Peace Through Investment—A challenge to the Capitalist Countries

MR. STARK: Sir Hubert Nutcombe Hume, K.B.E., M.C., heads the famous Charterhouse Group of Companies, the assets of which exceed £ 14,000,000, with considerably over 8,000 shareholders. His Companies have been built up on a very unique basis. They are not the typical industrial holding companies which literally swallow up businesses and merge them and control them. His Companies are industrial development companies whose job is to provide capital for growing businesses of small or medium size who are unable to raise the capital for expansion in any other way. Indeed, Charterhouse has the very definite policy of avoiding control of companies in which it invests, being quite content to perform as a minority partner. The Charterhouse Group operates all over the world, and since 1953, Charterhouse (Canada) has assisted in the development of some nineteen companies in various fields of endeavour, including engineering, manufacturing, plastic products, household appliances, and many others.

The head of this great enterprise, who has won many distinctions, who is himself a director of dozens of companies in addition to the Charterhouse Group, is a very 1modest man. He deals essentially in human values. He is much more concerned with the nature of the men who operate a company than with that company's financial assets. He is himself most genial and kind and is affectionately known in the boardrooms of London and elsewhere as "Nut Hume". In his lifetime he has done many things. Of course, he has visited Canada on many occasions. He started his career as a soldier in the Regular Army, but in 1912, a search for adventure brought him to Canada, where for some little time he drove a taxi-cab in Vancouver. Then came the first Great War, and for four years he served with the Hampshire Regiment, emerging with the Military Cross and a mention in Dispatches.

When he left the Army, it was to become "something in the city". He quickly found his role in life, and from the very start, he has been concerned with the provision of capital for industry. Typical of Sir Nutcombe Hume was his answer to a reporter who recently interviewed him, suggesting that there did not seem to be too many opportunities for investment in the market. Sir Nutcombe's reply was, "Yes, a good deal of the cream has already been skimmed from the milk jug. But I believe there are still cheap shares around if you know where to look for them. What we try to do is to find shares that we consider will be getting near to blue chip ranking in five years time." Sir Nutcombe has been quite successful in doing just that.

However, contrary to the popular conception of the financial tycoon, Sir Nutcombe does not put money first. "Money," he says, "is not all that important. It is the junior partner. Attach the right people to it, be prepared to take the long view, and you will win out in the end."

I have great pleasure in presenting to you Sir Nutcombe Hume, who will speak to us on the topic, "Peace Through Investment--A Challenge to the Capitalist Countries".

SIR NUTCOMBE HUME: May I first acknowledge with gratitude and some embarrassment the kind words with which Mr. Stark has introduced me. They are altogether too flattering.

I was given freedom of choice as to subject of my talk today, and I chose "Peace Through Investment" for three reasons.

The first is that the subject of investment in underdeveloped countries is very prominent in much that is written and said today. Secondly, the Organization for European Economic Cooperation, known as O.E.E.C., is now about to become the O.E.C.D., which means the Organization for Economic Cooperation and Development. And to the eighteen countries which were members of the original O.E.E.C., the United States and Canada are now being added.

If the letter, "D", for "Development", means anything at all, it must mean that your country is now thinking actively of the question of aiding development. "Economic Cooperation and Development" is a very interesting and challenging collection of words.

Mr. Fleming, in an address to the World Bank, on September 27th, said: "Another new initiative of the past year is the formation, at the suggestion of the United States, of the Development Assistance Group. (The Development Assistance Group is a kind of godfather to the O.E.C.D.) Its purpose is to improve the quantity and quality of economic assistance. Canada is glad to play its part in this endeavour."

That is my second reason for suggesting that this subject may be interesting to you.

The third reason derives from a personal conviction of my own. Since its formation thirteen years ago, I have been first a Director, then Deputy Chairman, and latterly, Chairman, of the Colonial Development Corporation, which was formed after the war with, now, £ 150,000,000 of resources provided by the taxpayers of Britain for the purpose of developing the colonies. From my work there I have become quite convinced that there is a tremendous job to be done in the field of economic development in underdeveloped countries. I have also become quite convinced that there lies upon the richer countries a social duty to take a hand in this work. More than half the people in the world are living sub-standard, on the verge of subsistence.

