Panel Discussion

George Mason University School of Public Policy, Arlington, Virginia
March 7, 2011

MODERATOR
- Ed Rhodes, Dean, George Mason School of Public Policy
PARTICIPANTS
- Prof. Will Gray, Department of History, Purdue University
- Dr. Dan Hamilton, School of Advanced International Studies, Johns Hopkins University
- Dr. Kent Hughes, Woodrow Wilson International Center for Scholars
- Dr. Kathleen Rasmussen, Division Chief, Asia & General, Office of the Historian

Note: This transcript and linked audio recording contain comments made during a roundtable discussion of the “Foreign Economic Policy, 1973-1976” volume of the Foreign Relations of the United States (FRUS) series. The comments of Robert Hormats and Kathleen Rasmussen reflect their individual points of view and do not necessarily reflect the views of the Department of State or the United States Government.

DEAN RHODES: Well, let’s resume. I know folks are still drifting back in with coffee, and more folks will drift in as we proceed. But picking up where Kathy has left us with a background on the volume and its contents, we have now a terrific panel. Sadly, Susan Aaronson couldn’t be with us, but a terrific panel picking up on different themes that were developed in the volume.

Let me do some introductions, and then the plan is to let each of the three panelists make some remarks, and then we’ll open up to general discussion questions on the floor. Closest to me, Professor William Gray from Purdue University Department of History. Professor Gray, Ph.D. from Yale University, another from the dark side. (Laughter.)

PROF. GRAY: Very dark, very dark.

DEAN RHODES: Prof. Gray is – has a book with the University of North Carolina Press on Germany’s Cold War: The Global Campaign to Isolate East Germany . A recent -- I’m picking and choosing, in fact. To list all of their accomplishments, we’d be here all day. But a recent book chapter in a volume by – edited by Tom Schwartz and Matthias Schulz, a chapter entitled, “Toward a Community of Stability: The Deutsche Mark between European and Atlantic Priorities 1968 -’73.” And a recent article in Diplomatic History , “Floating the System: Germany, the United States, and the Breakdown of Bretton Woods, 1969-1973.”

Next to – let’s jump to the far end, to Dan Hamilton. Dr. Hamilton is at Johns Hopkins SAIS Foreign Policy Institute, where he is research professor and also director of the Center for Transatlantic Relations, and also executive director of the American Consortium on EU Studies. Dr. Hamilton got his Ph.D. from Johns Hopkins. He is former deputy assistant secretary of state for European Affairs, former U.S. special coordinator for Southeast European stabilization, and former associate director of the Policy Planning staff for no less than two secretaries of state. Among his long list of books, a few recent books – one titled, Shoulder to Shoulder: Forging a Strategic U.S.-EU Partnership, another on the transatlantic economy, and another on the Alliance Reborn: An Atlantic Compact for the 21st Century.

Kent Hughes, stuck in the middle here between these two Europeanists. Dr. Hughes received his Ph.D. in economics from Washington University in St. Louis. Dr. Hughes is currently the – at the Woodrow Wilson International Center for Scholars, where he is director of The Program on America and the Global Economy, and also director of the Wilson Center on the Hill. He was in the past associate deputy secretary of Commerce, also president of the Council on Competitiveness, and chief economist to the late Senate Majority Leader Robert Byrd. Among his publications, a book with Johns Hopkins University Press, Building the Next American Century: The Past and Future of Economic Competitiveness, and among his articles, one here – “ Innovation in the United States: The Interplay of History, Institutions, and American Culture.”

I think we’ll take folks in alphabetical order. Does that seem all right, beginning with you, Dr. Gray?

PROF. GRAY: Well, I believe we had already considered that perhaps the historian would represent the past, moving along to the policies.

DEAN RHODES: Well, I will let the panelists determine the sequence of events here.

DR. HAMILTON: He came the furthest. (Laughter.)

PROF. GRAY: All right. Well, thanks all for your attention. I have to say this is a unique pleasure in a couple of respects -- first of all, because as a historian, I do not always get to interact with policy-interested scholars. And, secondly, as a historian of Germany, I do not always reach out to historians of American foreign relations, although I have found the SHAFR organization to be quite welcoming over the years, nevertheless.

Thanks in particular to Kathy and Michael for inviting me to come for what was actually just a nice excuse to hang out in the capital.

Any event, I’m going to separate my commentary into two sections, one concerning the story arc that’s found in this volume and one concerning the use of sources. In both, I want to emphasize that the editor’s selections are likely to have a significant impact on future historical research about the Nixon and Ford Administrations. And I will probably refer to this often as “Kathy’s volume.” That’s how I’ve come to think of it.

But of course, although I think that you have probably spent more time with these pages than many people will likely in the future in its entirety, what’s fascinating is that each of us comes to this with fresh eyes. And I think I may actually politely disagree with you on some of the results of your own volume, as it were.

But the volume opens in a phase of complete disorder for the world economy – confidence in the U.S. dollar is waning, speculators are mounting sustained attacks on the lira, the dollar, the pound, and the Nixon Administration is shown here as facing a dilemma. Nixon and Kissinger repeatedly expressed their interest in showing American leadership on economic issues. After all, monetary problems had moved to the forefront of diplomatic attention in the early 1970s.

And I think that, in some ways, it’s appropriate that this is one of the earlier volumes from this period, ’73-‘76, to appear, because in terms of – if you were to look for a spine of U.S. foreign relations, increasingly it’s shifting, I believe, toward economic issues. I think that a number of other volumes that come out, whether it’s Western Europe or United Nations, Energy Policy, if there is such a volume, all these things will end up referring back to in many ways the sort of fundamental material which is found here. Henry Kissinger himself expressed this in a quote that’s tucked in the back. And for those who are tempted to let go of the commodity policy section, I’ll point out that some of the juiciest quotes are in the very back of the book. Now, this is out of context, but Kissinger remarks, at one point, and I think it’s quite interesting – I don’t actually know what he means – “The trick in the world now is to use economics to build a world political structure;” mysterious, no?

In any event, my point for now is that they understand that economic problems are at the forefront of diplomatic attention. But they conclude that it’s not worthwhile to expend the resources necessary to keep propping up the U.S. dollar. They’re well aware that Congress is increasingly hostile toward shoveling money toward the IMF, the World Bank, and other international institutions. The trouble is that absent American efforts to support fixed exchange rates, the Europeans have decided to arrange a joint float of their currencies, a move that will draw them closer together and apparently reinforce their growing distance from America. This is all the more worrisome in light of the fact that Britain has not joined the EC, making it a Europe of nine, and thank you to Kathy for spelling out all nine already. It appears that Europe, the United States, and Japan are emerging as three separate, if interrelated, centers of global capitalism, a tendency acknowledged in David Rockefeller’s creation of the Trilateral Commission in 1972 and ’73. Trilateral thinking turns up in this FRUS volume as well, as seen in a lengthy planning paper from December 1973, produced by the State Department’s director of planning and coordination.

Surprisingly, perhaps, the paper in question sees a trend toward greater entropy and less interdependence among the three big regions. The prediction was that the relative decline of American economic might would bring greater self-sufficiency for Europe and Japan. Perhaps not self-sufficiency, given the obvious resource weaknesses that – lack of oil – that Japan and Western Europe had, but nevertheless a belief that the industrial world would become less integrated. I found that to be a fascinating and totally wrong prediction.

So to state the problem faced by Nixon and Ford in a different way, how could the United States remain active in shaping international economic and monetary environments at a time of weak American prestige and hyper-vigilant congressional scrutiny?

I want to discuss two U.S. approaches featured here in the volume. The first involves a blunt American effort to shoehorn its way into allied decision making exemplified by the Year of Europe controversy that raged in 1973 and ’74. Historians have been examining this episode for some time now, including in that volume that we just heard about edited by Tom Schwartz. I think two or three different speakers at that conference spoke about the Year of Europe initiative. Historians have been examining this for some time now dating it from the moment of Henry Kissinger’s controversial speech on April 23, 1973, in which he more or less said, “America is a global power; Europe is a regional power. European countries, therefore, need to line up in some ways and coordinate with the United States.”

The Europeans reacted testily to the proposition that it was America’s business to proclaim a Year of Europe. And this, in turn, touched off indignant reactions in Washington. The whole affair was only really resolved in the summer of 1974 with the adoption of parallel declarations by NATO and then a separate U.S.-EC document. Now Kathy’s volume allows us to connect this diplomatic kerfuffle, which is often mostly related to alliance security to problems of political economy in a new way. It turns out the Year of Europe idea long predated Kissinger’s April, 1973 speech. It appears as early as January of ’73 in a Treasury memo advocating trade negotiations with the newly expanded Europe of nine. Whether the Europeans knew it or not, the Nixon Administration was coming to see European integration as something of a problem.

