Foreign Relations of the United States, 1981–1988, Volume I, Foundations of Foreign Policy

299. Minutes of a Meeting of the Secretary of State’s Open Forum¹

Washington, May 11, 1987

[Omitted here is the title page.]

MR. WILSON: Welcome to a special session of the Secretary’s Open Forum. Today we celebrate the fortieth anniversary of the Policy Planning Staff. The theme of the anniversary is Future Foreign Policy Challenges for the U.S. Mr. Richard Solomon, the current Director of the Policy Planning Staff is today’s moderator and for your information, all comments are off the record. Mr. Solomon.

MR. SOLOMON: I am delighted to welcome the Class of SP here. All but two of our colleagues are with us and the two that aren’t here² are caught up in either ambassadorial or academic pursuits but we were delighted that we were able to attract this complete a representation of one of the more interesting institutions that evolved out of our foreign policy in our effort to deal with the world following World War II. The Secretary of State and Paul Nitze will be joining us in about half an hour. They are involved in a current diplomatic exercise that went a little longer than we initially had anticipated. But we will get started and let me just very quickly give you the ground rules, and first begin by saying that we very purposefully put our session here in this seminar style room rather than a very large conference room just to preserve a sense of intimacy. We anticipated we would attract a good deal more than just this one room and there is an overflow room that is being covered by the television camera there so that many more people will be listening in than just those of you in the room. We will limit the discussion during the afternoon to those at the table but there will be an opportunity for all of you in the chairs around the table and in the other room to have a chance to shake hands and have a discussion with our participants at a reception which will follow the seminar on the 7th floor in the Treaty Room. And as you may have noticed walking in here, there are several other functions under way this afternoon and just let me say that when the session is over, if you will go up to the 7th floor Treaty Room through the elevators on the east side of the building, they have been reserved for our use. You will go directly to the 7th floor. If you get on the near elevators you will end up on the 8th floor which is another function. So please do try to keep that in mind and I will mention it before we get through with the afternoon discussion. Let me also say there is an iron law of the clock for this afternoon. We have eleven former directors plus the Secretary who, as I said, will be joining us shortly and we have about 150 minutes or a little more. So what we have done is asked the former directors to limit their presentations to ten minutes or a little bit less and then we will have a chance for a bit of discussion across the table.

The only other substantive point I would make is that we very consciously asked our participants to think not about the past but about the future. We are at a time of very interesting changes. Secretary of State Shultz himself has been very concerned with thinking through some of the implications of the dramatic economic, technological and political changes that are now occurring all around us and so we have urged people to think about future challenges, quite apart from the accomplishments and contributions of the Policy Planning Staff in the past.

Let me just say that we will keep things informal. There is coffee along the wall just outside of the seminar room and as the afternoon proceeds, if any of you, guests included, would like to stand up and go out and get a cup of coffee and come back, you are more than welcome to do so. So with that brief introduction, let me just say that we will proceed not strictly in chronological order. What we have done is clustered the presentations around several themes, the first of which is the issue around which this Staff was initially established and its first director, Professor George Kennan, was of course seized as one of the major issues that has confronted American foreign policy in the post-war era, that is how to manage, how to deal with our relations with the Soviet Union. On that basis, Professor Kennan we would be delighted to have you kick off our seminar.

MR. KENNAN: The Policy Planning Staff in the old part of this building forty years ago has come to be connected, as a great many of you know, with the principal, the question of containment and I am often asked where we stand today with all of this. The answer is, of course, that containment as conceived in 1946 has very little to do with the problems that we face today. The Soviet Union has no intention of attacking Western Europe today or even would it be possible for it to threaten Western Europe or Japan politically through the Communist Party, the way that it was in 1946 and 47. And as for its supposed adventurism in the Third World, I have to confess that I never understood what my good friends in either the Carter administration or in the present Reagan administration were talking about when they referred to Soviet adventurism in the Third World. Soviet efforts to gain influence there, in those countries, aside from being practically indistinguishable in method from our own, seem to be, to me to be, not a bit more ambitious, not a bit more threatening, no more adventurous and certainly no more successful than the similar Soviet efforts of the 1950s, 60s and 70s. And today the Soviet Union has very good reason in its own interests to avoid anything that would destroy or undermine the stability of world relationships in these coming years and would thus interfere with its effort to master the immense internal tasks that it has taken upon its shoulders.

For this reason, the whole principle of containment as that term was conceived when it was used by me back in 1946, is almost entirely irrelevant to the problems we and the rest of the civilized world face today. Now many people have difficulty in understanding that when that concept of containment was put forward forty years ago, it was put forward with a view to prepare the ground and facilitating, improving the possibilities for negotiation and compromise and accommodation with the Soviet Union over the negotiating table.

To my great disappointment, that element disappeared from the scene. It turned out that there were a great many people and highly influential people in the west who considered that the dangers of an attempt to negotiate with the Soviet Union at that time were greater than the dangers of unlimited and indefinite perpetuation of the Cold War and of the weapons race and the (inaudible) spend off. They thought that to negotiate would impose strains on the western community for which that community was not yet prepared, would divide it and would weaken it in the face of the Soviet Union.

Now it is my impression that today, in Europe at least, the period in which we could afford to refrain from pursuing a political settlement of that nature is coming to an end. At least the Cold War situation that we have known for all these last thirty and forty years is going, it seems to me, in the very near future to come under increasing and very serious strain. This is partly, of course, because the Brezhnev [Gorbachev] regime with its greater flexibility, with its greater openness and its obvious commitment to an internal program of enormous scope and difficulty, has, as I said a moment ago, every reason to wish to see tensions reduced, every reason to seek some sort of a stable accommodation and it is no doubt going to put pressure on us in one way or another to move along that line. But it is also because the Eastern European Soviet satellite countries have been gaining a wider measure of independence than they had in earlier years and I think it very likely that they are going to gain even more of it in the coming period. For this reason they are going to want to create a new, and for them more favorable relationship with Western Europe. And to that too we here will be asked to respond. This is why I think that we must be careful in thinking that we can just go on as we have been doing over these recent years. A new wind is blowing from the East as we all know. A new generation is about to come into power and is partially coming into power both in Eastern Europe and in Western Europe. There are going to be increased demands for political negotiation and if we Americans don’t take the lead in finding a way out of this present Cold War impasse and exploring the possibilities for an East/West political accommodation, others may take that lead and events may begin to drift out of our hands to the extent that they are in our hands today.

Now I would only remind you in conclusion that this thought that I have is in essence the very same one that was expressed to me by General Marshall some forty years ago this month, almost to the day, when he asked me to set up the Policy Planning Staff and to assume as our first task giving him advice on what to do about European recovery. “If we fail to take the leadership ourselves”, the General said to me, “in tackling this problem of European recovery, then others will do so, we would be put on the defensive and things would get really out of our hands.” We assume it was then, the condition and the nature of the problems are different today, but the principal and the danger remain to my mind rather similar.

MR. SOLOMON: Thank you very much. Now let me in the sense of trying to cluster these discussions call on Bill Cargo to give us a sense of the U.S. Soviet competition in the broader pattern of evolving global relationships and then we can have a bit of an exchange before the Secretary comes in.

MR. CARGO: I will seek to be very brief, Mr. Chairman, having in mind the time pressures to which you alluded. But I would like to express my appreciation to those who conceived and instituted these activities today to mark the fortieth anniversary of the creation of the Policy Planning Staff. And I know we are meant to be forward looking, Mr. Chairman, I couldn’t help but wonder what kinds of issues we will be facing, a possibly similar group to this on the fiftieth anniversary of the Planning Staff is celebrated, as I hope it will be in 1997. We are entitled to wonder whether the pattern of relations between the United States and the Soviet Union will be basically the same, whether there will still be a heavy focus on U.S.-Soviet confrontational relationship and the political security and arms control issues related to it or whether this will have been modified or at least moderated by some kinds of accommodation efforts. And what would be the differences in the world power structure and how will these differences impact on the security of the United States and the well-being of the American people. Of course not even planners have a crystal ball from which they can deliver blueprints of what the power structure of the world will be ten years from now, or for that matter, even five years from now. But I will risk a few comments on observable trends and I think that is indeed the function of planners in the department, of the State Department and the Policy Planning Staff, to look at the changing pattern of global political, military and economic power relations in terms of observable trends, the rate and magnitude of change, the implications and challenges for the United States and the policy of operational adjustments which should be made.

I can only comment really in a fairly general way observable trends. Those who have wider and more current sources of information can clearly do so with greater specificity and greater certainty. But from my point of view, I see myself no trend toward greater stability or diminished problems for the U.S. in the global environment of U.S. foreign policy and U.S. national security policy. It appears to me that a further dynamic and challenging period lies ahead. There are significant changes underway in the world’s economic and financial power structure including many Third World countries. I am sure that some of my colleagues will be commenting on that more in detail.

I don’t know whether it is a consequence or a separate matter, at least at the present time, there are serious economic imbalances. The global political and military power structure appears to be changing relatively less rapidly. One relevant question which is I am sure not new, and I am sure is heavily discussed, in the case of Japan, how and in what ways is increased economic and financial power and the ability to project that power reflected in an increased projection of political power and increased military power.

In the global military power structure, again from my perspective, the dominant positions of the United States and the Soviet Union seem destined to be continued. Soviet basic objectives, I feel, are not likely to change materially. And the U.S. Soviet relationship, I feel, can be expected to be basically confrontational, although successful efforts and accommodation may make it less strident from time to time. However, the Soviet power equation, vis a vis the U.S. and the U.S. Soviet relationship, can clearly be affected by developments in other power centers. In NATO Europe, in China and Japan, in particular, as well as by developments in the U.S. and the Soviet Union and in the arms control relationship. As far as NATO Europe is concerned, there have been many predictions over many years that NATO Europe would find its own way and some kind of a separate accommodation with the Soviet Union. There is large room between that development and the present situation. My own strong tendency is to believe that NATO will continue in substantially the same form that it now continues for primary reasons that relate to the increased cost of defense that would fall on Western European countries, represented variously at one to two percent increase in defense of their gross national products and also for the reason that the Europeans would have to face an increased German presence both in military forces and in leadership.

So far as China is concerned, there are others that can speak to that subject much better than I can. But a relevant question is how rapidly and how far will China be able to achieve military modernization. And if this is achievable within a reasonable time frame, what will the impact be on the Soviet Union? Will any “net gain” in U.S. security and stability vis a vis the Soviet Union as a result of this be offset by possibly greater pressures on the peripheral states around China?

So far as Japan is concerned, I have already alluded to what I think to be the major question. How long is it possible for a dynamic, expanding, economic and financial global power to refrain from beginning to maximize the political implications of this power and will they refrain from an expansion of military power to which they could easily aspire to if they wished and easily attain.

So far as the other elements of the power structure are concerned, there is great change in the lesser developed world and it is clear that this is being reflected in economic power and what this will do over the course of time I don’t think it is possible now to anticipate. But what is clear is that these trends in the power relationships of the various components, power centers in the world, do demand constant attention, constant evaluation of the trends and their significance to American interests.

I think, Mr. Chairman, that there are many other things that I have scribbled on notes but in view of your time stringency, I think that I shall stop there.

MR. SOLOMON: Let me just say for our colleagues and those listening in, we worked out an arrangement where everyone would get a bonus or two if people were under ten minutes and everyone is doing so well, being used to the planning process, they plan their time well that we will have more time for some interchange and now I just open the floor. I think we have clearly had a very interesting opening pair where our presentations were the issue of possibilities for, as Professor Kennan put it, some negotiation of an East/West accommodation was put forward as one approach. The possibility, and Bill Cargo has suggested that the U.S. Soviet relationship will remain confrontational, I don’t know whether anyone would like to chime in on that wavelength or some other . . .

MR. CARGO: Well, Mr. Chairman, I qualified that slightly with some possibility of moderation. Several kinds of development that Mr. Kennan is discussing take place.

MR. KENNAN: Since I didn’t use all my time . . .

MR. SOLOMON: Mr. Secretary, we have just finished our first two opening presentations in which Professor Kennan raised the possibility of negotiating some East/West accommodation and Bill Cargo had somewhat more on the pessimistic side pointed to the possibilities or likelihood of an ongoing competitive confrontational relationship with the Soviets. But we have had at least a big issue put right on the table.

MR. SHULTZ: And you managed to do it before I got here. (laughter)

MR. SHULTZ: Well I am very pleased to have this session going on. It is a collection of people who have thought carefully for a long time about what should happen to our foreign policy. A very distinguished group of people. I am primarily motivated by wanting to listen to what you have to say. But let me—and I saw the program and that is why I came here a little earlier than I was supposed to and it disrupted the protocol of everything to no end. At any rate, I would like to hear a little bit more about the first two statements and perhaps I will do that as we go along.

