The wisdom of the world is not always with the learned nor is it the exclusive province of any one section of our society. It can come from a college campus, from a board room, from the military or government, or from the legendary man in the street. The very essence of what I want to say here today was summed up by a Calypso singer in Nassau called Blind Blake who writes in song about the problems of his people. The song to which I refer is called "Never Mind the Noise in the Market But Heed the Price of the Fish." Right at the moment there is a lot of noise in the market place of the world, and too few people minding the price of the fish.

The noise in the market place in the developing countries is made not only by the inhabitants of those lands, but also by the incredibly numerous U.S. Government missions which travel abroad full of advice, money and vigor. After the din in the market place has been increased to such a decibel that it obscures the basic problem, someone sooner or later gets down to the simple basic fact that the development of a country requires the investment of large sums of money.

Where this money comes from and the manner in which it is spent are critical problems which go far beyond economic theory and are likely to have an impact on the political future of the world. In the complex world in which we live it is increasingly easy to forget very basic considerations and, for example, talk about capital as if it were something apart from the world, hung like the smile of the Cheshire cat in Alice in Wonderland between heaven and earth.

If we go far enough back into basic economics, we are eventually reminded that the only known way of producing money initially is by labor; somebody has to work with his brains or his back, and that capital is nothing more than the accumulation of money which has been paid to reward a man for his labor. Since we all have to work to acquire this capital, it is natural that while we want to see it profitably employed, we also want to take every precaution we can to preserve it. If we are asked to invest our savings abroad, it is axiomatic that this involves greater risks than a similar investment at home. The Government, on the other hand, takes our capital from us by means of taxes and distributes it abroad on perhaps a different criteria than those applied by the private sector. Since there are not enough public funds to do the job, it is obvious that private capital must fill the gap. This very basic, simple set of facts leads into the question of the day as to how a country can create the climate to hold urgently needed domestic private capital and attract foreign capital.

If once again we ignore the noise in the market and look at the price of the fish, we come down to a few basic criteria. Many years ago Mr. Thomas Braniff at the inaugural flight of the Braniff Airways into Buenos Aires, had an interview with the then dictator of the Argentine, Juan Peron, who inquired of him how to attract private capital. The president of our bank who was present and acted as translator said that Mr. Braniff replied that it was a very simple thing. "Capital goes where it is wanted and it stays where it is well treated." Nobody has ever said it better. It is true of all capital, both foreign and domestic, for domestic capital flees from the same conditions which repel foreign capital.

Sometimes during the course of implementing a monetary stabilization program abroad, someone will wryly remark "You ought to save your money; it may be worth something some day." This remark illustrates the number one condition for the retention of local capital and the attraction of foreign capital and that is a relatively stable currency. If the currency of your country is depreciating at the rate of twenty to forty percent a year, there is not much point in saving your money as all that will happen is that you will watch the reward of your labor wiped out by rising prices. People who work hard and acquire capital quite naturally want to invest it in something to conserve the fruit of their labor, to take care of their old age, and to pass on to their children. It is, therefore, perfect nonsense to talk about stopping the flight of capital, much less attracting foreign capital in an atmosphere of runaway inflation. Money runs downhill toward the happiest blend of high reward and safety, and nobody has ever found a way to make it run uphill for more than a very limited period of time; even through a series of highly technical and questionable gimmicks.

The second basic requirement for the attraction of capital is some reasonable expectation that the rules of the game will not be changed with any great frequency. Private capital can adapt itself to most rules, provided always that the expectation exists that the game will be played by those rules over a period of time. It is for this same reason that private capital is frightened away by direct economic controls. While the private investor willingly accepts the risks of the free market place, he almost inevitably shies away from situations where arbitrary decisions by government administrators can make or break his business.

Third, through curious mental processes which are unknown to me, some countries proceed to nationalize all the subsidiaries of foreign companies, without fair or adequate compensation and then express amazement that there is no capital inflow from foreign sources and, in fact, large capital outflows from their own people. Respect for property rights is a fundamental prerequisite for private investments whether foreign or domestic, and is protected by the Fifth and Fourteenth Amendments to our Constitution.

