Remarks at the Correspondent Bank Forum

Wriston, Walter B.

2007

The situation overseas today reminds me of my two grandfathers. One of them was a pioneer who crossed the prairies in the great push westward after the Civil War. He moved from one state or territory to another, seeking schooling and opportunity. During his lifetime he came to know every state in the Union and many foreign lands. His attitudes remained young, his interest in the world around him never flagged. He greeted a changing world as a challenge.

My other grandfather, however, was a Yankee from Massachusetts. He lived and died on the same street in the same town in the same state. Massachusetts was his home, and men of good judgment, he felt, did not leave home.

We in the City Bank can liken ourselves to my pioneer grandfather. Only eight years after the United States felt itself enough of a great power to raise its highest diplomatic officer abroad from a Minister to an Ambassador, we opened our first branch in a foreign country. Every year since then, we have been steadily enlarging our on-the-spot banking facilities, moving into new lands to follow American trade, until today when we have some 6,000 people overseas in 26 countries.

We can contrast this point of view with that of my Yankee grandfather who was taken aback when my family moved to Wisconsin. Only the pull of family ties induced him to make the long journey to our town in the midwest which he firmly believed to be the frontier post, probably uncertainly held by a squadron of U.S. Cavalry. When he arrived at last and found his favorite breakfast sausage on the table, he felt a good deal more comfortable. This was a familiar sight. When he heard that the sausage was actually made in Wisconsin and exported, as it were, to Massachusetts his whole perspective changed.

To a great extent what happened to a Yankee's perspective in Wisconsin is being repeated by many Americans looking overseas today. Just as grandfather was reassured by the sight of a familiar sausage in what he firmly believed to be the wilds of Wisconsin, more and more Americans experience a similar feeling in seeing American cars in, say, the Union of South Africa -- cars that were built by American-owned assembly lines in that country. Almost everywhere one can go today -- Brazil, Japan, England, India, you see many familiar products of American industry. The names of your customers are cropping up in huge signs being hung up over new modern plants in foreign lands. From one end of the globe to the other, the realization is growing that things are different overseas today and that special banking tools and perspectives are needed to capitalize on these changes.

The changes are immense. At the end of the second World War, India, Burma and Ceylon were still British. Indonesia was Dutch. Indochina was still French and China was free. Since the end of the war some 600 million people have achieved independence, an event unparalleled in the history of the world. And the end is not yet in view. In the next four or five years five or six nations will be born. They will have new laws, new currencies, new problems and new nationalistic drives. At the turn of the century it was quite enough for the United States to have but four Ambassadors abroad. If we were so represented in England, France, Germany and Russia, it was enough. Similarly, it was enough for our bank to have a few branches in the dominant countries which controlled the world's trade. Today, we must be represented in many lands moving into the areas favored by American trade and industry.

At the end of the Second World War there were currency controls in almost every country in the world. Trade was at a standstill and many nations faced near bankruptcy. The economies of the world were geared for war. The conversion to a peacetime basis was an immense task. And yet, country after country with the help of our aid has regained solvency, or a semblance thereof. The rate of growth in many countries has outstripped our own. As the shattered economies were rebuilt, these nations became able to purchase goods from your customers. The world is shrinking steadily, making it easier and easier to get around and investigate opportunities. General Norstad, Commander of NATO, has a map of Europe on his wall the size of a desk blotter. Superimposed in the center is a tiny map about four inches square which illustrates diagrammatically and accurately the size to which Europe has shrunk in the missile age.

All these changes and many more are crowding into your backyard and mine. The latest government figures available show that for every $10 worth of movable goods produced and sold in the U. S. market, $1 worth is sent abroad. A large number of American workers depend on exports for their jobs. The primary metal industry, for example, exported products worth over one billion dollars in 1956, which was the equivalent of $865 for every employee in that industry in the United States. If we were to allocate the proportionate share of these exports to the Congressional District comprising Allegheny County in Pennsylvania, for example, it would come to about $87 million. This trade runs both ways, and affects 11 parts of the country. In 1956, Kansas City, for instance, imported over $100 million in food products alone, while their exports in the same category totaled $170 million.

The dollar volume of American exports now exceeds the total production of automobiles in this country, or the money we spent last year in building houses for our expanding population. These expanding markets of the world have brought credit demands upon you and upon us, both as commercial banks acting by ourselves and as members of a group of private and public financing institutions.

