Mr. Chairman, Mr. Honorary Chairman, Ambassador keeley, Ladies and Gentlemen:

I am honored indeed to have the opportunity to address this group today. A few years ago, under other circumstances, I had the opportunity to address this group and speak about the world economy and current developments. In the event, the world economy did turn out, more or less, the way we foresaw it at that time. On the domestic front, developments moved somewhat faster and, I may admit, not exactly in the way I would have wished them to. But, anyhow, we could take the subject matter of the previous talk “changing world and development” and proceed from there.

The world economy is showing now some encouraging developments. The fundamentals in the world economy are showing signs of correction with regard to interest rates, exchange rate stabilization, commodity prices, oil prices in particular, and in general we could say that we have a convergence of forces that leaves comfortable margins for the economies of the world to look forward to higher rates of growth with lower inflation rates and, hopefully, higher levels of employment. The dark cloud on the horizon comes from the adjustment process in deficit countries, in particular developing countries, where the sharp, I should say brutal, adjustment process that was followed in the period 1982-1985 did meet certain objectives but failed to meet other important social, economic and political requirements and we are faced today with an explosive situation relating to the external debt.

In my brief talk today, I should like to approach this issue by examining aspects of stabilization and development. But before I come to the substance of the issue, I should admit right away that terms like stabilization and development are emotive terms, charged emotionally in a way that separate us more than converge us towards a fruitful dialogue. Nowadays, we are more often using words to divide us rather than to unite us in the search for reality and solutions to real problems. Which reminds me of a story when I started my public career here in Greece. I, as all political figures, inevitably became the target of political cartoonists. One of them, a wise, competent and very popular one, had the habit of drawing me in a way which was not funny and complimentary but, more importantly, I did not think I looked like the sketch. So I did tell him when I saw him on a social occasion: “look here, I don’ t mind that this is not a flattering sketch, but it doesn’t look like me.” He looked at me very calmly and, after a while, said: “Yes, you are right, but don’t worry, I assure you in one year you will look exactly like my sketch.” I tried, during my public service, to contradict him and prove him that it’s the other way around: it is not what the public is making of you, but what you are doing and what you are saying. Whether I have succeeded or not, I am not sure. But the point I want to make is that we are arguing in terms of words, or slogans that nowadays are empty of meaning or are full of connotations which have little relevance to the issue at hand.

We are living in a very confused world today. Things are changing rapidly in ways we do not understand, and it is natural to have confusion everywhere. I, myself, have developed a very simple index about the degree of confusion that relates to the use of words and languages around the world. I have visited many countries and listened to many languages. I have tried to speak some of them. And I have a very simple index “when words do not mean the same thing to everybody and each one is understanding the words differently, then we are in a state of social confusion.” I am afraid that our index indicates that in this country and around the world, we are in a state of confusion. And this confusion comes, and not accidently, at the same time with the spread of banal populism, which tries to reduce the world in a two dimensional situation – one dimension against the other. The Right against the Left. I have not found a satisfactory definition today of the Right and the Left, except this one: that the Right is deadly against the Left and vice versa. But no one has defined satisfactorily, in social, political terms, the meaning of those terms today. Right against the left. The Private Sector against the Public Sector, the free-traders against the protectionists, the marketeers against the planners, and so on and so forth.

Now sports do have two teams. In soccer games we have two teams, one and the other. One must win, the other loses. I think we have discovered sports to evade reality, to relax and see things not in reality and therefore have a good time. But I do not think that the opposite is true: we cannot transform real life into a soccer game. Life is more complicated, more “nuance” than a two-dimensional world which does not exist in reality and certainly it does not help to speak in those terms.

I think that the danger goes beyond that because with slogans, often we do exactly the opposite of what the slogan is saying.

I think a lot has been said about President Reagan and Reaganomics. But I am prepared to bet that future historians will say that the greatest Keynesian in the world who reflated the American economy through public spending was President Reagan. Socialist Governments, in certain instances, have don things which would have turned Conservative Parties pale. So slogans do not help. Let’s search the substance.

Surely, this division into two, one against the other, does not exist in real life. In real life we do not have these sharp divisions. It is not true that the Private Sector, industrialists and free-traders are on one side and the Public Sector, workers are on the other side on the question of stabilization and growth. In Brazil, it was the labour movement, together with Brazilian industrialists, together with the multinational companies that fought successfully the program for stabilization and supported a program of open trading system and development, against the interests of Government and the movement of labour in developed countries. What I am saying is that in the real world, the simple-minded classifications that we are using to confuse things simply do not work. In the same manner, the simple distinction: stabilization on the one hand, development on the other, does not work, it does not exist as a real dilemma in this world. Stabilization is a notion born from other eras, from other efforts, from different world. Stabilization today is not a viable proposition. It’s bad economics, it’s poor politics. It’s bad for labour, it’s bad for business, it’s bad for industry. And, more importantly, it is a method of approaching disequilibrium in a way that maximizes the conflicts amongst social groups that must be resolved peacefully and democratically. On the other hand, development is the only message today. Development is a viable economic proposition, it is a viable political proposition. It carries an optimistic message, namely that democratic nations can find machinery to resolve conflicts and tensions and proceed to changing societies and economies in a manner that minimizes political frictions and distribution problems through increases in incomes and production. It is this basic proposition that I want to elaborate today.

