VITAL SPEECHES OF THE DAY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP99-00498R000200140001-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 32
• Document Creation Date: December 20, 2016
• Document Release Date: March 27, 2007
• Sequence Number: 1
• Publication Date: October 1, 1980
• Content Type: REPORT

Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
VOL. XLVI, No. 24
$1.25 per copy
OCTOBER 1, 1980
TWICE A MONTH
$18.00 A YEAR
Five-Year Economic Program for U.S.
The Flexibility of Our Plans
STRATEGIC NUCLEAR POLICY
Major Issues in National Health Policy
POLICY TO ENCOURAGE PRIMARY RESEARCH
Is There a Gaming Industry
THE TRUTH AND THE CONSEQUENCES
The Philadelphia Story
WHAT WORKS IN READING?
American Intelligence in the 1980's
THE MEDIA AND THE INTELLIGENCE AGENCIES
Conservation in the 1980's
Ronald Reagan
Harold Brown
Rita Ricardo-Campbell
William H. McElnea, Jr.
Samuel L. Blumenfeld
Stansfield Turner
William K. Reilly
President, The Conservation Foundation-Page 756
Professionalism and the Corporate Bar Harold M. Williams
VALUE-NEUTRAL DECISION MAKING Chairman, Securities and Exchange Commission-Page 758
The World Is Very Different Now Robert L. Geltzer
Generating Good Signs
THE ULTIMATE IN PERSONNEL SUCCESS
IMPARTIAL
Richard G. Capen, Jr.
Senior Vice President, Knight-Ridder Newspapers-Page 765
? CONSTRUCTIVE AUTHENTIC
THE BEST THOUGHT OF THE BEST MINDS ON CURRENT NATIONAL QUESTIONS
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Vital Speeches of the Day
OCTOBER 1, 1980 NO. 24
Five-Year Economic Program for U.S.
LET'S GET AMERICA WORKING AGAIN
By RONALD REAGAN, Former Governor of California
Delivered before the International Business Council, Chicago, Illinois, September 9, 1980
A LMOST two months ago, in accepting the Presi-
dential nomination of my party, I spoke of the
historically unique crisis facing the United States. At
that time I said:
"Never before in our history have Americans been
called upon to face three grave threats to our very ex-
istence, any one of which could destroy us. We face a
disintegrating economy, a weakened defense and an
energy policy based on the sharing of scarcity."
Now since I first spoke those words, no action has been
taken by President Carter to change this grave, unprece-
dented situation.
In fact, during the last few months the overall economic
situation in the United States has deteriorated markedly.
The cumulative effect of the economic policies the Carter
Administration has followed over the last three and one-half
years has damaged our economy much more than virtually
anyone could have foreseen. Interest rates and inflation
have become unconscionably high. Almost two million
Americans have lost their jobs this year alone. And the tax
burden continues to steadily increase.
In effect, Mr. Carter's economic failures are an assault on
the hopes and dreams of millions of American families.
They are essentially an unprecedented failure of Presi-
dential leadership that strikes at the very heart of every
American family, every factory, every farm, every com-
munity.
Make no mistake about it: what Mr. Carter has done to
the American economy is not merely a matter of lines and
graphs on a chart. Individuals and families are being hurt
and hurt badly. Factories are empty; unemployment lines
are full.
Every American family has felt what the Carter inflation
means to hopes for a better life. Every visit to the super-
market reminds us of what Mr. Carter's policies have done.
We pay the price of Carter's inflation every time we buy
food or clothing or other essentials.
We are dealing with an unprecedented crisis that takes
away not only wages and savings, but hopes and dreams.
And what is his response to this tragedy?
Words. And more words.
Two weeks ago, he gave us his latest in a series of eco-
nomic policy shifts. This one is the fifth "new economic pro-
gram" in the last three and one-half years. It contains
rhetoric that Mr. Carter apparently hopes will lead us to
believe he has finally discovered free enterprise.
Hearing him and members of his Administration use the
language of free enterprise reminds me of one of the stories
of Mark Twain. He had a habit of using very foul language,
which distressed his wife to no end. She decided on a form of
shock treatment to cure him of his habit. One day he came
home, and she stood in front of him and recited every word
of the salty language she had ever heard him use. He
listened patiently and when she was finished, said: "My
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dear, you have the words all right, you just don't have the
tune."
I'd like to speak to you today about a new concept of
leadership, one that has both the words and the music. One
based on faith in the American people, confidence in the
American economy, and a firm commitment to see to it that
the Federal Government is once more responsive to the
people.
That concept is rooted in a strategy for growth, a
program that sees the American economic system as it is -
a huge, complex, dynamic system which demands not piece-
meal Federal packages, or pious hopes wrapped in soothing
words, but the hard work and concerted programs necessary
for real growth.
We must first recognize that the problem with the U.S.
economy is swollen, inefficient government, needless regula-
tion, too much taxation, too much printing-press money.
We don't need any more doses of Carter's eight- or 10-point
programs to "fix" or fine tune the economy. For three and
one-half years these ill-thought-out initiatives have con-
stantly sapped the healthy vitality of the most productive
economic system the world has ever known.
Our country is in a downward cycle of progressive eco-
nomic deterioration that must be broken if the economy is
to recover and move into a vigorous growth cycle in the
1980's.
We must move boldly, decisively and quickly to control
the runaway growth of Federal spending, to remove the tax
disincentives that are throttling the economy, and to reform
the regulatory web that is smothering it.
We must have and I am proposing a new strategy for the
1980's.
Only a series of well-planned economic actions, taken so
that they complement and reinforce one another, can move
our economy forward again.
We must keep the rate of growth of government spending
at reasonable and prudent levels.
We must reduce personal income tax rates and accelerate
and simplify depreciation schedules in an orderly, syste-
matic way to remove disincentives to work, savings, invest-
ment and productivity.
We must review regulations that affect the economy and
change them to encourage economic growth.
We must establish a stable, sound and predictable mone-
tary policy.
And we must restore confidence by following a consistent
national economic policy that does not change from month
to month.
I am asked: `Can we do it all at once?' My answer is: `We
must.'
I am asked: `Can we do it immediately?' Well, my answer
is: `No, it took Mr. Carter three and one-half years of hard
work to get us into this economic mess. It will take time to
get us out.'
I am asked: `Is it easy?' Again, my answer is: `No. It is
going to require the most dedicated and concerted peace-
time action ever taken by the American people for their
country.'
But we can do it, we must do it, and I intend that we will
do it.
We must balance the budget, reduce tax rates and restore
our defenses.
These are the challenges. Mr. Carter says he can't meet
these challenges; that he can't do it. I believe him. He can't.
But, I refuse to accept his defeatist and pessimistic view of
America. I know we can do these things, and I know we will.
But don't just take my word for it. I have discussed this
with any number of distinguished economists and business-
men, including such men as George Shultz, William Simon,
Alan Greenspan, Charls Walker and James Lynn. The
strategy is based on solid economic principles and basic ex-
perience in both government and the marketplace. It has
worked before and will work again.
Let us look at how we can meet this challenge.
One of the most critical elements of my economic
program is the control of government spending. Waste, ex-
travagance, abuse and outright fraud in Federal agencies
and programs must be stopped. The billions of the tax-
payers' dollars that are wasted every year throughout hun-
dreds of Federal programs, and it will take a major, sus-
tained effort over time to effectively counter this.
Federal spending is now projected to increase to over
$900 billion a year by fiscal year 1985. But, through a com-
prehensive assault on waste and inefficiency, I am confident
that we can squeeze and trim 2 percent out of the budget in
fiscal year 1981, and that we will be able to increase this
gradually to 7 percent of what otherwise would have been
spent in fiscal year 1985.
Now this is based on projections that have been made by
groups in the government. Actually I believe we can do even
better. My goal will be to bring about spending reductions
of 10 percent by fiscal year 1984.
Crucial to my strategy of spending control will be the ap-
pointment to top government positions of men and women
who share my economic philosophy. We will have an ad-
ministration in which the word from the top isn't lost or
hidden in the bureaucracy. That voice will be heard because
it is a voice that has too long been absent from Washington
- it is the voice of the people.
I will also establish a citizen's task force, as I did in Cali-
fornia, to rigorously examine every department and agency.
There is no better way to bring about effective government
than to have its operations scrutinized by citizens dedicated
to that principle.
I already have as part of my advisory staff a Spending
Control Task Force, headed by my good friend and former
director of the Office of Management and Budget, Caspar
Weinberger, that will report on additional ways and tech-
niques to search out and eliminate waste, extravagance,
fraud and abuse in Federal programs.
This strategy for growth does not require altering or tak-
ing back necessary entitlements already granted to the
American people. The integrity of the Social Security
System will be defended by my administration and its bene-
fits will once again be made meaningful.
This strategy does require restraining the Congressional
desire to "add-on" to every old program and to create new
programs funded by deficits.
This strategy does require that the way Federal pro-
grams are administered will be changed so that we can bene-
fit from the savings that will come about when, in some in-
stances, administrative authority can be moved back to the
states.
The second major element of my economic program is a
tax rate reduction plan. This plan calls for an across-the-
board, three-year reduction in personal income tax rates -
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10 percent in 1981, 10 percent in 1982 and 10 percent in
1983. My goal is to implement three reductions in a syste-
matic and planned manner.
More than any single thing, high rates of taxation destroy
incentive to earn, to save, to invest. And they cripple
productivity, lead to deficit financing and inflation, and
create unemployment.
We can go a long way toward restoring the economic
health of this country by establishing reasonable, fair levels
of taxation.
But even the extended tax rate cuts which I am recom-
mending still leave too high a tax burden on the American
people. In the second half of the decade ahead we are going
to need, and we must have, additional tax rate reductions.
Jimmy Carter says it. can't be done. In fact, he says it
shouldn't be done. He favors the current crushing tax
burden because it fits into his philosophy of government as
the dominating force in American economic life.
Official projections of the Congressional Budget Office
show that by fiscal year 1985, if the current rates of taxa-
tion are still in effect, Federal tax revenues will rise to over
$1 trillion a year.
Surely Jimmy Carter isn't telling us that the American
people can't find better things to do with all that money than
see it spent by the Federal Government.
Assuming a continuation of current policies in govern-
ment, Congressional projections show a huge and growing
potential surplus by 1985. These surpluses can be used in
two basic ways: one, to fund additional government
programs, or, two, to reduce tax rates.
That choice should be up to the American people.
The most insidious tax increase is the one we must pay
when inflation pushes us into higher tax brackets. As long as
inflation is with us, taxes should be based on real income.
Federal personal income taxes should be based on real in-
come. Federal personal income taxes should be indexed to
compensate for inflation, once tax rates have been reduced.
We also need faster, less complex depreciation schedules
for business. Outdated depreciation schedules now prevent
many industries, especially steel and auto, from moderniz-
ing their plants. And faster depreciation would allow these
companies to generate more capital internally, permitting
and to become more competitive in world markets.
Another vital part of this strategy concerns government
regulation. The subject is so important and so complex that
it deserves a speech in itself - and I plan to make one soon.
For the moment, however, let me say this:
Government regulation, like fire, makes a good servant
but a bad master. No one can argue with the intent of this
regulation - to improve health and safety and to give us
cleaner air and water - but too often regulations work
against rather than for the interests of the people. When the
real take-home pay of the average American worker is de-
clining steadily, and 8 million Americans are out of work,
we must carefully re-examine our regulatory structure to
assess to what degree regulations have contributed to this
situation. In my administration there should and will be a
thorough and systematic review of the thousands of Federal
regulations that affect the economy.
Along with spending control, tax reform and deregula-
tion, a sound, stable and predictable monetary policy is es-
sential to restoring economic health. The Federal Reserve
Board is, and should remain, independent of the Executive
Branch of government. But the President must nominate
those who serve on the Federal Reserve Board. My ap-
pointees will share my commitment to restoring the value
and stability of the American dollar.
A fundamental part of my strategy for economic growth
is the restoration of confidence. If our business community
is going to invest and build and create new, well-paying jobs,
they must have a future free from arbitrary, government ac-
tion. They must have confidence that the economic "rules-
of-the-game" won't be changed suddenly or capriciously.
In my administration, a national economic policy will be
established, and we will begin to implement it, within the
first 90 days.
Thus, I envision a strategy encompassing many elements
- none of which can do the job alone, but all of which
together can get it done. This strategy depends for its
success more than anything else on the will of the people to
regain control of their government.
work, their willingness to do the job, their energy and their
imagination.
that will come from the cooperation of business and labor
based on their knowledge that government policy is directed
toward jobs, toward opportunity, toward growth.
We are not talking here about some static, lifeless econo-
metric model - we are talking about the greatest produc-
tive economy in human history, an economy that is
historically revitalized not by government but by people free
of government interference, needless regulations, crippling
Does Mr. Carter really believe that the American people
are not capable of rebuilding our economy? If he does, that
is even one more reason - along with his record - that he
should not be President.
When such a strategy is put into practice, our national
defense needs can be met because the productive capacity of
the American people will provide the revenues needed to do
All of this demands a vision. It demands looking at
government and the economy as they exist and not as words
on paper, but as institutions guided by our will and
knowledge toward growth, restraint and effective action.
When Mr. Carter first took office, he had sufficient
budget flexibility to achieve these goals. But he threw away
the opportunity to generate new economic growth and to
strengthen national security. Now the damage done to the
economy by his misguided policies will make the achieve-
ment of these crucial objectives far more difficult.
Nevertheless, this nation cannot afford to back away
from any of these goals. We cannot allow tax burdens to
continue to rise inordinately, inflation to take a stronger
hold, or allow our defenses to deteriorate further - without
severe consequences.
This task is going to be difficult but our goals are op-
timistic - as they should be. Success is going to take time,
There is only one phrase to describe the last three years
and eight months. It has been an American tragedy.
ing by 58 percent in four years, or that taxes in his 1981 bud-
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get are double what they were in 1976, the equivalent of a
tax increase on an average family of four of more than
$5,000.
The tragedy lies as much in what Mr. Carter has failed to
do as in what he has done.
He has failed to lead.
Mr. Carter had a chance to govern effectively. He had a
sound economic base with an inflation rate of 4.8 percent
when he took office.
But he has failed. His failure was rooted in his view of
government, in his view of the American people.
Yet he wants this dismal view to prevail for four more
years.
The time has come for the American people to reclaim
their dream. Things don't have to be this way. We can
change them. We must change them. Mr. Carter's
American tragedy must and can be transcended by the spirit
of the American people, working together.
Let's get America working again.
The time is now.
The Flexibility of Our Plans
STRATEGIC NUCLEAR POLICY
By HAROLD BROWN, U.S. Secretary of Defense
Delivered at the Convocation Ceremonies for the 97th Naval War College Class, Newport, Rhode Island, August 20, 1980
I T is indeed a pleasure to be here at the Naval
War College. Your tour here will be a marvelous
opportunity to step back from day-to-day line
responsibilities and to give some intense and serious thought
to a number of important national security issues.
One of the most critical of these and one currently receiv-
ing much public attention is strategic nuclear policy. That is
the subject of my remarks today.
Fashioning strategic nuclear policy that will lead us away
from nuclear war and not toward it requires dispassionate
analysis, balanced judgments and a firm grasp of the com-
plexities of the nuclear age.
The overriding objective of our strategic forces is to deter
nuclear war. Deterrence requires stability. To achieve
strategic nuclear stability, three requirements must be met:
First, we must have strategic nuclear forces that can ab-
sorb a Soviet first strike and still retaliate with devastating
effects.
Second, we must meet our security requirements and
maintain an overall strategic balance at the lowest and most
stable levels made possible by our own force planning and
by arms control agreements.
Third, we must have a doctrine and plans for the use of
our forces (if they are needed) that make clear to the Soviets
the hard reality that, by any course leading to nuclear war,
they could never gain an advantage that would outweigh the
unacceptable price they would have to pay.
The ability of our forces to survive a surprise attack is the
essence of deterrence. Today, our Triad of strategic nuclear
forces assures that our deterrent is survivable.
But in the future, Soviet military programs could, at least
potentially, threaten the survivability of each component of
our strategic forces. For our ICBMs, that potential has been
realized, or close to it. The Soviets are now deploying
thousands of ICBM warheads accurate enough to threaten
our fixed MINUTEMAN silos. For our bombers, the
threats are more remote, and for SLBMs, more
hypothetical. But, the Soviets are developing, for deploy-
ment in the mid-1980s, airborne radars and anti-aircraft
missiles to shoot down our penetrating B-52s. And they are
searching intensively for systems to detect and destroy our
ballistic missile submarines at sea. These Soviet efforts can-
not be ignored.
We are responding to these current and future threats by
appropriately strengthening our strategic nuclear
capabilities across the board. This is necessary because,
while we have essential equivalence now, the scale and
momentum of Soviet programs during the 1970s, inevitably
carrying over into their deployments during the 1980s, re-
quire offsetting actions by the United States. Though we
made some significant advances, especially in MIRVed
warheads, our investment in strategic programs in that
decade was less than one-third of what the Soviets spent on
their strategic programs. If we had let that trend continue,
we would have faced, by the mid-1980s, at best a perception
of inferiority, at worst a real possibility of nuclear coercion.
So we are strengthening all three elements of our strategic
forces:
-In three-and-one-half years, we have put the
TRIDENT missile and submarine program back on track.
We have begun to equip our POSEIDON submarines with
the new TRIDENT I missile, that increases by ten-fold the
ocean areas in which they can patrol and still be within
range of their targets. The first TRIDENT submarine, the
USS OHIO, will begin sea trials this year and will join the
fleet next year. Her sister ship, the USS MICHIGAN, will
be launched soon.
-We are taking important steps to maintain a viable and
effective bomber force. Early in his term, President Carter
concluded that air-launched cruise missiles would be a more
effective and more efficient strategic weapon than the B-1.
Since that time, U.S. technical developments and in-
telligence information on advances in Soviet air defenses
have strongly confirmed that judgment. Meanwhile, we are
continuing to develop the technology and to do design work
on a new cruise missile carrier aircraft and a new bomber,
should they be needed to cope with the threat of the 1990s
and beyond.
-Our most significant force deficiency in the next few
years will be the vulnerability of our fixed silo ICBMs.
