Tempering market forces - do nations do too much?
Vancouver, British Columbia
Here's a new word for your economic vocabulary:disestablishmentarianization.m
It contains more letters than the alphabet, and it refers to the impact of economic progress on established institutions. For instance, when discount merchandising hit the retail markets, it brought goods to consumers more efficiently and cheaply. But it also hurt people in the full-markup department stores, some of these being displaced.
That sort of word creeps in when you let an academic loose among a bunch of bankers. At least that was so this week when Paul McCracken, a professor of business administration at the University of Michigan, spoke here to some 175 of the world's top financial leaders at the annual International Monetary Conference.
His point was that economic progress has not meant higher unemployment. ''Those released are re-absorbed,'' he said. ''New entrants to the labor force go to the new industries instead of the old ones. There is, however, an interlude of trauma.''
Dr. McCracken, who was chairman of President Nixon's Council of Economic Advisers, argued that the industrial countries have installed ''with accelerating speed'' in the last decade or so programs aimed to insulate people from the hardships of that ''big word.'' He was referring to such programs as unemployment insurance or government rescue measures for troubled industries and companies. ''But this has also insulated them from the need to change,'' he noted.
''To a point,'' the well-known economist went on, ''this has been the compassionate efforts which ought to be the responsibilities of increasingly affluent societies.''
He wondered, however, if it has been carried so far that the incentives for individuals to change have been weakened; thus it may require greater pressures to force change. Does it, for example, require greater unemployment to stop the wage-price spiral and slow inflation? Do monetary and fiscal restraint simply slow down the economy without prompting the adjustments that permit higher employment and less inflation?
Dr. McCracken is the type of moderate conservative economist these bankers like to hear. He preaches free markets and criticizes too much government intervention in the economy.
''Our overreliance on direct government claims on economic resources and direct government management of economic life have been major impediments to the restoration of more orderly economic growth in the industrial countries,'' he stated.
He also sounds not overly gloomy at a time when many bankers, particularly those in Europe, are pessimistic about the world economy. Quoting the English poet Thomas Gray, he said: ''Just as in the euphoria of a boom there is a tendency for optimism to overshoot reality, so also in periods of gloom there is a tendency for us to retreat into 'Grim-visag'd comfortless Despair.' ''
One encouraging point made by Dr. McCracken was that the poor performance of the industrial nations was not entirely due to such severe shocks as the explosion in energy prices, bad crops, or the inflationary fiscal policies related to the Vietnam conflict. Recent research, he said, suggests that current economic problems are ''to a greater extent the result of general economic policies than had initially been thought to be the case.''
If that's so, then economic policy can be changed to produce better results. ''Nations fundamentally get the performance of economic progress for which they ask by the social and economic policies they pursue,'' he said. ''If what they get is not what they want, it is national policy and not bad luck that is at fault.''
As evidence of this, he cited the experience of less-developed countries. ''The economic success stories in contemporary history have been societies that have placed basic reliance on a liberal, market-organized economic order,'' he said. ''This is the system that can take advantage of the knowledge and creativity that inhere in people generally and this . . . is the critical 'natural resource' for any nation.''
Cornered by the press, Willard C. Butcher, chairman of Chase Manhattan Bank, made the same point by noting how free enterprise in West Germany and South Korea were providing more affluence for their peoples than communist East Germany or North Korea. ''It is clear that the free market is better,'' he said.
Dr. McCracken cited an Iron Curtain joke:
Question: When will Cuba know that it is has reached the same level of socialist development as we have in Russia?
Response: When it starts importing sugar.
The University of Michigan economist even suggested that low-income nations should not put major reliance on foreign aid as an instrument for economic development. One reason is that it is not apt to be large relative to private foreign investment. Another, he said, is that ''aid programs nudge the recipient nations in the direction of government management of economic life - a strategy for organizing economic activity with a decidedly disappointing track record.'' Foreign aid programs that redistribute income, he added, ''create a dependency syndrome that is apt to inhibit indigenous development.''
The program Dr. McCracken spoke on was labeled ''Important currents in modern society: Our environment.'' It turned out to be more of a cheering session for free enterprise, with the world bankers joining in heartily.