Summary Proceedings of the Forty-Second Annual Meetings of the Board of Governors 1987

Address by the President of the United States1

International Monetary Fund. Secretary's Department
Published Date:
November 1987
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Ronald Reagan

I appreciate this opportunity to speak with you today. I still remember when we first met together, not that long after my arrival in Washington. Then, we talked about a revolution in economic thinking, a revolution whose ideas have proven themselves in the years since. And while progress has been made, formidable challenges remain. It is fitting then, on this occasion, that we make an assessment, and discuss our vision of the world’s economic potential, as mankind, quite literally, moves toward a new millennium.

Making an assessment and setting goals are, of course, nothing more than good management. And if there is anything that the working people, whose taxes contribute to the support of our institutions, have a right to insist upon, it is just that: good management. The world looks to us for leadership, to set a standard of honesty, responsibility, and rational decision making.

You know, when I mention good management, that doesn’t mean that everything always goes as expected. There is a story about a man who was invited to the opening of a new branch office of a business owned by his friend. And the man ordered some flowers sent over for the occasion, but was shocked when he arrived to see that the inscription on the floral bouquet read, “Rest in Peace.” Well, on the way home, he stopped at the florist to complain. And the florist simply said, “Well, you know, don’t get upset. Just look at it this way. Today someone in this city was buried beneath a floral bouquet with the inscription, ‘Good luck in your new location.’ ”

I’d like to take this opportunity to thank each of you for the exemplary work you’ve been doing and to express my deep appreciation to Barber Conable and Michel Camdessus for their outstanding service.

When I first addressed these institutions six years ago, the United States was suffering from economic decisions that can only be described as bad management. Inflation, stagnation, and 21 percent interest rates were the order of the day.

Good management must be built on sound principle. And before our economic revolution, the decision makers increasingly put their faith in solutions that, no matter how well intended, did not work. Instead of encouraging enterprise and production, the emphasis was on bureaucratic planning and redistribution. Instead of demanding measurable results and strict accounting from public spending, the federal spigot was turned on. Resources were drained from productive, job-creating enterprises in the private sector and siphoned to questionable, ineffective, and often counterproductive government programs. Decentralized decision making in the private sector and in local and state government was supplanted by federal planning, as new power and resources were centralized in the federal bureaucracy.

But as we found out to our detriment, good management should never be mistaken for the expansion of government control and power over an economy. Good management, if it means anything, must bring a country closer to reaching its full potential and must improve the well-being of its people.

That is obviously not what was happening in the United States in the late 1970s. Policies then in place led to declining productivity, a drop in the GNP, lower real take-home pay, and a dramatic rise in poverty. In 1980, the American people called for fundamental change, reform that would put this country solidly back on the road to growth, expansion, and long-term stability.

Our goal was to increase economic activity from the bottom up. Again, good management doesn’t mean amassing control and authority. It means finding ways of achieving one’s objectives. In dealing with a national economy, it means opening opportunity for the people and giving them the incentive to work more efficiently and to invest in economy-building projects and job-creating businesses; it means making certain that excessive regulation doesn’t strangle enterprise; it means leaving enough resources in the private sector to serve the needs of investment; it means competition, even from foreign companies; and more than anything else, it means expanding freedom and opportunity for individuals instead of increasing the power of the state.

You know, it is said that an economist is the only professional who sees something working in practice and then seriously wonders if it works in theory. Whether one agrees with the theory, the results have been undeniable. The people of the United States have now enjoyed 57 straight months of growth, which will shortly be the longest peacetime expansion in the postwar era. Inflation, which was public enemy number one in 1980, has been cut by nearly two thirds. Unemployment is down, and employment in our country is at its highest level in history. Interest rates are down. Productivity is up. Real family income is up. And we’ve at last reversed the rise in poverty that began in 1979.

Credit for these accomplishments belongs to the American people themselves because, as is often the case, the best thing government can do is get out of the way. And that’s just what we’ve tried to do.

