Aggressive acquisitive

AGGRESSIVE, ACQUISITIVE

by

Richard Armstrong

Deep forces are gathering that could make the coming year a time of epic battle between management and labor. Some see a time of testing for the economy, a shaking and trying of the structure of collective bargaining, as in strike-riddled 1946, or 1952. Beginning with the electrical manufacturers this month, and on through trucking, meat-packing, rubber, and automobiles next year, five great in-dustries must reach new three-year contracts. Just as the companies begin to prepare for an expected slowing in the economy, and an expected crunch on profits, they will be

met with wage demands that are rocketing upward along

with inflation. Such a combination of economic events is unusual, and dangerous.

Union leaders are free with strike predictions. The

Rub-ber Workers, whose contracts expire next April, have built

up a strike fund of $18 million, three times the sum that

was at hand to mount a 101-day strike three years ago.

"We think of it as a deterrent, like Nixon's ABM," says

a Rubber Workers' official, "but we'll use it if we have to."

"Inflation is like an infection in the air," says a Teamster

leader. "The members want all the good things now. They

don't want to be rational where their pocketbooks are

con-cerned." The erosion of wages by inflation is real, but at this point in the spiral, wage increases pump directly into

still higher prices. A round of trade-union "victories"

could present the President and the country with all the

worst of two worlds: an economic downturn in which

in-flation persisted, stamped in by three-year contracts. There is no assurance that even record offers will avert

major strikes. Labor's top leaders have been buffeted

re-cently by the general failure of an ambitious campaign to

impose union coalitions on giant companies and whole

in-dustries, and this year the leadership split into two rival

organizations. These men badly need to win a few. Even where a contract is successfully negotiated, it may

be rejected by the rank-and-file union members, who are

in an acquisitive and rebellious frame of mind. The

blue-collar worker is in the crosscurrent of social change,

dis-gruntled about his bosses and "the system," and sensitive

to the black-power revolution within the ranks of labor. One expression of all this is an unprecedented number of

contract rejections in recent years. "A strike is not just economic, but political as well," says an economist at the U.S. Bureau of Labor Statistics. "Union leaders do not find it advisable to say so publicly, but perhaps they need a round of strikes to blow pressure and pull the member-ship together."

A recent round of outrageous settlements in the build-ing trades has had an ominous impact all across organized labor. One contract that made newspaper front pages ev-erywhere was that of the Brotherhood of Painters in

Kan-sas City, which won a three-year deal that will increase wages and benefits by 67 percent, to $8 an hour. "I have been shaken in my time," says Louis Seaton, vice presi-dent for personnel at General Motors and a thirty-year veteran of collective bargaining, "but that Kansas City contract was a doozy." The victory of a few Kansas City painters impinges on the world of Louis Seaton because a mammoth settlement in Kansas City inflates expectations by the union rank and file everywhere. "Our guys don't just read the funnies," said a Teamster official. "They read about these big settlements, and then they're unhappy no matter how much we get them. Frankly, it's one of our main problems."

Where will the ceiling be found in the big industrial contracts over the next year? "Eight percent," predicts an economist at the National Industrial Conference Board. "Six is beginning to look like model restraint. These big industries can't, and won't, go as high as 10 percent." Union economists can get up past 9 percent at the flick of a pencil, merely by adding the long-term annual in-crease in productivity per man-hour (3.2 percent) and the current annual rate of price inflation (6.4 percent).

The size of all contract packages has been increasing steadily and this trend shows no sign of leveling off. The median raise in wages and benefits during 1967 was 5.2 percent a year, when averaged over the life of the contract. That figure rose to 6 percent in 1968 and to 7.1 percent in the first half of 1969. In the building trades, the median was a staggering 15 percent in the first half, which, with compounding, means a total increase by the end of three years of more than 50 percent. When contracts reach this

Even a record contract did not satisfy these Machinists at Continental Air Lines in El Segundo, California, who voted to authorize a strike.

size, the compounding effect is worth noting. In the last

year of such a contract, the increase on the increases of the

first two years would come to 4.8 percent, which is higher than the median for all union contracts three years ago. The Machinists Union recently won a settlement of 32 per-cent from the airline industry, a clearly inflationary pack-age and the largest in the history of the union. Even so, Machinists at United and Continental voted the contracts down by large margins and held out for more.

