LUNCHON REMARKS BY WILLIAM J. CASEY TO THE CENTER FOR INTERNATIONAL BUSINESS CONFERENCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R001003870012-3
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 17
• Document Creation Date: December 20, 2016
• Document Release Date: March 7, 2007
• Sequence Number: 12
• Publication Date: April 9, 1981
• Content Type: MISC

Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
?
'LUNCHEON REMARKS
BY
WILLIAM J. CASEY
THE CENTER FOR. INTERNATIONAL BUSINESS CONFERENCE
Dallas, Texas
April 9, 1981
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
9 ?
THE GLOBAL POLITICAL CLIMATE AND THE MULTINATIONAL COMPANY:
WHAT'S ON THE HORIZON?
You've invited me here to talk about, "The Global Political Climate
and-the Multinational Company: What's on the Horizon?" I can hardly
say it, much less discuss it.
One of my associates suggested that I entitle my talk "Misery loves
Company". When I asked-him why, he replied that the occasion would bring
together-the two "devils",of-the press -- the CIA and the multinational
corporation. He went on, "I can see the headlines now. Casey teaches
Robber Barons-dirty tricks!" I said, "How do you know it won't be the
other way around?" It is -easy and costly and painful to be misunderstood,
but it's more costly-.andpainful to misunderstand the kind of world in
which we have.tooperate. And we have not understood it as well as we must.
...We have been quick to talk about the interdependence of the global
economy and been, slow--to-respond to it's imperatives or even recognize
it'-s 'implications for. our economic policies, our security requirements,
our management practices and our competitive tactics.
From World-War II until the early 1970's almost all our economic
policies assumed a closed economy. The United States was the policy unit,
the primary trading market. The outside world was only a complication to
policy and a fractional add on to the market. If exports exceeded imports,
then one might adjust one's estimates to account for what was called "net
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
? 0
exports". And in discussions of monetary policy the term "Eurodollars"
might occasionally be uttered. But by and large these were matters left
to the experts and did not intrude into most policy discussions, whether
in government or in the press.
Today it has become essential to think of the United States as an open
economy. Any policy measure is now seen to have an immediate impact on
money and trade flows, an impact that may either reinforce or, more often,
vitiate the-original policy move.
__ We now appreciate that any additional monetary or fiscal stimulus will
have little.effect on,employment but will have an immediate effect on the
positionof.the United States-in world economy. In particular, the immed-
iate effect of attempting. through monetary means to stimulate the economy
is likely to--be an i-mmediate depreciation of the exchange rate. We learned
this.at immense cost in the early Carter years when the attempts to pump up
the U.S. economy led to the decline of the dollar from 2.6 marks to the dollar
to under 2 marks.in,two-years. After hailing a declining dollar as salutary
our economic policy makers woke up to discover that the side effects of
domestic monetary and fiscal policy swamp attempts to stabilize currency
exchange ra-tes.through exchange market intervention and that the depreciation
of the exchange rate abroad brings more inflation at home.
We learned that lesson the hard way. Take the two conscious deval-
uations of the-dollar in the 1970's. There were few U.S. economists or
economic policy makers who believed at the time that they would be an
independent engine of inflation. Attention was focussed on what those
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
? ?
devaluations were supposed to do for our exports. We were told that
since imports were only, say, 10 percent of GNP, a 5 percent devaluation
could only increase the rate of inflation by 1/2 percent. The poverty of
that line of thinking was demonstrated by the explosion of inflation in
the 1972-75 period and again in the Carter inflation of the last few years.
In the last ten years the dollar's depreciation vis-a-vis the
currencies of the fourteen other industrialized countries amounted to 17
percent, vis-a-vis Deutsche Mark a full 50 percent and vis-a-vis Japan's
Yen by 37-percent. This drastic devaluation failed to make American
products more pompeti-ti.ve -tn world markets and our trade deficit increased
aIarmin-gly. Indeed, the-decline in'the dollar boomeranged to generate an
inflation which-burdened our competitiveness. OPEC justified raising
petroleum prices substantially, largely to recoup their losses of "real"
income from being paid in devalued dollars for their export of oil.
.What is most disturbing is that vis-a-vis West Germany and Japan the
competitiveness of-our. technology-intensive industries keeps on deteriorating
des_p-ite the-depr.eci-a-ttn:g--dollar.
