In spite of the CPA's growing successes with this tactic, Andre Marty made a number of wrong-headed criticisms. He began by criticising the strong trade union roots of the CPA though this was the very thing which had given it such strength in the Labor Party. Marty argued that this meant the CPA was tainted with anarcho-syndicalism. «[T] he whole leadership is composed of trade union functionaries,» he complained. Anarcho-syndicalism led to a neglect of political work, as opposed to union work, and was one explanation for the lack of growth of the CPA, he said. Marty reiterated Dixon's point on peace and collective security. Australia had the potential to affect global politics through the election of a Labor government which would in turn affect British foreign policy. «The power of the Dominions - Canada, Australia, New Zealand - is very high. They must speak and [then?] they can change the policy of the British Government with the help of the British working class.» In the Pacific, peace through collective security was necessary as a defence against Japanese aggression.

A similar point was argued by another member of the Anglo-American Secretariat, Mehring, who argued that in order to defeat Labor neutralism, the CPA should «show that Australia is being threatened by the aggression of Japan». The CPA's later targetting of the export of Australian scrap iron to Japan was to crystalise much of the debate over foreign policy both within Labor and Australia more generally. Bans on Japanese ships culminated in a major confrontation in December 1938 when the CPA influenced waterside workers refused to load iron bound for Japan. Though the iron was eventually loaded, the bitter dispute threw into sharp relief the communists' policy of sanctions versus the neutralism of federal Labor.

In 1938 the CPA's dual-track strategy of working within and outside the Labor Party began to pay dividends. In spite of the loss of the Labor Daily Lang remained in control of the NSW Labor Party but had led the ALP to another defeat in the March 1938 elections. The Federal Executive of the ALP began to sniff the wind as the power base of the mighty Lang slowly ebbed away. In early 1939 the Federal Executive finally acted decisively. It decided on a «Unity Conference» of the Lang and anti-Lang groups to resolve the split. The February meeting of the Central Committee of the CPA was addressed by Hughes and Evans, at that stage nominally prominent Labor figures. In May the CPA executive held a meeting with its Labor Party fraction, which discussed the coming Unity Conference at length. The meeting concluded that the emergence of a parliamentary-based «centre party» was crucial to the outcome of the conference and resolved to «strive to the utmost» to work with them. It also decided to fight to alter the basis of representation of unions and branches. Both aims would be achieved and both proved crucial to the outcome of the conference.

The Unity Conference inspired by the Federal Executive finally took place on August 26-27, 1939. While Lang glowered from the public gallery the result on the conference floor soon showed the anti-Lang forces were in control. Hughes moved the key resolution structuring the future organisation of the party, which won 221 to 153. Shortly afterwards fist fights broke out in the gallery and order had to be restored. The conference put undercover CPA members in key roles on the executive. Jack Hughes became Vice-President (an office he held simultaneously with the powerful Presidency of the New South Wales Labor Council) and Walter Evans became General Secretary of the NSW branch of the ALP. A week later Hughes conducted a ballot for parliamentary leader and a rebel from the Lang camp, William McKell, finally toppled Lang.

It is one of the ironies of politics and history, that a moment of triumph is often followed by an inexorable plunge into disaster. During the Unity Conference there had occurred what seemed at the time merely a minor disruption. A delegate unsuccessfully proposed the suspension of standing orders to discuss the international position. But the chance for a debate was brutally cut short by uproar when he explained his motive. He wished to move a resolution «expressing abhorrence with the onward march of fascism» and viewing with disgust the signing of the German-Russian Non_Aggression Pact. Criticism of Russia was guaranteed to provoke loud opposition from the anti-Lang Left. However, defence of this pact became the seed of destruction, which would destroy both the CPA's influence and the strength of the broader Left within the NSW branch of the Labor Party for decades to come.

