Not Just Another Recession
Why the Global Economy May Never Be the Same
IT IS the nature--and the challenge--of a revolutionary period that, as it unfolds, witnesses view it as a series of seemingly unrelated crises. The essence of the challenge, for a responsible people or a great nation, is to discern the meaning of the period and its implication for the future, and to shape the emerging forces in the light of its purposes. In our particular period one revolution is piled on another--the political revolution giving birth to new nations, the population explosion, the chain of scientific discoveries. And now, before man has learned to live in harmony and freedom on earth, he already must face the problems of conquering space.
Two world wars have shattered a system of political order that had governed most of the earth for more than a century. And as the great empires have retreated or fallen, hundreds of millions of people clamor and fight for fulfillment of new needs and wants, from food to freedom. All this--and not the tyranny of Soviet imperialism--is what stamps ours as an age of revolution, marking the end of a great historic era.
A revolutionary period is always composed of two parts--destruction of the old and creation of the new. Our grave danger in such a time is to fall into a purely defensive posture: a fending off of perils, a kind of fretful and hesitant sparring with history. The risk is that a people can become so obsessed with what they are against that they may fail to articulate--perhaps even to know--what they are for. Nothing is more important than that free nations escape this snare and display conviction about the historic direction they propose to take. The question before America is not whether new patterns should evolve, but who will be their author, with what principles and values, and toward what ends.
The great conflict of our time is not capitalism against Communism; it is freedom against tyranny. The future direction of the world depends on whether the values of human dignity and the brotherhood of men, whose expression in America has inspired so many new nations, can be given a meaning relevant to our time. Here lie our task and our opportunity.
We live at the end of an historical period. During that period we have often risen to heights of striving and sacrifice. But a nation that lives merely on the memory of past achievements is going to stifle constructive responses. We cannot mechanically apply old patterns, however well they may have served us in the past. The freedom we have inherited must be reclaimed, redefined, rewon and extended by each generation.
The task is not merely philosophic: it is practical. Without strong values, we shall not be able to distinguish our fears from our hopes, our opportunities from our dangers. Without a sense of purpose, all our values could become increasingly irrelevant to this time of revolution.
We have sometimes acted as if we, as a nation, thought that a "normal state of world affairs" meant a static one, as if we imagined that all upheavals were temporary and each sporadic crisis called for only an essentially technical response. Even our most creative acts--such as the Marshall Plan--tended to be undertaken in this spirit, suggesting that we imagined that, once the immediate need had been met, the world would return to some passive and accommodating state requiring no further creative effort on our part.
All this bears seriously upon the nature of our debate on foreign policy. This debate cannot be allowed to concern itself merely with specific technical solutions. The national life cannot be preoccupied indefinitely with devising tactical responses to this or that emergency. From a debate of this sort the answers we receive can be no better than the questions we ask.
In order to achieve our national purpose, we must be sure to state correctly the nature of the political alternatives before us. If these are false, so will be our decisions. And I fear that we have too often posed to ourselves just such false choices--as if our alternatives, for example, lay between negotiation and military strength, between the economic development of new nations and the fiscal stability of our own nation; between arms control and an armament program; between making commitments to other nations and preserving our own independence of action. This, then, is probably our first task: to get the choices straight, and not to confuse things complementary with things competitive.
I shall try to apply this to five specific areas of foreign policy: the problem of negotiation with the Soviet Union; the problem of military security; the challenge of arms control; the economic goals of the free world; and the values of the new world which is emerging.
The debate on East-West negotiations has been largely dominated by two schools of thought. One--perhaps optimistic--has argued that a basic transformation of Soviet society is probably taking place. The peaceful protestations of Khrushchev are in general taken to be sincere, reflecting the power of a new Soviet bureaucracy, industrial, intellectual and governmental, as well as the pressures of an ever-more-demanding consumer public and possibly the well-founded fears of a giant China. The second school of thought--perhaps pessimistic--has held the contrary view. Dismissing the changes in Soviet society as largely superficial, it has insisted that Soviet ambition remains unaltered and unlimited, with only the tactics modified to serve a stubborn and constant strategy.
I suggest that we, as a nation, do not have to make some theoretical choice between these abstract alternatives--the so-called "soft" or so-called "hard" interpretation of events. Our national task is to shape our national conduct to serve our purposes, not merely to defeat someone else's. Thus, because peace is a basic national purpose we should pursue policies striving to encourage, and to enable, Soviet leaders to end the political conflict that they have imposed upon the world--if they wish, in all political seriousness, to do so. At the same time, effective negotiation presupposes an understanding on the part of the free nations of the nature and elements of a peaceful world. Without this, we shall never know whether Soviet offers are "sincere." We will confuse bargaining technique with purpose. If we are clear about our national goals we can move boldly to establish the framework of negotiations by developing a concrete and imaginative program. Instead of passively awaiting Soviet initiatives, we can place the Soviet leaders in the position of having to respond to ours.
