The President's Commission on Industrial Competitiveness, a panel of high-ranking leaders from business, finance and labor, yesterday called for a reduction in the deficit through cuts in federal spending, but took no position on whether tax increases are needed as well.
The commission, appointed 15 months ago by President Reagan, will conclude that despite the strong recovery since 1983, American business faces a serious competitive challenge at a time when the economy is becoming increasingly dependent upon trade.
"We are the most productive nation in the world, but the gap is narrowing in a way that ought to leave us concerned," said John A. Young, president of Hewlett-Packard Co. and commission chairman.
A list of recommendations is due to be issued in mid-January, including proposals to establish a Department of Trade and a Department of Science and Technology at the Cabinet level, and new approaches to trade, job training, industrial technology and other issues.
But the commission put off until yesterday its final decisions on the politically hot questions of deficits, tax policy, trade and the dollar. And many of its recommendations on these issues have been "watered down," in one commissioner's words, in part to avoid picking a fight with the White House and in part because the economy's direction has been so hard to read, commission members said.
Young said that while deficit reduction is an important priority, "we did not focus on how to close the deficit. . . . We had little to contribute to that dialogue."
The commission's difficulty yesterday with its statement on the federal budget deficit illustrated its problem.
Rimmer de Vries, senior vice president of Morgan Guaranty Trust Co., attacked the "repeated contention" by other commissioners "that the single most important obstacle to competition is the federal deficit. . . . " That "isn't true," said de Vries.
Does that mean that all other problems are secondary, he asked?
"Yes," retorted Robert H. B. Baldwin, chairman of the advisory board of Morgan Stanley Inc., and co-chair of the commission task force on capital formation, which prepared the recommendations on the deficit and the dollar. "Next question."
"We didn't need to spend $3 million for 18 months to come up with such a recommendation," de Vries said.
De Vries also objected to draft language suggesting that the future competitiveness of American business requires a return of the dollar's value to "historic levels." That would mean a drop of 30 percent, and de Vries said he could not support such a proposal. "I'm trying to spare the commission from possible embarrassment."
Baldwin and de Vries also sparred over the language on the deficit, with de Vries urging that the commission back a "gradual" reduction and Baldwin opposing use of that word.
After the morning meeting, de Vries said a gradual reduction "is the only economically and politically sensible approach to the deficit. You've got to be so careful not to throw the economy out of kilter" with a hard-hitting tax increase, particularly at this point, he said. "We're the only strong economy in the world. . . . The deficit has made this recovery," he added, and an abrupt attempt to balance it is far too risky.
But Baldwin argued that concrete action on deficit reduction would bring down long-term interest rates, fuel a stock market recovery, and go a long way toward lowering the cost of capital for American business -- at a critical point. There needs to be decisive political action on deficit reduction now, even though its effect will be drawn out, he said. "We don't want to put the word 'gradual' in there," he said.
In the end yesterday, a compromise was reached between Baldwin and de Vries, calling for swift legislative action on the deficit but a gradual economic impact. Baldwin and de Vries and, reportedly, many other commission members agree that deficit reduction should include spending cuts -- including reductions in the growth rate of defense spending -- and some increases in tax revenue. But the commission's report will not say so. "The big budget issues are defense, medical costs, and probably some tax increases," said de Vries. But on major economic questions, "this is a textbook of general statements," he said.