Three Examples of International Coöperation

I

THE recent successful placing of an Austrian Government loan of approximately $126,000,000 upon the leading investment markets of the world is a notable instance of financial coöperation in an international way. There are two other present instances of such coöperation, one relating to Mexico, the other to China. In all these cases America has taken an active and important part. Thus, even though there may have been a certain lack, upon the part of the United States as a whole, of coöperation for the adjustment of difficult situations in Europe and elsewhere, nevertheless we have before us strong evidence of such active coöperation on the part of American investment interests.

The case of Austria is so recent, the loan in question having been offered only last June, and in some markets as late as August, that it may be of interest to examine it in some detail. In the late spring and summer of 1922, the position of Austria appeared desperate. Her economic and commercial machinery seemed to have broken down; there was unemployment on a large scale; there was lack of food; the government was printing more and more irredeemable paper currency, and the value of the crown was falling daily. By the Treaty of Saint-Germain various tariff barriers had been set up, which seemed to isolate and to make impossible the restoration of Vienna as the entrepôt and financial centre of the whole region formerly embraced in the old Austro-Hungarian Empire. People were talking glibly about the approaching death of Vienna and the starvation of her people, whose sufferings were being alleviated in considerable measure through American and other foreign benefaction.

It was at this juncture, late in May 1922, that, happening to be in London, I conferred there with the representative of the Austrian Finance Minister, and also with the Austrian Ambassador at London, Baron Franckenstein, who desired to lay Austria’s case before leading investment interests of America and of Great Britain in the hope that some loan might be arranged to tide the country over its difficulties. We explored the whole situation thoroughly, sent a representative to Vienna to examine it at close range, and came to the inevitable conclusion that the then Austrian situation was not sufficiently sound to warrant prudent bankers (even with the best of good-will toward Austria) in arranging or in offering to investors generally an Austrian Government loan. We pointed out that before any such offering could properly take place there must be brought about a radical change in Austria’s situation, both internal and external. We indicated that should drastic measures be taken to stop inflation, to cut down government expenditure and increase government income, then, and only then, could we see the possibility of a sound loan, to be secured by a first lien upon the government revenues from the customs and the tobacco monopoly. When the announcement was made in Vienna as to the views of the bankers on a possible loan the result was, not unnaturally, to cause even greater gloom there, and the crown fell to new low levels.

At this crisis, however, the Austrian Government, speaking with the voice of its Chancellor, Ignaz Seipel, a Catholic priest, a man of great strength of character, took hold of the situation with vigor. The Chancellor appeared before the Supreme Council of the premiers, explained Austria’s desperate plight and begged the premiers to appoint an expert committee of the League of Nations to look into the situation and develop a plan of rehabilitation, pledging to any such plan the hearty backing of the Austrian people. The premiers acted promptly and appointed such a committee, made up of highly int elligent and experienced civil servants, British, French, and others. This committee, without undue delay, laid down a plan of reform based on two cardinal principles: first, a vigorous handling by the Austrian people themselves of their domestic situation; and second, the friendly and effective coöperation of Austria’s late enemies, including her neighbor states. This plan, novel as it is in political and financial procedure, has been carried out to the letter and has thus marked an extraordinary forward step in international coöperation — coöperation in this instance shared by states (European) as well as by bankers and investors.

Let me explain a little further the workings of this plan. First, as to reforms within Austria, I will quote from the official letter of Dr. Alfred Zimmerman, formerly Burgomaster of Rotterdam, an experienced and vigorous administrator, who is acting as the Commissioner-General for Austria in the carrying out of this plan. As Dr. Zimmerman points out, the programme of reform included:

(a) The reduction of ministries, simplifying their organization and eliminating overlapping.

(b) Reorganization or eventual transfer to private management of State industrial enterprises.

(c) The reduction by one hundred thousand of the civil servants employed by the State.

(d) The enactment of legislation providing for increased revenues from indirect taxation, customs duties and duties of other kinds, and the introduction of a turnover tax.

In addition, the plan included the establishment of a new bank of issue to assist in the stabilization of the crown.

