U.S. Riches in a Poor World Overproduction Helps Only Big Business
SCHNABEL, OSCAR
Overproduction Serves Only Big Business By Oscar Schnabel Our present economic policy is one of the major reasons why, despite our prodigious financial sacrifices since World War II, the initial...
...The total income of the millions of owners of noncorporate businesses (e.g., lawyers, doctors, accountants and, of course, the non-corporate satellites of the auto, oil and other giant corporations) rose 5.4 per cent in 1955, while corporate profits rose 22.5 per cent...
...We must also change our attitude toward industrial production, giving up our present quest of a constantly skyrocketing output...
...This is far worse than an ordinary "dumping" operation...
...Here I would suggest: 1. Whenever an increase in productivity exceeds the needs of our growing population at a rationally rising living standard, we should cut production rather than increase consumption by inflationary means...
...Egypt's per-capita production of cotton is about the same as our own...
...Thus, the 1955 boom was unevenly spread...
...Surely it makes no fiscal difference whether we spend money at home in order to give goods away abroad or spend it without producing such unwanted goods...
...American Government grants were gratefully accepted during the first desperate postwar years, but it is obvious that no self-respecting people can go on accepting outright gifts indefinitely...
...He is assured that his income will continue to rise, so that he need have no worries about repaying debts...
...Thus, whatever may be required in the political and military realm, we will never hold our friends until we coordinate our economy to the needs of an economically and socially sound free world...
...Nor does dumping farm products harm only countries which export agricultural goods...
...2. Its high-pressure salesmanship is not only taking away consumers' savings but also inducing them to over-extend themselves in installment buying...
...Going ahead with this enterprise at the risk of gravely upsetting the Egyptian economy is surely shortsighted...
...To return to the effects of our domestic economic policy on our foreign policy: Nearly all the postwar financial aid we have given other countries has been in the form of Government grants and credits...
...This has fostered a widespread feeling among Europeans that, in helping them, we are also seeking to bolster our own economy and, in particular, dispose of our surpluses...
...Thus, instead of saving money with which he might help finance an expansion of the national economy, he is contributing to the undemocratic accumulation of capital in the hands of Big Business...
...4. With the exception of underdeveloped countries, we must halt Government grants and credits...
...In his excellent article, "A Plan to Free Free Enterprise" [NL, January 9], T. K. Quinn exposed the menace of giant business, but he did not go far enough...
...This boom was due chiefly to a credit extension unparalleled in the history of any wealthy nation...
...The auto moguls have already been forced to cut back production from 20 to 40 per cent, throwing some 160,000 men out of work and reducing working time for the remainder...
...We must thus reverse the present trend of our economy, which is based on reducing savings and boosting consumer debt...
...Big Business is primarily responsible for the current inflation, which has long been partly obscured by the drop in farm prices but is now clearly showing itself...
...Mortgage credit within non-inflationary limits is a good thing for democracy, since individual home-ownership strengthens civic consciousness...
...All this represents a great challenge to a democracy...
...And yet, auto dealers have the largest stocks of unsold cars in history, while used-car dealers scarcely know where to park them...
...Only if we learn to measure our living standard not merely by increased consumption but also by increased leisure will we be able to reduce our active trade balance and eventually turn it into a passive one which is essential if we are to collect the proceeds of our foreign investments...
...Even this does not tell the whole story...
...Its $300-million cotton output amounts to three-quarters of its total export trade...
...This is particularly true since virtually all our aid (except for offshore procurement and the employment of native labor) has been extended in American products...
...It is driving us toward inflation on a three-lane highway: 1. It is granting Big Labor wage rises which are out of line with the increase in productivity and then using these rises to justify even steeper price hikes...
...It worked overtime in 1955 to achieve a new production record of nearly 8 million cars, promising to better this in 1956...
...Much of this cotton was produced in the first place only thanks to Government subsidies, and it is being dumped at prices far lower than would be the case if private enterprise were handling the operation...
...The true story of the 1955 boom has been kept from the American public...
...by paying inflated prices, he also supplies Big Business with the means for further expansion...
...Few people realize that, while national income rose by 7 1/2 per cent, the total income of salaried persons (nearly four-fifths of the working population) rose by only 6.45 per cent, which, in view of the 5-per-cent increase in the employed labor force and the rise in living costs, means scarcely more than 1 per cent...
