Past Speakers of the: LANDON LECTURES

Landon Lecture by George Romney,

Governor of Michigan
Dec. 6, 1967

by George Romney

One of the greatest international challenges facing us today is the huge difference in living standards between the rich, industrialized northern nations and the poor, underdeveloped southern peoples.

Barbara Ward has written:

"The gap between the rich and the poor has become inevitably the most tragic and urgent problem of our day."

The "development gap", as it is called, is widening. The "have" nations have failed to adequately commit their vision, their will, and their resources to the task, and the "have not" nations are losing ground.

Most Americans perceive neither the proportions of this problem nor the dangers it presents to our own interests. What we take for granted in our own society pre-empts our consciousness of human deprivation elsewhere. Our natural confidence about the future obscures awareness of how fragile it is. In this sense, we are isolating and alienating ourselves from the rest of the world as it really is.

In my talk today, I first want to take a quick look at the development problem - in terms of its size and national interest, and in terms of what needs to be done about it.

Then, in more detail, I will discuss U.S. aid, trade and private resource policies as they relate to development and suggest certain courses of action.

Dimensions of the Challenge

What are the dimensions of the development challenge?

The per capita gross national product of the United States is $3,240, its population 200 million. Mainland China's per capita gross national product is $85, its population 700 million. The per capita gross national product of West Germany is $1,620 and of Nigeria $80 - both have a population of around 60 million. Japan and Indonesia are at roughly the same population level, but Japan is nine times better in productivity. Canada has one quarter the population and almost ten times the per citizen productive capacity of Brazil.

By the end of this century, on the present basis, the per capita income of Americans will have risen by thirty times as much as the increase in most underdeveloped countries.

Underdevelopment is a single word that sums up illiteracy, poverty, hunger, disease, human misery. It breeds violence and anarchy. It represents a vacuum.

Underdevelopment is a greater danger than Communist aggression. The Communists exploit underdevelopment to spread their power and influence. They have carefully prepared for this by spreading the falsehood that the prosperity of the ''have'' nations resulted from their exploitation of the ''have not'' nations. Furthermore, they have erected a barrier to effective development by misleading ''have not'' nations into believing imperialism through private economic investment is as threatening to their independence as imperialism through political domination.

We must successfully attack the basic economic development problems now, or face more Vietnams later. And the dollar cost of the investment for peace is nowhere near the dollar cost for War.

If we remain an affluent island surrounded by a sea of poverty, our whole way of life will be threatened.

If the lot of the deprived peoples does not improve, and if their hopes for a better life wither, widespread violence directly affecting life in the United States would be increased.

If we - and I include our industrialized colleagues on this continent, in Europe, and the few in Asia - become the exclusive rich minority we will be dangerously vulnerable to the massive majority of the poor.

Now this huge underdeveloped majority would have practically nothing to lose in an international struggle. These views are not theory on my part. These views are based on experiences of my life.

I was born in Old Mexico. My people went down there as impoverished as the people they moved among. By using the methods that were used to settle the Desert West - dams, canals, and irrigation - they became an island of posterity in the midst of abject poverty - they, along with a few other foreigners. And the first communist national war of liberation in history resulted in me being driven from Mexico.

General Salazar, who was a communist general, with Patch Oheta Venisivae, played on the envy of the impoverished people in Northern Mexico to the point where they decided to drive out these few rich people and take over what they had built up. And thus, I have seen what envy can do when exploited by those who want to destroy others. So this is not theory, with me. This is experience.

Development is necessary for peace and peace is necessary for development. Turmoil defeats progress - abroad, as well as at home. Violence perpetuates human misery by discouraging the systematic organization of resources needed to raise living standards.

But fear of instability should not be an excuse to maintain the status quo, nor can or should the revolution of rising expectations be suppressed because of the danger of disorder. It is critical that change occur, radical change, and quickly. But supporting change does not mean fomenting violence. We must guide change into constructive rather than destructive channels.

The national self-interest of America is directly, irrevocably dependent on international development. Underdevelopment represents not only threat, but also opportunity.

The continued growth of private economies depends on the expansion of international trade and markets.

From an investment and enterprise standpoint, development of the underdeveloped can be more profitable than investing in activities in areas already developed.

Here then is opportunity.

United States Aid

What can be done about underdevelopment?

