Wriston, Walter B.
One of my favorite publications for reading on airplanes is "The Economist" of London. It is one of the world's great economic journals. But I've noticed lately that sometimes when the plane lands I have not only jet lag but a certain sense of depression.
The other day, for instance, "The Economist" told me in one issue that Great Britain may have a new money-supply problem, that the people in Oxfordshire can't get their garbage collected, that Greece may be wrecking the EEC's foreign policy, that President Reagan is making serious mistakes in Central America, that the Russians are meddling in Northern Ireland, and that El Nino has ruined the world's weather and caused drought all over the American midwest.
I think there was also some good news but I can't remember what it was. I can't help being reminded of a quotation from Barbara Tuchman's modern classic about the middle ages. She wrote:
Disaster is rarely as pervasive as it seems from record accounts. The fact of being on the record makes it appear continuous and ubiquitous whereas it is more likely to have been sporadic both in time and place. Besides, persistence of the normal is usually greater than the effect of disturbance, as we know from our own times. After absorbing the news of today, one expects to face a world consisting entirely of strikes, crimes, power failures, broken water mains, stalled trains, school shutdowns, muggers, drug addicts, neo-Nazis, and rapists. The fact is that one can come home in the evening--on a lucky day--without having encountered more than one or two of these phenomena.
This has led me to formulate Tuchman's law as follows: 'The fact of being reported multiplies the apparent extent of any deplorable developments by five-to- tenfold.'
There are many examples to validate her law. In the early years of my own country when the great English constitutional scholar, Lord Bryce, uttered his judgment that the American "Constitution is all sail and no anchor," his verdict was not proclaimed electronically around the world. In fact, it passed almost unnoticed. There was no clamor for a new Constitutional Convention to remedy our disastrous mistake, so clearly identified by an "expert." Today, however, we all live in Marshall McLuhan's "Global Village," and experts who proclaim disaster are given much publicity with a consequent effect on policy formation.
The signs carried by a hundred protestors on the site of a nuclear plant may be seen instantly by millions of people around the world in living color.
A study of how people learned of the shooting of President John Kennedy in 1963 showed that 44% of the people knew it within fifteen minutes, 62% within thirty minutes, 80% within forty-five minutes, and 90% within an hour. About half of the people heard about the event from radio and television and they notified the rest either in person or by telephone. It was the first time in history that the population of an entire continent learned about a single event in an hour's time. And that was twenty years ago!
Today cameras zoom in on the face of the man struck by the rock or the policeman's club. Armies that clashed by night, now appear on our living room TV. I do not in any way argue that this is bad, far from it. But I have to observe that, for the first time in the history of Man, our society with all the flaws inherent in human nature, all the breakdowns in technology, and all of our social foibles, is communicated instantly to the world. Things will inevitably go wrong, because men still are not gods. But because all the failures, the mistakes, and the accidents intrude upon our consciousness in an almost unbroken stream, our fear of the future increases exponentially.
The fact that the world has had the technology to destroy this planet for more than thirty years, but has not done so, is noteworthy but not newsworthy. Nevertheless, it is critical to all else. It represents what Barbara Tuchman called "the persistence of the normal." And it is this persistence that gets us past the crisis.
If we kept a running inventory of trouble in today's world, reasonable people might conclude that the laboriously built world financial system was about ready to collapse. It would seem beyond dispute that all the elements of disaster are present, and yet somehow, despite a full scale war between Iran and Iraq which may already have consumed 300,000 lives, a Soviet invasion and war of attrition in Afghanistan, a complex and dangerous factional war in Lebanon, the military adventures of Libya in Africa, the presence of Cuban troops in Angola, the wars in Central America, the fight for the Falkland Islands, the war in Cambodia, and struggles in other parts of the arc of Asia-- the markets still function.
This is not to say that there are not always present real dangers of great magnitude which require our best efforts to manage--there are. Indeed one seems to succeed another with great rapidity. What is underestimated is the ability of the market-- using that term in its broadest sense--to act and react and to survive. This is true both of the political marketplace and the financial markets.
