Texas Business Review reports the results of research in business, the social sciences, and the physical sciences in language that is readily under tandable. Our readership includes policy makers in government, members of the busi­ness community, university faculty, and the general public. Articles focus on topics of special interest to readers both in Texas and throughout the Southwest and South. These topics include energy, inflation, manufacturing, population, labor, public policy, transportation, the mall business, regional economic development, and other related areas. Because Texas Business Review encourages a free exchange of ideas, opinions expressed in articles are those of individual authors and not neces­ sarily those of the editors or the Bureau of Business Research. Texas BUSINESS The Bureau of Business Research • ev1ew The Cniversityof Texas at Austin Vol. 57, No. 3 May-June 1983 Bureau of Business Research Victor L. Arnold, Director Review Staff Joseph E. Pluta, Editor Lois Glenn, Publications Manager Charles F. Dameron, Jr., Managing Editor Mary Jo Powell, Editorial Assistant Mildred Anderson, Data Compilation Jean Stenger, Computer Graphics Robert T. Jenkins, Production Assistant Joan F. Dameron, Compositor Meade E. Collard, Compositor Editorial Advisory Board Vernon M. Briggs, Jr. Cornell University George G. Daly University of Houston John F. Due University of Illinois Peter C. Frederiksen Naval Postgraduate School Malcolm Gillis Harvard University Robert W. Gilmer Tennessee Valley Authority John Stuart Hall Arizona State University Jared Hazleton Texas Research League William H. Leahy University ofNotre Dame Charles G. Leathers University of Alabama Edward J. Malecki University of Oklahoma Charles E. McLure Stanford University Edward M. Miller Rice University Jerome Olson University of Texas at Austin Thomas R. Plaut University of Texas at Austi11 James P. Rakowski Memphis State University James A. Richardson Louisiana State University R. Lynn Rittenoure University of Tulsa William J. Serow Florida State University Joseph A. Ziegler University of Arkansas . . $3 50 Publi hed six times a year. $20 00 e year Smgle copy· · · 0 !SS\ 0040· Subscription rate: . . P r . . T as Publication number 540-40 . . . Second-class postage prud at Aust1~,B ~:e~s Research, University of Texas a.t A~~tm. 4209. Copyright © 1983, Bureau o u ~siness Review, P.O. Box 7459. Austin. e\as Address manuscripts to Ed1t?r, Texas B I Office Bureau of Business Research: P.O. 78712. Address subscription mqumes to s~:s 512-471-1616. Texas Business Rei•1ew IS Box 7459, Austin, Texas 7871.2. TGel~dpho dPublic Affairs Information Service and is . · Marketing lnformatwn uz e an indexed m . film from University Microfilms. available on micro 1 The Prospects for Rail Pa • Service Ill Texa Amtrak, the quasi-public passenger rail corporation created by the U.S. Congress in 1970, has successfully turned the tide of railroad decline and given the public a glimpse of what quality rail service can be. Ridership has increased more than 60 percent since Amtrak's inception and passengers are riding in new cars pulled by new loco­motives; trains arrive closer to scheduled times than they have in many years. Yet problems linger: the Amtrak network is thin and little changed, the number of trains operating now is not much different from the number running in 1971, extensive subsidies are required to keep the system running, and a noticeable lack of direction concerning the corporation's future is evident. In a time of severe governmental financial squeeze, serious questions are being asked about the prior­ity of federal subsidies for train service that carries only 22 million passengers a year. Two alternatives for Amtrak seem to be most frequently discussed: one is essentially a continuation of the status quo and the other involves a reduction in subsidies by cutting back the system. Neither alternative is politically very attractive. It is clear that greater fiscal responsibility in government spending makes high subsidy requirements increasingly unpalatable. The cutback alternative means some areas lose service entirely, as happened in 1979 and 1981. Cutbacks of the system also have long-term negative impacts on Amtrak because they reduce the constituent support for the system in Congress. Neither alternative is conducive to the continuation of a national rail passenger system. Another alternative, which I call the Amtrak 90 plan, offers a far-reaching, comprehensive approach that not only will establish a truly nationwide rail passenger system by Ronald C. Sheck is Associate Professor of Geography and Planning, New Mexico State University. A more detailed report on this topic is contained in the author's executive summary, "Amtrak 90: A Route to Success." ©1982. MAY-JUNE 1983 Ronald t. Sht•ek 1990, but also will turn Amtrak into a profitable system that can stand on its own financially and can provide the United States with an effective intercity rail passenger sys­tem. The major goals of Amtrak 90 are the development of a geographically broad system that meets the needs of the traveling public and the establishment of an operationally efficient system that generates enough revenue to cover all costs of operations and contributes toward future capital investment needs. Texas is an important area for improving Amtrak service. not only because it is growing rapidly and contains two of the country's top ten metropolitan areas and other sig­nificant urban areas, but also because its track network is in generally good condition and offers intercity connections over short, medium, and long distances. In addition. Texas has been shortchanged in Amtrak service. The so-called Texas Trianglc -Dallas. Houston. and San Antonio has great, and as yet untapped. traffic potential. but service has been abandoned on one Texas route and service frequency has been decreased on one of the two remaining routes. Problems of Amtrak Performance Amtrak has been criticized for many things during its ten-year history . Travelers have complained about trains that were late, broken-down. too hot in summer and too cold in winter, and dirty; in addition. travekrs have ob­served that the food can be unpalatable and the scheduling poor. As many of these conditions have improved. criticism of the increasing government subsidy to Amtrak has grown louder. The deficit, along with the consequent need for government subsidy, far exceeds what the ori)!.inal creators of Amtrak had anticipated. Important as all of these issues are, they have perhaps masked the deep underlying pwh­lems that continue to plague the .:orporation: economic performance, market perception. operational constraints. and planning. Economic Performance Alt.hough ridership has grown significantly and revenue ~as tnpled, the corporation's subsidy needs from the feder­al government have outstripped income growth. In 1981 revenues from ticket sales, express and mail services, and other so.urces totaled about S496 million, yet an additional S 712 m11!1on from federal and state sources was necessary to meet total operating expenses of S 1.2 billion. Amtrak has two major cost categories. First are direct cost.s, including labor, fuel, and other expendibles. Second ar~ indirect costs, including stations, servicing facilities, re­pau shops, reservation systems, car and locomotive main­tenance, management, insurance, and taxes. Because of the overall low frequencies of train service, the revenues gener­ate~ are inadequate to offset these common expenses, which make up an excessively large and disproportionate share of corporate costs. In fiscal year 1980 Amtrak in­curred total expenses of S 1.1 billion, yet the actual cost of direct operating expenses (moving the trains over the tracks-labor, fuel, expendibles, and so on) was only S272 million, about 25 percent of the total. Indirect expenses (stations, yards, shops, maintenance of locomotives, cars, and the small amount of track owned by the corporation) totaled S644 million, about 56 percent of expenses. Reve­nues generated from ticket sales, food and beverage sales, and the movement of mail and express in the year ending September 30, 1980, totaled just over S4 l 0 million. Am­trak's trains earned more than the direct costs to operate them by some S 127 million. The high infrastructure costs are clearly a major problem and reflect serious disecono­mies of scale. The high ratio of indirect costs to total costs is at the heart of Amtrak's financial problems. The very nature of Amtrak·s operation as a passenger railroad is largely respon­sible for this imbalance. Some five hundred stations scat­tered over a 24,000-mile network in forty-four states make up Amtrak's ser-Yice area. Yet for 75 percent of this exten­sive network only a single train a day (or one every few days) operates in either direction, even though stations, ser-Yicing facilities, and repair shops must be in place to allow passenger access to trairts and to keep the trains running. These basic infrastructure elements are prerequisites of operation-whether one train or several is operated over a pa..ri:i.:-;.ilar part of the network. Servicing a train at an inter­mediate stop may require upwards of a half-dozen people, plus the normal station complement of ticket agent and taggage expre;;s handlers. If only one train in each direction is operated. the full-time senicing crew may be engaged ir: w0rk for only an hour or two each day. \{ultiply this s~ne J:ros.s the network and the reasons behind high in­jire:t .:-0sts t-e:ooe a little clearer. Simply put, the large ::-hYsi:al ::-iam .:-osts are not offset by adequate revenue ~e~er::.ri0;. The level oi train senice is extremely thin, and ;rcis ::-f itself :s the most irnponant element in the financial ::-~-•°:' ier:1. BY :omp:i.rison. no European railway main line ~ees fe wer ~h.1..r1 sewral trains a day. e\·en on long-distance r,•"Jtes 0ver 400 or ~00 miles. In Great Britain, France, Switzerland, and Spain, every station on the rail network . served by at least three trains each day in each dtI.e t. IS A t k h. c ion; m ra ac ieves a comparable frequency for only IO cent of its stations. per· Market Perception The market for rail passenger service in the United States has bee~ gr.ossly underestimated. In 1971, the year of the cor~oratton s birth, neither Amtrak's detractors nor many of. 1~s advocates would have forecast the increase from 16 million to 22 million passengers that occurred in the subsequent decade. Moreover, this growth took place on system that had little change in route miles and only as Ila . . ma mcrease m the number of trains. Citing little use of long-distance trains between termi­nals, Amtrak's management and policy makers in the De- By increasing the number of routes offered~ Amtrak could develop a rail passenger SJSlem that is truly national. partment of Transportation almost wrote off long-haul markets in the corporation's early years. Often overlooked was the fact that long-distance trains also provide travel opportunities for short-range and medium-range travel. Long-distance trains had exceptionally strong traffic in­creases over the decade, often leading ridership growth. Amtrak has emphasized the possibilities in a number of corridors-routes serving closely spaced metropolitan areas. Although the corporation identified more than a dozen of these corridors, increases in service have taken place only on those where external state pressure (New York, Michi· gan, and California) or federal pressure (Northeast Corri· dor-Boston-::'-iew York-Washington) was exerted. On several routes linking large urban centers separated by short distances, only one passenger train a day operates and no effort has been made to increase frequencies. The fact that intercity travel requires frequent service has ap­parently been ignored. It is often argued that when rider· ship is not at capacity on a single train operating in a corri­dor. no further growth can be expected. When, however, the . frequency of trains between Los Angeles and San Diego was increased from three to six a day, ridership tripled. Market research apparently has failed to consider total travel volume by other modes (air, bus, automobile) and has expected rail to capture a very limited share. Amtrak has failed to understand the diverse travel preferences of the public. Although people travel for dif· ferent purposes and come from many different socioeco- TEXAS BUSINESS REVIEW ' l lI' - nomic and age groups, the assumption is that all can adjust their travel plans to take one train, fit into the same type of accommodations, and be satisfied with limited food and beverage offerings. The tendency is to fit customers into what is offered rather than to design an attractive service that meets customer desires. Amtrak marketing policy has been to maximize revenues through keeping fares at a high level: as a result Amtrak tariffs are often totally out of line with the prices charged by competitive modes. Amtrak has done little incentive pricing to encourage repeat rides and seems incapable of rapidly changing fare policies to meet fluctuating demand. Budgetary constraints have severely limited advertising, but a large share of expenditures has been devoted to national image building rather than to identifying how Amtrak might satisfy specific travel desires. Operating Constraints Equipment shortages, restrictive labor rules, and certain policies and procedures of the railroads contracted to run passenger trains place severe constraints on improving Amtrak's finances. Equipment shortages. Growth in Amtrak ridership has been thwarted by a static inventory of rolling stock and loco­motives. The nearly $1 billion spent by Amtrak on new passenger cars and locomotives over the past decade has replaced worn-out equipment but has not provided for sig­nificant growth. The new equipment has reduced main­tenance costs, improved operating performance, and given travelers a more pleasant ride and more on-time arrivals and departures. Because new passenger cars have higher seating capacity and spend less time in repair, fewer of them are needed to equip the existing fleet. Amtrak's rolling stock inventory, however, contains some 12 percent fewer cars in 1981 than it did at its peak period in 1976. The system is stretched to near capacity, and the ridership growth surge developed in the 1970s will level off: trains are full and cars are not available to lengthen existing trains or to add new trains for greater market penetration on those seg­ments of the system where growth potential exists. A de­cade of inadequate capital funding is in large part the cause of continued high operating deficits and , hence, of the need for hefty federal subsidies. Restrictive labor rules. In 1980 contractual agreements calling for a second crew member in the cab of new, self­propelled rail diesel cars delayed the introduction of this equipment, which was more economical to operate than the old equipment had been. Requirements that a switching crew be called to add or subtract cars to trains at main-line stations, although road crews could handle the job, increase costs considerably; it is actually cheaper to haul empty cars to the end of the route. Policies and procedures of contracting railroads. Amtrak contracts with twenty-two private railroads to operate its trains over their lines. The service provided varies with each MAY-JUNE 1983 railroad because they have different attitudes toward pas­senger trains. While most carriers attempt to ornate .-\111­trak trains expeditiously, some delay passenger trains for freight, shift freight traffic away from routes used hy Am· trak trains (thereby paving the way for downgrading of track and signal systems). or refuse to operate certain Am· trak locomotives or cars. Managers of these operating rail· roads frequently believe that passeriger trains interfere with the railroad's main purpose of hauling freight. Railroads run freight trains on an unscheduled. or "extra" basis. which requires a longer time slot than scheduled trains require. If more scheduled passenger trains are added. then the time available for unscheduled freights is reduced. If all trains (freight as well as passenger) were scheduled and operated punctually, however. capacity on a given track segment would rise. Another major operational difficulty is that engine and train crews work directly for the contracting railroad and are not controlled by Amtrak, except in the Northeast Corridor, which Amtrak owns and operates. Planning: Amtrak 90 Although Amtrak has established broad goals for provid· ing an intercity rail passenger system, no specific plans de­tail where this system will go, what frequencies or types of service will be offered, when various segments will be added to the system, or how much it will cost. Amtrak must lay out specific objectives and a strategy to meet those objec· tives. Once such a plan has been developed, states and local communities will be able to plan for improvements in ser· vice. Decision makers responsible for the appropriation of the necessary capital funds and operating subsidies will be able to determine when investments will pay off and see at what point subsidy requirements will decline. Volume Growth The Amtrak 90 plan is designed to increase revenues at a faster rate than expenses by increasing carrying capacity and controlling fixed costs. The existing Amtrak physical plant is in generally good condition; because of investments by Amtrak , the states, and the private railroads. the track used by Amtrak's trains is in better shape than the track was a decade ago. Amtrak does need , however, more cars and locomotives to generate the revenues needed to attain profitability, since the most economical way of increasing revenues is by adding cars to existing trains. By Amtrak's own unofficial estimates, more than 1.5 million would-be riders were turned away in the summer of 1980 because space was unavailable, but money for equipment has, in the past, gone to replace old rolling stock rather than to add new cars. In addition, many parts of the Amtrak network could increase ridership if trains could effectively tap travel mar­kets now served by bus, air, and private automobile. To do so, Amtrak must offer a greater range of travel opportuni· ties than present train service provides. The short-distance traveler usually wants to be able to go at a given time and, often, to return on the same day . Offering travel to this customer at only one specific hour is not satisfactory. Only additional trains can tap this market; schedules must be developed to fit the traveler's desire. Amtrak and the state of California, for example, have collaborated to increase the frequency of service between Los Angeles and San Diego from three trains a day to seven. In 1976 the three daily trains carried 463,821 passengers. By 1979, when the num­ber of trains had doubled to six daily, ridership increased by 156 percent to 1,176,557. Over the same period, the ratio of revenue to cost increased from 29 percent to 82 percent, reflecting greatly improved economies of opera­tion. Because of the severe shortage of locomotives and rolling stock and the time needed for new orders to be filled, however, new trains could be introduced only at a slow pace during the first two years of implementation. A few new trains could be introduced by using upgraded con­ventional rolling stock currently in storage and by reallocat­ing equipment for more efficient use through shortened turnaround times and more efficient maintenance. Large­scale addition of new trains and resulting economies could only take place beginning in fiscal year 1985, when new cars would become available in quantity under the