Revitalizing America: The Poor Must Pay

Political economists of all persuasions agree that the 1980s will be a period of economic adjustment rivalled in this century only by the Depression years. Democratic socialist Michael Harrington considers it a "decade of decision." sion." Ronald Reagan's economic ideologues speak of a "supply-side revolution." Dependency theorist Andre Gunder Frank recently issued a three-volume work entitled Crisis.

Amidst a wealth of intellectual activity both left and right, American liberals have been conspicuously silent. Senators Gary Hart and Paul Tsongas argue on behalf of "neoliberalism," but no figure has emerged to hand down the commandments of this new doctrine. With the release of Revitalizing America: Politics for Prosperity, Ronald Muller appears to be nominating himself for precisely this role.

Revitalizing America is best read as two books. Muller hopes the work will be studied by U.S. policy-makers; he consequently devotes much of his analysis to the domestic dilemmas of declining productivity and stagflation. Here he is most enlightening. Muller's discussion of the "post-market society" is a first-rate overview of concentration in the U.S. economy.

When he directs his attention to the Third World, however, the analysis takes a disappointing-indeed, troubling-turn. It is at times difficult to believe that Muller's discussion of underdevelopment was written by a coauthor of Global Reach.

Muller presents revealing statistics to outline the realities of the U.S. economy, an economy far removed from the visions of either Adam Smith or Arthur Laffer. The U.S., he says, is a "dual society" where 800 corporations control 70% of industrial output while 14 million firms battle for the remaining 30%. In 1950, according to studies cited in the book, 40% of U.S. industry exhibited price rigidity during periods of slack demand. Thirty years and two merger waves later, rigid prices are evident in 70% of U.S. manufacturing.

In the face of these anti-competitive forces, orthodox economic policies-be they Keyensian or monetarist-tend to exacerbate, rather than combat, economic dislocation. This is the timely message of Muller's domestic analysis.

And post-market structures transcend national borders. More than 70% of U.S. exports, Muller tells us, as well as 50% of U.S. imports, consist of transactions between branches of the same corporation. While it is easy to grow weary reading tales of transfer price manipulation by multinationals, the scale of inter-affiliate transactions-and their implications for U.S. tariff, exchange rate and tax policies-are truly staggering.

The plight of developing nations is clearly a secondary concern of this book. To be sure, Third World countries figure prominently in Muller's prescription for global economic prosperity in the 1980s. Western economies will recover with the assistance of developing economies but at the expense of-although Muller is loathe to concede this-the Third World's poor.

The reasoning behind Muller's economic proposals is straightforward. The eighties must be an "adjustment decade," where short-term economic growth in the world economy provides "breathing space" for long-term economic restructuring: the transfer of basic industries (shoes, textiles, steel) to developing countries that hold a comparative labor-cost advantage in the production of these goods.

Unfortunately, Muller's growth program relies on further integration of North and South as a means of accelerating Western recovery. He looks to "stimulate and revitalize the growth links between the North and South on which we and the rest of the globe are acutely dependent."

A "global Marshall Plan" would serve as the basic mechanism for promoting increased integration. Muller proposes that OPEC should channel its petrodollar surpluses-which are now collecting interest in Eurobank accounts, lying idle in Zurich gold vaults, and fueling real estate speculation in London and Bonn-to other developing nations, those currently suffering capital shortages.

But transfers of OPEC capital would not necessarily improve the lot of the poor in Third World countries. The benefits of such an influx of funds depend on the kinds of investments they would finance. Under Muller's plan, loans of $10 billion annually would subsidize imports and investments from the North, not economic cooperation among developing countries.

As did the Brandt Commission, Muller considers the Third World an attractive "engine of growth" for developed economies. Muller's proposals necessarily assume (although this is left unstated) continued gross inequalities in Southern income distribution. The real needs of the poor majority in the developing world-housing, disease-free water, consumption goods that serve basic human requirements-simply cannot be met by increased trade with the North. The West exports automobiles and capital equipment, not affordable clothing or pure water.

Consider the composition of U.S. trade. A recent paper by Princeton's William Branson documents that U.S. exports are concentrated in three areas-agricultural products, chemicals and capital goods.[1] In 1978, for example, the U.S. ran a $6.3 billion surplus - worldwide - in aircraft trade and a comparable surplus in heavy farm equipment. These are not the products required by developing nations pursuing labor-intensive industrialization and income redistribution towards the poor. And when developing countries import such goods that only a small elite can purchase-they deprive their economies of foreign exchange which could be far better utilized to service basic human needs.

Muller's recommendations come as a surprise to someone familiar with his earlier work. The proposed global Marshall Plan is easier to understand, however, in light of his remarkably uncritical discussion of growth in the "newly industrializing countries." While Muller bemoans chronic income disparities plaguing nations such as Brazil and the Philippines, he consistently fails to link income inequality with development strategies pursued by these nations.

Consider his discussion of the Brazilian auto industry. By any measure, the rise of Brazilian auto production since the 1964 coup has been spectacular. The country now ranks as the world's ninth leading manufacturer of automobiles. Yet while Muller devotes several pages to a discussion of Brazil's Export Fiscal Benefits Program-a package of tax and rebate incentives used by the regime to increase the industry's balance of payments performance-he completely overlooks the developmental implications of auto production.

Rapid expansion of Brazil's auto production was made possible by a combination of government subsidies and brutal labor repression introduced after the 1964 coup. Corporate profit margins rose, but labor freedoms-and real wages-declined.

Muller's entire discussion of Third World development is characterized by glib pronouncements of the mutual interests of North and South with little discussion of perspectives to the contrary. While he quotes liberally from the uninspiring works of Walter Rostow, Muller never mentions important theoretical contributions by critics of the current economic order - neo-Marxists, dependency theorists and dependent development scholars-who argue for policies far removed from the program Muller presents.

In short, Ronald Muller has taken a giant step backward in Revitalizing America. His program for economic recovery could well produce economic stability and a new round of growth in the First World. It would mean little but continued deprivation, however, for the starving millions of the Third World.

- William Taylor

FOOTNOTE:
1 William Branson, in Martin Feldstein, ed. The American Economy in Transition.