PRESS
DEPARTMENT OF STATE

SPEECH BY THE HONORABLE HENRY A. KISSINGER
BEFORE THE OECD MINISTERIAL COUNCIL

Paris, France; May 28, 1975

Hold for release at 1 P.M. May 28, 1975, Paris time (8 A.M. EDT).
May not be quoted from; paraphrased or used in any way before that
time.

## THE IMPERATIVE OF GROWTH AND COOPERATION

When free nations join forces for the common good they can achieve great things.

This Organization embodies the legacy and the hope of the Marshall Plan, one of the most creative achievements of international collaboration. The nations represented here have every reason to be proud of the advances which they have achieved for their peoples during the past thirty years. Our progress has fostered global progress. Our success has demonstrated that hope, prosperity, and human dignity are not utopian dreams; they can become practical possibilities for all nations.

But the economic system which we labored so hard to construct is now under stress. The energy crisis of 1973 first dramatized the forces of change which threaten to outrun our capacity for cooperative action. A food crisis, a global recession and a rate of inflation unprecedented in the postwar period have further strained the structure of international cooperation. At the same time, the poorer nations have increasingly pressed their demands for greater benefits and more participation in the international system.

Economic expansion in the industrial world and economic cooperation with the less developed countries go hand in hand. Only economic growth can satisfy competing demands for more income and more opportunity within, and among, countries. An expanding world economy is essential for development. It stimulates trade, investment and technology; it supports necessary bilateral and multilateral aid programs; it assures growing markets for the raw materials, manufactures, and agricultural products of the developing countries; it provides the best framework for accommodation on the difficult, potentially divisive, issues of food, energy, raw materials, trade and investment.

For further information contact:

-2-

These issues go far beyond economic considerations. Economic stagnation breeds political instability. For the nations of the industrialized world, the economic crisis has posed a threat to much more than our national income. It has threatened the stability of our institutions and the fabric of our cooperation on the range of political and security problems. Governments cannot act with assurance while their economies stagnate and they confront increasing domestic and international pressures over the distribution of economic benefit. In such conditions, the ability to act with purpose -- to address either our national or international problems -- will falter. If they are to contribute to world security and prosperity, the industrialized nations must be economically strong and politically cohesive.

The Organization for Economic Cooperation and Development reminds us of our strengths. It calls attention to the wisdom of our predecessors who saw that we multiply our effectiveness by our cooperation. This Organization was originally created to promote cooperation among those few nations which were already most advanced. This is still a worthwhile objective but today's realities demand that we also increasingly base our policies on the recognition that growth in the industrial world is inextricably linked to our relationship with the rest of the world.

We thus face two important challenges:

- First, the challenge to the nations of the industrial world to restore sustained and stable economic growth, so essential to maintain confidence in their institutions.

- A challenge to all nations to improve the system of international economic cooperation, and thus provide greater opportunity for the less developed countries to share both the benefits and responsibilities of a growing world economy.

## Growth Among the Industrialized Nations

The industrialized nations are now experiencing the most serious economic crisis since the great depression of the thirties. We see it in wide-spread recession. We encounter it in the inflation that has become the bane of our societies. We note it in the increasing difficulty of governments to manage their economies and even to control their budgets. We observe it in the declining incentives to investment that many of the industrial democracies are willing to offer.

We see now how much all our social and economic objectives depend on the general trend of prosperity. A democratic society thrives on a political and social consensus. The distribution of economic benefit must be broadly accepted as just or as offering opportunity

-3-

for those who seek it; otherwise escalating wage and price demands, lagging work performance and labor unrest will undermine productivity, and inflation, which destroys growth and shatters hope, will be the arbiter of social priorities. Stagnation magnifies all our difficulties; stable growth enhances our possibilities.

The Finance Ministers, meeting tomorrow, will discuss specific measures to achieve our goal. Secretary Simon will then describe in detail the trend of American economic recovery. Today, let me offer some general propositions about our long-term future.

