Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

294. Memorandum of Conversation¹

Washington, May 26, 1975, 8 a.m.

PARTICIPANTS

• President Ford
• Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for National Security Affairs
• Secretary William Simon
• Secretary Morton
• Secretary Dunlop
• Frank Zarb, Administrator, Federal Energy Agency
• L. William Seidman, Assistant to the President For Economic Affairs
• Mr. Greenspan, Chairman, CEA
• Donald Rumsfeld, Assistant to the President
• Max Friedersdorf, Assistant to the President for Congressional Relations
• John O. Marsh, Jr., Counsellor to the President
• Lt. General Brent Scowcroft, Deputy Assistant to the President for National Security Affairs
• Robert Hormats, NSC Staff
• Roger Porter

The President: The purpose of this meeting is to discuss the relations with the LDCs, particularly as they relate to the issues of commodities and raw materials. There is apparently some dispute, or difference. I can’t imagine there is a substantial difference, but only one of phraseology and perhaps philosophy. I just want to state my own views—the way I see the issues. I strongly believe in the free enterprise system. I have always been in favor of it and I see no reason for changing. On the other hand I believe strongly in pragmatism. Sometimes I think it is important to solve problems rather than to be too concerned about phraseology. I think the significant thing is the solution to the problem. You frequently can solve problems domestically, between conflicting interest groups through a papering over of wording differences, and I think you solve differences between political systems in the same way. You may have to give a little on words in order to achieve something necessary to solve problems. I don’t believe that you get practical solutions by being too sticky on phraseology.

But we are obviously not going to compromise on our basic philosophy. We will defend strongly the system that has done well by us and by others, but we will try pragmatically to work out differences on such issues as coffee, tin, tea, etc. In this way we can defend our system without establishing a new world economic order. Anyway, we can’t establish such an order because we don’t have the capability and I don’t think that even if we did we should participate. We should state the problems we face and defend our interests in the process.

I would like to listen to some other approaches now.

Secretary Kissinger: There are really two issues. The issues we are discussing today surfaced as a result of a process of clearing speeches. There are clearly people here with strong convictions on the various subjects. We will set up procedures by which views are solicited ahead of time. This should enable us to deal with the various points of view.

The next issue is what stance the United States will take on the many international economic issues on which the LDC’s are essentially united on general philosophy. The LDCs are generally characterized by a view which originated in the London School of Economics and in a Leninist form of Marxism. This gives legitimacy to their leaders staying in office. In a democratic system they would have to alternate in office. The democratic system was set up by aristocrats. They knew who they were and had their own resources, so they could afford to leave office.

Western Europe—U.K. and Italy—are also moving along the lines of a greater degree of socialism.

I agree that we should not accept the proposition of the new economic order; on the other hand we must not go to the barricades. We will be totally alone if we do—beaten back and back, with no support. My position is that we should not debate whether it is a new order or an old order but fight on technical issues. If we get into a fight, a technological [theological] fight, between free market and regulated market we will be beaten back. Schmidt for instance told me clearly that the energy meeting was the last time that the FRG will support the U.S. on these sorts of issues.² If we do not move we cannot count on their solidarity. They will declare their independence of us.

We made out our position clear in Kansas City. We intend to take a firm position. But in order to do so we must get ahead of the parade and then turn it to meet our needs. We can control the situation better by seeming conciliatory and cooperative. And many of these issues are political issues so that we can use other leverage when the time arises.

The President: It seems to me there are two issues. One, recognition that you have to negotiate some of these matters, and two, the procedures by which you negotiate. There will obviously be tough negotiations dealing with individual commodities. But we must recognize that there are situations in which we have to negotiate, and we want to be in the strongest position to do so. I can’t imagine that in the current situation you will find the LDCs in a position of total solidarity as they were on oil.

Secretary Kissinger: In energy, I did not expect anything to come out of the consumer-producer conference. But we needed the conference to hold the consumers together. The reason for the prepcon was that it was easier for us to defend ourselves in the conference than to debate incessantly the issue as to whether there should be a conference. It helped us to keep the consumers together.

Secretary Simon: As you know, Mr. President, I don’t deal in theory; but I think it is extremely important how we posture ourselves. The world economic order is a broad effort on an issue of principle, which is in opposition to U.S. interests. If we don’t defend the free market, I ask you, who will. We have a great deal of company. We are not isolated.

The President: We will have a forceful spokesman in the UN stating U.S. views. He will be able to take on those who support the new economic order and defend our interests.

Secretary Simon: There are many in the world who support the Socialist principles of the world economic order, but there are many who look to us for defense of the system. They would be surprised if we did not defend the system strongly. We have a real stake in the system. We are better off to talk about the importance of market principles, although we should recognize that it has deficiencies and attack these in a compassionate and cooperative way. We should not imply that we are moving in the direction of embracing this new system. If we do not take on this new approach, we will lose control. Our efforts to defend the free market system will be applauded.

The President: I don’t see the British jumping up to defend the system. Who else believes this strongly enough to jump up to defend it.

Secretary Kissinger: Schmidt will tell you his views on this, that he will not take these countries on on ideological grounds.

Mr. Greenspan: I don’t think we ought to get out in front of others on relations with LDCs. The difference is one of emphasis. We have to assess the efforts of various strategies. There are others in the room who can assess this better than I, but let’s not talk ourselves into believing that the U.S. depends economically on the LDCs. It may depend politically and in a security sense but not economically.

Secretary Simon: If we give the impression of being forthcoming and then stonewall it will worsen the situation.