More importantly, we learned that the behavior of European leaders during the currency crises of February and March, 1973, above all, the German-led initiative to institute a joint float of European currencies, touched off a real concern at the White House. Kissinger insists on March 3rd, ’73 that, “We must make clear to the Europeans that they cannot take a common position without consultation with us on a matter that vitally affects our interest and buy us off in the currency of abstract currency integration,” end quote. So the germ of Kissinger’s infamous Year of Europe initiative is seen here as a direct response to international monetary issues, the breakdown of Bretton Woods. As far as I know, that’s not a connection that historians have made thus far. I certainly hadn’t myself.

Less surprising, perhaps, is the thoroughly partisan world view displayed by Nixon. Kathy made some reference to this. Nixon’s commentaries about European politics show him to be moderately well-informed, but emphatically anxious to stave off his excess of the Left in France and Germany, the Left being defined as socialist, social democrats, basically anyone, I suppose, to the right of the Christian Democrats. If European integration was a problem, the in Nixon’s perspective, this reflected, in part, a fear of what a socialist Europe might look like. And here I’m going to quote once again. These documents really contain so much of this, and it’s a shame not to kind of get into the juice here. “Today, however, when we talk of European unity,” says Nixon, “And when we look far ahead, we have to recognize the stark fact that a united Europe will be led primarily by left-leaning or socialist heads of government.” And so this is an independent reason – independent of whatever objective differences of economic interests might be evident between Europe and the United States. It’s simply for political reasons a united Europe was unerwunschte , not desired in some ways by the Nixon folk.

Now, by itself, Kissinger’s Year of Europe initiative could hardly be considered a success. Yet the general American strategy of inserting itself into, and at times disrupting European decision making appears to have gained better traction in connection with the oil shocks of ’73 and ’74. The present FRUS volume doesn’t deal directly with energy policy. I assume that coverage is planned separately. But based on the behavior I’ve seen here, I strongly suspect that Kissinger’s initiative for the creation of an international energy agency, the basis for the still topical strategic petroleum reserve, was undertaking the expectation that this would drive a wedge between the key European powers, Germany and France, as indeed it did. We do see here a remarkable deference toward France, a conscious effort to coddle President Pompidou and Pompidou’s successor, Giscard. Perhaps because Helmut Schmidt, the German finance minister, and later chancellor, was repeatedly characterized accurately as a close American ally, more attention was devoted to stroking French egos. The French problem was tied in directly to the question of gold in the international monetary system which received surprisingly extensive coverage here.

And here to speak as a fellow historical researcher for just a moment, I have to admit that having looked at Arthur Burns’ papers also in the Gerald Ford Library, I was astonished to learn how much interesting material was in folder B-52 on gold because I did not have the stamina to make my way through that material, and you did. (Laughter.)

So Kathy sets up a tense rivalry in her work, and I call this section a story arc for a reason. There is a story that I think editors pick up on and convey through their choice of documentation. Kathy conveys a tense rivalry between Treasury and the Fed on the gold problem leading to an almost comical series of parallel memos submitted to President Ford by Arthur Burns and Bill Simon. In the end, the Bank of France received America’s tacit consent to sell off a certain portion of gold at market price allowing handsome gains that Germany could not realize because it had done the U.S. a favor all along by keeping dollars in place of gold. And so often in the past, France was in a sense rewarded for its obstreperous behavior. (Laughter.) Though I should point out that Paris did not achieve its larger goal – the return of a gold-backed fixed rate international monetary system.

Now, the second, and in some ways, opposite American strategy having sketched already this desire to, in a sense, split apart Europe and make sure that Europe could not gang up on the United States in some way – the second, and in some ways, opposite American strategy that I see conveyed here involved efforts coordinate economic policy on a relatively equal basis among the three major economic groupings, a program that gave rise during this period to the economic summits we now see, although they didn’t at the time, as the birth of the G-7.

Does this really count as U.S. leadership if the U.S. wasn’t completely running the show? Historians, including myself, have tended to stress the agency of France and Germany in staging the Rambouillet Summit, the first of these, a summit of six, another reason why we can’t really call it the first G-7 Summit, but close enough. Kathy’s volume shows us that the Ford administration went in with limited expectations. For example, Helmut Sonnenfeldt remarked offhandedly in October 1975, that the Germans were unrealistic to expect interest rate coordination between the Federal Reserve and the Bundesbank. Robert Hormats wrote Kissinger three weeks before the summit depicting the occasion as a kind of global public relations exercise. It would, as he put it, try to project publicly that Western leaders are able to manage current problems. These were modest goals.

In many respects, Ford’s economic team went in with a negative agenda intending to stave off French pressure to return to fixed exchange rates, ignore German pressure to engage in deficit-driven reflation, and stress the advantages of letting all the countries in question pursue whatever independent policies appeared necessary to bring inflation under control while stimulating economic growth. Looking at these low key predictions in advance of the Rambouillet Summit, the eventual success of the G-7 model appears all the more striking. At its best over the next decade, the G-7 group would engage in interest rate coordination and implement far-reaching agreements about which countries should reflate or inflate for the sake of achieving balanced and stable growth across the industrial West.

Naturally, this raises significant questions for historians of the period. Why did the G-7 work? How could a mere three days of conversation outside Paris followed by a similar meeting in Puerto Rico the following summer lay the foundations for a resurgence of Western confidence? Why did the 1970s ultimately pave the way toward greater economic interdependence giving rise to what we’ve come to call globalization rather than fostering the breakup of the world economy into distinct industrial regions as predicted by the State Department in 1973? Now, obviously, I don’t need to suggest that these diplomatic summits are totally the explanation, that one would find the explanation simply in the realm of international summit diplomacy in the first place. And I also imagine that trying to address these questions would require far more time than we have over the next two hours and perhaps even more than the immense quantity of material already assembled in this volume.

Among other things, reference to the documentary record of the other major powers would be essential, and I quite agree that the FRUS volume is sort of the gold standard, but I have to say, one of the happy results is that the Germans now are producing a very, very strong document publication with an emphasis on year by year publication. So I believe my library will soon have 1980 on its shelves which is a wonderful asset. And of course, the French are trailing, but they are into the late 1960s by now in their own French document series.

In any event, FRUS is – FRUS is FRUS , and we’re very fortunate to have it. And in studying American foreign relations, I have lost my place. (Laughter.) Yes, I see clues in the documents at hand for addressing some of these larger questions that I have just raised from this American material. Robert Hormats did not just stress the public relations facets of the Rambouillet Summit. He noted also that this summit’s objective should be a serious inquiry into common problems.

The Ford administration went to Paris prepared to listen. Unlike, say, the Carter administration at the London Summit of 1977, Ford’s team came without a set of prescriptions. They sized up their fellow leaders and anticipated in considerable detail what each would have to say, but they allowed the conversation to proceed unfettered, allowing a sense of trust and common purpose to unfold among those assembled. This, in turn, facilitated the convening of a second meeting in Puerto Rico that was far more sensitive and probably far more important, involving a frank conversation about the deteriorating economies of Britain and Italy.

Now, aside from the G-7, which I’ve emphasized here as an example of American leadership through essentially a willingness to defer to global conversation, or at least a conversation among other powers, almost on an equal basis, there’s a second example of relatively cooperative American policy that I want to emphasize: the North-South dialogue. And here I want to dovetail with what Kathy said before, but I might give it a slightly different spin. In my view, a relatively hardnosed view coming from the Nixon years gives way to a stance that puts the U.S. in a position of engaging with the economic concerns of other countries.

And here I want to quote from Gerald Ford. And I think one of the differences of interpretation that would probably be worth talking about is the extent to which Ford’s own perspective, his own style, might have had a formative influence on Kissinger rather than vice versa. And I think that’s worth considering if one has invested any time in Robert Dallek’s study of Kissinger and Nixon in which one sees Kissinger very much responding to the leadership style of the president in question. Doesn’t that suggest that in some ways Kissinger might also be learning to talk like Ford?

Here we have Ford at the front end of a meeting in May 1975 on this commodity issue, on this north-south question, saying the following: “You may have to give a little on words in order to achieve something necessary to solve problems. I don't believe you can get practical solutions by being too sticky on phraseology.” Now, that’s pretty much what Kissinger has been saying, but the fact that Ford himself is willing to come out and articulate this has significant implications.

I also believe that Henry Kissinger is responding not just to Ford’s style but also to the absence of allied support. And once again, the fact that the United States would actually hold back because they knew they didn’t have anyone covering their back is quite significant. Here it’s important that, for example, Kissinger realizes that the Germans are afraid. The Germans are afraid to earn the enmity of the global South by taking too pronounced a line against the new international economic order. So for that reason, too, Kissinger appears to be adopting a more mellow line, and the fruits of that mellow line are seen in a very nice document drafted by Brent Scowcroft in December 1975. Essentially, Scowcroft argues to the President that Kissinger’s expressions of sympathy for the poorest LDCs – the poorest – the least developed countries, who had been hit hard by the impact of the oil shocks, was driving a wedge between the OPEC countries and those poorest LDCs. Thus, in place of the pugilant (ph) defensiveness of the Nixon years, we see a more soft-spoken and ultimately wiser course.