With extraordinary energy, the Austrian Government undertook to carry out its part in these reform measures. For instance, prior to the end of May last, the reduction of State employees had been effected to the extent of upwards of 36,000; new tax levies were laid, the increased income from them beginning almost immediately; so that the government deficit is already below the estimate. Largely through the operations of the new bank of issue, inflation has ceased, the Austrian crown has been stabilized, its exchange value for the last ten months having hardly deviated at all from the level established in October last.

Now what about the measures external to Austria? First, the Continental states, and also Great Britain, executed the protocols, so-called, of October 4, 1922, guaranteeing the then political integrity and economic independence of Austria. These same governments further agreed to become guarantors, in several shares to be arranged, of an international loan to be issued by the Government and to be floated upon the investment markets of the world. The governments thus becoming guarantors of the projected loan were: Great Britain, France, Czechoslovakia, Italy, Belgium, Sweden, Denmark, and Holland; while the Government of Switzerland has taken a direct share of the loan, and the Spanish Government is expected to do likewise.

These guaranties were designed to accomplish a double purpose: first, to make the loan more readily salable by showing to world investors the confidence that outside Governments had in Austria’s stability; and second, collaterally, to make it clear that, having given their guaranties, Great Britain and France, and in particular the adjacent states — Italy and Czechoslovakia — have a very strong inducement to do everything in their power to see that such social and political stability is maintained in Austria as will ensure the continued sufficiency of the assigned revenues. Thus we see the spectacle of nations recently enemies of Austria turning around and doing everything within their power to assist in the restoration of a defeated foe. The Government coöperation did not end here, for in order to make the new loan an effective primary lien upon all Austrian Government revenues it was necessary for these former enemy powers, including the United States, to waive their reparations and other claims against Austria, which has been confirmed by the various treaties. This waiver was without exception promptly granted. The result was, as we have seen, the successful flotation of this loan, the extraordinary thing being, not the success of the operation after coöperation had been arranged, but the fact that such unity of effort could be secured.

Close on the heels of this successful measure comes the information that Austria has concluded with Italy and France commercial treaties calculated to facilitate Austrian exports, and that similar treaties with Czechoslovakia, Hungary, and Yugo-Slavia are about to be negotiated. Such action, if carried through, will go far to dissipate the impression that, by the operation of the Treaty of Saint-Germain, Austria has been completely isolated and an impassable tariff wall built around her. Meantime, too, with the passage of time, it has become apparent that Vienna, instead of losing her place as the entrepôt and financial centre of the whole region of Southeastern Europe, is still retaining that position and has a promising future, with a helpful reflex upon industry throughout Austria.

It may be noted in passing that this whole plan of reform and restoration as to Austria has been devised by men of affairs. To carry it out has required the coöperation of Governments themselves, which in this instance has been generously and promptly granted. But the severe scheme or reorganization was worked out originally by technical experts so-called, and by plain men of business, who had the advantage of being able to lay out a certain definite course and then to move rapidly along that course, instead of being handicapped, as premiers are, by the necessity of constantly stopping and looking over their shoulders to see what their constituents think about it all. The Committee of the League of Nations which devised the plan did its work speedily and thoroughly. In all fairness the public should recognize, just as the Austrian people recognize, that without the League of Nations Austria might have gone under. The League Committee laid out the plan, arranged the guaranties upon the loan, appointed an expert foreign administrator to supervise the internal reforms. Then the bankers and investors carried through the loan operation itself. Together they have restored a nation’s confidence in itself.

In the accomplishment of the plan American interests have been exceedingly active. At first it looked as if it would be an uphill job to place the American share of the loan, $25,000,000; but gradually the investment public here learned the facts as to the change for the better that had taken place in Austria; so that the loan was finally over-subscribed many times. In announcing the plan to assist in this loan, Mr. J. P. Morgan said: ‘The importance of the Austrian loan which is being issued to-day lies in the fact that the attitude of American investors to the loan will show that they are interested in helping those nations of Europe who are prepared to help themselves toward the reëstablishment of their credit.’ And the initial motive that led the group of American bankers to undertake the plan was that of extending American help to a sister state of the family of nations, a state once in distress and yet making heroic and effective efforts to relieve her own situation.

