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T H E

S E R V I C E

G A P

An Address by
Hugh D. Galusha, Jr.
President
Federal Reserve Bank of Minneapolis

Before the
Montana Taxpayers Association
Helena, Montana
November 30, 1966

T H E

S E R V I C E

G A P

The title of these brief remarks relates to the holes in the fabric
of our society -- a fabric composed of many threads and of an intricate pattern.
But like all fabrics, its strength originates in the interweaving process of
threads from two directions.

Let us think of one of these as the social goals,

the aggregate aspirations of our citizens, and the other the economic factors
that generate and distribute the wealth of the country*

To the degree these

threads are comparable in strength and tension, our society is tough and
resilient; but if they are out of balance with each other, weaknesses and
inelasticity are the result.

The results are the same regardless of the

source of the difficulty, and as certain to be unpleasant.

This analogy, like all analogies, has the weakness of over­
simplification.

For each of these two sectors with which we are concerned

here today is itself composed of an incredible number of factors that are
sometimes independent of each other, sometimes inextricably interwoven.
The balance is delicate.

Unfortunately, the enormous acceleration of our times has made only
the broadest of distinctions visible.

The subtle but extremely important

differences of emphasis, of color, of tone, between those who in a broad sense
are in a common sector, are obscured.

Beset with the growing complexities of

our own businesses, it saves time to attach labels and thereby dismiss develop­
ments in the world outside our immediate business concern.

Good guys - bad

guys - socialist - private enterprise - my political party - your political




party - it is easy and convenient at the moment to do this; but like anything
else swept under the rug, these differences do not go away, do not reconcile
themselves.

History by label - terms like the welfare state, corporate socialism,
free enterprise, big government, big business - tend to increase, not diminish,
the separateness of the parts of our society -- to erect, not remove, barriers
to communication.

It is to the removal of these barriers and the recognition of common
interests that my remarks are aimed today.

For the businessman, whether in

town or in agriculture, must help direct the events of our times.

To quote Edgar Kaiser, "We must take the opportunity to lead and
to inspire constructive change.
to do what must be done.

It is proper that we constantly debate how

But in seeking the best way -- in finding new

ways - - w e cannot afford to be inhibited by a superficial debate which
merely concerns the labels of our philosophies or our prejudices.1
1

It is in the sensitive area between the American citizen and his
government that the American ability to reject by label reaches its extreme.
But bear these things in mind:

big government -- be it federal or state --

exists because a majority of the voters want a real or imagined vacuum
filled.

It has validity because our society is huge, varied and complex.

Big business exists because its electorate -- the stockholders -- want
corporate growth and the rewards that go with growth.

It has validity

because there are industrial functions that require huge size.
exists because most Americans now work for somebody else.




2.

Big labor

It has validity

because there must be an equality of bargaining power if there is to be
stability in the labor force.

But these, too, are convenient labels.

And to the degree they give

the impression of large, united monoliths that speak with single voices, either
politically or economically, nothing could be more wrong.

Unhappily, though,

many of the individuals comprising these groups in broad definition feel
disenfranchised.

Lost in the shuffle.

We are quick to seek identity and

embrace the demagoguery attitudes and labels of our side, whichever that may
be, as a substitute for our independent inquiry.

I have picked out one of the areas of common interest where social
gains and economic factors cross -- the structure of state and local govern­
ment.

This is one of many -- singling it out does not mean it is necessarily

the most important, but it seems to me the process of examination is at least
as important as the subject matter in this kind of inquiry.

The time has gone by when we could ignore the interaction of social
goals and economic factors.

No longer can the business community ignore the

social forces that should be compelling our lawmakers to reexamine our
political institutions.

And no longer is it in most places -- business

leaders across the country are becoming deeply involved in such things as
Job Corps camps and metropolitan planning, in the conduct of custodial
institutions and education, even in the day to day operation of the govern­
ment process itself.

For unless answers are found within the framework of

our society, the framework itself will be changed by the electorate, who are
insistent that the social services of government be expanded -- and viewed in




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this light, the situation then becomes one of enlightened self-interest for
those who have the most to lose.

We have too much government -- a safe statement in almost any group.
But how much too much?

At what levels?

In picking out state and local government to examine, I am not ig­
noring the many problems of fiscal administration posed by the federal govern­
ment.

But state and local government is bigger in the aggregate, is less

efficient even, and should be easier for us to change.

I suspect our pre­

occupation with the ills of the federal government is prompted in part by
the same unwillingness to face up to the immediate obligation that compels
us to great concern about the composition of the moon, to the exclusion of
adequate consideration of appropriate fiscal and monetary policies for our
own country.