But let me just make a few comments about my own perspective on what is taking place around the world. It seems to me that right now there are more different colored balls in the air than has been so for quite a while. I think in terms of the world economic situation there are major impending developments that come out of the certainty that our trade deficit picture will change a lot. That come out of the fact that agriculture is never going to be the same for various systematic reasons. That come out of the shifts in technology that tend to substitute processes for raw materials and thereby change in a way the value base for a lot of economies that have been dependent on raw materials. I think myself that the information revolution is a pervasive one and we are only beginning to wake up to its full implications. You see it most vividly in the fact that we do have a global financial market without any question at all. But I think it is clearly having a big impact on the way we conduct our diplomacy and it is pervasive. I don’t think it is too much to say that just as we long ago left the agricultural age, that we have left the industrial age. Nobody says the symbol of our economy and society is the blast furnace and the assembly line, but they might have said that a few decades ago. But nobody says that now. So there are big differences. It seems to me that what we see are big increases now and prospective increases in world GNP and as that happens the shares of world GNP shifts. And as that happens, more and more countries have the size necessary to undertake things that are of real significance.

It also seems to me to be the case that while we tend to think of say military weaponry as being very important for us to stay right up on the leading edge of everything that is going on, the things that are considered in that mental framework to be obsolete, the weapons that people could put together ten or fifteen years ago aren’t of any real interest in our military establishment, are still very potent and easy to come by. So if you put that together with size around the world and if you put that together with the capacity of ethnic tensions as in Sri Lanka or religious movements with all of their capacity to be intolerant, and other sources of tension, you can describe a world that has a lot of problems to manage if it is going to take advantage of the undoubted big opportunities that all these new things give to us.

While some of this will certainly have an East/West dimension, there are big elements of that future that don’t necessarily have that dimension at all. And in fact, having had the interesting opportunity of visiting both China and the Soviet Union sort of back to back recently, the changes that at least appear to be taking place in both of those economies, and I guess I’ll get to hear Winston later on in the program, but there are really fascinating changes taking place and how well they will be able to manage the difficulty of decentralizing centralization remains to be seen. It is a hard problem and yet both of those economies and societies seem to be in the process of trying to do it.

So I think this chance to celebrate the fortieth anniversary of the Policy Planning Bureau Dick has seized on, comes at a good moment, a good chance for us to benefit from collecting all of you heavy thinkers together and hearing what you have to say. So having said that, I will now subside and listen to what you have to say.

MR. SOLOMON: Mr. Secretary, I was pointing out that our planning colleagues have planned their time so well that we have actually a little more time for some discussion and I call on Professor Kennan who was about to pick up, I guess your point about . . .

MR. KENNAN: Most of what I was going to say the Secretary has just said and I only want to point out that the agenda today for East/West discussion goes far beyond what many people think it would be. They think it is composed overwhelmingly just of discussion of the nuclear weapons race and we are all faced with a whole series of problems. The North/South problems, all sorts of them, the environment problems, the revolution in communication, which are not going to be solved by nuclear weaponry or by any discussions of nuclear weaponry. In other words, the agenda for East/West discussions is going to have to be very greatly widened in the coming period.

MR. SOLOMON: Any one else who would like to chime in here? Paul?

MR. NITZE: As I understood those last two remarks from Mr. Cargo and George Kennan, there is a dichotomy drawn by you as between whether or not emphasis should be put upon negotiations or upon basic underlying difference between the two social structures. I am not sure that those two are in conflict. It would seem to me that regardless of the degrees of difference and objective between point of view between the Soviet system and ours, the situation is one where one just has to negotiate. I think—in other words, one has to do both.

MR. SOLOMON: So we have dialectic rather than a dichotomy.

MR. NITZE: That is correct.

MR. SOLOMON: Bill

MR. CARGO: Could I just say very briefly that what Mr. Nitze says reflects my view. I was really addressing myself fairly narrowly to what appears to be the power structure in the world and there on the military side I see no way of reaching a different conclusion than that the focal point of this is around the U.S. Soviet military balance and is likely to remain so. On the economic side, as the Secretary has said far better than I could, there are great changes going on in the world in terms of economic power, the ability to project economic and financial power and the implications of this.

MR. WILSON: Why don’t we move on to the next topic which is Ambassador Gerard Smith who has expressed interest in talking about the effect on our alliance relations and moving to strategic defenses, a topic of considerable current interest and debate.

MR. SMITH: Mr. Secretary, I was asked to give a futuritive sort of twist to this and that is a little difficult in light of the title that I have elected but I will try to keep it as future looking as possible.

MR. SHULTZ: Well you are ahead of the game with a word like futuritive. (laughter)

MR. SMITH: I guess that is a racetrack term. (laughter) I feel a little diffident talking about this subject with Paul Nitze here whom I take it as part of his business is always taking, checking on the vital signs of European leaders on this and related topics, but nevertheless I will have a try at it. I think that it is hard to find anything positive in my judgment about the impact of the strategic defense program on our allies’ relations. I will concentrate mostly on Europe but the Japanese are, as I see it, not enthusiastic except perhaps for commercial purposes. The Australians don’t want very much to do with it. So if you look at Europe you see that this program, SDI, strategic defenses, is impinging on seven very important elements of our relationship. Military strategy, the problem of convention power versus nuclear power, the extended nuclear deterrence question, the East/West relation question, the matter of defense expenditures, the matter of sharing technology and finally the whole question of the British and French strategic forces which would be substantially diminished I suspect if the Soviets deploy effective defenses.

I think that the SDI is driving us apparently towards what I call unilateral revision of the Solomon Treaty Commitment which to my mind can only be prejudicial for all of our treaty relations on every subject. If we can diddle with this treaty, we can diddle with the North Atlantic treaty and discover that it meant something quite different in 1948. So there is something that I think is most worrisome. We still don’t know if SDI is going to be an obstacle or a lever. I think there are signs in both directions and I hope and pray it will turn out to be a lever. I think that if things work out to my mind badly and we do have something to deploy, the system, the alliance system and the East/West system can assimilate it if it is not a population defense. If it is something less than that I think the patterns with which we have worked with our allies over the past thirty, forty years will be able to absorb it. I don’t think it will be good. I think it will upset a lot of our apparent stability, but I think it will be tolerable. So that it seems to me, and this is to state what everybody was telling us when we were in this job, we certainly need a much more coherent and more logical policy. We need to integrate our programs of defense and arms control much better and that just says one thing to me, that the Policy Planning Staff has got a very important role to play here.

SPEAKER: Strategic defense possibility does have one redeeming feature. You just might learn how to fix it so you are not vulnerable to ballistic missiles. And personally, that would be a relief.

SPEAKER: Maybe a horse can be taught to fly. (laughter)

SPEAKER: That would be interesting too. (laughter) Well you work on that project and I’ll keep working on ballistic missiles. (laughter)

SPEAKER: I would like to remind my dear friend, Gerry, that in the summer of 1951 I was at the Lincoln Summer Project. As you remember, George, that went on, I guess you were at MIT also, I was one of the few non-scientists there and I heard some of the most eminent scientists in the world stand up and say “what a ridiculous notion it is to think of an eighty story building being thrown 5,000 miles”, that was an ICBM. So that I am not sure whether we have a very good grasp on what is going to prove feasible. I am not saying it is good, Gerry.

MR. SMITH: All I can say to that argument is that nobody on the other side was trying to stop that test. It was a free field whereas if we deploy something here, the Soviets are not going to let us have a free ride.

SPEAKER: I am not arguing, I am not going to complicate life, it is simply on the feasibility that I think I wouldn’t be dogmatic, that is all.

MR. SOLOMON: Anybody else want to jump in on this flying horse? I have a feeling we will want to come back to it. Walt Rostow has put forward a very provocative title which I think keys in on a number of the concerns that Secretary Shultz raised a moment ago, what he calls the fourth industrial revolution and its implications for our foreign policy.

MR. ROSTOW: For reasons I won’t burden you with, unless you insist, there has been a tendency in economic history over the last two hundred years for innovations to bunch in groups, not wholly, but quite marked. I think I know why but it is not relevant at the moment. The first industrial revolution was the cotton textile machinery and Watts steam engine and making reasonable iron out of coke rather than charcoal. The second was the railway that led right on to cheap steel. The third around the turn of the 20th Century either way was the internal combustion engine. A new round of chemicals and electricity. And if you wanted to extend that down to color television and jet engines and pharmaceuticals as we have known them, that began to decelerate around the mid-60s. The fourth industrial revolution is the grouping that we are living with, micro electronics in all its manifestations including robots and the communications revolution. Genetic engineering, new industrial materials which people I think suddenly are beginning to take seriously, is ceramic shields, super conductivity and lasers. These have four characteristics as compared to the historical past. There is a much more direct linkage between science, engineering, business and labor. Science has had an oblique road on the whole, oblique rather than direct relationship with the great inventions. Secondly, it is going to be ubiquitous, it is going to touch every branch of manufacturing, all the services and agricultural, animal husbandry and forestry. Third, it is immediately relevant to the developing regions depending on their stage of growth. Less perhaps in, certainly less in Africa south of the Sahara, although it may have some relationship to animal husbandry, forestry and so on. And the Koreans, the South Koreans, you can take a developing country and jam it into a pretty across the board high-tech state which is what is happening and a most remarkable adventure there. A third characteristic is that, a fourth characteristic rather, is that I don’t believe in the end any single country is going to dominate as Britain did textiles or the United States the early stages of mass automobile. These are such diversified fields, every one that I have mentioned, that you are going to see special comparative advantage grow up in many places.

Now against that background, what I want to do is just suggest to this highly sophisticated group, seven ways in which this revolution bears on military and foreign policy and I am going to do this in the form of cryptic notes because I am determined to stay, like all of us, within my ten minutes.

First, military. It is clearly going to be revolutionary and I give you as a second hand comment of someone who is neither side, is not an engineer, the judgment of men I trust who believe it is going to be more revolutionary in conventional warfare than in strategic defense or strategic delivery.

Secondly, the rate of diffusion of these technologies is going to be fundamental to whether we get our balance of payments under control to U.S. productivity and competitiveness. We all know that we ought to be balancing the budget or coming close to it and that we ought to have a sensible dollar exchange, whatever that is. And I believe probably because of an accident of our history, the land grant colleges and that kind of osmotic linkage between science and the active world, we are going to do pretty well at generating a new technology and we are. But in certain of our sectors we have been dreadful. The link between the CEO and his own R&D people has been very poor. In others like chemicals, electronics, aerospace, it has been good. I think the critical problem for the United States is diffusion of technologies while, of course, maintaining a role of leadership and not domination in the generation and the unfolding of their possibilities.

Third, Western Europe and Japan. What I think is going to happen out of this fourth characteristic of the industrial revolution is that we shall see not merely competition which is obvious between Western Europe, United States and Japan, but intensified collaboration. Out of this whole, the impact of this revolution on foreign trade, I think we are going to have to go much deeper in writing new rules of the game. As an economic historian I can tell you that it was not a question of free trade and protection that made the world viable between 1815 and 1914. Nor was it Britain because Britain declined in that period. It was a rather complex set of rules of the game which even with a highly protectionist United States made the international system viable and we are going to have to write new ones and I won’t go into them now. But I think we ought to draw back from the simple free trade protection perspective and look at it in terms of the total rules of the game required to make the world economy viable.

One other dimension here, talking of the advanced industrial countries, contrary to the conventional was that I believe that the ties across the Atlantic and perhaps with Japan, which many of [are] beginning to think inevitably will weaken as the Soviet problem becomes less acute perhaps, or whatever, was quite short-sighted. I will simply say bluntly it is my judgment that looking ahead twenty four years to China and India and others who will in this, the Atlantic may be the minimum viable unit, the minimum viable unit in which to conduct an effective technological and economic system.

Fourth, the more advanced developing countries are now in a position to absorb the new technologies quite rapidly and repeat over the next generation or two what the United States and Germany did to Britain in the 19th Century and Japan and Russia to the advanced industrial world in the 20th, that is catch up. You can begin to see it in the Pacific Basin, you can begin to see it clearly in Brazil. It is going to spread. This does not mean a mercantilist confrontation is inevitable. The wisest economist ever to write about this question is the man who is acclaimed to being the first modern economist, David Hume, about 1839, in which he discussed this adjustment that must be made as new countries come up and said it will work because there are advantages for the more advanced if they remain industrious and civilized. The advantages of the trade, it enlarges as poor countries become rich but you have to change your structure to accommodate the new competition.