These alarming signals bear with the greatest imme-diacy on the men at a long table in a conference room on the tenth floor of the General Electric Building on Lexing-ton Avenue in Manhattan. General Electric, which sets the pattern for the industry, is negotiating with representa-tives from a twelve-union coalition headed by the Inter-national Union of Electrical Workers, with a deadline of October 26. G.E. has a long history of skillful and ex-tremely tough bargaining, but this year it is feeling the force of inflation and of a tight labor market that is push-ing wage rates upward almost everywhere. At the same time, G.E. is trying to foresee conditions a year from now, when the economy will probably have turned down and the competition for sales will be fierce.

There is speculation that the final offer may be in the range of 18 percent over three years. This would be a fat settlement for G.E., but would it be enough? "For the past ten years, G.E. has played the unions that it deals with against each other and used this whiplash to defeat collec-tive bargaining," says Irving Abramson, general counsel for the I.U.E. "We have fallen far behind other industries, and in companies where we have real bargaining power, we have to fight like hell to break the G.E. pattern. This is the year of the showdown." I.U.E. President Paul J en-nings warns: "This may be a knock-down, drag-out fight." I.U.E. officials are predicting a strike.

Where the raises went

To understand the intensity of rank-and-file sentiment, it is important to understand the economic case behind it. After an unparalleled economic boom, the average U.S. worker in private industry, by some calculations, is slight-ly worse off today than he was four years ago. According to the Bureau of Labor Statistics, this average worker with three dependents is grossing $115.44 a week now, compared to $95.80 four years ago. But in 1957-59 dollars, after federal tax and social security deductions, he is tak-ing home only $78.49, compared to $78.88 in 1965. Most union members have done somewhat better, but not all of them. An average production-line worker at G.E.'s tur-bine plant in Schenectady, assuming that he has three de-pendents, is making $93.96 today in after-tax dollars of 1957-59, compared to $101.26 in 1965.

*

One major reason that the union man's lot has not im-proved is that the leadership, in what by hindsight must be counted a major tactical error, gave up cost-of-living es-calators in a number of contracts during recent years. "We had them and we bargained them away for other things," says one A.F.L.-C.I.O. official. "Now we're scrambling to get them back." "The cost of living had been relatively stable for some time, and we did not see this inflation in *Many government workers are faring better, which says something about government's failure to practice what it preaches. Federal employees have had raises totaling 21 percent since 1965, including a 9 percent raise in July. As labor leaders are fond of pointing out, the "average" Congressman's pay went up 42 percent this year, and the salary of the President of the United States is up 100 percent.

96 FORTUNE October 1969

our crystal ball," says Secretary-Treasurer Cleveland

Rob-inson of Distributive Workers District 65 in New York. The number of workers covered by escalator clauses de-clined from four million in 1959 to 2,500,000 last year.

In a number of unions, including the electrical industry and autos, unions accepted what they call a "cap," or limit on the escalator. Under the cap in the G.E. contract, work-ers have had cost-of-living raises since 1966 totaling 2.75 percent, while the cost-of-living index has risen nearly 12 percent. The cap in the automobile industry contracts has recently been saving the companies more than $100,-000 every hour the assembly lines run. Restoration of a full escalator clause is on a lot of union shopping lists. "Millions of moonlighters"

Some caveats are in order. There is reason to believe that the B.L.S. figures on worker income somewhat over-state the plight of the average worker's family. The Fed-eral Reserve Bank of Chicago points out that per capita real disposable income rose by 3 percent in 1967 and again in 1968, well above the average of 2.3 percent over the past twenty years. Part of the difference in the two sets of fig-ures can be explained by an increase in income from in-terest and dividends, which does not help the average worker much, and by the fact that the per capita income figure includes the imputed rental income of owner-occu-pied housing, which continues to rise. But there is also the fact that the proportion of married women holding jobs has increased steadily for a decade. These women add to family income but tend to depress the B.L.S. "average worker" statistics, since theirs tend to be lower-paying jobs. Moonlighting apparently has also increased dramati-cally and helps account for the disparity in the statistics. "There are millions of guys hustling at some part-time job," says Nicholas Kisburg of Teamsters Joint Council 16 in New York. "It's the only way they can make it."