It is curious to note that while this Austrian loan operation was hailed as a great triumph in almost every newscentre, at Berlin, on the contrary, it was ridiculed and reflections were cast on the good motives of all concerned in it. Whether such an attitude at Berlin was prompted by jealousy, and by the discomfiture of seeing the Austrian crown reach a more valuable and stable position than the mark, no one can pretend to say. Nor is it worth while to speculate upon the inquiry, frequently and urgently put to those who helped work out the Austrian loan, as to whether this operation shows the way to a similar operation for Germany. Such a question to-day is, to say the least, purely academic. Prior to the time that Austria took herself in hand and proceeded to do her hard job of house-cleaning, no one could foretell the possibility of a loan operation. It will be time enough for the world to talk about lending money to Germany when and if Germany shows, as Austria has now shown, that she is determined to take radical measures to sound ends. Meanwhile Berlin is the city of melancholy, Vienna of optimism.

II

The second instance of international coöperation that I had in mind is, as I have indicated, that relating to Mexico, and specifically to the foreign-held debt of the Mexican Government. Going back ten years or more, it will be recalled that, prior to the outbreak of the revolutions following the fall of President Porfirio Diaz, the Mexican Government had borrowed in foreign markets an aggregate of about. $500,000,000, or its equivalent, in different national currencies. When the revolutions came on, the Mexican Government failed to meet the service (interest and sinking fund) of these loans, with the consequence that their market quotations fell off to low levels. Four years ago, with what hopefully looked to be the beginning of the end of active internal revolutions in Mexico, an International Committee of Bankers on Mexico, as it was styled, was formed for the purpose of protecting the interests of the foreign bondholders and of trying to bring about at some opportune moment a readjustment of the Mexican debt. This Committee was made up of representative bankers — American, British, French, German (eventually), Dutch, Belgian,and Swiss, with an American acting as chairman. The several Foreign Offices and the Department of State approved the formation of this Committee, designed as it manifestly was to prevent a helter-skelter scramble for preferential position on the part of different classes of bondholders, which would have led to an endless amount of crisscross trading with the Mexican authorities, tending to prevent the friendly coöperation of all external interests.

The course of negotiations with the Mexican Government was necessarily slow and arduous. At the beginning of them, as chairman of the International Committee, I was obliged to visit Mexico City. In conference there with the leading members of the Government, including President Obregón, Finance Minister de la Huerta, Foreign Minister Pani, and others, we gained fresh information, which was of some value in the negotiations that followed. The first stage of these negotiations was terminated by the friendly visit of Finance Minister de la Huerta to New York. Here, on June 16, 1922, after long conference with the members of the Committee (the British and French delegates having crossed the ocean to meet with their American colleagues for the conference), an agreement was drawn up and signed between the Mexican Government on the one hand and the Committee on the other as presumably representing the great bulk of Mexico’s foreign bondholders.

It may be worth while, in order to indicate the spirit of give and take that pervaded the convention, in default of which no agreement would have been possible, to set forth certain of the considerations that the Committee had in mind in making the concessions that it did to the Government. These considerations are described in the preamble to the agreement, some of which I quote as follows:

That the International Committee, recognizing the difficulties with which Mexico has had to contend and the limitations upon her capacity for the immediate payment of all her obligations, due or overdue, and earnestly desiring to find means of safeguarding the interests of the bondholders, and at the same time of coöperating with the Mexican Government in the solution of its problems and in the upbuilding of its credit, is prepared to this end to recommend to the holders of Mexican Government obligations certain substantial diminutions and adjustments of their rights.

That they also recognize that the Mexican Government has other obligations which it is important for it to meet, such as the restitution to the banks of the specie fund, the agrarian debt and arrears of pay, which may have to be cared for by the issue of internal bonds or in some other manner later to be considered.

That the interests of the people and Government of Mexico, on the one hand, and of their external creditors, upon the other, being identical in that, for the benefit of both, the increasing prosperity of Mexico must be assured, therefore the individuals now composing the International Committee give assurance of their continued interest and desire for helpful coöperation.

