America's Economic Dependence

Felix G. Rohatyn

From Foreign Affairs, America and the World 1988/89

Article preview: first 500 of 4,809 words total.

Summary:  Survey of US economic problems, from budget deficits to the need for political and economic stability in Mexico.

Felix Rohatyn is a senior partner in the investment firm of Lazard Frères & Co.

The coming decade will set the stage for the world of the 21st century. Will that world be chaotic or orderly? Will there be growth or stagnation? Will the United States be able to play the preeminent role that it played in this century? This is the context in which we must examine the present.

The ideological walls are crumbling all over the world. The basic national objectives in both the communist and the free worlds consist of sustained economic growth, greater competitiveness and higher standards of living. The global divisions that continue to exist, and that will become more and more serious, will be between haves and have-nots, rich and poor, competitive and inadequate. Such distinctions, however, will no longer be primarily ideological in source.

The most important event since the end of World War II is the recognition by the leaders of both the U.S.S.R and China that communism is not a viable system. While Soviet and Chinese reforms have been so far mostly limited to economics, they will inevitably spread to the political sphere. The Soviets and the Chinese have embarked on reform because their economies were collapsing, their citizens wanted a higher standard of living and their military wanted up-to-date technology and educated armed forces. But the underlying cause was that their system, in addition to being philosophically unacceptable, is inefficient and noncompetitive in the modern world. Until the end of this century and later, the U.S.S.R. and China will be dealing with their internal economic and social problems.

The evolution of Western Europe toward a unified market by 1992 is driven by similar broad objectives. President François Mitterrand's attempt to govern France with a classical socialist program came to a painful end in 1983. His successful reelection this past year was due, in good part, to his adoption of a moderate social democratic program geared to a market economy and aimed at global competitiveness. The same is true of left-wing governments in Spain and Italy, as well as conservative governments in the United Kingdom and West Germany. All of these European countries seek higher standards of living, better education and lower unemployment, with varying levels of government involvement in economies driven primarily by the private sector. It is interesting to note, parenthetically, that all of these countries have more extensive social safety nets than the United States and higher levels of government spending as a percentage of GNP (between 40 and 50 percent as compared to about 35 percent for the United States).

In the less-developed parts of the world, the objectives are also the same, but the ability to achieve them is problematic. Mexico, Brazil, Argentina, the Philippines-all are crushed by a combination of debt service, corruption, high birth rates and stagnating or decreasing standards of living. The threat to political stability arising from this economic inadequacy is very great. The political fate of these countries will depend on their economic success or failure, and not vice versa.

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Issues of global economic ...

End of preview: first 500 of 4,809 words total.