STATEMENT OF DR. T. W. SCHULTZ, PROFESSOR OF AGRICULTURAL ECONOMICS, IOWA STATE COLLEGE, AMES, IOWA Dr. SCHULTZ. My name is Theodore W. Schultz. I am professor of economics, agricultural economics, Ames, Iowa, and I am here on the invitation of your chairman in a wholly professional capacity. I have put in a mimeographed form, Mr. Chairman, given to Mr. Grier, a one-page statement outline which gives my identification and also the focus of my statement, which is agriculture and trade agreements. Mr. COOPER. That is this statement here? Dr. SCHULTZ. That is right. Mr. COOPER. Without objection, that will be included in the record. (The statement is as follows:) OUTLINE OF TESTIMONY OF THEODORE W. SCHULTZ, IOWA STATE COLLEGE Identification: Professor of agricultural economics and head of department of economics and sociology, Iowa State College, Ames, Iowa; member of Iowa State College faculty since 1930. Ph. D. University of Wisconsin, thesis problem: Effects of Agricultural Tariffs. In 1929, abroad to study competitive strength of European agriculture including that of Russia. In 1941 to Argentina, Uruguay, and Brazil to inquire into their agricultural economies. Made special economic studies on effects of trade agreements upon agriculture. (See Hearings of Committee on Ways and Means, House of Representatives, 79th Cong., 3d sess., No. 12, pp. 1638-1752, January 25, 1940.) Focus of testimony: Agriculture and trade agreements. Topics: 1. Following World War I, agricultural trade was not given adequate consideration. As a consequence fariners of the world suffered tragically. Agriculture became the depressed area, marked in black, on our economic maps. 2. Schemes to rescue agriculture followed. Coffee valorization, Chadbourne plan for sugar, Stevenson plan for rubber, international tea committee, national monopolies for tobacco, imperial preference, wheat agreements, and Agricultural Adjustment Administration at home. 3. Trade agreements have stopped the trend toward ever higher trade barriers and nobody has been "sold down the river." Farmers have benefited substantially along with other groups. 4. Trade agreements have not gone far enough fast enough. Our quotas and other trade restrictions have kept and are keeping Canadian farm products outfood and feed that we need urgently. 5. Farmers have come to have confidence in the way in which trade agreements are negotiated. They see it as an orderly procedure within a democratic framework in which their interests are adequately represented. 6. Small nations and peoples abroad generally, especially in South America, have favored and welcomed our leadership toward lower trade barriers. However, they have been apprehensive, in fact fear, that we will again return to our earlier role of economic isolation. 7. Politically and economically the trade agreements are an essential minimum in planning for a peaceful world. Dr. SCHULTZ. My comments are on the topics of the seven points before you and I do not intend to reiterate, but in a sense place myself at your disposal if you wish to query me as I pass over these seven points which summarize the content of the testimony that I had in mind. I don't want to Mr. COOPER. You proceed in your own way, Doctor, and after you have completed your main statement, then members will address any inquiries to you that they may desire. Dr. SCHULTZ. Thank you. Then I will make this statement, which is essentially what you have before you: First, that one of the facts of the other World War was that when it was finished we left our selves in a situation as it bears upon world trade that was in a very real sense a tragedy for agriculture. The evidence is, if you please, the fact that all over the world-whether it was Australia or Canada, the Argentine, or the United States-you can just point to the export areas, they became depressed. We then followed, and this is my second point, and I am merely giving the most crude kind of a summary, with a whole series of what I would call rescue programs. We had it in Brazil with coffee, we had it in the wheat agreements, we had it in rubber, and in almost every farm product of importance, not only in the United States but in all other countries. We embarked on a whole series of such, if I may use the word again, rescue programs inside this country, the most notable of which was the A. A. A. Then, my third statement is that in the years in which the trade agreements have been an instrument for lowering trade barriers, under the leadership of this country, agriculture, or farmers, have not been sold, if I may use that in quotes now, "down the river" in the actual process by which the trade agreements worked, lowering trade barriers, including those on agricultural products. There was submitted in 1940 before this committee a series of studies, nine of which on which two of my colleagues and I worked quite intensely, and I am not reviewing the matter here but merely stating that farmers have as a whole benefited substantially. Particular farmers have lost some, other farmers have gained considerably. But agriculture as a whole has gained substantially. That seems to be the evidence before the clouds of the war overshadowed everything else. As a student of this matter I go to my fourth point and would say, and defend if you wish me to, the assertion that trade agreements have not gone far enough nor fast enough. The whole limitation is on that side. If I were to criticize the State Department