FUTURE OF BUSINESS MEETING--19TH MARCH, 1977

Dr. Jordan

We have been for the last hour this morning, and three and a
half hours yesterday afternoon, seeking to define the scope and
the optimum character of our Future of Business program. We
have an agenda before us for yesterday and we are going to con-
tinue with that for a few minutes before we turn to the agenda
for today. We started out by trying to focus in on what we mean
by "Future of Business". By "future" we mean over the next
couple of decades, in other words a medium term look, and by
"business" we focused essentially on the definition provided by
Max Ways, that is a system coordinated by competitive markets in
which individuals and organizations seeking profit and taking
risk, employ people and privately owned resources to produce and
distribute goods--so it's a very comprehensive but clearly focused
definition on the private sector and I think the general concensus
around the table was that, whereas that should remain, ought to
also look at the mixed public/private to broaden out our
scope a little and perhaps look at non-profit private institutions
that can compete with business in delivering services and perhaps
including public services.

We then went from our definition of business into discussing the
topics that are on the agenda for 18 March and focused yesterday
initially and really for the bulk of the day on the first three
of those--the changing nature of government business interface in

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this country, covering the regulation, tax policy, tariff, and so forth, and how that was changing and likely to change. We talked a good deal about business and changing societal values--both as they impacted on this interface, and also as they dealt with business competitiveness. This morning, we have been talking in the first instance about the distribution of power in the corporation workplace and we have been comparing and contrasting the American experience with the European experience and what we can learn from the European experience. I think in all four of these areas we are quite clear that there are fruitful topic areas for the Center to pursue and we have, I think, defined some elements of that; we have gotten some names and institutional connections to carry that further. Right now we have been dealing with item E "Technology and the Structure and Function of Business". We have observed that it has important dimensions even for domestic business future--the question of centralization, decentralization for instance of the firm and of the managerial direction and so on, but it also has very important ramifications for the multinational firm and international business because of the demand from the LDCs for the diffusion of technologies as a sort of political right, the practical and economic difficulty of meeting that because technology does not transfer very well within a single firm let alone across an ocean, and we have talked a little bit about the difficulty of generating the kind of R & D expenditures which will let you move to a new technology level out of small business sector, even out of the national business sector as these enterprises become larger and international consortia become the rule and that's just about where we were at when you walked in. Do you want to make observations or will we just plough right down this path and ask you to intervene?

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We have a very core question here. Take for example the inter-
national transfer. It comes out very sharply here. I believe
a good many corporations will argue and I think quite validly,
that we don't charge enough for technology when we transfer it--
probably domestically as well as internationally. Now we don't
charge enough for technology, even if the business firm itself
gets back its investment and let us say some profit, because there
has been an enormous public input into the investment. Take the
educational system itself, producing the people who produce the
technology. That is not recovered from the national economy and
the price that we obtain for this technology. Now I think that you
can take in the case we are talking about where you have an in-
creasing pressure all the time for new technology, and even in the
domestic (I use the international as an example where I think it's
quite dramatic even now), but in the domestic the individual firm
would find it harder and harder, and I think that's the nature of
the problem we are proposing--that this is a very difficult,
serious issue for the future on how you would cover this topic.

Dr. Kissinger

In all of these discussions, I have to draw on my experiences and
run the risk of getting myself into a reminiscing frame of mind
but let me give you my experiences of the transfer of technology,
and the problem and the concern I had when I was in office in respect
of this.

It seems to me that the North-South dialogue was almost impossible to handle on purely economic terms. Part of our strategy had to be to position ourselves in such a way that we could split the moderate LDCs from the radical LDCs by giving them some program to which they could attach themselves. It seemed to me, also, that the concept of foreign aid that had developed in the United States in the 40s and 50s could not be maintained. Even if it could be maintained, it could not generate the amount of resources that would really be relevant to their problem and would be entrusted with more and more restrictions as the countries became more assertive, so that it could even become a liability.

Dr. Jordan

Are you talking about the pattern of large capital transfers on
the public sector?

Dr. Kissinger

Yes, the public sector. So that, therefore, one had to find a way to transfer capital in the private sector and one of the anomalies of the situation is that LDCs are terribly worried about political interference by private capital where the political interference is much more likely to come from public funds than from most corporations executives that I know of. They are too limited to understand their political interests, much less implement them in a foreign country; so there is this problem of how you generate an environment in which more private capital will be transferred. This relates to the question raised by Mr. Brunner, and this is why we made this proposal for the resources

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program, but I don't want to get into the specifics.

