Europe's Downsizing Weakens Prospects For US Recovery

WHILE American companies are riding out what has been a feeble recovery, one of their biggest hurdles is economic retrenchment in Europe - the single biggest overseas market for the United States.

In the European Community, over half of the major companies plan work-force cuts by 1995. The EC unemployment rate is expected to soar to 12 percent next year.

Massachusetts-based Thermo Electron Corporation, one of America's fastest-growing companies, relies on the transatlantic market for much of its sales, but these days is scouring other foreign markets. ``We're worried about Europe's downturn,'' says president and chairman George Hatsopoulos.

This past summer President Clinton called for a jobs summit among the world's industrial leaders to discuss common problems and remedies. However, ``a broad set of shared US-European concerns do not translate into the same policy outlooks,'' says John Yochelson, vice president for economic and business policy at the Center for Strategic and International Studies in Washington. ``We are intertwined with each other, but not to the point where we can be their solution and they can be ours.''

A solution is difficult to achieve now, because, on both sides of the Atlantic, policymakers' traditional tools to generate economic growth and more jobs - such as measures to change interest rates and government taxation and spending - are no longer as effective, Mr. Yochelson says.

European Commission President Jacques Delors's new agenda for reducing joblessness reflects that reality. Last week he recommended a mix of job-sharing, part-time work, wage restraints, cuts in welfare provisions for workers, and stepped-up investment in infrastructure to combat the unemployment ``paralyzing European societies'' and to create 20 million new jobs by the end of the decade.

But while European corporations are cutting costs, benefits, and payroll in order to remain competitive with their leaner and more productive US counterparts, some governments are resisting. France, battling a projected 12.5 percent jobless rate this year, is trying to slow down public sector layoffs and minimize job cuts in industry. Solutions are no easier to come by in Washington. Given budget constraints, Clinton cannot persuade Congress to go on a spending spree to generate growth. As the private-sector job base contracts, the public sector is also laying off workers.

Even the lowest interest rates in decades have done little to create jobs. In the long term, the administration wants to bridge the income and skills gap among US workers, and make them more employable. But in the short term, US business confronts the specter of hefty government-imposed health-care mandates, which may squeeze them further and limit their capacity for new hiring.

The latest short-term job creation plan from the White House is a new effort to promote and deregulate exports and to break down barriers into burgeoning markets, including Latin America and Asia.

Companies like Thermo Electron are well poised to take advantage of any new openings forged by US policymakers. ``We are a manufacturer and the European slowdown has affected us,'' Mr. Hatsopoulos says.

But unlike most American firms, Thermo Electron - which employs 8,000 people worldwide in cutting-edge energy and environmental technology - continually develops new products and is anxious to explore new emerging markets. ``Foreign markets account for 38 percent of our sales, and that includes Europe, Scandinavian countries, and Southeast Asia,'' Hatsopoulos says.

The downside of such initiatives is that, in the increasingly competitive job market, forcing open new trade frontiers creates plenty of tension back home.

Given the technologically driven downsizing by major corporations and the relatively cheaper wage scales in nearby foreign markets, Yochelson says, ``Fears have never been higher that long-held and seemingly secure positions are at risk in both the manufacturing and services sector.''

In the US, this insecurity drives the strong opposition to the North American Free Trade Agreement (NAFTA) and efforts to control the tide of Latin American migration to the US. Across the Atlantic, out-of-work Europeans resent the influx of Arabs, Asians, and East Europeans who work in jobs that they once refused. The European Community also is hard-pressed to accord preferential trading status to neighboring ex-Communist economies that produce cheaper steel, textile, and farm goods in direct competition with the EC.

Absent the capacity of policymakers to spur job growth with investment, promoting global commerce may be the only option left.

``I'm worried about the contraction of markets in Europe and the impact on US jobs because there doesn't seem to be a chance for fiscal stimulus,'' says David Levy, vice chairman and director of forecasting at the Jerome Levy Economics Institute of Bard College in Annandale-on-Hudson, N.Y. ``But we will find ourselves in a tremendous boom as the newly industrializing societies become stronger and as China opens up. Then we will see a resurgence of investment here and greater job growth.''