seriously injured as the result of a law that was passed in behalf of the general good.

Under this presumption, namely, that dismantlement of the tariff was in the best interest of the country as a whole, it followed that the government should make good any consequent damage done to individual industries and their workers. Adjustment Assistance was in the nature of compensation for loss incurred, as it were, through the governmental exercise of the right of eminent domain. The principle was invoked in acknowledgment of the likelihood of serious injury to industries if tariffs were further reduced.

In view of the general acceptance of this public obligation it seems desirable to examine the premises of the basic assumption, namely that the government would be acting in behalf of the public interest in exposing important elements of our economy to serious injury; or, more specifically, by opening the channels of trade to larger volumes of imports and presumably, by increasing export opportunities. Since the benefits derived from greater exports might not come to the same industries or groups as might sustain injuries from rising imports it was all the more desirable to compensate the losers from the public treasury.

The national benefit would be enjoyed by consumers in the form of lower prices resulting from import competition, and in a roundabout way, by workers in the form of higher employment in the export industries. A higher level of foreign trade, moreover, would produce other, even if undefined, public benefits. Freer trade has long been associated in the minds of its supporters with world peace. From such a base in logic arose the notion of adjustment assistance. In other words, the likelihood of injury from import competition was seen as supporting a claim for compensation.

The legislation (Trade Expansion Act of 1962), however, drew the criteria for eligibility so tightly that until late 1969, or for a period of seven years, no application from industry or labor won approval of the Tariff Commission. Since that late date (1969) a number of cases have been approved by the Commission and assistance has been extended to both the workers and industry. The actual outlay, however, has been modest. The Department of Labor, which administers adjustment assistance to labor, reports $18 million expended in 1970-71 fiscal year and $20 million in f.y. 1972. These totals, it should be noted, included administrative costs. The Department of Commerce, which administers the adjustment assistance extended to industry or individual companies, reports total disbursements under the program from its inception to date at $12 million and $4 million in tax allowances.

Another measure of the effectiveness of the legislation is found in the number of applications made for adjustment assistance by workers, individual companies and by whole industries, and the disposition of the cases.

Until a very recent date workers' cases were rejected in 80 instances, 21 cases were decided affirmatively by the Tariff Commission and 39 received equally divided votes from the Commission and were decided by the President. Of the latter the President approved all 39, which if added to the 21 affirmatively decided by the Commission bring the total approved for adjustment assistance to 60 cases compared with 80 negative decisions. (This was the status as of August 1972). Applications made by companies were far fewer. Of these 22 were decided negatively by the Commission, 7 were approved by majority vote and 8 were sent to the President by an equally split vote. Of these the President has approved 5 while not having yet decided the remaining 3. Thus far the firms have been favored in 13 cases and rejected in 22, with 3 not yet concluded.

Applications by industries have been fewer yet. Only 25 cases have been brought. 18 were decided in the negative, 2 in the affirmative while 5 went to the President, who has acted affirmatively in 4 of the 5. The score is therefore 18 negative, 6 positive and 1 undecided.

Nearly all hands are agreed that the criteria for eligibility were too tightly drawn in the Act of 1962. Legislative proposals embodying a relaxation of the criteria have been advanced from all sides in recent years but none has been adopted.

Be that as it may, the adjustment assistance concept, which is now in the premises, should itself be examined for its inherent value or worthiness. Very little has been said about the principle on which it is based and less on its efficacy even if the criteria of eligibility were relaxed.

On the face of it, the principle of compensating private citizens for damage done to them in behalf of the public good, is sound and is widely recognized in the exercise by the government of the right of eminent domain. To say this,

however, is not to uphold adjustment assistance as a desirable or profitable practice, economically speaking.

The very approach, i.e., as if adjustment assistance did indeed represent an economically suitable remedy, betrays a failure to appreciate the genesis of our present-day discomfiture from imports.

When all the world is in the process of reinterpreting established usages, practices and even institutions because of the great changes brought by a fastmoving technology, the free or liberal trade school of economic though proceeds as if our foreign economic relations had been spared the ravages of economic change. Nothing could be more conducive to failure to meet the problems that face our economy through the channels of trade than such a negative attitude.

UNFITNESS OF ADJUSTMENT ASSISTANCE AS A REMEDY

To give point to this assertion requires an overhauling of current perspectives in the field of foreign trade and competition. It requires a brief sketch of the American development of the mass-production, mass-consumption system which represented a unique departure from all previous capitaliste practices.

