19 Pross Release No. 19 CONFIDENTIAL - TO BE RELEASED FOR PUBLICATION IN EVENING PAPEns·. THURSDAY November 71 1946 INTERNATIONAL BANK FOR RECONSTRUCTION .AND DEVELOP11ENT PRESS RELEASE No. 19 November 6, 1946 ADDRESS BY MR. EUGENE MEYErt_. PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPME~. :' ~ AT THE ANNUAL r,1EETING OF THE ACADEMY OF :POLITICAL SCIENCE, HOTEL ASTOR,,. NEW YORK CITY, NOVEMBER 7, 1946 Economic circumstances set the stage for political action. Indeed, they do more than this. They provide the inescapable conditions under which political relations may be shaped. There is a narriage partnership between politics and economics in which divorce is an impossibilitye .And because of this marriabe, it is as true that there can be no enduring peace without a decent level of prosperity as that there can be no prosperity without peace. It seems to me peculiarly appropriate, therefore, that the Academy of Political Science slvmld t,1ke interest in an institution, the Internation- al Bank for 11.econstruction and DGvelopment, ,n ich is designed to operate in the economic sphere. The Academy's sound understanding of the vital • connection between politics and ec,mDm:ics--and of their j,..1int impact ~on soci,1.l progress--is well attested, I think, by its choice of a genera~- topic for the meetinca "Dfweloping a Wurkinr.; International Order--Political., Economic and Social," l\:::rhaps it -vdll be useful if I review for you very briefly the genesis of the International Bw"1k and attempt sor.1e definition of the functions it was designed to fulfill. The Bank had its origin in a general rec::,i;;niticm that the widespread devastation which the war hnd brought to Europe and tho industrial backvvardness or underdevelopment of' certain countries menaced the ecori<:;mic heal th of the whole world. And it was plain to those who viewed this problem that the capital loans required to meet it w::uld be beyond the capacities ::if private investors or ev0n of governments acting unilaterally. The pr.)blem was of such magnitude that it could be met only through world cooperation. Accordine;ly, nt the invitation of the United States, representatives of 44 nations met at Brettun lfoods, New· Hampshire, early in the sUimner of 1944 and framed the cons ti tuticns of two .cornplomcmtary ins ti tutions--the International Monetary Fund and the InternatLmal Bank. The essential objective of the Fund is t.he revival and expansion of international trade th::r,..:ugh the promotion c,f exchange stability a.nd the elimination of the destructive exchange practices which inhibited the flow of world trade bef:)re the war., The esst1ntial ubjective of the Bank is t:-.) pror.i.ote the international flow of long-term capital rmd to assure funds f.:ir the reconstruction of devastated areas and the development of resources in member countries. ·• • -2-'l • I Together, these institutions, wisely and effectively administered, can help nations and peoples to raise tri.eir standards of living through more efficient production and through ~reer interchange of the goods they produce. If they succeed in this, they will.have laid~ sound foundation for the . political measures requisite to t~e·maintenance of pea9e • . The International Bank is not intended to compete with priv~te banks. On the contrary., it is d.esigned to serve ·as a buttress to private finance. One of its stated functions is '!to promote private foreign investment•" ., But private investors can hardly be expected to make foreign loans until they have some reasonable assurance that the borrowers arc approaching a balanced economic position. Credit, if obta.inable at all, would presumably be at short term and relatively high rates. This would not enable the · carrying out of long-range tasks of reconstruction and dGvelopment--the very tasks prerequisite to attainrn,'.?nt of balanced economiq. positions. The Bank must serve during the transitional period f9llowing the war to achieve what private banking facilities would not for some time be in a position to achieve. The Bru}k is empowered to ext8nd credit in three principal ways. First, it may lend directly out of its own capital funds. Second., it may lend out of funds which it borrows through the ~ssuance of its own obliga- tions in the private capital markets of member countries. Third, it may guarantee, in whole or in part., loans made ·through the usual investment· channels. Direct loans are to be made by the Barik only when they cannot be floated through the normal chaimels at reasonable rates. So, it is clear., I think, that.the ~ank will serve not as a damper upon private investment but as a stimulus to it, expanding the investment SP.here by acting as a stabilizer and guarantor of private loans and by promoting the condit~ons m1der which private inV'estment can prove fruitful. Speaking entirely for myself and not as an official exponent of the Bank's views, I sho:uld say tha.t the Bank ought to make every effort, even in the early stages of its operation, to help borrowers obtain the funds they need from private sources, It can do this very effectively indeed either by underwriting the loans when that seems prudent or by participating in · them. It is my observ.ation--based, if I may say so, upon a rather consider- able experience extending over three decades--that the.mere readiness of a public institution like the International Bank to take up any unsold port:i.on of a loan issue gives assurance and· encouragement to private investors.. And frequently, under such ci~cumstances, they leave nothing for the public institution. to take up. ; ·The Bank, charged as it is with responsibility for promoting genuine programs of reconstruction and long-range development of resources in borrovvirig