Government action vs. free market: West's differences run deep
* Should the cut and thrust of the competitive marketplace - or government action in subsidizing exports and smoothing exchange rates - lead the world out of global economic recession?Skip to next paragraph
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* Can Western Europe find its way out of an increasingly tight economic squeeze - between the computerized high technology of the US and Japan on the one hand and the new ''smokestack'' industrial strength of South Korea, Taiwan, Brazil, and similar fast-developing nations on the other?
Well-placed officials and economists here see these two basic questions underlying preparations for the summit meeting at Williamsburg May 28 to 30. It is to be attended by the United States, Canada, Britain, France, West Germany, Italy, and Japan.
The preparations include (1)revived French ideas for a new international conference along the lines of the Bretton Woods, N.H., meeting of July 1944; (2 )the controversial US-sponsored meetings of trade and finance ministers here May 10-11; and (3)the meetings of the Organization for Economic Cooperation and Development (OECD) in Paris May 9-10.
The divisions between free-market and government-intervention philosophies were very much on show at the OECD meetings here. They run deep between the center-right Reagan administration, supported by Britain and West Germany, and the Socialist government of French President Francois Mitterrand.
The Reagan team insists on relying as much as possible on the force of the competitive marketplace, free from government subsidies and fiats which it says are wasteful and inefficient in the West as well as in the Soviet bloc.
Subsidized exports, argues Treasury Secretary Donald Regan, are by definition inefficient. Commerce Secretary Malcolm Baldrige told reporters May 10 that developing countries had to move toward ending subsidies if they wanted to trade with the US.
At the same time, Mr. Baldrige said, developed countries had to buy more third-world exports, even at the risk of larger balance-of-payments deficits, to block harmful protectionism. The US, he said, was doing this. He estimated the US balance-of-payments deficit this year at $58 billion, up from $43 billion last year.
The US emphatically does not favor a return to fixed exchange rates. Mr. Baldrige said that intervention on exchange rates by one country over a long period was ''futile.'' He cited a recent IMF study, commissioned by last year's economic summit at Versailles, to prove his point.
The French disagree. President Mitterrand revived May 9 the concept of governments acting through a new type of Bretton Woods conference to restructure the monetary system, stabilize exchange rates, and lead to new links between ''have'' and ''have-not'' countries.
While the scope of the French ideas is not yet precisely known, they appear to have some elements in common with a proposal being pushed through the International Monetary Fund framework by former IMF steering committee chairman Robert Muldoon, prime minister of New Zealand.