Capitalism on the slopes
DAVOS, SWITZERLAND -- The Ruling Class of the business world has gathered in this ski resort this week for its annual checkup. It is a moment when 800 of capitalism's senior managers meet with government economic policy makers to take their collective pulse and that of the global economy.
This year, uninvited and unwelcome, a new participant in their calculations has hovered over the slopes and the conference hall. It is the ghost of October 19, the day of the global stock market crash.
There is, for this nonexpert, surprisingly little direct talk among the business leaders here about Bloody Monday. They treat it as a family treats a loony uncle who has escaped from the attic and smashed the new color TV with a hatchet before being locked up again. Better to keep checking the locks than dwell on the close call.
The business mood here seems skittish and skeptical for 1988. There is a general sense that the dollar plunge has bottomed out and that recession can be avoided, but nobody wants to see those propositions tested very strenuously.
U.S., Japanese and West German policy makers have been insistently offering assurances on those scores to the chief executive officers, senior money managers, investment bankers and other blue chip figures here. "It sounds like prayers more than programs," a German executive said after one session.
The monetary mantras are being chanted at the World Economic Forum, a crash course in what is of concern and utility to the managerial elite of free-market economies. The texture of the gathering is quintessential Late Reagan, a blend of conspicuous power and affluence and nagging concern about the future.
Topics for briefings chosen this year by the astute conference organizers include "Protecting profits in a protectionist world," "AIDS: What it means for your company," "Social engineering as a new responsibility of the chief executive" and "Exchange rate volatility: How to make the most of it."
But the conference staple is "International coordination," the buzz word the Reagan administration has offered as a substitute for economic and monetary policy in this election year. "International coordination" is succeeding in reducing the large imbalances in world trade and in stabilizing currency rates, according to the U.S. officials who have spoken here in public sessions. They cite the adjustments under way in U.S. budget and trade deficits as proof that no "bitter medicine" in the form of tax increases or interest rate hikes is needed for the United States.
Oddly enough, this sounds much like the assurances Treasury Secretary James A. Baker III was giving just before October 19 broke loose from the attic and took a hatchet not only to Wall Street but also to London, Tokyo and points between.
This time, instead of sniping at the American assurances as they did at last year's conference, Japanese and West German officials have joined the Americans in arguing to the audience that things are going fairly well for the time being. The global nature of the crash has called forth a new and soothing harmony in public pronouncements, if not in economic policies.
But on balance, the conference underscored again the clash between what Baker and his deputies are saying and the belief abroad that they are pursuing unsustainable policies that will leave behind a crushing economic burden for Reagan's successor and the nation at large.
That belief is at the core of the plunge of the dollar. Foreign investors and speculators came to the conclusion that America's economy and currency would be weaker tomorrow than today, and they did what any of us would do -- they sold. Central banks had to put out $100 billion last year to stabilize the greenback.
Stripped of code, what the Japanese and Europeans have been saying to the United States is that only a managed decline in consumption and in the consumer spending binge that has fueled the trade and budget deficits could make significant dents in these imbalances.
The administration has preferred to wait for the spending boom to run out of steam on its own, as it now appears to be doing, and to manipulate the dollar in a futile effort to change drastically the purchasing habits built up by American consumers over two decades. The result is a situation that is essentially beyond the control of governmental economic policy now.
That makes it all the more necessary for governments to be seen to be coordinating, internationally, at conferences like this one. The Emperor's Clothes have to be described in the most glowing terms if they are to be seen at all.