Remarks to Members of the White House Conference on National Economic Issues.

Mr. Watson, distinguished guests, ladies and gentlemen:

I want to express my thanks to all of you for coming to Washington. Our Founding Fathers, who were concerned about the difficulties which other countries had faced in maintaining their freedom, deliberately chose Washington as a city removed from the direct currents of political and social and economic life. So this is in a sense an artificial city and a Government city. This has had some advantages, but it also has disadvantages. Unlike London or Paris or Rome, great capitals, really, of the world, which are at the center of life and therefore at the center of all the streams of the economy, business, labor, and all the rest, we are somewhat distant.

There has come, however, a substitute for direct participation and that has been the organizations which all of you know about and which are active here in Washington and which represent the interests of various groups. They fulfill a very important function, particularly of bringing to bear on any piece of legislation the viewpoint of those who might be affected. And as the subjects that we deal with are very complicated and technical, it's essential that we have that viewpoint.

The difficulty, however, arises in that they take what's known as organization positions, and so we have these struggles by committees and lobbies and all the rest, and it's difficult for us to know frequently what people who are in positions of responsibility are really thinking. And that's why I think this meeting is very important today, and I'm glad that one of the ground rules is that no resolutions shall be passed. There isn't any doubt that you could get out a number of resolutions, but they would probably be so generally worded that they would give us very little guidance. And what we really need are more specifics. We all, really, in a sense associate with the same generalities. We all believe in the same words, and what we need now is your views on how these words can be implemented.

We all would endorse in a resolution the concept of a free economy. But what we want to hear from you is how we can make this free economy work, how we can make it work at full capacity, how we can provide adequate profits in return for labor, how we can provide adequate demand for all that we can produce. So that those are the things which I hope you will talk about.

Now this in a sense is a triumvirate-labor, management and the public, the ancient trilogy. There are of course substantial differences of opinion between labor and management, particularly over the negotiating table--how shall it be divided, how much will go to profits and the stockholders, and how much to business. But there is an awful lot more that both labor and management have in common, because if we can operate this economy at full blast, then the division that comes out of that full blast is going to be a much easier task. What is really difficult is when you're operating at 70 percent of capacity and the contract comes, and how much can you put into wage increases, and how much can you put aside, and how much can you distribute.

So that we've got a very important problem before us. In addition, I hope that what has happened in Europe should serve as some stimulus to us all. I talked--the Business Advisory Committee, Mr. Blough, the CED, are taking on two studies which I believe to be important. The Business Advisory Committee is considering the problem of our gold outflow. Some of them objected to one of our proposals dealing with tax havens which they felt was restrictive, and that we would lose in the long run more than we gained. So I said, well, you tell us how to do it, because every proposal that we make, whether it's keeping wives away from Europe, or whether it's cutting down on tourists, or whether it's trying to discourage the flow of capital immediately out of the country by ending tax havens, or whatever we may do, of course all runs across the interests of important groups. And so that we end up with a policy which has not yet given us a guarantee that we can bring this situation under control. And this we must bring under control. I know that the AFL-CIO feel that perhaps I overemphasize, but I am--in my opinion, we have talked so long about our domestic budget problems, which in relationship to our national income have steadily become lessened, because as you know at the end of the war our national debt was 120 percent of our gross national product and now it is about 60 percent.

The outflow of gold, however, is a different problem, and with the $12 billion federal Reserve cover and $161/2 billion which we now have, this is a matter to which we must give most serious attention.

So what do you think we ought to do? If you don't like our proposals, those of you who are in business abroad, on taxes, what are your suggestions, and what are they specifically, not in a general way? That's what I would like to see come out of this meeting, because we cannot possibly solve these problems unless we have your good will and your ideas.

