A Depression in Demand : Lower Global Buying Power Creates a Glut of Goods and Services

The leaders of the seven world economic powers will meet in Toronto next week to discuss cooperative efforts to rekindle global economic growth. As before, the focus will be on short-term measures aimed at adjusting the latest blip in the economic indicators. Yet there is a deeper, long-term agenda that needs to be addressed if restimulating economic growth is truly desired.

A combination of technological shifts, depressed buying power and an implacable debt crisis is conspiring to depress demand globally, miring the world economy in a glut of goods and services for which there are too few buyers. Only concerted action, both among the leading seven nations and between them and the nations of the impoverished Third World, can begin to make a difference.

First, the problems. Obscured in the monthly listings of trade and economic indicators that will set the context in Toronto are sweeping technological changes that eliminate jobs and change the role that nations play in the world economy.

Chemical, food and biotechnology corporations have pioneered a vast array of synthetic substitutes for many of the raw materials that form the backbone of Third World economies. Consider, for example, the decision earlier this decade by Coca-Cola and other soft-drink makers to use new biotech formulas and corn-based sweeteners instead of sugar. As a consequence, from the Philippines to the Caribbean, millions of sugar workers have lost their jobs and, hence, their purchasing power.

So, too, plastics and synthetic fibers are replacing minerals and natural fibers. And, in their laboratories, flavor chemists are synthesizing products that smell and taste like coffee and cocoa.

The implication of it all is staggering: The basis on which the three-quarters of humanity that reside in the Third World have been integrated into the world economy over centuries is being transformed within just a single generation.

Labor-saving technologies are also sweeping the industrialized countries. Earlier technological revolutions in electricity and automobiles stimulated decades of growth through job creation in related industries. Automobiles, for example, required rubber, steel and glass.

But the current microprocessor revolution is a different sort of industrial revolution: It eliminates jobs across industries and services. Laid-off bank tellers, supermarket checkout clerks and textile-loom operators have all discovered that more work can be done with fewer workers. Again, this means fewer consumers.

The same corporations that pioneered the technology have orchestrated a division of production assembly lines to different parts of the world, seeking the cheapest labor for the most labor-intensive processes. Workers in Kentucky are played off against workers in Mexico and the Philippines as corporations demand concessions and ever cheaper wages. The result has been a downward spiral of wages and working conditions globally, further restricting buying power.

A final blow to world economic growth has been delivered by dismal mismanagement of the Third World debt crisis since 1982. Commercial banks and the International Monetary Fund have conditioned new lending on suppressing wages instead of enhancing buying power. And these institutions have encouraged increased exports of the very raw material for which markets are shrinking. The result: World trade growth has shrunk from average annual rates of 8% in the 1950s and 1960s to less than 3% in the 1980s.

Any healthy resolution of these problems must begin with the realization that the burden of Third World poverty and stagnation is dragging down the entire world economy. Hence, Third World nations should be pulled center stage in the debate on solutions.

Discussions among Third World nations need to address strategies to strengthen the buying power of their citizens through programs that restimulate agriculture, redistribute wealth downward and recognize worker rights. Regional dialogues that invigorate trade and financial flows within Latin America, Africa and Asia need to be encouraged.

At a global level a high priority for the next U.S. Administration should be to help initiate truly multilateral talks to coordinate a level of debt relief that can offer the breathing space in which Third World development initiatives have a chance to flourish.

It would be unrealistic to expect that these discussions could be launched at Ronald Reagan’s final economic summit. This Administration has too much invested in giving lip service to coordination while letting market forces (banks and corporations) mediate global problems. But Reagan’s successor is well warned: Today’s economic problems are desperate for multilateral solutions. A global economic dialogue involving all nations is urgently in order.