CONGRESSIONAL RECORD -- SENATE
July 22, 1965
Page 17902
PROGRESS OF BALANCE-OF-PAYMENTS PROGRAM
Mr. MUSKIE. Mr. President, nearly 6 months ago, the President announced a program of action for reducing the continued large deficit in this country's balance of international payments. This program included, in addition to certain fiscal measures to be followed by the Government, requests for voluntary action by lenders, investors, and others to reduce the flow of dollars abroad.
During March, following the announcement of this program, the Subcommittee on International Finance of the Senate Banking and Currency Committee held a series of hearings on the problems of the country's balance of payments. These hearings included statements by responsible Government officials, by representatives of banking and business, and by economists. The proceedings, together with other analyses of various aspects of the problem, were published by the committee.
Another hearing was conducted in May, and others are being scheduled beginning August 3, and again on August 17, to review progress of the program and other developments since March, and to consider problems that may lie ahead. These hearings will include statements by the Secretary of Commerce, by a member of the Board of Governors of the Federal Reserve System, by other businessmen and bankers, and in conclusion, by the Secretary of the Treasury, who will testify August 18.
Recently a number of statements have been made by officials and businessmen as to the progress of the program. I ask unanimous consent that, at the conclusion of my remarks, there be inserted in the RECORD the following speeches: "Investment Planning, Financing Abroad, and the U.S. Balance-of -Payments Program," by Andrew F. Brimmer, Assistant Secretary of Commerce for Economic Affairs, before the New York Society of Security Analysts, Inc., July 15, 1965; "The Stake of U.S. Business in the Voluntary Balance-of -Payments Program," by Albert L. Nickerson, Chairman of the board of directors, Socony Mobil Oil Co., Inc., and "The Future of the International Drug Field and the Direct Investment Issue," by Richard C. Fenton, president, Pfizer International, before the American Market Association, New York, June 15, 1965.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
INVESTMENT PLANNING, FINANCING ABROAD, AND THE U.S. BALANCE-OF-PAYMENTS PROGRAM
(Remarks by Dr. Andrew F. Brimmer, Assistant Secretary of Commerce for Economic Affairs, prepared for delivery at luncheon before the New York Society of Security Analysts, Inc., at the NYSSA headquarters, New York City, July 15, 1965)
I greatly appreciate the opportunity to visit with you to discuss some of the ways in which U.S. industrial and commercial corporations are responding to the President's request that they make an extraordinary effort to help eliminate the deficit in the Nation's balance of payments. In this discussion I wish to focus primarily on that part of the President's program which is the responsibility of the Secretary of Commerce. I am certain that you are aware of the contributions being made by commercial banks and other financial institutions in cooperation with the Federal Reserve System. I also know that you are familiar with the several legislative proposals which centered on the broadening of the applicability of the interest equalization tax and modification of the duty-free customs allowance for travelers returning from abroad. All of these are vital parts of the President's program, but I think it would be appropriate for me to confine my remarks essentially to the phase of the overall program with which I am personally associated.
In appearing before this distinguished audience, I realize that most of you are primarily concerned with a wider understanding of the basic factors which are likely to shape the financial performance of the corporations in whose securities you and your clients have a vital stake.
While I cannot report to you anything about the detailed plans of individual corporations as far as their overseas activities are concerned, I can review with you the way in which many of the companies are responding to several of the guidelines recommended by the Secretary of Commerce in his letter of March 12:
"In particular, a sizable number of companies is finding it possible to cancel or postpone direct investment projects in developed countries. We now have a rough indication of the nature of these modifications in direct investment.
"While many companies have found it necessary to proceed with their investment plans, they are making a determined effort to finance them with funds obtained abroad. Here also we have a rough impression of the extent to which they are meeting with success.
"We realize, of course, that borrowing abroad may be difficult for many companies. Consequently, within the Government we have given some thought to this situation; it occurred to me that you may be interested in the results of that reflection.
"The Secretary of Commerce also asked companies to be as economical as possible in managing their work and capital requirements abroad; he also asked them to repatriate short-term foreign financial assets held abroad in excess of such needs. I am certain you would be interested in the way companies are responding to this request."
Before I look at the above items in greater detail, I think it would be helpful if I were to give you a brief report on the current overall balance-of-payments situation.
CURRENT BALANCE-OF-PAYMENTS SITUATION
We do not have the actual figures on the balance of payments during the second quarter of this year, but the preliminary evidence certainly does indicate that we achieved a surplus. Such an achievement, even though related to a few months, is welcome news after years of continuous deficits. Secretary Fowler's announcement last Saturday that the Government feels the circumstances now warrant the calling of an international monetary conference undoubtedly is also a welcome development.
But, do these new circumstances or events signal the need for changes in the U.S. balance-of-payments program?
We want to be as emphatic as possible in stressing the need for a continuation of the voluntary effort. We are certainly glad that the situation has improved, but we would not want to conclude too hastily that the basic problem of the deficit has been solved.
For one thing, the second quarter upsurge in exports after the dock strike early in the year inflated the trade surplus in more recent months. Furthermore, we have benefitted from some of the most quickly effective measures under the balance-of-payments program. Funds that had been sent abroad mainly for slightly higher yields on time deposits and other short-term investments were readily and easily reduced. In short, we are seeing the results of unusual circumstances that just now are largely favorable. To a considerable extent they reflect reactions to highly adverse circumstances during the last quarter of 1964 and in the first 2 months of this year, They do not provide the evidence necessary to demonstrate a basic change in the U.S. balance-of-payments situation. Consequently, the urgent need for the special measures continues, and we must, in fact, press harder for benefits from other parts of the program. These will be more difficult to obtain than the recent favorable turns based on trade results and reductions or reversals in short-term financial outflows.
Under the Federal Reserve program there has been a sharp reduction in the rate of expansion of bank credit to foreigners. As the banks that were over committed adjusted the level of their foreign loans based on 105 percent of the amount outstanding at the end of 1964, there was some overall reduction in outstanding amounts early in the second quarter. However, for the banking system as a whole, there is still room for expansion within the general guideline, and there may be a further -- though perhaps moderate -- increase in credits to foreigners during the rest of 1965.
NEED FOR RESTRAINT ON DIRECT INVESTMENT
I would now like to turn to a review of the basic reason why corporations were asked to exercise as much restraint as possible on direct investment abroad. You may recall that in formulating the guidelines, Secretary Connor did not ask companies to cease making investments in their affiliates abroad. Rather, he suggested that, wherever possible, companies cancel or postpone marginal investments in developed countries. In doing this, he left it to the individual corporations to decide what is marginal.