Similarly, we must realize that, since the cold war is essentially a Soviet creation, it can end only by substantive change in Soviet conduct. A change in Soviet manners or Soviet tone is hardly enough. And thus there are two attitudes of mind, equally empty, equally to be avoided. One is pretending that the conflict can be ended simply by a wish. The other is imagining that the prolongation of political conflict is an end in itself.
It is important to be equally clear on some related propositions. Diplomatic flexibility and military readiness are not alternatives. Quite the reverse: they are indispensable aids to one another.
In our diplomacy, we obviously need flexibility--as this reflects imagination and initiative and creativity. We cannot, and we do not, believe that the oldest political formula or diplomatic proposal is necessarily the best. At the same time, a strong defense, far from constricting or contradicting a flexible diplomacy, is essential to support it. There is no such thing as an effective and imaginative diplomacy to serve a nation which is helplessly weak. The weak can only beg. Only the strong can negotiate seriously.
These reflections have direct relevance to the most immediate issues involved in the "relaxing" of world tensions. To date, the Soviets have largely defined this "relaxation" in terms that can only lead to piecemeal erosion of the free world. These terms are: no right for the free nations to be concerned with affairs in Soviet-ruled areas but unlimited right for Soviet Communism to penetrate and intervene anywhere in the free world. Sometimes, it has been said that the Soviets desire almost nothing from us--except our recognition of the status quo in Eastern Europe and in Germany. But it is difficult to assign any concrete political meaning to this phrase. We have diplomatic relations with the satellites, excepting East Germany--a rump régime imposed by force which we can never accept. We have even extended economic aid, as in the case of Poland. What then do the Soviet leaders specifically want?
No doubt the Soviet leaders would like us to give up what we regard as vital moral values: our belief that each nation has a right to define its own destiny, and that within each nation man should be the master, not the servant, of the state. Here we cannot accommodate them. We cannot stand for self-determination in Asia and Africa--as we do and must--while denying it in Europe. Our values are a threat to Soviet rule only in so far as they reflect the universal aspirations of people and only in so far as Soviet policy disregards such aspirations. And whatever reassurance we can and may give the Soviets against any military threat to themselves, they cannot ask us to protect them from the moral and political consequences of their own acts of oppression.
Effective negotiation with the Soviet Union depends, of course, upon many things other than military power and our sense of world purpose. It requires, for example, ever greater cohesion and the development of common programs in the free world.
This is well illustrated by the problem of East-West trade. Since about 1954 there has been a manifest increase in Soviet efforts to promote such interchange and to win general acceptance for it. Extolling the benefits of enlarged trade has become as ritualistic a part of the pronouncements of all Soviet bloc visitors to the free world as has proclaiming their zeal for peace. So far this effort has been more impressive in trend than in size. In 1952 only 2 percent of the total trade of free-world nations consisted of imports from or exports to Communist bloc countries. In 1958 and 1959 the figure rose to about 3.5 percent. The trend is obviously on the rise, although it should be noted that the 1958-59 level represents merely a return to the relative weight of East-West trade in 1947 and 1948.
Even if the upward trend continues, the problem will hardly be one of domination by volume. The potential for disruption lies rather in the fact that, unlike free-world trade, Soviet bloc trade is conducted entirely by state trading monopolies operating under close foreign office direction. It is no accident, then, that such trade tends to be highly concentrated upon a relatively few countries, which, by location or political vulnerability, appear to offer promising opportunity for Communist penetration. In 1958, for eight countries--Egypt, Afghanistan, Iceland, Syria, Jugoslavia, Iran, Finland and Turkey--trade with the Soviet bloc represented from 25 to 45 percent of their total foreign trade. Since in the Soviet bloc economic decisions are dominated by political motivations, it is obvious that the countries so involved are vulnerable to pressures, even to a kind of political blackmail.
I have outlined elsewhere, in some detail, cases in which Soviet trade has been conducted upon terms that constituted a serious threat to the stability of the world price structure in fields such as tin and aluminum. I have cited also numbers of other ways in which the monopolistic Soviet bloc trading agencies have violated the regulations painfully built up over the years to assure equitable working of the free-world trading system, and incorporated in the General Agreement on Tariffs and Trade (GATT). These have included cases like the Soviet purchase, with much fanfare, of Egyptian long-staple cotton, only to dump it in Egypt's normal European markets at less than Egyptian prices; and cases demonstrating that discriminatory prices charged to various customers are the general rule of Soviet bloc transactions.
