§ 2.35 p.m.
§ Order of the Day for the Second Reading read.
§ THE PARLIAMENTARY SECRETARY, BOARD OF TRADE (LORD RHODES)
My Lords, I beg to move that this Bill be now read a second time. I suppose that one of the phenomena of the latter end of the 19th century and of this century has been the efforts that have been made all over the world to cope with the possible abuses that stem from monopolistic practices. I think I am right in saying that the first effort was made by the United States in 1890, with their Sherman Act, and they followed it, in 1914, by the Clayton Act. Since then all over the world something in the way of comparable efforts have been made to cope with this problem. Here in this country we have followed our cautious and characteristic desire to evolve our legislation gradually, and we began in 1948 with the Labour Government's Monopolies and Restrictive Practices (Inquiry and Control) Act. It was followed in 1953 by an amending Act of a similar kind which enlarged the Monopolies Commission from 10 to 25 and enabled the Monopolies Commission to work in groups. Thereafter, until 1956 when the Restrictive Trade Practices Act was brought in, they worked in groups. But after the 1956 Act that was 1068 discontinued and the number of members of the Monopolies Commission was reduced.
This Bill is really amending the 1948 Act. The 1948 Act will remain the basis of legislative policy on monopolies. The 1948 Act provided for an impartial, thorough and administrative investigation into the facts of monopoly situations and their effects. I mentioned that in 1956 we had the Restrictive Trade Practices Act. Under Part I of that Act many restrictive arrangements were made registrable and referable to the Restrictive Practices Court. In 1964 the Resale Prices Act was enacted which, subject to provisions for exceptions, makes the particular restrictive practice of resale price maintenance generally unlawful. The provisions of the present Bill make no amendments to Part I of the Restrictive Trade Practices Act. The reason is that there was not time or opportunity this Session to do all that needs to be done. This does not mean that the Government are satisfied that the 1956 Act is completely effective as it stands. Noble Lords will know that recent decisions of the Restrictive Practices Court may have made some people aware for the first time that the law on restrictive practices is far-reaching, and capable of effective enforcement. Nevertheless, there are desirable amendments that should be made to the law to render it clearer and tighter. But the present Bill is confined to what is most urgent and most necessary. It is confined to the Monopolies Commission and their field of work, and it operates, as I have said, by amendment to the Monopolies Act, 1948.
First, the Bill reforms what may be described as the machinery for investigation. The provisions on this aspect are technical, but they are not the less important for that. Secondly, the Bill extends the list of matters which may be referred to the Monopolies Commission for investigation. For the first time, mergers are made referable to the Commission. There are special provisions for newspaper mergers. There is a provision which would improve the Board of Trade's power to ask the Monopolies Commission for "general reports". Monopoly conditions, including collective restrictive agreements, in the supply of services are for the first time brought within the law. I will deal with all these matters in more detail in a few moments.
1069 Thirdly, the Bill looks to the point where a Monopolies Commission investigation has been completed, and the Government have received their report on the particular monopoly, merger or restrictive agreement and its implications for the public interest. The Bill would extend and improve the Government's power to make orders, following up the Commission's findings. The most elaborate provision for thorough and impartial investigation would be useless, as I am sure noble Lords would agree, if at the end of the day there were inadequate powers to do anything about what had been found out. I might add here that need for change in all three sectors was recognised by the previous Administration. I do not think that there is any argument about the general need for moving forward on all these points. In some respects we have thought it necessary to go further than was proposed by the previous Government in their White Paper. The provisions of the Bill are tougher, and to that extent more effective. I come now to the detailed provisions of the Bill.
Clause 1 and Schedule 1 make the improvements in machinery which I have mentioned. The Monopolies Commission is to be enlarged. For the immediate future, the Bill will permit the Board of Trade to make appointments to the Monopolies Commission up to a total maximum of 25 members, which, noble Lords will remember, was the figure in the 1953 Act. But this is not to be a hard-and-fast ceiling. For the first time the Board of Trade will have power by order to raise the maximum figure set by the legislation. We think that this is an important and useful change, and will make it possible to adapt the size of the Commission, if necessary, to changing circumstances. There is also provision for the appointment of paid deputy chairmen, and for the Commission to discharge its functions in groups, again as in the 1953 Act. In this way the number of cases which can be dealt with at any one time should be considerably increased. Clause 1 also gives the Board of Trade an improved power to frame references to the Monopolies Commission in terms which will require the Commission to concentrate on the more significant aspects of the monopoly situation. Finally, Clause 1 includes pro- 1070 visions which should make it easier for the Monopolies Commission to obtain the evidence they need from industry, and which could be useful if there was any question of lack of co-operation or unnecessary delay.
Clause 2 is the clause which would provide for the Monopolies Commission to investigate price rings and other restrictive arrangements in the supply of services. This clause, I must concede, does not make easy reading. This is partly because, as I have explained, the Bill operates by amendment of the 1948 Act. Much of the background to the proposals for bringing services into the law must be looked for there. Broadly speaking, what the clause does is to take the definition in the 1948 Act of monopoly "conditions" and to apply it to the supply of all types of services. The 1948 Act already provides for inquiry into a very limited class of services (commission processing). That provision is now extended to apply to other types of service. The Government will be empowered to make references to the Commission in all cases where it appears that monopoly conditions prevail, either in the sense that there is a single monopoly firm—I might say here that this situation is likely to be rare in relation to the supply of services—or where there are restrictive arrangements in operation over a sufficiently large percentage of the trade.
