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George P. Brockway’s “Productivity: The New Shell Game” (NL, February 8, 1982), which I have only recently come upon, makes more good than bad points. There is one instance where it strays from the facts, however, and I am sure you will welcome a correction. Being a metallurgist, I can assure you that U.S. Steel did not make the mistake of staying with the Bessemer process instead of switching to, as Brockway says, “whatever it was the Germans and Japanese switched to.” U.S. Steel has large blast furnaces and basic oxygen converters for making steel from iron, the same as the Japanese and the Germans.

The big difference is that the Americans are paying $24 an hour for labor, the highest in the world, while the Germans and Japanese are paying $5 an hour or less. Their workers are more literate, too. I urge Brockway to visit German and Japanese steel mills (as well as those in South Korea), where he will see how educated and productive the workers are compared with their American counterparts. Yet these countries spend far less for education than we do in the United States.

Brockway brings up steel mills in order to castigate American management. I would note that U.S. Steel has had good management for some time, and its current leaders are the best ever – probably the best in the industry.

As for the mergers Brockway takes exception to, why should U.S. Steel be restricted from going into some other lucrative business where it can make a profit and thus give its employees, suppliers,  stockholders, and all of its other constituents more security? U.S. Steel’s decision to take over Marathon Oil was wise, and one it should be allowed to pursue. After all, newspapers are not prevented from going into radio, television and other undertakings. Steel companies should not be hindered from doing the same – especially when the world market, for reasons beyond the industry’s control, renders it impossible to turn a profit by manufacturing steel. Foreign steel mills are government subsidized, they receive favorable loan rates from their bankers, and they are not persecuted by their governments, as our steel companies have frequently been in the past.

The present Administration at least has a better attitude,  although it still has not enforced the antidumping laws. Doing so would enable our steel companies to compete on a much fairer basis with subsidized foreign producers, who are dumping steel in the American market at prices far below those their own markets command.

I do not work for U.S. Steel or any big steel company, but fair is fair. I hope that in subsequent articles Brockway will bring out some of the facts I mention above.

President Reagan has done more than any other recent Chief Executive to encourage productivity. He deserves more credit than Brockway’s article gives him. Since productivity is such a big factor in our survival, we can all benefit from the President’s lectures about working harder. We badly need them to remind us of the necessity for more effort from everyone in our society who is working and doing something constructive.

Morristown, Pa.                                                                                                                DAVID M. SCHMID

 

George P. Brockway replies:

David Schmid may be right about the productivity of American steel mills. I was relying on the BusinessWeek series on reindustrializing America. Since I did not agree with the conclusions of the series, perhaps I should have questioned the premises.

I certainly agree that U.S. Steel should not be restricted from going into other lines of business. My position is that they should not be encouraged to do so, and that there are aspects of the tax law that give such encouragement. My main point, in any case, was that the venture into Marathon Oil merely rearranged the ownership of existing productive assets. It did not create any new ones.

On the question of the competition with the Japanese, I am probably closer to Schmid’s view than he thinks. Assuming his figures are correct, I am sure he does not believe that it would be either efficient or ethical to reduce the American wage scale to the Japanese level. I have, as a matter of fact, done a couple of columns on this very subject (“America’s Setting Sun,” NL, June 14, 1982, and “How Our Sun May Rise Again,” NL July 12-26, 1982). My general point about productivity, which I may have failed to state clearly, is that productivity per worker is a proper concern for the management of any enterprise, but productivity of the economy as a whole is the proper concern of the national government. This national productivity is obviously not improved by managing the economy in such a way that well over 12 million potential workers produce nothing at

Originally published September 20, 1982

Dear Editor

Oriental Labor|


The apparent clincher in George P. Brockway’s “How Our Sun May Rise Again” (NL, July 12-26) is his rhetorical question about explaining “the steadily increasing prices of electric irons and TV sets and cameras and automobiles, despite their being produced in the allegedly more efficient and assuredly lower wage Orient.” Steadily increasing compared to what? All the items he mentions have had small increases in price over the years relative to either the overall price level or disposable income.