At present, our national response is characterized by lower levels of foreign economic assistance, heightened threats of protectionism, and insignificant private enterprise involvement in the business of development.

There is a general failure of vision, will and leadership.

The flow of long-term capital from the "haves" to the ''have nots'' has remained about the same since 1961 despite a rise in national income of the richer nations.

There is no question that the industrialized nations can afford to meet the current growth needs of the developing nations without hurting themselves - in fact they can benefit themselves. In the case of the United States, our gross national product for 200 million people has increased by more than $100 billion since 1960, as compared with less than $35 billion for the more than 2 billion people in the less-developed world.

We are slipping - the gap is growing - the danger is increasing.

We must find a way to avert this potential disaster for the world. But, this is no Marshall Plan exercise to rebuild highly sophisticated industrial economies. The underdeveloped nations are starting from scratch. They face economic handicaps not found by the now developed nations during their development.

Most "have not'' nations have no political tradition and little sense of nationhood. They have little base to build on, no institutional infrastructure, and no large body of educated or trained manpower.

We must not be arbitrary or impatient in our approach to the problem. Nor can we be exclusive or paternalistic.

A Role for Private Enterprise

Progress-sharing partnerships between the affluent industrial countries and the underdeveloped areas should be a paramount objective of American foreign policy. This demands changes in our aid, trade and private resource policies.

Private enterprise embodies the very genius of the American economy and carries the contagious germ of freedom. The underdeveloped world must be exposed to the dynamic private enterprise systems of the Northern hemisphere, and a substantial inflow of private investment.

Even under the most optimistic predictions on trade reform and private resource inflow, it is unlikely that the underdeveloped nations can achieve their development goals without more foreign aid.

The foreign aid program has few friends. It has no political constituency in the United States. It has made some bad errors. It has been wasteful. Many nations that have received our aid appear ungrateful, and worse still; even oppose our position on major international issues.

It is easy to criticize our aid program. But it is difficult to argue that government aid is not needed, given the development needs only it can fulfill, given the effect it can have on improving the environment for the inflow of private capital, and given the important ways in which it can complement the desirable effect of trade in development progress.

I believe that the private sector must supply the bulk of the resources needed to assist the underdeveloped nations in their growth. But I also believe that our foreign aid levels have been cut below the amounts required for the necessary input of public funds in meeting the development challenge.

As a percentage of our gross national product, American foreign aid has plummeted to a level about one-half that maintained during the last years of the Eisenhower Administration. The development loans requested by the Administration for the current fiscal year amount to only 78 percent of the $975 million appropriated in 1963.

The current Administration has shown little real leadership in international development, and the foreign aid program shows it.

In 1957, John Foster Dulles testified for the establishment of the Development Loan Fund, stressing that it would be devoted to ''the capital needed to create the economic environment in which private initiative can come into play."

Public monies help to improve the climate, build the institutions, and train technicians necessary to permit private enterprise to function effectively. A private investor looks for a stable governmental system committed to private enterprise for an equitable tax structure, for a reasonable system of export controls, for an educational system that can produce skilled manpower, for an adequate and reasonably cheap power supply, for a reliable transportation system, and for wider markets. The aid program, directly and indirectly, can help provide these assets.

Technical assistance in the foreign aid program is essential for development. Capital alone can't do the job if you don't have trained men to manage your projects.

Our foreign aid program needs reform. There are many problems and limitations in government assistance.

Importance of Trade

I believe that we must put more stress on trade and private investment than on aid. But we need aid. One is not a substitute for another. Al1 are closely interrelated.

The importance of trade policies and patterns to the development opportunity has been tragically underrated.

The continued support of international trade and the liberalization of existing trade restrictions must be pursued with a dedication and a vigor, which has been sadly lacking.

The Kennedy Round of tariff negotiations achieved agreements affecting about $40 billion in world trade. We gave tariff cuts on $7.5 to $8 billion of our industrial and agricultural imports, and obtained tariff reductions on about the same amount of U.S. exports.

But the Kennedy Round didn't really address the development challenge, and the Administration's position in the trade field as it pertains more directly to the poorer nations is uncertain and uncommitted.

So it is vital for the underdeveloped nations to trade more if they are to develop. And it is vital for the international community to create a trade environment that would foster rather than frustrate the growth of developing countries.

