Are Free Markets Failing?

Free-market economics and political liberty were the worldwide hallmarks of this decade--and may still be the basic, underlying trends. But something has happened, a shadow of doubt on the inevitability of open markets in Russia, Hong Kong and elsewhere, a threat to historic reforms in Brazil and other Latin American countries.

Storm clouds are no longer beyond the horizon, but are threatening a global depression that would scuttle even the strong U.S. economy. “The biggest financial challenge facing the world in a half century,” President Clinton calls it.

But what really happened? If liberalizing trends were positive, what turned the landscape negative? Have free markets failed us? If not, can they restore prosperity to Asia, stability to Russia and Latin America, help China and Japan to reform? In this special section, The Times looks at the new global economy, defining its power bases and explaining its workings.

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The yearlong Asian crisis, the collapse of the Russian economy, the frightening gyrations of world currency and stock markets pose a central question for the world: Are free markets failing?

And if they are, might many nations retreat from democratization and increasingly open trade and investment, moving instead toward autocratic governments and closed markets?

These very questions indicate that the current turmoil marks a critical juncture for the world--one that could determine its basic political and economic direction well into the next century.

It wasn’t supposed to be this way.

When the Berlin Wall came down and communism and the Soviet Union went into the ashcan of history in 1989-91, those watershed events were said to signal a new dawn of political and economic freedom in the world, the ultimate triumph of the American system of open markets and democratic government.

Francis Fukuyama, a former U.S. State Department policy official, wrote a book titled “The End of History” that summed up the spirit of the time. Totalitarian government and socialist central planning were now proven failures, Fukuyama wrote. The future belonged to “individual freedom” and free markets.

It was easy to feel that way. All of Asia was rollicking as investments from global financial markets built industries that made goods for export and raised living standards in South Korea, Indonesia, Thailand, Malaysia and other poor countries.

Japan’s big economy, though slowing, was helping to finance these Asian developments--it was the “conductor of the Asian orchestra,” as one U.S. scholar put it. China was growing under a Communist government that encouraged private enterprise. Russia, a new democracy, was noisily trying to convert its economy to free-market principles.

And the United States, after a stall because of defense budget downsizing, was in a new kind of economic recovery, led by small companies and heavy investment in computers, communications and other high technology. The stock market soared.

But suddenly, all has changed. Virtually all of Asia stands in recession. The most worrisome is Japan, the world’s second-largest economy, which is locked in paralysis and unable to repair a crippled banking system. Latin America is battered and bleeding, its free-market reforms ignored and punished by fickle world investors. Russia is in political and economic chaos.

President Clinton on Monday described the crisis as the “biggest financial challenge facing the world in a half-century” and called on all the major nations to work together to restore stability and economic growth.

Thus, in little more than a year, a world economy that promised almost endless growth and prosperity has sunk perilously close to global depression.

Small wonder that people and countries around the world are questioning the whole idea of global free markets.

Retreat has begun. Malaysia has slapped controls on the trading of its currency. Governments in Hong Kong and Taiwan have gone to battle with foreign speculators by buying shares in companies to prop up local stock markets.

These countries are suddenly asking whether it’s such a good idea to allow their money to be freely converted into other currencies and to allow foreign money to finance their economies.

Ironically, China--which remains under tight government control and has partly insulated itself from the gyrations of world markets because its currency, the yuan, is not freely convertible--is being complimented by economists for keeping greater control of its economy.

Are free markets failing us?

Not necessarily. But they urgently need help.

“I look upon the Asian crisis and that of the global capital market as analogous to the U.S. as it moved to a national market in the decades after the Civil War,” said Jeffrey Garten, a U.S. Commerce Department undersecretary in 1993-95 who is now dean of Yale’s Graduate School of Management.

In that time, money flowed and the oil, steel and telephone industries were built, but there were no regulations, no infrastructure of finance and investment.

“So there was corruption, frequent panics and waste,” Garten said. “Butmarkets grow before institutions.”

In the 20th century, the U.S. created the Federal Reserve System, the Securities and Exchange Commission, the Federal Deposit Insurance Corp. and other regulatory agencies.

And that structure of regulation and governmental support has served it well. Of course, since the 1930s, the U.S. has had bank failures and serious bank crises--in the 1980s with loans to developing countries, for instance. But its institutions have managed the crises and there has never again been an old-style bank panic with losses to small depositors.

