Access to Raw Materials
THE PEACEFUL MERGER OF WANT AND SUPPLY
By HERBERT FEIS, Economic Adviser, Department of State, Washington, D. C.
Delivered before the Academy of Political Science, New York City, November 15, 1944
Vital Speeches of the Day, Vol. XI, pp. 141-145.
TWO strong tidal rivers run through this raw materials field—that of want and that of over-supply. If there were economic harmony throughout the world, these would merge tranquilly in satisfying fulfillment. But usually they have not done so. Many peoples have not been able to secure the supplies they sought, while producers have been familiar with poverty and uncertain fortune. I propose to discuss whether and how this can be avoided in the future.
The search for adequate supply established itself as a controversial international question as a demand for "access to raw materials." Some of its expressions were unsullied and justified protests by industrious and capable peoples against the boundaries which history shaped and the restrictions on trade which governments imposed; others were reflections of the plight of huge populations, miserably equipped for production, trying to live off scanty resources; while the most vocal were cries of resentment against more favorably located lands which masked designs of conquest.
The quality of the question became debased during the thirties by the conduct of its leading exponents—Germany, Italy, and Japan. This search of these countries for greater supplies of raw materials and foodstuffs gradually transformed itself into a demand for the means of building enormous military establishments to hurl against the rest ofthe world. Such was the half-guilt that was prevalent, and so deep was the wish to believe that war would not come again that we long hesitated to put the true interpretation upon these demands. At the time of their choice, these three countries appointed cannon as their spokesmen.
No matter how adequate supplies may be in the future, they can never be sufficient to fill all the requirements of voracious competitive military programs; and should the world be burdened by such programs in the future, the problem of need will never be banished. A very few countries, like ourselves and the USSR, might be able to maintain military forces of unlimited dimensions without seriously depriving ourselves of the means of satisfactory living, but other nations will not be able to do so.
It is imperative that all peacefully inclined and industrious peoples find it easier to satisfy their needs than in the past. Total supplies must be increased and they must be more satisfactorily shared.
All countries, after the war, will be hard bent upon the improvement of their standard of living and the extension of industrialization. These require greater supplies of foodstuffs, clothing and building materials and industrial raw materials. Clamorous claims will emerge everywhere, from countries like India and China which contrast their misery with life as seen in countries like the United States; from mature industrial countries like Great Britain, France, and Belgium, whose requirements of adequate supplies will be essential for the re-establishment of their economic life and the maintenance of their place in the world; from many of the younger countries, such as the larger Latin American Republics, which pulse with eagerness to enlarge their manufacturing activity.
Such will be the components of the prospective demand for adequate supplies on satisfactory terms, and each claimant will be quick to blame others, rather than itself, for any difficulties that may be encountered. For the conviction has grown that a sufficiency is within the grasp of all. Every moving picture that issues from Hollywood, every advertisement sent out by the manufacturer of tractors, every glowing essay that appears in the Moscow press is an incitement to this belief.
Where do the obstacles lie to its realization? They are not apt to arise to any significant extent from direct hindrances to the international movement of supply into the hands of those that can pay. Peace-time supplies of foodstuffs and raw materials, no matter where produced, tend to become available to all peoples on the same terms. Restraints and discriminations, while provocative and usually injurious, have been of relatively little importance; and I should not expect them to be of greater importance in the future if there is a fair assurance of prolonged peace.
The obstacles lie rather in the general field of production and trade. Countries remain in want for foodstuffs and raw materials because they can neither produce enough themselves or secure enough by trade with others. Correct those deficiencies and the question of want will disappear.
I realize that I am only locating the obvious. But there is a new pleasure in doing so—for the obvious may be moving into the sphere of the attainable. Granted peace, every country in the world will be in a better position to satisfy its needs from its own resources and working effort than ever before, as a consequence of new forms, methods, and types of production and transport.
I will not enter into a recital of the multiple ways in which the increased power of production manifests itself. An evening spent with the sober studies of the Department of Agriculture, Bureau of Mines, or even the Statistical Abstract leaves a startling sense of a future where farmers will no longer be defeated by fatigue, by pests, by wrong selection of crops, by weather, by drought, or by floods; good but dry lands will be made irrigable; good but wet lands will be drained; remote lands will become accessible; hidden oil deposits will be discovered; heavy ores will be cheaply mined and moved; new rich yielding plants will create a new fund of production; new metals, like magnesium and aluminum, will pour forth in volume, along with the new synthetic products. The war has given new indication of the fact that with the exception of some minerals close to exhaustion, it may be easier to increase supply than to curtail it.
