TIME: Almanac 1993/TIME Almanac 1993.iso/time/071591/0715640.000

Text File | 1992-08-28 | 6.0 KB | 122 lines

                                                                                ESSAY, Page 76

A Grand Bargain For America Too?


By Michael Kinsley


    Up at Harvard, economists from East and West have been
concocting a so-called Grand Bargain between the Western
nations, led by the U.S., and the Soviet Union. The details are
still secret, but the basic idea is simple: Western aid to the
prostrate Soviet economy in exchange for a commitment to radical
political and economic change. The numbers being bandied about
are $20 billion or $30 billion a year, three or four billion of
that from the U.S., for five years. "The strategy," write Graham
Allison and Robert Blackwill of Harvard's John F. Kennedy School
of Government in the current Foreign Affairs, is to "create
incentives for leaders . . . to choose a future consistent with
our mutual best interest by promising real assistance for real
reform."

    Critics of aid to the Soviet Union ask, If reform is in
the Soviets' best interest, as it surely is, why should they
have to be bribed to do it? For an answer, the critics might
look to the U.S. Listen to the New York Times lecturing Soviet
leaders: "First, Moscow would have to balance its budget . . ."
Wait a minute, this is beginning to sound familiar.

    Every outsider looking at the U.S. economy writes the same
prescription: cut the government deficit, increase the savings
rate, end wasteful subsidies of coddled industries like
agriculture, increase investment in infrastructure and
education. Just last month the Bank for International
Settlements -- the central bank of the world's central banks --
weighed in with precisely this advice. BIS noted that the U.S.
net savings rate was 4% of GNP in the 1980s, compared with 20.9%
in Japan. American public investment on roads, bridges, airports
and so on is down to 0.25% of GNP, compared with 5.7% in Japan.
And by no coincidence, our standard of living -- as the popular
culture is suddenly starting to realize -- has been stagnating,
by some measures, for two decades now.

    America's economic problems are obviously far less extreme
than the Soviet Union's. So are the steps needed to correct
them. Yet America seems equally paralyzed. More so, in a way:
the Soviet crisis is partly one of transition from a
half-abandoned old system. The U.S. has no such excuse.

    The problem, in both cases, is the same. Economic reform,
though beneficial in the long run, requires sacrifice in the
short run. Although the Soviet Union is not yet a democracy, its
leaders must nevertheless fear the consequences of popular
wrath. One school of thought holds that for this reason the best
route to reform is based on the dictatorship model of Chile and
Singapore: bring capitalism, and hope democracy will follow. But
most skeptics about aid to the Soviet Union want democracy
simultaneously or even as a precondition. The pious hope that
democracy can ease and legitimate sacrifice for the national
good is not exactly vindicated by current American experience.

    Maybe the U.S., like the Soviet Union, needs a little push
to do the right thing. But who will offer America a Grand
Bargain? The candidate is obvious: Japan. As a matter of fact,
the Japanese are already subsidizing the American economy to the
tune of many billions of dollars a year. One measure is the U.S.
current-account deficit with Japan: $32.3 billion in 1990. That
means, in essence, that the Japanese sold $32 billion more of
goods and services to Americans than Americans sold to the
Japanese. The excess represents a loan to the American economy,
which takes various concrete forms. For example, an estimated
20% to 40% of new U.S. Government bonds are now purchased by
Japanese interests. (Opponents of U.S. aid to the Soviet Union
complain that it would amount to passing money from Tokyo
through Washington and Moscow on its way to Havana.)

    Allison and Blackwill say Grand Bargain money sent to the
Soviet Union should go for "general balance of payments support,
project support for key items of infrastructure . . . and the
maintenance of an adequate safety net." That's more or less what
the Japanese money invested in U.S. Government bonds is already
going for. It would not require instructions from the Kennedy
School of Government at Harvard for the Japanese to say, "Look,
if you want us to keep financing your economy, you've got to do
x, y and z."

    As it happens, Japan is already asking the U.S. to cut its
government deficit, spend more on education and so on, in a
trade negotiation known as the Structural Impediments
Initiative. Leslie Gelb of the New York Times points out that
these are "the very steps any American with half a brain knows
we ought to be taking in our own self-interest." Trouble is, the
Structural Impediments negotiations are halfhearted on both
sides (America is asking that the Japanese do things like stop
working on Saturdays). In a notorious 1989 book titled The Japan
That Can Say No, a popular Japanese legislator named Shintaro
Ishihara declared, "No other nation will pay attention to Japan
if Japan cannot say `no' to the United States." Well, here is
Japan's chance. Just say no, for America's own good.

    At present the Japanese subsidy of the U.S. economy
creates no incentive at all for sensible reform. Quite the
opposite: it permits America to luxuriate in its decadent ways
and put off the necessary changes. Here, too, there is an echo
of the debate over aid to the Soviet Union. Aid supporters say
Western money is necessary to grease the wheels of change and
ease the pain of transition. Skeptics argue that any financial
support from the West would have the effect of shoring up the
crumbling old system rather than helping build a new one.
Pouring money into an unreformed economic system without
demanding radical changes as a condition is what you would do
if you actually wanted to see that economy slip farther and
farther into the morass.

    Hmmmm . . .