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Some reflections for 1986
Some Reflections for 1 9 8 6 A European looks at the economy on both sides of the Atlantic
31
OTTINO CARACCIOLO DI FORINO
he statistical tools that are at our disT posal today, however suitable for making short- and even medium-term projections, are inadequate for making models of the probable evolution of the economy on a long-term basis. It is true that the past is a guide for the future, but in using statistics for projecting rates of economic growth we can only express ourselves in quantitative terms. These may lead us to absurd conclusions because the real problem lies in defining qualitative patterns of change as well. The only certainty we can derive from Mr. Caracciolo is with the Organisation for Economic Co-operation and Development in Paris.
SPRING, 1967
past experience is that the rate of change will speed up over the next twenty years. The task is further complicated if one tries to envisage economic relations in the Atlantic area twenty years from now, because, despite certain superficial similarities, the countries on both sides of the Atlantic have pronounced and deep-seated differences. The North American side, on the one hand, may be much further advanced toward the "brave new world" one may imagine for 1986, yet it is hardly a useful model for developments that may take place in Europe because we have no certainty that Europe will follow the same trends. It is often said that Europe is undergoing a process of Americanization (some Europeans view the
OTTINO CARACCIOLODI FORINO
32
possibility with dismay), but I hesitate to subscribe to this oversimplified observation. It is a game of speculation to describe Europe of 1986 and its economic relations with America when we must consider not only existing differences; but unknown factors of a cultural, psychological, and political nature, and the inevitable scientific and technological discoveries that will enable us to solve what are now apparently insoluble problems (and probably at the same time create new ones). Nevertheless, this game must be undertaken because it has so far been the object of random speculation and more or less educated guesses, whereas we now have the help of such tools as computer-based systems of programming planning and data evaluation. These aids help us to reduce the areas of uncertainty. My own attempt at looking ahead, not based on crystal balls or data-processing systems, begins with a listing of some fundamental differences between the two sides of the Atlantic; they are so clearly in evidence that they cannot be ignored.
SOME BASIC DIFFERENCES
The United States is a huge, politically unified territory having a unified system of government, a common legal system, a common language, a common currency, a highly diversified science-based economy on an unprecedented scale, and virtual self-sufllciency in fuels and raw materials. It does not share a border with a powerful aggressive empire having a radically different philosophy and system. Perhaps most important of all, the United States has practically accepted constant and accelerated change as a way of life. Europe, on the other hand, despite the golden opportunity offered to it over the past twenty years, persists in its division; it is a collection of sovereign states, independently different, often quarrelsome, with no universally accepted political
philosophy, and no single governmental structure. It has different legal systems, no common language, and no common currency; outmoded practices and interests still carry too much weight in its economy. There are too few industries on a scale comparable to that of U.S. giants, and it is dangerously deficient in fuels and raw materials; these have to be imported from areas of the world that it no longer directly controls. It shares a long border with a powerful, aggressive, and alien empire whose influence and immediate presence cannot be ignored. Finally, it has not accepted change as a way of life, although it realizes it is an inescapable fact. Such pressures as increased competition due to liberalized trade, the application of science and technology, and the imperative of economies of scale will inevitably bear on Europe to achieve a greater degree of unification. But it is still a legitimate and open question to ask how and when Europe will unite. The shape of Atlantic economic relations in 1986 will depend, to a considerable extent, on how these two questions are finally answered. These are not the only unknown factors. Even if we discount the possibility of a major cataclysm, such as a global war, and assume that the present rate of economic growth will continue, unforeseeable developments will take place, particularly in the fields of scientific innovation and technological applications. Among all the uncertainties, some that will exist in 1986 can now be identified and their progress measured. It is on three of these that I would like to focus my remarks: the first is human beings, the second is the structures, and the third is patterns of trade.
THE HUMAN UNCERTAINTY
It is right and proper that we concentrate first on the human element because economic activity, scientific development, private enterprise, the government function, and the provision of food, goods, and serv-
BUSINESS HORIZONS
REFLECTIONS FOR 1 9 8 6
ices are for the individual-for his spiritual and material welfare. I hope that this will still be so in the Atlantic world of 1986, despite the many deliberate and involuntary trends that threaten to turn men and women into mere cogs of a vast impersonal machine. In twenty years, there will be some 400 million western Europeans (an increase of 15 per cent) concentrated in less than 1.3 million square miles, and some 250 million North Americans (an increase of 20 per cent), living in about 6 million square miles. Life expectancy will have risen, thanks to further advances in the medical sciences, and we may estimate that about 25 per cent of the Europeans and 20 per cent of the Americans will be over 60. At the other end of the scale, the compulsory and voluntary schooling period will have increased. These two factors will cause the active population to be relatively smaller in 1986, compared with today. Yet we can safely assume that this proportionally smaller active population will be producing goods and services at a level considerably higher than today's; in fact, GNF in the two areas will have more than doubled. We can expect that in the 1980's the European per capita income will have reached the level in the United States today. Longer life, shorter working hours, and more money: how will the men and women of 1986 use these assets? Some recent studies show that in Europe of 1986, given trends in productivity, individuals will be spending nearly 50 per cent less of their income for food and clothing and proportionally more for housing (30 per cent), medical services (20 per cent), and transportation, culture, and leisure (50 per cent). These are departures from the present pattern, and they will have important consequences in the economic field. Though they will result from a multiplicity of factors, ineluding the free choice of the individual or market forces, one may expect, nevertheless, that governments (particularly in Europe) will undertake action to guide the demand.
