Wriston, Walter B.
It has been my happy lot to visit Europe a good many times since the end of World War II. Looking back over the last three decades, we can all take a measure of pride in the progress we have made in developing a commonality of interests and in helping to create a global economy.
Although it is clear that we have traveled a long way together, there are many people in the world today who tend to denigrate our progress and emphasize the negative aspects of our societies. Self-styled experts on both sides of the Atlantic use the enormous power of the electronic media not to nurture the ties between us, but to plant the seeds of doubt and uncertainty.
Often they extrapolate the present into the future, and view each problem that confronts us as the beginning of the decline and fall of the human race. Examples abound.
A rise in the birth rate is depicted as proof that there will soon be standing room only on the planet. A change in the administration of an industrialized country is seen as the first step on the road to anarchy. The weakness of one currency is construed as a sign that all currencies are in jeopardy. You can make the list as long as you want, but when the word is gloom, the markets of the world not only reflect but also magnify it.
What the purveyors of bad news always ignore is the ability of man to find a means to cope with whatever is being touted as the crisis of the moment. When the crisis has passed, it is often hard to remember what we did to solve it, except at the time, the remedy was thought to be impossible to devise.
A short list of predicted disasters which failed to occur is instructive. Just after World War II, deep pessimism was expressed by "the experts" that the entire productive capacity of Europe was destroyed and could never be rebuilt. No doubt these people would have been correct if nothing had been done, but the Marshall Plan was conceived on one side of the Atlantic and was implemented on the other to confound the disaster lobby. A short time later, we were warned that America had accumulated most of the world's gold reserves, and that there was just no way that these reserves could be redistributed to the rest of the world. The gold would lie forever sterile in the vaults of Fort Knox. Our most severe critics would now admit that gold has been redistributed.
In more recent times, fixed exchange rate parities, once viewed as a sine qua non for international trade, have given way to floating rates and trade volumes continue to climb. The rising tide of petrodollars, once widely viewed as a first step in the breakdown of our global economy, has been recycled without causing the financial structure to collapse. In fact, never in history have such vast financial assets been transferred in so short a time frame with so few casualties.
It was only yesterday that those in search of a fatal flaw in the system that has served us all so well were proclaiming that the world was in for a replay of the tragedy of the Thirties. Those who predicted that the global depression would deepen and continue assumed that the nations of the world had learned nothing from history. Events have once again proved them wrong. Governments have become much more sophisticated in operating their monetary machinery--knowing that massive government spending fuels inflation and does little for employment. They employ floating rates to permit our system to bend without breaking, Central banks are more alert to their role as lenders of last resort. Various institutions, such as the IMF and the World Bank, have grown more mature.
In reciting this history, I do not assert that we face no large problems. On the contrary, there is no question that rampant inflation has shaken the confidence of people in their governments in many, many parts of the globe. In my own country, with unemployment too high, the public opinion polls show a greater concern about rekindling inflation than coping with unemployment. The truth is that all governments can--if they will-- curb inflation by practicing monetary and fiscal restraint and encouraging productivity.
Progress in any form takes time and exacts a price. Cutting the money supply is often viewed as too slow and to painful a remedy since the resulting unemployment and stagnation in the economy are bound to cause people to grow restive and impatient. The danger is that politicians, in an effort to placate their anxious constituents, will turn from sound economic policy to political strategy. The switch may momentarily bolster public confidence, but ultimately such action is a cosmetic device which merely breeds greater distortions and postpones the day of reckoning.
All the great issues of our time and most of the small ones are settled in the untidy atmosphere of give and take negotiation and compromise. While anti-inflation remedies are being applied with caution and care, we must constantly be on guard against the use of beggar-thy-neighbor policies to obtain short-term advantage. The political temptation to return to the jungle of nationalism and impose quotas, controls and other protectionist devices is a real and constant threat.
My own organizations, Citicorp and Citibank, operate in nearly 100 countries around the world. I think it is fair to say that we have seen economic controls and trade barriers in every size, shape and form in one place or another at one time or another. All of them have one thing in common: They fail over the long term. But even more important than their failure is that on the way to failure they discourage producers, short change consumers and create uncertainty.
The emergence of protectionist sentiments around the world is now becoming a clear and present danger. Recently Wilhelm Haferkamp pointed out: "The protectionism that kept millions on the dole 40 years ago is now being presented in a new guise, with seductive, modern, rational-sounding slogans." He is right, and there is no better example of the use of cosmetic language to disguise protectionism than the slogan "organized free trade." Like controlled freedom, it is an Orwellian euphemism.
