Despite robust health, low inflation and high employment, the U.S. economy faces a serious threat in its relationship with the world, says
Speaking before an audience of academics, business executives and policy makers at an October 28 conference sponsored by the Wharton Financial Institutions Center and the Brookings Institution in Washington D.C., Summers argued “the national security and economic case” for open markets around the world, chastised the U.S. for not supporting international financial institutions, and tried to explain why it is that Americans are not more enthusiastic participants in the global economy.
The U.S. should back open markets for at least two reasons, Summers says. First, open markets are an investment in the country’s future security. “We are much less likely to be drawn into conflict if nations of the world are strong, confident, and forging ever closer connections than if they are financially unstable and disconnected,” he notes. “In short, trade promotes prosperity, and by promoting prosperity, promotes peace.”
Second, open markets are an investment in future prosperity. They provide consumers with a wider choice of goods at lower prices, while producers get a wider choice of inputs at lower costs. Enhanced competition also spurs greater productivity and sparks new ideas. “Our market economy–by bringing about improvements in technology, communications and transportation–is bringing down natural barriers and making communication and trade that much easier. The question is whether we should respond differently to man-made barriers to trade.”
Summers also wants the U.S. to provide more backing to the International Monetary Fund, the World Bank and other international financial institutions. Such investments, he says, aim at pre-empting crises rather than responding to them once they have erupted, yet it is becomingly increasingly difficult in today’s political climate to ensure their support. For example, the Foreign Operations bill that President Clinton vetoed last month “appropriated only $12.7 billion for these kinds of investments. That is nearly $7 billion, or 35%, less than the $19.4 billion average spent under President Reagan and President Bush.” While Bush in 1991 requested $1.8 billion for international financial institutions, Clinton requested just $1.4 billion for 2000 and Congress cut it further to $895 million.
This is a huge mistake, Summers argues, noting that “every dollar we contribute to the multilateral development banks leverages more than $45 in official lending, to countries where more than three quarters of the world’s people live. Quite simply, they are the most effective tools we have for investing in the markets of tomorrow.”
Summers claims that “the generalized domestic distrust of global involvement” shows up in several ways, such as “the widespread opposition to the World Trade Organization, the 60-plus times that the U.S. has imposed unilateral economic sanctions since 1993, and the failure to pay our dues to the United Nations, which may soon cause us to lose our seat in the General Assembly.” It is ironic, he adds, that “the economy that has gained the most from rising global integration and cooperation seems to need ever-greater assurance that these things are in its interest.”
Why is it so hard to convince people that the U.S. should participate more whole-heartedly in the global economy? Summers offers three main reasons:
First, people have a natural tendency to internalize good news and externalize the bad. “How many people working hard at a badly-managed firm, with out-dated technology, pin the blame for their layoff on foreign competition?” Summers asks. “How many people, when offered a raise or promotion in a labor-short industry following a surge of export demand, assign the credit to open international markets rather than considering it a deserved reward for their own skill?”
Second, “the compelling geopolitical rationale that the Cold War provided is no more,” Summers explains. Historians have often shown that American global involvement has been most forthcoming at times of dire threat. “Today’s threats–of rising disorder and impoverishment overseas–do not have the emergency character that the threats of an earlier time have had.”
Finally, Summers argues that trade and integration are frequently “the lens through which all kinds of concerns about a changing world are projected. Whether the root concern is new technology or deregulation, all the economic insecurities that this new economy can produce tend to come together when the subject is trade.”
Summers maintains that just as American leaders after World War II saw the need for global involvement, so must the current generation. “The case for vigorous U.S. engagement with the world and support for open markets is surely more difficult to make today than it was 40 or 50 years ago,” he says. “But the risks for our future capacity to lead the world–and to bequeath a safe and prosperous global economy to our children and their children–are every bit as great as they were then.”
