1986

As preparations go forward in celebration of the 200th anniversary of what has properly been called "the miracle of Philadelphia"--the drafting of the Constitution of the United States between May and September in 1787--there is reason to stand back and use the occasion to assess the importance of basic changes now overtaking the nation for which this "experiment" in republican government was devised.

My President's Report of 1983 looked briefly at the circumstances in which our remarkable Constitution took form, the premises and ideas on which it drew, and the extraordinary assemblage of talented, practical men who, during that steaming summer, produced the most durable written instrument of government the world has yet seen. But as we pay our respects to what they accomplished, and congratulate ourselves on the 200 years of growth in material prosperity that have followed, the time has come to look harder than we have at discontinuities that are accumulating in American life in the late decades of this century. These, I would argue, must now be recognized and responded to if the next century is to sustain anything like the prior record in advancing national well-being.

Introduction

In a global or properly long-term historical perspective, it may not be too much to view the U.S.A. as a golden and ambitious youth who, with intense effort and commitment, has grown toward maturity in the 200 years since Philadelphia under conditions generally so fortunate--and unique--as to be ill prepared for very different circumstances and severe demands that lie ahead.

In sheer timing the launching of the new nation appears almost prophetic. The American Declaration of Independence in 1776 came in the same year as the publication of Adam Smith's Wealth of Nations, and both emerged as the first Industrial Revolution, the opening up of modern science, and acceptance of the optimistic assumptions of the Enlightenment gathered force.

Given the exceptionally favorable selective transfer of European ideas, institutions, and skills; given a virgin continent to exploit without an indigenous, indentured labor force or embedded class structure; given the protection of two oceans against the devastations of foreign wars (and the absence of major external intrusion in the crucial ordeal of its own Civil War); and given the exceptional latitude that abundant resources and benign circumstances have allowed for stumbling and recovery in our pursuit of wealth, the American story carries this golden coloration. Despite the rugged experience of frontier settlement, industrialization, and urban slums, despite periodic crises of war and business cycles, and the two deep traumas of the Civil War and the Great Depression, this country's history has, on balance, allowed most who came voluntarily to its shores to feel themselves uniquely blessed and to view the American experience as an expression of Manifest Destiny.

This golden glow must not be allowed to obscure the immense individual efforts or the harshness and suffering that went into building this nation. Nor should anyone underestimate the centrality of its inspired commitment to work, education, and achievement. Combined with wide economic opportunities and evolving democratic institutions, this "New Land" responded with exceptional resiliency to the Western World's dramatic evolution since 1787--the triumph of energy, education, and the applied arts in moving from an earlier agrarian-mercantile economy, through the era dominated by railroads, iron and steel, machine-driven production, and the shift from predominantly rural to urban patterns of life; and on into our spinning world of high-speed transportation, mass distribution, instant communication, relentless image and data flows, and heightened requirements for the effective use of knowledge.

To an extent unparalleled in any other nation, the United States was born into and attuned to this world of change. As Tocqueville observed a century and a half ago, Americans in all walks of life took boundless pride in their ready response to the new. In other Western nations that shared in the transitions of these 200 years, emerging technologies and radical shifts in methods of production and ways of living had to break through more resistant social layers and attitudes. The American Experiment, by contrast, has for the most part been able to cope with change and to conduct its affairs--and most of its citizens to live their lives and envisage their future--within a remarkably stable framework of public institutions and accepted values and expectations, dominated by an overriding faith in "progress."

Systems of ideas and institutions that had taken essential form here by 1787 have shown extraordinary continuity in the succeeding two centuries. Through incessant change in how generations of Americans have produced goods, earned their way, raised families, worshipped, and tried to understand the universe, one can find (at least until recently) remarkable persistence in basic elements of our social framework--family, church, neighborhood, and major government institutions--and even in prevailing intellectual orientations.

On the occasion of our 200th anniversary it seems important to look beyond the fireworks and media events to examine the extent to which this continuity still persists or can be assumed for the future. For there are increasing signs that changes are underway whose pace, nature, and scope exceed our present grasp and may outrun our institutional capacity to cope. To borrow an image from contemporary evolutionary theory, we appear to have entered one of those periods of "punctuated equilibrium" when the rate of change breaks through evolutionary gradualism, to alter our society at a pace the previous record had not foreshadowed.