The second area, in which we could position ourselves is in
the transfer of technology. This is a stated demand of all
the LDCs. It is an area in which we are clearly ahead of every-
body else, and my experience has been that it has proved next to
impossible to generate a program that we could put forward. Part
of it is that bureaucracy says it has to be done by private
business. Private business wants to immediately translate it into
something they can show on their balance sheet. But I think some
concept could be developed of how this country could transfer
technology, which doesn't even cost a hell of a lot, and it would
be enormously helpful to our foreign policy. Now with respect
to what technology to transfer--the fact of the matter is, one
would have to look at various countries around the world. Most of
them couldn't handle our most advanced technology and there is a
lot of technology that we could transfer that isn't really in the
category of being very useful to us in our economy and where,
therefore, the question of expropriation would be of slightly less
urgent. I put forward in Nairobi last year, after flogging the
bureaucracy for six months, some ideas on how the transfer of
technology could operate, but it was a very superficial, rudimentary
not really well thought out scheme. I think, however, (and I am
looking at it in terms of foreign policy considerations) that if
we could come up with some ideas it would also help us with the
expropriation issue because we could then make it dependent to some
extent on getting some code of conduct with the relationship to
investment.

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........

Dr. Jordan

Are there any issues here that we ought to be looking at as far
as the future of American business is concerned with this aspect
of technology transfer?

Dr. Kissinger

Could I go back for one minute to the previous point. I don't think that private companies are going to be able to make the decisions on the transfer of technology on an individual basis without running into the problem that Nat raised and to which there really isn't a good answer. As long as the companies are in direct confrontation with less developed countries on an individual basis, they cannot solve the problem.

Dr. Jordan

They get defeated in detail bidding against one another, you mean?

Dr. Kissinger

Well, also the insecurities are too great, and they will then have
to behave exactly like the rapacious capitalist, which is the
image they have already have. And the more worried they are
about the future the higher they have to calculate their returns,
therefore, it is a vicious circle, so I think that what we need is
a strategy in which the government plays a role not in the transfer
of technology as such, but perhaps in arranging the framework or
negotiating a framework that is applicable on a more general basis
in which these companies can operate. Otherwise, I think it is
asking too much of private industry on an individual basis to approach

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Dr. Jordan

Does it make sense for the US to attempt this sort of thing
alone then? The American business is already complaining that
the government puts it at a serious disadvantage vis-a-vis its
British competitors, French or German competitors in trying to
get business abroad because of all the various administrative
hurdles. Could there be coordination within the West somehow?

Dr. Kissinger

It would be helpful to coordinate it in the West, but I have in
mind something that should make it easier to get America
business and not harder. Some code of conduct which we can
negotiate with on a general basis. We would need to discuss the
mechanisms. I think we have two sets of returns from the East.
One is economic and the other is political. Economically, I
don't think we can get an enormous return from the East but
I have always felt that we got hamstrung by the countries, that
we should use credits and transfer of technology to influence
a certain code of conduct in the political field; otherwise it
was found to be an unequal trade.

.........

Dr. Vernon

There are interesting phenomena going on in the world at the
present time, whereby the world is drowning in resources of a
short and medium term nature available all over world but there's
only one place in the world where long term capital is available
and that is the U.S.

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Dr. Kissinger

To go back to the debate between you and Ray, which I have no
judgment as to its being correct. The question is what should
be our strategy in relation to that issue. In other words, is
it in our interests to bring our prices down or is it in our
interests to keep them at a level which encourages alternative
sources of funds. One way the OPEC countries could disrupt
any alternative resources program is by radical price cutting.
This is why I proposed floor prices. Assuming Ray is right, this
could happen through the operation of the market. Now as I under-
stand from this discussion there are two factors which make for
high prices. One is the supply and demand relationship and the
second is the organization of the market. To the degree that the
market is organized, it is easier to maintain high prices and,
therefore, you could argue to the degree that as a deliberate
strategy we can disorganize the market, we can bring pressure on
prices, or to put it another way we can make competition operate
in a situation where the various competitors don't know exactly
what the right demand level is. If that is correct then it
could happen that even if you are right, there are temporary
situations where we could bring a hell of a pressure on the market
and get it disorganized. For example, in 1975 the demands were
somewhat weak with respect to energy. Now the OPEC countries, to
the degree that they organize the market, maintain the prices by
production cuts which in turn were enforced by ...... . The
production cut, however, except for Saudi Arabia could not go
beyond a certain point before countries got restless, which is
another way of saying if at this point we could have had a strategy

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for buying up the surplus we could have thrown more and more of
the production cuts on the Saudis and at some point the Saudis would
not have been willing to be the only country that is not maintaining
the price level. Because if they became the only country maintaining
the price level, we could have made it politically too hot for them.
In a way that has already happened. They have become a political
issue.

