A Summit off Moderate Success

And everybody gets some homework in his weakest subjects

For the world's industrial democracies, the great peril is that they will fall into a new recession before most of them have fully recovered from the last one. Hoping to avoid such a tumble, the leaders of seven* nations have journeyed four times in the past three years to much-heralded economic summits, where they have issued ringing, sometimes even rambunctious, declarations about their resolve to cure ills. So far, they have been unable to solve the multiple problems of slow growth, threatening levels of inflation and high unemployment. Last week, as the leaders of the Seven returned home from the Bonn summit, the question was: Would anything be different this time?

Perhaps. At Bonn there were a refreshing spontaneity and a more realistic approach to problems than in the earlier meetings. Said Jimmy Carter: "We don't pull any punches in our private meetings. We are very forceful, very argumentative at times."

The most immediate progress came on noneconomic issues. Japanese Premier Takeo Fukuda popped a surprise idea for an agreement among the Seven that would sever airline traffic with any nation encouraging or harboring terrorist hijackers. The proposal passed unanimously.

After considerable cajoling by his fellow summiteers, President Carter eased his stand against the export of nuclear fuel. He and Canadian Prime Minister Pierre Trudeau agreed that their countries would be "reliable suppliers" of enriched uranium to the Western Europeans and Japanese, provided that those nations impose stricter safeguards against the spread of atomic weapons; they said they would do so.

Earlier summits had produced grand, and unfulfilled, plans for encouraging economic growth. But at Bonn the leaders moved toward specific solutions for individual difficulties. In essence, each participant would attempt to correct problems that are hurting trading partners and retarding recovery. As one Italian diplomat quipped: "It's a bit like being sent home by the teacher with a homework assignment in your weakest subject."

There was no doubt about who the teacher was. West German Chancellor Helmut Schmidt, as host and chairman, ran the show with typical decisiveness. Said a top U.S. official: "The man is a born leader." Participating in his second economic summit, the U.S. President was not the dominant partner.

Having made some pledges at Bonn, the leaders now must try to sell them to their legislatures back home, and in several cases that will be difficult. Here is an area-by-area rundown of the plights and promises of the Seven:

North America. In response to severe criticism of U.S. energy profligacy, Carter made two important promises--to raise oil prices in the U.S. to world levels by 1980 and to reduce U.S. oil imports from a projected level of 11.5 million bbl. a day to 9 million bbl. by 1985. Congressional opposition to tax increases on oil will make that difficult. On the other hand, oil imports in this year's first half declined to 7.8 million bbl. a day--almost a 13% drop from the same period in 1977 --because conservation is working, and oil is arriving from Alaska. Carter also promised to counter the nation's double-digit inflation.

Canada's Trudeau vowed to achieve a 5% growth rate for his nation, but almost no one in Canada took him seriously. At present Canada's growth rate is so low (2.8%), inflation so high (9%) and unemployment so troublesome (8.6%) that Trudeau, with a current budget deficit of $11.5 billion, is boxed in from taking any strong economic initiatives.

Japan. In the picture-taking session of summiteers, Japan's Fukuda alone was unsmiling--and with good reason. In private sessions, he had come under withering criticism for his country's gigantic trade surplus ($17 billion last year), which helps to undermine the world's monetary stability. Through a big public works program, Fukuda is trying to create greater buying power at home and thus expand imports. Japan has succeeded in holding the volume of its exports to last year's levels; but the value of those exports has shot up 20% this year due to the rise of the yen against the U.S. dollar. Ironically, a number of the country's domestic producers are being driven out of business by low-priced imports from developing lands. At some Japanese plants, workers are destroying textile machinery so it can be sold as scrap.

Western Europe. Until now, West Germany has accepted the discomforts of slow growth and high unemployment (1 million, or 4.4% of the work force) in order to keep inflation at a low 2.7%. Schmidt promised to do what he had planned even before the summit: put in a stimulus plan. It calls for pumping $7 billion into the West German economy, largely through tax cuts, and should make his country a larger buyer of imports. Britain's James Callaghan, who faces elections in the fall, was the most cautious. He pledged only to continue his present policy of expanding output by a modest 1 % while keeping up the fight against inflation, now down to 7.4% from 27% four years ago. President Valery Giscard d'Estaing promised to pep up the French economy a bit by more government spending, doubling the nation's deficit to $4.4 billion this year.

The country that is least capable of recovery made the boldest promises. Premier Giulio Andreotti pledged to tame inflation and lift Italy's economic growth rate to 3.7% by cutting government expenditures, reducing welfare outlays and funneling more funds into industry. Milan's Corriere della Sera called Andreotti's pledges "gambling Italy's credibility."

There will be another summit next year, it was agreed, probably in Tokyo. But the inability of past summits to accomplish much brought forth a question that haunted some of this year's participants: Has the world entered a new era of slow economic growth?

Many economists believe that the quarter of a century of strong, sustained expansion from 1948 until the oil price increases of 1973 has given way to a period of sluggishness and high inflation. Walt W. Rostow, who was one of Lyndon Johnson's chief aides, argues that the world has begun a new downward turn on the Kondratieff Cycle. In the 1920s Russian Economist N.D. Kondratieff theorized that capitalist economic development proceeds in up-and-down waves of 50 to 60 years each, which are determined by the confluence of invention, investment and trade. As Rostow explains it, the elements that caused the postwar boom (rapid technological advances, expanding trade and growing population) have lost their momentum.

Lester Brown, the president of Worldwatch Institute, a Washington-based environmental research group, believes that the world's life-supporting resources, notably soil, grasslands, forest and fish, are either deteriorating or being depleted, and that these factors inevitably will lead to less growth and more inflation.

Not all experts agree. "I believe the slow growth theory is very dangerous," says Manfred Wegener, the chief European Community forecaster. "It could too easily become a self-fulfilling prophecy." Assistant Secretary of the Treasury C. Fred Bergsten is optimistic. Says he: "I'm not sure you can't get back to higher rates of growth. Everyone is running well below historic rates of capacity."

Among the chief problems afflicting the global economy are lack of capital investment, and a psychological climate of uncertainty brought on by a recognition that resources are limited. These problems have been aggravated by imprudent governments, whose high taxes and stiff bureaucracies have tended to stifle private initiative and investment.

Given half a chance, the industrialized world could soon enter another era of growth. Great new markets could open for industrial products in the developing world, and the industrialized world itself still has unmet needs for housing, clothing, transportation. But in order to evoke a healthy response to such challenges, governments must advance policies that create confidence, reward innovation, and encourage investors.

At the Bonn summit, the leaders of the Seven achieved a positive move in that direction by agreeing to combat inflation while seeking to encourage moderate growth. But those good intentions must now be translated into action. Otherwise, the world seems destined to move unevenly from one quick-fix summit to the next without ever coming to grips with the underlying problems. sb

*Britain, Canada, France, Italy, Japan, the U.S., West Germany.

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