One of the most impo-rtant industries in the group of our technology-
intensive industries is aerospace. Since at least World War II this
industry unquestionably has been technologically the most sophisticated,
most competitive vis-a-vis all other countries, and the greatest contributor
to the U.S. balance. of payments. In 1979, its export surplus amounted to
about $10 billion. Industry specialists estimate that in the mid-60's
our aerospace industry commanded as much as 90 percent of the free world's
Annroyed For RAIAasP 2ffl7/m/Cl7 - C;IA-Rnp88R[1C144-igooloo-i87Ofl12-3
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
market for large transport jets. Since then, however, foreign competitors
have chipped away this share and it is now about 80 percent. Moreover,
we -- meaning the industry and the Government -- are doing many a thing
that greatly accelerates this process. Military and civil-shared production
programs reach ever higher levels that continue to increase the foreign
content of U. S. aerospace-shipments.
In terms of technological sophistication, our semi-conductor industry
is unexcelled.. Moreover, unlike most other induttries, the basic technology
on which this industry was built was almost entirely U.S.-made. (Of the
14 pivotal innovations, 13-were developed in the United States and one in
West -Germany.) This.i.ndustry's products have been critical to the develop-
ment o.fcomputors, telecommunications, most sophisticated military equipment
and innumerable. other=products. In the future it is also expected to become
the key.to progress in automotive technology, industrial process control
(including robot-ics), office automation and the like. Practically since
its beginning,-however, the industry has been subject to intense foreign
competition, mostl-y-from Japan. By now, although the Japanese semiconductor
industry has--cap-tured only 5 to 6 percent of the total U.S. market, in the
technologically newest product areas -- 16K and 64K RAM -- their penetration
is 40 to 50-percent-of U.S. market, a much larger share than they have
captured of our automobile market. In some semiconductor lines the Japanese
manufacturers are clearly striving to become world leaders -- and to
accomplish this leadership largely on the basis of technology they obtain
from U.S. companies.
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
. ? .
Probably the third most technologically sophisticated industry is
the metalcutting machine tool industry. For over a century it has
provided technological improvements not only to the huge domestic metalworking
industry, but also worldwide. By now it, too, seems to be in trouble --
the-United States has become a net. importer of metalcutting machine tools
(about $500 million worth in 1979 and $600 million in 1980). We are also
..host to subsidiaries'of German., and Japanese companies.
Finally,:-there isa huge problem facing our huge and old automobile
industry. In its almost century-long existence this industry managed not
only to-implant. the automo=bile-orientation on our entire economy, but also
did the same on many other countries. The current challenge it faces from
the 22-year old Japanese_i-ndustry is deadly serious -- the Japanese have
,not only conquered-abo-ut-one-fourth of-the U.S. automobile market, but also
have cost advantage-o-f at -l-east 20 percent over U.S. producers and they
have a product-mix that -I---s-alt least six years ahead of U.S. industry's.
The economic and financial dynamics work also in favor of Japanese industry,
for example,._ rela_ti-ve productivity growth, relative wage rates, and
rel-ative price=ctranges.
All this has very serious-consequences not only for our prosperity,
for our ability to pay our way in the world, for the value of our currency,
for our ability to mobilize the capital we need. It has serious
implic-ati-o_ns-i-n-under_mining the industrial base which underlies our national
security. Our leadership in electronics is critical to the technological
edge we have in the weaponry and the transport which is basic to military
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
? 0
strength. As the auto industry becomes globalized our need to keep the
sea lanes open will become more critical.
How do we address this slippage? Well, the first thing we need to do
in both our governmental policies and our managerial strategy and tactics
is to recognize that we face worldwide competition in a,., global market..
Let us look for a -moment at the way we misapply the antitrust policy
on the false concept that the market is America and not the world. We are
told that four.-U.S. auto-firms have upwards of 90 to 95 percent of the
market. Yet.when one looks out the window one sees that one-quarter,
perhaps even more, of_the new cars on the street are produced by firms outside
-these four. Nearly all of these additional cars are, of course, imported.
If imports. account for--one-quarter of. domestic consumption, we tend to say
that four firms have 75 percent of the market -- still a rather high figure.
This way of looking at the automobile market is surely wrongheaded.
There are not four-American.firms and some faceless imports in the market.
