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'2> lQ.¥ct..... $~ PI i:n'). 21742- SERV ANTS OF INDIA SOCIETY'S LIBRARY, POONA " CL No Date of release for loan AcNo. This book should be returned on or before the date last mentioned below. An overduB charge of 5 paise will be levied for ,ach day 'he book is kept beyond this _ate. .. BAPR 1967

I .

A. B. P. P.] GOVERNMENTAL CONTROL OF CRUDE RUBBER

'THE' S'TEYENSON PLAN

A DiSSERTATION ,PRESENTED TO THE FACULTY OF PRINCETON UNIVERSITY

IN CANDIDACY FOR. THE DEGR.EE

OF DOCTOR. OF PHILOSOPHY

BY CHARLES R. WHfITLESEY Assistant Professor of Economies i" Princeton Uniuersi?

PRlNCEIDN: PRINCEIDN UNIVERSITY PRESS 193 1 COPYIUGHT, 1931, PIUNCETON UNIVERSITY PRESS

Accepted by the Department of Economics and Social Institutions, June 1928

PIUNTED AT THE PIUNCETON UNlVEII.SITY PRESS PRINCETON, NEW JERSEY, U. S. A. FOREWORD

HEJolloWing study is the second oj a series to be published under the auspices oj the International Finance Section oj the Depart­ mentoj Economics and Social Institutions in Princeton Univer­ sity. '['his section was established as a memorial to the late James T'l'heodore Walker, Princeton I927, with Junds largely provided by meml,ers oj Mr. Walker's Jamily. 'l'he Junction oj the Section is research, advanced teaching, and public seroice in the field 0/ internationalfinance. While gofJtrnmental interference with the supply oj raw materials is not • a new phenomenon, the numerous attempts that have been made within recent years, both in the national and the international sphere, to establish gofJtrnmental control oj raw materials have constituted this one oj the out­ standing economic problems ojthe day. A comprehensive account oj one oj the most Jamous oj such controls, the Stevenson Plan Jor restricting the export oj rubberJrom the British possessions in /be middle east, is here made avail­ able Jor the first time. In addition, ProJessor Whiltlesey offers an analysis oj the problems arising Jrom gofJtrnmental control oj raw materials that should prove oj interest and value to economists and students oj public and international affairs generally. E. W. KEMMERER XD)e-71g~:S5.-. 73

~I ~, 742 - PREFACE

HE outstanding importance oj rubber in present-day economic life is too apparent to require comment. <{he significance oj at­ tempts to set up governmental regulation oj the supply oj basic raw materials is scarcely less obvious. It follows from these two premisesT that the experiment oj the British in restricting the export oj crude rubber is oj major importance in the history oj economic affairs. Conditions seemed to make this an ideal casefor testing the policy oj gov­ ernmental control oj raw materials. <{he industry was notable for an inelas­ tic demand coupledwith a marked concentration oj supply, the two primary conditions oj a successful monopoly. <{he results oj the control during the firstfew years exceeded the expectations oj its most ardent proponents. Pros­ perity returned to the planting industry and rubber growers, who had been somewhat sceptical oj the measures, became supremely confident oj their tjficacy. <{he spectacular price movements that developed during the third year of restriction aroused strenuous opposition to the legislation in the United States. In orthodoxfashion we countered with a more or less stormy congressional investigation. <{he government oj the United States became involved in somewhat heated but virtually fruitless negotiations with Great Britain. Active counter-measures in which President Hoover, then Secretary oj Commerce,figured prominently proved decidedly significant. <{he ap­ parenl effectiveness oj restriction gradually declined and in I928 the Stevenson Plan came to an inglorious end. I have attempted to give, in the following pages, a comprehensive picture oj Ihe British rubber control. <{he procedure followed was to analyze the con­ ditions Ihat led 10 governmental control in the industry, to examine the plan ilself with its various modifications, and to assess the effects oj restriction upon producing countries, upon the principal consuming country, and upon the principal investing country. In the two concluding chapters I have treated the issues raised by the Stevenson Act, many oj which are pertinent to the problem oj governmental control generally, and I have endeavored to give a perspective view oj rubber restriction in particular. <{he sources drawn upon are sufficiently indicated in the appended bibli­ ography. <{he value oj publications issued by the governments oj British Malaya and the Netherlands East Indies deserves, however, particular men­ tion. Without attempting to express my appreciation for all the courtesy ~nd assistance I have received, it is only fitting that I should acknowledge my vii viii . PREFACE indebtedness to Professor Frank D. Graham of Princeton University jo, advice and suggestions during the writing of the book; to Mr. Everell G. Holt, formerly chief of the Rubber Division of the Department of Commerce, who placed the material of his division at my disposal and later read and criti­ cized the manuscript; to Dr. Benjamin B. Wallace, jormerly of the United States 'l'arilf Commission, and Professors James G. Smith and Frank Whitson Fetter of Princeton University, all of whom read and criticized the manuscript; and to others in the Department of Commerce, the Library oj Congress, the Department of State, and among rubber manufacturers who aided in the collection of material. I am Jinally, indebted to Miss Mabel S. Lewis, research assistant in the International Finance Section at Princeton University,jor the preparation of the index, and to my wife jor aid in the correction ofproof· C.R. w. Princeton, New Jersey December 10, 1930. TABLE OF CONTENTS PAGE I. THE HISTORY OF PLANTATION RUBBER I Commercial utilization of rubber-Discovery of the vul­ canization process-Introduction of the automobile- Wild rubber-Development of plantation rubber-Heavy planting afterl9og--The war and plantation rubber- The price of rubber

II. BACKGROUND AND DEVELOPMENT OF THE STEVENSON PLAN FOR THE RESTRICTION OF THE SUPPLY OF CRUDE RUBBEIl 6 Economic aspects of rubber production-War control of crude rubber in consuming countries, and in producing countrie~ollapse in the price of rubber, 1920--22- Financial condition of rubber producing companies to 1922-Activities of the Rubber Growers' Association- The plantation rubber industry, 1922-Attempts of solu- tion of the rubber growers' difficulties, I920-22-The Stevenson Committee Reports, 1922-The enactment of restriction

III. PRICE MOVEMENTS 30 First period, November 1922 to April 1925-Immediate improvement of prices following the enactment of restric­ tion-Relative stability of prices Second period, May 1925 to April 1926-Price panic-'­ Negotiations, Rubber Association of America and Rubber Growers' Association-Explanation of the panic-Failure of British to relieve rubber shortage-Criticism of the Stevenson Plan-Price decline Third period, May 1926 to February.I928-Factors mak­ ing for weakness in price-Factors making for stability in price Announcement of the abolition of restrictive measures

IV. ADMINISTRATION OF THE STEVENSON PLAN 47 The rubber restriction ordinance-The restriction scheme -Organization-J»rocedure-Exports above the quota- TABLE OF CONTENTS PAGE Free ports of Singapore and Penang-Receipts-Costs of administration Problems of administration-Miscellaneous problems­ Smuggling, evasion, theft, etc.-Coupons-Assessment of standard production Modifications in the Act-Miscellaneous-Change in the pivotal price-Increased elasticity

V. EFFECT ON PRODUCING COUNTRIES 75 Condition of plantations-Condition of plantations, 1922 -Immediate effects of restriction-Effects of high prices, I925-26-Effect of removal of restriction, I928-Sum­ mary Effect on cost of production in restricted countries-In­ creased costs through decreased output-Increased labor costs, I925-26-Burden greatest on most efficient estates Effect on labor-Labor conditions before restriction­ Price rise during the war-Effect of post-war slump, on wages, on number of workers employed-Immigration under restriction-Labor shortage, I925-26-Wage in­ creases-Labor difficulties Effect on the standard of living of natives-Indexes of improved condition of natives-Increased cost ofliving­ Effect on Netherlands East Indies less apparent Output of rubber under the Stevenson Act-Restricted areas-Unrestricted areas-Quality of the rubber pro­ duced Planting-Native versus estate rubber-Planting in re­ stricted areas-Planting in unrestricted areas-Planting in new areas-Determining factors-Firestone in Liberia -Ford in Brazil-Guayule

VI. EFFECT ON PRODUCING COUNTRIES (CONTINUED) II4 Effect on other industries-Restricted countries-Agri­ culture-Forestry-Mining-Railways-Business-Un­ restricted countries-Agriculture--Mining-Transporta­ tion-Business-Investment Foreign trade-Restricted countries-Improvement, I 922-24-Period of high prices-Decline in rubber prices, I926-Unrestricted countries-Exports-Imports-Ef­ fect upon reexport trade TABLE OF CONTENTS

PAGE Effect on Government finances-Unrestricted countries -Restricted countries Attitude of producing countries toward restriction-Gen­ eral approval in restricting countries-Proposals for c0- operative marketing-Native producers-Voluntary re­ striction in unrestricted areas.

VII. EFFECT ON THE CONSUMING COUNTRY 135 Attitude of the American consumers-Negotiations be­ tween the Rubber Association of America and the Rubber Growers' Association, I 923-High prices, 1925-Congres­ sional investigation, 1926 Measures taken by American rubber consumers-Gov­ ernment control of credit-Economy in use of affected commodity-Substitutes-Production in unrestricted areas-Miscellaneous proposals-Governmental negotia­ tions Eff.!ct on manufacturers-Cost of crude rubber-Sales­ Profits-Shares-Technical changes-Tire prices-Buy­ ers' pool-Foreign trade

VIII. EFFECT ON THE INVESTING COUNTRY 163 Predominance of Great Britain-Attitude of the rubber manufacturing industry-Profits of plantation com­ panies-Forward sales-Financial condition of planta- tion companies-Organization of new companies-Pro­ portion of increased prices going to British investors­ General effects

IX. THEORETICAL CONSIDERATIONS 174- Import and export duties-Raw materials and manufac­ tured articles-Discrimination-Stated aided and private controls-Supply and demand-Restriction and stability of pric~Permanent or temporary nature of restriction­ Defenses

X. CONCLUSION 187 Origin of the Stevenson Act-Administration-Aims and extent to which attained-Effect on producing countries -Effect on consuming country-Effect on investing country-Criticism of the Act-Conclusion xii TABLE OF CONTENTS

PAGE ApPENDIX A 199 ApPENDIX B 204 ApPENDIX C 210 ApPENDIX D 21 5 ApPENDIX E 217 BIBLIOGRAPHY 225 INDEX 233 LIST OF TABLES PAGE I. RUBBER PIUCES CoMPARED WITH PRICES OF OTHER RAw MATE~ALS, 191,3-28 12 II. DIVIDEND RECORD OF STERLING RUBBER COMPANIES IN MALAYA, I9Icr22 15 III. ALL-IN PRODUCTION COSTS OF STERLING COMPANIES, I9I~2 21 IV. EXPORTABLE PERCENTAGES AND PIUCE, 1922-28 33 V. AUTOMOBILE REGISTRATION, UNITED STATES 36 VI. ESTIMATED WORLD CONSUMPTION OF RUBBER 37 VII. GROSS RETURN WITH QUOTA AT 60% STANDARD PRO- DUCTION 52 VIII. NET RETURN WITH QUOTA AT 60% STANDARD PRO- DUCTION 53 IX. NET RETURN WITH QUOTA AT 80% STANDARD PRO- DUCTION 54 X. PIUCES AT WHICH GROWER COULD AFFORD TO EXPORT RUBBER IN EXCESS OF QUOTA 55 XI. STANDARD PRODUCTION AND EXPORT, MALAYA AND CEYLON 67 XII. AVERAGE ALL-IN COSTS OF BRITISH PLANTATION COM- PANIES, 1922-29 80 XIII. DAILY WAGES IN THE NETHERLANDS EAST INDIES, 1913-24 83 XIV. IMMIGRATION INTO THE FJ>DERATED MALAY STATES, 1916-28 85 XV. IMMIGRATION INTO BlUTISH MALAYA: ASSISTED PAS- SAGES 86 XVI. DAILY WAGES OF INDIAN LABORERS, BlUTISH MALAYA, 1924-28 88 XVII. DEATHS PER ANNUM AMONG INDIAN LABORERS IN THE FEDERATED MALAY STATES, 1921-28 91 xiv LIST OF TABLES PAGE XVIII. REVENUE FROM THE SALE OF PREPARED OPIUM, 1920- ~ ~ XIX: IMPORTS OF GOLD INTO BRITISH MALAYA, 19'2'2-28 97 XX. COST OF LIVING, NETHERLANDS EAST INDIES AND BOMBAY, 1913-'27 99 XXI. WORLD RUBBER PRODUCTION (NET EXPORTS) BY AREAS, 19,10-'28 lOt XXII. ESTIMATED ACREAGE PLANTED TO RUBBER IN THE MIDDLE EAST, 1905-'28 109 XXIII. EXPORTS OF RUBBER FROM BRITISH MALAYA, 19'25-'26 1'24 XXIV. CUSTOMS REVENUE, FEDERATED MALAY STATES, 19'20-'28 130 XXV. RECLAIMED RUBBER, COMPARATIVE FIGURES 143 XXVI. PRODUCTION OF RECLAIMED RUBBER IN THE UNITED STATES 144 XXVII. SALE OF AUTOMOBILE CASINGS IN THE UNITED STATES, 19'2'2-28 15'2 XXVIII. NET PROFITS OF MANUFACTURERS, 19'23-26 153 XXIX. INDEX OF PRODUCTIVITY IN TIRE MANUFACTURING 156 XXX. WHOLESALE PRICE INDEXES FOR AUTOMOBILE TIRES, 19'20-'28 157 XXXI. AVERAGE IMPORT PRICE OF CRUDE RUBBER 160 XXXII. EXPORTS OF RUBBER GOODS FROM THE UNITED STATES, 19'20-'28 161 XXXIII. FINANCIAL CONDITIONS OF PLANTATION RUBBER COM­ PANIES AND ALL OTHER INDUSTRIES, UNITED KINGDOM 167-8 XXXIV. DECLARED AND MARKET CAPITALIZATION OF BRITISH RUBBER PRODUCING COMPANIES, 19'2'2-29 169 XXXV. INDEXES OF THE PRICES OF CRUDE RUBBER AND RUB- BER COMPANY SHARES 170 LIST OF CHARTS PAGE I. EXPORT OF NATIVE RUBBER, NETHERLANDS EAST INDIES, 1920-23 9 II. NEW YORK PRICE OF CRUDE RUBBER, '922~8 31 III. ADMINISTRATIVE ORGANIZATION OF RESTRICTION 49 IV. AVERAGE MONTHLY MARKET AND IMPORT PRICES OF CRUDE RUBBER, I923~8 149 V. SALES OF AUTOMOBILE CASINGS AND MARKET PRICE OF CRUDE RUBBER, 1922~8 lSI CHAPTER I THE HISTORY OF PLANTATION RUBBER UBBER has been known as a curiosity from the time of Columbus, but the history of its commercial utilization dates from the year 1770 when the scientist Joseph Priestley called attention to "a substance excellently adapted to the purpose ofR wiping from paper the marks of a black-Iead-pencil."l It was this use, as is well known, that gave the commodity its name. As there could be little demand for rubber for so limited a use it remained a drug on the market for many years and, it is said, was frequently carried by ships in the South American trade as ballast.2 In 1823 a sea captain engaged in the rum' trade between South America and New England returned to Boston with a few pairs of rubber shoes. Although these were crude and clumsy articles of native manufacture they were waterproof and became something of a fad with the rich so that they sold for from $3.00 to $5.00 per pair. Factories were started and better shoes produced but the popularity gradually declined. About this time also rubber began to be used for waterproofing cloth. The numerous companies which sprang up were ·hard hit by the panic of 1837 and most of them failed with the result that rubber, which had risen in price, became virtually as cheap as before.s In the meantime, however, Charles Goodyear, who in 1830 had failed in the first retail hardware store in America, turned his attention to developing a process for vulcanizing rubber. In 1837 he patented the so-called "acid gas" process by which a hard, smooth surface could be given rubber by treating it with nitric acid. This did not prove the suc­ cess that was anticipated but the following year the caretaker of the property of a failed rubber company in Woburn, Mass., found that he could improve Goodyear's process by using sulphur. The patent for this was obtained by Goodyear as the assignee of the inventor/ but again the process proved commercially valueless. Not long afterward Goodyear lPriestley, Joseph, A Familiar Introduction to tbe

I ride Morel, E. D., Red RUDDer, London, T. Fisher Unwin, 1907. 'House Document No. IJ66, 62nd Congress, Jrd Session, Washington, Government Printing Office, 1913. 'International Information Service, NO.4, International Chamber of Commerce, American Section, Washington, May 1926. THE HISTORY OF PLANTATION RUBBER 3 of luck, and some duplicity8 that the seeds were finally transported to the Kew Gardens where 2,700 out of the 70,000 seeds planted germi­ nated.' Tw<>-thirds of these seedlings were carefully packed in cases and rushed out to Ceylon where they were set out in the botanical gardens not far from Colombo. The following year a few of the trees were sent on to Singapore and were planted there and elsewhere in Malaya. For the successful completion of his commission, which made possible the plantation rubber industry in the middle east, the young Britisher, Henry Wickham, was subsequently knighted. The reception given the strange tree was at first far from enthusiastic. Planters in British Malaya and Ceylon ridiculed the idea of replacing their coffee industry with rubber and for years rubber trees were used only as shade trees.IO Experimental plantings were gradually made, the appearance of coffee blight increasing the willingness to experiment with rubber,u but it was not until 1903 that the first rubber plantation com­ pany was organized in London." Until 1900 Ceylon had a greater area planted to rubber than Malaya but from that time on the latter forged rapidly ahead. Planting in the Netherlands East Indies was still slower than in Malaya and the early plantings there were made largely at the expense of the tobacco production.ls By 1909 it was clear that the aut<>­ mobile was going to bring about a very great demand for rubber. Stimu­ lated by speculation, the price of rubber rose above $3.00 per pound and for the entire year of i910 averaged over $2.00. Very large profits were realized on the plantings in bearing at that time and a veritable scramble to plant resulted. In the Dutch East Indies the planting of rubber was further encouraged by the low prices prevailing for tobacco. While the price dropped considerably from the level reached at this time it remained high and the heavy planting continued.!4 Although the cost of production at. this time was high relative to later lev~s the prices . prevailing for crude rubber bore little relation to the cost. On the one side was the supply of wild rubber which could be expanded only at con­ siderably increased cost an,d the supply of plantation rubber which could be materially increased only as the trees matured, and on the other side 'The cargo was virtually smuggled out of Brazil 'Figart, David M., 'Fhe Plantation Rubb". Industry ;n the Middle East, Department of Commerce, Washington, Government Printing Office, 1925, p. 100. 1081ra;/I Budget, Singapore, September II, 1925. . UIt may be observed that as a result of the development of the plantation rubber industry, Brazil lost her lead in rubber production but became the leading producer of colfee, while the middle east exchanged its lead in the production of colfee for first place in rubber production. UThe Rubber GrowerS' Association, 'Fhe Bulletin, London, December 1927, p. 775. 11 Figart, p. 207. 14VMe Table XXII. 4 GOVERNMENTAL CONTROL OF CRUDE RUBBER a rapidly' growing but ~npredictable demand. Although the high prices may have been necessary to secure the additional quantities of wild rubber required, the production of both wild and cultivated rubber was in general extremely profitable. In fact, this very profitableness led to wasteful methods in obtaining wild rubber with the result that the trees were tapped so vigorously as to destroy the source of supply in many places. ' Although the maximum annual production of wild rubber (73,834 long tons) was not reached until 1912 the output had been only slightly less than that amount for a number of years previous. By the end of 1914 the rapidly increasing output of plantation rubber had surpassed the total of wild rubber produced. The production of wild rubber declined thereafter and in 1922, the year of the inauguration of the Stevenson plan, wild rubber represented not quite 7% of the total world produc­ tion. Wild rubber has, therefore, ceased to play an important part in the rubber market. The output, moreover, seems to be almost stationary, since it was only slightly affected by the higher prices of 1925--26. Despite the reduction of demand in belligerent countries during the war the total world consumption rose, largely as a result of the increased demand in the United Sta~es. The rapid introduction of the automobile made possible an absorption of rubber far in excess of any amount that could reasonably have been expected at the time the trees were planted. But for this, the industry would have found itself in severe straits much earlier than was actually the case. While prices over the five years from 1914 to 1918 averaged somewhat less than during the years immediately preceding the war,li they were still decidedly profitable to the producers of cultivated rubber. To a certain extent, however, the production of plantation rubber was checked by war conditions, particularly the shortage of shipping. The full extent of plantation production was thrown upon the market immediately after the war, plus certain accumulations of stock held over from the previous year. The effect of the heavy planting during the boom years from 1«}09 to 1912 was apparent for the first time. But the marked prosperity of manufacturing industries following the war made possible the absorption of these greatly increased supplies without any marked decline in price, and quotations during the last quarter of 1919 were higher than they had been during the second and third quarters. With the falling off in demand during the depression in manufacturing indus­ tries from 1920 to 1922 while the heavy production from plantations continued to pour into the market, the price of rubber fell considerably below the average cost of production.

u67c as compared with 'I.!1!1 for the four years, 1910-13. THE HISTORY OF PLANTATION RUBBER s It should be observed that throughout the history of the plantation rubber industry price has borne little relationship to cost. Prior to 1920 the price was high relative to the cost of producing plantation rubber because such a price was necessary to ensure the production of the mar­ ginal increments of wild rubber. This period was followed by the depres­ sion of 1920-22 when prices ruled below what was at that time regarded as a long-run competitive level. Following this, restriction of supply was put into operation and price was maintained artificially, presumably above a long time competitive level. The price situation prevailing prior to 1920 gave a decided stimulus to the production of plantation rubber but as the period between the plant­ ing and the tapping of rubber trees is generally about seven years it was some time before this influence was felt. World conditions combined to make the reaction to this increased planting particularly severe when it did come, and it was this reaction that led to the legal enforcement of restriction of output. Following the restriction of rubber exports in 1922 prices improved and, while moderate, were remunerative during the first two years of restriction. In 1925 a buyers' panic struck the market and price rose to $1.23 per pound in July, remained high until the spring of 1926, and then fell in April of that year below Soc per pound. From then until early in 1928 prices were relatively stable around 40C per pound. In February 1928, the Prime Minister announced that as a result of the failure of restriction to sustain prices at the desired level the Committee of Civil Inquiry was to investigate conditions in the rubber industry. The market interpreted this as likely to lead to the repeal of the restrictive legislation and price declined sharply from 37c to 25c per pound. With the official statement that the Restriction Act would be repealed at the end of October 1928, prices dropped still further, to 18c per pound. Although restriction continued to hold certain supplies of rubber off the market the prospect of the early removal of the measure caused its influence on prices to be relatively slight and the price held steady at about 18c per pound until several months after the removal of restriction. While prices, then, improved in the early years of restriction and the planting industry in general secured high profits the position of the industry at the conclusion of the experiment was by no means reassur­ ing. In the following pages an attempt will be made to trace the influence of the restrictive legislation enacted as a result of the report of the com­ mittee appointed by the Colonial Office under the chairmanship of Sir James Stevenson, and to appraise its value. CHAPTER II BACKGROUND AND DEVELOPMENT OF THE STEVENSON PLAN FOR THE RESTRICTION OF THE SUPPLY OF CRUDE RUBBER

A. ECONOMIC ASPECTS OF RUBBER PRODUCTION T IS a conimonplace of economic theory that fluctuations in market price tend to equalize the production and consumption of any com­ modity by giving the producers of the commodity a return which I will cover their costs. including interest and profit. at a price which consumers are willing to pay. When maladjustments occur a rising price increases supply and restricts demand. and a falling price produces the opposite effect. Ordinarily this automatic reaction to price changes is rapid enough so that, while producers are eliminated from time to time, the great majority of producers may safely expect such compensation for their services year in and year out as will ensure their continuance in the industry. Certain peculiarities of supply and demand in the rubber growing in­ dustry make it. however, a partial exception to these general principles, insofar as short run effects are concerned. and it is this fact that was responsible for the introduction of governmental control in the industry. In the first place. the demand for manufactured rubber articles is relatively inelastic so that the price of crude rubber may double, as hap­ pened in 1923, without appreciably reducing the amount consumed. This inelasticity arises largely out of the fact that roughly 85% of the crude rubber consumed is used in the manufacture of tires and tire sundries for automobiles. The demand for tires comes through the demand for au tomobiles and as the price of tires is a minor part of the price of au to­ mobiles a rise in the price of crude rubber has very little effect in reduc­ ing demand. There is here a peculiarly apt illustration of the principle of joint demand in that the amount demanded is only slightly affected by price. The fact that there is no satisfactory substitute for crude rubber, except for the limited use of reclaimed rubber, removes another impor­ tant check on price rises. Where the demand for automobiles. and con­ sequently the demand for tires. runs ahead of the current supply of crude rubber the result is an extreme rise in the price of the latter. Therein lies the explanation of the price movements of 1925 when the BACKGROUND AND DEVELOPMENT 7 price of crude rubber rose from 36c per pound to $1.23 in a little over four mon ths. In the second place, the supply is inelastic in that it is difficult in any short period of time to increase or decrease materially the quantity available. In the case of a manufactured article the period necessary for increasing very substantially the quantity that can be offered for sale may be a matter of weeks or months. Most of the important agricultural products, such as cereals, require a period of a year. Others, such as livestock or fruit, may require a somewhat longer time but there is usually a wide choice of substitutes available and this fact tends to limit price fluctuations. In the case of rubber, however, from five to seven years are ordinarily required to bring a tree to the stage of productivity so that a rise in price, when production is at capacity, is ineffective in causing any marked increase in supply within this period. Furthermore, the supply of rubber under free competition is not responsive to a decrease in the price of crude rubber but is at any given time virtually a fixed quantity. Since a rubber plantation, the small native holding excepted, represents a large fixed investment which cannot be converted to any other use without great loss, and since a crop unharvested is largely an irredeemable loss-the effect of cessation of tapping being slight so far as the life of the tree is concerned-when the amount offered outruns the amount demanded the resulting fall in price fails to check supply and we have a decline in price to the point where variable expenses are barely met. At such a price new uses for rubber as, for example, in paving might enable consumption eventually to adjust itself to production, but meanwhile the growers would be seriously threatened. The difficulty of suspending production during a period of low prices is intensified by the fact that labor has to be recruited from a distance~ in the case of Ceylon and Malaya mainly from Southern India, and in the case of Sumatra from Java. As the coolies are generally under three­ year contracts the impossibility of disbanding them or of replacing them on short notice is apparent. Furthermore, on account of the expense of recruiting, transportation from overseas, medical treatment, and train­ ing, the securing of an efficient labor force represents a considerable investment which would be lost if the workers were released even tem­ porarily. The presence of a large and growing proportion of small native pro­ ducers further strengthens this inelasticity of supply, and gives it at times a tendency to expand with falling prices instead of contracting. As early as 1925 over a third of the area under rubber in. the middle 8 GOVERNMENTAL CONTROL OF CRUDE RUBBER east was' controlled by Orientals,1 principally Malayans, Javanese and Chinese. Their holdings as a rule are small and the rubber has'been planted as a side line to the cultivation of rice, though gradually rubber may have displaced the other crop in importance.2 At any rate the capital investment is low, equipment is the simplest and overhead is slight since there is none of the management and home office ex­ pense which enters into the cost of estate rubber. Moreover, labor on the smaller holdings involves practically no monetary outlay as the whole family may be employed in tapping. Elsewhere, particu­ larly in the Netherlands East Indies, the work is done on shares, the owner taking half the rubber produced and the tapper the other half.s In either case a falling price may at times actually stimulate production. The tapper or the small owner operator desires to make a certain wage. At the higher price for rubber he produces less and has more time for leisure, while as price drops he works harder and throws more rubber on the market in order to maintain his accus­ tomed standard of living.' There are limits to this tendency, of course, a point beyond which it is not profitable for either owner or tapper to continue, but this limit is below any price that could be met by the average estate because of the differences noted above.6 While the existence, therefore, of a large fixed investment tends to make the supply of estate rubber inelastic, the exact opposite of this situation tends to make the supply of rubber from native holdings also inelastic. That is to say, the fact that the native may be entirely dependent upon the rubber produced may lead him to increase his output instead of reducing it when price declines. It may be observed that wher:e prosperous conditions have permitted the aLcumulation of a reserve on the part of native growers they may reduce operations for a time in the face of lower prices, so giving the appearance of an elastic supply, but are apt to renew production as their reserve declines even though prices fail to rise. This is indicated by the chart, page 9. With the decline in rubber prices in 1920-21 the produc­ tion of native rubber was greatly reduced and remained low throughout most of 1921. Toward the end of 1921, and more especially after March 1922, the output of native rubber increased although prices did not rise

I Figart, p. IJ. ILuytjes, A., Natioe RuM". Cult;vat;on ;n the Dutch EfUt Ind;es, VII-Final Report, Kuala Lumpur, Charles Grenier & Sons, Ltd., 1927, pp. S~ 'idem, Chaps. I, n, UI, Kuala Lumpur, Charles Grenier & Sons, Ltd., May 1925, pp. J9-4°- 'idem • • According to a careful survey made by the Dutch Rubber Growers' Association of Batavia the cost price of unsmoked native rubber is around 7c (Str.) per pound.­ M4Iayan 'I;n and Rubb".1our1lal, Ipoh, Straits Settlements, September Jo, 1922, p. I 106. CHART I

EXPORT OF NATIVE R.l1BBBR, NETHERLANDS EAST INDIES, 1920: 23'

I

Export of I,'\ \ ," I \ • Na.five 1\ ," .. : .. / I I I , I', :• ' ..... ' Ruhher , \ ~ , , ,I I

I I • \/\ ,/\ .. \,, , ' .., . \

'9::l0 1(12 2. e <['he Rubber Situation in the Netherlands East Indies, Department of Agriculture, Commerce, and Industry, Buit­ enzorg, Java, 2nd edition, 1924, p.). 10 GOVlFRNMENTAL CONTROL OF CRUDE RUBBER until October 1922. It may, perhaps, be assumed from this that native planters who had accumulated certain savings during the prosperous years just after the war were able to reduce their output considerably when prices fell in 1920-21. Toward the end of 1921 these savings had largely melted away so that the natives were compelled to begin pro­ ducing rubber again even though price had not improved. That the mod­ erate decline in prices during 1923 should fail to check output was to be expected in view of the fact that the price was still relatively high, while the previous increase in price was too recent to have led to a very strong financial position among the natives. The existence of this large group of small producers militated against the plans for voluntary restriction of production mooted during the slump years of 1920-22. In many cases distance and ignorance would have prevented any attempt to secure their cooperation, while in other cases the lack of other means of securing a livelihood made them unwil­ ing to agree to any reduction in the amount of rubber they could produce. One further characteristic of the rubber supply should be noted here. That is the marked territorial concentration in the production of the great bulk of the world's supply. In 1922, the year in which govern­ mental control of the export of rubber was instituted, 7% of the world's supply was wild rubber principally obtained in Brazil. The remaining 93% came from the plantations of the middle Orient, and of this 93% over seven-tenths was produced in the British colonies and protectorates of Ceylon and British Malaya. Nearly all the remainder was produced in the Dutch East Indies: Java, Sumatra, and Borneo. This concentration of supply was of vital importance in the attempt to control the price of rubber. . B. WAR CONTROL OF RUBBER Along with many other commodities, rubber was placed under gov­ ernmental control during the war but this regulation originated in the consuming countries rather than in the producing countries. This step was taken partly in order to limit shipments from the middle east in view of the shortage of ships, but more especially because of the desire to prevent the Central Powers from securing this badly needed commodity. 7 The War Trade Board of the United States on December 7, 1917, issued regulations which provided for the licensing of imports, for the consign­ ing of all imported rubber to the Rubber Association of America, and for guarantees to be submitted by the importers and manufacturers that they would not sell any rubber, directly or indirectly, to any country at war with the United States, or to any person unless satisfied that there 'Lubin, Isador, Prices of Ru66er and Ru66er Products, War Information Bulletin, Price Bulletin, No. 30, Washington, Government Printing Office, 1919. BACKGROUND AND DEVELOPMENT 11 was no intention of exporting without an export license.8 A little later, in order to prevent a speculative rise in rubber prices as a result of the restrictions, the War Trade Board fixed maximum prices at between 62C and 68c. This maximum proved superfluous since the curtailment of im­ port caused prices in the producing markets to fall. 9 On September 21, 1918, the Priorities Committee of the War Indus­ tries Board, having conferred with representatives of the rubber indus­ try, instructed the trade to reduce its production of rubber goods to the greatest degree possible. It was suggested that unnecessary and unde­ sirable sizes, styles, and types be eliminated, that stocks be reduced, "and that nothing be produced or delivered except for such essential uses as were to be designated by the War Industries Board."lo These various restrictions were slackened at the end of 1918. After December 12 no import licenses were required but consignment to the Rubber Association of America and the usual guarantees continued to be demanded for a time. The movement of prices during this period is worthy of notice. (See Table I.) As has often been pointed out, rubber is unique among staple raw materials in that price declined from 1913 to 1919, and this in spite of the fact that the world consumption trebled, from slightly over 100,000 long tons to over 300,000 long tons. This price decline was prin­ cipally due to a greatly increased yield of plantation rubber arising out of the large plantings made in response to the very high prices which prevailed between 1909 and 1911.11 The planting at that time made itself felt during the later years of the war, and such price increases as did occur at times during the war were caused by submarine activity mainly, the fear being that communications with the east would be broken. A second factor holding down price was the elimination from the market of Germany, which ranked third in world consumption before the war. Russia, also, had been a large consumer of crude rubber. Finally, the government restrictions on imports imposed by the allied lidem, p. 17. • idem, p. I 8. Uidem, p. 24- uThe profits of a representative group of plantation rubber companies during the period I9O!rIl are given as follows: <['ons Selling Net Approx. Area Approx. Profit Yalue Profit in Bearing per Acre 1909 4.318 £3,000,000 £z,150,000 40,oooA. £53/15/0 1910 8,...00 7,000,000 z,350,000 95,000 56/ 6/0 19I1 14.456 6,zoo,000 4.350,000 150,000 z9/ 0/0 At this time the cost of bringing an acre ofrubber plantation into bearing was between £50 and £60.-Meyjes, A. C., "The Restriction of Rubber Exports," EdinlJurgb Rniew, Edinburgh, July 19z7, pp. 17-31. I~ GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE I RUBBER PRICES COMPARED WITH PRICES or OTHER RAw MATERIALS 1913-28 Import" Marketb

C. COLLAPSE IN THE PRICE OF RUBBER, 1920-22 The end of the war found a considerable quantity of crude rubber available which had accumulated on plantations and in warehouses in the middle east owing to the scarcity of shipping throughout 1918 and before. This fact, coupled with an enormously increased yield from the newer plantations, made 1919 an outstanding year in the export of rubber. In 1919 nearly twice as much rubber was thrown on the market as in 1918, and 1920 and 1921 were also years oflarge supplies as com­ pared with standards for the years preceding. While the business boom, particularly in the United States, carried prices upward in the last half of 1919 so that the year ended with satis­ factory prices and world stocks of rubber well reduced, it was natural that price should decline in the face of expanding output and this ten­ dency was strengthened by the severe industrial and trade depression that set in during 1920. Nor was this all. These years of greatest stress coincided with the general introduction of the cord tire which, while consuming practically the same amount of crude rubber as the fabric tIre in its manufacture, had a much longer life and so reduced the de­ mand for rubber for replacements. It is claimed that but for the intro-· duction of the cord tire the demand for crude rubber could hardly have been satisfied in 1922, and in subsequent years there would have been an actual shortage. A prominent member of the Stevenson Committee declared, in fact, that the threat of reduced consumption through the use of cord tires influenced the Stevenson Committee to recommend re­ striction in 1922}6 As a result of these conditions the price of crude rubber fell rapidly during 1920 so that the average New York price for the last quarter of the year was less than 20C per pound as compared with an average of just over Soc for the first quarter of the year. The excitement in the crude rubber industry naturally became intense, for price had ruled above 4OC, often, indeed, far above that price, ever since rubber had assumed any degree of commercial importance. The board of directors of the British Rubber Growers' Association met to consider possible

1.PAM &pm, 1917, p: I. JJjlJid., 1920, p. 21. IIIH. Eric Miller in International Information Service, NO.4. 14 GOVERNMENTAL CONTROL OF CRUDE RUBBER remedies and in the middle east and elsewhere numerous solutions were proposed. Meanwhile prices continued to slump. Where a few years before all-in costs17 under pre-war conditions had averaged around 40C the market price now fell as low as 12C, and the alarm of the growers knew no bounds. But even these low prices failed to adjust production and con­ sumption. In 1925, at the time of the urgent protests on the part of the United States Government against the restriction of rubber supply, it was fre­ quently alleged by British and Malayan writers that the Americans had brought restriction on their own heads by causing, or at least permitting, the continuance of low prices during 1920-22. No proof of any deliberate measures on the part of the buyers in the United States to depress prices has been advanced and it is not likely that such steps were ever taken. In the current periodicals at the time of the depression just the opposite view was expressed from that which was later maintained. Thus the Straits crimes, a strong restriction paper, said in 1922:18 No blame rests on the Americans for the low price of rubber. In point of fact, we owe to them the preservation of the industry from worse disaster than has befallen. If they had been short-sighted and greedy they could easily have forced prices to a lower level, but they realized that it was to their interest to keep the industry from "shake out" or collapse, and it is a fact that they have bought privately thousands of tons of rubber at several cents per pound more than the estates would have been glad to accept. There is no altruism in their action; it is pure business, and they would pay us fifty cents as willingly as twenty or twenty-five if we gave them the assurance of steady supplies. Really, as we contemplate the muddle that has been made during the past eighteen months, we do not marvel when we find American business men saying that the rubber industry is too big a thing to be entrusted to our care, and that in their own interests they must endeavor to get such a: measure of control as will enable them to see that business keeps pace with the world's needs. I t should be noted that the manufacturers of America possessed no organization at this time which would have made price manipulation of any sort possible. Nor is it reasonable to ask that the important con­ sumers of crude rubber in the United States, at a time when they were probably more hard pressed than the planters, should have come to the rescue of the latter by taking steps involving greater outlays for them­ selves! There is nothing, in short, to indicate that the American buyers of crude rubber either attempted to support or to depress prices during the slump years of 192cr22. The fall in rubber prices at that time brought

17 All-in costs are generally taken to include all expenses incurred up to the time the rubber is delivered in the purchasing country with the exception of return on invest­ ment, allowance for depreciation of the estate, and bonuses to the European staff employed on the eastern plantation. 18 September 29, J 922. BACKGROUND AND DEVELOPMENT IS disastrous losses in inventories to the manufacturers just when they were faced by a general business depression. The industry as a whole was hard hit and a large number of failures resulted. Thus, conditions within the industry made it impossible for buyers to come to the aid of the planters at that time even had they felt so inclined, but the large buyers were certainly not disposed to promote a further decline in prices since this would have involved still greater losses on inventories.

'D. CONDITION OF THE PRODUCERS As shown by the dividend record of British rubber companies in Malaya the rubber growing industry was remarkably prosperous prior to the period of the slump. (Table II.) One of the companies paid an average annual dividend of 225% over the nine years from 191 I to 1919,

TABLE II DIVIDEND RECORD OF STERLING RUBBER COMPANIES IN MALAYA 1910-2218 Number of Average Number Not Companies Dividend Paying Dividends

1910' 76 18.00% 35 1911 115 14.00 52 1912 129 17.00 41 1913 136 10.30 57 1914 138 1l.25 43 1915 138 20.00 22 1916 138 24.18 II 1917 138 16.90 18 1918 138 12·34 24 • 1919 138 22.36 8 1920 138 3.23 77 1921 138 2.14 100 1922 138 5.21 39 Average annual dividend for thirteen years, 13.6%. These figures fail to take into consideration net losses, so exaggerate somewhat the yield from the average company. • Financial years in many cases end in the spring of the following year.

~ while a list of eleven of the most prosperous companies, selected by Mr. Harvey S. Firestone for propaganda purposes, shows an average dividend per company over that period of I 17%.20 It is true that cost of production was high, but so was market price. Much of the large profits

18Maclaren, W. A., Rubber, 2"ea, and Cacao, Volume V of The Resources of the Empire Series, London, Ernest Benn, Ltd., 1924, p. 68. I. India Rubber Review (later India Rubber and 2"ire Review), Akron, Ohio, The India Rubber Review Co., January 1923, p. 10. 16 GOV~RNMENTAL CONTROL OF CRUDE RUBBER realized were absorbed during the war and after by excess profits taxa­ tion21 but stockholders had come to expect as a matter of course large and regular dividends. This fact was largely responsible for the practice of paying virtually all the profits out in dividends so that the lean years from 1920 to 1922 found most of the companies without adequate re­ serves. During 192Cr22 only a few of the companies were able to pay divi­ dends, These were small and in a majority of cases were taken out of reserves. It is noteworthy that more companies paid dividends in 1922 than in 1920, although the average price for that year was less than half the average for 1920.22 This reflects the very great, often too great, cutting of costs which had been effected by 1922. It is significant that during this period not a single rubber company disappeared and there were "fewer appeals for capital and less numerous reconstructions than in other industries of equal magnitude."23 Rubber shares, however, are very widely distributed in England24 and for this reason their weakness was of particular psychological importance on the London market. This fact, together with the shaky position of the pound sterling, may par­ tially explain why the government finally agreed to take measures to strengthen the condition of the rubber companies. Due recognition must, moreover, be given to the Rubber Growers' Association for its share in securing the passage of these measures. This powerful and highly organized body first undertook a program for stimu­ lating new uses for rubber. A contest for suggestions as to new uses for rubber with prizes totalling £5,000 waS announced. The results of this contest proved very disappointing to the committee in charge, despite the 2,000 entries and 10,000 suggestions. In November 1921, the Ulu Selangor District Planters' Association, one of the local associations more or less affiliated with the British Rubber Growers' Association, proposed that the governments of the Federated Malay States and the Straits Settlements impose a tax in the form of an export duty on plan- IlA decision of the King's Bench Division in 192.1 held that rubber companies could count upkeep of immature rubber as capital investment, so increasing the base on which profits were calculated and reducing the amount of the excess profits subject to taxa­ tion. In addition the companies were permitted at the same time to treat the same item as a debit against the year's profits in the income tax return. This ruling which was very favorable to the companies was reversed by the House of Lords, March 19~12..­ PAM Reporl, 192.2., pp. 66-7. • But see Table II, note -• .. Daily 'l'tltgrapb, London, January IS, 1923. "England alone is estimated to have about 2S0,OOO people who own shares in rubber plantalions.-InJia Rubb". WorM, New York, November I, 192.7, p. 6S. BACKGROUND AND DEVELOPMENT 17 tation rubber in order to provide a fund for propaganda purposes.26 While this proposal was not acted upon it indicates, at least, the direc­ tion of public sentiment.26 The Rubber Growers' Association also lent its support to the organi­ zation of the Rubber Shareholders' Association which held its first meet­ ing October 3, 19ZI. The aims of the organization as announced at that time were:27 (I) To organize opinion for schemes of control and/or restriction of output or anything affecting the interests of shareholders; (z) To collect information, hold meetings, etc.; (3) To promote the in­ terests of members and protect capital invested; (4) To conduct a pro­ gram of propaganda. The program of the Rubber Growers' Association with respect to propaganda for restriction was in the end largely responsible for con­ verting the government to such a policy. By advertisements,28 speeches, articles, memoranda, and all the other avenues of propaganda the public and the government were educated to a belief in the advisability of lim­ iting exports of rubber. Early in 19z1 planters in Malaya demanded that the government should interfere and legally restrict exports by 50%.29 The council of the Rubber Growers' Association supported this appeal, and sent a deputation to the Secretary of State for the Colonies, • P.1M Report, 1922, p. 29. The Planters' Association of Malay by careful calcula­ tions showed that the per capita consumption of rubber by leading countries was as follows: United States 4.15 Ibs. Great Britain 1.48 France 1.00 I~y ~ Germany .36 Japan .35 From this they argued that Great Britain should be educated to the point where her consumption would be equal to that of the United States, thus solving the problem of world demand!~PdM Report, 1922, p. 27. til From 1921 to 1924 £3,000 was paid annually to the 'Rubber Growers' Association by the government of the Federated Malay States to aid in its propaganda for new uses and new markets for rubber. An additional sum of '290,000 (Str.) was voted in 1924 for use in propaganda, one-half to go to the Rubber Growers' Association and one-half to be used iri the east. Finally, in 1925 it was arranged to devote to propaganda an amount equivalent to one-eighth of a cent (Str.) per pound on all rubber exported from the country, one-half of this sum being assigned to the Rubber Growers' Associa­ tion.-Report of the Chief Secretary to Government, Federated Malay States, Federated Malay States Gouernment Gazef/e Supplement, Kuala Lumpur, Federated Malay States Government Printing Office, annually. "Commerce Reports, Department of Commerce, Washington, October 31, 1921, P·52 1• . .8See Appendix F. 18Meyjes, p. 20. 18 GOVERNMENTAL CONTROL OF CRUDE RUBBER Winston Churchill, who at first declined to assist. The Planters' Asso­ ciation of Malaya persevered and added to their plea the endorsement of the government of the Federated Malay States. Accordingly the Stevenson Committee was appointed by the Colonial Office in October 1921, to investigate conditions in the industry and formulate recom­ mendations. In the constitution of the Stevenson Committee we see again the influ­ ence of the Rubber Growers' Association. Of the eight members of the committee four were also members of the council of the Rubber Grow­ ers' Association while the only manufacturer member of the committee had interests in several plantations. Such a situation was natural enough since it was essential that the members of the Stevenson Committee have expert knowledge of the rubber industry, and the presence on the committee of four members of the council of the Rubber Growers' Asso­ ciation was not remarkable in view of the fact that the council had a membership at the time of sixty-one.30 No association, it may be stated, was officially represented on the Stevenson Committee and the com­ mittee was responsible solely to the Colonial Office. Nevertheless, it is not surprising that the findings of the Stevenson Committee embodied closely the views of the Rubber Growers' Association. In view of this situation, the declaration of Sir Frank Swettenham, for many years a government official in British Malaya and at one time gov­ ernor-general of the Federated Malay States, that "if it had not been (or the Rubber Growers' Association there would have been no restriction" is probably justified.31 IOIndia Ru66". Journa/, London, October 14, 1922, p. 18. "Strails 'f'im,s, Singapore, August 26, 1926. The low prices prevailing for tin and copra during the years when rubber was also at its lowest price constituted a contribut­ ing factor in the passage of restriction. In the face of this situation, which is evident from the following figures showing the value of the tin, rubber, and copra produced in the Federated Malay States from 1919 to 1924, business in general in the British middle east, as well as the planting industry, was in a mood to endorse any plan which gave a reasonable promise of success. Ru66". 'f'in Copra Produced ra/u, Produced ra/u, Produced ra/ue 1919 106,453T £22,059 36,980T £8,746 26,65oT £ 600 1920 1010327 20,85 1 35,030 100345 24,999 1,075 1921 94,522 7,867 34,570 5,843 36,2 II 883 1922 1280462 8,713 350312 5,573 430370 1,020 1923 101,JII 130300 37,650 70493 49,049 956 1924 93,507 II 0408 44,044 10,689 53,197 1,125 (Values in thousand pounds sterling) -German, Capt. R. L., Hand600/c 10 British Malaya, London, Waterloo & Sons, Ltd., 1927, p. 26. BACKGROUND AND DEVELOPMENT 19 E. THE PLANTATION RUBBER INDUSTRY, 19zz The slump years of 19zo-zZ also brought severe suffering to rubber growers. The Director of Agriculture in Malaya declared in his report for 19z1 that "the year under review must be described as the worst, from a financial standpoint, which the plantation rubber industry has ever suffered."82 He then added that "this is due entirely to general world conditions and is reflected in most agricultural industries in other countries." That even this degree of stress might have 6een avoided if the companies had exercised proper judgment in the conduct of their business is indicated by the report of the same officer a year later:33 The high price commanded by rubber in the past has not been without harmful effects. Apart from being an important factor in the local high cost of living, it has led to a certain degree of extravagance in the administration of large estates; it has caused rubber properties to be regarded as a source for acquiripg large profits easily and rapidly [and] not as valuable assets which should be carefully preserved; it has led landowners to plant up unsuitable land with rubber so that in some of the coastal districts low lying land with a high water table, suitable for padi or certain annual crops, is often found to contain stunted and Unhealthy rubber trees with an inadequate root system, that cannot yield a profit unless the price of rubber is unduly high; it has attracted the Malay peasant from rice fields which have been abandoned and fruit trees which have been felled; finally it has caused public interest to be centered on rubber cultivation and has led to the neglect of all other crops giving reliable but smaller profits. Similarly in the annual reports of the Planters' Association of Ceylon for both o£.the years of greatest depression, 19z1 and 19zz, attention is called to the fact that, to a certain extent at least, the rubber companies had brought their troubles upon themselves: ••• the financing of estates gave considerable cause for anxiety, mostly owing to the short-sighted policy of taking dividends up to the hilt in the past." ..In numerous cases the short-sightedness of the policy in the past of paying large dividends without first building up substantial reserves in some readily liquid form became painfully felt.a& Thus it is evident that for different reasons, not the least among which was bad business judgment during the years of the rubber boom, the industry faced a serious situation in the slump year following the War. The situation was serious, however, rather by comparison with the pre­ vious condition in that industry than by comparison with other agricul­ tural industries throughout the world during the same period. A certain amount of reconstruction and amalgamation of weaker companies with stronger was reported as early as 1920. It is likely that "Report of the Director of Agriculture for the Federated Malay States and the Straits Settlements, 1921, p. 2, FMS GG Supp., August 25, 1922• .. M~&RJ, October 23, 1923, pp. 1174-5•. "Planters' Association 'of Ceylon, Tearbook, 1922, Kandy, Miller and Co., Ltd., 1922, p. 131• a& P.AC Tearbook, 1921, p. 94' 20 GOVERNMENTAL CONTROL OF CRUDE RUBBER if governme~t relief had not been provided this process would have con­ tinued and the position of the companies rendered more secure in the long run as a result.36 The extent to which tapping was suspended is impossible to determine. No estates, so far as records show, were actually abandoned although there was some loss by fire.87 Even where, as among the natives, certain areas were left untended during the depression the injury involved was much less than has been claimed.3s The principal cost resulting from such neglect was merely that of cutting away the brush again, as the trees are able to hold their own with the jungle vegetation. This is evident from the fact that "Malays nearly always leave their rubber holdings to look after themselves until the trees are tappable, even when conditions are prosperous.n39 In further substantiation of this point a survey of thousands of acres of rubber trees growing among grass, ferns, and blukar showed the trees and the bark in excellent condition.40 "From the observation made there is no reason to suppose that such vegetation is harmful, rather the reverse."41 The cost of clearing away the undergrowth would not have been a serious obstacle in the way of renewing operations when price justified tapping again. The possibility has been suggested that but for restriction great num­ bers of trees would have been cut down and the land converted to other uses, such as the production of food crops. I t is probable that in con­ sideration of the large capital outlay involved the larger estates would have been very slow in resorting to such drastic measures. Such destruc­ tion as did occur would have been on the part of small native owners. There is no way of estimating how extensive this would have been. Cer­ tainly that which actually did occur during the slump years was slight. In view of the length of time that artificial restriction was in force it is not impossible that natural restriction of this sort would have brought about an economically sounder utilization of resources. The remarks of H. Eric Miller, than ythom Restriction had no more zealous advocate and defender, are worthy of notice in this connection. Attention may be called to the fact that this statement appeared prior

18 Yid,

TABLE III

ALL-IN PRODUCTION COSTS 01' STERLING COMPANIES, 1919"""~1241 (PENCE PER POUND)

191 9 1920 1921 1922 refJrEnding Cosl Cosl Cosl Cosl PerPounJ Per Pound Per Pound Per Pound - Malaya 13·I2. 14.48 10.70 8·43 Ceylon 14·59 16·49 8.65 7-46 Java 13·74 16.04 13·39 10.23 Sumatra 16·24 17.89 14.28 9.42 South India 16.18 17.29 10·37 7.83 Burma 16.67 17·04 U·96 9.08 British North Borneo 14.81 14.14 13·34 9.22 Dutch Borneo 21·47 16·99 16.22 10·75 fact that most of the companies were practising voluntary restriction during 1921 and many during 1922 as well. Measures principally respon­ sible were a lowering of tapping and collection costs by substituting alternate day or periodic tapping for daily;" discharge of many Euro­ pean managers and European and native assistants, and reductions in

G Vide p. 83 for evidence that a considerable proportion of the excess labor had already been forced out of the country by the low prices of 1920-21. 41Figart, p. 75. These figures are computed from the returns of 64 companies in Malaya, 14 in Ceylon, 8 in Java, 10 in Sumatra, 5 in South India, 3 in Burma, I2. in British North Borneo, and" two in Dutch Borneo, with an occasional company not represented in the returns for any given year• .. Figart, p. 72. II GOVERNMENTAL CONTROL 'OF CRUDE RUBBER the salaries of those retained;4li reduction in bonuses paid to staff;46 lowering of Head Office expenses;47 and economy in the cost of upkeep per acre.48 Some of these economies were distinctly of an emergency nature, so that one of the first things done with the improvement of prices follow­ ing restriction was to readjust salaries and bonuses.49 Failure to provide adequately for upkeep and repairs, neglect of the soil, and similar meas­ ures necessitated correspondingly larger expenditures for these items in subsequent years. Over tapping and careless tapping were alleged but seem to have resulted in little permanent damage.&O On the whole we may conclude, therefore, that the operating efficiency of the estates was generally increased and economies of operation hastened by the necessi­ ties of this period. It may be mentioned that, this being a buyers' market, the quality of the product was closely scrutinized with the result that a general improvement was brought about and the lower grades largelyeliminated.&l

