In the aftermath of the war to liberate Kuwait, it is worthwhile reflecting on the conditions at home that made it possible for the United States to mobilize more than 500,000 troops, deploy an enormous armada of ships, planes and equipment halfway around the world, and wage a war of stunning technological intensity. America's capacity to execute such a vast campaign was no accident. Nor was it simply the result of the buildup of a great arsenal in the 1980s, although that helped to equip U.S. forces with the firepower to get the job done.

Such success was made possible by an underlying economy able to turn out great volumes of extremely advanced military equipment and software as well as men and women skilled in operating them. The U.S. economy would not have been capable of doing this but for a history of high American savings and enormous investment in education, industry, science, technology and the infrastructure to link these elements together. Savings and investments of earlier years were not intended primarily to bolster America's capacity to send well-equipped forces overseas, but they had the derivative effect of making that possible and, more generally, of strengthening the foundations of American global power-political and economic, as well as military.

It is an ominous sign for the future, then, that today U.S. domestic savings are close to a historical low and that investment in education, industry, infrastructure and vanguard technologies is inadequate. While the United States is likely to maintain military preeminence for years to come, savings and investment shortfalls raise concerns about America's future capacity to produce the resources, technologies and trained people necessary to maintain its current overwhelming military edge. Consequently, there is reason for alarm about this country's ability a decade or two from now to fight a gulf-type war-or any other war-so successfully and with so few casualties. Without this confidence the United States could become reluctant to act decisively, and other nations might become more willing to challenge American interests.

But even if the probability of the United States ever again having to take military action abroad were to fall to zero, domestic economic problems would still pose a serious threat to vital American interests. Economic strength will become an increasingly important aspect of national power, and in many cases the decisive aspect, in what promises to be a more competitive global commercial and financial environment. Geoeconomic competition will contend with, and perhaps surpass, geopolitical competition as the driving force in international relations.

The financing of the Gulf War is also grounds for concern. It was altogether appropriate for the United States to call on other members of the international coalition to underwrite a large portion of the war's costs, because they too had a vital interest in the success of Operation Desert Storm. It is nonetheless a fact that this was the first U.S. military operation in this century that America felt unable to pay for by itself. Without significant financial assistance from abroad, either a new tax increase or added government borrowing would have been required, as in past wars. That would have slowed an economy already in recession in early 1991; the very notion that these unpopular measures would have been necessary could have turned a few critical votes in Congress against the president, perhaps enough to deny authorization to use force in the gulf.

The United States ultimately received pledges of over $50 billion from its allies. But there can be no assurance that in the future U.S. intervention will be called for in areas of the world where so many other wealthy nations have parallel or common interests and will thus be willing to foot so large a share of the bill. Of course future U.S. leaders are likely to seek to mobilize coalitions to support their actions, but they will not wish to feel unable to move militarily without passing the hat.

If America's economy does falter, so will the underlying source of its international power. Thus this nation's central foreign policy priority in coming years and its central domestic priority must be the same: strengthening the American economy. Unless the United States reinvigorates in this decade the economic roots of its international power, it risks an erosion of self-confidence and of its international leadership at the turn of the century. With a weak economy and a society in conflict over how to allocate slowly growing resources, this nation would find it increasingly difficult to achieve its essential global objectives.


Much has been written since the autumn of 1989 about the need to create a new international order. That the United States must exercise leadership in such a process appears to be widely accepted in this country and abroad, especially following the Gulf War. That the United States is the only nation capable of projecting massive military power in support of a new order is similarly well understood. Less clear is whether America can satisfy the domestic conditions required to exercise the necessary international political and economic leadership.

The war against Iraq temporarily diverted attention from the problems of global economic competition, in which American preeminence faces formidable challenges. To some American observers it was comforting during the Gulf War to cite the lack of leadership, or resolve, of Germany and Japan or the disunity of the European Community as confirmation of the unique strengths of the United States in the post-Cold War era. But there is a risk that this renewed American sense of confidence and global importance will be used as an avoidance mechanism-a diversion from the compelling need to address deep-seated domestic economic and social problems.

American success at home and abroad over the last several decades can be traced to the strong foundation built by past generations. Their high savings and massive investments in schools, factories, farms, infrastructure and technology, as well as their leadership in creating market-oriented international institutions, underpin America's current strengths.