“It is that kind of institutional infrastructure that will have to be built globally,” Garten said. “It will take the next 10 years to do it. In the meanwhile, we will have ups and downs as we do today.”

After World War II, as the interdependence of economies and governments grew, the industrial nations tried to manage such global economic issues by establishing the International Monetary Fund and the World Bank. But they have proved inadequate to rein in the past year’s lightning-fast contagion.

Actually, “free market” is a misnomer for most of the countries of Asia.

They are mostly developing countries with fledgling economies unable to absorb the flood of money that came their way in this decade. In 1994, about $40 billion flowed into developing countries in Asia. Within two years, that impressive amount had doubled, economist Graham Elliott of UC San Diego points out.

Some of this money came from Japanese, U.S. and Taiwanese companies. They built factories to make parts for export or set up beachheads for exploiting the rapid growth they expected in those markets. This is the best kind of investment for developing nations because it stays in place and creates jobs.

Still, there was always a dangerously narrow foundation to Asia’s economic expansion. It has been based on manufacturing cars, electronics, apparel and the like and sending them to the United States.

U.S. imports from China and Southeast Asia doubled in the 1990s, with China’s portion of the market growing at the expense of smaller countries.

Then, in 1994, Beijing helped its exports along by devaluing the yuan by 35%. The following year, the Mexico peso crisis--such are the complexities of world currency movements--created an opening for Japan, with the approval of industrial nations, to push the yen’s value sharply lower.

Those moves by the giants of Asia undercut the competitiveness of the booming but fragile economies of Southeast Asia. They were the precursor to Thailand’s devaluation of the baht in July 1997, which unleashed the Asia crisis.

Yet those “tiger” economies were booming only because they received a flood of foreign investment--and then only because their currencies were propped up by a tie to the U.S. dollar. They reassured investors that the Thai baht, Malaysian ringgit, Indonesian rupiah and others would fluctuate only as much as the world’s leading currency.

This proved to be fiction, as did so many appearances of free markets among the economies of Asia. Most of them, taking their model from Japan, tried to maximize exports but tightly restrict imports. Governments, not markets, made decisions on investments. As in Japan, what appeared to be open stock markets were in fact heavily influenced by governments and major corporations.

Much of the foreign investment in Southeast Asia was loans from Japanese, European and U.S. banks looking to earn fees and interest income. The loans built grand hotels and shiny office buildings, many of them vanity projects with little economic justification.

Thus, it was not free markets that failed, but their opposite.

“The biggest failures have been due to impediments placed in the way of free markets,” said Charles Wolf, senior economic advisor at Rand Corp. “In Japan and [South] Korea, for example, preferential treatment was accorded to [government-] targeted firms and industries through subsidized loans, cross-holdings by banks and nontariff barriers to import competition.”

Government-directed investment policies in Japan, South Korea, China and Southeast Asia led to vast overcapacity. Japan can produce almost double the number of carssells domestically every year; South Korea, three times as many. And along with cars, those countries and others in Asia have built up vast overcapacity for all the components of cars, from steel to semiconductors.

Now, as local and regional markets for cars and other products have withered, the producing countries have slashed the values of their currencies in hopes of making their surplus goods salable around the world.

And that combination of glut and competitive devaluations is starting to displace the goods of other nations--notably Latin American ones--on world markets. That threat of displacement, in turn, has eroded global investors’ confidence in the Latin nations’ ability to maintain their economies.

Traders are selling Brazilian and Mexican government bonds, forcing those countries to hike interest rates to attract capital and avoid devaluing their currencies. Devaluation would destroy the economic and social stability the Latin countries have worked hard to achieve in recent years.

This is the essence of the “Asian contagion” that is sweeping through the world like an epidemic, bringing down strong and weak alike. For more and more experts, the antidote is quarantine--closing off national economies from the risks of global markets.

And in fact, temporary currency controls can halt the wild trading in a nation’s money, as medicines and cold baths can break a fever. Some mainstream Western economists are suddenly prescribing this very treatment.

But for the long term, the solution to the world’s economic imbalances is not retreat from free markets but reforms to achieve and support them. That is because global, open markets are the only way poor countries will get the money they must have to develop their economies.

China, for example, has not escaped the global slowdown by insulating itself from world markets.

