Interview. "The United States Always Has Had a New Fad." Interviewed by Galeazzo Santini. Successo, March 1971, pp

Transcription

1 Interview. "The United States Always Has Had a New Fad." Interviewed by Galeazzo Santini. Successo, March 1971, pp Q. In Europe there is concern over the danger of an inward-looking America because isolationism would have severe consequences. What do you think? A. And what would be the consequences of European isolationism for the United States? Q. Perhaps it s a different thing... A. It s not a different thing it s the same thing. The European Common Market is increasingly isolationist economically and they are erecting larger and larger barriers against the inflow of goods and services from abroad. Q. I agree that Japan and the EEC are going against what should be the role of world trade. But getting back to the United States there is a lot of talk about a crisis in traditional American spiritual values. Do you think this has any influence on United States isolationism? A. Yes, but so far as the United States is concerned, my own opinion is that the Vietnam episode has had far more to do with American isolationism than any crisis in spiritual values. There has always been a strong strain of isolationism in the States, going back to Washington s Farewell Address and I do believe that the episode in Vietnam has contributed enormously to that. It s much more important than any of those other factors. I do not believe that there is any crisis. I think that is journalistic exaggeration. The United States has always been a country which has gone in for fads. We had a miniature golf craze one time, a hula hoop another time. You always have, on the surface of things, certain fads going on and I think that the so-called talk about a new life style, about Consciousness Three, about Neither Marx nor Jesus, (which is the title of a European book) are just that, fads. I think that five years from now when you come back and have a look at things, you ll see they have disappeared completely, just like the miniature golf craze. Q. Is Vietnam the revolving point?

2 A. No, not for all these things but it is for isolationism in foreign policy. Obviously so far as things like the student uprisings in the last few years are concerned, Vietnam was a factor but not the factor because if it had been, you would have difficulty in accounting for similar events in Europe, West Berlin and Japan. As far as isolationism in foreign policy is concerned, I think the Vietnam issue is the factor. Q. Is this inward-looking attitude shared by industrialists also? Is there isolationism from the economic point of view? A. From an economic point of view, I don t believe there is a significant change in this respect. There is no major difference as regards inward-lookingness. We have always had strong protectionist forces and they re strong now as they always have been. I think that the problem of stopping inflation and the recession (which it caused) is much more important than any fundamental change in isolationism, inward-lookingness or anything like that. Now, it isn t clear what the outcome will be because there are forces going both ways. On the one hand, the recession produces pressure for protection; on the other, inflation produces pressure for freer trade as a way of lowering the crisis it s not clear which way it will work itself. Q. Do you think we can speak today about an unofficial protest even in America, as the beginning of an irreversible revolutionary process that may end up profoundly changing Western democratic systems? A. We are always involved in an endless revolutionary process. The Western democratic systems have changed a great deal in the last 100 years and will change in the next. The wave of unofficial protest you are referring to will die down; it s a short-lived fad. Q. What do you think of the present labor unrest? A. Well, in speaking of the United States, I would say that we have not had a great deal of labor unrest; we have not had an increase in labor unrest. Our trade unions today are probably weaker than they were 20 years ago. If you look at the figures on strikes, there has not been a big change in time lost due to strikes. I don t know the figures in detail but I don t believe it would be correct to say that there is very strong labor unrest in the United States. Certainly in the period of the late thirties (at the beginning of unity towards industrial unionization) there was enormously more labor unrest than we have now. And I don t believe that 2