Our expanding economy has not only improved the well-being of our own citizens, but has served as an engine for progress throughout the world. The expansion of trade and international commerce during the last six years has helped keep our prices low, our industry and manufacturing competitive, and our economy growing. At the same time, expanding trade with the United States has helped many countries weather an economic storm. Earnings from exports to the United States, in some cases, made all the difference. The central themes of our relations, especially with developing countries, have been, and should continue to be, trade rather than aid, mutual benefit rather than charity, a hand up rather than a handout.

There is, of course, the trade deficit—something of justifiable concern both in this country and abroad. Corrections are necessary, and there are strong signs that corrections are under way. It is vital, however, that policymakers not be stampeded into self-destructive action. There has been a chorus of American politicians playing to the fears of working people, singing the song of protectionism and charging that, as a result of the trade deficit, jobs will go overseas, unemployment will rise, and the United States will be deindustrialized.

It sounds good as part of a political campaign speech, but as an old Virginia lawyer once told his hometown jury, “‘tain’t so.” Unemployment has declined in the United States by 40 percent since late 1982, even as our trade deficit has grown. In Japan and Germany, countries with large trade surpluses, unemployment has gone up. And a long-term analysis shows us holding our own in manufacturing jobs. Importantly, from the end of 1982 to the present, during a time of large trade deficits, manufacturing jobs in the United States grew by more than a million. Furthermore, real wages in manufacturing, which declined by 7 percent from 1977 to 1981, increased by 2½ percent from 1981 to 1986.

The trade deficit is symptomatic of structural problems that we as managers need to address. Self-destructive protectionism, however, is definitely not the answer. I pledge to you that any protectionist legislation reaching my desk is going to be returned to the Congress with a veto on the cover.

Part of the answer lies here at home. As I noted at the economic summit in Venice last June, it is imperative that the United States consistently reduce its federal deficit spending. Today, I will sign a bill that reinstates our deficit reduction targets as part of an extension of the borrowing authority of the United States Government. This was not an easy decision.

On one hand was the responsibility to preserve our 200-year history of meeting our obligations and maintaining credibility and reliability to our own citizens and to the world.

On the other hand was the political debate being waged between those who favor either raising taxes or cutting defense—or both—and those of us committed to further reductions in domestic spending, reductions that will bring down the deficit and keep our economy strong.

As I said, it was a tough decision. It should be seen as a signal that America is not backing down from its responsibilities. But having made this decision, I call on the surplus countries to do the same—to find the political gumption to stimulate their economies without re-igniting the fires of inflation. It must be recognized that the health of the world economy does not hinge solely on U.S. budget policy. As U.S. budget and trade deficits decline, other countries must pick up the slack, particularly on imports from developing countries.

Our focus—and this means all of us—must be on achieving balanced growth and more open economies. Secretary Baker and finance ministers from other major countries have been working hard to devise ways to achieve these dual goals. This is a true test of our ability to manage the international economy.

Certainly we cannot succeed without an open and fair world trading system. As the pace of change picks up, it is essential that the guidelines for trade, the rules of the road for international commerce, be kept up to date and that recurring areas of friction be dealt with. That is why our Government is totally committed to the success of the Uruguay Round of trade negotiations. GATT has played a major role in expanding world trade and economic growth in these last four decades. Now it must address new areas, as technology and changing circumstances vastly increase the potential and scope of economic dealings between the peoples of the world. Services, investment, and intellectual property protection, formerly of only domestic concern, are now economic activities that are part of the arena of world commerce and must be included in any overall trade agreement.

The management decisions are ours to make. This is a time of tremendous opportunity to set in place a world trading structure that will carry mankind to new levels of enterprise, opportunity, and well-being. A good place to start achieving that laudable goal is with the substantive proposals the United States has set forth concerning agriculture.