That means a fifth point, in my view, that we ought to be moving much more rapidly than we are towards a Pacific Basin organization and a Latin American hemispheric organization to cope not only with the short run issue . . . (end of side A) . . . better rules of the game within a Pacific Basin organization and a world wide organization. But in our relations with the developing countries a forthcoming position by ourselves and Europe and Japan on the new technologies is going to be essential and a very positive item which we can—we can behave that way so long as we are ourselves moving ahead and living up to the David Hume criteria.

Sixth, I believe the new technologies and all the ramifications including their acceleration of the diffusion of power heightens the case of—I would put it in maybe somewhat different terms than George, but essentially I agree with George, that this is a time that we had better think seriously operationally about how we would like to see the Cold War end. It is not good enough to cling to it in a way that we are comfortable, it will slip out of our hands. I don’t think, it may not end quickly and it may not end at all, but that is one of our duties because the kind of world that is emerging is simply not going to be capable of being dominated by the Soviet Union or the United States or any other single country. I have written a bit about this in Foreign Affairs and I won’t pursue it.

My last point, the seventh, is maybe the most important and it is one of the reasons I came today. I was asked a question by the Tower Commission at the end, how would you do things differently in the NSC? And I said “In only one respect and that would be to make much closer links then between domestic and foreign policy”. I think that the fate of our foreign policy is going to depend much less on what happens in this building than what happens in this building plus what we do in the domestic economy. It is time I think for Washington to understand that while things may move slowly here, there is a revolution out in the United States now. The states have taken their destinies in their hands. You may have seen the New York Times with the Edison Plan in Ohio, the Scientific Engineering Plan in New Jersey, the Ben Franklin Plan in Pennsylvania. This country has shifted over in its state politics from confrontation to partnership and collaboration and that is what we have to see in Washington as the basis for effective foreign policy in the age of the fourth industrial revolution.

MR. SOLOMON: Mr. Secretary, I noticed you scribbling a few notes. Do you want to jump in on this?

MR. SHULTZ: I don’t want to be the interrogator here although I have lots of questions for Walt. I think some other people should say—I want to listen to you people.

SPEAKER: I wonder if you could elaborate on two points that you touched on. One, your feeling that reimplication in neither India nor China will be viable entities. I don’t want to put words in your mouth, but something to the effect, seemed to be pessimistic about their future. Is that what you were suggesting?

MR. ROSTOW: No, I went too fast. I am optimistic about both in different ways. We all know their problems. In India it is the major national sport to discuss them and identify them. Both are extraordinarily vital but the reason I take these developing countries so seriously is that with great scholarship I have discovered that this is a revolution that no one seems to have noticed and the scholarship consists of looking in the back of the book we all know, “The World Development Report” which comes out of the World Bank.

Between 1960 and the present, the proportions of those aged 20–24 in the more advanced developing countries have gone from 2 to 12, 14%. China, of course, is not caught up with that yet. South Korea is 22 or 24%. In India you went from 190,000 engineers and scientists to probably about 2.4 million now, the third biggest concentration in the world. They may not all be good but neither are all of ours all that good. This is happening in Brazil and in Mexico. If Mexico gets itself straightened out with all the problems in the short run we know it has, you will see an astonishing capacity to handle new technology and diversify its economy. And I think that China and India are going to make it as advanced industrial countries. That is what I thought I was saying. Sorry I wasn’t clearer.

SPEAKER: Well you sort, about that passage in your remark that you saw the U.S. European connection contrary to conventional wisdom now being—as I thought you said, the only viable entity and I wasn’t quite sure what you were getting at.

MR. ROSTOW: No, I said in the face of the competition we shall face, it will take a unit as big as that to be a viable entity. And so I would, without making a fetish out of something that may be twenty years down the line, I would not let my mind get cast with the expectation that the Atlantic Connection should be gradually attenuated and dissolved. I suspect that my grandchild may well live to see Atlantic union.

MR. SOLOMON: You also put forward a very interesting notion that we are going to have to find new rules of the game in international commerce. Would that be something you would to elaborate on a bit?

MR. ROSTOW: If you would like me to, yes, I will. In the 19th Century the system worked despite the great decline, relative decline of Britain, and the rise of Germany and the United States. Britain remained the major capital market but not unique. It worked because for one thing everyone accepted the same domestic rules of the game. The United States and Japan are obviously in a very tight bind in their domestic politics, in getting our budget balanced and they doing what the Neasawa Report says they should do quite correctly. But the way it worked in the 19th Century was that everyone accepted the business cycle. When they over did it, you accepted a recession. Now politicians, people didn’t actually regard a depression or recession as an Act of God. Politicians took their lumps in the bad year. But basically the system was held together, not so because there was a big capital market, London and others ancillary, and despite a lot of protectionism, the system moved together. So no one was in the—now we have taken, governments have taken responsibility for full employment and so at a moment like this we are very naturally trying to get Japan and Germany to expand. That was done by the acceptance of the business cycle in the 19th Century. Now rules of the game now I think should involve 1) the duties of a sustained deficit country; 2) the rules of a sustained surplus country. Now we have violated those rules in the inter-war period and in one of the really best periods in American foreign policy. We accepted the duties after the Second World War of a surplus country. But they have got to be generally accepted. 3) modification on this question of deficits and surpluses. If a surplus country is paying off its debts, it has to run a surplus so you want to take modification for that. 4) here you need something in which it will be a lot more automatic and acceptable in the political life of countries for Germany and Japan to expand now. 5) I think we have got to accept that out of a complex history Japan is not simply a very good competitor. It is that, but it is—after all it is only 100 years or so when the British laid on the Japanese that they could not put a tariff on and they began life as a modern nation on how to evade that British rule, how to get around the GATT rule. So that this business of blocking the foreigners imports is not covered by the GATT concept. You are dealing with a piece of history in Japan and the Japanese know it and how are we going to get them around it. My own feeling is we could get them around that corner a lot easier if it was a Pacific Basin rule rather than sort of forced by the United States bilaterally. So we are dealing here with much more than what GATT regarded as non-tariff barriers. I think all five of those elements have to be in the rules of the game, not simply tariffs and so on.

MR. SOLOMON: Thank you.

SPEAKER: Walt, where do you see or don’t you see the factor of over population entering in with regard to a great many of the Third World countries, particularly Africa and Latin America?

MR. ROSTOW: Well it is a disaster and we are going to go through a period of great strain. Most of the inequities, not all, but most of the inequities one sees in Latin America, and we saw them even when we had high rates of real growth in the 50s and 60s, stem from over population. That is to say, vast unemployment and underemployment. Two, inability to provide adequate infrastructure. Now these are all compounded by the pathology of their policy toward agriculture in which they cheated on agriculture and subsidized their cities. That, you know, drew people to the cities in an even more pathological flow. That is being corrected to some extent, as India and China show the way that agriculture is necessary for industrialization, not in conflict. But we just got to live with it, George, it is going to be ugly and it is going to produce the limited crisis but it need not produce world crisis. And it may be mitigated because at last the word is getting out among the developing countries that agriculture is not a neo-colonial activity, it is fundamental for industrialization and the examples of India and China are very helpful in that respect and others are coming along. But it took a long time to come to that.

SPEAKER: Mr. Rostow, what do you think the United States will have to do to compete more effectively with the so-called Gang of Four? What is going to happen to make us deal with this increase in engineers and scientists that is taking place in the Third World in general and in those four countries in particular so we can be more competitive internationally?

MR. ROSTOW: Well I think that what happened is that we got hit by a surge in their productivity and exports at a time when our domestic unbalanced budget through a complex process pushed up the exchange rate. So at just the time that we should have been becoming more competitive, our domestic policy led us to become less competitive with the phony high rate. Now that has been corrected but it takes—it will in time have some effect on our exports. The art, of course, is to get this effect on our exports and our balance of trade without as it were blaming it all on Japan, making sure the domestic things happen. I think that a good many of them are beginning to happen. That is to say you are getting much better business labor collaboration on the whole than we used to have. There are some bad spots but there are a number of good spots. We are getting re-equipment of many of our factories. The element that I think may be missing or should be strengthened is that we do not pay enough attention to what markets are like abroad. We are not a country whose mind is automatically set on exporting and it is a very small proportion of our manufacturers that do the exports. But what I am saying though is that I am saying is that I think that a lowered U.S. dollar rate is a necessary but not sufficient condition, that the sufficient condition requires a surge in productivity in the United States which means that diffusion to the old export sectors of the new technologies. And one of the things we are going to have to do is what we urged the Latin Americans to do. When you soften an exchange rate it has an inflationary effect, your import prices rise. That is happening. If you let wages rise fully, you take away the benefits of that devaluation. We are going to have wage discipline in this country. It doesn’t mean wage controls necessarily, but it may mean in the years ahead the development of an incomes policy like the Japanese or Austrian or German or Swiss, each of which is different institutionally incidentally. But in any case, the only way you make it in a competitive world is by not kidding yourself, by having your real wages accommodated to your productivity and you can do that through inflation—we are not facing up to it now because we are just borrowing money and living off borrowed money which is like [how] Mayor Lindsay ran New York City.

MR. SOLOMON: I think we have reached just the point to go on to our next former director, Henry Owen, who is going to look at economics summitry, past and present, and maybe give us some ideas of how to deal with these trends.

MR. OWEN: I should say I am talking about economic summits as a means, not as an end. The end is greater concert among the economic policies of the industrial countries. So much for only one means to this end, but it happens to be the means I know most about so I will talk about it.

If you look at the duration, the long period over which there have been summits, in the Ford administration, the Carter administration, the present administration, they have generally been of two kinds and each of these kinds has been present in each of the administrations. One is an exchange of views by the economic policy among the heads of government and their immediate advisors. And that is a very useful process and its usefulness is sometimes underestimated because it doesn’t produce much in the way of headlines or immediate accomplishments. The second is a bargain is struck in which specific actions are pledged by each of the heads of government and each of them is enabled by that bargain to do things which need doing but which are politically difficult to do in isolation and easier to do if each of the other heads of government is making comparable pledges. I guess the best example of that is the Bonn Summit in 1978 when the U.S. pledged action which was clearly overdue to decontrol oil prices which our partners wanted. The Germans and the Japanese pledged stimulus to accelerate growth in their economies and the French, the British and the Italians who had been dragging their feet in the trade negotiations agreed to abandon some of their objections to deeper cuts in tariffs. That was a useful outcome, not a sensational one but useful. The opportunity for bargain summits in my view occur very rarely when the circumstances are conducive to wider change in the countries policies. I think these circumstances exist now and will exist for the next of several annual summits.

I remember when I started on the Policy Planning Staff I read a book which was called “The Role of the Secretary and the Making of Foreign Policy” which I commend to you, Mr. Secretary, and it was written by a number of authors. One article by Paul Nitze particularly struck my mind in which Paul said that the big change that was occurring was the U.S. was succeeding to the role that Britain had held in the 19th Century in its dominant military power, its export surpluses, its financial surpluses. I think change, perhaps not of comparable importance, but close to it, is occurring now in that the U.S. role is clearly changing and more and more of the functions which we previously discharged unilaterally will have to be discharged multi-laterally either by multi-lateral institutions or by concert among the main economic powers which I take to be the U.S., Germany and Japan. And secondly, we have arisen very large surplus and deficits which I believe are due to structural causes that will not quickly go away, which mark the U.S. as a very large borrower and Germany and Japan as countries which will run, particularly Japan, continuing export surpluses, continuing capital export surplus as well, of very large size. And these changes I think make it possible now to strike bargains not at one summit but at the next several summits. And the bargains would involve changes in policy by each of the three major industrial countries. The U.S. has to adopt the policies which are generally expected of a debtor and there is no reason why we should escape the discipline that the IMF imposes on other debtors. And that means things which are difficult because our object is to increase savings, we have the lowest rate of any major industrial country. We want to reduce the government deficit which diverts those savings to least productive purposes and we want to effect the trade changes that Walt has referred to.

I think there is no way of avoiding the fact that this means higher interest rates. Higher interest rates are needed to mobilize savings and until we can mobilize them to attract capital from abroad, I think it means tax changes. I think I am alone in believing that the recent tax reform bill was not a good bill. It encouraged consumption and it discouraged investment. We need tax changes of exactly the opposite kind. And finally, we need increased taxes because without increased taxes there is no way in God’s green earth we are going to reduce the government deficit. I happen to believe that a value added tax is the best kind of increased tax but I am sure there are other people with differing views.

