Remarks and a Question-and-Answer Session With Members of the Commonwealth Club of California in San Francisco

The President. Thank you very much for a warm welcome that warms my heart. And I will confess that it's kind of lump in the throat time, also. Henry, I thank you very much. Mr. Chairman, the distinguished ladies and gentlemen here at the head table, I almost feel like we all should be going back to Sacramento. [Laughter]

Forgive me for a bit of nostalgia here. I remember so well those previous eight times, and many of them during those happy days in Sacramento. And this time, I can claim the best of both worlds: a California homecoming and a reunion with my fellow members of the Commonwealth Club—all wrapped up in one. And Nancy and I couldn't think of a better way to spend our anniversary. [Laughter]

But it is a pleasure to be back here where the crossroads of trade are meeting places for ideas that stretch our sights to the limits of the horizon and beyond. This Golden Gate city is a place where entrepreneurs with great dreams, daring, and determination chart new paths to progress through the winds and waters of commerce.

You provide an appropriate setting for an American challenge for the eighties. With the help of your vision, courage, and leadership, we can begin the first leg of a new voyage into the future, a future in which commerce will be king, the eagle will soar, and America will be the mightiest trading nation on Earth.

I haven't come here to echo those faint hearts who have little faith in American enterprise and ingenuity. They plead for retreat and seek refuge in the rusty armor of a failed, protectionist past. Well, I believe and I think you do, too, that the world hungers for leadership and growth that America can provide it. And my message is that our administration will fight to give you the tools you need, because we know you can get the job done.

Our forefathers didn't shed their blood to create this Union so that we could become a victim nation. We're not sons and daughters of second-rate stock. We have no mission of mediocrity. We were born to carry liberty's banner and build the very meaning of progress, and our opportunities have never been greater. We can improve the well-being of our people, and we can enhance the forces for democracy, freedom, peace, and human fulfillment around the world, if we stand up for principles of trade expansion through freer markets and greater competition among nations.

In dealing with our economy, more is in question than just prosperity. Ultimately, peace and freedom are at stake. The United States took the lead after World War II in creating an international trading and financial system that limited government's ability to disrupt trade. We did this because history had taught us the freer the flow of trade across borders, the greater the world economic progress and the greater the impetus for world peace.

But the deterioration of the free world and the U.S. economies in the 1970's led to the decline of Western security and the confidence of the people of the free world. Too many otherwise free nations adopted policies of government intervention in the marketplace. Many people began thinking that equity was incompatible with growth, and they argued for no-growth societies, for policies that undermined free markets and compromised our collective security.

There can be no real security without a strong Western economy, and there can be no freedom unless we preserve the open and competitive international and financial systems that we created after World War II. Prosperity alone cannot restore confidence or protect our basic values. We must also remember our objectives of peace and freedom, and then we can build a prosperity that will, once again, lift our heads and renew our spirits.

Now, I'm not going to minimize the problems that we face or the long, tough road that we must travel to solve them. For a quarter of a century after the Second World War, we exported more goods each year to the rest of the world than we imported. We accumulated a surplus of funds which was invested at home and abroad, and which created jobs and increased economic prosperity. But during the past decade, we began importing more than we were exporting. Since 1976 imports have exceeded exports every year, and our trade deficit is expected to rise sharply in this year of 1983.

In the past few years, high, real interest rates have inhibited investment, greatly increased the value of the dollar, and made our goods—as a result—less competitive. High interest rates reflect skepticism by financial markets that our government has the courage to keep inflation down by reducing deficit spending.

Well, if the history of our great nation and the character of this breed called American mean anything at all, it is that when we have believed in ourselves, when we pulled together, putting our wisdom and faith into action, we made the future work for us. And we can do that now.

Wealth is not created inside some think tank on the Potomac; it is born in the hearts and minds of entrepreneurs all across Main Street America. For too long, government has treated the entrepreneur more as an enemy than an ally. Our administration has a better idea. We'll give you less bureaucracy, if you give America your audacity. We want you to out-plan, out-produce, and out-sell the pants off this nation's competitors. You see, I believe in what General Patton once said—I'm partial to cavalry officers. [Laughter] He said, "Don't tell people how to do things. Tell them what needs doing and then watch them surprise you with their ingenuity."