Most briefly, we cite the American mechanical inventiveness, dedication of the American people to toil and to personal and familial advancement. Other qualities and resources assured unforeseen developments if these endowments were turned to advantage. Our democratic society provided an altered view of the "people" and the "common man" and this alteration made possible a breakaway from the caste and class system that had placed a low and virtually impenetrable ceiling over human economic development in other countries.

While we brought with us an economic heritage from Europe, and while the Industrial Revolution paved the way to industrial development in Europe and in this country, we subsequently opened new vistas that were lacking even in Britain and in its leading economists. We were not inhibited by snobbishness and the lingering feudal attitude that pressed other societies into social layers wholly antipathetic to the advancement of the "lower classes".

It was perhaps this freedom from inhibiting attitudes that opened the way and led to our hearty endorsement of competition and merit in business as well as other activities. In other words, let the best man win, regardless of social background. Monopoly, in our eyes, as a consequence soon came under a cloud as a means of perpetuating any advantage of position that was not achieved through merit and competition. Monopoly power and privilege might easily shut out developments that could be very useful and beneficial to the people as a whole, or at least to an increasing majority of them. Before the end of the century, in 1890, we adopted the Sherman Anti-Trust Act as evidence of this view.

Simply stated it meant that the benefits of our rising productivity, attributable more and more to technological advancement, should not be cornered for the enrichment of the few but should become open to all who knew what to make of it, with resulting increase of consumer participation in the enjoyment of goods. At the turn of the century glimpses of what might come to be if we approached the great possibilities of mass production with foresight and guidelines gave rise to visions of a world such as had never been blueprinted. Leonardo de Vinci had ingenious insights into mechanics and physics at the time of Columbus, but the climate was not right, the economic milieu not in focus and the ruling attitudes of kings and princes, not ready for the system that waited four hundred more years to be given its wings in a democratic society.

The Orient, China and India, boasted populations far in excess of ours. If manpower alone counted we could not hope to surpass these vast masses of humanity in material production. Yet, by taking a different course we left not only these masses but also the European industrial nations, our very forebears, far behind.

To repeat, we had no blueprint. What we did was not premeditated but a development that proceeded with headlights and revolving searchlights, so to speak. Driven or led by freedom to do what our talents, in the guise of ambition, ignited in us, we explored, examined and tested a whole world of possibilities, with verve, enthusiasm and unquenchable hope. So rich were our natural resources, the continent presented an outlet for every form of human skill, shrewdness, and dedication. There were awaiting riches to be worked, for all who had the knack, the originality and the courage to grasp opportunities by the heel, and the energy and the patience to bring their potentials to fruition. By some odd concurrence not elsewhere achieved in historic times, certain

precipitates, as if guided by catalytic powers in this country, produced a system of production that outside the communistic and socialistic regimes, became the model to follow. The secret had slumbered for centuries before it was perceived by American entrepreneurs; and even then its progress was hotly but no longer successfully contested. It was nothing more than such a division of the industrial product that those who produced more by use of mechanical devices would be enabled also to consume more.

In other words, instead of seeing wages as an evil to be kept down so that production costs could be kept down and profits at a maximum, it was discovered little by little that wages might be the producers' greatest friend. Wages harbored market potentials that had never been more than dreamed of. The employee was not an enemy; he was a potential market, and a richer one than all the wealth of the nabobs combined.

The formula was really very simple. Human needs, comforts, conveniences and vanities could be converted into eager customers if products designed to cater to them could be invented, designed and then produced at prices low enough to fit the popular capacity to buy. If the latter was low as it is in a chronic fashion among some billions of people, not much headway could be made. The question to be solved was how to produce higher mass income that would act as an absorbent of the goods that could become available in ever greater streams if technology were encouraged.

The chicken or egg conundrum naturally presented itself. If mass production was necessary to reduce costs who would plunge into mass production if there was no certainty of consumer response? Preparation for mass production requires a heavy outlay of capital; and it takes time to tool up.

There is only one answer, namely, risk-taking. This indeed is one of the principal justifications for the existence of the entrepreneur. If venture capital is unwilling to come forth because the doubts of success outweigh the hopes of reaping a bonanza, not much progress is possible toward bringing a greater variety of cheaper goods to consumers. The profit motive certainly finds its raison d'etre in this very corner. It promotes risk-taking in the hope of handsome returns. This hope persists despite an average of more than 10,000 business failures per year in this country (which is, however, a small percentage of the total).

