Comment: The Four Debts of the Apocalypse
The important event or summer was not the television debut of the last soldier of the Cold War, Ollie North, but the Japanese bail out of Bank of America. This will be a memorable year riot because the Dow Jones index topped 2600 for the first time, but because the 1987 Pontiac LeMans is being designed in Germany and built with Japanese parts in Korea. And the significant fact of this decade is not likely to be Ronald Reagan's effort to protect America with an anti-missile shield, but the loss of America's manufacturing edge which shielded our standard of living.
Caught in the habits of preeminent power and affluence, America is not reading these signs which warn us to change course. History has rarely known a destiny so splendidly manifest as postwar America, and thus no hubris so blinding. Like successful societies of the past, America's handicap is that it can't see the future for the present. Taking pride as our guide, we don't fathom the adversity born of our celebrated achievements.
Most of the international challenges we face today are of our own making. The Marshall Plan and Bretton Woods institutions provided capital to Europe and Japan for recovery. The IMF and World Bank, as well as US government direct aid, provided assistance to Third World nations for agricultural and industrial development. As a whole, Pax Americana provided the military security and stable conditions for the expansion of world trade, enabling American firms to globalize their manufacturing process. In this way American management transferred skills, technology and capital across the planet from Europe to Japan, Korea to Singapore and Mexico to Brazil. Yet, even as a once devastated and underdeveloped world got on its feet, the US increased rather than shared its part of the military burden of the postwar order.
As was our intention in order to thwart communism, we have helped create a world of nations aspiring to middle-class status. As a result, the challenge to every area of American preeminence, except defense, is undermining the very basis of our superpower status. Three of the four attributes of a superpower are now devolving to others, especially Japan - an export surplus, the ability to supply capital to developing countries, and industrial and technological supremacy.
Moreover, so much production capacity has been created on a world scale that there is not enough consumer purchasing power to absorb it. Uneven development has left the poor of the Third World without the income to stimulate higher growth, Trade frictions and commodity gluts have further weakened existing purchasing power, tempting depression.
At home, though, the mass consumer society purchased with American preeminence persists in its prosperous ways as if nothing has changed. Since we can't pay for the standard of living to which we've become accustomed, we put it on credit. Debt is the currency of maladjustment, a sign that we haven't the will to adapt to the consequences of the world we helped create. That will be left for tomorrow which has no political constituency.
But the day of reckoning must inevitably come. The appearance of the Four Debts of [he Apocalypse - the trade and balance of payments deficit, the federal deficit, private debt and the Latin debt - suggest that day is not far off.
The trade and balance of payments deficit are a result of America's disinterest in production as well as the preference for other nations' goods and other nations' savings.
The federal deficit reflects both America's military overextension, given the economic strength of our allies, and the unwillingness, if not the growing inability, of our economic base to pay for social welfare.
The growing corporate debt does not reflect investment in productive capacity, but reveals an attitude that manufacturing doesn't matter; it reflects the preoccupation of paper entrepreneurs with assets created in the past rather than new ventures.
The lack of debt relief for the Latin American countries reflects a lack of understanding that growth in the advanced world will be weak without revival of purchasing power in the developing world.
The longer we fall to heed the warning of the Four Debts, the more acrimonious will be the reckoning. The happy days of borrow-and-spend policies have already taken us to the point where corrective measures present very unhappy dilemmas. Raising taxes or cutting the federal budget now could hasten a recession, Just as balancing our trade deficit might cast the rest of the world deeper into recession.
The way out of ruinous debt is through power-sharing, growth and production. If the US is less economically preeminent than it once was, then its international burdens military security, development aid, monetary stability and open trade policies - must be shared according to the new distribution of power. Otherwise, our debt positions will worsen.
The growth of world trade will trim industrial overcapacity and provide income to reduce deficits, defray the debt and avoid a recession that could bring the debt pyramid tumbling down. Such growth, however, relies on coordinating budget reductions by the US with fiscal stimulation in Japan and Germany. Sustained growth will also rely on open markets at home, as well as improved purchasing power and access to markets in the developing world.
But, for all the talk, it appears politically impossible to cut the US budget deficit. Japan cannot sufficiently stimulate domestic consumption because land use regulations that favor politically potent rice farmers constrain its housing industry. Fearing the kind of interwar inflation that fueled fascism, Germany is loath to employ Keynes.
In short, the political reforms necessary for these economic changes in the West approach the dimensions of Gorbachev's revolution. Indeed, it is almost easier to envision the spectacular irony of Gorbachev rescuing the imperiled capitalist West from the classic crisis of underconsumption by opening the Soviet market to the world economy.
The bright spot on the growth horizon is the technological revolution. Even as the debt levels build in the United States, manufacturing productivity has increased with automation and flexible production processes, Improved capital efficiency certainly belies some of the falling investment figures. But a rising technological revolution does not necessarily arrest the wane of empire. What matters is who dominates the production of the new technologies. In 1913, when Britain was still the world power, the US came to dominate the advanced industries at the time - electricity, auto and steel sharing 36% of world industrial production compared to Britain's 14%.
The way to maintain parity in production of the new technologies is to stop America's manufacturing base from slipping off-shore. Without a strong manufacturing foundation to drive the information and service economy, America will fall behind in the skills, process and product innovation, and research and development which are the keys to competitive advantage in the new world economy.
There is no question that the debt crisis will be settled. But unless we snap out of the mythological thrall of postwar preeminence, the outcome is not likely to be to our advantage.