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Cooperative ownership and operation.

The cooperative movement owns substantial manufacturing capacity, which forms a distinctive section of industry. Unlike any other branch of industry, it is linked to, and controlled by, the cooperative system of retail distribution. Its importance and growth are of course related to the volume of trade which the retail societies obtain. Except for its link up with the retail societies and the special method of retail sales effected by those societies, the problems of the cooperative movement, so far as it is engaged in manufacturing operations, do not differ essentially from those facing other manufacturing enterprises, whether carried on under individual ownership or by large companies or combines. Accordingly, the cooperative movement must be expected to conform to any arrangements which are applicable to all forms of manufacturing industry, and as a corollary it should have a voice in all industrial matters. Large companies and combines.

To produce certain types of commodities economically, large units are a necessity. In such cases, concentration of the available demand into these units is imperative if cheap production is to be obtained, not only for the benefit of the consumer in this country, but to enable our export trade to be maintained and developed in the face of competition from like units in other countries.

Industrial amalgamations are sometimes charged with abusing the strength of their position by retarding enterprise and invention, restricting production and either maintaining or raising prices unduly where price reductions are justified, thus exploiting the consumer instead of using their special efficiency to serve him. We do not deny that this is theoretically possible, but it would, however, be checked by public opinion and in addition would seldom pay, for in these industries cheap production and profitable working depend on large output. Properly administered amalgamations, commanding the services of technical, commercial, and financial experts and consultants provide in our view a more effective spur to efficiency than unchecked competition, which leads often to uneconomic investment and production and the final closing down of businesses through unprofitable trading, with all that this involves in displacement of labour. In general, industrial amalgamations have not taken unfair advantage of their position. When based on sound lines and well managed, they have been of great benefit to the consumer by using their larger financial resources to pursue an active research and development policy, thus enlarging business both at home and abroad. They have been able, by reason of their financial resources and technical efficiency, to put on the market a wide range of products in a way which could not have been done by small units, and at the same time to improve standards of wages and conditions of service and to facilitate the introduction of pensions and other schemes for the benefit of their workpeople. Trade associatians and international cartels.

Trade associations play an important part in introducing a spirit of cooperation between those engaged in the same field, regulating conditions of trade, and eradicating unfair trade practices. They vary so much in their constitutions and functions that any wide generalisations on the subject have little validity. It cannot, however, be denied that trade associations can be operated merely for price maintenance, incidentally affording protection to the inefficient or high-cost producer, rather than for the general good. Such a policy must be unreservedly condemned as running counter to the prime duty of industry, which is to serve the consuming public, and must not be allowed to find a place in future industrial organisation. It should always be the aim of industry to maintain production and consumption at the highest possible level.

Cartels differ from trade associations in that they are international in scope. Where similar products are manufactured in different countries, these international agreements (which necessarily imply that the parties to them are able to speak for the major share of the industry concerned) are essential to keep production equitably allocated between countries and companies, in tune with the maximum world demand attainable. They exercise a stabilising influence against violent fluctuations and dislocating shifts of the currents of trade, and thus have an essential part to play in post-war reconstruction, when international economic cooperation for the general benefit will be of the highest importance.

III. THE CLOSER ORGANISATION OF INDUSTRY

We have previously defined the fundamental aim set before us in terms of a threefold responsibility to the consumer, to the employees, and to the stock

holders. Within this triple responsibility we desire to stress the primary duty of industry towards the consumer. We therefore restate our aim as being to assure to the consumer the full benefit of constant technical progress reflected in higher quality or lower prices, or both, while at the same time establishing greater economic security for all than heretofore-security from violent fluctuations in employment, in the returns to industry, in the currents of domestic and international trade. So far as these fluctuations arise as an incident in technical advance and a rising level of efficiency, the gains they bring outweigh the cost, provided that wage earners are protected by an adequate system of unemployment insurance, and industry is allowed to prepare for them by accumulating reserves out of profits. But the insecurity is not all of this kind. Much arises from the uncoordinated action of competing firms; much from the lack of a wholly effective machinery for formulating and putting at the disposal of government a coherent and concerted picture of the experience and opinion of industry; much finally from fluctuations in domestic and international trade, which, however, are mainly beyond the control of industry itself.

It appears to us therefore to be an essential condition of progress that the relations between firms, between different industries, and between industry as a whole and government should be more fully and comprehensively organised in some form of permanent association. Otherwise there will continue to be loss and friction through forms of competition which are wasteful and uneconomic; the experience and knowledge of industry as a whole will not be mobilised as an effective opinion in questions domestic or international in which it is deeply and inevitably concerned; and it will be impossible to achieve the effective general application of the code which we believe to be essential.