This provision applies equally to all types of service. Professional as well as commercial services are included. But there are two general exceptions to which I should draw attention. First, services rendered "under a contract of service" are out of the picture. This means, broadly speaking, that the Monopolies Commission could not be required to investigate restrictions arising in connection with employment. Secondly, there is a relevant provision in the 1948 Act which has the effect that the Government cannot refer monopoly "conditions" to the Commission if the situation in question is expressly authorised by Statute. It is time that the law was brought to bear on restrictive practices in the supply of services, and the Government would hope to make early use of the powers in the Bill; I would invite those who have evidence of monopolistic or restrictive practices in this field to 1071 bring it forward. All suggestions as to matters which might appropriately be investigated by the Monopolies Commission will be carefully considered.
I come now to an even more important matter on which the Bill breaks new ground—the provision on mergers. Mergers may have far-reaching and important effect on the industries in which they take place, and even on the national economy. These effects may in some cases be beneficial. Mergers may mean better allocation of resources and greater efficiency. Such mergers are to be welcomed. But sometimes a merger may have adverse effects, possibly arising from a reduction in competition, possibly from other factors. The Government take the view, and this view was also expressed by the previous Administration in their White Paper, that in this respect mergers and monopolies present rather similar problems. Monopolies are not necessarily against the public interest, but they may be so in particular circumstances. A procedure of investigation was therefore established, so that the Government and the public could be advised whether in a particular case the existence or operations of a monopoly were contrary to the public interest. In the same way, the Government ought to be able to inform themselves of the implications of mergers, and be able to act effectively where necessary to safeguard the public interest.
The Bill makes provision for investigating mergers. There are two tests in the Bill which will distinguish mergers which come within the field of public scrutiny. The first test would bring in mergers which created or strengthened "monopoly". The second test would bring mergers in, whether or not they made any contribution to monopoly, where a firm taken over exceeded a specified value. But I should emphasise that these are simply qualifying tests. It will be for the Government to decide whether a particular merger should be referred. It will be for the Government to ensure that reference is made only in cases where they believe that there is a risk of detriment to the public interest arising from the merger. It will be for the Government to ensure that their powers are not used in such a way as to impede mergers 1072 which are demonstrably beneficial. I would stress that many mergers may pass the qualifying test for reference which will never in the event be referred to the Commission at all. The provisions and powers in the Bill are for a small minority of cases where there is a prima facie reason to suspect the outcome of the merger. If there is to be a control of mergers at all, it is our duty to see that it, is effective. The Government believe that if control is to be effective it may be necessary to hold up a merger while it is under investigation or, at least, to prevent the integration of the firms in question in such a way that they cannot subsequently, if necessary, be divorced. The Bill makes the required provision.
Clause 8 of the Bill makes special provision for newspaper mergers. This provision really stands alone. Unlike the other provisions I have described, this clause is not intended to serve economic ends. It is designed to implement the recommendations of the Royal Commission on the Press, which concluded some years ago that action should be taken to regulate the increased concentration of newspaper ownership. There is a lot to be said on both sides on this question. It may be argued that newspaper mergers have not yet produced any disastrous consequences, or that the cure is worse than the disease. I expect that we shall discuss this more fully on Committee stage. After careful consideration, however, the Government have accepted in principle the Royal Commission's conclusion. It has not been possible to follow the Royal Commission in all their detailed proposals for imposing this regulation. In our view, the issues which are likely to arise on a newspaper merger are simply not justiciable. So we could not commit them to a court of law, as the Royal Commission proposed. In providing for newspaper mergers to go to the Monopolies Commission we have taken what we thought to be the only practicable course. Here, again, there is a test to be applied to particular mergers to see whether or not they come within the newspaper provisions of the Bill. But in this case it is not merely a qualifying test. Where the test is satisfied, it will be unlawful to complete the merger without the consent of the Board of Trade. In normal cases there must first be an investigation by the Monopolies Commission. But the 1073 Board of Trade will be able to dispense with this where only urgent action can save the destiny of a newspaper.
I have now dealt with the new matters which the Bill brings for the first time within the scope of reference of the Monopolies Commission. I must deal finally with the powers to make orders which are to be available to the Government when the Monopolies Commission have reported. The powers conferred by the Bill are set out in Clause 3.
The Bill carries forward and clarifies the powers in the existing legislation, and adds new powers to the list. In ascending order of importance, these new powers are as follows: first, power to require the publication of price-lists; secondly, power to prohibit departure from published price-lists; thirdly, power to control prices; fourthly, power to prohibit further acquisitions or mergers; fifthly, power to provide for the break-up of monopolies or mergers. These are the powers which experience has shown to be necessary, if the Government are to be able efficiently to follow up a Monopolies Commission report. They will not be lightly used. Indeed, in all but the most exceptional case, the reserve power to make an Order should in itself be an effective sanction to secure voluntary action, where this is appropriate, on the part of the firms concerned. But there must be full order-making powers in reserve.
Most far-reaching of all are the powers which the Bill confers to break up firms. The Government agree with the view expressed in the last Administration's White Paper that such powers must be available. But to use them would be a most serious step, to be taken only in the last resort, where it was clear that only this radical solution would safeguard the public interest. The Government have added provisions to the Bill to ensure that the procedure for making orders gives the fullest opportunity for all interested parties to make representations, and for those representations to be considered by the Board of Trade.
There is one rather special case for which some of the powers listed in Clause 3 are made available. This is the case dealt with in Clause 4, where a Monopolies Commission report reveals that a 1074 monopoly or restrictive arrangement is in conflict with the United Kingdom's international obligations. We are thinking in terms of EFTA and the Stockholm Convention. The Government think it right that they should take this opportunity to show, it contains some provisions of fulfil their obligations.