The agreement goes on to set forth the conditions of bond readjustment, which undoubtedly involve heavy sacrifices to the bondholders, but which also recognize without quibbling the existing situation in Mexico and which endeavor to meet that situation in an equitable manner. Certain bondholders will undoubtedly complain that the Mexican Government should be compelled to live up to the very letter of its original obligations, but what bondholder is going to be successful in invoking the forcible intervention of his Government for the collection of his claim? Would not such action be almost unthinkable?

This plan, the details of which have heretofore been made public, the bondholders are invited to examine and assent to. Presumably, when a sufficient number have so assented, the plan will be declared effective, and interest payments dating back to the early part of 1923 will promptly begin upon these securities; the Mexican Government having already put at the disposal of the Committee in New York sufficient funds to make a fair start upon this programme of cashinterest payments. It is, of course, too soon to say that a plan as complex and broad as this is a success, but manifestly it is a scheme analogous to a colossal reorganization of a corporation fallen into financial difficulties. In this instance the Government occupies the place of the corporation. There is a scaling down of claims and there are readjustments and concessions among the various classes of noteand bondholders, the whole scheme designed to assist the Government in restoring its own credit and in meeting promplly the obligations which, upon an amended scale, it now freshly undertakes to pay.

Of course, the noteworthy thing in this whole operation has been this same sort of coöperation to which I have alluded. In this case it has been a close and cordial unity of action among the great banking houses and institutions representing security holders of at least seven different countries with by no means identical interests. Coupled with this have been the approval and coöperation of the governments whose nationals originally invested in these Mexican Government obligations. The operation has been attended with many discouragements and has called for great patience. Yet, with each fresh obstacle there has been the feeling on the part of the International Committee that this was a case demanding every possible effort. Here was Mexico, our nearest neighbor to the south, her frontiers marching along with ours for almost two thousand miles, sore beset for almost a decade by revolution and armed conflict, now telling us that she was determined to meet her obligations faithfully and asking our assistance in arranging those obligations so that they might be paid duly and punctually. Certainly that is the sort of call calculated to appeal most strongly to the American business man and to lead him to spare no effort to bring about a settlement manifestly friendly and helpful to ail the relations between Mexico and the United States.

III

The third effort along the line of international coöperation relates, as I have said, to China. This effort has been under way for some years. The favorable results of it are, as yet, by no means apparent to the ordinary observer, yet they are tangible. As far back as 1909, during the term of President Taft, there was organized an International Consortium for the financial assistance of China. A small group of American bankers became a member of this Consortium, but, soon after the inauguration of President Wilson, Secretary Bryan stated through the newspapers that such a plan for the assistance of China savored too much, in his judgment, of so-called ‘Dollar Diplomacy.’ Upon this announcement the American Group necessarily withdrew from the Consortium. In 1919, however, the Wilson Administration, having then looked into the matter with some care, reversed its policy and requested the formation of a new American Group on a much larger scale than the old one; taking occasion at the same time to put up to the governments of Great Britain, France, and Japan a scheme for a new and reorganized Consortium on a somewhat broader basis than before.

After certain rather difficult and protracted negotiations with the Japanese Group, it became possible to dovetail the ideas of the various national groups, and in October 1920 the new Consortium was formally organized at New York, with delegates present from London, Paris, and Tokyo. Its brief constitution was promptly approved by the four Governments in question and since that time it has been a factor in the general financial situation of China.

American participation in this plan has been on a wide scale, almost forty banks and banking houses throughout the country having become members of the American Group of the International Consortium.

