TEXAS BUSINESS REVIEW A Monthly Summary of the Business and the Economic Conditions in Texas BUREAU OF BUSINESS RESEARCH: THE UNIVERSITY OF TEXAS INDUSTRIAL ENERGY CONSUMPTION IN TEXAS by Robert M. Lockwood / THE CHANGING ROLE OF THE TEXAS cow by James D. Gordon/ GOVERNMENT CONSTRUCTION PROJECTS by Jack W. Ledbetter TEXAS BUSINESS REVIEW VOL. XXXVI. NO. 6 JUNE 1962 129: THE BUSINESS SITUATION IN TEXAS by Francis B. May 131: INDUSTHIAL ENERGY CONSU:OIPTION IN TEXAS by Rob­ert M. Lockwood THE CHANGING ROLE OF THE TEXAS COW by James D. Gordon THE EUROPEAN UNIFICATION MOVEMENT by Andreas S. Gerakis J4l: GOVERNMENT CONSTRUCTION PROJECTS IN TEXAS by Jack W. Ledbetter 143: LO CAL BUSINESS CONDITIONS Editor: John R. Stockton Managing Editor: James J. Kelly BUSINESS RESEARCH COUNCIL John Arch White, Dean of the College of Business Adminis­tration (ex officio); John R. Stockton; W. E. Adams; Jessa­mon Dawe; G. H. Newlove; B. H. Sord; W. T. Tucker; and E.W. Walker. BUREAU OF BUSINESS RESEARCH Director: John R. Stockton Associate Director and Resources Specialist: Stanley A. Arbingast Assistant to the Director: Florence Escott Statistician: Francis B. May Administrative Assistant: Juanita Hammons Research Associate: Charles 0. Bettinger, Alfred G. Dale, Marie Fletcher, James J. Kelly, Ida M. Lambeth, Robert M. Lockwood, Elizabeth R. Turpin, Frances Vick Research Assistant: James D. Gordon, Thomas V. Greer Administrative Secretary: Margaret F. Smith Senior Secretary: Elsa Acker, Cynthia Bettinger Senior Clerk Typist: Claire Howard, Josephine Knippa, Elnora Mixson, Marilyn Whites Cartographer: Roberta Steele, Tim M. Duffee Library Assistant: Merle Danz Statistical Technician: Eva A. Arias Statistical Assistant: Mildred Anderson, Carol Laws Clerical Assistant: Sara Connally, Mary Lou McDaniel Offset Press Operator: Robert Dorsett, Daniel P. Rosas COOPERATING FACULTY Charles T. Clark: Associate Professor of Business Statistics Robert l!. Ryan: Special Instructor in Business Writing Published monthly by the Bureau of Business Research, College of Busi­ ness Administration, The University of Texas, Austin 12. Second-class postage paid at Austin, Texas. Content of this publication is not copy­righted and may be reproduced freely. Acknowledgment of source will be appreciated. Subscription, $3.00 a year; individual copies, 25 cents. THE BUSINESS SITUATION IN TEXAS Texas Business Activity Index Adjusted for seasonal variation 1957-59=100 200 200 150 150 100 100 50 50 0 1950 '51 '54 '55 '56 '57 '58 '59 '60 '61 '62 AFTER GIVING GROUND SLOWLY FOR TWO CONSECUTIVE months, the April seasonally adjusted index of Texas busi­ness activity held fast at 128.2% of the 1957-59 average. At this value the index was 17% above its April 1961 level. It was only 3.5% below the all-time high of 132.9% reached in January of this year. The index of miscellaneous freight carloadings in the Southwest district rose 2% in April after allowance is made for seasonal factors. After reaching a low for the year of 73.9% of 1957-59 in January, the index improved in Feb­ruary, dropped a fraction of a percentage in March, and rose again in April. Good automobile sales in the state dur­ing the first quarter plus improved shipments of other manufactured products have caused this improvement in the index. Seasonally adjusted total production of petroleum in April rose 3.8% above the March level. Total producing days allowed by the Texas Railroad Commission were the same (eight days) for both months. Improved production resulted from new discovery allowables and technical factors affecting the rate at which prorated wells are pro­duced. As total production from nonprorated stripper wells increases, production tends to increase slightly when the number of producing days remains constant. Nonprorated secondary recovery projects have the same effect. The tighter proration becomes, the more the influence of this kind of production is felt. There is also the fact that pro­rated wells produce on an average about seven-eighths of their maximum permissible output. This amount of underproduction varies from month to month, causing total production to rise and fall. During the first quarter of 1962, total producing days amounted to 25 compared with 27 for the first quarter of 1961. Total petroleum production was down 2.9% in Texas from the first quarter of last year. First-quarter production for the nation was up 0.7% over 1961. The decline in Texas production was more than offset by the first-quarter 1962 increase in production in the South Louisiana dis­trict, which had a 17% increase in output. The seasonally adjusted index of crude oil runs to stills rose 4% in April. During the first quarter of the year, demand for gasoline rose 4%. Crude runs to stills rose 1.6%. The resulting reduction of inventories caused a firming of prices. Higher runs in April did not soften retail gasoline prices except on the East Coast. The Bureau. of Labor Statistics index of the wholesale price of gasoline rose in April. If refiners exercise restraint, prices should remain firm and refinery realization (net profit per barrel of refined products) improve. Total electric power consumption in April rose 3% after seasonal adjustment to a level of 13% above April 1961. At 133.5% of the 1957-59 average the index was at the highest level in its history. A recent report in The Oil and Gas Journal, points out that in the next ten years nu­clear fuel will become a substantial competitor with fossil fuels, i.e., coal, oil, and gas, as a source of electrical energy. This will be particularly serious to coal producers. Elec· tric utilities are the principal users of the output of mines in the coal· producing regions of the country. RETAIL SALES TRENDS BY KINDS OF BUSINESS Source: Bureau of Business Research In cooperation with the Bureau of the Census, U.S. Department of Commerce Percent change Normal seaaona!• ____A_c_tua_l-=---,­Jan-AprNumber of 1962 reporting Apr Apr 1962 Apr 1962 from establish· from from from Jan-AprKind of buslnHa ments Mar Mar 1962 Apr 1961 1961 DURABLE GOODS Automotive storest .............. 278 -10 -18 +25 +27 Furniture & household appliance storest ............ 148 -1 -8 + 6 +lo Lumber, building material, and hardware stores ........ 251 -2 _, + 3 +11 NONDURABLE GOODS Apparel stores ·········-·---··---­--286 Drug stores ............................ 210 •• -8 +16_, +24 + 4 + 8 + " Eating and drinking places ········-···-····················· 87 -2 -8 •• + 1 Food stores ............................805 -8 -6 -3 + 1 Gasoline and service stations ................................ 61 -8 + " +12 + 5 General merchandise storest ·····-···-··········-----·-·····193 -· + 3 +14 + 6 Other retail storest ............ 259 -1 -6 + 7 + 4 •Average seasonal change from preceding month to current month. •• Change Is less than on&-half of one percent. t Includ"'3 kinds of business other than cla.sslflcation listed. The seasonally adjusted index of Texas retail sales de­clined 1.7% in April despite a strong Easter rise in apparel sales. At 113% of the 1957-59 average the index was above its January and February levels, after taking sea­sonal factors into account. A greater-than-seasonal decline in the sales of consumer durables pushed the index down­ward. Estimates of the value of retail sales in the state show that total sales in April were 10% above April of last year. If the current rate of sales continues for the rest of the year, total retail sales for the state will amount to a healthy $11.77 billion. Sales of durable goods should total $4.33 billion. Sales of nondurables should total $7.44 billion. Durable goods sales are running at 36.8 % of total sales in the state. This is a high ratio. Ordinarily sales of durable goods account for about a third of total retail sales. The seasonally adjusted index of total urban building permits issued in the state fell 12% in April. At 113.7% of the 1957-59 average volume of permits the index was 18% above its April 1961 level. In January and March the index rose very substantially, declining 19% in Feb­ruary. If the rather large erratic variation which is cha~ac­teristic of this index is averaged out, a pattern of cyclical rise is evident. Building construction is still a mainstay of the state's economy. A decline in the seasonally ad· justed index of nonresidential permits caused the decline in the index of total permits issued. At 120.1 % of the 1957-59 average, the seasonally