Now, I want to not take too much more time from the rest of the panel, but I’ll briefly comment, again, as speaking as a historian, we have a lot of fun talking about sources, commenting on sources. I will do that very quickly. One of the more useful editorial choices made by Kathy involves a relative de-emphasis on reprinting diplomatic cables. There are practical and substantive reasons why this choice makes sense. First of all – and if anyone in the audience is not aware of this, I encourage you strongly to take note of this. This is the most amazing, searchable, easily accessible database you can imagine. The lion’s share of U.S. diplomatic cables from 1973 to ’76 are available online at the National Archives in a full-text, searchable database. So there’s not much need to reprint them in large numbers here, and I suspect that must have also informed your decisions on some level. Okay. I made – (laughter).

DR. RASMUSSEN: Yes and no.

PROF. GRAY: Yeah, I would be, actually, curious for your thoughts of that. I mean, of course, there are certain categories of cables that don’t appear to appear in that online database, particularly the stuff that I think is NODIS for example. In any event, I still think that’s a reason not – the structure of the volume really struck me as being very different from volumes that covered, say, the 1960s, and I did notice your cables. Also, as Kathy already pointed out, there are just some actors here who don’t appear in – who wouldn’t be appearing in cable traffic back and forth – the Treasury, the White House, the Federal Reserve. And I might point out that this kind of carefully culled material tells us so much more and provides such a more robust picture than, say, a randomly leaked source of material – (laughter) – which simply doesn’t give insights into policy making in the same way. All right.

Now, a second editorial choice involves the foregrounding of conversation transcripts. These occupy a substantial portion of the book, pages and pages, thanks to their great length. Aside from the White House tapes, there are some other phone calls that are reproduced here. Now, these transcripts are made with painstaking care. They offer a marked contrast to the usual summary memoranda of conversations prepared by NSC staffers such as Brent Scowcroft. And those of us who habituate presidential libraries will be accustomed to NSC memos conveying the gist of the meeting. But those are not verbatim comments, and I’ve often suspected that Scowcroft in particular sometimes introduced a kind of gruff machismo to some of his renderings of Nixon and Kissinger’s comments.

Well, the transcripts remove some of the uncertainty about the personal dynamics prevailing at the White House. Readers can see the flow of a conversation in remarkable detail, observing which aides were able to complete their points and which were being constantly interrupted. And actually, one hesitates to question the utility of such an extraordinary amount of labor, as those transcripts must have involved. On some level, I’m not certain that historians will universally prefer the kind of fine-grained conversational renderings on offer here. They break the conversation down almost to the molecular level. Zooming back outward from this degree of intimacy with the pauses, stutters, and broken syntax of the White House staff might be necessary, in some ways, to get a larger sense of administration policy.

But in any event, I would laud the craftsmanship apparent in this volume unhesitatingly. Foreign relations historians who spend time on these pages will come away with a far sharper understanding of the limits of American diplomacy in an age of waning economic prowess. Thanks very much. (Applause.)

DEAN RHODES: You’re next in the alphabet, Dan.

DR. HAMILTON: Okay. Well, thank you for inviting me here today, and it’s a pleasure to be here. I should say to my George Mason colleagues the American Consortium in EU studies includes George Mason, along with the other Washington universities, so I actually represent George Mason all around the Washington metropolitan area with great pleasure. So I’m happy to be here at one of our universities.

So I have a few points, as I say. I think a few of my points, not only sort of looking at the history of it, but also I was asked to sort of look at it with a view to sort of how things have developed since then and sort of current issues. And also, since I was also in the State Department in various capacities, maybe an eye to some elements that struck me in terms of how decisions are made or not made and whose influence actually counts.

So one point, I think, which has been mentioned a number of times here, which is interesting, is to look at this period as sort of the beginning of a serious discussion about the emergence of a multi-polar world. It starts really in the – just before this volume starts with breaking the dollar conversion to gold, the August 1971 Nixon speech, and it reflects sort of a view in the Nixon Administration, particularly Nixon and Kissinger together, that this is sort of the way the world is moving. And the United States had to reposition itself along a whole number of fronts to deal with this type of world.

I think it’s always important to put context in here. We read the document but, of course, the context is broader in which the United States found itself, not only those issues but trying to wind down the war in Vietnam, the Cold War still going on, the opening to China, détente with the Soviet Union, linkage policies with the Soviet Union, the oil crisis. I mean, it’s a broader context, obviously, in which some of this is happening besides just what the documents – they sort of narrow down into a topic, but I think, obviously, one has to keep the context in mind.

And you see then when the discussion of the multi-polar world starts to happen that it’s not reflected in the documents. But if you look at the foreign – the history of foreign relations of the United States or look at State Department documents, White House documents at the time, Nixon and Kissinger both released a series of documents in which they charted, basically, a multi-polar world. They have, in fact, documents directly addressing that. Kissinger and Nixon wanted to set forth a conceptual framework for the world that was emerging at the time. And if you look, there are annual documents in which the President sets forth – these are White House documents – the emergence of this multi-polar world in which they talk about the U.S., Japan, Europe, China, and the Soviet Union as the five poles. And there’s a whole much broader debate about this, but it was an effort by the Administration, particularly Kissinger, given his background, to give some conceptual coherence to sort of the underpinnings of U.S. foreign policy and why it was engaged in these things, the rationale for the opening to China, all of this type of thing. You had to engage on those poles, and the U.S. would be the hub of those various interactions.

But when you look at these documents, it becomes clear that the reality, given the Cold War and tensions with China, is that it’s only three of five poles that really are the ones that they’re engaging with. And even there, it’s interesting to see the debates. We have a quote here from Nixon who says the big five, and this is his quote. “Japan, England, France, Germany, U.S.” – (laughter) – that’s it. That’s his quote. And how there’s this big debate about the U.S. trying to get Canada involved in this, against the French, and nobody really wanting the Italians involved, particularly Schmidt, and so much for European unity. And if you project forward today to debates about Germany in the permanent seat in the UN Security Council, who’s the biggest opponent? Italy. (Laughter.) You see some resonance here.

And I think – I do disagree, I think, on the notion that the origins of what became the G-7 was a French idea. I think if you look actually deeper, one has to look at the particular dynamics between Germany and France at the time, that often what were actually German ideas were conveyed through the French. You had a divided front line semi-sovereign country that had lost a big world war and was not willing or able or in any position to sort of get out in front on almost any issue. And given its importance to reconcile with the French and the core of Franco-German reconciliation sort of being the motive for this European integration, many German ideas were floating actually through the French vehicle, if you will. And that corresponded on the French side to a sense of their own grandeur and their own position in the world, so it was a mutual way of doing things. But I think one has to look at that dynamic and understand.

And if you look on this specific issue, you saw that Schmidt, as the finance minister, was the one who had pushed particularly the notion that the finance ministers had to have informal ways to communicate that got beyond protocol and to really deal with the kinds of issues they were dealing with. And Giscard, as his counterpart, sort of said yes, that’s – you are absolutely right. And I think the related issue here is the notion that the Europeans, asking themselves, how do we influence the hegemon? How do we influence the big United States, the unilateral power? Well, we get in the room with them. And if we could dispense with protocol and actually just get in the room and talk, we will have commensurate influence with the United States.

So this was a strategy not only of getting things done but actually having influence over the direction of the U.S. policy in many different areas, but it was led because Giscard and Schmidt together were the finance ministers at the time. There was all these crises. And then, of course, there happens to add that within just, I think, a week of each other they were both elected to be heads of their government, their respective governments. And they both carried that same notion of informal meetings that they had as finance ministers now as heads of state or heads of government. And that has, I think, kept projecting this notion forward. So you have the Rambouillet, you have Puerto Rico, and so on. When Jimmy Carter was elected, they had a meeting right afterward in this very small format.

And I do believe a lot of it was this notion if you get – you can get into a room with the Americans and whisper in their ear, you’re going to have some more impact than these, sort of, stolid kind of settings with protocol and all that. And you see in one quote – it’s interesting – a Giscard quote in the book that says – he says this. He says – when they’re talking about IMF Committee of 20, which is interesting thinking about the G-20 today, his quote is, “Twenty is perfectly useless except to permit a meeting of the five.” (Laughter.)

