Where History Is No Guide

...The Japanese outlined a plan at the International Monetary Fund (IMF)World Bank meetings last October but did not press for action, wanting to avoid a confrontation with the United States and hoping for a more sympathetic response after the election...

...authorities report regularly and publicly on their operations, and most major policies involving the IMF must be reviewed in advance with key Congressional committees...

...Hence, Montreal provided an opportunity for the principal participants, the European Community, Japan and the United States, to review and recast their positions...

...They bring the right skills to the task...

...And they are too hard on the United States...

...George Bush has already met with West Germany's Chancellor Helmut Kohl, Britain's Prime Minister Margaret Thatcher and Soviet President Mikhail S. Gorbachev...

...What can the new Administration learn from the last 40 years...

...There is brief mention of the Plaza Agreement of 1985, the start of the new attempt to manage exchange rates and coordinate policies...

...Continuing disagreements, especially in the area of agriculture, resulted in a decision to try to return to the conference table next April...

...Externally, it will be deciding where and how to bring its influence to bear—what resources and authority it wants to vest in the multinational institutions, when to act jointly with smaller groups of countries, and when to act unilaterally...

...The dollar fell sharply right after the election, as did the stock market, prompting the President-elect to say he would maintain the current position of the Reagan Administration, "built around policy coordination and exchange market stability...

...Vernon and Spar do not advise us...

...The recitation of these circumstances is sufficient to explain much of what has happened since...

...Much fuss is made of the secrecy with which the Treasury and Federal Reserve conduct their operations in foreign-exchange markets, and it is suggested that Congress has not been consulted adequately...

...But Vernon and Spar go farther, and rightly so...

...Reviewed by Peter B. Kenen Professor of Economics and Director of the International Finance Section, Princeton In the 10 weeks between the election and the inauguration of an American President, the world is expected to wait for the new Administration to take charge...

...The Montreal meeting was to set the stage for the next two years of bargaining...

...Furthermore, this was a chance for the United States to influence the outcome of a fierce debate within Europe concerning the terms on which American banks will be allowed to compete in the single European market due to come into being in 1992...

...Raymond Vernon and Debora Spar review the record, seeking to produce new principles and ways to improve the policymaking process...

...On the economic side, financial markets took another look at prospects for reducing the budget and trade deficits, and registered their disapproval...

...The main defect of this book, though, arises from the effort to learn about the future by studying the past...

...The nations with which the United States must share responsibility for managing the world economy have views about the roles of governments and markets, ways of making decisions, and domestic priorities that differ from ours...

...At this point, of course, we are hungry for more, but Vernon and Spar do not feed us...

...refuses to give the IMF any influence over its exchange-rate policy...

...Their monetary history tends to equate innovation with ill-conceived improvisation...

...Thereafter, the specialists are to take charge and there will be less scope for broad cross-issue bargaining...

...Some other governments, however, seem ready to go farther—to underwrite or guarantee the debtors' obligations if banks agree to cut them back...

...History does not guide us...

...That is how it began, but it has been extended to include all of the major industrial countries and thus most of the world's banks...

...As it responds to these challenges, the Bush Administration will be setting precedents and patterns...

...But this transition is different...

...Nevertheless, they demonstrate convincingly that the postwar system was produced by very special circumstances—the political and economic hegemony of the United States and its temporary immunity to other countries' policies, the bipartisan rejection of isolationism and unilateralism, and the dominance of the White House in the conduct of foreign policy...

...Internally, it will be deciding what weight it will give to the various bureaucracies that compete for influence in formulating foreign economic policy...

...The trade and monetary rules put in place at the end of World War II, and the multinational institutions established to safeguard them, were themselves designed to keep the world from repeating the mistakes of the interwar period...

...Unhappily, their work suggests that history is not very helpful, even in teaching us how to avoid the mistakes of the past...

...It must be said, too, that they were remarkably successful at that task, an achievement Vernon and Spar do not emphasize sufficiently...

...The end of American hegemony and the growing importance of Congress in making policy call for the development of a new consensus, globally and nationally, concerning trade and monetary matters...

...It must decide how to organize itself and, more fundamentally, how it would like the world to be organized...

...The U. S. view shifted slightly in 1988, from the belief that debtor countries should go deeper into debt in order to pay interest to the banks, to the belief that creditors and debtors should find mutually acceptable ways of reducing the debtors' burdens...

...Their subject is one that demands an understanding of the economic issues and the political process...

...The authors' monetary history, moreover, is impressionistic andincomplete...

...Those "are words of art,' he said, recognizing that they are more controversial than they sound...

...The recent agreement on bank supervision is cited favorably yet described as a bilateral Anglo-American arrangement...

...Instead, they seem to say that we should return to globalism, not go beyond it...

...Vernon is a distinguished economist with many years of experience in government who has written extensively on trade policy and the impact of the multinational corporation...

...The outgoing team does not make new decisions, and the incoming team does not announce initiatives...

...There is much secrecy, because the success of intervention in foreign-exchange markets depends in part on the ability to generate uncertainty, but the U.S...

...The biggest challenges to U. S. policies reflect issues and choices that did not arise in earlier decades—whether the United States should adopt an "industrial policy" to enhance its competitive position, whether it should favor the regionalization of the international economy, whether it should actively assist Mikhail Gorbachev in his attempt to modernize the Soviet economy...

...But that is not the only economic matter Bush has had to face before taking office in January...

...True...

...On two occasions, for example, they say that the U.S...

...But no one else has done differently...

...In a matter of months, the new Administration also will have to reconsidères position on Third World debt...

...Their history of trade policy, in particular, treats every derogation of globalism—from the formation of the European Community to the proposed free-trade agreement between the United States and Canada—as a retreat from principle...

...On the one hand, the world began waiting a long time ago...

...For the United States, in particular, it was a time to decide whether to pursue dogmatically the Reagan goal of an agreement to abolish all agricultural subsidies, an objective that others regard as utterly unrealistic, or to concede the need for compromise to ward off worse rivalry...

...Spar is a doctoral student in government...

...The more ambitious Louvre Accord of 1987, alluded to by Bush in a recent press conference, is not mentioned at all...

...Negotiators from 96 countries met in Montreal for a week early this month to review the first two years of the Uruguay Round of the General Agreement on Tariffs and Trade, an ambitious four-year effort to reduce trade barriers, resolve long-standing disputes arising from agricultural policies, and liberalize trade in a wide variety of financial and other services...

...On the other hand, the incoming Administration has endorsed many of its predecessor's policies and cannot claim the need for space to think through the issues...

...In effect, Bush sided with James A. Baker III, the author of thepresent approach, and rejected the views of other advisers, including Martin Feldstein, who believe the United States should abandon policy coordination and allow the dollar to fall...

...They can be expected to take a stronger stand at the meeting of the IMF Interim Committee, also scheduled for next April...