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Iowa State University Economist Neil Harl

(#3111)
November 14, 2003

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IOWA PRESS #3111 >>

Borg: THE NATION'S ECONOMY SHOWS NEW LIFE. WILL IT LAST AND WILL IOWA SHARE THE VIGOR? PERSPECTIVE FROM IOWA STATE UNIVERSITY ECONOMIST NEIL HARL ON THIS EDITION OF "IOWA PRESS."

FUNDING FOR THIS PROGRAM WAS PROVIDED BY "FRIENDS," THE IOWA PUBLIC TELEVISION FOUNDATION... GENERATIONS OF FAMILIES AND FRIENDS WHO FEEL PASSIONATE ABOUT THE PROGRAMS THEY WATCH ON IOWA PUBLIC TELEVISION;

AND BY THE IOWA BANKERS ASSOCIATION... FOR PERSONAL, BUSINESS, AND COMMERCIAL NEEDS, IOWA BANKS HELP IOWANS REACH THEIR FINANCIAL GOALS.

ON STATEWIDE IOWA PUBLIC TELEVISION, THIS IS THE FRIDAY, NOVEMBER 14 EDITION OF "IOWA PRESS." HERE IS DEAN BORG.

Borg: THE NATION'S MOST RECENT ECONOMIC RECESSION WAS OFFICIALLY DECLARED OVER SEVERAL MONTHS AGO, BUT THE RECOVERY HAS BEEN SLUGGISH BUT SLOWLY GAINING MOMENTUM. WHAT HAPPENS DURING THE NEXT ELEVEN MONTHS IS LIKELY TO BE A MAJOR ISSUE IN THE 2004 PRESIDENTIAL CAMPAIGN. PRODUCTIVITY SHOWING VIGOR, BUT A MAJOR QUESTION IS WHETHER THE NUMBER OF PEOPLE ACTUALLY WORKING, EMPLOYED, IN THE U.S. IS INCREASING. IF THE NATION SHOWS A SO-CALLED JOBLESS RECOVERY, CAN IT BE SUSTAINED? THOSE ARE QUESTIONS WE'LL BE ASKING OUR GUEST WHO IS NO STRANGER HERE AT THE "IOWA PRESS" TABLE. WELCOME BACK, DR. NEIL HARL.

Harl: PLEASED TO BE HERE.

Borg: AND ACROSS THE TABLE: "DES MOINES REGISTER" POLITICAL COLUMNIST DAVID YEPSEN AND "ASSOCIATED PRESS" SENIOR POLITICAL REPORTER MIKE GLOVER.

Glover: PROFESSOR HARL, AS DEAN MENTIONED IN HIS INTRODUCTION, THERE'S A LOT OF BUZZ THAT THE ECONOMIC RECOVERY HAS STARTED. YOU'RE AN ECONOMIST. WHAT'S YOUR TAKE ON IT? WHAT'S THE STATE OF THE ECONOMY BOTH NATIONALLY AND HERE IN IOWA?

Harl: I THINK IT HAS STARTED. I THINK THAT THE NUMBERS -- THE RECENT NUMBERS, THE 7.2-PERCENT FIGURE, ARE NOT LIKELY TO BE SUSTAINED, BUT I THINK THAT WE WILL SEE A RECOVERY CONTINUING. DISAPPOINTMENT IN TERMS OF THE UNEMPLOYMENT RATE, AND I FEAR THAT MAY VERY WELL CONTINUE TO BE A DISAPPOINTING FIGURE WHICH, OF COURSE, IS HIGHLY IMPORTANT FOR NEXT YEAR'S ELECTION. THE AMOUNT OF EXPENDITURE BY BUSINESS LOOKS QUITE GOOD. I THINK WHAT WE'RE GOING TO SEE IS A CLIMB OUT. WE ALWAYS HAVE THAT AFTER A DOWNTURN OF THE NATURE WE HAD. BUT THERE'S ONE FACTOR HERE THAT WE NEED TO NOTE, I THINK, AND THAT IS THAT THIS ECONOMY HAS BEEN THROUGH A VERY TRAUMATIC PERIOD. WE HAD EIGHT YEARS OF GROWTH, AND THEN WE HAD A RECESSION, WHICH IN ITSELF WAS A JOLT. THEN WE HAD THE PROBLEMS AT ENRON AND TYCO AND THE PROBLEMS OF ETHICS, THE PROBLEMS OF ACCOUNTING SHORTCOMINGS. WE HAD PROBLEMS RELATIVE TO THE DOT-COM COLLAPSE, THE STOCK MARKET TANKED. WE'VE HAD SO MANY THINGS THAT HAVE AFFECTED THIS ECONOMY THAT WE'RE IN A LITTLE DIFFERENT ERA THAN WE NORMALLY ARE AT THIS STAGE IN A BUSINESS CYCLE. WE STILL HAVE CYCLES. WE, I THINK, THOUGHT DURING THE '90S PERHAPS THAT WE NO LONGER WOULD HAVE A DOWNTURN. WE'D GONE SO LONG WITHOUT A DOWNTURN, BUT WE HAVE BEEN THROUGH A PERIOD WHEN WE'VE LEARNED, YES, THERE ARE DOWNTURNS, AND THIS ONE IS A LITTLE DIFFERENT BECAUSE OF THAT TRAUMATIC PERIOD THAT WE'VE GONE THROUGH.

Glover: IS THERE ANYTHING UNIQUE ABOUT THE IOWA ECONOMY, OR DOES IT PRETTY MUCH MODEL WHAT'S GOING ON NATIONALLY?

