97373 Remarks prepared for delivery by A. W" Clausen, President The World Bank . before the International .Industrial Conference Mark Hopkins Hotel San Francisco September 21, 1981 '. . ···;···._. -1-·· 'I. " ' . ,, ' Thank ·you~ and good afternoon, everyone. rt•s ·a piea~ure to join Ed (Littlefield} in welcoming a group that cansitutues such a pos1~ive ·force far world · · progress·and prosperity. The transnational corporation has been described as the ultimate .. . expression of global intardependence -- and· . ' ' far good reason~· No~other entity is_ better equipped to bring together resources, expertise, capital, and market-s on a global· .:"· ' ' basis. in such an effi·cient manner. And.few innovations. of the Twentieth Century have had such. a pronounced effect on the global economy. Transnational enterprises today ac.caunt for about. one-third of the world's gross product -- and their share ke~ps increasing. Over the past 20 years they've been growing at twice· the average· rate of advance for ,- . industrialized . - . almost countries, and at . . dOuble therate - . . of increase of total world trade. Now, some critics see a threat in this phenomenal growth; to them it smacks of a dangerous concentration of power. But I don't share that 'view. On the contrary, I see the transnational corporation as an important ally of creative and enterprfs.ing people everywhere who believe it's'pragmatically possible to build a ·better and more · prqductive global society that can enhance the living .' standards· of everyone. · And tnat•s what I'd like to discuss with you today -- focusing my remarks on some of the major economic challenges· confrontt.ng our interdependent world:~~ and the role trans- nationals can play in helping to overcome them~ .. . · ·Any discussion of the global economy would be incomple.te wfthout considering tne effects of the rampant and stubborn inflation tli.at has characterized the past dozen years. The index of tnternati'onal prices rose less than one percent a year. oetween 19.56 and 1968. But in the past twelve years, these . same prices .. nave risen at an average annual . rate of more than 11 percent. This persistent phenomenon began before the rise in the prices of otl and otfier primary commodities·, and is only partly attrioutallle to them. But galloping world "Inflation has dealt severe hlo\>ls to o.usiness confidence~ curtatled global economic expansion, and c?mpounde_d ba1ance of payments prob1ems i'n many countries. .-3- . ' The continual. price hikes acted like dams inthe· . . . path of fish trying to swim upstream. Each major increase . impeded the forward progress of the global economy for a time. And ·though it managed to rise to the· cha 11 enge and get moving again, its advancement has been delayed considerably." Nor does _it look as· if the esonomy will · regain its fanner momentum as long as inflation continues · · . at _current rates, investment lags, and . . govern~ents -. ' pursue .. . ' restrictive. fi·scal and monetary pol ices aimed at restoring . their economic equilibrium •. A d·isturbing co~llary to this state of aff~i r~ is ·the drift toward economic i.solationism in-many ' .... parts of. .·. the world. This has been taking two forms, neither of them conducive to long;..term growth •. First, there has been a proliferation of nontariff trade barriers. Many countries have found itimpos?ib1e to resist protectionist pressures aimed at shie1di_ng . . home industries from foreign competition or at boostin9.. exports through subsidies and other tactics. This creates a situation in which nobody wins,. least of a11 transnational corporations that depend on free trade flows. Second, as some industrial nations increasingly turn the~r attention to internal affairs, they appear to be less - -4- inclined to increase-- or in some cases even to maintain-- their modest efforts to help the developing countries help· themselves. · . These governments ~imply have not found it expedient to expand. foreign assistance while ·restricting domestic· spending. This can have serious .long-term economic · . . ·. consequences fo.r developing countries -- particularly for the poorest among . them. -- and ultimately for all of us. · · Closely akin to economic isolationism is yet another potential threat of major proportions: the risk of interruptions in· the supply of raw materials vital to industry. It would be an oversi~plification, of course, to draw . . an exact parallel between oil and all other natural resources •. Unlike oil, the world's other principal mineral reserves -- according to most estimates -- ~ppear more than adequate to ;.· .. meet projected needs far into the future. The concentration, however, of some resources in a handful of_countries raises . the possibility that crippling shortages could arise if key sources of supply were cut off.-- possibly as a result of international conflict or geopolitical power struggles. . . - Let ine cite a few . . examples: ' .~ -o Three-fourths of the known reserves of iron ore are located in- only rive countries~- Australia, Brazil, . . . _Canada, India, and the Soviet Union._- · ~-o NearlY half the reserves of copper are in six .- countries-- Canada, Chile, Peru, theSovietUnian, the lJn'ited States, and Zambia., . . . . o Seven countries ~~ most o-f them developing countries --- account for three-'fourths of the world's bauxite. o Finally, of 15 minerals commonly used in industry, aver three-fourths of the world's known reserves are . ·:.:..:-: concentrated in each case·in"·no·more~than five·countrie·s~ . '. . ------- . . . _S1ug-gish growth, worldwide inflation,_ growing protectionism, insufficient capital flaws to developing countries, uncertainty over access to vital resources ••• this entire list of complicated issues has one -characteristic in common. These are all global concerns, and they all call far global action. They're beyond -the reach of any single country or organization, howeyer powerful and well-intentioned it might be. -6- Shortly before his death in 1975, Arnold Toynbee said most of the economic troubles of the world could be attributed to what he called, quote: "an increasing misfit between the fact of global economic life and the politic(ll organization of the world in 140 local sovereign states; 11 unquote. ·.. ·This"misfit," to use Toynbee's term, goes a long way . ~ . . toward explaining the difficulty governments encounter when they try to mend snags in their ow~ domestic economic fabric •. But public officials are constrained by another factor as well. Few governments have the widespread and patient public support that would pennit them to pursue unpopular policies for very long, even though those policies might be essential to the.