F. ATrEMPTS AT SOLUTION OF THE RUBBER GROWERS' DIFFICULTIES 1920-22 The first definite and positive action of the industry to meet the crisis grew out of recommendations of a committee of the Rubber Growers' Association. It was voted to undertake voluntary restriction for twelve months from November 1,1920, the planters agreeing to a 25% curtail­ ment of their production.&2 This plan secured the assent of producers u,M'I&RJ. August 15. 1923. p. 917; and PAM Report, 1921,p. 43 . .. Figures showing the bonus to staff per pound of rubber produced on certain British estates are given as follows: I920 I92I 14 Malaya Companies 0.23d. o.IId. 10 Sumatra Estates 35 Java F.states -Figart, p. 74. UFigart, p. 74. tIljdtm, P.7'J.. "M'I&RJ, August 15, 1923, pp. 91,/18. 10IRJ, September 3, 1927, p. 22. 11 PAC Ttar6oolc, 1921, p. 96. . III On account of war conditions the Rubber Growers' Association had earlier proposed "a voluntary agreement to reduce the production of rubber for the year 1918 to 80% of the producer's previous maximum annual production with a minimum of 200 pounds per acre. This scheme was adhered to by 75% of the acreage owned by the members of the Rubber Growers' Association in London, but the local producers in Malaya, Ceylon, and the Netherlands East Indies refused to cooperate and many of them increased their production. Nevertheless. the restriction actually practised kept about 35,000 tons of rubber off the market. Negotiations were opened with the government in the middle of BACKGROUND AND DEVELOPMENT 23 representing 70% of the acreage in bearing. These included British, Dutch, and some Chinese.53 Such measures could not be very stringent, and it is estimated that the reduction in output amounted to only about 10%, and so proved entirely inadequate to meet the situation.64 When it was proposed, therefore, to reneW the agreement for another six months there was only a bare majority in favor of continuation. Malaya, in the main, was willing to restrict but Ceylon and Java dissented, the chief obstacle being the non-European planters who represented ap­ proximately one-third of the total area in production.55 Among the reasons given for the collapse of volun tary restriction were the following;66 I. Failure to control a sufficiently large area under rubber. 2. Difficulty of including small native owners. Many of the Chinese owners were willing to accept losses on rubber because they were able to recoup on sales of supplies to workmen. This practice of "trucking," although forbidden by law, was common among native growers. 3. Lack of reserve funds because of excess profits taxation of corpora­ tions during the war and the practice of paying out practically all the net profits in the form of dividends. 4. Forward contracts for the entire output of certain estates. 5. Many of the producers, living a veritable hand-to-mouth existence, acted on the principle that the lower the price of rubber the more they must produce in order to keep their heads above water.57 Under the circumstances it was impossible to continue voluntary re­ striction on a large scale, although a few producers continued to restrict deliberately and a few by force of circumstance. The extent of this un­ official restriction is impossible to gauge but does not seem to have been very great. The material increase of production in the middle east in 1922 belies any great restriction during the period. The Planters' Association of Malaya continued its policy of making loans to planters but at the end of 1921 announced that "the Board is no 1918 to introduce compulsory restriction of output in the B~itish Colonies but the advent of the Armistice completely changed the situation."-Special Circular 464, April 30, 1924, Rubber Division, Department of Commerce, Washington. II Phillipson, A., 'Fbe Rubber Position and Gooernmml Control, London, P. S. King & Son, Ltd., 1924, p. 24. According to the estimates of the Rubber Division, Department of Commerce, Washington, the Rubber Growers' Association obtained the assent of over 95% of its membership as well as 70% of the membership of the International Association at The Hague and a large proportion of the local producers in Ceylon and Malaya. MPAM Report, 1922, p. ll. 16 Meyjes, p. 20, and PAC rearboolc, 1921, pp. 68 and 135-6. "Phillipson, p. 24. i7Internationai Information Service, NO.4. 24 GOVERNMENTAL CONTROL OF CRUDE RUBBER longer in a position to grant new loans as the funds available are not sufficient to finance the estates already on the books."58 During 1921 ap­ proved loans increased by $478,363.46 (Str.) to a total of $3,942,41 1.46 (Str.), nearly all of the increase going to rubber growers. In addition, certain loans were extended, also through the Board of the Planters' Association, under the government scheme of land grants to returned ex-service men.59 Such measures, while helpful in carrying individual estates over the period of depression, could have but little effect on the general situation. In December 1920 a committee of planters which had been formed at the request of the local government reporte4 in favor of compulsory restriction of output to the extent of 50% of the quantity produced from January to June 1920, the restriction to be in force for six months of 1921.60 It also advised financial assistance amounting to $3.00 (Str.) per acre per month on mature areas which would entirely cease tapping, and assistance in approved cases to immature areas not under two years old. This proposal was transmitted without delay to the Colonial Office but it was not until May 2, 1921, that the Secretary of State for the Colonies replied by cable, I have decided that no legislation for compulsory restriction should be introduced by Government. Conditions must be allowed to right themselves.61 Toward the middle of 1921 general trade conditions became much worse and in August H.E. the Governor and High Commissioner issued commIssIons to make a full and diligent enquiry into the present state of trade depression brought about, in the main, hy the continued depression in the Rubber Industry; and the exten­ sion of credit facilities.1II The report of this committee, issued on the first of October, declared that general trade should be left to right itself since the process had already started in the Straits Settlements.63 However, the government was urged to assist by economy and by supplying its requirements locally. Some form of restriction was stated to be necessary in the rubber growing industry and, since voluntary restriction was held to be out of the question, the government was urged to introduce some plan for com­ pulsory restriction, but only provided that the Netherlands Indies and Ceylon would join in the scheme. If such cooperation could be obtained

68 PAM Report, 1922, p. 36. &8 ibid., p. 37. eo This committee was presided over by Mr. Wm. Duncan who later played an im- portant rGle as a member of the Stevenson Committee. 81 PAM Report, 1922, p. II. lIIibid., p. 19. &I ibid., pp. 1~20. BACKGROUND AND DEVELOPMENT 25 the government was advised to borrow in London and to assist estates, but only "on stringent terms." It was suggested that the Secretary of State for the Colonies should again be asked to reconsider his decision against compulsory restriction of production, but, failing his consent thereto, that restriction of export should be advocated. A minority of the committee favored restriction in British Malaya even without the cooperation of Ceylon and the Dutch East Indies. In conclusion it was said of a policy of lais.rezjaire that This alternative should be the last-the counsel of despair •••• All roads lead to restriction and we are driven back upon compulsory restriction as the only certain means of bringing early relief to a sorely embarrassed industry •••• The revival of demand for rubber is likely to be slow, too slow, at all events, to be of much use to a number of estates now producing at a loss • • • • It is our view that a wise government must take some risks when the interests of the whole community are bound up in the salvation of a staple industry." This report was heartily endorsed by the Planters' Association and by British Malaya generally. There followed the appointment of the Steven­ son Committee by the Colonial Office, October 24,1921. As will appear later, the findings of that body agreed very closely with the report of the Malayan committee. (For the various schemes proposed for meeting the situation see Appendix A.) An attempt was made in August 1922 by a group of Americans headed by Edgar B. Davis, Walter B. Mahony, and David M. Figart to organ­ ize a Rubber Plantation Corporation, capitalized at '$250,000,000.65 The object of this corporation was the amalgamation of .existing companies with a view to stabilizing the industry, the entire industry at the time being estimated to represent an investment of approximately £15°,- 000,000. The group claimed to have the support of American capitalists, but the Stevenson Act was passed before anything definite could be accomplished and the project came to naught. It was later asserted that the prices offered to estate owners by the Americans were unreasonably low. G. THE STEVENSON COMMITTEE REPORTS, 1922 In May 1922, the Stevenson Committee66 submitted its report which suggested four possible methods of procedure:67 I. The encouragement of new uses for rubber. This plan involved too long a period of waiting, was too uncertain, and would have necessitated outlays of capital which the growers were in no position to make. "ibid., p. 21. "'ibid., 1923, pp. 12-13' IIIIThe committee appointed by the Colonial Office to investigate the rubber situation and prepare recommendations is generally spoken of as the Stevenson Committee after its chairman, Sir James Stevenson, who was financially interested in rubber plantations. 17See Appendix B. 16 GOVERNMENTAL CONTROL OF CRUDE RUBBER 2. Voluntary restriction. Attempts had already been made to meet the situation in this way but without success, and conditions gave no encouragement for a repetition of these measures. 3. Laissezjaire. The situation could be met by allowing free play to the operation of economic forces. But it would be, the committee sug­ gested, at the cost of enormous losses in the present and even greater uncertainties as to the future. 4. Government action. Dangers and difficulti~s in the way of inter­ ference by the government were admitted but the committee suggested a restriction of output under government control as the plan most hopeful under the circumstances. Two ways of accomplishing restriction under government control were suggested. The first was by the absolute prohibition of both the production and the export of any quantity of rubber in excess of a prescribed percentage of that produced or exported during a specified time previous, the twelve months, November 1919 to October 1920, being mentioned as the standard period. The other method proposed was the restriction of export only, by means of a scale of export duties so graduated as, under normal circumstances, to prohibit the export of any rubber above an authorized minimum. The authorized minimum was to be increased or decreased at quarterly intervals accord­ ing to whether price was above or below a specified point. It was this latter method of restriction which received the endorsement of the Stevenson Committee. However, the committee declared that it advised restricting only if the government of the Dutch East Indies agreed to cooperate. During the summer of 1921 a committee from British Malaya had conferred with a committee of the Dutch and reached agreement on certain points, viz.:68 that the interests of the Netherlands Indies and British Malaya were identical and cooperation between them was highly desirable; that a policy of survival of the fittest would not be likely to produce the desired effect; and that combination by the chief producing countries to restrict output was the only way to save the industry from disaster and ruin.69 In 1922 the Rubber Growers' Association of Batavia sent one of its members to investigate the condition of Malayan planta­ tions to determine the relative strength of the British and the Dutch. His conclusion was that a struggle between the Malay Peninsula and Netherlands [East Indies] for the sur­ vival of the fittest is entirely hopeless and will only lead to the mutual exhaustion of both.TO Despite the apparently favorable attitude of the Dutch, ~eir reply 8. PAM Reporl, 19:1:1, pp. 18-19. "The specific remedy proposed at this time was cooperative selling. TOUnited States Consul, Batavia,October 31,19:1:1. BACKGROUND AND DEVELOPMENT '}.7 stated that they had decided "not to take at present any legislative measures to restrict the production of rubber in the Netherlands."71 Among the reasons given for the failure of the Dutch to cooperate we find the following: that it was undesirable and unwise to introduce gov­ ernmental interference into the industry; that the restriction was arti­ ficial and unnatural and would tend to support inefficiency and extrava­ gance in production; that unless restriction were permanently applied a policy of the survival of the fittest must sooner or later come into play, the efficient companies being hampered in the meantime to support those companies which found themselves unable to compete;72 and that in view of the American loan to Holland the Dutch were afraid to incur the displeasure of the Americans by adopting restriction.73 A view occa- . sionally expressed was that the Dutch were more efficient producers of rubber than the British and therefore would be relatively better off if they did not restrict. The main reason for the refusal of the Dutch to join in restriction, as stated by the Dutch and others, seems to have been the problem of the native rubber producers with large, scattered areas, few officials, and holdings nearly all unsurveyed.74 Dr. A. G. N. Swart, a leading Dutch rubber producer and for several years head of the International Association for Rubber and Other Cultivations, after denying that the Dutch deliberately set out to reap where the British had sown, stated that the adverse decision of the Netherlands Indies government was mainly due to the presence of the native rubber plantations, to the political consid­ eration that it would be risky to try to compel the native population to restrict the production of the plantations which had been brought into existence at the urging of the government itself, and above all to the dread of the government officials, that, with the vast expanse and the peculiar nature of the territory on which said plantations were to be found, it would not be practicably possible to enforce restrictive measures also for the product of these plantations.'16 After it had become clear that the Dutch would not join the British in any plan for compulsory restriction of the output of rubber, the Steven­ son Committee, on October 2, 1922, issued a supplementary report recommending restriction of rubber output in British Malaya and Ceylon alone, the cooperation of the Netherlands East Indies no longer being regarded as essential. The promise of British, and other, growers outside the restricted area to adhere voluntarily to the program of re­ striction was a factor in bringing about this change on the part of the

71 PAM &port, 1923, p. 15. The date of this reply was August 20, 1922. '12 Commerce Reports, September 4, 1922, p. 670' '12 RGA Bull., November r923, p. 609. 7f Manchester Guardian Commercial, Manchester, October 6, 1927, p. 385. 7i International Information Service, No, 4. 28 GOVERNMENTAL CONTROL OF CRUDE RUBBER committee.76 This' type of voluntary restriction proved, in the event, to be very effective and the great majority of British growers (85-95%) as well as many others conformed more or less closely to the scale prevail­ ing in Malaya and Ceylon.77 The Rubber Growers' Association main­ tained a standing committee called the Netherlands Indies Committee which aimed principally at securing the voluntary cooperation of planters in unrestricted areas.78 The supplementary report also contained the plan proposed by the Stevenson Committee, an elaboration of the plan outlined in the earlier report.

H. THE ENACTMENT OF RESTRICTION The recommendation of the Stevenson Cominittee and the plan drawn up by it met with the approval of the Colonial Office. Mr. Churchill, the responsible minister, secured its approval in the last fif­ teen minutes of a Cabinet meeting. He later remarked that «evidently the Cabinet either felt that the scheme was so excellent that it required no discussion, or that it was so complicated that discussion was im­ possible. "79 The plan for restriction, having been endorsed by the Colonial Office, was rushed to the governments of Ceylon and Malaya where it was passed by the various legislative councils and ratified by the governors within ten days of the date it was to become effective, November 1,1922. On September 2, 1922, the Rubber Growers' Association had passed a unanimous resolution for independent action by the British colonial governments. The likelihood of restriction grew steadily, and the follow­ ing month, with the publication of the Stevenson Committee report, became a certainty. During the last two months preceding restriction tapping, therefore, proceeded at a feverish rate, and exports during October were record breaking, and brought the year's total well above what it would have been had restriction not gone into effect. Stocks were rushed out during the latter part of October to Singapore and Penang, which, as free ports, were outside the restriction area. Dealers' stocks amounting to about 7,CXXJ tons were licensed for export, so that it is esti­ mated that roughly 20,CXXJ tons of rubber were made available in addi­ tion to the regular releases under restriction.80 The outlines of the plan as passed at this time may be summarised briefly as follows: The ?utput of each rubber holding during the year !eSpecial Circular 95, November 3,1922. 77 Vid, 'l"b, Statist, London, March 19, 1927, p. 474. 'I8RGA Bull., January 1927, p. 10. 71'l"bt London Economist, London, September 26, 1925, p. 487. ,OFigart, p. 187. BACKGROUND AND DEVELOPMENT 29 ending October 31,1920, was to be taken as its "standard production." Growers were then to be compelled to restrict their export of rubber to a certain percentage (originally 60%) of their standard production. It was provided that changes in the exportable quota should be made in case the average market price over quarterly periods was above or below certain pivotal levels. CHAPTER III PRICE MOVEMENTS

A. FIRST PERIOD, NOVEMBER 1922 TO APRIL 1925 HE movement of rubber prices immediately following the enactment of the Stevenson Plan fully justified the claims of its proponents. (See Table IV.) For the twelve months pre­ T ceding October 1922,1 the a verage New York price of plan­ tation rubber was just under 16c while the average for the first quarter of restriction was over 28c. The following quarter saw the average still higher so that the quota exportable from the restriction areas at the minimum rate of duty was increased from 60% to 65% of standard pro­ duction. For the entire first year of restriction the price averaged nearly 30c and a high degree of stability was maintained. This first year, in fact, may be regarded as the most successful year of restriction, and the general tone of satisfaction with the operation of the scheme was reason­ able, if premature. It must be admitted, however, that the rise in prices following the enactment of restriction was due to psychological rather than objective factors, there being no immediate change in the world rubber position to warrant the rise in prices. A recognition of the psychological element in the rubber market is of fundamental importance in understanding the movement of prices under restriction. Uncertainty as to the operation of the restrictive measures brought alternately undue pessimism and false optimism. ~usiness conditions were already improving when the Stevenson Act was passed. This fact coupled with the first enthusiasm for the measure carried the price of rubber to 37 1/8c per pound in January 1923. Such confidence was soon seen to be premature in the face of world stocks, amounting, it is estimated, to about 330,000 tons on January I, 1923,2 a figure greater than that assumed by the Stevenson Committee as the total annual consumption for the world in 1922. Furthermore, it soon

I The rise in prices of which the Stevenson Act was the immediate cause commenced as soon as the probability of the legal enforcement of restriction became known. I RGA Bull•• December 1927. p. 781. CHAIl'!: II NEW YORK PRICE OF CRUDE RUBBER, 1911-:1.8.

9 2 28 92 28 11 I ~ 11 .!I.i I' .h IIU1U IIUJ:!! .11:11 II lILI .hl II 110 ":11 11 lIJIU ... 150 '40 140 130 1.. 120 1.. 11 0 11 100 100 • to to 10 III .,'" ..III

2S

20

• THE INDIA RUBBER WORLD , 32 GOVERNMENTAL CONTROL OF CRUDE RUBBER became app~rent that the reduction in world output was to be less than had been too optimistically supposed.3 Prices, therefore, dropped slowly from the peak reached at the begin­ ning of the year, but it was not until 1924 that the decline became alarming. In June 1924 the price fell to 18%,c per pound despite the fact that stocks were about 80,000 tons below the level of January 1923 when price had been nearly twice as high.4 Factors which contributed to the depression prevailing at that time were: the greatly increased output of the Netherlands East Indies which largely offset the effect of restric­ tion in the British colonies, the fact that stock'S were stiU far ahead of requirements, the prevalence of smuggling and evasion in the restricted areas, and a temporary slackening in the manufacturing industry.5 It was natural that the depression of 1924 should have stimulated debate, which was never lacking, as to the merits of restriction and the wisdom of its continuance. The approval of restriction by the majority of the growers and shareholders was, however, never in doubt. Two other tendencies that have appeared at every occasion of falling prices and depression in the rubber industry may be mentioned here. The first was a renewed interest in propaganda for new uses, and increased activity by the propaganda committees of the Rubber Growers' Asso­ ciation, the International Association for Rubber and Other Cultiva­ tions, and other similar organizations.6 The second tendency was a fresh 'The effect of the early agitation in America against restriction, as seen by the British press, is expressed in the following excerpt from the London Financial 'I'imes of August 27, ]924: "The Firestone campaign in behalf of certain American consuming interests utterly failed in its purpose, and instead of smashing the scheme, helped to run the price up in the early days of restriction to over one shilling and six pence per pound." The Straits 'I'imes of November 2, ]923, was somewhat less moderate. In speaking of the high comsumption of crude rubber by the United States in the first half of ]923 it stated: "A great part of it, 7o,fxJO tons at least, was bought simply because a person • . • called Firestone kept shouting scarcity, and everybody wanted to be well stocked when the scarcity came." The importance of this factor is probably not very great, particularly in view of the fact that the price mentioned was reached in January of ]923 while the Firestone cam­ paign was launched at a meeting of certain manufacturing interests in Washington at the end of February. 'International Information Service, NO.4. 'Hearings before the House Committee on Interstate and Foreign Commerce: Crude Rubber, Coffee, etc., Washington, Government Printing Office, 1926, pp. 2]4-]5. 'The new uses for rubber that have been suggested show a wide range. The suggestion which won first prize in the Rubber Growers' Association's competition was that sponge rubber be used in upholstery. Second prize was awarded to the suggestion that liquid rubber be mixed with paint as a wood preservative or anti-corrosive. Carpets and other floor coverings are being made out of rubber. The use of latex in the manufacture of paper was found to improve the surface of the paper but otherwise no particular im- PRICE MOVEMENTS 33 TABLE IV EXPOIlTABLB PEIlCBNTAGES AND PIlICE 19ZZ-Z81 London Exporta!J/e Average Price Percentage s. d. First rear oj Restriction November I, I9ZZ, to January 31, I9z3 60 I 2. z85 February I, 1923, to Aprii30' 1923 60 I 4. 858 May I, I9Z3, to JuJy 31, 19z3 65 I Z·242 August I, 1923, to October 31,1923 60 I Z·994 Second rear oj Restriction November I, 1923, to January 31,1924 60 I z.I75 February I, 1924. to April 30, 1924 60 I 0.917 May I, 1924. to July 31,1924 60 0 10·974 August I, 1924. to October 31,1924 55 I Z.63Z rovided for horses used in bull fighting. The disadvantage with steel armor, the fact :hat the bulls went on strike when it was used, was eliminated by the use of rubber!­ rhe Rubber Age, New York, The Palmerton Publishing Co., March 19, 1927, p. 543. 1 Rubber Age, semi-monthly statistics. 34 GOVERNMENTAL CONTROL OF CRUDE RUBBER desire to enter into some sort of selling combination particularly with the cooperation of the Dutch. These trends were apparent in the four periods of absolute or relative depression in 1920-22, 1924, 1927, and 1928-30 • A more tangible effect of the price sag that began in 1923 was the consequent reduction under the operation of the Stevenson scheme in ex­ port quotas (See Table IV), so that the quota exportable at the min­ imum rate of duty was only 50% of standard as late as January 1925. Actual changes in the exportable allowance had no appreciable effect on price since they were always discounted ahead of time.8 However, at the end of restriction quarters there early appeared what has been termed "inverted competitiQn." When the average price was seen to be close to the pivotal price buyers would try to force price up in order to increase the percentage exportable while sellers maneuvered to hold prices down in order to restrict the quota and so make their stocks more valuable and also contribute to higher prices later. Another factor, largely unheeded at the time, was the steady decline in stocks of rubber throughout 1923 and 1924. The slight attention paid to this at the time grew out of the fact, probably, that stocks had been so large for years that the possibility of their becoming drawn down was overlooked. In July 1924 rubber sold in New York for less than 19c per pound and forward contracts could have been made for the entire year of 1925at 24c. A year later the market price reached $1.23 per pound. While this change was anticipated by' no one the prediction appeared in London and Singapore papers during September and October that 1925 .prices would average at least one shilling and six pence. 9 As late as March 1925, doubt was expressed as to whether price would rise materially above one shilling and six pence, a pivotal price of the Stevenson Plan.10

B. SECOND PERIOD, MAY 1925 TO APRIL 1926 This condition of uncertainty was favorable to the events which followed. From the middle of 1924 prices rose steadily but gradually. Prices had been low so that the increase was not unexpected. However, prices continued to rise month after month without checking the ten­ dency of stocks to dwindle. Furthermore, Dutch production had ceased to increase at its former pace and the smuggling of rubber out of the restricted countries had been greatly reduced. The export quota for the

• Hearings, p. 230. o<['be Financial <['imes, London, September 12, 1924, and Sir. Budg.,October 17, 1924. lOA. W. Still in Sir. Budg., March 27, 1925. PRICE MOVEMENTS 3S quarter ending January 31,1925, was only 50% and for the next quarter 55%. The inflexibility of the restriction scheme became apparent. It was recalled that during 1922 and 1923 negotiations between the Rubber Association of America and the Rubber Growers' Association had led the former to believe that in case of an emergency in the form of a run­ away market steps would be taken to release rubber for export more rapidly than the automatic action of the Stevenson Plan would do.ll To quiet the panic which had already begun the Rubber Association of America cabled the Rubber Growers' Association asking for a state­ ment that something would be done to relieve the market tension. The British replied that the Americans were responsible for the existing situ­ ation because of the hand-to-mouth buying policy they had pursued during the previous twelve months.12 The exchange of cables, therefore, accomplished no more than a loss of temper on both sides. The refusal of the British to intervene in the operation of the scheme increased the panic and in July 1925 price rose to $1.23, the average for the month being $1.0316. A sharp slump carried the price down to 64C in the following month. The reaction was short-lived, however, and the average price for the second half of 1925 was $0.9606. The particular incident which brought about a revival of panic conditions after the August slump, August being normally a period of slackness in American rubber demand, was said to be the failure of an important cargo to arrive on schedule time.13 Whether the story is true or not it illustrates the sensitive state of the market. At any rate, the average for November was $1.048, or greater than the July average. The decline that set in at the end of 1925 continued steadily and rapidly through most of 1926. Certain aspects of the demand situation were fundamental in bringing about the rise in price which culminated in the period of panic.14 In the first place, the production and use of motor cars and trucks in the United States was continuing at a high rate, as is seen from Table V. This meant a cumulative demand for rubber for original equipment and for replace­ ments. Secondly, the general prosperity and industrial activity of the United States stimulated the demand for all types of rubber goods. Thirdly, the economic recovery of European countries widened the market for rubber goods so that an increase in the import of both crude rubber (Table VI) and manufactured articles occurred in practically all European countries. Finally, but o(primary importance, was the devel­ opment of the balloon tire. Just as the development of the cord tire,

II Hearings, pp. 3!>40 • 12 ibid., pp. 6]-8. 11 BalJimore Sun, October 10, 1925. uSpecial Circular II II, December 1,1927. 36 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE V

AUTOMOBILE REGISTRATION, UNITED STATES11 1895-1928

Passenger Cars

llFacts and Figur,s of tk Automollik Industry, 1929 edition, National Automobile Chamber of Commerce, New York, 1929, p. 5. 11 North Ammcan Reoitw, March-April-May 1927, pp. 41-6. PRICE MOVEMENTS 37 TABLE VI ESTIMATED WORLD CONSUMPTION OF RUBBERI7 (QUANTITIES IN LONG TONS)

192/ 1925 1926 1927 1928 United States 338,000 388,000 366,000 373,000 437,000 United Kingdom 23,000 31,000 40,000 44,800 48,500 Germany 23,000 34,000 23,000 38,1}OO 37,800 France 30,000 33,000 34,000 34,J00 36,500 Canada 13,800 19,000 20,200 26,400 30,400 Japan zo,ooo Il,CXXJ 18,000 zo,5°O 25,600 Russia 2,300 7,100 6,500 12,700 15,100 Italy 8,800 II,CXXJ IO,CX)() II,JOO 12,400 Australia 3,100 4,800 7,700 9,500 8,400 Belgium 2,700 2,1}OO 2,500 6,500 8,000 Other coun tries 11,100 11,400 12,800 16,000 21,000 Total 475,800 SS3,2OO 54°,700 593,1}OO 680,700 approximately 30% more rubber per tire18 but it was also necessary to build up manufacturers' and dealers' stocks. According to the British view the major responsibility for the panic of 1925 in the rubber market must be laid at the door of the Americans. The Rubber Growers' Association officially made this statement,19 while the same view was expressed in other quarters in less polite language: Last year, owing to the miscalculation and blundering tactics of the Yankee and other big buyers, prices were so low that the exportable aIlowance was reduced under the scale (one of the fairest and most practicable ever devised) to 55% on August I, and again to 50% on November I. That made the buyers begin to think that they might have over-reached themselves, but even at the end of January they were so confident of grinding the faces of the producers that they would not take a small parcel off the market at a fraction over one shilling and five pence in order to get the release of an additional 10%. And these same people have now the incredible impudence to demand that the victims whom they used every known device to rob and ruin should extricate them from the difficulties they created for themselves.1O A market report issued by Symington & Sinclair, London, during Oc­ .tober 1924 stated: Should a period of actual scarcity and consequent high prices occur as it may do in the near future, it will not be the fault of the scheme but solely of those who in the hope of wrecking the scheme have Used every effort to depress prices arti­ ficially ••• .II

17Special Circular 1111, December 1,1927; Special Circular 2486, October 14, 1929; and Special Circular 2SS9, January 3, 1930. 18Hearings, p. 265. II j/Jid., p. 68. 10 Sir. Budg., August 28,1925. Jl j/Jid., December 5, 1924. 38 GOVERNMENTAL CONTROL OF CRUDE RUBBER We regret that our American friends have had to pay such high prices for their requirements, but really the fault is theirs. They would not purchase while rubber was cheap and thus maintain the supply. Perhaps they thought the scheme was bluff." The Americans deny vigorously that there was any deliberate or organized attempt on the part of purchasers of crude rubber to force price down. An examination of the position of manufacturers indicates that the policy pursued was a natural one under the circumstances. The tire manufacturing industry is an extremely competitive one and as manufacturers buy independently it is not to be expected that any indi­ vidual manufacturer or small group of manufacturers would incur the expense of raising the price in a weak market..only by a combination of manufacturers could the market have been supported sufficiently to provide for adequate releases under the scheme. In the absence of an obvious emergency it is doubtful if such a combination could have been organized. Certainly to expect it assumes a degree of foresight that is more than human. Furthermore, banks at this time, 1923-24, were urging business men to go slow with purchases and this contributed, undoubtedly, to the shortness of stocks when prices started to rise. It is as logical to blame British producers for not making forward contracts in 19I5-I<)-as some did with resulting profits23-as it is to blame American manufacturers for holding back in 1923-24. While there may have been a belief on the part of individuals that the Stevenson Plan could be broken, in the absence of more positive evidence the most we can do is blame them for undue optimism as to the future. Finally, it may be suggested that it is presumptuou~ to assume that the Americans were under obligation to cooperate with the British in a plan which they had no share in formulating. The tendency on the part of the "Americans was, on the other hand, to assign full responsibility for the price panic to the British. Starting from the assumption that the purpose of the plan was to secure stability in price they maintained that the British were under obligation both in pursuance of this purpose and in keeping with the impression they had left in the minds of the American manufacturers to release supplies of rubber more rapidly than the operation of the plan would permit. Refusal to comply with the request of the Americans that they do so seemed evidence of bad faith and of a desire to exploit the innocent con­ sumer. The specific recommendations of the Rubber Association of America as submitted to the Colonial Office in June 1925 were as fol­ lows:24 ('x) The exportable allowance should be increased by 20%, in­ stead of 10%, on August I, 1925. (2) Until stocks in London reached -PAC r,a,./Joole, 192.5, p. 176. -Maclaren, p. 68. -Special Bulletin of the Rubber Association of America. PRICE MOVEMENTS 39 50,000 tons, permission should be given to ship rubber in excess of the exportable allowance to bonded warehouses in London for subsequent release as part of the exportable allowances. {J) To prevent a recurrence of speculative movements and encourage additional planting the plan should be made more elastic by providing for an additional 5% increase in quota for every three pence increase over one shilling and six pence and a suitable decrease when price should fall below one shilling. (4)The British government should issue a statement declaring its policy to be to stabilize prices at a reasonable figure. There can be little doubt that acceptance of these recommendations would have greatly relieved the situation. Apparently the British feared, however, that to tamper with the operation of the scheme would intro­ duce further uncertainty into a situation that was already sufficiently puzzling. Even those Britishers who disapproved of the Stevenson Plan were opposed to giving any i'ndividual or group the power to alter the provisions of the act at will.26 The attitude of the British at this time was a peculiar ~omplex of opportunism, disdain, and recrimination. The prosperity of the Ameri­ cans, always exaggerated, was compared with the sufferings of the rubber industry during its years of depression. The Malayan papers tended to be extreme, as the following excerpts show: Our American friends are threatening to grow their own rubber. The time for us to consider the selling of our rubber at an "economical price" will come, perhaps, when­ these American plantations are in full swing.••• Meantime, we repeat that we in Malaya, and our planting friends in Ceylon, have absolutely no call to consider the interests of the American users of crude rubber.- Let these good Americans whimper or froth, whichever suits them best, and just go on getting the best price available for British grown rubber.lf The official view was expressed by Sir William· Hicks, Secretary of State for Home Affairs: We made the rubber growing industry. We have the right to do our best in the interest of ourselves for that industry. Other nations had the same opportunity as we had to develop these great rubber plantations, but they failed to do so because they had no imagination, insight and courage to do what Britain has done~28 Early in the history of restriction Winston Churchill, who was the Secretary of State for the Colonies under whom the act was originally passed, declared that "one of the principal means of paying the debt to America is in the provision of rubber."29 This became one of the favorite grounqs for justifying restriction and undo.ubtedly it helped to develop ·Sir J. Joyce Broderick, Rubber Agt, February 12, I9'l7, pp. 49,(S, - M'l'&R], February 'lS, I9'l6, p. 194. 17 Sir. 'l'imes, June IS, 1925. uAUIomolive News, New York, September I, 1926. 10 London Evening Standard, March 12, I9'l3. \ 40 GOVERNMENTAL CONTROL OF CRUDE RUBBER sentiment for the continuance of the measures. The importance of re­ striction in the return of England to the gold standard was also pointed out.30 The need to make up for losses incurred through the coal strike in order to support exchange was declared by Cf"be Stat;st to be the only sound argument in favor of restriction.31 I t was asserted, also, that modification of the scheme would work injury to those who had made contracts on the assumption of a continu­ ance of existing conditions.32 The argument that appealed most widely to the general public was' that the rubber growers had had a hard time during the last few years and so should have the benefit of the swing of the pendulum.33 These considerations supported, throughout the British Empire, a strong bias in favor of restriction, and largely explain why the British were unwilling to take any positive steps to check the rise of prices in 1925. Certain. minor modifications were, however, introduced at that time. In August 1925 the highest possible assessment for any estate over 25 acres in extent was raised from 400 to 500 pounds per acre.34 The fol­ lowing May the maximum limit was entirely removed, and the legal maximum for small estates was raised.35 On September 25,1925, certain stocks of rubber held in warehouses in the restricted countries were re­ leased for export under specified conditions. Finally~ on February I, 1926, in pursuance of the announcement made December 4, the export quota was raised from 85% to 100% instead of to 95% as would have occurred under the normal working of the plan. But at the very height of the panic, with buyers clamoring for more rubber, a quantity of rubber amounting to 571)OQ pounds which had been confiscated by the customs authorities in the middle east was burned instead of being re­ leased for sale! The abolition of any maximum limit for assessing the productive capacity of estates involved no radical change in the plan but merely meant that in the future the local assessment committees could decide each case on its merits without being held to any arbitrary limit. Obvi­ ously, only those estates capable of yielding well above the average would be affected. The first change in the maximum, from 400 to 500 pounds per acre, was estimated to involve a difference of only 500 tons

10 Amery in Financial

c. THIRD PERIOD, MAY 1926 TO FEBRUARY I, 1928 Toward the end of April 1926, the price of crude rubber fell below two shillings. Although there was a temporary strengthening of the market during the month of June the level reached at this time and the fact that certain modifications in the Stevenson Plan were made effective May I, "And /1ia, London ']"imes, February 23, 1927. Representatives of the Department of Commerce gave full credit for the decline in price to the program of conservation in use of rubber by manufacturers and economy by consumers in use of tires. Yia, Com­ mer" Tetl1"6ook, 1926, Vol. I, p. 456; Commerce Reporls,October 25,1926, pp. 209-10; and Annual Report of the Secretary of Commerce, 1926, pp. 40-1. '"London <£imes, February 3,1926. cOThere is a difference of opinion as to the relative durability of cord and balloon tires. The fact that tires generally appear to be giving greater mileage now than formerly is partly due to the virtual disappearance of fabric tires and to the improvement in roads. "Quoted from a Singapore paper, IRJY, November I, 1927, p. 100. PRICE MOVEMENTS 43 1926, mark that date as the close of the period of excessively high prices. Except for the brief reaction in June the average monthly price there­ after was generally below 40<=, with a gradual downward trend extending into the fall of 1927. The volume of rubber produced in 1926, as appears from Table XXI, showed a marked increase over any previous year. Tne primary reason for this was that the exportable quota for Malaya and Ceylon stood at 100% of standard for three-quarters of the year, from February to October 1926, and the average quota for the year was 95~% as com­ pared with 67% for 1925, the 1926 percentage, furthermore, being figured on a larger base. The pivotal price having been increased to twenty-one pence beginning with the May-July quarter, a cut in the quota from 100% to 80% for the following three months was escaped by a fraction of a cent per pound in the average price for the quarter.42 As the average quarterly, or even monthly, price did not again reach twenty-one pence the quota was successively cut until it reached 60%, the minimum under the revised provisions, where it remained. It soon became apparent that these reductions in the quota would not be immediately effective in reducing the volume of exports. Stand­ ard production was originally based on production during 191~ with allowances for new plantings and increasing yields. 1;he standard was raised for the restriction years ending in 1925, 1926, 1927, and the standard in 1926--27 was nearly 12% higher than in 1925-26. (Table XI.) These increases naturally served to decrease the effectiveness of reductions in the quota. Since estates found it impossible to expand their production as rapidly as changes in the export allowance during 1925-26 permitted, a large quantity of unused export licenses accumulated in the period when full standard production could be exported. The effect of these licenses was to make it possible for estates to produce their maximum even though the quota had been reduced to 80%. With the reduction of the export allowance in 1926-27, smuggling again became prevalent despite the efforts of the preventive fleet. This undoubtedly was partly responsible for the fact that the Dutch export of rubber was greater in 1927 than in 1926 in spite of the decline in prices. It was generally expected that the lower prices would consider­ ably reduce the export of native rubber because so much of it is pro­ duced under the "bagi dua" system (tapping on shares).43 The fact that native rubber continued to enter the markets in large volume although thousands of the bagi dua coolies had left the country is only to be ex- aIR&'f'R, December 1926, p. 30. aSIr. Budg., March 24, 1927. 44 GOVERNMENTAL CONTROL OF CRUDE RUBBER plained on ilie basis that the small owner himself will tap when price declines to the point where tapping on shares is no longer profitable. The continuance of large production in the Dutch East Indies throughout 1926-27 confirms this view and indicates that the volume of native production is less dependent upon price than some writers have main­ tained." Various factors in the demand situation also contributed to the weak­ ness of the rubber market after the middle of 1926. The various elements already mentioned as playing a part in the decline from the peak reached in 1925 continued to operate, most notable being the very extensive use of reclaimed rubber. The experiences of the manufacturers during the period of falling prices taught them to carry as small stocks as they reasonably could in order to reduce the risk of loss on inventories. Stocks in the United States and London, which had been drawn far down by the end of 1925, rose steadily thereafter. This fact, which was itself a result of the factors given previously, in its turn tended to hold price down. I t was alleged that Americans, realizing the depressing effect on price of large stocks in London, slyly began to make greater use of London as a place to hold stocks, thus giving the appearance of an oversupply of rubber.45 tn view of the fact that United States stocks were increasing along with the London stocks little weight is to be given to this claim. A somewhat similar claim was that Americans continued their agitation against the Stevenso~ scheme and undertook planting operations abroad in hopes of "a demoralized market in which not only rubber but perhaps rubber companies could be acquired for a song."46 In contrast with the period immediately preceding, prices were re­ markably stable from the middle 0f 1926 to February 1928. This was not the result of the modifications made in the plan to secure greater stability, since prices were sufficiently steady to prevent those provi­ sions from being called into effect. Factors credited with making for greater stability, aside from the fact that market conditions had be­ come more reassuring through the removal of much of the existing uncertainty, were the rubber exchange and the buying pool of American manufacturers.47 The former was organized February I, 1926, and proved of marked service to the industry. The pool was created in December 1926, and through purchases of considerable stocks helped to check the suddenness of the decline in prices and to reduce the danger of a sudden rise.

" J'id~ IRW, December I, 1927, p. 96 . .. A. W. Still in Sir. Budg., May 26, 1927, 4eNew York Evening Posl,July 7,1927' .7 RI4/J'm' Ag~, February 12, 1927, p. 498. PRICE MOVEMENTS 4S Another element in the increased stability of price was the improved financial condition of the producers which made it possible for them to withhold their supplies from the market to a much greater extent than formerly--they ceased to be exigent sellers. Furthermore, experience with restriction gave them confidence that it would bring about an im­ provement in price and made them willing to wait.48 The confidence of producers in a strengthening of the market was reflected in their reluc­ tance to sell any considerable amount of rubber at prices below twenty­ one pence. Reports from London in the summer of 1927 stated that while a few tons would be offered at current prices the price rose as much as a penny per pound if the purchaser desired to buy in lots of one hundred tons or more.49 In addition, attention should be called to the improvement in statis­ tical information available. The governments most directly concerned, as well as business houses and associations of growers, investors, and manufacturers, now conduct systematic statistical research and provide service for their respective groups. This information had been improving in scope and accuracy for several years, and may be supposed to have contributed to the stability of prices.

On February 8, 1928, with price steady at nearly 40C per pound the British Prime Minister suddenly anMunced that the Committee of Civil Research had been asked to investigate the situation in the rubber industry and the effects of restriction in order to prepare recommenda­ tions. This announcement was made after the closing of the London rubber market but before the closing of the New York market.50 There it was interpreted as an indication that the Stevenson Act would prob­ ably be repealed and the result was a sharp decline in prices. During the next month the price of crude rubber fell from 37c to 25c per pound and continued to fluctuate about that point while the industry anxiously awaited the decision of the investigating committee. Rumors ran rife: restriction was to be continued, it was to be abandoned immediately, it was to be lifted gradually, a cooperative selling organization was being formed. . On April 4, Premier Baldwin issued a statement declaring that restric­ tion would be removed November I. In a day of record selling the price declined on the New York market by 6}'4c to 21}'4C per pound. The market continued weak and within a fortnight had fallen to 17c per

"London Economist, May 14, 1927, p. 1010• .. Files of the Rubber Division, Department of Commerce, Washington. i'The British government was criticized bitterly for having made the announcement at such a time that British sellers were unable to take advantage of the higher prices prevailing during the earlier hours of the price movement. 46 GOVERNMENTAL CONTROL OF CRUDE RUBBER pound. The difference between the price before the original announce­ ment was made and the price after it was known that restriction was to be lifted indicates dearl}'" the importance attr.ibuted to restriction in the determination of price. CHAPTER IV ADMINISTRATION OF THE. STEVENSON PLAN

A. THE RUBBER REST.A.ICTION ORDINANCE

I. '['he Restriction Scheme HE supplementary report of the Stevenson Committee, submitted O~t?ber 2, I9~2, recommended; a~ h~s been stated, that the British colonies undertake restriction of· rubber expOI:t independently of the Dutch. The Ste'lenson Plan for Taccomplishing restriction was modified in many particulars after it was first enacted but fundamentally remained much as originally drawn. The original restriction plan was, briefly, as follows: (a) That the standard production of producing rubber plantations be taken as the actual output during the year ending October 31, 192.0; (b) That in lieu of all existing export duties, a minimum export duty, not to exceed one penny per pound, be levied on that percentage of the standard production allowed to be exported at the minimum export duty, and that in case a producer desired to export a greater quantity than that allowed to be exported at the minimum rate of duty, he should be required to pay an export duty on his total export according to a sliding scale; (c) That at the initiation of the scheme 60% of the standard production should be exportable at the minimum duty, and that alterations in the percentage so exportable should be governed by the price of standard quality smoked sheet rubber in the London market, according to such a scale as the following: When the average price during three The percentage exportable months had been maintained at-- at the minimum rate of duty during the "next three months should be- . One shilling and six pence or above Increased by 10% One shilling and three pence to one Increased by 5% shilling and six pence One shilling to one shilling and three Unchanged pence Less than one shilling Decreased by 5% Less than one shilling and three pence in a Decreased by 5% quarter following a quarter in which a change in the quota, whether up or down, had been made It may be seen from this that the range of prices originally aimed "at by restriction lay between one shilling and one shilling and three pence. 48 GOVERNMENTAL CONTROL OF CRUDE RUBBER So long as price remained between these limits no change would occur in the quantity authorized for exportation. H, however, the average price fell below one shilling in any quarter it would have to rise above one shilling and three pence to avoid a further reduction of 5%. The fair price aimed at under restriction was not, therefore, between fifteen pence and eighteen pence as is generally stated but between twelve pence and fifteen pence except that in any quarter following an increase or a decrease in the allowance an attempt would be made to bring price above fifteen pence. 2. Organization" While the application of tile scheme rested entirely with the local governments in the middle east the supreme authority rested in London with the Secretary of .State for the Colonies. Since the operation of restriction was definitely an imperial concern and the acts of Malaya would involve Ceylon as well, and vice versa, any important modifica­ tion in the scheme necessitated the consent of the Colonial Office. For the assistance of the latter an advisory committee was provided for by the terms of the Stevenson Committee report. To this committee were appointed two representatives of the Rubber Growers' Association and one each from the Planters' Association of Malaya, the Planters' Asso­ ciation of Ceylon, the British Rubber and Tire Manufacturers' Associa­ tion, and the India Rubber Manufacturers' Association, as well as certain other members.l The function of this body was to advise the Secretary of State for the Colonies on any questions which he might refer to it, but it had no executive powers. For the sake of simplicity it will.be enough to discuss the administra­ tive organization of a single colony in the restricted countries. (See chart, p. 49.) While details varied slightly in the other political units, there was no essential difference. The Chief Secretary to the Govern­ ment of the Federated Malay States was made responsible for rules and regulations governipg the administration of the act, announced changes in the quarterly export allowance, appointed the necessary enforcement officers, and in general was the official head of restriction in his particular colony. Directly in charge of the execution of the law was the Controller of Rubber who, with the Deputy Controller, was appointed by the Gov­ ernor. In order to ensure uniformity of policy the Federated Malay States and the Straits Settlements had the same Controller, though this was not required by the act. As the executive head of restriction the Controller enforced the provisions of the law, kept the records, super-

1 PAM Report. 1923. p. 19. CHART In

ADVISORY 1o-_....;:;;;=;:..;;;==-_---1~---...jCOMMI1TEE

ADMINISTRATIVE ORGANIZATION OF RESTRICTION ~~~~ ____~~ __~CEN- TRAL

COM­ MIT­ TEE CONTROLLER~ __AW~ __~~~ OF I RUBBER

(DO=DistrictOfficer) 50 GOVERNMENTAL CONTROL OF CRUDE RUBBER vised export~ and was responsible for the issuing of quarterly licenses for all holdings over 200 acres in extent. The Chief Secretary appointed the Central Committee of not less than five members of whom at least two were required to be members of the planting industry. This body advised generally with regard t.g the carrying out of regulations and heard appeals from the decisions of the Local Committees. The Local Committees were appointed by the Residents of the differ­ ent states and were more directly concerned with the operation of the law. It was their duty to fix standard production for estates of over 200 acres and to issue certificates of standard production for use by the estate when obtaining its .quarterly license. In addition they heard appeals from decisions of the District Officers. The District Officers were appointed by the Chief Secretary and were empowered to fix the standard production for estates of less than 200 acres (100 acres in the Straits Settlements) and to issue certificates of standard production, quarterly licenses, and coupons for such holdings.2 3. Procedure For estates under 25 acres no appeal was allowed from a decision fixing standard production. Estates between 25 and 200 acres in size might appeal to the Local Committee upon the payment of a fee of $25.00 (Str.), returnable at the discretion of the deciding body. Estates over 200 acres in size made their appeal from a decision by the Local Committee to the Central Committee, a fee of $100.00 (Str.), which was likewise returnable, being required.s . The procedure involved in the sale or export of rubber was as follows: The rubber grower applied for a certificate of standard production either to the District Officer or the chairman of the Local Committee, depend­ ing upon the size of his estate. These officers then determined the stand­ ard production of the estate. The Local Committee, if the estate was a large one, delivered a certificate of standard production to the grower and sent a duplicate to the Deputy Controller who issued a quarterly license to the grower. If the estate comprised less than 200 acres both the certificate of standard production and the quarterly license were issued to the grower by the District Officer who forwarded a duplicate of the license to the office of the Con troller.

I Export licenses which were issued to the larger holders were exchangeable for coupons making possible the exchange of rubber within the country. For holdings under 2.5 acres coupons only were used. 'The above particulars with regard to the machinery of restriction are taken from the official enactment, Ordinance No. 19 of 192.2., FMS GG, October 30, 192.2., pp. 1953-4; and Notifications FMS GG, October 31, 192.2., pp. 1955~2.. ADMINISTRATION OF THE STEVENSON PLAN 51 For recording the actual exchange of rubber a ledger system was in tro­ duced in ~ Federated Malay States at the end of the first restriction year. It was hoped in this way to reduce the fraud possible through falsi­ fication of licenses under the previous arrangement, and the system having proved satisfactory was retained.' Any owner of an estate over 2S acres in area could become a registered exporter if he wished. An account was opened for him in the customs ledger at any customs stations he might select, and the account was then credited for his quarterly allowances as they accrued and debited for his exports. In practice the registered exporters were nearly all owners of large estates. The smaller estate owner (the holder of less than 100 acres) seldom sold outside the Federated Malay States but registered himself for "local sales." His account was opened in ledgers in the Controller's office and his quarterly allowance was automatically credited therein. When selling his rubber to a dealer he passed with the rubber a coupon which operated in the same way as a cheque drawn against his balance on the Controller's books. This coupon was presented to the Controller by the dealer and if correct the amount represented by it was transferred to the account of the dealer who could draw against it for export or for further local sale.D 4. Exports above quota In defending the Stevenson scheme during the early period of restric­ tion it was declared that elasticity was secured by the clause providing for the export of quantities of rubber in excess of the quota allowance upon the payment of a higher rate of duty.6 While it was admitted that this duty was prohibitive at usual prices it was declared that in the "inconceivable situa~ion" of the automatic increases in the quota failing to prevent high prices this provision would serve to satisfy all the-de­ mand at the higher level. The particular provision of the law which governed this situation was that the authorized quota of standard production should be exportable at the minimum rate of duty, originally 2c (Str.) per pound. In the case of an export of not more than 5% above the quota the duty would be 14c per pound, not merely on the excess above the quota but on the entire amount exported. For larger amounts of excess above the allow­ a!lce higher rates of duty would be charged, but in each case the higher rate was to be applicable over the entire quantity exported and not 4Report of the Rubber Restriction Dept., Federated Malay States, 1925, p. 3, FMS GG Supp., June 25,1926. . libid. • PAM Report, 1923,P~ 23. Jl GOVERNMENTAL CONTROL OF CRUDE RUBBER merely ove~ the amount in excess of the quota. The duty chargeable in the case of exports above the allowance ranged from 14C in the case of 5% or less above the quota up to a maximum of 42C. 7 As appears from Tables VII, VIII, IX, and X the prices at which rubber in excess of the quota could profitably be shipped were higher than those which prevailed at any time except during the period of panic prices from the middle of 1925 until early 1926. The tables indicate further that it might have been profitable to export 40% in excess pf the legal allowance when it would not have paid to export less than that amount, in other words that the burden of the tax per unit of export was less for a larger amount than for a smaller; and also that as the quota was raised the advantage to be had from exporting more than the allow­ ance became less. In view of the fact that most of the estates found it difficult to increase their output even as rapidly as the quota was raised the possibility of a gain to be realized by exporting full standard produc­ tion when the export allowance was at 65% as was the case when the price peak was reached in July 1925, could have little actual effect upon shipments. By the time certain of the estates had reached the point where they were able to produce more than their quota the quota had risen, so reducing the incentive to exceed the allowance. That is to say, if the estates had been able to produce their assessed standard production while the allowance was still low this provision of the act might have materially affected the supply. As actually happened, however, inelasticity of production first prevented growers from taking advantage of the opportunity and subsequently increases in the quota TABLE VII GROSS RETURN WITH QUOTA AT 60% STANDARD PRODUCTION

~uanlity of Per Cent of Gain or Loss - Ru66erSoid Selling Pritt Standard Gross Return from per Hundred per 16. Production in Exceeding /6s. Assessment Excess of ~uota ~uota 6olbs. '0.50 (Su.) - '28.80 (Str.) - 65 0.50 5 23.40 ,-5.40 (Str.) 70 0.50 10 22·75 -6.05 100 0.50 40 II·5° -17.30 60 1.00 - 58.80 - 65 1.00 5 55-<}0 -2·90 70 1.00 10 57-75 -1.05 100 1.00 40 61.50 +2.70 rSlightly different rates applied in Ceylon but the principle was exactly the same. The theoretical defect of this provision from the standpoint of price stability is else­ where pointed out. (pp. 181-2.) ADMINISTRATION OF THE STEVENSON PLAN 53 rendered it less profitable. Accordingly, little rubber was exported in excess of the quota.8 5. Free porls oj Singapore and Penang Since Singapore and Penang are free ports9 it was necessary to devise some way other than by means of export duties of restricting the output of rubber on the islands on which they are situated. A tax on rubber lands was accordingly substituted under which each estate of more than 100 acres was assessed at the rate of 2C (Str.) per pound of rubber re­ moved from the estate so long as this was within the prescribed quar­ terly percentage of the estate's standard production, and at prohibitive rates in case the quota was exceeded. Exports from estates of less than 100 acres were not restricted, mainly, no doubt, for administrative reasons. 6. Rtceipts The income from the export duties collected under the provisions of the Stevenson Act was treated differently in the different countries. In Ceylon a sum equivalent to the duty that would have been collected under the export tax in force at the time the law was passed was de-

TABLE VIII NET RETURN WITH QUOTA AT 60% STANDAIlD PRODUCTION ASSUMED COST OF PRODUCTION, $0.36(sTII..) = Jo·2044(u.s.) per-emtof Gain orLosr ~uantilJ of Selling Price Standard Net&turn from Ru""erSold per/P. Production in Exceeding Excess of !e.uota !e.uota 60 Ibs. Jo.50 (Str.) - $ 7.20 (Str.) -- 65 0.50 5 nil $-p.o (Str.) 70 0.50 10 -2·40 -9.65 100 0·5° 40 -24.50 -31.70

60 1.00 - 37.20 -- 65 1.00 5 32.5° -4.70 70 1.00 10 32.55 -4.65 100 1.00 40 25·5° -IJ·7° 60 1.50 - 67.20 - 65 1.50 5 65.00 -2.20 70 1·5° 10 67·55 +0·35 100 1·5° 40 75·5° +8.30 • ride Table XXIII for amount exported in excess of quota. I A free port is a port where importations and exportations are not subject to any customs duty. S4 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE IX NET RETURN WITH QUOTA AT 80% STANDARD PRODUCTION ASSUMED COST OF PRODUCTION, $0.36(STR.)=$o.2044(U.S.) Per Cent Of Gain or Loss ~uantity of Selling Price Standard Net Return from Rubber Sold per lb. Production in Exceeding Excess of ~uola ~uota

801bs. $o·5o(Str.) - $9.60 (Str.) - 85 0·5° 5 nil $-9.60 (Str.) 9° 0.50 10 -3.15 -12·75 100 0.50 20 -10.50 -20.10

80 1.00 - 49.60 -- 85 1.00 5 42.50 -7.10 90 1.00 10 41•85 -7·75 100 1.00 20 39.50 -10.10 80 1.50 - 89.60 -- 85 1.50 5 85.00 -4.60 90 1.50 10 86.85 -2·75 100 1.50 20 89.50 -0.10

80 2.00 - 129.60 -- 85 2.00 5 127.50 -2.10 90 2.00 10 131.85 +2.25 100 2.00 20 139.50 +9.90 ducted by the collector of customs and the balance turned over to the treasury to be placed to the credit of the Rubber Restriction Fund. The costs of administering the plan were paid out of this fund and any sur­ plus was assigned for use in the furtherance and development of the rubber growing industry.10 In the Straits Settlements a Rubber Restriction Fund was also estab­ lished and placed under the administration of the Governor in Council. The use to be made of the fund was not designated. In the Federated Malay States the receipts under the restriction ordinance were not dif­ ferentiated in any way but went into the treasury undistinguished from other customs receipts . .,. Cost oj administration In arriving at the cost of administering the Stevenson Act the figures for the Federated Malay States may be taken as typical for all of British ¥alaya. Two factors must be considered. The first is the cost of the lOOrdinance No. 24 of 1922, Ceylon Gouernment Gazette, Colombo, Government Printer. p. 1053. ADMINISTRATION OF THE STEVENSON. PLAN 55 TABLE X PIUCES AT WHICH GIlOWEIl CoULD AFFOIlD TO EXPOIlT RUBBEIl IIII' EXCESS OF QUOTA ASSUMED COST OF PRODUCTION, $o.36(STIl.) =$o.2044(U.S.) With Amount"y Price at Whichll Ituota Which Export Goods Could at Exceeded Ituota Be Exported I. To get same Gross Return after 60% 5% $1.58 (Str.) payment of tax 60 10 I.IO~ 60 40 0·93~

2. To get same Net Return 60 5 1·94 60 10 1·46~ 60 40 1.29~

80 5 2.42 80 10 1.87~ 80 20 1·5°~ administrative organization, covering the work of the Controller, the assessment of standard production, the issuing of licenses and coupons, the keeping of records, and similar activities. The other factor concerns the prevention of smuggling. Published figures give the cost of operation for the Rubber Restriction Department but the cost of controlling smuggling must be computed iridirectly. All the work of preventing the smuggling of rubber from British Malaya was in the hands of the Trade and Customs Department of the Federated Malay States. During the restriction year 1923-24 this department was refunded $48,962(Str.) by the Straits Settlements, J ohore, and Kedah as their share of the cost of prevention for that year. During the same year the Federated Malay States exported 97,261 tons of rubber as compared with 66,104 tons exported from the Straits Settle­ ment, Johore, and Kedah. Assuming that the cost of prevention was roughly proportionate to the volume of rubber exported the cost to the Federated Malay States of preventing smuggling was $72,15o(Str.).i2 By similar calculations we arrive at a cost for the restriction years end­ ing October 31, 1925 and 1926, of $171,95o(Str.) and $I83,5oo(Str.) respectively. While these figures are only approximate they give a rough idea of the cost of the preventive work done. lIThis column shows prices at which the return to the grower would be the same whether he exceeded the quota by the percentage given and paid the higher tax on the entire amount sold, or exported the prescribed quota only. At any quotation above the price shown it would be profitable to exceed the prescribed allowance and pay the higher duty. II No claim is made for the validity of this assumption but in the absence of published data such an approximation is necessary. 56 GOVERNMENTAL CONTROL OF CRUDE RUBBER Combining these figures with the published costs of conducting the Rubber Restriction Department the approximate cost of administering the Stevenson Act in the Federated Malay States is reached. The cost per pound of rubber exported is also shown.