And I think if you not only think of that period and what I was saying, but actually project forward even to today, there is, I think – when one thinks about foreign policy and how agencies of government operate, the notion that you can use bigger meetings to have smaller meetings that actually get something done is very still much a part of U.S. foreign policy, clearly. And that sort of multilateral – formal multilateral structures, in the view of many, I would think, are only useful because you can have the informal meetings on the margins, or you can form other kinds of groupings, contact groups for other kinds of things. They’re actually the ones that are going to get something done.

And I think you see that even today, certainly with the role of the G-20, the debates in the Clinton Administration about moving from the G-7 to the G-8, in which you had – politically wanted to include Russia, but they had no business being at a G-7 finance ministers meeting, so you created this strange thing where the finance ministers of the seven met, and then you invite the Russians after you were basically done. And if you look even today, right now with the French presidency at the G-20, some of these same issues are in place. The G-20 is fine as a chapeau, but who’s really making decisions within the room?

So you see the beginnings of this and sort of the reasons for doing these kinds of dynamics and this notion of informal groupings, international non-organizations, starting to play perhaps more of a role than international organizations in terms of how foreign policy is conducted. And I – you could look at a range of areas beyond economic policy where that’s true today.

A second area that really struck me is this continuing ambivalence over almost – in the Nixon administration very clearly a view of how you had to divide the Europeans and this question whether European integration is really an American interest. And it was very striking in some of the quotes that were in the book. As I said, this is a broader issue than just this period. I think it extends from the beginnings of the European integration movement, in fact, to today and how U.S. policy makers and, frankly, how U.S. diplomats think about that issue. You have Paul Volcker at the time, the under secretary in the Treasury, saying, “We have to guard against this so-called European solution, one view in Europe, mainly the French view, antagonistic. And the European solution is a euphemism for saying, quote, ‘Let’s leave the United States out of the world and go our independent course.’” And Nixon says, “Yeah.” (Laughter.) And Arthur Burns then saying, “And this is the way Europe is moving.”

It’s interesting. Nixon, right at that same sort of series of documents, he says, “Europe may be united 10, 15, or 20 years from now.” We think of the timeline – (laughter) – maybe we’re not quite there yet. (Laughter.) And Kissinger’s point, which he was very consistent on, both actually in private and in public, that no European integration without full consultation with the United States. And he was very clear about that, I think, and he still his, actually. He still holds that view, I believe, that the Europeans could not do that without the – sort of the Americans were a part of this project and that you could not gang up on the U.S. He says at one point – this is a quote from Kissinger, “I’m no longer so sure that European integration is all that much in our interest.” And Nixon says, “Oh, I’m not so sure of it at all.” And it – and that – Nixon goes on to say maybe we should start to build our own bloc – U.S., Japan, Latin America, Africa, and Asia. (Laughter.) And the interesting – he says – this is sort of the quote I’m sure would get the media attention if – I think I’ve seen it, in fact, already referred to. He says – this is Nixon, “We must not get this into the bureaucracy,” meaning the State Department, frankly, “or we will create a Europe that is a Frankenstein monster which could be highly detrimental to our interests in the years ahead.”

And I think if you – those are quite striking quotes, very at odds with public statements U.S. policy makers that made about European integration. But I think it does reflect, again, a broader pattern that one sees, that ever since sort of the beginnings of that movement after World War II and in the 50s, there was always a sort of U.S. ambivalence about the European project, much of it because of European ambivalence about what they were doing themselves. The Europe of Charles de Gaulle is different than one of Margaret Thatcher and different than one of Jean Monnet. So which Europe is the European project, I think, has always been hard for Europeans to convey to Americans. And so understandably, there’s some ambivalence on the U.S. side of what this means.

But you do have – you do see a regular pattern that generic, sort of rhetorical support in broad terms for European integration bringing Europeans together, starts to break down when it comes down to any specific issue, whether it’s agriculture or the role of the United Kingdom with the European community in the ‘60s. If you move into the period, you have the question of EMU, the European Monetary Union, the question of the snake and the fixed terrains and what’s that for the dollar.

You go into the ’90s, you have the question of – or the ‘80s, you have the question of the single market – Jacques Delors and what are they trying to do here. There was a whole cottage industry in the United States about Fortress Europe, about the single market, even though the single market is actually opening up markets.

But you see this kind of reaction in policy and outside as well. The question – what’s the euro mean for the dollar? – the Clinton Administration had to grapple with that. In the end, came down and said, “It’s Europe’s decision.” They didn’t try to disaggregate the Europeans on that issue. Whereas, and you see the Bush administration, Bush II actually using those terms of disaggregation and trying to split apart the Europeans. So I believe that’s still an ambivalent policy, frankly, today. It’s the rhetorical support, but in real hard, day-to-day operational issues, quite a bit of questioning about what the nature of European integration is likely to mean in the future.

A third area that I think got a lot of attention in the book is the role of the dollar, obviously, and this relation to gold and the special drawing rights, this whole debate that was going on. And here again, this is part of a longer debate that actually in some ways still continues, and this is particularly a Franco-American debate with Charles de Gaulle, frankly and Jacques Rueff, his main monetary guy at the time, complaining about what they called the exorbitant privilege of the dollar as the world’s reserve currency, which allowed the United States to just print dollars and everybody would take them. And as John Connolly, sort of, said to them at the time, “Yeah, it’s our currency, but it’s your problem.” (Laughter.) And I think the French have never forgotten that little quote.

I think it’s certain not only did it give the U.S. this exorbitant privilege in their view, but also on balances inflationary, which was a horror to Germans, in particular, because it allowed the U.S. to just print things as it needed to deal with its growth policies. Because it was so tied to the policy of this one single country undermining confidence in the type of monetary system that was around, at the time the French and the Italians both had these balance of payments problems and had all this gold sitting around and suddenly it didn’t know how they could tap that, which led to sort of the debase with U.S.

Whereas on the U.S. side, you see a very intense effort to maintain the role of the dollar as the world’s reserve currency because that did give the U.S. this particular privilege. And that a reluctance to ever be tied down, the U.S. policy would ever be constrained, by any sorts of committee arrangements or tying it to sort of fixed prices or things that would not give you – the U.S., freedom of movement, and that this idea of dividing, again, the Europeans was a way to maintain U.S. privilege, if you will. And you still see some of that today. I think many of those debates still resonate in some ways.

Today, in a different world, now we’re talking about the role of the dollar versus the euro – as the only two real currencies that are around – but there’s talk now of the Chinese currency becoming part of a different kind of multicurrency world in the future. It’s not there yet, but there’s debate about that. And again, you have France, as the presidency of the G-20 right now Sarkozy coming to see Obama, to talk about the need for reform of the international monetary system, again, talking about special drawing rights; now, he wants them – somewhat different approach. But you do see sort of this core Franco-American debate through decades about the role of the dollar and what it means politically, not only economically.

The – one point, just small point, which I think is illustrative but interesting is the role of the Congress and again, the Jackson-Vanik story highlights this, that what you see there also resonates today perhaps. We have this exchange between Kissinger and George Shultz complaining about the Congress meddling in their grand schemes of U.S. foreign economic policy, Kissinger saying, “I thought this was going to get better after Vietnam,” and Shultz saying to him, “It’s never been worse,” the relations with Congress and the Executive Branch.

And it comes down in the Jackson-Vanik amendment; it sort of crystallizes this debate over the role of Congress versus the Executive Branch and foreign economic policy. And I think the thing that really galled Kissinger is that his strategy of détente was tied to the notion of linkage, which is that you could engage the Soviets in a whole broad menu of issues where you had disagreements, and they would give on some and you would give on others, and you could cut across economics and politics. It was just one big basket of things where everything would be sort of quid pro quo in the end. And because he had sort of staked his entire view in dealing with Moscow on that approach, you see it repeatedly at what he says in these citations, in the documents. He’s on the book to deliver. He almost becomes the spokesman for the Kremlin in some of these debates. He said, “The Soviets came through for us on this and this issue, that issue, Berlin, Cuba, all these kinds of things, and we have given them nothing, and we’ve really got to do this.”

So his notion of foreign economic policy was he had all the instruments in his hand that it had to be centralized and controlled and linkages had to be plotted by one, sort of, overarching person or agency. And the notion that the Congress would come and some members of Congress would have their own linkages and, because of their constitutional prerogatives, start to impose their own linkages completely messed up the game. And I think it’s an important sort of insight into how U.S. foreign economic policy is made and that the Executive Branch is limited in many ways in terms of how it can really conduct that, which leads to the – I wasn’t going to add this, but since it’s been mentioned, I think it’s – and I was in the policy-planning staff – I did have a question about the one document that was in there by Ernie Preeg and why it was in there, frankly. And Bill, it sort of said – he has a document which Winston Lord, the head of the policy planning staff sends to Kissinger and says, “It’s not fully cleared. This is a kind of a document from a member of my staff, but I think it’s kind of interesting, and you should read it.” In which, the document says basically this notion is to be less interdependent – that’s what Bill said – where it’s entropy; it’s not going to be this interdependence types of things, so we have to plan for that.