In what follows we sketch out the sort of organisation which we have in mind, emphasising, however, that it is no more than a sketch and might well be modified, and substantially modified, as a result of closer and more detailed examination by the committee whose appointment we propose in the final section of this statement.

(1) The first step should be the classification of industries into sections, as has already been done in many branches of industry. The classification adopted should not be regarded as fixed and immutable, but should allow of elasticity, so that novel manufactures can be brought into new classifications or merged into existing ones.

(2) Each section should set up a sectional association which, operating where necessary through local or subassociations, would be charged with the duties of coordinating the activities and securing the collaboration of all producers in its own section.

(3) Sectional associations might in some instances be formed by adapting existing organizations, e. g., trade associations and industrial and export groups, where these existed on suitable lines. In other cases completely new sectional associations would have to be established. There would have to be a measure of uniformity in their constitutions, and these would have to provide for a proper system completely fair to all members, by which firms in any sectional association at fixed intervals elected their councils. Special arrangements to ensure the adequate representation of small firms would be necessary in the case of sectional associations, which might otherwise be dominated by the controlling position of one or more producers in their section.

(4) Sectional associations would be under the general direction of their councils, and would be assisted in the performance of their duties by a trained managerial and intelligence staff. The extent of the authority of these councils and the degree to which they would seek to exercise it are matters for further examination. It is clear to us, however, that what suited one section might not suit another. We do not, therefore, advocate anything approaching standardization in the operation of the councils or their sectional associations. What we desire is that each section, through its sectional association, should be able to organize itself with the following main purposes in view:

(a) To promote the production of a maximum output at the lowest possible price consistent with the adequate remuneration of labor and capital.

(b) To establish a greater measure of collaboration, both within the trade and with other sections of industry, in the interests of efficiency and therefore of service to the consumer.

(c) To encourage such forms of industrial competition as are conducive to the public interest; conversely to discourage wasteful and destructive competition. (d) To establish contact with any bodies representative of the consuming public or sections of it and to take account of any representations which may

be made in regard to the quality or price of manufactured products or their methods of distribution.

(e) To adopt standards of wages and conditions of service which pay full regard, so far as lies within their power, to industry's aims as indicated in section I.

(5) We contemplate also that there be brought into being a Central Council of Industry, representative of the whole of industry. Such a council is needed to formulate the views of industry on questions transcending the limits of any one trade, especially questions on which different sections may take different views. In the transitional period from war to peace there will be particular need for the advice of such a body, and we would desire to see all the existing national associations and federations which represent industry brought into consultation together as early as possible on the right means of forming it.

(6) The Central Council of Industry should, when the plan is finally worked out, be a body elected at fixed intervals by the councils of the associations. We conceive that its functions would be:

(a) To maintain regular contact with the sectional associations.

(b) To maintain contact with the Trades Union Congress, especially so as to find means of giving greater expression to the high standards of mutual responsibility which industry and those employed in it owe to one another.

(c) To act on behalf of British industry in furthering international economic cooperation and the expansion of world trade.

(d) To give consideration, from the standpoint of industry as a whole, to other matters of high economic policy.

(e) To establish an intelligence service of the highest quality and to be the channel through which the views of industry on economic, financial, and social problems, and on world trade generally, can be communicated to the Government. (f) To recommend to the Government changes which seem necessary in existing industrial and social legislation, and to act generally as the medium for making proposals to the Government on matters which from the standpoint of industry appear to require executive action.

It will be observed that the Central Council of Industry, among its other functions, would act on behalf of British industry in furthering international economic cooperation and the expansion of world trade. This connotes that while our primary duty is to put our own house in order, we do not disregard the problems ahead of the country in its future relations with the Empire, United States, Russia, China, and other Allied Powers. These relations will have far-reaching consequences in which Great Britain is vitally interested. We consider that this Central Council would provide a medium for the representation of industry as a whole, as it would be in contact with the greatest proportion of production in this country. (7) This Central Council of Industry will require considerable organisation. It will need to work through subcommittees, and, if it is to function successfully as the body representative of British industry, will require a trained managerial, intelligence, and secretarial staff qualified to act as the general staff of industry. These several organisations (with the assistance of their trained and experienced staff) would afford to the various trades and units which make up the whole the opportunity of pooling knowledge, of joint consideration of important common problems, and of the systematic formulation and presentation of a policy on such problems.

