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Relight the lamps: an interview with Malcolm Forbes Jr., publisher of Forbes Magazine.

How do you read the economy - doom,

boom or something in between?

Despite the current recession and uncertainty, the U.S. and the rest of the world are about to enter an unprecedented period of material and political prosperity.

To understand our unique opportunity, we first have to understand our unique strengths. We must also understand how this century, which began with such promise and opportunity, ended up being one of most murderous centuries in history. Then I think we can grasp the opportunity at hand. We can better judge what we should be doing and not be doing to realize the promise of recent world events. Recession and pessimism have obscured our basic strengths. We need to get beneath the surface of things to see our strengths and weaknesses and our role in bringing about this unprecedented prosperity.

What is the role of the United States in

the world today?

We tend to take the triumph of democracy in central and eastern Europe and the emerging democracy in Russia for granted. We tend to think that because they have democracy, they always will have democracy. But the truth is that if the United States does not play a vigorous and active role in world affairs, the world will not be safe for democracy - it will regress to the kind of purgatory that we had in much of this century.

What are our strengths?

We have several genuine strengths. 1 An investment boom. Contrary to what a lot people would lead you to believe, the United States has experienced an investment boom in the last 10 years. Investment in this economy has grown at a faster rate than consumption. Few people write about it, but there has been an extraordinary investment boom. Investment rates in our economy have gone above historic norms. In the last 10 years, the amount of money invested in our economy has more than doubled. 2 Manufacturing renaissancje. In the last 10 years, manufacturing in America has seen a renaissance. The growth of productivity has been as good as any peace-time period in our history. For the first time since World War II, our share of manufacturing output worldwide has gone up. Our manufacturing output, as the percent of our economy, isn't much lower today than it was 50 years ago. 3 Technology revolution. We are going through a technology revolution that will profoundly change our lives. This revolution is symbolized by the computer chip. The computer chip is expanding the reach of the human brain the way machines expanded the reach of human muscle more than 150 years ago. For example, we now check prices at the supermarket with wands or laser beams. That's just a taste of things to come. And we are the world leaders in this technology revolution. 4 Computer software and hardware. In spite of intense competition, our share of the software market worldwide has actually gone up in the last six years. Today the United States has three times as many computers per capita. That means that in our homes, workplaces, schools, factories, and offices, we have three times as many computers per capita as do the Japanese. And we are actually starting to learn how to use those machines! 5 Fiber optics and digital technology. The future lies in digital technology, and in this field we are ahead of the Japanese and the Europeans. This technology will open up the worldwide home electronics market, now dominated by the Japanese. Hundreds of billions of dollars are at stake because it will obsolete the old technology. By the end of this decade, we'll have fiber optics in our homes. And, with digital technology, we'll be able to bring the school classroom into the home; call up movies and play anything that appears in the theaters; program our own prime-time television; decide what shows we'll watch at what time; and even control the camera angles at sporting events. It's extraordinary what is coming out of our labs and garages. 7 Cultural diversity. The U.S. can absorb people from different backgrounds, cultures, and countries more successfully than any other country. Although we have problems, all you have to do is look at the Soviet Union, Yugoslavia, Lebanon, or Northern ireland to see what can really go wrong when people of different backgrounds live together. Last year, the United States passed an immigration bill that will increase legal immigration and have a very beneficial impact on our economy in the years ahead. In our hightech laboratories today, for example, between 25 and 50 percent of the Ph.d's are either foreign born of first-generation American. 8 Entrepreneurial energy. we are going to get more entrepreneurial energy from immigrants and from our own creative types, and that's a strength that no other country has - centainly not Japan or Western Europe. In Western Europe, they're always trying to send foreigners home instead of trying to absorb them as we've been able to do. 9 Geographic proximity. In terms of geography, the United States is ideally located. Latin America is showing signs of new life. Mexico has made some fundamental reforms. By the end of this decade, despite their debt problems, several Latin American countries will experience the kind of economic growth rates that we usually associate with the Pacific Rim and the Japanese. It's already starting to happen. The United States has the window on Latin America. Our West Coast has the window on the booming Pacific Rim. Our East Coast has the window on the changing Europe and the new Europe. And so we are ideally located. Not only do we have the largest economy in the world, but we are ideally situated to take advantage of the economic booms that are taking place in the rest of the world.

And what are our problems?

