Essays in Liberalism Part 4

I do not rule the Capital Levy out as impracticable by any means, but as a taxation expedient I cannot be enthusiastic about it. It is a desperate remedy. But if our present temper for "annual" tax relief at all costs continues, we may _need_ a desperate remedy. Without a levy what kind of position can you look forward to? Make some a.s.sumptions, not with any virtue in their details, but just in order to determine the possible prospect. If in fifteen to twenty years reparation payments have wiped out 1000 millions, debt repayments another 1000, and ordinary reductions by sinking funds another 1000 millions, you will have the debt down to 5000 millions, and possibly the lower interest then effective may bring the annual charge down to some 200 or 225 million pounds. If the population has reached sixty millions the nominal annual charge will be reduced from 7 16s. by one-half, but if prices have dropped further, say half-way, to the pre-war level, the comparable burden will still be 4 10s. per head.

It is no good talking about "holidays from taxation" and imagining you can get rid of this thing easily; you won't. We are still in the war financially. There is the same need of the true national spirit and heroism as there was then. Thus hard facts may ultimately force us to some such expedient as the levy, but we should not accept it light-heartedly, or regard it as an obvious panacea. Perhaps in two or three years we may tell whether economic conditions are stable enough to rob it of its worst evils. The question whether the burden of rapidly relieving debt by this means in an instalment levy over a decade is actually lighter than the sinking fund method, depends on the relation of the drop in prices over the short period to the drop over the ensuing period, with a proper allowance for discount--at the moment an insoluble problem. I cannot yet with confidence join those who, on purely economic and non-political grounds, commend the scheme and treat it as "good business for the income-tax payer."

FREE TRADE

BY RT. HON. J.M. ROBERTSON

P.C.; President of National Liberal Federation since 1920; M.P. (L.), Tyneside Division, Northumberland, 1906-18; Parliamentary Secretary to Board of Trade, 1911-15.

Mr. Robertson said:--At an early stage of the war Mr. H.G. Wells published a newspaper article to the effect that while we remained Free Traders we were determined in future to accord free entry only to the goods of those States which allowed it to us. The mere state of war, no doubt, predisposed many to a.s.sent to such theses who a few years before would have remembered that this was but the nominal position of the average protectionist of the three preceding generations. War being in itself the negation of Free Trade, the inevitable restrictions and the war temper alike prepared many to find reasons for continuing a restrictive policy when the war was over. When, therefore, the Committee of Lord Balfour of Burleigh published its report, suggesting a variety of reasons for setting up compromises in a tariffist direction, there were not wanting professed Free Traders who agreed that the small tariffs proposed would not do any harm, while others were even anxious to think that they might do good.

Yet the policy proposed by Lord Balfour's Committee has not been adopted by the Coalition Government in anything like its entirety. Apart from the Dyestuffs Act, and such devices as the freeing of home-made sugar from excise, we have only had the Safeguarding of Industries Bill, a meticulously conditional measure, providing for the setting up of particular tariffs in respect of particular industries which may at a given moment be adjudged by special committees _ad hoc_ to need special protection from what is loosely called "dumping." And even the findings of these committees so far have testified above all things to the lack of any accepted set of principles of a protectionist character. Six thousand five hundred articles have been catalogued as theoretically liable to protective treatment, and some dozen have been actually protected. They have given protection to certain products and refused it to others; according it to fabric gloves and gla.s.s and aluminium goods and refusing it to dolls' eyes and gold leaf.

Finally, the decision in favour of a tariff on fabric gloves has evoked such a storm of protest from the textile manufacturers who export the yarns with which foreign fabric gloves are made, that even the Coalitionist press has avowed its nervousness. When a professed protectionist like Lord Derby, actually committed to this protectionist Act, declares that it will never do to protect one industry at the cost of injuring a much greater one, those of his party who have any foresight must begin to be apprehensive even when a House of Commons majority backs the Government, which, hard driven by its tariffists, decided to back its Tariff Committee against Lancas.h.i.+re. Protectionists are not much given to the searching study of statistics, but many of them have mastered the comparatively simple statistical process of counting votes.

