37427PRIVATEENTERPRISEIN

ECONOMICGROWTH

Panel DiscussionEDGAR F. KAISER United States

CHAIRMAN

GUNTER HENLE Germany

NEVILLE N. WADIA India

VICENTE RIBEIRO Brazil

J. L. S. STEEL England

PI Fl a`; A

Second Annual Meeting of theBoard of GovernorsINTERNATIONAL FINANCE CORPORATIONNew Delhi, IndiaOctober 8, 1958

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PANEL DISCUSSION

Second Annual §Meeting

of th?e

Board of governors

of the

Jnternational QEinance Corporation

7New Delthi, 7nidia

October s, 9 5

IFC OFFICES

WASHINGTON LONDON PARISIRIS H Str,et N W 17 Old I--rv A7 - I ll-

F R E W O R D

This discussion, presented by private industrialists from five countries andbased on their own experience, represents their beliefs and views on thesignificance of private enterprise as a system and a dynamic force in thedevelopment of a country and the continued growth of free men.

Free enterprise has evolved over the ages out of the experience ofmillions of individuals. They have concentrated, each in his own fashion,on devising, producing and selling goods and services, each seeking rewardsfor his efforts in providing the means of better living for more and morepeople.

The private businessman has not seen the need to develop a formalcreed, nor to explain or justify his system. But in our times collectivisteconomic systems have been brought forward. They are the product ofintellectual theory based on elaborate dogma with highly developed dialec-tics. Their proponents are tireless in their arguments and propaganda,which are persuasive to many people.

Faced with this condition, private business now is realizing that it mustlearn to explain and justify itself intellectually as well as through its actions.

The freedom to acquire and own property is one of the essential free-doms of man. History, I believe, shows clearly that where the individualhad no right to own and manage property, he has likewise had no otherfreedoms-freedom of speech, of press, of religion, of assembly, and ofliving as an individual. Today, history repeats itself. In those lands whereman is not free to own property and to choose his vocation he does notenjoy those other freedoms.

We must remember that freedom is indivisible.

ROBERT L. GARNERPrcsident

International Finance Corporation

PRIVATE ENTERPRISE IN ECONOMIC GRO WTH

I

Interdependence of Businessmen in the Free World ................ 5

EDGAR F. KAISER, PANEL CHAIRMAN

II

The Climate for Private Enterprise ............................ 7

DR. GUNTER HENLE

III

Potential Contributions of Private Enterprise to Economic Growth .... 16

NEVILLE NESS WADIA

IV

Ingredients of Private Enterprise ............................. 23

VICENTE DE PAULA RIBEIRO

V

The Responsibilities of Foreign and Local Business in Economic Growth. 30

J. L. S. STEEL

VI

Closing Remarks of Chairman .............................. 36

Interdependence of Businessmenin the Free World

INTRODUCTORY REMARKS

EDGAR F. KAISER

President, Kaiser Industries Corporation, Oakland,California and its 61 operating divisions and affiliatedcompanies, including Kaiser Aluminumii & ChemicalCorporation, Willys Motors, Inc., and Kaiser Engi-neers. The Kaiser organization cas operations ande

effiliates in T ore than 18 foreign countries. and

Mr. Kaiser has been an industrialist and officer of theKaiser organization for more than 20 years. Duringthose years he has been associated in directing itsdiversified activities including engineering, automobilemanufacture, shipbuilding, aircraft and electronics manufacture and steel andcement production. The Kaiser organization produces more than 300 productsthat are sold around the world.

MR. GARNER AND HIS ASSOCIATES asked me to open our meeting this afternoon

with the subject-"Interdependence of Businessmen in the Free World."Before so doing, my distinguished colleagues and I would like to express to thehost country, India, our appreciation for the gracious reception we havereceived-not only at New Delhi, but at all ports of entry in India. We all sharethe feeling of warmth and friendliness that has been extended to us by thepeople of India, who have made our visit to this conference most welcome.

On the subject of "Interdependence of Businessmen in the Free World,"I think I would like to drop the words "in the Free World." I am sure I sharethe same beliefs in freedom, democracy, and the rights of an individual as allof you here today. It is my belief that a peaceful world means all the world,and that interdependence must be global. This simple quotation expresses it all:

Neither the nman nor the MasterEver ha.s biil/ded alone.Making a -ooJffroi 7 the weather,Or building a houise for the king-Only by working together-Have men accomplished a thing.

A few men of vision have, through the last few centuries, from almostevery country in the world, foreseen the necessity of a world working together.

5

I think it is fair to say, however, that only since World War II have the peoplesof all nations become acutely aware of one another, and, in so doing, haverecognized the enormous differences in their economic status. Due to therelatively recent rapid development of communications and transportation-radio, motion pictures, the airplane-those people in the world who haveaccepted their meager portion for centuries now know that abject poverty isnot the inevitable lot of the common man.

These people know that whole nations in other parts of the world haverisen to high economic levels. Next to self-government, this "revolution ofrising expectations" now becomes a first objective.

Fortunately, because of the growing awareness of the difference in economiclevels-this gap-is not limited to one side. The economically advanced peopleof the world are now convinced-evidence our meeting here in New Delhi-that their own advances cannot be kept unless they hold out a helping hand tothe people who still have far to come. And, while I believe that there is still astrong element of "doing good" in the widespread desire to help raise theliving standards throughout the world, I think most of us welcome the growingrecognition of mutual self-interest, since it eliminates the element of charitywhich can be so distasteful to both.

Meeting here together this afternoon, we of "private enterprise," are nota group of salesmen for a certain philosophy, nor are we apologists for a certainexclusive system or method. We come from widely different backgrounds andcultures. We share a confidence in individual ability and capacity. We areconfirmed in a belief that man's salvation does not lie in any cut-and-dried,blueprinted system of life, but that progress and achievement-and a happy,productive world-rest upon the infinite decisions made by individuals col-lectively dedicated to these purposes.

Our four speakers today are each businessmen of great stature in theirown right, and, as businessmen, they are industrialists and financial men. Theyhave obvious business and industrial functions to perform. Yet, the responsi-bilities of a businessman cannot be so simply defined. It is, therefore, in an areaof further definition that these men speak to you today on the subject of "PrivateEnterprise in Economic Growth."

I should like to introduce these gentlemen to you:

DR. GUNTER HENLE, of Germany

MR. NEVILLE N. WADIA, of IndiaMR. VICENTE RIBEIRO, of BrazilMR. J. L. S. STEEL, of England.

6

The Climate for Private Enterprise

DR. GUNTER HENLE

Partner and General Manager, Kloeckner & Company,Duishurg, and Chairman of Kloeckner-Werke AG andKloeckner-Humboldt-Dentz AG.

Dr. Henle served in the diplomatic service of Germanybefore joining Kloeckner's in 1935. Dr. Henle is alsoassociated with banking, insurance, and a variety of Jindustrial interests in Germany. He has served inrecent years as a member of the Economic Council,the Bundestag, and as a delegate to the European Coaland Steel Community. Since 1955, he has been presi-dent of the German Council of International Affairs.

WHAT SORT OF CLIMATE does private enterprise look for in a developing countryif it is to take an active part in its economic growth?

The purpose of my discussion is to try to answer this question. When I sayclimate, I mean the complete picture of legal, economic, political and psycho-logical conditions which exist in the nation. If these conditions are favorable,then private enterprise will engage itself in a country. In cases where the presentclimate is still unfavorable and troublesome, it is in the hands of the governmentto bring about appropriate changes to improve the climate-provided, ofcourse, that the government in question attaches value to the cooperation andassistance of private enterprise.

The factors of which I am going to speak are, for a great part, of such anature that any government can mould or fashion them. This, of course, doesnot apply to certain fundamental matters, such as the country's geographicalsituation, its natural characteristics, which types of raw materials are available,whether there are domestic oil or coal deposits, or whether there is sufficient orlittle water power at hand. These are all points essential for potential economicsuccess, but they are beyond the control of any government. Another con-ditioning factor is the stage of development already reached. This varies fromcountry to country, but it must be the starting point for any consideration ofeconomic expansion. This stage depends on circumstances belonging to thepast and, consequently, can no longer be changed.