Harl: WELL, THE IOWA ECONOMY TENDS TO BE A LITTLE LESS DRAMATIC IN ITS MOVEMENTS. WE DON'T GO QUITE AS HIGH, AND WE DON'T FALL QUITE AS LOW. WE SORT OF MOVE ALONG AT A FAIRLY GOOD PACE, BUT NOT SPECTACULAR. I THINK THAT WILL PROBABLY CONTINUE TO BE THE CASE HERE. IOWA IS HEAVILY INFLUENCED BY FARM EQUIPMENT MANUFACTURING; IT'S HEAVILY INFLUENCED BY WHAT HAPPENS IN THE AGRICULTURAL SECTOR; IT'S INFLUENCED SOME BY WHAT HAPPENS TO GOVERNMENT FARM PROGRAM PAYMENTS, SO THAT WE HAVE SOME UNIQUENESSES THAT THE OTHER MORE INDUSTRIALIZED STATES REALLY DON'T HAVE. BUT IT HAS GIVEN US AN ECONOMY THAT JUST HASN'T BEEN AS DRAMATICALLY NOTED ON THE HIGH SIDE AS WELL AS ON THE LOW SIDE.

Yepsen: DO YOU SEE THAT CONTINUING IN THE COMING YEARS, OR IS THERE ANY HOPE FOR A BETTER ECONOMY?

Harl: WELL, I THINK THAT WE'RE VERY LIKELY GOING TO SEE MUCH THE SAME PATTERN RELATIVE TO THE NATIONAL ECONOMY. WE SEE SOME INDICATION THAT POSSIBLY THERE MIGHT BE SOME PLUSES, BUT I'M PRETTY PESSIMISTIC ABOUT SEEING A DRAMATICALLY DIFFERENT ECONOMY FOR IOWA IN THE NEAR TERM. I JUST DOUBT THAT THAT'S IN THE CARDS.

Yepsen: TALK A LITTLE BIT -- ADD ONE OTHER THING TO YOUR MIX OF ISSUES THERE IN TERMS OF THE PROSPECT FOR THE ECONOMY AS A WHOLE... TERRORISM. WHAT EFFECT DOES THE THREAT OF TERRORISM HAVE? WE SAW WHAT HAPPENED AFTER 9/11. IT REALLY THREW A DAMPER ON THINGS. IS THAT AN OVERHANG, A DRAG, ON THIS ECONOMY?

Harl: WELL, I THINK IT IS A DRAG. I LIST IT AS ONE OF MY FOUR -- THE FOUR ISSUES THAT I THINK AFFECT THE AGRICULTURAL SECTOR, AND I THINK IT AFFECTS THE ECONOMY AS WELL. HERE IN IOWA, WE TEND TO SEE THIS MOSTLY AS A MATTER OF SECURITY. BUT ONE OF THE BIG ISSUES ON BIOTERRORISM, TERRORISM WITH RESPECT TO FOODSTUFFS, IS IMPORTED FOOD. AND THAT IS REALLY QUITE A WAY FROM OUR BORDERS. IT'S THE POROUSNESS OF THE SYSTEM THAT DOESN'T REALLY INSPECT A HIGH PROPORTION OF THE IMPORTED FOODS. IF YOU REALLY WANTED TO CAUSE A MISCHIEVOUS RESULT RELATIVE TO FOOD, THEN YOU'VE GOT MANY OPPORTUNITIES OFFSHORE AS CONTAINERS ARE PACKED, AND ONLY A SMALL PORTION OF THOSE GET INSPECTED. I THINK WE SIMPLY HAVE TO TIGHTEN UP ON THAT. HERE IN IOWA, WE WILL SEE, I THINK, A GRADUAL INCREASE IN SECURITY. WE'LL SEE MORE ATTENTION TO ACCOUNTABILITY. WE'RE GOING TO IMPLEMENT, AT SOME POINT, A SYSTEM OF IDENTIFYING LIVESTOCK ALL THE WAY THROUGH, FROM BIRTH TO THE TIME OF SLAUGHTER. RIGHT NOW THE FOCUS IS ON COUNTRY-OF-ORIGIN LABELING, WHICH I'M KIND OF CURIOUS BECAUSE SO MANY PEOPLE AGREE WE MUST HAVE A SYSTEM, AND PROBABLY IT WILL BE A CHIP-TYPE SYSTEM THAT WILL TRACE ANIMALS SO THAT WE DON'T HAVE PROBLEMS ARISING AND THAT ENDLESS FEAR.

Glover: LET'S -- BY FIAT, LET'S MAKE YOU EMPEROR FOR A DAY.

Harl: JUST A DAY.

Glover: JUST A DAY, JUST TO START THINGS OFF. WHAT IS IT THAT YOU WOULD DO, IF YOU COULD DO ANYTHING YOU WANTED, TO HELP THE ECONOMY GET STARTED GOING IN THE RIGHT DIRECTION, OR IS THERE ANYTHING GOVERNMENT CAN REALLY DO?

Harl: WELL, I WOULD -- I WOULD BACK OFF A LITTLE WAY IN OUR PAST. I AM VERY CONCERNED ABOUT THE LONG-TERM IMPACTS OF OUR FISCAL POLICY. I THINK THAT THE ONE THING THE FEDERAL GOVERNMENT NEEDS TO DO IS TO PROVIDE A STABLE SYSTEM THAT IS NOT ERRATIC, A SYSTEM THAT THEY RUN MODEST DEFICITS IN TIMES OF ECONOMIC DOWNTURN AS WE HAVE DONE, BUT NOT A SYSTEM THAT PRODUCES PERPETUAL DEFICITS WHEN WE'RE NOT IN A DOWNTURN. AND I THINK WE HAVE LAUNCHED OURSELVES NOW IN A TRAJECTORY THAT HAS A HIGH PROBABILITY OF CAUSING US A LOT OF ECONOMIC PAIN DOWN THE ROAD. I'M QUITE CONCERNED ABOUT THE RED INK ISSUE, AND I'M CONCERNED ABOUT COSTS THAT HAVE BEEN COMMITTED THAT AREN'T REALLY EVEN IN THAT EQUATION.