Amtrak 90 plan. By fiscal year 1986 these additions would have resulted in a subsidy decrease of more than $1 SO million. Additional financial potential exists in expanding the Amtrak network to open new markets and provide access to points not now served by passenger trains or to allow more direct travel between places that are only connected by circuitous routings. By increasing the number of routes offered, Amtrak could develop a truly national system. The Amtrak 90 plan foresees expansion from the present 24 000-mile system to one of some 39 ,000 miles between l 9S2 and 1990. An additional 35 million citizens wo~ld then be offered the opportunity for rail travel, a~d service would be extended to some sixty urban areas with a total metropolitan population of 19 million. Tactics To build such a profitable, truly nation~l rail p~ssenger tern Amtrak must identify routes that will contnbute.to ::ran' system performance and use long-distance t~ams effectively to satisfy demand on those routes r~nked with a w otential. A long-distance train meets a vanety of travel lo P 'th little demand. On those route d along a route wi . nee s d . high most journeys are relative-segments where ~eman i~ ~edium and short distances ly sho~, andd tramds ~~a~~eyg provide more departure and can satisfy eman i arrival times. Capital Needs l t expanding the capacity of The biggest single obstac ~ ? market potential is the to maximize . t the Amtrak sys em locomotives. Up to this pomt lack of passenger car~ and d the corporation to purchase capital funding has a owe new equipment to replace the old, and little growth capa· city has been added. If Amtrak spent $4.85 billion over the next eight years, it could acquire more than 2,900 new can and rehabilitate 250 older ones; add more than 500 new locomotives; renovate and modernize older stations, repair shops, and servicing facilities or build new ones; and raise train speeds through track and signaling improvements. Not enough new locomotives and passenger cars have been received to permit any expansion of passenger ser· vices. At peak holiday season the Amtrak power and car fleets are stretched to the limit. Although another 300 to 400 steam-heated cars are sitting in yards and shops, funds have not been available for their refurbishment and mod· ernization. This standby, unused fleet is slowly deteriorat· ing. Refurbishing 250 of these cars would provide a quick and economical way to expand service while awaiting delivery of newer equipment (it usually takes eighteen to twenty months for orders to be filled). These cars would eventually be placed in a reserve pool as new cars take over daily assignments. Fares and Reservations Under the Amtrak 90 plan, a basic fare structure would be based on miles traveled for coach and first-class fares and for economy and deluxe sleeping accommodations. Round· trip discounts of up to 30 percent would be offered for both coach and first-class rail travel, but sleeping accommo­dation charges would not be discounted for round trips. Amtrak's existing family-plan discounts would be main· tained. Round-trip and family-plan travel discounts help to maintain travel volumes, but further incentives are needed to attract repeat riders and group travelers. Monthly, quarterly, and annual route-specific discount ~asses and regional and national passes subject to expiration would attract repeat riders. Group travel could be encouraged by a strong incentive program that offers users considerable savings· groups of ten or more might receive a 10 percent discou~t and twenty or more a 20 percent discount. Pass fares and group fares would offer users an average rate of 8.5¢ a mile in coach and 12.0¢ a mile in first class. The growth in these two categories would account for more than half the total revenue increase by 1990. . . Amtrak also needs to refine its improved na.11onw1de reservation system by instituting computer term1~als and ticket printers in travel agent offices and developing low· cost hardware and software for placing similar, but less Complex equipment in stations of low-traffic volume. An ' · · 'th phone additional improvement would be a tie-m w1 access and printers controlled from a central agency tha~ would allow reservations and ticket delive~y at unm~n~:d stations and when stations are closed. Cred1t-card-act1va . 1 machines with charge capabilities could expand potentla customer access. Labor Productivity Changes in railway labor costs could benefit in~ercity rail passenger operations. Work rules have long been cited as a major obstacle to reducing operating costs. Three major areas of concern are wages and hours, craft and territorial boundaries, and manning levels. Wages of operating employees are high for hours worked ; as pay has increased, work hours have shrunk be­cause train crews have traditionally been paid on the basis of a 150-mile day (roughly eight hours of train travel in 1870). Within the past decade new contracts have extended the average run for train personnel but reduced the number of runs for each crew in a month. While the number of crew changes on a long-distance train may be one-third less than it was ten years ago, the total number of employees for that train annually has not changed. Many crew members only put in between twenty-five and thirty hours a week. Craft and territorial jurisdictions for different activities have been a major obstacle to increased productivity. Train crews are often restricted from making simple repairs when problems occur on the road; electrical or mechanical specialists must be brought in from some distance at con­ siderable expense. Road crews are frequently limited from switching cars or making simple electrical connections. New agreements are changing this situation, however; for exam­ ple, road crews can now handle switching of the New York and Washington sections of the Broadway Limited at Pitts­ burgh, eliminating the need to bring in a three-man switch­ ing crew for the job. A run-through agreement between Southern Pacific and Santa Fe train crews reduced labor costs and saved some trains from probable extinction in 1980. Manning levels on passenger trains have changed little since the late 1800s. The basic crew consists of engineer, fireman, conductor, and brakeman ; many trains have an additional brakeman. Although firemen were eliminated from freight and switching operations in the 1960s and by law from commuter operations in 1981 , they still form part of the crew on intercity passenger trains. Most European railroads operate with one man in the locomotive cab and one or two trainmen, although the comparison may not be equitable since signal systems and automated train control are more widespread and sophisticated in Europe and ticket collection activities simpler. On-board-service staffing levels are also very high on American trains. Amtrak has recently succeeded in making dramatic cuts in food service personnel. Unfortunately, the quality of food service has also deteriorated, not because of fewer staff members but because of unfortunate policy decisions and poor management practices. European dining cars offer fully cooked meals to as many as fifty-six patrons at a sitting with a staff of four to five . The traveler in an Amtrak dining car seating forty-eight will find it takes a staff of three or four just to deliver prepackaged microwave meals. While few European trains have coach attendants, U.S. operating procedures call for one attendant on each coach on long-distance trains. Greater flexibility is neces­sary for both on-board-service personnel and station staff. There is no reason why the same person cannot make up beds in the sleeping car during the morning and help serve meals in the dining car at noon and evening meals. Labor productivity of train crews and on-board staff could be MAY-JUNE 1983 increased by at least 20 percent by work rule adjustments achieved through contract negotiations. Railroad labor in the United States has declined from more than 1 million in 1940 to less than 400.000 today. Implementation of the Amtrak 90 plan would provide for about 36,000 new Amtrak jobs by 1990. Some 8.000 of these would be at stations, servicing centers, yards. anti repair shops for such activities as track maintenance and dispatching. Administrative tasks, reservations. anti other management-related support would increase by ahout 1,800. The remaining positions would be in train operations and on-board services. Considerable employment growth would also take place among car and locomotive builders. subcontractors, and suppliers. The Texas Triangle Current Amtrak service in Texas is at a very low level. consisting only of two routes with trains three times a week. This current level of service does not begin to tap the great potential for rail travel in the Texas Triangle between Dallas-Fort Worth, Houston, and San Antonio and medium-sized intermediate urban centers. The Amtrak 90 plan, however, includes thirty-three new trains for Texas. The existing three-times-a-week trains would become daily; fifteen new trains would operate entirely within the state. connecting Dallas-Fort Worth, Houston, and San Antonio with multiple-frequency service. The other new trains would operate on an interstate or international basis and would, with one exception, originate and terminate at Texas cities. Under the Amtrak 90 plan, rail passenger service would return to Amarillo, Abilene , Wichita Falls. Midland, Odessa, Laredo, Waco, and Bryan-College Station. eight medium-sized urban centers with an aggregate popula­tion of more than one million. Each of these cities would be served by at least two trains a day in each direction. The Texas Triangle schedules would integrate long­distance trains in order to provide these levels of service. The expanded train service would permit greater destina­tion choices for the seven million people living in urban centers within the triangle. Except for two long-distance interstate trains. all of the new trains would serve two or more of the four cities of Fort Worth, Dallas, Houston, and San Antonio. Thus. maintenance and servicing could be concentrated in these cities for greater economies. All intrastate equipment could be cycled into a single base in San Antonio for major servicing and light repairs. Track improvements will permit trains to attain 60 mph from one end point to another within the Texas Triangle hy 1990, and subsequent upgrading could reduce travel time even more. Faster travel time and more frequent service will permit greater market penetration, particularly between short distances --Dallas to Waco, Austin to Fort Worth, and College Station to Houston. For these short distances the rail trip will be competitive with automobile and air travel. The improvements outlined in this plan would require more than 600 new cars and 110 new locomotives, but only Existing Texas Rail Passenger Service 1983 I ' 0 TexarkanaDALLAS I FT. WORTH oO------o'I t.llarshall / Longview1 EL PASO I I .__ -0-, I ' I '' Temple O '' .... , o'I o-~ ' AUSTIN " ­' (Y'" Beaumont I ' ' ' "\.._) Port Arthur ', --0-'-----­ , ___ -HOUSTON SAN ANTONIO SERVICE FREQUENCY 0 50 100 200 ---Tr i -Weekly MILES Proposed Texas Rail Passenger Service 1990 FREQUENCYSERVICE 1 Daily 2 Daily -3 Dally 4-6 Daily 200 0 50 100 • 7-10 Daily MILES - KTO KTO one-fourth of the new cars and locomotives would be used exclusively within the state at a cost for rolling stock of $180 million. Upgrading of physical plant also involves track and signal systems, stations, and servicing and maintenance facilities. All major Texas cities have good stations now , but if traffic increases under this development plan. Houston will need a new station. Ideally a new Houston station could join inter­city rail and bus services with the proposed new metropoli­tan transportation system. A major new servicing system will have to be built in San Antonio, where the station is also being rehabilitated. Minor servicing facilities will have to be added in El Paso and Amarillo; the latter will require a new station. Improvements in track access to stations would increase the needed investment to about S65 million for these facilities. The biggest single investment in physical plant, however, will be that for track and signal systems. Included in this will be the construction of a new line between Waco and Bremond in order to revive direct service between Dallas­ Fort Worth and Houston while serving Waco and Bryan­ College Station. The estimated cost of the new track. about S70 million, is to be divided between the state and Amtrak. Total Texas physical plant improvements would cost about S163 million to Amtrak by 1990 ; increased revenues an: rrojectcd to r<.'ach mor,, than ~2'0 111illi<>n l'Y th,· '.11:1,· year. Conclusion \1oYing ..\mtrak's firi:1rh·,·s into th,· l'r<>fit ,·pl11111n ":!! require S4.85 billion in ,·:1 pital op,·nditur,·s ,,\·,·r .Ill ,·i,.:ht ­year period. This amount is kss tlun the '.\ ,·\1· Y,1rk l ·:r~ Transit :\uthority's capital improY,'lllL'llt 1' r<'gr:1111 f,,r tile next fiye years. On an :tnnu:il basis. the' ,·apit:il ,·,"r' ;'r,,_ posed in the ..\mtrak 90 plan are on :1 1'.tr with in\L''!lllL'nl levels planned hy British R:iil for 11pgr:1ding th.: l ·n:r,,,J Kingdom system. The S-1.S~ billion requir.:,J f,,r upgr.1,iJn,: and expanding :\mtrak into J 39.000-mik natins in Mexico is extensive. The nine brgt·st U.S. hanks havt• loaned some 60 percent of their shareholders' equity to Mexico, and smaller regional banks in the Southwest are also reported to be vulncrahle.8 For example. Texas Com­merce Bank in Houston has Mexican loans totaling 36 pt·r- The Purchasing Power of 5 ,000 Pesos in Texas Retail Stores during 1982 (In dollars) 185 102 so March August December January MAY-JUNE 1983 cent of its equity. Many of these banks also have significant Because the El Paso and Brownsville economies are more commitments in other Latin American countries facing diversified, officials in these cities expect to weather the financial crises, such as Brazil and Argentina. crisis better than do those in other border cities. QtJ:ier sectors of the border economy also felt the devaluation shock. Sales to Mexican nationals made up an The Effect on Business estimated 70 percent of the $34 million Laredo housing market last ye~r9 This year prices are declining, and one Q!her Texans working in businesses relying on Mexican Laredo savings and loan institution initiated almost fifty nationals are now standing in unemployment lines. Just as new foreclosures in late September 1982. On South Padre the full impact of the oil slump hit the Texas labor market, Island, where Mexican nationals accounted for over half of the August 1982 devaluation stunned South Texas retailers all property sales, property values are slipping and an in­by cutting retail sales as much as 80 percent to 90 percent crease in foreclosures appears likely. in many border businesses (see figu~. Layoffs quickly mounted, driving up September 1982 unemployment rates to 24.5 percent in Maverick County Concrete Life Preservers? (Eagle Pass) and contributing to a leap in Texas unemploy­ment between August and September (see table 2). January IP response to the economic crisis, the Reagan adminis­1983 retail sales were off as much as 79 percent from levels tration announced a $200 million peso-pack program to of the previous year in the downtown shopping districts of support small business during the remainder of federal the six largest border cities (see table 3). Officials in McAl­fiscal year 1982. By the end of the fiscal year (September len and Laredo estimate that Mexican nationals represented 30), however, only $15 million had been disbursed by the 30 percent and 80 percent of total sales in their citi~ Small Business Administration (SBA), and the remaining $18 5 million was no longer avail­Table 2 able after October l. In fact, the original $200 million aid pack- Unemployment Rates and Cuts in Federal Funds age, announced with great fan-for Six Border Counties and Cities, 1982 fare during the November guber­(1 n percentage) . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 natorial election~ was not new Cuts in federal funds money at all but surplus funds (percentage change in real retained by the SBA. Despite the dollars from previous year) Unemployment rates worst recession in forty years, Total Revenue sharing and the SBA had accumulated a Predevaluation Postdevaluation federal funds community development County (city) July 1982 September 1982 fiscal year 1982 fiscal year 1983* $200 million surplus while small Cameron (Brownsville} El Paso (El Paso) 12.6 12.1 I S.8 12.7 -3 -29 -12 0 business bankruptcies record levels. reached Hidalgo (McAllen) 16.7 21.1 -14 -6 One reason for the SBA sur­ Maverick (Eagle Pass) Val Verde (Del Rio) Webb (Laredo} 22.7 11.8 I S.3 24.S 12.6 23.3 1st -30 -9 30 n.a. -15 plus was the 14.75 percent inter­est rate on SBA loans. The mech· anism used to establish SBA loan Texas 7.3 8.0 n.a. n.a. rates causes those rates to lag *Estimated. behind trends in such other rates tExcludes an Environmental Protection Agency grant of $1.2 million for capital improvements. as the prime lending rate (the Sources: Texas Employment Commission for county unemployment rates; city budget offices for rate banks offer to their largest cuts in federal funds. corporate borrowers). During periods of rising rates, this Table 3 mechanism is a boon to loan recipients; during periods of Percentage Change in Local Economic Indicators, October 1981 to October 1982 falling rates, however, the higher SBA rate (three points higher Export Export than prime in mid-November) Value of shipments shipments Retail Airport freight Unemployment building for for makes these loans acceptable City sales• shipments rate permits rail cars trucks only to marginal businesses. .1egislation introduced last fall Brownsville -68 37 63 -46 -63 -17 Del Rio -27 n.a. 38 173 n.a. -36 by several South Texas congress· Eagle Pass -79 n.a. 32 412 -75 n.a. men would have provided for El Paso -62 -16 68 SS -90 -S3 lower interest rates on emergen· Laredo -72 -86 17S -43 -71 -S8 McAllen -S6 -19 63 -70 n.a. -SS cy loan assistance to businesses affected by the devaluatio..!)li, *Downtown area sales for the week ending January 8, 1983. Source: Laredo State University, Border Business Indicators, various issues. These rates would have been closer to the 8 percent rates available under other disaster Grand~. As the effect of the devaluation has trickled down assistance programs for businesses that cannot obtain credit from other sources. The legislation was not reintroduced this spring. Administration critics claim there is another explanation for the SBA surplus. They contend the administration is pursuing dual philosophical and pragmatic objectives of encouraging economies of scale and cutting the budget deficit. These objectives translate into a policy of applying the strictest possible interpretations of SBA loan regula­tions in an attempt to disqualify many applicants and generate a surplus that can be returned to the Treasury. The policy pursues increased market efficiency as well by select­ing only the strongest businesses for survival and allowing the others to slip into bankruptcy or sell out to competi­tors. The critics note that by mid-November 1982 the ad­ministration had not requested funding for the SBA 's regular direct loan program in the fiscal year 1983 budget, and the administrator of the SBA had publicly opposed the lowering of the direct loan interest rate. Effect on Local Government _fts retail sales plummeted, cities along the Rio Grande watched sales tax revenue tumble (see table 4 ). Laredo, perhaps the hardest hit, revised its estimated 1983 sales tax receipts downward by $3 .5 million, or about 44 percent. Compounding this loss, Laredo's international bridge receipts have also dropped steeply. After collecting some $5.1 million in bridge receipts during fiscal 1982, the city is expecting a 30 percent decline in fiscal year 1983 to $3.5 million. Since these two sources alone represent 54 percent of the city's general fund budget, Laredo officials made plans for eliminating a minimum of 160 job~10 Eagle Pass has had similar losses in sales tax and bridge recclpts but is facing an additional problem with serious implications for local governments up and down the Rio and out through the local economy. both husinessl'S and homeowners are having difficulty paying property taxes. f.!igle Pass is expecting a 15 percent tkdine in property tax receipts this YW· 4fter seeing retail sales drop by 25 percent to 30 pcrl·cnt immediately after the devaluation. the EI Paso Chamhcr of Commerce reported that Octobe~ retail sales fell to 40 percent below 1981 levels. Jn fact. all six border cities may have underestimated the impact of the August 1982 deval­uation on city revenues. City budget offices estimated declines in postdevaluation sales tax revenue of from I percent for EI Paso to 36 percent for Eagle Pass. Actual declines have ranged from I 0 percent for El Paso and Del Rio to 45 percent for Laredo. If property tax receipts of border cities fall as well, significant reductions in some city services may be unavoidab.l!