This issue involves far more than the impropriety of allowing a very small trading interest to dictate terms of exchange. Even at its present meager levels, Soviet bloc trading methods have demonstrated a considerable capacity to disrupt--selectively--the orderly functioning of free-world markets. If we were to stand by passively, the eventual result could be a serious undermining of our trading system, far surpassing the relatively minor annoyances that have been experienced to date.
This is the challenge of expanding East-West trade. Nevertheless, if the free world is clear about its goals and sufficiently cohesive, it can make expanding East-West trade work for the free world. If we insist that expanding East-West trade be conducted according to the rules for trade to which the free nations adhere, we can make sure that the Trojan Horse of Communist commerce carries no lethal weapons through our gates, and we can trade with the Soviet bloc to the benefit of all our peoples. Specifically, there are four principles for the conduct of East-West trade that we must abide by to protect our interests and those of the free world as a whole.
First, we must insist that all trade with the Soviet bloc conform to the regulations against price discrimination and dumping subscribed to by the 36 nations in GATT.
Second, we should seek agreement among the nations belonging to NATO, SEATO and the Rio Pact to apply to East-West trade the GATT rules designed to prevent discrimination and dumping.
Third, Congress should give the Executive Branch adequate funds and power to deal with any Soviet bloc disruptions or domination of free-world markets.
Fourth, the whole question of Soviet compliance with free-world trading rules should be on the agenda of any forthcoming summit conference as an essential condition of the expansion of East-West trade.
This, it seems to me, is the way to deal with East-West trade. Increased East-West trade can be valuable if it conforms to rules designed to strengthen the integrity and freedom of the economies of nations. But it can be disastrous if we let the Communists use trade to penetrate and disrupt the economies of free countries.
The economic issue reflects the political. In both fields diplomatic flexibility depends on the purpose and cohesiveness of the free world. We can take the initiative to the extent that we are able to define clear goals. We can negotiate with confidence to the degree that the free world can develop a sense of direction springing from the values and aspirations of our peoples, and not simply from a desire to counter the Soviet menace. Only then can we give meaning to events, instead of becoming their prisoner.
From all of this, a few principles of policy follow:
We must not confuse tactical improvement in diplomatic table manners with a serious political settlement.
We must not be weak or timid about our principles and about the rights of peoples to pursue their own destinies in freedom.
We must not weaken our own national security in the mere hope that the Soviet Union may soon reduce its own political ambitions.
And there are equally important things that we can do.
We can stand ever ready to welcome and encourage any Soviet steps that move in the direction of a just peace.
We can and must be imaginative and creative in devising proposals for a stable and developing world.
Even while Soviet policy continues committed to a notion of peace that does not seem just, we should stand ready to negotiate about measures to slow and discipline the race in arms.
We can negotiate only from a position in which the security of our nation is assured. We do not have the choice between negotiating and putting forth the efforts necessary to assure our security. On the contrary, we must be equally concerned to pursue constructive negotiation and to assure the safety of our nation.
There are, indeed, few areas in which new developments challenge our imagination more severely than in the field of security. No area of national life is changing more rapidly. In the past, a weapons system would be valid for a generation at least. Today (as the result of an uninterrupted revolution in weapons technology since World War II) such a system is often outdated when it has barely left the blueprint stage.
With each change, weapons have become more complex and costly. Scientific achievement, crucial as it is, is meaningless unless it can be translated rapidly into operational weapons, and unless these weapons are adequate to the challenges to our security. We face, therefore, problems of efficiency, of lead-times and of doctrine as our security policy must seek to prevent aggression, large or small, by posing unacceptable risks to the aggressor.
Here, as everywhere in our revolutionary world, the rate of obsolescence--even of strategies--is enormous. At the end of World War II, we had an atomic monopoly. For a considerable period afterwards we possessed a decisive strategic superiority. In these circumstances, deterrence could reasonably be equated with offensive striking power. We could warn any potential aggressor that an attack would unleash a powerful retaliatory blow.
All these conditions have drastically changed. Three new developments force us to reassess our security: a) the Soviet development of a stockpile of thermonuclear bombs; b) the existence of manned Soviet aircraft capable of attacking the United States; c) the development of Soviet missiles, both intercontinental and intermediary, some of them installed in submarines. As a result of these events, the Soviet Union is now able to attack any place in the United States in a matter of minutes. There are no secure areas. And this Soviet capability is growing.
Thus deterrence, henceforth, can no longer be achieved by offensive striking power alone. It must depend on these factors: a) capacity to retaliate; b) ability to protect our allies; c) willingness to use these capabilities; and d) knowledge on the part of the potential aggressor that both our retaliatory force and our civilian population have the protection to survive an attack.
