Full text of Economic Review (Federal Reserve Bank of Atlanta) : January 1986, Volume 71, Number 1

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Economic
Review

FEDERAL RESERVE BANK OF ATLANTA

JANUARY 1986

The
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Southeast
in a
Global
Economy
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Trade, Services, and Investment




President
Robert P. Forrestal
Sr. Vice President and
Director of Research
Sheila L Tschinkel
Vice President and
Associate Director of Research
B. Frank King

Economic
Review

Financial Institutions and Payments
David D. Whitehead, Research Officer
Larry D. Wail
Robert E Goudreau
Macropolicy

Special Issue

I

Publications and Information
Donald E Bedwell, Officer
Public Information
Duane Kline, Director
Linda Donaldson
Editorial
Melinda Dingler Mitchell
Ann L Pegg
Graphics
Eddie W. Lee, Jr.
Typesetting, Word Processing
Cheryl B Birthrong
Beverly Newton
Belinda Womble
Distribution
George Briggs
Vivian Wilkins
Eilen Gerber

The Economic Review seeks to inform the public
about Federal Reserve policies a n d the economic
environment and, in particular, to narrow the gap
between specialists and concerned laymen. Views
expressed in the E c o n o m i c Review are not necessarily those of this Bank or the Federal Reserve
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Predicasts g r o u p
ISSN 0 7 3 2 - 1 8 1 3




I

I

Robert E Keleher, Research Officer
Thomas J. Cunningham
Mary S. Rosenbaum
Jeffrey A. Rosensweig
Joseph A. Whitt, Jr.
Pamela V. Whigham
Regional E c o n o m i c s
Gene D. Sullivan, Research Officer
Charlie Carter
William J. Kahley
Bobbie H. McCrackin
Joel R Parker
W. Gene Wilson

I

T

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V O L U M E LXXI, N O . 1, J A N U A R Y 1 9 8 6 , E C O N O M I C R E V I E W

Table
of
Contents

FEDERAL RESERVE BANK O F A T L A N T A




4

Introduction

6

Competing Takes Hard Work

11

Why Cultivate International Markets
And Investments?

16

The Southeast s Textile/Apparel Trade
And the Import Threat

20

Marketing American Agriculture:
Problems and Opportunities

24

Corporate Export Policies Provide
The Competitive Edge

28

Developing Foreign Markets for
Southeastern Services

30

Florida's International Visitors:
Profiling a Warm Welcome

33

Strategies to Capture
International Banking Business

36

The Foreign Bank Presence
In the Southeast

40

The Southeast A Magnet for
Foreign Real Estate Investment

42

What are the Trends for Foreign
Direct Investment in the Southeast?

48

Foreign Direct Investment
In the Southeast: An Historical Perspective

52

Statistical Summary

3

Over the past two decades, a truly global economy has emerged. It holds sweeping implications
for the decisions business and government leaders must make on a multitude of issues. This
month's Economic Review looks at those implications, as it concludes the presentations delivered
late last year at the Atlanta Fed's conference on
"The Southeast in a Global Economy."
In our last issue of the Review, we published
presentations by several conference speakers,
who discussed the forces that have brought
' about international integration and looked at the
impact of this market "globalization" on domestic
industries, consumers, and labor.
This month the spotlight swings to the problems and opportunities inherent in producing
goods and services for world markets and the
pluses and minuses of foreign investment within
our own borders. W e are pleased that we can
offerthe insights of such knowledgeable businesspeople and analysts on these topics.
Obviously, considering the diversity of views
expressed, it should be clear that those views do
not necessarily reflect the opinion of either the
Atlanta Fed or the Federal Reserve System.
Our issue begins with William Brock, who
acquired an indisputably global perspective as
this nation's trade representative from 1981
through 1985, serving as President Reagan's
chief international trade adviser and negotiator.
Brock, who was confirmed as secretary of labor
last April, emphasizes that the global economy is
a reality that must be faced, notwithstanding the
challenges it poses for American industries and
governments.
Urging American businesses to seize the opportunities awaiting them around the globe,

4




Brock challenges executives to get involved in
worldwide competition because "this isn't just a
temporary phenomenon, it is permanent. No
amount of protectionism or wishful thinking is
going to send it away."
Atlanta Mayor Andrew Young also takes a
broad, positive view of the changing environment, declaring "we've got to look at the whole
world as the economy and we've got to look at
each other as friends and trading partners."
Speaking from not only the perspective of a civic
leader but from his experiences as United Nations ambassador during the Carter administration, Young says it is possible for nations to share
a relationship "that doesn't include cutthroat
competition or attempt to destroy each others
work force."
Young urges Americans t o explore imaginative
new ways to do business in t o d a / s increasingly
competitive markets. He recounts his experiences bringing people in third world countries
desperate for U.S. technology together with
American companies that need foreign contracts
in order to create jobs here at home. Furthermore, he seeks to explain why ambitious southeastern cities such as Atlanta should continue to
cultivate international markets and investment.
After Mayor Young's presentation our focus
shifts, as it did during the conference, to specific
issues concerning American producers of goods
and services. Several industry representatives
demonstrate that trade is a two-way street, a
street abounding in both opportunities and potholes. Leading off that discussion are executives
from two basic southeastern goods-producing
industries—textiles and agriculture—that have
been hard-hit by the changing competitive
environment.

JANUARY 1986, E C O N O M I C

REVIEW

James Leonard, III, manager of economic analysis for Burlington Industries, a North Carolinabased textile giant, discusses his industry's concern over foreign competition. That concern, of
course, has led many in the industry to call for
legislation to tighten import restrictions. A bill to
limit textile and apparel goods from the Orient
more sharply was approved by the House and
Senate after our November conference, but then
was vetoed by President Reagan who denounced
it as protectionist.
Donald W. Sands, president of Atlanta-based
Gold Kist, Inc., explains the troubled market
situation facing American agriculture largely as a
result of the strong dollar that undermined U.S.
commodities' competitiveness before it began
weakening in foreign currency markets last year.
As head of one of the Southeast's major agribusinesses, with annual revenues of more than Si.5
billion, Sands says his o w n organization lost
much of its traditional overseas market while the
dollar's value climbed to a 12-year high last
February. " Our former customers looked to other
countries for cheaper prices, leaving U.S. commodities in warehouses," he notes.
In the article that follows, Scientific-Atlanta
Chairman and Chief Executive Officer Sidney
Topol gives examples of how his high-technology
company competes around the globe. He adds a
warning that ill-advised attempts to protect certain American industries from competitors in
China and elsewhere can boomerang because
protectionism limits competitors' earnings in
dollars. That in turn, squelches other U.S. manufacturers' potential sales in those same countries.
Other contributors deal with international trade
and services. Edward S. Reed, retired executive
director and general manager of the busy Port of
New Orleans, points to the significance of port
and transportation services to those in foreign
trade. Then Barry Pitegoff, tourism research
administrator for the Florida Division of Tourism,
discusses strategies for attracting foreign tourists,
w h o m he says sometimes look for different
things than domestic tourists. He urges other
southeastern states to join Florida in opening
their doors t o foreign visitors, w h o m he says
represent a vast, largely untapped market.
Next, two experts examine more specific international financial issues. Alexander McW. Wolfe,
Jr., vice chairman of Miami-based Southeast
Banking Corporation, suggests strategies that
southeastern banks can employ to increase profits without incurring excessive risks. And Brookes

Mclntyre, a foreign bank consultant, explains
various ways international banks can enter the
United States and cites reasons for doing so.
Three concluding contributors address the
question of foreign investment, which has gravitated to the Southeast in recent years.
Alexius Conroy, w h o recently founded his o w n
development firm, says Florida and other
southeastern states are irresistible to developers in Canada and other countries facing
domestic constraints on their activities. "The
Southeast's ability to grow, both physically and
through creation of new jobs, provides a unique
milieu for investment and will encourage foreign
investment in this region far into the future,"
according to Conroy, former president of the
Canadian-owned Cadillac Fairview Shopping
Centers (U.S.) Limited.
CedricSuzman, vice presidentand educational
program director of the Southern Center for
International Studies in Atlanta, catalogued various reasons for what he characterized as " t h e
phenomenal growth in foreign direct investment"
in the Southeast Those factors include everything
from the region's economic growth and population influx to its well-served airports and other
transportation facilities. The region's balmy climate and the warm welcome that states and
communities often extend to foreign investors
are other incentives, according to Suzman, w h o
says, " t h e old southern hospitality has provided a
comparative advantage."
But a Florida International University economics professor observes that American states
and localities have often viewed foreign investment as a mixed blessing. Mira Wilkins points
out that southeastern communities welcome the
benefits of increased investment, jobs, and economic activity. Yet they worry about relinquishing
control of land or facilities to foreigners. W h e n
Mississippi defaulted in 1838 on a $5 million
bond issue largely held abroad, she notes, the
governor "declared righteously that the state
would not allow the Rothschilds and other British
bankers to make serfs of its children."
That is the lineup to conclude our two-part
series on the Southeast's role in a dynamic global
economy. You will find that our contributors
believe this new economic environment can be
both positive and negative—but that it cannot be
denied. As William Brock sums it up in his
challenge to American producers:
" W e are part of the world; we have to live in it,
compete in it, and succeed in it."
5

FEDERAL RESERVE BANK O F A T L A N T A




Competing Takes Hard Work
William Brock

t

v

«I
difesa

What, I wonder, is the appropriate analogy to
describe the circumstances in which the United
States finds itself right now? Should we be
described as Rip Van Winkle after a 30-year
nap, or as Gulliver trying to break the strings
that the Lilliputians used to bind him while he
slept? We are beginning to wake up and face an
inescapable fact: our nation is part and parcel
of an irreversibly integrated world economy.
Producers increasingly have become aware of
this and so have workers, as 70 percent of all
we manufacture now faces international competition. American farmers and others involved
ever more deeply in export trade over the last
three decades surely recognize how firmly
linked the world's economies are today.
This integration is not just a temporary phenomenon; it is permanent No amount of protectionism or wishful thinking can make it
vanish. The United States is part of the world.
We have to live in it, compete in it, and succeed
in i t We have no alternative. I hope Congress
realizes that, but I suspect it does not since I
continually hear pleas for more protection for
this and that industry, against this or that
country.
The author is U.S. secretary
representative.




of labor and a former

U.S.

trade

Congress is considering one of the truly
fundamental tax reform proposals of the postwar
era yet rarely in the course of debate does
anyone assess the impact that tax bill will have
on this country's ability to compete internationally. That issue is not raised when we talk about
increasing federal regulations or about antitrust
law. We should look at the line items of this tax
reform legislation and ask whether each item
helps or hurts our competitiveness, for we
must compete.
The last 15 years have been educational and
in many ways painful. In the early 1970s, for
example, some of the Arab states decided they
could gain a stranglehold on the world economy
by forming an energy cartel and controlling the
price of oil. Nobody thought it possible, but
they did i t In the ensuing 10 years, the price of
that most basic energy resource doubled,
redoubled, and then doubled again. And, as
politicians are wont to avoid the truth, the
United States and most countries, developing
and developed alike, hid from that fact. We
shirked reality and allowed the illusory process
of growth to continue by the route of debt and
subsequent inflation.
Neither developing nor developed countries
were forced to make the adjustments necessary
to enjoy a market-determined economic growth
6 JANUARY 1986, E C O N O M I C

REVIEW

rate. W e simply borrowed and inflated, never
asking when the house of cards inevitably was
going to tumble. In fact, w e went so far as to
say, " W e just won't let it affect us. We'll control
the price of oil and natural gas." In the ultimate
act of hypocrisy, nations refused t o work their
way out of the problem by developing alternatives. Among them, the United States refused
to allow the market to w o r k I have often seen
Congress pass legislation repealing the law of
supply and demand, yet I have never seen it
work. And it did not work on this occasion.
During this same period bankers were saying,
"Whoa, I've got a bunch of money. Don't you
farmers want to buy some land?" That land was
bought on the assumption that values would
continue to skyrocket, as they were doing in
the 1970s. So farmers borrowed.
Then came the moment of truth, the time to
pay the preacher. The world economy—not
just the U.S. economy—tumbled into the greatest recession since the 1930s, led by the
collapse of commodity prices. When commodity
prices went through the floor, a lot happened.
Our farmers could not pay those loans and the
commodity-based economies of Brazil and
other countries couldn't pay their loans. All of a
sudden we were trapped in a debt crisis.
A number of other nations caught in that
crunch decided they did not have to buy from
us, and so they increased their government
intervention massively. They enacted quotas
and placed protectionist devices and tariffs on
all imports. In the collapse of the international
marketplace in farm products, American farmers'
overseas sales plunged from 44 percent of
their total production to about 32 percent.
American firms also lost billions of dollars in
sales of industrial goods.
Now, poignant situations are dramatizing
the farmers' plight. Recently in Georgia, for
example, a group of men was patrolling a farm's
borders with shotguns to keep the sheriff from
coming in and taking the land. W e have human
problems like this, not just economic problems.
Interestingly, while w e have trouble spots—
steel, textiles, shoes, and farming—certain other
areas send a contrary message. The United
States is the most productive country in the
history of mankind. By any economic measure
we, as a people, are more productive than the
Japanese, Koreans, Swiss, or anybody else.
Currently, 109 million Americans are w o r k i n g nine million more than were working t w o and
FEDERAL RESERVE BANK O F A T L A N T A




one-half years ago. The highest percentage of
Americans in the history of this country is
employed, not just in absolute numbers, but as
a percentage of those capable of working.

" I have often seen
Congress pass legislation
repealing the law of
supply and demand, yet I
have never seen it work."

Another area? W e are in the 36th month of an
economic recovery, our strongest rebound from
any recession in the postwar period. During the
last 12 months w e have created 640,000 new
businesses, or 50,000 a month. That figure is
important because it demonstrates the incredible regenerative capacity of our phenomenal
free enterprise system. Half the new jobs in the
United States in the last decade have come
from firms less than four years old. In the last 12
months, 1.8 million Americans have come out
of poverty, including 500,000 children—the
largest reduction in the number of povertystricken children in the history of taking the
data W h a f s more, the smallest number ever of
our elderly are in poverty today.
The United States still leads the world in
many areas of technology. For example, we
have developed a new electronic "gate" for
microchips that is one billionth of an inch wide.
To imagine how small that is, consider that, t o a
person standing in the gate, a human hair
w o u l d be the height of five Empire State
Buildings.
Another example of our astonishing advances
is my own bionic eye. I had a lens replacement
for a cataract. Before surgery, I asked the
doctor how he w o u l d know where to put that
plastic lens, which has to focus light rays precisely on the retina so my brain can receive the
proper signals. He said, "Just walk across the
7

hall with me." I followed him across the hall
and he sat me down in front of a machine that
had a typewriter at the back. He told me to
stare into it and lights started flashing. He
measured the interior of my eye in just 30
seconds. The machine gave him a computer
tape with the precise internal dimensions of
my eye—which he never touched.
When I woke up the day after surgery, I told
my 78-year-old mother I could read a telephone
book without glasses for the first time in 10
years. She became so enthusiastic that she
came to Atlanta and had the same surgery done
as an outpatient. The operation took only 20
minutes, and she rode back to Chattanooga
the same day.

"With all this (nation's)
creativity, growth, talent,
and wealth of technology,
motivation and entrepreneurship, why do we have
a $123 million trade
deficit that is still rising?"

Companies in Atlanta are making medical
products like these and shipping them around
the world. In fact, the United States is an
incredibly competitive country. With all this
creativity, growth, talent and wealth of technology, motivation, and entrepreneurship, why do
we have a $123 billion trade deficit that is still
rising?
In the old comic strip, Pogo once said, " W e
have met the enemy, and he is us." That's true
in this case. W e were deluded by the false
prosperity of inflation, particularly in the 1970s,
and became fat and sloppy in too many industries. Our nation forgot that when we proclaimed
" M a d e in America" on whatever we produced,
we were proud that it boasted the highest
technological composition and the best quality
you could find anywhere. W e forgot that those
characteristics were what made our products
8




best in the world, and lapsed into some sloppy
management and bad work rules. In our work
places we began experiencing unacceptably
high levels of absenteeism on Fridays during
hunting season. Productivity went down, as did
our quality.
In addition, the government decided it was
smarter than anybody in the industry, and so it
began handing down regulations once a week
on how Americans should conduct business. If
automobile companies didn't like the safety
standards imposed on them, the government
changed them and issued gasoline standards. If
someone disliked the gasoline standards, the
government passed pollution standards. No
one could catch up. What our government was
trying to do was not wrong, but it was not
considering how to do it in an internationally
competitive way.
U.S. tax policy, which seems t o have been
designed by elves of the 1920s, has not changed.
We forgot the effect of federal deficits on
interest rates, the value of the dollar, and our
savings rate.
W e virtually stopped teaching foreign languages in our public schools. Someone said
recently, "You buy in any language, but you sell
in theirs." And since we don't know theirs, we
are not selling.
In Washington there is a clamor for protection.
For many Americans, history is last week's Time
magazine, but history is far more than that. In
1930 the Smoot-Hawley Act taught us that
protectionism doesn't work. It destroys the
opportunity for growth and for creative competition. And here w e are in 1985 begging to
make the same mistake.
Take another example: the Burke-Hartke
Bill, a protectionist measure that came before
Congress when I was there, was defeated by
only one vote. W e chose to allow the United
States to go for a new round of trade negotiations, to reduce tariffs, and to open up our
borders t o world competition. Europe was
willing to participate in the new round of
negotiations, but unwilling to open itself up for
all that competition. Aware that quotas or
tariffs were prohibited under the rules of the
game, it chose instead to subsidize its business.
That is protectionism, by the way; protectionism
is a subsidy.
Europe elected to subsidize its steel industry
with billions of dollars. Unhappy that Boeing,
JANUARY 1986, E C O N O M I C

REVIEW

McDonnell-Douglas, and Lockheed excelled
at selling jets around the world, Europe also
decided to build the Airbus w i t h a consortium
of government-funded programs. They channeled billions of dollars into Airbus production,
as well as $7.5 billion a year into their farms to
subsidize the export of agricultural products.
The French even decided they were angry at
the Japanese and did not want any more of
their video-cassette recorders. "All right," the
French said, " w e ' r e going to make the Japanese
clear every VCR coming into France through
Poitiers." Poitiers is a small farming community
w i t h t w o customs inspectors—both part-time.
Everybody thought that was a cute ploy and
wished w e could protect ourselves like that.
Well, those protectionist programs worked.
In the last t w o years Europe's imports declined
8 percent, while ours soared by 50 percent
Unfortunately, European exports dropped 14
percent, even more than their imports.
But what is the real measure of success? In
that same period, we have created eight million
jobs while the Europeans lost four million. Yes,
protection is working for them, all right; it's
working to stop economic progress. Our unemployment rate has come down to 7 percent,
while theirs rose to 11 percent. Their protectionism is working as it always will—to stop
growth and stifle the ability to compete.
The question is: do we protect ourselves or
do we solve the problem? To solve the problem,
labor and management must sit down and
work out an agenda for competing. President
Reagan summed up this situation when he
said, " I f everybody's in the same life boat and
somebody shoots a hole in the bottom of the
boat, do you want to get even by shooting
another hole in the bottom?"
W e live in one b o a t In any company, there is
no distinction between labor, manager, supervisor, and hourly employee—each employee
shares a vested interest in that firm's wellbeing. And our nation is learning to live in one
boat: labor and management are talking and
making compacts like the Saturn agreement
between General Motors and the United Auto
Workers at a new Tennessee plant.
In addition t o our trade imbalance and pressures for protectionist legislation, the nation
must solve the federal budget deficit p r o b l e m it's eating us alive. A $200 billion deficit in the
foreseeable future is insane; that's 80 percent
FEDERAL RESERVE BANK O F A T L A N T A




of this nation's net savings going to the federal
government for nonproductive purposes.
Somehow Congress must realize what one
church member had to learn. She told the
preacher that the Lord was not answering her
prayers. " I have been praying for a husband
every week for the last year," she said. "Every
Sunday I come in and pray, but I haven't found
a husband. So I started praying for a new
Cadillac But I haven't got that, either. I don't
understand why he won't answer my prayers."
"Lady," the preacher replied, " d o n ' t you understand t h a t ' n o ' is an answer?"
W h e n will Congress learn that " n o " is an
answer? W e can't do everything for everybody
in this country, at the same time, in the same
year. A $200 billion deficit means that we must
cut spending for programs that are popular and
beneficial but that we just cannot afford now.

