Summit to try to stop rot in West

Press, 4 July 1978, Page 8

Summit to try to stop rot in West

By

GEORGE SHORT, NZPA-

Reuter economic affairs editor London The economic optimism .which prevailed during the 19605, at least 'in the devel- ' oped world, looks as if it jhas vanished for ever. “Perhaps we shall • look back on those days as a kind of golden age, said a London businessman. ft appeared then as if it was man’s natural destiny to go on to ever-better, everricher times. The cry was for a . more just distribution of the wealth that seemed I inexhaustible, and the develj oping world could hope to I benefit from this. i Now, the world — unless I we are being deceived by economists and politicians — has drastically changed. .The world is in danger of | slipping back into the de- ; pression. industrial stagnation. mass unemployment, and the bitter international trade conflict that preceded ' World War IT. It is in this grim mood; that leaders of the seven big; non-communist industrial Powers will, meet in Bonn’ for a summit conference on the world economy on July! !16 and 17. The leaders of the United, States, Japan, Canada, West Germany. France. Italy, and: ‘ Britain will try to stop the rot which seems to have set! jin to the structure of the' .world’s economy. I

•I To say that capitalism is 1 I threatened, and that the jßonn summit meeting is t , aimed at propping it up, 'would be too simple. i i Many economists feel that l if the West topples, the rest i I of the world will surely go i with it. The international i economy, with increasing h iftrade and industrial links be-Il ij tween East and West, is tooj] interwoven, too complex, to it i be divided into textbookic .'capitalist and communist I i sectors. But certainly some of the I* basic economic assumptions | c I made in the Western world!" I in recent years have come! ■under increasing scepticism c and criticism. i' . For instance, the old ideal 1 i that j’ou could, as a govern-1, jment, spend your way out of I! a recession — big pro- c grammes to boost the econo-Jj my and get jobs and in-L dustry going again — hasp become a very frightening! concept. For behind it looms' r the spectre of inflation. t The industrial world is k saddled at the moment with I i the nightmarish combination f of recession and inflation — s .slack industry and low pro- fl duction, but prices still ? creeping up and up. A lot of|P brains are being employed to I . try to find a way out. I n Many economists admit'n that the world will probablv I ii never climb back to them ;booming period of growth of t, the 19605. before the oil! prices were drastically l a

raised in 1973 and the industrial nations went into recession. The oil-exporting nations recently decided against any further rise in oil prices until the end of the year, giving the world a temporary reprieve from even higher fuel costs (while leaving the oil exporters with their 'problems of loss of revenue (through inflation and the] (decline of the dollar). But it is not only oil ( (prices which have contrib- - ;uted to the atmosphere of i (stagnation. Economists say that industries throughout the ! world are suffering from underinvestment. Businessmen do not want to invest their rhoney or make ambitious plans for the new plant and production lines. They lack confidence in the future. Experts note that the ordinary public in many countries also seems to be beset by economic despondency. People are anticipating even further price rises. Inflation seems to be something they have come to accept, and it guides their attitudes and plans. Unions, for example, auto-! matically demand more [ money to account for future: inflation. House sellers auto-j matically expect to get bet-|( ter and better prices. Money seems to buy less I and less. So you demand!

more and more of it, and it becomes devalued. Alongside the steady devaluing of money generally, there is confusion and I anxiety on the foreign-ex-change markets, where international deals are done with the currencies of different countries. The modern equivalent of; ancient gold — the United States dollar — has been] falling in value against other currencies.

This is basically caused by ;a lack of confidence in the ultimate ability of the United States to pay back the debts arising from its huge trade deficit. Big oil imports have contributed to I the deficit. The American domestic | economy has been ex-1 panding. This has enormously helped the world. Demands for all sorts of products have grown in America. Therefore imports have grown, and America's bill with the rest of the world! has gone into deep deficit. Other countries, such as Japan and West Germany, have expanded not so much domestically but have boosted their exports, and their trade figures are in surplus las a result. Hence the! (strength of such currencies] (as the mark and, especially] at present, the yen, agains’tl the dollar.

Against the background of rising unemployment, an inflow of foreign goods

tends to cause alarm in the importing country.

Demands, therefore, have been on the increase in many countries for protectionism — the raising of Customs and other barriers against foreign goods. The rise of protectionism has filled many economists :and politicians with dread. | The Japanese Minister of I External Economic Affairs i (Mr Nobuhiko Ushiba) has said he sees an alarming parallel between wor'd economic conditions today and those at the start of the depression of the 19305. He is particularly worried (about the threat of protecjtionism and the fragility of (the world monetary system. “There is no question,” he | told a recent audience, “that the depression led to World War IL”

On the other hand, it is only to be expected that countries whose exports are doing well should want the (world to end protectionist barriers -and preserve free trade. Britain, when it was the dominant world economic power in the nineteenth century, called repeatedly for free trade. But nowadays there are! (Strong lobbies within coun-j [tries like Britain for at least (some selective, temporaryprotection from threatened industries.

| It is tips point which i could cause friction at the (Bonn summit.