HENRY A. KISSINGER

September 16, 1980

Dear Tom:

Enclosed is a copy of a letter I have
sent to Bob Anderson with regards to
the Mexico Study Group.

Let's be in touch about this.

Mr. Thomas A. Murphy
Chairman
General Motors Corporation
767 Fifth Avenue
New York, New York 10022

HENRY A. KISSINGER

September 16, 1980

Dear David:

Let's be in touch about this.

Mr. David Rockefeller
Chairman
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, New York 10015

MYER RASHISH
CONSULTING ECONOMIST

818 CONNECTICUT AVENUE, N. W.
WASHINGTON, D. C. 20006
(202) 466-6700

October 16, 1980

Honorable Henry A. Kissinger
Suite 520
1800 K Street, N. W.
Washington, D.C. 20006

Dear Henry:

It seems to me increasingly pressing that the status of the Mexico Study Group project be resolved. I understand that you have written to the members of the Group to solicit their views. I talked to Bob Anderson in late May and, more recently, to Don Kendall who indicated he would be talking to both you and Bob. In the absence of any instructions, my inclination is to close out the project as quickly as possible, recognizing that there are certain commitments that carry to the end of the year.

While I think that I have demonstrated that my patience is virtually unlimited, I regret that my financial resources are not. As you know, the total amount received to date is $50,000 from Bob Anderson. My financial situation and obligations (including bank loans which I have made to finance the project) are such that it is urgent that I receive a payment of $50,000 before the end of October. This is a question of potential financial embarrassment to me which surely is not a burden I can reasonably be expected to bear.

Once the status of the project is resolved and all the accounts are in hand, I will submit an invoice to you.

cc: Mr. Robert Anderson
Mr. Donald M. Kendall
William D. Rogers, Esq.

OCT 17 1980

HAK Meeting

DRAFT

May 6

The United States and Mexico

The purposes of this paper are tentative and preliminary: -- to attempt an inventory of issues and to sketch a tentative framework for a consideration of U.S.-Mexican relations. It is designed to open the first meeting of the group, whose purpose will be to define its own mandate, describe the policy issues it proposes to address, and decide how to attack them.

What does emerge even now, however, is the sense that any serious effort to deal with the issues must see those issues coherently and in the large, as interrelated elements of a single phenomenon. The issues vexing the U.S.-Mexican relationship cannot be resolved if solutions are sought _ad hoc_, or in the short term. There is need for a comprehensive view and a longer perspective. The group's goal may be to supply that view and that perspective.

A Word of History

The history of the relationship between the United States and Mexico is one of conflict, abrasion

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and trouble, and only rarely a record of cooperation
or a search for mutual solutions to common problems.
From the very beginning of direct contact, in the mid-
third of the Nineteenth Century, it has been a troubled
and unhappy affair.

Part of the reason has been the imbalance of
power and the difference of international perspective.
From the humiliation inflicted on the Mexican armies
in 1846 and the ruthless stripping away of almost half
of Mexico's territory, through the humiliation of
Wilson's occupation of Veracruz in 1914, to the oil
nationalization by Cardenas in 1938, and even during
the era of the Good Neighbor Policy and the U.S.
commitment to non-intervention and respect for the
sovereign equality of states, the relationship has been
wildly assymetrical. For the United States, Mexico
has traditionally been a second-rank consideration;
for Mexico, the United States was everything. For a
century and a quarter, Mexico has had to search for
its national identity through its relationship with
the United States.

Thus, it may not be too much to say that Mexico
has had no foreign policy in this century other than

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its policy toward the United States. It was carefully
neutral in the World Wars and Korea -- in contrast,
for example, with Brazil's dispatch of fighting units
to Italy in 1945, and Colombia's air force detachments
in Korea. Nor did Mexico play a major role in the
Alliance for Progress. It has avoided any leadership
role in that and other efforts to reorganize the
Hemisphere on communal lines. Throughout recent memory
it maintained an excruciatingly tactful role in the
chambers of the inter-American system and limited itself
in the United Nations to advocacy of the Treaty of
Tlatelolco, banning nuclear weapons in the Americas,
until President Echeverria's sudden and uncharacteristic
lunge for a leadership role among the LDC's.

