FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon. Thank-you, Bob for that kind introduction. I wish to applaud Brookings for its ongoing work on the subject of economic integration. It is also appropriate that we honor Eddie Bernstein. As one of the chief architects of the Bretton Woods agreement, Eddie played a major role in creating a framework for development and integration that has transformed the world and lifted entire nations from the throes of poverty.

I. The Importance of American Leadership

It is, in many ways, a critical moment in our nations' history. America is the world's largest economy and strongest nation with no single, dominant competitor. At the same time, Americans are weary after a long period of conflict. Conservative ideas are in ascendancy; there is high regard for business and the rights of capital; yet 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 has made the world ripe for ethnic and nationalist conflicts. A major nation traditionally remote from the US is growing rapidly and asserting itself on the international stage.

I suppose I could be describing 1997. I am actually describing 1927. 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 in of this century and, arguably, the two darkest decades of the last millennium.

History does not repeat itself. And any historical analogy between the world of today and the world of the 1920s is surely imperfect. But I think many historians would accept the idea that different American policies could have done more to avert depression and the Second World War. Think of what it might have meant for humanity if after World War I, the US had not allowed unpayable debts to be placed on Germany, had been prepared to participate in collective security arrangements that could have resisted Mussolini's aggression and if no cycle of tariff increases and devaluation had made the Great Depression great.

Eddie Bernstein and his generation learned these lessons. That is why after World War II, they shaped the global vision of an America committed to create an ever-widening circle of ever more prosperous, ever more international economies as the centerpiece of America's foreign and economic policy.

It is this idea that lies at the center of President Clinton's economic policy. It starts with the recognition that the US is the world's indispensable nation, that it must compete, not retreat and that, "open and competitive commerce promotes global growth without which no rich country can help to grow wealthy".

These ideas shape what we have done over the last four years and what we will continue to do. We pursue these goals not just because it means more exports and more jobs, though it does, but because of what it means for global security.

After World War II, the primary concern was with the economic development of a war-ravaged Europe and Japan. Now our challenge is to integrate the 5 billion people of the developed world into a truly global economy.

A half century ago, there were only a small number of nations able to inflict casualties at a distance. Today there are many. New problems of narcotics, greenhouse gases, the proliferation of weapons of mass destruction have raised our stake in enlarging the circle of cooperation.

But as the examples of economies like Korea, Taiwan and Argentina illustrate, economic improvement brings democratization in its wake. And yet despite the force of these arguments and the convictions of almost everyone of the kind of people that participate in Brookings conferences, American internationalism is under siege.

The critics of the Bretton Woods Washington Consensus form a wide and growing school of what might be called separatists. Indeed, one might also call this group Washingtonians, mindful of that George Washington's admonition against "entangling alliances". I have purposely avoided choosing the term isolationists because of its pejorative connotation.

The Separatists' argument has three principle elements.

First, Separatists suggest that economic integration impoverishes most Americans who must compete with low wage labor for the benefit of a small number of international businesses. In a nutshell, this is the thesis of Bill Greider's recent book and is manifest in much of the opposition to NAFTA and other trade agreements.

It is a serious argument that needs to be taken seriously. But I believe that our integrationist strategy benefits the vast majority of American workers.

Note, first, that American trade barriers are already very small. We give up very little when we enter into trade agreements and others give up much more. NAFTA, for example, brought trade barriers in Mexico down by five times as much as it reduced American trade barriers.

Note also that countries' wage rates reflect their productivity.

If our desire is to eliminate competition from low wage workers abroad, we have a far better prospect of making their wages grow by helping their economies to develop than by maintaining US trade barriers and accepting restrictions on US exports.

Of course, imports replace jobs; but exports create them and the export jobs pay better, are more secure and have better fringe benefits.

More fundamentally, it is important to understand that what constrains the American economy is not a lack of demand but our productive potential. That is why it is so important that we invest in all of our people, save and invest more and marshall technology as effectively as possible.

Now I know that many people worry about the foreign investment that goes with trade, believing that foreign investment exports jobs. By this standard, Americans are fortunate the global capital market is as free as it is because we are substantial importers of investment.

American foreign direct investment has been shown in study after study to increase the quantity of US exports of capital equipment to set up plants, of goods to fill distributive capacity and of American supplies for production and operations.

America will fare better as a platform for global business than it will by walling itself off.

The second argument that Separatists make against the Bretton Woods Washington Consensus policy paradigm is that market-oriented policies abroad will work only for a few, not the many, and that the effort to export the Bretton Woods model ultimately will lead to a clash of cultures and reduce stability. That is why the Clinton Administration has urged with considerable success the IFIs to be more transparent, to focus on growth as well as adjustment and to worry about the quality as well as the quantity of deficit reduction. That is why we have sought to put labor standards and the environment in a prominent place in discussions of international trade. It is why we have put such an emphasis on promoting democracy and popular participation in our economic policy.

Abroad as in America, growth must be inclusive it is to be enduring. But I believe that it is a real mistake to suppose that there are alternatives to market-oriented development that work.

The historical record is compelling. It is not just that countries that adopt the Bretton Woods Washington consensus purchase more of our products which they do: The US saw its exports to that group of countries rise 11.8% per year compared with 3.7% to countries that did not receive loans from the Bank.

It is also that countries that adopt the Bretton Woods Washington Consensus ultimately do better than those that stick with dirigiste, nationalist approaches as case after case has shown.

A third main argument of those who oppose the Bretton Woods Washington consensus that Eddie Bernstein helped develop is that they are something we can no longer afford. I strongly disagree.

George Bush was never more wrong than when he said we have more will than wallet. We are spending $100 billion less than we would be spending if the Cold War had not ended. If we could afford that $100 billion ten years ago when the economy was only 80% as large as that today, we can afford to spend a small fraction of that to maintain US economic leadership.

