Can Putin Survive?
The Lessons of the Soviet Collapse
THE eight-point statement signed at sea by President Roosevelt and Prime Minister Churchill formalized, among other things, the conviction that if this war is to lead to a sounder relationship between the nations of the earth, then international trade must be so regulated as to minimize destructive economic rivalries. Their statement also suggested that it is not too early to begin planning now for the peace to come. And, in fact, both governments are beginning to plan.
The objective, of course, must be to find the way to make more of the world's goods available to more of the world's people. Any system of international relations which did not foster a constantly rising standard of living would be sterile and doomed to failure. Paradoxically enough, however, along with problems of deficiency must be considered problems of surpluses, and especially of surpluses in agricultural products. In the past, these have played a leading rôle in sustaining economic rivalry between nations and in depressing living standards in the exporting countries.
Almost every product is at some time or other in surplus supply. Most such surpluses are of a temporary, or even seasonal, character. At the present time many are the result of war blockade and lack of shipping. But there are certain crops of first importance in world trade which may be considered chronically in surplus, which have become a regular economic problem in the producing countries. The most important of these are wheat, cotton, sugar and coffee.
As the United States is normally a major exporter of wheat and cotton an important decision is involved. We have made it one of our national policies to raise and sustain the incomes of our farmers, and to assure them against falling prices. As a result, our own domestic prices have risen well above world prices. This makes it difficult or impossible for our farm products to compete in the export market. We must therefore decide whether we wish to withdraw from foreign markets and isolate ourselves from the main currents of world trade. The alternatives to this course are either to join with other nations in coöperative measures to share the world market and to maintain prices at reasonable levels, or, after the war, to embark on a competitive race for whatever world markets may exist.
Moreover, the two other commodities in question -- coffee and sugar -- concern us directly, both because we are a major importer of them and because we are interested in seeing that the Latin American nations are economically healthy and that relations between them are not jeopardized by destructive trade competition.
The logic of the situation seems obvious. If we are to help shape the peace we cannot follow a policy of either trade isolation or cut-throat competition.
The idea of international collaboration to regulate trade in the four surplus products is not new. There has been some trial and error experimentation, and as a result there is general agreement on certain broad principles.
The curtailment of the world wheat trade as a result of the war has aggravated a problem, the beginnings of which reach back to the first World War. Due to reduced European wheat production at that time the United States and Canada greatly expanded their wheat acreage. By the late 1920's, Europe had more than regained its war losses, and the annual world wheat crop was, on an average, well above consumption.
Wheat is exported chiefly by four nations -- the United States, Canada, Australia, and Argentina -- though there is some production for export by the Danubian countries, Russia and others. For the year beginning August 1940, shipments by the exporting countries are estimated to be about 30 percent less than the average for the preceding ten years. Consequent increases in stocks in Canada, the United States, and Argentina, together with above-average yields this year, will bring the wheat stocks available for export in the four major exporting countries to something like 1,500,000,000 bushels by July 1942. That is to say, there will probably be carried over into the next crop year an amount equal to a full year's production for the exporting countries and over two years' normal requirements of importing countries. On top of these vast stocks will be piled the export surpluses from the 1942-1943 harvests. There is simply too much wheat. Even if a most liberal policy of relief distribution should be adopted at the end of the war the problem will persist.
The United States has for several years had a program of acreage restriction; Canada has had marketing quotas and recently adopted a plan for acreage reduction; Australia has a marketing quota system the effect of which is to reduce production; and Argentina is considering means of reducing acreage. More or less continuous efforts have been made to deal with wheat internationally ever since 1930; and an international agreement was reached in 1933. It soon encountered difficulties, however, largely because it lacked effective means of control. On the other hand, a series of extraordinary droughts in Canada and the United States reduced production and relieved the surplus pressure temporarily. As surplus stocks again began to grow in 1938-1939, the Wheat Advisory Committee, established in 1933, met in London to draw up plans. The meeting seemed close to agreement when the war broke out and it became necessary to adjourn the discussions.