ad. justed April index of residential permits issued was 5% above its March level. It was 28% above April 1961. A strong rise in permits issued for the construction of apart­ments contributed substantially to the increase in resi­dential permits. A recent report from the Department of Commerce shows that per capita personal income for the nation rose to a record high of $2,265 in 1961. Texas per capita personal income also reached a record high at $1,972. A comparison of Texas and United States per capita personal income follows: Texas as percentage of Year United States Texas United States 1950 $1,491 $1,339 89.8 1951 1,649 1,453 88.l 1952 1,727 1,523 88.2 1953 1,788 1,549 86.6 1954 1,770 1,585 89.5 1955 1,866 1,645 88.2 1956 1,975 1,732 87.7 1957 2,048 1,815 88.6 1958 2,064 1,843 89.3 1959 2,160 1,908 88.3 1960 2,223 1,924 86.5 1961 2,265 1,972 87.1 If Texas per capita personal income had been equal to the national average in 1961, total personal income would have been $22.2 billion instead of the $19.3 billion that it actually was. This would be a 15% increase. Texas can accomplish this goal through greater industrialization. Total personal income in Texas in 1961 was 4.7 % of the national total. It was exceeded only by five states: New York with total personal income of $48.4 billion, Pennsyl· vania with $26.l billion. Ohio with $23.1 billion, Illinois with $27.3 billion, and California with $45.6 billion. The $19.3 billion earned by Texans in 1961 represents a mar· ket for vast quantities of consumer goods. Consumer goods industries are taking note of this and establishing manu· facturing branches in the state. The state's chemical industry, which employed 45,800 people in positions below the higher supervisory levels in April, continues to grow. Employment is up 1,600 over April 1961. Total manufacturing employment in the state in April was up 10,300 from April 1961. Total nonagri· cultural employment in April was 2,550,500 compared with 2,512, 700 in the like month of 1961. It is apparent that business conditions in the state are generally good. Since the state's economy is closely tied to the nation's and is growing at exactly the same rate ( 4% gross or 2% per capita) in terms of personal income, any downturn in the nation's business next year will effect the outlook for Texans. TEXAS BUSINESS REVIEW Industrial Energy Consumption in Texas by ROBERT M. LOCKWOOD SO VORACIOUS IS THE AMERICAN APPETITE FOR ENERGY that the United States, already consuming a third or more of the world's annual input of basic energy materials, is expected by 1975 to reach a level of energy consumption almost twice that of 1955. Coal, the original basis of in­dustrial civilization, fortunately occurs in great abundance -the United States alone owns a third of the world's resources, enough to last 250 years at present recovery lev· els and rates of consumption. But that ugly, valuable min­eral could not satisfy completely the demands of the in­creasingly complex industrial structure which had been founded upon it. With the discovery of the potential value of the petroleum fuels, oil and natural gas, the Western in­dustrial complex understandably began gobbling greedily at these less abundant but more flexible energy materials. In the United States, as in many other highly industrialized nations, these three fossil fuels make up the capital, non­renewable sector of primary energy sources. The fourth basic energy source is a renewable one: falling water. Long one of the leading producers of two of these four primary energy sources, liquid and gaseous petroleum, Texas has become one of the principal consumers as well. During the 19 years ending with 1958, the consumption of primary energy in the manufacturing, minerals, and elec­tric utility industries in Texas increased more than two and a half times, or at an average annual rate of slightly less than 5%. Per capita consumption of industrial energy had risen by 1958 to almost twice the 1939 level, compared to the national increase over the same period of roughly 40%. Industrial energy consumption in Texas in 1958 represented about 11.9% of the United States total. The comparable figures for 1954 and 1939 are 11.2% and 8.6%, respectively. Industrial Uses of Energy All industrial applications of energy can be classified broadly as either fuel or raw material uses. Raw material applications are those in which energy materials are con­verted to non-energy materials, as in the manufacture of carbon black from natural gas or the refining of crude oil into such products as asphalt, lubricants, and greases. One of the heaviest current demands on energy raw materials is for their conversion into chemical products. This discussion, however, is concerned only with the fuel uses of energy sources. It is true that a commodity such as petroleum asphalt has a measurable heat value, but so does a potato. The point is that neither the asphalt nor the potato customarily is used as a secondary source of inanimate energy, even though each consists at least par­tially of combustible substances. Except for illumination and space heating, which are common to many energy users, industrial consumers burn energy principally to produce heat or mechanical power or to carry on electrolytic processes. These applications almost always involve one of the principal factors of energy economics: the conversion of energy from one form to an­other. These conversion processes must, of course, begin with the primary energy sources: petroleum, coal, and water power. Wood, also a primary fuel, is of too little sta­tistical consequence to be considered in this general survey. The relationships between the major sources of primary and secondary energy in the United States are shown in the figure titled "How Industry Uses Energy." Energy conversion may require several steps, each of which causes some net loss of energy. Thus energy conver­sion is itself a significant consumption factor, accounting for as much as 10% of the aggregate national energy ex­penditure in any one year. A great deal of energy conver­sion nevertheless is essential, not only to the industrial economy but also to the full realization of the potential of the primary sources. The least flexible of these sources, falling water, cannot perform any useful work-not even the production of heat or light-unless it is first translated into some useful form by a turbine. Crude Petroleum Brude oil is almost never used in its native state. Almost all energy originating with crude petroleum is consumed in secondary energy materials, the products of refineries. Re­finery consumption itself, if "consumption" is defined as crude runs to stills, consists entirely of raw material energy consumption. Except for refined products consumed as fuel, the only portion of crude petroleum consumption which can logically be assigned to refineries is the equiva­lent loss of energy sustained in the refining processes. Many of the more than 2,000 liquid petroleum products are utilized by industry as raw materials. Among those used for fuel, all of the important ones are employed to produce heat or power. Distillate and residual fuel oils and gasoline are the major products, although refinery­produced LPG (liquefied petroleum gases) also find in­dustrial applications. The use of fuel oils in steam-electric power plants has become relatively insignificant. Natural Gas Natural gas is most often utilized in a "semicrude" form. Economic and technological considerations demand that the liquefiable components of natural gas be removed before it is directed into pipelines. These natural gas liq­uids, which are extracted and handled in the liquid state but used in the gaseous state, are themselves a valuable in­dustrial energy commodity for both fuel and raw material applications. Although it is frequently used as an internal combustion or furnace fuel, natural gas usually is burned to raise steam, which is used in turn either for processing or for electricity generation. The production of electricity from natural gas, which accounted for at least an eighth of na· tional industrial consumption in 1958, is a four-step energy conversion process. The gas is burned under a boiler to produce steam, which drives a turbine. The turbine drives a generator, which produces electric energy. This is a fairly typical energy conversion process to the extent that it involves, in addition to any waste which may be in· curred, both thermal and mechanical losses of energy. Coal To a greater extent than either of the other major fos­sil fuels, coal is utilized in its "crude" form. The non· chemical processes of coal preparation, to which an in­creasing proportion of coal is subjected at the mine before able even to warrant an attempt to analyze the larger energy picture. It is even more difficult to collect and analyze energy consumption data for a subnational area, such as Texas. Within its limits however, this discussion attempts to reach some general co~clusions about the relative importance of industrial energy consumption in Texas since. 