But such a plan would have a limited usefulness only if a considerable number of firms did not join the sectional associations, or, having joined, accepted such privileges as might accrue from membership while declining to accept any corresponding duty to accept majority views. It particular, it would be impossible in such circumstances to be sure of avoiding the waste involved in uneconomic competition, and impossible to be sure of securing a general application of the code which we have recommended in relation especially to labour and the social services. It is necessary for this reason to consider whether, and if so to what extent, the associations and the councils should be given specific powers (of course within prescribed limits) to make regulations and to enforce decisions, and whether membership of associations should be made compulsory.

This is a subject of far-reaching implication and one upon which specific proposals must not be lightly made. We propose that the whole question of the further organisation of industry should be remitted for close study to the committee whose appointment we recommend. We must, however, add here that if as a result of that study the committee should find it necessary to make recommendations which involved the granting of compulsory powers to associations and councils, such powers would need to be subject to proper safeguards.

In the first place, the granting of such powers, their form and scope, and their continuance, would, of course, be a matter for the determination of Parliament.. We do not for a moment contemplate any final devolution upon the representative bodies of industry of legislative powers which properly belong only to Parliament. Inasmuch as rule-making authority might be delegated to any such bodies, it would in our view be right that such rules should not become operative without Parliamentary authority.

It is a cardinal point in our proposals that ample provision should be made for the protection of the public as consumer.

We are fully alive to the fact that any proposals for the reorganisation of productive industry, especially if they visualize the possibility of it being granted compulsory powers, would, in the absence of such an assurance, be open to the criticism that it was an attempt on industry's part to assume dictatorial powers. A study of this document should make it clear that nothing is further from our intentions.

We consider it would also be necessary to provide means by which any individual firm could appeal against decisions of sectional associations or the Central Council of Industry, or against regulations which those bodies proposed to make. We have in mind particularly the special needs and interests of small producers, which without some special provision for appeal might well appear to run the risk of being swamped by the interests of larger and more powerful undertakings.

It appears to us that such needs might be suitably met by the setting up of an Industrial Tribunal or Commission. This would be in the nature of a final court of appeal on all industrial matters and would be appointed, not by industry itself but by the Government. The powers and duties of such a tribunal, which would be generally in the nature of an impartial judicial body, would again be a matter for final determination by Parliament. We need only say that for our part we regard the general function of such a body as being to ensure that the organisations of productive industry should function properly and that any powers accorded to them should be impartially exercised so as to afford full protection to the consumer and to the small producer as contrasted with the larger producer. We recognise that many difficult questions will be met within the creation of such a tribunal. If we do not deal with them here at length, it is because they are questions which require detailed study and are finally for Parliament rather than for industry to pronounce upon.

IV. APPOINTMENT OF A COMMITTEE TO FORMULATE DETAILED PROPOSALS

(1) Whoever attempts now to discuss post-war problems is in danger of falling between two stools. If he is specific in his approach it may well be urged that he is legislating for conditions which are largely unknown; if he is general it may be said that his contribution is platitudinous and therefore valueless. The difficulty is inescapable and must be accepted. The one fatal thing would be to do, and to think, nothing.

In this memorandum we have tried to find a reasonable middle way. We do not claim to have put forward a solution of all the problems with which industry and the community are jointly faced, and we would stress that the proposals sketched in this interim statement need to be examined, developed, and elaborated. We maintain, however, that if industry could be fully organised on the lines we have indicated, it should be possible not only to achieve greater economic security and a higher standard of life for the whole people of this land, but to ensure that all who engage in industry are made aware of their clear responsibility for conducting industry in accordance with the needs of the communityin other words, in accord with a national conscience.

(2) Having issued this statement we should fail in our duty if we did not take immediate steps to see that our suggestions are more fully examined and developed. With this object it is proposed to appoint a committee to examine the suggestions in detail and to submit a report. This report will specify the forms of organisation that need to be developed if our general aims are to be carried into practice, the functions which should be allotted to such organisations, and the general framework within which they should operate. The committee will be instructed to confer with the existing national industrial organisations, in order that it shall not lack the benefit of their wide experience and shall be assisted in arriving at conclusions which shall be thoroughly representative of industry. It is hoped that these bodies will give their active assistance.

(3) In publishing this statement now, we are actuated by a double purpose. We wish first that the public shall see the steps which the signatories propose, or

recommend shall be taken, to improve industry's effectiveness for giving service to the community. Secondly, we shall welcome any views or opinions on the report which members of the public or other bodies, including representatives of labour and of the cooperative movement, may think fit to offer.

