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G-8 Summit

July 20, 2001 at 12:00 AM EDT
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MARGARET WARNER: Now three perspectives on the summit and slowing world economy. They come from: Robert Hormats, former Assistant Secretary of State for economic affairs in the Carter administration, and currently vice chairman of the investment firm, Goldman Sachs International. Robert Thompson, managing editor of the U.S. edition of the Financial Times; and Jerry Jasinowski, President of the National Association of Manufacturers. Welcome, gentlemen.

Bob Hormats, starting with you. Why are we seeing this broad economic slowdown throughout the world?

ROBERT HORMATS: Well, there are really several factors. The slowing American economy is one important factor. The technology collapse that is part of the slowing of our economy is certainly an additional factor. But in a number of other countries they have their own problems. Higher energy prices really have affected virtually every nation in this world. In Western Europe, in Japan, they’re in need of major structural reform. They’ve dragged their feet in implementing that. That has reduced the dynamism of their economies as well. So there are many factors. Some are global and some are endemic to individual countries.

MARGARET WARNER: What would you add to that, Jerry Jasinowski?

JERRY JASINOWSKI: I think Bob stresses a lot of the right things. I do think that the Europeans could be doing more now with respect to encouraging growth. I think he didn’t really mention the imbalance with the dollar and the euro which is not only hurting American exports but is causing inflation in Europe which prevents them from lowering interest rates, is causing problems for Argentina and in general is I think an impediment to improved world growth.

MARGARET WARNER: Robert Thompson, it sounds as if… I mean, do you agree with your colleagues here that in a way the more the world economy becomes integrated, the greater danger of sort of a cotangent effect when there is a downturn?

ROBERT THOMPSON: I think that’s certainly true. It also means that different countries have increased international responsibility. No economy exists in isolation. And that’s why so much pressure is put on, for example, Japan to stimulate its economy, given the important role that it should play. You might say that the world economy has 12 cylinders, probably eight of them in the U.S., two in Eastern Asia and two in Europe. Just about all of those cylinders aren’t firing at the moment.

MARGARET WARNER: You’re saying, Robert Thompson, that it’s not only a question of… It’s not only the fact that the US economy isn’t pulling the world out of this slowdown but that, in fact, to some degree, we’ve helped drive the slowdown in the first place?

ROBERT THOMPSON: Well, exactly. Slowdown feeds on itself as the declining confidence feeds on itself. You can see that the statement released today by the G-7 leaders is almost a boosterism because the international concern about confidence. In a sense they’ve replaced investment bank research analysts as the cheerleaders for the world economy.

MARGARET WARNER: Bob Hormats as an investment bank analyst, what would you add to that?

ROBERT HORMATS: Well, I think that there is this sort of international set of repercussions — when one country deteriorates in terms of its growth, like the United States, the biggest economy in the world, it does tend to put pressure on other countries. It’s the downside of interdependence. When the US is growing very rapidly, the Europeans sold more and more goods to the US; that helped their growth. And the Asians in particular sold a lot of high-tech items to the United States. Now we have a deterioration in our economy, high-tech demand has become a bust and that’s hurt all the Asian high-tech exporters and the Europeans have been slow to react. They have not done enough to stimulate their own economy, stimulate domestic demand, nor have many of the Asians so they relied too much on us when we go down unless they have taken sufficient measures to counter that decline, they’re going to go down too. And they are.

MARGARET WARNER: Well, there have been a number of analyses in the papers these last few days — today in the Wall Street Journal, Bob Hormats, staying with you — that really the world economy is more dependent on the US economy now than even ten years ago. Do you agree with that?

ROBERT HORMATS: I do agree with that. It shouldn’t necessarily be the case, but the problem is that we have been the big grower for the last ten years and many of these other countries have not done what they need to do to restructure and reform their economies to improve productivity, to improve the return on capital. So a lot of capital comes from Europe and Asia to the United States, helps us, hurts them, but it is pushed up, as Jerry has pointed out, pushed up the dollar. Now that’s become a negative factor for the US It was a positive factor before. It’s become a negative factor. So there are up sides and down sides to their interdependence.

MARGARET WARNER: And what would you add to that, Jerry Jasinowski, in terms of the manufacturing sector and what has occurred now that the US has become, as Robert Thompson put it, eight of the 12 cylinders of the world economy?

JERRY JASINOWSKI: I think he has it right. It’s hard to overstate, as both of them suggest, the size and the importance of the United States both because of its size and then we’ve been the technological leader and we’ve been the leader with respect to a lot of the reforms and even recently we’ve been cutting taxes and reducing interest rates so on the monetary and fiscal policy side we’ve been leading. I think from a manufacturing point of view, we’ve really been hard hit by the high interest rates, the extraordinary increase in energy and then the dollar as I mentioned. Now there’s been some improvement. We’ve acted to bring down interest rates. Energy prices are coming down. And so there are some positives in the picture. And I think that if we had an even more united effort on the part of our other partners to encourage growth– and I think frankly their communiqué could have stressed growth a bit more. I was pleased that they emphasized trade, which is an important part of this. But I do think we’re facing a real challenge to world growth. And everybody has to get a bit more serious about it including the United States, but our trading partners even more.

MARGARET WARNER: Robert Thompson, explain to us why you said that the Europeans really haven’t done what they need to do. Why not?

ROBERT THOMPSON: Well, essentially both in Europe and in Asia there’s been a false sense of economic security. They haven’t taken advantage of the good times to undertake very difficult reforms of labor markets and make their own corporate world more competitive. And so you now have a situation where economies are slowing, unemployment is rising and those very politically sensitive reforms are much harder to undertake.

