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09/29/91

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Global cooperation: key to worldwide prosperity

Free-trade agreements and multinational alliances for developing new technology may ultimately lead to a borderless economy, but the world has a long way to go, panelists agreed at a Stanford centennial roundtable discussion on "Forging New Alliances: Competition, Cooperation and Survival," on Sunday, Sept. 29.

What gets in the way of creating this "borderless economy"?

American corporations' lack of ability to serve customers and to take the market seriously, said Kenichi Ohmae, an international management consultant who heads Japan's office of McKinsey & Company.

Japan's lack of consumerism, said Robert D. Hormats, vice chairman of Goldman Sachs International.

Ohmae and Hormats were joined by panelists Pedro Aspe Armella, Mexico's secretary of finance and public credit; Michael J. Boskin, chairman of the President's Council of Economic Advisors (on leave from Stanford, where he is Burnet C. and Mildred Finley Wohlford Professor of Economics); David Brady, Bowen H. and Janice Arthur McCoy Professor of Political Science, Business and Environment, and Ethics at Stanford; Milton Friedman, 1976 winner of the Nobel Memorial Prize in Economic Science and a senior research fellow at the Hoover Institution; Carla Anderson Hills, U.S. Trade Representative and formerly secretary of the U.S. Department of Housing and Urban Development in the Ford administration; and William F. Miller, professor of public and private management, Stanford Graduate School of Business.

The panel was moderated by Thomas Peters, founder of the Tom Peters Group and co-author of In Search of Excellence.

"American corporations are re-educating themselves," said Miller, citing the Baldrige Award's focus on service. "The pace of change is really intense" and is leading to more alliances of large companies, such as IBM and Apple, to encourage development of technology faster than individual companies can accomplish alone.

Miller said there were dangers in decreasing competition, but assured that there were still plenty of competitors in the world.

Hills said that reducing trade barriers by one-third could increase U.S. trade by $5 trillion over 10 years. "We have a lot of restrictions in agriculture, but we've put them on the table and agreed to take cuts. We can't unilaterally disarm," she said, noting the need to retain certain patent and trademark protections.

The danger inherent in protectionist barriers, Hills said, is that emerging nations, which have only agriculture to bring to the table, are being ignored. "This will sow seeds of geo-political instability if we don't deal with this," she said.

Before the United States makes demands on other nations to eliminate trade barriers, we need to get our own house in order, said Friedman. "Our markets are not open," he said, pointing to the auto industry and sugar crops.

Are there too many entrepreneurs in Silicon Valley? Not according to Friedman, who believes that in any new industry, eventually the weak will be weeded out.

What the United States needs, Boskin said, is financing of research and technology that promises wide societal benefits, in efforts such as the Sematech alliance.

"You need to do a great deal of research to get the next generation product, which pushes companies into conglomerates," Hormats said. But even if companies forge alliances to fund research, individual entrepreneurs are still necessary to bring the products to market on a customized basis, he added.

Friedman, who has written extensively on individual freedom, said the federal government has no business subsidizing research. Boskin disagreed, pointing out that "private firms won't do fundamental physics research," for example. But, he said, the government needs to make sure it isn't funding larger projects at the expense of the small principal investigator.

On the topic of free trade, Aspe said it was good for both the United States and Canada as well as Mexico, because it created better access to markets, employment opportunities and higher wages.

"We want to export commodities, not people," he said.

Hills said Mexico's trade barriers had been 250 percent higher than those of the United States, but since 1987 Mexico had reduced barriers substantially and exports to Mexico grew from $12 billion to $28 billion.

"Any step we can take to expand trade will expand world income," Boskin said. The 1980s were the most protectionist decade in the United States since the Great Depression, he said, but since then quotas have been liberalized and the possibility of a trade war has been averted. "But much more needs to be done," he added.

"People are looking for a good life," said Ohmae. "Regional trade discussions are the right first step."

Aspe agreed. "Bad economics is bad politics. We need wisdom and guts to look at the long term. . . . We have to think for the regular people."

Asked what advice they would offer Mikhail Gorbachev and Boris Yeltsin as they face short-term shortages this winter and longer-range economic problems, panelists suggested:

  • Organize small, decentralized operations.
  • In smaller units, participate in regional economies (for example, Siberia with Korea).
  • Protect private property.
  • Legalize the black market.
  • Find a balance between republics and the union.
  • Do not ask for aid from the West; ask for free trade.
  • Manage expectations.
  • Deal with the supply side; cut government subsidies.
  • Get rid of the notion that one can plan a market economy.

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