However, the Secretary was convinced that, if each firm made a careful review of all foreign investment plans, they would be able to find ways to limit or postpone some proportion of their planned expenditures abroad, at least during 1965 and 1966. At the same time, the Secretary was sensitive to the fact that each company would want to do this with due consideration of the long-range profitability of the firm and in the light of its own competitive needs. Yet, it was felt that if a careful and systematic review of plans were made, a sizable amount of investments might be rescheduled to reduce their balance-of-payments impact, while retaining projects that are clearly vital to the long-range development of the company.
Why the Secretary felt such a recommendation was necessary is abundantly clear: In the period immediately preceding the announcement of the President's balance-of payments program on February 10, private investment outflows rose to near record levels. In 1964, total private capital outflows were nearly $6½ billion, and direct investment outflows climbed to $2.4 billion. In the fourth quarter of 1964 alone, direct investment outflows were at an annual rate of $3.3 billion; in the first quarter of 1965, they rose to an annual rate in excess of $4 billion.
Behind the sharp rise early this year were several key factors. Among these was the transfer of funds abroad by companies to insure the completion of a greatly enlarged volume of plant and equipment expenditures abroad which had already been scheduled for 1965. For example, our preliminary figures collected by the Office of Business Economics indicate that plant and equipment outlays abroad by U.S. affiliates may rise by as much as $1 billion this year from the level of about $6 billion in 1964. In fact, if the final results bear out the earlier indications, the rise may be as high as 20 percent. Such an increase would be the largest registered so far during any single year.
This expansion of plant and equipment outlays would significantly exceed the annual increase normally expected in retained earnings and depreciation allowances generated internally by foreign affiliates. Thus, in the absence of special efforts, such a prospective rise in plant and equipment expenditures would be expected to lead to a considerable expansion and in the rate of capital outflows from the United States in 1965 compared with 1964.
Fortunately, an effort is being made by a number of companies to plan their direct investment expenditures with the balance-of-payments problem in mind. It is of critical importance that this effort be pursued with vigor. We hope that each proposed project will be examined to assure that the additions to capacity are needed and that they are needed at the time scheduled for completion. To the extent that the firms are as frugal as possible in terms of spending their foreign investment dollars, controlling working capital, and limiting cash balances, they may help the U.S. balance of payments without any adverse effects on their foreign operations.
The responses from the participating firms indicate that some of them have set up special balance-of-payments committees of their board of directors that perform a careful and systematic review function. Although we did not ask for a specific report, over 40 firms have informed Secretary Connor that they have canceled or postponed investment projects. These range from a brief mention of general plans to the submission of detailed schedules of postponed. projects.
It is not possible to make a firm quantitative estimate of the dollar savings which might result from such rescheduling. However, in the aggregate, the amount of reduction in direct investment which could result is in excess of $100 million. But the effort at modification is broadly based, with changes ranging from a few thousand dollars to a surprisingly large postponement by one company.
THE SEARCH FOR FOREIGN FINANCING
In deciding on the general and flexible approach, of course, we clearly appreciated the fact that many companies would not be able to cancel or postpone investment commitments. Because of this probability, the Secretary suggested that in those cases, where the appropriate company decision calls for continuation of investment plans, the impact on the U.S. balance of payments should be minimized through alterations in financial techniques. In particular, it was suggested that companies try to borrow as much of their requirements as possible in developed countries. This of necessity implies a search for funds in Western Europe.
A substantial number of companies cooperating in the voluntary program have indicated a general willingness to make the added effort and to pay the normally higher costs associated with foreign borrowing. This effort is being made despite the fact that these companies typically have large deposits in U.S. banks at home or have ready access to other domestic sources of fund raising interest rates appreciably below the rates prevailing abroad.
To date nearly 100 companies have mentioned specifically that they have arranged foreign loans or intend to do so to expand their facilities abroad. Since we did not ask for reports in the details of proposed borrowing abroad, we do not have a systematic body of information to measure the success of this part of the program. However, we have been able to piece together a fairly good description from the letters and other material submitted to the Secretary.
In table 1, attached, I have summarized as far as possible the salient characteristics of corporation plans to borrow outside the United States, in response to the Secretary's request. It will be noted that the aggregate amount which companies have told us they hope to borrow is over $300 million. While we can say very little about the terms of such borrowing, we have been able to identify a few characteristics in a number of cases.
Type of borrowing: Apparently, a fairly large proportion of the borrowing will be effected through the sale of bonds, which accounts for $125 million of the $181 million of loans which can be identified according to type. Bank loans, including overdrafts, will undoubtedly account for a substantial amount.
Maturity of loans: In many cases the extension of loans will be for the short and intermediate term. While we have little comment on the actual maturity of loans, a fairly large number seem to fall in the 3- to 5-year range. Moreover, some companies have reported that they will arrange for short- and intermediate-term supplier credits. On the other hand, some companies will make a serious effort to obtain long-term funds, and we now have some cases of new corporation issues offered publicly.
Geographic distribution: We do have somewhat more information about the geographic areas in which the companies have indicated they will search for foreign finance. As shown in table 1, companies have reported that they intend to borrow about $244 million in Western Europe. A substantial part of this will be sought in Western Germany and the United Kingdom. Quite a few companies also plan to borrow in Canada, primarily to finance the operations of their Canadian subsidiaries. Several companies have also obtained funds in Australia, and the amount they have in mind clearly exceeds the $16 million figure in the table because that figure does not include the large amount actually borrowed by the Ford Motor Co. quite recently.
TYPICAL EXAMPLES OF BORROWING ABROAD
As mentioned earlier, we cannot disclose the details of individual company plans because of the confidential nature of the information we have received. To keep within this limitation and still provide some of the flavor of the companies' efforts, the following synthetic cases have been developed from the letters and other material:
MINING
A number of firms has commitments in large mining ventures where the total costs range from $100 million to $200 million. In the typical case they expect to obtain about one-third of the total requirements abroad. They have had some success in getting loan commitments from banks in the host countries. However. because the local capital markets are still in the early stages of development they may not be able to raise any sizable amount beyond what they have already obtained. The typical company also mentions borrowings of over $20 million in Europe, but there are indications that they are in serious competition with other United States as well as foreign borrowers in the money markets of Western Europe. Some financing is available in Japan, but it is tied to Japanese equity in some of the ventures.