in our negotiations, it would be that we have used a piece-meal process, frequently appearing as if we were amputating the tail of a dog piece by piece. In the last 2 years we had lost a great deal of resources in the war effort between this country and Canada because we did not succeed in getting our trade barriers lower, because of the quotas in some cases. We have been denied Canadian beans, of which we are very short in this country. We have been denied Canadian potatoes. We are now going to have the most serious transportation problem we have ever faced between this country and Canada moving in feed. Had we not had the trade barriers on barley and oats as high as they still are, that feed would have moved in earlier, when there still was some slack in the Canadian railroads and on the Lakes. Now iron ore is going to have priority and we are getting short of feed. And so I say that even going as far as we have, we are paying a very dear price for not having gone further, specifically with reference to the resources of Canada and our own country. Then, my fifth point: I know farmers well in the sense that I am among them a great deal and, working in the Middle West, I speak particularly for the Middle West, but what I say holds for the South, I am sure. Farmers have acquired a great deal of confidence in the way the trade agreements are negotiated. Maybe I ought to give you one illustration. When the British trade agreement was negotiated and the Canadian was renegotiated or reopened, it involved a good number of agricultural products, many of which hit the Middle West. The State Department, I think rightly, was quite apprehensive of farmers' opinions and reactions to the trade agreements, and sought to get their reactions and their objections, hoping that there would be agreement to try the trade agreements out as they were negotiating them. The Iowa State College at that time was host to a meeting at which members of the State Department met with presidents of the farm organizations. There were present the president of the Farmers' Union, the Farm Bureau, the Grange, the dairy group, the swine group, the beef group, the wool group, and so on. I sat through that meeting as a listener, and I was greatly impressed in that whole day's session that these men went after the State Department representatives on one score: How are these things done? Who does them? vetoes what? Who gives the approval? And again and again when the State Department wanted to get the discussion over to New Zealand butter or to Canadian dairy products, they would say, "What is the procedure?" Who Late in the afternoon, after this kind of inquiry had gone on all during the forenoon and the early part of the afternoon, the president of the dairy group rose and made the motion that— If the trade agreements are made by the process that has been outlined to us here this day, we are going to give you a chance to show what they will do, and we are going, each to our respective organizations, and say, "The trade agreements should have a chance, and the British trade agreement especially," and we will not fight it. We will stand by to see how it will work. The point of all this is simply that there has been evolved in the attitudes of farmers a certain confidence in that procedure, and I report merely to you at this point that I believe that that confidence is of considerable importance. The sixth point in the outline that you have before you arises out of work I have done abroad, independently as a student both in Europe and in South America, and I think again I can honestly say, and I feel this a little more keenly about South American countriesBrazil, Uruguay, and perhaps the Argentine-that they have come to look upon this program with a good deal of favorable expectations. There is underneath, however, a great apprehension that it is temporary, that it is merely a gesture in time, and that we will again revert to a policy of economic isolation in which they are frequently victims because of our power, our economic power, relative to their dependency upon other nations in trade. Now, Mr. Chairman, my last point is simply speaking as a social scientist, that the trade agreements certainly in my opinion do not go very far, and certainly do not go far enough when you look at the affairs of agriculture the world over today. They are at best, therefore, only a necessary essential minimum, if you want to think in terms of an orderly world when peace comes. That, Mr. Chairman, I would consider my statement. Mr. COOPER. This last statement you have just referred to, Doctor, that trade agreements are an essential minimum in planning for a peaceful world, you have pointed out that you think other things will have to be done, but as I understand from this statement, it is your belief that the trade agreements program will have to continue, and that nothing less than that could we look to with any reasonable degree of assurance for a future peaceful world. Dr. SCHULTZ. That is correct, Mr. Chairman. Mr. COOPER. Now I recall, Doctor, that when we held hearings in 1940 for the extension of the act at that time, the American Farm Bureau Federation- Dr. SCHULTZ. That's right. Mr. COOPER. Appeared in support of the program, and in substance stated to us that they had taken the trade agreements that had been negotiated up to that time and secured the services of you and some associates at Iowa State College to analyze and examine them with