After the Cold War: Experts Reevaluate Prospects of US Role

WORLD ECONOMIC OUTLOOK

By , Staff writer of The Christian Science Monitor

IN the world economic scale, the United States is bigger, but no longer stronger, than Japan or West Germany. That evaluation, by University of Dallas economist Michael Cosgrove, is part of the rethinking of the global economic situation going on with the winding down of the cold war and the start of the hot war in the Middle East. It is occurring at a time of major economic turmoil in the world.

In the US, the Bush administration admits that the economy has fallen into a recession that could extend well into 1991. The Department of Commerce estimates that the economy declined at a seasonally adjusted rate of 2.1 percent in the fourth quarter of 1990. That's the weakest showing since the 3.2 percent decline in the third quarter of 1982.

Output in the Soviet Union dropped 2 percent last year, according to official numbers released last week. (The real numbers could be worse.)

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Labor productivity fell 3 percent; the trade deficit rose from $6 billion in 1989 to $18 billion last year.

In Eastern Europe, the six former satellites of the Soviet Union suffered a 19.5 percent decline in industrial production and a 13.8 percent drop in national output last year, says the Vienna Institute for Comparative Studies.

Japan is adjusting to a bust in the stock market and fears of declining real estate prices. A tight monetary policy has prompted government economists to forecast a 3.8 percent growth rate this year, slow by Japanese standards.

Germany is adjusting to its absorption of East Germany, so much so that a new International Monetary Fund paper on unification begins: ``German economic policy has become exciting again.'' The German central bank fears that the cost of unity will boost the budget deficit enough to ignite inflation.

Financiers expect the Bundesbank to raise interest rates shortly, discomfiting other members of the European Community concerned about too-slow economic growth.

Mr. Cosgrove's thesis is that, in geo-economic terms, the world now is divided into four ``building blocks'' - the North American trading bloc, the European Community, the Organization of Petroleum Exporting Countries (OPEC), and the Japanese group.

That world system compares with a cold-war model in which the US was willing to import an excess of goods from Europe and Japan in order to keep these allies economically strong, says Cosgrove.

One reason for the war, he figures, is that Iraq threatened the stability of the OPEC building block.

By occupying Kuwait and perhaps Saudi Arabia and the neighboring sheikdoms, Saddam Hussein would have won the power to manage the supply of crude oil from the Middle East and thus its price. ``Getting him out of Kuwait guarantees access to cheap oil,'' Cosgrove maintains.

`Imperial overstretch' cited

Yale University historian Paul Kennedy worries about ``imperial overstretch'' - that the US stands in danger of repeating the mistakes of imperial Spain or Edwardian Britain by making commitments of men, money, and materials in different parts of the globe that are too massive for its economic and financial base to manage.

He worries about the US acting as the world's policeman on the one hand and running up debts and neglecting the country's internal needs for better education, improved productivity, and a stronger social fabric on the other hand.

But David Hale, an economist with Kemper Financial Services Inc., Chicago, sees the world system evolving in a way that is contrary to the overstretch thesis of Professor Kennedy outlined in his best-selling book, ``The Rise and Fall of the Great Powers.'' That's because in the fight against Iraq, the US has persuaded dozens of nations to send troops and/or money. Mr. Hale adds it up to $30 billion to $40 billion. Such a sum could cover much of the cost of a short war.

Harvard University economist Benjamin Friedman hopes the countries heavily relying on US troops to oust Saddam Hussein from Kuwait are under some sort of postwar obligation. He would expect the Saudis to continue pumping sufficient oil to keep the price moderate. ``Without our intervention, they would be rubble,'' he says.

Japanese trade surplus

Mr. Friedman voices hope that the European Community will cooperate to conclude the Uruguay Round of trade negotiations and that Japan will make the adjustments necessary to further reduce its trade surplus.

Japan imports 64 percent of its crude from the Persian Gulf. Since the defeat of Iraq should help ensure that supply, the Japanese have ``an additional obligation they didn't have before,'' Friedman says.

The Group of Thirty, a Washington think tank specializing in international monetary and financial affairs, has launched a study that aims at measuring such international obligations or ``burden-sharing'' in the future.

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