on the World today


November 1949

In the last nine months faith has been sadly lacking in the American system of private enterprise. We have been going through a very delicate phase of adjustment to normal conditions of competition. It is what the London Economist now calls “a, healthy pause.” But the start rtf the adjustment was the signal for diverse activity on the part of several groups, based upon the premise that we were heading for a depression.

Among them were liberals — for example, the Americans for Democratic Action — who agitated for public enterprise as a “compensatory" measure, though any such activity would have retarded rather than encouraged the spirit of Competition. Then there were the mossbacked bankers and businessmen who, equally sure that a slump was coming, 1 bought it should be thoroughgoing enough to purge the system of its inflated costs, forgetting that a high debt level and a low price level cannot coexist in any comfort. Labor groups, also, intensified their agitation for a fourth round of wage increases, and rationalized the demand on the inapplicable ground that only the eking out of purchasing power would save the economy.

The cost of non-contributing

The distinguishing issue of the fourth-round campaign as paced by steel is a non-contributory system of social insurance and pensions. The President’s fact-finding board put the case in plausible language. In approving the union demand, though not its terms, the board said it was a legitimate cost of business to take care of “depreciation in the human machine” as well as in plant and machinery.

This doctrine has been written with the obligations of government in mind. The board knows as well as anybody else that social insurance and pensions would be borne not by industry but by the public. It is for this reason that social security has been established by the government. If this noncontributory system were to spread in industry, the movement toward wider coverage and better scales of government insurance would slacken.

Who would then suffer? Clearly the sufferers would be those workers who are not in favored industries. Small industry cannot possibly copy big industry; so the workers in small industry would be doubly disadvantaged. In their capacity as consumers they would have to bear the cost of private insurance schemes in operation in big industry. And they would he the forgotten men as the movement to improve government insurance slackened.

There is, of course, nothing wrong in duplicating government and private insurance. The former is no bar to supplementary aid in private enterprise. But the hope hitherto has been that the workers would keep their attention focused on the government system. For this is aimed at benefiting society as a whole. The shift in emphasis points up a trend to syndicalism which seems already to have seized the coal industry.

The miners’ plush fund

The coal industry is typical, moreover, of what is bound to happen in an industrial welfare system that is non-contributory. Here the system is actuarially cock-eyed. The operators pay out so much a ton on coal mined, and the lowered summer demand, on top of the three-day working week ordered by John L. Lewis, depleted the reserve fund. Yet Mr. Lewis, with the aid of his fellow trustees, blithely proceeded to extend the benefits. It stands to reason that if the miners had contributed along with the operators, the fund would not be in the mess it is today. Contributory systems make for a sense of responsibility which non-contributory systems lack.

The parlous condition of the miners’ fund throws a glaring light on ihe inglorious role of Senator Styles Bridges. A lot of feeling was created in the Senate over the revelation of the Senator’s take as trustee. It is being sharpened by the realization of the nature of the trusteeship. To be a trustee of this fund, it is now apparent, is to be nothing but a stooge for John L. Lewis.

How does this comport with the dignity of a Senatorship? No violation of the law can be adduced until there has been proof that Bridges has used his position as a Senator in behalf of his private employment. It will always be impossible to prove any such relation. But the immorality of the proceeding appears incontestable to more than a few of Bridges’s Congressional colleagues.

As a public servant, supposed to give full time to his Senatorship, he gets $12,500 plus $2500 expenses. This he capitalized to become a miners’ trustee, and in this position he gets $35,000 — a sum which shows that no matter what happens to the miners, the Senator’s welfare is pret ty well insured. Many people are wondering how he can square with his duty as a legislator the high salary he gets from interests involved in many issues before Congress.

The dollar problem

The seriousness of dollar-pound trouble caught the public on both sides of the Atlantic unprepared. The man on the street in Britain cannot appreciate a crisis when he has a job and his pay envelope is full. On the American side, though the farsighted knew what was brewing, the feeling was that any shouting from the housetops might make the situation worse. Specifically, speculation against the pound would have been encouraged. The initiative in this respect rested with the British anyway. So the High officials laid low till the talks opened, and even then let the British carry the ball, so that devaluation might not seem to be forced down the British throat.

