The U.S. economy probably won’t expand more than 2.5 percent this year-a rate so slow that the jobless rolls continue to bulge. Germany, France and Japan have barely grown for a year. Italy has performed even worse. Britain is in the third year of a recession it can’t shake, and Canada, the largest U.S. trading partner, can’t get going while the United States drags. The stagnation magnifies a decades-long decline in growth. Says William Cline of the Institute for International Economics: “A sort of global sclerosis of the rich seems to have gradually set in.”
That sclerosis has clear political consequences: across the industrial world, citizens are unhappy with their leaders. Nobody knows this better than George Bush. But his pleas for Germany and Japan to adopt more expansive policies to boost U.S. exports and jobs fell on deaf ears. Much as they might like to help out, Chancellor Helmut Kohl and Prime Minister Kiichi Miyazawa have political problems of their own. “It’s not just the United States that has … [voters in a] mood of turmoil,” Bush said, adding: “As world growth takes place a lot of that discontent will go away.”
Or so he hopes. In the large industrial countries, however, growth is simply not occurring. The slump is not worldwide–most of Asia and Latin America will grow by more than 4 percent this year. But the major economies are all burdened with big budget deficits, high interest rates and problems left over from the excesses of the 1980s: weak banks in Japan, over-indebted consumers in the United States, a glut of stores and office buildings in Britain. An while free-market extremism has fallen out of favor, not one of the leaders at Munich believes that such Keynesian-style measures as temporary tax cuts and spending increases are prudent. That means, at least in the short run, that stagnation and higher unemployment are inevitable. “More than 10 European countries have jobless rates above 10 percent,” says economist David Lomax of National Westminster Bank in London. " But we’ve faced this situation so long now that we take it for granted."
What ever happened to growth? In part, the decline is pure mystery; researchers can account for only about half the lost growth. From what is known, at least three factors make it unlikely that the “normal” growth rates of years past-6 percent in Japan, 3 percent in the United States and Europe -will be the norm in the 1990s:
First, the years of the post-World War II boom, which ended precipitously with the 1973 oil crisis, were really a “catch up” period. Consumer demand was strong and business and public infrastructure-investment needs were high because of the lack of spending during the Depression, the focus on war-related production and the destruction caused by the war. Once those demands were satisfied, growth was bound to slow.
Second, birthrates have tumbled to very low levels; the populations of Germany and Italy may soon start to decline. That means fewer people joining the work force and fewer new families to buy houses, appliances and furniture. Rapid postwar increases in education levels brought about a sharp rise in worker productivity, but high-school and university education have been widely available since the 1960s, so those easy gains belong to the past.
The third major cause is fiscal policy. Most governments seem to have abandoned all hope of curbing social-welfare growth and balancing budgets. The problem is particularly acute in Germany, which overdosed on spending to finance the rebuilding of east Germany. For two years, Germany’s central bank has responded to the inflationary pressure by squeezing credit fiercely: short-term interest rates are now 9.5 percent, an astounding 6 percentage points higher than those in the United States. The other European Community countries, looking toward the creation of a single European currency, refuse to let their currencies fall against the mark, and that means their rates must stay in line with Germany’s. “There’s no doubt that for a political goal our partners are accepting a slow-growth wound,” says Martin Hufner of Bayerische Vereinsbank in Munich.
In the midst of the gloom, there are a surprising number of optimists. Hufner cheerfully believes that once Germany has tamed its current 5 percent inflation rate, by early next year, an explosion in investment and consumer spending in Eastern Europe will rev up all of Western Europe. Masaru Yoshitomi of Japan’s Economic Planning Agency insists that the drop in Japan’s industrial production will end this fall and that long-term growth will be at least 3.5 percent, starting next year. Brady predicts 1993 and 1994 “are going to be banner years” in the United States, because “the excesses of the 1980s have worked through the system.”
Yet even if they grow a little faster, “a little faster” is all it is likely to be: 2 percent to 2.5 percent in the United States, Canada and Europe; perhaps 3 percent in Japan. To avoid such a slow-growth future would require rethinking policies that favor health-care spending, shorter work weeks, higher pensions for the elderly and other forms of consumption. That could clear the way for steep tax cuts targeted to stimulate private investment, research and development, and on-the-job training for workers-activities that directly power growth. But the will to propose such a shift was no where in sight at Munich. Asked if new pro-growth policies were needed, a Kohl spokesman blandly responded, “In due course the German restraint will lead to the revival of private investment.”
The watchword at Munich was not growth but gemutlichkeit-German for “coziness. " The leaders of the rich democracies may worry about voter discontent. But if the cost of more riches tomorrow is sacrifice today, the politicians have decided the people would rather not be bothered.
