As the purpose of this Bill is to introduce capital into this country, I hope the Chair will not rule me out of order if I make one or two remarks about the desirability of introducing foreign capital and the best way to do it before I come, as I shall soon, to the terms of the Bill itself. It is generally agreed by all Parties and by everybody here that foreign capital is desirable. A drive has been made by the Government to attract foreign capital. Several Ministers have visited foreign countries. The I.D.A. have issued quite an excellent brochure to attract foreign investors by showing the advantages of this country. A full-time representative was recently despatched to the United States to further the same object. Generally, the energies of the Government are being directed towards attracting foreign capital into the country.
We are all agreed that the attraction of foreign capital is very desirable at present. Ireland is late in starting in the industrial race. Although a great deal has been done since the setting-up of Irish self-government 35 years ago, a good deal still remains to be done. Emigration is causing anxiety. It is almost inevitable that there will be a draining away of population from the rural areas. It is taking place in every other country as well as this. It is most desirable that there should be secondary industries to absorb the people so moving.
The Irish home market is small and, therefore, industries that rely on the Irish home market cannot expand beyond a certain point. The Irish home market has to a large extent been fully developed by the existing protected industries and therefore further industrial development now depends on export markets. I think that on that everybody will agree.
In recent times, the balance of payments has been depending too much on agricultural exports. It is most desirable that our agricultural exports should be fortified by industrial exports to help to balance our balance of payments at a high level. The present moment is a time when the attraction of foreign capital is particularly important, owing to the discussions regarding the future of the European Free Trade Area. I want to say, however, that, even if there had never been any discussion about the European Free Trade Area, a Bill of this kind would have been necessary, because, even if there are no additional openings into the Free Trade Area, exports of industrial products will be quite essential if the population is to be kept up at all and if the balance of payments is to be balanced at a high level.
The trouble about industrial exports is that they have to be very competitive and very efficient. They cannot shelter behind protection and therefore they must have large supplies of capital, very high managerial capacity and a great deal of technical skill. They must move with nature and not against nature, that is, they must be based on whatever natural resources and advantages the country possesses. Therefore, in order to attract foreign capital into this country, we must be able to show that we have a great many advantages and resources and that we have done nothing to injure them by unwise legislation in the past.
One of the troubles about this whole programme of foreign investment is that, in order that an industry shall export and compete, it has to be very highly capitalised. I do not think that perhaps the public, discussing this matter, sufficiently realise the very large amount of capital necessary to-day to put people into employment. In order that industries may compete abroad, they have to be highly mechanised. There has to be a great deal of machinery, automation, and so on, and, actually, the labour content in these industries is very often disappointingly small. Therefore, in order to build up export industries, capital is absolutely essential.
The supply of capital in Ireland, unfortunately, has not been very great in recent years. The current savings have been absorbed mainly by the Government and by existing businesses. The number of capital issues in Ireland has been very small and very disappointing. Therefore, there is no question, I am afraid, that in order that industries should develop for export, a certain amount of external capital is urgently required.
I wish to repeat something I said on the Finance Bill earlier this year, namely, that we should not seek foreign capital with fixed interest rates, that if we borrow abroad— either the Government or, private businesses—with fixed interest obligations, we are tying millstones around the necks of future generations. At present, interest rates are very high. The international lending corporations are charging up to 7 per cent. Therefore, if we borrow abroad—if the Government borrow abroad—the taxpayer may have to find a lot of interest to be paid abroad and if private business is borrowing abroad, it may have to meet high fixed interest charges before making any profit. Therefore, we must agree that the thing to seek for is risk-bearing capital, equity capital. We must try to attract investors from the United States and elsewhere to invest in Ireland, to use their own capital and to take the risks of investment.
It is only fair to admit that, in spite of all the efforts which have been made in the past two or three years by the Government and by private people, the concrete achievements so far have been rather meagre. In spite of the number of inquiries we hear about—the number of people who, we were told, are looking for openings in Ireland—no great investment from abroad has, in fact, been achieved.
As I say, this is, perhaps, the psychological moment to try to present to the world whatever attractions we do possess, because, if the Free Trade Area proposals develop the location of industries in Europe will be to a large extent changed. The type of location that may develop in the next few years in the Free Trade Area may tend to become permanent and, if we cannot get on a favourable footing in the early stages, it may be too late. Therefore, it is absolutely essential to try to attract foreign capital at the earliest possible moment.
