Seanad Éireann debate -
Wednesday, 16 Dec 1964

Vol. 58 No. 3

Control of Manufactures Bill, 1964: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry and Commerce (Mr. J. Lynch)

The Bill proposes to do two things. In section 1, it proposes an immediate relaxation of the Control of Manufactures Acts as a further step in the relaxations commenced in the Industrial Development (Encouragement of External Investment) Act, 1958. And in section 2 it proposes to set a date on which the Control of Manufactures legislation will cease to operate.

To take the second proposal first, the House is aware that the removal of the remaining restrictions on external investment in industry in this country is envisaged in the Second Programme for Economic Expansion in the interest of further facilitating increased investment in manufacturing industry. Under the 1958 Act, certain categories of industrial enterprises were removed from the scope of the Control of Manufactures legislation, for example, small concerns whose fixed assets did not exceed £5,000, and also firms established with the primary objective of export.

When the 1958 Bill was going through the Oireachtas it was suggested that the legislation might be completely revoked but it was felt that such action would then have been premature. In the period which has elapsed since then, considerable effort has been put into the task of gearing Irish industry as a whole to meet freer trade conditions. Searching surveys were made by the Committee on Industrial Organisation, industry by industry, and substantial financial assistance is being provided by way of adaptation grants, to help industries overcome the difficulties or redress the shortcomings which these investigations brought to light.

It is now proposed in this Bill to fix the date on which the Control of Manufactures legislation should end, and section 2 specifies the date as 1st January, 1968. This has been selected after careful thought as giving a reasonable time to industrialists to adapt themselves to the new situation.

A relaxation of the legislation to have effect immediately on the enactment of this Bill is proposed in section 1. This will remove immediately from the scope of the Control of Manufactures legislation companies which have been manufacturing here for at least five years. Such companies will thus be given, in advance of the repeal of the Control of Manufactures legislation, the opportunity should they need it of seeking external capital and "know-how" to strengthen further their competitive position. The immediate exclusion from the scope of the Acts will also apply to subsidiaries of these firms if the shares of the subsidiaries are held in the manner specified in the section.

I recommend the Bill for the approval of the Seanad.

Mr. McGuire

This measure is in line with the Bills we have previously dealt with. It is, firstly, a preparation for the free trade era and, secondly, we need a high degree of continuing industrial expansion beyond what we have now achieved. Therefore, I feel this Bill is both admirable and desirable. In the initial stages of our industrial development, it is necessary and desirable that we should provide every safeguard and give every encouragement to Irish citizens to develop their industrial arm and give our people an opportunity to establish an industrial base and acquire industrial know-how.

We have, I feel, now reached the stage where we have a solid base and a solid block of Irish industrial development. Firms entirely backed by native capital are fully employed. It is right to say that we can no longer confine the expansion of our industries to our own nationals. Of course, up to now, and under the previous Acts, it was possible for foreign capital and foreign industrialists to come in here but they had to come in holding a minority holding. We were very successful in getting quite a large number of people to come here in those circumstances.

If we want to bring about any dramatic expansion in industry and if we want to take our place in the industrial sphere of competitive exports, we will require, first, people to come in here and provide money and secondly, we will want to be sure that they are reliable people who know their business. That is what is being done under this Bill. These people will now be able to come here and they will be welcome. The requirements of the earlier Control of Manufactures Acts are, therefore, out of date and unsuitable in present day circumstances. There are some people who are fearful that by the removal of the conditions in the original Act, we will subject ourselves to outside financial domination which will replace our former foreign political domination. There is little substance in these fears because political power is now in our own hands. We can always control the activities of outside people investing their money here. In fact, the boot is on the other foot.

We ought to be careful how we talk about foreigners, foreign money and the safeguards we require when, in fact, we have these people under our political control here. If there is too much talk about foreigners and what ought to be done with them, they will not come here. There is one advantage in Ireland, that is, that we have a stable economy. We have a good philosophy. We have had native government for over 40 years. We are a very sensible—I almost said staid— people. We have built up the reputation of being an economically sound country and that we are a people whose word can be relied on.

