While the Reagan Administration's attitude toward the free fall of the United States from atop the world's economies has been "so far, so good," a host of other voices have been warning that the crunch eventually will come, and the longer it is delayed the worse it will be. That the effect on American industry of the cumulative trillion-dollar U.S. budget deficit of the last eight years and the $10-billion-plus-a-month trade deficit will be the overriding economic issues of the 1988 presidential campaign is demonstrated by the publication of the New York governor's "Cuomo Commission Report"--the 27th report on competitiveness since 1981.
One would think that by now the subject had been fairly well exhausted, but in March Congress appointed a 12-member National Economic Commission that is to report in November, after the election. One of the 12 members is Chrysler Chairman Lee Iacocca, master of the one-liner and Johnny Carson of industrial America. Iacocca has an opinion on every subject and some opinions without subjects, as he demonstrates in his sequel, "Talking Straight," to his smash 1984 best seller "Iacocca, An Autobiography." The sure-fire way to give the congressional commission report wider distribution would be to assign authorship to Iacocca.
"The Cuomo Commission Report," as is common with consensus documents of its ilk, is overloaded with cliches and generalities, and represents more of a wish list than hard-edged recommendations with a practical chance of enactment. But it is highly significant that a broad-based commission--consisting of seven financial and two industrial executives, five academicians, two government experts and four labor leaders--should utterly reject the Reagan Administration's ultra-laissez faire approach to the U.S. economy and call for a federal activism in American business reminiscent of the 1930s. "The present administration's policy of disengaging government from the economy is a departure from our traditions," the authors say. "Belief that government can play a positive economic role has deep roots in American history." Every president from Theodore Roosevelt to Jimmy Carter, including even Herbert Hoover, excepting only Harding and Coolidge, is cited as believing that "government was part of the solution to the economic problems of their day," and not, as Reagan's first inaugural address had it (see Page 12), that "government is the problem." Statements such as these and calls for national economic planning demonstrate how far the pendulum has swung back from the government-bashing days of the 1970s.
What is generating this outpouring of alarm and calls for rethinking of U.S. policy is the overwhelming, and sobering, success of other nations' export strategies--often formulated through a mix of free enterprise and central planning. The United States' traditional domestic-consumption strategy ("exporting" to ourselves) has begun to seem dangerously weak, with its weakness only exacerbated by the current Administration's policy of "spend now, pay later." The commission views the continuation of current trends with utmost foreboding. By the year 2000, it says, real wages will have declined by a fourth from their 1973 peak, and the two-earner family will of necessity be replaced by the three- and four-earner family. More than 40% of our consumption will consist of imports. (Currently, even post cards bearing a photograph of the Iwo Jima memorial and sold in the U.S. Capitol are stamped "Made in Japan.")
In the worst-case scenario, the national debt will burgeon to a strastopheric $9 trillion, with annual interest payments of $750 billion--greater than the entire federal budget in 1985. A more likely figure for the year 2000 is $4 trillion, double the current amount, with interest payments of $300 billion--higher than the present defense budget. Of this, $75 billion will go to foreigners. The American middle class will be devastated, more and more wealth will pass into the hands of foreigners, and foreigners will attain greater and greater influence over our policies. Already, Iacocca points out, the Japanese own two-thirds of the major hotels in Hawaii, one-half of the top 12 banks in California, and the headquarters of such major U.S. corporations as Exxon, Arco and ABC, not to speak of the U.S. Justice Department's Judiciary Center in Washington. "The Cuomo Commission Report" notes that in 1987 a collapse of the dollar and concomitant soaring interest rates precipitating an international financial crisis, was staved off only because German and Japanese central banks bought over $140 billion in U.S. Treasury Bills. Iacocca estimates that within the next half-dozen years the Japanese holdings of U.S. notes and bonds will skyrocket from $60 billion to $500 billion. "That's bondage, Japanese style," he writes.