The devaluation of the pound had become a fact when the conference opened. That is to say, the pound had been driven down on the black market, and the loss of dollar reserves had developed a momentum. This was due to two factors: postponement of American purchases in Britain while there was uncertainty about exchange rates, and speculation.

How speculation can be carried on in the presence of rigid controls over money movements is something of a mystery, It is done, apparently, in a variety of ways. When an American has pounds in London and a Briton has dollars in New York, under-thecounter transfers are feasible through trevelers. Businessmen also can avoid dealings in British pounds by themselves buying in the sterling area and selling for dollars, thus short-circuiting London. This has been done in the case of rubber. At any rate, both trade hesitation and speculation had brought about a de facto devaluation.

Britain’s war debts

But the malaise is much deeper than a problem in exchange rates. The British feel that their war debt situation has become unmanageable without American aid. This war debt, contracted mainly with India, is expressed in more or less demand balances held in London.

When the American recession began, the Indians, unable to keep up sales to America, at good prices, of jute, mica, manganese, and shellac, started to draw heavily on those balances. The drain prior to the recession took the form mainly of “unrequited exports” — that is to say, British exports in payment of the war debt without compensation in imports from India. After the recession the Indians wanted dollars, and the British could not very well refuse.

The procrastination of the British on this matter of their war debts is one of the deficiencies of post-war statesmanship. Mr. Churchill once said privately that if the British people had confirmed him in office, he would have proposed, as he grandiloquently put it, an International Grand Assize on war obligations.

Nothing of the sort happened. The British simply sought aid for themselves, leaving the sterling debts as the ghost in the background. There they remained all the time the Keynes loan mission was in Washing on in 1945. Some Americans mentioned them, on the theory that a borrower doesn’t ask money while his debts are unsettled. But the British always murmured that the subject was a political hot potato. In a way it was, with India getting ready for independence. Now the obligation is loo heavy to be endured.

The dollar hemorrhage is accounted for, basically, by a number of circumstances: inability to compete in the American market, diversion of Britain’s exports to the sellers market remaining in the non-dollar world, difficulties of selling and marketing in America. But, with the pound righted, the British could doubtless irei along if the Indian problem were taken off their necks.

The Mood of the Capital

The mood of the Capital in the wake of the historic ABC conference is one of satisfaction over the machinery which has been set up to cement the free world. Friendship, as President Wilson said, needs machinery. So much of it has been established since the last report as to stagger the historian. Politically there is the .Atlantic Pact; strategically, the defense organization; economically, the agencies to work out the understandings at the ABC conference.

The announcement of the revaluation of free-world currencies is the beginning of close financial teamwork. It is, of course, only a shot in the arm, but a necessary one, for currencies bad become completely out of kilter. In this situation the dollar market was impossible for the British (in particular) to break.

This was recognized in the last report of the National Advisory Council, put out in July The report received little at tent ion in the press, but it showed the British problem. It gave a broad hint that with the return of competition a revaluation of currencies was a sine qua non of economic recovery and European integration.

But Secrelary Snyder, who presides over the NAC and in this capacity presided over the financial talks in Washington, is under no illusions about the limited value of devaluation in covering the unbalance in Britain’s balance of payments. He thinks of it only as a breathing spell during which the British can retrench in the matter of business taxation and pull down their costs of production. The mammoth nature of the task confronting British leadership is fully appreciated by Secretary Snyder. But he sees no escape from it if the British in the foreseeable future are to earn their daily bread.

The Capital is wondering whether the good feeling that the conference generated did not hide a great deal more than devaluation and the prospect of American investment. What appears to be expected is a big-scale swapping of surpluses held by the Commodity Credit Corporation for strategic materials in Asia and Africa. An amendment in ibis year’s renewal of the CCC powers allows this.

A month ago nobody outside the Department of Agriculture seemed aware of this provision, but it certainly entered into the deliberations before they closed, and a sizable swap between India and America is in prospect. This will do more to relieve Britain’s anxieties, politically and financially, than anything else.