The Atlantic Report on the World Today: Washington

on the World Today

TWO hopeful developments are under way this year which emphasize anew the economic interdependence of nations and which ought to provide new guidelines for action in the closely related fields of aid and trade. One is the meeting of the United Nations Conference on Trade and Development in Geneva, where delegates from 123 countries have been seeking an answer to the question of how two thirds of the world’s peoples can achieve a higher standard of living.

The other meeting, which will last much longer, involves the negotiations under the General Agreement on Tariffs and Trade (GATT) of the socalled Kennedy round of tariff reductions. These negotiations, which primarily concern the important trading nations, nevertheless directly affect the underdeveloped nations. More than ever they and the industrial nations are realizing that trade rather than aid is the key to economic progress.

At present rates of growth, according to a United Nations study, it will take more than 200 years before the standard of living of the poorer countries can reach the standard of Western Europe today. Another study indicates that if the economic growth rate of the industrial countries could be increased from an average of 5 percent a year to an average of 7 percent, the poorer countries could reach that goal in a third of the time estimated by the United Nations study.

With these facts in mind and since the United States is the greatest industrial power, it is easy to understand why other peoples take such a keen interest in America’s economic decisions, and why there was concern abroad when Congress took more than a year to enact the Kennedy proposal for income tax reductions. The cuts affected not only the American taxpayer but also the economic well-being of many nations.

In this connection, the pressure of events is building up to force Congress to pay attention to two vital foreign-policy issues in the economic field. New solutions must be found to the problems of East-West trade and to the problems of the relationship between developed and underdeveloped nations. Senator Fulbright touched on both these issues in his celebrated speech to the Senate pleading for an abandonment of “old myths.”

The speech began to take shape in Fulbright’s mind last year during the bitter debate over the proposal to sell wheat to the Soviet bloc and during the closing hours of the foreign-aid debate. “I got upset about the character of the attack on the agreement to sell wheat to the Soviet Union,” Fulbright told a reporter who asked why he had made his speech. “I was also upset over the foreign aid debate, which showed a parochialism I didn’t like.”

The gap between rich and poor

Although the Fulbright speech annoyed President Johnson, it may make his path easier in the future. The speech provided a countervailing force against the congressional pressures from the conservatives. If the President is elected in November, the pressures from abroad as well as the awareness of informed Americans will force him to seek new answers to many perplexing foreign issues. He cannot rely forever on the least common-denominator in Congress to provide guidance. The world simply will not wait on the congressional temper, nor will the President when he begins to devise his own foreign policy.

It has been said that the most spectacular failure of the post-war world is one in which all the industrial countries, including Russia, have shared. It is the failure to find an effective way to narrow the gap between the rich and the poor nations. It is now apparent that a major element in the Sino-Soviet dispute is the different attitudes in Moscow and in Peiping toward the problem of development and toward the question of power in the underdeveloped nations.

In the early post-war years the United States placed great emphasis on the importance of foreign aid. Now, particularly since President Johnson has shown his lack of real interest in the aid program, it is more than ever apparent that trade is equally important and will be much more important in the future. And trade, to be successful, must be built on two foundations — stable economic development in the industrial countries and a workable international financial structure which is not subject to every fluctuating balance-of-payments problem.

In other words, the northern countries must be able to avoid business crises in their domestic economies, not only for their own well-being but also for the well-being of countries to the south which are absolutely dependent upon foreign markets for their survival. And there must be a stronger mechanism to guard against exchange crises. The lesson is apparent: no nation can successfully go it alone in economic policy anymore than it can safely go it alone in military policy.

Nevertheless, early this year, despite appeals from President Johnson, the House of Representatives showed its lack of interest in and understanding of foreign assistance when it voted 208 to 188 to return to committee a bill authorizing a United States contribution of $312 million to the International Development Association. The Senate had earlier approved the bill. Since seventeen other countries have made their contribution to IDA dependent upon United States support, the House action, unless reversed, could prove fatal to the organization, which is a World Bank subsidiary designed to help the poorer nations.

A more flexible tax policy

Partly to protect the domestic economy and partly to make certain that the United States was in a position to meet its international obligations, President Kennedy made a modest request to Congress early in 1962, which in an orderly world might have provoked little opposition. But his proposal, which would have permitted a small degree of flexibility in fiscal policy, struck a very raw congressional nerve. The opposition was so great that no serious consideration was ever given to the late President’s request. No one expects President Johnson to repeat the request in the near future, but someday he may wish Congress had approved his predecessor’s proposal. Many economists in Washington regard the original proposal as a major piece of unfinished business.