Yepsen: DR. HARL, WHAT'S THE BIG PROBLEM HERE? I MEAN THE CLASSIC CURE FOR ANY RECESSION: TAX CUTS, INCREASE FEDERAL SPENDING, GO INTO DEFICITS. AS A PERCENTAGE OF THE GROSS DOMESTIC PRODUCT, THE DEFICIT IS REALLY NOT ANY HIGHER THAN IT WAS IN THE MID '80S. SO WHAT'S THE PROBLEM HERE? ISN'T THIS PART OF GETTING THE ECONOMY GOING?

Harl: YES, I AGREE. IN A TIME OF ECONOMIC DOWNTURN, I THINK IT'S APPROPRIATE TO BE RUNNING DEFICITS, BUT WE ARE GOING MORE AND MORE DEEPLY INTO RED INK TERRITORY WHEN WE ARE COMING OUT OF THE RECESSION. SO THAT'S WHAT TROUBLES ME. IT'S THE FACT THAT WE HAVE CUT TAXES SO DEEPLY AT THE FEDERAL LEVEL THAT I FEAR THAT COUPLED WITH AN INABILITY OR RELUCTANCE TO CURB SPENDING IS ASSURING THAT WE'RE GOING TO BE RUNNING DEFICITS WELL INTO THE FUTURE ABOUT AS FAR AS THE EYE CAN SEE.

Yepsen: TAKE MIKE'S PRESCRIPTION ON EMPEROR FOR A DAY, WHAT WOULD YOU DO, AND MAKE IT APPLY JUST TO THE STATE OF IOWA. WRITE SOME PRESCRIPTIONS FOR WHAT THE GOVERNOR AND THE LEGISLATURE, THE BUSINESS SECTOR -- WHAT SHOULD WE BE DOING TO HELP OURSELVES, DR. HARL?

Harl: I THINK THAT IN IOWA, WHAT WE NEED TO DO IS TO DO WHAT GOVERNMENT DOES BEST: CREATE AN ENVIRONMENT IN WHICH THE PRIVATE SECTOR CAN FUNCTION AND FUNCTION WELL. THERE IS NO BETTER WAY TO ALLOCATE RESOURCES THAN THE MARKET. AND I THINK WHAT THE STATE NEEDS TO DO IS TO FOCUS ON THOSE THINGS THAT GOVERNMENT DOES AND DOES QUITE WELL. AND I THINK THAT'S EDUCATION. I THINK IT'S THE ENVIRONMENT. I THINK ONE OF THE REALLY SERIOUS ISSUES WE HAVE IN IOWA THAT'S NOT BEEN FULLY ADDRESSED IS THE QUESTION OF ENVIRONMENT. ECONOMIC DEVELOPMENT CANNOT OCCUR WHEN YOU HAVE PROBLEMS THAT ARE SERIOUS AND THE ENVIRONMENTALISTS FEAR.

Borg: WHERE ARE THEY?

Harl: WHERE ARE THEY?

Borg: YES.

Harl: THEY'RE IN HEAVILY RELATED TO LIVESTOCK PRODUCTION. THIS IS AN ISSUE THAT WE JUST SIMPLY HAVE TO FACE UP TO, BECAUSE YOU CANNOT EXPECT ECONOMIC DEVELOPMENT IF YOU ARE MOVING PEOPLE INTO AN AREA WHERE THEY DON'T WANT TO LIVE BECAUSE OF THE ODOR PROBLEMS. SO I THINK THAT IS ONE OF THE MAJOR ISSUES. I THINK GROUNDWATER POLLUTION AND STREAM POLLUTION RELATED TO THAT, ALSO A FACTOR. I THINK MAINTAINING OUR EDUCATION SYSTEM IS TERRIBLY IMPORTANT. NOBODY WANTS TO MOVE EMPLOYEES INTO A STATE WHERE THE EDUCATION SYSTEM IS HURTING AND IS NOT WORLD CLASS. IOWA HAS A LONG, PROUD HISTORY OF EXCELLENCE IN EDUCATION AT ALL LEVELS, ALL THE WAY THROUGH "K" THROUGH THE UNIVERSITY LEVEL. AND WE'RE AT THE POINT NOW WHERE I THINK THAT IS GOING TO BE CHALLENGED. SO I'M CONCERNED ABOUT THOSE ASPECTS: THE ENVIRONMENT -- THE TOTAL ENVIRONMENT, THE EDUCATION SYSTEM, AND AS WELL AS THE PHYSICAL ENVIRONMENT.

Borg: YOU SAID A MOMENT AGO THAT YOU WERE PESSIMISTIC ABOUT THE LONG-TERM VITALITY OF THE IOWA ECONOMY AS FAR AS A BIG RECOVERY. NOW, LET ME ASK ABOUT THE VALUES FUND, THEN. DO YOU AGREE WITH THE OVERALL IDEA THAT THE VALUES FUND, WHICH INVESTS IN EXISTING IOWA BUSINESSES TO STRENGTHEN THEM, AND BIOTECHNOLOGY IS WISE?

