and in 1974 the general price level as measured by the gross national product deflator rose more than 12 percent. There has been a significant improvement in price behavior recently, due to a number of factors. The effects of special factors such as oil and energy product price pressures have largely dissipated. With weakened worldwide demand, commodity prices started easing last spring and this moderation is now showing up in final products. And weak consumer and business markets in conjunction with recent strenuous efforts to liquidate inventory stocks through discounts and rebates (witness the advertising of auto dealers in the last 3 months) has had a significant effect on the behavior of prices. The U.S. wholesale price index has actually declined for the past 3 months as food prices have dropped from their record high levels of last year and prices of finished goods have moderated substantially. These developments can be expected to result in a further slowing of prices at the retail level. It would be premature, however, to conclude that the problem of inflation is now behind us. Prices are still rising at unacceptably rapid rates; consumer prices for example, increased at an annual rate of 8 percent in the past few months. Wage increases continue to be a source of inflationary pressure as workers attempt to recoup losses in real earnings. And with productivity declining as output drops, the pressure of rising costs on prices has been intensified. OTHER COUNTRIES SUFFER Other industrial countries have also been beset by the dual problem of recession and inflation. With the notable exception of West Germany, inflation has been at least as intense in other industrial countries as in the United States. Most of these countries have also experienced a weakening of economy activity in the last year. I will now turn in more detail to the policy questions which confront the United States. Clearly, a prime requisite of domestic policy is to stop the forces of recession and to promote an early, vigorous and sustained recovery in real economic activity. But, as I mentioned earlier, great care must be taken to avoid releasing a new wage of inflationary forces. Let us not lose sight of the fact that the severe recession in which we find ourselves is largely a consequence of an inflationary problem which developed over a period of years. In our country, the Government has already undertaken some significant actions to mitigate the forces of recession. To alleviate the problems of unemployment, our unemployment insurance system has recently been expanded to cover an additional 12 million workers, and payments have been extended to up to a full year for millions of others who have been laid off. And, an enlarged public employment program was recently funded to create an additional 350,000 jobs for the unemployed. In recent months the Federal Reserve has taken numerous steps to enlarge supplies of credit, the discount rate has been reduced four times since late last year, and actions were taken releasing a considerable amount of reserves to the banking system. TESTIMONY OF ARTHUR BURNS To quote again from the testimony of Chairman Burns: Monetary policy has responded to the weakening in economic activity by promoting easier financial conditions. Federal Reserve open market operations began to be more accommodative last summer. As the year progressed, they were increasingly directed toward a more ample provision of reserves to the banking system. More recently, open market policy has been reinforced by other monetary instruments. The discount rate was reduced on four occasions, and three reductions were made in member bank reserve requirements. These policy actions, together with weaker demands for credit by businesses and consumers, have resulted in a sharp decline of short-term market interest rates *** from a peak of 13 percent registered in July of last year to less than 6 percent now. The interest rate on shortterm commercial paper has declined from over 12 percent last July to around 6 percent. The prime loan rate charged by banks has declined by about 4 percentage points. As a result of these reductions, short-term interest rates in the United States have recently been lower than in any other major industrial country. Long-term interest rates have also declined, although much less than short-term rates *** actually, long-term interest rates in our country are lower than in any major industrial nation except Switzerland. As a result of these developments, financial conditions have eased on a broad front. But to insure a turnaround in the economy, fiscal actions to reduce taxes and stimulate income are also necessary to counteract the effects of widespread unemployment on household incomes and spending. Because of inflation, many individuals have moved into higher tax brackets, even though their real income may remain unchanged or actually declined-partly offsetting the automatic budget stabilizers we normally count on to moderate recessionary forces. The administration has proposed and Congress is discussing a multifaceted program of tax relief. A personal income tax rebate is being considered which would have a stimulative effect on spending by summer, and a liberalized investment tax credit would in time have a positive effect on business capital expendi tures. The resulting expansion in investment would help to provide more jobs, and could also contribute to moderating inflation in the longer run by improving the capacity and efficiency of our industrial plants. Returning once more to policy problems, it is clear that the Federal deficit for the coming year is bound to be huge. Predictions range from a $52 billion to a $78 billion deficit. Any substantial further increase in spending and the deficit could strain money and capital markets. The prospective schedule of private capital borrowing is very heavy and if the Government has to go to these markets also for even more financing, interest rates could rise, increasing the cost of capital to business and inhibiting business