Lords Sitting of 16 June 1971

Preamble
The House met at half past two of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Exeter.

BARONESS YOUNG
Janet Mary Young, wife of Geoffrey Tyndale Young, of Farnworth in the County Palatine of Lancaster, for life—Was, in her robes, introduced between the Baroness Brooke of Ystradfellte and the Lord Brooke of Cumnor.

TRADE DESCRIPTIONS ACT AND SALE PRICES
2.47 p.m.
BARONESS PHILLIPS: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they will introduce legislation to amend Section 11 of the Trade Descriptions Act 1968 in such a way as to place on a shop the burden of proving that goods on sale at a reduced price were in fact on sale at a higher price for a continuous period of at least 28 days in the preceding six months.]
THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN): No, my Lords. Her Majesty's Government do not consider that such a reversal of the burden of proof is necessary for adequate enforcement of the section or that it would in this context be right in principle.
BARONESS PHILLIPS: My Lords, while thanking the Minister for that reply, I would again ask him whether he is aware that this decision has caused some alarm among those interested in consumer protection, as when we were considering the Act this was not the way in which we envisaged that it would operate.
LORD DRUMALBYN: My Lords, this is a criminal offence, and in criminal offences it is normal for the prosecution to have to prove its case. If I remember aright, this point was never questioned during the passage of the Bill.
LORD DERWENT: My Lords, does my noble friend realise that if this suggestion were adopted it would be quite unenforceable, because an inspector would have to visit the same shop every day for six months?
LORD BROWN: My Lords, would not the Minister agree that the only person who has knowledge of pricing practice over a period of six months in respect of a shop is the shopkeeper himself? Would the noble Lord therefore agree that it is quite impracticable to place the burden of proof on the weights and measures inspector?
LORD DRUMALBYN: My Lords, Section 24 of the Act gives weights and measures inspectors power to require the production of books and documents where he has reason to suspect that an offence has been committed.
LORD SLATER: My Lords, is the Minister not aware that, while certain powers are invested in the inspectors of weights and measures, the general public are not aware of the conditions under which the Act operates in regard to sales of this type? Would it therefore be out of place for the Government by some means to bring to the notice of the general public the steps they can take in regard to this issue?
LORD DRUMALBYN: My Lords, a good deal of information and advice was given by the then Government when the Act first came out. This is really a matter of a normal offence. If it is a matter as between the person who is supplying the goods and the consumer, who has the right to make a complaint, enforcement lies in the normal way with the weights and measures inspector, but anybody else can prosecute if he wants to do so.
LORD BROWN: My Lords, would the noble Lord not agree that although the weights and measures inspectors have powers to obtain documentary proof, very

581
often the proof does not exist in writing but only in the mind of the shopkeeper?
LORD DRUMALBYN: My Lords, first of all may I say that I referred to Section 24: I should have referred to Section 28. There have been over 700 convictions under Section 11 of the Act, so that in itself does not suggest that it has been wholly inoperative.
LORD BLYTON: My Lords, is the Minister aware that if the Government accepted the burden of this Question it would stop the public from being kidded that they were getting something cheaper?
LORD HANKEY: My Lords, underlying the purely technical side of this Question, would the Government consider whether there is any means of meeting the very real worry of many housewives over the constant rise in prices, many of which are hidden under subtle changes in size of a package or the weight contained in it? These are changes of prices which do not match those differences.
LORD DRUMALBYN: My Lords, in this particular Question we arc dealing not with rises in price but with claims that the price has been reduced.
LORD FRASER OF LONSDALE: My Lords, does the Minister feel that it is not a very good thing and not very flattering to the British public, the British woman or the consumer, to assume that they are quite incapable of judging what they are buying? And does not the old rule of caveat emptor apply? is it not wise to encourage that, rather than try to help people by other means?
LORD DRUMALBYN: My Lords, the Trade Descriptions Act was designed to prevent people from telling lies in this sphere, and I am bound to say that I think it has had some success in this respect. It is perhaps worth while to mention the case of a woman who often went shopping to the sales and said that in the old days she used to get good bargains, but nowadays everything is either rejects or seconds. Surely that shows that things are now being properly described and are not being represented as sold at a reduced price.
LORD BLYTON: My Lords, may I put my question again to the Minister? Is he aware that if he accepted the burden of this Question it would stop the public from being kidded that they were getting something cheaper in the sales?
LORD DRUMALBYN: My Lords, I think that the trade does recognise this system, and, by and large, as I have said, the evidence is that things have improved quite a good deal in respect of pricing. As noble Lords will know, I have had some evidence myself on these lines since the Act was passed; but I think one must adhere to the principle, which is that it is the duty of the prosecution to prove their case.

N.A.T.O. AND FRANCE
2.53 p.m.
LORD SHINWELL: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether any representations have been made to the French Government on a resumption of association of the French Government with NATO.]
THE PARLIAMENTARY UNDERSECRETARY OF STATE. FOREIGN AND COMMONWEALTH OFFICE (THE MARQUESS OF LOTHIAN): My Lords, no such representations have been made to the French Government. While I am certain that the other Members of NATO, like Her Majesty's Government, would warmly welcome the return of France, this is entirely a matter for the French Government to decide.
LORD SHINWELL: My Lords, I am grateful for that Answer. But how is it possible to promote an effective deterrent against the possibility of aggression—and there always is the possibility which is recognised by the very existence of NATO—if France contracts out, not only regarding troops on the ground and in the air, but also so far as Naval Forces in the Mediterranean are concerned? Are not the Government somewhat concerned about this anomalous position?
THE MARQUESS OF LOTHIAN: My Lords, as I said, we should very much welcome the return of France to NATO, as would other Members of the Alliance. I am sure that representations and sentiments such as those which the noble Lord has expressed will be echoed in this country. It is our hope that the French will take notice of them.
LORD SHINWELL: My Lords, surely this is the appropriate occasion for making such representations, when there is so much talk of promoting unity in Europe? Surely, when the Prime Minister engaged in conversation with M. Pompidou it was desirable to raise this very important consideration, which affects the whole future not only of Europe but of this country.
THE MARQUESS OF LOTHIAN: My Lords. I think, as the noble Lord will realise, that the discussions between the Prime Minister and M. Pompidou were confidential. They were almost entirely concerned with the progress of negotiations over the E.E.C.; and defence matters, I can tell the noble Lord, took up very little time in those discussions because it was felt that these were questions for the future once the matter of our joining the E.E.C. or not had been decided.
LORD SLATER: My Lords, if the talks between the Prime Minister and M. Pompidou were confidential, could the noble Lord say what talks, if any, have taken place with the Foreign Secretary in regard to this issue? After all, there is the Western European Union, which consists of the Six.
THE MARQUESS OF LOTHIAN: My Lords. I think I should require notice of that question: but I will take notice of what the noble Lord has said.
LORD SHINWELL: My Lords, may I give notice to the Government, through the noble Marquess, that before the Summer Recess I shall take the oppor-
584
tunity of putting down an Unstarred Question, because in my judgment and, I believe, in the judgment of noble Lords on both sides, this is a matter which deserves consideration.

N.A.T.O. AND BRITISH POLARIS SUBMARINES
2.55 p.m.
LORD SHINWELL: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether any of the British Polaris submarines have been assigned to NATO and under whose command, if necessary, they will become operational.]
THE SECRETARY OF STATE FOR DEFENCE (LORD CARRINGTON): My Lords, the British Polaris submarines and missiles were committed to NATO as they became operational. The terms of the commitment have been agreed with NATO, but it would not be in the public interest to publish the detailed arrangements.
LORD SHINWELL: My Lords, I am grateful to the noble Lord, Lord Carrington, for that Answer. Without seeking to impinge on security (because I am aware of the protocol in connection with matters of this kind), may I ask: is it not desirable that, so far as the possibility of the Polaris submarines becoming operational is concerned, we should be assured that nothing will happen without the full consent of this country and of the United States, and that there should be no question of a command under the control of either West Germany or France?
LORD CARRINGTON: My Lords, I can give the noble Lord that assurance now. The submarines are under British command. and although they will be allocated to NATO they cannot be used without the specific permission of the British Government.

HIGHER EDUCATION: STUDY ON ECONOMIC RETURN
2.59 p.m.
LORD BALOGH: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government who authorised the financing and publication in Economic Trends of a study on "the economic return on investment in higher education" which gives a grossly distorted, if not completely false, view of the social value of education and is bound to exacerbate the cost inflationary tendency by inciting organised professional bodies to press for increases in salaries and fees.]
THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF EDUCATION AND SCIENCE (LORD BELSTEAD): My Lords, this study was put in hand within the Department of Education and Science in 1967 under the previous Administration. As the pre-fatory note to the article in Economic Trends indicates, the study drew on material provided by a survey which the Department commissioned from the Genera] Register Office. The article was accepted by the editorial board of Economic Trends and its publication in that journal was authorised by the Department of Education and Science.
LORD BALOGH: My Lords, I thank the noble Lord for his Answer. May I ask whether he realises, first, that the calculations were based on an unrepresentative small sample, as is shown by the excessive fluctuation of the income figures; secondly, that present income, if it reflects anything at all, reflects past patterns in costs and not the present pattern in costs of education; and thirdly, that differences in income in this country reflect factors other than education? Indeed, one might think that the reverse is the truth—that education is according to income and not income according to education.
LORD BELSTEAD: My Lords, in answer to the noble Lord's first supplementary question, the Department started from the 1966 Census, and through the good offices of the General Register
586
Office sent out letters to a sample survey of 15,000 people who were qualified in higher education in the 1966 Census, and another 5,000 letters to people who had not received higher educational qualifications but were in occupations where there was a balance of the two sorts of people. That was the sample. I would accept what the noble Lord implies in his second supplementary question. To the noble Lord's third supplementary, about differences in income, I think it might be fair to point out to the House that the preparatory note that is in the article on page xx offered the article
" as a contribution to current discussions ".
And then at the end of the article, on page xxviii, it said:
"These purely economic aspects of education arc not necessarily the most important."
I am sure that the noble Lord would wish to be fair to the article, and that this balance should be put to the House.
LORD BALOGH: My Lords, while again thanking the noble Lord, may I ask whether he does not agree (I am the last person who would want to stand between an author and publishing an article of a scientific character) that these articles should be published in a scientific journal and not in a Government publication, even if these precautionary tales are told, because obviously wrong conclusions were drawn by The Times and by various other papers from the publication? As to the size of the sample, would the noble Lord think that, for instance, a sample of 5 doctorates of 65 and over is a typical sample of the British population—even of the doctorates?
LORD BELSTEAD: My Lords, in answer to the noble Lord's three further supplementary questions, it is perfectly true that this article was published in a Government publication. It is also true, as I have already said in answer to the noble Lord's first set of supplementary questions, that the authors asked for informed comment. No one would be better informed than the noble Lord who is asking the questions to-day. I think that everybody, and not least the Department, would welcome it if the noble Lord would care to put his own thoughts into scientific journals so that there could he informed discussion.

587
Secondly, the noble Lord referred to wrong conclusions in general terms. The noble Lord's original Question referred to
" the cost inflationary tendency by inciting organised professional bodies to press for increases in salaries and fees."
Any noble Lord who looks at the article will see that although it has treated earnings as related to productivity in a general way, it recognised that this relationship is associated with a competitive market and is not valid for single buyer and single seller conditions. It was for this very reason that soldiers, doctors and teachers, for instance, were excluded from the analysis. I would submit to the noble Lord that therefore it precisely does not incite professional bodies to force up salaries and fees for their members. As regards the noble Lord's third supplementary question, on the size of the sample, I have tacitly agreed that the noble Lord has a point here.
LORD WYNNE-JONES: My Lords, if the noble Lord were asked if the article had any significance, would he not answer: "Scarcely"?
LORD BELSTEAD: No, my Lords; I should not. The Department's own planning paper, which was published some two and a half to three months ago, referred to the need for informed discussion, which of course the Government very much welcome from noble Lords with special expertise, like the noble Lord, Lord Wynne-Jones, and I think referred to three limbs on which there might be discussion: the private demand discussion, which of course emanates from Lord Robbins's Report; the return of education expense, which is dealt with in this paper; and manpower planning. Those are three limbs, and I should have thought three important limbs, when looking to the future of higher education.
LORD ROBBINS: My Lords, may I ask the noble Lord whether he is aware that some of us who share some, although not all, of the noble Lord's scepticism as regards the conclusions of this paper, nevertheless welcome the appearance in an official publication like Economic Trends of a paper which evokes an exchange of views similar to those which we have had this afternoon?
LORD BELSTEAD: My Lords, I am grateful to the noble Lord.
LORD HAWKE: My Lords, is not this survey an example of the way in which the previous Administration wasted the taxpayers' money?
LORD BELSTEAD: No, my Lords. I am bound to say that as result of my answer to the second lot of supplementary questions I cannot agree with my noble friend.
LORD SHINWELL: My Lords, since the noble Lord seems to be anxious to engage in discussion—not that I object to long answers, any more than I object to long questions—can he define what is meant by "higher education"? Does it mean that it concerns only people who have been educated at Eton, Harrow or Haileybury, and that all others, including many Members of your Lordships' House, are excluded?
LORD BELSTEAD: My Lords, this was defined in the Department's higher education planning paper, to which I referred earlier, published two and a half months ago, and I should like to refer the noble Lord to the definition in that paper.
VISCOUNT MONCK: My Lords, would my noble friend agree that, in order that these questions should at least end on an uncontroversial note, we should take the opportunity of wishing my noble friend Lord Aberdare many happy returns of the day?

INTERNATIONAL COMPANIES: RELATIONS WITH STATES
3.7 p.m.
LORD KENNET LORD KENNET rose to call attention to the growing importance of international companies, and to their relations with States; and to move for Papers. The noble Lord said: My Lords, I heartily associate myself with the sentiments expressed by the noble Viscount, Lord Monck. This Motion comes before your Lordships in a week when the United States Secretary of Commerce has drawn to the attention of a commercial audience in that country the results of a recent private public opinion poll—that is, a public opinion poll taken not by the Government—which were as follows. When the American people were asked whether or not too much power was concentrated

589
in too few companies, 61 per cent. said that they thought it was; and when they were asked whether recent critical attacks on American industry had done more good than harm, 53 per cent. said that they thought they had done more good than harm, and 9 per cent. said that they had done more harm than good. Of course, we do not know what the attacks were. But the point of this story, with which I thought I would open my remarks to the House to-day, is that in the United States they are worried about the bigness of companies. I would not presume to judge, and none of us would, between the American people and America's industrial companies, let alone between the American Federal Government and its people, because Mr. Secretary Stuns took up a position towards his own industry that they had better look out and improve their public image; that if the public did not like what they were doing, it was something to be taken seriously in the long run.
My Motion to-day is to draw attention to the increasing importance of international companies and to their relations with States. I mention those American figures by way of contrast, because I believe that if you were to ask the British people what they thought about big industry in this country you would not get the same opinion. But it is a noticeable tact that trends and opinions which hold the day in the United States very often come, after a small number of years, to hold the day in this country, too: what happens there is often repeated here on a smaller scale. I have been lucky enough to be allowed to bring this subject before your Lordships' House, therefore, in the wish, not to correct what is wrong, and still less to castigate any evil-doers, but to improve what might conceivably he improved and, above all, to avoid that going wrong which might conceivably go wrong in the future.
I do not propose to start with a definition. It is well known to be impossible to define an international company. I will make one point in definition only: that I do not mean simply a company which manufactures in this country and sells abroad through retained sales agents. That is not an international company in the sense that I shall be using the phrase. I mean really everything from thereon upwards, and typically the company
590
which has its financial and historic base in one nation, but forms subsidiaries to carry out its own operation in other nations. I mean not only manufacturing, but financial operations of one sort or another as well.
Governments in this country exist to do what people want and to exert democratic control. The nation-state government is the only device known to man for public participation and control in the shaping of society. Commercial enterprises, on the other hand, exist to make and to sell certain things to such people as happen to want those particular things. Financial enterprises exist, by and large, to help the commercial enterprises to do that. Governments see to most aspects of the lives of all people; firms see to one aspect of the lives of some people. Until recently I do not think any of our economies in Europe have found any difficulty about this. If it was felt that a firm appeared to affect too many aspects of the lives of some people, or began to affect the lives of too many people, the Government concerned could, and sometimes did, take power to stop it. In other words, as parts of the whole, developed and expanded, the Government's sovereign power over the whole developed and expanded in parallel and continued to regulate the whole.
The arrival on the scene in a big way over the past two decades of the international company has changed this. There has been an uncovenanted passage of sovereignty from national Governments to international corporations. Instead of being pooled, as it were upwards, into inter or supra-national reservoirs of a consciously political nature, as many people had hoped, sovereignty has been seeping away downwards into the invisible root system of politically irresponsible capital. I emphasise "politically irresponsible"—not financially irresponsible, not commercially irresponsible, not humanly irresponsible, but politically irresponsible.
International companies are able to evade or circumvent Government in certain respects and therefore to evade or circumvent democratic control. I do not say that they do these things, but they are in a position to do them. They can drain brain power away from one country to another within their own personnel

591
structure. They can concentrate the menial work of their organisation in one country and the high grade work in another. There was a resolution passed by the Economic and Social Council of the United Nations only last month drawing attention to this fact and to its impact on the developing countries. International companies can frustrate the geographical planning of one country by threatening to invest in another, unless they are allowed to locate their development where they choose. They can deprive a Government, and its people, of the tax revenue due to them by arranging to pay tax on a great part of their operations in whichever country has the lowest tax rate, and weaken the effects of exchange control through various devices of internal financing within their own groups, particularly transfer pricing and leading and lagging. Their own decision-making processes are not subject to public scrutiny, nor are they publicly accountable in their investment or personnel policies.
That might sound a critical or formidable list. I am not contending that they all do this; I am not contending that any of them do it all the time. I believe it is a fact that some of them do it some of the time. They are free to do it, and this in itself constitutes a problem which should be looked at by the Governments of the world. The fact that some of them do it some of the time would not matter too much but for the fact that the sway of the international company in the world is increasing. Measure it how you like, and define it in any plausible way, the international company is getting bigger and more effective. We have to look at it both from above and below since international companies of American origin increasingly invest in Britain, and international companies of British and other West European origin increasingly invest elsewhere down the line.
I think I am right in saying that the first effects of new investment from abroad in any country tend to be good but, in the long run, the things that I listed just now can take away from that initial benefit. There are, above all, two tendencies which ought to worry the peoples of the world: the sovereignty leak, which I have just described, and the inbuilt tendency to reinforce world
592
economic stratification, which is already bad enough without that. The sovereignty leak is well-established. If we take a couple of household names among British-based industrial giants, B.P. and R.T.Z., we find that R.T.Z. pays 2 per cent. of its tax bill to the British Exchequer. B.P., in which the Government are a majority shareholder, pays none at all, although no less than 37 per cent. of its employees work in this country. The familiar idea of the tax haven has now also to be joined in a conceptual parallel with it by the new idea of the dirt haven. Certain Japanese-based international companies are already setting up factories in East Africa in order to profit from the absence of anti-pollution laws there. This trend is likely to spread and will tempt investment-hungry Governments in developing countries to avoid controlling pollution, to the great detriment not only of themselves, but of the whole world.
It was within my own experience, when I was helping to look after the planning system at the Ministry of Housing, how international companies can play Governments off against one another in the field of regional and land use planning. During the period of office of the last Government we had the case of two international oil companies, one Italian-based and one American-based, which wanted to build refineries on one of the very few parts of the Thames Estuary which still contains some green fields. The South-East region, with one-third of our population, was receiving more than half of American investment into Britain, and the development areas in Britain, also with one-third of the population, were receiving only 27 per cent. of American investment. The local people on Thameside wanted to keep their green fields. We invited the companies concerned to build their refineries in a development area—incidentally, profiting thereby from rather handsome subsidies that were then envisaged. They said they had to be close to their markets—the people of South-East England, the Low Countries and Picardy. They said that if they could not have their Thames green fields, they would go to Belgium instead, where the Government are not so rigid.
The situation kept chopping and changing; applications were withdrawn; the Italian company vanished from the picture. The United States company now