1939. An exhaustive study could develop data which would be much more reliable and comprehensive than that presented here. But this would require the development of an en· tirely original statistical base and would make correspond· ingly more difficult the problem of relating the conclusions to the national consumption patterns. In order to proceed from existing statistical bases which would allow some com- HOW INDUSTRY USES ENERGY * Energy Conversion Processes and Secondary Sources Primary Sources NONRENEWABLE Crude oil PETROLEUM Natural gos !,wet) COAL RENEWABLE FALLING WATER . . --CMechanical power{Gasolin:_r Internal combustion engine G t ·El 1 • 't enero or--... ec ric1 y Refining Fue·t oil-Boiler..,...... Steam -[Pree.essing .. Turbine -Generator -Electric1ty -[Mechanical power {Natural gos (dry)J{lnternol combustion engine G El · 't enerator­ eclr1c1 y Processing . Processing Natural gos liquids Boiler-Steam-r T b' G 1 El t · · 1'­ur 1ne--­enera or­ec r1e1 y Boiler-Steam -[ Proc~ssing .. Turbine-Generator-Electric1ty Coke ovens -[~0t" y Metallurgical and chemical processing o e-oven gos Turbine -Generator -Electricity . * This figure is intended to illustrate only the major industrial energy conversion processes. End uses of energy such as space heat· shipment, actually do not involve a conversion even of the sort that occurs in natural gas processing. The most common industrial applications of coal are the manufacture of coke and artificial gases and the pro· duction of process steam or steam to generate electricity. One of the principal secondary energy sources built on coal is coke, which is combined with limestone and iron ore in blast furnaces to produce metallic iron. Although the steel industry is experimenting with new methods of making steel , none has so far replaced the conventional blast fur­nace, with its heavy dependence on coke. The giant among coal users is the electric utility indus­try, which accounted for half of the industrial consumption of bituminous coal in 1960. The manufacture of coke and the generation of electricity together consume three-fourths of the coal used for industrial purposes. Industrial Energy Consumption: 1939-1958 As the growth of energy consumption has increased as competition among primary sources has become more' in· tense, and as speculation about declining resources of non­renewable energy has gained increasing attention, there have been numerous efforts to gather and study data on energy resources and consumption generally. Only recently have enough comprehensive, reliable data been avail­ ing and illumination, which are not peculiar to industry, are not necessarily reflected in this figure. parison of state and national figures, this study has had to confine itself to the industrial sectors represented by the manufacturing, minerals, and electric utility industries. United States censuses of manufacturing and of minerals industries for 1939, 1954, and 1958 have been used as the basic statistical sources. These have been supplemented, where necessary and feasible, by other sources. Data on the electric utility industry are based largely on those pub· lished by the Federal Power Commission, the Edison Elec­tric Institute, and the National Coal Association. Although the censuses of manufacturing and minerals for these years generally are comparable in their coverage of fuels and electric energy consumption, they contain some discrepancies. These have had to be overcome simply by attempting to maintain consistency in omissions. The figures for manufacturing and minerals, then, admittedly do not represent total energy consumption by these indus· trial sectors. The indicated energy consumption by elec· tri~ utilities also is somewhat understated, largely because of mco~plete_co~er?ge_ by the data reporting agencies. Despite thelf hm1tat10ns, these figures are believed to represent, if only roughly, relative orders of magnitude and relative rates of growth over the two decades ending with 1958. Two general points must be emphasized. The interest of TEXAS BUSINESS REVIEW TABLE 1 INDUSTRIAL ENERGY CONSUMPTION IN TEXAS, SELECTED YEARS, BY PRil\iARY SOURCE AND CONSUMPTION SECTOR (All quantities in thousands of barrels of crude oil equivalent) Fuels Hydropower Total Crude Petroleum Natural gas Coal Total fuels % of o/oof % of %of % of total total total total total Quantity energy Quantity energy Quantity energy Quantity energy Quantity energy Quantity 1939 Manufacturing Minerals E lectric utilities Total 10,520 469 10,989 15 9 60,645 35,978 11,031 107,654 84 99 96 90 682 62 744 71,847 36,509 11,031 119,387 100 100 96 100 408 408 4 71,847 36,509 11,438 119,794 1954 Manufacturing Minerals Electric utilities Total 15,034 1,445 16,479 11 2 118,759 74,164 46,617 239,540 86 98 97 92 3,686 4 3,690 137,479 75,613 46,617 259,709 100 100 97 99 1,340 1,342 3 137,479 75,613 47,957 261,049 1958 Manufactur ing Minerals Electric utilities Total 17,402 1,697 85 19,184 11 2 6 138,221 80,874 62,993 282,088 87 98 96 92 3,740 13 3,753 2 159,363 82,584 63,078 305,025 100 100 96 99 2,474 2,474 4 159,363 82,584 65,552 307,499 this survey is in tracing to their primary sources the known quantities of energy actually consumed by industrial users. The question of efficiency of utilization, as it is related to the performance of useful work, arises only in the case of hydropower, as explained below. The two basic tabulations, therefore, do not reflect the actual form in which the energy is consumed, except of course for hydropower. All energy consumption attributed in these tabulations to falling wa­ter was consumed as electricity. The unit selected for representing energy consumption is a barrel of crude oil. The commonly used unit for ex­pressing the heat valve of fuels is the Btu (British thermal unit). Not only is the Btu a very small unit, (a bar­rel of crude contains 5.8 million Btu), but it is also an ab­straction which is difficult to grasp. Electric energy is commonly measured in kwh (kilowatt­hours) . The direct conversion of 1 kwh to its thermal equivalent, 3,412 Btu, is misleading for one reason and erroneous for another. It is misleading because it suggests that all fuels always are converted to electricity at the same heat rate-that is, at the same rate of efficiency. Actually, not only do heat rates vary from fuel to fuel at any one time, but the efficiency with which any one fuel can be con­verted to electricity also changes over time. For fuel-electric power generation, then, the figures in the primary source columns represent the actual (crude­equivalent) quantities of each fuel which were used to gen­erate the electricity produced during that year. Hydropower has been treated as if the same amount of power had been generated thermally. To do otherwise would be to understate the relative importance of hydro­power, by implicity assuming 100% conversion effi­ciency (3,412 Btu = 1 kwh) and, therefore, much lower equivalent fuel consumption than in prevailing fuel-electric generation experience. For the national figures, the con­versions to crude-equivalent have been made on the basis of the prevailing heat rates for coal, since coal was the leading source of thermally-generated electricity during each of these years. The Texas hydroelectric figures have been converted on the basis of the prevailing heat rates for natural gas, the overwhelmingly dominant fuel. Table 1, covering 1939, 1954, and 1958, breaks down energy use in Texas by consumption sector and primary sources. Table 2 does the same thing for the United States. The total industrial con;:.umption figure for Texas represents an increase of about 157~ ·( owr the 1939 fig·ure, compared to national growth during the same period of ap· proximately 86%. The 1939 to 1954 increase amounted for Texas to 118% and for the United States to 67Sc. The