" W e have created
eight million jobs while
the Europeans lost four
million. Yes, protection
is working for them, all
right; if s working to stop
economic progress."

There is no choice but to force ourselves to
live within our collective means. This can't be
done by arguing whether w e should cut Amtrak
funding by 12 or 15 percent Nothing is going
to be accomplished that way.
Not only do w e need to reduce the deficit,
w e need t o concentrate on the size of the
nation's capital pool because not enough is
going in. W h e n our savings rate averages 6 or 7
percent a year, there's no seed corn for next
year's crop.
W e cannot afford to compete with the world
on the basis of wages unless w e want a slave
wage economy, and I've never heard an American suggest that Our other avenue is to compete
on the basis of capitalism, and the cost of
capital is a fundamental cost of doing business.
9

W e must compete either on the cost of capital
or the cost of wages—take your choice. Since
we've ruled out wages, we must reduce the
cost of capital. To do that, we have to increase
the supply and call for more incentives and
fewer disincentives for savings by private and
corporate Americans.
More fundamentally, we need to improve
our educational system. Of the 74 percent of
our young people w h o graduate from high
school, 53 percent can't solve a simple math
problem or write a letter. In a recent poll, half of
the high school seniors surveyed could not
identify Winston Churchill or Joseph Stalin and
did not know whether California was on the
east or west coast. That's our fault. W e waited
20 years while the reading, math, and communication skills of our children declined annually. Nobody was fired. Thafs our fault and
it's inexcusable. W e must do better.
Education is a lifetime process. W e must
encourage children to establish good thinking
and studying habits as well as good work habits
if we are to compete in this international
environment. It is up to us. The opportunity is
here. W e are part of a global environment, an
integrated economy, and there is no going
back.

10




This global integration is the most exciting
development since this country established
the constitutional system of freedom. W e are
being forced to exercise and develop our
emotional, mental, spiritual, and physical muscles in the process of competing, and we will
be better for it. We're going to create more jobs
than we can say grace over—and they will be
better, cleaner, safer, and higher-paying jobs.
The world is a $2 trillion market and will rise
to $4 trillion by the end of the century. There is
more opportunity for Americans now than in
the last 50 years. There is no limit to what we
can achieve if w e want to grab that " H o l y Grail"
of competition.
But we have to make a deliberate decision to
compete. We're already facing competition.
W e must decide whether w e want to go after
the business. Reassurance was given to us in
the difficult days of the early 1940s by a man
who claimed part-time citizenship here, Winston
Churchill. He came to the United States in the
dark days and said: " W e did not come all this
way, across the centuries, across the'oceans
and the plains and the mountains, because we
are made of sugar candy." He's right We're n o t
But w e had better get with i t

JANUARY 1986, E C O N O M I C

REVIEW

Why Cultivate International
Markets And Investments?
Andrew Young

I have to make this personal because I have no
training in business or economics. Of course, I
don't have any training in politics, either. And I
never took a single course in foreign affairs.
I've come by my education and experience
out of the evolution of a poor country preacher
who started in rural Alabama and moved over
to Georgia. I became concerned about how to
feed the hungry, how to clothe the naked, and
how to heal the sick. Suddenly I realized it
doesn't happen just by preaching; it happens
through political and economic decisions.
So I ran for Congress. Because I was in
Atlanta and we were trying to develop a mass
transit system, I won an appointment to a
House banking committee. For some strange
reason, urban mass transit came under that
committee.
The first day I was on the banking committee,
Paul Volcker, then assistant secretary for monetary affairs in the U.S. Treasury, and Arthur
Burns, chairman of the Federal Reserve, came
to discuss why we should devalue the dollar. I
didn't understand what they were saying then,

The author, mayor of Atlanta,
sador to the United
Nations.

Georgia,

FEDERAL RESERVE B A N K O F ATLANTA




is a former

ambas-

and I haven't understood what they are saying
now.
I had the strange feeling that they were
looking at the world as economists and my
background as a politician said they were not
considering the political factors in their economic decisions. I always felt that politics had
at least as much to do with the way people
spend and invest their money as economics.
People believe in more than just profitability:
they believe in security, a sense of identity,
friendship, and trust. And, they believe reliability and fairness are in short supply in much of
the world. So many other factors influence
one's investment and trade policies other than
the short-run bottom line.
A year later, those same gentlemen were
back to that banking committee, trying to
explain why the world market price of oil
suddenly shot from $2.50 a barrel to an exorbitant $14.87. Nobody dreamed it could go as
high as $50 or $51. Even when it climbed to
$14.87, I had the sneaking suspicion there
were some political problems as well as economic problems. Rising oil prices meant that
the United States no longer had single-handed
control of the world's economy as we essentially
did from the time of Bretton Woods to 1973.
11

Competing forces seemed to be influencing
our economy in ways we could not and probably
would never, be able to control. I realized we
were going to have to get out in the world and
compete, though at the time I didn't do much
about it
Then I went to the United Nations as ambassador and soon found myself traveling to Nigeria
Here was a nation of 100 million people, most
of whose leaders were educated in the United
States. Oil was then running close to $35 a
barrel. Nigeria had an enormous surplus of
cash, while the United States was running a
$10 billion trade deficit with Nigeria alone At
the same time, people in Atlanta were laid off
from General Motors because no trucks were
being produced—when Nigeria needed every
kind of truck we might have made.

" M e n and women of all
nations need to sit down
and coordinate the
resources that are on this
planet if we are to
survive."

I also discovered that Nigeria had a shortage
of farm machinery, when Massey-Ferguson,
John Deere, and Caterpillar were experiencing
layoffs in this country.
The world was not making sense. Somehow, I
realized, we had to put the productive capacity
of the United States of America to w o r k W e
had to employ our workers by responding to
some needs of the world in which we live. This,
for me, is a religious, political, and economic
problem.
Take a country like Sudan. Sudan has an
estimated $300 billion worth of oil, natural gas,
and uranium reserves underground. On top of
the ground, two to three million people starve
every year. Some kind of system needs to link
those people in need with Americans wanting
to work.
12



If an American company ever began developing southern Sudan, a communications network would be needed first because no roads
exist The company also would need the kind
of satellite communication equipment that
Scientific-Atlanta makes to send messages back
and forth. If anyone built a pipeline to transport
the oil and natural gas in southern Sudan t o the
Mediterranean, technology would be required
that few countries except the United States
produce.
I felt I had to cultivate international markets,
trade, and investment for religious reasons and
for reasons of political security. W h e n we don't
feed the hungry and we don't develop the
resources in a country like Sudan it ends up
with coups and counter-coups.
Interestingly enough, the most recent coup
in the Sudan is being blamed on the International Monetary Fund because the IMF caused
the devaluation of the currency and used
stringent methods w e wouldn't consider here.
All over Africa, the IMF is developing a reputation as a system that topples governments.
Supposedly when people don't get along with
us, we put the arm on them economically. That
may or may not be true, but that is the prevailing
sentiment
Somehow, in the absence of an economic
system that allows everybody to share in the
growth and development, serious political dislocations occur: unemployment; sometimes inflation; enormous deficits as we continue to
spend more money without producing the goods
and services to earn and deserve it; and, sometimes, the destabilization produced by hunger
and famine. W e live in a world in which our
adversaries thrive simply on being able to stir up
some trouble—and it doesn't take much. The
Soviets, for example, have to do little in countries
beset with economic troubles to end up creating
chaos. We respond to that by increasing military
spending, thereby increasing our deficit thereby
creating more trouble for ourselves at home.
Somewhere, sometime, in the plan of Cod if
not in the mind of man, this world makes sense.
Men and women of all nations need to sit down
and coordinate the resources that are on this
planet if we are to survive. Atlanta and the
Southeast are probably among the best areas in
the world from which to generate a global view of
the present economic situation that would permit American industry and business to be involved
in developing trade.
JANUARY 1986, E C O N O M I C

REVIEW

That's the main reason I ran for mayor. This city,
with 460 of the Fortune 500 companies, with
some 20,000 to 25,000 jobs already being produced by international investment with more
than 100 foreign companies coming into this
metropolitan area in the last four years, has the
right climate.

" W e are growing,
certainly, but maybe at
the world's expense. We
might be better off
if a little bit (of Atlanta's
$25 billion in recent
industrial development)
were invested in Mexico,
the Caribbean, or Haiti."

Georgia has had governors, dating back to
Jimmy Carter in 1970, who emphasized world
trade. They opened offices in Japan and Brussels
and welcomed foreign investors. Governor George
Busbee followed up on Jimmy Carter7s initiative,
and Governor Joe Frank Harris is continuing i t
We've had a 10 to 12 year start, and if s working.
After my involvement in the United Nations, I
thought I could add to this process and take it
further. One of my first missions as mayor was to
Saudi Arabia t o talk about Atlanta. I figured that
most of the world's surplus capital had its origins
in Saudi Arabia or Kuwait It may come to us
through German banks, or Japanese banks, or
Swiss banks, or French, or Canadian banks, or
different investments. But if the people w h o sit
on those boards over there knew where Atlanta
was, then Atlanta might be able to attract some of
that capital.
We've attracted about $25 billion worth of
investment into this metropolitan area in the last
four years, so something is working. You don't
have t o argue about credit, it just is happening.
Yet the one thing we are not doing to the extent
we should, though, is trade.
FEDERAL RESERVE BANK O F ATLANTA




W e are a business capital, and this is a good
place from which to d o business. Everybody in
the world wants access t o the American marketplace, and Atlanta is the best place in the United
States to access this market. From Hartsfield
Airport, you can reach 80 percent of the American
market within t w o hours. And that airport has
handled as many as 2,235 flights in a 24-hour
period. It averages close to 2,000 flights a day,
connecting to cities all over the United States
and the world. So Atlanta is a good place for
foreign business to locate.
But that still doesn't answer the question of
trade. W e are growing, certainly, but maybe at
the world's expense. It might be preferable if
some of that $25 billion went elsewhere. W e
might be better off if a little bit was invested in
Mexico, the Caribbean, or Haiti. W e can't house,
feed, and clothe the world's people in the
United States. It's in our interest to see development elsewhere, and part of that development
must come through trade.
I am convinced, more than ever before, that
governments cannot develop. Development must
be done largely by the private sector. You can't
lend money t o governments and expect that it
will be used wisely. But you can contract with
private sources and lend them money to build
projects that will work and ultimately will pay for
themselves. W i t h that kind of development conc e p t w e will be able to meet some of the world's
needs. And in the process, we'll keep a lot of
people in this country working.
We're striving for that, but there are many
obstacles. The deficit is an obstacle that helps to
create the strong dollar. I can't do anything about
that. What I can do is to concentrate on other
factors contributing toward trade that are noneconomic factors, or at least not short-term
economic factors.
I realized this during a negotiating session with
the Nigerian government when a U.S. firm was
$60 million more expensive than competitors
from t w o other nations. W e were running a big
trade deficit with Nigeria, and its leaders really
wanted to do business with the United States.
Suddenly it dawned on me that what they were
talking about w i t h our foreign competitors was a
turnkey project, whereby they would have to pay
our competitors indefinitely to manage and run
the project
I also realized that if those long-term management and maintenance costs were included in
the contract it was probably more expensive
13

than the bid from the U.S. company. The U.S.
firm is in Houston, and I knew there were about
2,500 to 3,000 Nigerian students in Houston at
Rice Engineering School and Texas Southern. So,
I told representatives of the U.S. firm w e could
swing the deal if they would agree to accept
some Nigerian students on their staff and train
them as interns. If we can find 50 or so Nigerian
engineers and train them to operate and manage
this kind of plant while it's under construction, I
said, we can compete. When I suggested my
solution to Nigeria's head of state, he said if you
can get them to come down $20 million, we can
split the difference. But, finally, considering that
one social factor, the Nigerians realized that the
U.S. firm was offering as good a deal, in spite of
the big gap in the dollar value over the short term.
Even with a strong dollar, if Americans are
determined to trade and are willing to turn loose
marketing and sales skills, we can be competitive
We can accomplish much if the government
doesn't keep us from doing what we need to do,
and doesn't penalize us for sending workers
overseas. Everybody wants to live in the United
States. The only incentive for not living in this
country is that we can go overseas, earn more
money for a while, and come back to live better
in the United States. We've got to have a tax
structure that allows people to work overseas, at
least for short periods, without being penalized.
In fact with a $140 billion trade deficit in 1985,
it's in our interest to encourage Americans to
market overseas. W e ought to give people tax
exemptions when they work overseas trying to
market goods and services manufactured in the
United States. That's not the same as giving
people tax breaks for plant and equipment and
foreign investment That's giving people a tax
incentive for trade, for aggressive marketing, and
for setting up an operation t o train people and
maintain the goods that we sell.
Many Americans don't realize that an enormous
percentage of the world's leaders were given
their early education by Christian missionaries
and then studied in our university system. These
leaders have some affinity for the values and
ideals this country represents. Working with
people w h o come out of a similar background,
an additional incentive exists for building ties
and relationships.
Think about the unlikely deal we put together
at West End here in Atlanta, between the People's
Republic of China and the National Baptist
Convention, for example. It doesn't make any
14




sense at all, on the surface. Yet, here was a
successful Chinese businessman, who had grown
up around missionaries but had not become a
Christian until he was saved during a Billy Graham
evangelistic rally 15 years ago. Today he wants to
do something to build bridges, so he's over here
working with his Baptist brethren, who happen
to be black. At the same time he is involved in a
house church movement inside the People's
Republic of China Out of that religious relationship, they struck a deal that, hopefully, will be
profitable for both sides. W e couldn't get anybody to take a look at West End t w o years ago,
although we talked with 25 developers. All the
development was going north of Atlanta But
Oriental investors have seen the kind of developments that have taken place in Singapore, right in
the middle of a former warehouse area. They
have seen a neighborhood turn around once
they made their investment there, so they aren't
nearly as afraid of going into West End as U.S.
developers.

"If Americans are
determined to trade and
are willing to turn loose
marketing and sales
skills, we can be
competitive."

The religious connection intrigues me. Everywhere I w e n t particularly in Africa the leadership
has grown up with a Christian background. In
Zimbabwe, Abel Muzorewa was a Methodist
bishop. Ndabaninga Sithole was a minister of the
United Church of Christ, and Joshua N k o m o w a s
a Presbyterian lay preacher. Robert Mugabe was
a Roman Catholic schoolteacher for 17 years,
educated by the Jesuits. There's a whole mechanism of ideals, of values, of relationships that
more than compensates for the strength of the
dollar.
The connections don't exactly constitute a
"good old boy" network when you look at the
third world. Maybe it's more like a " n e w boy"
JANUARY 1986, E C O N O M I C

REVIEW

network, one that includes the young, blacks,
and females in the business community. O n the
streets in Lagos I meet people I attended school
with at Howard University. There's even a Morehouse alumni association in several African communities. Lincoln University, in Pennsylvania, has
trained at least two former African heads of state,
and the president of Malawi is a graduate of
Meharry Medical School. All kinds of social
connections can be brought into the economic
equation t o help us balance out a strong dollar.
W e just need to get about the business of trying
to trade.
I often fall back on being a preacher, believing
"all things work together for them that love the
Lord." I feel that this country wants t o do right
W i t h all of the things w e do wrong, w i t h all of the
mistakes w e make, this country's basic instincts
are t o d o good. The old folks say that the Lord will
make a way out of no way.
That's what I'm looking for out of the forthcoming Reagan-Gorbachev summit I don't know
whether they realize i t but both the American
and Soviet economies are threatened more economically than militarily. And they are not being
threatened by each other; they are being threatened by everybody else. The best deal that could
come out of the summit would be an agreement
for both nations to reduce their military spending
and increase their volume of trade. If they did
t h a t it would begin t o have a powerful effect on
the deficit almost immediately. It would also
affect the trade balance. Right now the Soviet
Union can't even sell its people groceries. Somebody in Atlanta could sell the Soviets some of
those cash registers that permit a clerk to run a
can over the top of a register, that records the
price. Do you realize what it would d o for Soviet
self-confidence if folks didn't have t o stand in
line out in the street to get their groceries? It
becomes politically attractive to sell modern
cash registers that will help them t o do business
as we do business.
There are many other possibilities, so many
other needs that are interdependent that can be
resolved only as we get out there and begin t o
trade. Ultimately, I believe that's what life is all
about on this planet—finding ways to work

FEDERAL RESERVE B A N K O F A T L A N T A




together fairly and freely, in peace and in brotherhood.
Of course, you can't have free trade without
fair trade. But w e can have fair trade and a fair
enterprise system. W e can have interrelationships
in which our needs are compatible, where we
begin to produce goods that other people need
and in return buy goods from their production.
This will result in a fair market system.
But we've got to include the whole world in the
economic equation, or else w e will find ourselves
engaged in disastrous trade warfare with our
friends. Just imagine our getting into a protectionist battle with the Japanese and the Koreans:
on the one hand w e ' d be contributing to their
security, on the other hand we'd be working
economically to undermine their security. Or
what if having invested in NATO and the Marshall
Plan, we go to war with the European community
economically, through protectionism?
At the same time, w e can't sit by any longer
while the American worker has to compete
against the Japanese government or the American
farmer has to compete against the whole European community. If the European community is
going to make decisions about European agriculture, the American government and the American
farmer must get together and make some decisions about American agriculture. Then we have
to reconcile those decisions so that they are free,
yes, but they are also fair. I don't think that is
difficult We've just got to get about the business
of doing it. W h e n I say we must get back to
Bretton Woods, I mean return to a time when the
United States felt it could give leadership to the
entire world and could provide for peace and
security through economic development as well
as military means—when we could stabilize
currencies and interest rates so people could
plan.
All things, it seems to me, are still possible. It's
possible for us to have a rational relationship
with each other that doesn't include cutthroat
competition or attempts t o destroy each other's
work force. But we've got to look at the whole
world as the economy, and we've got t o look at
each other as friends and trading partners.

