840.00/3–1053
No. 160
Memorandum of Conversation, by the
Assistant Secretary of State for Economic Affairs (Linder)1
Subject:
- Economic Conditions and the Choices of Future Policy.
Participants:
- Mr. Hammarskjold, Minister Without Portfolio
- Mr. deBesche, Economic Counselor—Swedish Embassy
- E—Mr. Linder
- E—Mr. Schaetzel
- OFD—Mr. Corbett
- EDT—Mr. Leddy
- BNA—Mr. Hilliker
Mr. Hammarskjold began with an effort to analyze the nature of the economic difficulties of Western Europe. He emphasized his conviction that the problem of earning more dollars could not be explained solely in terms of temporary difficulties, such as low productivity or deficient capital equipment as compared with the United States. Rather, he thought the difficulties were basic and structural. In addition to such things as the decline in the Eastern European market, the basic difficulties might include even long term developments beginning in the United States in the 1920s or before, but not identified at the time.
If this analysis was correct, solutions would have to be aimed mainly at eliminating the structural problems, e.g., equalizing the competitive positions of the United States and Western Europe. Less basic measures to correct existing difficulties would undoubtedly produce certain improvements but might also bring forth unforeseen developments of an undesirable nature. He was thinking of measures which, while increasing European exports to the dollar area, might produce an even larger flow of dollar imports to Europe through changes in such elements as the European propensity to save, etc.
Based on this line of thought, Mr. Hammarskjold wondered whether efforts should not continue to be limited to increasing liberalization within a protected area, while at the same time attacking structural problems with a view to strengthening the area for eventual full exposure to outside conditions. Although he emphasized this was only a tentative line of thought and in no way official, [Page 294] Mr. Hammarskjold several times reverted to this note of caution concerning next steps. Following some further exchange of views, however, he finally clarified his central thought as a desire, not to oppose broadening the area of liberalization, but to be certain that any steps taken be based on “facts” and have foreseeable consequences. It was essentially an argument for proceeding cautiously toward the solution of problems which he thought had no “revolutionary” solutions.
In response to a question, Mr. Hammarskjold said the outlook in Western Europe seemed even somewhat brighter than a few months ago. He was mainly encouraged by the fact that British and French import restrictions and increased German competition during 1952 had not, contrary to predictions, done any serious damage to the Scandinavian economies. The powers of adjustment in those countries were much greater than expected. On the other hand, the British restrictions could have done particular harm in this “sterling corner” of Europe if they had led to restrictions in other countries and a cumulative downward spiral of trade. He agreed that the present French problems constitute a serious drag on the whole Western European economy.
In the case of Sweden, Mr. Hammarskjold described the stabilization which had been possible in 1952 following the “euphemism” of one-time inflation the year before. The main inflationary tendency in Sweden at present resulted from the pressure of heavy defense expenditures. He thought in all frankness that the present tax burden was higher than economic conditions justified; however, the Government has an emergency plan for damping the economy (e.g., by reducing housing construction) just as it has one for pump priming.
- Drafted by Hilliker.↩