Wrestling with the World Economy

At the London summit, President Carter will try his hand at dealing with persistent ailments that are afflicting the world's economy: inflation, unemployment and destructive trade imbalances. To a great extent, the assembled leaders will be waiting to see how Carter proposes answers to this complex of pressing problems.

At the core of the meeting will be the grim fact that with the exception of the U.S. and Japan, the world economy is showing virtually no sign of improvement and is not expected to this year. The Economic Commission for Europe, a Geneva-based U.N. organization, predicts that Western Europe's output of goods and services, discounted for inflation, will increase only 3% through December, not enough to stem rising unemployment. Trade will grow at only half of 1976's 11% rate, says the commission, and the rise in consumer prices will back off only slightly, from 10.5% last year to 9%.

Carter will enter the discussion on how to stimulate the world economy with one big disadvantage. Fearing inflation, his Administration has dropped the plan to stimulate the U.S. economy by giving $50 rebates to taxpayers. Carter thus will be in no position to repeat his earlier requests that Germany and Japan stimulate their economies and thereby increase imports from Britain, France and Italy, which badly need to sell more abroad to help their own recoveries. Japan and Germany are reluctant to adopt any major stimulus program for much the same inflationary worries that led Carter to withdraw the rebate. Some experts are relieved that "reflation" will not be made an issue by Carter, at least formally. Says one White House planner: "Pushing them [Japan and Germany] is probably the wrong tactical move."

That still leaves much to talk about. Protectionist sentiment is on the rise in the U.S. and Europe, though Carter's refusal in March to impose higher tariffs on shoe imports is seen as an effective countering force, at least in spirit. Indeed the Europeans and the Japanese are by and large encouraged by what they have seen of Carter so far. Says one top European policymaker: "I detect a world approach that is very impressive." The President hopes to revive the bogged-down Tokyo Round of tariff-cutting trade negotiations begun two years ago in Geneva. Says one White House official: "All it takes is the necessary resolution by the top guys, and they will all be in London."

The London agenda will also include the distressing problems of the Third World. Last year the balance of payments deficits of the developing nations that do not produce oil amounted to more than $25 billion. The wildly fluctuating revenues the nations receive from selling commodities on the world market are often not enough to cover their oil bills. One proposed solution: the creation of a "common fund" of $3 billion to stabilize prices by buying up excess crops and minerals that drive down prices. Carter is willing to seriously consider such an idea, as are the Europeans, but only after agreements are hammered out in advance on how to stabilize the price of each commodity. In contrast, the developing countries want the fund set up before the mechanics are worked out. The dilemma will be just one of the problems that Jimmy Carter and his peers will struggle with at the summit.

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