Skandinaviska Enskilda Banken

The Socio-Economic Council

1982-12-23

Draft version

CHALLENGES FOR THE 1980's

Un-edited transcript of an address by
Dr Henry A. Kissinger
to the SEB Socio-Economic Council
convening at the Head Office of the bank
December 2, 1982

Contents:

<table><tr><td>Dr Kissinger's address</td><td>pages 1 - 19</td></tr><tr><td>Questions and answers</td><td>19 - 29</td></tr></table>

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**Mr Thunholm:** Ladies and gentlemen! I hope you have enjoyed your dinner and now you will have the opportunity of enjoying something even better. We have here with us tonight Dr Henry Kissinger who is going to talk to us about the international situation. I think it would be quite superfluous for me to try to introduce Dr Kissinger to you, so well known as he is. I will only say how pleased we all are to have you here and we look forward very much to what you are going to say to us. Dr Kissinger has promised that after the speech he will answer questions you may have to direct to him. May I give you the floor, Dr Kissinger!

**Dr Kissinger:** Mr Chairman, ladies and gentlemen! It is true that often when I am introduced it is said that there are few people who need an introduction less, but it is also true that there are even fewer people who enjoy an introduction more, particularly if it uses many flowery adjectives.
-I will speak to you for a bit about various aspects of the current international situation, as I see it and then I will take your questions either about what I have said or about any other aspect of international affairs that concerns you. Since my native language was German my sentences tend to be a little prolonged and the location of verbs is not always easy to find, so I will tell you when my speech is finished. Our Chairman has said that he knows the troublemakers in this group and he wants to have the right to recognize those of you who ask questions.

Let me begin by talking about **East-West relations**. The very efficient staff of the bank, I understand, has done me the great disservice of distributing an article that I have written in the Newsweek Magazine lately, cutting about 20 minutes out of my prepared remarks and forcing me to improvise even more than I normally would have to. But I

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will summarize some of the main points of the article, briefly for the one or two of you who didn't read your mail or threw away printed material, which is what I usually do.

When Brezhnev died a rather interesting phenomenon took place. Nobody in the world knew much about Andropov. I have never met anyone who had met him, I don't remember ever seeing any reports about him and yet, suddenly one could read all over the world that he was a new hope for peace. He was supposed to like jazz music. There was a very profound article in the New York Times by a writer called Harrison Salisbury who had been a correspondent in Moscow. He pointed out that Andropov lived in a stone house rather than the wood houses of the other Sovjet leaders. It launched a new historical theory that leaders that live in stone houses do not start wars. The interesting aspect was: if one looked back at previous leadership changes or any previous assessment of Sovjet leaders there is an almost unfailing pattern. The incumbent Sovjet leader is always described as peaceful. The argument in Western intellectual, political and economic circles is that this peaceful leader must be strengthened against the hostile forces. It may be upraiding against him. This - it may surprise you to know - was true even of Stalin. At the Jalta conference Harry Hopkins wrote in his diary that "we have every confidence in the peacefulness, serenity and understanding of Stalin, but we cannot know what forces are lurking in the dark recesses of the Kremlin and we must protect Stalin against those forces." No sooner was Stalin dead than the same thing was said about Khrushchev and no sooner was Khrushchev disposed than every Western leader who dealt with the Soviet Union became convinced that Brezhnev was the most peaceful of the Soviet leaders. Everybody came back from the Soviet Union with that message and yet, a strange thing happened. When the most peaceful of Soviet leaders dies, that is a great hope for peace! And a new Soviet leader emerges.

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Now I must tell you, I do not know anything about Andropov's views. But I would like to make a number of points first.

