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FEDERAL RESERVE BANK OF PHILADELPHIA
Leaning Against the Winds o f Change
by Karl R. Bopp
*
Pennsylvania’s Economic Growth:
Problems and Recommendations
by Evan B. Alderfer
*
What’s Happening to Labor Costs?
JUNE 1 6
9 3
BUSINESS REVIEW
is produced in the Department of Research.
Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of
Philadelphia, Philadelphia I, Pennsylvania.
LEANING AGAINST
THE WINDS
OF CHANGE*
by Karl R. B o p p
Since we last met at this annual meeting the
But whatever the reasons, the major crises of
economy and the nation have endured strains
1962 had a limited economic impact. Perhaps
ranging all the way from a major stock market
the most favorable development was the con
break to a tension-filled international crisis over
tinuation for another year of relative stability in
the presence of Soviet offensive capability in
the price level. Yet we still had economic prob
Cuba. In past decades, either one of these de
lems. Most important, the economy continued to
velopments might have had the most severe
grow at a rate which was inadequate to absorb
repercussions on our economy. Yet the effects
an expanding work force; and our balance of
proved to be quite limited.
At the height of the Cuban crisis, for exam
payments registered a sizeable deficit.
ple, retailers noted little more than an increase
in sales of transistor radios. Mass, panic buying,
These continuing problems presented the Fed
eral Reserve System with difficult decisions be
cause action designed to spur domestic economic
so typical of periods of international tension,
growth may tend in some instances to aggravate
was simply not in evidence. And though the
our balance-of-payments problem. Stimulation of
stock market break was enough to make busi
the domestic economy, on the one hand, calls for
nessmen take a second look at our economic
underpinnings, it did not precipitate any major
greater credit availability and lower interest
decline in business activity.
mote outflows of capital to foreign nations and
Perhaps the limited economic effects of the
stock market break partially may be explained by
rates. But easy money and low interest rates pro
can
thus
adversely
affect
our
balance
of
payments.
You bankers, of course, are thoroughly fa
public confidence in the safeguards designed to
cushion the economy from such shocks. Perhaps
miliar with this type of situation. You have the
the limited impact of the Cuban crisis resulted
continuing problem of combining your desire
in part from a general feeling that the course of
for profit with your need for liquidity and your
events in the thermonuclear age is beyond the
desire to serve your communities. In general, the
direct reach of the individual.
quest for profit and community service tend to
pull in the direction of extending credit that is
* A talk given at the 60th Annual Convention, New Jersey
Bankers Association, Atlantic City, May 16, 1963.
longer term, riskier, and local. The need for
3
business review
liquidity pulls in the direction of shorter term,
Our present situation, of course, is a long way
safer, and marketable securities. This inherent
from this theoretical framework. Why is this so?
conflict does not frustrate you. On the contrary,
The answer is involved and concerns political
it gives real meaning to the profession. The
as well as economic developments. We must go
great challenge is to produce the optimum over
back a few years— to the end of World War II
all result.
in fact— to see how the present conflict between
So it is with the Federal Reserve System. Our
international payments
and
domestic growth
problem is to produce the best over-all results,
developed.
within the limits of our powers, with respect to
At the end of the Second World War the
United States faced two political problems of
both our balance of payments and our rate of
economic growth. Today I should like to discuss
overriding importance. Much of the world lay in
with you the developments that have produced
ruins and the Soviet Union was taking advantage
our current problems, what the System has done
of the situation to expand its territorial and
to resolve the issues, and finally how the System
ideological sphere
reaches decisions as to appropriate policy.
power and internal subversion, the Soviets swal
In the years when I received my economic
of
influence.
By external
lowed up Poland, Hungary, Rumania, Bulgaria,
training, prevailing thought indicated that full
East Germany, and many of the other satellite
employment and
nations. Within five years after war’s end, the
balance-of-payments equilib
rium could be achieved simultaneously. The
Communist bloc had expanded to include more
medicine to provide one was thought to promote
than half the population
the other.
Europe.
Surveying the world scene, the United States
Unemployment, the reasoning went, stemmed
and land area of
from inadequate domestic demand. Inadequate
realized that something had to be done if liberty
demand in turn, was associated with balance-of-
and peace were to be preserved. Left to their
payments surplus, because inadequate demand
own
tended to put downward pressure on wages and
stricken nations of Western Europe were almost
prices and thus made the home market a good
certain to share the fate of the Eastern European
place to buy for both foreigners and domestic
satellites. France, Italy, Greece, Turkey— all were
consumers.
vulnerable. Thus acting under the dual motive
misery,
the
war-ravaged
and
poverty-
Since unemployment and payments surplus oc
of humanitarianism and a desire to check Soviet
curred simultaneously, there was no conflict in
imperialism and preserve world peace, the United
objectives. Monetary ease was the medicine for
States began a massive program to aid in re
both maladies. The central bank was supposed to
construction and to build a network of military
make money and credit more readily available.
bases to deter overt Soviet aggression. And this
More money and credit stimulated output, em
was not all. In later years, as the underdeveloped
ployment, and sales. And it also tended even
nations of Europe, Africa, Latin America, and
tually to put upward pressure on wages and
the East began to emerge into the industrial age,
prices and thus make domestic goods less attrac
the
tive so
brother-to-brother and to prevent further Soviet
that balance-of-payments
would be restored.