15

The Southeast's Textile/Apparel Trade
And The Import Threat
James C Leonard III

tifo

The domestic textile and apparel industry has
been dealt a heavy blow by climbing imports
and declining exports in recent years. Speaking
from the industry's perspective, I will review
the problem and possible solutions, as well as
offer an assessment of the industry's export
potential.
The plight of textiles and apparel is part of an
ever graver problem facing U.S. industry. Our
nation's total merchandise trade deficit was
$123 billion in 1984; 1985's figure will approach
$150 billion. Few expect this staggering deficit
to improve any time soon, which bodes ill for
all U.S. manufacturing. In 1980, when our
nation had a negative trade balance in merchandise on the order of $20 billion, seven American
manufacturing industries posted surpluses. By
1984, however, that picture had changed dramatically, with most of these industries falling
into deficit some significantly. Even those
industries still in surplus, such as chemicals,
machinery, and tobacco, remain so at significantly lower levels than in 1980, and appear to
be heading into the deficit area
The future of American textiles and apparel
remains potentially bleak Data Resources, Inc,
The author is manager of the Economic
ment at Burlington
Industries, Greensboro,

16




Analysis
DepartNorth
Carolina.

a major economic consulting firm, has forecast
that by 1990 over 80 percent of all apparel will
be imported unless something is done now to
stem the tide. (Eighty percent import penetration is the current level for shoes in this country.)
During the Carter administration, apparel imports hovered around one billion pounds per
year and import penetration held at about 20
percent In recent years, imports have swelled
to two billion pounds per year while import
penetration, as calculated from historical data,
has surpassed 40 percent, with some estimates
approaching 50 percent Even though the domestic market for textiles and apparel expanded 12 percent over the last four years,
owing to the economy's rebound from the
severe recession of 1981 to 1982, imports more
than took up the slack If these growth rates
hold, imports soon will engulf the market,
leaving a significantly reduced portion for domestic industry. Textile industry leaders are
trying to avert this future with legislation under
consideration in Congress.
As imports of textile and apparel products
continue their headlong growth, our employment suffers the most severe effects. The
industry work force plummeted from about 2.5
million employees in the mid-1970s to less
than 1.8 million by November 1985. Some
JANUARY 1986, E C O N O M I C

REVIEW

C h a r t 1. U.S. Textile and Apparel Employment
(millions)

Chart 2. Share of U.S. Textile and Apparel Imports,
1968-1984
(in percent)

2.5

r

1974 75 76 77 78 79 '80 '81 '82 '83 '84
Source: Bureau of Labor Statistics

500,000 or 600,000 jobs have been sacrificed
in the last 10 years; 100,000 jobs in the last 12
months alone (see Chart 1). For every textile
and apparel j o b lost, there is another j o b lost
somewhere in the economy through the ripple
effect.
This surge in the growth of textile and apparel
imports comes at a time when the industry is
making significant capital investments, averaging $1.4 billion a year over the past decade.
This considerable investment enabled the industry to increase productivity at an average of
4.5 percent annually for the last 10 years,
against about 2 percent a year for total manufacturing. In turn, this high productivity growth
has allowed us to maintain lower price increases.
At both the wholesale level and the retail level,
price increases for textile products have run
about half the rate for all consumer goods. In
other words, if the consumer price index (CPI)
expanded 5 percent a year, the portion attributable to textile and apparel products has risen
only 2.5 percent a year.
Some observers argue that imports are responsible for the overall low level of inflation in
textile and apparel products. Certainly, imports
into this country are somewhat cheaper than
domestic goods. When countries such as China,
Pakistan, and Korea pay hourly rates of 16
cents, 75 cents, and $1.50 compared with the
U.S. rate of $7, their manufacturing cost is sure
to be significantly less than ours. While their
FEDERAL RESERVE BANK O F ATLANTA




1968 '70 '72

'74

'76

'78

'80

'82

'84

Big Four = Taiwan, Hong Kong, Korea Japan
Source: Department of C o m m e r c e

productivity increases are smaller than ours,
we would need a vast differential in productivity
to offset the wages of foreign textile workers.
Even though imported textiles and apparel are
markedly cheaper at the dock, the consumer
does not see those low prices. The big gap
between what it costs to produce imported
products and what the consumer pays is being
eaten up by the importer, the wholesaler, the
retailer, and so on. Thus, we in the textile
industry do not see that imports provide a
tremendous benefit to the consumer.
In 1984, this industry's $16 billion trade
deficit comprised about 13 percent of the
nation's total merchandise trade deficit. The
"Big Four" countries—Korea, Hong Kong, Taiwan, and Japan—account for the bulk of the
trade deficit on our products (see Chart 2).
China, which began exporting only recently, is
becoming a formidable factor now. The share
accounted for by the rest of the world also has
grown dramatically since 1980, primarily because of the dollars overvaluation. Should the
dollar continue to decline, the U.S. textile
industry can resume competing with the European Economic Community (EEC) and some of
the world's other developed countries. But the
Pacific Rim countries, which historically have
had a trade surplus with us, will continue to
hold the advantage as many of those countries
peg their currency to the dollar and target their
export markets.

17

Chart 3. U.S. Textile and Apparel Trade Deficit
1974-1984
($ billions)

1974 '75 '76

'77

($ billions)

'78

'79

'80

'81 '82

'83 '84

Source: General Agreement on Tariffs a n d Trade

The Multi-Fiber Arrangement is an international agreement designed to provide orderly
trade in textile and apparel products on a
worldwide basis. When smaller countries begin
to develop, according to the agreement they
should be able to export more, meaning that
the bigger exporting countries of the world
ought to back off a little. Over the last decade
the Big Four plus China, have maintained a 55
to 60 percent share of imports into this country.
Instead of allowing room for the smaller countries of the world to grow, these countries have
permitted their export markets to expand at
the same time Rather than being redistributed,
the " p i e " grows larger and larger, which has a
significant negative impact on the U.S. economy.
In 1984 our nation imported $19 billion
worth of textile and apparel products and
exported $3 billion worth (see Chart 3). Of
course, the export situation is a function of the
overvaluation of the dollar—but that is not all
of the problem. Nearly every country has a
textile and apparel industry, and some kind of
barrier to imports. In Korea, for example, a
license to import must be obtained by the
Korean textile industry. In Japan, import distribution is controlled by the trading companies.
France has a value added tax on imports, while
Venezuela bans them altogether.
The EEC experienced a $4 billion trade
deficit in textiles and apparel in 1980, about
18




Chart 4. EEC Textile and Apparel Trade Deficit
1974-1984

Source: General Agreement on Tariffs and Trade

the same level as w e had (see Chart 4). Those in
the European industry insisted their governments do something to slow down growth of
apparel import penetration, which was about
50 percent. Agreeing that strong measures
were needed to preserve what they considered
a basic industry, and in keeping with the MultiFiber Arrangement, the governments in the
EEC took action to limit and actually cut back
on those imports. The cutback met with no
retaliation.
As a consequence of these measures, between 1980 and 1984 the EEC reduced its
share of imports from developing countries
from about 35 to less than'20 percent In other
words, they almost halved their imports from
the developing world. The United States, however, bore the brunt of the European cutback
Whereas in 1980, our share of imports from the
developing world was about 25 percent, our
share presently is almost 50 percent In the
apparel area alone that figure approaches 65
percent The bill that the textile industry is
supporting in Congress would cut back U.S.
absorption of this uneven share of imports
from the developing world.
The impact of the import situation is pronounced in the southeastern United States.
The textile, apparel, and fiber industry employs
a total of about 2.3 million people, about half of
them in the Southeast. Therefore, as the industry continues to lose jobs this region will bear a

JANUARY 1986, E C O N O M I C

REVIEW

disproportionate share of that loss. The problem, however, extends to all 50 states. California
has 169,000 jobs in the textile, apparel, and
fiber industry, New York has 179,000, and
Wisconsin has 15,000. Even Kansas, primarily
known as an agricultural state, has 7,000 textile,
apparel, and fiber employees. Textile imports,
therefore, will leave no region unscathed (see
Chart 5).
Data Resources, Inc's econometric forecast,
indicating a possible apparel import penetration
of 80 percent by 1990, also explores the
effects, domestically, of such a level. The United
States will lose an additional 1.9 million jobs,
half of those in the industry, half outside the
industry. Furthermore, there will be a $40
billion decline in CNP and a $21 billion worsening in the merchandise trade deficit. Personal
consumption expenditures will drop by $19
billion owing to the lost jobs, lower wages, and
eroded purchasing power.
The bill that the textile industry is now
supporting in Congress attempts to limit the
growth of textile and apparel imports.
Advisors to the President already have remarked that he will veto the bill, regardless of
its form. Such a move would contradict the
President's reiterated but as yet unfulfilled
commitment to the textile and apparel industry.
In its original form as introduced in the
House, the bill proposes to cut back on textile
and apparel imports—which approached 10
billion square yards in 1984—by 25 to 30
percent. (It excludes imports from the EEC and
Canada) The bill will allow annual growth of
such imports to exceed market growth, and so
the exporting countries still will be able to
increase market share, but at a reduced rate.
The industry forecasts that, without the bill and
some structural changes in our import situation,
import growth will persist at a rapid rate. By
1990 this expansion would result in over 20
billion square yards, and by 1995 nearly 30
billion yards—virtually all the market in this
country. Thus, those foreign countries that
control the U.S. market also will control what
the consumer must pay for their products. The
"good buys" of the past will grow increasingly
rare.
Particularly vis-a-vis the developed countries,
the import problem stems from the overvalued
dollar. W e can compete w i t h these nations if
the dollar is where it ought to be; if it is 50 to 75
percent overvalued, we cannot. Americans
FEDERAL RESERVE BANK O F A T L A N T A




Chart 5. Regional Textile/Apparel/Fiber Employment
(thousands)

Source: Bureau of Labor Statistics, 1984 d a t a

would like to think that as the dollar returns to
more normal levels our nation could export
more and slow d o w n growth in imports overall.
Unfortunately, the textile industry does not
stand to benefit overwhelmingly from the dollars decline.
Foreign stocks of cotton from 1979 through
1983 remained fairly constant at about 20
million bales. In the last t w o years, stocks
almost doubled to 40 million bales, mostly
because of China. China, now a net exporter of
cotton, grows more than any other nation. Its
domestic market cannot consume such quantities, and so China is manufacturing textile and
apparel products for export, primarily to the
United States. Similarly, the synthetic fiber
industry has grown dramatically outside the
United States, which has become the chief
export market for synthetic textile and apparel
products. In light of this situation, the dollar's
return to more normal levels probably will not
be a panacea for the domestic textile and
apparel industry.
Industry officials believe Congress is trying
to address our problem. We do not like to think
we are protectionists—seemingly a dirty w o r d but realists. Our goal is fair trade, because w e
know free trade is nonexistent. Rather than
stopping imports, w e are attempting to slow
them down so our domestic textile and apparel
manufacturing will remain a viable and basic
industry.
19

i ~ «I
b&tlltsd
Cold Kist is a food-producing company that has
been in and around Atlanta for all of its 52 years.
We provide the production inputs, then purchase
and process the poultry, peanuts, soybeans, and
grain that result from those inputs. With annual
volume of more than $1.5 billion, we are the
major agribusiness of the Southeast, and one of
the nation's largest poultry producers.
In better times, about one-fifth of our total
volume was exported, including soy products,
peanuts, grain and poultry. Today, we could
almost haul our international volume to port in a
pickup truck—and a Nissan pickup, at that.
For background let me offer a brief profile of
agribusiness today. Our economy has become
far more dependent on manufacturing and service industries than on agriculture. There were
6.7 million farms 50 years ago, but fewerthan 2.4
million exist today. Farm employment has dropped
from 12 million to 2.5 million in that period, and
farmers account for less than 2.5 percent of
today's U.S. population.
Yet American agriculture is the world's largest
commercial industry, with assets exceeding $1
trillion. It employs 22 million people—one-fifth
of the national labor force—in farming, processing,
manufacturing, transportation, and retailing of
The author is president
chief operating officer, and member
the executive committee
at Cold Kist, Inc, in Atlanta.

20



of

food and fiber. This combined agricultural industry accounts for over S600 billion—or onefifth—of our gross national product.
The average farm worker provides food and
fiber for 79 people, compared with 55 in 1973,
just 31 in 1963, and only ten 50 years ago. With
less than 3/10 of one percent of the world's
farmers, we produce 64 percent of the world's
soybeans, 46 percent of the corn, 31 percent of
the sorghum, 25 percent of the poultry, and
about 20 percent of the wheat, eggs, and pork.
In the last 20 years, agricultural productivity
per hour has increased more than three times
faster than hourly industrial productivity. Today,
one hour of farm labor produces 1 6 times more
food and fiber than it did 60 years ago.
By these measures, agriculture has made quantum leaps in productivity and efficiency. Yet
today, agriculture is in a depression as severe as
the Great Depression of the 1930s. What went
wrong?
Until about five years ago, nearly one-third of
all U.S. agricultural production was exported.
That amounted to $44 billion in 1981. Export
markets eagerly absorbed our excess production
capacity, and commodity prices remained relatively high.
Then, a series of factors totally disrupted the
world agricultural economy. These included export embargoes by the United States in 1980,
JANUARY 1986, E C O N O M I C

REVIEW

and earlier, a run-up of 40 to 50 percent in the
value of the dollar against foreign currency,
worldwide recession, and wholesale subsidies of
agricultural exports by foreign competitors. These
factors combined to bring our agricultural exports
steadily down.
The value of exports this fiscal year will be $32
billion, a 27 percent decline from the 1980
record. Volume will be down 22 percent from
1980 to 129 million tons.
Despite scattered weather problems in Canada
and Europe, most agricultural production areas
around the globe enjoyed good weather during
1985. As a result, many countries that usually
import grain and soybeans have become sellers.
With the worldwide surplus of commodities this
has created, all major exporters are finding fewer
buyers. Further declines in agricultural exports
are expected in 1986 as world stocks of grain and
oilseeds continue to expand.
While increased foreign production has reduced
demand for U.S. farm products, world economic
conditions also have held down overseas domestic consumption and have hindered the
ability of many countries to import at all.
W e must realize that the United States is the
price leader in world markets. Our federal farm
price support programs are the ceiling prices for
world markets. Foreign producers simply price
their commodities under our loan rates to getthe
business, leaving the United States as the world's
grain warehouse.
Congress, of course, is currently writing the
next farm bill. Farm legislation normally covers
four years, although this year the House is discussing a five-year bill.
W h e n the last farm bill was written in 1981, the
main international concern was how production
would keep up with demand for farm products.
Between 1971 and 1981, world agricultural trade
rose 160 million metric tons, or 55 percent The
United States supplied over 100 million tons of
that growth, so U.S. market prices were above
support levels in all but t w o years.
Although demand has slid since then, price
support levels in the federal farm programs,
established in the boom years, continue to
stimulate production. The value of the dollar,
which hit a 12-year high last March, represented
a tax of 50 percent or more on American goods
sold to foreign buyers. And so our former customers looked to other countries for cheaper
prices, leaving U.S. commodities in warehouses.
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You can't blame them, since they could save
t h e 4 0 to 50 percent tax by shopping elsewhere.
Our government's decision in September to join
with West Germany, France, Britain, and Japan t o
intervene in exchange rates has yet to produce
sufficient results. But even if the dollar's value is
brought down further, the impact won't be felt

"Today we could almost
haul our international
volume to port in a pickup
truck—and a Nissan
pickup at t h a t "

Recent history has shown us two other approaches that contributed to the problem rather
than the solution. For one, the payment-in-kind
program in 1983 was a disaster of timing and
concept The PI K program gave little consideration
to the supply and processing industries, which
set the stage for bankruptcy for hundreds of U.S.
businesses that depend on farm markets.
Then, last June, Agriculture Secretary John
Block announced an export enhancement program intended to move surplus commodities to
foreign buyers. Instead, it irritated customers
w h o felt they should have been offered the
purchase incentives as a reward for current
business. They withheld orders in anticipation of
lower prices, which ultimately occurred. What's
worse, the intended beneficiaries waited us out
and gained lower prices either from us or from
another country that met our deals.
Is it worth these risks to increase agricultural
exports? The trade deficit situation provides one
answer. In 1981, we exported $26.5 billion more
in agricultural products than we imported, offsetting half of our $52 billion nonagricultural
trade deficit. As the nonagricultural deficit widened to $71 billion in 1983, S1 28 billion in 1984,
and $150 billion in 1985, the agricultural balance
of trade declined to $12 billion. Rapidly we are
losing ground in both categories.
21

Down on the farm, that means we have inventories today approaching those reached just
before the 1983 PI K program. Commodity prices
are at depression levels and no firming is in sight.
To poultry producers, that is good news. One
part of agriculture prospers only at the expense
of another. Low grain prices mean low feed
prices which allow poultry producers to post
excellent profits despite a decline in the retail
price of broiler meat. That is one of the few bright
spots on a cloudy horizon.
Where is agriculture headed? Some spokesmen are clamoring for high duties on imported
goods to shore up our domestic industry. They
argue that we must impose duties in the interest
of national defense and to keep the family farmer
on the farm. Others say we need free trade and a
level playing field,urging that political leaders let
economics take its course.
W h o is right? Neither is right and both are right.
About 300 trade bills have been introduced in
Congress, some of which would impose high
duties on everything coming into this country.
These carry significant domestic and international
risks. On the domestic side, high duties tend to
promote a laissez-faire attitude in protected industries. As long as a high tariff exists, industries
feel no pressure to make necessary improvements in operating efficiency. Inefficient operators will continue to be subsidized at consumers'
expense and we as a nation will fall further
behind the competition.
On the international side, we are warned by
the European Economic Community and other
exporting nations that high import duties will
promote trade retaliation. Are they serious or is
this just a paper tiger? Who knows for sure?
Those who favor trying to become more competitive in agricultural commodities with the rest
of the world overlook the fact that the European
Community, Argentina, Brazil, Australia, Canada,
and other competitors have used domestic and
export subsidies for many years to prop up farm
prices and to keep the peace down on the farm.
They are not going to change in the foreseeable
future, if ever. Political and economic pressure
will not let them.
What's more, only 13 percent of the world's
production of grain, oilseeds and rice—including
our own—is traded internationally. Eighty-seven
percent is consumed in the country where it was
grown. Moreover, three-fifths of what is traded is
covered by noncompetitive government-togovernment sale agreements.
22




Does it make sense for us to try to compete
with the lowest-priced grain in that 13 percent
segment of the world market? Let me answer a
question with a question: What good does it do
to become more competitive in the world market
if no one can survive on the low prices that would
result?
The fundamental question to be addressed, in
my opinion, is: What will happen five or 10 years
down the road if we let agriculture fall victim to
subsidized foreign competition? That same question applies to every industry you can name—
steel, textiles, vehicles, small appliances, shoes,
clothing, machine tools, telecommunications,
computer equipment, paper, pharmaceuticals,
and basic chemicals.
All are threatened by cheaper imports. As a
matter of fact, the Commerce Department says
70 percent of the goods produced in this country
face serious competition from imported goods.
Agriculture is no isolated example.
Do we really want some of those 300 protectionists bills in Congress to find their way into
law? Once again, the answer is yes and no.

"It is essential to our
industrial future. . . that
business and government
hammer out a trade and
economic policy to guide
us out of the mess we are
in and keep us from ever
getting back into it."

