Author Says Governments Can't Control Economies

PETER DRUCKER would probably agree with President Clinton's mantra: "It's the economy, stupid."

But while Mr. Clinton means it as a pin prick to remember his priorities, Mr. Drucker means it is stupid for government - any government - to think it can control the economy.

The management guru and watcher of the evolution of societies says presidents can tinker at the margins - set goals to lower inflation, reduce the deficit, cut regulations.

But economies are too complex, and the accepted means of stimulating them, through more government spending, can't be done because governments are too deeply in hock. Even if they could, it would only stimulate inflation, and no models exist that can explain how consumers or the economy would react.

So when you ask the author, lecturer, and management consultant what he thinks of President Clinton's economic plan, he replies, "Does he have one? He has economic hopes. Don't confuse this with economic plans."

He states that the only intelligent thing for a government to say is "We cannot control the economy," adding, "Every developed country has used up its resources. Nobody can increase the deficit any more. The Japanese just did it, but even the Japanese are at the limit."

To avoid special-interest politics, Drucker suggests the United States go back to a budgeting process used earlier this century in which revenue limits are set first and expenditures fit into them. That way, he says, it will be a "system that makes choices and says 'no' instead of a system that pleases everybody."

He urges shifting money from consumer spending to capital spending, encouraging investment in production, technology, and innovation. But that would mean, he says, cutting consumption and shifting from an income tax to a value-added tax.

The result would be an "enormous export expansion in the next three to five years" but, politically, it would mean telling people that, for now, "we cannot give you a speedy recovery; you'll have to suffer out of it."

Although President Clinton talks about encouraging savings and investment, Drucker says that doesn't jibe with plans for higher corporate and capital-gains taxes. Higher taxes depress economic activity, he says.

He also doesn't think taxing the rich will bring in more revenue. It only affects a small number of people, some of whom will find ways around it. Yet he agrees with the need to cut the deficit - the "key to American competitiveness in the world."

On other topics, Mr. Drucker makes these points:

Trade policy. The much-lamented US trade deficit is a phantom.

"Everybody believes trade means merchandise. The trade that has been growing the fastest the last 40 years is service trade, and this country probably has as much of a service surplus as it does a merchandise deficit."

Thus, he says, US policy should stress opening up Japanese markets for US services, such as banking, insurance, education, and health care, rather than for American merchandise, such as rice, which won't generate much money, anyway.

Leadership. What makes an effective president is not intelligence or political skill but the ability to say: "It's not important what I want to do. What is important is what needs to be done."

President Truman epitomized this. He didn't know anything about foreign affairs, but knew that was the challenge of the moment. Result: "He was probably our best, most effective president on foreign affairs."

Business schools. "Business schools are going to change drastically in the next 30 years. The center of gravity will shift toward executive management education and away from teaching kids."

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