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Common Markets and the Common Good The Quarter-Acre Living Room MARCH 1 6 9 3 BUSINESS REVIEW is produced in the Department of Research. Bertram W . Zumeta was primarily respon sible for the article, "Common Markets and the Common Good" and Lawrence C. Murdoch, Jr. fo r "The Quarter-Acre Living Room." The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia, Philadelphia I, Pennsylvania. OD The new international competition offers the Third District real opportunities. Something there is that doesn’t love a wall, That wants it down! — Robert Frost could not efficiently produce. One reason for our tremendous economic growth was that we had a common market. The countries of Europe had tariff walls for The United States is a common market and al years. Then they took a new look at their ways has been. Maine potatoes, Michigan auto situation. In Robert Frost’s words: mobiles, Kansas wheat and Texas cotton go Before I built a wall I’d ask to know anywhere in the country without payment of What I was walling in or walling out . . . tariffs. If national boundaries had cut up our The European countries decided they all had land into small and warring segments, we would lost by walling out each other. The central six have had industries located where conditions of nations* production were less than best. There might Community (EEC), which most people call the have been steel mills in Kansas or cotton fields Common Market. established the European Economic in Delaware, producing at too high a cost. For The EEC has made the world sit up and take tunately, we did not do these things. Instead, the notice. Lowering tariff walls should spur eco states best adapted to growing cotton specialized nomic growth, because of the advantages of in producing it; the places well endowed with regional specialization and large-scale produc fuel and ore supplies made iron and steel. Every tion. Up to now, that seems to have been the body gained because each region worked at effect in EEC, as the charts show. its trade, and could then sell its products any where and use the proceeds to buy what it * Belgium, Germany. France, Italy, Luxembourg, Netherlands, W e st 3 business review Since they formed the European Economic Community, trade among the Common Market nations has increased faster than their external trade, while as a group they have continued to enjoy rapid economic growth. TOTAL INTERNATIONAL TRADE OF EEC NATIONS INDEX 1958=100 INDUSTRIAL PRODUCTION INDEX 1953=100 for the United States. Common Market countries are important markets for United States exports. If these nations find that elimination of internal trade barriers has uncovered cheaper sources of The Common Market has some knotty prob supply among themselves, we lose markets. The lems still before it, however. Common Market EEC external tariffs already inhibit entry of internal tariffs have gone down by half, but they some American goods. Common Market nations still have halfway to go. The first part of a also compete with the U. S. in other world journey is not necessarily the hardest. Nor has markets. Increased efficiency and lowered costs every commodity enjoyed such large tariff re resulting from ductions. Agricultural commodities and some production will make them more effective com others have had gentler treatment. Furthermore, petitors everywhere. This includes not only for adjustments in Europe up until now created few eign countries where our products compete with real hardships, because they came when the theirs, but even our own domestic markets. nations of EEC were enjoying full employment and vigorous economic activity. specialization and larger-scale These considerations were important in lead ing Congress to enact the Trade Expansion Act The Common Market’s rise has sharpened of 1962. This new law means that reciprocal some pointed problems of economic adjustment tariff reductions will be negotiated between the 4 U. S. and other nations, particularly Common THE CASE FOR COMMON MARKETS Specializatibn promotes efficiency. There are two parts to this proposition. Applied to nations, the firs t part is called the principle of absolute advan tage. It points out that a group of several pro ducers will gain by cooperating if each can make a certain product more efficiently than the others. For example, we do not try to fight our absolute disadvantage in banana production by high-cost hothouse forcing. O ur productive resources earn more if used to make and sell machines to tropical countries, using the payments to buy their prod ucts. Both we and the tropical nations gain. They get machines they otherwise could not have; we get bananas at much lower cost. The second part of the free-trade proposition is one of the hopeful facts of life. Called the principle of comparative advantage, it explains why people and nations endowed only with modest resources can play useful roles in the world. It states that several producers will gain by cooperating if each concentrates on produc ing those goods or services which he makes most efficiently, even if one producer excels at every thing. A good illustration of this is the case of the businessman and the bookkeeper. The busi nessman may be better able than tne bookkeeper to maintain the firm 's accounts; he may have an absolute advantage as an entrepreneur and also as an accountant. But his time returns far greater rewards if he works altogether at promoting the business and hires the bookkeeper to keep ac counts. The bookkeeper, on the other hand, may be better at bookkeeping than anything else. He minimizes his absolute disadvantage at every thing, including bookkeeping, by taking advan tage of his comparatively greatest skill. The principle of comparative advantage implies that international trade should be unre stricted. Free trade allows each nation to maxi mize its productivity by specializing in producing those goods and services in which it is most efficient. Since no nation is wasting efforts in lines where it is relatively inefficient, there is a larger total output to be distributed through trade. Market nations. Changes in tariff structures will affect