`More people are convinced of the need for smaller government'

AMONG the industrial countries, more and more people are convinced of a need for smaller government. That's one point made by OECD Secretary-General Jean-Claude Paye in an interview here in his handsome office in the Ch^ateau de la Muette. The ch^ateau was originally a Rothschild hunting lodge and after World War II the headquarters of the Marshall Plan.

Mr. Paye has been presiding over the OECD's staff of 1,800 since last Sept. 30. He was ``el`eve'' in 1959-61 at the Ecole Nationale d'Administration, the famous school that has trained so many of France's top leaders. Since graduating, he has been an influential man behind the scenes, serving in various posts in the Ministry of Foreign Affairs, at the French embassy in Bonn, with the European Community -- the list of appointments is long.

In the interview, Mr. Paye made these observations (mostly paraphrased for the sake of brevity):

The time is not yet ripe for economic stimulation in Europe. But if the exchange rate of the dollar becomes more reasonable and wage increases are not too rapid, inflationary pressures will lessen. Then European governments might have more room for maneuver. This is being discussed within the governments in many countries. It is very much on the minds of the people responsible for devising economic policies.

The prospect for economic growth in Japan is rather good -- 4 to 5 percent in real terms. Japan's propensity to import, however, is less than in some other industrial countries. Hence, fast growth in Japan does less to induce growth in other countries.

At the recent meeting of OECD finance ministers, much attention was focused on the large budget deficits and growing protectionist pressures in the United States. US respresentatives could assure other participants that the US is resolved to cope with the budget deficits and resist the protectionist pressures. The size of the planned reduction in the deficit may not be impressive, but at least there is a common willingness on the part of President Reagan and Congress to come to grips with the problem. This helped build confidence. Psychological considerations are important. Renewed confidence could sustain world growth by encouraging households and companies to spend more.

Japan's huge trade surpluses were also considered at that meeting. They are creating friction with Japan's trading partners and are fueling protectionist pressures. It is important to try to reduce this type of imbalance.

Europe was asked to speed up the process of ``adjustment.'' This process of deregulation, more freedom for markets, increased labor flexibility, and so on causes political and social difficulties. But it could improve Europe's economic performance.

As for the US dollar, it reflects a change in the world monetary system.

Exchange rates no longer bear direct relationships with the real competitiveness and fundamentals of national economies. This is because of massive capital movements between countries.

Often short-term capital movements are 10 times as great as the trade in goods and services.

So it's understandable that economic trends can occur now which were inconceivable 15 years ago. For example, despite Japan's huge trade surplus, the yen remains stable or even declining in value compared with the dollar. And the US, with a huge trade deficit, has a currency that has appreciated in value.

Another point: More and more people are convinced of the need for smaller government and reduced disincentives to initiative, profits, and the creation of jobs. People have learned a lot from the recent economic crisis, and one of the things we've learned is that overprotection eventually discourages economic activity.