Reforming China’s state-owned banks and industries through privatization is the chief mission of China’s government. And Beijing needs global investment to achieve its economic transition, to help finance the construction of its roads, communication and power systems, the modernization of its production and the creation of the service industries that will employ the majority of its work force--as such industries do in the U.S. and other advanced economies.

Other developing nations are in the same boat. The reason they are poor, as the man said, is that they don’t have enough money--while the industrialized countries have surplus savings to invest. In the U.S., the investable assets of pension funds and mutual funds alone total more than $12 trillion. And it is looking for places to grow.

Unfortunately, the current crisis is likely to discourage investment in developing economies for years to come.

“There is a recalibration of risk on the basic question of open markets,” said Daniel Yergin, co-author of “The Commanding Heights,” a book tracing the shift from government-controlled to market-oriented economies since the 1970s. “There is now much less confidence among pension investors in the economies of developing countries.”

Recapturing that confidence will take new global institutions to create and maintain standards of accounting, economic law, banking and finance. Yale’s Garten suggests a global central bank.

Easier said than done, but it would control the world money supply and set interest rates as the Fed and Germany’s Bundesbank do now, through purchases and sales of government securities. Such an institution, if it existed now, could prevent the capital flight that is harrowing Brazil.

Of course, setting up a transnational super-bank would be a true political minefield. Nations would have to cede authority to any such institution. In the U.S., congressional opposition would be guaranteed, just as lawmakers protested a loss of sovereignty when the U.S. joined the new World Trade Organization in 1995.

And internationally, the difficulties in creating effective organizations are magnified. The United Nations and its 15-member Security Council are not encouraging models, even after half a century.

But the world has little choice if rising living standards are not to be sundered by frequent financial panics.

The good news is that today’s crisis is accelerating major change.

For example, the crisis is forcing Japan to change its economic and political structure. And this will lead to a rethinking of the U.S.-Japan security alliance, said Frank Gibney, head of the Pacific Basin Institute at Pomona College and a longtime businessman in Japan.

The security alliance, a formal agreement under which the two countries commit to mutual defense and U.S. troops are stationed in Japan, mostly at Japan’s expense, has been central to the U.S.-Japan relationship for more than 50 years. It is similar to the way the North Atlantic Treaty Organization has governed U.S. relations with Europe. Yet today, foreign policy thinkers on both sides of the Pacific are discussing how to change that relationship now that the Cold War is long over.

A change in the security alliance, said Chalmers Johnson, president of the Japan Policy Research Institute in Cardiff, Calif., would push Japan to become “a more independent nation” with a multi-party political system, its own defense policy and a more open, consumer-oriented economy.

Major change is coming in the world’s money too. Experts believe that a new monetary system will emerge in which other currencies, such as Europe’s new euro and Japan’s yen, will share with the dollar the role of being legal tender for the world’s transactions.

Such a system could bring stability to world markets by providing alternatives to the dollar. In a crisis like this one, Germany and Japan could intervene to help nations battling currency speculation.

This magnitude of change requires leadership. But today, U.S. leaders are distracted by scandal, even though now clearly awake to the economic crisis. And Congress is more disposed to argue about whether to give more money to the depleted IMF than to take action to help stabilize the world situation.

Such myopia is not what won the Cold War, or created the world that prospered so historically in the half-century after World War II.

At the end of the Cold War, a prosperous future and spreading democracy under U.S. leadership were taken for granted.

But the present crisis demonstrates that creating prosperity and democracy is hard work and that the U.S. cannot manage the world all by itself.

Meanwhile, the problems and prospects for Latin America, Asia, Europe and the United States are distinct in many ways. Yet they are profoundly interrelated, as we are learning in this crisis.

LATIN AMERICA: Successes Imperiled by Currency Shifts

If ever an area exemplified the need for new institutions to stabilize the world economy, it is Latin America.

The region, which in economic reckoning runs from Mexico in North America to the tip of Argentina in South America, is under attack in international financial markets. Brazil has been forced to raise interest rates to prohibitive levels to retain short-term foreign investments and defend the value of its currency, the real.

Mexico is being hit by similar storms of speculation against the peso; Venezuela, Colombia and Ecuador have already been forced to devalue their currencies.

It is all so untimely. Brazil, Mexico, Argentina and other Latin nations have all worked in recent years to reform their economies, opening borders to international trade and welcoming investment. The countries of Latin America are the most important emerging markets for U.S. exports. U.S. banks have more on loan in Latin American countries than in Asia.