This is a short Bill, but, as I have tried to show, it contains some provisions of very great importance. We shall have further opportunity to examine its detailed provisions. I should like to conclude by making one general point. The Monopolies Commission are there to be used, and if this Bill is enacted we shall be able to use them more freely and more effectively. More references to the Commission will be made. My right honourable friend the President of the Board of Trade has explained in another place the general principles which the Board of Trade would expect to follow in making references to the Commission. I would urge industry, when investigations are initiated, not to regard the Board of Trade and the Monopolies Commission as simply necessary evils. It has been emphasised on many occasions that an investigation is a neutral and impartial procedure. The intention is simply to elicit the facts, and, if necessary, but only if necessary, to take steps to safeguard the public interest. Experience of monopoly investigations has shown that the Monopolies Commission have not normally found much amiss; the record is not discreditable at all. We do not yet know enough about the new services to say whether experience in that connection will be similar. But in all these cases it must not be assumed that an investigation which does not end in dramatic recommendations has been a waste of time and money, either for the public interest or for the industry in question.
The existence of the Monopolies Commission is in itself a powerful incentive to industry to give adequate weight to the public interest in day-to-day commercial decisions. It is a discipline. It is a sign of the Government's commitment to a competitive and forceful economy. Those firms and sectors of industry which are pulling their weight have nothing whatever to fear from this kind of legislation. If it can improve the utilisation of our industrial and economic resources, it is of value to all, not least to everybody 1075 associated with the professions, industry and commerce. I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Rhodes.)
§ 2.59 p.m.
§ LORD DRUMALBYN
My Lords, I am sure that we are all extremely grateful to the noble Lord, Lord Rhodes, for his full explanation of the purposes of this Bill. Legislation on monopolies has not been a matter on which there has been a great deal of controversy on principle, although on questions of application and method there has been some difference of opinion. On the main objectives of the Bill, there is no cause to quarrel. Indeed, there is a close similarity between the provisions of the Bill and those contained in the last Government's White Paper (Cmnd. 2299) Monopolies, Mergers and Restrictive Practices, published in March, 1964.
There has been a broadly common approach since the Coalition Government. The noble Lord mentioned that the first legislation was in 1948, but it was in 1944 that the Coalition Government worked out together their policy, published in the White Paper, Employment Policy. In paragraph 54 of that Paper they said this:The Government will seek powers to inform themselves of the extent and effect of restrictive agreements and of the activities of combines and to take action to block practices which may bring advantages to sectional producing interests but work to the detriment of the country as a whole.That, I think, has been the policy of all Parties ever since. I may say, in passing, that it was not until four years later that legislation to give effect to these intentions reached the Statute Book. I say that not to cast any reflection on the will of the Government of the day to deal with the problem as quickly as possible (I realise that they had many other matters in hand), but to stress the inherent difficulties of the problems involved if one is to treat the matter fairly.
This time, the preparatory work, other than the actual drafting of the Bill, had already been done before the present Government came into office. It is hardly surprising that the purposes of the Bill, as set out in the Explanatory Memorandum—and very clearly, if I may say so—follow closely what was fore 1076 shadowed in the last Government's White Paper, with the exception of the special provision for newspaper mergers, referred to in paragraph (e), and the possible exception in paragraph (d),to extend the power to require general reports from the Monopolies Commission.Even there, noble Lords will recollect—and especially my noble friend Lord Conesford—that it was on one such general report of the Commission, that on collective discrimination, that the Restrictive Trade Practices Act, 1956, was based. So that this proposal in the Bill is not entirely new. I gather that it contains some extension.
The noble Lord, Lord Rhodes, referred to the powers in the Bill, and for my part I accept the necessity for the extension of the powers to require the Commission to look into practices designed to block healthy change, not only in the production or supply of goods, but in the supply of services or the export of goods. I should like to ask the noble Lord who is to reply one question on that point. The White Paper indicated that the then Government intended to bring information agreements within the scope of the 1956 Act, so that particular agreements could be called up by order for registration. This intention is not implemented in the Bill, for the reasons which the noble Lord explained, but I would ask whether Clause 5 can be used to include information agreements, whether in general or as regards prices or in relation to any other exchange of information.
The last Government declared themselves in the White Paper to be satisfied that the present powers to implement recommendations made by the Commission were not adequate. Generally speaking, they said that firms had shown themselves willing to comply with recommendations of the Monopolies Commission at the request of the Board of Trade, or to give undertakings to comply with them, and that they had, in fact, carried out those undertakings. The White Paper did not specify the powers that would be required, but I have no reason to suppose that the powers which the last Government would have sought would have been substantially different from those in the Bill. What matters is not so much the powers themselves—for it is generally recognised that there must be some 1077 powers in reserve—as the way in which they are exercised. I gather from the noble Lord, Lord Rhodes (and I should like to have confirmation of this) that it is the intention of the Government to proceed by way of voluntary agreement, as before, wherever possible.
At least, we can all welcome the need to obtain the sanction of both Houses to the exercise of the powers, to which I do not think the noble Lord referred, except in the one case to which I shall refer later. The House will naturally have reservations about Clause 3(4)(c), which empowers the Board to regulate prices; but your Lordships will, I am sure, welcome the limitation on the exercise of the power, introduced in another place, to cases where the Commission's report indicates that price levels have been, or are, operating, or are likely to operate, against the public interest. On that I would only comment that perhaps the paragraph appears to need a little redrafting.
I turn now to the question of services. The Bill departs in four main aspects from the White Paper. At present, as the noble Lord said, the only service covered is the application of a process to goods. While the White Paper proposed to limit the services which were to be brought under scrutiny and control for the first time to commercial services (in particular, services relating to goods), Clause 2 covers all services. The last Government considered that it would be better not to try to advance on too broad a front; and, in any case, there were no apparent instances of abuse in professional services not related to the supply of goods, including buildings, which appeared to need immediate attention. I think the House is entitled to know why the Government decided to cover the entire field of services. I would ask the noble Lord who is to reply what specific services the Government have in mind to inquire into, apart from commercial services.