4
equilibrium
United
penetration.
States
came
with
aid— both
as
business review
Here, then, was the world scene: two super
than we received for our exports of goods and
powers with the technical proficiency to destroy
services. The difference came to a strapping
the world— between them the grey area of the
$3.8 billion. To settle accounts, foreigners took
reconstructing and developing nations, plus an
a little over $1 billion in claims and about
intricate network of military installations. The
$2.3 billion in gold. We had a serious balance-
cost to support this elaborate setup? In a word,
of-payments problem and a heavy gold outflow
the costs were enormous. It meant spending vast
to prove it. The same basic situation has con
amounts of dollars all over the world.
tinued to the present.
Yet the dollars could be spent with little ad
While all this was happening, the groundwork
verse impact on our balance of payments and
was being laid for
gold stock so long as dollars were desperately
unemployment and
needed to buy United States goods. What nation
wartime priorities directed at producing the
wants to waste dollars buying our gold when it
tanks and planes needed to bring the enemy to
desperately needs machinery, locomotives, and
his knees, a large portion of the wages and
all the other hardware of reconstruction and
salaries derived from that production went into
development ?
savings accounts, war bonds and the like. At
our present problem of
inadequate
growth. With
Let this need subside, though, let the war-
war’s end the nation had accumulated an enor
devastated countries rebuild their productive
mous volume of liquid purchasing power. Then,
capacity so that they could produce much of the
when we converted back to peacetime production,
needs of their citizens— let them even become
this huge accumulation of funds descended upon
a limited supply of goods. The result: rising
competitors with freely convertible currencies—
then watch out. Dollars may come home not to
profits, prices, and wages, and a scramble to
buy goods, but to purchase gold, the traditional
increase capacity to produce more of the goods
form in which many nations keep their inter
national reserves. Indeed, with business booming
long denied.
abroad Americans could add to the current dif
could not last forever. Gradually, through the
ficulty by investing abroad in productive enter
years, the gaping voids created by war were
prises and in high-yielding securities.
filled— voids in durable consumer goods, hous
Now,
Of course the highly pitched postwar boom
profitable foreign investment obviously adds to
ing, and other areas. Yet still business expanded
the ultimate strength of the dollar, especially
its productive capacity. Wages, costs, and prices
when the
continued to rise. Then, in the early 1960’s, we
income
from
such
investment
is
brought back home. But while the investment
found that costs were rigid and that profits were
is being made it adds to the current supply of
squeezed. We found that our capacity to produce
dollars demanding foreign currencies.
greatly exceeded the demand for goods at exist
In fact, this is just what happened to the
ing income levels. We found ourselves with a
United States. It became apparent in 1958. For
tax structure designed for war in a period of
in that year, when great strides were made
lax demand.
toward currency convertibility abroad, we found
In short, we found that the groundwork had
ourselves paying far more to foreigners for im
been laid for the present situation of unemploy
ports, investments, military and economic aid
ment and inadequate growth— and this at a time
5
business review
when we continued to spend more abroad for
imports, investments, military and economic aid
have occurred?
First let me say that there certainly has been
than we received for our exports of goods and
no lack of suggestions from outside as to how
services. This is how the problem of inadequate
the System should deal with the dual problem
growth became coupled with balance-of-paynjents
of payments deficit and inadequate growth. Sys
deficit. And this is why the Federal Reserve
tem actions have been studied, analyzed, and
System finds itself with a situation in which
debated in the press, in the economic journals
monetary ease needed to stimulate domestic
growth can spill over to affect adversely our
goes without comment. Indeed, one feels today
and elsewhere. Virtually no action of the System
balance of payments.
much as Walter Bagehot must have felt when
This is not the first time that the System has
been confronted with conflicting objectives. You
reviewing Gibbon’s book The History of the
all remember the period of the pegs, when
noted that “ Perhaps when a Visigoth broke a
maintenance of stability in the prices of Govern
ment securities was not consistent with promot
head, he thought that that was all: not so,— ”
wrote Bagehot, “ he was making history; Gibbon
ing stability in the general level of commodity
has written it down.”
