EXTEMPORANEOUS REMARKS BY HENRY A. KISSINGER
Future of Business-International Councillors

Rio de Janeiro

November 16, 1981

One of the problems in the so-called North-South dialogue is ambivalence; its philosophical framework seems to me to be extremely elusive. At the time of the Marshall Plan, there was a clearcut theory that turned out to be right: namely, that there was a gap between economic expectations and reality, which, if it were closed, would lead to political stability. There was also agreement more or less on which economic measures would produce economic progress. So it was possible to have technical discussions that would lead to political cohesión among the countries involved and to political progress within the countries adopting the program.

The North-South debate has never had such a clear focus and its current manifestation is no improvement -- all the more so because the slogans are surrogates for other meanings. In the 1970s the ostensible issue was whether there should be a "New International Economic Order;" the word soon could not be mentioned without my revered colleague's (Treasury Secretary) William Simon, going up in smoke. To be sure nobody could explain what it meant, either on the developing countries' side or on the U.S. side. Now, the issue is "global negotiations."

But, in fact, we cannot give meaning to global negotiations
without an intellectual framework, so this becomes, again,
much passion over symbol as a substitute for danger. It
has been suggested that there take place a periodic review of
negotiations being conducted in specialized agencies. Who can
be opposed to periodic review but, without any criteria of what
is being reviewed, what exactly is being achieved? The funda-
mental problem seems to me to be the absence of any clearcut
criteria. Many of the theories justifying a North-South dialogue
seem extremely dubious: for example the contention that if there
is no progress among the developing countries, the danger of war
is greatly increased. The fact is, rich countries start wars,
not poor countries -- show me a war that has been started by a
poor country because it is poor!

A second principle that is highly suspect is the notion
of aid without strings. When in history did any nation ever
conceive that it had a right to aid without strings? It is an
invention of the period following World War II. A nation has
a right to complain about the nature of the strings, but it has
no right to insist that countries give aid without conditions.

Third, we are seeing a complete separation between political
objectives and economic objectives. The developing countries
launch continuous assaults on the developed countries, while
insisting on a North-South dialogue through which the victims of

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their political attack should help them become economically
strong, presumably so that they can be even more effective in
their political attack.

Until there is some agreed framework specifying what these
negotiations are supposed to accomplish, the cycles will continue:
Every six years some new slogans will emerge, with suggestions
for some new kind of conference. This does not mean that the
points Bob Hormats mentioned cannot be improved, that is, the
operation of the IMF and the difficult investment conditions.

At the same time, the developed countries are undergoing
an enormous crisis themselves for which they have no explanation.
What is the solution to simultaneous inflation and recession?
How does the modern economy really operate? I don't have the
answer to these questions, but until somebody does the modern
economies are likely to remain in crisis.

Then there is the liberal trading system that everybody
agrees is so desirable. But that theory of liberal trade was
developed in a period centered on Europe. At that time, Europe
had the monopoly on energy, which was coal. It had the most
efficient political system. It had the most advanced educa-
tional system. So, of course, free trade was tested in only one
small area of the globe. But I would like to see an analysis
of how protectionism can be avoided indefinitely when there
are industrial units in many different parts of the world, all
developing simultaneously. Somebody is always going to be

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more efficient than somebody else. It is easy to say that the less efficient industries should be permitted to atrophy; yet on a national basis industries that atrophy will produce major political problems in the country concerned. Hence the inevitable pressures toward protectionism will be increasing in the 1980s rather than diminishing. In addition, there is a crisis within the developing nations that do not have a clear notion of their theory of development.

Clearly, governments cannot possibly deal with these ques-
tions, as they have trouble enough keeping up with the day-to-
day problems.

HAK - 4

[Y]

I think that illustrates a major intellectual crisis. I don't have the answer to it, but it is indeed true that none of us know how to handle unemployment. Then there is the liberal trading system that everybody agrees is so desirable but the fact of the matter is that theory of liberal trade was developed in a period of European monopoly. Liberal trade is good for monopolies. At that time, Europe had the monopoly on energy, which was coal. It had the best political system. It had the most advanced educational system, so of course, free trade created no problems. But I would like to see an analysis of how, when there are industrial units in many different parts of the world, all developing simultaneously, protectionism can be avoided. I think it is always going to be more efficient than somebody else. It is easy to say that the less efficient industries should be permitted to atrophy; yet on a national basis industries that atrophy will produce major political problems in the country concerned. Hence the inevitable pressures toward protectionism will be increasing in the 1980s rather than diminishing. In addition, there is a crisis within the developing nations that do not have a clear notion of their theory of development. Likewise, the developed nations do not know how the modern economy works, and they grow increasingly confused between their theories and their practices. Clearly, the government cannot possibly deal with these questions, as they have trouble enough keeping up with the day-to-day problems. It is this profound intellectual confusion that is at the heart of the inconclusiveness of the North-South dialogue. The economic summits survived only by avoiding all the difficult issues.