Its rôle, however, has been a negative one; that is to say, up to date the Consortium has succeeded in discouraging and preventing the making of loans to China upon an irregular scale and in ways calculated to tie up and eventually dissipate the national resources of China, as well as to encourage the possible corruption of minor Chinese officials. Previous to the organization of the new Consortium, certain Japanese banks had started a rather wild career of money-lending to China. The so-called Nishihara loans (largely negotiated through the efforts of a Japanese agent named Nishihara) were well over a hundred million dollars and were secured on the pledge of various concessions in China, presumably of great value. To this sort of loan operation, calculated to dissipate Chinese resources without yielding her any adequate revenue for legitimate constructive purpose, the Consortium has been (since its organization three years ago) an almost insurmountable obstacle. The reason for this manifestly is that the banking groups of America, Great Britain, France, and Japan, which together go to make up the Consortium, have, in effect, pledged themselves to make loans to the Government of China, or to the Provinces of China, only for constructive purposes. The day of the old administrative loans, when a small banking coterie (possibly at the instigation of its Government) might succeed in providing funds simply to fatten a weak and not impeccable Peking Government, is seemingly past.

The Consortium now stands ready, as soon as domestic conditions in China permit, to devise with responsible officials of the Chinese Government definite plans for constructive effort in China; the extension of existing railways or the building of new lines such as, for instance, would serve to connect the South of China with the North and so bring about greater political sympathy and unity throughout the Republic. The prime policy of the Consortium is the substitution of coöperation for that international competition in the economic and financial affairs of China, which, a generation ago, went far toward the establishment of the notorious ‘spheres of influence’ and almost accomplished the disintegration of China itself. This policy of the Consortium has, as its recent report pointed out, ‘been definitely affirmed and endorsed in a larger sense by China and the Powers in the treaty signed at Washington on February 6, 1922’ — this treaty being one of the notable results of the so-called Disarmament Conference at Washington. ‘The treaty is, in effect,’ as the recent Consortium report runs, ‘an undertaking by the Powers to respect the sovereign rights of China, to preserve her territorial integrity, and to provide her with a free and unembarrassed opportunity to develop her economic resources and maintain for herself an effective and stable government.’

To carry out this policy the Consortium is deemed to be an appropriate instrument. It is not, as many people have believed it to be, an organization for the fastening of financial control upon China. It is rather ‘a temporary bridge by which China may be assisted to pass in comparative safety through the difficult period of transition from an unsettled to a settled state of government.’ The Consortium hopes to assist China in the reconstruction of her credit until such time as she can obtain loans single handed and upon the strength of her own national credit. Furthermore, it is the settled policy of the Consortium to refrain from interference in the internal political affairs of China. Such interference has no part in the programme of the Consortium.

On the question of foreign control of Chinese government finances and of Chinese government public utilities, — as, for instance, the railways — the Consortium offers no programme more radical than such measure of regulation or supervision as might be required to assure the foreign investor who may be invited to subscribe to a Chinese loan that the proceeds of such loan shall be properly expended, and the principal of it duly repaid to him at maturity. With the Chinese railway system lacking, as it is to-day, in sound organization and management, it goes without saying that it would not be proper for the Banking Groups to offer to investors a loan secured upon such properties unless they could be assured of a management sufficient to safeguard the loan, and, what is of equal importance, to increase the operating revenues for the benefit of the Chinese Government.

The present disorganization in China is a matter serious enough, but it should hardly be looked upon as indicating what is in store for China for the long future. The fact is that, up to date, China consists more of a people than of a nation. In the old monarchial days there was a fairly strong central power at Peking — strong, that is to say, in its immediate vicinity and in the surrounding region which it controlled; strong too in the tribute that it exacted from outlying provinces and in the method which it adopted of holding those provinces in line, by permitting an ample share of the local revenues designed for the support of the central government to be ‘squeezed’ out for the benefit of the local officials. When the monarchy was overturned in 1910 and a republic established, this movement was more or less in line with the spirit of the times, but no student of government could pretend that at that time China was fully prepared to become a republic. Industry, honesty, thrift, love of peace, devotion to family, reverence — these are all qualities which the Chinese people possess in abundance. But as for popular education, or knowledge of government, there was very little of that sort of thing in China thirteen years ago, and there is little enough to-day.

