**Plc,Planning, ajnd Research**

**Inentonal Economic Anaiyslki and Prosp.cs**

In January 1988 the International Economic Analysis and Prospects Division of the Intemational Economics Department held a one-day round table seminar on the prospects for economic growth in the industrial coantries in the 1990s. Following are highlights from the discussion:

[after the war] with the rcsult that wage expectations became unrealistic relative to underlying productivity growth, with the result thzt wage earners and unions in many countries essentially forgot that they also had a kind of responsibility for what happened to real wages and thereby demand for labor.

_Andrea Boltho:_ Even if, in an ideal world, Japanese savings ought to be exported to Latin America, we are not in that ideal world: we are in the presence of major imbalances. whatever intertemporal shifting might lead one to expect. Is it, iherefore, inevitable that the next few years (1989-91) will see a recession? And if we see a recession, will it be coupled with inflation - or will we at least be able to avoid one or the other of these two possibilities?

What would bring us to a higher growth rate? The only thir,g that the Fund has to recommend is policies of deregulation. Frankly, I am far from convinced. For one thing, the 1950s and the 1960s were almost certainly a period in which regulations increased, in which the Welfare State became more "oppressive," in which labor legislation got more binding. Yet our growth went on and on and on, apparently unperturbed.... it doesn't look as if these micro distortions were quite as important as people tried to make them out to be. [On the other hand, one kind of deregulation] has had extremely serious negative consequences for our growth perfornance: deregulated [foreign] exchange markets.

_Fleinminzg Larsen,:_ Expansionary fiscal pDlicies perhaps w"erc pursued a bit too long _Jean Baneth:_ Growth is like a bicycle. if it slows down too much, it may fall. And I personally believe that hecause of both political and social restraints, as you fall below or try ,o stay at 2.5 percent, the long-term outcome may in fact be much slower growth.

_Leslie Lipschitz:_ One of the problems might well be that Americans understand very little of the problems of Europe and are not persuasive in talking about Europe, i I suspect vice versa -that sometime when one listens to this debate, it sounds like a dialogue of the deaf.

_Steve Marris:_ None of our models take into account the interreaction between price elas.icities and income elasticities. You know, what every other country has learned is that if you combine an undervalued exchange rate with r recession, miracles happen. They happened in Brazil; they happened in Mexico; they used to happen from time to time in France. There is every likelihood that they could happen in the United States.

I suppose what we need is a crisis serious enough [that we can] lock the govemments into a better managed exchange rate system, but not so serious that the whole thing brcaks down and there is nothing left to manage.

Economic Analysis and Prospectsand Prospects

> This paper is a product of the lnI.7.aiiaI Economic Analysis and Prospectsand Prospects Division, International ELo1omiics Dcpaiiment. Copies are available free from the World Bank, 1818 H Strect NW, Washinigton DC 20433 Please contact Jackie Queen, room S7-212, extension 33740 _(55_ pa!-P' .

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