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Financial Post, Weekly edition, Tue 21 Jun 88, page 16. Editorial.


Avoid motherhood statements

At the start of this week's Toronto Economic Summit, Third World debt and agricultural subsidies were in the forefront of the discussion. There may well be an agreement on what directions to follow in these two areas - however vague.

But some officials believe another topic - structural economic reform - should have more attention. And it may get at least a passing glance at the summit. Structural policies are normally considered to include tax reform, privatization, deregulation, labor-market policies and other microeconomic areas of concern. (Some economists like to lump tax reform under a macroeconomic heading, but let's not get into that.)

It wasn't until the fourth summit in 1978 that structural change was discussed, and it missed out again in 1982 and 1983. However, in recent years there has been more activity on the structural side in the summit countries.

Both Canada and the U.S. have undertaken tax reform. Britain has made tax changes. Japan's ruling party has proposed the most sweeping tax overhaul in 38 years. West Germany has made personal income tax reforms. France has cut taxes. Canada, Britain and France have privatized government-owned companies. Canada and the U.S. have deregulated certain sectors, such as transporation. And financial-institution reform is going on almost everywhere.

How relevant, though, is all this to the summit? Margaret Thatcher and Brian Mulroney are unlikely to convince the new French government of the joys of privatization. Italy has little interest in structural reform. Germany will take its own time on tax reform. Japan's tax reform - lower income taxes and a new 3% sales tax - is such a hot potato back home that Prime Minister Takeshita probably could do without a summit discussion on the merits or otherise of what he's trying to do.

No doubt a leader who has launched an initiative in his own country - tax reform, privatization or whatever - can derive comfort from the knowledge that similar actions are underway elsewhere. But the connection between structural reform and the summit goal of international policy co-ordination is a bit hard to make.

Statements on structural reform at previous summits have been platitudinous, reflecting the fact that microeconomic policies are politically sensitive and must be designed very much with national economic and social conditions in mind. If this summit gets into structural policies the most useful thing it could do would be to establish a secretariat for an ongoing exchange of information on structural reforms in each country.

Canada has already benefited from Britain's experience on privatization. But a formal mechanism for an information exchange among all summit countries on structural policies would help countries avoid pitfalls. That would be of a lot more value than a once-a-year discussion and a motherhood statement on structural policy.

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Revised: June 3, 1995

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