7

I believe it lies within the power of a government to establish or implementthe conditions which regulate the speed of the economic growth. The determi-nation of that speed will depend largely on the degree of development whichhas already been reached. We are keenly aware that there are, on the one hand,countries still completely undeveloped and, on the other, countries already sofar advanced that they scarcely fall in this category. Yet, this much is certain:the form in which private enterprise can successfully participate in the economicbuild-up depends on the existing stage of development of basic facilities-thatis to say, the construction of means of communication, harbors and powerplants, and I would add the rational growth of the country's agriculturaleconomy since it forms the natural basis of subsistence in every country. Giventhese factors, one should initiate cautiously, and without undue speed, asimultaneous program designed to develop industrialization. Once the pro-duction of domestic raw materials is running smoothly, then foreign privateenterprise can effectively and helpfully step in with direct investments andcapital commitments. It may be that for the basic development of native rawmaterials, a new and special form of cooperation between the government, thelocal economy and foreign private capital will have to be found. If, however,the stage of expansion of domestic industry is already well under way, thenthe foundation is laid for stimulating a continuing growth of the entire economy.The unrestricted participation of private enterprise would contribute dynamicallyto the intensification of this growth.

This brings me to the political conditions. They are decisive in determiningwhether the climate is one in which private enterprise can participate. Asregards the general political situation in a country in which private investmentsare envisaged, it is obvious that private entrepreneurship prefers countrieswhich maintain political continuity and stability and in which social disturbancesand political upheavals are not at all times within the bounds of possibility.As self-evident as this proposition may seem to be, it touches upon a mostdifficult problem. For transition from a hitherto stagnant economy to one ofrapid growth must perforce induce changes and regroupings in the socialstructure which will inevitably call forth political reactions. These reactionsmay often create a disturbing element that can easily imperil political continuityand stability.

This means that development can never be a purely economic process butis, at the same time, one of social and political growth to the new living con-ditions or way of life and the new state of mind arising therefrom. The soonera government recognizes this-and the better it grasps how to carry out thenecessary re-formation and reconstruction of the social and political structure

8

in a peaceful way-the quicker the pace of growth will increase. Of course, thespeed with which a country can grow is moderated by the realities. If theserealities are given a chance to govern, then the speed will be regulated so thatit does not cause situations which will check and impede progress. Moreover,the country will then be more attractive for private enterprise and a participationby way of capital investments.

Apart from these general requirements, there are numerous other condi-tions which depend on governmental measures that are conducive to theestablishment of a favorable climate for private entrepreneurship and foreigncapital investments.

First,financial policy is to be considered. We all realize that a stable currencycreates a favorable climate. Exporters of capital can be expected to be reluctantto invest in a country where there is open or latent inflation which presents atleast an additional risk. But here too it is easier to recognize the danger thanto obviate it. It is very difficult to initiate, with the aim of progressive industri-alization, the economic development of a country without conjuring up at thesame time a certain danger of inflation.

The danger of inflation is greatest in the earlier stages of industrialization.Ready cash is required for investments where domestic savings are eitherinsufficient or can not be obtained by cutting down the consumption eventemporarily. Indeed, the process of industrialization is usually accompanied bya great demand for imports; for consumption increases as soon as the rise inincome resulting from increased production becomes apparent. The process ofimporting goes on in a developing economy until the whole industrial complexis in balance. For this reason, special caution at that stage is always advisable.A too-rapid absorption of foreign capital by a national economy can easilyexceed the saturation point, and, as a consequence, either inflation occurs orelse the projects are finally left half-finished.

The problem, therefore, is to find a sound middle course which will ensurethat the process of development is a balanced and a healthy one. Occasionaldifficulties in connection with price increases and the balance of payments maywell be unavoidable. They should not be taken too seriously as they can beovercome. What must be avoided is resorting to a state-controlled economicpolicy which leads to a shutting off of the world market and its free trade, aswell as blocking the sources of foreign private capital.

The important role played by taxation is also the responsibility of govern-mental financial policy. I may perhaps count on your indulgence if, in thepresence of so many ministers of finance from all over the world-with whomwe so generously share our income-a private businessman cannot resist the

9

temptation to touch at least briefly on this subject. A great deal can certainlybe achieved through taxation and fiscal policy, but such measures can alsoeasily inhibit or thwart completely the activities of private enterprise. This willspecially be the case if the screw of income tax is turned too tightly, or if profitsabove a certain level are altogether wiped out by taxes. The price-raising effectof excessively high taxation and the concomitant inducement to wastefuleconomy are certainly no longer disputed by anyone, but experience has shownthat a long road separates the correct assessment of a position from its politicalrealization. This can be said of governments of both kinds of countries, theindustrialized and the new nations. Conversely, by promoting developingindustries through benign tax rules, governments have at their disposal asuitable means of stimulating private enterprise to investments. The developingnations need revenues. They are tempted to create these by inflation. Inflationresults in a greater need and, consequently, they are faced with the vicious circleof more inflation and spiraling prices. These countries must face the majorproblem of how much taxation they can take without stifling or impedingeconomic growth, particularly that of private enterprise.

Yet another point, which applies to the developing countries in particular,is the accumulation of savings. This is of fundamental importance; for taxation,which is too heavy, impedes savings. There can be no successful economicgrowth without the formation of capital through savings. The function offLreign capital can only be to give the initial impetus to, and invigorate, theprocess of development. It never can, and never should, be the sole supporterof such a developing process.

Besides the problems of financial policy, there are those of economic policy.Laws, regulations and rules should be designed to utilize to the fullest thedynamic force of private enterprise-domestic and foreign. Foreign companiesenvisaging direct investments must be able to obtain licenses for the operationand expansion of private enterprises. Furthermore, existing regulations mustpermit the importation of equipment and, if necessary, of requisite raw materialsas well. The same must apply to the export of finished products, for industri-alization is only placed on a sound basis, when not only domestic consumptionbut also the world market and its conditions have been duly taken into account.It stands to reason that during the period of expansion and growth no developingcountry can completely dispense with a reasonable protective tariff. However,this should never lead to the development of industries that have no prospectof ever competing in the free world market.

Foreign business must have some assurance of laws and regulationsremaining the same over a long period. But private enterprise, if it is to operate,

10

must have freedom of action. There is a necessity for certain rules, but thesemust not put it in a straitjacket; for the nature of private enterprise is flexibility.The positive thing which can be done by the governments of the developingcountries is to bring their laws up-to-date and to clear away obsolete laws. Itmight even be suggested that they look perhaps to some extent at the laws ofthe capital-rich countries, where private enterprise has brought it to a state ofgreat perfection. It was able to reach this state by following the principles of amarket policy governed by competition, which was decisive for its development.The element of competition has made the economic life of the countries dy-namic, and has led to continuing progress. It can, of course, also make decisivecontributions to the new nations which effectively stimulate all aspects of theireconomic growth. Only a formation of cartels would have to be avoided at thesame time, because if they are permitted without strict limitation, they can onlytoo easily force the economy off its healthy course.

Last, but not least, let me mention in this connection the social and labormarket policies. Even in the most highly rationalized and automatized modernplants manpower or labor force is a fundamental factor of the economy. Andthis being the case, the labor laws of every country seeking the cooperation ofprivate enterprise are of the utmost importance for the creation of the requisiteclimate.

It is, of course, impossible to lay down any general rules, since conditionsin the individual countries differ widely. One country has a surplus; anotherlacks manpower. But for the question of direct investment by private business,it is of vital importance whether a country has a sound social and labor policy,and particularly if it permits or excludes foreign skills. For the development ofnew industries, the admission of foreign labor is often indispensable until asufficiently large number of adequately trained and practiced home operativesare available. A restrictive policy about the admission of foreign personnelautomatically deters private enterprise from long-term commitments.

Thus, governments have a broad field and the extensive means at theirdisposal to create a favorable climate for private enterprise if they desire.

And now I turn to what I believe is the most important factor within theframework of the topic under discussion, the psychological conditions thatdetermine the climate for private undertakings. Let us not deceive ourselves:herein lie the greatest problems, and here are the most difficult obstacles toovercome. First of all, there is a quite general reason for this: in countries whichare not aware that over the past century and a half, the character of privateenterprise has changed and kept pace with the great technological progress ofthis period, there is often great prejudice against private entrepreneurship. Such

11

a prejudice is, in addition, purposely exploited by those who reject privateenterprise in principle. According to them, it consists only of avaricious profit-eers bent on exploiting their fellow men and of whom one must thereforecarefully beware. Even the profit motive is suspect.

