How A Superpower Can Avoid Muscle Loss

By CHRISTOPHER J. REDMAN Jacques Attali

Q. After victory in the gulf and the cold war, the U.S. is standing tall. Yet you warn in your latest book, Millennium, that America is in decline and could end up as the granary of a Japan-dominated Pacific region. How come?

A. This is not wishful thinking, but I fear a relative decline brought about by a diminishing share of the global market and faster growth elsewhere. Industry is the only lasting foundation of a country's power, and America is lagging behind in manufacturing, which is at the core of a nation's wealth. With the notable exception of the microprocessor, not one new product that has appeared in the past few years was made in America. For high-technology products, the U.S. has a positive trade balance only in those sectors in which it has had a semimonopoly for some time: aerospace and computers.

Q. How else is the U.S. handicapped?

A. By short-term thinking. American managers seek short-term gains and not, as in Japan, long-term rewards. Bonuses are linked to the immediate payoff. Can such a culture think about the consumer goods that will be needed in the next 20 years?

Q. Doesn't U.S. military muscle count for anything?

A. Yes. But in the coming struggle for world supremacy, economic prowess will be critical. Military power cannot last if it is not based upon a strong economic foundation. In the past, powers whose foundations have crumbled have ended up as mercenaries for others.

Q. But the world will need peacekeepers. Can the U.S. play that role?

A. The dismantling of the Soviet threat does not mean the world has become a safer place with no conflicts. We will need a global peace force. The U.S., acting through the United Nations on behalf of the rest of the world, is perhaps an embryo of a peace force at the world level.

Q. Can the U.S. prevent its own decline?

% A. Yes. When confronted by a challenge, Americans have demonstrated that they can react and compete. The strong U.S. space industry is the result of the shock of Sputnik. Maybe what America needs is to feel threatened.

Q. But the kinds of threats we are seeing now are more gradual. What could be the economic equivalent of Sputnik?

A. Japan's increased share of the U.S. market for cars and consumer goods. Also the fact that it may be progressively more difficult to finance what is needed for health and education and the urban environment.

Q. You posit a struggle for supremacy in which Japan and Europe emerge as the main combatants. What has Europe got going for it that the U.S. hasn't?

A. Europe has weaknesses too. But with the elimination of the East-West divide, Europe is a continent that has suddenly doubled its size -- from 300 million to 700 million people. It has a high level of culture and enormous capacity for growth, particularly in those East European countries that must now be reorganized from scratch. In what was East Germany, we are already seeing levels of growth of 10% a year. And an enormous boost will come from linking the developing and developed countries of Europe -- the kind of boost that may happen between America, Canada and Mexico. But it's happening in Europe on a larger scale. Moreover, Europe, unlike the U.S., has retained a capacity to produce exportable consumer goods and continues to give priority to industry.

Q. Is the U.S. doing enough to support what's happening in Eastern Europe and the Soviet Union?

A. I have no criticism of what has been said and done by the U.S. Administration. As a superpower, America has a responsibility to weigh events in the Soviet Union before embarking on any assistance to a country that remains the largest potential enemy of the Western world. In terms of aid, whatever amount of money is made available will never be enough for the enormous problems these countries face.

Q. Are you concerned that the U.S. may become isolationist in the post-cold war era?

A. This is an enormous danger. I don't see that threat with this Administration. But if American society does not solve its problems and restore its fortunes, it will be tempting for some to say, 'Well, let's return to our own backyard, withdraw our forces from Europe and elsewhere, and take care of ourselves.' That would be a nightmare for Europe. It's why we have to link the U.S. to Europe.

, Q. You now head the European Bank for Reconstruction and Development, created last year with a mandate to help rebuild what was communist Europe by promoting the private sector. But there is already plenty of private Western capital chasing limited investment opportunities. What can you bring to the party?