Harl: LET ME GIVE YOU A LITTLE DIFFERENT SPIN ON THAT. I'VE WORKED THE LAST THIRTEEN YEARS A GREAT DEAL IN THE FORMER SOVIET UNION. AND THERE I SAW THE DISMANTLING OF A LOT OF EFFORT OF CENTRAL PLANNING, WHERE PLANNERS WOULD DECIDE WHAT NEEDED TO BE DONE. AND NOW THEY'RE TRYING TO MOVE AWAY FROM THAT. THEY'RE TRYING AS RAPIDLY AS THEY CAN TO RETURN TO MARKET FORCES. I THINK WE NEED TO BE CAREFUL HERE IN TERMS OF DECIDING IN ADVANCE ON OUR PRIORITY BASIS THAT THIS IS THE WAY IOWA SHOULD GO, BECAUSE THE MARKET STILL IS THE BEST WAY TO ALLOCATE RESOURCES. SO I HAVE A LITTLE BIT OF CONCERN. I THINK IF WE'RE GOING TO DO IT, HOW IT'S BEING DONE IS PROBABLY THE BEST WAY YOU CAN. BUT IT'S NOT A PERFECT SYSTEM AND NO ONE SHOULD BELIEVE THAT WE ARE TO PICK THE WINNERS AND THOSE WINNERS ARE GOING TO CAUSE BUOYANCY IN THE IOWA ECONOMY NECESSARILY. I THINK IT'S A WORTHY ACTIVITY, BUT REMEMBER THAT WHAT WE'RE DOING IS REMOVING CAPITAL FROM ONE AREA WHERE IT HAD A RETURN AND PUTTING OUR CHIPS ON AREAS THAT MAY OR MAY NOT PROVE TO BE THAT BIG A DRAW IN TERMS OF EMPLOYMENT, THAT BIG A GENERATOR OF ECONOMIC GROWTH.

Glover: IN YOUR VIEW, WOULD THE STATE BE BETTER OFF TAKING THE MONEY THAT'S BEING PUT INTO THE VALUES FUND AND USE THAT INSTEAD FOR ISSUES LIKE EDUCATION AND THE ENVIRONMENT? IS THERE A BIGGER RETURN THERE?

Harl: QUITE FRANKLY, I THINK THAT'S WHERE I'M TRENDING IN MY THINKING IS THAT THAT'S A MORE CERTAIN OUTCOME IN TERMS OF HAVING A PAYOFF DOWN THE ROAD AND LETTING -- TRYING TO EXPEDITE AND MAKE POSSIBLE PRIVATE SECTOR DECISION-MAKING IN ACCORDANCE WITH ALL THE SIGNALS THAT ARE COMING, BECAUSE EVEN THE VERY BEST OF THINKING CAN BE WIDE OF THE MARK. AND SO PUTTING A LOT OF MONEY ON THOSE FEW DECISIONS CAN BE FRAUGHT WITH SOME RISK. SO I THINK THAT THE SAFER APPROACH IN TERMS OF LONG-TERM PAYOFF WOULD PROBABLY BE TO DO EXACTLY THAT.

Yepsen: I WANT TO ASK YOU ABOUT TRADE. WE'VE TAKEN IN IOWA, FOR MANY YEARS, AS SORT OF AN ARTICLE OF FAITH THAT FREE TRADE WAS PROBABLY GOOD FOR US. WE GROW A LOT OF STUFF WE SELL OVERSEAS. WE MANUFACTURE A LOT OF STUFF WE SELL OVERSEAS. BUT NOW WE'RE STARTING TO SEE THAT THERE'S, MAYBE, A DOWNSIDE. SOME PEOPLE ARE WORRIED ABOUT A RACE TO THE BOTTOM. I GUESS A TWO-PART QUESTION: HOW DO YOU SEE TRADE AFFECTING IOWA NOW, AND WHAT SHOULD WE BE DOING TO SOFTEN SOME OF THE ROUGH EDGES THAT ARE STARTING TO APPEAR?

Harl: WELL, WE'VE ALWAYS KNOWN THAT TRADE -- AS YOU REMOVE TRADE BARRIERS, YOU DEMOLISH TRADE BARRIERS, YOU HAVE GAINERS AND YOU HAVE LOSERS. THAT'S ALWAYS THE CASE, ALWAYS BEEN THE CASE. BUT WHAT WE'RE SEEING NOW IS A GREATER EMPHASIS -- GREATER FOCUS ON THE NEGATIVE SIDE. BUT OVERALL, I THINK ALMOST EVERYONE AGREES THAT FREE TRADE IS A WORTHY OBJECTIVE. THE PROBLEM IS THAT SOMEHOW WE NEED TO CUSHION THE BLOW. NOW, MEXICO, FOR EXAMPLE, IS A GOOD MARKET FOR CORN, BUT IT'S ALSO IMPACTING NEGATIVELY SOME OF THEIR PRODUCERS IN MEXICO AS WELL. SO IT TAKES A VERY DEFT ADJUSTMENT MECHANISM TO TRY TO PROVIDE SOME RELIEF WHERE THE EFFECTS ARE THE MOST SERIOUS. BUT I DON'T THINK WE'RE GOING TO FLINCH FROM OUR LONG-TERM COMMITMENT TO FREE TRADE. WHAT I DO THINK WE'RE GOING TO SEE IS FAR MORE ATTENTION GIVEN TO THE ADVERSE CONSEQUENCES. WE'RE SEEING THAT AROUND THE WORLD, FOR EXAMPLE, WITH RESPECT TO OUR FARM POLICY. IT'S CAUSING A LOT OF HURT IN THE THIRD WORLD COUNTRIES.

Glover: IN COVERING THIS CAMPAIGN, I HEAR A LOT OF PEOPLE SAY "I'M FOR FREE TRADE... BUT." I THOUGHT I HEARD YOU SAY, "I'M FOR FREE TRADE... BUT." WHAT ARE THE BUTS YOU'RE HAVING ON THE TRADE POLICY?

Harl: WELL, BASICALLY THE BUTS ARE THAT THE NEGATIVES TEND TO BE FOCUSED IN PARTICULAR AREAS, PARTICULAR SUBSECTORS OF THE ECONOMY. SO YOU SEE VERY DRAMATICALLY THE NEGATIVES, AND THE POSITIVES MAY BE SPREAD MORE EVENLY AND SO THEY'RE NOT AS OBVIOUS. THEY'RE NOT AS VISIBLE.

Glover: TAKE OFF THE NEGATIVES.

Harl: TAKE OFF THE NEGATIVES?

Glover: YEAH. WHAT ARE THE NEGATIVES?