Consider the following data on average annual increases from the end of 1970 to the end of 1971: Disposable income climbed 10.2per cent and the consumer price index for all items rose 8.1 per cent. Meanwhile, the prices of new automobiles and footwear went up only 5.1 per cent; household appliances, 4.8 per cent; apparel, 3.8 per cent; and television sets, a scant 0.3 per cent. All these are consumer goods that were heavily affected by imports from East Asia, especially the last two items. The answer to Brockway’s question is that his factual premise is all wet, not for the first time.

Brockway is also careless in describing the theory he sets out to overturn (by assertion). Like other valuable insights, the principle of comparative advantage was elucidated somewhat imprecisely by its formulator, David Ricardo, and has been refined in the 165 years since 1817. The principle does not depend on the trans-national immobility of capital. It is valid as long as some factors of production are geographically immobile to some extent: physical capital, mineral resources, skilled labor, entrepreneurial talents, whatever. Clearly, such immobilities are ubiquitous, otherwise there would be no differences in wages and other returns to factors of production among nations or among the regions of one nation. (The principle, pace Ricardo, does apply within a single country.)

Ricardo would not have discarded his law, nor would he have been as pessimistic as Brockway is about the American capacity to come up with “sunrise” industries. More likely, he would have remarked upon our repeated success over the years in replacing “sunset” with “sunrise” industries. To be sure, the international transmission of industrial knowledge and skills, as well as capital, is swifter than it was in the past. But that swiftness tends to raise, not lower absolute standards of living here “and elsewhere, although it reduces the disparity among industrialized countries’ standards of living, which is a good thing, not a bad one.
New York City

 DICK NETZER
Director
Urban Research Center
New York University

 George P. Brockway replies:

 Dick Netzer is agile at the old debater’s trick of answering resoundingly a question different from the one asked. When I said that various items produced in the Orient are steadily increasing in price, I meant precisely that. Netzer says that their prices haven’t gone up so much as disposable income, which is another question. Since his statistics, if they prove anything, prove my point, I’ll refrain from questioning his choice  of dates or inquiring into the effect of shifting exchange rates or comparing the behavior of the prices of American-made versions of these products  with those of the same products produced in the Orient.

As to the history of the Law of Comparative Advantage, I certainly do not question that refinements have been made in it since David Ricardo formulated it 165 years ago. As a practical matter, however, these are beside the point: The present putative Oriental advantage is the result of cheap labor and often unsafe working conditions. (Chinese doctors are good at reattaching chopped-off fingers and arms, because they have so much practice at it.) It would be dishonorable to treat American workers as Oriental workers are treated, and it is dishonorable to throw our citizens out of a job in furtherance of Oriental exploitation.

The Ricardian argument, moreover, implicitly requires that workers displaced by the transfer of their industries abroad will immediately find comparable positions in industries that (for some reason the theory cannot explain) stay home. My factual premise, which Netzer  unaccountably thinks is “all wet,” is that millions of Americans are out of work because we have exported their jobs, and that billions of ‘dollars’ worth of American plants are standing idle because we have exported their industries.

It may be that, as Netzer says, I am too pessimistic about the prospect of coming up with sunrise industries to replace sunset industries. If the real world were as optimistically fast-paced as he pretends, I should think he would at least have suggested a few sunrise industries to relieve my gloom. And I’d dearly love to have him explain why certain industries are sunset here but sunrise in the Orient, unless the difference lies largely in wage scales and working conditions.

Finally, I must diffidently point out that the rhetorical question Netzer has tried unsuccessfully to answer is only one of three that I asked, and the least important at that. And I really must object that I did not and would not rely on a rhetorical question in the middle of my essay as a “clincher.” I have more respect for my readers than Netzer allows.

Originally published April 19, 1982

Dear Editor

Speculation

I feel tempted to say a word about one part of George P. Brockway’s Why Deficits Matter” (NL, March 8). Brockway draws a distinction between speculation and productive investment that is entirely misleading.

Of course, there is a difference between a purchase of a share of stock on narrow margin and a purchase of the same stock out of savings. The first is speculation, the second you might call investment, depending on the stock. The economic effect, however, is the same. The market does not distinguish where the buyer of a security got his money from. In fact, it has no way of knowing. In either case, the seller of the stock can do three things with the money he gets-consume it, hoard it, or put it into some other investment. Few sellers of stock consume their principal. Not much idle money is held at today’s interest rates. The chances are overwhelming that the seller of the stock, whoever he is, will put his money into another investment.