SPRING, 1967
The problem for governments will be to bring about a proper equilibrium between short- and long-term satisfaction, to harmonize private consumption with capital expenditure, to modernize existing (and in many cases create) infrastructures, and to steer a course between different types of structures and services. This equilibrium will be brought about by promoting the expansion of some areas and by imposing limitations on others. Thus, in addition to the standard methods of funneling government expenditures to one sector or the other by means of appropriate budget policies, we may expect that income policies will become standard instruments of government regulation. Indeed, this is already apparent in those countries where the antiquity of the infrastructure (both social and industrial) is apparent, and where it is considered that consumption siphons off too much of the national income as well as causes balance-of-payments problems. Modernization of the industrial and commercial infrastructure may be expected to give immediate yields and can thus be /eft to the forces of a market economy. However, particularly in Europe, the modernization and creation of social infrastructures (medical, health facilities, educational and training institutions, playgrounds, urban renovation and beautification, public transportation, cultural centers, and the like) will have to be undertaken by the government because they are long-term investments, often yielding no monetary dividend. The men and women of 1986 will demand them, and commercial infrastructures have not been able to supply them. Although certain social infrastructures will become responsibilities of the public sector, important areas remain for investment and activity by private enterprises. One such sector that comes to mind is the mix that will service expanded leisure time. Automation, higher levels of productivity, and the further reduction of the labor force in both agriculture and industry will give the men and women of 1986 so much leisure
33
OTTINO CARACCIOLO DI FORINO
that it will probably be more efficient to reduce the number of weeks worked in the year, rather than the number of hours per week. It is not too far-fetched to predict some highly automated enterprises employing three shifts of workers who would actually work only eight months and vacation for four. Hotels, motels, holiday camps, rent-a-car systems, rent-a-boat systems, travel agencies, airlines, shipping, and equipment, clothing, and food businesses will require expansion by private enterprise. The role of the governments will be to determine regional development plans, create national parks, and build the basic infrastructure by means of both appropriate legislation and capital expenditure or investment.
34
The availability of considerably more leisure time, both because of shorter working hours and the expansion of services and facilities provided by both collective and individual mechanisms, will perhaps be the single most important factor differentiating the men and women of 1986 from those of today. It will bring about considerable change in attitudes and ways of life, which are hard to foresee and for which the present educational systems are not providing adequate guidance. It has been traditional to train individuals to become useful producers and, more recently, to educate them to become useful consumers. But the problem of education for expanded leisure is new and cannot be solved by judicious investment and economic profit-making activity alone. It will be essential to educate people for this change, particularly because the increase will be enjoyed primarily by the population in the lower income brackets. We already have had enough warning from juvenile delinquents and lawless teen-age gangs in slum areas as to what happens when leisure is not accompanied by education. Government action to institute adult and continuing education on a much greater scale than heretofore can be expected, certainly on the European side of the Atlantic. But leisure and all its consequences-good
and bad-create a problem common to both sides of the Atlantic, and it is therefore proper for me to suggest that we search in common for common solutions. The men and women of 1986, their habits, their desires, and the consequent social infrastructures they will generate is a subject that could fill a whole library. Let me only say that they will surely be as opinionated, as prejudiced, as intelligent, as foolish, as expectant, as ambitious, as lazy, as quarrelsome, and as lovable as we are. But their opinions, desires, motives, and ambitions will be different from ours. These changed attitudes will impose new priorities. The analysis and the choice of means for fulfilling them may well be one of the most important and delicate problems that our future economy will have to face. STRUCTURAL UNCERTAINTIES The structures of the economy of 1986 will surely be as different as the human expectations, if not more so. It may well be that the accelerated change, brought about by the impact of science and technology, will result in structures as different from today's as ours are from those of a century ago. It may be useful to list some of the achievements of the past twenty years to indicate what problems we shall have to face: The speed of man-carrying vehicles has been multiplied by 50 from less than 500 miles per hour to over 20,000 miles per hour. The power of explosives has been multiplied by some millions as a result of atomic energy. The reliability of electrical mechanisms has been multiplied by a factor of 10, as a result of transistors, and the speed of the basic operation in data processing has increased from onemillionth to one-billionth of a second. The potential volume of information data that could be handled by a single transmitter has increased a thousandfold as a result of the development of lasers. The research and development budget of the United States, which amounted to $1.2 billion in 1950, was multiplied by 10 in 1963. Europe, conscious of lagging behind, is developing a crash program for overcoming this technological gap.