The unique new system indeed became noted for its devotion to the production and consumption of a hitherto unbelievable variety of nonessential goods, without neglecting the essential ones. It can be guessed that over 90% of American production is devoted to making nonessential goods. Doubt about this estimate can be met by comparing our per capita income with that of India and China. The ratio is some forty to fifty to one.

This great dependence on the nonessential products creates a more sensitive economy because consumers may curtail their purchases without courting either starvation, excessive exposure to cold or a living at the bare subsistence level. Investors therefore proceed according to their confidence in the future.

We have done much in this country legislatively to overcome the excessive sensitivity of our system which had subjected it to frequent crises and depressions. Among other things we undertook to bolster wage income, since, as we began to see, they were the mainstay of consumer purchasing power. We abolished child labor, provided for minimum wages, the level of which we have raised repeatedly. Wages were to be taken out of competition as an employer's weapon. We instituted price and acreage controls for agriculture, obligatory collective bargaining and unemployment compensation as props for both farm and labor income. Next we provided a system of social security.

All these measures and others were designed to bring us to, and then maintain, full employment. Thus would producers be assured of a growing market if they should continue on the road that had become familiar from extended usage. By 1939 this road had been traveled by thousands of users. First had come perception of a probable market for a suitable product if an inventor or discoverer could devise one. Followed experimentation and development. Then, to repeat, came the launching of the product through capital investment and cost-reduction. After World War II the other non-Communist countries decided in favor of our system and with help and guidance from us, willingly extended they soon became our competitors. Wages were thus catapulted back into use as a weapon of competition by other countries in their rivalry with us. Productivity per manhour began to rival ours in some countries but their wages, though rising, lagged badly. The result? We could be undersold in world markets as well as in this country. With the exception of machinery, including aircraft, computers, etc., chemicals and a few other products we began to incur gaping deficits in

nearly all our other exports. An increasingly serious trade deficit overau awaited

us.

Our machinery exports were, of course, greatly buoyed by the vast flow of investment capital we sent abroad. We could hold some markets only by availing ourselves of the lower foreign wages. Meantime we had since 1934 cut our tariff some 80% and imports flowed more freely into our market. Our minimum wage and other labor laws became a veritable competitive handicap.

Investment in this country was dampened because our entrepreneurs could no longer be sure that the accustomed market would be there when they became ready for it. Imports could despoil it for them. Consumers would indeed, as in the past, respond to declining prices on desirable goods that enjoyed an elastic demand, but the American entrepreneur was no longer necessarily, or for long. the beneficiary. Foreign producers skimmed the cream from our market, leaving growth industries deprived of this wonted hope.

Then the American producers, often producing overseas themselves, were confronted with the insistent imperative that they become more efficient at home. However, higher output per man-hour is the only real course to such a goal; and this calls for substantial displacement of workers. That course, we recognize, was indeed the very one pursued over the years by our entrepreneurs on their way to a mass market. A thousand dollar item was cost-cut to $500, then to $250 and then to $100, as it were. At each step people were thrown out of work but in time the rising consumption called for more workers than had been displaced. Such a course, pursued by numerous entrepreneurs, assured a broadening manpower market and, for periods of time, virtually full employment.

Now, however, this course has become counterproductive in many instances. Household electronic goods, such as radios, TV, recorders, etc. offer a good example. While lower prices still stimulated consumption, the additional workers needed are now largely hired overseas.

Thus is our unique system confronted with impossible imperatives: (1) it is to become more efficient, meaning displacement of hundreds of thousands of employees, as did the coal industry, and (2) it must provide full employment. Not long ago the first course led to the second. Now it no longer does so because of import competition.

ADJUSTMENT ASSISTANCE MISSING THE POINT

This is where adjustment assistance is supposed to play its part. Yet, right off it can be seen that it cannot perform the function that formerly was performed by industry itself. Adjustment assistance can do nothing to prevent imports from despoiling a promising market in this country for new goods or goods made cheaper by new processes, new inventions or improvements. It can only, if liberally administered, hope to help an industry that has been stopped in its tracks by imports turn to something else. It is, however, naive to think that some new invention or innovation will come to hand merely for the looking. They are not hatched in that fashion. If they were Hitler would have beaten us to the atomic bomb.

Not only are inventions and innovations spontaneous but they cannot be scheduled. We do not find a cure for cancer by any known schedule. Moreover, why would not the same company once driven out of competition by imports of one product, be driven from pillar to post?