Observers saw this trend coming for many years, but no
sound technical solution was found until the MX multiple
protective shelter concept was developed and selected in
1979. That program - which we believe Congress and the
public will continue to support - is highly important for
preserving the long-term strategic balance. The other
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elements of our strategic force - each of which will be im-
proving rapidly in the early 1980s - enable us to maintain
the balance and a survivable deterrent during this temporary
vulnerability of ICBMs. But that is not a situation we want
to live with indefinitely. We need to insure against the
potential vulnerabilities of the other legs of the Triad, and
not allow, for example, a total concentration by the Soviets
on their anti-submarine capabilities. Hence the need for
MX. The great effort (and considerable cost) that we are
willing to expend to ensure MX survivability is evidence that
we plan our strategic forces in a retaliatory role. A sur-
vivable system is less threatening than the vulnerable one it
replaces.
Not strictly a part of our strategic forces, but critical to
the overall nuclear balance, are theater nuclear forces. Last
year, the NATO alliance reached a collective decision - a
very difficult decision for some allies - to respond to the
large-scale Soviet theater nuclear force buildup. This deci-
sion involves a combined program of improved U.S. long-
range theater forces - ground-launched cruise missiles and
Pershing II - and the pursuit of efforts to negotiate with
the Soviets equitable and verifiable limits on the theater
nuclear forces of both sides. We have also demonstrated our
support for a strong allied nuclear capability by the recent
agreement to make TRIDENT missiles available for a
modernized British nuclear force.
These programs capitalize on U.S. technological
strengths - in submarine design and quality, in cruise mis-
sile accuracy and miniaturization, and in an effective con-
cept for mobility for land-based missiles. They are solutions
for the long-term, not simply stop-gap measures. In
strategic forces particularly, we need to put our resources
into weapon systems that will serve our needs for the long
pull, and not waste effort to produce early but only in-
complete and temporary solutions.
Taken together, these programs strengthen deterrence.
They provide for increased survivability for our strategic
forces, by reducing our vulnerability to Soviet threats. They
maintain strategic stability by enhancing our capacity to
deter nuclear war.
A second part of our program to achieve strategic
stability has been the pursuit of equitable and verifiable
strategic arms control agreements, such as the SALT II
Treaty. Arms control is not a substitute for vigorous force
modernization, but rather complements it, by imposing
effective controls on the size and capabilities of Soviet
strategic forces. At the same time, it permits us to carry out
the programs we need to maintain the strategic balance.
This Administration, like every Presidential Administra-
tion since the dawn of the nuclear age, has pursued nuclear
arms control - not as a favor to our adversaries or out of
any illusions regarding their true character, but as a means
of enhancing our own security and the peace of the world.
We want arms control agreements with the Soviets, and
they with us, because we are adversaries; such agreements
are not needed between friends. Mutual interest is the driv-
ing force, and mutual benefit the necessary criterion, for any
arms control agreement between the superpowers.
The SALT II treaty will restrain the buildup of Soviet
strategic arms to well below what it would likely be without
the SALT II limits - the Soviets will be required to reduce
their current strategic nuclear forces by about 10 percent
VITAL SPEECHES OF THE DAY
and will be limited in the number of warheads they can
deploy.
SALT II will make future Soviet strategic forces more
predictable both in numbers and characteristics - thus
making our own defense planning easier.
SALT II will prevent an unnecessary, unconstrained, and
very expensive strategic arms race with the Soviet Union.
This is all the more important when we face a pressing need
to put more money into conventional forces - a require-
ment now even more urgent as a result of the Soviet inva-
sion of Afghanistan.
The Joint Chiefs of Staff continue to consider the
limitations imposed in the SALT II Treaty to be in our
national security interest.
The Soviet invasion of Afghanistan made it necessary, in
practical political terms, to defer SALT II ratification while
we assessed the Soviet action and implemented the
necessary responses. But ratification of the treaty at the
earliest feasible time is still important to our national
security interest.
In addition to strategic forces that are technically ade-
quate, we need a policy framework:
-to prescribe what we must do so that deterrence con-
tinues to work;
-to guide our procurement strategy for acquisition of
strategic nuclear forces and the corresponding command,
control, and communications systems; and
-to shape our operational planning for the use of our
forces in war, if necessary.
As a complement to our force modernization efforts and
our arms control negotiations, for the past three years we
have been working intensively to make deterrence more cer-
tain and more effective, through better planning and a more
cogent statement of our strategic doctrine. In this process,
we have taken a number of important analytic and
operational steps.
In the summer of 1977, President Carter ordered a fun-
damental review of our targeting policy. Over the course of
the next 18 months, that study was conducted by military
and civilian experts taking into account our forces, plans,
problems, and capabilities, as well as Soviet perspectives,
strengths, and vulnerabilities.
Since my report to the President on that analysis, we have
been moving deliberately to implement its basic principles. I
outlined the major precepts of this countervailing strategy in
my Defense Report in early 1979, and in more detail in
January of this year.
At a meeting of the NATO Nuclear Planning Group in
June of this year, I briefed our Allies on the conclusions we
reached and the actions we are taking. They fully support
the need for the United States to have a wide range of
strategic nuclear options. Our countervailing strategy is
fully consistent with NATO's flexible response and indeed
indicates our determination to carry out that Alliance
strategy.
President Carter has recently issued an implementing
directive - Presidential Directive No. 59 - codifying our
restated doctrine, and giving guidance for further evolution
in our planning and systems acquisition.
Obviously, the details of our planning must remain a
closely guarded secret. Nonetheless, the basic premises of
our policy can be stated publicly without compromise to our
security. In fact, it is very much in our national interest that
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
our deterrence policy - and the consequences of aggression
- are clearly understood by friend and adversary alike.
At the outset, let me emphasize that P.D. 59 is not a new
strategic doctrine; it is not a radical departure from U.S.
strategic policy over the past decade or so. It is, in fact, a
refinement, a codification of previous statements of our
strategic policy. P.D. 59 takes the same essential strategic
doctrine, and restates it more clearly, more cogently, in the
light of current conditions and current capabilities.
Moreover, one purpose of my own exposition of the sub-
ject today, as of my previous statements along these lines, is
to make clear to the Soviets the nature of our countervailing
strategy. This is to assure that no potential adversary of the
United States or its Allies could ever conclude that aggres-
sion would be worth the costs that would be incurred. This is
true whatever the level of conflict contemplated.
Deterrence remains, as it has been historically, our fun-
damental strategic objective. But deterrence must restrain a
far wider range of threats than just massive attacks on U.S.
citites. We seek to deter any adversary from any course of
action that could lead to general nuclear war. Our strategic
forces also must deter nuclear attacks on smaller sets of
targets in the U.S. or on U.S. military forces, and be a wall
against nuclear coercion of, or attack on, our friends and
allies. And strategic forces, in conjunction with theater
nuclear forces, must contribute to deterrence of conven-
tional aggression as well. (I say "contribute" because we
recognize that neither nuclear forces nor the cleverest theory
for their employment can eliminate the need for us - and
our allies - to provide a capable conventional deterrent.)
In our analysis and planning, we are necessarily giving
greater attention to how a nuclear war would actually be
fought by both sides if deterrence fails. There is no con-
tradiction between this focus on how a war would be fought
and what its results would be, and our purpose of insuring
continued peace through mutual deterrence. Indeed, this
focus helps us achieve deterrence and peace, by ensuring
that our ability to retaliate is fully credible.
By definition, successful deterrence means, among other
things, shaping Soviet views of what a war would mean - of
what risks and losses aggression would entail. We must have
forces, contingency plans, and command and control
capabilities that will convince the Soviet leadership that no
war and no course of aggression by them that led to use of
nuclear weapons - on any scale of attack and at any stage
of conflict - could lead to victory, however they may define
victory. Firmly convincing them of that fundamental truth
is the surest restraint against their being tempted to aggres-
sion.
Operationally, our countervailing strategy requires that
our plans and capabilities be structured to put more stress
on being able to employ strategic nuclear forces selectively,
as well as by all-out retaliation in response to massive at-
tacks on the United States. It is our policy - and we have
increasingly the means and the detailed plans to carry out
this policy - to ensure that the Soviet leadership knows
that if they chose some intermediate level of aggression, we
could, by selective, large (but still less than maximum)
nuclear attacks, exact an unacceptably high price in the
things the Soviet leaders appear to value most - political
and military control, military force both nuclear and con-
ventional, and the industrial capability to sustain a war. In
our planning we have not ignored the problem of ending the
743
war, nor would we ignore it in the event of a war. And, of
course, we have, and we will keep, a survivable and enduring
capability to attack the full range of targets, including the
Soviet economic base, if that is the appropriate response to
a Soviet strike.
At the President's direction, the Department of Defense
has, since 1977, been working to increase the flexibility of
our plans to make use of the inherent capabilities of our
forces. We are also acting to improve our ability to maintain
effective communications, command and control of our
forces, even in the highly uncertain and chaotic conditions
that would prevail in a nuclear war. These actions greatly
strengthen our deterrent.
This doctrine, as I emphasized earlier, is not a new depar-
ture. The U.S. has never had a doctrine based simply and
solely on reflexive, massive attacks on Soviet citites.
Instead, we have always planned both more selectively (op-
tions limiting urban-industrial damage) and more com-
prehensively (a range of military targets). Previous Ad-
ministrations, going back well into the 1960s, recognized the
inadequacy of a strategic doctrine that would give us too
narrow a range of options. The fundamental premises of our
countervailing strategy are a natural evolution of the con-
ceptual foundations built over the course of a generation,
by, for example, Secretaries McNamara and Schlesinger, to
name only two of my predecessors who have been most
identified with development of our nuclear doctrine.
This Administration does not claim to have discovered
the need for broad scale deterrence, or for improved flex-
ibility, or for secure and reliable command and control of
our own forces should deterrence fail, or for effective
targeting of military forces and their political leadership and
military control.
This evolution in our doctrine enhances deterrence, and
reduces the likelihood of nuclear war. It does so because -
like our nuclear modernization programs - it emphasizes
the survivability of our forces and it conveys to the Soviets
that any or all of the components of Soviet power can be
struck in retaliation, not only their urban-industrial com-
plex.
What we have done in the past three and a half years is to
look more closely at our capabilities, our doctrine and our
plans in the light of what we know about Soviet forces, doc-
trine, and plans. The Soviet leadership appears to con-
template at least the possibility of a relatively prolonged ex-
change if a war comes, and in some circles at least, they
seem to take seriously the theoretical possibility of victory
in such a war. We cannot afford to ignore these views -
even if we think differently, as I do. We need to have, and
we do have, a posture - both forces and doctrine - that
makes it clear to the Soviets, and to the world, that any no-
tion of victory in nuclear war is unrealistic.
Implementing our strategy requires us to make some
changes in our operational planning, such as gradually in-
creasing the scope, variety, and flexibility of options open to
us should the Soviets choose aggression. Some of this has
already been done since 1977. More needs to be done. We
must also improve the survivability and endurance of our
command and control.
This is not a first strike strategy. We are talking about
what we could and (depending on the nature of a Soviet at-
tack) would do in response to a Soviet attack. Nothing in
the policy contemplates that nuclear war can be a deliberate
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 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
instrument of achieving our national security goals, because
it cannot be. But we cannot afford the risk that the Soviet
leadership might entertain the illusion that nuclear war
could be an option - or its threat a means of coercion -
for them.
In declaring our ability and our intention to prevent
Soviet victory, even in the most dangerous circumstances,
we have no illusions about what a nuclear war would mean
for mankind. It would be an unimaginable catastrophe.
We are also not unaware of the immense uncertainties in-
volved in any use of nuclear weapons. We know that what
might start as a supposedly controlled, limited strike could
well - in my view would very likely - escalate to a full-
scale nuclear war. Further, we know that even limited
nuclear exchanges would involve immense casualties and
destruction. But we have always needed choices aside from
massive retaliation in response to grave, but still limited
provocation. The increase in Soviet strategic capability over
the past decade, and our concern that the Soviets may not
believe that nuclear war is unwinnable, dictate a U.S. need
for more - and more selective - retaliatory options.
The doctrinal and planning measures we are taking -
coupled with our force modernization programs - improve
the effectiveness of our strategic nuclear forces across the
full range of threats. They make clear our understanding
that the surest way to avoid a war is to ensure that the
Soviet leadership can have no illusions about what such a
war would mean for Soviet state power and for Soviet
society.
In sum, our strategic policy is a balanced whole - of
force modernization, of negotiated limitation, and of cogent
and effective deterrence doctrine. We have a single objective
- to keep the peace and to reduce the dangers of nuclear
war. This is at once a military, a political, and a moral ob-
jective. We will continue to pursue an integrated policy of
maintaining and modernizing our forces to maintain a
proper balance, seeking to stabilize the arms competition,
and improving doctrine and planning to deny the Soviets
any hope of victory in any nuclear war, however they may
define victory and at whatever level a conflict might be
fought.
It is essential that our nuclear deterrent policy be un-
derstood by the American people, our friends and Allies,
and our adversaries as well. That is the purpose of this
speech. It is particularly incumbent on professionals such as
you to understand and to explain complex, yet critical,
national security policies. Indeed, that is one of the most im-
portant functions of those of us who, by formulating or ex-
ecuting policy, serve the national security interests of the
United States.
Major Issues in National Health Policy
POLICY TO ENCOURAGE PRIMARY RESEARCH
By RITA RICARDO-CAMPBELL, Senior Fellow, Hoover Institution
Delivered at Stanford University, Stanford, California, July 23, 1980
T EN percent of the gross national product (GNP)
is being spent on health today. Without major
policy changes, it is predicted that by 1990 this figure
will have risen to 12 percent of GNP, double the 6 percent in
1965. The expansion of total health care costs is shrinking
the percentage of GNP available for other purposes which
may be of greater importance to the nation.
Although cost containment in the health sector was hotly
debated in the 1970s, no effective measures were taken.
Indeed, in view of the high rate of inflation, cost contain-
ment would have been an impossible task. However, real ex-
penditures on hospitals and physicians, tests and x-rays, new
medical technology, and dental care all increased as well.
Only expenditures for prescription drugs did not increase in
real terms. The increase in the per capita consumption of
medical care services indicates that higher quality care in
addition to higher prices accounts for some of the rise in
costs.
However, data from the 1970s indicate that more
medicine does not always mean better health. Extensive
charges have been made concerning the over-use of (1)
x-rays and tests because some physicians practice defensive
gery because of an over-supply of surgeons coupled with the
usual "fee-for-service" payment; and, (3) artificial measures
that prolong the lives of dying patients as a result of exten-
Many people are not aware of the enormous increases in
medical costs during the last 20 years because their out-of-
pocket payments to medical care providers at the time of
consumption have been constant over two decades, at 2.6
percent of GNP. It is the growth in third party payments
(including government Medicare and Medicaid programs
and private insurers) that supports the expansion in the use
of tests and x-rays, and increasingly expensive and
sophisticated technology. We are purchasing higher quality
care although not in proportion to the rise in cost. For those
who may wish lower quality and lower priced care in non-
emergency situations, which is the bulk of medical care, a
choice rarely exists.
The General Accounting Office (GAO) has over the years
made hundreds of recommendations to Congress and to
agencies about how health care costs can be contained.
Some of their recommendations have been adopted; others
have not. In the State of New York alone, $260 million an-
nually (1979 estimate by the GAO) is being spent on
hospital care for patients who do not have a medical need
for hospital care. Conversion of excess hospital beds into
nursing home beds and of obsolete, empty beds in small
rural hospitals could help supply the growing need for nurs-
ing home beds. This need exists because the population is
aging in the U.S. and because married women are working,
leaving fewer adults in the home to care for the very elderly
The Departments of Defense, Health and Human Ser-
vices, and the Veterans' Administration provide some direct
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
delivery of medical care but their programs are uneconomic
because they do not share expensive medical technologies,
or take advantage of their greater joint purchasing power.
Yet, every one percent reduction in the cost of these
programs would save taxpayers $100 million annually.
The largest potential savings would result from the
elimination of fraud and abuse under Medicare and
Medicaid programs, which is estimated to cost $7 billion an-
nually. In May 1980, a high-ranking official of the FBI
testified that "corruption has permeated virtually every area
of the Medicare/Medicaid health care industry." This is
despite 1977 federal legislation and continuing state in-
vestigations to eliminate fraud. Although few persons
believe that all fraud can be eliminated, improvements in the
administration of these programs could cut this figure by
about three-fourths.
The 1970s set the stage for increasing competition during
the 1980s. The landmark Goldfarb decision by the Supreme
Court in 1975 clearly stated that the professions are not ex-
empt from antitrust action. The Federal Trade Commission
(FTC) subsequently negotiated a consent decree from the
American Medical Association that stated it would cease
and desist from discriminating against health professionals
who advertise. However, to date physicians have not adver-
tised. Loss of referrals and possible ostracism may be facing
physicians who do advertise. However, dentists' fees, con-
tact lens fees, and drug prices have been advertised and
prices, in some instances, have fallen.
It is interesting to note that retail firms have entered those
areas where advertising is occurring among professional
providers. Competition comes from the professionals in eye
and dental care who lease space in department stores and in
the new dental divisions of Sears Roebuck's stores
nationwide. These outlets are probably serving more low in-
come people with dental care than the traditional clinical
approach often supported out of government funds.
Competition is increasing among insurers both in
premium rates and benefit packages. Under new govern-
ment legislation, the prepaid group practice plan or health
maintenance organizations (HMOs) which act as both in-
surers and providers are becoming more aggressive. It has
been federal policy from the Nixon administration on to en-
courage the growth of HMOs through federal legislation.
An HMO has a fixed per capita charge whether or not an
enrollee uses medical care. HMOs thus have an incentive to
provide less care and less costly medical care. Enrollees in
HMOs use on the average fewer hospital days than those
persons using fee-for-service practice. This saves HMOs
money but there is little evidence that the savings are passed
onto employers who pay the premium, or to consumers. In
the San Francisco, Los Angeles, and Seattle areas where
about 20 percent of the population are enrolled in HMOs,
medical care prices are rising faster than the average
nationwide. Despite the GAO's recommendation, Kaiser-
Permanente (the prototype) has never been audited.
Less than 5 percent of the population are covered by
HMOs. Why? Some answers are that enrollees are usually
limited to the more healthy fulltime employees, some
HMOs cut corners on quality, HMOs tend to allocate
limited resources through waiting costs of their patients,
and HMOs have relatively high premiums although more
comprehensive benefits.
Government policy proposals include a voucher plan un-
der which the employer would pay the lowest premium
amount among the insurance and HMO plans that the
employer offers. The employee would then pay a differential
for more expensive plans. This would act as a market test of
HMOs which are expected to decrease their premium rates.