An atmosphere charged with such assumptions and such distrust naturallycreates a situation in which private enterprise finds it hard, even impossible, toflourish. The real truth behind all this is something very simple and easilycomprehensible. The function of a businessman is not, by nature, that ofrendering a public service; private undertakings are true creatures of economiclife; that is, they belong to that sphere of human activity which aims at pro-ducing and marketing commodities under conditions that permit or encouragea profit. But that is true of all economic activities, even those which are fullystate-controlled, except that in the latter case all the profits go to the government.It was Samuel Gompers, that now legendary old man of American trade union-ism, who characterized "failure to operate at a profit" as a company's worstcrime!

But the really important question here is, who is to gain by such an eco-nomic pattern. First of all, the idea that only the entrepreneur is to profit isabsolutely wrong. Profit constitutes an increase of property values and thisincrease is divided among all those who have an active share in the economicundertaking concerned. The bulk of the profit will be reaped, first of all, bythe entire economy of the country in which the business activity is located, andthus it goes to the people themselves. For, every investment envisaged by aprivate enterprise stimulates and invigorates the economy of the country andsupplies the people with commodities that were formerly unobtainable-or onlyso at much higher prices. It provides employment and with it earnings andsavings for the people. Not only the producer profits, but also every consumer.For every private enterprise it is important to win partners in other countries,not to make profits from them, but to achieve profits with them, and thus toincrease the general prosperity for the community and for the individual. Tosay, therefore, that only the entrepreneur realizes a profit is no more thanrelating a fairy tale.

Of course, private enterprise also aims at realizing a justifiable and properreturn on its capital investment. The possibility of realizing such a prospectiveprofit for all participants, including the entrepreneur, has from the very begin-ning of time been the vital spark of economy and with it also the fundamentalprerequisite of private economic investments in one's own, as well as in foreign,countries. Investment means an investment of capital, and every investmentexpects a sufficient return on the money employed. It is essential that profits

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be offered to capital, or capital will not be attracted. Therefore, a minimumlimit has been set which must be adhered to if there is to be any monetaryinvestment at all. That limit is determined by the interest rate, which, as youknow, fluctuates according to the time and the country and is affected byvarious financial and economic factors. Only when it reaches the noncompetitiveand unreal low rate of 21/2% (at which credits have already been granted) doesit indicate that political considerations have been a co-determining factor.

However, for private enterprise and its readiness to invest, interest ratesprovide no more than a general clue. For the question of interest plays a muchsmaller role in direct investment and participation of private business thanit does in the loans and credits of the large financing institutions. On theother hand, business undertakings must attract venture capital which has anopportunity to earn more than straight loan capital. For the higher the profitopportunities are, the higher are the loss possibilities. Venture capital wants arun for its money. The more risk-loving the enterprise is, and the more capitalit has at its disposal, the more ready it will be to forego rapid profits at thebeginning and during the period of development, in anticipation of the laterprosperity of the project in which it invested its capital. Furtner, whereas loansalways require commensurate amortization payments in addition to interest,the equity investments of private enterprises abroad are, as regards returns,dependent on the degree of profits realized and the success of the undertaking.During periods of business recession revenues decline automatically anddecrease the pressure on the country's foreign exchange balance since theamount due for transfer is correspondingly reduced. Often such a transfer doesnot take place at all because the private enterprise reinvests the profits inindustrial expansion. Moreover, in direct investments there is, in any event,hardly any repayment of capital. It should also be mentioned here that indirect investments and capital participation the capital flows directly intoproduction. It can, therefore, lead less easily to an over-extension of credit withinflationary tendencies and thereby endanger the stability of the currency.

Thus, viewed soberly and I hope dispassionately, is the whole problem ofprofit-making. Naturally it is possible for abuses to occur and they do. It wouldbe an exaggeration to claim that the big private industries of the free world areeverywhere, and under all circumstances, models in observing a strict code ofethics. But the caricature of the modern capitalist bent on defrauding andexploiting his business partner and the public is, of course, a caricature andnothing more. An enterprise guilty of unfair business methods soon loses itsstanding and with it, its competitive ability. As regards the business partnersin the developing countries, difficulties occur not so much because of differences

13

of ethics, but simply because they are frequently not to be found, or if so, inonly insufficient numbers and without adequate experience. This is not surprisingand lies in the nature of the case. It will take time before this gap is closed.

I trust that I have covered the essential points of my theme. It is a hopefulaugury for private enterprise to hear that recently the government of a Southeast-Asian country has given recognition, in an extensive plan, to those legal prin-ciples which alone are suitable and qualified to bring the problem of privateenterprise in the developing countries decisively closer to a solution. In orderto attract foreign capital to Asia and protect it there, that project envisages aninternational charter, which will safeguard the investor from one-sided restric-tions or expropriations. In return the capital import countries are to receiveguarantees that the capital investments would not serve exclusively for projectsof exploiting their natural resources but that the countries themselves wouldreceive a commensurate share of the profits. This is reasonable and complieslargely with the request made repeatedly by capital export countries, thatreliable guarantees should be made which protect them against one-sidedrestrictions or expropriations. In fact, this appears to be a point of specialimportance; for the lack of such guarantees is a serious obstacle which detersoffers of private foreign capital for the economic growth of other countries.

These, then, are the contours of the general prerequisites to a healthyclimate for the cooperation of private entrepreneurship in the economic ex-pansion. After all, those who guide private firms are themselves sensitive enoughto find it not particularly pleasant to be looked upon as a necessary evil as longas they are needed, and whose activities and efforts are immediately restricted,or who are politely ushered out as soon as they are thought to be wanted nolonger. Here is something quite imponderable but most important as far as theattitude of the people in these countries is concerned. It makes a big differencewhether they are hospitable, whether they just tolerate private enterprise, orwhether they are suspicious of it.

However, I do not wish to create the impression that it depends only uponthe governments and the people of developing countries, whether a favorableclimate for private enterprise exists, or is created. Private business itself musttake its own contribution. Since this side of the problem is not the subject ofmy discussion, I would like to confine myself to the observation that the contri-bution of private undertakings would be greatly facilitated by closer contactsand exchanges of experience between businessmen from all over the worldinterested in the economic growth of the new nations. It would be most desirablethat such contacts and exchanges of information be organized as soon aspossible. Perhaps, a useful starting point for that is offered by today's meeting

14

arranged by the International Finance Corporation, for which we are greatlyindebted.

What the world needs-and this is equally true of private entrepreneur-ship-is confidence and security. Confidence is based on reciprocal understandingand hardly anything appears to be more appropriate to achieve this in ourworld, grown small by science, than economic collaboration on a secure legalbasis, and in good neighborly spirit. Today we must all work together. Mr.Nehru, Prime Minister of this great country, whose guests we have the honorof being, remarked in a speech in Washington in 1956: "Today the wholeworld is our neighbor and the old division of continents and countries nowmeans less and less." Everyone would agree with him. Neighbors must learn tounderstand one another and to work together to a profitable and mutuallyadvantageous end. The more direct and mutual the human contact, the easierit will be to achieve this aim. No other possibility offers an equally advantageousway to realize that aim than the development of private enterprises, whereinlocal born and foreigners work together in conditions of mutual trust.

For after all, less depends on dead capital than on the living men whom agreat task brings together.

15

Potential Contributions of Private Enterpriseto Economic Growth

NEVILLE NESS WADIA

Chairman, The Bombay Dyeing & ManufacturingCompany Ltd. and Governing Director of NowrosjeeWadia & Sons (Private) Ltd. of Bombay.

. i Mr. W.adia is an industrialist with a wide range ofA 4 interests in India. He is also Chairnan of National

Peroxide Ltd., Bombay Ring Travellers Co. PrivateLtd., The Nowrosjee Wadia Ginning & Pressing Co.Ltd., and the Cotton Textiles Export PromotionCouncil.

THE OBJECT OF ECONOMIC GROWTH in a democracy is to supply the material

wants of a society which already enjoys freedom of speech, association andreligious worship. This is achieved by giving the maximum scope to the indi-vidual to develop his talents for the benefit of all concerned. In a totalitarianstate the primary object is political and military power usually at the expenseof the fundamental freedoms, the desires of the citizen being of secondaryimportance.