<. Qi.ven the political agenda of the Reagan administration. the devaluations could not have come at a worse time for local governments. Cuts in federal funding for state and local governments have been a major component of the administration's effort to reduce domestic spending. Com­mitted to higher defense spending and facing a fiscal year 1983 deficit that most analysts believe will approach $ 200 billion, White House budget officials may plan additional cuts in various aid programs to local governments. .Local governments are likely to pay another prke in the aftermath of the Mexican economic crisis. Projections of border crossings by undocumented immigrants run as high as seven million a year as Mexican unemployment rises and the devaluation drives up U.S. pay scales to more than fifteen times Mexican pay scales.11 The Texas Department of Human Resources expects to see caseloads increase in programs that provide food stamps, aid to families with dependent children, and child protection. . Demand for state and local welfare services of all types is expected to rise with the combined effect of economic dislocation and increased immigration. A recent report by Table 4 City Sales Tax Revenue, Fiscal Years 1982 and 1983 Projected change in fiscal year 1983 sales tax receipts Actual postdevaluati n de­from fiscal year 1982 cline in sale ta allocation + Estimated Fiscal year 1982 Anticipa ted lost sales tax revenuet Amountsales tax receipts sales tax receipts Predevaluation Postdevaluation estimate (in thou ands (in thousand Percenta e as percentage of (in thousands estimate• City total budget of dollars) (in percentage) (in percentage) of dollars) of dollars) decline -31 1,300 613 37 Brownsville 17 5,100 -6 34 . 10 Del Rio 10 1,200 no change n.a. n.a. -36 600 188 42 Eagle Pass 17 1,400 9 I § 1,500 506 10 El Paso 19 16,800 8 ­ 18 -33 3,500 981 45 Laredo 27 6,800 250 794 36 McAllen 25 6,900 -20 -24 •August devaluation . t Based on predevaluation and postdevaluation estimates. . ovember, and December 1982 and January 19 3 alloca­ :j:Allocations reflecting sales performance after August 1982 devaluat10n (October, tions). Figures represent decline from same period last year. § Unofficial estimate. Sources: City budget offices and Texas Comptroller's Office records. MAY-JUNE 1983 the Federation of American Immigration Reform found that in Los Angeles and New York City undocumented immigrants represented 10 percent to 15 percent of the client population in programs ranging from emergency medical and maternity care to unemployment compensa­tion and Medicaid. 12 While undocumented immigrants also make significant contributions to the local tax base, the new economic environment will probably reduce the sales tax revenue they generate. Here, too, local governments are likely to feel the effect of reduced federal funding since welfare spending has been another major target of the Reagan administration. Changes wrought by the November elections may save these programs from further cuts, however. Prospects for Recovery .After the February 1982 devaluation many analysts believed that economic recovery would follow the pattern established after the 1976 devaluation. For the most part, the border economies rebounded quickly in 1977 as infla­tion rapidly overvalued the peso in relation to the dollar. In 1982, the border economies held their ground until early summer, but, after the August devaluation, the outlook be­came less sangui.n.e. The differences between the 1976 and 1982 economic environments in Mexico and Texas are stark. In 1976-1977, Mexico was on the verge of a massive infusion of capital as oil production rose and foreign banking institutions rushed to finance the Mexican development progra_m. Two years later the Organization of Petroleum Exporting Countries (OPEC) sent foreign oil prices skyrocketing from $15 to $29 a barrel. In 1976, Mexico's tourist industry was strong as U.S. travelers returned after the 1973-197 5 recession. Even in the sluggish year of 1977, Mexico produced a 3.4 percent expansion in real GNP; thereafter, the economy boomed with real GNP growth rates of more than 8 percent a year between 1978 and 1981. '(oday the outlook for Mexico is zero or negative growth in GNP for 1983. Under terms worked out with the Inter­ national Monetary Fund (IMF), Mexico has pledged to nar­ row its budget deficit to 8.5 percent of GNP and limit its increase in net external borrowings to $5 billion in 1983. Some economists believe the arrangement may reduce real GNP by as much as 2 percent next year. 13 If so, Mexico's unofficial unemployment rate of some 30 percent will rise further. (Mexico's population growth produces one million new workers each year.)14 The outlook for oil prices and consumption is dismal as well. As long as the western economies maintain low annual growth rates, the oil markets are likely to remain soft. In real terms, oil prices are likely to decline. Wharton Econo­ metrics estimates that a $2 drop in world prices would decrease Mexican GNP by 3.7 percent. 15 Significant de­ clines in oil prices could threaten Mexico's ability to meet even its reduced obligations and frighten off international lenders who must continue to loan Mexico the funds it needs to pay its debts. As for tourism, the Mexican government expects a re­turn to 1981 leve"ls after a 12 percent drop in 1982, but some private analysts say these expectations may be inflat­ed, given the slow recovery in the United States and the confusion caused by the inconsistency in currency control policies. 16 !iorth of the border, the contrasts between 1976 and 1982 do not give much cause for optimism either. Before the August 1976 devaluation, unemployment in the six major border counties ranged between 10.8 percent and 17 .5 percent. During the month preceding the August 1982 devaluation, rates ranged from 11.5 percent to 22.6 per­cent. In 1977, federal aid to local governments and transfer payments to the poor were increasing. The SBA emergency loan rate for businesses affected by devaluation was 6 per­cent. In 1982-1983, the full force of the administration's domestic budget cuts are just beginning to be felt, and the SBA loan rate is now at 14.5 percent. ~ Snowbird Rescue? .Many border business leaders are resigned to a funda· mental change in the economic structure of their communi· ties. For now, border communities will need to look north for economic growth. In El Paso, the Business Development Center is already assisting businesses owned or operated by minorities in finding federal government buyers and devel­oping markets in other states and overseas. The Texas Industrial Commission provides similar assistance whether or not a business is minority owned or operated.. In the Rio Grande Valley and, to a lesser extent, in Laredo, businesses are hoping that the annual trek of the winter Texans will lessen the effect of devaluation. Esti· mates of the economic effect of seasonal residents, largely from the Midwest, go as high as $400 million each year. 17 News of bargains on both sides of the border may have attracted a larger flock of snowbirds this year, business leaders hope, but most of these consumers are on fixed retirement incomes and tend to be conservative spender~ The brightest hope along the Texas-Mexico border is that the agreement between Mexico and the IMF and the new administration of President Miguel de la Madrid will bring a loosening of currency controls and stabilize trade and exchange rates. Barring a major move up or down in oil prices, no one expects anything other than a long, slow struggle to rebuilg_, Effects of Hyperinflation Besides oil prices, one other wild card makes the future of Mexico-and therefore the future of the Texas border­very unpredictable: Mexico's triple-digit inflation rate. If the Mexican government's economic programs fail and annual inflation rates continue at or above 100 percent, the peso could end the year at 250 to the dollar, and more drastic measures would seem possible.18 Many reporters in Mexico have described how rumor has become the na· TEXAS BUSINESS REVIEW tion 's staple commodity. Among those rumors are stories of contingency plans that include the introduction of a new currency. 19 Former government officials and academics in the United States discuss openly the prospects of a military coup if the Mexican initiatives do not stabilize the econo­ my. Yet, Mexico's fate is not entirely in her own hands; the international financial structure is now so fragile that Mexico's future is intimately linked to events as distant as the Hong Kong real estate market. The oil price increases obtained by OPEC in 1979 tightened the slack and reduced the flexibility in the international economic order. Today many of the countries that engineered the 1979 price boost are in situations similar to that of Mexico. Caught in the backwash of the western economic recession springing from higher fuel costs, many OPEC nations are registering large trade deficits and struggling to pay for huge economic development programs just as Mexico is. Other nations, such as Brazil and Argentina, that do not export oil face the same basic problem. The Argentine example raises a critical question for Mexico. Mexican political leaders will face increasing pres­sure from the emerging middle class as rapidly rising expec­tations meet head-on with the cold reality of economic contraction. In such an environment the temptation for political opportunism is strong. Mexico's dependence on foreign financial and trade institutions makes these institu­tions easy targets of criticism. Prudent economic behavior by indigenous economic actors can easily be portrayed as treacherous. Governments in difficulty may attempt to distract attention from domestic failures by stirring up deeply held grievances against internal or external forces . In such an environment, many political leaders could be expected to repudiate foreign debt obligations rather than face the political consequences of further economic cut­backs. For that portion of her own future that Mexico does control, the central questions are clear. How long will the Mexican middle class and its aspirants remain patient as the leadership searches for a solution? How responsive will the Mexican bureaucracy be, burdened as it is with hangers-on and widespread corruption? The answers Mexico supplies to these questions in the near future will have profound implications for those of us who live north of the border. Notes 1. Wall Street Journal, September 17, 1982; see also Donald W. Baerresen, "Devaluation and Merchandising in Texas Border Cities," Texas Business Review, September-October 1982, pp. 229-31. 2. Wall Street Journal, October 8, 1982. 3. Wall Street Journal, September 7, 1982. 4. Bureau of National Affairs, Inc., U.S. Export Weekly, August 17, 1982,p. 715. 5. Wall Street Journal, January 26, 1983. 6. Wall Street Journal, October 8, 1982. 7. Ibid. 8. Prudential-Bache Securities, Banking Industry Outlook, Novem­ber 22, 1982. MAY-JUNE 1983 9. Dallas Morning News, October 3, 1982. I0. San Antonio Express, October 17. 1982. 11 . Houston Chronicle, October 24, 1982. 12. Cited in Houston Chronicle. October 11 . 1982. 13. Wall Street Journal. January 26, 1983. 14. Wall Street Journal, September 7. 1982. 15. Wall Street Journal. January 26. 1983. 16. Wal/Street Journal. October 14. 1982. 17. Dallas Times Herald, October 17, 1982. 18. Address on January 20, 1983, by Richard Sinkin to the Texas Economic Demographic Association. 19. Dallas Morning News. October 17, 1982. ... Atlases. For research, reference, or just plain curiosity. Atlas of Texas Stanley A. rbingast et al. 1976. 179 page . 11" x 14" spiral bound. Sketches by Buck chiwetz and Charles Beckendorf; many color map . 29.95. "Among state atlases, this volume is second to none." -Southwestern Histon'ca/ Quarterly "An almost inexhaustible mine of factual informa­tion about the state, its history, its development, its resources, and its people." -The Cattleman Atlas of Mexico Stanley A. Arbingast et al. 1975. 164 pages. 11 " x 14" spiral bound. 20. "An excellent compilation of over 200 maps plu tables." -The A men.can Cartographer "All school libraries should have it and all 1exi­canists will want it." -journal of Geography Atlas of Central America Stanley A. Arbingast et al. 19 79. 70 pa e . ll"x 14"spiralbound. 18. "Very well done." -North American Congress on Latin A men'ca "The only cartographic treatment of the Central American region publi hed in English since 1955." -The Amen'can Cartographer Bureau of Business Research P.O. Box 7459 • Au tin, Texas 7 712 ....i .. Global Crisis and the Latin American Backlash Implications for U.S. Business Michael E. Conroy Latin America is in the midst of what may prove to be its broadest and deepest crisis since the Great Depression of the 1930s. In 1982 the total product of the region fell by almost I percent, the first decline in forty years, and per capita income declined in every country for which the United Nations Economic Commission on Latin America had data. 1 The problems that Latin America confronts ap­pear to even the most conservative observers to be so funda­mental that they carry the potential of creating even greater problems over many more years. As was true in 1930-1939, Latin America's problems today are heavily derived from the crisis in the economies of the major industrial countries of the world, and these problems are largely beyond either control or remedy from within the region. The crisis in the major industrial countries in the 1930s created widespread internal turmoil in Latin America, major shifts in Latin American economic policy, and a sub­stantial restructuring of the relationships that U.S. business and the U.S. government had maintained with the Latin American area. The present crisis may reorient Latin Amer­ican development strategies in a comparable way. The role of U.S. business in those strategies will depend upon the evolution of U.S. domestic economic policies that affect Latin America most adversely and upon those dimensions of U.S. policy toward Latin America that determine the political environment within which U.S. business will be forced to function. The current economic problems in Latin America pro­vide a harsh lesson to development planners in those coun­tries in regard to the extent to which Latin American eco­nomic growth is, and remains, dependent upon growth in the major industrial countries. That realization is reinforc­ing the case for major shifts in the economic policies of Latin American governments, for it is becoming clear that stahili1.ation and recovery in Latin America require either that Latin America await a distant and unpromising poten- Michael E. Conroy is Associate Professor of t:conomics, University o/ Texas at A11sti11. 1~6 tial recovery in the core industrial countries or that the Latin American economies begin a major domestic and international restructuring to lessen their ties to the tradi­tional industrial core. Multinational firms based in the United States and other countries are viewed throughout Latin America as the principal instruments of the dependence of Latin America upon the industrial nations of the world. As such, these firms may become the uncomfortable focus of new Latin American efforts to pursue more autonomous strategies of recovery from the current crisis. Dimensions of the Crisis In the most recent issue of its annual World Economic Outlook, the International Monetary Fund (IMF) notes that Latin American economic performance has been worse than that of comparable areas and groups of nations.2 That report may actually understate the current conditions and short-term prospects, for it was completed before the Mal· vinas (or Falkland) Islands conflict off the coast of Argen· tina in April 1982 and the financial crisis in Mexico in August and September 1982. The economic problems of the global economy are, for the IMF, centered on the problems of the seven nations it calls the "major industrial countries": the United States, the United Kingdom, Canada, France, Japan, West Ger· many, and Italy. According to World Bank statistics, these seven industrial countries have 1979 gross domestic prod­ucts (GDP) in excess of $200 billion and accounted for 65 percent of the total 1979 GDP of all countries outside of Eastern Europe.3 Since 1980 these seven industrial coun· tries have suffered from an overlapping set of five problems. First, production activity has slowed dramatically. Output growth in these seven countries fell from a 1962-1973 average of 5 .5 percent a year and a 1976-1979 average of 4 percent a year to 1 percent a year in 1980 and 1981 and an estimated 0.75 percent in 1982, according to the IMF. TEXAS BUSINESS REVIEW Prices, however, have continued rising rapidly. Inflation, as measured in consumer prices, averaged 3.3 percent from 1962 to 1973 and then rose to a 1980 peak of 12.1 percent for the seven nations. Since then it has fallen to an average of 10 percent in 1981 and is expected to have averaged 8 percent in 1982. At the same time, the cost of borrowing to invest or to meet government needs rose to historically unprecedented nominal and real levels and limited the ability of the seven countries to recover. Long-term nomi­nal interest rates rose from a 1976-1978 average of 8.5 percent to a level of 9.2 percent in 1979, 11.3 percent in 1980, and 13.2 percent in 1981. The real rates of interest over the same period more than tripled, climbing from an average of 1.3 percent over 1976-1979 to 2.3 percent in 1980 and 4.6 percent in 1981. Unemployment, however, is not responding to the contractionary monetarist policies undertaken in all of the seven countries. Unemployment has been historically very high in all seven since 1975, averaging slightly over 5 percent. It had increased to 7 .6 percent in 1981 and was expected to increase even further in 1982. These crises in the seven core nations have quickly radiated to the global economy as a whole. World trade expansion has fallen from a 1963-1972 average of 8.5 percent a year and a 1976-1979 average of 7 percent a year to an average of less than 2 percent a year over the last three years. This trend has made it difficult for the major