Decline and Fall of the Roman Empire. Bagehot
prices. Again, during the middle 1950’s we had
The System has been advised by some to
a foretaste of current developments. Roughly
concentrate its attention exclusively on the bal-
from the middle of 1953 to the middle of 1954,
ance-of-payments deficit— to raise interest rates
employment declined by 1 million (and unem
to whatever degree is necessary to eliminate
ployment rose by nearly 2 million) our monetary
the deficit promptly. Yet while flows of volatile
gold stock fell by $600 million, and both the
short-term capital might indeed be influenced
consumer and wholesale price levels varied by
by such action, a significant rise in interest rates
only one per cent. Thus an employment objec
would also tend to curtail domestic investment.
tive would have called for greater ease, protecting
The System has been advised by others to
our gold stock would have called for greater
concentrate mainly on the rate of economic
tightness, and a stable price level would have
growth— to make credit more readily available
called for no change.
and interest rates lower so as to stimulate invest
We are living through a similar set of develop
ment, production, and employment. Individuals
ments at the present time. And though the recent
of this persuasion argue that such action would
loss of gold is more serious than that in 1953-
not only alleviate the domestic problem of un
1954, the two periods nevertheless illustrate the
employment, but also would solve our payments
need for judgment in arriving at an appropriate
difficulties. Our payments problems would bene
balance over time among several objectives, each
fit, the reasoning goes, because a faster growth
of which is desirable in its own right.
rate would make the United States more attrac
tive to both foreign and domestic investors,
C o m b in in g the objectives
hence reduce or even eliminate the large net
The next question I want to ask is this: Just
outflow of investment funds. Unfortunately, there
what has the System done with respect to money
is no certainty that greater monetary ease would
and credit, given the diverse developments that
in fact have the stimulating effects envisaged
6
business review
without causing a further outflow of funds. It
minimize
seems likely that the immediate impact on capital
securities markets. Instead of supplying all re
flows would be adverse and the favorable long
serves by direct purchase of Government securi
term effects would be modified by a likely
ties (which tends to push prices up and yields
deterioration in our trade balance.
down) the System created about $780 million
direct
pressure
on
the
short-term
In short, there are real questions as to whether
in excess reserves in 1962 by reducing reserve
monetary policy could have its optimum impact
requirements on time deposits from 5 to 4 per
if directed at either end of the spectrum of pos
cent. In addition, the Open Market Committee
sible action. As a result, the System has avoided
continued to concentrate purchases of Govern
the extremes. It has attempted instead to provide
ment securities outside the short-term Treasury
sufficient monetary
bill market, and thus to avoid downward pres
ease to promote orderly
economic growth while at the same time avoid
sure on Treasury bill rates. Indeed, close to
ing undue pressure on short-term interest rates.
95 per cent of the net increase in the System’s
Evidence of the direction of monetary policy
portfolio of Government securities during the
may be found in the statistical record books for
year 1962 was in issues maturing in over one
the year 1962. To stimulate domestic economic
year.
activity the System permitted an expansion in
The System also took other actions broadly
bank reserves of about $700 million after ad
aimed
justment for changes in reserve requirements.
which might affect adversely our balance-of-
at mitigating temporary
developments
As a result, the banking system increased its
payments position. Among these, Regulation Q
loans and investments by a record $19 billion,
was modified in an attempt to discourage the
providing about 31 per cent of the total net
outflow of short-term funds held by foreign
volume of funds raised in the credit and equity
Governments and official institutions. Effective
markets during the year. And even more indica
in October of 1962 for a period of three years,
tive of the ease provided by the System, this
deposits of “ foreign Governments, monetary and
record increase in earning assets was accom
financial
plished with only a slight drop in holdings of
when acting as such, or international financial
authorities
of
foreign
Governments
Government securities. This is in sharp contrast
institutions of which the United States is a mem
to other postwar business upswings when banks
ber” are exempt from the provisions of the
increased loans only at the expense of liquidating
regulation specifying maximum rates of interest
large volumes of Governments.
which may be paid on time deposits. This modi
In response to the record increase in bank
fication enables member banks to set rates which
credit, long-term interest rates on Government
are competitive with those offered abroad and
and
thus to
corporate securities
fell
noticeably
and
attract foreign-owned
dollars
which
residential mortgage rates also drifted down
otherwise might flow to foreign countries and
ward. Yet most short-term rates, those to which
thus become a claim on our gold stock.
international flows of funds are especially sensi
tive, actually rose on balance.
In addition to the modification of Regulation
Q, the
System
has
developed
the
so-called
The System helped keep short-term rates up
“ swaps” arrangement under which the Federal
by supplying reserves in such a manner as to
Reserve and 10 foreign central banks (plus the
7
business review
Bank for International Settlements) have set up
The United States also participates in informal
reciprocal “ lines of credit.” The Bank of France,
arrangements with European countries to re
for example, will allow the System to draw up
strain speculative pressures in the London gold
to 500 million francs and the Fed, in turn, will
market, which pressures if allowed free sway
let the Bank of France draw 100 million dollars.
could have unsettling effects on the exchanges.
