1995-96 REVIEW AND OUTLOOK : What Are Challenges, Prospects in the New Year?

As 1995 drew to a close, we asked the members of the Times Board of Advisors to look ahead and discuss the challenges and prospects that will face business people and political leaders in the local, state, national and world economies.

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Judy B. Rosener is a professor in the Graduate School of Management at UC Irvine. Last year, she said a major issue for 1995 would be how to manage fear of layoffs among employees. This year, she broadens her concerns.

Among many issues confronting employers and employees in the coming year is the nature of their social contract. Put differently, what is the character of their relationship? Do they have other than an economic link, and if so, should they?

In the last year, 1 in 6 jobs was cut because of mergers, and increasingly even highly successful professionals realize there aren’t any guarantees for good performance.

In the past, employers and employees had an understanding that if work was done according to expectations, promotions, raises and job security would follow.

Admittedly, there were no ironclad promises, and changing conditions warranted changes in employment. However, there was an implicit sense of loyalty and trust between employer and employee that gave each a sense of stability.

This has changed. No longer do employees view employers with the same reverence they once did; no longer are employers assured of allegiances.

No one knows for sure how this new relationship will develop. It’s not clear how it will affect long-range planning, productivity or profitability.

No one knows how it will affect the transfer of ideas from one firm to another. No one knows how it will affect the return on investments in training.

And no one knows if it will require business schools to educate in new ways. These are just some of questions facing managers in 1996.

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Robert Eisner is William R. Kenan professor emeritus of economics at Northwestern University in Evanston, Ill. Last time, he called for the federal government to offer real help to the disadvantaged in a time of slowing economic growth. This year, he elaborates.

It is time to reject the prophets of gloom and doom and the policies of sacrifice and deprivation that they counsel. We can usher in the new year on a new course of progress for our economy, one that can extend into the new century and new millennium.

To do so, we must stop pitting old against young, demanding that our senior citizens--now and in the future--give up their health care and social security to “save our children.” And we must expand, not cut, programs for children: for their prenatal care, their Head Start before school, their elementary and high school education, their apprentice and social service programs, and their direct loans for college education that will move them on to productive jobs.

We must get people off welfare, not by cutting it, but by expanding earned income tax credits and job training and by subsidized private or public employment.

We must also get away from the deficit paranoia and political machinations that dictate balancing the budget in 2002 or at any other time. We must provide the necessary public investment in human and physical capital on which private investment and growth depend. And we must have a Federal Reserve Board that stops repeatedly putting the brakes on the economy, but that helps pursue, with low interest rates, a policy of real full employment.

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J. Eugene Grigsby III is director of the UCLA Center for African American Studies and professor at the UCLA School of Public Policy and Social Research. A year ago, he predicted that the plight of the poor would worsen despite an improving economy. This year, he focuses on health care.

Relatively speaking, 1995 was not a bad year. California’s economy has shown signs of turning around after a prolonged recession. More jobs are being created than lost, most of the roads and major facilities damaged during the 1994 earthquake have been repaired, and there are increasing signs that California is working hard to overcome the image that it is not business friendly.

The prognosis is positive for continued economic growth next year. But that outlook is guarded.

Growth in manufacturing, particularly in the garment and electronic assembly industries, will continue to outpace the nation. New employment opportunities in the service sector will also expand.

But there are some troubling signs. The wage rates in the above industries are declining. And many of these newly created jobs carry few substantial benefits, particularly health care.

A key cause of the recent health-care crisis in Los Angeles was the lack of health-care benefits for more than a million full-time workers. These workers cannot afford health care on a fee-for-service basis, nor do they qualify for government subsidies. A large proportion of these workers are employed in the very industries that underpin much of the economic growth on which we are counting for the future.

A focus for the coming year should be on how to assure that economic growth and job creation does not simply add more numbers to the ranks of the working poor.

State-sponsored studies on how to make California more competitive have focused attention on factors that inhibit new businesses from coming into that state, or that have compelled others to leave.

But the governor should take advantage of the growing economy to sponsor a study that shows what can be done to enable the state to become a leader in assuring that a large segment of the work force will be able to provide adequately for their families as they find new jobs in this growing economy.

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Richard C. Koo is a senior economist at the Nomura Research Institute in Tokyo, Japan, and a new member of the Times Board of Advisors.

Slow economic growth in the United States and Europe and zero growth in Japan--together with historically low long-term interest rates in both the United States and Japan--indicate that the world is suffering from a serious case of excess savings, which equates to a lack of investment opportunities.

Since the fall of the Berlin Wall, however, the policy debate in most Group of 7 countries has been hijacked by the misconception that there is a global savings shortage.

As a result, many governments have been trying to increase national savings by cutting their budget deficits.

The lack of investment opportunities worldwide, however, means that excess savings are chasing financial assets instead of real investments, resulting in higher stock and bond prices, while economies around the world continue to stagnate.

The current trend is likely to continue into 1996 until policy-makers realize that the world needs investment opportunities, not savings. In particular, the ground work should be laid to increase private investments before cutting government expenditures.

In Asia, meanwhile, many of the tensions left over from the past are likely to rear their ugly heads in 1996. Asia’s economic underpinnings all look healthy for the year, but the region’s political and diplomatic fronts are strewn with land mines:

* Social tension over Beijing’s takeover of Hong Kong is likely to surface in 1996, not the following year.

* The Taiwanese are fed up with being treated as outcasts and second-class citizens in the world community when their country has achieved full democracy, freedom and open markets.

* The bankrupt and starving North Koreans may be pushed into desperate acts, including flooding the south with refugees.

* And in China, the absence of secure leadership makes everything difficult to predict.

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Michael J. Boskin, former chairman of the President’s Council of Economic Advisors, is Tully M. Friedman professor of economics and senior fellow at the Hoover Institution at Stanford. A year ago, he accurately forecasted sustained national economic growth with low inflation. This year, he hopes for continued California strengthening.

The California economy has been improving. For 1996, let’s hope for:

* Continued steady improvement in the state’s economy, with more jobs and opportunities. This will require continued national economic expansion, support of which would be greatly enhanced by a serious seven-year plan to slow the growth of federal spending and balance the budget. That’s especially important to California because it would lower interest rates, which are key here because of the importance of the housing industry.

* A serious federal response to the existing unfunded mandates, such as those for illegal immigration, that the federal government imposes on the states and which disproportionately burden California. There’s only a 50-50 chance of a serious sensible proposal.

* Finally, continued state policy reforms to improve the jobs climate, including a 15% across-the-board tax cut and a major attack on unnecessary lawsuits (i.e., serious tort reform). That includes less and more flexible regulation, bold initiatives and experiments in privatization, and continued public spending controls, with new spending targeted to high-priority areas such as education.

If the Democrats in the state Senate will put the interests of the state and its workers ahead of their own special constituencies, this agenda should pass easily. For those in either party who block pro-growth, pro-jobs state policy reform agenda, they should be packing up and going home at the next election.