America’s Real Enemy Is Economic : Reagan Must Bring Self-Interested Businesses to Heel

Now that the U.S.-Soviet summit in Iceland is over, it would be nice if President Reagan--and, indeed, the American political system as a whole--would get down to business on the economic morass that threatens this country’s future.

Unfortunately, it isn’t likely to happen. Reagan doesn’t like to admit that there is a serious problem, much less one of crisis proportions.,

To support their comfortable assessment of the economy, the President and his men can point to low inflation and tolerable levels of unemployment. And, while there are deep pockets of resentment, the polls indicate that Americans as a whole give the Administration the benefit of the doubt.

Reagan rode into office on a wave of disillusionment with the liberal creed that every problem has a federal solution, if only we are willing to throw enough money at it. The country was ready for the Californian’s thesis that big government was the problem and not the answer.

Cut taxes, remove the heavy hand of government, let market forces prevail and everyone will be better off. Or so the President and the editorial page of the Wall Street Journal assured us.

The corrective tilt away from liberal orthodoxy was overdue and inevitable. By now, however, we can see that Reagan and the free-market ideologues were only partly right. While big government had indeed become bad government, simplistic free-market theories were hardly the answer--especially when compounded by shortsighted and sometimes greedy business practices.

It is helpful to look at the comparative economic track records of the United States and Japan since World War II.

The United States is blessed with a large land area, much of it arable, bountiful fuel and energy resources and a continental-size market that helps to reduce unit costs of industrial production. We came out of World War II with the world’s most powerful economy and a trade surplus so big that it was embarrassing.

Japan, which emerged from the war with a shattered economy, would fit comfortably into California. Only a small percentage of its land will support agricultural production. Fuel and mineral resources are dismally inadequate--all of which means that its balance of trade is burdened by a big import bill for food, industrial raw materials and energy supplies.

Edwin O. Reischauer, former ambassador to Tokyo, wrote in 1957 that Japan’s prospects for economic success were dubious. Yet Japan’s gross national product, only 10% of ours at the beginning of the 1960s, rose to 40% by the early 1980s.

Since Reagan took office, the United States has piled up the world’s largest trade deficit while Japan has the world’s largest trade surplus. We still have an edge in technology, but the Japanese are closing the gap and have long since surpassed us in ability to convert new technology into salable products.

In short, we managed to fritter away the enormous advantages that we enjoyed.

Obviously the Japanese benefitted from postwar economic aid from America. Their economic miracle could not have happened without easy access to the American market or without U.S. military protection, which enabled them to concentrate their resources on industrial development. It’s also true that, in their single-minded drive to increase exports while fending off foreign penetration of Japanese markets, they haven’t always played fair.

But the fact remains that we are the chief architects of our own problems.

Those problems include huge, historically unprecedented deficits in the federal budget and the trade balance--we are buying more than we are selling in trade with Japan, Western Europe and the Third World as well--and a reluctance by both government and business to respond.

The dollar’s fall should help in the long run. But the 1986 trade deficit will be worse than last year’s, economic growth is sluggish and, as the Business Council observed last week, “For all practical purposes, manufacturing, agriculture and mining . . . are in a recession or depression.”

The seriousness of the situation is being masked by tolerable unemployment rates and brisk consumer spending. But too many of those jobs are in low-paying service industries and too much of consumer spending is being done, in effect, with money borrowed from abroad.

As our international debts pile higher and higher, more and more of our national wealth will be siphoned off for interest payments, making it more and more difficult to maintain our living standards.

The way out is to produce more and consume less. But that isn’t the way we are going.

It is now clear that both Reagan and Congress lack the guts to meet the budget deficit reduction goals of the Gramm-Rudman law goals which, if met, would trim our need for transfusions of foreign capital. At a time when the economy needs to encourage personal savings and business investments, leaders of both political parties are swelling with pride over a so-called tax reform law that will do the opposite.

Instead of exploiting the cheaper dollar to cut prices and recapture markets from the Japanese and Europeans, your typical big U.S. company is forgoing that opportunity in order to pump up short-term profits.

Too many corporate leaders are preoccupied less with producing better products for the world market than with either promoting or avoiding unfriendly mergers. To satisfy the demands of stock analysts for a never-ending march of healthy quarterly profits, they find it easier to raid pension funds than to pursue long-term strategies.

Obviously not all that ails the U.S. economy could be cured even by wise and responsible political leadership in Washington. But the prospects for economic rejuvenation surely would be better if our genial President faced up to the real problems afflicting this country--and encouraged the rest of us to do the same.