producers in every part of the country. THE THIRD DISTRICT, THE U. S., AND FOREIGN TRADE Business firms go through a continuous process of adjustment to changes in methods and mar kets, tastes and techniques. The rise of the Euro pean Economic Community and the new trade act confront U. S. businesses with one more adjustment. Protected industries will be under pressure because, protection diminished, foreign goods will move into their domestic markets. Gradual removal of protection will force these producers either to improve efficiency and tech nology drastically, shift operations to products in which they can develop a comparative ad vantage, or close. Removing trade restrictions leaves an industry facing the cold facts of costs. There is, of course, another side to the coin. Protected industries will not always operate at a comparative disadvantage if protection is dimin ished. Simultaneous reductions in tariffs abroad are built into the system of negotiated trade liberalization. If an industry enjoyed brisk ex port trade before tariffs were reciprocally re duced, it should continue to do so. If an industry had little or no protection to begin with, freeing trade should stimulate it considerably. In every region, a new balance will be struck between the stimulus of export expansion and the con traction resulting from domestic tariff reduc tions. How that new balance will affect the re gion depends on the comparative advantages its industries enjoy in international trade. Trade potential vs. industrial structure Industries in a region do not come labeled as to where they stand on the scale of competitiveness 5 How w the Third District fare? ill THE TRADE EXPANSION ACT OF 1962 The net result of the effort to measure trade Enacted in October, 1962, the Act empowers the President to negotiate reciprocal ta riff reduc tions with foreign countries. He can reduce tariffs up to 50 per cent; he can remove entirely tariffs where the rate does not now exceed 5 per cent. He can negotiate reductions in excess of 50 per cent on products in which the U. S. and EEC together account fo r 80 per cent or more of free world trade. There are numerous other pro visions reflecting various safeguards and some compromises. There are in addition two impor tant sets of provisions: adjustment assistance for firm s and groups of workers adversely affected by ta riff reductions, and a requirement that re ductions must be gradually staged over a period of at least five years. The Trade Expansion Act, therefore, directly recognizes two important principles: (I) common markets serve the com mon good; (2) where trade restrictions have dis torted an economy, moves toward maximum use of comparative advantage must be gradual, and adjustment assistance may be in order. The Trade Expansion Act of 1962 continues our traditional principle of the most favored nation. That means we do not intend to dis criminate in reducing ta riffs. A reduction nego tiated with EEC can and usually will be extended to similar products entering the U. S. from any free nation. major U. S. manufacturing industries has been in foreign trade. Having said this, one is re largest industries, accounting for approximately potential is a set of rankings. Each of the 20 ranked with respect to its estimated prospects for benefiting if reciprocal tariff reductions go into effect. Sets of trade potential rankings also have been constructed for the State of New Jersey and the Commonwealth of Pennsylvania. Having trade potential ranks for each region, we can tentatively answer two major questions. Is the U. S. industrial structure weighted toward industries with good or poor export trade poten tial? Are the states in this region more or less favorably situated than the nation as a whole?* The tables on the opposite page make it pos sible to visualize the part each industry plays in each region’s export trade prospects. Industries are listed two ways: down the page in decreas ing order of estimated trade potential; across the page in decreasing order of importance as employers. They are divided into four groups each way. The groupings on the scale of trade potential simply segregate the top one-quarter, next one-quarter, and so on. The groupings across the page single out first the two or three minded of the draftee who, instructed to remove the first one-fourth of total employment, then his eyeglasses and read the chart on the wall, the industries accounting for peered about and calmly inquired, “ What wall?” fourth, and so on. The actual percentage of total There is no standard measuring stick for trade employment accounted for by each individual the next one- potential. An index is needed which takes into industry is recorded at the place in its column account an industry’s actual export trade as well marked by where that industry ranks in the as the probable net balance of effects following trade potential list. reduction of both import duties and foreign The positions at the upper left and lower left tariffs, and which also reflects regional differ of the tables are vitally important. Concentra- ences in competitiveness. Since such an index ( Continued, on Page 8) did not exist, we have constructed one. The data, sources and methods used are outlined later. In the next section, the findings are described. 6 * The follow ing analysis is restricted to manufacturing industries. Manufacturing is the dominant activity in the Th ird D istric t. O f course, materials and agricultural products also enter into foreign trade. In many agricultural commodities, the United States has a commanding competitive advantage. 