593
has two applications in for contiguous sites, and refineries having a throughput per year respectively of four million tons and six million tons. No decision has been reached, and anybody interested in this aspect of the proceedings of international companies should watch with the greatest interest and see what decision comes out of the present Government.
International companies are more successful than others, not only because they are bigger and more clever, and are based on know-how already paid for in the United States. I emphasise this point because the international company is the particular means of exploiting American innovation; American innovation moves on and each wave of industrial technological discoveries spreads through the world by means of American-based international companies. These companies are bigger and cleverer than the others, not only for those reasons but also because they can and do, in the way I have been outlining, play Governments off one against another. This is in the very nature of their superiority, and that superiority, and this ability to play Governments off against one another, is a factor which can only tend to stratify the world.
When a rich foreign company arrives in a poor country it creates wealth. It helps the people there, or some of them, up the first step towards a decent prosperity. But it does not always help them up the second step. These companies get their edge in the first place because of American innovation, as I have just described. They tend to continue concentrating on the innovation in America, or indeed in Britain if they are British-based companies, and then the middle-range jobs get concentrated in. for instance, Western Europe, including sometimes Britain, and the bottom jobs in the developing countries. No doubt many international companies try to avoid doing this, and succeed to some extent. But the logic of things—both economically of the growth of the international companies; and geographically, of the production and consumption of raw materials—pushes the situation in that direction. When raw materials from the seabed become available—and it is
594
the international companies which are developing the technologies for that—the Third World will find the market even for its raw materials being depressed yet further.
There are those among the leaders,and philosophers of the international corporation, particularly Mr. George Ball in the United States, who see the first appearance of a supra-national world order in which the conflicts of nationalism would be superseded by an international organisation for production regulated by the impersonal motive of profit, which he conceives to he a much safer thing than the others. There are even those who will believe it possible for this new profit-dominated world order to stretch beyond the Iron Curtain, and envisage hook-ups between the American-based international corporations and Soviet State industry. This view assumes that economic efficiency and sound profits could entitle an organisation to political power over people's lives in general; and it indeed accords rather well with the new Five-Year Plan recently announced for the Soviet Union by Mr. Brezhnev, which adumbrates a society devoted exclusively to the maximising of production under rigid central State control hacked by the massive application of computers. It is not only impossible for any of us on this side of the House to accept economic production as the sole political criterion; I believe it is impossible for any Democrat to do so, and therefore for noble Lords on the other side of the House equally.
It is striking also how closely the views of Mr. Brezhnev and Mr. Henry Ford agree on the role of trade unions. Internationally, the trade unions are now working towards a situation of what they call "countervailing power". Capital. they argue, has internationalised far and fast, and organised labour must now internationalise to keep up with it. There is a very interesting meeting in Frankfurt this very week—I believe it is going on at the moment—between the trade unions of the Six, plus the candidate countries for admission to the European Economic Community, plus Sweden, Austria and Finland. The attempts of the second great nexus of power in the modern world—if we call capital the first great nexus of power, we can call organized

595
labour the second great nexus of power —to internationalise to keep pace with international capital, are an intensely dramatic saga which is going on these very weeks. They are not very much publicised in the general Press; and noble Lords on this side certainly wish the trade union organisers of all countries the best possible success in their attempts to do this.
If labour were to succeed in organising internationally to meet international capital, and if that were all that were to be done, this would simply repeat on an international scale the raw conflict between labour and capital which existed in individual nations a hundred years ago and which itself led to the setting up of modern regulatory State mechanisms. It follows, therefore, that if we are to prevent a mere internationalisation of unmitigated conflict, the nation State Government—the third great centre of power in the modern world—must also internationalise in order to mitigate the conflict which might arise and to ensure that the general will of their peoples is not frustrated by the perfectly natural operations of those who are properly concerned only with satisfying some of the needs of some of them.
So how can Governments combine to retrieve together the sovereignty that they have lost alone? I think that we on this side of the House have to realise that nationalisation is no use for an international company. By definition, it was the remedy when power became grossly maldistributed within a self-contained social entity; namely, the nation State. It may now have a marginal application in conjunction with other measures—I shall come back to this—but power is no longer grossly maldistributed within the nation State; it is grossly maldistributed across the boundaries of many social entities; and the entity within which it is maldistributed—namely, the whole world—has no self-contained Government which could use a remedy corresponding to nationalisation. So the only remedy we can think of would be a form of inter-governmental regulating and controlling power.
What then is the right group of nations, the right social entity, within which the power can be gathered in and operated? There are, I think, four forms of inter-
596
governmental regulating power which might be developed separately or in conjunction—four obvious ones, though no doubt others can be thought of and will be mentioned during the afternoon. First, Governments could combine to compel international companies to adopt a standard charter or document of incorporation which would include a duty to reveal information to the Governments, and would lay down certain types of behaviour and procedures. This is broadly the approach towards which the European Economic Community is already working—they have not got very far. Secondly, a group of Governments could set up an inter-governmental organisation for negotiation and adjustment among themselves in order to prevent international corporations from playing one Government off against another. This is broadly the approach which is being worked towards by the Latin-American countries in the Andean Pact.
Thirdly, Governments could combine to insist that no international corporation should be allowed to operate on their soil without the appointment of one director, or more, to the board of either the local or the parent firm by the relevant Government; or indeed such a director could be appointed by agreement between a group of Governments. This would be a sign that inter-governmentally co-ordinated measures, perhaps including partial public ownership, could be expected if conflict between the corporation and the Governments went unresolved. Fourthly, Governments could refuse to allow international corporations to operate on their soil unless they themselves had a holding in them, and a group of Governments might possibly develop a joint inter-governmental holding body for the purpose. This body could obviously be linked to the governmental or inter-governmental directors whom I have just mentioned, and it would grow naturally out of the State holding bodies which already exist in certain countries, the most famous of which is of course the Italian I.R.I.
Once one begins to think about it like this, the question immediately arises: what group of countries? An arrangement comprising all or some of these measures could be reached in a new international organisation, or it could be built into an existing one. Convenience,

597
and the fact that there is not an infinite number of good administrators in the world, even if nothing else, suggests strongly that it would be better to use an existing organisation. Should it be global or regional? In theory, the United Nations would be the place for the job, but in practice to give it to the United Nations would be to prolong the present situation almost indefinitely. There is so little common ground there that for many years the companies would continue to play Governments off against one another while negotiations were proceeding in an ah hoc sub-committee of the whole on the venue for a general conference in five years' time which might discuss possible general draft guidelines for the formulation of proposals—and so on. 0.E.C.D. would be attractive, in that it groups all the parent countries of international companies. But it has one disadvantage: it excludes the developing countries, and the problem is at least as much theirs as ours, and possibly more.
So let us turn to the regional organisations, perhaps aiming at a United Nations involvement later. E.C.E.—the Economic Commission for Europe— the United Nations regional body, is certainly something which ought to be strengthened by undertaking any job that it possibly can, but it is not the right organisation for this job, because the problem is, by definition, one which does not arise in Eastern Europe. One could say that the operations of Soviet State commerce and finance within the C.M.E.A. (that is, COMECON) are analogous to those of the great international companies in the West, and that smaller Eastern European countries might like to club together to avoid being played off against one another by Moscow State enterprise. That may be so, but the truer it is, the more certain it becomes that the Russians are not going to allow them to do it, and this rules out E.C.E. The Council of Europe is not equipped on the secretariat side, though otherwise it would do well. NATO is a military alliance and should be kept that way, since the more civilian jobs it takes on, the harder it will be to diminish its role in our lives if ever we are able to obtain a mutually balanced force reduction with the Warsaw Pact countries. In my view, because of that point, NATO is already doing dangerously much civilian work.
This leaves, of course, the enlarged Community. The Six are close to us geographically and economically; they already know that the problem exists, and are working towards a solution. The developing world is represented to a noticeable extent within that framework by way of the Associated States. The Commission of the E.E.C. is staffed to cope with the matter and there is a virtual identity of economic interest among the nations which, although we are all highly developed, are also out-innovated to about the same degree by the United States of America. The European Parliament is already well seized of the problem and only last week passed an interesting resolution about it. If the E.E.C. were to take charge of the international regulation of incoming international capital they could also find ways of disciplining the various Western Europe-based international companies in their behaviour towards the developing countries.
It is my view that the best grouping for Britain to look towards as a means of restoring democratic control over production, distribution and exchange in the age of international capital would be the enlarged European Economic Community. This is so of many other things, as well as control over international capital: it is so of control of pollution; it is so of a development of a maxi-technology, largely through the instrumentality of these very international companies; it is so of the development of communications satellites for putting TV anywhere on the world so that European countries will not have to hire air time from the Americans, and it is true of many other things. We could consort with the E.E.C. to these ends from outside, but if we did I guess that we should have to spend about half our diplomatic lives talking through the door to the people in the room. It would be very much easier to walk into the room.
LORD BYERS: My Lords, may I just put a point to the noble Lord?
LORD KENNET: My Lords, if the noble Lord will allow me two more sentences, I am about to come to my peroration. I am not saying that we should walk through the door into the room: I am saying that we must still wait to see what the White Paper says; but in the view of one Member of this

599
House this particular matter of international companies is one of the reasons why we should hope that the White Paper will give us a package that we can accept.
LORD BYERS: My Lords, before the noble Lord sits down, may I just put one point to him? He ended by suggesting that the E.E.C. should provide this organisation. Does he mean only for European international companies, or for American and other international companies, including the Japanese?
LORD KENNET: My Lords, I am glad the noble Lord has raised this point. My idea was that if the enlarged E.E.C. could take this job on it should do it both ways. It should regulate the deployment of non-European capital in European countries, and it should also regulate the deployment of European capital in non-European countries.
LORD BYERS: My Lords, what about the Americans?
LORD KENNET: My Lords, America is not in Europe.
LORD BYERS: No, my Lords; exactly.
LORD DOUGLASS OF CLEVELAND: My Lords, before the noble Lord sits down I should like to ask him one question. Is he advocating what has happened in Japan, that international companies shall not be allowed to have more than 49 per cent., of the equity in any particular company?
LORD KENNET: No, my Lords, that goes a good deal further than anything I was advocating. I beg to move for Papers.
3.37 p.m.
THE MARQUESS OF LOTHIAN: My Lords, the subject of to-day's debate is indeed a wide one, and I am sure that the House is grateful to the noble Lord, Lord Kennet, for initiating it, and indeed for the most interesting speech that he has just made. I think the importance of this debate is illustrated by the large number of speakers on the list. And perhaps I may say how much we are all looking forward to hearing the maiden speech of the noble Lord, Lord Tanlaw.
My Lords, the growth of international direct investment during the last twenty
600
years, which has led to the growth of international or, as they seem to-day to be more frequently called, multi-national companies, has indeed been remarkable. It has exceeded the growth rate of world trade, which has itself been remarkable during the same period. During the 1950s, the growth of multi-national companies attracted little attention, but in recent years the growth of books, articles, conferences and research studies on the subject has begun to exceed comfortably the growth rate of the phenomenon itself. This growth in interest is fully understandable, since the operations of multinational companies have implications for many different groups of people, ranging from economic theorists, to nationally based companies which have to compete with them and to trade unions which have to bargain with them. This growth is also in a number of ways of interest to Gov-ernments, not only in the United Kingdom but of most Western nations, whether developed or developing. Indeed Eastern bloc countries are increasingly becoming aware of the advantages they may derive from harnessing the massive technical and managerial skills of large companies, based in the West, to assist in their economic development.
In order to give perhaps a little more background to the debate I propose this afternoon in my speech to outline the growth of international industrial investment as it affects the United Kingdom, and to illustrate the benefits that the United Kingdom economy has derived from such an investment. I shall then briefly go on to give some examples of how various Government policies act to restrain or encourage the activities of international companies, and my noble friend, Lord Drumalbyn will, I am sure, reply to the more specific issues and suggestions which may be raised during the debate and answer as many of the questions that are raised as he can. I should like also to take this opportunity of apologising to the House for the fact that I shall not myself be able to remain until the end of the debate because of a very long-standing commitment which I have been unable to alter.
Successive British Governments have encouraged the growth of investment in the United Kingdom by overseas-based companies, and I think the following figures—and I will try not to quote too

601
many statistics—show the extent to which this growth has occurred: the book value of foreign direct investment in industry, excluding oil, insurance and banking, in the United Kingdom nearly doubled between 1962 and 1968, from £1,430 million to £2,718 million. About two-thirds of this investment is by United States companies. To give some idea of the scale of this activity relative to that of the United Kingdom economy as a whole, it is estimated that in 1969 the United States-owned sector of United Kingdom industry accounted for between 12 and 13 per cent. of our manufacturing output and about 16 per cent. of our exports. A similar pattern of strong growth emerges if one looks at the figures for overseas investment by United Kingdom industry. Here, despite restrictions on capital outflow from the United Kingdom for much of the period, book values increased from £3,405 million in 1962 to £5,585 million in 1968; once again these figures exclude oil, insurance and banking.
LORD DIAMOND: My Lords, may I interrupt the noble Marquess? These figures are very interesting; they are, of course, available. What is not available is not the book values but the real values. I do not know whether the noble Marquess could help us on the up-dated values?
THE MARQUESS OF LOTHIAN: My Lords, perhaps I may take counsel with my noble friend on this point and see whether in his winding-up speech he can help the noble Lord.
The main point to note about the figures that I have just given, apart from their scale and fast rate of growth, is that the overseas assets controlled by British industry are twice the value of assets in the United Kingdom owned by foreign companies. Perhaps, too, I should make it quite clear that all these figures exclude portfolio investment, which is subject to different rules and which is outside the scope of this debate. The fact that in Britain we have a significant foreign-owned sector of our industry and at the same time United Kingdom companies own a greater amount of overseas assets enables the Government to take a balanced view of the activities of large multi-national companies.
602
The benefits to our invisible earnings from our overseas direct investments are considerable. In 1970 net profits after overseas tax on these investments amounted to £685 million, while earnings on a similar basis from foreign-owned investments in the United Kingdom were £329 million, representing a surplus of £356 million, or nearly £30 million a month, on our invisible account. In 1960 this surplus was only about £10 million a month. The House may be glad to know that I do not intend to quote very much more in the way of statistics. I do not apologise for giving these figures, for it is, I believe, essential to keep the scale and balance of international investment in mind when considering various aspects of the phenomenon during the debate, and also to be aware of the extent of the direct benefits to our balance of payments which we derive from this investment.
But the benefits from international investment go well beyond those that I have mentioned so far. Inward investment. that is, investment by overseas companies in the United Kingdom, besides bringing an inflow of capital, can also often bring in valuable technical and managerial know-how and may also improve the performance of United Kingdom based companies by sharpening competition. Foreign owned companies operating here also account for more than one-fifth of our exports; a higher share than the proportion of production or employment here. Just as exports per employee are on average greater for foreign owned companies than for United Kingdom owned, so is on average the value added per employee greater in foreign owned companies operating here.
There is one last benefit I should like to mention here. New investment from overseas is usually much more mobile than extensions of existing investment by United Kingdom based companies. Hence the incentives provided to attract industry to areas of high unemployment have resulted in a considerable number of foreign companies providing much-needed profitable employment in the assisted areas. Scotland has been particularly successful in attracting foreign, and especially American, subsidiaries: survey carried out last year showed that nearly half the new employment in Scotland provided by companies which

603
opened new manufacturing establishments in Scotland between 1945 and 1969, was provided by North American owned companies.
Active promotion of the attractions of the United Kingdom as a country in which North American industry can profitably invest has been carried out, since 1960, by a special office in New York. This office, the British Industrial Development Office, is jointly financed and staffed by the Northern Ireland Government and the United Kingdom Government. The staff of this office have put a great deal of worthwhile effort into making effective contact with nearly all major United States companies likely to be interested in investing in the United Kingdom. But with the growth of United States investment here there are well over 1,000 branches and subsidiaries of United States companies now established in this country, and the scope for a separate office concerned solely with investment promotion has diminished. I am able to announce to-day that, in accordance with a recommendation by the Duncan Committee, arrangements are being made for the work now being done by the British Industrial Development Office to be carried out in future by the Consulates General in the U.S.A. in association with their other commercial work. The staffs of the Consulates General will take an active role in encouraging new United States investment, especially in the assisted areas of the United Kingdom, and suitable staff training is being arranged. Because of the special need to attract new investment to the Province, the Northern Ireland Government has decided to maintain a separate promotional office in New York.
I should like now to return to the benefits which this country derives from overseas investment by British industry. In addition to the valuable contribution such investments make to our invisible earnings, which I mentioned earlier, overseas investment can lead to an increase in our exports, both directly from United Kingdom parent to overseas subsidiary or indirectly through the general strengthening of commercial links with overseas countries that direct investment brings. In addition there is a vital role to be played by overseas investment in improving the competitive strength of major
604
United Kingdom companies, which need a broader-operating base to compete more effectively with large United States, European or Japanese companies which are also likely to be operating on an international basis.
For these reasons, therefore, Her Majesty's Government welcome outward investment by British companies. The purpose of exchange controls, to which I shall return in a few minutes, is to protect our balance of payments from the strain of large capital outflows that can accompany overseas investment, not to prevent such investment from taking place. The Bank of England is always ready to discuss with a company or its advisers the means available for financing any direct investment project to enable the exchange control requirements to be met. For completeness I should also mention the Government's policies to encourage an increased flow of private industrial investment to the developing countries, which were outlined in a White Paper published in April and on which we had a discussion in your Lordships' House on April 28.
So far, I have spent most of the time elaborating the benefits which Britain derives from international investment, both outward and inward, and on those of the Government's policies which are aimed at encouraging such investment. I have done so, not because I believe that there are any serious differences among us as to the extent to which in general the growth of international investment has benefited our economy, but because I thought it right for the various facts, and for the present Government's general approach, to be put on record.
Concern has been expressed—and I have no doubt that it will be expressed again during the debate to-day—that the larger multi-national companies might, because of their size and the spread of their operations, have acquired such power and independence that they were, or might become, beyond the control of some or eventually all the nations in which they operate. This was a point which the noble Lord, Lord Kennet, touched on, and he made some most interesting suggestions, if I may say so. I should like, therefore, to say something about the different and several types of legislation which affect international companies operating in the United Kingdom.

605
First, there are the exchange control regulations, which I have already mentioned. Exchange controls directly affect capital movements, and to a lesser extent current account payments, between a United Kingdom company and its overseas parent or subsidiary company. Foreign-owned companies operating in the United Kingdom are required to bring into this country, and retain here, sufficient external funds to cover the value of their fixed capital assets. For companies already established here, reinvestment of past profits which would otherwise have been eligible for remittance abroad counts towards this requirement. Working capital for foreign-owned companies' operations here is usually allowed to be raised in the United Kingdom. Some relaxation of the rule governing the external financing of fixed assets is allowed for new investments which are export promoting, or which provide new employment in the development areas.
In general, foreign companies retain funds in the United Kingdom to a considerably greater extent than is required by exchange controls, to the benefit of the United Kingdom reserves. Overseas investment by United Kingdom-based companies in the non-sterling area is subject to controls to ensure that capital outflow from the United Kingdom to finance such investment does not in general occur before the benefits, in terms of increased exports or remittance of profits and other earnings, have occurred. A voluntary programme, concerned with investment in the developed countries of the Sterling Area, operates on similar principles. Exchange controls also require that two-thirds of the net profits from overseas operations are remitted to the United Kingdom. These controls have brought considerable benefit to the United Kingdom balance of payments, while at the same time overseas investment by United Kingdom companies has increased at a record rate.
There is a quite separate requirement in the Exchange Control Act to which it is appropriate to draw attention to-day; that is, that no United Kingdom-owned company may be transferred to the control of non-residents of the United Kingdom unless consent for such transfer has been given. This is one important safeguard which can be used, if necessary, in the event of a takeover of a large or
606
important British company by a foreign company. The other safeguard is the Monopolies and Mergers Act, which I shall mention in a moment or two.
LORD BROWN: My Lords, could the noble Marquess inform me in which legislation the provisions for the first safeguard he mentioned are to be found? I am very interested. I was not aware of the existence of the safeguard.
THE MARQUESS OF LOTHIAN: My Lords, I understand that they are to be found in Treasury Regulations. I cannot at this moment give chapter and verse, but I will see that the noble Lord is given that information.
I said that I was going to mention the Monopolies and Mergers Act. Before I come to that, I should like to say that in practice no action is taken to prevent or discourage foreign takeovers in almost all cases, but there have been three occasions on which undertakings have been given to the Government by foreign companies when they have acquired the United Kingdom stake in major companies operating here. These cases are: Ford of the United States when, in 1960, it acquired the shares in Ford U.K. held in Britain; Philips of Holland when it acquired Pye in 1967; and Chrysler when it took control of Rootes, also in 1967. The undertakings obtained by the Government on each of these occasions were concerned in each case with the future development and expansion of the United Kingdom company, which would help to maintain and expand export markets. The details of the undertakings were published at the time they were given.
The second piece of legislation which can directly affect the operations of multinational companies is the monopolies and mergers legislation, which applies in exactly the same way to foreign-owned companies operating in Britain as it does to nationally based companies. A reference may be made of a monopoly situation wherever one firm has at least one-third of the market for a particular product or service. A number of important references to the Monopolies Commission have involved international or foreign-owned companies, either alone or alongside domestic companies. All the major oil companies were involved in the petrol reference. Proctor and Gamble and Unilever were the companies mainly

