Slow Recovery Crimps Clinton's Selling of NAFTA

White House and critics dispute whether economy is strong enough to risk trade treaty. FREE-TRADE OFFENSIVE

WITH the critical House vote on the North American Free Trade Agreement just 10 days away, the Clinton administration is pressing its ``no pain, no gain'' economic message hard.

Top White House policymakers insist that the adoption of controversial initiatives - deficit reduction through higher taxes and budget cuts, passage of NAFTA and health-care reform - is essential for the nation's economic recovery.

But convincing the American public ``that ultimately there's a real payoff'' in taking such steps is a ``tough battle,'' White House budget director Leon Panetta conceded at a Monitor breakfast last week. (Doubts about NAFTA, Page 6.)

The key reason why it's so tough is that, so far, the economy hasn't been producing many new jobs. The Labor Department announced Friday that unemployment edged up to 6.8 percent from 6.7 in September.

``We have not had enough [gross domestic product] growth and that's why we've had a relatively jobless recovery,'' says Robert Rubin, chairman of President Clinton's National Economic Council. Still, he says, ``The pieces are falling into place for a vibrant economy.'' What's needed now, he says with the resolve of a campaigner, is public support.

Administration officials say that if the public buys into a positive view of the economy, they can win the NAFTA battle. Vice President Al Gore Jr. will be delivering a rosy message tomorrow when he debates Ross Perot on the merits of the trade agreement. In the days leading up to the showdown, White House officials have intensified their economic pitch.

``The administration has set a very important direction'' for fiscal discipline, control of health-care costs, and a broad-based trade accord with Mexico, Mr. Panetta argues. If US policy continues down this path, he says, ``We're going to see steady, solid growth in the economy.''

Critics, however, see a darker side to the administration's economic nostrums. ``If we follow all of the administration's leads, we'll hit a dead end,'' says William Dunkelberg, chief economist for the 600,000-member National Federation of Independent Business (NFIB).

The NFIB, which represents small firms, fought the higher taxes that accompanied the deficit-reduction plan. Now it is strongly opposed to a health-care plan that would impose heavy financial burdens on its members. Such measures depress, not stimulate, economic growth, Mr. Dunkelberg says.

Most economist agree that the nation's economic gains since President Clinton was elected have been modest. The most significant development, they say, is Wall Street's acknowledgment of Washington's commitment to fiscal restraint. The result is the lowest interest rates in two decades - a favorite Clinton administration example of how difficult decisions bring great benefits.

``The reality is that low interest rates are having a dramatic impact on the economy,'' says Panetta, who projects the nation's gross domestic product, up 2.8 percent during the last quarter, to expand by 3 percent in the last three months of the year.

But according to a recent NFIB poll, a majority of its members -

among the biggest job generators in the country - do not expect the economy to improve. ``There is a crisis in confidence about the administration, and employers continue to express their reluctance to invest in the future or to hire new people. Businesses aren't borrowing because the economic policies coming out of Washington are anti-growth,'' Dunkelberg says.

``There's more confidence out there and more jobs being created,'' counters Treasury Secretary Lloyd Bentsen in a meeting with three reporters. ``What you're seeing is a solid, sustainable recovery ... that we can build on.''

Both Mr. Bentsen and Panetta see further government cost reductions - through health-care reform, for example - as a way to ensure cheaper capital over the long term.

But while low rates have improved the housing market and help reduce personal, corporate, and government debt, ``the effect has been greatly exaggerated,'' says David Levy, director of forecasting at Bard College's Jerome Levy Economics Institute. ``It's difficult for people to save, for businesses to profit, and for governments to balance budgets.''

Businesses aren't the only ones anxious about their ability to fund federally imposed health-care mandates. State and local governments are also worried. Last week, the National Governors' Association warned that federal limits on health-care spending will leave states vulnerable to financial demands they cannot afford to meet. ``If we try to reduce the deficit too sharply at a time when it's a crutch that the economy is limping along on, then we can expect far slower economic growth,'' Mr. Levy says.

He is more upbeat, however, about the administration's efforts to expand United States trade opportunities. Of all the administration's growth strategies, he says, its pro-NAFTA push is the most promising. Administration officials agree that NAFTA is vital. ``Jobs are going to be dependent on one thing: our ability to sell products abroad,'' Panetta says.

Union officials don't buy that claim, arguing that NAFTA will put US jobs in peril. Ronald Carey, president of the International Brotherhood of Teamsters, contends that the accord would guarantee disadvantages to US producers by making it easier for Japan to flood the US with cheaply produced goods.

The White House responds that failure to pass NAFTA would mean that Mexico will simply team up with an economic powerhouse like Japan and stomp on US markets. ``I think organized labor is totally sincere and absolutely wrong,'' Bentsen says. ``NAFTA didn't eliminate low-wage jobs. That's [a result of] restructuring taking place across the world and we're adjusting to it better than anyone else. We've created 1.4 million jobs since the beginning of the year.''

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