Those are the kinds of changes you need from the U.S., Japan and Germany, as president of the Bundesbank, Pöhl, said in a recent speech, have to change their policies in the direction that you would expect of creditor countries and surplus countries. This is most evident in the case of Japan. Japan needs to increase its domestic growth, it needs to increase its consumption and it needs to assure that its savings, which remain very high, go to the most productive purposes. About a year ago, Mr. Secretary, you gave a speech at Princeton which I think attracted much less attention than it deserved,³ in which you emphasized that the—perhaps I am interpreting it wrongly—that the main cause of our problem with Japan lay not in the trade field but in the respect of Japanese investment policy and the regulations which hinder Japanese investment both domestic and abroad. The changes that Japan has to make are several.

One, it has to strike down the regulations which make it difficult to channel the investment into suitable domestic purposes. They have to reduce interest rates for exactly the same reason that we need to increase interest rates. You have to give the domestic economy further stimulus. I myself am skeptical of how much good the budgetary measures that the Prime Minister proposed will do, but in any event they are necessary as part of a package. And through these and other measures including I might add, changes in the Japanese tax system which would be the mirror image of the changes we need to make, namely changes that will encourage consumption at the expense of savings. Through these changes Japan will produce an economy which has more domestic growth, has higher consumption, lower saving and those savings are used in the way that is most effective both at home and abroad, particularly abroad in the developing countries.

Germany has to make changes which are somewhat similar to those of Japan though I myself believe, perhaps because I know a little more about Germany than Japan, that the scope for the changes is less than is commonly supposed in press discussion. Germany already has taken a good many measures to increase domestic growth. Germany has reduced its interest rates significantly. But anyway, further measures along those lines to reduce taxes, stimulate the economy, reduce interest rates, and above all, press forward with deregulation which is I believe the major obstacle to growth in both Germany and Japan, excessive regulation.

If you get this kind of a package, it is useful to consider what it will do and what it won’t do in the industrial world. Hopefully it will produce more growth which means less unemployment but I don’t think we should exaggerate the immediate effect because I think unemployment in the industrial countries has profound structural causes which can’t be dealt with by international measures. In part this calls for the government to do things, namely more training and more assistance to workers in relocation and in part it calls for governments not to do things which is to get out of the business of fixing the wage structure which prices, in Germany particularly, but also I gather in this country, a good many workers out of the labor market.

Secondly, it will reduce the large surplus in deficits but it won’t eliminate them and we need to educate our people to the fact that surpluses, deficits are a normal and a healthy part of international economic life. The fact that Japan saves a hell of a lot and produces that capital for us and for developing countries at lower interest rates than any place else in the world, I agree with Martin Feldstein, that is a good thing, that is not a bad thing. Therefore, looking for the total elimination of surplus and deficits is not only infeasible, it is stupid, which is a bad combination. (laughter)

Third, it will hopefully produce better balance in trade but because surpluses and deficits will remain protectionist, pressures will remain and again, there is the job of education that this will always occur. That you will not always have, despite Congressman Gephardt, exact balances in trade either bilaterally or multilaterally between countries. I am told there was a British infantry manual in World War II that said the best way to escape mortar fire is going forward. Happily I never experienced mortar fire but I can imagine it is true. And I think in the trade field one needs to go forward in the trade negotiations. Not toward what are called modest and feasible changes, but toward drastic changes such as the elimination of tariffs on industrial goods among the industrial countries.

Finally, I hope that the measures I have described will reduce currency fluctuations but they won’t eliminate them. And there is no reason that they should. If we can’t go back to fixed rates, and we can’t, you are going to have money whose value changes in the marketplace. There is no way of getting around that. And no amount of intervention by central banks is going to change it. There isn’t that much money in the central banks. Over time we will learn to live with it through options and futures and various devices which banks are very good at inventing, but it is something we do have to learn to live with. We can’t expect a world in which currencies do not change value.

Now the most important thing I have left to the end which is the effect of all this on the developing countries. I have often thought the most useful thing we can do for the developing countries is to create an economic climate in the industrial world in which they could export to the industrial world and profit from growth in the industrial world. But there is a problem in the developing countries which warrants special attention, the international debt problem. I don’t see myself how this can be cured without four things. One is a write down in the debts in the industrial countries. The German banks have taken such a write down and eventually if the controller of the currency will allow some change in the reserve regulations, our banks will have to take it too. In return, we can expect an exact better performance from the industrial countries. The World Bank must give, and the IMF, must give these countries reason to believe that there is light at the end of the tunnel, that good performance will be rewarded with large infusions of capital, and for this particularly the countries which have surpluses of capital, like Japan, must find some way of contributing to the World Bank without expecting everybody else to contribute in the same degree. And finally, of course, there is private investment, the change from loans into equities, which is now beginning to be inaugurated in the developing world and I think will go further.

Now none of these things are going to happen in one summit or two summits. It is a continuing process. I think the summit process is a good one. Perhaps it could be improved by linking the meetings of the finance ministers more directly to the summits as meetings to be held between summits. But in any event, if we have these goals in mind, if we have it clearly in mind that there is one economy, not several national economies, that has to be dealt with as such, I think over time, with this approach to summits we could make some progress in dealing with the problems we now confront. Thank you.

MR. SOLOMON: Thank you, very comprehensive. Anyone like to jump in and raise a question?

MR. SHULTZ: You didn’t say anything about the non-economic aspects of summits.

MR. OWEN: Because I didn’t know much about it. Brzezinski took great care that I wasn’t involved. (laughter) He said you worry about the economic, I’ll worry about the rest. So I never learned much about that, Mr. Secretary.

MR. SHULTZ: That underlines Walt’s point that these two subjects ought to be considered in parallel together.

MR. OWEN: I gather that is more the trend in summits now than it was in my time.

The risk that I saw was that sometime when the heads of government couldn’t think of anything useful to say or do in the economic field, they would go on to other subjects, so I wouldn’t want to relieve them of the pressure for dealing first with what they are hired to do which is deal with the pressing economic problems they face.

MR. CARGO: Henry, this question may provoke the necessity of a long answer but I am going to risk asking it anyway.

MR. OWEN: It won’t.

MR. CARGO: What from your perspective is there in view that will motivate the Japanese to take steps such as you outlined?

MR. OWEN: Well I suppose it is of two kinds. One, no more than anyone else do they like being isolated in the world and the object of criticism, pressure from other countries. And secondly, they are a very intelligent people and they have an interest in the health of the world economy. And over time I believe that you will see them perceive, and they are already beginning to perceive, that their economic health depends on taking measures which are consistent with the health of the world economy. They are after all opening their markets increasingly to imports. I would judge Japan as now less protectionist than the European community. They are beginning the process of deregulation and in my current profession as an investment banker, they are certainly reducing the regulations on foreign investment banks in Japan at a very rapid rate, not as rapid as we like. So they are reducing interest rates. The Prime Minister has pledged a $35 billion stimulus package, fiscal stimulus package. So I think they are moving in these directions. I think there is a danger of getting ourselves fixed into a belief that the Japanese are wrong, the Japanese are to blame, and I don’t think that any of those things is necessarily true. I think they are moving, they are smart and if we encourage them—and above all, if we are willing to move them. You can’t expect Germany and Japan to make politically difficult changes in their policy unless we do the same. And there is all the difference in the world when the U.S. which says I am going to take difficult measures to reduce our government deficit which is one of the main things that worry them, even if it means increased taxes, and here is what we expect you to do. And the U.S. says well I am doing great and here is a catalog of things you fellows have to do.

MR. CARGO: Which reinforces your opening point about the importance of collective action on this through summitry or other mechanisms.

MR. OWEN: I am hesitant to speak this in front of the Secretary, because you invented summitry with Ushiba and Barré, wasn’t it?

MR. SHULTZ: Let me suggest another reason why I think Japan is likely to make some changes and that is that they are tremendously vulnerable right now. They have a huge excess of savings over investment and so they need the big export surplus to keep their economy going at a high rate. So that makes them very vulnerable to things that other people do that will make that surplus hard to come by and being prudent, it seems to me they will take some steps to get their house in order from their own standpoint, not to do the world a favor, but to protect themselves against being caught off base.

MR. OWEN: That seems to me the virtue of the kind of bargain we are talking of, the measures each country is called on to do are really in its own interests but it is a little easier to perceive that if other countries are taking difficult measures at the same time. I remember at the ’77 summit the Japanese Prime Minister who had been at the 1931 London Economic Conference said that if one could have had that approach then perhaps the duration and the rigors of the Depression might have been mitigated.

MR. SOLOMON: As moderator I have to impose a little of this time discipline, if not financial, and let us now turn to some issues related to our dealings or developments in the Third World and George McGhee we would like to ask you to pick up your topic about relations with key world areas and groupings as you see them emerging.

MR. McGHEE: Thank you for inviting us old time policy planners back to the Department to meet with more recent policy planners. It is hard late in a meeting to say anything new and it is very presumptuous in ten minutes to try to tell policy planners how to solve the problems of the world. I will confine myself to identifying what I consider the gravest problems we face. To characterize them in general and to set priorities for them.

These are problems which are serious because they are comparable to a cancer in the human body. The cancer is a sore that doesn’t get any better if it is not attended, it would get worse. It can only be corrected by some type of drastic treatment including surgery. Otherwise, you lose the limb or you die. These problems are so serious because they are not improving and there is nothing that is going to make them improve. And our problem is to find out what can do that.

The problems are, as has been stated, present distrust and conflict with the Soviet Union which includes the western group generally as well as ourselves. The position economic deterioration and increased population in the developing world, particularly in Africa and the resulting East/West, North/South conflict. Increasing tension between the U.S., and to a lesser extend, our western allies with what I call the middle world. A loosely organized grouping of Islamic states embracing some eight hundred million people in the world which results in large part, I believe, from the failure to improve or solve the Palestine problem. And last, the inability of the U.S. and other western OECD countries, as has already been pointed out, to face the intense economic competition posed by the Japanese, the Koreans, the overseas Chinese and perhaps in the near future, the mainland Chinese.

Now of all these, the overriding problem is obviously that with the Soviet Union. It is a matter of 1,000 percent more important, not 10 percent more important. It is only because of the distrust that exists between us that we have to bear this crushing burden of defense expenditure. If we didn’t have this conflict with the Soviet Union we would go back [to] a 50,000 man army that we had between the wars. The only real way that this can come about is a removal of this distrust by some process involving both of us wherein we attempt to remove our distrust which is the only way of ever proving that this can be removed, while they, following our example, attempt to remove their distrust. And we must recognize which of their actions which cause our distrust are a result of our action. Part of the necessity of the Soviet Union finding how the second greatest power of the world assumes the proper position for such a power. We have to have enough confidence in ourselves not to be so highly concerned about actions which they take pursuant to both of these impulses. We must avoid the implications of the domino theory that they are out to conquer the world or that they are going to invade us through Nicaragua.

Now this continuing economic deterioration in the world is sad mainly because this is a problem we understand very well. One time we assumed the leadership in the world in helping these countries improve their economic lives. Walt himself was a leader in propounding the philosophy under which we approached this problem. Today we have given up. Nobody is making a serious effort to do anything about Africa. It just seems an impossible situation. We are giving less on any basis you wish to allies than we did many decades ago. The international institutions set up for this purpose found no effective way of dealing with this. Even despite their tremendous effort in population limitation, population is just as rampant as it was before. The seriousness of this we have always understood but the real point is nothing is in training which is going to help it. It is going to get worse. It is not just a question of the human suffering involved but the threat that democracy will never be possible for countries under such conditions. The loss of our markets. Maybe eventually even the loss of important industrial raw materials which we need.

We have talked of the invasion of our country by Mexicans and Central Americans. We live to see the invasion of Indians and boats organized and steered for this purpose of India landing on our unattended coast. When they get to 1, 2 billion or 3 they can’t be contained in that poor country. Then we all know the (inaudible) but nothing has been framed to solve it.

Now the barrier between us and the Islamic world which is increasingly severe and one doesn’t just perhaps use the extreme example of Iran, there are other Islamic states, Pakistan. And the fact of being Islamic has a deep effect on both their government and their economy and their international relations. I still believe, since this is where I started, in the Middle East, that the fuel to this separation is still the Palestine problem. There were originally 800,000 refugees from Palestine when I was assigned by Dean Rusk to solve the problem. It was a great failure. Today there are three million in a comparable position. And this is in addition to 1.3 million who are prisoners of war without states in the West Bank and in the Gaza Strip and the 600,000 in Israel itself. This is up to 5 million people. They are scattered all around the Middle East for some (inaudible). They sit and brood about the injustices, they are not getting better in their attitude toward the problem, they are getting worse. They will never forgive and they will never forget. And it is no coincidence that the actual individuals involved in most of the terrorism in the world are recruited from the refugee camps.