industrial countries to adjust their balance-of-payments positions by increasing their exports. Short-Term and Medium-Term Outlook For the group of nations into which most of the Latin American countries fall-developing countries with no petroleum resources-the IMF noted that negative rates of growth in Argentina, Brazil, and the countries in Central America, together with slower growth rates in almost all of the other countries, effectively resulted in zero growth in 1981, the worst performance of any region of the world and the worst year for Latin America in more than twenty­five years. But 1982 was the worst year in forty years for the region, according to the United Nations Economic Commission on Latin America. While total gross product and per capita income fell dramatically, the index of terms of trade for those countries in Latin America that do not export oil fell to its lowest level in fifty years. In 1982, net inflow of capital declined by nearly 60 percent and net outflows of interest and profits were double those of 1980. The region as a whole had an average inflation rate of 80 percent, the highest ever recorded.4 The cumulative burden of increased external indebted­ness and high interest rates in the last few years constitutes a major hindrance to short-term improvements. The adjust­ments needed to cover external debt (such as further reduc­tions in government deficits, including reductions in social transfers and subsidies to industries; further reductions in imports; and other sacrifices for the sake of making exports more competitive) imply the imposition of austerity under already deteriorated standards of living. MAY-JUNE 1983 The IMF's recommended balanced course for the major industrial countries consists of continued monetary re­straint, aimed at reducing inflation. combined with fiscal policies to limit the growth of demand . If those policies were followed in a majority of the major industrial rnun­tries, the results, according to the IMF's own models. would include no significant increase in the growth of the indus­trial economies until the 1984-1986 period and only about 3 percent rates of annual growth by the end of 1986, little improvement in unemployment levels in any of the major industrial countries before 1986, and much worse results if the industrial countries are unable to reduce their enor­mous projected government deficits from levels that effec· tively crowd out badly needed private borrowing for industrial expansion. The implications for the low-income Latin American countries that export primary products are that they will continue to be faced with adjustment and fi· nancing difficulties for at least the next five years. The IMF has projected that under the best of circumstances the balance-of-payments deficits in the developing countries without petroleum resources will increase by an additional 25 percent by 1986. The debt service ratio may be reduced somewhat and the ratio of the balance-of-payments deficits to total exports may decrease by one-third, but only under very stringent and optimistic conditions. First, according to the IMF, all the Latin American countries will have to implement "comprehensive programs of adjustment," including reduced money supply, "realistic" exchange rates, reduced subsidies to domestic prices, and higher domestic interest rates to reflect international rates. Second. real interest rates in international markets v:ill have to be reduced to 2 percent by 1986, a decrease of more than 65 percent from the 1982 levels, and real oil prices will have to stay down through the end of 1986. Trade restrictions imposed by the industrial countries must not be permitted to expand, even though pressures for protectionism in the face of widespread unemployment are increasing. The industrial countries will have to maintain the current real levels of official development assistance between now and 1986. Last, Argentina and Mexico specifically (these two countries accounted for a large proportion of the total Latin American deficit) will have to make major reductions in current account deficits. Of course, the events in Argen­tina and Mexico since April 1982 have eliminated all possibility for the fulfillment of that last assumption. but the assumptions about the strength and coherence of the internal adjustment programs in most of these countries are equally questionable. The IMF also develops a scenario that indicates ''what might happen if national authorities in the industrial countries should fail to implement coherent policy courses to deal with the problems of inflation and structural adjustment," such as "the relaxation of monetary restraint in the face of rising unemployment" or an inability to develop "consistent" fiscal policies. 5 This alternative would imply, the IMF suggests, a spurt of growth in the industrial countries, followed by renewed high inflation and new. more restrictive, monetary restraint. These developments would produce continued high nominal and real interest rates, continued very slow growth (at about 2 percent a year through 1986), and a worsening of the unemployment and external imbalances in the major industrial countries. The implications of this alternative for the developing countries without petroleum are considerably less auspi­cious than they are under the first possibility. The collec­tive deficit in the balance of payments of these countries would increase by some 70 percent over the 1982 level­continuing at 20 percent of total exports-and the debt service ratio would remain near 25 percent for all but the major exporters of manufactures in the group. Export volume would grow at only about 3 percent a year by 1986 for the low-income and other primary product exporters, but further worsening in the terms of trade would all but offset any gains. Income and output would continue to grow in those countries at rates about half of those in the industrial countries and barely equal to projected rates of population growth. Even these results presuppose that all of the assumptions about domestic policies in these countries and about the remaining international conditions remain accurate. The U.S. Connection Leaders of major western countries and directors of leading international financial institutions rarely openly blame each other for financial crises, but as early as 1981, at the Ottawa summit of western leaders, West German Chancellor Helmut Schmidt and French President Francois Mitterand (and their finance ministers) were openly grum­bling that their domestic crises were largely attributable to U.S. policies of tight money and the resulting high interest rates. Latin American diplomats have been less free in their criticisms since the United States plays a very important role in most of their countries' economies. The Latin American press and Latin American planning officials, however, repeatedly blame, whether deservedly or not, U.S. domestic policies for the economic crises in their countries. Recent policies of the administration of President Ronald Reagan are now viewed by many of these commentators as one of the principal obstacles to global economic recovery. Jacques de Larosiere, managing director of the IMF, called the enormous federal deficits projected for the United States by the Reagan administration "the most serious problem confronting the world economy." 6 De Larosiere made these remarks before a specially convened meeting of the fund's member nations that had been called to increase the lending resources of the fund by 50 percent to meet the financial crises of 1983. No other delegates dissented from his views. The Latin American Backlash The prospects for the economies of Latin America in the next five years, as depicted by the IMF, will differ from country to country. Mexico and Venezuela may well benefit from continued expansion of their petroleum exports; Brazil and Argentina may be able to tap markets for manufactured products to offset losses in the value of their agricultural exports. Narcotics income may continue to offset setbacks in the legal economies of Bolivia and Colombia. A strong backlash, however, is likely throughout the region for several reasons. The assumptions which the IMF makes about strong and coherent adjustment policies may be realistic for those countries with extremely strong governmental authority, such as Uruguay, Paraguay, or Haiti; these adjustments are consistent with a continuation of the severe adjustments being made in Chile since 1973. Deteriorating economic conditions, however, have already undermined the legiti· macy and authority of many of the present Latin American governments. The newly elected governments in Mexico, Colombia, and the Dominican Republic and the tentative opening to electoral politics in Brazil are all grounded on uncommonly fragile political bases. All of these govern­ments face high expectations for economic recovery from their electorates. The severe policies of adjustment that the IMF rather cavalierly assumes in formulating its various scenarios have not been undertaken to date in most of Latin America precisely because they are politically objec­tionable to large segments of Latin American societies. Where they have been undertaken, as in Costa Rica under Rodrigo Carazo Odio after 1978, the results have been devastating. What alternatives might these nations pursue? There are many. Increased Protectionism For the IMF protectionism is anathema, but the single most important theoretical outgrowth of the last great wave of crises in the Latin American economies is the legitima· tion of the theories of constructive protectionism produced by Raul Prebisch and his colleagues at the Economic Commission for Latin America. Their fundamental criti· cisms of the theories of comparative advantage in free trade for Latin America, especially under conditions of wide­spread unemployment and deteriorating terms of trade, have been important for Latin American planning. The facility with which Latin Americans have been able to return to protectionist policies when confronted with external economic crises reflects in part the scepticism with which they view the potential or theoretical benefits of an open international system. Although protectionism has had a controversial history in the region, Latin American planners and industry officials are now more willing to focus upon the problems caused by inappropriate past implementation of protectionism. They are less willing than ever to abandon the policies of encouraging more rapid and more autonomous economic growth by turning inward and protecting domestic economies from the whiplash effects of global crises. New, more selective, more carefully crafted forms of protectionism are likely, however, and they are likely to be industry specific as well as country specific. The selective negotiations by representatives of the U.S. government for voluntary restraints on exports from Japan and several Western European countries provide a model for TEXAS BUSINESS REVIEW increased protectionism (which the U.S. government does not want to call protectionism) that is being watched closely in Latin America. Default The list of countries in Latin America on the verge of default or technically in default on public and private in­ternational borrowing grows monthly : Argentina, Bolivia, Costa Rica, Mexico, and other Central American countries are being kept afloat solely by unprecedented financial pipelines to the United States. As country after country approaches the level of indebtedness beyond which it will no longer be considered creditworthy, the effective penal­ties for default diminish. Concern about future inability to borrow seems absurd when there is little sign of any future ability to borrow. The specter of default haunts the multinational financial community and will loom larger if international bankers are unwilling to lend substantial additional amounts to coun­ tries that have received large amounts of financing in the recent past. The dependence of many Latin American coun­ tries upon international credit for imports of essential production inputs means that a loss of international finance lessens their ability to repay old loans. Nationalization As traditional countercyclical policies become less effec­ tive, whether because of the limits of domestic authority or because of the constraints imposed by the crisis in the core industrial countries, the policies that remain possible are increasingly radical. The nationalization of the entire Mexican banking system was an immensely popular and strategically dramatic move and was not a departure from the prevailing evolutionary tendency of the Mexican economy. Rather, the nationalization continued a clear pattern of growing state participation in the most funda­ mental development processes and a defense against the financial instability to which complete financial openness had led Mexico. Nationalization of industries crucial to national develop­ment has similar legitimacy in many other Latin American countries, including those generally perceived to have conservative economic policies. Nationalization offers an attractive political solution to otherwise intractable eco­nomic and political crises, especially in those countries where nationalization of some industries receives support from conservative groups who stand to gain economically from the reduction in international competition or from the use of newly nationalized industries to underwrite or otherwise support locally owned related industries. Public-Sector Growth The next decade in Latin America will be a decade of expanded public-sector participation in Latin American production. The cumulative experience of Brazil and Mexi­co, as the two relative "economic miracles" of the past MAY-JUNE 1983 twenty-five years of Latin American history, has been closely associated with the significant expansion of govern­ment participation in the financing. production. and distri­bution of the most basic developmental produ~·ts. Tlwse development models. despite the crises each has suffrn.•d. are proving far more attractive than policies of ksst•nt•d public participation, such as those in Chile since Salvador Allende or in Costa Rica under Carazo. The growth of public-sector participation in oasic economic decision making expands the public awareness and the public nature of many formerly private and unpublicized decisions that provided the basis for the participation of foreign firms in the Latin American development process. U.S. business observers must understand the rationale behind expanded public-sector participation in production in Latin America. Economic crisis, such as that which Latin America faces under the best of circumstances over the next five years, will increase public-sector growth because private initiatives will be circumscribed by global economic conditions. and the governments of Latin America will not have the same political capacity as the major industrial nations to urge that the citizenry accept austerity for the sake of future prosperity. Insurrection For all that the Central American ruling classes would like to believe that insurgency and insurrection in Guate­mala, Nicaragua, El Salvador, and Honduras are solely a reflection of covert foreign aggression , Latin American his­tory suggests that ample bases existed in the fundamental political and economic conditions in those countries to incite a desperate peasantry to an uprising. The fact that insurrection is spreading despite levels of repression never before seen in that part of the world is further evidence of the continuing likelihood of revolutionary political instabil­ity as economic conditions worsen. There is further irony in the effect of the present eco­nomic crises in Latin America. The Latin American nations for which the economic problems are, and will be, most acute are precisely those nations that have the largest proportions of their labor force in industry and commercial agriculture. Peasant agriculture is never so closely tied to the global economy, and the peasants of Latin America can fall back, to a significant extent, on self-sufficient subsistence. It ·is the landless agricultural laborers and the urban industrial workers who are hurt most harshly by declines in international prices for their products, decreases in local demand, rising unemployment , and government austerity measures that cut back on the subsidies that enabled them to work for nominally very low wages. These workers have the smallest margin for deterioration in their survival strategies and are most likely to find insurrection a meaningful response. Anti-US. Sentiment Latin American countries have not displayed broad xenophobia so much as distinctly anti-U.S. sentiment. Latin Americans tend to associate external economic crises with the highly visible presence of U.S. firms, and current U.S. government policies toward Latin America have not eased that association. Nor is it likely to be lessened by the grow­ing recognition in Latin America that the most significant cause of the global crisis rests with the deliberate economic policies of the Reagan administration. U.S. Foreign Policy and the Future Role of U.S. Business In its operations in Latin America, U.S. business must carry the albatross of almost a century of heavy-handed U.S. intervention in the internal affairs of Latin America. The responses of Latin American governments to U.S. business in the current environment of economic crisis and the future role that U.S. business will play in Latin America cannot be separated from that historical climate. The first two years of the Reagan administration's foreign policy toward Latin America has worsened the environment for U.S. business. From this perspective the Latin American policy of the United States since 1980 has been a disaster for U.S. firms and their affiliates. Every step, from the early tilts toward regimes in Chile, Argentina, and Guatemala that are de­ tested throughout most of the hemisphere to the unwar­ ranted and pointless advocacy of the British response to the Malvinas crisis has brought the United States back to the forefront of Latin American attention and disaffection. Our government's maladroit identification with the most brutal of the Central American regimes plays to the Latin Ameri­ can audience as variations on themes that evoke memories of all the worst performances by U.S. governments in the past, often at the well-recognized behest of influential U.S. bankers, investors, and other corporate representatives. No quantity of formal denials in Washington about the origins of contemporary policy will lessen the Latin American consciousness of that history. When the Latin American situation is presented as un­ compromisingly as it is in the International Monetary Fund's World Economic Outlook, it is neither difficult nor wholly inappropriate for Latin Americans to associate the limitations on their options with U.S. firms, U.S. govern­ ments (both past and present), and U.S. domestic economic policies. Unless current U.S. governmental policies for Latin America are modified to reflect that reality, the response of Latin America to the current crisis may imply a greatly diminished role for U.S. firms and for their affiliates in the hemisphere. The next decade will feature greatly heightened compe­tition for U.S. firms in Latin America. The weight of that cumulative history is likely to become an unprecedented burden, leading potentially to expanded, open, active discrimination against firms closely associated with the United States. The growth of increasingly competitive European, Japanese, and Latin American technology will combine with significant movement in Latin America along the industrial learning curve to produce a greater challenge than the United States has ever seen to its funda­mental competitiveness in the Latin American market. The loss of the Latin American automobile market between 1960 and 1980 to local assembly plants and to imports of smaller, more efficient cars from other suppliers provides a good example of the combination of forces that can dis­place U.S. exports or the sales of U.S. affiliates in the re­gion. The growth of national planning in all but a few countries and the desire to rationalize the historically in­efficient production that has emerged behind the protec­tive tariffs of the last quarter century provide a new basis for selecting foreign investors. Even if U.S. firms and their affiliates can produce the most price-competitive product in their lines-a matter that is going to be questioned more frequently -the po­litical pressures of an increasingly sensitive Latin America will place them at a disadvantage. Planners and others who must work under explicitly political structures will be required to pay higher political costs, to construct more careful justifications, and to be prepared for greater criti­cism if and when they opt for U.S.