The Other ‘Sick’ Power Needs Help, Too : Economy: Like the Soviet Union, America is in danger of becoming a second-class country. A dose of U.S.-style <i> perestroika</i> may be needed.
Barring a relapse by the Soviet Union into its bad old ways, the era of military confrontation is ending--a development that could be a godsend not only to the hard-strapped Soviets, but to an America in trouble, too.
Much has been said in this country about the Soviet economic crisis and Mikhail Gorbachev’s wisdom in recognizing the need for a major shift of resources away from the military and abandonment of deeply ingrained tenets of Communist ideology. There has been less willingness, especially among the free-market purists in Washington, to recognize that the U.S. economy is also suffering from too much ideological rigidity.
The United States, though wealthy by Soviet standards, is well on its way to becoming a second-class country facing a second-class future for its people. Defenders of status quo economic policies scoff and note that December marks the eighth consecutive year of U.S. economic growth. The evidence of deterioration, however, is plain.
We continue to run a massive federal budget deficit. That produces high interest rates which force U.S. business to pay far more for capital than Japanese and German competitors. Meanwhile, a huge trade deficit persists. Thanks to our runaway addiction to imports, Japanese companies, especially, are awash with dollars that they use to further nourish their technological advancement and to gobble up still more U.S. markets.
Business Week’s list of the world’s 1,000 largest corporations is dominated by Japanese companies. Key elements of U.S. industry are becoming dependent on Japanese technology or components, and with the Japanese now leading in most cutting edge technologies, the future looks bleak.
More than a shift to global economic interdependence is involved. America is losing ground in the sectors most important to future jobs and prosperity.
Preoccupation with the military component of national security has served to prevent the Reagan and Bush Administrations from recognizing the seriousness of the economic malaise. The dramatic easing of U.S.-Soviet relations offers an opportunity for a shift of high-level attention.
Defense spending cuts will be helpful--especially if Congress can restrain its predilection to pork barrel politics. However, shifting of budget priorities won’t do the job alone.
The U.S. trade imbalance stems partly from the deeply rooted compulsion in Japan to maximize exports while resisting imports and foreign investment. The Europeans, facing a less serious Japanese onslaught, make no bones of their determination to keep the conquest of their markets within bounds, and to enforce conditions for Japanese investment.
However, U.S. trade policy and diplomacy is hamstrung by free trade ideologues in the Administration who rant against the evils of “managed trade.” Never mind that Japan has never accepted free trade even as an ideal.
Even if the Japanese played by our rules, it would still be necessary to remedy the structural defects in our own economy.
The U.S. financial system is sick. It can come up with billions of dollars for takeovers that leave the surviving companies crippled with debt, while efficient, technologically skilled companies are being sold off to the Japanese or Europeans because insufficient long-term capital is available here.
Tax laws could be changed to encourage savings and investment in the long- term growth and prosperity of the U.S. economy, and to reward those who create new goods and services instead of the financial parasites who know only how to dismember assets. Aside from his obsession with cutting the capital gains tax, however, President Bush has shown little stomach for such fixes. Action by Congress has fallen woefully short of the need, too.
America still spends more than Japan or the Europeans on research and development, but a major portion is defense-related work that is ill-suited for commercial exploitation.
It would make sense to use some of the money from defense cuts to support development of commercially crucial technologies that will otherwise be left to the Japanese. European governments already are supporting technological development, and there is ample precedent for government-industry partnerships in this country. But while some modest steps have been taken, proposals to do more stir outcries within the Administration against anything smacking of an “industrial policy.”
Such ideological prattle ignores the plain fact that we already have an industrial policy--but it’s the policy of complacency and neglect that helped put us in our present pickle.
