BUSINESS, Page 76Freed from Greed?The past decade brought growth, avarice and an anything-goesattitude. But the '90s will be a time to fix up, clean up andpay upBy Otto Friedrich
"Greed . . . is good. Greed is right. Greed clarifies, cuts
through and captures the essence of the evolutionary spirit . . .
Greed -- mark my words -- will save . . . the U.S.A."
-- Gordon Gekko in Wall Street
Remember those old jokes about the good news and the bad news?
Well, the good news on the economic front is that most of us
survived the money-money-money decade of the 1980s very nicely,
thank you. The bad news is that we face appalling bills to be paid
in the 1990s. That is not a joke.
The good news is that the U.S. gross national product doubled
during the 1980s, from $2.7 trillion to $5.3 trillion. The bad news
is that much of this was done by borrowing. The national debt
tripled, from $909 billion to almost $2.9 trillion (interest alone
now amounts to $165 billion a year, roughly the equivalent of the
budget deficit). Corporate and personal debts both soared. All in
all, the U.S. consumed $1 trillion more than it produced in goods
and services.
The good news is that lots of people prospered. This was the
age of financial wizards making fortunes in their 20s, and roughly
100,000 Americans became millionaires every year. Michael Milken,
the junk-bond king at Drexel Burnham Lambert, set the record by
earning $550 million in 1987. The bad news is that while the top
20% of American families' earnings rose more than $9,000 (after
adjustment for inflation), to an average of nearly $85,000, the
bottom 20% dropped by $576, to a hungry $8,880. The Government
estimates that 32 million Americans -- 12.8% of the population --
live in poverty, compared with 11.4% a decade ago. And Michael
Milken has been indicted on 98 counts of fraud and other misdeeds.
The good news is that the New York stock market recovered
quickly from its worst one-day crash in history (a free fall of 508
Dow Jones points in 612 hours on Oct. 19, 1987) and climbed back
to its pre-crash high of 2722. The bad news is that if adjusted for
inflation, the Dow would have to reach 3900 to match where it was
as far back as 1966.
The good news is that 20 million new American jobs were created
during the 1980s. The bad news is that these new jobs did not come
in the FORTUNE 500 companies, which actually cut their work forces
by 3.5 million; many of the new 1980s jobs were low-paying service
positions.
The good news is that booming international trade is spreading
wealth around the world. The bad news is that the U.S. was the
world's largest creditor in 1980 but went into the red in 1985, and
has become the world's largest debtor. Its trade deficit runs about
$150 billion a year. Foreign holdings in the U.S. now amount to
$1.5 trillion, compared with $1.2 trillion in U.S. assets abroad.
And meanwhile, the grinding poverty of the Third World, by now $1
trillion in debt, has not improved in the least.
The good news is that the Berlin Wall has crumbled, and the
cold war seems to be over. That offers the possibility of immense
cuts in the $300 billion defense budget and immense investment
opportunities in Eastern Europe. The bad news for Americans is that
the Pentagon is still clinging to every dollar, and the investors
pouring into Eastern Europe are mainly the West Europeans, who are
in the process of uniting into an economic superpower.
How does it all add up? Where have we been, and where are we
going? Listen to some expert voices atop the Tower of Babel:
"The '80s have been a significantly good decade," says Malcolm
Forbes, 70, the ebullient magazine publisher whose $2 million
Moroccan birthday party for himself epitomized the decade's love
of self-indulgence. "Critics point to the glitterful excesses and
the greed, but, God, they miss the point," says Forbes. "This was
the decade that saw the triumph of U.S.-led free enterprise.
Rebuilding the economies of Eastern Europe now offers huge
opportunities, and it will be done in the next decade."
"We have to do more in the 1990s than gloat over the demise of
communism," says Felix Rohatyn, the Wall Street investment banker.
"That demise may be due to our ideas, but the way we are now
exploiting those ideas is not making us competitive with the
Europeans and the Japanese. Our cities are really falling apart;
our educational system is in great disarray; and in order to
finance our budget and trade deficits, we're selling more and more
of our businesses. Our Government is unable to govern because it
has no money, or it is using the fact that it has no money as an
excuse not to govern. Meanwhile, the Japanese and the Europeans are
pulling together, accumulating capital and being very single-minded
in their pursuit of a world in which military strength counts for
less and less, and intellectual and economic strength counts for
more and more. It is inevitable that the U.S. will be less of a
major player."
"Why the devil should you be quoting Felix Rohatyn, who has an
absolutely failed record of doomsday predictions?" asks Milton
Friedman, Nobel-prizewinning economist at the Hoover Institution
at Stanford. "The U.S. economy is fundamentally very healthy, and
there's no reason why the '90s shouldn't be just as good as the
'80s, or better. There's no reason why we shouldn't have a decade
of rapid growth and relatively low inflation."
Maverick billionaire H. Ross Perot doesn't buy that. "The '80s
is the decade that we gave away our industrial lead and acted
totally irresponsibly in wrecking some of our big corporations
through leveraged buyouts," he says. "We felt affluent because we
were living off borrowed money. We've got to clean up education,
clean up the deficit, clean up the drugs, clean up the justice
system, clean up industry. But right now it's like Lawrence Welk
music: it's just wonderful, wonderful, wonderful. And nobody will
fix it before it breaks."