Mr. Burns: I have the strange feeling that we are having a debate over false issues. The question is one of free enterprise as opposed to socialism. But socialism is in a state of evolution. Yugoslavia and Czechoslovakia, for instance are moving toward a more open and competitive system. There are also advocates of free enterprise in Poland and Hungary. Support for the market is alive and growing.

It appears from reading this speech of Henry’s that we are going to acquiesce in manipulation or market control arrangements. That will not make things any better; this will harm the world economy. I don’t see why we need to take the lead in this direction. If the LDCs want to do this let them do it without us. I have the feeling we are leading the world in a direction which is not in our interest.

The President: Arthur, I have the impression that the speech was more tactical. Our objective is to defend what we want, which is the preservation of the system. The speech is designed to put us in a stronger position to do so.

Secretary Simon: But what Arthur is saying is that bringing it up implies that we are going to bend in principle.

Secretary Kissinger: If we don’t go this far we will have problems. Others will insist on resumption of the energy conference. We will be in the position that we are not prepared to talk about it all. It is a question of how best to posture ourselves in what is inevitable—a discussion of these issues. We need to do this in order to keep the energy conference together. We cannot say we only want to talk about oil—for which the price has gone up for us—and not talk about other issues which are important to the developing countries.

Obviously we can’t accept the new economic order, but I would like to pull its teeth and divide these countries up, not solidify them.

Secretary Simon: But if we do it this way and then oppose them case by case they will say that you were not telling us the truth.

Secretary Kissinger: But there may be some issues on which we don’t have to confront them. On some of the issues we can work out agreement.

Mr. Dunlop: Mr. President, I am going to have to confront some of these similar problems in the ILO meeting.³ In a sense what we are discussing today is ideology. Socialism means something to a lot of countries, free enterprise means nothing outside of the United States.

These countries can unite behind rhetoric or ideology, but the diversity among them is enormous. Their economic needs are highly diverse. Our strategy ought to be to try to get them apart.

The question here is how to develop a political environment in which our leadership can be recognized. We have a contribution to make on various sectoral issues. We can be helpful to these countries.

Mr. Morton: The developing countries know—as a result of the oil cartel—the way the world is changing from a buyers’ to a sellers’ market. They want to do all they can to make this happen even though most of their products are not in short supply and come from diverse sources. We can’t be advertising too much the free enterprise process since this will not be constructive abroad and will certainly not be helpful in influencing these countries. This will not help us to have a major U.S. input, which we need to influence things. We have to recognize that these people are trying to gain a bigger piece of the action through the new economic order. I agree with Henry. We should not isolate ourselves.

The President: In Europe there are by and large Socialist forms of government. In the U.K., the Netherlands and West Germany under Schmidt, they recognize the importance of free enterprise but the leaders are primarily Socialists. The voters select Socialist governments. Free enterprise groups are not as vocal or as successful politically as those in the United States. We must deal with the realities of the situation. All of us in this room believe in the free enterprise system. The question is how to protect that system in the present environment. We need not go around reiterating the virtues of the private enterprise system. I would rather be successful on a pragmatic basis—fight hard in individual negotiations. If we do that job well, then we will be successful.

Secretary Kissinger: I agree with Bill Simon, there will ultimately be a conflict. The question is whether it will be general or on a case-by-case basis. Our job will be to discuss the particular issues and divide the LDCs. We can’t do this on a theological basis. The LDCs will unite and the developed countries will split up. We are much better off doing this on a concrete basis in which there are some who have something to gain. We should appear forthcoming so that we are not outside of the process. We should not put them in the position where they can unite by defending a few platitudes. We certainly don’t have to talk about all commodities or reach agreement on all of them.

The President: We can certainly say that we believe it is important to work with the LDCs and the producers on these issues. We can then defend free enterprise best in this way. This is useful in dealing with Schmidt and he will support free enterprise in the end, when the chips are down.

Secretary Kissinger: On practical issues Schmidt will support us nine out of ten times. On ideological issues he will be pushed by the French and others.

Mr. Burns: If we do lead the parade we may be pushed into international cartels. We will be in a weaker position to block them. The LDCs have said they want trade, not aid. We can be forthcoming on trade, but we should not lead the movement toward cartels.

The President: I didn’t get the impression from the speech that we are leading the parade. We were indicating that we understood the problems. The impression I had is that we were not going to get into anything that distorted the free enterprise system but that we were willing to talk. We can talk and discuss these issues without agreeing.

[Secretary] Simon: But there is a danger that our talking might imply that we are willing to make a deal.

Secretary Kissinger: If we don’t address these issues we will have three months of confrontation. We can use the ambiguities to accomplish our objectives. It is better to have the Finance Ministers be bastards, that’s where I want it.

The President: Well, now we know our approach. As long as we keep the integrity of our system we will be able to resist pressure. Others will be aware of our views. We will have no difficulty defending our major interest.

Thank you for coming so early in the morning.

1. Source: Ford Library, National Security Adviser, Memoranda of Conversation, Box 12. Top Secret. The meeting in the Cabinet Room began at 8:07 and ended at 8:56 a.m. The President’s Daily Diary lists the following attendees, in addition to those listed on the memorandum of conversation: Lynn, Burns, Cheney, Executive Director of the Domestic Council and Assistant for Domestic Affairs James A. Cannon III, and Press Secretary Ronald Nessen. (Ibid., President’s Daily Diary)
2. Apparently a reference to the preparatory talks for the international energy conference proposed by President Giscard, which began in Paris on April 7 and broke down on April 15 over disagreements about the agenda.
3. The International Labor Conference met in Geneva June 4–25.