Post-World War II America generated tens of millions of new jobs, dramatically raised living standards, absorbed large numbers of immigrants, led the world in medicine, science and technology-and assisted in the reconstruction of Europe and Japan. This history is a monument to many years of forward-looking policies by private enterprise and government alike that augmented and enhanced the quality of America's human and physical capital. During much of the 1980s the U.S. economy-built on this strong foundation-continued to demonstrate remarkable strength despite egregious financial excesses.

But in recent years the roots of America's economic strength have been neglected. The pace of investment in future productivity and growth has slowed. The political process has sidestepped or postponed decisions on urgent economic issues: budget deficits, entitlements and financial reform. It has done so not because of a lack of political will, as some charge, but because of a multitude of strong, widely disparate political interests and genuine differences over how to tackle these problems. The result is political gridlock.

Many forces are powerful enough to protect their own special programs, even when these can no longer be justified on grounds of cost or effectiveness; few if any have the strength to achieve fundamental changes in national policy. As a consequence there is a marked political tendency to seek "soft" compromises, noncontroversial solutions that do not offend-to practice the politics of avoidance. But what is politically safe is often economically harmful. Difficult economic and social problems have been allowed to accumulate.

Unfortunately no economic alchemy can turn a mixture of harmful policies and practices into long-term prosperity. Low savings, sluggish investment, heavy consumer, corporate and government borrowing, deteriorating infrastructure, uneven quality standards and lagging competitiveness in key sectors: the American economy is strong enough to thrive under a few of these burdens for a short time, but not under so many for very long.

If the origins of these problems were purely economic, there would be little to fear. The United States has overcome serious economic problems in the past and emerged stronger than ever. But the roots of a number of these problems go far deeper-to the very heart of American society and domestic politics. They lie in a confluence of three factors: America's apparent inability to educate and productively mobilize to the fullest extent possible its vast human resources and, in particular, its failure to assimilate and gainfully employ a substantial portion of its large racial minorities; collapse of the intergenerational social contract, exemplified by a national preoccupation with short-term parochial interests at the expense of long-term national interests; and avoidance of individual and collective responsibility for making the controversial decisions needed to change course.

Among the world's large industrialized democracies the United States stands out for its racial and ethnic diversity-the size of its minorities as a percentage of its overall population. Immigration has historically been a source of America's economic strength and dynamism. It has given this country a distinct economic advantage over others. Now this very diversity could become a source of political friction, social fragmentation and economic disarray unless the country can better educate, motivate and employ its growing population of blacks, Hispanics and new immigrants. American social performance and economic performance will increasingly be connected; if the country fails at the former, it is likely to fail at the latter.

The nation has had a historic commitment to the well-being of future generations. This has led to an implicit but longstanding social contract to save for the future, support a sound educational system, improve physical infrastructure and thereby leave a productive legacy. Today a pervasive shortsightedness has left this contract in tatters. Long-term national interests are giving way to short-term parochial interests. A failure to set long-term priorities has confronted government with the need to fund more programs than the nation is willing to pay for-hence large federal and state deficits. The most visible legacy of the 1980s appears to be the massive debt it has forced on the next generation.

In the past, individual responsibility was fundamental to assigning accountability in politics. Recently that notion has eroded; avoiding responsibility and controversial economic decisions has become common political and societal practice. And community responsibility, which underlies the proposition that Americans of any socioeconomic group can reshape their lives, has given way to a tendency for many segments of society to blame their problems on others, to employ the rhetoric of victimization rather than of enterprise or self-discipline and to look almost exclusively to government for solutions, rather than take the initiative themselves. The country no longer appears willing to hold its leaders or itself to high performance standards on economic matters.

If left uncorrected, these trends will increase domestic tensions, force the United States to turn increasingly inward and cause the nation to lose its economic vigor. They will diminish America's standing in a world in which improved living standards are the preoccupation of virtually all societies and a primary test of national success.

On the other hand, if pluralism, multiracialism and market capitalism can thrive in this new environment, and if a renewed commitment to investment for the future displaces the present preoccupation with short-term considerations, this country can prove to be as strong an exemplar of liberty over the next fifty years as it was a defender of liberty for the last fifty. It can reinforce its global influence and leadership in the post-Cold War world.