There is no real shortage of capital in the world and I do not know of any major project which has been held up solely because of the lack of money. Capital is plentiful wherever it is "wanted and well-treated." The real bottleneck in the development of the world is the shortage of human capital; people with the skill, training and education intelligently to employ the world resources. It does no good to pour money into a nation which has only a handful of college graduates in its entire population. A very able American ambassador suggested recently that one of our neighbors is "the most underdeveloped country administratively" in the world. This is a key point in holding or attracting capital. If the business of government is run so badly that it dissipates even great natural resources, it becomes impossible to set up viable projects for lack of administrative follow-through, and private capital hesitates when more attractive alternatives are present.

The facts are that no country in the world which, as a matter of policy, is hospitable to capital, both domestic and foreign, has had any problem at all in keeping or attracting it. Some countries indicate that they would welcome foreign capital providing it is channeled into certain industries which have the state's approval. For all practical purposes, four countries in Latin America bar private capital in the petroleum industry, eight Latin American nations are closed to the investment in electric power while the railways and telephone systems are falling more and more under state control.

It is currently unpopular to suggest that some of the problems in the world are not quite as complicated as the columnists would lead us to believe. Lord Chesterton once put it this way, "The way is all so very plain that we may lose the way." While I am aware of the ancient dictum that to simplify is to falsify, it does not necessarily follow that to complicate moves one nearer the truth. Involved schemes worthy of some of the cartoons of Rube Goldberg have been designed to frustrate the natural laws of the world. Some of these natural laws are expressed in the following quotation which has sometimes been attributed to Abraham Lincoln who well understood the misery of poverty and the frustrations of a truly underdeveloped country engaged in the bitterness of a civil war whose ferocity was without precedent in the history of the world:

"You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot further the brotherhood of man by encouraging class hatred. You cannot help the poor by destroying the rich. You cannot establish sound security on borrowed money. You cannot keep out of trouble by spending more than you earn. You cannot build character and courage by taking away man's initiative and independence. You cannot help men permanently by doing for them what they could and should do for themselves."

The Communist theory of economic determinism has taken many guises and has been widely accepted by some people who should know better. One of the guises which it takes is that unless we raise the living standards of underdeveloped countries they will go Communist. We must help to raise the living standards of the developing world for a great many good and valid reasons, but one of them is not the prevention of Communism. The living standards of a country have very little to do with the inroads of Communism, and I would remind you that Cuba had one of the higher living standards in the Western Hemisphere, but nevertheless was the first country to go Communist. The per capita income in Italy is very high in relation to the world's average, and yet it has one of the largest, most powerful Communist parties in the world which succeeded in picking up votes in the last election. Communist strength is centered not in the poorer sections in the south of Italy, but rather among the aristocracy of the labor classes in the industrialized north. The absurdity of the Communist argument of economic determinism is plain on the record for all who will see. The difference in the economic lot between the North Vietnamese and the South Vietnamese is so microscopic as to be ecclesiastical, yet one is Communist and the other is not. While some people have bought the Communist argument, they overlook the words of the Communist Manifesto itself which says in part: "The Communists everywhere support every revolutionary movement against the existing social and political order of things." The battle between Communism and freedom is a battle for men's minds, and no country in a free election has ever voted to adopt Communism over the free enterprise system.

One of the great practical experts on this problem was the late Ramon Magsaysay who faced a huge force of Communist guerrillas in the Philippines. He pointed out that poverty was not the cause of Communism but rather a condition under which clever leadership could develop a backing. Magsaysay, through his own leadership, proved that under the very same conditions a non-Communist leader could and did develop a strong backing.

We Americans have a tendency to measure others against perfection and not against political reality. Every time I hear a diatribe about corruption in government abroad, we have only to look at our own newspapers to find similar if not worse graft and corruption at home. The level of honesty in business and government is vitally important, but the driving philosophy of the political party in control of a government is critical. Political stability is indispensable for real progress, but political climate is a "slow growing plant" which grows differently in each country according to the history and culture of peoples. While the policy of non-interference in the internal affairs of others is well established, this policy should not be confused with various kinds of strings, which can be tied to American foreign aid given by our taxpayers, in order to help develop stable political climates.