In general, these drawings are made in re
To summarize what I have said thus far, the
sponse to needs for foreign currencies to provide
System has adapted its operations to meet the
temporary relief from specific developments
which might adversely affect our balance-of-
conflict inherent in the dual problem of balanceof-payments deficit and inadequate economic
payments and gold position. The foreign cur
growth. It has attempted to provide the monetary
rencies may be used for direct operations in the
exchange markets— the Federal Reserve, for ex
ease necessary to promote orderly economic
growth, yet provide this ease in such a way as to
ample, drawing francs and offering them for sale
have a minimum impact on our balance of
through the exchange markets to dollar holders
payments. In addition, it has developed several
who desire francs and whose efforts to purchase
procedures designed to mitigate temporary de
francs might increase the price of francs in terms
velopments which might have adverse effects on
of the dollar.
our balance of payments and on our gold stock.
More typically, however, the System would
draw foreign currencies under the swap arrange
H ow decisions on policy a re m a d e
ments to buy dollars which a foreign central
Now I should like to move from the substance
bank has acquired (as a result of international
of policy to discuss with you for a moment the
commercial
and
procedure by which Federal Reserve policy is
which are in excess of those the central bank
determined. I do this because of the conflicting
and
financial
transactions)
would ordinarily hold. These dollars would thus
reports you may have read about the process.
be absorbed and would not be used to purchase
Just a year ago the System was being described
gold during the period the swap is in effect.
as a monolithic organization whose responsible
In numerous instances it has worked out that
officials were required in some mysterious way
by the time the swap matured natural forces had
to reach unanimous decisions, irrespective of
operated to absorb the dollars so that the transfer
their real convictions. More recently, after pub
of gold was avoided entirely.
lication of the Annual Report of the Board of
In a sense, the swap arrangements represent
Governors, you may have read about a “ deep
a first line of defense against short-term develop
split”
ments which could cause gold drains and specu
these reports come from opposite ends of the
in the System over policy. Obviously,
lative movements of funds abroad. Yet it should
analytical spectrum.
be noted that such agreements as the swaps are
Congress created the Federal Reserve System
by no means the final solution to our balance-
half a century ago to reflect our heritage of
of-payments problem. Instead, they are tools
checks and balances, our desire to avoid con
which give us time to work out the more basic
centrations of power. It made the System respon
difficulties underlying our balance-of-payments
sible to the Congress rather than to the Presi
deficit.
dent. It created a rather complex organization.
8
business review
At the apex is the Board of Governors, consist
Under these circumstances, frequent agreement
ing of seven members appointed by the Presi
requires no defense. Differences of opinion which
dent, by and with the advice and consent of the
may exist may be too small to merit a record of
Senate. There are twelve Reserve Banks and
dissent.
twenty-four Branches, each with a board of
It should be equally clear why differences of
directors, 260 directors in all. Each Bank has
opinion do arise from time to time. General
a president, elected by the local board of direc
agreement on goals does not include specific
tors with the approval of the Board of Governors
agreement on the best combination of objectives
for a five-year term. The seven governors and
if all of them cannot be achieved simultaneously
five of the presidents comprise the Federal Open
and continuously. Furthermore, in our current
Market Committee. Finally, there is a Federal
state of knowledge, central banking is more art
Advisory Council with one member from each
than science. Economists have not been able to
Reserve District.
conduct the controlled experiments that would
This complex organization was created to
enable them to predict in all their ramifications
assure that a variety of points of view would
the precise effects of a given action. Finally,
receive expression and consideration in the deter
every individual’s judgment is influenced by his
mination of monetary policy. Obviously, it is not
own background and experience. Officials of the
the kind of structure one would create if he were
Federal Reserve System are human beings, living
interested in unanimity of view. That could have
in the real world not in a vacuum.
been assured by creating a single-headed central
The Federal Open Market Committee is a
deliberative group. Each member influences and
bank. Congress did assure that in the event of
differences in opinion a united Board of Gov
is influenced by every other member. Obviously
ernors would have final authority over all instru
the amount of influence exerted and received is
ments of policy. Its members cast seven of twelve
not equal but is related to the talents of the
votes on the Open Market Committee; they
individual members. After many years of obser
review and determine discount rates at the Re
vation and participation, I can say no single
serve Banks; they determine reserve require
member would have done exactly what the
ments of member banks, and they establish
Committee did on all occasions had he been in
margin requirements for purchasing or carrying
complete authority. No member is always com
listed securities.
pletely satisfied. Yet, looking back and speaking
It should not be surprising that votes on policy
for myself, I can only hope that I may have made
have been unanimous for considerable periods of
some constructive contribution to the results; I
time. After all, there is no basic disagreement on
know that the actual policies that have been
the goals: maximum employment and produc
pursued have been better than they would have
tion, domestic and international stability of the
been had I called all the shots.
currency, and growth that such conditions pro
mote. Not infrequently all of these goals call for
Conclusions
essentially the same policy. Furthermore, the
In conclusion let me say this. The Federal Re
responsible
or
serve System has been faced with difficult prob
through interchange, to the same information.
lems during the past few years. The serious
officials have access, directly
9
business review
deficit in our balance of payments and the slow
utility to sacrifice this decision-making process
down in our rate of economic growth have
merely to appear more unified and monolithic
challenged the skill and resourcefulness of all
in the public eye.
officials within the System.