Time will answer whether or not HMOs can enroll a larger
percentage of the United States population.
The major influence of business in the 1980s will be
through their newly adopted role of the informed customer
in purchases of health insurance. Industry is paying three-
fourths of all annual health insurance premiums and has
begun to bargain effectively on premium rates. Large com-
panies are using the alternatives of self-insurance and direct
provision of medical care as leverage. Corporations are
banding together, as in the Washington Business Group, to
encourage hospitals to be more efficient: have joint purchas-
ing plans with other hospitals, plan cash flow, intensify their
utilization review of the number of hospital days, and use
the best means to finance needed expansion and equipment.
Insurance premiums reflect health costs. The Ford Motor
Company and many others pay $2300 in annual health in-
surance premiums per employee. General Motors, Citicorp,
and other companies train interested middle management to
become better members of local health systems, planning
agencies, trustees of hospitals, and members of insurance
company boards. There has also been a surge in company
sponsored exercise and health education programs.
About 86 percent of the population has catastrophic
health expense coverage. This includes those under
Medicare and Medicaid, as well as those under the private,
comprehensive prepaid plans (about 8 million people) and
the larger number (about 147 million) under private major
medical insurance plans.
Only 15 to 18 million, or about 8 percent, of the estimated
232 million population have no health expense coverage.
Who are the people without health expense coverage? Fifty-
five percent are persons who are not in the labor force and
many of these are dependents of covered workers who
waived dependency coverage, probably because their
employers do not pay premiums for dependents. Others
without coverage but in the labor force are unemployed and
their health insurance coverage has run out. Nongroup
coverage has high premiums because of adverse self-
selection; that is, the less healthy individual is more likely to
purchase individual coverage.
Most persons obtain group health insurance coverage
through their employment. Employed persons who are not
insured are primarily migrant, rural workers, part-time and
intermittent workers in retail trade, personal services, and
construction. In addition, many of the self-employed are un-
willing to pay the high individual premium rates (high as
compared with the low group premium rates) for health in-
surance coverage. Additionally, some very small businesses
do not provide coverage for their employees because they
also would have relatively high premium rates. Although
competition is increasing, it cannot increase rapidly enough
to diminish regulation during the next few years. Regulation
in the health sector costs billions of dollars annually. Some
regulation probably will always exist. Examples are stan-
dards of safety for drugs, purity of foods, and licensure of
physicians. Because no drug is "safe" if it confers a benefit
and few foods are completely free of contaminants whether
artificial or natural, the public needs information about
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
relative benefits and risks. Standards of risks can be tailored
to anticipated benefits. A person with terminal cancer is
willing to accept great risk.
In respect to licensure, many of the nonprofessional oc-
cupations could, with cost-savings, become certified not
licensed occupations. It is difficult to imagine, however, the
various physicians' associations agreeing to nonlicensure of
physicians. As long as physicians are licensed, they have a
responsibility to "clean their own house." This they have
not been doing.
Can we expect national health insurance? The answer is
no. At least not rationally, and not until the tremendous
amount of abuse and fraud among providers as well as
beneficiaries is eliminated.
Price no longer allocates hospital care (94 percent of the
bill is paid by third parties) and price allocates only to a
degree physician care. The tax system encourages the
growth of private insurance because employers can expense
health insurance premiums as part of labor costs and
employees do not have to pay any tax on these premiums, so
that premium dollars are worth more than wage dollars. It
is unlikely that this will change although there are some
legislative bills in the hopper to do this.
The more likely paths to contain costs are: (1) encourage
competition by use and direct reimbursement of lesser-
trained professionals; (2) provide information about prices
and quality of providers; (3) continue to encourage business
to be active in cost containment, especially by hospitals;
and, (4) promote health education and self-care. Inefficient
hospitals with low-occupancy rates should be allowed to go
out of business.
Government policy should encourage primary research
which is needed to understand the causes of disease. New
therapeutic drugs that treat disease are often cost-effective
but even more cost-effective would be prevention of disease.
Government, through redirection of their grants, increas-
ing training stipends to equal intern salaries, and taking a
less adversarial position toward pharmaceutical and
medical device firms, could encourage research for new
drugs and technology that will prevent and cure disease
rather than for new maintenance drugs and support
technology. A drop in health research expense is primarily
offset by an anticipated growth in percentage share of
hospitals. This is shortsighted planning.
Is There a Gaming Industry
THE TRUTH AND THE CONSEQUENCES
By WILLIAM H. McELNEA, JR., President, Caesars World, Inc.
Delivered at Town Hall of California, Los Angeles, California, July 29, 1980
T HANK YOU VERY MUCH. It is - if you will
forgive my saying so - both a pleasure and a
burden to be a speaker at this well-known forum. The
pleasure, I'm sure, has been well expressed by the many
speakers who have preceded me on this platform over the
years. The burden, however, is a personal idiosyncracy. It's
the responsibility I feel to say something you have not heard
before. After all, you are a captive audience.
Fortunately, my subject matter helps because, while it is
part of the business scene, it is new enough to present some
very challenging questions that need to be resolved.
This business I'm referring to is the gaming industry.
I'm not talking about gambling - which has been around
for a long, long time. The gaming industry, on the other
hand, dates back only as far as the end of World War II. As
for the further refinement into very large resort casino com-
plexes, that's a concept that's not more than perhaps 10
years old.
This distinction is not simply a speaker's ploy to get the
attention of his audience. Gambling and gaming are
significantly different in nature - and confusion between
the two leads to poor economic decisions, both public and
private, and poor social policy.
In the thousands of years that have passed since the an-
cient Greeks tossed knucklebones marked with dots, at-
titudes toward gambling have developed and have solidified.
Because of obvious similarities between gambling and gam-
ing, those attitudes, not surprisingly, have been transferred
to the gaming industry and to the people it serves. Yet the
two activities are indeed different.
A number of phrases come to mind to capture the essence
of that difference:
-Gambling has a narrow focus, whereas Gaming is part
of a whole package of leisure and recreational activities -
good cuisine, entertainment, sports, elegant surroundings,
plus the actual gambling itself.
-Those who seek the gaming experience do so with dis-
cretionary income; they are people who already have
money. Many who gamble do it to make money and
probably should not be doing so.
-Gambling can be done almost anywhere, and is - in-
cluding private homes. Gaming takes place in carefully
created surroundings.
-Almost anyone can go into the Gambling business, and
the failure rate is high. The gaming business takes large
financing, sharp management skills and a flair for the
creative, and the failure rate runs just about like that of any
other industry which is fairly new and where skills are not
always understood.
Let me describe our product by telling you - even briefly
- what you might expect if you spent a weekend at Caesars
Palace.
First of all, because of our marketing efforts around the
world, you would note that our guests display an exotic mix
of races, cultures, dress, mannerisms and language. In fact,
our employees, in an effort to make our foreign guests feel
at home, wear buttons announcing which languages they
speak.
At the baccarat table, on a good night, a scrap dealer
from Detroit might be playing against a shipbuilder from
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Hong Kong, a mine owner from Bolivia and a prince from
Saudi Arabia - all of which creates the kind of action and
excitement that is unmatched anywhere in the world. (As a
matter of fact, a fair number of oil sheiks, coming as they do
from an ethnic background that looks kindly on gambling,
are frequent guests at Caesars Palace. We like to think as
we welcome these high rollers, that we are making our con-
tribution to recycling petrodollars.)
Our guests come to buy entertainment, and we spend con-
siderable sums of money to provide it. Rooms are lavishly
decorated - chiffon curtains around the bed, Roman bath
in the bedroom, not the bath, theme restaurants to provide
the unusual atmosphere.
The entertainers at Caesars Palace are stars - Frank
Sinatra, Sammy Davis, Jr., Diana Ross. It costs about $30
million a year to bring stars of this caliber to our resort
casinos for the pleasure of our customers. Without the gam-
ing revenues, we could never afford to do this.
Clearly, all this is quite different from someone in a
slouch hat putting two bucks on a horse.
Differences between the two are further confirmed by the
1974 survey done as part of the National Gambling Com-
mission's study called "Gambling in America." The most
frequent reason given for gambling at a casino was to have a
good time. A significant number of respondents also cited
the opportunity to make money, but only a very small
number - 7 percent - cited the chance to get rich as a
reason for that gambling. Casino patrons are much too
sophisticated not to know that 20 percent of every dollar bet
remains with the house. Nobody in his right mind thinks
that $300 million buildings are constructed by companies
who lose money.
I know a young man - in his early 30's - upwardly
mobile - making a professional's salary - who saves $500
to go to Las Vegas with his wife for the weekend. When
asked why he goes to Las Vegas, he says "to gamble." But
when you pursue it further, you learn that his budget doesn't
bear-out that purpose precisely. Out of the $500, only $100
goes toward bets of one kind or another. The other $400 is
spent on the hotel, gourmet dining and entertainment. He
chooses the best - Caesars Palace - so the atmosphere is
very important to him. In fact, the truth finally comes out in
these words: "I guess I don't go just to gamble - but if
there were no gambling, I wouldn't go."
Those words capture the essence of the gaming ex-
perience. Gambling is essential to it. Gambling gives the
special excitement. But it's not the whole story - far from
it. Without the rest - the food, the luxury, the entertain-
ment - there would be no gaming experience - just chips
on the table.
For many people, it comes as quite a surprise to know
that the product sold by the gaming industry is very distinc-
tive. As you can well imagine, therefore, the knowledge
about the industry that delivers this product must be even
skimpier.
The genesis of the gaming industry is in the
hotel/resort/entertainment business. Ours is a fast-growing
industry with some well-known names: Hilton, MGM,
Holiday Inns, and of course Caesars World, whose gaming
revenues are significantly larger than any of its competitors,
more than $350 million per year, and total revenues over a
half billion dollars.
Caesars World is listed on the New York Stock Exchange
as befits a national company. I realize that here in Califor-
nia the principal association you have with my company is
Caesars Palace in Las Vegas. But we have other resort
casinos - in Atlantic City and Lake Tahoe, as well as three
honeymoon resorts in the Poconos.
While we seek to attract affluent gamblers to our resorts,
we're not gamblers ourselves - other than in the normal
sense of accepting business and competitive risks.
The management skills required in the gaming industry
are numerous - indeed, we are a conglomerate business.
We're not talking about a crap game; the stakes are way too
large these days. Consider that at a plant like Caesars
Palace, we are managing a quarter-billion dollar asset that's
composed of a luxury hotel, a casino, an "omnimax"
theatre, an entertainment showroom and a sports pavilion.
Those all could be separate business entities in their own
right.
At our Caesars Boardwalk Regency in Atlantic City,
we're dealing with a capital investment of well over $100
million dollars. Our shareholders expect us to generate a
competitive return on that investment. At these numbers,
we're not depending on lady luck. Moreover, we have to be
efficient to justify the cost of the capital we employ for ex-
pansions - not every concern can borrow at today's
prevailing rates, and make it pay off.
At its core, gaming itself is a money-handling business.
We have to attract our patrons' money, we have to win it,
protect it, process it, and finally report it. Millions of dollars
flow through our cages each month, which we track with an
accuracy that often surpasses a bank's. Last Christmas and
New Years week we processed $155 million through the
cages of Caesars Palace, and we accounted for all but a
$1,767 shortage.
We also extend credit, much as a consumer retailer does.
So we need an exacting data-processing ability and manage-
ment judgment to control and regulate accounts receivable.
Caesars' controls are totally automated. We have a com-
puter in place that can report results as minute as play on a
single table, on a single shift. It can also give us the total
casino results for a day. An advanced management informa-
tion system has been developed over the past decade to meet
our increasing needs for financial controls as well as to sup-
port sophisticated consumer marketing.
Actually, we own our own computer company - it has
four plants - and in addition to using its products in our
own operations, we have sold our hotel systems to other
competitors.
Almost ten years ago, Caesars World began recruiting
people from the ranks of the top law enforcement agencies,
such as the FBI, to oversee our security efforts. Today, our
surveillance techniques - from on-floor, first-hand super-
vision to electronic monitoring - are sophisticated and con-
stantly improving. The criminal aura that popular opinion
attaches to the casino has little basis in fact in the modern
gaming industry. The security controls at a publicly held
company like ours are a huge disincentive to potential
crime. Our law enforcement experts know the ropes. In fact,
a number of ex-FBI men hold security positions within the
industry today. Believe me, for the criminal, professional or
otherwise, there are far better places to be than in a
resort/casino.
Still another characteristic distinguishes a large
resort/casino operation like Caesars World: emphasis on
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748 VITAL SPEECHES OF THE DAY
depth of management. This is the key to earning investor complex. It has psychological and social ramifications. I
confidence in the future of our product. You must be com- have some ideas on the subject - but that's not really in my
petent and credible - because you're competing with every bailiwick to solve. All we ask is to be differentiated from it.
other industry for limited supplies of capital. Because our Even the gaming industry, as a large taxpayer and a large
management is respected, we were able to attract a $60 employer, doesn't cut too much ice with either legislators or
million loan from the Aetna Life Insurance Company in certain segments of the general public when it comes to the
1978 - the first time a major institutional investor has put question of opening up states other than Nevada or New
money into the gaming industry. We have more than $40 Jersey to casino gambling. That's why in a recent interview
million of unsecured lines of credit made available to us by when I was asked whether gaming would come soon to Cali-
the major banks from coast to coast. In the past 18 months, fornia, I said I didn't see any real evidence for such an even-
three public bond issues and one common stock offering tuality.
have been arranged with nationwide underwriting syn- California is a fiscally healthy state with an expanding
dicates headed by E.F. Hutton & Company. economy. There is a statistical unemployment problem, but
Finally, we count on skilled marketing to bring into our practically, in a state that has to import Mexican labor to
resorts the type of customers who can lose money gracefully get its agricultural chores done at a reasonable wage, the
and keep coming back because they appreciate what we appeal we might take that our industry is able to absorb
have to offer. rather large numbers of hardcore unemployables falls on
In this regard, Caesars World made an important, con- deaf ears. California just isn't hurting enough for it to lose
scious decision to sell a premium package. We purposely the conventional prejudice against the gaming industry. In
carved out for ourselves the top of the market. Our rooms other words, it doesn't make political sense for public
sell at the highest rates. Our food and beverage are priced at figures to stress the contributions our industry might make
the very top of the scale. We wish to - and in fact do - at- to the California economy.
tract people in the high-income brackets. In the practical world, it is principally back East in single-
Having made this decision, many other business de- industry cities that are in economic trouble where you'll find
cisions follow logically - star entertainment, an inter- the greatest receptivity.
national marketing effort seeking out wealthy customers We are not pressing to go where we're not wanted. But we
wherever they might be: in Mexico, South America, the Far do need better understanding both to stave off unhealthy
East, the Middle East - knowing that for such people dis- political and social trends and to foster the best aspects of
tance is no deterrent. What they are interested in is what's the gaming industry.
there when they get to Tahoe or Las Vegas, or Atlantic City. To illustrate what I'm saying, when New Jersey opened
All these characteristics I've described both in the up its state to legalized gambling, it was as a partial solution
product we sell and the business structure that sells it are not to its economic problems. Then, to further justify its action
common knowledge. But then, information about most in- in the eyes of its potential detractors, it earmarked the taxes
dustries is not very widespread. The problem is not the lack from the industry for programs for the elderly. Today we
of information, but the misinformation. The failure to dis- are looking at an incredible success story.
tinguish us from pure gambling means that we in the gaming Three hotels employ 13,000 people, compared to 1,500
industry live every day with the reputation that others have two years earlier. Employment in casino and casino-related
made for us. We are constantly up against such views as: jobs has followed our contention that no other business
-Gambling is a psychological aberration. creates more jobs per each dollar of invested capital than the
-If it's immoral, then it's taxable. (We share that lovely gaming industry - and most of them at the low end of the
niche with smoking, liquor and the legitimate theater.) educational and skill scale which is where hard-core un-
-Gambling is irresponsible and can cause severe family employment has been most difficult to solve.
problems. The approximate dollars that will be paid in taxes by our
-Gambling is an invitation to crime. New Jersey subsidiary alone, this year, will reach
-And so forth and so on. meaningful proportions: $22 million to the aged and infirm;
You would never think from this litany of evils that there $16 million in federal and state income taxes; $6 million in
could ever be a Caesars World whose president came from licensing costs. A grand total of $45-50 million from just
the world of finance, and whose personnel roles contain ex- one casino/hotel in just one year.
members of the FBI, gaming commissioners, bright young The economy in Atlantic City is booming. In the second
graduates of the nation's finest Schools of Business Ad- year of legalized gambling, the number of visitors will ex-
ministration and former Army generals, and whose board of ceed the number that will go to Las Vegas - 121/2 million in
directors consists of highly qualified and dignified men of a single year. Legalized gambling has been responsible for a
high reputation in areas pertinent to the experience of our very successful social experiment.
business - half of them from outside the Company. For in- I cannot help but recall that in 1977 while New Jersey was
stance, James A. Needham; a former SEC Commissioner trying to decide which way to go, a popular bumper sticker
and NYSE Chairman, chairs one of our audit committees appeared. It said, "If the referendum doesn't pass, will the
of the Board. We have Harold Berkowitz, a prominent last person off the island please turn out the lights."
entertainment attorney, Peter Schweitzer, former vice Well, the lights are still on - brighter than ever.
chairman of Kimberly-Clark, and Manuel Yellen, former Other cities, seeing what has happened in Atlantic City,
chairman and CEO of P. Lorillard & Co., a large tobacco may well open up their doors to us. But we went to Atlantic
products company. City because it is off the beaten path. It takes a conscious ef-
None of what I'm saying is meant to be interpreted as im- fort to get there. That's how we like it. We prefer to take our
plying there is no such thing as a gambling problem. It's industry away from the big centers, to isolate it, to confine it
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
SAMUEL L. BLUMENFELD
to those who can afford to lose money, to patrol it. We don't The casino/resort has to be run properly to be successful.
invite people to walk off the street and gamble away their The unscrupulous people who started off in the business and
welfare checks. Large urban centers are not for us. thought that making a portion of the casino revenues dis-
Now mind you, you'd think that this marketing policy to appear from the official count through "skimming" learned
appeal to wealthy people would be consonant with social the hard way. Because they didn't reinvest those profits to
policy. But all too often, political and social considerations maintain the hotels, the resorts deteriorated. To maintain
as a guide to manipulating the marketplace tend to make for success year after year, to grow and to expand into other
poor economic decisions without necessarily achieving the markets takes financial controls, financial planning and all
stated social goals. the techniques used by establishment businesses to succeed
Our business is grounded in the work ethic; we do not en- in open competition.
courage gambling as an alternative to work. We appeal to The report "Gambling in America" puts it another way:
people who have been successful through that ethic. In reporting on the effort to eradicate both the fact as well
But in point of fact? our approach goes counter to today's as the appearance of wrongdoing, the report says, "The
egalitarian trend. That trend holds that poor people have as presence of large public corporations in Nevada gaming is
much right to gamble as rich and therefore low-bet tables one measure of that success." That sentence goes along with
must be provided. The accompanying thought, not sur- another, "This combination of State, Federal and Local
prisingly, then becomes: If gambling is widespread, then the oversight make Nevada gaming the most closely scrutinized
government must step in and supervise it. private industry in the country."