spending. Saving funds may once more be diverted from mortgage lenders and the stock market could turn weak again. Thus, actions taken which would increase the deficit further must be viewed with great concern. Federal expenditures must be scrutinized with a careful eye in an effort to constrain unessential outlays. Such actions would improve the prospects for moderating the rate of inflation and would bolster the confidence of the country by indicating the clear intent of the Government to stick to a prudent fiscal course. JOINT STATEMENT ON CYPRUS During the final plenary session, the two delegations discussed Cyprus. At the conclusion, the following statement was issued: Members of the Congress of the United States and the European Parliament, deeply concerned with the problem of Cyprus, concluded their detailed examination of the political and security situation in the Eastern Mediterranean by stressing the following points: 1. They urge the governments of Cyprus, Greece, and Turkey, and the leaders of the two communities on Cyprus, to reconsider their respective positions in the light of the present stalemate on negotiations. This reconsideration should proceed, on the basis of the need for a prompt, just, and comprehensive solution on Cyprus, with appropriate international guarantees, which will alleviate the plight of the refugees, protect the interests of the two communities and allow them to live in harmony and peace. The Republic of Cyprus must remain an independent sovereign state. 2. They invite the governments of the European Community and of the United States to assist in every possible way the resolution of this conflict and thereby to allow the restoration of full cooperation with the three countries involved. 3. The European Parliament should, by means of its Joint Parliamentary Delegations with the Greek and Turkish Parliaments, and through contacts with Cypriot leaders, itself take the initiative in contacting parliamentary and po litical leaders in the three countries concerned in order to try to bring about agreement between them concerning the economic, political, and constitutional settlement of the Cyprus problem. 4. The U.S. Congress and the European Parliament should prepare proposals for an ambitious economic redevelopment programme for the Republic of Cyprus to be agreed with and implemented by a fully representative Cypriot administration resulting from prior constitutional negotiations. II. JOINT HEARINGS BEFORE THE DELEGATIONS OF THE EUROPEAN PARLIAMENT AND OF MEMBERS OF CONGRESS ON MULTINATIONAL CORPORATIONS April 14 and 15, 1975, Munich, Germany THE MULTINATIONALS: THE VIEW FROM EUROPE Monday, April 14, 1975 SUMMARY OF JOINT PUBLIC HEARINGS ON MULTINATIONAL Part I: Representatives of Multinationals and Independent Experts The meeting opened under the chairmanship of Mr. Lange, rapporteur for the European Parliament delegation, who introduced the following experts: -Mr. G. Colonna di Paliano, Member of the Fiat Board of Management, Turin ; -Mr. G. Chandler, Director of Shell International, London; -Mr. J. C. Vuillet, Shell Europe. The Hague; and -Mr. W. Schlieder, Director-General at the Commission of the European Communities, Brussels. Mr. Lange observed that the purpose of the hearing was certainly not to collect evidence against the multinational undertakings, but rather to continue the talks begun at previous meetings in an attempt to draw up an internationally applicable and binding legal form for the activities of multinational undertakings. To achieve this, it was necessary to expand on the information already available to the delegations, in order to form a balanced and comprehensive opinion. Mr. Lange expressed disappointment at the fact that the representatives of some companies who had accepted invitations to the hearing had failed to appear. ACTIVE ROLE FOR MNC'S Mr. Colonna di Paliano, member of the Fiat Board of Management, noted that international production gave rise to political problems chiefly because each country had its own ideas as to the best method of developing its resources. Naturally, consideration could be given to concluding an international agreement on reducing the uncertainty caused by such political divergence. What had so far been done in the United Nations was helping to achieve this, although with the emphasis more on supporting the developing countries in their relations with multinational undertakings than defining the obligations of these countries to foreign undertakings. It would be a good thing-and Fiat fully realized this if the multinational undertakings took an active part in all activities aimed at improving relations between foreign undertakings and host countries. Any agreement should preferably be worldwide rather than international because the problem had now attained worldwide dimensions. For the present, however, such an agreement was not a real possibility. The United Nations could not be expected in the short term to succeed in getting such an agreement. The prospects of an agreement involving only the EEC countries or-at a later stage-all Western industrial countries, were perhaps more favorable. Until then it would be more realistic to limit action to a voluntary code which could be based on the recommendations of the International Chamber of Commerce: such a code could cover both the rights and the obligations and specific responsibilities of the multinational undertakings. RESPECT FOR SOVEREIGNTY The Fiat undertaking had always followed a preeminently flexible policy in which respect for the sovereignty of the host country was a primary concern. It was only in exceptional cases that Fiat expanded its activities abroad through wholly owned subsidiaries. Fiat preferred shared responsibility and was frequently content with a minority holding. Where it was important to attract industries which brought the host country the maximum advantages in industrial know-how, staff training at all levels and capital inflow, the automobile industry was without doubt in a commanding position. It could therefore make |