The traditional relationship, however, is now
in a process of radical change. Mexico, in consequence
of its sheer bulk, its two decades of growth and its
new energy wealth is now beginning to count on the world
scale. The United States, for its part, is suddenly
discovering that its neighbor to the south represents
a series of first rank policy issues which can no longer
be handled through the traditional processes of diplomacy,
*ad hoc* or in the short term.

The Recent Past

Efforts are underway to refashion the relation-
ship to take account of some of these new realities.
The most recent expression of those efforts was President
Carter's visit to Mexico in February. Whatever may
be said about the diplomacy of the trip itself, there
was a palpable lack of serious results. The contrast
between the monumentality of the contemporary issues
of U.S.-Mexican relations -- energy, migration, and
trade, to name a few -- and the results could not have
been more marked. This was in major part due to the
fact that the Administration had little to propose;
a much-heralded effort to complete a policy review prior
to the visit had failed. The Mexico Policy Review
Memorandum (PRM-41), drafts of which had floated around
Washington for weeks before the trip, had got stalled
in the bureaucratic maze.

Furthermore, reservations over Governor Lucey's
continued services as Ambassador broke into print about
that time, and a move within the Administration to
replace him had gathered considerable force. At the
same time, there was increased agreement that Mexican
issues ought at least to have a single focal point of

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advocacy somewhere in Washington, and so a consensus
had begun to grow for the notion of a Mexican policy
coordinator, though whether he would be buried in the
State Department or given some floating mandate was
an issue of considerable controversy. But even the
efforts for some organizational innovation failed.
First, it proved impossible to agree on any of the early
candidates for the new coordinator's post. Lucey then
decided he would take it. Finally, he and the President
switched signals and determined that he should return
to Mexico, at least for the time being.

## The Issues

At the time of writing, then, the future sub-
stance and procedure of our policy toward Mexico is
unsettled. There is ample opportunity for definition,
initiative and proposal.

The issues, on the other hand, are obvious.
They are not inconsequential to the national interest.
For the first time, it is now evident that Mexico is
a first-rank foreign policy problem for this country.
That we should have no first-rank foreign policy response
at present does not detract from the importance of the
effort.

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The issues may be catalogued in a variety of
ways. Here is one:

Migration

Mexico's unemployment is astronomical, and will
remain so for a generation. Fully half of the work
force is unemployed or underemployed. Nor are the
numbers expected to change drastically in the foreseeable
future. The country's rapidly increasing population
(at a rate of 3.4 percent per year, one of the highest
in the world) is exacerbated by the failure to create
enough jobs for new entrants to the labor force. The
Lopez Portillo Administration, in its recently approved
National Industrial Development Plan, contemplates the
creation of 600,000 new jobs every year between 1978
and 1982, but this is far short of the 800,000 workers
who annually enter the labor market.

The porous border between the U.S. and Mexico
serves as a safety valve. The result is massive illegal
migration. Recent estimates put illegal entries from
Mexico at somewhere between 500,000 and 800,000 per
year. Conservatively, it is said that there are 3-8
million illegals in the U.S., of whom 60% are Mexican.

In addition to the "push" to migrate exerted
by massive underemployment and unemployment, important
"pull" factors are at work on this side of the border.
The economic disparity between the U.S. and Mexico
(Mexico's per capita income of $1,100 is less than one-
fifth that of the United States), the prospects of higher
wages and the demand for cheap labor all combine to
act as a human magnet.

There is no possible downturn in illegal immigration until Mexico begins to close the economic gap between the two countries and begins to achieve its goal of becoming a full employment society. This will not occur until there is a change in the demographic characteristics of Mexican society and economic development catches hold. Rapid solutions cannot be expected and should not be pushed. The economic program of the Lopez Portillo government, the first to look beyond the six-year term of its chief architect, will not produce any immediate miracles: the capital-intensive industrial projects at the core of the program create few direct jobs and take years to spawn more labor-intensive industries. In short, the pressures behind migration will remain high until the end of the twentieth century.