The nature of credit we are being asked to extend is changing. For twenty-odd years many a foreign department man lived by the rule that no credit goes out of the bank unless a bill of lading comes in. This principle is a very long way from an unsecured loan to a foreign government. As the economic picture around the world improves, fewer and fewer people use commercial credits. They slide into the habit of documentary collections and many finally into open accounts. But if the economic curve goes down again the importance of having people on the spot to handle the tricky credit or the doubtful collection assumes greater and greater importance. As more and more American exporters sell capital goods abroad on terms of 3 to 5 years in their scramble to get or preserve a market, the pressure is on you and on us to make the capital loan across a currency frontier.

In assessing these new credit demands and in helping to solve our customers' problems constructively, a knowledge of the world as it is changing overseas today becomes more and more important in our daily lives. The world is so large and our time is so short that perhaps one way to highlight this problem is to concentrate on one dramatic example of how different things are overseas today and speak for a few minutes about the Common Market in Europe.

Everyone here is familiar with the great common market that we call the United States of America. There are petty impediments to trade between the 49 states in the form of regulations on various forms of transportation and licensing. Broadly speaking, however, goods, services, capital and labor move freely from one end of the country to the other. We are blessed with a common language, a common currency, and a unique ability to turn a foreigner into an American in one generation.

Europe, on the other hand, is a geographic expression which for centuries has been sharply divided by fierce nationalism which is reflected in tariffs, quota systems, currency wars and shooting wars. The language barriers are complex and even a small country like Belgium must have two languages and Switzerland four. Many people have felt that the dream of uniting Europe economically would always remain a dream. The foundations were built slowly and painfully. First there was the formation of a customs union between Belgium, Luxembourg and the Netherlands. This Benelux Union was the pioneer that showed the way. It was followed by the High Authority for Coal and Steel. This was a more ambitious project in that it encompassed six nations in a customs union, and less sweeping in that it covered only coal and steel. Several attempts at European unification floundered and when in 1954 the French Assembly rejected the European Defense Community, hopes of ever getting Europe together looked dim indeed. The world was somewhat startled, therefore, when on March 25, 1957 six countries of Europe signed the European Common Market Treaty. It was an event that has a distinct impact upon you and your customers. The treaty document itself is long and involved and in some places purposely vague, but it lays out a blueprint for the years ahead envisaging the gradual but steady reduction of all barriers to trade among the member countries, and the raising of a common tariff barrier against the rest of the world. The melding of policies in respect to agriculture and transportation, the free movement of workers and capital, and the development of the resources of the six nations. The Common Market cannot bring a common language, a common currency or a common interest overnight, but it is a giant economic stride. It is not a political union, but economic cooperation may lead to closer political ties. At the same time that the Common Market came into being some 13 nations in the Western European Community made their currency convertible for non-residents. For the first time in decades, a French exporter to Sweden can change his Swedish kronor into Dutch guilders or German marks or U. S. dollars. For those nations outside of the Common market who have been trying to build a Free Trade Zone, the action of the six nations in the market made it mandatory for them to follow suit and loosen their currency controls. Almost 50% of the world's trade still moves in sterling, and if the British wanted to keep it that way, their currency must be at least as interchangeable as any common market issue. The currency reform is another step toward freer trade, but it is a long way from common currency.

These things take time. Even in the United States, which has a central government and a common tradition, it took a long time to standardize our currency. Some seventy years after the Constitution was signed, foreign coins still circulated as legal tender in the United States and in the middle 1800's American paper currency was issued, not only by banks but by business concerns. Many of the notes circulated at heavy discounts from their face value, because they were redeemable only at the point of issue and often by banks lacking more than the local reputation. To run one's business, it was necessary to subscribe to a journal called, "Bicknells Counterfeit Detector and Banknote List." One issue of this useful booklet, in addition to quoting discounts on various banknotes, listed 54 bankrupt banks whose notes still circulated, 20 entirely fictitious institutions, to say nothing of over 1,300 counterfeit notes.

It was not until the National Banking Act of 1863 and subsequent legislation that all notes except those issued by the national banks were forced out of circulation. This is merely an illustration of the difficulties inherent in these plans. The Common Market and the limited convertibility of currencies augur well for the future, but there will be many discouraging days and probably dangerous dislocations of trade and huge political problems. The path toward freedom, either political or economic, is always dangerous and many nations will undoubtedly face new balance of payment rises.

The immediate impact of limited convertibility in Europe on the American exporter is not tremendously significant because discrimination against dollar goods still exists. Nevertheless, the direction the world is moving and the technical provisions of the treaties forecast the eventual if slow removal of this discrimination against dollar goods. The medium and long range impact on your customers will, therefore, be significant. The robust condition of the European economy and the relaxation of trade barriers is a dividend on the Marshall Plan. Our own American trade policies as expressed in the renewal of the Reciprocal Trade Agreements and customs simplification gives hope that we will permit foreign countries to pay us for our goods by selling us their products.