...2. Labor should focus its drive for a higher living standard by seeking reductions in working hours rather than inflationary wage increases...
...Perhaps the most serious factor in the lack of effective economic cooperation with our friends is American overproduction...
...The big corporations won the lion's share (General Motors' profits after taxes increased 47 per cent, representing 5 per cent of the profits of all American business corporations), while small corporate business gained much less...
...Big Business in Europe but by portfolio investments abroad...
...The following should be the main guiding lines in our foreign economic policy: 1. We must liberalize our tariff policy so that our foreign friends can export more goods to this country...
...We must shift to a normal growth in production, based on the natural population rise and a gradual increase in the living standard...
...A prime example is the recent decision to export large quantities of Government-held surplus cotton at prices far lower than the Government paid for it...
...Big Labor achieved substantial wage rises, but the huge majority of salaried people are no better off than before, and those whose salaries remained the same have suffered a reduction in buying power...
...3. We must become the world's leading banker, not just by expansion of U.S...
...This leads to the suspicion that we are interested in perpetuating the fear of war...
...thus, during the greatest boom in history, the nation is not even saving enough to finance home construction...
...It also affects importing countries in Europe which must trade for badly needed raw materials and food...
...But if we, the richest nation in history, cannot voluntarily accept minor sacrifices, then we should not be surprised if the totalitarian theory of forced sacrifices, propounded to incomparably poorer peoples, ultimately wins the struggle for the minds of men...
...but over-extended consumer credit and insufficient savings are contrary to the fundamental interests of political and economic democracy, quite apart from their harmful effects on our foreign relations...
...Obviously, all this can be accomplished only if we coordinate domestic economic policy to the needs of our foreign policy...
...How trustworthy this line of argument is can be seen from the performance of the auto industry in recent months...
...Thus, in the third quarter of 1955, which was the "boomiest" of all, sales of non-durable goods increased by $600 million, while installment credit jumped $2 billion above the record June 30 figure, which was already $2.5 billion higher than it had been on January 1. Big Business has thus been the main instigator of a credit inflation which is in many ways more serious than that created by budget deficits...
...2. By avoiding political pressure and/or dumping of surpluses, we must enable Europe to exchange its manufactures for non-European raw materials and farm products...
...Whereas the value of our cotton production is less than 1 per cent of our Gross National Product, cotton is by far Egypt's most important crop...
...Agricultural overproduction is not the only problem we must deal with if we are to keep our friends...
...What is worse, this move will have a direct effect on our relations with Egypt a key nation which we have been trying desperately to keep out of the Soviet orbit...
...While our extensive defense expenditures have helped enlarge Europe's productive plant, it is widely believed over there that we cannot halt these expenditures without suffering a severe recession...
...On the other hand, if we export 5 million bales of cotton at reduced prices, as anticipated, it will come to barely 5 per cent of all our exports...
...The constant brain-washing of our citizens by Big Business via the newspapers and television seduces the consumer to spend more than he earns...
...They should be met by financial assistance at home rather than by trying to export them...
...3. The foreign economic policy outlined above will undoubtedly create serious problems at home...
...4. We should accumulate sufficient savings not only for our own growth hut for investment abroad...
...Big Business, regarded by foreign nations as a new form of colonialism...
...We consume three times as much cotton at home as we export, but Egypt sends most of its cotton abroad...
...When we hurt the economies of agricultural exporters, we also damage European export markets, thus injuring our NATO allies...
...Not only were farmers worse off, but many millions of salaried workers and small businessmen did not increase their income at all...
...It is free to do this, since giant business has completely eliminated any sort of price competition...
...Any private financing abroad has represented international expansion of U.S...
...It is a fact that Big Business, with the cooperation of Big Labor, is transforming the entire fabric of our economic and social system...
...3. The consumer not only mortgages his future income...
...Overproduction Serves Only Big Business By Oscar Schnabel Our present economic policy is one of the major reasons why, despite our prodigious financial sacrifices since World War II, the initial admiration and confidence of other free nations has increasingly turned into suspicion and misgivings...
...By applying the Biblical precept of saving in the fat years for the lean ones, we can invest in Europe, which still suffers from lack of capital, particularly because of high defense expenditures...
Vol. 39 • June 1956 • No. 23