In order to attract a foreign business man, we have to show him that he is likely to make a profit and we have to show, not only that he is likely to make a profit, but that he is likely to make a bigger profit here than he would anywhere else. He has the whole world open to him and it is not sufficient for us just to show that there are openings for investment in Ireland. We have got to show that we have better openings than other countries have, because it must be remembered that other countries are competing with us to get foreign investors at the present time. Therefore, it is most important, from the point of view of Government policy, that the whole policy in relation to public finance and that fiscal policy should be designed to this purpose.
This is really the point I am working up to. The Government must be consistent in the whole of their policy, if they wish to attract foreign capital. They cannot have it both ways. They cannot try to attract foreign capital, on the one hand, by minor tax exemptions and, at the same time, raise costs of production owing to measures internally, which may be perfectly legitimate and justifiable in themselves, but which cut right across the programme for attracting foreign investment. In order to attract foreign investment to Ireland, an effort has to be made to bring about low costs of production; but Government measures have raised costs in other directions which simply neutralise the programme for capital investment. It is very important that that should be realised.
This Bill does very little in itself. It simply opens the door. It does not open it very wide, but it does open it; and, when the door has been opened, it is incumbent on the Government to produce more measures besides this Bill to attract the foreign investor. Above all, it is its duty to avoid other measures which, however justifiable in themselves, may have the effect of frightening off the foreign investor. The Banking Commission, which, I am afraid, I am accustomed to quote perhaps too frequently, in 1938 in its report discussed problems in connection with industrial development, and in particular the question of finding capital for industry. In that report which is still very topical and which bears reading, the need for avoiding conflicting policies is very strongly emphasised.
The Banking Commission pointed out that policies that raise the cost of production in agriculture by undue subdivision of holdings, that protective policies which raise the price of industrial commodities, that social services ahead of the productivity of labour, all had the effect of raising the cost of production in Ireland. It is in that connection now that I am coming to the subject of the debate.
The Banking Commission referred to the Control of Manufactures Acts which were passed in 1932 and 1934, I have no intention of reopening old controversies in this debate. I can see the reasons why these Acts were passed at the time they were passed. Ireland was backward industrially. The world depression which had taken place had spread widespread lack of confidence all over the world. The economic war and the slowing down of emigration intensified the necessity for secondary industries. The Party which had come into power in 1932 had openly pledged itself to a protectionist policy before they came in. When they did come into power, they appeared to find some justification for their policy, in the spectacle of other countries suffering from the world depression imposing protectionist tariffs. Therefore, the Control of Manufactures Act was a natural enough measure to pass in 1932.
It is only fair to say that, before the Control of Manufactures Act was passed, there had been quite a considerable degree of industrialisation after the Treaty. When Ireland was set up as a separate customs union, the British import tariffs, the McKenna duties in particular, had an immediate effect. They applied to Ireland automatically and a number of industries were attracted in under low tariffs. The Tariff Commission and the Fiscal Inquiry Committee, which aroused as much unpopularity as the Banking Commission, warned the Government of the danger of going too fast in this direction. As a result of that report, and as a result of the reports of the Tariff Commission, the policy of industrial protection was pursued cautiously and experimentally. A number of valuable industries were opened in Ireland in those years, but they were mainly financed by foreign capital. In the 1920s, foreign capital was coming into Ireland in quite a big way, in a way that would be very welcome now, if it were to be resumed.
However, as I have said, in 1932, the world had gone through a great depression. There were peculiar difficulties in Ireland. The Government that came in had a more protectionist outlook than its predecessor and, therefore, the Control of Manufactures Acts were passed. They represented a point of view, repeated by the Minister this evening, that branch factories opened by foreign industrialists will not extend their activities beyond the capacity of the home market. They will be the first branches to close down in the case of a depression. That is the official justification for these Acts.
I will not reopen old controversies. I can see that there was something to be said for that point of view, though I disagreed with it at the time and I think, perhaps, the Minister exaggerated its merits. These Acts did in fact raise the cost of capital in Ireland, according to the Banking Commission. Owing to the fact that foreign investors were not free to come in, a rather high rate had to be paid on debenture and preference shares and, if one looks at the lists of the Dublin Stock Exchange, the preference capital of many of these companies does carry high rates of interest.