In a country wishing to develop rapidly, all must put their shoulders to theeconomic wheel. The totalitarian method would be to bind men and resourcesto its spokes and to sacrifice freedom ruthlessly and permanently to the paceof progress. Where freedom reigns the rate of advance is subject to the limit towhich the people are prepared or can be persuaded to allow temporarily anencroachment on their liberty. In the early stages, when the effort required toturn the wheel is the greatest, the encroachment may be extensive but will onlybe tolerated if relaxation is assured as speed is gained.

The primary duty of the government of any country is to show the way bypresenting to the nation a carefully considered realistic plan to guide and directits efforts and to channel its financial resources into projects which should begiven priority. It should keep a constant watch on signs and inflation, and inparticular the amount of deficit financing.

The road to prosperity is so broad and long that there is little point in theargument as to what should be done by the State or the citizens on their own.

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Few will dispute that roads, railways and large irrigation works may be theconcern of the State. For the projects which any government decides to under-take it is most important that it should employ the best means to carry themout. While undoubtedly credit must go to the engineers who are responsiblefor the Bhakra Nangal project here in India, the fact that the Government ofIndia engaged the most experienced man available is most praiseworthy.

If the State devotes its attention to major schemes of this nature it willfind that it is as much as it can do with the limited financial and administrativeresources at its disposal, besides performing its primary duty of governing thecountry. Turning to the other end of the industrial scale, none will dispute thatlight industry and consumer goods are best handled by private enterprise. Evenwhere the picture is not so clear the criterion should be, "Who can do it mostefficiently, quickly and economically?"

Planning itself is no easy task, but implementing a plan is a most difficultoperation.

The shortage of good executives, technicians and skilled artisans imme-diately becomes apparent. It is, therefore, vitally important that everyone ofthem must not only be utilized to the best advantage, but also must be enthusi-astic enough to give of his best. Only the spirit of these men will lead a nationto economic victory.

Most projects in the private sector are designed to bear fruit in a com-paratively short time, thus providing fresh capital for subsequent ventures.Only with more individuals striving to develop more industries can the wealthof a nation grow more rapidly.

The financial resources, therefore, for the private sector must be generatedfrom within while those for the government projects are derived from taxesand loans subscribed by private institutions and individuals. Excessive draw offby these means will make the private sector anaemic and result in diminishingreturns. However, inadequate transport, due to lack of funds, may stifle distri-bution and cause indigestion. But the basic fact remains that in a democracythe Private Enterprise cow must be adequately fed if she is to produce enoughcapital to meet all the needs of the nation.

As long as the wealth inside the country is insufficient to meet its capitalrequirements, it must be augmented by supplies from abroad. If these are madeavailable on a government level, there is the necessity of guarding againstpolitical strings. The international organizations, which are assembled here atthis moment, offer alternative sources. One would like to see greater use beingmade of them. This could be brought about by larger contributions from their

17

members, and by keeping rates of interest in line with those prevailing in the

borrowing countries.

Foreign private investment is free of political considerations, but must be

weaned away from its preference to stay at home. If the climate is sufficiently

attractive, there will be many joint ventures bringing in not only capital but

the 'know-how' essential to go with it. Capital in this form, of course, will be

subject to the laws of the State, and the alterations made from time to time

by its Parliament.

To say that private enterprise is interested in industrial development is to

utter a platitude. In underdeveloped areas, the State takes up industrial pro-

motion with the object of covering the lag. Thus, both sectors have the same

purpose. There is a vague feeling that the difference lies in the attitudes of the

two to profits, that private industry alone is interested in profits and that State

undertakings are, or should be, indifferent to them. This must not be so. Whether

in private industry or in State enterprises, inability to make both ends meet

and have a little over is a sure indication that something is wrong somewhere.

Either it is bad management or there is some other consideration to which the

objective of adequate returns is subordinated. And, this is a point which cannot

be too strongly emphasized-there is in industry no more important motive

which can be economically and basically justified and more honestly expressed

than the profit motive. It is ironical that all too frequently a well-managed

company is treated with suspicion because it makes good profits; whereas a

poorly run concern which loses money, often gets undeserved sympathy.

The benefits which a well-managed and prosperous industrial enterprise

brings to everyone are far and wide. What was a poverty stricken village yester-

day, is a flourishing small town today. Local raw materials are consumed in

volume-ancillary workshops spring up to feed the main industry and subsidiary

industries arise feeding on it. With more money to spend, the commercial life

of the community grows apace. Products beyond the pockets of the previous

inhabitants are now in daily demand. New shops spring up to supply them.

More houses are built, and with the growth of the community come new schools,

hospitals, roads and recreation. A middle class is born and with it ambition,initiative and enterprise anew. Who amongst us can appreciate what our home

town looked like when our fathers were boys.

Private enterprise has many advantages. There are benefits for all whoparticipate in it, whether he be investor, owner, technician, worker or consumer.The investor has the choice of spreading his investments, not only in the whole

range of industries, but also in particular units which suit his purpose best.

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Some may be interested in a steady income; others may look for capital appre-ciation. Whatever it may be, he has the freedom to use his intelligence and toplace his hard earned savings with the concerns he trusts.

None will deny that management, in the private sector, is free to act, andtake prompt decisions. The ability of an executive to judge and operate in themarkets in which he buys his raw materials or sells his finished products is oneof the greatest factors in the results which show up at the end of the year. Asuccessful managing director must have the personality to lead his team, theknowledge to demand their respect and, after studying the facts and listeningto the opinions of his lieutenants, the courage to take the right decision. Hemust be able to select and adopt new ideas, and organize their implementation.There are many qualities required to make a good executive, but few who havesufficient of them. That there is room at the top is true everywhere in everybusiness, and there is no limitation to any one proving his worth.

It is said that an ounce of practice is worth a ton of theory. Apart fromthe employment a private industry provides him, the technician is given theopportunity to test his theory and develop his individual talents. The confidencehe gains with the respect for his opinions will strengthen his desire for constantimprovement. What is of supreme value is the recognition which his worth isbound to receive in a free economy. So long as it is fully recognized in theconcern where he is working, he will not seek to go elsewhere. And so long ashe is free to go elsewhere, the concern will give the fullest recognition to hisworth. Without an alternative employer to go to, this advantage is denied to him.

The remarkably high standard of living of the worker in the industriallyadvanced democracies is due to the continually rising wages made possible bythe share he has acquired in the prosperity of the industry in which he works.He has been free to demand and fight for his rights, and in the vast amount ofcases agreement has been reached with a ready understanding between hisrepresentatives and those of management. When negotiation has failed, referencehas often been made to a third party, usually the State. In a mature economy,direct negotiations are the rule, and third party awards, even when the thirdparty is the State, are given with a view to healing wounds and surmountingemergencies. In the case of a government-run organization reference to a thirdparty is difficult, as the employer is the State. However strong the case of aparticular section of government workers for an increase in pay, the reper-cussions and the cost of applying that increase to all government servantsfrequently makes even independent awards impossible to implement. Suchdecisions are difficult for the worker to appreciate, and lead to discontent andfrustration.

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Variety is the spice of life. No private concern can ignore this. Its object

must be to please the customer just that much more than its competitor, and

to keep ahead necessitates constant change. One of the greatest benefits to

consumers is the choice made available by competition. Quality, price, style

and pattern are all designed for their pleasure.Modern competition is complex, consisting not only of these points, but

also of such things as reputation, service, market research, advertising and

public relations.But the advantages of competition would take many chapters to recount.

Its use as a cut-throat weapon to eliminate all others in the field is a thing of

the past. Several countries have taken steps to ensure its continuation-The

Anti-Trust Laws in America and the Monopolies and Restrictive Practices Act

1948 in England are two good examples. Even the giants of industry in those

countries dare not expose themselves to the law.In advanced countries where competition abounds, the duty of the State is

to ensure that the public is sold wholesome, healthy, hygienic and not fraudulent

goods. As long as there is sufficient to meet the demand, price and quality take

care of themselves.The elimination of competition sets in train a series of undesirable conse-

quences. It destroys the criterion by which production can be gauged. Without

competition there is no way of telling whether output is efficient or economic.

