Worldwide recovery from the worst slump since the 1930s will require major nations "to think of the world economy as a unit," under Secretary or State-designate Richard N. Cooper told a press conference yesterday.
As their contribution to stability, Japan and West Germany soon must allow their economies to run current account deficits, according to Cooper and C. Fred Bergsten, Assistant Treasury Secretary-designate, both of whom accompanied Vice President Mondale on his worldwide swing that set the stage for a meeting of heads of state in May.
The notion of these deficits "is not congenial," Cooper said. But "one cannot envisage an indefinite continuation of the structure of world payments, "as in 1975 and 1976, in which the poor nations and the smaller industrial countries largely financed the oil-cartel surplus, Cooper said.
He pointed out that the United States, for much of the 19th Century, and Canada, until the late, 1960s, had current account deficits, and that meant these countries were borrowing from the rest of the world, contributing to North American development.
In recent years, deficits of the Organization of Petroleum Exporting Countries have been absorbed largely by poor, less-developed countries (LDCs) who have gone heavily into devt to do so, and by smaller industrial countries, Cooper and Bergsten said.
In effect, the message transmitted by the Mondale mission was that it is time for the big three industrial nation's to pay part of the check by absorbing more imports from the best of the world, and in other ways to reduce current, account surpluses.
That would lead to a decline in the deficits of the LDCs. And ultimately, Cooper added, what's needed is a decline in the OPEC surplus, now estimated at about $45 billion a year.
Other points made by Cooper and Bergsten:
Foreign investment, which in the last couple of years has been concentrated in the Middle East, logically should shift back to North America eventually.
There is widespread confidence that the private banking system can continue to meet international financing, needs, but "it would be prudent to backstop" the private system with enlarged international agency resources.
The Carter administration is reviewing the entire range of "North South" (rich country vs. poor country issues), but before it takes any new positions, it will consult closely with other major nations.
In the course of his conversations, Mondale indicated this country's "strong support" of international institutions such as the International Monetary Fund and Organization for Economic Cooperation and Development.
A nation's current account includes trade in merchandise and services, certain private remittances, and economic aid. It is an important component of total balance of payments accounts, which include capital transactions.
Cooper and Bergsten said that the notion of running a current account deficit might be difficult for Japan and Germany to accept.
But a current account surplus for the big countries "is inappropriate so long as OPEC has a large surplus," Cooper said.
Bergsten said after talks in Tokyo, that Japanese leaders had agreed "in principle" to the idea of a current account deficit, and in fact had predicted Japan actually would encounter one in the next fiscal year.
Moreover, on the biggest trade issue between the U.S. and Japan - recent heavy color TV exports to the United States - Prime Minister Takeo Fukuda told Mondale that the rate of shipments here would be curtailed.
Bergsten and Cooper cited "a universal concern" over growing protectionism, which gave them the occasion to warn during their mission that any nation's "visible steps" toward protectionist devices would be followed in other countries.
Bergsten said that they raised "a number of specific issues" such as arrangements between Europe and Japan on steel "which cause problems. We told them that we are unhappy when they move that way."
On the current account question, there seemed to be less positive reaction from West German leaders that either Cooper or Bergsten could cite, although Cooper said West German Chancellor Helmut Schmidt was "very responsive" to Mondale's urgins - with responsive" to Mondale's urgins - with due regard to concerns over inflation - for coordinated economic expansion among the three major countries.
So far, the West German economic stimulus program is pegged to producing only an extra 1/4 of 1 per cent increase in the German gross national product, whereas both the U.S. and Japanese programs are expected to add close to 1 per cent to GNP in each of the countries in a year's time.
The question of coordinating the economic expansion, and creating a "leadership" effect from the Big Three, a apparently will remain a live topic for the summit scheduled for London in late May.
Cooper said the economic slump is wasting resources on "a fantastic scale." He estimated the annual loss at $300 billion of production and labor, "a bizarre spectacle" while there is "a crying need" in the poor countries. The perception of the need to pull together is "very new" to Germany and Japan, and one of the main purposes of the Mondale trip was "to reinforce that perception," Cooper said.
In the 1950s, both Japan and Germany "developed what I would call a small-country psychology," Cooper said.
"But now, both are moving to a big-country psychology (in) which they have to take some responsibility for the total environment. They cannot any longer take (the world) as a 'given.' They are too big for that. What they do too heavily affects their trading partners."
As Cooper and Bergsten outlined it, a major part of the new responsibility, would be the acceptance, for a time, of current account deficits.