In July of this year an international wheat meeting convened in Washington, with delegates from Australia, Canada, Argentina and the United States, the four major overseas exporters, and the United Kingdom, the largest wheat importer. This meeting drafted the first major international commodity agreement written in anticipation of postwar needs. The draft agreement was referred back to the several governments and the meeting is expected to reconvene about the time these lines appear in print. Discussions were on a considerably wider basis than they ever had been before and the delegates expressed the hope that "by the establishment of an ever-normal granary and a large pool of relief wheat, the consumers of the world may be guaranteed abundant postwar supplies at prices reasonable both to them and to producers and free of charge to those in need of relief."
The delegates of exporting countries recognized the necessity of controlling production in order to prevent stocks from rising above the present record high level, as well as the need for an equitable sharing of world markets. The meeting also recognized that the wheat surplus problem in the overseas areas would be considerably eased if European and other importers reduced their own emphasis on wheat production. Several former large scale importers in continental Europe have for years sought to attain self-sufficiency in wheat. They have artificially stimulated and maintained high-cost and inefficient production by direct subsidies, prohibitive tariffs, import quotas and mixing regulations. In this manner exporters of low-cost high-quality wheat lost over one-fourth of the world market. The meeting agreed that when the war is over there will be urgent need and opportunity for agricultural reconstruction in Europe. It suggested the desirability of reconstruction in terms of reducing wheat production and increasing production of the so-called "protective foods," chiefly dairy products.
World cotton producers are faced with one of the most critical situations in their history. Huge stocks were carried into the current marketing season and prospective supplies continue far in excess of world requirements. Due to a variety of circumstances the cotton surplus has developed over a long period of years. There has been an increase in total world production and also a shrinking of the international market. This decline in world trade is accounted for in part by increased cotton production in some countries which formerly imported substantial quantities. But it was due chiefly to increased production of synthetic substitutes in the importing countries.
The development of today's critical situation had its inception in the depression following 1929. Between 1932-1933 and 1936-1937 it was temporarily alleviated by acreage control measures in the United States and by increased world consumption. Meanwhile, however, cotton acreage and production outside the United States increased rapidly.
In 1936 and 1937, however, came the Supreme Court decision invalidating the acreage control provisions of the original Agricultural Adjustment Act. As a result of this and of favorable growing conditions, the United States crop for 1937-1938 reached an all-time high. In the same year, production outside the United States reached a near-record high. Meanwhile, the business recession in the United States and disturbed conditions in other areas caused a decline in consumption. As a result, the carry-over in the United States into the 1938-1939 season was double that of the preceding year, reaching 11½ million bales. The world carry-over into that year increased to 22⅔ million bales.
In the following year production declined sharply in the United States, where control measures were again in effect, and to a lesser extent in other countries, but no significant reduction was made in the huge accumulated stocks. The effects of the war were not immediately apparent. In fact, for a few months world shipments showed a substantial rise. But by the second year of the war the European market for 5,000,000 bales of cotton annually had been lost. As this is written, the world has accumulated nearly a full year's supply of cotton; and a new crop, much in excess of current consumption, is at hand.
There have been several international meetings to consider the cotton surplus problem. The delegates at one which met in Washington in September 1939 agreed that "regulation of world cotton supplies in relation to demand would help materially in improving the existing unbalanced condition," but stated that the war made arrival at an over-all agreement impossible. They recommended creation of an International Cotton Advisory Committee to watch world developments in cotton and to suggest to the several governments any measures deemed suitable and practicable.
One reason why there has been no agreement until now -- apart from the uncertainties of war -- is the fact that the United States is the only cotton-producing nation which has had a large annual carry-over. Until recently other exporting countries have usually succeeded in disposing of each year's surplus within the marketing year. However, the war has aggravated the cotton problem in other exporting countries even more than in the United States, where acreage is limited and consumption has now reached record levels. There also remains the fact that the huge stocks held in the United States will have to be disposed of eventually in some way. For all concerned, international action would appear to be desirable, both to secure an orderly disposition of stocks and to achieve a permanent stabilization of the world cotton market.
The situation in the world sugar market for the 1940 marketing year was dominated by the fact that Great Britain, ordinarily the largest buyer of sugar in the free world market, was unable to take anything like its normal imports from abroad. The world supply of sugar for that year was in consequence the largest on record. Sugar production for marketing in 1941 is substantially the same. Carry-over stocks of sugar in 25 major countries were increased at the end of the 1940 season to close to 7,000,000 tons, compared with 5,000,000 a year earlier.
