THE CHEMICAL ECONOMY WALTER FEDOR, Senior Editor Anyone who tries to borrow money now will probably get a mild shock. Loans are not freely available anymore, a rather sharp change in six months. The demand for credit is rising faster than funds become available; consequently, money is tight. This is another problem of a robust economy and one which will get further government attention. The Government has demonstrated that a lagging economy can be stimulated by tax reductions. Now, can the Government limit economic growth before tight money breeds a recession? The big gun in the Government's economic arsenal is a tax increase. This should slow individual and company spending, the heart of today's money problem. People and companies have a get-it-now philosophy; both seem unwilling to postpone spending. Partly, their attitude is justified. Business is at a peak in using facilities, men, and money, and further business growth is limited by lack of capacity. Thus, new facilities are needed and this causes pressure to expand. The end result of business expansion is primarily consumer purchases. There are real needs such as food and clothing; but as an economy grows, more people work and at higher wages. Thus, there is more money around. Luxury purchases such as a second new automobile, a color TV set, a new home, or a backyard swimming pool are imposed on purchases for real needs. When the money is not there, the consumer seeks a loan to make the purchase. Meanwhile, businessmen need loans for their spending. With both people and industry borrowing record amounts this year, the overall demand for credit exceeded the rate at which savings (the source of loans) accumulated. Bank statistics show the size of the problem. Banks in cities can loan up to 83.5% of their deposits. In June, such banks had a 70% loan-to-deposit ratio; in January it was 6 3 % . Normally, the loan-to-deposit ratio is about 60% in city banks. The rising ratio put the banks in a loan crisis, and they are rationing credit. Established customers are not having much trouble, but a new customer, with excellent credentials, might be rejected. Increased demand for credit also sparks a rise in the cost to borrow. The Federal Reserve Board raised the discount rate (the interest member banks pay to borrow money) to 4 V 2 % in December. This was a move to discourage borrowing, but banks merely pass the higher interest rate along to customers. The higher interest rate has not deterred spending by people or companies. Nor has spending been noticeably affected by the accelerated tax payments which went into effect in May. These are really modest government efforts to slow borrowing and spending. A tax rise would be a more drastic move. But people and companies can head off a tax rise voluntarily. People can simply postpone spending for luxuries. Companies have several choices. They can postpone capital spending, particularly for marginal projects. Also, companies can curtail inventory accumulations. Although the inventory-to-shipments ratios are not alarming today, the dollars tied up in inventory are increasing. Another company move would be to cut dividends. This would be tough, since it would be hard to explain to stockholders that a dividend cut is necessary in times of rising sales and income. These moves would make more cash available, allow savings to increase, and gradually ease the tight money problem. But not all agree that spending should be restrained either voluntarily or by Government. They feel the Government can print more money and the Federal Reserve Board should let credit expand unrestrained. However, these moves would only accelerate inflation. Prices would skyrocket and the value of the dollar decline rapidly. Uncontrolled credit and spending would do nothing for industrial production. The solution to today's tight money is not through unrestrained credit nor is it through restraints imposed by Government. Instead, voluntary curbs by business and individuals could be more effective. The Government might do better to urge us to solve the problem. 20 C&EN JULY 4, 1966
Monsanto wins 3-year labor pact Monsanto was willing to pay for a three-year labor contract at its Queeny plant in St. Louis, Mo., and it got one. By a vote of 525 to 224, members of Local 16 of the International Chemical Workers Union said yes to the company's offer of a 34-cent increase in wages over the next three years (C&EN, June 27, page 2 0 ) . The three-year pact at St. Louis for the time being dashes any hopes the union might have had for combining ICWU's two biggest locals at Monsanto—the 1300-member local at St. Louis and the 1400-member local at East St. Louis—into a coordinated bargaining situation. The company, which already bargains on a coordinated basis with 14 unions on pension and insurance matters (C&EN, March 7, page 3 2 ) , believes plants should be managed locally and that it is best to deal with unions in the same way. The new pact calls for: • A 10 cent-per-hour wage increase immediately, another 10 cents next year, and 14 cents more in 1968. • A 1 cent-per-hour wage increase in lieu of lunch allowance for overtime. • A ninth paid holiday (the day after Thanksgiving) annually. • Effective immediately, two weeks vacation annually after one year of service, three weeks after 10 years, and an extra week for each additional five years of service up to six weeks after 35 years. In 1968, workers will get three weeks after five years, four weeks after 10 years, five weeks after 20 years, and six weeks after 30 years. • Improved sick benefits. Average hourly wage at the Queeny plant (aspirin, sodium and calcium cyclamates, saccharin, bisphenol-A, and other organics) under the old contract was $3.23 an hour. That was 44 cents more than the chemical industry's 1965 average, 13 cents more than the auto industry's, and 5 cents less than the basic steel industry's. Howard Mitchell, director of personnel for Monsanto's organic chemicals division, says the company sees many benefits from long-term agreements. One is that the company can assure customers of continuous supplies. Another is that plant managers can devote more time and effort to improving plant operations. A third benefit, as he sees it, is that a longterm agreement minimizes the indirect effects of labor negotiations—advance ordering by customers, for instance, as a precaution against the possibility of a strike. "We feel that if a long-term agreement is good for the company, the company ought to be willing to pay for it," he says.