So, while we may become more efficient we do not get full employment today and will not come near it, except possibly temporarily, until we restore the competitive conditions under which we developed the system before we generalized it to the world.

The formula would not be complicated, and if understood by the remainder of the world, would be accepted as a desirable adjustment in a manner that “adjustment assistance" could not from its very nature duplicate.

IMPORT QUOTAS AND PRICES

(By O. R. Strackbein, president, the Nation-Wide Committee on Import-Export

Policy)

During the great debate on a national trade policy there is one note that comes through unmistakably from those who oppose the imposition of import quotas. This note is to the effect that import quotas raise prices and feed the fires of inflation.

After a detailed examination of available data on this question it becomes clear that there is no substance to the claim of a cause and effect relationship between import quotas and rising prices. In order to support this assertion the evidence on the subject will be set forth herein, and it can be verified or refuted by anyone who is sufficiently interested in the subject to make the effort.

I shall trace price trends on the products on which we have import quotas compared to the price trends in general and on non-quota products that are closely related to the products on which such quotas are in effect. An example will be the comparative price trends on beef, on the one hand, and the prices on pork and poultry, on the other. Beef has been subject to a quota since 1964, until 1972 when the quota was lifted. Pork and poultry have not been subject to an import quota. Also, petroleum and petroleum products have been subject to import quotas while coal, another, and competing fuel, has not. Steel is the beneficiary of an arrangement under which other countries restrict their exports to this country. Other metal products have no such import restrictions. Sugar is subject to an import quota while many other food products are not. The same is true of wheat and wheat flour, raw cotton and peanuts, on which imports are in effect. Textiles are subject to export restrictions by foreign countries somewhat similar to the steel restrictions.

We can make comparisons of price trends relating to these products and reach conclusions about the effect of import quotas on prices.

The qoutas of longest standing are those imposed on imports of agricultural porducts. They are usually an outgrowth of Section 22 of the Agricultural Adjustment Act.

It may be noted right here that the purpose of these quotas, such as those on wheat flour, raw cotton, dairy products and peanuts, was not, as is so glibly charged, to raise prices but to prevent the prices from falling to ruinously low levels, which they would unquestionably have done if the import restrictions had not held the line. Our price support of agriculutral products would have collapsed had these restrictions not been put into effect. Import restrictions on cheese were established when imported cheese, coming in at relatively low prices caused a heavy accumulation of domestic cheese in our warehouses because of its higher price.

The price trends on the various products that are or for a period of time have been subject to an import quota and a comparison with the trend of prices on other products are set forth under product headings below:

WHEAT AND WHEAT FLOUR

The importation of wheat and wheat flour is severely restricted in pursuance of a limitation imposed under Sec. 22 of the Agricultural Adjustment Act, in 1941. Imports are limited to a quantity that is less than 1% of our production.

Nevertheless the price of wheat (hard winter No. 2, Kansas City) has had rises and falls quite independently of the import restriction. In 1950 the price per bushel was $2.22. In 1965 the price was $2.25, or little changed from 1950. By 1960, however, the price had dropped to $2.00. If the purpose of the quota restriction was to raise the price it was singularly ineffective. By 1968 the price had shrunk to $1.46 per bushel. Then there was a turnabout, and in January 1972 the price was back up to $1.62, but still far short of the $2.25 of 1955.

These price trends may be compared with those of corn which is not subject to an import quota. The 1950 price (yellow, No. 2, Chicago) was $1.50 per bushel. By 1955 the price was down to $1.41.

The price decline continued as it did in the case of wheat. In 1960 it was down to $1.15 and in 1968 to $1.14. This was followed by a rise to $1.33 in 1970 and a decline to $1.06 in 1971. If we compare the wheat and corn prices since 1950 we find that from 1950 to January 1972 the price of wheat dropped 27% while that of corn dropped only 23%. Yet it was wheat rather than corn that was under an import quota.

From 1960 to May 1970 the price of wheat dropped from $2.00 per bushel to $1.53. This was a 23% decline. The price of corn rose from $1.15 per bushel to $1.30, an increase of 13%.

In 1972, of course, in response to the heavy purchase of wheat by Russia from the United States the price of wheat rose sharply. It rose from the low point of the year at $1.53 in June to $2.18 in October 1972. The price of corn (No. 3, yellow, Chicago) went from a low of $1.21 in February 1972 to only $1.31 in October 1972, after reaching $1.36 in September. Russia was buying wheat, not corn.