In my talk with you today I have discussed
Differences arise from time to time with re
primarily the role of the Federal Reserve System
gard to the particular emphasis which should be
in promoting sustained growth and balance-of-
given to each of the forces that comprise our
payments equilibrium. Let me close by emphasiz
complex economic system. Such differences could
ing what must be obvious; the Federal Reserve
be eliminated simply by eliminating dissenting
opinion. Yet one of the main sources of Federal
alone cannot solve these problems. The com
plexities of the situation demand that we bring
Reserve
process
all of our tools of public policy to bear, from
wherein men of good-will, of varied background
fiscal policy to foreign relations. Only then can
strength
is the deliberative
and experience pool and appraise opinions and
we be assured that this nation has the best
ideas and come to a judgment as to the course
possible chance to move forward during the
of action to be followed. It would be of dubious
decade of the 1960’s.
10
PEN NSYLVANIA’S
ECONOMIC GROWTH:
PROBLEMS AND
RECOMMENDATIONS*
by Evan B. Alderfer
A local Rip Van Winkle, awakening from a
The arrested progress of the state stands re
half-century snooze, would be surprised to see
vealed in the Census volumes and other official
how Pennsylvania changed while he slept. No
reports. Without citing the statistics from these
doubt he would be amazed by the mechanized
sources, they show a marked slow-up of pop
farms, the myriads of motor vehicles, the new
ulation growth, high levels of unemployment,
look of downtown Philadelphia and Pittsburgh’s
heavy burdens of relief payments, able young
Golden Triangle. But he would be chagrined to
people leaving the state, a scarcity of vigorous
see how the Commonwealth’s greenery is pock
new industries, and an abundance of older in
marked with
strip-mining
dustries with little or no growth or actual de
scars, idle coal tipples, and run-down mill towns.
cline. In short, Pennsylvania— once a proud and
gray culm
banks,
prosperous
* A talk given at the Commonwealth Conference on Pennsyl
vania Economic Growth, Harrisburg, May 15, 1963.
Commonwealth— has
fallen
upon
hard times.
11
business review
It appears that the very things that gave rise
market for bunker coal. Many industries, includ
to our past prosperity had in them the seeds of
ing some electric utilities, shifted from coal to
our present problems. Our Commonwealth was
oil or gas. The steel industry learned how to
originally blessed with a rich endowment of
produce more and more steel out of a ton of coal.
forest and mineral wealth— hard woods and soft
And so, Pennsylvania bituminous coal produc
woods, hard coal and soft coal, petroleum and
tion is now scarcely a third of its 1918 peak
natural gas.
output.
Pennsylvania
was a storehouse
packed with power. Moreover, there were de
Steel production in Pennsylvania is also on
posits of iron ore, limestone aplenty, and sand
stone. The state was predestined for an iron
the decline, both in percentage of the country’s
and steel economy and all that goes with it.
were built and are presently being built or en
Charcoal from the forests fired the early
output and in actual tonnage. New steel mills
larged in the Midwest and Far West to supply
furnaces. When charcoal became scarce, iron
local markets. This is a development in response
masters turned to anthracite and later to coke
to the growing practice of hand-to-mouth buy
made from bituminous coal. Refractory bricks
ing which puts a premium on proximity to the
made from local ganister lined the furnaces, and
market. For similar reasons, the cement industry
limestone fluxed the charge of iron ore. The
of Pennsylvania has shrunk to a fraction of its
greatest of these assets was coal, and to date
former importance.
over 13 billion tons of hard and soft coal have
Pennsylvania, as you know, also lost some in
dustries that went South in search of lower
been mined out of Pennsylvania.
Coal is basic to steel, and steel is basic to all
industries including steel. Pennsylvania’s coal
and steel made Pittsburgh, the railroads, and the
Altoona car shops. Our iron and steel mills made
skyscrapers, armor plate, locomotives, ships, and
the endless variety of industrial equipment in
labor costs. Textiles and hosiery are prime exam
dispensable to a machine civilization. As long as
ples. Furthermore, during World War II the
the coal industry prospered, Pennsylvania pros
Federal
pered.
building of new plants in remote regions for
Pennsylvania coal production peaked out dur
ing World War I and has been going irregularly
Government policy of
fostering
the
reasons of national defense likewise did no good
for Pennsylvania.
downhill ever since. Oil and gas displaced an
Pennsylvania’s inability to hold its former
thracite in the space-heating market. The decline
prominence in basic industries like coal, iron and
of Pennsylvania bituminous was more complex.
