Whether we like it or not, nearly every individual and business is forced to look ahead. Inherent in every financial decision is some assumption about the future. Whenever we decided to hold cash, buy stocks, or invest in bonds, whenever a business acquires a new plant or equipment, there is an implicit if not explicit assumption about future economic developments.
To be sure, economic forecasting is an inexact science - if it is a science at all. The future is unknowable, and new developments can emerge on short notice or without advance warning altogether. After all, how many people anticipated the collapse of communism in Eastern Europe, the disintegration for the Warsaw pact, and the economic, political, and social upheaval within the Soviet Union? And how many “experts” anticipated the Iraqi invasion of Kuwait and the turmoil which followed? Despite the hazards of forecasting, there is no escape from looking ahead. At a minimum, it may be useful to consider some of the basic trends likely to mold developments and opportunities in the coming decade.
This then is one person's opinion of the most likely course of events, based upon his observation of basic underlying trends. Even if specific predictions turn out to be off the mark the discussion of the fundamental forces likely to shape economic developments in the 1990s may be useful.
The Triumph of Capitalism
A new attitude about the efficacy of capitalism is likely to take hold not only in Eastern Europe but in the Western world, influencing the United States. The new idea is that innovation and progress spring only form the creative energy of individuals. The disillusionment with government will be replaced by a fresh idea: that the path to prosperity lies in individual productivity, private property, market economies, and a system of personal incentives, not in centralized government planning. Even within our country, the Great Society days, when hopes were high that government could solve all of society's ills are unlikely to return.
That does not rule out relying on government to provide a less tattered safety net for the poor in the minimum levels of service for child care, medical care, and housing, Some of the impending decline in defense spending will be used to finance these ends. Nor does the triumph of capitalism mean that our government will hesitate to impose stricter regulations on banks and securities markets to protect the stability of our economy. But the vast government machinery to redistribute incomes, which was in high gear in the 1970s, is unlikely to be fired up again. Indeed, the middle class no longer seems willing to pay for great new social programs.
The market economies of the West will continue to grow and to thrive, indeed. For reasons discussed in these pages, their economic growth is likely to accelerate.
Emerging New Markets
The European Community (EC), as many commentators have observed, is a 320-million-person market, as large as the United States and Japan combined. After 1992, there will be an integration of markets, fostered by the elimination of tariffs and the removal of impediments to the movement of people and
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