Speech

h$ Speech delivered before Directors of Savings Banks._Trust_Comgari£ and Institutional Securities Corporation New York," N. Y. June 13 T THE IMPORTANCE OF GERMANY FOR THE ECONOMIC RECONSTRUCTION OF EUROPE The American public is well aware of the general importance of re- constructing the German economy. Few people, however, understand how much German rehabilitation means for those areas that form the core of democratic capitalism in Europe, For political reasons, the Nazi regime tried long before the war to loosen the ties between the economies of Germany and the western democra- cies. Germany became the most important trading partner of the other Central arid Eastern European countries, but this development did not ap- preciably diminish the overwhelming role that Western Europe and non- European countries always have played in German foreign trade. In 1937— the last year in which the German economy was run on a peacetime basis— Germsryhad imports of $2.2 billion and exports of £2.4 billion. Of its imports, 35 per cent came from Western Europe, 23 per cent from the Americas, 21 per cent from Asia, Africa, and Oceania, and 21 per cent from Central and Eastern Europe. Of its exports, 47 per cent went to Western Europe, 15 per cent to the Americas, 16 per cent to Asia, Africa, and Oceania, and 22 per cent to Central and Eastern Europe. Germany's^ importance for the western nations becomes even more apparent if countries that supplied more than half of German imports and took more than half its exports, are listed in the order of their contribution to German foreign trade. The nations from which Germany had the largest imports vere the United Kingdom, Argentina, the United States, Sweden, Italy, the Netherlands, Belgium-Luxembourg, Brazil, Rumania, British India, .China, and Denmark. The countries that took the largest quantities of German exports were the Netherlands, the United Kingdom, France, Italy, Belgium- Luxembourg, Sweden, Switzerland, Denmark, the United States, Brazil, China and Czechoslovakia. Of these fifteen countries only Czechoslovakia is located in Central Europe, and only Rumania in Eastern Europe. In the long run, those countries will have to reestablish the German market as an outlet for their products. At present, however, Germany is more important to them as a source of supply than as a customer. Many of the goods that Germany supplied before the war, are indispensable today for the economic reconstruction of its former customers. Among the raw materials exported by Germany, coal always has played the most important role. In 1937, Germany exported AO million tons, the value of which was then $180 million and would be today $400 million. Most of it came from the mines of the western zones, especially the Ruhr and Saar districts, and went to Italy, France, Belgium-Luxembourg, the Netherlands, and Switzerland. In 1946, exports from the western zones totalled 13.A million tons, and these exports had to be divided among many more claimants than the threefold amount in 1937. The decline in the output of trio British mines, which made necessary a reduction in British coal and coke exports (including bunker coal) from 52 million tons in 1937 to 9 million in 194-6, has deprived the Scandinavian countries of their customary source of coal. The agreements concluded by Poland i;6 with the Soviet Union have diverted to that country a large portion of the Sileasian coal output from its usual Central European markets. Do- mestic coal production almost everywhere in Europe was below prewar, on account of war damage and disorganization. The only other source of^ coal open to European countries was the United States, but the rise in coal exports from the United States between .1937 and 1946 was only 29 million tons, or only two-fifths of the decline in exports from Germany, Great Britain, and Poland. Moreover, American coal is too expensive because of transportation costs for rational use in Europe. Thus coal has remained the most severe single factor retarding the recovery of the industrial countries of Europe, and especially of France, the Low Coun- tries, Italy, and Austria. The situation is the more serious since even the small German ex- ports of 1946 were made possible only by drawing on existing stocks and by reducing at the same time allocations of coal to German industry to a level which made the rehabilitation of the German economy impossible. The collapse of the allied efforts to reconstruct the German economy on a peaceful basis could be averted only by sharply curtailing export al- locations in the fall of 1946. Under the system of allocations recently established by the western occupying powers, the 194-6 export volume will be reached in 1947 only if present coal output is increased by about 10 per cent. A more nearly satisfactory export volume equal to about half of the 1937 level will depend upon an increase in output by at least 40 per cent. Similar problems arise in connection with the exportation of German potash, which in 1937 went mainly to the Netherlands, the United States, Belgium-Luxembourg, and Denmark. Prod\iction of potash in the western zones reached 75 per cent of prewar, but domestic demand was larger than before the war because of the unavailability of potash from the eastern zone of Germany. In order to satisfy the foreign needs and thus assist in the rehabilitation of agriculture in western Europe, production in the western zones of Germany would have to surpass the prewar level. In the exportation of textiles, Germany played a relatively minor role before the war, bub at present the demand for such goods is so great that the absence of German supply is seriously felt in Europe. In the fields of chemicals, however, the lack of German exports is far more important. The industries of Sweden and the Netherlands as well as plants in the United Kingdom and the United States, were heavily depend- ent upon semi-finished products of the German chemical industry. German pharmaceutical products could be used to greatest advantage in the pub- lic health programs forming part of the rehabilitation projects for Greece, Italy, Austria, and even for the countries of the Middle and Far East, While most of these products today can be made available from