I am not going to burden you with statistics today because they are boring, and one doesn't remember them anyway. But there is one I want to mention, and it is this: The average annual income of the 500,000,000 people living in India and Pakistan is $65.00. The average annual income of the 170,000,000 living in the United States is $2,125. Here in Canada, it is $1,475; and in Britain, it is $960.

The comparison is quite fantastic. The American has thirty-three times the average income of the Indian. The enormous size of the problem becomes very clear from the report that was made to the World Bank in the course of the last few weeks by the three distinguished bankers who were asked by Mr. Eugene Black to go to India. They were Dr. Hermann Abs of Germany, Sir Oliver Franks, Chairman of Lloyds Bank in England, and Mr. Sproule, from America. In drawing attention to the size of this problem, they stated that if over five years the average Indian income is to be raised from $65.00 to $74.00 a year, the investment of $21,000,000,000 is needed.

Those figures, which are the only ones with which I am going to bother you, are significant. $21,000,000,000 are needed to raise the average income of an Indian from $65.00 to $74.00 a year, and thus raise his income from a thirty-third to a twenty-eighth of the average American income. There is another calculation worth making: if by cooperation we can raise the annual spending power of 500,000,000 people by $10.00 each, that is 5,000,000,000 dollars a year which would be mainly injected into the consumption market. There are great prospects for people who make products that those people want to buy.

So that altogether apart from the humanitarian aspect of making this investment, it has an extremely attractive business side to it.

There is, moreover, another reason for the need to invest boldly in the underdeveloped countries, and that is what I call the "defence angle". The speed of modem travel and communication is such that people will not be content to remain at a very low level of subsistence when they are brought so close to the higher standard of living in other countries. If the imbalance is not corrected, they will sooner or later seek by military means or by some means which are certainly far from peaceful, to become possessed of part of the property of the rich countries. Distance is no longer a gap which cannot be bridged. The poor country is nowadays just across the way.

The defence reason is therefore one which can alone compel us to do something about this; and I suppose that any one of us would say it is worth sacrificing quite a lot to avoid becoming involved in another war, and it is useless to say it could not happen in this day and age. In Cuba at this very moment, some trigger-happy chap might start a war which could become world-wide; and that is an illustration of a "have not" wanting to seize what he can easily see the "haves" have just across the garden fence.

But whilst the defence reason for investment may be compelling, I prefer to think of this matter from the humanitarian point of view: the social duty which devolves upon us all to do something about it because we feel an urge to help people less well placed than ourselves.

There are 2,500,000,000 people, or thereabouts, with but a fraction of the income of any one of you in this room. This is a state of affairs which is becoming increasingly intolerable to men who have high principles and who think, as very many people today do think, on these social subjects. The days of turning one's back and saying that nothing can be done and that it is just too bad that Indians, Pakistani, Indonesians, or Chinese die from hunger, have passed; and 1, personally, am very glad it is so.

May I ask you to draw the analogy of what has happened in your own locality during the lifetime of many of us older people here. We can remember well the "Boss" living in great affluence, with his working people living in the same village in very poor circumstances indeed. That has virtually disappeared today. The working people have better dwellings, piped water to the house, and other enormously improved facilities. One can still see in parts of England, as many of you must have done, the back-to-back houses with one water tap and one privy in the street, serving more than one house. That was commonplace in our own lifetime, but, thank God, it is now fast disappearing. Why? I don't think it is entirely through the stimulus of fear on the part of employers and landlords who were forced to do something because of the threat of revolt. I like to think it is due to enlightened understanding of the humanitarian aspect to which I have already referred.

Today that has spread beyond the village, town, or even country to other nations as can be realized by the amount that one hears and reads on this subject. But hearing and reading about it is not enough; something practical has got to be done about it.