It is one thing to run a competitive race when
everybody starts from the same line. It is quite
another when one competitor is starting a mile
behind the line. When we happen to be that
competitor, it is discouraging, to say the least.
It would be nice if all countries had the same
commitment to free enterprise and open trade
that we say we do. But they don'L Some societies
are closed, economically and every other way.
Others are modestly open but tightly regulated.
Others pour forth a great deal of free trade and
JANUARY 1986, E C O N O M I C

REVIEW

open trade rhetoric, which only serves to mask
their real trade policy. And some of those w h o
engage in such rhetoric don't have a trade policy
at all, which can be said of the United States.
In the real world, trade practices that are unfair
in the eyes of the the competitor exist in the
United States and everywhere else. There are
protected markets, hidden trade barriers, subsidized industries, targeted industries, long-range
government plans, short-term responses to imbalances. All of these and more are woven thoroughly into the political and economic makeup
of each country. They have been there for a long
time; they are neither self-correcting nor do they
respond to short-term solutions.
The mood in Washington clearly favors protectionism. Some protectionist legislation probably will find its way to President Reagan's desk. I
hope it will be adopted by Congress only after
full examination of both sides of the issue—
especially its long range effects and reactions
abroad and at home to its application. Further, I
am hopeful that this will at least point the way
toward a trade policy that puts business and
government on the same track, headed in the
same direction, for the first time in our history.
Any protectionist measures we adopt should be
limited in duration, if not in scope. Temporary
legislation has a way of becoming permanent.
W e must be careful to seek short-term solutions
that will help some of our basic industries survive.
But we must stave off massive and unrestrainted
protectionism, which will create a false sense of
security for protected industries.
Parallel to the short-term solutions, it is essential to our industrial future—agricultural and
otherwise—that business and government hammer out a trade and economic policy to guide us
out of the mess w e are in and keep us from ever
getting back into it.
The United States cannot do this alone. Yet w e
remain the largest exporting nation in the world;
we are the most efficient producer of food; we
still lead high-tech development, and w e boast
the largest single market for consumer and industrial goods. W e are also the richest in terms of
land, willing labor, and capital.
With these strengths there is no reason we
cannot use our clout to solve domestic and
international trade problems with pragmatic and
fair actions.
Five years ago, economists around the world
blamed us for failing to control inflation. Now it's
down to 3 percent. W e were blamed for letting
interest rates get out of hand. W h e n was the last
FEDERAL RESERVE BANK O F A T L A N T A




time you saw a headline about the prime rate?
Ifs below 10 percent and out of the news.
Despite what others thought, we have handled
inflation and interest rates. W e can do the same
thing with trade problems, but the time to start is
right now. W e must set our national priorities and
then stick by them. That does not guarantee that
everyone in every business in every industry will
make it. Those w h o adapt by focusing on the
future will make it. The rest will not.
It is unrealistic for us to think w e can look to
Uncle Sam to bail out every venture that falls on
hard times. W e are talkingabout playing hardball
in the real world, where the strongest survive. It is
time for some really tough decisions on our
future agricultural and industrial strength.
American agriculture is not afraid to compete.
When American agriculture is able to compete
on an equal basis, it will get its fair market share.
But w e can't export when domestic markets of
some nations are closed, or when governments
subsidize their farmers so they can d u m p goods
in other markets. To compete w e all have to play
by the same rules.
Those of us in agriculture and every other
threatened industry must deliver a message to
policymakers, then repeat it every time they
show signs of weakening their resolve to hold to
our national priorities.
Above all, w e must get the dollar in line with
world currencies. Without question, U.S. farmers
are the most efficient in the world and give us
comparative advantage in most commodities.
But the dollar differential takes them out of the
market.
W e need not fear that a decline in the dollar
will unleash inflation again. The United States
imports only a small portion of total products
consumed, and only about half of those are
valued in dollars. Instead, we must look to the
positive effect a declining dollar can h a v e reducing the restraint on U.S. producers.
Finally, when other governments assist their
exporters in ways that violate international law,
we must retaliate and do so quickly.
In other words, w e recognize that there is no
such thingas free trade. But give us a level playing
field and back us up with a real trade policy that
will help us keep the field level, and American
agriculture will regain its lost m o m e n t u m in short
order. In terms of the Southeast, you cannot
isolate one region of agriculture from another. As
we solve our national agricultural policy problems,
the Southeast will receive its proportionate share
of the benefits.
23

Corporate Export Policies
Provide the Competitive Edge

The problems of our industry are fairly well
represented by two trade associations, the American Electronics Association and the Electronics
Industries Association. The issues addressed at
th is conference were well discussed when I was
chairman of the EIA and continue to be discussed
in that trade association.
I would not suggest that high-tech industries
have no problems with balance of trade, for we
have serious problems. But I want to discuss
instead the opportunities and some of the techniques, attitudes, and directions needed to export successfully.
Scientific-Atlanta was founded many years ago
by six Georgia Tech professors, each of w h o m
put $100 into the company. They convinced one
of their students, Glenn Robinson, a physicist, to
join them, and he also contributed $ 100.1 joined
the company 14 years ago as president
From its modest beginning with a single parttime employee, we have grown into a company
traded on the New York Stock Exchange, with
The author is chairman
of the
officer of Scientific-Atlanta,
Inc

24




board

and

chief

executive

revenues in excess of $400 million a year. We
have about 4,500 employees, of w h o m approximately 3,500 work in Atlanta W e specialize in
three basic electronics businesses: communications equipment, test and measurement instruments, and government equipment.
W e have been in the export business almost
from the beginning. When a company is small, it
usually uses an export company out of New York,
San Francisco, or Los Angeles that handles all of
the exports and documentation. As a company
grows, it develops its own international or export
department, complete with international sales
managers and support personnel. Today we are a
company with seven wholly owned sales and
service subsidiaries in England, France, Germany,
Italy, Holland, Canada, and most recentlyAustralia, along with a joint venture sales and service
company in Mexico.
Every one of our divisions has an export
manager, who has a quota by country and by
product. He is intimately familiar with Commerce Department, State Department, and D e
fense Department export regulations. Because
the technology of our products is not always
JANUARY 1986, E C O N O M I C

REVIEW

released for export to other countries we must
watch carefully for changes in export regulations.
In our company, senior officers are involved in
export decisions. I firmly believe one of the keys
for our country's balance of payments is to gain
an understanding of the importance of trade—
includingtrading, marketing, and bookingorders
abroad—at the highest level: the presidential
level. In today's particular environment, economics and trade must be among the highest
priorities of any presidential mission abroad.
Certainly that's the case for our company in
England, France, Germany, Italy, and South
America

"One of the keys for
our country's balance of
payments is to gain an
understanding of the
importance of t r a d e including trading,
marketing, and booking
orders abroad—at the
highest level: the
presidential level."
W e have had a policy in our company that key
contracts generally require high-level participation, including participation by the chief executive
officer. I travel abroad at least five or six times a
year. W h e n I worked at the Raytheon Company,
I lived abroad for six years. With that background,
let me discuss some of the attitudes and techniques I am convinced you have to develop if
you really want to get serious about export
Ironically, I think the least important aspect of
developing an export program and export policy
in your company is language. You really do not
have to speak a foreign language, though it goes
over well if you can. The most important thing is
to be able to understand generally how people
communicate. You must have a great deal of
respect for communication and it has to be a
religion with you. For instance, if you receive a
Telex message, acknowledge promptly that you
got it. Tell the person when you are going to
answerthat message, then answer when you said
FEDERAL RESERVE BANK O F A T L A N T A




you were going to do it. One of the most serious
problems in the export business is the fact that
people don't answer Telexes or do other little
things like that, believe it or not.
You also have to know your business. What
people abroad are most impressed w i t h is not
your language or your social skills, but how well
you know your p r o d u c t H o w well you talk about
the features and value of your product will
convince them to buy a product manufactured
thousands of miles away, compared w i t h similar
products manufactured in their own country.
W e have found the third most important thing
in export is trust. You must build up trust with
your agent, your o w n subsidiary, and particularly,
your o w n foreign customer. In our company, we
spend a lot of time on this; we talk about it a lot,
we travel a lot, and w e try to meet frequently w i t h
our overseas contacts.
We do about $55 million a year in total
business outside the United States. W e would
like to increase that All of our products are
designed for global markets. Unless w e understand that there is a single global market, we're
going to get beaten because most of our products
are fairly standardized.
Of course, we encounter some differences in
telecommunications standards between what is
called CCITT, or the International Telecommunications Union, and the standards originally and
basically set up by AT&T in America. W e are
finding, however, that they are converging more
and more, and so all products have to be designed
for volume global markets.
Our single biggest competitor is not America's
Hewlett-Packard, or General Instrument, or M / A
C O M , or Harris. They are serious competitors,
but our single biggest competitor worldwide is
Nippon Electric Corporation, now known as
N EC. Rarely can we submit a bid for a contract in
any country in the world, including the United
States, where NEC is not a serious competitor,
and so, w e have to understand their markets. W e
have to understand what they are doing in
various countries so that w e can secure enough
intelligence to analyze their pricing structure,
marketing structure, and targeting structure if w e
want to succeed in the world.
W e think the electronic industry is an extraordinarily important industry in the United States
that can represent the future for jobs. I'm not
saying we can absorb 200,000 automobile workers, 200,000 textile workers, or 200,000 farmers—
we cannot do t h a t That is a myth.
25

Years ago we thought that high technology was
going to solve all of those problems. Yet there
just aren't enough high-tech jobs there, because
if w e are going to compete in the world market,
we need efficient factories. That means building
new factories that are highly efficient with equally
efficient engineering and marketing departments.
In this case, efficiency may translate into not
labor intensive, and that limits the number of
new jobs.

" W e must. . . ensure
that our government's
policies reflect the
realities of the world
marketplace and that
those policies support
companies like ours that
are trying to reduce the
country's trade
imbalance."
On the other hand, opportunities exist. We are
working on the factory of the future. W e are
working on new telecommunication systems.
And if you study where the jobs have come from
in the last 10 or 1 5 years, you will find them
coming from small- and medium-sized companies like ours was when we started. We have
added 3,000 jobs in Atlanta over the last 10 or 12
years.
But we're serious about exporting and we are
willing to commit our financial and human resources to i t We want to help balance this trade.
Of course we run into problems around the
world. I just came back from one of my trips

26




abroad, a 13-day trip around the world. It took
me from Atlanta to New York, Tel Aviv, Jerusalem,
London, and to Hong Kong via Bombay, where I
joined a group from Atlanta for a telecommunications conference in Beijing.
It took us a whole day to get from Hong Kong
to Beijing, part of it a two-mile walk up to the
Fragrant Hills Hotel, where w e met a large group
assembled there. Together w e probably spent
well over $1 million to help penetrate the telecommunications market in the People's Republic
of China Yet consider the impact of proposed
legislation in this country to restrict apparel and
textile imports from China as well as other
sources such as Hong Kong, Taiwan, and Japan.
Now, China represents a large market for satellite
communications equipment, and we don't have
a balance of trade problem with them. And they
don't want to buy electronic equipment from
Japan, they want to buy from us. But they tell us
clearly, don't upset our balance of payments, w e
don't have the dollars. I have some clippings on
the subject that suggest why I am concerned.
One proclaims,"China Issues Warningon Jenkins
Bill." That's from the China Daily, Thursday,
October 31. A Fortune Magazine
headline of
September 30, 1984 warned, "China Threatens
to Shut the Trade Door." And here is an article
announcing, "Senate Approves Bill to Cut Textile
Imports."
There are some emerging markets for the
United States that want to work on a level playing
field with us. They are saying, w e want free trade,
we want fair trade. W e have to find a way to be
responsive to the needs of both parties to ensure
a smooth trade flow. W e at Scientific-Atlanta are
interested in exporting our products to all areas
of the world. W e believe that we understand
how to sell to world markets. W e must now work
to ensure that our government's policies reflect
the realities of the world marketplace and that
those policies support companies like ours that
are trying to reduce the country's trade imbalance

JANUARY 1986, E C O N O M I C

REVIEW

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27

Developing Foreign Markets
For Southeastern Services
Edward S. Reed

tifo

t

v

«I

A Sunbelt manufacturer, producer, or consumer
can have the best of all worlds—relative to the
transportation links available to this earth's
many markets.
Shippers have access to East Coast linkage
via at least two of the nation's most aggressively
growing South Atlantic seaports. These ports
serve not only such obvious destinations as the
Mediterranean and Africa but, with new roundthe-world ocean container services through
the Panama Canal, they serve the Far East as
well.
Alternatively—and regrettably for southeastern ports—"minibridge" consolidated rail/ocean

The author is retired
of the Port of New

executive
Orleans.

28




director

and general

manager

services also are available at competitive rates
that link West Coast ports to rapidly growing
Pacific Rim markets.
Bargeable cargoes hold an especially favored
position out of the ports of New Orleans and
Mobile, with a highly competitive inland water
rate structure.
In 1984, port activities in the main through
the Southeast showed a healthy gain over
1983. Growth was measured in the 20 to 25
percent range, and was especially strong in
container cargoes and, in the case of my Port of
New Orleans, in imported steel. However,
1985 showed a marked leveling off in certain of
those areas.
For those of us in the Gulf, general cargo not
based on local production or consumption is
being diverted in a growing volume to South
JANUARY 1986, E C O N O M I C

REVIEW

Atlantic coastal ports. That is a result of rail and
truck decontrol, aggressive east-west railroads,
and competitive rates across the Atlantic
The major anomalies in this, at least as far as
the Port of New Orleans is concerned, are the
Soviet Union and People's Republic of China
markets. W e hold and continue to increase our
market share of the U.S. trade with these two
Communist nations. We're handling approximately 47 percent of all U.S.-Soviet trade and a
similar market share of China trade.

"The threat of
protectionism also
haunts us in the port
business. It is a trend
that, if not country
selective, could kill
potential markets."

This is persuasive evidence that, at least with
certain markets, personal selling and the nurturing of close working relationships can overcome adverse physical location, and, to a degree,
price non-competitiveness as well.
Deregulation and three bleak years of international trade have produced dramatic market
relocations and radically changed distribution
patterns, changes still in progress. Emergence
of the Pacific Rim nations as strong contestants
in future international trade is providing a boon
to the United States' large, well-managed Pacific
Coast ports, especially the Los Angeles/Long
Beach areas. This, coupled with a flat European
economy, means that in the Southeast we must
work harder and be more innovative if w e are
to maintain our market share of U.S.-international trade in the long run.
Factors both good and bad in the marketplace
can greatly affect the future of ocean trade via
the ports of the Southeast. One of the most
important is the recent emergence of nonunion or Teamster competition t o the International Longshoremen's Association's historic
lock on the Atlantic and Culf. W i t h the ILA's
FEDERAL RESERVE BANK O F A T L A N T A




present contract expiring next October 1, we
may be in for fireworks—and, hopefully, major
reductions in port labor costs, the largest cost
factor at any port. At present an I LA longshore
man contractually receives $17 an hour plus
approximately $19 in insurance and fringe
costs, with a "normal" gang size of 18 men.
However, in competitive situations we are now
seeing $9 an hour and 9 men, a factor well
worth watching.
If the United States is to stay in the world
ballgame with grain and coal, certain of its ports
must be deepened from the present 40 to 42
feet to 50 to 55 feet and it must be accomplished
soon. Three to five ports on the Atlantic and
Gulf warrant deepening in the national interest
But with government budget cuts, cries of pork
barrel politics, and normal abnormalities of the
Congress, w h o knows when or even if they will
be deepened.
The threat of protectionism also haunts us in
the port business. It is a trend that, if not
country selective, could kill potential markets.
The "natural" markets for the S o u t h e a s t Central and South America and Africa—apparently offer great potential. Central and South
America are receiving at least some recognition
from Washington, but how real are these areas
as major long-range growth markets? That depénete on their stability, both fiscal and political,
and history does not give me cause for great
optimism. Yet this part of the world is so
important that it does deserve attention and
concern from all of us, not only from an economic perspective, but also from the standpoint
of national security.
In summary, the Southeast—from the ocean
transport standpoint—can boast of extremely
good management aggressiveness and advanced
technical knov^how. The location of the Atlantic
portion of the Southeast is opportune for trade
with historically good markets, especially Europe
and the Mediterranean.
However, w e must be cognizant of the rapid
emergence of the Pacific Rim nations and
continued instability in Africa and South America. These pose major problems when considering long-range growth potential. The great
flexibility in this nation's transportation system
and the extreme competitiveness of combined
rail/ocean transport compared with all-water
cargo routings continue to offer great opportunities for all portions of our consuming and
manufacturing economies.

29

Florida's International Visitors:
Profiling a Warm Welcome
Barry E. Pitegoff

t

^ «I

¿nit*

Tourism is perhaps one of the greatest exports
the Southeast sends out from America to the
rest of the world. It truly is an export, because
fresh dollars enter our economy in exchange
for the experience of travel.
It is the eye-opening adventure of being in a
different culture, the eager anticipation of the
journey with its intensive planning process,
and then reliving the experience through thé
photographic memory. It is an investment primarily in the service sector of our economy,
with foreign visitors exchanging dollars for
airplane trips, car rentals, sightseeing tours,
hotel rooms, restaurant meals, and theme park
admissions. And it is big business with strong
growth potential for the Southeast.
In 1984, an estimated 20 million foreign
visitors including 11 million Canadians came to
the United States. Slightly more than four
million landed in the Southeast on direct flights,
mostly in Florida If we estimate that 10 percent
of Florida's foreign visitors clear their U.S. entry
The author is tourism
Division of Tourism.

research

administrator

of the

Florida

outside of Florida, we may be looking at about
3.7 million foreign visitors hosted annually in
the Sunshine State alone. Of these, about 1.5
million are from Canada and the balance from
the rest of the globe, largely originating in the
United Kingdom, Germany, Brazil, Colombia,
Venezuela, and the Caribbean.
This is great business for our region. A study
we conducted in 1982 showed foreign visitors
spending an average of $1,830 per traveling
party each trip. This is twice what we estimate
for travelers from domestic origin markets,
partly because foreign visitors are less likely to
stay with friends and relatives while here. For
them, this journey often represents the "trip of
a lifetime" or the attainment of another step up
a social or travel ladder.
If we string together some of these assumptions, we could be looking at around $3.5
billion brought into the southeastern economy
at present by foreign visitors. That figure multiplies itself as it moves through the economy. It
bolsters the private sector through service
consumed and the public sector through taxable sales. Equally important is its strong growth

30




J A N U A R Y1986, E C O N O M I C

REVIEW

potential as the entire Southeast starts to pursue
the foreign markets Florida has enjoyed.
International travel to the United States as a
whole showed a slight increase in 1984 compared to arrivals for 1983, the first year since
1981 a potential upturn in this market occurred.
The first four months of 1985 are on a par with
1984, so the good news continues.
However, Florida and the Southeast have
experienced a slight loss during this past year.
This may be the result of two conditions. First,
the fluctuating value of the dollar has forced
"marginal" international travelers to delay vacation trips until some stabilization is perceived.
Second, international travelers unaffected by
the dollar have visited Florida already, and are
continuing with their checklist of U.S. destinations. If the dollar remains at a relatively stable
exchange rate, allowing international travelers
to become accustomed to this rate, both Florida
and the Southeast should benefit from the
return of marginal travelers.
For the past five years, I have directed the
Marketing Research operations at the Florida
Division of Tourism. One major task of my staff
has been to study the motivations of foreign
travelers in order to promote our attractions
more effectively. I would like to share some of
these insights.
Canadians are important foreign visitors to
Florida. About 1.5 million Canadians vacation
in Florida each year, making Florida their number one destination. On the average, Canadians
stay in Florida 18 nights, about four times the
average stay of all visitors to Las Vegas.
While Canadians exhibit some of the basic
motivations to visit Florida, they also bring a
global perspective. To escape the winter, they
will consider a stay in Spain, Israel, Morocco,
and even Cuba About 5 percent of the Canadian travel to winter sun destinations has been
going to Cuba for the past few years.
Canadians enjoy Florida's easy accessibility
and amenities—nonstop air service at discounted fares, news coverage of Canadian events,
French-Canadian communities, bargains in air
conditioned rental cars, and baseball spring
training camps of the Toronto Blue Jays in
Dunedin near Tampa and the Montreal Expos
in West Palm Beach.
Beyond Canada, Florida hosts about two
million international visitors each year. In 1982,
we spent six months surveying 1,200 foreign
FEDERAL RESERVE BANK O F A T L A N T A




visitors at Miami International Airport to understand these people. We intercepted visitors
from 58 countries, who came to Florida mostly
for a vacation both with and without a visit to
friends and relatives. These visitors enjoyed
our attractions: the sun, the beaches, and the
shopping opportunities.
One of our most interesting studies is one we
just completed among potential visitors in
three European markets—the United Kingdom,
West Germany, and the Netherlands. Let me
share some insights from that project

"The outlook is
bright (for southeastern
tourism), with a potential
for new foreign travelers
from emerging markets
like western Canada,
Vancouver and Winnipeg,
and from Asia."

