Business roundtable; International business and American prosperity

The following program is made possible through a grant from nation's business. This is business roundtable a program of current comment from leading members of America's business community. Today gray our effort has chairman of the board Burroughs corporation and Dr. Mordechai crane and professor of economics at Michigan State University. We'll explore the question international business and American prosperity with series host Alfred Allan Sealy dean of the Graduate School of Business Administration at Michigan State University. Trade between nations has been practiced for many centuries. Overland caravans and sailing ships provided the means of international commerce. Today modern transport including huge tankers freighters trains and jet planes move huge

cargo swiftly in effect and effectively trade between nations has increased many fold. A new dimension the multinational business firm has entered the scene. It is now common place for this type of enterprise to have production facilities in many countries of the world. No longer does it produce in one country and send its goods to others. As always new methods designed to meet current economic business and political situations disturb the status quo. Are subject. International business and American prosperity is an important public issue not only in the United States but is being debated in one form or another in most countries of the world. The political outcome of this debate will have wide economic and business implications. Dr. Crane and

there's been much written recently about the importance and impact. Of a balance of payments problem. What is this balance of payments problem and what does it have to do with international business and trade. Well again the balance of payments of the United States as is the balance of payments of any country is simply a statement of the countryside one section with USA plan sections with the rest of the world over a given time period a year. Namely it includes includes all day in payments and I would payments that went into and out of the country doing that here. In the case of the United States for the pass. 20 years we've been having a very sizeable surplus on our balance of trade namely we are exporting mu aboard goods and services then we are importing into the United States by 4 5 billion dollars and how does that create a problem. However that full 5 billion dollar surplus is insufficient to

cover the outflow of funds from the United States because of foreign aid government foreign aid private outflow. And it is that insufficiency that creates or brings about the deficit. Let me hasten to add that we cannot attribute the deficit to any one of these items. For example we cannot say that private capital outflow caused the deficit simply because the interrelationships between the balance of payments items. But that deficit has been with us for a long time ever since 1951 and it has done a lot of good because it has given foreign countries dollars with which to hang on to instructions but which they allowed to demand. And also it has given phone central bank dogs which they have tweeted as reserves they were very content very happy to hold it for a long period of time. This situation is changing somewhat now where they would like to get good

for some of those dollars. Well granting you say that this is good for the other countries of Mr Reppert is this good for us. It most certainly has and if you're referring to the international transactions and I so many are that are involved in the balance of payments that are very and of course economic intercourse is absolutely essential to our prosperity and to the prosperity and forward progress of the world. But what's going to happen here in this country if we can generally. Have been in balance of payments that we are in other words buying more and sending more money abroad in one form or another than we are taking in. Well obviously that is an untenable position so far as a limited continuation of time if you know what I mean. Stating it differently however. Remember that the balance of payments account is made up of many many different things and it is the relationship of these things at a current point in time that determine the balance of possession.

In other words you're saying then that for the short run this is advantageous both to us and to many of the other countries of the world but for the long run it would not be. Let me state it this way. Dr. Karen Imagine a moment ago that since 1951 we had had a deficit and balance of payments. Remember that it was following World War 2 that the Marshall Plan was born of the Marshall Plan restored liquidity and I think we're going to touch on liquidity later. But actually it provided the working capital so to speak and the know how countries. And I was speaking primarily of the European nations to get the international trade show going again. And it was one of the finest things this country ever dad for its friends and for itself and I want to underscore for itself because we were serving the United States just as well as the other countries by that action.

I think you're absolutely right I think we ought perhaps to emphasize one thing I will long one position long on position of the United States is sadly that of a huge surplus that is if you count in the billions tens of billions of dollars perhaps 60 billion dollars worth of assets that American corporations hold a book on. That is certainly a position of surplus. However the reason why we have a poor building is because these assets are obviously not available to the United States government to cover those show two on deficits so that we have a problem of short run the crudity we are illiquid so to speak. But I will live longer when asset position is extremely strong. Well question you mention for example that the investment in U.S. plants abroad and equipment is a very large sum I noticed for example that this year it's estimated that American business is going to spend approximately nine billion dollars in plant and equipment abroad. That's why yes on a worldwide basis. Well why is it