Every citizen has a role and a stake in helping the United States meet her trade challenge in the eighties. We need jobs. Well, one of the best job programs we can have is a great national drive to expand exports, and that's part of our program.

We have only to look beyond our own borders. The potential for growth is enormous: a $2 trillion market abroad, a chance to create millions of jobs and more income security for our people. We have barely seen the tip of that iceberg. Four out of five new manufacturing jobs created in the last 5 years were in export-related industries, and yet 90 percent of American manufacturers do not export at all. We believe tens of thousands of U.S. producers offer products and services which can be competitive abroad. Now, many of these are small- and medium-sized firms.

Our administration has a positive plan to meet the trade challenge on three key points:

—first, lay a firm foundation for noninflationary growth based on enduring economic principles of fiscal and monetary discipline, competition incentives, thrift and reward;

—second, enhance the ability of U.S. producers and industries to compete on a fair and equal basis in the international marketplace; work with our trading partners to resolve outstanding problems of market access and to chart new directions for free and fair trade in the products of the future;

—third, take the lead in assisting international financial and trade institutions to strengthen world growth and bolster the forces of freedom and democracy.

Taken together, these actions give the United States a positive framework for leading our producers and trading partners toward more open markets, greater freedom, and human progress.

But progress begins at home. Our economic reforms are based on time-tested principles: spending and monetary restraint to bring down inflation and interest rates and to give leaders [lenders] confidence in long-term price stability; less regulatory interference so as to stimulate greater competition; and growth of enterprise and employment through tax incentives to encourage work, thrift, investment, and productivity.

Now, we've suffered a long, painful recession brought about by more than a decade of overtaxing and spending and, yes, government intervention. But recession is giving way to a rainbow of recovery, reflecting a renaissance in enterprise. America is on the mend.

Inflation has plunged from 12.4 percent in 1980 to just 3.8 in the last 12 months. And in the last 6 months, it's been running at 1.4. We've sought common sense in government and competition, not controls in the marketplace. Two years ago, we accelerated the deregulation of crude oil, and we heard ourselves denounced for fueling inflation. Well, the national average for a gallon of gasoline when we took office was $1.27, and now you can buy it in most places for less than a dollar. The prime interest rate was a crippling 21.5 percent. Now, it's down to 10.5. Tax rates have been cut. Real wages are improving. Personal savings and productivity are growing again. The stock market has hit a record high. Venture capital investments have reached record levels. Production in housing, autos, and steel is gaining strength. And new breakthroughs in high technology are busting out all over. Katy, bar the door. We're on our way back.

Let me say to the pessimists who would cancel our remaining tax incentives, I have one thing to say: Don't lay a hand on the third year of the people's tax cut or the indexing provision. Indexing is our promise to every working man and woman that the future will not be like the past. There will be no more sneaky, midnight tax increases by a government resorting to bracket creep to indulge its thirst for deficit spending. To pretend eliminating indexes is somehow fair to working people reminds me of Samuel Johnson's comment about the fellow who couldn't see any difference between vice and virtue. He said, "Well, when he leaves the house, let's count the spoons." [Laughter]

Capping the third year tax cut and eliminating indexing and our remaining tax cuts would send the worst possible signal to potential exporters. As I mentioned, 90 percent of U.S. businesses do not export at all. And about 85 percent of our firms pay their taxes by the personal income tax. If those who would dismantle the tax cuts get their way, the chilling message to the business community will be, "Don't scrap and struggle to succeed, export, expand your business, and hire more workers, because we won't thank and reward you for helping your country, we'll punish you."

Well, maybe I'm old-fashioned, but I don't think pitting one group of Americans against another is what the Founding Fathers had in mind. This nation was not built on a foundation of envy and resentment. The dream I've always believed in is, no matter who you are, no matter where you come from, if you work hard, pull yourself up and succeed, then, by golly, you deserve life's prize. And trying for that prize made America the greatest nation on Earth. Let us create more opportunities for all our citizens. And let us encourage achievement and excellence. We want America to be a nation of winners again.

So you might as well know that we will not turn our backs on the principles of our recovery program, especially on the principles of free trade. The great English historian, Thomas Babington Macaulay, wrote more than a century ago that free trade, one of the greatest blessings which a government can confer on a people, is unpopular in almost every country. Well, for some, times haven't changed.