As everybody knows, these Acts were largely evaded. The result of that was that some of the more desirable foreign companies did not wish to take advantage of legal evasions, and some of the less desirable foreign companies managed to come in by these evasions. I do not wish to go back over all that. I simply want to quote one sentence from the Banking Commission Report in paragraph 424 which states:—
"The question would seem to merit examination whether the stringent provisions of these Acts do not go further than is reasonably required in the public interest."
It must be admitted that many valuable industries grew up under the Control of Manufactures Acts. If these Acts had not been there, certain industries would not have come into being. Possibly, if they had not been there, other industries would have come into being, but the fact of the matter is that, behind the Control of Manufactures Acts, a number of secondary industries did come into being. A great deal of employment was given and they were useful during the war. As I have said, however, many of them have already reached the limit of their capacity because they were designed mainly for the home protected market. It is only fair to say that some of them have struck out and exported and have far exceeded the hopes of people at the time they were founded.
Be that as it may, it is perfectly clear now that a new policy has been substituted for the policy of 1932. The circumstances have changed again and, with the changing circumstances, the attitude of the Government has changed. The dislike of foreign capital which characterised the Control of Manufactures Acts, has been displaced and now, instead of foreign capital being discouraged, it is being actively sought. The very Title of this Bill is significant. As Senator Hayes said, the Title has been changed—and changed, I think, in the right direction. The original Title was "Control of Manufactures (Amendment) Bill." It is now called "Industrial Development (Encouragement of External Investment) Bill." That indicates a change of emphasis and a change of policy—one which is wholly desirable.
I do not wish to go into the question of whether it would have been better to scrap the Control of Manufactures Acts and start afresh. It is only fair to remember that some vested interests have grown up under these Acts and that these vested interests must be protected. I agree with what Senator Hayes said, that anything in the nature of retrospective legislation is very undesirable and that, therefore, whether one entirely agrees with the Control of Manufactures Acts or not, people who invested capital behind them and on the strength of their continuing are entitled to protection. Therefore, it is necessary for the Minister to effect some sort of compromise between the protection of existing industries and the attraction of new exporting industries by foreign capital. It is the necessity for that compromise which, in my opinion, has led to the rather complicated terminology in this Bill, which is, perhaps, unavoidable in the circumstances.
The fact of the matter really is that the Minister has been rather caught in his own toils. In 1932 and 1934 he was warned in the debates in the Dáil and Seanad—which I read recently—that the Control of Manufactures Acts would involve future Governments in difficulties and that vested interests would grow up behind them which would call for continued protection and that their amendment might be difficult. That was said in the debates 25 years ago.
Furthermore, the Banking Commission was critical of the Acts and of the policy which they represented. The fact is that they were a success for the purpose for which they were passed. They did encourage a number of industries catering for the home market and a large number of vested interests grew up behind them which now really have come home to roost. The Minister must find himself in considerable difficulties in devising a Bill which will protect the industries already protected and not frighten foreign investors who wish to come in in the future.
I do not wish to criticise the Minister for this, because he is rather paying the price for his own, if I may say so, mistakes in the past. These complications were all predicted in the debates on the Control of Manufactures legislation and he now finds himself in these difficulties under a Bill which he himself would probably admit is not entirely easy to interpret. It contains a great deal of legislation by reference; the intention does not always spring to the eye; and, as I am going to suggest later on, it requires that a simplified explanation be issued very widely as soon as it is passed.