All these elements are essential. The lack of any one imperils the peace. If our strength is inadequate, it cannot deter. If our will to resist seems uncertain, our power will be paralyzed. If an aggressor doubts the capacity of either our retaliatory force or our civilian population to survive an attack, he may be tempted to seek to destroy us. Hence, in the 1960s we need to give urgent concern to three areas: protection of our retaliatory force, civil defense and forces designed to meet all forms of Communist military thrust or threat, including local or limited menaces.
As for guarding our retaliatory force: this, through the 1950s, was concentrated on some 40 SAC bases. There was little danger, for the Soviet capacity for surprise attack was low. But in the 1960s, such a concentration will represent an invitation to attack. Our retaliatory force must be dispersed and protected, and it must be made as mobile as possible. The only significant part of our retaliatory force is the portion that can survive surprise attack. To magnify this portion is the primary purpose of any strategy of deterrence. This requires hardening of bases, mobility of retaliatory systems, a determined effort to close the missile gap and, for the interim period before we develop solid-fuel missiles in quantity, an increasing airborne alert of our bomber force.
As for civil defense, there are two basic reasons why it becomes ever more important. The first springs from our national values. The second is based on strategic considerations. Let me say a word about each.
The Moral Problem: To us each human life is intrinsically valuable. We who believe in the strength of the human spirit, and who take pride in the initiative and resourcefulness of our people, cannot adopt a passive attitude in the face of mortal dangers. We must be prepared to face the implications of the world in which we live. We properly recoil before the horrors of nuclear war. But we cannot afford to assume that it could not happen--all the less so as our whole strategy is based on the threat of it. With nuclear weapons multiplying, our security is dependent on the credibility of our willingness to resort to our deterrent. It is our heavy responsibility as public officials and as citizens to save the lives and to protect the health of our people. A lagging effort cannot be excused by our conviction that nuclear war is a tragedy and that we must strive by all honorable means to assure peace.
The Strategic Problem: An aggressor who thought himself capable of destroying our most valuable asset--our people--may be tempted to risk an all-out war. Or, more likely, he may believe that he can threaten our allies without risk--can practice nuclear blackmail against them, and against us, to gain his own ends. Anything that weakens our resolve to resist will seem to our allies to jeopardize their safety. Conversely, any measures that strengthen our resolve will help assure peace and give courage to all the nations of the free world. The report of the New York State Task Force on Fall-out, as well as Federal studies, indicates that casualties from fall-out alone could be negligible if preparations are made in advance, if the public is educated, and if simple precautions are observed in the event of attack.
Thus both the moral and the strategic necessities are equally plain and compelling.
At the same time, if we succeed in making our retaliatory forces largely invulnerable, it is wise to suppose that Russia can and will succeed in similar efforts. The consequent mutual invulnerability of the two retaliatory forces will, then, create an entirely new situation. Invulnerability for our retaliatory force means that whatever level of surprise attack we may suffer, we would still be able to inflict unacceptable losses on the aggressor. Mutual invulnerability means that the same condition applies to both sides. When that situation is reached--and we must remember that it will require great efforts to achieve and even more massive efforts to maintain it--neither government, if rational, would deliberately risk all-out retaliation in response to less than an all-out attack. Then the aggressor could be tempted to believe that he could engage in limited aggression with safety to himself. He may calculate that a threatened area will not seem "worth" the price of all-out war to us. And it does not matter whether the aggressor is right in this assumption. Deterrence would fail if he thought he could with impunity confront us with the choice of either abandoning our friends or being ready to sustain a war that would inflict appalling devastation. The Berlin crisis, like that of Korea, is a warning illustration of this difficulty.
The problem is equally grave for our allies. Their major concern is to avoid occupation by the Red Army. If we cannot prevent the Soviet Army from over-running them, they will face an almost impossible dilemma. If their only protection lies in a retaliatory force beyond their own direct control, and if they fear we are going to become increasingly reluctant to use such a force, their position becomes precarious, if not hopeless.
To prevent such political and moral despair, and to continue to deter Soviet and Chinese pressure, it will therefore be increasingly necessary in the 1960s for America to maintain substantial forces to resist aggression locally. Without such forces it may be difficult to maintain the peace. Our allies would be subjected to the kind of blackmail of which Berlin is an augury. Negotiations would be made difficult because of the Soviet conviction that the strategic balance is in their favor. It is for this reason that I have been concerned that we continue to develop nuclear weapons with greater discrimination and suitable for limited operations. At the same time, we must recognize the world-wide repugnance against using them.
The danger is that countries may prefer surrender to being defended if they become convinced that any resistance inevitably involves nuclear devastation. While we cannot give an undertaking that we shall never resort to these weapons--they are, after all, the basis of our retaliatory strength--we must make sure that we will need to employ them only under great provocation and that we will have alternative means to cope with less than all-out threats. As the 1960s progress, the free world will have to supplement its nuclear power with greater emphasis on conventional capability than during the period of our atomic preponderance and make provision for strategic mobility of that force.