Vacation Entitlements. The typical European
receives, or rather is entitled to, considerably
more vacation time than an American worker.
This is often a statutory minimum holiday
entitlement. For about half the employees in
the United Kingdom, this is from four to five
weeks.
Planning Process. The travel agent is important in the planning process for the European
consumer, sought out for both brochures and
advice. The tour operator is an important source
for the travel agent. Destinations listed in tour
operator brochures will be considered by both
the travel agent and the consumer before
independent holidays are developed.
What Attracts Them to Florida. For many firsttime travelers to America, we are stereotypes
brought to life. This is no different from our
going to France to see the Eiffel Tower. Travel
to America means hamburgers, fast food, milkshakes, deluxe hotel accommodations, meeting Americans, and shopping at night—a novelty
in Europe, where most stores close at 5 p.m.
31

An Improving Outlook
The outlook is bright, with a potential for new
foreign travelers from emerging markets like
western Canada, Vancouver and Winnipeg,
and from Asia In a strong partnership with the
Travel South organization, we help to promote
tourism to our entire region. Tourism is an
export you should be developing throughout
the Southeast.
How do you get involved in this growth
opportunity? First, establish the basic services
expected and appreciated by foreign vacationers. Here are four elements critical to this
foundation:
1. For the foreign countries from which you
expect to host visitors, be sure a broad range
of your banks and hotels can convert the
appropriate foreign currencies easily. Make
sure this service is available in both your
cities and for your tours, since travelers
enjoy exploring. Publicize this service, and
its cost, possibly even before visitors leave
their home country.
2. Be aware of the changing buying power of
foreign currencies. For example, when the
Canadian dollar slipped in value here, many
tourism facilities responded with a "Canadian dollar at par" program.
3. Develop a foreign language resource inventory bank Your major hotels and restaurants
should be able to communicate with the
majority of your foreign visitors and should
know where to get additional language fluency. Your service providers should be aware
that many foreign visitors look forward to
their trip to America as an opportunity to
practice their English. Be accepting and helpful. Also be aware of possible misunderstandings based on translation problems.
4. Develop cross-cultural training programs.
Although foreign visitors want an "American
experience," be sensitive to the cultural
nuances they wish t o preserve. For example,
restaurants may need to increase their supply of individual teapots for British or Canadian visitors.
Next, work on a long-range marketing strategy, considering some of these points:
• Understand the travel patterns of your
potential foreign visitors. Where have they
vacationed in the past?
• Understand the stereotype of your destination. New Orleans is jazz and beignets,
32




Nashville is country and western music, and
Orlando is Disney World. Use these images
as part of your foundation. But also use the
fact that this is America, no matter where it
is.
• Improve access to your region. The process
of securing more direct foreign flights is a
cumbersome one but, w i t h appropriate lobbying, a case can be made for opening more
U.S. ports of entry to more and more countries.
Direct access to a region is probably the
easiest way of improving your international
tourism markets.
• Share the travel experience. A first-time
visitor has a "must see" check list that
includes major cities like New York Miami,
Chicago, Dallas, and Los Angeles. You might
do well to promote your city or areas as part
of the U.S. trip experience. Do not expect
the international visitor to visit only one
destination and that it will be yours.
• Remember that many foreign guests will
be first-time visitors requiring basic tourism
information. Many international visitors have
excellent inner-city and inter-city transit systems. They may expect the same in your city
and be disillusioned if it's not available.
• Finally, and perhaps most important, spread
the message t o your own residents to extend
a warm welcome to foreign visitors and to all
visitors. Tourists remember their travel experiences largely in terms of people they meet.
If they feel welcome, they will consider
returning and, more importantly, recommending the destination. Word of mouth is
the most powerful force in destination selection.
Your residents may ask, " W h a t s in it for me?"
The answers are simple: the development of a
non-polluting industry with j o b opportunities,
many at the entrance level with room for
advancement; a source of tax revenue; more
services such as discount car rentals and better
restaurants that residents can enjoy; easier
access to foreign lands; and a way to help bring
about a better understanding among different
people.
Tourism provides a great way for foreign
markets to consume services from the Southeast W e Floridians hope others will work with
us to develop foreign visitation to the region. In
the end, we will all benefit.

JANUARY 1986, E C O N O M I C

REVIEW

Strategies to Capture
International Banking Business
Alexander McW. Wolfe, Jr.

W ~ «I
We believe there are challenging and profitable
opportunities for international banking in the
Southeast, whose international sector has grown
significantly over the last 10 years. The boom
puts the region at the forefront of the international economy and attracts significant numbers of
foreign investors seeking strategic locations for
their businesses in the growing U.S. market. This,
in turn, has created financing opportunities for
our regional banks.
Looking ahead, we see further expansion in
the Southeast's international sector and in the
role of regional banks in financing this growth.
Although the growth rate of these activities or the
type of business may differ from the past, many
profit-making opportunities await banks in this
changing environment. With profits, however,
there are also risks. Recent financial difficulties
faced by developing countries in their balance of
payments is an important element of risk. Our
decision on what type of international businesses
to undertake will thus depend on their vulnerability to these risk factors, as well as on the domestic
client base we serve as a major regional bank.

The author
in Miami,

is vice chairman
Florida.

of Southeast

Banking

Corporation

The Southeast Economy
International trade and investment have been
the driving force behind structural changes in the
southeastern economy. Today this process is
accelerating, as foreign direct investment bolsters
employment growth and diversifies the region's
manufacturing base. The influx of foreign capital
has brought with it new technology and management. Our statistics show that foreign direct
investment in southern factories and other businesses totaled about $80 billion in 1984, fully 42
percent of all such foreign investment in the
United States. These investors include many
affiliates of the largest non-U.S. multinational
corporations. The region attracts foreign investment because of its abundant natural resources
and labor, as well as its large multicultural e n t r e
preneurial class in major cities such as Miami,
Tampa, and New Orleans.
The Southeast's share of total U.S. foreign
trade also has expanded as a result of the region's
competitive advantage in international activities.
We attribute this advantage to the area's geographic proximity to major world markets and to
excellent port facilities. In 1984, for example, the
South exported about 30 percent of total American manufactured product exports. The export

FEDERAL RESERVE B A N K O F A T L A N T A




33

of services also has been a traditional strength of
the region, notably tourism and financial services.
The latter is evident in Miami and Atlanta, already
important international banking centers.
The export sector as a whole employed about
1.4 million southern residents last year. Based on
this performance, we can say the region has
attained the leading edge in the national economy's transformation toward global interdependence. Banks in the region have an important
and legitimate role to play in financing the
growth of the Southeast's external sector, especially in financing the growing links between the
southeastern economy and Latin America—our
neighbors to the South.

Latin America: A Key International Partner
In tracing international developments in the
Southeast, we must note the importance of trade
with Latin America. Florida, in particular, has a
niche in exporting to our neighbors. During the
first half of 1985, 70 percent of Florida's exports
went to Central and South America The Sunshine
State's Latin American trade grew rapidly during
the 1970s when these economies prospered
from the boom in commodity prices. This changed
abruptly in 1982 with the outbreak of the debt
crisis. Austerity programs adopted throughout
Latin America plunged many economies into
severe recession, resulting in a dramatic cutback
in their purchases from this country—noticeably
in Florida and the Southeast.
The social stability of our neighbors to the
south depends on improved economic growth
so they can absorb a rapidly growing labor force.
Traditionally, external financing or savings spurred
growth in these economies because they were
unable to generate sufficient domestic savings.
However, the lack of good economic policy
management resulted in a misallocation of those
financial resources. Today the external debt of a
number of these economies is more than half of
their gross domestic product and more than
three times as large as their export earnings. Their
ability to deal with the debt burden will depend
on their export growth and on additional external
resources to finance investments in competitive
industries. As an important trading partner, the
Southeast can benefit from growth and political
stability in Latin America. This in turn hinges on
improved policy coordination among major industrial countries to sustain a steady rate of
economic growth.
34




The debt crisis' impact on the southeastern
economy is an example of the risks associated
with growth of the international sector. The debt
crisis also highlights the unique risks involved in
international lending, transfer, and political uncertainty. Despite present debt-servicing problems, trade relations between the Southeast and
Latin America have had a net positive effect on
both economies. In taking the long view, we
appreciate the great economic potential of the
Latin American economies and their ability to
find solutions to today's balance of payments

"There are significant
and profitable opportunities in international
banking, as well as
significant risks, for
regional banks."

Opportunities for Regional Banks
Our assessment, then, suggests that there are
significant and profitable opportunities in international banking, as well as significant risks, for
regional banks. The changing international financial marketplace is telling us a" rifle" approach to
international banking could yield profitable results at a regional bank.
The rifle approach to meeting the challenges
and opportunities of international banking concentrates its efforts on two major strategies: the
"back to basics" strategy and the "merchant
banking" strategy.
The Back to Basics Strategy. This strategy is
nothing new. In many respects, it is a return to
the old "foreign department" support mechanism
(collections and letters of credit business, for
example). However, there are significant differences. In the newer version, products and skills
are more sophisticated. They run the gamut from
trade financing products for local exporters and
importers to an active foreign exchange department, and finally to an entrepreneurial oriented
staff that continually seeks new ways of servicing the international requirements of local clients
JANUARY 1986, E C O N O M I C

REVIEW

(barter activities and trade exposure mitigation
products are good examples).
Another development in the newer back to
basics approach is the orientation towards domestic client service. Emphasis shifts from the
international department's being an autonomous
profit center to providing support for domestic
corporate banking. In essence, the international
department becomes a service function to meet
international requirements of the domestic client
base.
To be successful, this approach requires strong
knowledge of the companies and the community
in which the bank functions. It also requires an
adequate research capability to assess trade
financing opportunities on an ongoing basis, and
to advise domestic clients on overseas market
trends and currency developments.
The Merchant Banking Strategy. Considerable
opportunities exist for regional banks to finance
the flow of foreign investments into the Southeast
and to increase fee income through syndications
and private placements. There are also excellent
opportunities for financing small, export-oriented
projects with some of our major trading partners.
Latin America, for example, has embarked on a
structural adjustment program to increase the
export share of gross national product
Emphasis on export-oriented project financing, therefore, is the second leg in the rifle

approach to an international banking strategy.
This requires a staff of skilled corporate lenders
with an innovative approach to financing viable
projects in countries with transfer risk problems.
Structuring successful financing packages for
these projects is different from financing the
state-sponsored "mega" projects of the past,
where the key issue was country risk. This innovative strategy requires a new breed of lenders
conversant with such techniques as feasibility
analysis, currency swaps, and transfer risk mitigation products. Also required is a shift in focus of
the economic research function from country
studies to sectoral analysis in support of the
credit approval process.
Finally, successful international banking r e
quires bankers committed to linking the sellers
of the new export products with U.S. buyers. In
essence, it requires development of a merchant
banking culture among international lenders.
In summary, the distinguishing feature of our
international banking strategy is the extent of
focus, selectivity, and entrepreneurship required
from bankers. The rifle approach can both service
the legitimate international needs of domestic
clients and provide an additional source of profits
for a regional bank within acceptable risk parameters.

FEDERAL RESERVE B A N K O F A T L A N T A




35

The Foreign Bank Presence
In the Southeast
Brookes Mclntyre

v

«I
V
aSltfe
The Southeast market's attractions have not
gone unnoticed by foreign banking institutions;
in particular, New Orleans, Atlanta, Tampa, and
Miami have become bases in this region.
Th is is not a homogeneous group, however.
Institutions differ in language, experience, and
objectives. Regulations of the home country
may have defined the foreign bank's focus at
home and its interests abroad. Size, too, is a
factor. Foreign banks with a presence in Florida
range from the huge Hong Kong and Shanghai
Bank, the parent of Marine Midland and its
Miami Edge Act, to smaller Latin American
banks whose capital base in U.S. dollars is at
best modest by standards here.
Foreign banks can be represented in this
market in basically three ways. They can establish an Edge Act corporation limited to carrying
out international transactions. The original Edge
Act legislation of the 1920s was designed to
permit U.S. banks to cross state lines in pursuit
of purely international business. Part of the
rationale was that American banks were hampered in doing international business by the
The author is a foreign bank consultant,
formerly
a vice
president
with the Miami Agency of Banco de Santander, a
spanish financial
institution.

laws limiting expansion of banks geographically, and could not compete for this business as
effectively as many foreign banks. The International Banking Act of 1978, in seeking parity in
the treatment of foreign banks and U.S. banks
operating in this country, extended this option
to foreign organizations.
The Edge, a corporation with its own capital,
can accept deposits from non-residents but
can accept domestic deposits only if they are
tied to international transactions of companies
or individuals. Its lending activities are limited
to credits abroad or to supporting international
trade.
Depending upon state laws governing foreign
bank operations, opportunities exist for establishing state-chartered agencies or representative offices. The agency, too, is restricted to
accepting only foreign deposits, but it has the
interesting option of doing domestic lending.
Banks also have the option of chartering a
federal agency. In the Southeast, though, few
banks have taken advantage of it, particularly
since changes in the laws stripped federal
agencies of their power to accept foreign deposits.
The foreign representative office can neither
take deposits nor make loans, but promotes its

36




JANUARY 1986, E C O N O M I C

REVIEW

parent abroad or other offices of the parent in
the United States. Florida, Georgia, and Louisiana have foreign bank agencies and representative offices.
Finally, the foreign bank has the option of
purchasing a domestic bank and entering headlong into competition in the domestic as well
as international arena.
Florida leads the Southeast in the number of
Edge, agency, and foreign-owned domestic bank
operations. Miami, dubbed the "Capital of
Latin America" by the President of Ecuador in a
1979 speech, is the focus of this activity, but
Tampa and Boca Raton also boast foreign bank
offices.
Miami is a traditional entrepot city connecting North America with Latin America and the
Caribbean. Air and sea transportation and communications networks link the areas. The multicultural, multilingual population has facilitated
the growth of this infrastructure. The city's
problems are many, but its entrepreneurial
vitality is a major strength.
Miami offers the Latins an opportunity to do
business in a major center of U.S. tourism with
a large proportion of Spanish-speaking people,
both anglo and hispanic. This has proven to be
an obvious lure for those seeking a place first to
vacation and to safeguard some of their assets,
and increasingly as a place to invest actively.
Not surprisingly, 17 of the 36 foreign banks
operating agencies in Florida come from countries that speak Spanish or Portuguese. The
language affinity and ties with Latin America
encouraged six Spanish banks to open agencies
while Spanish interests control at least four
domestic banks.
Why have the foreign banks come? That
often depends on where they come from. For
banks from countries with a weak domestic
currency, the United States offers an opportunity to develop a dollar base. A bank whose asset
value is constantly being eroded in the world
market finds the dollar base and dollar earnings
very important.
Latin American banks and banks from Europe
and Asia with important operations in that area
needed a base from which to continue serving
the Latin American client seeking a safe harbor
for his assets in the face of political and economic uncertainties at home. Since many of
those clients were also actively involved in
trading activities between their home country
and the United States, trade financing became

an interesting adjunct to the deposit business.
The foreign banks simply followed their customers.
And the customers were going principally to
Miami. Some banks decided that Miami's welldeveloped communications and transportation
networks made contact with head office and
other branches so easy that they set up regional
offices to respond more quickly and effectively
to the market to the south.
Recognizing the implications of ever more
interdependent economies and markets, Latin
bankers found in Miami a natural client base
for deposits and for trade business that could
sustain the operation while they looked at the
U.S. domestic market's potential. The American-based operation added to the bank's prestige with customers in the home country and
was less expensive to maintain in the Southeast
than a similar office in New York, Chicago, or
Los Angeles.

"Latin bankers found
in Miami a natural client
base for deposits and for
trade business that could
sustain the operation
while they looked at the
U.S. domestic market 5 s
potential."

The operation encouraged close correspondent relations with the major U.S. banks that
also were using Miami as a true or quasiregional office and lending to corporations,
banks and governments to the south. Since the
interbank market for most banks in the region
is now governed by rescheduling agreements
rather than independent bank decisions, the
opportunity to keep those relationships warm
may be important in the future when international banks begin to consider new lending
again.
Other banks, particularly European and Japanese institutions, find the Southeast's growth
warrants a presence to better serve and develop

FEDERAL RESERVE BANK O F A T L A N T A




37

their U.S. customer base, which now includes
many firms owned by non-U.S. interests.
Everyone is looking for a niche or, as a Miami
lawyer puts it " a seam of opportunity." However, profitable niches are hard to find, but
easy to take away. Loss of the Latin American
trade business was a real blow, since it is an
area where Latin American banks could make
an important contribution to developing trade
and commerce. They knew their customers,
and their presence in the United States was
helpful in bringing about deals that might have
caused other banks to hesitate. With the offices
of many major U.S. banks in Latin America
reduced, local banks will need to offer the
trade finance services to keep their countries
moving.
In addition to hurting the trade business,
Latin America's economic problems have affected the deposit business; the rate of increase
has declined from three digits to two. Still,
agency deposits in June 1985 were 45 percent
higher than a year earlier. Some of this increase
undoubtedly represents a transfer of funds
from other international financial centers such
as the Bahamas and especially Panama. It will
be interesting to see if figures for Florida Edges
and agencies show an abnormal increase in
deposits after October 1985, when Panama
experienced a sudden change in government
On the asset side, total assets for foreign
bank agencies and foreign-owned Edges in
Florida exceeded $5 billion at year-end 1984.
Of the $4.3 billion in assets of foreign bank
agencies, $2.2 billion were invested in loans
and $1.3 represented balances due from head
office and other related institutions. The foreign banks are looking for good assets, but
competition for the limited trade business is
fierce and many have yet to develop a good
"feel" for the domestic customer. Also, limitations on the kinds of domestic services these
institutions can provide may make them less
attractive to some customers as lenders. And
the pick-up in trade with Latin America, the
major market for the Florida agencies, promises
to be quite slow.
Florida also boasts 12 statechartered banks
and a number of federally chartered institutions—including one savings and loan association—with foreign ownership. Here, too, the
presence of hispanic bankers is felt Three statechartered banks and at least one nationally
chartered institution are owned by Spanish

interests and the others by Latin Americans. All
but one of the state banks are in south Florida
and most cater to hispanic clients. Their profitability varies considerably.
Miami is famous for its " b o o m and bust"
cycles, but the foreign banks have held firm.
They have long-term reasons for being in this
market. While the total number of Edge Act
banks in Florida declined from a high of 42 to
34 (the number of lost Edges includes some
mergers), Miami has lost only one of its original
37 foreign bank agencies.