There is another reason. If our countries, with their codes of behaviour to which we all subscribe, do not do something about it, I have no doubt but that Russia and China will "have a go". There is already some indication they are seeking through the medium of investment to get a foot in the door politically.

I am a little skeptical as to whether in fact one can, by investment, buy or order a political system in another country. Britain, who was the traditional investor in overseas countries from 1840 to the beginning of the first World War did not, as events have shown, succeed in implanting her political system in several countries in which she made big investments. South America, where most of the railways and public utilities were built with British investment money, has not exactly followed Britain in political behaviour.

On the other hand, some of the colonies have done so. At the end of September, I had the privilege of being at the Independence ceremonies in Nigeria. It was a thrilling four days. Despite all the criticism one hears of Britain as a bad colonizer, it was most impressive to see the extent to which the Nigerians have absorbed the principles of government, justice, and so forth, which we believe to be right and hold dear. In his Independence Day speech, their Prime Minister acknowledged this fact in very impressive and gracious terms.

I mentioned just now the necessity to make investment in order to buy peace. There is a problem here, the solution of which I am not prepared to suggest. But in certain countries which have a bellicose outlook on life (and perhaps one might cite Somaliland, where everybody is born with a spear in his hand), can it be expected that the intention to follow a peaceful form of life shall come before substantial investment in that country, or is it good policy to take a degree of chance and make the investment first? Should the country be provided with the everyday utilities, the roads, the ports and the secondary industry, in order to induce it to drop its bellicose attitude and become peaceful? The answer must, I think, be that no general answer can be given to these questions and that each case must be treated on its merits.

In the case of a big organized country like Russia, there is very little doubt that the intention to behave peacefully must precede the making of investment by other countries; whereas, in a smaller more primitive country, investment must come first.

Let us now assume that investment in any underdeveloped country has been decided upon. Then another problem must be faced and overcome, and that is, how can it best be done? It certainly cannot be done by merely giving money without being quite sure that the recipients are going to use it wisely and well. Money which is given, as opposed to being lent, is often not regarded with anything like the same care as money for which one has to account. "Easy come, easy go" is an expression we all use about people who get money too easily and spend it unwisely.

I, personally, am convinced that if the best use is to be made of money provided for development, it must be money for which the recipient has to account.

Between 1840 and 1914, Britain was the chief financier of the underdeveloped countries of the world, and she invested billions of pounds in doing this. That money all came through the machinery of the private enterprise system. It was not money provided by government, but it was money provided by individuals who were able to save and were attracted by investing it in such things as the South American and Indian railways, ports and other public utilities, and plantations and mines throughout the world. The borrowers were very well represented in London by the great international houses of Rothschild, Barings, Schroder, etc.

After the first world war, personal taxation greatly increased, and individuals could no longer accumulate savings with which to take risks inherent in overseas investments of the type I am describing. Because no other funds had then been established to do this work, there was a hiatus of time in which relatively little of this work went on.

Following the second world war, it was not only the higher level of personal taxation which dammed this flow of capital into overseas countries, but there was such a change and deterioration in the conduct and code of behaviour in many countries, and there were such complications from exchange difficulties and other restrictions, that it made the governments of the richer countries realize that the provision of capital for overseas development could no longer be left solely to private enterprise. Therefore, a number of public and quasi-public corporations were formed, amongst which was the Colonial Development Corporation, with which I was personally connected and about which I will tell you presently.

The biggest fund is the I.B.R.D.-the International Bank for Reconstruction and Development. That has $20,000,000,000 of capital resources provided by seventy countries, and the money from those seventy countries is all taxpayers' money. It is not the money of private investors. The I.B.R.D. is the outstanding example of this post-war development and has, as you all know, been a very great success. When the economic history of this age comes to be written, the formation and work of the I.B.R.D. will occupy a prominent place. It has been such a success largely because the founders had the good sense and the good fortune to choose that remarkable man, Mr. Eugene Black, as its Chairman. He is an outstanding personality.

Many other funds came into being, including the one to which I was attached, and they face a common and difficult problem.