It’s all interesting. But I think when one – either as historian or policy analyst or even a policymaker, one has to think a little harder about the role that a document like that might play. Bill mentioned – I don’t want to pick on him, but it was just noted that he said, “As predicted by the State Department” this document.

PROF. GRAY: Fair enough.

DR. HAMILTON: A policy-planning document like that isn’t the State Department. It wasn’t even clear, and it was sent on the back channel to the Secretary, which I think one has to look at these in terms of bureaucratic politics and other issues besides just the U.S. did this – these aren’t black boxes. And especially in foreign economic policy, I think there – in this particular case, there are two issues. One is what’s the role of the Department of State? This is a document about – mainly about the Department of State. The Department of State’s role in foreign economic policy is actually quite limited.

So the question is: What else is out there to tell the full story of our foreign economic policy? What you see is Henry Kissinger playing a big role here, even though he professes not to know much about economics. But I believe much of his roles stem from the fact that the President of the United States, Richard Nixon, said – here’s a quote – “Political considerations must completely override economic considerations in monetary and trade talks.”

He had a president who believed that politics were preeminent and that economics were to serve the politics, just as the quote here of Kissinger. I think Kissinger is reflecting his boss, and I believe Kissinger’s influence on Nixon was because he could do the politics of the economics, whereas some of the economic types couldn’t make that work. They even recognized it. They kept coming to him for advice.

So at that particular period, Kissinger had a role to play and the State Department did, but that’s because of that dynamic. And I believe, in fact, Kissinger’s role on this diminished quite dramatically as soon as Gerald Ford became president because he didn’t necessarily even understand that sort of linkage of policies that had been portrayed nor did he buy into that. So one has to look at the personality and the role of a certain institution.

So if I could, just on the policy planning staff, one has to look at those documents with some care. My view – the relationship between the director of the policy planning staff and the Secretary of State is really the determinant, and there are different models. Some are sort of the Secretary’s main advisor, frankly; they’re with them all the time. It’s not policy planning. It’s sort of here’s what you’ve got to do, and it’s sort of a trusted confidant. And there have been some policy planning directors over years that have had that role. Winston Lord had part of that role with Kissinger mainly on China and on the opening of China and some other areas. He did not have it really in this area. And the other model of the policy planning staff is to write nice papers and to be sort of a think tank in which you do some deeper sort of thoughts and put them in the mix, if you will. And what becomes of them is – it varies.

So I think as a member of the policy planning staff, you have sort of – you have a choice. You can either be the extended foresight arm of a bureau – if you’re doing economics, you’re the Bureau of Economic Affairs sees you as that person, as their sort of forward thinker and work with you. Or you can challenge the bureau completely – basically it’s warfare – from a separate agency within the State Department who has direct access to the Secretary, fighting what that particular bureau is mainly setting forth to the Secretary. You can gain tremendous influence that way. You don’t win a lot of friends, but that’s another role of the staff.

So I’m just illustrating this because I think one has to look at a document like that and say, “What role did it really play?” It seemed to be out of place, frankly, in the debate, and I don’t believe it – and it didn’t reflect sort of the direction. So I’m not sure where it fits.

And so you see this structure of government where it really is such – so many different agencies and the bureaucratic politics of this really does play a role, which infuriates many of our foreign partners. The one story that’s not in here because it came later, but I do believe it – I’ll end on this, a true story – is when Arthur Burns left his job and the Reagan administration came into office, he was appointed ambassador to Germany, and Helmut Schmidt was still the chancellor, and of course they knew each other from all this time. And Schmidt had called Burns into his office and he said, “We Germans, we like to know the concept. We want to know the Gesamtkonzept . We want to know your comprehensive concept. What is with all these missiles and for the President talking about good and evil and all this. Tell us the Gesamtkonzept of American foreign policy, Mr. Ambassador.” And Arthur Burns, without missing a beat, he said, “Mr. Chancellor, I’d be happy to tell you this Gesamtkonzept . Would you like the Gesamtkonzept from this week or last week?” (Laughter.) And sometimes these documents may give us a clue as to which Gesamtkonzept we’re following.

Thank you. (Applause.)

DR. HUGHES: Let me just start with a congratulations to Kathy. This is really an extraordinary volume. I would love, actually, to use it in a classroom. I think it will give students of politics, students of foreign policy, certainly students of foreign economic policy, a sense of – a bit of a flavor of how decisions are actually made and how different forces contend.

To pick up on Dan’s comment, of course, if we were doing the same study with Secretary Shultz in the limelight, you’d get a slightly different set of documents, but you’d have that same sense of contending forces inside an administration or, as Dan points out, sometimes within a department itself.

I did, before I get started, want to congratulate Bill Gray on sort of sticking with the theme of today by complimenting the paper volume on being a gold standard. I thought that put things together very nicely – (laughter) – and also putting WikiLeaks in perspective of a random release. So if we have a well-honed release, we should refer to them as KathyLeaks going forward. (Laughter.)

DR. RASMUSSEN: I’d really appreciate it if you didn’t. (Laughter.)

DR. HUGHES: Let me excise that from my remarks. (Laughter.)

PARTICIPANT: It’s already on the net, right? (Laughter.)

DR. HUGHES: Well, what I’d like to do is just very briefly then talk about sort of the context, talk about what I think are some of the parallels with today’s policies – Dan has already opened that door very concretely – and then to just say a bit what was going on in the Congress at this time. As Ed alluded, I misspent much of my youth working on Capitol Hill, including this part of the period, and parenthetically I would say I’m looking forward to the Japan volume from this era, that for those us that were working on foreign economic policy on the Hill, we would start doing that one month, and the next month you were working on U.S.-Japan economic relations, which was a challenge not only to specific industries and so forth, but it was a challenge to the way we thought because Japan was showing a great deal of success by violating all the rules of thumb that I came out of graduate school with – they were protectionist, they were interventionist, they were the socialism that worked kind of thing. So it was an important period to look at how we were reacting inside the Administration and on the Hill.

In terms of the context, it was – it is similar in some ways, as Kathy suggested opening up. But at the same times, it was quite different. The Cold War was still very much an important reality. We were running current account deficits, and trade deficits were a shock to everybody. They seem miniscule by today’s standards. While there was an eroding U.S. influence, there was no question the U.S. was the leading economy and was likely to remain so for some time. It was a period where, to some extent, paralleled by today, where foreign policy really dominated economic decision making.

The quote that Bill Gray picked out from Henry Kissinger saying, “Oh, we can use our economies to really shape a political agreement,” that that was really the thinking. And I think to some extent it’s still very much embraced by today’s foreign policy elite.

We had the first experienced oil shock in 1973, something that is now evermore a concern with recent occurrence in the Middle East. And you saw here the same kind of tension that you see today of, you might say, Wilsonian (inaudible) coupled with Cold War rivalry, and today’s sense it would be, again, sort of the realistic pursuit of important national interests.

I think some of the parallels that you see in a very different context is that surplus countries, as they were 20 – during this period are very reluctant to adjust. In this case, it was Japan and Germany were the major surplus countries. They were again the major surplus countries in 1985 when you had the Plaza Accord. They are still surplus companies now joined by a cluster of Asian countries, in particular, of course, the People’s Republic of China.

I was struck by the way the trade initiative was described – that is what became the Trade Act of 1974, which originally was to have formed the basis for the Nixon round of trade negotiations – (laughter) – which, of course, didn’t work out quite that way. And I agreed with Kathy’s characterization that, in fact, it took us down several paths that are very much with us today, particularly going after non-tariff barriers and broader kinds of agreements, and that the Tokyo round, as it became, was quite significant in setting the agenda for today’s trade negotiations.

But what surprised me is there was only – maybe there was a list of seven or eight priorities, and only one made reference to the Burke-Hartke bill, which was a major force on Capitol Hill at that time. It would have imposed comprehensive trade quotas on all competitive imports. But the piece the really generated response were major changes in the taxation of foreign-sourced income that then and now, if you were a multinational company and you earned money overseas, basically you didn’t have to pay taxes on that money until it was repatriated. And when you did repatriate it, you would be able to take a full credit against any U.S. taxes for taxes that you had paid overseas.

Burke-Hartke wanted to make two changes: First of all, no deferrals. That’s still an active debate. So if you make something in – make money in France or Germany or Japan, you had to pay taxes on it that year. And then they were going to treat taxes that you paid elsewhere the way state taxes were treated; that is, as a deduction not a credit. So this really mobilized the multinational community. It created a specific organization, the Emergency Committee on American Trade. It is still with us today. The emergency apparently has persisted. (Laughter.) And according to students of interest groups, it triggered the formation of a large number of Washington offices by multinational companies, larger industrial companies that often viewed Washington as kind of an undesirable foreign post.