3 in this country (unlike Germany, for example) there is a strong movement on the part of labor for a codetermination policy. Even from the political point of view, the unions have less power than in the thirties when they were able to get labor legislation. In the last 20 years everything has gone the other way. If labor had the political clout that it had a while back, you would have all sorts of other changes. You would have had higher minimum wage rates than they are now (they have been kept to $1.60 while inflation has been raging). Wages are lower in real terms than they were earlier. Labor keeps demanding a $2 minimum wage but nobody listens. I don t believe labor has as much political power as it had in the late thirties by a long shot. Q. Is labor in America trying to gain more power in decision-making, as in many other Western countries? A. Well, no part of the United States labor movement has given any importance to that. That s the codetermination movement in Germany. Q. What do you think about Italy in this regard? A. Italy is a different case. Italy is on the road to becoming a Socialist state. You may very well have an irreversible movement in Italy because by now, if I understand it correctly, the Italian government has sixty percent or more of all the large manufacturing companies. The only saving grace is that the government is so inefficient, it may not be able to continue to complete the process. It may be that Italy has gone. It may be gone but that s not true in the United States... not yet. Q. Do you think that in the United States and Europe the era of constant expansion is over and that future growth will be conditioned by inflation and serious monetary problems? A. When was there an era of constant expansion? Was there ever? There never was an era of constant expansion. What we have had in both the United States and Europe is that in the United States for close to 200 years we have had, in general, expansion punctuated from time to time by depressions, recessions and pauses. Now, in the post-world War Two period we have had, if anything, fewer problems than we did in the period before that. We have had no major recessions or depressions. I see no reason to suppose that so far as the United States is concerned, we will not have a continuation of expansion. 3

4 As far as inflation and serious monetary problems are concerned, I would mention a talk I gave in Sweden 18 years ago in which I predicted that the coming decades would be a period of inflationary problems arising primarily out of over-reaction to the temporary recessions that would punctuate the period. That we would have a period of expansion and then there would be an attempt to stop inflation. This would produce a recession. Everybody would get enormously exited about unemployment. Then over-reaction would produce a second, a third and a fourth inflationary episode which would gradually speed up each time. And I think that s what has been going on and I expect it to continue. Q. Do you think this is an inevitable process? A. No, I don t think it s necessary. I think with sensible policies we can stop it and maybe we will but I think that if you have a look at the odds they are better than 50 to 50 that we will continue on this kind of path. Some countries have been able to stand a lot of inflation. People grossly underestimate the capacity of a country to stand inflation. You have countries like Chile who sustained one hundred years of inflation of over 25 percent; Brazil, over a decade. Then you have Israel that had ten percent inflation a year for over ten years. Japan has had seven percent a year internally for about the last ten to twelve years and the country has been doing very well. Q. So you don t feel that the inflated and inflationistic dollar represents a decisive problem for the economy in 1971? A. The fact of the matter is that the dollar has been and still is the most stable currency in the world. If you look at all the international currencies and you ask which one had less inflation than the dollar, the mark is almost the only one you can name. The French had more, the Italian more and the British, much more. People look at the Japanese but that s because they look at the external prices of Japan and not at the internal prices. So I don t believe any of these problems are going to prove decisive for the economy in Q. What do you think about the abnormal increases in costs, especially for labor? A. Personally, I believe that businessmen, journalists and others grossly overestimate the role which cost increases play in producing inflation. I believe the relation is the other way that it s the inflation that produces cost increases after a delay. What you have in the United States is not a cost push at all. We never 4

