Leading Article: The dilemma of Clintonomics

FOUR main anxieties dominated the remarkable 'economic conference' over which President-elect Bill Clinton presided in Little Rock yesterday and on Monday: the federal deficit, health spending, the deteriorating infrastructure, and inadequate educational and training standards. The challenge to Mr Clinton's newly appointed Treasury Secretary, Senator Lloyd Bentsen, and the rest of the new team will be how to boost the infrastructure while cutting the deficit.

Interest payments incurred by financing the budget deficit are eating into tax revenue. Spending on health is the highest in the world, but with mixed results. Much of the infrastructure was built in the Fifties and Sixties; and educational and training standards have fallen well behind those of commercially competitive countries. Yet to find the revenue required to remedy these deficiencies means increasing the deficit, raising extra revenue or cutting existing expenditure.

To these structural problems must be added the slow growth of living standards, a heavy balance of payments deficit, and the high costs created by a fractured and excessively lawyer-prone society - be it in legal fees, insurance premiums or the charges of security companies. If competitor countries are heading for similar difficulties, the Americans will benefit commercially from having been pioneering victims. If not, the US economy will be handicapped by the ever-rising costs of the country's social ills.

At the cyclical level, prospects look better. Economic recovery since the recession of 1990-91 may have been slow and patchy, thanks largely to the high level of personal and corporate debt. But with inflation under control and interest rates at their lowest level for some 30 years, the conditions for a strong upturn seem to be in place.

The key to 'Clintonomics' is its focus on the interaction between economic and social policies. For the President-elect, additional investment in education, training and the infrastructure is an indispensable part of a strategy to improve the competitiveness of the private sector. If the US government does not provide a level of services taken for granted elsewhere, industry and commerce will be unfairly handicapped.

What is not in doubt is that Mr Clinton will have only the narrowest window of opportunity to introduce unpopular but urgently required new measures. He will never again have the authority with the people and the Congress he enjoys today. If he hesitates, he will be lost. Extra taxes are a case in point. Although Mr Bentsen is best known for his support of the oil and gas industries and his belief in the stimulative effect of tax breaks for special interest groups, the Texan senator did once support higher petrol taxes. To raise them would provide a valuable, if initially unpopular, source of extra revenue while reducing damage to the environment.

Such 'green' taxes on pollution and consumption should recommend themselves to Al Gore, the Vice-President-elect, whose environmentalist credentials are second to none in US politics. But both the new President's and Mr Bentsen's skills as fixers will be fully stretched in helping to persuade Congress that they are necessary. If the human capital of the American people is to be released, the Americans themselves will have to pay for the necessary initial investment.