Introduction
CHARLIE ROSE: Welcome to the broadcast. Tonight, a discussion about a trade treaty. It is called the General Agreement on Trade and Tariff. GATT for short. We’ll talk with Sir James Goldsmith about this treaty and its implications for the world and implications for the United States. Joining us for a part of that and for a debate is Laura Tyson. She is chairman of President Clinton’s Council of Economic Advisers, working on economic policy in the White House.
We begin with Sir James Goldsmith. He is known for many things. The money he has amassed, the companies he has owned, the battles he has fought, the women he has loved and the issues he has taken. He has been controversial, but frequently he has been right. He is one of the people in 1987 who saw the stock market coming down and he forecast the crash of 87 in October. He also saw the rise in oil prices with OPEC coming together. He now believes that GATT is wrong for the industrialized world and that it will unleash a series of problems that will be catastrophic for the world. It is all contained in a new book that he’s written called the Trap. And I am very pleased to have Sir James Goldsmith join us for the beginning of this conversation. Welcome.
SIR JAMES GOLDSMITH: Thank you.
The Fundamental Concerns About GATT
CHARLIE ROSE: It is a pleasure to have you here. Why is GATT bad? At a time that many people believe that NAFTA has proven, despite all the warnings, to be good for the United States and good for Mexico. All of the fears that Ross Perot and others forecast didn’t happen. Now you come along and say, that was very small. GATT is much larger. It will unleash an unemployment that will attack the economies around the world. What’s the thesis that makes you believe that?
SIR JAMES GOLDSMITH: Of course, NAFTA and GATT are totally different sizes. NAFTA was a free trade area with Mexico and Canada, where it wasn’t just economic. There’s regional problems. You’ve got all sorts of neighborly problems that you have to solve between the three nations, but it’s nothing. It’s like Portugal and Greece was for us in Europe.
What we’re talking about in the sentence meant to for GATT, we’re talking about a free trade area with China, with India, with Vietnam, with Indonesia, with 4 billion people. You see, when GATT, this last round, this is the eighth round of GATT started eight or nine years ago, the negotiations the odd way round. When it started, the world was a completely different place. Since then you’ve had 4 billion people who before were set aside, if you like, held away from us by communism, by other ideologies. And they’ve all of a sudden joined the free market. Fine, that’s fine.
Secondly, those people have got massive unemployment. They have very fast growing populations. They work for almost nothing compared to our populations. I mean, you can employ 47 people in Vietnam and the Philippines for one American.
CHARLIE ROSE: But that’s what they said about NAFTA too.
SIR JAMES GOLDSMITH: You’re talking about 4 billion people, you’re not talking about 80 million people. And quite apart from that, the idea that you can judge of the results of NAFTA so far, in my view is a bit naive because it’s only been a few months. So let’s wait in five years and see what’s happening.
But first let’s talk about GATT. 4 billion people, you can employ them. Mexico’s expensive labor compared to the other places. Now what are the other changes that have taken place since Uruguay around started? Technology can be transferred anywhere in the world. Capital can be transferred instantaneously wherever the return is highest.
So today you are to take two companies, two corporations, they make the same product to be sold in the same market. Because the whole concept of global free trade is you can make a product anywhere and sell it anywhere. They have access to the same technology, they have access to the same capital. They only have one difference, cost of labor, 47 to 1. So they move.
Now what has been the result? We’ve got some results, Some results are in. It isn’t hypothesis. You take France, in Europe we had free trade started to emerge from 1973 onwards. That’s when the Treaty of Rome was changed during that 20 year period since then, the economy in France has grown by 80%. The number of unemployed has gone from 420,000 to 5.1 million. That’s equivalent to 25 million in the states. Now what is the good of having an economy that grows by 80% if your unemployment, the people excluded from active economic Life goes from 420,000 to 5.1 million. You take Britain the same story, by the way.
The Market Potential Argument
CHARLIE ROSE: All right, let me make one other argument though, that when you say these people in for example, the People’s Republic of China and India, 4 million people.
SIR JAMES GOLDSMITH: 4 billion.
CHARLIE ROSE: Yeah, 4 billion. I’m sorry. The argument is also made that they all of a sudden, not only is there a question of the price of their labor, but it is a huge buying power that they have that China, in the year, the new millennium will be the world’s fastest growing economy.
SIR JAMES GOLDSMITH: That’s great.
CHARLIE ROSE: And that it’ll be a market that’s wonderful. And those people will be buying products.
SIR JAMES GOLDSMITH: That’s wonderful.
CHARLIE ROSE: From the industrialized world.
SIR JAMES GOLDSMITH: And let’s benefit from that and we can work together. But how do you benefit from that without destroying ourselves? You go and you create a corporation in China and you build a factory in China. And what do you want to sell? Mugs. Sell mugs in China and you conquer part of the Chinese market by competing rare, fair and square in China. That’s life. That’s adding to the activity of China. You’re a corporate citizen over there, you’re working over there.
But if you move a factory from the States and take that to China, not so as to conquer the Chinese market, but so as to re-import the goods into the States so as to get cheap labor, what are you doing? What you are doing is you are saying to your employees here, you’re too expensive folks. You want money, you want protection, you want unions, you want holidays, forget it. We can employ 47 people over there who want nothing.
So don’t confuse two issues. One is going out to participate in their growing economies by building there and conquering part of the market. The other is merely killing off employment in your own country, getting rid of your own labor force, transferring it over there and importing it back purely so as to increase your profit margins.
Now the average company has about 25% of its costs in labor costs, including the social costs and welfare costs around it. 25%. When you move, you can say 25% of volume, that is you all of a sudden can save over 20%. So your profits go leaping up. But you’re destroying, destroy, totally destroying not only the number of people who’ve got jobs, but also their salaries.
You realize that salaries in the states’ earnings, weekly earnings, hourly earnings over the last 20 years have already dropped about 19% in real dollars. It’s already been a massive decline. And that is why the so called recovery, which is a recovery of economic indices, hasn’t got the feel good factor. Because people’s salaries have gone down, they’re going to go down much more. It’s only beginning.
