The Cuomococca Platform for Economic Mobilization...

While the Reagan Administration’s attitude toward the free fall of the United States from atop the world’s economies has been “so far, so good,” a host of other voices have been warning that the crunch eventually will come, and the longer it is delayed the worse it will be. That the effect on American industry of the cumulative trillion-dollar U.S. budget deficit of the last eight years and the $10-billion-plus-a-month trade deficit will be the overriding economic issues of the 1988 presidential campaign is demonstrated by the publication of the New York governor’s “Cuomo Commission Report”--the 27th report on competitiveness since 1981.

One would think that by now the subject had been fairly well exhausted, but in March Congress appointed a 12-member National Economic Commission that is to report in November, after the election. One of the 12 members is Chrysler Chairman Lee Iacocca, master of the one-liner and Johnny Carson of industrial America. Iacocca has an opinion on every subject and some opinions without subjects, as he demonstrates in his sequel, “Talking Straight,” to his smash 1984 best seller “Iacocca, An Autobiography.” The sure-fire way to give the congressional commission report wider distribution would be to assign authorship to Iacocca.

“The Cuomo Commission Report,” as is common with consensus documents of its ilk, is overloaded with cliches and generalities, and represents more of a wish list than hard-edged recommendations with a practical chance of enactment. But it is highly significant that a broad-based commission--consisting of seven financial and two industrial executives, five academicians, two government experts and four labor leaders--should utterly reject the Reagan Administration’s ultra-laissez faire approach to the U.S. economy and call for a federal activism in American business reminiscent of the 1930s. “The present administration’s policy of disengaging government from the economy is a departure from our traditions,” the authors say. “Belief that government can play a positive economic role has deep roots in American history.” Every president from Theodore Roosevelt to Jimmy Carter, including even Herbert Hoover, excepting only Harding and Coolidge, is cited as believing that “government was part of the solution to the economic problems of their day,” and not, as Reagan’s first inaugural address had it (see Page 12), that “government is the problem.” Statements such as these and calls for national economic planning demonstrate how far the pendulum has swung back from the government-bashing days of the 1970s.

What is generating this outpouring of alarm and calls for rethinking of U.S. policy is the overwhelming, and sobering, success of other nations’ export strategies--often formulated through a mix of free enterprise and central planning. The United States’ traditional domestic-consumption strategy (“exporting” to ourselves) has begun to seem dangerously weak, with its weakness only exacerbated by the current Administration’s policy of “spend now, pay later.” The commission views the continuation of current trends with utmost foreboding. By the year 2000, it says, real wages will have declined by a fourth from their 1973 peak, and the two-earner family will of necessity be replaced by the three- and four-earner family. More than 40% of our consumption will consist of imports. (Currently, even post cards bearing a photograph of the Iwo Jima memorial and sold in the U.S. Capitol are stamped “Made in Japan.”)

In the worst-case scenario, the national debt will burgeon to a strastopheric $9 trillion, with annual interest payments of $750 billion--greater than the entire federal budget in 1985. A more likely figure for the year 2000 is $4 trillion, double the current amount, with interest payments of $300 billion--higher than the present defense budget. Of this, $75 billion will go to foreigners. The American middle class will be devastated, more and more wealth will pass into the hands of foreigners, and foreigners will attain greater and greater influence over our policies. Already, Iacocca points out, the Japanese own two-thirds of the major hotels in Hawaii, one-half of the top 12 banks in California, and the headquarters of such major U.S. corporations as Exxon, Arco and ABC, not to speak of the U.S. Justice Department’s Judiciary Center in Washington. “The Cuomo Commission Report” notes that in 1987 a collapse of the dollar and concomitant soaring interest rates precipitating an international financial crisis, was staved off only because German and Japanese central banks bought over $140 billion in U.S. Treasury Bills. Iacocca estimates that within the next half-dozen years the Japanese holdings of U.S. notes and bonds will skyrocket from $60 billion to $500 billion. “That’s bondage, Japanese style,” he writes.

To stave off such developments, the Cuomo Commission and Iacocca agree, will require a multifaceted restructuring of the U.S. economy and society. Beginning with the education of American children, who now attend school approximately 25% fewer hours than their Japanese counterparts, Americans will have to dedicate themselves to greater productivity. To deal with the twin deficits, productivity will have to be expanded, consumption curtailed, exports emphasized and federal revenues increased. To accomplish these interrelated goals, the Cuomo Commission recommends a value-added tax, as currently employed by other industrial nations, and Iacocca suggests a graduated sales tax:

”. . . Maybe 1% for a purchase up to $10,000 and 2% up to $100,000. However, if you want to buy a yacht, go ahead, but you’re going to pay through the nose. As far as I can tell, nobody has to have a million dollar yacht. It’s not like a pair of pants or a dress. So why not slap a sales tax of 3% on that yacht? It may not stop you from buying it, but the government will take in $30,000 in sales tax right off the top.”

Of course, no one is enthusiastic about beating his own horse, so Iacocca would rather see higher income than corporate taxes, and the Cuomo Commission doesn’t delve into the negative aspects on U.S. competitiveness of the American legal profession and Wall Street, which Iacocca tears into with relish:

“I see billions of dollars tied up in new corporate debt to keep the raiders at bay while research and development goes begging. I see billions going for green mail, dollars that ought to be building new high-tech factories. I see confidence in Wall Street’s integrity lower than at any time since the crash of ’29. I also see a huge share of America’s best management talent wasted on takeover games when it should be devoted to strengthening the industrial base of the country.”