The first form of control, as you might imagine, is With or without that scrutiny Caesars World would
through taxation. New Jersey comes very close to killing the behave precisely as it does. We have carved out a segment of
goose that lays the golden egg. It has gone way beyond the industry that satisfies a particular social viewpoint as
Nevada's gaming tax of 5.5 percent, first by levying an 8 well as our business objectives. Frankly, we do not want
percent tax and now moving it to 12 percent. It also has in- people to gamble away their paychecks. We cannot afford
creased the corporate income tax and raised the license fee the luxury of criminal elements in our midst. We need our
structure on machine games. financial controls. All that makes good sense to us, both
But any state that wishes to keep the gaming resort com- from a business and an ethical point of view.
plexes as a permanent source of income must adopt And we'd like everyone to know that.
reasonable taxation and regulation policies - not op- In fact, we invite further scrutiny - but this time, not
pressive ones. from the government but from you our colleagues in the
In the almost 50 years since gambling in Nevada was business community. We want you to understand this new-
legalized, the state's role has evolved from simple tax collec- comer to the entertainment sector. As businessmen, we all
tion into a sophisticated regulatory system covering every have much in common irrespective of the differences that
facet of the gaming industry. Nevada has carefully avoided pertain to running any particular company. You, better
too much regulation which could destroy the industry, and than anyone else, understand the difference between em-
too little regulation, which could invite abuse. The system barking on a $200 million project of building a hotel/casino
works well. We approve of it. resort from scratch compared to buying 20 new slot
There are moves afoot, however, which are unreasonable. machines. You know what it means to raise money among
I refer, for example, to the threat of withholding taxes on institutional investors. You know what the competition is
winnings. There are no gaming winnings - only short-term for the top graduates of our best schools of business ad-
winners. The house is the only sure winner, so taxation ministration.
should be confined to corporate gaming revenues or total This understanding will eventually spread. Of that I'm
corporate income. Casinos just cannot be tax collectors. very confident.
Nor should the overseeing bodies interfere with normal Our paths will cross I'm sure. You may be our bankers or
business decisions; types of machines to buy or the number our insurance company or our suppliers; investors in our
of people to have on the floor. Management should be stock or guests at our resorts; business neighbors in Nevada
allowed to make management changes and transfers or New Jersey.
without an unnecessarily long approval process. The And when we do meet, I'd like to think that this en-
regulators should restrain their ardor and let the industry counter today marked the beginning of that new under-
shake out the incompetents. standing.
The Philadelphia Story
WHAT WORKS IN READING?
By SAMUEL L. BLUMENFELD, Author
Delivered at the 19th Annual Reading Reform Foundation Conference, Champaign, Illinois, August 11, 1980
E VERY so often the work of the Reading Reform instruction - is discoverable by others. It indicates that our
Foundation is vindicated by independent re- stand is on the side of truth and that prejudice plays no part
searchers who hardly know that we exist. To me, this in our advocacy. We are against the look-say method not
is all well and good, for it indicates that the teaching princi- because we don't like its advocates, or resent their commer-
ple we advocate - intensive phonics in beginning reading cial success, or oppose primers crammed with gorgeous pic-
, .r ~,nn'7/t I')7 . rio_anEaa_nn QQpnnn7nn14nnn1_7
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VITAL SPEECHES OF THE DAY
tures. We are against look-say because it produces crippled
readers.
When Prof. Jeanne Chall's book, Teaching to Read: The
Great Debate, was published in 1967, we hailed it as a
significant vindication of our position. It said, in effect, that
phonics in beginning reading instruction made better
readers than look-say. Dr. Chall had come to that conclu-
sion independently after studying virtually all of the
available research on beginning reading instruction. But her
colleagues in the International Reading Association - the
citadel of look-say - took a dim view of her findings. The
reviewer in the Journal of Reading wrote:
What prevents Chall's study from achieving
respectability is that many of her conclusions are
derived from a consideration of studies that were ill-
conceived, incomplete and lacking in the essentials of
suitable methodological criteria. In her eagerness to
clarify these studies she allowed her personal bias
toward a code emphasis to color her interpretations
of the data... .
It seems rather odd that a researcher intent upon
dispelling confusion should have allowed herself to be
moored on a reef of inconclusiveness and insubstan-
tiality.
So the Chall book, as much as it pleased us - which its
author never intended to do, by the way - did not please the
powers that be, and the result is that the reading problem in
1980 seems to be about as bad as it was in 1967. Some think
it's worse.
Which brings us to the Philadelphia story. The
remarkable thing about the study done in the Philadelphia
school district is that it was conceived and conducted by
people who had no axes to grind, no connections with any
published reading programs, no links with professional lob-
bies, no stake in the Great Debate, no prejudices, and none
of the bias that Prof. Chall was accused of having. If ever
there was a group of researchers free of every possible taint,
interested only in getting at the truth, this one was it.
Let me give you some background. In 1975 the Federal
Reserve Bank of Philadelphia published a critical study of
the Philadelphia school system with recommendations
designed to improve that system's educational effectiveness
and cost efficiency. There were too many young people -
especially among the minorities - coming out of the system
without employable skills. The Bank wanted to find out
what had to be done to improve the system's performance.
The study, which took 28 months to complete, included an
examination of school labor unions by the University of
Pennsylvania Wharton School, a study of citizen reactions
to public education conducted by Temple University, and a
study of school finances conducted by the Pennsylvania
Economy League.
The final report concluded that there had to be a change
in the governance of the public school system if there was to
be a drastic improvement in the education results. The
public school system had to be insulated from the city
government political influences in so far as the education
aspects were concerned. Naturally, these recommendations
caused a great hue and cry among the administrators,
teachers' unions, and politicos. And, as you might expect,
the recommendations were flatly rejected.
In October 1975, the Superintendent of Schools and the
President of the Federal Reserve Bank were invited by the
deputy major of Philadelphia to discuss how they might
reconcile their differences of opinion. The School District
suggested that a new study be conducted utilizing the
sophisticated statistical techniques that the Bank had used
in its own study, but applying them to the District's primary
educational concern: the reading problem. By collaborating
on investigating an important academic problem, the Bank
and the school system might be able to make some real im-
provements.
And that's how the Office of Research and Evaluation of
the School District of Philadelphia got together with that
city's Federal Reserve Bank to produce this very
remarkable study entitled What Works in Reading? Key
staff members from both the Federal Reserve Bank and the
School District met in a series of half-day work sessions to
plan the study. At the outset the tone was cordial but
guarded, and the meetings were negotiating sessions as
much as planning meetings.
The reasons for the earlier disagreement between the two
sides quickly became evident. The nature of various school
variables had to be clarified. In addition, differences in
statistical terminology were a barrier. At one point, a staff
member familiar with both multiple regression analysis and
analysis of variance was brought in to "translate" the terms
and concepts used.
As the work sessions progressed, they brought with them
a heightened awareness of each other's world. Eventually a
genuine mutual respect developed, which became the sine
qua non for the implementation of this study.
Now, why do I burden you with this technical
background? Why is it so important? Because it's essential
to point out that the most advanced statistical techniques
developed by economists were used in this study. These
techniques have been designed to eliminate bias and error
from such studies so that practical recommendations can be
made based on objective results. Remember, Chall was
severely criticized for evaluating studies that were "ill-
conceived, incomplete and lacking in the essentials of
suitable methodological criteria." This study could hardly
be criticized in those terms.
Now to the study itself. Its purpose was to find out why
some schools produced better readers than others, and why
some students performed better than others. This meant ex-
amining the characteristics of students and schools that did
best, worst and average. In all, 25 out of a total of 287
schools took part in the study - ten schools with the highest
average reading scores in grades 1-4, ten schools with the
lowest, and five schools in the middle.
All fourth graders in these schools - 1,828 pupils -
became subjects in the study. Fourth graders were selected
because the fourth grade is an important point at which to
identify trouble: a sharp decline in test scores at this grade
has been observed over a number of years. Also, it is the
highest grade that permitted all elementary school pupils in
Philadelphia to be potential subjects because of the way that
city organizes its grade configurations. A total of 162 facts
(or variables) about each of the 1,828 pupils made up the
computer file on which the study was based. Later, various
combinations of these separate items of information in-
creased the total number of variables about each pupil to
245.
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Five kinds of facts about each pupil were gathered:
1. Facts about the principal of the pupil's school.
2. Facts about the reading teacher in the pupil's school.
3. Facts about the pupil's classroom teacher.
4. Facts about the pupil's school.
5. Facts about the individual pupil.
In sum, an enormous amount of information was
gathered on 25 schools, 25 principals, 25 reading teachers,
94 classroom teachers, 68 reading aides, and 1,828 fourth
graders.
Now we come to the part of the report that is of greatest
interest to us, and I shall quote the text verbatim:
Since the study was primarily concerned with
successful practices in reading, among the most
critical variables were reading approaches and
programs. Approaches were included as variables in
each regression run. The approaches are Specific
Skills, Traditional Basal, Linguistic Basal, and
Linguistic Programmed. These approaches represent
all 12 commercial programs used in the 94 fourth
grade classrooms included in the study.
The report then defines what it means by each of these ap-
proaches. Again, I quote the report:
1. The Specific Skills Approach involves different sets
of recommended materials at varied skill levels,
tailored to the student's needs. Materials cover the
areas of decoding, study skills, comprehension, and
literature. Various publisher and teacher-made
programs are used in an effort to supplement basic
reading instruction in the classroom.
Incidentally, out of the total 1,828 pupils, only 140, or
7.66 percent, were in a Specific Skills program. The
program, as described, strikes me as a sort of Smorgasbord
or remedial approach. The report continues:
2. The Traditional Basal Approach utilizes a graded
series of "readers" as its basic component, with many
supplementary materials. Beginning with the develop-
ment of a sight vocabulary, basals generally feature
controlled vocabulary and skills with emphasis on
comprehension. Basals are usually identified by the
name of the publisher.
In other words, the Traditional Basal is your regular
look-say program. How many of the 1,828 were in look-say
programs? In all, 1,124 or 61.49 percent. No wonder they've
got a reading problem in Philadelphia. The Traditional
Basal programs being used are Bank Street, Ginn, Harcourt
Brace, Scott Foresman, Houghton Mifflin, McCormack,
American Book, and -- listen to this - Open Court. Why
Open Court was included in this category will be explained
later. Back to the report:
3. The Linguistic Basal Approach utilizes a graded
series of "readers" as its basic component. The
emphasis is jointly on phonics and comprehension. In
these series, words are presented in groups based on
sound-symbol relationships. Short vowels are usually
presented first.
Only 175 pupils, or 9.57 of the total, were being taught by
way of a Linguistic Basal - or phonics - approach. The
Technical Supplement identifies the program as Lippincott.
The fourth category is defined as follows:
4. The Linguistic. Programmed Approach is basically
a linguistic approach with a strong decoding emphasis.
The presentation of materials is in small steps
(frames). A response is required from the learner and
immediate feedback is provided. Comprehension
materials are used in conjunction with the program.
Apparently this is an approach that does not use basal
story books. We are told that 389 pupils were being taught
by this approach, or 21.28 percent of the fourth graders. The
two programs being used are the BRL Sullivan and the
McGraw Hill-Sullivan.
Now you probably want to know which system worked
best, which approach produced the best readers. And here is
what the report says:
Pupils being taught using the linguistic basal ap-
proach achieved distinctly better than pupils using
other reading approaches.
In other words, the Lippincott program produced the best
readers. Now I asked someone connected with the report
why Open Court was lumped in with the other look-say
basal programs. He told me that the approach designations
were made by a reading expert at Temple University, and
my guess is that the reading expert decided that Open Court
could not be classified with the Linguistic Basal Approach
because it begins by teaching some long vowel sounds. The
linguistic approach invariably starts with the short vowels
because they are the most regular. But actually, Open Court
is as much a phonics program as is Lippincott, and the
linguistics classification is quite arbitrary.
All of this is quite confusing to a lot of people, but I doubt
that the professors of education care one way or another.
Semantic confusion permits an awful lot of educational
malpractice to pass for pedagogic innovation. Twenty years
ago, before the linguists got into the act, there were basically
only two clearly recognizable approaches: phonics or look-
say. In look-say, children started off by learning a sight
vocabulary. They learned whole words without knowing
what the individual letters stood for. In phonics, children
started by learning the alphabet and the sounds the letters
stood for. There wasn't too much concern over whether you
began with long or short vowels. Some people think it's
easier to start with the short vowels, but Prof. Chall, in her
book, made it plain that while she found the phonics ap-
proach superior to look-say, she found no evidence that one
phonics program is better than another. Let me quote Chall
directly:
I cannot emphasize too strongly that the evidence
does not endorse any one code-emphasis method over
another. There is no evidence to date that ITA is
better than a linguistic approach, that a linguistic ap-
proach is better than a systematic-phonics approach,
or that a systematic-phonics approach is better than
ITA or a linguistic approach. Neither do we have any
evidence to date that one published code-emphasis
program is superior to another, although some un-
doubtedly are.
Incidentally, "code-emphasis" is a linguistics euphemism
for phonics. The linguists have reservations about phonics
because they object to teaching the isolated, irreducible
sounds of the language as represented by the letters. Since
the child does not hear these sounds in everyday speech, they
don't think he or she should be taught them. But they agree
with us that written English is a sound-symbol system and
not one of hieroglyphics. So how do they teach the sounds?
By using one syllable whole words in regular spelling
patterns.
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VITAL SPEECHES OF THE DAY
To me the linguists' objection to phonics is silly. They
miss the whole point about phonics. In teaching the letter
sounds we are also teaching the concept of the alphabet -
which is based on a very great discovery: that all of language
is composed of a very small number of irreducible speech
sounds. You'd be surprised how exciting it is for a child to
learn that English has only 44 sounds in it. Most children
taught to read by look-say think that English is composed of
thousands of sounds. They have no idea what the alphabet is
or of the great discovery behind it. In all of my teaching and
tutoring, I have found no child who could not grasp the con-
cept of the alphabet once it was clearly explained and
demonstrated.
Incidentally, while the Philadelphia report cites Lippin-
cott - or the Linguistic Basal Approach - as the most
effective, it does not tell us the order of effectiveness of the
others. But I was told over the phone that after Lippincott
came the Linguistic Programmed Approach, which was
then followed by the traditional look-say basals. The least
effective was the Specific Skills Approach. As for the look-
say basals, the data showed no essential difference in effec-
tiveness among them. In other words, Ginn is no better than
Scott Foresman or Houghton Mifflin.
Now the Philadelphia report came out with another in-
teresting finding that sort of puzzles me. The report says:
The linguistic basal reading approach was more
beneficial to middle and higher achieving pupils than
other reading approaches, but the reading approach
utilized did not make any difference for the lowest
achieving pupils.
I would want to know more about these low achievers
before deciding that it really doesn't matter whether or not
you use phonics or look-say with them. Why are they low
achievers? Is it a matter of intelligence, or have some of
them become low achievers because of their exposure to
look-say? We know that many youngsters of normal in-
telligence are turned off by look-say and become disabled
readers as early as the first grade. I wonder to what extent
the investigators were aware of this. They were testing
fourth graders. What were these kids like in the first grade?
Were they taught by the same approaches in the first grade
as in the fourth?
The report also lists other things that made a difference in
reading growth. Here are some of them:
1. The better the pupil's attendance, the more the reading
score increased.
2. Pupils who attended kindergarten seemed to gain
more than those who did not.
3. Where the school's principal had experience in the
field of reading, the pupils achieved better.
4. Where teachers had more pay periods without
absences, the pupils did better.
5. The more minutes a week of sustained silent reading,
the better the pupils achieved.
6. Pupils in larger classes (up to 35) gained more than
those in smaller classes (as few as 24).
There were things that did not make a difference in pupil
achievement. For example:
1. The number of times a pupil moved since starting
school.
2. Being bussed to relieve overcrowding.
3. Whether or not the principal had a doctorate.
4. Whether the pupil came from a lower or higher income
neighborhood.
5. Whether the school had more or fewer pupils from
lower income families.
6. The race of the teacher.
7. The number of graduate courses in reading and
language arts taken by the teacher.
But no finding is more important than the one relating to
instruction approach.
The report leaves no doubt that phonics is better than
look say. It states:
Most interesting of all, the Linguistic Basal ap-
proach produces better fourth grade reading growth
for students at or above grade level than any of the
three other approaches used in the Philadelphia
School District - Specific Skills, Traditional Basal,
or Programmed Linguistic. Probably no finding in the
study was more robust. Many, many alternative
specifications were examined - Linguistic Basal was
always associated with higher rates of learning.
Incidentally, the report itself does not identify the com-
mercial programs. That information is supplied in the Tech-
nical Supplement. I would have never known that Open
Court had been thrown in with the look-say basals had I not
read the Technical Supplement. It is easy to misinterpret
data if one reads the report only. For example, Education
USA, an independent weekly newspaper put out by the
National School Public Relations Association, told its
readers about the Philadelphia finding in these words:
The linguistic basal approach to reading, a com-
bination of phonics and the old "Dick and Jane" basal
approach, is "head and shoulders" ahead of any other
method of reading instruction in terms of achievement
growth for pupils.
That kind of reporting is bound to confuse a lot of people.
But I suppose it's too much to expect most people to be
aware of the semantic traps in this business. I remember
when I was writing The New Illiterates it took me quite a
while to sort out the terminology, jargon, and
professionalese being used in the reading instruction field. I
could give a speech on that subject alone.
As I said, back in the days of Why Johnny Can't Read, it
was phonics versus look-say. But the look-say people never
could understand. So phonics became the "synthetic
method," while look-say was called the "natural approach."