I92]-24 I92-(.-25 I925-26 Cost of administering the Rubber Restriction Department '324,218(Str.) '372,457 '316,696 Cost of preventing smug- gling 72,150 171,950 183,500

Total '396,368 '544.407 '500,196 Average cost of restriction per pound of rubber ex­ ported from the Feder- ated Malay States Jo.00182(Str.) Jo.00189 '0.00141 It is evident from these calculations that the cost of administering the Stevenson Act absorbed only an insignificant share of the increased returns accruing to rubber growers.13 Since smuggling was much less common in Ceylon than in British Malaya the cost of administration was still lower there.

B. PROBLEMS OF ADMINISTRATION The administrative problems that arose with the inauguration of restriction were numerous and complex. Some might have been avoided or anticipated and prepared for had restriction been less sudden. Others are inherent in any problem of restriction and defied all attempts at solution. A consideration of certain of these problems will indicate some of the difficulties involved in the control of rubber.

I. Miscellaneous problems In the second month of restriction it was announced that small holders would be allowed to export, free of restriction, stocks of rubber proven to have been on hand at the time restriction went into effect. The total quantity that any grower could export on this basis was limited to one pi cuI (133 IlJlbs.) and district officers were ordered to determine defi­ nitely before issuing the additional coupons that the stocks of rubber were in existence on the date prescribed.14 Some estates were found to be continuing production at or near capacity and so collecting a large reserve of rubber as a speculation.

18 All figures used are as given in the reports of the Rubber Restriction Department and the Trade and Customs Department, FM8 GG 8upp., annually. uFM8 GG, December IS, 1922, p. 2287. ADMINISTRATION OF THE STEVENSON PLAN 57 Similarly, uncouponed rubber was being bought and stored by dealers. As this would tend to weaken restriction by creating a sentiment in favor of repeal or by offering an inducement to smuggling or other eva­ sion of the law, the government issued a statement at the beginning of 1923 condemning the practice and declaring that legal steps would be taken to prevent it.1i . The government of the Federated Malay States enacted a provision for compensating rubber growers in part for the losses they sustained under contracts made prior to the price rise that accompanied restriction. When, under forward contracts made before October II, I9?-2, the quantity sold in a particular quarter should exceed one-half the export allowance for that quarter, compensation was promised on the amount by which the contract exceeded one-half the allowance. The tate of compensation for the first restriction quarter was fixed at the difference between the contract price and 45c (Str.) per pound, while the rate for the second and subsequent quarters was to be determined at the end of the first month of the quarter. In cases where the contract quantity in any quarter exceeded the export allowance the government reserved the option of allowing or forbidding the export of the excess.16 The amount payable under this provision was estimated at ~IIO,OOO (Str.) and this sum was voted by the Federal CouncilP In order to prevent the export of rubber as manufactured goods the definition of rubber was altered to include manufactured rubber. This was rendered necessary by the fact that, especially during the early months of restriction, uncouponed rubber could be bought for a song from the small holders.18 The restriction law might, therefore, have been evaded by fabricating the rubber slightly and exporting it as manufac­ tured rubber even though it was later to be treated as crude. 2. Smuggling, evasion, theft, etc. One of the most difficult problems encountered in the enforcement of restriction was smuggling. The geography of British Malaya made it particularly hard to cope with smuggling and explains why Ceylon ex­ perienced so much less trouble on this score. The proximity of the rubber districts to the seacoast, the irregularity of the coast line, and the near­ ness of countries not subject to restriction all combined to ~ncourage this form of evasion. During the first six months of restriction small villages were found to have sprung up along the coast of Sumatra where no settlements had existed before, their sole reason for existence being "PAM Report, 1923, p. 21. lI,!,he Financial News, London, February 27, 1923. 17 Financial ,!,imes, March 19, 1923. lISS GG, Singapore, Government Printing Office, July 16, 1923. S8 GOVERNMENTAL CONTROL OF CRUDE RUBBER the profitableneSs of smuggling from the Malay states just across the straits.19 During 1926 when export from Malaya was virtually unrestricted Siam showed oveno%decrease in rubber export despite the high prices prevail­ ing. This was taken to indicate a great reduction in smuggling into Siam as a result of the greater freedom of export from the restricted countries.20 The fact that Penang and Singapore were free ports offered still another opportunity for rubber smugglers. Natives would load rubber into a boat and at night slip down to one of these ports just as they had always done. Once there no need for concealment existed. Steps to pre­ vent this were soon taken, however, through closer supervision of native ships as they entered harbor.21 The extent of smuggling varied with price and the severity of restric­ tion. At the beginning the fact that considerable stocks were on hand and the preventive forces badly organized also contributed to accen­ tuate the evil. The profitableness of smuggling was such that a consid­ erable amount occurred even when the price of rubber was relatively low, though the higher prices were the greater, of course, was the induce­ ment to export unlicensed rubber. The volume of smuggling was particularly great during the first year of restriction. By 1924 the work of prevention had been rendered much more effective and, price being low, there was relatively little smuggling. The boom in prices in 1925 led to a renewal of activities and the abuse reached its height between July and December of that year.22 During 1926 a sharp falling off in smuggling occurred as a result, primarily, of the restriction quota being raised to 100%.23 The decrease is apparent from the following figures of captures and convictions:24 192/ 1927 Captures 69 boats Captures 277 boats 85 tons of rubber JJ9 tons of rubber Convictions 2J5 persons Convictions 508 persons 1925 1928 (10 months) Captures 284 boats Captures 59 boats J96 tons of rubber 141 tons of rubber Convictions 715 persons Convictions 257 persons 1926 Captures 58 boats 84 tons of rubber Convictions IJO persons

10 Financial 'iimes, May 10, I92J. IOHymans, Kraay& Co., RulJbtr Facts, Figures, ForectlSts, 1926.z7,London, 1927, p.l4- nu.S. Consul, Penang, June I, I92J. IIReport of the Rubber Restriction Dept., 1925, p. 4, FMS GG Supp., June 25,1926. ui6id., 1926, p. 4, FMS GG Supp., August 19, 1927. Mibid., FMS GG Supp., annually. ADMINISTRATION OF THE STEVENSON PLAN S9 With the lowering of the quota smugglers again became active and more smuggled rubber was seized. during the first quarter of 1927 than had been taken during the entire year of 1926.25 The actual quantity of rubber smuggled out of British Malaya cannot be determined but must have been considerable, for otherwise the fre­ quent seizures would have rendered the business unprofitable. In the course of speeches before the Federal Council of the Federated Malay States it was estimated that while the export percentage remained low rubber was being smuggled out of Malaya at the rate of 24,000 tons an­ nually.28 Other estimates range from 250 tons to 3,000 tons per month.27 In order to assist the restriction officers in the enforcement of the act the government issued appeals to the planters to organize themselves into Vigilance Societies to assist generally in securing observance of the law.28 Laws were early passed providing for the forfeiture of smuggled rubber and the vessel or vehicle in which it was found, preventive measures were placed in charge of the Commissioner of Trade and Cus­ toms, more launches for the preventive fleet were obtained from time to time, and fines and prison sentences were made more severe. In spite of all that could be done smuggling stilI persisted and it is doubtful whether any permanent improvement with respect to prevention was practicable. Among the other instances of crime and dishonesty appearing in con­ nection with restriction was the practice in Ceylon of substituting Ceylon rubber for imported rubber worth about a third as much. To remedy this abuse it was found necessary to place all imported rubber in transshipment warehouses from which it could not be cleared except on payment of a duty high enough to prevent local rubber from being substituted.29 During 1926 a case of fraud was discovered in Malaya in which native customs officers were in collusion with smugglers. As a result seven officers were sentenced to twelve months' "rigorous im­ prisonment."3o Another officer was found guilty of attempting to extort $5.00 (Str.) from a native grower and was sentenced to six months' 3 32 imprisonment. ! Cases of piracy were also reported. In short, experi- I6U. S. Consul, Singapore, August 1,19'1.7. 10 MWR7, August J 5, 19'1.7, p. 93'1.. "'Special Circular 165I, November 7,1927. 18 RGA BuD., July 1923, p. 379. The Sultan of Johore in 1927 issued a proclamation which was read at mosques and at specially called public meetings asking the people to desist from smuggling.-Special Circular '1.138, November 9, 1928 • •• PAC Tear6oolt, 1924, pp. 6~. IOReportof the Rubber Restriction Dept., 1926, p. 4, FMS GG Supp., August 19, 1927. I1SIr. Budg., September 5, 19'1.4. ·ibid., September 26, 1924. 60 GOVERNMENTAL CONTROL OF CRUDE RUBBER ence in the enforcement of the Stevenson Act in the middle east showed remarkable similarity to experience in the enforcement of the Volstead Act in the United States. The high prices of 1925-26 led, also, to wholesale thieving of rubber from the individual estates both in restricted and unrestricted areas. Natives would enter an estate at night or, if conditions afforded con­ cealment, during the day, would tap certain of the trees, coagulate the latex and sell the product as their own to dealers or to smugglers. A single estate in Sumatra had twenty-Seven coolies in prison at one time for rubber stealing.sa In the Straits Settlements it was claimed that rubber stealing had its "man higher up" who provided a good lawyer for the thief when caught and cared for his family in case of conviction.34 The injury wrought by such thefts was less from the loss of the rubber itself than from the careless tapping methods practised.35 Regu­ lations were enacted in an effort to curb the evil but lower prices in 1926 served to reduce thefts to small proportions.36 The Chief Secretary to Government of the Federated Malay States is quoted as saying, in view of these developments, that restriction had undoubtedly brought great benefit to the rubber industry, but at the same time it had increased corruption and dishonesty to an enormous extent.••• He sometimes felt he should be much happier if •.. the industry were taking steps to see that the scheme must some time be abandoned.1? J. Coupons The proper control of rubber coupons proved to be a very disturbing problem. Since only the largest esta.tes cared to export their rubber directly it was early arranged to exchange the export licenses for cou­ pons, these coupons being designed to facilitate the sale of relatively small quantities of rubber to the local dealers. There thus came into existence a very large volume of coupons and this fact contributed to the frequency of their falsification. Because these coupons were more or less improvised at first and the customs officers were working at high pressure forgery of the coupons was made relatively easy and detec-

II Sir. Budg., November 6,1925' "ibid., October 16, 1925. "'ibid., April I, 1926. "International Association for Rubber and Other Cultivations in the Netherlands Indies, 13th annual report, 1926, The Hague, 1927, p. 26. IT Sir. Budg., August II, 1927. The claim was made in the annual report on the settle­ ment of Johore for 1927 that rubber smuggling had led the way for the smuggling of other dutiable articles. It was predicted that the problem of smuggling would by no means end with the abrogation of the Stevenson Act. ADMINISTRATION OF THE STEVENSON PLAN 61 tion difficult.8s With the improvement of administrative organization a~d. the use of carefuny prepared forms forgery was reduced to a minimum. The sale of coupons proved to be a more difficult problem to solve. The magnitude of the task of assessment encouraged false declarations and frequently led to certificates of standard production being issued greatly in excess of the ability of the holding to produce, cases occurring where land without a single rubber tree on it was given a certificate.39 This naturally brought about a considerable sale of licenses to owp.ers of estates who were able to produce more than their export allowance and of unlicensed rubber to the holders of surplus licenses. Acts were accordingly rushed through the legislatures providing that no certificates of production should be transferable except upon a bona fide sale of the rubber produced on the estate to which such certificate related or on estates under the same ownership.40 The latter provision was designed to permit a grower to rest one estate while tapping another more heavily. In addition dealers were forbidden to have stocks of uncouponed rubber in their possession.41 These measures were only partially successful in correcting the abuse as it proved impossible to prevent the clandestine exchange of rubber and licenses. The root of the evil clearly lay in irregularities of assess­ ment and as assessment became more perfect the situation tended to right itself, but with the raising of the exportable quota to 100% in 1926 excess coupons again appeared with an accompanying traffic in surplus coupons and uncouponed rubber.42 During the first three restriction years the average export allowance was so low that growers were able to produce all the rubber for which there were coupons so that virtually no carry-over of permits from one quarter to another occurred. For the fourth restriction year, however, the quota averaged 96.25% of standard production and this proved to be considerably in excess of the capacity of the plantations to produce. By reason of this fact and because of. the hope of higher prices, the carry-over of coupons became large, amounting at the end of October 1926 to 23,544 tons in Malaya and 15,777 tons in Ceylon or over 17,cXJO tons more than the necessary dealers' stocks in Malaya and nearly 9,000 I8Financial 'l'imes. June '1.7. 19'1.3. 18 Straits 'l'imes. September"!, 19'1.3. "May I, 1923, in the Federated Malay States and the Straits Settlements; July 20, 1923, in Ceylon.-Repon of the Rubber Restriction Dept., 1925, p. 4, FMS GG Supp., June '1.5.19'1.6. . "PAM Report, 1923, p. 21 • .. 'l'imes of Ceylon, Colombo, June 16, 1927. 62 GOVERNMENTAL CONTROL OF CRUDE RUBBER tons more than'the requirements for Ceylon.43 Singapore and Penang, since they are free ports, are not included in these figures. The effect of so large a surplus of rubber was clearly to provide a means of offsetting!eductions in the quota and so of temporarily nullify­ ing attempts to tighten restriction.44 The volume of coupons on hand at the end of the fourth restriction year was sufficient to cancel the 20% reduction in the quota announced for the following quarter for nearly the entire quarter in Malaya and for more than two quarters in Ceylon.45 Furthermore, the uncertainty as to the use that would be made of the coupons on hand was a disturbing factor in studying the market position. A cry arose for the cancellation of all outstanding coupons but this the British government would not do since the permit was regarded as a contract between the government and the grower. Instead, the Colonial Office announced on November 5, 1926, that all permits issued after February I, 1927, would cease to be valid at the end of the quarter following the period for which they were issued.46 Through the practice of issuing coupons quarterly in Malaya and monthly in Ceylon the life of the permits was thus reduced to six months and four months. Estates of less than 25 acres were exempted from the limitation of export rights since their carry-over was negligible,. it being more usual for them to accumulate surpluses of rubber than of permits. Ceylon producers, who had never supported restriction as loyally as growers in Malaya, were not satisfied with the announcement of the Colonial Office. The period of validity of the coupons was increased for Ceylon but still they protested, claiming that while the planters of Malaya would be able to ship their rubber to the free ports of Singapore and Penang and there hold it indefinitely it would be necessary for planters in Ceylon either to sell before the end of the second quarter or to ship before sale and incur the heavy expense of storing in London or elsewhere.47 Sentiment in Ceylon seemed to be inclining toward with­ drawal from restriction. The Colonial Office wired a warning as to the serious effects on the industry if Ceylon should withdraw and asked for an "Empire point of view."48 Finally, on the last day of January the "Holt, E. G., Marketing oj Crude Rubber, Department of Commerce, Washington, Government Printing Office, 19:17, p. 5:1, and M

"Holt, p. 53. IOReport of the Rubber Restriction Dept., 19'2.7, p. 3, FMS GG Supp., July '2.0, 19'2.8. olibid., 19'2.8, p. 3, FMS GG Supp., February I, 19'2.9. IIFMS GG, November 18, 19'2.2, pp. 2182-3. 64 GOVERNMENTAL CONTROL OF CRUDE RUBBER production, ~d was embodied in the supplementary report of the Stevenson Thmmittee. Under it standard production was to be assessed . as follows: Age of'l"rees Standard Production Per Acre Under 5 years nil 5 to 6 years 120 lbs. 6 to 7 years 180 7w8years ~ Over 8 years 320 A great deal of dissatisfaction was expressed with this scale. As it was administered solely on the basis of the age of the plantation and without consideration of the varying capacity of estates to produce, some growers claimed to be able to produce more than the scale allowed. Other planters whose records showed a low yield for the base year maintained that the use of the scale served to discriminate in favor of those planters who had kept no records.53 It was found that abandoned, burned over, and diseased plantations were also often being given full rating under the scale. Perhaps the most strenuous objection to the Duncan Scale came from the owners of small holdings, most of whom were natives. Very few of them had any records to show so they were automatically assessed a fiat rate of 320 pounds annually for mature holdings. Then to be told that they could sell only 60% of this amount was more than an apparent infringement of their rights. It was a direct threat to their livelihood since many of the small producers were dependent upon the yield from a small patch of ground and were accustomed to tap the thickly planted trees for all they would produce. As the result of investigations, there­ fore, both in equity and in order to maintain some degree of cooperation from the natives, it was provided that, while the Duncan Scale should be retained, the fiat rate of 320 pounds per acre should be increased by one-third, to 426 pounds, for the first five acres of any estate not over 25 acres in area." This law became effective on February I, 1923, and served to eliminate much of the early opposition to restriction. Experience showed, however, that assessments under the Duncan Scale had been made too rigidly. A new scale was accordingly adopted UThe restriction ordinance provided that rubber planted in 1918 would be taken as five years old on November I, 1922. The justification for this may have been that rubber planted in 1918 was probably from 1917 seeds; but the practical working of the clause gave the younger areas an additional year in age and consequently additional yields. "'PAM Report, 1923. pp. 20-1. This special allowance was abolished from Novem­ ber I, 1926. in view of the raising of the maximum allowance on small holdings from 320 pounds per acre to 400 pounds. (See p. 6s.)-Report of the Rubber Restriction Dept., 1926, p. 2, FMS GG Supp., August 19. 1927. ADMINISTRATION OF THE STEVENSON PLAN 65 reducing the assessment during the first year of tapping and lowering the highest assessment under the new scale from 320 pounds per acre to 300 pounds but-and this was the important feature-providing that the amount allowed should be variable and not a flat rate application of the scale.66 The only rigid feature was the provision that 400 pounds per acre should constitute the maximum for estates of over 25 acres and 320 pounds for holdings of 25 acres or less. In arriving at a standard production in excess of the scale the decision was to be based upon pro­ duction records for any twelve consecutive months after January I, 1919, or, in the case of newly opened areas, for any consecutive six months.1i6 The following year still greater freedom in arriving at standard pro­ duction was secured by an act rescinding the rule requiring production records over periods of six and twelve months. The new rules gave the authorities a wide discretion as regards the length of time considered sufficient to indicate the capacity of the holdingP The final step in this development involved the maximum limits of assessment. On August I, 1925, the maximum on estates of over 25 acres was increased from 400 pounds per acre to 500 pounds, and the following May the maximum limit was removed entirely, at which time the maximum for estates of 25 acres or less was raised from 320 pounds to 400 pounds.58 The removal of the maximum on the larger holdings involved no change for the great majority of plantations but merely meant that those few estates which could prove that they were able to produce more heavily than the old maximum allowed could now be assessed at their true capacity. It is clear from the above that the attempt to administer restriction by rigid adherence to hard and fast rules proved impossible. Modifica­ tions were first introduced to make exceptions in favor of particular groups but later changes aimed at a closer approach to justice in fixing standard production through giving the administrative bodies wider freedom in the exercise of their own best judgment. During the period of high prices it was stoutly maintained by the Americans that rubber holdings in the restricted areas were under­ assessed from 13% to 30%.59 It was clearly to the interest of the Ameri­ cans to defend such a view in the hope of prevailing upon the British to release greater supplies of rubber by increasing the assessment of stand­ ard production. It was subsequently admitted even by the Americans

iii FMS GG Supp., January 30,192.4, p. 340. "i"id. i7Report of the Rubber Restriction Dept., 19zs, p. z, FMS GG Supp.,j une zs, 19z6• •8i"id., 19zs and 1926, FMS GG Supps . •• Hearings, p. 136. 66 GOVERNMENTAL CONTROL OF CRUDE RUBBER that in both Malaya and Ceylon assessments had been decidedly liberal.GO It may be seen from the following figures (Table XI) how much the assessed standard production for the first year exceeded the export for 1920, which represents approximately the output for the base rear. This liberality in the original assessment served td alIa" to a consider­ able extent the fears of the consumers and to reduce the objections of some of the producers to government restriction. On the other hand, those growers who favored restriction objected to the weakening of restriction by high assessments.61 The degree of overassessment appears to have been greater in Ceylon than in Malaya, and less effort was made there to bring standard production into harmony with productive capacity. As a consequence of liberality in assessments at the start the export immediately following restriction was only slightly less than it had been before. Instead of standard production being lowered it was raised annually, until early in 1927 it was declared that restriction in Ceylon was practically a dead letter.62 In Malaya more effort was made to bring standard production into accord with potential output, as the reduction in the announced total for the second year and the moderate increases during 1925-26 would suggest. Increases were made necessary by the maturing and improving of estates as well as by modifications in the rules of assessment, but even when we allow for these changes the rise in standard production for 1927 appears to have been unduly large, and it is generally held that as a result of this increase Malaya was considerably overassessed at that time.63 The question of assessment. of standard production is the most important that arose in the administration of the Stevenson Plan. Failure to solve this problem properly weakened restriction by allowing larger exports than should have occurred; it created injustice as between individual planters, favoring some while compelling others to bear more than their share of the burden; and it contributed to the various prob­ lems relating to the use of coupons and export licenses. Yet while the planters generally agreed that the restriction area as a whole was over­ assessed, individually they insisted that they were underassessed. In the face of demands of different groups the authorities were compelled to fix standard production with liberality. So, serious as the problem was, there could be little hope for a satisfactory solution of it, and the author­ ities seem to have done the best they were able under the circumstances.

eOHolt, pp. 47-51• 81 idem, p. 48• "'Statist, February 12, 1927, p. 257. IIIHolt, p. 50; Manchester Guardian Commercial, October 6, 1927, P. 385; and A. W. Still in IRJ, October I, 1927, p. 22. ADMINISTRATION OF THE STEVENSON PLAN TABLE XI MAIIDARD PRODUCTIOII AIfD EXPORT, MALAYA AJiD CEYLOII'" (qUAIITITIES III LOIIG TOilS) I. Malayan Standard Production and &port

AllowaIJle Indicated Announced &ports PerCent Standard Standard Production Production 1920" 174..122 1921" Ip,OOI 1922" 212,434 b 1923 I 67,2II 61.25 272,997 270,000 1924b 167,696 58.75 285,610 2600400 1925b 182,942 61.25 298,680 276,793 1926b 278,220"- 96•25 3'7.414 314,853 1927b 243,310d 67·5° 341,216 336,995 1928b 197,897· 60.00 314,575 314,575

2. 'Ceylon Standard Production and Export

AOowa6le Indicated Announced Exports Per.Cent Standard Standard Production Production 19201 ------39,532 1921' 39,342 1922' 46,694 1923" 37,846 6I.25 61,789 60,034 1924" 37,194 58,75 63,309 62,282 1925" 44,092 61.25 71,987 65,80'] 1926" 66,984h 96•25 69,594 7°0475 1927" 6J·5° 73,839 1928" 60.00 76,300 "Calendar year. bYear ended October 31 • • Plus 17,666 tons increase in carry-over of coupons. d Less 12,989 tons decrease in carry-over of coupons • • Less 9,152 tons decrease in carry-over of coupons •. 'Calendar year. IYear ended October 31. bPlus 10,027 tons increase in carry-over of coupons.

C. MODIFICATION Some of the modifications effected in the plan of the Stevenson Com­ mitts:e as originally adopted by Ceylon and Malaya have already been touched upon. Many matters of detail were altered and certain new elements introduced, as in the case of the passage of certain tapping regulati?ns limiting .the severity of tapping and requiring adequate rest "Holt, pp. 48-54; Commerce Tearooolt, 1929, VoL I, p. 474; and Special Circular 2201. 68 GOVERNMENTAL CONTROL OF CRUDE RUBBER periods for the trees. Greater care in these respects was required by an act passed at the end of the fifth restriction year, the aim being pri­ marily to effect a shrinkage in the output of rubber for ·the following year.65 For revenue reasons and in view of the high prices of the boom period the minimum duty on all rubber exported was increased at the end of 1925.66 ~ These and other similar changes made relatively little difference in the operation of the plan. The experiences during 1925-26 led, however, to certain exceedingly important changes in the provisions of the Act. The first of these was the announcement at the beginning of the May-July quarter, 1926, that if the price failed to average twenty-one pence, instead of twelve or fifteen pence as formerly, the quota for the ensuing quarter would be reduced. As this average was maintained no change in the exportable allowance was made for the August-October quarter but at the end of this period the quota was reduced from 100% to 80% and the following changes in the restriction act announced: I. If the average London price of rubber is less than" twenty-one pence per pound but not less than fifteen pence during any quarter, the percentage of standard produc­ tion exportable at the minimum rate of duty for the ensuing quarter will be reduced by ten, unless the reduction is from the figure of 100% when reduction will be to 80%. 2. If the average price remains between twenty-one and twenty-four pence, there will be no change, unless in each of three consecutive quarters the average price is over twenty-one pence in which case the percentage for the fourth quarter will be increased by ten. . 3. If the average price for any quarter stands at two shillings or over, the percentage exportable for the following quarter will be increased by ten, unless the figure stands at 80% of standard production in which case the advance will be to 100%. 4. If the average price is bdow fifteen pence for any quarter, the percentage ex­ portable for the ensuing quarter will be reduced to 60%. 5. If the average price for a quarter is over three shillings, the percentage exportable will advance to 100%. 6. In no case will the percentage be fixed above 100% or bdow 60%. The raising of the pivotal price for changes in the export allowance· under the operation of the scheme has been the occasion for much con­ troversy. This step was of great importance and may be regarded, on the whole, as one of the most serious blunders that marked the conduct of restrictive measures. Various explanations have been offered as to why the change was made and the weight accorded to each depends principally upon one's sympathy with the measures. The most important are, first, that the change was necessa.ryr because of the increased costs resulting from a restriction of output; second, that it was a brazen attempt to extort maximum returns because of an undue confidence in the extent of

115 FMS GG, October 14, 1927, p. 1667. ·SIr. Budg., December 18, 1925. ADMINISTRATION OF THE STEVENSON PLAN 6g monopoly power held; and, third, that the pivotal price originally chosen was temporary only and merely a step in raising price to the per­ manent level now established. • . The view that the higher price was made necessary by the higher costs caused by restriction appears frequently in statements published in the producing countries. A. W. Still expresses- the general attitude: "My own view is that one shilling and six pence i; a fair price for the commodity, and allows a quite reasonable profit if estates are producing full crops. But the essential feature of restriction is that it does not allow them to do this, and they must be com­ pensated for the lower production by higher prices." ••• A price of one shilling and nine pence "would, no doubt, be too high to insist upon if 100% of the full production of estates were being consumed but is it too high when, to prevent prices falling below cost of production, estates are asked to sacrifice 40% of their possible cropS?".7 An extension of this argument would justify a still higher price sufficient to make it possible for the companies to pay their accustomed dividends on a production of, say, 10% of capacity! The fallacy seems to lie in the assumption that the industry is entitled to a specified return regardless of the quantity produced, overlooking the fact that restriction was pre­ sumably a temporary expedient for relieving a condition of over-produc­ tion when a large proportion of the growers were incurring losses. The claim has been quite generally expressed by a considerable f1le­ ment of American opinion that the change in .the pivota,1 price was merely another example of a successful monopoly attempting to wring the last possible cent from the helpless consumer. The British, on the other hand, declared that the higher figure was nearer to what was a fair return to the grower and that it would have been established in the first place had it not seemed premature at that time. The statement has been made that the intention had existed all along to lift price to that figure as soon as conditions permitted, though there is nothing in con­ temporary discussion to substantiate this claim. The truth would seem to lie somewhere between these two views. There is no reason to doubt that those in authority were convinced that the higher figure waS reasonable. The price had been above 42C per pound for years prior to the period of the slump, so that it was easy to look upon this as the "customary price" and hence the right price. Also it was natural to point to the very lean years following 1920 as justifying larger profits. A desire to protect the manufacturer who had made for­ ward Pllrchases at high prices from losses through too great a decline in prices has been mentioned as influencing the decision,68 and this consid- er ibid., July 14, 1927, I8RGA Bull., December. 1927, p. 782. Sir George Beharrel, Mr. Oswald G. Moseley, and Mr. J. P. Clark, rubber manufacturers who were members of the Advisory Com­ mittee on Rubber in 1926 when the pivotal price was raised have publicly announced 70 GOVERNMENTAL CONTROL OF CRUDE RUBBER eration may hllVe carried some weight, though it could hardly have been of major importance. That the British were not alone in their views regarding the reasonableness of the higher pivotal price will appear later. Having persuaded themselves, therefore, that the change was jus­ tified, the time seemed opportune to amend the Act in this particular. It was widely felt that it would be long before price would fall below two shillings, but in case the price should fall it was believed, as a result of the experiences of the previous year (1925), that the operation of the scheme would be certain to restore it. An unbounded confidence in the effectiveness of the Stevenson scheme was manifest at this time. So the change seems to have been inspired less by a desire to extort an unfair price through the exercise of monopoly power than by the wish to estab­ lish restriction on a more or less permanent basis embodying a price that was not unreasonable. In determining what is a fair price for rubber it is necessary to con­ sider the average all-in cost of producing a pound of rubber at capacity and the amount required to provide a fair return on the capital invested. The cost of production more or less accepted at the time of the Con­ gressional investigation was 25c per pound and this was declared by the United States Rubber Company to be its approximate cost of delivering the rubber in New York.69 A comparison of the declared all-in costs of sterling companies indicates that this figure is considerably too high (see Table XII), the price generally accepted in England being under nine pence per pound.70 The cost of production on native estates is much lower than this, estimates running as low as 5c per pound including transportation charges, and it may be assumed that in the future the price tendency will be in the direction of the cost to native producers since it will be necessary for the estates to endeavor to meet this com­ petition. The all-in cost here mentioned includes freight and head office expenses but excludes return on investment and depreciation.71 Allowing for depreciation, a figure of 20C seems to be a reasonable sum to cover all costs other than return on investment for an average estate on full production. The cost of bringing an acre of rubber trees to maturity is subject to wide variation. An analysis of the per acre cost of mature plantations as that they were not consulted in any manner whatsoever on the proposal to raise the pivotal price, and that each separately protested against the action that had been taken.-Fintlncilll 2.00 to 1>400.73 By way of a compromise we may take 1>400 as an average. An examination of the yield of various rubber companies indicates an average yield during the period of restriction of rather less than 400 pounds per acre with production unrestricted/4 and this figure agrees with the estimate of H. Eric Miller of between 360 and 400 pounds to the acre.75 There remains to be considered what should be regarded as a fair and reasonable rate of return on investments in the rubber industry. The figure generally accepted as reasonable is 15% annually, but for certain reasons this appears to be unduly high. A return of 15% has been justified on the grounds that it is necessary to compensate for the long waiting period before the trees begin to yield. 76 Since interest during the waiting period is compounded into the capital cost of the investment it is obviously double counting to include it in the rate of return. The argument that a high rate of interest is nec­ essary to stimulate investment17 becomes absurd in view of the fact that the difficulty with the industry has been that it was already over­ stimulated. The principal claim advanced in justification of a rate of retum of 15% or more was that it was necessary to compensate for the risks in­ volved. Among the so-called risks enumerated are the question of re­ cruiting labor; of selecting a location which not only has satisfactory soil and rainfall but which is healthful as well; the risk of tropical storms; of planting and growing crops and of cyclical fluctuations when harvested; of possible overproduction; of possible substitutes.78 It may be observed that certain of these are not so much risks as factors involving a higher .,. M'l'&RJ, September IS, 1923, pp. 1062-4; Maclaren, p. 122; and Meyjes, p. 17• .. Figart, p. 7. 7

A. CONDITION OF PLANTATIONS

I. Condition of plantation, 1922 T TIlE time of the passage of the Stevenson Act in 1922 the plantations were in run-down condition. A large proportion of the planters had resorted to overtapping in a frantic effort to reduce their unit cost of production. Many small holders, similarly,A had tapped their trees very heavily in order to maintain as nearly as possible the same purchasing power despite the reduced price of rubber. Expenditures were pared in order to avoid if possible operation at a loss. V\"bile these savings were very effective in bringing down the imme­ diate costs of production they generally involved neglect of the soil, of drainage, weeding, and buildings. The 'price obtained for the product failed to cover the proper maintenance of the property. In still other cases owners, generally those having small holdings, grew discouraged or found it more profitable to turn to other lines of work and so allowed their rubber groves to grow up with weeds and jungle. While the extent of abandonments was not great it is agreed that a certain amount did occur. 2. Immediate effects of restriction The immediate effect of restriction, combined with strengthened de­ mand for rubber, was an increased price which made it possible for most of the growers to show a profit for the ensuing period and, more important still, to take steps to bring the groves back into somewhat better condition. Attention was again devoted to proper drainage to check soil wash, to cultivation, weeding, and the care and prevention of disease among trees.l By limiting the amount of rubber that the estates could sell the Stevenson Act compelled the planters in Malaya and Ceylon to give their trees a much needed rest.2 In the case of the old trees this helped to lReport of the Agriculturist, 1923, MAJ, June 1924, p. 230; and Tearboolc of the Department of Agriculture, Ceylon, 1924, p. 2. 'PAC Tearboolc, 1923, p. ISO. 76 GOVERNMENTAL CONTROL OF CRUDE RUBBER restore some of the vitality sapped in previous years while in the case of the young trees just coming into bearing it safeguarded their strength for the more profitable years which were to follow.3 The extent to which freedom from tapping serves to store up rubber in the trees is largely a matter of conjecture, as is the whole question of the life of the trees and the extent to which resting prolongs the period of productivity. It may be stated, however, that the less severe tapping methods employed and the resulting conservation of bark were of distinct advantage from the standpoint of the general wellbeing of the plantations. On certain small holdings and holdings so situated as to be incapable of producing their assessed standard production there was, on the other hand, considerable overtapping by reason of the high prices offered! In such cases the fault, obviously enough, lay in improper assessment of standard production and was inevitable in view of the haste with which restriction was imposed. In other instances the owner of a holding of good trees sometimes leased additional holdings and tapped only the leased holdings while resting his own and so obtained the full amount of rubber for export allowed on all the holdings.5 Such abuses were not common and we may say that in general the condition of the trees was definitely improved by resting and by economy of bark consumption.' More conservative tapping methods were effected and these were gen­ erally retained even during the period of high prices and unrestricted export. The Secretary of Agriculture for the StraitS Settlements and the Fed­ erated Malay States reported in 1925 that as a result of restriction and improved care of the trees there was, during 1924, a marked reduction in the extent of stem and root diseases.7 The price rise at this time was not, moreover, so great as to cause any reversion to former extravagance in the administration of the estates.s By the time high prices did arrive planters had become accustomed to the economical methods made necessary by low prices with the result that there is little evidence of a return to the wasteful operating methods prevailing before 1920. 'Report on the Straits Settlements, 1914, p. 18, SS GG Supp., July 3, 191). • "Excessive tapping, as frequently as twice daily, sometimes combined with the use of ladders to give access to tappable bark, is most common on small holdings in Bat areas near the coast where ••• conditions are not suitable for the growth of rubber."­ Report of the Agriculturist, 1913, MAJ, June 1914, p. 131. 'Report of the Agriculturist, 1913, MAJ, June 1914, p. 131. 8Report on the Straits Settlements, 19!14, p. 18, SS GG Supp., July 3, 191). 'Report of the Secretary for Agriculture, Straits Settlements and Federated Malay States, 19!14, p. 3, FMS GG Supp., June 16, 191). 'Report of the Agriculturist, 1913, MAJ, June 19!14, p. 130 • EFFECT ON PRODUCING COUNTRIES 77 3. Effect oj high prices, I925-2 6 The high prices of the boom period and the larger exportable allow­ ances resulting provided the necessary incentive for clearing up the estates which had been abandoned, or so neglected as virtually to revert to jungle. This was an important factor in the increase in standard pro­ duction which was made at that time.9 Other holdings, particularly those of natives in the more remote districts, which had not been prop­ erly cultivated even with the improved prices of 1923-24 were cleaned and better cultivated as a result of the profitableness of rubber produc­ tion during this period.10 Considerable interest was manifested, also, in the fertilizing of estates. Experiments made by the departments of agriculture indicated that while a low yielding tree cannot be made into a high yielder any tree can be stimulated as to growth and ability to resist disease. The intro­ duction of a certain amount of machinery, particularly tractors, in Borneo was likewise recorded.u A greater interest in bud grafting devel­ oped and it was during this period, November 1,1926, that the Rubber Research Institute, which had fir;;t been proposed for Malaya as early as 1919, was established.12 The prosperity in the rubber industry at this time contributed to the ultimate realization of the project.13 On the other hand, it has been suggested that during the period of high prices the stimulus to adopt scientific methods was removed by the fact that large profits were possible even under slipshod methods. This criticism, however, applies to economy of operation rather than to ade­ quacy of care of the estates. As a result of investigations in Malaya during 1926 the Rubber Agri­ culturist of the Federated Malay States reported that there was little evidence that the high price of rubber had affected the character or severity of tapping of native holdings. Quite naturally, as the quota in­ creased it became necessary to remove more bark in order to obtain greater quantities of rubber. However, with the exception of a few cases where farming out of holdings on a profit sharing basis led to a draining

'Report of the Rubber Restriction Dept., 1925, p. 2, FMS GG Supp., June 26, 1926. I°Report on the Straits Settlements, 1925, 1926, SS GG Supp.; and Report of the Secretary for Agriculture, Straits Settlements and Federated Malay States, 1926, p. 2, SS GG Supp., July 25, 1927. llSpecial Circular 1250, August 26, 1926. uReport of the Secretary for Agriculture, Straits Settlements and Federated Malay States, 1926, p. 5, FMS GG Supp., August 5,1927. IIMruRJ, June 30,1927, p. 710. 78 GOVERNMENTAL CONTROL OF CRUDE RUBBER of the trees, excessive tapping was very rare.14 The average standard of tapping was declared to be far superior to that of previous years. The improvement in tapping methods, in fact, is one reason why greater yields were possible without injury to the trees. Another reason for the freedom from overtapping was the fact that during the period of highest prices the exportable quota, which did not reach 100% until February 1926, prevented growers from producing their maximum output. As a further inducement to the proper care of plantations during this period the authorities refused to give the full allowance of export coupons to estates not satisfactorily maintained.IO It has frequently been alleged by the British that Dutch estates were badly overtapped following the passage of restriction. There is no evi­ dence that this was general, and the condition of Dutch estates was de­ clared to be excellent while costs were greatly reduced.16 4· Effect of removal oj restriction, 1928 With the lower prices that resulted from the announcement that re­ striction would be removed the problem of reducing costs again became paramount. A renewed interest in methods for obtaining higher yields was evinced by plantation companies and the year witnessed a heavy importation into Malaya from Java and Sumatra of bud stock and selected seedsP The effect of the removal of restriction upon the condition of the plantations is indicated by the following extract from an official report: The standard of upkeep maintained on large plantations was not appreciably affected by the lower prices for rubber ruling during the year, but a deterioration in the general condition of native holdings accompanied by a program of more liberal tapping was apparent. Following the removal of restriction at the end of October excessive tapping and a tendency to neglect sanitation and diseases became general on small holdings.18 The problem of controlling disease became more difficult both because of the increase in amount and because of the more active opposition of planters to suspension of tapping, as called for in the treatment of mouldy rot.19 On the other hand, during the years of restriction consid­ erable prowess had been made in the scientific care of plantations as

16 Report of the Secretary for Agriculture, Straits Settlements and Federated Malay States, 1926, p. 2, FMS GG Supp., August 5, 1927. Excessive tapping occurs when a tree is tapped so frequently or over so large a circumference as to lower its vi tality or to prevent bark renewal from keeping pace with bark consumption. 15 MAJ, May 1927, p. 138. 18London uonomisl, May I2, 1927, p. 1070. 17Report of Chief Secretary to Government, 1928, p. 16, FMS GG Supp., June :lI, 1929. 18 Report on the Straits Settlements, 1928, p. 20, SS GG Supp., July 5.1929. laReport of the Secretary for Agriculture, 1928, p. I, FMS GG Supp., July 19, 1929; and Report on the Settlement of Penang, 1928, P.3, SS GG Supp., July 5, 1929. EFFECT ON• PRODUCING COUNTRIES 79 well as an increase in the efficiency of the agricultural services of the government. Consequently, no such deterioration in the condition of the plantings as occurred in 1920-22 is likely. From the foregoing it appears that the improved prices which accom­ panied restriction brought a distinct improvement in the condition of rubber plantings with respect to maintenance, cultivation, methods of tapping, and general health of the trees. Contrary to predictions, the extreme prices of 1925 did not, on the other hand, lead to excessive tapping. With the removal of restriction some laxness in the care of the trees reappeared but this was largely confined to small holdings. Fur­ thermore, the government was better able by that time to cope with such abuses than had been the case in 1922. The net result of restriction from the standpoint of the plantations was, therefore, a definite improve­ ment in the physical as well as the financial condition of the rubber plantations.

B. EFFECT ON COST OF PRODUCTION IN RESTRICTED AREAS As was pointed out when the policy of restriction was first advocated and as has been declared repeatedly since, restriction of o~tput involved an obvious tendep.cy toward increased cost of production for the indi­ vidual plantation.20 The primary cause of this lay in the fact that while certain of the costs were reduced pari passu with the decreased output others were not, and thus the average unit cost per pound was increased. The way in which all-in costs of British rubber companies in restricted and in unrestricted regions were affected by restriction appears from the following figures. 21 Restricled Countries I923-2 {- 140 Malayan Companies 9·68d• 28 Ceylon CQmpanies 9.20 Unrestricted Countries 23 D. E. I. Companies 9.22 9.13 '20 Plantation Companies elsewhere 9.07 8.46 It will be seen from these figures that following the enactment of re­ striction the all-in costs of the companies in the restricted countries increased by II~% and 18~% while the costs of companies in unre­ stricted areas decreased by 1% and 6~%. The difference in the move­ ment of costs of companies in Malaya and Ceylon and elsewhere is ex­ plained by the fact that, while many of the British estates in unrestricted regions followed restriction voluntarily, most of them did not restrict to the same extent and some did not restrict at all. Table XII indicates

. 20 Manchester Guardian Commercial, October 26, 1922. USymington & Sinclair, March 1925. (Quoted in Harvard Business ReDiew, July 1926, p. 85 8.) 80 GOVERNMENTAL CONTROL OF ·CRUDE RUBBER the movement of all-in costs for a large group of British companies, the great majority of which were in the restricted areas. It must be noted that the figures given here cover financial years ending from four to eighteen months prjor to the date of publication. As a result of this fact the figures show an average lag of approximately twelve months. Cer­ tain factors, such as appreciating value of the pound sterling, altera­ tions in the quota, and wage increases during 1925-26, render the changes indicated by this table less marked than might be expected. Nevertheless, it seems clear that various of the economies instituted during the slump years of 1920-22 were made permanent. that costs were increased as a result of restriction of output at the end of 1922,22 and that, partly as a result of increased wages, the anticipated reduction in costs when the quota was increased in 1925-26 was not realized.23 Finally, the economies brought about by the fall in prices in 1928 led to a sharp decline in all-in costs. It has been declared that the approximate cost to British companies of producing 60% of capacity was one shilling per pound as compared with eight pe~ce per pound for 100% export.24 On this basis the com­ panies would earn approximately the same profit at one shilling three TABLE XII AVERAGE ALL-IN COSTS 01' BRITISH PLANTATION COMPANIES, 19Zz_Z926 (PENCE PER POUND) Date of Pu6/ication Num6er oj Companies doerage d /I·in Costs October 19zz 307 IZ.8Z4 December 19z2 309 II·531 June I9zJ J I 9 10·J51 December 19zJ JJ5 9.61 5 J unel9Z4 JJz 9'988 December 19Z4 JJz 10.181 June 1925 J35 10.271 December 1925 38J 10.Z0J June 1926 J92 IO.2p December 1926 J96 10·J79 June 1927 397 10.605 December 19z7 394 10'589 June 1928 389 10.581 December 19z8 366- 10.694 June 1929 363 9·559 .. Allowance must be made for the lag• .. I t may be pointed out, further, that, while this is not included in the figures of all-in cost of production, the cost per pound of a fair return on investment would increase with restriction of output in the same way as other overhead costs. "Statist, April 9, 19z7, p. 616; and United States Daily, Washington, May 13. 1927. ·Computed from Rickinson, Ru66tr Companies' Position, London, monthly. EFFECT ON PRODUCING COUNTRIES 81 and one-half pence for full production as at a price of two shillings for 60% output. From a comparison of published costs it is quite apparent that the difference was much less than here suggested and it seems that the increase in cost of production by reason of restriction to 60% was nearer one penny per pound than the four pence estimated above. The effect of the increased releases permitted as a result of the im­ proved prices of 1925--26 would normally have been to lower the cost of production per pound. In certain cases this did occur but in general the tendency was checked, in part at least, by the increased cost of labor. This increase was due primarily to the higher wages occasioned by the greater demand for labor resulting from boom conditions.26 In addition the relative efficiency of the workers was less since it was necessary to engage fresh recruits and train them for the work on the plantations. Finally, the strengthened position of labor led to unrest and soldiering among the coolies and so caused costs to mountP A general criticism of the Stevenson Plan which may be made at this time is that it tended to reduce the profits of the most efficient estates relatively more than those of the estates having a lower yield per acre. Until the modifications made in the summer of 1925 no consideration was given to the ability of some estates to produce more than 400 pounds per acre so that the more efficient plantations were restricted to less than the declared export allowance of their true potential oUtput.28 Furthermore, it may be assumed that the plantations which would have been squeezed out except for the Stevenson Plan were the least efficient producers. Their elimination would have left the plantations which survived ina stronger position than before the passage of the Act and in a stronger position than they now occupy, because of the fact that restriction has supported the weak companies along with the strong. We may conclude, therefore, that restriction, by limiting the amount that could be produced, served to increase the unit cost of production arid later by contributing to an increase in labor costs prevented cost of production from returning to the former level when output was ex­ panded. In addition, restriction penalized the more efficient estates for the benefi t of the less efficient. It may be mentioned in passing that the opposite effect was produced among the Dutch estates in unrestricted areas. By encouraging a high output, overhead costs per unit of product were reduced without giving rise to extravagance.29 "'Sir. Budg., May 12, 1926. 17 M'T&R], March 31,'1927, p. 331• .. Sir. Budg., May 15, 1925. ··London Economist, May 21,1927, p. ICYJO, quoting Dr. G. Sternheim in De Kronielc. 81. GOVERNMENTAL CONTROL OF CRUDE RUBBER

C. EFFECT ON LABOR The situation of British Malaya with respect to labor is unique in that the two key industries, tin and rubber, which represent a predominant share of the wealth of the country, are almost entirely dependent upon immigrant labor. Immigrant labor is also very important in Ceylon. Java, on the other hand, shows a considerable diversification in products and has a very large domestic labor supply, although there is a consider­ able movement of immigrants into the country, chiefly from China, while some Javanese are employed on the rubber estates in British Malaya. The situation in Sumatra somewhat resembles that of Malaya since there is not the same degree of diversification as in Java and the supply of labor is inadequate so that the extensive areas under rubber there must depend largely upon workers from Java or elsewhere. In the Netherlands East Indies the system of Penal Sanction still pre­ vails by which the support of the government is given to the enforce­ ment of labor contracts by making it a criminal offense for the worker to quit the employer who hired him. In Malaya the indenturing of Indians was abolished in 1910 and of Chinese in 1914, and now the immigraht enters the country a free agent even though all the expenses of recruiting and transportating him thither may have been borne by the planters.- Wages in the middle east followed the tendency in other parts of the world and rose during the war considerably above their pre-war level. The rise was greatest in trading centers such as Singapore and Batavia and in regions devoted to the production of commodities most affected by war conditions as in Banka where the great staple is tin. At a distance from centers of trade and in regions producing commodities not affected by the war boom the increase in wages was least noticeable. In Djambi and the East Coast of Sumatra the increase was slight as appears from Table XIII. These are districts most largely devoted to rubber pro­ duction. When the price of rubber slumped during 1918 it was found that the supply of labor was actually increased, the natives owning small hold­ ings and their dependents being compelled to revert to estate employ­ ment.so With the price rise during I91~0 wages in Malaya reached their peak but the severe slump that followed saw wages restored virtu­ ally to their 1913 level. Decreased activity in mining released coolies who turned to the estates for employment and helped drive wages down. In many cases coolies worked for their board only during 1921, both in the mines and on rubber estates.a1 The voluntary restriction of rubber to IOPAM Report, 1918, p. 8. IlReport of the Mines Dept., 1921, p. 16, FMS GG Supp., June 16, 1922; and PAM Report. 1921, p. 33. EFFECT ON PRODUCING COUNTRIES TABLE XIII DAILY WAGES IN THE NETHERLANDS EAsT INDIES, 1913-2482

100 CENTS = I GUILDER=~-402. (u.s.)

I9Ij I920 I92I I922 I92j I921. e % e % e % e % e % c % Country ------Javaand Madura 2.9 100 41 139 45 154- 45 152. 42. 142. 39 134 Palembang 65 100 90 138 97 149 85 130 100 154- 83 12.7 Sumatra East Coast 63 100 78 124 80 12.7 79 12.5 84 133 80 12.7 Banka 62. 100 94 150 10'] 171 82. 131 78 139 85 134 Ci/ies Batavia 50 100 75 150 90 180 80 160 60 12.0 60 12.0 Surabaya 100 0 ISO 150 0 140 65 130 50 7 140 175 75 7 Semarang 45 100 65 144 75 166 65 144 55 12.2. 55 12.2. Bandjermasin 50 100 75 150 100 2.00 100 2.00 80 160 75 150 75% of capacity led to a considerable reduction in labor forces and it became necessary in Ceylon to resort to repatriation of immigrant la­ borers.83 The net decrease in the number of workers employed in the Federated Malay States amounted during the first nine months of 1921 to 61,635.84 The remaining force was inadequate for anything approach­ ing normal output of rubber so that a slight shortage of labor was felt at the end of 1921 when voluntary restriction was discontinued.35 The net result of the period oflow prices, 1920-22, was, first, that the reduced demand for labor made it possible to readjust wages on a pre-war basis, the reduction being carried through without serious protest.36 In the second place, large numbers of coolies were forced out of the country so that when compulsory restriction was enacted labor was not released to any great extent.37 It may be mentioned that the rubber growers -Statistical Abstract for the Netherlands East Indies,192.5, Department of Agricul­ ture, Industry and Commerce, Wdtevreden, Landsdrukkerij, 192.7, pp. 2.35-8. These figures of wages are fairly representative, certain districts which show extremes having been omitted. -PAC Reporl, 192.1, p. 95 • .. RGA Bull., January 192.2, p. 32.. "'i6id. "'Fowler, John A., Nelherklnds Easl Indies and British Maklya, Washington, Govern­ ment Printing Office, 1923, p. 45. "While the enactment of restriction seems not to have released labor to any extent, it was responsible for the labor forces on the estates being maintained subsequently at a lower point than might otherwise have been the case. The immediate effect, therefore, was a rdative decline in immigration and the ultimate effect, a shortage of labor in J925-26. B4 GOVERNMENTAL CONTROL OF CRUDE RUBBER agreed as early as the end of 1921 that when price improved they would avoid increasing their tapping so rapidly as to force wages up again.3s Similar agreements were made at later times, particularly in 1925. In the Dutch East Indies wages were also lowered and certain other steps taken to relieve the situation. One of these was the placing of pub­ lic lands at the disposal of discharged contract laborers in the East Coast of Sumatra in order to encourage them to remain in the country as colonists.89 It was also ruled that workers employed under the Penal Sanction could be changed from one plantation to another in order to provide work for as many as possible.40 Similarly, the proposal to estab­ lish minimum wages for Java was tabled lest conditions be made worse by restricting non-paying orbildly paying concerns. For the seven months following the passage of the Stevenson Act the immigration into British Malaya was considerably below normal. In part this was due to the introduction of restriction but a more important reason was the uncertainty arising from the passage of the Indian Emi­ gration Act, the effect of which was so doubtful as to discourage recruit­ ing for a time.41 Immigration into the middle east is influenced by a variety of factors. Political conditions in China are of particular im­ portance, and were partially responsible for the decline in immigration during the early months of restriction.42 In India recruiting is affected by crops, prospects oflocal employment, and in this instance it was affected by the damage done to Malaya's reputation, in consequence of the slump, as a good wage earning country.43 From the middle of 1923 on, the number of laborers arriving in Malaya was large. Credit for this was given to the work connected with the naval base at Singapore, and the recovery of the rubber trade.44 Emigration, on the other hand, was, for similar reasons, less during the second half of the year than during the first. As shown by the accompanying Table (XIV) of immigration into the Federated Malay States a very sharp increase occurred during 1925-26. The arrivals for 1925 were heaviest during the second half of the year. This increase is to be explained principally by the rise in the price of rubber and the increased export of rubber made possible as a result. At the same time, however, the number of Javanese employed in the Fed-