MANUFACTURING
Quite a few manufacturers of durable goods will individually attempt to borrow from $3 to over $20 million abroad through local foreign banking and other credit facilities. Funds will be sought primarily in the United Kingdom, Germany, Canada, Belgium, and Switzerland. In cases where commitments were listed, a total of $10 million will be borrowed in Belgium, $4 million in the United Kingdom, and $2 million in Germany. It was noted by several firms that overseas borrowing by foreign subsidiaries has become difficult because of heavy previous borrowing.
RUBBER
Rubber companies already have borrowed substantial amounts of funds abroad. A typical company hopes to borrow about $20 to $30 million abroad in 1965 to finance new construction, expansion, and modernization of foreign affiliates. Funds will be obtained largely through bank credit in host countries.
TRANSPORTATION EQUIPMENT
Manufacturers of automobiles, automotive products, and other transportation equipment will borrow heavily abroad during 1965. Funds will be secured primarily from Germany, France, and the United Kingdom. For some companies, in keeping with traditional policy, foreign expenditures will be restricted to amounts which can be financed through loans in local currencies and cash flows generated abroad. One company has already floated a large issue in Australia.
PETROLEUM
The international oil companies have large outstanding foreign loans, but only a few companies expect important net increases. Where increases are indicated, they will involve drawings under standby agreements with British, Dutch, and Swiss banks. A large corporate bond issue has already been sold in the German market.
CHEMICALS
Some chemical firms have given a good deal of study to foreign borrowing and have investigated a variety of arrangements. Borrowing by local affiliates is being buttressed by parent company guarantees in the case of one major firm. Insurance company loans, lease back arrangements and mortgage possibilities have been considered in addition to bank loans. A firm with an active investment program underway has substantial loan commitments from Italian, British, and French banks. Typical borrowing mentioned by chemical companies were for small net increases in bank credit used extensively in this industry, including sales in some of the countries, such as Spain, with less developed capital markets.
RECENT TRENDS IN BORROWING ABROAD
In asking U.S. companies to borrow abroad if they find it necessary to expand their facilities, I think it is important to note that the Secretary is not asking all of these companies to venture into totally unchartered territory. Rather, and this I stress, the record clearly shows that foreign borrowing has been a substantial source of funds over the years for direct investment in most areas -- and for many types of firms. A second important point is that the percentage of direct investment financed abroad is not only high but has also been rising.
In table 2, 1 have summarized figures from the Office of Business Economics which document this conclusion. This table shows the amount and percentage of funds obtained abroad by U.S. corporations to finance direct investment abroad in the years 1961, 1962, and 1963. Comparable figures for 1964 will not be available until this fall. One point not covered in the table is the fact that not only is the volume of investment financed abroad large in absolute terms, but it is larger in some cases than the amount obtained from other more readily obvious sources. For example, for manufacturing firms in all areas, foreign sources in 1963 accounted for a larger volume of funds than did depreciation allowances and funds obtained in the United States.
The heavy reliance on local funds is particularly strong in Western Europe. For during the 3 years studied -- both in manufacturing and petroleum industries -- U.S. firms financed on the average almost 30 percent of their direct investment with funds obtained from local sources. Moreover, in both of these sectors, foreign sources were the largest single origin of funds in 1963. The amount raised locally was as large or larger than either net income, funds from the United States, or the sum of depreciation and depletion allowances. That direct investment in Western Europe would be financed to such an extent by the use of funds obtained there is clearly understandable, given the more developed state of European capital markets. But as the figures in table 2 show, the reliance on local funds is also increasing in Latin America and other areas.
The evidence of the resort to foreign sources cited so far is of necessity only aggregate evidence. However, we have made a special effort to identify somewhat more sharply the sources of foreign funds obtained by U.S. corporations in 1962 and 1963. The results are presented in table 3. It will be noted that loans from financial institutions abroad, including commercial banks and other organizations, were in the neighborhood of $400 million. Of this amount, about $150 million on the average was obtained in Western Europe. Thus, for all areas such loans accounted for roughly 20 to 25 percent of the total funds obtained abroad in those 2 years.
Perhaps what is equally striking, net sales of equities in subsidiaries to foreign stock holders (recorded as a change in the subsidiaries' capital stock) also amounted to approximately $300 to $400 million. While most U.S. corporations active abroad seem to prefer to keep the ownership of their subsidiaries in their own hands, it is evident that a substantial number has also sought joint ventures with citizens of the countries in which they have made direct investment.
It may be recalled that one of our guidelines suggest that, where appropriate to the company and the country, sales of equity in foreign subsidiaries is one way to register an improvement in the balance of payments. In passing, I should say that some companies are doing this, and a few have indicated that they intend to explore this technique of raising funds abroad. As a matter of fact, there are some outstanding examples of equity financing involving public issuance of the stock of foreign subsidiaries. We also have a few cases where the parent company has reported changes in plans to purchase the minority interest in its existing affiliates and in one case to encourage further local ownership. Moreover, some American companies are making efforts to list the parent company's stock on foreign exchanges and to promote its sale.
SPECIAL EFFORTS TO SELL BONDS ABROAD
But in many cases equity financing is not desirable from the point of view of the company, and it will be more appropriate for the firm to borrow directly or to sell debt securities.
Perhaps you would allow me to mention two outstanding cases of bond sales abroad (with which I know that you are certainly familiar) which aided our balance of payments..
The first example is the borrowing by Socony Mobil through the sale of 15-year bonds by a subsidiary. As you may recall, the company's board chairman is Mr. A. L. Nickerson, who is also chairman of the Commerce Department Advisory Committee on the Balance of Payments. This borrowing was undertaken explicitly as part of the company's efforts to improve its balance-of-payments position, and we think it is an excellent case study which can be quite instructive in pointing the way for other companies who might wish to pursue this course.
To effect the loan, which amounted to about $28 million, Socony Mobil established a wholly owned subsidiary in Luxembourg. The bonds were floated in the name of the new firm but they are also guaranteed by the parent company. The issue was subscribed by banking firms in London and Frankfurt. The bonds will be quoted on the London, Luxembourg, Amsterdam -- and probably later -- on the Frankfurt-stock exchanges. This is truly a European issue, and it is also the type of securities transaction that undoubtedly helps to accelerate the development of a more viable European capital market.
Another example of a foreign bond sale which greatly assisted our balance of payments is the issue recently floated by the Ford Motor Co. of Australia.
This issue, denominated in Australian pounds, amounted to roughly $22.4 million. It involved serial bonds maturing in 5 to 12 years. This is a very large issue in terms of the capacity of the Australian capital market. Yet, the success of the flotation clearly demonstrates the potentialities inherent in a much broader use of this technique to raise foreign capital even in a market still in the early stages of development.