Quiet boys do not get to the top of Soviet leadership. It is a rough competition and it is at least plausible that they are unlikely to treat foreigners any more kindly than they treat each other. Secondly, the personal convictions of the General Secretary of the Communist Party are of some importance, but not of a decisive importance in a brief period of time. The General Secretary of the Soviet Communist Party is the manager of huge bureaucracies that are run, not like a modern bureaucratic state but more like feudal fiefdoms on a sense of personal relationships. Whatever his personal convictions, his marching of manouevre at any one period is severely limited. Dramatic changes in the Soviet policy are therefore structurally very difficult to carry out, even assuming there were an intention of carrying it out. Even though a man achieves high office in the Soviet Union - the highest office such as General Secretary - does not mean that he is then in full control. He still has to move with great care to place his people into key offices. It took Stalin nearly a decade. It took Khrushchev at least five years. When I met Brezhnev, eight years after he had come into office, he still pretended it was a collective leadership with Kosygin and Podgorny and while now they do not pretend there is a collective leadership, I still think that a period of consolidation is ahead.

The most important aspect to me of the Andropov appointment is his background. It is the first time in the history of the Soviet Union that a man became General Secretary of the Communist Party, the major part of whose professional experience was outside the Communist Party organization. He is the first leader of the Soviet Union who for nearly twenty years has not run a party structure or a region or an organization. His major experience and his claim to power is as the head of the KGB and in this sense it shows one of the

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paradoxes of the communist system: Throughout communist history those who controlled legitimacy, the priests - if you will - of the communist system, functionally, dominated because they had the ideology on their side. But increasingly - in recent decades the only counterweight to them or the only group they had to take seriously other than the Party were those who had their own independent command structure and their own independent communication system, which meant the military forces and the paramilitary forces. What we have seen now is a combination of the KGB and the armed forces. And it must be an unsettling experience to the Party structure to see what this means. In fact, one could argue that this is the beginning of Soviet Bonapartism and we have already seen similar tendencies in Poland and for that matter some such tendencies in China, where twelve of the twentyfive members of the Politbureau are members of an armed force that has a much lower priority of expenditures than in the Soviet system.

The really interesting question to ask is not: what are the personal convictions of Andropov, but what is the major of Soviet Bonapartism? How do the military people in the Soviet Union, or the security people, would they see the world? I frankly have never seen an analysis of that question. Maybe you are doing it in the Swedish Defence Ministry. I have not seen it ever addressed in that form, in any of our reports or in any of our academic writing.

Let me take a stab at it, based really on intuition and not on knowledge. I would guess that especially the KGB-people are better informed about the outside world than the party people. They would look at it less with ideological blinders than the party people would and they would make fewer doctrinaire interpretations. That is another way of saying that they might estimate our strength more correctly but unfortunately, it is also another way of saying that they will estimate our weaknesses more accurately. I always had the sense in my dealings with Brezhnev that at the end

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of the day, no matter what analysis was presented to him,
he suffered from a congenital inferiority feeling vis-à-vis
the United States and probably especially West Germany.

And I also had the sense that no matter how many bright
young men came in and said to him: now, look here, our ana-
lyses show we have this technical opportunity. In his heart
of hearts, he would not believe it. And I always acted with
a great confidence which also turned out to be always
right: that if one could confront him with a real danger of
a showdown with us, he would go back. Now we could not al-
ways do it because of our domestic and allied situation.
But that is a different problem. But _if_ we could convince
him that we were serious, he stopped far short of a confron-
tation with the United States.

Secondly, he had a certain ideological bias. He had in my
view an obsession with the Chinese when he was still func-
tioning well. I believe that for him detente was primarily
a device, to get freedom of manoeuvre against the Chinese.
And our problem was to do something very un-American. I
always believed that our strategy should be to position
ourselves in such a way that we were closer to both Moscow
and Peking than they were to each other. I say this is very
un-American because for us, for the dominant American view
is that countries are either friends or enemies and you
have got to be with one or the other. You cannot manoeuvre
in such a way that you shift your weight depending on your
assessment of the danger and not of your preference as to
the country.

Now, one reason why it is argueable that Brezhnev was no
longer fully in control in his last year was the move
towards the Chinese. It was uncharacteristic of anything
that I have ever seen him do, or anyone else had ever seen
him do.

