fully successful. Similarly, the ratio of work force to total population will be adversely affected by the loading of the population age distribution toward younger people. The present pressure of people to land, the lack of equipment for effective use of surplus labor, inadequacy of information, management, and organization cannot easily or quickly be eliminated. At present, there is a huge reservoir of unemployed or underemployed people in many parts of Asia, willing and wishing to work but with neither means nor knowledge to do so. On the basis of recent experience, it is probable that only Burma, Ceylon, mainland China, Malaya, and Japan have developed rates of saving equal to or greater than 10 percent of output. In spite of aid in these and most other countries, the rate of capital formation is still too low for fast development targets given prevailing population magnitudes and rates of increase. In some of the countries, as much as 17 percent of the annual national product would have to be invested in order to obtain an average annual increase in per capita income of 4 percent per year. As much as 26 percent of the national product would have to be saved and invested to obtain a rate of increase of approximately 7 percent, which would be necessary in order to double aggregate output within 10 years. Either rate would involve magnitudes of domestic saving generally beyond the apparent capacity of the countries. The population of the countries in Asia and the Far East have, in fact, been increasing at rates ranging from 0.8 percent to as much as 3.7 percent per year. Capital-output ratios are not precisely known but probably range from 2 to 3 with Japan and the Philippines as exceptions. Excluding Japan, there are at least 1.37 billion people at issue. The number is increasing at a rate of approximately 1.7 percent on the average. To raise income by as much as 3 percent per year, could require more than 14 percent of present gross national product to be saved and invested. Estimates have been made that as much as $1,500 to $2,500 of new capital per capita is required for a new employee even in low-income areas. Taking present rates of population increase, projected sex and age distributions and their implications for future rates of increase, existing unemployment and underemployment, the degree of pressure on domestic production will be enhanced. Generally, severe question seems to appear if careful analysis is made of the massive internal capital formation or massive foreign assistance required to meet projected plans. While targets may be approximated, and while no precise projection of their likely achievement is definitively possible, there is considerable doubt either that the plans in general can be achieved or the self-sufficiency objectives gotten. In consequence, more conservative estimates of likely rates of domestic production substantiate the general viewpoint that major deficits will continue to exist, essentially in the same areas and for the same commodities, and in amounts not greatly different from those now prevailing. Projected capacity THE POTENTIALS That there is a huge potential based upon present and projected population magnitudes and expressed preferences in Asia is clear. Taken against availabilities now or in the future, present massive deficits may well be expected to continue. The major issue is to translate what are now wants into monetary demands. The single means to develop an indigenous capacity to pay for imports is the development of higher levels of average real per capita income. The major strictures impeding these developments have been outlined above. Analysis by international agencies in general indicates, on the basis of recent trends, that unless substantial increases in output be achieved in the poorer countries, food supply is apt to fall increasingly behind requirements. It is considered that in Pakistan the rate of increase achieved over the past 10 years has in effect been too slow to maintain present consumption levels into the future, and that there is a clear necessity for future grants and loans. Agricultural output in Pakistan decreased by about 1 percent in 1962, with large declines in rice, pulses, and juice. Rice output in east Pakistan decreased by some 6 percent leading to emergency imports of wheat. Cotton and sugar output increased. Yet, on the whole, it is believed that agricultural progress since 1947 has been slight and offers no firm basis to consider that food deficits will soon be ameliorated. Similarly, India has not, in fact, achieved its self-sufficiency goals. That country recently imported almost $500 million of agricultural commodities. Imports of wheat from the United States exceeded $140 million. It is doubtful that the capital requirements, along with institutional adjustments, necessary for the achievement of stated development objectives can, in fact, be achieved within the target period. Even with a small increase in per capita consumption rates, the projected increase in population would require massive increases in output significantly to lessen or to eliminate present deficits. Generally, it is believed that import requirements will increase substantially. Presently programed agreements with respect to wheat and cotton indicate some doubt on the part of Indian ministries with respect to immediate achievement of self-sufficiency goals. If either India or Ceylon were to seek an increase of 1 percent in annual average