For Candidates and Electorate Alike, the Real Issue Is Growth

The U.S. economy, growing moderately, creating jobs but not inflation, is “in the zone,” says Treasury Secretary Robert Rubin, using an athlete’s expression for performing at peak.

Some peak, counters Steve Forbes, publisher and candidate earlier this year for the Republican presidential nomination. “The economy is like Michael Johnson--walking,” says Forbes, making an ironic analogy to the record-breaking Olympic runner.

Forbes’ ideas are a big reason presidential candidate Bob Dole came out last week with a program calling for a 15% tax cut over three years and a halving of the capital gains rate to boost economic growth.

Dole’s move ensures that the Democrats, in their convention starting two weeks from now in Chicago, will have to address the subject of growth.

And that’s an important topic for most voters who are nervous about the economy’s future ability to pay for Medicare, Social Security and other programs, even as they enjoy fairly good times at present.

Also, it’s a topic very much apropos for San Diego, the entrepreneurial city where the Republicans convene this week.

“We’re all for growth,” says Rubin, who headed the Goldman Sachs investment firm before going to the White House in 1993 as economic advisor to President Clinton and becoming Treasury secretary in 1995. “But you have to promote growth with responsible policies for balancing the budget and keeping interest rates low.”

The Dole tax cuts would “undermine the economy,” Rubin charges, because budget cuts to offset them would be politically unpopular. “What are they going to cut, the FBI? The FAA?” he asks rhetorically. Consequently, the deficit and interest rates would rise sharply, Rubin argues.

Forbes, on the other hand, might not want to cut those agencies, but he’d be happy to see the federal government reduced and administration of its programs distributed to the state and local levels. The Dole camp is betting that a lot of Americans think the same.

The very debate tells you that this election will offer a choice, not an echo, on important economic issues.

So who’s right? The Republicans have insight into the economic changes that are occurring and to come, but they’re a little ahead of events.

The entrepreneurial, decentralized economy they envision is not quite here yet, and the transition calls for more of the managed growth that Rubin and Clinton will boast of this fall.

But it’s a mammoth economy with many facets. If we understand more about it, we can detect the real issues behind the politicians’ rhetoric.

Why does Forbes, the 49-year old president of Forbes magazine, think the U.S. economy is poised for growth of historic proportions? “The end of the Cold War and the microchip,” he says.

“War demands centralizing policies for national security, big government, big business,” Forbes says. “War has dictated policies for most of this century.”

But now it is peacetime, he goes on, and advances in computers and communications are giving more capability to smaller firms, spreading information, bringing business contacts from all over the world. “A lot is happening that Washington’s macroeconomic statistics don’t capture,” Forbes says.

The Republican program calls for cutting capital gains tax rates to encourage small-business owners and the investors who back them. Forbes and Jack Kemp are major supporters of the GOP’s small business constituency.

Yet there are contradictions in the party’s stance, just as there are in today’s economy.

The Cold War may be over, but the Republican program would refrain from cutting the defense budget to offset its tax cuts; other politically sensitive issues, such as Social Security, are similarly off the table.

And for all the visions about its future, today’s down-to-earth economy is not poised for growth but “getting tired at a late stage in the expansion,” says economist David Levy of the Jerome Levy Economics Institute in Chappaqua, N.Y.

Consumer debt levels are high and 1997 will probably see a slowdown, Levy says. “A tax cut could prolong the expansion,” he explains. But if that expanded the deficit, it would only add to the debt problem.

Looking beyond the short term, Levy sees the economy nearing the end of a long transition from a postwar build-up of factories and office buildings and two decades of downsizing. Next to come, perhaps at the turn of the century, will be advanced machines that truly think and processes that reproduce themselves. “That will be the time for a new burst of investment that will send the economy on a new age of growth,” Levy says, in terms similar to what Forbes and many others are using these days.

As it happens, future business patterns are evident in San Diego, where a four-year program led by San Diego State University has given the city’s government, business and social agencies an advanced communications system.

That effort has in turn given rise to hundreds of small companies in such industries as telecommunications, biotechnology, medical instruments and software.

If they want an example of the new economy, Dole, Kemp and Forbes might visit Amylin Pharmaceuticals, a biotech company that has synthesized a pancreatic hormone, pramlintide, that can reduce blood glucose better than insulin and thus be an immense help to diabetics.

Johnson & Johnson last week invested $50 million more in Amylin, which now has taken in $220 million in venture and partnership investments in eight years. J&J; hopes to distribute Amylin’s product once the Food and Drug Administration approves it in 1999.

The company, which employs 180, reflects many trends in the economy. Its founder, Ted Greene, came from a large company, Eli Lilly, and over the years Amylin has had investments from Glaxo as well as J&J.; And the public stock market has backed it mightily: Traded over the counter, Amylin’s shares have a total market value of $350 million three years before the company can sell its product.

What all that says is that in the adaptive U.S. economy, the growth needed to pay for America’s medical and social needs will occur. But the breakthroughs are not here quite yet.

So voters this fall can choose a party that says it can accelerate that growth or one that preaches a slower, steadier pace as the better way to get there. Economically, this could be a critical election.