Then the linguists arrived with their phonemes, graphemes,
morphemes, coding and decoding. And look-say became
"reading-for-meaning," as if phonics meant reading not for
meaning. On the whole the look-say people liked the new
terminology because it turned The Great Debate into the
And now we're in a new phase called "psycholinguistics,"
and you really have to keep up with the research literature
augurated by Kenneth S. Goodman in his article in the
Journal of the Reading Specialist of May 1967, entitled
"Reading: A Psycholinguistic Guessing Game." Goodman,
in case you don't know, is the professor of education at the
University of Arizona's school of education, who thinks it's
perfectly fine if a youngster reads pony for horse or vice ver-
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difference between a pony and a horse aside from how the
two words are spelled. Goodman also happens to be one of
the chief editors of the Scott Foresman basal reading
program. So he has a vested interest in a commercial look-
say program.
Incidentally, of the 1,828 pupils involved in the
Philadelphia study, 272 or 14.88 percent of them were using
Scott Foresman. Only 175, or 9.57 percent were using Lip-
pincott, which suggests that there may be something wrong
with the way textbooks are selected by school systems. That
Goodman article, by the way, was published just four years
after the Lippincott program had come on the market.
Chall had given the Lippincott program high marks in her
study. So Goodman's article was a means of attacking the
competition. He wrote:
The teacher's manual of the Lippincott Basic
Reading incorporates a letter by letter varians in the
justification of its reading approach. "In short, follow-
ing this program the child learns from the beginning to
see words exactly as the most skillful readers see them
... as whole images of complete words with all their
letters."
In place of this misconception, I offer this.
"Reading is a selective process. It involves partial use
of available language cues selected from perceptual in-
put on the basis of the reader's expectation. As this
partial information is processed, tentative decisions
are made to be confirmed, rejected or refined as
reading progresses."
More simply stated, reading is a psycholinguistic
guessing game.
There you have it in Goodman's own words. Watty
Washburn, the beloved founder of the Reading Reform
Foundation, used to call look-say "look-and-guess." He
was right on target. According to Goodman, reading is a
guessing game. Forget about the "psycholinguistics" non-
sense. That's academic bull. Nor has he changed his mind
since 1967, despite the continued drop in reading scores. In
fact, Goodman is the leader of a new strong anti-phonics
movement which is going to influence a lot of new young
teachers who have never head of Flesch or even Chall. I
found the professor's latest word in the December 1977 issue
of Theory Into Practice, the journal of the college of educa-
tion of Ohio State University. The entire issue was devoted
to reading instruction and the lead article was written by
Kenneth S. Goodman. Its title: "Acquiring Literacy is
Natural: Who Skilled Cock Robin?" The pun is more than a
joke, for Goodman's thesis is that we are killing reading in-
struction with "skill instruction," which is the latest
designation for phonics. Goodman writes:
My approach starts where the learners are; it ex-
language; it employs only whole, real, relevant,
meaningful language; it encourages risk-taking,
meaning-seeking, hypothesis-testing.
Sounds wonderful doesn't it? Aren't you thrilled by
Goodman's breathtaking concept of reading? It reminds me
of one of those helium balloons that slip out of kids' hands
and go soaring up, up and away. Actually, if you analyze
what Goodman is saying, you realize that he is describing
what a crippled reader does to get through a page of print.
He takes risks, seeks meaning, tests hypotheses. In the end
he has no way of knowing for sure what it is he has actually
read. It's all a guessing game. Does Goodman find any place
for phonics in reading instruction, maybe just a little, tiny
place? Here are Goodman's words at the close of his article:
Too often in the past we tried to build technologies
without a base in scientific concepts and understand-
ing. We had alchemy before chemistry, astrology
before astronomy, witch-doctors before modern
medicine. Let's move on now from our reading skill
technologies and relegate them to the museum of
folklore and superstition in which they belong.
So now, according to Goodman, the only place for
phonics is in a museum. Don't laugh. This is the man who
will most likely be the next president of the International
Reading Association. He represents the voice of authority
at the highest level of reading pedagogy in America. Of
course, someone should have reminded him that
hieroglyphics came before the alphabet, and not vice versa.
But I doubt that any such information would have the
slightest influence on Dr. Goodman.
What does the IRA think about the Philadelphia story?
They've remained strangely silent about the whole thing. So
it is incumbent upon us to publicize the report and its find-
ings as widely as possible. After all, if we don't, who will?
American Intelligence in the 1980's
THE MEDIA AND THE INTELLIGENCE AGENCIES
By STANSFIELD TURNER, Director of Central Intelligence
Delivered at the San Francisco Press Club, San Francisco, California, August 11, 1980
T is always a treat to have a chance to exchange
I ideas with the press. I believe that our two
professions, journalism and intelligence, have a great
deal in common. We have in common the task of finding the
facts about what is going on in the world; you primarily, for
the American public; we, primarily for the American
government.
Beyond that, we both recognize the great importance to
each of us of protecting our sources of information. I ad-
mire those newsmen who have been willing to go to jail
rather than to disclose their sources. I assure you that we
too will go to considerable lengths to protect ours.
The appreciation of the value of an exclusive is another
common professional characteristic. For you, it can provide
an important edge over your competitors. For us, it can give
the President of the United States an important edge of ad-
vantage when competing or negotiating with others.
There is also another interest we have in common. We
both must possess some fundamental protections under the
law if we are to continue to be effective for our country. For
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you, the most fundamental protection is the freedom of
speech which is guaranteed by the First Amendment of the
Constitution. For us, it is the guarantee of a reasonable
degree of secrecy, without which we simply cannot function.
And, it is here that our interests sometimes appear to
collide. It may seem to you that we are ready and eager to
dispense with the privileges of the First Amendment in the
pursuit of secrecy. Nothing could be further from the truth.
Today we are proceeding with deliberation and very great
caution in seeking new legislation that will help solve the
severe problems we have in maintaining a necessary degree
of secrecy. We recognize that in so doing it is vital that we
not endanger in any way the Constitutional guarantees of
freedom of speech or any other freedom set forth in our
Constitution. But at the same time, we must recognize that
in the 1980s, the United States faces problems around the
world to which our response may be in our best interests
only if we have good intelligence.
I believe the decade of the 1980s will be more precarious
for this country than the '60s and the '70s; first, because in
the '80s, we will face for the first time a Soviet leadership
that does not feel militarily inferior to the United States.
Whether that Soviet perception is grounded in fact or fic-
tion, there is very little that even the Congress or the Pen-
tagon can do to change it significantly in the better part of
the decade ahead of us. Consequently, our foreign policy
must be based on the perception by the Soviets of military
parity with us. Essentially, that means that our relationship
with the Soviet Union must be handled differently than in
the past. It is a new challenge to us.
A second reason the decade of the '80s will be different
and more challenging is that the free countries of the
developed world cannot expect the same continued high rate
of economic growth we have become accustomed to in the
past several decades. Traditionally, economic growth in
developed countries has been tied to the growth rate of the
energy supply. We in the Central Intelligence Agency
believe that the developed countries of the Free World will
be lucky if they sustain a growth rate increase of total
energy supply - natural gas, oil, coal, nuclear, thermal,
solar, whatever it may be - of 1 or 2 percent for the better
part of this decade. And that may be optimistic. Thus, the
rate of energy increase will not sustain gross national
product growth rates of 4, 5 or 6 percent.
Beyond that, we forcast that in 1980 the OPEC countries
will cream something like $127 billion off the top of inter-
national trade. That may not seem like a great deal until
you compare it to the 1978 figure which was just $3 billion.
When OPEC increased the price of oil 3 th times in 1974, the
OPEC countries generated an enormous cash surplus. But
by 1978 that surplus was worn down to $3 billion by two
devices. One, they bought more from us. And, two, inflation
ate into the rest of it. It has now risen to $127 billion
because within the last 15 months the price of oil has gone
up by 125 percent. There are clear signs that OPEC is not
going to let us eat the $127 billion away by inflation in the
future. We have a different challenge ahead of us.
Thirdly, in the 1980s the mechanisms for handling
military, political, and economic problems are going to
work differently. Our NATO and Japanese allies have
sound political structures, are prosperous economically, and
they clearly want to have a larger voice in the councils of our
alliances. The lesser developed, raw material producing
countries will be much more intent in the '80s on producing
what is in their best interests, what suits their economies and
needs, rather than ours. This does not mean that our
alliances need weaken nor that there need be strained
relations with the lesser developed countries. Instead, it
means that we will have to be more astute and more
foresighted. To do that we will need better information,
better intelligence upon which to base this country's foreign
policy decisions.
This brings me back to the issue of the First Amendment.
Can we have better intelligence, which by its very nature
must be obtained and kept in secret, without infringing upon
the rights assured us all in the Constitution? I believe so. But
I believe, first, it will require changes in the way we in the in-
telligence community go about our business. Beyond that, it
will require new legislative support to enable us to function
effectively yet guarantee all Constitutional provisions are
respected.
Let me start by describing a few of the changes we have
already made in how we go about doing our business. We
are scrupulous today in avoiding any activity which might
intrude on the privacy of an American, or which may con-
fuse the intelligence gathering with law enforcement. For
example, if we are tracing a flow of narcotics in a foreign
country, and a foreign narcotics trafficker becomes involved
with an American, either illegally or legally, we must drop
the case.
An actual case a short time ago occurred during a
rebellion in a lesser developed country in which we were very
interested. We were having considerable difficulty keeping
track of what was happening. The best information came
from ham radio transmissions of an American missionary in
the country. The question we had to answer before monitor-
ing the missionary's transmissions was, "Does this qualify
as illegal electronic surveillance of an American citizen?"
Our lawyers debated the points of law involved and finally
decided that as long as the missionary was using a ham
radio band and method of transmission, which in essence is
public, it would be legal to listen. But, if he shifted his
technique or his frequency in an effort to disguise his broad-
cast - as he well might given the risk under which he was
operating - then we would have to consider that a desire
for privacy and we would have to stop listening.
My legal staff and that of the Attorney General very often
must consider fundamental issues of Constitutional law like
this in the midst of operational crises. The Attorney
General's people have been very cooperative with us in com-
ing to quick resolutions of these issues so we could proceed,
nonetheless, the obvious result of these kinds of rules and
procedures is that the speed and flexibility with which we
can respond to crisis situations is reduced. You can imagine
the dampening effect it can have on all intelligence work.
Today our operators in the field are almost forced to drop
any operation which could involve an American citizen. In
most instances, we can adapt reasonably well. However,
because the issues are often complex and because my people
in the field are generally not lawyers, it can have the effect
of inducing over-caution by the individual on-scene. The
more complex the legal standards with which intelligence of-
ficers must comply, the more the chance is that their ini-
tiative will be dulled and the more their flexibility in crisis
situations which might involve the lives or the property of
American citizens is reduced. Yet, let me add that I per-
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sonally feel that the costs of insuring the rights of the
American citizen under the Constitution are bearable and
are worth it to us as a. nation.
There is, however, another cost, a cost that has arisen out
of recent years of focus by the public on the intelligence
process, which is neither bearable nor worth it to our coun-
try. This is the cost which comes from the reduction in our
ability to guard national secrets.
Today, there is much talk about unleashing the CIA.
Unleashing is not what we need, not what we want, not what
we are asking the Congress to legislate for us. What we do
seek, because our effectiveness is dependent upon it, is to be
able to protect legitimate secrets better; secrets relating to
how we collect information; who our sources are; and what
the information actually is. In four specific areas, we need
legislative help. Unfortunately, much of the reporting on
these requests for legislation has misunderstood their intent.
I would like to take a :minute on each to describe what we
are seeking and why.
The first concerns covert action. As you know, covert ac-
tion is not really an intelligence function. It is any effort by
the United States to influence the course of events in a
foreign country without the origin of that influence being
identifiable. Covert action is a dirty word to some, and less
than three years ago some people were trying to legislate
covert action out of existence. In recent months, the
American public and the American press have asked more
and more "Isn't there something we can do to exert our
power, our influence, overseas short of military action?"
Yes, there is. Covert action has limitations, but it does have
a proper place in our diplomatic portfolio between talking
and fighting.
In 1974, Congress passed the Hughes-Ryan Amendment
which requires that each time the President approves a
covert action, I must notify up to eight committees of the
Congress. I assure you it is very difficult to recruit
volunteers to undertake a high risk covert operation if I
have to admit to them that I am going up on Capitol Hill to
tell 200 people about it.. That is not to say the Congress is
not trustworthy. I do not want to tell 200 people at the CIA
about it either if they do not really need to know about it.
I understand and appreciate why the Congress passed the
Hughes-Ryan Amendment in 1974. It was an initial effort
to put additional controls on this activity, which may have
been necessary and desirable at that time. But since then a
rigorous set of oversight procedures has been instituted in
the executive and congressional branches. One of these
procedures provides for two committees of the Congress
dedicated exclusively to intelligence oversight. The
legislative relief which we seek would reduce our notifica-
tion of covert actions from eight to those two intelligence
oversight committees. This would still ensure adequate and
effective accountability, and, in point of fact, not even
reduce substantially the number of committees that know
because on the two intelligence committees there are
representatives of the other six committees. So if they have
a legitimate jurisdictional need to know about a covert ac-
tion activity, there will be members of their committees who
can so inform them. We think this is an important step in
bringing covert action back into the realm of the feasible
while clearly providing for its responsible use through ac-
countability.
The second area where we need relief relates to the
Freedom of Information Act. The problem here is much
more one of perception than of fact. Our foreign sources
and the foreign intelligence agencies with whom we
cooperate are not persuaded today that their identities and
the information they give us can be kept secret under the
Freedom of Information Act requirement.
In fact, it can. Under the existing law, we are not required
to release information about our sources through the
Freedom of Information Act process. But that protection is
continually being challenged in the courts. Our agents
wonder how much longer we will win those cases. As long as
they perceive that there is a risk to them from the Freedom
of Information Act if they work with us, our operations will
be hampered.
Again, we are not asking for a blanket exemption from
this act. We are asking for an exemption for information
pertaining to the identification of our sources so that we can
assure those sources that they are specifically exempt. This
need to protect sources is an area of intelligence work that
should be better understood by you of the media than by any
other audience.
The third area is a problem of very serious personal con-
cern to me. It concerns the deliberate, callous disclosure of
the identities of our people and our sources overseas. It is
unreasonable, in my opinion, to ask Americans to work for
the CIA abroad, especially in the lawless climate that exists
today, where our people's lives are frequently on the line by
the very nature of the work that they do, if we cannot at
least protect their identities from our enemies.
Yet we are in a position today where people like Philip
Agee, whose avowed purpose is to destroy the Central
Intelligence Agency, can do these things with impunity. You
will all recall the case of Richard Welch, our chief of station
in Athens in 1975, who was murdered shortly after the dis-
closure of his identity. You are all well aware that five weeks
ago in Jamaica one of Agee's cohorts, Louis Wolf, went on
television, showed the pictures of 15 employees of the
American Embassy, gave their names, their telephone
numbers, their addresses, their license plate numbers. Two
nights later the home of one of them was bombed and
machine-gunned. Two nights after that there was an abor-
tive attack on still another one.
It makes no sense to call for better intelligence on the one
hand and then not take steps to provide elemental protec-
tion to those who are going to collect that intelligence.
There are of course, the obvious risks to the officer and his
family. Beyond that there is the sacrifice of his career when
he is exposed. The nation, in turn, loses the substantial in-
vestment it has made in the individual. The replacement of
compromised officers sometimes takes us years and
sometimes it is impossible.
In addition, once an officer's identity is disclosed, our
adversaries can analyze his past associations and his places
of employment, uncovering still further his associates, his
sources, and others who help the United States at often
great personal risk.
I have watched the legislative history over the last six
months. It has been controversial and it will continue to be
so. The debate in the Senate has raged from one extreme to
the other. Early in the game, one senator said it was just not
possible to punish private citizens who had no direct or
authorized access to this classified information that was be-
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
ing disclosed. Recently another senator said that some risk
to our civil rights were acceptable because "it is not possible
to have an ongoing intelligence capability and a totality of
civil rights protection."
The consensus legislation that is now drafted is
somewhere in between. It is very narrowly crafted so as not
to infringe upon the fundamental freedoms of speech and of
the press that we all support. It would first apply to persons
who have had authorized access to classified information
and then disclose it. But it would also apply to anyone who
discloses protected intelligence identities if he or she does so
as part of a deliberate effort to impair or impede our foreign
intelligence activities. Given the impetus of this recent
Jamaican incident, there seems to be a good prospect that
this relief legislation will pass in this session of the Congress.
I hope so.
Lastly, we need legislative relief against "gray mail."
Gray mail refers to a situation in which a defendant or his
attorney demands that the government produce all manner
of perhaps irrelevant classified information in the course of
a prosecution in the hope of dissuading prosecution. Unfor-
tunately, there have been cases when such disclosure would
have damaged the United States more than would have been
a withdrawal of the prosecution, and we have had to
withdraw. A gray mail bill has been proposed by the At-
torney General and passed by the Senate. Hopefully, it will
pass the House within the month.
In brief, this bill would enable the government to prevent
the unnecessary disclosure of classified information during
discovery or trial by allowing the prosecution to obtain pre-
trial rulings on issues of relevance and by providing the
court with alternatives to dropping the case in the event that
the government still decides that it could not, for reasons of
national security, adduce this necessary classified informa-
tion. The alternatives, for instance, might include the judge
stipulating that certain facts are true, or dismissing a par-
ticular count, or excluding the testimony of a particular
witness. All in all, we simply ask while protecting the rights
of the accused for some way to provide classified informa-
tion to the court in a manner that will not lead to its general
disclosure if that would harm the United States.
Let me sum up by saying that you in the media and we in
the intelligence profession, as Americans, face a common
dilemma. On the one hand, we are all striving for an ideal:
an open society, one in which government processes are as
open as possible. On the other, every responsible American
recognizes the necessity for an essentially secret intelligence
service to prevent our country from being surprised or
threatened from without. The issue is can the ideal and the
necessity coexist?
I believe they can. I believe they must. The issue is not the
leashing or unleashing of the Central Intelligence Agency.
The issue is whether we can equip our intelligence agencies
with both the legal and the practical tools to do their job
effectively in a changing world environment and, at the
same time, require them to adhere to the legal and ethical
standards on which our country was built.