Harl: THE NEGATIVES? I WOULD SAY THE NEGATIVES ARE LOSING JOBS, LOSING ECONOMIC BUOYANCY BECAUSE OF REMOVING TRADE BARRIERS. THAT MEANS SOMETHING HAS GOT TO BE DONE SOMEWHERE ELSE. WE'VE BEEN THROUGH THIS IN THE UNITED STATES. WE HAVE BEEN OVER THIS ROAD FOR THE LAST FORTY YEARS. WE SAW IT WITH ELECTRONICS. WE SAW IT WITH TEXTILES. WE'VE SEEN IT WITH SECTOR AFTER SECTOR AFTER SECTOR. BUT AMERICANS IN GENERAL HAVE PROFITED BECAUSE IT'S MEANT LOWER COST PRODUCTS. AMERICANS LOVE DEALS. THEY'LL DRIVE ACROSS TOWN FOR DEALS. AND IF THEY CAN PRODUCE SOMETHING IN TAIWAN OR SOMETHING IN VIETNAM -- AND, OF COURSE, THERE'S THIS QUEUE -- THIS DEVELOPMENT QUEUE, THAT COUNTRIES WITH THE LOWEST COST LABOR GET INTO THIS QUEUE SO THEY CAN PRODUCE PRODUCTS THE REST OF THE WORLD WANTS AND ARE WILLING TO PAY FOR. AND THAT MEANS THEY ARE GOING TO GAIN IN THOSE COUNTRIES. BUT THEY'RE DETHRONING THOSE AHEAD OF THEM. WE'VE SEEN THAT HAPPEN TO JAPAN. WE'VE SEEN IT HAPPEN TO KOREA, RIGHT DOWN THE LINE.

Yepsen: MIKE MENTIONS THE CAMPAIGN. AND HE'S RIGHT. WE'VE HEARD A LOT OF TALK ABOUT THIS ISSUE IN THE CAMPAIGN. WHAT ABOUT SOME OF THE SOLUTIONS? I HEAR TWO THINGS FROM CANDIDATES. ONE IS THAT WE HAVE TO HAVE WORLDWIDE -- THERE HAVE TO BE ENVIRONMENTAL STANDARDS REQUIRED IN U.S. TREATIES, NOT NECESSARILY U.S. ENVIRONMENTAL STANDARDS BUT COUNTRIES HAVE TO HAVE SOME STANDARDS. AND THE SECOND IDEA IS ONE THAT CONGRESSMAN GEPHARDT HAS TOSSED ON THE TABLE HERE RECENTLY, AND THAT IS AN IDEA OF AN INTERNATIONAL MINIMUM WAGE, THAT EACH COUNTRY HAS TO SET ITS OWN MINIMUM WAGE TO PREVENT THIS RACE TO THE BOTTOM YOU JUST TALKED ABOUT. WHAT DO YOU THINK ABOUT THOSE TWO IDEAS?

Harl: WELL, I THINK THEY'RE WORTHY OBJECTIVES. I THINK IT'S EXTREMELY DIFFICULT, PARTICULARLY ON THE MINIMUM WAGE SIDE. I THINK WE STAND A GREATER CHANCE OF BEING ABLE TO ACCOMPLISH SOMETHING IN TERMS OF THROUGH A TREATY-TYPE PROCESS OR TOWARD ACCEPTABLE ENVIRONMENTAL STANDARDS. I THINK WHEN YOU START MOVING INTO A MINIMUM WAGE, THEN YOU'RE GOING TO GET INTO A LOT OF POLITICAL DISCUSSION BECAUSE THE COUNTRIES THAT HAVE VERY LOW COST LABOR WANT TO BE ABLE TO PARTICIPATE. AND IF THEY HAVE TO RAISE THEIR WAGES, THAT MAY TAKE THEM OFF THE TABLE. SO I THINK THAT IS THE MORE DIFFICULT ISSUE IS THE ACTUAL IMPLEMENTATION OF A WORLDWIDE MINIMUM WAGE. BUT I DO THINK WE NEED TO WORK MORE TOWARD A GLOBAL APPROACH TO THESE ISSUES. WE'VE SEEN IN CANCUN AND SEATTLE, WE'VE SEEN ALL THE TRADE SESSIONS RECENTLY JUST BOILING UP. PEOPLE ARE UNHAPPY BECAUSE OF THE WAY IN WHICH THEY PERCEIVE THEY ARE BEING TREATED.

Borg: ISN'T A MAJOR FACTOR ALSO IN INTERNATIONAL TRADE THE VALUE OF THE NATION'S CURRENCY, THAT IS, THE U.S. AND NOW THE CHINESE CURRENCY?

Harl: ABSOLUTELY, I WAS JUST ABOUT TO MENTION THAT. THAT'S A MAJOR ISSUE. WITH A WEAKER CURRENCY, THAT MEANS THAT YOU'RE GOING TO BE ABLE TO SELL PRODUCTS BETTER. SO THAT'S LARGELY OUT OF THE CONTROL OF A LOT OF PEOPLE THAT FEEL THIS IS PART THEIR ENVIRONMENT THAT THEY HAVE VERY LITTLE INFLUENCE OVER.

Yepsen: IS THERE ANYTHING THE U.S. CAN DO TO ALTER THE CHINESE CURRENCY? WE HEAR THAT THAT'S THE BIG PROBLEM.

Harl: WELL, I THINK IT PROBABLY IS. THE CHINESE PROVIDE THEIR OWN COUNCIL. WE'VE DONE WORK THERE. WE'VE HAD SCHOOLS FOR THEIR BANKING SYSTEM, AND THEY WILL TALK AND DISCUSS, BUT THEY ARE THE ONES WHO MAKE THEIR DECISIONS. AND THEY MAKE IT VERY CLEAR THAT THEY'RE NOT GOING TO BEND TO OTHER COUNTRIES' BELIEFS THAT THEY SHOULD BE CHANGING THEIR EXCHANGE RATE.

