Economic Summits

In November 1975 the leaders of some of the world’s strongest industrialized nations​—France, the Federal Republic of Germany, Italy, Japan, Great Britain and the United States—​met in Rambouillet, France, to talk about solving the world’s economic problems. After three days of talks, the leaders left their summit “confident that . . . recovery is under way.”

Since then, however, leaders of the same industrial nations, now joined by Canada, have felt the need to hold an Economic Summit every year. What happened to the hoped-for recovery?

Two days before the 1981 Economic Summit, held in July in Ottawa, Canada, the Toronto Star reported: “A major difference between Monday’s summit and the first one in Rambouillet, France, in 1975 is that today everyone is a little more cautious about the prospects for the future on things like economic recovery, increasing world trade, reducing inflation and boosting employment.”

In simple terms, the economy is still stuck. And no one is sure how to get it moving. Inflation stubbornly persists​—in double-digit figures for all but two of the 1981 summit nations. Growth in the Gross National Product (total goods and services produced) for the industrial countries has been far from satisfactory.

Added Complications

In recent months a new complication has been added to the maze of problems bogging down the economy​—record-high interest rates, especially in the U.S. As if by a rock thrown into a pond, the ripples have spread into the economy of all Western industrialized nations.

In the U.S. high interest rates tighten the money supply by discouraging would-be borrowers from putting into circulation more inflated money. But high interest rates also restrain the flow of money into business investments, badly needed to get the stagnant economy moving.

In other countries high U.S. interest rates appeal to investors who want to put their money into American dollars. The demand for dollars increases their value while driving down the relative value of other currencies. European currencies were driven down by about 20 percent in the first half of 1981, allegedly due to high U.S. interest rates. Investment flowed across the Atlantic, slowing European recovery and stimulating inflation.

When a currency is worth less, it takes more money to pay for imported goods. Inflation rises. To keep investment money at home, countries have raised their interest rates to compete with those in the U.S. Yet lower rates are needed to make it easier to borrow investment money to stimulate their economies.

At the Ottawa Summit U.S. President Ronald Reagan stood firm on the high-interest-rate posture in his country. The other leaders face the dilemma of what to do if the U.S. tight money policy does not help to control inflation and interest rates stay high.

Growing unemployment is another serious complication. The Organization for Economic Cooperation and Development projects that unemployment in its 24 member countries is expected to reach the highest level since the reconstruction period after World War II. At least one European leader claims that “unemployment is now a greater evil than inflation.”

The nations’ balance of payments is yet another factor muddying the economic waters. As a bloc, the European Economic Community registered a trade deficit of close to $10 billion with export-aggressive Japan during the first half of 1981. Industrial countries as a whole had a combined current account deficit of $70 billion in 1980, due in large part to higher prices for imported oil. Members of the Organization of Petroleum Exporting Countries, on the other hand, jumped in surplus from $3 billion in 1978 to $120 billion in 1980. For the non-oil-developing countries, however, a combined current account deficit of $79 billion in 1980 is sure to increase sharply in the early 1980’s, and there is no relief in sight.

Such staggering imbalance wildly tips the entire economy. Industrial nations are struggling to correct their own balance of payments while encouraging the oil-rich countries to get their surplus money back into circulation, especially through aid to debt-ridden less-developed countries.

‘A Pessimistic Declaration’

With these and many other complications pressing in from all directions, the 1981 Ottawa summiteers addressed “the need to revitalize the economies of the industrial democracies, to meet the needs of our own people and strengthen world prosperity.”

However, the Toronto Star called their final communiqué “a rather pessimistic declaration about the economic future of the free world.” The seven leaders agreed that the “fight to bring down inflation and reduce unemployment must be our highest priority.” But how?

A Toronto Globe and Mail editorial said: “No world-shaking decisions were made, no dramatic initiatives undertaken.” Instead of giving a “blueprint” for the Western economy, the “declaration from Ottawa is so rough a drawing that one can scarcely determine what the leaders want to build. . . . While there is a veneer of banality on most sets of political marching orders, one can usually look behind the veneer to find wood or steel . . . but sometimes one finds cardboard​—in the case of Ottawa.” Have the leaders and their advisers run out of ideas?

Yet significant points are made in the Ottawa declaration. “We must involve our peoples in a greater appreciation of the need for change; change in expectations about growth and earnings, change in management and labour relations and practices, change in the pattern of industry, change in the direction and scale of investment, and change in energy use and supply,” say the leaders. Changes are called for in public borrowing, budget deficits, interest rates, volatility of interest rates and currency exchange rates, in accelerated food production and in matters of trade. Instead of just a push, the economy badly needs a complete rebuilding!

The basic problem, however, is government. As the Ottawa Summit acknowledged, “economic issues reflect and affect the broader political purposes.” Japanese Prime Minister Suzuki came to the point when he said the challenge facing Western nations was to demonstrate that their economic and political institutions are superior to those of the East.

Leading up to the Ottawa Summit, conference chairman Prime Minister Trudeau told the Canadian House of Commons: “Eight hundred million people live on the margin of human existence. They live in overwhelming deprivation, with despair and in a state of perpetual crisis. The management of this crisis is a test both of the humanity and the credibility of governments.” (Italics added)