DAY, 30 JANUARY 1965 THE MICHIGAN DAILY ...ms s"- >, ' S 'NCIES ASK $996.2 MILLION: omney Discusses Budget' SPECIALIZATION RAISES INCOME Comparative Advantage Fathers Common ING W)A - Gov. George[ said yesterday he'll de- budget message Tuesday. ate agencies want him to 396.2 million and that he's to go" on tax reform. overnor told his news con- that the agency requests e than $300 million high- the state budget now in 1 the increases requested ;tate agencies were to be i next fiscal year, it would sary to boost general fund i1 purpose spending by cent," Romney declared. med obvious his budget ndations would consider- ably pare down the agency re- quests. "We have taken a close look at each request in preparing the budget I will submit to the legis- lature next Tuesday," the govern- or commented. "I am releasing this report at this time to give advance notice of the magnitude of the state ser- vice requests we are dealing with this year. "It is clear that we must make every effort to be efficient and economical in what we do and es- tablish priorities in meeting the most essential requests for public service improvements." The governor again said he's f --._. IE MINISTER WILSON PRESIDENT DE GAULLE Ison, Statesmen Confer, , Anglo-Frenbc Summit 1DON (/P) - Prime Minister Harold Wilson used the eve of ston Churchill's funeral yesterday for a Wyhirlwind round of th visiting statesmen. Associates said he wdn agreement from it Charles deG ulle for a late-February or early-March two- ummilt in Paris. ach sources privately expressed belief that the talks had the path to a betterment of relations between the two coun- e way toward a better understanding was achieved," one source said, "and the way to an easier future in relations was by the talks." Both sides seemed satisfied and appear hopeful i that French-British snags may be i-ironed out. It will take a lot of doing, however, for problems orSd News which oppose them are both im- portant and manifold. ready to cooperate on tax reform as soon as the legislature shows support for the idea. Referring to his failure to get tax reform in a 1963 special legis- lative session, Romney said: "Putting up a program is not the way to get at reform success- fully. Last time I proposed spe- cifics and the Democrats knocked them down. "If I put something up it would get labeled as a Romney Repub- lican program." Future Program The governor said he'll work with legislative leadership to de- velop a program whenthere are indications it would succeed, APPROPRIATION AGENCY REQUEST In In Ml- Mil- lions lions 1964-65 1965-66 General Government $ 21.7 $ 27.4 Education \ 147.6 213.9 Public Health 17.4 21.1 Mental Health 90.5 107.2 Public Welfare 99.3 103.7 Public Safety-Defense 28.7 32.4 Adult Corrections 19.1 19.8 Regulatory Services 119 14.7 Conservation, Recreation, Agriculture 11.8 16.3 Debt Service-Transfers 33.4 29.8 Capital Outlay 57.4 165.8 School Aid Grants 155.1 244.1 General Fund Total 694.3 996.2 He said, however, that pre-legis- lative session conferences indi- cated that House and Senate lead- ers were not sure the huge dele- gation of new lelgislators wanted to tackle tax reform yet. Romney said he also had the impression House Floor Leader J. Bob Traxler, (D-Bay City), and Senate Appropriations Chairman GarlandLane, (D-Flint), were not ready to get into reform. Romney has said that the state budget surplus will last only an- other two years before more reve- nie is needed. But he emphasized yesterday1 that tax reform is not tied to a deficit or surplus situation- "We need tax reform because we have injustices in the present sys- stem." He said reform did not directly relate to revenue needed. Thus, by tax reform the gov-I ernor means the methods by which taxes are raised, not the specific rates applied to each of these methods. The rates control the revenue taken in by the state. Nearly all reform proposals re- volve around a personal income tax and relief in property and sales taxes. Lansing Faces L a s n a e Auto, Tax Bills LANSING (P) - Organization, orientation, the start of an ex- pected bill avalanche and virtual- ly no substantive final action characterized this week in the Legislature. With committees just getting organized and much office space yet to be acquired or allocated, the House and Senate were in session for a total of only about five hours this week this week. Both chambers took today off. Work is piling up for the com- mittees, however, as the 78th bill. of the new session was introduced Thursday.' Major measures intro- duced this week included another version of senior citizen property tax relief, two plans for manda- tory vehicle inspection and a bill that would in effect exempt Amish schools from teacher certifica- tion requirements. Romney sent to the Legislature Wednesday a comprehensive traf- fic safety message calling for ve- hicle inspection, 200 more state troopers, implied consent of any drivers to alcohol tests and a raft. of other changes. The week's other developments included: Democrat Claude Burton of Bel-1 levue was seatedu inthe House in place of Republican Carroll Newton of Charlotte, who lost in a recount. The Senate Business Committee gave Lt. Gov. William Milliken a tie-breaking vote in all cases. 