The Cuomo Commission was chaired by attorney Lewis B. Kaden and directed by Lee Smith, who has also edited its report. Mario Cuomo’s introduction, “The New Realism,” runs to 10 pages. There is also a brief foreword by James D. Robinson III, CEO of American Express.

One problem with such multi-authored reports is that they raise new questions at the same time that they attempt to find solutions for current problems. The Cuomo Commission advocates low interest rates, but these would stimulate consumption, which the commission wants to see restricted. If the United States shifts from its consumption strategy to a production strategy, who will consume? The European and Japanese populations are static or declining, and most of the nations with gross underconsumption lack both natural and human resources, not to speak of the political and economic systems that would permit any but a multi-generational turnaround under the best of circumstances.

Currently, there is greater recognition of the need for restructuring than of the precise form that this restructuring should take. Yet the widespread perception--trumpeted in these books from Wall Street and Detroit--that the Reagan Administration’s heralded solutions turned out to make a deteriorating economic situation dramatically worse should offer clear lines of debate in the coming election and possibly a mandate for the incoming adminstration.

Iacocca’s Cabinet

Lee Iacocca is not the Democratic candidate, but if he were:

“First, I’d put my team together early, and name them. I know this is lousy politics, but it’s good administration. No cronies, no rewards to the big fund-raisers or those with the biggest PACs. Just a list of the best and brightest people the nation has to offer. What could be more important? . . .

“Before I got to brokering the vice presidential nominee at the convention, I’d announce that Sam Nunn was going to be my running mate. . . . He’s got the smarts in foreign affairs and defense matters and knows how to handle Congress.

“Then I’d prepare the ‘man to beat’ list for all the key jobs. I’d pick guys like Don Rumsfeld for Secretary of State, Jack Welch of GE for Secretary of Defense, Felix Rohatyn or Paul Volcker for Treasury, Peter Ueberroth for Commerce, Doug Fraser for Labor--or, even better, Fraser as the chief trade negotiator. (He does know how to negotiate--take my word for it.) Most of these guys would have to take a hell of a pay cut, but I bet they’d do it happily.

“For Secretary of Communications, a new job, I’d ask Tom Brokaw. Before he got rich and famous he used to cover the White House. . . .There are probably another twenty-five jobs that are crucial--the OMB director, the EPA head, and so forth. . . . Even with good people in place, I’d get extra help wherever I could find it. I’d enlist Nixon, Ford, Carter, and even Reagan to help out. I’d call them ambassadors at large, or whatever, but I’d pick their brains clean.”

Japan Inc., Meet America Inc.

The Cuomo Commission concludes with a summary of its findings and recommendations, including the following:

“We have called the domestic consensus that shaped American economic policy for the last half century the American Formula. Based on a simple but revolutionary insight first understood by Henry Ford, that mass production depends upon mass consumption, the American Formula helped unleash the high production levels of the assembly line and other new technologies.

“Before the American Formula, people believed that if labor increased its earnings, profits would fall, and vice versa. The American Formula was an equation for wages, profits, and productivity to rise together. . . .

“The New American Formula is based on a new insight: In a global economy, our consumption will depend upon increasing our production. Therefore, America needs a producer strategy in which both the public and private sectors learn to work together in a productive partnership. Economies that have competed effectively in world markets during the 1980s have prospered in part because government, business, and labor have learned to work together to achieve national goals and create participation in the economy. . . .

“The federal government should learn from the states. During the 1980s, state governments have increased social services, developed innovative methods to promote economic growth in partnership with the private sector, invested in their infrastructure and increased spending on education, all without enormous tax increases and without record-breaking budget deficits. . . .

“One way to enforce spending discipline without discouraging needed investments in the national future would be to split the federal budget into three components. Social Security and its related programs, paid for by trust funds, would be placed in one category. The rest of the budget would be divided into two categories similar to those used by many large corporations and other governments: annual spending programs funded by taxation, and a capital budget that would be paid for by the income from investments and public borrowing. . . .

“Over the years, major flaws have developed in our approach to consumption. Policymakers have encouraged consumption but have not done enough to encourage savings. They have also encouraged private consumption beyond what can be supported by production, and often at the expense of public consumption. Roads, bridges, schools, a clean environment, better health and housing, mass transit systems, and other types of public consumption are really long-term investments that can improve our competitiveness and our quality of life. Today we need a new ideal of consumption, one that encompasses public ‘goods’ and is not at odds with our level of production.”

President Reagan on Borrowing

“You and I, as individuals, can, by borrowing, live beyond our means but only for a limited period of time. Why then should we think that collectively, as a nation, we’re not bound by that same limitation?

“We must act today in order to preserve tomorrow. . . . The economic ills we suffer have come upon us over several decades.

“They will not go away in days, weeks, or months, but they will go away. They will go away because we as Americans have the capacity now, as we have had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.

“In this present crisis, government is not the solution to our problem: Government is the problem.”

--1980, First

Inaugural Address.