It is hard to advise you what to do about this problem but my best guess is that we should start again with the Reagan Initiative of 1983 [1982]. We should try to fit that into the format of the conference which is very similar to the Geneva Conference idea which I myself was supporting. We have to resume the leadership in this problem because it just can’t be done any other way even though the actual negotiations may ultimately be done best between the states concerned.

Now something has been said already about the, what do you call them, the six—why can’t we compete with these new countries. And yet increasingly we have seen our country invaded by the progress of the overseas Chinese and by the Japanese and in Korea. The origins of this are very deep. As someone said, we are in a different stage of our cycle from theirs. They are just beginning and they haven’t had much, now they’ve got something. It wets their appetite and they want more. Traditionally they have had to work hard and they are willing to work long hours and make great effort. We have at least leveled off if not gone down in our living standards. We are sated with prosperity. It is the English disease you might say. But either we have to change our habits and increase our productivity again or we have to be content with a reduction in our standard of living and giving up the leadership we once held and I think can hold again in international economic affairs. Thank you.

MR. SOLOMON: Thank you. Let’s go to Ambassador Lord. Win would you like to tell us where we are going to be going with the Chinese.

MR. LORD: George Kennan, the first Director of the Policy Planning Staff once observed “If we are to regard ourselves as a grown up nation then we must as the Biblical phrase goes, put away childish things and the first to go should be self-idealization and the search for absolutes in world affairs. Absolute security, absolute amity, absolute harmony.” Forty years later that injunction captures the primary challenge in our China policy as we look toward the 21st Century. We and the Chinese will continue to share security concerns but we will not be allies and we will differ on important international issues. We will continue to strengthen ties of amity but we will face inevitable tensions as we mesh two continental giants with vastly contrasting histories, cultures and ideologies. We will cultivate cooperation but we can hardly hope for harmony.

This may seem a rather obvious precept for relations with any country. It has not, however, been applied for most of our past history with China. American attitude towards that nation have swung between romance and hostility. We have held wildly fluctuating images. The evil Fu Man Chu, the noble peasant of Pearl Buck. To ingest the past half century the Chinese have been successively beleaguered allies and implacable foes. Yellow Hoards, Red Guards, and Blue Ants. The angelic mosqued man and the diabolical Gang of Four. Budding capitalists adorning magazine covers and beastly Communists abusing intellectuals. We need a steadier vision. I believe that in recent years we have begun to be more clear eyed with most Americans discarding both the Red Herrings of Senator McCarthy and the rose colored glasses of Shirley MacLaine.

Nevertheless, in the future, maintaining balance toward China will be a difficult pursuit. Much, of course, will depend on the Chinese. History complicates their task for they have rarely dealt with the outside world as equals. During most of China’s past it was the Middle Kingdom, self-reliant and self-absorbed. The Chinese dominated their neighbors and exacted tribute. About the 17th Century they began slipping behind Europe. From the mid-19th Century for one hundred years they were humiliated and occupied by foreigners. During the past forty years, especially the past decade, China has reasserted itself. It is not set forth in a long march to regain preeminence however long it takes. Internally this sprawling country has been marked by cycles of central control and local satrapies. Strong emperors and seditious war lords. Harmony and chaos. Divisions have encouraged barbarian invasions. But during the past century foreign encroachments have also brought home to the Chinese their relative backwardness. They have struggled to modernized while preserving Chinese identity.

As China looks toward the next century these historical dilemmas persist. The Chinese drive to become a great power faces two familiar challenges. The first one is to develop their economy without losing political control. The Chinese Confucian fear of chaos is woven together with a modern Leninist imperative of party dominance.

The second challenge is to obtain foreign science without forfeiting Chinese culture. In current (inaudible) this translates as follows: Pursue economic reform but uphold the four cardinal principles. Pursue the opening to the outside world but oppose bourgeois liberalization. But today these traditional challenges have unprecedented dimensions. The age of technology and information requires much greater decentralization at home and linkages abroad. And the age of television, telecommunications, travel and return students has opened doors wider, indeed permanently. (end of tape one)

[Omitted here is a title page for tape two.]

MR. LORD: (continued) . . . Thus, while China may aspire to be once again the Middle Kingdom of preeminence, it can never return to the Middle Kingdom of secluded self-reliance.

Against this background one can easily predict ambivalence in future American attitudes toward China. Indeed in recent months levels of skepticism and annoyance have risen in our society. Skepticism about the durability of China’s pragmatic policies of reform, annoyance that our values are castigated while our technology is courted. Thus, potential investors hesitate. Journalists are disturbed about expulsions and loss of contacts. And scholars, many for the first time, are expressing to Chinese leaders their concern about the treatment of intellectuals and the prospects for students.

For an Ambassador, it is awkward to discuss publicly domestic issues in the country to which he is accredited, whatever he may convey privately. You will not misread my own complex attitude if I confine myself to a few positive observations. China has come a long way in a short time. It faces an enormous challenge and we should try to discern the historical thrust when rough edges appear. The present phase contains progressive elements as well as harshness, retrogression and uncertainty. There are apparent limits to current campaigns. Other pauses during the past decade have been followed with fresh momentum. Things are never as good or as bad as they seem in China. Meanwhile, our Chinese friends should understand that we are neither so naive nor arrogant as to suggest they adopt total westernization. And we must wonder why any harm should be so insecure as to feel loss of cultural identity.

I mention today’s scene even though we have been asked to look ahead as policy planners because we can expect more of the same in coming decades. It is hazardous for anyone, especially a foreigner, to predict China’s future. But the least risky forecast is that we will see cycles of control and relaxation, consolidation and movement, openness and weariness. Throughout we will need to strike a careful balance and consistency in our own approach. This will mean projecting our values while respecting differences in history and culture and stage of development. We will need to perceive what is real and what is rhetorical. How much is going through the motions. While insisting on reciprocity we should recognize its various definitions between asymmetrical societies. We will cooperate not as a favor to China, we will cooperate because it serves our interests.

If forecasting the near term is difficult, projecting the long term is impossible. When I steered the Policy Planning Staff I was constantly guarded by Tennyson’s maxim, “Far away beyond her myriad coming changes earth will be something other than the wildest modern guess of you and me.” If we are to be brutally positive toward the process of China’s modernization what should be our attitude toward its ultimate goal? How do we view the prospect of China as a truly major power in the 21st Century? Should we help it get from here to there? The questions themselves are presumptuous. China will, of course, determine its own fate. But we will have some impact on the pace, if not the direction. We should think through the implications of a strong China. I believe hard headed cooperation with the developing China serves our interests both in terms of tangible benefits and future orientation. I have neither the time, nor with this audience, the need to elaborate on the gains we derive from improving relations with Ba Ging. Our ties help to serve global stability and Asian peace. While promoted for their own sake, these ties greatly abet our dealings with Moscow, both freeing our resources for containment and fostering incentives for improvement. We work closely together with China on some Asian issues, share overlapping objectives on others. Trade and investment offers concrete dividends. Scientific programs are two way streets. Gradual military cooperation projects useful symbolism. Cultural and academic exchanges enrich our own society. It would be foolish to jeopardize these real assets because of the hypothetical problems of a strong China. A more stable and sturdy China will be less subject to outside pressures or accommodation. If we don’t help it modernize, others will and take away our benefits. Through abstention or hostility we might lengthen China’s march, we will not halt it. When China becomes more powerful, it will more likely be cooperative if we have been supportive. Our long term influence will be greater if we have created Chinese constituencies, spun webs of commerce investment technology and spare parts, trained managers and students.

Furthermore, for as far ahead as we can see, the Pacific Ocean and our military and technological strength should guarantee that China poses no direct threat to us. Certainly a stronger China will present some international and economic challenges. We will have to contend with greater Chinese influence in some issues where we differ. But we will also cooperate on others where our geopolitical interests overlap. We will face growing commercial competition but we will also face a growing Chinese market. It is up to us to cope with these challenges through a skillful diplomacy and competitive economy even as we must with other friendly countries. To be sure, some of our Asian friends are more ambivalent about an emerging China. Geography, ancient history of paying tribute and recent history of fighting insurgency. Future rivalry for markets and money. The bonds of overseas Chinese. All these factors give pause to smaller nations in the region. We should maintain close consultations and be sensitive to their concerns as we develop military, economic, technological and political exchanges with Ba Ging.

If over time China should take a less friendly posture toward us or Asian partners, we can always adjust our policies. Meanwhile, we should work with Ba Ging on the international plane to expand cooperation and narrow differences. On the bilateral plane to thicken the sinews of collaboration. In so doing we should seek to integrate China more fully in global economic systems and arms control regimes. This approach best holds out hope that China will be strategically guided toward the west and responsibility involved in the world. De Tocqueville once lamented “The propensity that induces democracy to obey impulse rather than prudence and to abandon the mature design for the gratification of a momentary passion”. I believe our fundamental task in our China policy will be to shed the impulses of our traditional attitudes. As China strives to fulfill its aspirations we will need to abandon passion and follow a mature design. How well we do will profoundly shape the international landscape of the next century. Thank you.

MR. SOLOMON: Thank you, Win. Of course you did a lot to help contribute to that design as it was put together. We are just about on schedule. What I would like to do is immediately go to Steve Bosworth and then we will hopefully have a little bit of time to talk about our dealings with the Third World on a broader basis having heard three presentations. Steve.

MR. BOSWORTH: Thank you very much, Dick. I would like to echo the others who commended you for bringing this group together. For me it is a particular treat to have this opportunity, to hear a somewhat broader range of issues discussed than has been my privilege for the last three years when I have been pretty much focused on one country. So a lot of the discussion today has been for me very stimulating. Over the last couple of weeks I have narrowed my focus even more and I have concentrated largely on the feeding habits of the Michigan large mouth bass. So this is quite an intellectual shock for me to come into this group and hear all of this discussion.

Let me say I think I may be somewhat less optimistic, if that is the right term, on some aspects of the global economy over the next decade or so than some of the comments that I have heard here this afternoon. Maybe it is a question of others being, my being less optimistic, or others being more pessimistic, I am not sure. But I am struck, Dr. Rostow, by many of the aspects of your description of the fourth industrial revolution and its implications for the world of U.S. foreign policy. Many of which I find I agree with. The only thing that bothers me is that it is, as you describe them, there are two to four decades out for the most part before they sort of blossom forth to their fullest degree. What bothers me and what used to bother me continually when I was in Policy Planning is how we get from here to there. The policy process, of course, doesn’t really stretch out too much further than the next five years. I think that is lamentable. The same, Henry, with some of your descriptions of the cures for the ills of the industrialized economies. His prescriptions for economic engineering, I think they are fine, but the political difficulty of engineering that sort of highly integrated sort of political trade offs, as you know far better than anyone else, is extremely difficult.

So let me start by describing some of what I would consider at least likely or possible characteristics of the international economic climate over the next five to ten years and then to discuss very briefly how some of those may hold certain implications for U.S. relationships with the Third World or the developing world.

First of all, I would think from the current perspective, and of course this always has the great disadvantage of possibly being wrong, but I would think there is little reason to expect on the basis of current evidence that the world economy is going to grow any more rapidly over the next ten years than it has over the last five years. I am being somewhat of a devil’s advocate on this point but I don’t see as one looks out at the world economy where those locomotives of growth are going to come from. Indeed the last ten years may be quite an ambitious target since during much of that time United States constituted the primary locomotive of growth in the world economy. We paid a high price for that in terms of our own budget deficit and now our trade deficit and the structural impact that has had and continues to have on the American economy. I see no sign that Europe and Japan are willing to take on a substantially greater share of that responsibility for driving the world economy forward. Largely because I think, and what one could perhaps call the post industrial, post third industrial revolution, governments in democratic countries in the west and increasingly in Japan find it hard more acceptable to deal with the consequences of economic slow down and recession than they do to deal with the consequences of over expansion and inflation. And it is not so much that Western Europe and Japan don’t know how to grow more rapidly, it is simply that in their political perspective the political price for guessing a little bit wrong and incurring a rather more rapid rate of inflation is far more painful politically than a higher rate of unemployment and that is the trade off they continue to make.