If that “new investment involves the creation of brick and mortar, it is directly productive. If it just leads to the purchase of an existing security, the same set of choices confronts each successive seller. Eventually, the money will find an outlet in directly productive new investment, unless it is consumed or hoarded. In the process, stronger demand for securities reduces interest rates and stock yields, reduces the cost of capital to investors, and in that way also stimulates investment.

In conclusion, I want to note that while I fully agree with the statement in the title that deficits do matter, I find the entire article so one-sided that in limiting my comments to the point I have made I do not mean to imply agreement with any of the rest of it.

Washington, D. C.                HENRY C. WALLICH

Member of the Board of Governors

Federal Reserve System

 

George P. Brockway replies:

To comment on Governor Wallich’s interesting letter I must try to summarize points I made in “Why Speculation Will Undo Reaganomics” (NL, September 7, 1981). There I proposed definitions of gambling, speculating and productive investing that, I believe, disclose the different economic effects of the three kinds of activity.

In brief, gambling is a zero-sum game that produces nothing but the players’ pleasure or despair. Speculating is not a zero-sum game: Over very long spans of time all who participate can gain, though some will no doubt gain more than others, but speculating is like gambling in that it only rearranges wealth that already exists. Productive investing is like speculating in that it is not a zero-sum game, but it differs in that goods and services are produced. It should be emphasized that all three activities are risky; consequently risk is not a useful criterion for distinguishing among them, though it is the one ordinarily used.

Governor Wallich’s view, which is the standard one, is that such distinctions are idle because ultimately the results of speculating go into consumption, hoarding, or “bricks and mortar.” This, I should contend, is one of those instances in which Keynes’ remark (“In the long run we are all dead“) is appropriate. Holland’s tulip mania increased in virulence from 1615-37-…It took nine years for the South Sea Bubble to burst. The Great Bull Market lasted six or eight years. Some of these speculative frenzies might, in Governor Wallich’s terms, be classified as hoarding or consumption; but they were not productive investments. They absorbed, and ultimately destroyed, vast sums that could have gone into productive investments.

More important than all this is the role of the stock and commodities markets. Governor Wallich says that “Eventually, the money will find an outlet in directly productive new investment unless it is consumed or hoarded.” The imagined event has to be a long time coming. Fewer than 1 per cent of the transactions on the stock and commodities exchanges have anything to do with productive new investment. Professional traders can and do spend their whole lives buying and selling without ever touching a productive new investment. Insurance companies and endowment funds tend to shy away from productive new investments. Investment bankers (so called) are now mainly concerned with mergers and takeovers. A very large nonproductive tail keeps the productive dog off balance.

I’m afraid it simply is not so that “stronger demand for securities reduces interest rates … and … stimulates investment.” This may be what the theory calls for, but it is flatly refuted by the present situation, when both exchange transactions and interest rates are at all-time highs. The “stronger demand” is a speculative demand, and it attracts money away from productive investment.

To cite an example, U.S. Steel abandoned plans to update its mills and borrowed $3 billion to acquire Marathon Oil. It would be fantasy to suppose that the happy Marathon stockholders, having unloaded at the top of the market, have not been encouraged to bid up the shares of other companies thought susceptible to takeover. There is nothing productive about this. Moreover, the $3 billion U.S. Steel borrowed has surely helped to keep the interest rates high. It is the same with margin accounts, which soak up available funds and thus help keep both securities prices and interest rates higher than they would otherwise be.

I agree with Governor Wallich that “The market does not distinguish where the buyer of a security got his money from.” For this reason (among others), I would not try to prevent speculation. But I would shut down margin accounts (as has been done before). I would see what could be done to discourage borrowing to finance mergers. And I would not encourage a hundred speculative transactions (as the low capital gains tax does) in the bumbling hope of stimulating one new productive investment.

As to the fact that the rest of my article on deficits was one sided, I admit the soft impeachment. If you have a reasoned conviction, I’d think it irresponsible to pretend to what is called a “balanced view.”

