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Text File | 1993-04-08 | 18KB | 344 lines

                                                                                COVER STORIES, Page 34

THE ECONOMY

The Long Haul


If the recession is over, why does the pain linger? Because
this is no normal recovery. Business is barely moving. And
consumers have dug in their heels. But there's good news: if the
U.S. gets to work rebuilding itself, better days will come.

By S.C. GWYNNE WASHINGTON -- With reporting by Thomas McCarroll/
New York, William McWhirter/Detroit and Richard Woodbury/Houston


    If America's economic landscape seems suddenly alien and
hostile to many citizens, there is good reason: they have never
seen anything like it. Nothing in memory has prepared consumers
for such turbulent, epochal change, the sort of upheaval that
happens once in 50 years. That may explain why so many voter
polls, taken as the economy shudders toward the November
election, reveal such ragged emotional edges, so much fear and
misgiving. Even the economists do not have a name for the
present condition, though one has described it as "suspended
animation" and "never-never land."

    The outward sign of the change is an economy that
stubbornly refuses to recover from the 1990-91 recession. In a
normal rebound, Americans would be witnessing a flurry of
hiring, new investment and lending, and buoyant growth. But the
U.S. economy remains almost comatose a full year and a half
after the recession officially ended. Unemployment is still
high; real wages are declining. At a TIME economic forum last
week, forecasters predicted that U.S. growth would amount to
only 1.8% this year and 2.6% for 1993, about half the speed of
a normal recovery. The current slump already ranks as the
longest period of sustained weakness since the Great Depression.

    That was the last time the economy staggered under as many
"structural" burdens, as opposed to the familiar "cyclical"
problems that create temporary recessions once or twice a
decade. The structural faults, many of them legacies of the
1980s, represent once-in-a-lifetime dislocations that will take
years to work out. Among them: the job drought, the debt
hangover, the defense-industry contraction, the savings and loan
collapse, the real estate depression, the health-care cost
explosion and the runaway federal deficit. "This is a sick
economy that won't respond to traditional remedies," said Norman
Robertson, chief economist at Pittsburgh's Mellon Bank. "There's
going to be a lot of trauma before it's over."

    How to fix the broken parts of the economy has not only
become a central issue of the presidential campaign but is also
likely to stand as Topic A for much of the 1990s. Quick fixes
will not work, a point that many Americans seem to be
accepting. In fact, that is the light at the end of the tunnel.
"A lot of good things are going on underneath the surface that
will actually work very well for us two and three years out,"
said Allen Sinai, chief economist for the Boston Co. Economic
Advisors.

    Until earlier this year, the U.S. seemed to be headed for
a more normal rebound, thanks to the brisk tempo of export
sales. But then the economy began to suffer from yet another new
development: America's growing linkages to the global economy,
which has gone into a slump. The world's economy didn't grow at
all last year, and is expected to expand only 1.1% this year.
The currency crisis that swept Europe last week was a profound
symptom of the West's stagnation. Germany's relatively high
interest rates, run up by the cost of rapid unification, have
prevented its major trading partners -- including to some extent
the U.S. -- from lowering their own rates enough to boost their
economies.

    For the U.S., a major effect of Germany's high rates is
the damper they put on America's primary export markets. In the
second quarter of this year, the U.S. trade deficit zoomed to
$17.8 billion, up from $5.9 billion in the previous quarter.
"That cut the second-quarter growth rate for the country in
half. That's how dependent we are on the global economy," says
C. Fred Bergsten, director of the Institute for International
Economics. Just as in the U.S., the outlook in Europe and Japan
is for a drawn-out recovery.

    America's structural burdens have hit home most profoundly
in terms of jobs. The U.S. workplace is "in a profound,
historic state of turmoil that for millions of individuals is
approaching panic," according to labor consultant Dan Lacey,
publisher of the newsletter Workplace Trends. Official
statistics fail to reveal the extent of the pain. Unemployment
stands at 7.6%, far lower than the 1982 high of 10.8%, but more
people are experiencing distress. A comprehensive tally would
include workers who are employed well below their skill level,
those who cannot find more than a part-time job, people earning
poverty-level wages, workers who have been jobless for more than
four weeks at a time and all those who have grown discouraged
and quit looking. Last year those distressed workers totaled 36
million, or 40% of the American labor force, according to the
Washington-based Economic Policy Institute.

    Pay has come under assault as well. The much touted job
gains of the 1980s were, for the most part, low-wage positions
earning $250 a week or less. More than 25% of the U.S. work
force now toils in this class of job, up from less than 19% in
1979. Laid-off workers who return to the market often must take
huge pay cuts. Carolyn Collins, 49, of Ames, Iowa, who lost a
$10-an-hour job running quality-control studies for a plastics
maker, found new work as a clerk-typist, at $6.85 an hour. "If
this is happening not just to me but to thousands of other
people," says Collins, "I don't see how the economy can ever
totally recover, because we don't have the spending power we
used to." Her hunch is right. After adjustment for inflation,
the real incomes of U.S. workers have declined about 13% over
the past two decades.

    The latest recession has hit white-collar workers
particularly hard, both in terms of layoffs and slippage in
their real wages. "These people can't believe what is happening
to them," says Illinois opinion pollster Mike McKeon. "They
decided they didn't want to work in factories, so they learned
how to use computers. They were rewarded with service-sector
jobs in the 1980s, but now they're out on the street and no one
wants them." Open season has been declared on corporate
bureaucrats. "The middle manager has gone out of vogue in
corporate America," says Lacey. "Indeed, the word manager is the
kiss of death on resumes."

    What workers are experiencing is an epochal,
technology-driven change akin to the industrial revolution in
the 19th century. The displaced workers must now reintegrate
themselves into an economy that increasingly rewards only highly
skilled labor. The question then becomes: How do they make that
leap? The answer is not being provided by either politicians or
the economy itself, which leaves the unemployed to stare at the
enormous gap between a job as a grocery clerk or some
high-skill, high-wage position they cannot dream of getting.
What to do with these workers, how to make them productive
consumers, is the fundamental dilemma of the American economy.
"Every time I lay off 3,000 guys," says Chrysler chairman Lee
Iacocca, "I know there are 3,000 less customers who are able to
buy our products."

    Future growth depends upon a solution. Dave King, 54, was
laid off last week from his toolmaking job in Troy, Michigan,
only two months after finding the position. He fears he will
have to take a truck-driving job at $7 an hour, less than half
his former pay. "The older people like me are really in a
bind," he says. "The younger ones can get retraining. But who's
going to retrain you if you've got only five or 10 years left?"
The depth of the need for some coherent system of retraining
was demonstrated recently in California, when more than 1,000
people arrived at 4 a.m. and waited for up to six hours to
enroll in tuition-free nurs