BUSINESS HORIZONS
REFLECTIONS FOR 1 9 8 6
Can we possibly imagine that these achievements and those to come will not affect the lives of every single man and woman of 1986 and, consequently, the structures of the various countries? For example, the structure of govermnent will be altered. It is self-evident that public administration will be equipped with tools that enable it to control so effectively the lives of individual citizens that individual freedom would disappear in everything but name, a convenient slogan to be invoked at election time! In this respect, it must be recognized that t h e reciprocal attitudes between citizens and bureaucrats require updating, more so in Europe than in North America. Hidebound by traditions that, although valid in the past century, are hardly in keeping with the conditions of today-let alone those of 1986-the bureaucracies of the European countries lack in modern managerial skills; they are also still oriented toward a division of labor conceived over 100 years ago to function in an incipient industrial society, and are hardly adequate to cope with the problems of a science-based civilization. One can hope that the inevitability of a European economic unification will also speed up its political integration and that the new European bureaucracy will succeed (while saving what is best of tradition) in acquiring a new mentality, a new concept of its role and duty to the public, and new managerial skills such as those developed by privat:e enterprise. Such changes in European government structures will affect, not only Atlantic economic relations, but also the solution of such European problems as the "brain drain" or technological gap, as well as the future European role in world affairs. Nor is it only the structure of the government departments and the attitude and mechanism of the bureaucracy that may be affected, but even the participation of citizens in public affairsin other words, the democratic process itself. The electoral systems, in use on both sides of the Atlantic, were designed to serve a static population in rural electoral dis-
SPRING, 1967
tricts, where everybody knew everybody else, including the candidates standing for election. How adequate is this system to serve democracy in Europe where some millions of individuals migrate and find useful employment in areas where they are considered aliens and where, although expected to pay taxes, they do not enjoy citizens' rights? Will we hear also in Europe the cry of, "no taxation without representation"? Nor is this a problem that will affect only Europeans. Today we are witnessing an important emigration to North America of European scientific minds, and the establishment of American businessmen and managers in vast numbers in Europe. This trend may expand, and when wages and standards of living are more comparable, we may witness a movement of workers in both directions between the two sides of the Atlantic. And if this occurs, how will labor laws, right-to-work laws, closed-shop trade unions, pension funds, and social security legislation be affected? Or are we to imagine that a vast expansion in both quantity and quality of communications systems will make the movement of persons unnecessary because it will be more expedient to transfer programmed magnetic tapes to wherever productive capacity is available? This, of course, would imply a highly sophisticated and science-based productive capacity; but we cannot doubt that, under the pressure of increased competition both within and outside the Atlantic area, our industries will further modernize, automate, standardize, and specialize; inevitably, changes will occur in structure in the private sector as great as those that we may expect in the public field. This trend is already apparent in Europe where industry is rapidly readapting itself not only to the exploitation of new scientific discoveries but also to new mass market conditions. Whole industries and sectors have disappeared because they have become either technologically or economically obsolete.
35
OTTINO CARACCIOLO DI FORINO
36
It would be dangerous to express too radical a view in forecasting these changes because experience teaches us that many sectors that one could logically consider outdated have nevertheless shown an extraordinary capacity for survival (coal mines in Europe and railroads in North America, for example). This happens largely because of defense requirements or for social reasons, rather than for economic considerations. Furthermore, particularly in Europe, the lack or shortage of certain raw materials severely hampers reconversion (lack of oil on the European continent surely explains the survival of uneconomical coal mines). Certain raw materials, which have heretofore been considered inexhaustible, may well become in short supply quite soon; water and air are too good examples. Perhaps the elimination of pollution from water and/or air will become as important an industry as the refining of crude oil is today. These changes of structure, this disappearance of some industries, and the growth of others are bound to take place; but they will take place without undue strain only ff men and women adapt themselves to the new conditions. As I mentioned earlier, North America is ahead of Europe in this respect because it has accepted change as a way of life while Europe views it only as an inevitable inconvenience. The challenge of training men and women for change (both in terms of technological knowledge as well as in terms of attitudes) is a problem for the educational systems on both sides of the Atlantic. The study of the problem and the search for the solution to structural changes may in itself become a major intellectual and economic activity. The equilibrium between the rate of change of ideas and attitudes, and governmental structures and structures of the private sector in production and distribution will be in itself a major problena which today is vaguely understood, not scientifically studied, and therefore left to the speculation of philosophers. May we
paradoxically conclude that impending structural changes will bring philosophy back into fashion and that philosophers will reacquire their former prestige? In the meantime, we may expect that the reorganization of structures will offer great opportunities to private enterprise on both sides of the Atlantic. We are still using, to a large extent, the basic infrastructures of one hundred years ago; ports and railways are examples. Although new structures have been added since, such as electric grids and networks of superhighways, there is little doubt in my mind that the next quarter of a century will see an expansion-indeed, a creation-of new infrastructures based on scientific discoveries. Even ff the government, motivated by an already apparent social conscience, takes the lead here, private enterprise still will have ample scope in which to exercise its ingenuity, apply its skills, and participate in the renovation. Indeed, one may conclude that continued progress and expansion of the private sector will largely depend on the leadership it will exercise in promoting changes of both social and economic structures. But, in our optimism, we should not accept change in itself as always desirable and synonymous with progress. The contrast between the increased life expectancy of men and women and the shortened lifespan of structures (accelerated change inevitably spells accelerated depreciation) will confront mankind with perhaps the most difficult sociopsychological problem it has yet coped with. Business leaders will face some of the most delicate investment decisions they have ever had to make.