was directed at American businesses building these plants abroad and this is simply a continuation of a trend that has been very evident for well particularly since the postwar period of more and more American companies building plants in foreign countries to make and produce goods. Doctor imagine that. There are some nine billion dollars I think. Due to leave this country are to do much and I mean she said. This is roughly the investment this year and there are assets overseas totals 60 to 70 billions of dime that's now. What I'm trying to point up there as the investment amount you mentioned that is about to leave this country on new investment projects this year is merely a continuation of a program that's been going on for a long time. Now your question really is why. Why has this done. For a very simple reason. In the first place we must never forgot one thing and that

is it is the role of business and the role and responsibility of management. To operate a profitable business. It is the profit motive that made American business and the American economy and the American standard of living what it is today. No. Very frankly when you think in terms of profit you think in terms of markets and you think in terms of not only coverage but penetration of markets. Many of these investments overseas are made by corporations in order to maximize exports from here. And also. To market any science. And in a way that could not be done. Unless at least part of the production phase was handled on an overseas basis either in a whole or in part. Well Miss Trevor what do you mean by that why is it for example that an American company couldn't make the product in the United States and send this product.

Well let's just pick a country say to France and sell it there. Why would they put the plant in frames in France that might be a very logical place at the present time being a component of the Common Market. In other words from the standpoint of coverage of common market countries that might be one of the ideal spots to locate we happen to have a plant there ourselves. In other words you're you're arguing that this way you escape whatever tariff barriers or taxes or import quotas there might be in that particular country or area. You have a broad broad territory available of course I will have in the final stages of the Common Market but it's a combination of course you circumvent the tariff wall and you penetrate a huge market which wasn't that before before the Common Market. I think what Mr Abbott said is absolutely correct the underlying fact though is obviously the profit motive. I think however the subject us that lead to increased profits and we could look perhaps at marketing considerations that a firm

might have well buy feels that being close to the customers or satisfying their nationalistic means of producing at home might contribute to the company's sales in the company's profits and on the other hand we might look at the cost considerations that it a company may wish to cut its costs and it may very well happen as was the case in the case of Villa's Corp. dead Corp. Billos which is associated with. The company wishes to go or the CS to cut costs because labor costs not wage rates but labor costs are lower overseas and a company may wish to save shipping costs. The wish to save lives and how to Texas so that I would those advantages that contribute to increased profits. In other words your company as I recall it Mr. Ebert the borough's Corporation a number of years ago started making the adding machines abroad and discontinued the production in this country is that correct.

Yes I'd like to explain why we wanted you to because US I think is a classic example of why certain corporate moves are made and I'm going to go back to 1948 and covering the US in 1948. All you heard was the expression soft currency areas. In other words there was the so-called dollar gap. And practically no country at that time had dollar liquidity and by law dollar the quantity I mean available dollar exchange ignored it why American good is hard to buy from the United States and this was after the war. Later it was because of this very fact that the Marshall plan was implemented. Now what bird was dead was us. Even at that time. About 60 percent of the world trade balances were settled in Sterling. Therefore there was adequate Sterling exchange the problem was to get to the markets. So what we did was to take one product and move it to Brighton. And by agreement with the

Ministry of supply the dollar exports board and the Board of Trade and the and the Treasury. We manufacture the product there and about 80 percent of that product was sent to the United States and we were given credit for the dollar exchange because Britain bought from us for dollars. Then Burroughs Breton could buy it from his US a whole range of products for furnishing parts from Michigan assembly and re export. But that result was we broke that dollar gap because we didn't care whether we were exporting from Britain. The secondary manufacture. In Sterling I was selling for sterling or in dollars and I don't understand though the fact that the people that were employed in your company in this country making adding machines that they simply lost their position though exploited them abroad.

No quite the opposite as a matter of fact. We were heavily involved in are heavily involved in research and development of new technology new products. We deliberately picked a time for the transfer when we were going to do the tooling and production of new things here so that we were actually increasing actually increasing our total cabaret personnel here at the time we were creating these jobs and securing the benefits from that overseas operation. In other words if I understand you correctly if you had not done this you would not have sold the adding machine units that you were able to sell in the European and some other markets that is right. And also I would like to add that the result of that program. And its current form has resulted in other plans and other programs like topical and our total international volume as multiplied by a factor of 11 times. Just a natural Dr. Greene is that a typical experience do you think of many American