real per capita income over the next 25 years, they would be required to obtain far larger increases in aggregate output in order to keep pace with rapidly increasing population. It is estimated that to obtain a 3-percent increase, output will have to increase by at least 5 percent. Other nations have been in essentially the same status in the last few years. Thus, both exports and imports were down in Indonesia in 1962. The possibility of rice imports of as much as 1 million tons have been indicated for 1963. Similarly, Indonesia has signed agreements to supplement domestic cereal production. Ambitious development plans have also been formulated for the Philippines. Yet, in 1962, output did not keep pace with population growth. Philippine projections of growth, which serve as partial basis for development programing, indicate substantially increased expectations of imports in grain, dairy products, and cotton both in 1965 and 1975. Japan is structurally a substantially different country, with only some 14 percent of its gross national product engendered in agriculture. It has already achieved a remarkable rate of growth. Its merchandise deficit has usually been offset by services. The remarkable achievement of the Japanese in recovery from World War II and in growth thereafter may serve as a model for other nations. Yet, the structural differences, and perhaps those associated with attitudes and institutions, may preclude ready use of Japanese experience as a basis for expectation of growth in other countries. Projected requirements Projected populations of the Far East, excluding Japan, have ranged from 736 to 972 million people depending on the use of low or high net fertility assumptions by 1970. The projection for Japan ranges from 92 to 100 million. Generally, the medium level projected per capita gross national product is $165. For Japan, the figure is $910 with a maximum of almost twice that much. Given these population ranges, the increases in likely caloric intake can be specified for Japan and for the remainder of the Far East. Similarly, targets can be developed with respect to the number of calories per person per day likely to come from the cereal basis. It is expected that for the Far East, the minimum income projection of consumption would be 1,390 calories per capita per day and at the maximum-income assumption would be 1,406 calories. Slight decreases are expected for Japan, paralleled by increases in animal proteins. Similarly, per capita projections at alternative income levels have been made for each of the countries and for the region as a whole with respect to each of the major commodity groups expected to constitute the diet in 1970. Taking such projections in conjunction with population provides basis for the projection of total requirements for each of the countries in terms of each of the categories of products. Thus, for the Far East, excluding Japan, a 48-percent increase in cereals requirements is expected; for other commodities, the expected increases in total requirements are as follows: starchy roots, 39 percent; pulses and nuts, 45 percent; sugar, 82 percent; vegetables and fruits, 69 percent; fats and oils, 82 percent; milk and milk products, 105 percent; meat, 91 percent; eggs, 104 percent; fish, 176 percent; total caloric intake, 55 percent; and animal proteins, 94 percent. While there are rather substantial differences projected for the individual nations, and all of them differ fairly sharply from the projected patterns for Japan, the total magnitude of reasonably projected requirements leaves little doubt that extreme difficulty will be met in meeting them from domestic production. Depending upon the population and income assumptions used, projected deficits for the Far East in wheat in 1970 range from 12.2 to 13.9 million tons. Projected deficits For coarse grains, the projections range from a deficit of more than 2 million tons to a surplus of about 4 million. Similar ranges are projected for rice. These differences also depend upon projected differences in yields per acre. Taking all grains together, and against a deficit of 10 million tons for all grains in 1957-59, maximum levels of projected deficits in 1970 approximate 18 million tons. Accordingly, these analyses seem also to support the conclusion that immediate mitigation of cereal deficiencies in Asia is not quickly to be achieved. While 22-289-63-16 there is, of course, question with respect to validity of income, consumption, acreage, and yield estimates upon which these projections are based, they do not support a counterviewpoint, especially when considered against recently realized rates of change. The GATT organization has also indicated that specific trade assistance will, in all likelihood, continue to be necessary for poorer nations. The Food and Agriculture Organization has indicated its belief that "concessional" sales of wheat may be of permanent expectation by poorer countries. This agency has indicated that subsidized trade would continue with respect to low-income areas in the 1970 decade. It is also indicated expectation that commercial trade in agricultural products would even then continue to be concentrated among the high-income areas of North America, Western Europe, and Japan. Others have indicated that such assisted trade flows may be necessary for "years and decades ahead." Other studies indicate that as much as 8 million metric tons of cereal imports may be needed in 1966. A