The sugar problem, like that of wheat, can be traced to the World War. Then there was considerable fighting in the European sugar-producing areas, and a severe world shortage developed. But a year or two after the end of the war the effect of expanded production in areas where cane sugar is raised began to be reflected in excessive supplies and lower prices. Moreover, nearly every important consuming country adopted a program of self-sufficiency in sugar. As a result, production expanded steadily in some countries which once had been important importers.
At the start of the European war in 1939 the little trade remaining between European countries and the rest of the world was practically cut off. Most of Europe, anxious to conserve exchange and shipping, immediately began rationing sugar and increasing production. This had the effect of piling up stocks still further, so that today there is more sugar in the world than ever before.
When the sugar surplus became critical in 1930, there was discussion of an international regulatory agreement. Indeed, one was signed in 1931 by seven of the principal exporting countries (actually by national sugar corporations), later joined by two others. Known as the Chadbourne Plan, this agreement seemed to improve the sugar position for about two years. But it lacked effective controls and effective commitments by importing countries, and by the time it lapsed in 1936 the situation had become worse than before.
After an exploratory period, an International Sugar Conference convened in London in 1937. Twenty-three nations participated and of these all but one ultimately signed an agreement. Together they represented about nine-tenths of both world production and consumption, and practically all of the international trade in sugar. Export quotas were agreed upon among the exporting countries. During the first sugar-quota year, it became apparent that the price of sugar would not rise to a reasonable level without curtailment. That was accomplished by a five percent all-around quota reduction, and by the voluntary release of quotas by various countries. While this did not raise prices much, at least it prevented them from going still lower.
At the beginning of the second year similar action was thought necessary. But it later developed that changes in the production situation of various countries, plus a wide tendency to accumulate war reserves, had expanded the market. So releases were restored to practically all of those participating governments which were in a position to fill their quotas, and the price of sugar, which had risen considerably, was prevented from rising further.
The agreement has, of course, been hampered by the new situation created by the war. However, it has been shown that regulation of the international trade in sugar is feasible, and prewar experience may be drawn upon to produce more effective regulation in postwar years.
Since 85 percent of the world's production comes from the Americas the problem of the coffee surplus belongs almost entirely to this Hemisphere. It is a serious one. Production in the Americas now averages about 28,000,000 bags annually -- a figure which does not include the 10,000,000 bags a year which Brazil destroys. On the other hand, the total effective import demand is not more than 17,000,000 bags, of which the United States demand represents about 15,000,000 bags. This unbalanced situation represents a serious threat to the well-being of several American nations, large and small, who depend on coffee exports to obtain exchange. A number of the smaller nations, such as Costa Rica, do not contribute a very large part to the production total; but coffee exports nevertheless represent the most important item in their trade.
Brazil, as the largest producer, has tried various measures to achieve stability, most of them single-handed. The thing that has worked best, unsatisfactory though it is, has been the outright destruction of a part of each year's crop simply in order to maintain the price. In nine years Brazil destroyed 70,000,000 bags of coffee. During this same period, thanks to Brazil's policy, the other American producers were generally able to dispose of their whole crops.
But the war left the American coffee exporters with little more than the 55 percent of their market represented by the United States. The Brazilian program could not withstand such a blow, and it soon became obvious that the coffee-producing nations would have to seek a way of protecting the remaining portion of their coffee trade against destructive competition.
The Inter-American Coffee Agreement was signed in Washington late last year by representatives of 14 Western Hemisphere producers and the United States. Among many provisions the most important are those establishing quotas. Three basic sets of quotas are provided: a distribution of a fixed portion of the United States market among the Hemisphere producers; a distribution of the exports from the American nations to the rest of the world; and a distribution of a small part of United States imports to sources outside Latin America. Thus the Inter-American Coffee Agreement provides not only for export quotas, but also arranges that the largest consumer, the United States, shall make enforcement effective by the strict regulation of imports according to quotas.
The machinery is designed to operate in normal times, but it also has served well to avert serious dangers during the war crisis. Through the summer of 1940 prices remained among the lowest on record. Coffee planters faced bankruptcy, and the exporting nations were being deprived of foreign exchange which they needed vitally if they were to maintain the value of their currencies and continue the import of essential commodities. The market situation began to improve as soon as the negotiations began; and subsequent price rises mean an increase in value of over 25 percent for most Latin American green coffee sent to the United States. Due to more or less fixed charges involved in coffee distribution and selling, however, the percentage increases in retail prices will be substantially less. The United States will share in the benefits of the agreement through increased sales of goods to Latin American countries.
