Roth Speech Addresses Challenges of Global Economy
WASHINGTON -- In a speech today to the Advisory Board of the Center for Strategic and International Studies (CSIS), Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) prescribed, "what must be done to restore long-term growth and opportunity in the global economy."
Roth co-chairs a CSIS task force, with Senator Joseph Lieberman (D-CT) and Congressmen David Dreier (CA-28) and Robert Matsui (CA-5), on global financial stability. The purpose of this task force is to look at the economic events of the last eighteen months and to issue policy prescriptions to address the challenges faced by the global economic crisis.
In his speech Roth outlined a six-point policy agenda that he said, "form(s) the beginning of what I believe can be a bold new consensus -- a new consensus that can serve as part of the framework for a global economic agenda."
Roth's speech follows:
"It's a pleasure to be here -- among friends and colleagues. I would be remiss if I didn't begin by expressing my appreciation for Dave Abshire, a good friend whose leadership not only brought CSIS into existence, but turned it into a world-class organization. Thank you, Dave. And thank you, Ann. Both of you will be missed, but we can all rest assured that CSIS will be in excellent hands with Bob Zoellick, and Sam Nunn. Both are proven and trusted minds in foreign policy and national security issues, and under their leadership the center will continue to play an influential role in international affairs.
"And I can't overstate how important this is. The Center for Strategic and International Studies, along with the rest of America, is in what we might consider the eye of the storm -- a turbulent global economy that for the last year and a half has adversely affected nations throughout Asia, Europe, and South America. Even our robust domestic economy has not been immune. Businesses big and small have been affected in their bottom line by the buying power and strength of economies half a world away.
"We are fortunate that our domestic market has largely withstood the financial hardships being endured by many of our global partners. Our ability to withstand the shocks of the economic turmoil is a testament to the industry of our people and the resources of our land. It is also the benefit of sound economic policies coming out of Washington. The final gross domestic product data for 1998 revealed an amazingly robust annual growth rate of over four percent last year. This came on the heels of the Taxpayer Relief Act of 1997, which contained cuts in capital gains and estate taxes, and created the Roth IRA. Moreover, inflation continues to remain in check as evidenced by the CPI and low commodity prices, and at the same time unemployment has stayed at historically low levels.
"Beyond encouraging signs here at home, there is evidence that things are getting better abroad. Many of the countries in crisis have undertaken significant economic reforms and are now beginning to trend upward, reattracting foreign investment, as people see the structural reforms as signs of better things to come. It is also reassuring that throughout the crisis the democratic institutions in most of these nations held steady and that even now, in some of the countries worst hit, per capita incomes are growing again.
"These conditions -- economic vitality at home and political stability and rebounding economies abroad -- give us reason to be optimistic. But our optimism must be tempered by recognition of the challenges we still face and it must be accompanied by sound monetary, economic, and trade policies that can sustain such conditions.
"We must continue to embrace a pro-growth agenda here at home. That means holding the line on -- and even reducing -- taxes and government regulations. It means continuing monetary policies that promote low interest rates and non-inflationary economic growth. It means using our budget surplus to encourage future financial opportunity and economic security by promoting savings and investment, self reliance, Social Security and Medicare, and by helping to bring prosperity to those struggling at the lower end of the economic ladder.
"With these leading the list of our objectives domestically, we must remain focused on those policies that influence our relationships with our economic partners throughout the world. Just as I feel strongly about the kinds of policies that must be adopted to keep us strong and growing here at home, I see in very concrete terms what must be done to restore long-term growth and opportunity in the global economy. These policies, taken together, form the beginning of what I believe can be a bold new consensus -- a new consensus that can serve as part of the framework for a global economic agenda.
"First, America and its trading partners must introduce an immediate standstill on the introduction and imposition of all protectionist measures. We must ensure that we provide positive momentum in our approach to the WTO ministerial in Seattle this November. My concern is that the pressure of the international financial crisis may lead governments -- including our own -- to impose trade restrictive barriers to their markets. If they do, this could lead to the same kind of deflationary economic epidemic that the world witnessed in the 1930s. Having said this, let me be clear that this does not mean that the United States should not take full advantage of our rights under our international aggrements or take the steps necessary to ensure that our partners live up to their commitments.
"Second, in the coming round of multi-lateral trade relations America and its trading partners must work to complete the original work of the GATT. By this I mean the elimination of industrial tariffs, the elimination of all agricultural export subsidies, and a substantial reduction, if not elimination, in all other market access barriers to U.S. agricultural exports.
"Third, we must eliminate barriers to trade in financial services and negotiate internationally accepted accounting standards, particularly for financial institutions. These will strengthen both our prospects for exports of financial services and reinforce the domestic financial architecture in emerging markets on which their renewed economic growth depends.