The B.L.S. figures do not take fringe benefits into ac-count, and therefore understate total worker compensa-tion. But, as Nathaniel Goldfinger, research director for the A.F.L.-C.I.O., points out, they do not take state and local taxes into account either, and these have been rising sharply. Some economists say these factors roughly bal-ance each other. In Goldfinger's view, the beneficial result of the Kennedy-Johnson years was not improvement in workers' real spendable earnings, which was modest, but a massive increase in total employment. "The non-super-visory employee has been getting the short end of the stick all through the 1960's," he says, "and now the pressure from the membership is on.''

Collective bargaining was never designed, of course, to protect union members from tax increases. And the fed-eral surtax was expressly devised to remove money from worker pockets and thereby to ease inflationary pressures. Paradoxically, the higher tax rate and the increase in the social-security tax that went into effect last January 1 fuel inflationary psychology, since they contribute to the virtually universal feeling among union members that they have been standing still or falling behind. "Our his-tory has been one of real wages moving ahead faster than prices," says Herbert Bienstock, New York regional di-rector of the Bureau of Labor Statistics. "For the first time over such an extended period, there has been no gain in real income, despite the fact that the past four years have been a time of sharply higher money wages.''

Labor rejects, with all the anger of the righteous, the theory that wage increases have been a major cause of the

inflation. "Prices and profits were already on an upward climb before unit labor costs went up at all," says Carrol Coburn, research director for the United Auto Workers. As late as the beginning of 1966, unit labor costs in manu-facturing were holding down near the 1957-59 level, while prices were beginning to rise. Most economists agree that in its initial phase the inflation was "demand-pull" and was the result of the Johnson Administration's fiscal and monetary policies, which caused the money supply to in-crease faster than the nation's output of goods and serv-ices, rather than labor-management wage actions. A number of economists, including the University of Chi-cago's Milton Friedman, argue that this is almost invari-ably the case: that wage increases are a result of inflation and not its cause.

Speeding up inflation

"Certainly you cannot make out any case that what has happened to wage income is responsible for inflation," Secretary of Labor George Shultz told FORTUNE recently. "Fiscal and monetary forces produced the inflation-gov-ernment policy-and it can only be corrected by govern-ment policy. When you look at the figures on real spendable income and see that there has been no rise, you can't get too excited about preaching to people that they ought to restrain themselves. This is one of the problems. What the unions say is true. But is it relevant to the economic situ-ation that will exist next year?"

The present problem is that, whatever started the in-flationary spiral in the first place, wage increases have been adding to the spiral and increasing its rate of climb.

And such extraordinary increases as those achieved by the

building trades under monopolistic duress have added to its velocity. Paul McCracken, chairman of the Council of Economic Advisers, notes that last year, while

produc-The Dilemmas

in Recent

Wage Trends

"'

"'

The union case for higher wages can be traced in the chart at left, which shows what inflation has done to purchasing power. All through the 1960's, the average weekly wage in manufacturing (a figure that includes both blue- and white-collar workers) has continued to climb steadily, from $89. 72 in 1960 to $127.31 in the first half of 1969. But since 1965 this increase has been illusory, as the trend line for purchas-ing power reveals. The take-home pay of this average worker with three dependents (here charted in constant 1957-59 dollars) has actually de-clined slightly, from $88.06 in 1960 to $87.21 today. Part of the wage increase has been going for higher federal tax and social-security pay-ments, and the rest has been swallowed by inflation. (Fringe benefits

tivity increased by about 3 percent in the private, non-farm economy, labor costs per man-hour went up by 7.5 percent. Unit labor costs are soaring now because wage increases have been accelerating at the same time that productivity per man-hour in the private economy as a whole has actually been declining. This unhappy trend in productivity is apparently the result of such cyclical fac-tors as the employment of marginal workers.

"You apply the pressure, fiscal and monetary restraint, and you see the change," says Shultz, a former professor of industrial relations and dean of the University of Chi-cago's Graduate School of Business. "But things happen with lags, and while the economy rearranges itself the pic-ture looks confused. You see the change first in real G.N.P., where there is a flattening trend, a rate of increase that is now less than the long-term sustainable rate. As the pressure is felt in the marketplace, companies try to fight costs, and with a further lag this will lead to a rearrange-ment in the wage picture. Wages lagged on the upturn of inflation and will probably lag on the downturn." In the meantime, Shultz warns against "these 15 percent contracts floated off into the future ... Just as it's possible to price goods out of the market, it's possible to price labor out of the market too, if you get the rates up too high and give a tremendous incentive to new technology, new forms of organization, and new ways of doing a particular job." Much depends on the outcome of the Nixon economic policies. Profits have already begun to soften, as many companies find they can no longer pass along all of their increased costs in higher prices. Viewed from the stand-point of classical economic forecasting, there are some grounds for hope. If real G.N.P. holds flat through next spring and unemployment moves up from the present 3.6 percent to 4.5 percent, as FORTUNE'S Business Roundup has projected, labor attitudes could change quite rapidly.

