FROM THE OFFICE OF PUBLIC AFFAIRS

These are remarkable times to be American. In the last 300 years there has not been a protracted period when the world's largest economy has been as great a multiple of the world's second largest economy. And there has not been a time in the last several hundred years when a country has been so powerful as an example around the world, from the English language, to Coca-Cola, to the Internet, as the United States is today.

Domestically there has not been a time in our recent memory when so many of the things that should be up were so far up: employment, real wages, national savings and investment, and when so many of the things that should be down were so far down: inflation, crime, the welfare rolls.... All this, and the burden of the deficit has at last been lifted.

Commentators have rightly taken note of America's renaissance and considered its lessons. But if the very different view we take today of Asia teaches us something about the relative strengths of our different systems, it also, surely teaches us something about the reliability of the past as a guide to the future. It may be only a little exaggeration to say that in 1998 America has nothing to fear -- except lack of fear itself.

We have come a long way -- if you'll pardon the phrase -- on that bridge to the 21st century. But we have not yet reached the other side and we have not yet built it to last.

If we do not invest and prepare for the future, the miracle of the past decade could falter; if we do not make sure every American takes part in it, it could prove hollow and short-lived. And if we do not carve our place in an open and truly global economy -- our new economy will not realize its full potential. Let me say a little about each of these critical challenges.

I. Preparing for the Future

A central fact confronting everyone who would think seriously about the future of our economy is the aging of our society. When the first Social Security Act was passed in 1940, the average American aged 65 could expect to live another 12.5 years. Today, the comparable figure is 17.5 years. And as the President has said, a good many children born this year will live to see the 22nd century.

This carries major implications for the structure of our economy -- and thus for future economic policy. In 1960 the ratio of working age Americans to retirees was 5.1 to 1. Today it is 3.3 to 1. In a little more than 30 years' time it will be just 2 to 1, and falling.

How we prepare for this change will be important. Individuals must pay greater attention to laying the foundation for a financially secure retirement. And for the economy as a whole, it must mean expending much greater effort on improving the productivity of our workforce.

But even more important than how we prepare for aging will be when we prepare for it. We can do it when the sun is shining. Or when the storm clouds are already overhead. It is obvious which is better. As the Bible said, there is a time to reap and a time to sow -- and now is a time to sow.

As the CED's policy statement on Social Security laid out very clearly -- a major part of the answer will be to increase saving. The good news is that thanks to our victory over the deficit, national saving has more than doubled: from 3.4 percent in 1992 to 7.3 percent last year.

At the start of the first Clinton Administration the deficit for 1998 was projected to be $357 billion. Today we expect a surplus. As a result of the deficit reductions we have seen in this decade, more than one trillion dollars in capital that would otherwise have been invested in the sterile asset of government paper has instead been invested in America's future: in our productive businesses, in our workers, in our cities and in our homes.

And yet, we all need to save more. And if history and the efforts of other countries provide any guide, we can save more. For example, in the 1950s and 1960s our national saving rate averaged 11 percent. Today, of the 26 largest industrialized countries, the United States presently ranks 19th in terms of national saving rates.

In an era of surplus we have the means and opportunity to address the challenges to come. Invested wisely, the surpluses could provide a significant down payment on the higher savings the nation needs to equip tomorrow's workers. For example, the projected surpluses could add up to half a percentage point per year to the national saving rate over the next few years, when the surpluses will still not have reached their projected peak.

But the surpluses could do more than simply raise national savings. They could also be used to help ensure that Social Security is in a position to meet its obligations to tomorrow's retirees.

If the surpluses are dissipated, they will not achieve either critical objective -- and the country will be that much less prepared for the future and that much less able to continue the tremendous growth record of the past decade.

That is what why the President has proposed that we put Social Security first in deciding how our surpluses will be used. We must do it because it is the right way to ensure that the surpluses are not wasted, but used to prepare for the challenges of tomorrow. And we must do it because it is the right way to strengthen and prepare Social Security to meet its future obligations -- to ensure that it is there for us, and it is there for our children.

It is too early for predictions or conditions. But the debate we have ahead of us will not be taking place in a vacuum. These past years there has been an enormous amount of careful study of this issue, by the CED, by other thoughtful people on both sides of the Congressional aisle and every part of the academy and broader policy community.