Almost any quality becomes acceptable at any price. No amount of self-criticism

can replace the hard school of keen competition. Those who have never been

through it belittle its value and display a false sense of achievement when

projects go into production years behind schedule at costs far exceeding the

original estimates. A mentality is created which assumes that someone must

find the extra funds, and little attempt is made to work within a capital or

revenue budget. In the case of a private project the management has to make

do with the capital subscribed and account for every penny to a board of

experienced businessmen. Executives who are proved to be incompetent or

extravagant soon find themselves replaced.Those who decry private enterprise take delight in pointing out the mal-

practices of a small and sometimes powerful section of it. It is by no means an

accident that this element comes into prominence and accumulates vast fortunes

at a time when heavy increases in taxes are levied. Instead of strengthening the

machinery for collection, and plugging the loopholes, the rates are often raised

still higher, making it still more tempting to escape these imposts. Frequently

fresh forms of taxation are introduced, which in effect saddle the honest with

the unpaid taxes of the evader. It is serious enough that these high taxes put a

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premium on dishonesty, but it is far more deplorable that the small entre-preneur with brains and initiative is prevented from accumulating sufficientfunds to start or expand his business. One may well ask if there is an equalopportunity for all in countries with very high tax structures.

What does one find in a country like Switzerland where the maximum taxon individuals is only 33%? In spite of being unable to feed themselves, andhaving to rely on other countries for their raw materials, the Swiss are one ofthe most industrious nations, having a high standard of living and a stableeconomy-the envy of all. Has the fact that every Swiss can keep a fair shareof the fruits of his labour nothing to do with this happy state of affairs?

Those who claim that Switzerland is an unfair example because she escapedthe rigours of the last two world wars can hardly apply this argument to Ger-many. With taxation held at a low level, West Germany's industrial recoveryhas been nothing short of spectacular. The way in which she has rebuilt herindustrial might and strengthened her currency at the same time deserves thehighest praise. Dr. Ludwig Erhard, her Economic Minister, has told us howthey have achieved this in his book, "Prosperity Through Competition."

Foreign trade in the free world is almost entirely in the hands of privateenterprise, and is likely to remain so for very good reasons. The overseas buyerwill always fight for the right to buy from where and from whom he likes. Howelse can he be sure of obtaining his requirements at the right price?

Some countries which had started state trading are beginning to changetheir ideas. For instance, a few years ago a large part of the foreign trade ofBurma was conducted by the State. Recently several new Corporations havebeen set up, owned in equal shares by their Government, and well-knownbusiness houses. They are called Joint Venture Corporations. A number ofthese deal in the same commodities and are given import licenses at the sametime for specified articles. The purpose behind this reversion of policy is torestore competition to ensure that Burma obtains her requirements from abroadin the most economical manner.

The evils of monopoly have been recognised for centuries. As long ago as1624, the Mother of Parliaments passed the Monopoly Act, limiting the privilegeto a period of fourteen years, only to the inventor or the discoverer.

The fundamental objections to monopoly are as true today as ever theywere.

Monopoly by the State, therefore, is none the less objectionable and shouldonly be resorted to when other alternatives are not available. The more monop-olies the State takes unto itself the greater the encroachment on the freedom of

21

the individual. Finally, when the State becomes the sole monopolist of every-thing the result is a totalitarian State. The ultimate object must always be keptfirmly in mind, and only the correct means must be used to achieve it.

Freedom from Want, and Freedom from Fear are inseparable in a de-mocracy. The one should not be achieved at the expense of the other. Materialbenefits can only be enjoyed in a free atmosphere, and everyone must feel ableto make his contribution in the way he thinks best. However anxious the Statemay be to eradicate economic ills, the price of true progress can never be thesacrifice of individual freedom and the democratic way of life.

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Ingredients of Private Enterprise

VICENTE DE PAULA RIBEIRO

President, D.L.R. Plasticos do Brasil SA.

Mir. Ribeiro is Chairman and principal stockholder ofCompanhia Patrimonial Serva Ribeiro, which holds I -,

business interests in the fields of commerce, industryand finance. He is also President of Sociedade Tecnicae Comercial Serva Ribeiro and other companies in the IRibeiro group engaged in a wide variety of businessactivities.

I AM HAPPY AND HIGHLY HONORED to be a member of this Panel and to have theopportunity and privilege to speak to you outstanding and distinguishedgovernment officials and businessmen from various parts of the Free World.

I have been asked to say a few words about the "Ingredients of PrivateEnterprise," and I beg your indulgence if, in doing so, I present some factualinformation based on my own limited esperience but which, I hope, maycontribute, however modestly, to the basic current thinking on this subject.

In our daily business life we come across problems that do vary in form.We, in Brazil, at this stage of development are concerned with difficultiesdifferent from those of businessmen in England, Germany, the United Statesand India.

However, there is one challenge beneath our various problems which isthe same for all of us. It is the decisive battle for human justice and freedomthat is being waged in all parts of the world. And the front equally importantwith all others-which particularly calls for our experience, skill and courage-is the economic front.

Our greatest power weapon on this economic front is Private Enterprise.I have no doubts, moreover, that its driving force can develop the tremen-

dous unutilized human and natural resources throughout the world, suitablyimproving living conditions for mankind in the less or underdeveloped areasto a standard compatible with our basic beliefs of human dignity.

When human dignity is served and honored everywhere, then there willbe freedom and peace in the world.

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The dynamic force of Private Enterprise is strengthened considerably byinitiatives such as the International Finance Corporation, with the purpose offurthering economic development in less developed member countries byinvesting-without government guarantee-in association with private business.Thus it accelerates its spread and process of growth by acting as a catalyst.

Let us analyze here how Private Enterprise should work at its best.Management is the key to successful Private Enterprise. Under the modern

industrial system business seems no longer to be stimulated principally bymarkets. It now acts in the role of the stimulant. It is highly competitive, evergrowing and changing in the continuous search for new ways and means tostimulate markets and create new ones. No business can expect to survive byremaining as it is today. Business can no longer hope to be nursed passively bymaking a product and allowing the customer to buy it. Business must promotesales with skill and initiative. Business is, in fact, becoming highly complex.

The complexity and the growing interdependence of private business withhuman, social, political and economic problems, has given rise to the need for

the professional manager who will inexorably take the place of the traditionalowner-manager.

Management nowadays must embrace all of the many elements of business.It goes far beyond technical skills or know-how in research, engineering ordevelopment. In the sense of planning ahead on short or long term, it is theknow-what; and as business requires constant changes to meet competition, itis the know-when.

To know-what, to know-when and to know-how-that is the challenge!Good management is in far shorter supply than capital everywhere.Capital is universal, basically speaks one and the same language, performs

only one job. Because it is sophisticated, cautious and wise, capital becomesapparently more scarce as it withdraws itself from less selective purposes andsearches for better opportunities in productive enterprises in places where theclimate and conditions are best so that it can build, produce and earn a profit.

Capital, in varying amounts and forms, exists almost everywhere. It isprincipally up to private enterprise through good management to induce itinto useful employment.

In newly industrialized countries, such as Brazil, this process of inducementis a slow one which requires patience and tenacity. A new investor is usuallymore concerned with a record of existing capital investments. In Brazil, becausesuch investments are of recent origin, the capital market is even more com-petitive. However, the more critical shortage still remains in good, competent,well-trained managers.

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In a free competitive economy, good management will succeed. It is thetop brass in the battlefield of the economic front.

It is, therefore, fundamental to multiply the number of effective managersthroughout the world. Much has been accomplished already through importantinitiatives by governments, private industry, trade associations, educationalinstitutions and private foundations. Much more must be done, particularly bythe industrialized countries, to assist underdeveloped nations.

Technological "Know-how" is quickly becoming a kind of universal cur-rency. It has contributed the most in speeding up the process of economicgrowth in less developed countries, and it is, within the free world, promotingeffectively the economic integration among nations.

The immense, almost incredible, advance of technology in the last fiftyyears has polarized the material needs of modern life into the form of certaincommodities that have become intimately woven into the complex texture ofour civilization. Many commodities, once considered luxuries, have becomenecessities. As they become necessities, the urge for speeding up economicdevelopment is emphasized to the point of restlessness.