18 RGA Bull., December 19~u, pp. 490"""1. 18International Association for Rubber and other Cultivations in the Netherlands Indies, The Hague, 19~I, p. 18. co ibid., p. 19. uM

Cbinese

erated Malay States showed a decrease during 1925 and only a slight increase over the two years 1925-26, a reflection of the prosperous con­ ditions prevailing in the Netherlands East Indies.46 The records of the assisted passages from India (Table XV), those immigrants who receive aid from the Immigration Fund, indi~te that the sex ratio is adversely affected by business depression, a high proportion of women to men always being assumed to be desirable.47 The marked rise in the propor­ tion of women to men in 1928 was chiefly due to the special efforts of emigration officers in India to encourage the emigration of families. A far larger proportion of women came with the assisted immigrants than with the unassisted.48 No doubt the smaller number of assisted passages facilitated a selective policy. In order to relieve the labor shortage in 1925-26 planters were encour­ aged to stimulate the recruiting of immigrant laborers by kanganies. Under this system the kangany or recruiter, who must have been em­ ployed three months on the plantation for which he is to recruit, is licensed by a deputy commissioner of labor, the license ordinarily being valid for twenty recruits. For each coolie recruited the kangany is cus­ tomarily paid 10 Rs. though the payment is sometimes as high as IS Rs. All expenses of examination, transportation from village to coast, India to Malaya, and port of debarkation to estate, quarantine, food, and '"Report of the Secretary for Chinese Affairs, FMS GG Supps •• annually. "Report of the Labor Dept.• FMS GG Supps•• annually. "The immigration laws require that on each license to import laborers a certain proportion of the laborers must be women.-M'!'&RJ, March 31. 1917. p. 338. CSReport of the Labor Dept. for 1928. p.1. FMS GG Supp•• July 5.1929. 86 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE XV IMMIGRATION INTO BRITISH MALAYA: ASSISTED PASSAGES" Per&entage oj Women 'l'ofailt ooer'l'weloe Tears 1919 21.42 83.465 1920 20.16 74,684 1921 16.28 14,999 1922 19·39 36,70 5 1923 21·97 28,551 1924 24.70 40,128 1925 23.29 65,267 1926 23.21 138,603 1927 26.29 JJ4,104 1928 35.38 24,944 lodging, are paid out of the Immigration Fund. This fund is maintained by assessments on employers of Indian laborers based on the number of days' work performed. 50 The department oflabor also maintains employ­ ment offices, the full expense of recruiting and transporting the workers so recruited being met out of the Immigration Fund. As the payment to the kanganyof 10-15 Rs. per coolie is made by the estate for which he is recruiting the estate is given an allowance for each kangany recruited laborer.ol The Immigration Fund forms no part of general revenue but is admin­ istered solely in the interest of the laborers. From it are provided homes

.IReport of the Labor Dept., FMS GG Supps., annually. These figures are only for immigrants from soUthern India. Coolies returning to estates on which they have worked previously generally do not appear in these figures. iO IRJ, August 20, 1927, pp. 15-16. liThe assessments and allowances from 1920 to 1926 were as follows: ~uarterly Assessment ~uarterly Recruiting Allowan" lSI 2nd jrd .pb ISI 2nd jrd .pb (Straits Cu",ncy) 1920 2.50 6.00 6.00 6.00 1921 2.00 2.00 1.00 .50 20.00 10.00 15.00 15.00 1922 .50 .50 .50 .50 20.00 20.00 20.00 10.00 1923 1.00 1.50 2.00 2.00 10.00 10.00 10.00 10.00 1924 2.00 2.00 .50 2.00 10.00 10.00 10.00 10.00 1925 2.00 2.00 2.00 2.00 10.00 10.00 10.00 10.00 1926 4.00 4.00 4.00 4.00 12.00 12.00 12.00 12.00 1927 Males 5.00 5.00 4.00 4.00 10.00 10.00 8-10 8-10 Females 4.00 4.00 3.00 3.00 10.00 10.00 8-10 8-10 1928 Males 3.00 3.00 .50 50. 8-10 8-10 8-10 8-10 Females 2.00 2.00 0.00 .0.00 8-10 8-10 8-10 8-10 -Report of the Labor Dept., SS GG Supps., annually. EFFECT..... ON PRODUCING COUNTRIES for the aged,' decrepit, children and orphans, and the costs of repatria­ tion and relief.52 Furthermore, by an act effective October I, 1923, em­ ployers benefiting under the Immigration Fund are required to provide schools '')r the laborers' children and to mak~ maternity allowance for women employed.56 The effectiveness of the resumption of recruiting during 1925 in meeting the increased demand for labor is apparent from Table XV above.54 Improved conditions in the rubber and tin industries during 1923, with· the consequent improvement in general business conditions throughout British Malaya brought about the absorption of the major­ ity of the unemployed.56 The supply of labor at existing wage levels remained adequate, however, until the boom period that set in in 1925. The second half of 1925 and most of 1926 saw an acute shortage oflabor. Different planters' associations urged their members to refrain from bidding up wages and asked that estates should do no recruiting locally but should rely entirely upon coolies brought from the coast or from outside the country.56 In the face of the general prosperity of the coun­ try, particularly of the rubber industry with its steadily increasing export allowance, the efforts to prevent a wage increase were unsuccess­ ful and by the end of 1925 a marked increase in wages throughout the country had been recorded. (Table XVI.) This increase was followed by higher wages for certain classes of tin miners but the rise here was not as great or as general as it might have been had not the general scale of wages in the mines been increased the year before when the price of tin rose to high levels.57 Nevertheless, the high wages in the rubber industry were principally responsible for a serious shortage in the supply of skilled labor in mines so that a wage increase was necessary in these skilled branches.58 This shortage lasted into 1926 making still further wage ad­ justments necessary.69 Another factor contributing to the rise in wages was the competition for labor by the naval base at Singapore and by the municipalities at Singapore and elsewhere. The Admiralty declined to reduce the coolies' pay on construction work to the level paid by estates as it declared that IlGerman, pp. 106-8. ·idem, p. 108 • .. And pide Sir. Budg., August 18, 1925. "Report of.the Secretary for Chinese Affairs, 1923, p. 3, FMS GG Supp., July 1S, 1924- ·SIr. Budg., November 9, 1915, February 2S, 1926, and May 6,1926. I7Report of the Mines Dept., 1924, p. 9, FMS GG Supp., May IS, 1925. lBiDid., 1925, p. 8, FMS GG Supp., May 14, 1926. '"ibid., 1926, p. I2, FMS GG Supp., May 27, 1927. Throughout 1928 the labor supply was ample, with the result that wages were reduced about 10% for both skilled and unskilled labor. 88 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE XVI DAILY WAGES OF INDIAN LABORERS, BRITISH MALAYA, 1924-2860 (STRAITS CURRENCY) Negri Peralt Selangor . Sembilan Pahang 1921 Stores and factories 4Oe-6oc 3Sc-6oc 3Sc-60c 4Sc-60c Other men 4oe-SOC 3Se-40C 3Se-42C 4Se-SOC Women 3oe-4oc 2Se-3Sc 3oc-4oc 3Se-4SC 1925 ' Stores and factories Soc-$I.OO 4OC-SSC 60c SSc-6sc Other men 4SC 3Se-4SC 3Se-soc 4Sc-6sc Women 3Sc 3oe-3Sc 3OC-3Sc 4OC-4SC 1926 Stores and factories S°e-$I.OO soc-60c 6oc-6sc 6oc-6sc Other men 40 e-SOC 4°e-SOC 4OC-SOC Soc-6oc Women 3OC-4SC 3oe-soc 3oe-soc 4Sc-60c 1927- Stores and factories Soc-8oc S0c-6oc 6oc-6sc 6Sc-'JSc Other men 40C-SSC 4°e-pC 40C-SOC SSc-6oc Women 3oe-soc 3OC-Soc 3OC-Soc 4Sc-6oc 1928 Stores and factories Soc-8oc Soc--6oc 6oe-6sc 60c-6sc Other men 4OC-55c 4OC-S2C 4OC-SOC S0c-6Sc Women 3oe-soc 3oe-soc 3oe-Soc 4oc-6sc -Toward the end of the year there was a tendency for the rates to fall except in Central Pahang where standard rates were fixed as from August I, 1927. it must have the workers.61 The planters maintained that they were compelled to bear the full expense of recruiting the laborers only to have them lured away by the attraction of higher pay.62 Increased labor costs were not confined to employees on a wage basis. The Asiatic staff receiving salaries demanded, in view of the prosperity of the industry and the increases given to wage earners, adjustments in their pay to compensate for salary cuts made at the beginning of com-, pulsory restriction.63 Thanks to its location nearer to India and the greater diversification in production, the increased demand for labor was less marked in' Cey­ lon. No sustained shortage of labor occurred nor was there a general in­ crease in the levd of wages.54 In the Netherlands Indies the prevalence 10Report of the Labor Dept., FMS GG Supps., annually. 11/RW, June I, 1926, p. 126. "'SIr. Budg., March 25,1926. IBibid., November 27, 1925. "Ceylon Administrative Reports, 1925, Colombo Government Printer, 1926, p. PS' EFFECT ON PRODUCING COUNTRIES of work on shares, the so-called "bagi dua" system, makes it difficult to show the extent of increases in the pay of coolies. Since their wage de­ pends upon the price obtained for their share of the latex gathered, the income of bagi dua coolies was high during 1925-26, and this may have led to local increases in wages, but no general increase in wages was recorded, even in the tin mines where it was stated that the shortage of labor at existing levels was responsible for a reduced output during 1926.8& The relative freedom of the Dutch East Indies from labor strin­ gency must be primarily attributed to the fact that most of the planta­ tions of the country had been on full production while Malaya and Ceylon were restricting. What increased demand for labor did occur arose mainly from British estates which had been maintaining restric­ tion voluntarily and from native planters who took advantage of the high prices for rubber to retire from work for the time being and to lease out their holdings under the bagi dua system. The prosperity of the tin and rubber industries and the increases in pay granted to coolies employed therein led to demands for similar in­ creases by other classes of workers in Malaya. Rising costs of living pro­ vided an excuse for the demands so that strikes or threats of strikes occurred in most of the trades and so anxious were the employers to pre­ vent any stoppage of work that on almost every demand "they yielded with such alacrity that the employees" became extortionate.56 The ex­ planation of the greater number of strikes in the trades than on the plan­ tations is found partly in the fact that the estates were more willing to make concessions to hold their forces and partly in the fact that planta­ tion workers were less affected by the increase in the cost of living. (See pp. 96-8.) During 1926 very few strikes occurred and such as did were confined to the first half of the year'&? Ceylon and the Netherlands Indies were somewhat more free from labor disturbances but a number of Commun­ ist outbreaks occurred in Java during the last quarter of 1926, though these were not attributed to the prosperity existing in the country but were understood to be a protest against the labor contract laws.68 A more serious form of labor difficulty from the standpoint of the planters was the tendency of workers to move from estate to estate. While it was considered unethical for planters to encourage the shifting of workers from one plantation to another their need for coolies was, in I16U.S. Consul, Batavia,July 12., 192.6. IGReport of the Secretary for Chinese Affairs, 1925, p. 4, FMS GG Supp., May 14, 1926• "Report of the Labor Dept., I9~6, p. 12., SS GG Supp., October 14, '927. IS Commerce RBports, January 31, 1927, p. 267. 90 GOVERNMENTAL CONTROL OF CRUDE RUBBER all too many cases,·too strong for their ethics. Some estates connived at the "crimping" of labor by commissioning a kangany to recruit coolies ·wherever he was able. He would then persuade coolies to leave the es­ tates where they were employed, making promises as to wages and work­ ing conditions which might or might not be fulfilled. The kangany was rewarded by "pence money" amounting to as much as 5c (Str.) per coolie for each day's labor performed by laborers whom he collected in his gang.G9 While there was much agitation against the practice of crimping, little could be done directly. Planters were urged to recruit from the coast or from India and to forego all local recruiting. They were asked to aban­ don the custom of paying a bonus to new coolies as this provided an in­ centive for moving.70 A more extreme proposal was made by the chair­ man of one of the provincial planters' associations. He maintained that the laws granted the utmost protection to employees but gave none to the employers and recommended that they be amended to give some of the security to employers that was provided under the old system of indenturing.n With the gradual relieving of the labor shortage the prob­ lem of workers shifting about became relatively unimportant.72 The prosperity of the rubber industry seems to have resulted in fur­ ther attempts to improve the condition of the estate ~oolies. Even before the shortage of labor arose attention was being given to improving the welfare of the workers as a means of ensuring an adequate supply of labor when price increased.73 Statistics of the deaths among Indian laborers show a decline over the period as a whole, although in the Fed­ erated Malay States the percentage was lower in 1923-24 than in 1925-26. The increase in deaths in 1926 may, perhaps, indicate that the examination of intending immigrants was not as careful that year as previously as well as reflect the crowded conditions that prevailed. (See Table XVII.) The effectiveness of the efforts of the planters to improve the lot of their workmen, a policy that has been emphasized throughout the his­ tory of the rubber industry, is indicated by the statement of a represen­ tative of the South Indian Suppressed Classes Society. He concludes a glowing appreciation of conditions in Malaya by declaring that the Indian coolie who is almost a slave in India learns civilization in Malaya, improves in health, and if he stays for a prolonged time makes his for-

II M'lCfJR], September 30, 19'17, p. II'lO. 7°']'imes o/Ceylon, June 6, 19'17. "Sir. Budg., May 6, 1926. TlPAC rear6oolr, 1928, p. 73. Tlibid., 19'13, p. ISO; and ibid., 19'-4, p. 187. EFFECT ON PRODUCING COUNTRIES 91 TABLE XVII

DEATHS PER ANNUM AMONO INDIAN LABORERs IN THE FEDERATED MALAY STATES, 1921~87t Aoerage General Death Num"er Deaths Pereentage RBle Employed Per Mille 1921 133,762 2,632 1·97 29.18 1922 123,849 2,194 1·77 25·74 1923 1210397 1,184 0.91 24.40 1924 119,754 10430 1.19 23.68 1925 124,937 1,539 1.22 23.60 1926 164,651 2,573 1.56 29.32 1927 172,879 3,236 1.87 32.11 1928 160,988 2,656 1.65 29.63 tune.7• While this situation was by no means a result of restriction the prosperity that came with the Stevenson Act contributed to the con­ tinuance of the policy. The decline in immigration in 192.8 reflected the weak market for rubber, the low price prevailing tending to restrict developmental ac­ tivity. Such labor as was released, however, was absorbed elsewhere without difficulty. With the return to maximum tapping toward the end of 192.8 wages tended slightly upward in certain localities.70

D. EFFECT ON THE STANDARD OF LIVING OF NATIVES The increased prosperity that followed the improvement in the rubber situation naturally affected the condition of the mass of the population. This was most noticeable during 192.5-2.6 when rubber prices were at their peak, though in both restricted and unrestricted areas the im­ provement dates from the beginning of restriction. In his annual report for 192.5 the Secretary for Chinese Affairs in the Federated Malay States declared that the most marked feature of the year was the high level of prosperity attained by all dasses of Chinese•••• The chief factor was the price of rubber, which as a result of the policy of restriction of export, began to soar in May and remained high until the end of the year. Chinese in consequence were able to payoff the debts incurred in slump years and to a very large exten t to free their lands from mortgages and charges. '11

7tReport of the Labor Dept., FMS GG Supps., annually. The increase in the death rate in 1927 both for Indian laborers and for the country as a whole was largely attribu­ table to particularly serious floods that year.-Report of the Secretary to Government, 1927, p. 46, FMS GG Supp., June 8, 1928. 71 M'I&RJ, August 15,1927, p. 944. "Report of the Labor Dept., 1928, p. 9, FMS GG Supp., July 5,1929' 77Report of the Secretary for Chinese Affairs, 1925, p. 4, FMS GG Supp., May 14, 1926• 92 GOVERNMENTAL CONTROL OF CRUDE RUBBER Records for the Federated Malay States, which is the most important rubber producing district of British Malaya, show a remarkable decline in criminal offenses with the increase in prosperity:78 Seizallie Crimes Serious Crimes 1922 10>451 1923 8>473 187 1924 8,508 178 1925 7,361 144 '1926 5,641 IJ2 1927 5,063 160 1928 7,239 157 While certain offenses, such as murder, theft and house breaking, showed a slight increase in 1926-a result, it is said, of the large immi­ gration during that year-the total of all seizable crimes was consider­ ably lower. Figures of Savings Bank deposits show interesting correlation with conditions in the rubber industry:79 LalJorers All Depositors Average per Number Amount Number Amount Depositor 1920 '104 1921 75 1922 76 1923 ' 189,030 9,704 , 894,704 92 1924 4,023 236,299 II,227 1,166,443 104 1925 5,657 338,993 13,og8 1,5og,325 1I5 1926 8,279 596,717 16>779 2,027,105 I21 1927 8,99S 641,J84 18,357 1,985,186 108 1928 9,688 687,287 ' 21>455 2,J20,J45 108 (Straits Currency) Since the habit of saving, particularly in banks, is a new one to the coolie the changes in the deposits per individual are the most significant of these data. Nevertheless, it is to be observed also that the increase in number of depositors was greatest in 1926, the year of greatest pros­ perity in the rubber industry. In the Dutch East Indies the increased prosperity of the natives led to an'increase in the extent of hoarding. A United States government observer reported in 1926 that the native puts little faith in banking institutions but many of those who have any thought for the future ••• have a cache somewhere about their property with enough to carry them over a long lean period. A prominent importer tells of a considerable stock of metal cash boxes which he had on hand in Java, unsaleable for some years. Early last year (1925) he shipped the entire lot to Palembang and they were quickly sold out. He was told "Federated Malay States Police Report, FMS GG Supps., annually. "Report of the Labor Dept., FMS GG Supps., annually. EFFECT ON PRODUCING COUNTRIES 93 that many natives are placing their hoardings in these boxes and burying them for the eventual "rainy day"•••• The Palembang natives are somewhat more farsighted than the average Java natives and many realize that present conditions are not going to last forever.- The cooperative movement was begun in British Malaya in 1923 and the rapid progress made thereafter is apparent from the following figures for the Federated Malay States:81 Societies Members Working Capital 1923" 19 2>361 , 73.461 (Str.) 1924" 40 6,564 293,193 b 1925 65 8,995 479,314 1926b 101 12,586 950,291 1927b IC? 14,589 1,428,601 1928b 123 17,750 1,940,232 "Calendar year. bYear ending June 30. In the report for the year 1926 it was declared that "the country is full of money mainly owing to the general prosperity created by the high price of rubber and tin."82 Of the 101 cooperative societies organized up to the end of 1926 there was only one store. This lone cooperative store failed during 1926, largely because of its policy of cash payments. The cooperative movement, now confined to credit societies only, was largely responsible, it is claimed, for forcing down the interest rate on small loans.83 While a relatively small proportion of the coolie's savings are remitted back to India through the post-Offices, the larger part being carried back on his person either in cash or in the form of jewelry, nevertheless the record of remittances from the Federated Malay States to India during the period of restriction more or less reflects conditions in the rubber industry:8C Number of Amount Remittances Remilfed 45,164 '3>357,21 5(Str.) ~,171 3,224,483 58,278 4,192,153 84,770 6,593,340 89,557 7,035,884 85,355 6.433,528 a·Report of American Trade Commissioner Van Wickel, Java, February 8, 1926. 8' Report of the Officer in Charge of Cooperative Stores, FMS GG Supps., annually. -i/Jid., 1926, p. 4, FMS GG Supp., July 22,1927. -ibid. "Report of the Labor Dept., FMS GG Supps., annually. 94 GOVERNMENTAL CONTROL OF CRUDE RUBBER The Chinese, furthermore, as a result of their prosperity raised a con­ siderable fund of money during 1925 to establish and maintain hospitals for Chinese women and children.8li One of 'the most interesting evidences of the prosperity among the working classes is the record of the sale of prepared opium, chandu. (Table XVIII.) A slight d~crease in sales in the Straits Settlements during 1923-24 was attributed by the authorities to an increase in smug- TABLE XVIII

Malacca 88 Federated Malay States89 'l"abils Sir. J 'l"abils Sir. J 1920 182,81 5 2,193,970 1,577,181 1921 103,854 1,246,248 989,168 1922 1°4,336 1,252,032 850,267 1923 II9,632 1>435,584 1,007,192 12,406,549 1924 1,279,575 1,025,707 12,635>422 1925 1,673,914 1,156.334 14,244>480 1926 2,067,152 1>464,002 18,030,623 1927 1,881,390 14,95°,001 1928 1>498,350 12,717,567 gling.86 The sharp rise in sales that began in July 1925 was declared to be the natural result of the general atmosphere of prosperity attending the improved conditions in the rubber market and the influx of labor' attracted thereby.s7 Similarly, in Malacca the increase in chandu sales in 1923 was held to be "directly attributable to the somewhat easier conditions obtaining • • • . in consequence of the rise in the price of rubber."9o The decline in sales of chandu in 1927 and 1928 was ex­ plained, likewise, by conditions in the rubber industry. Perhaps the most spectacular evidence of the influence of the pros­ perity in the rubber industry upon the native's standard of living was in his expenditures for articles he consumed. The natives with their newly acquired wealth were reported to be crowding the shops, buying freely for themselves and families. They were to be seen, in the Netherlands Indies, changing 50 and 100 guilder notes, a most unusual occurrence in

iii Report'of the Secretary for Chinese Affairs, 1925, p. 4, FMS GG Supp., May 14, 1926• 88 Report of the Government Monopolies Dept., 1923, 1925, SS GG Supps., annually. 87i6id., 1925, p. I, SS GG Supp., September 10, 1926. 88Report on the Settlement of Malacca, SS GG Supps., annually. "Report of the Trade and Customs Dept., FMS GG Supps., annually. IOReport on the Settlement of Malacca, 1923, p. 14, SS GG Supp., September 19, 1924· EFFECT ON PRODUCING COUNTRIES 9S a retail store in Java, where 50 guilders was a month's wages or more.91 Natives coming to town with their unaccustomed wealth turned to the purchase of fine clothing, jewelry, notions, trinkets, musical instru­ ments, and a great variety of things they had always been forced to do without, except for a brief period during the war, because of their lack of money.92 The complaint was common that tl;te natives were squandering their money on movies and taxis and similar luxuries and so reducing their purchasing power for more lasting ends. This criticism is more jus­ tified in those provinces, such as Djambi, where 'the natives had been on _ a low economic level before their sudden accession of wealth and does not apply generally to the provinces of Pale~bang and- Southeast, Borneo where many of the natives were well-to-do traders and farmers prior to the boom.93 On the whole, the natives were not as spendthrift as was alleged and they seem to have been careful to provide for their more prudent wants before they turned to their more extravagant," with the result that the end of the period of boom prices found them better fed, better clothed, and better housed than they had been before. 95 Rice as a staple article of native diet was supplemented by canned milk, canned fish of various sorts, wheat flour, and canned fruits and vegetables.96 This was reflected in changes in various items of the import trade. (See p. 123, below.) The import of cigarettes also increased with the improvement in the rubber industry. Imports of clothing, the most important item being cotton piece goods, show a marked increase during the period of the rubber boom. The claim that goods of better quality were purchased97 is not demon­ strated by the prices paid for the imports, but this may be the result of changes in the price of cotton. The greater prosperity of the natives was likewise expressed in a desire for better living accommodations.98 There was also a distinct tendency for the wealthier natives to invest in automobiles when their finances permitted. The increase in automo- 'lReport of American Trade Commissioner Van Wickel, Java, February 8, 1926. Mr. Van Wickd also reports an incident of a native appearing at the tax office to pay his income tax and being so pleased with himself that he had his picture taken in front of the office proudly displaying a thousand guilder note protruding from the left breast pocket of his jacket! ""Report of American Trade Commissioner Van Wickel, Java, February 8, 1926. "Report of American Trade Commissioner Goodhue, Batavia, May 21,1926. If Report of American Trade Commissioner Van Wickel, Java, February 8, 1926; and Luytj es, p. I • .. IR&'1'R, March 19'17, p. 18. IeU.S. Consul, Singapore, March 23, 1927, p. 46. t7Luytjes, p. I. n Report of American Trade Commissioner Van Wickel, Java, February 8, 1926; and Luytjes, p. I. 96 GOVERNMENTAL CONTROL OF CRUDE RUBBER bile imports into ·the important rubber producing region of the East Coast of Sumatra was very marked. A common saying appeared in the Netherlands Indies, "One picul of rubber a month, a motor cycle; two piculs a month, a Ford."99 In many cases passenger cars were used to transport rubber from the interior but the condition of the roads and the nature of the treatment of the cars were such that they seldom lasted more than six months. Within that time, however, the car was able to earn its cost and pay the owner a satisfactory dividend. So important was the increase in the sale of cars to the Dutch East Indies during this period that a large American manu­ facturer established an assembling plant in Batavia during 1926. The major credit for the increased sale of cars in the middle east was given to the improvement in the rubber situation.loo Automotive products and accessories, including tires, are, it may be mentioned, the principal American export to the rubber producing countries so that the increased returns from rubber sold principally to America served to stimulate a return flow of goods, though the volume was only a fraction as great. A considerable share of the wealth of the natives was invested in jewelry or in coin. The custom in the Netherlands Indies is to carry all one's wealth on one's person in the form of a girdle of gold coins where it serves a double purpose as ornament and as hoard. The relation between the increased returns from rubber and the movement of gold is clearly shown by the figures of the importation of gold into British Malaya. (See Table XIX.) The tendency to hoard was exhibited in still another way. The local manager of an American sewing machine company was quoted as saying that the natives of Borneo were buying sewing machines in large quan­ tities as investments, many of the machines never being removed from the packing boxes.lol A large proportion of the profits of .the native growers was invested in agriculture, particularly in rubber plantings. The extent of this cannot be determined accurately but was very great. (See pp. 105-10, below.) While figures on the subject are not obtainable it is agreed that the rubber boom served to stimulate the movement of pilgrims to Mecca, particularly from the Netherlands East Indies.lo2 From Djambi alone 10,000 natives went to Mecca in 1926 and took an estimated average of 1000 guilders each out of the country. In considering the effect of the rubber boom on cost of living it is

"Report of American Trade Commissioner Van Wickel, Java, February 8, 1926. 100U.S. Consul, Batavia, July 12, 1927, 101U.S. Consul, Surabaya, January 25,1926. latLuytjes, p. I. Mr. Fred M. Waterhouse has remarked that "the road to Mecca is paved with native-grown rubber." TABLE XIX IMPORTS OF GOLD INTO BRITISH MALAYA, 1922-28101 (STRAITS CURRENCY)

I922 I92) I924 I925 I926 I927 I928 January $1,497,277 $1,361 ,238 $1,618,559 $I,8II,369 $7,198,3 87 $2,477,695 '3,736,734 February 1,937,816 2,784,740 85 8,726 957,030 7,066,792 4,629,643 3,232,212 March 5,026,692 3,209,597 9I!,584 1,851,I!0 4,376,201 3,125,722 2,490,045 April 2,197,370 1,232,490 1,041,559 2,004,772 5,8850750 2,842,849 1,106,359 May 733,496 805,248 753,788 1,475,609 2,450,28 5 1,710,937 1,130,642 June 1,063,990 709,101 363,749 2,561 ,5 80 1,039,603 1,669,328 408,934 July 969,478 621,551 422,346 1,632,402 1,995,392 1,668,279 648,353 August 463,003 636,103 2,082,471 4,448,434 2,978,876 1,862,941 743,177 September 201,876 690,517 740,926 3,748,253 4,122,837 1,685,891 75 2,544 October 646,140 1,625,357 901 ,355 6,241,037 2,395,446 1,130,288 2,165,723 November 470,528 1,520,701 1,445,025 5,466,421 3,696,772 1,838,871 1,429,288 December 910,434 649,131 2,241,3 80 I 7,912,61 7 3,056,528 2,608,231 1,01 7,748 101 British Malaya: Return of Foreign Imports and Exports, Singapore, Government Printing Office, monthly. 98 GOVERNMENTAL CONTROL OF CRUDE RUBBER necessary to draw a distinction between the natives employed on estates and those who are not. The former receive a real income considerably greater than. what is nominally paid since they are furnished housing, medical aid, firewood, maternity benefit and other real additions to their stipulated wages, while rice, the staple food, is generally supplied at a price considerably below the market rate. lOt Consequently estate coolies were affected much less than others by the general price rise that accom­ panied the advance in the price of rubber during 1925. The increase in the cost of living, which was particularly great in Malaya during the rubber boom of 1925-26, was due in the first place to the increased population attracted thither. It was natural that this should force up rents and the prices of certain articles of food. That such staples as rice were also affected was due largely to the neglect of padi cultivation as a result of the rise in the price of rubberlo5 and to droughts in Java and elsewhere which curtailed the production of rice. The stren­ uous efforts of the agricultural officers in Malaya to prevent the aban­ donment of large areas devoted to the cultivation of rice were only par­ tially successful.IOG Careful statistics prepared by the Netherlands East Indies Bureau of Statistics make it possible to follow the movement of prices and cost of living during the period under review. (Table XX.) It will be noted that the cost of living for natives rose during the period of high prices, later resuming its downward trend, while costs for Europeans were not appre­ ciably affected. As a further indication that the movement of native prices was largely influenced by local conditions index figures for Bombay over the same period are also given. IOCCeylon Administrative Reports, 1925, p. P14. The cost to the estate of coolies employed on plantations in Sumatra East Coast has been computed a~ follows: 191) 1920 1924 1925 1926 Women Men Women Men Women Men Women Men Women Men Monetary wages 33c 43c 42C HC 42C SIC 42C 52c 45c 57c Cost of cheap fooda IC IC 29c 29c 2C 2C 2C 2C 3C 3C Housing ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Medical treatment ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Total wages 43c 53c 86c 98 c HC 63c 52c· 62C 59c 71c (IOOC=$0.402 U.S.) • -Statistical Abstract for the Netherlands East Indies, 1927. -The great increase in 1920 in the cost of providing cheap food for the coolies is ex- plained by the fact that the market price of rice and other articles of diet was very high at that time but the estates continued to provide food at approximately the same prices as formerly. In 1913 and 1924 the price at which food was sold to the coolies was only slightly out of line with market price. 1000U.S. Consul, Surabaya, January 25, 1926. 1001 Report on the Straits Settlements, 1925, p. 29, SS GG Supp., July 16, 1926. TABLE XX COST or LwING, NETHERLANDS EAST INDIES AND BOMBAY, 1913-2710' BomlJay Netherlands East Indies Cosl of [jpin: European Family Natipe Family 1913 Average 100 100 1914 July 100 1924 Average 157 175 168 1925 First Quarter 158 165 166 Second Quarter 156 165 157 Third Quarter 153 165 163 Fourth Quarter 154 166 178 Average 155 165 ,66 1926 January 155 ,64 193 February 154 ,66 March 155 ,62 180 April 153 165 172 May 153 ,64 . 163 June ISS 162 164 July '57 158 ,66 August 155 160 169 September 155 161 171 October 155 ,61 172 November 154 ,60 173 December 156 162 '72 Average 155 162 174 '927 January '56 ,62 170 February '55 ,63 ,68 March 155 ,6, ,65 April 153 ,60 163 May 15 2 16, '58 June 154 162 159 July '56 ,63 '58 August '57 ,61 157 September 154 160 158 October '5' 159 156 November 150 '59 155 December 151 ,60 '5' Average '54 ,61 160 '928 January 154 ,60 '48 February 148 159 '48 March 145 ,61 148 April 144 161 146 May 147 161 145 June 146 159 144 July 147 ,6, 145 August 146 ,61 147 September 145 16, '50 October 146 ,62 '50 November '47 16, 152 December 148 ,61 153 Average 147 161 148 101For Netherlands East Indies: Statistical Abstracts for the Netherlands East Indies, annually to'192S; and Korte Beritblm, monthly, '926-28. For Bombay: Montbly Wor Rnitfll, February 1927, p. ,84, and February '929, p. '94· 100 GOVERNMENTAL CONTROL OF CRUDE RUBBER It should be observed that the rise in wages in British Malaya oc­ curred because of the sharp rise in rubber prices in 1925, and the conse­ quent sudden demand for labor. The fact that India and China hold vast reserves of potential immigrants makes it probable that an equally great demand, had it arisen gradually, would have occasioned no substantial increase in wages. For the same reason wages may be expected to return to the former level within a relatively short time. Thus, it is improbable that the greater return derived from rubber-and hence the greater value-productivity of labor-even if it had been made permanent, would have led to a sustained rise in wages.

E. THE OUTPUT OF RUBBER UNDER THE STEVENSON ACT The question as to the effect of restriction upon the volume of rubber supplied to the markets of the world is conjectural in the extreme. lOS The two determining factors are the extent to which the output of restricted countries was decreased and the extent to which the output of unre­ stricted areas was stimulated. I. Restricted areas Entirely aside from the question of the liberality of assessments it is improbable that the full assessed standard production would have been produced even if restriction had not prevented so large an output. There is no indication to show that prices would have risen as and when they did if it had not been for restriction, although the ultimate rise might have been as great. A continuance of low prices for some time would, therefore, have been almost inevitable in view of the large stocks on hand, since the actual rise following restriction seems to have been largely due to psychological factors. Under existing low prices abandon­ ment of plantations and reduction of tapping would have made the realization of the so-called standard production impossible.IOg It may be said that the figures for 1926, when production was only slightly restricted, indicate that throughout the intervening period the amount that could have been produced on existing plantations had been considerably in excess of demand at prevailing prices. It is likely, there­ fore, that without restriction price would have remained low for some time and production would eventually have been checked. Whether lower prices would have prevented the growth of the industry of re­ claiming rubber and the development of certain economies in the use of (41'Ude rubber so that demand for crude rubber would have increased sufficiently to absorb supply at a profitable price is, again, purely a matter of conjecture. 10lSee note, p. 150 below. -108 Yid, MAJ. January 1924, p. 36. EFFECT ON PRODUCING COUNTRIES 101 One definite effect of restriction upon production in the restricted countries may, however, be mentioned. As a result of being on a re­ stricted output for a considerable length of time most of the estates found it impossible to expand their production as rapidly as increases in the quarterly allowances in 1925-26 permitted. The principal limiting factor was labor. Certain of the estates had sufficient labor because they had been maintaining forces somewhat in excess of their requirements but in general the labor supply had been kept below capacity require­ ments so that they found it impossible to expand production rapidly. In certain other cases reserve stocks had been accumulated on the estates, making it possible for them to export their full quotas and so to take advantage of the high prices prevailing,uo As a result of the general sit­ uation, however, there was a piling up of considerable quantities of unused export rights which became a serious problem later when the question of reductions in the exportable percentage again arose. (See pp. 60-2, above.) Ceylon, in fact, failed by 12% to export the quantity authorized during the calendar year of 1926.111 With the removal of restriction a flood of-rubber was released, exports from British Malaya in November and December 1928 being nearly double the highest monthly rate previously. This was primarily due to the fact that many planters, particularly the proprietors of small hold­ ings, had accumulated considerable stocks of rubber in anticipation of the repeal of the Stevenson Act,112 Thus, while the export of rubber was restricted according to the provisions of the law up to the very day of its repeal, it had ceased to control the production of rubber on the planta­ tions some time before. 2. Unrestricted areas Production in the Netherlands East Indies expanded greatly following restriction. This has often been assumed to have been entirely the result of restriction, but it must be borne in mind that the trees from which virtually all of this increased volume of rubber was obtained were planted from five to seven years before.lI3 As the Netherlands Indies were much less affected by the war than was British Malaya a great deal of planting occurred at that time which was just coming into bearing in

110 U.S. Consul, Penang, July 14. 1925. lIlIR&7'R, July 1927, p. 68. 112Report of the Secretary for Agriculture, 1928, p. I, FM8 GG 8upp., July 19, 1929. 118The decline in British production relative to total world production following the passage of restriction is apparent from Table XXI. Part of this decrease, it should be noted, would have occurred without restriction because of the increase of output in the Dutch East Indies. 102 GOVERNMENTAL CONTROL OF CRUDE RUBBER the years immediately following restriction.1l4· Much of the increased output would, therefore, have occurred without restriction, though it is likely that, in the absence of the restrictive legislation, abandonments and temporary cessation of tapping in consequence of lower prices would have prevented some of this rubber from coming on the market. On the other hand, this would have been partially offset by production from British and other planters in unrestricted areas who followed Malaya and Ceylon in restricting. The outstanding feature of the expansion of production in the Dutch East Indies was the very unexpected growth in the output of native rubber. The increase in the volume of rubber produced by natives was as follows :115 1919 1I,000 tons 1923 40,000 tons 1920 8,000 1924 56,000 1921 5,000 1925 85,000 1922 20,000 1926 88,000 In 1920 native rubber from the Netherlands Indies amounted to less than 3% of the total world production and in 1926 to 14% of the total, the total having increased in that time from 342,000 tons to 624,600 tons. Contrary to predictions, native rubber production seems to have assumed a considerable degree of permanence and to be subject to no very great changes with declines in price.n6 This fact indicates that the claim of the producers in unrestricted areas that the large output in the Netherlands Indies was obtained by overtapping the trees was un­ founded, a conclusion that is supported by official opinion in the islands.1I7 Native planters in different parts of the Dutch East Indies were re­ ported, as a result of the high prices Qf 1925-26, to be tapping their trees after three years instead of after a minimum of five years as had been the custom. This, however, was declared to be not so much a case of over­ tapping as a change in operating practice. It was stated that while the life of the tree was shortened and its maximum yield reduced these fac­ tors were offset by the shorter waiting period.ns The apparent production of rubber in the Netherlands Indies was also increased by rubber smuggled out of the restricted countries and un­ loaded in the unrestricted areas. The volume of such rubber was quite large at times. The fact that the export of rubber from Dutch ports in­ creased only slightly during 1926 was in part explained by the reduction lICRubber in the Netherlands East Indies, Bulletin of the Central Bureau of Statis- tics, No. 21, Weltevreden, Landsdrukkerij, 1925. p. 21. u6Internat. Assn. Reports, annually. lIAStr. Budg., March 24, 1927; and IRW, December 1927, p. 96. ur Report of American Trade Commissioner Renshaw, May 10, 1927, mu.S. Commercial AttachE, Batavia, September 1927, EFFECT ON PRODUCING COUNTRIES 103 in smuggling from Malaya following the raising of the exportable allow­ ance to 100%. One result of the expansion of native rubber production in the Dutch East Indies was the erection in 1925 and 1926 of several mills for refining native rubber.lIt Formerly remilIing operations had all been carried on in Singapore. The project of an American rubber mill operator of Singa­ pore to erect a plant in Java was abandoned only because of the uncer­ tainty of taxation. The volume of rubber produced in the other unrestricted countries in the middle east, French Indo-China and India and Burma, was rela­ tively slight but showed an increase much as did that of the Netherlands Indies. A part of this increase was due to the output of estates which had not been worth tapping while prices were low, but the majority of it came from estates which were just coming into bearing. The increase in the production of guayule rubber following the enact­ ment of restriction was very marked. In 1910 guayule represented 20% of our crude rubber consumption but by 1921 it had almost disappeared from the market. (Table XXI.) The increase in production after 1922 came partly from plants growing wild in Mexico and partly from plant­ ings which had been left unharvested because of the low prices prevailing during the slump years. The revival of interest in guayule appears to have been entirely the result of the situation prevailing under restriction. As is seen from Table XXI the production of wild rubber in Mrica and in Brazil and other parts of Central and South America was not greatly affected by the higher prices prevailing under restriction. The supply of wild rubber is not elastic and reacts slowly to changes in price. The eco­ nomic and political status of the natives in the regions producing wild rubber has changed considerably since the time when wild rubber domi­ nated the market, the days when every ton of rubber was said to repre­ sent a human life. The more accessible trees, also, have been destroyed, so increasing both the cost of securing rubber and the time required for harvesting it. In Brazil, which is still the most important source of wild rubber, it is customary for local traders to outfit natives for gathering rubber and supply them with provisions which they transport to the jungles, return­ ing months later with the rubber that has been obtained. In view of the risk involved and the time lapse necessary only the assurance of high prices for a considerable length of time will induce a material increase in the supply of wild rubber brought to the market. This assurance the high prices of 1925 did not give. Even so, the decline in price at the end of

IlIBluett, A. H. N., Report on Ihe Economic SilUa/ion of Ihe Nelher/ands Easl Indies, 19z5-z6, Department of Overseas Trade, London, H. M. Stationery Office, 1927, .104 GOVERNMENTAL CONTROL OF CRUDE RUBBER 1925 and the beginning of 1926 was more rapid than had been expected so that heavy losses were suffered by some of the traders in Brazil who had placed orders for supplies, expecting to expand their rubber gather­ ing operations.12o Rubber interests in the United States were approached during 1925 with regard to guaranteeing Brazilian rubber producers a price of 50C per pound for three years. The proposal was not acted upon, though it would probably have effected a material increase in the production of wild rubber. TABLE XXI WORLD RUBBER PRODUCTION (NET EXPORTS) BY AREAS, 1910-28111 (QUANTITIES IN LONG TONS) Middle East America Britisb Britisb Tear Otber Africa 'l'otal Posses- Otber Brazil Middle 'l'erritories Hevea Guayule East sions ------1910 8,006 2,910 37,938 15,411 9,542 20,143 93,950 8·52% 1911 14,979 2,.~22 35,970 15,129 7,172 18,283 94,055 15·93 1912 28,722 4,584 41,61 9 14,241 6,192 18,918 114,276 25. 13 1913 46,391 7,253 35,659 12,865 1,969 15,986 120,123 38•62 1914 64,259 10,328 33,001 7,601 265 7,719 123,173 52•17 1915 96,266 20,104 34,610 10,322 10386 8,138 170,826 56,35 1916 128,153 33,689 30,997 10,595 283 100372 214,089 59.86 1917 175,575 45,877 33,461 11,755 1,026 10,446 278,140 63. 12 1918 137,124 43,937 220303 70399 1,799 7,122 21 9,684 62.42 1919 257,761 91,229 32,726 9,911 1,083 7,021 399,731 64.48 1920 226,389 78,717 23,216 6,288 982 6,441 342,033 66.2 1921 201,228 76,288 17,164 30309 29 3,494 301 ,512 66.8 1922 271,686 10],834 19,542 4,116 275 2,941 4060394 66.8 1923 235,599 144>459 16,765 5,008 1,224 5,586 408,641 57.6 1924 233,809 160,228 23,165 2,017 1,356 5,416 425,991 54'9 1925 281,839 206,986 25,298 2,803 3,781 7.778 528 ,485 53-3 1926 268,268 213,895 24,298 2,998 40305 8,713 622,477 59.2 1927 324,627 243,506 28,782 2,454 5,01 9 8,160 612,548 53.0 1928 385>460 240,721 21,129 1,490 3,076 6,124 65 8,000 57.8

3. ~uality of the rubber produced During the slump period of 1920-22 buyers had taken advantage of the strength of their position to make very rigid requirements as to the quality of the rubber which they purchased, rejecting perfectly good rubber, often, merely because it was of a slightly different color or tint. One of the first effects of restriction was to make the buyers less particu- lJOU.S. Vice-Consul, Manaos, September 23, 1926. 1IlHolt, p. 3; Trade Information Bulletin No. 603, Department of Commerce, Gov­ ernment Printing Office, Washington, 1929, p. 34; and Special Circular 2559, January 3,1930. EFFECT ON PRODUCING COUNTRIES 105 lar as to the precise quality of the rubberpurchased.l22 With the high prices of 1925 a definite increase in the impurities contained in the rub­ ber imported into British Malaya for reconditioning was observed. The adulteration of rubber was particularly common among native producers in Dutch Borneo and other parts of the Dutch East Indies, in spite of laws forbidding the practice. Such impurities as clay, pieces of wood, tin, sand, and stones were found in the rubber to such an extent as to cause injury to the machinery used in remiIling and to endanger the safety of the workmen engaged in the process. In other cases the rubber was found to be entirely devoid of elasticity because of the large per­ centage of spoiled flour mixed with it.123 As a result of more careful in­ spection of rubber shipped out of the Netherlands East Indies and the sentencing of offenders to prison some improvement was brought about, but the quality of native rubber remains distinctly inferior to that of estate rubber.124 It is said that the Chinese middlemen who purchase most of the native rubber produced encourage the adulteration of the native product as it enables the buyer to make an extra profit by claiming that the adultera­ tion is greater than is actually the case, and paying accordingly. From the above it appears that in general the effects of restriction upon production are uncertain. Scarcity of trained labor when prices were at their highest made it impossible for estates to increase their output at the same rate that the exportable quota was increased. Smug­ gling from the restricted areas served to swell exports from the unre­ stricted countries. The high prices of 1925-26 led in some cases to a change in tapping practice, by shortening the waiting period. The effects of restriction upon the total quantity of rubber produced are, however, conjectural. In restricted areas standard production would, in all prob­ ability, not have been produced even if the Stevenson Act had not been passed. The great increase in production in the Netherlands Indies was based principally on large plantings of the war period and most of this increase would have occurred even without restriction. Finally, the quality of the rubber produced appears to have been lowered somewhat, partly because buyers became less strict as to qual­ ity, and partly because of the greater profitableness of adulteration.

F. PLANTING One of the most significant results of restriction from the standpoint of future conditions in the rubber industry has been the effect upon new plantings. The improvement in price served to stimulate new planting in I'JII.PAC Tear!Joolt, 1923, p. 152. I2ISpecial Circular 1371, January II, 1926. WLuytjes, p. 7. 106 GOVERNMENTAL CONTROL OF CRUDE RUBBIffi both restricted and unrestricted areas though the increase seems to have been somewhat greater and more immediate in the Netherlands East Indies than in the restricted countries, and among native planters than among estate planters.

I. Native versus estate rubber The possibility of native rubber replacing estate rubber has come to be regarded as distinctly probable, since even before the war it was increas­ ing more rapidly than European rubber. The capital invested in an acre of native rubber is estimated to be only a fourth that invested in an acre of estate rubber.l2O The native usually plants his rubber trees in with padi or some other crop which he continues to cultivate for two years or 80.126 In the Netherlands Iridies a great deal of state owned land is available to the native merely for settling on it and clearing away the jungle.127 The labor cost is thus greatly reduced by working in spare time and by utilizing the labor of members of the family. Similarly the labor costs are kept low when the holding is ready to be tapped. It is the practice of the native to plant often three or four times as many trees to the acre as the European estates do. This makes for a low yield per tree so that the actual cost of tapping, in cases where he hires this "done, is greater per pound of product than on the estates but since this is almost the only cost that the native has his all-in costs of production are far below those of his European competitor.l28 The native producer is, thus, free from vexing labor problems; he is not obliged to maintain a large and expensive organization with high overhead; his taxes are less; he has no sick benefits or bonuses to pay; and ordinarily his expenditures for "labor are very slight as his whole family works. A further advantage he possesses is the facility with

1_ Figart, p. IJ. I"Luytjes, pp. 5-6. 117 Commerc, Monthly, National Bank of Commerce, New York, February 1927, p. IJ. "The jungle land in Borneo and Sumatra which is suitable to rubber cultivation is aU government owned. Under existing laws a native resident of a community can acquire the right of occupancy to any piece of jungle land by the mere act of his cleaning and cultivating it. He has not, however, the right to seU this land later as title remains with the government. A prospective purchaser would, therefore, first have to buy from the cultivator the latter's right of possession, taking the chances oflater being able to secure from the government approval of the transfer. Should a cultivator clear a piece of land and later permit it to grow up in jungle he loses his right of occupancy. There is, there­ fore, little incentive for the native who has cleared a piece of land to dispossess himself of, or to neglect, it."-Report of American Trade Commissioner Renshaw, February 1 I, 1927. u8Dr. A. A. L. Rutgers, Director of Agriculture and Commerce for the Netherlands East Indies, quoted in Special Circular 1202, June JO, 1926. EFFECT ON PRODUCING COUNTRIES 107 which he can turn from rubber to rice or some other crop and so maintain himself when prices fall. It is natural, then, that planting by natives should have expanded more rapidly than has planting by 12 Europeans. ' The possibility of Europeans maintaining their lead in the industry through improvements in methods of cultivation has been suggested. It is claimed that through the proper selection of seed and by budgrafting the yield of plantations can be raised to 1000 pounds per acre}30 Experi­ ence indicates, however, that .if such improvements were realized it would not be long before they would be adopted by native growers and the temporary advantage overcome. It was in view of these considerations that Mr. Paerels, head of the Agricultural Division of the Netherlands Indies Government, declared his conviction that "before the end of the next ten years the European owned and managed rubber estate in these parts [Netherlands East Indies] will be distinctly a curiosity."131

2. Planting in rnlr;cled areas While the information regarding area planted in the restricted coun­ tries since 1920 is incomplete and contradictory it seems that less plant­ ing was done between 1921 and 1924 than before and after that period. It is denied that restriction directly checked plantingl32-that had already been done by conditions prevailing during the slump-but the position of restriction was so uncertain and the future of the industry so dubious that there was little incentive for new planting. By 1925, however, the rubber growers were in greatly stren!JI:hened financial condition and the prices of that year and the next served to increase their prosperity and to stimulate their confidence in the future of the industry. As a consequence there was a renewed interest in plant­ ing as is indicated by company reports as well as by local advices.l33 The increase in planting from 1925 on was very marked in both Malaya and Ceylon as well as in the areas not subject to restriction.134 The following figures based on the report of the Ceylon Rubber Con-

IlII Vid, Table XXII. The !1ative planter here referred to is the holder of a few acres of rubber only, the larger plantations being grouped with the European estates even where owned by Chinese or natives. 110 Stalist, November 20, 1926, p. 960. 1I1American Trade Commissioner Renshaw, May 10, 1927. 18S1r. Budg., April 10, 1925. _ 111 Vid, Sir. Budg., January 2, 1926, and passim; and Financial

Number of A~.S Number of A Estates .a.,. Estates .acres Estates under 10 acres in area 20,354 38,814 13,001 20,976 Estates over 10 acres in area 3,944 404,297 592 4,356 Average per estate 103 37 Most of the increased planting was done during the years of the rubber boom, 1925-26. It is apparent from these figures-that the native and the small holder increased in importance relative to the larger plantations. Unofficial opinion in the restricted countries was strongly in favor of further planting in anticipation of an increased demand by 1930.136 Government officials, on the other hand, did not look with favor upon extending the acreage under rubber generally but tried to encourage the planting of other products. In order to force the planting of other crops in the face of the danger of overproduction of rubber the Governor of the Federated Malay States was quoted as favoring the extension of restric­ tion to planting as well as to export, by limiting the alienation of land for rubber planting.137 In view of the planting that occurred after the passage of the Steven­ son Act, with a consequent situation of potential overproduction, it would seem that restriction could only have been made effective over an extended period of time by controlling planting as well as the actual output of rubber. That is to say, the tendency of high prices is to stimu­ late planting and eventually to increase the volume of rubber offered for sale, but restriction can only operate to bring about high prices by hold­ ipg down the amount of rubber supplied to the market. Therefore, in order to have made restriction more than a temporary expedient it would seem to have been necessary to interfere in the industry still fur­ ther and limit the extension of planting. 3. Planting in unrestricted areas If the rubber growers in the restricted countries were discouraged from undertaking new planting by the very fact that restriction was a constant reminder that there was already too much rubber planted, the rubber growers in the Netherlands Indies were subject to no such influ­ ence. Furthermore, since they were on full production their financial

IIIISpecial Circular 1592, August 12, 1927. 18II"The 'Don't Plant' policy is sheer folly in view of the development of the motor industry all over the world. Its only effect would be to deprive Britain of the predomi­ nant rubber position she at present enjoys, and that would make her powerless to con­ trol prices in periods of stagnation."-A. W. Still in Sir. Budg., May 5, 1926. 117 Sir. and November I, 1926, p. 312. u'Commn-ce Reporls, June 140 1926, p. 647. EFFECT ON PRODUCING COUNTRIES III three: adequacy of labor supply, suitability of soil and climate with relation both to the cultivation of rubber and to the health of the work­ ing force, and, finally, stability and sympathy of the government. The cheapness, efficiency, and abundance of the labor supply in the middle east give it a great initial advantage over other parts of the world which may be physically as well suited to the production of rubber. Of the countries adapted to rubber production, the Philippines approach it the most nearly, perhaps, in this respect but even there wages are about twice as high.l4li Mr. Firestone has claimed much for the labor in Liberia but his confidence is not generally shared. Labor supply and costs con~ stitute the chief problem in Central and South America. Considerable planting would undoubtedly have been undertaken in those parts of the Philippines which lie outside the typhoon belt, except for the legal and governmental situation. The attitude of the govern­ ment has been distinctly unfriendly toward the alienation of large hold­ ings of land either to foreign or native interests.l46 A law prohibits any individual or corporation from owning more than 2,500 acres of land in the Philippines. Leaders of the movement for independence offered in 1926 to exchange rubber growing privileges on the islands for their return to independence,t47 but it is doubtful whether rubber planting would be encouraged by the installation of a native administration. A certain amount of planting has been undertaken on the islands in the last few years, chiefly by natives, but the total amount is small. The most widely heralded plan to grow rubber outside the middle east has been Harvey S. Firestone's project to plant one million acres in Liberia. After making investigations in different parts of the world Firestone finally entered into negotiations with the Liberian govern­ ment. These proved stormy. It appeared that difficulties with regard to a proposed loan to the Republic of Liberia, to be made first by the United States government and later by New York bankers, would prevent agreement. Firestone threatened to withdraw the offer he had made, and actually sent his agents to confer with representatives of other African states. In haste the President of the republic addressed the Legislature declaring that the fate of the administration depended upon the ratifi­ cation of the agreement. "And the agreement was signed. One contract related to the lease of the 1,500-acre Mount Barclay Rubber Plantation which had been abandoned by the British company responsible for it. Another. contract related to improvement of the harbor by Mr. Fire­ stone's engineers. And the last provided for the lease for ninety-nine