These studies and proposals lead to many issues that will be debated, including:

1. Should we transfer unified budget surpluses to the Social Security Trust Fund?

2. Should we invest some of the Social Security Trust Fund's assets in private-sector equities?

3. And should we, as the CED has suggested, create a system of individual investment accounts, and fund them either by redirecting some of the payroll tax, by using some of the budget surpluses, or through some other funding mechanism?

We shall be debating these and other critical issues as we go forward. Let me just make one thing clear: the debate we will have about the reform of Social Security will not be about whether to protect its historic achievements. It will be about finding how best to protect them.

Like the CED, like most Americans, we believe it is vital to preserve Social Security as a public trust and preserve its role in protecting the economic security of retired Americans. By ensuring that the surplus is reserved until Social Security is safe, we can live up to that commitment. And we can do so in a way that strengthens the economy and promotes our hard-earned fiscal discipline. We can. And we must.

II. Making Growth Inclusive

Goethe once said that the time when the light is brightest is when the shadows are darkest. Future generations will judge us less by the brightness of our times than by our capacity to confront its shadows: the problems we have not yet solved and the dangers we have not yet averted.

A little more than a quarter of a century ago Michael Harrington famously wrote about the "other America": the one quarter of Americans that were still living in poverty; the 30 to 40 million people who were "increasingly slipping out of the very experience and consciousness of the nation". Thanks to Social Security, a very large element of that other America -- poverty among the elderly -- has been dramatically reduced. In 1960 at least one half of our retired population struggled to meet their most basic daily needs. Today, the poverty rate among the elderly is significantly lower than for other age groups: and for 40 percent of them, Social Security is what keeps them above the line.

And yet, in other respects Harrington's description still rings disturbingly true today. Indeed, the relative marginalization of the other America is the worse for the rising opportunities others have enjoyed:

• some 40 percent of Black Americans now earn middle class incomes -- but every day, 700 black children are born into poverty and 1000 Black high school graduates do not go on to college.

• opportunities for graduates have never been more plentiful, but a child born in New York today stands a smaller chance of living to five or learning to read than a child born in Shanghai, and fully two percent of American men in the prime of their life are in prison.

• technology and competition are bringing more and better financial services to millions of Americans, but 10 percent of the population still does not have a bank account and can pay as much as 10 percent fees to pawn shops to get get their paychecks cashed.

Exclusivity is good for building a successful nightclub. It is no way to build a strong economy. Now that American companies must work to preserve their new edge in global markets, now that issues of capacity and full employment has become more important -- unleashing the buried talent and productive capacity of the Other America is not just a moral necessity but an economic one.

If our success is to continue, and if our economy is to be what it has to be -- then we as a country have to do more to ensure that all are included. None of us would say we know all the answers. Certainly, we have learned that just throwing money at these problems doesn't work. And certainly we know that no government program is a substitute for individual responsibility. But equally we have learned that these problems do not and will not simply solve themselves without public action. That is why:

• President Clinton has been the education president, pushing through historic investments in Head Start programs; expanded public school choice; 220,000 new Pell Grant scholarships; tax free education IRAs; an Internet connection for every school connecting every school to the Internet and in sending college students into schools to ensure every 8 year-old can read;

• we have worked to clear a path from welfare to work, cutting the welfare rolls by a third -- by more than two million in 1997 alone -- and investing in the child care, training programs and other forms of support that will be needed to make welfare reform a success;

And it is why, at Treasury, we have worked to democratize the access to capital and bring new investments to our inner cities. As part of this effort we have revitalized our commitment to the Community Reinvestment Act: since 1992, the private sector is estimated to have pledged $70 billion in CRA loans, fully 85% of the loan commitments made since CRA was passed in 1977. And we have created the Community Development Financial Institutions Fund, which has already made $75 million in grants, loans, equity investments and technical assistance, money that will be leveraged 3-4 times in support for our most disadvantaged neighborhoods.

We have achieved a great deal. But we have a great deal more to do. To repeat, there is no single solution to these problems -- and is certainly no simple one. But when the sun is shining on so many Americans we owe it to every American to work to bring as many as possible into the light.

III. Strengthening the Global Financial System

I have dwelt on the domestic challenges we face if we are to prepare for the future and ensure every American benefits from it. But the challenges we face at home are not separable from the challenges we face abroad. The past decade has shown how well suited we are as a nation and as an economy to the challenges that a more global world economy presents. But if the world beyond our borders has been a critical part of our current success -- it will be an even more important part of our future.