While the present coffee agreement is a forward step, there is room for improvement. Strengthening measures may well be sought in future years. Even within the first few months of operation, the Coffee Board, the agency created to operate the agreement, has had to revise the United States quota upwards both to guard against the possible shortage of shipping space and to check excessive price increases. What seems to be a basic weakness is the absence of any commitments to positive limits on production. It is difficult to see how a permanent adjustment of any crop can be achieved until production is held somewhere near the world's total requirements.
VI. A WORLD-WIDE "EVER-NORMAL GRANARY"
The preceding review of the recent history of the four major agricultural surpluses which enter into world trade leads us to four general conclusions.
First, even before the present war there already existed a marked lack of balance between the quantities produced for export by the exporting countries and the quantities the importing countries were willing or able to take.
Second, efforts had been made by individual exporting countries to control the situation by reducing production or market supply within their national boundaries (e.g. cotton in the United States, sugar in Cuba, and coffee in Brazil); but such individual efforts were offset by increased production in other exporting countries and in importing countries as well.
Third, numerous efforts had been made, with varying degrees of success, to regulate trade in surplus commodities in an international way; and in two cases, sugar and coffee, international marketing agreements had actually been negotiated and put into effect.
Fourth, the war has greatly aggravated the situation affecting these chronic surpluses. Huge stocks, out of all proportion to the amounts that move normally in international trade, will be piled up in the exporting countries when the war ends. To throw these stocks on the market would be disastrous.
There are three possible courses which the nations of the world might follow after the war in attempting to deal with the surpluses in question.
The first is what might be called the laissez-faire approach. An effort would be made to liberalize world trade policies in general, with the expectation that a rising total of world trade and a resulting rise in the standard of living would, in due course, increase consumption and thus work off the accumulated surpluses. This follows the traditional pattern of free trade governed only by laws of supply and demand. But it is altogether impracticable. In the first place, it ignores the lack of purchasing power that will exist in the importing countries after the war. Secondly, it ignores the degree to which government control over foreign trade was increasing before the war and has further increased during the war.
The second course would be for each country with an export surplus to take individual action in securing as large a part as possible of whatever world market may be available. This is the course which has been largely pursued up to the present time. It has resulted in trade rivalries, trade wars and a generally unsatisfactory market situation. It is entirely inconsistent with any scheme of international collaboration.
There remains a third course -- to pursue aggressively, now and in the postwar era, a common policy of international coöperation to deal with the major surplus problems. It is the only approach which is consistent with a general plan for international coöperation. It also takes account of the fundamental fact that governments are now, and after the war will certainly be, heavily involved in the ownership of a considerable part of the excess supply, a fact which makes postwar intergovernmental coöperation in this field more feasible.
True, this course has been tried before, and it has failed more often than it has succeeded. But the governments concerned have drawn lessons from the failures and are better prepared now than ever before to draft agreements that will work. There is reason to believe that through international commodity agreements we can succeed in balancing production and consumption, sharing equitably among the exporting countries the available import demand, assuring importing nations of adequate supplies and establishing prices that are fair to both importer and exporter.
These are the basic principles of an "ever-normal granary," for several commodities, on a world scale.
VII. THE OBJECTIVE: REGULATED PRODUCTION
It would be highly satisfactory for all concerned, of course, if this international collaboration resulted in an immediate increase in consumption to or above the world's production. But the demand for wheat, cotton, sugar, and coffee is relatively inelastic. Price fluctuations have resulted more from varying supply than varying demand. This does not mean that all of the world's people have enough of these things; obviously many do not.
Nevertheless the barriers to a greater consumption of these four basic crops are not easily surmounted. The consumption of such things as meat and dairy products rises and falls with the indices of wages and employment. These four surplus commodities, however, are not so sensitive. The best evidence and experience indicates that even if the total existing world supplies were dumped on the market, and prices were allowed to tumble far below production costs, there would not be a corresponding increase of consumption, and consumers would eventually suffer along with the producers.
