> The Globe and Mail February 2, 1999
>
> SCHROEDER CALLS FOR CONTROLS ON CAPITAL FLOW
>
> German Chancellor blames international speculators for devastating lives,
> economies; MIT economist condemns social inequities
>
> Alan Freeman, European Bureau
> Davos, Switzerland
>
> German Chancellor Gerhard Schroeder warned yesterday that financial
> market speculation is leading to worldwide economic in stability and
> driving fragile economies to the edge of ruin.
> "It is not just a question of naked statistics, but of the fate of man
> thousands of people who have been deprived of their livelihood and whose
> hopes have been thoroughly dashed," he told the annual meeting of the World
> Economic Forum.
> Mr. Schroeder joined a growing chorus of politicians, and even some
> financiers, who are calling for efforts to regulate the rapid flows of so
> called hot money that have been blamed for triggering financial crises like
> the one that hit Brazil las month.
> "If even [financier] George Soro —and he's a man who ought to know, having
> earned himself billions of dollars through such speculation — urges us to
> introduc regulatory factors to ensure justice then it is high time for us
> to get down to some serious negotiatin on an international financial
> architecture."
> Mr. Schroeder's warning to this talk fest of the world's leading business
> and political leaders underlined an undercurrent of concern that has
> permeated the conference — that despite its clear victory, the free market
> is coming up short in several areas.
> Much of the concern has been focused on the financial crises the have
> successively battered Mexico, Thailand, South Korea, Indonesia and Brazil
> in recent years, forcing the intervention of the International Monetary
> Fund and its imposition of stark austerity measures that have hit the poor
> with particular harshness.
> Other members of the Group of Seven leading industrial nations induding
> Canada, have called for a concerted effort to control the excesses of
> financial speculation. Bu the proposals are still vague, and the United
> States remains skeptical.
> U.S. Treasury Secretary Robert Rubin has scoffed at suggestions for early
> warning systems that would pressure countries showing signs of getting into
> financial trouble.
> Mr. Rubin, who worked as a Wall Street executive before joining
> government, said he doubted that such a system could be invented. He said
> that if the warning light did come on, it would simply trigger the very
> financial panic that such a system was designed to avoid.
> But concerns over the inequities of the globalized world economy weren't
> limited to the emerging economies. Lester Thurow, an economist at the
> Massachusetts Institute of Technology, expressed concem about the
> increasing inequities in the U.S. economy.
> Sixty per cent of the U.S. population has taken a 20 per cent cut in real
> wages in the past 20 years, while the number of billionaires has risen from
> 13 to more than 250 in the past decade, he told a seminar here yesterday.
> He said that while families used to be able to live on the earnings of a
> single breadwinner, they are now forced to depend on two working spouses to
> maintain the same standard of living, putting a huge burden on women.
> Mr. Thurow said one factor driving growing social inequities is the
> increasing demand by seniors for diminishing government funds, which
> translates into higher spending on medical care and less on education. "The
> elderly vote and the young don't vote," he said.
> In many U.S. communities, school budgets have been defeated because of
> opposition from elderly voters with no stake in education, Mr. Thurow said.
> That creates more inequities because wealthier parents have been able to
> send their children to private schools.
> Mr. Thurow expressed concern at the growing cost of higher education,
> particularly in the U.S., because of the phasing out of government
> assistance programs that allowed students from modest backgrounds, like
> himself, to get a good education.
> "When I went to graduate school, if you were smart, you could get out of
> the door with a PhD and without any debt," he said, adding that a similar
> graduate today will leave university with a debt of $100,000 (U.S.). As a
> result, he said, some students are being forced to abandon their studies
> and go to work.
> He said he had recently analyzed the earnings he had taken home from
> student jobs 30 years ago and compared them with the summer wages of his
> two sons, who are both in their 20s, and discovered that in real terms, his
> sons were earning considerably less.
> Yet because all these declines in wages and living standards have been
> gradual, nobody seems to have noticed and there has been no political
> fallout.
> He said it reminded him of the story told about putting a frog in a basin
> and slowly raising the temperature of the water: "The frog boils to death
> because he never knows when to jump out."
>