Rarely in this century has the United States had so great an opportunity to achieve its international political objectives. Just a few years ago the Soviet Union could thwart U.S. interests in many regions of the world. Before that, the legacy of Vietnam created mistrust of America in scores of nations. Today the clear attraction of democratic ideals and market economics to peoples everywhere, and success in the Gulf War, give this country an international political status that is virtually unchallenged and generally welcomed. At no time in recent memory have more nations been more comfortable with America in a global leadership role.

The opportunities for the United States to influence the course of global security and political and economic developments in this international environment are enormous. But there are nonetheless threats to its ability to do so-and many of these come from within.

It has become fashionable to argue that the major threat to U.S. power abroad results from "imperial overstretch." This largely misses the point. The critical problem for the United States is not the roughly five percent of GNP that it spends on defense, a figure that in any case is destined to decline. It is the failure of the United States to use the other 95 percent of its GNP with maximum efficiency.

The danger for the United States at the end of this century is not imperial overstretch but domestic underperformance-a failure to effectively mobilize America's considerable advantages and resources to meet the multiplicity of internal social, political and economic challenges of the 1990s and the attendant consequences of such a failure for America's global role. Unless the United States can end this period of prolonged economic underperformance, its foreign policy will suffer in myriad ways:

Can an America whose cities are in some parts indistinguishable from Third World slums, and whose already large underclass continues to fall behind the rest of society, maintain the moral authority required for world leadership when so many nations and peoples see a better quality of life as their overriding goal?

Can an America whose primary and secondary education system suffers from profound neglect, where the full economic potential of many of its citizens remains untapped, boost productivity and international competitiveness enough to remain a preeminant global economic power?

Can an America that continues to pass its debts on to the next generation, and fails to provide it with adequate education or infrastructure, avoid divisive intergenerational tensions that weaken its international resolve?

Can an America in which large numbers of blacks and other minorities fall outside the productive economy and become alienated from mainstream society avoid the kind of social conflict that forces a country to turn inward? Can such an America provide an example to other nations trying to cope with their own racial heterogeneity, ethnic diversity and increased immigration?

Can an America plagued by these internal conflicts generate the resources or domestic political consensus future leaders will require to play an effective global role? And if the United States is beset by such problems, will other nations have confidence in its long-term reliability as an ally or in its political staying power in global crises?

One need not look far back in history to be struck by past relationships between U.S. domestic developments and its foreign influence. Had the United States not undergone a civil rights revolution in the 1950s and 1960s, domestic cleavages might have undermined the consensus required to maintain a steady foreign policy; and this country's ability to mobilize minority groups as volunteers in the gulf and elsewhere would have been problematic. The country would have had far less political and moral authority in much of the industrialized and virtually all of the developing world in the 1970s and 1980s. It certainly would not have been an inspiration for the human rights movements that overthrew communism in eastern Europe, or for the student movement in China.

Had the United States not emerged from the economic drift of the 1970s to achieve vigorous growth in the 1980s, it would have had difficulty in producing or financing the military technology that convinced Moscow it could not continue the arms race and that enabled the American military to reverse the Iraqi invasion of Kuwait; market capitalism would have been a less compelling model for economic reforms in eastern Europe, Latin America and elsewhere.


Walter Lippmann once cautioned that American foreign policy "consists in bringing into balance, with a comfortable surplus of power in reserve, the nation's commitments and the nation's power." If commitments exceed power, "insolvency" results; that leads to political dissension. It might be tempting to balance the equation by seeking to reduce commitments. But America will continue to have significant global responsibilities-even if it can achieve greater burden-sharing-that it cannot shed without compromising important interests.

America's commitments abroad are not simply a drain on its economy; many are vital to it. The United States exports 13 percent of its GNP, 20 percent of its manufactured goods and 30 percent of its farm production; millions of U.S. jobs depend on sales abroad; production by their foreign subsidiaries is integral to the success of many American corporations; intra-company cross-border trade is critical to the profitability of a wide range of U.S. businesses; and imported oil and commodities are vital to the U.S. economy. Political stability abroad, open sea-lanes, the sanctity of borders, stability of supplies and the ability to secure greater openness in the economies of trading partners all serve important U.S. economic and strategic interests.

To remain a preeminent economic, political and military power the United States cannot shrink from its essential international purposes and objectives; it must maintain an economy strong enough to attain them.

Conventional wisdom correctly holds that its people are a nation's greatest resource. Like other resources, they can be underutilized. That is the case in America today. The difference between vigorous and weak economic growth for the United States in the 1990s will be its effectiveness in developing and mobilizing the skills and creativity of a far greater portion of its citizens.