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And secondly, the rather bellicose tone he talked to us in his last two speeches. This is incidentally one reason why I do not believe that we are going to see such a dramatic change in Soviet policy, because, after all, everybody who met Brezhnev in his last two years agrees on the proposition that he could not conduct a free conversation. Everybody agrees that he had to read everything he said to anybody from a prepared text. It is therefore highly unlikely that he came into his office one morning and said: I want to attack the United States; make a speech for me! It is much more probable that somebody wrote the speech and that somebody _must_ have been under the strong influence of Andropov. Or Andropov could never have achieved that power position. But I don't want to engage much in that speculation. I want to say - if this is true - then a number of things could be happening simulataneously. One is: it is conceivable that the Soviets might be less eager to run risks in far-flung enterprises that do not pay very much, like Angola or Central America. And it is even possible that to gain time for consolidation they might look for something equivalent to the Austrian peace treaty in 1954 with which they gained breathing space after Stalin's death. Maybe even Afghanistan - if it is possible in Afghanistan, which I do not know - to construct a government in which the communist won't all get slaughtered in the streets.

At the same time, if they have understood the external environment correctly, they may well try to take advantage of a number of trends. One, the fact that it is possible that the Chinese have concluded that the United States and the Western nations, while run by charming, lovely human beings, are basically incompetent in maintaining the global balance of power. And if the Chinese have come to this conclusion, which I would say is not impossible, they could very easily say: let's get a ten-year breathing space for ourselves to see what happens in the Soviet Union and to see what happens to succeeding American and West European

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leaders. And since a ten-year breathing space is exactly
what the Soviets also want for their reasons, you could in
fact get a temporary accommodation - not on the lines - but
an accommodation between the Chinese and the Soviets.

Projecting this further, an intelligent Soviet leader,
making a correct assessment of the strength and weaknesses
of the outside world might try to conduct a peace offensive
against Western Europe or vis-à-vis Western Europe, partly
designed to split the United States from Western Europe and
while doing all of this, conduct an extremely tough policy
in Eastern Europe and in other peripherial areas, including
the Middle East. Our problem may be how to handle simul-
taneously a Soviet policy that in certain areas will be
more assertive and in other areas will be more accommo-
dating. Therefore, a lot depends on the kind of leadership
we can muster.

As I wrote in my article, I believe that there are a number
of fundamental tendencies that make it difficult for the
Soviets to make a real settlement. I mentioned ideology and
I mentioned the structure of facts - that I referred to
before - of the importance of the military and the para-
military forces in Soviet decision-making. As a result of
which they get more and more resources to get paid off for
their support. And these resources create the military po-
tential for a threatening policy whatever the long-range
plan is. On the other hand, the Soviets have every reason
also at least to get a breathing space. One is that the
Soviet political system can not indefinitely continue the
way it is. You can not run a modern organization with a
board of directors in their middle seventies with no means
of rejuvenation. There is no system of succession anywhere
in the Soviet structure that is constitutional. All changes
have coup-like aspects.

Secondly, you can not run a modern economy by central plan-
ning. On the other hand, you may not be able to run a Com-

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munist state without central planning. This is the fundamental dilemma of the communist societies and it expresses itself in the paradox of what do you do with the Communist Party in a communist state?

It is needed to seize power but what do you do with them once you have seized power? So for or all of these reasons which as I have elaborated in the document which I know you have all been avidly reading - and re-reading - and therefore need not stress again, for all of these reasons I think they are on balance. We have an opportunity for a major negotiation, provided we are prepared to conduct a serious foreign policy.

I define a serious foreign policy as something that makes some assumptions about at least a middle-term future and address the security and progress of a society on something other than the personal relationships of individual leaders, a policy that seeks to identify fundamental forces. Because at the end of the day, if one bases oneself entirely on the personal intuition of leaders, that are-themselves the subject of constant short-term pressures, one will create an inherently chaotic situation. Indeed, one demoralizes one's own people, because one loses any criteria for action.