gen­eral decline in industrial activity in 1958 is reflected in the relatively small rate of increase of industrial energy con­sumption between 1954 and 1958 in both Texas and the nation. This declining rate al5o may reflect similar trends in the demand for individual energy materials, although the overall level of annual energy consumption growth re· mains fairly constant. The figures for Texas and the United States increased by about 18% and 11'ji:, respeetiYely, du r­ing the four years ending with 1958. The average annual rates of increase remained fairly constant throughout the 19 years except during the period 1954-1958. These amounted to a little more than 5';( for Texas and something o\·er 3'/c for the United States during each of the two periods 1939-1954 and 1939-1958. The average rates of increase between 1954 and 1958 were something OYCr 4% for Texas and 2% for the nation as a whole. One of the most striking features of both tables is the consistency with which they reflect the general patterns of consumption of primary energy sources. The growth of energy consumption from crude petroleum almost doubled during the 19 years in both Texas and the nation. But this o\·er-all rate of growth is not much different from that of total industrial energy consumption, reflecting the leveling influence on oil's growth of competition from natural gas and coal. Coal consumption by Texas industry has neYer been any more significant than hydropower use, although energy consumption from both of these sources has in­creased about six times since 19.39. Coal con;;umption in the l'nited States industrial sector has remained remarkably constant, representing comist­ ently about 50/c, of the total industrial energy consump­tion. I\ot reflected directly in these figures is the intensiYe struggle begun by coal in the late forties to make up rnme of the ground it had lost to oil and natural gas. The success of this struggle is borne out by the failure of other energy TABLE 2 INDUSTRIAL ENERGY CONSUMPTION IN THE UNITED STATES, SELECTED YEARS, BY PRIMARY SOURCE AND CONSUMPTION SECTOR (All quantities In thousands of barrels of crude oil equivalent) Fuels Hydropower Total Crude Petroleum Natural gas Coal Total fuels Quantity %of total energy Quantity %of total energy Quantity %of total energy Quantity % of total energy Quantity %of total enera-Y Quantity 1989 Manufacturing Minerala Electric utilities Total 105,151} 139,775 18,510 263,436 25 4 19 114,279} 87,268 88,704 235,251 20 9 17 511,437} 82,107 201,816 744,860 55 52 58 730,867} 259,150 253,580 1,248,547 99 65 89 12,857 135,713 148,570 35 11 1,002,874 889,248 1,892,117 1954 Manufacturing Minerals Electric utilities Total 17,520 200,384} 72,085 289,989 17 7 12 225,831} 166,246 207,976 599,553 31 20 26 12,661 6n,435} 585,100 1,190,196 52 50 51 19&,427 1,068,150} 815,161 2,079,788 99 77 89 10,226 239,528 249,754 23 11 1,274,803 1,054,689 2,829,492 1958 Manufacturing Minerals Electric utilities Total 251,448} 1&,116 83,881 351,446 21 6 13 237,187} 177,879 244,977 669,993 33 19 26 579,257} 10,708 &98,140 1,288,105 46 53 50 204,708 1,067,842} 1,026,998 2,299,543 99 78 89 6,815 285,085 291,900 22 11 1,279,860 1,312,088 2,591,'43 sources to erode coal's half of the industrial market, de­spite the fact that the coal industry had not on!)'. to.reco~er lost ground but also to bring its growth at lea~t rn lme with general energy growth. The sin~le greatest tnumph of coal in the natural market has been its capture of a sizable sec­tor of the electric utility demand for energy. More than two-thirds of the absolute increase since 193~ in energy consumed by electric utilities in 1958 was supplied by coal. Even more remarkable nationally is the growth of nat· ural gas, which began with only 17% . of the industrial market in 1939. By 1958 its shar~ had increased ~y half, to 26%. In absolute terms, industnal ga~ consumpt10n had increased more than two and a half times by 1958, far more than any other primary energy source. Absolute co?· sumption of natural gas in Texa~, where t~e ready _avail­ability and low price of gas stimulate d1sprop.ort10nate growth also increased more than two and a half times dur­ing the' 19 years, although the percentage share _increased very little. Relatively, howev~r, nat~ral ~as do~mated the Texas industrial market dunng this entHe penod, repre­senting from 90% to 92% of all industrial energy con­sumption. Perhaps the most striking single characteristic of both of these tables is a function of economic and physical geography: the overwhelming dominance of the mineral fuels and the consequently minor role of water power. Hy­dropower always has been a negligible source of energy in Texas, which possesses few significant hydroelectric sites. But even nationally hydropower has managed over these years to do no more than hold its own at roughly a tenth of total energy consumed. That it has been able to do as well as it has probably is attributable largely to the heavy non­private investment in hydro plants and the fact that hydro projects usually represent only one justification for a water-resources development. Texas industrial energy consumption represented 11.9%, almost an eighth, of the national total in 1958. The state share of the national total had increased from 8.6% in 1939 and 11.2% in 1951. Table 3 illustrates per capita in­dustrial energy consumption in Texas and the United States for each of three years. The disproportionate share of Texas probably is accounted for principally by its abun­dant resources of two of the four primary energy sources, and by the effect of this abundance on both actual and po­tential industrial consumers. Future Industrial Demand Including offshore reserves, Texas owns about 47% ?f the estimated proved United States reserves of crude 011, 45%of the natural gas, and 53 %of the natural gas liqui~s. Industrial fuel demands on refined products probably will remain modest. Although natural gas will continue its rise everywhere rapidly increasing consumption should be off· set for ma;y years by the consequently intensified search for new reserves. General industrial consumption of natural gas will increase throughout the nation and continue its dominance in Texas. An estimated 830 billion tons of coal-perhaps 250 years' supply at 1960 use rates--are recoverable at curr~nt levels. The effect of rapidly declining reserves of cokmg coal should be offset by improvements in steel-makin? which reduce the unit consumption of coke. Coal's domi­nance of the national electric utility market should parallel the growth of electric power production. No immediately foreseeable developments will make Texas coal resources (representing less than 1% of the national total) valuable for any but highly specialized or small-scale use. Although at least 75% of the hydropower resources of the United States and almost 80% of those in Texas re­main undeveloped, the continued abundance and economic desirability of coal nationally and natural gas in Texas should handle easily the rapidly growing fuel requirements of electricity generation. Hydropower will continue to be developed, for other reasons, but water will remain a rela­tively unimportant source of primary energy. TABLE 3 PER CAPITA CONSUMPTION OF INDUSTRIAL ENERGY (Barrels of crude oil equivalent) Texas United States 1939 1964 1968 18.9 80.9 33.0 10.6 14.5 15.0 The Changing Role of the Texas Cow by JAMES D. GORDON HISTORICALLY, TEXAS HAS BEEN THE CHIEF PROVIDER OF the raw material for the nation's beef industry. For a solid century, more beef cattle have been born and bred in this state than in any other. Yet when served a good sirloin, few people think of Texas as having been responsible. Rather, it has typically been Iowa, Kansas, or Nebraska which passes through the consumer's mind when digesting a choice bite of beef. The reason is relatively simple. While Texas has long been acclaimed for its enormous herds of cattle, the steers that come off its plains are seldom con­verted directly into steak. The standard procedure has been to ship the young stock north, to the Midwest, for a period of heavy feeding. From the Cornbelt feed lots, the cattle are herded to nearby packing plants and soon reappear in various cuts on meat counters across the nation. The point the consumer probably remembers is that the bulk was added in the Cornbelt and not that the creature might well have been a native of Texas. This meat-making