In Brazil, in all fields-power, fuel, transportation, food processing andmarketing, electronics, textiles, clothing, home appliances and so many others-businessmen are firmly and resolutely meeting the challenge. However, themain tool of our industrial development has been the imported technologicalknow-how from the more industrialized nations.

We, in Brazil, realize the infinite importance of such know-how which isthe fruit of countless years of inventiveness, research and engineering. As aresult we have put in the market all kinds of products, locally manufactured,which would look quite familiar to you and will prove to be quite similarin quality.

This technological cooperation between private enterprises from differentparts of the Free World has created a highly useful and profitable partnershipand makes accessible to less developed areas the treasure of the best researchand engineering resources. Thus it accelerates progress, improves living con-ditions and standards, increases employment, and ultimately, to a great extent,promotes the integration of economies through sound international under-standing and partnership.

However, here again, management appears as the key to success. Cautionmust be taken in assuming that a particular technique or machine that performswell in one nation is the best for another.

Technology must be adapted. It requires research of local conditions. Itdemands from management a broad view of the country in which it is operating,

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an assessment of immediate and long-term probabilities in relation to wages,

purchasing power, marketing possibilities, capital requirements and earning

prospects.Only too often modern machinery, efficient in one country, cannot compete

with the relatively low wages of another country; and only too often automation

techniques successfully adopted in one nation multiplies the output to the point

of making marketing impossible in another. The proper balancing of these

factors to meet the adequate belongs to the know-what in close cooperation

with the know-how.But what is adequate today may soon become inadequate. Here the know-

when has to keep management inReadiness to change. Here again, it might be opportune to emphasize the

importance of the partnership between private enterprises through various

existing types of agreements to provide manufacturing licenses and technical

assistance. The availability of such help to enterprises in less developed countries

grants the licensee some security of continuity and keeps him up-to-date with

developments and research in his particular field. This provides management

with a broad outlook into the future and enables planning ahead necessary

changes.In underdeveloped countries the task of keeping an enterprise in a healthy

financial condition is not always easy for management.

Because business is ever-growing, ever-changing this is imperative to meet

the burden of expansions and adaptations.

Inflation and artificial monetary practices by some governments result often

in deceiving circumstances that distort figures and create the illusion of profits

that might really turn out to be losses.

Besides, inflation might drive the enterprise to higher brackets of income

tax as currency depreciates and nominal figures rise accordingly, with the ill

effect of crippling the normal process of capital formation through excessive

taxation.The impact of inflation on replacement costs must keep management alert

to promptly readjust prices and financially prepared to re-equip plants and

replenish inventories.This vigilance can be effective only through sound Financial Controls and

Audits. Good bookkeeping is essential within the complexity of modern business.

It tells you where you've been, where you are and where to go. However,

bookkeeping is more of an art than a science.Often figures tend to be interpreted too dogmatically and formally. The

art of bookkeeping, as we know it today, was born in Scotland and is still in

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kilts. I heard once this is why in most communities throughout the world onewill find a St. Andrew's Society even before a bank is established.

I venture to say that bookkeeping should be less conservative at times, inorder to meet special or local circumstances. Only too frequently one mustadapt patterns utilized elsewhere to meet the reality in one's own country. Forexample, special care must be taken by management to provide suitable reservesand depreciation charges to offset the effects of inflation.

All in all, sound bookkeeping and audits are still one of the most importantand effective tools for efficient management. It is the compass that makes itpossible to guide the ship to profitable destinations. Only by knowing how andwXhen profits are being made, can one effectively promote sales.

Sales Pronmotion is the most dynamic of management activities. Once anart, it is becoming more and more of a science. It requires continuous marketstudy and research and involves conquering the loyalty of consumers who arefree to make choices between competitive goods and services.

Sales promotion is intimately connected to advertising which todaythroughout the world is in the hands of professionals and demands very special-ized skills. It is an expensive service and must be carefully planned and weighedwithin price possibilities and policies.

However professional they may be, advertising men need the close andexpert cooperation of management because there is no better substitute for itsexperience in its own business field. This is true also for market research.Although at times management might retain the services of professional re-searchers, practice has shown us, in our own particular fields, that only byproperly assisting them are the results effective and useful.

Specialists might provide certain research patterns acquired throughexperience in different fields and supply adequate personnel to perform the job.However, the most essential information to guide researchers in their surveysmust nearly always be provided by management.

Market study and research must be a permanent job. It enables businessto increase its sales and profits through better promotion, contributes towardsan expanding volume of trade and aids significantly the general economicgrowth. This economic growth will ultimately translate itself into the welfare ofindividuals and their families through gains in the betterment of health, food,housing, education and culture, which only an increased income can makepossible.

Private Enterprise bears a great Responsibility to Conmmunity and Country.A sound and expanding private economy means a great deal more in terms

of individual welfare than government programs. Truly, it is frequent nowadays

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that governments must heavily contribute for the development of economicinfrastructures, particularly in power and transportation. However, in mostinstances, the necessity of government promotion is not because of failures byprivate enterprises; it is rather the necessity of government to correct their ownpast mistakes which by unrealistic tariff restrictions and other errors createdthen an adverse climate for private investments.

Brazil, by and large, was developed by private enterprise. To a greatextent our power facilities and railways were created by national and inter-national private investment. Such facilities enabled Sao Paulo to become the

largest industrial center of Latin America and of all the Southern Hemisphere.The city of Sao Paulo, with a population of over 3,000,000, has a labor forcealmost fully employed of nearly 1,000,000 workers. Businessmen there andthroughout Brazil are fully conscious of their responsibility to their country.They are steadily taking the lead and using their influence and well-deservedprestige to induce public men to continue to improve the general climate andconditions for private investment and enterprise.

Economic progress must be directed to the betterment of social conditions,ultimately of the individual and his family. Private enterprise must join handswith governments in seeking the improvement of educational standards andhealth conditions in all countries.

But it also has an important role at its own base: to promote the Educationof, and Opportunities for, Employees. Large corporations have the means forproviding its employees and their families with all kinds of useful help, medicalassistance, better food, housing, schooling, insurance and retirement.

But a free economy is largely based upon small business. These, however,can effectively promote assistance through cooperative plans and by activelyparticipating in institutions and associations.

Their main task, however, is to promote good human relations withintheir own organization.

It is essential that management and labor work hand in hand, that to everyman or woman is given fair recognition of his values, so that every job bears adignified character oriented towards superior ends and is not considered a meresacrifice or struggle for survival. The fair recognition of values is the key tobetter opportunities for everyone-the spark that stimulates healthy competitionamong individuals, the agent that performs the miracle of crystallizing a massof people into the form of a body with efficient team work.

Management is powerless without this spirit of cooperation. But only amanagement that has a profound respect for the human dignity of each manunder it can expect to create this spirit.

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Similarly, there are a number of associations and institutions throughoutthe Free World attempting to professionalize management and to chart prin-ciples, ethics, patterns and methods. Perhaps it would be opportune to suggesthere a closer cooperation and an increase in the interchange of informationamong national and international organizations working in this field, with thepurpose of further improving management skills throughout the Free World.

There is much that each individual and organization can learn from others.Pooling this knowledge and experience can result only in the improvement ofall concerned.

After all, Management is the key to successful Private Enterprise.

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Responsibilities of Foreign and LocalBusiness in the Developing Countries

J. L. S. STEEL

Director for Economic Planning, Imperial Chemical( ', Industries limited, London.

i -a . Mr. Steel lIas been associated with Imperial Chemical

- since 1022. He was appointed to the Board in 1945,

-- - after holding directorships in various divisions of ICI.

Mr. Steel is also Chairman of the British National

C Committee of the International Chamber of Commerce,

a position he has held since 1951, and Chairman of

the Overseas Trade Policy Committee of the Federation

of British Industries, a position he has held since 1950.

IN DEALING WITH THIS SECTION of the discussion, I am making the assumption

that some special industrial project has been examined and found to be a sound

economic proposition; that the technical difficulties and commercial prospects

of the enterprise have been carefully examined and the political risks assessed.

The project as a whole has been found acceptable to the authorities, and in

harmony with the trend and pace of the country's economic development.

Licenses, if necessary, have been obtained. As a result of taking all these factors

into consideration, a clear decision to go ahead has been reached.