145 Foreign Affairs, June 1924, p. 620. u·Quezon in the New York Evening Post, June 2.2.,192.3. But see Rubber Agt, Sep­ tember 10, 1928, p. 60S, which indicates a more liberal policy. 167IR&'l'R, December 1926, p. 30. 112 GOVERNMENTAL CONTROL OF CRUDE RUBBER years of up to one million acres of land for a rubber estate. The annual rent was fixed at 6c per acre with the arrangement that this rental might be revised subsequently. A tax on rubber and other exports 'amounting to 1% of their selling price in New York was stipulated. The Liberian government agreed to permit the free importation of machinery. By 1930 difficulties had developed so serious as to render the future of the venture exceedingly uncertain, and this despite glowing reports as to the resul ts of the first few years. During 1927, 15,000 acres were planted to rubber trees and approximately the same in 1928. This is said to be the largest area ever planted to rubber by a single company within the same length of time. In addition, the Mount Barclay plantation has been pro­ ducing rubber in considerable,volume since 1926. The yield on this holding was reported to be approximately 500 pounds per acre at costs compar­ ing favorably with the most efficient estates in the middleeast.l48 In October 1927, Henry Ford announced the completion of an agree­ ment with the Brazilian government for a mammoth concession in the basin of the Amazon whereby between three and four million acres of land were made available for rubber planting.149 Whether the labor sup­ ply will be adequate for any such undertaking as this is extremely doubt­ ful, but the work is going forward. Plan ting in other parts of the world, as Indo-China, Burma, and India, was stimulated but the total was small relative to the developments already mentioned. Even Russia was reported to be planning to grow her own rubber in the Caucasus, an expedition having been sent to South America to study the problem and obtain trees.150 In this country considerable attention was attracted to the cultivation of the guayule shrub which has proved well adapted to conditions in the southwestern part of the United States. It was claimed that by the use of proper machinery guayule rubber could be produced as economically as hevea in the middle east, and several companies were organized and considerable capital invested with this aim in view.l5l The land available for the production of the shrub would readily produce our entire con­ sumption of crude rubber. Despite the tests made by the United States Bureau of Standards showing that the commercial utility of guayule rubber is almost equal to that of hevea rubber,152 manufacturers proved very loth to make use of it and its price was hardly more than two-thirds that of plantation grades. Only a period of high prices could have en­ abled the industry to become firmly established. The fall in the price of

148Correspondence with Mr. Harvey S. Firestone, Jr. If" Rubber Age, October 25, 1927, pp. 65~. 16OStr. Budg., May 5, 1927. 161Yid, Dun's International Reoiew, New York. R. G. Dun & Co., May 1927. pp. 40-2. UlI IR&<.rR, August 1926, p. 22. EFFECT ON PRODUCING COUNTRIES 113 crude rubber, accordingly led, in April and May 1928, to the suspension of operations by the leading producers of guayule. The question that must be faced in connection with the establishment of new plantations is the ability of these estates to weather a period of cutthroat competition with price unsupported by any scheme of restric­ tion. While the extension of these new plantings would necessarily have weakened any plan for restriction, the announcement of the repeal of the Stevenson Act in November I, 1928, entirely altered the situation. It is to be expected, therefore, that these various projects will be seri­ ously curtailed, as has already happened in the case of guayule. CHAPTER VI EFFECT ON PRODUCING COUNTRIES (CONTINUED)

A. OTHER INDUSTRIES I. Restricted countries N view of the greatly increased returns accruing to the rubber growers and the stimulus given to the production of rubber we should expect to discern certain effects of the improvement in prices upon other. industries in the producing coun tries. Such is indeedI the case. Since the restricted countries, British Malaya and Cey­ lon, are much more specialized and hence more dependent upon rubber than are the ~nrestricted countries they showed the effects more clearly.1 The prosperity of British Malaya depends almost entirely on the price of rubber and tin. Inasmuch as the price of tin improved greatly follow­ ing the period of general depression in 1920-22, the increased prosperity in Malaya must be ascribed only in part to the improved condition in the rubber industry after the passage of the Stevenson Act. In agriculture the year 1926 was marked by an increasing tendency, which has been more or less apparent ever since the rubber industry assumed importance in the middle east, to concentrate on the produc­ tion of rubber and to import foodstuffs and various other articles which might be produced locally.! In Ceylon the attraction of easier work on the tea and rubber estates subjected the sugar plantations to a shortage of laborers which seriously inconvenienced the industry.3 The produc­ tion of sugar and spice in British Malaya likewise has been virtually crowded out by. the development of rubber production,' although this change does not fall within the period of rubber restriction. It may be suggested, however, that insofar as the Stevenson Plan aided in restor­ ing prosperity to the rubber industry it operated to check the movement of economic activity back into those lines whither it might have gone in the absence of governmental regulation. Net imports of rice into British Malaya showed a steady increase lIn August 1927 rubber represented approximately 44% of the total value of the exports from British Malaya and tin and rubber together nearly 65%. IU.S. Consul, Singapore, March 23, 1927, and October 24, 1927; and Commme Te4r­ joo/r, 1926, Vol. II, p. 365. • Ceylon Administrative Reports, 1925, p. C2 • • Coote, Philip C., Mal4yan 359 1922 4,823,525 19>403 1923 5,028,925 18,233 1924 5,480,408 20,664 1925 5,792,232 22>367 1926 6>367,870 24,885 1927 6,873,738 28,209 1928 7,158,099 24,193 -Report of the Federated !\falay States Railways, FMS GG Supps., annually. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 117 of 1926 were to some extent due to the fact that $1,000,000 worth of supplies which would normally have been paid out of the profits for the year were postponed to the following year's statement because delivery was delayed by the coal strike in England. But for this the profit for the year would have been about 2.6%. While the prosperity of the country led to increased revenues, the railways were unfavorably affected by the labor situation. Wage in­ creases were made necessary in 1925 and 1926, but in spite of this the labor turnover for both years was exceptionally high and difficulty was experienced in obtaining and retaining apprentices,l1 Revenues from freight and passengers declined during 1927-28 partly because of the reduction in rubber shipments as a result of the lowering of the export quota but principally because of the general depression of business that accompanied the decline in rubber prices. To a certain extent this was offset by the heavy shipments of accumulated stocks of rubber upon the removal of restriction.1s General business conditions appear to have been favorably affected by developments during the first years of the Stevenson Act. Figures of bank­ ruptcies in British Malaya show a marked decline from 1922 to 1925 :19 1922 1923 192 1 1925 Number of bankruptcies 195 132 139 113 Liabilities '7,:J14,486(Str.) '5,262,121(Str.) '2,175,977(Str.>- '3,081,649(Str.) Assets 1>465,129 971,640 341,048 213,048 Net loss to creditors 5,849,357 4,29°>481 1,834,893 2,868,601 Percentage of loss 80% 81% 84% 92% The fact that the percentage ofloss increased steadily from 1922 to 1925 may indicate that during the years of greater prosperity bankruptcy proceedings were resorted to only when the condition of the companies had become hopelessly bad. The large profits made, principally in the rubber ihdustry, seem to have led to large capital accumulations by 1926. Estimates of idle money at the end of 1926 varied from $lo,ooo,ooo(S~r.) to $5o,000,000(Str.), most of which was held by Chinese.2o During 1926 the bank loan rate was low, ranging from 4% to 6U%. 17Report of the Federated Malay States Railways, 1926, p. 17, FMS GG Supp., November 10, 1927. !Jibid., 1928, pp. I~, FMS GG Supp., August 2, 1929. In order to accommodate the heavy shipments of rubber released at this time special facilities were provided at all ports, such as lighterage, sidings, labor, and European officers to supervise. Nineteen special trains for rubber were run in November and December 1928, but most of the rubber was shipped by regular trains. . lOU.S. Consul, Singapore, March 23, 1927, 10 idem. It is assumed that these figures refer to accumulations of funds awaiting m,ore or less permanent investment. 118 GOVERNMENTAL CONTROL OF CRUDE RUBBER Records' of the incorporation of local companies in the Federated Malay States show an increase through 1926 both in number of com­ panies incorporated each year and in their nominal capital:21 NumlJer oj Nominal CQpi/td CompQnies 19'10 54 '38,934,9'18(Str.) 19'11 30 4,988,000 19'1'1 '10 3,708,700 19'13 '1'1 J'l,J67,784 19'14 '15 1'1,J'14,763 19'15 38 19,'185,166 19'16 56 35,764,500 19'17 48 '15,008,570 19'18 45 37,665,613 The increase is particularly marked during the years of greatest pros­ perity in the rubber industry, 1925-26. Furthermore, the effect of large returns to rubber companies is apparent from the fact that of the thirty­ eight companies organized in 1925 nineteen were for mining, six for rubber, and seven for general trading, while of the fifty-six companies organized in 1926 twenty were for rubber planting, eighteen for mining, six for general trading, and one for mining and rubber. In 1928, on the other hand, out of forty-five companies incorporated fifteen were for mining, six for rubber planting, and three for mining and rubber plant­ ing. A similar tendency appeared with respect to foreign companies filing particulars in the Federated Malay States. The increased volume of business transacted as a result of the pros­ perity in both tin mining and rubber production was reflected in the increased currency in circulation in the Straits Settlements with its important commercial cities of Singapore and Penang. It will be noted that the volume of currency in circulation nearly doubled in the year and a quarter ending December 31,1925, the period which includes the great rise in the price of rubber:22 Cu~nty Currenty in Cirtu!QJion in Circu/QJ;on January 10, 1901 , 6,'1°5,ooo(Str.) September 30, 19'14 , 83,780,6'19 December 31, 1908 '15,67°,50 5 September 30, 19'15 119,1'1'1,734 December 31, 1911 36,859,JIO December 31, 19'15 161,43'1,J14 July 31,1914 43,834,548 September 30,19'16 163,J61,414 December 31,1918 86,408,740 December 31,1926 163,'179,714 March 14, 19'10 183,'11'1,'1'1'1 September 30, 19'17 117,395,955 December 31, 19'1O 101,587,187 September 30, 19'18 115,563,158 December 31, 19'11 84,596,807 January 31, 19'19 113,001,7'14 September 30, 19'13 80,'1'13,115

11 Report of the Registrar of Companies, FMS GG Supps., annually. -Report of the Currency Dept., SS GG Supps., annually. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 119 2. Unrestricted countries As mentioned previously the Netherlands East Indies, by reason of their greater extent, population, and diversification showed in general the effect of the rubber boom on other industries less than did Malaya and Ceylon. This was particularly true with respect to agriculture, wherein the country ~ad already reached a relatively high development. The most important agricultural product, as well as the leading export, is sugar. Due to the high prices for rubber prevailing during 1925 sugar yielded first place in export value to rubber, but this change was not permanent. The supremacy of sugar would seem to be threatened, however, since the cultivation of sugar requires knowledge and capital beyond the reach of the natives. This is an important reason why rubber has been planted much more extensively in recent years than sugar has.23 The reduced output of certain agricultural products during 1925-26, notably rice, tobacco, and coffee, was due not to activity in the rubber industry but to a drought at the end of 1925.24 A few products such as soya beans, cassava, and sweet potatoes show a slight falling off in 1926 but not enough to appear significant. Turning to mining, the reduction in the output of the government coal mine atOmbilan from 514,000 long tons in 1925 to 488,505 tons in 1926 was declared to have been due to the difficulty of obtaining a sufficient number of contract laborers. The hope was expressed that owing to the lower prices of rubber and coffee the output of the mine might be in­ creased in 1927.26 A decrease of 10% in the output of the Billiton tin mines during 1926 was explained by the gradual decline in the richness of the ore, though the shortage of labor may have been a contributing factor. The improvement in trade during 1925-26, the outstanding feature of which was the expansion of rubber production, was reflected in the earn­ ings of rail and tramway companies.26 Returns obtained from passenger traffic showed an upward tendency in spite of increasing competition from taxis and motor buses. Freight traffic also increased and inter­ insular steamship traffic benefited from the growing trade with the outer islands. Likewise Dutch and foreign steamship services between local and foreign ports found that freight in both directions was more plen­ tiful.27 ·u.s. Consul, Batavia, June 30, 1926. IMidem., July 12, 1927. "idem. -Bluett, p. II. 17idem. 120 GOVERNMENTAL CONTROL OF CRUDE RUBBER An improvement in business conditions in the Dutch East Indies is evidenced by the following figures on business failures in the SurabaY47 1,000 1923 269,410,000 1924 263,936,000 1925 279,524,000 1926 335,799,000 1927 316,014,000 1928 316,282,000 The large volume of currency shown for 1921 was partly due to depre­ ciation, but by 1925 par had been reached and the increased quantity in circulation during the latter part of 1925 and 1926 was the result of the stimulated business activity under boom conditions. The absence of restriction in the Netherlands Indies served to make them relatively more attractive for foreign investment and a consider­ able influx of capital occurred, Dutch investments being made in rubber companies taking up virgin lands while British and other foreign in­ vestors generally bought into companies already in existence.s1 By some "U.S. Consul, Surabaya, July 6, 1927. ·"U.S. Consul, Batavia, June 12, 1927. IOStatistical Abstract for the Netherlands East Indies, 1927, p. 299. 11 Bluett, p. 13. A single purchase of 9086 acres of rubber plantation was announced in 1926.-]ournaloj Commerce, New Tork, November 5, 1926. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 1~1 this was regarded as evidence that the British were determined to retain their control of the rubber industry by increasing their influence in the Netherlands East Indies, the ultimate aim being monopolistic.32 Rather, as pointed out by Sir Eric Geddes, president of the Dunlop Rubber Company, freedom from restriction made the Netherlands Indies clearly a more favorable place for investment than British Malaya.33 The desire of the Dunlop company to be free from restriction was said to be due to the fact that it is a consumer as well as a producer of crude rubber. B. FOREIGN TRADE The foreign trade of the important rubber producing countries was noticeably affected by the price changes which accompanied restriction. While rubber growers in the Netherlands East Indies benefited more by the improvement in prices than British Malaya in that they were able to produce at capacity, the foreign trade in the Netherlands Indies showed relatively less change. The reason for this lies in the dependence of Malaya upon two commodities, tin and rubber, particularly the latter, while in the Netherlands Indies rubber is much less important both relatively and absolutely.

T. Restricted countries The situation of British Malaya naturally inclines it toward foreign trade. An extensive reexport trade is carried on with Singapore as the principal center. Exports are distributed among the various surrounding countries and imports in return are carried back to Singapore or Penang to be reshipped to more distant parts of the world. Entirely aside, how­ ever, from the reexports British Malaya still has a very large foreign trade.84 The per capita imports and exports of Malaya in 1926 were the largest of any country in the world.3D Rubber represented so large a share of the exports (56% in 1926) that the per capita exports of rubber alone were greater in 1926 than the total per capita exports of any other coun­ try. Principally as a result of the great increase in the price of rubber and tin we find the total exports increasing in the three years, 1922-25, by .y. 0/ C., November 5, 1926. uSIr. Budg., April 10, 1925. . "The predominance in the economy of the country of the production of tin and rubber which are not consumed to any extent at home tends to make the ratio of foreign to total trade very high. liThe per capita expo~ts in 1926 amounted to '213(U.5.) and the per capita imports to ,178. As a result of the decline in tin and rubber prices and despite a marked increase in quantity exported these figures fell to '123 and '126 respectively in 1928. III GOVERNMENTAL CONTROL OF CRUDE RUBBER 160%, from $497t474,585(Str.) to $1,286,354,293, and total imports by 115%, from $467,167,629(Str.) to $1,005,798,954.36 During the first two years of restriction a general but moderate im­ provement in tin and rubber prices and in general business conditions resulted in a gradual increase in the value of both exports and imports, including specie. With the high prices prevailing for tin and rubber dur­ ing 1925 exports showed a very great increase, imports also increasing sharply though less than the exports. The extent to which the increase was due to the increased value of rubber alone is indicated bv the fol- lowing figures:37: • Exports oj RulJIJer 43o(Str.) $ 497>474,585(Str.) 1923 252,016 282,619,55° 672,606,158 1924 259,760 264.939,733 721,699,101 1925 316,826 746,228,235 1,286,354,293 1926 391.337 7II,205,915 1.269.389.163 1927 37103°7 519>465.187 1.064.833,641 1928 408,693 329.789,67° 848,531,155 While the value of rubber exports was increasing so rapidly most of the other exports show only slight increases and many actually de­ creased. Although this may mean merely that a larger share of the coun­ try's products were being consumed at home it may also indicate that the profitableness of rubber production caused various other commodi­ ties to be neglected, in other words the margin of export was shifted. On the other hand, practically all imports were stimulated at the same time. This phenomenon is in accord with the decline in various exports since it may be supposed that those articles in whole or in part produced do­ mestically could not be increased rapidly enough to supply the demand, so that the increased consumption necessarily resulted in a stimulation of imports. While the major part of the increased imports were outright additions to national consumption brought about by increases in the liThe total tonnage of merchant vessels arriving and departing, British Malaya, 191!j-28, was as follows: 1919 18,885,183 tons 1920 24,027.912 1921 25,055.798 1922 26.913.256 1923 29,936.949 1924 32.617.101 1925 35.°32•127 1926 38.028.630 1927 39.693.766 1928 42.987,154 -Report on the Straits Settlements, SS GG Supps., annually. 17 British Malaya: Return of Foreign Imports and Exports, monthly. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 123 population and by the greater purchasing power of consumers already in the country, a certain share may have been occasioned by the neglect of other products in favor of rubber. The quantity of rice imported showed a steady increase and remained high during 1926 and 1927, indicating that this increase had been made necessary to provide for a large population which did not decline ma­ terially following the decline in rubber prices in 1926. The import of cotton piece goods likewise showed a considerable increase but here the increase appeared earlier and there was a noticeable decline beginning in the spring of 1926 when rubber prices were returning to more mod­ erate levels. We may, perhaps, assume from this that the increasec;l pur­ chasing power of the native led to an expansion of his wardrobe, and this agrees with the reports made of the improved standard of living of the natives. The decline in sales of piece goods in 1926 was made possible to a certain extent by using up the garments purchased in the first blush of prosperity. A partial recovery in the import of piece goods during the summer of 1926 would be explained by the ordinary requirements of the larger population, the reduced imports previously having drawn down the stocks on hand. Turning now to imports which indicate even more clearly an increase in the standard of living of the natives, we find a particularly sharp in­ crease in the importation of swine while the import of fresh fruit is also relatively high, as is the import of wheat flour. All of this corroborates the reports of observers to the effect that the greater prosperity of the native led to a greater variety in his diet. Of the definitely luxury items the most pronounced increase in net import occurred in the case of silk piece goods, imports of which rose moderately during 1923 and 1924 and very rapidly during 1925 and 1926. The increase in consumption of opium has elsewhere been referred to and ~his increase was reflected in the imports of the article. A considerable, though less pronounced, in­ crease occurred in the importation of joss sticks and joss paper. Imports of passenger automobiles rose from 2,361 in 1924 to a maxi­ mum of 9,138 in 1926, declining in 1928 to 4,291 or less than half the 1926 figure. Imports of automobile parts and of trucks failed to rise with such sharpness, but in 1928 were higher than in the preceding years. The import of coin and bullion, which had been small and sporadic before 1925, was stimulated by the rising prices of rubber and the in­ creased excess of exports consequent thereon. This import reached its peak at the end of 1925 and the beginning of 1926. The volume declined steadily after April 1926, and in 1928 was less than two-fifths the total for 1926. The demand for gold and silver arose partly out of the desire of the natives to hoard their earnings and partly out of the need for in­ creased reserves to support the expansion in currency occasioned by the 114 GOVERNMENTAL CONTROL OF CRUDE RUBBER improvement in business conditions. The mere increase in rubber prices and in wages clearly made an additional quantity of currency necessary and increased reserves were presumably required to support this. Finally, the importation of cement showed a moderate increase in 1923, a slight recession in 1924, and a considerable increase during the next two years. These changes corresponded closely with conditions in the rubber producing industry. The increased import in 1925-26 was due to the housing shortage resulting from the great increase in immigration at that time. This shortage was accompanied by a sharp rise in rents which served to stimulate building.38 In addition to the rubber exported within the authorized quota, high prices made profitable the export of rubber above the minimum allow­ ance as shown by Table XXIII. (And see pp. -51-3, above.) Similarly TABLE XXIII EXPORTS OF RUBBER FROM BRITISH MALAYA, 1925-2&1 (QUANTITIES IN LONG TONS) At Minimum On Payment of Excess <["otal Rate of Dttty By Dealers By Growers Exports 1925 January 8,68 5 8,685 February 16,555 16,555 March 15,744 15,744 April 9,689 9,689 May 190396 19,396 June 16,063 16,063 July 13,315 498 57 13,870 August 18,985 1,830 9 20,824 September 18,219 488 42 18,749 October 17,601 53~ 438 18,575 November 24,994 :226 152 250322 December 19,989 1>404 296 21,689 1926 January 15,777 1,275 67 17,117 February 22,136 63 33 22,232 March 24,585 15 10 24,610 April 17>499 7 8 17,514 May 25,092 3 25,095 June 21,970 2 21,972 July 23,361 230361 August 26,938 26,938 September 28,543 6 28,549 October 270394 27,394 November 22,996 22,996 December I 25,829 25,829 18 Building material imported for the Singapore naval base does not appear in the customs figures. "M

2. Unrestricted countries For reasons previously mentioned the foreign trade of the Nether­ lands East Indies was much less affected by the change in rubber prices following the passage of the Stevenson Act than was Malaya. Exports changed relatively less in the three years, 1922-25, than they changed in a single year, 1924-25, in Malaya. The very marked increase in the volume of exports from the Dutch East Indies following restriction cannot be attrihuted entirely, or even mainly, to restriction since this increase was made possible by the maturing of trees that had been planted during the war. To a certain extent, however, higher prices en­ couraged heavier tapping and so increased exports above what they would otherwise have been. This increase was greatest both in volume and in value during 1925 and caused rubber to replace sugar for that year as the leading export from the islands. As has been shown, restriction definitely served to in­ crease rubber exports from the Netherlands Indies by leading to the smuggling of rubber into the Dutch possessions from Malaya, the smug­ gled rubber later appearing as an export. The effect of the stimulus given to the export of rubber upon other exports was less marked than was the case in British Malaya, largely because other industries were better established. I t is to be noted, how­ ever, that in the province of Sumatra East Coast where the production of rubber is of particular importance the growth in the export of rubber during 1923-25 checked the export of certain forest products such as rattan, wood and woodwork, and some gums. The export of these arti­ cles decreased primarily because of the ease of turning to more profitable work in the rubber industry. The export of more firmly established products was, on the other hand, not noticeably affected but continued to increase despite the greater output of rubber. While coffee and tobacco-the latter having been a more important export than rubber prior to 1925-declined during 1925 this decline was caused principally by drought. It may be mentioned that although rubber requires a heavy "Sir. Budg., January 6, 1927, EFFECT ON PRODUCING COUNTRIES (CONTINUED) 127 rainfall it is not particularly affected by a period of drought long enough virtually to ruin an annual crop. Imports into the Dutch East Indies were also stimulated but the in­ crease was less than the expansion in exports with the result that to 1925 a steady increase occurred in the large "favorable" balance of trade. The growth of imports was spread over the earlier years of restriction instead of being so largely concentrated in the period of high prices as was the case in the restricted countries. Despite the decline in rubber prices after 1925 and the resulting relative or absolute decline in value of exports, imports continued to increase through 1928, although the rate of in­ crease was less rapid than earlier. A large excess of commodity exports over commodity imports was, however, maintained. Considering again Sumatra East Coast, it is to be observed that a steady increase occurred in the import of automobiles and this increase was particularly great in 1925. On account of the decline in rubber prices in 1926 the importation of passenger automobiles during 1926 did not increase as rapidly in the outer islands, including Sumatra, as in Java and Madura where the variety of crops is greater." The import of trucks, on the other hand, showed almost as high a relative increase in the outer islands as in Java and Madura. The decline in rubber prices was given as the explanation of a certain dullness in the import trade in West Java as well as in other parts of the islands.45 Since a large part of the import trade involves reexport from Java to Sumatra-and other rubber producing regions a decline in the price of rubber leads to a decline in reexports to the outer islands and thus imports into Java are reduced by more than the amount of the decrease in consumption within the island itself. As in Malaya the total value of exports from the Netherlands East Indies showed a falling off in 1926 and 1928 due to the fall in the price of rubber and despite the fact that the volume showed an increase for these years. C. EFFECT ON GOVERNMENT FINANCES I. Unrestricted countries In a direct way the treasury of the Netherlands East Indies benefited relatively little from the higher prices obtained for rubber followi1'lg the passage of the Stevenson Act. Export taxes playa less important rBle in the Netherlands Indies than in Malaya. An export duty on rubber was, however, put into effect August I, 1921, but as the price of rubber remained below the minimum allowed free no revenue ever accrued to the government under the statute. Strong protests against the act were

"u.s. Consul, Batavia, July IZ, 19'27. "idem. 1:z8 GOVERNMENTAL CONTROL OF CRUDE RUBBER filed with the ,government by the planters and the law was formally repealed as from August 16, 1924.46 So great was the prosperity of the rubber industry in the unrestricted areas, however, that another export duty was soon passed which came into operation June I, 1925. This law is interesting in that it was so framed as to discourage the irregular operation of holdings. The duty varied from 5% to 10% of the value of all rubber exported with the ex­ ception of that which was obtained from trees cultivated by a cultivation estate. A cultivation estate was an estate working regularly and with regu­ larly recurring expenses no matter whether it was under European or native management.47 The purpose of this provision was clearly to establish the plantation on a permanent basis and to check the practice, which existed among the natives in certain districts, of operating only when prices were high. The yield from this duty was satisfactory, amount­ ing to nearly five million guilders for seven months of 1925 and approxi­ mately seven million guilders for 1926.48 For 1926 all export duties for the entire Netherlands Indies yielded only 14,792,631.51 guilders49 which is considerably less than the Feder­ ated Malay States realized from the export duty on rubber alone and only about three-fourths the amount realized by the Federated Malay States from the export duty on tin for the same year.50 The prosperous conditions for which rubber was to quite a degree responsible were reflected in the strong position of the government finances both in 1925 and 1926.51 In the former year a considerable reduc­ tion in the public debt was brought about; and a continuance of pros­ perity made possible, during 1926, the extinguishing of the public debt and the accumulation of a credit balance of 32,771,965 guilders by the end of the year.52 Revenues were considerably in excess of estimates for the years 1924-26, the improved price of tin and the general prosperity of the country to which rubber prices contributed being largely respon­ sible.53 As a result it was possible for the state to undertake various in­ ternal improvements, specifically, irrigation, roads, and the electrifica­ tion of some of the railroads. The improved condition of the rubber industry was held to be one of

II Internat. Assn. Report, annually. 47illid., 1925, p. 25. 48ibid., annually. 41Economic Intelligence, The Ministry of Foreign Affairs, The Hague, June 1927, P·47· iOReport of the Trade and Customs Dept., 1927, p. 33, FMS GG Supp .• June 24. 1927. I. Economic Intelligence, October 1926, p. 70. MU.S. Consul, Batavia, July 12,1927' i3 Bluett, p. 14. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 119 the various factors which made it possible for the Dutch East Indies to return to the gold standard at the end of April 1925.54 2. Restricted countries The relation of restriction to government finances in Malaya was similar to that in the Netherlands Indies but the improvement was perhaps more directly attributable to rubber, although the improve­ ment in the tin industry was also of major significance. Because of the greater value of the product it seems reasonable to attribute a larger share of the credit for the improvement in government finances to rub­ ber despite the fact that tin has provided more actual revenue. That is to say, government finances improved chiefly because of the greater pros­ perity of the country. Since it appears that this was principally due to the rise in the price of rubber the latter may be regarded as having con­ tributed largely to the strengthening of the financial position of the gov­ ernment. The finances of the Federated Malay States were in very bad condi­ tion prior to the passing of restriction as the following figures for 1921 showf'i Expenditure '114,J86,546(Str.) Revenue 54>449,568 Deficit Estimated Expenditure 101,426,220 Estimated Revenue 73,45°,779 Estimated Deficit 27,975>441 Deficits in the customs returns were responsible for $11 ,CXJO,CXJO of this deficit, and deficits in licenses for $4,5°O,CXJO, while the railways fell $4,CXJO,CXJO short of estimates. The fact that 'the finances of the Straits Settlements balanced this year (1921) may be explained by the fact that the Straits Settlements are less dependent upon tin and rubber and have a greater commercial life than the Federated Malay States. One of the minor arguments advanced in support of the Stevenson Act in 1922 was the fact that it provided for the taxation of rubber ex­ ports regardless of price.56 The export duty on rubber existing at the time allowed the free export of rubber so long as the average price was below 35c (Str.) per pound and this provision had been responsible for considerable loss in revenue during the years of depression. In the Straits Settlements there had been no export duty on rubber but the weakness of revenues made them willing to impose such a tax. Table XXIV indicates the improvement in returns from the rubber export

It Economic Intelligence, June 1926, p. 47. IiFinancial Report, 1921, p. I, FMS GG Supp., June 30,1922. IOMeyjes, p. 25; and U.S. Consul, Penang, November 30,1922. 130 GOVERNMENTAL CONTROL OF CRUDE RUBBER duty in the Federated Malay States following restriction, as well as the falling off of these returns with the subsequent decline in prices. While the prosperity of the country and higher prices for tin and rubber brought strength to the government finances, fluctuations in the price of rubber made the preparation of estimates difficult. Thus, in 1924 receipts from the rubber duty fell short of estimates by $67I,322(Str.) while in 1925 they exceeded estimates by $4,157,7°1.57 As in the case of the Dutch East Indies, considerable sums were ex­ pended by the government on internal improvements. Some of these, such as water, lighting, and harbor and street improvements, were ren- TABLE XXIV CUSTOMS REVENUE, FEDERATED MALAY STATES, 1920-2868 $1.oo(Str.) =$0'57(U.S.) Export Dulies 439,574 1924 12,543,624 4,228,678 22,692,509 1925 14,000,633 8,667,274 29,989,089 1926 15,583,799 II,192,7 15 35,626,222 1927 17,704,01 4 8,575,863 35,454,251 1928 16,037,720 3,712,75 2 28,831,583 dered necessary by the increased population and business activity of the boom period.59 The importance of rubber in British exchange has been emphasized frequenriy and was a consideration advanced in oppo­ sition to any relaxation of restriction in 1925.

D. ATTITUDE OF PRODUCING COUNTRIES TOWARD RESTRICTION The attitude of planters in countries under restriction was generally, though by no means unanimously, in favor of restriction. To a consider­ able extent, as was to be expected, the mood of different elements in producing countries followed the course of crude rubber prices, being generally favorable when prices rose and more inclined toward skepticism when prices were low. The rubber growers of Malay were more consistent in their support of restriction than were those of Ceylon, perhaps because they suffered more severely during the slump years preceding the passage of the Act. 6TReport of the Auditor-General, 1924 and 1925, FMS GG Supps. &8Report of the Trade and Customs Dept., FMS GG Supps., annually. "U.S. Consul, Singapore, March 23, 1927. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 131 As late as 1922, when the rubber producers of British Malaya were strongest in their agitation for restriction, the Planters' Association of Ceylon unanimously passed a resolution declaring that that body was not in favor of compulsory restriction of any kind.60 A year later the same body declared that "restriction cannot . . . be regarded as a remedy for low prices. The true remedy lies in furthering new uses, in short in increasing the demand."61 The following year, however, with a full year of restriction to look back upon, it was stated that owing to the Restriction Scheme most rubber estates were able to show a profit, instead of being worked at a loss, as they probably would have been had restriction not come into force.- The year 1923 was described as one of the most momentous years the industry has so far passed through in that what looked like a grave disaster was averted by the successful working of the first year of restriction. Surrounded as the administration of the ordinalice was by numerous diffi­ culties, it was only to be expected that certain leakages would occur, and that other im­ perfections would show up, all of which have been readily utilized for destructive criti­ cism by those who cannot have paused to consider what the position would be like without curtailment of output equitably applied." The complete change of attitude was expressed in the passage of a reso­ lution to the effect that the general committee of the Planters' Associa­ tion was unanimously opposed to any-alteration in the Stevenson Act.54 The confidence of the growers was not shattered by the events of 1924, which was referred to as "another year of anxiety and uncertainty for the rubber producers."Gi Restriction was given entire credit for having averted more serious disaster. In September 1924, just after a severe price depression, a question­ naire was submitted to members of the Singapore Chamber of Com­ merce. The result was left in some doubt by reason of the confusing and contradictory nature of the questions put, but was interpreted as being on the whole favorable to a continuance of restriction.Gi Chinese mer­ chants, on the other hand, were definitely opposed to restriction, and the immediate repeal of the Stevenson Act was asked at a meeting of the Associated Chinese Chambers of Commerce of British Malaya early in

10 P.AC rearboolc, 1921, p. 48• 11 ibid., 1922, p. 98• I!-ibid., 1923. p. 116. "ibid., p. 148. "ibid., p. 103. From a practical standpoint, the fact that the world in general and growers in particular, gave the Stevenson Plan credit for having brought about the improvement in conditions during the first year of restriction is of more significance than the question as to whether or not the opinion was justified. -ibid., 1924, p. 185. II Sir. Budg., September 26, 1924- 13l GOVERNMENTAL CONTROL OF CRUDE RUBBER January 1925. This opposition was natural in view of the fact that the Chinese who handle a large share of the rubber produced, particularly that of the native growers, are paid by quantity sold and so like to have as many piculs of rubber as possible passing through their hands.57 A movement for repeal of restriction on the part of native growers about the middle of 1924 reached considerable proportions.68 This move­ ment was attributed to the decline in prices and to the fact that the small holders who had been assessed very liberally at first had later had their assessments Cut to nearer their actual capacity.69 During the period of relatively low prices in 1924 considerable agita­ tion arose for the formation of a selling combine. The high prices of 1925 caused rubber producers to lose all interest in such a scheme but when the decline in prices began in 1926 it was again revived. With the con­ tinued failure of restriction to restore prices in 1927 the interest in such a plan became still keener, and the Dutch went so far as to appoint a committee of leading rubber producers to prepare recommendations as to the procedure to be followed. Following the announcement that re­ striction would be removed repeated attempts at cooperation were made. These various attempts were primarily the' result of low or falling prices but were influenced, also, by reports of the formation of a buyers' combination among American manufacturers. Attention was drawn re­ peatedly to the disadvantage to growers arising from the existence of many sellers and relatively few buyers, while the success that had at­ tended the formation of selling organizations among the Java sugar producers and in the quinine industry was also pointed to. The attempts that have been made to devise a scheme of cooperative marketing have met with little success. The failure of voluntary restric­ tion during the slump years has made the industry generally skeptical as to the possibility of securing the necessary cooperation. The greatest barrier to the success of such a scheme lies in the large and growing share of the output of rubber in the hands of native growers. In the absence of compulsion, and this would be lacking under the plan, no way would exist for securing their cooperation. Experience does not encourage the belief that the voluntary cooperation of the natives would be either in­ clusive or lasting. It is estimated that half of the planted acreage in Malaya and well over half in the Netherlands East Indies is owned by natives. With the weight of acreage against the Europeans and the weight of output likely soon to be against them the possibility of effec­ tive restriction, whether voluntary or legal, seems increasingly remote. It is doubtful whether anything will be accomplished toward a solu-

87 Sir. Budg., July 2.5,1924. 88 ibid., October 17, 1924; and P.dC Tearbook, 1924, p. 185. "Sir. Budg., July 2.5. 192.4. EFFECT ON PRODUCING COUNTRIES (CONTINUED) 133 tion of the problems before the rubber growers through sellers' coopera­ tion, though agitation for such measures may be expected to continue. While cooperative selling was being advocated in 1927 at the time when the Stevenson Plan proved unable to restore prices, various other pro­ posals were also advanced. One of the most extreme was that all the shareholders in British owned estates should form a pool under the direction of the Rubber Growers' Association. Each member would be asked to contribute £5 which would be used to purchase rubber and hold it off the market until price should improve.7o It was calculated that 40,000 tons of rubber could be taken off the market in this way and it was hoped to lift price above two shillings. Some of the proposals went so far as to ask that the rubber purchased by such a pool should be burned. Another suggestion was that all growers should refrain from tapping for one month or more and so bring about a reduction in the supply.71 The desirability of the amalgamation of existing companies was likewise urged. 72 Native producers of rubber, particularly in Ceylon, were throughout less enthusiastic about restriction than European planters.73 Further­ more, the extreme satisfaction with the Stevenson Plan and confidence in it which were manifest during the period of high prices in 1925-26 gradually cooled as reductions in the quota later failed to raise price. Rubber producers in Malaya appeared mystified at the failure of prices to rise and there was a tendency to suspect that purchasers in the United States were using misleading propaganda in order to keep prices down,?4 Toward the end' of 1927 a general dissatisfaction with the law in its existing form was apparent. This dissatisfaction expressed itself in two ways. One group held that the plan was a failure and should be aban­ doned. The other group maintained that the plan was invaluable but declared that it had been weakened so that the proper solution was to make restriction more stringent. Accordingly, they recommended the cancellation of unused credits, reduction in assessments, lowering of the

70 M'l"&RJ, August 31,1927, p. 961. . 71 In May 1930, one month's suspension of tapping was resorted to in an attempt to strengthen prices. This plan was adhered to by over 90% of the British and nearly the same proportion of the Dutch producers but the support of native growers, particularly in the Netherlands East Indies, was disappointing. It was estimated that this expedient kept between thirty and thirty-five thousand tons of rubber off the market, but this was partially offset by heavier tapping during March and April in anticipation of suspen­ sion. In the face of suspended tapping the price of rubber declined in May 1930 to the lowest price in recent years. The indication is clear that the rubber trade did nottake very seriously this attempt to curtail the supply of rubber. HM'l"&RJ,August31, 1927, p. 961. "Sir. Budg., December 16, 1926. "U.S. Consul, Singapore, February 8, 1927. 134 GOVERNMENTAL CONTROL OF CRUDE RUBBER quota below 6p% of standard,75 lowering of the pivotal price, a shorten­ ing of the restriction period to one or two months, and more stringent tapping regulations.76 As previously mentioned (pp. 63 and 67-8, above) certain of these recommendations were enacted into law in British Malaya at the end of 1927. The Japanese and Chinese planters' associations in Malaya generally expressed themselves as endorsing restriction. Certain local planters' associations, principally of British growers, took action toward the end of 1927 which showed clearly a weakening of the sentiment in support of restriction.77 The decision of the British government finally to abandon restriction met with no serious opposition in the planting community and seems to have been accepted as inevitable under the circumstances. There was, however, active criticism as to the manner of removal and the provision to delay the actual repeal of the law until the first of November.?8 British producers of rubber in unrestricted countries were very favor­ able toward the Stevenson Act and showed their approval by voluntarily restricting their output. Holders of approximately <)0% of the British rubber acreage in the Netherlands East Indies participated in this vol­ untary restriction. The expansion of production in Dutch areas, how­ ever, was one of the favorite arguments against restriction.

71 MWRJ, September 30, 19'1.7, p. 1 II7; and IRJ, October I, 19'1.7, p. '1.'1.. "U.S. Consul, Singapore, August I, 19'1.7. The amendment passed at this time to provide for more careful tapping is said to have increased the number of opponents to the restriction scheme.-Report of the Chief Secretary to Goverornent, 1927, p. '1..4, FMS GG Supp., June 8, 19'1.8. 77 MWRJ, December 31, 19'1.7, pp. 1501--'1.. "Soon after the Prime Minister's announcernentinApril 19'1.8,an unsuccessful attempt was made by natives in the Ceylon Legislative Council to withdraw Ceylon from the restriction pIan immediately instead of waiting until the end of the restriction year. CHAPTER VII EFFECT ON THE CONSUMING COUNTRY

A. ATI'ITUDE OF THE AMERICAN CONSUMERS

HORlLYafter the Colonial Office announced that the Steven­ son Plan would be enacted into law the Rubber Association of America, representing 85% of the output of rubber goods in this country, appointed a committee to deal with the situation. This committeeS immediately entered into negotiations with the Rubber Growers' Association, the leading organization of British rubber grow­ ers. The latter body was prevailed upon to send a committee to the United States to confer with representatives of the manufacturing in­ dustry. This committee was composed of two members of the Stevenson committee and the vice-chairman of the Rubber Growers' Association.1 During the course of their vi:-it the attitude of the Americans was laid before them, to wit, that restriction was economically unsound in principle, that it was unnecessary, and that the situation was righting itself; second, that ••• it lacked lIexibility, and, because of this lack of lIexibility, might interfere with the growth of our industry, promote a runaway or speculative market, and place a very heavy burden on the industry and on our people.' The committee returned to England with a request from the Ameri­ cans, first, for the repeal of restriction, or, second, for such flexibility as would prevent undue hardship to the consumers of crude rubber, or finally, for the official assurance that in case of a runaway market the discretionary power of the British government would be exercised to ease the situation! Such official assurance was never given but the mem­ bers of the committee declared that they believed "sincerely and em­ phatically" that if the predicted condition of market stringency did come about the government would take the necessary steps to meet the situation! Particular weight was given to this view because of the responsible positions held by the different members of the committee. American manufacturers in general, therefore, accepted the view that lHearings, p. 35. "i6id. "i6id. fibid., pp. 3!140' 136 GOVERNMENTAL CONTROL OF CRUDE RUBBER they had nothing to fear from restriction and, persuaded that restriction was necessary to save the industry, settled down to a period of stable prices.6 As stability of price is more desired by manufacturers than low­ ness of price 'the general attitude with respect to restriction was one of satisfaction.6 The outstanding exception to this was Harvey S. Firestone. So vio­ lently did he oppose the conciliatory attitude of the Rubber Association of America, of which he had been president at one time, that he with­ drew from the organization and called a meeting of protest against re­ striction in Washington, the meeting being attended by a considerable number of smaller manufacturers. It was alleged by the British that Firestone's objection to restriction was due to his having entered into a two-year contract with Henry Ford for tires based on rubber at 18c per pound.7 Whether this is true or not Firestone was to see his erstwhile colleagues of the Rubber Association come around to his views on the subject of restriction. He backed his opinions with a more or less active propaganda program in addition to undertaking extensive planting operations of his own. The attitude of the United States government was one of opposition from the start.8 It was argued that success in the efforts of the British to control the price of rubber would encourage similar action by many na­ tions with respect to other basic commodities with resulting inconveni­ ence and danger to economic activity. 9 It was further declared that aside from the commercial aspects of the question the government was vitally interested because of the importance of the commodity in warfare.1o Be­ cause of the localization of the supply in the middle east where it could

Ii Hearings, pp. 95-6.Just before the supplementary report of the Stevenson Commi ttee was issued a deputation from the Rubber Growers' Association interviewed Sir James Stevenson and asked him: "In the event oflegislative restriction on the export of rubber being imposed and the price of rubber soaring in consequence of rubber being in short supply, would steps be taken to unload stocks to ease the situation and to bring down the price to reasonable limits?" Stevenson gave an emphatic reply in the affirmative stating that the aim of the plan he had projected was a stable priee.-Financial 'l'imes, July 18, 1925. IH. Eric Miller, one of the members of the committee of the Rubber Growers' Asso­ ciation, is quoted as saying that of the American manufacturers encountered by the British delegation to the United States in 1923 all but one agreed to the restriction and did not demur at the extra price involved. fLondon Financier, quoted in J. oj C., March 27, 1923. arid, Letter, Hoover to Capper, Appendix D. I Assistant Secretary of Commerce C. H. Houston, in NaHon's Businus, Washington, . April 1923, p. 31. lGidlm. EFFECT ON THE CONSUMING COUNTRY 137 be subjected to the control of any first-class power in time of war the government called attention to the desirability of planting in other parts of the world.lI The American manufacturers allowed stocks of crude rubber to diminish during 1923 and 1924 until the end of that year found them definitely short. Buyers began to suspect that they had been a trifle too optimistic, and started to buy on a rising market. At this juncture, in the spring of 1925, the Rubher Association of America cabled to the Rubber Growers' Association requesting that they use their influence to the end that the government should exercise its discretionary power and allow sufficient releases of rubber to check the rise in prices, in accord­ ance with the assurances given two years before. In the end all respon­ sibility was disclaimed by the British and they countered by ascribing the blame for the rubber shortage to the Americans. Partly as a result of the feeling that they had been "sold out" by the British and partly because of the high prices the manufacturers became definitely hostile toward restriction and joined the campaign against it. The Congressional investigation undertaken early in 1926 showed that in general the Americans regarded themselves as the aggrieved party but there were some who felt that the British had as good a right to levy their export duty as we to levy our import duties. This view was expressed by one of the members of the House investigating committee: MR. PARKS: I cannot see how we can repeal the Stevenson Act, and that is all that we have found out since we have been here: that the price of rubber is due to the Stevenson Act. If we could find any way to compel the British Government to repeal that, then they will tell us how to repeal the Fordney-McCumber Tariff Act, and I will be with them on that.u The fluctuations in price during 1927 were less than in any other year since the rubber industry has assumed importance, and this stability did much to reassure the manufacturers with respect to re~triction. Manu­ facturers take the attitude that, within reasonable limits, they do not care how high prices are so long as they are stable.13 The level of prices was not, however, unduly high as compared with former levels so that the consuming public, buying tires for less than ever before, was also

llThis is not, of course, an argument against restriction but merely against undue localization of the industry. '"Hearings, p. 160. liVery high prices, however, are dangerous to the manufacturer even aside from the , effect upon the consumption of the finished product. With the price of crude rubber at '1.00 per pound a 25% decline would mean a loss of 25c per pound on inventories while with price at 20C per pound a 25% decline would involve a loss of only 5c per pound. ' 138 GOVERNMENTAL CONTROL OF CRUDE RUBBER inclined to be satisfied. The active opposition to restriction, therefore, largely died away at this time. The attitude which was first one of trustfulness, then of injured and violent opposition, became watchful skepticism. Nevertheless, the an­ nouncement that restriction was to be abandoned was received by the manufacturing industry with a general feeling of relief.

B. MEASURES TAKEN BY AMERlCA~ RUBBER CONSUMERS The activities of the American rubber consumers as directed by Secretary Hoover and the Department of Commerce may be considered in two parts. The more important was the program of economy and self­ help which aimed to relieve the situation by reducing our dependence upon the British controlled rubber regions. The other, somewhat more stormy, was the series of negotiations between the American and British governments to induce the latter to relieve market conditions by altering supply. Numerous recommendations were made as to how the United States might bring pressure to bear directly or indirectly upon the British in such ways as to relieve the shortage of rubber. The Rubber Association of America and the Department of Commerce engaged most actively in securing action upon such of these suggestions as seemed to have merit. The various measures resorted to in combating high prices are of im­ portance in any consideration of attempts to control the prices of raw materials. One of the recommendations which attracted attention, generally unfavorable, was that bankers should be discouraged from giving credit to any member or agency of the crude rubber producing industry. It soon became clear that little could be accomplished in this direction because of the fact that little demand for such assistance existed. Fur­ thermore, there is a danger in such measures that more may be lost than gained. As part of the same movement the United States government intervened, in 1925 and 1926, to prevent the extension of loans to the German Potash Syndicate and the Coffee Association of the State of Sao Paulo, two of the instances of governmental control of raw ma­ terials alleged by Mr. Hoover.14 What actually happened when loans were refused in New York was that these enterprises borrowed in Lon­ don, aided by Holland and Sweden, and the American banks lost profitable business while hard feeling was engendered toward the United States. The minority opinion of the investigating committee

14 Hearings, p. 2.. EFFECT ON THE CONSUMING COUNTRY 139 of the House, in view of these considerations, specifically opposed the practice of refusing loans as a means of combating raw material control.I6 A more important step taken at this time was the campaign for economy conducted by the Department of Commerce. This program may be considered in three aspects. In the first place, consumers of rub­ ber products in general, and, since tires represent over four-fifths of the American consumption, owners of automobiles in particular, were urged to make every effort to secure greater use from their tires. Tire tests were made and literature was issued specifically telling how to care for tires. The use of repair materials was urged. The Evening Star of Wash­ ington carried a full-page advertisement of the Buick Company urging the public, and particularly Buick owners, to economize tires.16 It is worthy of note that the tire manufacturers themselves joined in this program although it dearly meant reduced sales for them. The increase in sale of tire repair materials at this time was pointed to as demonstrating the effectiveness of the economy campaign of the De­ partment of CommerceP It should be observed, however, that this in­ crease had started before the marked rise in price of rubber and before the inauguration of the department's campaign. Furthermore, since the export of repair materials during the same period increased even more rapidly it would be dangerous to ascribe too much weight to the purely domestic activities of the Department of Commerce. It is of greater significance that the tire replacement per car during 1926 was 1.98, the lowest ever recorded, as against 2.33 in 1925.18 The latter figure was slightly higher than the figures for 1923 and 1924 due to the fact that the threat of rising prices tended to exaggerate demand. The consumption of crude rubber showed a decrease of nearly 7% in 1926 as compared with 1925.19 This is especially noteworthy in view of

"House Calendar No. 132., Report SSS, 69th Congress, First Session, Washington, Government Printing Office, 192.6, p. 19. 11 February 3, 192.6. "Commerce Reports, October 2.S, 1926, p. 2.09. lIHymans, Kraay, p. 18. Mr. E. G. Holt, chief of the Rubber Division of the Depart­ ment of Commerce states that "sales of automobile casings for replacement purposes were 40333,000 lower than for the preceding year [fiscal year ending June 30, 192.SI, a de­ crease of 16.6%, and sales of inner tubes were lower by 8,710,000, or 2.2..6%. These figures are more striking in view of the fact that 2.0360,000 more automobiles were run­ ning in the past than in the preceding fiscal year, which added number of cars should normally have required about 7,000,000 more tires and 10,000,000 more inner tubes for replacements."-Commerce Reports, October 2.S, 192.6, p. 2.09. 11 Commerce Tearboolc,)92.6, Vol. I, p. 4S8. 140 GOVERNMENTAL CONTROL OF CRUDE RUBBER the fact that the registration of automobiles and trucks was 10% higher and gasoline consumption 17% higher.20 In the second place, the economy program was also directed toward the retailers. The aim here was particularly to encourage dealers to carry smaller stocks. The result of a survey made by the Rubber Divi­ sion showed that on October 1, 1926, dealers averaged 49.8 casings each as compared with 56.6 casings each on October 1, 1925.21 A general dull­ ness in the tire trade toward the end of 1926 may be partly responsible for this change. ' Finally and most noteworthy of all, there were the efforts to introduce economy among the manufacturers. It was proposed to abolish fabric tires, to eliminate certain of the smaller sizes, to standardize as to styles and so simplify manufacturing processes as well as reduce to a great extent the volume of stock necessary for the dealers to carry. It is diffi­ cult to estimate how much was accomplished at this time, but efforts are still being made to introduce greater standardization, the cooperation of automobile manufacturers being quite as essential, it will be noted, as that of the tire manufacturers.22 The Rubber Association of America also suggested that a plan be adopted for the pooling of crude rubber, and the board of the Rubber Association authorized the association to operate as a clearing-house of information among member manufacturers to determine the willingness I·See Table V. The following figures of the consumption of gasoline in the United States, 192.4-28, are also significant in considering the decline in the sale of tires: I921 I925 I926 I927 I928 January 11,918 14,386 17,58:1 17,888 :10,939 February 9,626 13,:110, 15,814 18,2.40 21,136 March 10,961 14,890 19,302 22,464 2.4,041 April 14,583 19,013 20,848 23,37 1 25,712 May 15,889 :10,459 24,:113 :16,579 :17,355 June 16,4:11 20,724 23,803 27.799 :19.0:12 July 18,610 22.879 24',752 29.784 30,960 August 19,825 22,323 :16,91:1 29,779 33.148 September 16,871 20,177 22,929 280409 29,691 October 18,0:19 19,8:16 23,973 25,497 30,610 November 16,607 18,024 :10,618 24,400 :16,222 December 15,663 17,954 210419 23,718 26,644

Total 185,003 223,865 262,165 297,928 325.480 (Figures in thousand barrels, 1 bbl. =42 gal.) -RM""" Ag~, semi-monthly statistics. I1IR&'I'R, December 1926, p. 30. D It is necessary to observe that this and other measures for reducing the stocks of crude and fabricated rubber were temporary expedients only and would not reduce the demand.for rubber in the long run. EFFECT ON THE CONSUMI~G COUNTRY 141 of one manufacturer to sell crude rubber and the desire of another to purchase rubber during the period of the emergency. It was hoped that by distributing available supplies of rubber where the need was greatest the demand upon the crude rubber market might be relieved.23 Nothing, however, was accomplished in this direction. Another, and greatly desired, improvement in marketing practice was temporarily effected at this time. Tire manufacturers agreed to abandon the custom of "spring dating" whereby orders were solicited in October for spring requirements, and plants were run at capacity during the win­ ter to fill these orders. By postponing shipments of spring stocks until March I, and manufacturing' meanwhile only enough tires for current requirement:; the industry was able to postpone its demand for crude rubber and help to relieve the market situation. Dealers at the same time were urged to dispose of surplus stocks before ordering more. The abolition of spring dating was credited with causing a decline in the price of crude rubber from $1.00 per pound to 91c per pound the day after the manufacturers' decision was made known, September 23,1925.24 That the United States did succeed in cutting down its consumption of crude rubber materially at this time is not open to question. Part of this was the natural reaction to high prices, but the conservation and economy program of the Department of Commerce and the stimulation given to reclaimed rubber were both factors of marked importance. The extent and importance of the saving achieved in rubber consumption has been calculated as follows by the Department of Commerce: In 1925 the consumption of raw rubber in the United States amounted to 388,000 tons. With the increased number of automobiles in use during 1926 the consumption at an equal rate with 1925 would have been nearly 426,000 long tons, whereas the actual 1926 consumption was only 366,000 tons. Accordingly, a saving of about 60,000 tons of rubber resulted from the conservation measures employed by manufacturers and users of ru bber goods during 1926. In addition to this, the stocks of auto casings held by manufacturers increased by 2,314,000 while inner tube stocks increased by 4,887,000, a further saving equal to 12,500 tons of rubber. Even the combined total saving thus achieved of 72,500 long tons does not represent all that was accomplished since nearly 2,000 more tons of rubber were required in original equipment for new automobiles, the production of which increased in 1926. ~ The stocks of rubber on hand in America increased from 51,214 long tons at the beginning of 1926 to 72,520 at the end of the year and stocks in London during the same period increased from 5,697 to 48,921 tons. The total increase in stocks, 64,529 tons, was therefore less than the amount of rubber saved in the United States and but for the conservation measures employed here the rubber situation would at present be no better than during the period of short supplies.2& • "Bulletin of the Rubber Association of America, New York, No. 43S, June 30, 1925. 'M Aulomol;ue Industries, New York, October I, 1925. 2&Press Release, Department of Commerce, March 30, 1927. ride also Report of Secretary of Commerce, 1926, Washington, Government Printing Office, 1926, p. 40' 142 GOVERNMENTAL CONTROL OF CRUDE RUBBER How much of this saving was due to the deliberate efforts of consumers and how much was the result of high prices is, of course, a matter of conjecture. The Department of Commerce also strongly urged the use of substi­ tutes. The most important of these is reclaimed rubber,26 and the devel­ opment that followed in the wake of high prices was such as to amount, virtually, to the creation of a new industry in this country. While the use of reclaimed rubber is not new its production has in the past been corre­ lated closely with the price of crude so that the low prices of 1920-22 made serious inroads on the industry. Some revival occurred in 1923-24 but it remained for the high prices of 1925-26 to place the industry firmly upon its feet. Large-scale methods were introduced, processes per­ fected, and volume of output enormously increased. The British consistently maintained that a good tire could not be produced using even the smallest amount of reclaimed rubber, and pre­ dicted that the "reclaim of reclaim" would be totally worthless.27 It was held that the use of reclaimed rubber. would have to be confined to the production of hard rubber articles, insulation, and those uses where re­ siliency is not a prime essential. Since tires now being made out of com­ pounds containing reclaimed rubber are more satisfactory than those formerly made out of compounds not containing it and apparently as satisfactory as those now made only with crude rubber, the security of the reclaiming industry seems to have been established. Restriction, in this way, proved a distinct boomerang. By withholding from the market certain stocks of crude rubber it virtually made the United States a pro­ ducer of rubber to an extent equal to, or perhaps greater than, the volume of stocks withheld.28 Thus, the Stevenson Act operated much as a protective tariff would have done. By maintaining an artificially high price the infant industry of reclaiming was developed to such a point that it is now able to stand on its own feet in the face of full competition from crude rubber. It is probable that the ordinary demands of the rubber manufacturing indus­ try would have brought about this same development in the course of time without the help of restriction but there can be no doubt that the development was hastened thereby. The following tables indicate the expansion of the use of reclaimed rubber and show relative prices. It will be seen from these figures that the price of reclaimed rubber rose but little when the price of crude -Reclaimed rubber, as the name indicates, is rubber obtained from old tires, old shoes, and other kinds of worn out rubber goods. 17 Financial crimes, June 4, 19"'7. IBVid, Figart in Commerce {$ Finance, New York, July 2.9, 192.Sl and SllIIisl, April 16, 192.7, p. 674. EFFECT ON THE CONSUMING COUNTRY 143 mounted in 19'25-26. The extent of competition in the reclaiming indus­ try and the ease of expanding production when demand warrants were 29 primarily responsible for this fact. . TABLE XXV RECLAIMED RUBBER, COMPARATIVE FIGURES'O Ribbed Smoked Shul Reclaimed Volumeo! Average Rubber Reclaimed Rubbl1' Markel Import AVl1'age Export Used Relative 10· Price Price Price Volume of Crude 1919 $0.487 $0.40 $0.165 36.3% 1920 .363 ·43 .168 38-4 1921 •163 .18 •123 2404 1922 .170 .15 ·095 19.2 1923 .296 .27 •104 25·3 1924 .260 .24 ·095 25·3 1925 ·72S .48 •104 35·3 1926 .487 ·55 .I18 45.0 1927 .381 ·37 .092 50•8 1928 .226 .25 .0]6 51•0