A free economic system, like a free political system, is untidy--it offends those people who love tidy, predictable societies. It offends people who know in their hearts that if only they would be permitted to dictate the way things should be, the world would be a better place. Trial and error could be replaced by a rational plan. Indeed in my country this thought process is going under the rubric of "National Industrial Policy." Entrepreneurs make a lot of mistakes. We have a lot of failures, because of this cycle, a free economic society does not appear to be very stable to those who believe they know best. Alfred North Whitehead understood it much better. He observed: "What looks like stability is a relatively slow process of atrophied decay." Some people see only the failures; they cannot seem to grasp the fact that the failures are the price we pay for the successes. It's as though they wanted to have "up" without "down" or "hot" without "cold." Hong Kong became the amazing success it has always been precisely because very few of its citizens suffer from that delusion.
Back in the States, we read in our newspapers, and even in our business magazines, solemn words about "risky investments" and "risky loans" from writers who do not seem to realize that these phrases are as redundant as talking about a one-story bungalow. All investments and all loans are risky because they are all based on educated guesses about the future rather than the certain knowledge of what will happen. Despite the most sophisticated market research, no one really knows if the public will buy the product or use the service which we are about to produce. The new product might be an Edsel with a $400 million price tag, or it might be the quartz watch. It could be the decision of a Joe Wilson, risking all the resources of his small company to make a copier later called Xerox, and doing it in the face of a careful study which showed that it would be a bad substitute for the familiar carbon paper. If one follows the export statistics of Hong Kong in the years since I have had the pleasure of coming here, the shift in products from wigs, to textiles, to electronics, to financial service has been as dramatic as any place in the world. You have followed your markets and adapted to changing tastes and lifestyles. These changes, as you well know, occur in the market well before governments recognize them. One of our most distinguished congressmen recently pointed out that "the people are always ahead of the legislators.
The odds against success of any kind are formidable. I don't know the numbers for Hong Kong, but some 300,000 businesses are started each year in America and only about a third of them survives as long as five years. Proponents of a safe, stagnant, boring tomorrow view this as a wasteful process, to say nothing of its being irrational. On the contrary, George Gilder has argued that: "....such waste and irrationality is the secret of economic growth. Because no one knows which venture will succeed...a society ruled by faith and risk rather than by rational calculus, a society open to the future rather than planning it, will call forth an endless stream of innovation, enterprise, and art."
Hong Kong stands as a living monument to that analysis. When my predecessors at Citibank opened an office here in 1902, Hong Kong was viewed as a remote outpost on the South China Sea. It became a global financial center in large part due to the liberal trade policies of the colony and the incentives it offers to foreign investors.
It is of interest to note that when we started out in Hong Kong, all trade in the colony was financed by the exchange of gold and silver bullion. Today, millions of dollars--U.S. or Hong Kong--can be transmitted electronically between Hong Kong and any point on the globe at the speed of light. The methods and techniques have changed almost unimaginably but the principle remains the same.
The shaping of an economic and political climate begins with education and looks to role models. The American Revolution was a role model for the world in creating constitutional governments based on individual liberty. On the educational side, Daniel Moynihan has pointed out that it was the London School of Economics which furnished much of the doctrine learned by visiting students from third world countries. These students often went home to join their government and shape policy. He points out that the doctrine they were taught contained "....almost a bias against economic development..." because since ... "there was plenty of wealth to go around if only it were fairly distributed...profit became synonymous with exploitation....production for profit became a formulation for all that was wrong.." This was the Fabian Doctrine exported via students to the third world. As we have now all learned the hard way, the salvation of the peoples of the world rests on countries establishing productive economies. If they do not, they become permanent wards of those countries of the world that have learned to let enterprise operate and create the growth and wealth the world needs to feed itself.