steel, cement, and others was perhaps inevitable;
There was not only increasing competition from
but that misfortune was accompanied by still
West Virginia and elsewhere, but also loss of
another unfortunate deal of the cards, namely,
markets for bituminous
generally. Railroads,
her inability to attract enough of the new, vigor
with troubles of their own, shifted from coal
ous, rapidly growing industries, such as motor
burning
vehicles, man-made fibers, aircraft, spacecraft,
steam
locomotives
to
oil-burning
Diesels. Oil also made serious inroads in the
12
missiles, and electronics.
business review
As a result of all these changes, 20th century
resent newcomers, that the state has serious
Pennsylvania is left with too much of a 19th
deficiencies in its education and transportation
century industrial structure. Parenthetically, our
facilities. In short, that the business climate is
state constitution is also of 19th century vintage.
bad.
For one reason or an
Some of these allegations are vagrant opinions
other, we haven’t kept
without visible means of support; others are
up with the changing
careless generalizations based on a few isolated
times.
instances; and still others, while originally con
The
hardships
tarded
growth
greatest
in
regions,
in some
taining elements of truth, are now out of date.
re
Pennsylvania’s
of
Moreover, a concern seeking a site for a new
are
plant does not decide on the basis of rumor and
coal
hearsay. Decisions are made on the basis of such
of
things as cost of the land, availability of water,
unemployment
access to transportation facilities, labor supply,
runs as high as 13 per
labor
police and fire protection, and proximity to
markets.
force. Many of these
Even though the mythical center of the coun
communities have made heroic efforts of the
try’s population is slowly creeping westward,
which
cent
of
the
the
bootstrap type to bring in new enterprises, and
Pennsylvania still holds an ace card in its stra
with noteworthy success. The P.I.D.C. in its al
tegic Middle Atlantic location— right in the
most seven years of operation has created over
middle of the country’s biggest and densest mass
40,000 new jobs. Other agencies of the state in
market for products and services of all kinds.
Harrisburg and in the counties and municipalities
This is an advantage which cannot be stressed too
have wrought mightily to attract new industries.
highly, and it is a factor on which we might well
With due credit to the progress achieved by all
capitalize.
these endeavors,
Pennsylvania,
unfortunately,
A program for strengthening our economy and
still has close to 400,000 people or more than
accelerating its growth should begin first by mak
8 per cent of the labor force looking for gainful
ing every effort to keep what we already have.
That calls for improved housekeeping and mod
employment.
ernization in both the public and the private
R E C O M M E N D A T IO N S
domain. Much more can be accomplished by our
Actually, Pennsylvania is not as badly off as it is
governmental
frequently painted; its image is worse than its
county, and municipal— to still further improve
agencies
at
all
levels— state,
photograph, although the latter, too, can stand
the services and facilities that make for safe and
some touching up. The most frequently heard
healthful
living
conditions.
Our
industrial
misconceptions about Pennsylvania are: that its
leaders in finance, commerce, trade and indus
administration is anti-business, that it is a state
try can likewise do a great deal more by way of
with high corporate taxes, that relief payments
improving and modernizing their services, fa
are loosely administered, that its work force is
cilities, and working environment.
uncooperative,
that some resident companies
(Continued on Page 16)
13
WHAT’S
In all the gloom cast by our problems of sluggish economic growth and our balance-of-payments diffi
culties, it is sometimes hard to see a ray of sunshine.
The facts presented in these charts offer a welcome hope. The relative stability of labor costs in
manufacturing in recent years has helped contribute to stable prices. This stability is favorable for
expansion of business at home and puts us in better shape to meet the increasingly severe competition
from abroad.
>
For roughly a decade after W orld
W a r II, wages and salaries in manu
facturing rose faster than output.
INDEX (1957-59 =
100)
IN DEX (1957-59 = 1 0 0 )
Since 1958, output has risen faster
than wages and salaries.
INDEX (1957 59 =
100)
A s a result, labor costs per unit of
output, which rose for about a decade,
have been declining.
*
HAPPENING TO LABOR
INDEX (1 9 57-5 9 =
1001
This picture is not quite so good as
might appear, however, because it
does not take account of fringe bene
fits, which have been increasing faster
than wages and salaries.
IN DEX (19 5 7 -5 9 =
100)
A nd partly as a result, wholesale prices
of industrial commodities are now
slightly lower than a few years ago.
IN D E X (1 9 5 7 -5 9 == 100)
declining.
I
business review
P E N N S Y L V A N I A 'S G R O W T H
Foundation. A seminar consists of business and
(Continued from Page 13)
professional people nominated from among the
Internal improvements designed to keep the
young and up-coming leaders of the community.
productive enterprises we already have will also
The seminar includes an architect, an attorney,
serve to attract new enterprises, and will be a
a merchant, a manufacturer, an engineer, an ac
more effective way than mere advertising which
countant, a banker, a doctor— a cross section of
all states are now doing. The fact that Pennsyl
thoughtful people from all walks of life.
vania was once the undisputed leader in a num
ber of industries may have generated a feeling
meets in the late afternoon from 4 to 9 p.m., with
About eight or ten times a year, the group
of permanent security. If so, it is all the more
important for us to realize that the competitive
race is more rigorous, that the rules ahd tools
and environment have changed also. Modern
competition turns more on pioneering in re
search, technology, and engineering services than
in exploitation of natural resources.