In my view one of the greatest confidence tricks is the ability to
blame Iran for the high prices. Iran makes a lot of noise and
gives a lot of intellectual leadership but economically they don't
have the capacity to maintain high prices because they can't cut
their production significantly enough to affect the price level.
What they can do is go to OPEC meetings and lecture everybody
about the importance of high prices, but they cannot create the
economic conditions for the high prices--only Saudi Arabia can
do it. Therefore, assuming our objective is lower prices, if
at a strategic moment we had the capacity to offer to buy the
surplus which would be opposed by the free market advocates in
this country, but if we had that capacity we could bring real
pressure on prices paradoxically because it would then throw the
production cut on Saudi Arabia and either they would not be willing
to do it or we could bring political pressure to bear and I think
that sort of analysis could also be made in other scarce resources.

Ray is right, we could accelerate the process, and if you are right
we can delay the process of escalating prices, if we could follow
this sort of approach, whose purpose would be to let the market
operate by not letting them set production levels.

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........

Dr. Kissinger

If we want to play really rugged, we could buy the oil and resell
it to the ... that would bring pressure so that it does not
go into the stockpile. We just put it on the market that would
bring pressure on the price of both ends than at the production.

That strategy could only work if you had a floor price. What you
would do if you followed this strategy would be to establish a
floor price and get the price down as low as you could and then
use the floor price to encourage investment.

........

Lindley Clark

I think it is a mistake to think of it in terms of a new regime
taking over from an old. It's just a question of how much, given
so much undetermined regime you can get from the advanced countries.

Dr. Kissinger

We used to have endless debates in our Administrations about whether
we should use "the new economic order." I think your journal con-
tributed to it also, Mr. Clark. If there is going to be a new
economic order it depends on what you compare it with. When you
have so many new states with such assertive demands you are going
to get a system that is different from the system that existed
20 years ago, so I think it's a useless debate. In the concrete
again it depends on some strategic choices we make. I think you
are right Ray that the LDCs are not at all homogeneous in this
debate. Brazil has scarcely more in common with Tanzania than

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we do and probably much less understanding of the situation, so a
great deal depends how this debate gets structured; whether the
debate gets structured by the demands of the most radical elements
among the LDCs and by a sense of guilt on our side, whether it
gets structured in a more realistic approach to try to break it up
into components. Now I think that the hierarchy of these LDCs if
you talk about the general debate, Brazil, Mexico (there is a whole
middle class of countries) would be in many ways less eager to
transfer technology than we are as they don't have the protestant
sense of international obligation and that on the other hand can
be driven into supporting these LDCs in order to get a pleasing
international posture to themselves. Thus, going back to a point
that you made, it is an important decision where we put our economic
and political weight. Do we throw it on the side of the basket
cases or do we throw it on the side of the middle class of these
countries to give them additional momentum and to create frankly
a break in the assumed homogeneity? Of course it is absurd that
Mexico lead the fight for a charter of new economic rights--
because you look at the realities of Mexico and they are much
closer to us in many respects than they are to those countries.

So I had always felt that the debate in the abstract in the new
economic order was irrelevant but the debate about what strategy
we should pursue with our investment and, therefore, the language
we use is important. You take this common fund or commodity agree-
ment. There are two ways you can look at commodity agreements; one
is as a means of grouping certain countries to give them an
interest in cooperating with you or you can look at them simply
as a means to stabilize prices, or you can change the whole management
of the commodity sector over to the LDCs who would then tend to

throw it into the hands of the more radical. Among these choices
I had always favored individual commodity agreements. If we take
a decision against any we will get too many people against that;
if we throw it into a common fund we will lose control over events;
while if we pick individual commodity agreements, we can pick
the countries strategically, from the point of view of what does
us most economic and political good. But without going into the
debate of whether this view is correct, I would think that we should
not underestimate our tremendous economic power and if we use it
strategically and don't let ourselves be driven by rhetoric we
should be in the dominant position in many of these negotiations
and we don't have to fear a debate about a new economic order.
It's a false decision for the U.S. to debate on the abstract grounds
of a new economic order.

Dr. Jordan

We have been for the last hour this morning, and three and a
half hours yesterday afternoon, seeking to define the scope and
the optimum character of our Future of Business program. We
have an agenda before us for yesterday and we are going to con-
tinue with that for a few minutes before we turn to the agenda
for today. We started out by trying to focus in on what we mean
by "Future of Business". By "future" we mean over the next
couple of decades, in other words a medium term look, and by
"business" we focused essentially on the definition provided by
Max Ways, that is a system coordinated by competitive markets in
which individuals and organizations seeking profit and taking
risk, employ people and privately owned resources to produce and
distribute goods--so it's a very comprehensive but clearly focused
definition on the private sector and I think the general consensus
around the table was that, whereas that should remain, we
ought to also look at the mixed public/private to broaden out our
scope a little and perhaps look at non-profit private institutions
that can compete with business in delivering services and perhaps
including public services.