I turn now to the question of mergers. In regard to mergers, in the White Paper the last Government said that theyrecognise and welcome the contribution which mergers can make to the well-being of the community".But they expressed the belief that there should be power to investigate mergers, 1078 since in a small minority of them the practices might have harmful results. They therefore intended to seek powers to inquire into any proposed or recently completed merger which would bring a firm within the somewhat artificial definition of a monopoly, or would increase the proportion of the market held by a firm already in the definition. They then added these words:The Government do not intend to seek power to hold up a proposed merger while it is being investigated. This could well frustrate desirable mergers.That is contained in paragraph 25 of the White Paper. But in Clause 6(10) of the Bill the present Government are seeking powers, without the need for Parliamentary approval, to prevent a merger from taking place while the inquiry is in progress, by exercising their powers as if the Commission had already reported and the Board of Trade were considering making an Order to prevent acquisition or undo its effects: in other words, to hold up the merger, whether it is desirable or not.
But how long will it be held up? The Commission, under the Bill, are to report within a period not exceeding six months, which could be extended by a further three months. Then the Board have to consider their findings. I would ask your Lordships to consider whether any merger could take place on exactly the same terms as originally proposed after all that time. Conditions are bound to change in the meantime. Even if the Board of Trade were to lay an obligation on the company to be acquired not to entertain any other offer in the meantime, they cannot impose a complete "freeze" on the whole situation. I must therefore ask the Government: Do they deny that such action may well frustrate desirable mergers?
The noble Lord may say that investigation into proposed mergers can also frustrate them. But if the acquiring company believes that it is both in its own and in the public interest to go through with the merger, and accepts the risk, which it may consider remote or infinitesimal, it will go through with it. But a merger stopped by an order of the Board of Trade which I repeat, is not to be subject, under the Bill, to Parliamentary approval, is almost certainly a merger frustrated. Is that what 1079 the Government want, even if the merger is found, or would be found when the inquiry were completed, to have been desirable? Of course, if the time of the inquiry were curtailed very substantially the objections to this standstill power would be considerably reduced. But this could be done, I submit, only if some members of the Commission were to be willing to serve full-time, or if there were a panel of experts on mergers, prepared to give their whole time for brief periods, who could be added to the Commission—say professional men and men who had perhaps just retired from industry.
The noble Lord referred to the power of the Board of Trade to add members to the Commission, and I would ask the Government whether it is their intention to contemplate this kind of addition in order to hasten and accelerate the inquiries into mergers. But even so, I am afraid that this power will greatly hamper the growth of the confidence of industry in the Board of Trade that has been taking place in recent years through co-operation in exports and in other ways. It will reduce the willingness of industry to consult the Board of Trade in advance, and yet Clause 8(2) implies that the Board of Trade would like industry to consult it at the stage when a merger is contemplated, no doubt on a strictly confidential basis. But if the Board of Trade has power to stop a company from going ahead with a merger before any inquiry has taken place, industry will be much more wary of consulting it. The company will want to try to tie things up in such a way that a standstill order will not in itself prevent the merger before it tells the Board of Trade anything about it. It will hold up the merger, but it will not prevent it. This is surely what those who are contemplating mergers will want to do before they consult the Board of Trade. This, I think, is unfortunate. The effect of that will be that the kind of mergers that will be frustrated are those which tare opposed by the company to be acquired, and yet it is by no means always only the ones which are opposed that are likely to harm the public interest. Those which are agreed may also do so as much, or, in certain circumstances, more.
1080 Your Lordships will want to look very carefully at the characteristics of mergers—the qualifications, I think the noble Lord called them—which bring them within the purview of the Bill. A merger or proposed merger, as he said, may be referred to the Commission, not only if the resulting combine will control at least one-third of the supply of goods of any description in the United Kingdom or any part of it—that is, not only if it results in a so-called monopoly—but also if the book value (and I think it was established in another place that the book value was meant, though the Bill says just the value) taken over exceeds £5 million. No satisfactory explanation has yet been given of this figure. There are serious disadvantages in this proposal. In the first place, £5 million may represent a comparatively small proportion of the productive capacity in a particular industry, and in any case only a part of that may be related to goods which the acquiring firm also supplies. In the second place, the book value of the assets is not a sound guide to the importance of a firm in a particular sphere. Its assets may be under-used, and it may be a good thing for the economy that the firm is taken over.
In the third place, the acquiring firm may have no common production interests at all with the firm acquired, and may wish to acquire it simply for the purposes of diversification. The only plausible justification for a value of assets test so far put forward is that it might enable the Board of Trade to intervene to stop a foreign firm from taking over a British company with sizeable assets. Desirable as that might be in some circumstances, it is hard to see on what basis a Commission concerned with monopolies could judge whether or not to recommend that such a merger should be prevented. If it should be, surely some other appropriate means should be found to prevent it.
I turn now to the question of divesting. The whole business of unscrambling the omelette where a merger has taken place and has been adversely reported on by the Commission, is one of the most complicated parts of legislation, and entails, as I think the noble Lord expressed it, the most far-reaching power of all. With that view I would not disagree. Some 1081 noble Lords may have read the article in The Times of March 21, I think it was, about the unscrambling of the Hanover Trust. The complications are legion, and even include what I believe is known as sub-delegated legislation. I leave that point to others, or to a later stage of the debate, when I think it could be more fully examined.
I turn to newspapers. The third main difference is that special provision is made for newspaper mergers, as distinct from other mergers; and I noticed that the noble Lord said that this power was not intended for economic purposes. In short, the Bill provides that where any newspaper merger would result in a total circulation of 500,000 copies or more, the written consent of the Board of Trade must be obtained, and cannot be obtained until the Commission has inquired and reported, unless, in effect, the newspaper is in such financial difficulties that it must either close down entirely or merge as a matter of urgency.
