VIEWPOINTS : Pendulum Swings Back to Growth : Nation Needs a Consistent Policy on Competitiveness

According to official “leaks” from the White House, this is the week that President Reagan will move into action on his new economic priority--competitiveness.

On Tuesday, he begins with a State of the Union message that lays out the nation’s serious competitive problem. Two days later, he will release the Economic Report of the President for 1987, which analyzes the problem and offers policy approaches to its solution. Soon thereafter, he will send to the new Congress urgent proposals designed to strengthen the international competitiveness of American business.

I realize that neither White House leaks nor announcements about big legislative and budgetary plans are being taken very seriously these days, but I believe that this story deserves attention for two reasons.

First, the issue of competitiveness has become for the Reagan Administration what the issue of inflation was for the Carter Administration--the continuously growing problem for which it has not been able to develop a consistent policy. If Reagan goes ahead as promised, this will be (by my count) the third time he has reversed the competitiveness policy of his Administration.

The second reason this story deserves attention also bears an analogy to the Carter Administration.

Just as Carter eventually backed into the right policy on inflation (you will recall that, late in his term, he appointed and supported Paul A. Volcker as chairman of the Federal Reserve), so, too, Reagan seems to be backing into the right policy on competitiveness.

If he achieves it, his successor--and the rest of us--will have reason to be grateful.

The Reagan Administration made its first policy statement on competitiveness in February, 1983, when in a special section of the President’s economic report, his top economic advisers declared that the United States does not have a long-term competitiveness problem and that, since the trade deficit was caused by the appreciation of the dollar, no policy on competitiveness was needed.

This statement was prompted by the fact that in 1982 the current accounts trade balance went into deficit by a startling $9.2 billion.

The deficit startled us because in the entire period since World War II, only in the OPEC years of 1977 and 1978 had the trade deficit been this large. At the same time, the volume of American exports was rising. In 1979, the trend was reversed, and the trade balances ran a surplus.

Exports Declining

In 1982, by contrast, the exports of American business were actually declining. In 1983, they dropped even more, and the current accounts deficit climbed to $41.5 billion, the biggest trade deficit in history.

By June, 1983, only five months after his Administration’s first policy statement denying the competitiveness problem, the rising trade deficit and growing demands for protection moved Reagan to reverse himself.

It is a problem after all, he decided, and he created a Commission on Industrial Competitiveness to study and make recommendations on how to deal with it. He appointed John A. Young, president and chief executive of Hewlett-Packard, as its chairman.

The Young commission held hearings, gathered data and, in January, 1985, produced a solid report showing that American producers indeed face serious competitive problems. The commission recommended steps that both the private sector and the government should take to reverse this trend.

But to the surprise and chagrin of commission members, Reagan reversed his position a second time. There were no endorsements by the President, not even a public event to acknowledge receipt of the report.

Private Hearing Held

Young was given a polite, private hearing by the Cabinet, it was decided that competitiveness did not require special initiatives, and the report was quietly buried. Eventually, Young delivered a copy of the report to the secretary of commerce.

In September, 1985, with the trade deficit running at $120 billion a year, the Administration decided to push down the value of the dollar in order, as the President put it, to correct trade imbalances.

You will recall that the finance ministers of the five largest industrial nations agreed to cooperate in this effort.

Now, almost a year and a half later, the value of the dollar has plunged about 40% against the West German mark and the Japanese yen, while the trade deficit has continued to rise.

In 1986, the deficit reached $138 billion. This year, it could climb to $170 billion.

So the President is poised to reverse policy for a third time. He will declare competitiveness to be a serious problem that requires broad policy initiatives by his Administration.

Is Reagan about to back into the right policy moves, as President Jimmy Carter eventually did on inflation? Since the White House “leaks” have not revealed his specific intentions, one must suspend judgment until the details are revealed.

In the meantime, there are reasons for optimism. Of course, protectionism remains a problem, but it will diminish if the President and the Congress start serious work on a comprehensive program of the type recommended by the Young commission two years ago--one that encourages private initiatives in productivity improvement, emphasizes savings and investment, and develops the nation’s research and development capacity.

What the leaks in the White House tell me is that the nation’s trade problems have reached a stage where ideology is yielding to fact.

If the country is going to restore its technological and manufacturing strength, effective leadership now is essential.