To give order to the discussion, let us look at these new realities, these significant discontinuities, by proceeding under a sequence of headings, with full awareness of their profound interconnections.

Scientific and Technical

Any venture into assessments of this kind is obviously perilous, and any attempt to foresee the powerful changes underway in the physical, chemical, and biological sciences is quite beyond our reach. We can do no more here than recognize that they have entered into phases of explosive discovery (as in several branches of physics, synthetic chemistry, and biotechnology) that could transform many of the continuities emphasized above--not only in individual jobs and lives but in our collective impact on the biosphere. The cumulative pressures on the earth's life support systems of expanding industrial economies and a surging world population that this year passed five billion cannot be brushed aside as futurism. From heating the atmosphere and thereby raising sea-levels, to acid rain and ozone depletion, the activities of the planet's newly dominant species are setting in motion processes of enormous consequence for ourselves and those who follow.

Nor can we yet foresee the dazzling effects of exponential growth in the speed and volume of electronic and photonic communications. Developments in the "information sciences" offer major new potentials for advancing knowledge; but they come at a pace and volume that force respect for the observation that, if not mastered, these new capacities could create a society inundated with data and starved for understanding. What is not in doubt is the massive impact and radical discontinuities that will be generated in contexts that often have struggled to keep up with lesser rates of change.

Indeed, it has already become evident that the compounding effects of applied science will act as a relentless, driving force transforming past practices and premises over widening areas of modern life--and with it come regulatory problems that an earlier age could not have foreseen. Nostalgia cannot recreate a world that did not have to control toxic wastes, air traffic, population growth, or urban unemployment.

Political

In turning to areas more nearly within an economic historian's ability to grasp and the nation's ability to act upon, we must recognize, first, the scale and seriousness of the essentially political decisions--and the lasting political costs and consequences--of so reducing the federal revenue base relative to expenditures that we are amassing and passing on to our children and grandchildren an unprecedented burden of debt. The total added since 1981 has more than doubled what the nation had accumulated in war, peace, and depression since 1787. And we must recognize the political and economic effects of these deficits in causing higher interest rates, making the U. S. less competitive, and leaving the nation dependent on levels of annual borrowings from abroad which in just six years have turned the world's leading creditor nation (which enjoyed a $5 billion current account surplus as recently as 1981) into its largest debtor. The two deficits interact. They come at a cost that has brought important industries under foreign control and, for interest alone, will soon require an annual outflow four or five times the amount proposed for Education in the next federal budget.

Exacerbated by these highly visible discontinuities on the "macro" scale are current trends and practices in public processes and private behavior that have more subtly penetrated our socio-political system. These can be even harder to assess and correct: the increased edge and power that new technologies give to single-cause voting blocks and monied special interests in the electoral process; the condoning of improper intrusions in political decisions and administrative action (or inaction); the increased sophistication and computer-based manipulation of "opinion" formation; the dominance of immensely costly television as the primary medium of our public life and of most private awareness of the changing scene.

Such developments create distortions on a scale the Founding Fathers could not have anticipated. Less dramatically but in more diffuse ways, the daily business of government has become encumbered in ways an earlier age could not have envisaged--by multilayered, often conflicting regulatory networks, by procedural complexity and delay, by proliferating patterns of litigation new to our time. Nor can we dismiss the corrosive effects of ideological extremism and intensified self-righteousness on the reasonable restraint, tolerance, and respect for the views and rights of others that is indispensable to the give-and-take of democratic life.

An even more fundamental discontinuity than the "macro" decisions noted above and these "micro" behavior patterns--one that could ultimately threaten social and political stability in the next century--is the evidence of breakdown in the social compact which has held this sprawling, diverse society together over the past two centuries and sustained the balance of freedom and equity on our national agenda. The implicit promise that the march toward affluence for favored sectors would be accompanied by assurance that the less favored would have access to the ladders of opportunity has been a distinctive premise of American life.

