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Thursday, 23 August 1906

The PRESIDENT - Senator Graymust withdraw that remark.

Senator Gray - I withdraw the remark, but I say that the statement is incorrect.

Senator PEARCE - Senator Graywill have an opportunity to follow me, and there is no necessity for him to make statements or remarks of the kind to which I have objected. The trust, in order, as it was said, to prove that it did " the fair thing," offered to purchase a barrel of the tobacco of the first prize quality, and send it to England for sale in the open market. As a matter of fact, however, the growers had no representative to look after their interests, and were not aware what leaf was sent to England.

Senator Gray - Does the honorable senator infer that the manufacturers in this connexion did what was wrong ?

Senator PEARCE - From my experience of the manufacturers, I should think they are capable of anything, and I shall tell the honorable senator why. The representative expert of the tobacco combine was present during the giving of evidence at Tumut, and when the winner of the first prize tobacco was being examined, a sample of the tobacco was placed upon the table. This grower is a native of America, and has followed the occupation of tobaccogrower all his life. He told the Commission that the leaf then produced would, in America, be worth 8d. per lb.

Senator de Largie - Who brought the expert from America?

Senator PEARCE - He was brought out by the tobacco combine. This witness, on oath, gave his word that he would expect to realize in America Sd. per Jb. for such leaf. The witness who followed was the expert buyer for the combine, and he, indicating the sample of tobacco, said, " I venture to say that that tobacco sold in South Carolina would not realize more than 5d. per lb." I asked him whether he was sure that it would realize 5d. per lb. in America,, and he replied in the affirmative. I then pointed out to him that in Australia* there was a duty of is. per lb., and that, therefore, on his own showing, that tobacco should be worth is. sd. per lb. in Sydney, without considering freight, although the combine had given only 8d. per lb. for a small parcel. That was the evidence of the expert buyer of the tobacco combine. If there is anything in the statement of honorable senators opposite that a duty raises the price of the article, especially when there is not sufficient local production to satisfy the demand, then that leaf should be worth at least is. 5d. per lb., duty paid, in Sydney.

Senator Gray - Can the honorable senator point, to any country where the manufacturers pay a higher price for leaf than is paid in Australia?

Senator PEARCE - It is such treatment as I have indicated that makes me very suspicious of anything the combine may do. Let me now, however, return to the subject of the production in France, as compared with that in Australia.

Senator Millen - The honorable senator, in one of his previous speeches, gave us the reason for the unsatisfactory position of the tobacco-growing industry in Australia ; he said it was owing to the ig norance of the growers in preparing the leaf.

Senator PEARCE - I have received some information since which causes me to think that the grower knows more than I gave him credit for. At any rate, the grower is showing hia good sense by not producing any leaf at present. In 1890 there were 4,740 acres under tobacco cultivation in Italy, the Government of which had not long taken over the industry. In 1902, the acreage in that country had increased to 12,293, a difference of 7,553 acres in twelve years. There was a time when Australia cultivated a fair acreage, and produced a large quantity of tobacco. The acreage and production reached their highest point in this country in 1888, when 6,641. acres produced 7,868,112 lbs. of leaf. Since 1888 there has been a gradual drawing together of the factories, which have become fewer and fewer, until in the last three years we have seen the monopoly by the tobacco combine.

Senator Lt Colonel Sir ALBERT GOULD (NEW SOUTH WALES) -Col. Gould. - Had the Excise nothing to do with the decrease of production ?

Senator Gray - Had change of taste nothing to do with it?

Senator PEARCE - In 1903, in Australia, 1,323 acres produced 802,237 lbs. of leaf, a decrease of 5,419 acres and of 7,065,875 lbs. of leaf. I recommend these figures to our farmer friends as an example of what is happening in Italy and France under State Socialism, as compared with the position of the grower in Australia under private enterprise.

Senator Gray - I suppose the honorable senator acknowledges that the quantity of tobacco produced was reduced very considerably before the combine came into existence ?

Senator PEARCE - Certainly. I say that the reduction has been going on since 1888.

Senator Gray - Then the combine has nothing to do with it.

Senator PEARCE - The combine has a great deal to do with the reduction.

Senator Gray - What ! Before it came into existence?

