IMPACT OF THE WAR IN SOUTHEAST ASIA ON THE

U.S. ECONOMY

WEDNESDAY, APRIL 15, 1970

UNITED STATES SENATE,

COMMITTEE ON FOREIGN RELATIONS,

Washington, D.C.

The committee met, pursuant to notice, at 10:05 a.m., in room 4221, New Senate Office Building, Senator J. W. Fulbright (chairman) presiding.

Present: Senators Fulbright, Sparkman, Gore, Symington, Case, Cooper, and Javits.

The CHAIRMAN. The committee will come to order.

OPENING STATEMENT

The committee is meeting this morning in the first of a series of hearings to examine the impact of the Vietnam war on our society and more especially, this morning, upon our economy.

Throughout the course of the war this committee has directed its attention to policy matters and to the development of factual information about the situation in Southeast Asia. Until now, it has not examined in depth the impact of the war on the everyday lives of the American people, and on the forces which shape our society.

The cost of the Vietnam war cannot be measured by statistics alone. The fact that approximately 49,000 American servicemen have died as a result of the war, and that it has cost some estimated $105 billion-I have seen it estimated as high as $120 billion in direct spending tells little about the true impact of the war on the American people. These statistics do not tell us of the deep divisions in our society caused by the war, of the severe strains it has imposed on our economic system or of the distortions it has created in our national priorities.

The Congress has a responsibility to inform itself and the public concerning the overall cost of the war to the American people in terms of both economic and human resources. That will be the purpose of this series of hearings.

SCHEDULE OF HEARINGS

In the hearings today and tomorrow, the committee will examine the effects of the war on our economy in general. During the week of April 27 the committee will examine the impact of the war on specific problem areas, that is, the cities, education, housing, Federal programs, and others.

The third phase of the schedule for May 5 and 7 will consider the general impact of the war on American society.

In the final hearing on May 13 this committee will study the historical and political and economic effects of U.S. policy on the people of Vietnam.

BIOGRAPHY OF THE WITNESS

For this first hearing to consider the impact of the war on the American economy we are very pleased indeed to have as a witness Mr. Louis B. Lundborg, chairman of the board of the Bank of America, the largest private banking institution in the world. I believe I have been informed it has resources of approximately $25 billion. Incidentally, those total resources would finance the war in Vietnam for about 1 year, according to the way we have been running it. Therefore, every year an organization as great as the Bank of America goes down the drain in Vietnam.

Mr. Lundborg has had a long and distinguished career in the Nation's business affairs. He became a vice president of the Bank of America in 1949, executive vice president in 1959 and was elected chairman of the board in 1965. He also served with distinction over many years as a director, vice president and treasurer of the U.S. Chamber of Commerce.

In a word, I think Mr. Lundborg is an exemplar of the private enterprise capitalistic system at its best. It is men like our witness today who give our system its direction and account to a great extent for the efficiency of our great economic system. As one of the leading bankers of the United States and the world, he is well qualified to discuss the effects of the war on our economy, and we are very deeply grateful to you, Mr. Lundborg, for coming before us today. Will you proceed, sir.

Mr. LUNDBORG. Thank you.

The CHAIRMAN. Mr. Lundborg is accompanied by his economist, Dr. John B. Ross.

STATEMENT OF LOUIS B. LUNDBORG, CHAIRMAN OF THE BOARD, BANK OF AMERICA N.T. & S.A.; ACCOMPANIED BY JOHN B. ROSS, ASSOCIATE ECONOMIST, BANK OF AMERICA

Mr. LUNDBORG. Thank you, Mr. Chairman, gentlemen of the committee.

I am Louis B. Lundborg. I am chairman of the board of Bank America Corp. and of the Bank of America N.T. & S.A. I am pleased to respond to your request that I testify here today.

My testimony this morning will be on some of the economic aspects of the war in Vietnam. In preparing this testimony I have had the benefit of the best thinking of the staff of the bank's economics department, as well as that of many other officers of our bank on the economic impact of the war.

In this testimony I will confine my remarks to the economic impact of the war. While I have strongly held personal feelings on other aspects of the war, I do not feel it is appropriate or proper to express these views as chairman of the board of Bank of America.

The thrust of my testimony will be that the war in Vietnam distorts. the American economy. The war is a major contributor to inflation— our most crucial domestic economic problem. It drays off resources that could be put to work toward solving imperative problems facing this Nation at home. And despite the protestations of the new left to the contrary, the fact is that an end to the war would be good, not bad, for American business.