These are possibilities that all countries can, to some extent, bring to realization. But not merely by wishing; they require much capital, expert knowledge and systematic application—and not only by few but by many. Thus it may be noted, by way of digression, that while they provide a promise of great improvement everywhere, the difference in the relative situation of those countries that are well supplied with capital and effectively trained in the new methods of production, and that of countries which lack these advantages may become greater, not less. The impulse towards productive growth, and the power to achieve it flow out of a few great centers—like the United States—whose destiny it becomes to revolutionize the world's working effort and return therefrom. Whether we shall gain therefrom peace and friendship, or simply stir restless rivalry and resentment, will be the great test of the size of our own and others' natures.
Even though all countries make skillful and industrious use of their new productive opportunities, none will be able to satisfy all its important wants from its own production, and most will have to rely on procuring from others a great variety of raw materials it cannot produce, or only produce most disadvantageously. The countries that possess large resources and ample supplies of capital can make the most effective use of their working effort by trading with others; the countries that lack these elements of productivity must trade with others to obtain essential supplies of raw materials and the equipment for making domestic production more effective—which, in turn, would improve their trading capacity.
Less than in past times would persistence of shortages tend to reflect the penury of nature or the ineffectiveness of human effort; they would relate more decisively to the ability or willingness of independent national states, in concert, to distribute their productive activity in such a way as to permit each other to thrive. If trade is harshly burdened and restrained, bitterness about access to supply is certain to infect the future.
In the immediate post-war years, the movement of raw materials and foodstuffs from the countries that produce surpluses to those who need them will have certain temporary abnormal characteristics. The countries whose holdings of gold, dollar and sterling balances have been greatly enlarged in the course of war (for example, the European neutrals, India, the Latin Republics) will be able to satisfy their demand far more effectively than before. Others whose wealth and external assets have been destroyed or drained by war, and whose requirements will be imperative, as for example, Great Britain, will be in a worsened position. They present a need for financial aid of an emergency character—to which I have little doubt we will in reasonable measure respond if the political omens are favorable.
A worrisome problem of correct timing of the flow of our aid and investment is to be anticipated. Prospectively in the first, say, two years after the war, our producers of foodstuffs and raw materials—in many, if not all branches-will find full employment for their energies on satisfactory terms. The demands of many foreign countries will, as I have just observed, be unusually intense and unusually effective because of their possession of the dollar assets that they have not been able to spend during the war; simultaneously, through Lend Lease or otherwise, we shall be assisting the less favorably situated countries. If no precaution is taken, events may repeat the cycle of boom and bust that occurred after the last war. When war-born accumulations of dollar purchasing power have been reduced and reconquered lands have been returned to production, and emergency financial programs lapse, will there be purchasers for the great flow of American exports that will have been sustained? The only avenues of escape from this dilemma would appear to lie in the possibility of greatly increased American imports and use of foreign sources, and in reserving the flow of American long-term foreign investment for the time when it may serve as a balancing element.
This trend of thought leads the mind to the reverse side of the raw material and foodstuff situation—the plight of the producers, especially in those branches that are largely dependent upon external markets. The aim of the producers in every country is to retain or improve their economic place and position. They are eager to use their full productive powers, but on their own terms.
The only chance of achieving this lies in the possibility of a great permanent enlargement of effective demand closely balanced with the flow of each of the multitude of products. This would bring sustained employment to the producers, make great shifts in productive activity unnecessary and dispel the need for any measures of regulation or control. It is a consummation devoutly to be wished. It is the path of growth in improving economic welfare. It is the natural balance of which economists dream.
But if I appraise correctly the productive significance of the new knowledge, new machines, and the new sources of supply, the outflow of many raw materials and foodstuffs products may tend (once the great needs left behind by war are satisfied and reconquered lands returned to production) characteristically to exceed the quantities for which there will be effective demand at prices that will be deemed satisfactory. The support and encouragement of national governments eager to avoid dislocations and responsive to group demands will augment this tendency. Furthermore, in the absence of regulatory measures, it is probable that great fluctuations of prices and stocks that have occurred in the past will repeat themselves.
Should tendencies of this sort appear, what course should policy follow? There are many who believe the only satisfactory course would be to accept the dislocations as the price of progress, resist the demand and permit the processes of competition, national and international, to have their full and conclusive consequences. This would require national governments to abstain from all actions that moderate or supplant competition, whether domestic or foreign; to permit prices and incomes of their producers to decline to the level determined by the market and to find satisfactory occupation for the human beings who lost in the battle. Producers would not easily give up—experience shows. Each would strive to stay in the ring as long as he had the means of doing so, or a glimpse of hope that circumstances might turn or governments come to his rescue.