THE "NEW CIRc.u.mSTANCES" CRY

In a sense, there are new fiscal "circ.u.mstances." But I can a.s.sure my young friends that they are just the kind of circ.u.mstances which were foreseen by their seniors in pre-war days as sure to arise when any attempt was made to apply tariffist principles to British industry. As a German professor of economics once remarked at a Free Trade Conference, it is not industries that are protected by tariffs: it is firms. When a mult.i.tude of firms in various industries subscribed to a large Tariff Reform fund for election-campaign purposes, they commanded a large Conservative vote; but when for platform tariff propaganda, dealing in imaginative generalities and eclectic statistics, there are subst.i.tuted definite proposals to meddle with specified interests, the real troubles of the tariffist begin. You might say that they began as soon as he met the Free Trader in argument; but that difficulty did not arise with his usual audiences. It is when he undertakes to protect hides and hits leather, or to protect leather and hits boot-making, or to help s.h.i.+pping and hits s.h.i.+pbuilding that he becomes acutely conscious of difficulties.

Now he is in the midst of them. The threat of setting up a general tariff which will hit everybody alike seems so far to create no alarm, because few traders now believe in it. Still, it would be very unwise to infer that the project will not be proceeded with. It served as a party war-cry in Opposition for ten years, and nearly every pre-war Conservative statesman was committed to it--Earl Balfour and Lord Lansdowne included. Even misgivings about Lancas.h.i.+re may fail to deter the tariffist rump.

Some of the people who even yet understand nothing of Free Trade economics are still found to argue that, if only the duty on imported gloves is put high enough, sufficient gloves will be made at home to absorb all the yarns now exported to German glove-makers. They are still blind, that is to say, to the elementary fact that since Germany manufactures for a much larger glove-market than the English, the exclusion of the German gloves means the probable loss to the yarn-makers of a much larger market than England can possibly offer, even if we make all our own gloves. In a word, instead of having to furnish new Free Trade arguments to meet a new situation, we find ourselves called upon to propound once more the fundamental truths of Free Trade, which are still so imperfectly a.s.similated by the nation.

So far as I can gather, the circ.u.mstances alleged to const.i.tute a new problem are these; the need to protect special industries for war purposes; and the need to make temporary fiscal provision against industrial fluctuation set up by variations in the international money exchanges. Obviously, the first of these pleas has already gone by the board, as regards any comprehensive fiscal action. One of the greatest of all war industries is the production of food; and during the war some supposed that after it was over, there could be secured a general agreement to protect British agriculture to the point at which it could be relied on to produce at least a war ration on which the nation could subsist without imports. That dream has already been abandoned by practical politicians, if any of them ever entertained it. The effective protection of agriculture on that scale has been dismissed as impossible; and we rely on foreign imports as before. Whatever may be said as to the need of subsidising special industries for the production of certain war material is nothing further to the fiscal purpose, whether the alleged need be real or not. The production of war material is a matter of military policy on all fours with the maintenance of Government dockyards, and does not enter into the fiscal problem properly so called. But to the special case of dyes, considered as a "key" or "pivotal" industry, I will return later.

How then stands the argument from the fluctuations of the exchanges? If that argument be valid further than to prove that _all_ monetary fluctuations are apt to embarra.s.s industry, why is it not founded on for the protection of _all_ industries affected by German compet.i.tion? The Prime Minister in his highly characteristic speech to the Lancas.h.i.+re deputation, admitted that the fall of the mark had not had "the effect which we all antic.i.p.ated"--that is, which he and his advisers antic.i.p.ated--and this in the very act of pretending that the _further_ fall of the mark is a reason for adhering to the course of taxing fabric gloves. All this is the temporising of men who at last realise that the case they have been putting forward will bear no further scrutiny. The idea of systematically regulating an occasional tariff in terms of the day-to-day fluctuations of the exchanges is wholly chimerical. A tariff that is on even for one year and may be off the next is itself as disturbing a factor in industry as any exchange fluctuations can be.