This is the basic aim of the United Nations Conference on Trade and Development, which meets again in New Delhi, India, in February. UNCTAD, as it is called, recommended in 1963 that the industrial countries extend general tariff preferences to imports from the underdeveloped countries in order to create markets for their manufactured exports and to bring about gradually the diminution of the obstacles hindering the entry of these exports to the industrial countries.

This move would improve the deteriorating terms of trade of the underdeveloped nations that I have mentioned. Allowing the poor nations to export more would enable them to import more, thus adjusting their trade imbalance and allowing them to get investment capital and capital equipment - crucially needed to achieve growth and stimulate development.

At the 1963 UNCTAD session, the U.S. opposed the proposal. I hope that our Delegation to the next UNCTAD meeting will carry instructions allowing it to strongly support the general preference for the poorer nations in concert with a similar position by the other industrialized nations, as recently recommended by the OECD.

Extension of preferences by the U.S. to the underdeveloped nations would provide positive incentive to develop export trade. Preferences appear to be almost indispensable to the U.S. objective of increasing international trade and integrating the underdeveloped countries with the free economies of the North.

Threat of Protectionism

Recently, a huge upsurge of protectionist activity in the Congress - a retrogression into narrow economic nationalism - has raised the fears of many traders at home and abroad and cast new doubts on the basic underpinnings of our international economic relationships.

The new deadly serious protectionist drive could affect 80% of our dutiable imports.

Now, the only answer to all this can be retaliation. According to the international system of trade rules under which we operate - the General Agreement on Tariffs and Trade - for every restriction we impose on imports, an equivalent restriction on our exports abroad can be imposed by other countries on U.S. industry.

And retaliation to trade protectionism can also take the form of investment protectionism. If we want to sell, we must buy. When we try to insulate some sector of our industry from international competition, some U.S. business must in turn pay for it. And our overall, long-term trade position is hurt.

Retaliation to threatened protectionist moves could affect nearly one-third of our exports, which face duties overseas. In addition, the quotas recommended would result in higher prices for U.S. consumers, worsen our critical balance of payments position, and increase Government controls over our own economy.

The real problem is to correct the inflationary forces that are making us noncompetitive and to encourage the forces that keep us ahead in productivity and technology. Japan is already outstripping us in basic industry.

We are asleep and indifferent to what these loose policies are doing to us at home as well as abroad. We need to fill the crucial gaps in our national trade policy. Legislation is needed to restore Americas' unused negotiating authority, which ran out on June 30. We don't have any authority to make any tariff adjustments.

New legislation must also liberalize the criteria for adjustment assistance under the 1962 Trade Expansion Act, which have proved in practice to be too tight and rigid for companies or industries in trouble.

This unworkability of the adjustment help theoretically available to U.S. firms and workers injured by imports resulting from tariff concessions became clear many months ago. But nothing has been done by the Administration to remedy the situation.

The Administration is tardy and unresolved in its trade policy and accordingly has courted confusion and reaction.

Narrowing the Gap

The greatest lack in the development effort today is the astounding absence of substantial participation by the private portion of our economy. Without the tremendous capital resources, the unparalleled know-how and the aggressive spirit of private enterprise, there is no possibility that the development gap can be effectively narrowed.

The present low rate of American investment represents a crippling failure of our own response to the development challenge. The private flow has been decreasing both in terms of gross national product and overall investment.

Given the great need of the poor nations for capital, the limitations on the amount and the efficiency of public funds, and the free enterprise traditions of this country, government aid should be a supplement to private involvement. At present the public commitment of funds is over four times the private commitment. The ratio is the opposite of what it should be.

What can be done about this private enterprise gap?

Ways must be found to diminish risk of loss and enhance the prospect of profit for the investor in the underdeveloped areas. Government policies should be revised to offer incentives to greater private involvement.

Governments must cooperate on efforts to improve the private enterprise climate in the underdeveloped countries to attract both foreign and domestic investment.

Private business must perceive its own interests in broader and longer-range terms.

The ingenuity of private enterprise must be devoted to applying the principles of progress sharing and partnership in relations with foreign peoples, to put an end to fears of international economic imperialism and exploitation.

Private investment abroad must be viewed not just as a migration of capital but also as a transfer of skills, know-how, and techniques.

