In Washington: Middle America sees the world

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The Independent Online
THE MASSIVE restructuring of the US economy has had a profound impact on the investment strategies of middle-class Americans - investors who even three years ago would have insisted on keeping their money at home.

Deep concern over job security, corporate retrenchments and sluggish domestic growth have led these 'little investors' to look overseas in record numbers.

This is putting strong pressure on the Clinton administration to get itstrade policies right, as officials come under ever greater scrutiny from their newly internationalised constituencies. The domestic downside is that there is less money for investment in the United States at a time when American companies are taking advantage of a bull market to go public in record numbers.

That Goldman Sachs is betting a large portion of its assets on growth in China is not sosurprising. However, Arie Kurtzig's recent interest in Indonesia is another story. Mr Kurtzig, a Silicon Valley executive, told the New York Times that he recently sold his computer company and put a big portion of the proceeds into mutual funds investing in foreign companies, a 'first' for him.

A trip to Indonesia, where Mr Kurtzig saw first-hand a construction explosion, convinced him that Asia would enjoy strong growth for the next 20 years. 'They are basically doing the same things that fuelled US growth 30 to 40 years ago,' he said.

The Investment Company Institute and other organisations that track investor patterns report that millions of Americans have recently followed Mr Kurtzig's example. Since midsummer, US consumers have poured dollars 1bn a week into mutual funds with only foreign investments, resulting in a record dollars 17.4bn investment so far this year. Altogether, consumers have invested dollars 100bn in funds that invest outside the US, up from dollars 61bn a year ago.

Meanwhile, US pension funds put dollars 18bn into overseas markets during the first half of 1993. 'If General Motors can downsize and outsource, and the 'baby bells' are buying into telephone companies in Mexico, why should I keep my money in low-yield markets at home,' asks James Greenstreet, a supervisor of a mid- western speciality steel plant.

These decisions to shift investment resources from traditional blue-chip US companies such as IBM or a regional utility are based on a deep-seated insecurity over the future of the US economy as well as the belief that growth abroad - notably in Asia - will outpace that in the US.

Public opinion polls reveal that most Americans now believe that they will not be in their present jobs for 10 years or longer and that their take- home pay is likely to decline. The implication of these new trends is that average Americans are now fully engaged in the debate over a global economy. This has given them a more international outlook, putting a new premium on trade and economic issues - with the emphasis on Asia, not Europe.

Over the next three months, officials in Washington face a daunting trade agenda that will severely test their mettle in balancing the economic security concerns of their constituencies against reawakened interest in free trade flows.

Depending on how opinion polls are crafted, Americans will vote for job protection but not if the economic costs are too high and not if it leads to outright protectionism. Americans inherently dislike the notion of aggressive protectionism, if it is explained to them as such.

These sometimes conflicting messages can produce confusion and confrontation in Washington policy circles, as the debate over the proposed North American Free Trade Agreement (Nafta) illustrates. Critics in Congress who oppose it on near-term job security grounds are lined up against the administration and others, who promote its potential for future jobs and investment growth.

If Nafta is voted down in December - a very real possibility since the last whips' count showed that the pro votes were not there - the consequences would be dire.

A 'No' vote could mean more US economic insecurity and less international trade liberalisation.

It would signal that the US was turning its back on its traditional post-war trade leadership role - particularly in a case involving Mexico, where it stands to gain much more than it gives.

Meanwhile, the Uruguay Round of Gatt is faltering, and few of the USpublic care. This is seen as a primarily European issue, and the stock of Europeans - particularly the French - has fallen here. This also faces a December deadline.

A third big item on the agenda is the US-Japan bilateral trade negotiations that could come to the boil by December, if Japan, as expected, rejects American demands for quantitative targets to reduce its global current account surplus and for imports in key sectors.

A nasty confrontation could lead to new trade retaliation by Congress.

Finally, the US is hosting the first-ever summit in mid- November of Asia Pacific nations, in the hope of launching a regional economic arrangement to link nations comprising almost half the world's economic output.

These two negotiations together could trigger a big shift in the US international focus from the Atlantic to the Pacific. What is clear now from the investing trends is that middle America will be watching.

(Photograph omitted)

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