continued page 144 150 140 130 120 110

Unit labor costs 100

1969 1960 1965 1969

{6 months) (6 months}

are not taken into account in these figures, but neither are state and local taxes. Some economists say the two factors would about balance off.) The chart at right presents the problem as viewed from the manage-ment side. The productivity index, which in this chart is a measure of output per man-hour in manufacturing, with 1957-59 as the base, has increased by 36 percent since 1960. During the early 1960's productivity increased faster than wages, and the labor cost of a given unit of output actually declined, reaching a low in 1965 of 99.9 percent of the 1957-59 base. This is as it should be, if price increases are to be avoided. After 1965 wages went up faster than productivity, and unit labor costs began moving up, adding fuel to the inflationary spiral.

THREATENING

WEATHER IN

The flow of fresh capital from

the U.S. has fallen sharply

this year in the wake of violence,

and expropriation. Most threatening,

though, is the new affection

for collectivist thought.

by

Juan

Carneron

"The climate couldn't be worse. Who the hell wants to

come in here with government intervention growing, with the highest tax rate in the world, and with a market of

only nine million people?"

The man asking that exasperated question happens to

be a U.S. banker in Santiago. But the question, in various

forms and with local variations, is being asked by

Ameri-can businessmen all over South America. U.S. investors

south of the border find themselves and their companies

the target of a new volley of hemispheric nationalism. They find the rules that govern foreign investment

con-stantly changing, almost always in what, from the

Ameri-can investors' point of view, is an undesirable direction. Day-to-day operations are becoming more and more

diffi-cult, and planning for the future uncertain and sometimes

futile. While there are exceptions, generally U.S.

corpora-tions are reacting to this worsening environment by pass-ing up what would otherwise be considered attractive investment opportunities, waiting to see whether the rules

of the game will finally come clear, and then whether the

game appears to be worth playing.

For the time being, anyway, U.S. private capital, which

is sensitive to economic and political uncertainties and yet

has shown remarkable staying power in difficult regions

of the world, is going to South America at a markedly

re-duced rate. FORTUNE found recently that Peru, Chile,

Uruguay, and Bolivia are being shunned as areas for new

investment. A young Peruvian manager of an American

drug firm in Lima says, "We wouldn't invest a penny in

this country today." A caution light is on for Venezuela,

and Colombia because of government restrictions, and for

Ecuador because of political uncertainty. While the light

is still green for Brazil and Argentina, it could change any

moment. The violence and government ·changes there have

given some U.S. companies pause.

The obvious signs of this new climate are seen in the dramatic confrontations that have taken place between U.S. business and local governments over the past year. Peru's expropriation last fall of the properties of Jersey Standard's Canadian affiliate, International Petroleum Co. Ltd. (I.P.C.), and the subsequent refusal to pay for

the oil fields, refinery, and marketing outlets worth $200

million, started the chain of events. Chile then

national-ized Anaconda's Chuquicamata and EI Salvador copper

mines, but is offering to pay $490 million for them.

Colom-bia decided to demand a larger percentage of a new oil

venture in which Texaco and Gulf Oil had invested $100

million, and so did Ecuador. Thirteen Minimax

supermar-kets in Buenos Aires, belonging to the

Rockefeller-con-trolled International Basic Economy Corp., were burned in

June. The subsequent riots that greeted New York

Gover-nor Nelson Rockefeller gave his diplomatic mission the

as-pect, as one diplomat observed, of a "movable wailing

wall." Finally, the bold kidnapping of the American

Am-bassador to Brazil, Charles Burke Elbrick, reflected

grow-ing political animosity toward the U.S.

