Government in the Textile Business

Mr. Lefkoe, a business executive in Los An­geles, writes a weekly column on political-eco­nomic issues for The Commercial and Financial Chronicle. This article is reprinted by permis­sion from his column of August 23, 1962.

Observers of the economic scene today are confronted by a strange paradox: American businessmen, whom they normally would expect to be fighting against government controls, are, in many instances, actively seeking additional eco­nomic regulations. In fact, these requests are often referred to by government officials in defending their growing stranglehold on American industry. This paradox is easily resolved, however, by ex­amining the motives of those busi­nessmen who request government intervention.

The businessmen fall into two essential categories. The first type are those who cannot—or are afraid to—compete in a free mar­ket. These businessmen are unwill­ing to put their products or serv­ices up for sale and let the con­sumer be the final judge as to which firms will fail and which will succeed. These are the men who shirk responsibility of com­peting freely and who plead for government assistance and protec­tion from competition. In a free economy they would fail.

These businessmen deserve the totalitarian state that their de­mands for controls ultimately will lead to. Their cries for help can­not serve as justifications for any­thing or anybody; they are noth­ing more than the pleas of men who are unable to survive, freely offering value for value. Thus, they are anxious to employ gov­ernment force to give them an unfair advantage over their competi­tors.

The second category of busi­nessmen—by far the majority—request government help for a far different reason. They are willing to offer the consumer their wares in a free market. However, they are forced to operate under the burden of oppressive laws and reg­ulations. In asking for government aid, they are grasping for any form of relief which will enable them to save their businesses from undeserved destruction. In a free economy they would succeed.

These businessmen see no way out of their predicament other than soliciting government assist­ance. Their motives are honest; nevertheless, they cannot be held completely blameless since their requests for help also will lead necessarily to a fully controlled society. They are justified in seek­ing relief, but they have made the drastic error of advocating more controls instead of fighting for the repeal of the laws and regula­tions which are destroying them.

How Government Interferes

The problems faced by execu­tives in the textile industry pro­vide an excellent example of the dilemma faced by these honest but misguided businessmen and ex­plain why many of them feel re­quired to solicit government help.

Essentially, their problem con­sists of foreign imports which, in many instances, are sold in the United States at prices far below their own costs. If this situation were solely the result of more ef­ficient management on the part of foreign companies, domestic tex­tile manufacturers would have to face the alternative of either low­ering their own costs, or going in­to another business. However, such is not the case.

American textile companies operate at a competitive disadvan­tage with foreign firms through no fault of their own. Their in­ability to compete is caused and necessitated by government inter­vention. That they have been able to survive at all is a tribute to their ingenuity and productive ability.

There are many types of gov­ernment controls which affect the textile industry indirectly and whose effects are not always read­ily perceivable. The antitrust laws are an illustration of this type of intervention. These laws deliber­ately are designed to destroy a company’s desire to improve its methods of producing and market­ing old products, and kill its in­itiative to develop new products.

In the case of the textile indus­try, however, it is not necessary to refer to relatively intangible examples of government interference in order to demonstrate the chaos caused by government controls.

Men, Materials, Machines

Textile firms find it all but im­possible to compete with foreign manufacturers for several very explicit reasons: higher labor costs, higher raw material costs, and an ever narrowing advantage in the use of more efficient ma­chinery. Let us examine each of these three problems in turn.

One would expect wages to be higher in America than in most foreign countries since our nation has a higher standard of living brought about by a more fully industrialized economy. However, labor unions in the United States have not raised wages through a process of free collective bargain­ing; they have been aided and abetted by the government in numerous ways. Unions have been given monopoly powers as a re­sult of discriminatory labor laws and, thus, have been able to coerce employers into granting unjusti­fiable and uneconomic wage in­creases.

The problem of uneconomically high labor costs was alleviated considerably when almost all of the major textile firms moved from unionized plants in New England to nonunion plants in the South. Nevertheless, at the present time domestic textile companies still have labor costs several hundred per cent higher than their foreign competitors.

The higher raw material costs borne by the American textile in­dustry are a direct result of the grotesque set of laws and regula­tions commonly known as Amer­ica‘s “farm program.” The chain of events is as follows:

Through a system of allotments and price supports, the govern­ment increases the domestic price for cotton by purchasing cotton at a price several cents above that which would have resulted on a free market. This procedure re­sults in the accumulation of large government holdings of cotton. Then, in an attempt to reduce its large surplus, the government sells the cotton to exporters at a price lower than its own cost. By selling at a loss, the government enables exporters to resell the cot­ton in world markets—the inter­national price being lower than the government-inflated domestic price.

Thus, foreign textile firms are able to purchase cotton in world markets at a price below that which American firms are forced to pay. In effect, the foreign com­panies are subsidized by the United States government. This program of insanity reaches its height when one realizes that the money used by the government to reduce the raw material costs of foreign textile companies comes from the taxes paid by the Ameri­can firms with which they com­pete.

Robbing Peter To Pay Paul

There was a time when Ameri­can firms were able to offset a great deal of their higher labor costs and raw material costs through the use of more modern and efficient machinery. This ad­vantage also has been systemati­cally destroyed by the government.

The procedure employed has been twofold: The government first increased taxes on the profits of American firms, thus prevent­ing them from accumulating the capital needed to purchase new machinery. Then, it sent the tax money it collected to foreign coun­tries so that they could subsidize their own businessmen and help them set up modern manufactur­ing facilities. The result of this “enlightened” foreign policy is a situation whereby foreign com­panies have accumulated machin­ery which is equal to, and in many cases better than, the machinery used in the United States.

That some form of action is re­quired by American textile executives is obvious. However, for them to believe that higher tariffs and import quotas will solve their dilemma is worse than folly—it is tantamount to requesting another dose of the poison which caused the original illness. Because it is the government which has created their problems through regula­tions and controls, businessmen in the textile industry—and every other industry—must fight to keep the government out of eco­nomic affairs.

The job will be more difficult. It unquestionably is harder to effect the repeal of hundreds of old laws than it is to get one new law passed. But this is not the real al­ternative businessmen face. They never will be able to extricate themselves from the disasters re­sulting from government controls if they continue to request more government controls.

There is only one fundamental alternative: A society governed by the principle of laissez faire, in which businessmen are free to create wealth and an ever-growing standard of living—or a totali­tarian dictatorship, where in place of businessmen there only exist helpless slaves struggling to keep themselves and their masters alive.