Most of the remaining four-fifths was brought about by the acceleration of import demand. Imports as a percentage of GNP reached 3.8 percent. While all major categories of imports shared the increase, the most noteworthy feature was the 40-percent rise in imports of consumer goods over 1967.

There were very substantial shifts in the movements of both private and official capital to offset the deterioration in our trade accounts. Some of these movements occurred during the last few weeks of 1968. The statistical detail for the whole year is not yet complete.

The apparent dramatic improvement in the overall balance resulted in part from private capital movements that were in some degree affected by the tightening in U.S. credit.

These private capital movements were reinforced by special financial transactions arranged between the U.S. Government and foreign governments. The primary effect of these special transactions was to reduce foreign official holdings of liquid dollars and increase foreign official holdings of nonliquid dollars. These conversions improve the overall U.S. balance on the liquidity basis, because nonliquid dollar assets are regarded as a foreign official investment in the United States.

The immediate outlook for the U.S. balance of payments will be affected by two principal influences:

The manner in which domestic policies contribute to the improvement of the competitiveness of U.S. producers in foreign and domestic markets, and to the reduction of the pressure of demand for imports.

The relative stringency of credit conditions here and abroad. As to the first, we can hope for a modest improvement in 1969 in the trade balance. We can and ought to sustain our export growth. But we also must create domestic conditions that will slow down last year's abnormal growth of imports.

As to the second, foreign capital was flowing into the United States in 1968 at a rate that may not be sustained. To be sure, foreigners have discovered new opportunities for investment in the United States. Not all the flow is unstable. But some of the 1968 inflow appeared to be borrowed from the future and therefore could be reversed later.

These conditions are not durable enough to allow us to regard the improvement in the overall balance as a full recovery. On the contrary, we have to assume that 1969, in the absence of special transactions, will again show a deficit that could be significant.

EXPORT EXPANSION

The drastic decline in the net export balance in the past year must be altered on two fronts-export expansion, and improvement in productivity at home in order to compete with imported goods. The Commerce Department has laid out a 5-year export expansion plan to which it is giving high priority, and it is working closely with Amercan businessmen as well as other Government agencies such as the Export-Import Bank to help us achieve our goals.

Business, not Government, must do the exporting. The National Export Expansion Council, which is supported by a group of regional export expansion councils, advises me as Secretary of Commerce on

the export expansion program. The national council last December presented a report entitled "Policies and Actions To Improve the U.S. Balance of Trade and Balance of Payments."

I am studying the recommendations of that report. Its range includes not only the promotion and financing of U.S. exports, but questions of taxation and transportation as affecting trade, and even the encouragement of U.S. investment in developing countries.

On Monday of this week I called together the Cabinet Committee on Export Expansion, in which all the agencies of the executive branch concerned with foreign trade, as well as the Federal Reserve Board, are represented. We are proceeding on a high priority basis to develop the necessary measures to step up our exports materially. You will be interested to know that we have tentatively set an export goal of $50 billion to be achieved by 1973. This compares with 1968 exports of $33.8 billion.

TRADE POLICY

I cannot do better than quote President Nixon's statement at his February 6 news conference on the subject of trade policy.

"I believe that the interests of the United States and the interests of the whole world will be best served by moving toward freer trade rather than protection. I take a dim view of this tendency to move toward quotas and other methods that may become permanent, whether they are applied here or by nations abroad."

The difficult problems, however, are not those of general principles but of particular cases. The quick growth of imports has presented a severe challenge to a number of domestic industries. The right first response of a business system that is based on competition is to compete more effectively. We should do all we can to increase productivity in our factories and in our distributive system.

Our trade policy, however, if it is to be successful, must take into account those industries which suffer acute distress from import competition. We must make much more effective use of the unused provision in the Trade Expansion Act of 1962 for giving adjustment assistance to injured firms. This will require amending legislation. It is wise that, in a period when we are fighting inflation, we should not invite price increases by erecting barriers to imports. Rather, we should think of adjustment assistance as a means of aiding U.S. industry. There are, of course, difficult problems associated with certain industry situations, particularly textiles and steel, for which import relief is being sought urgently. But these must be tackled with a full recognition that assistance must be needed and merited, and that trade is a cooperative process as well as a competitive process. We should be equally sensitive to the legitimate interests of our exporters who might be the targets of foreign retaliation. We should also take into account the interests of friendly foreign countries which would like to maintain a healthy and growing two-way trade with us.

Most of all, we should fight foreign as well as domestic tendencies to restrictionism, whether occurring by nontariff barriers or by tariffs, and in agriculture-which is a vital U.S. export interest-as well as industry.

CONTROL OF FOREIGN DIRECT INVESTMENT

The Department of Commerce has had responsibility for administering both the voluntary foreign investment restraint program introduced in 1965, and the mandatory foreign direct investment program which was introduced in January 1968. Both programs were announced as "temporary." This administration hopes to phase out these controls as quickly as possible.

Government controls over investment are distasteful and, although they produced results helpful to the 1968 balance of payments, their long-range effects are not advantageous. The controls are a stopgap; basic actions to control inflation at home and to negotiate with our trading partners to remove inequitable trade barriers, should make possible steady phasing out of the controls.

The very high interest rate pattern in the United States was an important inducement to foreign capital inflows which contributed to the balance-of-payments surplus in 1968. The basic need to control inflation will probably keep rates here high for the time being, which will somewhat reduce any risk in relaxing the investment controls program. Further, returns to the United States from foreign investment have steadily increased and are projected to climb again substantially in 1969. These factors, taken together with the basic fiscal and monetary actions we will be implementing, suggest that we start phasing out these stopgap controls.