No government which represents the people could justify a national or international effort to achieve stabilization by limiting production or supply in a way to deprive its own or other people of necessary food and clothing. However, an international effort to regulate trade in the four surplus crops would not have that effect. It simply would try to adjust supply to effective demand, to maintain adequate reserves at all times, and to adjust production upwards as rapidly as consuming power can be increased.
The democratic Powers recognize that the end of the war will herald an immediate and critical need for food in the war-stricken areas, and they are planning the organization of relief machinery to distribute to those in need all of the essential foodstuffs that can be assembled and shipped. The giving away of large quantities of food will, to some extent, relieve the pressure of the surpluses; but even this distribution, taken with the postwar increase in ordinary commercial demand, will not suffice to use up accumulated stocks. If, at the end of the war, the fields in Europe and elsewhere are returned to the cultivation of the same crops, the surplus problem will soon be worse than ever before.
The objective must be, then, to achieve a balance by adjusting supply to demand. The available world market must be distributed fairly among the exporters, and the exporters must agree to limit the quantities which they place on the world market.
Experience in the United States and elsewhere has shown that governments can, within limits, control production so as either to increase or decrease acreage in relation to anticipated demand. If world production is to be brought into balance with supply, it must be by the collaboration of the producers. Recent history demonstrates that there is little point in a single nation attemptting to control production so long as others are free to expand.
Of course, such a program would mean for many countries a very considerable agricultural readjustment. But in this connection it should be remembered that only a few agricultural products are chronically in surplus and that hundreds of other crops have never been produced in sufficient quantities. Some nations have sought to become rich by producing only export crops on their lands. They could well increase their production of protective foods, subsistence crops, which their own people need. Every country in the world, including our own, has failed to provide its people with adequate nourishment. There is room and need for a vast increase in over-all agricultural production as part of an economic and social readjustment which will bring new good things within the reach of all people.
However, some countries may encounter difficulties in negotiating international commodity agreements which embody effective commitments to reduce and control acreage in surplus crops produced for export. One way to overcome them would be for each exporting country to accept definite export quotas and to agree to hold reserve stocks below a fixed maximum. Thus, a part of each year's harvest would be utilized for domestic consumption and the stated amount exported. Any balance would go into the reserves, unless reserves were at the maximum. In that case, the signatory nation would be obliged to dispose of the balance in some other way: through increased domestic consumption, by such methods as feeding to livestock in the case of wheat, by relief distribution, or by destruction. There thus would be developed an economic pressure leading to some form of production control.
There need be no great difficulty in negotiating export quotas. Admittedly the big producers have the most to gain by an agreement and can best afford to accept export quotas which may require that they curtail production. But the small producers must be brought into the agreement, and their quotas might be fixed at somewhere near the quantities which they normally have available for export. Instead of being asked to curtail production, they may merely be asked not to increase it.
It is essential that the consumers -- the importing nations -- participate in the negotiations and in whatever regulatory machinery is established. Their interests are involved, for they will suffer if production is curtailed too much or if prices go too high. Through participation they can safeguard these interests; and they can also do much to make the agreement effective, by consenting to accept import quotas and to refrain from buying from a signatory nation after that nation has fulfilled its export quota for a given year.
Such sanctions, to be applied by importing nations, are of special importance if any producing nations fail to subscribe to the agreement, for if these non-signatory producers are not checked by the importers the whole agreement falls to the ground. The same kind of pressure may be needed to deter signatory nations from breaking away from the agreement to seize a temporary advantage.
Commodity agreements must be flexible enough to meet changing conditions. In the past, they usually have embodied a number of general principles, and have then created councils or international secretariats to function under the terms of those principles. The secretariats usually have had power to adjust quotas, within set limits, so as to counteract the effect of expanding or contracting markets or of rising or falling prices. They receive the export and import data currently from each nation, and make sure that each stays within its quota.
In the past, plans for commodity regulation have usually stopped at this point. But it seems probable that in the postwar world tighter organizations will be possible. They may take the form of international corporations, or pools, which buy from producing nations and sell to the consumers, and which regulate surplus stocks on an international basis. In a sense, an international pool is merely an extension of the international secretariat, adding to its authorities the power to buy and sell. The idea is not entirely new or revolutionary. The International Tin Committee, for example, while it does not buy and sell all the tin which moves in trade, has in the past accumulated an international stock, held at the disposal of the Committee. Tin is sold when there is a sudden demand, and the money realized from the sale is used to buy tin if there is a slump in price.