1962 EMPLOYMENT RELATED TO ESTIMATED TRADE POTENTIAL RANK United States Manufacturing Industries Tota Industries Ranked by Estim ated Trade Potential Pennsylvania Manufacturing Industries Percentages of Manufacturing Employment Percentages of To ta l Manufacturing Employment Industries Ranked by Estimated Trade Potential Individual Industries Top three in employ ment Next three Next five Lowest nine Group Totals Nonelectrical machinery Chemicals Tobacco,manufactures Instruments Tra nsp ortation equipment Prim ary metals Rubber and plastics Electrical machinery Paper Fabricated metals 5.1 0.5 2.1 9.8 Printing and publishing Petroleum and coal Miscellaneous manufacturing Stone, clay and glass Food 2.3 3.6 6.7 24.4 3.6 3.4 10.6 20.7 To tals 7.4 21.2 18.0 5.2 1.5 4.5 4.6 2.2 25.3 8.1 Food Leather Furniture Lum ber and wood Apparel 2.2 2.3 3.6 26.2 1.6 2.9 16.5 L o w e r fo u rth : 5.2 23.1 38.2 7.4 9.8 Textiles Petroleum and coal Printing and publishing Stone, clay and glass Miscellaneous manufacturing 1.2 29.5 2.1 3.6 .8 T h ir d f o u r t h : 5.6 Textiles Leather Furniture Lum ber and wood Apparel 18.5 4.0 Fabricated metals Electrical machinery Rubber and plastics Paper Prim ary metals 9.1 L o w e st fo u rth : Group To tals Lowest ten S e c o n d fo u rth : 28.7 7.0 T h ir d fo u rt h : Next five 8.0 Nonelectrical machinery Chemicals Instruments Tra nsp ortation Equipment Tobacco 8.7 S e c o n d fo u rth : Next three U p p e r fo u rth : 26.2 U p p e r fo u rth : Individual Industries Top two in employ ment 2.4 1.6 0.9 12.3 28.8 To tals 100.0 25.9 25.7 100.0 19.6 New Jersey Manufacturing Industries Tota Industries Ranked by Estimated Trade Potential Percentages of Manufacturing Employment Individual Top two in employ ment Next three ndustries Next five Lowest ten 33.0 U p p e r fo u rth : Chemicals Nonelectrical machinery 1nstruments Prim ary metals Transportation equipment 11.4 7.3 4.1 4.8 5.4 29.4 S e c o n d fo u rth : Tobacco manufactures Rubber and plastics Electrical machinery Paper Fabricated metals 0.2 3.5 15.4 3.5 6.8 16.8 T h ir d f o u r t h : 3.5 1.3 4.1 Textiles Petroleum and coal Printing and publishing Stone, clay and glass Miscellaneous manufacturing 4.3 3.6 20.8 L o w e r fo u rth : 8.0 Food Leather Furniture Lum ber and wood Apparel To tals Group To ta ls 1.4 1.2 0.7 9.5 26.8 24.8 25.4 23.0 100.0 7 business review suggestion of the pattern of entries running from (Continued from Page 6) tion of industries at the upper left means a upper left to lower right. And the entries in the region’s important industries are high on the last column reveal a concentration of employ trade potential list. Concentration in the lower ment in the higher trade potential groups. left means the region’s large industries are not likely to benefit greatly from trade increases Correlating size and trade potential under liberalized trade conditions. There is a way to summarize all this informa It is interesting to compare the situations in tion. Why not rank the 20 industries by em Pennsylvania and the United States. The U. S. ployment size, and find out if there is a large has a well balanced industrial distribution from or small amount of correspondence between the top to bottom of the trade potential scale. This is revealed by the figures at farthest right in trade potential ranks and the employment size ranks? What kinds of correspondence can the table. A little more than one-quarter of there be? There are two. The highest-ranking U. S. manufacturing employment is in indus industry in terms of employment might also tries in the top group, and another full one- have the highest trade potential rank, and so quarter in industries in the second group with on down the line. That would mean the indus respect to trade potential. Rather less than one- trial structure was tilted to the maximum de quarter each goes to the two lowest trade gree toward industries with good prospects for potential groups. But in Pennsylvania, there is benefiting from expanded foreign trade. On a dearth of jobs at the top of the list, an the other hand, oversupply in the second grouping, a shortage have lowest in the third group but not in the lowest class. second Furthermore, Pennsylvania’s apparel indus the largest the largest trade might industry potential have the might rank, next the lowest potential, and so on. That would mean the try, a very important employer in the state, industrial structure was weighted to a maxi appears in the lower left position, where no mum away from industries with good trade U. S. industries occur. At the other extreme, prospects. there is no upper-bracket Pennsylvania em There is a standard measure of correspond ployer sufficiently high on the trade potential list to get into the promising upper left posi ence of rankings. It is called the rank correla tion. In the first case, where the ranks corre tion. The table for a region optimally oriented spond perfectly, the rank correlation would be toward export trade would be empty in the 1.00. In the opposite case, where the largest lower left and upper right corners, because in industry had the lowest comparative advan such a region all large industries would have tage, the second largest the next lowest, and so good foreign trade prospects and therefore all on, industries with poor export prospects would be — completely negative. the rank correlation would be — 1.00 small. There is little evidence of any such The U. S. industries have been ranked by tendency in the U. S. and Pennsylvania tables. employment size, and the correlation between The table for New Jersey reveals a more export-oriented computed. It turned out to be .05. That puts those one would want empty; there is a clear it almost in the middle between the two possi The empty blocks their trade potential and size ranks has been are 8 area. business review ble extremes of — 1.00 and — 1.00. There is, Rules concerning disclosure then, no particular tendency for the nation’s therefore bar access to estimates of employment industrial structural to overbalance either toward attributable to exports in Delaware. Delaware’s or away from export-linked industries.