Panelists Forecast Bleak World EconomyBy Hyun Soo Kim
Associate News Editor
The "Immediate World Economic Challenges" interactive session of the Industry Summit held Friday portrayed a bleak future for the world economies. The session featured three prominent economists -- two of whom are MIT professors.
Professor Rudiger W. Dornbusch, Professor Paul R. Krugman PhD '77, and Professor Jeffrey Sachs of Harvard University served as panelists, and Jerry Green, Harvard provost, served as chair.
Dornbusch opened the session by outlining four major economic issues that daunt the world today. The issues he presented were the possible end of the General Agreements on Tariffs and Trade, the future of the North American Free Trade Agreement, the economies of the former communist nations, and the economies of India and China.
"Congressional authority on the Uruguay Round [of the GATT] will expire soon, and it's unlikely that Clinton will renew it," Dornbusch said. However, NAFTA will probably pass with Clinton's strong endorsement, he said.
Jobs, wages affect economy
Krugman addressed the session description in the summit information directory which said: "Trade, finance, and post-communism are reshaping the world economy. Can we look forward to new prosperity or will currency instability, capital scarcity, and trade wars be the new wave of fear?"
"Jobs and wages are the bottom line in the rich world economies. Not `currency instability, capital scarcity and trade wars,' " Krugman said.
Krugman said that income growth slowed in the world economy, especially in lower income households. "In the United States, the problem is income disparity."
"Some people are trying to divert attention to international issues like NAFTA so that the U.S. public will blame NAFTA for problems. ... But both the United States and Europe have avoided taking care of domestic issues," Krugman said.
Dornbusch said that countries should make efforts to create liberalized economies because more open trade may help employment.
However, Krugman said that trade is not a jobs issue, and that making NAFTA a job issue is a big mistake.
The Russian economy
Sachs explained some of the causes of the economic chaos in the formerly communist world, and focused on Russia. "The internecine political battle is totally derailing the economy," he said. For example, the Russian Parliament is trying to infringe upon the rights of foreign investors in Russia to discourage Yeltsin's privatization efforts, Sachs said.
Sachs also disparaged the West for not giving enough aid to formerly communist countries. "The European countries have basically red-lined giving aid," he said. He added that every export from the formerly communist countries are slapped with anti-dumping restrictions by Western Europe.
During the question and answer segment, a member of the audience challenged some of Sach's conclusions, saying that Western Europe was more open to exported goods from the former communist nations than Sachs claimed.