There exists in our country a vocal and articulate group which takes the position that any assistance given by the United States should be given without any strings attached. The impression has been fostered that there is something inherently evil about strings, without making any attempt to differentiate among the various kinds of strings which could be attached to a foreign aid program. In an effort to clarify this slightly, I would like to discuss the various types of strings--both good and bad--which we could tie to our foreign aid package.

Firstly, there is a political string designed to insure allies in an uncertain world, and which, in my opinion, is wholly self-defeating. The theory is that if you give Country "X" so many millions of dollars you thereby buy love and affection in times of trouble. So far as I know, there is no instance in history where such a string was ever effectively pulled in time of crisis, and, in fact, it often works the other way. Political strings of this nature are self-defeating and frustrating, and tend to cause more problems than they solve. These political strings tend to be regarded as tactical, rather than strategic. In the long run, the political consequences of foreign aid have been summed up by one brilliant analyst as widening the alternatives which are available to a country in order to allow it to exert its natural desire for a truly independent life.

The second kind of string has very little to do with international political alliances or whether or not a country is on our side of a particular issue. This kind of string is really a series of terms and conditions designed to insure that aid is used in economically viable projects. While, on occasion, the specifying of the nature of the end products raises cries of meddling with internal politics, actually this kind of string is not only defensible but often essential. It is the height of folly to pour foreign aid into a country whose printing presses are turning at such a rate that an increase in the cost of living through inflation can swallow up any amount of money without making a perceptible dent in the economic structure. The kind of strings which I am talking about here are the kind that have been used by commercial banks for lending term money. Banks establish a group of ratios of working capital, or debt to net worth, or a dozen other things designed to insure the economic health of a company or signal its deterioration. Translated into the international arena, the primary successful practitioner of this art is the International Monetary Fund. Before the Fund will grant a stabilization credit, the recipient country must agree to a well-defined program designed to bring its balance of payments into equilibrium, and if the program is not implemented step by step, the assistance from the Fund is terminated. The record of the International Monetary Fund has been so good in restoring the economic health of country after country that it is impossible to ignore the validity of this approach.

The third kind of string which can be employed is now the law of the land and is generally referred to as the Hickenlooper Amendment. The Hickenlooper Amendment directs the President of the United States to cut off all American aid to any country which expropriates the subsidiary of an American corporation without prompt, adequate compensation payable in convertible currencies. The right of a sovereign government to expropriate a company or to exercise the right of eminent domain, as many of us have found out who lost our front lawns to a thruway, is without question in international law. With this right, however, goes the obligation for fair compensation and, in my judgment, the Hickenlooper Amendment has already exercised a healthy influence on many countries around the world who, driven by political pressures, might tend to expropriate without compensation, but now must assess the risk of this action.

Since there are limited resources in the world, it is only logical that we make every effort to allocate them where they will do the most good. In this process, some will get left out and complain, and others may get an inordinate share, but if we set up the criteria of self-help and tie it in with the type of non-political string which I have suggested, I believe that the chances of success are great.

All the noise in the market place should not obscure the fact that trade is the most important element in the growth of the developing countries. It has been estimated that in the year 1961 the total flow of foreign aid from the developed countries amounted to approximately $6 billion, while the total exports from the less developed areas were almost five times this amount. Additionally, the total flow of private capital during the same year was approximately $3 billion, not including substantial amounts which were reinvested. The importance of the private sector is self-evident, but poses tremendous problems for all of us engaged in international business. There has been too much noise in the market place about the image of American business abroad, and the image which the noise suggests is outdated by about twenty years. The contribution of American private enterprise abroad in the training of people, in raising the level of business ethics and in employing labor under good conditions is a record to be proud of. All of us have an obligation to see that these facts are known both at home and abroad.

While the problems before us are immense, most tasks are not impossible; they only look that way if we refuse to face the facts. The facts are that when political freedom and free enterprise spread, markets increase and that the expansion of markets is only prevented through political motivation. The interest of American business in the expansion of a free enterprise system around the world as part of a free political system is based not only upon moral consideration, but on the hard facts that there is no market for consumer goods among slaves. The problem is not one of division whereby the static resources of a country will be reallocated by some planner's program, but it is a problem of addition and multiplication whereby we must set our minds to increase the production forces and to broaden the areas of freedom and trade.