- 8 -

Any effort to send back a sizable number of
Mexicans now in this country, or any effort quickly
to staunch the flow, would have grave consequences on
the Mexican economy. Yet the pressures against the
influx are already high and are bound to climb,
particularly if our own economy slows down and unem-
ployment of American citizens increases.

The Administration has no policy yet. President
Carter and President Lopez Portillo did agree to consult.
Governor Askew has been appointed to head up an effort
to bring the tangled threads of programs and ideas into
some kind of sensible relationship. But, in sum, migra-
tion is a very large and very clean slate.

## The Border Areas

Along the border between the two countries a
new phenomenon has emerged -- the very opposite of a
no-man's land. Over a half million legal crossings
a day occur; the economic ties are thick; culturally
and linguistically, the border has become a new region.
The problems are legion; heavy drug traffic, urban
crowding, overburdened social services, pressures on

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land, water, natural resources and recreational opportunities. And they are problems common to Mexico and to the United States. The two nations must reach for common solution and must do so together.

## Finance

Mexico has had a trade deficit and a current account deficit in its balance of payments for many years. Apart from an improvement in 1971, Mexico's trade balance deteriorated between 1970 and 1976. In 1977, however, Mexico's current account deficit improved by almost half to $1.6 billion. Devaluation, restricted government expenditures and petroleum exports contributed to this development. The 1978 current account deficit is expected to increase to over $2 billion as exports rise again. But Mexico's oil exports to the U.S. eventually will more than compensate for the projected rise in imports from the U.S.

Mexico, along with a handful of other emerging powers has been forced -- and able -- to resort massively to the private financial markets in recent years. It will continue to do so. As a result, Mexico has accumulated considerable new debt.

- 10 -

Mexico's official long-term external debt, including loans guaranteed by the government, was $21.7 billion at the end of 1978, compared with $18.2 billion at the end of 1977. (As recently as 1971, external debt in the public sector was less than $4 billion.) Strict conditions attached to the 1976 IMF loan have helped to slow the growth of debt. And terms for new debt have become more favorable. Continued access to the international money markets is likely. It will certainly be essential in the years to come. Meanwhile, Mexico must finance its balance of payments deficits, and serve its existing debt.

## Trade

Energy sales to one side, the United States is far and away Mexico's most important export market. As President Lopez Portillo has said, he would far rather export products than people. Yet U.S.-Mexico trade relations are unsettled. For example:

- Mexico's winter vegetable exports -- accounting for more than $200 million worth of trade per year -- are threatened by an all-out offensive by the Florida industry, and a dumping case now pending at Treasury may possibly close this market to Mexico -- with consequent impact on the 200,000

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or so Mexicans working in the fields
in the west Mexican state of Sinaloa.

-- The border industries phenomenon
continues to inspire distrust among
the trade unions of this country;

-- U.S. trade policy now turns on
the MTN results, and particularly
the codes. Whether Mexico will
adhere to the codes and join the
GATT is an open question; how U.S.
policies might be adjusted to
increase the incentives to Mexico
to do so is equally unclear.

U.S.-Mexico trade is already significant. In
1978, trade was almost $13 billion -- up by a third
over the $9.5 billion of 1977 and still growing. Mexico
ranks among the top five of our trading partners world-
wide. The future will be more of the same. As Mexico
grows, it will import more and offer more opportunities
for U.S. sales; by the same token, its own manufacturing
sector will represent more serious competition for our
own.

The opportunities are great: by the same token
the challenges will also be more serious as time goes
on. Protectionist resentment against Mexico will grow,
and Mexico is more vulnerable to U.S. protectionist
sentiment than any other nation.

- 12 -

## Energy

Every schoolchild now realizes that, just as OPEC took another notch in the belt on oil prices, Mexico became an oil giant. No one contemplated this five years ago, but such is the geological reality.

The political reality is something else.

Mexico has already proven some 40 billion barrels of oil and oil-equivalent gas, while estimates of potential reserves range up to 250 billion barrels. The problem now is to mobilize the vast store of materials and technology and trained manpower which will be required to exploit this bonanza, and to pace its exploitation in such a way as to maximize its beneficence to Mexico with minimum disruption to the nation's essential values and social and political cohesion.