There's a great hue and cry for us to bend to protectionist pressures. Well, I've been around long enough to remember that when we did that once before in this century, something called Smoot-Hawley, we lived through a nightmare. World trade fell by 60 percent, contributing to the Great Depression and to the political turmoil that led to World War II.

We and our trading partners are in the same boat. If one partner shoots a hole in the bottom of the boat, does it make sense for the other partner to shoot another hole in the boat? There are those who say yes, and call it getting tough. I call it getting wet—all over. [Laughter]

We must plug the holes in the boat of open markets and free trade and set sail again in the direction of prosperity. No one, no one should mistake our determination to use our full power and influence to prevent anyone from destroying the boat and sinking us all. There's a fundamental difference between positive support of legitimate American interests and rights in world trade and the negative actions of protectionists. Free trade can only survive if all parties play by the same rules. But we're determined to ensure equity in our markets. Defending workers in industries from unfair and predatory trade practices is not protectionism, it's legitimate action under U.S. and international law.

Now, one example of protectionist legislation that could quickly sabotage recovery is the local content rule. This legislation, proposed in the Congress, would force foreign and domestic manufacturers of automobiles sold in the United States to build their ears with an escalating percentage of U.S. parts and domestic labor. The Congressional Budget Office concluded that this would destroy more jobs than it would save. And that's true. It would add substantially to the cost of a new car.

What the proponents of this bunker mentality never point out is that the costs of protectionism for one group of workers are always passed on to another group down the line. And once such legislation is passed, every other industry would be a target for foreign retaliation. We would buy less from our partners. They'd buy less from us. The world economic pie would shrink. Chances for political turmoil would increase dramatically.

Rather than reacting in fear with beggar-thy-neighbor policies, let us lead from strength and believe in our abilities. Let's work at home and abroad to enhance the ability of U.S. producers and industries to compete on a fair and equal basis in the international marketplace.

We're very excited about some landmark legislation that I signed last year—signed, as a matter of fact, here in California—the Export Trading Company Act. It's an innovative idea based on teamwork. I'm confident it will create thousands of new exporters, and I hope some of them are sitting in this room. The law is designed to attract manufacturers, export-management companies, banks, freight-forwarders, and other export services into joint efforts to gain foreign markets.

The Commerce Department is holding seminars across the country to promote the legislation, and the response has been remarkable. Thousands have attended and, in some eases, the numbers were so overwhelming people had to be turned away. The majority of attendees have not been lawyers, tax accountants or, forgive me, bankers— [laughter] —but business people, the people who can take this legislation and use it. They can expand our markets, become exporters, or sell to export trading companies who can do it for them. The bottom line will be a breakthrough in exports, higher growth, lower deficits, and a tremendous surge in new jobs and opportunities for our people. Each billion dollars that we add in exports means tens of thousands of new jobs.

More companies will seek the world of exports when they realize that government is not an adversary. It's your partner, and I don't mean senior partner. We have eased, substantially, taxation of foreign-earned income and introduced a 25-percent tax credit for research and development. We're also working to reform the Foreign Corrupt Practices Act, not to weaken safeguards against bribery but to remove disincentives that discourage legitimate business transactions overseas.

Another obstacle is export controls on technology. A backlog of 2,000 applications greeted us when we arrived in office. Well, we eliminated those and relaxed export controls on low technology items that do not jeopardize our national security. Still, there are limits. I'm confident each of you understands that we must avoid strengthening those who wish us ill by pursuing short-term profits at the expense of free world security. Trade must serve the cause of freedom, not the foes of freedom.

To export more, we must do a better job promoting our products. We're strengthening our export credit programs by increasing the level of the Export-Import Bank ceiling on export guarantees. We're also designing a tax alternative to the Domestic International Sales Corporation that will fully maintain existing incentives to our exporters. We've begun a Commodity Credit Corporation blended export credit program for our farmers, and that's in addition to the increases this year in the regular loan guarantee program for promoting U.S. farm exports.