1; EDITOR'S NOTE: This is the first of three articles surveying the European EconomicsCommunity. The series considers the reasons for its founding, the factors which combined to make it possible and necessary, its relationship to other nations of the world, and its pros- pects as a political, economic, and military unit in the world of to- morrow. By DICK WINGFIELD For Europe, the spring of 1957 marked the culmination of cen- turies of economic change. About a thousand years before, a tribal economy had unfolded to reveal feudal states; eventually feudal- ism gave way to disjointed nation states; fairly recently the indus- trial revolution ushered in the ad- vent of unemployment, inflation, depression, and balance-of-pay- ment problems. When the great depression faded away, leaving in its wake wasted resources, wasted time and human labor, hunger and misery, a whole new era of economic thought was born to grapple with the exigent economic problems. Men whose work had been in- strumental in giving birth to this new economic philosophy were David Ricardo, John Stuart Mill, and other English followers of Adam Smith. They fathomed the full value of trade between na- tions-a theory which we now call comparative advantage. Community Formed After the war and the years of reconstruction, several years of mellowing and formulation, the European Economic Community was born in Rome, March 1957, under the direction of Jean Mon- net, upon the theory of compara- tive advantage. Basically, this meant that the six countries joined in the Eco- nomic Community believed they could each specialize in producing certain types of commodities, such as grain or automobiles, but it should be emphasized that the production of certain commodities is not left exclusively to one na- tion. E Comparative Advantage With each country producing that product for which it has the greatest resources, most complete-, ly developed technology, and greatest labor pply-that is, a i comparative a antage over other countries-a greater national in- come would be guaranteed to all countries which could sell their produce. If it costs a country relatively more labor, materials, and capital to produce one item, wheat, for instance-and relatively less la- bor, materials, and capital to pro-: duce another item-dishwashers, in this case-then it would bene- fit the country to solely produce dishwashers-providing there is a guaranteed market for dishwash- ers. Asses Produce . When the chosen six united, it was therefore necessary to as- sess their respective capabilities. The economic capacities of The Netherlands seem to be concen- trated in steel production and shipbuilding. The land available for agriculture is limited, and there is a growing scarcity of la- bor. As a result, industry is now surpassing agriculture in the number of workers and allocation of capital and materials. The change will enable the Netherlands to maximize the out- put of its limited supply of land, and industrialization will enable workers to produce more steel and ships-thereby maximizing the productivity of the labor supply. In a similar manner, Belgium has recognized carpet production as one of her major roles in the Market. Because of a labor short- age, automatically-run spinners in Belgian textile mills have been utilized in greater numbers. It is significant, however, that the European carpet market would probably be insufficient to sus- tain Belgian producs. It was for this reason that Bel- DIXIELAND in the "Kennedy Rounds," aimed' at lowering the tariffs between europe and the U.S. Belgium's steel production, how- ever, exceeds its carpet produc- tion. The major consideration is that Belgian-steel production will have to contend with the compe- tition of Germany, the Nether- lands and Luxembourg-which will grow sharper as the tariffs go down. Belgium's carpet indus- try, while not exclusive, is some- what distinct and is a good ex- ample of the "specialized product" in the workings of comparative advantage. Another small country, Luxem'- bourg, prior to 1960 depended on steel and tourism for 90 per cent of its gross national income. To further stimulate her industrial capabilities, Luxembourg recent- ly began a policy of special tax considerations for new concerns. This policy has drawn major American firms as DuPont and Goodyear. Very likely, this coun- try can be expected to settle upon one or two industries for concen- tration when a guaranteed mar- ket can be established in the Community for those industries. Italian Cars Italy has long been distinguished for its fine cars. The Ferrari and the Maserati come