I believe we can achieve both objectives. The institution of
rigorous oversight procedures in both the executive and con-
gressional branches of our government over the past three
years has given the American citizen reason to be confident
that American intelligence activities are in consonance with
national policy and that they are accountable to the people
through their elected representatives. At the same time, with
the growing understanding and support of the American
public, and with the passage by the Congress of the legal
remedies I have described, I believe that we can continue to
be the most effective intelligence service in the world.
We are moving surely, steadily in the right direction. But
we are not yet there. I ask you who are in a profession not at
all dissimilar from ours for your understanding and your
support, not just support for enactment of these legislative
remedies, but your support for the maintenance by this
country of a strong, intelligence capability so that we can
learn about and interpret events in other countries. We will
very much need to be able to do that throughout the
precarious decade that lies ahead.
Thank you very much.
Conservation in the 1980's
BUILDING A FIRM FOUNDATION
By WILLIAM K. REILLY, President, The Conservation Foundation
Delivered at the Town Hall of California, Los Angeles, California, July 8, 1980
T HE 1970's were years of steady progress in con-
servation and environmental improvement. The air
and waters of many of the industrial cities have not
been so clean before in this century. The "environmental
decade" of the '70's compiled a remarkable record of laws
passed, agencies created and awareness of natural values
heightened and translated into action.
As the 1980's begin amidst gloomy and dispiriting news
about the economy, about Iran and Afghanistan, it is worth
remembering that this society achieved a very substantial
success during the past 10 years. Conservationists reflect-
ing on this success - on their success in the 1970's - are
anxiously wondering whether past gains will hold against
continued economic buffeting in the years ahead.
Conservationists need to recognize that the heady days of
the early 1970's are gone, and with them some oppor-
tunities that will not soon recur. But the years ahead bring
their own, quite different opportunities for effective action.
What are those opportunities? How can conservation
priorities and strategies best be adapted to respond to the
society's new preoccupations? I see three critical priorities
for the years ahead.
First, the new decade presents an opportunity for the con-
servation community to return to its historical concern
about resources, and to clarify the central role of resource
conservation to the long-term health of the society. Never
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
before has resource conservation been so essential to the special destiny will be its natural resources. Conservation of
national well-being. agricultural resources was not a success story during the
Energy conservation presents the highest immediate 1970's. We must make it one, along with conservation of
priority. People concerned about inflation and productivity, energy, during the 1980's.
about the strategic consequences of the country's Our most important legislative gains during the "en-
dependence on oil imports, about acid rain and CO2 buildup vironmental decade" were in pollution control and govern-
- people who may be able to agree on virtually nothing else ment processes such as environmental impact assessment.
- can reach consensus on the need to conserve energy. These present a second area of opportunity for the 1980's.
Unlike the situation during much of the 1970's, most At first glance, these opportunities may not look very
Americans have come to believe there really is a world oil great. A chorus of interests is calling for rollbacks of "unaf-
shortage. A significant number of Americans have begun to fordable," "wasteful," "ineffective," and "bureaucratic"
accommodate to higher oil prices by learning to use oil more environmental controls. Everything from the nation's com-
efficiently - by cutting down on unnecessary automobile petitive capacity in international trade to the national
driving, for example, or by designing more energy-efficient security is being asserted as a reason to weaken environmen-
homes. Others are replacing oil with gas or wood or coal. tal protections, particularly those of the Clean Air Act, the
During most of the years since the OPEC embargo of National Environmental Policy Act, and the Surface Min-
1973, there was no public consensus about the nature of the ing Control and Reclamation Act. Some people who never
U.S. energy problem and thus little support for dealing with did get the environmental message see the changing context
it effectively. The popular refusal to believe a fundamental of the '80's as an opportunity to undo its effects.
energy problem existed made political leadership in the In practice, however, wholesale rollback of environmen-
energy field very risky. Few public officials dared to take the tal protections will rarely, if ever, be the issue. Thanks to ef-
chance. Now, as public opinion has begun to shift, the key forts in the 1970's, most of the needed laws are in place.
pieces of a realistic energy policy are finally falling into Public awareness of environmental needs is so well.
place. It is reassuring that the United States is now moving established that massive retreat seems sure to remain
- in industry, automobile manufacture, home building, and politically unthinkable.
energy pricing - to use less oil. The mix of public policies Our task in dealin with
d thgovernmentas
necessary to achieve energy conservation opportunities,
processes in the 1980g pollution and
promote shifts away from oil, and ultimately, stimulate in- s will be to consolidate past gains
novations in solar and renewable energy technologies will - to secure effective performance even from programs that
require constant analysis, adaptation, and explanation. have thus far cost more and achieved less than we had
ho d S
e
`- -__---' " The increasing complexity of environmental
agricultural resources. Last year, 61 percent of the food problems
grains moving across international borders originated in the Fill also make matters more difficult. A number of en-
United States. What Saudi Arabia contributes to the vironmental solutions devised during the past several years
world's energy needs, the U.S. contributes to the world's followed a pattern: they identified a single problem,
food supplies. And, like Saudi Arabia's oil, America's food- developed a control process and a standard for a pollutant
producing capacity is being depleted. or set of pollutants, and proceeded to tighten the standard
Almost half the topsoil in some of the most productive over time. Mountains of sludge now accumulating from
middlewestern farmland has washed away. Fence-to-fence water pollution control plants were not anticipated nor was
cultivation, impaction by heavy equipment, cultivation of their disposal planned for when the water pollution program
marginal lands, elimination of shelterbelts, urbanization - began. Now, however, these wastes rich in cadmium and
all are taking a heavy toll of America's uniquely productive other toxic materials present a new set of problems, and no
endowment of soils. disposal option is ideal - not burning, not depositing on
The various threats to U.S. agriculture are not limited to crops, not dumping at sea. Solutions will involve other
soil loss but include: rising energy costs, which translate into media than water and they will entail trade-offs. In the years
bigger bills for grain drying, irrigation, fertilizers, and truck ahead, society will have to deal with problems such as these
and tractor fuels; monocultures; too few seed stocks to sus- in their entirety, and reconcile many interests and objectives
tain the huge corn and wheat surpluses in the event of a viral in resolving them.
or bacterial attack on one or more seed variants; and, in Consolidating environmental gains in the new context of
growing areas of the South, Southwest, and West, the the '80's requires attention to the details of how programs
steady depletion of groundwater for irrigation. are working, how they can be made to work better, and how
A billion people will be born in the next 11 years. A great they can be refined to accommodate multiple national goals.
many of them have a crucial stake in American food Let me suggest the kinds of things conservationists can and
production, one third of which is for export. A great many should do:
of them also have a stake in U.S. energy conservation, es- -We can explore and publicize the benefits of en-
sential to moderate world oil use. Wise use of American vironmental programs. Cost-benefit analyses often place ex-
resources is a matter of utmost national and international cessive emphasis on the costs of pollution control because
interest, a moral imperative worthy of the best efforts of costs are relatively easy to quantify:, the price of stack
conservationists and everybody else. scrubbers or of preparing environmental impact statements,
As world population grows and as other nations continue for example. But the benefits - many of which are intangi-
to acquire equivalent levels of technology, skills, and ble - are more difficult to assess. These benefits must not
capital, what distinguishes this nation and confers upon it a be overlooked, for they are real and no calculus of costs is
p
ecu, ng per ormance will not be made easier by the
Another critical resource priority in the years ahead is to
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
VITAL SPEECHES OF THE DAY
complete without them, as we must constantly remind the
business leadership, the Congress, and the public.
-We can give particular emphasis to health-related
benefits. Dirty air has a direct effect on the health of
thousands, perhaps millions of Americans. Even during the
most severe economic troubles, health concerns are likely to
remain high among public priorities.
-On the cost side of the balance, we can assure that costs
are not exaggerated. Were jobs really lost because of en-
vironmental controls - or were the controls a convenient
scapegoat? Did pollution controls force the plant to move -
or was its equipment obsolete and uncompetitive?
-Finally, we can work to assure that environmental
programs are effectively and efficiently implemented. The
widespread complaints of regulatory overlap, complexity,
and uncertainty, for example, reflect real problems with real
consequences. We can help to see that those problems are
addressed in ways that effectively reconcile conflicting ob-
jectives.
Tasks such as these call for a style different from that of a
decade ago, quite different from the media stereotype of an
environmentalist. Four years ago, when I first reported the
need for attention to consensus-building efforts in quiet
cooperation with other sectors of society, including business
and labor leaders, I wondered whether that condemned The
Conservation Foundation to minority status within the con-
servation movement. Now I don't think so. A message that
once seemed out of step is, I think, increasingly accepted.
Cooperative research and communications and consensus
building, while hardly the only tools being used by conser-
vationists, have a critical role acknowledged by many. The
tasks of consolidation entail different needs, require
different skills and styles, than the tasks of legislative enact-
ment.
Many Americans are discouraged about the ability of
governments - particularly the federal government - to
satisfy public needs. Too many federal programs seem
costly and ineffective. Too many public officials have
proven untrustworthy. The call is out for less government
spending, less government intervention in the lives of
citizens.
This public mood has already led to a lessening of federal
willingness to address environmental problems in new and
imaginative ways. Conservationists should not infer that en-
vironmental problems have therefore become unsolvable.
Rather, we should respond by focusing more of our atten-
tion on state and local and private action. This is a third
priority for the decade.
Many of the problems that we face in the 1980's are most
amenable to small-scale, fine-grained solutions. This is par-
ticularly true of many resource management problems.
Energy waste, groundwater pollution and depletion,
piecemeal urbanization of prime farmland, and degradation
of coastal lands and waters represent an accumulation of
thousands of small decisions. I don't question the usefulness
of federal incentives and requirements in addressing some of
these issues. It is clear, however, that federal actions would
be insufficient even in the best of times. State and local and
private initiatives and experimentation are essential to ob-
tain finely tuned solutions to the diverse resource manage-
ment needs of a very big country.
Emphasis on state and local and private initiatives can
also help the process of consensus building that is needed to
consolidate the gains of the 1970's. Too many of our detrac-
tors - and even a few of us - have come to believe that en-
vironmental action comes only after an adversary process
has produced legislative or judicial decisions that compel
federal action. It has become too easy to focus attention on
the compulsion instead of on environmental needs. Focusing
our attention on state and local and private action can help
to create the support necessary to solve environmental
problems that are seen to be real, near at hand, and suscepti-
ble of resolution by familiar and accessible people and in-
stitutions.
Any reform movement faces risks when it tries to follow
up early successes. The environmental movement that was
the cutting edge in the 1970's could become dull in the
1980's - pursuing strategies that no longer work, failing to
address new problems. None of this will happen, however, if
we pursue the important opportunities that are opening
before us. Building upon success, we are entering the 1980's
well positioned to espouse the enduring message of conser-
vation to a society that has rarely if ever been more in need
of learning it.
Professionalism and the Corporate Bar
VALUE-NEUTRAL DECISION MAKING
By HAROLD M. WILLIAMS, Chairman, Securities and Exchange Commission
Delivered to the American Bar Association Section of Corporation, Banking and Business Law Annual Meeting Program,
Honolulu, Hawaii, August 5, 1980
ERIODS of major economic and social difficulties
-pprecipitate uniquely American reexaminations of
our institutions. In the tradition of Yankee ingenuity
and pragmatism, the public wants to know what is not
working correctly and how to make it right. Thus, for exam-
ple, the Great Depression led to a fundamental restructur-
ing of society under The New Deal. Today, as we struggle
with the highest inflation rates of this century and brace for
the possibility of the most severe unemployment in five de-
cades, it is not surprising that we are also entering a new
period of societal introspection.
Yet, even if we are on the brink of a social watershed
equal in magnitude to the 1930's, there is an important
difference. More and more, we read of charges that govern-
ment is itself the problem and hear that the regulatory
solutions to past crises have grown into the proximate
causes of this one. That is, remedies enacted to cure discrete
economic and social misallocations and injustices have, over
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 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
HAROLD M. WILLIAMS
759
the years, subtly taken on an independent existence not portunities for the always limited to their origins. As a result, many feel that sense of responsibility lbecome preempted by
proch tenmposition
we are, as a nation, economically over-regulated and of regulation. We are presented with a process in which
socially over-legalistic. regulation diminishes business's sense of accountability,
At least, this latter perception is certainly accurate. which in turn, precipitates even greater regulation to fill that
America has become the most legalistic society on earth. accountability vacuum - an unending downward cycle
We have three times as many lawyers per capita as Great which could culminate, without deliberation or conscious
Britain and twenty times as many as Japan. And, probably decision, in the destruction of the private enterprise system
for reasons not unrelated to this explosion in the legal pop- as we know it.
ulation, we are also producing more laws and more liti a-To break this cycle, I believe t greater be
tion. But, it would be a mistake to assume that a nation with placed on nonregulatory ways tone hance the processsa d
more laws is, therefore, a more moral or even a more pleas- credibility of corporate decisionmaking. To my mind, the
ant society. As a Royal Commission reviewing the British only practical alternative available to defend the private
legal profession recently concluded, enterprise system is to make the system, as designed, work
"A society in which all human and social problems as effectively and credibly as we can, and with a greater
were regarded as apt for a legal remedy or susceptible sense of accountability for its actions. Over the last three
to legal procedures would not be one in which we years, I have spoken on various aspects of this theme. My
would find it agreeable to live." On a more basic point can be easily summarized: If the private sector is
philosophical plane, Alexander Solzhenitsyn - in his to extract itself from the deepening morass of regulation,
provocative talk several years ago at Harvard - each of the many actors on the corporate scene must per-
warned that "[w]henever the tissue of life is woven of form his function responsibly and effectively. Much like a
legalistic relations, there is an atmosphere of moral circuit board, each element has a unique function to dis-
mediocrity." charge, and must be fully operational and effective for the
While these issues should concern all Americans, they system to work. Despite the demonstrated ineffectiveness of
have special significance to those in this room - the much regulatory authority, we cannot expect a structural
members of the corporate bar. Nowhere is our society more change in the role of regulation without the initiative on the
legalistic than in regulating our economic life. Ironically, part of the private sector to ameliorate the role of regulation
however, society is simultaneously becoming more - rather by assuming a greater burden of responsibility. That in-
than less - questioning of the social benefits of the exercise cludes the corporate lawyer, and it is his role which I want
of private economic power. Indeed, that skepticism may be to consider with you today.
a manifestation of the moral mediocrity which Solzhenitsyn It may seem, at first blush, somewhat ironic that one in-
described. When the private sector loses final decision- gredient in my antidote for the ills of an overly legalistic
making power over important areas of its activity in favor of society is an enhanced role for the corporate bar. The role
a superimposed regulatory scheme, it inevitably also begins that I envision is, however, not that of the lawyer as techni-
to lose its economic bearings and discipline and - even cian, but that of the lawyer as counsellor. The species of cor-
more importantly - its sense of moral responsibility
When
.
business is required to operate in a regulatory environment
- and, when it is concerned that any misstep which it may
make will be used to justify even more regulation -
business is compelled to become more and more attentive to
its regulators and, consequently, becomes less rather than
more responsive to the needs and expectations of the market
and the public. Correspondingly, business's unique intrepre-
neurial ability to create and innovate - the ultimate justi-
fication for an independent private sector - tends to
atrophy. This partial eclipse of the market discipline does
not, however, mean that business becomes more sensitive to
the other needs and expectations of the society or that it
becomes more socially responsible. Indeed, in a regulatory
environment, business tends, over time, to view the govern-
ment as the arbiter of acceptable behavior and, therefore, to
presume that any course of action which is not prohibited by
the government is, consequently, an acceptable alternative.
Business, in effect, relinquishes its responsibility to establish
its own parameters for proper business conduct - and
leaves the government to fill the vacuum.
Therein lies our dilemma. On one hand, regulation tends
to diminish the regulatee's initiative and sense of responsi-
bility for the consequences of its conduct - a result which,
in turn, leads some to advocate still stricter control to satisfy
society's expectation that the regulated power group or in-
stitution will conduct itself in a manner which contributes to
- and does not frustrate - a fair and orderly society. Op-
porate lawyer who can contribute to solvin
the dil
g
emma I
have outlined is not merely an expert on the law. On an in-
dividual level, he is an independent professional whose ad-
vice should encompass not only his legal talents, but the full
array of his experience and judgment. On an organizational
level, the bar, as an entity, must support him by defining the
relationship between the lawyer and his corporate client in a
fashion which fosters his fullest possible contribution to the
service of that client. This afternoon, I want to address both
of these areas.
THE LA W AS A PROFESSION
A Spirit of Public Service
At the outset, I would like to explore the concept of
professionalism. This is an era in which our most
prestigeous and influential corporate practitioners fre-
quently serve in law firms which are themselves interstate
businesses with employees numbering in the hundreds and
which command hourly fees rivaling the daily income of
their counterparts in more prosaic endeavors. As Justice
Harlan Fisk Stone, previously a partner in two Wall Street
firms, explained:
"The successful lawyer of our day more often than not
is the proprietor or general manager of a new type of
factory. More and more he must look for his rewards
to the material satisfaction derived from profit as
from a successfully conducted business, rather than to
the intangible and indubitably more durable satisfac-
tions which are to be found in a professional service
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VITAL SPEECHES OF THE DAY
-60
more consciously directed toward the advancement of trappings of commercial ventures, including mass advertis-
the public interest.... At its best this changed system ing, impersonal merchandising, and associations perceived
has brought
and technical skill. At against proposals cwhich might simpwhich inge lobby there orx
and ought a superb theperb command of
proficiency
loyalty
its worst it has made otic made the learned profession of an clients' short-term interests. Not surprisingly, the public's
earlier day the obsequious servant of business, and response has been to reduce its deference to the professions
tainted it with the morals and manners of the market- while government has enhanced its interest in their ac-
place in its most anti-social manifestations." tivities. The latter is especially significant. After all, govern-
Mr. Justice Stone's observations have become in- ment regulation has been the classic social response to
creasingly appropriate. In this milieu, it is important that perceived business unaccountability. rofessio we remind ourselves what is about Pound observed survival than the pub) c's perception oft ,And, pin an a anof
which makes it a profession. Dean Roscoe
that a profession is characterized by "three essential ideas widespread suspicion of all institutions, the professions are e
professio
s wish to of pc spirit ideally supersedes and da public sirit." Ts element especially porly es the rochial interests of enhance their status andlregain some of the lostnmeasure of
the spidealllly pa -
moral
the profession's individual ual practitioners. Or, in Dean public independence - they want to
Pound's s words: rds:
"The gaining of a livelihood is not a professional con- force which has traditionally marked them as callings
law, that
sideration. Indeed, the professional spirit of public set- dedicated toa public
he service. rmulat on of a code s of professional
ns
p
i
v
ce GVlluuaaa.) --- This ideal historically has been the justification for the
public's reliance on professional self-regulation. Groups -
such as lawyers and physicians - which hold themselves ac-
countable to altruistic considerations have been thought to
be worthy of being entrusted with the responsibilities of
regulating their own members. Further, the decisions of the
professions have traditionally been received with deference,
since the public's interests were assumed to be with the
profession.