Yepsen: IS THE ADMINISTRATION DOING ALL IT CAN TO FORCE THE CHINESE TO CHANGE THEIR EXCHANGE RATE, OR ARE WE HAMSTRUNG BECAUSE WE NEED THE CHINESE IN NEGOTIATING WITH NORTH KOREA?

Harl: WELL, IT'S A VERY COMPLICATED ISSUE AND I THINK YOU'VE PUT YOUR FINGER ON ONE OF THE MAJOR FACTORS, THAT WE PROBABLY WOULD BE MORE INCLINED TO BE MORE AGGRESSIVE WITH THE CHINESE IF IT WEREN'T FOR THE FACT THAT THEIR PRESENCE IS SO TERRIBLY IMPORTANT WITH RESPECT TO CURBING WHAT GOES ON NORTH OF THE --

Glover: YOU MENTIONED THAT A LOT OF PEOPLE ARE ANGRY BECAUSE OF WHAT'S HAPPENED IN TRADE, AND THAT'S TRUE. PEOPLE GET ANGRY. YOU SEE DEMONSTRATIONS IN SEATTLE. YOU SEE DEMONSTRATIONS DOWN IN MIAMI WHERE THEY'RE HAVING TRADE TALKS. AS THAT ANGER GROWS, THE POLITICAL PRESSURE GROWS ON CANDIDATES FOR PRESIDENT TO DO SOMETHING ABOUT TRADE, TO RESPOND TO A SOUND BITE ON TRADE. YOU'VE GOT CANDIDATES OUT THERE WHO SAY PULL OUT OF THE WORLD TRADE ORGANIZATION, CANCEL NAFTA. ARE YOU WORRIED THAT THE POLITICAL PRESSURE IS GOING TO GROW TO THE POINT WHERE THIS TRADITIONAL RELIANCE ON FREE TRADE IS GOING TO BE THREATENED?

Harl: WELL, I THINK IT COULD VERY WELL CERTAINLY BE SLOWED DOWN. IF YOU HAD SAID TEN YEARS AGO OR FIFTEEN YEARS AGO THAT TODAY WE'D BE SITTING HERE TALKING LIKE THIS, I WOULD HAVE SAID NO. THERE WAS A GENERAL BELIEF THAT FREE TRADE WAS THE HOLY GRAIL, THAT WE ALL WANTED TO SEEK IT AND ACCOMPLISH IT AS QUICKLY AS POSSIBLE. WE'VE RUN INTO MORE HEADWINDS THAN WE THOUGHT WOULD BE THE CASE. AND I REALLY DON'T THINK THAT SHOULD CAUSE US TO MOVE FROM OUR COMMITMENT TO FREE TRADE, BUT I DO THINK WE'VE GOT TO FOCUS MORE ON HOW WE CAN COPE WITH THE LOSERS AND THE PLIGHT OF THE LOSERS AND HOW WE CAN SOFTEN THAT UP.

Yepsen: FOCUS MORE SPECIALLY ON THE FARM ECONOMY AND THE CONDITION OF IT. LET'S NARROW IT DOWN TO SORT OF OUR OWN NEIGHBORHOOD HERE. WHAT DO YOU SEE FOR LIVESTOCK PRODUCERS IN THE BEEF CATTLE INDUSTRY?

Harl: WELL, CERTAINLY THE BEEF BUSINESS IS ABOUT AS GOOD AS IT'S BEEN FOR A WHILE. HOW LONG IT'S GOING TO LAST IS DIFFICULT TO TELL. CERTAINLY THE CANADIAN LIMITATIONS ON IMPORTS HAVE BEEN A FACTOR. HOWEVER, I THINK THAT WE'VE HAD SOME OTHER FACTORS AS WELL. DEMAND FOR BEEF IS VERY GOOD RIGHT NOW. THE NUMBERS HAD EASED SOME AND SO WE HAVE A GOOD DEMAND/SUPPLY SITUATION THAT MAY LAST FOR A WHILE, AND THAT'S BEEN UNUSUAL IN THE BEEF BUSINESS. WE JUST HAVEN'T HAD THAT MANY PERIODS -- IN FACT, SINCE 1976 WHEN THE PER CAPITA CONSUMPTION OF BEEF STARTED TO DECLINE AND DROPPED CLOSE TO A THIRD BY THE MID '80S, A LOT OF THAT DRIVEN BY PERCEIVED HEALTH CONCERNS, THE BEEF BUSINESS IS --

Yepsen: AND NOW EVERYBODY IS ON AN ATKINS DIET.

Harl: THE IRONY IN ALL THIS IS THAT THE BEEF BUSINESS HAS BEEN BOTH POSITIVELY AND NEGATIVELY IMPACTED BY CONCERNS ABOUT THAT.

Yepsen: WHAT ABOUT PORK?

Harl: THE PORK BUSINESS HAS DONE A GREAT DEAL OF WORK IN TERMS OF EXPANDING DEMAND. WE HAVE, I THINK, A SITUATION WHERE THE PORK BUSINESS, MOVING THROUGH THE IMMIGRATION PROCESS, IS GOING TO BE HEAVILY CONTROLLED BY THE PROCESSORS IN TERMS OF WHAT HAPPENS FROM THIS POINT ON. I THINK IT'S A VERY GOOD PRODUCT, A POPULAR PRODUCT. THE CHINESE, FOR EXAMPLE, INCREASING DRAMATICALLY THEIR PER CAPITA CONSUMPTION OF PORK, PER CAPITA CONSUMPTION OF BEEF. AND THAT'S ONE THING THAT IS DRIVING THE TRADE HERE, WITH THE DEMAND FOR SOYBEANS, THE DEMAND FOR CORN. IN FACT, THE CHINESE AREN'T EXPORTING AS MUCH CORN, PROBABLY. SO I THINK THAT THE PORK BUSINESS WILL BE A STABLE, DEPENDABLE SOURCE OF GROWTH IN THE AGRICULTURE SECTOR. GRAINS LOOK BETTER.