Senator PEARCE - The honorable senator does not seem to grasp the fact that since 1888 the factories have been becoming fewer, and that buyers have been disappearing and competition lessening, until, in 1900, thelatter practically disappeared because there was only one buyer. Ever since 1888 there have been two movements in the tobacco trade of Australia - a gradual diminution of competition in the manufacture, and the elimination of the tobacco grower from amongst our farmers. There is another significant feature to which I drew attention, when dealing with the Australian Industries Preservation Bill, namely, the lessening the cost of production, and the increase of profits to the manufacturers. There is indisputable evidence that in the case of certain brands of tobacco, there has been an increase of price since 1901. Of course, I know that the combine contend that this is clue to the Tariff, but it is significant that in some States the Tariff, so far from warranting an increase in price, should have been followed by a decrease. In South Australia, for example, practically no local leaf was used prior to Federation. Every bit of leaf which entered South Australia at that time had to pay a duty, and the Excise was not higher then than it is at present ; therefore, the throwing down of the InterState barriers opened to the Australian manufacturers a. market for local leaf. Ever since those manufacturers have been , largely using local leaf, which, of course, pays no duty ; and in their sworn evidence they give the average price as under 5d. per lb.

Senator Millen - Was the import duty as well as the Excise duty, in South Australia the same before Federation as now?

Senator PEARCE - No, but very nearly the same.

Senator Millen - I mention that, merely because it is a factor that the honorable senator seems to ignore.

Senator PEARCE - I can assure the honorable senator that the duties do not affect the case I am presenting, the difference being so small. If honorable senators turn to the evidence of Mr. Ferguson, they will there find the rates of duties in the various States. . The point is that, so far as raw material is concerned, the manufacturers in South Australia had to nay duty 'prior to Federation, whereas since then at least one-fourth of their raw material has been duty free. The duty before Federation was greater than the whole cost of Australian leaf at the present time, so that, on the manufacturer's own showing, and on the facts as presented to the Commission, it cost more to produce tobacco in that State prior to Federation than it has cost since. There has been no substantial increase in the price of foreign tobacco leaf since Federation. The position is much the same in the other States as in South Australia. It will be found that, on the whole, so far from Federation having made it more expensive to manufacture, it has resulted in a saving. It is a fact, however, that for" Havelock," and one or two other brands, the prices to the retailers were raised shortly after Federation. Prices were not raised to the consumer, because the additional cost to the retailer was so small that it could not be passed on ; and the result is that the combine has deprived the retailers of a certain amount of profit, which the latter previously received. The same conditions prevail in relation to certain lines of cigars.

Senator Gray - It is remarkable that the retailers have found no fault.

Senator PEARCE - The retailers have found fault. Scores of retailers told me of the exactions of the combine, but when I invited them to give evidence they said' that theydid not want to be " thrown into the streets " - that to give evidence would be more than their business was worth. The only retailers whom I could induce to give evidence were those in a large way of business - practically wholesalers - who spoke in the most flattering terms of the combine, and, no doubt, got their reward in, perhaps, better terms in the future.

Senator Gray - The honorable senator could not get any independent tobacconists to give evidence?

Senator PEARCE - Not any small retailers. The combine has derived the whole of the profit from the increased prices, and, in addition, has by the very organization effected a saving in the case of production. I have here some figures which I compiled from the very valuable evidence of Mr. Ferguson, the Chief Inspector of Excise. I recommend those figures to the attention of honorable senators, because they constitute a mine of information from an unbiased and reliable source. The figures are shown on page 22 of Mr. Ferguson's evidence, and show that in 1901 the production of manufactured tobacco amounted to 5,075,537 lbs. ; of cigars, 183,877 ; and of cigarettes, 741,597 lbs. - a total production of all forms of manufacture of 6,601,211 lbs. In 1904, the local production was as follows: - Tobacco, 7,018,560 lbs.; cigars, 250,042 lbs.; cigarettes, 995,271 lbs.; making a total weight of 8,263,873 lbs. As compared with the production in 1901, that shows an increase of 1,343,023 lbs. of tobacco, 66,165lbs.of cigars, and 253,674 lbs. of cigarettes, or a total increase of [,662,662 lbs. If we refer to Mr. Coghlan's book for 1901-2, we find that the number of employe's in tobacco, cigar, and cigarette factories in 1901 was 2,979. If we refer to the evidence of Mr. D. Ferguson, on pages 274-6, we find that in 1904 the number of employes in all these factories in Australia was 2,816. With 163 fewer employes in 1904 than in 1901, the combined factories produced 1,662,662 more lbs. tobacco of all forms.

Senator Lt Col Gould - How does the honorable senator account for that? Is that owing to machinery?

