Patching Up the World
Global leaders scurry to meet and mend economies. Are they succeeding? A look at the major repair needs.
So many summits; so little bold leadership. So much pessimism; so little need for it.
As the northern world emerges from a hot but economically chilled summer, it's useful to draw up a balance sheet of where we stand. Autumn is traditionally the time for vigorous action, as people return to full-bore work. And this troubled season is more acutely back-to-school than usual.
Summits are one symptom. Britain has called the leading industrial nations (the G-7) to an unusual meeting to decide how to help shore up the crumbling Russian economy. Hobbled President Clinton, having just surveyed the Moscow gloom, hears from Treasury Secretary Rubin what, if anything, Mr. Rubin and central bank chief Alan Greenspan managed to persuade Japan to do at their San Francisco summit with Japan's Finance Minister Miyazawa.
And then there are all those other summits. The 14 Latin American leaders met in Panama and asked the G-7 to get world growth back on track. European Union foreign ministers urged Russia to quickly form a new government to help ensure stability in the region. An EU-Russia summit will follow in October.
In South Africa, 113 leaders of the oft-forgotten Nonaligned Movement discussed the Congo War, US missile attacks, and India and Pakistan's nuclear status. In November, Asian Pacific leaders (APEC) will head to Malaysia to ponder steps to end the economic crisis that started the world malaise a year ago.
Does this welter of meetings have any effect on daily life for the world's billions of non-finance ministers?
Several clues provide an answer:
1. Greenspan's hint that the Fed may lower interest rates creates a stimulus for Asia and Latin America.
2. Russia remains a major problem, facing the kind of inflation threat and authoritarian leadership threat that sank the Weimar Republic in the 1920s and led to the rise of Hitler.
3. Asian moves to curb currency speculation and investment flows are eroding the post-cold-war trend toward broadly free markets.
4. The fundamentals of world economic growth - more skilled workers, new factories, and increased investment capital despite the recent market shrinkage - remain intact beneath the global economic turmoil.
Greenspanning the globe
The summit that supposedly failed - the quiet San Francisco parley of Messrs. Greenspan and Rubin and Miyazawa - may have the greatest impact. Greenspan's hint that lower US interest rates may be in sight sparked a surge in the US and Asian stock markets. Last week we strongly urged such a move by the Fed chief. We believe lower rates will help save the US economy from losing momentum as a result of the Asia-Russia-Latin America market slump, new competition from cheap-dollar Canada, America's biggest trading partner, and the uncertainty hanging over Mr. Clinton's political future. A drop in US interest rates would likely bring a similar drop in European rates, stimulating EU growth. Combined with higher rates in some developing markets, it might lure investors away from their flight to US bonds back to capital-needy Latin America and Asia.
Russia - lessons from Weimar
Neither the US nor EU can dictate Russia's course. That's up to the Russians. But, to the extent that carrots like the rest of the promised IMF loan are tied to sticks, the outsiders must press Russia's bickering leaders to avoid printing rubles by the billions and creating hyperinflation. That was what opened the door to dictatorship in 1920s Weimar Germany.
Happily, Russia is going through an unplanned decentralization period in which regional governments are increasingly taking over the taxing, spending, and administering roles and generally doing them better than oligarch-ridden Moscow. The US, Europe, and IMF might consider ways to augment this trend without abandoning aid to the central regime.
Malaysia and malaise
Much attention has been paid to moves in Asia to curb free markets. Given the flight of capital last year, the moves are understandable. Malaysia is going about it the wrong way - by arbitrarily imprisoning foreign capital. Hong Kong has done better - intervening briefly to stabilize markets and then getting out (with a profit).
Fundamentals of growth
We've said many times, and still fervently believe, that the world is much better off than it was a decade ago. Skills, learning, and technology have spread. Crony capitalism has been exposed. Authoritarianism is in retreat. Information spreads more rapidly. Democratic freedom is more widely seen as a model and goal.
Huge problems remain. Leadership is needed. Pessimism is not.