(4) Finally, we well understand that some of our suggestions are controversial and that we cannot expect to find general acceptance of what we have said. In particular the form of industrial organisation we have suggested, and our reference to the possibility of investing those organisations with a limited degree of compulsory powers might, if considered out of the general context, give rise to apprehensions that we had in mind the establishment of an industrial system controlled by large and monopolistic corporations, enjoying a considerable measure of self-government, and capable therefore of exploiting the consumer, labour, and the small producer. This is not so. It is precisely because our intentions are wholly different that we have in this document laid emphasis on four principles: (1) That the primary duty of industry is to the consumer; (2) that industry should acknowledge, by accepting a code of performance towards the workers, the partnership of labour in industry; (3) that in any sectional or central organisation of industry special steps should be taken to safeguard the interests of small producers; and (4) that whatever form the further organisation of industry might take the matter would be, and would remain, one for the determination of Parliament. We have no desire to see any radical change in the constitutional relationship between industry on the one hand and the Government and Parliament upon the other.

NOVEMBER 1942.

A. R. SMITH, Secretary,

C/o Messrs. Thomson McLintock & Co.,
Granite House, 101 Cannon Street, E. C. 4.

SIGNATORIES

P. J. Adie, Sir Arthur Aiton, Sir William Alexander, D. A. Anderson, R. Barlow, Sir Edward Baron, D. W. Barrett, Sir Samuel Beale, J. E. Bennett, H. H. Berresford, J. F. Bostock, F. J. E. Brake, D. Brown, R. S. Brown, Sir Nigel Campbell, A. D. Carmichael, H. M. S. Chalmers, K. M. Chance, P. B. W. Charnaud, W. B. Chivers, A. Clark, J. O. M. Clark, W. A. Collins, C. B. Colston, E. H. Cooper, Sir Richard Cooper, H. J. Cotes, A. Crawford, Sir Valentine Crittall, Hon. G. Cunliffe, G. Cunningham, G. Dennison, W. C. Devereux, The Earl of Dudley, R. Duncalfe, H. Durston, A. Dyson, D. O. Evans, V. Z. de Ferranti, Lord Forteviot, J. Foster-Smith, D. Frost, L. C. Gamage, E. H. Gasking (Mrs.), Sir Frank Gill, E. H. Gilpin, E. W. Goodale, Sir Allan Gordon-Smith, R. Gordon-Smith, Sir John Greenly, C. K. F. Hague, G. A. Hancock, B. Harvey, C. G. Heywood, P. E. Hill, Sir Robert Hilton, Lord Hirst, G. N. Hunter, F. T. Jackson, J. E. James, G. C. Jenks, Sir Ernest Johnson, Sir W Benton Jones, Sir Francis Joseph, W. Kilpatrick, F. A. King, G. B. King, A. C. Kingham, G. H. Latham, Sir W. Clare Lees, E. H. Lever, P. Lindsay, J. C. Lloyd, A. C Macdiarmid, Lord McGowan, A. McKinstry, A. S. MacLellan, J. O. Martin, J. B. Mavor, Lord Melchett, J. R. MenziesWilson, Sir Percy Mills, T. D. Morson, W. T. Munro, A. Nathan, C. S. Newton, J. G. Nicholson, G. W. Odey, G. Parkes, W. Paterson, Lord Perry, A. E. Phillips, A. R. Porter, G. B. G. Potter, Sir W. Prince-Smith, A. H. Railing, J. V. Rank, C. W. Reeve, E. Robson, S. T. Robson, Sir Alexander Roger, N. H. Rollason, A. A. Rose, Sir Frank Sanderson, Lord Sempill, G. H. A. Sington, H. Smith, J. Southern, G. A. Sowerby, T. G. Spencer, R. F. Summers, J. A. Tait, H. Tomkinson, D. W. Turner, E. T. Walker, F. Wallis, Sir Cecil Weir, G. V. Wellesley, R. S. Worth, F. Wright.

EXHIBIT NO. 6

STATEMENT OF HON. THURMAN ARNOLD, ASSISTANT ATTORNEY GENERAL OF THE UNITED STATES, BEFORE THE SENATE COMMITTEE ON PATENTS, JULY 31, 1942

I appear before this committee to present a bill to correct those pressing patent abuses which have so disastrously affected our war effort. Through these abuses a vital segment of American economy has been strait jacketed into a foreign cartel system, and the free flow of strategic materials vital for war and for internal security has been impeded and delayed.

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