And the reason is very straightforward. When you manufacture something, anything this table, you have a value added. The value added is when you take the raw materials and you manufacture a product. The value you add is known as value added. And that is shared between capital and labor and the whole division. The sharing of that has been the subject of massive debates for generations. How much should go to capital, how much should go to labor. You had strikes, you’ve had lockouts, you’ve had political debates.
All of a sudden, by creating a global marketplace for labor, by creating circumstances where people are making the same product with the same technology and the same capital, and the only variant is cost of labor, you are shattering that, shattering the way you share the value added. And that means that you are destroying the basis on which we’ve been able to create an equilibrium and have a stable society.
The Protectionism Argument
CHARLIE ROSE: Okay, but let me just take this argument. This is the same thing we’ve heard about protectionism every time it comes up in the American Congress, is it not? Same arguments are made.
SIR JAMES GOLDSMITH: No, absolutely not. I am entirely for free enterprise. I am for free market. I believe that you have.
CHARLIE ROSE: I’m waiting for the but.
SIR JAMES GOLDSMITH: I’m giving you the but. I’m not for the destruction of one’s society. Can you explain what is the purpose of an economy, in your view?
CHARLIE ROSE: I know this is a point that you feel very strongly about. It has many purposes, in fact, to play a role in a society in terms of creating jobs, in terms of playing a positive force, in terms giving people an opportunity to serve, to take care of their family, giving people an opportunity to participate in their society.
SIR JAMES GOLDSMITH: In other words, the economy is there to serve the fundamental needs of society.
CHARLIE ROSE: Yes.
SIR JAMES GOLDSMITH: Which are prosperity.
CHARLIE ROSE: Yes.
SIR JAMES GOLDSMITH: Which are stability.
CHARLIE ROSE: Yes.
SIR JAMES GOLDSMITH: And which are contentment.
CHARLIE ROSE: Do you agree with that or not?
SIR JAMES GOLDSMITH: That is the basis. That’s the basis of my thinking.
CHARLIE ROSE: Right.
SIR JAMES GOLDSMITH: And what I’m saying at this stage is that if purely for an economic doctrine, you have a situation whereby the economy grows, but you create poverty, unemployment, and you destabilize the society, you’re in trouble. Look what’s happened in the last 50 years. You see, people are not willing to look at fundamentals. When I was a boy, we were taught that irreversibly we were moving towards progress.
CHARLIE ROSE: Yes.
SIR JAMES GOLDSMITH: That material wealth, material prosperity. Prosperity would solve our problems, would improve our way of life and improve our civilization. We were taught that. And we achieved the creation of material prosperity in a way which we would never have dreamt of. We made the economy grow 400% incredibly. And what have we done? We’ve destabilized our society. We’ve increased unemployment massively. We’ve totally destabilized our cities. We’ve uprooted our countryside. We’ve increased crime. Every single valid criterion for a stable society has become negative. Therefore, something must be wrong. And what has become wrong is that instead of the economy being there to serve us, we are there adoring, serving economic industry.
Who Benefits from GATT?
CHARLIE ROSE: What brought you to believe that you and as one very wealthy businessman, the businessman of the world, with companies around the world, make you think that you can stop this treaty, this world treaty, when so many governments seem to be in favor of it?
SIR JAMES GOLDSMITH: You just said the right word. Governments. Who are the benefits? Who benefits from this?
CHARLIE ROSE: Clinton administration’s in favor of it.
SIR JAMES GOLDSMITH: Who benefits? I’ll tell you who benefits.
CHARLIE ROSE: Well, they’ll say, well, I’ll tell you who benefits.
SIR JAMES GOLDSMITH: Let me give you the facts. The facts are the people who benefit are the big major corporations. There’s a divorce between the interests of major corporations and of society. When one used to say and believe, and probably rightly, what is good for General Motors is good for the United States, that is no longer true.
Today, the transnational corporations have annual sales of $4.8 trillion. They account for 1/3 of all — the top hundred alone account for one third of all foreign direct investment. Now, how do they operate? They’re no longer linked to the United States, the American ones, or to France or to Britain. They operate by farming out their production to whatever country produces the cheapest labor wherever they can get the biggest return on capital and pay the lowest part to labor.
CHARLIE ROSE: What does that mean? Does that mean then, that all the automobile companies in America are going to move their manufacturing facilities to Mexico?
SIR JAMES GOLDSMITH: They’ve certainly, most of them, increased their production in Mexico. But I’ll tell you, in the last two or three months, IBM, Boeing, Advanced Microsystems have all announced. All announced movement offshore all of certain parts of their manufacturing. And therefore, this is not. I mean, this is not just textile workers. It’s not just furniture workers.
CHARLIE ROSE: It’s not just people working where protectionism and tariffs have been most prevalent in the American economy.
SIR JAMES GOLDSMITH: Possibly. But what I’m saying is this attacks skilled labor as well as traditional labor.
CHARLIE ROSE: That’s one of the arguments made. I want to move to tactics, but one of the arguments made is that you are talking about essentially unskilled labor.
SIR JAMES GOLDSMITH: I’m not.
CHARLIE ROSE: And that the labor force of the future has to do with technology and it has to do with the service industry, and that these 4 billion people you’re talking about are not prepared to do those Jobs which will fuel a modern economy around the world.
SIR JAMES GOLDSMITH: The facts are just demonstrate the opposite.
CHARLIE ROSE: All right, well, let me interrupt you. Let me interrupt you. I’ve got to answer you, all right, because I want to get to.
The Impact of Free Trade on Jobs and Manufacturing
SIR JAMES GOLDSMITH: No, no. It is just the facts as the opposite. Firstly, it started with the textiles and the shoes and all the rest of it. And those industries were decimated and we lost millions of employments and people employed. Secondly, it was followed by the high tech industries and as I say, in the last few months you’ve had those. Thirdly, the service industries. The service industries. These are facts. The service industries are also moving offshore. There are satellites up there. If you take Swissair, Swissair has moved part of its back office into Bombay.
Why? Because they can communicate through the satellite and reduce their cost by 90%.
CHARLIE ROSE: All right, joining me, I want you to do this because you have made this argument before and you testified before Senator Pollan’s committee, the Commerce Committee of the Senate. Joining me now is the Chairman of the President’s Council on Economic Advisers, Laura Tyson. You have heard this argument made by Sir James Goldsmith. He is a man who’s been frequently right in his understanding of the economy and how business works. And he has the frontline, hands on experience. Where is he wrong in your judgment and the judgment of the Clinton administration?