Most of your Lordships, I think, will have some sympathy with the general purpose of this special provision, designed, no doubt, to prevent two things in particular: first, the sudden acquisition of a large and influential paper, whether daily or Sunday, and the possible, though not necessarily inevitable, consequence of either a change in its editorial policy or the suppression of the paper altogether; and, secondly, the gradual mopping-up and control of papers with bad circulations. What I think the Government have to justify is the arbitrary figure of 500,000 circulation and, secondly, the extraordinary provisions as to the meaning of "associated persons" in Clause 9. Under Clause 9 two brothers, or an uncle or a nephew, must be treated as associated, even if the association has in fact come to an end in circumstances of notorious acrimony—even if they had been running a paper together with a circulation of close on 500,000, and one or the other of them had broken the association and gone off to buy up or found another paper in an entirely different part of the country. Surely this is very much a case where the word "shall", in Clause 9(1), which deals with "associated persons", should be altered to "may". Whether they are associated or not is surely a question of fact, and to assume that they 1082 are associated when they are not must surely be a violation of the truth.
The fourth and last main deviation from the White Paper is the failure to implement the proposal to appoint a Registrar of combines, or whatever they are to be called. Personally I should prefer to call them combines, rather than monopolies; and "combines", incidentally, was the word used in the passage that I quoted from the 1944 White Paper. After all, "monopoly" means, as the Oxford English Dictionary says,the exclusive control by a trade of the whole of the trade.In the past year or two the Board of Trade have become aware that industry—and one must face this—has not the same confidence in the Monopolies Commission as it has in the courts. As the White Paper expressed it,The Commission's inquiries have been of great value, but experience has shown that certain aspects of the law are open to criticism—The Bill rectifies the third criticism. The second criticism is difficult to rectify without a full-time Commission, and we know the objections to that. As the noble Lord said, the increase in the size of the Commission will enable it to undertake more work simultaneously, but will not necessarily reduce the time taken over any one reference. What should reduce it more than the increase in the size of the Commission is an increase in the size of the staff, together with greater continuity of service in it. The first criticism, that is to say, the impression that the same body is asked to carry out the function of both judge and prosecutor, is the most fundamental. Industry is under no misapprehension as to the task of the Commission, which, as the White Paper says, and, as the noble Lord said, is to elicit the facts and examine them impartially.
- " 1. The impression that the same body is asked to carry out the function of both judge and prosecutor.
- "2. The length of time which goes to the production of a report.
- "3. The lack of powers in the hands of the Government effectively to implement the Commission's recommendations."
Most certainly the integrity and impartiality of the Commission have never been questioned, and nothing I say is intended as any reflection on them whatsoever. What causes concern is the way 1083 in which the staff present what they believe to be the facts to the Commission and the opportunities for the company concerned to make corrections and to defend its conduct in so far as it is said to conflict with the public interest. I have found from my inquiries in industry a feeling that the company is put into the dock but that it does not have the same opportunity to prove its innocence as a person accused in court. Really it is not any good trying to gloss over this and saying this is an investigating body, because the fact is that where this is in question a firm is expected to prove its innocence of doing things, or creating or preserving conditions, which operate, or may be expected to operate, against the public interest.
With the best will in the world and the utmost desire in the world to be impartial, the staff of the Commission are bound to act in a manner more akin to a detective than to a research historian seeking for truth, and to treat any firms whom the Board of Trade think it worth while to refer to the Commission as suspects.
A Registrar would have had three main functions. First of all, to decide what so-called monopolies the Commission should inquire into—that is to say, to refer his suspicions to the Commission; secondly, to investigate, and, thirdly, to present the case against the company or companies in much the same way as the Registrar of Restrictive Practices does for the Court. It would then have been for the Commission's own staff to draw up the report. This would have enabled the so-called monopoly to know what case it had to answer, and I must say I regret very much that the Government have not accepted this recommendation. As it is, I feel it is not too late to amend the Bill, at least, so as to secure improvements in the procedure of the Commission.
I am inclined to think that Section 8 of the 1948 Act, which permits the Commission to determine its own procedure, ought to be amended so that its rules of procedure should be laid before both Houses and subject to the Negative Resolution procedure. In particular, I believe that any company whose affairs are inquired into should have the right to see the factual part of the report in its entirety before it is presented to the Board of Trade, so that it may comment on what are thought 1084 to be the facts and the Commission may adjust both the factual part of the report and its recommendations.
§ LORD SHEPHERD
When the noble Lord says "factual part", does he mean the evidence that has been given to the Commission?
§ LORD DRUMALBYN
In a sense everything which goes before the Commission is evidence. I am using the words that have been used by the Report of the Committee on Administrative Tribunals and inquiries. The noble Lord has referred to paragraph 343 and to Recommendations 80 and 82 of that Report, and he will find there what I have now said, that the factual part of the report should be shown to the parties. That is completely in line with the recommendations of the Committee, which have been largely implemented. I see no reason why it should not be implemented also in monopoly investigations where, I may say, there is generally very much more at stake. I will add this, too, that considering the extent of the powers that the Bill seeks to confer on the Board of Trade, it is hardly too much to ask that every possible step should be taken and no step should be omitted to get the facts right, for it is on the basis of the facts that decisions to exercise far-reaching powers have to be taken, at least so it is devoutly to be hoped.