Since Alexander Hamilton, and powerfully reaffirmed in word and deed by Presidents Lincoln, Wilson, and both Roosevelts, among others, this social compact has been maintained by economic growth, the vision of open frontiers, and a tradition of positive government when that is needed. This tradition has waxed and waned--as Emerson long ago noted, both reform and conservatism have tended to excess--but it has been properly described as quite as authentically American, as deeply ingrained in our national history, as strongly identified with our greatest statesmen, as expressive of American ideas and character, as the tradition of self-interest and private enterprise.

The broad acceptance of this social compact has powerfully contributed to the exceptional absence of "class struggle" in American politics and of Marxism in the American labor movement, even in its fiercest confrontations--in striking contrast to experience abroad. As an expanding United States absorbed successive waves of immigrants, the promise of access to jobs and education, the prospect of rising income and upward social mobility have played a central role in molding a nation. Retreat from this premise would present a discontinuity seriously threatening to American political stability in the next century.

Tensions surrounding job displacement and persisting un- and under-employment; the recent widening of income disparities between rich and poor, reversing the trend of the 1950s and 1960s; the threatened decline in status for growing numbers who had entered the country's middle classes; the sharp fall in the percentage of Americans who can look forward to owning their own home; the intractable problems of our inner cities and the sense of hopelessness for growing, isolated neighborhoods within them--all these intensify strains inherent in an evolving "post-smokestack" society, in which minorities will not so gradually become the majority. If confidence is lost in the basic social compact that has played a crucial role in enabling the Constitution of 1787 to function as well as it has, it is not clear how the U.S. of the future will maintain its essential social cohesion and preserve values it holds important--faith in opportunity for all, respect for property, individual rights, and the willingness to compromise on which democracy depends. To maintain essential mutual trust in the more diverse society in prospect for the 21st century will require a good deal more than a "go for it" ethic within our leadership sectors.

Economic

Beyond the political sphere, and powerfully affecting its course, lie economic questions as fundamental as the capacity of the American economy, with all its enormous potentials, to continue to fulfill the expectations of its claimants. In an era when global competition has surged beyond our previous experience, the U.S. has been "living it up" on public and private borrowing without precedent. The senior Senator from New York may not have greatly exaggerated in predicting that history will look on the 1980s as the time when the U.S. borrowed a trillion dollars from Japan and the rest of the world and threw itself a party.

One root of our confusions and illusion about present realities may lie in still-vivid memories of the American economic hegemony in the decades after World War II. Emerging from that conflict virtually unscathed, with an enormous increase in its productive capacity and its technological superiority at a time when the economies of Europe, Japan, and the U.S.S.R. had been shattered by war, and benefiting from favorable terms of trade, the U.S. for almost 25 years enjoyed a dominance the world had not seen since Great Britain proclaimed its ascendancy a century earlier, at the Crystal Palace International Exhibition of 1851. Today it is hard for many to recall that half-century of British preeminence--or to remember that the U.S. came out of World War II not only as the largest steel producer in the world, but larger than all others combined.

The scale and resources of the American economy, and the effectiveness (to date) of its educational, scientific, and engineering infrastructure, should enable us to sustain for an indefinite future a--or even the--leading position in the world economy. But it was inevitable that the postwar era would see a diffusion of industrial knowledge and productive capacity and an increasingly competitive global economy. Enlightened postwar policies that extended U.S. aid abroad--most notably the Marshall Plan in Europe and the rebuilding of Japan--fostered the economic recovery that halted the expansion of Soviet power.

These efforts have been rightly regarded as the most striking overseas successes of American foreign policy in the 20th century. While a less generous course might have delayed the growth of competitive economies--arguably at disproportionate political risk--the spread of industrial and scientific capabilities in the modern world could not long have been contained. The challenge now is to renew our own educational and economic capacities and organize ourselves to cope with this reality, and with the next wave rolling forward from the Pacific. In an era in which the edge will lie in advancing technology and using knowledge, this country has the capability and again the opportunity to lead the world.