The people in the Common Market number some 164 million and produce a gross national product of about $150 billion. While this figure may sound small to you, it is growing at an annual compound rate of 4 1/2% against 3.8% for the United States. The capital expenditures in the Common Market average over 20% of their gross national product which is higher than in this country. On the other hand, their customers' durable outlays have been far below what we regard as satisfactory in the U.S. This low spending on consumer goods is in itself an indication of the potential market for your customers' goods and services. As the benefits of economic integration are felt, more and more people will be able to purchase more and more. In 1957 our exports to the Common Market area were about $3.2 billion, while we imported about $1.5 billion from them. The figure should grow, but it will not all be smooth sailing.

The Common Market in its initial stage is a fact and not a dream. It is a reality with which we must deal. It is not an economic wonder drug -- it is more old fashioned, slower acting remedy. It will take 12 to 14 years for all the terms of the treaty to become effective. The tariff barriers that will be raised will cause American industry to rethink their problem. The pricing of American exports will become more and more important. Already we are priced out of many markets around the world. As the external tariff wall is built around the Common Market, it will be more and more difficult for American made goods to compete. Many an American company has read the handwriting on the wall and established plants and subsidiaries inside the tariff wall. Not only do such arrangements give tariff relief, but also they allow American firms to take advantage of lower labor costs obtainable in that area. As the Common Market gets underway, the book value of American investment in subsidiaries in that area is almost $1.5 billion. This direct investment has almost tripled since 1949, and is growing steadily. If we look around the world, the trend is toward the establishment by American firms of foreign subsidiaries. The best estimates indicate that the sales of goods turned out by U.S. owned factories overseas are probably about 50% greater than America's total export sales. These sales produced earnings of about $3.3 billion in 1957 -- a staggering figure.

As necessity and opportunity dictate the establishment of plants in Brazil, Cuba, Venezuela or India, management is faced with a host of questions. Can profits and capital be remitted? What is the long term outlook for the currency? How big, how rich is the potential market? What kind of labor laws are there? What is the availability of local working capital financing? All these, and many more questions must be answered. To serve our customers today we need a constant and accurate stream of information from overseas. If that information is compiled with the American manufacturer in mind, it is all the more useful.

While the Common Market of Europe is dramatic incident of how things are different overseas today, it is only one example. One could just as easily use the developments in South America. For example, one could mention that the dollar income from oil of Venezuela jumped from about $66 million to more than $1.5 billion in 16 years. You could dwell on the fact that before the second World War the Middle East was a wholly insignificant supplier of oil to the world, exporting only 250,000 barrels a day. Today the Middle East pours forth almost 4 million barrels a day. We could talk about the revolutions shaking the African continent and the importance of uranium which flows from that continent to the stockpiles of the free world. The dramatic recovery of Japan is an engrossing story that holds many portents for the future. India and Asia reflect huge changes and attacking their problems staggers the mind.

Make the list as long as you wish but everywhere you look the world gets smaller and its importance crowds in upon us all. As you will recall, the Battle of New Orleans, the bloodiest in the War of 1812, was fought weeks after the peace treaty had been signed -- our sailing ships were too slow to carry the news of the armistice. Contrast this today with the fact that planes regularly cross the Atlantic in 6 1/2hours and span our continent in 4 1/2. In a normal 12--day period airlines carry across the North Atlantic as many people as went overland in the heyday of the '49 gold rush to California. Trade is a two-way street and the dependence of industry in your cities and states on imported raw material is growing steadily greater. A long forward look was taken at America's growing dependence on foreign raw materials by the Paley Commission in June of 1952 which reported to the President on its estimates of our requirements in 1975. At that time it was estimated that we would have to import 44% of our copper, some 75% of our lead, 33% of our iron ore and over 55% of our zinc. In the first five postwar years, the United States used 45% of the world's total tin production, although during that time we produced only 75 tons of tin.

All these changes will mean opportunities to serve our customers and earn money for our stockholders.

My stay-at-home Yankee grandfather would have been slightly distrustful of it all. He well remembered the--Civil War when this nation almost foundered, some eighty-five years after independence, but civil strife in foreign lands would somehow seem different to him. On the other hand, my pioneer grandfather lived to see and savor the great changes in the postwar world. He saw in the changes opportunity and challenge. He recognized the need for new and accurate information that comes through travel. The problems that we face in a changing world are immense, but the tools we are developing should be equal to the task.

 
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  • The document was created from the speech, "Remarks at the Correspondent Bank Forum," written by Walter B. Wriston for the Correspondent Bank Forum on 7 February 1959. The original speech is located in MS134.001.001.00002.
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