The United States in the world economy

US Department of State Bulletin, August, 1988

Address before the World Affairs Council in Baltimore on May 10, 1988. Mr. Wallis is Under Secretary for Economic Affairs and Agriculture.

This is a leap year, and the U.S. Constitution makes every leap year a time of great confusion in discussions of economic policy. With the political season comes silliness. Slogans and buzzwords masquerade as thought. Claims, charges, and statistics fly about like excited hornets.

Nevertheless, debate on economic policy is a sign of a healthy, dynamic society. Static economies, with structures fixed by tradition or authority, have little debate over economic policies. Change is not necessarily healthy, but healthy economic progress necessarily brings change. Change, in turn, brings debate about whether to resist it, about what changes to make, and about adjusting to the changes.

An economy like the United States, open to international markets, experiences more pressures for change than does a closed economy. Thus, with growing integration of the world economy, economic issues in the United States increasingly relate to our place in the world economy. That is my topic for this evening.

The issues behind the rhetoric are real and important. Is our economy thriving or slumping? Is our prosperity soundly based or are we teetering on the brink of economic disaster? Are we competitive internationally, or are we being overwhelmed by more efficient producers abroad? Do we benefit from foreign trade or are we merely weak prey for foreigners who take advantage of us? Do our economic policies need a change of direction? Should we raise taxes; intervene in markets; counterattack against foreign predators? In this year of decision, the American electorate has to sort out these questions. It must separate fact from myth and reason from fallacy.

The fundamental question underlying these policy debates is this: will our economy benefit if we continue in the direction of the past decade or so-increasing our reliance on markets, rather than government flat, to make basic economic choices? Or would we do better to rely more directly on the government, and less on private decisionmaking?

An informed choice between these alternatives requires that we look both inward and outward. We should examine our own experience during the past several years. How successful have we been, particularly in relation to the rest of the world? But also we should note how the world is changing and, in particular, how economic policies around the world are evolving.

The Global Trend Toward the Market

The observations that follow are based partly on experience as the President's personal representative for preparing and attending six economic summits (1983 through 1988), partly on engaging in a large number of negotiations and discussions with officials and businessmen from many countries, and partly on participating in many international organizations and conferences.

During the nearly 6 years that I have been in my present position, I have observed a remarkable transformation of attitudes on economic policies. Market-oriented policies that were once dismissed as old fashioned, naive, and impractical are now seen to work in practice, and there is a major trend toward such policies throughout the world.

Back in 1981, when President Reagan attended his first economic summit with the leaders of the other six major industrialized countries, he was preaching the benefits of free and open markets to an audience that, except for Margaret Thatcher, was skeptical, to put it mildly-derisive might be more accurate. Next month at the Toronto summit, Francois Mitterrand will be the only remaining socialist, but even he has moved a long, long way since 1983 from disastrous policies he introduced in 1981.

Many of the poorer countries of the world have long been afflicted by statist, inward-looking, authoritarian economic policies, sometimes rooted in resentment of a colonial past; more often in Marxist ideology. Increasingly, however, many of these countries, notably in Africa, are coming to realize that such policies lead only to continued stagnation and poverty, and they are embarking on fundamental economic reform. Even in Latin America, where the intellectual climate has long been dominated by statism, opinion has been shifted by overwhelming evidence, and policies are changing. We see movement toward the market even in communist countries, including the Soviet Union and China.

What is the evidence that has created this profound shift in attitudes? Let me review some of it for you in broad terms.

The United States and Europe

During most of the postwar period, European economic growth outstripped that of the United States. In the two decades 1961-80, for example, annual growth in the European Community averaged about half a percentage point above that in the United States. However, since the 1981-82 recession, the relationship has been reversed-U.S. economic growth has been consistently more robust than European, averaging during the last 5 years about two-thirds higher (about 1-1/2 percentage points).