Increasingly over the past decade, however, our society
has witnessed the crumbling of much of the sense of mutual
trust which sustains this kind of public faith in private in-
stitutions. With respect to the professions, there are those
who would say that no sense of public spirit has ever existed
at all - that it was merely a myth fashioned to rationalize a
lucrative monopoly power and to sustain the calculated
mystification and arcane terminology necessary to exclude
the outsider. These critics would agree with George Bernard
Shaw who argued that "every profession is a conspiracy
against the laity." Others would suggest that, while a spirit
of public service might still stand as a professional ideal,
in practice it runs a poor second to more material
considerations.
In fact, it is likely that a tension has always existed
between the ideals of professionalism and the realities of
i
f
on,
ess
daily practice. For example, speaking of a sister pro
f current concern to the corporate bar - the
i
ssue o
Oliver Wendell Holmes, Sr., the father of the great jurist
and himself a physician, observed that "the truth is that mission's administration of Rule 2(e) of its Rules of Prac-aware to outside professedly founded on observation, is
authorizes rule, as most of you are
on to d sc plinenpr essionals who
to outside influences, political, religious, philosophical, practice before it. The Commission has an important in-
[and] imaginative as is the barometer to the changes of at- p of this prac-
oreuneth cal. Asgory
the Second
erosion o f p ofesio From 1 einoe the occasionallns ance t t oners are not t unhat
ofoco professionalism
of compromise or of of out-and-out misconduct. The more Circuit recognized in Comm ssion sustaining the
must rely heavily on
serious danger is that practitioners themselves will reject the [T]he
ideals of public service or dismiss them as naive or archaic. both the accounting and legal professions to perform
For absent meaningful ideals, a profession is no more than their tasks diligently and responsibly. Breaches of
another typical trade association dedicated to protecting the professional responsibility jeopardize the achievement
parochial interests of its members, defined in such an un- of the securities laws and can inflict great damage on
offensive way as to attract the largest number. public investors."
Regulation of Practice The question, then, is to what degree must the Commis-
on s primary
such as
to what extent ant defer to other institutions interests
taken divested
Indeed, more and and athe nd professions
and have
them msellves of their ideals
,
ea
1
conduct which meets the public's reasonable expectations of
behavior for lawyers. Appropriately, the American Bar
Association is presently engaged in that task. I applaud the
ABA for accepting that challenge and I admire the thought-
ful and conscientious efforts of those primarily responsible
for giving birth to the new Code - the members of the
Commission on Evaluation of Professional Standards. The
undertaking on which they are embarked presents a special
opportunity for the bar to reaffirm its tradition of pro-
fessionalism, as well as its commitment to meeting the con-
temporary public's reasonable expectations. I would urge
that the bar's deliberations on the Code be conducted in this
context and that the tempering of the proposed Code from
the original proposal be reviewed from the perspective of
professional ideals and of the message it communicates to
the larger society.
But, even the most ideal Code is meaningless without the
will to enforce it. Yet, critics point to a gap between the
bar's professed obligations to the public and its tendency to
protect fellow practitioners - and, indeed, the profession
itself - from any critical light. This phenomenon seems to
reflect a basic reluctance among self-regulatory groups to
subject themselves to standards higher than the existing
norm of behavior. The result, however, is a reduction in the
deference accorded the bar by other institutions.
n
i
t
i
o a
t
ng
Let me make this point more concrete by relat
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
the organized bar - with the expectation that meaningful
standards, even if not necessarily identical to those which
the Commission would apply, will be vigorously enforced.
In my opinion, if unqualified and unethical lawyers are sub-
ject to such standards enforced by professional disciplinary
bodies, then, absent unusual circumstances, Rule 2(e) would
not need to be applied to lawyers. Conversely, however, if
professional self-regulation is lax, our role must expand.
Even under an ideal Code, enforced by means of an ideal
disciplinary mechanism, disagreements will necessarily arise
concerning particular examples of attorney conduct, and I
would not want my remarks today to be construed as
relating to any particular case. Rather, my point is that the
most fruitful issue for examination by this Association is not
whether the Commission should be deprived of its authority
under Rule 2(e). The question, instead, is whether the bar's
enforced standards of competence and integrity are suf-
ficient to protect against lawyer abuse of those components
of the public interest embodied in the federal securities laws.
If they are not, society must look to other institutions - in-
cluding the Commission - to fill that role.
But, the exalting spirits and traditions which are the true
mark of a profession can only arise from within the bar.
They can never be imposed from without and still have a
profession survive. Imposition from the outside must in-
evitably be destructive of the profession. While the practice
of law could be regulated as a business, the profession of law
cannot be. Professional aspirations must be generated inter-
nally - from those loving critics who know the bar's ten-
sions, its frailties, its capabilities, and its limitations, but
who cherish the profession and can offer their fellow prac-
titioners a new vision. In an earlier era, Jeremy Bentham
played this role for the English law, as did Dr. Abraham
Flexner for modern medical education. As their examples
demonstrate, individual minds and consciences from within
a profession - and only that kind of internal leadership -
can establish and maintain the sense of ethics which
separates a profession from a business.
THE CORPORATE LA WYER
The Lawyer As Counsel
It is this concept of professionalism that the corporate
lawyer must bring to his client counselling. Corporate
lawyers have become an indispensible participant in the
system of persons, groups and occupations whose inter-
relationships comprise the corporate environment. Each
component of that environment has important roles and
responsibilities. Management's primary mission is to ensure
that the corporation generates adequate profits over time by
satisfying customers' needs with goods and services at an at-
tractive level of quality and price. Directors must bring to
management the best informed and most objective available
advice, perspective, support, guidance, and, when necessary,
discipline. Auditors assure the credibility of the financial in-
formation upon which those external to the corporate struc-
ture judge the economic results of management's
stewardship. And, lawyers - along with their more mun-
dane responsibilities - must be the architects of the ac-
countability processes which provide the corporate structure
with the discipline necessary for effective decisionmaking
and which legitimize the corporation's power and impact in
society.
In a sense, this means that the corporate lawyer has an
obligation to protect the corporation as a societal institu-
tion. These obligations transcend the narrow interests of
particular clients. But that concept is hardly unique. The
bar's professional ethics already recognize that a lawyer -
by virtue of his special office and skills - has respon-
sibilities broader than loyalty to his client. For example, a
lawyer acting in the traditional role of trial advocate has a
duty to disclose decisions in the jurisdiction adverse to his
client's immediate, personal interests in the case. This re-
quirement, obviously, recognizes that, as officers of the
court, lawyers have an overriding obligation to maintain the
integrity of judicial institutions. Similarly, the lawyer can-
not counsel his client in the commission of a crime - again,
because society recognizes that it has certain claims on legal
officers which are more potent than those of the client.
In contemporary times, the role of the lawyer has, of
course, expanded beyond the traditional confines of the
courtroom, and, particularly in the corporate world, most
lawyers function as advisers rather than as advocates. In my
view, corporate lawyers must adjust their concept of their
professional obligations to match society's evolving concep-
tion of the responsibilities of the institutions which the cor-
porate bar serves, the rights of those impacted by such in-
stitutions, and the needs of the larger society.
There is, however, a disturbing trend among some cor-
porate lawyers to move in the opposite direction - to see
themselves as value-neutral technicians. True, ethical dilem-
mas can be avoided if one's job is viewed as profit-
maximizing or as uncritically representing - and not ques-
tioning or influencing - the corporate client's interests so
long as they are not illegal. In many ways, eliminating these
tensions and professional responsibilities would be a com-
fortable and less contentious alternative. But, indifference
to broader considerations would not be professional.
Similarly, it would not serve the client well. A counsel does
a disservice when, in effect, he limits his advice to whether
the law forbids particular acts or to an assessment of the
legal exposure, and does not share with the client his view of
the possible ramifications of the various alternatives to the
short- and long-term interests of the corporation and the
private enterprise system. He preempts the opportunity for
his client to make the fullest possible judgment by not
providing the full range of information and advice of which
he is capable and on which the client can make the most in-
formed choice. To correct this tendency, the bar must place
greater emphasis on the lawyer's role as an independent
professional - particularly, on his responsibility to uphold
the integrity of his profession. In the balance of my
remarks, I want to apply this observation to two important
areas where the proposed rules do not fully recognize the
professional responsibilities of lawyers who counsel the
most important and pivotal private sector institution in
American society - the corporation.
Communicating With The Client
One of the cardinal attributes of the attorney-client rela-
tionship is free and frank communication. In the corporate
context, that should entail an obligation to communicate to
the corporation - meaning its officers or, if necessary, its
board - if he or she is aware that the corporation is em-
barked on a course of conduct which, while arguably lawful,
may be questionable and is of such significance that the cor-
poration's interests - not limited to legal liability - may
be materially affected.
I doubt that explicit recognition of this duty would mean
 Approved For Release 2007/03/27: CIA-RDP99-00498R000200140001-7
- as some have suggested - that the attorney would be
isolated from candid discussion or full information because
of management's concern that the lawyer would be a con-
duit of the board. But, to the extent that it does, it is a
responsibility the client must assume. This is not a basis for
compromising the lawyer's appropriate ethical standards.
Further, we must recognize that management itself may
well have obligations to report to the board in similar cir-
cumstances. And, if management is not inclined to be open
with its board or would choose not to consult counsel rather
than risk counsel's going to the board, counsel may well be
on notice of larger potential problems with his client's can-
dor and integrity. And, finally, all who deal with an attorney
must understand that a lawyer should not be used as a value-
neutral technician and that a necessary adjunct to his
technical skills is sensitivity to ethical considerations. In my
opinion, the prestige that such integrity engenders will
enhance - rather than diminish - the role of the lawyer as
a counsellor.
My concerns in this area go far beyond the possibility that
a corporation may risk legal penalties or serious damage to
its reputation. More significant in the long-run to the
American economic system is the fact that, in some
situations, the corporate conduct is incompatible with the
continuation of the corporate system as we know it. And, by
acquiescence, the lawyer becomes a party to its further ero-
sion. It would not be consistent with the bar's professional
obligation if it insulates attorneys from their responsibility
to prevent situations which could contribute to the erosion
of the corporate system which they serve.
But, I do not take comfort from the fact that the pro-
posed Model Code would permit the attorney to refer par-
ticular matters to higher client authority, including, if
necessary, the board of directors or a similar governing
body. That Code provision, taken together with the related
commentary, erects a number of additional hurdles which
would frustrate, rather than facilitate, the attorney's com-
munication with the client. Worse still, these hurdles may be
used by timorous corporate lawyers to justify standing
mute. For example, the commentary suggests that counsel
must have a "clear justification" before going over the head
of a corporate officer; in my judgment, the dictates of the at-
torney's own sense of professional responsibility ought to be
justification enough for bringing a matter to higher levels of
corporate authority. Further, the comments caution that
lawyers must be confident that the question is one of law
and not merely policy. To the extent that considerations of
matters which are not strictly legal, such as damage to
reputation or considerations with ethical overtones, would
be considered as a policy - rather than legal - concern, it
would seem that the proposed Code restricts the lawyer to
the role of legal technician, rather than encourages the cor-
porate attorney to exercise the broader sensitivity and judg-
ment which are the hallmark of a profession.
For these reasons, the proposed Code, in my view, lends
credence to the mistaken belief - ultimately corrosive of
the bar, the corporation and private enterprise itself - that
anything which is not illegal is within the realm of the ac-
ceptable. Yet, rarely is a complex legal matter not subject to
a counter-argument which the lawyer looking for excuses to
avoid confrontation could seize upon. Indeed, we are told
that, at times, it may be essential for counsel to obtain an in-
dependent legal opinion before taking independent action to
bring a matter to the attention of the board - a precondi-
tion which appears to undermine the ability of a corporate
superior to consider an issue which, a fortiori, is a close and
difficult one. Thus, while the Code's direction is right, it
does not travel far enough along the road in confirming the
corporate lawyer's role and responsibility. When the cor-
poration and the corporate community is pilloried for the
course of conduct - legal but otherwise totally insensitive
to the public or even the corporation's own interests over
time - and the participants are evaluated in the court of
public opinion, counsel and the bar will most assuredly not
be treated better because the thrust of the canons limited the
lawyer's responsibility to the legal issue involved.
The role of the profession must be to encourage and sup-
port its members in taking ethical actions. In the example I
referred to a few minutes earlier, the lawyer who must dis-
close an adverse decision to the court is supported in
resisting any client pressures to do otherwise because ethical
standards which every lawyer is bound to follow compel him
to do so. But, the lawyer acting to protect the institutional
integrity of a corporate client must face possible threats to
career, personal relationships, and other interests without
any similar justification or support from the bar - which
merely says, in essence, that he or she "may" or "may not"
take such actions. Given human nature, such a permissive
standard, in most cases, likely would mean no standard at
all. In fact, it may be worse than no standard at all - for it
can legitimize what ought to be unacceptable professional
conduct.
The Georgetown Petition
This lack of a meaningful standard would create a
vacuum which would not long continue. Other institutions
- particularly, government - with an interest in main-
taining the integrity of the corporate structure would find
themselves under increasing pressure to fill the void.
Some have already looked to the federal securities laws
for this purpose. While the Commission has long ap-
preciated the role of counsel in maintaining corporate ac-
countability, it has never determined generally to mandate
disclosure of relationships between a corporation and those
who serve it exclusively in a legal capacity. Yet, as many of
you know, the Commission recently was requested to con-
sider this issue in a rulemaking petition filed by the Institute
for Public Representation of the Georgetown University
Law Center. A majority of the commentators who opposed
the Institute's proposal cited this Association's considera-
tion of a revised code of professional conduct and suggested
that that effort would clarify the lawyer's responsibilities -
thereby eliminating any need for the Commission to act. It
is my personal hope that the bar will prove these commen-
tators correct. In any event, the Commission did determine
not to adopt the proposed rule, and, if the new Code fulfills
the expectations which many hold for it, it is unlikely that
we will again be compelled to deal with this area.
The Lawyer/Director
Another matter which should be of concern to the bar -
but which already is a subject for public disclosure under the
federal securities laws - is the lawyer who sits on his
client's board of directors. The Commission's survey of
1979 proxy statements - to be released shortly - reveals
that over 57 percent of all reporting companies have direc-
tors on their boards who also collect legal fees from them. It
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is clear that this dual role can foster a public perception of
conflict of interest, and may undermine the objectivity of
the advice the lawyer/director renders in either capacity.
The concern is both substantive and perceptual, and relates
to the corporate mechanism - the board of directors -
which must function with integrity and be trusted to do so,
as the key accountability mechanism if the system, as we
know it, is to survive. Ironically, while the Commission's
concern about this issue is sometimes cited as an example
of regulatory expansionism, I understand that, fifty years
ago, it was generally considered unprofessional for a lawyer
to sit on a client's board. But, once some lawyers began
routinely to serve on boards, other lawyers believed that
they no longer could afford to look exclusively to ethical
considerations.
The result is that this dual capacity must be meaningfully
addressed by the profession. Some have suggested that an
outright ban on dual service as a lawyer and a director
would be the most appropriate solution. Indeed, an eminent
corporate lawyer of an earlier generation, Robert Swaine, in
a speech to the New York Bar Association recommended an
ethical canon which would have forbidden a lawyer to
accept a place on a client's board in all circumstances.
Perhaps a degree of flexibility would be more appropriate,
but such flexibility, if it is to be permitted, must be subject
to the discipline of meaningful, credible standards which go
beyond vague reference to possible conflicts of interests or
compromise of independence. For example, the bar could
establish a general prohibition against dual service, but
allow an independent decisionmaker - such as approval by
an independent nominating committee, and surveillance by
an independent conflict of interests committee, of the com-
pany's directors - to make exceptions when warranted.
The proposed Code states that "it is often useful that the
lawyer serve both as counsel and as one of its directors."
Useful to whom? And, for what purpose? I doubt any
usefulness that cannot be effectively achieved in other ways.
The commentary would benefit from examples. It might
also express the necessity for counsel to have free and
regular access to the board of directors, including atten-
dance at board meetings.
In conclusion, this afternoon I have addressed some of the
issues which I believe will determine the extent to which the
bar - and especially the corporate bar - will remain com-
mitted to the ideals of professionalism. As the legal com-
munity considers these urgent matters, it must fully ap-
preciate that it will be, for all practical purposes, redefining
its perception of itself and determining its future role in
society. In doing so, it will also affect other institutions,
such as corporations, with which lawyers are closely
associated and which collectively comprise our private
enterprise system. We, and those who follow us, will be re-
quired to live with these decisions and, if they prove short-
sighted, to pay the price in terms of public confidence and
trust and, indeed, perhaps even in terms of a changed
system.
I recognize, of course, that these matters have been the
subject of much deliberation by many thoughtful attorneys.
My purpose today is not to be prescriptive, but to un-
derscore the challenges facing us and to discuss the conse-
quences, as I view them, of the alternatives. To my mind,
the fate of our major institutions - such as the bar and the
corporate sector - should not be determined by our merely
floating with the tide of events or by the cumulative impact
of group self-interests. I have no doubt that a healthy and
dynamic private enterprise system generating substantial
economic growth is essential to a free and open society.
Without it, personal freedoms and rights will not survive.
And, it is the future of that system and such a society with
which we must concern ourselves.
The World Is Very Different Now
LAWYERS MUST RESPOND TO THE FUTURE OF CHANGE
By ROBERT L. GELTZER, Senior Attorney, J. C. Penney Company and Co-chairman The National Conference on the
Role of the Lawyer in the 1980's
Delivered to the Virginia State Bar 42nd Annual Meeting, Virginia Beach, Virginia, June 21, 1980
I 'D like to thank Bill Slate and Welly Sanders
for inviting Elise and me to be with you. We
appreciate your good fellowship and hospitality. Right
now, I want to discuss with you the National Conference on
the Role of the Lawyers in the 1980's, to give you some of
my views on where our profession is going, what changes we
can expect and what you can do to participate in the future.
Whatever you decide to do, do something. Whatever it is, if
I can help, I would be delighted to do so.