Efforts to bring new enterprises into Pennsyl
an interlude for dinner. Usually, a speaker is
vania should not be directed exclusively to manu
invited from nearby or from a distance, who has
facturing concerns because manufacturing is no
a story to tell about a particular community
longer the leading source of employment that it
achievement. Then follows a free-for-all discus
once was. To be sure, new manufacturing con
sion in which the potential leaders energize each
cerns are welcome even though highly mecha
other.
nized or automated, but we also want enterprises
in the growing service industries.
What Pennsylvania needs even more than fac
It is not a glorified “ bull session” around an
ale board. Careful advance planning is done for
each meeting. The group usually wrestles with
tories of brick and mortar is “ idea” factories,
a specific community problem. Staff papers are
and they can be established without a huge
prepared and distributed in advance of the meet
expenditure of money.
ing for the members to read, so that they come
r
prepared with ideas of their own or ideas that
have been stimulated by the reading of the staff
papers.
Next year there will be another group. In
other words, the men run their own graduate
seminar. Moreover, they shoot with a rifle at
some specific community problem. It is not a
gabfest dealing in generalities, but a study and
Philadelphia has what has come to be called
discussion group devoted to specifics— one at a
Community Leadership seminars. The first of
these seminars was organized some years ago,
time.
Local issues, such as an expressway, a char
aided by a grant of $25,000 from the Fels
ter, a new school building, or the removal of a
16
business review
slum to make way for a housing project, are
wish to go it alone. Others, of smaller size and
never simple issues on which all people agree.
not too far removed from each other, might
Inevitably such proposals arouse controversy and
choose to pair up for the conduct of such sem
are likely to be kicked around endlessly without
inars. For example, Allentown and Bethlehem;
any progress toward solution.
Altoona and Johnstown; Hazleton and Lebanon;
Problems of this kind call for careful scru
New
Castle
and Sharon;
West
Mifflin
and
tiny, a study in depth, in which all points of
Wilkensburg; Harrisburg and Reading; Lancas
view are brought into focus, the facts laid bare,
ter and York. Such pairing could be mutually
and the basic issues sharpened up. A commu
beneficial, especially where the two are con
nity seminar with its diversity of training, ex
fronted with identical or substantially similar
perience, and background is ideally fitted to
problems.
wrestle with these complicated issues.
It would be to the advantage of such a local
Once such a group has thought and wrought
seminar when planning a forum on a particular
over a local issue, a course of action can be rec
topic such as zoning, or water supply, or sewage
ommended to the city fathers, the school board,
disposal, to invite as a speaker a representative
or whatever organization is invested with the
from Nashua, New Hampshire, or Greensboro,
responsibility and power to act.
North Carolina, or Aspen, Colorado, or whatever
Reform movements in Philadelphia and other
city had already done an outstanding job of solv
large cities have had their origin in precisely
ing a problem similar to that with which the local
this manner-—young people on the move in their
group is concerned.
respective callings, taking time out for skull ses
Furthermore, it might be well to have, for
example, quarterly or semi-annual meetings of
this type on a statewide basis in Harrisburg.
In this proposal there are no white rabbits, no
miracles, but a constellation of such regional
seminars of the best brains in each community
fertilizing and stimulating each other is sure to
be profitable and infinitely better than sulking
and sinking.
Let it not be thought that the big cities have a
monopoly on big ideas, that the best brains and
sions on civic issues of joint interest for the
the most fertile imagination and originality are
community welfare.
confined to the leading population centers.
Pennsylvania with its abundance of muni
The future of American civilization rests on
cipalities affords excellent opportunities for in
the quality of life at the local level. In the words
tellectual cross-fertilization of the graduate sem
of Dahl and Lindblom, two Yale professors:
inar type pioneered in Philadelphia.
Pennsylvania has 39 municipalities ranging in
population from 25,000 to slightly over 125,000.
Some of the largest of these, like Erie, might
A group is neither good nor intrinsically
cooperative simply because there are a few
people in it. Nevertheless, under the most
favorable conditions small groups can do some
things better than any large group can do
17
business review
under the most favorable conditions. Insofar as
it is obtainable at all for most people, most
of the good life is to be found in small groups
— family life, the rearing of children, love,
friendship, respect, kindness, pity, neighborli
ness. These are hardly possible except in small
groups. If one could somehow destroy the
large groups and leave these things standing,
the loss of the large would be quite bearable.