* industrial employment, of however, information is concen The rank correlation between the trade po trated into only a few industries. Most of the tential and size ranks of the Pennsylvania in large ones export in proportion equal to or dustries For the industries in New greater than their size. The three largest manu Jersey, it is .31. The correlation for Pennsyl facturing industries in Delaware are chemicals, vania indicates an overall situation similar to food processing, and the machinery group in is .04. the nation, but the higher New Jersey figure cluding transportation equipment. The machin indicates some tendency toward specialization ery and transportation equipment industries as in export-linked industries. This is of course a group are at least average in export trade not a surprise. The rank correlations are a potential. The food processors in Delaware in numerical the 1960 accounted for more of the state’s exports visual than they did of its employment; the situation original expression two-way of tables, what was, a general in was the reverse for this industry in both Penn impression. A region would face serious difficulties if sylvania and New Jersey. Delaware’s chemicals trade liberalization promised to benefit few but manufacturers in 1960 exported about 30 per harm many of its industries. In two of the cent of the state’s total of goods sent abroad; three states included in the Third Federal Re this was much more than proportional to their serve District, such evidence as can be mar shaled concerning trade potential does not importance as employers in the state. These three industrial groups account for more than indicate this is the situation. In Pennsylvania, half the jobs in manufacturing in Delaware. the machinery industries, with good trade po They appear in total to have better than aver tential, age potential for taking advantage of foreign trade opportunities. are important enough to offset the state’s large apparel industry, which is not likely to benefit from intensified international competition. In New Jersey, there is a definite The Third Federal Reserve District tendency We have related trade potential to size of in toward concentration in industries with good international trade prospects. dustry for three states, but significant portions of both Pennsylvania and New Jersey lie out Delaware side the Third Federal Reserve District. What Delaware is a small state, and many of its in difference would it make if we could eliminate dustries are dominated by a very few firms. them? While there are not specific estimates of * The fact tha t the rank correlation fo r the U . S. was close to zero does not reveal some so rt o f neutral foreign trade position— neither good nor bad. The position actually is very favorable— U . S. exports exceed U . S. im ports by more than 20 per cent. The correlation fig ure only indicates tha t U . S. performance, good as the exportim p o rt balance shows it to be, could be pushed even fa rth e r in term s o f specialization in export-oriented industries. The real service o f the rank cocrelations fo r our purpose is to provide a basis fo r comparison, a way o f saying whether o r not each state's indus tria l structure puts it in a position as favorable as the good U . S. situation. export-linked employment for Eastern Pennsyl vania and Southern New Jersey, a general judgment concerning their trade potential is possible. The main effect of eliminating Western Pennsylvania from consideration would be to 9 decrease the employment rank of the primary metals industry. This drastically Outside manufacturing, the business of sea change the relationships already established for ports will improve, and free movement of farm Pennsylvania. products if it comes will help one of our most The would several not lean toward having export-oriented industries. machinery cate gories and the chemicals industry are more important in Eastern Pennsylvania, but so are efficient industries. Without doubt, foreign trade expansion will the apparel, textiles and some other industries intensify with the competitive problems of some In firms. Nevertheless, the fact that certain indus South Jersey, food processing is a dominant industry. Food products have relatively low tries are low on the trade potential scale does not mean they are bound to be badly hurt if export rankings. However, the industries which foreign trade is liberalized. There were viewers contributed most to New Jersey’s good pros with alarm who predicted trouble for French comparatively less trade potential. impor industry in the Common Market. But the fresh tant in South Jersey also. If one could correlate air of competition actually blew away cobwebs trade potential and employment size for East of rigidity which had grown up in French in pects— machinery and chemicals— are ern Pennsylvania and Southern New Jersey, he dustrial probably would find the two regions looking manufacturers found they could compete and more The they have done so very effectively. American a industrialists have some reputation for com the New Jersey relationship probably petitiveness; many of them will pass the test, would not be so good as it was for the entire stale. too, even in industries which do not rank high alike than Pennsylvania little; do the correlation whole states. might increase practices. Put to the test, French at present in foreign trade comparisons. One of the most important economic activi ties in this region will benefit handsomely A NOTE ABOUT METHOD AND SOURCES In this study, information was needed which would provide an objective basis for ranking industries by trade potential, while simultane ously allowing for discrimination between re gions. The main source for such data is the from any increase of trade, whether exports or export origin surveys for 1960, published by imports. This is, of course, the business of the the Department of Commerce. They contain Delaware River ports. estimates, for each major industry, of the em ployment which is directly or indirectly at Adding up the score tributable to production of goods for export. The nature of the industrial structures of the These states in the Third Federal Reserve District performance. An industry with a high per estimates reflect an industry’s recent puts them in a position to benefit from foreign centage of its employment attributable to ex trade expansion. We have seen that in manu port trade certainly has in the recent past facturing the Third District portions of Dela specialized more in export trade than one with ware, New Jersey and Pennsylvania in total a low percentage. The estimates do not dis- 10 criminate between an industry which is grad ually losing ground in export trade and one which is gaining, however. This question was attacked by means of