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Remarks to the Asia-Pacific Council of American Chambers of Commerce in Tokyo, Japan

May 3, 1986

The President. It's great to be meeting with all of you and wonderful to see how Asians and Americans share the spirit of enterprise. You stand as testimony to the positive, economy-building power that is unleashed by free enterprise.

Of course, mistakes can happen, no matter how much good we feel about free enterprise. There is a story about a businessman who ordered flowers to be sent to the opening of his friend's new branch office. And when he got there, he was shocked to see the flowers with the inscription, ``Rest in Peace.'' [Laughter] He was so outraged that on the way home he stopped at the florist to complain. And the florist said, ``Don't get so upset. Just think of it this way. Today someone in this city was buried beneath a flower arrangement with the inscription, `Good luck in your new location.''' [Laughter]

Well, what you men and women of commerce have accomplished has been due to much more than luck. Behind the great progress we've witnessed since the close of the Second World War has been your hard work, diligence, and competitive spirit. But, of course, even the best need a level playing field on which to compete; and that's why the subject of free and fair trade will be a priority at this economic summit. America's summit partners have set the ball rolling on a new round of multilateral trade negotiations, and we're going to do everything we can to make those negotiations a success. While we work to open markets abroad, we'll continue to resist protectionist pressures at home in the United States. Many of you, as representatives of America's business community abroad, know how vulnerable we all are to a retaliatory protectionist backlash.

As I said to the Chamber of Commerce in Washington, the winds of freedom blow both east and west, and carried on those breezes are the world's hopes for a prosperous, growing future. Ultimately, of course, expanding trade depends on an expanding world economy. And that's why we must always -- or also begin to focus our attention on the current -- or urgent issue of economic stagnation in much of the developing world. We'll not be able to prosper indefinitely while much of the world lags behind, caught in a web of poverty and underdevelopment.

In America the inflation of the 1970's gave us bracket creep. In much of the developing world, though, it was more like a stampede. Rapidly rising marginal tax rates, often on very low incomes, destroyed incentives to work, save, and invest in stifled growth. Making matters worse, one often finds that on top of these explicit taxes were piled more onerous implicit taxes such as price controls, regulations, currency controls, protectionism, and inflation. A new study commissioned by the Agency for International Development found a direct relationship between high tax rates that kick in at low thresholds and low to negative economic growth. On the other hand, they found that low tax, high threshold countries -- many of them right here in the Pacific Basin -- are among the fastest growing in the world. And rapid growth brings rising real wages and improved living standards. Because high tax rates force economic activity underground or drive it abroad or discourage it all together, they often bring in little revenue. That's why reducing tax rates and increasing thresholds not only stimulates growth, it often increases government revenues, too.

In the postwar period the world has undergone a kind of experiment in which two basic development models have been tested. One is based on central planning and high taxes; the other, on free enterprise and low taxes. The results of the experiment are in: Freedom works. We've seen the proof here in Asia, in the Pacific Basin countries, with their sometimes double-digit growth records, and in the low tax ASEAN nations, which recorded heroic economic growth throughout the 1970's despite the twin shocks of oil price hikes and inflation. The lesson has been learned well here. Singapore and Japan are considering further tax cuts to keep the growth momentum going. With their dramatic success, these free market countries have much to offer those still struggling with the problems of underdevelopment. It's my hope that the Pacific Basin and ASEAN countries will come to take a leadership role in world development, that they'll share with other nations the wealth of their knowledge and the rich resources of their experience.

The free market nations of Asia have already performed one economic miracle. Now it's time for a second: helping to unlock the vast potential for economic growth that still lies dormant in much of the world. Meanwhile, we're going to keep working to level out that playing field and keep the markets open. There are encouraging signs. Currencies are adjusting, some barriers are being lifted, and Japan is considering steps to increase domestic demand and bring more balance to its export-oriented economy. Open markets, free trade, a fair chance for everyone to compete -- that's our agenda for this summit and our goal for the years ahead.

Well, now, that's enough of a monolog from me. And it just occurred to me that maybe for 2 or 3 minutes more you might put up -- I know none of us have too much extra time, but you might want to put up with me for a couple of more minutes and make it a dialog. And maybe if somebody has a question, fire away.

Mr. Hayde. Mr. Jim Klein, chairman of Asia-Pacific Council, has a presentation.

Mr. Klein. Mr. President, Asia-Pacific Council of American Chambers of Commerce, APCAC, certificate of appreciation presented to Ronald Reagan, President of the United States of America, in appreciation of the steadfast support of the principles of democracy and the free enterprise system, for opposing protectionism in any form and championing the cause of fair trade and open markets, for fostering very significant improvements in United States business and United States Government relations around the world, and for his administration's strong support of APCAC. Mr. President, you make us proud to be Americans.

The President. Well, you make me very proud, and I thank you very much.

But that offer still goes if someone has a question. [Laughter] Sometimes I think you must say, ``If I had a chance, I'd like to ask -- [laughter] -- --

Mr. Hayde. Larry Snowden, do you have a question?

Mr. Snowden. I do now, yes. [Laughter] Mr. President, those of us who work in this part of the world can attest that many good things have happened in the marketplaces here as a result of lots of factors in response to your inspirational leadership on really promoting free trade.

The President. Well, thank you.

Mr. Snowden. At the same time American companies find that big domestic market so attractive, somehow it's unattractive or difficult overseas. Does the administration have any plan that would help bolster the courage and give incentives to more American companies to come into this part of the world to help work on this trade?

The President. Yes, as a matter of fact, that's of great interest to me and to our administration. We all know the record of the United States as well as other countries, including our host country here, Japan, in aid to lesser developed and underdeveloped countries. But what we've had a feeling is that maybe we've devoted too much of our effort to outright handouts rather than to see if we cannot help with investment and for them to develop their own economies and become totally self-sufficient. And we are trying and looking for ways to see if working with them if we cannot produce those incentives and then see capital invested. I remember a man once told me that no country had ever become great that had not imported people and money. That certainly was the history of the United States. [Laughter] And so, we'd like to pass it on, and we are going to try to do that.

Someone else? You mean I answered everything? [Laughter] Well, all right then, let me just say -- and I am very proud of this -- I got indoctrinated with an incident in World War II with regard to free enterprise and whether government didn't have some limitations that it ought to recognize and do something about. I remember -- those of you in the military know that military correspondence means you send a request or something up through the channels, and then it is endorsed by the next in command and goes on and keeps being endorsed, and finally it comes back endorsed by the end person. Well, this was a request from one military installation in the war to do away with voluminous records, military records, that were no longer of any use and served no purpose. And it was duly endorsed all the way up until it got to the top command, and then it came back down through the channel. And permission was granted to eliminate those papers, providing copies were made of each one. [Laughter]

Note: The President spoke at 4:43 p.m. at the Hotel Okura. Herbert F. Hayde was the president of the American Chamber of Commerce in Japan and Lawrence F. Snowden was the former chairman of the Asia-Pacific Council of American Chambers of Commerce. A tape was not available for verification of the content of these remarks.