U.S. foreign policy: Demands of the next; Within the World Economy

Oregon educational broadcasting in cooperation with the Foreign Policy Association presents United States foreign policy demands of the next decade. On the occasion of its 50th anniversary the Foreign Policy Association of the United States organized a traveling foreign policy conference. This is the third of a series of seven programs developed from that conference based on the theme demands of the next decade. These programs are designed to stimulate the thinking of an informed American public about some of the issues to be faced by this nation during the coming decade. Our guests on the seven programs may be considered among the most distinguished

group of foreign policy experts ever assembled for such a task. Today's program is subtitled within the world economy. Future programs will consider such topics as projections for Asia projections Africa and projections. Latin America. Richard Gardner is our guest for today's topic within the world economy. Dr. Gardner is professor of law and international relations at Columbia University and also serves as senior adviser to Ambassador Goldberg at the United Nations. In 1981 he joined the Kennedy administration as deputy assistant secretary of state for international organization affairs. He is currently serving as a director of the Foreign Policy Association. In keeping with his interest in foreign affairs. Dr. Gardner has written three books Sterling dollar diplomacy in pursuit of world

order and a blueprint for peace. Following Dr. Gardner's prepared address he will respond to questions. Dr. Richard Gardiner within the world economy. Let me start with one fairly optimistic and hopeful statement. Despite all the difficulties which now confront us on the economic scene we should not forget that broadly speaking the international economic policy of the United States over the last 25 years has been a fabulous success by any standard American leadership has made possible the recovery of Western Europe. The unprecedented clearing away of obstacles to world trade a beginning for the first time in history of a cooperative attack on world poverty and helping the less developed countries and perhaps most important of all. An

unbelievable growth in the standard of living of the American people and the people of most of the developed countries of the world. So we must be doing something right. And in the preoccupation with current difficulties let us not under-rate the magnitude of past achievements. Now it seems to me there are three major areas of policy which challenge the American people in the next 10 years in this area. Trade aid to less developed countries and the international monetary situation in the field of trade the central question is after the Kennedy round one. In other words having brought off. The greatest reduction in tabs and other trade barriers in world history.

It is the United States going to go backwards into protectionism as some propose I we going to pretty much sit where we are. Hold the line got going neither forward not backward. Or are we going to take a major giant step forward toward free trade. Those seem to be broadly speaking the three major options confronting us in the field of trade policy. Now I hope we won't go backwards. There are before the American Congress today dozens of bills which would lay import quotas or increased halfs or surcharges on American imports. And there's no doubt that the results of the Kennedy round coming on top of the reduction of the American Taff over the last generation because don't forget we brought the American Taff down from 60 percent on the average

1934 to about eight and a half percent after the Kennedy round cuts were put into effect. And naturally it's beginning to bite. On some of the industries in this country that cannot compete on the basis of comparative advantage with foreign production. Steel Manufacturers chemical manufacturers textile manufacturers and others are therefore calling for restrictions. But of course you can't have your cake and eat it too. In this or in any other field if you really believe in competition in trade on the basis of comparative efficiencies as we Americans keep saying if we want to expanding markets for American exports then there is simply no escape. Do enlarging our purchases of American imports and goods from overseas. And we certainly cannot expect our foreign aid programs in less developed countries to yield the results that we keep say saying we want unless we open our

markets to the products of these countries so that they can earn their way in world trade and someday become free of the necessity to depend on American handouts. I think trade we have learned is a tremendous stimulant to the American economy. While it may displace some people on balance it is to the real income of the American consumer by making available cheaper and better products than would be available from home production. And it is a great stimulus to the American economy because the industries which benefit from increased trade I thought was vital to fast growing export industries in which pay high wages and the people who suffer much less numerous and they are more tend to be the lower wage dying stagnant industries in which we have a

disadvantage compared to production overseas. But it takes political courage. To act. On these basic and fundamental economic Verity's still. That is the challenge and I would hope that in the next few years after we get by this election year because obviously nothing is going to happen in the election year very dramatic in the field of trade. But I would hope in the beginning of the 70s we might consider nothing short of going to a free trade area embracing Canada the United Kingdom and all of the industrial countries of the free world who are prepared to join the concept would be that we and our friends would commit ourselves to the complete elimination of taps and nontariff barriers over a period of 10 to 20 years. Now it should be phased out over a long period because the secret of success in this