607
involved in the reference of household detergents. The firm most closely involved in the colour film inquiry was Kodak. Philips were involved alongside domestic companies in the electric lamp reference. In each of the two most recently announced monopoly references—that is, breakfast cereals and boot and shoe machinery—the leading firm is a subsidiary of an American company. This does not mean, of course, that this Government, or indeed our predecessors, have in any way discriminated against international companies. But it does, I think, demonstrate that there has been no need to avoid them in making references to the Commission. The experience both of the Commission and of the Government has been that international corn-panics are no less co-operative than national ones over these investigations.
The merger provisions also apply to acquisition by international companies in the same way as they apply to acquisitions by national companies. Any merger which creates or intensifies a monopoly situation, or involves the taking over of assets of more than £5 million in this country, can be referred to the Monopolies Commission, irrespective of the nationality of the acquiring firm.
The third area in which British legislation is of direct concern to multinational companies is that of the Companies Acts. The great majority of foreign-owned industry in this country is carried out by subsidiaries incorporated under our companies legislation. This means that such companies, in common with all companies incorporated in the United Kingdom, have to conduct their affairs in accordance with the provisions of the Companies Acts and to comply with the accounting and disclosure requirements of those Acts, which arc more stringent than the requirements of most other countries, apart from the United States of America. There are, of course, plenty of foreign organisations trading in this country who merely have branches here and have not set up subsidiary companies incorporated in the United Kingdom.
LORD KENNET: My Lords, I wonder whether I could just ask a question about these regulations before the noble Marquess proceeds. Is it correct that they
608
do not make it necessary to reveal the extent either of transfer of pricing or of leading and lagging in inter-group payments?
THE MARQUESS OF LOTHIAN: I should prefer not to answer that question directly, but I hope that my noble friend will be able to do so when he winds up. I should not like to mislead the noble Lord about that point. Provided that the company concerned has an established place of business in Great Britain, it must file returns and accounts with the Registrar of Companies under Part X of the Companies Act 1948. These requirements compel the organisation to provide almost as much information about itself as if it were a British company. There are some 3,000 companies filing returns under Part X at the moment, and these returns are available for public inspection. I have just outlined three areas in which international companies have to comply with the requirements of British law. There are of course many other requirements ranging from those of town and country planning to industrial training. In general, it can certainly be said that multi-national companies behave very responsibly in this matter, as do nationally based corn-panics. All the indications are that the Government's generally liberal policy towards the growth of international investment and to the growth of multinational companies has proved beneficial to our economy, and that there has been relatively little in the way of offsetting disadvantages. Nevertheless, the rapid growth of the phenomenon makes it essential for the Government to keep a watch on the situation, to make sure that we continue to benefit, and that some of the dangers to which the noble Lord, Lord Kennet. alluded in his opening remarks are avoided.
I am aware that some noble Lords may consider our attitude to be a little too sanguine, and they may bring forward instances where the actions of an international company may have been detrimental to this country. But in giving due weight to such examples, which I fully acknowledge exist, one needs to consider two things. First, one must consider whether the action in question was directly related to the international character of the company; that is to say, whether purely national companies

609
could not, and do not, take similarly,detrimental actions from time to time. Secondly, it is essential, as I have emphasised throughout, to take a broad view. In many ways, for Britain, the arguments in support of liberal policies towards international industrial investment are similar to those in favour of liberal trade policies. The lowering or abolition of trade barriers may adversely affect the production of certain goods in this country through increased competition from imports, yet, in general, liberal trade policies act greatly in favour of the United Kingdom economy as a whole. In the same way, the application of general controls to prevent occasional difficulties arising from the operations of multi-national companies might risk the diminution or loss of the very real benefits which, as I have indicated, we get from international investment.
4.3 p.m.
LORD TANLAW: My Lords, it is not without considerable trepidation that I ask for your Lordships' attention on the subject of the growing importance of international companies and their relations with States, for, unlike my noble friends and the majority of this House. I have not had the benefit of a distinguished career in the other place on which I can hang my words. I can only speak on this subject from a merchant venturing background, combined with Liberal beliefs—perhaps even shared by the noble Marquess—in the freedom of trade as being of genera! benefit to the national economy. I therefore pray your Lordships' indulgence.
The noble Lord, Lord Kennet, has already made the point that the United Kingdom sees the international corporation from both sides. I should like to speak, in support of him, with special emphasis on the relevance of the multinational company with regard to British exports. My limited experience working overseas—namely, in India for a British parent company—has led me to believe that such companies can fulfil an important role in the maintenance of export markets, while at the same time contributing to the economy of a developing country such as India. If your Lordships will allow, it may be worth while in this context to touch briefly on the historical development of such companies
610
in order to see how the present situation has come about in one small section of the range of multi-national companies which are being discussed this afternoon.
The House will recall that, before the Second World War, Commonwealth countries accounted for a large percentage of British exports. However, since 1945 most of these countries have been granted their independence and, over a period of time, developed and protected indigenous industries of their own, which had the effect of drying up these traditional export markets. British companies, which had in the past relied on these markets which were becoming closed to them through tariff barriers and total import restrictions, were faced with trying to explore new markets or seeing their products vanish from these areas altogether. If the latter occurred, their pro ducts were replaced by a competitor, usually a non-British one, who established a local manufacturing company to serve a ready-made market. An enlightened company wishing to continue in these markets, but one which had hitherto never considered overseas establishments, could find itself forming manufacturing units in a number of different countries with, before long, an international corporation being born. The parent company then becomes the holding company, and the original manufacturing unit keeps in business through diverting its labour force with a high wage structure into more sophisticated products.
The pattern that has been outlined must have been repeated in many different countries all over the world and, as described, can have no sinister overtones. The attitude of the host country in such instances must initially be one of welcome, as it provides a new source of employment and a new indigenous industry with growth prospects, plus a saving in foreign exchange. These points have already been made this afternoon. Once the new industries have been established and have become profit-making concerns, the parent company is in a position to decide—although some developing countries make it a statutory obligation—to offer shares to the general public and, in some cases, to local management and the work force through incentive schemes. Local participation of this kind further identifies the company with the economy of the host

611
country, but occasionally, if for technical reasons this is riot possible, some arrangements should be made for investment in the parent company by residents of the host country. This step would ensure that no misunderstanding arose about the ultimate intentions of the parent company regarding its overseas investment policies.
From my limited experience in working with companies similar to those described, I have every conviction that, if British exports are to be maintained in Commonwealth and developing territories, companies in this category should be encouraged by the Government to do so through the medium of a multinational corporation. Various learned reports have been written recently, which appear to show that British overseas investments do not greatly assist the economy. But Professor Dunning, in his paper on the multi-national enterprise, demonstrates that more than 30 per cent. of the profits of British-owned enterprises are derived from overseas operations, the total of which amount to more than 1 per cent, of the gross national product of this country. If these statistics are acceptable to your Lordships, it is to be hoped that at some not so future date consideration will be given to the easing of regulations that govern the export and return of capital for projects of this nature.
On the other side of the coin, the determining factor in the attitude of a host country towards the multi-national company must surely be the effect of the foreign capital investment on the gross national product. This can be very considerable. In. Britain, the Netherlands, France, Sweden and Germany, foreign multi-national corporations account for 25 per cent. of the manufacturing exports and thus play a major role in the economy of these countries. It is for this same reason that there is perhaps some cause for concern by Governments that sudden movements of capital during currency instabilities or the unexpected shutdown of a major plant could unbalance the national economy, simply because of the size of the foreign investment involved. Any action of this kind would amount to what could be described as
612
irresponsible corporate social behaviour, and as such would be a difficult target for legislation, thus increasing the dangers expressed by the noble Lord, Lord Kennet.
Nevertheless, there is also a risk of Governments worrying prematurely about what have been, to date, mainly hypothetical problems that can be created by these so-called Juggernauts and in so doing overlooking the most important role they fulfil in providing new sources of employment for the work force of the host country. Untimely legislation made in anticipation of the worst fears of the noble Lord, Lord Kennet, becoming a reality could have a detrimental effect on the national economy if it scared off potential foreign capital investment when it was most needed. I am thinking at this time particularly of Scotland, which has played the part of willing host to a number of these multi-national companies, and is presently in desperate need of new sources of employment. In view of this one factor alone, my Lords, I ask that consideration should not be given to national or international legislation as a means of dealing with corporate social behaviour. I should rather see, instead, the creation of an unwritten code of behaviour which should not affect the investment climate and which, one would hope, would touch the social conscience of these great organisations—that is, if they possess such things.
On this basis, it should not be impossible to build a framework of ground rules whereby corporate social behaviour could be identified in broad terms; and I see no reason why such a framework could not be worked out on an international basis with the co-operation of Governments, international representatives of organised labour and consumer councils. It would be hoped that a code of this nature would be able to cover many situations, including currency switching for speculation in times of international monetary crises, monopolies, cartel arrangements, transfer pricing as a means of tax avoidance and even such things as pollution. Laws are already in existence covering most of these points in one form or another, and Governments should therefore find it unnecessary to create more. However, if it were brought

613
to the attention of Governments, through consumer organisations, public opinion or even a Government Department, that this code of behaviour was being ignored to the detriment of the general public or the national economy, then fiscal action could be considered in the form of fines or tax penalties.
In general, it would be hoped that Governments as a whole might make it their aim to create an economic environment which enabled multi-national companies to contribute the maximum towards economic development, and intervene only when the market or employment became unstable through infringements of an agreed code of behaviour. The potential danger of misuse of the strength, influence and sheer weight of money which can be wielded by these great international corporations will always be with us. However, I would hope that this House, while continuing to remain alert to this danger, will also recognise the beneficial effects they have on the national economy, with special regard to the maintenance of British export markets and the creating of new sources of employment in this country.
4.14 p.m.
LORD RITCHIE-CALDER: My Lords, it gives me great pleasure to follow and to welcome the noble Lord, Lord Tanlaw, and to congratulate him on his maiden speech. It is always a great encouragement to me when another Scottish Lord joins the forces of this House. I congratulate him on his speech, and I hope we hear from him on many occasions to come.
I think that what we have heard so far in this debate has emphasised something which has certainly worried me, and that is that we are looking at a phenomenon which is comparatively new, and anyone who misunderstands it is, I think, going to be in great difficulties in considering what we can do about it. To identify the phenomenon, which has appeared almost entirely since the Second World War—and I will come back to why it is a Second World War product—and which is not yet properly recognised, we ought, in reference to it, to use the term (indeed, Lord Lothian used it) "multi-national corporation" rather than "international corporation". After all,
614
the British Empire originated as far back as the 16th century, as unilateral internationalism, through the operations of the mercantile companies seeking access to raw materials and creating markets. There were the great charter companies, like the East India Company, which with its trading operations, backed by its private armies, had its own empire until it was taken over by the Crown and Britain thus acquired India; or The Company of the Adventurers of England trading into Hudson's Bay, which opened up Canada for purely commercial reasons; or the later operations, when trade followed the Flag and Cecil Rhodes into Southern Africa; and, of course, our heyday in Latin America, when we opened up the pampas to our meat trade.
But the forbears, if any, of what is now happening arose probably in the 1920s, with the establishment of the complex managerial structures of Royal-Dutch Shell and Unilever. These were exceptional examples of companies which were bi-national, British and Dutch, and which, as producers or manufacturers, extended their operations to acquiring ownership of their raw materials and creating markets for their products in many different countries. Between the wars there were the international cartels, in which big national corporations came to terms with their competitors, like animal species defining their territories, through systems of investment, and licensing of their inventions. Some of us who had experience during the war of targeting in Germany, for example, were extremely conscious of the fact that we knew who had commercial interests in Germany. It was very difficult to sort them out if they had large cartel associations. These were international in the sense of national companies coming to mutual accommodation with other companies. The multi-national corporation, I suggest, followed the Second World War, and the term means any corporation which organises its operating divisions across national frontiers. This covers not only, in the historic pattern, trading, finance and insurance, but also, in modern terms, deployment across frontiers of manufacturing operations—the bringing in of not only finance but managerial experience and technological innovation, and the creation of subsidiaries or associates to carry on that work.
LORD KENNET: My Lords, since the noble Lord is assaying a definition, he would, I think. include extraction as well, although he did not mention it?
LORD RITCHIE-CALDER: Yes, I am sorry; I should have included extraction as well as trading, and so on. Some of these subsidiaries or associates are recognisable, like British Ford's, and they are indentified with a product. In principle, such subsidiaries or associates have their own local boards, and to that extent can be classified as national. But the pattern of the multi-national corporation which we see developing is, I suggest, something different. There has, of course, been direct overseas investment, the setting up of wholly or partly-owned foreign subsidiaries by companies from the leading capitalist nations, or the acquisition of existing concerns in overseas countries. This began, I think I am right in saying. as a means of overcoming tariff restrictions, but in the post-war world as a means of employing blocked currencies and, later on, of attracting local financing for the extension of the parent company. In many cases the outflow on invisible account of profit, interest and royalties have exceeded the capital inflow. I do not want to elaborate, but I can give examples. And, with all deference to the commendable example which Lord Tan-law illustrated, I think there have been (and I could proceed to demonstrate) great burdens on the developing countries in which this kind of multi-national cor-poration operates in the outflow—and it does happen: see the World Economic Report of the United Nations—of charges on profit, such as interest and royalties, with the irony that the Governments of the developing countries have to borrow money from international funds to pay for the "cuckoo" industries, the industries which have nested in their midst, which will be factors of their ultimate development but which, frankly, can be at the moment demonstrably an embarrassment.
Though many books have been produced on the subject—and this was mentioned by the noble Marquess, Lord Lothian—nobody knows how a multinational corporation itself works. It grows, like Topsy, largely by improvisation and for devious purposes like overcoming tariff obstacles or taxation difficulties. The
616
multi-national corporation has no internationally recognised legal status. The parent company is incorporated in its own country, or frequently in a country like Lichtenstein or some other accommodation address. The subsidiary companies are incorporated under company law in their host countries and are known only in terms of the national economy or of their effect upon it. Nobody knows the nature and extent of the global operations of multi-national corporations. The multi-national corporation is in many cases a global expression of what Doctor Neill Jacoby calls the conglomerate corporation ". This means a business corporation producing the products or services of several industries that are unrelated with respect to their raw material sources, product development, production technology or marketing channels. This is what is called diversification and its two factors are, one, managerial expertise and the other, money.
Whereas previously a corporation in the historical way expanded vertically—downwards by the acquisition of material resources and upwards through consumer outlets including marketing and sales—the movement since the middle 'sixties in the United States has been takeovers of companies producing unrelated products —and I think that that is also true elsewhere. And this means investment in both the swings and the roundabouts. The logical extension of this are the multi-national conglomerates in which, from one point of decision—whether it is the board of the parent corporation or (as is obviously happening) a diversification of people in the form of national nominees — operations are diversified within foreign countries. Thus a comparatively few people are controlling a great many industrial and commercial activities and are becoming a "Third Force", as Lord Kennet pointed out, and as severely curtailing the capacity of Governments to control their own economies or, since millions of employees are affected, from determining their own social systems.
Originally the multi-national corporation had the plausible appearance of federalism, in the sense that the national companies had a degree of local initiative and adaptation. I draw your Lordships' attention to the Financial Times of yesterday, June 15, in which Nigel Foulkes,

617
who resigned a year ago as managing director of Rank Xerox and who therefore has some experience of international companies, wrote:
" Big companies are getting bigger, more secure, slower to adapt and more prone to standardise. The computer has halted the trend towards federalism by making the leviathan more manageable and despite much talk of delegation the direction is hack towards centralisation."
This fulfils a prophecy that I made, of an industry automated in North Scotland being controlled by computer from Omaha. Again, I repeat, this direction of power, this "Third Force", is getting into the hands of fewer and fewer people. Some of them are completely faceless and impossible to identify. To whom are they answerable? Do we know where the stockholders' or shareholders' meetings of the multi-national corporations take place? Of the parent corporation, yes; of the subsidiaries. yes. But of the global operation, no. They are answerable, in the ultimate, to no Government and to no identifiable stockholders—except, as in the case of some notorious financial enterprises, when there is a public scandal and ruin. When things are going well, the international corporation has no corporate identity and its controllers—and, as Mr. Foulkes made plain in the Financial Times they are controllers and not stewards — are a self-reproducing oligarchy.
There are some who regard the multinational corporation as a method of breaking down obsolete barriers of sovereignty, of consolidating world peace on the basis of the self-interest of all peoples and of bringing reality into the methods of government. They extend their arguments to industrial relations with the workers far beyond the kind of thing which your Lordships have been discussing and far beyond what was discussed in the other place on the Industrial Relations Bill. They talk about multinational corporations coming to terms with multi-national unions—though what the multi-national shop stewards are going to say about this has not been discussed. As has been pointed out, the British unions and the unions of other countries have become aware of what faces them in this new development, and some of the best insights into the situation
618
have come from very sensible considerations by trade unions. They do not know the answer but they are aware of the problem.
There are spokesmen for the multinational corporations who speak in terms of the highest idealism. For example, as a result of an article in the magazine of the Center for the Study of Democratic Institutions a film was made of a discussion between Arnold Toynbee and three international business leaders, for all of whom I have personal respect: Eldridge Haines, founder and chairman of Business International Inc.; Orville Freeman. president of Business International and formerly Secretary of Agriculture in the Kennedy and Johnson Administrations and Dr. Aurelio Peccei, vice-chairman of Olivetti and of Fiat, and one of the founders of the Club of Rome, a sort of multi-national corporation Rotary Club. They came to the point of discussing practical steps and I want to quote a little of their discussion:
" PECCEI: I know of one step—one small step that seems to me may lead toward something; it is to give the multi-national corporation an international charter. It may be located in a real or symbolic territory, but it will give it a non-national identity.
" FREEMAN: Why not an island somewhere that could be the slats for the multi-national corporation?
" HAINES:… the Caribbean.
" FREEMAN: I'll buy that. This would he comparable to the situation in the United States in which most corporations are chartered by the State of Delaware. for pragmatic reasons. I think this is exciting because it would do two things: it would constantly remind multi-national corporate management that they really are world-wide, and that they should act and think so, even more than they do; it would remind the countries in which they do business and where most of their people come from, that they are international and must think and act in that fashion. And thirdly, it would tend to meet this religious fervour—the tension of the whole world—by dramatising the basic concept that here's a little island somewhere which these great corporations call their home. It might even be a member of the United Nations family, and it might even. in the long run, begin to provide independent revenues to the United Nations."
Haines suggested that it might go to Switzerland but Toynbee said:
"I prefer an island; there are some ex-colonial islands that have become independent and don't know what to do about it. I think one of them might be persuaded to lend itself as a kind of Vatican City as a seat for the world's multi-national corporations".