The situation, however, is gradually changing. A slow evolution from the ancient dynasty to a modern democracy is going on, but it is an evolution necessarily marked by errancy, discomfiture and turmoil. Such, however, are the innate sobriety and law-abiding qualities of the Chinese that, even with the disorder and banditry that are made so much of in our newspaper headlines, business goes on as usual in China. Trade, both domestic and foreign, increases; and wealth grows. Just how long it is going to be before the qualities that I have described as being a part of the Chinese character assert themselves in the form of orderly government, no one can tell. If, however, the foreign governments, which have given their seal of approval to the Consortium as an earnest effort to prevent strife and to promote friendly coöperation, and if the banking groups that make up the Consortium were not hopeful that the time of reform would not be too far removed, they would hardly be as determined as they are today to hold their organization intact and to stand ready to assist China when she bids them come. Even to-day the representatives of the Consortium at Peking are working together in an effort to lay out a plan of consolidation and readjustment of all the Chinese Government’s outstanding loans.

This coöperative effort as applied to China should not, in its purposes and possible results, be minimized. We have here the picture of the nationals of four great nations, formerly engaged in attempting by cutthroat competition and frank endeavor to secure special concessions for themselves, now joining together in an effort to help put upon its feet, economically and financially, one of the oldest peoples of the world. Any such effort as this, to which the Japanese have cordially pledged themselves, is, whether the actual workings of the plan come to early completion or not, bound to serve as a great stabilizer of conditions in the Far East. It is hardly too much to say that the Consortium is one of the factors helpful to the preservation of peace in the Pacific Basin and in the whole of the Far East.

This effort, like the other two that I have briefly described, has had to be carried on in large measure by men of active business. Their difficulties of organization have been great. Large differences in national points of view have had to be reconciled. But those who have been endeavoring to bring about this particular form of international coöperation have at least been unvexed by politics or by the necessity of making serious compromise of principle in order to gain a problematically useful end. America’s share in these enterprises of coöperation has been large and important. For instance, the Austrian Loan Delegation urged upon us last May the consideration that without American coöperation the loan plan seemed almost doomed to failure; and they added that the very fact of our cooperation would quicken the pulse and bring new vigor into each of the several like operations in the Continental financial centres. Such seemed to be the case as it proved; for the moment America’s participation was finally announced, the success of these other like offerings in Europe became assured. Doubt and hesitation in a few such centres were succeeded by confidence and initiative

IV

In no one of these three cases of international unity of action which I have been describing are the difficulties all solved or our problems at an end. We are not completely out of the woods in Austria or Mexico, certainly not in China. But in all three instances a strong start has been made and I may be permitted to testify as to the good faith and high spirit that, in all these operations, our foreign associates have shown. Never have I noted an instance in which they have tried to get the better of the American interests. I should hardly venture to mention this fact were it not that so frequently we hear among ourselves expressions of the greatest distrust of the motives of our European friends. Certain of our publicists are fond of saying that we in America are fashioned from a nobler clay, and that if we enter into close relations with the nations abroad we shall inevitably be hopelessly out-manœuvred — put in a hole, as the phrase is.

My own experience, limited as it is, would lead me to believe quite otherwise. In these instances of cooperation that I have described, all these varying nationalities have worked shoulder to shoulder in the same spirit of give and take. It is, I believe, true that in no one of these great economic or financial reorganizations could the great progress already made have been realized without America’s help, and, in a certain sense, even her initiative. America’s participation in these three instances (Austria, Mexico, China) of financial coöperation having, then, proved vitally important and valuable, does not the question again come home to us, Is there no way in which we can helpfully participate, as a nation or a Government, in the solution of the other pressing problems of the world ? Is it not arguable that if men of business of so many different nationalities can find common ground for constructive action, then the nations that they represent, including clearly the United States, can work together for an end that is of international benefit? We Americans enjoy great good fortune in having been able to bring to bear the experience of many generations and peoples upon the problems of our own material and political development. Such good fortune should conceivably render us not unduly satisfied with our progress, but, rather, more tolerant, more sympathetic, and more eager to understand the problems of people less happily situated than we.

I shall not dwell upon the harmful economic effects which lack of solution for these problems has upon our agricultural and commercial life. I prefer to put the matter on other grounds and to ask whether we cannot show a spirit of keener and more helpful interest in the larger problems of our sister nations, a spirit of greater generosity that recks not of possible slight loss to us, if only we can bring immeasurable gain to them.