Nor is there, in the nature of things, any possibility of continuous advantage in trade to any country through the low valuation of its currency. The Prime Minister confesses that Germany is _not_ obtaining any export trade as the result of the fall. Then the whole argument has been and is a false pretence. The plea that the German manufacturer is advantaged because his wages bill does not rise as fast as the mark falls in purchasing power is even in theory but a statement of one side of a fluctuating case, seeing that when the mark rises in value his wages bill will not fall as fast as the mark rises, and he is then, in the terms of the case, at a compet.i.tive disadvantage.

But the worst absurdity of all in the tariffist reasoning on this topic is the a.s.sumption that in no other respect than wage-rates is German industry affected by the fall of the mark. The wiseacres who point warningly to the exchanges as a reason for firm action on fabric gloves never ask how a falling currency relates to the process of purchasing raw materials from abroad. So plainly is the falling mark a bar to such purchase that there is _prima facie_ no cause to doubt the German official statement made in June, that foreign goods are actually underbidding German goods in the German markets, and that the falling exchange makes it harder and harder for Germany to compete abroad. We are dealing with a four-square fallacy, the logical implication of which is that a bankrupt country is the best advantaged for trade, that Austria is even better placed for compet.i.tion than Germany, and that Russia is to-day the best placed of all.

TARIFFS AND WAGES

The argument from the exchanges, which is now admitted to be wholly false in practice, really brings us back to the old tariffist argument that tariffs are required to protect us against the imports of countries whose general rate of wages is lower than ours. On the one hand, they a.s.sured us that a tariff was the one means of securing good wages for the workers in general. On the other, they declared that foreign goods entered our country to the extent they did because foreign employers in general sweated their employees. That is to say--seeing that nearly all our compet.i.tors had tariffs--the tariffed countries pay the worst wages; and we were to raise ours by having tariffs also. But even that pleasing paralogism did not suffice for the appet.i.te of tariffism in the way of fallacy. The same propaganda which affirmed the lowness of the rate of wages paid in tariffist countries affirmed also the _superiority_ of the rate of wages paid in the United States, whence came much of our imported goods which the tariffists wished to keep out. In this case, the evidence for the statement lay in the high wage-rate figures for three employments in particular--those of engine-drivers, compositors, and builders' labourers: three industries incapable of protection by tariffs.

Thus even the percentage of truth was turned to the account of delusion; for the wages in the protected industries of the States were so far from being on the scale of the others just mentioned, that they were reported at times to be absolutely below those paid in the same industries in Britain. For the rest, _costs of living_ were shown by all the official statistics to be lower with us than in any of the competing tariffed countries; and in particular much lower than in the United States. There were thus established the three facts that wages were higher in the Free Trade country than in the European tariffed countries; that real wages here were higher than those of the protected industries in the United States, and that Protection was thus so far from being a condition of good wages as to be ostensibly a certain condition of bad. All the same, high wages in America and low wages on the Continent were alike given as reasons why we should have a protective tariff.

There stands out, then, the fact that the payment of lower wages by the protected foreign manufacturer was one of the tariffist arguments of the pre-war period, when there was no question of unequal currency exchanges. To-day, the argument from unequal currency exchanges is that in the country where the currency value is sinking in terms of other currencies the manufacturer is getting his labour cheaper, seeing that wages are slow to follow increase in cost of living. Both pleas alike evade the primary truth that if country A trades with country B at all, it must receive _some_ goods in payment for its exports, save in a case in which, for a temporary purpose, it may elect to import gold. But that fact is vital and must be faced if the issue is to be argued at all.