The Administration’s Position on Trade Benefits
LAURA D’ANDREA TYSON: Well, I think that the evidence speaks for itself. We have an economy right now which is rapidly growing, which has generated 5 million jobs. There are many high wage, high quality jobs that have been generated.
This is an economy which is depending in part on exports. We know that a billion dollars of exports translates into about 17,000 American jobs. We know that those jobs pay higher than average wages in America. We also know incidentally from a whole series of studies that foreign direct and investment by American firms actually helps create jobs in America. Because when American firms actually make investments abroad and reduce their costs, they’re more competitive globally.
What does that mean? It actually means they can employ more people in the United States. American companies in general do not move production abroad in order to find total alternatives for production here. They tend to complement their production base here with production bases other places, which allows us to remain competitive here. So I think the facts speak for themselves. Trade is a benefit to the US Economy. And incidentally, one of the things that we don’t talk enough about is the benefit which comes from having greater choice and lower prices for American consumers. Trade is a two way street. We get better export opportunities and better jobs as a consequence of being able to sell abroad.
And we get more choice and, and lower prices at home as a consequence of having more foreign competition in the United States market. It’s win, win on both sides. Can you….
Debating Trade Deficits and Job Quality
SIR JAMES GOLDSMITH: Good evening.
LAURA D’ANDREA TYSON: Good evening.
SIR JAMES GOLDSMITH: Firstly, exports. The facts are in there again. You’ve got the second worst year in American history in balance of trade, $150 billion. You’re aiming at an export trade deficit. So your importance infinitely more than you’re exporting. And if that is, I can’t remember how many jobs you said it was per billion dollars. That’s a hell of a lot of lost jobs.
Secondly, the new jobs being created largely part time and very much in lower salaries before you even had the competition of NAFTA and before you cost, long before the Uruguay Round, which I hope will never come about, you’ve already had a very substantial increase in hourly and weekly earnings. And as for lower prices for imported goods, how does it work? What happens is people transfer their production offshore. They import their products and sell them just below the level of the locally produced product. And that way they manage to really put the local company out of business. That’s what’s been happening throughout Europe.
LAURA D’ANDREA TYSON: The problem with that argument is that there are just a number of problems with that argument. The facts are just not right. First of all, just on the basis of the question of what jobs are being created in the United States right now, it is the case.
If you just look in the 10 months of this year, exactly the 10 months when you’re saying our trade imbalance did worsen, and it did worsen in those 10 months, this economy created more high quality jobs, that is above average earnings jobs, than in the previous five years combined.
There is no simple relationship between a trade imbalance and the quality or number of American jobs. American jobs have increased by more than 5 million since January of 1993. And the quality of those jobs has improved. That’s the first point.
The second point is that while we have had some foreign investment going abroad, a lot of that foreign investment has gone abroad precisely because of trade barriers abroad which have made it impossible for American producers to produce here and sell in growing foreign markets.
The Purpose of Foreign Investment
What’s so wonderful about the Uruguay Round and what was so wonderful about NAFTA is that barriers to US products being produced here and sold abroad are being brought down. So now American producers.
CHARLIE ROSE: Let me interrupt you. You are arguing that if in fact they break down the barriers to US Products, then American companies no longer have an incentive to go and produce those products within that country in order to sell to that market.
LAURA D’ANDREA TYSON: Exactly. Because if you look at the motivations for foreign investment. Why do American firms choose to produce abroad the most? The answer most frequently cited is they choose to produce abroad, not to lower their cost by going to cheaper wage locations, which is what is being suggested here. No, they mostly go abroad in order to sell into foreign markets. And when you say, well, why are you producing abroad?
Why not produce in the United States. And export to the foreign market? They will say, the foreign market is shut off, the tariffs are too high, the regulations are too high. We get no intellectual property protection abroad. The Uruguay Round will open up those markets and American producers can stay here, hire American workers and sell all around the world.
SIR JAMES GOLDSMITH: Well, this is just totally contradictory to the facts. I mean, let me give you just two recent quotes in the last few days. A man called Audrey Freeman, who’s an economist on the board of Manpower, what did he say this week? They’re the largest supplier of temporary workers in the States, as you know. I’m quoting. He said wage costs actually decline, declined last year. What did. David Wesley and Amuro securities said only one third of new jobs have gone to adult men. But what is more important is the fact.
LAURA D’ANDREA TYSON: Sorry, but those facts, such as they are, and they are partial facts, bear. No relationship to the trade issue. I want to say, first of all, to your point, the reason wage costs have not gone up is because productivity has gone up substantially efficiently to allow wages to increase without causing costs to go up. You can afford to pay a worker more if they’re more productive. And American workers have become increasingly productive, so we can afford to pay them more and still be competitive.
Offshore Production and Labor Costs
SIR JAMES GOLDSMITH: Let me refer you to an interview with a man, a fellow at IBM who was in charge of moving certain parts of the production offshore. He said, we’re closing down certain production. It was in the Wall Street Journal. I can’t remember what day. I’m sure you can find it. And we’re moving offshore, but we’re not going to employ the people ourselves. We’re going to take an Asiatic partner because that way it’s easier for us to get rid of the Asiatic workers who keep going to the lowest possible salary level so we can keep our mobility and move out. The idea that corporations are moving out of the United States for other reasons. I’m talking about the bulk than the cheap labor, if purely nice.
LAURA D’ANDREA TYSON: Well, actually, the surveys of all business motivations on this point out exactly the opposite. Most American foreign direct investment has been to the developed countries. It has been to high wage locations in Europe and relatively high locations in East Asia.
That is relatively high to the rest of East Asia. And when you say why do you go to these high wage locations to produce? They will say, because in order for me to sell computers, cars, semiconductors, war, whatever services, financial services in Europe, I have to be in Europe now. The great thing about trade liberalization is it reduces the incentive for domestic firms to have to go abroad. The point is that the world is a global world. And in the absence of trade liberalization, the phenomenon that you are talking about, namely firms going abroad, is with us. It’s already with us. In fact, trade liberalization can actually change, change the incentives, making it more attractive to stay in the United States.
