Hopeful sign: a convergence of growth

It's "a global rebalancing," with the US role less dominant, says Stephen Roach, chief economist for Morgan Stanley, a Wall Street investment firm. This shift is encouraged by the weakness in the US dollar, which fell to fresh three-year lows against the Japanese yen last week, despite efforts by the Bank of Japan to prevent this from happening.

Some economists have been concerned that the huge twin US deficits - about $400 billion in the federal budget and $550 billion in the international current account - could drag the American economy back down next year. The argument is that the stimulative impact of a better trade balance brought about by a weaker dollar could be offset by higher interest rates arising from the need to finance the massive balance of payments deficit.

Nonetheless, most economists figure the US will grow at close to a 4 percent annual rate next year. That may bring down unemployment a little in time for the fall election.

In Europe, economic performance differs considerably between nations. The key to long-term outperformance, maintains Reid, are "a competitive [foreign] exchange rate, flexible labor and product markets, and investment in high-growth technologies."

With those factors in mind, he sees Finland and Ireland as best placed in Europe to surge ahead. But regulatory and social reforms are being pushed ahead in several European nations. Regulatory reforms are key to hearty long-term growth, finds a new report from the World Bank.

In Germany, for instance, Mr. Solzeen expects to see measures to trim unemployment benefits, health- insurance costs, and social security payments that may encourage business expansion and the creation of new jobs. At the moment, Germany has 9.5 percent of its labor force unemployed, according to its own statistics, 8.5 percent by an international measure.

France is considering shrinking its large government bureaucracy. Italy, faced with a rapidly aging population, is considering trimming the costs of its pension system.

The Swiss economy, by contrast, has performed poorly in recent years. Reid blames this on a slow pace of economic and regulatory reforms, plus a less competitive foreign exchange rate.

"Heavier regulation is associated with poor economic outcomes in both rich and poor countries," says Caralee McLiesh, coauthor of the study by the World Bank and its affiliate, the International Finance Corporation.

Her study outlines the most effective laws and regulations in 130 countries concerning starting a business, hiring and firing workers, enforcing contracts, getting credit, and closing a business. The hope is that this information will stimulate reforms around the world.

Some reforms could be accomplished in developing or developed countries in months; others, involving new laws, could take years to work through legislatures.

Economists have found in recent decades that speeding economic progress in poor countries has been difficult. By offering national "benchmarks" showing what methods have worked best, the study's authors suspect they will encourage more rapid reforms and thus faster economic growth.

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