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Are we still free?

Of all the people in history, the man I'd most like to meet is Benjamin Franklin. Our research people at Chrysler have a computer that taps into all kinds of resources, including the Encyclopaedia Britannica, and when they put Benjamin Franklin's name in they made an amazing discovery. The computer spit out 73 different citations from the Britannica alone.

Obviously, Franklin's own biography is in there. He's certainly in the section on "U.S. History." And I guess I wasn't too surprised that the section on "Electricity" talks about him and his kite.

But what about those 70 other articles? Let me just give you part of the list.

Ben Franklin shows up under "philosophy," under "literature," and under "glassmaking" and "chess." (He helped make chess popular in the Colonies.)

If you look up "Gulf Stream," you learn that he figured out what the Gulf Stream is.

You run into him under "education" (he started a college), under "library" (he started the first library here), "insurance" (he started the first life, insurance company, too), "pharmacy" (he opened the first pharmacy) and "postal system" (you guessed it--the first post office).

Well, it just goes on and on. Biophysics, the Enlightenment, hypnosis, liberalism, luminescence--look any of them up, and you run into Franklin.

He's even there under "heating, ventilation and air conditioning." (His stove is still a hot seller.)

Seventy-three different subjects, and he was important enough in every one of those areas to get mentioned in the encyclopedia.

Oh, by the way, look up "autobiography," and you find out that he gets credit for helping to make "autobiography" an accepted form of literature. I guess I really have to thank him for that!

And the amazing thing, after going through that list, is that all of them were really just sidelines. When we think of Ben Franklin, we usually think of the wise old man with the hippie haircut and the little glasses who helped found the United States of America.

I couldn't help wondering what he'd say if we could resurrect him after almost 200 years and ask for a critique. If he could come back, I'd like to have a drink with him. (I'd have a Scotch, and he'd have his glass of port.) He'd probably start by saying, "Iacocca, that's a strange name. I never heard a name like that before." And I'd tell him all about the big waves of immigrants that came over. (I'd probably talk a lot about that because since I got involved with the Statue of Liberty and Ellis Island project, I've become something of an expert.)

I think he'd be pleased, for the most part, with how things have gone. The Constitution is almost intact--just a handful of amendments in all that time. I think he'd be impressed at all the projects in this country, of course. And he'd be pleased that we could go through all that we have and still hold on to the original ideals.

but of all the men who sat in that room and hammered out the Constitution, he'd probably be the least surprised by all the amazing things that have happened since then. I don't think he'd fall off his chair when I told him we'd been to the moon. He was a philosopher and a scientist. He was always looking ahead. He understood what people can do when they pull together. He knew about human potential. He had vision.

I suspect that if Franklin had just one question for me after all this time, it would be, "Are you still free?"

He and the others dedicated most of their lives and risked everything to gain independence for the colonies. And that independence is the legacy they left us.

I'd start by assuring him that, yes, we've managed to maintain our political independence. In fact, we're stronger than ever. We may have some enemies in the world, but nobody's thinking of invading the United States.

But there's more to independence than just that kind of security. And maybe we ought to examine just how independent we really are today.

First of all, of course, we're living in a different world. We're living in a world that is inter-independent. Countries have to rely on each other for food, raw materials, machines and markets. No country is self-sufficient today. Nobody can go it alone. Nobody's even trying.

Doctor Franklin once said, "No nation was ever ruined by trade." Well, today, no nation can even survive without it. And, ironically, that's why it is possible today to be ruined by trade, if that trade isn't fair trade.

It can cost you a big part of your independence.

Remember your history books? Remember why England, France and Holland established colonies? It was to provide the mother countries with two things--raw materials and markets.

The colonies exported raw materials and foodstuffs and served as markets for the manufactured goods produced in Europe.

In those days, Japan was so isolated that it might as well have been on a different planet. But it's now the best example we have of this new economic interdependence.

And today, America's leading exports to Japan are corn, soybeans, and coal--foodstuffs and raw materials--while Japan's top exports to us are cars, trucks and videorecorders--all high-value manufactured goods.

