STATE OF NEW YORK
EXECUTIVE CHAMBER

ALBANY 12224

NELSON A. ROCKEFELLER
GOVERNOR

December 6, 1973

Dear Henry:

I can't tell you how much I appreciate your coming to the dinner meeting of the national Commission on Critical Choices for Americans. It meant a great deal to me and I know to the members also. As always, your remarks were brilliant, perceptive and tremendously challenging.

Needless to say, I am thrilled and very grateful that you have agreed to become an ex-officio member of the Commission.

I thought the session on Tuesday went very well and that both the spirit and substance of them were exciting and give great encouragement for the future work of the Commission.

With warm regard,

NELSON A. ROCKEFELLER

December 28, 1973

Dear Henry:

Since our first Commission meeting, we have
made much progress and are following up on the various
suggestions and thoughts that were raised.

Basic studies are being commissioned in line
with the original outline as follows:

1. A review and evaluation of fundamental philosophical and moral considerations as to the nature of man and his institutions and the impact of his natural and man-made environment.

2. Analysis of the elements perceived by mankind as essential for the improvement of the quality of life.

3. A projection of the significant economic, social, political and military trends in the major nations and regions of the world, both on a functional and geographic basis.

4. Examination of the impact of these trends on our own political, economic and social life, on our national security, on the Judeo-Christian ethical values basic to the founding of our country, on other peoples and nations, and on world peace.

At our first meeting on December fourth, we discussed the desirability of setting up panels. As a result of the discussion, we are establishing six panels through which the Commission will begin its deliberations. The objective of each of the panels will be to take a broad but intensive look at a series of interrelated subjects and to come up with recommendations for alternative courses of action -- for if the American people understand the options that are open to them, they will support effective action to shape the future, and thus we can avoid being overwhelmed by crises.

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The six panels are as follows:

1. Ecology, Energy, Economics and World Stability

2. Food, Health and World Population

3. Raw Materials, Industrial Development, Employment and World Trade

4. Open Societies and Governments in a World of Centrally Controlled Economies

5. Elements Essential to World Stability and Peace

6. Quality of Life of Individuals and Communities

As the work of the Commission progresses, we
can set up additional panels.

I am asking each of the members of the Commission
to serve on one or two panels. I would like to suggest
to you as an ex-officio member that you feel free to
participate in any of the panels as time permits.
Naturally, we will keep you posted as to the time and
place of their meetings and the progress of their work.

It was agreed that there should be four meetings
of the full Commission in 1974, the first to be held
in Washington, D.C. on April first and second. We will
be in touch with you later regarding further details.

I deeply appreciate your participation in the
Commission and, based on our first meeting, my
confidence in its potential is even greater than before.

If you have any questions or suggestions, please
call me or Henry Diamond, the Executive Director, at
212-977-9320.

With best wishes for the New Year,

The Honorable Henry A. Kissinger
The Secretary of State
Washington, D.C.

THE SECRETARY OF STATE
WASHINGTON

January 10, 1974

Dear Happy and Nelson:

Your two Christmas gifts, the
enamel picture and the beautiful
platform and metal oval are unique
and very welcome additions to my
office. Thank you for thinking of
me. Your friendship in these busy
days has been a source of great
strength to me.

With warmest regards and
appreciation.

Governor and Mrs. Nelson Rockefeller,
812 Fifth Avenue,
New York, New York.

COMMISSION ON CRITICAL CHOICES FOR AMERICANS

22 WEST FIFTY-FIFTH STREET
NEW YORK, NEW YORK 10019

TELEPHONE: (212) 977-9320

NELSON A. ROCKEFELLER
Chairman

March 15, 1974

Dear Henry:

Thanks so much for your letter
of the eleventh with the suggested names for
additional Panel members. I went over them
this morning with Nancy and Mary, and I am
following up with some of the individuals
themselves.

We continue to marvel and be
proud of your ever growing list of successes.
Congratulations -- and very best on your trip
to Russia.

With warm regard,

The Honorable Henry Kissinger
The Secretary of State
Washington, D. C.

THE UNIVERSITY OF MICHIGAN

GRADUATE SCHOOL OF BUSINESS ADMINISTRATION
ANN ARBOR, MICHIGAN 48101

Paul W. McCracken
Edmund Ezra Day University Professor
of Business Administration

March 4, 1974

The Honorable Nelson A. Rockefeller
Chairman
Commission on Critical Choices for Americans
22 West Fifty-fifth Street
New York, N.Y. 10019

Dear Nelson:

Thanks immensely for your recent communications in regard to
the next meeting. The Fates seem to be conspiring because I am already
committed to be in Tokyo for a conference on April 1 and 2.

It seems to me that the major broad issue has to do with how
we divide our reliance upon the public and private sectors respectively for
getting the work of the world done. I have the uneasy feeling that we are
on an unstable situation where confidence in Government is at an all time
low. At the same time demands for the Government "to do something" are
put forward as some sort of ultimate panacea. Few things can give rise to
more social and political disequilibrium than persistently disappointing
expectations.