process evolved in response to various unique features prevalent in both the Southwest and in the Midwest. Texas is a natural locale for raising cattle. It con­tains those characteristics which were traditionally con­sidered prerequisite-vast, open ranges-and, in addition, the existence of good grasses and mild climate which are the important requirements of today's cattle industry. For the Texas cattleman, grass remains a most valuable and in­dispensable natural resources. Its quantity and quality are vital to the maintenance of breeding stock. Obviously, mild winters are to the breeder's advantage since his cattle can be pastured for a longer period of time than otherwise. This in turn helps minimize annual expenses. For these rea­sons, Texas assumed the role of a cattle breeder. On the other hand, the midwestern states have, at least in the past, been the logical center of beef feeding. Iowa, Kansas, and Nebraska comprise the cob of the Cornbelt. Jointly, these and four other midwestern states produce more than two-thirds of this country's corn, and corn has long been the main course at feed lots. There were addi­tional, supporting factors which contributed to the de­sirablity of the Midwest as this nation's feed zone. As any plant locator well knows, facilities must be within a rea­sonable proximity of major markets. The market for meat was, during the earlier part of this century, more highly concentrated in the north and northeast. Again, this process of shipping cattle north for feeding originated prior to the turn of the century, a time at which virtually all of the meat packing and supporting industries were clustered around either Chicago, Kansas City, or sev­eral other rail junctions in that area. While markets and facilities have been radically altered since that time, the system has been slow to respond. But current conditions indicate that the revision may be hastened in the nE'xt sev­eral years. This prospect has particular significance for Texas. For those whose only contact with beef is oral, a word is due with regard to the activitiE's of a cattle feeding op­eration. Typically, the operator will purchase calves at weaning, directly off their mothers. For good beef animals, this means about 450 to 500 pounds. The animals are then put on a formulated diet, the composition of which rnries with practically every feed lot. It is, however, general prac-tice to begin the cattle on a relatively week ration, ?ne with a small portion of grain, and then to strengthen ~t as the animals become accustomed to the feed lot routme. The duration of the feeding period is, like the ration, a mat_ter of discretion. Many calves are fed for 90 to 120 days, wh~ch is about the minimum time requirement. Others, dependmg upon buyers' preferences, may be fed for as many as 200 days to bring the animals t? ove~ 1,00? pounds at a grad_e of top Good or Choice. Dunng th1~ penod, the average am­mal will consume over a ton of gram. Feeding is a capital-heavy operation, both 'Yi.t~ regard to the animals required and the necessary fac1hties. Fur­ther, it demands constant attention to health. Many of the larger lots in the state mainta_in the equ_ivalent of a small hospital to insure the well-bemg of theu occupant~-_ One such lot reports that each animal _is given .t~anqmhzers, vaccinated for everything from rhmotrache1tls to hemor­rhagic septicemia, and then receives a phenothiazine bolus. TABLE 1 THE TOP TEN STATES RANKED BY TOTAL BEEF CATTLE POPULATION, JANUARY 1 1962 Beef cattle population State (in thousands) TEXAS 8,712 Iowa 5,250 Nebraska 4,911 Kansas 4,300 Oklahoma 3,230 Missouri 3,195 South Dakota 3,053 California 2,836 Illinois 2,829 Colorado 2,130 Source: U. S. Department of Agriculture. Breeding vs Feeding Texas has long fallen into the category of a cattle breed­ing state. This is to say that a large portion of its total cattle population is comprised of brood cows, whereas the chief feeding states have a relatively small proportion of female bovines. Of the nation's top ten cattle states, Texas ranks first in total numbers as seen in Table 1. More sig­nificantly, however, Texas has the greatest proportion of brood cows-currently about 52%. This is indicated in Table 2. Only neighboring Oklahoma nears this propor­tion. With the smallest relative number of cows are Iowa, Kansas, Nebraska, Illinois, Missouri, and California. These are the feeding states where the bulk of the cattle popula­tion is composed of calves or yearlings. Almost one out of five of this nation's beef cows resides in Texas. Of the beef cattle on feed, however, Texas sup­ports less than one out of twenty. Some of the underlying factors have been discussed. Table 3 ranks the ten most populous beef cattle states by the number of animals each has on feed. In this category, Texas slips well down the list. Of the nearly nine million head of beef cattle inhabit­ing the state, only 4% are on feed. At the other extreme is Iowa where almost 30% of the total population are being fattened. Texas Turns to Feeding Texas has slowly assumed the more important ch~rac­teristics of a cattle fattening state. Here are now provided in bulk the two chief components of a feeding operation, feeder cattle and feed grains. For a full century, th~ huge Texas beef cattle population has undergon~ a contmuous though rather spasmodic process of upgradmg: The cattle currently populating Texas pastures have little resem· blence to those creatures of a century ago. The calves now produced are much better equipped to convert grain to meat. No longer does the quality of Texas cattle lag behind that of the animals bred in the north or east of the nation. Yet the greatest contribution to feeding potential stems from the vast supply of feed grains presently available in TABLE 2 THE TOP TEN BEEF CATTLE STATES RANKED BY NUMBER OF BEEF COWS, JANUARY 1, 1962 Beef cows Beef cows as percent of State (in thousands) total population TEXAS 4,496 52 Oklahoma 1,622 50 Nebraska 1,569 32 Kansas 1,383 32 South Dakota 1,327 43 Missouri 1,240 39 Iowa 1.028 19 California 858 30 Colorado 803 38 Illinois 695 25 Source: U. S. Department of Agriculture. the state. While further north corn stands as the predomi­nant feed grain, in Texas it is for the most part grain sorghums that are produced and fed in the greatest quan­tities. Corn and sorghum relate very closely with regard to feeding value. Feeding tests at experiment stations have established that sorghums are at least 95% as efficient as corn when used to fatten beef cattle. Today, Texas has assumed a more prominent position in grain sorghum that Iowa has in corn. Over the past half century Texas has increased by more than 30 times its an­nual harvest of sorghums and now produces a full one half of the nation's total. Only one out of five bushels of corn comes from Iowa. The sorghum explosion within the state has been stimulated by huge increases in both the number of acres sown and by the yields of each acre. At the be­ginning of the century, sorghum stood with Irish potatoes well down the list of crops popular with farmers. Now, interestingly enough, grain sorghums rank number one in Texas with regard to the acreage allotted to pro­duction, a position held for many decades by cotton. At least as spectacular has been the phenomenal increase in yields, which have soared from an average of less than 20 bushels per acre to the current figure of 45 bushels. TEXAS BUSINESS REVIEW It appears only logical that grain sorghum will con­tinue to be a highly important crop for Texas farmers, particularly when consideration is given the acreage re­strictions on other long-popular commodities and also to the inevitable increase in demand for home-grown heavy beef. There is yet another important factor which is inducing feed lot activity in Texas. This is the expanded capacity and changing nature of the state's slaughter and packing house industry. The 1936 edition of the Directory of Texas Manufacturers reported a total of 50 such enterprises at the end of that year. The 1962 edition of this publication indicates that this number has risen over 400% to 257. Moreover, the individual facilities now in operation are on the average several times as large as those of 25 years ago. Of the plants now in operation, 37 employ 100 or more persons. In addition to the quantitative expansion, the industry TABLE 3 THE TOP TEN BEEF CATTLE STATES RANKED BY NUMBER OF CATTLE ON FEED, JANUARY 1, 1962 Cattle