UNCERTAINTIES IN TRADE
We would do our theme a disservice ff we limited our thinking to the Atlantic area. Trade is a worldwide affair, despite the fact that the Atlantic area is responsible for the greatest share of world trade. This
BUSINESS HORIZONS
REFLECTIONS
FOR
1986
circumstance has developed because Europe and America have the money to pay for the goods they buy from each other. The fact that trade flows between areas where payment can be made has been true for centuries; it was once said that trade used to follow the flag, and it can now be held that it follows a favorable economic climate. We should not forget that the role of the flag was to create favorable (stable) economic climates. But this is like saying, "Plus ca change, plus e'est la m~me chose." If we are to evaluate past happenings in order to study future trends, we should focus our attention on real changes that have taken place and are taking place in the field of trade. First of all, we should recognize that full employment (a political priority for every government) is not necessarily maintained by protectionism. On the contrary, the European recovery and the subsequent creation of common markets and free trading areas prove that full employment and economic growth are best served by free trade. In this respect, the example of the U.S. "common market" is valid; one may wonder what the rate of growth and employment would have been in America ff Chevrolets moving from Michigan to Minnesota, Mississippi, or Montana would have had to pay duty. Another example is Britain; loss of a free trading area, known first as the Empire and later as the Commonwealth, is surely one of the reasons for this country's present ills. But the strong winds of liberalized trade, which have been prevalent in the fifties and sixties (and may be expected to continue in the seventies and eighties), are only one factor. More important trends or changes are occurring. The industrial countries of the world (primarily the Atlantic area), formerly the importers of food and raw materials, have now become exporters of food and are importing relatively fewer raw materials because of the synthetic substitutes they are producing.
SPRING, 1967
This is causing a serious imbalance in the world trading system, because the developing nations have to import food and capital goods while their newly established processing or manufacturing plants are not earning enough hard currencies to pay for the imports. As we all know, aid, in the form of loans and grants, has come to the rescue.
It is perhaps in the trade field that the impact of a changing world will be felt most, and it therefore is the most delicate field of all. Because changing expectations of the populations of the Atlantic area will affect the internal social and economic structures of the Atlantic nations, the changing structures (governmental and private) of these nations will affect the relations between the Atlantic area countries; but the pattern of trade will affect the relations between the Atlantic nations and the rest of the world. Several important institutions are dealing with the question, and already some forward-looking measures have been taken. One must recognize, however, that the delicacy and difficulty of the subject matter call for caution, and caution means time. It is legitimate to ask ourselves how much time we can afford. There is hunger in the world: hunger for knowledge, hunger for a good life, and hunger for justice, as well as just plain hunger for bread. This is not new; what is new is the unprecedented scale of the problem and the awareness that poverty and hunger are not inevitable. It would be disastrous if to this hunger the Western world were to answer that ff they have no bread, they should "eat cake." Liberalization of worldwide trade, although a step in the right direction, solves problems for only some categories of goods. Discrimination in reverse (low tariffs by rich nations, high tariffs by poor ~nations) is also a partial answer. Apart from the fact that it negates the "most favored nation clause" of the CATT, one may argue that lowering tariffs on bananas is to the advantage of consumers in developed
37
OTTINO CARACCIOLO DI FORINO
38
countries. High tariffs on imports by developing nations, though providing revenue for those governments, really makes the plant and equipment they need more expensive. Nor would liberalization or discrimination in reverse solve the problem of payments. The creation of large regional free or common markets has been highly successful in North America and western Europe, The example is being followed, though slowly, in Latin America, and expressions of interest have been heard on other continents. Such schemes should certainly be encouraged, but they represent only one factor of a highly complex problem. In fact, it is doubtful whether the problem of world trade can be solved or even improved ff it is tackled in a trade context alone. Trade is so closely related to payments problems that it is self-evident that the two should be viewed together. In addition, the import by developed countries of the manufactured goods now available from the recently created industries in less-developed areas implies relating the industrial policy of the Atlantic nations to trade and payments policies-as well as to agricultural policies in both developed and less-developed countries. This trend is already apparent, and OF~CDis engaged in this study. Realistically, it should be mentioned that relating trade to aid, payments, and in-
dustrial and agricultural policies, taking into account technological development and population explosions, will involve thought and debate at the intergovernmental level. It may well lead to liberalized trade in the sense of tariff reductions, but the extent to which it will lead to "freer" trade, in the sense in which the expression was used in past decades, is open to question. Also, the meaning of words will change as indeed it has through the centuries. I do not think that we should have any illusions that 1986 will be a perfect world. There will still be poverty, disease, unhappiness, ugliness, and incongruous and archaic structures and procedures. And we can be certain of more anxiety, but the extent to which it will be a better world will largely depend on how successful universities will have been in preparing the men and women of 1986, both technically and psychologically. If I may end by quoting a valued friend, the sanity of the world of tomorrow will depend "not on the outcome of the contest between Democracy and Communism, between developed and under-developed, between mankind's unbelievably successful response to the Biblical command to multiply versus the creation of food and breathing space, but between the forces of change versus education."
