Different Woes for Different Folks


Washington -- In the age of increasing economic interdependence, its hardly surprising that when one region of the world hits hard times, others feel the impact too. In no time flat, it seems, there is global angst.

What is surprising, however, is that while the effects of recession have been almost universal, the causes are very different and largely regional. What keeps the U.S. in a growth recession, is not what is blighting the Japanese or German economies. What hinders growth in the industrial world is not what is holding back expansion in the developing world. We may live in the global village these days, but globalization clearly has its limits.

As the United Nations ''World Economic Survey 1991,'' issued last week, observed: ''Economic activity slowed down in all parts of the world -- but not for any one dominant reason. . . . In spite of globalization and growing interdependence, different forces were at work in the various regions of the world.''

There is certainly an unfortunate synchronicity about the series of setbacks that have afflicted the world economy. The bad news seems to have bunched together, threatening economic as well as political stability in many parts of the world. The causes of the current international downturn range from the political, through the military, to the purely economic.

The cost of coping with the collapse of communism is shaping up to be almost as great as the Cold War cost of engineering that collapse.

The collapse has thrown the entire Soviet bloc into severe readjustment that will need billions of dollars of aid and 'u investment and years of effort before there is any chance of efficient partnership in the world free market. There is one fortunate factor: The old communist bloc was so economically insulated from the outside world that its collapse has not had the devastating international impact it might otherwise have had.

There is one exception: Germany. Unification is proving an expensively debilitating process, which has undermined even the robust German economy and is sending out depressive shock waves throughout western Europe. German money supply has exploded by nearly 40 percent in the last two years, creating a new fear of inflation in an economy which has been mercifully free of that particular economic virus for a long time. The Bundesbank's answer last week: higher interest rates which can only hurt the growth rate of Europe's economic powerhouse, slow down its partners and put some of them under pressure to devalue their currencies.

In Japan the problem has been exactly opposite. A restrictive monetary policy has been compounded by the collapse of the stock and real-estate markets. The result: a drop in personal and corporate wealth and stagnating demand. The government, under continuing and increasing pressure from the Bush administration and leaders of other industrial nations, is now moving to stimulate consumer demand. Full economic recovery should be under way by the third quarter of this year, much to the relief of Japan's trading partners.

The Japanese are doing what comes naturally to them -- trying to export their way out of trouble. With exports growing twice as fast as imports, Japan's $8.97 billion trade surplus for June was 24 percent higher than a year earlier. This put the surplus for the first six months of this year at $49 billion, a half-yearly record which is well on track to breaking the annual record of $82.7 billion, set in 1986. Inevitably, this has intensified pressure for Japan to stimulate its economy and boost demand for imports.

In west Asia, the Gulf War shattered the economies of three of the region's major trading powers, Iraq, Kuwait and Jordan, and spread more than a pall of black smoke over the region. Investment plans were postponed, construction projects delayed, banking activities dampened, manufacturing industry depressed and private consumption reduced, in what the U.N. assessed as a ''catastrophic'' regional economic outcome.

The war's impact was far from localized. It even contributed, according to the U.N., to negative economic growth in eight oil-importing Latin American countries in 1990.

Here at home, the richest nation on earth is so debt-burdened, publicly and privately, that it lacks the financial strength to buy its way out of trouble -- the way it has previously escaped recessions. There has been no vivacious bounce-back, and none is expected. Recovery, hampered by fundamental economic restructuring for a post-Cold War era and stubbornly low consumer confidence, will be a slow grind.

For a while, it seemed that we should look abroad for a helping hand. Exports were booming, particularly to Latin American and Southeast Asia, but then demand in most areas weakened, dimming the prospects for export expansion.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.