Is this beginning to sound familiar?

We send the Japanese hides, and they send us leather goods. We send them logs, and they send us stereo cabinets. They take some oranges, but not if we squeeze them--because that's labor. They squeeze them. They take potatoes, but no potato chips--because it takes labor to make potatoes into chips.

What we have then is a classic definition of a colony. All we're missing are the redcoats.

Right now, our trade deficit with Japan is running a little over $3 billion a month. Our deficit with the rest of the world is only $6 billion a month. In 1984, our total trade deficit with all countries was $120 billion. And that's double the all-time world-record deficit of $60 billion the year before.

Part of the reason is the high dollar. But a big part is the fact that we don't play the trade game by the same rules. I'm sure you're as familiar as I am with the pattern. The Japanese have protected their home market while they built a heavy industry based on exports. The government cooperates with industry through tax incentives and other practices.

And I donht want to just pick on the Japanese. It wouldn't be fair. The fact is, almost every country has some kind of plan to succeed in the international marketplace--except us.

We're wedded to a set of 19th-century free-trade ideals everybody else in the world ignores. We live in an era of "managed trade." That's a euphemism for the same kind of mercantilism that existed in Franklin's time.

Simply put, every nation devises policies to keep its trade in balance or to gain a surplus. That's because trade means jobs. If you buy more than you sell, you export jobs. Our own Department of Labor estimates that each billion dollars of the trade deficit equals 20,000 jobs. So with a deficit of $120 billion, we're talking about 3.6 million American jobs.

Meanwhile, with our high dollar, we're a magnet for foreign goods. In fact, do you know what the real economic importance of America to the rest of the world is today? It's not our corn or our coal. Other countries can get along without them. It's our market. We've become the world's shopping center. More and more, this isn't where things are produced, it's where they're sold.

Take cars. Japan exports more than half the cars it builds. And half of them come to the United States. Because their competition is so intense, Japanese car companies are just breaking even in their home market. And they barely do the same with their exports to Europe and the rest of the world. The only place that the Japanese car industry makes any real profit is here in America.

And it's a big profit. The Japanese squealed when import limits went on their cars here four years ago. But in the early years of those quotas, the Japanese auto industry made $9 billion in profits in North America, while American companies lost $14 billion.

And things would have been a lot worse without the quotas. With the yen-dollar equation way out of whack and their government behind them, the Japanese could have gobbled up a lot more of our market and our jobs.

If you want to see if those quotas have worked, by the way, look at how the Japanese are reacting. Nissan now has a plant in Tennessee. Honda is making cars in Ohio. Toyota is in California. Mazda is going to build a plant in Michigan. None of them would bother unless they felt we were going to get serious someday about protecting our national interest.

Boy, how things change. A couple hundred years ago we sent Ben Franklin to France, and he talked them into sending us their whole damn navy. Our guys today can't even get oranges of beef into Japan or straighten out the exchange rates.

Well, that's not entirely fair. It's not all their fault. Tight money and high interest rates here have a lot to do with the exchange rates, too because they are attracting so much foreign investment.

And as a result, we've got the problem of a growing foreign debt as well as a trade deficit.

If you've got a couple of billion dollars in loose change these days, the best place to put it is here in America, because our interest rates are so high. You could call that a vote of confidence in America, I suppose. And we know, without all that foreign capital coming in, those interest rates might be even higher.

Last year, we attracted about $100 billion in foreign investment. That's about equal to the interest we paid on the national debt. So one way to look at it is that foreign investment replaced the capital that the government soaked up in order to service the debt.

In the old days (before Mr. Volcker came aboard) we used to print money to cover our debts. That was bad enough. Now we import it to cover the debts.

Now, that might look like a good deal. But I don't know. It means that literally any day now (maybe even today, in fact) we become a debtor nation for the first time in 67 years. And at the current pace, we'll pass Brazil next year as the biggest debtor nation in the world. And by 1987, our foreign debt will be bigger than Brazil's, Argentina's and Mexico's, combined.