Originally published February 23, 1981

Dear Editor

Foreign Policy

I agree with George P. Brockway’s conclusion that “policies like the human rights program are precisely what is needed, while unleashing the CIA will damage us severely” (“Foreign Policy in a Bipolar World,” NL, January 12). But it seems a gross exaggeration to attribute the decline of Eurocommunism or the survival of Spain and Portugal outside the Russian orbit to former President Carter’s human rights program and the Helsinki Final Act. While it may be easier to arrange “for our enemies to have enemies” than to increase the number of our friends, there is little evidence that this can be achieved by trumpeting the human rights cause. To direct human rights policies” more toward making the USSR mistrusted than toward making ourselves beloved or feared,” depreciates their value.

The best argument for a human rights program is not that it makes enemies for the Soviet Union and friends for the U.S. Human rights are intrinsically good, like international economic prosperity and the absence of world war. They are invaluable, not only because we like them, or because they are the foundation of American independence (“the objective of American foreign policy”), but because the more human rights prevail abroad, the easier it will be to preserve them here.

In the many regions that are critical for our foreign policy-the Middle East, Africa, Central America, Eastern Europe, South Asia-human rights are endangered not only, or even primarily, by threats of Soviet subversion or penetration. The greater danger is that human rights in these crucial areas are imperiled by economic and social disequilibrium. A credible human rights program cannot be separated from concern about and involvement in efforts to achieve more equitable social and economic systems in the destabilized regions.

President Carter’s human rights program was so selective that it seemed deceitful to many in the Third World. It was too obviously a propaganda weapon aimed at discrediting the USSR by focusing on Communist betrayal of freedom, while giving little if any attention to identical or even worse violations by regimes that were supposedly our friends-Iran, China, Korea, the Philippines, and others frequently cited by Amnesty International. Are Arabs, Indians, Latinos, and those to whom the Voice of America sends news about our human rights concerns supposed to take protestations about Soviet dissidents seriously when they fail to hear of our concern about their dissidents?

Carter’s human rights program also failed to link the rights of free speech, free press, free assembly, and free political organization with the rights to work, eat and grow old with dignity and security. In much of Africa, the Middle East, Asia, and Latin America it will be difficult, perhaps impossible, to achieve the first category of rights without the second. A credible human rights program cannot be selective; it must demonstrate concern for the rights of all, and must also seek the right to survive with dignity as well as to protest the misdeeds of oppressive government. Otherwise, the foreign policy advocated by Brockway will be perceived by most of the Third World and much of the rest of the world as mere rhetoric.

Binghamton, N. Y.

DON PERETZ

Professor of Political Science State University of New York

 

George P. Brockway’s article is full of provocative statements. Many of them I agree with, but not all of them can be logically advocated at the same time. I most certainly agree that promoting human rights is not merely moralizing, that this can serve a number of important foreign policy goals. For example, because the Carter Administration took human rights seriously in Latin America, our diplomatic and economic interests were advanced. As a number of countries successfully navigated the difficult transition from authoritarian to democratic rule (Dominican Republic, Ecuador, Peru), we were able to construct a series of close working relationships which immensely improved our diplomatic strength. With the United States no longer identified as a close collaborator of every dictator, American businessmen found a friendlier environment; in Latin America, no major investment disputes developed over the last four years.

I also agree that the United States too often places great stake in the momentary political posture of Third World governments. Treating the world as a zero-sum game, where the “loss” of any state is automatically a gain for the Soviets, the United States has squandered great energy and resources in trying to control the domestic politics of an innumerable number of developing nations. Yet the inherent economic and military importance of these nations, more often than not, is marginal to any reasonable definition of United States interests. Moreover, even if a nationalist government should come to power, whether of the Right or the Left, the chances are very great that it would still want to participate in the international economic system. It would want to trade with U.S. firms and to borrow from U.S. banks, and have no choice but to pay the interest rates established in the London money markets. Very few leaders in the developing world consider either autarky or the Soviet-led COMECON as an alternative to the Western economy. Indeed, even Communist countries-from Hungary to China are anxious to increase their participation in what has become a global economic system.