BUSINESS HORIZONS
31
OTTINO CARACCIOLO DI FORINO
he statistical tools that are at our disT posal today, however suitable for making short- and even medium-term projections, are inadequate for making models of the probable evolution of the economy on a long-term basis. It is true that the past is a guide for the future, but in using statistics for projecting rates of economic growth we can only express ourselves in quantitative terms. These may lead us to absurd conclusions because the real problem lies in defining qualitative patterns of change as well. The only certainty we can derive from Mr. Caracciolo is with the Organisation for Economic Co-operation and Development in Paris.
SPRING, 1967
past experience is that the rate of change will speed up over the next twenty years. The task is further complicated if one tries to envisage economic relations in the Atlantic area twenty years from now, because, despite certain superficial similarities, the countries on both sides of the Atlantic have pronounced and deep-seated differences. The North American side, on the one hand, may be much further advanced toward the "brave new world" one may imagine for 1986, yet it is hardly a useful model for developments that may take place in Europe because we have no certainty that Europe will follow the same trends. It is often said that Europe is undergoing a process of Americanization (some Europeans view the
OTTINO CARACCIOLODI FORINO
32
possibility with dismay), but I hesitate to subscribe to this oversimplified observation. It is a game of speculation to describe Europe of 1986 and its economic relations with America when we must consider not only existing differences; but unknown factors of a cultural, psychological, and political nature, and the inevitable scientific and technological discoveries that will enable us to solve what are now apparently insoluble problems (and probably at the same time create new ones). Nevertheless, this game must be undertaken because it has so far been the object of random speculation and more or less educated guesses, whereas we now have the help of such tools as computer-based systems of programming planning and data evaluation. These aids help us to reduce the areas of uncertainty. My own attempt at looking ahead, not based on crystal balls or data-processing systems, begins with a listing of some fundamental differences between the two sides of the Atlantic; they are so clearly in evidence that they cannot be ignored.
SOME BASIC DIFFERENCES
The United States is a huge, politically unified territory having a unified system of government, a common legal system, a common language, a common currency, a highly diversified science-based economy on an unprecedented scale, and virtual self-sufllciency in fuels and raw materials. It does not share a border with a powerful aggressive empire having a radically different philosophy and system. Perhaps most important of all, the United States has practically accepted constant and accelerated change as a way of life. Europe, on the other hand, despite the golden opportunity offered to it over the past twenty years, persists in its division; it is a collection of sovereign states, independently different, often quarrelsome, with no universally accepted political
philosophy, and no single governmental structure. It has different legal systems, no common language, and no common currency; outmoded practices and interests still carry too much weight in its economy. There are too few industries on a scale comparable to that of U.S. giants, and it is dangerously deficient in fuels and raw materials; these have to be imported from areas of the world that it no longer directly controls. It shares a long border with a powerful, aggressive, and alien empire whose influence and immediate presence cannot be ignored. Finally, it has not accepted change as a way of life, although it realizes it is an inescapable fact. Such pressures as increased competition due to liberalized trade, the application of science and technology, and the imperative of economies of scale will inevitably bear on Europe to achieve a greater degree of unification. But it is still a legitimate and open question to ask how and when Europe will unite. The shape of Atlantic economic relations in 1986 will depend, to a considerable extent, on how these two questions are finally answered. These are not the only unknown factors. Even if we discount the possibility of a major cataclysm, such as a global war, and assume that the present rate of economic growth will continue, unforeseeable developments will take place, particularly in the fields of scientific innovation and technological applications. Among all the uncertainties, some that will exist in 1986 can now be identified and their progress measured. It is on three of these that I would like to focus my remarks: the first is human beings, the second is the structures, and the third is patterns of trade.
THE HUMAN UNCERTAINTY
It is right and proper that we concentrate first on the human element because economic activity, scientific development, private enterprise, the government function, and the provision of food, goods, and serv-
BUSINESS HORIZONS
REFLECTIONS FOR 1 9 8 6
ices are for the individual-for his spiritual and material welfare. I hope that this will still be so in the Atlantic world of 1986, despite the many deliberate and involuntary trends that threaten to turn men and women into mere cogs of a vast impersonal machine. In twenty years, there will be some 400 million western Europeans (an increase of 15 per cent) concentrated in less than 1.3 million square miles, and some 250 million North Americans (an increase of 20 per cent), living in about 6 million square miles. Life expectancy will have risen, thanks to further advances in the medical sciences, and we may estimate that about 25 per cent of the Europeans and 20 per cent of the Americans will be over 60. At the other end of the scale, the compulsory and voluntary schooling period will have increased. These two factors will cause the active population to be relatively smaller in 1986, compared with today. Yet we can safely assume that this proportionally smaller active population will be producing goods and services at a level considerably higher than today's; in fact, GNF in the two areas will have more than doubled. We can expect that in the 1980's the European per capita income will have reached the level in the United States today. Longer life, shorter working hours, and more money: how will the men and women of 1986 use these assets? Some recent studies show that in Europe of 1986, given trends in productivity, individuals will be spending nearly 50 per cent less of their income for food and clothing and proportionally more for housing (30 per cent), medical services (20 per cent), and transportation, culture, and leisure (50 per cent). These are departures from the present pattern, and they will have important consequences in the economic field. Though they will result from a multiplicity of factors, ineluding the free choice of the individual or market forces, one may expect, nevertheless, that governments (particularly in Europe) will undertake action to guide the demand.