For too long, our farm policies have managed us, instead of we managing them. Unless decisive and common action is taken, this growing burden could well overwhelm us. In the major Western economies, farm subsidies alone have jumped from $10–15 billion in 1970 to $100 billion in 1986. And those are just the direct costs. Billions of dollars are being spent by governments for capital investment in agriculture that would be totally unnecessary with an open trading system. Consumers in nations that limit agricultural imports are forced to pay higher prices using family resources that could be put to much better use.

The unnecessary costs, market distortions, and the inefficiencies of current agriculture policy are part of the political and economic landscape throughout much of the Western world. And for that very reason—the commonality of the problem—we believe a broad-based, cooperative, international solution is the only answer.

We are asking the people of the world to consider not piecemeal reform, but revolutionary change in the production and distribution of food and fiber. We propose a total phaseout over the next ten years of farm export subsidies, quotas, nontariff barriers, and all distortions of agricultural markets. In doing so, world food costs will be cut, government budgets spared, wasteful practices eliminated, and economic growth boosted on a broad international scale. We envision by the end of the century an open and free trading system in agricultural products throughout the vast expanses of the world: people of every land, communicating, cooperating, and competing with each other, buying and selling, producing and distributing, finding more efficient ways of meeting the universal challenge of keeping food on the table.

And what we accomplish in agriculture may some day be used as a blueprint for opening borders throughout the planet to the totality of trade and commerce of every nation—a global free and fair trading system, uniting and uplifting all mankind. And today, as we reaffirm our goals, let us underscore that, as mankind moves forward, we go together. No nation will be excluded; no people left behind.

The United States remains fully committed to doing its part in working with those developing nations that are struggling to improve the well-being of their people. Overcoming the obstacles to progress in these poorer nations is, perhaps, the greatest management challenge in the world today. A cooperative solution to the debt problem is the only real answer. It involves a partnership among developing countries, commercial banks, and international financial institutions.

The huge debt burden carried in the Third World is not just their problem; it is our problem. And today let us pledge: We will solve it together.

First and foremost, let us move forward with the understanding that there are no easy answers or quick fixes. Those who counsel otherwise are either mistaken or malicious. Now is the time for rational decision making and responsible action. Those who choose to follow false prophets, to live in an illusion instead of seeking a solution, will be left with the consequences of their actions.

What the United States has proposed is a positive program, a forward strategy, if you will, that will see debt retired not by extracting wealth from nations that are already too poor, but by increasing the level of economic activity and servicing the debt from new wealth. Last week, Secretary Baker announced added U.S. support for this program with his endorsement of expanding the resources of the World Bank. A number of proposals to strengthen the Fund’s ability to promote growth-oriented reform will be advanced soon. But this alone will not be enough.

Leaders in debtor nations have tough decisions to make. Our slogan must be: It can be done.

And let no one suggest that some people are condemned by culture or race to misery and deprivation. Victor Hugo once wrote: “People do not lack strength; they lack will.” And the “will” comes from a realization that one can accomplish what one sets out to do, that great deeds are possible.

What is needed is commitment and, as in all good management plans, a model that works. The world is not without such models. In the last 30 years there has been extraordinary growth and economic advancement in what were underdeveloped nations around the Pacific Rim, some of which are poor in every significant natural resource, including adequate territory. These peoples have overcome great difficulties, improved their living standards, and become a major force in the world economy. They have done so using economic concepts similar to those that helped reinvigorate America’s economy these last five years. Tax structures and regulatory policies designed to encourage investment and enterprise are the magic behind the miracle. And debt, coincidentally, has not been the serious roadblock to growth on the Pacific Rim that it has been elsewhere.

The success I’m talking about is in stark contrast to the misery and decline so evident in nations that have followed statist development models. In many parts of Africa, collectivism has brought decline even in countries rich in natural resources. There are, however, reasons for hope that the corner has been turned in Africa. A growing commitment to economic reform is one of the most promising developments in years. Senegal, Ghana, Cameroon, and Malawi are some of the countries where market-oriented reforms are being put in place. The World Bank and the Fund are supporting these efforts. The United States will do all we can. U.S. economic efforts in sub-Saharan Africa are aimed toward ending hunger through economic growth, policy reform, and private sector development. My hope is that cooperative support for policy reform in Africa—including the active participation of other donor countries and institutions—can eliminate hunger in Africa by the end of the century.