Kennedy had asked Congress to give the President standby authority to reduce federal income taxes if the country were threatened by a recession. He asked only for temporary authority limited to a reduction of up to five percentage points. He proposed that if Congress disapproved his decision it could veto it within thirty-one days by a simple majority vote in both houses. In any event, the reductions the President might order would be authorized for no more than one year unless Congress took action to approve what he had done.

President Kennedy told Congress that the authority was needed to enable the government to act “more promptly, more flexibly and more forcefully to stabilize the economy.” He argued that his proposal combined “assurance of congressional control with provision for the flexibility of action needed to achieve the objectives of maximum employment and output, economic stability and growth.”Few presidential requests have fallen on deafer ears. Congress made it clear at once that it would give the President no such power. The congressional leaders in the tax field said that they would be delegating a part of their constitutional responsibility if they permitted the President any discretion at all over the tax laws.

Today, those who favored Kennedy’s 1962 proposal contend that the history of the fight on the tax-reduction bill reinforces their argument that some executive discretion is urgently needed. President Kennedy was convinced of the need of income tax reductions by the summer of 1962. He considered asking Congress for an immediate cut at that time. However, because he recognized that Congress would not approve a reduction that year, he announced that he would postpone the request until January, 1963.

It was not until eighteen months after the President wanted to act and not until thirteen months after he presented his formal recommendations that the bill was finally passed. In other words, Congress again demonstrated that there is very little flexibility in tax policy. In January of this year, as final work was being done on the tax bill, the Council of Economic Advisers warned that “tax and expenditure policies cannot be adjusted with sufficient speed to cope with the swift changes in private demand that bring recession or inflation.” The Council emphasized that it still regarded the proposal President Kennedy made in 1962 as highly desirable.

The British can move fast

Nearly all other industrial countries have far more flexible fiscal systems than that of the United States. For example, in the winter of 1962— 1963 Britain faced the threat of business stagnation and rising unemployment. Without even going to Parliament, the government late in 1962 ordered a sharp reduction in excise taxes. It has the authority to cut excise and payroll taxes without consulting Parliament.

The British government then decided that a major income tax cut was needed. In April, 1963, it presented a strongly expansionist budget to Parliament, and within a month the lower tax rates were approved. By July, the economic indexes were rising. The unemployment rate, which was 4 percent of the labor force in February, was reduced to 2 percent in less than six months. Industrial production rose by more than 13 percent in the same period.

If the American Congress were as responsive to the executive as the legislature is in a parliamentary system, the need for the kind of standby authority President Kennedy requested would not be so great. The fact that in the normal course of events present tax laws produce an additional $5 or $6 billion of revenue each year as a result of population and economic growth strengthens the argument for executive flexibility. The Administration believes that unless this additional collection is matched by tax reductions or by increased federal expenditures a serious drag on the economy may develop in a short time.

The President and the press

When President Johnson began experimenting with the press conference format, most Washington correspondents were delighted. They welcomed the informality as well as the new approaches. But after more than half a year in office, Mr. Johnson has not found a solution that is entirely satisfactory either to him or to the press.

The basic problem is that he has always preferred to operate in the cloakroom rather than in the open. He remarked to associates after the controversial Fulbright speech that if the senator had only come in for a quiet talk the whole thing might have been avoided. Yet the value of the Fulbright speech was in its educational impact: it provoked a needed debate. The President would have preferred to head it off before it started.

It is not that he does not wish to keep the nation informed. He wishes to inform it only after all things have been settled internally and he is ready with a formal announcement. Minor leaks to the press about his plans infuriate him, and he has instructed his staff to avoid the press as much as possible.

For a man as sensitive to criticism as Mr. Johnson, it is not surprising that his relations with the press have begun to be a problem for both. He likes the intimate conference at which he can talk informally and in broad generalities; he more than any of his recent predecessors dislikes the searching questions. Yet he has displayed a decided ability to take care of himself, to hold his temper in check while onstage, and to reply in clear sentences that hang together better than those of some of his predecessors.

Mood of the Capital

With the campaign season on everyone’s mind, this city of politics is absorbed with the fascinating problem of the Republicans. Washington knows that the only major Democratic problem is the choice of a vice presidential candidate, and that is a decision the President himself will make and announce only at the last minute.

But the Republicans are settling their difficulties in public view. As one Democratic strategist of note observed, the Republicans are almost sure to reject front-runners Goldwater and Rockefeller. Then they must decide whether to fall back on “retreads” like Nixon or Lodge to try to hold the party together or whether to risk the future with a relatively unknown person like Scranton, who would have the task of remaking the Grand Old Party in his youthful image. It is a hard decision.