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Writings & Speeches

1994 Induction Ceremony
George Washington University Chapter of Beta Gamma Sigma

Address by Eugene H. Rotberg
April 15, 1994

I have been given much advice about my remarks this evening: keep it light — perhaps even whimsical — but at the same time, make sure it is emotional and inspirational. I am afraid I cannot pull that off. I also have been told not to lecture, and, certainly, not to give a seminar on the use of regression analysis in international finance. Most important, keep it under 25 minutes. That I will do.

It is an honor to address such a distinguished group of men and women who already have accomplished so much; it prompts great modesty. The truth is you will forget me in a few hours, and surely the content of these remarks will not be recalled. And that is the way it should be. You know — and I know — I have no magic words which will provide you wisdom or insight. I cannot cause you to catch your breath. I cannot place the dagger through the heart; mostly only poets, writers and composers can do that. I am none of those. Indeed, I just want to share with you some words about the world we live in and talk a little about the world you will likely face in your professional lives.

My main point is about vulnerability and how, in particular, the industrialized countries must understand and cope with the fact that they no longer can exercise control over matters in which they were once predominant. I will also talk a bit about asking the right questions, and by that I mean asking questions which are answerable and quantifiable and subject to the tests of truth rather than questions whose response depends on moral or value judgments or a vague sense of uneasiness — "the Japanese are taking over," or we have a big trade deficit with "them."

Let me start by saying what has become obvious in the last decade. There are many in our global economy who will "do without" to an extent that few of us here are prepared to accept. The poorer countries are slowly educating their citizens. No longer do they make only paper toys, a few textiles, some cotton goods, or prepackaged foods. They are making sophisticated products and are major importers of the best technology of the industrialized world. They are independent states.  They work hard and do not take kindly to measures that restrict their capacity to survive or expand. They have less to lose. They often are not paragons of Jeffersonian democracy. Industrial countries will have to recognize that they no longer can control, through the exercise of power, colonies, or dependent states, which we in the industrialized world have in the past exploited for our benefit well into the Twentieth Century.

As we know, powerful countries controlled colonies, or sources and prices of labor, or raw materials, or technology. Industrialized countries fixed prices, protected their industries, sometimes sent in troops. There was a time when power was concentrated in a few — Great Britain in the 19th Century; the United States after the Second World War.

The United States, in particular, had leverage. It achieved much of that leverage because of the Cold War and the fear that another power — the Soviet Union — would, one way or another, swallow up all of Western Europe, while another, China, it was argued, was likely to dominate, militarily, the Far East. That provided the United States the leverage to effect economic and political policy outside its own borders. Now there is no Soviet threat. China has become capitalistic way beyond expectation. There is no value to anyone invading Belgium yet again. There are no longer any monopolies of intellectual or technological prowess. One hundred countries now compete for markets with highly sophisticated products and some with wages only a minute fraction of those in industrialized countries. Countries small and large can exploit low wages, implement tremendous productivity gains by using modern technology, subsidize, delay gratification, compete, form alliances, over-produce, under-produce, form cartels and distribute gains to but a few. And there is no Soviet or Chinese threat from which countries feel they need military protection. These countries, therefore, are not easily influenced by the old paradigms of power. Malaysia is not worried about a Chinese invasion. It is far more concerned about how to compete with Japan and Thailand in setting up joint ventures in China for products to be sold worldwide.

Japan, and Europe, too — partly by subsidy, or protectionism, and a unique, mutually-supportive relationship between government and the private sector — now represent economic forces that no longer can be pushed to implement policies, either to import or reduce exports, if they do not believe it to be in their own self-interest.  And, again, of course, China, given its nuclear expertise and its ability to sell it throughout the world, cannot be pressed to have a more flexible attitude on its trade imbalances. Moreover, it can destroy a half-dozen countries' economies by over-producing, say, rice, and can, should it choose, change the structure of the pricing for carpets and textiles, and consumer electronics, and many other products where their value added in joint ventures is barely recorded, hardly visible, but in reality is substantial.