If 15 percent of all the nation's factories or forests were destroyed in an earthquake or fire, the country would be in a state of crisis; yet for years the talents of roughly that portion of working age Americans have been wasted due to illiteracy, inadequate training or poor motivation-and this is treated with complacency.

The United States is in the midst of a dramatic demographic transformation. Hispanics, blacks and Asians together will account for more than half the growth in the U.S. labor force over the next decade. Almost nine million immigrants entered the United States during the 1980s, accounting for 40 percent of the nation's labor force growth, and the pace continues. Women of all racial groups and origins now account for over 60 percent of new work-force entrants.

At the same time, the number of working-age people in the United States will grow more slowly in the future than in the 1980s, as the 77 million baby boomers born between 1946 and 1964 are followed by a smaller number of labor-force entrants. Because the ratio of retirees to active workers will increase steadily, the productive output of new workers will have to increase significantly in coming years just to maintain current national living standards.

America has not done well at incorporating blacks and Hispanics into the work force or tapping their full productive potential. Yet significant increases in American growth in the 1990s-as well as a reduction in the size of the nation's economic underclass and improved social cohesion-will be difficult to achieve without higher levels of labor-force participation and productivity by men and women in both groups, many of whom are now on the economic sidelines. They, indeed all Americans, will have to perform knowledge- and technology-driven jobs to higher and higher standards in coming years.

The task of productively engaging a broader spectrum of citizens-minorities, disadvantaged youths from all groups and the elderly-challenges America's political, social and corporate structure. Together they must develop a comprehensive "life-cycle" strategy for investment in and better utilization of the nation's human resources, starting at childhood and running through an individual's productive years. Three related objectives demand priority attention: support for children early in life; improvement of education and training practices; and better engagement of older Americans in the workplace.

Support for young children

American society stands out from other industrialized democracies with respect to the deteriorating family structure and the number of poor one-parent households. The 1987 Metropolitan Life Study of the American Teacher found that among the most serious impediments to learning were parents leaving children alone after school, poverty at home and single-parent families. These factors put children at an early disadvantage, force the educational system to serve as a parental substitute and divert time from teaching basic skills.

One out of five children in America lives in poverty; many suffer from hunger and health problems; immunization is erratic, leading to the revival of childhood diseases once considered virtually eradicated. All these factors seriously impair learning. Programs to prevent unwanted teenage pregnancies, enhance prenatal and infant care and broaden childhood health care are basic.

Large numbers of needy children in the United States have no access to preschool programs; low pay and low status hamper the staffing of many centers. A dollar invested in preschool education saves six times the amount otherwise spent on special education, welfare and law enforcement. In France preschool for three- to five-year-olds is free; 98 percent of the country's children attend such schools, more than three times the American figure; preschool teachers hold the equivalent of a masters degree; directors are often pediatric nurses trained in public health and child development.

Even if moral considerations do not compel greater attention to young children, economic self-interest should. Today's neglected children are bound to impose an economic burden on American society for decades to come.

Education and training

The weakness of this nation's primary and secondary education system is widely recognized as an impediment to productivity growth. One observer puts the point succinctly: "The accumulated data on comparative education . . . point up two trends. First, compared with their peers in Asian and European countries, American students stand out for how little they work. Second, compared with Asians and Europeans, American students stand out for how poorly they do."

American secondary education is especially deficient in preparing students for jobs. In Germany the apprentice system serves as a transition from school to the workplace; more than one million young people annually enter a three or four year program in which they attend vocational schools part time while working part time for a company. In the United States the large number of high school dropouts and inadequately prepared graduates, particularly among minorities, means that many of America's future workers will lack the necessary skills to succeed.

Productively absorbing a steady flow of new immigrants in the 1990s will be especially important to the success of many of the world's industrial economies. Millions of political and economic immigrants are likely to flow into western Europe from the Soviet Union, eastern Europe and northern Africa. U.S. immigration will come primarily from Latin America, but Soviets and East Asians are also expected in large numbers. Even Japan, heretofore unwilling to accept workers from elsewhere in Asia, is likely to need the labor they could provide.

Having incorporated tens of millions of immigrants into its economy for over three centuries, America should be able to take significant advantage of new flows relative to countries such as Japan with greater social rigidities and less immigration experience. But the United States can realize this advantage only if its educational and social systems can assimilate new refugees as effectively in the future as in the past.

