FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. I would like to reflect today on some of the challenges for American international economic policy over the next several decades.

My remarks start from a fundamental premise: that a world in which countries are integrating is a world that is more likely to be prosperous; is more likely to be a world in which the US current account deficit declines; is more likely to be at peace; and is more likely to be a world of in which democracy continues to extend its reach. Indeed, I would suggest to you that investing in a prosperous global economy is the most effective - and most cost-effective - means of investing in forward defense of American interests.

As President Clinton has said: "a strong economy in a foreign land is not a threat to our jobs, it's a new market for America 's products; an engine of human dignity and environmental preservation; and a partner for peace and freedom and security." We enjoy the benefits in the peace and the spread of our core values that greater global openness can bring. And we see them more directly, in the millions of high-paying jobs that exports create, and the competition and innovation that our openness to imports can produce. These have helped to sustain an expansion in which, nearly 9 years on, long-term interest rates are still well below their level at the start.

There are many ways that we interact with the rest of the global economy. But there are three ways in which our policies and choices have a particularly large impact on the global system.

• First, the way we manage our own example at home, because actions speak louder than words.
• Second, the approach that we take to the world trading system.
• And third, the approach that we take to the international financial institutions.

I would like briefly to discuss each of these today. But first let me say a few words about the broader context.

It is, in many ways, a critical moment in our nation's history. America is the world's largest economy and strongest nation with no single, dominant competitor. At the same time, Americans are growing wary of global entanglements. Market ideas are in ascendancy; there is high regard for business and the rights of capital; but while successful investors are heroes, those at the bottom of the ladder still feel insecure. Internationally, the breakdown of empires and the absence of large power balances have made the world ripe for ethnic and nationalist conflicts.

I suppose I could be describing the latter part of the 1990s. I am actually describing the late 1920s. That was a time of high optimism, a time when continued peace and stability was widely foreseen; yet over the next 15 years the world system would spiral out of control, first economically and then politically. The period of depression and World War that followed are perhaps the darkest two decades of this century and, arguably, among the darkest of this millennium.

History does not repeat itself. Any historical analogy between the world of today and the world of the 1920s is surely imperfect. But it does remind us that there have been other times in our history when the United States' reluctance to engage fully with other nations and to help manage changes in the balance of global economic power has had major consequences.

A generation of post-war leaders was determined that we would not make that mistake again. They helped to shape a global vision of an America committed to create an ever-widening circle of ever more prosperous, ever more international economies. This is a vision that has been at the center of US foreign and economic policy - during Republican and Democrat Administrations alike - for the bulk of our postwar history. And it is a vision that has served our country extraordinarily well.

In many ways, the United States in the final decade of the 20^th century is more successful than it has ever been. And yet, at another critical time in our history, the basic choice for this country - to be a force for the right kind of global integration - is under threat in a way that it has not been in 50 years.

• That threat does not spring from a single party or agenda - although partisanship and the particular interest have played their role.
• That threat does not clothe itself in the language of protection or nationalistic retreat - although these surely have their proponents.
• And it does not come in a single battle that will be won or lost - although some of the decisions that we make in the coming days will be very important to the long-term result.

The risk we face at this special time is more diffuse than any of these - but no less dangerous. It is the risk of what one might call the malign neglect of our global standing: the risk that little by little, in countless different ways for countless different reasons, we will wear away at our capacity to lead the world in a direction that will support our deepest long-term national interests and values - and in a manner that can inspire ever-increasing global support.

Just as the rest of the world's economic strength is our economic strength - so keeping our own economy strong and our markets open makes a significant contribution to global growth. Indeed, the United States has in many ways been the main engine of global growth in recent years. One of the things that we all recognized at the recent meeting of G7 finance ministers in Tokyo was the need to move to a more balanced, and thus more durable, pattern of global growth.

Americans can take satisfaction from the progress that the United States economy has made during the past ten years. It is a tribute to the benefits of economic openness, of competitive markets and also of old-style fiscal virtue. And it surely points up the importance of continuing sound policies going forward, by keeping our markets open, by paying down our public debt, and by avoiding excessive tax cuts that could put future surpluses in doubt.

At the same time, many people over-learned the lessons of Russia in the 1950s, or Japan in the 1980s, in thinking they had found, in a decade's success in a single country, the path to economic wisdom. And none of us should doubt that there are important aspects of our global example of democracy that we must work to strengthen. One of these, which I will discuss in a few moments, is our willingness to pay attention to the prosperity of the rest of the world. The other is our capacity to ensure that every American feels that a new global economy works for them.