quickly to mind when Italian industry is men- tioned. These automobiles are hand-produced, however, and the greater wage demands from the Italian worker has made the pro- dduction of hand-made automo- biles impractical. The result is the production of Fiat and Alpha Romeo, mass-produced models. As the demand for automobiles grows in the Community and au- tomation opportunities increase, the mass-produced Italian carwill very likely become the mainstay of the Italian economy, and Italy's distinction in the Common Mar- ket. France, in a simple way of think- ing, is the Community's farm. For DeGaulle's Alacrity In this light President deGaulle's alacrity to begin the Kennedy Round of tariff reductions on agricultural products is easily ex- plainable. For all practical pur- poses, France will remain the key producer of agricultural goods, although automation may decrease the number of workers on French farms; the same automation com- bined with the guaranteed market will increase French production in agriculture. Germany, in a similar way of thinking, is the Community's big- gest factory. The German balance of payments is very favorable, and this indicates there is a high de- mand in many quarters for the industrial produce of Germany. Specialized production within the guaranteed market, and perpetra- tion of the Kennedy Round on in- dustrial products will bring in- creased prosperity to Germany, and further confirm her speciali- zation in the industrial goods. Simplification Dangerous However, it is dangerous to sim- plify the Common Market coun- tries into one-commodity indus- tries. This is hardly the case; while the commodities which are in the limelight in eacn Com- mon Market country are not ex- - - WANTED! TALENTED AND ATTRACTIVE GIRLS for Winter Weekend Chorus Line to appear at Hill Aud. on Skit Night TRYOUTS Monday, Feb. 1-8:00 P.M. Union Room 35 gium felt such sharp repercussions this reason it is pressing for a in 1963 when the United States common agricultural policy which introduced restrictive tariffs on will eliminate internal Commun- woolen carpets. It is also for this nity barriers to farm trade, and reason that Belgium looks so will help France dispose of her favorably toward further progress, farm surpluses. clusive, nor even necessarily domi- nant in the individual country, they are to some extent distinct, and are therefore likely to with- stand the competition of lowered tariffs. The six countries were estab- lished then, and their production capacities defined. It was then left for them to decide in what manner and how rapidly the tar- iffs should be redudced, so that the countries could begin to reap the benefits of comparative ad- vantage. Initially, the treaty allowed a period of 12 years for the reduc- tion of tariffs according to a schedule, with escape clauses which could extend the period to 15 years. However, the six moved ahead more rapidly than they expected. Three interrelated developments made their rapid progress possible: prosperity, the reaction of business, and the changed position of France. New Proposal Thursday, Jan. 14, 1965 the Common Market disclosed a vital new plan for eliminating all in- dustrial trade barriers among the nations by July 1, 1967. The plan involves a two-step process to eliminate the remaining 30 per cent of the original tariffs on in- dustry in the Market. From all indications their success is prob- able. The implementation and suc- cess of the Community has driven other peoples and other. contin- PAGE THREE iMarket ents to an agonizing reappraisal of their own economic intercourse, and a more favorable attitude to- ward the theory of comparative advantage. The results: the European Free Trade Association, considerations in Asia of a common market, Afri- can and Latin American enthusi- asm for trade benefits in the Common Market way, and U.S. support and participation in the general Agreement on Trade and Tariffs and The Kennedy Round of Tariff Reductions. * * * TOMORROW: The Kennedy Round of Tariff reductions and GATT - how the success of the EEC forced the U.S. to negotiate for reduced tariffs, Support the Annual Kiwanis Sale Feb. 11,12, 13 Nat'I, Guard Armory-AI proceeds to those in need regardless of race, color or creed. AUSTIN DIAMOND 1209 S. University-663-7151 MIR if. r'6Co ME -ro [oundup y The Associated Press AQUA, NICARAGUA;A-; t Rene Schick announced It he had authorized the States to continue prelim- udies of a possible route 'icaragua for a new canal ie Central American isth- his followed talks with Mann, assistant secretary for Latin American Af- [ann was in San Jose, 1 ica yesterday for talks esident Francisco Orlich ,1 possibilties. Mann also visit Panama and Colom- ORCE ACADEMY, COLO. y-eight more Cadets have from the United States ve Academy, it was an- yesterday, in the two- iestigation of cheating at tions. )rings to 93 the number ve resigned in the first to strike the nation's new-