"As this global,
interdependent market
develops, regulatorslike those they regulate—
will have to adapt to a
new order."

In Georgia, the major international banks of
Europe, Canada, and Japan have the greater
representation. These are banks that already
have an important presence in the United
States, both in other offices and in loans to
American entities from the head office abroad.
They, too, follow their customer, but that customer is U.S.-based—either companies from
the home country that have invested in the
Southeast or purely domestic customers that
took their borrowing needs to the Eurodollar
market Atlanta's excellent communication and
transportation networks are ideal for covering
the Southeast
New Orleans, which also boasts a fine port
and good air connections, was left behind. Part
of the reason for that must lie with the restrictions Louisiana put on its own domestic banking
system.
The foreign bank presence in the Southeast
is also felt in the lending activities of banks that
may not even have offices in these states. In
fact, some 20 percent of all commercial, industrial, and business loans in the United States
are granted by foreign banks. Interestingly, the

38




JANUARY 1986, E C O N O M I C

REVIEW

figures for foreign participation are declining,
which may reflect a decision by some foreign
banks that price-cutting to gain market share
was not an effective long-run strategy. As one
banker commented, " w e just meet again on a
lower level."
I believe one of the major concerns of foreign banks operating offices in this country will
be regulation. Because of the importance of
these institutions in the marketplace, American regulators have every reason to be concerned with the financial stability of the foreign
parent bank. As this country raises minimum
capital requirements, it is only fair to note that
many countries permit their banks to operate
with capital ratios well below those considered
acceptable here. U.S. regulators also must question the scope and adequacy of examination
procedures in other countries.

As this global, interdependent market d e
velops, regulators—like those they regulate—
will have to adapt to a new order. Communication with foreign regulators will become increasingly important. Questions of confidentiality will be of tremendous concern to foreign
bankers operating here. It is important to the
foreign banks as well as domestic banks to
protect the stability of and confidence in the
U.S. banking system. The International Banking
Act has laid down some parameters for looking
at questions that have arisen and will become
more important as the financial and commercial ties that bind our economies increase. It is
necessary to consider the differences that exist
in the way other banking systems operate and
are regulated—U.S. regulations treat the foreign banks as one class, but the reality is very
different

FEDERAL RESERVE BANK O F A T L A N T A




39

The Southeast: A Magnet for
Foreign Real Estate Investment

Why do foreign real estate companies invest in
the southeastern United States? To answer this
question, we need to reflect on the environment
in which they make their decisions. Real estate
opportunities in other countries are limited and,
to a great extent, these markets are saturated
with developed projects. Government restrictions in foreign countries also help focus investors' attention on the United States, as does the
imbalance between the rights of real estate users
and the rights of real estate owners and developers. For example, in the case of Canada, whose
population is approximately 10 percent that of
the United States, tremendous economic resources have accumulated with insufficient opportunities to expend them. Many of these
resources are concentrated in the hands of
strong corporations or powerful families. Restrictive government policies and the Canadian economy's weakness relative to that of the United
States pose obstacles to development in that
country.
Faced with these constraints, Canadian developers look south to find opportunities for
The author was president of Canadian-owned
Cadillac Fairview
Shopping Centers (U.S.), Limited from early 1983
until1985.
He recently formed the Alexius C. Conroy
Company.

40




massive investments in such states as Georgia,
Texas, and Florida The developers' activities
have driven up land prices dramatically, hardly
endearing the Canadians to local developers.
Also, in areas such as Houston and Dallas, foreign
investment accelerated office development at a
time when the cities were entering severe recessions. These foreign office developments, coupled with natural growth of the domestic office
development market and layered into the recession and the oil crunch, created a tremendous
overhang in these markets. I've heard that in
Houston, for instance, the unoccupied office
space exceeds the entire office market in the city
of Cleveland. Nevertheless, construction continues in Texas.
Florida's housing market remains a glittering
pot of gold for foreign investors. Many Canadians
and Europeans winter in Florida, and South
Americans have invested heavily in the southern
portion of the state. Foreign developers, along
with their domestic counterparts, observed the
trend and began building new housing at a
frenetic pace.
Florida's luxury condominium market became
more dependent on sales to South Americans.
Indeed, entire buildings were sold sight unseen,
from brochures and from floor plans, to South

American buyers eager to convert their unstable
currencies into U.S. investments. Some sales
were paid all in cash, but most were made for 10
or 20 percent down, the remainder provided
through mortgages from U.S. financial institutions. Whole buildings—some of which have yet
to receive their first occupant—were sold in this
fashion. Eventually, South American money dried
up and the dollars increased strength made
European investments in second homes in the
United States financially unattractive. However,
the m o m e n t u m of condominium development
caused construction of new projects t o commence for more than a year after the market
clearly had turned downward. Contracted sales

"The Southeast's ability
to grow, both physically
and through creation of
new jobs, provides a
unique milieu for invest
ment and will encourage
foreign investment in this
region far intothefuture."

In recent years, Atlanta has seen its share of
foreign investors, including Cadillac Fairview,
develop shopping centers in the city's suburban
market. Regional shopping centers in Atlanta are
inherently less risky than office or residential
developments because the department stores'
commitments, once secured, preclude development of competitive regional centers within
the trade areas of those stores. This reduced-risk
factor exists because Atlanta traditionally has
had only four major department stores, and
should not change even though other department stores have announced their entry into the
Atlanta market.
A developer requires only three to four department stores to make a successful super-regional
shopping center. But some cities, such as Houston or Dallas, contain 10 to 12 major department
store chains. Frequently, the impetus for a new
shopping center is created by these department
FEDERAL RESERVE BANK O F ATLANTA




stores rather than by the economic needs of the
smaller stores in the market Thus, in Houston
one might see t w o or three shopping centers,
each covering a million square feet within several
miles of each other. Even in a healthy economy,
such concentration almost always creates severe
problems.
Throughout the United States, but especially
in the Southeast working w i t h a local developer
familiar w i t h a marketplace has been important
for the success of foreign development companies. Cadillac Fairview formed a successful partnership in Atlanta with Scott Hudgens, a prominent local developer, that has continued through
all the retail projects that Cadillac Fairview has
undertaken in the area.
Notwithstanding the successful track record of
Cadillac Fairview, three or four years ago some of
the major banks in Atlanta were reluctant to
provide construction loans for such premier
projects as Gwinnett Place and Town Center, a
major multi-use project opening soon in C o b b
County. Cadillac Fairview applied t o Atlanta
banks merely because it seems appropriate t o
develop local banking relationships. But outside
banks were more eager to make the loans. In
fact financing was secured from Canadian and
New York banks.
The future is bright for foreign investment in
real estate in the United States in general, and
the Southeast in particular. This country's free
enterprise system is the most productive environment in the world for real estate d e v e l o p m e n t
Political stability encourages such development
even in the face of overbuilt markets, for developers know that in the long term their investments will be secure and intact.
The Southeast's ability t o grow, both physically
and through creation of new jobs, provides a
unique milieu for investment and will encourage
foreign investment in this region far into the
future. The level of work productivity and the j o b
creation potential that exist in the Southeast are
unmatched elsewhere in the United States. The
region's attitude toward government and business as cooperative ventures is a salient factor in
the decision to do business in the Southeast M y
experience both as a representative of a foreign
corporation and as an American starting a new
real estate company convinces me that no part of
the United States surpasses the Southeast in
encouraging investment and d e v e l o p m e n t If
this region continues along its present path, it will
continue to dominate growth in this country.
41

What are the Trends for Foreign
Direct Investment in the Southeast?
Cedric L Suzman

t

~

t|

The phenomenal growth in foreign direct investment in the Southeast has contributed significantly to economic growth in the region. But it
also raises a number of questions concerning
policy operations on U.S. economic competitiveness. To outline the contribution that foreign
investment has made, we must add data to the
investment picture. Although national data are
available for 1984 from the U.S. Department of
Commerce (DOC), the latest available statelevel data on foreign direct investment are for
1983. 1
Data from the DOC must be used for comparisons because data collected from state agencies
are not consistent either with the data collected
by the DOC or between states. Thus, although
the individual state departments of commerce
and economic development make data available from time to time, we must be careful to
avoid the pitfalls of incompatability.
Gauging foreign direct investment poses a
further problem in that three different measures
tend to be used. For example, let us look at data
for 1983, which are available on all three bases.
The author is vice president and educational program
director
of the Southern Center for International
Studies,
headquartered in Atlanta,
Georgia.

42




The first measure is total assets of affiliates in
which a foreigner owns more than 10 percent of
the shares and, by implication, can exercise
control. For 1983, foreign affiliate assets total
$527.6 billion. 2
The next measure of foreign direct investment
is the gross book value of property, plant, and
equipment (P, P, and E)—the bricks and mortar.
According to that measure, the 1983 figure was
$241.6 billion, less than half theasset figure.3 The
third measure, position, is the one commonly
used by the DOC for its national data Position is
the net book value of foreign direct investors'
equity in, and the net outstanding loans to, the
subsidiary from the parent. By this measure,
foreign direct investment for 1983 was an even
lower figure of $137.1 billion. 4 The total assets
and position data are available at the national
level, but not on the state level. Therefore, if you
wish to discuss investments by state, you must
rely on the gross book value of P, P, and E.
A clear distinction must be made between
total investment in place as of a given year and
the new flows that have taken place during that
year. Finally, DOC data do not distinguish between investment in new P, P, and E, as opposed
to foreign acquisition of an existing domestically
owned facility. In either case, foreign direct
JANUARY 1986, E C O N O M I C

REVIEW

T a b l e 1. Foreign Direct Investment Position, 1 9 8 4
and Capital Inflows
by Selected Country and Industry, 1 9 8 0 - 1 9 8 4

Country

$ Millions
United Kingdom
Netherlands
Japan
Canada
Germany
Total

Capital Inflows

Position
Percent

$ Millions

Percent

38,099
32,643
14,817
14,001
11,956

23.9
20.5
9.3
8.8
7.5

22,726
19,566
11,017
6,690
4,454

25.2
21.7
12.2
7.4
4.9

159,571

100

90,365

100

50,664
24,042
24,916
16,899
13,065
10,203

31.8
15.1
15.6
10.6
8.2
6.4

22,821
13,347
14,847
1 2,467
7,679
6,908

25.3
14.8
16.4
13.8
8.5
7.6

159,571

100.0

90,365

100.0

Industry
Manufacturing
Petroleum
Wholesaling
Real Estate
Finance & Insurance
Banking
Total

Source: Bureau of Economic Analysis. "Foreign Direct Investment in the United States: Country a n d Industry Detail for Position a n d Balance of Payments
Flows, 1984," Survey of Current Business, (Government Printing Office, August 1985) pp. 63- 64.

investment goes up, but only the second case
creates new jobs. (Note that the actual economic
impact of a foreign acquisition depends on how
the previous domestic owner invests the money
received and what the foreigner does with the
new investment.) Hence, some of the confusion
that arises when discussing foreign investment
data
Keepingthese measurement problems in mind,
foreign direct investment in the United States
amounted to $159.6 billion by 1984. In 1982
and 1983, growth of foreign investment slackened markedly, with increases of 15 percent and
9 percent, respectively. That is less than half the
average growth of 30 percent annually for the
four years prior to 1982. The slowdown resulted
from a U.S. recession, which lasted until early
1983. In addition, the subsequent surge in the
value of the dollar made investment in this
FEDERAL RESERVE B A N K O F A T L A N T A




country much more expensive. However, because economic growth and the U.S. market's
attractiveness continue to be the overriding
influences on foreign investors, investment soared
again in 1984 when the American economy
recovered. Over $22.5 billion of new investment
flowed into the country—nearly double the amount for 1983. Although the first half of 1985
saw yet another slowdown, foreign direct investment did not fall to the 1983 level.
Where does this investment come from? Table
1 shows the cumulative"position" by the end of
1984 and the cash inflows for the 1980 to 1984
period. By these measures, the United Kingdom
is the largest investor, with over $38 billion, or
over 25 percent of the total capital inflow. The
United Kingdom is followed by the Netherlands
and then Japan, which recently overtook Canada,
Germany, and Switzerland, to claim third place.
43

T a b l e 2. Total Assets of U.S. Affiliates
by Country of Owner and by Industry, 1 9 8 0
(Billions of dollars)
All
Countries
All Industries
Petroleum
Manufacturing
Wholesale
Banking

552.0
44.1
81.7
50.1
230.0

Canada

France

Germany

66.1
3.4
13.1
1.9
18.3

41.1

38.8
0.4
17.8
5.5
7.6

*

9.3
5.1
14.4

Netherlands

U.K.

Japan

40.0

84.9

*

*

6.1
0.7
20.9

14.7
5.1
28.1

98.0
0.9
3.9
18.7
70.3

* No! disclosed
Source: Bureau of Economic Analysis, Foreign Direct Investment

in the United States. 1980 (GPO, October 1983), tables A-1 a n d B-8.

The rapid rise in Japanese investment is illustrated even more strongly by total assets. For
1980, (the latest year data are available for all
industry sectors), Japan emerges as the largest
foreign investor in the United States. However,
the lion's share of Japanese investment is accounted for by the $70.3 billion in banking
where Japan far outpaces the second largest
investor, the United Kingdom, with $28.1 billion
in banking assets (see Table 2).
Interestingly within the Latin American region,
the Netherlands Antilles and Panama account
for $12.4 billion or 7.8 percent of all investment.
Both the Netherlands Antilles and Panama provide anonymity through bearer shares, so the
companies registered there are likely to be
owned by private investors from Latin America,
Europe, or the Middle East, but in this instance
we cannot break down the ownership.
Table 1 shows that by industry sector, manufacturing continues to claim the largest share of
foreign investment. Its 1984 portion, 31.8 percent, is down from 35 percent in 1983 and even
higher levels in prior years. Manufacturing's declining share of foreign direct investment is
further highlighted by the fact that over the fouryear period it accounted for only 25 percent of
total capital inflows. In 1983, real estate edged
out both petroleum and wholesalingtemporarily,
but experienced a slowdown in 1984 to fall back
to fourth place.
44




Getting closer to home, we find a foreign investment horserace between the regions. From
1974 to 1983, $48.3 billion of foreign investment
in P, P, and E flowed into the Southeast, more
than to any other region in the country, and
represented an average annual increase of 51.8
percent. Clearly, the Southeast did remarkably
well over this nine-year period.
Job creation, of course, is the primary concern
of state governments and their officials who fly
around the world seeking new investment to
increase employment. Once again, the Southeast far outstripped all regions both in total and
in new employment over the 1974 to 1982 period. In all, more than 390,000 new jobs were
created in the Southeast, with an average annual
gain of almost 20 percent. This success is impressive. Although North Carolina claims the largest
number of foreign investment-related jobs as of
1983—just over 95,000—Georgia leads in terms
of increase over the 1974 to 1982 period, with
63,000 new jobs being created—a 32 percent
average annual increase over the nine-year period.
In the 12-state southeastern region as defined
by the DOC, Louisiana and Florida show the
largest increase in P, P, and E, with over$7 billion
each over the 1974 to 1983 period. Florida's
growth was largely concentrated in real estate
and Louisiana's in energy-related investment.
Georgia was third, followed by North Carolina,
South Carolina and West Virginia, each with
JANUARY 1986, E C O N O M I C

REVIEW

T a b l e 3 . Gross Book Value of Property, P l a n t and Equipment
of N o n b a n k U.S. Affiliates by State, 1 9 8 2
(Millions of dollars)
Total
P, P&E
Alabama
Arkansa
Florida
Georgia
Kentucky
Louisiana
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
West Virginia
Total Southeast

3,064
829
7,486
5,197
2,379
9,165
1,732
6,143
5,729
4,504
3,574
5,040

1,752
396
2,059
2,658
782
3,464
773
3,267
3,895
3,473
2,031
1,973

57.2
47.8
27.5
51.1
32.9
37.8
44.6
53.2
68.0
77.1
56.8
39.2

54,842

26,524

48.4

Source: Bureau of Economic Analysis, Foreign Direct investment in the United States: Operations
Preliminary 1983 Estimates (GPO, D e c e m b e r 1985), table D-13.

investment growth of over $4 billion. On the
basis of percentage increase, West Virginia somewhat surprisingly led the 12 states, with nearly
100 percent. Substantial investments in coal and
other energy-related enterprises probably account for that state's dramatic advance.
The percentage of foreign investment directed
toward manufacturing has interesting implications for the Southeast (see Table 3). For 1983,
the figure peaks at a high of 73.4 percent for
Tennessee, largely because of that state's location
at the center of a vast eastern and central market
for the United States. At the low end of the scale
is Florida, with 26.7 percent showing a predominance in real estate investment. While these variations highlight the differences between states
in the region, they also raise intriguing questions
about the state industrial development policies.
The southeastern governors and economic development or commerce departments are trying
actively to attract investment. To what extent do
they gear their activities to each state's own
natural advantage, to its comparative advantage,
or to its historic position? Do they try to change
the historic mix of investment? Although the
United States lacks an industrial policy at the
national level, there seems to be a good reason
for one at the state level.
FEDERAL RESERVE BANK O F A T L A N T A




Percent
of Total

Manufacturing

ot U.S. Affiliates

of Foreign

Companies,

Within the manufacturing sector, the region's
chemical industry dominates investment, commanding about 58 percent of manufacturing
investment and 37 percent of investment-related
employment (see Table 4). This has been the
historic pattern for foreign manufacturing investment overall, and in the Southeast that pattern
persists. In large part the region's chemical industry is related to textiles rather than petrochemicals, except in Louisiana.
What are some of the reasons for this impressive record of foreign investment? Aside from
economic growth, the population influx, the
good climate, and a largely non-union work
force, what else accounts for this flow of investment into the Southeast? Increasingly, the region's good port facilities and transport network
to the rest of the country are cited as attractions.
Service-related factors likewise have played an
important role in luring foreign investors to the
region. For example, Atlanta now has available
ample professional, legal, and accounting services, hosts over 25 foreign banks, 16 consulates
with professional, full-time consuls or consuls
general, 15 trade offices, four foreign-American
chambers of commerce, and has an expanding
number of overseas air routes to Europe and
Latin America.
45

T a b l e 4. Gross Book Value of Southeastern Property, Plant, and Equipment and Employment
by Industry, 1982.

$Millions

Percent
of Total
Foreign Investment
in U.S.
Manufacturing

Number
of Jobs

Percent
of Total Jobs
A c c o u n t e d for by
Foreign Investment
in Manufacturing

Food
Chemicals
Metals
Machinery
Other*

824
15,537
2,976
1,744
5,445

3.1
58.6
11.2
6.6
20.5

27,186
113,912
28,492
57,274
79,866

8.9
37.1
9.3
18.7
26.0

Total

26,524

100.0

306,730

100.0

Manufacturing
Sector

•Textiles pulp and paper, a n d transportation/motor v e h i c l e s
Source: Bureau of Economic Analysis Foreign Direct Investment in the United States: Operations
Preliminary 1983 Estimates (GPO, December 1985), table D-13.