Universities, foundations, and voluntary organizations must be brought into participation in the international development challenge on a more intensive and less peripheral scale than at present.

Representatives of business, finance and industry from the various richer nations should consult and collaborate on private investments in the poorer countries.

There are instances of good recommendations and good innovations in the area of private resource participation abroad. Let me give some examples:

- The Report of the Advisory Committee on Private Enterprise in Foreign Aid, submitted in 1965, and headed by Arthur K. Watson, Chairman of the IBM World Trade Corporation, contained some helpful suggestions, many of which have been put into practice.

Among other proposals, the Watson Committee recommended amendments in the tax law so that losses suffered by American-owned subsidiaries in developing countries could be offset against profits earned elsewhere. It suggested that development be given priority over immediate balance of payments considerations and that special attention be given to the role of agriculture in less-developed countries.

- U.S. firms have shown increasing interest in basic economic development projects, in joint venture arrangements, which help to foster the concept of partnership, and in local management and transfer to majority ownership.

- The World Bank is investigating a multilateral investment guarantee formula, which would expand the concept of risk-reducing insurance on investments to a shared arrangement involving the participation of the recipient government. I have suggested an International Partnership Investment Insurance plan which would provide a multilateral pool of private funds allowing a radical expansion of the insurance principle.

- Obstacle-free international trade bridges on a company-to-company or industry-to-industry basis have been constructed, such as in the agricultural implement and automotive industries of the United States and Canada.

- The ADELA Investment Company - a multinational private investment group representing over 130 banks and industrial corporations of Canada, Western Europe, the U.S. and Japan - is hard at work mobilizing equity capital, know-how, and services for promising local, development - oriented enterprises in Latin America.

These ideas and activities are heartening, but they should be vastly expanded and multiplied. Others should be encouraged.

Recommended Reforms

In the Executive Branch, I would recommend: reforms in the aid program and liberalization of Southern trade, as I have indicated; greater diplomatic efforts to create better climates for private investment and more co-participation of industrialized nations in the development effort; increased tax incentives for foreign investment in the underdeveloped areas; beefing-up of existing investment guarantee programs; the enlargement at home and at posts abroad of the excellent activities of AID's office of Private Resources; and stronger cross-governmental authority and action on policies affecting the less-developed areas such as the politics-ridden, bureaucracy-mired War on Hunger.

In the Congress, I would recommend the establishment of a Joint Congressional Committee on Private Initiative in international Development. Such an agency could enable the Congress to play a stronger and less parochial role in supporting the involvement of private enterprise in meeting the worldwide challenge, and would lend more prestige to the effort as a whole.

In the private sector itself, I would recommend the establishment of an International Development Coalition made up of representatives of business, finance and industry, who would make continuing studies and recommendations to the private organizations on the one hand and to the Federal Government on the other concerning the best methods of private international investment and enterprise, and the best policies to facilitate such involvement.

I would recommend to you, as individuals who are going to be affected more than most Americans by what we do in this era, to walk into your exciting future face forward. Don't be like bugs in a Persian rug, which can live their whole lives below the fibers and never get up high enough to see the pattern in the rug.

Sometimes people come along who can get a bird's eye view of things instead of a worm's eye view of things. I heard such a man recently. He'd gone around the world 40 times. He had talked to people all over the Earth, in most countries. He said, "There are four things that people want most - all over the Earth; one is peace, the second is food, the third is human dignity, and the fourth is representative government."

These are the things that Americans, above all people in the history of the world, are in the best position to help meet and supply. But whether we will do it or not, is still very much in the balance.

We are not headed very much in that direction in my opinion. I think there is real question today, of if we will make as great a contribution to uplifting the peoples of the earth as they made in Greece or Rome or Brittan. And yet we are in the position to make an infinitely greater contribution.

I congratulate you on being a university where your president, and those responsible, has shaped a program that reflects the concerns that I have voiced here today.

I understand that there are five hundred students from foreign lands in your student body - a very high proportion. And I urge you to equip yourselves for the opportunity that exists for Americans around the Earth to share first our principles, then our means, and then our methods. Thank you very much.

The transcription of this Landon Lecture was accomplished through the cooperation of the Kansas State University Libraries and the Office of Mediated Education.

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