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Savings plus stability lead to an economic takeoff point, as several countries, including Spain and Mexico, have recently demonstrated. Benefiting from a Japanese-built infrastructure, Chinese management and U.S. aid of $1.5 billion, Taiwan has established a promising capital base. By rapidly spreading a network of banks, Thailand has increased savings deposits twenty-five-fold since 1958. Meanwhile, Colombia, Chile, The Netherlands and other countries are considering various plans to increase capital through enforced savings by issuing bonds in place of promised wage increases or tax reductions.
In capital terms, much of Europe is an underdeveloped area. The Continent lacks many of the broad-based financial institutions that, in the U.S., have transformed "people's capitalism" from a flag-waving slogan into a reality that works. The bourses exist in an aroma of gossip, cater primarily to a thin group of the elite. In France, most brokers do not even advertise—and the first one who does so aggressively may get on to quite a good thing. Still fearful of invasion and deflation, peasants tend to distrust securities, put their money in the mattress and their faith in gold, which they hoard and bury—a complete waste of capital. But proper marketing techniques can lure it out. Europe had hardly any mutual funds until an expatriate from Brooklyn, Bernie Cornfeld, started marketing them a dozen years ago. His Investors Overseas Services now raise more than $2,500,000 per day in new money, and by investing in American stocks, Cornfeld contributed $324 million in 1966 to the plus side of the U.S. balance of payments.
Hurdling the Borders
One important innovation, mothered out of necessity after the U.S. began curbing its money exports, is the big and free "Eurobond" market, which rallies currencies from many countries. Conceived and usually underwritten by Wall Street bankers, the bonds are floated for borrowers as diverse as South Africa's De Beers, France's state-run P.T.T. telecommunications monopoly, and U.S. subsidiaries abroad. They are sold to oil sheiks and other wealthy individuals, and reportedly, the United Nations pension fund and the Vatican. From almost nothing in 1963, the volume of these bonds rose to $2.1 billion last year, mostly for European corporate and governmental borrowers. Hung up for capital from home, European subsidiaries of U.S. companies are turning more and more to this market. They raised $527 million on it last year, another $550 million in the first two months of this year. Internationalizing the world's capital markets is the single best hope for expanding them. Europe's Common Market officials have been disappointed by the slow progress made toward their goal of a free-capital market. Still standing in the way is a thicket of props, controls and discriminatory taxes on incoming or outgoing capital. Governments often tell banks and other financial institutions where and how to invest their capital.
But progress is being made. One day last week, a Japanese industrial borrower phoned the Paris office of an investment bank, whose officials in turn called a German and a Belgian bank to raise money for him, while a London bank acted as financial agent on the loan—which was quoted half in dollars and half in Deutsche marks. More deals like that would go far to unclog the capital channels.