SPRING, 1967
The problem for governments will be to bring about a proper equilibrium between short- and long-term satisfaction, to harmonize private consumption with capital expenditure, to modernize existing (and in many cases create) infrastructures, and to steer a course between different types of structures and services. This equilibrium will be brought about by promoting the expansion of some areas and by imposing limitations on others. Thus, in addition to the standard methods of funneling government expenditures to one sector or the other by means of appropriate budget policies, we may expect that income policies will become standard instruments of government regulation. Indeed, this is already apparent in those countries where the antiquity of the infrastructure (both social and industrial) is apparent, and where it is considered that consumption siphons off too much of the national income as well as causes balance-of-payments problems. Modernization of the industrial and commercial infrastructure may be expected to give immediate yields and can thus be /eft to the forces of a market economy. However, particularly in Europe, the modernization and creation of social infrastructures (medical, health facilities, educational and training institutions, playgrounds, urban renovation and beautification, public transportation, cultural centers, and the like) will have to be undertaken by the government because they are long-term investments, often yielding no monetary dividend. The men and women of 1986 will demand them, and commercial infrastructures have not been able to supply them. Although certain social infrastructures will become responsibilities of the public sector, important areas remain for investment and activity by private enterprises. One such sector that comes to mind is the mix that will service expanded leisure time. Automation, higher levels of productivity, and the further reduction of the labor force in both agriculture and industry will give the men and women of 1986 so much leisure
33
OTTINO CARACCIOLO DI FORINO
that it will probably be more efficient to reduce the number of weeks worked in the year, rather than the number of hours per week. It is not too far-fetched to predict some highly automated enterprises employing three shifts of workers who would actually work only eight months and vacation for four. Hotels, motels, holiday camps, rent-a-car systems, rent-a-boat systems, travel agencies, airlines, shipping, and equipment, clothing, and food businesses will require expansion by private enterprise. The role of the governments will be to determine regional development plans, create national parks, and build the basic infrastructure by means of both appropriate legislation and capital expenditure or investment.
34
The availability of considerably more leisure time, both because of shorter working hours and the expansion of services and facilities provided by both collective and individual mechanisms, will perhaps be the single most important factor differentiating the men and women of 1986 from those of today. It will bring about considerable change in attitudes and ways of life, which are hard to foresee and for which the present educational systems are not providing adequate guidance. It has been traditional to train individuals to become useful producers and, more recently, to educate them to become useful consumers. But the problem of education for expanded leisure is new and cannot be solved by judicious investment and economic profit-making activity alone. It will be essential to educate people for this change, particularly because the increase will be enjoyed primarily by the population in the lower income brackets. We already have had enough warning from juvenile delinquents and lawless teen-age gangs in slum areas as to what happens when leisure is not accompanied by education. Government action to institute adult and continuing education on a much greater scale than heretofore can be expected, certainly on the European side of the Atlantic. But leisure and all its consequences-good
and bad-create a problem common to both sides of the Atlantic, and it is therefore proper for me to suggest that we search in common for common solutions. The men and women of 1986, their habits, their desires, and the consequent social infrastructures they will generate is a subject that could fill a whole library. Let me only say that they will surely be as opinionated, as prejudiced, as intelligent, as foolish, as expectant, as ambitious, as lazy, as quarrelsome, and as lovable as we are. But their opinions, desires, motives, and ambitions will be different from ours. These changed attitudes will impose new priorities. The analysis and the choice of means for fulfilling them may well be one of the most important and delicate problems that our future economy will have to face. STRUCTURAL UNCERTAINTIES The structures of the economy of 1986 will surely be as different as the human expectations, if not more so. It may well be that the accelerated change, brought about by the impact of science and technology, will result in structures as different from today's as ours are from those of a century ago. It may be useful to list some of the achievements of the past twenty years to indicate what problems we shall have to face: The speed of man-carrying vehicles has been multiplied by 50 from less than 500 miles per hour to over 20,000 miles per hour. The power of explosives has been multiplied by some millions as a result of atomic energy. The reliability of electrical mechanisms has been multiplied by a factor of 10, as a result of transistors, and the speed of the basic operation in data processing has increased from onemillionth to one-billionth of a second. The potential volume of information data that could be handled by a single transmitter has increased a thousandfold as a result of the development of lasers. The research and development budget of the United States, which amounted to $1.2 billion in 1950, was multiplied by 10 in 1963. Europe, conscious of lagging behind, is developing a crash program for overcoming this technological gap.