It is almost impossible to exaggerate the importance to the general welfare of the willingness of individuals to take a personal risk. The worst thing that can happen to a society, as to an individual, is to become terrified of uncertainty. Uncertainty is an invitation to innovate, to create; uncertainty is the blank page in the author's typewriter, the granite block before a sculptor, the capital in the hands of an investor, or the problem challenging the inventive mind of a scientist or an engineer. In short, uncertainty is the opportunity to make the world a better place. Despite this, much of the world today seems designed to encourage our natural timidity urging us to play it safe, to invent a risk-free system and give up being tough-minded. Much is heard in my country of the need for an "industrial policy." The phrase has many meanings, but at the end of the day it means some bureaucracy is picking the winners and losers. As every entrepreneur knows, only the market can do that. In many countries the tax structure discourages the innovators, penalizes the successful, and preserves the inefficient. This is not prudence. Prudence is one of the intellectual virtues, and there is very little intelligence to be found in all this. It is institutionalized timidity, and it is an affliction that so far has not invaded Hong Kong.
Hong Kong's ability to upgrade and retrain its work force has been a model for the developing nations of the world. It is a model we must follow in my country as more and more workers move into the information era. The infusion of private capital and the introduction of modern technology have enabled Hong Kong to move from the production of simple cottons to high fashion, from the production of plastic flowers and straw hats to transistors and optics. Productivity has risen sharply as have the wages of workers and their standard of living. Hong Kong, in short, is living proof that the free exchange of goods and services, capital and ideas is our best hope to improve the human condition and strengthen ties between the developing and developed world. It has all happened because Hong Kong remains one of those rare spots on the globe where timidity has not yet been institutionalized.
We had an American writer, Ambrose Bierce, who once defined prophecy as "credibility packaged for future delivery." I'm not a prophet, and have very limited faith in them. On the other hand, predictions are not always wrong. In my home state of New York, back in 1953, a school teacher asked a class of ten-year-olds to write down what they thought the world would be like a quarter of a century later, in 1978. He sealed the essays in an envelope and opened it in 1978.
One ten-year-old pupil had predicted: "I think the world will have very high prices in 1978."
Another said: "Some men may even walk on the moon." That prediction was made four years before the Russians launched Sputnik. Others predicted color television and that supersonic airplanes would fly across the atlantic in three hours.
Emboldened by those successful predictions by small children, I am prepared today to package some of my own credibility for future delivery.
The instant transfer of data and news that makes Tuchman's Law so accurate, also breaks down walls surrounding the islands of ignorance about how the world lives. Years ago retailers in America could unload last year's fashions on people living in parts of my country who had little or no chance to keep up with the latest styles. Today television has made that impossible--families on isolated farms in the great plains are as well-informed about new fashions as are urban dwellers. Something like that is happening all over the world. Satellites are making national censorship more and more impossible, as the hand-held transistor radio brings the news from space that the government on earth has banned.
I would predict, therefore, that free enterprise will not only survive, but that it will flourish. It will do so because people with different philosophies have begun to look out the window provided by technology. They can now see beyond their own village. They have begun to see on their screens who eats best, dresses best, and lives in a house where the roof doesn't leak. And they have begun to connect these facts with the economic system which produces these results.
It is always hard to discard one's own intellectual baggage. We invest in our ideas just as we invest our money, and in the realm of ideas it often takes a long time to acknowledge our mistakes. But I believe that the time has come. This fact is also becoming apparent in the economic sphere. The contrast between what the free enterprise system and all the other systems have produced over the past seventy years can no longer be ignored. That does not make the outcome any more certain, but the demise of the Club of Rome and the dismal record of state-run economies cannot fail to make inroads on the world's thinking over time.
Hong Kong has always furnished the example that confounded the socialist planners. So the same modern technology, which is giving us an unbroken stream of bad news, is also making it harder not to look around and see which economic system creates the best progress for mankind. As that awareness spreads, so, I believe, will freer economic systems. And that could well be the good news the world is looking for.