619
It seems to me that here you have a very good example of where some people think we have got to. That certainly applies to people like Signor Peccei.
One stage further, my Lords, and I shall have finished. You have a third force which is growing with leaders, with aspirations, albeit some of them, as in the case I have mentioned, well-intentioned and positively inspired. You have the prospect of syndicalism with national, if not international, corporations coming to terms with the trade unions if they can arrange it—if they can organise the trade unions to come to terms with them—and confronting Governments. This, my Lords, is the way to a corporate World State; and this, to me, is not acceptable. It may be that is what some people would want. Maybe it would produce the kind of stability that Peccei and others talk about. But I still want to know where, in this great network—this spreading of the net of the corporations, and all their aspirations—do we, the peoples, come in?
4.32 p.m.
LORD THOMAS: My Lords, may I join my noble friend Lord Ritchie-Calder in congratulating the noble Lord, Lord Tanlaw, on his maiden speech. His sagacity and wealth of expression will surely be heard many more times in this, our House.].t will probably sharpen the point of what I am going to say if I start by declaring my interest in, and my first-hand knowledge of, the operation of international or multi-national organisations. In the automobile field I formed and helped to get into production car and truck-making offshoots of a British-based parent company. These offshoots were in India, Australia and South America. In aviation, in the operation for nearly ten years of Britain's largest and nationalised airline, I watched over the development of what, in essence, are multi-national operations in the six Continents of the world where B.O.A.C. have local companies for the promotion of passenger and freight business. That was a fascinating experience. It allowed me to look at the world through a much wider window.
One of the most widely-ranging industries in the world is chemicals. I was chairman of the now wholly-owned British branch of one of America's largest
620
chemical businesses, owning a chain of internationally located subsidiary companies. This was a particularly mind-broadening experience. The chemical industry is perpetually hungry for capital in order to buy new plant to make new products that are discovered by arduous and expensive research; first, to benefit the public with improved medicinal and synthetic textile usages and concurrently to make a profit to finance more research and development.
Currently I chair the British board of an American company which is a leader in making machinery for food processing which results in products that are increasingly more palatable, nutritious, hygienic and stable. Against that background, spanning some 40 years or more, let me say right away that I think the development and expansion of multi-national companies is a benefit for mankind worldwide, and should not be discouraged or despised in this country. I strongly support the views so vividly projected by the noble Marquess, Lord Lothian.
Why I hold that firm view I propose to explain under two main headings. First, I think that the growth of multinational companies is a logical sequence of events. In the beginning there was the lone, individual worker, be it making implements, or in agriculture. Perhaps he was producing shelter for the human body in mud, or stone, or skin, or shoddy or whatever might be his task. That lone man soon found that if he took on a fellow worker the two of them could produce much more than twice what they each made singly. Thus the family business and the cottage industries were born. As those businesses progressed more money for materials and suchlike was needed; outside subscribers came in and became holders of shares in the enterprise, and thus corporate entities were evolved.
Somewhere about this stage, my Lords, maybe centuries later, the importance of local natural resources was recognised. Geophysical and geographical factors emerged; and so, all over the world, industries began to localise—wool in Yorkshire where the sheep grazed, coal and iron founding where availability prompted, and so forth. Thus industrial groups and combines came into existence. Factories in varying regions, but with

621
compatability of products, got together, making their joint headquarters in a metropolitan or provincial city, such as, say, Sheffield, Birmingham, Glasgow or London and policy-forming and financial control were thus centralised.
Such enterprises that developed wise managers and willing workers prospered. Those who did not enjoy those essentials fell out of the march forward. And in this forward march the barriers of ethnology were lowered. No longer, except maybe on the field of rival sport, did the White Rose clash with the Red, the Thistle with the Leek. World trade began in Britain—that was the Great Britain of our history book years. Britain began to take in raw materials and men from lands across the seas, and in turn to export, to our advantage, the proceeds of our brains and hands. We prospered. Now we come to the next phase, the one that we are debating to-day.
Outward-looking British industrialists saw that instead of importing a raw material, fashioning or processing it in these Islands and then re-exporting it from whence it came, it was more logical to export machinery, plant and know-how, to set up a factory and its supporting company structure overseas and begin processing on the spot more economically and probably in greater volume than heretofore. Instead of bringing iron ore or cotton fibre from abroad and wholly processing it in the United Kingdom, our businessmen saw virtue in getting through at least the refining or spinning stages near to its source of origin. From this system emerged an economy that prospered, and the international company complex was formed. Those acutely interested in employment in this country —and who is not?—may have asked whether, when the early stage of process work was done abroad, it took work from eager hands in this country. The answer, I suggest, is in the negative because instead we made machinery for export and that created skilled employment. Moreover, the profit made by the overseas company not only paid local wages and dividends but also returned interest on the capital invested in Britain.
Obviously, my Lords, this splendid pattern of trade could not continue without attracting notice, and so, naturally, Britain came to be looked on as a worthy
622
source of some basic materials and also as a rich market for the finished goods of other trading nations. So those other nations tentatively shipped in their finished goods—motor cars, cosmetics, plastics, fashion goods, electrics, calculators, earth-moving machinery—a whole trial spectrum of modern trade. Then they, too, found it beneficial to manufacture in Britain, and thus began the spate of internationally controlled companies operating in Britain.
This brings me to the second heading of why I think the growth of multinational companies should not be decried or discouraged by us. For one thing, they vigorously stimulate trade. It is all very well for critics to say that immigrant companies steal business away from our own establishments, but I do not accept their view. Multi-national organisations mostly make creative contributions to our range of consumer goods. generally bring in capital when new plants are laid down and certainly teach us lessons in the industrial sciences. To a large extent also they have of recent decades helped us with our development areas. In the Development Corporation for Wales, we went to great lengths to seek out and persuade companies from the other side of the Atlantic to set up factories in the work-starved valleys. to make components for domestic cookers, electrical gear, ball bearings and the like. And the same can be said so far as Scotland is concerned.
An interesting sidelight on the theme of our discussions to-day is that multinational companies almost always appoint a national of the country in which they are establishing an enterprise to head up the administration. They may take a likely looking executive and give him suitable indoctrination in the head factory, but seldom is an attempt made to superimpose someone foreign to the location of the plant. Certainly it is most unusual for any effort to be made to get into the political arena of the country involved. All the considerable experience that I have had leads me to believe that the guiding rule to the local executives of a multi-national branch is, "Keep right out of politics". And this is what invariably happens.
Foreign manufacturers realise, as well as we should, that the British worker is as good or better than any other source

623
of effort, provided that he is properly led. And by that I do not mean only good management leadership but the implantation and nourishment of the philosophy that prosperity and high spending-power ultimately only accrue by a steady outgiving of effort and not by withholding of effort in the ransom-seeking practice of sporadic strikes. The only really effective international currency is the degree of effort put out on average per capita of a nation, be it in brawn or in brain. And in my experience there has been a great benefit accruing to British industry in the cross-fertilisation of industrial systems and methods that have been imported inside our shores by multi-national companies.
Take, for example, the change in the method of payment in highly mechanised factories from the hated, old piecework system to the modern, imported, measured day rate. Under the old strive and drive piecework method, many men working on the line were ulcer-ridden wrecks before they were 45. That several of them had to be in effect pensioned off as highly-paid cleaners, sweepers or, yes, lavatory attendants, is no joke but a humanitarian reality. Measured day rate, already in operation for a few years now in this country, looks as though it should take many of the stresses and strains out of our industrial complex.
It is not only on the shop floor that benefit accrues by the intake of multinational companies. In many of our service industries, our standards have had to be raised to meet the needs of incoming international enterprises. One I well remember was an American synthetic textile organisation that simply refused to set up a factory over here unless it was guaranteed an absolutely steady non-fluctuating supply of electric current. It researched all over to find which area of the British Isles had the least variation in its voltage and cyclical conditions, and it smartened up our ideas a great deal when it finally found what it wanted in the Lowlands of Scotland.
Then comes the question of ultimate control. I have never seen that there is any fundamental difference between a steel company in Wales or in Scotland being controlled financially and policy-
624
wise from a board-room in London than there is in an automobile factory in Ellesmere Port or Luton being controlled in the ultimate from Detroit. I can emphatically tell your Lordships that, whether he be British or American, French, Dutch or Japanese, no businessman is suddenly going to shut down a plant that he has, after much research and capital investment, set up in a foreign country and leave his investment in machinery, jigs, fixtures and the rest of the complicated paraphernalia of modern production, to rot and wither. Such is the need for constant speed in production and, indeed, in a change of models, that there simply is not time to dissemble a plant and re-erect it elsewhere, if it runs into difficulties. What in fact and in practice happens is that if local conditions become difficult, whether it be labour, a tax situation or some other matter, then the multinational control takes very good care not to increase its involvement in that particular location; but that, after all, is only common sense.
I believe that we in this country can benefit enormously in several ways from immigrant multi-national enterprises, provided only that our working climate is propitious. I remember only a few years ago taking part in what was almost a multi-lingual discussion to decide whether a new chemical plant should be erected, at the cost of several million pounds, in Britain or on the Continent. All kinds of conditions were considered: the supply of water, labour, electric services, taxation and banking facilities. What tipped the balance finally in favour of erecting the plant in Europe was the fact that at that time it did not look as if Britain was going to enter the Common Market. I can assure your Lordships that multi-national industries would be much more inclined to invest in or to increase their investments in Britain if it were fully established that we were going to go or, indeed, had gone into the Common Market. May I at this point observe that the noble Lord, Lord Kennet, seemed to base his most valuable contribution on what he fears might happen rather than on what actually has happened, but his was the starting point of this debate.
I would conclude by saying that to-day the world is a very much shrunken place compared with what it was before what, as one of its early protagonists,

625
I can be excused for describing as the "jet age". A businessman in New York thinks probably less about a flight to London than he does about a trip to San Francisco. Rapid, long-distance communication is commonplace. Subsidiary factories or companies overseas are not isolated. We in Britain, in our tight little Island, have not yet quite fully accepted this philosophy. We must get into the habit of thinking internationally and acting internationally, if we are going to keep our place in the league. If we isolate ourselves and imagine that we can have a self-supporting, let alone a healthily exporting economy, I think we shall be wrong. We must be out-giving with our energy and efforts, not individually trying to get a larger slice of a shrinking cake but thinking big and acting big. I welcome Britain's participation in the expansion of multi-national business enterprises in which, with energy, courage, faith and good judgment, we can play a useful and profitable part.
4.50 p.m.
LORD BALOGH: My Lords, I wish to add my congratulations to our maiden speaker to-day and hope that he will speak often and express as clearly as he did his opinions, even though he will understand that I do not share them. The subject before the House is a very involved one. I fully appreciate the reasons of bringing it before your Lordships. Nevertheless I do not think it can be usefully discussed at this juncture because by its nature it is linked to a question now uppermost in Britain; that is to say, our relations with the Common Market. Of course, the Common Market has had discussions on this topic and has evolved a rather detailed programme for controlling—or, rather, not controlling—what they call European companies. If we joined we should to some extent have to accept what they have and attempt further modifications if necessary. Certainly the whole discussion of the problem would be on a entirely different basis. I must say also that there can be a legitimate difference of opinion—indeed, one exists—as to whether the Common Market is willing, in the way we wish it to be, to control international enterprise. On the whole, therefore, I should have abstained from participating in this debate because I feel it to be somewhat theoretical. Although
626
many of your Lordships will have experience of this matter—from the individual to the general—it is as yet without a political foundation which might give us a basis for discussion.
There is, however, a matter of great urgency, and that is the need to call attention to the serious and immediate problem of Britain's relations to the oil industry, which is par excellence an international industry and one in which, unfortunately, we have not been able to exert the control that is necessary. The oil and gas story is a quaint one, showing the imperfect adjustment of Britain to her new position in the world. After a decade of fruitless search it became likely, in 1963 or 1964, just at the end of a previous Conservative Government, that the North Sea, and more especially the British Shelf, contained natural gas in huge quantities and that the northern waters of Scotland, which Britain shares with Norway, were likely to hold gas and oil in quantities which, even in international world proportions, are very considerable. This was completely unsuspected until the discovery of the Groeningen gas field. This is very important because it gave a completely stable region for the production of oil and gas which otherwise would be lacking, because most of the oil has been found in countries where conditions are not altogether stable. This underlines the attractiveness of the British field for those who wish to exploit it.
The quantitative importance of the find has been constantly written down, not only by the oil industry but also by the Ministry of Power and its successor monster Departments, the Ministry of Technology and the Department of Trade and Industry. I, for one, do not blame the oil industry at all for its tendentious statements. Indeed, I frankly admire it. It is in the industry's pecuniary interests to minimise the size of the discovery and thus secure a high price. It is for the Government to counteract this.
Natural gas has two types of outlet: one privileged, and one not. The priviledged one is to serve as a source of raw material for petrochemical materials and of domestic household gas. In this market the price of gas can be very high. How high it can be is shown by the fact that the Gas Council congratulated themselves on the purchase from Algeria of liquefied gas at eight old

627
pennies per 100 cubic feet. The cost of town gas, or of the conversion of an oil derivative called naphtha, into gas was well above that price. When British Petroleum struck gas, the Gas Council had in their minds a picture in which that sort of price of raw material was obviously a desirable one. It did not enter their vision that there might be so much gas available that the premium market might be saturated and non-premium outlets would have to be looked for in competition with coal and oil, in which case the commanded price would cease to be as high.
If the Gas Council were perplexed by this new problem, the Government were, if anything, even less prepared for this necessary drop in price. They had been accustomed to regard themselves—like the noble Lord, Lord Thomas, of course —as equal, or all but equal, partners of the Americans in the oil game on the side of the producer companies. It is true that five out' of the seven so-called major oil companies were American; but we had two. Of course the two do not look so British when one looks into them. After all, 60 per cent. of Shell is Royal Dutch, and the largest individual holders of both Shell and B.P. shares—that is to say, private holders and not the Government—were the French. Therefore the proper relationship to the balance of the so-called British companies is not so good as might be thought. Under our tax laws, moreover, before Professor Kaldor's reforms permitted the British oil companies legitimately to avoid taxation, dividends and reserves at least came to this country and this was thought to be a good buttress to our balance of payments.
Also, official advisers of the Government were in close touch with the companies and some of them became prominent on the reverse side, while some of the high oil officials became official advisers of the Government. They certainly felt solidarity, if not an identity of interest. One might follow on the lines of the President of General Motors and say, "What was good for Shell was also good for Britain". This was enhanced in the post-war era by the growing nationalism in the oil-producing countries which, from a British point of view,
628
threatened the profitability and certainly the super-profitability of oil companies in the Middle East and elsewhere. The Mossadeq attack on B.P., which almost led the late Lord Morrison into rash countermeasures and was successfully dealt with by the Americans, was only the first sign of this new aggressive spirit of the undeveloped host countries. The formation of OPEC, which has exacted so much from the oil companies of late, was the first really effective answer (and I was interested not to hear my noble friends Lord Kennet and Lord Ritchie-Calder refer to OPEC) of small countries dealing with large companies on a quasi-equal basis. The fact that the underdog now expects support from the super-Power not immediately involved—that is to say, the Russians and Chinese in Latin America, and the Americans in other countries—has also balanced the power between the small countries and large companies.
In this new situation—and I perfectly understand it—the British Government were bound to be on the side of the companies. When it became evident that Britain herself would become an oil producer, even if only in what was then thought to be a minor way, at this stage the adjustment of the Government to the new situation was imperfect. The chief officials in the then Ministry of Power were not experts, and, so far as one can make out from published reports, no outside expert was called in, so to speak, to buttress the Government's case with the oil companies. The Continental Shelf Act, which is the basis of the exploitation of the North Sea and other waters round Britain, is if one of the youngest, also one of the most archaic instruments now in existence. It did not embody the experiences either of the United States or of Canada. The royalty exacted by Britain is one of the lowest, and if the companies are subject to corporation and income tax these can be offset against investment and losses incurred elsewhere. Past tax payments to Britain of the oil companies provide an interesting history in this respect. The elementary precaution called the chessboard surrender system, whereby after the lapse of a certain time the oil companies are obliged to surrender, on a pre-determined geographic pattern, part of the concession was not adopted in this country. The oil

629
companies here can choose what territory they surrender, and of course it will not be the most promising one. No participation in profits was secured beyond the tax and some rather minor membership in some of the exploration syndicates by the Gas Council and the Coal Board, which, if the statements to this effect are true, are now about to be liquidated. Yet the smallest little sheikh in Arabia now secures up to 50 per cent. of the profits, and tax which is on the whole higher than here.
There was, however, one provision in the Act, Section 9(2), and especially Section 9(3)(a), which, if used skilfully and with determination, might have safeguarded the interests of the country. This was the provision that the Minister of Power could prohibit the direct sale of the gas in this country (except as chemical raw material) if it had not been offered at a reasonable price to the Gas Council. This was a formidable power. It implied the right of asking (as the American Federal Power Commission has by routine) for proof of costs and the opening of the books to see how costs, risk and profit work out at the proposed price. The statutory power makes it a duty of the Minister to ascertain these facts and to act accordingly. This duty does not seem to have been carried out by any recent Minister. As we have heard in answer to a question, the Minister does not seem to have been involved in the latest price determination at all. This obviously is a clear dereliction of duty. And, to my astonishment, the Minister, answering in this House, admitted that the elementary data which every country, including, as I have said, the smallest little sheikhdom in Arabia, gets as of right, are not available to us.
It seems that from this viewpoint, as in insurance and banking—let us only think of the Eurodollar market—and in gambling, we have become a sort of haven of convenience and profit, like Liberia or Panama, if not Monaco, for the international colossi. This is an aspect of the permissive society which is perhaps less obvious, but much more dangerous to our wellbeing than those which are explored by the noble Earl, Lord Longford. What is even more astonishing is that the Department dare to assert that they cannot get these figures, when they know that we know
630
that both the Coal Board and the Gas Council are partners in various consortia, and that these consortia, being under American control, indeed have excellent accountancy facilities.
This, however, is an old story. The first gas contract, at 5 old pence per therm, was at least renegotiable after three years. The new ones are not. It must have produced originally, I think, 100 per cent. per annum profit on the cost of investment. Then came the discovery of the Indefatigable and Lemon Bank Fields. In both cases the companies asserted, and the Ministry apparently accepted, that the field was just medium size, and not a "whopper". But it was a "whopper". This was extremely important, as in a great field overhead costs are obviously much lower, being distributed over a much greater volume of gas. Thus it came about that the British pay 2·875 old pence per therm (100 cubic feet) as against the 1·75 paid by the Russians to the Iranians at the frontier—a thousand miles away from the field, and having to be pumped over the wickedest country in the world. Admittedly, Iranian gas is a joint product with oil, but that does not account for this huge difference. The American price, as I said in a supplementary question, is also below 2 old pence.
True enough, whenever any protest arose, stories promptly got about that the oil rigs were moving to God knows where, and that the oil companies would cease wanting the 10 to 15 per cent. politically safe profits after tax, and stop operating. I see that the day after I asked two questions on the gas price, a report was published in the top-people newspapers about the United States being threatened with a gas shortage because they do not pay sufficiently for exploration, when those in the know know very well that oil profits in America are in a special category because of the depreciation allowances, and equivalent to a multiple elsewhere. I congratulate the oil companies on the efficiency of their public relations departments.
And recently, without any discussion, the Gas Council having raised their price to the consumer by some 6 per cent. in recent months and having put in a claim for another 6 per cent. have agreed to pay 3·6 old pence per therm for a field

631
nearer to the shore than Lemon Bank. We were given some extraordinary calculations in this House to show how little difference this decision has made: somewhat on the model of the Czech girl's illegitimate baby. What is forgotten is that the previous level was already outrageous that the increase on that price is some 25 per cent., which is enormous, and that it now looks as if the whole of the premium market, and much more, can and will be supplied in future by natural gas.
Now comes the really tragic affair. It should be said that one old penny on the price represents—in the likely magnitude of supplies—something like £1,250 million over the probable life of the field, and most of this over the exchanges. All this after the Prime Minister and the Tory manifesto had stated that all price increases would be strenuously investigated and those which were unwarranted disallowed. The Prime Minister reiterated this only a week or two ago after my questions when reporting on his visit to Pompidou. Some promise! Some performance! It recalls that the Secretary of Slate has for long looked at the world—in the words of a famous statesman—through the nozzle of a petrol pump. I conclude this sad and sorry story by calling attention to the need of having long spoons when supping with superior people. The less a Government wishes directly to exploit natural resources, the more, and not the less, they need people who understand to advise Ministers to keep their end up, and Ministers who are not afraid to do so. Otherwise this splendid gift of nature will become yet another source of embarrassment and weakness in the balance of payments.
5.9 p.m.
THE EARL OF COURTOWN: My Lords. I hope the noble Lord, Lord Balogh, will forgive me if I do not follow him into the realms of the price of oil and natural gas, which I will leave to some other noble Lord to deal with. To return more generally to the subject of this debate, I am one who has spent many years in an international company, coming under the general heading of what an international company may mean. without attempting to define it. I have, however, no interest to declare, because I have re-
632
cently retired, and the only interest I have is the receipt of my pension. But I have had to deal with these problems at various levels in this country and in many other countries overseas. First of all, it seems to me that in technological industry there is bound to be a growth in the size of companies, and there is bound to be a growth rate in a number of international companies. In the technological field you have either to grow or atrophy. The rate of technological change is so great, the increasing cost of research and development is so great and, possibly above all, the economic size of plants is getting bigger and bigger and therefore one must increase in size if one is to survive. One increases in size by exporting.
Then, as noble Lords have mentioned, the question arises of manufacture in a country overseas. This may be brought about by direct economic influences, such as the cost of transport as against the cost of production locally, and such things as direct duties on imports into the export country. There are other important factors that come into this. Government pressure in an overseas country is one of the most important. This pressure may come about in many different ways. Along with the Government pressure comes competition. This is often exploited by overseas Governments, because one knows that if one does not agree to set up a plant in the country concerned a company from another country will do so. Therefore one may lose one's own exports to that country as well as any possible profit from manufacturing there.
There is also the question of the effect of sales on other products. If it is felt that the market is sufficiently important to set up a plant there, then that has a fall-out effect on the sales of other products and may influence the Government of the country concerned to help with import licences and the like. If one is exporting to a more sophisticated, more highly industrialised country, it is a matte' of fact that when one is selling a product which is a raw material for another company that company is much more likely to give you a higher proportion of its use, of its own consumption of your product, if they know you have a local factory. They then feel that you have a greater stake in the country and your supplies are less likely to be interrupted.