The concept of stabilization comes from earlier historic periods, from ancient economics where the economy itself is supposed to be naturally in a state of equilibrium. And around that equilibrium, for several reasons, there are oscillations, movements around a trend which could be ironed out through appropriate governmental policy at the macro-economic level, through the use of interest rate policy, tax rate policy, exchange rate policy and, in the more recent post-war period, through appropriate incomes and price policies. But, it was that kind of optimistic outlook of economic life that we did have in the post-war period when we were moving along a non-inflationary growth equilibrium. But that was a different world, a world I need not describe today, but to say only this: that to the extent that this theory described adequately the post-war world – and some like myself doubt it – it certainly does not describe the world of the 70s or 80s and the world of tomorrow. After 1971, the world has changed fundamentally. Relative prices changed in a way that have altered relations among income groups, among countries. We moved from post-war, development and prosperity, the post-Keynesian era, to another era. An era dominated by a new technology, the dimension of which we do not fully understand. But we understand this. That the economies are no longer, by their very nature, in themselves in an equilibrium situation. They are inherently in instability situation and they are searching for a way to transform themselves. The fact that we have now a situation of fundamental, structural disequilibrium, renders the theory of stabilization, pure and simple, historically irrelevant to solve the problems of today.

To the extent that the stabilization theory had some relevance to reality in the developed countries, in the post-war period it certainly did not have any relevance to the developing part of world which, by definition, was in structural disequilibrium. It takes long to do away with theories which survive long after reality has changed. But we must update our theories, if we want to move ahead. Remember that the simple-minded stabilization approach is this: you have a basic equilibrium in the economy, the economy can take care of itself and you can have, at the same time, full employment, no inflation and equilibrium in the balance of payments only if everybody does the right thing – including the Government.

If we have a situation of excess demand, then all we have to do is reduce it through “fine tuning”: to decrease real wages, to increase the margin of profit and to restore again conditions for investment which will bring an increase in productivity, higher income, full employment, growth and so on and so forth. This is the story of the stabilization theory. This may be valid if we live in a stable world, when technology is unchanged, when uncertainty does not exist and when investment depends only on the rate of profit. In practice, the rate of profit is a necessary but not a sufficient condition for investment. In a world which is destabilized by the very technological progress, when uncertainty exists, the investment function deserts the realm of economics and becomes deeply a political and social business. The difference between the stabilization, pure and simple theory, and the development theory relates exactly to the role assigned to investment. In the stabilization theory, the expectation is that investment will come as a natural outcome, if everybody does the right thing. In the development theory, investment is used as an instrument to change the very environment, to create new developmental conditions. It is investment that changes the environment and not the other way round.

What is the historical record? I know that I do have a credibility problem because I have been talking about questions of stabilization and development consistently all my live. Naturally, I am going to say today things that I was saying ten or twenty years ago. But today I need not rest on the power of my argument, because I am finally in good company. There are other people who years ago were stabilizers who have now become developers. In a report that will be issued in a few weeks, under the auspices of the United Nations, it is argued that the stabilization policies that have been followed in the deficit countries in the past, particularly the stabilization policy of the IMF type that was followed in the period 1982-85, proved to be unsuccessful. It is significant that this report is not signed only by people like me, but it is also signed by Bob MacNamara, by Kenneth Berril of the United Kingdom, who is President of the Exchange Control Committee in the City, by Professor Gutowsky, who is the Economic Adviser to the German Government and so on. This means that realistic people do face up to reality. And to top it all, let me mention Jim Baker, the able Secretary of Treasury, who is not exactly a wild radical, and who did say that stabilization policies in the developing countries do not work and suggested we follow “adjustment through development”. The “Baker proposal” which was made at the IMF Annual Meeting in 1985 helped shift the emphasis from short-term stabilization to an integrated approach to deal with inflation, unemployment and development.

But I have not come here to bury the stabilizers. They will be treated properly by political developments. I have come here to praise the developers – a dynamic group around the world, in the minority quite often. But it is a vital and optimistic group in our societies and the people who have the vision about a new world, about a better world, about development. I am an optimist, I admit, but I do not equate optimism with foolishness. As an optimist, when I am in the frying pan – and many a time I feel I am in the frying pan and I am asked to jump out of it – I do not consider it inevitable that I will land in the fire, but I worry about it.

The development approach is the optimistic way of looking at the thing. It is not by impoverishing the masses, it is by increasing the incomes of masses that the problem will be solved. It will be solved through an investment program around which the society will muster support and will unlease forces technological improvement, improved productivity and competitive dynamism vis-a-vis the rest of the world.

To develop means that I accept the principle that I must change. Change not the neighbor but change myself. And there is a misunderstanding about development. Development does not mean a quantitative expansion of the world; an increase of what we have without changing relative positions. Development means creation which requires changes in relative positions. To have the proper conditions to proceed with development in a country you have to meet certain requirements. Requirements which are difficult and in a way deeply ideological and political.