Brockway is also correct, in my opinion, to argue that an aggressive foreign policy, perhaps resorting at times to covert action, can too often be counterproductive. The Soviets and Cubans were active in Angola before South Africa invaded in 1975, but there is no doubt that the Cuban presence was legitimized in the eyes of most Africans by the South African invasion and the CIA presence. Even when covert operations succeed for the moment, the future can bring disaster. In Central America, an active CIA has helped maintain conservative, generally military governments for decades. But now Somoza is gone and El Salvador today-or Guatemala tomorrow-faces a powerful insurgency that views the United States as the major source of succor for their oppressive governments. Iranians remember all too well our long collaboration with the Shah and his secret police, SAVAK.

In arguing that the Soviets will often find that client states cost more than they are worth, Brockway offers a useful corrective to those who present each Soviet “gain” as a trauma for the West. The Soviets are undoubtedly finding their foreign obligations to be a major drain on their limited resources, and must be wondering whether an expansionist foreign policy is really in their interests. Nevertheless, I am not sure that the United States can be quite as relaxed about Soviet activities in the Third World as Brockway seems to suggest. Especially when Soviet actions take a military form, we ought to register loud disapproval. If we are to establish “rules of the game” for superpower activity in the Third World, constraints must be placed on both the Soviets and on us with regard to the use of force in there. If the Soviets do not desist, the pressure will continue to mount for the United States to respond in kind. Yes, our interest should be in seeing that Third World states are independent states, not clients of any superpower. As Algeria recently demonstrated in helping to gain release of the U.S. hostages held by Iran, genuinely independent countries can often be more useful than “loyal” allies who enjoy little respect in the world and have essentially passive foreign policies.

Yet this formula for genuine nonalignment is not consistent with Brockway’s view that we live in a bipolar world. In a bipolar world, it becomes extremely difficult for relatively weak states to avoid seeking the protection of one of the two superpowers. Each superpower logically sees the disengagement of any country from its sphere of influence as a “loss,” a weakening of its alliance system. Each superpower will therefore struggle, using various means, to maintain its friends in power around the globe.

Fortunately, today we live not in a bipolar nor even in a multipolar world, but a poleless one. Power has become so diffuse that many states have accrued significant quantities of it. Countries such as Mexico, Brazil, Argentina, Nigeria, Libya, Iraq, and India have enough power to try to maneuver international events in accordance with their national interests. Smaller powers in their areas recognize the presence of the regional “influentials,” and must· adjust to this. In the past, we mistakenly imagined that we could manipulate these regional “hegemons” to do our bidding. In fact, they have proven capable of defining their own foreign policies in the light of their perceived national interests. Their policies have sometimes converged with ours, but frequently have not.

A poleless world is infinitely more difficult for the superpowers to manipulate. Either superpower that tries to control events in the Third World today is bound to face frustration and disappointment. For that very reason, if the United States maintains a sense of proportion and keeps its eyes on its true interests, the Third World will be seen as a less threatening place.

Washington, D. C.

RICHARD FEINBERG

Resident Associate Carnegie Endowment for International Peace

 George P. Brockway replies:

 I full agree with Richard Feinberg that we should “register a loud disapproval” when Soviet actions in the Third World take a military turn, and I expect that he agrees with me that our disapproval should itself seldom take a military or even a quasi-military turn.

My fundamental differences from Don Peretz would, however, require volumes to elucidate, though the particular policies we would support are probably very close. In brief, he believes that some things are “intrinsically good,” while I find that the intrinsic goods he mentions are often in conflict. Forty years ago the “intrinsic” good of human rights was in conflict with the “intrinsic” good of the absence of world war. Was one more intrinsic that the other? The inability of “political science” to answer such questions produces the very “unstable amalgam of moralizing and Realpolitik” that I mention in my article.

An aphoristic summary of the position of my article may be found in the concluding words of a forthcoming volume on The Philosophy of History by the late Professor John William Miller: “History does not show men good or bad; it operates by assuming that they are moral-that is, agents. Good, in history, can mean only the perpetuation of those critical processes that define the moral.”