The Business Case for Offshore Production
SIR JAMES GOLDSMITH: Let me just ask you a straight common sense question. Just pretend you’re running a business.
CHARLIE ROSE: Here’s the camera over here.
SIR JAMES GOLDSMITH: Just pretend you’re running a business and forget all the failure, forget all that. Let me just put it to you in a straightforward business way, okay? You’re going to have, you’re going to manufacture a product and about 25% of your wages — of your volume is going to go in the paper payment of wages. And you can have the same technology and the same capital by employing, by putting up the factory in an area where you’re going to save 20 out of that 25%. So say you’re doing a 500 million dollar volume business. You’re chief executive of a business with $500 million of volume. By moving offshore you’re going to save $100 million a year. And by staying here you’re going to have to compete with people who are saving that 100 million.
LAURA D’ANDREA TYSON: What you were saying is absolutely correct. There are.
SIR JAMES GOLDSMITH: Thank you. That’s all that answer.
LAURA D’ANDREA TYSON: No, no, no, no, no. But it bears no relationship to the issue of whether trade liberalization is beneficial or not. It is true that for some American companies where wage costs are a significant fraction of what they produce, of the cost of their production, and where it doesn’t matter, given what they produce, whether they’re near their consumer or not. So they can go any place in the world to produce because it doesn’t matter whether they are close to the consuming public. Those companies have long since made decisions and will continue to make decisions to search for lower cost places.
CHARLIE ROSE: The question is, is the Uruguay Round, is further trade liberalization going to exacerbate or aggravate that trend or is it going to improve the situation for a greater.
Will GATT Accelerate Offshoring?
CHARLIE ROSE: Let me just make sure I heard you because I’m not as informed on this debate. You are saying, Chairman Tyson, that as far as when you look at the facts that all the companies that are going in search of lower wages are already doing that. And therefore GATT will not add to the number of companies leaving the United States to manufacture their products somewhere else or leaving France. I mean, you’re exactly that. And furthermore, I’m saying not only will GATT not worsen that too.
CHARLIE ROSE: Let him answer.
SIR JAMES GOLDSMITH: Let me just answer that point. You have just said that companies are going offshore to get cheap labor. Some are, many are not moving.
SIR JAMES GOLDSMITH: I don’t want to remind you of the fact that a few minutes ago you were saying the opposite, but doesn’t matter. No, no, no. I’m sorry, that is unfair.
CHARLIE ROSE: That is unfair argument.
SIR JAMES GOLDSMITH: You are now saying that they’re moving offshore so as to get cheaper labor. Fine, I agree with you.
CHARLIE ROSE: This is not a fair. Let me finish and then I’ll give you a chance to correct what you think he’s saying.
SIR JAMES GOLDSMITH: And then you say, but bringing in the Uruguay Ra Gat will not exacerbate that. Now, what is the purpose of gatt? It’s to reduce trade barriers. We’ve had Atrians which have reduced the average trade barriers from what, 40% to 3.9% if your way round goes through so that you can manufacture anywhere in the world to sell anywhere in the world.
CHARLIE ROSE: Let him finish and then come back.
The Impact of Free Trade on Employment and Manufacturing
SIR JAMES GOLDSMITH: Why did this not happen before? Because if you manufactured abroad before, you couldn’t import back without a tariff. Now what you’re doing is you are saying move offshore, continue to move offshore as you’ve been doing up to now, according to you, and I agree with you, and you can re-import into the states the products that you manufacture. And the result is that you will obliterate earnings and employment in the state.
LAURA D’ANDREA TYSON: First of all, let me point out that an important point that you miss here is the US has by choice and for a considerable period of time, much lower trade barriers than its partners.
So what is going to happen in— The Uruguay rounds, and incidentally what happened in NAFTA is that the foreign markets are going to become much more open relative to our market. It changes the balance of incentives, making— It more attractive for American companies to stay here and produce for those foreign markets. Remember, we have low tariffs and barriers to begin with. It’s the rest of the world. We are actually leveling the playing field and making it more possible for American companies to go.
CHARLIE ROSE: Let me just tell you one second. Just on that point, we’ll come back to. I mean, it seems to me that we have established that at least some companies are going to go overseas because of lower wages and have done it in the past, but some still will.
LAURA D’ANDREA TYSON: And I don’t think that— I do not think that trade liberalization will worsen that. I actually think trade. But you do acknowledge that in fact has happened. You just don’t think it will accelerate because of this. But let me say two—
SIR JAMES GOLDSMITH: Please go ahead.
LAURA D’ANDREA TYSON: I think it’s appropriate for me to add two provisos to this. Number one, companies that—there is very good evidence that companies that have gone abroad in part to lower their cost of production. What that has done for them here is allow them to be more competitive here and as a consequence to have a larger share of the world market. I can give you examples from Texas Instruments, Motorola, they have evidence showing that they can hire more people in the United States because they keep their overall costs down and they keep their competition by lower cost in some production.
SIR JAMES GOLDSMITH: Mrs. Tyson, what you are saying flies in direct conflict with the facts. Every single industry has reduced the number of people that they employ in all the developed countries sharply. And that has happened partly because of productivity and partly because of movement offshore. Now, it cannot be otherwise.
LAURA D’ANDREA TYSON: It has happened primarily because of productivity.
SIR JAMES GOLDSMITH: It is not primarily—
LAURA D’ANDREA TYSON: The evidence is overwhelming on this point. Excuse me, in terms of the economic— Evidence, it is absolutely overwhelming.
The Debate on Trade Benefits
CHARLIE ROSE: All right, let me make one last point. I know you have to go, but stay with me for this—is the argument by the administration, by supporters of GATT in the Congress is that with trade barriers going down, there will be a larger market for product produced in America. Is that true or false? Is that one of the positive benefits?
LAURA D’ANDREA TYSON: That is a positive.
SIR JAMES GOLDSMITH: Wait a minute. In other words, that more products will be imported into America.
CHARLIE ROSE: No, America will export more products because barriers to the importation, whether it’s Japan or whether it’s France or wherever it is, there’ll be less barriers and therefore America will be able to sell more of its products creating jobs in America rather than losing jobs.
