We must reinvent demand

Robert Kuttner

September 20, 1993|By Robert Kuttner

PRESIDENT Clinton, in launching the administration's campaign for NAFTA last Tuesday, claimed that the proposed trade pact with Mexico would create a million U.S. jobs. Embarrassed White House aides explained that the president had misspoken, and Mr. Clinton hastily retracted the claim.

The president's wishful slip was understandable, for the jobs issue is a political hot button. The worry about jobs powered Mr. Clinton's victory over George Bush last November.

More Americans are losing jobs as corporations downsize; more younger Americans cannot find jobs in their chosen fields. Jobs once deemed secure are vulnerable. Jobs that once promised career employment are being converted to part-time and "temp" work.

In Europe, where unemployment averages over 11 percent, Western Europeans worry that Eastern Europeans working at low wages will take their jobs. Eastern Europeans worry that the cold bath of a market economy will destroy more jobs than it creates.

I attended a recent conference sponsored by the London-based Institute for Public Policy Research (IPPR), where the dominant concern was that global markets do not generate enough good jobs, but that national governments have lost the tools they once had to bridge the gap.

It was in recognition of these common anxieties that Mr. Clinton offered his surprise proposal last June for an international Jobs summit, now tentatively planned for next February. At that meeting, the president will either echo the conventional view about the limits of intervention policy, or challenge it.

The conventional view is that thanks to globalization of the economy and accumulated public debts, national governments are largely powerless to influence demand, as they could during the Keynesian glory days after World War II. As a result, all Western governments, whether nominally liberal or conservative, are emphasizing "supply-side" factors.

These include the supply of capital, in the form of lower interest rates and tax incentives for business to invest; the supply of labor, via better trained and educated workers; and the supply of technology, via heightened private global competition.

While these factors are important and necessary, they are not sufficient. Private firms are now in a fierce competitiveness race to increase national productivity -- but the result is that real wages are falling and jobs are being eliminated faster than they are being produced.

The United States, currently the fastest-growing major industrial country (with a tepid 1.4 percent growth rate), has seen only a slight decrease in its unemployment rate, and nearly a third of the jobs created in the current recovery are temp jobs.

Elsewhere, joblessness is continuing to rise, which undermines the hoped-for export boom in the United States. Despite the cheaper dollar, our trade imbalance is widening again because potential customers in depressed economies overseas lack the purchasing power to buy our products.

Germany, once a full-employment powerhouse, is bogged down absorbing its Eastern provinces. Japan, which has traditionally hidden its unemployment in overstaffed retail shops and no-layoff custom in big firms, is now beginning to resemble the rest of the industrial world as companies shed workers.

What to do?

It is time to rediscover -- or reinvent -- the demand side. All the new productivity will come to nothing if people lack the means to buy the products. There was plenty of new technology in the 1930s, too; but the world remained mired in depression as companies tried to regain their competitive position by slimming down their payrolls.

Recently, London's Financial Times reviewed the global electronics industry, crown jewel of the new high-tech economy. The Times reported that despite stunning technical breakthroughs, virtually every large electronics firm -- from Matsushita in Japan to Philips in Europe to IBM in the United States -- was losing money and shedding workers, suffering from excess capacity, product glut and falling prices.

This is, of course, a classic case of supply outstripping demand. And the cure will not be found on the supply side.

A generation ago, before the world was one big marketplace, governments could manage demand. The military outlays of the Cold War created a further source of stable demand, and of jobs. In addition, wage earners typically enjoyed stable employment with one company.

As Will Hutton, the economics editor of the Guardian in London, told the IPPR conference, the new reality of low interest rates, low oil prices and low labor costs sets the stage for a new era of high growth; but as Mr. Hutton cautioned, these factors by themselves will not make higher growth happen. Supply has to rendezvous with demand.

A new engine of demand could be a common commitment by the industrial nations to invest in public infrastructure. It could include massive public investment in environmentally clean technologies. It could be a new Marshall Plan to help the former communist lands recover.

It might include a "New Bretton Woods" to stabilize the world's fluctuating currencies, and a "social tariff" imposed by countries with decent labor and environmental standards against those who practice competition on the cheap. It could include a new social compact between industry and labor.

Whatever the instruments, the jobs summit needs to look beyond the supply side. Otherwise, the symbol of the new economy could be frustrated, even highly educated workers peering into shop windows, marveling at new products that they cannot afford to buy.

Robert Kuttner writes a column on economic matters.

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