Senator PEARCE - It proves that the elimination of competition is a good thing, because it cheapens production. By that means, the combine have been able to save a lot of useless labour, such as commercial travellers, agents, and various commissions, and to concentrate their labour into larger factories, instead of having management staffs in each State. They now practically do all their manufacturing in two States. We have there a practical illustration that collectivism is better than competition, that it is a cheaper and better form of production altogether.

Senator Lt Col Gould - Because it does not pay for a lot of useless labour.

Senator PEARCE - Will the honorable senator wait until he hears what conclusions I draw from those facts?

Senator Millen - Did not the Commission obtain later figures as to the number of hands employed ?

Senator PEARCE - No. I am quoting official figures, which, of course. I prefer to those of the combine. In any case, the combine could only state how many hands they employed in their own factories, whereas the official figures embrace all the factories in Australia. If the honorable senator will recollect that, in Victoria, there are upwards of fifty separate cigar makers, some of them using only their own labour, he will see how impossible it is for the combine to give accurate figures, Every cigar-maker has to pay a license, and, therefore, the Inspector of Excise is in a position to know how many men are employed.

Senator Lt Col Gould - By this Bill the honorable senator would destroy every one of those small industries?

Senator PEARCE - What nonsense ! We would do exactly what the combine has been doing. We would still further economise and concentrate, but we would not crush out the growers, as the combine have done. Let us now see what conclusions are to be drawn from the figures. In 1901 the production of the factories amounted to 2,216 lbs. of all forms of manufactured tobacco, cigars, and cigarettes for each person employed, while in 1904 it amounted to 2.934! lbs. per head, so that 7181/2 lbs. more tobacco, cigars, and cigarettes was produced by each employe under the combine in1904 than in 1901. It was proved before the Commission - and I refer honorable senators to tables A, B, and C on pages 12, 13, and 14 of the report - by the evidence of the combine's witnesses that the average manufacturing cost of all forms of manufactured tobacco, cigars, and cigarettes was about1s. 71/4d. per lb. I am taking the farthing as representing 4-11d. It is not quite accurate, but it is near enough for the purpose of making a comparison. The combine saved the labour of 163 employes in 1904 which, at a production per head in1901 of 2,216 lbs. of tobacco, represented 361,208 lbs. The remaining employes produced 1,662,662 lbs. more in 1904 than was produced in 1902, thus making a total gain of 2,023,388 lbs., the manufacturing cost of which at1s. 71/4d. alb represented a saving of . £162,595 in 1904 as compared with 1901. No evidence can be produced to show that between those years the combine raised the wages of any of their employe's. On the contrary, it can be proved from sworn evidence, and from figures supplied by the combine, that during those years they replaced male labour with female labour, and consequently effected a saving in wages rates, because the females received a lower wage. Under the same system the number of boys was increased, so that the saving which is represented by these figures is much below the mark. The saving alone to the combine must have approached to £200,000 per annum as the result of the combination. The singular point is that there is no one in the Senate or elsewhere who is' bold enough to sa.y that the combine have passed on to the general public a single penny of the saving.

Senator Gray - Does the honorable senator mean ^200,000 over and above what they were losing, owing to the competition which he acknowledged to exist before the combine was established?

Senator PEARCE - I do not admit that they were losing. At any rate, if the combine were losing money why did they not say so? Why did they npt show the people of Australia) that it is not the profitable enterprise which it is supposed to be? I took particular care, as did other members of the Commission, to ask each witness representing the various factories in the combine what were their profits, and without exception they refused to tell us.

Senator Gray - Very properly.

Senator PEARCE - If it is a losing concern, what had the combine to lose by disclosing the amount of the loss? What had thev to lose by saying to the people of Australia, " This industry, which the Labour Party want to nationalize, would be a losing concern, as you will see if you look at our balance-sheet " ?

Senator Gray - -The honorable senator is twisting what I said. I said that prior to the establishment of the combine the extraordinary competition, which the honorable senator acknowledged in the majority report, showed almost to a certainty that at that time, at all events, they were losing money.

Senator PEARCE - I do not admit that, and it is not courteous on the part of the honorable senator to accuse me of twisting anything. He must admit that, holding the opinions I do, my deductions are fair.

Senator Gray - When I spoke of twisting, I did not mean what the honorable senator understood.