Politics is inextricably linked to business and economics — and often in some very uncomfortable ways. U.S. companies, for example, are competing for China's telecommunication development; so are the French, Swedish, British, and many others.  A country's views on human rights and the Chinese treatment of dissidents will affect China's choice of contractors and jobs in the industrialized world. Moreover, a continued Chinese economic expansion, on a scale recently seen, will have a greater impact on our lives than virtually any other country over the next two decades. What happens in China will, in reality, affect Japan's trade economic growth, its trade balances, at least as superficially reported with the United States, and the viability of other industrial nations in the Far East. What happens in China will dwarf our trade deficits with Japan. Their economy in the early Twenty-first Century will be larger than that of the United States.

We will also come to learn that some poor countries will be willing to delay material rewards, will moderate expectations, will be less frivolous in terms of comsumption, will cut corners, will be less concerned about environmental constraints as well as legal constraints, will exploit, and in the early stages of development will not worry too much about the distribution of wealth and services. Later, these countries will have to worry and address the balances of the social contract between governments, owners, managers and a vast and disparate work force. There could be, in many countries, a lot of upheaval in the process which could arrest economic development (and therefore reduce competition with established pluralistic democracies). These destabilizing events are more likely to occur if Russia again becomes a major political force. But that is another speech.

Allow me to talk a bit about marginal advantage and productivity as the industrialized world tries to compete. I believe the world can use just so many services — it is not infinitely expanding — just so many lawyers, accountants, consultants, facilitators, and investment bankers — the elite of the business world. Nor can industrialized democracies expect, as a political matter, to lower their wage rates to compete with, say, Indonesia or India — countries which, by the way, are becoming extremely productive by buying some of the most sophisticated technology available. It is difficult to see how the marginal productivity gains of an industrialized country can make up for the combination of technology and low wages in South America and many parts of Asia.

Those making public policy, conducting research, or involved in the private sector will have to learn to disaggregate the sources of competition. We will have to look through the labels on the backs of shirts and blouses and on VCRs. We will, indeed, have to look through the reported statistics. We will have to learn to disaggregate to see exactly who is doing what kind of work; at what cost; at what added value; at what charge is it passed on to the next stage of the production process. We will have to learn in a far more sophisticated fashion than has heretofore been evidenced, what each country really does, by what means, and with what kind of subsidies or preferences. Each country and its private sector will then have to figure out how, in this quite complicated process, assuming it has quality information which it evaluates correctly, where it can compete, and by what means, to assure a viable, well-compensated work force along the entire socio-economic range of its body politic. As I indicated earlier, some countries will exploit, in a way that pluralistic societies cannot and should not, certain segments of their population; others will not. But those pressures and their immediacy, too, would be another speech.

We will have to face the fact that companies have stockholders all over the world. They have plants all over the world. They have joint ventures in thousands of cities outside their main offices or states of incorporation, using either labor, raw materials, packaging, assembly, transport to facilitate the final production and distribution of a product. The truth is that what may be good for shareholders may not be good for the labor force in the place of "legal" domicile. Industrialized countries will have to make some very hard decisions as to what kind of tax or other incentives might be appropriately used to stabilize and improve the job market in, say, the United States. Indeed, this country may have to ask what is wrong with giving tax preferences to foreign companies to bring their manufacturing facilities here to take advantage, not of labor costs, but the immediacy of the market.

And in that connection, industrialized countries will have to understand and talk about what really bothers them — is it the foreign label; is it the Asian ownership of real estate or infrastructure; is it trade data as it is reported; is it jobs; is it a sense of insecurity or embarrassment. My guess is that industrialized countries, particularly the United States, will probably have to open up, accept and facilitate the inflow of capital from western Europe and elsewhere, and that ownership of the means of production and the use of its skilled labor force, if an outsider wants it, should be accepted and encouraged given the enormous pressures to move elsewhere.