economic field as in so many other fields is a big target with commitments to move toward it in fixed annual installments. That's the way the Common Market set about getting underway. It took a big target free trade with fixed commitments to move in annual stages of 10 percent and something like that it seems to me is what we ought to be doing ourselves with our trading partners. I would like to see this industrial free trade area include the common market if possible. But it may well be that they won't join. If that is true at least the rest of the industrialized countries of North Atlantic community and Japan forming their own free trade area would then be in a position to bargain from strength with the common market to reduce on a basis of mutual advantage. Traffic and trade barriers between the two great trading groups. I

believe that there should be a one way free trade policy put into effect by the industrialized countries on behalf of the poor countries of the world so that the less developed countries of Latin America Africa Asia would be given the benefits of this free trade policy without asking of them for reciprocity in return. Because as you know most less developed countries cannot for the foreseeable future abandon import restrictions given their desperate shortage of foreign exchange and their low income situation. All right so much for trade policy in the field of aid we face equally great choices. The foreign aid program has been in real trouble. The last Congress cut the foreign aid bill to the lowest point in post-war history. One point nine billion dollars aid as a

proportion of our gross national product has been consistently falling and this has been true on the average of developed countries. The question is do we just abandon the aid program with our preoccupation with Vietnam and our domestic problems. Do it try to hold it together and go on with some patchwork bilateral aid arrangement along present lines. Or do we take a deep breath and move on to something really significant. And if we again if we have the will and the courage and the imagination I believe there's a big giant step forward we could take in the aid field as well as the trade field. I would like to see. Applying the same approach of a big target to be implemented in annual installments I would like to see the heads of state and foreign ministers of the industrialized world countries meet at an early opportunity again after the presidential election

to pledge themselves to a steady escalation of aid efforts in order to reach by the end of the decade of the 1970s. The 1 percent target of aid as a proportion of gross national product which was set by the United Nations and the OEC countries that is the Organization for Economic Cooperation and Development group of industrialized countries and past targets which were set by these agencies several years ago. The concept is that in principle every developed country should allocate 1 percent of its annual national wealth for economic assistance to the less developed countries. Not an unreasonable not an unreasonable objective. Far from reaching that target we're now down at about a half of 1 percent of aid as a proportion of gross national product even if you include our food shipments as a. Now if we could all get together in the early 70s or the beginning of the decade

of the 70s and agree to reach that 1 percent target by steady increases in our aim it would mean a doubling of American and other countries foreign aid efforts by the end of the decade. When you take into account the prospect of increases in our national income because we have now an 800 billion dollar economy per year and it's growing at about 40 billion dollars a year and it'll be a trillion dollars one thousand billion dollars by 1971 so the political leadership of the United States can say in effect to the American people we're not asking you to give up $1 of what you now have in terms of income we're only asking you to give up a small fraction of the increase in your living standards which might be expected on the basis of the natural increase

in our national wealth and we're asking you to put that increase into investment in the less developed countries to avoid future of Vietnam's. Now of course nobody is so simple minded as to think that economic development alone brings instant peace. We know that that is not true. But I do say that without development without any amelioration in the miserable economic conditions in which most of two thirds of humanity now live. Future of Vietnam's are unavoidable and I would like to see a swear fraction of the 80 billion dollars a year we're now spending on defense and unproductive an essentially sterile Ottomans into peace building investment in Asia Latin America and Africa. And I would like to see most of this additional money channeled through

international agencies. I have felt for many years that bilateral aid was not the most satisfactory form of assistance. Of course there may be special cases where you need to carry it on while you have a special relationship but I believe as a broad generalization most of the aid in the 70s should be channeled through the World Bank the International Development Association the Asian Development Bank and the regional banks in Africa and Latin America. And the main reason why this is so really is twofold. First if you use international agencies you can assure a fair sharing of the a burden between the United States and other rich countries which you can't do if you're operating on a purely bilateral basis. One of our troubles frankly in this area is that we've been giving to some extent 50 year loans at nominal interest rates to help countries pay back the French and Germans commercial credits at five years