countries, is very much concerned with the uses to vh ich its loans • are put. The funds of the Bank can have little real utility j,f.they are app'lied merely to the repair of old and obsolescent machinery and the restoration of antiquated production processes~ • • • -.3- The great economic rEed is for a radical modernization of industrial techniques. Only as modr;rnization takes place can countries make their full contribution to the world's wealth and bring themselves into a position to buy -- and pay for -- the imports they require. AI).d only thus, of course, can they bring themselves into a position to repay to the Bank what they have borrowed. Increased world trade must go hand in hand with increased production resulting from increased efficiency. There can be no better means of raising living standards everywhere than the ready interchange among peoples of what each is able to produce most econ9mically. Arid it is equally true that there can be no better basis for friendly relationships .and mutual understanding among peoples than commerce' of this sort. I have said that the Bank is necessarily cone erned with the uses to which its funds are p-u't by borrowers. Permit ine, if you will, to go back to an observation I made more than a quarter of a century ago in connection with the fostering of international investment after the first world war. ! remarked in ah address to the American Manufacturers Export Association at tho.t time that "credit is a little like some drugs. In the hands of people who know its powers but also its dangers it is the most helpful, useful and healing thing in the world. But like those drugs., with misuse., with carelessness and with ha.bi'tual indulgence to excess., it can become the most demoralizing., ·disintegrating and dr0structive agency." I '·,·· ~ ' 1 think tha.t this warning is no lesspertinent flJ1d applicable today. The credit supplied by ·the International Bank must be credit that is put to work, credit that is employed to produce wealth. . . In reviewing the applications to the International Bank for loans., I find a listing of programs requiring material., machinery and teehnica~ manpower., all of vh ich it is assumed will be available if funds are available. But money alone, of itself, does not provide materials, machinery and technical·manpower. It is merely one of the tools to thnt end. This brings us to the question of the sources from which materials., machines and skilled technicians are available.· 1 During the war this country m0bilized its full resources of man and womanpower for production. Every possible stimulus to production was used. While there were interruptions in production, they were not on a major scale. This total mobilization of natural resources., machinery, management and labor enabled the United States to lend its great strength to the Allied cause. It was Amerio.an production that supplied the tools of our armies and of the armies of our Allies, The International Bank was created and org:mized on the assumpti'on that America, even.after the pressures of.war, would maintaip a high level of production. It was ta.lcen for granted that with our vast productive capacity the materials for world-wide reconstru,ction would be availaole if only the le t f :f financial machinery fo:r ade'quate loans were available. Our failure to produce these materials as rapid~y as was exp~cted has now created a bottleneck of serious p.ropoptions. f i' ~ ·-4- • At this point.; may I .divert in a somewhat personal way to the subject of: the Famirie Emergency Connnittee of last spring. On February 12·, in a meeting at the: }lhi te House, I heard Governor Lehman· and Secretary Anderson state that we wer.e about to default ·on our actual c.orrnnitments · for wheat and fats under the UNRRA progrcµn.· The result of this failure was projected in tems of starving tens of millions, and even hundreds of millions, of people throughout the world, while our own diet had increased by about 500 calories per capita daily over our pre-war consumption. Some of us were prof oundl.Y shocked.. We knew that if the American people realized what was happening they would insist upon C('.>nstructive a'ction. They-would resent learning, months later, the dire. consequences o~ a situation on which they had never been fully informed. To be surff, some statistics on the maldistribution of foodstuffs had·been published, but the tragic results of our unconscious selfishness' had never been full:'" brought home to the men, women and children of this country. Out of this situation car:1e the appointment of. the Famine Emergency Committee. With t~e help of the Advertisi..~g Council, which sprang into ac~ion with remarkable rapidity and efficiency, a self-rationing progral!l was presented to the people of our country. It was carried over the air on most of the rnajor programs and many of the local programs a·s .well. Commentators discussed it a·t length and frequently •. Great quantitio~ of advertising space in newspapers ·and magazines, paid for by the mer.chants and manufacturers of the country and,many other groups and individuals, were devoted to the subject. Churches .:ind schools cooperated g~nerously. • Mr. Hoover made a -trip around the world to survey demands for wheat and · fats in impJrt countries and tc; increase the ex1 ;orts of producing countries. In short, every f ·:irce that could be brought to bear upon the problem was mobilized. As a result, starvation in many countries was averted. The point of this is that our peopJ.e, learning t.he facts ·of the crisis, vd.llingly shared their supplies with -the nations threatened with starvation. · They fought for the common welfare in peacetime as they had fought for.it on the battlefield. Given information and