A Keystone of the Free World

AS 1953 began, many economic prophets, both abroad and at home, publicly predicted an early U.S. recession or depression. But by year's end, despite the soothsayers' continuing gloom, the facts were plain: instead of a slump, the U.S. had racked up the greatest business year on record. Americans made more money and provided more things to spend it on than ever before. With only 7% of the world's population, the U.S. turned out 65% of the world's manufactured goods.

Not only did the U.S. economy prove its durability; it also proved its stability by fluctuating less than in any year since prewar days. To the free world, this was a guarantee that the political commitments of the U.S. would be solidly based on its continuing economic strength. Thus, while the Man of the Year was a European statesman (see FOREIGN NEWS), the men of the year who enabled him to stand so firmly for freedom and free enterprise were those who had proved how well it works. They were the businessmen who planned the U.S. production and the 62.1 million workers who turned it out.

The U.S. produced $43 billion in military goods in 1953--about one-half the dollar value of the peak World War II military production. Chief item: 12,000 military planes, of which hundreds were MIG-killing Sabre jets of "Dutch" Kindelberger's North American Aviation, Inc. But the economy was not strained by its huge defense load. The National Planning Association estimated that the U.S. could turn out almost twice as much in arms and still keep the standard of living rising.

In 1953 Americans slipped behind the wheels of 6,000,000 new cars (the second biggest auto year on record) and drove off over 46,000 miles of new roads worth $3 billion. They put their feet into 500 million pairs of new shoes, walked into 1,100,000 new houses and apartments, spent a record of $34.7 billion on construction of all types. Housewives cleaned their homes with more new vacuum cleaners (3,000,000) than in 1952, and washed their clothes with more new washing machines (3,700,000); to do the job, they bought a record $400 million worth of soap and detergents. They sat down before more new TV sets (7,000,000 v. 6,000,000 in 1952)--so many, in fact, that TV sets outnumbered telephones in six U.S. cities, and even outnumbered bathtubs in one (Chicago). They bought more food ($60 billion worth) than ever before. Per capita, Americans last year ate more than their average weight in meat alone--151 Ibs. v. 144 Ibs. in 1952.

Dynamic Force

Part of the reason for this standard of living was that the year was free of industry-wide strikes and had far fewer minor stoppages (27 million man-days lost v. 59.1 million in 1952). The Eisenhower Administration, which freed wages and prices from controls, also thought that collective bargaining should be free from the kind of governmental interference that contributed so directly to the long steel strike of 1952. With the bargaining balance restored, both labor and management found it to their advantage to come to terms.

Steel production set an alltime high of 112 million tons, up 20% from strike-hampered 1952; electricity output, at 442 billion kwh, was up 11% to another record. More people were employed than ever before, and few were unemployed (1,500,000). With the best pay in history (average factory wage: $71 a week without overtime), and more borrowing (consumer credit rose 12% to a new high of $29 billion), Americans spent a record $230 billion at retail. Personal income was up 6% to a new high of $285 billion, and savings hit $18 billion v. $16.9 billion in 1952.

The dynamic force of the U.S. economy was reflected by the Federal Reserve Board's revised index of industrial production (in which the base years are 1947-49 instead of 1935-39). The new index averaged 135, up 9% from 1952 for a new peak and eight full points above the biggest year of World War II. While taxes cut deep, corporations nevertheless netted more after taxes ($20.5 billion) than in any year except 1948 and 1950, and paid out the greatest volume of dividends in history ($9.5 billion).

The gross national product (the total value of all goods and services produced) reached a new peak of $368 billion, up 5% from the year before. What gave meaning to all the figures was that for the most part they represented real gains, not just more inflation. The cost of living during the year edged up a mere 1%, and at year's end had turned down.

