It has been clear for some years that an economic struggle is going on between the usa and the rest of the industrialized world, particularly Western Europe. Any remaining pretences to the contrary were finally exposed at the Williamsburg summit, not least on account of the confused but nonetheless significant positions taken up by the President of France. At the same time, Williamsburg has strengthened the popular view that the United States controls the economic fate of the world, and that opposition to American wishes is futile. This is a mistaken impression, however. It must be made clear that there is an alternative to American domination, and that this is to be realized through a regaining of the political initiative by the European Left and the peace movement.

The first point to be made is that the us economy, after two and a half years of Reagan’s administration, is still riven by crisis and a growing weakness relative to the European and Japanese economies. No significant gains have been shown by the fundamental economic indicator, the rate of growth of productivity in manufacturing industry, whose recent acceleration is the normal consequence of an upturn and does not seem to be a permanent trend. Looked at structurally, the performance of the us economy differs very widely from one sector to another. In the advanced technological sectors (electronics, aerospace, bionics), the United States remains in the forefront, although even there some firms have suffered from the recession. In traditional sectors, at a medium level of technology (steel, motor vehicles, machine tools), the picture ranges from disastrous to ‘bad with hopes of improvement’. In the labour-intensive sector, it is clear what path American capital intends to follow: processes and operations that cannot be automated will be ‘exported’ to the Third World (as we have already seen happening in some parts of the textile industry).

The industrial development of the Third World, and above all of Latin America, will be of crucial importance to future development in the usa. The restructuring of American productive industry requires that Third World countries should support the process by importing capital-intensive goods, and this can only be done if they are given the possibility of exporting labour-intensive goods to the industrial heartlands. Otherwise, these countries would have to fall still further into debt, thereby causing serious international difficulties.

Of late, the structural problems of the us economy have been exacerbated by the instability of the dollar. In order to maintain and increase the dollar’s exchange rate, the United States has been obliged to raise interest rates—a move which has further reduced the competitiveness of traditional American industries and brought about financial crisis in Latin America. Most of the debt burden which is crushing the countries of Latin America is made up of short-term debt expressed in dollars, so that any increase in us interest rates makes it heavier still. This in turn has an adverse effect on the outlook for North American firms which have a dominant position in the markets of the region.

The dollar is currently overvalued by about thirty-five per cent, in the sense that one dollar will buy a good thirty-five-per-cent more goods abroad than it will in the usa. Although inflation in the usa is now running at a lower level than the average for other industrialized countries, it will be a hard task to close the gap in purchasing power, and in the meantime American industry will remain at a competitive disadvantage. The effects of this can be seen in a massive balance-of-payments deficit, which this year will be in the region of 56 billion dollars despite a fall in petroleum imports. This has forced the usa to keep interest rates high, since any fall would trigger a flight of capital into other currencies and gilt-edged securities, as happened in 1972 and 1977–78. This time, any dollar crisis would be a still more serious affair, for the economy ‘learns’ from the past, and any repetition of an earlier situation produces swifter and more profound effects.

If interest rates remain high, there can be no strong recovery of the us economy. This has important negative implications not only for employment prospects, but also for industrial development. In the absence of demand, investment is sluggish and there is no industrial renewal. Although investment for purposes of rationalization takes no account of the state of demand, it tends to suffer when profits are low and interest rates are high, since little capital is then available for reinvestment. Companies therefore attach great importance to the compression of real wages and the reduction of their tax burden—measures which also keep the stock exchange buoyant and make risk capital more readily available to companies in the process of restructuring. This is the aim of the Reagan administration’s ‘supply-side economics’: to increase the rate of profit by holding down real wages and taxes, so that industries are able to restructure themselves and compete more effectively on the world market.

All the same, many are sceptical about the prospects for this laissez-faire policy, and a group of economists close to Democratic circles (Reich, Thurow) have repeatedly insisted that the usa should adopt an industrial policy along Japanese or French lines—tailored, of course, to American needs. They argue that the restructuring of industry could be accompanied by pump-priming measures and that the basic welfare provisions introduced over the last decade need not be jettisoned. Such opinions are gaining ground among influential Democrats and among financial and industrial circles.