SIR JAMES GOLDSMITH: What will happen? Please let me answer. What will happen is more American products will be sold abroad which have been manufactured in low cost areas and therefore they will carry a U.S. name. They will have a U.S. manufacturing company. The corporations that make them will make great profits, but the workforces will be eliminated. And this is what has happened throughout the world. If you—Ms. Tyson—if you were willing to look at the facts in those countries that have followed that policy.
LAURA D’ANDREA TYSON: Look at the facts. In our country, we have followed the country—
We have followed a policy of lowering barriers more aggressively, unilaterally over the—
SIR JAMES GOLDSMITH: And what have you had? You had a 19.4% reduction in real earnings?
LAURA D’ANDREA TYSON: No, no, no. You have 150—what we have now is we have an economy which has generated over 5 million jobs. We have earnings on the upswing at this point. The problems of earnings in the last few years have been the result of— A cyclical decline in the US Economy. A recession coming from ill-advised fiscal policies, irresponsible government behavior in the 1980s.
SIR JAMES GOLDSMITH: That’s over 20 years.
The Politics and Economics of GATT
CHARLIE ROSE: We are now, I’m going to have to end this for a couple of reasons because I want to move to another realm of this, which is—tell me about the politics of this thing. You were there testifying before the Commerce Committee. Senator Fritz Hollings from South Carolina. What’s the politics of it? Chairman Tyson, do you think that in fact, Chairman Person Tyson, do you think in fact that GATT will pass in the Congress and that he will be able to enlist the support—Gingrich is in favor of it, although others who are in favor of it have some reservations about the World Trade Organization.
LAURA D’ANDREA TYSON: I do believe it will pass. And I believe it will pass because both the economic and the political logic are overwhelming. Let me just add a point on the economic side which I think we haven’t really touched upon.
There are a whole host of studies and there was just one that was released at the end of last week. The one released at the end of last week was not done for the United States. It was done for the world economy. But it pointed out that the gains to the United States are about $150 billion a year, which translates to about $1,700 per American family. Let me give you the economic argument. So the economic argument is that this is overwhelmingly beneficial for the United States and in a process of 10 years of phase in, by the 10th year we get those kinds of benefits.
There’s almost nothing we can think of to do right now as a society which guarantees those kinds of benefits.
SIR JAMES GOLDSMITH: Okay, now let me just comment. Let me just comment on that. Allow me to comment. I’m sorry, I don’t want to interrupt, but I must comment on this. The reality of the figure was that about a year ago GATT, the GATT Organization, the OECD, and by the way, a bit later, the World Bank produced a forecast of what would happen if the Uruguay round were fully implemented. And they came up with this extraordinary precise figure of a $213 billion increase for world trade. And you then looked at the report and read it. And you found that that was in 10 years. If it was applied that the head of the OECD, Mr. Paye, said “highly theoretical report” and that’s his quote. And that the $213 billion, when you calculated it was 0.7% of the prospective world GNP in 10 years time. So we were talking about a 0.7%.
LAURA D’ANDREA TYSON: It was still positive, wasn’t it? It wasn’t negative as you would suggest.
SIR JAMES GOLDSMITH: It’s negative. Wait a minute. Let me please answer your point, please. And then 0.7%, perhaps in 10 years, was what was forecast last. Then as the pressure has come on and there’s been opposition to GATT, like a lot of hysterical chicken, they’ve been increasing that forecast and all of a sudden it’s 500 billion. Last week, as even one paper yesterday said that was “cannily well timed.” They doubled. They found a 287 billion taken out of a hat. On top of that, what did we hear? That if it was postponed, the single most important piece of economic legislation in our modern times, if it was postponed a few months, we were told it was going to cost 100 billion to the US for a few months. Now, 213 billion for the whole world in 10 years perhaps. And all of a sudden it became 500 billion, 100 billion for the US alone. This is hysterical.
CHARLIE ROSE: I have to terminate this now and move on to some other subject while I’ve got you here and talk about the book. I thank you, Laura Tyson, good to see you on the broadcast.
LAURA D’ANDREA TYSON: It’s been an interesting conversation and a pleasure.
CHARLIE ROSE: Thank you very much. We always love having you here. And please come back.
LAURA D’ANDREA TYSON: Thank you.
The Trap: Fundamental Problems in the Global Economy
CHARLIE ROSE: Let me come back to the book and Jimmy Goldsmith and talk a little bit about what you were saying here, because this sounds like some of the things we’ve been hearing in the political debate that just took place in America in which we had an extraordinary gain by Republicans in the Senate and in the House. Here’s what you say, just on the flyleaf: “Despite an expanding economy, violence increases, the number of those living in poverty grows, and urban slums spread in cities throughout the world. There is a growing realization that something fundamentally has gone wrong and a pervasive feeling that those in power do not know what should be done.”
SIR JAMES GOLDSMITH: So there is this question, what is fundamentally wrong? You see, because obviously Europe and America are extremely similar, very similar problems. Development of slums, breakdown of families, drugs, crime, all those problems which we all know are the fundamentals of a problem, but they’re symptoms of something. They didn’t come about on their own. They’re symptoms of a basic disease.
You take GATT, you’d think that everybody in the Third World would say, this is phenomenal. We’re going to be able to become the manufacturing base for the First World. We’re going to be able to suck in their jobs, export products to them, and we’re going to benefit. But in fact, a million people went out in India to campaign to protest against GATT in the streets, led by a remarkable woman called Mrs. Shiva. Professor Shiva. Remarkable woman.
Now they look around and they see the West and they see the mess we’ve made with economic growth. They see that we’ve, as I said before, uprooted the countryside, bloated the towns, destabilized the towns and created terrible, terrible chaos in ourselves. And they want to avoid it. And they say that GATT, the purpose of which is to create what is known today as efficient agriculture and to impose it worldwide.
Now, let me just give you one aspect of GATT on the Third World. The idea of GATT is that the efficiency of agriculture throughout the world should reach the—that sounds logical, to produce the most amount of food for the least cost. But what does that really mean? An economist will say, that’s obvious. The most amount of food for the least cost. But what is cost? When you produce, you intensify agriculture and you reduce the number of people on the land. What happens to those people? They’re chased into the towns. They lose their job in the land. If they go into the town, there’s no jobs, there’s no infrastructure. The social costs of those people, the financial cost of the infrastructure has to be added to the cost of producing food. If you want to have the real cost of food.