Our first task is to rebuild confidence through decisive, coordinated and mutually supportive action to promote sustained expansion. We must recognize, especially in the short and medium term management of our economies, that the economic policies of one nation can have a profound impact on others. And the United States, because of the size and impact of its economy, has a particular obligation to recognize the magnitude of its responsibility.

In the past we have kept each other informed on short-term policy measures. In a new departure this past winter President Ford consulted with Chancellor Schmidt, Prime Minister Wilson, President Giscard D'Estaing and former Prime Minister Tanaka on our efforts to combat the recession. The major industrial countries need to continue to coordinate economic policies at all levels. If they do so, it will greatly improve the chances of avoiding the sequence of boom and bust experienced these last three years. The United States is prepared to cooperate fully in such efforts.

Second, we must collaborate to sustain the growth of international trade and investment. The great postwar effort to liberalize trade, to lessen barriers to investment, and to maintain free monetary exchanges has nourished our prosperity for over a generation. Trade has consistently expanded at a rate twice that of our domestic economy. We must carry this momentum forward in the OECD by renewing our pledge not to resort to restrictive trade measures to cover deficits resulting from current world economic difficulties. And we must take advantage of the Multilateral Trade Negotiations to lower tariffs and non-tariff barriers and improve the world trading system.

-4-

Third, as I outlined yesterday in the IEA, we must collectively adopt
strong national and international policies on energy conservation and
the development of alternative energy sources. This is indispensable if
we are to lower prices and inhibit the political exploitation of a
scarce resource. We must end, or at least reduce, the vulnerability of
our economies to external economic or political manipulation.

Finally, we must develop longer-term growth strategies by systematically
addressing some fundamental questions:

-- How can the industrial nations bring about the massive capital formation required over the next decade, for an adequate rate of growth and for a new quality of life?

-- What policies are needed to restore a non-inflationary environment without which long-term growth cannot occur?

-- How can we encourage the research and development necessary to advance the technology vital to growth and to share it with others?

To begin the search for answers to such questions, I propose that we
constitute a special group of distinguished economists both in and out
of government. Their purpose should be to identify measures that OECD
nations can adopt to assure long-term growth. This group should draw
on the projections now being developed within the Economic Policy Committee
and turn them into policy recommendations for the next ministerial meeting.

The importance of our economic cooperation transcends immediate economic utility; it also fosters our sense of community and common interest. If we are to cooperate in times of political and military crisis, we cannot, in calmer periods, afford to be economically weak, or disunited, or preoccupied with clashing economic interests. The interrelationship of our political, economic and security interests which the United States suggested two years ago is a fact, not a theory.

Moreover, eased relations with the Communist world presuppose the
political unity and economic vitality of the industrialized countries.
The East's incentive to play a responsible role in the world economy
and to improve political relationships with the industrialized nations
will be enhanced as its stake in our economic success grows. This has
been one of the more hopeful trends of recent years and it is up to
us to assure its continuation.

## Cooperation with the Developing Nations

Let me now turn to another crucial issue -- the relationship between
the industrialized nations and the developing world.

The world's prosperity will depend primarily on the industrialized
nations, since we account for 65 percent of the world's output and 70
percent of its trade. But our economic well-being depends on a structure
of international cooperation in which the developing countries are, and
perceive themselves to be, participants. The new problems of our era --
ensuring adequate supplies of food, energy, and raw materials -- require
a world economy that accommodates the interests of developing as well
as developed countries.

-5-

We in this Organization all face the same challenge, and we must face it together. The political evolution and economic growth of the last thirty years have brought about a new diffusion of power. No nation or bloc can dominate any longer. Economic issues are turning into central political issues. Thus it has become a central test of statesmanship to ensure the orderly reconciliation of conflicting interests and to prevent a slide into political and economic warfare. Misused economic power -- as the past two years have borne stark witness -- can reverse the trend of worldwide growth and retard progress for everyone. An international system will be stable only so long as its economic benefits are widely shared and its arrangements are perceived as just. The United States, and I am sure all of us in this room, are ready to seek solutions to the problems of international cooperation with imagination and compassion.