Let me say again that we believe it is highly desirable that companies make even greater efforts to obtain funds abroad. In stressing this, we are not unmindful of the fact that it has been easier and normally less costly for companies to use their regular American financial connections to carry out their direct investment projects. But as already indicated, many commercial and industrial concerns have been relying on local foreign sources to assist them in developing productive facilities which will be of lasting benefit to the host countries. We think these local institutions are capable of broadening these functions and of extending more credit to U.S. firms operating within their particular borders. While, for the U.S. companies involved, these steps may often entail higher interest cost and additional operating problems, we also think something is to be gained by developing closer connections with financial institutions in the countries where these firms operate. Moreover, such contacts between U.S. firms and local financial institutions will give added impetus to the further evolution of local capital markets -- especially in Western Europe.
Meanwhile, we recognize that it may very well be a bit more difficult for a smaller or a relatively little-known American company to borrow funds abroad. Again we also recognize that it will take considerable patience and effort to prepare the ground work and develop favorable conditions for borrowing. And, again we know that borrowing abroad virtually always involves higher interest costs than those prevailing in the United States. Nevertheless, we think the need to improve our balance of payments is so pressing that it continues to warrant suggesting to U.S. corporations that they venture along this course as far as they can if they must proceed with direct investment projects.
SOME OBSTACLES TO EXPANDING BORROWING ABROAD
While we have stressed the need to search for alternative sources of funds, we have not been blind to some of the real obstacles which companies face in trying to obtain such loans. Among these is the problem proposed by the taxation of interest income from the ownership by many foreign citizens of debt securities sold by American companies or their subsidiaries.
More particularly, one obstacle in the path of such borrowing arises because the foreign
subsidiaries are not able to sell their securities as easily as the securities of the parent company could be sold. But some companies are reluctant to attempt to sell abroad the obligations of the headquarters company because the board of directors of the parent company often does not care to have its name associated with the high-interest rates attached to a offering of bonds in a foreign capital market.
If the borrowing is made by the U.S. parent company, tax problems will arise as far as the foreign security holders are concerned. For example, by holding the U.S. securities, these foreign owners might have to file U.S. income tax returns or the interest paid to them might be subject to the U.S. withholding tax.
There appears to be a feeling among foreign investment underwriters that this potential liability under the U.S. income tax system is often detrimental to the successful flotation of a new issue.
However, borrowing abroad need not mean the loss of the ability to make use of the more prestigious name of the U.S. parent company. As I mentioned at the outset, we in the Government have given some thought to this problem.
I understand that, in appropriate circumstances, the Internal Revenue Service would be willing to consider situations in which the U.S. parent company acts as a guarantor or accommodation maker to aid their foreign subsidiaries in selling the latter’s securities abroad.
I understand that in appropriate circumstances, the Internal Revenue Service might find that involvement of the U.S. parent company would not affect the treatment of the interest paid by the foreign subsidiaries to the foreign securities holders. This seems to mean that there would be no requirement for withholding of U.S. income taxes or reporting of the transaction to the Internal Revenue Service whatsoever.
What I am trying to say is that, for a company interested in trying to sell bonds abroad, there is much room for imaginative planning if flexibility of thinking is maintained. At the same time, however, I realize that this is an extremely complex issue, and I do not wish to invade the preserve of the tax expert. Rather, let me withdraw quickly with the suggestion that the Internal Revenue Service is ready and willing to discuss this range of problems with companies who may wish to raise them.
PROGRESS UNDER THE VOLUNTARY COOPERATION PROGRAM
At this point, I think it would be helpful if I were to give you a brief report on the progress we seem to be making under that part of the program which is the responsibility of the Secretary of Commerce. You may recall that the Secretary recommended a series of guidelines that suggested how the companies might improve their net contribution to the U.S. balance of payments by 15 to 20 percent in 1965 compared to 1964. But this improvement was to be defined in terms of a selected number of transactions primarily with developed countries. These efforts include export expansion, repatriation of earned income, reduction of short-term financial assets held abroad, restraint on direct investment and expanded use of foreign financial resources. Since the latter recommendation has already been discussed at some length, we need not consider it further.
As I said at the outset, the effectiveness of the program is already evident; and if the cooperating firms are able to carry through their planned improvements, the longer term prospects are also encouraging. Collectively, these companies expect to increase their contribution this year by some $1.3 billion in terms of the performance recorded under a selected list of their foreign transactions during 1964. In addition, they anticipate making an immediate and substantial contribution to improving the balance of payments by reducing short-term funds held abroad.
This latter reduction will be a one-time improvement whose effects will be evident only at the time of the repatriation. Consequently, it is not included in the basic set of transactions listed in our worksheet and used to estimate the improvement of $1.3 billion which I just mentioned.
In a guideline dealing specifically with the treatment of short-term financial assets, Secretary Connor asked that during 1965 the participating firms reduce their foreign holdings at least to the amounts outstanding at the end of 1963. If this were accomplished, the contribution would amount to some $240 million. By adding that one-time improvement, which might be realized in 1965, to the improvement that could result from other transactions, the total contribution by the corporate sector toward assisting the balance of payments would exceed $1.5 billion,
From the regular balance-of-payments statistics collected by the Office of Business Economics, it appears that all U.S. industrial and commercial firms drew down their holdings of foreign short-term assets by about $200 million in the first quarter of this year. A large proportion of these withdrawals were from accounts with Canadian banks, but a sizable share was also repatriated from Western Europe.
These figures are quite consistent with the data reported directly to us by the companies participating in our voluntary program. Replies from 354 companies that were tabulated this week show a total reduction of $115 million in the companies' holdings during the first quarter. These statistics are recorded in table 4. However, certain crosscurrents are also observable in the table. The companies actually reduced their balances held in Canada by $186 million, but this was partly offset by an increase of $71 million in the amounts held directly by parent companies in other areas. There is every indication that reductions continued during the second quarter. There probably will be further decreases in the last half of the year, although the rate of repatriation may ease off.
I have found it particularly interesting to examine the pattern of change in the holdings of short-term foreign financial assets by companies in different circumstances. One aspect of this differential pattern of behavior is shown in table 5. In that table, I have separated the 354 companies according to the amount of short-term assets held at the end of December 1968 and 1964, and at the end of March 1965. The first thing to note is that almost half the companies did not hold any such assets on any of the dates under review. Moreover, 10 companies which had $28 million of short-term assets at the end of 1964, had liquidated them completely by the close of the first quarter, 1965. In contrast, 12 companies, which owned no assets of this type at the end of last year, had added $18 million by the end of March. Further, 27 companies expanded their holdings by $24 million during the first 3 months of this year.