-affiliated contracts, projects, or proposals. The new wave of Latin American leaders-Belisario Betancur in Colombia, Luis Alberto Monge in Costa Rica, Miguel de la Madrid in Mexico, and Salvador Jorge Blanco in the Dominican Republic-represent basically conservative economic traditions, but they also share a political base in a populist nationalism and a greater formal detachment from the United States than their predecessors had. As it becomes further apparent to all of Latin America that a very large part of the contemporary crisis in the interna­tional economy can be attributed to the policies enacted by the Reagan administration, the interest that these leaders will have in distancing themselves from the United States (and from U.S.-based corporations) is certain to grow. These new leaders also reflect the environment in Latin America that calls for a revitalization of U.S. foreign policy in the region. Unless that new foreign policy includes greater tolerance for ideological diversity, new respect for the ability of Latin Americans to forge their own futures, and new restraint in the use of U.S. political and economic leverage to impose narrow political and economic require­ments on Latin America, U.S. economic relations with Latin America will worsen even more. The ultimate mean­ing of that worsening will be a lessening of the opportuni­ties that U.S. business will encounter in Latin America. Notes 1. Latin America Newsletter, Ltd., Latin American Weekly Report· er, January 7, 1983, pp. 5-6. 2. International Monetary Fund, World Economic Outlook: A Sur· vey by the Staff of the International Monetary Fund, April 1982, IMF Occasional Paper No. 9 (Washington, D.C.: IMF, 1982), p. 3. 3. The World Bank, World Development Report 1981 (New York: Oxford University Press, 1981), pp. 138-39. 4. Latin American Weekly Reporter, January 7, 1983, pp. 4-5. 5. IMF, World Economic Outlook, pp. 19-21. 6. New York Times Wire Service quoted in The Daily Texan (Aus· tin), February 15, 1983, p. 15. TEXAS BUSINESS REVIEW Interstate Ba11l"i11~ A Logical Step toward Financial Deregulatio11 For the last half century, commercial banking has been geographically straitjacketed. With few exceptions, banks have been restricted by their state legislatures to the politi­cal boundaries of their home states. At the same time, no similar restrictions have existed on either corporate business customers or potential competitors, including nonbank or­ganizations offering a broad range of financial services. In some instances, such as that of Texarkana, Texas, and Texarkana, Arkansas, state boundaries form artificial bar­riers that divide what would otherwise be a natural market area. The passage of the Depository Institutions Deregulation and Monetary Control Act of 1980 began a movement to correct the imbalances perpetuated by seemingly archaic banking law. Full implementation of financial deregulation must necessarily address rate deregulation, product deregu­ lation, and geographic deregulation. Under the 1980 law, interest ceilings on deposit ac­counts are to be phased out over a period of years and to be replaced by market-determined rates. Product deregulation began when checkable deposit accounts became available from such nonbank financial institutions as savings and loan associations, mutual savings banks, and credit unions. Com­mercial banks currently hope to secure legislative permis­sion to expand financial services to allow more direct com­petition with nonregulated nonbank financial service in­stitutions, such as Shearson/American Express, Sears Roe­buck (including Dean Witter and Coldwell Banker), and Prudential/Bache. Geographic deregulation, although still legislatively con­trolled by individual state law, is spreading rapidly through de facto entry. Although in most instances full-service facilities are not yet available, limited entry in the form of loan production offices, Edge Act offices (which are feder­ally chartered to engage in international financing opera­tions), and commercial, consumer, and mortgage-lending facilities has occurred and in all likelihood will continue. In addition, some banks are establishing positions in banking Fred H. Hays is Associate Professor of Finance, University of Mis­souri at Kansas City. MAY-JUNE 1983 Fr~d II. Ha,"' organizations outside of their home states that will perhaps materialize into outright acquisitions when interstate hank­ing becomes legal. The McFadden Act The McFadden Act of 1927, as amended in 1933, ex­plicitly restricted intrastate branch banking and drew the state boundaries as the outside limits on branching: state law was to regulate interstate branching of banks within each state's jurisdiction. The McFadden Act addresses only branching by national banks and does not explicitly address state nonmember banks, which are regulated by state law. 1 Some states, such as New York, permit branches of state nonmember banks beyond state boundaries, while others explicitly confine branching within the state. Even when a state permits interstate branching, other states might pro­hibit entry by statute, regulation, or custom and tradition and, thus, effectively deny the intent of the first state's law. The Douglas Amendment The Douglas Amendment to the Bank Holding Company Act of 1956 effectively allows banks to acquire up to 5 per­cent interest in banks across state lines since such minority interests do not have to be reported to the Federal Re­serve.2 As a consequence, many banks have established minority ownership positions in banks that they may even­tually want to acquire should interstate banking he permit­ted nationally. Different banks have different strategies. For example. Provident National of Philadelphia has invested in su.:h high-growth areas as Florida, Louisiana. Texas. Colorado. Oklahoma, and Arizona; in such established cities as :\tlan­ta. Washington, and Pittsburgh: and in such high-yielding banks as Harris Bank in Chicago and Bank of :\ew York. 3 Texas Commerce Bank has acquired a 4.7 percent interest in Wyoming Bancorp in order both to gain access to ex­ 131 pertise in energy and to increase its presence within Wyo­ming. Some New York banks, including Chase Manhattan and Marine Midland, have acquired interests in Pennsylvania in anticipation of contiguous state or regional interstate banking. Such minority participation may offer a trial marriage. If both organizations turn out to be compatible, the acquisi­tion may be formalized if interstate banking is legalized ; if the experiment does not work, the minority interest can be ended and the search for an acquisition can begin anew. Jn addition, minority participation may be used as a defen­sive mechanism to ward off hostile takeover attempts. Moreover, an existing position may expedite complete acquisition if legislation is enacted to permit full interstate banking. The Mcfadden Report The International Banking Act of 1978 requires the president to report to Congress on the applicability of the McFadden Act, as amended, to the current financial envi­ronment. This task was broadened by the administration of President Jimmy Carter to include reporting on the inter­state chartering and acquisition restrictions of the Douglas Amendment as well. The final report, Geographic Restric­tions on Commercial Banking in the United States: The Report of the President (referred to as the McFadden Re­port) was released by the Carter administration through the Department of the Treasury in January 1981 . The report concluded that the McFadden Act was "in­ effective, inequitable, inefficient, and anachronistic" and that geographic restraints on banking should be eased. It further found that geographic restrictions on electronic fund transfer terminals should be more liberal than those on regular branch banks and that interstate acquisitions by bank holding companies should be facilitated to ease the problem of failing banks. The report further examined five public policy issues related to geographic expansion: com­ petition and concentration, local service, viability of small banks, stability of the banking system, and the dual bank­ ing system. Competition and Concentration Economic theory suggests that prices of services tend to be lower and output higher when barriers to entry are lowered. Geographic restrictions on bank expansion are artificially imposed barriers to entry that may be argued to affect competition adversely. Although states with state­ wide branching may have higher aggregate concentration levels, the possibility of entry of new branches has generally kept prices of services low in these states. The McFadden Report , in considering the national effect of potential increases in concentration, concluded that the domestic commercial bank market share has declined com­ pared to the national banking market, the world banking market, and the financial assets of depository institutions. Although the report conceded that interstate banking might actually increase aggregate national concentration, it went on to hold that adverse economic effects could be mini· mized by careful consideration of branching, merger, and acquisition applications by the regulatory authorities and by potential application of federal antitrust laws. Gradual implementation of interstate banking should minimize the development of sudden increases in concentration. Local Service Using evidence from studies of bank expansion, the re­port concluded that the convenience and needs of the bank­ing community may be enhanced through liberalization of geographic restraints. No empirical evidence supports the hypothesis that funds are transferred from outlying branches to head offices. In addition, comparisons of price and prof· itability in statewide branching states and unit banking states find the former to be more competitive. Finally, the report noted that the Community Reinvestment Act of 1977 specifically requires insured financial institutions to meet the credit needs of their local communities. Viability of Small Banks Many bankers believe that interstate banking will mark the end of the small bank. The McFadden Report rejected this notion for a number of reasons. First, economies of scale tend to disappear once a bank grows above $50 mil­lion in assets; larger banks, therefore, lose any competitive cost advantages beyond this size. Second, evidence from both California and New York indicates that liberalized statewide branching Jaws have not significantly reduced the number of local community banks. Finally, actual and po­tential competition from both banks and nonbank financial institutions, in conjunction with antitrust law and the ac­tions of regulatory agencies, are expected to restrain any adverse effects of interstate banking on small banks. Stability of the Banking System The safety and soundness of the financial system are ex­pected to be enhanced through interstate branching because of the increased ability to merge weak or failing institutions into a larger number of potential acquiring banks without inconvenience or disruption. The Dual Banking System The division of authority and responsibility between fed· era! and state banking agencies need not be altered by inter· state banking. The option of supervision by federal or state banking agencies could be preserved with little difficulty. Alternatives for Entry into Interstate Banking The many possible methods for implementing interstate banking may be grouped into five categories: maintenance of the status quo, acquisition of failing thrift institutions, geographically constrained entry, restricted vehicles for entry, and unrestricted entry. TEXAS BUSINESS REVIEW Maintenance of the Status Ouo Maintenance of the status quo would entail retention of the McFadden Act and the Douglas Amendment in their current form. Rather than preventing interstate banking, this strategy would in all likelihood intensify the pressure for circumventive entry. De facto entry through loan pro­duction offices, Edge Act corporations, and consumer fi­nance units would continue and perhaps would even ac­celerate. At the end of 1979, more than 350 loan produc­tion offices existed in twenty states, while in the same year Edge Act corporations had about $14 billion in assets.4 Preservation of the status quo would not restrain the number of minority investment acquisitions prompted by the Douglas Amendment because speculation and expecta­ tion that interstate banking, although delayed, would come someday would continue. Failure to correct a deficiency by legislation merely leads to financial innovation and circum­ vention, sometimes at a much higher long-run cost. Acquisition of Failing Thrift Institutions Because of a long-term problem of mismatched rates and maturities on assets and liabilities, the thrift industry is slowly bleeding to death. The government is under pressure to permit mergers between failing thrift institutions and healthier thrift institutions or commercial banks. The methods proposed generally allow the possibility of inter­ state mergers. The preferred hierarchy appears to be, first, within both the same industry and the same state; second, within the same industry but in different states; next, with­ in the same state but in different industries; and, last, in neither the same state nor the same industry. The first two options have already been exercised. The difficulty, however, is that a number of troubled institu­ tions are geographically clustered in such markets as Chica­ go, Cleveland, New York City, and Puerto Rico, which are relatively unattractive locations for acquisition. 5 The few available large, healthy thrift institutions tend to be located in California and have indicated a preference for acquiring troubled institutions in Texas, Arizona, and Florida. The limited ability to find acceptable solvent thrift institutions as merger candidates increases the likelihood of interstate bank acquisitions. The current administration and Congress have hesitated to push for interstate bank acquisitions and have hoped in­ stead that a fall in interest rates would reduce the problem. The chairmen of both the Federal Reserve and the Federal Deposit Insurance Corporation have indicated that if Con­ gress does not enact legislation, those agencies are prepared to consider on their own acquisitions of failing thrift insti­ tutions by out-of-state bank holding companies. In one form or another, interstate acquisitions of thrift institutions by commercial banks appear inevitable. Geographically Constrained Entry Geographically limited interstate branching is an alter­native to unrestricted entry. There are a number of poten- MAY-JUNE 1983 tial variations. The natural market area may be a logical limiting boundary. In many instances this may be the stan­dard metropolitan statistical area (SMSA). Although in 1979 thirty-eight SMSAs extended into two or more states. boundaries of SMSAs could be expanded. by say fifty miles, to measure market area. A potentially larger area could, thus, be served by allowing entry into contiguous states. Areas of regional commonality might also be con­sidered. Such regions might be energy-producing areas, such as Texas, Oklahoma, and Louisiana, or agricultural areas like Kansas, Iowa, and Nebraska. Restricted Vehicles for Entry Rather than restricting geographic entry, the methods of entry could be regulated. Several vehicles for entry are possible. De novo entry, requiring a newly chartered bank rather than an acquisition, could be required. Regulators tend to favor de novo entry because it generally fosters competition. A second possibility is to permit holding com­pany entry, but only subject to approval by the Federal Reserve Board and the chartering agency of the bank. This procedure would permit the state regulatory environment to remain intact. For example, in states with only one bank holding company only one bank would be permitted. Alternatively, product lines could be regulated. Whole­sale, but not retail, services might be permitted, for ex­ample, or nondeposit retail and wholesale services, but not all services, might be offered by organizations entering the market. A final type of restricted entry would involve the regu­lation of electronic funds transfer network arrangements. Whether the facilities would be used with, or separately from, regular banking facilities, whether the services would include deposit taking or would be limited to inquiries and disbursement of funds, and whether the service should be subject to geographic restrictions are all issues to be con­sidered. Unrestricted Entry Although all of these other options are possible ways of easing into interstate banking, the ultimate goal is to achieve unrestricted entry to permit an efficient. effective allocation of financial resources. Financial resources would then be permitted to match the requirements for funds. Managerial Implications of Interstate Banking Some bankers tend to react defensively to interstate banking, which conjures up visions of Citicorp devouring Crossroads State Bank. The response to interstate banking by bank management, however, should be a part of the general response to financial deregulation. It is, after all, merely a specific type of deregulation. The emphasis should be on clearly identifying what the bank is, what its manage­ment wants it to be, and how that desired result can be achieved. In a volatile, deregulated world, a bank must be set on a course toward achieving long-term objectives. In a world where rates, products, and geographic markets are deregulated, bank managements must consider environ­mental changes, the costs and pricing of bank services, the demand for these services, how the bank is to broker these services, and the minimization of risk. Environmental Changes The strategic planner must clearly identify the current operating environment and estimate as accurately and com­pletely as possible the intermediate term. This analysis should include current and long-run forecasts of the world, national, and local economic environments. In addition, the existing and anticipated state of technology and the tax and regulatory environment should be assessed. Too often these forecasts are omitted because they are too difficult to determine or too unreliable. To omit these considerations is to deprive management of an extremely important element of decision-making information. Interstate banking can be incorporated into this en­vironmental framework. Using all currently available infor­mation, management must forecast the expected form of interstate