Now, that is another way of saying whether it is possible to reduce our foreign policy deficiency to some coherent more or less predictable assessment of an international environment that one wants to bring about. In this sense, I think we face huge problems. In the United States we face the problem that we really don't have a tradition of foreign policy in the European sense. The European balance of power was based on the proposition that whatever else you did, you had to maintain an equilibrium of force. Because if you permitted the equilibrium to be fundamentally disturbed, your security became totally dependent on the arbitrary will of another sovereign state. America never

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made that experience. And therefore our domestic debate is
primarily torn between psychiatric interpretations of
foreign policy and theological interpretations of foreign
policy. Between those who think that foreign policy is like
good personal relations among people and those who think
that the walls of Jericho have not fallen yet, only because
our trumpet has not yet been blown. And therefore there is
a frantic search for the right trumpet and the correct li-
turgy. That is our problem and therefore it is quite pos-
sible that in meeting these domestic constituencies our
foreign policy can be simultaneously too tough and too
soft. That our rhetoric can be extremely belligerent and
our actions extremely soft which often happens when repub-
licans are in power. Or when democrats are in power, the
opposite happens that the language is very soft and then
when they get into a corner the actions become very belli-
gerent. The republicans get into the corner that they loose
public support because of their rhetoric. The democrats get
into a corner that they produce international crises with
their rhetoric.

Since I rather have domestic than international problems, I
prefer the republicans to the democrats. But - I prefer the
republicans, I said, to the democrats. You say I am wrong?
No, I am a masochist, because the republicans usually beat
up on me. Whatever, I am not here to defend my own personal
preferences. I would like to say that it leads to a complex
policy for us. Now, one would like to be able to say the
Europeans are saving us, because they have a position,
based on their own tradition but, as you all know, this is
absolutely not true. The United States as a superpower is
at least forced to deal with the facts of the world, even
if we do it in an isolating manner. And we can not avoid
the problem of balance of power even though we don't like
it. But in our march towards a rather flawed conception of
the balance of power we have passed the Europeans going in
the other direction. The Europeans are now occupying the
positions of moral superiority we vacated a few decades ago

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and are creating the impression that all that stands between us and the millenium is good will and a few more or less gimmicky formula.

I would think that in the present world one ought to recognize a number of facts. It is true that the nuclear age is very dangerous, but it is also true that Europe has had peace for 37 years, which happens to be the longest period of peace in European history, or the longest period without war in European history. And that can not be an accident. Certainly, it is also an empirical fact that all wars in the post-war period have occurred where there were no American troupes and no nuclear weapons. And no wars have occurred where there were American troupes and where there are nuclear weapons. Is it not an amazing phenomenon therefore that the way to preserve peace is to get rid of the nuclear weapons and to get rid of the Americans and that one should create zones of peace that are distinguished by this phenomenon. Suddenly, it has become axiomatic in the West that something must be done about the so-called nuclear problem.

I am of course convinced - as everybody else is - that a nuclear war would be a catastrophe. Nobody who has ever had any responsibility or even the slightest knowledge of nuclear power can want a nuclear war or even believe that it is probable that responsible people will make a nuclear war. I am simply speaking of the fact that the central problem of peace should not be defined in those terms. It is an amazing phenomenon that propositions become intellectually respectable that are in fact extraordinarily dangerous. For example, the renunciation by the United States of the first use of nuclear weapons. In case of a Soviet attack, I have no problem renouncing the first use of nuclear weapons if there is no Soviet attack in renouncing the fact that we will attack the Soviet Union.

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I know it is said that this may spur the Europeans to rearm, but if we look at the realities of the domestic politics of most countries, I cannot believe that in a period of austerity the countries are going to spend significantly more for defence than they are already spending. I cannot believe that the United States will reintroduce the draft and I do not believe the European countries will extend their term of service and therefore: what are we talking about? In addition, one need not give Europeans a lesson on the deterrent effectiveness of conventional weapons. There has been four hundred years of European wars fought between armies that thought they were evenly matched and each of which thought they could win the war. To illustrate that with conventional weapons, it is simply impossible to predict what the outcome will be, because so much depends on manouevre, on concentration, on surprise and other intangible factors, of leadership and organization. And at the end of the day we still could not promise that we would not use nuclear weapons anyway, no matter what we have said before.