A policy of this kind might be possible and justified if the dislocations are not serious and prolonged; and if alternative uses for men and resources were easily available. Otherwise it would not be. Even now national legislation in all the countries which are large-scale producers of foodstuffs and raw materials provide minimum guaranteed returns for producers, protection against external competition and funds wherewith better to struggle for available markets. In the better conceived national programs such measures accompanied or supplemented by others designed gradually to re-direct production into fields where effective demand is sufficient and growing. The hastier expedients rest on a faith that chance will provide a solution, or that the budget can eternally bear the burden.
In the event that future supplies of many raw materials and foodstuffs prove to be greatly in excess of acceptable demand—purely national programs and efforts at adjustment would be inadequate and unsatisfactory. They would cause the retention of trade restrictions, stimulate currency depreciation, incite export rivalries, and mean great instability in price. The few countries which derived most of their supplies from abroad might benefit from the struggle among the others; but even this is doubtful.
The mind is led to search for stabilizing and reconciling international measures—though recognizing, first, there can be none so satisfactory as an harmonious growth in effective demand for all that may be produced and, second, that producers in these fields cannot enjoy steady employment and prosperity unless producers in other fields likewise do so.
There are three types of measures in this field worth consideration: first, the so-called buffer stock plan; second, supply regulation plan; and third, the international pooling of supplies or stocks. I shall comment on only the first two of these, for time is short and the third proposal would take us into remote conjecture as to the willingness of nations to share their wealth. This, in substantial measure, has been done as between the chief fighting United Nations in the course of the war under the direction of the Combined Boards. But during this period there was no problem of unemployment to be reckoned with and the participants were prepared to discard financial considerations. With a plea that the experience and performance of the Combined Boards during this war receive reflective and sympathetic consideration—especially as an instrument for distributing and increasing the flow of any products that may be short supply, I pass on to the other two.
The conception of the buffer stock plan is that governments should jointly act to purchase products when in such ample supply that they are depressing markets; and to sell products when they are in such short supply that their price is increasing greatly. It is conceived that this buying and selling would be a means of stabilizing both prices and the flow of income to producers, while simultaneously adjusting supply to effective demand. As expressed by the Chairman of the British Delegation to the United Nations Conference on Food and Agriculture, the program ". . . should aim at combining a short period stabilization of prices with a long period price policy which balances supply and demand and allows a steady rate of expansion to the more efficient producers. It should be possible to achieve these aims through variations in the price at which the authority controlling the buffer stock is a buyer and seller."
In the conceptions that have been advanced by the technicians the authorities in charge of the buffer stock operation would modify the basic price range which they strove to maintain as necessary to keep the market stable; they would lower it when faced with a persistent excess of supply, (thereby avoiding the accumulation of unmanageable surpluses), and would increase it when they wished to call forth greater supply.
There may be a few commodity situations in which this method of price stabilization could be safely and effectively employed without any accompanying regulatory measures. However, as a general method, I believe it would result in
failure. Among the several reasons for this judgment, the most compelling one arises from the probability that the controlling authority would almost inevitably bind itself, subject to the dictation of the producing interests in the various countries. Characteristically, it would always be forced to maintain prices that would enable the less efficient producers in each competing country to survive, and the less efficient among the competing countries (or rather those with the higher money costs of production). If a country believed that prices maintained would injure its position, it would stay outside the plan and take advantage of it. If these anticipations are correct, buffer stock plans, by themselves, would stimulate supply to outrun effective demand; and barring the possibility of sustained great military requirements, the burden of absorption placed upon the plan would tend to become unsupportable. Thus, as a general method, I believe any buffer stock program, by itself, inadvisable. It might prove satisfactory as a short-term instrument for graduating the liquidation of a few abnormal and particular surpluses that may exist immediately at the end of the war.
Analysis is led, thus, to concern itself with possible arrangements for the regulation and adjustment of production (or alternately, according to the position of the country in relation to the commodity, of stocks or exports). Many of us are familiar with Department of State publication 2143.
† Treaty Series 840.
and have pondered over the various international supply regulation plans that are, or have been, in existence—such as the agreements on rubber and tin, tea, coffee, and sugar. Agreements of this type, if formulated and directed with long-sighted moderation, have important potential merits. They could have the merit of effectiveness; that is, they could bring about an adjustment of supply and effective demand in a tolerably satisfactory and stabilizing fashion. They could reduce the arc of price change between good times and bad and lessen the minor changes of more ordinary periods. They could soften the friction between competing producers of different countries in external markets, lessen the demand each makes upon its national government for assistance in the struggle, and relax the drive to secure exclusive opportunity. Finally, they could operate effectively without placing burdens on public budgets.