a different set of data. c. Export-import balance, 1960— positive (exports exceeding imports) or negative. d. Change in export-import balance, 19541960— becoming more or less favorable. Each major industrial classification covers a The 16 possible combinations were ranked by host of subindustries. It is probable that those the estimated degree of export potential they particular represented. For example, an industry which subindustries which are export- oriented will cluster more in some regions of achieved a favorable and increasing export the country than others. These regions should balance in the face of high tariffs abroad, while have higher percentages of export-linked em being protected against competition from for ployment. The Department of Commerce data eign goods reflect such regional differences. tariffs, was judged to be in the most favorable only by relatively low domestic The Surveys and Research Corporation of position. An industry, highly protected, which Washington, D. C. has classified products by faced low tariff rates abroad but in spite of major manufacturing industry and estimated these advantages was developing an increas export-import balances for 1954 and 1960. These estimates, published in the Trade Expan sion Act hearings in 1962, enable one to iden ingly unfavorable export-import balance, was judged in the least favorable position. The outcome of the above procedures was an tify industries, perhaps equal by the export ordering of the 20 industries into several trade employment criterion, which differ in that their potential categories. There were a number of trade balances are changing in different direc tions. This information provides a clue to empty classes, and there were a number of future trade potential, in the sense that upward contained or downward trends balance may continue. least favorable was unoccupied. in the export-import ties. For example, the top class described above three industries. The one judged The next step was to rank the 20 industries A further check on future potential can be made by noting whether most of the important according to their percentages of employment products produced by an industry meet rela were four sets of ranks: attributable to exports. At this point, there tively high or low tariffs abroad, and whether a. The set obtained from the tariffs and they are protected by relatively high or low export-import balances. These were modified tariffs at home. slightly for application to Third District The information outlined above was assem states in recognition that aircraft are less bled in the following way. First, each industry important and steel more important in local was placed into one of 16 possible categories than in national industrial structures. defined by which combination it possessed of the following 4 characteristics: a. Tariff rates on imports of similar prod ucts— relatively high or low. b. Tariffs met by the industry’s products in Europe— relatively high or low. b. Three sets obtained from the data of the export origin surveys: one each for the U. S., Pennsylvania and New Jersey. The two methods of ranking produced re sults which correlated quite well. In the few cases where large discrepancies occurred, the 11 business review final trade potential rank was a compromise. tions were rather evident; in several cases it was For example, primary metals was high in the difficult to decide between adjacent industries, so export origin survey rankings but near the that the final choice had to be arbitrary. middle of the other set. Its final rank was put in between. How good are the rankings? At the least, they are so constructed that extreme errors are To construct the final trade potential rank unlikely. Each independently constructed pre ings, the tentative position indicated by the liminary set serves to check the other. And the rank category based on export-import balances final results do not do violence to one’s general and tariffs was modified by reference to the expectations. It is no surprise to find the ma appropriate set of regional rankings based on chinery industry high up on the list, for in export origin survey data. Most relative posi stance, or apparel in a lower position. THE QUARTER-ACRE LIVING ROOM A discussion of the money and motives behind the American passion for outdoor living. Buds on the forsythia, the first robin, income hibernation. Florida First he puts on an old plaid jacket, dirty about “ can’t-miss” rookies— all are traditional khaki pants and vintage army boots and tours harbingers of spring. They help to awake the his quarter-acre estate to see what damage hardy American yard-owner from his winter winter has done. Then he checks his equip- tax returns, glowing 12 reports from business review ment: the rotary mower, electric edger, power This figure will be only slightly less than con sprayer, automatic sprinkler, adjustable spreader sumers spend directly for education or for re and the lawn sweeper. A little oil here and there ligious and welfare activities. and everything should be ready to go. YARD GOODS It’s never too early to get after those dor mant crabgrass seeds so he selects several pounds of prevention from a supply of chem icals that would make Rachel Carson blanch. Into the spreader it goes and he trudges off trailing a granular wake. To many people gardening is a fine hobby and they derive real satisfaction from Estimates of outdoor living expenditures— 1960 ($ Millions) Nursery stock, seeds, bulbs andplants Garden tools, supplies and power equipment Fertilizers and insecticides Furniture and barbecue equipment $1,000 1,800 500 500 $3,800 it throughout the growing season. But, let’s face We also discovered that most estimates of it, to many others gardening may be a tedious outdoor-living expenditures for the year 1950 chore. They probably wouldn’t admit it, even clustered around the one billion dollar mark. This to themselves, but a sizable percentage of the means a fourfold increase in little more than a so-called “ garden enthusiasts” really dislike decade. Such a growth rate is more than twice that of total consumer spending during the gardening. This is not surprising; in