INTERNATIONAL CHAMBER OF COMMERCE

October 6, 1978

Mr. Peterson, ladies and gentlemen, I would like to compliment Mr. Peterson for that brilliant summary of my accomplishments -- unnecessarily brief. I know how difficult it is for Pete to introduce me and I want to compliment him for his ability to applaud and shrug his shoulders at the same time.

I think it is very generous of you that you began this conference with the President of the United States and that you end it with a representative of the temporary government in exile.

President Carter, as you know, after his great success at Camp David has been reflecting upon the meaning of this achievement and he has been heard to say that never again would he spend thirteen days talking to the Arabs and the Israelis. Next time he's going to part the Red Sea and get it over with, all at once.

It was interesting to compare previous administrations with the current administration. For me it is a little easier because I don't have so much difficulty getting used to an administration where everybody speaks with an accent.

But I am often asked to make a comparison and I'll perhaps put it this way, in this administration the President is in charge of all of the decisions, including who uses the White House swimming pool. When I was in office with President Ford I could use the swimming pool anytime I wanted to.

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The only time President Ford gave me trouble was when I tried to walk on the water.

But I'll conclude these remarks with just one observation. There has been a lot of speculation, most of it started by me, about my political ambitions. And until yesterday, I thought that there were some constitutional inhibitions to reach my ambitions. I would prefer, of course, hereditary offices but they are not available in this country. But somebody has now read to me that constitutional provision which gives my father and me so much pain. I have found that it doesn't say anything about native born; it says that the President has to be natural born. I have already started calling various Supreme Court justices about their opinion on the meaning of that phrase. There is no doubt in my mind what it means.

I know you are all waiting to hear my view on interest rates and balance of payments, and I suffered for years under these remarks of Pete and Bill Simon about my knowledge of economics being a good argument against universal suffrage. Of course, then I heard Bill Simon call the Shah of Iran a nut. So I called him up and protested. He said "You political scientists always get too hysterical. Let me handle it. I know how do deal with these matters." So he put out a statement saying he had been quoted out of context. Ever since then we have had trouble with Iran because they have been wanting to know in what context you can call the Shah a nut.

But I will deprive you of the opportunity to hear about my economic views. You all know by now that I am

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consultant to Chase Bank and I don't want to give away
what they have hired me to tell them.

So I will take the liberty of speaking to you about
the international situation. I have been told to confine
my remarks to thirty minutes. I consider that not only
unfriendly but anti-German.

You know that Anatole France once said he couldn't really
say that he had read Kant. He had read nine volumes but that
the verb was in the tenth.

If I manage in thirty minutes you will have been present
at an historic occasion.

Let me then begin with a few brief remarks about Camp
David and then about some of the longer term problems that
are before us. I believe that Camp David was a great achievement
for the President. It was a great achievement for our
country and for the people of the Middle East. It has not
solved all the problems in the Middle East. And it is an
illusion, in any case, to believe that there is some terminal
point anywhere after which one can say problems have disappeared.
We ought to remember that almost all wars in history have
started between countries that were at peace. It is a peculiarity
of the Middle East that wars have started between countries
that were already at war. So clearly it has not solved all
problems. But equally clearly it has been a major step forward
in the sense that if you had brought all the parties into
one room to try to solve all the problems simultaneously it
would have given a veto to the most intransigent. If one

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had had a conference including all the major powers then those
countries that have most to benefit from turmoil and disruption
would have been able to encourage the most radical of the Arabs
to put forward the most extreme positions. I believe that
after peace has been made between Israel and Egypt that then
on the basis of the framework that has been established for
the West Bank the Arab leaders, or at least some of them, will
understand that this presents the first opportunity in over
a decade for the Arabs on the West Bank to achieve self-government.
They will understand that it substantially settles the issue
of the borders on the West Bank. And that once self-government
exists, the evolution towards federation with Jordan or other
forms of government are perfectly open.

President Sadat deserves everybody's gratitude for having
had the political courage and the spiritual grace to break out
of a generation of hostility. And Prime Minister Begin too has
given us decades of fundamental Israeli positions on settlements,
and on frontiers. I think that there is hope in the Middle East,
and that whatever the difficulties that will follow this agreement,
they are infinitely preferable to the complexities of an
unresolved situation.

Now let me turn, however, to some other considerations.
Whatever the achievement at Camp David it is obviously only
a wastage on the road towards international order. An inter-
national order that has to be constructed under extraordinarily
complicated and novel circumstances. For the first time in
history, nations have a capacity to destroy humanity. For the
first time in history political, economic and military power

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are not necessarily commensurable. There are some nations that are economically extremely powerful and yet politically and militarily extremely weak, and it is that precise weakness that in such areas as the Middle East and the Northern Tier and in Africa tense foreign adventures. They are nations that have political influence without commensurate military power and they are nations with tremendous military power who cannot bring it to bear on many of the issues in dispute. This is totally novel, totally unprecedented. We have in the Soviet Union an ideological opponent dedicated by its philosophy to a fundamental change in our political and economic structure. And yet we have the anamoly that in no communist country has there ever been a legitimate succession of leadership. All of the communist countries have either had to wait for the death of their leader or he has been replaced by some coup-like proceeding. There have been only four general secretaries of the Soviet communist party in the whole history of Soviet communism. There has been a demonstrable fact that the communist economic systems do not work, and the more complicated they become the less they are able to work. All the incentives make for managers to understate their productive capacity because they cannot be sure that they will get the raw materials they need. All the incentives are to hoard whatever raw materials they can lay their hands on. So you have an economic system that produces shortages, and that operates without any criteria by which you can measure success, except in one area, which is the military area.