On-the contra-ry, there are eight or ten important firms in the market and
they include. -such powerful--and vital firms as Volkswagen, Toyota, Nissan,
Renault, and Peugeot-.-Citroen. The reason why Chrysler seems so out of
place in a_li-s.t of dominant firms is precisely that it is unable to compete
effective-ly in thi-sworld market and in fact has been withdrawing from it,
a step at a time-, by selling off foreign plants. It is now retreating
even in the United States much like a formerly dominant military power
reduced to a house-by-house defense of its capitol city. In a world
 Approved For Release 2007/03/07: CIA-RDP88B00443ROO 003870012-3
perspective American Motors too begins to look even less imposing than
concentration statistics imply. Whereas in 1959 it was fifth in the world,
it had dropped below fifteenth by 1978. Indeed, its recent arrangements
with Renault make it look more like a Renault affiliate than a jointly
dominant firm.
The market in automobiles has clearly become the world. In that market
GM had only 28 percent in 1978 and probably less today. Ford had only 19
percent.. Volkswagen and Da-imler-Benz.together had 12 percent. Toyota and
Nissan together had another 10 percent, and probably even more today.
Renault and Peugeot-Citroen together had still another 10 percent. Although
GM and Ford are.-large,.they hardly dominate the real market, as opposed to
the antitrust'construct of -a market. The top four have less than 50 percent
of the: world market -i_n__autos and less than 15 percent in steel.
The dissolutiarrof the :U.S. domestic market into a larger world market
is proceeding apace not merely in consumer goods, such as cameras and
el ec tro rri-c---pro ducts, where it. has ?long since been accomplished fact, but
also in'-basic industries,- such as automobiles and steel.
In this larger world market the position of U.S. firms is slipping
badly. In?chemical-s-, for example, DuPont has dropped from first in 1959
to fourth in 1979, with Union Carbide falling from second to seventh. In
1959 the United States accounted for seven of the top ten firms, in 1979
for only three.
Ar+nravar1 Car DaIar+na I) nn7rna/n7 ? ('IA Q1-1
 Approved For Release 2007/03/07: CIA-RDP88B00443R~003870012-3
? .
In electronics and applicances, six of the top eight firms in 1959
were American. In 1979 only three were still in that group.
In-metal manufacturing, in 1959 the United States accounted for nine
of the ten top companies, in 1979 for, only two.
In pharmaceuticals, in 1959 seven of the ten top companies were American,
in 1979 only five.
Many reasons can be advanced for the slippage of U.S. firms in world
markets. Surely the general.- productivity problem is one. So too the
inexorable workings of the principle of comparative advantage play a role.
The United--States now has a comparative advantage in agriculture, services,
and,. though the advantage is slipping, in specialized manufactures such as
wide-bodied aircraft-.a.rrd-computers. -We know that Japan is taking dead aim,
through government-subsidized research and government-influenced consolidations
to create-more powerful competitors to take on IBM in the world market. At
the same time. our anti-trust policy, ignoring the reality of a world market,
seeks to break up?LBM-and-many antitrust rules make it difficult for U.S.
companies-to--rearrange--their affairs in a way that reduces costs and
increases -p.roductiv-ity- i-n -order to permit them to compete both here and
abroad on equal terms with their foreign competitors.
In this world market we face government-subsidized and government-
financed- competition. In industry after industry, in country after country,
there is no need for the competitors; of U.S. firms to diversify or to
merge to acquire-a stable source of capital because those competitors
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
are owned by their governments and thus have a direct claim on the
public treasury. In this open world the conglomerate merger has become
an important means of competition against state-owned and state-subsidized
companies.
Not enough American .firms adapt their pricing and other managerial
policies to the fact of a world marketplace. Our Japanese competitors
set their marketing and pricing policies in terms of a global market.
The domestic market is the base which permits them to price to get
established and maximize their share of the larger world market. Too
many American firms plan and price in terms of the domestic market and
view,the foreign market as an add on to be picked up later. By that time
they are likely to find Japanese firms well established in the world market
competing vigo.rously_in-.,the American market from a worldwide base.
As we lose market position in basic industry, it becomes more vital
to 'stay ahead in.the technological sweepstakes. U.S. industry still puts
a greater share of ft's. production into research and development than
Japanese.and-.=German_ industry. But we lag in recognizing that the world
marketplace in technology--and exploiting foreign technology imported in
"naked fort' -of patents. and licenses and knowhow. The use of advanced
foreign technology in-"naked" form immensely speeds up the importing
industry's technological progress and usually at only a fraction of the
cost of developing similar endogenous technology. The more voluminous'
are an industry's--imports of such technology the faster will be its growth
 Approved For Release 2007/03/07: CIA-RDP88B00443ROO 003870012-3
?
of international competitiveness. Conversely, the greater a manufacturing
industry's sales of advanced technology in naked form the less competitive
it is likely to become once the transferred technology is put to use abroad.