Unless, then, the defender of the occasional tariff system contends that that system will rectify trade conditions by keeping out goods which are made at an artificial advantage, amounting to what is called "unfair compet.i.tion," and letting in only the goods not so produced, he is not facing the true fiscal problem at all. Either he admits that exports and freight charges and other credit claims must be balanced by imports or he denies it. If he denies it, the discussion ceases: there is no use in arguing further. If he admits it, and argues that by his tariff he can more or less determine _what_ shall be imported, the debate soon narrows itself to one issue.

The pre-war tariffist argued, when he dealt with the problem, that tariffs would suffice at will to keep out manufactured goods and let in only raw material. To that the answer was simple. An unbroken conversion of the whole yield of exports and freight returns and interest on foreign investments into imported raw material to be wholly converted into new products, mainly for export, was something utterly beyond the possibilities. It would mean a rate of expansion of exports never attained and not only not attainable but not desirable. On such a footing, the producing and exporting country would never concretely taste of its _profit_, which is to be realised, if at all, only in consumption of imported goods and foods. It is no less plainly impossible to discriminate by cla.s.ses between kinds of manufactured imports on the plea that inequality in the exchanges gives the foreign compet.i.tor an advantage in terms of the relatively lower wage-rate paid by him while his currency value is falling. Any such advantage, in the terms of the case, must be held to accrue to all forms of production alike, and cannot possibly be claimed to accrue in the manufacture of one thing as compared with another, as fabric gloves in comparison with gold leaf. In a word, the refusal of protection to gold leaf is an admission that the argument from inequality of currency exchanges counts for nothing in the operation of the Safeguarding of Industries Bill. In the case of any other import, then, the argument falls.

MEMBERS ONE OF ANOTHER

But that is not all. The case of Russia alone has brought home to all capable of realising an economic truth the fact that the economic collapse of any large ma.s.s of population which had in the past entered into the totality of international trade is a condition of proportional impoverishment to all the others concerned. He who sees this as to Russia cannot conceivably miss seeing it as to Germany; even tariffist hallucinations about a "losing trade" under German tariffs cannot shut out the fact that our trade with Russia and the United States was carried on under still higher hostile tariffs. The unalterable fact remains that industrial prosperity rises and falls in the measure of the total ma.s.s of goods handled; and men who realise the responsibility of all Governments for the material wellbeing of their populations can come to only one conclusion. Trade must be facilitated all round for our own sake.

Once more we come in sight of the truth that the industrial health of every trading country depends on the industrial health of the rest--a Free Trade truth that is perceptibly of more vital importance now than ever before. It is in the exchange of commodities, and the extension of consumption where that is required on a large scale, that the prosperity of the industrial nations consists. And to say that, is to say that until the trade exchanges of the world in general return to something like the old footing, there cannot be a return of the old degree of industrial wellbeing. Not that industrial wellbeing is to be secured by the sole means of industrial re-expansion: the question of the need of restriction of rate of increase of population is now being more and more widely recognised as vital. But the present argument is limited to the fiscal issue; and it must suffice merely to indicate the other as being of the highest concurrent importance.

Adhering, then, to the fiscal issue, we reach the position that, just as foreign trade has been a main source of British wealth in the past, and particularly in the Free Trade era, the wealth consumed in the war is recoverable only on the same lines. It is not merely that British s.h.i.+pping--at present so lamentably paralysed and denuded of earning power--cannot be restored to prosperity without a large resumption of international exchanges: a large proportion of industrial employment unalterably depends upon that resumption. And it is wholly impossible to return to pre-war levels of employment by any plan of penalising imports.