In part this is an issue of inequality. After a long period when it was not the case, a rising tide has lifted almost all boats in recent years. Our economic success has created a high-pressure economy where jobs look for people more than people look for jobs - with the result that real incomes are at last rising in every part of the income scale.

And yet, in America today:

• More than 1 in 5 children under the age of six live in poverty. And a child born of a single teenage mother who did not finish high school has an 80 percent chance of living in poverty at the age of ten.
• An African-American child born today is twice as likely to die before his first birthday than a child born in Yugoslavia or Kuwait; and male life expectancy here in DC is several years below that in Mongolia or Belarus.

The feeling of exclusion is also an issue of insecurity. When Robert Kennedy ran for President in 1968, he spoke about it being a new more dynamic economy because the average American entering the workforce could expect to have 4 jobs over the course of their lifetime. Bill Clinton used a similar formulation in 1992, except the number of jobs had risen to 7. And the pace of change can only be increasing.

Increased support for the working poor will be part of the answer. Federal spending on this group was ten times greater last year than it was in 1985 - in large part due to successive increases in the Earned Income Tax Credit. This year the President is asking Congress to expand it further. Equally, improving the quality of our education system and working to meet more effectively the basic needs of our children are and must continue to be high priorities.

In these and other ways, we must seek to address the problem of economic exclusion because it is a moral imperative. It must also be an economic imperative at a time when our social cohesion will be important to our capacity to move forward. In that sense the greatest threat to American security may be domestic insecurity.

Nationally and internationally, we must recognize and respond to the difficulties that can attend globalization and the substantial and disproportionate fears that it can generate. What we must not do is lose sight of what logic and hard experience has taught and a large majority in both parties has long believed: that increased global integration benefits the vast majority of the citizens in all our countries.

Today the United States has 4.5 percent of the world's population, and 22 percent of its income. In a very real sense, our capacity to realize our national potential in this new century will depend to no small degree on our capacity to realize the potential of an open global trading system.

Up until recently there was a strong bipartisan consensus in support of this objective - even as they debated how best it might be achieved. In the wake of the debates we have had about NAFTA or Fast Track - and around the recent World Trade Organization meetings in Seattle - the question arises whether that broad-based support for open markets will be sustained. The answer to that question will not come in a single battle that will be won or lost. But a number of upcoming decisions will provide important tests of our capacity to stay on the right track.

One very important test will be whether we vote to grant China Normal Trade Relations (PNTR) in the months ahead, essentially supporting its entry into the WTO. Of course, it is important to ensure in our relations with China that our commercial interests are protected. That was the basis for the bilateral accession agreement we reached with China last November, which provides for very substantial opening of Chinese markets in return for now new market access concessions of our own. The agreement also strengthens our capacity to assure fair trade, through the WTO, while protecting our strong defenses against import surges and dumping from China for some considerable period. But to seek to contain China economically - to keep it poor and to isolate it from our markets - is to see our long-term interests precisely backwards.

As President Clinton has said, if we have learned anything in the last few years from events in Russia it is that the weaknesses of great nations can pose as great a challenge to the United States as their strengths. The WTO provides a framework in which China will economically liberalize. It strengthens the liberal elements in Chinese society. It supports freedom and ultimate political evolution. It incorporates China into the community of nations but does so on the basis of their acceptance of the rules of the road.

A second very important test will be our capacity finally to pass the African Growth and Opportunity Act and the enhanced Caribbean Basin Initiative. Whatever our broader trade policy might dictate, it cannot be right that the richest country in the world is unable to provide preferential access to its markets to countries in Africa where 600 million people live, nearly half on incomes of less than one dollar a day. What is true in Africa is also true much closer to home, in the Caribbean. The right trade preferences for the Caribbean will help make their economies much stronger and our economy safer.

At the global level, our agenda going forward must be to promote free trade and serious global efforts with respect to common problems, even as we support every nation's right to chart its own course. The challenge we will have to manage - with respect to trade, labor, the environment and other issues - will be striking the right balance between all these objectives. The difficulties of doing this were pointed up in the recent WTO meetings in Seattle. But the events of the past several years have equally shown us that there can be no alternative if the benefits of global integration are finally to be captured. If globalization does not work for everyone it will ultimately not work at all.

We always - and rightly - tend to respond to and focus on the problems with names, such as Kosovo or East Timor. What we may focus on too little are the things that can help prevent such problems occurring in the future. That is why our support for international financial institutions, our support for open markets, and our support for strong policy are so important.

With our management of the end of the Cold War, the United States defense budget is $107 billion lower in real terms today than it was in 1989. Reasonable people can debate how much of this ought to be invested in forward defense of our core interests through support for the IFIs and other foreign operations. But it would be hard to make the case that the right answer is to spend a good deal less on these things than we did before.