CHARLIE ROSE: I understand you are—
SIR JAMES GOLDSMITH: On top of that. On top of that. That’s just economics. And economics should not be the whole argument. On top of that, you’re breaking families, you’re uprooting them, you’re throwing them into the slums. Do you realize that in Brazil the favelas did not exist before the Green Revolution of India, intensifying agriculture.
CHARLIE ROSE: Before you go down this road too long—
SIR JAMES GOLDSMITH: No, let me just add one word and I’ll move off this. Just one final example. In the world today, there are 3,100 million people still living in rural communities. 3.1 billion.
CHARLIE ROSE: Right.
SIR JAMES GOLDSMITH: If GATT succeeds and were able to impose modern methods of agriculture worldwide so as to bring them to the level, say of Canada or Australia. What would happen? 2000 million people out of those 3100 million people, straight arithmetic calculation would be uprooted from the land and chased into the towns now throughout the world, with—
CHARLIE ROSE: All of the destabilizing impact that it will have on the—
SIR JAMES GOLDSMITH: It’s the greatest single disaster. It’s much more disaster, more disastrous than anyone. We have to change priorities. The purpose, let’s take agriculture. Instead of just trying to produce the maximum amount for the cheapest direct cost, let us try and take into account the other costs. Our purpose should not be just one dimensional cost of producing food. We should take into account that we want the right amount of food of the right quality for health, of the right quality for the environment and employing enough people so as to maintain social stability in the rural area.
CHARLIE ROSE: Let me ask you this.
SIR JAMES GOLDSMITH: If not, and we chase 2,100 million people into the slums of the towns, we will create on a scale unheard of mass migration. What we saw in Rwanda, 2 million people will be nothing. So as to satisfy an economic doctrine, a piece of economic thinking which by the way, is started in 1819 and was based on totally different ideas, which was Mr. Ricardo’s ideas. We would be creating 2 billion refugees. We would be creating mass waves of migration which none of us could control. We would be destroying the towns which are already largely destroyed. Look at Rio, look at Mexico, look at our own towns.
And we’re doing this for economic dogma because we’ve got to get it done by the end of December. We can’t wait another year or two to see the result. Otherwise some political gimmick like fast crack will go out of the way. What is this nonsense? Everything is based in our modern society on improving an economic index. How do we get greater economic growth? How do we grow via GNP? And the result is we are destroying the stability of our societies because we are worshipping the wrong God. Economic index.
CHARLIE ROSE: And the God we should worship is….
SIR JAMES GOLDSMITH: is that the economy, like everything else, is a tool which should be submitted, should be subject to the true and fundamental requirements of society, which.
CHARLIE ROSE: We suggested early in terms of serving the people.
SIR JAMES GOLDSMITH: That’s right. And by the way, it’s known, it can be known in the great battle what?
On Wealth and Taking a Stand
CHARLIE ROSE: Look, a lot of people were looking at you and they’ll say, this is a man who is said to be worth some billion dollars.
SIR JAMES GOLDSMITH: I don’t know, but.
CHARLIE ROSE: I mean, I don’t know, but you’ve got a lot, a lot of money and you’ve got a very successful life.
SIR JAMES GOLDSMITH: That is true.
CHARLIE ROSE: And you took on this battle. Do you believe you’ll be successful? Can you one man, in your judgment, stop GATT?
SIR JAMES GOLDSMITH: Well, let me. Let me tell you what’s happened so far.
CHARLIE ROSE: because I got to move to some profile.
SIR JAMES GOLDSMITH: I know. Let me tell you what’s happened so far. Eighteen months ago, nobody in France, I’m half French, half Irish, nobody in France knew what GATT was. It was not a subject that was being discussed like in the United States. It was too big. People could understand NAFTA. They can’t understand.
CHARLIE ROSE: And they also thought it was too boring, right?
SIR JAMES GOLDSMITH: Well, perhaps, but it’s the single most important thing that’s come across.
CHARLIE ROSE: That’s why we did an approach.
SIR JAMES GOLDSMITH: That’s right now in France, I started the program of attacking it in the media, in the newspapers. I wrote, then I wrote a book which is this.
CHARLIE ROSE: Somebody came and from Firo and heard you give a lecture and therefore said, let’s do a Q and A. And this is what this book is about.
SIR JAMES GOLDSMITH: That is correct.
CHARLIE ROSE: All right.
SIR JAMES GOLDSMITH: And then, then when they try. Because you got to understand what is happening. This is the establishment against the rest of society. What is happening in France today, for instance, 30% of the population is, forget 70% against it. But who are the 70%? They’re the ordinary people who are the 30%. They’re basically big business whose dream. And I’ve been in big business and I’m for business as long as it doesn’t devour society, as long as it doesn’t totally destroy things. So I’m for profits, for free markets, and I’m a capitalist and I’m perfectly proud of having been successful. But let me make it clear that we have a conflict of interest. And what is happening is that big business loves the idea of total access to unlimited giveaway labor, which is what it’s going to have. And this. And therefore, in a community like France where we have succeeded in getting the issue out, in getting it discussed and understood, 70% are now against it.
The Real Impact of GATT
CHARLIE ROSE: But when you strip away everything, what you were saying, I mean, read this book. What you were saying is that you’re going to see, if GATT passes, you’re going to see labor jobs will be created, jobs will be lost in the industrialized world because of the fact that companies in search of the cheapest labor will move their manufacturing operations.
SIR JAMES GOLDSMITH: And you know who’s going to make money over there? You know who’s going to make money over there. I’ll tell you who’s going to make money over there. In every developing nation, you have the same pattern. You have a handful of people who control everything.
CHARLIE ROSE: The oligarchy that controls and undeveloped everywhere, everyone.
SIR JAMES GOLDSMITH: You gotta move on what you’ve got. Let me just make it clear. The people who are going to lose here in the developed countries, they’re not people like me or you. They’re going to be the people who lose their jobs out there. So it is the poor in the rich countries who are going to be subsidizing the rich in the poor countries. It is the most extraordinary…
CHARLIE ROSE: You will grant me that. There are a lot of people. Laura Tyson is one, and the President of the United States is other. And Newt Gingrich, the new speaker of the House in the United States Congress and a number of businessmen disagree with you. Multiple people are disagreeing over the impact of the streets. So this question for you.