Finally, 138 companies, which owned collectively the overwhelming proportion of the short-term financial assets on each of the three dates, cut back their positions by $129 million during the first quarter.
While it is not possible to provide a detailed explanation of these changes in the holdings of short-term assets abroad, several factors have undoubtedly influenced the pattern. We know that a fairly sizable proportion of such holdings represents the ordinary working balance required for the smooth operation of the companies' foreign business. On the other hand, a fairly large amount probably also reflects the movement of funds abroad in search of slightly higher investment yields. Finally, a good bit of the movement earlier this year probably can be attributed to some apprehension about the kind of program which might be adopted to cope with the deficit in the balance of payments. It was especially to the companies in the latter two categories that the President and the Secretary of Commerce addressed their appeal to repatriate such funds. Fortunately, companies are responding to their appeal.
CONCLUDING OBSERVATIONS
In closing my remarks, let me say that we feel confident that the companies cooperating with us are making a sincere effort to help reduce the deficit in our balance of payments. Many of them are exerting restraint on direct investment, while others which feel they must proceed with projects are attempting to finance them by borrowing abroad. And many of them are succeeding. Undoubtedly the companies are repatriating short-term financial assets which they do not need for the orderly conduct of their business abroad.
But at this stage of the program it seems evident that the basic improvements in the companies' balance-of-payments position which will be required later in 1965 and beyond will depend heavily upon their abilities to make gains with respect to transactions other than changes in holdings of short-term balances. Aside from potential improvements in exports, the firms will have to look primarily to the repatriation of investment earnings and the restraint on direct investment. Alternatively, they may find it necessary to make significant alterations in the techniques of financing and implementing their foreign projects.
But as they proceed in this search, it seems clear that the gains from their efforts must be registered for a number of quarters, back-to-back, before we can conclude that the balance-of-payments deficit has been eliminated.
This table has been compiled from the comments contained in letters to the Secretary of Commerce. Companies were not requested to report specifically on plans to borrow abroad. Thus, it is not possible to describe the details of such plans, except that most comments did include a general reference to the geographic area of intended borrowing.
THE STAKE FOR U.S. BUSINESS IN THE VOLUNTARY BALANCE-OF-PAYMENTS PROGRAM
(By Albert L. Nickerson, chairman of the board of directors, Socony Mobil Oil Co., Inc., before the American Marketing Association, New York. N.Y., June 15, 1965)
This is a particularly opportune time to talk about the voluntary balance-of-payments program and a particularly appropriate audience before which to do so. This subject is directly relevant to many of us in our day-to-day work and to all of us as American citizens.
I should like to try to give you a broad view of the voluntary balance-of-payments program, and to tell you why it seems to me clearly to be in the best interests of the U.S. business community to cooperate with the Government in this program. To do this, it should be helpful to set the problem itself in perspective.
The United States presently finds itself in a peculiar situation: It has a strong balance of trade, but a weak balance of payments. Our exports of goods and services from this country exceeded imports by over $8 billion last year, yet our overall accounts with the rest of the world were in deficit, and we have been losing gold.
More importantly, the deficit in the U.S. international payments, which amounted to about $3 billion last year, is of long standing and has aggregated about $24 billion in just the past 7 years.
In fact, our country has had a surplus in its international accounts in only 1 year in the past 15. That was in 1957, and it amounted to only about half a billion dollars.
In the fourth quarter of last year, when there occurred a particularly large deficit in the U.S. balance of payments, the United States began losing gold at a disturbing rate. When these losses continued into early 1965, the U.S. Government had to undertake some prompt measures to stem the outflow.
As you know, in February of this year the administration announced its program.
It applied the interest equalization tax to bank loans and extended it through 1967. This tax was first applied in 1964 to foreign stocks and bonds sold in this country. In 1965 the administration has introduced tax legislation to facilitate foreign investment in U.S. securities.
Additionally, the Government urged efforts to increase exports, and pledged itself to try to reduce overseas military and foreign aid expenditures.
It requested commercial banks to hold loans abroad this year to an increase of 5 percent over year-end 1964, which meant virtually no increase over the first-quarter levels.
Finally, the Commerce Department announced it would seek the cooperation of business firms in limiting the dollar outflow for direct investment abroad, particularly in the so-called developed countries, and in repatriating liquid assets held in those countries. Secretary Connor appointed a Balance of Payments Advisory Committee of the Department of Commerce, to counsel him in this program. The members of the Advisory Committee are Carter Burgess, of American Machine & Foundry; Fred Borch, of General Electric; Carl Gilbert, of Gillette; Elisha Gray, of Whirlpool; Ward Keener, of B. P. Goodrich; George Moore, of the First National City Bank of New York; Stuart Saunders, of the Pennsylvania Railroad: Sidney Wienberg, of Goldman, Sachs; and myself. The committee held its first meeting in late February.
At that point, some proposals were under consideration that those of us from business felt were far too specific and detailed, and in some ways unrealistic. Companies were to be asked for the equivalent of a "source and use of funds" statement -- including information on just how each company expected to make an improvement. It was suggested also that companies should make quarterly forecasts of their balance-of-payments transactions and that prior notification to the Government be required for any overseas investment of $10 million or more.
The advisory committee, on the other hand, advocated the simplest possible reporting system for private companies, with the maximum degree of realism. We favored unanimously a minimum of forecasting and a truly voluntary system in which each chief executive officer would set his own company's goal, in terms of a single, overall target for percentage improvement in that company's net balance of payments contribution.
The committee made its recommendations to Secretary Connor on this basis. The Secretary's faith in the voluntary cooperation of businessmen with their Government, and his awareness of the virtues of simplicity and realism, led him to adopt the committee's recommendations rather than the original suggestions for more detailed reporting and forecasting.
This marks the beginning of an unusual experiment for all of us in working with Government in a program that is voluntary in nature yet quite specific in its objectives. Each of some 600 companies has been asked to review and to total the effects of its exports, overseas investments and repatriated and unrepatriated earnings abroad in the developed countries in 1964. The Secretary has stated that the Department of Commerce is thinking in terms of a total, industry wide net improvement in 1965 of 15 to 20 percent in the balance of payments. Some companies, of course, will probably exceed 20 percent. Others will not be able to achieve a 15-percent improvement.