MARGARET WARNER: Hasn’t also the economic union in Europe or the coming of the common currency forced at least some countries to stick to real austerity measures or they feel that way anyway?

ROBERT THOMPSON: Well, they’re certainly starting to feel that way. They may soon know what austerity means but there are real contradictions. One would hope that the G-7 leaders are more frank with each other in private than they have been in this public statement because they talk in generalities about the economic situation, but there are real responsibilities on these countries including Japan. There’s also a false sense of economic situation displayed in that statement because they talk about energy prices still being too high. Well, of course we have a statement from Saudi Arabia today that they think energy prices are too low and they’re talking up prices as we speak.

MARGARET WARNER: Bob Hormats, how do you assess the communiqué that came out in terms of stepping up to the problems and really being honest about the problems and proposing real solutions?

ROBERT HORMATS: Part of the problem is that each of these leaders, understandably, is playing to the domestic constituency, his domestic constituency. As a result of that, they’re trying to put the best face on their policy in the communiqué and in the public statements they make afterwards. I think there are some encouraging things. The Japanese part of the communiqué does indicate the importance of vigorous implementation of reforms. That’s been lacking in Japan for ten years. They’re going into their fourth recession in ten years. That is encouraging. But by and large, I think they did not place sufficient urgency on regenerating growth and particularly on doing the hard things. And there are hard things that need to be done in each of these countries to improve productivity and return on capital. And unless they do that in Europe and Japan to try to develop the rates of productivity that we’ve enjoyed in the United States, they’re going to have lagging growth for a period of time and they won’t be able to grow rapidly. They’ll depend more on exports than the United States, and that will widen the current counterbalance that we’ve already got.

MARGARET WARNER: Jerry Jasinowski, did you see anything in the communiqué or what did you see that addressed the concerns of the protesters in the street?

JERRY JASINOWSKI: Well, I think there was real effort to address the concerns of the underdeveloped countries. That’s a high priority politically and it’s important economically. I think that that’s probably the area where it did the most to address the protesters because I think some of the people are legitimate in their concern about leaving the poor behind. And I think that that’s a great concern to all of us. I think they really are trying to address that. What bothers me is that you can’t address the underdeveloped well if you don’t have strong world growth. And I must say that that part of the communiqué really was much too weak and the United States is really, having had a pretty serious recession in manufacturing and having a pretty serious slowdown, has begun to address the problems with big cuts in interest rates and tax cuts. And I think we’re bottoming out and about ready to have a decent recovery. And now the greatest threat to that recovery is this slower world growth and this imbalance in the dollar. And so I don’t think people there fully understand that the locomotive is slowed down and we are starting to chug up again, but it may be that before we can get going, the global train starts pulling us down a bit more.

MARGARET WARNER: And Robert Thompson, going back to the concerns of the protesters just for a minute, what did you see in the communiqué that specifically addressed some of their concerns?

ROBERT THOMPSON: Specifically not a lot. I certainly I saw a recognition of responsibilities to the developing world. But I think when you look at the protesters you have to make a distinction between economic history and histrionics. And essentially the violent protesters should be ignored and some of the NGO’s and others that are raising issues that the G-7 should address are better listened to clearly enough. One of the issues arising from this summit is whether this will be the last showpiece summit of its kind because obviously it attracts the violent protest. The level of general debate isn’t particularly high. And even the Italian government which is hosting this summit has said it can’t go on being held the way it’s been held in the past.

MARGARET WARNER: Bob Hormats, address that issue — what impact these protests are having on meetings like this.

ROBERT HORMATS: Well, they’re having a very disruptive impact. They started out in Seattle. They weren’t the cause of the failure of the World Trade Organization meeting in Seattle but they were disruptive. The problem was internally there were big divisions among the key countries. I think it would be a terrible tragedy to cancel these summits because of protests in the streets. That’s exactly what these people want. Most of these people want to demonstrate to make a point, a very visible point. There are some in the streets who actually have causes, like dealing with AIDS or poverty or the environment. But they’re drowned out by people in the streets. So what we need to do is have a dialogue with the constructive elements there and then call a spade a spade and indicate already a lot of very disruptive people. We shouldn’t listen to them, because they don’t want a dialogue; they just want to be disruptive. And we should certainly not cancel the summits in the face of the pressures from those people. That would look enormously weak and it would be very disruptive to confidence in world leadership and world leadership in particular in the industrialized country.

MARGARET WARNER: All right, briefly, from the three of you, just quickly around; what do you think of the prospects that next year we’re we could be talking about a global recession? Jerry?

JERRY JASINOWSKI: I think the recovery in the United States, we’re bottoming out, will be enough on the consumer side and there are more positives in the general environment so that we avoid a global recession.

MARGARET WARNER: Robert Thompson?

ROBERT THOMPSON: The US will lead the way; I suspect first quarter we should see some signs of recovery but it won’t be a strong recovery. People are looking for 3 or 4 or 5 percent growth are living in a dreamland.

MARGARET WARNER: Bob Hormats, no global recession in store?

ROBERT HORMATS: I don’t think there will be a global recession. Weakness abroad is still a big problem. When we had our last recession, in 1990, Germany and Japan were growing at 5 percent and the dollar had been declining for five years prior to that. Now we have Japan in recession; Germany growing at a very low rate and a very strong dollar. That slows down our own recovery. I think we’ll avoid a recession; I think we’ll probably grow at a modest rate next year but still technology is going to take a lot of time to catch up because there’s such a glut and such overcapacity, so slow growth but difficult growth.

MARGARET WARNER: All right, gentlemen. Bob Hormats, Robert Thompson and Jerry Jasinowski, thanks so much.