fact, it is in keep same period. Estimates of the outdoor-living ing with the modern American character. What bill were widely divergent in the mid-1950’s, is surprising is that the relatively uncoordi and we hesitate to even guess about the shape nated outdoor-living industry has recognized of the year-to-year growth curve. and capitalized on this attitude. A neat tailor GOLD IN GREENERY ing of supply to meet a “ quite-contrary” de mand is one reason outdoor living now Sales of flowers, seeds, and potted plants. M ILLIO N S O F DOLLARS commands a multibillion-dollar price tag. BROW NBACKS AND GREENBACKS Statistics on outdoor living are sparse and spotty. Much of the data are based on estimates which seem to vary with the skill, and perhaps the motives, of their makers. Our research shows, however, a fair amount of agreement that about four billion dollars was spent for outdoor living in 1960. This includes not only garden supplies and equipment but patio furniture and barbecue paraphernalia (see the following table). We expect the total to be well over four billion dollars this year— pro vided, of course, the weatherman cooperates. 13 The Department of Commerce does publish find it cooler outdoors than in. flowers, In their effort to house so many for so little, seeds and potted plants. In 1950 the figure was builders have eliminated the porch. This is a $524 million; in 1961 it was $1,058 million. crime against society that ranks with Detroit’s reliable yearly data on outlays for As the chart shows, this type of spending in removal of the rumble seat. The porch was an creased only moderately as a percentage of all effective and pleasant place to accommodate consumer expenditures, which could mean the the overflow from indoors. It was well suited estimates we cited for total outdoor living in for 1950 and 1960 are far off. More likely it indi courting. It was an observation booth on the cates other components of the outdoor spend neighborhood and a rainy-day playground. It ing total increased also was expensive to build. considerably faster than rocking, reading, talking, visiting and Without a veranda families moved around to flowers, seeds and plants. the backyard. There they found a level spot and FROM PARLOR TO PORCH TO PATIO unfolded their chairs. More often than not, they Many things play a part in the soaring popu set bricks or flat stones on the ground and called larity of outdoor living. Such pillars of postwar them a patio. analysis as the movement to the In other words, one of the reasons people suburbs, increasing leisure and expanding in spend so much time outdoors in the summer come are of major importance, to be sure. In time is because it is hot and crowded indoors consumer addition, a number of more specialized influ and living on the porch is no longer possible. ences have come into play. Thus the yard helps Most obvious among them is the fact that it overcome the modern house’s inadequacies. It is used as an extension is pleasant to be outdoors in good weather; of the house— a second living room without people walls. naturally enjoy summer smells and sounds. At the same time they were being lured Many people garden simply as a means to by the birds and the breeze, many people also decorate their quarter-acre living room. They were use petunias instead being driven outdoors by modern architecture. Postwar homes of two and three bedrooms, of Picasso prints and blue-grass instead of broadlooms. But the a bath, kitchen, and living room are just too basic small to comfortably contain a family with doors and out, is to several noisy children. Everybody bursts out— provide attractive sur for a bit of privacy, if nothing else— as soon as roundings the weather permits. family to enjoy and Modern houses often are of frame construc tion with low ceilings, and they get hotter than earlier models with thick masonry walls. Fur objective, for in the to show off with pride to visitors. It follows then that gardening and lawn thermore, the young trees that recent home maintenance often assume the status of house buyers have planted do not yet shade their keeping chores— necessary but not much fun. dark-shingled roofs. No wonder many families In typical housekeeping fashion many garden- 14 BEDS, BUDS, AND BLOOMS over for products to make the doing easier and Per cent of all gardening households that bought during the results more appealing. Work-saving appliances— long 1961 . . . 0 10 20 30 40 50 ------ 1 ------ 1 ------- r -------1 --------1 ---------| FLOWER OR VEGETABLE SEEDS BULBS I 1 ~ ___________________________] G R A SS SEEDS 1 SEEDLINGS OR MATURED PLANTS I popular in doors— naturally found great acceptance in the yard. Power-mower sales soared from $17 million in 1946 to almost $300 million in 1959. Today over 60 per cent of all households with lawns of any type or size owns a power hand- ROSES I mower. Another five per cent has mowers that SHRUBS A N D VINES CUTTINGS I I Source: A d vertising Research Foundation, Inc. can be ridden. They are something of a status symbol in certain areas and even come with tailfins. ers are interested in the results, not the doing. It used to be that one either pulled weeds Such reasoning runs contrary to the tradi out one by one or learned to live with them. tional concept of the gardener’s motivation. He Now derives great satisfaction from watching seeds grubs— almost germinate, we are told. He is supposed to get a sprouts, flys, burrows or crawls— has its chem dandelions and any plantain, unwanted beetles and thing that thrill from working rich warm earth. Older ical nemesis. people are said to transfer their instinctive have been combined with weed and bug killers desires to create life from one kind of nursery so that one can feed to the other. foes at the same time. Such broad-spectrum Efficient, long-lasting fertilizers friends and eradicate No doubt many of the nation’s 42 million ability is a reason why yearly sales of fertiliz gardeners do love gardening as such. Certainly ers and insecticides have increased to $500 the two million members of garden clubs and million from $100 million in 1950. untold millions of other practitioners do. But Other industries