That is the one field which always gets resources. Partly,

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because the system is so complex and the decision-making
so bureaucratic that the one organization that has communications,
transportation, and discipline is decisive, whatever the issue,
and therefore can claim resources as the price of its support.

I do not believe that the Soviet Union has a fixed plan
of world domination that follows some schedule of events. I do
believe, however, that the constant accumulation of the military
power, for whatever reason, however bureaucratically intended,
and even however defensively motivated in some respects, will in
time lead to a situation in which the temptation to apply it to
concrete circumstances can become overwhelming.

We read now that we are on the verge of concluding an agreement
on the limitation of strategic arms. This is a negotiation in
which I was involved for nearly eight years and the administrations
in which I served concluded one of these negotiations and
negotiated many parts of the existing agreement. It is a negotiation
that is inevitably produced by the destructiveness of modern
weapons. And the obligation every national leader has to avoid
nuclear catastrophe at the same time will be inevitably an intense
debate about the significance of this agreement and about the
adequacy of its provisions. I do not, today, want to enter
into this debate, partly because I have not seen all of the
provisions. I would rather like to discuss another problem
which is the relationship between military force and political
problems as it is foreseeable over the next five to ten
years.

I would like to stress the problems that must be solved,

either in the context of a strategic arms limitation agreement, or in the context of unilateral American efforts. I would like to suggest to you that we have been living off our capital for an extended period of time, maybe since the middle Sixties, and that we will not be able to avoid it except at great risk, dealing with the fundamental issues. The fundamental issue is this: we have all been used to the supposition that the United States strategic nuclear arsenal is the protection, not only of the United States, but of all free peoples.

And it is true that in the Fifties and Sixties, and maybe even in the early Seventies though it was becoming marginal, we had such numerical advantages that even if systems analysts could prove correctly that we would suffer enormous casualties in case of war the conservative planners in Moscow had to assume that we had an extraordinary military superiority.

In the 1980's, if present trends continue, one can debate whether the Soviet Union will be ahead or will not be ahead. There is no question whatsoever that it will become increasingly difficult to assign a military objective to our strategic forces. They have been deliberately designed not to threatening to the Soviet strategic forces. While the Soviet strategic forces have been deliberately designed to be threatening to our strategic forces. It is said to be de-stabilizing and crises are supposed to become more explosive if we have the capacity to threaten the Soviet retaliatory force.

I would like to stress that I believe it is an untenable situation for a President of the United States to be confronted

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with a huge nuclear arsenal and to be told that the only possible
target for it is the civilian population or the industrial
installations of its opponent, knowing that the tremendous
strategic force of the other side is relatively invulnerable.

When that situation comes about, if it is not remedied,
no matter who is President, we will live in a different world
and nobody should ask us then for abstract guarantees or
theoretical reassurances.

We must judge a SALT agreement or a defense program
by our ability to deal with this particular problem. We must
be able to assign some concrete military significance to
our strategic forces if we are not to avoid paralysis in the
Eighties. This can be achieved through an agreement, or it
can be achieved through unilateral actions, or through a combination
of both; but that, and not all the technical issues that will
undoubtedly be debated, is the fundamental problem.

The second fundamental problem is the lack of capacity
of the free countries for regional defense. We have seen in
the last few years, in Angola, in Ethiopia, in South Yemen,
in Afghanistan, how seemingly marginal changes can be accumulated
to bring about a climate of insecurity within which then
suddenly domestic upheavals erupt, partly because the
trend seems to be in the wrong direction.

In the Eighties if is foreseeable that in many countries
of the world, in the Middle East and in Africa, there could
be upheavals, some caused by outside forces, some caused
by indigenous forces, all exploitable by outside forces.

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We should not suffer from the illusion that we can deal
with those by economic aid or by proclamations of human
rights. People will not judge on the basis of abstract
rhetoric. They will judge in part on the basis of their
calculation of risks. If you take a map of the world,
and if you look at the process of development, you can pick
out yourself the countries where upheavals are at least
conceivable and you certainly know the countries where
disturbances have in fact occurred. We used to think that
the process of development was a magic solvent for all
political instability. We imported into our consideration
of the so-called North-South dialogue, the lessons we had
learned from our domestic experience in the United States and
from the Marshall Plan in Europe. But in Europe we were dealing
with political structures elaborated over the centuries.
And at the end of World War II the biggest problem was the
gap between expectation and reality.