and 6 percent. Now that's no deal as far as I'm concerned and I don't think the American public and the American Congress will accept it. But if you've got an international framework which standardizes terms and conditions of aid you can work this thing out on a reasonably equitable basis. And the second reason I think is even more basic. I've just come back from a two month tour of Asia. I've been to India and Indonesia two of the largest underdeveloped countries in the world and perhaps the two most troublesome ones in terms of the intractability of their economic situation. And it's perfectly evident that no amount of foreign aid will produce significant progress in those countries without the most profound changes in the domestic institutions in the domestic policies of those countries. These countries have tragically neglected their agricultural productivity. Tragically neglected their population explosions tragically

neglected the adequate encouragement of private initiative. They are saddled in both cases with the dead hand of bureaucratic control. They have done not nearly enough to encourage foreign investment and local investment and it seems to me that if the United States alone is laying down conditions and terms for the wise use of its assistance too often the consequence will be rocks coming in the embassy window the next day or the burning down of the USRA library. I don't happen to like that because one or two of my books by it might be in that library. I would much prefer to have the hard tough. Advice and let's even be frank and call it intervention in domestic affairs because that's what it is. The intervention should be done on a collective basis and which the World Bank moves in and says Look here. Here is what a the wisest

man in the world would think about your economic situation not just Americans but Indians Pakistanis Japanese English Brazilians. Here is an economic report here's what's got to be done now this is the basis of it are you prepared to do this. And I don't want to bet they won't throw any rocks in at the World Bank. The most likely consequence is they'll accept the advice and if they don't well then they can't get the egg. I would be very tough about this. Look at Indonesia whose population is growing at 3.2 percent a year sufficient to double its population every 21 years. No amount of foreign aid could possibly bring significant increases in individual living standards in that country without a birth control program. Population of Java was 4 million people once or Stamford Raffles took the first census in 1815. It's 70 million people today. It's going to be 200 million by the end of this century only 32 years

away. And yet they haven't even begun a family planning program in that country. So it's the job of the less developed countries they've got to take the primary responsibility for their own development we can help them. But it's got to be on a basis of mutual advantage and mutual help. And I think the best way of getting the necessary adjustments in the policies of the rich and the poor is by using multilateral institutions regional or global in which commitments to increased help and trade expansion by the rich can be balanced reciprocally against increased commitments of self-help by the poor. And they really want that the wisest and best of them I. Was told by a senior official of Indonesia late at night when no one was around so he could talk frankly he said to me. Gardner Let me tell you something the generals are ruining this country. The army is feeding off the country they're doling out licenses for oil

exploitation and get money under the table and all kinds of things now what you fellows ought to do is NOT have the American ambassador come in here and put a stop to it. Bring us a World Bank mission and have the World Bank take this thing over by take it over I didn't mean actually run the country with ministers but come in and lay down a sound program and really make it stick. And what it means is really using international agencies to help the modernizing realistic pragmatic honest forces within these countries against the stagnant dead hand of corrupt older guard forces in these countries. And to those people who say well this is intervention in domestic affairs I had one Indian student when I said this got up very indignantly and said But that's intervention in our domestic affairs and I said to him Well you think the American people should put a billion dollars into your economy every year and asked no questions which is what we've been doing if you total up all the different kinds of aid. He said yes. I said when you're

intervening in our domestic affairs because you know that's American taxpayers money we we don't we can't just dole it out without asking any questions we want to be sure the money is really producing real human betterment for the average individual person. And until you can persuade the American people of that I think the final a program's going to be in real trouble particularly as we face a decade in which we Americans for the first time in our history have woken up to the fact that one of the greatest underdeveloped countries in the world today is right here inside the United States in the form of 20 million Negro Americans. Twenty million other Americans who have been bypassed by the affluent society. So the first claim on our. Conscience of course is our own underdeveloped country and if other countries overseas want help and they should get it they've got to demonstrate the ability to use that help for real genuine

betterment of the condition of the average individual. Now finally I come to this vexing question of international finance. It's been said that there are a only 10 people in the world who understand the gold problem and they're not telling anybody and I'm not sure I'm one of those 10. Maybe there are a few of them here in the audience. And since my time is short I will have to make some whopping oversimplifications. And I wince inside as I make them but since the time is short. Bear with me. It seems to me there are two problems here. A an adjustment problem and a reserve problem. The adjustment problem derives from the fact that the United States has been running balance of payments deficit for over a decade now. Deficits of the order of two or three billion dollars a year. Now these

