The spurt in the global economy couldn’t come at a better time. Governments everywhere are wrestling with the pressures of a post-cold-war world. Former Soviet republics are struggling to create viable democracies; so are many Latin countries. In Western Europe, governments strain under huge unemployment (exceeding 11 percent in 1994) and costly welfare states. In Japan, the postwar dominance of the Liberal Democratic Party has collapsed. A stronger global economy won’t solve these problems; but a weaker economy would worsen them by undermining faith that governments can provide jobs and higher living standards.
For the United States, the reviving global economy virtually ensures that the U.S. recovery will continue through 1995 and perhaps beyond. Pringles potato chips epitomize a vibrant export sector, which will benefit from faster growth abroad. Since 1990, U.S. exports are up 28 percent. In addition, America’s multinational companies are the world’s most powerful, and their global expansion benefits the U.S. economy. Overseas operations provide profits to U.S. investors and jobs for U.S. managers.
Consider again Procter & Gamble. Though a big exporter, its major foreign presence occurs through overseas factories and sales networks. In Russia, locally manufactured Tide is one of the best-selling detergents; in China, P&G sells soap, detergent and shampoo. All told, overseas sales now represent 53 percent of P&G’s total, up from 32 percent in 1980. Hundreds of U.S. companies have similarly expanded. Since 1987, MTV has established regional production centers in Europe, Brazil, Japan and India. And then there’s Coca-Cola; more than two thirds of its beverage sales are outside the United States.
The global boom stems from two sources. The first is a widespread acceptance that the “market” is an engine of economic growth. Dozens of poorer countries have reaped huge rewards from overhauling economic policies to encourage private enterprise at home and foreign investment from abroad. Since 1991, annual growth has averaged 11.4 percent in China, 7.4 percent in Argentina, 6.6 percent in Indonesia and 3.5 percent in India. Together, developing countries attracted more than $180 billion in foreign investment in 1993.
The other source of the global boom is Europe and Japan, which are only now rebounding from slumps. In Europe, heavy spending on German reunification prompted Germany’s central bank to raise interest rates; all of Europe went into recession. In Japan, an orgy of real-estate and stock-market speculation in the late 1980s led to widespread losses and three years of stagnation. But in 1995, the IMF expects Japan to grow 2.5 percent and Europe nearly 3 percent.
No boom lasts forever; this one won’t. Nor is it universal. Most of Africa and the former Soviet Union haven’t yet joined. Some economists fear the world recovery will choke on a “capital shortage,” as rising credit demands- generated by rapid growth- meet shrunken savings supplies-depleted by big government deficits. Indeed, inflation-adjusted bend rates already exceed 4 percent in the United States, Japan and Germany. Still, the boom continues. It’s sustained by policies around the world to dismantle obstacles to investment and work. Because the untapped potential is huge, so may be the boom’s stamina.
