Greenspan warns of backlash

Peter K. peterk at
Sat Aug 26 08:46:30 PDT 2000

[I thought this was an amusing piece, chock full of Orwellian doublespeak and ideology. It's interesting to find Greenspan concerned about the next downturn, albeit b/c it will cause people to "retreat from free trade"]

August 26, 2000

New York Times/ Business Section

Trade Support Is Dwindling, Fed Chief Says By RICHARD W. STEVENSON

JACKSON HOLE, Wyo., Aug. 25 -- The protesters who gave voice to the risks and costs of globalization outside meetings of the International Monetary Fund and the World Trade Organization over the last year did not make an appearance at the annual conclave of central bankers and economists from around the world that opened here today, but their influence was felt nonetheless.

Alan Greenspan, the chairman of the Federal Reserve, told the conference, sponsored by the Federal Reserve Bank of Kansas City, that pragmatism rather than ideology was driving the adoption in country after country of policies intended to help meet "the rigors of international competition."

But he acknowledged what he called "deep-seated antipathy toward free market competition" in some quarters, and warned that there could be a backlash should the stellar economic conditions of the last several years give way to tougher times.

The policy makers and analysts gathered here -- called the "pro-globalization elite" by one of the participants, Alice Rivlin, the former vice chairman of the Fed -- showed no inclination to back off from their general position that increased trade and a general reduction of the economic barriers between nations are good things.

Still, they were clearly concerned that the issues behind the protests surrounding globalization and trade -- lost jobs and wages, threats to labor and environmental standards, accusations that economic policy is being conducted for the haves rather than the have-nots -- could undermine support for the steady spread of free markets and democratic capitalism.

"While recognizing the efficacy of capitalism to produce wealth," Mr. Greenspan said, "there remains considerable unease among some segments about the way markets distribute that wealth and about the effects of raw competition on society," he said in opening remarks to the conference. "Thus, should recent positive trends in economic growth falter, it is quite imaginable that support for market-oriented resource allocation will wane and the latent forces of protectionism and state intervention will begin to reassert themselves in many countries, including the United States."

Mr. Greenspan did not suggest that the economy was about to slow, and he gave no hints about whether the Fed was likely to raise interest rates again this year after deciding twice in the last two months to keep monetary policy unchanged.

But he stressed again the key role that productivity-enhancing technological advances have played in the economy's strong performance, and he said it was "still difficult to find credible evidence in the United States that the rate of structural productivity growth has stopped increasing," a signal that he has considerable faith in the economy's ability to sustain high rates of noninflationary growth.

He also expressed frustration that even in the middle of the nation's longest business expansion, the momentum behind global economic integration seems to be slowing.

"Despite extraordinary prosperity, the ability to move forward on various trade initiatives has clearly come to a remarkable stall," he said in an apparent reference to the World Trade Organization's difficulties starting a new round of trade liberalization and the reluctance of the United States to extend Nafta to other Latin American countries like Chile. "I don't see the momentum picking up readily."

Michael Moore, the director general of the World Trade Organization, told the gathering, that it would be a mistake to ignore the sentiments of the protesters, and said part of the solution would have to be renewed political determination in the big industrial nations to press the case for free trade.

"Those who oppose us are not all fools and frauds," Mr. Moore said. "We need to assert our leadership on these issues."

Ms. Rivlin said policy makers had a responsibility to address the reality that "the bottom of the income distribution has not benefited from much of anything" when it comes to the globalized, technology-driven economy, and that income disparities were a potentially destructive economic force.

"We need to have better answers to those questions, even for the kids gathered in the streets," she said.

Douglas Irwin, an economist at Dartmouth College, told the group that negative feelings about trade were closely linked to low job skills and educational levels, and that producing a better-trained, better-educated work force would help increase support for increased global economic integration.

But he said that policy makers had to recognize that there have been losers from increased trade, and that at least some of the protesters were acting consistently with their own economic interests in trying to slow globalization. As a result, he said, simply preaching the benefits of trade would not be enough.

"It's futile to instruct the unskilled in what their interests should be," he said.

Mr. Greenspan said any attempts to restrain market-driven capitalism carried a cost. For example, he said, laws in Europe that make it more difficult than in the United States for employers to lay off workers had contributed to the fact that Europe has lower levels of high-tech capital investment than in the United States. Since European employers will have difficulty reaping the full cost savings from productivity-enhancing investments, they choose to invest less, and less capital flows into Europe in search of high returns.

In fact, Mr. Greenspan said, Europeans have increasingly been investing their capital in the United States, where employers have an easier time cutting costs and where there are many opportunities to earn high returns. As a result, he said, European government's are adopting more market-oriented economic policies, like Germany's recent adoption of a business-friendly tax code.

"But it is clearly pragmatism, not ideology, that is the main driving force in these evolving views," Mr. Greenspan said. "The structural policy adjustments in Western Europe and Japan, not to mention the efforts in China and Russia to move toward market capitalism, are being motivated, for the most part, by the evident ability of market competition to elevate living standards."


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