The World Economy: Dr. Pangloss vs. Jeremiah

Wriston, Walter B.


Anyone who has ever heard the old saw that "no news is good news" might now be willing to believe the converse that all news is bad news. Certainly, in my country, the electronic media endlessly repeat that the end of the world is at hand. What is even more regrettable, however, is the tendency of the doomsayers to substitute opinion for fact and to turn every grim event into the first tranche of a full blown crisis. Examples abound.

A drought in Africa, as terrible as it is, is depicted as the beginning of global starvation. The mismanagement of a handful of not very important banks is interpreted as a harbinger of imminent collapse of the world's financial system. A change in the administration of an industrialized nation is viewed as the first step on the road to anarchy. The weakness of the pound or the lira or the drachma is construed as a warning that all currencies are in grave jeopardy. You can make the list as long as you wish. There is little doubt, as Marshall McLuhan has pointed out, that "the word is the market," and when the word is gloom, the markets not only reflect but magnify it.

The trick in this world is to keep a sense of balance. One should not accept uncritically the pabulum of Dr. Pangloss that everything is "for the best in this best of all possible worlds" or the doomsday prophesy of our modern Jeremiahs. Your Prime Minister had this need for balance in mind when he suggested that common sense should replace despair. Part of this despair is a growing belief in many countries that governments have been bad managers.

The confidence of many people has been shaken by rampant inflation in many parts of the globe. Their fears have been exacerbated by dark pronouncements, often by people who should know better, that old remedies no longer work, and our leaders are baffled by a new kind of inflationary virus.

In most places this is not true. It is just that the old remedies have not been tried for a long enough period to have them work. In my own country, our monetary authorities for some months have refused to validate the rise in our price level. The result will be the same today as it always has been. The economy will slow down and the rate of inflation will moderate. It takes a long time because we have been spending more money than we earned for a lot of years. It is hard to kick the habit. There is no easy way. We have learned the hard way that massive government spending does very little for unemployment and is the fuel that fires inflation. We are now searching for micro solutions to specific employment problems, and hopefully moving away from the old macro programs.

The road is not easy, but neither is it impossible. The modern day doomsday prophets always ignore the role of human ingenuity in finding a means to cope with whatever problem appears. It is even hard now to remember what it was that we did that at the time was said to be impossible.

There was Hitler who said he would shape the world for 1,000 years. It did not turn out that way. After the war, we were told by experts that Europe's productive plant was destroyed and would never rise again. We were admonished to worry about the fact that America had most of the world's gold, and that there was no way in which it could be redistributed to the rest of the world. The world then discovered something called a "dollar gap" which was "structural" and would never go away. It went away. This fear has been replaced by petro-dollars which now assume center stage. Each of us can make his own list, and each of us can recall --often with great effort -- how the situation was resolved.

Today you can sell a lot of papers by saying the world is in for a replay of the tragedy of the thirties. This scenario assumes that we have learned nothing. We have. All governments have become much more sophisticated in operating their monetary machinery. More importantly, they have devised mechanics of cooperation which are kept in good repair. The world has moved away from the rigidity of the gold exchange standard. Floating rates now permit the system to bend without breaking. Central banks are particularly alert to their role as lenders of last resort. Various institutions for international stability, such as the IMF and the World Bank, have grown more mature.

There is now no doubt that all governments can -- if they will -- curb inflation by practicing monetary and fiscal restraint and encouraging productivity. Progress in any form, however, takes time, and most bureaucracies move at a ponderous pace. Cutting the money supply, which inevitably creates some unemployment and stagnation in the economy, is often viewed as too slow and too painful a remedy to cure the virus.

Although such strong medicine is needed to take the high fever out of inflation, people become restive and demand immediate relief. This impatience, of course, is understandable in a world which has grown accustomed to miraculous cures, wonder drugs and instant answers. The danger is that politicians in an effort to please their constituents will turn from economic to political strategies. The switch may momentarily bolster public confidence but, ultimately, such action is a cosmetic device which merely breeds greater distortions in the economy.

Since the beginning of time, governments have sought simple, sugarcoated solutions. A long time ago the Stuart King Charles II instructed his Parliament: "I pray contrive any good short bills which may improve the industry of the nation."

Since there are no "good short bills," many governments are reluctant to take the long hard way. That is, they are often reluctant to clamp down on monetary and fiscal policy to the degree necessary to root inflation out of the economy.

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 be constantly 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 company, Citicorp, operates in 98 countries around the world. Our first overseas offices are more than 70 years old. I think it is fair to say that we have seen economic controls 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 ever more important than their failure is that on the way to failure they distort the global marketplace -- discouraging producers, causing shortages and creating uncertainty.

The emergence of the Burke-Hartke Bill in my own country is an illustration of the kind of retrogressive thinking. So is the expropriation of assets without fair and equitable payment. This planet has become too small, and the fate of us all too interwoven, to engage in these dangerous old nationalistic games which dilute the talent and dissipate the energy of mankind.

Our global society is today, as always, in a period of transition. There is a growing recognition among nations of their interdependence and the stake each has in the survival of the other. Despite this growing of global consciousness, some nations still continue to turn their backs on the future and to concentrate on parochial issues. While some 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 people.

The climate created by each nation-state will be the final determinate of where the scarce resources of the world will flow. Capital goes where it is wanted and stays where it is well treated. In a mobile world, with an infinite demand for funds, this simple truth should be well understood.

In the United States now, as in most other nations, we look to foreign funds to help us meet legitimate demands for capital. Europe's current investment in the United States, for example, exceeds ours in Europe by several billion dollars and there is every reason to believe that this trend will continue.

Since the early decades of American independence, we sought European investors to build our roads, canals and railroads. What passed for our central bank in those days was owned and controlled by Europeans. Our first Secretary of the Treasury, Alexander Hamilton, summed up our attitude toward foreign capital in 1791 when he said: "Instead of being viewed as a rival, it ought to be considered as a most valuable auxiliary, conducing to put in motion a greater quantity of productive labor...than could exist without it."

So we imported foreign capital, labor and technology, and relied on native ingenuity to translate these imports into production and growth. In retrospect, one might say that the importation into America of a labor force capable of quickly adapting to mechanical innovation has been the greatest of all assets.

While the population of Australia is small in comparison, yours is also a country of skilled workers. The importance of competent and creative people to any country was stressed by Servan-Schreiber when he wrote: "The signs and instruments of power are no longer armed legions or raw materials or capital...Modern power is based on the capacity to transform inventions into finished products which is technology. The wealth we seek...lies in the ability of men to think and create."

You have people of ability as does the United States, and they represent our intellectual capital -- a product always in short supply. You possess an abundance of resources, and your country is vast, as is my own. Your outlook, too, has been shaped by the proximity of the frontier and much of your development has taken place in the recent past.

While the map shows that our two countries are more than 10,000 miles apart, many Australians, like most Americans, are increasingly aware that our economies are only sub-sections of the global economy. They view the oneness of the world not as an intellectual abstraction, but as a fact of life. They know we need not agree on all issues in order to act in concert on many. Neither the optimism of Dr. Pangloss nor the gloom of Jeremiah is our road to salvation in the real world.

Perhaps your Banjo Patterson put it best, when he urged that we "read the riddle right, and give new hope to those who dimly see that all things yet shall be for good, and teach the world at length to be one vast brotherhood."

  • The document was created from the speech, "The World Economy: Dr. Pangloss vs. Jeremiah," written by Walter B. Wriston for the Institute of Directors on 25 October 1974. The original speech is located in MS134.001.002.00031.
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