Foreigners know that our Government will not take any rigid or confiscatory measures against trade and industry. It has always been known that our taxation system compares favourably, and in fact, more than favourably, with that of other countries. What most attracts foreign investors is the fact that industry can operate here profitably. People will not invest large sums of money in a country where they will be told too much about the dangers to them and about the investigations that will be made when they have invested their money. In the emerging countries today, where large sums of money were invested in the form of machinery, knowhow and buildings of all kinds, the people find that everything is confiscated and they have to leave with only their clothes. They have had to fly out of these countries.

Ireland is in a position to attract a very high degree of very good industrialists. Therefore, I welcome this Bill because I believe it is both realistic and timely. It comes at a time when people are finding it hard to invest their money in safety and security with the hope of a profitable return. I believe Ireland offers such an opportunity and that this Bill makes it possible for such people to come here.

Professor O'Brien

I am glad to support Senator McGuire. Of course, when the question of foreign capital was first propounded, political feelings ran very high against its introduction. There is no good, however, going back on these controversies. Conditions have changed and the policy of the Government seems to have changed. I am prepared to agree that circumstances have changed and that some of the arguments which were valid in the 1930's against foreign capital are not valid today.

We have a peculiar advantage from the point of view of foreign capital investment here. If it were not for the fact that a good deal of foreign capital was coming in here, our balance of payments would be in a very serious position. Our balance of payments itself is in deficit but deflation has been avoided so far by reason of the fact that our reserves are building up. Despite the fact that we have a deficit in the balance of payments, we have been developing rapidly and therefore are able to bear the deficit up to a certain point.

Another point was mentioned by Senator McGuire with which I agree, that is, that when foreign capital is invested here, it is accompanied by a certain amount of technical knowledge. Foreign investors send in some of their managers and technicians. Therefore not only do we get the advantage of additional investment in the country, but we get the advantage of additional knowhow. Those people are better trained because they have a long industrial tradition. That all helps Irish industry. Foreign capital simply sets the standard for native investment as well and, therefore, from every point of view the coming in of foreign capital is desirable.

I can quite see that the removal of the restriction on the importation of foreign capital at one blow might inflict a certain amount of damage on certain undertakings. Therefore, the Minister is perfectly entitled to go slow and postpone the final throwing open of the gates —so to speak—until a later day. We must accept the fact that the time is coming when this country will be fully open to the importation of foreign capital and foreign industry techniques. Our economic and financial policy in the meantime should be directed towards making the country a suitable place for that capital and those techniques which will be coming in, in the future. For that reason I welcome the general principle embodied in the Bill.

Mr. Ross

I should like to support Senator McGuire and Senator O'Brien in welcoming this Bill. As I have always opposed the Control of Manufactures Acts and pleaded for their repeal, I am particularly pleased to see this new legislation. As the Minister stated, it was foreshadowed in the Second Programme for Economic Expansion. He and his Department are to be congratulated on introducing this legislation so comparatively quickly after the programme was published.

The old Control of Manufactures Acts, principally the 1932 and 1934 Acts, were unwieldy and difficult. The 1958 Act was not, perhaps, so unwieldy, but it was certainly difficult. Lawyers spent many hours trying to find ways around those Acts and, of course, they were got around by a number of subterfuges, but they were always on the Statute Book, and were always a considerable deterrent to really reputable foreign investors who wished to come in here and set up straightforward, 100 per cent owned manufacturing subsidiaries. An indication of the unfortunate lack of effect in some ways of the earlier legislation was that there never was, so far as I know, any prosecution under any of the Acts which we are about to modify, and have repealed in three years' time.

I think it is fair to say the earlier legislation laid the foundation, or as Senator McGuire put it, the base for the industries which we now have. While we may not have moved very swiftly in removing these Acts, we certainly did need something like them in the early stage of our industrial development. A century or two ago if foreigners came over here to set up an industry, a banking, or distilling, or other industry, they tended to settle here and, in the course of time, they and their families became Irish. Nowadays no one sets up as an individual or a partnership. They set up as limited liability companies.