So, I have the uneasy feeling that right now in the West we are heading for a position where we are disarming ourselves unilaterally by the kinds of proposals we keep making to ourselves in our negotiations with ourselves while sitting on the most explosive, on the greatest stockpile of power the world has ever seen. This is one of the biggest obstacles to negotiation. If we are serious I believe that the Soviets will be brought to a point of negotiation.

It is usually said that the Soviet economy is a mess, but the Soviet military equipment is extremely good. I do not believe it. It can not be true that a superpower that produces intercontinental missiles, can produce superior weapons and not have a single industrial product with which it can compete with South Korea, Taiwan, Malaysia, Singapore - not to speak of Sweden, Western Europe or the United States. Why has there never been any fall-out in naviga-

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tion, in electronics, in any of the fields that are related
in computerization, in militarization, in any of the fields
that are related to military technology? It is equally a
fact that the air-defence weapons that exacted a signifi-
cant attrition on us in the 60's in Viet Nam and in the
70's on the Israelis, in their modern version could inflict
literally zero attrition on the Israelis in Lebanon. Cer-
tainly the Israeli flyers are more skilful than the Arab
flyers, but that was true also in 1973, and as far as air
defence is concerned that really has almost nothing to do
with courage. You can not avoid your dilemma in air defence
by running away; you might as well fire, And yet
no Israeli airplane has been lost to Soviet air defence.
This suggests that, if we remain serious in our efforts,
there can be and must be a serious negotiation. Therefore,
I tend to support not the content but the direction of our
military efforts; not the content because I think basically
there is something wrong when one goes in one's deployment
decisions from 300 supersonic B1's to 100 subsonic B1's in
a space of three years and from 250 MXs in a "race track
pattern" to 100 MX's in a "dense pack pattern". That can
not inspire confidence even in Americans, much less in
foreigners. But on the other hand, it is even worse to
freeze our technology at the level of 1965, while the
Soviets keep continuing making new weapons.

So without going into the wisdom of any particular deploy-
ment mode, I believe that we have an opportunity for a se-
rious negotiation, if we do not give away for nothing what
the Soviets should be negotiating about. What it requires
on our side is not simply to arm but also to make very con-
crete proposals on what we understand by a reasonable posi-
tion and then to stick to them over an extended period of
time. If you want my view on the subject, I will be glad to
give them in the question-and-answer period. But I think I
will stay with this fundamental problem.

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Now, let me make a second point which has to do with economic relations with the Soviet Union.

Here in the West we have the same division that I described earlier. There are some people who believe that East-West trade automatically produces a more peaceful relationship. There are others who believe that it can only objectively strengthen the Soviet Union and must therefore be stopped and this leads to the debate on the pipeline decision.

With respect to the first group again, I do not believe that trade by itself guarantees peace. After all, there was free trade in Europe before World War I and a degree of interchange between the European countries much greater than any that is foreseeable with the Soviet Union and it did not stop a devastating war.

With respect to the second proposition of simply cutting off trade with the Soviet Union I think it runs totally counter to the domestic and practical realities in every country, including our own, as we have shown in the grain trade. Therefore, I believe one has to try to analyse East-West trade first in terms of a fundamental question, whether the trade will be used for some political objective or whether it will simply be left to the domestic necessities of each country to maximize its immediate advantage.- That is the first question.

Assuming we decide that we want to get some political benefit from it, how do we go about it? Well, I believe, obviously we can go about it only if most of the OECD countries, or at least the key OECD countries, agree on a common policy. And if they were prepared to do that which is a very big order, it seems to me there are three categories which should be looked at.

The first is trade which is justified by purely commercial principles. That - under present circumstances - would be

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relatively small. The Soviets want from us technology, they pay for it in gold or raw materials. Those are relatively easily replaceable elsewhere. At any rate that amount of trade is not significant enough to make much difference.

The second category is trade that might be justified on commercial principles because they pay hard currency or gold for it. Not that it has the aspect of either giving them an unusual advantage in technology or an unusual commodity for which they have no other source. I think that sort of trade should be put under some kind of political restriction.