So if that is correct, and it may not be, that in an optimistic world we are looking at rates of economic growth out into the mid or late 90s, no higher than they have been on the average over the last ten years, I would then point to the problem again that you raised, Henry, the problem of the Third World debt. Here too I think it would be desirable if we would begin to write down some of these debts. However, I am not at all confident that either that method or actions by the developing countries to turn debt into equity are going to have in combination sufficient impact on the magnitude of that overhanging debt to reduce significantly the problems that these countries have which are basically how can they grow domestically at rates high enough to meet the rising economic and social needs of rapidly expanding, in most cases, populations and still service even on a rescheduled and stretched out basis that large overhang of debt that they have.

The sort of structural solution to the debt problem that you point to strikes me as very desirable. However, I am not confident that for the most part these countries that have this debt have the degree of political coherence or discipline to impose over time that sort of a debt solution. And here I think one of the leading cases in point may be Mexico where certainly over the last few years lack of additional liquidity has not been one of the constraints on the Mexican economy. Their problem has been they have been unable to get their act together politically sufficiently to begin the restructuring process that they need in order to eventually grow their way out of that difficulty.

A corollary of that is that since developing countries, even in the fourth industrial evolution are going to have to continue to be capital importers in order to continue to grow and are not going to be able to find the new capital that they need by borrowing from abroad as they did through much of the 70s. There is, it seems to be, going to be a much more intense competition among developing countries for direct investment, largely from the industrialized countries as a source of the net capital inflows that they need. That could have a very favorable effect because it should stimulate some rather healthy changes in their domestic policy as it relates to direct investment from abroad as they try to compete for it.

Also, I think, Mr. Secretary, as you mentioned, there is little reason to expect that primary commodity prices are for the most part ever going to recover to the levels that we saw in the early 1970s, both as a function of lower global demand and also as a function of the tremendous inroads of artificial substitutes for most of these products, corn sweeteners for sugar and silicone wire for copper, just to name two. The implications of this for the developing countries, it seems to me, one of them is that they are going to fight very strongly to find new areas in which they can gain a comparative advantage. And here, Dr. Rostow, I think your description of the implications for members of the fourth industrial revolution is probably right on. They are going to be trying to leap frog themselves and one another up the technological ladder to try to find some niche in which they can establish a degree of comparative advantage which will permit them to expand their exports at the sort of rate that they will have to continue to grow domestically. But one of the implications of that for us, of course, is that, it seems to me at least, that protectionist problems are going to continue and in fact are probably going to take on more of an aspect of us versus the Third World than us versus the Japanese, at least over the next five to ten years.

That is very briefly how I would—I think I probably in one of my more pessimistic moments see the general framework of the international economy within which the developing countries will exist over the next few years. The implications of that for our policy are—in a world in which our own budgetary resources are going to be increasingly constrained, our own foreign aid potential and possibilities are going to be, I think, increasingly reduced. I lament that, I think it is a bad development, but that may well be the real world. I think that it is going to make it imperative for us to establish even more rigorously than we have had to try to do in the past some hierarchy of interest within the developing world. We are going to even more than in the recent past have to stop trying to be all things to all developing countries and we are going to have to concentrate on a relatively few number of developing countries where our influence and our resources can make a difference.

I think one of the other implications of this is that all developing countries are going to be seeking their own special deals, not only with the United States but also with Western Europe and with Japan. And one could see perhaps this kind of evolving into an old spears of influence alignment as that process of striking special bilateral deals begins to firm up over time.

I don’t want to try to give this kind of catastrophic air, I don’t think it is necessarily catastrophic. I tend to think that it is probably not going to be to much worse than it has been in recent years. But neither do I think it is going to be remarkably better. I don’t see, unless there is some combination of human fortune and technological advance which is going to kind of propel us and the Third World in particular into a new age, I don’t see the essential ingredients now present for a substantial improvement in the standard of living in most of the Third World over the next decade. Both because I think the world economy is going to be growing at a rate which would not support that and also because in many of these countries their own population growth is going to be such that it is going to be very difficult for them even to stay even with where they are now, much less improve themselves substantially.

MR. SOLOMON: Thank you, Steve. Please . . .

MR. BOSWORTH [ROSTOW]: I just thought that Steve Bosworth’s statement was superb and responsive and I would certainly not wish to appear as a cheap optimist, which I am not. I would just like to make a few points.

Point one, we all ought to be aware that the fifties and sixties were absolutely unique in the history of the world economy. There never was a rate of growth averaged which was what—it was about 3.4 per capita in the advanced industrial countries. Whereas the highest previous average was just a little bit less than 1/3 of that, a little bit more than 1/3. And that was about 1870–1914. And I don’t for a moment see a return to that which was the result of a unique combination of forces. Incidentally, all on the supply side. None of them (inaudible) none of them monetarist. Now I do think that we—a sort of pessimistic prognosis for the United States, Western Europe, Japan or a sluggish one, can be written for exactly the reasons that Steve Bosworth suggested. I am much less interested in projections than in the direction of which action is possible. I don’t for a moment think that it is inevitable that Western Europe run more than 10% unemployment chronically. I think it is building up just as serious social problems as having 40% black unemployment in the United States among teenagers. I think very powerful disintegrating forces operate when you do that and I don’t think it is necessary.

I have been a little disturbed at the number of times that the phrase post-industrial society has emerged here. I have news for you, if we don’t use the new technologies and manufacturers, a lot of them, they are not, going to be used at all. And in fact, the proportion of the U.S. work force and manufacturers has not declined. Also, the new technologies are highly generative of jobs. Go to Massachusetts. Go to Silicon Valley. Or open a telephone book and see in a hundred computers, wherever you want to look, how many manufacturing firms you have and how many perfectly pedestrian service and other jobs go with computers. I did this in Austin. We have four producers of hardware and nineteen pages in the telephone book. And that is almost exactly the proportion in the Silicon Valley. I think part of the problem in Europe is that it has been slower in diffusing the new technologies. Only a few years ago Europessimism focused around that. There is reason not to be pessimistic about Europe. And I think the employment possibilities are better, in other words, for U.S., Western Europe, Japan than they now look, although they may not be taken advantage of.

As for the Third World, historically the more advanced countries of the Third World are at a stage where they should be really the locomotive. That is the normal stage for the highest rate of growth, is what I call a drive to technological maturity beyond takeoff, when you are absorbing diversified, sophisticated manufacturers. And that is what most of the population of the developing world lives in, the Brazils, the Mexicos, Argentinas, Indias and China. Despite their low level of real income per capita, are industrially quite sophisticated. I think that could be unleashed as a growth factor in the world if we could get a rational solution to the debt problem. And I think Henry Owen was wise in that in suggesting it is not a problem you solve all at once or with one device. You get it from as many directions as you can and reduce it.

There is I, I think, the acceptance that agriculture is fundamental for industrialization, is going to be good in human terms, bad for the American and European farmer, but good for industrialization.

And third, to the astonishment of a great many people, but it justifies a faith that my old friend Max Milligan and I had at MIT, the governments of the Third World are learning that these state bourgeois that they have built up are not very efficient and privatization is being talked about from Jakarta to the furthest reaches of Latin America. Now you don’t privatize by saying so but if the recognition that you’ve got to use the market more and the state less is very wide. In India for example there is no shortage of capital. The place is still throttled by bureaucrats. But in any case, I think that there are some structural things here which might unleash more energy in the more advanced developing countries but we had better face up to it that there are a number of developing countries that have not gotten into takeoff, that represent very searching problems. Not only Africa south of the Sahara, Burma, and strategically very important, some of the Pacific islands where the New Zealanders are the only ones who are completely sensitized to the critical importance of this.

So we have really a bifurcation in the Third World between the poor kids who haven’t made it to takeoff and then those struggling with structural problems post-takeoff. I think if we worked at it and worked at our own society with a bit more vigor and imagination, we could do maybe a little better than you suggested. But I think your dose of pessimism is justified and well laid on the table.

MR. SOLOMON: Thank you. Henry.

MR. OWEN: Steve, it seems to me that the sober view you present (inaudible) leads to one other conclusion which is the need and the feasibility of an increased role for the World Bank and the IMF. You spoke of the U.S. budgetary restrictions which will remain severe. But of course when the World Bank borrows it doesn’t borrow except through IDA, which I will come to in a minute, appropriated money, it borrows on the mark up with the government guarantee. This would be true when you come to the general capital increase which will almost certainly be needed in the next year or so. When IDA seeks money, the place where it ought to be seeking more money is not only from budgetary restrictive U.S. but from Japan and Germany, particularly Japan which now have large capital surpluses and high savings rate. So it seems to me it is feasible for them to do more. They can do more not only in providing the investments, public investments which are a reward for sensible policies for the developing countries, but in insisting on these policies perhaps more effectively than donor countries can do bilaterally. And as far as the IMF is concerned, of course, it doesn’t use appropriated money at all. It doesn’t figure in the U.S. budget.

Now you are certainly right in saying the private investment is in the end and long before the end the best resource. It will convey the most capital and it will convey capital with skills and business management which is needed. But you are not going to get private investment without some infrastructure, ports, roads, railroads. And that is where the World Bank can play a large role. So agreeing with everything you say, I would add one conclusion to yours which is more a more vigorous effort by all the industrial countries to use the World Bank and the IMF more vigorously than has been possible to do recently.

MR. BOSWORTH: Well I certainly wouldn’t take any exception to that at all, Henry. I think that is good, that is right. I do note though there is kind of a curious development going on now in which the World Bank and the IMF in the case of some countries, particularly in Africa, are becoming now major debtors or major holders of debt for these countries. To the point of which that debt is by tradition not rescheduled, the inability to reschedule IMF and Bank debt is becoming something of an obstacle in trying to do some rationalized planning.

MR. OWEN: . . . shift more from the IMF toward IDA which makes longer term loans than the IMF. I should explain, IDA is the International Development Association which is a soft loan window of the World Bank.

MR. SOLOMON: We are just about on schedule. This is kind of a Chinese banquet. We’ve got in a twelve course meal, three more to go and we are going to switch ground a little bit now to look first at the institutional structure by which we deal with foreign policy and then conclude with some look at a broader strategy for the United States. Let me turn to Peter Rodman who wants to talk about Presidential, Congressional relations and the making and management of foreign policy. Peter.

MR. RODMAN: Obviously our ability to master any of these international challenges depends a great deal on the coherence of our policy as we formulate it at home. And I am thinking particularly of what a constitutional scholar once called the Constitution’s invitation to Congress and the President to struggle over the making of American foreign policy.

There are important trends here too. And I am not an expert on this field but I will try to pick out what I think are some good signs of things to come and some things that cause me concern about the future.

The trends here, unfortunately, tend to be driven more by domestic political dynamics and not so much by the merits of whether these trends help us or hinder us in mastering all these challenges which all of the other speakers have so eloquently pointed out. I will venture the boldest estimate that the trends are mixed. As I said, there are some good signs and some bad signs. We all know where we have been in the last fifteen years, fifteen or twenty years. On the one hand, in the 1970s, we went through a very difficult period of institutional gridlock and Presidential weakness, but then in the 1980s we saw a President elected and reelected who represented reassertion of Presidential authority and a reassertion of a vigorous American role in the world.

On the one hand, we have a legacy left over from the 1970s of an enormous amount of restrictive legislation that is permanently, for the most part, imbedded in our law, even though the mood of the American public seemed to change over the period. So when we go through a period of disillusionment with Presidential authority we are often left with a legacy that lasts long beyond the tenure of that administration or the personalities or the issues. At the same time, even in the Reagan administration and the first part of its term has shown that a strong President with some political strength can stretch or he can carve out a sphere of freedom of action and mobilize allies and pass bills in the Congress and push controversial things and succeed. So a President still has room to succeed.

But it may well be—one of the things that bothers me is that we may now be heading into another period when the Congress will be trying to reassert its power and to impose new restraints on Presidential action and foreign policy. And again, whatever restraints may end up being imposed will remain with us probably long after the administrations change and the personalities change and the issues change and the challenges we face in the world change. So many very important things about our future are going to be decided over the next couple of years and the implications may last far beyond that.

But again, let me offer a few thoughts. Now it goes without saying that the Executive Branch also has its own responsibility to keep its own house in order. And this is not a new requirement but there may be some new kinds of problems. In the traditional national security field all administrations, I think, have the same kinds of rankles between the State Department and the Defense Department and so forth. Every administration has this similar problem one way or another. But we also have in this area some traditional and established mechanisms for dealing with these problems and I don’t see this is a trend problem because I think it is something that we have had a lot of experience with and probably will be able to deal with.