From even this swift survey, a few major conclusions follow:
Our security program is in constant need of planning far ahead and will require great efforts of imagination. The strategic requirements of the next decade make alliances of ever greater importance. We can no longer defend the free world entirely from our shores, as in the days of our atomic monopoly. Henceforth, more than ever, the security of the free world will depend on the safety of each of its parts. This means that forces capable of resisting local Soviet pressure will have to be strengthened. This is a particular requirement in the case of NATO.
With weapons systems proliferating and with choices multiplying, efficient management of our defense establishment becomes more than ever essential. We must constantly reassess the organization of our Defense Department. Modern weapons have made an increasing number of traditional missions obsolete, and they have caused duplicating and wasteful competition. These must be reduced to the minimum--by realistic reorganization and classification of the structure of our defense establishment.
A particular challenge is the problem of lead-times: the intervals between conception and development and between development and procurement. Our survival may be jeopardized if our opponent should be more successful in this field than we are.
While making every effort to assure our security militarily, we must be aware that the nature of the world in which we live is without precedent. War presents perils without parallel. Technology develops at an explosive rate. The traditional effort to achieve security entirely through strategic means can, in such circumstances, become self-defeating. In the past when a balance of power was achieved, it tended to be stable for a generation at least. No sudden breakthrough was likely to put societies at the mercy of an opponent. The arms race then dealt only with numbers. Whatever the causes of war, the instability of technology was a minor factor.
Today, however, an element of tenseness in the international situation stems from the volatile nature of technology. Each new development opens up the possibility of several others. Even if we make the major efforts described above, the danger is still very real that some new and unforeseen technological development will put us in mortal danger. Since the same is true for the other side, the temptation to use a temporary advantage and to launch a surprise attack may be overwhelming.
Whatever their differences, every country shares an obvious concern in avoiding a conflict of mutual annihilation. Every country must seek to escape a conflagration which breaks out simply because of the unstable nature of modern technology. In the past disarmament efforts have usually failed as long as the underlying political tensions continued. Under current conditions, an effective arms-control system may itself remove a significant cause of world tensions. Arms control must be--and is--a major goal of our national policy.
The field of arms control is technically so complex, and still so incompletely understood, that it would be irresponsible to make specific proposals. It may be useful, however, to state a few basic considerations:
1. One of the great difficulties in understanding the problem is that there does not exist within the government a center of responsibility with resources and staff adequate to the importance of the subject. Dr. James Killian, when he served as Scientific Advisor to the President, and Dr. George Kistiakowski, the incumbent, have done outstanding service in this respect. But they would be the first to admit that their efforts have been on an essentially fragmentary and ad hoc basis. What is needed is a permanent staff, a permanent center of concern and a systematic study. Only in this manner can we begin devising and defining responsible proposals.
2. The essence of successful arms-control negotiations is that neither side seek a unilateral advantage. If agreements are to contribute to stability, they should reduce, if possible, the offensive power of both sides, particularly for surprise attack.
3. The vital key to an effective arms-control plan is the possibility of inspecting it. Without inspection, arms control can be exploited as a chance for aggression, thus serving the very contrary of its purpose.
4. Time is pressing. It is important to start on some measures as soon as possible, so that both sides can learn by experience with control systems. This is why sweeping proposals like Mr. Khrushchev's plan for total disarmament may be as much a device to prevent arms control as to foster it. If it took us more than two years to understand the much simpler problem of inspecting a nuclear test ban, it is unlikely that so sweeping a plan could be negotiated in time to overcome the perils of the next five years--even assuming good will on both sides. For example, what is to be done about the huge Soviet reserve forces and stockpiles of equipment? Are the Chinese communes a military or a civilian organization? What are the sanctions for violations?
5. An arms-control scheme, to be really effective, should not be confined to the United States and the Soviet Union. It should include NATO, the countries of the Warsaw Pact and indeed the rest of the world. It cannot be effective without Communist China. And Communist Chinese adherence to serious arms control schemes could be an important test of their readiness to become a responsible member of the community of nations.
6. In any negotiation on arms control we must take care that our NATO allies participate as equal partners. We must not give rise to the impression, however unwittingly, that our friends can become objects of bargaining. An important contribution would be to have a single negotiating team for the Western allies under a single chairman and with a single position on critical issues.
7. We must recognize that arms control, particularly in its early phases, is not a device to save money. In fact, inspection mechanisms and the possible realignment of forces required by control schemes may cost more money than we are now spending for military security. This, of course, scarcely makes arms control less important or necessary.