The "It" Factor

"You never had it so good." said one side of the Democratic campaign coin of 1952. Said the other: "Don't let them take it away." As 1953 started, many prophets, even those uninfluenced by political slogans, thought that "it" was bound to vanish. The overshadowing factor in all the predictions was the Korean war. Would the new Administration make good its pledge to end it, or get an armistice? If so, what would be the effect of the reduced arms spending on business?

This worry was reflected in the stock market. After hitting a high of 293 in January, the Dow-Jones industrials average started down. But business showed no signs of slipping; there was even a hint of more inflation. When the steel and auto unions asked for more money, they got it with little trouble. General Motors' Harlow Curtice set the pace; G.M. incorporated into its basic wages 19-c- of the 24-c- an hour for cost-of-living increases since 1950. When steel wages went up, steel prices were also hiked.

One result of the continuing boom on boom was that money started to run short, credit tightened, and interest rates rose. Treasury Secretary George Humphrey chose this occasion to float a new $2 billion bond issue with the highest rate (3 1/4%) that any U.S. bond had carried in 20 years. With this formal notification that the "easy money" policy of the Democratic Administration was ending, the money shortage worsened; three-to five-year Government security rates rose from 2.6% to 2.9%. As credit tightened throughout the economy, builders complained about the new shortage of mortgage money, retailers warned darkly of a sales slump if the hard money policy continued, the stock market jiggled to a year's low of 255, thus pushing dividend yields up to 5.8%, in line with the rising trend of Government bond interest (see chart). George Humphrey did not need to be told what to do; he cut the interest rate on his next issue, while the Federal Reserve Board reduced bank reserve requirements to make more credit available.

With this shot in the arm, the economy resumed its forward drive. Retail sales reached a new record, and production kept rising. In the face of this economic strength, the truce in Korea had little noticeable effect, except on the stock market, which started to rise. Not till October was there any significant slackening in the steady rise of production; then it began to edge downward as the makers of autos, appliances, refrigerators, etc., began to trim their output, which in most cases had already exceeded their fondest hopes for the full year. Those who had feared that any step down from boom heights would mean a disastrous fall were proved wrong; the steps were orderly and gradual. Although prices officially showed little change, the shrewd buyer of autos and other hard goods could almost quote his own price, sometimes down as much as 30%. At year's end, layoffs were higher than in three years.

Despite uncertainties, the stock market kept on rising, and at 283 on the Dow-Jones industrials average, was only 3% below the year's peak. More important, there was little slackening in overall retail buying. In a last-minute Christmas rush, sales reached a new yearly peak. And though year-end steel production, at 66.6% of capacity, was the lowest (except for strike shutdowns) in three years, U.S. Steel's Ben Fairless was not alarmed.

Said he: "U.S. Steel is backing its confidence in this country's economic future by an investment of approximately $300 million during 1954 in [new] facilities."

Geography Lesson

In 1953's economic growth, many of the parts grew faster than the whole. California continued to lead the nation in its rate of expansion. Though the moviemakers were still caught on the horns of their 3-Dilemma, the other industries of fast-growing Southern California had become so diversified that Hollywood's slump was insignificant. The volume of building in the Los Angeles area alone (nearly $1 billion) was larger than the combined 1952 total of Chicago, Detroit, Houston, Dallas, Philadelphia, New Orleans, Denver, Baltimore and Boston.

As the huge number of migrants poured into the state, big, new housing projects like that at Lakewood opened up (see cut). California's growth was more than in numbers; it was of a type that reflected a basic strength of the U.S. as a whole. Said one reporter after roaming the shopping district of one of the state's busy coastal towns: "At least 90% of the shoppers were young women. At least 90% of the women were mothers. And it seemed to me that at least 90% of the mothers had one youngster toddling alongside, one in a stroller and a third in escrow. That's the finest combination I know for continued growth."