I would like to also say a word about the difference between myth and reality. Most of us are conditioned for many years to have a political viewpoint, Republican or Democratic-liberal, conservative, moderate. The fact of the matter is that most of the problems, or at least many of them, that we now face are technical problems, are administrative problems. They are very sophisticated judgments which do not lend themselves to the great sort of "passionate movements" which have stirred this country so often in the past. Now they deal with questions which are beyond the comprehension of most men, most governmental administrators, over which experts may differ, and yet we operate through our traditional political system.

I think that what has happened in France, Italy, and Germany, where they've been able to maintain full employment, high rate of return, inflow of gold, for a number of years is worthy of study by us. What formulas have they adopted that are transferable, or is their rate of growth which has been double ours, is it due to a relationship between the government, labor, and management which is more satisfactory than ours? Is it because they follow a different budget policy than we do? Is it because they're in a different stage, as I've said, of economic growth? Is it the Common Market? Is it a combination? So whatever it may be, it is an impressive example.

The French planning committed itself just recently to a 5 1/2 percent rate of growth till 1975. That is an extraordinary expression of confidence in the vitality of that economy--better than we've done. What is it they're doing that perhaps we could learn from?

In talking about myth and reality, one of the subjects has been this question of inflation. I remember when the Secretary of the Treasury, Mr. Dillon, came back from the banking meeting in Vienna last September, he said that a number of New York bankers who had been present had spoken in very alarming terms about the size of the federal deficit which came out of the recession, and prophesied that it would bring inflation, which caused great disturbance among a good many Europeans. That wasn't our problem at all. We've had very little price increase, really, since 1958. I read now in magazines and business publications that maybe the problem is that we don't have enough of a stimulus, and that that's one of the difficulties that we have. And yet here are men who know more about the economy, really, than almost any other group of Americans, and who have caused a good deal of alarm and concern to go, because they were under the impression, really hung over from years ago, that the size of the deficit was going to produce a tremendous increase in prices--which hasn't been our problem at all.

So how can we look at things as they are, not through party labels, or through position labels, but as they are and figure out how we can maintain this economy so that it moves ahead?

And then I read that the problem really is that business confidence may be somewhat shaken by actions of certain public figures. Now business had high confidence in the previous administration, yet there was a recession in 1958 and a recession in 1960. And in 1956 there was a very sharp drop in the stock market before a very good year in 1957. So that doesn't give us the answer to the problem at all.

What we want to have is confidence that we will be able to invest and produce and consume, which is what these basic and successful countries of Europe have had, that is what is going to cause people to re-invest, and that's what is going to help make this economy move forward.

The point I'm making is, the problems are all extremely difficult, they require the most sophisticated solution, they're entirely different from the great movements, with the exception of the issue, really, almost, of medical care--it is the only issue which arouses powerful feelings among the general public. We have other issues which arouse powerful feeling among specific groups, but among the general public many of the issues which in the thirties, Wilson's administration, Theodore Roosevelt, Bryan, and all the rest, now they are sophisticated, technical questions which affect our economy and on which we ought to work in the closest concert.

That's why I think this meeting is very important. We cannot solve any of our problems without the wholehearted cooperation of all groups. And I am devoted, as you are, to seeing this country do the best it can. Because how well we do here, particularly compared to--fortunately, maybe not the Soviet Union for once--but how we do with our friends and allies in comparison with Western Europe is what sets the standard for us today. And therefore it requires the best work of all of you.

So gentlemen, you are most welcome here. If we could drop our labels and devote ourselves for 2 days, as citizens of the United States, I think that you would render a distinguished service. So I want you to know that you come to a Government which welcomes you and which appreciates the effort that you are making. And I hope you do not regard it as one of the many routine assignments which face all of those of you who bear positions of great responsibility.

These are not issues, there is no Presidential election until 1964. These are problems that are going to face each and every one of you, and unless we can work them out together, all of us are going to suffer. If we can work them out together, the whole country will benefit. So that you're most welcome, and I shall look forward with great concern to hearing your thoughts, about how we can keep this country of ours what it's been--a model for the world.

Thank you.