I think then that the first responsibility of the parent organization is to

back the project with whole-hearted support and to pursue it with resolution

and determination, in spite of those minor setbacks that are bound to occur.

Quite clearly, a decision of the kind I have described is of a long-term type,

though conditions, perhaps political, may sometimes change so radically that a

change in policy inevitably fbllows. Normally, however, investment in a de-

veloping country is intended and expected to be permanent.

From the earliest stages, endeavor must be made to persuade the developing

country that a project or industry is an integral part of the economy of the

country itself and not a vehicle for exploitation. The parent organization should

30

do everything possible to encourage, foster and sustain a sense of partnershipand of mutual interest. It is not always easy to do this, and there is no commonrule. Yet I would suggest that some of the means of attaining this objectiveinvolve making the best use of local resources whether in the form of manpower,brainpower, locally produced raw materials and intermediates and, of course,local capital to the extent that it may be available and also prepared to take apart. Inevitably the parent organization will normally supply expertise andtechnical knowledge of the processes involved. For this a reward is naturallyexpected, which will normally take the form of a return on the capital investmentand 'or payment for technical knowledge, patent rights and knowhow.

Parent companies may also reasonably expect that the return on theirinvestment will not be less than the return they might expect for a correspondinginvestment at home. It is a matter of general experience too that in a number ofcases losses in the early years may well have to be faced. This is somethingwhich should not deter the investor, but he will naturally take it into accountwhen estimating the likely prospects of the concern.

As far as the utilization of local resources in the form of manpower andbrainpower is concerned, generally speaking the business should aim at pro-viding employment for the nationals of the country concerned; but in the earlystages, and in some cases for years after, key members of the staff may have tobe provided from the parent organization. The long-term objective should beto recruit and train nationals of the developing country, and in due course topromote them simply and solely on grounds of merit and caliber. In somedeveloping countries, the rate of industrial development is faster than thebuild-up of the industrial tradition, and it is this that makes the assistance ofstaff, not necessarily "technical" in the narrow sense, from the parent organiza-tion necessary for a number of years after the starting-up period. It is not verydifficult to find men to go out on an initial assignment of, say, six months tothree years in connection with the erection and starting up of a plant, providedthey get the necessary incentive, but it may be quite a problem to find replace-ments to manage a going concern if it seems to them that they are really justtraining and providing experience for nationals of the developing country totake over their posts. Few people are enthusiastic about working themselvesout of a job.

In order to obtain men of the right caliber to work in a developing country,particularly with a tropical climate quite different from that experienced athome, it is necessary to offer inducements considerably over and above whatmight be called the basic remuneration for the post, especially to the youngman who so often nowadays already has a family. If he is of first-class caliber,

31

he should have no difficulty in getting a first-class job in his home country, andthe sense of adventure which in years past encouraged young men to emigrateand start life in a new country, has been to some extent modified by progress ofwelfare states and changes in social structures at home. In any case, the individualwho moves to a developing country is inevitably faced with a higher level ofexpense which results from living in unfamiliar, strange surroundings, and hemust be provided with facilities and money for home leave, for the educationof his children in his own country and other inevitable expenses. This meansthat the cost of sending an expatriate to a job in a developing country will bemore than the corresponding pay of a national of that country, on the assump-tion they are both of equal caliber.

There will, therefore, be cases where the gross income of nationals of adeveloping country will be less than the gross income picked up by a foreigner

in a similar position. Any undue or unfair disparity, however, is most unlikelyto persist for any length of time, for the parent company itself will clearly havepowerful economic reasons for training and appointing a national of thecountry as soon as one can be found who is wholly adequate for the job.Statutory obligations in regard to the employment of local nationals, whether

as to the proportion by number or the proportion of the total salary and wagebill, do not contribute to operating efficiency. It is surely preferable for industryto be left to realize its obligation towards the employment of nationals of thecountry.

Industry in fact is compelled to adopt this attitude to the utmost possibleextent for technical staff, owing to the shortage which exists in most countriesof the western world, quite apart from the very high cost of employing ex-

patriate staff to which I have already alluded. Heavy capital expenditure,especially on projects in isolated locations, must be faced in respect of housing,educational facilities, medical services and other welfare items. The amountwhich it is necessary to budget for varies enormously from place to place and

is clearly dependent on what may be already available from government and

municipal investment in the infrastructure, but these faciltiies are seldom cheap.I can give one example from a works engaged in Africa in the extraction

of natural mineral deposits, where the total expenditure on housing, hospitals,schools and other welfare items amounted to over 60% of the original cost ofthe plant. It is not surprising, therefore, that the foreign investor feels that muchof this is really the responsibility of the country in which he is investing hismoney, and he is only prepared to take the full responsibility willingly in caseswhere the factory is in an extremely isolated and wholly-undeveloped area,where other industrial enterprises are most unlikely to go. It is perhaps not

32

only the capital cost of these items which is of importance, but their runningcost. I know of a factory, not a thousand miles from Delhi, where the annualcost of supplying medical services alone for the employees adds about 8%/'G onthe total wages bill.

The question is often raised as to the investment of profits made by afactory in the country concerned. Trading profits are normally split into threeparts: that taken by taxation, that retained in the business for expansion orreplacement of plant, and that remitted overseas to the parent company. It iscertainly the opinion in industry that industry itself is the best judge of allocationof profits. Statutory obligations in this respect are not welcome. It is, however,an undoubted fact that a very high proportion of the profits earned by subsidiarycompanies is in practice retained in the business and used for expansion orreplacement of fixed assets. In fact, this has become one of the most importantsingle pieces of industrial investment. Yet to impose as an obligation, somearbitrary figure, would almost certainly act as a powerful deterrent to somepotential investor. Other ingenious devices, such as high taxation on dividendsor distributed profits, may produce similar reactions!

I have been asked to say one or two words about the adjustment of theproducts of a factory to the special requirements of the overseas markets. Thenecessity for attention to the design of a product to meet the special requirementsand tastes of a foreign market is as obvious as it is essential. It is perhaps lessgenerally realized that quality standards should be as high as those adoptedby the parent company in its home market.

To maintain and improve standards of quality, factory operation and develop-ment: exchange of visits should regularly take place between the top officials ofparent organization and those of its local subsidiary, whether expatriates ornationals of the country. It is highly desirable to have similar exchanges forsenior technical personnel to ensure the continuance of the highest possiblestandards of technical efficiency, and also by some of middle seniority, whetherin commercial positions or technical specialists. This is the best way of assuringan identity of outlook between the parent organization and the overseas sub-sidiary and of ensuring that the parent organization is kept fully informed ofchanges in conditions in the developing country.

Respect of customs, traditions and sensitivities of people in the country ofoperation: You will not expect me to discuss this in great detail, but I wouldlike to emphasize the responsibilities of the parent organization for the mostcareful selection of employees who are seconded to the overseas country, andthe need for proper qualifications and training and the right outlook on goingoverseas. This also applies to wives of the employees, who must be prepared to

33

live the life of the new country in an appropriate fashion. I need hardly refer

to the desirability of learning the local language, of studying something of its

history and traditions and of the necessity to avoid any prejudice on account of

race or religious belief. I am doubtful as to whether adequate facilities exist in

the developed countries for what might be called a course of practical instruction

on the problems which employees are bound to meet in the developing country.

Such facilities should be extended to wives of the employees and might well

take the form of short residential courses, in as informal an atmosphere as

possible and covering subjects such as health, hygiene and general conduct.

Savoir faire is not an inherited characteristic.Local Investors: The extent to which local participation in a developing

country can be encouraged clearly depends in the first instance on the existence

of owners of capital able and willing to invest in manufacturing industry, as

distinct from real estate, mineral rights, etc. In furtherance of the general aim

that the business should form an integral part of the economy of the foreign

country, and should manifestly appear to be such, it is most desirable that any

wish on the part of nationals for a finnacial participation should be recognized

when it arises. If it is not recognized, results may be unhappy.

The extent to which local participation should be encouraged or agreed,

must clearly depend enormously on the type of venture. In many cases, the

parent organization will not willingly allow its equity interest to fall below 50%,

for it will then lose effective control of the enterprise which has been built up

by its own initiative. There will, however, be cases where a company from

abroad will be content to hold a minority interest, possibly where this is accom-

panied by a royalty agreement or an agreement for the provision of technical

service. Yet the making of arrangements which amount to a partnership with

business interests in the developing country can give rise to awkward problems.