The strongly protectionist tone of recent pronouncements on trade policy can be traced to the emergence of new political and economic factors in developed and developing nations. There is, for example, a sluggishness of demand in the capital equipment areas of many industrialized countries. Slow growth has been accompanied by persistent high rates of unemployment. While conventional wisdom suggests that high unemployment and free trade are traditional enemies, history does not validate this assertion. The Reciprocal Trade Act of the United States which pushed the world community toward freer trade was passed by our Congress in 1936 when we had massive unemployment.
This time around we have some new factors. A number of countries in Latin America and the Far East, now in the take-off or miracle stage of their development, are pressing their exports upon the world. Relatively low wages and a large and productive work force have enabled these nations to excel in the production of textiles, clothing, electronics and other labor-intensive goods. As a result, their export industries have a strong advantage in European and American markets. This creates a paradox. Unless these countries can continue to expand their exports of manufactured goods, their economic development will be stunted and the demand for foreign assistance will be accelerated. When they do expand their exports however, important and painful shifts in the industrial structure in the United States and Europe will be required.
We are all aware that real wages in much of the industrialized world have risen too fast. We recognize that the wage differentials between modern, efficient industries and older less efficient ones have narrowed. Trade restrictions which coddle inefficiency invariably lead to economic stagnation. What is needed is a readjustment of the structure of industry in many leading countries in order to respond to competition from new arrivals on the world industrial scene. It is the tendency of governments, however, to resist such adjustments and push them off on foreigners. When governments subsidize uneconomic industrial capacity, or subsidize exports, or close their eyes to dumping by their exporters, they intensify the problems of international competition.
While all of these problems can never be solved to perfection, they can be coped with so as to do as little damage as possible to the general welfare. What the world now needs are new trading rules to deal with new competitive realities. There is urgent need for more adjustment assistance and temporary marketing agreements under GATT supervision to prevent what has been called "guerilla warfare" in trade from erupting into open hostilities. The planet has become too small and the fate of all of us too interwoven to engage in those old nationalistic games which dilute the talent and dissipate the energies of mankind.
Our global society is today, as always, in a period of transition. The old notion that exports are good and imports are bad is being replaced by the idea that exports are the price we pay for trade and imports are the benefits we receive from it. The eternal conflict between what people pay to buy goods and what they earn to produce goods will never be easily resolved.
The simple truth is that to the degree we cut our imports, we are increasing costs to the consumer and inviting retaliation, for the only way the world can sell more abroad is to buy more abroad. While some nations welcome the free flow of men, money and ideas as an expression of confidence in their systems, others view foreign investment of any sort as a threat to local autonomy. Each nation on this earth whose citizens have succeeded in bettering their lot in life draws heavily on the experience, capital and technology of others. In the end, each develops a unique system of its own. No two national structures are the same nor should they be, for each, if it is to endure, must fit the temperament and value systems of its own people.
Recently a Belgian scientist has reminded the world that one intellectual discipline can borrow from another. Your Nobel Laureate Dr. Ilya Prigogine's, work in theoretical chemistry has some clear parallels in political philosophy. He has, as many of you are aware, established that life can come into being and, contrary to the second law of thermodynamics, continue to expend energy without drifting into chaos or being entirely dissipated. Dr. Prigogine has explained his complex theory for laymen with an analogy of two towns--one, the walled city of feudal days, totally isolated from its surroundings, and the other in constant communication and interchange of goods, services and ideas with its neighbors. The first city, representing the closed system of classical physics and chemistry, must inevitably decay and cease to function, while the second city, interacting with its surroundings and nourished by others, will, even as it gets more complex, become better organized, grow and flourish.
The Prigogine parable, in my view, is equally applicable to nations. Those nations shortsighted enough to persist in raising protectionist walls against the ideas, goods and services of their more productive neighbors will over time share the fate of the walled city, and yet many voices in many quarters are urging governments to follow this course.
Once again then the nations of the world face a problem of great magnitude which if left unresolved could make the prophets of doom correct. But once again, men and women of good will are seeking solutions in the untidy atmosphere of give and take within the world community. The causes for optimism that we can arrive at good pragmatic solutions rest on the record of the past when steady progress was made in understanding each other's problems.
Within the last few decades the United States and Western Europe have come to agree on many broad areas of concern. We are aware that our economic interdependence is not an intellectual abstraction but a fact of life. We recognize that the free exchange of goods and services, capital and ideas is our best hope to improve the human condition of the developed, developing, and less developed world in which we live. Finally, and most important, we know we need not agree on all issues to act in concert on many. I have every confidence we will confront the problem one more time and continue to build constructively on the systems which have served the world so well.