That we -- and I use that term in deadly seriousness -- want and
expect more from state and local governments should be acknowledged as one
of the dimensions of the inquiry.

Whether it be roads, custodial institutions,

education facilities, insect control -- there is some part of public service
that is a necessity to each of us, regardless of what we may think of the
rest of the services.

Where is the money coming from, who is going to establish the
priorities -- for priorities there must be -- should be subordinate to the
basic examination of the public vehicle itself -- the structure of state and
local government.

Business is beginning to examine this structure with a

critical but constructive eye.




Note the word constructive.

Business has always been critical of

government, and this is the right -- really, the duty -- of every citizen.
But it is not enough to condemn the government, for in that condemnation we
are really condemning our inaction, our unwillingness to study the process of
government, the demands of the electorate -- in short, our unwillingness to
become involved.

Everyone has had an opinion about government in general,

and state and local government in particular, but few have been willing to
take the time to do the homework essential to understanding the process which
is an absolute prerequisite to constructive improvement of the machinery.
the sheer size of it is only dimly perceived by most of us.

Just

For example,

Montana has 1,387 local governmental units, which places it about 20th from
the top of all states in total number.
States.

There are about 80,000 in the United

Nationally it is estimated we could get by with 16,000.

of overlap -- each of which require support -- are appalling.

The layers

One suburb of

the metropolitan Twin City area, a suburb of about 15,000, has eleven govern­
mental structures.

Incidentally, the metropolitan area of the Twin Cities

has 108 mayors alone.

Little wonder the business community has become aroused.

But I'm sure Montana has similar examples of overlap.

What can be done about it?
share this concern.

First of all, you are not alone if you

The C.E.D. - the Committee for Economic Development -

a business group, has committed major research resources to this inquiry.
Their summary report, "Modernizing Local Government1 is one place to start.
1
The Upper Midwest Council has a similar inquiry under way.

In the Wall Street

Journal of a week ago appeared a lead article about the directions GOP strate­
gists are considering for the Republican party --




5.

fWe aim to turn the political frame of reference in this
l
country upside down - - - creating new techniques and providing
new resources for localities to take the governmental lead is
going to be the progressive course, and reliance on an ever­
growing Federal bureaucracy will be the hidebound reactionary
approach.1
1
This was a quote from one of the new generation of Republican leadership in
the House.

Brave words -- but more than that.

The fact -- the political

reality behind those words -- is the recognition there exists a growing vacuum
at the state and local levels -- a vacuum the electorate will not permit to
develop indefinitely.

For the electorate have demonstrated over and over they

will not stay wedded to any single pattern of government, to any political
party, even to any clearly defined simplistic political philosophy that does
not meet the requirements of today's society.

May I hasten to add I do not know the answers for Montana.

I would

doubt anyone does, and I think anyone who stepped forward with a quick answer,
a label, if you please, at this point would have a 99.97% chance of being
terribly wrong.

There must be research and careful study by technicians in

government -- and, believe me, there are those, and good ones, at your own
state institutions, in such business groups as this one.

Keith Anderson and

his predecessor, Art Neill, are two of the most knowledgeable men in any state
in this district -- but there must be enthusiastic, constructive support from
the business community to make it come off.

Each of you must be willing to

read the reports and discuss them in probably seemingly endless and interminable
meetings with not only other businessmen, but public officials, labor leaders,
and ranchers, for all the areas of Montana's economy must become involved if
change is to be a political reality.

You are not going to win every point,

because no one group has the right or the wisdom to speak for all.
does not function that way.




Democracy

At this point you may say this is impossible, even though it may be
desirable, because these groups have never been able to work together -besides, the political structure of the state is too firmly entrenched -- and
so the reasons run.
now.

This may have been true in the past; it may even be true

But look at the alternatives.

If we don't try, the gap will become a

vacuum, and new solutions on a national level will be a certainty.

At the

least, Montana will continue to be one of those lagging the nation in economic
growth.

For to paraphrase George Kennan -History does not forgive us our mistakes because they are explicable

in terms of our domestic politics.

If you say that mistakes of the past were

unavoidable because of our domestic predilections and habits of thought, you
are saying that what stopped us from being more effective than we were was
democracy as practiced in this state -- and if that is true, let us recognize
it and measure the full seriousness of it -- and find something to do about it.
A state which excuses its own failures by the sacred untouchableness of its
own habits can excuse itself into complete disaster.




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