banking. Given the most likely form of entry into interstate banking, how will the bank's management re­spond? Will it allow the bank to be acquired? If so, how can the potential return to shareholders be maximized? How can it avoid acquisition? Interstate banking should be re­duced to its proper role as a planning variable-important in developing long-run strategy but not necessarily the most important variable affecting long-run performance. Costs and Pricing of Bank Services For many years bank services were treated as joint prod­ucts with either no charge or only nominal charges. At­tempts to allocate labor cost, overhead, and other opera­tional costs to particular services were generally either very crude or nonexistent . In a deregulated environment, bankers have come to recognize the importance of pricing services according to costs. Furthermore, services are of­fered with separate, explicit prices so that customers pay for and receive only those items that they desire. Demand for Services Bank customers change their needs for services over time. Corporate customers may be increasingly interested in corporate cash management or specialized expertise in energy lending; retail customers may be more concerned with high interest and less interested in demand and pass­book savings accounts than they had been in the past. Bank management must adapt to these changes, knowing at each step what direction it wants to go and exercising the comparative advantages that it possesses. Banks as Brokers of Services While bankers are worrying about the effects of Sears Roebuck's entry into financial services, they should also look for the example that Sears provides. For many years Sears has been, in effect, a broker of retail goods and services, buying from suppliers, repackaging with the Sears name, and selling to the public. Sears has had neither the ability nor the inclination to be a producer of all of the goods that it sells. Full service commercial banks must become true inter­mediaries, brokers of financial services. Most banks are too small to compete directly against large financial institu­tions, either bank or nonbank, in the provision of a full line of financial services. Instead they will be forced to purchase the required services from an outside contractor, while charging a markup for their roles as middlemen. This same principle also applies to the acquisition of funds. The switch from financing loans from core deposits to pur­chased funds is another move in this direction. Bankers, although reluctant to accept the appellation, have become brokers of services and funds. Minimization of Risk Diversification of loan and investment portfolios has always been an element of prudent bank financial manage­ment as an attempt to minimize the risk associated with any given holding. In an economic and monetary environ· ment characterized by volatile costs of funds and maturities that differ between assets and liabilities, ways to mif!imize the risks of fluctuating interest rates must be investigated. The development of active markets in financial futures makes this investigation easier. Conclusion Competition provides an efficient allocation of society's scarce resources with lower prices and more output. When entry into markets is blocked, competitive conditions are more difficult to achieve. During the past several years, an incipient deregulation of financial institutions has occurred, including the deregulation of rates and products. Interstate banking, in this context, is simply a logical and inevitable form of geographic market deregulation. The issue is clearly not whether interstate banking will be achieved-it will. The form it will take and whether it will be de facto or de jure are the matters to be resolved. Notes 1. This point is further developed in Carter H. Golembe and David S. Holland, "Expansion Possibilities for Nonmember Banks," Bank· ing Expansion Reporter 1 (January 15 , 1982): 8. 2. Bradford M. Johnson, "The Pros and Cons of a Minority Invest­ment Program," The American Banker 146 (June 3, 1981): 1. 3. Thomas J. Murray, "Gearing Up for Interstate Banking," Dun's Business Month, October 1981, p. 57. 4. Geographic Restrictions on Commercial Banking in the United States: The Report ofthe President (Washington, D.C.: Department of the Treasury, January 1981), p. 8. 5. Christian Hill , "S&L Losses May Force Regulators to Ease Inter· state-Banking Rules," Wall Street Journal, January 12, 1982, p. 31. TEXAS BUSINESS REVIEW Home Credit and the Housing Service: The Ca e of Dalla~ The allocation and distribution of home credit has be­come one of the more controversial topics in urban political economy. A number of observers have, for example, argued that the widely noted empirical association between a lack of conventional credit and a physical deterioration of a neighborhood implies that credit providers are, at least in part, the cause of this deterioration. Lending institutions in a number of American cities have been subjected to vocif­erous attacks from community organizations that claim that institutional policies of not making loans in their neighborhood have led to both community blight and a process of capital exportation in which local savings depos­its have been used to support development in other sections of the metropolitan are?.. 1 Such assertions are thought to be supported by the distribution of loans within the lend­ers' own portfolios. The specific mechanism by which lending institutions are thought to bring on neighborhood deterioration is called redlining. In its purest form, redlining is the refusal of lending institutions to grant any loan in a specific geo­graphic area; if a neighborhood is redlined, no applicant, however credit worthy, will be granted a loan. Recently the notion of redlining has been expanded to include not only the outright refusal to grant loans, but also the policy of demanding differential terms on loans originated in par­ticular neighborhoods. For example, a savings institution might require relatively greater down payments or shorter repayment periods or insist on some form of mortgage in­surance in some areas. Each of these conditions raises the consumer's cost on a loan and can be thought of as a means of reducing the attractiveness of the loan and, in Richard C. Hula is Assistant Professor of Family and Community Development, University of Maryland. This article is based on a larger project funded by the National Science Foundation and the Graduate Research Board of the University ofMaryland. Computer support was provided by the Computer Science Center at the University ofMaryland. MAY-JUNE 1983 Richard C. Hula turn, the property on which the loan is to be made. Many argue that differential loan conditions have much the same effect on a neighborhood as a decision to make no loans at all. Closely tied to the notion of redlining is that of neigh­borhood disinvestment. Many who feel that savings insti­tutions engage in redlining argue that there is no similar institutional aversion to accepting deposits in allegedly high-risk neighborhoods. Thus, capital is exported to other parts of the metropolitan area. Critics often cite the exis- The Neighborhood Housinf! Service attenzpts to proride high-risk loan funds to qualified residents in blighted nei§!hborhood~. tence of relatively unfavorable ratios of deposits to invest­ments as proof that sufficient financial resources exist in redlined neighborhoods to warrant institutional invest­ment.2 Redlining is often associated with discrimination on non­geographic grounds, such as race. The effects of systematic racial discrimination would, obviously. appear to have a geographic component because of the ex tcnsi\·e ra..:ial segregation in U.S. metropolitan areas. Other conventional criteria, such as age, also tend to work against urban neigh­ borhoods. The lending industry and its supporters respond to these criticisms by suggesting that the withdrawal of home credit from a neighborhood is not the cause of deterioration but a reaction to it. Lenders claim that. they do in f~ct folio~ normal market criteria in the evaluat10n of potential loans. In fact, federal and state regulatory agencies forbid them to do otherwise. For example, the Community Development Act of 1977 implies that lending institutions have an affir­ mative responsibility to meet the credit needs of the com­munity in which they do business but also specifically charges that this responsibility is not an excuse for any deviation from sound lending policies. In addition, lenders often see charges of redlining as attacks on the entire mar­ket system rather than as accusations of inappropriate be­ havior on the part of specific lending institutions. Intervention Strategies Efforts to correct perceived misallocation of home credit have usually been based on the assumption that misalloca­tion results from correctable malfunctions in the market rather than from fundamental structural defects of the mar­ket system.4 For example, the Neighborhood Housing Ser­vice, a group of locally funded, state-chartered nonprofit corporations that work to stabilize and revitalize well­defined local neighborhoods, brings together would-be credit consumers with lenders who have expressed a willing­ness to originate Joans to qualified residents of the target community. The local corporations maintain revolving high­risk loan funds to meet credit needs of neighborhood resi­dents who cannot qualify for conventional credit. Local governments will usually increase capital investment and building code enforcement in neighborhoods served by the organization ; the federal government provides technical assistance through the National Reinvestment Corporation, which must approve a local application before a Neighbor­hood Housing Service organization can be established. The most important criterion in reviewing applications tends to be whether the resources to mount the Neighborhood Housing Service organization are available in the com­munity. Once an application has been accepted, the organi­zation usually begins an educational effort aimed at both community leaders and residents of the target community. The National Reinvestment Corporation aids this process by organizing a variety of workshops on such topics as assessing local developmental resources, selecting sites, securing con tracts, and testing for program feasibility. Even after the local organization has passed through this forma­tion stage, the National Reinvestment Corporation remains an important source for advice and technical support. In 1981 the National Reinvestment Corporation report­ ed that at least one Neighborhood Housing Service program was operating in each of 103 U.S. cities. As a low-cost nonbureaucratic, noncoercive strategy for urban redevelop: ment, the service would seem difficult to oppose; it is also widely seen as instituting "a process that has given neigh­ borhoods new confidence in their resources." 5 On the most practical level, however, there is some ques­ tion of whether the service offers a useful technique for in­ creasing credit in credit-poor neighborhoods. The program also provides an interesting test of a number of assumptions about the nature of the home credit market. An adequate evaluation of the program may contribute to the theory of the underlying mechanism allocating home credit. The Neighborhood Housing Service may be seen as a test of the common assertion that when misallocation of credit does occur it is the result of imperfections in an otherwise rela· tively efficient market. The Dallas program, which is generally considered to be successful, is an interesting ex­arnple. 6 The Dallas Neighborhood Housing Service Program In 1972 the Center for Executive Development of the Federal Horne Loan Bank Board hired a coordinator to identify Dallas community leaders who might be willing to become involved in a Neighborhood Housing Service organization. By 1973 significant community interest in the program had developed. The Dallas Clearing House Association, composed of representatives from forty-two commercial banks operating in Dallas County, gave support, but participation by area savings and loan associations, which was slow to develop, eventually occurred on an institution-by-institution basis. In the public sector the city of Dallas agreed to dedicate future and surplus capital im· provernent funds to the target area and also promised an extensive code enforcement program. A site selection committee suggested that the target community should be no larger than 2,000 units and should exhibit signs of stability as well as of decline, with a mini­mum of 50 percent owner-occupied housing. The target neighborhood was also to contain a significant number of low-income to moderate-income minorities, but not a large percentage of elderly residents, and should have a history of little use of conventional credit for home improvement ef­forts. Neighborhood income should not be so low as to pre· elude the use of conventional credit in the neighborhood, which should have the potential for a viable community organization and should be zoned for single-family use where single-family homes existed. Obviously, the Dallas program was not designed for a seriously deteriorated neighborhood, probably because it was assumed that pri· vate investment could not be attracted to such an area. The Northpark/Love Field neighborhood was selected from seventeen proposed communities because it not only conformed to the site selection committee's criteria, but also offered two important advantages: the community already had a well-organized neighborhood association, and a set of major city streets provided a clear physical defini· tion of the community. The Neighborhood Housing Service loan program and the city's code enforcement effort began in 1974. As ex· pected, a house-to-house survey of the neighborhood re· vealed many code violations. Of the 1,729 units examined, code violations, many of them minor, were noted in 1,343 units. Nevertheless, many homeowners found themselves facing major home renovations. As code enforcement increased, demand for improvement capital also seemed to increase. From 1974 to 1978 the Neighborhood Housing TEXAS BUSINESS REVIEW SeIVice originated forty-four loans with a value of $168,410, and the impressions of those involved in the Dallas program are that private-sector institutions were making more loans in the target community, although there is little data available to show whether this is the case. A survey undertaken by the University of Texas at Arlington reported that 62 percent of the neighborhood renovation was financed by personal savings, 19 percent by private lenders, and 8 percent by the Neighborhood Housing SeIVice high-risk revolving loan fund. Anecdotal evidence indicates that community residents believe the area simply "looks nicer." Many real estate agents think home prices in the area ment rates in the Neighborhood Housing Service target com­munity than they did in the county's ten highest income tracts. A similar pattern emerges for savings and loan asso­ciations with respect to the number of loans originatl~d or purchased, but there is a sharp difference between the value of loans offered by the associations in the target 1.·ommu­nity and those in the higher income tracts. Ncvcrthekss. lending rates were higher in the target community than they were in census tracts of similar income. The rate of conventional mortage lending, on the other hand, does not appear to be higher in the target community Table 1 Home Improvement Lending in Dallas County, 1976-1979 have increased. Data on the num­ ber of units brought up to code umber of loan s fo r each Do ll ars of credit during the period have been cit­ed as quantitative evidence of Lending institution Area thousand housing un its 1976 1977 1978 To tal for each hou ing unit 1976 1977 1978 Total the program's positive effect. Of the 1,343 units cited for code violations, 1,303 were able to meet code standards by 1977. (In the past, however, code enforcement efforts have achieved a 90 percent compliance Savings and loan associations Target community Dallas County Ten tracts most similar to target community in income• Twenty tracts most similar to target community in income• Ten highest income tracts Ten lowest income tracts 6.0 2 .3 1.0 1.0 6.6 0.3 7 . 1 3.6 1.2 1.3 8.1 1.9 7. 1 4. 1 2.S 1. 8 11.0 1.2 20.3 9.9 6.9 4.2 2S.7 3.4 21 29 12 8 116 I 16 36 9 10 129 13 17 47 14 II 173 9 SS 112 JS 29 41 23 rate without the Neighborhood Housing Service.) Given that the goal of the Neighborhood Hous­ing SeIVice is to increase private­sector lending in credit-poor neighborhoods, relatively little attention has been given to the Commercial banks Target community Dallas County Ten tracts most similar to target community in income• Twenty tracts most similar to target community in income• Ten highest income tracts Ten lowest income tracts 9 .0 4 .7 4.4 3.4 4 .9 1. s 19.9 10.l 6.S 7.2 6.0 3.6 13. S 12 .4 9.7 10.1 11. 7 3.6 42 .4 27.2 2 0 .6 20.7 22.7 8.6 27 16 IS 10 23 s 84 39 22 24 77 20 64 63 42 38 106 19 17S 11 80 7 206 44 level of private-sector investment •Similarity is measured by in come estimated in 1976. . . . . Source: These data have been aggregated from Home Mortgage DISCiosure Act tate~ent of mdlVI· in the target community; it is by dual tending institutions. Statements were collected from all savings and loan associations and the no means clear whether lenders largest twenty-five commercial banks in Dallas County.have actually become significant­ ly more active in the neighbor- Table 2 hood. No effort has been made to separate the effects of Neigh­ Conventional Mortgage Lending in Dallas County, 1976-1979 borhood Housing Service from umber of loans for each Do liar of credit general trends in the city's fo r each hou ing unit housing market. Lending institution thousand housing units 1976 1977 197 Total Comparisons of lending rates Area of savings and loans and com­ 19 76 19 77 1978 Total Savings and loan associations 37 303 437 778 2.3 13.0 1 S.0 30.0 mercial banks during 1976, Target community 19.4 24.0 24.0 69.0 826 1,13S 1,108 3,069 Dallas County 1977, and 197 8 support the Ten tracts most similar to 362 421 96S hypothesis that the Neighbor­target community in income• 6.9 11.0 12.0 30.0 182 hood Housing Service target Twenty tracts most similar to 7 9 22.0 IS I 280 349 target community in income• 6.7 9.0 11.0 3,207 I I ,8S6 community did receive more S2.0 39.0 138.0 3,4S9 S, 190 Ten highest income tracts 47.S 6S 19S 104 364 home improvement loans than Ten lowest income tracts 1.7 6.0 4.0 11.0 Commercial banks one would expect from normal I. I 23 32 13 68 0.4 0.4 0.4 Target community so 97 190 337 market forces (see table 1). I. I 2.1 2.9 6.1 Dallas County Commercial banks in particular Ten tracts most similar to 61 31 112 2.S 6.6 19 target community in income• 0 .8 3.3 report significantly more home Twenty tracts most similar to 97 44 44 improvement loans in the target target community in income• 0.4 l.S I.I 3.0 9 1,866 3,297 S30 901 6.6 11.2 14.7 32.4 community than they do in Ten highest income tracts 27 13 41 2 .0 I 0.2 1.2 0.7 Ten lowest income tracts tracts of similar income. Indeed, for 197 6 and 1977 commercial •s imilarity is measured by income estimated in 1976. banks reported higher invest-Source: See table 1. 