The International Challenge


By LEO M. CHERNE, Executive Secretary, Research Institute of America, Inc.

Delivered at luncheon of the Export Managers Club, New York City, August 17, 1943

Vital Speeches of the Day, Vol. X, pp. 55-58.

YOU heard correctly that I am violating a precedent that I established myself (which is an easy one to violate) in accepting this invitation. My reason, very frankly, has been that it is almost impossible to accept one invitation without accepting others, and these days have not permitted me that which has always been among the most pleasant phases of my activity.

But it is not true that I flatter you by acceptance of this invitation. You flatter me by having invited me. I am anxious to accept that flattery because whatever reputation I have established has not been established in the area of international affairs or foreign trade. It has been as a result of work almost completely directed to the organization or untangling of our domestic economic life.

And so when I received an invitation to discuss problems of foreign trade, I said to myself, "In all probability an error has been made, but I don't think I shall call it to their attention. I will go there and do the best I can. It will give me this opportunity without their realizing that I am essentially an imposter in a field that they know so much better than I do. It will give me an opportunity to say some things that I do want to say."

It is impossible to look at the war and its consequences, without seeing very clearly certain things as inevitable in the world that follows from this war. It is ironic that there should be attached to my name, for example, the phrase "M-Day", because I firmly believe there is no such thing as M-Day". I believe the line of demarcation between peace and war will never be found, and that the next generation will still debate when this war started. To me very frankly, the war started in 1931, with Japan's march into Manchuria, and not in 1941. The war gained momentum in 1935 in Ethiopia, and reached its full blossoming in Spain in 1936. Delayed ripples came officially to America in a far distant spot called Pearl Harbor in December, 1941. I emphasize that because I do not believe in the concept called "V-Day". The line of demarcation between war and peace will, if anything, be far more indistinct than that called "M-Day".

The world about which I am talking is a world already in existence—a world which has been shaped by events and by men and by philosophies and by the crude, irresistible forces which we call economics. It has been shaped for many months, if not many years, and will follow along its irresistible course for many more years.

If all in that picture were irresistible or compulsive or inescapable, I would try to summarize what I see in about five minutes and say I am sorry, and leave you. If there were nothing that could be done about it my prognosis would be short and brutal—most of all short. There is no sense in laboring the inevitable.

That is not true. There are certain inevitable things that will happen, but the consequences or the responsive actions are neither inevitable nor, as a matter of fact, are they clear. Those are the things that I want to sum up as the International Challenge.

To do that, I would like first to look at a few of the compulsive factors which will govern our environment—the environment in which foreign trade, export and import, international life and stability, war and peace, will either live or die, thrive or crumble.

First, these are the unprecedented new things in therevolution which some people have called war, and some people have insisted that the war is only a part of:

1. There will be an unprecedented demand for imports on the part of virtually every country other than the United States. That demand will begin now; limited almost exclusively by shipping, by the thing we call the enemy. That demand will be for foodstuffs, for raw materials, for equipment, machinery, capital goods, for finished industrial goods. I am talking about demand. I am not talking about ability to buy. The need will be greater than it has ever been before in the history of this world.

2. There will be an unprecedented inflation pressure throughout the world, weakest of all in the United States and in England, where it? will be strong but not tremendous—not beyond control. The spectre of inflation, the thing we have come to know as German inflation after World War I, may yet prove to be mere child's play in comparison with the problem the Chinese will face. Why should I say "will face"? The problem that the Chinese are facing today.

It used to be said that no industrial nation, or no major nation, ever faces a war against an enemy and a war against inflation at the same time. It was one of the economic truisms we believed in, and one that has been true. The exception is China. Representatives of the Chinese Government have said to me on many occasions quite frankly that they fear inflation a good deal more than they fear the Japanese.

3. There will be an unprecedented dislocation, if not complete destruction, of the financial stabilities of governments. Do not underestimate that. We may learn a lot of new things about the thing we call "financial stability," but financial stability as we have known it will be a myth, in what perhaps may be nine-tenths of this world-this somewhat bettered world.

If foreign trade, if export and import, if industrial revival, if employment or unemployment, rest on the pivot or the lever of financial stability, and if no other answer is found than that of financial stability, the war itself will have been a puny problem compared to that which industrial Europe and industrial Asia will face.

Parenthetically, I might say that there is not necessarily any logic in these points. Some of them are quite contradictory.

4. There will be an unprecedented desire for economic independence in almost every nation of the world—economic autocracy—in a world that more than ever has become one world. Ironically, all that we have learned between World War I and World War II has actually not yet operated to prevent, deter, or diminish the desire for economic isolation in almost each of the separate nations in the world. Curiously enough, that is itself coupled with the unprecedented unanimity of the belief that economic solutions cannot be national but must involve new and perhaps drastic international machinery and techniques.

Let me illustrate that on the domestic front I have not yet really met a person (I should not say that, because there have been a few in the farm group) who has been admittedly inflationary. But outside of a few in the farm group I have not met an individual who has not agreed that prices must be held in line and inflation prevented. That is the belief and the philosophy these individuals unanimously adhere to. But the same individual will frequently say, "But my wages must go up. My price must be free to move. My product must not be limited,"—depending upon which section of the economic community he sits in. That is the same individual.