In conclusion, may I stress again that ever since 1944 there has been a large measure of agreement between the parties that, on the one hand, a person or company is not to be taken as necessarily operating against the public interest because it is big or because it controls a considerable proportion of the supply of any class of goods, or because it acquires another company; and, on the other hand, we should be vigilant to see that economic power is not abused and that we should be willing and ready to concede powers to the Government to prevent that, subject to proper safeguards. I will end on this note—and I recognise it is a note on which there is a division of opinion. Ever since the 1948 Act was introduced, conditions of employment and remuneration have been outside the Act. Now, of course, the Commission on Prices and Incomes will have power to look into a good many of the circumstances which may lead to increases 1085 in prices and incomes. But at the root of our troubles at the present moment lies a certain number of practices which seem to be outside the scope of the Commission on Prices and Incomes and yet are not within the scope of the monopolies legislation. Is it not time that somebody had the power to look into all practices—and I quote again from the 1944 White Paper—so that appropriate action is takento check practices which may bring advantages to sectional producing interests"?And that, of course, means not only the management side but practices which may work to the detriment of the country as a whole.
§ 3.29 p.m.
§ LORD BYERS
My Lords, on behalf of the Liberal Party I should like to follow the noble Lord, Lord Drumalbyn, and welcome the objectives of this Bill. We agree with the noble Lord, Lord Rhodes, in that we do not regard all monopolies and mergers as bad in themselves; but in our view it is right that they should be scrutinised to see that the power which they possess is not used against the public interest. There are, quite clearly, amalgamations and mergers which should be encouraged (and when I say that I am not referring to any suggested new political alliances: I am speaking entirely in the industrial field), because they will make for greater efficiency. Indeed, in the view of many of us in different parts of the House this may well be the way in which United Kingdom and European industry will have to develop, in order to compete with the might of the United States of America. I take it that there is nothing in this Bill that will prevent useful efficient mergers of that sort. But what we want to see exposed is the monopoly or the amalgamation that is exploiting the public, and for this reason we welcome the stronger powers that are taken in this measure.
In the past, the work of the Monopolies Commission—and I do not say this against its members—has been, in the view of the public, and in the view of many of us, painfully slow. On numerous occasions over the past years we from these Benches have called for an enlargement of the Commission and for the appointment of more sub-committees to 1086 deal more expeditiously with a larger number of subjects. I am glad to see that this Bill provides for such a development, and I hope that the Government will use the powers they are taking. We have also commented adversely on a number of occasions on the unwillingness, or the inability, of past Governments to ensure that decisions of the Monopolies Commission were adequately enforced. At the time of the General Election, I believe, about 18 of the 23 reports made by the Commission up to that time had found that monopolies existed which were indulging in practices contrary to the public interest, but only in two cases had orders against them been made. I wonder whether the noble Lord, Lord Shepherd, when he comes to reply, will tell us what the score is to-day. Is it any better or is it worse?
§ LORD DRUMALBYN
My Lords, may I ask the noble Lord whether he does not think it a very good thing that in only two cases out of 20 it was necessary to apply reserve powers, and that the rest should be implemented voluntarily?
§ LORD BYERS
That is not the impression I have. The impression I have is that there is a good deal of reluctance on the part of industry to get on with the job of complying with the recommendations and the orders of the Court. Certainly if that is not what has been happening, let the Government make it clear. The new powers the Government are taking are to be welcomed, and I hope that they will be used to improve the competitive power of British industry—because that is their object—and to remove the restrictive practices which always flourish in monopoly conditions.
There are only three points that I want to make on this occasion. I follow the noble Lord, Lord Drumalbyn, in saying that I think the Government may have been ill-advised not to accept the proposal made in Command Paper 2299 that a Registrar of Monopolies should be appointed. I should have thought the work of the Commission would be further speeded up if there were somebody who was going to prepare cases impartially for reference to the Commission itself. I should have thought that a good deal could be done to reconsider this proposal. I believe I am right in saying 1087 that in another place the Minister of State at the Board of Trade expressed his personal view that such an appointment should be made, and I think that he gave the impression that if the Government had had time they, too, would have come down on the side of having a Registrar. I should have thought we have an opportunity in this House to make the necessary Amendment and that the Government should consider the administrative way in which they can give effect to this suggestion.
Secondly, I wonder whether the Government have given sufficient attention to the mechanics of scrutinising mergers before they take place. Very often, secrecy is of paramount importance, if speculation in shares and substantial movements in share prices are to be avoided. How is it proposed to deal with these problems? Are dealings in shares to be suspended by Government order?—because, if so, the period in which this can be done without causing chaos is very limited indeed. Under the Bill, the Commission can take up to six months in order to find out whether a merger is going to be in the public interest, and this is a point which will have to be looked at by the Government, because it will not be possible to have a long period to examine the merger without causing chaos on the Stock Exchange.
Moreover, I would ask whether the test of the public interest is going to be the sole criterion so far as mergers are concerned. Ought we not to give some attention to the position of employees and staff? Because quite often, and quite rightly, a merger results in reduction of staff—that is one of the objects of it. I think it only right that proper arrangements should be made for those who are redundant, for retraining and so on. Therefore, to that extent, I am not satisfied that the public interest in the sole criterion in a matter of this sort.
Thirdly, I hope there will be no attempt (although I got a hint of it, I think, from the noble Lord, Lord Drumalbyn), as there was in another place, to try to bring the trade union movement within the scope of this Bill. I believe this to be quite wrong in principle, and I think it will completely distort the work of the Commission and slow it up. If trade union restrictive prac- 1088 tices are to be abolished they should either be dealt with by a separate tribunal or left to the normal processes of productivity bargaining, preferably at plant level. These are matters on which I understand the Royal Commission will be expressing a view, and I hope we shall not distort the objects of this Bill, dealing with industrial monopoly situations, by introducing this particular idea. At the time the Resale Prices Bill was before the House we made it clear that it should have been preceded by a Bill to deal with monopolies and mergers, and for that reason I am glad the situation has now been brought about where we have the Resale Prices Act on the Statute Book and we shall have a stronger Bill to deal with monopolies and mergers in the future.
