Full employment is attainable

Press, 2 August 1983, Page 18

Full employment is attainable

The Commercial Editor of “The Press,” ADRIAN BROK KING, looks at the hopeful view an eminent economist takes of the chances that the world will climb out of its job slump.

Aworld of full employment is attainable, says a distinguished economist and historian, Professor W. W. Rostow. In a lecture to the Christchurch branch of the Institute of International Affairs, Professor Rostow said that there were more legitimate jobs in the world than people to fill them.

The foundations for a great economic boom in the 1980 s and 1990 s were here he said, and could lead to an upswing quite as powerful as the extraordinary boom of the 1950 s and 19605.

To clear the way for a good look at the possible forces behind the next boom, Professor Rostow first put the last boom in perspective. In the 30 years up to 1950, the average rate of real growth in the world was 1.3 per cent; in the period 1950-73 it was 3.8 per cent — that is, production more than doubled during that time. The reasons for this boom were mainly on the supply side, Professor Rostow says. By 1950 there was a huge backlog of unapplied technology. Admittedly, this was aided by a shift in the terms of trade in favour of the industrialised countries, which increased

real incomes in these countries. The driving force behind the boom was the automotive sector, and, somewhat later, television. Japan developed fastest, because it had the greater backlog of unapplied technology; the United States had a slower boom than Europe for the same reason: it had less catching up to do. Throughout the period from 1950 to 1973, the fall in basic commodity prices made the control of inflation in the Western world relatively easy. Since the early 19705, the terms of trade turned against the industrial nations, deteriorating by some 25 per cent. The boom was turned off by the resulting fall in real incomes. Economies were further deliberately squeezed by efforts to control inflation.

Economic management in the industrial nations dealt inadequately with the oil crisis, but by 1979 an uneasy kind of equilibrium had been achieved, which was promptly upset by the second oil shock.

Professor Rostow says that in October, 1979, the United States reached a momentous decision: to

try to control inflation by management of the money supply, and to let interest rates go wherever they would. Turning away from our heritage to our future, he sees four foundations for a great boom in the 1980 s and 19905. ® The first is the emergence of new technologies — a fourth industrial revolution. The investment in high technology such as microcomputers, lasers, and robotics in the United States is rising fast as a proportion of national income. Coupled with this is the modernisation of existing technology: the upgrading of steelworks, car plants, and the like. This is necessary, both for its own sake (we will still need their products) as well as providing an outlet for the new technology. 0 Second — the substantial investment required in resources as we are coming to grips with the many resource-related problems. © The third leading sector is the pressing need to step up investment in infrastructure - the services regarded as the essential basis for creating a modern economy; roads and railroads, bridges, ports, power, education, health services, and housing. Everywhere in the world this type of investment has been neglected, Professor Rostow says, and there is a lot of repairing to do. In this area alone there are more legitimate jobs, jobs that really need to be done, then there are people to fill them, Professor Rostow says. The fourth foundation is the new North-South partnership, with its need for resource investment and regional implementation to diffuse the new technologies to the South. The proportion of United States exports to the South has risen from 26 per cent to 40 per cent in the last decade. On how to unleash the boom, Professor Rostow says that admittedly there are a couple of lions lying on the path. Basically three problems have to be solved: the debt problem, the energy problem, and the problem of reconciling sustained growth with inflation control. The worldwide debt problem is on the way to being solved, but remains serious nevertheless. A combination of low export prices and high interest repayments and energy prices is the worst bind to find yourself in, he says.

the three problems. In a democracy the great challenge is how to control inflation when unemployment is no longer regarded as an Act of God, but as an act of man. It is no good looking for a sterile technical device to regulate automatically economic behaviour, because we have lost innocence as we understand that the economy can be manipulated. Economic growth is necessary — if you turn away from it you do not finish up with a benign nogrowth society, but with a society that soon will be more divided and badly at odds with itself. Growth is not a zero-sum game; on the contrary, everyone can win. Inflation must be controlled and

There is no consensus in the West how to overcome the last of

Professor Rostow thinks the only way it can be done is by general agreement, a social contract, that rewards shall not outstrip the rate of growth. Productivity is the critical function of economic performance.

He says that the present stop-go policies in the West are bad for confidence and lead to a downward path of productivity. Businesses invest only when they get to the limits of capacity. Professor Rostow points to the economic performance of four countries — Japan, West Germany, Austria, and Switzerland — to prove what can be achieved if a broad agreement can be reached to link monetary and fiscal policies with an incomes policy.