have profited by the out many homeowners look on gardening and lawn- door-room ing only as a means to the end of providing at wide selection of aluminum-and-plastic chairs, tractive backgrounds for outdoor living rooms. chaises and coffee tables are available to fur A recent survey by the Advertising Research nish the summer living room. Consumers have philosophy of the homeowner. A Foundation, Inc. revealed that almost 50 per responded cent of all gardeners disliked the work in outdoor furniture by more than 120 per cent by increasing their purchases of volved in gardening and felt it was too much in 10 years. Television, radio and even stereo bother. When the respondents were asked what sets now emphasize portability for use outside. appealed to them about gardening, “ gardening A number of magazines cater to outdoor inter work” came in a poor eighth. ests. They feature full-color pictures of care With an insight matching Edwin Markham’s fully cultivated Edens to show what results are poem, the outdoor living industry appears to possible if one has time, energy— and money. understand the modern The popularity of the outdoor kitchen with its “ man with a hoe.” Because the typical gardener is more interested charcoal in results than in doing, he has been a push steaks and other prime cuts of meat. broiler has increased spending for 15 business reviey AS THE TWIG IS BENT You spread it out, add water, and stand back. In addition, to the room-without-walls concept, the outdoor spending pattern is influenced by The lust for newness. Dynamic obsolescence, as the regular style change is called, is a other factors, many of which are related to the marketing mainstay in automobiles, appliances, basic pleasure boats, furniture and clothes. Now it’s drives, fears and ambitions of our big in the garden market too. Many plant and society. Status. Gardening is essentially a luxury and flower merchants make it a policy to develop long has been associated with the rich. Now a new “ model” every year. Gardeners pay top that a prices to own the very latest marigold, zinnia, measure of affluence, it is not surprising that aster and, of course, that number-one social they show off their gardens as an indication climber, the rose. so many Americans have achieved of their new status. Frugality. The typical homeowner is con Competition. Gardening is a good field of vinced that a lush lawn and attractive plantings competition in which to outshine the neighbors. add substantially to the value of his property. One’s skill can be measured by achievement Real estate men differ on this, pointing out and achievement is outdoors for all to see. The that many sales are made during the winter. present gardening ethic does not consider it Nonetheless, improper to enlist mechanical and chemical help. money spent on their yards as a sound invest Hiring professionals is frowned upon, however. ment. gardeners continue to justify Another way to get one up on the guy next More or less gregarious? Joan Parry Dutton, door is to memorize a number of Latin plant a garden expert from England, remarks on the names and to use them knowingly in conversa relatively few hedges in America. She says this tion across the back fence. Self-expression. The houses in many postwar developments stand cheek-by-jowl— as indistin reveals a gregarious streak in the national character. Tall hedges, it seems, are a sign of guishable as kernels on an ear of corn. The unsociability. Some psychologists typical owner often resents regimentation, how Dutton. They might mention might dispute Mrs. our increasing ever. He wants to express his identity and say, use of fences— which could be called instant “ This is my property. Color it different.” Trees, hedges— to shrubs, plants and flowers serve to set his house feels that a growing insecurity based on na apart from the rest of the block. Impatience. The popularity of instant this tional and Americans to insure privacy. international Business tensions is Week driving . . retreat to the smaller, safer and instant that indicates that Americans do world of the backyard.” In other words, the not like to wait long for results. It is not surpris outdoor room might be turning into a private ing, therefore, that garden spending is shifting hideaway to which the snug seclusion of fences from seeds to more expensive small plants. is an important element. Such a running start means flowers in June rather than August. The clean-slate syndrome. Many Americans enjoy being wasteful. When something breaks Another popular item is the roll-on garden— down they discard it with a flourish and get a seeds buried in a strip of green cotton batting. new one. Now they can wipe away their entire 16 lawn when it displeases them and start over stores. The postwar boom attracted a wide from scratch. A new preparation will kill all assortment of retailers, and now garden and growth without poisoning the soil and prevent other outdoor goods are available in depart ing immediate reseeding. It makes a nice, flam ment stores, boyant gesture. auto supply supermarkets, stores, gas roadside stations, stands, mail-order houses, discount markets and even drug stores. As in general merchandise, one-stop shop FOR W H O M THE CASH REGISTER RINGS ping has become popular in outdoor merchan We couldn’t find any firm handling silver bells dising. and cockle-shells listed in the outdoor living sprung up all over suburbia. There are some Stores called Garden Centers have industry, but we found almost everything else. 11,000 of them today compared to about 700 Members giant in 1956. Such stores usually stock everything chemical companies that produce fertilizers and the nearby yardowner might want to sow, spread, insecticides to the part-time entrepeneur who spray, set fire to, start up, or sit down on. of the industry range from raises evergreens for profit in his backyard. Hand tools are manufactured by a number of firms including several of the nation’s larg ABOUT THE FUTURE est steel companies. Power equipment comes We have noticed that articles on the economics from hundreds of firms, but the top 25 account of the outdoor industry seem to wind up the for a large