§ 3.36 p.m.
§ LORD BROWN
My Lords, like previous speakers in this debate I find myself in agreement with the provisions of this Bill because it gives the Government additional necessary powers. I would stress the statement that I find myself in agreement, because I want to be quite critical about some broad issues, and I might inadvertently give the opposite impression. It is a strange fact that on one of the major and rather rare points of agreement between the Labour and the Conservative Parties, both are, as Parties—and I stress the term as Parties—in my humble opinion somewhat confused in their thinking. The point of agreement is a shared dislike of what both refer to as monopolies. Conservatives, I think, have disliked the so-called monopoly because of their admiration for free competition, and Socialists seem to have disliked it because of the feeling that it results in power over the consumer resting in the hands of the few private interests.
I must explain why I think this confusion exists and its nature. First, the term "monopoly" means exclusive power. I think the noble Lord, Lord Byers, has just made this point. But in this sense it would be very hard to find a monopoly in this country, except those covered by patents, and they are not in question. I doubt in fact, whether any exist at all. Your Lordships may think that this is a mere semantic argument, but I believe that the public of this country accept the word in its literal sense and 1089 are led to believe that real monopolies, big bad wolves, really exist. So the semantic issue is really an extremely important issue in a political sense. It is from this ill-founded conviction on the part of voters that much of the political support for action against the so-called monopolies arises. Thus are we confused by a word.
When political Parties talk about monopoly, it is quite clear that what they really mean is oligopoly. It is a difficult word, but it is in the tradition of the previous word. Lord Drumalbyn mentioned combines, but that is a much less exact word. Oligopoly is the correct word in the circumstances; it means power in the hands of a few companies. It is clear from the Bill that the reference is in fact to oligopoly. Companies are to come under scrutiny if they control more than a third of the market. We may conclude that both Parties fear the growth of oligopoly. This is one of the confusions.
I must break away from my theme at this time to comment on mergers of companies. There are bad mergers when a company buys others which make products widely different from its own products, for sale in quite different markets. Large companies built in this way and constituted by a veritable rag-bag full of small subsidiaries tend to hinder our economy. There are other types of merger where a company seeks to increase its product development, its volume of production and its sales activities, by taking over some of its smaller competitors. So long as these are integrated into a well devised overall organisation, rather than being left as a series of autonomous and possibly badly managed subsidiaries, then, in my opinion, such mergers are generally helpful to our economy. I shall, for clarity, refer to this type of merger as an "integrative merger"—one must invent some more language in this field.
Political insight is confused for another reason. The original anxieties about oligopolies arose at a time when the degree of internationalisation of trade was extremely limited. To-day when the size of the world has shrunk considerably, the existence of many more overseas competitors ready to step into the British market when they see that opportunities exist because of the small number of competitors means that they are not 1090 nearly as dangerous as they might have been fifty or sixty years ago.
Thus, for example, Unilever faces the competition of American Proctor and Gamble, I.C.I. faces American Monsanto and Dupont; Lucas faces Delco-Remy, and so on. With the current virility of international trade, we have little to fear from the integrative concentration of the supply of specific types of goods into the hands of a smaller number of firms, so long as we keep an eye on the extent to which they resort to inter-company price fixing. We positively need competitive oligopoly. Some may suggest that the oligopoly brings a tendency in industries that remain organised in small units to ill-advised price raising; but I do not think this would be borne out by an investigation. I believe the opposite might well prove to be the case.
The third confusion I want to refer to is concerned with competition itself. It is regarded in an almost absolute sense as a good thing, lauded by politicians and businessmen alike, although the latter spend much of their days trying to get rid of it. On the other hand, price-fixing arrangements are the subject of general odium. Yet it can be logically argued that price-fixing arrangements inhibit the growth of oligopoly by keeping a large number of inefficient small companies in existence—and this clearly happens quite frequently—whilst, on the other hand, continued competition leads inevitably to oligopoly.
What has not seemed to come to the surface is the idea that in some conditions consumer pressure can push producers into a situation where either they resort to price-fixing or the least unsuccessful purchase their less successful competitors and form these oligopolies. Such action may be to the eventual good of the consumer as well as the country, and therefore will certainly open up greater possibilities of exports. But the danger is that the powers in this Bill might be used willy-nilly to inhibit such moves. I am not suggesting they are always good—they can be bad. But they must be judged on their merits. I fear, however, that conventional attitudes may condemn them without looking impartially at the situation.
The current operations of I.C.I. and Courtaulds in the textile industry may 1091 lead eventually to a situation of oligopoly; indeed, I hope they do. Can anybody doubt that this is greatly in the national interest? Our machine tool industry has put up a pretty wretched performance since the end of the war, although I am glad to see that discussions are going on which are hopeful. It embraces more than 200 firms employing less than thirty people. This is indeed a bad situation, where few of them employ sufficient technicians, do enough product development or have sufficient volume of production to compete with overseas companies.
As an example, two years ago we had in the computer field Leo, Ferranti, Elliott's, I.C.T. and English Electric. Today, these five have become three. It is possible that to save our industry there will have to be one British firm only. Will such a move, if it comes about, attract the conventional anxiety and criticism of the general public and of Parliament? If it does, it will demonstrate just how unrealistic to-day our thinking is, for such a consortium might be essential to keep the British computer industry in existence at all. I hope I have said sufficient to demonstrate that we seem to lack some conceptual clarity on these issues, and I think it is most important that we in the country get them clear as a whole.