We were a debtor nation during the last century, too. But back then we used capital from Europe to build our railroads and canals and factories. Now we're using it to service our debt.

Right now, there is more than $800 billion of foreign investment in the United States. (Just think about that--almost a trillion dollars in the U.S.) But little of it is direct investment in industry, the kind of investment that creates jobs.

Sixty percent of it is made up of private holdings in American banks or portfolios. The economists call that "hot" money because it could be pulled out overnight. Another 23 percent is money foreign governments have invested here. That could be pulled out, too.

Only about 17 percent of that foreign capital is directly invested in American business or real estate. Less than one-fifth is going into projects like those Japanese car plants that put Americans to work.

We need this money now because we don't save enough ourselves to give the banks what they need to lend. We're great consumers in this country, but we're lousy savers. I guess nobody reads Poor Richard's Almanac any more--the part about "a penny saved is a penny earned."

So in order to fuel the economy, we need foreign capital. Some people have an idea that all this foreign money is coming here because we're a so-called "safe haven." Well, that's becoming a myth. That money is coming here because we're bidding for it. Our interest rates are high. We've even changed some of the tax laws to make it easier for foreigners to invest here.

Now, I think we're heading for real big trouble. And I'll tell you why. We've become too dependent on foreign money. We have to keep interest rates high to keep that foreign capital coming in and to be sure that the money already here doesn't go home.

It's like a drug habit. You have to keep taking more and more. You can't cut back or you get sick. Stop altogether and you'll see the worst case of cold turkey ever. I mean, the whole world would go into convulsions.

We aren't doing ourselves any favor by sucking up all the capital in the world. And we aren't doing the rest of the world any favor, either.

We're taking money out of countries that need it for their own development. Here's a shocker; I'll bet you didn't know this. Twenty-two percent of the foreign investment in this country comes from Latin america. That's right, from countries like Brazil and Argentina and Mexico that are strapped by their own foreign debts. More than $182 billion from Latin America is invested here.

We're taking bread off somebody's table. Something's wrong here; it really is. Why is the richest country in the world siphoning off capital from underdeveloped countries to feed its own debt? And what will happen when those countries get wise and call in their notes?

When you stop and think about it, most of the threats to our independence today stem from one big problem. And that's a federal deficit that is so wildly out of control. The high dollar that's helping to make us a trade colony and the high interest rates that are making us a debtor nation can be traced to that deficit.

We're robbing our kids by passing this debt on to them. It's "taxation without representation" again. But this time we're taxing our own kids. When they realize it, they aren't going to dump tea off the dock; they're going to throw us in the harbor.

Do you know that it took 206 years for us to accumulate our first trillion dollars in debt--from Ben Franklin's time all the way to 1981? And that we're going to reach our second trillion in about 18 months from now?

I sure wouldn't be proud to tell ole Ben Franklin about that. I wouldn't be proud to tell him that we don't have the discipline to handle our bills.

And I don't think he'd be too proud of us.

And we're doing something else with this debt. We're deindustrializing America. The high deficit causes high interest rates. High interest rates cause the high dollar. The high dollar brings in foreign goods. American industry can't compete on price, so it closes down or moves its plant overseas.

That's what this vicious circle is leading to. We're turning ourselves into a colony again. And it all starts with the deficit.

And here's another one I wouldn't like to explain to Franklin over that drink. Energy. I don't know when we felt more like a colony than during the two big oil shocks of the '70s. All of a sudden we found ourselves at the mercy of a foreign-oil cartel. And when they turned off the oil, they showed us just how dependent we were.

We got scared ten years ago. And we resolved to do something about it. It got to be patriotic to join a van pool or ride a bike. We passed the 55-mile-per-hour speed limit.

But we didn't do the one thing that could have made the biggest difference. We didn't tax gas like the rest of the world does to force consumers to conserve fuel and demand the high-mileage cars. We didn't make the same sacrifice others were making.