In terms of the new international economic order, from my perspective, Kissinger’s performance when he finally went to the seventh special session of the General Assembly was really a tour de force. He had thought through, I think, a line that he could walk. It’s fascinating to see the interplay of – you may have been involved in this, Dan – but the interplay of forces inside the Administration and how to mix rhetoric and real policy and so forth.

But one of the things he was able to do that I’ve – that was – that I interpreted as being most disarming is that he offered to share a wide range of U.S. technologies with the developing countries. Today, of course, we are ever more aware of how vulnerable those technologies are to being borrowed without payment, let’s say; that it is an active source of virtually every manufacturing company who has proprietary process and product technology to try to protect those as thoroughly as possible. So again, I think this reflected both the strength in the U.S. at that time and the primacy of foreign policy and foreign policy considerations.

Well now, jumping ahead, of course, there’s no Cold War. We had a duopoly, really, of nuclear weapons, for all practical purposes. That is no longer the case, and we may see further erosion of that monopoly going forward.

Current accounts were miniscule at that point. Before the financial crisis, we actually had a current account that was slightly over 6 percent of GDP. We were reaching that tipping point in terms of foreign debt that, had we not been the reserve currency, might have led to a currency crisis. We are still the largest economy, and I think even at purchasing power parity where China is close, but probably not yet larger. And of course, in terms of per capita income, they would still lag far behind.

We’re a major exporter still, not the largest anymore. And we have become – we have moved from a position of being the largest world creditor to, by an enormous margin, being the world’s largest debtor, a position which has economic implications. We don’t just borrow in the abstract. We borrow in the concrete, really, in terms of products. It’s had an effect on the industrial base, which could impact our innovative capacity. But it also has real implications for foreign policy.

One of the documents I found interesting was the discussion of, well, if oil’s a problem, are we worried about other metals? Are we dependent on other metals? And by and large, the decision was no, we’re not. It’s the kind of document that may still be done on an annual basis. I don’t know. It certainly should be. But we have moved to a situation in which there’s a great deal of interdependence and dependence in terms of raw materials. The latest that’s made headlines are the so-called rare earths that are critical for both – for all kinds of electronics, extending into modern windmills.

And we’ve also changed the whole pattern of international trade in that for – really, for a couple decades we’ve gone to a world in which we trade parts rather than products. Open up a PC and it’s kind of an electronic United Nations, and that makes the maneuverability in terms of the kind of things that President Nixon thought about; let’s have across-the-board trade sanctions and so forth, six months and so forth is, makes it much, much, much more complicated now.

Well, you can see how the parallels that Kathy alluded to really jump out at you, that we are wrestling again with serious imbalances. Some of the same people are at the table. It was an historic decision by President George W. Bush to recognize that you couldn’t rely on the G-7, G-8 anymore, that you had to go to the G-20. I think Dan is also right that there’s some real conversations within the members of the G-20 that are not quite as important as some of the others, and that it is a capacity for all kinds of serious negotiations.

But it also is a situation in which different countries are really taking much more of a leadership role. Brazil is an interesting case. If you go back to the ’73 to ’76 period, they had a military government. It was a developmental state, or aspired to be. But Brazilians themselves were still quick to tell the old story about Brazil being the future – country of the future and always will be. And all of a sudden, Brazil is quite a force in commodities. It’s a force in foreign policy in the sense of doing something that would have probably been unimaginable in the ’70 to ’76 period, going together with Brazil and Turkey approaching Iran and trying to do something that was really outside the interests of the United States.

As I said, the surplus countries are still very reluctant to value. It may be that the shock that President Nixon called by suddenly going off the Bretton Woods gold/dollar standard, imposing export controls – big shock to the soy consumers in Japan, big boost for the Brazilian soybean industry, as it turns out. Very – again, this government is wrestling, I think, with how do we really deal with this. There’s lots of rhetoric, there’s lots of side meetings, there’s occasionally a WTO case. People are thinking about, well, could you do that more fully without the whole exchange rate question.

Some people argue for counter-subsidies. Warren Buffet has a proposal that I first heard actually developed by Senator Russell Long, that Warren Buffet’s idea is to have an auction, basically, that you have import permits and you auction them off. Senator Long once asked this question of George Shultz, much to George Shultz’s surprise, and he simply said that, well, he should issue a ticket to everyone that buys something from us and then they can present that ticket when they send it back. And it was the one question that George Shultz didn’t handle all that well.

So, of course, it’s as it was in the earlier case. There’s a proper emphasis on the doctor healing thyself; that is, we need to do something here with regard to our own investment policy, our own economic strategy, our own fiscal health and so forth. And it may be that all that is coming.

And of course, the commodities question and our approach to development is dramatically different. Again, the context is different. We still do a – spend a lot of time thinking about coordinated foreign assistance. The recently released QDDR does quite a good job of thinking about how that would be done in the field and in Washington.

At the same time, we’re in a world where foreign remittances are some multiple of foreign assistance. Foreign direct investment is much more important. We’ve gone from a situation where we thought about how to stabilize global markets so that there were commodity agreements and so forth, something the U.S. was not at all enthusiastic about but was part of the neo-proposals. Now, we’re in a situation where there’s something of a global competition for commodities. Still concern about the less – the least developed countries as they engage in world markets for them to develop not agreements but more of an internal resiliency so that they can respond to shifts in global markets.

Well, let me just say one or two words about what was happening on Capitol Hill at that time and why they started to impinge on Secretary Kissinger’s view that, putting the Constitution aside, foreign economic policy should also be the purview of the president and his key advisor (laughter), that you were already beginning the era or really past the era where you would hear the occasional senator or member of Congress pound on the table and say, “Where’s the American desk down there at the State Department?” And in part, they were responding to shifting realities inside the U.S. economy. They tend to – Congress tends to be the economic court of last resort.

You already saw the AFL-CIO lead the free trade coalition in the course of the 1960s. You saw the ambitions of members of Congress begin to impede on what had been pretty much a consensus on trade policy. Wilbur Mills, who was then the chair of the Ways and Means Committee and was often referred to as Wilbur Mills, the third most powerful man in Washington, comma, decided that he wanted to run for president. And that affected a trade bill in a way that tailored itself to the economic interests of New Hampshire in general, and Manchester’s mills and shoe industry in particular.

So you saw this erosion of support, and it reflected, of course, really, the recovery of Japan and Europe in terms of their returning to being the industrial powerhouses, or beginning to return to that level that they had been prior to World War II. It was – we were in such an anomalous position with, many would say, half-world GDP and maybe 80 percent of hard currency reserves, and of course, that had long since eroded.

And in fact, – well, the focus – Kathy’s focus on the trade bill of 1974 had to do principally with the Jackson-Vanik amendment. In fact, I think the decision to go off the gold standard and eventually go to floating exchange rates, where you were directly responding to congressional concern about the trade deficit – again, in many ways, originating with Russell Long, chair of the Finance Committee – that that really eroded some of the support for measures like the Burke-Hartke bill or other more protectionist measures, and that what – that same pressure, however, showed up in the changes of the – what she referred to as the fair trade, the anti-dumping and countervailing duty elements and to some extent, and trade adjustment assistance.

So I think the – going forward, you’re going to see the Congress ever more engaged in foreign economic policy because that’s a reality of the pressures they feel in their home districts. However, the foreign – the political economy of trade has continued to change. Most of the companies that were strongly concerned about Japan in the 1980s are now seriously invested in China or elsewhere around the world. They are really, in a sense, a force for global integration, both in terms of the patterns of their investment and trade, but also in their influence here in the United States.

Well, let me stop there and thank you again for inviting me. It’s been – it was a pleasure going through that document. (Applause.)

DEAN RHODES: I don’t want to let our panel off the hook yet. What I’d like to do is to open up to the questions from the floor, to open up the discussion more broadly.

QUESTION: Some of the research from the Vietnam era has been very interested in the lessons of the past that Vietnam War-era decision makers were influenced by. I’m wondering what your thoughts are about how people of this era – what sort of lessons from the past they were drawing, how they were influenced, if they were influenced by history, the depression and those issues.

DR. HUGHES: Well, I would jump in. I would say that in terms of the post-World War II structure before you get to Vietnam, that was very much influenced by the lessons people felt they learned from the failures of the inter-war period, whether it was the GATT, International Monetary Fund, so we weren’t going to have competitive devaluations, the World Bank. They learned a lesson that Keynes wrote about – we’re not going to impose debilitating sanctions; instead, we’re going to help reconstruction.

In terms of Vietnam, it’s really not so much the economic side, but you hear people were still very influenced by the idea of Munich. And it was a wave of concern also in the United States about the growing influence of communism. It’s hard to look back for young people today and realize that, in fact, that was viewed as a threatening alternative system and had considerable appeal in much of the world. One of the papers in this document, in fact, alludes to the, quote/unquote, “Leninist model,” which helped justify presidents, et cetera in developing countries keeping the reins of power close to their side.