Yepsen: ALL RIGHT. WHAT ABOUT THE GRAIN?

Harl: SOYBEAN PRICE THE BEST WE'VE HAD. BUT THEN YOU LOOK AT THE WEATHER SITUATION, AND THE REASON WE HAVE A BETTER PRICE ON SOYBEANS RIGHT NOW IS BECAUSE WE HAD A VERY HOT, DRY SUMMER AND IT REALLY CUT THE SOYBEAN CROP DRAMATICALLY.

Yepsen: ONE LAST QUESTION ON THE GRAINS. ARE YOU WORRIED THAT THERE'S BEEN A DRAMATIC INCREASE IN WORLD SHIPPING COSTS, TRIPLE WHAT IT WAS JUST A FEW YEARS AGO? ARE YOU WORRIED THAT THIS GROWTH IN SHIPPING COSTS IS REALLY GOING TO HURT THE FARM SECTOR HERE IN IOWA, PARTICULARLY IN THE GRAINS?

Harl: OH, I THINK IT WILL HAVE AN IMPACT, BUT IT WILL ALSO CHANGE THE WAY IN WHICH WE EXPORT. THIS HAS ALREADY BEEN HAPPENING. THE ECONOMICS OF TRANSPORTATION ARE SET SO WE DON'T SHIP BULK GRAINS AS MUCH AS WE USED TO. WE INSTEAD SHIP FRESH MEATS. WE'RE NOW ABLE TECHNOLOGICALLY AND ECONOMICALLY TO SHIP FRESH MEATS ALMOST ANYPLACE IN THE WORLD, AND SO THAT HAS MEANT THAT WE DON'T SHIP AS MANY POUNDS. AND SO WE'VE ADJUSTED A BIT TO THIS ALREADY AND PROBABLY WILL ADJUST MORE.

Borg: JUST A QUICK CLARIFICATION. WHEN YOU SAID PORK PRICES DETERMINED TO A LARGE EXTENT BY PROCESSORS, DO YOU MEAN BY THE NUMBER OF PROCESSORS AND THEIR CAPACITY TO HANDLE HOGS?

Harl: WELL, THAT'S ONE OF THE FACTORS, BECAUSE THE KEY HERE IS SHACKLE SPACE. AND WHEN WE HAVE FLUCTUATIONS IN SUPPLY OF HOGS, WE GET TRANSMITTED BACK DOWN TO THE PRODUCER WHO DOESN'T HAVE ACCESS TO SHACKLE SPACE, DOESN'T HAVE A CONTRACT, AND WE SEE THE RESULTS OF 1998 AND 1999 --

Yepsen: SHACKLE SPACE BEING THE CAPACITY TO --

Harl: WHEN YOU HANG A CARCASS ON THE LINE AND IT PASSES ALONG. AND WE HAD HOGS DOWN AT 8 OR 9 CENTS A POUND. SO WE'VE GOT A VERY UNIQUE AND SOMEWHAT DIFFERENT SITUATION NOW IN THE HOG BUSINESS. PEOPLE LIVE IN FEAR OF WHAT HAPPENS WHEN YOU HAVE AN INCREASE IN SUPPLY, AND IT'S A CYCLICAL BUSINESS AS WELL.

Glover: THERE ARE TWO AREAS OF CONCENTRATION I'D LIKE TO GET YOU TO ADDRESS: ONE AREA OF CONCENTRATION IS IN LIVESTOCK PRODUCTION, PARTICULARLY IN HOG PRODUCTION, THE TREND TOWARDS LARGER AND LARGER AND LARGER PRODUCTION FACILITIES, CONFINEMENT FACILITIES; AND THE TREND TOWARDS CONSOLIDATION WITHIN THE AGRIBUSINESS ECONOMY, MEAT PACKING IN PARTICULAR. ADDRESS THOSE TWO ISSUES. HOW WORRIED ARE YOU ABOUT INCREASING --

Harl: WELL, I'M REALLY WORRIED ABOUT FIVE AREAS IN TERMS OF CONCENTRATION. I'M WORRIED ABOUT LIVESTOCK SLAUGHTER. I'M WORRIED ABOUT GRAIN HANDLING AND SHIPPING. I'M WORRIED ABOUT FARM EQUIPMENT MANUFACTURING. I'M WORRIED ABOUT SEED AND CHEMICALS. AND I'M WORRIED ABOUT FOOD RETAILING. SOME OF THIS HAS BEEN DRIVEN BY FOOD RETAILING, CONCENTRATION AMONG THE FOOD RETAILERS. WE'RE AT THE POINT NOW WHERE THE TOP FIVE ARE UP TO ABOUT 50 PERCENT OF RETAIL SALES. WHEN YOU LOOK AT THE MAKEUP OF THOSE, THE NUMBER ONE FOOD RETAILER IS WAL-MART. THEY WEREN'T EVEN IN THE FOOD BUSINESS TWENTY YEARS AGO. SO IT'S BEING REVOLUTIONIZED AND THAT IS CAUSING THOSE WHO SELL TO THE BIG RETAILERS TO CONSOLIDATE SO THEY CAN BETTER DO BATTLE WITH THEM AND ASSURE THEIR BRANDS ARE ON THE SHELF. AND THAT RIPPLES DOWN SO THAT YOU GET THIS CASCADING EFFECT OF CONCENTRATION ON THE VARIOUS SUPPLIERS TO THE FOOD PROCESSORS, BUT SPECIFICALLY ON LIVESTOCK. THAT'S ONE OF THE FIVE THAT I'M REALLY CONCERNED ABOUT. THE DEADLY COMBINATION, AS I CALL IT, IS THE CONCENTRATION IN FOOD -- IN SLAUGHTER, COUPLED WITH VERTICAL INTEGRATION FROM TOP DOWN. LET'S SAY WE HAVE A REGIONALLY DOMINANT PACKER. AND WE DON'T YET HAVE A REGIONAL DOMINANT PACKER, BUT WE'RE NOT TOO FAR AWAY FROM HAVING THAT RESULT. ABOUT ONE MORE MERGER AND WE WOULD. TAKE THE POSITION OF A PRODUCER OUT HERE IN EAST DIPSWITCH, IOWA, WHO HAS A CONTRACT TO PRODUCE HOGS FOR FIVE YEARS. IT COMES TO THE END OF THE CONTRACT. THE PRICE OF THE CONTRACT PREDICTABLY NOT AS GOOD BECAUSE THIS DOMINANT PACKER DOESN'T REALLY HAVE COMPETITION IN TERMS OF BUYING HOGS -- OR MUCH COMPETITION IN THAT AREA. SO WHAT ARE THE CHOICES? ONE CHOICE IS TO SHIP THE HOGS 900 MILES TO THE FIRST -- TO THE CLOSEST PACKER WITH SHACKLE SPACE AND HOPE YOU CAN GET SHACKLE SPACE. AND IF THEY'RE 90-PERCENT INTEGRATED, YOU'RE PROBABLY NOT GOING TO HAVE MUCH SUCCESS THEIR EITHER. OR YOU CAN LET YOUR BUILDINGS LIE IDLE. THAT'S HARDLY AN OPTION IF YOU HAVEN'T PAID FOR THEM. OR YOU CAN TRY TO ORGANIZE YOUR NEIGHBORS INTO COUNTERVAILING POWER, AS I CALL IT. IF YOU CAN'T DECREASE THE POWER ON THE OTHER SIDE OF THE TABLE, YOU INCREASE THE POWER ON YOUR SIDE OF THE TABLE.