SIR JAMES GOLDSMITH: Yeah.
CHARLIE ROSE: If in fact the European Parliament, of which you are a member, adopts GATT, are you going to resign from that parliament?
SIR JAMES GOLDSMITH: It’s a good question. The point is. I know it’s good. We’re going to vote on the 14th. And my part, the reason why I’m in politics is to fight against this. GATT is the principal reason why I started a political party, why we stood for elections and put a whole slate in in June, why we had a success, by the way, because the people were in favor of it, not the elites, and were in the Parliament to fight it. Now, what is going to happen? It’ll pass in Europe if it passes in America. Because the European Parliament is a false pseudo democratic institution. It’s no more than democratic disguise for the Commission. The idea that it’s a democracy is absurd. It’s already fixed by the two main parties who determine it, and that is the Christian Democrats and the Socialists.
So it’s going to pass. Whatever we do. The only thing that we can fight for is the right for people to carry out and hold a referendum, which is an old European tradition. And that is that it be placed before the people who are given a right to vote on the single most important economic change in their lifetimes. And we will do everything, including demonstrations in the streets and bringing the people into the streets, not to adopt our plan, not to reject GATT, because that would be people imposing through the streets some political action, but to have the right to vote.
What we will insist upon is the right for the people to vote on the single most important economic act that’s affected. That has affected their careers and their children’s careers and their after. And it is unbelievable that here in the United States, this great country, the leader of the world. Because what you decide here will determine the others that there’s been practically no debate. When you had this huge debate on NAFTA, which was a pimple, it is going through because politicians think, well, why not give a good deal to Clinton on this? It’s an easy one. There’s no debate about it. Business likes it. Business no doubt will subsidize things. Business adores it. That’s why it’s going through. It is a fix as it is in Europe. It’s a business political fix.
CHARLIE ROSE: It’s not that simple, in fact, because there are a number of people who dare him. Not just because business is in favor of. There are a lot of people here, both Democrats and Republicans.
SIR JAMES GOLDSMITH: No, it’s not possible.
CHARLIE ROSE: In the concept also of free trade. Now, they may have a different judgment about the consequences of free trade, but in the principle of free trade they agree with.
SIR JAMES GOLDSMITH: Look, that is true, of course. They’re sincere people. And of that there’s absolutely.
CHARLIE ROSE: Since their tools of business and all that.
SIR JAMES GOLDSMITH: Oh, but there’s a lot. All I can tell you is. And let me speak from Europe, European thing, I don’t know America well enough to be able to talk about it, but into the political scene. But in Europe, the position extremely clear. Business and politics, the ruling machinery of government and economic power in Europe are imposing this without a vote and trying to stifle the debate. Maybe it’s not the case here. All I know is there hasn’t been a debate on the single most important economic act of your lifetime.
Beyond GATT: The Bigger Picture
CHARLIE ROSE: Well, I tell you what there ought to be a debate on in this country. And. And we had. Didn’t really have this debate in the congressional election and maybe we’ll have it over the next two years. I repeat what you say here. Forget that you lay it all at the doorstep of GATT.
SIR JAMES GOLDSMITH: No, I don’t lay it all.
CHARLIE ROSE: Despite an expanding economy, violence increases, the number of those living in poverty grows, and urban slums spread in cities throughout the world. There is a growing realization that something fundamental has gone wrong and a pervasive feeling that those in power do not know what should be done. That is an issue across the political sector. This must be debated in this country and it ought not.
SIR JAMES GOLDSMITH: Just we talked about GATT because it was topical, but please, GATT in this book is only a small part. Let me explain why I used GATT and what GATT? Why use gain.
CHARLIE ROSE: I’m losing the amount of time I have to talk to you and I want to establish who you are in terms of America.
SIR JAMES GOLDSMITH: Then let me just finish this point so I can explain what the book is. What I’m saying in the book is, is that we have allowed the instruments that are supposed to serve us to become our masters. And what I’ve done is. And what I’ve done is. I’ve taken certain examples. GATT is an example whereby an economic doctrine is going to destabilize our society.
I’ve taken nuclear, which was, of course, in America, has been exemplary in many respects, because nuclear, you had a real democratic debate and you haven’t had a new plant ordered since ’78. But in Europe, we, we haven’t. We haven’t been allowed to discuss this disastrous form of energy, both in terms of economic. Economic terms and in terms of security and safety. I talk about intensive agriculture where I’ve shown how we have destroyed our communities and communities throughout the world. I mean, these mass. Right. These are no more than examples of how we are destroying. All right.
Sir James Goldsmith’s Background
CHARLIE ROSE: And read the book the Trap. And it’s interesting because it’s a series of question and answer. And you can see how your mind works and your experience. You, Your father was from Germany, Frankfurt. But your grandfather.
SIR JAMES GOLDSMITH: Yes. Family, the origin of Frankfurt.
CHARLIE ROSE: They. No, no, belong before the First World War. Right.
SIR JAMES GOLDSMITH: 19th century. My father was born in 1878.
CHARLIE ROSE: You were not a great student.
SIR JAMES GOLDSMITH: No, Hopeless.
CHARLIE ROSE: Hopeless. I mean, you left. Where were you? You were. Where were you in school?
SIR JAMES GOLDSMITH: In England.
CHARLIE ROSE: In England. You left school because you wanted to go out.
SIR JAMES GOLDSMITH: Sixteen.
CHARLIE ROSE: Yeah. And it wasn’t impediment. You. Because you said one time had this great quote which I suspect you may want to take back, but I don’t know. You said, I’ll go out and make a lot of money and I’ll have somebody read to me. I don’t have to learn how to read.
SIR JAMES GOLDSMITH: This is a family myth of my brothers. It doesn’t matter.
CHARLIE ROSE: You have lived in France and you have lived in England. You have homes in Mexico and I assume here in Manhattan as well.
SIR JAMES GOLDSMITH: No, I don’t have. It doesn’t matter. I liked it, but I don’t.
CHARLIE ROSE: You have bought and sold companies. You were considered a corporate raider, proudly or not. I mean, did you have. Did you. When people said you are a corporate raider, you’re a guy who went in there and bought American companies. And perhaps when you bought them and spun them off, some people lost their jobs. Then where was the sympathy?