I think there may have been for some people a sense that they missed World War II and that Vietnam was their ability to stand for a similar kind of important battle. But that’s – I’m not a scholar on that period at all. That’s just kind of my intuition from random readings, as William Gray would say.

DR. RASMUSSEN: I think that my take on these policy makers is that they’ve learned the lessons of the past. The past lessons of the past continue to be the lessons of the past or the present, if that makes any sense at all. They’re still working off the 1930s: protectionism is bad, fixed exchange rates are good. I mean, they are still working on the same set of precepts that motivated policy makers in the 1940s when they put the economy back together after World War II in the first place.

One irony of this period that I always liked in terms of forgetting the past was – as Dave knows, my dissertation was actually on the reconstruction of the international economy after World War II in the 1940s when, in the negotiations setting up the International Monetary Fund, there was a big debate between the British and the Americans over the responsibility of creditor nations in the global economy. So if you’re a country that sells a whole lot of stuff and doesn’t buy a lot of stuff, what responsibilities do you have to sort of put the international economy back into whack? I mean, the idea is that surplus countries should buy more stuff from abroad to sort of put – restore equilibrium to the global economy. And the Treasury Department and Harry Dexter White were like, no, surplus countries should have no responsibilities whatsoever. This is the 1940s, because, of course, we were a massive surplus country.

Oh, come the 1970s, and America is, like, surplus countries should adjust, surplus countries are bad, because we’re a huge deficit country. And we – in 30 years, we’ve completely forgotten our own past, basically, and our own past arguments, obviously because we have – our position has completely flipped.

And I find these things funny. (Laughter.) So that was what amused me about these documents, actually – our blindness to the past, actually, and sort of the arguments that we’ve made in the past. Ideological – ideology is clearly very fungible, is one lesson I take.

DR. HAMILTON: Just on the one – there was a reference earlier about Nixon always worried about the leftists and so on. And that, I think, is somewhat of a historical issue, and one has to remember the Cold War context in which he’s thinking that. So it’s not just a conservative U.S. politician worried about the other side, but in the context of the Cold War, the lesson of the earlier period was the real threat to Western democracy starting with the end of World War II.

And the reason why there was a Marshall Plan and Truman Doctrine and all that was because of the concern that the Left would win, the communists would win in Italy and start in on Greece and so on, and that that was the – France, and that was the real threat. And so this association with that as being the real threat, as sort of the front guard of what the Soviets were trying to do, I think, played a huge role in how certainly Nixon, but I think others, thought about the role of the Left. Euro-communism, this phenomenon in the late ’70s starting was a huge issue. Kissinger was very vocal on that.

But my reaction to your point in looking at these documents is that policy makers and also policy makers from different countries have different lessons from the past. They each come with their own lessons, and those aren’t always the same. And so you see some of the conflicts because they’re all bringing their own baggage, if you will. I think what Kathy just said about the U.S. is right, and I think there’s sort of this – also this mantra that if only the U.S. will be the leader, everything will be okay because we are somehow more virtuous, or we are the – providing the public goods to the system, if you will. And it’s reflected in a number of quotes in there, that we’re the one putting forward everything for everybody else and that these institutions are the way we do that, and that leadership, that term, is the lesson of the past, that U.S. failure to exert leadership and abdicate, frankly, in the inter-war period and so on, was the reason the world got into the mess it was in, and that only the U.S. can exert that leadership. You still see that today. I mean, that is a term that – everyone refers to that. That’s the answer to the U.S. role in the world is to use that – evoke that term. What it means, we can debate.

But I think if you look at the other players, though, just to – I mean, just briefly, the French lesson of the past was don’t get dependent on these other crazy countries. Let’s have our own nuclear deterrent. Let’s not rely on the U.S. dollar as the reserve currency. Let’s not start to get involved in this. Let’s have a notion of France. The Gaullist view of France was as an independent sort of force in the world. The German lessons of the past, there are quite a few.

But you see it – back to my point – about the way the Germans were acting in this period was never get out in front, never go it alone, don’t be singularized, use your dependence with – through others so that you can – your influence comes mainly because how you can convince others to do the things you want that you need them to do. And that’s a very German style of leadership through that whole period. In fact, there’s still a lot of it today. That’s a very different way.

And the British, frankly, not quite, in my view, understanding what the past was telling them, having lost an empire but having failed to choose essentially between a diminishing commonwealth as a frame of their reference, the European communities, which they never really – they still don’t quite know if they’re – that’s really what they are, or the special tie to the United States. So where are they? And I think that’s – that was always the British debate through this entire period, is either failure to choose or maybe trying to balance those choices. And you get them all in a room together, then you see these sort of historic reflexes come about.

DEAN RHODES: If I could follow up on that – Bill, go ahead.

PROF. GRAY: I had a very slight refinement on this. We’ve heard a lot of helpful response already to this question. I’m sure there’s many more issues you want to ask about. But it occurs to me that one further way of looking at the 1930s, which I agree is definitely on everyone’s mind – Helmut Schmidt is constantly talking about the 1930s. He seems to think that nobody else remembers what the problems were in that period.

But one thing I think that’s kind of interesting about the phrase that’s often used, a warning against beggar thy neighbor policies, is this fear that people – that countries will take decisions that are in their own narrow, immediate interest and that that, in turn, will set off a cascading result with ultimately negative consequences for everyone. But I think the reason that’s so frightening for people is this implies the idea that there might be some actions which countries might find it expedient to take in the short run.

So in other words – you mentioned public goods. I think that in some ways, the Germans feel that they are having to admonish everyone to take the sort of morally correct stance, and at cross-purposes perhaps with their economic interests. And the Germans themselves feel that they’re taking positions which are not necessarily in their own immediate interest but are good for the system. That includes a willingness to let their currency revalue many times against the others.

So I guess I would say that, in some ways, this sense of – this sense that the past predicts that people will not cooperate leads to an almost intense desire to make sure that everyone is persuaded to be better than their own worst instincts.

DEAN RHODES: I wanted to follow up on this discussion because, as you’re noting, there is a tendency to try to learn lessons from the past and our thinking is shaped by the baggage that we bring to this that happens during our own formative under – period of understanding. And you’re pointing back to a period – I understand in the 1970s, you’re pointing back to a period over 35 years earlier. Well, we’re now about 35 years later, and I’m wondering what lessons American decision makers have learned from this period. Today’s decision makers are folks who were in a formative role or playing a junior role in the period in the 1970s, and now they’re wrestling with these questions of foreign and economic policy.

What baggage, what lessons are they carrying with them from this ’73 to ’76 period? And I suppose I’m wondering not simply about American decision makers, but also European decision makers, since they were key partners for America.

DR. HUGHES: I would say that maybe not today, but in 1985 Secretary Baker’s decision, looking at the politics of the situation, concerned about a possible congressional reaction to a growing trade deficit, he pulled together the G-5 again, leaving Italy and Canada to the side, said, “I don't know what’s going to happen, but we better get serious about it.” And in this case, both Germany and Japan, being the big surplus countries, agreed to stimulate their domestic economies.

I think that example, coupled with Nixon’s shock, has influenced the Obama Administration to seek a result like the Plaza Accord, where there’s an agreement rather than a shock that leads to a better rebalancing of the current accounts.

DR. RASMUSSEN: I’ll speak in favor of – I’ll return to the G-7, the G-20 thing and say that perhaps one of the lessons of this period is that – Dan is absolutely right that the G-7 is based upon the Library Group model that was initiated by Schmidt and Giscard when they were finance ministers, and of course, George Shultz, who played a key role in the coming of the G-6 and actually is the unofficial envoy of the United States Government to those governments as they created the G-6, also was part of the Library Group.

And so, I mean, they – but even beyond that, it was – you sort of see hints in the documents of policy makers sort of thrashing around for a new place in which to have discussions about what was going on. The IMF wasn’t cutting it. The GATT wasn’t an organization. I mean, there’s no WTO, so the GATT isn’t even really an organization. It was kind of a pseudo organization. There’s just nowhere where – to get together, for the most important industrialized nations to get together to coordinate policy that cuts across also policy lines, where you can discuss not just exchange rates but also trade policy and North-South policy. And that’s what the G-7 functions as, sort of an economic directorate, essentially, I think is how you envision it.

And the – clearly, that’s one of the lessons that was learned well, that this sort of – that the global economy is too all mixed up together in a bucket to sort of hide it off into separate institutions, and that you need a forum where the ministers can get together and discuss these cross-cutting issues. So I think that that’s one lesson to draw from this period, that these sort of economic directorates, something they didn’t envision – well, they kind of envisioned in the 1940s but they couldn’t get it through – that this sort of directorate – again, a horrible word and they’d probably protest against it, but works.