majority of the output. There has same way. First the writer works in the phrase been a shake-out in power lawnmowers with the “ a growth industry.” Then he launches into a number of producers shrinking from 300 to 150 glowing evaluation of the industry’s future. Much of the optimism is based on the ex in a few years. The plant and seed industry includes giants pectation that a high rate of home construction $8 will prevail indefinitely. Every million housing million worth of roses a year, but small firms units constructed is said to mean over 100,000 are characteristic. Almost half of all growers acres of new lawns and gardens. Mix in the have annual sales of less than $10,000 and only standard projections for increasing consumer in 10 per cent are incorporated. come and leisure and the result looks like a like Jackson and Perkins which grows continuing boom. HORTICULTURAL PROFESSIONALS The future of the outdoor industry is promis ing but the rate of expansion enjoyed in the Number of establishments— 1959 Flower growers Nurserymen Bulb growers Flower seed growers Greenhouse vegetable growers I 1,772 6,757 861 85 819 Source: Census o f A g riculture. 1950’s may slow in coming years. There are several troublesome trends. The recent boom in apartment construction (see the December, 1962 Business Review) should not be overlooked. Almost 30 per cent of all housing starts were apartments last year Retailers. It used to be that outdoor supplies were sold almost exclusively in hardware compared to only 8 per cent in 1956. It is likely that the relative scarcity of well located, 17 SUBURBAN SCYTHES Number of power lawn mowers sold. MILLIONS The market for garden tools and power equipment is nearing the saturation level. As evidence, power-mower sales sagged from 4.2 million units in 1959 to 3.5 million in 1961. Future demand will depend pretty much on replacements and new single-home construc tion and should be less dynamic than the de mand of the 1950’s. New products, therefore, are particularly im portant in this segment of the market. Luckily, innovation is not being neglected. For the gardener who has everything, manufacturers recently introduced a sprinkler that crawls slowly over the lawn, a watering system with a “ brain” that turns itself on automatically when the soil gets dry and all sorts of tools powered by rechargeable batteries. Another burr in the outlook: surveys show that gardening expenditures decrease after a house is about seven years old. Many of the residences built during the unparalleled post Note: 1951, 1952, and 1953 figures not available. war construction Source: Department o f Commerce. that age, boom have already passed and presumably their owners are starting to cut back their outdoor budgets. reasonably priced suburban land and the return Finally, the typical American homeowner migration to the city will be among the factors may change this attitude about making his out that maintain apartment construction at high door living room as attractive as possible. Air- levels. Obviously, this could cut sharply into out conditioning could keep him inside more often door living sales. But apartment people offer a and vacation travel also might cut down on challenge as well as a threat. The garden in yard use. The trend to second houses may hurt dustry is just beginning to exploit this market the gardening industry, too. The second house by developing new, compact products. Already is often in the woods or on a beach where miniature flower kits and window-sill green Nature is the gardener. Also important, people during the summer months. Increased weekend houses are in the stores. Maybe exotic (and who spend their spare time in a second home expensive) tropical plants will catch the fancy are likely to be less interested in the outdoor of the cliff dweller. decoration of the first one. 18 FO R THE RECO RD • • • IN DEX AGO AGO 1963 Third Federal Reserve District United States Per cent change Per cent change Employment Payrolls Sales Stocks Check Payments Jan. 1963 from Jan. 1963 from Per cent change Jan. 1963 from Per cent change Jan. 1963 from Per cent change Jan. 1963 from Per cent change Jan. 1963 from Per cent change Jan. 1963 from mo. ago M A N U FA C TU RIN G Production........................................ Electric power consumed.......... Man-hours, to ta l* ........................ Employment, to ta l........................... Wage income*............................... C O N S TR U C TIO N ** COAL PRO D UC TIO N year ago mo. ago Factory* year ago mo. ago + - 2 1 2 -1 3 0 i i + 4 + i + 1 -1 3 + - 5 2 -1 5 i — BA N K IN G (All member banks) Deposits............................................ Loans.................................................. Investments....................................... U.S. Govt, securities................... O th e r.............................................. Check payments............................. - 9 + 1 - 2 2 1 + + + + 0 + + PRICES W holesale ....................................... Consumer....................................... ‘ Production workers only. “ Value o f contracts. ‘ “ Adjusted fo r seasonal variation. 2 2t 2 — 3 — 3 mo. ago year ago 7 2 - 3 + 1 + + 4 4 5 7 4 0 + 16 + 5t - 2 3 0 0 4" 1 + 6 + n + 4 - 3 +25 +11 2 — year ago mo. ago + 2 — i + 5 + 3 - i + 4 - year ago i — Philadelphia. . . . 1 - 1 - 2 + 1 -1 4 0 - 1 + 1 + 1 0 - Scranton ............. Trenton ............... + + It + 2 0 0 4 + 4 - -1 2 + 2 + -1 0 5 0 + 6 + 4 + 3 + 4 + 5 + 1 + 7 - 1 4 2 + 1 3 0 1 - 3 + 2 + 2 + 1 - 1 + 3 +10 + 3 + 0 + 2 + 3 + 5 - 3 + 2 3 + 3 + 2 + 16 3 1 + 4 - 1 - 2 8 - 8 + 3 + 10 + 6 + 4 + W ilke s-Ba rre . . . 0 - 1 0 + 0 + W ilm ington......... ot mo. ago + 0 Reading............... + year ago — 2 Lancaster............ TRA D E*** Department store sales................ Department store stocks.............. mo. ago 4 - year ago 1 + i + - Department S to re f 0 + 6 - 5 +13 + 6 + 3 +10 Y o rk ...................... 0 0 - 2 - + 3 + 4 + 5 + + 0 + 1 f2 0 Cities ^Philadelphia 2 8 ‘ N o t restricted to corporate limits o f cities but covers areas of one o r more counties. t Adjusted fo r seasonal variation.
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