Manila — US wage earners receive a 10 percent tax cut in July, but will they spend or save the money?
The answer is pivotal to President Reagan's economics, which rests on the theory that a new supply of capital for investments--not new consumption demand--is needed to spur the economy.
But the United States is not alone in asking how it can step up savings. Many Asia nations, where a strong thrift mentality still holds, are being forced to provide incentives for directing cash to productive, job-creating enterprises.
Serving the fastest-growing area of the world, Asia's leaders are eager for rapid industrialization in the 1980s. Up to now their boom economies have been dependent on foreign capital and generous foreign aid to spur new industries.
But both those supplies have begun to shrink, as Western economies cut budgets and private banking credit gets tight. Also, less income has flowed into these developing nations as prices of primary exports have dipped.
''Asian countries will have to be on their own more,'' says Dr. Seiji Naya, chief economist at the Asian Development Bank (ADB) in Manila.
In the 1970s, because of two recessions and higher oil prices, savings rates declined in most Asian nations except in newly industrialized Far East nations like Taiwan, South Korea, Hong Kong, and Singapore. Compared with 20 years ago, when almost all of Asia was equally poor, the gap in growth today between southern and eastern Asia is best reflected in their savings rates (see chart).
Most Asian nations have inadequate stock markets to provide much new capital, relatively low corporate savings, and serious limitations on tax measures, adds Dr. Wan-soon Kim, an ADB economist.
''The mobilization of household savings is crucial to private-sector growth, '' he says.
For the 1980s, United Nations economists believes Asia must maintain a 6.7 percent growth in real gross domestic production if mass poverty is to be slowly eroded. That growth requires a ''threshold'' domestic savings rate of 16 percent of the gross domestic product.
But, says Dr. Kim, ''fragmented capital markets, interest ceilings, preferential loans, subsidized credits, and high reserve requirements have repressed the financial system and suppressed the flow of household savings.''
Subsidized credits, for instance, are government-directed loans to preferred entrepreneurs, reducing the number of loans issued by private banks. This means less profits for banks and thus less interest for depositors, who will have less incentive to save.
Politically risky steps are needed, says Dr. Kim, to change the savings climate. These include such ideas as taxing urban land to help push development into rural areas, forcing urban banks to open branches in rural areas, and allowing rates of return on bank deposits to float on the free market.
''Even farmers can be mobilized to save,'' he asserts. ''We can't look to foreigners to provide everything. In fact, foreign aid has not really helped to encourage savings.'' Some economists now believe that low-interest loans to developing nations depress their ability or willingness to save.
Although there may be some scope for increasing domestic savings, foreign capital will continue to be crucial in determining the pace of growth, according to Ulrich Hiemenz, an ADB economist.
India's case is peculiar. It has a high savings rate--about 20 percent--but only a 3 percent investment rate. ''This shows incredible inefficiency in how India uses its money,'' says Dr. Kim. And he concludes: ''Savings may not always be the answer, unless the money is used right.''