Since President Clinton took office, the number of export-related jobs has increased by 1.7 million. On average, these pay 15 percent more than the average wage. One third of the growth in GDP we have enjoyed in this expansion has come through exports.

A large part of the reason for this growth has been the unprecedented growth we have seen in recent years in the developing world: growth that is unprecedented in human history. We have seen countries where more than 2 billion people live are growing at rates where standards of living double in less than a decade, something never seen in the economic history of the United States or any country in Europe.

That profound change, creating for the first time a global economy, doubling standards of living again and again, in countries where a large fraction of the world's population lives is an event that I would suggest ranks in economic history with the Renaissance and the Industrial Revolution.

Continuing this growth in the developing world is tremendously important for our economy and our security. It will involve a great many things. Let me focus here on one very important part of the growth we have already seen. This is the one quarter of one trillion dollars in global capital that has flowed to the developing world in recent years, capital that has been a source of growth in emerging economies as it has been a source of innovation and diversification in the industrialized world.

The recent experience in Asia -- a story that is far from over, of course -- has highlighted the dangers that financial crises can pose to countries and to the international system as a whole. But the response to these events cannot be to withdraw ourselves from the global economy or to somehow turn back the clock on the global financial system. The response must be to work to strengthen the system to increase its capacity to support growth and lessen its capacity to cause instability.

At the G8 meetings in Birmingham this weekend there was overwhelming agreement on the importance of having a global capital market as a major contributor to growth around the world, and on the importance of backing that global capital market with strong support from the IMF, and with strong policy by countries that receive these capital flows to best ensure that they are used wisely and will not become a source of instability and contagion down the road.

The long-term reform agenda has four elements. First, greater transparency. If you look at the growth of the American stock market, no innovation in the last century has been as important as the idea of generally accepted accounting principles. As part of the effort, IMF members are being urged to sign up to its new special data dissemination standards -- and work is under way to expand these to offer a more complete picture of the assets and liabilities of the public and private sector, particularly the off balance sheet liabilities that have never been reported of certain central banks contributing to the Asian financial crisis.

Second, we are calling on the IMF to help countries throughout the world prepare for global capital flows by calling on the IMF both to monitor these flows, particularly short-term flows, and to provide advice to countries on how best to manage orderly capital account liberalization.

Third, we need to work to strengthen national financial systems by encouraging all countries to adopt and implement the Basle core principles of effective banking supervision which were an outgrowth of the last two summits, as well as the development of international codes and guidelines for corporate governance and accounting principles. Perhaps most important, we need to establish a system of multilateral surveillance of national financial systems, much the same way that we have been surveilling macroeconomic policy of countries for a long time.

Finally, we will need to find ways to ensure that the private sector takes full responsibility for its own decisions in order to reduce moral hazard. In particular, that means the encouragement of bankruptcy laws around the world and called for the IMF to make clear that in appropriate circumstances it would lend money to countries even though they were in arrears to private creditors.

These and other reforms will be critical to seizing the opportunities and managing the risks of a 21st century global economy. And make no mistake: American leadership will be critical to ensuring that these changes happen, and happen in a way that promotes our interests.

We should not forget that there has been another time in our nation's history when our companies were enjoying unprecedented success at home and abroad; when our elected leaders vowed to shrink government; and when, for all of economy's success, workers were fearful for their security and blamed their insecurity on immigrants and foreign competition. That time was 1927.

There followed a series of catastrophic economic and foreign policy errors that sent the world shuttling toward what were perhaps the darkest years in human history. History does not repeat itself. Any historical analogy between the world today and the world of the 1920s is surely imperfect. But that experience holds critical lessons about the importance of outward-looking international policies at a time of enormous change in global affairs.

That is why it is so important for us to maintain our support for the IMF, so it is ready to deal not just with today's crisis, but other crises down the road. Quite simply, to fail to support the IMF at this time is a bit like canceling your life insurance when you have already gotten sick: it is just not a risk we can afford to take.

I have spoken today of the many investments America needs to make if today's success is to be used wisely and the sunshine is to continue. Many of these will involve difficult choices and a good few will be expensive. Investing in the IMF is neither. What it is, is common sense.