The causes behind these dramatic events go very deep. New political leaders, surrounded by a rising class of young technocrats, many of whom were educated in the

U.S., have developed a brand of economic nationalism,

which is more sophisticated and more dangerous than the

old-style Yanqui hating of the kind once directed at

Unit-ed Fruit. These new men know that they need foreign technology and investment capital, but they want both

without foreign control. Artfully blending the thinking of

French journalist Jean Jacques Servan-Schreiber, econo-mists Walt Rostow, Gunnar Myrdal, and J. Kenneth Gal-braith, and using some dubious balance-of-payments arithmetic, they have evolved a fuzzy philosophy that Brazilian Roberto Campos, a former Minister of Eco-nomic Planning, calls the "rhetoric of independence."

(Campos adds that it has more "illusion than reality to it.") Their principal and popular precept is that U.S. business takes out more in the form of profits and royal-ties than it puts back each year, and so is enriching itself at their nations' expense.

Men of a new spirit

The leaders themselves have displaced the old apostles of the gradual economic and social revolution once prom-ised by the now discredited Alliance for Progress. An erstwhile hero of the Alliance, President Eduardo Frei Montalva of Chile, has been torn virtually to bits by local

politics. He will leave his government and his troubled country in a near state of crisis when his term expires next year. Peru's visionary Fernando Belaunde Terry, uncere-moniously ousted from the presidency by an Army coup last October, languishes at Harvard, where he teaches a

course in regional planning. The new voices being heard belong to Carlos Lleras Restrepo, President of Colombia,

Gabriel Valdes Subercaseaux. Foreign Minister of Chile,

and General Juan Velasco Alvarado, head of the military junta in Peru. All subscribe to economic development through tightly controlled state planning and state-owned

corporations. None is wealthy, and all reflect the rising d1s(;ontent of the emerging middle classes of their countries. These leaders are giving the disparate nations a new kind of unity. The American Ambassador to Colombia, Jack Hood Vaughn, who has had long experience in South America, says that now for the first time the hemisphere has found a common theme uniting such different coun-tries as Argentina, with its predominantly European pop-ulation, and Peru and Brazil, with their mixed cultures. This sense of cohesiveness was evident at a series of Latin-American conferences this year, such as the one held at Vifia de] Mar in Chile last May. Twenty-one nations drafted a document, entitled "Latin American Consensus

of Vifia de! Mar," which was presented to President Nixon

by Valdes of Chile last June. It set forth Latin America's unhappiness with:

.,. The political and military conditions for granting aid, particularly rules that tie A.I.D. loans to purchases of U.S. goods, which are more expensive and require that U.S. ships be used for their transport;

.,. U.S. policies that place restrictions on the import from

South America of basic commodities such as beef, sugar,

and cotton, and of certain of the continent's manufactured

goods as well ;

.,. Private investment that does not create export income or make technological contributions to the host country, and that does not "participate as a supplementary element of national investment, preferably associated with it."

Colombia's President Carlos Lleras followed up the

Vifia de! Mar message with a stiff warning in a

Washing-ton speech that relations between the two hemispheres

were "full of dangers open to sudden eruptions" if the

U.S. did not "generate new patterns of trade and remove harmful practices and irritating conditions." Seasoned American diplomats like Vaughn take such warnings

seri-ously, and are telling the U.S. business community just

that. Another diplomat has been saying bluntly to

Ameri-can businessmen that "Latin America, excluding Central America, is about to go on a nationalistic binge. You had better prepare to meet it on a unified basis." A thoughtful U.S. executive in Peru predicts that within twenty-five

years no foreigners will be allowed to own more than 50

percent of any major South American enterprise. Painful extractions

The most sensitive areas for foreign investment today

are the extractive industries and others that use natural resources. The take-over of Anaconda's mines and I.P.C.'s

oil properties, like the expropriation of W. R. Grace &

Co.'s 30,000 acres of sugar lands and Cerro's 615,000 acres

of sheep pastureland in Peru under an agrarian reform

program, was considered inevitable by many American businessmen in South America. So too is the move, under-way for sometime, by Chile and Peru to nationalize I.T.T.'s telephone systems in those two countries.

While the desire of the state to control public utilities

and basic resources has a long history in Latin America, the terms have stiffened in the 1960's. Oil companies have

had to give up an increasing share of their profits to local

governments. Kennecott and Cerro sold to the Chilean

Government a 30 percent ownership in their copper mines

when Frei came to power five years ago. But this year

Anaconda had to yield much more, or face outright expro-priation. One Anaconda official confessed bleakly: "We discovered the political realities of doing business here too late. We thought it was enough to observe our con-tract, signed only four years earlier with the Frei govern-ment, pay high wages, and run a good mine. Perhaps we

were wrong."