Dr. Kissinger

Dr. Jordan

Dr. Kissinger

The second area, in which we could position ourselves is in the transfer of technology. This is a stated demand of all the LDCs. It is an area in which we are clearly ahead of everybody else, and my experience has been that it has proved next to impossible to generate a program that we could put forward. Part of it is that bureaucracy says it has to be done by private business. Private business wants to immediately translate it into something they can show on their balance sheet. But I think some concept could be developed of how this country could transfer technology, which doesn't even cost a hell of a lot, and it would be enormously helpful to our foreign policy. Now with respect to what technology to transfer--the fact of the matter is, one would have to look at various countries around the world. Most of them couldn't handle our most advanced technology and there is a lot of technology that we could transfer that isn't really in the category of being very useful to us in our economy and where, therefore, the question of expropriation would be of slightly less urgent. I put forward in Nairobi last year, after flogging the bureaucracy for six months, some ideas on how the transfer of technology could operate, but it was a very superficial, rudimentary not really well thought out scheme. I think, however, (and I am looking at it in terms of foreign policy considerations) that if we could come up with some ideas it would also help us with the expropriation issue because we could then make it dependent to some extent on getting some code of conduct with the relationship to investment.

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........

Dr. Jordan

Dr. Kissinger

Dr. Jordan

Dr. Kissinger

- 7 -

Dr. Jordan

Dr. Kissinger

.........

Dr. Vernon

- 8 -

Dr. Kissinger

To go back to the debate between you and Ray, which I have no
judgment as to its being correct. The question is what should
be our strategy in relation to that issue. In other words, is
it in our interests to bring oil prices down or is it in our
interests to keep them at a level which encourages alternative
sources of funds. One way the OPEC countries could disrupt
any alternative resources program is by radical price cutting.
This is why I proposed floor prices. Assuming Ray is right, this
could happen through the operation of the market. Now as I under-
stand from this discussion there are two factors which make for
high prices. One is the supply and demand relationship and the
second is the organization of the market to the degree that the
market is organized, it is easier to maintain high prices and,
therefore, you could argue to the degree that as a deliberate
strategy we can disorganize the market, we can bring pressure on
prices, or to put it another way we can make competition operate
in a situation where the various competitors don't know exactly
what the right demand level is. If that is correct then it
could happen that even if you are right, there are temporary
situations where we could bring a hell of a pressure on the market
and get it disorganized. For example, in 1975 the demands were
somewhat weak with respect to energy. Now the OPEC countries, to
the degree that they organize the market, maintain the prices by
production cuts which in turn were enforced by ...... . The
production cut, however, except for Saudi Arabia could not go
beyond a certain point before countries got restless, which is
another way of saying if at this point we could have had a strategy

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........

Dr. Kissinger

........

Lindley Clark

Dr. Kissinger

We used to have endless debates in our Administrations about whether we should use "the new economic order." I think your journal contributed to it also, Mr. Clark. If there is going to be a new economic order it depends on what you compare it with. When you have so many new states with such assertive demands you are going to get a system that is different from the system that existed 20 years ago, so I think it's a useless debate. In the concrete again it depends on some strategic choices we make. I think you are right Ray that the LDCs are not at all homogeneous in this debate. Brazil has scarcely more in common with Tanzania than

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we do and probably much less understanding of the situation, so a great deal depends how this debate gets structured; whether the debate gets structured by the demands of the most radical elements among the LDCs and by a sense of guilt on our side, whether it gets structured in a more realistic approach to try to break it up into components. Now I think that the hierarchy of these LDCs, if you talk about the general debate, Brazil, Mexico (there is a whole middle class of countries) would be in many ways less eager to transfer technology than we are as they don't have the protestant sense of international obligation and that on the other hand can be driven into supporting these LDCs in order to get a pleasing international posture to themselves. Thus, going back to a point that you made, it is an important decision where we put our economic and political weight. Do we throw it on the side of the basket cases or do we throw it on the side of the middle class of these countries to give them additional momentum and to create frankly a break in the assumed homogeneity? Of course it is absurd that Mexico lead the fight for a charter of new economic rights-- because you look at the realities of Mexico and they are much closer to us in many respects than they are to those countries.

So I had always felt that the debate in the abstract in the new economic order was irrelevant but the debate about what strategy we should pursue with our investment and, therefore, the language we use is important. You take this common fund or commodity agreement. There are two ways you can look at commodity agreements; one is as a means of grouping certain countries to give them an interest in cooperating with you or you can look at them simply as a means to stabilize prices, or you can change the whole management of the commodity sector over to the LDCs who would then tend to

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