Perhaps one of the most cogent forces in
drawing foreign investment to the Southeast has
been the ongoing effort of state government
officials, usually including governors. The states
have sent numerous contingents overseas and
their promotional efforts have extended to help
with site selection, programs for pre-trainingand
retraining a suitable work force, and assistance
with completing legal and regulatory requirements—a virtual one-stop shop to get the job
done. Most states will transport potential foreign
investors into and out of the region in state
planes and will fly them around in state helicopters to look at plant sites. Additionally, the 12
regional states now have a total of 21 overseas
offices, six in Tokyo alone. In fact, some observers
criticize these state departments for spending
too much time attracting "reverse investment,"
and insufficient time promoting trade and tourism. We have seen some redress of that imbalance in recent years.
One intangible factor in attracting foreign investment to the Southeast is that the investor is
made to feel important to the local community.
Being welcomed by the governor of the state and
the mayor of the city makes a favorable impression on many foreign visitors. Generally, an
investor will not receive that kind of hospitality in
states such as New York or California, where he
may be too small a fish in a bigger pond. Thus, the
old southern hospitality has provided a comparative advantage.
46




of U.S. Affiliates

of Foreign

Companies,

In terms of country of origin, by 1982 Canada
led the list of investors in the Southeast for the
first time, as measured by gross book value of P,
P, and E (see Table 5). The Southeast now
accounts for more Canadian investment than
any other U.S. region. Next on the list was the
Netherlands, the largest investor in the region
until 1980, then the United Kingdom, Germany,
Switzerland, and Japan. With the Nissan plant in
Tennessee, Japanese investment in the Southeast
has become almost as prominent as it is in the
western states.
The level, location, source, and job creation of
foreign investment have been addressed often,
but some interesting aspects of U.S. affiliates'
exports and imports deserve further study. Foreign affiliates generate a deficit of about $27 billion in 1983, up from $23.6 billion in 1980. For
1980, the data are broken down by destination.
Of the total exports shipped by the affiliates
about $52 billion, o r 4 0 percent, went to the foreign parents and 60 percent to other foreigners.5
For Europe, only 20 percent of affiliate exports
went back to the parents, whereas for Japan 74
percent did so. The same pattern exists with
imports: in total, 62 percent come in from the
foreign parents, but for Europe the figure is 56
percent, and for Japan and Canada, it is 79 and
83 percent, respectively. There are, therefore,
clear differences in the trading relationship between parent and affiliate for different investing
countries, with Japanese and Canadian affiliates

T a b l e 5. Gross Book Value of Property,
Plant, and Equipment of
Nonbank U.S. Affiliates
by Country of Owner, 1 9 8 2
(Millions of dollars)
Southeast Total
All Countries
Canada
Netherlands
United Kingdom
Germany
France
Switzerland
Japan

54,842
13,533
9,354
7,579
6,709
4,791
2,536
1,803

Source: B u r e a u of Economic Analysis, Foreign Direct Investment in
the United States: Operations ol U.S Affiliates of Foreign
Companies, Preliminary 1983 Estimates (GPO, December
1985),table D-13.

linked more closely to the parent company in
terms of components and end product use.
Overall, more than 70 percent of the affiliate
exports and imports are in wholesaling. For the
manufacturing sector, unfortunately there is no
breakdown as to where the exports and imports
are going or coming.
The Canadian parent-affiliate trading relationship reflects the automobile arrangements set up
between the United States and Canada, while in
the Japanese case the relationship is evidence of
the vast trade through Japanese trading companies. The Japanese companies generate a surplus
of $119 million in two-way trade in manufacturing, while a deficit of $8.6 billion exists in the
wholesaling sector.
The links between foreign investments as they
come in, and what have become known as
satellite industries—smaller investments drawn
in on the coattails of the larger investment—are
another interesting topic for further study. One
example occurred when the Nissan plant opened
in Smyrna, Tennessee, with an investment of
$660 million, the largest Japanese investment in
this country. Nissan started promoting the "justin-time" Japanese method of inventory control,
and requiring one-day delivery from parts suppliers. This means that suppliers have to be
located within a 60-mile radius of Smyrna As a
result many satellite Japanese investments in
the manufacture of car seats, automobile wheels,
radiators, radios, and plastic parts supply the
FEDERAL RESERVE BANK O F ATLANTA




Nissan plant In a power play on the part of
Alabama, Coilplus, a wholly owned subsidiary of
Mitsubishi, is making steel and aluminum stripping just across the border in the town of Athens,
Alabama. These coils will be used by other parts
manufacturers in a 90-acre industrial complex
that will house shared service facilities. Coilplus
and a group of parts manufacturers currently
supply Nissan in Japan in the same manner, and
the firm appears to be moving the whole concept
over to Alabama to supply the nearby Smyrna
plant
Given the supplier and end-user "satellite"
relationships that may be established and the
increasing number of joint ventures between
American and foreign companies, the impact on
the U.S. trade balance and on the competitiveness of U.S. companies in many sectors is unclear.
To what extent, for example, are U.S. parts
suppliers being supplanted by foreign suppliers
with special relationships to the affiliate parent,
such as in the case of Nissan? As Japanese
automobile manufacturers invest in this country
and take an increasing share of the automobile
market, U.S. materials and parts suppliers probably will also suffer a fall in market share. A recent
Economist survey of the world's motor industry
commented on the investment by Japanese
companies in production facilities in the United
States, saying:
In the short term this is welcomed by the
Americans as a way of providing new jobs,
but, in the longer term, the result will be to
contribute to creeping colonization, especially if Japanese component suppliers increasingly establish themselves alongside
the new assembly plants.6
These are some of the policy issues that must
be faced as foreign direct investment grows in
the coming years.

Notes
' B u r e a u of Economic Analysis, "Foreign Direct Investment in the United
States: Country and Industry Detail for Position a n d Balance of Payment
Flows 1984" in Survey ol Current Business. (Government Printing Office.
August 1985) a n d Bureau of Economic Analysis. " F o r e i g n Direct Investment in the United States: Operations of U.S. Affiliates of Foreign
Companies, Preliminary 1983 Estimates," (GPO, December 1985)
J
S e e Ned G. Howenstine's "U.S. Affiliates of Foreign Companies: Operations in 1983." in Survey of Current Business. (GPO. November 1985)
3
Howenstine, " U . S Affiliates"
'Survey ol Current Business, (August 1985).
^Bureau of Economic
S t a t e s 1980," (GPO.
"Another Turn of the
Economist. March 2,

6

Analysis, "Foreign Direct Investment in the United
October 1 983). tables E-6. p. 104 a n d G-4. p. 144
Wheel: A Survey of the World's M o t o r Industry." The
1985.

47

Foreign Direct Investment In the Southeast:
An Historical Perspective

Toward the close of 1985, newspapers were full
of news that America, for the first time since
1914, has become a net debtor nation in world
accounts. That is, our net foreign assets are now
negative, meaning they are net liabilities. Some
predicted that by the end of 1985 the c o u n t r / s
net external debt would reach $100 billion;
Federal Reserve Bank of New York President
Gerald Corrigan predicted that our net debtor
position would rise to $500 billion in five years.
Foreign direct investment is a small but important part of our nation's total foreign liabilities.
According to the Department of Commerce,
foreign direct investment in the United States
approached $160 billion at the end of 1984. If
we add U.S. business abroad, equaling $233
billion, we still have a positive balance; however,
the gap clearly is closing.
The press seldom differentiates among the
types of foreign investments. In the academic
world, students of international finance and of
foreign direct investment employ different terminology, look at different data, and ask different
questions. For example, research on international
capital flows often studies interest rate differentials, the nature of international debt, the role of
banks, the relationship between financial flows
and compensating real flows, and international
money markets. Bankers are concerned with
The author
University.

is professor

of economics

48




at Florida

International

foreign deposits and loans made with these
funds. By contrast, students of foreign direct
investment prefer to focus on how, when, where,
and why companies invest abroad.
Fundamental t o the notion of foreign direct
investment is the question of control. W h e n a
foreigner puts money in an American bank account, he wants to know that the bank is secure
but he is not interested in actively joining the
bank's management. Mostly the depositor looks
at interest rates and at the duration of a certificate of deposit. Likewise, if through an American,
London, or Tokyo broker a foreigner purchases
U.S. corporate securities or U.S. Treasury bills, he
does not expect to control the corporation or the
U.S. government. His crucial considerations are
security of capital, the current and expected
value of the dollar, and interest rates.
By contrast and by definition, foreign direct
investment entails not only capital transfer but
an extension of the firm (or company). Thus, the
firm plans to gain returns from its investment by
controlling the business' activities. For instance,
when the Canadian real estate firm Cadillac
Fairview makes an investment in Florida, it intends to control the project. This approach is
different from the role of a financial intermediary.
The fundamental difference between foreign
capital transfer in general and foreign direct
investment in particular lies in whether the
investor intends to exercise control over the
activity.
JANUARY 1986, E C O N O M I C

REVIEW

Foreign direct investment refers to activities of
a business across borders. Beyond mere capital
flow, such business involves the transfer of knowhow, production skills, marketing knowledge,
sometimes trademarks, often patents, but always
management or at least the potential of managing.
This interchange means the costs and benefits of
each type of foreign investment are dissimilar.
The pace of such investments also may differ:
foreign direct investments and foreign portfolio
investments need not necessarily be synchronized, since the motives for such investment are
not the same.

" I n the Southeast
as in the nation, both
foreign direct investment
and foreign portfolio
investment have been
characterized by periods
of large-scale
activity followed by
retrenchment"
Historically, both types of foreign investment
have existed in the American Southeast, and in
large amounts. The Louisiana Purchase of 1803
was financed by monies from Britain and Holland—standard portfolio-type investments. In
the 1830s, foreigners invested heavily in the
Southeast through state government bonds. In
the early 1840s, Florida and Mississippi defaulted
on their bonds, and the Mississippi debt is still in
default After the Civil Warthere were again huge
foreign investments in state government bonds
in our region; and once more, in the early 1870s,
major defaults occurred.
The antebellum years saw minor foreign direct
investments. In the 1830s, for example, some
banks in Louisiana were owned and controlled
by foreign capital. Two decades later a German
pencil-maker acquired timberland and built a
mill in Cedar Key, Florida
After the Civil War, foreign direct investment
in the Southeast began to mount. Some of it, like
investment today, was in land speculation and
FEDERAL RESERVE BANK O F ATLANTA




land development, and some was in transportation. For instance, much of Alabama's railroad
system was owned and controlled by British
capital. Some foreign investment was channeled
into the region's earliest industries. Especially in
the 1870s and 1880s, the developing iron and
steel industry in Tennessee and in the vicinity of
Birmingham, Alabama benefited substantially
from foreign direct investment In fact the first
iron furnace in Tennessee was built by a British
company in a town named South Pittsburg, near
the Alabama border. From its origins, Florida's
phosphate industry attracted foreign direct investment A British firm introduced some of the
most technologically advanced dredging machinery at the industry's inception in the state. Before
World War I, German and French companies
also participated in Florida's phosphate industry.
British foreign direct investment in the southeastern United States extended into other sectors. Lever Brothers' first manufacturing in this
country took place in 1884 in a cottonseed oil
mill in Vicksburg, Mississippi. The mill was designed to supply Lever's soap factory in the
United Kingdom with a substitute for cottonseed
oil from Egyptian sources. The British also invested
in cotton and rice growing in Mississippi and
Louisiana Before World War I, British insurance
companies maintained an important presence in
the region. An 1890 Macon, Georgia business
directory listed 17 British insurance companies
in that city alone. I n the years between 1880 and
1 9 1 4 a number of British companies, principally
Scottish, were active in granting mortgages in the
Southeast I could enumerate many more foreign direct investments in the Southeast in the
years before 1914, when the U.S. was a debtor
nation in world accounts.
The important point in reviewing foreign investment is that both foreign portfolio and direct
investment have been characterized by periods
of aggressive entry activities and then periods of
retreat Foreign portfolio investments—foreign
bank deposits, loans, and investments in American securities—are highly liquid, interest ratesensitive investments. Traditionally, students of
foreign direct investment have argued that direct
investments are less liquid. A change in interest
rates makes little difference once an investment
has been made in property, plant, and equipment and a commitment extended to develop
business in an area The market for the goods or
services, rather than the cost of money, is what
influences the direct investor's decisions.
49

INTERSTATE BANKING
Strategies for a New Era
Conference

Proceedings

With interstate banking an accepted fact in many states, indeed in several regions, the financial
community needs to consider a new realm of practical and theoretical concerns In November 1984, a
Federal Reserve Bank of Atlanta conference explored the interests and strategies needed to compete
with financial services firms expanding over state lines Blue-ribbon panelists tackled the issues of large
versus small bank strategies marketing innovations legal questions and consumers' worries The
recently published essays will inform and challenge anyone interested in the future of banking. To order
your copy please fill out the coupon below.
Order from: G R E E N W O O D PRESS, 8 8 Post Road W e s t P O . Box 5 0 0 7 , Westport, CT 0 6 8 8 1
Send me

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at $ 3 5 . 0 0 each.

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Payments in the
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G r o w t h Industries
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Proceedings of c o n f e r e n c e s s p o n s o r e d by the Federal Reserve Bank of Atlanta


Even though they lack such liquidity, foreign
direct investors clearly do exit as well as enter,
but perhaps not at the same time and pace as
foreign portfolio investors. The timing of the
ebbs and flows of foreign direct investment and
the changes in the level as compared with
foreign portfolio investments need to be studied.
Most countries or regions greet foreign investment with mixed feelings. W e like the idea of
more investment, more jobs, more economic
activity, a larger tax base, and so forth. On the
other hand, when Mississippi defaulted on its $5
million bond issue of 1838, a debt largely held
abroad, the governor declared righteously that
the state w o u l d not allow the Rothschilds and
other British bankers to make serfs of its children.

"The economic malaise
of many Latin American
countries has retarded
the influx of foreign
investment into Florida
land and real estate."

During the mid and late 1970s, the United
States was considerably agitated about foreign
ownership of agricultural land. Roughly 100 years
ago, Representative William C. Oates of Alabama
unsuccessfully sponsored legislation that would
have forbidden non-resident foreigners from
owning land anywhere in the United States. Land
always has been a far more sensitive matter than
foreign investment in mining or manufacturing,
or in selling insurance. (However, Americans
have wanted to be sure that foreign sellers of
insurance held adequate U.S. reserves to pay
American claims.)
In the Southeast as in the nation, both foreign
direct investment and foreign portfolio investment have been characterized by periods of

FEDERAL RESERVE BANK O F A T L A N T A




large-scale investment followed by retrenchm e n t During the late 1970s, both types of
foreign investment accumulated rapidly. Recently, however, except for the spectacular influx of foreign direct investment in Tennessee,
there has been a relative slowdown in the entry
by foreign direct investors.
In Florida, new foreign investment in land and
real estate is substantially lower than in the peak
years. Since the owner controls his property, we
consider this to be foreign direct investment.
Charles Kimball, Miami's resident expert on
foreign investment in land and real estate, has
commented that whereas everyone was thinking
of foreigners in 1981, foreign investment seems
much less important today. It has receded to
1975 levels of less than 10 percent of the dollar
sales of land and commercial income properties
selling for $300,000 or more. In south Florida,
foreign investors accounted for just 8.1 percent
of such sales in the most recent quarter, compared with 41.4 percent of the dollar volume
during the 1979 banner year. As recently as
1981, foreigners accounted for 33.6 percent of
the dollar volume. The surge in oil prices that
occurred in 1979 brought in its wake large
amounts of Arab and Venezuelan monies, which
typically went through banks, as well as into land
and real estate. Since 1981, oil prices have
tumbled and, as a consequence, the flow of
those monies slowed. Additionally, the economic malaise of many Latin American countries
has retarded the influx of foreign investment into
Florida land and real estate.
While as a nation we are steadily becoming the
largest debtor in the world, at the same time w e
are seeing a sharp decline in foreign investment
in south Florida land and real estate. Foreign
direct investment in other activities, which comes
primarily from Canada, England, japan, and Germany, typically has not experienced this kind of
roller coaster downturn. Indeed, recent studies
suggest that most southeastern states continue
luring foreign direct investment successfully.
In 1975, when I began researching foreign
direct investment in Florida, the state had 11
foreign-owned manufacturing plants. A decade
later more than 210 such plants are in operation.
In short, the Southeast is attracting substantial
foreign direct investment, and its pace and
nature apparently differ from those of the investments that bankers previously considered.

51

FINANCE
NOV
1984

ANN.
X
CHG.

1,523,039 1,522,151 1 ,431,002
329,426
315,480
329,545
107,131
93,485
107,487
365,014
430,104
426,542
697,713
695,970
696,600
58,254
65,070
64,825
6,461
7,524
7,590
51,677
57,481
57,205

+ 6
+ 4
+15
+18
- 1
+12
+16
+11

NOV
1985

OCT
1985

NOV
1985

OCT
1985

NOV
1984

744,464
26,788
177,481
541,361
OCT
644,368
64,862

744,027
26,539
177,002
541,908
SEP
636,156
65,865

712,147
21,509
163,153
530,517
OCT
590,733
40,918

ANN.
X
CHG.