"Fourth, we must strengthen respect for the rule of law. We must be staunch advocates of constructive mechanisms for the resolution of trade disputes to ensure that countries abide by their commitments under international agreements and to ensure that disputes don't escalate into self-defeating trade wars. Right now -- in the midst of an international economic crisis -- the European Community is forcing us into a fight over, of all things, bananas, and the whole international trade regime is threatened. Respect for the rule of law is as essential in an international setting as it is domestically for the United States, or any other nation, for that matter.
"A fifth concrete objective must be to address the criticisms that have been raised about our domestic trade policies as well as the international trading system concerning labor and the environment. The point is that if we are to make progress, we must have the support of the American people. This means making progress on issues that have stymied us in the past.
"On the environment, there is nothing inconsistent with trade liberalization and sound environmental policy. Indeed, the creation of wealth is a prerequisite for any society that wishes to take care of the environment. We must highlight the need to eliminate trade-distorting tariffs and subsidies as much for their value in discouraging damage to the environment as for the potential they provide in opening up new economic opportunities. And we should strive to eliminate the conflict between our international trade obligations and multi-lateral environmental accords.
"On labor, our efforts should be directed first in seeking the adoption and implementation of international core labor standards. A positive step towards this end was the agreement this past year amongst governments, business, and the international labor organization on a declaration regarding internationally accepted labor rights. While stressing that trade and labor should be mutually reinforcing, the groups also committed themselves to avoid the use of trade sanctions as a means of achieving these goals. A next step should be a significant increase of investment in training and education here at home. If we want our workforce to be able to compete alongside American business in the 21st century we have to give them the tools and the abilities for lifelong learning.
"Here at home, we must take a serious look at our trade adjustment assistance programs. It is plain, based on the evidence, that they are not working as they could be to encourage the successful transition of our most valuable resource -- the American worker -- to compete in a new global economy. Future trade adjustment assistance must confront the reality that America is opening its economy on many fronts and it is that broader exposure to global competition that we must consider in fashioning these programs.
"Beyond these concrete trade-related proposals, we must encourage our partners to adopt monetary and financial policies that have worked so well for us. While the immediate panic and market and currency turbulence is subsiding in Asia, we have to deal with the second phase of the international crisis: the enormous bad debt problem. As we learned from our own savings and loan crisis, the faster this issue is addressed the better. Thus far, reformers have had a strengthened hand in many of the affected countries. But as unemployment and social dislocation continue to rise, the reformers will face increasing political opposition.
"Toward addressing the bad debt problem, we must encourage these nations to open up significantly to foreign investors. This, of course, is easier said than done when it comes to countries with strong nationalistic tendencies, such as Korea and Thailand. We must remind these countries that their future is linked to access to global capital markets and there is enormous benefit to them by accepting foreign investors. We must also stand ready to assist these countries in building the institutional framework to sustain free flows of trade and capital. In too many of the most afflicted countries, their previous market opening was not accompanied by adequate financial oversight, the rule of law, independent central banks, or any of the other institutions crucial to making free markets in trade and capital work.
"Finally, we must prevail upon Japan and the European Union to become fully engaged in the process. Japan remains the leading economy in Asia, and until it makes its way out of its eight year stagnation it will be difficult for other economies in the region to make a comeback. We are still waiting for Japan to reflate its economy, to spark domestic demand-led growth. Thus far, Tokyo has focused on public works projects -- pork-barrel projects that have little long-term benefit -- rather than on significant tax cuts to stimulate demand. Japan's focus must be on tax cuts, dealing more speedily with its bad debts, and allowing foreign banks and investors in to help solidify its financial sector.
"In the EU, the European Central Bank must be as concerned about deflationary pressure as Alan Greenspan at the Fed, or Governor Hayami at the Bank of Japan. The EU member states must open their economies to services and trade. They must lower tax rates and eliminate much of the regulatory restrictions that are strangling their economies.
"This lengthy prescription may seem somewhat like Will Rogers' advice to end World War II and bring universal peace to the world. He said the idea was simple: drain the Atlantic Ocean. When asked how to do that, he said, 'That's a detail, and I'm not the detail guy. I'm the idea man.' Not only is the prescription outlined ambitious, but it will take an international cooperative effort of historic proportion. Still, I believe we can achieve it. America knows what works. We have seen the blessings of open markets, the economic growth that comes from tax cuts, and opportunities that attend deregulation. Likewise we have witnessed the devastating effects of protectionism.
"The most important lesson we have to share is that confidence in both an economy and a currency is dependent upon a country's commitment to low tax rates, trade liberalization, and a stable monetary regime. In the '30s we discovered that we could not protect ourself by closing our borders. In the '70s we learned that we could not devalue or tax our way into prosperity. These are now lessons that we can -- and must -- share with the world. And this is what I intend to do as I serve as co-chair -- along with Senator Lieberman and Congressmen Dreier and Matsui -- of a CSIS task force on global financial stability. The purpose of this task force is to look at the economic events of the last eighteen months and to issue policy prescriptions to address the challenges faced by the global economic crisis.
"I began with a lengthy prescription today, and I look forward to working with the scholars at this institution as we carry our message boldly forward. Thank you."
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