But, as in the political sphere, visible economic competitive pressures--painful as adjusting to them is and dangerous as wrong solutions (like protectionism) could be--are easier to identify and cope with than the massive misallocation of resources in our society and the cumulative changes in social behavior, attitudes, and values that adversely affect economic productivity. The latter have become critically important at a time when comparative advantage has increasingly shifted from natural endowments to more effective use of human resources.

Our democratic society has overcome great difficulties and prospered over the past two centuries on a basis of rising productivity. Only thus--by increasing the value of output per hour of work--can real per-capita incomes rise over time. From an historic rate of advance that averaged around 2.5 percent per year, the U.S., responding to pent-up demand at home and abroad in decades of its economic dominance after World War II, experienced productivity gains of 3.5 percent. This exceptional rate of increase, along with the effects of the G. I. Bill in opening access to higher education to millions of returning veterans, was instrumental in creating a near-doubling of real incomes and the enormous expansion of the American middle classes in that quarter century.

In the years since the first oil shock in 1973, troubling changes have developed. Productivity gains have fallen as savings and investment in plant and equipment have declined. Some of the effects of declining real wages, and the serious loss of 2.5 million high-paying manufacturing jobs in these years, have been obscured by continued high levels of consumption expenditures financed by debt--consumer, corporate, and government; by the massive inflow of funds from abroad; and by the surge of women as new earners and spenders in the labor force. But none of these three factors can long avoid its natural limits. Consumer debt has risen to all-time highs, while personal saving (long less than half that of West Germany or a quarter that in Japan) has fallen below 3.5 percent of GNP; persisting federal deficits are causing deepening world-wide concern; and the number of women in the labor force has risen in a few short decades from around 20 percent of our female population to more than 60 percent. Two-thirds of the country's young married couples now depend on two incomes.

With limited upward elasticity remaining in any of these areas to sustain aggregate demand, the nation faces critical discontinuities in expected income levels unless it can create more jobs of the kind that offer middle-class opportunities to large numbers now in the lower tiers of our society, and unless it can return--and return vigorously in today's world--to increasing productivity, particularly in the crucial manufacturing sector. This requires redirecting resources into new plant and equipment, into promising research and development, and into the better education and training of our citizens. It cannot be done by having 20-40 million Americans below the literacy minimum of modern life, with like numbers barely reaching that line. Nor can it be done by encouraging the most frivolous kinds of debt-financed consumption (including that which is demonstrably destructive, from tobacco to drugs) or excessive allocations to Social Security, Medicare, and Defense.

If voices from 1787 could be evoked, Ben Franklin might best lead the charge against recent trends in our credit-card culture, Hamilton best demand a fundamental reordering of our national economic priorities, and Jefferson call for a larger sense of public purpose. But it might take Washington--both as general and president (and as later quoted and echoed by Eisenhower)--to bring better priorities and procedures to that major area of resource misallocation in and around the defense establishment. As the recent Packard Report has emphasized, it is enormously wasteful to continue to pour disproportionate resources down existing procurement channels; nor can we meet competitive economic challenges ahead by open-ended pursuit of implausible defense fantasies.

The record of Japan and West Germany shows what can be done by allocating some of those billions--and critically short scientific and engineering talents--to modernizing an industrial base. Direct investment in basic and applied research that is open for wider use can make hundreds of times greater contribution to strengthening the nation's economic position in the world than the fractional spillovers attributed to classified, enormously complex military projects. While the U.S. has provided the common defense, our total expenditures for "R&D" have remained about constant as a percentage of national output over the past 25 years; Japan's level has doubled over those years, and West Germany's has tripled. It is time we recognized that a buoyant national economy and the jobs and skills it develops--along with superior education--can contribute more to national security than overloading ourselves with what too often prove to be unworkable weapons systems, procured at excessive cost.