There is, I think, a pernicious, but widely held belief that war generally has been an agent for economic growth, and therefore good for business. My plan this morning is to spend a few minutes discussing that belief and then to move on to the specifics of Vietnam where it is possible to speak, not only in general terms, but to back up our conclusions with specific economic statistics and indicators.

WAR IS NOT ENGINE FOR ECONOMIC PROGRESS

First, therefore, let's look at the general proposition that war has been an engine for rapid economic growth. While it is difficult, if not impossible, to prove conclusively that on balance war has not been an agent for rapid economic growth, there are a number of carefully reasoned investigations into this subject supporting the position that peace is far better for economic development. Although these careful analyses tend to reject the assumption that war is a boon to the economy, the public is generally unaware of this and continues to believe that war contributes positively to economic development. It is time to set this record straight. Mr. John U. Nef's book, "War and Human Progress," systematically examines the interrelations of war and economic growth from 1494 down to 1950. His analysis indicates that the industrial revolutions of both the Elizabethan and Napoleonic periods were developed not in warring Europe, but in peaceful England; that the invention of gunpowder and of many other weapons of war was a byproduct, not of military need but of peaceful industry, and that, certainly, pure and possibly even applied science has flourished most in peace and least in war.

Dr. John J. Clark, dean of the College of Business Administration at St. John University in New York, in his book, "The New Economics of National Defense," reviews the impact of war on economic develop

ment.

In summary, he stated:

The preponderance of evidence supports the judgment that war, on balance, does not correlate positively with economic progress. Settlement by arms not only causes a great net waste of resources: it also retards industrial development and the division of labor.

Other authorities have shown (1) that rising expenditures for research and development may actually be reducing the rate of economic growth in the United States, and (2) that the process of transferring scientific and technological advances in space and military research and development is becoming increasingly difficult. To the extent that it can be shown that war in general is not good for economic progress, then it should be equally obvious that war is not good for business. I could go on citing other expert testimony that war in general is not an engine of economic progress-but let me move on to the real issue the war in Vietnam.

The CHAIRMAN. Do you mind an interruption for questions?
Mr. LUNDBORG. Not a bit.

The CHAIRMAN. Senator Gore would like to ask a question.
Mr. LUNDBORG. Yes, Senator.

INDUSTRIES INVOLVED IN DIRECT PRODUCTION OF WAR MATERIALS

Senator GORE. The general conclusion with which you close the last paragraph you have read, that war is not good for business, is a generalized statement. War is not only good for certain types of business, it is indeed the very lifeblood of certain types of business. Without war the armaments industry would not be as prosperous. Don't you think this must be broken down?

Mr. LUNDBORG. I will be touching on some of that, to a limited extent at least, but if not sufficiently perhaps we can go into it later but you will find later in my testimony I will make reference at least to those industries that are involved in direct production of war materials.

STIMULATION OF TECHNOLOGICAL ACHIEVEMENT IN SPECIFIED FIELDS

Senator GORE. One other thing that I would question as a general statement: War has stimulated industrial development in many aspects-atomic, for instance. Though the Vietnam war has been perhaps less the type of war which challenges technological superiority than any other, war does, as much as I hate it, stimulate technological achievement in many specified fields. In fact, a general war like World War II was a tremendous stimulus to technological advancement, although perhaps not the most beneficial type of advancement. However, I don't think that the general statement can be left without challenge. A modern war, such as World War II, does challenge and stimulate technological progress, and technological excellence and achievement in many specified fields. Would you challenge that statement?

Mr. LUNDBORG. I do not disagree, Senator, with your statement that it does in certain fields. I had started with the assumption myself that perhaps the fallout, as they sometimes refer to it, into civilian production, of some of the technological advances that come through defense-related research and development, might perhaps be responsible for a great deal of our forward thrust in economic development. I was rather surprised when I looked into this with the help of Dr. Ross, who has accompanied me here and who has done a great deal of the research as background for my testimony here. We found, and it is the consensus of those who have been addressing themselves to the total effect of technological development growing out of military research and development that it is reaching a point of diminishing returns and that the time and energy resources devoted to this type of development are not now proportionate, or the yield from it is not proportionate to the input and that it is not actually advancing the total economic good as much as we had been led to believe. Of course, there are specific techniques inevitably, as in aerospace and other fields in the current space exploration, where there is a fallout.