BUSINESS HORIZONS
REFLECTIONS FOR 1 9 8 6
Can we possibly imagine that these achievements and those to come will not affect the lives of every single man and woman of 1986 and, consequently, the structures of the various countries? For example, the structure of govermnent will be altered. It is self-evident that public administration will be equipped with tools that enable it to control so effectively the lives of individual citizens that individual freedom would disappear in everything but name, a convenient slogan to be invoked at election time! In this respect, it must be recognized that t h e reciprocal attitudes between citizens and bureaucrats require updating, more so in Europe than in North America. Hidebound by traditions that, although valid in the past century, are hardly in keeping with the conditions of today-let alone those of 1986-the bureaucracies of the European countries lack in modern managerial skills; they are also still oriented toward a division of labor conceived over 100 years ago to function in an incipient industrial society, and are hardly adequate to cope with the problems of a science-based civilization. One can hope that the inevitability of a European economic unification will also speed up its political integration and that the new European bureaucracy will succeed (while saving what is best of tradition) in acquiring a new mentality, a new concept of its role and duty to the public, and new managerial skills such as those developed by privat:e enterprise. Such changes in European government structures will affect, not only Atlantic economic relations, but also the solution of such European problems as the "brain drain" or technological gap, as well as the future European role in world affairs. Nor is it only the structure of the government departments and the attitude and mechanism of the bureaucracy that may be affected, but even the participation of citizens in public affairsin other words, the democratic process itself. The electoral systems, in use on both sides of the Atlantic, were designed to serve a static population in rural electoral dis-
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tricts, where everybody knew everybody else, including the candidates standing for election. How adequate is this system to serve democracy in Europe where some millions of individuals migrate and find useful employment in areas where they are considered aliens and where, although expected to pay taxes, they do not enjoy citizens' rights? Will we hear also in Europe the cry of, "no taxation without representation"? Nor is this a problem that will affect only Europeans. Today we are witnessing an important emigration to North America of European scientific minds, and the establishment of American businessmen and managers in vast numbers in Europe. This trend may expand, and when wages and standards of living are more comparable, we may witness a movement of workers in both directions between the two sides of the Atlantic. And if this occurs, how will labor laws, right-to-work laws, closed-shop trade unions, pension funds, and social security legislation be affected? Or are we to imagine that a vast expansion in both quantity and quality of communications systems will make the movement of persons unnecessary because it will be more expedient to transfer programmed magnetic tapes to wherever productive capacity is available? This, of course, would imply a highly sophisticated and science-based productive capacity; but we cannot doubt that, under the pressure of increased competition both within and outside the Atlantic area, our industries will further modernize, automate, standardize, and specialize; inevitably, changes will occur in structure in the private sector as great as those that we may expect in the public field. This trend is already apparent in Europe where industry is rapidly readapting itself not only to the exploitation of new scientific discoveries but also to new mass market conditions. Whole industries and sectors have disappeared because they have become either technologically or economically obsolete.
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It would be dangerous to express too radical a view in forecasting these changes because experience teaches us that many sectors that one could logically consider outdated have nevertheless shown an extraordinary capacity for survival (coal mines in Europe and railroads in North America, for example). This happens largely because of defense requirements or for social reasons, rather than for economic considerations. Furthermore, particularly in Europe, the lack or shortage of certain raw materials severely hampers reconversion (lack of oil on the European continent surely explains the survival of uneconomical coal mines). Certain raw materials, which have heretofore been considered inexhaustible, may well become in short supply quite soon; water and air are too good examples. Perhaps the elimination of pollution from water and/or air will become as important an industry as the refining of crude oil is today. These changes of structure, this disappearance of some industries, and the growth of others are bound to take place; but they will take place without undue strain only ff men and women adapt themselves to the new conditions. As I mentioned earlier, North America is ahead of Europe in this respect because it has accepted change as a way of life while Europe views it only as an inevitable inconvenience. The challenge of training men and women for change (both in terms of technological knowledge as well as in terms of attitudes) is a problem for the educational systems on both sides of the Atlantic. The study of the problem and the search for the solution to structural changes may in itself become a major intellectual and economic activity. The equilibrium between the rate of change of ideas and attitudes, and governmental structures and structures of the private sector in production and distribution will be in itself a major problena which today is vaguely understood, not scientifically studied, and therefore left to the speculation of philosophers. May we
paradoxically conclude that impending structural changes will bring philosophy back into fashion and that philosophers will reacquire their former prestige? In the meantime, we may expect that the reorganization of structures will offer great opportunities to private enterprise on both sides of the Atlantic. We are still using, to a large extent, the basic infrastructures of one hundred years ago; ports and railways are examples. Although new structures have been added since, such as electric grids and networks of superhighways, there is little doubt in my mind that the next quarter of a century will see an expansion-indeed, a creation-of new infrastructures based on scientific discoveries. Even ff the government, motivated by an already apparent social conscience, takes the lead here, private enterprise still will have ample scope in which to exercise its ingenuity, apply its skills, and participate in the renovation. Indeed, one may conclude that continued progress and expansion of the private sector will largely depend on the leadership it will exercise in promoting changes of both social and economic structures. But, in our optimism, we should not accept change in itself as always desirable and synonymous with progress. The contrast between the increased life expectancy of men and women and the shortened lifespan of structures (accelerated change inevitably spells accelerated depreciation) will confront mankind with perhaps the most difficult sociopsychological problem it has yet coped with. Business leaders will face some of the most delicate investment decisions they have ever had to make.