One must accept the fact that that part of the private enterprise system which is the provision of capital by the individual investor for overseas investment, is no longer available, or at any rate, no longer adequate. Money provided by governments, which is really the money of the taxpayer, is the only other source. And when money is provided by government, I don't need to tell you there is necessarily some political, as opposed to business, control over it. I think I can say without offence to anyone that people who are best qualified to handle the business of government, either as politicians are civil servants, are not so good at using and controlling capital in the development field. It requires what I call the private enterprise "know-how" to do that. The technique of making investments--which covers first examination of the proposition and shaping it up right, and then afterwards watching to see that all goes well--is one for which a private enterprise training is necessary.

So we reach the stage where money from political sources must somehow or other be placed at the disposal of people who have been trained and experienced in the field of private enterprise. And there, I think, is a problem that has not been satisfactorily solved up to the present.

The average businessman of the right calibre is not prepared to give up the pleasure and flexibility of private employment to serve and administer a fund that has political strings attached to it. The kind of man you want is usually already very happily employed in his own business, or with a private enterprise employer. And getting him to leave that and join one of these politically created organizations is not by any means easy, as I can tell you from personal experience. But despite the difficulty of finding the right people, I take it that none of us will for one moment disagree with the proposition that money without management can actually do more harm than good. It is the management that matters. Therefore, the real problem is finding the right people rather than finding the money.

How can this problem be solved? I cannot give you the answer because I don't know it myself. But, I can suggest one way in which it might be done.

And now with your permission, Mr. Chairman, I am going to spend a minute or two telling you what has been done in the Colonial Development Corporation since it came into being as a result of an Act of Parliament passed in 1948. At first, it had £ 100,000,000 of capital, but no management of its own at all. Somebody sitting in a back room somewhere said, "We must choose a Chairman and some Directors." He had a shot at assembling a body of people who, in the terms of clause 2 of the Act, should be persons appearing to the Minister to be qualified in "matters relating to primary production, industry or trade, finance, science, administration., organization of workers or welfare"; and I was one of them. We met the first day in the board room without any established or experienced organization at all and under great pressure to do something quickly. In such circumstances, you can imagine that some very grave mistakes were made as a result of trying to walk before we could creep, and in trying to arrange deals and investments with a wholly inadequate staff.

I would like, at this stage, to correct one misapprehension which I encounter all around the world. The Colonial Development Corporation is not the Corporation which made a mess of the Ground Nuts scheme. As the Chairman said, my own name is "Nut", but despite that fact, it was the Overseas Food Corporation, and not the C.D.C., which undertook the Ground Nut scheme in Tanganyika.

We did, however, make some very bad mistakes. Fortunately, none of them was particularly costly, the worst being a loss of about £ 800,000 in trying out the idea that chickens could be grown and eggs laid in the Gambia on the West Coast of Africa. That scheme never got off the ground at all.

But today the Colonial Development Corporation has financed some ninety projects in twenty-seven countries and is making an overall profit. I feel I can therefore claim that I have enough background knowledge to be able to speak with some accuracy as to what the experience of the C.D.C. has been.

Perhaps I should have mentioned earlier that the International Bank's money is used very largely for creating what I call basic assets; that is, such things as ports, harbour facilities, railways, electric energy, etc. The great Kariba Dam in Rhodesia may be given as an example. It is a condition of the Bank's loans that they are guaranteed by the government of the country concerned.

The other funds, of which the C.D.C. is one, devote their money for the most part to such matters as the growth of crops in various forms, the processing of those crops, mining, and to secondary industry generally, such as cement works.

One of the most interesting and thrilling developments financed by C.D.C. is a building society started in Singapore. Today it has been the means of providing thousands of dwellings for Chinese and Malayans who were hitherto shockingly badly housed.

As you can well imagine, the C.D.C. has had to devote a great deal of thought to this problem about management and how to recruit and retain it; and much has been achieved. The Directors of the C.D.C. are not themselves engaged in the day-today management. The Directors are at the mercy of the politicians, because it is within the power of the Minister concerned to remove the Directors from the Board and to appoint others. It lies with the Minister if he feels very cross one morning and thinks he doesn't like you, to write on a piece of paper, "Be off," and you are off. Whilst I don't want to say anything that decries the Ministers for whom I have worked--because they have always been very co-operative--nevertheless, we on the Board are at the mercy of the Minister.