Based on- receipts and payments of royalties and license fees it appears
that th-roughout the 1960's and 1970's our industry sold from 7 to 10 times
as much- advanced technology in "naked" form as it bought. In 1977, the
latest year for which there are comprehensive statistics,. our industry
received about $2.9 billion for sales of such technology and made purchases
amounting to $282 million.. Most of our industry's sales are voluntary,
but-at least 100 or so major companies are under court decrees to sell
their-technology to forergrrers mandatorily -- as a result of our antitrust
laws and-regulations.
Both. German and Ja-panese industry policies with respect to sales and
purchases of advanced -tech-nology in naked form have been just about the
reverse of our`i-ndustry's---policy. Throughout the 1960's the German
industry's?purc-haws (imports) of such technology were about 2.4 times as
great'as sales, and in the 1970's about.2.6 times as great. In 1977 the
German industry pai-d out for such technology about $1.1 billion and
received $392-mi1?lion.
In the-1960's: Japan, in turn, was importing some 15 times as much of
such technology as it was selling, and in the 1970's about 6 times as
much. In 19-77 the Japanese industry's outlays for such technology amounted
to $1.3 billion--a-nd-receipts to $204 million.
Annrniarl Pnr IRnlnnen Onn71nQ It V
 Approved For Release 2007/03/07: CIA-RDP88B00443 O 1003870012-3
Neither Germany nor Japan (nor any other foreign country I know of)
has a policy of requiring its firms to license their technology to
foreigners mandatorily.
So much for the need to get more deeply involved and relate more
realistically to the global marketplace. Let's spend a few minutes assessing
the risks and opportunities we can see over the horizon out there. It's a
rapidly char-ging world.
Change is nothing new. When our first ancestors were driven out of
paradise, Adam is-believed to have remarked to Eve: "My dear, we live in
an age of transition." We-are always transiting from one age to another.
What i s new i s the accelerated rate of change. Today we live in a world
of increas-ing national-ism; increasing.terrorism, and vanishing resources.
It is these three realities I'd like to discuss briefly today.
-First,. the tide--af nationalism is running strong in the less developed
countries of the wo-rl-d. -There is hostility and negativism toward free
enterprise.. There are -potential dangers there for American, European,
and even Japanese multinational corporations. Local politicians cannot
always manage this distrust of foreigners. Free enterprise from abroad
suddenly_apPears as foreign- domination or neo-colonialism. It is difficult
to predict where and when-this will break out.
Nationalism is not new. It's manifestations range from restrictive
policies to.outright expropriation. What is new today is that it is
accompanied by global economic distress. This is caused by the explosive
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
? ?
growth in energy costs -- in both the industrialized countries and the
less-developed ones.
The enormous cost of fueling economic activity is forcing the
less-developed countries into austerity and no-growth policies. They
are running out of credit. They cannot meet the very high interest rates
.involved. All this intensifies instability.
On the plus side,.there is in the less developed world a growing
awareness of the importance of foreign capital, know-how and technology.
The leaders in these countries now see more clearly the importance of
foreign.ir
economic'dilemmas.,
One form o-f instability that I'm afraid we'll see more of around the
world is-terrorism -hijacking, hostage-taking, kidnapping, assassination,
bombing, armed attac-k, sniping, and coercive threats -- mindless acts of
violence designed to crea-tee-a political effect -- regardless of the
innocence of the-victims.
We have-b-een keeping-statistics on this subject since 1968. During
that period, some 6,000 terrorist incidents have been recorded. Violence
has been increasing and the last three years have been the worst.
Terrorists can come. from either the left or the right extremes of the
spectrum. Recently we have seen a sharp increase in right-wing terrorist
activity in Europe.
 pproved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
?
Last year also marked the first time that a large number of deadly
attacks were carried out by individual nations. This is a dangerous
development. It is one thing for a demented individual or a private group
of fanatics to resort to terror. For a nation to resort to it with all
the resources it can command is another -- and much more serious matter.
What or who are-the primary targets of international terrorism?