These are all hypothetical possibilities, nothing more; but as such they justify careful consideration of the use of international supply regulation plans, when a need for concerted action clearly displays itself, when the alternative is marked depression for producers, on clearly forecast irregularity of prices and outlook and envenomed competition for markets.
Many dangers and difficulties will be encountered in the use of such plans. It would be regrettable if they were used permanently to dam back the swelling volume of useful raw materials and foodstuffs that the world is now in a position to produce; to keep the world, as it were, permanently on rations. Any such outcome would mean, in essence, that countries agreed to remain the poorer, because they were unable to agree upon terms of shifting about their productive effort so that they might all be richer.
Supply regulation plans can be, and usually in the past have been, used to secure too favorable prices and income receipts for, at any rate, the more efficient producers. This burdens consumers and, at times, restricts employment. They can also operate to discourage the emergence of new and more efficient sources of supply, thereby again, being unfair to the consumer and unjust to the country whose development is checked. In short, they may degenerate into selfish, semi-monopolistic controls that neither satisfy wants on fair terms nor stimulate economic growth.
Such possible faults in operation indicate that if they are to have a place in international economic arrangements they
must be public instruments, not private accords among producers. None should be entered into without the consent and cooperation of the producers affected; and usually it would prove advisable to grant the producers considerable initiative and responsibility in the formulation, and even the negotiation, of the program. But all arrangements should be subject to government approval, accountable to government for operations and subject to ultimate government control. Only in these ways could there be sufficient assurance of striving to serve the public interest.
Furthermore, both in the negotiation and the operation of each agreement, the governments of the importing countries should have influential representation. This would be necessary to assure that the price aims that governed recognized the buyers' needs, did not restrict production or supply too rigorously, and did not suppress firmly new sources of supply. Consideration might be given to the possibility of providing that if, on several successive occasions, representatives of consuming countries condemned the decisions of the regulating authority, the plan should be terminated.
The construction of any arrangements of the type suggested would require the successful reconciliation of two very complex sets of human relationships; and might prove impossible. It would require, first, that bargains be struck and mutual confidence established between supplying countries eager to get large income from their sales and purchasing countries eager to get their supplies at the lowest possible cost. Suspicion and quick seizure of every turn of circumstance by every party has been the rule in this relationship. These could be converted into one of trustful cooperation only if the producing countries accord importance to amplifying the employment possibilities of large sales at low prices and accept the fact that the buying world is entitled to secure its supplies, in general, from the cheapest sources; while, in their turn, buying countries recognize that they also suffer from vast fluctuations in prices, and that their export trade is also injured if the producers of foodstuffs and raw materials in other countries are depressed or suffer extremely abrupt dislocations. Such is the area of mutual interest, out of which agreement would have to be won.
The second delicate set of relationships would lie between the private producers and the government. In those commodity fields in which a country produces a surplus for export, international supply regulation plans would usually, though not always, involve some form of governmental regulation or restriction of exports, stocks, or production, or some combination of the three. This restraint might be light and easily tolerable or it might be rigorous and confining; it would differ in each instance.
Whatever its form and measure, it will be regarded in many quarters merely as regimentation or the forced prevention of useful production, or both. Events would justify such a criticism of the policy if the policies followed hampered the freedom of producers injuriously rather than constructively, or substantially curtailed the volume of production that could find a decent and natural market. But otherwise the criticism would be apt to yield to experience.
Opposition to any form or measure of governmental regulation of supply has sometimes been most vigorously expressed by those who are not ready to permit the forces of competition, national and international, to work themselves out to the bitter end. Often, the demand for complete freedom is in reality an assertion of the right of all producers to produce as much as possible at a price guaranteed to them by some form of government action.
The actual alternative to concerted international action would not be, in most cases, that of permitting the producers unhindered and without special assistance to sort themselvesout by the test of competition, national and international; it would be a battle between protected and subsidized producers in different countries to widen their foreign markets. When and as such policies as these prevailed in many lands, bitter and disturbing international clashes would occur.
Judgment in this matter must take account of the fact that while the technique of production changes with great rapidity, producers cling fast and hard to their occupations and their investments and national governments are increasingly given to fight the battles of their producers. The actual choice may often be between some form of only half-satisfactory international regulation program and a series of disorderly, competitive and disturbing national programs which bring neither stability or enlarged trade. Our policy cannot be the virgin child of theory or desire. It must be conceived in contact with the whole outside world.
In the past, the races of men have suffered for the lack of the means to nourish their bodies and clothe their dreams. They have now come into possession of the knowledge and instruments by which, with patient and peaceful labor, they should be able to do so. It would be a tragedy if they failed because they could not agree upon satisfactory arrangement for the distribution of their working effort and the terms whereby they served one another. We must learn to engineer a tranquil merger of the streams of want and abundant supply.