Each company's voluntary target for its own improvement will consist of a single figure entered on a form supplied by the Department of Commerce: the company's projected net contribution to the U.S. balance of payments in 1965, compared with 1964. It is anticipated that each company will be filing these reports quarterly, so each will have opportunities to revise its target for 1965 as events may warrant. It is further anticipated that later this year, each participating company will project its target for 1966. Secretary Connor has recently sought the cooperation of about 3,000 additional companies, though without asking this latter group to report periodically in writing.
Late in April, the Advisory Committee completed a second series of meetings during which the Secretary reported to us on the goals set by the chief executive officers of 334 companies representing 35 percent of U.S. exports in 1964 and about 80 percent of U.S. direct investment abroad in the same year. Most of the remaining companies among the original 600-odd have reported since we last met. It is much too early to draw any conclusions from these reports, but I can say that the expectations of these executives give a definite basis for our belief that the program is off to a good start.
In formulating this program, what did the Secretary of Commerce and the Advisory Committee see as opportunities for such a broad voluntary program to make a quick and major contribution to the balance of payments without hurting exports or affecting imports in any substantial way?
First, we all felt that if top management of each company reviewed its specific programs for new plant, working capital, and cash balances overseas, some reductions and postponements could be made with only a slight adverse effect even on long-range profitability. At the same time, I think Secretary Connor would agree that none of us wants a postponement of plant expansion programs that are genuinely vital to the competitive position of American business firms operating overseas.
We cannot afford, from the Nation's viewpoint any more than from the business viewpoint, to forgo market opportunities that, having repaid the costs of expansion, will provide continuing returns for many years to come. Neither can we afford to skimp on projects for modernization, new technology, and increasing the scale of plant operations abroad to a level that gives real efficiency. Our European and Japanese competitors are risking such improvements, and we cannot afford to lag behind. It certainly does not appear to be our Government's intention to discourage truly profitable investment overseas, and it is leaving the definition of "profitable" -- or, if you like, "essential -- in our hands.
Nevertheless, we must search for cash economies -- by reviewing construction and expenditure schedules to be sure that they are realistic and well timed; by reviewing capacity estimates to be sure we actually need the amounts that are programed; and by improving our control of overseas working capital and holding overseas cash balances to a reasonable minimum. This is going to require that each of us inspire the maximum effort from our controllers, treasurers, facilities-planning groups, and others.
Second, we felt that if top management expressed a willingness to give up moderate interest advantages, two things could be accomplished: a significant volume of treasurers' short-term investments overseas could be repatriated in an orderly fashion. Also, a larger proportion of expenditures could be financed through overseas sources of funds. We are well aware that in many cases overseas financing is easier to suggest than to accomplish. Most European capital markets, though improving, are still inadequate for the kind of financing we are used to in the United States. There is a limit to the number of public borrowings that can be undertaken.
Consequently, most of us will have to use our commercial banking connections in Europe more intensively than before, and the negotiations will not always be easy. Using these capital sources is going to involve more negotiations, delay, frustration, and higher interest cost than if we utilized U.S. sources of financing. The other side of this coin, however, is that utilization of these sources of capital may bring closer contacts with the European financial community and a beneficial involvement of banks there with the problems and opportunities of U.S. companies. In any event, we must persevere in such efforts, and to make them succeed we are going to have to manage our total working capital requirements very carefully.
Third, it seemed likely that a thorough review under top management direction would probably unearth some new opportunities to promote U.S. exports and to utilize U.S. travel or other services -- particularly if top management made clear its willingness to accept slightly higher costs on some of these items. None of us is under any illusion that it will be easy to increase export sales. In the past year, we achieved a very high level of U.S. exports from which to make further improvements. Moreover, the voluntary restrictions on both new bank credit and new direct investment are going to reduce the dollar funds available in some of our key export markets.
The Advisory Committee has been assured, however, that every effort will be made by the Commerce Department and the Federal Reserve authorities to see that financing is available for exports from the United States. It is going to be up to us, as businessmen, to maintain the export drive under these new conditions and promptly to bring any difficulties resulting from credit restrictions to the attention of the government people concerned. Thus it is clear that the members of the American Marketing Association involved in overseas marketing operations have a key role in the campaign substantially to improve the U.S. balance of payments.
The approaches just outlined do not add up to an easy program for business to undertake. The program surely involves extra work, and it may involve additional costs. It did seem to the Advisory Committee, however, that most managements would consider the additional costs involved in any combination of these approaches to be slight in comparison with the alternatives.
Certainly they are slight compared with the long-term cost of more-direct government actions that would impair our freedom to make decisions on when and where private company funds move abroad. And it is hardly necessary to remind you of the importance -- to our respective companies, to our economic system, and to our country -- of keeping the detailed and final decision making in private hands.
We face three basic choices: We can have a temporary program that is largely voluntary in nature, definite in its objectives but not detailed as to methods, and involving only a little additional reporting of data to the Government -- in short, the program we have now. Or, second, we can have a mandatory program of tightly administered controls. Or, third, we might have new legislation -- particularly tax legislation -- that would permanently change the rules for doing business abroad.
The first of these choices -- the present voluntary program -- seems so clearly preferable to the other alternatives that it needs no defense. This conviction has been the guiding impulse in the work of the Balance of Payments Advisory Committee.
The key word in this program is “voluntary." The other key element of the program is its short-term nature. No one high up in the administration has indicated that he views this program as permanent or even of long duration. Secretary Connor appears to share our belief that over the long run, rising exports and increased net returns from direct investment overseas will tend to overcome the present U.S. payments problem. Of course, there is more involved here than just the private sector. There is the need to control Government expenditures of all types, especially overseas expenditures, and for firm monetary and fiscal policies in support of the total effort. This program is not, and cannot serve as, a substitute for sound monetary and fiscal policies. It can only supplement them.
One of the most encouraging factors, overall, is the high degree of price stability the United States has maintained in recent years. Without such wage-price stability, private-sector exports from our country could hardly have risen by $4.5 billion since 1961 to exceed $22 billion in 1964. Since still greater exports are critically important to the U.S. payments balance, it follows that wage-price stability now and in the years ahead will be even more important than in the recent past. One of the challenges to management is to continue to resist wage settlements or restrictive work practices that would drive costs up, and to guard against any letdown in efficiency. Recent wage settlements and reported wage offers are a disturbing reminder that we can never take wage-price stability for granted.