But if one maintained the large groups and
destroyed these values, the impoverishment and
barrenness of living would be incalculable. For
to most people the meaningful center of life
is made up of small groups of which they are
a part, into which they are born or accepted,
among which they live and grow, marry, beget
children, who beget grandchildren, acquire
friends, eat, talk, share in ceremonials, cele
brate the new born, mourn the dead.
conform to the national pattern laid in a Pro
crustean bed, with the result that one small
group may have its feet chopped off.
Let us assume, for the sake of argument, that
the Pennsylvania-New York Central merger goes
through and that subsequently a large part of
the railway traffic follows the water level route
through the Mohawk Valley. Pennsylvania’s rail
system may yet be made good use of, perhaps
through a system of one or two automated cars
to give quick and flexible transportation service.
Economic growth is a compound of numerous
interacting forces, and anyone seeking a simple
remedy to accelerate Pennsylvania’s retarded
rate of growth will look in vain. The problem
When one looks at Pennsylvania— its diver
has many facets and calls for a many-sided at
sity, its history, its wealth of natural endow
tack. We go along with those who call attention
ment, its beauty— there is great opportunity, as
to the need for improved statewide transporta
science and technology develop, for the small
tion facilities, better utilization of our natural
production unit where the members get to know
resources and fuller development of our human
each other and to understand each other. For
resources by expanding and improving our edu
that, Pennsylvania— with so many small and me
cational opportunities at all levels. But in addi
dium-size cities— is an ideal place.
tion to these approaches, calling so heavily upon
This is unlike the big corporate enterprise with
the big union, where every big subdivision must
18
leadership at the top, let us not overlook the
advantages of the grass-roots approach.
F O R THE R E C O R D
•
•
•
INDEX
Third Federal
Reserve District
United States
Per cent change
Per cent change
Factory*
Department Storef
Employ
ment
Payrolls
Sales
Stocks
Check
Payments
Per cent
change
April 1963
from
Per cent
change
April 1963
from
Per cent
change
April 1963
from
Per cent
change
April 1963
from
Per cent
change
April 1963
from
mo.
ago
mo.
ago
year
ago
mo.
ago
mo.
ago
mo.
ago
year
ago
+
— i
+10
+ 7
SU M M ARY
4
mos.
1963
April 1963
from
mo.
ago
year
ago
April 1963
from
year
ago
mo.
ago
4
mos.
1963
year
ago
LO CA L
CHANGES
year
ago
M A N U FA C T U RIN G
+
Electric power consumed........
Man-hours, total*..................
Employment, total...................
W a ge income*.......................
C O N S T R U C T IO N **
C O A L PRODUCTION
+
-
2
2
0
- 1
-2 3
+ 9
+
-
2
2
1
0
3
2
1
+
+
4
+n
+
1
3
6
+
0
1
year
ago
4
6
1
+
year
ago
+
1 — 3
+
4
+
+
+
+
6
2
1
1
0
1
2
6t
-
7
1
+ 4
+ 8
+ 4
- 2
+21
+ 13+
-
2
+ 5
+ 8
+ 5
0
+ 19
+
+
-
+
6
3
0
0
0
1
3
0
+
+
4" 6
+ 10
+ 5
- 2
+22
+ 9
+ 7
+ 11
+ 5
— „2
+23
+ 10
•Production workers only.
••Value of contracts.
•••Adjusted for seasonal variation.
1 +
2
1 +
2
-
2
-
2
-2 5
-
i
0
-
2
-
2
-
2
-1 2
-
8 +
2
2
-
4
-
4
-
6
-1 3
-
3
2 +
2
Ot +
It
+
it
0
0
+
1
1
+
1
1
t20 Cities
{Philadelphia
+
+
+
3 +12
3 +
1 +
8 +17
-
3 +
3 +11
-
1 +10
7 +10
Scranton........... -
2
-
5
-
4
-
9
-1 1
-
5
0 +
4 +
Trenton............ +
2 +
3
-
3
+
2
-1 8
-
5 +
1 +
4 +25
+29
Wilkes-Barre. . . .
0
-
+24
4 +
-
1 -
2
3 +
4 +
2 +
8 +12
+
1 +
3 +
1 +
5
-2 2
-
8 +
2
0 +
7 +23
York................ -
1 -
3
2
2
-2 4
-
3
3
0 +
5 +
Wilmington.......
PRICES
Consumer.............................
1 +
Philadelphia......
+ 3
1 +
Lancaster.......... +
Reading............ -
TRADE***
Department store sales............. Department store stocks........... +
B A N K IN G
(All member banks!
Deposits...............................
loans...................................
Investments............................
U.S. Govt, securities..............
Other.................................
Check payments....................
+ 5
- 5
- 2
- 2
-1 0
+ 13
year
ago
-
-
-
8
•Not restricted to corporate limits of cities but covers areas of one or more
counties.
{Adjusted for seasonal variation.
@FedFRASER