To retain America's technological edge-of which there is no greater evidence than California's Silicon Valley—and to revive our leadership in manufacturing, we've implemented an R. & D. policy to enhance the competitiveness of U.S. industry in the world economy. In our 1984 budget, we've asked for significant increases for basic research, and we will seek to improve the teaching of science and mathematics in secondary schools so tomorrow's work force can better contribute to economic growth. We will also seek to encourage greater and more creative interaction between university and industry scientists and engineers, through programs similar to the one between Hewlett Packard and Stanford University. Finally, we're taking steps to encourage more industrial R. & D. through changes in our tax and antitrust policy, and we will attempt to remove legal impediments that prevent inventors of new technology from reaping the rewards of their discoveries.

Supporting American producers gives us the means to press our trading partners toward more free and open markets. We're challenging the unfair agricultural trade practices of Japan and the European Community, and we're charting a new course for the products of the future. We have agreed to a work program with the government of Japan to eliminate trade and investment barriers to high technology industries. We have also established a working group with the Japanese to actively explore opportunities for the development of abundant energy resources.

By restoring strength to our economy, enhancing the ability of our producers to compete, America is leading its trading partners toward renewed growth around the world. The world economy, like ours, has been through a wrenching experience—a decade of inflation, ballooning government spending, and creeping constraints on productive enterprise. Other countries, including many of the developing countries, are now making major efforts to restrain inflation and restore growth. The United States applauds these efforts, and we're working in the International Monetary Fund to keep a firm focus on the role of effective domestic policies in the growth and stability of the world economy.

But for all countries, international trade and financial flows are extremely important. Either the free world continues to move forward and sustain the postwar drive toward more open markets, or we risk sliding back to the tragic mistakes of the thirties, when governments convinced themselves that bureaucrats could do it better than entrepreneurs. The choice we make affects not only our prosperity but our peace and freedom. If we abandon the principle of limiting government intervention in the world economy, political conflicts will multiply and peace will suffer. And that's no choice at all.

The United States will carry the banner for free trade and a responsible financial system. These were the great principles at Bretton Woods, New' Hampshire, in 1944, and they remain the core of U.S. policy. We will do so, well aware of the changes that have occurred in the international trade and monetary system.

In trade, for example, we've practically eliminated the barriers which industrial countries maintain at the border on manufactured products. Today, tariffs among these countries average less than 5 percent. Our problems arise instead from nontariff barriers which often reflect basic differences in domestic economic policies and structures among countries. These barriers are tougher to remove. Well, we're determined to reduce government intervention as far as possible and, where that is unrealistic, to insist on limits to such intervention.

In trade with developing countries, on the other hand, tariffs and quotas still play a significant role. Here, the task is to find a way to integrate the developing countries into the liberal trading order of lower tariffs and dismantled quotas. They must come to experience the full benefits and responsibilities of the system that has produced unprecedented prosperity among the industrial countries.

We've taken the lead, proposing the Caribbean Basin Initiative to encourage poor and middle-income countries to trade more, and we proposed a North-South round of trade negotiations to maintain expanding trading opportunities for more advanced developing countries. We seek to build a collective partnership with all developing countries for peace, prosperity, and democracy.

At the GATT ministerial meeting last November, the United States took the lead in resisting protectionism, strengthening existing institutions, and addressing the key trade issues of the future. While we're not totally satisfied with the outcome of that meeting, we'll continue in our support of free and equal trade opportunities for all countries.

Expanding trade is also the answer to our most pressing international financial problem—the mounting debt of many developing countries. Without the opportunity to export, debt-troubled countries will have difficulty servicing, and eventually reducing, their large debts. Meanwhile, the United States will support the efforts of the international financial community to provide adequate financing to sustain trade and to encourage developing countries in the efforts they are making to improve the basic elements of their domestic economic programs.

Earlier this week I forwarded draft legislation to the Congress for additional American support for the International Monetary Fund. Leading by the IMF has a—or lending, I should say, has a direct impact on American jobs and supports continued leading—or lending by commercial institutions. If such lending were to stop, the consequences for the American economy would be very negative.

This spring, in May, the United States will host the annual economic summit of the major industrial countries in Williamsburg, Virginia. The leaders of the greatest democracies will have a quiet opportunity to discuss the critical issues of domestic and international economic policy and reflect on their individual and collective responsibilities to free peoples throughout the world. It's not a forum for decision-making. Each leader is responsible primarily to his or her own electorate. But by exchanging views, these leaders can gain a better understanding of how the future of their own people depends on that of others.