In the more general marketplace, strange behavior has also recently loomed large. While individuals and firms can obviously make money by the manipulation of financial assets, at least for a time, the current rash of predatory business practices and resulting corporate debt--what the London market has come to call "casino capitalism"--dangerously increases vulnerability to an economic downturn. Less spectacular--but perhaps of more lasting import--may be the wider spread of behavior and attitudes that represent fundamental departures from those that (among other observers) Max Weber earlier identified in The Protestant Ethic and the Spirit of Capitalism: the high valuation of sustained hard work, thrift and saving, organizational loyalty and fidelity to task, the combining of initiative and enterprise with longer time-horizons and acceptance of deferred gratification. Against these values, mass marketing, enveloping advertising, ever-expanding credit financing, and intensified commercialization of the youth culture have become powerful corrosive forces.

Although their long-run consequences are not easy to assess, patterns of job-jumping careerism, questionable deal-making, inflated compensation, and the spread of now- and me-centered life-styles are not likely to build strong organizations, increase productivity, or enhance America's capacity to compete in the world. Obviously a nation is not well served when private greed displaces the public good. At the very least the diffusion of these more recent values and practices represents substantial departures from the cultural characteristics that underlay past American economic growth. That these shifts may reflect deeper currents in the culture is suggested by parallel trends evident elsewhere in the society--from growing practices running through business and the professions, including law and medicine, to the fundraising focus of the electronic church.

Social

Related to these discontinuities and hardest to know how to address, are those multidimensional changes that have substantially eroded core social institutions on which we have long depended. Among these none has been more central than the family; yet few things today seem more imperiled than the traditional framework within which children have been reared, socialized, and prepared for entry into systematic learning and work. Changes here, of course, have deep roots in the massive shift from rural to urban life, and from small town and neighborhood to larger, impersonal environments, as well as in unintended effects of recent welfare programs, job opportunities for women, economic pressures spurring two-career households, and widely varied life-styles. It is sobering to learn that the classic American family of a working father and housewife mother with two or more school-age children (though obviously not the only pattern for raising children well) had declined to only 7 percent of U. S. households in 1980, and 4 percent in 1985.

We cannot yet assess the long-run consequences of having increasing numbers of children grow up in single-parent settings, and we cannot accept having 13 million children living below the government's poverty line. Nor has our society been willing to tackle the immediate social pathology of more than a million teenage pregnancies each year. Of the 470,000 who now give birth, including 10,000 child-mothers under 15 years of age, most will leave school, go on welfare, and have children who continue the pattern with more than their share of physical and developmental problems--bringing devastating costs on themselves, their offspring, and the larger society. The problem is clearly most acute in the black community; but an intensive study of six countries shows that the rate of teenage pregnancies among whites in the U.S. today runs around double that of England, France, Canada, and Sweden, and six times the rate in the Netherlands. While many social and economic circumstances contribute to these differences, not least among them is the practice in these countries of making sex education and birth control information and services readily available. Alone among the countries studied, the U.S. has been experiencing a rising rate of teenage pregnancies.

The United States now enters its third century with a quarter of its young growing up in poverty and a steadily increasing percentage of children "at risk"--physically, economically, socially, and educationally--long before they arrive at school. While the categories and percentages overlap, the data show 15 percent physically or mentally handicapped, and 30 percent as "latch-key kids." These figures point up some of the difficulties with which understaffed elementary schools are now confronted. Careful evaluations show that Head Start-type preschool programs can significantly assist in overcoming these disadvantages. A detailed analysis of the cohort of Head-Starters that has now reached 19 years of age shows markedly better records and improved lives for nearly half of the group, at a great reduction in both personal suffering and social costs; yet federal funding for these programs has been so reduced that assistance is now available for barely one in four of the estimated 1.4 million eligible children identified as severely at risk. However difficult the political choices, the national interest clearly calls for increasing our investment in bringing the young into productive lives vs. excessive subsidies for the old through government programs of which more than 70 percent are no longer means-related.

Demographic projections highlight broader discontinuities whose implications the nation has barely begun to grasp--and demographic data have a relentless persistence. (As Kenneth Boulding has noted, they provide the closest thing to celestial mechanics that the social sciences can offer; the bodies are in being and, barring catastrophe, move relentlessly through the system.) The 70 million baby boomers born between 1946 and 1964 have emerged from education and are now pressing on available jobs. Behind them follow cohorts of smaller numbers whose fastest growing components are black and Hispanic. The nation will soon face the difficult economics of a steadily aging population dependent on the productivity--and social commitment--of a diminishing number of workers, nearly half of whom will be women and members of minority groups. For the first time in American history, people over 65 exceed the number of teenagers who will be entering the work force; and the number over 80 years of age, 6.5 million today, is projected to exceed 25 million by the year 2020.