5 had a cost push. What you have in the continued rise in wages and prices in the United States is the aftermath, delayed reaction to the earlier inflation from 64 to 69. The trade unions are slow both when a boom starts and when it tapers off. If you look at statistics on the rate of change of wages and divide them in the United States between union wages and non-union wages, you would see that union wages started rising after inflation got under way in 64 and in 1970 union wages rose more rapidly than in 1969 but non-union wages rose much less rapidly. So you have very clear signs that wages are starting to adjust to the tapering off of inflation. Whether they will continue to do so does not depend on what happens to labor or to unions. In my opinion it depends entirely on what monetary policy we follow. If under the political pressure of For God s sake, do something about unemployment, we were to have too rapid monetary expansion, then wages would start up again and inflation would start up again. Q. I d like to have your opinion about a completely different subject. What do you think of Ralph Nader and his fight for the consumer? A. He is not fighting for consumers. He claims so. He s a very mixed phenomenon. Some of the things he does are very good, like, for example, the report one of his groups did on the Interstate Commerce Commission. On the other hand most of the things he does will hurt the consumers and not help them. Because most of the things he does, even if he doesn t intend to do it, if they have any effect at all will be to strengthen monopolies and reduce competition. For example, he was the major force responsible for the Automobile Safety Law requiring seat belts and other safety devices. Over a long period of time, the major effect of that law, in my opinion, is going to be to reduce foreign competition for American manufacturers. As soon as the public loses interest in the subject, which they will, an agency for controlling safety standard on cars will be set up in Washington. Who is going to dominate that agency? The American automobile industry. The agency will have to be staffed by people who know something about automobiles. Is that agency going to adjust its specifications to foreign producers or to American producers? The net result is that you are going to have continually more and more requirements in the production of cars that will be expensive and difficult for foreign producers to meet. This has already happened. Some foreign producers of cars, small ones (like Austin Healey, I believe, but I m not entirely sure) have already dropped out of the 5

6 United States market because it doesn t pay them under these conditions. This will become increasingly true in the future. All these very expensive devices require expensive production lines and the result will be to enhance the monopoly position of the United States automobile industry. Making more expensive cars for the American people will lead Americans to keep their cars longer and the unsafe effects of old cars will do far more harm than the safety effect of a seat belt that nobody fastens. So the net result of Mr. Nader s campaign on the automobile safety agency is going to be to make cars unsafe, not safe, and at the same time, it will impose heavy costs on the consumers. Q. Nader claims to have contacts with consumer organizations in different countries... A. That s what he says. World cartels don t work when they are cartels of producers; cartels of consumers are going to be even less effective because cartels of consumers are less effective within each country separately. I m not saying Nader is not a very sincere man and that he doesn t believe what he is doing is good but, in my opinion, most of the actions he is taking are harmful to consumers. Q. Perhaps the problem is quality of products... A. If you ask the question how do you get improvements in quality and from whom, the answer is that one of the great features of the private enterprise system is the way it has greatly improved the quality of almost everything you can name. Take your tape recorder: consider what has happened to these machines in the last ten years. Was there a government specifications bureau that was imposing specifications? Was there a government production bureau that was producing? It s entirely due to private competition. Airconditioning systems, hi-fi systems... anything you can think of in which you have private competition, you have improved quality. Where do you have bad quality? Look at anything which is run by government, whether it is the railroads (which are run by the Interstate Commerce Commission), whether it s schools run directly by the government, the post office which is a government monopoly or even congestion on the highways. There is no fact I think that s more clearly established than that private industry competition tends to bring improvements in quality governmental-controlled industry tends to make for deterioration in quality. And yet Nader has done an amazingly effective public relations propaganda job of persuading the public at large that business lowers quality. How does he do it? Cars have now reached 95 percent 6

7 reliability, so Nader launches a campaign that says it s terrible that you get a five percent unreliable car. When industry gets to 97 percent Nader will say it should be 98 percent and so on. He distorted completely the public understanding of the contribution which industry makes to the well-being of the ordinary consumer. Incredible. Business has shoddy products they say, but it is not true. That s media propaganda. Facts are the other way around. Anybody who is my age knows that cars have tremendously improved in the last 30 years in all aspects of quality. We had improvement in quality not because businessmen wanted to do good but because in a competitive world the only way in which a businessman can make money is by producing better products or the same products at better costs. Q. You are very much in favor of free enterprise but don t you think that competition between statecontrolled companies and private companies could be favorable? A. One should be in favor of competition... period. Most of the cases when you talk about competition between government and private industry do not mean real competition because it always turns out that the government industries are able to get terms and conditions and control its activities in a way that private enterprise cannot. I am in favor not of free enterprise but of free competitive enterprise. Private monopolies are good, governmental monopolies are no good. Governments are not good instruments for engaging in competition. The reason is that people do not understand the profit system. They think it s a profit system that s wrong. It s a profit and loss system and the loss part of it is at least as important as the profit part of it. The thing is that in the private enterprise systems, if a mistake is made a company may go bankrupt. It may not but at least it may, while if you have a government enterprise, it may not go bankrupt... its mistakes are subsidized and continued. I have always argued that the major difference between government enterprise and private enterprise is not at all in choosing the right enterprise to engage in. It might be that government bureaucrats would be just as smart as private individuals in trying to choose which industry to go in and how to go in. The important thing is that if you are in a society that is changing and developing, enterprise is a gamble. Some ventures will succeed; others will fail. If it is private enterprise, there is a very simple test of success; does it make a profit or not? And if it makes losses it may be allowed to fail, to go bankrupt. You have a very good example in Great Britain where Rolls Royce should be allowed to go bankrupt. The case in 7