Americans are. Two out of every five incidents involve U.S. citizens or
property. The U.S. citizens are usually businessmen or diplomats --
especially individuals who are symbols of western power and wealth. Although
businessmen have-been the most frequently victimized in past years, they
were second to diplomats in1980. Latin America and the Middle East are
the main trouble spots, with western Europe not very far behind.
It is a. grim story. What do we do about it? At CIA, international
terrorism has been high on the list of intelligence priorities for some
time. De.fens-ive tactics are taught to our key personnel serving abroad.
As for you, I know that corporations have been searching for defensive
measures--to protect their people. Some have even employed consultants
to conduct ransom negotiations and payoffs to t rrorist groups. I think
this is a -mistake., Payoffs are counterproductive in the long run.
Successful terrorism encourages more terrorism. Moreover, any money gained
is generally used to finance future terrorist operations. What you've
got to do is to adopt a firm policy and develop a strategy for dealing
with terrorism before a crisis situation arises -- when the terrorists
hold all the cards. You must maintain an awareness of the constant
 Approved For Release 2007/03/07: CIA-RDP88B00443RO01 003870012-3
?
threat of terrorism and learn how to react quickly and decisively.
Terrorists must learn that there is little or no payoff where American
firms are concerned.
If terrorism is a factor threatening international stability today,
of equal importance is our long-term and increasing dependence on fewer
critical resources worldwide. Until recently, availability of natural
resources has. been taken for granted. America's leadership position in
the world and our own ample-natural resources were sufficient. From this
abundance of relatively-cheap supplies, we grew rapidly to become a great
industrial power..
Roughly a decade ago, we received a jolt. Shifting geopolitical
patterns,'coupled with rising Third World nationalism, sharply tempered our
expectations..- These changing circumstances first became visibly embodied
in the oil crisis of 1973. Here for the first time, we could actually
see and feel the crushing impact of international "non-military warfare"
strike us -squarely w-here it hurts the most -- in:-our pocketbooks and in
our life-styles.
- The-crisis haunts us--still with a new reality, the U.S. can no longer
count itself completely as a. "free spirit" in the sense of determining its
own destiny. Others, well-away from our borders, can now place their
hands on our economic throttles. International threats are not limited
to military ones. There are other power projections far more subtle because
they-are largely-unseen and thus not readily perceived.
 Approved For Release 2007/03/07: CIA-RDP88B00443R001003870012-3
? ?
This resource dependence applies to more than oil, as critical as
oil dependency is to the fate of our economy;:and to our ability to defend
ourselves from outside aggression, a new spector of dependency hovers over
us that promises at least an.equal level of national woe should we be
caught without an adequate "game plan" to deal with it. The experts refer
to it as "non-fuel minerals dependency." What they mean is reliance on
other nations to suppl-y.us such strategic minerals as chromite, cobalt,
tantal-um, and several other strange names we seldom see in a direct sense.
But the reality is there even so, because were we to lose access to
these minerals, it wouldmean massive shocks to our economic system and
current life-styles. Without. these minerals, we cannot make TV sets or
computers or heart-lung machines or produce high grade stainless steel
for:,--a thousand -. uses The implications for our defense capabilities are just
as grim.-, No-supersonic jets--- no jets -- no sophisticated submarines.
In the future,-we can. expect to be in competition with the Soviet Union
for both oil and non-fuel mi-nerals. They have both in Siberia, but the
tech-nological development-needed and the cost will make it prohibitive for
some-time to come in- response, the USSR is moving toward a policy of
selective and strategic dependency on foreign resources as an alternative
to the exceptionally high costs of extended self-sufficiency.
Add- to this a growing trend in the Third World in which ownership and
control of natural resources are changing from commercial to state dominance.
This historic change provides the political environment for Soviet access to
 Approved For Release 2007/03/07: CIA-RDP88B00443R .
0Q 1003870012-3
.
Third World natural resources. Soviet support for state ownership and
control in the Third World creates a potential for non-market state trading
corporations through which the flow of minerals can be organized as barter.
This expansion of non-commercial mineral resource control, combined with
Soviet power-projection capabilities are the essential conditions of a
Soviet access strategy in the Persian Gulf (oil) and Africa (minerals).
I have talked to you now about nationalism, terrorism, and resource
constraints. There are a lot of other problems out there -- food,
deforestaIion,'desertification, water availability, and so on. But I'll
stop with three.