An increasingly open global economy poses another dimension to the challenge of education. The reduction of trade barriers since World War II, improved transportation and the global diffusion of technology mean that factories producing standardized goods can be built nearly anywhere and their output shipped inexpensively around the world. Workers in industrialized nations producing such goods compete against lower-wage workers in Thailand, Brazil or India who use basically the same equipment. Such competition compresses profits and wages. Jobs in such industries therefore are decreasing in the United States; where they do exist, companies keep salaries low in order to survive.

Less-educated workers-many of whom tend to work in these industries-have been especially hard hit. Since 1983 the unemployment rate among high school dropouts has been 10 to 14 percentage points higher than those with a high school diploma. That translates into a wider income gap between skilled and unskilled Americans, and more problems for the country's economic underclass. In a global economy workers can command high wages and obtain good jobs only by adding greater value than their counterparts abroad; to do so they must bring higher skills and knowledge to their work.

The global economy imposes additional pressure on business, since virtually any American advantage can sooner or later be duplicated abroad. A company and its workers must create a moving target for competitors; a product or technology needs constant improvement to sustain a margin of advantage. Because knowledge, as a component of virtually every product, is far greater than a decade ago, both workers and managers must not only enter their jobs with high-level skills but constantly upgrade those skills throughout their careers.

A comprehensive set of reforms is needed to strengthen the capacity of the U.S. educational system to turn out larger numbers of skilled workers and managers. These should include: giving students a greater choice among competing schools and programs; allowing "alternative providers," such as universities or corporations to operate and sponsor schools; expanding the number of merit-based schools in which success leads to bonuses for teachers and failure to closure; and emphasizing cooperative problem solving rather than lectures. In some German schools the same teachers stay with students for several grades to build close relationships-an experiment worth trying in the United States. A case can also be made to expand the U.S. school year. Currently it is 180 days; in Japan it is 240 days, in Germany 230.

Financing reforms cannot be left entirely to individual localities. America today is increasingly segregated by income groups. Poor areas often cannot afford to improve local schools; if not helped to do so, their students will fall further behind wealthier areas, exacerbating educational and subsequently wage gaps. Net new expenditures for education could be held to a minimum by realizing cost savings from "debureaucratization." Private school administrative costs are considerably lower than those of public schools; in the public schools, teachers made up 65 percent of staffs in 1960, but only 53 percent in 1988. If additional funds are still needed, dedicated education taxes would be justifiable as an investment in the future.


American retirement programs were established for the most part when men and women did not live, or remain economically productive, for as long as they do today. At that time the U.S. work force was growing so rapidly that the economy as a whole could afford to support a group of early retirees. A concerted effort is now required by business and government to provide more flexibility in Social Security regulations, retiree benefits and working conditions to encourage older Americans to participate longer in the productive economy.

Mobilizing the growing pool of retired business people, engineers, computer experts and skilled workers to serve as instructors in secondary schools would help the educational system better prepare students for careers. These retirees also can help to replace the nearly 40 percent of public school teachers who will retire this decade. To fill this gap nearly half of all college graduates would have to become teachers; only ten percent now plan to do so.

Americans over the age of 65 receive nearly half of noninterest, nondefense government spending-up from one-third in 1965-through programs such as Medicare and Social Security. By using their expertise to train and thus increase the earning power of future workers, retirees would increase the tax flows available to support programs that ultimately benefit them.


Defects in America's educational system and a general lack of investment in human resources are part of a broader national myopia. Deep philosophical differences divide American public opinion on such issues as income distribution, taxes and the size and scope of government programs. The focus has been primarily on satisfying the immediate needs of competing constituencies. Budget politics in recent years have often been characterized by a "we versus they" debate among interest groups-frequently diverting attention from long-term priorities.

Lack of orientation toward the future is not limited to government. U.S. private savings during the first quarter of this century averaged over 16 percent of GNP; from 1950 to 1979 they dropped to an average of about seven percent; during the past decade they fell to roughly five percent. Per capita consumption, the other side of the coin, hovered between 56 and 60 percent of GNP from 1950 to 1970; over the last 20 years it has risen to a range of 62 to 66 percent of GNP. Higher per capita consumption has coincided with a surge in consumer debt. From 1960 to 1987 home-mortgage debt was between 36 and 46 percent of the value of owner-occupied real estate; in the last three years, beginning before the fall in real estate values, it soared to over 57 percent.