Rodrigo Botero Montoya, a thirty-five-year-old

M.I.T.-trained Colombian economist who is one of President

Lleras' economic advisors, comments. "In the exploitation

of national resources, the facts of life have changed. A few

years ago, developed countries, because of their

technol-ogy, could impose their own terms. But the price for us

was too high. We can't accept the proposition in which all

we are left with is an empty hole in the ground-you take

away the resources and we take the empty hole." One can

shoot holes in Botero's empty-hole theory, but the political

appeal of his statement is undeniable.

Planners call the tune

Outside of the extractive industries, where the future

seems pretty clear, the new attitudes are also at work.

There are now new rules that increase demands or

re-strictions on foreign banking, and on the manufacture of

everything from trucks to birth-control pills. Planners in

Brazil, Chile, Peru, Colombia, and Venezuela today are

100 FORTUNE October 1969

not only detailing what industries they want or don't want, but where they should locate and how they should be financed. The technocrats, many of whom studied at

Harvard, Stanford, or the London School of Economics, are also seeking ways to force foreigners to yield part ownership of their businesses either to state agencies or to local private investors.

A representative technocrat is Sergio Molina Barros, a former Minister of Finance who today, at forty-one, is

chief executive of Chile's Corporaci6n de Fomento de la

Producci6n (Corfo). A lawyer who has taught at local universities between government jobs, Molina brings a

Jong academic background, plus the experience of a stint

in the U.S. Bureau of the Budget, to his work. Besides passing on which foreign investments will receive tax and import preference from Chile, he runs a billion-dollar state agency, loosely patterned on the Italian state corpo-ration. Corfo began as a finance company, but has ex-panded into a holding corporation with investments in seventy domestic and foreign companies. Its holdings in foreign business, including RCA's and I.T.T.'s Chilean ventures, amount to $200 million.

Molina explains his government's philosophy thus:

"Our idea is that if foreign investment contributes no

more than capital, we are not interested. We want the foreign firm to bring technology and entry into export markets. We are not interested if a firm is not going to produce for export. New investors must bring new tech-nology in areas where we have natural advantages, such as in copper, pulp and paper, and petrochemicals." Molina also expresses a growing determination to force foreign business eventually to turn over its investments to Chile-ans: "We're not dogmatic about this. We'll discuss it be-fore a company comes in. But our idea is that after ten

or fifteen years the ownership of the investment would be turned over to Corfo, or to private groups here."

"I've done business with Lenin"

Some American corporations, such as Chrysler, Bethle-hem Steel, and a newcomer, Occidental Petroleum Corp., seem to understand the clamor for change. Occidental, bidding to obtain service contracts for new exploration in the southern part of Lake Maracaibo, is not only willing to enter a joint venture with the state-owned Venezuelan

Petroleum Corp. Following its policy in Libya, the com-pany is also offering to help the government of President Rafael Caldera Rodriguez in a series of projects, such as developing nickel and silver mines and establishing

petro-chemical plants. Occidental's chairman, the imaginative

and innovative Armand Hammer, aged seventy-one, greeted former President Raul Leoni last year by saying:

"I've done business with Lenin, and so I'm sure we can

deal with each other." Even Creole Petroleum, an affiliate of Jersey Standard, is bending its policy of not undertak-ing joint ventures with state-owned companies.

The move toward joint undertakings gets further im-petus from new competitors for the Latin-American mar-ket. Italian, German, and Japanese investors show little hesitancy about meeting local conditions for doing busi-ness. The skylines of Buenos Aires and Rio de Janeiro are

ablaze at night with the billboards of large European

firms, whose products and presence are becoming increas-ingly visible. Rudolph Leiding, the man in charge of Volkswagen do Brasil, believes in joint ownership: "It

seems convenient to have a local partnership that knows

The New Voices

of a Continent

The men who are articulating and implementing the new economic theo-ries of South America, which are coming to be commonly held through-out Sthrough-outh America, are a varied lot. Gabriel Valdes, Foreign Minister of Chile, presented President Nixon with the consensus of a twenty-one-nation economic meeting. The consensus is enthusiastically being hailed as "South America's declaration of ec-onomic independence." Colombia's President Carlos Lleras has been act-ing to toughen the rules for foreign investors in his country. And General Juan Velasco, the head of Peru's rul-ing junta, represents a new type of military ruler, determined to apply collectivist economics in his country.