633
Many other factors come into the decision. There is the question of the stage of manufacture and the availability of labour with various skills. There is the political and economic stability of the country and the raising of capital. Here I put emphasis on local shareholding, which is often a very important factor in whether one is or is not regarded favourably in a country. One may buy into a local company, either by buying it completely or by buying a proportion of its shares. The whole of this is carried out within an overall company plan. I cannot agree with what the noble Lord, Lord Ritchie-Calder, has said, that large international companies do not seem to work on any plan at all. I think that is what he intended in his remarks, and I hope that I am not misrepresenting him. I should also like to put on record that I do not agree with the quotation he gave from the Financial Times, although I have not read the article in question.
So an international company is born and develops. It evolves and produces many complications of management. They are involved in the economies of many countries, in the development of multiracial staff and outlooks among those staff. They are often involved in the manufacture of the same product in many countries with different costs of production and profit margins. What are the lessons of this picture? First of all, as I have already mentioned, there will be a continuing increase in the size of companies; secondly, there will be an increase in the number of international companies; and thirdly, countries cannot escape from the effects of their political and economic behaviour. I believe that there have been cases—although I have not had direct contact with them—where companies have pulled out of countries owing to the political and economic situation in those countries. This has happened with companies in India and South America. Even if companies do not pull out it is clearly going to have a considerable effect on the country if the country is not politically and economically stable.
Another lesson lies in the development of multi-racial staffs. There is an increasing realisation of international character and involvement in the economies of many countries. Some countries
634
are very much better in this than others. It is most important to develop this atmosphere of international staffs where members of the staff can be moved from one country to another to operate in that country. There is the increasing complexity of management which involves knowledge of political affairs as well as economic and commercial affairs. I agreed with the noble Lord, Lord Thomas, when he said that people in industry want to keep out of politics. Nevertheless. they have to understand the political situation in the countries in which they are operating, and the complexity of management involves responsibility not to one country, merely the country of birth of the company, but to many countries. This is one of the reasons for some people feeling that these international companies do not owe responsibility to anybody. It is because they owe responsibility to so many countries that it is difficult for any one country to regard them as responsible to them.
I believe, too, that the operations of these international companies have been a great advantage in the assistance given to developing countries to create wealth in these countries. I know that there has been a certain amount of criticism that what a developing company has to pay out in the way of interest and dividends on money invested in that country they look on as a paying out of their resources. That is a very narrow view to take. I believe there is great advantage, indirect as well as direct, in the development of wealth in these countries. If a large, responsible company from Britain, Switzerland, America, or wherever it is, invests in a developing country, it accepts a responsibility for that development and for the staff involved in it. What it does in education and the injection of new technologies is of great value to the country concerned.
What needs to be done? The noble Lord, Lord Kennet, raised this question of what needed to be done, if anything. First, one should not do anything which will seriously affect the flow of international trade, which I believe is beneficial to the world as a whole. Secondly, the majority of these companies are well managed by people who feel their responsibilities not only to their shareholders but to their work people,

635
the customers, and to the countries in which they operate. Thirdly, the noble Marquess outlined the various regulations with which a foreign international company operating in this country had to comply. There are similar regulations in every country in which one operates. The days of individual national companies getting together to act in restriction of trade are over.
I have recently been reading a book on the development of the companies which came together to form Imperial Chemical Industries in the years up to its formation in 1926. The factor which struck one was how, in the late years of the 19th century and the early years of this century, when any company started exporting, its first idea was to get together with other companies so that there should not be undue restriction of profit. I do not believe that that happens to-day. I should like to conclude, my Lords, by saying that over many years of working in this particular field in an international company, when I have had to deal with subjects at many different levels, I have never found I was asked to do something which I felt it was against my conscience to do, and I believe that it is the same with the majority, or more than the majority—almost the total—of the people who are working for these companies.
LORD DIAMOND: My Lords, before the noble Earl sits down, I wonder whether I might ask him a question as he speaks on these matters with great knowledge and authority and has expressed such a co-operative attitude. He referred a little earlier on to the need to co-operate with the Governments of the various nations within which a multi-national company trades or with which it is concerned. But he then touched on a most interesting point when he said that it would be difficult to satisfy every nation because a multi-national company has responsibilities which go wider than a single nation's borders. The question I want to ask the noble Earl, purely for information, is this. Did he, or did any of his colleagues, ever feel the need of a multi-national organisation to whom problems could be put, which could explain attitudes, and from whom could be derived necessary understanding and co-operation?
THE EARL OF COURTOWN: My Lords, I am not aware of having been faced with any such problems or feeling that any such entity was necessary. I personally find it difficult to envisage such a body being set up. It would be a great mistake to use the European Economic Community, assuming we go into it, as a basis of such an organisation, as I think was suggested by the noble Lord, Lord Kennet. I say that because the E.E.C. is, and will be, regarded with suspicion by a large number of countries in the world. I feel that at the moment there is no need for any such supranational body. I do not see how it would operate because it would have to fit in with the regulations, commercial laws and industrial laws of every country in the world. It seems to me quite impracticable for any such body to operate. But I would emphasise again the point that, while there are so many regulations that must be complied with in every country in the world, whereas some of these regulations contradict each other or conflict with each other, in general if an international company is going to operate on the lines which are laid down in all these countries it cannot go far wrong.
5.24 p.m.
LORD BROWN: My Lords, we are having an interesting debate and should be grateful to my noble friend Lord Kennet for initiating it. Before I start the particular contribution I should like to make, I would comment on the contribution made by my noble friend Lord Balogh. When I was in the Government and at the Board of Trade matters of international companies arose from time to time, and generally they were issues on which one could obtain the necessary information; but if questions concerning oil companies arose these always produced on the faces of officials and others a wry smile, a blank countenance and the protestation that this was an extremely difficult subject. I personally know little of the ramifications of international oil companies, and most of the people I have asked about them confess equal ignorance. But my noble friend has made an important contribution to the debate, and I indeed hope that what he has said will be taken seriously and thought about by Government.
There is not much doubt that most of us in this House believe that on balance

637
international companies are good things. I take that view. They spread technology; they even-out levels of employment throughout the world, and they even-out differential levels of investment. They are vital to help the developing countries. I am no backwoodsman on this issue, but, if that is agreed, I think that one of the purposes of this debate is to see whether there are any considerations which require the attention of Government in connection with these international companies. It may be wise to take a constant and critical look at these operations, if only for the simple reason that if a few of them were to go wrong—and we have an example of an enormous financial institution in Europe having gone wrong quite recently—the effect of a few wrong-doers could perhaps throw unwarranted suspicion on those who conduct themselves as they should do. So it is worth looking at these cases.
The first point I have in my notes has not been mentioned so far in this debate. One notes the development of what I can only refer to as somewhat Chauvinistic attitudes in some countries about the operations of multi-national companies. We are all familiar with the attitude of the Japanese Government to foreign investment in Japan. There are now signs that the Japanese Government are ameliorating the inhibitions on foreign investment and their determination to let no Japanese companies be controlled by foreign capital. I hope that that goes further. But the matter does not stop there. When I was at the Board of Trade there was a constant flow of criticism from British companies about the treatment that some of them were receiving from foreign Governments. Discounting a known and rather strong tendency to exaggerate these matters, and admitting that most of these practices are covert rather than explicit, or that legislation in those foreign countries renders direct evidence difficult to obtain, nevertheless I was left with the impression that in France, Japan and the United States of America it was particularly difficult for a foreign-owned subsidiary to obtain the same treatment as those countries gave to their own national companies or to companies which were controlled by shareholders within their own boundaries, and that therefore pressure was being covertly applied to British multi-national companies to sacrifice the control of sub-
638
sidiaries to shareholders in those foreign countries in order that they could obtain the full benefit which those countries offered to their own national companies.
The main form of discrimination lies in the refusal to allow such foreign-controlled subsidiaries to enjoy Government contracts. This appeared to be a pattern that existed in France and in the United States of America (leaving aside the effects of the various States' legislation) and even a country like Australia now seems to be moving gradually towards the requirement that foreign companies in Australia should have at least a 50 or 51 per cent. holding in that country. For many centuries our own country has attempted to promote the freest possible international trade, and we know very well that to a considerable extent we have been driven off course because it is no good being practitioners of free trade in a world which is not with you in that respect.
I believe that the international subsidiaries of multi-national companies should consistently receive in the countries where they operate the same treatment as what one might call the indigenous companies—and, indeed, they do almost to 100 per cent. in this country —and I am concerned that we should not reach a situation in which we are driven off that liberal course by the practice of others. And I believe there is a danger that this may well happen. If we maintain an attitude to investment in this country which treats every one of those foreign direct investments in the same way that we treat a British company, while other countries develop their rather more restrictive attitude towards investments of British multi-national companies in their countries, we could reach a stage where all foreign investments in this country were controlled outside this country, and all overseas investments by British multi-national companies might be under the control of shareholders in the companies where they were operating. This would scarcely be a desirable situation to reach.
I do not want to be alarmist about this. I say that there are tendencies growing in this direction, and I think it would be a good thing if these tendencies were brought out into the open. I am aware, of course, that these practices could rank

639
within the term "non-tariff barriers" to trade. I think they do. There is a committee of GATT sitting to examine non-tariff barriers, and I would hope that if the practices to which I have referred are not fairly well up on their agenda, we could perhaps nudge that GATT committee to see that these matters are considered at as early a stage as possible.
Turning to another issue, in the draft document sent by the Common Market Commission to the Member States on the subject of multi-national companies, one pregnant sentence referred to the proposal that taxation of multi-national companies should be levied in that country where management control resided, I could scarcely believe my eyes when I read that. If it means that all taxation on multi-national companies should accrue to the place where management resides, this would indeed have a bearing on the previous points that I have made.
On another aspect, I have been interested in company legislation for a very long time, and one of the features of our Companies Acts in this country is that we treat the company in the Act as though it were the same animal as a subsidiary company; that is to say, that if we have a group of companies in this country the provisions applying to the filing of information about themselves, the balance sheet and accounts and all the rest of it, apply equally to each of their subsidiaries, who have to make returns. It is important that the difference between a company and a subsidiary company—which is one in which the major company owns either the whole of the share capital or not less than 51 per cent. of the share capital—is recognised, because the board of a subsidiary company is not collectively responsible for that subsidiary. The individual who runs that subsidiary is responsible to the main board of the group, and his instructions come from there. I know of no company where the chief executive of a subsidiary could inform the main group that although he had done something of which they would not approve, nevertheless he had been forced to do so because there was a majority vote of the board of the subsidiary company against him. This explains the difference between the two. Boards of subsidiary companies are not important bodies.
640
I have gone into this apparent adversion merely to point out that if one sees investment in this country established in the form of subsidiary companies, I think we ought to be aware of the illusion that those countries are under the direction of those subsidiary boards of directors; and we are apt to adopt this illusion because of our own lack of discrimination in the Companies Act between boards proper and subsidiary boards. I hope some thought may be given to this matter in the sense of the Companies Act, but also in its reference to multi-national companies and their subsidiary companies in this country.
I shall not make any other points because others have dealt with many of those about which I had intended to speak. I should like to end by saying that I recognise that multi-national companies are important; they are growing, they bring great benefits to world trade, and I think they are inevitable. But I think it would be folly to assume, as has been hinted at by one or two speakers, that because, on the whole, they are beneficial we had better leave them strictly alone and allow them:o develop as they will. Most of the boards of these international companies are no doubt comprised of men of goodwill, who know their national and international responsibilities; but we know also that where there is no law there is opportunity for those who would take advantage of the absence of law. I believe that the growth of law is a necessary corollary to the growth of multi-national companies, and I think it is not too late for our Government to begin taking a very serious look at this whole field.
LORD SELSDON: My Lords, I too should like to thank the noble Lord, Lord Kennet, for introducing this Motion today and in particular for the objective and constructive approach that he has adopted. However, I regret that I cannot altogether share his views, or the views of many noble Lords opposite. If I may, I should like to add my congratulations to the noble Lord, Lord Tanlaw, for an excellent maiden speech. I know that he speaks with great authority and also from experience on a worldwide basis, because when I was involved in a study on behalf of the Government of India I had the privilege of hearing

641
about the considerable benefits which his company had conferred on that country.
I have worked with international companies for a number of years, and I should point out that I feel that in general they are responsible people. We seem to have two sets of views in your Lordships' House to-day: those put forward by people who have worked from inside and those who have looked at the situation from the outside. I hope that in the few moments before me I, too, can be totally objective, and that I may in some small way allay certain fears and identify certain benefits and also, perhaps, indicate some areas where action by Her Majesty's Government could be beneficial.
We have all accepted that the trend towards larger units in all sectors of trade and industry will continue. Attention is continually being drawn to it, but I think it is important that we should get some idea of the sort of scale, and if I may I should like to give a few examples. There are people who claim that 300 firms will account for 50 per cent. of world production by 1985; others who say that 200 will account for 80 per cent. by the year 2000. Whichever way one looks at it, one has a trend which is going to continue, a trend which no legislation will he able to prevent. I do not think we should have Government intervention to halt this trend, but I hope that the decades of the juggernauts, as the noble Lord, Lord Tanlaw, called them, may be more beneficial than they are harmful.
Before looking at the benefits, I believe we should have some idea of the economic power of these large units we are talking about. It is difficult to draw comparisons, but if one equates companies with countries and uses as a guide to economic strength sales, on the one hand, and gross national product on the other, then one finds that already of the largest 100 economic units in the world more than 50 are companies. The growth of these companies is outstripping the growth of many countries. One finds, for example, that General Motors turnover is more than the G.N.P. of Belgium or South Africa or Switzerland; that of Shell more than Norway, Venezuela and Finland; of Unilever more than Chile, Portugal and New Zealand, and so on. Turnover and gross national product is
642
one comparison; employees and population another. The major international companies each employ hundreds of thousands of people of different nationalities, colours and creeds; their working populations are equivalent to the populations of very many major towns. Equally important, they have thousands of shareholders, ranging from those with a few lire, pounds or pesos to invest, to the larger institutions who have substantial stakes. They are in short, and will continue to be, an integral part of the economy of the world.
But what are these international, multinational, supra-national, trans-national or whatever you like to call them, companies? Who are they? If you look at the lists produced by various people, you find that of the top 200 companies, if you look at them by sales, over 125 are American, 16 British, 13 German, I think 13 French, 13 Japanese, and the rest spread around. But are they really American or British. Do you classify them by their country of origin, by the majority shareholders by their board or by their employees? I personally believe that after a certain size they lose the nationality of origin, and this in many cases, I know, is what they are seeking to achieve. This can introduce certain fears raised by the noble Lord, Lord Ritchie-Calder, that we will have faceless ones in the centre controlling the economies of the world. But I personally doubt this. We have to look a little further and deeper, and I think what we have to consider is that the people who work in, who run and who invest in these large multi-national companies are people with different senses of responsibility; in general they are looking for the same thing; they are not a faceless machine. The management is human, the senior employees are human, the workers are human. They have their similarities and differences made up of different characteristics or different countries of birth, but in general they enjoy a reasonable way of life and certain benefits.
We have a pattern which is developing in these coming decades. We saw the initial growth, export led, the acquisitions, particularly in the 'sixties, and the dramatic growth of the American combines. They, with their strong home market and adequate finance, managed

643
to set up and acquire operations in major world markets and established dominance much quicker than many people realised. This was often because big companies like W. R. Grace were not trading on a world basis using their own name; they were buying national operations because the introduction of their name, the introduction of even the word "American" caused fears, lost markets and upset local people. But these American companies continued even when restrictions on overseas investment took place. They were often at the front of the Eurodollar loan queue even though they were managing to buy European companies out of their own profits.
We have seen some new changes recently and these I should like to draw your Lordships' attention to. We have seen the dramatic and dynamic growth among European companies and, equally significant, the companies of Japan. These Japanese companies, with carefully planned precision, have over the last few years dramatically increased their overseas markets their growth has been mainly export led and still is. This has been due to a great extent to overseas investment restrictions. I feel that it will not be long before we see major joint ventures set up between Japanese companies and local ones. One must admire the Japanese growth, and in particular the way they have concentrated on those industry sectors where they are best and on those markets where they have greatest opportunity and least competition from local products. But although I welcome them as a third force, alongside the American and European giants, I think their contribution can only be fully beneficial to world trade and to national economies if they would enter more into the spirit of multi-nationalism. They should be encouraged to relax their foreign investment and import restrictions and set up local operations, particularly in the developing countries which would provide employment opportunity and social and economic benefits to the local populations. I took some alarm in the comment made by the noble Lord, Lord Kennet, that they were going abroad to avoid being "had up" for antipollution laws. I should like to make the point that in general the large international companies are very responsible
644
in the pollution field, because they realise. sensibly, that if they are not this could have some serious effect upon their future.
I believe that in the European field, irrespective of whether we go into the Common Market or not, multi-national companies in general can transcend any tariff barriers or things like that. I believe that we shall see a growth in Pan-European mergers over the next few years, major things that many of us are not contemplating. I hope that they will be true mergers rather than the acquisitions that have taken place before, and that we shall see a proper pooling of talent and resources. In Europe we have more problems than in other areas of the world. But despite this I think we are already developing the larger units with which to combat American combines and Japanese combines, and I think the trans-national mergers which have already started will continue. There are various people around who have pipe dreams that one day we shall see British-Leyland, Fiat and Volkswagen all together—and I took some comfort from my noble friend on the fact that legislation and monopolies commissions and other things like that will have some bearing.
But I think we have also to consider that the other area, the East European area, where, although they are looking to the West for contributions to technology, are themselves producing large units which will begin to expand and develop in other parts of the world. The multinational companies in general are full of responsible people; they are responsible businesses run by responsible competent businessmen. They are people who are aware of their economic power and of the good and of the harm they can do. Provided they continue to remain sensible businessmen and do not become politicians or dabble in politics, and provided they are not subject to major Government interference, I can see no reason at all why their continued existence should cause any alarm. They do not, as my noble friend Lord Thomas has said, dabble in politics. This is common sense, because if they do they can get into trouble in countries when Parties change power; they may be friends with one side and opposed later by the other.
LORD KENNET: My Lords, I cannot forbear to ask the noble Lord if I may

645
interrupt him for a moment. The argument he has just advanced to prove that international companies do not dabble in politics applies with equal force to national companies, who may also find themselves in trouble with a new Government. But I believe it has been known for nationally-based companies to make contributions to Party funds.
LORD SELSDON: My Lords, I appreciate the comment, but that was not exactly what I meant by dabbling in politics; because they also make contributions, through taxes and other things, to Government, although not to Parties. I think the noble Lord would find, if he were to ask any of these large multinational corporations, that this is one thing that causes them considerable concern. I think there was a case with the Shell Oil Company in some Far Eastern part of the world. You see, they are forever under attack by some local Government. If they are designated British or American and there happens to be an anti-American or anti-British feeling, what can the poor local person do if he wants to take action? He breaks their windows, or damages their property. That is one reason why these organisations are trying to keep out of the political field. I would make the point that their contributions come first as employers. They are responsible employers, giving excellent conditions of employment. They provide good wages and security, and offer excellent training (a point that has already been made) incentives, generous welfare benefits and pensions.
LORD KENNET: My Lords, I cannot forbear asking who the noble Lord is talking about? Is he talking about all international companies, or some international companies, and if the latter, which?
LORD SELSDON: My Lords, I was talking about responsible international companies, such as B.P., Unilever, Shell, Akzo, Bayer. There are many British and American ones which do behave responsibly around the world. It is difficult to make my point to the noble Lord, but I was employed by one. I felt that I was extremely well treated, and I had quite a hit to do with this subject. I spent some time studying what benefits people were seeking from them. They are businessmen, and they are in business to make profits. Their size and resources
646
allow them to take a long-term view. This can be beneficial to an economy because they can afford to ride with the bad situation. Their planning can carry them through for 10, 20 or 30 years or more. However, if the conditions in the country from which they operate and with whom they do business become intolerable, and intolerable over a long period of time, then they may be forced to cut their losses and withdraw investment from their operations.
I think, in short, that their existence does good and not harm. Certainly they can cause harm. Certainly one has to face the fact that, as businessmen, their leaders look closely at the fiscal advantages and disadvantages of every country where they operate. Here one could argue that perhaps they are right or perhaps they are wrong, because often they put their responsibility to their shareholders before their responsibility to a country. But they are seeking, in general, to be in business for a long time, and they jealously seek and guard good reputations. I think they realise in general that a bad reputation, an irresponsible action, can kill confidence in them, ruin their markets and place them in an embarrassing and difficult situation,
Finally, on the question of what Governments should do, I would say that I do not believe that Governments should legislate against them. I believe that Governments should get together for harmonisation of tax legislation, harmonisation of laws, and not necessarily for the introduction of new ones. In many cases international companies would welcome this. In general, they do not like the complications of Anstalts in Liechtenstein, or companies in Zug and companies in Delaware. Not long ago I had to try to work out who was employing me, and I found I was employed from Delaware. That was in my last job, and I have no interest to declare at the present time. All these problems cause concern and waste time, and what we are all seeking is a climate in which the multi-national company can make the best contribution to the developed and the developing countries of the world. I believe that, as has been pointed out, this is a question for free and open discussion and debate, and for people to put to Government ideas and suggestions a: to how they may all help each other on an international scale.
5.54 p.m.
LORD SAINSBURY: My Lords, my reason for taking part in this debate is that some years ago, as chairman of a committee of inquiry into the relationship between the pharmaceutical industry and the National Health Service, I had the opportunity of examining the operation of several foreign-controlled international pharmaceutical companies. As some of your Lordships may know, the pharmaceutical industry is one in which the role of such companies is of very great importance. Thus, as shown in our Committee's Report in 1965, some 60 per cent. of all prescription medicines produced in the United Kingdom was accounted for by such foreign-owned companies. I am conscious that in some circles the Report and the recommendations resulting from the Committee's inquiries were misinterpreted as an attack on such companies, so. perhaps I had better declare t the outset that I am no economic chauvinist, and that I am not opposed to foreign or multi-national companies as such. On the contrary, I fully recognise the contribution that multinational enterprise has made to world economic development, and believe that the problems associated with it are genergenerally outweighed by its advantages.
We have heard during the course of this afternoon's interesting and valuable debate many of the advantages of the multi-national company. At this hour, I will not weary your Lordships by going through all those advantages again. Even if the benefits of the multi-national enterprise could be shown to be less important, Britain would be in a weak position to complain. As the noble Marquess, Lord Lothian, said during an early stage of the debate, foreign investment is a two-way traffic, and Britain is one of the world's largest foreign investors. The noble Lord, Lord Tanlaw, in his valuable maiden speech, quoted Professor Dunning, a well-known and acknowledged expert on this subject. He said that some 30 per cent. of the profits of British-owned enterprises are derived from foreign operations. He did not, however, quote what Professor Dunning also said, that multi-national companies controlled from abroad may soon account for a quarter of our manufacturing output.
648
However, it is just as well to recognise that there is often a conflict between the interests of the multi-national company and those of the host country. That is not in the least surprising, for the main object of such enterprises is to maximise profits for their shareholders, most of whom are domiciled outside the host country. Furthermore, because of the international nature of such firms, they are often able to minimise the effect of some financial and other regulations which domestic companies have to observe. A multi-national company can, for example, run down its liquid resources in a country with a weak currency, and build them up in one where an upward change in parity is likely. I recall the then chairman of a world famous company, with interests throughout Western Europe, telling me that this was the policy that his company was pursuing before the French and German parity changes in 1969.
Clearly, this cannot be called speculation. It is prompted by the obligation to protect the shareholders' interests. But when many companies do the same thing, the effect is to aggravate existing pressures on exchange rates. Similarly, I ask your Lordships to take the question of transfer prices, or, in other words, the prices at which different companies of the same international organisation acquire goods and services from each other. By inflating the prices paid to companies situated in a country where company taxation is lower, a multinational enterprise can reduce its tax burden in higher taxed countries. Although the United Kingdom authorities have powers to investigate such transfer prices, I do not believe that all the loopholes have been closed.
Certainly, our committee found the question of some importance during our investigations of the pharmaceutical industry. The available data did not allow us to draw any detailed conclusions, but members of the committee regarded it as significant that the cost of raw materials accounted for a much greater share of total production costs in foreign controlled firms than in their British counterparts. We found a similar difficulty in the case of research and other expenditures. As your Lordships know, pharmaceutical manufacture is a science-based, highly research intensive industry. Foreign