The first category is technology, the second one is grain. For example, with respect to technology there exists also called COCOM-list, which is supposed to define what should not be sold to the Soviet union. My experience with the COCOM-list is that it is religiously observed until a country wishes to sell something to the Soviet Union. Then, if the order is sufficiently large, an appeal is made for an exception to the COCOM-list, under the threat that if the exception is not granted the sale will be approved anyway. In order to protect the COCOM-list the exception is therefore invariably granted. So we have an intact list, the existence of which is used to permit exceptions that might not even be so easy to do if each of them had been made on an ad-hoc-basis.

With respect to grain I do not agree with our policy. I do not think we have any right to ask our European allies to make domestic sacrifices with East-West trade when we are not prepared to make domestic sacrifices with respect to East-West trade.

I do not think one can put grain on a COCOM-list. And I also do not believe one can cut off grain sales totally because that really is an act of economic warfare. But what one can do is come to an agreement at least within Europe

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and the United States as to the minimum amount of grain
that is needed for a maybe slightly better than subsistence
level but not enough to permit the Soviet Union to build up
stock piles. We made a study of that once in 1975 and we
concluded that that level was something between 6 and 8
millions tons a year - American grain. Now, whether it is 6
to 8 million or 8 to 10 million or 3 to 5 million, I don't
know. But some such analysis would seem to me to imply that
anything beyond that should be made subject to political
negotiations.

Now, what do I mean by political negotiation? I mean a re-
duction of armament - on both sides - that removes the of-
fensive capability and strictly limits the offensive capa-
bility of both nuclear and conventional forces. And there-
fore removes this constant pressure on surrounding count-
ries and some principles of conduct that may even amount to
something like spheres of influence where the countries do
not callenge the other by supporting terrorists and gue-
rilla movements and so called wars of national liberation,
in agreed areas. Now that can not be beyond the wit of man
to design. And conversely the inability to achieve such an
agreement must mean that we are facing a political and mi-
litary and paramilitary offensive which it can not be in
our interest to fuel.

Of course, a third category of trade is special credits and
concessional prices in which the industrial democracies are
proving retroactively the validity of Lenin's propositions,
that the day would come when the capitalists would compete
with each other for the privilege of selling the rope with
which to hang them. What Lenin did not foresee was that
they would even offer credits for selling the rope. No, we
face in connection with these credits the same ambiguity as
with the COCOM-list, i e to-say countries tell us that
there is no budgetary-covered category in the national bud-
get for these credits. Therefore there are no concessional
credits. I don't need to tell a group of bankers that when

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loans are guaranteed, one can afford lower interest rates
and that/does not have to be a budgetary category by which
you can prove that this is being done.

Now, I believe that if we could get a coherent Western poli-
cy on both defence and trade, the end result could be a
level of trade far beyond anything that is now imagined.
Because at the end of a negotiation, if the Soviets want to
build themselves up, they will have to come to the same
conclusion as the Chinese have come, namely that they can
not do it without Western technology and large scale Wes-
tern assistance. And for us the problem is whether we will
do that with a relatively peaceful Soviet Union or whether
we will do that with one in which a huge amount of their
national product is put into defence efforts. So this is in
broad terms what we have before us in the East-West field.

I want to make one observation about economics, not that I
can do justice to it in terms of time or maybe for many
other reasons. But it seems to me so inextricably connected
with our general capacity to conduct international affairs
that at least I want to put it before you. I do not think
that we can do any of the things that I have described if
we do not restore the growth of our economies. And if we do
not analyse the fundamental structure of causes that have
brought us to this point.

The fact that technology no longer automatically produces
employment but may be quite the opposite, the fact that
free trade in a world of many industrial nations, of many
more industrial nations than we are used to, has a diffe-
rent significance because it may mean that, while everybody
is better off on the average, some sectors of the world are
going to be worse off and that will create enormous poli-
tical pressures to interrupt the free trade. But that would
be the subject of another discussion.