This topic is of vital importance to each of us because no
profession is as wed to the past and will be as involved in the
future as is ours.
Centuries ago, the then all white male members of the
Legal Fraternity leisurely rode the circuits on horseback
between their wood-panelled offices furnished with roll top
desks, straight back chairs, pot bellied stoves, and brass
spittoons. They had no phones, no computer typewriters, no
westlaw, no lexis, and no nexis. They had no bar ex-
aminations or associations. To prepare for this talk, I
skimmed through portions of "The Revolutionary
Generation" by Evarts B. Greene. In discussing the social
relations of the colonies, it noted that lawyers were growing
in such number and influence as to be gaining on the clergy.
They were needed to protect the wealth of their clients
before English officials and English trained judges. Yet, few
were primarily lawyers. The book states: "In Virginia ...
plantation owners who had studied some law took fees for
legal advice, while only a few, like George Wythe, were full-
time practitioners. Even many judges were laymen ... [bar]
applicants appeared before an examining board, but ap-
parently with no prescribed period of study or appren-
ticeship." Interestingly, of 100 men whom Thomas Jeffer-
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son appointed to high office, 62 were lawyers - at least in
name. I say this because the book also reveals that, "Patrick
Henry was admitted after a few weeks' study."
The world is very different now and the practice of law is
very different now.
Just as when serving a client, we need to inquire, to
analyze, to synthesize, to compromise and to advise, we owe
ourselves and, in turn, our clients and society, no less. So, to
preview and to predict, to explore and to examine, the
National Conference on the Role of the Lawyers in the
1980's was convened in the first month of this new decade in
Chicago by the Young Lawyers Division and General Prac-
tice Section of the ABA.
With over 150 attendees from across the nation and
representing small firms and large, government and
business, young and seasoned, white and black, men and
women, past and future presidents of the American Bar,
noted Virginians as Timothy Boone, Bill Cremins, Frank
McDermott (who was a member of the joint task force that
put the Conference together), Welly Sanders, Bill Slate and
Jesse Wilson, the Conference was pleasantly peppered, or
perhaps I should say bombarded, with the multitude of
issues affecting the profession and society.
Today, the issues are lawyer advertising, pre-paid legal
services, legal clinics, law stores, minimum fee schedules,
de-lawyering, specialization, pro bono obligations, erosion
of attorney-client confidences, external regulation and many
more.
But what of tomorrow? It has been said, by noted futurist
Alvin Toffler, that much of what we, as attorneys, do "con-
sists of forecasting or predicting for a client what conse-
quences will flow from contemplated action."
In this way we are all futurists. But how do we make these
forecasts? How do we advise our clients? We predict based
on precedent. We advise as to the future by assimilating the
past. We are trained to quench society's thirst for stability
by drawing from the pool of past performance.
But, with as demanding a client as society, stability must
yield to change. The legal profession has served well as a
mirror of social, political and economic evolution and
revolution in our society. But change has come slowly to us
even though the practice has, of late, been changing at a
rapid pace.
This is attributable to the fact that in the last decade,
American society has experienced a legal explosion as
regulation, legislation and litigation increase at a geometric
pace and permeate all aspects of society and our
relationships.
While this trend continues, the world is very different
now. It appears that a new trend has begun which might be
termed a legal implosion. As the practice of law itself has
dramatically changed in recent years, the nature and func-
tion of the lawyer changed as well.
The organized bar should be proud of the appropriate and
introspective analyses it has made on several important
issues. But, our pride should not be based on any desire for
insulation from regulation or immunity from complaint.
Rather, it should be based on our belief that it is right and
just, and that we owe society a duty to make ourselves as
competent as we represent ourselves to be, and that we
choose only to embrace those of our calling who subscribe
to and attain the highest professional standards.
I believe that it is only those with such commitments who
VITAL SPEECHES OF THE DAY
can be entrusted with attempting to find balanced solutions
to problems nurtured by decades of neglect.
While pollution plagues us, energy needs must be met. As
they are met, we attorneys will have to deal with a multitude
of conflicts. Some of them will be familiar while many will
be brand new and involve intricate technologies and types of
disputes yet to be envisioned.
The problems that this world faces in terms of energy and
allocations of oil, water and sunlight will have to be dealt
with by brave new remedies in a world that is very different
now. On new battlefields, new truces must be reached
founded on established principles of law to prevent today's
battlefields from becoming tomorrow's graveyards.
To arrive at these truces with respect to our environment,
as well as to such other unfashioned areas of law as con-
sumer rights and corporate rights, students' rights and
children's rights, life rights and death rights, welfare rights
and poverty rights, in addition to medical rights and
transplant rights, all will be better served - it is hoped -
by new technologies and new methodologies.
With these, too, we must make our peace - for the sake
of our own economics and for the sake of society in a world
that is very different now.
Toward this end, the law must be the vehicle for balanced
treatment and we lawyers should seek the chance to steer
the course. Just as the practice and its practitioners have
responded to change in the past, we and our successors must
respond to the future of change.
But the constant in the equation will be that, as servants
of the law, we will need the confidence of all those we serve
in order to serve all those in need.
Those in need are growing. They are individuals; they are
corporations; they are governments; they are us. And their
number is geometrically increasing in a world that is very
different now.
No court system or body of law can long endure if it can-
not meet the needs of those who created it. Not only must
the problems of access to the courts concern us, but also the
price of access. The courts cannot afford to acquire the im-
age that de Tocqueville had of lawyers when he wrote:
If I were asked where I place the American
aristocracy, I should reply, without hesitation, that it
is not composed of the rich, who are united together
by no common tie, but that it occupies the judicial
bench and bar.
Consumers must be served by the legal profession at
reasonable costs. While specialization has its place in this
very different world, the price for specialization may create
a place for the specialty of the general practitioner;
medicine already has found that to be the case. Experiments
with legal clinics and prepaid legal plans are not here as a
result of the idle but imaginative minds of lawyers, but
because innovation was necessary to meet new needs in new
ways.
Such programs may have wrinkles, but they are now but
embryos - yet to mature. We can and must help. We must
be sensitive to the tides of change. We must respond.
Corporations need to be represented as well as consumers
and at several different levels. In terms of litigation - just
as any other consumer of legal services - they are becom-
ing more cost conscious. New dispute resolution
mechanisms are needed. Cost expended on protracted litiga-
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RICHARD G. CAPEN, JR.
tion must be reduced. Time devoted to expensive litigation
must be saved. Neither we, nor consumers, nor society, nor
our overly burdened court system grinding along on the
shoulders of underpaid judges - deserves any less.
Corporations, for which 15% of this country's half million
lawyers now work, also need representation in a multitude
of ways other than litigation. Not the least of these involves
defending themselves before government and the public
from a growing body of legislation and regulation, lest they
strangle our system of free enterprise.
Overly complex, all encompassing and vague statutes,
rules and regulations to which attach stiff civil and criminal
penalties for even highly technical and debatable violations
of law must be weighed against the protections that they
seek to achieve. They must not be permitted to stifle in-
novative thinking on the part of providers of goods and ser-
vices.
Our free enterprise system works best when laws interfere
least. While we must protect the defenseless and defend the
unprotected, we must take care that we do not legislate or
regulate our of existence the free enterprise system.
Our growing systems of governments need to be served.
So exceedingly important is and will be the role of attorneys
in serving the government as a client that to it, I now turn
my attention. To attend to more and expanded rights, there
will have to be an increase in the number of lawyers
employed by governments. Right now, they comprise 18
percent of all attorneys. These lawyers may need special
training - not only as to substantive law but also as to the
manner by which economic and cost/benefit analyses will
implode upon their counselling and their opinions.
So long as our governments continue to promise us
promotion of political, social and economic equality, they
will have to acquire greater sensitivity to the conflicting
demands that will be placed upon them. While the lawyers
of governments grow in number and grow in expertise, to
best serve the public, ways will have to be sought to preclude
total isolation of these lawyers from the public that gives
them their legitimacy.
With respect to judges, their numbers too will have to
grow. They too will have to grow in expertise. They too will
have to be compensated commensurate with the duties that
they are being asked to discharge, for their world, too, is
very different now.
Naturally, in speaking of legal services to the governmen-
tal consumer, we must not forget that lawyers have, and will
continue to, occupy critical positions in all branches of all
governments not only as attorneys and not only as judges.
We - more than any other group - have enjoyed a long
and intimate relationship with American politics. Yet, we
read that each year fewer and fewer legislators are lawyers.
We are told that lawyers and politicians rank with used-car
salesmen on the bottom of the opinion polls probing the
public's confidence and trust in occupational groups.
Yes, the world is very different now. Because "every ...
[person] is his own ancestor, and every ... [person] his own
heir ... [because every person] devises his own future, and
. [every] person inherits his own past," we must leave a
legacy of a better served and better serving profession. By
giving attention to the process of change, we minimize the
risk of leaving our future to fate or fortune in a world that is
very different now.
Who will fulfill the needs of consumers, the needs of cor-
porations, the needs of governments, and the needs of our
profession? For now, you and I must do our best. For the
society of 2000, it will be the 120,000 law students and those
who follow them into a world that is very different.
So, as we gathered in the Windy City for the National
Conference, we sensed a new breath of life for our profes-
sion. For it can be the guide to the society of 2000.
In the words of Charles F. Kettering, you must ". . . work
day after day, not to finish things; but to make the future
better ... because we will spend the rest of our lives there."
The kind of attention that you are now giving to the future
will help to make it better. I hope that our report will trigger
more discussions and debate and that others will do as you
are doing.
We must realize that it was said that lawyers " `were con-
stantly stirring up troublesome and unnecessary suits' and
were `ignorant, unskillful, and covetous;' looking rather to
their own profits than to the interests of their clients." That
was said in 1645. The world can be very different now.
So, I suggest, and the report of the conference will do
likewise, that we can no longer serve only as a mirror, but,
also must be ready and able to serve as a catalyst. We must
proact - not react. To do so, we must be willing to accept
the process of change, to study it and to apply it.
We have a duty to help forecast society's needs in order to
best chart its course. Let us do what we were trained to do.
Let us look to the past so that we may preview the future,
for "the past, the present and the future are really one -
they are today."
Generating Good Signs
THE ULTIMATE IN PERSONNEL SUCCESS
By RICHARD G. CAPEN, JR., Senior Vice President, Knight-Ridder Newspapers
Delivered to Alpha Tau Omega Fraternity National Convention and Leadership Conference, Lexington, Kentucky,
August 13, 1980
I APPRECIATE this special opportunity to appear
before your National Convention and Leadership
Conference this afternoon. I appear on your program
with some trepidation, however, since I realize there are few
occasions when a Sigma Chi is invited to offer words of
wisdom at an ATO Convention.
Be that as it may, I would like to share with you a few
brief thoughts today on the challenge of leadership -
specifically, the factors that I believe can build success into
your life in the years ahead.
In my opinion, it is critical to set aside reflective time in
our lives for the purpose of focusing on where we are, where
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VITAL SPEECHES OF THE DAY
we have traveled and where we would like to be in our lives
in the years ahead. This meeting provides such an occasion
for you.
To me, one of the greatest tragedies in life is that person
who charges through his career believing he has finally
made it to the top and then looks back to wonder whether
the trip was worth the price. Some such individuals find that
they have climbed ladders propped up against the wrong
walls.
Careful personal planning can help avoid that error. If we
choose not to plan, we allow events to control our lives and,
as a result, stumble through the road ahead.
I do not know what the future holds for us, but I do know
that what I am today is largely the result of decisions I have
made in the past, consciously or unconsciously.
Toward that end I firmly believe that creative oppor-
tunities in life and success start with personal attitude.
If you believe it will be a lousy day, it is likely to be just
that. If you believe you are going to fail, it is quite likely you
will. If you believe there is no hope, there will be no hope.
The person who is a pessimist is seldom ever able to enjoy
even the highs of life because he is always worrying about
the next low around the corner.
On the other hand, the optimist views life's highs and lows
as a stretching process - an experience to be enjoyed at the
peak and, in a valley, a painful learning experience on the
way to future joy.
Opportunities are at every turn but, in most cases, you
must take advantage of them yourself. If we resolve to do
positive things in our lives, we can grow. If our attitude is
negative, our energies can be easily sapped and our focus on
goals blurred.
I am one of those obnoxious characters who wakes up
with a start, jumps out of bed, pulls open the drapes, and
cheerfully claims that it is a beautiful day - even if it is
raining.
For years I have insisted that my family come to the
haven't always succeeded and, on occasions, have driven
them crazy, but I am convinced that my own day is likely to
be far more successful, far more enriched, if I can develop
the discipline of looking for the good signs around me -
even if I have to generate them with a simple smile.
Being positive helps me to get more accomplished; it
provides that little extra that often makes the difference
between mediocrity and true success.
Developing a positive attitude, however, involves more
Success can be reflected in your tone of voice, in your
demeanor, in the way in which you walk into a room, in the
manner in which you deal with others.
Also, a positive attitude can be contagious. It can help
others through their own loads in life.
During my Defense Department experience, I came to
know Vietnam-era prisoners of war quite well. Their in-
credible courage and personal faith have been an inspiration
to us all. The experience of one senior p.o.w. in particular
will always stand out in my mind.
This Air Force officer saw the good signs in his life no
matter how miserable that captivity was. Torture was a
good sign because it always had to end.
Fridays were good signs because fish was served that day,
rather than meat. But, then again, meat was never on the
menu.
Christmas was always a good sign because he speculated
that prisoners might be freed during the holidays, but, then
again, seven Christmases passed before he was released.
This American generated a perpetual optimism that in-
spired all of those around him. Many contend this
enthusiasm, this hopeful look at the future, literally saved
lives. %
The late Senator Hubert Humphrey always found the
good signs in his own life - no matter how tough the battle
- including his final fight against cancer.
For Senator Humphrey, it was always a question of time
before things would get better.
"The biggest mistake people make is giving up,"
the Senator said.
"Adversity is an experience, not a final act. Such peo-
ple look at any setback as the end. They are always
looking for the benediction, rather than the invoca-
tion.
"To come as close as we finally did in 1968 to win-
ning the highest office in the land and then to lose was
hard. But in writing my concession speech, I told
myself that it had to be done right because it was the
opening speech of my next campaign."
Not long ago, a 25 year-old man, paralyzed from the
waist down came within a half-mile of swimming the
English Channel. He turned around and started training for
the next trip because he refused to give up.
Just this past week, a determined Canadian started his
run across his country using an artificial leg that replaced
one lost to cancer. Not only has he dramatized his success in
overcoming an obstacle, but he raised more than a million
dollars for cancer from those who sponsored his run.
We can learn much from these examples - and many
others. Our country's history is rich with those who refused
to let defeat serve as a permanent setback in their lives.
They pass through their defeats and their lows by generating
an attitude of positivism and the ability to see the good signs
around them.
Abraham Lincoln failed in business in 1831. He was
defeated for the Illinois State Legislature in 1833. His
sweetheart died in 1835, and he had a nervous breakdown in
1836. He was defeated for Congress in 1843 and, after being
elected in 1846, lost his Congressional seat in 1848.
He was defeated for the Senate in 1855, lost out for the
vice president in 1856 and was defeated again for the Senate
in 1858.
Today, there is a memorial in Washington to this great
President - a memorial to his success, with little mention
of the defeats I have just cited.
Too often we use failure as a weak excuse for giving up
altogether. In the long run, I believe we can succeed in our
own lives if we can look at failure as a stepping stone, rather
than a stumbling block.
There have been times in my own life - just as in yours
I'm sure - when I had little reason to be cheerful. At age
13, I helped support a working mother and assisted in rais-
ing a young brother. Today my life is blessed with a wonder-
ful family, a good education, a fine career and a challenging
stint of public service. My own low points in the past were
eased considerably by generating enthusiasm at times where
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helped me across the rough spots along the way.
Father John Powell, a Loyola University professor, has
provided an excellent definition of fully-human, fully-alive
people. To him, fully-alive, vibrant people are always con-
cerned about what can go right in their lives rather than
what can go wrong.
They are glad to be who they are, where they are. They
see tomorrow as a new opportunity to be eagerly awaited.
They find enjoyment in what others regard as drudgery or
duty. In short, they place themselves on the growing edge of
One psychologist recently estimated that only one person
in one hundred could be called fully functioning. By this ex-
pert's estimate, such people realize only about one-tenth of
To be fully alive we must recognize that there are oppor-
tunities to live life fully at every turn. Too often we wait for
that perfect, dramatic occasion when we can build new
meaning into our lives and, by waiting, it often never
Too many think they will be happy when they get
married, or when they have a better job, or when their house
is paid for, or when the recession ends, or when their
In the meantime, these procrastinators let life slip right
through their fingers. They've missed the simple pleasure,
the exciting opportunity of today.
When I was young, my mother was going to read me a
story, but she had to wax the bathroom floor and there
When I was young, my grandparents were going to come
for Christmas, but they couldn't get someone to feed the
dogs and my grandfather did not like the cold weather and
When I was young, my father was going to listen to me
read my essay on "What I Want To be When I Grow Up,"
When I was young, my father and I were going to go hik-
ing in the Sierras but at the last minute he had to fertilize the
When I grew up and left home to be married, I was going
to sit down with Mom and Dad and tell them I loved them
and would miss them, but my best man was honking the
horn in front of my house so there wasn't time.
Most success is built on day-to-day achievements, day-to-
day, self-generated opportunities, day-to-day enjoyment of
The most exciting people I know are those who generate
these opportunities, who approach life enthusiastically and
Such successful people always crave new plateaus in life.
Once they reach one level of achievement, they move on and
As they build that success into their own lives, they also
I am constantly amazed at how important a simple word
of encouragement can be to lift a person's spirit, to undo a
Your cheerful optimism can bring success in your own
life. But it also can result in achievement of others.
Each day I find myself guilty of passing by little occasions
when I could reach out and touch the life of another, the life
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of one who needs that encouragement, who needs that
enthusiasm, who is looking for a good sign. Far too often, I
am guilty of passing by those who are crying out for en-
couragement in their lives.
How often do we pick up the phone to bring cheer to a
sick friend?
How often do we really use patience in attempting to un-
How often do you stop long enough to get at the root of
simple act of caring is a powerful tool in the extension of
strong enough in our own enthusiasm, in our own
characteristics in the lives of others we are fortunate to
touch. That is a true mark of dynamic leadership and those
leadership talents often can be greatly enhanced by
generating good signs into your e i -