THE SHORTAGE OF MONEY

A ROUND the world, the chances for investment abound (see Capital Opportunities). But too often there is no capital to invest. As President Marcus Wallenberg of Stockholm's Enskilda Bank pointed out to the conference delegates, the demands for investment funds have far outrun the savings from which the capital must come.

The rate of capital formation (i.e., reinvested savings) is easiest to express as a percentage of gross national product. On this basis the U.S. saves 17%, the same as France, and slightly more than Britain's 15%. But West Germany saves 22%, Canada 24%, Peru 21%, Austria 24%, Iceland 31%, Norway 29%, Israel 22%, Japan and Italy 20%, the Federation of Rhodesia and Nyasaland 34%. On the other hand, Chile saves only 8%, the Philippines 7%, Indonesia 5%, and many other underdeveloped countries even less. A rule of thumb is that any country with a rising population must save at least 10% of its current production for investment if it hopes to make progress in raising the living standard of its people. If a nation saves from 10% to 15%, it can expand rapidly.

To Banker Wallenberg, one of the chief reasons undeveloped countries today cannot find the foreign capital once readily supplied is that the savings in the industrialized countries are too low for the need. With money short all over, they have had to tighten up on credit and interest rates to check inflation, bringing on a survival-of-the-fittest competition among borrowers. Therefore, "projects with relatively low earning power are cut off."

Furthermore, said Wallenberg, "present rapid technical development has created new domestic investment opportunities on an increasing scale. This by itself tends to keep more money than usual at home in these industrial areas. At the same time, the normal outflow of capital to underdeveloped countries is discouraged by political uncertainties, threats of nationalization and transfer-of-earnings difficulties -conditions that are more characteristic of underdeveloped countries than of advanced."

Cranking up the printing presses is no solution, says Wallenberg. It would simply cheapen currencies. Neither are proposals such as are made in some undeveloped countries for huge new government income taxes that would be used eventually to pay pensions, would be invested meanwhile in new enterprises. Business and labor groups would simply add such taxes to their selling price and wages, concentrate on "take-home pay" and "profit after taxes." Worse yet, says Wallenberg, voluntary savings would dry up or seek sanctuary abroad.

But governments can stimulate savings by limiting tax rates and halting government encroachment into private business. Specifically, he suggested that income taxes should not be levied on money that people save. "It must pay to save and to work."

Despite the worldwide clamor for more capital, the international flow of investment money is on the increase. In 1956 Britain exported $560 million in long-term credit, almost entirely to countries in the sterling bloc. The Benelux countries (Belgium, The Netherlands and Luxembourg) quadrupled their capital exports between 1953 and 1956 -from $86 million to $343 million. In the same period, West Germany's investment capital exports also quadrupled -from $23 million to $96 million. And Japanese capital exports have risen nearly six times since 1953 -from $2,300,000 to $13.2 million. Net U.S. exports of longterm private capital rose from $1.3 billion to $3.2 billion in 1956. In addition, U.S. banks and other financial institutions lent an additional $725 million to finance trade and capital expansion abroad. Other new U.S. private investment, such as oil development and exploration costs and reinvested foreign profits, probably brought the total U.S. investment last year to more than $5 billion. On top of this was U.S. foreign economic aid amounting to around $2.2 billion more.

But the underdeveloped countries can do much more than they are doing to supply capital. Robert L. Garner, president of the International Finance Corp. -set up by member nations of the World Bank to invest in private enterprise around the world -feels that "the major part of capital must come from local sources. The frequent assertion that there is no local capital usually means that it is in a few rich hands, much of it reposing abroad. Due to political ferment, inflation or other causes resulting in lack of confidence, the owners are reluctant to invest in business in their own countries."

To make this idle capital go to work, says Garner, nations must stabilize their politics and their currencies, gradually shift from individual and family enterprises to joint stock companies, pass new business incorporation laws and securities regulations aimed at achieving fair treatment of minority stockholders. Then, with more and more local citizens holding securities in local corporations, the new nations would soon need markets for buying and selling securities. In other words, each backward country must create its own indigenous capitalist system.

If this is done, Garner predicted, the same conditions and opportunities that induce local businessmen and investors to set up new enterprises and expand existing ones will likewise attract foreign business and capital. Local and foreign business will grow together, although this will require a big change of heart by local businessmen, many of whom are "far from receptive to the newcomer from abroad, fearing competition to their often monopolistic and inefficient businesses." Yet, concluded Banker Garner, the fact is that "all good business flourishes in a growing economy. Alert local interests will recognize the advantages from the introduction of experience, skills and capital, often combining with them to mutual benefit."

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