One of the hazards of living in the world is the pain of envy. Far pastures always look greener. Great disappointments await those who don`t come to grips with their own nature.
For example, the crisis in the European Monetary System that erupted last week seems to have been rooted in the wish of those who framed the Maastricht Treaty that Europe should ”be more like” the United States. The French government has been urging its voters to approve the treaty in an extensive advertising campaign in preparation for its referendum on the treaty Sunday:
”Europe est adulte. Donnons-lui sa majorite.” (Europe is grown up. Let`s give it a majority.)
But the Eurocrats who put together the Maastricht agreement, with its timetable for political and monetary union by 1999, seem to have erred badly in estimating the readiness of governments to act against the interests of the voters who elect them.
A steady stream of criticism of the goal of monetary union from Anglo-American pols and economists failed to dissuade French bureaucrats, who saw a single currency as a way of trimming German power and enhancing their role in European affairs.
Summing up an array of trenchant work last summer, Harvard`s Martin Feldstein wrote, ”History teaches time and again that major nations cannot be forced to accept treaty obligations that they regard as contrary to their own interests.”
Thus the circumstances of the German reunification underscored his point and brought upon the crisis. With government borrowing to finance
reunification topping 6 percent of gross domestic product, the German central bank could either do what the rest of Europe wanted-lower interest rates and accept a diminution of the purchasing power of the deutsche mark-or it could do what the German people wanted: Keep money tight, interest rates high and inflation nearly non-existent.
The Bundesbankers wouldn`t play the wider part; they chose the latter course. And so the United Kingdom and Italy were forced to quit Europe`s exchange rate mechanism, in order to ab-
Commentary
sorb the blow of high German interest rates through its effect on their currency, rather than directly, through English and Italian unemployment. It is all taking place exactly as Feldstein and others, including Margaret Thatcher, had forecast.
In a somewhat similar way, many Americans are fond of saying that America must become ”more like Europe.” European industrial policy, with training and retraining, is said to be the answer.
The Labor Higher Education Council, a joint venture of the American Council on Education and the AFL-CIO, meeting in Baltimore, noted that the labor movement had been pushing a broader approach to education for work for years.
On the campaign trail, however, George Bush was beating up Bill Clinton for getting too close to Britain. In Oklahoma, he inveighed against social engineering, which he said had been developed in Europe.
”My opponent is drawn to these views,” Bush said, adding darkly, ”He and a number of his advisers studied them at Oxford in the 1960s.” (Bush might have added that some of his own advisers and friends were pursuing ideas at Oxford at about the same time.)
Last week it was the Japanese pattern that Clinton was aping, calling for the creation of 170 ”technology centers” across the country, in what he hopes would amount to an industrial extension service, rather like the agricultural extension service that proved to be such a boon to the diffusion of new ideas in farming in the last 100 years.
That`s presumably why Hewlett-Packard Co. Chief Executive John Young, Apple Computer Inc. boss John Sculley and 28 other Silicon Valley CEOs endorsed Clinton Thursday.
After years of exhorting Presidents Reagan and Bush to pursue more competitive policies, something clearly snapped with Young. Other, more conventional Republican executives think the technology centers would be so many ineffective and expensive Democratic pork-barrel projects.
Perhaps the most interesting cross-border comparison making the rounds in this election year is in a paper by Alwyn Young of the Massachusetts Institute of Technology`s Sloan School of Business, comparing Singapore and Hong Kong. He finds them, with good reason, the Athens and Sparta of the newly industrialized nations-with a moral for many other nations.
And why not? Singapore and Hong Kong are much alike. Both started their modern course of substantial independence in about 1960, with legal systems modeled on the English. Both are island nations, with good harbors and long histories of unfettered trade. Singapore split from Malaysia in 1965.
Then they took two very different macroeconomic paths. Under a strong central government, Singapore decided to become good at everything modern. The authorities maintained a savings rate of 40 percent of GDP, built universal pension systems, emphasized literacy, public health and state-of-the-art infrastructure, and firmly guided industry from one new technology to another. Hong Kong, home to many highly educated entrepreneurs who had fled the mainland when the Chinese communists took over in 1948, maintained a far more laissez-faire policy. It, too, encouraged savings, but only about 20 percent of GDP. Entrepreneurs decided where the investment would flow without much government interference, public education took a low priority and
infrastructure lagged behind the rest of Asia. The government limited its interference mainly to reserving large parcels of land for industrial development.
Both countries have grown about equally fast, doubling their output per worker since 1970. Today they are among the richest in the world, with life expectancies, infant mortalities and bank accounts to brag about. But not only has Singapore paid nearly twice as much (in terms of savings) for the same rate of growth, but it finds that its rate of gain in productivity is slowing. Why? The answer, economist Young suggests, is that Singapore failed to specialize-to find its strengths and stick to them long enough to reap the real gains. By keeping manufacturing jobs at home (and refusing to let its work force be ”hollowed out,” like that of Hong Kong), Singapore has hit a wall of sorts.