SIR JAMES GOLDSMITH: Then let me explain to you. Firstly, firstly, I went into business when I was. When I came out to the army.
CHARLIE ROSE: Five minutes in the show.
SIR JAMES GOLDSMITH: 19.
CHARLIE ROSE: Right.
SIR JAMES GOLDSMITH: And I started businesses. I built businesses, I built large businesses. And that wasn’t terribly interesting to anybody. But I built the third largest food group in Europe. But you’ve not. You built.
CHARLIE ROSE: I own it in part by buying other companies.
SIR JAMES GOLDSMITH: And so does everybody else.
CHARLIE ROSE: Of course, so does everybody.
SIR JAMES GOLDSMITH: That’s part of it. All right.
CHARLIE ROSE: But when we talk about built, we also are talking about buying and selling companies.
SIR JAMES GOLDSMITH: Every single corporation buys and sells corporations. That’s part of life. But I built from scratch and with no capital, my own corporation, it became one of the largest corporations in Europe. I also was willing to make a hostile bid, which by the way, everybody does again now perfectly fashionable. And what is a hostile bid? It’s a way whereby the marketplace can freely change management where shareholders have not done so and where the management has not produced true value. It is part of the free market mechanism. And I am for free markets. And as far as I’m concerned, within a valid economic region.
CHARLIE ROSE: Right.
SIR JAMES GOLDSMITH: You should have the freedom for the marketplace to work.
CHARLIE ROSE: So free trade within regions is okay with you and in fact may be the model that you would suggest. It is the model I suggest and APEC is in part about that can be.
SIR JAMES GOLDSMITH: But I think that regions should be reasonably homogeneous. In other words, I think that labor should be competing with labor which earns the same sort of salary.
Stock Market Insights and Economic Concerns
CHARLIE ROSE: In 1987 you realized that something was wrong with the American stock market.
SIR JAMES GOLDSMITH: World stock market.
CHARLIE ROSE: The world stock market and its implication for the American stock market. And you divested a lot of your equity holdings. Yes, yes.
SIR JAMES GOLDSMITH: Not just in America. I was based in France. But the point is. It was.
CHARLIE ROSE: You saw the crash coming.
SIR JAMES GOLDSMITH: That is correct.
CHARLIE ROSE: How do you see the economy today? The world economy? Where are we?
SIR JAMES GOLDSMITH: I think our financial system is extremely fragile. I think that you can see it in the volatility of currencies. You can see all sorts of weaknesses. I believe that there’s an incredible amount of danger in things like the derivatives. I think that we are moving towards the outer limits of acceptable risk taking.
CHARLIE ROSE: Derivatives being new kinds of equity, new kinds of stock.
SIR JAMES GOLDSMITH: I mean, the figures that I’ve seen, I mean the world. I think the world GNP is somewhere in the region of 30 trillion. And I believe that the derivatives outstanding every night, which a large degree speculative from the banking and other institutions are about equal every night, about equal to the Annual turnover of the world. So we’ve gone very far. I think that you see all sorts of figures, but those are the figures recently that I’ve been seeing. I think our financial system is dangerous and could create great problems for the real economy. But I also believe that you cannot enrich a country by impoverishing its people. I do not believe that the health of an economy is measured by the profitability of its corporations. I believe profits are important, but even more important is the health of the population in terms of participation.
Tax Cuts and Infrastructure Investment
CHARLIE ROSE: All right, let me get you this question. In this recent election in America, there was something called a Contract with America which called for tax cuts. And we’re going to see a great debate about tax cuts because we now have Republicans in control of the House and the Senate. Do you fundamentally believe that tax cuts are good for the American economy? Now?
SIR JAMES GOLDSMITH: I believe that you need. You can’t just have tax cuts. You’ve got to have an overall idea. You’ve got a lot of problems in this country, as we all have. You’ve got slums, you’ve got poor infrastructure.
CHARLIE ROSE: We’ve got too many young people not married, having babies.
SIR JAMES GOLDSMITH: No, but what I’m talking about is things that are going to that where money is involved. You’re talking tax, and therefore I’m thinking in terms of money here as opposed to deeper things. And you’ve got a huge need for capital investment to redo your infrastructure so to create all the problems you know about. And this is the time when the capital is moving out massively to the third World. And let me tell you something, people who say you have to go and build the infrastructure of the third World, I would recommend to you that you build the infrastructure right here where you need it when you drive through parts of the.
CHARLIE ROSE: But if you are a businessman, I’m saying this, but are you saying that to be a good citizen or. But as a businessman, are you saying that there is as much return on building using your capital in the United States as there is in using your capital in Asia?
SIR JAMES GOLDSMITH: You are putting your finger on the problem. Exactly what I’m saying. I’m saying that the politicians unthinkingly have created a situation, a structure whereby responsible businessmen, patriotic and decent businessmen are forced to invest offshore or go bankrupt because labor is so much cheaper. And therefore the structure is one whereby you are taking the spot and forcing them offshore, whereas you should not be forcing them offshore. You should be ensuring that that investment stays here. You have the need for that investment as we have in Europe. You’ve got so much to do and you’re thinking about doing it elsewhere. You’ve got a responsibility right here. You’re supposed to be an example to the world. Your infrastructure is not an example.
CHARLIE ROSE: We’re also the leader of the world.
SIR JAMES GOLDSMITH: You are? Yes. Okay.
CHARLIE ROSE: And there comes responsibilities. To be an example.
SIR JAMES GOLDSMITH: To be an example rather than to impose your views. I don’t believe in colonialism. You should be an example.
CHARLIE ROSE: Okay. I’m out of time. Sir James Goldsmith. The Trap is a book. It’s a question and answer in which he talks about how he feels about the way the world works and a lot about GATT, which will be perhaps not debated as much as he would like to see it debated, but it will in fact be a subject of discussion in the Congress. Lucy Greeley, Autobiography of a Face, is an extraordinary book and an extraordinary story. She will be on tomorrow night. I look forward to talking to her at that time. My thanks to Laura Tyson, Chairman of the President’s Council of Economic Advisors. And my special thanks to Jimmy Goldsmith for joining me. Pleasure to have you here. We’ll see you tomorrow night.