The first requirement it seems to me is that there must be in each one of us, in every citizen, the determination, the resolution that we want to change. That there must be another and better way of doing things. If our education is an education of dependence; if our education is an education of ignorance; if our life experience is an experience of repression by autocratic rules, we can not have citizens who breed that spirit of change and development: because, let me emphasize that, development is carried out by free people who are prepared to take risks in their life. Development means a proposition of maximizing individual initiative and individual energies. Development does not come from machineries and command, it comes from the people. That condition does not exist at every moment in all societies in all times. Development is not something you can have whenever you wish. It exists at that historical moment when people by themselves have come to the resolution to change. If you do not have that, you cannot start a development process.

That is the first requirement. But that’s not all. The individual in order to create, to move away from a dependence mentality to a creative mentality, to exercise his imagination, to try to transform his own reality, must have the proper social environment, because he works and he lives in a society. We do therefore need social mechanisms and social institutions that maximize the instinct for creation in human beings.

That democracy is an obvious condition is something that I need not elaborate. But you need more than that. And there is one thing that we usually do not have in our societies. We do not have a set of socially accepted values, through our culture and our traditions, and through political concensus as to who and on the basis of what criteria someone gets the prize. If there is no correspondence between imagination and effort on the one hand and remuneration in economic and social terms on the other, you do not have the proper social environment to move ahead. Development needs imagination, it requires risks and no-one is ready to take risks if the social environment does not support the risk-taker. We have to recognize the successful, the risk-taker. We need not flatten out the one who loses out in competition. In a social environment for growth we have to provide for a comfortable living for those who live by the rules but are not exceptional or who do not succeed in the risks they have taken. But the opposite is not true. We cannot have development if we flatten out the imaginative, the risk-taker and we equate such with the risk-averter.

Stability in the social rules and mechanisms for solving the conflicts are fundamental. If people have ideas, have dreams about themselves, about a new world, if they want to change themselves and bring themselves to change the world while the social environment is not conducive, they will do one of two things. Either they will go abroad or they will stay home and become apathetic and anti-social.

But even if there is that spirit in the people, and I believe that in this country we have people full of that development spirit, even if we build the social environment which we do not have but which we must build democratically in order to enhance creativity and maximize individual initiative, we need to fulfill the third condition. Development the way I describe it is a political proposition. It is a proposition that must be accepted by the people, it must be a proposition that unites the social groups in an effort to change the society, to change themselves through an agreed process of investment which in turn would help change the environment.

Frankly, the difficulty is this: to proceed with a development proposition you have to tell clearly and openly to the people that the society which is going to emerge tomorrow from the development process is not going to be a replica of the society we have today. And, in the process, groups, people and themselves will be transformed and changed. That there is no guarantee in this process that their relative position, economically or socially, will remain unchanged. But there must be a guarantee that, if they follow the socially accepted rules of the game, they could, if they wish, transform themselves and better their situation. So the challenge for the political leadership is this: to convince the people to take the risk of change and to move together forward along with the others; to assure the people that the rules of the game, in the process of development, will remain stable; and that promises will be honored. Now, we can talk for hours but the issue boils down to this: if the people do not believe the political leadership in that proposition we are not going to have development. To summarize, and I must try to finish in one or two minutes: stabilization is not a question of being Right or Left. It is a question of being foolish. Development is not a question of being Right or Left. It is a question of being relevant. If we accept that this is a changing world, and that we have to take the future in our hand, then I think it is easy among reasonable people to accept the triple positions I have made:

promote individual initiative,

establish social principles and machinery for resolving conflicts democratically on the basis of stable rules of the game which are honored and which promote individual initiative, creativity and support risk taking and

seek political leadership that must convince the majority of the people to rally around a proposition of development which will require in turn a change of the very social structure. I emphasize the last aspect time and again because people and groups have used politics as a way of protecting their relevant position without doing anything or sometimes by requiring the others to do something for them. The political proposition that will succeed to bring about development is the proposition that all groups will require transformation on the basis of agreed principles.

If we can do that, if we leave aside the mythology of stabilization which is not going to work and if we start talking development then we will start talking about the real thing. Surely, in that context, there will be plenty of room for political differences. I do not propose that various parties will give equal weight or meaning to the three propositions. But, the different views will be something which is real, the discussions will be about political choices which must be made and politics will become relevant because they will turn back to the service of the society and the Nation and not the other way round.

Now I have talked a lot to debug stabilization and introduce the subject of development as an optimistic and fruitful framework within which we must debate politics. I do not have time to go on to tell you what my particular version of the development proposal will be – what will be the political aspect of that – but let me say this: I see the development process as a process that unifies and brings closer together social groups in cooperation, in contrast to stabilization which moves groups apart. In this business we must hang together or else we will be hanged separately. And it is high time in this country – which is always slow in picking up the messages of our times – to start discussing politically the right issues – the development issues – and stop fighting like the foolish Generals wars of today with the weapons of yesterday.

I said I would not proceed to tell you my own version of what the political proposal for the development process would be. If you want to hear that, it will cost you another lunch.

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