While the ratio of reclaimed rubber to crude rubber consumed in the man~facture of rubber tires and tubes was 20% in i9'26, in other rubber products the ratio was 177%. The annual productive capacitY of re­ claiming plants at the end of 19'26 was reported to be '2'27,593 long tons, which may be compared with a net import of crud\! rubber during 19'26 of 399,97'2 tons.B1 The question of synthetic rubber was referred to frequently in connec­ tion with breaking the rubber control. During the war German scientists succeeded in producing considerable quantities of rubber by chemical means. The costs, however, were prohibitive under normal conditions and in quality it was distinctly inferior to natural rubber.32 While it has 28Figures compiled by the Rubber Association of America show that until 1925 "reclaimers solely" produced considerably over one-half the total supply of reclaimed rubber in the United States. Since 1926 "manufacturers who also reclaim" have been producing much the larger share (60% of the total in 1928). aOFiles of the Rubber Division, Department of Commerce, Washington; Commerce Tearbooks, annually; and Special Circular II II, December I, 1927. 8lCommerce Tearbook, 1926, Vol. I, pp. 454, 464. It may be observed that as the pro­ portion of reclaimed to crude rubber used approaches a level the result is to bring about a relative increase in the rate of consumption of crude. That is to say, while the quantity of reclaimed rubber was increasing at a more rapid rate than the quantity of crude the effect was to displace an approximately similar amount of crude. As both come to in­ crease at the same rate there follows a more rapid rate of crude consumption than in the period just pre,ceding. "Hearings, p. 209. . 144 GOVERNMENTAL CONTROL OF CRUDE RUBBER been definitely established that rubber can be produced synthetically, the claim that a method of producing a satisfactory product economi- TABLE XXVI

PRODUCTION OF RECLAIMED RUBBER IN THE UNITED STATES" (nGURES ESTIMATED TO BE 92"""95% COMPLETE) First Half, 1921 14,968 tons Second Half 19,188 Total 34,156 Ions First Half, 1922 25,824 Second Half 27,964 Total 53,788 First Quarter, 1923 19,168 Second Quarter 15,017 Third Quarter 15,108 Fourth Quarter 20,241 Total 69,534 First Quarter, 1924 20,236 . Second Quarter 12,297 Third Quarter 16,678 Fourth Quarter 25,263 Total 74,474 First Quarter, 1925 250353 Second Quarter 27,523 Third Quarter 31,909 Fourth Quarter 38,840 Total 123,625 First Quarter, 1926 44,092 Second Quarter 38,841 Third Quarter 40,020 Fourth Quarter 44,989 Total 167,942 First Quarter, 1927 45,547 Second Quarter 41,197 Third Quarter 39.449 Fourth Quarter 46,530 Total 172,723 First Quarter, 1928 51,II2 Second Quarter 51,109 Third Quarter 52,823 Fourth Quarter 52,825 Total 207,869 cally has been made so frequently in recent years, and so frequently has been disproved, that the rubber world is skeptical of any such reports. Certainly synthetic rubber played no part in price movements under the .. Bulletins of the Rubber Association of America. EFFECT ON THE CONSUMING COUNTRY 145 Stevenson Act, and reports of discoveries of this sort had no noticeable effect upon quotations.34 If chemists have been unsuccessful in providing an artificial rubber, their efforts have been more productive in other lines. Substances have been developed for giving greater power of resistance both to wear and to oxidation. The effect of such improvements is clearly to reduce the demand for crude rubber. Furthermore, the technique of compounding has been improved so that a greater proportion of reclaimed rubber can be used. One tire company is said to have been on the point of bank­ ruptcy when the company chemist suggested that a compound contain­ ing a large proportion of carbon black relative to crude rubber content be tried. A slightly poorer quality of tire was thus produced but by sell­ ing it at a lower price the company was able to make satisfactory profits for the first time in its history.36 In connection with attempts to discover means of producing rubber synthetically may be mentioned efforts to derive it from other plants than those in common use. That many plants contain isoprene, the sub­ stance which gives rubber its elasticity, is common knowledge. Two bushels of lemon skins, it is claimed, contain enough rubber to equip a small car with tires.36 Extravagant claims have been made for the pos­ sibilities of obtaining rubber from cactus.37 The late Dr. J. N. Rose of the Smithsonian Institution, at the time of his death perl:1aps the fore­ most authority on cacti, has declared that no member of the cactus family contains rubber. Edison has sent several expeditions in search of plants capable of producing rubber in the United States, and in addition maintains a six-acre experimental farm at Fort Myers, Florida, for testing plants regarded as potential producers of rubber. The United States Department of Agriculture, it may be mentioned, is also engaged in testing plants yielding rubber to determine the possibility of growing .. A typical example of the numerous attempts to produce synthetic rubber is the following: "The Alliance Rubber Producing Company has been formed in Kansas City, Mo., to manufacture mineral rubber from crude oil by a skimming process, treating the residue with ozone."-Rubber Age, November 25, 1926, p. 172. The history of another such enterprise is given as follows: Synthetic Products Com­ pany was organized in 1912 for the purpose of supplying synthetic rubber at a cost not to exceed one shilling per pound with the prospect of the cost being reduced to six pence per pound. Sir William Ramsay and other scientists were on the board of directors and Sir William Tilden consulting chemist. The issued capital amounted to £169,434. No dividend was ever paid and in 1926 it was voted to wind up the affairs of the company.­ M'l"&RJ, July 31,1927, p. 864 • .. Another improvement in manufacturing technique has been the perfection of the so-called "cold cure" by which vulcanization is accomplished without heating the com­ pound, so avoiding a certain loss that occurred under the older method • .. Molor Life, New York, September 1927, p. 3 • •7IR&'l'R, September 1927, p. 60. 146 GOVERNMENTAL CONTROL OF CRUDE RUBBER them in this country. So far none of these efforts have produced any tangible results, other than to indicate what cannot be done. While the production of rubber from the guayule shrub was stimu­ lated by re .. triction, this plant was domesticated as long ago as 1912, and its more recent development (see pp. 103-4, above) is the result of high prices rather than of the activities of the Americans in combating restriction. A fourth recommendation of the Department of Commerce was to stimulate the production of rubber in unrestricted areas.18 Accordingly, a group of manufacturers attempted to increase production in the Dutch East Indies by offers of long-term contracts which would insure the growers against loss in case restriction .mould be repealed. Little seems to have come of this. The Dutch appear, generally, to have been per­ fectly willing to produce and to plant their maximum without any such encouragement. It was similarly suggested that an agreement might be entered into with Brazil to purchase the entire output of wild rubbp­ from the Amazon for a certain period of years and at a determined mini­ mum price. This proposal, however, was never acted upon. The Rubber Division of the Department of Commerce repeatedly urged upon Ameri­ can manufacturers the desirability of securing larger quantities of wild rubber from Brazil. The possibilities in this direction, however, were limited by the smallness of the available output there. Inasmuch as new planting ordinarily does not come into bearing for from five to seven years and in view of the supposed temporary nature of restriction the recommendations that planting operations be undertaken were never regarded as having an immediate bearing on the problem of restriction. As a preventive of future controls rather than as a solution of the existing one, investigations were, however, made to determine the possibilities for rubber production in other parts of the world. The most important of these studies was conducted by the government and pre­ ceded the period of high prices to which most of the activities heretofore discussed belong. The results of these investigations were somewhat discouraging, but the venture of Harvey S. Firestone in Liberia and Henry Ford's under­ taking in Brazil represent potentially important developments. The last major proposal suggested by Secretary Hoover was the for­ mation of a cooperative buying pool among the manufacturers which would handle all purchases of rubber and so prevent buyers bidding against each other. As originally outlined it would probably have been necessary to secure exemption from the provisions of the Sherman Act, perhaps through an extension of the Webb-Pomerene Act. The combine "Report of the Secretary of Commerce, 1926, p. 38. EFFECT ON THE CONSUMING COUNTRY 147 as actually formed in December 1926 aimed to stabilize price rather than to serve as an offensive weapon against the producers of rubber.3D Two other minor suggestions were made about this time without, however, securing a great deal of support. In one of his speeches Mr. Hoover hinted at the weapon the United States possessed through its predominant position in cotton and wheat production should the issue of a trade war arise.40 This question "of reprisals attracted considerable attention and provoked much discussion in the British"and European press, but seems never to have been seriously considered by the Ameri­ can government. The other proposal was to create a Rubber Controller to supervise rubber imports. The principal duty of this official was to exert a stabilizing influence, particularly during the period of rapid decline in the price after November 1925. The inconsistency of the gov­ ernment setting up such an official after opposing so bitterly any inter­ ference with the marketing of rubber was obvious and explains why this proposal received scant support. Little publicity has been given the negotiations between the govern­ ments of the United States and Great Britain, but since very little came of them the lack is not serious. The reason for the secrecy that has been maintained lies largely in the delicacy of the questions involved, since the Stevenson Act was regarded by the British as a purely domestic matter. The negotiations fall into" two periods, the first being in July and August 1925, and the second during the last quarter of 1925 following the second sharp rise in prices. Negotiations were undertaken by the Department of State at the request of the Rubber Association of Amer­ ica and certain individual leaders among tire" manufacturers. It was hoped that by officially calling attention to the injury being done to aq important industry the British government might be prevailed upon to afford relief to buyers of rubber. To this end various recommendations of the Rubber Association were submitted to the Foreign Office.41 Al­ though the first response of the British was encouraging, the more or less acrimonious comment in the pre:.s of both countries served to crys­ tallize sentiment in England against any material modification in the

"Yid, pp. 158--60. below. Subsequently the Capper-Newton Bill was introduced in the House of Representatives to permit associations for the importation of raw materials controlled by a foreign government, combination, or monopoly. This bill was aimed principally at the control of rubber, and it is interesting to note that it was defeated on April 6, I9z8, two days after the announcement that the Stevenson Act would be repealed. " "See Appendix E. It should be noted that Mr. Hoover did not, as has been alleged. advocate retaliation but expressed his opposition to any such measures • • 1 Yid, pp. 311-9. above. 148 GOVERNMENTAL CONTROL OF CRUDE RUBBER plan. The sole results of the negotiations at this time, therefore, were a few minor changes which had virtually no effect upon prices. The second period of negotiations with regard to restriction was even less satisfactory than the first. Relations had, by this time, 'become somewhat strained as a result of the discussion over restriction, as the following quotations indicate: Anglo-American friendship is more important than Mincing Lane quotations, and Mr. Hoover and his more outspoken supporters have done nothing to improve either." In its commercial application rubber is a commodity which makes wheels run smoothly and minimizes jolts, jars, and friction. In the sphere of international relations its propensities seem to be in the opposite direction." The negotiations at this time were, in short, quite unproductive of results. C. EFFECT ON MANUFACTURERS I. Cost if crude rubber to manufacturers At the time of peak prices in 1925 Mr. Hoover calculated the cost of our annual imports at the abnormal prices prevailing, subtracted the alleged "fair price" of 36c and announced to the world that restriction was costing us in the neighborhood of'lqoo,ooo,ooo per year.44 As a matter of fact very few sales were made at the highest prices prevailing. A closer indication of what our crude rubber imports cost the manufac­ turers is to be obtained from the figures of the declared value of the rubber at the time of importation. Since a consignment of rubber is ordinarily contracted for months before it is received in this country there is always a distinct lag between market price and import value. The practice of making forward con­ tracts for s,tiIl longer periods increases this tendency even further. Thus, in July 1925, when market price averaged $1.0316, the average price of imports for the month was only $0,4636, and the peak of import prices, $0.7978, was not reached until February of the following year, or a quarter of a year after the month of highest average market price. Simi­ larly, the average market price for 1925 and 1926 was $0.725 and $0.487 respectively while the average import value was higher in 1926 than in 1925, being $0.546 as compared with $0.484. This explains why imports 4.2% greater than in 1925 cost us 17.7% more.4li The chart, page 149, shows that the average price actually paid for rubber imports fluctuates much less than market price and that changes in the market price are reflected in changes in the import price with a lag of from two to three months . .. Manchester Guardian Commercial, January 7,1926, p. 3. "London Economist, January 30,1926, p. 189. "Pide Hearings, pp. 3, 15-16. 46Figures from Commerct Yearbook, 1926, Vol. I, pp. 44«154. CHAll.T IV AVERAGB MONTHLY MAll.ItET AND IMPOar PR.ICES OF CR.UDB RUBBER., 192.3.18

1.00 ..,to! to! MARKET PRICE n ~ 1o 0z t-l , ::I: I MPORT PRICE to! , ,/ " n , 0 I Z , '0 C"Il I c:: I s:: I .... I Z I I/O Cjl ,/ n , /'~ 0 , . c::z . t-l . 20 == / .- " 0<

ICpU/ ISO GOVERNMENTAL CONTROL OF CRUDE RUBBER It must be admitted, however, that while some manufacturers made considerable savings during the period of rising and high prices by reason of their forward contracts, many importers of rubber concluded con­ tracts at this time running as far ahead as 1930 at prices which later proved to be needlessly high. An examination of the records of produc­ ing companies fails to show, however, any forward contracts made at peak prices; one small sale at four shillings and one at three shillings seven pence being the highest reported, and the majority being much less.46 An overwhelming, and gradually increasing, proportion of the crude rubber used in the United States goes into automobile casings and tubes. The percentage of crude rubber consumed in the tire manufacturing in_ dustry relative to the total consumption of crude rubber in the country has been as follows:47 1921 81.09% 1925 83.92% 1922 81.52 1926 85.42 1923 80.36 1927 84.96 1924 83·39 1928 85.62 This predominance of the tire manufacturers together with the fact that the cost of crude rubber is a relatively more important part of the cost of the finished product than is the case in the manufacture: of other rubber articles make a consideration of the effect of restriction upon this particular branch of the manufacturing industry of especial interest.

2. Sales During the first years of restr~ction no distinct effect upon the sale of tires was observable. The rising prices of crude rubber during 1925, the extensive publicity given to restriction, and the increases made in the price of tires led to a very keen demand on the part of consumers of tires. The incentive was fear of further increases later and a desire to tiThe course rubber prices would have followed if there had been no restriction scheme is too problematical to be worth attempting. Among the variables that would have to be considered in any such conjecture are: I. The amount of reclaimed rubber that would have been produced. 2. How much less rubber would have been produced in unrestricted areas. 3. How much more rubber would have been produced in restricted areas. (a) The question of overassessment. (b) Abandonments that might have occurred. (c) The minor question of leakage through smuggling. (Does not affect the total quantity of rubber produced.) 4. How much less planting would have taken place. 5. The extent to which the price rise of 1925 was caused by hysteria over a little understood device. 67Computed from Rubber Association of America figures. EFFECT ON THE CONSUMING COUNTRY 151 obtain a supply before the increases became effective. So each in­ crease in the price of crude rubber served to stimulate the purchase of tires.'8 The reaction to this came toward the end of 1925 and throughout most of the next year. This is partially indicated by the figures of manu-

CHART V SALES OF AUTOMOBILE CASINGS AND MARKET PRICE OF CRUDE RUBBER, 1922.28 M~ ~

,It \

,! \I SRLES (1'- I • ~, , , /I U7rIH()BIU W3/lYtiS l \ ~ I, f \ I' 1\', : I ! i l \ ! V. , .. , r' , ; Jilt I ~ II \ ~: \ I , .:- If, I ,Iv ,. : ~ l V\,: \: . I I J I y \ , ,I fo. r'tI\! 'J '\1'• 1. I'"• I , " ," , Ultl I ~\ I ~ 'V'I.. / \1 \ft,:

MIIRIrErPlllCI! tiT CRUDE RUBBER

'9:Q. "1~ '9.l1/ 'filS" 'fz~ facturers' sales of casings (Table XXVII), though the decline shown is to some extent due to a change in the marketing practice in the industry. A virtual buyers' strike materialized in 1926 largely as a result of the Congressional investigation into the control of rubber, at which time it was alleged that manufacturers were using the rise in price of crude rubber as a pretext to make disproportionate advances in the price of "Table XXVII shows that normally the month of August marks the peak of sales for the year, whereas in 1925 the peak was thrown forward two months to June. 152 GOVERNMENTAL CONTROL OF· CRUDE RUBBER TABLE XXVII SALE OF AUTOMOBILE CASINGS IN THE UNITED STATES, 1922-2848 (OOO'S OMITTED) 2 2 2 26 2 ~ I9 3 I9 4 I9 5 I9 I9 7 ~ January 2,194 4,II4 3,785 4,013 2,974 4,932 5,394 February 2,144 3,568 3,849 3,924 3,436 4,458 5,°31 March 2,847 4,57° 3,988 4,657 4,561 5,701 5073 1 April 2,853 4,106 4,018 5,498 4,980 5,701 5,8n May 3,608 3,793 3,693 5,954 5,2II 5,657 t),457 June 4,281 3,448 3,671 6,737 5,724 6,253 7,II7 July 3,678 3,463 4,748 &,298 6,337 5,973 7,895 August 4,153 3,803 5,010 4,760 6,744 6,393 8,403 September 3,4°7 3,563 4,539 4,569 6,040 5,717 7,145 October 3,534 3,~21 4,196 5,580 4,544 4,799 5,717 November 3,248 3,4°8 4,480 3.671 3,733 4,306 4,998 December 4,°4° 3,547 4,143 3,601 4,718 4,165 4,591 tires.60 While this was later shown to be more apparent than real the idea was by no means dislodged from the mind of the public. The econ­ omy program of the government and various trade associations and the fact that tire users were well stocked with tires as a result of the active 'buying of the previous year likewise contributed to consumer indiffer­ ence during 1926 so that the average purchase of tires per car showed a very distinct decrease from any previous year.6l The economy program fostered by the manufacturers in combating restriction thus proved to be quite definitely a boomerang and as such was regretted by many of them. 3. Profits The productive capacity of tire manufacturers was greatly stimulated during the war so that when slump conditions came in 1920 they found themselves with plants far larger than the market justified. The result was a bitter competition which brought losses to many and failure to some.62 A steady improvement followed during 1923-24 thanks to stable prices of crude rubber and general prosperity throughout the country. (Table XXVIII.) It remained, however, for 1925 to bring large profits to the industry. Thus, instead of the high prices of crude rubber proving immediately injurious to the manufacturers they were responsible for ,8 RuM" Age, semi-monthly statistics. &OIR&'I'R, December 1926, p. 22. 51 Manufacturers' shipments during the first half of 1926 were noticeably less than during the same period of 1925 despite the increase of over 2,000,000 in the number of cars in use. It is estimated that during the first half of the year nearly 5,000,000 tires previously carried as spares were put into service.-IR&'I'R, December 1926, p. 26. And Vide p. 140, above. I2Hearings, p. 135; and IRW, December 1927. EFFECT ON THE CONSUMING COUNTRY 153 TABLE XXVIII NET PROnTS OF MANUFACTURERS, 1923-26'" (OOO·S OMITTED)

I923 I921- I925 I926 Ajax , 560d , 664 , 1,005 , 293d Dayton 177 302 464 - Firestone 6,105 8,117 12,800 7,622 Fisk 2,584 3,137 6,109 3,354 General 1,200 1,500 1,843 710' Goodrich 3,025 8,823 12,744 5,065 b Goodyear 6,507 12,162 21,006 8,799 India 110 419 471 179 Kelly..springfield 1,166d 1,526d 1,453 3,440d Lee 72d 234d 300 1,67od Miller 2,050 2,217 3,533 1,025 Mohawk - 237 581 610d Seiberling 13 806 1,245 359 United States 7,393 8,368 170310 8,535° dDeficit. • Before Federal taxes. bIncludes '5,000,000 credit transferred from reserve and applied against operating expenses• • Includes ,6,000,000 received from U.S. Rubber Plantations, Inc., on December 31, 1926, as "Dividend." The entire profit figure of ,8,5350380 was applied against inven­ tory losses. one of the best financial years in the history of the industry. The explan­ ation of this lies in the stimulation given to buying as referred to above and in the great appreciation in the value of inventories, both of tires and of crude rubber on hand or under contract. Both these factors operated in the opposite direction during the fol­ lowing year. Sales were unsatisfactory, even where higher prices brought about a larger total value. Many companies had made forward con­ tracts for a longer or shorter period at prices above the prevailing market price so that they were using dear rubber in tires which had to be sold at prices based on current quotations for crude rubber. Furthermore, in­ ventories which had appreciated during the previous year now greatly declined in value. The result was a year of more acute financial distress than the industry had known since the depression of 1920-21.54 Taking rubber manufacturing aa a whole only 55% of the establishments made profits for the year.66 While it is true that the 45% which failed to make profits were, in general, the smaller companies and this 45% represented

51 AmeriefJn BfJnlcers' Assoe/lllion ]ournfJI, New York, September 1926, p. 139; IRW, July 1927; and Rubber Age, March 25,1928, p. 664 • . "'IR&'fR, May 1927, p. 18. Bi>ibid., August 1927, p.22. 154 GOVERNMENTAL CONTROL OF CRUDE RUBBER only about 7% of the total volume of sales, the larger companies with few exceptions also saw their profits of the previous year greatly re­ duced.56 (Table XXVIII.) 1. Shares During the first year and a half of restriction the shares of rubber manufacturing companies generally declined, though there appears to be no evidence that the decline was in any way affected by the enactment. The lowest point for most of the companies was reached in May and June of 1924. With the improvement in general business conditions and particularly with the rise in crude rubber prices which served to stimu­ late demand on the part of tire users, shares commenced a rapid ad­ vance. By October and November 1925, when share quotations for the majority of the companies were at their highest point, the market price of certain of the companies had risen by more than 400%. The average increase, from the low level of 1924 to the high levd of 1925, for those companies whose shares were quoted on the New York stock exchange was 250%. On the other hand, a selected group of twenty-five industrial stocks showed an increase of slightly less than 80% for the same period. Much of the increase in prices of tire company stocks was lost during the next year and the lowest quotations of 1926, it may be noted, aver­ aged approximately 10% below the lowest quotations of 1922. Presumably the profits earned in the long run by the tire companies would be unaffected by the prices of crude rubber but the evidence seems to show that the profits fluctuated in direct relation to the prices of crude rubber. Aside from extraneous influences in the market the value of shares would tend to reflect this movement in profits by a move­ ment in the same direction. Contrary to what might be expected the shares of companies owning rubber estates showed no appreciable difference in their movements from those not owning such estates. 5. crechnical changes Largely as a result of restriction and particularly because of the ex­ periences of the boom period a keener interest was manifested in the use of statistics. In addition to the increased activities of the Rubber Divi­ sion of the Department of Commerce, most of the large companies have statistical branches of their own, independent of the work done by trade

Ie Figures of the Bureau of the Census show a decline in the number of establishments engaged in the manufacture of tires from 178 in 19z1 to 160 in 19z3, n6 in 19z5, and 109 in 19z7. This trend was due to failure and consolidation but any connection be­ tween the movement and restriction would be difficult to establish. EFFECT ON THE CONSUMING COUNTRY ISS organizations and periodicals. Statistical data for the rubber industry generally have become very complete in recent years.67 Modifications in· marketing practice have been introduced or at­ tempted but the permanent results have been slight.,Perhaps the most important was to abolish spring dating whereby manufacturers guar­ anteed prices many months ahead and were obliged to carry large stocks of tires and rubber instead of manufacturing as shipments were made. Unfortunately, the opposition of retailers during the period of slack buying that followed the decline in crude rubber prices prevented this improvement being made permanent. An attempt was made at the same time to reduce the size of stock carried by retailers. No permanent change was effected in this direction, however, and subsequent increases in the number of tire sizes helped to bring about an increase rather than a reduction in stocks. The interest in the standardization of tire sizes was greatly stimulated by the rubber shortage. While the economies in the way of elimination of a great deal of the expense for new molds and in reduced stocks of tires for both manufacturers and retailers are obvious, automobile designers and manufacturers have insisted upon freedom to develop such tire sizes as they see fit and tire manufacturers have been compelled by com­ petition to produce whatever designs the more important car manufac­ turers asked for. So, while a continuance of the rubber emergency might have brought relief in this direction, easier conditions with regard to the supply of rubber caused interest in measures of economy to flag so that in 1927 twelve new, non-standard sizes were added, a large number of the sizes being used only on a single model.68 Other changes of a technical nature in the manufacturing industry include the increased use of reclaimed rubber and accelerators and other chemicals, and are elsewI.:re referred to. (See pp. 141-5, above.) As a result of losses incurred during the price movements of 1925-26 manufacturers are reported to be carrying smaller stocks of crude rub­ ber. While they may take a five months' position on cotton they try to take no more than a three months' position on rubber, so eliminating as much as possible the risk of loss on a falling market.69 At the same time that tire manufacturers were increasing their effi-

17 Statistics of the acreage planted to rubber in British Malaya constitute an exception to this statement as reliable figures are lacking for recent years. 18 Report of Division of Simplified Practice, Department of Commerce, Washington, October 8, 1927. Efforts at simplification were, nevertheless, continued and in 1928 a reduction in the number of balloon tire sizes from forty-two to eighteen was agreed upon by representatives of engineering and trade organizations. How effective this agreement will prove remains to be seen. It IRJY, November 19'J.7, p. 70. 156 GOVERNMENTAL CONTROL OF CRUDE RUBBER ciency by the use of cheaper materials and more scientific compounds, they made, over the period 1914-25, greater advances in output per man-hour than any other industry studied by the Bureau of Labor Statistics. The ~dexes are as follows: TABLE XXIX INDEx OF PRODUCTIVITY IN TIRE MANUFACTURlNd'° Production Man-Hours Productivity Index Index Index 1914 100 100 100 1919 394 303 130 1921 309 163 190 1923 527 198 266 1924 580 193 301 1925 680 21 9 3II It would be hazardous to ascribe any part of this development to re­ striction since the tendency was very pronounced before the Stevenson Act was passed, but these various improvements together with the active competition prevailing in the industry explain why the cost of tires has shown a downward tendency and was less even during the period of high prices in 1926 than before the war.61 The burden of restric­ tion upon the final consumer was thus but slightly felt and consisted not in the necessity of paying higher prices but in the failure to realize the full benefit of the improvements made. 6. Cf'ire prices The question of increases in tire prices as a result of restriction proved to be highly controversial during ~e Congressional investigation and at times the sessions were diverted into an investigation of the manufac­ turing industry rather than of restriction,62 one of the Congressmen de­ claring that he was inclined to believe that they had been investigating the wrong fellow. Up to the beginning of 1925 restriction had exercised no apparent effect upon tire prices unless the stability of the price of crude rubber may have contributed to reductions. In any event tire prices at that time were the lowest they had ever been, in addition to which the mileage given by the ordinary tire had been increased three or four times.53 Late in the spring of 1925 the rising costs of crude rubber made advances in tire prices necessary, the changes in wholesale prices being indicated by Table XXX. T~e increase in cost to the final purchaser was somewhat greater than IOMonlhly Labor Review, December 1926, p. 31. llT/ide Rub"" Age, November 25,1926, p. 174. ft Vide Hearings, pp. 130-5, 140-3, 264-]1, etc. II Rub"" Age, November 25, 1926, p. 174' EFFECT ON THE CONSUMING COUNTRY 157 these figures indicate since all the agents in the process of distribution calculate on a percentual mark-up based on cost to them. Thus the re­ tailer would increase the price of the tires not only by the amount of the increase in wholesale price but by a sum sufficient to asllure him of his usuarprofit on the additional outlay.54 If jobbers stand between the manufacturer and the retailer the pyramiding process is carried still further. But it was alleged that even when allowance was made for pyramiding the increase in cost to the consumer was entirely out of pl'o-

TABLE XXX WHOLESALE PRICE INDEXES FOR AUTOMOBILE TIRES, 1920-2886 (MONTHLY AVERAGE, 1926= 100) '920 '92' ~'=- -.!J23 '92 1- '925 1926 '927 1928 January 210·7 21 9.7 127.7 109.7 IO!.I 82.8 123.3 78.6 69-7 February 210·7 210·3 127.7 II!.I 10!.1 82.8 IIo.8 78.7 69.8 March 225.6 210·3 126'5 116.8 10!.1 82.8 108.8 78.7 69·3 April 234.2 210·3 126·5 II8·7 10!.1 82.8 108·3 78.7 69.8 May 244·9 172.5 124.4 120.8 101.1 84·7 108·3 78.7 69.8 June 244·9 172.5 119·5 112·4 94. 1 89.6 108,3 78.3 62.2 July 244·9 172.5 113.6 106.8 87·7 102.1 97. 2 77-9 61.6 August 244·9 172.5 106·7 106.8 87·7 105.0 92.8 77-9 6!.6 September 244·9 172.5 106·7 105.2 87.1 105.0 91.4 77-4 61.6 October 244·9 172.5 101.2 102·9 83·4 119·5 91.4 74-9 60'9 November 21 9.7 134·4 101.2 101.9 82.8 123.3 83.6 71.2 58.1 December 219.7 127.7 103.6 lOLl 82.8 123.3 78.6 69'9 58.1 Average 232.5 179.0 115·4 109.5 92.6 98.6 100.0 76,3 64·4 portion to the increased cost of crude rubber, so that the manufacturers appeared to be making use of restriction to extort unreasonably high prices for their tires. Thus it was claimed that an increase of $11 in the cost of the crude rubber in a balloon tire resulted in an increase of $28 in the price to the consumer;66 and an increase of $2.95 in the cost of a tire of another size led to an increase in the retail price of $12.15.67 While the manufacturers admitted that they,occasionally added an extra 5% or 10% to protect themselves in a fluctuating market they denied vigorously that they had ever u~ed restriction as a pretext for undue increases in price.68 Nevertheless, the president of the United States Rubber Company stated that the increase was not entirely due

"Hearings, p. 140. It may be stated that such a mark-up would seem unlikely to continue since only one cost, that of interest, is increased whereas this system of mark-. up allows for an increase with respect to all of the costs entering into the final price. The rate of mark-up would in the long run tend to be reduced if prices remained high. 86Commerct T,ar!Jook, 1929, Vol. I, p. 483. II

"Hearings, p. 280. 7IIR&'f'R, December 1926, p. 15. h may be mentioned that as early as 1923 Secretary Hoover had suggested a buying organization as a means of combating the Stevenson Plan. The opposition of the Rubber Association of America to this proposal was one reason given by Mr. Firestone for his withdrawal from that organization.-M'f'&RJ, July 3. 1923. p. 864. "It was agreed that the various companies should enter into a contract arrangement whereby each should pay at a stated period an assessment based on the price of the commodity. These purchases should be financed by three banks, Chase National, National Bank of Commerce, and the International Acceptance Corporation. A single purchasing agent was to be designated to make the purchases. At no time would any particular member of the pool be called upon to finance the rubber purchases alone. In case the market for crude rubber should advance through application of restriction, . quantities of rubber from the pool were to be gradually released to aid in adjusting the situation. At these times the commodity would also be released to the manufacturers who were members of the combination.-J. of c., December 3, 1926. 71 IR&'f'R, December 1926, p. 30. 71SlaI;st, December II, 1926, p. 1068. 77 J. of c., December 3, 1926. 160 GOVERNMENTAL CONTROL OF CRUDE RUBBER the notably steady prices of 1927. In general the effect was slightly bullish since most of the purchases were supposedly made on a weaken­ ing market when the price was around 40C to the pound. Later, with price around 35c it was felt that the pool would try to maneuver price back to the higher level to avoid writing off heavy losses. The pool was extended for an additional eight months from August I, 1927, when it would automatically have expired, since it was feared that a sUdden liquidation would demoralize the market and it was hoped, over the additional period, to be able to get rid of the stock of rubber gradually.78 Despite the losses of nearly '$20,000,000 alleged to have been incurred by the pooF9 it was announced in April 1928 that the pool was to be enlarged to a capitalization of '$100,000,000 and continued in existence. This decision was reconsidered and by the middle of the summer the pool was reported to be completely liquidated.80 8. Foreign trade The improved prices which followed the enactment of restriction served, naturally, to increase the cost of our imports. This tendency became very marked in 1925 when an increase of less than 21% in volume of imports represented an increase in cost of 147%, and again in 1926 when imports 26% greater in volume than in 1924 cost the im­ porters 190% more than in 1924. The average import prices of crude rubber since 1900 are shown in Table XXXI. As a result, principally, of this great increase in price crude rubber became our most important import during these years, passing silk, coffee, and sugar. In so doing it increased from 4.8% of our total imports to 10.2% in 1925 and 11.4% in i926.81 Furthermore, it was a consider­ able factor in the decline in the so-called favorable balance of trade both years. TABLE :XXXI AVERAGE IMPORT PRICE OF CRUDE RUBBER82

1901-05 ~.628 1923 ~.267 1906-10 •819 1924 .237 19II- 15 .634 1925 .484 1916- 20 ·474 1926 .546 1921 .178 1927 .356 1922 .15 1 1928 .250

T8]. oj C., June 17,1927' 7D New Torlt ']"imes, April 8, 1928. 80 August 25, 1928. BICommerce Tear"oolt, 1925, 1926. 82i"id., 1929, Vol. I, p. 468. EFFECT ON THE CONSUMING COUNTRY 161 Before the war American manufacturers of rubber products were so occupied with the rapidly expanding domestic market that they made little effort to develop the foreign field. During the war, however, those countries cut off from the European sources of supply turned to the United States, with the result that at the end of the war America was the leading exporter of rubber products. The trade slump after 1920 to­ gether with the renewed competition of European countries, most of which were aided by depreciated exchange, reduced the 1920 export iii the following year to scarcely more than a third. From the low point of 1921 the volume of export trade recovered steadily as shown by Table XXXII. TABLE XXXII EXPOI.TS or RUBBEI. GOODS nOM THE UNITED STATES, 1920--2.8" (ooo's OMITTED) J85.437 J4o,622 30,208 52,630 34,009 60,733 36,972 70 ,691 69,545

The increase in exports of rubber goods during 1925 was estimated to be due one-fourth to increased prices and three-fourths to increased volume while in 1926 it was due three-fourths to increased prices and one-fourth to increased volume. 84 It is seen from this that the foreign, like the domestic, demand for manufactured articles was stimulated during the period of rising prices and fell off relatively during the period of the slump. The sharpest increase in the export of individual commodities oc­ curred in the case of reclaimed rubber and tire accessories and repair materials. A similar increase in domestic consumption in the United States during 1925 was ascribed to the conservation program of the Department of Commerce but the fact that the same phenomenon ap­ peared outside the reach of the department's influence would seem to indicate that it was primarily the result of price and technical devel­ opment. I t has been mentioned that tire manufacturers found sales slow during 1926 in the home market. A similar situation in the foreign field led to very keen competition among manufacturers of the different countries. Americans were charged with cutting prices in Great Britain in order to . break the Stevenson scheme, while French manufacturers had the ad- "Foreign Commerce and Navigation of the United States, Washington, Government Printing Office, annually• .. Commerce rearboolc, 1925, p. 421; ibid., 1926, Vol. I, p. 465. Part of this increase in price in 1926 was due to the sale of higher grade tires, particularly of the balloon type. 161 GOVERNMENTAL CONTROL OF CRUDE RUBBER vantage of weak exchange rates. In order to protect the British manu­ facturers, most of whom were operating at a 10ss,85 a 33 IIJ% duty was placed on the import of automobile and motorcycle tires into Great Britain.86 Since American manufacturers with branches in Canada have to pay only two-thirds of this duty, the effect has been to check exports relatively from the United States and to stimulate them from Canada. This law has also had the effect of forcing some American companies to open branches for the manufacture of tires in the United Kingdom. The Goodrich Company opened such a branch before the imposition of the duty, partly in anticipation of this eventuality. Several other com­ panies have followed since the duty was imposed. It has been 'c1aimed, as a result of these developments, that the British manufacturer is now faced with severer competition than before the protective duty was imposed.

iii IR&'f'R, March 19l7, p. 26. -ibid., May 1927, p. 20. CHAPTER VIII EFFECT ON THE INVESTING COUNTRY

mE end of 1927 it was estimated that 30 % of the total acreage planted to rubber was controlled by companies domiciled in the United Kingdom.1 While this is a rather mailer proportion than is ordinarily assumed, it must be -Arremembered that probably 40% of the total acreage is owned by natives, leaving 30% divided among the nationals of all other countries.2 This makes Great Britain by far the most important single investing country. Though such estimates are very uncertain, one of the most recent states that the total capital invested in plantations is about $900,000,000 of which the British, including natives in Malaya and Ceylon, hold 58% and the Dutch 15%, while Americans trail with 3.7%.3 Certainly the British, despite the growing importance of Dutch and native rubber, represented the largest share of capital in the industry throughout the period of'restriction. Thus, a consideration of the effect of restriction upon the investing countries may be largely confined to Great Britain.4

T. 'J'be rubber manufacturing industry British manufacturers of rubber goods, it may be stated, did not join the general chorus of British approval of the Stevenson Act. It was early pointed out that there had been no real representation of the manufacturing interests on the Stevenson Committee so that it was scarcely in a position to speak for the industry as a whole, including both growers and manufacturers.5 Workers in the manufacturing industry joined in this protest, one of the officers of the labor union declaring that, 'RGA Bull., December 1927, p. 734- 'Included in this last group are many Britishers who own stock in companies domi­ ciled in Malaya, Ceylon, and India, the so-called "dollar" or "rupee" companies. IIRII', November I, 1927, p. 65. ·See Table XXI showing the decline in the British share of the total world output of rubber. - 'London !times,November 26,1922. On the other hand, it may be remarked that the Committee of Civil Research which finally voted to abrogate restriction included neither planter nor manufacturer of rubber in its membership. This committee is supposed to have consisted of Sir Herbert Hambling, the banker, Sir Sydney Chapman, chief eco­ nomic adviser to the Government, and Mr. G. C. Upcott, Deputy Controller of Supply Services at the Treasury. Not one of these men was connected with the rubber industry. 164 'GOVERNMENTAL CONTROL OF CRUDE RUBBER Mr. Churchill has bequeathed many gifts to his country, but surely his appeal to the present Government to continue this one-sided legislation of his creation will be ignored. Rubber manufacturing concerns may sink or swim, the workers in the industry may go to perditi~n, if only the speculator can be saved.' During the period of high prices the protests of the manufacturers were again renewed and as before, threats of joining with the Americans were made and the usual arguments against a continuance of restric­ tion were rehearsed. But in view of the fact that rubber growing is much more important than rubber manufacturing in British economic life these objections of the manufacturers had as little effect as the protests of the Americans. It may be assumed that the effects of price move­ ments upon British manufacturers were much the same as on the American manufacturers, and these have already been considered.

2. Profits Rubber prices in 1920-22 were so low that the returns to the planta­ tion companies were often below the bare all-in cost of production. The rise in rubber prices following the enactment of restriction remedied this situation and profits rose steadily during 1923 and 1924 and in 1925 leaped upward. Dutch companies in the unrestricted areas were bene­ fited relatively much more by the improved prices but for this very reason the increase in their gains during 1925 was less than for the British companies. The Dutch companies were not able to increase their output to the same extent relatively and, furthermore, forward contracts for a large part of their output reduced the gain that might otherwise have been derived from the increase in prices.7 This situation is indicated by the following figures of profits made by Dutch and Brit­ ish rubber companies from 1920 t? 1925:8 1920 1921 1922 1924 1925 Dutch" bl.2% b9.1% 2.6% 10·3% 21.6% British 11.4 1.0 3.7 8.0 23.8 • Figures represent 78% of the Dutch companies. bDeficit. Experience with forward contracts indicates that the general attitude of the shareholders is that they are all right if you win and all wrong if you lose. "'hen prices rise company directors are blamed for the forward contracts they have made, while on a falling market they are blamed for not having sold more rubber forward. A study of the forward sales made by plantation companies during 1925 and 1926 shows that the rising prices of 1925 led to unusually heavy forward commitments at that time • Financial '1'imes, March 21, 1923. 'London Economist, May 21, 1927, p. 1070. 'ibM. EFFECT ON THE INVESTING COUNTRY while the falling prices in the following year caused them to be few. The erstwhile chairman of the Advisory Committee on rubber restriction has offered the following averages of forward sales entered into by a large group of British rubber companies as fairly representative of the extent of the practice:· 31% made no forward sales; 16% made forward sales of less than 1/6 of crop; 22% made forward sales of 1/6 to 113 of crop; zo% made forward sales of 113 to 1/2 of crop; II % made forward sales of more than I /2, of crop. One of the most common objections offered to the practice of forward selling is that it tends to depress the spot price of rubber at the time of delivery. The argument ii> that manufacturers who have bought a large part of their requirements can depress day-to-day price by deliberately refraining from buying. It was on this ground that the Rubber Growers' Association declared its opposition to forward selling.lO However, this contention overlooks the fact that forward sales reduce supplies to the same extent that they reduce the amount demanded. And it would seem that by enabling the producers of rubber to cover the most urgent of their necessary expenses through the return from their forward sales the more exigent sellers have been kept off the market. Little weight, therefore, can be conceded to this objection.ll Another objection advanced against forward selling is that it is gambling.12 Knowing how widely rubber prices have fluctuated in the past, however, it would seem that the directors who refuse, when the opportunity is offered, to sell at least a part of their output at a price which insures them of a reasonable margin above cost of production are indulging in speculation rather than those who do make such sales.13 A sounder policy, and one which is quite widely followed, is to sell suffi­ cient rubber ahead to cover production and operation costs, leaving the balance for current marketing. • Manchester Guardian Commercial, January 20, 1927, p. 62. 10 PAM Report, 1922, p. 23. 11 I t is true that in an extreme case this objection might hold true. Assuming that at a given price 100,000 tons of rubber are demanded and 110,000 tons are offered for sale, if 80,000 tons are removed from the market for spot rubber through forward con­ tracts made previously, then the higgling between sellers offering 30,000 tons and buy­ ers wanting 20,000 at the assumed price will force price down farther than would have Occurred if there had been no forward contracts. This, however, is a very extreme exam­ ple, and it may as readily be shown, by assuming a demand of 110,000 tons and a supply of 100,000 tons at a given price, that price might also be raised because of the forward contracts. ". Manchester Guardian Commercial, January zo, 192,7, p. 62,. lIibid. 166 GOVERNMENTAL CONTROL OF CRUDE RUBBER The policy of different companies has varied considerably with respect to forward contra,cts. Thanks to the contracts they had made a number of sterling companies were able to pay dividends even during the slump years, 1920-22, although it is claimed that not a single company was able to pay dividends out of profits made from the sale of rubber at or near the average market price prevailing at that time.14 Similarly, a considerable number of companies were able to make greater profits during 1926 than during 1925 partly because of favorable forward con­ tracts.1Ii Unfortunately for the companies, scarcely any contracts were made at the highest prices quoted and all too few at the highly profitable prices slightly below this maximum. In part this was probably due to the severity of the criticism of company officers on account of contracts in force during 1925-26 at prices around one shilling and six pence.IO Boards were bitterly assailed, largely because they did not have clair­ voyant powersP Those companies which did make forward contracts during 1925-26, and some contracts were closed to run as far as 1930, have obtained returns considerably in excess of market quotations. A tabulation made in August 1926 of 430 British plantation companies having a combined total standard production of 149.328 long tons showed that 85,198 tons had been sold forward over a period of years at an average price of $0.5579 per pound.1s These same companies reported an average all-in cost of $0.2037 per pound. Attention may be called to the fact that the proposal was considered during the rubber shortage of 1925 of entering into a plan for controlling prices through long-term contracts. Failure to do so was extremely for­ tunate for the manufacturers. inasmuch as these contracts would have been based on prices prevailing at the time, the extent of the price reaction being anticipated by no one. Experience with forward selling under restriction seems to indicate the wisdom of maintaining such a policy. While certain companies failed to make the extremely large gains they might have made during 1925-26 because of forward commitments, still larger sums were lost by other growers because of failure to sell ahead during the period of boom prices. The high prices that were realized at this time discouraged the making of forward contracts at reasonable prices by giving producers an eXag­ gerated confidence in the ability of restrictive measures to maintain high uMadaren, p. 68. "London 'l'im,s, April 24, 1927. I'M'l'&RJ, April IS, 1927, p. 408. 17 Manchester Guardian Commtrtial, January 20. 1927. p. 62. lIIR&'fR. December 1926, p. 28. _ EFFECT ON THE INVESTING COUNTRY 167 prices. This would appear to be another instance in which the Stevenson Act worked hardship by the uncertainty which it introduced into the market situation. 4. Finan[;al condition of plantation companies The improvement in price that followed the passage of the Stevenson Act was reflected, naturally enough, in'the improved financial condition of the rubber companies. The gradual improvement in profits and divi­ dends from the time of the passage of restriction up to the period of the rapid rise in rubber prices in 1925 is apparent from Table XXXIII. The price rise that occurred in 1925 resulted, as is seen from the table, in greatly increased profits and dividends. The movement of share values has been less gradual than that of profits and dividends, and has tended rather to follow commodity prices.11 Thus, a marked increa3e occurred just after the passage of re-

TABLE XXXIII FINANCIAL CONDITIONS OF PLANTATION RUBBER CoMPANIES AND ALL OrHER INDUSTIlIES, UNITED KINGDOM20

Per Cent

P~~t ICa':oied IRUbber II~~s-IRubberII~~s-IRu""erl I~~S- Reserves trIes tries trIes 1St Quar., 1920 13.6 4.8 14.1 35.6 4·4 5.1 12·7 11.2 2nd Quar. 16.8 6.0 12·9 35.6 8.0 5.0 13·9 13·7 3rd Quar. 16.6 p 27·5 31.3 4·3 4·9 16.1 14.2 4th Quar. 15.2 5-5 34.6 36.6 6·3 5·3 9.6 11.6 Average I 15.6 I 5-4 I 22·3 I 34 8 I 5. 8 I 5.1 I 13.1 I 12 7 1St Quar., 1921 11.8 3·4 53-9 29·3 4·4 4.0 4·7 10·3 2ndQuar. 11.2 2·5 32•8 21.4 4.6 5.6 7.8 12.6 3rd Quar. 8.4 0·3 16.2 3.1 12.0 5.0 3·9 9·7 d 4th Quar. 6·5 O·3 Loss 4·od 0·9 5.1 1.3 7.6 Average 9·5 ! 1·5 I - I 12·4 I 5·5 I p I 4-4 I 10.1 dDecrease. "It is, perhaps, needless to remark that changes in the value of rubber company shares merely represent changes in the market quotations for the securities and not intrinsic or physical changes in the properties for which these securities stand. An in­ crease in the value of shares, therefore, indicates no permanent addition to the wealth of the country as a whole. I°London J!.c0no"!;st, quarterly: figures. This anal~sis is made from the reports of stock companies which appear dunng the quarter prevIous. The financial period covered by reports may end several months before the beginning of the quarter under review. , 168 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE XXXIII (Continued) FINANCIAL CONDITIONS OF PLANTATION RUBBER. COMPANIES AND ALL OTHER.INDUSTR.IES, UNITED KINGDOM Per Cent of

;6 Companies 75 Companies in Unrestricted Areas I, in Restricted Areas Aoerage Declared IAverage Marleet IAverage Declared IAoerage Marleel Capitalization Capitalization Capitalization Capitalization Per Acre Per Acre Per Acre Per Acre £ I £ I £ I £ June 1922 5I!I/3 41/ 11/3 63/14/0 59/3/ 6 December 51/15/0 59/ 7/6 63/12/ 0 75/ 8/ 0

June 1923 50! 110 68/7/6 63/18/ 8 84/n / 2 December 49/15 0 6S / 1/3 63/ 7/ 5 76/ 1/7

June 1924 49/n /3 53/ 113 63/ 2/ 5 58/14/ I December 49/15/0 69/ 8/9 63/ 4/ 2 79/ 8/3 June 1925 50/ 10/ 0 95/ 613 6i/l8/u 96/17/ I December 50/3/9 174/613 61/1'3/4 179/12/ 8

June 1926 50/ 0/0 139/7/S 60/IS/9 146/18/ I December 50/ 0/0 124/18/9 60/10/11 132/14/ I

June 1927 49/11/3 108/3/9 59/ S/ 7 114/7/ 6 December 48/17/4" 102/13/4" 58/ 9/ 7 111/11/ 6

June 1928 48/ 1/4" 56/ 0/ 0" 57/ 9/ 9b 65/13/ 9b December 47/ 1/4" 57/ 6/ 8" 56/18/uo 63/18/no June 1929 46/ 18/ 8" 6S/l4/8" 56/ 5/ 0d 80/ 8/nd " 15 companies °73 companies b74 companies d72 companies during the period of the panic in 1925. The trading in shares became almost as speculative and excited at that time as the trading in crude rubber. A lag between the movement of share values and commodity prices is, however, apparent. (Table XXXV.) Shares reached their highest level early in December 1925, at which time the shares of many of the companies were at least double their price at the beginning of the year, while the shares of some of the companies were four times as high, IlCompiled from Rickinson, Rub"er Companies' Position, monthly. 170 GOVERNMENTAL CONTROL OF CRUDE RUBBER TABLE XXXV INDEXES or THE PIlICES or CIlUDE RUB BEll AND RUB BEll COMPANY SHARES21

Rubber Shares of 52 End of Rubber Companies January 1925 100 100 February 105 96 March 127. 105 April 124 103 May 207 106 June 21 9 II9 July 256 145 August 233 146 September 242 177 October 279 186 November 314 208 December 265 220 January 1926 193 196 February 148 180 March 166 199 April 135 185 May lIS 182 as they had been at that time. From this peak there was a gradual de­ cline. A slight improvement in share quotations occurred from time to time, as when rubber prices revived and again when the American Pool. was announced,22 but the trend has been steadily downward. It is likewise apparent from the figures showing the market capitali­ zation of the various rubber companies that despite the fact that sterling companies in unrestricted areas voluntarily practiced restriction their shares rose relatively more than the shares of companies in restricted countries. Similarly, they dec1ined less during the slump in prices in 1923-24. This result was to be expected, since the freedom from com­ pulsory restriction made it possible, at least, for these companies to earn larger dividends, and would certainly have been still greater but for voluntary restriction. Again it is seen from the quotations for 1929 that the shares of companies in unrestricted areas lost much of their relative gain following the removal of restriction. The wide disparity between the market and declared capitalization of certain companies, as well as the seemingly excessive dividends real­ ized, is partially explained by the practice which was formerly common of issuing new shares at a premium. This premium has amounted in ·SI4Iist, December II, 1926, p. 1068. -London Economist, June n, 1926, p. II3S. EFFECT ON THE INVESTING COUNTRY 171 some instances to as much as 1400% and resulted in such extreme cases as the following;24 I. The Consolidated Malay Estates, Ltd., with a paid in capital of £75,000 had received an additional £7'1.,3'1.8 by way of premiums on new issues. '1.. The Malacca Rubber Plantations with a paid in capital of £525,000 had received an additional £575,000 by way of share premiums. One issue of £1 shares was sold at £14 premium. 3. Linggi Plantations, Ltd•• with a paid in capital, June 1919, of £n5,ooo had a share premiums account amounting to £351,8'1.2. Of this total, £345,000 was recapital­ ized in 1919, bringing the paid in capital to £460,000. One issue of shares was made at 1400% premium. Largely in order to free the companies from the criticism that they were making exorbitant profits an attempt has been made in recent years to bring share capital closer to the amount of capital actually invested through the issue of "bonus shares."25 It is also clear from Table XXXIII that the position of the rubber companies improved with respect to reserves. During the slump years profits were small or non-existent so that considerable sums were taken from reserves. With the increase in rubber prices an increasing proportion of profits was devoted to reserves. Since this increasing per­ centage is calculated on an increasing base it is apparent that the strength of reserves increased rapidly. It may be noted that for a time the rubber industry was devoting less of its profits to reserves than other industries were doing but as profits became greater this condition was remedied. In view of the alleged risks in the industry, which have been offered as a justification of the high rate of returns demanded, sound financing would seem to prescribe high reserves. In certain quarters it is felt that in view of the fact that restriction was, strictly speaking, an emergency measure a still greater share of profits should have been devoted to re­ serves.26 The practice, already mentioned, of paying large dividends in the rubber industry made it difficult, however, to strengthen reserves at the expense of dividends. This failure to provide more fully for reserves was largely due to the desire of stockholders to realize large dividends by way of recouping for the lean years of 1920-22. Furthermore, the general over-confidence in restriction and the belief in its permanence tended to make directors neglect conservative policies. 5. Organization of new companies The high prices.of the boom period led to the formation of a consider­ able number of new companies and to the extension of operations by existing companies. Native planting was stimulated to a still greater

141 Maclaren, p. 69. Ie idem. ·SIIII;S/, April '1.3. 19'1.7, p. 715, October 8, 19'1.7, p. 561, and passim. I7l GOVERNMENTAL CONTROL OF CRUDE RUBBER extent and the' planting in unrestricted areas appears to have exceeded that in the countries subject to the Stevenson Act. In different ways, therefore, the predominance of the British rubber owning interests has been reduced. Higher land values, particularly in Malaya, and the utili­ zation of the most accessible areas have led to a somewhat greater per acre cost of planting. It remains to be seen to what extent this will be offset by higher yield due to the more scientific methods employed on the large estates such as budding of trees, seed selection, and the like. The lead of the British in rubber production seems to be seriously menaced and in view of the large amount of new planting, particularly by natives, as well as the development of the reclaiming industry there is little probability that the price of rubber will be as high in the future as it has been in the past. It seems safe to predict that the period of general high profits for rubber plantations is at an end and we may expect that in the future rubber production will occupy its place along with other established industries and conform to the general level of profits prevailing elsewhere. While these changes might have occurred in any case they would seem to have been hastened by restriction. 6. Proportion of increased prices going to British investors During 1925,475>440 long tons of rubber were produced on planta­ tions in the middle east. If we accept the estimate of the Rubber Growers' Association and assume that 30% of the producing area was owned in the United Kingdom, that all this area was subject to the average restriction for the year of 67%, and that the average market price for the year was received, the total selling price for the rubber pro­ duced on estates owned in the United Kingdom would amount to $155,cxJO,000. If we assume an average all-in cost of 20C per pound the result would indicate that something over $110,000,000 accrued to British shareholders as profits from the sale of rubber during the year. These assumptions are admittedly very general. The price actually realized was certainly considerably less than the average market price for the year, while the assumed all-in cost is only an approximation. Nevertheless, the figures give a rough indication of the returns to British shareholders, and it is obvious that a very large proportion of the profits realized during this year were the result of the high prices prevailing under restriction. Similar figures might be prepared for the year 1926, when lower average prices would be largely offset by the greater export permitted. This much may definitely be said, that the investing country is more affected by high prices for rubber than is the producing country so far as the actual amount received is concerned. For where the capital in­ vested is owned abroad the chief share going to the producing country EFFECT ON THE INVESTING COUNTRY 173 consists in the payment for the costs of production and these do not vary materially whether the price be high or low, although the volume pro­ duced is of considerable significance.27 The return to the investing coun­ try, on the other hand, depends upon the excess above the cost of pro­ duction and where profits have been low they may be multiplied many times by only a slight change in price. To the extent, therefore, that the Stevenson Act contributed to an increase in the price of rubber, the in­ vesting country increased its share relatively more than the producing country. By reason of the extent of Great Britain's economic life the effects of the Stevenson Plan are not directly ascertainable aside from the values created through an appreciation in the market quotations of shares. It is apparent, however, that government revenues, for example, must have benefited through the increased incomes distributed to shareholders in plantation companies which made possible larger receipts from income taxes. The importance of the improved price of rubber in connection with the payment of the debt to America has also frequently been re­ ferred to, and similarly the service rendered in offsetting the effects of the coal strike. In both these cases the higher return to the rubber in­ dustry aided in the maintenance of exchange.