The earlier natural gas negotiation has left its imprint on overall U.S.-Mexico energy relations. Mexico will be less ready than it has ever been before to engage in a long term collaborative relationship (and even prior to the natural gas difficulties Mexico was among the world's most nationalistic of peoples

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in regard to its energy patrimony). Since the Carter
visit, the United States and Mexico have been exchanging
low-level energy teams; a group from State, NSC and
DOE went to Mexico in April; a Mexican group visited
Washington in early May. It is doubtful, however, that
they will agree to anything beyond a short-term, low
volume sale very soon. The present relationship, in
other words, is not likely to produce a long-term natural
gas supply arrangement, to say nothing of a comprehensive
energy understanding involving petroleum supply commit-
ments on Mexico's side and support for Mexico's develop-
ment efforts on ours.

The Road Ahead

There is, in short, a considerable inventory
of issues which will vex the relationship between the
United States and Mexico. There is considerable debate
in the United States executive branch, and among the
community of full-time Mexicanists, over where we go.
The agrument is over whether our ties with Mexico should
be organized in the context of a relationship which
is admittedly special, or whether the United States
ought to make every effort to fit Mexico into our policy
elsewhere in the Hemisphere and the world, to treat

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Mexico as a subpart of global policies. Some charac-
teristics of the relationship, however, are beyond
dispute:

First, the issues transcend the traditional
categories of domestic and international affairs. In
fact, the preservation of that distinction may even
impede the search for effective solutions.

Second, they are, in many ways, issues which
are beyond law and above the processes of government.
Migration, drugs and smuggling are problems to both
countries for that very reason. The natural processes
of interaction have outrun public policy, and are taking
place either in the absence of public control or in
conflict with it.

Third, even if government can reassert control
through public policy, none of the issues on the U.S.-
Mexico agenda can be solved by either nation acting
alone.

Finally, to continue the traditional approaches
of both countries, and attempt solutions *ad hoc*, in
the short term and by isolating, narrowing and dis-
connecting them from the larger perspective will no

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longer work. Such traditional public processes in fact
will in all probability make the problems worse.

Perhaps, then, there are two fundamental considerations for the future. The first is that the approach to the common issues must be strategic; the issues must be seen in their full complexity. Secondly, the solutions must be cooperative; the United States and Mexico must work together.

GENTLEMEN:

DOCTOR KISSINGER HAS ASKED ME TO COMMENT ON THE TRANSFER OF TECHNOLOGY FROM THE UNITED STATES TO MEXICO AND THE IMPACT OF SUCH TRANSFERS ON THE MEXICAN ECONOMY.

TEXAS INSTRUMENTS HAS BEEN A MAJOR PARTICIPANT IN THE TRANSFER OF TECHNOLOGY SINCE WE OPENED OUR FIRST OVERSEAS PLANT IN 1958. WE NOW HAVE 48 PLANTS IN 18 COUNTRIES, INCLUDING DEVELOPING COUNTRIES SUCH AS TAIWAN, MALAYSIA, SINGAPORE, ARGENTINA, BRAZIL, PORTUGAL, EL SALVADOR, -- AND MEXICO. THESE TECHNOLOGY TRANSFERS HAVE BEEN MADE TO TI'S SUBSIDIARY CORPORATIONS AND, IN EACH CASE, WE HAVE RETAINED 100% OWNERSHIP OF THE SUBSIDIARIES.

TODAY, "TECHNOLOGY" IS A LOOSELY-USED TERM. IT CAN IMPLY ANYTHING FROM TECHNICAL EDUCATION TO THE ACTUAL MACHINES THAT PERFORM MANUFACTURING OPERATIONS. LET ME CLARIFY WHAT TECHNOLOGY MEANS TO US AT TEXAS INSTRUMENTS.