Twenty-five years from now, the surviving baby boomers will begin to retire. If large numbers among the smaller working generation that follows them have not found their way to decent earnings and upward mobility, it is hard to see how even a modified, unfunded Social Security system can be sustained, as the number of workers per retiree falls from a past high of 17 to 3. This fundamental discontinuity is heightened by the fact that one of these three will be non-white--asked to support an aging, predominantly white generation which may be seen as having backed away from the commitment to educational opportunity and social programs intended to help the disadvantaged. The social strains that could follow if large numbers of the oncoming generation fail to get adequate education and productive employment in the intervening years seem hard to overstate.

Despite the plethora of recent reports calling for educational reforms--which have properly addressed content and standards in the intellectual and moral education of our young--few reports adequately recognize the seriousness of the burdens that child poverty and ethnic diversity, along with crime and disorder and bureaucracy, are already placing on city schools; and few have anticipated the scale of the challenge ahead for secondary and higher education. Funding has rarely been forthcoming to offer schoolteachers in America anything like the status or income enjoyed by their counterparts in our major economic competitors. The nation and the states must recognize that the educational reforms needed today relate to deep social concerns, not just curricular revision, and that they require a powerful and sustained response.

To take an immediate example, widespread deficiencies in preparation in mathematics and science, as well as English, are now cutting off a growing percentage of American youth from advanced education and careers in a sophisticated economy. These deficiencies have particularly increased our dependence on engineering students from abroad: today 40 percent of those enrolled in graduate programs in this field, and more than half of the Ph.D. candidates, are foreign nationals.

The highest educational casualty rates tragically fall within the fastest-growing sectors of young America. At a time when the nation's 24 largest city school systems have a "minority majority," we are losing alarming numbers along the way; and among those who make it through high school, the percentage of black and Hispanic graduates going on to college has fallen sharply in this decade. This reflects a reduction by nearly half since 1980 (from 32 to 17) in the percentage of low-income freshmen receiving direct (Pell) grants, as the Department of Education has moved away from direct financial aid--which had been supported by all previous administrations from Eisenhower on--toward loan programs that have created rising burdens of student debt. The 28 percent cut in the Administration's education budget as submitted to the Congress has been described by the President of the American Council on Education as "a disaster for needy students."

American society cannot long escape assessing at what costs these domestic discontinuities, considered together, can be allowed to run their course--quite apart from pressing new problems like AIDS--and how these trends and uses of resources can be guided on more constructive lines. National, business, and professional leadership in various fields can help mobilize ideas and energies to address these needs--and probably find more public support for so doing than is now evident. But it may take the crunching experience of adversity to awaken America to the full cost of debt and drift in public policy, to create national understanding of powerful changes underway, and to stir the public and private actions of which this country is capable and which are acutely needed to break through nostalgic illusions of the "feel good era." As the U.S. outruns its golden youth, it cannot long avoid facing these new realities.

International

Even a compressed review of troubling changes underway in American society on this occasion should not close without looking, however briefly, at the one area wherein could lie the ultimate discontinuity--the overhanging threat of 50,000 nuclear warheads on the international scene.

In the 200 years since 1787, the U.S. has grown from its beginnings as a string of agrarian-mercantile colonies along the Eastern Seaboard, through 150 years of resounding exploitation of its vast continental resources, to its present interlocking relationships as a major nation in what has become a global economy and world balance of power. It is estimated that today 70 percent of the goods we produce must either make their way in the international market or compete at home with imports from abroad; and the telecommunications infrastructure now allows capital movements on international markets that sometimes exceed a trillion dollars on a single day.