Senator PEARCE - I contend that this monopoly constitutes a national danger to Australia. A combination which' cheapens production and eliminates waste is a good thing, but it is a bad thing to leave a monopoly in the hands of any individuals. I have no animus against the members of the tobacco combine as individuals, but I contend that the power which they hold over the people of Australia constitutes a national danger. I am not prepared to allow that power to remain in the hands of any individuals, because it has been shown that it can be- used to oppress the producer and the consumer;. When an industry obtains the power which a mono poly confers, the only safety lies in the control and ownership of the industry by the people. Suppose that it were taken over by the Commonwealth, does any one think for a moment that the people would countenance the state of affairs which in twenty years has decreased the cultivation of tobacco by 5,000 acres? The experience of France and Italy shows that a State which is interested in placing its people on the land would encourage the growing of tobacco. Of course, it will be urged that the tobacco combine have increased the growing of tobacco leaf, and spent money.

Senator Gray - Have they not?

Senator PEARCE - I am not prepared to admit that they have.

Senator Lt Colonel Sir ALBERT GOULD (NEW SOUTH WALES) -Col. Gould. - Before the combine was formed, what happened?

Senator PEARCE - I admit that before the combine was formed the firm of Hugh Dixson and Sons did spend a large sum upon experiments in tobacco growing. J fail to see where the combine have done anything to assist the growers of tobacco leaf. On the other 'hand, by the prices which they have been paying, and through there being only one buyer, they have practically crushed out the growing of leaf in Australia. The charge is sometimes made that under a State monopoly an inferior quality of tobacco would be supplied. Now, the people of France, whatever may be their faults, cannot be accused of lacking the organ of taste, because they are supposed to possess the finest palate of any people in the world. After all, the quality of tobacco is entirely a question of taste. I venture to say that if I could get some pure tobacco leaf, and I may say that I am stating the result of my experience

Senator Millen - I thought the honorable senator was a non-smoker?

Senator PEARCE - I made an experiment upon some members of the Commission. It must be remembered that in the United Kingdom the only ingredients allowed to be used in the manufacture of tobacco are water and some sweetening in the form of sugar. If I could get these three ingredients, put the article under a press, and give the tobacco to an honorable senator who has been smoking, say, Havelock tobacco, probably he would pronounce it to be vile stuff. If I gave a man who has always smoked tobacco as made in England a plug of Havelock tobacco, or a similar brand, he would pronounce it to be vile stuff. The quality of tobacco, I repeat, is purely a matter of taste. To a Frenchman French tobacco is the best in the world.

Senator Millen - He cannot get any other.

Senator PEARCE - That old idea has been thoroughly exploded. A Frenchman can get any tobacco he wants, because he is allowed to import it; in fact, the Government will import it for him if he likes. There are importers of tobacco, cigars, and cigarettes into France, but the imported tobacco cannot be sold in competition with French tobacco, simply because the Frenchman has been used to the local tobacco, and, in fact, prefers it.

Senator Gray - At what price do Frenchmen get imported tobacco?

Senator PEARCE - One witness told the Commission that he was not in England very long before he sent out to Australia for some of his favorite tobacco, as he could not stand the English tobacco, and other witnesses who had come from England said that they did not like their first taste of Australian tobacco. Will anyone contend that if the Commonwealth were to take over the tobacco factories tomorrow the makers of tobacco would at once lose their knowledge of the process. My service on the Commission has taught me that the Australian smoker smokes tobacco containing a lot of seasonings, such as no other smoker in the world smokes, and seasonings which, moreover, are by no means necessary for the making of tobacco.

Senator Millen - They are not injurious, though.

Senator PEARCE - Some of them may be injurious.

Senator Millen - An analytical chemist has told' me the very opposite.

Senator PEARCE - That may be. Are the seasonings put in for the benefit of the smoker? If any honorable senators hold that view, they are very simple. When the leaf is bought by the manufacturer, being dry, it is at its very lightest weight. In the steam pipe it absorbs a considerable amount of moisture, and if it were pressed and manufactured in .that state, what would happen? It would become mouldy. Every pound of moisture which the manufacturer can get into the leaf means so much profit to him. If the retail price of the article is 3s. per lb., every pound of moisture he puts into the leaf means a profit of that amount to him. Therefore, he has to put into the leaf something which will not allow the tobacco to go mouldy. The seasoning is put in not to benefit the smoker, but to counteract the effects of the moisture.

Senator Millen - If an unlimited quantity of moisture were put into the leaf, smokers would not buy the tobacco.