In a world community, Nation X, which is small, no; particularly powerful, (or it may be powerful) says, "We believe we haven't the ghost of a chance of settling any of the basic problems in our own community unless they are settled internationally." The same nation will say at the same time, however, "But we are going to earn for ourselves economic and political independence from every nation of the world." Same time, same nation!

5. There is an unprecedented unanimity on the part of all governments that foreign trade will not only have to be sponsored but also to a considerable extent regulated or controlled by governments. The Hot Springs conference, for example, puts American Government into foreign trade with foreign governments and not individual companies as purchasers.

6. The last of the unprecedented characteristics: Briand and several other magnificent European statesmen spent a good part of the 1920's hoping and planning for a United States of Europe—planning for a reorientation and regrouping of the European nations in order that they might live rationally in the twentieth century industrial atmosphere. They failed. But where Briand failed, Hitler succeeded. Much of our thinking and planning, particularly that which concerns the European continent, is thinking and planning with a concept in mind that was true in 1929 or 1934—but is not true in 1943 and will not be true in 1945. Germany has accomplished one major job that will never be undone, and it will not be undone for the most important reason that it had to be done. I refer to economoic rationalization of the European continent. True, it was done by Germany in her own self-interest. It was done by Germany for the purpose of establishing Germany as the master of the continent. But it has been done, and it has established Europe as an economic entity and not a collection of separate, competing, confused, irrational economic and political nationalities.

If any of you would like a nice week-end's puzzle, figure out for yourselves how you will untangle just one thing—the changes in ownership which have been brought about legally in Europe within the last four years.

Incidentally, you read very little of this in the press. One of the reasons for that is that nobody—nobody—has any answers. I am presenting the answer to you, and it is a very easy one to present. I say it will not be done. I say the changes which have been introduced in Europe, that have tended to destroy boundaries, customs barriers, trade barriers, will not be reversed. And now I come to the challenges which emerge from this collection of unprecedented facts.

For the first challenge I was very pleased to be given profound support, coinddentally, just this morning,—in Walter Lippmann's column in the Herald Tribune, in which he directs himself to post-war economic policy. I am a good deal more sure now than I was before that I am right. The first challenge, basic beneath all domestic and international solutions, is employment. Without something approximately reasonably continuous, reasonably full employment, you can forget every other plan, proposal, solution, or just dream, that has been offered on the market-place of ideas within the last few years. The first problem, and one which we ourselves must tackle within our own community, and one which we must at the same time do our utmost to see accomplished by other governments in every other community, is employment. And to the maximum extent possible it should be

productive employment. But it must be employment, first and foremost. There is the first challenge.

Coupled very closely with it, and impossible of attainment without it, is financial stability. There is no financial stability and there will be none in any nation in any corner of this world without employment. With employment we must still tackle separately the problem of financial or fiscal stability. Unless we do, our plans are either dreams or nightmares.

Third, and coupled with and following inextricably from these other two, is something we have not yet realized. It is that the law of Malthus, of which you probably read in high school, and then promptly forgot, has been repealed. It was a law of considerable standing over a century—one of those natural laws that we take for granted assuming that it will stand generation after generation and century after century. We have assumed it to be natural law, which really could never be changed. The law was this: that populations grow faster than food supply, and that, therefore, periodically there must be wars, depressions, disease and epidemics, to cut the population to the size of the bread supply. Malthus did not say he wanted it. He simply said it must be. He was right. The whole history of the civilized world up to the time of World War I was governed by this principle of Malthus. But the principle of Malthus has been repealed and the law of Hitler has taken its place. Hitler may die. He may die a very cruel death, planned by the United Nations. The last remnants of the Fascist group may be destroyed in every corner of the world. Germany may be reduced to a position of insignificance on the map of Europe; but the law of Hitler will remain.

It will be very curious if he goes down in history as a contributor to economic law, rather than a master of political and national law. That law of Hitler is this: he was among the first to learn that the law of Malthus no longer applied. He was among the first to learn that one of the things that had been introduced in this century is that food supply is increasing very much more rapidly than the size of population. If food is no longer the reason for war, what is? The reason is unused manpower. And so the doctrine of the Fascist State, the law of Hitler, was carried to its fullest blossom. The purpose of the Fascists was to bring into equilibrium the supply of food and the supply of manpower by the process of putting men to work—making war.

Therefore, we must first recognize that the law of Malthus has been repealed. We must secondly recognize that wars will continue and with increasing brutality and vigor unless manpower is used. If it is not used constructively, it will be used for war. There is not a power or a principle or philosophy or a man on earth who will stop it unless we find a better use for manpower.