on feed Cattle on feed as percent State (in thousands) of total population Iowa 1,525 29 Nebraska 845 17 California 776 27 Illinois 729 26 Colorado 397 19 Kansas 347 8 South Dakota 325 10 TEXAS 323 4 Missouri 255 8 Oklahoma 86 3 Source: U. S. Department of Agriculture. is experiencing a shift in its geographical distribution. This transition is generally toward decentralization. Pack­ers are finding it expedient to locate as close as possible to the source of their raw material, in this case feed lots. This factor was responsible at least in part for the decision of Armour & Company to close its Fort Worth plant. On the positive side, numerous smaller plants have initiated opera­tions in the High Plains and along the Gulf Coast where, it will be noted, exists the great bulk of the state's feed lot capacity. Finally, feeders frequently note the desirability of a rela­tively dry climate. A continually muddy feed lot is de­testable even to cattle. Moreover, the emphasis upon sani­tation in most modern lots makes such a condition intol­erable. The existence of the aforementioned characteristics has already begun to stimulate feed lot activity in Texas. Dur­ing the past six years, the number of lots with capacity in excess of 1,000 head has more than doubled. More sig­nificantly, the rate of increase is being accelerated. The following data indicate the recent growth pattern in feed lots of this size. Of the 323,000 head of cattle on feed in Texas, the 145 lots of 1,000 head or more capacity account for 267,000 head, or more than 80% of the total. Certainly, cattle feed­ing is conducive to large scale operations. For example, ef. ficient feeding requires specialists in areas such as grading, nutrition, animal health, and marketing. In a relatively small operation, this array of talents is frequently incom­plete. There are, nonetheless, a significant number of farm· ers and ranchers who annually profit by fattening a few well-chosen calves. Within the last year, feeders with less than a 1,000 head capacity increased their volume by 12%, while larger feeders expanded operations some 30%. Within the State The factors conducive to cattle feeding have been enum­erated, and it has been suggested that they are prevalent within Texas. However, these features are not evenly allo- TABLE 4 TEXAS FEED LOTS WITH CAPACITY IN EXCESS OF 1,000 HEAD Year Number 1955 61 1956 63 1957 71 1958 81 1959 94 1960 102 1961 124 1962 145 Source: U. S. Department of Agriculture. cated throughout the state. As a consequence, feeding en­terprises are heavily concentrated in certain sectors. More­over, this concentration is more likely to grow than to di­minish. From all indications, the predominant consideration in determining the site for the individual feed lot has been the existence of a sufficiently great supply of feed grains. As previously discussed, feed grains include corn, oats, barley, and grain sorghums, the latter being most popular with Texas feeders. An analysis reveals that in those re­gions of the state where there is a conspicuous lack of grain sorghums, feed lot activity is insignificant. The reverse is particularly evident. To illustrate, the Panhandle-High Plains region has, with the aid of irrigation, become one of the nation's principal sorghum producers. Within this region, a handful of counties yield just under three quar­ters of the state total. In response, numerous enterprising cattlemen have initiated feeding operations in close prox­imity to this important source. With Lubbock as its hub, the High Plains feed lot con­centration has more than doubled its volume during the past six years to become by far the most productiYe calf fattening region within the boundaries of the state. Typical in most respects save size is Lubbock's Lewter Feed Lot. The biggest in the state and one of the very largest in the nation, this operation spreads over a solid 160 acres and CATTLE ON FEED BY. AREAS, JANUARY 1, 1962 In Thousands· of Head is built to accommodate 25,000 head of cattle at any given time. From this lot alone come more tons of fattened beef each year than from the entire Trans-Pecos or Edwards I'lateau-Lowrr Plains regions. Yet this is just one of nearly fifty feed lots with a capacity in excess of 1,000 head re­siding within this region. Together, they contribute a third of the fattened beef fed in Texas. Almost as active has been feeding in the Gulf Coast re­gion, as indicated on the accompanying map. It goes with­out saying that in the Houston Metropolitan Area there exists two fundamental factors important in locating any nondurable consumer goods industry. These are simply people and money. Certainly, these factors have helped to induce feeding operations throughout the entire Gulf Coast area. As previously implied, however, this is not a suffi­cient basis upon which to build an extensive feeding op­eration. Fortunately, in the Gulf Coast region the additional prrrequisitcs are also satisfied. While far behind the High Plains. this area running from Houston to Corpus Christi provides an abundant supply of grain sorghums. More­over, this is supplemented by a relatively heavy output of corn hoth in the coastal plains and in adjoining areas. Undouhtedly the grratest single attraction to the Gulf Coast has been the incredibly large number of cattle ac­l ually rl'Si(ling in the counties comprising this region. Harris and Kleberg counties together have some 30,000 mon~ calllc than the entire Trans-Pecos region. At present, the Texas Gulf Coast: supports the nation's greatest single aggregation of beef cattle. Finally, this region which extends from the Gulf west­ward through San Antonio has assumed the lead insofar as packing house activity is concerned. This is a title for which it competes with the northwestern region outlined on the map containing Dallas and Fort Worth. Together, these two areas include the great majority of the state's larger meat packing plants. The same factors considered in the foregoing have de­termined the volume of feeding in the four remaining re­gions detailed on the map. Ranked by total number of cat­tle on feed they are South Texas, Northeast Texas, West Texas, and Central Texas. With regard to the locations of the larger feed lots ( 1,000 or more head capacity) the trends are generally the same. Of the 82 such lots established during the past seven years, 25 were located in the High Plains, 18 in Northeast Texas, 17 in South Texas, 16 in the Gulf Coast, 6 in the Edwards Plateau-Low Plains, and none in Trans­Pecos. Obviously, any divergence between the relationship of these figures and those for total number of cattle on feed indicates differences in the average size of the lots in each region. A Forecast It would seem incredible if the Texas cattle feeding in­dustry did not continue its current growth pattern. There still remains a huge deficiency in the number of fattened cattle produced in the state. It was recently estimated that well over three-quarters of all heavy beef eaten in Texas is shipped in from out of state. Yet the components neces­sary for extending feed lot operations are in abundance. Every year, many thousands of beef calves leave Texas for California, Arizona, Kansas, and Colorado to be fed, slaughtered, and returned. Likewise, there can be no ques­tion as to the adequacy of feed grains or markets. These factors will almost assuredly help in the future to main­tain a prominent position for the cattle industry in the state's economy- THE EUROPEAN UNIFICATION MOVEMENT By Andreas S. Gerakis EUROPE HAS LONG SUFFERED BECAUSE OF THE FACT THAT she has been carved up into an unreasonably large number of states. This has not only led to wars; it has also resulted in economic inefficiency. For, in the past, each European country yielded to the temptation of raising tariffs against goods produced in other European countries. The conse­quence was that the industries of Europe were confined to abnormally small markets and thus deprived of the oppor­tunity to operate on a large scale and achieve the econ­omies of mass production. Proposals for the unification of Europe, political and economic, can be traced far back in history. But, as recently as the 1930's, such proposals were commonly considered as utopian dreams in the light of hard realities as, for ex­ample, the mutual hatred between the French and the Ger­mans. However, feelings on this subject have changed dramatically since World War II. The Europeans