpose of the Monopolies Commission to deal with this kind of thing.
I would agree with the noble Lord that the question one has to consider is whether a fresh kind of machinery is required or not—not whether it should be referred to the Monopolies Commission. But I do not think it would be appropriate to embark on this extremely difficult and thorny subject. I would say, in passing, that I welcome the acknowledgment by the noble Lord that mergers are not intrinsically bad and that bigness is not necessarily a synonymous term for badness in this connection. I think we all ought to see that and agree with it. I think also it is remarkable that, although a great number of mergers on one scale or another have taken place in recent years, there is remarkably little evidence—I should say no evidence, but it may be that I should be challenged on that—that any particular merger which has taken place has in fact operated to the public disadvantage.
That being so, I think we must ask ourselves some questions. One of the criteria of the public interest laid down by the Act of 1948—and I choose that simply because it was the Labour Government's Act—was the efficient production and supply of the articles in question. Of course, in the 19th century when raw materials were largely naturally obtained by industrial agriculture and processed by relatively small firms, we thought in terms of competition between these relatively small firms or. as I say, State monopoly. This was the classical argument between Socialism and private enterprise, which I am afraid still goes on, although I had hoped that after the war it might take on a rather more constructive phase. But over great new ranges of really advanced technologies, of which one can think of a whole number, it is becoming increasingly obvious that the old size of production unit is no longer appropriate to the process involved. Capital involved in the manufacture of computers or manmade fibres or the generation of nuclear energy is something quite out of proportion in scale to that of the production unit or distribution unit of 19th century industry; and in the latter part of the 20th century, whatever system of production or distribution you choose, we are dealing with giants, and giants of 820 this scale—they may not always be so big as to have £1,000 million of capital, but sometimes millions of capital and sometimes hundreds of millions.
It is quite clear, whatever we do about monopoly, whatever we do about Socialism and whatever we do about private enterprise and competition that these technical factors are going to dominate the scene in one way or another. In passing, I accept wholeheartedly the statement by the Chairman of I.C.I. which was made on the wireless the other day, that his motive in promoting this merger was that of creating a scale of unit of a technological kind rather than trying to tighten up arrangements, as the noble Lord put it. I think it is a true view of the problem, although of course we shall see how it works out in practice.
But the point about this, of course, is that it does set a lot of problems for all of us. In the first place, some people think that it gets rid altogether of the reality of the discussion between monopoly and competition. It sometimes does. Nuclear energy is, so to speak, an operating monopoly; these great power stations of 500 megawatts we are putting up now cannot compete with anything except conventional fuel power stations, which are controlled, rightly or wrongly, under the Labour Party's Act, by the Central Electricity Generating Board. The same is going to be true of a great number of kinds of production where really advanced technology is employed. But I think a second look leads one to the conclusion that something quite different is really happening. In this field of man-made fibres, for instance, to take a relevant one, there will be, I think, quite bitter competition, but it will be competition between the giants. The giants are not small firms operating within the United Kingdom, but the United Kingdom giant, if it comes into being, the American giant, and I think it is the French giant —certainly the European giant. If we enter the Common Market, which the House has already expressed the desire to do, that competition will be quite severe. I agree that this raises the whole question of tariffs, although I do not propose to try to answer it this evening.
821 Quite obviously you have there got competition, but on an entirely new scale. One must not therefore assume too readily, as I think many people in all Parties tend to assume, that when a merger on this gigantic scale is contemplated you thereby automatically get rid of competition. Very vast competition goes on between oil companies, between different types of industry providing the same service—road and rail is a good example; there is oil and coal; there is conventional fossilised fuel and nuclear energy; there are these different units of production in the chemical industry and in man-made fibres industries, this vast and intricate process of macromolecules being used for manufacturing raw materials which previously could only be derived from agriculture. This obviously sets us all difficult problems.
The only point I want to make this evening is a double one. The first is that no political Party which values its reputation for being contemporary can fail to face these problems in some form or another, and no political Party that wishes to arrive at solutions can adopt stereotyped attitudes derived from its forbears. This does not necessarily stultify the healthy controversy between the two Parties, but it means that it ought to be conducted on an extremely constructive level. The other thing is that I personally do not believe that when we are dealing with things of this kind Parliament can yet afford to shelve its direct responsibility. This would mean, in my own view, that we should he quite wrong, and in the view of the Government, that it is probably premature to talk in terms, such as the noble Lord opposite did, about the flexibility of the machinery, because until you have verified your principles about what is to be to your interest or advantage—you do not know which of them will take the form of debates ranging over months, and I should have thought, probably years—it is not much good delegating your responsibility to a body which is not directly responsible to the nation.
Moreover, I would make this last reflection: that more and more, I think, we are coming to see with these really advanced technologies and units of production that not all of them, and perhaps not most of them, can be fixed into a national mould. Certainly in this kind 822 of field you get into international economics before you know where you are, and therefore the national corporation or the national machinery is not necessarily the right way of approaching it. This was recognised, I think, in a dim way in the Monopolies Act, when the fact had to be faced that the. orders of the competent authority would not have very important extra-territorial effects. But I think the issue is much deeper than that, and that is when we move to a scale in units of production in the advanced industries when the nation is not the appropriate organ through which to exercise control.
It is obvious, I hope, both that I have tried to deal rationally with the actual Question on the Order Paper and that I have shown that the noble Lord was quite right in raising in this House the wider issues in the discussion which I do not pretend that I have adequately covered, in my rather sketchy reply.
§ LORD SHEPHERD
My Lords, I do not propose to break the rules. I thank the noble Viscount for his reply and, if I may, I wish him a happy Christmas.
§ VISCOUNT HAILSHAM: The same to you.