A. We can take a long-term approach and handle long-term risk. Secondly, small amounts of our capital can generate huge leverage through co-financing with other investors. Not being profit oriented, we can afford to invest not just with an economic payoff in mind but in order to foster democracy. We can help ensure that the transition to a market economy is not only fast but fair.

Q. You gave up a position of considerable influence at the right hand of France's President to head what could be a risky venture. Why?

A. I'm interested in avoiding nightmares. Twice in this century, Europe has had the nightmare of divisions that have led to world war. We now have the chance to end Europe's East-West division and irreversibly reduce the chances of war. That is the great challenge, and the European Bank can play a role.

Q. Some Americans fear they will be excluded from the new Europe.

A. Europe is not anti-U.S. On the contrary. You could say that America is the largest European country and the only real one, because it is home to Poles, Russians, Ukrainians, Italians -- all of Europe. It is in Europe's interest to see America not going too far in its ties with the Pacific Rim but linked to Europe. The fact that the U.S., as a member of the European Bank for Reconstruction and Development, is a full member of a European institution, and not an outsider, is an excellent omen.

Q. So this new Europe could, in fact, stretch east from Seattle to Vladivostok?

A. It's up to the U.S. to decide. But I think this is in the European interest.

Q. In Millennium you wrote that the coming struggle for supremacy between the two emerging spheres -- Europe and Pacific -- will pale against the struggle between the world's rich regions and an exploited periphery. What will be the consequences?

A. Simply that the Iron Curtain that once separated East and West will be erected between North and South. The only way to get out of that danger will be to have a global trade agreement that will allow a flow of capital, ideas and goods from North to South, making the world more interdependent and enabling the South to catch up.

Q. As a banker, do you think there is enough capital around to rebuild Eastern Europe and the Soviet Union, finance U.S. deficits and help the South?

A. No and yes. No, because we do not have enough savings -- again the tendency toward the short term. Yes, because economics is not a zero-sum game. Growth can create new resources. We have seen in the past, in Europe and in the U.S., that if you invest you can create more wealth than you started with. I am sure that in Europe at least, growth, far from depriving the Third World, will create more opportunity for growth elsewhere.

Q. So it's not too late to head off a confrontation between the haves and have-nots?

A. No. Not if the North is bold enough to see its long-term interest, which is to create the conditions for growth in the countries of the South: be generous with their debts, help them build market economies and democratic institutions. And after that, prime the pump of growth and create a virtuous circle whereby investment brings trade and further investment.

Q. You argue in your book that "the making of images and the means of their transmission is imposing its character more and more on objects and goods and products of all kinds," and that if America is unable to compete in this arena, its decline will speed up. Doesn't the U.S., through Hollywood, dominate the making of images -- the software?

A. The U.S. has controlled the software since the dawn of the movie industry. But it has no grip on products like VCRs. In 1492 the equivalent of Hollywood was Venice, where more than one-third of the world's books were produced. But even then Venice was in decline, ceding power to the maritime economies like Holland trading textiles and other goods.

Q. Is there a danger of the Soviet Union, like Weimar Germany, falling into the grip of a demagogue?

A. It is not impossible. And it will certainly be more possible if, as in the Versailles Treaty, we are vindictive and not generous.

Q. Are you optimistic about the outcome of the second Russian revolution?

A. We face a situation in which the country is dividing up. There may be in the future no common currency, and many central banks, no culture of freedom or entrepreneurship, nothing. I do believe that it's very important to strengthen the development of a market economy and joint ventures; it's why I'm eager to be allowed to do more private-sector investment there. But even < if the European Bank is allowed to do that, no one can say that problems will be resolved overnight. It will be a very long process, and the coming years are going to be very difficult. When Spain shook itself free after Franco's death, it had much more going for it than the Soviet Union, including a successful entrepreneurial tradition. And yet readjustment there produced unemployment as high as 24%. If the Soviet Union is lucky enough to follow Spain's example, we will soon see 40 million people out of work there.