New England, whose Yankee pride and pocketbook have been hurt of late by the southward migration of the textile industry, could boast of checking its downward economic trend. While 21,000 textile jobs in the area disappeared during the year, more than that number opened up in such new fields as electronics and light metals.Typical of New England's Yankee ingenuity in creating new jobs was the feat performed by the little town of Harmony, Me. Its 700 harmonious citizens contributed $22,000 to pay one-third the cost of a new shoe factory which will employ 120 people. At Framingham, Mass.. Suburban Centers Trust Co.'s huge retail area (see cut) was typical of the growth of shopping centers all over the U.S.

In many parts of the South, one-crop agriculture (cotton) disappeared along with the one-crop industry (textiles). Among the newcomers: Mead Corp.'s $30 million paper plant at Rome, Ga., American Cyanamid's $40 million ammonia plant near New Orleans, Chemstrand's $100 million nylon plant outside Pensacola, Fla. In 1953, for the first time, the value of Dixie's chemical products exceeded the value of its textile output.

The chemical industry was changing other landscapes, too. Outside Cleveland, a 30-mile stretch of Lake Erie shoreline was dubbed "Chemical Shore." Along it lay $235 million worth of chemical plants, and $40 million more will be spent on new plants there in the next two years. Sprouting skyscrapers attested to Denver's new role as an oil capital, as new fields opened up in the area; 250 miles away, on the Colorado Plateau, an entirely new industry--at once somber and all-promising--was thriving. Uranium mining and processing, which employed fewer than five dozen men on the plateau in 1948, last year had a payroll of 8,000 and was a $100 million-a-year business.

Whether Colorado's uranium would ultimately be used for peace or war depended on many questions and many men. But U.S. businessmen would be ready for either eventuality, thanks to something that happened on a chill May day last year in Arco, Idaho. That was the day a new kind of atomic reactor, built by Westinghouse, was first operated successfully. The reactor, pilot model of a plant to power the world's first atomic submarine, solved a key problem. The problem: since less than 1% of the world's uranium is fissionable, it might soon be exhausted as a fuel. The Arco reactor not only generated electricity, but "bred" fissionable plutonium from U-235 at the same time, thus making it possible to utilize all of the uranium that can be extracted from the earth's surface for fuel. Said Westinghouse's President Gwilym Price: "The Idaho plant is the 'Kitty Hawk' of the atomic power industry."

On the strength of that success, the Atomic Energy Commission selected Westinghouse to build a "fullscale power reactor" capable of producing a minimum of 60,000 kw. of electrical energy for industrial use. Thus atomic power for industry, until 1953 merely a scientist's dream, had actually started. Onetime Investment Banker Lewis Strauss, new chairman of AEC, and his fellow commissioners agree that the best way to make atomic power plants an everyday reality is to end the Government monopoly and let private industry do more of the job.

How to Save a Buck

Both in and outside Government, the leaders of private industry shouldered more public responsibilities. Henry Ford II sounded the call for freer world trade, then put aside his auto job and went to work at the U.N., where his very name was symbolic of the high wages of the U.S. free-enterprise system. In his book, Freedom's Faith, Inland Steel's Clarence Randall, another of the new internationalists, wrote: "The new corps of business leaders . . . hold in their competent hands the future of free enterprise ... It is their mission ... to keep America strong." Then he accepted the challenge himself by heading a commission aimed at turning "trade, not aid" from slogan into fact.

The businessmen who went to Washington--George Humphrey, Charles E. Wilson, Robert T. Stevens, et al.--proved that many of the methods of private industry could be used with great profit in Government, notably in eliminating waste. Before they were through, they chopped $13 billion from the 1953-54 Truman budget, cut the federal payroll by 176,000.

No governmental cost was too small to try to make smaller. By standardizing purchases of everything from office furniture to paper clips and toilet tissue. General Services Administrator Edmund Mansure, a Chicago textileman and the Government's chief housekeeper, saved $133 million. In the Post Office, switching from heavy canvas to nylon mail sacks will save $800,000 a year in freight.