The time has now come when foreign companies set up here must, almost of necessity, always be foreign companies. Many of our industries may be foreign dominated industries for their whole lifetime. We may never really get control of them at financial or board level. Against that we must place what is obviously one of the facts of economic life today, the movement towards freer trade in a world of freer capital. Bearing that in mind, to develop our industries it is essential that we encourage more and more foreign investment. As Senator O'Brien said, with this foreign investment we get the tremendous benefit of foreign knowhow which must gradually spread out through all our industries, and must lead to higher development in our technical schools to meet the demands of this increasing technical knowhow.

There was a good deal of talk in the Dáil that this Bill might lead to dangerous take-overs, and that existing Irish firms and companies might find themselves taken over by foreigners. As the Minister rightly said, the development of take-overs has not shown any significance, certainly in recent years. The development of take-overs by non-Irish firms has not been very significant. We must remember that a take-over may not be bad in itself. There may be a take-over where one competing industry takes over another in order to remove it from competition and create a monopoly. I am quite certain the Minister is well aware of that situation and watching it. It is not of any great significance here at the moment.

There are certain take-overs in which a vigorous firm from outside may come in, take over a rather sleepy industry, develop it by the injection of new capital, and employ more people. That benefits not only the industry but the country. Take-overs have those two sides. Most of the take-overs we have seen so far in the manufacturing industry have led to development and increased employment rather than the opposite. The position under the new Bill is clear. An Irish manufacturing company must see their way within the next three years to ensuring that they will be able to compete with any foreigner who may come in and set up an industry. The Government by various means—particularly the adaptation grants—have made the way of that Irish company a great deal easier.

Thank goodness this appalling legislation of the past—appalling in the sense of being difficult to interpret and understand—is now on its way out. In this connection I should like to say a word of praise and thanks, as a practising lawyer, to the Department of Industry and Commerce, for the manner in which in recent years they have administered the Control of Manufactures Acts, and the Industrial Development Act, 1958. They are most difficult to interpret. I speak for many lawyers when I say I always find from the Department an extremely practical approach to the problems which the Acts have raised. If I may say so, if there were a practical way of getting around the Acts, provided it did not injure any existing Irish manufacturer, the Department have always been most co-operative.

The writing may be on the wall now for some Irish industries. This we must face: if an industry has been unable in the past to survive without the protection of tariffs and quotas, then it should never have been set up and we must face the prospect that it will have to go to the wall. Against that many industries which will be established under the freedom given by this Bill will more than offset any unemployment resulting from the failure of industries which cannot survive the freer trade conditions. We are facing the prospects that in those years our industries will be open to all comers. It is something we welcome, as we do this Bill.

Mr. Desmond

I just want to point out that there is alarm among industrialists and workers in case the operation of this Bill may constitute a final decision in regard to how the industries may operate. The Bill will take away certain protections. Generally, when foreign capital has been involved in industry here, more than 50 per cent of the capital must be Irish with a majority also for directors, shareholders or owners, as the case may be. This Bill appears to remove that safeguard.

On 24th November last the Minister stated in the Dáil that this Bill will repeal the Control of Manufactures Acts, which will not have any continuing provision. I should like to know what the position will be in respect of the points I have just touched on. The provisions of this Bill are a source of worry to many people in this country since we are facing the era of free trade. I should like also to know from the Minister what the position will be in regard to take-overs. Will the Irish control still be sustained? Of course, nobody in industry is ever happy if he faces the prospect of running into difficulty later. If the operation of this Bill creates such a danger for any industry, the reaction will naturally be that many industrialists will suggest that we must keep Irish control of industries in the country — that the final voice must be Irish.

Mr. Fitzgerald

I should like to ask one question. The conditions obtaining in 1932 and 1934 when the Control of Manufactures Acts were passed have changed considerably. I may appear to be out of step here because we had Senator O'Brien and other economists contributing to the debate and saying that this Bill will provide a change that is desirable. However, I am tempted to ask the Minister — I am sure he does not assume he will be Minister in 1968—is there any danger that this legislation might open the door for international cartels to come in and take over existing industries? We are led to believe certain industries are Irish controlled, two-thirds of the directors being Irish. I am worried that in spite of existing legislation there might be wholesale take-overs of Irish industries after 1968.