8. Arms control is not an alternative to--but a critical element of--a coherent policy for national security. Thus, what we do in the military field can importantly affect the very feasibility of arms-control negotiations. For example, if we protect our retaliatory force and develop a civil defense program, we would then remove a Soviet incentive for surprise attack. Hence we increase the likelihood of fruitful negotiation to eliminate or at least reduce this danger. Similarly, if we are serious about controlling nuclear weapons, we must be prepared to have adequate conventional forces. And if we are interested in limiting the distribution of ever more destructive weapons, we must give our allies ever plainer political assurances, and create ever closer political ties.
In the previous section I have dealt with issues in which progress depends substantially on Soviet coöperation. But we must not become so obsessed with the Soviet challenge that we neglect the areas where achievement depends primarily on our own creativity, dedication and imagination.
The central fact of our time is the disintegration of the nineteenth century political system, which for all its failings provided order, economic exchange and a means for settling disputes. One of the main tasks of this period is undoubtedly to fulfill the aspirations of peoples in the underdeveloped countries for economic and social growth. But the problem is not purely economic. The great opportunity of our time is not the idea of competition but of world coöperation. The free nations, while respecting diversity, must create a community based on shared values and common goals. Basic to any specific solutions to the economic problem is political understanding and the sustained attitude and spirit with which we approach our task.
We already have important roles in two great, essentially new, international systems, the North Atlantic Community and the Inter-American system. These institutions indicate the pattern of relationships toward which we must strive. European unity should be fostered and extended into a concept embracing the North Atlantic Community as a whole.
In the Organization of American States we have an historic opportunity. Here we can work out relationships still reasonably free from the immediate pressure of Soviet Communism. Here we can demonstrate what freedom can achieve, when left free to pursue its own devices. This requires a determination by the people of the United States that the unity of the Western Hemisphere is essential to the well-being of all its people. Only as the people of Latin America become convinced that this is really our permanent policy can we expect them to join us in building a truly strong Western Hemisphere structure.
These institutions, continually strengthened, define a framework and a direction for our relations with the rest of the world. They enable us to turn with confidence and imagination to the economic problems of the free world. Here the responsibilities of the United States have undergone massive changes during the past decade, and even greater challenges lie ahead. At the end of World War II, the United States was the strongest nation of the free world, leading a group of countries that were weak, dependent on us, and laxly united in their principal aims. While the United States has become more powerful still, it now participates in a coalition of nations, many of which have become strong, partly due to our aid. The Western European economy has moved up from about one-fourth the size of ours in 1946 to more than one-half today. Growth in Japan has been even more rapid.
Rapid economic growth in the industrial nations has not been matched in the underdeveloped areas. While there are exceptions--such as much of Latin America and India--the economic advance in most underdeveloped nations has not exceeded the rise in population, so that there has been no growth in the real sense. Moreover, both Latin America and India face difficult problems in maintaining or increasing the rate of economic growth.
These shifts in relative economic strength have vastly altered the role of the United States. On the one hand, they have made things easier: Europe no longer needs economic support and can in fact absorb a larger part of the burden of military defense and of economic aid to less developed nations. But there is a fundamental challenge to our leadership in maintaining cohesion among free-world nations as we approach the tremendous tasks of developing the institutions of the world along lines that will promote freedom, prosperity and human dignity.
A major contribution would be the continuation and expansion of a liberal U. S. trade policy. It is the essence of trade that everybody benefits. A liberal trade policy not only assists developing countries; it also benefits our economy. In other words, by following trade policies that are definitely in our own interests, as well as those of other nations, we can also contribute importantly to our general objectives of world-wide prosperity and growth. Our readiness to make a firm and long-term commitment to freer trade is of the utmost importance.
Maintaining the prosperity and growth of the United States economy is essential to the growth and stability of the free world. A protracted recession here could have tragic effects on the entire free world, while a soundly prosperous and expanding economy here means that we can furnish markets, supplies and investment capital. Indeed, to realize the opportunities before us, it is not sufficient to maintain even our historic rate of growth. Only by increasing productivity at a faster rate can we achieve our goals.
The importance of the United States as a market and a source of supply is fundamental. While other industrial nations can furnish a part of the capital required to promote growth in the less developed areas, we have the greatest capacity to generate capital on the scale required to launch these areas towards rapid growth.
To transfer capital and technology to the less developed areas and to support its vast responsibilities throughout the world, the United States must achieve and maintain a viable balance in its international payments. This means that we must have a substantial surplus of exports over imports to finance the transfer of goods and services to other nations in the form of economic and military aid. In the past two years we have faced the problem that the export surplus has shrunk while other foreign commitments have remained at the previous level. Thus, the deficit in international payments increased from less than $1.5 billion a year in the 1950-57 period to more than $3.5 billion in 1958-59.
While short-term prospects of restoring a viable balance of payments position are promising, the longer term problem remains. The dollar has become the world's leading currency. We have become the world's banker, and continued confidence in the dollar is essential in order to prevent a run on the bank and the ensuing forced liquidation and deflation.