In most parts of the world, the process of development
does not produce stability, it produces political instability.
It destroys the political institutions that exist. This
is not an argument against economic development. It is, however,
an argument against believing that there are economic solutions
to the problems of world order.

It is one of the paradoxes of this period that the
economic performance of the market system is without any
question infinitely superior to that of the communist economies.

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There is not one country of comparable nature where a communist
economy has done moderately as well as a marketing country.
Whether it is East or West Germany, Austria and any of its
socialist neighbors, the two Koreas; go around the world and
the answer is always the same. And yet, many of the countries
that claim that they want development are adopting political
institutions and slogans that demonstrably fail in producing
economic development. What can be the reasons?

There are many reasons for it. But one reason is that
whatever else the communist countries do, they supply an
answer to the question of political authority. And while we
like to believe in our dialogue and learn from our experience
that the process of abstract debate settles issues, most people
who make revolutions do so not to establish governments
that make them dispensable but do so to establish governments
that keep them in office. One answer that the socialist systems
have given is to the problem of continuity and to the problem
of authority. We cannot give that answer and we must not
give that answer.

But we also must face the fact that in most of the
countries that now are piling up tremendous surpluses and
are engaged in rapid processes of development, the process
of development will involve a process of political strain.
In most of Africa, the problem of who is in control of authority
is more consuming than the problem of technical economics.

This is one of the big issues of our period, which we
have not yet found answer which can determine not only the

issue of peace and war, but also the future of our prosperity.
You need only imagine radical governments in some of the
leading oil-producing countries to see that this would not
be simply a political but also economic event of profound
magnitude.

We will therefore face, as I said at the beginning,
a problem of world order. We are facing it under conditions
of peculiar difficulty. When we conclude the agreement on
strategic arms limitation we will have to address this fundamental
question in relation to the Soviet Union. Is the process of
relaxation of tension a genuine recognition that the two
nuclear super-powers must not hazard the survival of humanity
on the temptations that the processes of development put in
their way? Or, is the process of relaxation of tensions a
device by which we are asked to relax our vigilance and a
cover behind which opportunities in other parts of the world
are exploited?

It cannot be accepted by the United States that Cuban
troops and Soviet arms determine the future of Africa. Whatever
an administration in office may think, however they may proclaim
that events are not linked, reality will impose the necessity
of either restraint or some sort of confrontation somewhere
along the line. One does the Soviet Union no service by
pretending that linkage does not exist. Linkage is not a
policy invented by an administration. Linkage is a reality
imposed by necessity. It cannot be that one country overthrows

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regimes, sends expeditionary forces around the world, fuels every conflict with arms, proclaims a principle of majority rule in which those who cannot win elections seek to impose their rule by force. It cannot be that this becomes the pattern of international relations.

The United States has to stand, as it always has, for the peaceful solution of disputes, for an evolutionary change in trouble spots, such as Africa, for the possibility of various races to live side-by-side at the same time that we stand for our traditional principles of rule by the ballot box.

These are some of the issues with which we have to deal internationally. We have to deal with them under conditions of major changes in all of our societies. We have all believed that investment and employment are in some causal relation with each other. We live in a world in which investment can cause unemployment. We have believed that the more trade there is the more everybody benefits, almost automatically.

We live in a world in which we find that the more trade there is the more everybody may benefit on the average, but the more profound the adjustment may have to be in some countries that are no longer competitive and the more the temptations grow to set up various forms of autarchies.

We have lived in a post-war period in which the biggest political problem was how to divide a constantly expanding gross national product. Many countries of the industrial democracies now have the problem of how to divide a relatively steady, slowly growing gross national product so that political

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conflicts take on additional urgency.

We live in conditions where the decision we make today
cannot often affect the future for a decade, and yet our political
environment is such where there are no rewards for long-range
statesmanship and immediate penalties for the pains and difficulties
caused by the adjustment to conditions that one can only barely
foresee. So both within our countries and among our countries
we live in a revolutionary period.

And yet, having said all of this, and having described
the military power of our opponents and the confusion of some
of the regions and the turmoils of the regions with which we
have to deal, we must never forget one fundamental factor.
All of the major countries of the world at this moment are on
one side Europe, Japan, United States, Southeast Asia more or less,
China, are all committed in various ways to prevent the overthrow
of the existing balance of power. It just cannot be. And we
are mesmorized by 200 million people with a gross national product
less than that of Europe alone, and a demonstrably unworkable
economy.

If a man from Mars came here and made an inventory of the
resources available, he would never come to the conclusion
that it is the industrial democracies which should be on the
defensive. Ninety percent of all the resources that go to
the developing countries come from the industrial democracies.
What the Soviets supply is arms and non-commissioned officers.
Most of the technology comes from the industrial democracies.

So while I have described serious problems, we are in the

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unusual position for nations of being able to solve the problems
that we can define. We are living in a world of extraordinary
turbulence which will see very great dislocations over the
years ahead, and grave dangers. But we have an opportunity
that our adversaries can never claim, which is that the solution
of all our problems lies within our power and that the ultimate
challenge that we confront is not to resources but to our
imagination and creativity.

Thank you very much.