1

IN OUR VIEW, TECHNOLOGY IS THE APPLICATION OF SCIENTIFIC AND TECHNICAL KNOWLEDGE TO THE CREATION OF A SPECIFIC PRODUCT OR SERVICE, OR PERFORMANCE OF A SPECIFIC TASK. IT ENCOMPASSES THE THOUSANDS OF DETAILED STEPS THAT ARE NECESSARY TO DEVELOP AND MANUFACTURE A PRODUCT, INCLUDING THE DESIGN AND DEVELOPMENT OF MANUFACTURING PROCESSES AND EQUIPMENT.
TECHNOLOGY IS NOT BASIC SCIENCE OR TEXTBOOK LEARNING. SCIENCE MAY SUGGEST WHAT CAN BE BUILT, BUT TECHNOLOGY TELL'S US HOW TO BUILD IT. THE RESULTS OF SCIENTIFIC RESEARCH ARE WIDELY AVAILABLE -- BUT THE FRUITS OF TECHNOLOGY RARELY ARE. TECHNOLOGY IS THE LIFEBLOOD OF COMPETITIVE LEADERSHIP, AND SUCCESSFUL COMPANIES GUARD IT JEALOUSLY.

IN THE DEVELOPING WORLD DURING THE PAST SEVERAL YEARS, THE WORD "TECHNOLOGY" HAS ACQUIRED SPECIAL SIGNIFICANCE. TECHNOLOGY IS REGARDED AS A PANACEA FOR ALL KINDS OF ECONOMIC, POLITICAL AND SOCIAL PROBLEMS. IT HAS BECOME A SYMBOL -- AND A MUCH MISUNDERSTOOD ONE -- OF PROSPERITY AND NATIONAL WELL-BEING.

2

AS A RESULT, ACQUISITION OF THE PRODUCTIVE INDUSTRIAL TECHNOLOGY NOW USED IN THE DEVELOPED NATIONS HAS BECOME A PRIME OBJECTIVE OF NATIONAL ECONOMIC AND POLITICAL POLICIES IN MUCH OF THE THIRD WORLD.

THE DEVELOPING COUNTRIES HAVE UNITED IN A COLLECTIVE POLITICAL VOICE TO DEMAND INCREASED GOVERNMENT CONTROL OVER THE TECHNOLOGY TRANSFER PROCESS IN BOTH DEVELOPING AND DEVELOPED COUNTRIES. THEY HAVEassertED POLITICALLY AN "INHERENT RIGHT OF ACCESS" TO SUCH TECHNOLOGY ON THEIR OWN TERMS. BUT THEIR TERMS IMPLY GREATLY INCREASED REGULATION OF THE TECHNOLOGY SUPPLIERS. THESE TERMS INCLUDE REDUCTION OF PATENT PROTECTION, DECREASED CONTROL BY THE SUPPLIER OVER THE USE OF HIS TECHNOLOGY, AND MORE LIMITATIONS ON CONTRACTS BETWEEN SUPPLIER AND USER. THE TERMS ALSO INCLUDE LIMITS ON PAYMENTS FROM THE SUBSIDIARY CORPORATION, THAT ARE NOT IN PROPORTION TO THE VALUE OF THE TECHNOLOGY TRANSFERRED AND THE OVERALL INVESTMENT. AND THE TERMS REQUIRE INCREASED TRANSFER OF THE BASIC TECHNICAL CAPABILITY THAT LED TO THE ORIGINAL DEVELOPMENT OF THE TECHNOLOGY.

3

THIS TREND AMONG LDCS IS BASED IN PART ON AN EVOLVING, BUT MISLEADING, ECONOMIC THEORY. IT ARGUES THAT THE EXISTING MODE OF TECHNOLOGY TRANSFER IS MONOPOLISTIC, THAT IT HAS BEEN TOO EXPENSIVE FOR THE USER, THAT IT HAS INHIBITED THE DEVELOPMENT OF LOCAL TECHNICAL INFRASTRUCTURES, AND THAT IT HAS CAUSED BALANCE OF PAYMENTS PROBLEMS. IN SHORT, IT ARGUES THAT PRESENT TECHNOLOGY POLICIES AND TRANSFER MECHANISMS HAVE ONLY INCREASED THE ECONOMIC DEPENDENCE OF THE DEVELOPING NATIONS ON THE DEVELOPED WORLD AND ITS MAJOR INDUSTRIES.