137 MAY-JUNE 1983 than it is in other communities with similar income levels. On all measures for both savings and Joan associations and commercial banks, the rate of investment for conventional mortgages is below the average level of investment in the county and greatly below the rate for higher income tracts (see table 2). Even if the Neighborhood Housing Service has increased the flow of home improvement capital, it has not necessarily also made conventional mortgages more avail­ able. While an increase in housing values is usually not defined as a major goal of the program, if a neighborhood revitali­zation project were successful, housing prices would prob­ably increase as buyers came to see the neighborhood as more desirable. Although housing values in the target community did increase from 1969 to 1979, there is little evidence to suggest that the Neighborhood Housing Service community experienced any increase in value that could not be explained by broader trends in the Dallas County market. 7 Before any firm conclusions can be drawn regarding the success of th is revitalization strategy, policy evaluation must move beyond the impressions of persons involved in specific programs. Of particular importance is the estab­ lishment of some sort of baseline by which one can esti­ mate the effect of a given revitalization effort. If one looks only at housing prices in the Neighborhood Housing Service target community in isolation of county-wide trends, for example, it appears that the Dallas Neighborhood Housing Service program was associated with a sharp increase in housing value. While it does appear possible to stimulate demand for home improvement capital through the Neigh­ borhood Housing Service program, the long-term effects of the program may not be as positive as some of its more enthusiastic supporters claim. Of particular significance is the finding that only those lenders most active in the pro· gram show a significant increase in lending in the target community. Furthermore, the number of home sales fi. nanced by conventional credit did not rise. Thus, by many standards the community seemed to remain credit poor. Notes 1. Calvin P. Bradford and Leonard S. Rubinowitz, "The Urban­Suburban Investment-Disinvestment Process: Consequences for Older Neighborhoods," The Annals of the American Academy of Political and Social Science 422 (November 1975): 77-86. 2. Richard C. Hula, "Housing, Lending Institutions, and Public Policy," in Donald Rosenthal, ed., Urban Revitalization (Beverly Hills, Calif.: Sage Publications, 1980). 3. George J. Benston, Dan Horsky, and H. Martin Weingartner, An Empirical Study of Mortgage Redlining, Monograph Series in Fi­nance and Economics 1978-5 (New York: Salomon Brothers Center for the Study of Financial Institutions, 1980). 4. Peter Marcuse, "The Deceptive Consensus on Redlining," Journal of the American Planning Society 45 (October 1979): 549-56. 5. Phillip L. Clay, Neighborhood Partnership in Action: An Assess­ment of the Neighborhood Housing Services Program and Other Selected Programs of Neighborhood Reinvestment (Washington, D.C.: Neighborhood Reinvestment Corporation, 1981), p. 78. 6. For a detailed discussion of the Dallas program see Paul H. Geisel, The Northpark/Love Field Experience: An Analysis of the Neigh­borhood Housing Service in Dallas (Dallas: Institute for Urban Studies, University of Texas at Arlington, 1977). 7. Richard C. Hula, "The Home Credit Market in Dallas County, Texas 1976-1978," final report to the National Science Founda­tion, 1982, pp. 196-229. Texas Economic and Population Growth: The Next Quarter Century by Thomas R. Plaut Bureau of Business Resea rch Un iversity of Texas at Austi n Box 7459 Austin, TX 78712 Here is the economic and population forecast that best reveals the Texas of the future. Unlike so many nationally produced models that arrive at one standard formula and duplicate it for each state, ours takes into account all the unique characteristics that are Texas. Th is publication presents in one easy-to-use source all the important economic and popula­t ion indicators required for business and re­search. It provides both historical ( 1960-1980) and forecast (1981 -2007) data for 290 indica­tors, or 13,920 distinct numbers. $300 for first copy. Additional copies at 20% discount. State and local governmental agencies are granted a 20% discount. Data, without analy­sis, are available on magnetic tape for $500. For details, call 512/4 71-1616. International Licensing of T h11olo~ Texas business firms have been increasingly involved in international business over the past two decades. In addi­tion to participating in foreign trade and investment, many firms are becoming involved in the lesser known licensing of technology. Of the 139 Texas exporting firms responding to a recent survey, slightly more than one-fourth were in­volved in licensing technology internationally. Size of the firm, rather than product mix , was most directly related to a firm 's likelihood of being involved in licensing. The esti­mated current income from licensing was about 7. 7 percent of annual sales. The Nature of International Licensing The licensing of technology involves any agreement by one firm to allow another firm to use technical knowledge about production, distribution, or other matters or to make any of the licensor's products, patented or unpatented. A great many kinds of licensing agreements can be worked out, but this study was limited to direct foreign licensing ; that is, agreements between a U.S. licensor and foreign licensed firms. Other options are domestic licensing (both firms being from the same country) and reverse foreign licensing (foreign licensor to U.S. licensed firm). 1 Moderate-sized firms , especially , often see licensing as offering an easy entry into the international market, since, depending on the details of individual agreements, licensing requires a minimum of management involvement. Technol­ogy transfer, however, is not costless. Even though the technology being licensed has already been developed in connection with domestic operations of the firm , the costs of licensing may include legal fees, travel expenses, techni­cal assistance to the licensed firm, and, perhaps, such op­portunity costs as export sales or direct investment oppor­tunities forgone by licensing. Returns to licensing activity, however, typically exceed the associated costs by a large factor. Gross returns are typically thirty-five times as great Margaret W. Maxfield is Professor of Mathematics and Statistics, Louisiana Tech University. Joseph A. McKinney is Associate Profes­sor of Economics, Baylor University. James B. Townsend is Asso­ciate Professor ofManagement, Kansas State University. MAY-JUNE 1983 by Texa Bu )largart'l \\ . )la fit·ld Jo ·eph .\. )leKinne~ Jan1e~ B. To\\ n"'t'IHI as the costs involved; future returns discounted at 15 per­ cent still leave estimated returns approximately twenty­ seven times as great as costs. 2 Most licensing activity is carried out by machinery man­ ufacturers, including such high-technology industries as manufacturers of computers and other advanced electronics products. The second largest category is chemicals and related products, including agricultural chemicals and fertilizers, industrial chemicals and synthetics, and pharma­ ceutical products (see figure 1).3 Western Europe is by far the most important area for U.S. licensing income with Japan coming next (see figure 2). In Japan, licensing income from unaffiliated firms is greater than that from affiliated firms. in contrast to the pattern in Western Europe. (Affiliated firms are either for­eign subsidiaries of the 1J. S. parent firm or joint ventures with foreign firms; unaffiliated firms are those in which the licensing firm has no ownership.) This pattern reflects the fact that there has been much less direct investment by U.S. firms in Japan than in Western Europe. Although the share of total licensing income from developing countries is increasing, it remains a relatively small proportion and is accounted for mainly by the advanced developing countries of Mexico, Brazil, Taiwan, India, and South Korea. as well as Hong Kong (a British crown colony). The Texas Survey We mailed a one-page questionnaire regarding interna­tional licensing to 912 firms in Houston. Dallas-Fort Worth, and San Antonio that had been identified as in­volved in exporting. Although not all firms that license technology abroad are exporters. we hypothesized that this group would certainly include those firms most likely to be involved in licensing. A survey of all exporters in the state of Texas was not feasible since no listing of such firms is available. Houston and Dallas-Fort Worth account for more than 70 percent of all exports, by volume. and we estimated that adding San Antonio firms to the sample would result in reaching most firms with international in­volvement. Since exporters in these three metropolitan areas are only a sample rather than the entire population of all Texas firms with international involvement, we cannot say for sure that the results are representative of all Texas firms, hut similar surveys of all exporters in Kansas and Iowa closely fit in product category and firm size. We, thus, helieve that our results are at least fairly representative of all Texas exporting firms. From the 912 questionnaires mailed, usable returns were ohtained from 139 firms , a response rate of more than 15 percent. Slightly more than one-fourth of the returns came from firms involved in international licensing activity at the time of the survey. Involvement of firms in interna­tional licensing was found to depend significantly upon hoth annual sales and the number of employees. Larger firms are more likely to engage in licensing than smaller firms. Estimated annual sales of firms involved in licensing were $8.4 million, as compared to $6.1 million for firms not engaged in licensing. The estimated average number of employees of licensing firms was 540 ; the average for non­licensors was 27 5. Product profiles were not significantly different between licensors and nonlicensors. The estimated annual current licensing income for those engaged in licensing was $645,000, about 7.7 percent of the estimated annual sales of such firms. When asked to estimate what their expected income from licensing would he by 1990, an average figure of $10.5 million was given. Firms engaged in international licensing activity, thus, anti­cipate a rather dramatic increase in income from licensing within the next decade. If this anticipated increase materi­alizes, licensing will surely be one of the more rapidly ex­panding sources of income for such firms. When asked how they began licensing, more firms indi­ cated that they had been contacted by firms interested in licensing than indicated that they had actively sought licensing firms. Of those responding, twenty-nine (81 per­cent) had been licensing more than five years; the next most commonly checked frequency was two to five years. Of thirty-five firms responding to the question "About what percentage of your sales at present comes from licensing?" twenty-five indicated under 10 percent; six indi­cated 10 percent to 30 percent ; one said more than 30 per· cent, and three said none. All geographical areas of the world, except Central America, have attracted licensing from the responding Texas firms (see table 1). The most frequently mentioned areas were Western Europe (eighteen firms), the Far East (twelve), and Eastern Europe (eleve 1). This pattern is consistent with that of U.S. manufacturing industries as a whole. Estimated mean income from licensing by area was $350,000 from Western Europe (eighteen firms), $333,000 from Africa (three firms), and $350,000 from Eastern Eu· rope (eleven firms). Since all except eight of the responding firms were active in more than one area, the averages do not give a valid indication of total income from licensing. Licensors predict licensing income in 1990 of sixteen times their present estimated average licensing income; many of them, thus, expect to extend licensing to new geo­graphical areas. In fact, forty-five such expansions were projected, the leading areas being the Far East with eight new licenses predicted by 1990, South America with seven, and Canada and Mexico with six altogether. Firms that did not license technology in the interna· tional market most frequently indicated that their main obstacle to licensing was a lack of knowledge about the practice. Other obstacles were the belief that their products Figure 1 U.S. Receipts of Royalties and Licensing Fees in Manufacturing Industries in 1978 Affiliated ($2,218 million) Unaffiliated ($952 million) Figure 2 U.S. Receipts of Royalties and Licensing Fees by Country in 1978 Affiliated ($2,218 million) Unaffiliated ($952 million) Developing countries (6%)\. Australia, New Zealand, ... and South Africa '­(3%) Australia, New Zealand, and South Africa Source: See figure I. were not suited to licensing, the need to make contacts that could lead to licensing, and the need to expand domestic markets (see table 2). The obstacles checked were also correlated with the number of employees in the firms. The thirty-four firms that wanted to learn more about licensing were evenly di­vided in size between those with fewer than 100 employees and those with more than 100 employees. Firms that be­lieved they needed to expand domestic markets most fre­quently had 101 to 250 employees, while firms that wanted to expand in size or assets before licensing were fairly even­ly spread from 21 to 500 employees. Those wanting to make more contacts most frequently employed 101 to 250 Table 1 Responses of Licensing Firms Average income Number of to firm Geographical area licensing firms (in dollars)* Africa 3 333,000 Caribbean I 200,000 Central America 0 Eastern Europe II 330,000 Far East 12 161 ,000 Middle East 3 105,000 orth America JO 124,000 Oceania 8 121 ,000 South America 8 229,000 South Asia 2 20,000 Southeast Asia 5 43,000 Western Europe 18 350,000 •Most licensors have agreements in several geographical areas so their average income from licensing is the sum of incomes in those areas. (4%) persons, but frequencies were fairly evenly spread from :; I to 250 employees. In this group two firms reported more than 1,000 employees. For each obstacle, the most fre­quently checked annual sales was $5 million or more. Of the one hundred firms responding to the question. twenty-eight were interested in a seminar about licens­ing. Twenty firms (21 percent of ninety-seven responses) wanted to meet with an active licensor. Of one hundred re­sponding firms, eighteen indicated they would probably be licensing by 1985, forty-eight that they would not be. and thirty-four that the answer could be either alternative. Of the Texas business firms responding to this surwy. 27 percent already licensed technology abroad. If the non­licensing firms that indicated some potential for licensing are included with those firms already licensing. the com­bined category includes 65 percent of the responding ex­porting firms. Would it be valid to extrapolate the results and to con­clude that 65 percent of all Texas exporting firms are Table 2 Nonlicensing Firms: What They Want to Accomplish before They Begin Licensing umber Category of firms Learn more about licensin g 34 Expand the domestic market 16 Expand size or assets of firm Make more contacts that could lead to licensing 2 3 Other 9 General negative, product not suitable, etc. 30 ote: One hundred non licensing firms responded. MAY-JUNE 1983 potential licensors? Probably the percentage of potential licensors is actually lower than 65 percent. If we assume firms with an interest in licensing to be twice as likely to have returned our questionnaire than were firms with no interest, overall interest in the subject would be 48 percent of questionnaire recipients. The revised estimate of licen­sors, from 27 percent of the returns, would be 16 percent of the entire mailing. Smaller firms need to be reassured that licensing is not restricted to giant multinational corporations. Managers need to be reassured that licensing does not necessarily require them to service products after sale, learn a foreign language, or spend time abroad. It is not even necessary that a firm export in order to enter a licensing agreement. In fact, licensing is a good way to begin foreign activities. Notes I. For background information on licensing, see the following articles and books: Paul R. Badak and J. D. Susbauer, "International Expansion Through Licensing: Guidelines for the Small Firm," Journal of Small Business Management 15 (January 1977): 17-21; Howard Davies, "Technology Transfer through Commercial Trans· actions," Journal of Industrial Economics 26 (December 1977): 161-7 5; David Ford and Chris Ryan, "Taking Technology to Mar· ket," Harvard Business Review 81 (March-April 1981): 117-26; Bela Gold, "Alternative Strategies for Advancing a Company's Technology," Research Management 18 (July 1975): 24-29; How­ard Greenstein, "Licensing New Product Technology," Industrial Research/Development 20 (June 1978): 122-29; Lawrence J. Eck· strom, Licensing in Foreign and Domestic Operations, 2 vols. (New York: Clark Boardman, 1973); Marcus B. Finnegan and Robert Goldscheider, eds., The Law and Business of Licensing (New York: Clark Boardman, 1980); Piero Telesio, Technology Licensing and Multinational Enterprises (New York: Praeger Publishers, 1979); and James B. Townsend, Extraterritorial Antitrust: The Sherman Act versus American Business Abroad (Boulder, Colo.: Westview Press, 1980). 2. Farok J. Contractor, "The 'Profitability' of Technology Licensing by U.S. Multinationals: A Framework for Analysis and an Empiri· cal Study," Journal of International Business Studies 11 (Fall 1980): 45-47. 3. Meryl L. Kroner, "U.S. International Transactions in Royalties a11d Fees, 1967-78," Survey ofCurrent Business 60 (January 1980): 31-32. Texas family Law Jack W. Ledbetter Written in layman's language, Texas Family Law covers a variety of topics including qualifications for and restrictions on marriage, premarital agreement, interspousal relations, marital property, home­stead and exempt property, parent-child rela­tionships, dissolution of marriage, wills and estates, and life insurance and other intangible assets. Paper $7.00. Texas residents add 5% sales tax. Bureau of Business Research The University of Texas at Austin Box 7459 Austin, Texas 78712 The Age Composition of the Texa Populati Recently released data from the 1980 census indicate that while differences may be observed in the age composi­tion patterns of various groups, Texans on the whole are younger than people in the nation as a whole. At the same time, the state has been shifting from a younger to an older population, with smaller proportions in the youngest age groups and higher percentages in the older. These changes are in part the result of variations in fertility rates, a de­clining mortality rate, and increased net migration into the state. Age Composition Changes Several methods are available for describing the differ­ences in age distributions of various populations as well as changes in age composition patterns over time. This article will cover the median age, selected age groups in a person's life cycle, the dependency ratio, and the index of aging. Median Age Texas has been shifting from a younger to an older pop­ulation, as has the entire country. The average Texan in 1980 was 9.5 years older than the average resident in 1900 (see table 1 ). Furthermore, the aging of the population has been a continuous process throughout the twentieth cen­tury, except between 1950 and 1970. The high fertility rates of these baby boom years kept the median age from increasing during this period. R. L. Skrabanek is Professor of Sociology and Demographer, Texas Real Estate Research Center and Department of Rural Sociology, Texas Agricultural Experiment Station. Texas A&M University. Steve H. Murdock is Associate Professor of Rural Sociology, Texas Agricultural Experiment Station , Texas A&M University. R. L. kraban k teve H. )1urd k The trend toward an older population continued during the 1970s-the median age of the state "s people increased from 26.4 years in 1970 to 28.2 in 1980. In the nation the median age increased from 28.1 to 30.0 years over the same period. Thus, the average Texan was almost two years younger than the average U.S. resident in 1980. The gap between the median age of Texans and the nation's people, however, has narrowed from a difference of 4.2 years in 1900 to only 1.8 years in 1980. Substantial differences exist in the age distributions of the populations of Texas counties (see figure I). The resi­dents of some counties average more than twice the age of those of others. The range in median ages in I 980 was from 22.3 years for Maverick County to 55.4 years for Llano County. An additional four counties-Brazos, Coryell. Hays, and Starr-have unusually young populations. with Table 1 Median Age of the Texas and U.S. Populations, 1900-1980 Year Texas United States Difference 1900 18. 