Mr. J. Lynch

I would not be as despondent as Senator Fitzgerald is that I might not be Minister in 1968. My immediate predecessor in the Department was there for 20 years and he made a good job of it. I am only about a quarter of that period in the Department. There is really little to say in reply except in regard to the contributions of the last two speakers—I agree generally with the remarks of Senators McGuire, O'Brien and Ross.

First of all, I should like to get it across that this is nothing novel. We have had experience of the possibility of manufacturing firms being owned by external interests under the legislation of 1932 and 1934. It was there made permissible for an industry to be controlled by foreign capital and interests, by a large holding of foreign capital in certain circumstances, particularly an industry that would be given a new manufacture licence by the Minister for Industry and Commerce.

Before he gave a new manufacture licence to what I might call an outside firm, the Minister had to have regard to certain statutory obligations— mainly, that the commodity the firm seeking the new manufacture licence proposed to manufacture was not already made in the country to a sufficient extent and that it was not likely to be made. Quite a few industries have been set up with the aid of new manufacture licences which exempt them from the operations of the Control of Manufactures Acts.

Under the 1958 Encouragement of External Investment Act we have had further examples of how such industries operate. That Act provided a number of things, the principal one being that an industry set up here for the manufacture of a commodity that was to export 90 per cent of its total output would not be subject in its shareholding to the Control of Manufactures legislation. Quite a few substantial industries have been set up in the country in those six years and these would not have been set up were it not for the provisions of the 1958 Act.

Therefore, there is nothing new. It is something we have been living with, since 1932 anyway and, in particular, since 1958. The fact that we repealed the Control of Manufactures legislation does not mean that foreign capital will flow in and sweep away our native industries. The latter will have a right as long as they want to exclude any capital but their own. They will not be afraid to sell out to anybody they want to sell out to. As long as they are efficient and can procure sufficient capital from their own resources as well as from outside, then there is no inducement whatever for them to subject themselves to take-over bids. They will be free agents.

Our existing company law will enable shareholders in this country to get, in advance, sufficient information of suggested take-overs that might even be effected before these small shareholders who might not have a seat on the board would have an opportunity of making their voices heard. In so far as it may be necessary to amend their legislation, it would, of course, be amended under the companies legislation, rather than under the Control of Manufactures legislation. We have, as the House is aware, one of the most up to date Companies Acts in the world. It was passed this year and came into effect on 1st April. The fact that it is new does not mean that it cannot keep up with undesirable take-overs. I have told the Dáil and the country that we will keep an eye on legislation and take-over bids and, if there were undesirable take-overs, we would act.

It is difficult to see how undesirable take-over bids could arise. They would cost somebody money and people would have to put capital in to buy out industry. The people who make these bids are businessmen, industrialists and investors in trade and commerce generally. They want to get their money back and the only way they can do that is where their industry operates successfully. As was pointed out, take-overs are for the good of the particular industry concerned. There may be a few lame ducks, and even taking advantage of all the inducements we offered by way of technical assistance grants, adaptation grants and loans, and any other kind of assistance, they would be able to make themselves viable in free trade conditions. It would be desirable, if they cannot get the capital from within, that they should be able to attract capital from outside. If the attraction of capital makes the industry more viable, I think it is a good thing. The people who put in that capital will want to get their money out of it and they are not going to close down that industry willingly.

We have had a few examples recently, not so much of take-overs as the attraction of new capital to new industries. Some have been rural industries and the effect has been immediately to find greater scope in foreign markets. The people who come in will either have the technical knowhow from the production end and/or the market knowhow from the distribution of goods end. It is usually the pattern. It tends to increase the efficiency of the industry and usually helps to widen the scope of the market. As long as it operates like that, I think it is a good thing. If not, we will, as Senator McGuire points out, have the ultimate control to ensure that these take-overs, as they come, will not operate against the interests of our own economy.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee, reported without amendment, received for final consideration and passed.

Business suspended at 6.25 p.m. and resumed at 7.30 p.m.