The biggest spending--and hence the biggest potential saving--is in the Defense Department. Before they could run this sprawling giant, Defense Secretary Wilson and Under Secretary Roger Kyes, both from General Motors, found that they had a lot to learn about public life. Wilson was doubly damned for refusing to sell his $2,500,000 stock interest in G.M. and for blurting out at a congressional hearing: "What is good for the country is good for General Motors, and what's good for General Motors is good for the country." Kyes was the swaggering newcomer who flicked his fingers at generals' stars. When Wilson and Kyes made an across-the-board slash in Air Force funds, the feeling spread that in an atomic-bomb age, the saving of a dollar was getting a higher priority than defense. But behind the scenes, the new managers of military might were laying the base to get more defense for less money.

The Defense Department was buying 4,000,000 different items; Wilson and Kyes discovered that a mere 300 accounted for more than half its dollar purchases. Said Kyes to the Pentagon generals: "You've been walking all around this elephant. Let's concentrate on saving money on these 300 items first. We'll worry about the nits and lice later." Among the biggest cost items were aircraft engines. The Air Force found that they had been improved so much that their life expectancy was far greater than realized, hence fewer spare engines were needed. Saving: $500 million.

Wilson & Co. weeded out high-cost producers and cut down on support planes. They left research funds largely intact. But by canceling orders for production planes that were not to be delivered for years, they put procurement on an up-to-date, businesslike basis. Total Air Force saving: $5 billion.

The "nits and lice" also came in for attention. By redesigning a foot-powder can, the Army cut unit costs from 16-c- to a nickel for a total saving of $275,000. Wilson and Kyes found that the military carried in inventory no fewer than 5,000 different types of electronic tubes and 800 categories of screw drivers; on their orders, tube types were cut to 192, and screw drivers to 100.

At year's end, most of the critics had quieted down, especially after Wilson threw his weight behind a bigger Air Force. Because of the new economies, the Air Force figured that it can provide 115 wings (ranging from 35 to 75 planes) instead of 110 in 1954 and 120 instead of 115 in 1955, at no extra cost. The new goal for 1957: 137 wings v. the 120 originally advocated by Wilson.

First Things First

Because the businessmen in Washington knew that there can be no such thing as long-range military security without economic stability, they put a high priority on sound money. Treasury Secretary Humphrey, who left the chairmanship of Cleveland's M. A. Hanna Co. to take command in that sector, figured that the best way to protect the dollar was to snuff out the last traces of inflation. His methods: 1) pushing interest rates upward, and 2) spreading the $270 billion national debt, concentrated 75% in securities coming due within five years, into longer-term maturities in order to take money out of circulation.

Humphrey soon learned that despite all the ranting against inflation, the U.S. had come to like it in small doses. While it had meant a cheapening dollar (worth 52-c- last year v. 100-c- in 1939), inflation had also spelled more jobs and better living. So when it looked as if the nation's special form of inflation might be halted, people immediately assumed that the good things might disappear as well. No one seemed to want a dollar that was worth more if there were to be fewer of them around. So Humphrey quickly changed his course, assuring the nation of a flexible fiscal policy that would change to the shifting needs of the economy.

For all his troubles, said George Humphrey, "when I say my prayers at night, I thank God I am not Ezra Taft Benson." Ezra Benson, Apostle of the Mormon Church, needed all the divine guidance he could get in his new job as Agriculture Secretary. He inherited enormous problems--falling farm prices, huge surpluses, a price support system that encouraged still more overproduction. Like his businessmen associates in the Cabinet, Benson thought that what the U.S. needed was more freedom, notably in agriculture.

He thought this could be obtained by gradually dropping the support level for crops until the farmer was on his own, except for what Benson termed "disaster" conditions. But the farmers did not want freedom if it meant lower prices; they preferred controls and proved it by voting overwhelmingly to let the Government tell them exactly how much wheat and cotton they could plant and market in 1954.

While farm prices dropped 10% and farm income 7% (to $13 billion), it was still the seventh best year for farmers--and they were a long way from disaster. One cattleman, for example, who went to Washington to plead for support prices for beef, said that the drought and falling prices had caused him to lose $100,000 in 1953; if that went on for another three or four years, said he, he would be broke.