However, if one penetrates through the jungle of the parliamentary draftsman's jargon, the Bill does contain, as the Minister says, liberalising clauses. I would like very shortly to say what seems to me has been done positively in this Bill. If I am wrong, the Minister can correct me. There has been so much said about what the Bill does not do that it might be no harm for someone here, other than the Minister, to say what the Bill does do. As I read this difficult Bill, I find quite an amount of liberalisation in it. First of all, businesses carried on otherwise than by companies are exempt from the Control of Manufactures Acts. Companies with fixed assets worth less than £5,000, or with manufacturing operations that do not involve the use of mechanical power are exempt altogether from the Acts. What is more important is the principle of what is known as the "excepted commodity"—if I am using the right terminology—that articles which are stated by the Minister to be "excepted commodities", that is to say, not manufactured in the State, can be manufactured by foreigners without any licence or permission whatsoever. There also seems to be a distinction, if I am not wrong, bebetween companies manufacturing entirely or almost entirely for export and other companies which aim at export, though not principally. As I understand the Bill, companies which manufacture entirely or almost entirely for export are free to enter on operations in Ireland without any licence or permission from the Minister. Other companies which may do exporting, though not exclusively, are enabled to engage in operations provided they offer a certain part of their capital to Irish investors. I hope I have got this right. That seems to be the gist of the liberalising part of the Bill. It is only fair to say that these liberalising provisions have been very successfully obscured by the terminology of the parliamentary draftsman which, as I suggested, may in part reflect the difficulties of the Minister in not opening the door too wide to let foreign investors come in on top of the vested interests that he himself brought into existence in the last 25 years.
I do not want to blame the Minister for this rather complicated terminology, but I want to suggest to him that it is most desirable that the world outside should have the Bill explained in simple language, that the Industrial Development Authority's brochure should contain a simple account of the positive sections in the Bill and that foreign investors should have put to them in simple language what they can do. I think it is possible to do that. I have tried to do it myself and I think the Minister agrees with what I have said. If it can be put in plain language in that way and widely circulated abroad, a good deal of the criticism of the Bill would disappear.
May I conclude by repeating the note on which I began these observations? This Bill opens the door, but merely opening the door will not attract people to come in through the door, unless the room inside is made warm, comfortable and attractive. Therefore, it becomes very essential that the Government should do everything it can to indicate to outside investors that this country does possess certain advantages. A lecture was delivered in University College last week by the Assistant Secretary-General of O.E.E.C. in which he made a remarkable statement about the advantages that Ireland possesses inside the Free Trade Area. I might suggest to the Minister that that section of that gentleman's speech might be included in the brochure explaining the Bill. He said a great deal to encourage people here. His whole tone was very optimistic, and I suggest that the Minister should get the text of that speech and quote what this very high international authority said about the natural advantages that Ireland enjoys.
As I said, the Government must really try to be consistent. It must try to avoid every cost-raising measure. It is no use giving tax exemptions to foreign investors and pointing out the attractions of the country if with the other hand it takes away some of those advantages by high taxation, high deadweight debt, high costs of production of one sort or another. Furthermore, of course, the Government must assure foreigners that they will be free of red tape and bureaucratic interference, that there will not be changes of Government policy which are liable to defeat their expectations. That is why, although I did not agree with the Control of Manufactures Acts at the time, I do agree now with the Minister that it is right to protect people who invested behind them, for nothing is more fatal to a country's credit than rapid changes of policy where legitimate expectations are defeated and vested interests are sacrificed.
But more than that is necessary. A mere negative policy of avoiding costraising measures is not enough. Positive measures must be taken to attract the investors in. There must be an attempt to increase the supply of managerial ability and technical expertise. There must be education at all levels to supply a good labour force. Good labour relations between employers and employees are very important. That is a matter in which the employers and the trade unions have a great responsibility. A country that gets the reputation of being hagridden with strikes will not attract foreign capital. Taxation must be kept down. The monetary and banking systems must be such as to inspire confidence. Anything in the nature of unwise credit experiments, unbalanced budgets, and accumulation of deadweight debt are all calculated to terrify a foreign investor.
Above all, the Government must make up its mind to what extent it really wants to rely on private enterprise. It must ride one horse or the other. It cannot have State interference in all sorts of directions and then blame business men for not getting on with the work. The two worlds of State control and private enterprise are very largely mutually exclusive.
Might I, finally, quote again the Banking Commission on this very point, in paragraph 425: "The power of the State to encourage or deter the flow of capital into industry is most effective through the impression made on the minds of owners of capital by the broad aspects of public policy... The most useful step which the Government could take towards promoting the investment of capital in industry is to give confidence to private enterprise by maintaining those conditions of reasonable freedom which are essential for its success."
That passage was written in 1938. I suggest that it has lost nothing in relevance or truth in the last 20 years, and, having said that, I wish the Minister every success with his new Bill. I do ask him to try to advertise his product to the world in rather less complicated language than that in which he has introduced it to the legislature.
Business suspended at 6 p.m. and resumed at 7 p.m.