THE DYESTUFFS ACT

How then does the persistent Free Trader relate to the special case of the "key industry," of which we heard so much during the war, and hear so little to-day? I have said that the question of maintaining any given industry on the score that it is essential for the production of war material is a matter of military administration, and not properly a matter of fiscal policy at all. But the plea, we know, has been made the ground of a fiscal proceeding by the present Government, inasmuch as the special measure known as the Dyestuffs (Import Regulation) Act of 1920 forbids for ten years the importation of dyestuffs into this country except under licence of the Board of Trade. Dyestuffs include, by definition, all the coal-tar dyes, colours, and colouring matter, and all organic intermediate products used in the manufacture of these--the last category including a large number of chemicals such as formaldehyde, formic acid, acetic acid, and methyl alcohol. The argument is, in sum, that all this protective control is necessary to keep on foot, on a large scale, an industry which in time of war has been proved essential for the production of highly important munitions.

What has actually happened under this Act I confess I am unable to tell.

Weeks ago I wrote to the President of the Board of Trade asking if, without inconvenience, he could favour me with a general account of what had been done in the matter of issuing licences, and my letter was promised attention, but up to the moment of delivering this address I have had no further reply. I can only, then, discuss the proposed policy on its theoretic merits.[1] The theoretic issues are fairly clear.

Either the licensing power of the Board of Trade has been used to exclude compet.i.tive imports or it has not. If it has been so used, it is obvious that we have no security whatever for the maintenance of the industry in question in a state of efficiency. In the terms of the case, it is enabled to persist in the use of plant and of methods which may be inferior to those used in the countries whose compet.i.tion has been excluded. Then the very object posited as the justification for the Act, the securing of a thoroughly efficient key industry necessary to the production of munitions, is not attained by the fiscal device under notice. If, on the other hand, there has been no barring of imports under the licence system, the abstention from use of it is an admission that it was either unnecessary or injurious or was felt to be useless for its purpose.

[Footnote 1: The promised statistics were soon afterwards sent to Mr.

Robertson by the Board of Trade. They will be found in the _Liberal Magazine_ for September, 1922, p. 348.--ED.]

And the common-sense verdict on the whole matter is that if continuous and vigilant research and experiment in the chemistry of dye-making is held to be essential to the national safety, the proper course is for the Government to establish and maintain a department or a.r.s.enal for such research and experiment, unhampered by commercial exigencies. Such an inst.i.tution may or may not be well managed. But a dividend-earning company, necessarily concerned first and last with dividend earning, and at the same time protected against foreign compet.i.tion in the sale of its products, cannot be for the purpose in question well managed, being expressly enabled and encouraged to persist in out-of-date practices.

This being so, the whole argument for protection of key industries goes by the board. It has been abandoned as to agriculture, surely the most typical key industry of all; and it has never even been put forward in regard to s.h.i.+pbuilding, the next in order of importance. For the building of s.h.i.+ps of war the Government has its own dockyards: let it have its own chemical works, if that be proved to be necessary.

Protection cannot avail. If the Dyestuffs Act is put in operation so as to exclude the compet.i.tion of foreign chemicals, it not only keeps our chemists in ignorance of the developments of the industry abroad: it raises the prices of dyestuffs against the dye-using industries at home, and thereby handicaps them dangerously in their never-ending compet.i.tion with the foreign industries, German and other, which offer the same goods in foreign markets.

The really fatal compet.i.tion is never that of goods produced at low wages-cost. It is that of superior goods; and if foreign textiles have the aid of better dyes than are available to our manufacturers our industry will be wounded incurably. It appears in fact to be the superior quality of German fabric gloves, and not their cheapness, that has. .h.i.therto defeated the compet.i.tion of the native product. To protect inferior production is simply the road to ruin for a British industry.

Delicacy in dyes, in the pre-war days, gave certain French woollen goods an advantage over ours in our own markets; yet we maintained our vast superiority in exports by the free use of all the dyes available. Let protection operate all round, and our foreign markets will be closed to us by our own political folly. Textiles which are neither well-dyed nor cheap will be unsaleable against better goods.