$ millions

WÜ'ftUllt»

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

Savings S Loans**
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments
"

Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

37,446
14,404
48,246
80,198
7,537
709
6,601

37,982
14,229
47,668
80,222
7,494
712
6,580

3,941
1,402
3,752
8,818
1,190
135
961

17,310
3,969
1,365
3,691
8,809
1,168
135
956

ALABAMA

Conmercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

H i l f
36,388
11,963
41,511
77,768
7,506
589
5,787

+ 3
+20
+16
+ 3
+ 0
+13
+11

H H H
17,366
3,850
1,112
3,315
9,631
979
102
855

+ 0
+ 2
+26
+13
- 8
+22
+32
+12

Total Deposits
NOW
Savings
Time

"

"

98,600
5,038
22,501
71,988
OCT
92,962
4,955

Mortgages Outstanding
Mortgage Commitments

•••••••••••
6,554
278
1,152
5,162
OCT
5,778
400

Mortgages Outstanding
Mortgage Commitments

13,624
6,088
22,286
24,243
3,393
353
2,880

13,871
6,034
22,133
24,248
3,357
353
2,840

12,738
4,913
19,447
21,503
2,925
299
2,497

+ 7
+24
+15
+13
+16
+18
+15

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

27,598
7,557
1,963
7,582
11,881
1,538
115
1,434

27,555
7,681
1,921
7,741
11,881
1,531
117
1,434

25,363
7,360
1,641
6,139
11,611
1,376
94
1,280

+ 9
+ 3
+20
+24
+ 2
+12
+22
+12

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

28,058
5,322
1,734
6,799
14,688
192
17
184

28,019
5,368
1,733
6,646
14,786
193
17
186

26,638
5,550
1,532
5,446
14,580
183
16
177 •

+ 5
- 4
+13
+25
+ 1
+ 5
+ 6
+ 4

Savings & Loans**
Total Deposits
NOW
Savings
Time

Conmercial Bank Ueposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

13,025
2,491
1,001
2,640
7,205

13,019
2,555
989
2,582
7,208

12,413
2,339
844
2,324
7,203

+ 5
+ 6
+19
+14
+ 0

Savings & Loans**
Total Deposits
NOW
Savings
Time

*

*

*

*

*

*

commercial Bank Deposi
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

25,088
4,511
2,216
5,187
13,363
1,224
89
1,142

*

*

2 5 , 1 7 1 2 4 , 2 4 2++ 3
4,538
4,551
- 1
2,187
1,921
+15
5,145
4,840
+ 7
13,290
13,240
+ 1
1,245
1,043
+17
90
78
+14
1,164
978
+17

Total Deposits
NOW
Savings
Time

Mortgages Outstanding
Mortgage Commitments

Mortgages Outstanding
Mortgage Commitments

Mortgages Outstanding
Mortgage Commitments

Mortgages Outstanding
Mortgage Commitments

Savings & Loans**
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments

"

95,239
3,362
20,662
72,514
OCT
93,582
4,691

+ 4
+16
+ 9
- 1
- 1
+ 6

6,529
251
1,129
5,179
SEP
5,751
418

5,963
151
895
4,923
OCT
5,739
173

+10
-»>84
+29
+ 5
+ 1
+131

I ^ H B I WÊÊÊÊ

^^fivinJFIFBHi**^^^^^

Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

94,546
4,212
22,444
72,300
SEP
92,655
5,128

"

+ 9
+59

• H U • • H • H

Savings & Loans**
Total Deposits
NOW
Savings
Time

mmmmmm

IBSrPfaPBP^I^RP^

"

+ 5
+25
+ 9
+ 2

63,690
3,572
15,470
45,189
OCT
56,802
3,380

63,850
2,797
15,443
45,452
SEP
56,727
3,365

61,226
2,360
14,158
45,596
OCT
58,865
3,091

+ 4
+51
+ 9
- 1

8,391
513
1,842
6,196
OCT
10,664
413

8,421
493
1,852
6,184
SEP
10,563
480

8,207
298
1,815
6,226
OCT
11,425
419

+ 2
+72
+ 1
- 0

10,831
328
2,380
8,225
OCT
10,284
276

10,919
328
2,398
8,290
SEP
10,288
298

10,960
282
2,267
8,572
OCT
9,214
511

- 1
+16
+ 5
- 4

2,130
82
376
1,715
OCT
2,686
203

2,099
74
333
1,709
SEP
2,615
242

1,627
52
282
1,361
OCT
2,063
180

+31
+58
+33
+26

7,004
265
1,281
5,501
OCT
6,748
283

6,999
269
1,289
5,486
SEP
6,711
325

7,256
219
1,245
5,836
OCT
6,276
317

- 3
+21
+ 3
- 6

- 4
+ 9

- 7
- 1

+12
-54

+31
+13

+ 8
-12

Notes: All deposit data are extracted from the Federal Reserve Report of Transaction A c c o u n t s , other Deposits and Vault Cash (FR2900), and
are reported for the average of the week ending the 1st Monday of the m o n t h . This data, reported by institutions with over $15 million in
deposits and $2.1 million of reserve requirements as of June 1984, represents 95* of deposits in the six state area. The annual rate of
change is based on most recent data over December 3 1 , 1980 base, annualized. The major differences between this report and the "call report"
are size, the treatment of interbank deposits, and the treatment of float. The data generated from the Report of Transaction Accounts is for
banks over $15 million in deposits as of December 3 1 , 1979. The total deposit data generated from the Report of Transaction Accounts eliminates
interbank deposits by reporting the net of deposits "due to" and "due from" other depository institutions. The Report of Transaction Accounts
*±l r ? C n li
™ Process f col ection from demand deposits, while the call report does not. Savings and loan mortgage data are from the Federal
selective basis and do J o t S d S ^ o t a l
Southeast data represent the total of the six states. Subcategories were chosen on a
* = fewer than four institutions reporting.
** = S&L deposits subject to revisions due to reporting changes.


52


JANUARY 1986, E C O N O M I C REVIEW

CONSTRUCTION
NOV
1985

OCT
1985

NOV
1984

ANN.
% .
CHG.

Nonresidential Building Permits - $ M i l .
Total Nonresidential
68,888
Industrial Bldgs.
8,791
Offices
17,121
Stores
11,016
Hospitals
2,189
1,147
Schools

68,821
8,946
16,994
10,921
2,250
1,161

60,962
8,569
14,759
9,381
1,755
950

+13
+ 3
+16
+17
+25
+21

Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ M i l .
Total Nonresidential
11,427
Industrial Bldgs.
1,216
Offices
2,565
Stores
2,276
Hospitals
416
Schools
159

11,468
1,202
2,584
2,262
452
156

9,388
961
2,313
1,877
345
116

+22
+27
+11
+21
+21
+37

Residential Building Permits
Value - $ M i l . ,
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ M i l .
673
Total Nonresidential
Industrial Bldgs.
72
Offices
149
Stores
162
Hospitals
40
Schools
14

681
71
149
155
49
12

687
182
100
128
26
6

- 2
-60
+49
+27
+54
+133

Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ M i l .
Total Nonresidential
5,896
Industrial Bldgs.
554
Offices
1,177
Stores
1,258
Hospitals
221
Schools
49

5,909
565
1,185
1,238
236
49

4,657
468
1,096
1,057
153
49

+27
+18
+ 7
+19
+44
0

Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools

1,955
311
485
308
33
21

1,966
309
475
328
32
19

1,844
183
608
293
45
18

+ 6
+70
-20
+ 5
-27
+17

Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,331
Industrial Bldgs.
49
Offices
413
Stores
255
Hospitals
46
Schools
56

1,399
51
432
263
62
57

1,169
30
295
219
96
34

+14
+63
+40
+16
-52
+65

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ M i l .
Total Nonresidential
295
Industrial Bldgs.
22
Offices
53
Stores
60
Hospitals
15
Schools
8

296
21
56
58
16
8

254
15
39
54
9
2

+16
+47
+36
+11
+67
+300

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

N o n r e n a e n t i a l Building Permits - S M i l .
Total Nonresidential
1,277
Industrial Bldgs.
208
Offices
288
Stores
233
Hospitals
61
Schools
11

1,217
185
287
220
57
11

777
83
175
126
16
7

+64
+151
+65
+85
+281
+57

Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

ANN.
%
CWG.

NOV
1985

OCT
1985

NOV
1984

81,782

81,324

74,554

+10

944.2
760.3

942.6
764.9

928.4
755.3

+ 2
+ 1

150,671

150,146

135,515

+11

14,564

14,495

13,824

+ 5

195.0
161.3

195.7
161.9

190.9
175.8

+ 2
- 8

25,990

25,964

23,212

+12

537

530

456

+18

9.8
7.8

9.7
7.6

8.3
7.3

+18
+ 7

1,210

1,211

1,143

+ 6

8,271

8,237

7,946

+ 4

103.3
97.3

103.8
97.7

104.2
99.0

- 1
- 2

14,167

14,146

12,604

+12

3,104

3,070

2,820

+10

46.4
25.9

46.5
25.1

43.3
27.5

+ 7
- 6

5,059

5,035

4,664

+ 8

779

794

1,063

-27

11.5
7.1

11.8
7.5

15.3
14.0

-25
-49

2,110

2,194

2,232

- 5

333

334

376

-11

5.8
2.4

5.9
2.3

6.3
5.3

- 8
-55

628

631

629

- 0

1,540

1,530

1,163

+32

18.2
20.8

18.0
21.7

13.5
22.7

+35
- 8

' 2,816

2,747

1,940

+45

12-month cumulative rate

NOTES:
Data supplied by the U . S . Bureau of the C e n s u s , Housing Units Authorized By Building Permits and Public Contracts, C - 4 0 .
Nonresidential data excludes the cost of construction for publicly owned buildings. The southeast data represent the total of the six
states.


FEDERAL RESERVE BANK O F


ATLANTA

53

GENERAL
LATEST CURR.
DATA PERIOD

Personal Income
(Sbil. - SAAR)
Taxable Sales - $bil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. A r r . (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's
Petroleum Prod, (thous.
Consumer Price Index
1967=100
Kilowatt Hours - mils.

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
PVane P a s s . A r r . (000's)
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - Sbil.
Plane Pass. Arr. (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

3Q

PREV.
PERIOD

YEAR
AGO

ANN.
%.
CHG.

NOV

3,211.6
N.A.
N.A.
8,900.7

3,190.7
N.A.
N.A.
8,961.0

3,057.3
N.A.
N.A.
8,849.5

+ 1

DEC
OCT

327.4
183.8

326.6
205.7

315.5
181.7

+ 4
+ 1

388.2
N.A.
3,836.5
1,524.0

373.1
N.A.
4,277.2
1,505.0

+ 5

OCT
NOV

392.0
N.A.
4,310.6
1,525.0

OCT

30.4

34.8

29.3

+ 4

3Q

42.1
N.A.
120.7
58.0

40.4
N.A.
121.6
53.0

+ 4

OCT
NOV

42.2
N.A.
132.4
58.0

OCT

4.0

4.7

4.0

3Q
DEC
OCT
NOV

151.2
92.8
2,005.2
36.0
NOV
173.9
9.7

149.0
92.2
1,635.6
37.0
SEP
173.5
10.4

142.6
84.0
1,870.5
36.0
NOV
168.3
8.6

+ 6
+10
+ 7
0

71.8
N.A.

N.A.
OCT
333.0
5.2

68.4
N.A.
1,724.5
N.A.
DEC
318.2
4.6

+ 7

OCT

73.0
N.A.
1,637.2
N.A.
DEC
335.3
4.8

OCT
NOV

49.8
N.A.
318.4
1,347.0

49.6
N.A.
260.2
1,344.0

49.0
N.A.
343.6
1,326.0

N.A.

N.A.
5.9

N.A.
5.0

OCT
NOV

23.0
N.A.
34.8
84.0

23.7
N.A.
31.4
85.0

23.0
N.A.
37.0
90.0

N.A.
2.1

N.A.
2.4

N.A.

OCT

2.0

+ 5

52.8
N.A.
182.6
N.A.

52.0
N.A.
176.5
N.A.

49.7
N.A.
180.0
N.A.

+ 6

N.A.
4.9

N.A.
6.2

N.A.
5.1

3Q

OCT

3Q
OCT

OCT

3Q

3Q
NOV

OCT

1,612.1

+ 5

+ 1
+ 1

+ 9
+ 9

+ 3
+13

- 6
+ 5

- 9
+ 2

-

2

0
- 6
- 7

+ 1

- 4

ANN.
DEC
%
1984 CHG.

DEC
1985

NOV (R)
1985

Agriculture
Prices Rec'd by Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices (S per bu.)
Broiler Feed Cost (S per ton)

128
89,155
59.8
30.0
5.01
186

127
83,005
61.4
31.8
4.92
182

135
54,689
59.5
28.5
5.82
216

- 5
+ 5
+ 1
+ 5
-14
-14

Agriculture
Prices Rec'd by Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices (S per cwt.)
Broiler Prices (t per lb.)
Soybean Prices (Sper bu.)
Broiler Feed Cost (S per ton)

113
34,378
54.8
28.0
5.01
179

112
31,421
57.6
30.9
4.96
176

124
32,566
54.3
27.0
5.90
210

- 9
+ 6
+ 1
+ 4
-15
-15

Agriculture
Farm Cash Receipts - S m i l .
1,888
(Dates: N O V , NOV)
11,569
Broiler Placements (thous.)
Calf Prices (S per cwt.)
54.6
Broiler Prices (i per lb.)
26.5
Soybean Prices (S per bu.)
5.11
Broiler Feed Cost (S per ton)
178

10,368
57.4
30.0
4.91
171

2,031
10,960
55.5
26.5
5.89
191

- 7
+ 6
- 2
0
-13
- 7

3,832
2,224
57.3
28.0
5.11
230

2,133
59.9
31.0
4.91
230

4,070
2,065
58.4
27.0
5.89
235

- 6
+ 8
- 2
+ 4
-13
- 2

Agriculture
f a r m Cash Receipts - S mil.
2,944
(Dates: N O V , NOV)
13,866
Broiler Placements (thous.)
52.3
Calf Prices (S per cwt.)
28.0
Broiler Prices (t per lb.)
Soybean Prices (S per bu.)
5.10
Broiler Feed Cost ($ per ton)
176

12,678
54.0
30.5
4.92
180

3,335
13,022
49.8
27.0
5.79
245

-12
+ 6
+ 5
+ 4
-12
-28

Agriculture
Farm Cash Receipts - S m i l .
1,310
(Dates: NOV, NOV)
N.A.
Broiler Placements (thous.)
Calf Prices (S per cwt.)
58.0
Broiler Prices (t per lb.)
31.0
Soybean Prices (S per bu.)
4.70
Broiler Feed Cost (S per ton)
245

1,288
N.A.
54.0
29.5
5.90
255

+ 2

57.5
32.5
4.88
240

1,808
6,517
57.9
29.8
5.89
160

+15
+ 3
- 1
+ 1
-15
- 3

1,748
N.A.
49.4
27.0
5.99
185

+10

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: NOV, NOV)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)

_

-

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: N O V , NOV)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (i per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)

2,074
6,720
57.5
30.0
5.00
155

6,243
59.9
33.0
5.06
144

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: N O V , NOV)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices (S per bu.)
Broiler Feed Cost ($ per ton)

1,917
N.A.
50.0
27.0
5.26
178

55.9
29.0
5.00
174

-

-

+ /
+ b
-20
- 4

+ 1
U
-12
- 4

NOTES:
Personal Income data supplied by U . S . Department of Commerce. Taxable Sales are reported as a 12-month cumulative total. Plane
Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied b y U . S . Bureau of Mines. Consumer Price Index data
supplied by Bureau of Labor Statistics. Agriculture data supplied by U . S . Department of Agriculture. Farm Cash Receipts data are reported
as cumulative for the calendar year through the month shown. Broiler placements are an average weekly r a t e . The Southeast data represent
the total of the six states. N . A . = not available. The annual percent change calculation is based on m o s t recent data over prior y e a r .
R = revised.


http://fraser.stlouisfed.org/
54
Federal Reserve Bank of St. Louis

JANUARY 1986, E C O N O M I C R E V I E W

EMPLOYMENT
ANN.
% .
CHG

NOV
1985

OCT
1985

NOV
1984

ivilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - X SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $

116,097
108,282
7,815
7.0
N.A.
N.A.
40.8
342

116,346
108,428
7,917
7.1
N.A.
N.A.
40.7
338

114,115
106,246
7,869
7.1
N.A.
N.A.
40.7
330

Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. A v g . W k l y . Earn. - $

15,322
14,226
1,096
7.3
N.A.
N.A.
41.4
357

15,408
14,303
1,105
7.3
N.A.
N.A.
41.2
347

15,057
13,905
1,152
7.5
N.A.
N.A.
41.1
336

+ 1
+ 6

ivilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
M f g . A v g . W k l y . Earn. - $

1,808
1,667
141
8.2
N.A.
N.A.
41.4
357

1,807
1,665
143
8.3
N.A.
N.A.
41.3
356

1,802
1,609
192

+ 0
+ 4
-27

N.A.
N.A.
41.0
335

+ 7

4,976
290
5.2
N.A.
N.A.
42.3
336

4,983
280
4.6
N.A.
N.A.
41.5
326

4,833
321
5.8
N.A.
N.A.
41.1
319

-ivilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. A v g . W k l y . Earn. - $

2,859
2,685
174
6.3
N.A.
N.A.
40.9
331

2,879
2,686
193
7.0
N.A.
N.A.
41.1
331

2,828
2,671
157
5.8
N.A.
N.A.
40.8
317

civilian Laoor t-orce - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . Wkly. Hours
M f g . A v g . W k l y . Earn. - $

1,983
1,765
218
11.2
N.A.
N.A.
42.0
478

1,804
221
11.2
N.A.
N.A.
41.6
437

1,752
187
9.8
N.A.
N.A.
42.0
427

civilian Labor i-orce - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
M f g . A v g . Wkly. E a r n . - $

1,019
107
10.1
N.A.
N.A.
40.8
299

1,035
107
10.4
N.A.
N.A.
40.6
295

969
110
10.9
N.A.
N.A.
40.8
286

ian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. A v g . W k l y . Hours
M f g . A v g . Wkly. E a r n . - $

2,280
2,114
166
7.8
N.A.
N.A.
41.1
342

2,291
2,130
161
8.0
N.A.
N.A.
40.9
338

2,256
2,071
185
8.7
N.A.
N.A.
40.7
330

M a n Labor F o r c e ^ t h o u s !
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $

NOTES:

11.0

+ 2
+ 2
- 1

+ 0
+ 4

+ 2
+ 2
- 5

+ 1

+ 2
+ 1
+17

0
+12
+ 4
+ 5
- 3

0
+ 5

+ 1
+ 2
-10

+ 1
+ 4

ANN.
*
CHG

NOV
1985

OCT
1985

NOV
1984

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. C o m . & Pub. Util.

99,540
19,420
4,902
23,717
16,787
22,366
6,018
5,374

99,319
19,475
5,006
23,534
16,635
22,334
5,995
5,378

96,645
19,607
4,569
22,936
16,388
21,174
5,735
5,253

+
+
+
+
+
+
+

3
1
7
3
2
6
5
2

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. Com. & P u b . U t i l .

12,949
2,301
803
3,219
2,306
2,720
738
735

12,881
2,295
803
3,180
2,298
2,706
736
736

12,572
2,328
778
3,092
2,231
2,579
704
727

+
+
+
+
+
+
+

3
1
3
4
3
5
5
1

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . Est.
Trans. C o m . & Pub. U t i l .

,411
348
69
300
304
235
67
72

1,406
348
70
295
302
236
66
73

1,400
359
65
300
297
229
63
72

+ 1
- 3
+ 6
0
+ 2
+ 3
+ 6
0

Nonfarm E S p T o T n e n ^ ^ t n o u ^
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . Est.
Trans. C o m . & P u b . Util.

HjOfU
525
343
1,186
726
1,174
323
253

519
339
1,170
718
1,161
322
251

513
337
1,144
677
1,096
306
246

+
+
+
+
+
+
+
+

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . Est.
T r a n s . C o m . & Pub. Util.

,643
550
157
689
452
487
137
163

2,633
550
157
682
451
486
137
163

2,549
552
143
648
447
459
132
159

+ 4
- 0
+10
+ 6
+ 1
+ 6
+ 4
+ 3

Nonfarm Employment Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. Com. & P u b . U t i l .

173
113
388
328
319
85
115

175
115
384
329
319
84
115

185
116
385
326
315
83
119

i t arm employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. Com. & P u b . U t i l .

221
42
188
192
130
35
40

221
42
186
193
130
35
41

220
39
182
189
127
35
40

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . Est.
Trans. C o m . & Pub. U t i l .

484
79
468
304
375
91
92

1,897
482
80
463
305
374
92
93

1,842
499
78
433
295
353
85
91

+
+
+
+
-

5
2
2
4
7
7
6
3

6
3
1
1
1
2
3

+ 2

+ 0
+
+
+
+

8
3
2
2
0
0

+
+
+
+
+
+
+

3
3
1
8
3
6
7
1

A1 labor force dara are from Bureau of Labor Statistics reports supplied by state aqencies
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the total of the six states.


FEDERAL RESERVE BANK O F


ATLANTA

55

Federal Reserve Bank of Atlanta
104 Marietta St, N.W.
Atlanta, Georgia 30303-2713
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