And may I just interject here, something brand new in international relations has been brought about by one Prime Minister, Margaret Thatcher. When we sit around those summit tables, the protocol is gone, and we're all on a first-name basis.

I began today by saying that if we believe in our abilities and work together, we can make America the mightiest trading nation on Earth. Here in this room, and not far from this building, are people and companies with the burning commitment that we need to make our country great. One of those companies, the Daisy Systems Corporation, is a computer firm in Sunnyvale, California. It was formed in August 1980, and it made $7 million in sales its first shipping year. This year it expects to earn $25 million, and by 1986, $300 million. Daisy Corporation is already selling its products in the markets of France, Norway, Belgium, Great Britain, Germany, Israel, and Japan. Its work force has nearly quadrupled in the last year.

Well, my dream for America, and I know it's one you share, is to take that kind of success story and multiply it by a million. We can do it. Albert Einstein told us, "Everything that is really great and inspiring is created by individuals who labor in freedom." With all the wisdom in our minds, and all the love in our hearts, let's give of ourselves and make these coming years the greatest America has ever known.

Thank you very much, and God bless you. And God guide us all. [Applause]

Thank you. You're shortening the question period.

Dr. Keith. Thank you, Mr. President. Nelson Weller, president of the Commonwealth Club of California, will now conduct the question-and-answer period.

Mr. Weller. Thank you, Professor Keith. Mr. President, these questions are from your fellow members.

Environmental Protection Agency Documents

The first question, why do you deny Congress access to EPA files? [Laughter] Why shouldn't they see everything?

The President. Well, we are letting them see everything. And, as a matter of fact, they started squealing before they were hurt. [Laughter]

We had almost 800,000 documents which we were ready to make completely available to them, and they turned us down. There were less than 100 documents which the Justice Department felt would have violated the principle of confidentiality, because they dealt with litigation and pending cases of that kind, and that this, in the hands of someone who might leak the information, could be adverse to what we might be faced with in such litigation. So, this decision was made by the Justice Department in keeping, I might add, with the tradition of executive privilege that goes all the way back to George Washington.

But now, because of the accusations and allegations that have not been forwarded to us or to the Justice Department as we have suggested, but are first made public—and many of them without any substantiation-we have made available to the congressional committees all of the documents. And those in which the Justice Department believes there is some sensitive thing, having to do with this litigation and so forth, are whited-out. But then they are able to—we will tell them and inform them what is the nature of what is whited-out. So that in reality, they are being offered and given everything. And I think what's happened to them is their eyes have started to glaze over. There are so many documents, and they don't know how to get out of their request. [Laughter]

Mr. Weller. Mr. President, we have some questions on foreign affairs.

The Middle East

How far are you willing to go in pursuit of your Middle East peace plan by applying pressure on Israel to meet your peace plan requirement?

The President. Well, we're doing everything that we can to speed this up, because we believe that to bring the Arab nations that—you might say, the more moderate Arab nations that have expressed to us now a willingness to negotiate with Israel and try to arrive at a long-term peace arrangement in the Middle East. But they have predicated it on that Lebanon must be allowed now to resume sovereignty over its own nation. And this calls for the leaving of Lebanese soil of all foreign troops—the Israelis, the Syrians, and the remnants of the PLO that are still in there.

And we are, I must say, disappointed by the length of time it's taken and by the haggling and the negotiations, because no one of them will leave until all three agree to leave.

There has been some reason for optimism in the last few days. We have Ambassador Habib and his assistant, Philip Draper, over there helping in this negotiation. But we do want to get that settled and get to the table, then, on the whole, overall matter of international peace. And I can tell you, we will not retreat from every effort that is open to us to bring that about.

El Salvador

Mr. Weller. Now, back to our own hemisphere. The recent request for escalation of military aid to El Salvador appears to be the beginning of a replay of the early days of Vietnam. What assurances can you offer that this is not the case?

The President. I can give you assurances. And there is no parallel whatsoever with Vietnam. We have the instance here of a government, duly elected. And just a short time ago—an election—the people of El Salvador proved their desire for order in their country, and democracy, and that they had no sympathy whatsoever for the rebels who are armed, who are trained by countries such as Cuba and others of the Iron Curtain countries. They're supplied with weapons that come in by way of Nicaragua.