A final challenge I would like to suggest, although there are many others I might discuss. From a national point of view the temptation will be great for us to adhere politically and economically to a complete doctrine of self-sufficiency. Bear in mind that the ersatz materials, the substitute materials, if they have not actually given us economic self sufficiency (and they have not), have given us the belief that we have self-sufficiency greater than has ever before existed in the entire isolationist history of this country. You try the average man on the street and ask him today, "Do we need foreign materials?" and his answer will be,—"No—not since we learned how to make rubber here." So the very lesson that the war should have taught him, ironically enough, the war has proved the contrary to him.

That temptation to live by ourselves is fostered by mathematics and not by reason; because the mathematics indicate that our foreign trade—at least our profitable foreign trade—has not really for the last generation been in excess of five per cent, of our total national trade. If it is only five per cent, and if it appears that it is only that five per cent that gets you into trouble, then cut off the five per cent. Close your doors, stop your steamships, and live a glorious private, happy, peaceful life, following Washington's command to the people about keeping out of foreign entanglements.

Do you think we have learned the contrary in this war, or do you think we have actually reinforced the attitudes that existed with such violence until December 7, 1941? My conviction is that, unfortunately, the last is true; that we entered this war isolationist, and are growing more so by the hour.

Unfortunately, the people do not know, and they have not been effectively told, that the five per cent, that is foreign trade actually is the basis for national defense in the case of many raw materials, most of which we do not and cannot supply by ourselves. Also, that while it is only five per cent of our entire national trade, it is the base upon which many complete industries rest. I understand that in the case of typewriters, for example, almost half the trade was foreign. While they may chop off only five per cent of national trade, they may end entire industries in that process, with a geometric increase in the economic dislocations which occur from the death of even one per cent of American industry, which would be accomplished by actual physical isolation.

In the third place, between the London Economic Conference in 1933, and the next Economic Conference in Washington in 1945, there will be a few of us who will have learned that whether it is five per cent or two per cent on one end of the scale, on the other end of that scale is war or peace. That five per cent or two per cent or one per cent may be the determinant of war or peace. We should have learned (but I am afraid we have not yet) that whether or not we have that war or peace is something that is substantially determined for us in places that are not within our borders.

Fourth, I am concerned about the tacit promises to South America, to China, to Mexico, that will bring us the final postwar challenge,—the industrialization of the world. While it is conceivable that we would isolate ourselves in 1890, had we had the industrial maturity in 1890 that we have now, I am positive that we cannot isolate ourselves in an industrial world. And that is the world that you are going to face tomorrow. There will be few sections of the world, that have formerly been known as anything from backward to unindustrialized, that will not emerge from this war with almost revolutionary changes in the direction of industrialization.

This is not a fact that will start with the postwar period. It is a fact that has started in the years that have already passed, and that will reach fruition in the postwar period. If anything, the basic change that this war will have brought with it is the death of Disrael's imperialism and perhaps the beginning of Henry Luce's. The imperialism which thrived on the purchase of raw materials from a colonial country and the return of finished goods to that nation, will be followed by one of two alternatives.

The first alternative and the most rational—but the most difficult—is a plan by which each nation increases its industrial progress to the maximum extent, raises the standard of living of its own people through its own industrialization, and lives together with other nations in an international atmosphere of harmony, protected by international machinery to which every major nation subscribes.

The second alternative is a new form of imperialism. Instead of selling finished goods we sell machinery and own the companies located on foreign soil which buy it. If there is one present thing in the postwar period that I see, it is the probability that that alternative will not succeed. The probability is based upon the fact that China, for example, absolutely insists upon its own ownership of the machinery that enters China, that Mexico absolutely insists that it be free to purchase the machinery rather than have companies enter with the machinery and remain to extract the profits from them.

For us the challenge and the threat and the problems are enormous, they flow from this one question; will we buy the goods which emerge from this machinery? What will be the contours and the shapes of our foreign trade when there are a dozen outlets turning out gloves in every corner of the world—or shoes—or stockings—or typewriters—or turbines?

America has adapted itself to a world in which America is great, and the rest of the world sits in awe of that greatness, America has inherited the mantle of England, which has thrived for centuries on that economic position. But that world is done. There just is no bringing it back. It is done. I wish I could say with equal confidence that I know the world that is coming. I don't. That is why it is a challenge. It is a challenge through which free enterprise and free men, functioning through free governments, can bring freedom the like of which we have never yet seen, and bring it not only abroad but bring it here also.

I am not among the group that believes that America already achieved its optimum growth, either economically or politically; and certainly not socially. The challenges? Well, it is ridiculous to say that the challenges are important. The challenges are critical. Solve them and the war will have had meaning. Fail at them, and our only satisfaction, still an enormous one and one that we must not forget (although the tendency will be that we shall forget it) will be that we at least stopped the march of the black plague. But having stopped the epidemic we shall not be able to give any convincing evidence that we corrected the sewage conditions which brought it in the first place. Nor except by kidding ourselves can we pretend that the bacteria will not again come in more virulent and less combatable form.

Yes, the challenge is the whole meaning of this war. I know of no group of people assembled anywhere who are in better position to understand and to accomplish some of the solution to that challenge.

Your choice: whether the world tomorrow, will merely be a Coney Island mirror in which we look at the distorted shape of the world of yesterday.