Gulf War Gives Boost To US Self-Confidence

THE Gulf war has lifted American confidence and credibility in the world, rattling the widespread view that United States pre-eminence among nations is gradually eroding. One sign: A newfound faith in the American economy - in spite of recession and falling interest rates - has reversed a long slide of the dollar against European currencies and the Japanese yen, sending central banks scrambling to stabilize the markets this week.

Before the Gulf war began, European investors viewed the US as a declining power consumed with inward-looking concerns ranging from failing banks to drugs, says Sonja Kohn, president of Windsor Investment Banking Corporation in New York. The Gulf victory ``has turned around the image of the US 180 degrees,'' she says.

The next question is whether Americans can convert post-Gulf confidence into lasting strength.

Newfound confidence can either be invested in bolder action at home and in the world or can be frittered away in boosterism and smug complacency, according to a range of specialists.

The war has brought ``a boost to the whole idea of competence, and that Americans can do things competently if they put their minds to it,'' says Francis Fukuyama, a consultant at the RAND Corporation who recently left the State Department.

But the longer-run impact of the Gulf victory on American power ``really depends on what the intellectual and political leadership says about it,'' he says. The war will benefit Americans if it removes some inward-looking pessimism without spreading an easy euphoria, says Joseph Nye, Harvard University professor, a former deputy undersecretary of state and author of ``Bound to Lead.''

``You can make an argument that Americans work well when they are self-confident and optimistic,'' he says. He adds that how Americans channel their confidence will be determined largely by President Bush.

Mr. Bush has moved quickly so far, without overplaying the American hand, to take advantage of American credibility and the reshuffled politics of the Middle East. After months of staying home to manage the Gulf crisis, the president is traveling again this week in a sort of relaxed victory lap with some leading allies.

The heavy lifting falls to Secretary of State James Baker III, on his way through the Middle East and Moscow. He says he is encountering ``new thinking'' this week among Arabs that could eventually lead to Arab-Israeli peace. Some of that new thinking appeared in remarks Wednesday as Mr. Baker traveled from Israel to Syria: On Wednesday, a top Palestine Liberation Organization official said his organization was willing to accept something less than the entire West Bank and Gaza strip as a Palestinian st ate and is dropping its demand to negotiate with Israel on an equal footing.

The character of American power, as the Gulf war demonstrated, is cooperative.

``We need to lead others,'' says Henry Nau, a George Washington University political scientist and author of ``The Myth of America's Decline.'' ``The good news is we can can lead others.''

The triumph of Western values in Eastern Europe during the past two years has been accompanied by a sense that the US reigns less supreme in the West. The German and Japanese economies have been striding rapidly toward US levels of productivity, and economic power has been assuming greater importance than military, where the US is virtually unchallenged.

Then came the military triumph in the Gulf. The self-confidence that had been shattered in Vietnam, jarred by the Iranian hostage crisis, and jolted by the Challenger explosion has come bounding back to Americans.

That new faith appears to be shared by others. For European investors, the Gulf episode has shaken up the long-term view that the US is losing ground, says Guy Stern, a global securities analyst with the Lexington Management Corporation.

``It's really an emotional reaction,'' he says. ``In time we'll see if there's a real resurgence of confidence in US products and US businesses.''

Ms. Kohn says the change in America's image abroad is deeper than an emotional reaction. Europeans now believe that the US is the safest place for their money, because they trust US leadership and believe the enormous American energy mobilized on the Gulf crisis will pull the US through its current recession.

Many scholars in the US dispute that Japan and Germany have come anywhere close to closing the economic gap with this country. Dr. Nye says that Americans have a 15 percent advantage in absolute productivity over the Japanese. Where Americans lag, he says, is in investing for the future. Although international comparisons are difficult, American education does not appear to be competitive with that of many industrialized nations. And the US savings rate lags that of Japan and Germany.

Further, all global power does not stem from economic strength, notes Joshua Muravchik, resident scholar at the conservative American Enterprise Institute.

``You'd have to go back pretty far to find a moment when one nation was so supreme in its power,'' he says - perhaps to Napolean's France. Yet the world has embraced American power with a striking degree of trust that it will not be abused to plunder other countries. ``Basically, the world is not afraid of that power.''