Already the Office of Foreign Direct Investment has relaxed in some degree the application of the controls. Smaller firms have been relieved of the burden of filing detailed reports, and allowances have been made for the problems of the construction industry. In the administration of the controls every effort has been made to permit investment in the developing countries. Also, to provide more equity in the assessment of investment quotas, the Office has introduced as an alternative to the original base-period investment, an option of using earnings as the determining principle. This is an important conceptual change. We have utilized the rising trend of earnings on overseas investment as a way of providing more headroom for new investment within our overall balance-of-payments objectives.

In our consultations with leading business and banking leaders, there has been general agreement that the abrupt removal of the controls could be severely disturbing both at home and abroad and would involve too big a risk. The balance of payments must be kept under control, and the dollar must be a trusted currency. Therefore, the administration has been reviewing a number of ways to relax the investment controls in the context of its general balance-of-payments review.

OTHER MATTERS

With your permission, I wish to outline two matters of policy which come within the range of interest of your committee and which are of great concern to the Department of Commerce.

The first is the preparation for the Nineteenth Decennial Census in 1970. An issue has been raised as to whether the census questions constitute an invasion of the people's entitlement to privacy. The contrafactor is modern Government's needs for accurate information as a basis for reaching economic and social judgments.

The second is the development of minority business enterprise, with both the Government and the business community providing assistance. The President has asked the Commerce Department to take a leading role in this area.

THE 1970 CENSUS

The Joint Economic Committee has for many years shown close interest in the statistical activities of the Bureau of the Census, the Office of Business Economics, and other Government agencies, and has made constructive suggestions for their improvement.

Consequently, I feel sure that this committee will share my concern over the growing support for proposals that threaten to do serious damage to the quality of some of our most basic demographic and economic statistics. I refer to proposals that would sharply limit the number and nature of questions people would be required to answer in the 1970 Decennial Census.

It is easy to understand why there should be a certain amount of annoyance over being asked to fill out questionnaires. Nevertheless, it is both inappropriate and unfortunate that this is contended to be an invasion of privacy.

Actually, the 1970 census will be, for most people, less burdensome and no more invasive of privacy than previous decennial censuses. For the first time, about three out of five families will receive and be able to return their questionnaires by mail without ever seeing a census enumerator. Most families will be able to fill out their questionnaires in about 15 minutes. The total number of questions will be about the same as in 1960 and less than were asked in 1950 or 1940. A limited number of questions will be asked of every household. Most of the questions, however, will be asked of only one househould in four, selected on a random basis. As has always been the case, answers given the Census Bureau will be strictly confidential and cannot be published or given to any other Government agency except in the form of statistical totals.

The decennial census is the one occasion when we try to get complete information on certain key characteristics of our population and the homes our people live in. This is vital information for all levels of government, down to local school districts, if they are to carry out their responsibilities intelligently.

The American people have always regarded the decennial census as one of the least onerous obligations of citizenship. They have cooperated willingly and taken great interest in the results. I believe it would be an extremely disturbing development if this spirit of cooperation should be undermined.

MINORITY BUSINESS ENTERPRISE

In regard to the development of minority business enterprise, President Nixon stated in his inauguaral address that we must draw into the solution of our socioeconomic problems all the strength of our Nation. Government and private enterprise will need to act together in dealing with these problems. Capitalism and private enterprise must present challenging opportunities for minority groups as well as for those who are in the mainstream of our national economic life.

One aspect of our urban problem is the separation of those in our minority groups from involvement in the country's principal economic

activities. There are many different ways of tackling this problem but one of the most promising is to assist them in setting up their own business enterprises.

The difficulties of making these programs effective are great. The number of people whose experience enables them to create new business enterprises without considerable training is relatively small. But we are aware of these difficulties and will try to surmount them. In fostering minority enterprise, we intend to help not only the black people, but also Spanish-Americans and American Indians. And we shall be careful to avoid the development of new barriers between the poorer areas and those areas surrounding them.

THE INVOLVEMENT OF THE BUSINESS COMMUNITY

There are a great many people in the business community who want to take a larger part in dealing with the problems that plague us today. This administration is solid in its determination to marshal the resources of the business community for solving social problems.

Too often people think that the sole means of inducing business participation is the offer of favors. We do not take that view. The function of government is to provide the environment in which business, under the profit system, can develop its best efforts in producing the goods and services that we need. Beyond that, tax incentives may be useful in some cases, in order to direct special efforts toward solving critical social problems. But I believe it is possible in many instances to induce American business, in its own self-interest, to contribute time, money and skills to the redressing of society's imbalances. This will be a major objective of this administration.

This completes our presentation, Mr. Chairman.

Representative Reuss. Secretary Stans, your excellent report is indeed a cogent contribution to our hearing.

Mr. STANS. Thank you, Mr. Chairman.

Representative REUSS (proceeding). Under Secretary Volcker, because your statement interlocks with Secretary Stans', I will ask that you proceed with your statement now.

STATEMENT OF HON. PAUL A. VOLCKER, UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS

Mr. VOLCKER. If you would prefer to go ahead with your questions for Secretary Stans

Representative REUSS. If the Secretary can wait, Senator Javits will be back.

Mr. VOLCKER. I will read my statement, then, Mr. Chairman.

Representative REUSS. Fine. The whole statement is before us, and if you will hit the high spots, I think we will proceed as rapidly as possible.

Mr. VOLCKER. Mr. Chairman, this committee has come to play a special role in stimulating congressional thinking and public discussion in the complex area of international finance, and I particularly look forward to the opportunity of working with you in the future. As you will understand, I will not at this stage attempt to lay out the specific ingredients of our approach toward the balance of payments or a precise