Reform has gone beyond economics. Latin countries, regarded only 10 years ago as “basket cases,” have embraced constitutional democracy as an ideal and have turned to cooperation with each other, said professor Abraham Lowenthal of USC, an expert on the region. “It is a shift of historic dimensions,” he said.

The attacks in currency markets threaten that progress. Raising interest rates cuts economic growth in countries where unemployment is already high and annual income per person is a few thousand dollars. Devaluation is no solution. Brazil in the 1980s knew frequent devaluations and ruinous hyper-inflation. The living standards of Mexico’s wage earners have never fully recovered from the 1994 devaluation of the peso.

Latin America’s economic reforms are not complete. Several countries’ continued dependence on short-term international investments to finance budget deficits is a sign of weakness. Significantly, Chile, the first Latin nation to reform its economy, discourages investments shorter than one year.

But attacks by currency traders only set back reforms and could cause a continent-wide recession. And if Latin America fails, say experts, a U.S. recession would be almost certain.

So it was with some urgency that Treasury Secretary Robert E. Rubin telephoned Brazil recently to pledge U.S. support. And Clinton on Monday called on the world’s leading industrial nations to arrange emergency aid for Brazil and other Latin nations. At meetings planned for early October in Washington of representatives from 22 of the world’s leading nations, new and more permanent mechanisms to forestall such economic crises will be discussed.

ASIA: Tough Tasks Ahead for 2 Giants

The outlook for Asia rests on its two giants--Japan, the large but lagging economy, and China, the populous nation that is a future superpower but economically weak today.

Japan, despite its postwar economic miracle, democratic system and many hallmarks of Western-style economies, has yet to experience a free market. Indeed, that is at the heart of its most urgent problem: a banking system staggering under as much as $1 trillion in bad loans.

In Japan’s state-directed economy, banks are not independent institutions. Many of their ill-advised loans were government-influenced funds for corporations. So reforms move slowly.

Yet leaving the banks as they are, calling in loans, not furnishing new capital to Japanese business or to other Asian countries, is hurting the region, said Steven Clemons, a longtime Japan expert at Washington’s Economic Strategy Institute.

With a $4-trillion economy to absorb massive write-offs, Japan’s financial problem is less threatening to the world than its social and political problem. Japan’s government-business system seems unable to move decisively to solve the bank crisis.

A probable outcome, say analysts of Japan, is that political paralysis over bank bailouts will lead to new elections in which opposition parties will gain real power for almost the first time in Japan’s postwar history.

Financial analysts fear that bank write-offs will reduce many companies’ net worth and that elections will lead to a period of political indecision. But many Japan experts counter that loan write-offs will allow banks to lend again and that elections may bring vibrancy to a politically stagnant country.

“Elections will restore the peoples’ confidence,” said Pomona College’s Gibney.

Meanwhile, there are good signs: Japan’s heavy public works spending in the last year may be producing results. J.P. Morgan & Co. forecasts that the Japanese economy, now in recession, will return to positive growth, a 1.3% annual rate, next year.

Japan also is introducing new participatory pension plans, akin to American 401(k) plans, to allow its people to boost returns on retirement savings. And that’s a major step toward Japan’s government-dominated economy giving citizens more control over their economic fate.

China’s task is bigger, but accomplishing it might prove easier under its authoritarian system.

China also must reform its banks, with the Beijing government floating $32 billion in bonds to pump capital into 18 state banks. The banks then are to become mortgage lenders to China’s urban workers, enabling them to purchase their homes.

Homeownership is a centerpiece of China’s economic reform. If China can convert state-owned housing to private homes, it will create a new financial industry in mortgages and consumer loans. It will spur construction and boost the economy, which this year may grow at only half the hoped-for 8% rate.

More important, the creation of finance and real estate and related industries will increase employment in service occupations and provide jobs for employees now being let go by the nation’s overstaffed manufacturing industries.

To achieve all its ambitious reforms, China needs foreign investment. It wants to sell $700 billion in government bonds to finance infrastructure development. And it wants to raise capital for Chinese corporations by selling stock on world markets.

But right now, with its economy slowing and Hong Kong’s economy under siege in world markets, China may have to reduce the value of its currency, the yuan, in the next year to keep its exports competitive.

These steps seem doomed to fail unless China continues its gradual opening to the rest of the world economy. And that is probably inevitable.

