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MR. BERGSTEN: Having heard those two introductions, Chairman Harmon whispered to me, You should quit now while you are ahead, rather than make the speech.

Let me thank Vanessa very much for your kind comments, Senator Hagel, and to Chairman Harmon for inviting me to share some thoughts with you today.

As the introduction said, we did at our Institute for International Economics hold a major conference last summer on the future of the Ex-Im Bank. Many of you participated in that and know about it. It was a very high-level conference. Bob Rubin, Secretary Summers, Secretary Daley, Chairman Leach of the House Banking Committee all participated. We had leading industrialists, leading financiers, the heads of a number of ECAs from other countries all participating, and the objective was to both honor the Bank on its sixty-fifth anniversary, but more importantly to look to the future and take up the challenge that has been laid out by Chairman Harmon, by others, to look forward and ask what should be the role of the Ex-Im Bank in the 21st century.

Our fundamental conclusions were certainly along the lines suggested by Senator Hagel just now, and what I want to do is suggest the broad global economic trends and U.S. economic interests within which those questions need to be answered and then lay out some very specific proposals for how the Ex-Im Bank should be moved forward to meet those challenges going ahead.

We have published both a large volume of the presentations that were made at our conference and a very short four-page brief that puts together our conclusions. Those were, I noticed, on the table for you as you came in. I commend them to you if you would like to look at all of this in more detail after I sketch some of these conclusions in my remarks this morning.

What I first want to do is set out the economic context within which I think decisions about the future of U.S. trade and Ex-Im Bank in particular need to be made in the years and, indeed, decades going forward. It is the backdrop against which to consider policy in this area, and I think it is essential.

As I consider it, I believe there are four dominant trends of most relevance for this area that I would like to briefly mention and be happy to answer questions on later if you would like to know more details about them.

The first, and to pick up a point stressed by Senator Hagel, is that the U.S. has not only become increasingly dependent on foreign trade, but will become even more dependent on foreign trade going forward.

He mentioned the crucial statistic that even many exporters and traders are not aware of that over the last generation, the share of trade in the U.S. economy has tripled, and that, I can tell you as a student of international history, is a stunning and rapid change for any country as mature and advanced as the United States.

Only a quarter century ago, it was fair to think of the United States as a largely self-contained continental economy, but that, of course, is no longer true.

Indeed, studies that we have done at my institute suggest that a very large measure of credit for the improved economic performance of the United States over the last 5 to 10 years can be attributed to that increase in globalization.

If you try to determine what has underlay the tripling of productivity growth in our economy over the last 5 years, from the miserable 1-percent-a-year productivity growth from the early '70s to the early '90s to the robust 3-percent-plus that we have been experiencing in the past 5 years, our calculations suggest that as much as half of that can be attributed to the increased globalization of the American economy, the competitive pressure it has brought to bear on American industry, the lower prices it has generated in our economy, therefore, the ability to create more jobs and bring unemployment down to unexpectedly low levels without inflation, all that due in large part to globalization and the increased interdependent of the United States with the rest of the world economy.

We have also published a number of studies that suggest that the kinds of firms represented in this room, firms who export do better than their compatriots.

If you compare American industries and individual American firms against their peers and allow for everything else except whether some are involved in trade and others are not, you find those that are involved in trade have 20-percent higher productivity, pay their workers 10-percent more, are 10-percent less likely to fail and go bankrupt, in short, are better providers for their own suppliers, their own customers, their own workers, indeed, the economy as a whole.

But the important bottom line for today is that globalization, as much as it has already advanced here in the United States and, of course, worldwide, is still at a very early stage, and unless governments do something catastrophic to foul it up, which they did a century ago, but assuming they don't repeat those errors, our studies all show that globalization is at an early stage.

How do we know that? There have been a series of studies over the past 5 to 10 years which compare trade within countries and trade between countries normalizing for everything else. Now, some of those studies, most interestingly, have been done about the United States and Canada. If there are any two countries in the world where you might think the border did not matter, it would probably be the U.S.-Canadian border, right? Most Canadians live within 100 miles of the United States. Most of them speak the same language. We have got a free trade area going back over a decade. So the U.S.-Canadian border can't matter much, right?

Well, studies have been done comparing trade between Victoria and Toronto, Seattle and Toronto, or similar pairs of cities, provinces within the two countries, and the conclusion is that trade within the two countries is still 15 to 20 times as great as trade across that border between the two countries, and, therefore, the implication is that we have much, much further to go in terms of international trade and increased interdependence.

Similar studiers have been done within Europe. France and Germany, they are in a common market. They have got a single currency. They have got a full economic union. Yet, trade within each is still a heavy multiple of trade between them, normalizing for everything else.

The message is that globalization is still at a very early stage. We are likely to become increasingly interdependent. It is likely to be a dynamic positive force in our economy as it has been in the past. It does cause adjustment problems, dislocations, and anxieties that have to be dealt with by policy, and one can never short-circuit that element, but the bottom line is clear, persuasive, and very positive if we have the wit to take advantage of it as Senator Hagel indicated.

The second major trend is that in addition to the U.S. being likely to become more and more interdependent, other countries, of course, are in the same boat, and they particularly depend on trade, even more than we in an absolute sense, and particularly in periods like now where the world economy has slowed, where domestic demand growth has weakened, and, therefore, the emphasis on international trade and transactions becomes even greater.

That means that those other countries, even more than we, despite our increased attention to trade, are competing extremely, actively, and aggressively in world markets to maximize their national economic advantage.

In the case of export finance, we, of course, know that that is the case, again, as Senator Hagel mentioned. We know that many of our competitors have been developing wholly new techniques, market windows that try to blend the advantages of public and private enterprises in a new competitive vein, pseudo-untied credits which amount to providing new forms of government finance for sales into emerging market economies.

We know that there are new forms of competition which we have been slow to meet and thereby have undermined our ability to take advantage of the increase in globa