649
pharmaceutical companies do much of their research abroad, and we were not able to satisfy ourselves that the share of the research costs allocated to the British subsidiary was always a realistic one.
Another important question posed by multi-national companies, which has been referred to frequently this afternoon, is the effect on the host country's exports and balance of payments. Although this problem has been examined in considerable detail by economists, there remains some uncertainty whether the net effect is favourable or unfavourable. While I do not claim that the situation in the pharmaceutical industry is a valid guide to all foreign controlled international companies in this country, your Lordships may find some of the facts put before our committee of interest. Broadly speaking, these showed that foreign-owned pharmaceutical companies had a neutral effect on this country's external payments balance, although it should be pointed out that our figures did not take account of their original investment. Thus, while some foreign companies were important exporters, many others were not and their overall contribution to our overseas sales was very much less important than the contributions of domestically owned firms.
At the same time, foreign companies tended to import a much greater proportion of their raw materials and intermediates than their British counterparts. For example, in 1965 British pharmaceutical firms imported 22 per cent. of their material purchases. The appropriate figure varied from 39 per cent., in the case of U.S.A. subsidiaries, to 74 per cent. in the case of Swiss-owned enterprises. However, before I am rebuked for over-simplification, let me say that I am conscious that a true measure of the effect of foreign-owned companies on our balance of payments should also take account of what would have happened if they had not been established in the first instance. Unfortunately, this is a notoriously difficult subject, involving a large number of different assumptions which cannot be explored within the limits of a short speech. In my view, most foreign controlled companies are aware of their responsibilities to their host country. For example, many of
650
them, to my knowledge, go to great lengths to train and employ a large number of local nationals in executive and management positions. But in the final analysis the vital policy decisions arc generally taken by the foreign parent, and not all of those decisions are necessarily in harmony with the policy of the host country's Government. It is for that reason that Governments must concern themselves with the growing activities of multi-national companies, and be constantly on their guard to ensure that national interests are not compromised.
6.7 p.m.
VISCOUNT AMORY: My Lords, I was much amused when, in the middle of his interesting speech, the noble Lord, Lord Sainsbury, referred to the lateness of the hour, to observe my noble friend Lord Drumalbyn, who has become accustomed to very late hours, looking with surprise at his watch to see whether it was yet after midnight. I am about to do something which I do not at all like doing, and that is to venture to speak in a debate in which I have not had the advantage of listening to the opening speeches. In congratulating the noble Lord, Lord Kennet, on raising this subject, which seems to me entirely appropriate to the kind of discussion that we so often have with advantage in this House. I should like to apologise to him very much and to my noble friend Lord Lothian for not having heard their speeches. I would also say to the noble Lord, Lord Tanlaw, how sorry I am to have missed his maiden speech. I was extremely interested in the remarks of my noble friend Lord Selsdon, speaking from first-hand experience, and I agreed with much of what he said.
I am always interested to hear the noble Lord, Lord Brown, and I agreed with what he said about subsidiary companies. Now that my own responsibilities in business have withered away to a point where I am only chairman of a subsidiary company, I know very well what would happen were I to take a line which differed violently from that of the chairman and board of my group. My responsibilities would wither away still further. So I am only going to venture to make two or three observations from impressions, which I cannot support to-day with

651
any statistics but which stem from experience that I had many years ago when I had some responsibility for the behaviour of our national economy and the only first-hand experience I have had of an international company when I was on the board for a number of years of a company with very extensive overseas investments. In that connection I should like to say that my experience is far less than that of my noble friend Lord Courtown, in whose speech I was extremely interested. He told us that he no longer had an interest to declare. I, too, no longer have an interest to declare, in my case owing to the on-come of senility, whereas in his case it was the on-come of his pension. I should like to assure him, from such knowledge as I have of that company, that his well-earned pension is secure.
My Lords, I have no hesitation at all in saying, as most other noble Lords have said, I think, that in general British investment overseas and foreign investment here, subject to certain safeguards, have been and are of benefit to our national economy, and should be encouraged. This seems the general view of most Governments, who in fact encourage such two-way investment, with perhaps the exception that was mentioned by Lord Brown, and I think also by Lord Selsdon, of the Japanese, who I think might well go further than they do in themselves adopting an attitude which can be reconciled with the attitude they expect other countries to adopt to them. I believe that this matter can best be appraised without attempting too narrow an arithmetical balance of the direct effects, for instance, on our balance of payments, but should be appraised over a fairly long period and in a general way. In the short term, inward investment tends of course to strengthen the balance of payments: in the longer term, not necessarily so. New outward investment in the short term is disadvantageous to the balance of payments but in the longer term it is probably beneficial and, if the investments are prudent. can be very beneficial indeed. But if we conclude that on balance the effects are helpful, then I believe we should take a very broad view. If we want foreign countries to give a welcome to our investment in their countries, then we should not repel them when they wish
652
to invest here. Our attitude must not be a favourable one in one direction and a hostile one in the other. But, of course, there are many other factors beyond the direct effect on the balance of payments, as my noble friend Lord Courtown pointed out.
As regards the benefits of British direct investment overseas, one, of course, often is to keep contact with markets in which direct exports have, for one reason or another, become impossible—possibly because of tariff barriers. Secondly, it often brings with it opportunities for additional exports. The most obvious one, I suppose, is for plant and equipment, but there are many others. Then, as I think one of my noble friends touched on, the expanding scale of activities that results is sometimes very helpful from the point of view of technical developments at home here, such as research and the higher efficiency which often results from being able to make comparisons of one's productivity cost in one's country with that in other countries. I believe those are helpful. As regards foreign investment here, it sometimes brings valuable technical know-how, and it often brings additional employment in areas where it is much needed. Of course, it sometimes needs watching. On occasions there are damaging features that come with it, and matters like market allocations, I think, need an eye kept on them. So some controls and safeguards are certainly appropriate.
The rate at which we can afford to make new direct investment overseas must clearly be related to the strength of our balance of payments at the moment, and I am sure it is right that Governments should keep an eye on this and should give preference to projects which give a reasonably quick return. As regards foreign investments in the United Kingdom, clearly they should be subject to the normal exchange controls and as an old Treasury man I should wholly approve of an eye being, kept on the incidence of taxation to see that they bear a fair share. But we should do all this treating them, so far as possible, as we should our own companies. and avoiding, if we can, imposing tiresome and frustrating minor restrictions that are so often misunderstood and defeat the effectiveness of the whole project. But what I think is important—and this applies to outward and inward investment—is that those

653
administering the project should pay proper consideration to local practices, attitudes and customs, particularly in the field of industrial relations. I think that, in general, self-interest does result in responsible behaviour; and my own limited experience, too, is that the people running the big businesses I have come across really try to carry out their responsibilities with a due sense of responsibility, if I may say so. In this connection—that is, having regard to local practices and attitudes—I rather like a code of principles and practices which has been issued by the Canadian Government as a guide for investors in a foreign country.
In conclusion, my Lords, one feels that one of the dangers of the modern world is still excessive and restrictive nationalism. There is no future for the welfare of mankind in such attitudes, and if we believe that freedom of movement and association and understanding between peoples is what we ought to be aiming at, then I think we should welcome trade connections of every kind that can be devised, because I think they help to break down national barriers. I am inclined personally to think that the power of international companies is often exaggerated. They do have strong and probably growing influence, but I believe that national Governments still have the essential controls necessary, and the whip hand.
The noble Lord, Lord Diamond, asked my noble friend Lord Courtown what I felt was a very thoughtful question: whether he felt from his experience that some central clearing house or organisation would be helpful to companies investing abroad. That seemed to me a very relevant question, and I came to the same conclusion as my noble friend: that the right thing is for companies investing from Britain overseas to keep in just as close touch with Government Departments in the countries to which they go as they would in their own country—in fact, more so. For the reason my noble friend Lord Courtown gave—that the practices vary so enormously from one country to another—my own feeling is that there would not be advantages to be obtained at present from new mechanisms. I think, with great respect, that I should probably give the same kind of answer to the point made on the same
654
subject by the noble Lord, Lord Kennet. I did not have the advantage of hearing it, but I shall read it in Hansard tomorrow.
So I hope we shall conclude that international companies are in general responsible, and that their developments are in line with our growingly interdependent world society. I hope we shall conclude, too, that in a matter like this vigilance is justified, and in particular a watch on monopolistic features, diminution of competition and so on. I hope, however, that we shall look at these developments not with fear and suspicion but with good will and encouragement.
6.19 p.m.
LORD BYERS: My Lords, I am pleased to have the opportunity to follow the noble Viscount, Lord Amory, who speaks with considerable experience, having had a distinguished career both in business and in Government. Like him, I welcome this debate. It is right to take note of new developments, such as the increasingly important role which multinational companies are playing and will play in the future. I welcome very much the remarks made by Lord Selsdon. I think that we are going to see an extension of the multi-national companies into a great deal of production in the future. Nobody quite knows to what extent. This is a matter that we must keep continuously under review.
But the speech of the noble Lord, Lord Kennet, and his general conclusion is a long way from the realities of the situation as I know them from my own experience. I think that one of the reasons is that Lord Kennet's Governmental experience has been largely of the activities of international companies working in this country, whereas my experience as an executive director of the R.T.Z.. to which he referred and to which I will return later, has been of a United Kingdom multi-national company operating in many different parts of the world and having negotiations and discussions with many Governments, particularly in the newly-developing areas. In case it has been taken up by the Press. may I make some reference to the remarks which the noble Lord. Lord Kennet, made? I am not quite sure what he intended when he said that R.T.Z. pays only 2 per cent. of

655
its total tax bill in the United Kingdom. I hope that he 'was not implying that the company was guilty of any manipulation of its operations in order to avoid United Kingdom tax; because the truth of the matter is that the company pays tens of millions of pounds in tax, but unfortunately the tax is paid where the profits are made, and that is overseas. In the United Kingdom we have relatively few operations and until recently they have been mostly zinc smelting which has been going through a bad phase throughout the world. The small scale of our operations, coupled with its unprofitability, has meant that the amount of tax paid in the United Kingdom is very small in comparison with the total tax bill. As soon as the United Kingdom operations increase, as they will, and become more profitable, the United Kingdom will receive the proper tax.
LORD KENNET: My Lords, as the noble Lord would like me to interrupt, let me hasten to say that what I said carried no connotation of an accusation of manipulation in any sense. But it would be interesting if the noble Lord could confirm that 2 per cent. is about right.
LORD BYERS: My Lords, it differs from year to year. It is between 2 per cent. and 3 per cent. It is about £800,000 out of the tens of millions paid overseas. It is my fervent hope that we shall be able to pay more United Kingdom tax. Nobody likes to do that; but it is a reflection of the profitability of the scale of operations.
VISCOUNT AMORY: My Lords, will the noble Lord allow me to interrupt? He will agree that the results he has mentioned are results that flow from the deliberate policies of all Governments in this country to avoid the ridiculous situation that would arise from double or treble taxation.
LORD BYERS: My Lords, I am grateful to the noble Viscount for that intervention.
LORD KENNET: My Lords, just to round it off, it might be worthwhile asking whether the noble Lord would agree that it is not impossible for a multinational group of companies to affect the
656
question of which country it takes its profit in.
LORD BYERS: My Lords, I do not want to get drawn on the technicalities of tax, but I am going to come to the question of a "tax holiday". I was going on to say that when the noble Lord wants to have regulation of different countries and to get a charter, he must remember that countries like Ireland are proud of the fact that they can give a 20-year "tax holiday". That is why we spent a lot of money exploring for minerals in Ireland. One must look at both sides of the coin. If you can go to an area where you get a "tax holiday" or better tax treatment it is not a bad thing to do in the interests of everybody.
I think the noble Lord, Lord Kennet, fell into a trap. He said that it was almost impossible to define multi-national companies, and then went on to generalise about them. I do not think that you can do that. It is wrong and misleading to think that international companies have a great deal in common. They vary tremendously in their organisation, in their practices and in their responsibilities. One thing that they have in common (and perhaps this is what the noble Lord referred to) is bigness. The bigger you are the more you come under suspicion; I suppose that is human nature. But they range across the spectrum from the highly centralised organisation where decisions are taken in Chicago or London and directives are issued on a global basis, to those which are highly decentralised and whose decisions apart from minimal coordination are largely taken in the different areas of co-operation. They are managed and owned by persons of local national origin and the decisions are very often identified with the interests of the countries concerned. The organisation will differ according to the objectives and the purposes of the companies. The problems of an international company manufacturing in a few countries and selling in all countries will obviously be different from those of a company making components in a number of countries, assembling in one or two others and selling in the relatively few sophisticated markets of the world.
There are tremendous variations on this theme of multi-national companies.

657
I think that the area most sensitive to the activities of multi-national companies is the one in which I have been engaged over the last 20 years, through R.T.Z., and that is the field of natural resources. This is very properly a highly emotive subject because multi-national companies come with their expertise and their finance and can have the appearance of being used to exploit the nations concerned. This is why it is vital that the multi-national company should identify itself with the interests of the host nation at the earliest possible point in time and to discuss and answer questions like, "How far are you going to process the minerals? To what extent are you going to develop? Are you going to stay for a long time? To what extent are you going to plough the profits back into the host country or to similar and allied businesses?" These are things which are vital for the multinational company to appreciate if it is in the natural resources field.
My noble friend Lord Tanlaw, in his admirable maiden speech, gave some of the requirements for behaviour of the multi-national corporations, and certainly those developing the natural resources of any nation. I think that, first, the corporation has to recognise that it has a responsibility to at least three entities: to the shareholders, to the employees and to the countries in which it operates. You can also mention the customer, but in the natural resources field this is remote. All three must be served. Unless they are so served, it is unlikely that the corporation will survive in the future. Secondly, the corporation must aim for a progressive degree of local autonomy in decision-making, subject only to co-ordination but not dictation from the centre. That is why I believe it is vital if a multi-national corporation is to behave responsibly that at the earliest possible moment it should take in some good local partners. Thirdly, the corporation should employ as high a proportion of nationals of the host country as possible, particularly in top management—and if not in top management to begin with, then they must be trained to take over. If you want first-class men, you must give them autonomy to develop and delegate authority to them.
658
Then, fourthly, it is equally important that the board of the overseas corporation has on it a majority of nationals of that country, and also that some of those nationals, indeed perhaps only one, should be represented on the parent board at the centre. In this way you get a two-way exchange. This is where I did not quite understand the noble Lord, Lord Kennet. I took his point that it might be necessary in the future (I do not agree) for the Governments of host countries to have Government directors on the boards of the subsidiaries. I have no objection to that; but my experience has been that that is not what the local Government want. They would rather the company went into partnership with, say, the Industrial Development Corporation, and have a proper partnership at board level as well as at management level in that country. The idea of putting Government directors on to the parent board, which is what I understood him to say, could be also something. I think that he ought to think this one out again. Some companies operate in twenty countries, and although it is very interesting, I do not know what one would do with twenty extra directors, all of different nationalities, if they came to monthly board meetings. I think that this is too theoretical and could not be born out in practice.
I feel that this business of having local nationals on local boards, and also having on the parent board nationals—that is, private nationals—from countries overseas helps to ensure that the people and the Government of the country concerned feel that they are resolving their own problems within their own frontiers, which is indeed what they do. Where a company has directors from London on the local board those directors very soon begin to think in terms of Australia, or Canada, or the United States or Zambia or wherever they may be. They become identified with local interests and problems.
Fifthly, my Lords, the multi-national corporation of the future must have a highly developed sense of social responsibility, often far ahead of lesser international groups. This I think means, as the noble Lord, Lord Tanlaw said, offering the local population the chance to participate financially in operations, once the major risks have been removed

659
Nothing could be worse than involving them at a very risky stage, and for local people to lose their money in a speculative operation. But as soon as the major risks have been removed I believe it essential to bring in the local public on a shareholding basis. I think, also, that in some cases it is probably more suitable to do this by offering shares to the local Government, local administration, local trusts—anything to identify the people of the area with the operations which are taking place. Those who oppose multinational private enterprise, or who want to put it in a straitjacket, should consider their attitude very carefully, because in the next three decades the raising of the standard of living of people in the developing world will come to depend more and more on the multi-national companies which can help them in a tremendous way. We are going to need very large-scale management and financial efforts involving amounts running into a billion or a billion-plus dollars. This is an area in which the multi-national company can offer something to the community. I agree with the noble Viscount, Lord Amory. We need eternal vigilance in this as in so many other fields if we are to preserve liberty and the rights of nations and their sovereignty. But I do not believe that the conclusions arrived at by the noble Lord, Lord Kennet, are practical.
Ultimately, as was said by the noble Viscount, Lord Amory, every nation is sovereign, and knows it. They have the whip hand. They can expel you, they can confiscate your equipment, and in the long run there is no question that they have the whip hand. The claim that multi-national companies can drain manpower away from a country is, of course, theoretically true; I do not doubt that it happens in certain cases. But multi-national companies also can train nationals and bring them up to a much higher standard, and provide them with opportunities to widen their horizons by moving people from one part of the world to another. This is something which has to be set against the so-called draining of manpower. I believe that on balance everyone gains from this movement of people round the world because they become more cosmopolitan and more experienced. The noble Lord,
660
Lord Kennet, said that international companies keep what may be called the middle jobs in the better parts of the world and leave the worst jobs to the poorer parts of the world. I can only say that this cannot be true if you are thinking in terms of running a very large installation, whether it be a tyre-making factory or an opencast mine. That is an entity in itself, with managing directors, with people at every level; you must have them. The idea of stratification, and the segregation of people, with the poor going out to work in developing countries, the middle management being in some obscure part of Europe and the best jobs going to chaps in London would not work. Of that I can assure your Lordships.
LORD KENNET: My Lords, I did not have the mining industry in mind when I made that comment. I hope that will satisfy the noble Lord. But I suppose that not even he would say that a large part of the mining research which is done by his company is done in Nouméa, shall we say?
LORD BYERS: My Lords, that is not true; in fact the noble Lord has hit on a very good one. A great deal, in fact practically all, of mining research is carried out at mines. Where else could we do it?
LORD KENNET: In laboratories?
LORD BYERS: My Lords, I really must give the noble Lord a few lessons about this. In mining research you have to get up to the scale of using trucks of from 35 tons to 150 tons. Try doing that in a laboratory! No, my Lords, these are big industries and they have tremendous opportunities for people to get promotion. Mining research goes on all over the world. It goes on at the mine, it goes on in the labs. and in assay places and so on. I think that the noble Lord, Lord Kennet, is on a poor point. But the point I want to end on is that this idea—
LORD RITCHIE-CALDER: My Lords, if I may interrupt the noble Lord, may I say—I am trying to clarify my mind—that I thought my noble friend Lord Kennet was suggesting that a great deal of the high-level work was done (I do not mean the individual high-level work, but the nature of the work) in

