The Slowdown Goes Global

In much of the industrialized world, unease is growing among people who have mostly prospered since they pulled themselves from the rubble of World War II. European and Japanese headlines tell of inflation, layoffs, strikes, bankruptcies--and economic slowdowns. Businessmen abroad are hearing that well-worn aphorism: When the U.S. sneezes, the rest of the world catches red-white-and-blue flu.

That is not the real cause of trouble this time. Instead, the foreign slowdowns are largely self-induced. Governments have adopted policies to contain intolerable inflation, which has been fueled by the rising cost of labor. Last year's average increases in manufacturing wages hit 14% in Germany and 18% in Japan.

A few economies, like France's and Italy's, have avoided the need to deflate, and are relatively healthy today. For the rest, the boom of the 1960s is tapering off.

-- Britain's economic growth has stumbled to 1.5%. Unemployment is 3.1%, the highest since the war. Still, wage demands of 20% are frequent. Prime Minister Edward Heath is taking a tough stand against union wage demands, which he blames for the country's 7% inflation. His union policy and Britain's high discount rates have not yet brought a leveling in prices, but the average for wage gains appears to be receding slightly from last year's 14%. While Britain was still reeling from the Rolls-Royce crash, Vehicle & General Insurance Group, which insures every eighth motorist in the country, went bankrupt.

>Germany's industrial production grew at an annual rate of 1.6% in December, compared with 10.5% for that month a year earlier. To combat the 4% rate of inflation, Economics Minister Karl Schiller has used just about every weapon at his disposal: restricted government spending, a 10% income tax surcharge, tightened depreciation allowances and high interest rates. Bayer, the chemical giant, has announced that its profits last year were off by more than one-third, and sad earnings reports are expected from other companies.

>The Netherlands' economists forecast for this year a rise in unemployment, a lower yield on invested capital, a drop in investments and a worsening balance of payments. A six-month freeze in wages has been imposed by the government to retard a 4% price rise. Dutch Minister of Social Affairs Bouke Roolvink recently went shopping with a disgruntled huisvrouw who had challenged him to stay within her inflation-socked budget. At the checkout counter he came up red-faced and $6 short.

> Sweden is torn by strikes that have closed railways, law courts, government offices and schools. Finance Minister Gunnar Straeng has put the country on a deflationary diet of tighter credit, higher indirect taxes and restricted federal spending, and is taking a firm stand against union demands. Still, inflation is expected to stay about the same as last year's 8%. The anti-inflationary policies have hurt small wage earners and great companies alike. Twenty-three workingmen in the mountain village of Stora Blasjon, some without work for the past two years, went on a hunger strike last month before the government finally gave them jobs on a road-building project. The government and private sources recently had to rescue the super-modernized Goetaverken shipyards because the firm ran short of cash.

> Canada's growth rate has slowed to 3%, and unemployment is 6.2%. In some provinces, including politically explosive Quebec, as many as 9% of workers are without jobs. Massey-Ferguson, one of the flagships of Canadian industry, is laying off two-thirds of its 3,200-man work force; the company lost $19 million last year. Prime Minister Pierre Trudeau supported tight monetary and fiscal policies until last year, and the country is still feeling the effects. Trudeau also introduced a prices-and-incomes board in 1969; since then, inflation has been cut in half, to an annual rate of 2.3%.

-- Japan's growth has slipped from 15% last year to 10% so far this year--which is sluggish by that country's spectacular standards. Unlike the slumps elsewhere, Japan's is not deliberate. Among the causes: higher prices for Middle Eastern oil, a new miserliness among consumers and a softer U.S. market for many Japanese exports. A few electronics firms, including Hitachi and Toshiba, have put workers on shorter work weeks. Prices rose 7.7% last year, but so far there has been no government campaign to deflate.

In some countries, there is pressure to ease the anti-inflation drives. British union leaders and industrialists argue that unless expansionary measures are taken soon, unemployment may continue to climb and investment may slow to a trickle. Canadian newspapers are becoming increasingly critical of government tolerance of high unemployment.

A few governments are already taking steps. Germany has restored fast-depreciation allowances and reduced the tax on new plant and equipment. Sweden has started to relax its credit controls. Italy is rushing a public-housing bill through Parliament in order to revive its construction industry. As in the U.S., where Washington officials are talking about increasing spending and easing taxes to stimulate business, foreign government leaders hope that expansionary measures can be carried out without firing inflation anew.

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