Volkswagen went into Brazil, it sold a 20 percent interest in its Sao Paulo plant to private Brazilian investors. Twelve years later, it has 67 percent of the market.

Taxed like a luxury, controlled like a necessity

Many U.S. corporations, though, argue against the con-cept of a local equity interest in their foreign affiliates. General Motors and I.B.M. cite a variety of legal and financial reasons for their 100 percent ownership. G.M. believes that local investors might oppose decisions that forgo temporary advantage for the long-range good, such as decisions to lower dividends or to make large new in-vestments. G.M. also maintains that it would be difficult to prorate corporate research and management of the world-wide company to, say, an Argentinian subsidiary. Neither do the auto makers, understandably enough, want to be-come involved with state agencies run by political ap-pointees. Partly because of their policy, G.M. and Ford recently lost out in a bid for a new automotive assembly plant in Colombia, whose government insisted on at least a 50 percent participation. The plant went to Renault.

Some U.S. companies find the atmosphere so restrictive that they are getting out. Standard International Corp., a Massachusetts conglomerate with sales of $107 million, recently announced it was selling three Coca-Cola bottling franchises in Argentina, Uruguay, and Chile because, as one company official says, "They keep changing the rules of the game all the time. And taxes just continually go up. Coke is taxed as though it were a luxury, but at the same time it is price controlled as though it were a necessity like milk." In Peru, a variety of U.S. and foreign companies have been holding in abeyance for a year their decisions on some $600 million of new investment in mining. The loss of expected foreign exchange earnings from these stalled investments in part has forced the military gov-ernment to seek refinancing this fall of an $842 million debt owed to banks in thirteen foreign countries.

A banker in Buenos Aires complains that his board of directors in New York has been frightened off tempo-rarily by last May's rioting against the government's economic policies. And an executive of a major

communica-Lleras of Colombia Velasco of Peru

tion company says, "I get the idea from our management that if we can retrieve our South American investments, we should get out-even though we're making money in

two out of our three locations. Government control and

censorship are the chief reasons."

The Peruvian expropriation of I.P.C. worries everyone, because it may become an example to other countries. A

U.S. diplomat says: "We just don't want to appear to be issuing a hunting license to developing nations to grab

American property without compensation. It's hard for us to accept this admittedly unique case and be sure it won't happen to others. If a legal contract made by one government is unilaterally declared null and void by its successor, how do we make sure that other contracts will not be treated the same way?" Indeed, following the seiz-ure of I.P.C. by Peru, the late President of Bolivia, Rene Barrientos, was under intense political pressure to move against Gulf Oil's properties. The government recently demanded that Gulf provide it with 20 million cubic feet of gas daily for domestic consumption at zero wellhead price-in other words, free-for a period of ten years.

The rise in expectations

The mounting trouble between South America and U.S.

investors is rooted in the hemisphere's frustration over the economic gap between the two continents. But the irony is that Latin America has been moving ahead

eco-nomically in recent years. Dr. Roberto T. Alemann, the former Ambassador of Argentina to the U.S. and now in private business in Buenos Aires, notes that the total new

investment in South America has exceeded the goals set by the Alliance for Progress. And Alemann says that the strides in education have been "sensational."

But expectations are galloping ahead at an even faster rate. "The trouble is," says Alemann, "that when people get one, they want ten. When they get ten, they want a hundred." A Chilean official comments that eight years ago "the idea was that we would work toward the end where everyone would have enough in time. Now people want everything at once." The instability is heightened by endemic inflation, and by the movement of people from

continued page 207

Cubes and sails move in ordered pat-terns of light and reflected color as the wind blows through the open met-al framework of Integral Vibrante.

Standing about seventeen feet high,

the major cube contains twenty-seven smaller cubes. Each of those, in turn, holds four sails almost six feet high (at right). By using both steel and stainless steel, Otero has given the massive structure a subtle delicacy, and enabled it to catch an almost in-finite range of color. He describes it as an attempt to integrate man-made artifice with the elements.