THE CAPITALIST MAGNA CARTA

HERMANN JOSEF ABS, director of the powerful Deutsche Bank of Frankfurt and a personal adviser to Germany's Economic Minister Ludwig Erhard (see cover), is generally recognized as one of the most influential spokesmen for the dynamic and prosperous German Federal Republic. In San Francisco, where he celebrated his 56th birthday last week during the I.I.D.C. conference, stocky Hermann Abs also emerged as an incisive spokesman for Western capitalism everywhere.

It was Hermann Abs, in a speech titled "The Safety of Capital," who produced the most widely applauded concrete proposal of the conference. What Abs proposed is the creation of an International Convention, backed by an international Court of Arbitration, which would establish an effective and enforceable rule of law for private foreign investment, protecting investors and recipient nations alike.

Guatemala & Suez. The need for such protection was plainly spelled out by Banker Abs. Said he: "The statistics show that private investors in capital-exporting countries preferably invest in areas where they find preconditions legally and psychologically favorable . . . Examples of violations of private foreign rights, both in highly developed and less developed countries, are known to us all. Among the more recent are the methods applied in nationalizing properties of the Anglo-Iranian Oil Co., in expropriating the United Fruit Co. properties by Guatemala, and finally in expropriating the Suez Canal." Abs also cited instances of indirect interferences with the rights of private foreign capital. Among them: the withholding of essential raw materials, the refusal of import licenses and excessive taxation.

Abs made careful note of what he called "the well-known attitude of some less developed countries, according to which the Western world is actually obliged to pay for the advancement of their economies, out of its own pocket, so to speak, and entirely without return." Under this kind of arrangement, said Abs, "the U.S., when still an undeveloped country, might also have demanded from Europe free contributions for industrialization and similar purposes."

The U.S., Abs said, "owes its present economic position exclusively to its own efforts and labors during the development period, to its unobjectionable debtor's morale and the unfailing respect for foreign rights." He cited the refusal of some nations at the recent Organization of American States conference (TIME, Aug. 26) to grant compensation in case of expropriation of foreign assets as an example of the attitude that "makes one wonder whether this strange attitude will not have serious consequences for the countries in question."

Proper Protection. How may foreign private investors be properly protected? Said Abs: "There is only one means apt to implement such protection, and that is an International Convention by which all contracting parties, both typical capital-export and capital-import countries, undertake to treat foreign capital and other foreign interests fairly and without discrimination and to abstain from direct or indirect illegal interferences with such investment.

"Such convention, which I may call a Magna Carta for the protection of foreign interests, should provide for the establishment of a special international court of arbitration which would have the task to determine whether cases brought before it involve violation of [these] principles. I could well imagine that in case of particularly serious violations of the principles of the Magna Carta, the court of arbitration will be entitled by the terms of the treaty to oblige the member countries to refuse new private or public loans and credits to be granted to the country in default."

Back to the Nineties? Though Abs's proposal was attacked immediately by some of the smaller debtor nations ("a return to the Gay Nineties," said Cuba's Guillermo Belt), most .of the reaction was enthusiastic in brisk discussions at conference round-table meetings. Joseph Rosenblatt of Salt Lake City's Eimco Corp. expressed the opinion held by many Western investors. Said he: "It's not so much that the rules be favorable by our experience here in the U.S., but that they be certain -and reliable."

In the give-and-take of round-table argument, Banker Abs himself was his own best protagonist. "The developing countries," he said, "would run away from the rest of the field if they would offer to enter such an international convention." Abs said lawyers are already working on a draft of his plan; he hopes it may be ready by the end of the year.

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