It was cheap gas more than anything else that made us so dependent on OPEC. And we're still joy-riding on cheap gas in this country. We pay about half the price for a gallon of gas here that they do in other countries. In Europe, they pay more tax on a gallon than our total price. Italy overdoes it. They're over $3.00 a gallon. Their tax is about $2.12 per gallon.

And because gasoline is so cheap in our country, big cars are selling like hot cakes. At Chrysler, we thought we would have phased out our V-8 Fifth Avenues by now. But we can't. We're working overtime to build enough of them. We're making too much money to drop them.

Now Ford and GM are lobbying to dial back the fuel-economy standards. They want the law changed so they can sell more big cars, because that's where the bigger profits are.

But that leaves the other end of the market for the Japanese. And it keeps us living in a fool's paradise. I hope we don't have another oil shock, because they'll really cream us. We can become an energy colony if we don't come up with an energy policy that guards our independence.

You know, I really don't know if I'd like to have that drink with Benjamin Franklin, after all. I don't know what I'd say when he asked that big question: "Are you still free?"

I don't feel free when we've got the trade pattern of a colony. I don't feel free with a foreign debt that's going to be the biggest in the world in a matter of months. I don't feel free when we're so dependent on a foreign cartel for oil.

And I don't feel free with budget deficits that are tying us up so tightly in a knot of debt that neither we, nor our kids, will ever escape.

I think I'd be a little ashamed to tell Ben Franklin all this.

He and the others left us a tremendous legacy--our independence. And they left us a tremendous challenge--to preserve that independence.

Every other generation has met that challenge. And they had to make some huge sacrifices to do it. Is ours going to be the first one to fall short?

As you know, I've been involved with the Statue of Liberty and Ellis Island restoration for 2-1/2 years. And I've learned a lot. Since my parents were among the 17 million people who came through Ellis Island, I thought I understood what that experience was all about.

But in the past 2-1/2 years, I've come to appreciate more than ever just what those two symbols in New York Harbor stand for.

I've learned from the hundreds of people who've told me their own stories, or those of their parents. And I've learned from the tens of thousands who've sent me letters.

And if you reduce all those experiences into just two words, they would be "hope" and "sacrifice."

The statue was the symbol of hope for all those immigrants who passed by it. And Ellis Island was the symbol of sacrifice. It was the reality they met when the adventure was over--cold and hostile, and even frightening.

But they took a ferry over to the Battery, and they picked up the challenge that Ben Franklin and the others left. They broke their backs to build something strong and lasting for themselves and their families.

Last fall I met a Vietnamese artist--one of the boat people who've taken such horrible risks to escape that country.

She settled in Alaska and came all the way down to Seattle to present me with a beautiful painting in honor of the Statue of Liberty. She still had some trouble with the language, but she had no trouble at all communicating how much America meant to her.

And we've heard from people who haven't been as lucky as she was. We got a letter from a man in Poland. He enclosed a couple of silver certificates for the Statue--for what he called simply "that beautiful symbol." (It seems that those who don't have freedom understand it the most!)

I guess, in the end, that's all the Statue and Ellis Island are--symbols. But I think we need them now more than ever before to remind us of the legacy--really, the sacred trust--that Franklin and the others left us.

I hope we're not beginning to take that trust too lightly. And I hope we're not forgetting all the sacrifices so many others have made along the way to keep it alive--I hope not.

We're here tonight to remember Ben Franklin--good old, pragmatic, common-sense Ben--a man who risked it all because he didn't want to live in a colony. Well, I don't either. And I don't think any of you do.

So the best tribute we'll ever pay Ben Franklin is to be sure that America never becomes a colony--of any kind--again.
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Copyright 1985 Gale, Cengage Learning. All rights reserved.

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Title Annotation:competition in international trade
Author:Iacocca, Lee A.
Publication:Saturday Evening Post
Date:Jul 1, 1985
Previous Article:Licking "summer itch." (pruritis in dogs) (column)
Next Article:An interview with Mark Twain.

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