What conclusions do I draw? The reality is that the seat which you will occupy, wherever it is, is not the center of the universe, whether it be in Japan or the United States or, indeed, anywhere else. Power is now fragmented. There are many players, independent ones, some rich, some poor, each with enough power to cause havoc, but not enough to insist on a particular course of action.

Freud, Galileo and Darwin told us, at different times and in different ways, that we are not the center of the universe; that we do not have control; that we do not fully understand our motivations; that we are not all that special. They did not have an easy time of it — for each society wants to believe that it can exercise control over its own destiny and over others. Now, I suspect, their findings apply not just to science or personal behavior, but to the way power and leverage can be exercised by nation states. Yours, I think, will be the first generation in a long, long time which will have to achieve end results with neither military nor economic predominance — no matter where you are.

There are those of you who can have an impact for good. But I cannot ask you to model, for example, Martin Luther King, though millions of people, because of him, have a far different life to look forward to — if not for themselves, then for their children. That is remarkable: to have so increased the access to society of so many people in such a short period of time. But, you say, realistically, please do not burden me with that role model.

I suspect it will serve little purpose to remind you how just a few hundred people in the Mediterranean — in Greece — laid the foundation for Western art, philosophy and laws over 2,000 years ago, and how its rebirth 1,500 years later, during the Renaissance, by a small group of painters and sculptors relaid the foundations for modern style, grace and aestheticism. But perhaps you will find relevant that a woman named Rachel Carlson wrote a book, "The Silent Spring" and directed the world's attention to its environment, or that Germaine Greer, Betty Friedan and Simone de Beauvoir, in relatively few pages, opened up what has become known as "The Women's Movement."

But you need not be superstars. The economic miracles in countries like Korea or Turkey or Spain or Japan or Thailand or Malaysia or Taiwan were not accomplished by superstars, but by the hard work and dedication of the many people who worked together to implement public and private policies in an effort simply to make things better.

I suggest that many of you will find a sense of fulfillment in addressing the most pressing problems of our age. Some have already done so. Indeed, one way or the other, whether your lives will be in public policy or private economics, in finance, in law, in business, or in teaching, you will be impacted by what is happening in poor countries and by the competitiveness of industrialized ones.

But, you will have to make a difference without ordering it. Your goals will have to be achieved through compromise — and not by maximizing at the expense of others. In that sense, your greatest accomplishment may be to convince those who seek to use the traditional vehicles of power that the level of interest rates in Germany, the value of the Yen, agricultural subsidies in France are not merely domestic matters, but are of proper concern to other countries. Indeed, it may be that your greatest contribution to making a difference will be to create a political environment so that leaders will recognize that reality. You may have to take on responsibilities which will, on occasion, be inconsistent with the purely domestic interests of your own country, and, on behalf of cultures with which you may have few emotional or historical ties. All of you will have less leverage; we will have to wait longer and take on uncomfortable burdens. Not because of some theoretical moral imperative, but rather simply because it will be in your best interest — because the world has changed — fundamentally — and, I suspect, irreversibly. We will have to admit, in short, to vulnerability.

The challenge of not maximizing gain for oneself is not easily saleable in our modern world. We certainly were not brought up that way, and we have not been taught that way in our schools. But the price of not recognizing reality will be to dangerously reduce the prospects for a decent life for the developing world and cause destabilizing environments in industrialized societies: unemployment, hyper-inflation and protectionism. Conversely, the satisfaction from succeeding at this business of interdependence will be enabling — and besides, there really is no other choice.

I suspect John Donne got it right a long time ago:

"No man is an Iland, intire of it selfe; every man is a peece of the Continent, a part of the maine; if a Clod bee washed away by the Sea, Europe is the lesse, as well as if a Promonterie were, as well as if a Mannor of thy friends or of thine owne were; any man's death diminishes me, because I am involved in Mankinde; And therefore never send to know for whom the bell tolls; it tolls for thee."

Thank you for your courtesy.                              

 

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