IT It must be remembered that the producing countries receive more than the costs of production since the native growers and other owners resident in the country consti­ tute a large group of investors who receive profits as well. CHAPTER IX THEORETICAL CONSIDERATIONS I. Import and export duties NE of the questions which arose in connection with the Stevenson Plan was that of the degree of similarity between export and import duties. The view of Americans represent­ ing the government and rubber manufacturers generally wasO that the two are entirely distinct, the argument being that the burden of an import duty rests upon the group which is responsible for its existence so that the question is entirely one of domestic policy. The export duty, on the other hand, bears upon foreign consumers who have no influence in its enactment and no power to force its repeal. The British maintained that there is no essential difference between import duties and export duties and indicated that they were willing to discuss export duties only if the United States were willing to discuss import duties. This put an effective damper on the negotiations. The objections of the Americans appear to have been to a particular law rather than to export duties in general. If the British were to levy an export duty on certain other commodities we may doubt whether the Americans would raise any objections whatever. Let us assume, for example, that a duty were to be levied on steel rails exported from Great Britain. British producers of rails would hardly be able to shift this tax to foreign consumers since there are many alternative sources of supply. If the effect of this tax were to raise the price of steel rails exported from England foreign consumers would turn to these other sources of supply, including the United States, and so would stimulate our exports. If, as is more likely, the British were obliged to sell rails at the same price as before the whole burden would rest on the levying country. Again, we may take the case of a British export tax on woolen textiles. So far as the British were able to throw this burden on the foreign con­ sumer because of qualities of these goods which foreign producers could not duplicate the effect would be to supplement our protective tariff. Although this duty would throw some burden on our consumers it would in all probability be received with enthusiasm by the very people who were in this instance bringing objections against the export duty on rubber on the ground that export duties in general are unfair. On the other hand, it is conceded by all respectable authorities on THEORETICAL CONSIDERATIONS 175 tariffs that the burden of many import duties is shifted in some degree upon the producers and cases can easily be imagined in which the entire burden might, for a time at least, be shifted to them. Where at a given price a certain imported commodity is on the margin of being replaced by a substitute the burden of an import duty on the commodity is almost certain to be shifted to the producers when the supply is at all inelastic. Any substantial import duty levied by this country on jute, for example, would very likely lead to a pronounced substitution of cotton for jute in case the price of the latter should rise. Since the producers of jute are probably not in a position to turn their resources into other lines which would give them nearly as large returns they would, in all probability, accept a lower price and bear the major burden of the duty. The case against import duties is, therefore, strictly comparable with the case against export duties. The difference is not between import and export duties as such but between the cases chosen to represent each. The American view rested upon the obvious difference between duties on more or less monopolizable raw materials and duties on finished products. The fundamental features which determine where the burden of an export or an import duty will rest are the degree of inelasticity of demand and the extent to which supply is inelastic from the standpoint of expansion because of the absence of alternative sources of supply. Thus, the demand for rubber is extremely inelastic and this was coupled with an inelastic supply so that it was not possible for the consuming countries to satisfy their demands from other sources. As a result the burden of the export tax could, for a time, be shifted to the buyers. 2. Raw ma/erials and manufactured articles The difference upon which the Americans insisted is rather a differ­ ence between a tax on a raw material for which there is no other ade­ quate source of supply and a tax on a manufactured article. This dis­ tinction may reasonably be made since the possibility of securing an alternate source of supply for the latter is much greater than it is in the case of the former. In fact, it may be doubted whether any manufac­ tured article can be subjected to monopoly control over an extended period of time except insofar as this is the result of the monopoly control of an essential raw material entering into its manufacture.l The fabri­ cation process cannot, in the long run, be subjected to monopoly whereas monopoly may be possible in the production of a mineral or an agricultural product the supply of which is limited by physical condi­ tions. It is such a limitation that has permitted the control of diamond production for many years, but the discovery of new diamond fields has

I The principal basis for temporary monopolization of the fabrication process is, of course, patents. 176 GOVERNMENTAL CONTROL OF CRUDE RUBBER recently shown the difficulty of effecting monopoly control when this limitation is removed or reduced. The manufactured article, furthermore, is presumably either in its final form or not far removed therefrom, whereas entire industries may depend upon the raw material. It would appear, therefore, that a tax on raw materials for which there are no other adequate sources of supply should be viewed in a somewhat different light from a tax on manu­ factured articles.2 It must be admitted, however, that altruism has very little place in foreign trade.s The truth of the matter seems to be that there, as in love and war, anything is fair. Not only is this apt to be the attitude of firms engaged therein but governments appear to endorse such a view as well, our own government being by no means conspicuous for its refusal to adhere to such views. The best example of this is the Webb-Pomerene Act which frees firms engaged in foreign trade from the limitations imposed by the Sherman Act for the protection of the American con­ sumer.4 In view of this law the British frequently pointed out the incon­ sistency of Americans adopting an attitude of superior virtue with respect to activities in foreign trade, nor was an adequate reply ever forthcoming. The justification of any commercial policy has been its supposed profitableness to the country responsible for it. Until a policy which lays more stress on international goodwill than on immediate economic advantage can be widely developed an appeal to equity is likely to be thrown out of court on the ground that the claimant does not come with clean hands.8

IThe control of any raw material is ~rdinarily more serious than the control of a manufactured product because of the dependent industries affected. However, demand for rubber is such that nearly as much will be consumed at a high as at a relatively low price. (ride pp. 181-2.) Industries engaged in the fabrication of rubber are less apt to have their operations curtailed by an increase in the price of the raw material than would be the case in an industry subject to a more elastic demand. A curious paradox results from such a situation: the more inelastic is the demand for the raw material, the greater may be the fluctuations in its price but the less will be the effect of such fluctuations upon dependent industries! This applies, of course, to the purely manufacturing opera­ tions apart from gains or losses on inventories. I ride Hearings, pp. 326{. "The position taken by the United States government is that the Webb-Pomerene Act merely puts American exporters on an equal footing with the exporter of other countries. That is, since exporters of other countries are not subject to any such law as the Sherman and Clayton Acts the American exporters should also be freed from them. 'Where combinations might extort monopoly profits from domestic consumers they are usually subjected to political control under the influence of democratic notionss of substantial equality between individuals. This attitude simply has not become cosmo­ politan. THEORETICAL CONSIDERATIONS 177 J. Discrimination Another point of dispute between the British and the Americans con­ cerned the question of discrimination. The former claimed that the United States was treated no differently from Great Britain since the British manufacturers were obliged to pay the higher price for rubber just as were the American manufacturers.8 The American view was stated at the Geneva Conference in 19'1.7: I am also wondering whether the fact that over 75% of the commodity in question is consumed in a non-producing country, while the country controlling the restrictions consumes but 7% of the total supply, might be looked upon as a discrimination.7 The difference in the two points of view lies, clearly enough, in the fact that the British focussed attention upon the individual consumer of rub­ ber while the Americans considered the country as a whole. It is true that the Stevenson Plan did not discriminate between individual consumers but it would seem to be entirely logical to regard the Stevenson Act as relating to trade between countries, with the countries as units, and from this standpoint the United States was clearly most affected by any increase in prices which may have resulted from it. However, whether or not this discrimination was justifiable or not is another question. If we start with the assumption that for some reason or other the consum­ ing countries were under obligation to increase the return going to pro­ ducers there seems no reason why the United States should not have been expected to bear a larger share of the cost than other consuming countries. It would be a matter of taxation according to ability, and the United States would naturally share more largely in any benefits to be derived from the improved condition of the growers. Most Americans, however, would have been inclined to deny the existence of any such obligation, as well as the probability of realizing any benefits. 4. State aided and private controls There was also disagreement between the British and the Americans over the alleged difference between state aided and private controls. The British declared that our trusts are as reprehensible as any'other form of monopoly and intimated that by permitting and even facilitating them in foreign trade the United States had lost all right to object to such controls as the Stevenson Act. The Americans, on the other hand, claimed that as soon as the government enters upon the conttol of prices the question is lifted out of the market place into the field of international relation- . ships, and that what might be condoned in the case of private combina­ tions cannot be condoned when the government participates, so lending 'Sir Robert Home in New Tork 'l'imes, January 3,1926. 7Reports of the Geneva Economic Conference, 1927. Fifth Meeting Verbatim Re­ Port,P·7· 178 GOVERNMENTAL CONTROL OF CRUDE RUBBER group approval to what would otherwise be a transaction between individuals. The difference would appear to be principally between active and passive support by the government. By the passage of the Webb­ Pomerene Act the United States gave its consent to virtually any measures that might be taken to obtain higher prices from the foreign consumer.s Certainly the distinction in principle is not great.s In prac­ tice the case where a government lends its active assistance to such a control is more conspicuous and may result in the control being more effective, and for both of these reasons is more likely to arouse opposi­ tion. The Americans are, therefore, correct in saying that such measures are more apt to cause international conflict, which may express itself in ill-feeling only, or may lead to retaliatory measures. The further conten­ tion, however, that the success of one country may lead to other coun­ tries undertaking similar controls with resulting chaos in market condi­ tions is limited by two circumstances. The first is that the number of commodities capable of being controlled in this manner is not large, and the second is that where such a control is profitably possible it will prob­ ably be instituted regardless of the example of other countries. 5. Supply and demand The situation which called the Stevenson Act into effect was a condi­ tion of relative oversupply with resulting low prices. Under the free operation of economic forces an adjustment would have been reached eventually by which some of the least efficient producers of rubber would have been eliminated. The process by which this was accom­ plished might have been costly in the long run and it would certainly have been painful to the industry, but it may be doubted whether some such experience can permanently be avoided.1o The measures put into effect for the relief of the industry placed plan­ tations on an approximately equal footing through restriction of output and helped bring about over a period of several years a high average ISO l~ng as the domestic consumer is not affected. This condition is much more sig­ nificant than has generally been realized. Vide Wallace and Edminster, p. 264 n. 'Manufacturers may find it easy to combine in order to effect a control so that the government need only give its consent. In the case of a raw material the control may be possible only with the active aid and direction of the government. The degree of the government's responsibility for the control is, however, hardly less in one case than in the other. It is primarily a difference in the organization of the industry. 10 On the other hand, it may be argued that the long-run needs of industry were such that the elimination, as a result of possibly temporary conditions, of any considerable number of producers would have been socially undesirable. In this case some such measure of relief as the Stevenson plan would, ceteNs pari6us, be economically sound. The opposition to rate wars and other forms of cutthroat competition embodies more or less this principle. THEORETICAL CONSIDERATIONS 179 price for crude rubber. For remedying a situation of oversupply where means of controlling the supply permanently were lacking, both of these developments were about as undesirable as could be imagined, since the effect of high prices is not to reduce production but to increase it. The result was to block the tendency to weed out the least efficient estates by making it possible for all of them to continue in operation. This served to prevent a lowering in the average cost of production which could not but have left the industry generally in a healthier condition. More important still, the high prices inevitably led to a great deal of new planting both in restricted and in unrestricted areas. This tendency was greater in the Dutch than in the British possessions, the profits of growers in the Netherlands East Indies being higher than in British Malaya and Ceylon because of their larger sales and the fact that their unit costs of production were not increased by restriction of output. It appears, therefore, that instead of the condition of oversupply being remedied it was rendered potentially worse than before, unless offset by a very pronounced increase in the amount demanded.1I

II A monopolistic control can operate to raise price only within the limits set by the tendency of demand to falI off and of supply to expand at a hig/ler price. Elasticity of demand is determined by the nature of the product, existence of substitutes, and other factors. The expansion of supply is affected by natural factors such as the limited de­ posit of a particular mineral or the limited extent of land suitable for the growth of a particular plant. But this is not all. It may be that the price of a given product has fallen below a level that will encourage new enterprisers to compete in its production. In such a case control might conceivably raise price even though there were no natural factors limiting supply. The limit to the increase of price would be set at the point where enough new producers would find it profitable to enter this field of enterprise to have a material effect on the price. The effect would be "material" when restrictive measures were no longer able to raise price by enough to cover the expense of the artificial re­ striction. The significance of the view that restriction may be effective in raising price even when there is no natural limitation upon the increase of supply is considerable. The relatively smalI amount of planting during the early years of the Stevenson Act may have been partly due to the fact that at that time the price of rubber was not much, if any, above the long-run competitive level. Again, within the United States, experience appears to indicate that one important reason why the various measures for relieving wheat farmers have not succeeded in raising price is that, contrary to popular belief, the existing price has not been materialIy below the long-run competitive level. The various aids that have been extended to farmers tended to render wheat production more profitable and to bring in new incre­ .ments of supply (or to prevent reductions in the existing supply) and so to depress price still further. Below the long-run competitive price there is a tendency for supply to contract while above this price supply tends to expand. Past experience cannot show where this price lies. for it is dynamic and changes with improvements in methods of production and of distribution or with the exhaustion of existing resources or the discovery of new. The 180 GOVERNMENTAL CONTROL OF CRUDE RUBBER Insofar as planting was encouraged in districts which were less well adapted to the production of rubber than the regions where rubber would have been planted had restriction not been in force, there was an uneconomic utilization of the resources of the producing countries,12 and the cost of production on these new plantings may be somewhat higher than elsewhere. We should expect the decrease in production from the individual estate to have the effect of increasing the cost of production per pound of rubber, and this is borne out by the experience of the majority of producers. Furthermore, both temporarily and in the long run, a relative disadvantage was placed upon the more efficient estates since they were burdened by the support given to inefficient producers and were, gen­ erally speaking, restricted farther below their potential output than the inefficient producers were below theirs. On the side of demand the conditions following the passage of re­ -striction appear also to have had results similarly in accord with theoretical expectations. The most important change to be noted was the great increase in use of substitutes, chief among which was reclaimed rubber, and the introduction of improved methods which served SOme- difficulty of ascertaining this equilibrating point establishes a strong presumption in favor of laissez/aire. This principle is sometimes expressed in the view that "the cure for overproduction lies in low prices. Artificial means of enhancing price have aggravated overproduction instead of relieving it." This criticism is obviously levelled at such experiments as the Stevenson Plan and farm relief in the United States. In terms of our theory of price control, both of these attempts were unsound in that they attempted to maintain a price above the long-run competitive level. The inevitable result was not to reduce over­ production but to increase it. Nevertheless it is true that a control that would, while not raising price above the long-run equilibrating point, keep it from swinging so low that too many producers were eliminated would be economically desirable. The ideal price will always remain an ideal but there can be little doubt that a prop­ erly informed body free frotn political pressure could have approached much closer to it than has generally been done. A primary requisite of such a price must always be flexibility. Experience with the Stevenson Plan, as unsatisfactory as it has been, has not demon­ strated that control of raw materials must fail. It is still possible that a sufficiently en­ lightened and unhampered group of men might regulate the supply of a raw material more economically than it will be regulated by the forces of free competition. There is, however, a strong case against control by any organization that would, in practice, be established. U It has also been suggested that if the output of rubber plantations is reduced in a given year below what could be produced the difference is a net loss since the part not taken is not stored up to be utilized later. The fact that resting of the trees seems to have improved the general condition and made them capable of larger yields in the future renders this criticism of restriction only partly valid, and it is probable that, in view of the abandonment and destruction of plantings that would have occurred, there was no net loss as a result of restriction in potential yield of holdings in existence in 1922. THEORETICAL CONSIDERATIONS lSI

what the same effect. The use of reclaimed rubber W!lS stimulated and reclaimed took the place of a vast amount of crude rubber that would otherwise have been required. Similarly the use of chemicals and im­ proved manufacturing processes reduced the amount of rubber required at the time of manufacture and by increasing the life of the product reduced the demand of rubber for replacements. Higher prices also pre­ vented, or checked, the expansion of new uses which might have oc­ curred. Attempts by both British and Dutch to introduce new uses were impeded. The use of rubber for paving purposes, which has been urged for many years,!' would be feasible only with crude rubber prices at a low level. 6. Restriction and stability of price One of the alleged aims in the enactment of restriction was to obtain greater stability in prices. With the exception of the period of panic in 1925-26 prices were relatively stable under restriction, but the exception was so serious that the record of restriction is certainly not a good one in this respect.14 The rubber industry, by reason of the inelasticity both of supply and demand, must be subject to wide swings in price. The usual period of seven years between planting and harvesting is one serious element in the inelasticity of supply, and the shorter, but still con­ siderable, period necessary for the tapping, curing, and transportation of rubber is another. The inelasticity of demand has operated to accentuate this situation. Nearly 85% of the imports of rubber into the United States are used for tires and tire products. Since the cost of tires is a relatively small but absolutely necessary part of the cost of owning or operating an automobile,1D and since the number of automobiles in use has been increasing steadily, the demand for rubber is very inelastic at the present time. While a plan might, conceivably, be devised for increasing the sta­ bility of prices the Stevenson scheme was scarcely of a nature to do so. As a result of the arbitrary pivotal price arrangement the supply was at times increased on a falling market and decreased on a rising market.16

"Since 1913.-RGA Bull., April 1926, pp. 17z-3. 14S0 far as the effect on price was concerned restriction may be regarded, for the most part at least, as having come to an end in April 1928, when it was announced that the Stevenson Act would be repealed. II In April 1928, when the retail price of a Chevrolet touring car in New Jersey was '559.00 the retail price of the four tires included in the original equipment was '48.80. At the same time the retail price of a Nash touring car was '1,008.00 and of the four tires provided with it, ,69.40. With the more expensive models the ratio of cost of tires to cost of car was less since in general the tires were similar to those used on the cheaper models. JOAt the end of the ninth quarter, November 19z4 to January 1925, a 10% increase 182 GOVERNMENTAL CONTROL OF CRUDE RUBBER The latter occurred in 1924 and was partially responsible for the short­ age of supplies during the period of the panic. From the standpoint of price stability the use of a sliding scale for determining rdeases would seem to have been preferable. The provision for additional rdeases above the quota upon payment of a higher rate of duty was likewise badly drawn. (See pp. 51-3.) In­ stead of being so constructed that a smaller excess would have been rdeased when prices were only moderatdy high and a greater excess with a greater rise in price, it became profitable to export to the limit of capacity before it was profitable to export any smaller amount in excess of the quota. A lower rate of duty when a small quantity in excess of the quota was exported or a higher rate on the larger quantities would have been better so far as stability was concerned. The fact that so little rubber was exported under this provision caused it to have very little actual influence upon the movement of prices, but the criticism remains theoretically valid. The plan as originally framed was characterized by its inelasticity, arising from the provision that changes in the quota could be made only by stages of 5% or 10% of standard production and only at intervals of three months. Greater possible changes in the quota were provided by the amendments made effective November I, 1926, but the quarterly period was retained. Although the movement of prices did not call these later modifications of the act into effect, they undeniably introduced greater potential dasticity into the working of the scheme, but the slow­ ness with which changes could become effective remained an undesirable feature. The British repeatedly declared that the power of regulating supplies was placed in the hands of the buyers so that the scheme was not con­ trary to the so-called law of supply and demand.17 This claim overlooked the fact that the power exerted over supply by the buyers was restricted by the limitations of the quota. The forces of supply and demand can only operate to determine a true competitive price when changes in price are allowed to exert their influence upon the amount of the com­ modity offered and the amount demanded without interference from any influence outside of the body of independent buyers and indepen­ dent sdlers. Whether such a price is desirable or not is another question was expected. In the last few days of the quarter, however, price remained low so that the quarterly average fell short of one shilling six pence by 0.0017 of a penny. Accord­ ingly, the allowance was increased by only s%. Some 3400 tons of rubber per quarter were thus withheld just at the time when the panic in the rubber market was develop­ ing.-FMS GG Supp., June 2S, 1926, p. 3. 17 Yide Miller in RGA Bull., April f926, p. 174; and RGA Bull., June 1927, pp. 360-4. THEORETICAL CONSIDERATIONS but it is only such a price which is truly the result of the operation of the forces of supply and demand. The uncertainty which accompanied restriction also served to render price unstable. This, it is true, is a criticism of the way in which the law was put into effect rather than of the law itself. It may be noted, how­ ever, that this uncertainty violated one of the conditions essential to the free determination of price, namely, that the buyers and sellers should be fully informed. A sharp rise in the price of a given commodity is ordinarily checked, in part at least, by increases in the supply offered on the market. Similarly, a decline in price may be checked by withdrawing part of the supply available from the market. This very obvious principle leads to the con­ clusion that the only effective way of bringing short run stability in the rubber market is by means of some sort of reserve. Any plan aiming at stability of prices would have to embody such a feature, for otherwise supply and demand are insufficiently responsive to changes in price. The effectiveness of this means of reducing price fluctuations was demon­ strated by the pool formed by American manufacturers at the end of J926. This pool, which maintained a considerable reserve of crude rubber, was given a large share of the credit for the absence of serious fluctuations in price throughout 1927' 7. Permanent or temporary nature oj restriction· The question whether the Stevenson Act was to be permanent or temporary remained in doubt up to April 1928, when the Prime Min­ ister announced that the law was to be repealed. At the time of the enactment of restriction it was generally assumed that the measure was for the relief of the industry only and that as soon as the conditions which called it into existence had been corrected it would be revoked. The insistence of planters upon the continuance of the law prevented this being done when high prices brought prosperity and full production to the industry. Later the change in the pivotal price and the failure of restriction to bring about a level of prices which would make possible production at or near capacity rendered the repeal of the act much more difficult. Reduced output and low prices combined to make the aban­ donment of restriction extremely difficult, since the announcement of a sudden increase in output when price was already low and stocks pre­ sumably ample, would tend to depress prices disastrously.18 The British, therefore, seemed to be in the uncomfortable position of being able neither to retain restriction profitably, nor safely to let it go.19 Never- IllPid, 'l'imes ojC'y/on, June 16, 1927; and M'l'&R], July 31,1927, p. 846. . liThe ~xplan~tio~ of the relucta~ce of ~he planters to haye the law repealed at the tune of high pnces IS to be found In their overconfidence In the effectiveness of the 184 GOVERNMENTAL CONTROL OF CRUDE RUBBER theless, it was finally decided to face the inevitable and accept the con­ sequences. There followed the announcement of the termination of re­ striction and a resulting slump in prices. 8. Defenses The defenses which would seem to be theoretically desirable for the relief of the consuming country in the case of restriction depend some­ what upon whether the restrictive measures are designed to be per­ manent or temporary. In either case, however, the strategy is the same: to endeavor to increase the volume of supply and to decrease the quantity demanded. With respect, generally, to such controls as the Stevenson Act it may be said that if restriction is expected to be temporary it may be possible to reduce demand within a short period of time through some sort of agreement among manufacturers whereby they would undertake to apportion demand in such a way as to reduce as far as possible the ten­ dency for purchasers to force prices up through competition among themselves.20 Any measures that would reduce the volume of stocks of both manufacturers and merchants would aid in reducing the immediate demand for crude rubber. It is recognized that considerable improve­ ment could be effected in this direction but it would require an obvious emergency to bring about any important change in business customs. Experience during the rubber shortage of 1925-26 indicates that the possibilities of the final consumer making very material economies are considerable. While such steps may prove of immediate and ultimate measures. This attitude was combined with a dread of facing the severe competition which would follow the removal of restriction, a fear that the experiences of 1920-22 might be repeated, and a vague hope, apparently, that some dispensation of Providence might later make possible the avoidance of the effects of unrestrained competition among growers. The nearest approach to a definite declaration as to the duration of restriction was the statement of Mr. Amery, the Colonial Secretary, that "so long as the conditions under which the present scheme is operating remain substantially the same, I do not propose to suggest any material modification in its provisions."-London <['imes, July 20, 19~7. As early as 19~3 the Legal Adviser of the Federated Malay States had declared that restriction was "not going to end this year, next year, or the year after that."­ U.S. Consul, Penang, June I, 19~3. The hope of retaining restriction until the world was able to absorb all the rubber the industry was able to produce at a price which they regarded as satisfactory proved to be unduly optimistic. It may be mentioned that <['he Statist, <['he London Economist, <['he Manchester Guardian Commercial, and other free trade papers repeatedly urged the advisabiliry of withdrawing restriction following the financial recovery of the producing companies. 10 Rising prices tend to lead to the accumulating of stocks on the part of buyers so that the rise in price tends to be self-inftammatory. Falling prices produce just the oppo- si te effect. . THEORETICAL CONSIDERATIONS disadvantage to manufacturers they are effective in reducing demand for crude rubber. . Measures to stimulate the supply of rubber or of rubber substitutes might include long term contracts with producers of reclaimed rubber, or it might even be advisable to subsidize the reclaiming industry. Simi­ larly, research should be fostered. While the results of the attempts to produce synthetic rubber have not been encouraging, success in this direction is, nevertheless, always a possibility. More, however, maybe expected from improvements in technique of manufacture and from the use of chemicals. An important feature of such efforts should be the exchange of information among manufacturers, although there are dis­ tinct limits to the extent to which manufacturers would be willing to do· this in times of peace. Efforts should, of course, be made to increase the supply obtained from countries not subject to the restriction. Mere price movements might do all that was possible in this direction, but if not, long term contracts could be made at guaranteed prices, though uncertainties as to the movement of rubber prices make such a policy hazardous. In case the restriction is regarded as more or less permanent the above defenses could still be employed but in addition certain other steps might be taken. The longer period contemplated would provide a strong incentive for the standardization of tires, thereby making pos­ sible a very great saving through the reduction in stocks required by both manufacturers and dealers. Presumably this would not change the current requirements of rubber but it would result in a large initial saving at the time the change was instituted. The importance of encouraging the developmen t of new sources of supply in unrestricted areas would be rendered paramount. To accom­ plish this the most effective course would be by means of a discrimina­ tory duty in favor of rubber from countries not practising restriction of production. Such a duty would, obviously, produce considerable reve­ nue and this would serve to offset any increase in price that might occur as a result of the tax. So long as world price remained above the pivotal price at which the reduction would be made in the exportable quota the tax would not, however, lead to a reduction in the supply of crude rubber. Hence there would seem to be no tendency in such a case to in­ crease price, and thus the incidence of the tax would be upon the country practising restriction of output.21 Similarly, by a sliding scale under which this tax was increased as the price rose above the pivotal point it might be possible to throw an increasing share of the burden upon the restricting country.21

!1 A case illustrating exactly the same principle is cited by Alfred Marshall: "When the price of wheat in Britain was raised very high, in consequence of bad harvests at home, 186 GOVERNMENTAL CONTROL OF CRUDE RUBBER A tax of this sort could be employed to make the country entirely independent, in time, of rubber from restricting countries. It is doubtful, of course, whether the policy should, or would need to, be carried to these lengths. The pronounced inelasticity of demand would seem to render any attempt by American consumers of crude rubber to control prices by setting up a buyers' monopoly in opposition to the sellers' monopoly very doubtful of success. It would be easier for buyers to unite than it would for producers, and this advantage might be sufficient to win such a contest. But assuming an organization on each side sufficiently strong to give monopoly control, the advantage would seem to be definitely with the producers. The insistence of the final consumer would make it virtually impos­ sible for the;! manufacturer to refrain from purchasing for a very long period. So great is the demand for tires that at no price ever likely to be attained would demand be checked sufficiently for the buyers to offer any very great threat to the growers. The only way in which such a contest could be conducted would be for manufacturers to accumulate so large a stock of rubber that they could withdraw from the market for a substantial period. While such deliberately and completely organized economic warfare is hardly a possibility, it is doubtful that the outcome would even then be favorable to the consumers, since the producers occupy the strategic position with their control of the supplies of raw materials, and in the end the consumers must have those supplies at virtually any figure that is demanded. foreign merchants often made very high profits by selling wheat here. Accordingly, McCulloch argued that prices in such ye.ars would not be increased by a moderate duty, nor reduced by its repeal or suspension; and that though the duty falls mainly on the consumer, when the price is only a little above the profitable importing price, to lower the duty when the price is very high would be to sacrifice revenue for the benefit of foreign growers and dealers. Telegraphic communication and the growth of a world market for wheat have rendered this argument inapplicable to wheat now; but it sug­ gests the explanation of cases in which, a tax having been imposed on a commodity in a market where it is in exceptionally temporary demand, the burden falls almost wholly on the foreigner."-Marshall, Alfred, Mon~y, Credit, and CommerCl, London, The Macmillan Co., 1923, p. 194. CHAPTER X CONCLUSION

T HAS frequently been alleged or implied that the Stevenson Act was instituted to take advantage of the predominant position oc­ cupied by British countries in the production of crude rubber in order to extort monopoly prices from the consumers. This is by no Imeans a fair view of the case. High prices had prevailed in the industry for years and had encouraged unduly heavy planting. The.maturing of these trees, the relaxing of certain restrictions which the war had placed upon production, the post-war depression, and the introduction of the cord tire combined to bring about a period of very low prices for crude rubber from 1920 to 1922. That the suffering in the industry was great is undeniable. That it was worse than in most other agricultural indus­ tries is less certain. Conditions were definitely improving at the time the Stevenson Act was passed, and demand was greatly underestimated by the committee in reaching its decision. Nevertheless, if restriction had not been passed price would in all probability have remained low for some time.1 Some

1 This is indi~ated by the large stocks of crude rubber on hand when the Stevenson Act was passed. The Stevenson Committee calculated that the volume of stocks that should constantly be available for the needs of the industry amounted to 200,000 tons, or the equivalent of eight months' supply. Instead, the quantity on hand at the begin­ ning of January 1922, was estimated at 310,000 tons. (See Appendix B.) A year later stocks on hand had increased to 330,000 tons. It is generally agreed that the potential rubber production of the world at this time and for several years following the enact­ ment of restriction was in excess of the probable world consumption of rubber. (q. Prescott, Ray B., Analysis and Forecast oj the World's Crude Rubber Consumption, New York, The Rubber Association of America, Incorporated, 1924.) The following figures of American and United Kingdom stocks of crude rubber, while incomplete, indicate the movement of total world stocks: December 31,1921 2°9,420 tons June 30, 1922 196,034 December 31,1922 216,620 June 30, 1923 185,983 December 31, 1923 176,213 June 30, 1924 144,822 December 31, 1924 1310415 March 31, 1925 120,733 June 30,1925 September 30, 1925 188 GOVERNMENTAL CONTROL OF CRUDE RUBBER holdings would not have been able to survive a continuation of the slump, though there is little to indicate that the loss in planted area would have ,been very great.2 It was as a result of this condition of overproduction and excessive stocks that the attempt was made to bring relief to the growers by keep­ ing a certain amount of their possible output off the market in order that the remaining portion might command a higher price. And it must be admitted that this is probably no more than any other industry or country would attempt if the opportunity offered itself.3 That the gov­ ernment was finally prevailed upon to enact restriction was in no small measure due to the strength of the Rubber Growers' Association, while the fact that rubber shares were widely distributed in Great Britain at a time when the share market was in need of bolstering may have played some part. In the administration of the plan a great many difficulties were met. There was trouble with smuggling, graft, evasion, and other forms of opposition that restrictive measures are apt to engender. The technical problem of equitably determining the quantity of rubber that each grower should be allowed to export was never satisfactorily solved but an improvement was brought about by freeing the assessing officers from hard and fast rules and permitting them greater opportunity for deciding each case upon its merits. December 31,1925 1°4,564 tons March 31,1926 II5,847 June 3°, 1926 1250366 September 30, 1926 135,578 December 31, 1926 170,755 March 31,1927 193,084 June 3°, 1927 196,546 September 30,1927 200,5 II December 31,1927 206,927 March 31, 1928 206,121 June 30,1928 164,780 September 30, 1928 145,209 December 31,1928 15°,787 -Commerce r,4rboolc, 1926, Vol. I, p. 455, and 1929, Vol. I, p. 472. (From statistics of the Rubber Association of America and the Rubber Growers' Association.) '''To argue, as some correspondents have done, that all plantation enterprises were heading for bankruptcy under a non-restriction regime is to ignore the fact that, as less efficient producers dropped out of the running, the position of the remaining companies would improve until supply and demand found a common level at a point yielding a moderate, not a 'pioneering,' rate of profit to the more efficient producers. While some of the English companies might have succumbed, all producers, whether English, Dutch, or native, would then have faced the lean times on an equal footing, and the Dutch colonial plantations would not have been nursed through the period of low prices at the expense of the British planter."-London 'l'imls, August 25, 1924. 'Pide pp. 175-6 and note. CONCLUSION 189 The declared aims of restriction were, first, the resuscitation of the planting industry through improved prices, second, the liquidation of excessive stocks, and, third, the maintenance of more stable prices. An improvement in price was apparent from the outset but this im­ provement was due to psychological factors rather than to any change in the statistical position of rubber. This increase in price was sufficient to enable the industry as a whole to maintain itself properly and to earn moderate profits. The plan was less effective in bringing about the liquidation of stocks and it was nearly two years before they were re­ duced to what might be regarded as normal. Concerning the stability of price under restriction it may be said that with the exception of the boom prices during 1925-26 the record of restriction'was good.· Except for this period a high degree of stability was achieved and the level of prices was generally profitable to the producer while being fair to the consumer.6 While each group was emphatic in ascribing full responsibility for the runaway market to the other the truth of the matter is that the situation arose out of a mis­ understanding for which one group was probably as much to blame as the other. The Americans were led by the committee of the Rubber Growers' Association to believe that the British government would exercise dis­ cretionary power to control speculative or panic prices. The British maintain that their committee was unofficial in character and, further­ more, that the prevention of a runaway market predicated cooperation on the part of the American consumers of crude rubber. While the Americans may be accused of too great trust or optimism, the British are not absolved from blame for contributing to this attitude. The Americans, then, lulled by their false feeling of security permitted stocks to fall below the danger point. It is altogether probable that if the buyers had realized the possibility of a strict adherence to the schedule of releases under the Stevenson Act they would have prevented stocks from falling as low as they did. The claim of the British that there was a deliberate attempt on the part of American manufacturers generally to break restri~tion is not supported by the evidence. A strong demand forced the price of rubber up gradually during late 1924 and 1925. It was not, however, until it became a probability that the British would allow restriction to take its uninterrupted course that panic struck the market. When this probability became a certainty .• Excluding again the slump that occurred when the probability of the repeal of the Stevenson Act became known. • l.t '!'ay ~e noted, however, that this price was by no mea~s always the price which restnctlon aimed to secure, and also that what may be considered a fair price at one time may not be fair at another time. 190 GOVERNMENTAL CONTROL OF CRUDE RUBBER .speculation was .stimulated still more and price soared to extreme heights from which it returned gradually and with recurrent upward fluctuations. The general effects of restriction may be considered in three aspects: the effects on the producing countries, the effects on the consuming country, and the effects on the investing country. The higher prices which accompanied the passage of the Stevenson Act brought a general improvement in the condition of the rubber estates in countries subject to restriction. This improvement resulted from larger sums becoming available for the proper care of the holdings and from the resting of the trees by reason of the reduced output. Costs of production per pound of rubber, on the other hand, were increased because certain fixed costs were distributed over a smaller total product. By holding all rubber producers down to much the same level the law discriminated against the more efficient. These were also penalized through the fact that restriction prevented the weeding out of the least efficient growers. The immediate effect of restriction upon labor in the restricted coun­ tries was slight because the period of the slump had already brought about a lowering of wages and a reduction in the number of coolies in the country. The high prices of 1925-26 led to a great increase in the number of immigrants but neither this nor agreements among the em­ ployers of labor to hold wages down were effective in preventing a rise in wages. This wage increase originated in the rubber industry but was extended to most other occupations as well. In addition, a number of strikes occurred, mostly outside the rubber industry,while other labor problems also arose, such as high turnover of labor and reduced effi­ ciency of the individual worker. In the unrestricted areas growers derived all the benefits resulting from the improved prices without the disadvantages-or possible advantages, as in the case of resting of the trees-arising from the restriction of output. It was frequently alleged that overtapping had become common in the Netherlands East Indies, but this seems doubtful. The standard of living of the natives both in restricted and in unre­ stricted countries was favorably affected by the higher prices for rubber that followed restriction.8 In British Malaya this improvement was re­ flected in a reduction in criminal offenses and in increases in savings and remittances to foreign countries. Similarly, stimulation was given to the consumption of articles of diet, clothing, and luxuries. A rise in the cost

8 In the unrestricted countries this increase in the standard of living appears to have been largely confined to the natives owning rubber holdings but in the restricted coun­ tries a general rise in wages caused the laborers as well to share in the improved standard of living. CONCLUSION 191 of living resulted from higher prices of food and higher rents due to the increase in immigration. The natives employed on rubber estates felt the higher costs but little because of the fact that their living expenses are more or less fixed by the estate for which they work. The effects of restriction upon the quantity of rubber produced are uncertain. The share of the British countries in total world production declined after 1923 as a result of the limitations upon their output and of the greater production in the Netherlands East Indies. Scarcity of trained labor when prices were at their highest made it impossible for estates to increase their output at the same rate that the exportable quota was increased. Smuggling from the restricted areas served to swell exports from the unrestricted countries.7 The high prices of 1925-26 led in some cases to a change in tapping practice, by shortening the waiting period. But in restricted countries standard production would, in all probability, not have been produced even if the Stevenson Act had not been passed. This is partly because of the liberality with which standard production was assessed and partly because of the abandon­ ments which would have occurred in the absence of restriction. The great increase in production in the Netherlands Indies was based prin­ cipally on large plantings of the war period and most of this increase would have occurred even without restriction. While the effects of re­ striction upon the quantity of rubber produced are, therefore, conjec­ tural there can be no doubt that the supplies which would otherwise have come on the market were very greatly reduced. There has never been any allegation even on the part of the most skeptical that the restrictive measures failed to reduce the output from practically all of the rubber holdir.gs. Finally, the quality of the crude rubber produced appears to have been lowered somewhat, both because with higher prices buyers became less strict as to quality, and because of the greater profitableness of adulteration. The high prices which accompanied restriction served to stimulate planting generally, but to a greater extent in unrestricted areas than in restricted, and native planting was stimulated more than estate plant­ ing. Steps were taken to encourage planting in other parts of the world. Two great projects were undertaken, both of which were direct answers to the policy of restriction. The first, financed by the Firestone interests, is located in Liberia. Heavy plantings have already been made but recent difficulties arising from relations with the local government, from labor 'While it is impossible to estimate accurately the amount of rubber smuggled out of restricted countries all authorities are agreed that it formed a relatively small proportion of the total supply. 192 . GOVERNMENTAL CONTROL OF CRUDE RUBBER conditions, 'and from the low price of rubber render the future of the venture decidedly dubious. The other, situated in Brazil and backed by Henry Ford, has not progressed far as yet. The attempts to make the United States partly or wholly self-sufficing through the production of guayule rubber met with scant encouragement, largely because of the lack of confidence in the product on the part of manufacturers. The effects of restriction, or of the high prices that ensued, upon other industries are to be observed more clearly in the case of the restricted countries by reason of their lack of diversification in production. In agriculture the large profits made on rubber led to the neglect of other crops in favor of rubber. The demand for laborers on rubber estates during 1925-26 handicapped the forestry industries and to a certain extent tin mining, though the high prices prevailing for tin largely offset this. The general prosperity, largely based upon improved rubber prices, stimulated business generally and was reflected in increased earnings on the railways, in lower interest rates, and in strengthened government finances in both restricted and unrestricted countries. The greater diversification of products in the unrestricted areas, the fact that other industries were more firmly established, and the fact that the improvement in the rubber trade was not concentrated in 1925-26 to the same extent as in the restricted countries combined to render the effects on other industries less marked, though the same tendencies were felt. On the other hand, the Stevenson Act made the unrestricted countries more suitable for foreign investments so that these were stimu­ lated to a relatively greater extent. Foreign trade was likewise somewhat more noticeably affected in the restricted than in the unrestricted countries. The total value of the foreign trade was greatly increased because of the higher prices of rubber. Export figures show indication of a checking of exports other than rubber, while imports were stimulated though neither as much nor as quickly as exports. The articles imported reflected the rising standard of living resulting from the larger returns to rubber producers. The effects of the Stevenson Plan upon the United States, which is the principal consuming coun try, concern particularly the period of high prices in 1925-26. As a result of the rubber shortage prevailing at that time an economy program was set on foot by the Department of Com­ merce and organizations of rubber and automobile users. Partly as a result of this program and in part merely because of the high prices a considerable reduction in the consumption of tires occurred. Since this reduced purchases of tires subsequently it proved to be a somewhat costly measure from the standpoint of the manufacturer. Economies were also instituted by the manufacturers but these were neither as comprehensive nor as lasting as might have been hoped. CONCLUSION 193 The most important of the defenses proposed by the Americans, and one of the most important effects of the higher prices that accompanied restriction, was the stimulation given to the production of reclaimed rubber, which rose {rom less than 60,000 long tons in 1922 to consider­ ably over 180,000 tons in 1927. While continued low prices for crude rubber would be unfavorable to this industry a considerable amount of reclaimed rubber will continue to be consumed because of the fact that for many uses it is fully as good as crude rubber while for still other uses the fact that certain chemicals are already contained in it makes it actually preferable.8 Various improvements in manufacturing technique seem also to have been stimulated, in part at least, by the higher prices prevailing under restriction. The year of high and rising prices for rubber, 1925, was a year of high profits for the manufacturers of tires. This was due to the stimulus given to sales by rising prices of crude rubber and to gains on appreciat­ ing inventories. Precisely opposite conditions the following year resulted in heavy losses to manufacturers. Due to the prevailing marketing practice whereby merchantscalcu­ late their profits on their entire outlay, the retail price of tires was in­ creased by more than the amount of the increased cost of crude rubber used in their manufacture. The decline in tire prices in 1926-27 was even more rapid than the decline in the price of crude rubber, largely because of the reluctance of consumers to buy. This reluctance to buy was due to the restraining influence of falling prices of crude rubber which gave promise of still lower tire prices later; to the considerable stocks of tires on hand from the previous year; to the economy program put forward in 1925-26; and to claims made at the time of the Congressional investi­ gation that manufacturers had taken advantage of the rubber shortage to make unduly large increases in tire prices. The high prices paid for rubber imports in 1925-26 were responsible for rubber becoming the principal import into the United States and by swelling the total value of imports helped to bring about a decline in the favorable balance of trade. The volume of exports of rubber products was affected in much the same way as the volume of domestic sales, being stimulated by the rising prices of 1925 and checked relatively by the falling prices of 1926. Restriction also led to the formation of a buyers' pool among American manufacturers. This pool exerted a stabil­ izing influence on the rubber market.

'The large number of old second-hand cars in service create a definite demand for cheap tires and so long as the price of reclaimed rubber remains below the price of crude rubber it will continue to be used in the manufacture of such tires. The appearance of the so-caUed "week-end" tire is one feature in this demand. These tires seU for a very low price and are designed to run a few hundred miles o~ly. 194 GOVERNMENTAL CONTROL OF CRUDE RUBBER The effect~ on the principal investing country, Great Britain, con­ sisted principally in an increase in the value of rubber company shares, which rose very greatly in sympathy with commodity prices, and in higher dividends distributed to investors. While the complexity of Brit­ ish economic life makes it difficult to trace specific effects the greater returns derived from rubber may be considered to have helped in the maintenance of exchange. Criticism of the Stevenson Act divides itself naturally into two parts, the first relating to its effect upon the rubber market and the second to its effect on the industry which it was designed to assist. Objections to the operation of rubber restriction center around the period of runaway prices in 1925-26. The major weakness of the restric­ tion scheme, as had been pointed out from the beginning and as was manifest at that time, lay in its inelasticity. Thi'larose out of the pro­ vision that the exportable quota could be increased by not more than 10% of standard production at quarterly intervals. This feature was somewhat improved by later modifications. Another serious criticism of the Stevenson Act relates to the uncertainties which it introduced into the market situation. The panic in 1925 would probably have been avoided if it had been made clear at the outset that the automatic opera­ tion of the scheme would not be interfered with. The failure of planters to make forward sales at high prices was due to their overconfidence in the ability of the plan to bring about high prices, and for the same reason many of them failed to set aside adequate reserves. Mention may. also be made of the uncertainty arising from the existence of a consider­ able volume of export coupons which might or might not be thrown on the market; the uncertainty arising at the end of the quarter when the ,average price happened to be near. a pivotal level; the possibility of changes being made in the provisions of the act; and the uncertainty as to the continuance of restriction. From the standpoint of the industry the fundamental criticism of re­ striction lies in the fact that it stimulated heavy planting both in re­ stricted and in unrestricted areas. While restriction may have aided in bringing temporary relief through higher prices, insofar as it led to in­ creased planting it helped to exaggerate a condition of potential over­ production, so rendering worse the very situation it was designed to relieve. Furthermore, many native producers of rubber were led to abandon the production of crops other than rubber to which they had been able to turn at times of depression in the rubber industry. These growers were less able to face a period of unrestrained competition in the industry at the end of restriction than they had been in 1922. A casting up of gains and losses from the Stevenson Plan would show CONCLUSION 195 the following items, some of which were inherent in the plan itself and some of which resulted from the higher prices that followed restriction.

I. GAINS I. Improved condition of plantations. 2. Improved scientific research. 3. Better statistical data. 4. More economical use of tires. S. Improvements in manufacturing and marketing methods. 6. Fostering of the infant industry of reclaiming rubber. 7. A possible saving in needed investment that might otherwise have been wiped out.

II. COSTS I. Cost of administration. 2. Smuggling and evasion. 3. Prevention of smuggling. 4. Destruction of confiscated rubber. S. Higher cost of production because of restriction of output. 6. Possible loss of rubber not tapped. 7. Unwise investment in rubber production. 8. Aggravation of overproduction. This list omits the increase in export duties, increased mark-up, losses on inventories, and other items where the gain or loss was balanced by an opposite loss or gain to some other group. While these were very important from the individual's standpoint, from the social point of view they may be disregarded. It is impossible to weigh the various factors and arrive at an approxi­ mation of the net gain or loss from restriction. Nevertheless, a glance will indicate that most of the gains here listed would appear to mark the natural course of industrial progress or the simple reaction to higher prices.' It is altogether probable that these developments would have-. taken place in the course of time even without restriction. The costs, on· the other hand, were quite generally inherent in the restrictive measures. It is probable, therefore, that on balance the Stevenson Act was dis­ advantageous to society as a whole. It is further possible that, despite the high profits realized by the growers during much of the period of restriction, in time the restrictive measures will prove to have been dis­ advantageous to the plantation industry itself. Viewing the matter in retrospect it would seem that restriction should have been lifted at the end of 1924 when stocks had been satis­ factorily reduced, when the planting industry had been restored to pros­ perity, and before extensive planting had been undertaken. Failing this, the pivotal price should have been left where it was instead of being raised to one shilling and nine pence.

'The effect upon the condition of plantations is the chief e:'ception to this. 196 . GOVERNMENTAL CONTROL OF CRUDE RUBBER Experien~e with the Stevenson Act has demonstrated clearly the difficulty of administering such a scheme equitably and effectively. It has indicated, furthermore, that unless restriction can be extended to planting while output is being restricted or unless the control can be made effective over the entire field, the high prices which result may stimulate potential overproduction and so make the situation worse instead of better.lO . Finally, it may be said that by the very nature of the rubber industry, with its intervals of from five to seven years between planting and pro­ ducing, irregularities in price are to be expected. The present need would seem to be to allow low prices to check the tendency to increase plant­ ings at a time when there is already overproduction in the industry. There is nothing in the production of rubber that justifies a return to rubber growers wholly out of proportion to the returns in other indus­ tries in the rubber producing countries and it is chimerical for growers to hope that such a return will, in the long run, prevail. A rubber reserve such as was at one time maintained by the American rubber manufacturers would be of the utmost aid in reducing short run fluctuations in price. Cooperation between producers and consumers of crude rubber would facilitate the formulation of long-run policy as well as increasing short run efficiency in marketing. This cooperation would involve estimates of probable production and requirements over periods sufficiently long to serve as a guide to planting. Such cooperation is hardly to be expected, and it must be admitted that the two most im­ portant technical developments of recent rubber history, the intro­ duction of cord and balloon tires, could not have been foretold, so that cooperation would not have spared the industry sore trials in the past. It is to be expected that as time goes on and both the automobile industry and the rubber growing industry attain maturity, a degree of stability approaching that prevailing in other great industries will be realized. When that time comes the day of extravagant gains and of severest depression will alike have passed.

lOProfessor Viner mentions three conditions as essential to the success of any such measures as the Stevenson Act: first, domestic consumption must be only a small part of domestic production; second, demand must be relatively inelastic; and, third, the producing country must have a preponderant share of the world's output, potential as well as actual. Needless to say, it is the last condition which was not fulfilled in the case of the Stevenson Plan.-Foreign Affairs, July 1926, p. 589. APPENDICES APPENDIX A

PIlOPOSALS rOil RELIEVING RUSSEll DEPIlESSION, BRITISH MALAYA, 19zI I. Scheme of the Rubber Growers' Association Producers' Corporation, Ltd.1 A. The objects of the scheme were: I. To control the rubber output of its members. z. To fix the selling price and regulate the sale of the rubber produced by its members. 3. To regulate the opening of further rubber land by its members. 4' To purchase, or make advances on the rubber harvested or to be har­ vested by its members and if deemed desirable to make advances on security, and on terms to be agreed, to approved rubber estates belonging to its members.

B. The proposed methods to be followed were: I. To form two corporations, one in England and one in Holland, the British corporation to have a nominal capital of £z,ooo,ooo with power to borrow up to £8,000,000 by debentures or otherwise. z. The raising of the sum of £z,ooo,ooo was to be conditional on pro­ ducers owning z,ooo,ooo acres subscribing to the extent of £1 per acre but it was not anticipated that more than lOS. per acre would ever be called up; and that at zs. 6d. every three months. 3. The capital raised or money borrowed was to be used to purchase or make advances against rubber or rubber properties. 4. No interference with the working of estates or methods of selling rubber was contemplated but members were to be required to adhere to any measure of restriction for the time being fixed by the Court of Directors. Also members were to submit to a deduction from the price of all rubber sold of an amount to be fixed from time to time by the Court of Directors. Brokers were to be responsible for making such deductions and paying them over to the Corporation. 5. The deductions were to go to pay for the management of the Cor­ poration, interest on debentures, and to provide a sinking fund for redemption of debentures. 6. No government assistance was contemplated in the scheme. 7. The plan aimed at fixing prices at a reasonable level (which, it was claimed, could be done if 70% of the growers would support it) and at helping financially those who required help and could offer security.