UNCERTAINTIES IN TRADE
We would do our theme a disservice ff we limited our thinking to the Atlantic area. Trade is a worldwide affair, despite the fact that the Atlantic area is responsible for the greatest share of world trade. This
BUSINESS HORIZONS
REFLECTIONS
FOR
1986
circumstance has developed because Europe and America have the money to pay for the goods they buy from each other. The fact that trade flows between areas where payment can be made has been true for centuries; it was once said that trade used to follow the flag, and it can now be held that it follows a favorable economic climate. We should not forget that the role of the flag was to create favorable (stable) economic climates. But this is like saying, "Plus ca change, plus e'est la m~me chose." If we are to evaluate past happenings in order to study future trends, we should focus our attention on real changes that have taken place and are taking place in the field of trade. First of all, we should recognize that full employment (a political priority for every government) is not necessarily maintained by protectionism. On the contrary, the European recovery and the subsequent creation of common markets and free trading areas prove that full employment and economic growth are best served by free trade. In this respect, the example of the U.S. "common market" is valid; one may wonder what the rate of growth and employment would have been in America ff Chevrolets moving from Michigan to Minnesota, Mississippi, or Montana would have had to pay duty. Another example is Britain; loss of a free trading area, known first as the Empire and later as the Commonwealth, is surely one of the reasons for this country's present ills. But the strong winds of liberalized trade, which have been prevalent in the fifties and sixties (and may be expected to continue in the seventies and eighties), are only one factor. More important trends or changes are occurring. The industrial countries of the world (primarily the Atlantic area), formerly the importers of food and raw materials, have now become exporters of food and are importing relatively fewer raw materials because of the synthetic substitutes they are producing.
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This is causing a serious imbalance in the world trading system, because the developing nations have to import food and capital goods while their newly established processing or manufacturing plants are not earning enough hard currencies to pay for the imports. As we all know, aid, in the form of loans and grants, has come to the rescue.
It is perhaps in the trade field that the impact of a changing world will be felt most, and it therefore is the most delicate field of all. Because changing expectations of the populations of the Atlantic area will affect the internal social and economic structures of the Atlantic nations, the changing structures (governmental and private) of these nations will affect the relations between the Atlantic area countries; but the pattern of trade will affect the relations between the Atlantic nations and the rest of the world. Several important institutions are dealing with the question, and already some forward-looking measures have been taken. One must recognize, however, that the delicacy and difficulty of the subject matter call for caution, and caution means time. It is legitimate to ask ourselves how much time we can afford. There is hunger in the world: hunger for knowledge, hunger for a good life, and hunger for justice, as well as just plain hunger for bread. This is not new; what is new is the unprecedented scale of the problem and the awareness that poverty and hunger are not inevitable. It would be disastrous if to this hunger the Western world were to answer that ff they have no bread, they should "eat cake." Liberalization of worldwide trade, although a step in the right direction, solves problems for only some categories of goods. Discrimination in reverse (low tariffs by rich nations, high tariffs by poor ~nations) is also a partial answer. Apart from the fact that it negates the "most favored nation clause" of the CATT, one may argue that lowering tariffs on bananas is to the advantage of consumers in developed
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countries. High tariffs on imports by developing nations, though providing revenue for those governments, really makes the plant and equipment they need more expensive. Nor would liberalization or discrimination in reverse solve the problem of payments. The creation of large regional free or common markets has been highly successful in North America and western Europe, The example is being followed, though slowly, in Latin America, and expressions of interest have been heard on other continents. Such schemes should certainly be encouraged, but they represent only one factor of a highly complex problem. In fact, it is doubtful whether the problem of world trade can be solved or even improved ff it is tackled in a trade context alone. Trade is so closely related to payments problems that it is self-evident that the two should be viewed together. In addition, the import by developed countries of the manufactured goods now available from the recently created industries in less-developed areas implies relating the industrial policy of the Atlantic nations to trade and payments policies-as well as to agricultural policies in both developed and less-developed countries. This trend is already apparent, and OF~CDis engaged in this study. Realistically, it should be mentioned that relating trade to aid, payments, and in-
dustrial and agricultural policies, taking into account technological development and population explosions, will involve thought and debate at the intergovernmental level. It may well lead to liberalized trade in the sense of tariff reductions, but the extent to which it will lead to "freer" trade, in the sense in which the expression was used in past decades, is open to question. Also, the meaning of words will change as indeed it has through the centuries. I do not think that we should have any illusions that 1986 will be a perfect world. There will still be poverty, disease, unhappiness, ugliness, and incongruous and archaic structures and procedures. And we can be certain of more anxiety, but the extent to which it will be a better world will largely depend on how successful universities will have been in preparing the men and women of 1986, both technically and psychologically. If I may end by quoting a valued friend, the sanity of the world of tomorrow will depend "not on the outcome of the contest between Democracy and Communism, between developed and under-developed, between mankind's unbelievably successful response to the Biblical command to multiply versus the creation of food and breathing space, but between the forces of change versus education."
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