businesses. I think it could be quite difficult I think it's quite an interesting experience from the point of view of the national interest that is you can see through this experience. How do United States just like any other country can benefit from international trade. Over the past 20 years we've been maintaining a lead in technology that is every step of the way we are moving to hire more highly sophisticated technologically products. And what the beverage corporations did is essentially this. If we lost our competitive advantage in adding machine which is a relatively speaking a simple board why not lead another country where labor wage relates and labor costs are lower. Many effect of their bite from them and employ our only Boeing our own management in the United States in the most highly sophisticated products we are able to pay a higher wage rate. So that means trade has made it possible for the bill's corporation to

retain the sophisticated items made it possible for them to pay higher wage rates than would have been possible. It would have been possible had they retained the interest in adding Dr printers touching on a very basic fundamental point. At the moment for example I'll make this is a state where we are still trying to Bell what I say we I mean American business are still trying to build on our buildings some products in the United States that really we shouldn't be trying to build here. Now there's a one there's one simple task. When you reach a point on a certain product. Where you find you cannot sell it internationally. And be competitive and so far as the profitability status is concerned anybody do one of two things either cancel that product out and forget it because remember the foreign manufacturer likes to export too. So it's only a question of when you want to sell it here or there

unless you decide to transfer the product and under the same set of ground rules produce a product. There than you are competitive there and by importing from yourself you have protectively What's the market what's the impact of that type of a policy on the American consumer are they going to pay higher prices for goods. You know they're paid alas lesser of all. We might add that that is probably one of the problems plaguing England today. The inability to transfer what we might call labor intensive products such as textile. India and Taiwan have now acquired the competitive ability of these products. The British are unable to transform from producing specializing these products to I don't know sophisticated items such perhaps as adding machines well. But is making great progress now in technology in the field of electronics and you know chemistry and they're doing fine. But

they still have a way to go and I we were talking about investments in the last analysis. What is it that gives us productivity. When I say productivity I mean rocked when I got to ask our people to work harder in this country and we're not asking them. We just want to work smarter. Now what does that mean it means we want that pair of hands and that mind to produce more in other words a greater productivity result. Not on the basis of harder work. Now how do you get that productivity by putting into those hands are to assist that mind. Tools program systems whatever they may be but they require money they require capital they require investment if you're going to achieve the productivity. I one of the reasons we have the productivity lead we have in this country is because we have been willing to invest the same thing applies when we go overseas.

None of us are putting better tools in our workers hands that is right. The most sophisticated more ahead of us and very frankly and better management perhaps in many instances and we perhaps ought to specialize in those products which require a lot of capital that is right. I think we should ask ourselves pretty carefully. Should we build a product and if so where. Let's turn to another facet of the problem we're talking about we've been looking at our balance of payments problem here and some of the implications of it. Some of the reasons why American corporations have placed some plants abroad for production in other countries. Let's look at our international trade situation where we are actually having a number of companies making goods and trading with each other. Dr. greening What is the current trade situation from the United States viewpoint today. Well our balance of trade as sod's is favorable and has been favorable for quite a few years. It's always been favorable mental effect. But if we look

around us we see we are facing several problems we're going to need to deal with. Number one the images of blocks and you will you will be in common market the European Fleetwood Area Association. It's one really of interest where we might have to do a number to multilateral trade negotiations under the Act we have been cutting pivots across the board. Now in all industrial nations including the United States. And obviously have been helping these industries well. They amount of capital invested is what a little such as textiles perhaps steel. Easing the slease perhaps correctly from their point of view but it was only as Lee from the national interest point of view asking now for the Texans what are protections and the like and if there are problem we might mention concerns that the millions of underdeveloped countries so poorly but

these are the countries that are now acquiring competitive advantage in those unsophisticated porked such as textiles. Some wood products and other types of products in which a lot of labor is used and relatively little. And perhaps we ought to let what. Yeah right and we ought to let them put use these kind these products that's how they're going to develop and that's how we are going to acquire these products some of them are now you mention that there has been a general tendency to lower the trade barriers around the world in general in general in the post. What does this mean to this country. Mr. Everett why I think it's great if it if it is successfully completed. I think everyone has been rating of the tariff negotiations have been going on now for about four years like Geneva the so-called Kennedy round of tariffs which is based on the trade expansion Act of 1962 that is now completed and