Despite these violent disagreements about the future, there is
at least some agreement about the past decade. It began in a
distinctly gloomy atmosphere known as stagflation: double-digit
inflation combined with growth rates of 2% or less. Cigar-chomping
Paul Volcker, then the Chairman of the Federal Reserve Board, is
generally credited with breaking the inflation by reining in the
money supply in 1980-81. That also touched off the worst recession
of the postwar era, bringing unemployment rates of more than 10%
(25% in some areas and industries). President Reagan helped end the
downturn by cutting taxes in 1981, which created huge deficits but
also launched a record boom that hasn't finished yet.
Along with tax cuts, Reagan insisted on deregulation (a program
actually begun by Jimmy Carter in airlines, trucking and banking).
He regarded that as "getting the Government off people's backs,"
and it involved not just a reduction in official regulations but
also a relaxation in law enforcement ranging from antitrust to
safety regulations. That may have been beneficial, but it enabled
lots of sharp characters to make lots of money in lots of sharp
ways. The most extreme example is the savings and loan scandal,
which features fraud, bribery, favoritism and freewheeling
incompetence. Some 800 of the 2,600 remaining S&Ls are now
insolvent or nearly so, and the bailout will ultimately cost the
taxpayers at least $150 billion to $200 billion and possibly a good
deal more.
The atmosphere of the 1980s, along with actual crimes, spread
a general sense that anything goes. Get rich, borrow, spend, enjoy.
Not only Gordon Gekko said greed is good; so did Ivan Boesky, the
dapper king of arbitrage, before he ended up going to prison (Gekko
presumably landed there too). And the close of the decade was
symbolized by Boesky not just going to prison but also emerging on
leave in a long white beard that made him look like some
reincarnation of the Ancient Mariner or King Lear.
There does seem to be a spreading sense that too many rules
have been bent and too many watchdogs asleep. And too many debts
left unpaid. "What epitomized the 1980s was, Spend now, pay later,"
says David Colander, economics professor at Middlebury College.
"What will epitomize the 1990s is, Pay now." This involves not just
all the credit-card loans or the interest on the leveraged buyouts
but also a lot of ignored problems. "Domestically, we have
bulldozed so many things into the future," says Robert Hormats,
vice chairman of Goldman Sachs International, "that now we are
going to have to deal with them." For example:
The entire U.S. infrastructure is becoming dilapidated. It will
cost an estimated $315 billion in the 1990s to put American
highways in the condition that existed in 1983. Bridge repairs
could run to another $72 billion. The air-traffic-control system
needs $25 billion.
The environment needs intensive care. The bill for
nuclear-waste disposal stands at $50 billion; for clean water, $24
billion; for hazardous wastes, $15 billion.
Social Security reserves are being drained. The Government has
been making up for the budget deficit by selling notes to the
Social Security Trust Fund ($56 billion this year alone), i.e.,
borrowing money that is supposed to be accumulating for the years
when the baby-boom generation wants to retire.
Quite a few business leaders look toward both past and future
with considerable misgivings. "The costs of all this are going to
be horrendous in the 1990s," says Donald Clark, chairman of
Household International. "We just overlooked major problems like
drugs and our schools." Elmer Johnson, a former executive vice
president of General Motors, says, "The financial wizards of
wheeling, dealing and acquisitions brought their bags of tricks,
but they turned out to be a lot of hogwash. The main concern should
have been, Who's minding the store?" Observes William Weisz, vice
chairman of Motorola: "The kind of issues we have are survival
issues. The competitive environment is going to get much tougher.
Tremendous battles will have to be fought. If we don't succeed,
America will just end up as a nation that rents hotel rooms and
sells hamburgers to each other."
The imagined enemy in these competitive wars is usually the
Japanese. Their GNP is still only third largest in the world, but
it is growing much faster than those of the U.S. and the Soviet
Union. And in certain symbolic things Japan has already become No.
1. In 1980 six of the world's ten biggest banks were American;
today eight are Japanese and only one American. In that same
decade, the Tokyo stock market passed the New York Stock Exchange
in total value. Average Japanese per capita income climbed past the
U.S. figure. And then the Japanese bought control of Rockefeller
Center, Columbia Pictures Entertainment and much of Waikiki Beach.
Such things fill some Americans with a resentful sense that
the Japanese are taking over the country, if not the world. But far
bigger investments in the U.S. are those of the Europeans, who now
face a gigantic opportunity in the collapse of East European
communism. In theory, the European Community is supposed to
complete its basic economic merger in 1992, when it will have free
movement of capital, open borders, no trade barriers among the
member nations and a common tariff on outside goods. Some now see
difficulties in the new possibility of German reunification and an
economic opening to the East. Leaders of the European Community are
convinced, however, that the answer to that possibility is not to
delay the Western merger but to speed it up. "Time is short,"
European Commission President Jacques Delors declared in an address
at the College of Europe in Bruges. "History is accelerating, and
we must accelerate as well."
That may provide some of the best news of the 1990s. As for the