appear to have buried their past differences. They now look upon European unity as the means toward a brighter cultural and economic future. United they hope to become once again a great power almost the equal of today's giants, the United States and Russia. There has been little progress so far on political integra­tion. It is hoped, however, that political unification will prove the natural consequence of economic integration. Efforts to achieve the latter have already scored consider­able successes, the most striking of which has been the for­mation of the European Economic Community, better known as the Common Market. But there have also been great disappointments. The original expectation was that all the western European nations would join a customs area. It turned out, however, that two customs areas were formed, the Common Market and the British-led Free Trade Area. For a while it looked as though Europe would be split economically and even politically. But now Britain and some of her Free Trade Area partners, as well as a number of other European nations, have asked or will probably ask to associate themselves with the Common Market. In all likelihood their requests will be granted and soon Europe will become one vast unified market like the United States. What is this European Economic Community which is thus in the process of spreading throughout free Europe? It is, for the time being, an agreement between six countries-France, Western Germany, Italy, Belgium, Luxemburg and the Netherlands. Perhaps the principal provision of the agreement is that the nations will elimi­nate tariffs and other trade restrictions among themselves. They will, furthermore, levy the same tariffs on goods im· ported by them from outside countries. These "common ex­ternal tariffs" will be an average of the tariffs of the six members before the Common Market was formed back in 1957. There are some other features of the Common Mar­ket which are worthy of note. One, the six member nations will establish a common policy for their agriculture--one of controls, subsidies, and protection for the farmers. Two, the members will abolish restrictions on movements of capital, labor, and business firms within their area. Three, they will take measures to accelerate the development of the backward regions within their own borders or in their colonies and associated territories overseas. Four, they will prohibit monopolistic arrangements by their industries unless such devices are necessary to ensure economic progress. Five, they will coordinate their social, monetary, and fiscal policies in order to achieve equilibrium in their international balance of payments, price stability, high IMPORTANT STATISTICS ON O.E.E.C. COUNTRIES Countries Common Market Belgium-Luxembourg France Germany lta.ly Netherlands Total Common Market F .. ee Trade Area Austria Denmark Norway Portugal Sweden Switzerland United Kingdom Total Free Trade Area. Other 0. E. E. C. Greece Iceland Ireland Turkey Total Other O.E.E.C. Tota.I O.E.E.C. 1960 1959 GNP GNP growth rate Population (U.S. dolls.rs, 1958-1959 (thousands) billions) <% .. yea.r) 9,467 11.5 %.5 45,543 52.1 4.2 53,373 60.1 6.9 49,259 28.4 6.8 11,480 10.2 4.6 169,122 162.3 5.2 7,081 6.2 8.5 4,581 5.6 3.2 3,587 4.2 2.9 9,124 2.1 4.1 7,480 11.8 3.8 5,298 7.9 5.0 52,539 66.9 %.5 89,690 103.1 u 8,827 8.1 6.0 176 .1 5.5 2,834 1.7 .8 27,829 5.2 8.9 39,166 10.1 4.2 297,978 275.5 4.5 1960 United States Exports to Imports from (U.S. dolls.rs, millions) 392.8 866.9 744.8 395.7 1,423.1 897.1 671.7 388.7 599.3 183.0 8,831. 7 2,231.4 104.0 49.4 176.8 105.1 122.5 59.9 40.1 36.5 864.6 909.5 253.9 164.1 1,589.1 187.8 2,651.0 1,512.3 94.8 27.3 12.8 9.4 52.7 31.1 120.5 58.5 280.3 126.3 6,763.0 3,870.0 Sources: Internationa.l Monetary Fund and Organization for European Economic Cooperation. employment levels, and rising living standards. Last, they will, or rather already have, set up a Social Fund to help relieve injuries to workers caused by the trade liberaliza­tion measurrs which will be taken under the terms of the Common Market Agreement. How will the Common Market-and its expansion-af­fect U. S. intnests? Taking a long range view, the author believes that America will benefit greatly. The economic progress which has resulted and will continue to result from the unification movement will enable the Europeans to buy larger quantities of U. S. products and to become more efficient suppliers of the goods America imports. If, as is hoped, political intrgration follows on the steps of economic unification, a new state will be formed with a population of as much as 300 million and a gross national product of over $275 billion. In other words, this new state would be more powerful than the Soviet Union. No doubt the fact that such a nation would take the place of the divided and often feuding present-day European coun­tries could very well tilt the balance of power against com­munism. In the short run, however, European unification poses certain serious problrms for the United States. First, it will bring stiffer competition to American in­dustry. Business firms in Europe will be able to expand their operations, achieve economies of scale and cut their prices. They will become, therefore, formidable competi­tors in all world markets. This will be especially true in Europe itself, where the European businessman will enjoy, as compared with outsiders, the additional advantage of tariff protection. Thus, for instance, when the Common Markl't treaty is fully implemented, the German will ex­port his goods to Italy free of duty, while U. S. firms com­pct ing with him will have to pay the "common external tarilT" of the European customs area. It is obvious that this intensified foreign competition calls for redoubled efforts to increase the productivity of the American econ­omy and for rrstraint on the part of both manao-ement and labor in this country with respect to salaries ~ages and profit margins. ' ' . Sccon~, because of the unification movement, Europe is attrartmg much capital from the United States. Amer­i<"an businessmen are increasing investments there in an effort to gc·t behind that all-important external tariff. These invcstmrnts, of course, aggravate the current U. S. balance of. paymC'nts. problem. Moreover, the fact that they are h1·111g made rn Europe rather than here means that Amer­in111 job opportuniti es are being exported. Third, th<· information and the extC'nsion of the Common Market n?('('~sit~t:-a th~rough overhauling of present U. S. commcn:ial pol1c1es. It is m.ost essen tial that the Europeans he co~vrncrd to lower their common external tariffs on Am"ncan g?ock To do so, however, they will naturally c~·mand equ1v~l:-nt c?nc:cssions in rrturn. That is why the ~<'~1111..dv .admm1strat10n has asked Con?rcss for sweeping tariff-( utl111g powers. No doubt the tariff reductions con­~cm1~ latC'd will hurt certain U. S. protected import-compet­1~1g rndustries, like cameras or watches. The Administra­tion. th'.'rrforc-, .is also asking for legislation that would enable .1t to a%1st the movement of resources from such rndustncs to more viable ones. The new ~cnncdy program has already become the cen­ter of a maior debate. Many oppose it with the obvious argument that it will cost numerous Americans their jobs. 140 But what if Congress should reject the Admi~istration's plans for a lowering of tariff walls on both sides of the Atlantic? In the first place, such a protectionist course will more likely harm rather than safeguard the interests of the Amer­ican wage earner. To be sure, tariffs over here will, for a while at least, save the jobs of workers employed in the watch, camera and other protected industries. But, if U. S. tariffs remain unchanged, the "common external tariffs" across the Atlantic will also be maintained intact. If so, TJ. S. exports to the European countries would be hurt. It should be noted that American exports to Europe sub. stantially exceed imports therefrom. Furthermore, it should be pointed out that, because of their remarkable growth rate, the European nations could very well prove a rapidly expanding market for the American exporter-provided, of course, their external tariff is reduced appreciably. There is every reason to believe, therefore, that a pro­tectionist policy would result in more jobs lost in this coun­try's export industries than saved in its sheltered import­competing sectors. Protectionism, secondly, would