Business In I960: Tough Prosperity

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e.g., the Common Market area, the walls are due to rise.

To get on the right side of the wall, businessmen who are conscious of exports are moving abroad: last year U.S. firms spent $580 million on new plants and equipment in Europe. U.S. direct new investment in West Germany alone climbed to $150 million from 1959's $129 million.

Vast as the European market is, it is not the only attraction for firms that build abroad. Many of them have found that it is cheaper to make goods abroad for sale in the U.S. market, thus saving labor costs and enabling them to fight imports.

Productivity & Wages. This trend brought to a head an issue that U.S. management and labor could no longer evade: high U.S. wages. "Our basic problem," says George S. Dively, board chairman and president of Cleveland's Harris-Intertype Corp., "is that we've got a wage level that is not competitive." In 1960 this realization, plus a growing profit squeeze, hardened management's stand against labor's wage demands. The most dramatic example was General Electric's successful battle against a strike by James Carey's International Union of Electrical Workers. But, with jobless rolls rising, many unions were learning that high wages without increased productivity were probably the greatest spur to job-cutting automation.

Almost everyone who studied the problem—from Roger Blough to Professors Samuelson and Heller—agreed that the U.S. can no longer afford wage increases not based on productivity. Over the postwar period, wages have been increasing about 5.5% each year, while output per man-hour has increased only 3% a year.

M.I.T.'s Professor Walt W. Rostow, an expert on foreign economic growth and one of Kennedy's new advisers, is so concerned over the trend that his program for growth prominently includes 1) a statement of national policy by Congress tying improvements in real wages to actual increases in productivity, and 2) a temporary "wage-price" treaty between management and labor, in which labor agrees to work at existing rates of pay, and industry in return agrees to pass along productivity gains in lower prices.

The European Boom. The extent to which the U.S. can raise its exports—and foreign businessmen admit that the U.S. can compete when it really tries—also depends on economic conditions abroad.

Exports may suffer if the great European boom tapers off.

At year's end there were hints of tapering in some areas. Great Britain's economic growth has slowed to a walk; British exports dropped about 5% in 1960, largely because Detroit's new compacts cut heavily into the sale of British-made cars in the U.S. Belgium, deprived of the riches of the colonial Congo, also faced serious economic problems that erupted into widespread rioting last week (see FOREIGN NEWS).

In other areas, prosperity continued to run hard. West Germany's economy was still steaming along so rapidly that its chief problem was getting enough workers.

In 1960 it had to bring in some 330,000 from other countries. In France rising exports pulled the economy forward in the year's first half, and domestic investment spurred activity in the second. Good times were so general that even France's volatile unions kept their peace during the year. The fruits of the most booming