8 the United States is the Penn Central and I am strongly opposed to the government providing any funds whatsoever. There is no justification for government s bailing out private enterprise. It may be allowed to fail and at least the small ones will. On the other hand, a government enterprise, if it turns out to be a failure, will be subsidized. This is why competition between private enterprise and government companies is only a figment of the imagination and not reality. Q. What do you think about American firms that are building plants abroad in order to pay lower salaries than those of the United States? And from the point of view of competition, what do you think will happen to the smaller companies that are unable to produce abroad? A. I believe in free trade and therefore any such moves that are justified on free trade grounds which will enable products to be produced more cheaply, are to the mutual benefit of both the country in which the factories are set up and the United States. Because the counterpart to that which people do not see, is that if indeed it is cheaper to produce such products in Taiwan, that gives the people in Taiwan dollars to spend and what do they do? They end up buying goods, and American products. The thing is that people discussing international trade generally get things upside down. The reason they say why you engage in international trade is to export goods, but that s the reverse of the truth. The gains from international trade are the goods that you import, not the goods that you export. In many cases factories set up abroad are not set up for reasons that are justified on free trade grounds but because the country in question is trying to encourage manufacturing. For example, in almost every underdeveloped country in the world that I know of, there is an automobile assembly plant. Why? It s wasteful, it s a very expensive way to do it. Fiat has made a business of setting up assembling plants (in Poland, Russia, Yugoslavia, etc.) and so have other producers. Ford has an assembly plant in Venezuela. It s a waste of capital. The underdeveloped country prohibits the import of foreign cars in order to provide an incentive for others to set up a factory. A friend of mine in Venezuela calculated that if you take the employees of that assembly plant, send them home, continue to pay them exactly the same salary, have them buy cars in the United States and take them to Venezuela, they would cost less than they had cost in Venezuela. That s true all over the world. One of the great insanities is this desire for every underdeveloped country to manufacture its own automobile, whereas it would be much 8

9 cheaper not only to buy new cars but also second-hand cars. This type of movement of capital abroad is not justified and it s wasteful. I don t blame the Ford Motor Company for pursuing its own interests but I think the Venezuelan government is very shortsighted, just as the Indian, Iranian, etc., are also. Q. What do you think of building plants in industrially developed countries, like Europe, for instance? A. Well, if you consider the Common Market countries, they have set up high external tariffs and have encouraged United States firms to set up manufacturing plants in the EEC to serve the EEC. In many cases, it s wasteful; it would be better for the EEC and the United States to produce these goods in the United States. Any capital which moves primarily in order to get around tariffs is likely to be a waste of capital. Let s suppose that there were no trade tariffs between the United States and the EEC which of these industries would still find it in their interest to set up plants in the EEC? Any such plants are entirely justified by free trade grounds. Any other plants are not. In conclusion, I would say, since you want simple answers to complex issues, that as far as manufacturing abroad more cheaply is concerned, it is all to the good of the American worker, the American consumer and the American owner of capital. 9