THIS THEORY IGNORES THE FACT THAT DEPENDENCY IS A TWO-WAY STREET, AS DEVELOPED NATIONS ARE OFTEN EQUALLY DEPENDENT ON THE DEVELOPING NATIONS FOR RAW MATERIALS. THEIR THEORY ALSO ASSUMES THAT SELF-SUFFICIENCY IS BETTER THAN DEPENDENCE WHEN DEVELOPMENT GOALS ARE BEING PURSUED. THE FACT IS THAT MODERNIZATION IS A COMPLEX PROCESS. DEPENDING ON THE COUNTRY'S STAGE OF DEVELOPMENT, THE CREATION OF JOBS AND OTHER BENEFITS THAT RESULT FROM DEPENDENCY RELATIONSHIPS MAY BE MUCH MORE VALUABLE THAN IS SELF-SUFFICIENCY.

4

A FUNDAMENTAL PROBLEM IN THE DEVELOPING NATIONS' POLITICAL DEMANDS FOR GREATER ACCESS TO INDUSTRIAL KNOW-HOW IS THAT, IN THE NON-COMMUNIST WORLD, THIS KNOW-HOW IS OWNED BY PRIVATE COMPANIES, IT IS NOT OWNED BY GOVERNMENTS. IT MAY BE TRANSFERRED ONLY UNDER CONDITIONS THAT RECOGNIZE AND RESPECT IT AS PRIVATE PROPERTY.

A RELATED PROBLEM IS THAT, IN GENERAL, COMPANIES DO NOT DEVELOP TECHNOLOGY TO SELL, BUT TO USE IN MAKING PRODUCTS TO SELL IN THE WORLD MARKETPLACE. IN OUR VIEW, THE ONLY ADEQUATE FORM OF PAYMENT FOR THE TRANSFER OF SUCH TECHNOLOGY IS A SHARE OF THE MARKET SERVED BY THE PRODUCTS IT CREATES. OFTEN, THE EXISTING MARKETS FOR THESE PRODUCTS ARE OUTSIDE THE DEVELOPING NATION TO WHICH THE TECHNOLOGY IS TRANSFERRED. IN THIS CASE, TECHNOLOGY TRANSFER NOT ONLY INTRODUCES THE TECHNOLOGY, BUT CREATES THE MARKET OPPORTUNITY AS WELL. WITHOUT AN OPPORTUNITY TO SHARE IN THE MARKET CREATED AND WITHOUT ADEQUATE PROTECTION OF ONE'S PROPRIETARY TECHNOLOGICAL POSITION, THERE IS NO LASTING INCENTIVE TO MAKE THE TRANSFER.

LET ME DRAW ON THE EXPERIENCE OF TEXAS INSTRUMENTS. OUR TECHNOLOGICAL LEADERSHIP WAS NOT A GIFT OF THE GODS OR THE GOVERNMENT. IT WAS HARD EARNED AND HARD LEARNED, AT HIGH COST AND HIGH RISK, OVER A LONG PERIOD OF TIME. THE INDIVIDUALS AND INSTITUTIONS WHO INVESTED IN IT DESERVE TO HAVE THEIR RIGHTS IN OUR TECHNOLOGY PROTECTED. TECHNOLOGY HAS THE SAME ECONOMIC SIGNIFICANCE TO US, AS NATURAL RESOURCES HAVE TO A DEVELOPING COUNTRY.

THE CONCEPT OF RISK AND REWARD IS OFTEN DISPARAGED BY THE SAME CONTEMPORARY ECONOMISTS WHO BELIEVE THAT ECONOMIC JUSTICE CAN ONLY BE FOUND AT THE HANDS OF AN ALL-POWERFUL GOVERNMENT. BUT IT IS THE ENGINE OF RISK AND REWARD THAT HAS DRIVEN THE PROCESS OF INNOVATION AND PROGRESS THROUGHOUT THE INDUSTRIAL ERA. TECHNOLOGY DEVELOPMENT IS NOT JUST A MATTER OF GOOD INTENTIONS AND A FEW DOLLARS; IT IS A HIGHLY COMPLICATED AND RISKY BUSINESS, AND THERE ARE MANY FAILURES FOR EVERY SUCCESS.