We have problems dragging us down, but the solutions are already starting to emerge. 1 Education. We are going to see choice come to the public schools. We will give more responsibility to the parents. We will break the monopoly that now exists. Education will be district by district, state by state. It is already starting to happen. We will see more return on our investment in our primary and secondary schools in terms of educational output by giving parents more say in the running of those schools. We will break the stranglehold of a self-perpetuating bureaucracy. 2 Health care. I think we will see market forces come to bear on the health industry (a $600 billion industry). Why is health care so expensive? Because no one has an incentive to cut costs. Most people, outside of the insurance companies and the employers, don't have an incentive to lower prices. When you buy your own car, you try to compare prices and get value for y our dollar. We don't shop for health care because everyone believes that somebody else is paying for it.

You will see real reform when individuals get the tax benefits instead of the employer. For example, one area of medicine that has not had a rapid rise in prices is the area of cosmetic surgery. Why? Because most cosmetic surgery is not covered by insurance. Because they are paying for it, people price it. When tens of millions of Americans begin to put pressure on the health-care market, as they do on other markets, when they start policing the industry (rather than a handful of insurance companies and employers), and when they get back to free-market principles, we'll see major changes in health care. 3 Government regulation. Our political system needs to be reformed. Already you can start to see the forces of reform at work. It won't happen automatically. Again, we need to bring pressure to bear on these reform movements. I think when historians look back on this period and see the changes in the economy, in health care, education, and social services, they will label it as a new progressive era. We had such an era at the turn of the century with Tedd Roosevelt. We are about to enter another, and the only question is who is going to grasp the opportunity of advocating those kinds of sweeping reforms. 4 Economic recession. Given our strengths and reform movements in some problem areas, why are we in a recession? I think the answer is primarily because of policy blunders made by our folks in Washington and elsewhere. for example, we've had a recession over the last three years for two reasons: one has to do with money; the other has to do with taxation.

On the money side, the Federal Reserve raised interest rates three years ago to slow the economy down. Central bankers feel that if people are happy something is wrong. So in 1988, Allen Greenspan, chairman of the Federal Reserve, decided to slow the economy down because people were too happy and the economy was growing. It's the equivalent of a doctor who decides that a patient is too healthy, and so he induces a relapse. In medicine you would get sued for that, but in economics they make you chairman of the Federal Reserve.

Compounding the problem with high interest rates was the reaction of federal regulators to the S&L crisis. Regulators on the commercial bank side went on the equivalent of a regulatory reign of terror, making banks very reluctant to lend money to people who could use it productively.

On the tax side, Washington put in a major tax increase just as we were sliding into a recession. State and local taxes went up as well. But the most damaging thing was the failure of Congress to pass a capital gains tax reduction. Real innovation, job creation, and growth in our economy come from small companies. They need venture capital. Since we raised gains tax four years ago, the number of new businesses has shrunk each year. High tax rates hurt the creation and growth of small companies.

So what should be done?

Well, interest rates have come down, the regulatory reign of terror has slowed, but we need a major cut in capital gains tax. We also need an increased tax exemption for dependent children. Our tax code is still anti-family today. If they put a major tax cut in place and did these other things, the skeptics would be very surprised at how fast this economy would recover.

Will that happen?

I think it will. President Bush needs a good economy to get re-elected. Democrats in Congress need a tax cut so they can come home and say they've done things other than cut checks, ignore restaurant bills, and harass women.

And when these things happen, the economy will revive. Our strengths in technology, investment, and manufacturing will come into play once again in an impressive fashion. So despite the gloom in the U.S. now, the U.S. is fundamentally strong. When we clear that tax underbrush, everyone will come to realize that.

How do we fulfill the promise out there

resulting from the collapse of


To have this trend toward democracy and open markets continue, we must do two things: first, stop aggression whether it is in Iraq or North Korea. If we withdraw from the world, the bad guys are going to be on the move. If we take an active part in trying to prevent those people from having sway, the world will be a much safer place. Second, on the economic side, we have to preach to these countries the four economic principles necessary for growth: stable money, low taxes, property rights, and a government that doesn't make it impossible to set up a business.

In conclusion, do you think that the

United States will end up doing things

more right than wrong?

Yes, I do. At the beginning of World War I very few people realized the magnitude of the catastrophe that was about to befall the world. One man who did was Sir Edward Gray, the British foreign minister. He wrote, "The lamps of Europe are going out, and our generation shall not see them lit again."

If we in the United States recognize and develop our strengths here at home and exercise strong and responsible leadership overseas, those lamps will be relit, not only in Europe but throughout the world for generations to come.
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Author:Shelton, Ken
Publication:Utah Business
Article Type:Interview
Date:Apr 1, 1992
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