But at year's end, it was plain as a grain elevator in Kansas that the present program of rigid supports is unworkable. The U.S. had $4.5 billion tied up in crop surpluses, the highest on record, and a rise of $2.5 billion in a year. In short, in the greatest boom in history, the U.S. had produced $2.5 billion more food than needed, largely because production was not for market but for Government purchase under the support program. The year proved that Free-Marketeer Benson could take no steps toward solving the farm program until the farmers themselves wanted freedom.

Change in the Weather

As 1953 ended, there was no doubt that the economic weather was changing. But what was it changing to? Did the clouds mean a mere shower or a furious storm?

Most businessmen, looking at their own sales and order charts, saw only a shower. Even those who had once talked loudly of depression now spoke of a "rolling readjustment," a "mild recession" or a "lull." The new cliche was "let's be realistic." Being "realistic" meant a drop, at most, in the gross national product of 5% to 10% (or back to about the level of 1952) and a rise in unemployment to 3,500,000. But such "realism" did not necessarily mean that the economy would be much shaken.

The guarded optimism--and awareness of a possible readjustment--were themselves good guarantees against disaster. They warded off excesses. One of the reasons for the slip in business toward the end of 1953 was that businessmen were cautiously ordering less, working down their inventories. The inventories, while still enormous ($78 billion), were equal to only 1.6 times monthly sales, just about the pre-Korea average. And at year's end, as inventories kept dropping, purchasing agents looked for a business upswing before 1954 was many months old, as business started to restock. However, the backlog of unfilled orders still stood at $61 billion at year's end, more than twice the pre-Korea total.

There were other evidences of built-in stability. Despite U.S. industry's investment of $80 billion in new plants and equipment in the last three years, businessmen plan to expand at the rate of $27.9 billion a year in the first quarter of 1954, only 1% below 1953's record rate. Businessmen would prefer much less Government spending and an end to deficits (estimated U.S. deficit next fiscal year: $3 billion). But they also recognize that arms spending of $38 billion will be a big stabilizing influence.

Even the stock market has a kind of built-in stability, since by old yardsticks stocks are cheap. The stocks in the Dow-Jones industrials average are selling at little more than ten times earnings v. 20 times earnings in 1929. And on top of that, many U.S. corporations, if they were to liquidate, would actually pay their stockholders more in cash than their stocks are selling for.

There is also cause for optimism in the tax cuts that go into effect this week. The 10% cut in personal income taxes will release $1.9 billion for consumer spending; the death of the excess profits tax provides a well-padded corporate cushion against a sales drop. Sales of General Motors, for example, could drop as much as 37% in 1954, and the automaker would still end up with net profits as good as in 1953. General Electric, even with some drop in sales, could boost its earnings to $7.50 a share this year v. an estimated $5.50 in 1953. (In anticipation, traders have pushed G.E.'s stock up 20 points to $87 in the past six months.)

Competition Coming

Despite all this, competition in 1954 will be fierce. Last year saw one big auto merger (Kaiser-Frazer and Willys), and heard rumors of another (Hudson and Nash); 1954 may bring more of the same as independents battle to keep their share of the market. Meanwhile, General Motors' Harlow Curtice plans to spend $300 million in expanding production.

For many companies, there will be trouble in 1954 because of the ever-changing nature of U.S. business itself. While change is one of the nation's greatest strengths, it is also dangerous for those who do not change with the economy. In 1953 oil surpassed coal as the No. 1 source of U.S. power, but that does not mean that the petroleum industry can sit back complacently. Natural and manufactured gas are coming up even faster, in ten years have more than doubled their share of the energy supply (to 25%) against a rise of only a few percentage points for oil (1953 share: 35%).