is due to go into effect over a period of years. Meanwhile we're getting a sound of protectionism. Already in this country and the Congress that may militate against that if it does I think it will be a sad day because it's really working against the best interests of business in total and the consumer. And what about the man who works in the factories where there's going to be increased importation of some of these products. If we lower our tariffs Well he's both a worker and a customer's name. You have to look at him from juice to sides. But if there is an advantage and an import as contrasted with a domestic manufacturer is there any reason why our people should not have that value that would accrue from it and it was from the point of view

of the individual working out in that factory. He would have to shift. So we're not like oh I'm so. We talk about productivity really. Job security for em is predicated on these very capital investments to ensure that broader product and the more sophisticated products I like to call them model two products. Those are the ones we export. Those are the ones they import. And as they move forward and talk knowledge and region model to position we better be ready with Model 3. And I think we well because we're going to rough it. And I understand senators both of you then to say that this policy of United States corporations putting some of their plants abroad to produce in those markets and to lowering the in-general of trade barriers and therefore more international trade has a very good impact on both the consumer and the wage earner the low wage

earner making products we shouldn't make here shift to higher wage type industries. Exactly because if you hold a lot of those. High cost. Or low profit products in production where your labor is. You might say of the same category in other words it's automatically limited as far as saving of opportunity is concerned to that lower level product Wellman do you consider international trade an important aspect of our economic well-being in this country. Crane Oh absolutely. I think this is really a pretty fundamental one just to finish up with Mr. Abbott said let's look more current quickly at the industries that are complaining about low foreign wage rates which are those industries. These are the textile industries in the United States for example. These are also the industries that are paying the lowest wages in the United States. So that it is

advantageous to the individual worker if he could be helped along to shift from such an industry that indices to an industry which is paying a high wage. And that in part is an answer to your question. That is through international trade. We are able to specialize we are able to specialize in these industries in which we possess an advantage. These are the industries which are essentially capital intensive. These are the industries which are able to pay very high wages and support a very high standard of living which type of industry would you like in your backyard. China Well industry a textile industry would you either import these items from foreign countries and specialize in industries that are able to pay the high wage the consumer of course also benefits from international trade. I don't know why do you think that and therefore that our economic well-being is pretty well based to some extent on the development of foreign try think it is absolutely essential Dane's early on on that point I think we can never forgot for one

moment that our system as a profit system it's a free competitive enterprise system predicated on a profit motive. And I'll tell you the job security we have in this country storms from employment and good sound kind of bribes. And I heard the statement made that proximately three to four million jobs in this country are dependent upon foreign trade directly yes this roughly in Ramadan or indirectly we don't directly. And I also heard some people would take a little different positions say well this is a very small proportion of the total job market and therefore why is this foreign trade aspect so important. What you're saying is absolutely correct. United States has been characterized by many people as a closed economy simply because foreign to aid occupies only about 5 percent of our wars national product. But it is impossible to

measure the importance of current weight in the national economy and to the total national interest political and economic just by using these figures. There are some industries where even the ratio we're talking about is much higher. That is even the quantitative importance of 4 1 to 8 is underlaid by using the figure you've just suggested. But besides the quantitative importance there's a lot of qualitative importance. The quality of your life is after all in which by having for foreign products phone services bought into the United States by this kind of wealth cultural and economic interchange which is facilitated by phone to aid by foreign economic relations foreign relations in general. Well gentlemen thank you very much for appearing on the Business Roundtable. I think we have had an informative discussion concerning the problem of international business and American prosperity.

Dr. GREENE And Mr. Ebert we appreciate very much your taking the time to be with us today and. Participating in today's business roundtable where Ray R. Ebert past chairman of the board Burroughs corporation and Dr. Mordechai crane and professor of economics at Michigan State University. Host for the program was Alfred L. Seeley dean of the Graduate School of Business Administration at Michigan State University. The topic for next week's Business Roundtable is the rich and the poor nations guests on the program will be Dr. am Agarwala head of the department of commerce and business administration University of Omaha India and Dr. Peter J Lloyd assistant professor of economics at Michigan State University. This program was produced by the Graduate School of Business Administration and the

Broadcasting Services of Michigan State University under a grant from nation's business a publication of the Chamber of Commerce of the United States. Business Roundtable is distributed through the facilities of national educational radio. This is and he are the national educational radio network.