America's Agenda: Rebuilding Economic Strength.

Author:Solo, Robert A.
 
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This was the second report of the Commission on Competitiveness appointed in 1987 by Governor Mario Cuomo of new York (America's Agenda: Rebuilding Economic Strength. By the Cuomo Commission on Competitiveness, Lewis B. Kaden, chairman, Lee Smith, director and editor, and with an introduction by Mario Cuomo. Armonk, N.Y.: M.E. Sharpe, 1992). Relying for its work and its evaluations on a very blue-ribbon panel that included the present chairman of the Council of Economic Advisors, the Commission was divided into six task forces to analyze and produce chapters on and to recommend a national policy for some of the nation's most critical problems. Chapters on private and public investment, industrial performance, urban poverty, health care, international economic policy, and the relationship between the Americas constitute Part 2 of the book. Taking into account the need to reduce the federal deficit, in Part 3, "the Commission," trims and restates the policy recommendations made in Part 2 in the form of a federal budget.

There are two chapters in Part 1. The first fives strong statistical evidence of America's comparative economic decline and "the need for a new course." The second is a short, conventional, well-written history of post-World War II American economic experience.

Governor Cuomo's introduction is brief, unvarnished, and from the heart. Cuomo's endorsement of the report is moderate and qualified. Mine certainly can be no more than that. In spite of the hard criticisms I will make, the book nevertheless is useful and illuminating. Part 3, titled "Leadership," is an "inspirational" summarization of its contents.

Space does not permit a serious discussion of all of the topics it covers. Hence, I concentrate on only two: public and private investment and industrial performance. My critique of these generally applies to the chapters on health care and urban poverty as well. I will also examine the approach to international trade.

Public Investment and the Infrastructure

Chapter 3 of Part 2, titled "Investment: The Foundation of Economic Strength," covers "The case for public investment" and "incentives for private investment."

With regard to public investment, during the 1980s, we are told, the proportion of the federal budget spent on infrastructure fell to half of what it had been in the 1970s and to a quarter of what it had been during the 1950s and 1960s. Meanwhile, our industrial competitors were setting the pace in the improvement and modernization of their infrastructures, installing high-speed rail systems and global information highways. The failures and limits of our infrastructure are a burden upon all public and private activity, and the handicap imposed on American industry operating in a world market would be hard to understate. Such was the diagnosis. And the prescription?

The recommendations become curiously equivocal, and one discerns the contrasting voices of the task force and of "the Commission," which means, I presume, of the editor. The task force tells us that the United States needs to invest $100 billion a year in our key infrastructural networks: transportation, water, waste water, and telecommunications. The Commission begs to differ. In the light of the need for deficit reduction, $100 billion is too much to spend. On the other hand, the "more easily financed $10 to $20 billions per year would not stem the decline of the infrastructure." With no more ado and with neither explanation nor rationalization, "the Commission" recommends an investment in the infrastructure of $50 billion in 1993 and of $65 billion a year thereafter. It is not at all clear what is and what is not included in that figure. Evidently, water and waste water are not included for when the task force proposes an annual public investment of $17.9 billion to insure that water supplies meet the standards of the Clean Water Act, the Commission demurs, making no additions to the budgetary total, but recommending softly that "federal support should increase significantly."

An interesting fact emerges in the discussion of telecommunications. The telecommunications industry in the United States developed under AT&T into the largest and most powerful in the world. Following the 1984 antitrust break up of AT&T, this great industry, which was at the forefront of world technology, began its sharp and critical decline. While in 1981 there had been a U.S. export surplus in telecommunications equipment of $12 billion, by 1987 that surplus had become a $3 billion deficit. From its position as the world's great exporter, the United States had become the world's largest importer of telecommunications equipment. U.S. telecommunications investment fell an average of 8.1 percent a year between 1980 and 1989. "Predictably, other industrial nations are now modernizing their communications networks at a much faster rate than ours. Germany, for instance, invested $238 for each telephone line in 1989, while the United States spent an average of $88 per phone line. That number places us last among the industrial nations". Even though it accepts the fact that at least "in part the decline is the legacy of the 1984 break up of AT&T," the book never questions the impact of antitrust attacks on America's industrial performance.

Private Investment

The level of private investment in the procurement of capital goods and R&D is certainly critical. The lag, failure, or insufficiency of private investment bears both on the problems of achieving full employment and on the advance of productivity and hence on the rate of real economic growth. To stimulate the increase of long-term private investment in the procurement and installation of capital goods, in R&D, and in workers' training, the task force relies on and recommends such conventional incentives as "net investment tax credit" and "capital gains reforms." Then comes a surprise.

For the purpose of "revitalizing the financial sector," the task force proposes that the Federal Reserve Board inject $20 billion of new capital into the commercial banking system as a basis for the expansion...

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