1 P AM R~porl. 1922, pp. 11-14. 200 GOVERNMENTAL CONTROL OF CRUDE RUBBER II. Scheme of Dr. Braddonl A. The objects of the scheme were: I. To create a security upon which money could be borrowed to finance producers during any such period of total cessation of production as might be necessary to balance supply and demand. :1. Thereafter by control of output to fix prices of rubber at a profitable level. B. The proposed methods to be followed were: 1. To form a body to be called "Rubber Shareholders' International Assurance Association." :1. To raise an authorized capital of £1:1,000,000 by the issue of bonds carrying 1:1% interest and redeemable over five years, one-fifth being. redeemed yearly. 3. The security offered to bond holders or investors was to be the value of :15:1,000 tons of rubber to be produced yearly for five years. This figure was based on 70% of the growers coming into the scheme and on a total full capacity production per annum of 360,000 tons. 4. The capital raised was to be advanced to producers who were mem­ bers, on the basis of 8d. per pound of rubber restricted. These ad­ vances were to carry no interest and were to be repayable, by deduc­ tion from selling price, over five years. 5. The Association was to have its headquarters in England and to be managed by a Central International Council representing the whole body of producers in all countries. The council members were to be elected by the boards of companies in the different countries. 6. The scheme set out a scale of prices which would be fixed according to the percentage of full capacity production which consumers could produce, the cost of working the Association, interest on bonds, and redemption of bonds. 7. Membership was to be open to all growers who produced five tons or more annually. Such were to be proprietary members. Dealers, workers, and buyers on their own account were also to be accepted as non-proprietary members. . 8. Proprietary members were to be required to adhere to rules for restriction and selling laid down by the Association. 9. There were to be local boards in each producing country to supervise the carrying out of the conditions of the scheme, and also advisory district committees. III. The Straits Times Schemel A. The objects of the scheme were: J. To control the production of rubber by the government. It was hoped to secure the cooperation of the British and the Dutch but failing

I PAM Reporl, 1922, pp. U-I S. libid., pp. 12-16. APPENDIX A 201 this the British rubber growing colonies and protectorates were to act by themselves. 2. To balance supply and demand by control of output and thus to raise prices to a profi table level. B. The proposed methods to be followed were: I. The compulsory restriction of output by allowing export only by license. 2. The restriction was to be on the basis of 50% of 1920 outputs. 3. Producers who might require financial help were to be advanced money by the government on the basis of the difference between the cost of production and the selling price. The cost of production was to be fixed on a scale to be known as emergency costs scale which was put at 3oJ1c (Str.) per pound on half production. 4. Agents authorized by the government were to certify as to the amount to be drawn by the estates they represented, licenses to export being gran ted on these certificates. 5. The money to meet these advances was to be obtained by the issue of Rubber Security Bonds. The security for the bonds was to be the properties of the producing companies or individuals which would be pooled to form a common security. 6. The bonds would be issued by approved banks and guaranteed in the first instance by the local government but also by the Imperial Government. 7. The bonds were to bear interest at 7%. Borrowers were to be charged 10%, the difference of 3% to cover cost of administration. S. Advances were only to lie made on producing areas and to those whose funds were exhausted. 9. Interest and administration expenses were also to be borne in the first instance by the governments. 10. Advances were to stop when rubber rose to 35c (Str.) but restriction of exports was to be carried on until the price rose to 60c per pound. II. The making of advances was to be in the hands of a Central Control Board nominated by H. E. the Governor, and to consist of not more than ten persons, at least half of whom were to be planters, and the chairman to be a full-time paid officer. 12. The bonds were to be a first charge on all properties, but mortgage or debenture holders were to be recognized to the extent of receiving temporarily 5% on their claims. IV. Mr. Shelton Agar's Scheme· A. The object of the scheme was: I. To bring about automatic restriction of output by compensating those producers who would restrict, from a fund contributed to by all producers through a duty levied on all rubber exported. ·ioia., pp. 13-18. 202 GOVERNMENTAL CONTROL OF CRUDE RUBBER B. The proposed methods to be followed were: I. To form a corporation to be controlled by (a) An International Council in Europe, representative of the rubber growing industry in all countries and nominated by representa­ tive bodies; and, (b) A board of directors in each rubber growing country holding complete powers. The boards were each to have a manager and secretary and the right to delegate power to an executive board. 2. The corporation was to have no cash but was to raise a fund with the. concurrence and cooperation of the different governments by means of a duty of Id. per pound on all rubber exported. 3. The corporation was to have a nominal capital of £5,500,000 to be issued to members against half of the sums which they were entitled to receive from the fund on the basis of 3d. per pound of rubber crop restricted. 4. Shares were to carry no interest but were to be payable in cash to holders plus 10% premium after five years. 5. The governments were to collect the duty and to be allowed to de­ duct 10% for collecting. This was to be in addition to the regular export duty or assessment. 6. The whole principle was that those producers who did not join and restrict would have to pay Id. per pound on all exports and this sum would go to compensate those who did restrict. 7~Assuming that under the scheme producers controlling 70% of "" -3~,000 tons restricted 50%, and 30% did not restrict the result would be Income on 234,000 tons at Id. per lb. £2,184,000 Expenditure, 3d. per lb. on 126,000 tons £3,f1.8,000 Plus cost of administration 25,000 3,553,000 8. Since only halfis paid in cash the actual payments would be £1,789,- 000. However, there is still the liability amounting to £1,764,000 annually plus a proportion of the premium of 10% in five years. 9. The aim was that share liability should be met by a gradual decrease in the amount of rubber restricted with a corresponding decrease in compensation and an increase in income. 10. If all producers were to restrict 50% the corporation would have to borrow £865,000 yearly. V. Other Schemes A. Herr Helferich proposed to establish control syndicates in British Malaya, Netherlands East Indies and Ceylon similar to the sugar producers' control in Java. This organization assures profits to the shut­ down estates as well as to the active ones.'

• PAM Report, 1922, pp. J2-13. APPENDIX B 203 B. A scheme was drawn up by Messrs. David M. Figart, Edgar B. Davis, and W. B. Mahony for the establishment of the Rubber Plantations Corporation. (See p. 25.) The advantages which would be secured through such a combination of the rubber industry and American finan­ cial interests were stated to be as follows:' I. An international market for securities. 2. The formulation of policies affecting output and surplus stocks. 3. The distribution of risks from diseases and pests, winds, floods, de- terioration of trees, etc. 4. A reduction in costs through economies of large scale management. 5. Centralized administration of labor. 6. Benefits to manufacturers and planters through large-scale produc­ tion of a uniform product under new processes as developed. 7. An organized campaign for extension of present uses of rubber and the stimulation of new uses. 8. The maintenance of efficient research and statistical departments to secure accurate knowledge of progress in all phases of the industry. 9. A stabilizing influence in the industry. C. W. KeIlie Smith proposed to restrict the output to 50% by imposing a heavy export duty, not to exceed 10% ad valorem or 5c a pound, on all excess over 50% of the normal output. D. Other proposals included the establishment of Land Banks and Co­ operative Agricultural Banks for Malaya. An export tax was suggested as a means of acquiring capital.? E. The total prohibition of exports for such a period as would rectify the position was suggested. F. The purchase and storing, or destruction, of 10,000 tons of rubber month! y was suggested. G. It was proposed to impose a high, but not prohibitive, duty on all exports, such duty to be raised with a rise in price in order to keep exports down. I ·ibid. ? ibid., p. 19' 8 <['be <[,rans-Pacific, September 19~n, p 44. APPENDIX B

STEVENSON COMMITTEE REpORTl

I. The Committee's terms of reference were: To investigate and report upon the present rubber situation in British Colonies and Protectorates for the information of the Secretary of State for the Colonies, and to advise what remedial measures should be taken to improve the existing position. 2. The Committee have had many suggestions and much information before them, including the Reports of the Duncan Committee submitted to the Government of the Straits Settlements and Federated Malay States on January 26, 1921, and the Report, dated October I, 1921. of the Commissions appointed by His Excellency the Governor of the Straits Settlements and High Commissioner of the Federated Malay States to enquire into and report on: (a) The present state of trade depression brought about in the main by the continued depression in the Rubber Industry; and (b) The extension of credit facilities. 3. The Committee devoted their attention in the first place to ascertaining the present state of the Rubber Industry. In the absence of complete official statistical information, the Committee carefully investigated the relevant statistics from such official and unofficial sources as were available, and have concluded that the following figures of Plantation and Wild Rubber may be taken as showing approximately the present position: Production-The actual production .of Crude Rubber in 1920 and 1921 was: Planlation Wild '1'0141 1920 335,000 tons 35,000 tons 370,000 tons 1921 260,000 22,000 282,000 The normal unrestricted output of Plantation Rubber during 1922 is estimated at 380,000 tons, whilst the production of Wild Rubber is estimated at 20,000 tons, or 400,000 tons in all. Consumption-The average annual world absorption during the years 191!f21 was 300,000 tons, viz.: 1919 330,006 tons 1920 310,000 1921 265,000 In the present state of world trade, it is not possible to estimate the consumption of Crude Rubber in 1922 at more than the foregoing

lPhillipson, pp. 82"""91. APPENDIX B 205 average, viz.: 300,000 tons, but some authorities place the probable consumption as low as '1.60,000 tons. Siocks-The total world stocks of Crude Rubber on January I, 19'1.'1., are estimated at: In consuming countries '1.10,000 tons In producing countries 60,000 Aftoat 4°,000

310,000 This estimate of the total amount of Crude Rubber in existence in­ cludes the invisible stocks in the hands of both producers and manufac­ turers. Necessary stocks of Crude Rubber may be estimated at the equivalent of eight months' consumption, which on the foregoing esti­ mate for 19'1.'1. would call for '1.00,000 tons. On this basis the surplus stocks at January I, 19'1.'1., amounted to 110,000 tons. 4. From these figures it appears that, in order to reduce the production of Plantation Rubber to the level of probable consumption during 19'1.'1., a re­ striction to at least 75% of normal production would be required. The Com­ mittee were of the opinion, however, that the depression in the Industry could not be sufficiently rapidly relieved unless a substantial inroad were made into the existing surplus stocks during 19'1.'1., and that a more drastic restriction is imperative to ensure this. s. Of these figures, the Committee cannot fail to advise you to contemplate with grave concern the position of the Industry in British Colonies and Pro­ tectorates, unless steps are taken to reduce stocks and, further, to prevent over-production of rubber so long as the potential normal production con­ tinues to be substantially in excess of consumption. They are of opinion that consumption is not likely to overtake potential production for some years. 6. The Committee next directed their attention to the manner in which the existing surplus could be reduced and future supplies so regulated with a view to establishing an equilibrium between supply and demand, and stabil­ izing the Industry on a sound footing. They have examined this problem from four points of view: (a) Stimulation of new and extended uses of rubber. (b) Voluntary restriction. (c) The laissez-faire argument. (d) Government action. 7. With regard to (a), there is no doubt that much can be done in the direction of stimulating new and extended uses of rubber, but this cannot in itself provide an immediate solution of the problem, since much time m~st neces: sarily elapse before any new and extended uses of rubber can become sufficiently operative to ~ring abou.t materially increased consumption. Further, It should be real!zed that Improved methods of manufacturing rubber products, such as tires, undoubtedly prolong the life of the article and consequently curtail the demand for raw rubber. 206 GOVERNMENTAL CONTROL OF CRUDE RUBBER 8. With regard to (b), the Rubber Growers' Association, which represents about 37% of the plantation rubber-producing interests, secured the adhe­ sion of nearly all their members to a voluntary restriction of output to 75% of normal during the period November I, 1920, to December 31, 1921. During December last, they endeavored to secure the assent of their mem­ bers to continue voluntary restriction by undertaking not to produce more rubber during the first six months of 1922 than they produced during the corresponding period of 1921, or alternatively, than 75% of their output during the corresponding period of 1920. The Council of the Association was able to secure the assent of only 55% of the producing interests repre­ sented by members of the Association, as compared with the minimum of 70% deemed necessary to make the scheme operative. Notwithstanding this, it is evident that the necessity for continuing to restrict output is ap­ preciated by a large proportion of the members of the Association, who will, no doubt, continue this policy on an independent voluntary basis. 9' With regard to (c), the advocates of the laissez-faire policy desire to see a survival of the fittest. They rdy on being themsdves amongst the survivors, and disregard entirdy the hardships which must fall on the many tens of thousands of shareholders in this country alone, and the many thousands of European and Asiatic owners and shareholders resident in the countries of production, if the Industry is to drift along unprofitably until the weakest have been eliminated. It must be borne in mind that even though a propor­ tion of existing proprietors are forced to abandon their estates, the rubber trees thereon will remain a potential source of rubber and will be brought into production again by some one as soon as a margin of profit can be secured. The Committee could not, therefore, advise you to leave things in their present unsatisfactory state, unless all efforts to find a positive solution of the problel11 fail. 10. With regard to (d), the Committee are fully aware of the grave objections to Government interference with industry, especially when it takes the form of restricting the output of an important raw material. The objections are obvious to all and need not be set out in detail. It was only with reluctance and with a livdy apprehension of the dangers which threaten both the In­ dustry and the countries in which it is so largdy carried on that the Com­ mittee agreed to consider a measure of compulsory restriction as an alter­ native to what seemed to be worse evils. II. Further, the Committee desire to put on record that at the outset of their inquiry, they formed and have never departed from, the conviction that it was impossible to deal with the problem as one affecting only the British Colonies and Dependencies in which rubber is produced. They recognized from the first that no scheme of restriction, whether voluntary or compul­ sory, could usefully be applied in Malaya unless it was simultaneously ap­ plied in other countries in which there is production of rubber on a large scale. This conviction formed the basis of the Committee's ddiberations, and, in particular, they have throughout kept in view the fact that no scheme, however excdIent in itself, could properly be recommended to you for adoption unless it commended itsdf to the Authorities of the Dutch East APPENDIX B Indies, who control the only important source of Plantation Rubber outside British Colonies and Dependencies. As indicating the relative importance of different plantation rubber­ producing countries, the following approximate percentages are given: Peruntage of

SUPPLEMENTARY REpORT OF THE STEVENSON COMMITTEE'

I. The Committee concluded their report of June 1922 by stating that they were unable to carry their inquiry further until the attitude of the Dutch was definitely known, as they did not feel justified at that time in recommending the adoption by one or more British Colony or Protectorate of either of the proposed schemes for Government intervention in the rubber industry. Since that report was issued, the reply of the Netherlands Government to the proposals for cooperation with His Majesty's Government in legislating to ameliorate the situation in the industry has been received. The Netherlands Government has decided not to take at present any legis­ lative measures to restrict the production of rubber in the Netherlands. 2. The Committee have considered the question of whether in these circum­ stances a policy of restrictive measures in British Colonies and Protectorates alone could be adopted to the advantage of the British rubber industry, and in this consideration they have been influenced by the following facts: (a) Excessive and increasing production of rubber owing to the failure of the producers to make voluntary restriction effective with the consequent continuation of the depression in the price of rubber. (b) The general demand by the leaders of the rubber industry both in London and in Malaya for restrictive measures if necessary by one or more of the British Dependencies independently of the Netherlands Government attitude. (c) The Committee have had before them the latest available estimates as to the figures of the world's pioduction and absorption of rubber in 1922, together with figures of existing stocks. 3. Notwithstanding the fact that the rate of the world's absorption of rubber for the present year shows a substantial increase on the Committee's previous figure of 300,000 tons, they have decided to base their recommendations on the figure of absorption mentioned in their previous report, in order that they may err on the safe side. 4. The Committee have closely investigated the effects of the introduction in British Colonies and Protectorates of legislation framed to bring about more stable conditions in the industry even without Government control over pro­ duction in other territories. s. Inquiries have been made as to the possibility of securing voluntary restric­ tion of tapping on British estates situated in such other territories in associa­ tion with any restrictive measures that might be taken in the territories of the British Empire; the Committee understand that the Rubber Growers' Association have obtained the assurance of cooperation in this sense from the

,'Phillipson, pp. 9~1-Ioo. APPENDIX C 211 majority of these estates. This support will proportionately reduce the re­ striction in British Territories necessary to effect a readjustment of supply to demand. 6. In view of these considerations and the predominating interest in the rubber industry held by British producers, the Committee have felt a revision of their previous attitude to be justified, and they accordingly desire to recom­ mend that a scheme of Government intervention should be put into operation in Ceylon, the Malay States and the Straits Settlements as Soon as possible. The scheme which they recommend is practically that of Scheme 2 in their previous report, with certain amendments.

RECOMMENDATIONS (a) The scheme recommended adopts as the standard production the actual output of each producer during the twelve months-November I, 1919, to October 31, I92o--amplified in accordance With the suggested Rules con­ tained in "Appendix A." (b) In lieu of existing Export Duties, a minimum export duty is to be levied on that percentage of standard production which is allowed to be ex­ ported under this scheme at the minimum rate of duty. The Committee recommend that this minimum be fixed at the lowest possible rate not to exceed one penny per pound. If a producer desires to export a quantity greater than that allowed to be exported at the minimum rate of duty, he shall pay an export duty on his total export during that period of twelvemonths on the following scale: Perctntagl of Standard Duty Per Production &pomd Pound Doer .11// % s. d. 100 I 0 Over 95 to 100 0 II Over 90 to 95 0 10 Over 85 to 90 0 9 Over 80 to 85 0 8 Over 75 to 80 0 7 Over 70 to 75 0 6 Over 65 to 70 0 5 Over 60 to 65 0 4 At the initiation of the scheme the percentage exportable at the mini­ mum rate is to be 60. When the rubber situation improves so as to justify allowing an in­ creased percentage of standard production to be exported at the minimum rate of duty the minimum would be substituted in its appropriate place in the scale. (c) Alterations in the percentage of standard production would be governed by the price of standard quality smoked sheet in the London market, and it is proposed that, when the average price for such rubber during three • consecutive months has been maintained at not less than one shilling and 212 GOVERNMENTAL CONTROL- OF CRUDE RUBBER three pence per pound, London landed terms, the percentage of produc­ tion which may be exported at the minimum duty would be raised auto­ matically by 5 for the next ensuing quarter. In the event of such average price being maintained at not less than one shilling and six pence per pound, London landed terms, during the whole of three consecutive months, the percentage of production which may be exported at the minimum duty would be raised automatically by 10 for the next ensuing quarter. (d) Furthermore, in order that the operation of the scheme may secure the desired result, even though for reasons at present unforeseen 60% of standard production should prove to be too high, the Committee recom­ mend that if during the second quarter after the initiation of the scheme or in any subsequent period of three consecutive months, the price of rubber, as hereinbefore defined, has not averaged at least one shilling per pound, the percentage of standard production that may be exported at the minimum duty shall be reduced to 55, and if that reduction is not effective in raising the average price over the following three months to one shilling and three pence then it shall be reduced to 50 at the end of . the three months, and so on by reductions of 5% at the end of each three months until that average price is secured. Once the percentage has been lowered it would not be increased except on the basis of a price of one shilling and three pence as aforementioned. If during any quarter when the percentage of standard production that may be exported at the minimum duty is for the time being fixed at not under 65% and the price during that quarter has not averaged at least one shilling and three pence per pound. the percentage for the ensuing quarter would be reduced by 5. (e) The application of the scheme in their several territories would rest with the local Governments concerned. (f) The Committee recommend' that an Advisory Committee be appointed in London for the purposes of coordinating the operation of the scheme in Ceylon. Malaya and such other territories as may be involved. They suggest that this Committee should consist of official and non-official members, whose duty would be to advise the Secretary of State on all matters referred to it in connection with the operation of the policy now recommended, and that it should be charged with the responsibility of advising him as to the alterations in the rate of minimum duty required under the scheme. (g) The Committee recommend that the Governments of the territories con­ cerned should set up Committees on which there should be representa­ tives of the industry to deal with cases for special consideration in regard to lo<;al application of the scheme, and the Committee annex to this Report rules that would require to be observed by these local Committees in the administration of the scheme. (h) The Committee cannot conclude this Report without observing that, apart from the financial relief that may be expected to accrue to all rubber producers from the scheme the discouragement it affords to more drastic APPENDIX C :U3 tapping, cannot but benefit the estates of those managements who are voluntarily or compulsorily associated with the scheme and leave them ultimately in a stronger position than the estates whose trees have been subjected to tapping on an excessive scale. J.STEVENSON STANLEY BOIS E. L. BROCKMAN E.J.BYRNE WM.DuNCAN G. GRINDLE H. ERIC MILLER EDWARD ROSLING G. E. J. GENT, Secretary October 2,1922

RULES FOR THE GUIDANCE OF COMMITTEES In issuing certificates of standard' production- I. "Standard production" shall be the quantity of dry rubber produced from any holding during the period from November I, 1919, to October 31, 1920, provided that if the owner of any holding is unable to declare the output from his holding during that period in the absence of proper records, or if he proves to the satisfaction of the Committee that the output from his holding during that period was abnormal for any of the causes referred to in these rules, the Committee shall certify some other quantity as the standard production for such holding, in accordance with the rules as set out hereunder. 2. If any owner is unable to declare the quantity of rubber produced from his holding during such period, the Committee shall assess the amount to be deemed to be the standard production for that holding, but the quantities so assessed shall not exceed the quantity attained by multiplying the number of acres planted with rubber of each by the output per acre allotted for trees of each age in accordance with the following table: Maximum Output/or 'l'we/ve Months Under live years Nil Between live and six years 120 pounds Between six and seven years ] 80 Between seven and eight years 240 Eight years and over 320 3. If any owner claims that a portion of his holding is planted with trees which were not tapped prior to November I, 1920, he shall be allowed as standard production in addition to his output from November'I, 1919, to October 31, 1920, an amount calculated according to the table in Rule 2 above. 4· If any owner claims that during the period November I, 1919, to October 31, 1920, his output was less than his normal output owing t

LETI'Elt OF SECRETARY HOOVER TO SENATOR CAPPER, MARCH 6,1924 Dear Mr. Senator: In accord with your request I give the following summary of our conclusions as to combinations in our import trade. The last Congress made a special appropriation to this department to provide for investigation of imported raw materials essential to American industry which are under control of foreign combinations in restraint of price or distribution. While the reports upon this topic have not all been completed they will be ready at an early date and abundant material is in hand to prove unquestionably that foreign monopolies or combinations are potentially or actually in control of prices and distribution of the following commodities: _ Sisal for binding twine is controlled through a combination of producers reinforced by legislative action of the Yucatan Government. Nitrates and iodine are controlled through a British selling agency and reinforced by export duties in Chili. Potash is controlled by combinations of German producers. Crude rubber and gutta percha are controlled by partly legislative and partly volun- tary combination of producers in the British and Dutch Colonies. Quinine is controlled by combination of Dutch producers. Tin is controlled by combination of British producers. Mercury is controlled by common selling agency of Spain and Austrian mines. Coffee is controlled by the Government of Brazil. Quebracho (for tanning purposes) is controlled by combination of producers and foreign manufacturers. You will note the importance of most of these commodities to the farmer. The value of our total imports of the above in 1923 exceeded $525,000,000 and prices are undoubtedly much higher than would otherwise be the case. There are several others of partial control or of minor order aggregating altogether large sums. The prices of these commodities enter into the cost of living of all our people. An instance of the special importance to the farmer lies in sisal for binder twine, where although present prices are possibly not extortionate, yet a few years ago they were deliberately advanced 300%, and during the period fully $100,000,000 of excess prices was taken from our producers, which apparently did not even reach the Mexican farmer. Such combinations cannot, of course, be effectively reached under the Sherman Act, as they are or can be seated outside of our juris­ diction. This department has given a great deal of thought to measures which can be taken in protection of the American consumer. Indirect security can be obtained in.some instances by the stimulation of production in other parts of the world ;u6 GOVERNMENTAL CONTROL OF CRUDE RUBBER free from these controls and in other cases by the encouragement of synthetic manufacture in our own borders. Yet these measures at best require much time before they could afford protection. They will not apply in all cases. We shall be able at a later date to offer some recommendations in these directions. I t is our conclusion that some relief can be reached legislatively. Our exporters and manufacturers are permitted by the Webb-Pomerene Act to undertake joint selling agencies abroad under certain restrictions. If by an extension of this Act our consumers were allowed to set up common purchasing agencies for these imported raw materials where there is positive combination in control, I am con­ fident that our people could hold their own in their dealings with such combina­ tions. The danger of such common purchasing agencies attempting to make improper prices against our buying public could be met by provision in the Act to include proper assurance that all consumers who wished to participate would be allowed to act through such common buying agencies with full equality of treatment, that such agencies would not be conducted for profit in themselves, and any other necessary restrictions. You already have before you a legislative suggestion of this order which I believe can be simplified into amendments of the Webb-Pomerene Act. There are comparatively limited numbers of primary purchasers of each of these raw materials and common purchasing agencies would not be impossible of organization. There is active competition amongst our manufacturers in the sale of goods in the production of which these raw materials are used. It is my belief that this competition would naturally result in passing along to the. public econo­ mies that can be made in the purchase of these materials but in any event prO­ vision could be made in the amendment to the Act which could adequately protect our own public against any restraint of our domestic trade by such common buying agencies. I am confident that a unity of buyers is in the long run stronger than any combination of producers because the producer usually has the disadvantage of being compelled to maintain continlJous production whereas the consumer can so organize his business if necessary as to become an intermittent purchaser. I t is my belief that joint action of our consumers dealing single handed with such combinations could, in general cases at least, greatly moderate the present cost of these supplies. We seek nothing further than protection against wrongful treatment and our cpnsumers are fully alive to the necessity for proper profits to foreign producers and thus the assurance of full supplies. I may add that the investigations which have been in course have already given some relief because apparently some of those' combinations have realized that immoderate action on their part would stimulate counter activities on ours. The matter is one of urgent importance and should have early relief. Yours faithfully, HERBERT HOOVER Secretary of Commerce APPENDIX E

ADDRESS BY SECRETARY HOOVER BEFORE THE CHAMBER OF COMMERCE . ERIE, PA., OCTOBER 31, 192.5 I wish upon this occasion to discuss a matter of considerable gravity in our foreign trade. . Foreign controls of production and price have been created in a number of important raw materials which, because of our inability to produce, we must depend upon purchasing abroad. The combinations to which I refer have been set up either directly by legislation of foreign governments or indirectly by government patronage. This sort of control of production and price exists today in coffee, silk, nitrates, potash, rubber, quinine, iodine, tin, sisal, some dye­ stuffs, quick-silver, certain tanning extracts, and some other things. To demon­ strate that this is not an inconsequential matter requires only the recitatioQ of the fact that we expend annually about $800,000,000 for imports now subject to such controls. They amount practically to trade war, and the time has arrived when we require either disarmament or defense. Three years ago I pointed out this incipient growth and the many dangers which lay in such activities, both to the consumer and producer and above all from the larger view of world interest and progress. At that time my statement was discounted by some for we were assured by their sponsors that the purpose . of these controls was merely to temporarily stabilize industry and trade over the disturbed post-war period, and that the consumer would actually benefit as well as the producer. . But these combinations have continued to increase in numbers and some of them have demonstrated all the dangers which I then anticipated and more. The time has arrived when a full, frank discussion of the whole subject is de­ sirable. For true and effective judgment as to the course of action that should be taken by nations can only be formed by a hammering of the facts upon the anvil of debate. At the outset I wish to emphasize that in this discussion I am not criticizing any foreign government or its nationals. I have perhaps had a unique post of observation and I therefore have infinite sympathy for the economic difficulties of all governments during these years. But the world is rapidly gaining stability and measures which may have been necessary to statesmen distraught with the problems of readjustment can now be reconsidered. Moreover, it could also be said that the buyer of a commodity has an inalien­ able right to argue at the price even when his friends are the sellers. He has a right to consider all these things from his own point of view without any implica­ tion of unfriendliness or criticism for there are two parties in these matters­ buyers and sellers, not one party. But far above this, if a man sees his friends p~suing courses which can only lead to mutual disaster to themselves or the 218 GOVERNMENTAL CONTROL OF CRUDE RUBBER community in'which we all live he is a poor friend who does not say so and say it frankly. And it is equally true among nations. The economic distortion during the war made controls necessary on a hundred commodities in order to prevent hoarding and profiteering and to stimulate production by guaranteed prices. These controls were intended solely to stimu­ late production, not to restrict it, and were dissolved at the end of the war, while those now current are, with a few exceptions, the creation of the last few years and for the purpose of increasing price levels through limiting production. They plainly revolve around the monopoly possible over certain raw materials which temporarily or permanently are dominantly produced within the confines of a single nation, and upon which the fifty other nations of the world are dependent for their standards of living and comfort. In no case does anyone country p0s­ sess the total supply of anyone of these commodities, but in many cases they possess sufficient that when mobilized they can control the price. . Various legal forms of these price controls have been devised, but in all cases they depend upon governmental action of some kind and their method is either to restrict exports or to establish a unity in selling against the competition of the buyers. I believe in all cases these controls make the same prices to their own citizens as they do to foreigners, but likewise in all these cases their home con­ sumption is but a small percentage of their total production. These international monopolies have a very wide difference from govern­ mentally created domestic monopolies. In all modern governments where we do create a monopoly we likewise regulate its prices and profits in order to protect the consumer. In these international monopolies the consumer has no voice at all. We, as a government, have set up no such controls and, through the Sherman Act, we prevent our citizens from doing it. The so-called Webb-Pomerene Act is not for this purpose. We have clung tenaciously to the belief that economic progress must depend upon the driving force of competition. The only thing of the nature that has ever been seriously propoSed in our country was certain measures of agricultural relief which ~n themselves did not partake of this char­ acter, for they contained the benevolent aspect of proposing to fix a higher price to our home consumers than to foreigners and to thus bless the foreigner with cheaper food. The problem that faces the world, and possibly the more serious problem, is not alone the commodities that are now controlled but the spread of these ideas. There are many other raw materials whose sources are so situated that they could also be controlled by action of a single government. The price of wool could be controlled by governmental action within the British Empire. The prices of oil, cotton and copper could be controlled for many years by similar govern­ mental action in the United States. Tea and jute could be controlled by India: antimony and tungsten by China; nickel and asbestos by Canada. But an even greater danger lies in the fact that if we conceive a spread of these ideas largely into international commerce then it is perfectly practicable under government patronage for controls to be established by cooperation of producers in several countries and thus steel, vegetable oils, and a long list of other com­ modities can be brought quickly into this menacing vision. Moreover, if these combinations now extant prove successful over even Jim- APPENDIX E 219 ited periods of years the tendencies of all producers when in difficulty will be to press their governments to try these devices for even temporary relief. No gov­ ernment can sit still and deny to its o.wn citizens these privileges while they suffer from such action of others. Unless a halt is called we are likely to see these ideas become established as a regular phenomenon in international commerce. Any inspection of the list of the present controlled commodities will indicate that few of them actually originate in the great industrial nations, that is, the United States, Great Britain, Germany, France, Italy, Belgium, Czechoslovakia, Austria, Holland, etc. It is true that some of them have been organized in their colonies and some of them participated in by their citizens. We are, of course, a large producing as well as consuming nation in raw ma.­ terials, and we have it within our powers to retaliate, so that we could take care of ourselves if the world is to develop this form of international relation. The industrial countries of Europe, however, have little of such resources and the growth of these methods can only lead to further retardation of their recovery. And if we, the strongest of all nations, enter upon such programs of creating combinations we will have given strength to forces of evil in the commercial world which generations could not remedy. An easy-going and tolerant world, anxious above all things to keep down international friction might let these controls in international trade continue­ objectionable as they are-if their conduct in every case had been merely to secure a reasonable profit to the producer. But some of them have advanced prices far beyond this point and again demonstrate that inherent quality of all combinations in restraint of trade-that no unregulated monopoly is ever con­ tent with the reasonable but always seeks to justify the unreasonable on some grounds or other. Under a special direction from Congress the Department of Commerce has made an exhaustive investigation of these combinations, and I may cite two or three as showing this particular tend):!ncy. The uniform expression of the man­ agers of the rubber control in the East Indies up to eight months ago was that the industry sought only from 30e to 35C per pound for their product, and our investigation showed they could earn about 25% on the capital invested when rubber brings that price. It is today over $1.00 per pound and production is still being restric~ed. It is s.aid that previous losses of.the growers must be recouped. The same might be said by our wheat, cotton, od, and copper producers. Like­ wise the assertion of the coffee industry over years since the w!lor was that stabilization was sought only at roughly 12C per pound. It has recently been lifted a;; high as 32C and is today 22C, with a great surplus of supplies in its possession. That this difference between "reasonable" and "high" prices is not trivial in its monetary implication to our consumers, is perhaps indicated by the fact that this margin alone over the whole list is today costing us upwards of $300 000 000 . per annum. And it is not our people who are alone concerned but eve;y o~her consuming nation in the world. From an economic point of view, we have two parties to consider in all inter­ .hange-the consumer and the producer. High prices stifle consumption and llO GOVERNMENTAL CONTROL OF CRUDE RUBBER when we stifle consumption we do two things: reduce the standards of living of the consumer and in the long run tend to reduce the business of the producer. The consumer at once seeks every devict to get larger use out of a smaller quan­ tity, and he turns, consciously or unconsciously, to the use of substitutes. The demand for substitutes stimulates every genius to discover and exploit them. I am not talking of adulteration. For instance, the coffee drinker abstracts the last drop from his beans and turns to tea and cocoa. We thus reduced our con­ sumption of coffee by 20% during the past year. The rubber user patches his automobile tires and recovers old rubber to use it again. Every chemicallabora­ tory starts on a search for better methods of rubber reclamation. The tin user turns to galvanized iron and glass containers. The farmer demands of his gov­ ernment that it shall produce synthetic nitrates. On the production side the whole world goes searching for other sources of supply outside the controlling country. High profits stimulate production wherever possible in other quarters. If all these forces be carried to the extreme, the combined result may ulti­ mately bring some of these controls in a crash around the entire industry-pro.. ducers, manufacturing consumers, and distributors alike. There is here a danger often overlooked, for the distributor and manufacturing consumer of these commodities is compelled to carry large stocks of raw ma­ terials in transit, in factory reserve, and in process of manufacture. The manu­ facturer's commitments to his trade for forward orders compel him to bear a· large loss during the rise in prices and if prices break he must offer his goods based upon price of raw materials of the day. Thus the ablest managed manu­ facturing or distributing business is in constant jeopardy from forces they cannot themselves control. The very erection of these controls is an invitation to the entire consuming world to fight militantly for its existence. The length of time that any particu­ lar control can last against these forces no doubt depends upon the degree of need for any particular commodity and the other possible sources, and the pos­ sibility of substitutes. These forces Cll;ll probably break the control of any agri­ cultural product in a few years, for many alternative sources of production exist. Advance in synthetic production of some chemicals will perhaps remedy these combinations. Others might be more difficult to meet. However, these pressures operate very slowly and in the meantime I assume that these facts being well known to the controlling nations they calculate on reaping such a harvest as will compensate them for the ultimate possible demoralization of their producing industry. From a political point of view (and I am not speaking of domestic politics but of international relations) these actions and their reactions are alive with danger. As long as our international commerce is based upon the higgling of producers and merchants in a market whose floor is the free flow of supply and demand, their sorrows and exultations do not affect national emotion. It may be that if these controls had never existed prices might temporarily go as high or higher, but in such an event there would be the quick response of increased production with its relief to price, and in any event there would be no national feeling over such natural courses of trade. Instead of this we see today continued restriction and above all the arousal of national feeling of injury. <" APPENDIX E 221 The moment that a government directly or indirectly fosters ~~ ~tablishes these combinations then that government has taken the responsibility for the prices. Whether these prices be reasonable or high, the populations of the con­ suming countries direct their attention upon the selling government and 'the matter becomes one of national emotion among all consumers. These peoples at once appeal to their government for action that it should use its great powers for their protection. Every day for the past year our government departments have had to deal with exactly this thing. And at once we have higgling of merchants lifted to the plane of international relations, with all of its spawn of criticism and hate. Our foreign offices will thus sooner or later become the bargainers in the market and the negotiations of each of them are backed by a fine lot of rooters for the home team. In the long run it will not even have that softening goodwill of sportsmanship for the fixing of prices cannot be based on altruism. The world will never go to war over the price of anything. But these actions can set up great malignant currents of international illwill. The question naturally arises as to what we, a nation great both as a consumer and a producer who have so (ar resolutely refused either to set up such combina­ tions in our products or to allow our citizens to create them, should do in these circumstances. We cannot allow this situation to go unheeded. There are several alternative courses of action. We could resolutely set ourselves to reduce consumption in every article that is so controlled. We could stimulate the use and manufacture of substitutes. We could induce our citizens to go abroad to other regions and establish rival production. We could prohibit the extension of credit to countries where such controls are maintained. We could request the rest of the consuming world to join with us in these campaigns. It might be that such activities would bring about an everlasting lesson· to the whole world. But this is trade war and we want to live in trade peace. . Alternatively we could say to ourselves that we will revise the whole of our traditional national policy of competition as the base of production and that we will legislate and encourage the establishment of these combinations for our own producers with the view of getting back compensating amounts from help­ less consumer nations. Our resources are so varied and our people so ingenious that we could probably reap a rich harvest in the final balance in holding up the rest of the world. . Alternatively again, we might say to ourselves that these combinations are inevitable, and they will be continuing phenomena; that therefore we,-being a great consumer, will set up defenses by authorizing our merchants and manufac­ turers to buy these commoditieS through a single agent and thus meet the issue of a single seller with a single buyer. For the organized consumer has ever proven stronger than the producer and we could win out in such a battle. No doubt such a course implies that we must set up distasteful regulations that would provide for protection of our consumer as against this single middleman. Another alternative which has been suggested is that the consumer nations QC.the world should secure by international agreements the same rights which l2:1 GOVERNMENTAL CONTROL OF CRUDE RUBBER they would secure in a domestic monopoly; that prices should be regulated under circumstances that the consumer has an equal voice with the producer. But I have no liking for any actions of this sort, for they are either destructive of the one hope of the world-progressive production~r they are a recognition of the permanent establishment of these policies in the future international com­ merce. They contemplate international trade in an atmosphere of contention and dispute instead of peaceful cooperation. The problem should be met on the ground of what in the long run will produce goodwill and prosperity to the entire world, for no single natiop can disassociate its prosperity from the prosperity and goodwill of all of them. The world is emerging from the chaos of the war, and these governmental measures are no longer justifiable, since the producers of the world may look forward to more stable times. We are also at the point where the whole consum­ ing world is being driven toward destructive courses to protect itself from ex­ ploitation by these controls. Therefore the time has come when a solution of this problem is both urgent and more feasible. I am convinced that the sound solution does not lie in any of the alternatives I have outlined; they are all in the nature of last resorts. They recognize trade war. I believe the solution does lie in the willingness of statesmen throughout the world to recognize the consequences of government controlled production and price, and to meet the issue in the only way it should be met, that is, by aban­ donment of all such governmental action. BIBLIOGRAPHY BIBUOGRAPHY American Bankers' Association Journal, New York, Vol. XIX, NO.3, September 1926, p. 139· Academy of Political Science, Proceedings, New York, Vol. XII, No. I, July 1926, pp. 135f1· Annalist, The, New York, 1925f1. Bluett, A. H. N.: Report on the Economic Situation of the Netherlands East Indies, 1925-26, Department of Overseas Trade, London, H.M. Stationery Office, 1927. British Malaya: Return of Foreign Imports and Exports, Singapore, Methodist Publishing House, 1920fl. (Annually) British Malaya: Return of Foreign Imports and Exports, Singapore, Govern­ ment Printing Office, 1921f1. (Monthly) Ceylon Administrative Reports for 1925, Colombo, Government Printing Office, 1927. Ceylon Government Gazette, Colombo, Government Printer, October 23, 1922, pp. 1°49"""57· Commerce Monthly, New York, National Bank of Commerce, Vol. VIII, NO.9, June 1926, pp. 10-14. Commerce Reports, Department of Commerce, Washington, Government Printing Office, October 1922 fl. Commerce Yearbook, Department of Commerce, Washington, Government Prin ting Office, 1922 to 1929. Congressional Record, Washington, Government Printing Office, 69th Congress, First session, 1926, p. 12559. Coote, Philip C.: Malayan Trade Annual, 1925, London~ S. Low, Marston & Co., Ltd., 1925. Department of Agriculture, Ceylon: Yearbook, Colombo, H. W. Cave & Co., 1924-29· Dun's International Review, New York, R. G. Dun & Co., Vol. XUX, NO.3, May 1927, pp. ~I. . Economic Intelligence, The Hague, The Ministry of Foreign Affairs, 1925f1. Economist, The, London, Vol. XCV to Vol. CVI, July 1922 to April 1928. Export Duties of the World, Department of Commerce, Foreign Tariff Series, No. 42, Washington, Government Printing Office, 1927. Facts and Figures of the Automobile Industry, 1929 Edition, National Auto­ mobile Chamber of Commerce, New York, 1929. Facts and Figures about the Dutch East Indies, Third Edition, Department of Agriculture, Industry, and Commerce, Buitenzorg, 1924. Federated Malay States Government Gazette, Kuala Lumpur, Federated _ Malay States Government Printing Office, 1922f1. 226 GOVERNMENTAL CONTROL OF CRUDE RUBBER Figart, David M.: America and Rubber Restriction (Pamphlet), New York, 366 Madison Ave., May 5, 1926. Figart, David M.: The Plantation Rubber Industry in the Middle East, De­ partment of Commerce, Trade Promotion Series NO.2, Washington, Government Printing Office, 1925. Financial Times, The, London, 1922.1f. Financier Rubber Share Handbook, The, 17th edition, London, The Financier, January, 1921. Firestone, Harvey S.: America Should Produce Its Own Rubber, Report of the Conference of Rubber, Automotive, and Accessory Manufacturers, Wash- ington, February 27, 1923. \ Foreign Commerce and Navigation of the United States, Department of Com­ merce, Washington, Government Printing Office, 1920.lf. Foreign Affairs, New York, Vol. II, NO.4, June 1924, and Vol. IV, NO.4, June 1926. Fowler, John A.: Netherlands East Indies and British Malaya, Washington, Government Printing Office, 1923. Fowler, John A.: Plantation Rubber in the Netherlands East Indies and British Malaya, Department of Commerce, Trade Information Bulletin No. 27, Washington, Government Printing Office, 1922. Geer, W. C.: The Reign of Rubber, New York, The Century Company, 1922. German, Capt. R. L.: Handbook to British Malaya, London, Waterlow & Sons, Ltd., 1927. Handbook of Commercial and General Information for Ceylon, Compiled by . L. J. B. Turner, Director of Statistics and Office Systems, Ceylon, Colombo, H. Ross Cottle, Government Printer, 1927. Harvard Business Review, Cambridge, Mass., Vol. II, NO.2, January 1924, pp. 12~38, and Vol. V, NO.4, July 1927, 44~7. Henderson, F. R.: Rubber, Its Production and Marketing, New York, Hender­ son, Helm & Co., Inc., 1926. Holt, E. G.: Marketing of Crude Rubber, Department of Commerce, Trade Promotion Series No. 55, Washington, Government Printing Office, 1927. Hoover, Herbert C.: Foreign Combinations to Control Prices of Raw Materials, Department of Commerce, Trade Information Bulletin No. 385, Washing­ ton, Government Printing Office, February 1926. House of Representatives: Hearings before the Committee. on Interstate and Foreign Commerce, 69th Congress, First session, House Resolution 59, January 6-22, 1926, Washington, Government Printing Office, 1926. House of Representatives: Preliminary Report on Crude Rubber, Colfee, etc., 69th Congress, First session, Report No. 555, House Calendar No. 132, Washington, Government Printing Office, March 1926. Huston, Claudius H.: America's Dependence on Britain for Rubber, Philadel­ phia, Saturday Evening Post, May 26, 1923, pp. 22-3. Hymans, Kraay & Co.: Rubber Facts, Figures, Forecasts, 1926-27, London, 1927. India Rubber Journal, London, 1922J1. BIBLIOGRAPHY 227 India Rubber and Tire Review, Akron, Ohio, The India Rubber Review Co., 1 92O.If. India Rubber World, New York, India Rubber Publishing Co., 1922Jf. International Association for Rubber and Other Cultivations in the Netherlands Indies, The Hague, Annual Reports, 1915 to 1928. International Information Service, Special Report NO.4, Washington, Inter­ national Chamber of Commerce, American Section, May 1I, 1926. Jaaroverzicht van den In- en Uitvoer van Nederlandsch-Indie, Departement van Landbouw, Nijverhei4, en Handel, Weltevreden, G. Kolff & Co., I 922.1f. Journal of Commerce, New York, 1922.1f. Keynes, J. M.I The Control of Raw Materials by Governments, The Nation and the Athenaeum, London, Vol. XXXIX, No. 10, June 12, 1926, pp. 26]-9. • Korte Berichten, Het Departement van Landbouw, Nijverheid, en Handel, Buitenzorg, 1925.1f. Liberia: Acts, 1926, Monrovia, 1926. London Times, The, London, 1922.1f. Lubin,lsador: Prices of Rubber and Rubber Products, War Information Bulle­ tin, Price Bulletin No. 30, Washington, Government Printing Office, 1919. Luytjes, A.: Native Rubber Cultivation in the Dutch East Indies, Chapters I-II-III, Native Rubber Investigation Committee, Batavia, Kuala Lum­ pur, Chas. Grenier & Sons, Ltd., May 1925. Luytjes, A.I Native Rubber Cultivation in the Dutch East Indies, VII-Final Report, Department of Agriculture, Industry, and Commerce in collabora­ tion with the Native Rubber Investigation Committee, Batavia, Kuala Lumpur, Chas. Grenier & Sons, Ltd., 1927. Maclaren, W. A.I Rubber, Tea, and Cacao, Vol. V of The Resources of the Empire Series, London, Ernest Benn, Ltd., 1924. Malayan Agricultural Journal, The, Department of Agriculture, Federated Malay States and Straits Settlements, Kuala Lumpur, Vol. VIII to Vol. XVI. Malayan Till and Rubber Journal, The, Ipoh, Straits Settlements, Times of Malaya, 1921Jf. Manchester Guardian Commercial, The, Manchester, 1925Jf. Meyjes, A. C. I The Restriction of Rubber Exports, Edinburgh Review, Edin­ burgh, Vol. CCXLVI, No. 501, July 1927, pp. 1']-31. Monthly Labor Review, Bureau of Labor Statistics, Department of Labor, Washington, Government Printing Office, 1926.1f. Nation's Business, Chamber of Commerce of the United States, WashingtoIq Vol. XI, NO.4, April 1923, pp. 30-1. New York Times, The, New York, I 922.1f. North American ~eview, New York, North American Review Corporation, Vol. CCXXIII, Nos. 3-4-5, March, April, May, 1927. Philippine Agricultural Review, The, Department of Agriculture and Natural .iesources, Manila, Vol. XIX, No. I, First Quarter, 1926. 228 GOVERNMENTAL CONTROL OF CRUDE RUBBER Phillipson, A.: The Rubber Position and Government Control, London, P. S. King & Son, Ltd., 1924. Planters' Association of Ceylon (Kandy): Yearbook, Kandy, Miller & Co., Ltd., I 920fJ. Planters' Association of Malaya: Annual Report, Singapore, Fraser & Neave, Ltd., Printers (to 1918), Kuala Lumpur, Malayan Supply Company Press' (after 19 19), 191sfJ. Prescott, Ray B.: Analysis and Forecast of the World's Crude Rubber Consump­ tion, New York, The Rubber Association of America, Inc., 1924. Prices, Price Indexes and Exchange Rates in Java, 191.)26, Department of Agriculture, Industry, and Commerce, Batavia, Drukkerijen Ruyjrok & Co., 1927. Reports of United States Consular officers, Files of Department of State, Washington. Reports of American Trade Commissioners, Files of Rubber Division, Depart­ ment of Commerce, Washington. Report of World Economic Conference, Geneva, May 1927, Publications of the League of Nations, II: Economic and Financial, Geneva, June 3,1927. Reports of World Economic Conference, Geneva, May 1927, Publications of the League of Nations, Verbatim Reports, 1927. , Rickinson: Rubber Companies' Position, London, W. H. Rickinson & Son, 1 920fJ. Rickinson: The World's Rubber Position, London, W. H. Rickinson & Son, 1922ff· Rubber Age, The, London, 1922fJ. Rubber Age, The, New York, The Palmerton Publishing Co. (since 1927), 1 922fJ. Rubber Association of America: Bulletins, New York, Rubber Association of America. . Rubber Growers' Association: The Bulletin, London, The Rubber Growers' Association, Inc., 1920ff. Rubber Growers' Association: Annual Reports, London, Rubber Growers' Asso­ ciation, Inc., 1920fJ. Rubber in the Netherlands East Indies, Bulletin of the Central Bureau of Sta­ tistics, No. 21, Wdtevreden, Landsdrukkerij, 1925. Rubber Situation in the Netherlands East Indies, The, Department of Agricul­ ture, Commerce, and Industry, Buitenzorg, 1924. Rubber Statistics of the Dutch East Indies, Batavia, Netherlands India Rubber Trade Association, 1925fJ. Secretary of Commerce: Annual Reports, 1926 and 1927, Washington, Govern­ ment Printing Office. Statistiek van den Handd en de In- en Uitvoerrechten in Nederlandsche-Indie, Samengestdd bij het Hoofkantoor der In- en Uitvoerrechten en Accijnun, Wdtevreden, G. Kolff & Co. (since 1924), 1922fJ. . Special Circulars, Rubber Division, Department of Commerce, Washington. Statist, The, London, 1921ff. Statistical Abstract for the Netherlands East Indies, Departement van I<''ld- BIBUOGRAPHY 229 bouw, Nijverheid, en Handel, Weltevreden, Landsdrukkerij, 1922 to 1927. Statistical Abstract of the United States, 1928, Department of Commerce, Washington, Government Printing Office, 1929. Straits Budget, The, Singapore, 1922./f. Straits Times, The, Singapore, 1922./f• . Straits Settlements Government Gazette, Singapore, Government Printing Office, I 921./f. Schotz, S. P.: Synthetic Rubber, London, E. Benn, Ltd., 1926. Tire Rate Book, The, New York, Edward Lyman Bill, Inc., Vol. XIII, NO.3, July..october, 1927. Trans-Pacific, The, Tokyo, Vol. V, NO.3, September 1921, pp. 43-4. Wallace, Benjamin Bruce, and Edminster, Lynn Ramsay: International Con­ trol of Raw Materials, Washington, The Brookings Institution, 1930. Zorn, D. F. L.: A Policy for the Rubber Industry, London,Harriscin, Jehring & Co., Ltd., 1922. INDEX INDEX ADMINISTRATION of Stevenson Act, se, controversy, British·American, 35, 37-420 Stevenson Act, administration. 147-8,174-83, 189. adulteration of rubber, 105. Coote, Philip C., 114. Agar, Shelton, scheme for rubber control, cost of crude rubber to manufacturers, I~. 148-50 • . American attitude toward restriction, see cost of living in rubber producing coun­ attitude toward restriction, Ameri­ tries, see standard of living. can. cost of production, crude rubber, 5, 14, American coun ter-measures, 138-48; see 21-2, 69, 7~3, 75, 78, 7!f81, 106, also pool, American buyers'. 17!f8a. Amery, L. S., 40. en ticism of Stevenson Act, Sll Stevenson atti tude toward restriction, American, 14, Act, criticism. 31"9,41-2,135-8,174-8,189,213-20. British, 14, 35, 37-42, 14;-8, 163-4, DAVIS, Edgar B., 25, 2~1. 174-8, 182-3, 189. defenses against restriction, see restriction, Dutch, 2"-7, 208. defenses against. producing countries, 13~4. demand for crude rubber, 4, 6, 35-8, 42, 44, 18~1, 182. BEHAIUlEL, Sir George, 69. elasticity of, 6,175,176,179,181. Bluett, A. H. N., 103, "9, 120, 128. see also consumption of crude rubber. Bois, Stanley, 207, 211. discrimination, 177. Braddon, scheme for rubber control, 198. dividends of plantation rubber companies, British attitude toward restriction, see 15-16, 19, 167-8, 17~1, 194· attitude toward restriction, British. Duncan, William, 24, 207, 211. British rubber companies, see plantation Duncan Committee, scheme Jor rubber rubber industry. control, 205-6. Brockman, E. L., 207, 211. Duncan scale, 63-4' Broderick, Sir J. Joyce, 39. business conditions in rubber producing EDISON, Thomas, 110, 145. countries, 116-20, 192. Edminster, L. R., 178. Byrne, E. J., 207, 211. effects of restriction, 194-5. Great Britain, 163"73, 194. C.uPEa-Newton Bill, 147. producing countries, 75-134, I~. causes of restriction, see restriction, causes United States, 135-62, 192-3. of. evasion of Stevenson Act, see Stevenson Chapman, Sir Sydney, 163. Act, evasion. Churchill, Winston, 18,39,164. exchange, sterling, 16,40, 173, 194. Clark, J. P., 69. export coupons, ~3, 78, 101, 194. Committee of Civil Research, 5, 163. export duties, 47,51-4,68,127-30,174-5, Congressional investigation, 137, lSI, 182, 205-'7, 209. 156,158• export quotas, 29, 33-5, ~3, 4;-8, 68, consumption of crude rubber, 11,30,32-3, 78, 194, 205-6, 2O!f10. 37, 13!f42, 202-3: see also demand exports of crude rubber, 9, 67, 101, 102-3, for crude rubber. 105, 121-2, 124, 12"-7, 191. CW1rol of rubber during the war, 1~13. above quota, 51-5. 124, 182,209. 234 INDEX FI0AIlT, David M., 3,8,21,22,25,28,70, marketing practice, U.S., 140-1, 155. 71, 106, 142, 200-1. Marshall, Alfred, 185-6. Firestone, Harvey S., 15,32, lIO, 1II-12, Meyjes, A. C., II, 17, 23, 71, 129. 136,146, 191-2. Miller, H. Eric, 13, 20, 41, 71, 136, 182, Ford, Henry, lIo, II2, 146, 192. 207,211 •. foreign trade, rubber producing countries, modifications of Stevenson Act, Stt Stev­ 67,97, 121-7, 192• enson Act, modifications. United States, 160-2, 193. Morel, E. D., 2. formation of new companies, II8, 171-2. Moseley, Oswald G.,~. forward selling, 164-5. Fowler, John A., 83. . NATIVE producers, 7-10, 43-4, 64, 77-8, free ports, 28, 53, 58. 102-3, 105-10, 163, 171-2, 191, 194.

GASOLINE consumption, U.S., 140. PAEIlELS, 107. Geddes, Sir Eric, 121. panic in rubber market, 35-41, 189"90, German, R. L, 18, 87. 194- Goodyear, Charles, 1-2. Parton, James, I. government finances of rubber producing Phillipson, A., 23. countries, 127"30. pivotal price, 34, 43, 47-8, 68-']4. 181, Grindle, G., 207, 2II. 206, 209-10. guayule rubber, 10J-4, lI2-13, 146, 192. plantation rubber industry, 1-5, Icr22, 57,75"9, lOS, 167-73· HAMBLINO, Sir Herbert, 163. planting, 105-13, 171-2, 17crBo, 191, Helferich, scheme for rubber control, 200. 194· Hicks, Sir William, 39. shares, 16, 16MI, 173, 194- Holt, E. G., 62, 63, 66, 67, 104, 139. Stt mso cost of production, crude rub­ Hoover,Herbert,138,146-8,159,21J-14, ber; profits, rubber growers. 21 5-20. Planters' Association of Malaya, 12, 18, Horne, Sir Robert, 177. 2.;-5· Houston, C. H., 136. pool, American buyers', 44, 146-'], 158- Hymans, Kraay, 139. 60, 170, 193· Prescott, Ray B., 187. IMPOIlT duties, 174-5. price of crude rubber, .)7, 11-12, IJ-15, imports, II' foreign trade. 30-46, 148-50, 160, 178- 83, 187"90' inflexibility of Stevenson Act, s" Steven­ pivotal, Sll pivotal price. son Act, inflexibility. Priestley, Joseph, I. inverted competition, 34- production of crude rubber, 6-10, 18, investing country, effects of restriction on, 1