But it is evident that others must be ready to follow a similar course. Confrontation and cooperation cannot be carried on simultaneously. International meetings that exhaust themselves in self-indulgent rhetoric or self-righteous propaganda help no one and no cause. We do not consider it constructive to participate in such exercises; we have a clear interest in resisting bloc pressure tactics or attempts to impose solutions through hostility. Such methods are futile and counterproductive. If the terribly complex issues before us are to be resolved through tests of strength, it is not the advanced industrial powers who will pay the highest price. Instead, it will be the poorest and most disadvantaged -- those in whose name and for whose benefit these tactics are purportedly used.

It is time to end the theoretical debate over whether we are seeking a new order or improving the existing one. Let us deal in reality not rhetoric. Let us address the practical common concerns of all the world's peoples with realism, maturity, mutual understanding, and common sense. The United States welcomes a dialogue in that spirit. We will do all we can to make it succeed.

Simple labels falsify the many real communities of interest which exist -- some overlapping, some competitive, some complementary. One of the striking features of the modern world economy is the diversity of its participants. Among the countries formerly classed as "developing", there have emerged in the last decade new economic powers with a growing capacity to export manufactures and raw materials. The most successful have fostered investment and growth at home. To these emerging powers have now been added the oil-rich countries. Any nation with a moral claim to world leadership -- we as well as the newly-wealthy -- must contribute to easing the plight of the poorest countries. For who can deny that every economic problem -- stagnation, inflation, high energy prices, food shortages -- hits them hardest?

The United States recognizes the responsibility that accompanies its economic power. We are prepared to do our part, in a spirit of equality, mutual respect, and cooperation. Yesterday I discussed our proposals for achieving a successful multilateral energy dialogue. Today let me turn to food, raw materials and trade and finance. A breakdown of the system in these areas would foster economic chaos and instability. Successful collaboration could usher in a new era of economic advance and human progress.

Food

The global problems in food are a central moral and political challenge. A world order in which tens of millions starve and millions more are undernourished will never be accepted as just. The good harvests expected this year should not make us complacent, for the world's total food requirements continue to grow dramatically. The gap between what developing countries can produce and what they need currently amounts to about 25 million tons. At current rates of production and population growth, that gap is expected to double or triple in ten years. Unless we act now, the world may face a series of increasingly unmanageable food crises over the next quarter century.

For the short-term, food aid will continue to be vital to feed the victims of poverty and natural disaster. It is an international responsibility -- to be shared by all financially able countries. The United States has pledged that it will make every effort to provide at least four million tons of food aid annually.

But this will not be enough. A long-term solution to the food problem requires that:

- world food production capacity be greatly increased, especially in the developing countries; and

- an international system of grain reserves be created.

Let me turn to the U. S. proposals in these areas.

Fortunately, the less developed nations which are in greatest need also have the greatest potential for increased production. They possess large quantities of unused water and cultivatable land, and the greatest possibility for improvement in crop yields. Their success, however, requires vast amounts of capital, new methods of planning and funding and more effective agricultural policies and practices.

To these ends, the United States supports two new international mechanisms: First, the International Fund for Agricultural Development. This Fund, proposed by the oil-producing nations, is designed to bring together all nations who are prepared to contribute additional resources, over some agreed base year, to agricultural developments. President Ford has asked me to announce that the United States will participate in the creation of such a fund. We believe its resources should total at least $1 billion a year.

The link between funding and effective agricultural development strategies should be provided by a second organization, the Consultative Group on Food Production and Investment, which has already been organized as a result of the World Food Conference. This Group -- sponsored by the World Bank, the United Nations Development Fund and the Food and Agricultural Organization -- plans its first meeting in July. It should be the central mechanism for cooperation among traditional donors, new donors and the developing countries.

A crucial element in a long-term food strategy is grain reserves. Short term fluctuations in food production, due to weather or natural or other catastrophes, cause sharp swings in price and availability of precious

-7-

grains, and cause plagues of starvation. A system of grain reserves would make it possible to alleviate famine in bad years as well as reduce pressures on supply and markets.