7 22.9 4.2 1910 20 .2 24 . J 3.9 1920 22.0 r.3 3.3 1930 23.7 26 .4 2.7 J940 26 .8 29.0 2.2 1950 27.9 30.2 2 .3 1960 27.6 29 .S 1.9 1970 26.4 2 .I I. 1980 28.2 30.0 I. Sources: U.S. Deparrmeni of Commerce, Bureau of the Census, U.S. Census of Population: J9 70, '·Characteristi of the Popula­tion," pan 45, Texas (Washington, D.C.: Government Printing Office, 1973), table 21 and pan 1, nited States Summary, table 53; and Bureau of the Census, Popula tion Profile of the United States: J 98 1, Current Population Repor!S Series P-0, no. 374 (Washington, D.C.: Govern ment Printing Office, 19 2), table 3-4. MAY-JUNE 1983 median ages of less than 23. At the other extreme, three other counties-Hamilton, Loving, and Mills-have popula­tions whose median ages are more than 45. The low median age of Maverick County's population is a result of several factors. More than 90 percent of the resi­dents are Hispanic, a group with high fertility rates and, consequently, a large number of children. Also, many young persons have moved from Mexico to live in Maverick County, especially in Eagle Pass and smaller towns on the border. Additionally, Maverick County is isolated from large U.S. population centers to which younger adults can migrate for jobs. At the other extreme, Llano County's high median age is largely a result of the out-migration of youngsters from the county's ranches over a long period Figure 1 Median Age of the Population of Texas Counties, 1980 and a large in-migration of retired people who are attracted to the area locally known as the Highland Lakes. Several important differences may be noted as a result of the extreme variations in median ages in Texas counties. For example, 42 percent of Maverick County's residents in 1980 were under 18 years of age; in Llano County, on the other hand, only 16 percent of the residents were in that age category. At the other extreme, 31 percent of Llano County's population in 1980 were 65 years of age and older, while only 7 percent of Maverick County's people were aged persons. All five counties with the lowest median ages had considerably more births than deaths in 1980, while deaths exceeded births in three of the four counties with the highest median ages. The fourth county with a high median age-Loving-had no deaths and no births in 1980.1 As a group, the counties with median ages of under 23 had an average of 3.4 births for each death in 1980, while those with median ages of 45 and over had 1.7 deaths for each birth. Only six states had lower median ages than Texas in 1980. Utah and Alaska had the lowest-24.2 and 26.1­while Florida had the highest median age (34.7). Texans on the average were 1.5 years younger than people living in the southern region of the nation. The median age of the state's white population (29 .5) was higher than that for blacks (24.61 and persons of Spanish origin (22.1) in 1980. Selected Age Groups Since information is available on the number of persons by single years of age for both 1970 and 1980.2 the Texas population can be divided by selected age groups in a vari­ety of ways. A fairly detailed picture of the age and sex composition may be obtained by constructing a population pyramid. Such a pyramid may be made using either abso­lute numbers of people or percentages of people in five-year age groups, separately for males and females . While the shape of such a pyramid is affected by migration to some degree, it mainly reflects the influence of changing fertility on the age structure. The bases of the age-sex pyramids for Texas in 1970 and 1980 are narrow, reflecting overall lower fertility since about 1965, compared to the higher fertility that existed from the 1940s through the first half of the 1960s (see figure 2). The wider base of those under age S in 1980, as compared to 1970, reflects the increased fertility in the latter half of the 1970s over the comparable period of the 1960s. It may be noted that Texas had more people in every five-year age category in the 1980 pyramid than it had had Figure 2 Composition of the Texas Population by Age and Sex, 1970 and 1980 (In thousands} Age 0 100 200 300 400 500 600 700 800800 700 600 500 400 MAY-JUNE 1983 ten years previously, with one exception-the 10 to 14 year olds. At the other extreme, the largest increases in numbers (1 .5 million during the decade) occurred in the 20-to-34 age range, which made up 27 percent of the state's people in 1980. Another popular way of gauging changes in age composi­tion is to divide a population into three broad age groups that correspond roughly to the major stages of an indivi­dual's life cycle. These are the young (persons under 20 years of age), the adults (young and middle-aged adults The aged Texas population has increased spectacularly in numbers because of lower death rates, longer life expec­tancies, and net in-migration into the state. As a conse­quence, their numbers have grown so much faster than the rest of the Texas population that, while in 1900 persons 65 years of age and older made up one out of forty people in Texas, in 1980 they constituted one out of every ten. Older persons continued to increase at a more rapid rate than the rest of the state's population between 1970 (8.9 percent of state population) and 1980 (9 .6 percent). The median age of residents is under 23 in Brazos, Coryell, Hays, Maverick, and Starr counties and over 45 in Hamilton, Llano, Loving, and Mills counties. 20 to 64 years of age), and the aged (65 years of age and older). The proportion of young persons under 20 years of age has declined from slightly more than one-half of all Texans in 1900 to only one out of three in 1980 (see table 2). Their proportionate share continued to drop between 1970 and 1980-from 39.5 percent to 34.2 percent. At the same time, people under 20 years of age made up a slightly higher proportion of the. total population in Texas than they did in both the natiop (where they were 32.0 percent) and the South (3 2.6 percent) in 1980. Persons 20 to 64 years'of age increased their proportion of the state's population frnm 44.9 percent in 1900 to 51.6 percent in 1970. This trend continued between 1970 and 1980, when their numbers increased to 56.2 percent. There was virtually no difference in the proportionate shares of the 20 to 64 year olds in the Texas population compared to that of the Sou th and the nation as a whole in 1980. Table 2 Percentage Distribution of the Texas Population by Age Groups, 1900, 1970, and 1980 Age group 1900 1970 1980 Under 5 14.9 8.8 8.2 5 to 9 14.2 10.2 8.2 JO to 14 12.7 10.6 8.3 I 5 to 19 I 1.0 9.8 9.6 20 to 24 10.0 8.6 10.0 25 to 29 8.0 6.8 9. 1 30 to 34 6.0 5.8 7.935 to 39 5.1 5.6 6.2 40 to 44 4.7 5.8 5.145 to 49 4.1 5.6 4.8 so to 54 3.2 4.9 4.8 s s to 59 2.0 4.6 4.5 60 to 64 1.6 4.0 3.7 65 and over 2.5 8.9 9.6 Sources: Bureau of the Cen.sus, " haracteristics of the Population," pa n 4~ , Texas, table 2 1; an.d 1980 unpublished data provided by Stat1sttcal Information Offi ce, Population Division us B of t he Census. ' · · ureau Not only is the older population growing at a faster rate than people in other ages as a whole, the growth rates are higher for each successive age group within the aged cate­gory. For example, while the number of persons 65 years of age and older grew by 38.2 percent between 1970 and 1980, the number between 65 and 74 increased by 35 percent, between 7 5 to 84 by 41.7 percent, and 85 years of age and over by 52.1 percent. Texas had a lower proportion of older persons than either the nation or the South in 1980; in each of the last two cases older persons made up 11.3 percent of the popu­lation. Alaska had the lowest percentage of the aged-2.9 percent-and Florida the highest-17 .3 percent. The state's white population has a smaller proportion of young persons and a larger share of aged persons than other racial and ethnic groups in Texas. In 1980, persons under 20 years of age made up 32.2 percent of all whites, 40.0 percent of all blacks, and 47.8 percent of all persons of Spanish origin. At the other end of the age scale, persons age 65 and over constituted 10.6 percent of all whites, 8.4 percent of all blacks, and 5 .0 percent of all persons of Spanish origin. These differences in age distributions mirror the divergent patterns of fertility, mortality, and migration found among the three groups. Dependency Three broad age groups were used in the previous section to illustrate changes in the age composition of the Texas population. A combination of these same age groups also may be used to show the effects of changes by relating the purported number of active adults to the number of those they must support. A convenient measure of this relation· ship, commonly referred to as the dependency ratio, is the number of persons under 20 plus those 65 years of age and older (the assumed dependent ages) for each 1,000 persons 20 to 64 (the productive population). Although this measure is limited in precision, the ratio provides a fairly good approximation of the number of persons in the dependent ages for each 1,000 persons in the productive ages. The relative sizes of the dependent and the productive age groups at any given point in time have important impli­cations for economic production, tax structure, different institutional and governmental needs, and other social services. Texas had 782 persons in the dependent ages for every l ,000 in the productive ages in l 980. The predominant trend from l 900 to 1980 has been a decline in dependency (see table 3). In l 900, l ,000 active adults supported l ,231 dependents; by 1980, the dependency ratio had declined by more than one-third. The decline in dependency, how­ever, has not taken place consistently throughout the eighty-year period. It increased markedly between 1950 and l 960 and remained high through 1970 as a result of high fertility. It declined between 1970 and l 980 because fewer births took place than had occurred between l 960 and l 970. The gap between dependency ratios for Texans and the nation has narrowed considerably over the past eighty years. At the beginning of the century, Texas had 291 more per­ sons in the dependent ages for each l ,000 productive per­ sons than did the United States as a whole. By l 980, how­ ever, 1,000 economically active adults supported only 20 more dependents in Texas than in the nation. There was no difference in the dependency ratios in the South and in Texas in 1980. The white population of Texas had 745 persons in the dependent ages for every 1,000 in the productive ages in 1980. This figure is considerably lower than the depen­ dency ratios of 936 for the black population and 1,027 for persons of Spanish origin. Ratio of Aged Persons to Children Although aged persons and children are both viewed as a part of the dependent population, both groups play vast­ly different roles in society and create different kinds of problems. Further insight concerning the relative impor­tance of the aged and children may be gained by compar­ing their varying rates of growth through the construction Table 3 Dependency Ratios of the Texas and U.S. Populations, 1900-1980 Young persons (under 20) plus older (65 and older) for each 1,000 in productive ages (20 to 64) Year Texas United States Difference 1900 1,23 1 940 29 1 1910 1,1 02 861 241 1920 980 833 147 1930 875 793 82 1940 765 703 62 1950 773 726 47 1960 949 913 36 1970 936 914 22 1980 782 762 20 Sources: Bureau of the Census, "Characteristics of the Population," part 45, Texas, table 21, and part 1, United States Summary, table 53; and 1980 unpublished data provided by Statistical Information Office, Population Division, Bureau of the Census. of an index of aging. This index is obtained by dividing the number of aged persons (65 and over) by the number of children (under 15) and multiplying the resulting figure by 100. The number of aged persons in Texas has been increasing much more rapidly than the number of children. Thus. the aged make up a significantly larger share of the dependent population each time the nation's census is taken. At the beginning of this century there were only 6 older persons for each 100 children. By 1930 the ratio of aged persons to youngsters had doubled to 12, and in 1980 there were 39 elderly persons for each I 00 children (see table 4 ). The largest increase in the index of aging since 1900 occurred during the last decade, when the number of aged persons for each 100 children increased by 30 percent. Since the total number of births in the state was about the same for each of the fifteen-year periods from 19 5 5 to 1970 and from 1965 to 1980, the increase in aged persons in compar­ison to the number of children has been in part a result of increased life expectancies, but a more prominent factor has been the large net migration of older persons to Texas from other states and regions. Indexes of aging computed for the United States and dif­ferent regions indicate that both the nation and the South had much higher indexes of aging in 1980 than Texas had. These ratios were 50 for the nation, 49 for the South, and 39 for Texas. The state's white population has a much higher ratio of elderly persons to children than do other racial and ethnic groups. In 1980 whites had 45 older persons for each 100 children. This proportion contrasts sharply with only 29 aged for each 100 children for the black population and 14 for persons of Spanish origin. Implications It is difficult to think of any aspect of social, political, or economic life that is not influenced by the age structure of a population. People of different ages have different requirements that a society must satisfy if its citizens are to be healthy and prosperous and have different capabilities for performing the many diverse roles and activities that Table 4 Index of Aging of the Texas and U.S. Populations, 1900-1980 Aged persons (65 and over) for each 100 children (under 15) Year Texas United States Difference 1900 5.8 11.8 6.0 1910 7.4 13.4 6.0 1920 10.0 14.7 4.7 1930 12.4 18.4 6.0 1940 19.3 27.3 8.0 1950 22 .9 30.2 7.3 1960 23.5 29.7 6.2 1970 29 .8 34.7 4.9 1980 39.0 50.0 11.0 Sources: See table 3. MAY-JUNE 1983 must he carried out sun-essfully if a society is to function srrroothly and rrIL'L't the requirements of its people. BasiL· nen·ssities of lift:. such as food, housing, and cloth­ing. an: n:quired more or less equally by people at all age levl'ls, hut othn necessities vary considerably by age. For n:arrrple, edul'ational facilities arc required chiefly by per­sons from ~ YL'ars old to about 25 years of age. On the tlthn hand. the n·ry young and the elderly generally have ~realer need for rnediL·al l:arc and associated facilities than ;ieopk in their intl'rmediatc years. Young couples and ,·hildren ;rrL' grc·ater ust:rs of certain types of recreational fac·ilit il's than arL' older adults. Elaborate retirement and Soria! Sec·urity programs have developed primarily to meet the· reqtrirements of the elderly. 1'11e capabilities of persons at different age levels are dif­fnrntially detnmincd either by the culture, by physiology, or hy the regulatory process. Young children generally are unable to pnform the many tasks--provision of food, cloth­ing, housing. fuel and energy sources, and transportation facilities-that must be carried out to provide the necessities for a society. Many of the elderly, likewise, are not able to carry out such tasks or are restricted from their perfor­mance by forced retirement. Thus, these tasks have to be performed largely by young and middle-aged adults, and any community or society with high proportions of child­ren and of the elderly will find it difficult to perform these activities in an adequate way. Notes I. Texas Department of Health, Bureau of Vital Statistics Texas Vital Statistics: 1980 (Austin: Texas Department of Health, June 1981), table 11. 2. U.S. Department of Commerce, Bureau of the Census, U.S. Ce11• sus of Population: 1970, "Characteristics of the Population," part 45, Texas (Washington, D.C.: Government Printing Office, 1973), table 19: and 1980 unpublished data provided by Statistical lnfor· mation Office, Population Division, U.S. Bureau of the Census. 1983 DIRECTORY OF TEXAS MANUFACTURERS Up-to-date information on more than 14,500 manufacturers. 1 ALPHABETICAL BY NAME GEOGRAPHICAL BY CITY Complete information for each company: location mailing address phone number type of company number of employees chief officer sales & purchasing agents product listings 2 TYPE OF PRODUCT Complete plant information : location phone chief officers with phone numbers sa les or purchasing agents products manufactured INDEX OF PRODUCTS with Standard Industrial Classification numbers $85/set. Texas residents add 5% sales tax. BUREAU OF BUSINESS RESEARCH• BOX 7459 • AUSTIN TEXAS 78712 , Barometers of Texas Business (All figures are for Texas unless otherwise indicated.) All graphs except the one for nonagricultural employment are adjusted for seasonal variation Data were compiled from th( following sources: U.S. Department of Labor, Texas Employment Commission, Texas Railroad Commi ion. and rederal Reserve Bank. Data on oil refining and industrial production are current through December 1982; data on consumer price are current through March 1983; all other data are current through February 1983. Consumer Prices (Index: 1967=100) 340 320 (317.4) (298.1) 300 (292.3) 280 260 240 220 200 180 160 140 120 100 -+--~-~-~-.,.----r--.----.-------,r--..---1 1975 1977 1979 1981 1983 Oil Production and Refining (Index: 1967=100) 160 150 140 130 120 110 100 90 80 (111.7) .....---.. '...-'--, ,,..._ ,, I\ Crude oil production V1.f",_,, '-...--­ --...... .............. .... (80.0) 70-J-~1-9_7_5~-~1-9_7_7.-----r1-97-9-.--,-19~8~1-,--T1:-:-9sJ Percentage Unemployed ,.,, ' ... (10 3, '10.0 .•' ' I I I 4 I (9.0) 8.0 6.0 4.0 2.0-J-~-~--,...----.-----.--,---,----.---.---i 1975 1977 1979 1981 1983 Industrial Activity (Index: 1967=100) 275~------------------~ (263.8) 250 Total electric power use 225 200 175 150 (145.6) 125 100-4---.---.---.---.---.----.---...------,.-------,.----~ 1975 1977 1979 1981 1983 6,75oT---------------­ )> -t Ill c :t c cn mll :::! cm z z l> . -c -t <0 mm.,, x ll )> (/) Ill ' (/) -c -t (/) Total (6, 158) ".J -< ­ co 0 2 -.i ,, m ~ -t ~ m I x~ )> (/) I cn m )> )> ' -t ll )> (") c :t (/) -t z C"l"OC)-i l> n f'Ti f'Ti ~rzx -0 f'Ti l> c ... :tcn en :r> -re :I' -2 :r> .t: r i-t ..... 1-1< rcnairri rn ;;o ::c :::0 J> (/) ..... A: 1-f l> ..... -f r rn -< cn en 0 Al ~ !Tl n ' 0 -i ::0 a; 0 ;u (/) Services (1, 162) (/) ,, Government (1,046) 0 Manufacturing ( 1,000) ~ )> Gl m ,, ~ ~ I! Construction (399) )> Transportation and public utilities (375) c ~ ~ Finance (368) Mining (295) m )'I ~ I (/)