wheat mission has indicated the strong possibility of a 25 million ton deficit in India over a 5-year period. In recent years, domestic production of cereals in 12 Far Eastern countries, excluding Japan, have in general been supplemented by about 10 million tons per year of food grain imports against 3 million in prewar periods. Nonetheless, these imports are less than 5 percent of food consumption in the area. Thus, the existing gap between consumption and production still exists, it is likely to continue to exist, and it may well expand in the future. STAKE, POTENTIAL, AND PRESCRIPTION The value of trade need not be stressed. Generally, international trade enhances both real wealth and real income for all trading partners. Real value of productive resources in all areas is increased. In effect, trade in products and services compensates for immobility of people and other productive resources. There appears to be no serious disagreement among any of the nations with respect to the desirability or the benefits of trading relationships. Yet, it is a fact that those nations touched by the Pacific Ocean fall into several different groups. North America and, to a lesser extent, Oceania are highincome nations which can produce, consume, and trade products denied to those of lower incomes. In the area of Asia and the Far East, Japan alone appears to have reached domestic development levels providing substantial trade. Yet, even here, the capacity of the people to buy through trade is drastically limited as compared to that of the United States. At the other extreme, the cereal-consuming nations with lower income levels cannot be expected to achieve improved levels of living or higher levels of trade in the near future. A few nations intermediate between the poorest areas and Japan may provide potential. Thus, there is an immense difference between estimated requirements-developed on a conservative basis-for foods in Asia and domestic availabilities over the next decade or two. These deficits involve both food grains and feed grains, cotton, and it is further likely that a serious deficit of fats and oils may well develop by 1970. These are the major dimensions of the trade potential for such areas. Almost surely trade will have to be assisted as it now is. In Japan, potentials for feed grains and for cotton should be maintained and perhaps expanded. That nation has already reached its self-sufficiency targets and it is doubtful that it can be found economical to produce a higher proportion of its own food and fiber needs. In addition to commodities presently exported to Japan, there appear to be excellent potentials for commercial sale for those commodities to which consumption normally shifts away from cereals as incomes rise. Thus far, both trade and government agencies appear to have done an excellent job in discovering and developing such potentials. Finally, in pockets of high income there may well be commercial potential for further sale of a variety of American foodstuffs, if even on a relatively minor basis. Hong Kong, Singapore, the Philippines, and Malaya offer less commercial potential. The high-income nations of the Pacific produce, consume, and trade in products foreclosed to poorer nations. Low-income people produce, import, and eat cheap grains. They cannot now use these grains except for human food. They cannot effectively use their productive resources for animal products, for fruits and vegetables, or for processed foods. The wants and preferences already existing among millions of low-income people constitute a potential that is in truth almost entirely untapped and will remain untapped commercially for many years. Market information, promotion, and development of food processing have effectively tapped only the higher income fringes. Development of productivity within the countries alone seems to be the main necessity. More efficient production with given methods and introduction of new methods of production are fully consistent with the major prescription and may well increase trade. Yet these are goals that cannot quickly be achieved. Transfer costs will always be a barrier. Decreases in them will always automatically expand trade, income, and wealth. The same generalizations are applicable with respect to barriers. The United States has carried a major burden in assistance to these countries so far. There appears to be little opportunity for laying down the burden. Yet, over the long run, this may be the means of facilitating economic development to the long-run benefit of this Nation. Senator ENGLE. I talked to the Governor the other day. In fact, he testified Monday in Los Angeles. I think perhaps you were aware of that. Dr. MEHREN. Yes, I was. Senator ENGLE. And I suggested to him that when these trade negotiations get underway I hoped that ways and means would be found to make it possible for you to give us some assistance, because we are going to need it. Dr. MEHREN. Thank you, sir. Senator ENGLE. And we are going to need it very badly indeed. Are you on the import-export advisory council? Dr. MEHREN. Yes, I am, sir. Senator ENGLE. Well, I am delighted with that, and I hope to see you back in Washington one of these days. Dr. MEHREN. Monday. Senator ENGLE. Thank you very much. Senator BARTLETT. I want to join with Senator Engle, Dr. Mehren. You are not only a provocative witness, but truly an excellent one. Dr. MEHREN. Thank you. Senator ENGLE. With that we are adjourned, subject