EUROPE: Thriving Markets Add to Strength

In the current crisis, although it is being hurt by fallout from Russia’s collapse and slippage in exports to Asia, Europe stands next to the United States as a pillar of economic strength.

In fact, in Europe, with its self-reliant and independent countries, it is possible to see that the underlying purpose of U.S. policy throughout the long Cold War is coming to fruition.

The European Union, begun as the six-nation European Coal and Steel Community 47 years ago, stands as a good example of government supporting free markets by laying the groundwork for development.

And now the Europeans are on the threshold of establishing a common currency, the euro, whose very reason for being is to ease the path for commerce across the region’s many national borders and invigorate its traditionally sluggish economies.

The euro, which in January begins a two-year introductory period for 11 of the EU’s 15 member countries, will bring great cost savings by eliminating constant exchange transactions among marks and francs, lire and guilders.

The major European nations have long straddled the fence between unfettered markets and a strong government role in economic affairs.

The EU has funneled capital to build infrastructure in poorer outlying regions of Europe, as the American government did with the Tennessee Valley and other parts of the rural South in the 1930s.

Thus Spain and Portugal have developed economically as full members of the EU, the barren west of Ireland is now crisscrossed with new roads that have brought a boom in tourism. And the south of Sicily, historically a poverty-stricken region from which came thousands of immigrants to America, has gained roads and water systems enabling it to supply citrus fruit to the Italian mainland and elsewhere in Europe.

Still, Europe can’t avoid the global crisis. The fall of Russia’s economy has caused losses for German banks and reduced growth prospects for the EU’s economy to 2.5% next year. And Russia’s fall has reduced confidence and the flow of investment to the emerging markets of Poland, Hungary and the Czech Republic.

But in the wake of the Cold War, markets are winning out in Europe, as the euro signifies. And that will enable Europe to confront one of its greatest challenges: aging populations needing to support themselves in retirement.

Europe’s government social security plans are proving inadequate to the task. The solution is growth in private pension plans, fueled by equity markets. Increasingly, European companies are traded on stock exchanges around the world so they can tap global capital markets.

The prospect now is for stock exchanges in Europe to expand as future cross-border investing is enhanced by the single currency.

UNITED STATES: Restructurings Led to Healthy Economy

The U.S. economy has twice gone through the kind of wrenching restructuring that is now the fate of economies in all other regions of the world.

The first restructuring began in the early 1980s, when U.S. industry was ripe for disciplining because American companies had been embarrassed by foreign competitors. And the inflationary 1970s had been a disaster for the stock market; pension funds were demanding higher returns on retirement savings.

The U.S. solution was corrective surgery via corporate takeovers and mergers. Workers were let go as companies transformed production lines. Howls of protest went up over the “hollowing out of U.S. industry.” But the process continued and U.S. companies improved.

The Cold War ended in 1989, and the economy was forced to go through another reconstruction. The aerospace and defense industry downsized and, in the early 1990s, it seemed that every other company did too.

Only disbelief greeted early signs that a new economy was emerging, based on investment in computer technology and led by relatively small companies. Yet business investment increased steadily. Industry spent more on research and development, taking up the slack left by shrinking government budgets.

Suddenly it became clear that America’s new economy did indeed create jobs and incomes. The U.S. economy became the envy of other nations. And U.S. economists and politicians began to boast that lessons from America could bring effortless prosperity to the world.

Now the current crisis has imposed a reality check. It is clear that a new global economy’s evolution will take longer and require unprecedented efforts and institutions.

And as Clinton acknowledged Monday in his speech calling on all major nations to work together for economic growth, the United States cannot prosper in isolation, nor can it lead the world by itself.

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The World As Economists See It

The world looks different when the size of a country is determined by its Gross Domestic Product, or total output of goods and services. The 40 largest economies are depicted here. The biggest: the United States, Japan and Germany. The countries are further indentified by how open, or “free,” their economies are, as measured by the conservative Heritage Foundation. Countries are more “free” when they have open trade policies, few taxes, little regulation, property rights, unfettered capital flows and so forth. Hong Kong is ranked as the world’s most open economy. But that was before last month, when the former British colony started buying stocks in a duel with speculators. The rankings also have not been updated to reflect recent changes in Malaysia, which partially closed its markets. None of the 40 largest economies fits the fourth category, “repressed,” which applies to such countries as Cuba and North Korea.