respect to the interests of the farmer. Dr. SCHULTZ. That's right. Mr. CooPER. And that you made that study. Dr. SCHULTZ. That's right. Mr. CoOPER. And made that report. And, as I recall, it showed that the farmers of the country had materially benefited by the reciprocal trade agreements program. Dr. SCHULTZ. That is correct, Mr. Chairman. Mr. COOPER. And your appearance here today, I assume, indicates that you are still of that opinion! Dr. SCHULTZ. Very definitely. Mr. COOPER. And that, brought down to date, it is your considered opinion that farmers of the country have benefited by the reciprocal trade agreements program. Dr. SCHULTZ. That is correct. Mr. CooPER. I see. Are there any further questions ? Mr. REED. Yes, sir. Mr. COOPER. Mr. Reed, of New York. Mr. REED. I have before me a tabulation by the United States Department of Agriculture, Office of Foreign Agricultural Relations, and article 34, “Total domestic exports,” shows that agricultural products decreased, according to these figures, $2,800.000,000; $2,085,000.000; $2,375,000,000; and, in 1936, $2,784,000,000. Those were domestic exports. In dollar values I don't see where the reciprocal trade agreements have benefited agriculture very much. They were down in 1939 to 19.7 percent, in 1940, 0.8 per cent. Of course I don't question your statements and your views, necessarily, because I don't know from just what angle you approached them, but do you think it would make for a better world condition, particularly for the United States farmers, if the tariffs were lowered or removed on agricultural products? Dr. SCHULTZ. Mr. Reed, let me answer your direct question first, that the fact that so much of the agriculture of the United States involves resources which are highly specialized, and which are not readily used for other purposes than for those they are used for now; and further, because the output of those commodities, resulting, are so much in excess of domestic requirements in a peaceful world that it makes this country's agriculture still very much dependent upon a world commerce. It is in the nature of the resources that we have, and those totals are always hidden when we look at aggregate national figures. The country economy is very obviously of this type. Take the expansion we have now in hogs, running 105 to 125 million head, coming as a result of the war. It again puts this country very much upon an export basis. Our wheat is still there, and our citrus fruits are very strong in their competitive advantage in the world. Our rice is produced so efficiently that we can sell it anywhere in the Orient. We are going there on vegetable oils now, on soybeans. I am quite sure that when the war is over, if we have anything like orderly trade we will be exporters of this new crop. There are other products in which we don't have sufficient, and there the question arises, Do the gains and benefits on end cancel out, and without going into the great amount of detail, and also the riskiness of an analysis of this sort, because one has to be careful about this method, the volume of trade has responded as barriers have been lessened. I want to pick out a detail, which certainly doesn't prove anything but which is very representative of what I am talking about. It is the case of lard with Belgium, in which they had put on excessively high duties, and those came down very sharply and the lard response was very, very noticeable. Now, lard is unimportant when you look at the total, and yet it adds up and is quite important in the particular commodity, and it is by that kind of piece by piece analysis that one gets some feeling as to what has happened in regard to the volume of trade. My final statement in regard to your question would be the Canadian situation right now. The Canadians have a lot of resources we can use and need for the war. They, in turn, have need for some of our resources. The interchange of resources between the two countries is held down quite substantially, even now when we are at war, and we use extraordinary devices, by the fact that we have created barriers between the two countries of substantial magnitude. Mr. REED. Would you, Doctor, be in favor of removing all trade barriers, everything, between Canada and the United States? Do you think it would make for better conditions for the farmers here and for the country in general? Dr. SCHULTZ. The question turns on this difficulty, that transitions are costly, and there are transitions involved that grew out of the past structure of the trade barriers, and whenever you take a new step you have to face up to the timing, because if you do things quickly you sometimes involve yourself in unnecessary cost. You can do things now at much less cost. There is another way of putting it. You could do things right now in which I would find myself saying, "These will go a very long way toward removing trade barriers between Canada and the United States to the gain of both countries." Mr. REED. Isn't a quick transition from one policy to another under a trade agreement also liable to be costly? Mr. SCHULTZ. Yes; it may be. Mr. REED. And you wouldn't favor removal of tariffs as a world proposition, would you? Mr. SCHULTZ. Well Mr. REED. Doctor, do you think we can face that situation in view of the loss of production in foreign countries and our own? Dr. SCHULTZ. Those are the questions you have to keep in mind. You have to make your procedure always conditional upon the place |