One of our great responsibilities is to provide the liquidity needed by the world in the form of a sound currency that will provide the medium for financing an expanding volume of world trade. We can measure up to this responsibility by following sound national economic policies--policies to contain inflation, deal with recessions and promote more rapid economic growth.
One of the most hopeful expressions of the effort to create a new international system is the move towards common markets. The United States represents an example of the wide benefits of a free-trading area. Since its existence, the United States has been the greatest free-trading area in the world.
We must therefore encourage the formation of similar trading areas elsewhere providing they pursue liberal trading practices towards each other designed to contribute to the growth and cohesion of the free world, and to a higher standard of living for its peoples. We now face this problem in very specific terms, with Western Europe forming two trade blocs--the Common Market and the Free Trade Area. Such an economic division in Europe serves the long-term interest of neither the United States nor Europe. By our actions on the trade front, we could press both groups to adopt liberal policies in their external trade. We can also promote the idea of an Atlantic Community, as Under Secretary Dillon has been doing, and thus underline the responsibilities of Western Europe to orient its economic policies towards freer trade throughout the free world.
While the economic unity of Europe has been the result largely of European initiative, we face a great opportunity in the Western Hemisphere to help establish coöperative arrangements which will be a major benefit to all the peoples of the Americas and which might serve as a pattern for other areas. No other part of the world has greater resources. Nowhere is the potential for growth more dramatic. If the current rate of population increase is maintained, the population of the Western Hemisphere will exceed one billion people by the turn of the century. The establishment within the Hemisphere of a free flow of goods, capital and manpower would result in the creation of the greatest free-trading area in the world. It would contribute immeasurably to economic growth and a rising standard of living of the peoples of all Western Hemisphere nations, including Canada. It would encompass more than half the productive capacity of the world and would be a tremendously important bargaining unit in the face of the growth of similar units in other regions. I have no illusions about the difficulties of achieving such a grand design. The first step has already been taken by seven South American countries together with Mexico. This movement deserves our increasing support and encouragement. But to speed attainment of the interim stages, and to assure attainment of the ultimate goal, we must set our sights now on the final objective of a Pan American Economic Union.
The regional arrangements of Europe and the Hemisphere should be used as patterns for the economic organization of other parts of the world. For the key fact is that no nation is capable of realizing its aspirations by its own efforts. Regional groups pursuing ever more liberal trade policies towards each other could thus be a step towards the goal of a free-world trading system.
Another challenge of the 1960s is to erect a financial structure that will preclude crises and contribute to world-wide economic advance. Just as the United States invented the Federal Reserve System to provide needed flexibility and confidence in the currency, so the world may need to invent new financial mechanisms.
To be sure, existing knowledge and experience are not adequate to the complex task of operating a world-wide money and credit system, nor are national governments as yet willing to submit to the disciplines involved. Yet it would be wise to realize that our ultimate objectives may require a world central bank and to point financial policies in that direction. Thus, the role of the International Monetary Fund can be broadened in that direction, without necessarily implying that the Fund will eventually become the central bank.
Such measures would make a considerable contribution towards the goal of promoting world-wide economic development.
Yet we and other industrial nations can and must do more. Our past efforts, while large in absolute terms, have been too small relative to the task. The existing mechanisms--such as the International Bank for Reconstruction and Development and the Export-Import Bank--have been useful in dealing with many specific problems. But they are inadequate for the major challenge of setting in motion the cumulative forces of self-sustaining economic growth throughout the less developed areas.
This field may well provide the area of major conflict between East and West in the 1960s. We should not shun the conflict, for this is ground on which the West has great advantages. The Soviet system can produce growth, but only at the heavy cost of sacrificing freedom, human dignity and the values the West holds dear. The West can, if it mobilizes its resources and knowledge, produce growth while expanding the area of freedom. Moreover, the West should not conceive the economic development of the new nations in terms of opposition to Communism. Quite to the contrary, our traditions and our concern for human dignity would impel us in this direction even if Communism had never been heard of. We could make this fact dramatically apparent by inviting the Soviet Union to join us in a number of specific programs designed to promote the growth of the developing areas.
The general economic problem is to transfer investment capital and technical knowledge to the lesser developed nations at a more rapid pace than in recent years. This will involve a larger effort in terms of loans, grants and private capital flows on our part and on that of other industrial nations. The challenge to the industrial nations is to help bridge the gap between the advanced and the developing nations--a gap which is still widening.
More money in the form of investment capital, however, is only part of the answer. Improved mechanisms--mainly multinational--are needed. Technical assistance efforts should be expanded as rapidly as we can develop a corps of trained personnel dedicated to the challenging task of world development. Consultation to develop common objectives and joint programs will in itself contribute a sense of direction. But above all we need a national willingness to face up to the challenge and a receptive attitude towards new ideas.