Many U.S. businesses behaved in a similar fashion-leveraging themselves through massive borrowing. Corporate debt in 1982 amounted to $1.40 for every dollar of GNP; by 1990 that figure had reached $1.90. Since 1982 corporate debt has grown at a rate of 10.8 percent annually while pretax profits have risen at a rate of only 7.7 percent. These are not sustainable relationships. A major deleveraging of the U.S. economy, characterized by a slower rate of borrowing and greater use of equity financing, is inevitable.

As borrowing was increasing, U.S. investment in plant and equipment relative to GNP was falling from its levels of the 1950s and 1960s; its percentage of GNP is now below that of most other major industrialized nations. For years America's competitors have devoted a larger percentage of their GNP to investment. In 1989, for the first time since World War II, another nation, Japan, outinvested the United States in absolute terms. And it is projected to do so for at least the next several years.

Nonmilitary research and development in the United States has risen substantially, up by 140 percent from over a decade ago. But as a percent of GNP it is still below levels attained in the 1960s and is smaller than in Germany or Japan. A 1990 National Science Foundation report expressed concern that for the first time in 14 years U.S. research and development expenditures did not keep pace with inflation.

Consider also the state of infrastructure. Between 1965 and 1985 U.S. public spending on roads, bridges and railways dropped from 2.2 percent of GNP to 1.0 percent; it remains at about that level, among the lowest in the industrialized world. Japan and Germany spend an average of 5 percent and 2.5 percent, respectively, on infrastructure. In this country deteriorating highways alone are estimated to cost the economy $35 billion in delayed interstate commerce.

On the other hand, U.S. manufacturing productivity presents a far brighter picture. It grew almost three times faster in the 1980s than in the 1970s due to the successful restructuring programs of many American corporations and their increased attention to international competitiveness. U.S. manufacturing productivity has either kept pace with or outpaced other major industrial competitors. But weakness in U.S. investment places this country in danger of being overtaken in this area as well.

Intergenerational conflict will be one of the consequences of sluggish investment. Younger workers whose incomes grow slowly due to deficiencies in their education, or in corporate and public infrastructure, will resent being forced to transfer more and more money through payroll or income taxes to retirees. Many are already at a relative disadvantage because large numbers of older Americans have been the beneficiaries of a big rise in home prices in the 1970s and 1980s and enjoy low fixed-rate mortgages. In contrast, significant numbers of younger workers face the prospect of higher housing prices and higher mortgage rates. On average their salaries are likely to grow more slowly than those of their parents, limiting their ability to accumulate wealth. Poorer workers will object to paying taxes for Social Security, Medicare and other support programs requiring no needs test, meaning that the benefits will go to people better off than they.

Because voting strength will shift increasingly in their favor, the elderly will be in a strong position to resist large cuts in their benefits. Intergenerational struggle for resources-of which America got a taste in the 1990 budget debate-could be long and perhaps bitter. And if the problems of the underclass worsen, there will be an intense tug of war between advocates of that group and those of America's elderly. Middle-class working Americans, caught between the two, will claim with increasing justification that the government asks too much of them and provides too little.

Intergenerational and interclass resource allocation, and relative tax burdens, are likely to constitute central and divisive domestic political issues for years to come, without vigorous economic growth. The resulting social friction could sap America's international strength. The political and legislative compromises reached are likely to draw discretionary resources away from long-term investment requirements as well as from future defense, foreign assistance or other international needs.


The country as a whole has not experienced the sort of crisis or shock that a democracy frequently requires to focus a critical mass of public opinion on the need for bold change. Its problems have come on gradually. Despite the savings and loan crises, the October 1987 stock market crash, plus a host of underlying concerns, a sense of urgency about or commitment to substantial alterations in policy or practice appear lacking.

For a number of years political leaders at federal, state and local levels have tended to shy away from controversial decisions on tough economic issues. Many political compromises of recent years have been widely understood in advance to fall far short of their claims to resolve major problems they purport to address: successive fictional "budget deals" from the start had no chance of reducing the deficit; "energy independence policies" and "anti-drug policies" promised but simply had not the content to produce significant results.

