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Beyond the upturn: many calling for stern measures

By David R. FrancisBusiness editor of The Christian Science Monitor / April 29, 1983



Boston

The United States economy is in trouble. Many businessmen, labor leaders, academics, government officials, and others see this malaise as not something merely short-term, to be cured by the cyclical recovery now under way. They see it as something more fundamental.

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Peter G. Peterson, chairman of the investment banking firm Lehman Brothers Kuhn Loeb, speaks of ''long-term troubles.'' He talks about a need to shrink the massive federal deficits. He notes that the standard of living of the average American has not improved since the early 1970s.

''If we allow this slide to continue for another decade or more,'' the former secretary of commerce asks, ''will we not only be a weaker and poorer country than we need to be, but a very different country than we have been?''

Book after book is emerging discussing the nation's economic difficulties and proposing solutions. Paul R. Lawrence, a professor at the Harvard Business School, and Davis Dyer, a professor of management at Boston College, have just come out with one entitled ''Renewing American Industry'' (Free Press, New York). Robert B. Reich, of Harvard's John F. Kennedy School of Government, has a new book, ''The Next American Frontier'' (Times Books, New York), which offers a formula for ''America's economic revival.'' Three others connected with the Harvard ''B School,'' William J. Abernathy, Kim B. Clark, and Alan M. Kantrow, have written ''Industrial Renaissance: Producing a Competitive Future for America'' (Basic Books, New York). The list could go on.

The basic solution, according to Mr. Peterson, is to get rid of that massive federal deficit. He argues that it's holding real long-term interest rates - after removing inflation - at ''grotesque levels.'' These retard productivity-enhancing capital spending. Those high interest rates also keep the dollar ''overvalued by 20 or 25 percent,'' perhaps costing the United States as much as $60 billion in exports and 1 to 2 million jobs.

Mr. Peterson, head of a bipartisan reduce-the-deficit group that also includes five former secretaries of the Treasury, cited a study indicating that the overvalued dollar has been responsible for one-half to three-quarters of the drop in gross national product in the last two years.

''There is a seminal relationship between getting those out-year deficits down, getting long-term real interest rates down, getting the dollar revalued, and getting the investment we need,'' he said.

To reduce the budget deficit, Congress must tackle the cost of certain ''entitlements,'' Mr. Peterson argues. These include civil service pensions, which cost some 30 percent of total renumeration, and military pensions, at 50 percent - as against 5 to 10 percent for the cost of pensions provided by the nation's larger corporations. He suggests these government pensions should not be fully indexed against inflation, just as most corporate pensions are not so indexed.

The federal government, he notes, is already spending three times as much per capita on the elderly as on the young.

Mr. Peterson's call for slashing the budget was made earlier this week at a New England conference of business, labor, academic, and government leaders here. Most of them apparently share a deep concern for the economic health of the nation. For instance, they spoke of a need to substitute cooperation for the traditional adversarial relationship between business and labor and business and government. The group intends to continue a dialogue aimed at finding ways to remove barriers to economic competitiveness in the United States.

Right away, it was able to agree on some measures:

1. The President should have a high-level and visible adviser on international trade and investment, with Cabinet-level status and strong staffing.

2. Top presidential priority should be given to improving the nation's educational system so business is better prepared to compete internationally.

3. A presidential commission should be set up to consider alternatives for the millions of Americans expected to be affected by the growth in robots and automation.

4. Congress should substitute an ''alternate corporate tax'' (ACT) - dollar for dollar - for the corporate income tax. ACT is another name for the value-added tax, a sort of sales tax imposed at each level of production, which is common to most West European nations.

ACT, the group holds, would mean that all companies would have to share in the responsibility of supporting the country's goals and needs - not just those making a profit. Nor, under ACT, would there be any point for corporations to hire so many expensive accountants and lawyers to avoid taxes through loopholes, thereby reducing tax preparation and administration costs.

The system would also to a considerable degree tax the ''underground economy, '' which, by definition, currently escapes taxes illegally. Taxes on American products being exported would be refunded before shipment, making those exports more price competitive. The tax would be imposed on imports, requiring the sellers to help bear the nation's social burden as they profited from the market. This would eliminate what businessmen often regard as a competitive disadvantage in doing business with Europe.

The group also supported enlargement of the quotas of the International Monetary Fund and adequate provision of funding for the Export-Import Bank.

Representatives of the group expect to present their program next month to President Reagan in person. The President, of course, already supports many of the ideas. He has not, though, endorsed a value-added tax, often regarded as hitting poor consumers more than the affluent. But in these challenging times, the nation is more open to fresh approaches to its economic problems than is usual.