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·- ;-,1' • S. I. S. LIBRARY (POONA 4.) whitt \~ser (Ch~\esR). govenrme1'rtJ. c.aYlt~( Q.t c."(~.~e )'\Abbe", - the '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