The Non_Aggression Pact was quickly followed by a German invasion of Poland, which was then divided between the USSR and Germany. On September 3, Britain, which had undertaken to assist Poland, declared war on Germany. Initially, however, due to poor communication with the USSR and following the logic of the united front the CPA and its undercover Labor fraction boldly declared their support for Britain's war against fascism. In a radio broadcast for a federal by_election in the seat of Hunter, Jack Hughes echoed these sentiments. But as the line of the Communist International became clearer the CPA's attitude to the war soon began to change toward one of opposition to Britain's war on Germany. This had two consequences for the CPA dual members who had fought for three years to unseat Lang and had won at the Unity conference just a month earlier. First, instead of remaining in the broad stream of the militant unionism, they now had to swim against the tide of incomprehension of their own sympathisers whom they had won by their opposition to fascism and isolationism over the previous three years. The second consequence flowed from this very public shift in the line: the communist dual members in the Labor Party rapidly became identifiable as dogmatic adherents of the CPA.

The resulting situation was the undoing of the CPA's new found influence in the Labor Party but this was of no consequence to the Anglo-American Secretariat of the Comintern. A Comintern report noted that the Australian government of R.G. Menzies as «the weakest government in the British Empire». It anticipated that the Menzies government's would be replaced by a Labor Party whose leadership «is being increasingly put under pressure by the growing anti-war movement». It noted with satisfaction that the CPA had rectified its line on the war with a statement on December 8, 1939, admitting that the party had «misunderstood the importance of the Soviet-German Non_Aggression Pact».

After the CPA's political somersault on the war, the issue of communism in the Labor Party sharpened. With the Easter 1940 annual conference approaching, John Hughes received a call from the state Labor leader, William McKell, whom he had helped install. McKell wanted to meet him. Hughes later recalled:

When I got to his office, he not only closed door but he locked it. He said: «I'm glad you could come. I've got the security records of all the communists in the Labor Party. I think we ought to go over it together. With the conference coming up, we want to make sure we don't have any of these birds on [the next executive]»

I said: «That's a very good idea, Bill» And I'm thinking, «I guess my name will feature prominently here». Then I thought, «well if that's so, that's so, I'll handle it.» Anyhow, it wasn't. That was surprise number one. And I wasn't sure of that until we had really finished.

The result of the meeting was that while at least one undercover member (Herbert Chandler) lost his place on the proposed ticket for the 1940 executive, he was replaced by others: Ted Walsham, a railway shop steward and James Starling, a teacher. Over 50 years later it is difficult to identify with certainty all the dual members who reached the executive level of the ALP in this period. On one level it was of secondary importance to the fact that the political line of the CPA was clearly accepted by a broad group of non-communist anti-Lang forces on the executive. However, it is essential to understand the strength and strategy of the CPA to identify as accurately as possible its actual members in the leadership of the ALP.

The 1939 Unity Conference elected a 32_member executive which contained at least five. They included Hughes, Evans, the union officials Barker and Glasson, and the mayor of a mining town, H.B. Chandler. At the 1940 conference the 32_person executive included Hughes, Evans, Barker and Glasson, plus Walsham, Starling and Sloss who became a city councillor with left-wing support and later a member of parliament. A group of five or seven communists from an executive of 32 could exercise considerable weight given that they were held in high regard, acted en bloc and held the vital full time position of General Secretary.

As the annual Easter 1940 conference drew closer, the CPA forces, in line with Comintern, became alarmed about the possibility that Britain and France would conclude an agreement with Hitler who would then turn the war to the East. This issue came to a head on the second day of the conference on Saturday, March 23. A sub-committee of three: Jack Hughes, Bill Gollan and Lloyd Ross, all undercover CPA members, drafted a tough resolution. It read, in part:

The Labor Party has always been opposed to imperialist wars and today in the present war situation we demand that every energy be utilised to bring about a cessation of hostilities and the establishment of peace at the earliest opportunity on a just and equitable basis in order to avoid the slaughter of millions. We declare that the Australian people have nothing to gain from the continuance of the war.

The resolution effectively declared that Australia should refuse to assist Britain, which had declared war on fascist Germany. In place of loyalty to Empire it substituted loyalty to the anti-war traditions of the labour movement. The parliamentary Labor leader, William McKell, who was a co-opted member of the committee took no issue with its general tenor but insisted that one sentence be deleted. This was agreed but it was then restored on the conference floor. That sentence read:

The conference makes it clear that, while being opposed to Australian participation in overseas conflicts, it is also opposed to any effort of the anti-Labor government to change the direction of the present war by an aggressive act against any other country with which we are not at war, including the Soviet Union.

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