Oligopoly, competition, price-fixing, cartelisation, mergers, take-over bids, and the like are references to relationships between trading companies. Such relationships are not essentially bad or good. They are relationships which can work for the good or to the detriment of all concerned, according to their nature and the manner in which they are manipulated. It is right that the Government should have power to examine these relationships. But I think that if society had been clearer about these issues, this Bill might well have contained measures not only for curbing price-fixing and the aggregation of industry but also for encouraging or even arranging such relationships in appropriate circumstances. The Government ought to have powers now to stimulate integrative mergers in the interests of our export industries. There is nothing new in such an idea except its statement in explicit form.
I would remind those who are anxious about the idea I have expressed that the 1092 Government have already condoned, if not encouraged, almost complete price-fixing in the steel industry; they have pressured the aircraft industry into the formation of fewer and bigger companies, and for the last forty or fifty years they have shielded the automobile industry with high productive tariffs against foreign competition. I think these moves have all been good, with the possible exception of the one in the steel industry.
We are a nation of 50 million people, and we have to compete for our food and our raw materials with Japan, with 100 million people, the European Common Market, with 200 million, the U.S.A., with 250 million, and, last, with Russia, with 300 million or 350 million. If a U.S.A. firm control 10 per cent. of the United States market they have as much volume of production as a British firm which controls 50 per cent. of the British market. That is probably a gross understatement, owing to the relatively larger consumption of most goods in the United States. To-day, in international competition, it is the firm with the large volume of production that has the potentiality of winning the competitive fight. Therefore, we need more large integrated companies rather than fewer.
Many of our companies will not be able to compete internationally unless they control perhaps as much as 50 or 60 per cent. of the home market, and as long as they are efficiently run and are earning overseas currency at an appropriate rate they must be positively encouraged to absorb those of their competitors who are inefficiently using up scarce national resources. I think it is time we stopped those few industrialists who are still talking about themselves as public benefactors in giving employment. They are not and they do not. They use resources which we all know are the source of our national wealth. This Bill is almost silent on the essential criteria for assessing companies. I suggest that these criteria should be the working conditions provided for employees; effectiveness of product development; productive efficiency; service to the consumer; and, above all, the ability to earn foreign currency through exports. We really want an Industrial Efficiency Commission, not a Monopolies Commission.
Using the criteria I have mentioned, if we compare the performance of large 1093 firms organised in "oligopolies" and small firms fighting it out in classically competitive style, the laurels will, in general, go to the "oligopolies" and not to the small competitors. The latter suffer very often from too much fear of their own early demise, too much difficulty in attracting capital and technological talent, too little prosperity to enable them either to plan their own future or to plan how to export. Necessity can be the mother of invention, but it can often be sterile. The present somewhat unhappy theme of agreement between the two major political Parties is based on too much absolutism on these issues.
I want to come now to one other very important aspect of this matter of the size of the individual company. Suppose, for a moment, that we have a choice, either one company employing 50,000 people, or 50 companies each employing 1,000 people. I want to make a particular point, but before proceeding further I want to make it clear that my comment contains the assumption that what is paid to managers is, in general, an index of their capacity for managerial work. I know that this is obviously not true in every individual case, but I think that it will hold for a large sample. I must exclude those who earn money by percentage on profits. This might run up to £250,000, as we know, and I could not possibly include them in this statement.
Taking this assumption as the basis of what I have to say, in the firm employing 50,000 people one will probably find a chief executive being paid £25,000 a year or thereabouts, with eight subordinates at about £12,000; with 50 people on the next layer at about £8,000, and about 300 at the next layer earning in the £5,000-a-year range. This makes a total of nearly 400 people earning £5,000 or over, who are presumably men of that calibre. If, on the other hand, we take the 50 companies each employing 1,000 people, we will find in each of them one person at the £5,000 mark, and nobody else above that: in other words, 50 people of that calibre against 400 in the large firm. Of those 400 in the large firm there are a substantial proportion who are more capable people than any whom one will find in any of the smaller firms. This is one of the beneficial aspects of integrative concen- 1094 tration of industry which is often overlooked. This is a sweeping statement in setting up my simple model. It can be criticised in detail, but the broad sense of it is true.
If industry continues to consist mainly of small companies, then it fails to attract in sufficient quantities the potential Beechings, Robens' and Chambers' of our society. Small firms in industry cannot attract sufficient potentially able people, and, instead, at an early stage of their livelihood they become university dons, journalists, lawyers, judges, merchant bankers, research scientists, civil servants. I imply no disrespect for those professions. On the contrary, I suggest that they already contain too much of our top talent. If we create a small number of larger and efficient companies, they will provide the opportunity for a considerable proportion of this country's best brains to get into the front line in the economic battle for greater exports. This is the crucial battle which faces us at this moment.
Before I conclude, may I add one small comment to what was said by the noble Lord, Lord Drumalbyn? I left out of my speech any reference to my personal anxiety about the progress of American business in taking over increasingly key industries in this country. I think there is an ever-present danger of what, rather emotionally, I might call a sort of economic colonialism developing. I know that the French are very keen about this. I took the bottom limit of £5 million assets to be a reference to the need to deal with this sort of thing. I am sure that there ought to be in this Bill means for this Commission to deal with these incipient dangers when foreign firms seek to get into key positions in our industry.
I started by indicating that I welcome this Bill and, for clarity, I say so again, but I urge on the Government the need, first, for a rethinking and reorientation of our attitudes towards monopoly, "oligopoly" and competition within the context of the need for more exports; second, for the encouragement rather than the discouragement of integrative mergers; and, third, for a change in the title of the Bill. May I suggest, as has been suggested in another place, the title "Trades Commission Bill"? Unless it 1095 is changed, I fear that the confused image which is alive in society about the nature of industry will remain confused.