The threat is more to the entire Western Hemisphere and toward the area than it is to one country. If they get a foothold, and with Nicaragua already there, and El Salvador should fall as a result of this armed violence on the part of the guerrillas, I think Costa Rica, Honduras, Panama, all of these would follow. And I ask anyone—50 percent of everything that we have to import comes through the Caribbean, through the Panama Canal. It is vital to us that democracy be allowed to succeed in these countries, as I say it did in that last election.

Now, right now, El Salvador is considering calling a new election, hopefully before the year is out. But we had a bipartisan team of Congressmen go down and witness that last election, observe. The stories they came back with! They were converted, any who had had any doubts.

They told of a grandmother standing in that line who had been threatened by the guerrillas that if she voted on that day—and incidentally, they had destroyed and bombed and burned over 150 buses so that people had to walk for miles in the hot sun to get to a polling place, but they did. And they stood in line for hours. This woman said to them, "You can kill me. You can kill my family. You can kill my neighbors. You can't kill us all." Another woman stood in the line and refused to leave the line. She had been shot by the guerrillas, wounded, and refused treatment until she had been able to mark that ballot. Then she would submit to treatment. And they came back, and we're convinced that, sure, there are things to be corrected down there, but we're working with them.

Now, what we mean by expansion is that we have a limit on 55 of our military personnel, only for the sake of training their forces down there. And they need that training. So far, we've only averaged—for the last couple of years—37 of those 55 positions being filled. And right now, there are 45. We may want to go beyond that 55. But in no sense are we speaking of participation in combat by American forces. We are trying to give economic aid, which is necessary to their economy because of the destruction of powerplants and bridges and things of this kind, and industries. And we believe that the Government of El Salvador is on the frontline in a battle that is really aimed at the very heart of the Western Hemisphere, and eventually at us.

Social Security System

Mr. Weller. Now, some questions on the domestic scene.

Can social security be saved?

The President. Yes. As a matter of fact, we really had an example just the other day, when we started out here on this trip, of bipartisanship, when the all-powerful Ways and Means Committee—heavily Democratic, of course, with a majority in the House—chaired by Dan Rostenkowski, Democrat Representative, with Barber Conable, our minority leader, on that Committee-when they brought out—I think the vote was 33 to 2—the recommendation for the Commission's plan for social security, to restore its fiscal integrity. Now, that still will leave additional legislation, because that solves the short-range problem, and for a number of years, and gives us time, then, to deal with an actuarial imbalance that still exists out on the long-range, the 75-year plan for social security.

But I can assure anyone who is dependent on social security, they are going to continue to get their cheeks.

Income Tax Reform

Mr. Weller. We certainly have a timely question now. A member asks, "I have just started working on my taxes." [Laughter] "When will you start drafting a fiat tax-rate proposal?"

The President. I lost a word there. "I have just started working on my taxes. When will you start drafting . . ." [Laughter]

I can tell you, we are convinced in Washington that there is more objection to the tax system and its complications than there is to the amount of tax you're being required to pay. [Applause] That brought a smile and applause from [Secretary of the Treasury] Don Regan. [Laughter]

We are studying and looking at—including that, the proposal there, as to whether that is the way to go—but at a simplification of the tax structure. It is very much needed, and we would like to be able to bring it to the people.

Mr. Weller. Thank you.

Mr. President, unfortunately our time is nearly up, so this will be our last question.

The President. Oh, dear. [Laughter]

Mr. Weller. Before asking it, may I remind you to remain seated until the President and our head table guests have departed.

President's Plans for 1984

And, now, Mr. President, our last question. When will you decide to run for the Presidency in 1984?

The President. Well, now, the chances are 50-50—50 that you won't and 50 that you will. [Laughter] But I have to just repeat the answer that I've always—you know, I don't think this is the time to make such an announcement. If you make it that it's negative, you don't have any power anymore in Washington. And if you make it positive, then they say everything you're trying to do is political. [Laughter]

But the other thing is, I also believe that the people of this country indicate whether you should run again or not. So, I'm watching.

Mr. Weller. Thank you, Mr. President, for joining us today.