International economic policy, on the other hand, which so many of my predecessors here have been discussing, does pose some new challenges that I think we are only beginning to get a grip on. Domestic economic agencies with big domestic constituencies are now key players in our foreign policy making. Issues like trade are once again very potent in our domestic politics. The problems are greater for us because the United States is not as dominant in the economic realm as it used to be. And don’t forget we are talking about economic activity which in our system is basically a private activity and our system is not something that is strictly speaking under government control in the first place. But precisely because the U.S. is no longer dominant economically there should be a premium on policy coherence as never before.

A good example is Japan. We have had Prime Minister Nakasone in town in the last few weeks. Here is a crucial political and security relationship that is also at the core of or part of a big economic problem. So our government has to find the right balance between the domestic and the foreign policy concerns. Between the security and the economic considerations. Between the short term problem and the long term problem. To sort all of these incommensurate things out is the essence of leadership and that is what Presidents are for. But that is why it is so disturbing to me that one of the aims of some of the trade legislation in the Congress is precisely to further reduce the President’s authority over the Executive Branch. The aim is to make retaliation, for example, more automatic. In other words, to deny the President the power to apply the kind of political judgment to this mix of economic and security and domestic and foreign concerns. So it would be tragic indeed if in this era of more serious economic challenges, if that coincided with the further hobbling of our policy making institutions. So this is one thing worth worrying about.

This brings me back to the Congress and the President which I think is the main issue that we are going to have to face. To give one example of the kind of micro-management of our foreign policy that I think most of our predecessors here would find astounding—there is a very useful Congressional publication called “Legislation on Foreign Relations”, published by the Congressional Foreign Relations committees. In 1964 there was one volume of about 650 pages. Twenty years later it had grown into three volumes of more than 1,000 pages each. So I think this tells you something about the institutional changes over the past years and one can project into the future that we are going to be living in this kind of an environment for the long term.

Now another phenomenon of the 1970s was the breakdown, to some extent, of the leadership structure within the Congress itself. In the name of reform, power was taken away from committees and from the leadership and from committee chairmen, subcommittees and staffs proliferated. And Presidents who wanted to negotiate with the Congress found it very difficult. They found that the leadership they were dealing with couldn’t always deliver the troops. President Ford once complained that the Congress often just couldn’t reach a decision at all.

Now I think, therefore, that it is no accident that the device of Presidential commissions has been resorted to in recent years to forge bipartisan consents, compromises and consensus on some key issues. We remember the Greenspan Commission on Social Security and the Kissinger Commission on Central America and the Scowcroft Commission on Strategic Forces. These bipartisan commissions did a tremendous job in finding the trade offs and the compromises but that is doing the kind of work that the Congress is supposed to be doing. Now on the plus side, as I’ve said, some of the experience of this administration has shown that the obituaries for Presidential leadership are premature. Even in the war powers area, we have seen in Grenada and in Libya that if the President acts decisively and is seen to succeed he gets popular support and Congressional support. The Congress’ willingness to give support to a lot of the President’s program for helping anti-Communist insurgencies around the world shows that a President who can mobilize his political strength can win Congressional support even for very controversial things. So again, we shouldn’t underestimate the power of a President to succeed. And in the foreign affairs area, the President does retain the initiative in so many of the areas. And if he is effective he can set the agenda and he can win his political battles.

Now the problem is, of course, the Congress may try to limit his remaining room for initiative and his remaining room to succeed. But there may even be some positive trends in the Congress. I don’t know how much to make of this but I found something very striking in last year’s tax reform bill. How did Congress get the job done? Well they gave the power back to two key committees. They gave considerable power back to the two committee chairmen and they let the committees deliberate in secret. How reactionary can you get. But it seemed to show that when the Congress—when there is political impetus behind something and the country wants something to be done, the Congress found that it could restore some of the conditions that allow the job to get done. And perhaps there is a trend there. But clearly we have a long way to go. Even in arms control which is traditionally the area where the President has had freedom of action to negotiate, we see some possible looming problems. Efforts by the Congress right now to tie the President’s hands by legislation. Now I am sure around the table there are many different views here about the merits and the substance of these positions, but I think all of us who feel a stake in arms control and who believe in solving problems by negotiation ought to be very careful about the whole concept of the Congress tying the President’s hands and dictating his positions. Because weakening of the President in the long run, I think, is going to do harm.

Again, there is a debate over the interpretation of the ABM Treaty. I happen to think we have a very good case on the negotiating record but I think this debate as it continues may well leave the Senate and future cases to want a lot of intrusive scrutiny into the negotiating history and even in the negotiation itself. So I think this is something that we may find we are going to live with over a long period.

The budget process is also a discouraging example. We see the Foreign Affairs budget held hostage in a very bitter conflict between the two branches. Not only is there going to be a big price to pay in the conduct of foreign affairs but obviously, as many of you have pointed out, our budget deficit itself is at the heart of a very big economic problem which is becoming more and more serious. So naturally I have a bias in favor of a strong Presidency. I think our history shows that there is no inconsistency between a strong Presidency and a healthy democracy. The issue is how far the institutional balance is shifting at any given point in time. Secretary Shultz has pointed out that surely there can be accountability without paralysis. So I think there is a way to do this but it isn’t self-evident that we are going to be able to do it. At this point in our history, given the challenges that we face, there is a premium as never before on coherence and discipline and consistency in our policy making.

Let me leave you with another perhaps even more frightening thought. Something that the Vice President mentioned in a speech a few months ago which takes us into some totally unchartered territory, namely the Judicial Branch of the government getting into the foreign policy game. We have had plenty of experience struggling with the Congressional Presidential contest but as the Vice President mentioned policy makers in the future, when anything out of the ordinary is being considered, may have to ask themselves how it is going to look to a grand jury. And this is not a joke. I mean you remember these three thick volumes of 1,000 pages each of legislation on foreign relations. I think we should not delude ourselves that the present situation is just an idiosyncratic problem of a particularly susceptible administration. I think it is a lot more than that and it could become very complicated and our future policy makers may find life much more exciting than they bargained for.

Winston quoted de Tocqueville, I might as well do the same thing. It was Tocqueville, of course, who did point out that Americans tend to reduce political issues to legal issues. I don’t think even he anticipated that. But he did point out the democracies, at least he worried that democracies might not be particularly successful at foreign policy. I think the experience and the accomplishments of some of the gentlemen around this table show that he may well be wrong. This country has had some enormous accomplishments in the last forty years. I think the American people want to see an effective foreign policy. They want to see strong leadership. So I think we have it in our power to do it right and to show that in the end Tocqueville was wrong. Thank you.

MR. SOLOMON: Peter, thank you. With that somewhat pessimistic look at the institutional structure where we will be dealing with this world, we turn to our last two speakers, Bob Bowie and Paul Nitze who will hopefully give us a sense of whether intellectually we can approach the world with some sense of broader strategy and then, of course, we will have all the problems of seeing whether we can implement it. Bob Bowie.

MR. BOWIE: I don’t think I can give you a grand strategy within ten minutes. However, I will make some comments which I thought would be more modest by calling it “Reshaping U.S. Foreign Policy”. Let me say simply, of course, that the policies which were initiated by Truman and Marshall forty years ago have served us well for most of the period. But changing conditions opposes new problems and the consensus on foreign policy which was destructed by Vietnam has not really yet been rebuilt. Indeed Watergate and the oil shocks and the disillusionment, with detente, and the Iran and the hostages and Lebanon and the Marines, trade deficit, have all added to a sense of confusion and divergence and frustration. To my mind, the necessity to develop a coherent structure, and here I agree with Rodman, based on the realities of our situation is extremely urgent. In the years ahead the world will be facing a number of grave challenges which will demand a constructive contribution from the United States in the interest of stability, security and economic well being. The discussion around this table has certainly aired a number of these but just to enumerate them—first it seems to me is the global strategy, the global economy, which is going to be undergoing very severe strains for some years ahead. Just consider the inevitable changes in the pattern of trade. U.S. exports will have to grow by about $200 billion or more to correct the deficit and to provide for the debt service. Now just imagine what the impact of that is going to be on Japan and Western Europe in terms not merely of trade, but of their internal domestic social and economic adjustment. And that will be also felt in many other ways around the world. Second to that is the problems of debt, trade, growth and potential stability which will break the key LDCs which have already been discussed. Third, if Gorbachev does keep power, the USSR will be undergoing unpredictable changes. They may offer opportunities for modifying relations with the west. Fourth, technology, public attitude toward nuclear weapons and SDI will require rethinking in the fields of military strategy and arms control and the mix of nuclear and conventional weapons and the relation of defense and offensive forces. Here again there just might be a chance that the Soviet Union may be prepared to reexamine these issues as common problems rather than simply negotiations as has been really true in the past. We don’t know and we won’t know without probing but it would be tragic if we failed to do so. (end of side A of tape two)

MR. BOWIE: (continued) . . . just a listing but if you think about them every one of them is really something which is an enduring problem which is going to be more complex than in the past. And it seems to me that for any effective policy the United States will have to reflect certain characteristics which haven’t been all too obviously in evidence in the recent years.

First, we will have to achieve much more consistency and predictability for the rest of the century because it seems to me these are problems which will lend themselves to influence only if we really can carry out a consistent policy. And we have seen in the not too distant past not merely changes, abrupt changes from one administration to the next but changes within administrations. The Carter administration or this administration. That means that it must enjoy, the policy must enjoy support both by the Congress and the public and, therefore, will have to be middle of the road and bipartisan. That may sound utopian but in my view the recent report by the Chicago Council on Foreign Relations on the attitudes of opinion leaders and of the public indicates to me that the foundation for a consensus does exist, especially if very good leadership really seeks to find the middle ground or the ground on which there is apparently a very considerable amount of common thinking.

Second, such a policy must be based on extensive cooperation with other nations both for security and prosperity. Now that is a truism but getting it done, as Henry suggested, and others suggested, is not going to be easy and it is going to require strenuous and continuous efforts to understand the interests and perspective of other states in order to find mutual accommodations. Now that it seems to me is something that does not come easy to the United States or to many of the people who represent us. We tend to think that other people shouldn’t react as we do and do indeed react as we do which is not always the case. And similarly, the problem of cooperation is going to be enormously more difficult because the domestic impact again, as has been brought out, of many of these foreign policy issues is going to be profound and it is really going to tax the courage and the strength of leaders to be able to face up to the internal costs in order to cooperate. But nevertheless, unilateralism just won’t work. And despite its economic size and military preeminence the U.S. will not be able to dominate but it can and it must lead.

Third, such a policy will require the strengthening and use of international agencies for economic and security cooperation and the acceptance and compliance with international norms and constraints. I certainly don’t want to get into the ABM Treaty here but I simply profoundly differ on what the significance is of this re-writing of the Treaty. I agree entirely with Gerry Smith that this goes way beyond the question of the ABM Treaty itself into the whole question of relations between the President and Congress, which after all has a Constitutional authority with respect to treaties. And second, the whole question of good faith in the United States in international affairs and in treaties.

Fourth, such a policy will require a policy making process that ensures that the President and his advisors make full use of the knowledge and expertise of the career officials and have the benefit of debate and competing views and analyses in making decisions. I think this is especially important when we consider that so much of what we are doing is trying to work with countries having quite different perspectives, as I indicated, and where most of the people who come to the top in political life in this country simply do not have the experience or background which makes it possible even to understand the perspective of others. And the only way they will get that benefit is through the eyes and the ears of the people in the career service who can make it available for them.

Achieving a consensus and carrying out a consistent U.S. policy will depend gravely on Presidential leadership. The Economist this week asks whether the U.S. political system is capable of nominating and electing political leaders with the essential qualifications. It is a fair and a disturbing question. Let us hope that Mr. Dooley was right when he said many years ago that “The Lord takes care of children, drunks and the United States”. (laughter) Years ahead may well test that fate.

MR. SOLOMON: Thank you. Before we open it up for a final round of exchanges I would like to call on Paul Nitze who is going to try to give us a feel for grand strategy and where we are headed in the future.

MR. NITZE: Oh no, I am trying to give my feelings to what I think the task of SP is. When I was working as George’s deputy and later when I took over as Director, it was my view that what Secretary Marshall and Dean Acheson had wanted from the staff was that we focus on the potential long range consequences of important current decision options, particularly in the field of U.S. Soviet relations. This focus was distinctive from that given to the work of other parts of the Department. In one sense it was broader. It included military, economic, cultural and doctrinal matters beyond the day to day responsibilities of the Department. It was narrower in that they intended that SP not get into operations. My conception of this task was that the Planning Staff should assist the Secretary and through him the President, in dealing with issues that bear on the nation’s grand strategy. I continue to believe that should [be] its principal role.