661
the advanced countries, and that a great deal of the hewing of wood and drawing of water in mining was done in the developing countries?
LORD BYERS: My Lords, I do not think that I could develop that; it is an argument in itself. It is a complete team job in which you are working in Nouméa, in South Australia, Broken Hill, and all these other places; and you cannot segregate any one part, bringing in Warren Springs and all the rest.
The point I really want to end on is the suggestion that there should be a standard charter. There is a lot to be said for having a code of practice which could be built up certainly well in advance of a charter, but how many countries in the world would want a charter which would restrict their flexibility to offer inducements to companies to come and operate? If you think in terms of a charter as a supra-regulatory system, you are depriving the countries of their sovereignty. I do not believe that Eire would be at all willing to come into a regulatory system which would stop her from offering a twenty-year tax holiday to get the mining companies exploring there. That has been a very successful policy; millions of dollars have gone to Eire because of it, and when we talk about sovereignty we must remember that the countries of the world prize this flexibility. It is not just a question of companies playing off one country against another. Countries are coming to companies and offering them inducements. The Deputy Premiers of the States of Australia are often in this country saying, "We can do better than the other chap. We can offer you free land." Or it may be that they offer cheap electricity for five years. When you get into the realms of a supra-regulatory system you are treading on very dangerous ground, and are liable to run up against the whole question of reducing the sovereignty of the country concerned.
I believe that there is something to be said for the developing countries trying to get a standard approach to multinational companies, because so often one talks to a Government and, because of the suspicion of the bigness of the operation, the Government do not offer
662
the inducements necessary to get a new industry started in their country. I think there is a great deal to be done along that line by a code of practice, but I do not believe a charter is the right answer.
6.39 p.m.
LORD DIAMOND: My Lords, I am always interested in the practices of your Lordships' House. The latest one I learned to-day. It is that if you wish to establish non-controversiality you have to offer birthday greetings to noble Lords. I would want to establish all-Party noncontroversiality, first by underlining and seconding the birthday greetings to the noble Lord, Lord Aberdare, who sits on the Conservative Benches; secondly by offering birthday greetings to the noble Lord, Lord Wade, who sits on the Liberal Benches, and thirdly, by offering birthday greetings to my noble friend Lord Walston, who is absent now, but who sits on the Labour Benches. I hope that now we may now proceed in a thoroughly non-controversial way with what might otherwise be a slightly difficult matter.
I want, first, to thank my noble friend Lord Kennet for bringing forward an issue which is obviously of vast and quickly growing importance and one the figures in respect of which are so astonishing that it is not surprising that most of us have been unduly unaware of the size of the problem. It has been catching up on us so fast and the forecast figures are so great. But the very fact that six or seven noble Lords are able to address us out of their own knowledge, which is always reliable, is one of the most valuable ways a debate can be conducted.
It is my privilege to congratulate the noble Lord, Lord Tanlaw, one of those who addressed us out of his own knowledge, on a most stimulating and well-informed maiden speech. I thought that he made a valuable point, indeed, when he referred to the help which international companies can give to both the exports of the parent country and to the development of the economy of the host country. And he touched a very sensitive nerve when he referred to industry in Scotland. I suppose, if I may follow up his thought, that there would not be a single one of those people who are at

663
present circling our premises, singing songs to keep themselves in good spirits and to demonstrate their pathetic situation—I refer to the delegation from Upper Clyde Shipbuilders—who would object to finance coming in to restore the security of their employment, if it came from a foreign source. That is one of the most relevant ways of looking at it.
It is an enormous problem, and many noble Lords have referred to statistics which I need not repeat. I would add only one, which impressed me greatly having regard to my previous experience in government—namely, that there are only four Governments in Western Europe which have budgets bigger than that of General Motors. That puts in perspective the size of the problem and of some of the, biggest multi-national companies. I think it is fortunate that my noble friend Lord Kennet raised the matter, because we are in a peculiarly happy position in discussing this question. Not only has it been truly said that 30 per cent. of the profit of British companies is derived from overseas operations but it is interesting to compare our attitudes in relation to American attitudes. The Americans are described as being the arch-propounders of the idea of the multinational corporation, but in fact if we compare the 50 top companies in the United Kingdom with the 50 top corn-panics in the United States of America we find that there are more companies in the United Kingdom with a higher involvement in multi-national trading than in the United States. Though, of course, the United States is much bigger and richer and with a much greater G.N.P. and therefore, as we should expect, the absolute figures are greater, nevertheless, in the pattern of thought and outlook it is we who are the leaders in this field and not the United States.
Many advantages of the multi-national companies have been listed and I have no need to go over them again, except that I am bound to mention one or two for the conclusion I am going to draw. One relates to economic growth. The investment of new capital, new production techniques, new management skills and new training of labour all these things are obvious. What perhaps has not been sufficiently stressed is the way in which the arrival of the foreign com-
664
petitor tends to reduce the efficiency gap as compared with the British competitor —that is to say, the British then proceeds to pull his socks up and the efficiency gap is reduced. Another advantage is in taxation. I am drawn to this because of what the noble Lord, Lord Byers, said. May I follow up some interesting figures he gave? He said that a particular company (it matters not which, for one acts as good as another for my example) may find it is paying 2 per cent., which is £800,000, in British taxation and the rest abroad. If 2 per cent. is £800,000, the balance is a very substantial sum £40 million.
LORD BYERS: My Lords, the noble Lord had better not use that figure, because it is not the right one.
LORD DIAMOND: My Lords, I am talking about a possible company which may find itself in that position, and the point I am reaching is that the contribution of taxation is so enormously important that it is best understood if regarded as a contribution to the social services of the country in question. Therefore, a British company which has the alternative (I do not say that it actually has, but in order to understand the argument we must consider that it has) of making the same return on its capital either by investing in this country or abroad and is going to pay taxes according to where the profits are derived, is going to contribute a very large sum to the social services either of the country abroad or of this country. Therefore, we should not dismiss too easily the advantage, for tax purposes, of a contribution to our social services of a company operating within its own frontiers as opposed to one operating outside frontiers, if it has the alternative.
LORD BYERS: My Lords, would the noble Lord emphasise, "if it has an alternative"? It is finding the alternative in this country which is so difficult.
LORD DIAMOND: My Lords, I have said it twice and would gladly say it a third time—" if it has the alternative ". I only want to put the matter fully in perspective, in case this has not been taken into account adequately already. The other advantages—employment, regional development, exports, imports. the balance of payments—are well-known and I need not

665
repeat them. But there are disadvantages to which I am bound to refer because of the conclusion I wish to draw, which is not wholly in line with what the noble Lord, Lord Selsdon, said. The noble Lord spoke again with great authority and from his own experience, but I would distinguish what he said from what the noble Earl, Lord Courtown, said. I think that the noble Lord said two things which did not tie up completely. First, he said that the international company sometimes had to have regard to the interests of its shareholders before the interests of the host country. I should have thought that that was a self-evident fact. Then he went on to say that therefore there is nothing to be done.
LORD SELSDON: My Lords, I think that what I said was that rightly or wrongly the multi-national company put the interests of its shareholders ahead of the interests of the country, but I should like to feel that the multi-national company realises that if it did not have regard to the interests of the country as well, it would not be looking after the long-term interests of its shareholders.
LORD DIAMOND: My Lords, the noble Lord has again stressed his dilemma. He would like the company, which is required under its statutes to have first regard to the interests of its shareholders, also to take the view that it would best serve its shareholders by serving the interests of the host country. That might or might not he so. I think it would be sensible to keep one's eye open just to be, as I think the noble Viscount, Lord Amory, said, "vigilant". I am bound to stress that there are disadvantages to he taken into account, though perhaps they are not nearly so large as might be thought. There are problems affecting central Government controls in the host country. Control is somewhat weakened in terms of economic spending and it is capable of being weakened in terms of exchange control and monetary control—all these because the multi-national company can jump national boundaries much more easily than the national company can. So those points must be taken into account.
There is the question of foreign remittances, which are of three kinds: dividends, patent or licence fees and transfer prices. In each case remittances can be
666
organised so as to be different from what they would otherwise have been. I do not think that that is an overstatement. Dividends are very often a matter of policy. Indeed, as the noble Marquess, Lord Lothian, said, we have a rule in this country requiring British investors abroad to return a given amount of their earned profits. It is very liberally interpreted by the banks, and can count for reinvestment abroad. We all understand that: but there is a rule and there would not be if there were no necessity for it. In this respect the present Government have taken over the rule carried out by the previous Government. The question of patent or licence fees can be troublesome, as can that of transfer prices, as the noble Lord, Lord Sainsbury, told us, referring to the evidence he found as chairman of the Committee on Pharmaceuticals; and the difference in prices of raw materials was pointed out.
In addition to those disadvantages, there is another which we have not talked of overmuch in this debate: that is the difficulty sometimes experienced of interpreting head office instructions in terms of labour relations, which are sometimes misunderstood. They have caused difficulties. Difficulties do arise in those three areas, and one has to be vigilant, or possibly a little more than vigilant.
What are the possible lines of action that suggest themselves to me? I should like to refer first to the basic economic justification, which has not so far been referred to. I should think the first requirement is to see that so far as possible a British firm—looking at it from the point of view of Britain as host country —should be fully competitive before an American or Swiss firm comes in to manufacture on an identically competitive basis. If that is not the case, then the economy of the world as a whole is not being bettered. There is no point whatsoever in a foreign company coming in to make goods at an excessive profit—excessive because the cost is so much reduced through the know-how of the foreign company, which know-how was available to the British company, so that the benefit could have remained completely within this country. Therefore, one must have a situation where, in terms of the foreigner coming in to compete by setting up his own organisation. the British firm must be able to compete; or if the

667
foreigner is coming in to buy out the British firm, then the British firm must be as competitive as possible because the price of its shares will then be that much higher and there is no point whatsoever in a British company selling its shares cheaply when it can sell them expensively.
LORD BYERS: My Lords, I am not really following the noble Lord. This is contrary to anything I have said. One of the reasons why companies come in is because they are more efficient; and this has the beneficial effect of making the British company more efficient still. This is how competition comes in, together with increased productivity. Have I misunderstood the noble Lord?
LORD DIAMOND: Not at all. I confirm what the noble Lord has said: one of the benefits is that the foreign firm coming in is more efficient. But is efficiency the only question? Is it more efficient because it has reached a normal pitch of efficiency, whereas the British firm for some reason or other is totally inefficient? If that is the case, of course the incoming firm is more efficient, but for no good reason.
LORD BYERS: But the noble Lord is suggesting that he will keep the efficient foreign firm out, in which case the British firm will go on being inefficient.
LORD DIAMOND: My Lords, let me spell it out more clearly. I am suggesting that the British firm should be fully efficient.
LORD BYERS: How do they get to be efficient?
LORD DIAMOND: As fully efficient as a British firm can be.
LORD BYERS: But not as efficient as the Americans.
LORD DIAMOND: If the American company can compete successfully with the British firm, fine: that must be because of some inherent advantage, such as economy of scale, which, being spread, is of value to the world as a whole. But if it is merely a case of the British firm obviously failing to achieve an attainable standard of efficiency, then you are attracting in someone from outside to do something which you can do as well or
668
better yourself. The only way is to use what methods are open to make the British firm as efficient as possible.
LORD BYERS: Such as bringing in foreign competition.
LORD DIAMOND: My Lords, the noble Lord is paying me a compliment when he refers to my argument that the introduction of an American firm has often tended to narrow the gap because it has brought in new management techniques and new technological systems which were not available in the United Kingdom, together with a lower spread of overheads and R. and D., which were not available to the British firms. All I am saying to the noble Lord—and he will surely accept this—is that these matters are not black and white. There are cases where it would be better for the British firm to establish itself on a fully efficient basis so that the competition can be seen. That is all I am saying. The noble Lord says it is not?
LORD BYERS: No. With respect, I said it does not, and that you have to bring in from time to time foreign competition to raise the standards, not just in this country but in others.
LORD DIAMOND: My Lords, I repeat that this is very beneficial. I am only saying it has not hitherto been mentioned in the debate that one should endeavour to reach one's maximum standard of efficiency first, for the economic argument to be tested. I should have thought that would be in our own interests, whether in terms of competing with an incoming competitor or in terms of getting the best price for shares from an incoming take-over bidder.
Moving to the more frequent experience, what lines of thought occur to one where already there is a situation in which the foreign company is operating within ones' shores? I need not spend time on the labour aspect, because the trade unions are well aware of this and are active in forming a suitable countervailing authority which is available to them through the international trade unions. There are six or seven already well established, and if they can get the information from their member unions and agree a policy and put it to the multinational companies, then these companies

669
would be acting in knowledge instead of in ignorance; which would be much better.
But I do not think we can leave it at that; that is to say, I do not think it is proper for the Government of various countries to say: " Well, there are two Estates within the Realm opposing one another. We can leave them to fight it out, and justice will automatically ensure in that way." Governments have to see that the balance is fairly held. I think what is needed is some kind of code of good behaviour, which should if possible be agreed trilaterally—that is to say, as between employers' associations, employees' associations and the Government—prepared internally, and then, so far as possible, agreed upon by as many countries as are prepared to agree to it and whose pursuits are in common. I do not think it is very helpful that there should be companies that are able to play off one country against another. The noble Lord, Lord Byers, may take a different view on that. He is saying, " You are limiting individual sovereignty unless you allow each country to play off against every other country; unless you allow each Canton in Switzerland to play off against each other Canton." I do not share that view. I do not share the view that you are achieving maximum efficiency (and we are now talking in global terms, and therefore you are achieving maximum efficiency in global terms) by merely seeking the softest labour area, the softest tax area, or whichever other soft option is available.
LORD BYERS: My Lords, I think the noble Lord misrepresents me. I am not advocating one company playing one country off against another. But if he is saying that companies should not go and choose between four and five countries, then he is really, by a charter, limiting the right of those countries to offer their own inducements. I believe that they should be allowed to offer their own inducements. I do not think that anybody should dictate to the United Kingdom what inducements or lack of inducements she can offer to companies who want to come here. That is the other side of the coin.
LORD DIAMOND: These are matters for judgment. In my judgment it would not be in the best interests of global
670
efficiency and world trade, which is what both the noble Lord, Lord Byers, and I want to promote to the full, if companies can escape the real rigours of taxation by being given artificial havens of one kind or another, either of tax or whatever it may be.
LORD BYERS: Cheap electricity.
LORD DIAMOND: Or cheap electricity—another dodge which is frequently adopted and which has been tried out, not very successfully in one or two cases. There would be an uproar in GATT, for example, if cheaper electricity were declared to be one of the methods by which trade was being promoted there. There would be an uproar between, say, Norway and Great Britain in shipbuilding if cheaper steel were given as an inducement there or here.
So I am bound to say to the noble Lord that there must be rules. GATT is really a body of rules in order to have fair play between nations. I think it would be right that there should be a code of good behaviour, established in the way that I have indicated and supported by those nations who are to support it. I should have thought that the O.E.C.D. might serve this purpose, or the enlarged European Community. Certainly there should be something of that kind. I say this particularly because, in contradistinction to what the noble Earl, Lord Courtown, and the noble Viscount, Lord Amory, said, all other directors of international companies to whom I have spoken, particularly in the financial field, have always said to me: " Our difficulty has been that we have had nobody to talk to. We are carrying out a difficult task." They all take the same view as the three noble Lords who have spoken; namely, that their duty is to understand the needs of the host country, its practices and its economic viability; to work closely with the Government, and to consult them regularly. They are good employers. But they say that problems arise which go beyond the boundaries of a single country. They find that there is nobody to talk to, and they would prefer that there should be some such body. I see enormous difficulties in having some such body on a statutory or inter-governmental basis. I do not think it impossible to work towards a code of good behaviour which should be helpful

671
all round. I doubt if we can do it all in one bound, but I think one can take a little jump and go that far. That, I think, is really as far as I would want to go, and as far as I would want to add to the arguments in what has already been discussed.
I now turn to the noble Lord, Lord Drumalbyn, and the Government's attitude. We had an interesting speech from the noble Marquess, Lord Lothian, at an early stage in the debate. In contradistinction to my noble friend Lord Kennet, who devoted most of his speech to the political and economic problems which have to be grasped, the noble Marquess said, broadly, that he would keep a lookout, or something like that. He gave the impression of an extremely complacent Government. And it is not only the noble Marquess who has given that impression, because the Sunday Times, in an article in April last, described the Government's attitude as "a policy of benign neglect". I share that view: I would add a little more emphasis to the neglect than to the benignity, but that is how they described it.
I do not think that the Government are sufficiently aware of the problems which might arise if we continue to do nothing about this. After all, there are large political issues involved. The British Empire was a pretty big political problem, and that arose out of this kind of activity in earlier centuries. I do not know what we shall see developing. We shall not see another British Empire; but we shall see a situation in which enormous economic power will rest in the hands of fewer and fewer people. I think this creates problems of which we must be aware, and my noble friend Lord Kennet was very wise in drawing it to our attention.
I repeat that I think it peculiarly suitable that the United Kingdom should set a lead in this matter, because we have interests both in incoming and outgoing investment. I hope therefore that the Government will turn their mind to something of the kind that I have indicated—to a code of good behaviour, at least, if not to a more formal organisation—and will not leave the matter in the situation in which it is at the moment.
672
I am bound to conclude by saying that I regard the extension of international companies and international trade as potentially of enormous benefit. I can see no better way of nation understanding nation, and I can see no better way of securing world peace.
7.9 p.m.
LORD DRUMALBYN: My Lords we have had a wide-ranging and fascinating debate. About two minutes ago I was going to get up and say that I had never had the chance of standing at the Dispatch Box without having a single question to answer, because I do not think a single question has been put to me: in fact, there had not been any criticism of the Government until the noble Lord, Lord Diamond, ventured a few side swipes at the last moment. I should like to start by sincerely congratulating the noble Lord, Lord Tanlaw, on his maiden speech. At one time we came within measurable distance of being Parliamentary neighbours; but that was not to be. We are now, however, in one House together, and I am glad to see him here. He made a balanced and well-informed speech, based on his personal experience, in a delightful manner, and 1 should like to say that we look forward to hearing him often in this House.
There has been an underlying agreement to-day. I should like first of all to thank the noble Lord, Lord Kennet, very much indeed for the opportunity of debating this matter. It is something I cannot remember having heard debated before. It is a matter which is being more and more studied on a very wide scale and is drawing more and more attention. I think it is time that we studied it. The noble Lord gave us a great deal of food for thought. We should like to take away what he and other noble Lords have said to-day and think about what has been said, rather than attempt an off-the-cuff answer to the many very interesting issues that have been raised. My noble friend Lord Lothian earlier gave a full account of the Government policies affecting multinational companies and I do not propose to go over that ground again in replying to the debate. The noble Lord, Lord Kennet, suggested four obvious steps that should be taken, and then he asked what form of organisation should there be,