Beyond the economic sphere, the United States must now exercise its critically needed leadership--realistically, prudently, persuasively--in ways that will command the respect of our allies in Europe and Asia and among emerging nations whose support will be essential to maintaining a favorable international equilibrium. These are fundamental changes since the 1950s that cannot be reversed. The U.S. henceforth cannot prosper outside this interdependent economic network, nor can it find security by a policy of unilateralism or in estrangement from the rest of the world.

Given today's powers of destruction, the pragmatism of carefully measured national interest and the preservation of effective alliances must override ideology in the conduct of foreign and military policy. Recent events have also underlined that the Constitution we honor this year does not permit foreign adventures conducted in violation of law (or through volunteers fired by private obsession). With no illusions about our adversaries, we must maintain adequate means of defense and seek practical solutions to real problems, recognizing that effective arms control should allow significant reallocation of human skills and material resources to meet compelling needs at home.

Just as history would not excuse us for lack of proper defense, it will not look kindly upon failure to seize an opportunity that changed circumstances and leadership abroad may offer to contain the endless expansion of armaments, to realize what could be among the last chances for verifiable arms control before unlimited escalation could outrun powers of human control. The potential destruction of the race cannot be left to infinitely complicated computerized responses to confused or mistaken signals, or to breakdowns in judgment of isolated individuals.

Nor will the future honor us if we so misread the historical process of social, economic, and political transition in this hemisphere or elsewhere as to preclude negotiated solutions for regional security. The wisdom of those who framed our Constitution in 1787 may still help us in 1987. One need not accept Ben Franklin's patently overstated message while negotiating peace in Paris--that "There never was a good war or a bad peace"--to recognize that past experience in Central America, as in Southeast Asia, urges the most intensive probing of all workable alternatives to military intervention. If and when the latter should seem necessary, Madison reminds us of the "studied care" with which those who drafted the Constitution "vested the question of war in the Legis."; and Alexander Hamilton, the leading advocate of a strong Executive, in No. 75 of The Federalist, warned against allowing "a nation to commit interests of so delicate and momentous a kind as those which concern its intercourse with the rest of the world to the sole disposal of a magistrate, created and circumstanced, as would be a president of the United States."

These problems represent a formidable challenge for our nation as it enters the third century of its constitutional existence. The extent to which the resources of an independent foundation can contribute to their solution is clearly limited, but it can help develop talents and offer selective support for thoughtful programs, inquiries, and experiments, some of which may have wide applicability. Limited though it is, this distinctive ability of foundations to nurture creative solutions in fields as diverse as population, education, health care, and environmental conservation can and should be a source of significant initiative in our society.

It is a special pleasure to welcome as the next President of The Andrew W. Mellon Foundation an exceptionally able and thoughtful individual with a background in economics and public policy, William G. Bowen, who has brilliantly served Princeton University, first as Provost and then for 15 years as President. He will assume his duties here later this year at such time as his successor is in place but not later than January 1, 1988. In the course of that year, the Foundation will be further strengthened by the arrival of his close associate, Princeton's current Provost, Neil L. Rudenstine, a former summa, Rhodes Scholar, and Professor of English, who will become Executive Vice President of the Foundation with senior responsibilities in the Arts and Humanities. This increase in the size of our program staff, from six to seven, seems appropriate after a decade in which the Foundation's grant distributions (in nominal dollars) have nearly doubled.

I would not want to conclude this statement without expressing my own appreciation of the honor and pleasure it has been to work with the Foundation's Board and staff over the past dozen years in shaping and carrying out its programs, and without stating how fortunate I feel we all are in the succeeding leadership now in prospect.

Brief descriptions of major grants given in 1986 in selected fields appear immediately after this report, followed by a complete record of all appropriations and payments made during the year.

The Foundation's appropriations and payments were again increased in 1986. Net income was $77,841,861 after investment expenses and federal excise tax. Appropriations during the year totalled $67,575,500; grant payments $66,802,780. The market or appraised value of the Foundation's net assets on December 31, 1986 was $1,477 million. The total amount appropriated for charitable purposes by The Andrew W. Mellon Foundation and its predecessors, the Avalon and Old Dominion Foundations, has now reached $990,408,853.

JOHN E. SAWYER
President
March 1, 1987