The Foreign Operations bill that was passed in last year's budget agreement appropriated $15.2 billion in FY 2000 for such investments. That is 20 percent less, in real terms, than was spent on average under Presidents Reagan and Bush. In the coming weeks the President will be proposing an energetic budget with respect to these international priorities, because they represent high return investments in America's core interests and its global leadership - investments that for more than 50 years have enjoyed strong bipartisan support.

Every dollar we contribute to the multilateral development banks leverages more than $45 in official lending, to countries where more than three-quarters of the world's people live. Quite simply, these programs are the most effective tools we have for investing in the markets of tomorrow. They promote changes that reflect core American values: such as freer markets, greater transparency and public participation strengthened property rights and open borders. And they are at the cutting edge of global efforts to combat new threats such as AIDS, which is devastating Africa and now threatens to undermine decades of economic development in Asia.

Let me highlight one area where our support will be especially important this year: implementing the strengthened HIPC initiative.

Writing off debts owed by countries that will never be able to repay them is sound financial accounting. It is also a moral imperative at a time when a new generation of African leaders is trying to throw off the legacies of the Cold War and open up their economies. That is what the Highly Indebted Poor Countries initiative is about. It will not write off the debts of countries that are not working to reform. It will help support growth and openness in countries that are committed to helping themselves.

With the bipartisan support for HIPC that was reflected in last year's budget agreement, the strengthened HIPC initiative agreed at last year's G7 Summit in Cologne is now moving ahead. Bolivia, Uganda and Mauritania should benefit in a matter of days, with up to 11 countries likely to receive relief before the Spring meetings of the World Bank and IMF in Washington. What will be critical will be effectively implementing the new framework for official support in these and other countries, so that the poorest will also see rapid results - and working here in the United States to ensure that our commitment to this effort can be fully funded.

It is a striking irony of this time that the economy that has gained most from rising global integration and cooperation seems to need ever-greater assurance that these things are in its interest - and will invest an ever-decreasing amount in their support. And that irony, we can be sure, is not lost on other nations. In all of these ways, any wavering in the United States' faith in the benefits of global engagement could reduce the world's faith in us, and so undermine our capacity to lead.

I have tried to reflect on why, when the security benefits are so compelling and the economic benefits so clear, it can be difficult to make the case for open trade and broader economic integration in America today. Several reasons stand out:

The first is the natural human tendency to internalize the good news and externalize the bad. How many people working hard at a badly managed firm, with out-dated technology, pin the blame for their layoff on foreign competition? How many people, when offered a raise or promotion in a labor-short industry following a surge of export demand, assign the credit to open international markets, rather than considering it to be a deserved reward to their own skill?

It is the nature of the trading process that when there are costs, those costs are apparent and attributed to trade, even when the main cause is something else - and when there are benefits, the link with trade is seldom if ever made. That makes the case for integration that much more difficult to make.

The second reason why we have a hard time making a compelling case for global integration is that the compelling geopolitical rationale that the Cold War provided is no more. Historians have written at length about the oscillations of the United States between isolationism and global engagement. It greatly simplifies, but perhaps does not distort, that work to say that our global engagement has typically been in response to a dire threat.

In democracies, fear does the work of reason. And today's threats - of rising impoverishment overseas - do not have the same emergency character that previous threats have had. Yet we saw in the 1920s what could happen when we shunned cooperation and turned inward, at a time of great national strength. That is the danger we must work to avoid today, just as a generation of visionary leaders did after 1945.

The third reason is that trade - and integration more generally - tend to become the lens through which all kinds of concerns about a changing world are projected. Whether the root concern is new technology, or deregulation - all of the economic insecurities that this new economy can produce tend to come together when the subject is trade. That is why it is so essential that we work to equip workers with the education and skills to manage the transition process and to seize the opportunities that come with it.

If we compare our time to that postwar period of remarkable American internationalism, the absence of a single, major threat is one major difference. A different kind of political process is another. I doubt anyone ever focus-grouped the Marshall Plan - and I am not sure how well it would have done if they had. But that postwar period was also a time when opportunity and protection was being given to the American middle class. To a degree that historians have perhaps under-emphasized, the GI Bill of Rights was an integral part of the strategy behind the Marshall Plan - just as our interstate highway system was partly the result of an effort to marshal our Cold War defenses.

For all of these reasons, the case for vigorous United States engagement with the world and support for open markets is surely more difficult to make today than it was fifty years ago. But the risks for our future capacity to lead the world - and to bequeath a safe and prosperous global economy to our children and their children - are every bit as great as they were then. Thank you.