At a somewhat greater level of specificity I would also urge
further consideration of a generalized income maintenance program.
Failing this we will have difficulty pursuing adequately disinflationary
monetary and fiscal policies for fear of the resulting impact on
employment and income. It also paralyzes the use of a pricing system
because of the presumed income effects. We need to have a program that
deals directly with the income maintenance problem in order to gain
freedom for needed action in other areas.

You will find enclosed a paper that I gave at a Business
Council meeting last year.

PWM:gb

Encl.

ECONOMIC POLICY AND THE NEW EQUALITY

by

Paul W. McCracken

Edmund Ezra Day University Professor of Business Administration
The University of Michigan

Our assignment was to take a longer look at the American economy,
and I am going to take full advantage of that emphasis. You may feel that in
order to gain some perspective, I have backed up so far as to have vacated
the subject of economic policy entirely. In any conventional sense you
would be right, and I have written this paper with more than ordinary
diffidence because it ranges into philosophical issues, and I am no
philosopher. The direction and character of our economic life, however,
may well depend far more on whether we understand some of these issues
and forces than on whether the Federal Reserve is letting up, whether we
make rapid progress in the struggle against inflation, or whether the un-
employment rate gets below 5 percent.

I

What we have witnessed in the last several years, an era that
does not coincide neatly with any particular political Administration,
is an erosion of the under-pinning consensus about our socioeconomic
system. During most of our history there has been a broad consensus
about the nature of our economic system, and we considered it to be a good
one. Ours was the concept of a liberal economy, in the basic meaning of
that word, characterized by free and open markets through which consumers

NOTE: Paper delivered at the Business Council meeting, Hot Springs, Virginia, Friday, October 12, 1973.

by

Paul W. McCracken

I

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expressed their preferences, and through which as producers we chose where and how to make our own contribution to the productive stream. Within a framework provided by government of limited powers we confidently expected that there would emerge through spontaneous creativity a society and an economy far richer than could be conceived and planned and executed by a central authority. In that sense our heritage was the liberalism that emanated from England rather than the alternative rationalistic conception that emerged in France from such writers as Condorcet, Rosseau, or Voltaire.

There was in this country a broad consensus that this liberal (in the basic sense) economic system was not only an effective and productive way to organize economic activity but that it was also a just and moral system. The energizing concept was that all should have equal opportunity and that material rewards should depend on accomplishment rather than the happenstance of hereditary privilege or race or political pull and influence. And there was, to repeat, a wide measure of agreement that this was a just system. It was the Protestant Ethic in operation.

"The principle of equality of opportunity," observes Daniel Bell, the Harvard sociologist, "derives from a fundamental tenet of classic liberalism: that the individual -- and not the family, the community, or the state -- is the basic unit of society, and that the purpose of societal arrangements is to allow the individual the freedom to fulfill his own purposes..."¹ This inherent interconnection between the concept of equality of opportunity and the view that the individual is that for which our social

¹Daniel Bell, "On Meritocracy and Equality," The Public Interest, Fall, 1972, p. 40.

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and economic systems exist as important as it is under-recognized.

Fealty to that system has been eroding, and it has probably
been eroding at an accelerating pace. Empirical evidence from surveys
reflects a diminishing support for the institutions of our society.
Even businessmen are inclined to justify their corporation by its Good
Works in the community, in large part presumably because the basics of a
good corporate performance (good profits, strong sales gains, low costs)
win few plaudits from the multitude. And the chief executive officer, who
back at the company becomes accustomed to some degree of deference, may
be in for a rough and even hostile going over at the university.

II

At one time it seemed reasonable to assume that disaffection
with our liberal, market-oriented economic system was simply reflecting
a short-fall in performance from what could reasonably be expected. Some
of the machinery had broken down. In his exceptionally lucid and profoundly
important book "The Good Society," written almost 40 years ago, Walter
Lipmann's diagnosis was in these terms. In the context of the 1930's
this was understandable. The economic system was obviously not working well.
The reasons, of course, had little to do with the inherent nature of the
system and centered in a massive default of public policy. The public
understandably did not find it easy to trace the problem to its source,
and the political process whose derelictions caused the Great Depression
naturally proposed as a solution that the scope of its activities be enlarged
further. Mr. Lipmann, however, concluded then that "we may ascribe the
eclipse of liberalism to errors that inhibited necessary reforms."²

²Walter Lipmann, "The Good Society" (Grosset & Dunlap, 1943), p. 207.

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And he included in the book an important chapter called "The Agenda of
Liberalism" which contained his proposals for repairing the machinery.
And with the System working once again, he thought that the "renaissance
of liberalism may be regarded as assured."³ These summary comments do
not, of course, do justice to this incisive book. At that time, however,
Walter Lipmann was completely convinced that the liberal, market-organized
economic system would enjoy a resurgence once its flaws had been corrected.