THE PARIS RESOLUTIONS

It is of a piece with that prodigy of self-contradiction that, when the Liberal leaders in the House of Commons expose the absurdity of professing to rectify the German exchanges by keeping out German fabric gloves, a tariffist leader replies by arguing that the Paris Resolutions of the first Coalition Government, under Mr. Asquith, conceded the necessity of protecting home industries against unfair compet.i.tion. Men who are normally good debaters seem, when they are fighting for a tariff, to lose all sense of the nature of argument. As has been repeatedly and unanswerably shown by my right hon. friend the Chairman, the Paris Resolutions were expressly framed to guard against a state of things which has never supervened--a state of things then conceived as possible after a war without a victory, but wholly excluded by the actual course of the war. And those Resolutions, all the same, expressly provided that each consenting State should remain free to act on them upon the lines of its established fiscal system, Britain being thus left untrammelled as to its Free Trade policy.

Having regard to the whole history, Free Traders are ent.i.tled to say that the attempt of tariffists to cite the Paris Resolutions in support of the pitiful policy of taxing imports of German fabric gloves, or the rest of the ridiculous "litter of mice" that has thus far been yielded by the Safeguarding of Industries Act, is the crowning proof at once of the insincerity and inept.i.tude of tariffism where it has a free hand, and of the adamantine strength of the Free Trade case. If any further ill.u.s.tration were needed, it is supplied by the other tariffist procedure in regard to the promise made five years ago to Canada that she, with the other Dominions, should have a relative preference in our markets for her products. In so far as that plan involved an advantage to our own Dominions over the Allies who, equally with them, bore with us the heat and burden of the war, it was as impolitic as it was unjust, and as unflattering as it was impolitic, inasmuch as it a.s.sumed that the Dominions wanted a "tip" as a reward for their splendid comrades.h.i.+p.

As it turns out, the one concession that Canada really wanted was the removal of the invidious embargo on Canadian store cattle in our ports.

And whereas a promise to that effect was actually given by the tariffist Coalition during the war, it is only after five years that the promise is about to be reluctantly fulfilled. It was a promise, be it observed, of _free importation_, and it is fulfilled only out of very shame. It may be surmised, indeed, that the point of the possible lifting of the Canadian embargo was used during the negotiations with Ireland to bring the Sister State to terms; and that its removal may lead to new trouble in that direction. But that is another story, with which Free Traders are not concerned. Their withers are unwrung.

SCIENCE AND EXPERIENCE

On the total survey, then, the case for Free Trade is not only unshaken, it is stronger than ever before, were it only because many of the enemy have visibly lost faith in their own cause. The Coalition, in which professed Liberals were prepared to sacrifice something of Free Trade to colleagues who were pledged in the past to destroy it, has quailed before the insuperable practical difficulties which arise the moment the scheme of destruction is sought to be framed.

All that has resulted, after four and a half years, is a puerile tinkering with three or four small industries--a tinkering that is on the face of it open to suspicion of political corruption. To intelligent Free Traders there is nothing in it all that can give the faintest surprise. They knew their ground. The doctrine of Free Trade is _science_, or it is nothing. It is not a pa.s.sing cry of faction, or a survival of prejudice, but the unshakable inference of a hundred years of economic experience verifying the economic science on which the great experiment was founded.

On the other hand, let me say, the tactic of tinkering with Free Trade under a system of special committees who make decisions that only the House of Commons should ever be able to make, is a "felon blow" at self-government. It puts national affairs under the control of cliques, amenable to the pressures of private interests. Millions of men and women are thus taxable in respect of their living-costs at the caprice of handfuls of men appointed to do for a s.h.i.+fty Government what it is afraid to do for itself. It is a vain thing to have secured by statute that the House of Commons shall be the sole authority in matters of taxation, if the House of Commons basely delegates its powers to unrepresentative men. Here, as so often in the past, the Free Trade issue lies at the heart of sound democratic politics; and if the nation does not save its liberties in the next election it will pay the price in corrupted politics no less than in ruined trade.