Looking forward from today rather than from 1947, what are identifiable parts of the problem? The starting point, as it was then, is to achieve as accurate, as coldbloodedly objective, a view of the evolving world situation as is possible. In a sense we suffer from an excess of information. The task is to sort the information out for relevancy to decision options bearing on U.S. grand strategy. As one sorts out for all relevancy a number of factors need to be considered. One is a sense of geography (inaudible) as to a land strategy. The geographic foundations of strategy are changing with increasing ease and speed of travel and communications and the range of speed and power of weapons. The demography of the problem is changing both between countries and within countries including the USSR. Economic trends have shifted dramatically, particularly for the United States the last twenty three years. Important and dramatic changes must take place in the next ten or twenty years. The details and timing cannot be foreseen but it should be possible to have the sense of the patterns to be expected and what important initiatives State should foster favorably to influence the trends.

It is my guess that the rate of scientific and technological change is slowing down, particularly in the weapons field. But this judgment should be more thoroughly assessed. Walt gave us a much more complete review of related issues and the change in the nature of the technological revolution. I believe the strategic nuclear balance is already adverse and that there is little prospect of reversing it, at least within this century. The question of conducting policy from the position of military inadequacy is not a unique problem in history. Every great power has learned how to live through such periods. Does the country have difficulty living with that fact if true, and therefore give it little organized thought. We should face the problem more directly. The focus of world policy has always been heavily influenced by basic patterns of strategic belief. For a number of centuries the focus of grand strategies has been on and from Europe who was dominated by the struggle for national consolidation in France, England, and then Germany and Italy. Then the decline of European empires except for Russia and the Soviet Union. During those centuries maintenance of a balance of power in Europe, with England playing the key balance role, was crucial. During this century the United States has gradually taken over England’s place.

George McGhee has reviewed an array of world issues needing to be dealt with. And so have all of you dealt with or raised an array of issues that have to be dealt with. The Soviet Union wishes to replace us in the balancing role. Should we continue to resist that drive? Can we and how? Isn’t the role of ideas as now dominated by the media the crucial battleground. So far, we in the other democracies have done reasonably well in that battle. Can we do better? Has the time come for somewhat greater coordination in that field? How is that to be reconciled with the First Amendment of the raw power the masters of the media have now attained? Should we deal with the proliferation of Congressional staffs, each cultivating portions of the media? The Congressional process has never been orderly. But once aligned in the correct direction it has worked admirably. How can we in State and in the Presidency find a handle to move it back in the right direction? How should we deal with negotiations? We are already deeply engrossed in that today. Is there some more general approach to this aspect that could lead to a better understood debate?

I have left the military component of grand strategy to the last. To my mind it remains the dark underlying reality which cannot be ignored. The Soviets have never ignored it and they are not likely to do so in the future. There is a wide spread temptation to perceive the threat of nuclear weapons as being a threat far greater than the threat incommensurate with the threat of Soviet defacto dominance in further areas of the world, most importantly the Middle East, South Asia and Africa and indeed, of Europe. Should we side with the French and many of the Germans and Mrs. Thatcher who are opposing this temptation? Can we win this contest in the long run? If we must continue to make this attempt how should we best go about it? If we find it unwise to continue this attempt or to try and are unsuccessful, how should we best go about preserving our values and our security in the world in which the Soviets superior military organization and force is not obscured by the presence of offsetting U.S. nuclear capabilities?

The most basic long term problem for the United States is that of a partial erosion of the basic values that have held this country, and the west generally, together. I was shocked the other day to find the view widely held on the Hill that lawyers can be hired to support any view. That there is no such thing as a better than a worse legal opinion. That the whole matter is relative to the interest of the litigates. This is a mere symptom of a wide growth of cynicism. Is there anything in State we can and should do about this?

To conclude, I believe that the central question is what are the levers of significant current action which can increase the widths of the band of possible useful and effective U.S. action in the future. To search out those levers in the context of the real world would seem to me to be SP’s central task.

MR. SOLOMON: Thank you, Paul. Let me open up the floor for at least a brief exchange before the Secretary has to go.

SPEAKER: (inaudible) His belief that it should be concerned with what I used to in my day call futuritive (inaudible) action. One (inaudible) of this I believe is to say out of the day to day aspects of similar actions, if you were caught in the quicksand you’ve got to get out first. You don’t think about anything else. But if you have time you should think about what is going to happen ahead. And one of the most useful areas I have always thought for policy planning is to find a problem which you can spot ahead, the collision course between two vessels, and get one or the other or both to change their courses. The best example is not world shattering—we foresaw a collision course between Suriname and the Dutch over (inaudible). And the essential element was that (inaudible) was already landing forces and that the Dutch didn’t want to fight, they wanted us to. We had time, months, so we developed the plan of the Dutch removal. (inaudible) But the fact is that the Dutch avoided the last colonial war.

I was interested in Mr. Rodman, it is always best in view of an official of the government to have freedom of action, of course. Every Assistant Secretary of State, Under Secretary, which I was, likes to have this freedom from his Congressional committee or what be it. There are, however, necessarily in a democracy built in restraints and there should be. And quite often we are better off if there are a few restraints. We are having debates, questions up on the Hill which could have been avoided if the President had been a little more restrained by his Secretary of State which he was not permitted to exert. I think we might have had a more balanced view of SDI, corresponding a little more closely with what Gerry thinks, if there had been some attention given to the experts in the field as exhibited, for example, in the recent report of the Society of Physicists. This is a democracy. For five years we have pursued a policy in Central America which the vast majority of American people oppose. The majority of Congress, except on peripheral issues occasionally when they are pressed. Perhaps in a democracy the administration should give more credence to such a clear expression over such an extended period.

MR. SOLOMON: Before giving the Secretary the last word, Gerry Smith, did you have . . .

MR. SMITH: Paul, did I understand you correctly to say you just recently discovered that a lawyer could be hired . . . (laughter) I haven’t discovered yet that there is no substance to law. (inaudible) taught me that there is an inherent validity of the law and I think that is your point basically with respect to the ABM Treaty. You say that there is no choice between one side of the legal issue or the other. Certainly that isn’t true your view.

SPEAKER: Of course it isn’t his view but he was surprised that you would bring out this point because fundamentally we feel that is indeed what is the situation with respect to legal advisor of the State Department.

SPEAKER: It is not.

MR. SHULTZ: I found the discussion interesting, enlightening. I have even heard some things I agree with. (laughter) Although not in the most recent comments. Let me use them to pose a problem that has troubled me. I agree with Mr. Bowie that we need to have a foreign policy that has continuity. And we have perhaps more continuity than meets the eye. That is, we are now in the process of trying to understand that the dual track decision that was arrived at in the Carter administration and followed through on in the Reagan administration with our allies has yielded a positive result. We are trying to consolidate on that. But that is a bipartisan type of thing and I could give a lot of other examples. But your comment, Mr. McGhee, about Central America which I think is dead wrong, gives something to play off of on that because the administration’s Central America policy has certainly been controversial, but most of it now has wide support. Not all of it. When I arrived as Secretary of State the big issue was whether we should give any support to El Salvador. You weren’t allowed even to spell Guatemala let alone say the word in public. Costa Rica was a traditional jewel that people supported because it was a democracy and it didn’t have any army, although not having an army is not necessarily a recommendation for how to get along in the world. And Honduras had just kind of emerged as a country that had an elected president. It was controversial but the President asserted the importance of on the one hand democracy and the rule of law in our hemisphere and in Central America, and on the other hand the potential problems for the United States if we found the clients of the Soviet Union, as was widely predicted, becoming the main presence in Central America. It isn’t that Nicaragua is going to attack the United States as you put it. But rather the implications of a Soviet presence in Nicaragua with access to air fields and harbors and so forth and the potential domino. And there is a domino effect, we have seen that in Southeast Asia—the effect of that, if you didn’t push against it, so we exercised some leadership. At the various steps of the way it was controversial. However, by now we have elected democratic presidents, civilian presidents, in four of the five countries of Central America. And if the Congress is a measure at all, support for the four countries is now broadly supported. But it wasn’t as we went along. And by now the fifth country, Nicaragua, is a country that nobody around town has a good word to say for. Even the people who oppose what the President supports, and remember both houses of Congress voted in favor of military and humanitarian support for the freedom fighters. Both houses of Congress voted for that, so it is the U.S. policy. But even the people who oppose, when you go and talk to them, will say “Now don’t misunderstand me, I don’t have a good word to say for that bunch in Nicaragua”. Well I think the dilemma then that we don’t have time to discuss, but as I see here is if that we say to ourselves the only policies we can follow are the ones that already have broad support and are sort of middle of the road, mainstream consensus policies, then how can we ever change anything? How can we ever say we don’t like the idea of what seemed to be happening in Central America? And even though there isn’t any consensus sitting there, we’ve got to try to do something about it and that means fighting against the tide in trying to persuade people. That isn’t going to have broad support at first perhaps, instantaneous support. But nevertheless, if that is the direction you think we should go, just as the President believes and I agree with him totally, that it would be criminal of us not to try to learn how to defend ourselves against ballistic missiles, particularly since the Soviet Union has been doing it, is doing it and certainly is going to continue to do it. It would be insane not to have a program like this.

So I think there is a deep problem that grows out of the necessity for a policy that has continuity. And the meaning of that must be that it has broad support but you can’t confine yourself just to policies that have broad support or you will never do anything worth doing. I don’t mean it quite that way but you will spend so much time conditioning everybody that you never will take the kind of actions that are called for.

Well, again, I appreciate the fact that you all have taken part in this. Some of you I have known, all of you I have heard about. I appreciate the fact that I have had four SP directors. I don’t know what that says about me. (laughter) Paul Wolfowitz who isn’t here, Steve and Peter and now Dick. And I have the extraordinary privilege of having working alongside me Paul Nitze. He is just an invaluable colleague, particularly in arms control, but as he knows, I tend to ask him all kinds of questions beyond his particular brief.

Well I think we have a little reception coming up. There even will be some dinner for the former directors.

MR. SOLOMON: If you all could remain for a minute as the Secretary departs, I have one or two brief things I want to say. I know we could keep on talking for some length of time but as with a good twelve course Chinese meal, you somehow have to back off and digest it a little bit and we will do that. I think we can proceed with a little bit of order. There are across the reception area two elevators that are being held for this. If the former directors can first go up so they can have a change to relax for two minutes. Every one else is invited to go up to the Treaty Room on the seventh floor on those two elevators. Refreshments will be served and just at about six o’clock or a little after there will be a presentation and a few more remarks by the Secretary of State and then an opportunity for you all to talk to the directors and raise some of the questions with them directly that you may not have had a chance to do this afternoon. So with that invitation let me thank you all for coming and a particular thanks to the former directors who are here. I think it has been something that has put a lot of grist in our mill. I know members of the present staff are here and we will be thinking about many of the issues that have been raised. So if the former directors can head across the reception area.

SPEAKER: I think it would be ungracious to disband without thanking you again and Mr. Wilson for the Secretary’s Open Forum, for this extraordinary occasion. Frankly I never knew it was the fortieth anniversary. (laughter) But you seized a wonderful occasion and as you sit through the speeches you have created a great ceremony. (laughter) I am very much in your debt. We all want to thank you.

MR. SOLOMON: Believe me, it is my pleasure. (applause)

1. Source: Department of State, S/P Files, Open Forum Program—Chronological Files and Journals, Lot 92D97, 40th Anniversary of S/P 5/11/87. No classification marking. Printed from a tape transcript of the meeting. Solomon sent Nitze a copy of the minutes under cover of a July 16 letter, which read in part: “After some delay, and serious deliberation, we have decided that it would be inappropriate to publish an edited version of the formal presentations and interchanges made at the seminar marking the fortieth anniversary of the Policy Planning Staff. This judgment reflects a desire to maintain the confidentiality of frank remarks made in an ‘off the record’ context, and a feeling that a condensation of the informal exchanges—necessary to produce a document of manageable length—would not effectively convey their character.” (Library of Congress, Manuscript Division, Paul Nitze Papers, Subject File, 1922–1998, Box II: 116, State Department Miscellany, 1985–1990, 1998)
2. References are to Paul Wolfowitz, then-Ambassador to Indonesia, and Anthony Lake, then-Professor at Mt. Holyoke.
3. Apparent reference to Shultz’s April 11, 1985, address on “National Policies and Global Prosperity” before the Woodrow Wilson School of Public and International Affairs at Princeton University. (Department of State Bulletin, June 1985, pp. 26–31)