6

CLEARLY, THE DEVELOPING COUNTRIES WANT LOCAL ACCESS TO FOREIGN TECHNOLOGY TO REDUCE WHAT THEY KNOW TO BE THE EXORBITANT COST OF R&D. BUT THEIR APPROACH IS SELF-DEFEATING. IF THEY ARE GIVEN THE FREE ACCESS THEY ASK FOR, THE INCENTIVE FOR FOREIGN INVESTMENT AND TECHNOLOGY TRANSFER WILL EFFECTIVELY BE REMOVED. THEY WILL SUCCEED ONLY IN REDUCING THE FLOW OF BOTH INVESTMENT CAPITAL AND TECHNOLOGY.

THE MOST COMMON MODE OF TRANSFERRING PRIVATE INDUSTRIAL TECHNOLOGY TO A DEVELOPING COUNTRY HAS BEEN AS PART OF A FOREIGN INVESTMENT PACKAGE OF AN OUTSIDE MULTINATIONAL CORPORATION. THERE ARE TWO PRINCIPAL REASONS FOR THESE OVERSEAS INVESTMENT BY U.S. FIRMS. ONE IS TO SERVE WORLD MARKETS MORE EFFICIENTLY THROUGH LOCAL PLANTS. THE OTHER IS TO TAKE ADVANTAGE OF A SIGNIFICANTLY IMPROVED COST SITUATION TO MAINTAIN ONE'S COMPETITIVENESS IN A WORLD MARKET, AGAINST OTHER FIRMS THAT ALREADY ENJOY A FAVORABLE COST ENVIRONMENT. OVERSEAS INVESTMENTS ARE DEFENSIBLE BOTH AT HOME AND ABROAD ON THESE TWO ECONOMIC GROUNDS.

7

I AM DEEPLY SYMPATHETIC TO THE VIEW THAT THE ECONOMIC DISPARITIES BETWEEN THE DEVELOPED AND DEVELOPING WORLDS MUST BE DECREASED THROUGH ECONOMIC GROWTH. AND I AGREE THAT TECHNOLOGICAL DEVELOPMENT IS AN ESSENTIAL PART OF THAT GROWTH. BUT POSSESSION OF INDUSTRIAL TECHNOLOGY IS ONLY ONE PART OF THE COMPLEX PROCESS OF MODERNIZATION.

GOVERNMENTS OF DEVELOPING COUNTRIES MUST ESTABLISH OVERALL DEVELOPMENT STRATEGIES THAT RECOGNIZE THE NECESSARY BALANCE AND PROPER TIME-PHASING OF ALL ELEMENTS OF THE DEVELOPMENT PROCESS. IN MOST CASES, THE FIRST STEP MUST BE TO IMPROVE AGRICULTURAL PRODUCTIVITY AND DISTRIBUTION SO THEY CAN FEED THEMSELVES. EARLY ON, THEY MUST CONTROL POPULATION GROWTH SO THAT ECONOMIC GROWTH RESULTS IN IMPROVED PER-CAPITA LIVING STANDARDS. THEN, THEY MUST ACHIEVE AN UNDERSTANDING OF WHICH TECHNOLOGIES ARE APPROPRIATE TO THE NEEDS AND RESOURCES OF THE COUNTRY.

THROUGHOUT THE DEVELOPMENT CYCLE THEY MUST
ACCELERATE THE BUILDING OF THE EDUCATIONAL,
TECHNOLOGICAL, AND MANAGERIAL INFRASTRUCTURE,
SO THAT THEY CAN EFFECTIVELY ABSORB TECHNOLOGY
IN PHASE WITH THEIR OVERALL TIMETABLE.
SATISFACTORY AND MUTUALLY BENEFICIAL MEANS EXIST
FOR PRIVATE CORPORATIONS AND DEVELOPING
COUNTRIES TO WORK TOGETHER IN ADDRESSING THESE
ISSUES.