Originally published January 1, 1979

(Editor’s note – Occasionally the New Leader would print selections from correspondence in the form of a mini-article.  This is one)

NEW YORK-The United States probably could not and certainly should not do anything to advance or retard the palace revolution that now seems to be proceeding erratically in the Peoples’ Republic of China. We can and should, however, try to understand it, and our understanding will be clearer if we recognize at once that literal translations of Chinese political slogans and epithets are, let us say, inscrutable.

We of course have some experience ourselves with inscrutable politics. A long line of humorists from Artemus Ward through Mr. Dooley and Will Rogers to Russell Baker and Art Buchwald has found that taking political slogans seriously is always good for a laugh. And we are not alone among Western nations in this regard. The wit of W. S. Gilbert had a similar base; nor is political confusion dead in France, where one of the most conservative parties calls itself Radical.

The present Chinese epithet “Gang of Four” strikes us as a bit bizarre, but it is not likely in itself to mislead us. We know that the Chinese are fascinated by numbers; they have Five Kinds of Red and Seven Kinds of Black and much else. In the present case, the four people have been named, and there seems no reason to doubt that they shared similar ideas.

It is when we ask about these ideas that we run into trouble. The Gang was, we are told, counterrevolutionary, which is odd, because this is the very charge the Gang leveled against its successors. The Gang plotted a return to capitalism-again an odd coincidence. And the Gang distorted the Thought of Mao-still another odd coincidence.

Are we faced, then, merely with a clash of personalities? Is all the uproar caused by a personal aversion of Chiang Ch’ing for Teng Hsaio-ping? Or perhaps by his male chauvinism? Or, as in the ostensible occasion for the Great Cultural Revolution, by a dispute over a critique of a play produced two years ago? Such a reading of the situation is by no means impossible, and it does not exclude other complementary readings. There is plenty of precedent for this sort of thing, both in China and elsewhere.

A famous slogan of Teng’s may lead the way to clarification. “It doesn’t matter,” said he in 1967, “whether a cat is black or white so long as it catches mice.” Few Westerners, with the possible exception of doctrinaires like the late Joseph McCarthy, would dream of objecting to this sentiment, which seems the very model of no-nonsense, can-do, winning-is-the-only-thing pragmatism. Yet this apparently innocuous aphorism was an assigned cause of Teng’s fall from Mao’s grace in 1967 and again in 1976.

This happened for a reason surprising and simple: Mao Tse-tung, one of the greatest movers and shakers of history, one of the most successful of doers, one of the most eloquent proponents of dialectical materialism, was not, in the sense generally understood in the West, a materialist at all.

Mao and the Maoists were certainly proud of their material achievements. Wherever visitors went in the early ’70s they were informed that the farm or the factory or the school or the hospital had produced x before Liberation, 2x after Liberation, and 3x after the Great Proletarian Cultural Revolution. At the same time, it was clear that material progress was not an end in itself. The real objective was equality, material equality to be sure, but liberty and fraternity, too. The Cultural Revolution everywhere shamed and degraded those who enjoyed power or status in industry, in education, in medicine, in the Army, in politics, or down on the farm.

That the systematic-unsystematic, rather-destruction of elites disrupted production may have been a surprise to Mao, but it was evidently a price he was willing to pay. “The class struggle,” he reiterated, “is by no means over.” He followed the Marx of The Critique of the Gotha Program in insisting that distribution was not the problem, that once socialist equality was achieved material progress would take care of itself. In any event, there was for everyone to see the degeneration of the Soviets into the totalitarian bureaucracy of Djilas’ New Class. It was this bureaucratic society that the Maoists saw as Right deviationism, as opportunism, as, in the end, capitalist roadism.

A capitalist roader, then, is not necessarily or even probably sympathetic to the ideals or practices of American society. It is unlikely that free speech and the free market hold charms for him. He is, indeed, more likely to understand and seek to emulate the achievements of the Soviets. Mao, on the other hand, was attracted to the United States just because he found Russia repellent.

In short, China’s capitalist road is not an extension of Wall Street. There are no capitalists or protocapitalists in China, in power or out of power, and we will only be misled if we expect ideological slogans to make allies-or enemies- for us. We will find allies, and enemies, too, but we should look for them on the grounds of real rather than imaginary national interest.

GEORGE P. BROCKWAY
January 1, 1979

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