leadership, 'the pe·ople of the United States can always be relied upon to do the right thing freeiy and.generously. But there is a starvation now going on in the world mnperning which leadership has been inarticulate, The starvation for the products of our fields in the form of food has been succeeded by a starva.tion no les.s . extensive and dangerous to .the welfare of humanity. I refer to the starva- tion for the prGducts of our mines and factories. Stoppages of production here at horae have~reduced the supply of many of the mateFials needed to restore a minimum of economic life abroad. Lending money alone will no,t supply the products .. This industrial starvation will remain acut~ as long as our production is restricted. Even the world's food supply has been curtailed ~y stoppages of our production of agricul t·..ir:11 implements, fertilizers, coal, automobile trucks and other means of transportation and of electrical and mining machinery and many other t,hings. In depriv~g other peoples of the tools they need for reconstruction, we are threatening • world recovery and condemning vast numbers of human beings to serious deprivations, I have no wish to weary you with figures. But a few·or them, I think, ,may be useful by way of illustration. The national coal· strike which took .. -5- • place in the spring of this year lasted for 58 working days.· It resulted in the loss of 70 million tons of coal. And since then, local strikes here and there throu[;hout the coal mines of the country have cost us in the neighborhood of 175,000 tons every week--coal that might have been·· available for production but was not. Now, it seems, we. are threatened with a fresh stoppage of work in the coal mines. Let us face the practical impact of it, if it should come. Coal production is l"unning currently at the rate of about 12 million tons a week or two million tc.>ns a day. 1"very day _of a national s;trike, therefor·a, would mean the loss of that amount. And the loss w·:uld in3vi tably be felt, as y.Ju know, in every phase of the American productive. system-if\ power plants, fact8ries, railroads, At the end of the chain, of c.:mrse, it would be felt by the peo1)les overseas waiting hungrily for the products of our industries necessary to set their industries in motion. The mnintena.'1ce of full production in this country· requires every tlm of co:3-l that can be mined~ A look at the Fed.E:'r2.l_ :a~servo BCJarcl ts index of production reveals disastrous drops in manufactnring output resulting principally from work stoppages. The index for pir; iron shove a drop from 100 in January to 48 in Feqrua:ry; steel in t),e same months fell from 108 to 46; machinery from 217 to 188. When the Ge'neral Motors strike took place 1--:. st fall, the index of automobile production droppf}d suddenly from 137 in November to 95 in • December • The October report of the Civilian Production Administration discloses that copper., a key production metal, suffored grievously from strikes last- ing through Mq.rch, April and May of this year. Production fell off during · that period from 70,000 tons a month tc about· 20,000 tons. ~appily., it is now back at its earlier level. I.say emphatically that the crucial importance of continuous full production for our own welfare and for that of mankind the world.over cannot be exaggerated. We Americans who but recently showed our sympathy for the people of the world by sharinc the products of ()Ur fields must now become aware that this economic starvation threatens the winning of the peace, the peace for which so many of our .;oys foueht and died and for vh ich so much treasure has been spent. , Although I cannot at this time prove it by.statistics because statistics come only after events, I venture to say that, if we had not had many ofthese unn0cessary stoj_Jpages of production, we could have helped the rest of the world by self rationing for export of part of our industrial production and at the same time have had more of everything here at ·home. Your organization is an tmportant one. Political science is your center of interest. Nati,:mal and world stability is ·your objective. ., -6- • That stability is now threatened by a starvation for the materials with which to reconstruct the de-vastnted·areas and to develop the economically backward areas. Why should the students of political science wait, as they have too often in the past,. to analyze these grim realities after the event't Why should you not make the' immediate need of rai-'sing ·our industrial produc- tion your immediate research problem? The key is better labor-mana8ement I relations. ·How are they to be obtained with a minimum of delay? Is this a problem for political scientists? For our present disastrous labor relations I 11,ave no dispvsition to allocate the blame. But I do ~my this with every conviction that is within me--we must find a way of settling our labor disputes without the disastrous strikes which bring about world .starvation in a broader sense than the mere withholding of·food. And as to food itself, the demandB upon uswill be heavier the longer we laclc ingenuity and the serae of responsibility to the rest of the world for the use ,;f our powers to help our fellow men. This sense of responsibility we .felt-in full measure during the war.· Let us feel it now in the same degree and make good the debt to our heroic dead. To do so would be smmd poli ~ical s-cience, sound hu.,nan relations, sound reli1sion and sound denocracy. It would be the beginning the world over of a new faith in our aJ:iility to :ifJad the way toward order, mutual c0nfidence and peace,· Given that s~ree of pr,oduction here in our country, the International Bank can better play the accelerating role for whic~ it was established. . ...