Meeting the tests of a new era.

• Author: Reed, John S.
• Position: Economic policy

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From now on, our priorities will be economic and social. And at least one businessperson is convinced that the U.S. private sector can meet the challenge.

John S. Reed

Chairman

Citicorp

With the end of the cold war, the economic lessons we have learned during the last 45 years may no longer be relevant.

At the end of World War II, the leaders of the free world established an economic structure that provides reasonably predictable exchange rates and increasingly free trade. Their aim was to rebuild our economies and maintain our strength in the ongoing confrontation with the communist world. Through a war in Korea, another war in Vietnam, and the unremitting cold war all around the globe, this confrontation was the glue that held Europe, America, and japan together, limiting the degree to which our countries could differ over fundamental economic issues. Now that that confrontation-that glue-is a thing of the past, we face the possibility that the world will split into groups of countries with different economic interests.

Although the European Community is coming together, the opening Lip of eastern Europe is turning the attention of some EC countries in that direction, tempting them to take more interest in the east than in GATT and other agreements for global trade. They have more flexibility-more options-than they did even three or four years ago.

Japan is asymmetrical in its trade relations with the rest of the world. While it is very important as an exporter, Japan is quite unimportant as an importer. Absent the glue of the cold war that necessitated the close cooperation of our two countries, the U.S. may well become increasingly protectionist with regard to Japan.

In the coming years we're going to face many new tests of our ability to maintain the free flow of goods and capital throughout the world. But we learned much in the postwar period, and no responsible political or financial leader wants to throw all that away. That's why I'm optimistic that we can prevail through these tests and hold this globally interconnected world of ours together.

Capital will be scarce

One of our principal challenges in holding the world together will be the shortage of capital. There will be too little capital to meet the global demand for development. About 800 million people in Japan, Europe, and North America benefit from the economic development the U.S. enjoys here. But now there are at least another 800 million other people who aspire to live like us-425 million in eastern Europe and the U.S.S.R., 225 million in Mexico and Brazil, not even counting the other Latin and South American countries, and 300 or 400 million in southeastern Asia.

Our way of life is made possible by the money we've spent on roads, hospitals, schools, manufacturing plants and equipment, homes, cars, and so on. In the U.S., we have between $50,000 and $55,000 of imbedded capital per person. To achieve the same level of economic development, these aspiring people will need the same infrastructure and facilities. Somehow these 800 million people will have to find $50,000 each, or $40...