Now to summarize. Our country has a real problem in the deficit in its international payments. While private direct investment is not responsible for this deficit, we have been asked to make a major contribution toward its solution. We have been given the opportunity to do so on a voluntary, largely informal, simple basis in a program that will hurt us very little if limited to a year or two. The alternatives open to us are distasteful and could be very damaging to our country.
This is going to be a hard job and, a continuing job, throughout 1965 and probably 1966. We must not become overconfident if one or two quarters show considerable improvement, nor should we be discouraged if we see a temporary reversal in the favorable trend of this program. The challenge is to make a steady improvement in the private capital sector and thus to accelerate the longer run solution of the balance-of-payments problem. I am confident the U.S. business community will rise to this challenge.
THE FUTURE IN THE INTERNATIONAL DRUG FIELD AND THE DIRECT-INVESTMENT ISSUE
(Remarks by Richard C. Fenton, president, Pfizer International, American Marketing
Association, June 15, 1965)
I am going to talk first about the so-called direct-investment issue. Referring to a point that Mr. Nickerson made in talking about the balance of payments at lunchtime, he said that the cooperation of business firms in limiting the dollar outflow for direct investment abroad, particularly in the so-called developed countries, is one of the aims of the balance-of-payments program which the President announced in February of this year.
These words of Mr. Nickerson were very well chosen, and I want to draw your attention to the fact that he did not say that the cooperation of business was sought in limiting direct investments
What he said was the cooperation of business was sought in limiting the dollar outflow for direct investments. There has been a great deal of misunderstanding about this point.
Direct investments are, essentially, investments by corporations such as your company and mine in plants, warehouses, and offices abroad. These are the so-called manufacturing direct investments. There are also other types: Investments in oil deposits, mineral deposits, refineries, public utilities, and so on.
What is not sufficiently appreciated is the fact that direct investments as a whole, both manufacturing direct investments and the others, make a very substantial contribution to the plus side of the U.S. balance of payments. In fact, the very manner in which the statistics are usually presented by the Commerce Department and elsewhere has tended to reinforce what the First National City Bank described some months ago as the tacit implication that our payments deficit stems from private capital investment abroad. Nothing could be further from the truth.
Many people seem to believe that the real plus in our balance-of-payments picture is the favorable balance of exports over imports and the real minus is the outflow of private capital, and in particular direct investments in developed countries. The impression has also got around that direct investments in developed countries are somehow harmful to the balance of payments while direct investments in underdeveloped countries should be encouraged.
The plain facts are that direct investments are the most favorable factor in our balance-of-payments picture, when considered in their total effect, and manufacturing investments in developed countries have a very favorable total impact on the balance of payments. The point is that you have look at the total effect of these direct investments and not consider solely the capital outflows and profit dividend inflows, etc You must also take into consideration the exports which are generated by there direct investments in our operations abroad.
I can illustrate by referring to my own company. We have about 56 plants abroad in 29 countries. Some of our products are wholly manufactured in some countries, the largest countries. But in no country do we wholly manufacture everything that we sell. And there is always at least some intermediate of some product that we have to import from one of our U.S. plants. Furthermore much of the equipment in our plants abroad has been purchased from the U.S. equipment manufacturers, and many of the material that we use, when they are not made by our selves, are made by other U.S. suppliers When we purchase materials and equipment locally, there are often components which are imported by the local company from the United States. It is for these reasons that since we started working outside of the United States in 1951, Pfizer operations have made a net contribution to the plus side of the U.S. balance of payments of no less than $370 million, in spite of leaving the 56 plants behind in the 29 countries. Last year alone we made a net contribution to the plus side of the U.S. balance of payments of $40 million.
The significant factor that I want to draw to your attention is that the major portion of our surplus -- almost $270 million out of the $370 million -- has come from our exports of U.S. made goods and equipment to our oversea plants, without counting the exports that we have generated indirectly through other companies. You will readily understand that most of these exports would not have been possible without our prior direct investments in the facilities.
You also understand, as marketing people, that it would be very foolish of us to set up a marketing operation in France without first assuring ourselves that we can make our products available there for our marketing people to sell, and it has long been the fact in France, in our field, that we couldn't import finished goods but must manufacture them locally. In many countries, if we do not invest in a plant, we cannot export to it from the United States; similarly, if a plant is working at full capacity, our marketing people are going to be disappointed if they can sell more and we fail to expand that plant. We cannot postpone the investment in expanding the plant without losing our position in the market. Mr. Nickerson made the point that "none of us wants a postponement of plant expansion programs that are genuinely vital to the competitive position of American business firms operating overseas."
We are typical of many other companies operating abroad. When I said that direct investments, when seen in their total effect, make the greatest contribution to the plus side of the balance of payments, I was referring precisely to that effect on exports. The official statistics issued by the Department of Commerce do not group exports with direct investments, but it is possible to rearrange the figures to make the picture reasonably clear. We can take the capital inflows and outflows relating to operations abroad and then add to them the current account effect, imports and exports to and from the direct investments, just as I did with our Pfizer statistics. If we do this for 1962 we find that the total surplus on balance-of-payments account of all direct investments abroad was no less than $3 billion. And in 1963 it was $3.2 billion. The picture for manufacturing direct investments alone is actually a little better than this because the so-called "other" categories -- oil and so on -- imported a little more than they exported, so their favorable capital account was offset to some extent by an unfavorable current account. I repeat, the total effect was a substantial surplus of inflow to the extent of $3.2 billion in 1963.
U.S. manufacturing direct investment in Western Europe alone, which has acquired the reputation of being the real culprit in the balance-of-payments picture, contributed a balance -of-payments surplus of over a billion dollars in each year 1962, 1963. These latter figures are taken directly from Department of Commerce statistics. The other figures that I have quoted were mostly derived from the Department of Commerce statistics, except for an estimate of the imports from oil and the rest of the non manufacturing category into this country. All of the figures have not yet been published for 1964, but the capital account effect of direct investments has been published and was a little more favorable than in 1963, and we would guess that the current account effect was at least as good as in 1963, so the overall surplus was probably a little better than in 1963.
To show you the other side of the picture, the so-called visible trade items, which are erroneously believed to account for the largest part of inflow, if we take out Government financed shipments going to the underdeveloped countries, for example, in the form of aid, which does not produce dollars nor, therefore, make a contribution to the plus side of the balance of payments -- and if you take out imports and exports, which actually arose from direct investments -- we find a somewhat different picture from the conventional one. In fact, we find that the surplus on trade in nonmilitary and nonaid goods was only about a billion dollars in 1962 and about a billion dollars in 1963. The true fact, therefore, is that direct investments contributed more than 3 times as much to the plus side of the balance of payments as visible trade adjusted as I have described.