American sources, many countries in need of them cannot afford them since they cannot export to the United States but could export to Ger- many to pay for German products. Next to coal, the greatest need of European industry today is for steel and steel products. In 1937, Germany exported semi-finished iron and steel goods to the extent of 2.6 million metric tons, including in- gots, tube3, plates, wires, and the like. The Netherlands alone imported from Germany 450,000 tons of such products, Denmark more than 250,000 hi tons, Greece almost 100,000 tons, and China about 150,000 tons. German exports of finished iron and steel products, other than machinery, amounted to almost 700,000 tons in 1937, of which almost one-tenth went to the Netherlands. Exports of these two categories were larger than the entire iron and steel production .in the western zones of Germany in 194-6, and almost half of the total permitted to all of Germany under the so- called level-of-industry plan. Unless that plan is revised and actual steel production increased up to the permitted limit, the exportation of these materials badly needed for reconstruction will be impossible. Exports of machinery and vehicles, although smaller in tonnage than those of other iron and steel products, were even greater in value and importance. In 1937, they reached about 1 million tons, valued at around ^600 million, and included among others $80 million of machine tools, ^125 million of electrical appliances, $80 million of motor vehicles, &55 million of textile machinery, and $45 million of precision instruments and optical goods. Virtually all countries of the world were large cus- tomers, with the Low Countries, the Scandinavian nations, Italy, France, and China among the most prominent. These countries today are in parti- cular need of such machines for reconstructing their industrial system. Nevertheless, there were no German exports of such commodities in 1946, and under the level-of-industry plan it is questionable whether some im- portant categories could ever again be exported. The lack of these exports endangers daily the work of the industrial enterprises of Europe. It means that these industries, with their exten- sive use of German machinery, are unable to receive replacements or even spare parts for the growing number of machines that become unfit for operations after the neglect of the war years and the strain of the post- er period. Recent setbacks in Netherlands manufacturing industries, in Polish coal mines, and in the Austrian transportation system were due to "the impossibility of making repairs without German spare parts. The needed expansion of industry, and even the development of new plants to replace those destroyed during the war, are hampered even more seriously than mere repair work. The machinery industries of the few countries that did not suffer from the war, and especially those of the United States, cannot make up for the deficit since they are fully occupied with domestic orders and exports to their regular markets, and since in many cases they do not specialize in the types of machinery needed by European enterprises and traditionally produced in Germany. Since it is to be ex- pected that in the long run these countries will revert to their normal German sources of supply, it would not be economical for the American machinery industry to attempt to convert their manufacturing processes so as to cater to what may prove to be a mere temporary demand. Given the need for stimulating German exports in order to help in the recovery in the rest of Europe, the following steps are necessary. First of all, the efficiency of German labor must be restored. This in turn im- plies an early currency reform so as to give the German worker wages ex- pressed in a currency with real purchasing power. As long as the German mark cannot be used for anything but the purchase of the meager official rations, the German worker has no incentive for earning higher wages than the modest amount that he can spend on his rations. This means that he has no incentive to work efficiently. This tendency is reinforced by the fact that as the result of the currency situation black market operations are far more remunerative than honest work. Plans for currency reform have been formulated long ago, and only relatively minor points are in dispute among the occupying powers. If it proves impossible to reach an early agreement on these points among all four occupying powers, the American and British authorities must weigh the advantages and disad- vantages of unilateral action in the combined American and British zones. Currency reform, however, can cure only the monetary causes of the low level of German productivity. It is even more important to bolster the purchasing power of the currency by an increase in the supply of con- sumer goods. The most needed of these goods are foodstuffs. At the present rate of 1,550 calories per day for the so-called normal consumer, labor efficiency cannot be maintained in the long run. The occupation authorities hope to raise the ration in the not too distant future to 1,800 calories per day, but even that would be far from sufficient. We must plan to reach about 2,600 calories per day; this would still be less than the prewar level, and especially it would not mean a return to pre- war standards of quality, but it would guarantee adequate nutrition. In the long run, it can be hoped that the combined American and British zones may produce domestic foodstuffs up to the equivalent of 1,600 calo- ries daily per normal consumer, as compared to the present level of about 1,000 calories. In the next few years, however, no more than a production of 1,300 calories can be expected. This means that we must import at least 1,000 calories per day and person, and possibly as much as 1,300 calories, or in other words, at least 60 per cent and perhaps as much as 100 per cent more than during the current crop year. Impor- tation of foodstuffs during the first six months of 194-7 into the com- bined American and British zones requires the expenditure of £270 mil- lion. On the basis of 2,600 calories, foodstuff imports would cost at least $850 million per year at present prices. Food alone, however, would not satisfy the