While more steel was produced in 1953 than ever before, so were more plastics. Chevrolet's Corvette, with a Fiberglas body, was just getting into mass production; it might be the forerunner of a whole new school of automobile design and materials. The chemical industry, cashing in on the new field of petrochemicals, was finding new markets every day; polyethylene, for example, once known merely as the squeeze-bottle plastic, was replacing rubber, metal and even other plastics in everything from piping to poker chips. Textile makers had to cope with a bewildering new array of synthetic materials for clothing and furnishings; in 1953 an entire apartment could be furnished with materials drawn from a test tube. Nowhere was change more evident than in television. With the approval of color TV at year's end, that burly youth was suddenly transformed into an entirely new industry for which the 25 million owners of black-and-white sets are all potential customers.

But for businessmen who go after it, a huge market still exists. The population is growing at the rate of 2,600,000 a year, and, even without that growth, big markets are still to be tapped. Of America's 45 million families, 35% still do not own a car, only 12% own home freezers, only 2% an air conditioner. Said Atlanta Investment Banker Richard Courts: "We have mastered production, but we have not yet mastered consumption." Among the mass-production goals for 1954:

P:5,500,000 autos v. 6,000,000 in 1953.

P: 5,500,000 TV sets v. 7,000,000.

P: 1,300,000 air conditioners v. 1,000,000.

P: 3,500,000 refrigerators v. 3,700,000.

Despite the huge expansion since the war, there is still a big potential demand in the field of capital goods. More than half the 2,000,000 machine tools in use, for example, are at least ten years old, and 25% of them are 20 years old. Utility men, who have already spent $16 billion since the war on expansion, plan to spend another $3 billion in 1954.

It is not enough, however, to look for new markets merely within the shores of the U.S. Said Dwight Eisenhower last year: "Our whole economy turns and depends on the commerce of the world."

Since World War II's end, the U.S. has tried to increase that commerce by spending $42 billion in foreign aid to bolster up the free world's economies. On its part, private business has also invested more than $8 billion abroad.

Moscow Gold v. Free Trade

By both public and private investments, foreign nations have been vastly strengthened. But the dollar gap is still big; in 1953 the U.S. exported $16 billion in goods while importing $11 billion, leaving a gap of $5 billion. Actually, since war's end, the $42 billion in U.S. aid just about equals the difference in U.S. exports and imports; in effect, it has paid for the surplus of U.S. exports over imports. With foreign aid scheduled to be cut drastically this year, foreign nations will be able to close the dollar gap only by bigger sales in the U.S.

In 1954 the Randall Commission is expected to lay out a clear program to help them do so by the reduction in U.S. tariffs and freer trade among Western nations. For such a program, 1954 will be the year of opportunity; it may also be a last chance. Last year the embargo on East-West trade squeezed the Russians and their satellites so tightly that at year's end the Soviet bosses could not sell enough goods abroad to buy consumer goods for their empty-handed people; they had to sell gold, and in December alone sold an estimated $85 million. But if the U.S. does not lower tariffs so that its friends can sell it more goods, they may well turn to the eager Russians--and the opportunity may be gone to let freer trade shore up the political freedom of the West, as well as help the long-range economic health of the U.S.

Imagination & Courage

At year's end, the same uncertainty hung in the air as at the beginning. Because of this, the businessmen in Washington were arming against a possible letdown. They have a housing program designed to keep building above the 1,000,000 units-a-year level, plans to boost the minimum wage and to provide increased unemployment insurance benefits, along with a $15 billion public-works program ready to go.

But they know, as does everyone else, that the job ahead is more than merely economic--and bigger than any one man or group of men can handle alone. As Henry Ford II said: "The world of free nations is looking to us--not just to our Government, but to us, the American people--for something more than our economic and military power. They are hoping to find in the American people the imagination, the courage and the moral and spiritual leadership which the world so desperately seeks. If the private leaders of American industry, labor and agriculture are able to work together well enough to do the tough but not impossible job which is staked out for us ... the whole free world will be immensely heartened."

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