The promise in some African countries is in stark contrast to the continuing plight of Ethiopia. It’s time to admit that in Ethiopia, statism, as well as drought, was the cause of a human tragedy that touched the hearts of people throughout the world. Yet even as food, medicine, and other humanitarian support has poured into Ethiopia—donated by caring people in Western countries—the Marxist government there, supported by the Soviet Union, has barreled down a path that obliterates hope for the future. Sadly, famine again is returning to that land, and it is becoming ever more clear that fundamental changes must occur if their 2,000-year-old society is to survive.

Ethiopia, of course, is an extreme example. Nevertheless, there is an undeniable relationship between freedom and human progress in every part of the world. The more repressive the government, the more controlled the economy, the more confiscatory the taxation, the more likely a society is to sink into poverty and despair. John Dos Passos was so right when he observed, “Marxism has not only failed to promote human freedom. It has failed to produce food.”

Leaders in China understood this when they began easing their country toward a freer economic system. Reform in China is now widespread and dramatic. From 1979 to 1985 the value of agricultural output in China rose at more than double the rate of the 15 previous years. Rural per capita income more than doubled. The total grain harvest went from 300 million tons in 1978 to over 400 million tons in 1984. In fact, in 1985, for the first time in 25 years, China became a net grain exporter. Similar progress is being enjoyed in other areas of the economy where reforms have been instituted.

Throughout the world, people are realizing that moving forward will require cutting themselves free from statist controls and from the weight of heavily subsidized government enterprises. In many industrialized countries, and in Third World countries as well, deregulation is the order of the day. Instead of looking at private enterprise as the adversary, many governments now see it as their best hope for progress and development. Tax rates are being lowered from New Zealand to France, from India to England. Government corporations are being privatized, denationalized, and cut off from subsidies from Ghana to Argentina, from the Philippines to Mexico.

The impetus for privatization directly complements efforts to reduce the debt burden. Debt-equity swaps can offer a method of turning money-losing government operations into tax-paying private businesses. The debt is reduced and a budget obligation is eliminated. The government is, thereby, free to use its resources and focus its attention on other matters.

My Presidential Task Force on Project Economic Justice, headed by Ambassador William Middendorf, recommended that this method could be used not only to bring down the debt and stimulate privatization, but to expand employee ownership as well. Bold, innovative ideas like this are consistent with the overall American debt strategy and deserve to be given serious consideration. What is not needed now is business as usual. The United States will continue working with all those who are putting forth an honest effort to deal with the debt dilemma.

As vexing as our problems are, let no one doubt democracy works. The unbridled energy of free people is the most powerful, creative, and moral force on this planet. And through all the political maneuvering and public debate, through the arduous negotiations, compromises, and balloting, one cannot but feel that he or she is part of something far more grand, far more historic. There is more evidence every day that the future is on the side of the free. In the Western Hemisphere, the 1980s have seen an historic shift to democracy. Today 90 percent of the people of the hemisphere live in countries that are either democratic or in transition to democracy.

All who love liberty are heartened by the return to democracy in the Philippines and by recent events in South Korea. All this is reason for confidence that mankind is truly moving into a new era of freedom and prosperity, these two mutually reinforcing goals.

Andres Bello, intellectual giant of the last century, once wrote: “All truths touch on one another, from those that govern the path of the planets in space… to those that delineate the actions and reactions of political forces. . . . Progress in one line attracts progress in all others, all are connected and propel one another forward.”

Today we are part of that process of free men and women that is propelling mankind forward. The World Bank, the International Monetary Fund, and each of you are playing a vital role, and it has been my honor to speak with you today.

Delivered at the Opening Joint Session, September 29, 1987.

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