At the Rome Food Conference we agreed to negotiate a new international system of nationally held grain reserves. I recently outlined the suggested principles for such a system which the United States is prepared to begin negotiating immediately:

- First, total world reserves must be large enough to meet potential shortfalls in foodgrains production.

- Second, grain exporters and importers should agree on a fair allocation of reserve holdings, taking into account wealth, productive capacity and volume of trade.

- Third, there should be agreed international rules or guidelines to encourage members to build up reserves in times of good harvest.

- Fourth, each participating country should be free to determine how its reserves will be maintained and what incentives will be provided for their buildup and maintenance.

- Fifth, rules or guidelines should be agreed for the draw-down of reserves, triggered by shortfalls in world production. There must be a clear presumption that all members will make reserves available when needed and, conversely, that reserves will not be released prematurely or excessively, thereby depressing market prices.

- Sixth, in times of shortage the system must assure access to supplies for participating countries.

- Seventh, there must be special provisions to meet the needs of the poorer countries.

- Finally, the system must encourage expanded and liberalized trade in grains.

The United States is prepared to hold an important part of an agreed level of world reserves. If others join us, agreement on the outlines of a reserve system can be achieved before the end of the year.

## Commodities

A second area of increasing concern is commodities. The time is ripe for a detailed look at problems or commodity trade -- for solutions that will benefit producers and consumers alike. The current system is marked by volatile prices, disruption of supplies, investment disputes, and increasing hostility to the private capital investment which remains indispensable for the transfer of resources and management skills.

Thus consumers as well as producers have an interest in effective arrangements. The consuming nations seek reliable supplies and prices. The producing countries seek reliable and growing export earnings to finance development and an adequate return on investments. All nations share an interest in ending the friction which characterizes the issue of raw materials. The debate is becoming more polarized and has already damaged other efforts for international cooperation. The failure of

-8-

the preparatory energy conference last month is but a symptom of the
larger problem we now confront. The longer we delay, the more difficult
and painful it will be to find solutions.

The United States offers the following suggestions:

First, we propose that new rules and procedures for access to markets and supplies be negotiated in the Multilateral Trade Negotiations now taking place in Geneva.

Second, we do not believe that exclusive producers organizations are the best way to solve the commodity problem. In our view consumers and producers should jointly discuss their problems and possible remedial actions We are prepared to do so. Specifically we are ready to discuss new arrangements for individual commodities on a case-by-case basis. We have already made proposals for a new International Coffee Agreement. We are ready to discuss other commodities as circumstances warrant.

Third, I have recently suggested that the World Bank increase its financing of resource investments and explore new ways of combining its financing with private management, skills, technology and capital.

Finally, for most less developed countries, the key issue is the need for reliable, long-term stability and growth in export earnings. Proposals have been made to review how to ensure stabilization of earnings, notably that of the IMF, to protect the developing countries against excessive fluctuations in their export income. We are prepared to join others in this effort.

Others here will have their own views on how to proceed and on new ways of addressing the concerns of the developing nations. Cooperative action among the industrialized nations will multiply the effectiveness of our individual efforts and will ensure that we have a clear understanding of common needs. The United States, therefore, strongly supports the OECD recommendation of a high level group to study proposals on commodities.

## Trade and Finance

The traditional areas of international economic cooperation, trade and finance, remain central elements of the economic structure. We cannot adequately provide for new areas of cooperation unless we first assure that the trading and monetary system is functioning effectively. While the present system has come through the last few years quite well, two problems stand out:

- First, developing countries with large and growing industrial sectors, particularly in East Asia and Latin America, require expanding markets for their manufactured goods. The Tokyo Declaration's pledge to provide improved access to industrial world markets for developing countries must be implemented urgently for these countries. And they should be given an opportunity to participate in the negotiations.

- Second, the poorest countries are badly in need of additional financial help. They now bear a double burden -- of higher prices for imported energy, food, fertilizer and industrial goods, and of reduced export earnings due to worldwide recession. We therefore support the creation by 1976 of a special Trust Fund of up to $2 billion under the IMF. We