673
whether it should be global or regional, or what grouping would be involved.
I should like to say a little about the future of industrial investment in Europe, which has some relevance to the matters mentioned to-day, particularly as the noble Lord came to the conclusion that the right grouping so far as we are concerned was a European one. I do not think he carried the rest of the world any farther than that, and I certainly should not blame him for that. For the great majority of international companies the ultimate ownership and control rests in one country. It is in Europe that one finds several examples of companies which are owned and controlled on a multi-national rather than a national basis: the long established Unilever and Royal Dutch/Shell companies have in recent years been joined by Agfa-Gevaert and Dunlop/Pirelli. For a number of years British industry has been expanding in Europe, and it is to be expected that the two-way flow of industrial investment will increase when we join the E.E.C.
In many industrial sectors there are very powerful reasons for companies to grow larger. The need to support increasingly large and complex research and development programmes in such industries as electronics, especially large computers, and chemicals, including plastics and pharmaceuticals, which the noble Lord, Lord Sainsbury, mentioned, requires a large sales volume in order to recover the original outlay, and to finance adequate future research and development. In certain sectors, chemicals again, steel and domestic appliances, there are considerable gains to be made from economies derived from increasing the scale of production on long production runs. There are also frequently important advantages of scale in other areas, such as marketing and finance. All this is well known, but it is not perhaps so widely appreciated that the pressures towards increasing size are, for companies based' in a single European country, increasingly pressures towards international rather than national operations. This means that the need for expansion of European companies outside the borders of their home country would inevitably have taken place, with or without the so-called American challenge.
674
What are the prospects for increasing the flow of industrial investment between Britain and the Six when we join the E.E.C.? The Community are fully aware of the need to encourage companies to take advantage of the opportunities provided by the large-scale market of the Six. In doing so, one of the Community's objectives is to make it easier for firms to expand to their optimum size; for example, by merging with other companies, both at domestic and at community level. Among the obstacles they found to be holding up such developments was one to which the noble Lord, Lord Kennet, referred, the differences in company law in the six member States. They have therefore embarked on a programme of harmonising some of the more fundamental aspects of company law so that shareholders and third parties dealing with companies may know that they can rely on certain safeguards, whichever country they are dealing with. Because of the complexity of the subject, and the differing systems at present in force, this work has so far advanced rather slowly, and the United Kingdom, if she joined the Community in January, 1973, could expect to play an important part. The measures adopted so far would require only minor amendments to United Kingdom company law, which is generally regarded by the Six as a model to be followed, and the measures adopted so far would require us to make only minor amendments.
A separate. but complementary measure is the draft statute for a European company. We have had references to international companies. Probably we shall see first of all the creation of European companies within a European grouping, as a first step at any rate. The creation of European companies is a major initiative and would remove the psychological objections to mergers between companies from different member States because each would belong not to an alien but to a truly international organisation. The criteria for creating a European company have not been defined in a narrowly nationalistic way. and Community-based subsidiaries of United Kingdom firms could participate in such projects even if the United Kingdom were not to become a member of the Community. The fact that a fairly modest level is proposed for

675
the minimum capital of such companies (I think it is 250,000 units of account, and I think the unit is the dollar) shows that this intention is not simply to encourage the creation of giant European companies but also to bring medium-sized companies together on a trans-national basis so as to take full advantage of the Common Market.
To complement the moves towards harmonising company law, there is a need also to work towards a common company taxation policy and common policies to encourage investment, including regional investment incentives. The noble Lord, Lord Byers, thought that this was something which every country would want to retain entirely in its own hands, but I am sure that he is aware that the countries in the Community are endeavouring to harmonise their regional policies precisely with the object of concentrating the international lead on those regions which most require it.
European investment in Britain has until now, apart from investment here from the Netherlands, been much smaller than British investment in Europe. We may expect investment from Europe to increase, and it is encouraging to learn that the Bundesverband der Deutschen Industrie (B.D.I.). the German counterpart to our C.B.I., have recently reported favourably on investment prospects in Britain for German companies, following a visit they made to this country towards the end of last year.
A great deal of the discussion that we have had to-day has related to the power of multi-national companies in relation to individual States. The noble Lord, Lord Kennet, with one of his characteristically brilliant phrases. referred to a seepage of sovereignty. He said that sovereignty has been seeping away downwards into the invisible root system of politically irresponsible capital. I think that was his phrase. In a sense, sovereignty has been seeping away from national States in any case. Most of us will agree that it is a good thing that we should harmonise our trading policies, at any rate so far as possible, so encouraging the free flow of trade and also removing causes of friction. So we accept a good deal of common exercise of power as things are now. But, of course, it would
676
be a different matter if real power were seeping away outside the control of Governments altogether.
It is undoubtedly true that large companies which have at their disposal such massive resources of manpower, capital and knowledge are very powerful; but if effective competition between such companies can be maintained (and this was a point which I hoped the noble Lord, Lord Diamond, had in mind in the early part of the argument he got into with the noble Lord, Lord Byers, which I must confess I could not follow either way) both within individual nations and internationally, then it is unlikely that this power can be deliberately used to the disadvantage of an individual nation State. Surely the relative powers of multinational corporations and States differ in nature. One need only consider the bargaining position of a small developing country when it can threaten nationalisation of local assets of an international company. But the equation does not have to be looked at in such crude power-struggle terms. Any company with a large investment in a particular country has an interest in making the best return it can on that investment; and it will not make a very good return if it pursues bad labour relations policies or acts in ways that weaken the economy of the country in which it operates. This is bound to react upon its own interests.
To say that the power which multinational corporations have in relation to individual States can easily be exaggerated is not to deny that the growth of their activities is of interest to Britain and to other nations. The subject, as I have said, is being more and more discussed in international forums, and more and more being studied at various levels. For example, there is a great study by Harvard University on the subject at the present time. It would be inappropriate for me to go in any detail into the policies and practices of other countries in regard to freedom of investment, but I should like to refer briefly to the work now in hand in one international body—O.E.C.D. There are two Working Parties—and I think the noble Lord, Lord Kennet, will be glad to hear this, although he probably knows it already—in O.E.C.D. which are at present looking at different aspects of what is referred to as the multi-national company

677
phenomenon. One is under the Committee of Experts on Restrictive Business Practices and is concerned with the question of the effect on competition of the activities of these companies. The other is a group under the Industry Committee, which is studying the availability of statistics and exchanging information between member countries relating to their policies towards multi-national companies. United Kingdom officials are taking an active part in both these Working Parties. We are not standing benignly apart, or whatever was the phrase used. What has already become clear from these international discussions is the extent to which most countries generally welcome foreign investment.
Because of the scale and importance of the growth of international investment. the Government have for a number of years carried out detailed statistical surveys of the overseas investment, to monitor its growth. Estimates of direct investment and earnings on it, which are regularly incorporated in the balance-of-payments accounts, are mainly derived from the Department of Trade and Industry's overseas transactions inquiry. Altogether, about 2,500 companies are approached each year for details of transactions with overseas affiliates or foreign parent or associated companies. A smaller number of large companies (about 350 companies with overseas affiliates and about 250 affiliates of foreign companies) are approached each quarter for brief details of direct investment. These inquiries are conducted on a voluntary basis, although the annual inquiry has a response rate of about three-quarters, and estimates for non-respondents are built up from published accounts, previous returns and other sources. The results of the annual inquiry are published as a Business Monitor, M4, Overseas Transactions, with a brief introductory note in Trade and Industry. The quarterly estimates of direct investment and earnings are included in the article on the balance of payments, which appears in Economic Trends.
LORD BROWN: My Lords, I wonder whether the noble Lord will excuse me if I interrupt. In these studies which are going on in the O.E.C.D., would it be possible for our representatives on these
678
Committees to seek to raise the question of the extent to which investment is welcomed only if the nationals of the country in which the investment takes place effectively control that investment? I am of the very strong impression that there are a number of countries in which indeed international investment is welcomed, subject to control of investment being in the country where the investment takes place. Could this matter be raised in these Committees? It is a very important matter from the point of view of our British investors.
LORD DRUMALBYN: My Lords, I have before me a note of what the noble Lord said and I was proposing to come to that point. I thought he made the point extremely strongly. It is very well worth taking note of and I am sure it will be one of the matters that will be particularly studied. I cannot undertake that we shall raise it at the first opportunity in O.E.C.D., but I am sure that it will be fully studied. And I thought that what the noble Lord said evoked quite a response in the House.
I was saying that every three years surveys of the book values of overseas investment are being carried out to determine the scale of foreign investment here and our own investment overseas. The results of this survey are also published in Trade and Industry. These statistics which my noble friend Lord Lothian gave earlier in the debate were derived from the studies I have just mentioned. But most people would agree that statistical studies, though valuable, have their limitations. For this reason, the Board of Trade in 1967 commissioned a wide-ranging study, under the direction of Mr. Steuer, of the London School of Economics, of the effect of foreign investment in the United Kingdom. This report is now being completed, and it is intended to publish its findings, which cover not only the balance-of-payments and monopoly aspects which my noble friend mentioned but the effects of foreign investment on our technology, or labour relations, and on our national autonomy. I cannot today anticipate the report itself, but I understand that it is unlikely that the findings will indicate the need for any major changes in the Government policies towards foreign investment in Britain.
LORD KENNET: My Lords, before the noble Lord leaves the question of published statistics, I wonder whether he is in a position to say a word on the question about which Lord Lothian said he hoped he would be in a position to say something; namely, whether the published figures, or indeed the forthcoming report from the L.S.E., shows the extent of transfer pricing and of intra-group leading and lagging as regards international companies operating in this country.
LORD DRUMALBYN: My Lords, I am not quite certain about that. The financial links between different countries are growing more and more complex, and individual national economies are exposed to larger movements of funds, both inwards and outwards, than in the past. I think the best way I can put the position is this. Multi-national companies play a part in this, but in moving reserve funds or in accelerating or delaying payments between countries—the so-called leads and lags of which the noble Lord was speaking— they are doing what national companies and individuals can do and frequently do. The noble Lord, Lord Diamond, said there were more opportunities for international companies to do this than for national companies; although with the forward exchange market in operation, of course, this is probably more wide-spread among non-international companies than most people imagine.
LORD KENNET: My Lords, will the noble Lord allow me to intervene once more? It is a point of substance, although it might appear to be niggling. I was not seeking to establish that international companies did this more than national companies, but I believe that the extent to which they do it is unknown, whereas the extent to which national companies do it is known because it shows up in their reports. Would the noble Lord agree with me that the Government statistics as published do not reveal the extent of leading and lagging by the national Government internally nor do they reveal the effect of transfer pricing by the national Government within their groups?
LORD DRUMALBYN: My Lords, the noble Lord will acquit me of being an expert in this subject. I should not like
680
to agree or disagree with him, but I should have thought it extremely probable that what he has said is correct. The point I was trying to make was that the problems that may arise are not specifically due to the operations of multi-national companies. In the United Kingdom, the exchange control provides an important but not a complete safeguard against reserve funds. Our experience of the movements of these lags and payments between countries is that multi-national companies play a significant part in this, as in world trade generally, but we have no reason to suppose that the scale of their transactions has been disproportionate in such movements, nor that they appear to initiate such movements. If I may I will write to the noble Lord on the point that he has raised because I cannot take it upon myself to answer at the moment.
LORD KENNET: My Lords, when he writes to me, will the noble Lord bear in mind that if we do not know what the movements are then of course we have no reason to suppose that they are disproportionate or otherwise?
LORD DRUMALBYN: No, my Lords, but for the reasons that I gave everybody wants to avoid the penalties of not foreseeing situations and therefore making appropriate financial arrangements for transfers. What I was saying was that there was no reason to believe that multinational companies would do this to a very much greater extent than national companies which had obligations to meet, or whatever reason they had to transfer funds.
The noble Lord, Lord Diamond, referred to tax payments by international companies as representing a contribution to the country's net social services. I am sure the noble Lord will agree that company tax is only one way in which a company makes such a contribution. It makes direct social security contributions on behalf of its employees, and value added tax will bring in a general tax on all United Kingdom companies' operations. Companies also pay rates to local authorities.
LORD DIAMOND: Yes, my Lords, that is the argument.
LORD DRUMALBYN: In what the noble Lord said I think perhaps he was

681
not going quite far enough. After all, the decision where to invest must rest with the company itself and I do not think he meant to imply that any restraint should be placed upon companies who, for one reason or another, decide that it will be more advantageous to themselves to invest abroad rather than in this country, partly, of course, because of the many additional advantages that entry into a country and establishment in a country may give.
I think I should also add that while examples have been given by some noble Lords which indicate that certain foreign owned companies pay little United Kingdom tax, there is no evidence, taken as a whole, that foreign owned companies declare lower profits than domestic companies. Indeed, the study by Professor Dunning, mentioned by the noble Lord, Lord Sainsbury, showed that American owned companies in the United Kingdom made higher profits than the United Kingdom owned counterparts.
The noble Lord, Lord Kennet, asked a question on disclosure requirements of the Companies Acts. Transfer prices are not disclosed under the provisions of the Companies Act but may be subjected to scrutiny by the Inland Revenue in determining a company's assessment. As to leads and lags, I think I have already dealt with that point.
The noble Lord, Lord Diamond, intervened in the speech of my noble friend Lord Lothian to ask about market values as opposed to book values of investments quoted in the speech. I cannot give figures for market values for these investments because no sound basis exists on which to estimate the extent to which book values understate the value of the investment, or in some cases, overstate the value of the investment. This is why my noble friend gave an indication of the proportion of total manufacturing output in the United Kingdom represented by United States direct investment here.
The noble Lord, Lord Brown, asked a question on the safeguards in regard to the takeover of United Kingdom companies. Section 30 of the Exchange Control Act 1947 requires consent for the transfer of control of a United Kingdom owned company to non-residents of the United Kingdom. The noble Lord, Lord Ritchie-Calder, referred to a film in which an organisation of which a number
682
of international companies are members —Business International—was involved. He said that in this film it was suggested that multi-national companies collectively should transfer their headquarters to a small island, and I thought he painted a slightly fantastic picture of the multinational companies standing as a form of businessmen's world capital.
LORD RITCHIE-CALDER: My Lords, may I just intervene to say that I was quoting straight from the script.
LORD DRUMALBYN: Yes, my Lords, I am sure, but what I could not quite make out was with what degree of approval the noble Lord regarded this form of prophecy.
LORD RITCHIE-CALDER: Do not ask me!
LORD DRUMALBYN: My Lords, if that is so I feel that things are much more likely to develop along the lines indicated by the noble Lord, Lord Byers, and the noble Lord, Lord Diamond, than in that kind of way. The noble Lord, Lord Balogh, is not here so I shall simply say that careful note will be taken of all he said.
LORD DIAMOND: My Lords, may I say on behalf of my noble friend that he gave me a note apologising for the fact that he had to deliver a lecture at this time and therefore would not be able to be here.
LORD DRUMALBYN: Yes, my Lords, the noble Lord in fact passed me a note to say that he could not be here—at least, I think it was the noble Lord, Lord Balogh, because the signature looked something like "Balogh". My noble friend Lord Amory also is not here. He referred to Canadian guidelines. The idea of guidelines is quite an attractive one and I think is much more likely to emerge in the long run than something like specific controls.
At the beginning of my speech I said we were all agreed on the importance of the subject of to-day's debate. 1 believe, too, that we are also generally agreed that the growth of international investment and in multi-national companies has been to the benefit not only of Britain but of world economy generally. There are some who suggest that the time has come to seek greater

683
control over the activities of multinational companies. I do not see any need for us in this country to impose greater national control on our own. Indeed, it would be very much against our interests to do so. As I have said, I take the point made by the noble Lord, Lord Brown, on this. I think that any difficulties that may exist are not so formidable as to cause us to take the initiative in working towards comprehensive international control of such companies. We know that other Governments, including our future E.E.C. partners, are taking an increasing interest in the effects of international investment. We are ready to discuss that subject with other countries generally, or specific aspects of the subject. I have already mentioned that Government officials are taking part in these new O.E.C.D. working parties and are collecting information and exchanging experiences about multinational companies. When we join the E.E.C. we shall naturally take part in their discussions, with the two-fold object of increasing the extent of international investment in Europe and in adopting common policies towards inward investment in Europe and outward investment from it.
We have heard a great deal of the problem which multi-national companies can present for nationally-based trade unions, but here I hope and suggest that the right response—and this is what the noble Lord, Lord Diamond, indicated; he felt the unions were capable of looking after themselves in this—is for unions to co-operate internationally, as they are already beginning to do to a greater extent, rather than for Governments to intervene on one side or the other. Much of course, in this as in other matters, depends on the attitudes of the companies involved. I would only say that if a multi-national company is prepared to talk to a group of trade unions representing the interests of employees in different countries, this may help to increase understanding all round and to get a greater knowledge of the intentions of the parent company of the multinational company. I fully share what has been said about the multi-national companies combining the pursuit of their commercial objectives with a reasonable regard for the social and economic situa-
684
tion in each of the countries in which they operate. I think there was widespread agreement to-day that, generally speaking, multi-national companies behave responsibly, if only because it is in their interests to do so. But I would also share the view that has been expressed that there is need for continuing vigilance, and it is with this object in view that we are having international discussions within O.E.C.D.
The Government will continue to monitor the growth of international investment as it affects Britain and to assess the broad contribution that multinational companies make to our economy. I believe that to-day's debate has made a very useful contribution towards a wider understanding of the many issues involved. I think there have been many useful suggestions which the Government will wish to study carefully. I would conclude by once again thanking the noble Lord, Lord Kennet, for having introduced this subject in such a lucid and striking way.
7.43 p.m.
LORD KENNET: My Lords, I should like, if I may, to associate myself most sincerely with what has been said about the speech of the noble Lord, Lord Tanlaw. I too listened to it with the greatest pleasure and interest. The noble Marquess, Lord Lothian, spoke in a curious way: it made me feel he had expected that I was going to attack international companies as something pernicious that ought to be strictly disciplined and, if possible, abolished. I did not do so, and listening to his speech it made me almost sorry that I had not done so, because it would have fitted so well with what he said when he put on the record the things they had done, the increase in the level of economic activity in our country and others. With all that I agree, and I am most grateful for it. But in the end I am not sorry that I did not attack international companies. We are very much in their debt. I am reinforced in my initial judgment, and I am glad that it was endorsed by the leaders of my own Party, that this was the moment to raise the matter, because no single point I made was reflected in the noble Marquess's prepared brief. It might have been. Sometimes the officials are thinking about what people in Parliament

685
are thinking about, and sometimes they are not; and when they are not, that is an indication that a debate has taken place at the right moment.
The noble Lord, Lord Thomas, has gone away, but the House listened to him with very great interest because of the enormous breadth and depth of his experience. He said that it seemed to him that my speech had been based on fears of what might happen, rather than on an assessment of what had happened, and he said he was sure that no businessman in one country would ever close a factory in another country and go away, because that would be a bad business proceeding. If his experience had been even greater, he might have known of the case of the Remington-Rand factory in France, which was the beneficiary of a Government investment grant and was closed without warning in 1962, throwing all the employees into unemployment; the case of the General Motors refrigerator factory in France which was closed in the same circumstances in the same year. And he might have known that the then French Minister of Industry and Commerce. M. Michel-Bokanowski, publicly requested an explanation of the closures and of why the French Government had not been informed and received none. and this was the reason why Gaullist policy towards American investment became a little hit different from before. And he might have known of a subsequent case where a Raytheon factory in Sicily was closed without warning, throwing all the employees out of work.
I am sorry that my noble friend Lord Balogh is not here. It seemed to me that his speech was one of the most formidable attacks I have ever heard in this House on Government inactivity, on a front which is a narrow one in the context of the wide debate we are having to-day. But it is an extremely important one, and I hope that his enforced absence will not be a reason for us not to hear of it again, for I am deeply disturbed by the lack of answer to what he said.
I would take up one small point in the speech of the noble Lord. Lord Byers. He made out that it would be quite an absurd idea for Governments to arrange to have directors on the parent boards in the originating country of international corporations, because there would be too
686
many if the corporation was operating in a great number of countries. He held out the spectre of twenty directors turning up to sit on the board in Detroit or Delaware, or wherever it was. That is not what I was thinking of. I was thinking of a good many years ahead to an age when it would be quite easy to have a regional arrangement, an inter-governmental arrangement, with one inter-governmental director to represent a good many Governments or a good many national investment boards, if that is what he would prefer.
Speaking after him, it falls to me with great pleasure to thank the noble Lord, Lord Drumalbyn, for his most helpful and thoughtful speech. I really mean that.
May I nip back to the speech of the noble Lord, Lord Selsdon? He mentioned a fairly widely quoted figure: that if we go on as we are now, by the year 2000 only 300 firms will be controlling about 85 per cent. of the world's trade or commerce—something like that. I would remind the House that Lenin took it further. He said fifty years ago—or more; sixty years ago—that if we went on as we were already beginning to then, the time could be foreseen when there would be only one firm controlling the industrial and economic destinies of the world; and he said that that would not happen, obviously, because capitalism as a system would come to pieces before it did. Capitalism will do what it will, but I hope that those who are in charge of it in any major way will remember and give due weight to that dusty prophecy.
Many speakers from the Government Back Benches, and from the Liberal Benches, both Front and Back, have praised the responsibility of the international corporations and demanded the continuation of full freedom for them to operate. Many of them made the point that the international corporations are well in touch with their parent Governments and also with the host Governments in countries in which they want to operate. I do not doubt it. They are wise to be that. That is not my point. My point is this: I doubt whether the Governments themselves are well enough in touch with each other. My noble friend Lord Diamond reminded us that the British Empire had been acquired in a fit of absence of mind. I think that

687
the moral of to-day's debate should be that the Government will, we hope, keep their wits well about them in the coming years. My Lords, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

SCUNTHORPE CORPORATION BILL [H.L.]
Reported, with Amendments.
GREAT SOUTHERN CEMETERY AND CREMATORIUM COMPANY BILL [H.L.]
Returned from the Commons agreed to.
SOUTHAMPTON CORPORATION (SOUTHAMPTON COMMON) BILL [H.L.]
Returned from the Commons agreed to, with Amendments; the said Amendments considered and agreed to.