The country has come to accept a version of "no report card" politics: controversial decisions are often shunted off to commissions answerable to no one or to courts outside the reach of voters. Political preservation has spawned an aversion to telling voters bad economic news, confessing mistakes or cutting popular programs that no longer serve priority interests or are too expensive to fund. Citizens, in turn, have come to expect little candor from their leaders on economic matters. Much of this is of course not new; it is, however, damaging to the national interest when fundamental changes are required.

Breaking out of this pattern of shortsighted policymaking will require a systematic national effort to identify long-term national goals around which public opinion and private energies can coalesce. The European Community provides a good example. In 1985 its members set the end of 1992 as a target date to eliminate trade and financial barriers among them. They developed a detailed set of programs to accomplish this. The goal is now nearing realization. The United States has successfully employed a similar technique to set goals for, and energize, the space program and environmental cleanup.

Agreement on a newly defined set of American economic goals, target dates to attain them and steps that must be taken by the public and private sectors to do so would serve as a benchmark-a standard of performance-to evaluate programs, policies and even political leaders. These goals should not be mandated by law nor devised by academicians or professional planners. They should be established through a dialogue between the president, Congress and the nation's governors, and after a focused public discussion involving the private sector. Congress engaged in thoughtful debate prior to the vote on whether to authorize the use of force to evict Iraq from Kuwait. Debate on a similarly high plane over the course of the next two years, especially during the 1992 political campaigns, would help to sort out the priorities for strengthening the U.S. economy.

The debate should address the major issues: What should be America's educational goals-for literacy, reduction of high school dropouts, preschool program participation-and what types of programs must be instituted to attain them? Should the nation aim to boost nondefense research and development as a percentage of GNP to its mid-1960s highs, to the level of a competitor nation such as Japan, or to some other target level? How should that target be reached? What are the consequences of success or failure? Should the United States seek to raise private investment in plant and equipment to the level of Japan or Germany, or to some other target; if so, what must the government and private sector do to attain that goal?

Achievement of the country's most vital priorities and goals will require new social, political and economic alliances in the 1990s. Older and younger Americans must forge a new alliance. Retirees will need to invest more time and effort to educate younger people, and thus improve their productivity. This, in turn, will allow younger people to generate the tax revenues and provide political support for programs that benefit the elderly. Businesses and the economic underclass must forge a new alliance as well. The corporate sector will need to help train and improve the relevance of education for poorer and minority Americans. In turn, their future productivity will increase, as will their contribution to the competitiveness of U.S. industry.

Political leaders and their constituents will also need to form a new alliance. Leaders must be more willing to convey tough economic messages to constituents; constituents must be more willing to judge leaders on their long-term policies rather than their immediate gratification of political pressures. Taxpayers and government must forge a new alliance. Government must demonstrate that federal revenues are being used wisely and that government services are being efficiently delivered. It must reduce taxpayer burdens by finding new ways of encouraging private financing for infrastructure, limit tax subsidies that encourage personal borrowing and corporate debt financing and introduce new tax devices to stimulate savings and investment. Taxpayers, in turn, must be willing to provide additional funds when required to meet national priorities such as education, certain essential infrastructure projects and research in critical technologies.

Preoccupation with whether the United States is slipping vis-à-vis Japan and Germany has diverted attention from a more fundamental issue-the nation's failure to live up to its own past record of high economic performance. Even if the United States did not face intense competition from other nations, if the economic challenge of Japan and Germany were to collapse tomorrow, American living standards, international competitiveness and global influence would still be weakened if the nation's economy continues to underperform.

The opportunities before the United States in the late twentieth century are enormous. This country has more inherent human, entrepreneurial, natural resource and governmental strengths than any other nation-by a substantial margin. Its ability to maintain an unchallengeable defense capability, fulfill its global responsibilities and achieve its purposes in the fast changing world environment likely to confront it in coming years will require it to make the most of these strengths. The nation's capacity to maintain a strong economy and a healthy society will be critical to its global prospects-and will be severely tested. To succeed, the United States will require not only vision but also more investment, more savings, more emphasis on education and more ambitious goals for research, development and health care. It will require stronger, more purposeful economic leadership at all levels.

During the 1980 presidential campaign, candidate Ronald Reagan asked Americans to consider whether they were better off than they had been four years earlier. Now the country must consider whether, if it continues on its present course, it will be better off at the end of this decade than it is today.

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  • Robert D. Hormats is Vice Chairman of Goldman, Sachs International and former Assistant Secretary of State for Economic and Business Affairs.
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