IN OUR EXPERIENCE AT TEXAS INSTRUMENTS WE
HAVE FOUND THAT THE ABILITY OF DEVELOPING
COUNTRIES TO ABSORB NEW TECHNOLOGY VARIES
GREATLY. THEIR CAPABILITY DEPENDS ON THE LEVEL
OF TRAINED PERSONNEL THEY HAVE TO BUILD THE
INFRASTRUCTURE NECESSARY TO SUPPORT THE
TECHNOLOGY. THE TECHNOLOGY IS VITALLY
IMPORTANT, BUT TRAINED PEOPLE ARE EVEN MORE
IMPORTANT.

TWO CONTRACTS TI HAS HAD ILLUSTRATE THIS
DRAMATICALLY. THE CONTRACTS DEAL WITH OUR
SEISMIC DATA PROCESSING AND INTERPRETATION
OPERATIONS IN TWO COUNTRIES.

IN BOTH CASES, HARDWARE AND SOFTWARE WERE SET UP, LOCAL PEOPLE WERE TRAINED, AND OUR OWN SPECIALISTS WORKED FOR EXTENDED PERIODS AT THE LOCAL CENTERS.

IN THE CASE OF OUR INDONESIA CENTER, AFTER FIVE YEARS OF SATISFACTORY OPERATION, IT STILL COULD NOT SUSTAIN CURRENT OPERATIONS WITHOUT MAINTENANCE SUPPORT FROM US. IN THE CASE OF OUR IRAQ CENTER, AFTER ONLY TWO YEARS OF TRAINING AND INTERACTION, THE CENTER WAS COMPLETELY SELF-SUSTAINING.

THE PRINCIPAL DIFFERENCE BETWEEN THESE TWO COUNTRIES WAS THE LEVEL OF THEIR TECHNICAL INFRASTRUCTURE. THE IRAQ OPERATION QUICKLY BECAME SELF-SUFFICIENT LARGELY BECAUSE THAT NATION HAD A 15-YEAR HISTORY OF VIGOROUS HIGHER EDUCATION FOR ITS MORE CAPABLE STUDENTS BY THE TIME IT STARTED OPERATING THERE. FURTHERMORE, THE IRAQI GEOPHYSICISTS WE HIRED HAD AN AVERAGE OF FIVE YEARS PRACTICAL EXPERIENCE IN SEVERAL COUNTRIES. IN CONTRAST, INDONESIA HAD NO SUCH INFRASTRUCTURE.

10

AN IMPORTANT CONCLUSION FROM THIS COMPARISON IS THAT THE SUCCESS OF A TECHNOLOGY TRANSFER, AS JUDGED BY THE ABILITY OF THE RECEIVER TO BE SELF-SUFFICIENT, TAKES MUCH LONGER THAN THE DEVELOPING COUNTRY EXPECTS.

IT APPEARS THAT EVEN IN THE BEST CASE, AFTER SOME FIVE YEARS OF ACCUMULATED PRACTICAL EXPERIENCE IN THE FIELD, AN ADDITIONAL FIVE TO SEVEN YEARS OF ESSENTIALLY INDEPENDENT PRACTICE ARE REQUIRED TO REACH THE STAGE WHERE LOCAL INNOVATION IS POSSIBLE.

THE DEVELOPMENT OF THE TECHNOLOGICAL BASE REQUIRED BY NEARLY ALL DEVELOPING NATIONS IS A SLOW PROCESS, BUT WITHOUT IT, THE TRANSFER OF ADVANCED TECHNOLOGY IS FUTILE.

A VALUABLE MODEL FOR LDCS TO FOLLOW IS PRESENTED BY TAIWAN. FIRST, THEY CONCENTRATED ON PRODUCTIVITY IN AGRICULTURE, WITH U.S. ASSISTANCE. THEN THEY PROCEEDED TO ADVANCE THEIR INFRASTRUCTURE WITH LIGHT MANUFACTURING.

11