DR. HAMILTON: I would just say that on the multi-polar world, I mean, we did – I mean, you did see – as I said, I think the beginnings of that concept – in fact, Kissinger really tried to even make it a conceptual approach, has developed, always, though, with the idea that the U.S. somehow was the pull above the others or the hub, as I tried to say, that it’s the one orchestrating and having the relationship with the others. And I do believe there’s still very much of that view in the United States today.

And I think Kathy’s point is right. If you think about diplomacy, I think often the analysis I see is focused on formal multilateral institutions. And while they play a certain role, you have to get deeper into how decision makers work, and it’s usually smaller groupings case by case or informal or shifting, depending on the issues or the constellation of players you have to have in the room, rather than the formal mechanisms that we’ve all put together.

And I think an analysis that goes deeper and looks at those – what I call the international non-organizations, it’s really networks. The network diplomacy is really something. You see the beginnings of that here, and that has taken off in the last few decades. There are all sorts of networks that are happening not only among diplomats, but among different agencies of government who are connecting with their counterparts, talking to them every day more than they’re talking to their own domestic counterparts. You think about how the Treasury interacts today. They don’t want the State Department anywhere near them when they’re actually having these discussions. And so it’s sort of functional networks that have exploded in terms of how not only economic policy is conducted, but I think most diplomacy these days, and I think that’s it.

My last point would be on the thing that’s changed, I think, is this directorate – is that again, you saw, despite this notion of a multi-polar world, China and the Soviet Union weren’t in it. And the three that were left – Japan, Europe, the United States – they did think that was the directorate. And I think what has certainly changed today is while that core is still indispensible for almost any global activity that’s going to get anything done, it’s insufficient today. And I think that’s a major change. It’s – I argue it’s still indispensible. Many would dismiss even that argument. But it’s no longer sufficient.

And so the question of why the informal networks become more important then is that then you’ve got to get some other people in the room, depending on what the issues are. And if you’re locked into these formal mechanisms, which carry legitimacy in many areas but aren’t effective, that’s the dilemma I think daily operational diplomacy has.

PROF. GRAY: I think I’m proving that as a historian, it takes me longer to mull over these things and come up something in response. But I think that there is something we haven’t touched on so far about this issue of the lessons of the ’70s.

First of all, I think in a general sense, there’s less panic in response to enormous economic disturbances. I think that the contrast between 1973-74 and 2008 is really striking. I think that there’s a lot more confidence in some ways in the ability of global capital, is my guess, to use a really vague term.

I think in maybe a slightly more specific term, the U.S. has learned to live with floating exchange rates. And these are – this is an example of a specific issue which really worried a lot of people in the 1970s. Would we know how – would corporations know how to adjust – won’t this be kind of a just jumbled, distorted world?

I’m not sure that Europeans learned to live with it as comfortably, and I think in some ways the efforts to create the euro are an expression of a lack of trust in an economic environment that’s not rooted in some way. I think that the Germans really want as stable an economic area as possible. They think they achieved it with the euro and then now they’re really panicking because it turns out that the euro has brought with it its own set of risks for the German taxpayers, in any event.

So I would say that it’s interesting to ask what the 1970s have brought us. I often feel that a lot of concerns about commodities, about global financial order, really appear quite – make the 1970s appear quite relevant.

DEAN RHODES: Bob in front, and then we’ll work our way back to you.

QUESTION: Just a quick observation/question about the contrast between this period and the more recent global economic crisis. When we talk about a global capitalist system today, it really is a unitary system. In the ’70s, you really did have an alternative, a state socialist system, and you did have a Cold War that nobody’s really talked about explicitly. I wonder the extent to which the presence of a common enemy, which was widely viewed as an enemy, whether in Japan, Europe, or the U.S., facilitated multilateral cooperation in a way that in the post-Cold War era is not quite so easy. There isn’t really a common economic or strategic enemy that the G-7 countries would focus on three and a half decades later.

Do you think that’s significant? Really, no one has specifically used the term “Cold War,” I think, thus far. And of course, this is right in the middle of the Cold War. How does that affect the story? Or is that just something in the distant background, that if you take it out of the story would not have really changed the decisions?

PROF. GRAY: I’ll jump in on that real quick. One example that comes to mind is Italy in 1976. And we haven’t really discussed very much the Puerto Rico summit of 1976. But this is – it’s seen in the volume here as emerging from concerns expressed by Alan Greenspan, surprisingly. And Greenspan convinces others in the Ford administration that Italy is sinking quickly, and the reason that Italy is a problem is because of the communists.

So I think that in that sense, the Cold War threat is not a military threat, but rather a threat that Western societies and their substance might be undermined by the seizure of power of unscrupulous communist parties. Can they be trusted? Now we know that Euro-communism actually was working at some distance to the communist party of the Soviet Union. But the concern was very real in both the Ford administration and also Helmut Schmidt’s people were also very concerned about Italian development.

So I definitely think that this facilitated the emergence of a second economic summit coming just seven months after the first one, and that in turn helped to solidify the overall concept of getting together to discuss issues that are both external to the G-7 but also internal to the G-7.

QUESTION: Actually, what I wanted to raise was – I don’t claim, as Kathy would know, to know all that much about international economic policy. But I found her presentation earlier very interesting and the presentations here as well. And I think some questions were raised in some of these presentations, and I’d like to give Kathy an opportunity to respond to them if she would like to.

DR. RASMUSSEN: Nah. (Laughter.) Well, there weren’t a lot of presentations. (Laughter.)

PARTICIPANT: Well, give us a few salient points.

DR. RASMUSSEN: A few salient points. Well, I responded to Dan’s points about the creation of the G-7 being not exclusively – that the French sort of provided cover, as it were, for the Germans, and I think it’s a point that’s well taken. And again, I do think that one can go deeper into it too. And I feel that there’s a lovely quote from Arthur Burns early on in which he talks about the need to get together with the major economies and discuss all these issues together. And actually, he’s suggesting when we discuss political issues, if memory serves, as well, sort of do some tradeoffs, do linkage with our allies, essentially.

So – and the Year of Europe is also, in a way, a weird way, kind of a way to get the dialogue going with the Europeans again. And in the Year of Europe initiative too, Henry Kissinger’s sort of casting around for another way to sort of get to the major players in the global economy and the world and the Western alliance together. So, Dan, your point is well taken on that.

What other responses did I have? Actually, Dan’s point about the Ernie Preeg paper from December 1973 from the policy planning staff – so this is a paper that clearly doesn’t go very far. We know that Kissinger saw it. We know that he thinks it was interesting, and he asked Winston Lord to come by and see him. But you’re right; it doesn’t – it’s a bit of an outlier with respect to the rest of the volume. And it’s – and Dan is right to caution us to remember not to – to sort of – to be careful about saying the Department of State believes this and the National Security Council believes that, because it’s not a lockbox.

And I guess, in a way, that’s kind of why I included it, because just to say that the Department of State isn’t necessarily of one mind on these things, and I was – when I learned how to do foreign relations volumes, I was always cautioned by the former (inaudible) to make sure that I followed the policy and not down too many blind paths of policies that didn’t go anywhere. But sometimes, I think it’s constructive to sort of see other opinions sort of cropping up in bureaucracy even though, of course, they ultimately don’t influence policy.

Will asked about the cables, Department of State cables. I wish I were as good a person as you think I am, Will, in that – (laughter) – I was really worried about sort of the needs of researchers and I just thought, well, if you can get it off of the NARA website – I’m just really not that good a person. I didn’t include a lot of State Department cables because I didn’t think they had any influence on policy, to be quite frank with you. And when I approached this volume, I really set out to – I really – it’s not that I thought that the Department of State didn’t have influence in – obviously, in foreign and economic policy, but I didn’t think the posts really had a whole lot that I thought needed to be said.

And I tried to approach this volume in a way that I think is kind of different from my predecessors. I didn’t just – it had the word “economic” in it. I didn’t just sort of toss it into the volume. I tried to sort of focus more narrowly. And I tried to get away from – I think some of the previous volumes had a lot those economic reportage (ph), like, “The German economy is great,” “The German economy is bad.” Like, I just didn’t really see sort of how that played into the policymaking process.

So there’s awesome stuff in the cables and it’s great supplementary stuff. But I found that oftentimes the posts aren’t being pulled into the policymaking process, that it’s really – it’s very, very centered in the White House, even when part of that White House moves over to the Department of State.

DEAN RHODES: Actually, I’m going to call us to a halt for right now, just to give us a few minutes for coffee before we reconvene. But before we do, I wanted to say thank you to Kathy and to Dan and to Kent and to Will for a fascinating set of presentations and discussion. Thank you. (Applause.)

Foreign Economic Policy, 1973-1976

Panel Discussion

MODERATOR

PARTICIPANTS