Management, of course, will not stand that. No one will work for an organization if he is subject to getting his head cut off if he doesn't wear the right colour tie. To insulate the executive management from that risk, the Board of C.D.C. appointed a General Manager who cannot be hired and fired in that way. Then they built up under him a management team which could be given a sense of security in employment. The organization thus created is roughly as follows. In the Head Office in London there is a comparatively small number of men who are in charge of operations, either territorially or functionally. There is, for instance, a controller who is in charge of all mining investments because he is himself an experienced mining engineer. Then there are six regional organizations spread across the world: in Singapore, looking after the Far East; in Johannesburg, looking after the High Commission Territories, in Salisbury, looking after the Federation of Rhodesia and Nyasaland; in Nairobi, looking after East Africa; in Lagos, looking after the West African Territories; and in Barbados, looking after the Caribbean. This organization allows a great devolution of responsibility from the centre to the regions. And, if it is to be successful, it is all-important that it choose the right men to be regional controllers so far from home.

Put in this over-simplified form, it doesn't seem to be a sacrifice altogether too hard to make if, as a result, the maintenance of peace in the world is achieved and the greater happiness of thousands of millions is made possible.

In conclusion, I have attempted to put before you the arguments as I see them; the richer countries in the world should yield up part of their resources in order to raise the standard of living in the poorer countries because only

Experience has shown that insulating the organization from political interference in this way has been very successful. That is, I think, an important reason why C.D.C. is successful. C.D.C. is now doing well; it has shown increasing profits for the past five years, and I have every reason to believe that 1960 will show a further rise in profits. It is, in fact, one of the few public corporations in Britain which is able to break on the right side.

Well, there is one example of how the question of management is solved. As I go about the world, I find a good deal of evidence that the activities of the C.D.C. are appreciated and are contributing to the feeling in the British Colonial Empire that England is doing something to help its colonies.

Although this may be satisfactory, it does not solve the problem of where all the money is to come from. Money for this or any other enterprise is not unlimited. There is only one source from which it can come, and that is out of earnings that are saved and not spent on immediate consumption. Savings which might otherwise increase the standard of living in the sophisticated developed countries, must be diverted and channelled off into the underdeveloped countries. Is must be collected either through the machinery of taxation or directly invested in the traditional way, out of money saved by private individuals.

As an example, if 170,000,000 people in America, with $2,125 a year, would skim off the top $125 for this purpose, it would provide the 500,000,000 people in Pakistan and India with an extra $25 a year, raising their income by 60 through this medium can the hatreds and jealousies felt by the poor for the rich--the "have nots" for the "haves"--be ameliorated and finally wiped out. I do not, of course, advocate a general levelling of income everywhere. That is idiotic and foolish. This adjustment must take time--it is a gradual process which must go on in a way which makes it obvious to the 2,500,000,000 people in the underdeveloped countries that all of us who are more fortunately placed are in fact conscious of our duty in this field and are doing something about it.

I believe it is frightfully important not only to do the right thing, but to be seen doing it. The mere provision of capital is not enough; it must be accompanied by human assistance in the useful deployment of that money.

General Burki, the acting President of Pakistan, said on Monday last that the countries of Asia and the Far East would prefer development under a free enterprise system rather than to a system of rigid state control. If, however, free enterprise failed, then they would find it hard to resist a system of regimentation.

I think that, in those words, the General summed up the thoughts which are in the minds of people at the receiving end. Such a policy demands a degree of sacrifice, of course, but what good does not mean a degree of sacrifice? I suggest to you that in all worthwhile human endeavour -whether in the field of religion, medicine, education, as well as that of business-the goal is the more worthy of attainment if hard work, patience, and the will to win, have to be displayed on the road towards reaching it.

THANKS OF THE MEETING were expressed by General Howard D. Graham.