to call of the Chair, and I wish to express appreciation to Senator Bartlett and Mr. Levin. (Whereupon, at 4 p.m., the hearing was adjourned, subject to call of the Chair.) (Additional statements submitted:) SAN FRANCISCO STATE COLLEGE, SCHOOL OF WORLD BUSINESS, Hon. CLAIR ENGLE, Washington, D.O. MY DEAR MR. ENGLE: May I extend my most hearty congratulations upon your receiving the California World Trade Award. As you suggested during our brief conversation following the World Trade Center Authority dinner, I am enclosing a copy of my article "Some Dynamic Developments in the Management of Foreign Trade," which appears in the May 1963 issue of the Michigan Business Review. In view of your interest in the expansion of American exports, you might be interested in some of the comments and suggestions I have made. It has been mentioned to me that you might desire to have this article inserted in the record of the hearings which you have been conducting. I should be greatly honored if you believed the article of sufficient value to merit having this done. Very respectfully yours, LAURENCE P. Down, Director. [From Michigan Business Review, May 1963] SOME DYNAMIC DEVELOPMENTS IN THE MANAGEMENT OF FOREIGN TRADE (By Laurence P. Dowd 1) Many persons believe that the United States is being priced out of world markets as a result of rising wages and costs. It is true, as table I indicates, that U.S. exports in recent years have expanded less than those of any other major country except the United Kingdom and that they are tending to a decreasing percentage of an expanding total world trade. It is also true, as table II reveals, that U.S. export prices have risen more than those of any other country except France. However, the cause does not lie in rising wages. Table II shows that without exception, wage rates in the United States have risen less than those in any other major country. Moreover, higher wages are accounted for generally by higher productivity, and our major exports are products of our highest wage industries. Actually, if the United States were pricing itself out of world markets because of rising production costs, there would be definite changes in the composition of exports. Finished and semifinished manufactures, having larger costs of production, would show a declining trend, and raw materials would be increasing. However, this is not the case. Table IV, U.S. Exports by Economic Classes, shows that there have been no major changes; those which have occurred are merely yearly variations resulting from peculiar influences in particular years. Accordingly, one must look elsewhere for the explanation of the U.S. failure to retain its percentage of total world exports. A major explanation appears to lie in the failure of some business organizations to adapt their methods to the dynamic changes in the management of foreign trade as well as to the development of world markets. CHANGES IN FOREIGN TRADE MANAGEMENT The manner in which significant changes in the operations of international trading have occurred can be illustrated by a quick review of key changes in recent years and decades. From the first shipment of exports from the United States in the late 18th century to the early part of the 1930 decade, the only manufacturers that carried on exporting directly were a few of the largest firms, such as the automobile, chemical, business machine, and soap companies. Other producers did not have large enough quantities of products available for sale in foreign markets to justify exerting effort to their development. Such firms utilized export wholesalers, often called in international trade-particularly in the Far East-"trading companies." Moreover, executives of producing organizations were reluctant to take on the necessary responsibilities, as export financing facilities were not generally available to them, and few were acquainted with the techniques of exporting and importing. In the 1930 decade, partly on account of the decline of domestic sales, alert business organizations looked abroad for markets in an effort to sustain their sales volume. They found independent middlemen unsatisfactory for this purpose. Continuing to do little more than perform their traditional ordertaking function, the wholesalers did not provide vigorous sales promotional efforts. One consequence of this new interest in direct exporting by producers was an increased knowhow in international marketing management. World War II was accompanied by an almost complete disruption of private world trading. After the war a horde of new specialist exporters appeared. Many were former servicemen who had spent varying period of time overseas and thought they saw an opportunity to "get rich quick" by establishing their own businesses. Despite their lack of experience and knowledge, conditions were favorable to their activity. Pent up worldwide demand, combined with postwar reconstruction, created a worldwide seller's market which enabled many of 1 Dr. Laurence P. Dowd, formerly a member of the faculty of the School of Business Administration, the University of Michigan, is currently director, School of World Business, San Francisco State College, and a member of the San Francisco Area Regional Export Expansion Council. He has had wide experience in international business both in the United States and in the Far East. This article is adapted from a speech he delivered at the First Honolulu Foreign Trade Workshop on July 25, 1962. |