Sometimes national and natural pride is against a minority holding on the part

of the nationals of the developing country, yet 50-50 arrangements are often

difficult to operate. There is clearly a need on both sides for recognition of

both points of view and for agreement to be reached without jealousy and on a

sensible practical basis. Statutory obligations regarding the proportion of local

capital are not helpful. They are inevitably rigid and fail to take account of the

extreme variation in circumstances in individual cases.

My remarks so far have been concerned primarily with foreign business in

developing countries, but some of the responsibilities to which I have alluded

are equally applicable to business which arises from purely local enterprise. It

is no less essential for local business to make the best possible use of local

resources and in this way to make the maximum contribution to the economic

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welfare of the country. A long-term view must be taken; the "here today andgone tomorrow" outlook or "make hay while the sun shines" policy mayprovide quick wealth for a few lucky ones, but does nothing to promote thewell-being of the community on which it fastens.

The relations between local industry and government are inevitably closein a developing country. One of the most important aspects is the need formutual respect at all levels between those who have the conduct of local industryunder their command and those who bear responsibility in the finance andtrade departments of government. The operations of trade and commerce areso complex that their tasks are often not easy to perform, but governments canhelp by assisting civil servants to obtain knowledge of the industries which theyare in a position to influence in such a striking way. Local business may havein practice a greater proportionate responsibility in a developing country thanin a highly industrialized one, inasmuch as by its very nature it is helping tocreate the conditions in which the economic life of the community is itselfinvolved. Above all things, it must aim at the development of the highestpossible standard of honesty and integrity. It should encourage and, by its ownactions assist the creation of a sound business code of conduct, based onstraightforward dealing and the fulfillment of obligations freely entered into.

The responsibilities I have discussed are dependent upon and associatedwith other features of this Panel Discussion, particularly as regards the properclimate for private enterprise. It is quite unrealistic to expect industry to realizeits responsibilities in full in the absence of a suitable background for the conductof private industry. The exercise of responsibility by industry and the attitudeof governments to private industry in developing countries thus forms a mutualexchange. Both elements are difficult to define or generalize about, and bothare in the process of development. But surely it can justly be claimed thatindustry, since the two great wars, has become alive to its responsibilities inoverseas territories in a manner which did not exist before. This sense of re-sponsibility has been developed notwithstanding setbacks from time to time inthe form of expropriation or nationalization, default in meeting financialobligations and deliberate policies of currency inflation. Nothing can contributemore to the further development of the responsibilities on the part of privateindustry than the disappearance of features such as these. Clearly, the responsi-bilities of private industry are more likely to be fully recognized and fullycarried out in a free atmosphere rather than in an atmosphere of edict, officialpersuasion or excessive controls.

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CLOSING REMARKS OF

MR. KAISER

WHILE I HAVE BEEN LISTENING here this afternoon, I have been impressed withthe fact that our panelists were not representatives of one particular philosophyor point of view . . . but rather that they were, each individually demonstratinga sincere dedication to the world in which they live.

Each of them, in his own life, has demonstrated a true definition of what ismeant by the words "private enterprise."

Private enterprise is not just a way of doing business. I would define it, inmy own belief-and in terms of the men here today-as "individual enterprise."It is made up of unique qualities of individual strength-tolerance of others,courage, faith, determination, and dedication.

It is private, in the very true sense of the freedom of the individual tocontribute to his world in the fullest of terms. It is not a mass movement. It isnot something we have created in opposition to-or in conflict with-theinstitutions that men build into their societies. In my opinion, it is the freedomto create and build whatever institutions and agencies are required to bestaccomplish man's objectives.

Private enterprise is weakened only through the most extreme regimenta-tion. When its power is granted only to the favored few-when the right ofdecisions rests only in purely autocratic or bureaucratic concepts-its vitalityis infinitely lessened. It is as much a part of good government as it is of goodbusiness. And certainly, the positions that you men here hold in the structuresof your governments, in the agencies of your broad business interests, are astruly private enterprise as those functions you perform in the industrial organi-zation of which you are a part.

It need not be defended and protected, for it is inherent in every contributionany one individual makes to the general welfare and advancement of theworld's people. The world's progress is measured in how widespread is thebelief in private enterprise. The Renaissance in Italy and France, the greatflowering of Elizabethan England, were not only periods of intense literary andartistic productivity, but times of explosive free economic growth and develop-ment.

In the world of today, we may speak of the "flowering of private enterprise"in terms of increased national income, standards of living and economic de-velopment. These are the shared goals of good government-an enlightened

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people and a business and industrial structure dedicated to principles of privateenterprise in its correct sense. Yet, these things are not private enterprise inthemselves but, rather, the result of a broad base of dedication and under-standing on the part of individuals in government and industry.

Profits, capital investment, professional skills, "know-how" are the toolswith which we work, and they are not to be confused with the driving forcewhich we mean when we say "private enterprise." Because such tools arefamiliar to us, because the present shape and structure of our economic systemsand our present methods of doing business suit our work and progress, we havea tendency to regard them as the only possible means of achieving our objectives.We may forget that these are onlj tools, and our strength lies in our ability toadapt them or create newt, tools if needed. If obstacles and problems are notsolvable in what we now accept, and have used in the past, we must have thecourage, faith and skill to create whatever is required for us to do the new.jobwhich always lies ahead of us. We must have the courage to explore. We mustnot be defenders of the past, but creators of the future. One of our responsi-bilities is to find the means by which our jobs can be done.

Beyond and behind the structure of what we discuss here lie the millionsof the world's people, who have a tremendous need, not for refrigerators andtelevision sets, for their lives will not become suddenly richer through these,but, rather, for the right of free choice and free growth, which must be a partof any ordered and intelligent world.

The part that we may play in this is somewhat less and somewhat greaterthan we have defined. It is less, in that what we can accomplish economicallymay be at best only contributory to the goals and ambitions which a peoplemay have. More . . . in that our responsibility is greater than the merchantsand the builders that have gone before us. We are charged, not with the simpleresponsibility for our own success and growth, but for contributing, throughour own efforts, to the understanding and potential of the peoples with whomwe are privileged to work. For we, too, have much to learn from them.

It seems to me that it is impossible for any of us to keep our own jobs andourselves separated from the broadest and deepest problems of our world. Wehave accepted the responsibility of being "world citizens," whatever our nationalloyalties may be.

As businessmen from all over the world, we face certain practical problems,which are tied to the specific things we would accomplish. Yet, our work is notperformed in a vacuum; it is interwoven into every area of national and worldlife, and, to succeed, we must participate in the most enlightened aspirations ofthe countries in which we work.

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We are subject not only to economic law, but to an ultimate moral law.For, unless what we do is identified with and made a part of the ambitions andgoals of the people of the world-unless, in building the structures of ourindustries we also participate in the freeing of a people's vitality, both spirituallyand economically, we shall have failed to demonstrate the validity of privateenterprise.

All of you know the satisfaction of building a team-building an organiza-tion that shares a common spirit. Certainly in my life in business there has beena constant realization that progress was only possible when belief in an enter-prise was translated throughout our entire organization into positive action.

In the field of international business and the development of economicareas throughout the world, there is the same need for shared enthusiasm whichmust include every force with which we work. The spirit of the people is theessential quality, and it must extend itself into the fields of government, privatebusiness, and all institutions which share the responsibility for economicdevelopment.

Each of the men who have spoken with you has given us a clearer definitionof the decisions that we must make. It is not the purpose of such a panel toarrive at decisions.

The effectiveness of this Conference will-like every step in the progressof man-be written in our individual decisions and actions. The translation ofthe broad principles of development into action and accomplishment will takeplace in the corridors and in the rooms, and in the discussions between you,individually. And it is right that it should be this way-for here there is noregimentation. There is, instead, the dedication of each of us, as individuals, toa principle of growth and progress for all men, and the justification of our ownpersonal existence in freedom.

"Wh Y build thlese cities great

If nman unbuilded goes.

In vain ite uiild the world

Unless tlie builler also groi¶'s."(38ii Markharn)

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