deficits do not reflect an inability of the United States to pay its way in world trade. Quite the contrary we've had a star plus on commercial account that is goods and services exports over goods and services imports of approximately 4 to 5 billion dollars a year. The deficit derives from the fact. That this commercial surplus is overbalanced by capital outlays for military spending foreign aid and long term private foreign investment. And the military thing is a major element now what with Vietnam about half of the 3 billion dollar deficit last year was directly due to the Vietnam War. Now I don't know what your views are in Vietnam and we'll hear about that later on today at lunch. But I think we might all agree hopefully that the Vietnam War is not going to go on indefinitely. It's going to be some kind of solution. It's not going to go on for the entire decade of the

70s. So I think if we are making long term projections of this financial picture and we should we may safely assume that at least part of that military burden hopefully will be removed in other words we to get an adequate perspective of our balance of payments problem. We ought to single out the Vietnam factor as a non-recurring special item and if that is done then the balance of payments problem doesn't look quite so bad because you get down your deficit to something of the order of billion and a half or two billion a year allowing for the fact that we already have some restrictions which may hold the deficit below one of my normally bathe. And for a country with a 900 billion dollar gross national product a deficit of 2 billion dollars a year is nothing to press the panic button about Rover. And this is a point that is usually overlooked in the popular literature. This deficit is

not the usual kind of deficit our commercial surplus has been sufficient in the average of years to pay for our foreign military spending and our foreign aid. It is not been sufficient however to pay for our long term private investment. But I hold that this needn't be a bad thing. In other words if we're running a 2 billion dollar deficit in which we are lending long and borrowing short American business is putting two billion dollars into Europe and Canada and the less developed countries and foreign governments and central banks are accumulating dollars against that. This is not inherently an unhealthy situation. We are performing a role of financial intermediation just like any central bank does when it lend you money to build a house and you open a bank account with that bank. The bank is lending long and you open up

accounts so that's a short term claim on the bank. And without that kind of financial intermediation we could have an economic growth in this country. And without that kind of financial intermediation the will of the world's economic growth would be seriously compromised. So what I'm saying to you is that when we talk about a balance of payments deficit we ought to be very sophisticated and understand what the deficit is composed of. Because if it's mainly the result of this process of financial intermediation it needn't be a bad thing provided. And this is the big if provided the other countries of the world are prepared to hold the dollars. But if they're not prepared to double the dollars if they want to behave like the Goldfinger and cash them in for gold then of course we have a problem because the gold stock is not adequate to pay off all the short term

creditors. So then you have a confidence problem. Now what the rational thing for the world to do would be to help the United States to adjust to this really quite modest problem not by shortening the long leg of U.S. payments to others that is not by having the U.S. cut back on its foreign investment cut back on its foreign aid reduce its imports deflate its economy have mass unemployment all these restrictive measures to cut back. American payments overseas. The rational thing to do would be to in to lengthen the short leg that is increase U.S. foreign payments increase foreign payments to the United States by encouraging foreign tourism in the United States encouraging foreign investment in the United States encouraging foreigners to take a larger share of the aid burden encouraging

sluggish growth rates in Europe to be increased in the interest of the European countries themselves so that they import more from us. Clearing away European restrictions on American exports and so on. And we have in my judgment grossly neglected these expansionist opportunities for solving our balance of payments problem. Isn't it a scandal that it took us 20 years to get around to the idea of encouraging foreign tourism in the United States by really significant measures only just last month that a committee get around get it get around to proposing reductions in airfares and hotel rates and so on to get foreigners to come to the United States in increasing numbers to reduce this tourist gap. What should have been done 10 years ago. Moreover our tax laws still penalize unnecessarily foreign investors in the United States and much more could be done to open up foreign markets to

American exports. A hopeful development reported yesterday was that the European countries in the OPEC have agreed to put in or tentatively at least to put it into effect immediately instead of in five annual installments as previously agreed. The Kennedy round cuts to benefit American exports. Now that's a creative idea. Deal with the American deficit not by restrictions on our part but by opening up the restrictions of others that would add to World Wealth world employment and world trade.