Sam Nakagama: concern with USSR may blind US to the challenge in Asia

The United States long ago won the cold war with the Soviet bloc. The real challenge today is not military but economic -- and it's not from the Soviet Union but from Japan, China, South Korea, and the other new competitors in Asia. This is the view of Sam Nakagama, an economist with the Wall Street brokerage firm of Nakagama & Wallace.

``A one-sided emphasis on rearmament -- unsupported by adequate tax revenues -- can be perilous and counterproductive even from the national-security standpoint,'' Mr. Nakagama contends.

He can't be called a dove. He supported higher American defense spending in the late 1970s. He backed President Nixon's efforts to extract the US from Vietnam in the manner he did. Nonetheless, he considers the US withdrawal from Vietnam a great victory in the geopolitical sense, in that it led the US to restore relations with China and China eventually moved in the direction of free enterprise.

Moreover, such populous and important countries as Indonesia, Egypt, India, and Brazil are much more pro-American than they were 30 years ago at the time of the Bandung Conference of nonaligned nations. American pop culture influences nearly all societies to some degree. The free-enterprise gospel has spread rapidly in developing nations and is being reaffirmed in industrial nations.

By contrast, he notes, the Soviet economy is in trouble and important nations are much less vulnerable to communism nowadays.

All this leads to Mr. Nakagama's view that in some ways the US and the Soviet Union have similar problems. The Soviet Union is ``spending itself into the ground'' militarily. So, to some degree, is the US.

Nakagama holds that the Reagan administration has had ``no strategic rationale'' for its dramatic boost in military spending and much money is wasted. ``You ought to get more bang for the buck,'' he says. ``Instead you are spending more bucks for the bang.''

Further, he notes that both the US and the Soviet Union have a problem of relatively slow growth rates and troubled agriculture.

The US, although bouncing back from a deep recession, has grown on average at a 2.7 percent annual rate in the past four years; the Soviets, at a 2.5 percent annual rate. The Chinese economy has grown around three times as fast, and in fact last year at a 13 percent rate.

Because of the strong dollar hurting exports and because of other difficulties, many American farmers face extreme financial stress, if not bankruptcy.

Soviet output of wheat, corn, and other coarse grains has fallen from 184.7 million metric tons in 1977-78 and 226.2 million tons in 1978-79 to only 159 million tons in the current crop year. Grain yields per hectare have actually declined slightly over this period. The Soviets have been forced to boost their imports from 15.1 million metric tons in 1978-79 to an estimated 48 million tons in the current crop year.

By contrast, Chinese wheat yields since the ``self-responsibility'' reforms of 1978 have doubled, from 1.46 metric tons per hectare in 1977 to 2.99 tons in 1984. Wheat output in the same time span rose from 41.1 million tons to 87.7 million. As a result, China has become the world's largest producer of wheat and rice and is second only to the US in corn. Its crop yields are double those of the Soviet Union for wheat, corn, and other coarse grains.

Nakagama comments: ``The Chinese experience demonstrates that it is not the farmers nor the weather that limits output in Russia but the lack of individual incentives and the freedom to make production decisions.''

Some economists think China, despite its more recent introduction of greater incentives in industry, will grow more slowly over the next several years, running into shortages of energy and transportation facilities.

Whatever the case, the Chinese economy could still grow considerably quicker than that of the Soviets, and probably the US. Already China is selling modest amounts of corn, cotton, and soybeans to Japan. It could eventually sell more, crowding out US farm exports.

Mr. Nakagama concludes: ``The United States will be facing both great economic opportunities and intensified competition during the balance of this century. Saddled with a huge rearmament program, large budget deficits, and a wildly overvalued dollar, the United States does not appear well prepared to face this challenge. In that regard, the United States may have more in common with Gorbachev's Russia than we care to admit.

``By cutting China's military budget in order to concentrate on economic development, Deng Xiaoping has shown the way. Both Washington and Moscow may continue to lose ground in the economic race unless they slow the arms race by mutual agreement.'' A Thursday column