Yet with more perspective it seems clear that the waning of
support for the liberal or market organized economic system could not be
explained by internal mechanical flaws which impeded its operation. The
fact is that its demonstrated record of performance for organizing economic
activity has been little short of awesome. The long history of our own
and international experience provides eloquent evidence on that point.
As we ponder that experience certain conclusions are clear. For one
thing there is no discernible correlation between rates of economic growth
and the lucky accidents of nature. Countries such as Germany, Japan, and
Taiwan have shown remarkable growth, without much help from natural
endowments, while such nations as Brazil, Canada and the United States,
well-endowed by Mother Nature, have also done well.

The experience of history also suggests that the most sustained
performance in lifting material levels of living has been in the liberal
or market organized economies. In this country we have doubled material
levels of living about every generation. And since the war, countries
that made the critical decision to organize economic activity through the

³ Walter Lipmann, op. cit., p. 207.

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market have turned in an impressive performance. By 1972 Germany's per capita GNP was only 15 percent below our own, and Japan's was 15 percent above that for the U.K.

Suppose a delegation from the Economics Department of the University of Outer Space landed here, and we were to explain to them that on this planet there are broadly speaking two kinds of economies -- the planned (i.e., state organized) and the unplanned (i.e., market organized). And suppose we were to suggest that they buzz around the planet to see if they could pick them out. When they returned we would probably find that they had the two types pretty well sorted out, except that they would have the headings of the two lists reversed. For it is the so-called planned economies that always seem to be in a massive state of disequilibrium, and it is in the so-called unplanned economies that, if you want an electric sander, or a blue size 40 short suit, or an outdoor electric grill, or a Chevrolet or Ford or Plymouth (carefully alphabetized, you will note), by some magic the economic process has anticipated your needs and has it at the store for you. The reason, of course, is that the so-called unplanned economy is not unplanned at all. By using the free market and pricing system, it relies on a particularly sophisticated system of economic planning.

Moreover, the fruits of this progress have been diffused more and more widely. The limited statistical evidence does suggest that the distribution of income has become more equal through time, but this is only a small part of the story. We rely on the intelligence of businesses, not their benevolence, to have particular regard for ordinary people because

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that is where the mass markets are.

The chief executive officers of our great retail corporations,
some of whom are here, spend most of their time concerned about the things
people of average means want to buy, not about the things that fellow
members of the Business Council have next on their lists. In a competitive
market-organized economy that is the route to success. Daniel Bell puts
it better than the dry statistical bones of the economist:

> A striking fact of Western society over the past
> 200 years has been the steady decrease in income
> disparity among persons -- not by distribution
> policies and judgments about fairness, but by
> technology, which has cheapened the costs of products
> and made more things available to more people.⁴

III

The liberal economic system has a demonstrated record of performance. It works. It has been remarkably successful in lifting material levels of living, and diffusing the results of this progress more and more widely. And it is increasingly on the defensive.

Why?

The reason seems to be found in a growing disinclination to
accept the basic presuppositions of our economic system. And perhaps the
most fundamental of these axioms has been "equality of opportunity" and
its corollary that "the route to success is through accomplishment."
The disfavor into which this Protestant Ethic approach to the economy (and
to other aspects of life also) has fallen may in part reflect the atrophy
of religion, which has robbed our secular philosophy of its moral and
spiritual foundation. Its moral rationale has crumbled. Irving Kristol

⁴Daniel Bell, op. cit., p. 64.

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has pointed out that "social critics have been warning us that bourgeois society was living off the accumulated moral capital of traditional religion and traditional moral philosophy, and that once this capital was depleted, bourgeois society would find its legitimacy ever more questionable."⁵

There is, however, more to this weakening of allegiance to the system than that. And the basic change has been from equality of opportunity to the objective of equality of end results. Such names as Christopher Jencks, James Coleman, and John Rawls would come to mind.⁶ In part this shift reflects the suspicion that a meritocracy tends to be less distinguishable from a system of hereditary privilege than had been supposed. The successful tend to pass on to their offspring the advantages of a better home life, more emphasis on education, more means to finance higher education, and perhaps a higher I.Q. And there is now substantial evidence that schooling seems to do surprisingly little to narrow disparities in achievement among children. Or, to put it more accurately, the amount of differences in achievement that can be attributed to differences in schooling seems to be remarkably small. This was the striking conclusion of the 1966 Coleman Report. The great hope for equality in some not fully-defined sense, equal access to education, seemed to promise less in the way of results than had been confidently expected.

This in turn has led to the growing conviction on the part of some that differences in the material emoluments of life may not after all,

⁵ Irving Kristol, "Capitalism, Socialism, and Nihilism," The Public Interest, Spring, 1973, p. 22.

⁶ Christopher Jencks, "Inequality: A Reassessment of the Effect of Family and Schooling in America" (Basic Books, 1972), James Coleman, "Equal Schools or Equal Students," The Public Interest, Summer, 1966, and John Rawls, "A Theory of Justice" (Harvard, 1971).