Senator PEARCE - No matter what the smokers like or do not like, as much moisture as the leaf will hold is put in, and I make that statement as the result of my visits to the factories. The seasoning is not put in to pander to the taste of the public, but to enrich the manufacturer. Leaving the tobacco monopoly, I desire to show that there are other monopolies in Australia. The sugar monopoly, for instance, has a big effect upon Australian industry - because sugar enters into a large number of manufactures. Practically one firm refines all the sugar used in Australia. It meets with very little competition, because, as in the case of the tobacco combine, there are only a couple of small outside firms, and these do about 5 per cent, of the total trade. The sugar combine, in Western Australia, at any rate, give rebates to the buyers in order to get control of the whole trade of Australia, and so stop the sale of imported sugar. By the aid of their monopoly, they are able to raise the price of sugar up to the limit allowed them by the Tariff. Although they make a profit of £300,000 per annum, still, during the past season, they refused to give the growers of sugar cane in Queensland a fair price. As a matter of fact, it is paying ai lower price for cane than is paid by the State-owned sugar mills in Queensland.

Senator Gray - Would the honorable senator propose to give the growers in a bad season exactly what thev liked to ask f or ?

Senator PEARCE - What the State is now doing in Queensland1, it will, I presume, continue to do.

Senator de Largie - Besides, this is not a bad season.

Senator PEARCE - Of course it is not. The fact that the State mills in Queensland are paying a price higher by some shillings per ton than the Queensland Sugar Refinery is paying shows that the State treats the grower better and fairer than a private monopoly does.

Senator Macfarlane - It has not done so in the' past.

Senator PEARCE - It is doing so today. The fact is, however, that this sugar monopoly has practically the power to fix the price of sugar-cane in Australia, and also has power to fix the retail price of sugar. Therefore, it has in its grip on the one hand the growers of sugar-cane, and on the other hand, the manufacturers who require sugar as a raw materia] for the production of their commodities. No monopoly should- be allowed to exercise such a baneful influence as that. There is another possible monopoly to which Senator de Largie has, on several occasions, drawn attention. I allude to the iron industry. Honorable senators who have listened to me will agree that the probabilities are that if that industry is established in Australia, it must, from the nature of things, become a monopoly. There is not room in Australia for more than one large ironworks. Indeed, the market is so ' restricted that to start the iron industry in Australia must inevitably conduce to monopoly. The iron industry, I venture to say, deserves the name of mother of all industries as no other does. If we here, as has been done in America, let private capitalists get control of it, we shall have our Carnegies and our Jay Goulds, and other millionaires, and in the future along with them we shall have the usual crop of paupers and poverty-stricken people.

Senator Millen - The honorable senator means that that will be the effect if we have the iron industry under a protective Tariff?

Senator PEARCE - Tariff or no Tariff, I do not think that there will be much difference. The evidence given before the Royal Commission shows that iron can be produced in Australia at lower cost than that at which it is being produced in America. The point is a debatable one, perhaps, but I venture to say that with a fair amount of capital in Australia, especially if it operates in conjunction with American capitalists, the probabilities are that it would be possible to establish an iron industry without a Tariff. But Tariff or no Tariff, I maintain that the manufacture of iron ought to be a national industry, and that we ought not to allow it to get into the hands of private monopolists. Next, take shipping. The matter has been dealt with very fully, and, there fore, I do not intend to refer to it except to say that I regard it as being as necessary to have coastal shipping in the hands of the State as it is to have State-owned railways. If it is essential - and it can be proved to be essential from the example of monopolies in America - that the railways should remain the property of the people, and be worked for their benefit, it is equally necessary that the shipping on our coasts - which constitute ari artery of commerce just as our railways are arteries of commerce - should become the property of the people. Unless the people of Australia take steps to prevent it, the shipping ring will become a national danger. We have, I contend, a right to ask that the power which this Bill proposes to secure shall be given to the Commonwealth in order that it shall be "n the position to say to monopolists, " We shall take your monopoly out of your hands, compensating you for it, and in future running it in the interests; of the people." The object of this Bill is to ask for that power, I invite honorable senators opposite, if they believe that a majority of the people of Australia are opposed to the Commonwealth having the' power, to take this opportunity of proving it. If they vote against the Bill, what conclusion must we come to? That they are afraid to obtain an expression of opinion on this question - that they are afraid to let the people of Australia say whether they will give this Parliament the power to pass such legislation as that to which I have referred. Therefore I shall wait with interest for the vote that will be cast upon this Bill. I ask honorable senators to give us an opportunity of appealing to the people as to whether they will give the Commonwealth Parliament this power; remembering that, even if we are successful in our appeal, it will still be an open question whether any particular industry shall be nationalized. No industry can be taken over unless with the consent of the people, and unless there is a majority in both Houses of this Parliament in favour of the proposal.

Debate (on motion by Senator Millen), adjourned.

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