entail the misallocation of the productive resources of the United States. For it would penalize the efficient, dynamic sectors of the coun­try's economy in order to subsidize its inefficient industries -those which cannot stand on their feet without the crutches of tariff support. Thirdly, protectionism would obviously harm the much­neglected American consumer, obliging him to continue purchasing expensive goods made in the United States rather than the cheaper products manufactured in Europe. Finally, it should be realized that imports of inexpensive foreign goods help keep the domestic price level in check. A policy of shutting out such foreign competition would, ?o~sequently, deprive t~is country of a sorely needed ally m 1ts struggle to control mflation. ESTIMATED VALUE OF BUILDING AUTHORIZED Source: Bureau of Business Research in cooperation with the Bureau of the Census, U. S. Department of Commerce Percent change Apr 1962 Apr 1962 Jan-Apr 1962 (thousands from fromClassification of dollars) Mar 1962 Jan-Apr 1961 ALL PERMITS ----oooo•-oooo··---00·$123,120 -16 + 18 New construction ----oooo•-----·------oo·----00 00----109,527 -17 + 21 Residential (housekeeping) oo•----0000• 76,507 -3 + 29 One-family dwellings 000000----00------00 59,448 -7 + 18 Multiple-family dwellings ··oo••oo·---17,059 + 17 +119 Nonresidential buildings -------0000•--oo oo•-33,020 -39 + 10 Nonhousekeeping buildings (residential) ·-------·-·-----0000·-----oo---· 2,066 + 78 -15 Amusement buildings ·-------·------0000• 121 -86 5 Churches ---·-oo·--------·-·-----·-oo·----··oooo•---· 3,060 -40 + 27 Industrial buildings -----·-oooo·-----0000·-­1,956 -66 + 8& Garages (commercial and private) 0000-------000000----00·-oo----· 448 -17 + 5 Service stations ----·----------·····-------····· 1,638 + 79 + 66 Hospitals and institutions ........... . 1,676 -62 -29 Office-bank buildings oo·--------0000·--·­S,209 -38 +102 W orks and utilities ... -------··oooo·---oo· 4,282 + 39 •• -12 - Educational buildings 00---··-oooooo•oo·­4,494 70 ­ Stores and mercantile buildings •oo·----------------oo··--------0000•---7,616 -19 8 0ther buildings and structures 00 2,454 5 8 Additions, alterations, and repairs __ 13,593 -1 3 **Change is less than on....half of one percent. TEXAS BUSINESS REVIEW Part II of a Legal Review Governmental Construction Projects in Texas by JACK W. LEDBETTER Attorney At Law, Assistant Professor of Business Law The University of Texas It is a well established principle of law that no person may obtain a lien or hold over property owned by the state or federal governments or their respective agencies. Be­cause of this, the powerful and effective state lien laws offer no protection for the contractor, supplier, or worker involved in a governmental construction job. If the prime contractor on a private project fails to pay his just obliga· tions, the title to the land and the improvements may be clouded with a lien and possibly taken from the owner. The unpaid claimant is thus afforded a strong legal "club" to in· sure settlement or the establishment of proper bonds to protect his rights. On the other hand, since the claimant on a public project cannot establish any cloud or lien upon governmental structures or land, he is limited to a right of action against the defaulting contractor. Such right is frequently useless. To encourage artisans and contractors to contract for the construction and repair of governmental properties, and to extend to the worker and supplier on governmental and state jobs some measure of protection similar to that afforded by the mechanics' and material. men's lien laws for private projects, both the state of Texas and the United States government have enacted special legislation. The Texas law, as recently rewritten and im· proved in 1959, is commonly referred to as the McGregor Act (Arts. 5160 and 5472a, Revised Civil Statutes of Texas) . The United States law is commonly referred to as the Miller Act ( 40 U.S.C. sec. 270). The McGregor Act (a) Contract price less than $2,000 Any person or organization furnishing supplies, ma· terial, or labor to any contractor under a prime contract where the total construction contracted price does not ex­ceed $2,000 is given a lien against all money, bonds, or warrants due to the contractor if certain requirements are met. These requirements are strict and exacting, and nothing less than full compliance will suffice. First, the lien on the money, bonds, or warrants will apply only to money, bonds, or warrants not yet delivered to the contractor at the time notice is given to the appropri­ate state or agency authority. Second, the notice, to be effective, must be in writing and must be accompanied by a statement under oath stating the amount claimed, all the details of the transaction, and identifying the material or labor involved. Criminal penalties may be imposed for a false or fraudulent notice or statement. Third, the notice in any event must be given by certified or registered mail to the proper governmental officiaL with a carbon copy to the contractor, within 30 days after the 10th day of the month next following each month in which labor, material, or services were performed. Each month requires a new notification. The statute permits the prime contractor and the state or other agency to avoid any difficulty in these matters through purchase of a surety bond by the prime contractor. The bond protects the sub-contractors and others, and the state can pay the prime contractor with the assurance that the subcontractor will be paid. It should be noted that the substitute of a surety bond for the contractor does not alter the basic rules for notice and that the claiming parties must still exercise extreme care to make the proper notices. A failure in this respect will cause the lien on the bond to be lost. (b) Contract price greater than $2,000 When a prime contractor enters into a formal contract with the state of Texas, any state department or agency, or any local or other governmental body where the total con· tract price exceeds $2,000, he is required by law to furnish two bonds, each for the amount of the contract, before com· mencing work. The first bond, called the "Performance Bond," is con· ditioned upon faithful performance of the contract in ac· cordance with the plans and specification~. The purpose of this bond is to protect the state or other gowrnmental activities from loss in the event the contractor cannot or does not carry the project to proper completion. No special reports, notices, or actions are required in connection with the performance bond. The second bond, known as the "Payment Bond," is solely for the protection of those proYiding labor. materials, and services for the project. It is this latter bond which concerns the worker, the supplier, and others haYing con· tractual relations with the construction or project. As with the private construction lien laws, the rules con­cerning the Payment Bond are strict and exacting.To claim a share of the bond proceeds, a claimant must comply fully with each ddail. A dPlay or omission at any p~inL will be fatal, and the law books arc fillPd wi~h ill11,tratwns of loss due to inad\Trtancc or misunderstanding. The unpaid worker, supplier ~r subco~1trac~or estab­lishes his lien rights by presentat10n of his claui: _to the bonding company and to ~he prii:ie contractor: Add1t10nally he mav he rcquirrd to give notice to othe~s mvolv~d. T~e statul!:S set forth in detail the informat10n . reqmred m each in::,tance and it is imperative that each i~em of ~ata he furnished. The statutes also set forth the time penods within whirh the claim and notices must be made and these likewise mu~t be met exactly. A claim received one d~y late is lost! Without attempting to give the exact details for !'Uch instanc!', some broad discussion may be helpful in illustrating these r!'quir!'mcnts. . If orH' pt•rforms lahor or furnishes materials to a pnme ('ontractor on a governmental project other than fe?eral with no agreement for delay in payment, to establish_ a claim aen received. Although the statute is not clear, it appears that the delivery of th('se notices docs not eliminate the 90-day claim and notice re­rp1 i rrm<'n t d i0cussrd above; therefore, that notice and claim must sti ll he made to be safe. If thr claim is still unpaid, whether due or not, a final notice must he srnt to the prime contractor and to the bonding company on or bcfon~ 90