Secretary Connor and his colleagues at the Department of Commerce are well aware of this, although other Government officials appear not to be. In the original statement which he made at the White House meeting on the balance of payments on February 18, Secretary Connor said,
"We fully recognized that your business activities have resulted in substantial net gains in our payments position . . . . We also are aware that our export position would not be as strong as it is today if you have not made the investments." What then is the voluntary program all about, so far as direct investments are concerned? As we understand it, we are in effect being told: "You are doing fine. You are making a great contribution to the balance of payments, but please, in the interest of the country, try to do better. Put on an efficiency drive and bear in mind the balance of payments every time you make decisions in your operations abroad. Help in every way you can without curtailing the growth of your businesses and without doing yourselves real harm." Such an appeal is irresistible, and I am sure all of us will do our best to cooperate. Pfizer is certainly doing so.
Let me come back for a moment to a point that I made at the beginning of this discussion -- namely, that the purpose of the voluntary program is not to curtail direct investments, but to curtail the dollar outflow for them as much as possible. In other words, we should finance as much of our needs as possible from foreign borrowings and earnings. In fact, looking at direct investments in their total effect in the way I have described, we most surely conclude that all talk about discouraging direct investments, discouraging foreign operations, curtailing them or even postponing them, is dangerous. Because such talk is misunderstood, it may discourage companies from going abroad to operate seriously. It is an old notion that you can build an international business by running an export operation from New York, without risking investment abroad in marketing organizations, warehouses, factories, and so on. We certainly know enough today to recognize that this is not the way to build an international business. What concerns me is that there appear to be only 500 or 600 companies with significant overseas direct investments, and it is only this number of companies which is playing an active part in the voluntary program. The pharmaceutical industry is very well represented.
They have done a fine job in the international field in the last 20 years. I understand, however, that there are about 300,000 manufacturing companies in the United States. It seems to me that one way, and possibly the only way, to solve the balance of-payments problem in the long run is to actively encourage more of those manufacturing companies to venture abroad .I would find it hard to believe that there is not at least 1 percent of all manufacturing companies with proven products and know-how which could do a good job of operating abroad, if they knew it was in the national interest that they should go abroad in a serious way. Of course, their initial investments would be a net drain on the balance of payments. But if you include the exports that most of them would probably generate immediately after their installation abroad, I would guess that the turn-around time on these investments would be very rapid. But the turn-around time must be calculated on the total effect including the exports, and not simply in terms of the profits and dividerids basis. In fact, my suggestion would be that, as a contribution to the long-term solution to the balance-of-payments problem, a real effort should be made to find the successful companies in all branches of industry and enlist the support of groups such as the American Marketing and American Management Associations to show them how to establish themselves abroad. Here I am speaking not of 500 nor of 1,000 or 2,000 companies-but of perhaps 10,000, not a very large number out of the 300,000 manufacturing enterprises.
I wonder if such a suggestion made in Japan or Switzerland or Germany would sound at all strange. There must be a much higher proportion of Japanese and Swiss and German companies operating around the world today than there are of American companies.
Companies should look at the entire world today as their potential market and not just at the United States. You may know that there are in the United States today 190 million people; outside there are over 2 billion in the free world. I am told there are 250,000 doctors in the United States; outside there are over 1 million. U.S. sales of the ethical pharmaceutical industry total over $2.5 billion dollars at manufacturers' prices. Outside the United States, and excluding the Communist countries, the figure is estimated at nearly $4 billion. The purchasing power of the people around the world is going up all the time. More and more governments are financing the purchase of drugs. The market cannot help but expand. Another interest of many of our firms is in agriculture. A few figures may interest you. In the United States there are 100 million herd of cattle, in the rest of the world there are 700 million. There are 35 million sheep in the United States, and over 700 million in the rest of the world. In the United States 360 million poultry, 2 billion in the rest of the world. All of this provides a tremendous potential market, only the surface of which has been tapped in many countries.
Abroad, as you know, marketing is not as developed as it is in the United States. We have had to train our people overseas in marketing techniques. I am sure your companies have done the same thing, but I would like to make a few comments about this. How do we use U.S. skills in marketing? We can't do it simply by exporting. We can't do it by setting up the base for our overseas marketing teams here in the United States. How would you like to conduct a sales program in the United States if your marketing director were located in Tokyo or how would our Japanese friends here like to run their business in Japan with their marketing director based in New York?
And yet some companies try to do just this. In our opinion, the only way to undertake marketing seriously is to locate your marketing people and make your marketing decisions inside the countries in which you want to market. The world is not yet one market. Perhaps it will be in 50 years but it is not today. There is not even a Common Market in Europe for most goods. Each market is different: in language, in consumer preferences, and in drugs, and even in such things as color, odor, and taste preference, in the preference for injections or oral medication.
Certainly the government regulations from country to country are all different, both the regulations to comply with before marketing and the regulations to comply with after marketing. Labeling regulations are different. Advertising regulations are different. Price controls exist in most countries. We even have to put price stickers on the product labels in many countries. Social security regulations regarding drugs provided by health insurance programs are different.
Some countries have planned economies, such as Egypt, or semi-planned economies like India. It is obvious that there are different diseases from one part of the world to another, different behavior of the same diseases. You cannot possibly analyze your markets and then direct your marketing efforts anywhere except right in the countries. You need local marketing, supported by local marketing research, local product development, local finishing plants, all directed as much as possible by nationals of the country familiar with the national characteristics.
What then of the American expert -- how can we get the benefits of your skills? Well, I think the answer is obvious. One way is for you to join the international division of your company. But if you do so, you have to face up to the fact that you will not work for long in your home offices.
You will have to go abroad. If you don't want to do that for a substantial period of time, then we in the international field would appreciate your help in training our foreign nationals. At Pfizer, we take a tremendous amount of time of our long-suffering U.S. marketing people in training the nationals whom we bring in from all over the world.
We have found that this is very effective and we are grateful for it. I would appeal to those who have not been sympathetic to the use of their time to become more so.
I would draw your attention to the fact that Mr. Nickerson, chairman of the board of Socony Mobil, spent a good deal of his working life on the international side of his business. Mr. Powers of my own firm, who has recently become president of the U.S. parent company, Chas. Pfizer & Co., Inc., has spent a good part of his working life in the international field. I understand that Mr. Roche, the president of General Motors, has spent a good deal of his life on the international side of his business.
So, gentlemen, look at the world. Your career may prosper from it.