In fact, the real question is if we can afford not to engage in the defense of our interests by promoting prosperity and integration around the world.

The Marshall Plan would have been a bargain for the US at twice its costs in terms of the future costs we avoided. It represented 2% of GDP, $140 billion at current magnitudes. The current US Foreign Assistance budget is, including all efforts through the IFIs, only about 5% as large.

One variant of this argument now rings particularly hollow, namely that America can no longer bear the burden of leadership since Germany and Japan won the Cold War. the experience of the 1990s has shown that the four decades-old story of convergence has ended. The United States began the 1990s as the richest country in the world and is pulling away.

The debates in this city this year will determine the capacity of the US to continue to exercise leadership as it has in the past.

I doubt the US has security priorities greater than maintaining open markets and restoring credibility in global financial institutions by meeting our obligations.

II. The US Agenda

There are three crucial priorities for the US in the international economic sphere: first, promoting open markets second, fostering global economic growth and stability; and

third, strengthening cooperative efforts to address global concerns.

Let me address each in turn.

Promoting Open Markets

This is not the forum for a detailed articulation of our trade strategy. But it is, I think, clear in today's complex world that our approach to trade must rest on three pillars..

First, we will work to widen and deepen the integration achieved by the WTO to widen it by bringing as many countries as possible, including the major cases of China and Russia as rapidly as possible, consistent with their meeting the necessary conditions. And we will deepen the WTO's effectiveness by expanding its reach as we take up such issues such as financial services. Next week, our negotiators will return to the table to hammer out a final agreement on country liberalization of telecommunications services which currently accounts for $2.8 billion in US exports; and, in April, we will resume talks on financial services where we export $7.5 billion annually. In the multilateral sphere, we will also work with the OECD to continue to reduce tied aid as we have already to reach a multilateral investment agreement.

The second pillar of our trade policy consists of regional agreements. We have already laid the groundwork with our commitments in APEC, after the Summit of the Americas and in the transatlantic dialog. In Latin America and Asia, for example, the debate 5 years ago was about whether economic integration was good; today, it takes economic integration as a given and asks whether the US should be part of it.

The third pillar of our trade policy is to promote unilateral trade measures to insure that markets are opened. The American people will not support an open world trading system if it is only we who are open.

Fostering Global Growth and Stability

The second crucial priority is promoting global growth. When other countries grow more rapidly, they buy more of our products, produce better goods for us to buy and cooperate on global objectives.

We promote growth around the world in a whole range of ways.

The most important but least often discussed means is through our example and knowledge. U.S. technical assistance efforts have made an enormous difference in promoting financial stability and privatization through the formerly Communist world. At Treasury, our most crucial international priority remains the creation of a well funded, truly global capital market. That's what Secretary's Rubin's periodic meetings with Latin American and Asian financial ministers are all about. That's what a post-Mexico agenda of transparency, better surveillance and improved capital markets to respond to emergencies is all about. That's what our ongoing work to strengthen the regulatory apparatus at banks and financial systems in other countries is all about.

But promoting global growth depends on more than capital markets. That's why it is in a sense the ultimate mission of the Bretton Woods institutions. The IMF does its work in stabilization. The World Bank does its work on reducing poverty. For the majority of the world's nations that still cannot attract private capital on a large scale, the financing these institutions can provide is absolutely critical.

To be in a position to encourage them to do the things we think should be done to promote growth, help the environment, attack corruption and reduce military expenditures, we will have to maintain our firm commitment in years ahead.

Things have been easier for us in the US than for those in Japan and continental Europe but we will continue to cooperate with them to promote stabilization and encourage growth.

Addressing Global Concerns

Our third crucial priority is that there must be closer cooperation to address global concerns. We have seen important progress in recent years with the creation of...

The Global Environmental Facility The Global Agreement to Reduce the Debt of the Heavily Indebted Poor Countries The US Japan Common Agenda International agreements to set standards for money laundering; and the list goes on.

But we are only at the beginning. There is much more that can be done. I expect the next few years will bring important challenges where it will be essential that we employ the substantial resources of the development banks as creatively and effectively as we can. As private markets take on more functions that development banks once performed, these energies can be channelled to meeting social concerns.

That has been our successful strategy as we have replenished these institutions and will continue to be our strategy.

No discussion of the global agenda can be complete without a word about Africa. In too many countries, children are more likely to die before the age of five than to attend secondary school. However, there are important signs of progress.

Those countries that have entered into adjustment programs have seen growth rates significantly accelerate. As we move to the Denver Summit and beyond, helping Africa rejoin the global economy as a strong partner must be a key priority.

Conclusion

My point here today has really been a simple one. The United States' economic policy should and will be based on the idea that promoting integration and prosperity around the world is enormously in our national interest because of the stability it brings in a world that is still a dangerous place.

The great challenge we face is to maintain broad support for this idea. It is much harder now than it was after World War II for at least three reasons. There is no longer the Communist threat to motivate us. There is a more populist approach to international economic policy than there once was; I am confident that no one ever focus-grouped the Marshall plan. And there is more economic insecurity but less generosity and willingness to focus on the future on the part of our people.

What, then can be done? Explaining history, explaining economics and making the case issue by issue can surely help. But ultimately whether we remain an international leader will depend on deeper currency.

Moves to restore civility in our political life will make possible the kind of bi-partisan cooperation that made the Marshall Plan and so much else possible. But even more fundamentally, if we succeed in giving our people the tools they need to prosper in a changing economy, they will come to see the world more as an opportunity and less as a threat.

The era of big government may be over but government remains responsible for national security. We must not take that responsibility lightly. For as the 1920s remind us, mistakes in international economic policy can have grave security consequences.