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Global Distribution of Economic Freedom Key

Open

HONG KONG

SINGAPORE

SWITZERLAND

UNITED KINGDOM

UNITED STATES

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Mostly open

ARGENTINA

AUSTRALIA

AUSTRIA

BELGIUM

CANADA

CHILE

DENMARK

FINLAND

FRANCE

GERMANY

GREECE

INDONESIA

IRELAND

ITALY

JAPAN

MALAYSIA

NETHERLANDS

NORWAY

PHILIPPINES

POLAND

PORTUGAL

SOUTH AFRICA

SOUTH KOREA

SPAIN

SWEDEN

THAILAND

TURKEY

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Mostly closed

BRAZIL

CHINA

COLOMBIA

EGYPT

INDIA

MEXICO

RUSSIAN FED.

VENEZUELA

Sources: World Bank, Heritage Foundation

Researched by JENNIFER OLDHAM / Los Angeles Times

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Opening the Door

Key events that led to the opening of global markets and then to the current economic crisis:

‘89: The Berlin Wall falls, signaling the world’s move away from Communism and toward democracy and a global free-market economy.

‘90: East and West Germany unite, creating vision of new prosperity for Eastern Europe.

* Japan’s rapidly rising economy stalls as real estate bubble bursts, sending stock market into long decline.

‘91: The Persian Gulf War burns Kuwaiti oilfields, yet world escapes energy shortage because oil is in surplus. Oil surplus now hurts Mexico, Russia and other countries mired in crisis.

* The Soviet Union is dissolved. Yeltsin, a pro-market reformer, takes over Russia.

* Europe ratifies idea of single European currency that will come into use in 1999.

‘93: North American Free Trade Agreement frees trade among U.S., Canada and Mexico, signals new economic vision for Western Hemisphere.

‘94: China devalues currency to halt speculation, harming Southeast Asian economies and laying foundation for later Asian crisis.

* Mexico devalues peso, triggering recession and turmoil in emerging markets.

‘95: Japan weakens yen with approval of industrialized nations, further undermining economies of Asia.

* The World Trade Organization is created to lower barriers to trade and finance.

‘97: Britain returns Hong Kong to China. Asian financial crisis begins with fall of currencies in Thailand, Indonesia, Malaysia. The International Monetary Fund rushes bailouts to S. Korea and other Asian countries.

‘98: The Russian ruble collapses, triggering political crisis.

* Hong Kong, Taiwan and Malaysia retreat from free markets.

* Wall Street tumbles. President Clinton urges world effort to combat “biggest financial challenge in half century.”

Source: Times and wire reports

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How a Crisis Occurs: The Leather Industry

Like a wildfire feeding on financial vulnerabilities and stoked by investor insecurities, the global crisis sparked by the July 1997 crash of the Thai economy has dramatically disrupted the flow of capital and trade. Trace Asia’s economic meltdown as it works its way through the leather industry, from U.S. cattle ranchers to South Korean tanning factories, on to leather-goods producers in China and Indonesia and back to store shelves in the United States.

BEFORE

(1) Forty percent of U.S. cowhides go to South Korea.

(2) South Koreans turn cowhides to leather and sell to low-cost producers in Asia.

(3) Japanese banks become major lenders to South Korean and Southeast Asian leather manufacturers.

(4) Factories in China and Southeast Asia--particularly Indonesia--are top producers of leather goods, particularly athletic shoes.

(5) Leather shoes, purses and jackets are shipped to the U.S., Japan and Europe. Russia buys 30% to 40% of world’s leather coats.

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AFTER

(1) U.S. cowhide exports plummet by half and prices fall 10% after the South Korean economy collapses in late 1997.

(2) Korean leather factories cut production after debt-laden banks quit giving loans in South Korea.

(3) When Indonesian economy collapses and currency plummets 80%, Japanese banks refuse loans to Indonesian shoe manufacturers to keep factories going. Leather imports from South Korea fall 36%.

(4) Demand for imported leather goods from China dries up after Russian economy collapses and value of ruble plummets.

(5) Spread of Asian crisis slows economy worldwide and depresses sales and prices of leather goods in U.S. and elsewhere.

Sources: National Cattlemen’s Assn., Cattle Buyer’s Weekly, Nike Athletic Footwear Assn., Footwear Distributors and Retailers of America, Leather Goods Association of America, Korea Leather Goods Exporters Assn.