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I want to emphasize here only two problems. One is the following. It is fascinating to see how intellectual fashions change among economists and among businessmen. Twelve years ago my colleagues who were better trained in economics than I am, used to lecture me condescendingly not to worry about deficits, because there was such a thing as a full employment budget. And if you looked at the full employment budget you would see that these deficits did not mean anything and that they would in fact produce a surplus. Now we have the strange situation in America where our steel industries are working at 38 per cent of capacity and our overall industries working at maybe 50-60 per cent of capacity. In other words, we have a huge gap before a full employment budget and there is a frenzy about a budgetary deficit. I think there is a reason to be concerned about our budgetary deficits but not because of the deficits. There is a reason because the social security system over a historical period is going to make us spend more than we are producing. But the yearly deficit problem that is now creating the obsession with cutting defence for example, is almost grotesque. If we cut 25 billion dollars out of our defence budget next year, it will make no difference to the economy of a 180 billion dollar deficit. In fact it may even accelerate the resession aspects.

And this gets me to the point I really wanted to make, the magic solution that everybody is recommending is austerity. Everybody is saying: we have to consume less, we have to import less and we have to export more. That is a marvelous solution for one country in trouble! It is an impossible solution for ten countries - in trouble. And if you add to it the fact that the advanced developing countries are being put into the hands of the International Monetary Fund, an institution run by economists that do not understand necessarily the political process. You get a multiplier effect, because what is the solution of the IMF to any crisis? It is also austerity! And that has two results, one is that 30 per cent of the exports of the OECD count-

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ries go to the developing countries. If they are all told
that they can not import more, the end result will be that
we are legislating a global depression and if on top of
this we remember that austerity is bad enough in our coun-
ries with stable political system, it is impossible in many
developing countries with very fragile political systems.
Then we see that we have a massive potential crisis at our
hands.

This is a subject that deserves being covered at much
greater length than I am doing. I am just putting it before
you because nothing that I have said about East-West rela-
tions can possibly work if we do not develop a coherent
policy of expansion.

In 1977, our administration sent emissaries around to say:
Germany and Japan should be the locomotives of world expan-
sion. Now, the Europeans send emissaries to us and tell us
we should be the locomotives of world expansion, without a
particular policy, simply by cutting back on our deficit
and reducing our interest rates and presumably weakening.
our dollar. But I think partly our dollar is strong, not
because of interest rates but because of political instabi-
lity in the world, which makes America a safe haven, regard-
less of what the interest rates are.

I believe, we have to do at least two things. One is to
have a coherent policy of expansion among the advanced in-
dustrial democracies. Secondly, a policy between them and
at least the advanced among developing countries, that will
get economic activity started again in these advanced de-
veloping countries. The present system, in which the rescue
operation consists of enabling these countries to pay their
interest too to protect the balance sheets of the banks in
developed countries, will sooner or later lead to an explo-
sion.

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If credit worthiness is defined not in terms of their ability to expand their economic activity but simply in terms of their ability to service their debts, sooner or later somebody is going to point out that the emperor has no clothes. That is a fundamental problem which we should deal with now. There are many obstacles to it, including the fact that in most countries leaders now get elected not on their ability to govern but on their ability to get elected. I don't want to get off on a new sociological tension.

The main point I want to make in conclusion is this. The major issues that I have described on our side of the dividing line seem to me amenable to policy decisions. The major issues that I have described on the other side of the dividing line, all require fundamental structural and political reform. If we look at what I have said here or an alternative of it not with despair but as an opportunity, then I think in fact the 80's could mark a very major change in the history of the post-war period. But whether that happens or not is really up to the ability of leaders of the industrial democracies to look at a future that is other than tactical and to define a goal that is other than trust getting through day-to-day crises - and that is the open question at this moment.- I have talked much too long, certainly much longer than I planned to talk. Why don't I stop here and answer your questions? Thank you very much!

Mr Thunholm: We want to thank you very much, Dr Kissinger, for a fascinating review of the international situation today. It was a very broad review with a lot of interesting thoughts and ideas that we have listened to with very great interest. I think no doubt that there are a lot of questions in your minds here, ladies and gentlemen so I invite you to address these questions to Dr Kissinger. Who wants to blow the first trumpet?

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