···.. . nation's lorig-tenn financial health. When a corporation enters a new market, it often do.esn't · expect to show a profit on those operations fo·r several years. Massive development projec~s may require ·a decade or more to begin paying off. Elected officials·, on the other hand, frequently are expected to produce spectacular results in a much shorter time span. · The transnational corporation operates under its own set · of 1imitations, of course. For example, more than 60 percent of the medium- and long-term capital inflow to developing countr:ies last year consisted of private loans and foreign 1' -7;_ I . direct i·nvestment. Yet, mo·st of this capital went to middle-income countries rather than those at the .lowest·· tier of economic development-- the low-income countries that lack sufficient resources to borrow commercially or ·attract adequate foreign investment .. · . _:.Another constraint on ·transnational investment in ,· · developfng countries is the understandable.concern a host ·countr.Ymay have over the potential impact offoreign · in~est~nent and influence. ~Lately, therehave been signs · of greater receptivity to foreign investment on the part of some countries that once feared it • . ' . \ '. Iran~nationals, on,,the:,other: hand,.)~r~LA~mon~trating~-, · more flexibility in dealing with host countries. In some· cases, for example, they haven •t pressed for majority ·ownership of subsidiaries· as aggressively as in the· past. But no doubt transnation~l corporations will continue to insp:ire m~strust and fear as long as three common misperceptions per·sist. Let's examine them for a moment. Misconception number one holds that transnatiomils do little to foster their host-countries' economic development. A. recent study by an international consulting firm pointedly refutes this contention. It indicates: .. a- o First, that transnationals.genera11y increase exports at a faster pace than domestic companies; o Second,· tnat they spend a larger percentage of tfieir sales dollars on research and development; .o And third, tnat they reinvest . a. higher percentage of tnetr profits. Mtsconception numBer two is: If you've seen one transnational, you've seen them all. Well, tnat just isn't so. As illustrated by the organizations represented nere, transnationals come in many different shapes, sizes, and colors: from state and parastatal organi·zati.ons to private corporations, and from heavy mjning compani·es to manufacturers of l:tght consumer: goods. Misconception numoer three is: . The word "transnational" -is ·virtually synonymous with the word "Amertcan." Well, that isn't true either. The fact is that the ranks of .transnattonals nave Broadened considerably since the 1960s, \'/hen -- •• the American cH.all~ngett was 5ecomtng a major concern i"n some quarters. '' ·- -9- In.1963, two-thirds of the \'Jorld's largest companies were based in the United States. Now fewer than one-half .. are •. And if 'you run down the list of the world's ·' . . ' . ·soo largest ' corporations,,you'11 . . . ftnd . their headquarters are dispersed· . - ' '" . . . among 35 countries, including several from the developing world. ." : ~· .' .. : Now, I said earlier that I consider you, as leaders _-of · some of the world •s most successful . enterpri s·es, important . ' -· ' - . . .. ·. ·. . - allies in the effo~.t to .build a more ·prosperous and equitable global society. And certainly one of the most significant contributions ·you can make is, quite simply, to keep on doing whatyou,.,d.o " ~· ~· best; that is, mee~ing the demands of your markets· by combining, tn optimal fashion, the·essential components of production-- resources, laoor, and captital. You may have seen this mandate expressed more succinctly by a fleet of Sari Francisco cement trucks that bear the motto: 11 Find a need and fill it.... Your success s.uggests that you've oeerl doing just that. -10-: But in the process of serving your markets, you also have a unique opportunity to build bridges of understanding -- as well as of concrete and steel; and to sow the seeds of interdependence-- :·rather than those of confrontation; and most of all, to help provide the peoples of many developing societies with the jobs, and skills, and increased income that ·can improve the quality of their own lives. I don't mean to suggest that transnationals should trespass · on the proper preserves of the public sector. Some activities·. certainly oelong within the purview of govern~_~nts. And others can best Be c·arried out under the aegis of multilateral i·nstitutions. Nevertheless, I'm convinced that there are many areas where the interests ~f all these various parties overlap, and where tfie synergism of cooperation ·would yield a total effect ·. consideraBly greater than the sum of all our independent and isolated efforts. · Perhaps there's a lesson for us all in a rather embarrassing epjsode from the career of a distingu~shed symphony conductor. He was directing the performance of an overture that was supposed to culminate in a dramatic trumpet flourish \'/hen he noted, to his chagrin, that the all-important trumpet player was nowhere to be se.en. -11- He had no other recourse but to end the performance without the accustomed fanfare. later, it became clear that . the trumpeter was absent through no fault of his own. · He and his trumpet had been-detained at the stage door before he· could take his place. in the orchestra by an overzealous guard, who i.nsisted: ''You can 1 t play that thing here. There's a · concert going on~ •• Well, I d like to leave you with this one thought: .There- 1 is a. concert in progres~ on t~e_g1obal economic stage, and while everyone mai not recognize it, your instrument is one of tne most important. The world desperately needs to make better music tog_ether. And \'le at the World Bank are counting on you -- as \'Jel1 as on all the other memoers of the orchestra -- to help bring exactly tnat aBout. , Thank you very much