Economic development is not simply a problem of capital formation. Industry requires trained manpower at all levels. Without research facilities, even the most advanced plants will soon become obsolescent, but the process of developing trained manpower is slow, lengthy and expensive. It may take only a few years to build a dam, a steel mill or a textile factory. It takes much longer to produce a competent engineer or administrator. Technical assistance must be one of the major contributions of the industrialized to the developing nations.
The task of building educational institutions consonant with modern requirements is not appreciably less difficult in its cost and time requirements than that of launching successful economic development programs. It is particularly difficult in the field of higher education. Many of the smaller and poorer nations of the world simply lack the financial resources and pools of trained personnel to build, with the rapidity that is needed, first-class universities with their specialized departments of humanities and natural and social sciences, together with specialized schools in medicine and its allied disciplines, the multiple branches of engineering, agriculture and law, and the numerous other applied professions essential to the servicing of modern societies.
A much higher degree of creative imagination than has hitherto been brought to bear must be marshalled to solve this vitally important problem. One line that deserves particular attention is the possibility of developing regional universities open without discrimination to students from the several nations joined in a regional economic accord. This would not necessarily imply either the building of entirely new, centralized, regional institutions or the abandonment of existing national universities or their professional schools. It would be entirely possible to organize regional university structures under central administration but with the graduate and professional schools decentralized--each built upon the existing national school within the area that already had attained the highest status in its given field. Each such school might retain its affiliation with its national university, while qualifying for regional status, receiving central support and supervision, and providing equal opportunity for students from any part of the region. In this fashion education as well as economic development programs might benefit from, and serve better, the movements toward regional collaboration that so many countries aspire to.
A people subject to the ravages of diseases and famine cannot achieve increased skills and productivity. Improved sanitation and health services are a pre-condition for economic growth. Again, the movement from rural to urban areas, a typical byproduct of economic development, raises the danger that unless modern economic methods are introduced, the rural population will not be able to increase its productivity to keep pace with urban development. This may require an expansion of government services; it will certainly involve rural credit and above all demonstration of improved methods. The advanced countries must help in these important fields.
Whatever technical program we consider, whatever solutions we offer to achieve expanded economic development, we must never lose sight of the fact that efficiency, progress and techniques are not ends in themselves. They have meaning only if they can enhance the dignity of the individual. Our ultimate test as a nation is whether we succeed in enabling the individual human being to fulfill himself and to realize his potentialities--spiritual, moral and material--in freedom.
Our historic role is clear. It is not defined by our ability to find this or that expedient to deal with a particular crisis. Rather it depends on our ability to muster the intellectual and spiritual resources to enable us to deal confidently with the challenges of our time.
Sometimes it is argued that the future will be settled by the productive capacity of the two opposing systems. Obviously, we are deeply concerned about increasing the well-being of men everywhere. But we are not interested only in material advancement, either for ourselves or for other peoples. The real issue of our time is that two principles of political order are in fateful conflict. One maintains that the citizen is the creature of the state and that the collective is more important than the individual. The other insists upon the intrinsic value of each human being. This is the true basis of the contest, not the relative productive capacity of two systems.
We hear a great deal in these days about competition. We are told that Communism will soon surpass us. We are warned by Mr. Khrushchev that war has become unnecessary--because he will defeat us peacefully. It would be wrong to be complacent about this. But it would be equally dangerous to gear all our actions to our opponent's threats or ambitions. The essential American task does not consist in matching the devices perfected by another system. Our essential task is to design and to pursue our own goals, appropriate to our values and circumstances.
It is possible, indeed probable, that Communism is showing its true inner weakness in the obsessive reiteration of its notion of competition. It may mean that--for all its monolithic appearance--the Communist state has difficulty in generating its own positive and distinctive goals.
In any case, we face tasks which would be essentially the same even if Communism had never existed. We are required to work with the peoples of the world to develop a real world community. Without such a shared purpose no nation of the world is doing more than buying time from adversity or misfortune--and this means little more than paying blackmail to history. Only when we re-dedicate ourselves to work for the dignity of men in freedom will we begin to feel and act less the victim of circumstances, more and more its master.
For the greater part of its history, this continent drew inspiration from what came to be known as the frontier. The geographic frontier no longer exists. Yet frontiers continuously come into existence through discovery, not only physical but intellectual. Wherever people strive for freedom and human dignity, there a frontier is drawn. We have an historic contribution to make, together with the other nations of the free world, by the courage with which we see that the opportunities stand larger than the perils; by the imagination with which we devote ourselves to tasks of political construction; by the fervor--and humility--with which we may make ourselves worthy of the larger community of mankind, whose life, in dignity and security and freedom, is our supreme national purpose.