needs of the German worker. Next in importance is housing, much of which can be furnished by the aid of domestic labor and materials, but for which some materials, like non-ferrous metals, have to be imported. Third in line is cloth- ing which in normal times can be supplied by German industry, but only with the aid of imported raw materials like cotton and wool. At present, German firms receive American cotton for processing purposes with the provision that part of the finished products is exported in order to pay for the imported material; the remainder is either also exported in order to pay for additional imports, or put at the disposition of the German consumer. An extension of these arrangements is under negotia- tion with the Export-Import Bank and private cotton exporters. The quantities in question, however, are far from sufficient. The pooula- tion of the combined American and British zones need for their own con- sumption about ^00,000 tons of textiles per year, of which about 200,000 tons of cotton and 100,000 tons of wool have to be imported. Another 100,000 tons of textiles have to be imported for processing and re- export. The total of 400,000 tons of imports which would still be less than the prewar imports of raw and semi-finished textiles into the area of the combined zones would cost around $300 million per year at pres- ent prices. Other raw materials for consumer goods industries, both for domes- tic production and reexports, include hides, lumber, gasoline, lubri- cants, and rubber. More important than any of these goods, however, k9 will be the importation of iron ore and non-ferrous metals needed to enable the Germans to resume exports of steel and machinery. In 1937, such imports required $340 million. In the postwar period the sum will be somewhat smaller since the rise in prices will be overbalanced by the reduction in German productive capacity, needed for reasons of inter- national security. Altogether, the rehabilitation of the German capacity to export will require the importation of industrial raw materials about equal to the value of imported foodstuffs. The American and British occupation authorities have given their attention to this problem for many months. They have accumulated funds to pay for some imports needed to prime the pump of the German industry, and they have negotiated credits with public agencies to provide for ad- ditional raw materials. Again, however, the present program must be ex- panded if its purpose is to be fulfilled. New credits will not only have every chance of being repaid out of the increased German exports, but they will also enable the combined American and British zones to start Paying for the food imports which at present are financed by the occupy- ing powers out of appropriated funds. It is to be expected that within a few years the exports from the combined zones will be large enough to make unnecessary the further use of appropriated funds of the occupying powers, and perhaps even to begin the repayment of the funds advanced in the interim period. In addition to currency reform and increased imports of foodstuffs and raw materials, the German export program needs the revision of the level-of-industry plan adopted by the occupying oowers in the spring of 1946. There can be no question of abandoning the main idea of that plan; namely, the prevention of a revival of German war potential. The occupa- tion authorities will continue to enforce the provisions of the plan in regard to war industries. It will be necessary, however, to revise Periodically the list of industries classified as dangerous, and the quotas production established for restricted enterprises, which include most °f tne heavy industries. In each case the possibility of an abuse of in- creased capacity will have to be weighed against the advantages of using that capacity for the benefit of the rest of Europe. It appears clear, for instance, that the permitted steel production of 5.8 million tons for the current year is utterly inadequate for the peacetime needs of Europe, and the majority of the occupying powers seem to feel that about double that amount would be more reasonable. Whenever possible, such revisions should be undertaken by agreement of all four occupying powers. If, how- ever, no such agreement can be reached, the American and British authori- ties again will have to weigh the arguments for and against unilateral action in their zones of occupation. Unilateral action, however, can provide only for a partial solution of the German economic problem. Rehabilitation of the German economy vould be greatly facilitated if the occupying powers could reach an agree- ment on the .implementation of the Potsdam Agreement which provided for treating Germany as an economic unit. The division of Germany into zones of occupation separated from each other by excessive trade barriers and other methods, already has hampered the reconstruction of Germany as much as any other single cause. The nearer the German economy comes to reach- ing again a more normal level of production, the more disastrous will be the separation. Every zone is dependent upon raw materials from other 50 zones; and can work rationally only if assured of markets for its prod- ucts in the other zones. Moreover, only early economic unification can prevent industries from being developed in one zone that will be iorced to close down once more efficient plants in other zones will again be able to compete with them. The contribution that Germany can make to the rehabilitation of the rest of Europe thus will be the greater, the closer the relations among the occupying powers. Restoration of harmony among the Allies will make possible agreements in the matters of currency reform, level-of-industry plan, and economic unification. In this as in so many other respects, the economic interests of Europe and the political interests of the United States are in complete harmony.

M.S. Szymczak (1947, June 12). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19470613_szymczak_2

@misc{wtfs_speech_19470613_szymczak_2,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1947},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19470613_szymczak_2},
  note = {Retrieved via When the Fed Speaks corpus}
}