If, under future commodity agreements, exporting nations agree to sell only to the pool, and consuming nations agree to buy only from the pool, any single nation will find infinitely greater difficulty in seeking to advance its own interests by entering the market as a free agent; and the danger that international rivalries and jealousies will ruin the agreement will be cut to a minimum. Moreover, such an arrangement would seem to provide a more practical means than the international committee of assuring that export quotas are disposed of as agreed and that the price objectives accepted are actually reached.
Obviously we can plan for the future only on the assumption that Hitler is defeated. This is not the place to argue the probability of that defeat. Should Hitler win, the logical course of action would be for the Americas to band more closely together economically and prepare to trade as an entity. This would seem to be the only defense at their disposal against the German tactic of using bargaining power to set one nation against the other. But, assuming a democratic victory, there seems to be little likelihood that the old world trade patterns, now shattered, will be rebuilt. The first World War made many changes. This one will affect the world's economy even more profoundly. The democratic Powers, at the war's end, will have an opportunity to build world trade on a new pattern, one that will offer more to all the nations economically, one that will work constantly for peace. The postwar unity of the democracies will be as important then as it is now. It must not be endangered by rival attempts to dispose of surplus stocks.
Now is the time to begin to plan and make the new organization. The measures that will be needed require time and detail to perfect. Time for careful planning will not be found when the nations come to the peace table. Moreover, the intimate relations that prevail between the democracies in wartime make this an ideal occasion for the kind of give-and-take negotiating that precedes international agreement.
Chief responsibility for initiating and organizing plans to regulate the postwar surpluses seems to lie with the United States and Great Britain. Together they control an important part both of the supply of, and the demand for, the four major commodities discussed in this paper. If there is a democratic victory, they will doubtless have a major part in the negotiation of peace terms. It therefore is incumbent upon them to begin now to plan commodity agreements which can become a part or a condition of the peace terms. At the present time negotiations would have to be limited to the democracies, their allies and friendly neutrals. Even so, it still would be possible to arrive at agreements covering up to 90 percent or more of the surplus commodities normally moving in international trade. Other importing and exporting countries could be brought into the agreements when the war ends.
There also is good reason for us to prepare now to make certain reasonable demands upon the Central European nations before they begin their task of postwar agricultural reconstruction. The problem of how to handle the world's wheat and sugar surpluses would be appreciably diminished if the inefficient and costly production of them could be limited or abolished. The people of the nations concerned would benefit from lower costs, and their fields could be used advantageously to remedy the deficiencies which exist in dairy products and other protective foods.
No one would seriously suggest that these war-scarred and weakened nations should be compelled to give up prewar cultivation patterns and then left merely with an admonition to produce something else. They are going to need help. But when we make our plans to give them financial and technical aid after the war, we should place emphasis on increasing their production of protective foods and discourage uneconomic efforts to establish trade isolationism.
If the democracies can agree on their trade objectives now, they can strengthen the morale of important sections of their own people. Those engaged in production and trade in wheat, cotton, sugar and coffee will feel that they have a greater stake in the victory if it promises a relatively stable market and a fair price.
To summarize, it seems clear that the present war is a clear challenge to the democracies to demonstrate that they are capable of regulating their economies and trade so as to attain progressively higher living standards and minimize economic rivalries and hostilities. Not to accept that challenge would be to confess that democracy cannot provide the answer either to poverty or to war.
The handling of agricultural surpluses is one of the major problems. The approach to it should be systematic, commodity by commodity. But the men who do the planning in wheat or cotton or sugar or coffee must be aware that their plans are but a part of a whole, and that the prices which they seek to establish must bear an appropriate relationship to the prices of other commodities in international trade. This is important. Permanently effective action cannot be taken in this field unless each step is related to every other step and to the whole. Indeed, it may be found impossible to work out an effective agreement on a single commodity without bringing to bear economic pressures from other points in the trade structure.
Sooner or later there must be a master plan to which all individual plans are adapted. That whole will be created out of the various parts. Among them will be international commodity agreements.