Yepsen: WHAT'S THE CURE HERE? IS IT JUST SIMPLY MORE AGGRESSIVE ANTITRUST ENFORCEMENT BY THE JUSTICE DEPARTMENT?

Harl: I THINK IT IS. I HAVE URGED -- I SUBMITTED TESTIMONY JUST A WEEK OR SO AGO TO THE SENATE COMMITTEE ON THE JUDICIARY, URGING THAT THERE BE FAR MORE AGGRESSIVE OVERSIGHT RELATIVE TO EVERY MERGER, AMALGAMATION, CONSOLIDATION, WHERE WE ALREADY HAVE A HIGH LEVEL OF CONCENTRATION OCCURRING. AND I THINK ONE OF THE BIG ISSUES HERE IS DO WE LEAVE THIS TO THE DEPARTMENT OF JUSTICE OR DO WE BUILD UP USDA'S CAPACITY. USDA HAS HAD SOME JURISDICTION SINCE 1921, WHEN THE PACKERS AND STOCKYARDS ACT WAS PASSED. IT WAS LEFT WITH THE USDA BECAUSE THE PEOPLE WHO DIDN'T WANT TO IMPACTED FELT THEY COULD HAVE A GREATER INFLUENCE WITH THE USDA THAN COULD THE DEPARTMENT OF JUSTICE. SO I HAVE URGED THAT WE MOVE OUR JURISDICTION AWAY FROM THE USDA TO THE DEPARTMENT OF JUSTICE, MARCHING ORDERS THAT ARE TO BE AGGRESSIVE, FUND THEM WELL FOR STATISTICIANS, ECONOMISTS, LAWYERS, SO THEY HAVE AN UNDERSTANDING OF AGRICULTURE, BECAUSE WE'RE AT A CRITICAL POINT HERE IN THE AGRICULTURAL SECTOR IN TERMS OF THE STRUCTURE AND THE STRUCTURAL TRANSFORMATION OCCURRING. SO I THINK THAT HAS TO BE -- AND I THINK THAT ANOTHER IS THE LEVELING FIELD. THE PRODUCER PROTECTION ACT, WHICH 17 ATTORNEYS GENERAL HAVE PUT TOGETHER, IS ANOTHER STEP IN THIS DIRECTION, WHERE YOU LEVEL THE PLAYING FIELD IN TERMS OF THE NEGOTIATIONS THAT GO ON.

Glover: WHAT DO YOU SAY TO THE ARGUMENT THAT YOU HEAR FROM SOME THAT THIS IS JUST ECONOMICS AT WORK, IT'S NATURAL MARKET FORCES, AND THE GOVERNMENT SHOULDN'T INTERVENE IN IT?

Harl: WELL, NOBODY EVER BELIEVED, I DON'T THINK, THAT FREE, TOTAL, UNFETTERED COMPETITION WAS THE WAY THIS ECONOMY WAS SUPPOSED TO GO, NOT SINCE THE SHERMAN ACT OF 1890. WE REALLY REJECTED THE IDEA OF TOTAL HANDS-OFF APPROACH TO ECONOMIC ACTIVITY.

Glover: THIS ADMINISTRATION HAS NOT BEEN FRIENDLY, THAT I CAN SEE, TOWARDS REGULATING BIG BUSINESS.

Harl: WELL, THEY HAVE NOT. THEY HAVE NOT. HOWEVER, THEY HAVE NOT BEEN TOTALLY NEGATIVE ON THE ANTITRUST SIDE. I THINK THERE'S REALIZATION THAT WE HAVE TO HAVE OVERSIGHT, AND IT HAS TO BE EFFECTIVE OVERSIGHT, EVEN THOUGH THEY HAVE NOT PERHAPS DISTINGUISHED THEMSELVES AS THEY MIGHT HAVE. BUT REMEMBER, THE PRECEDING ADMINISTRATIONS DIDN'T EITHER. WE HAD A SHIFT AWAY FROM ANTITRUST STARTING IN 1981. THAT'S WHEN WE REALLY STARTED DISMANTLING OUR ANTITRUST CAPABILITY. IT STARTED COMING BACK IN THE LATE REAGAN YEARS, AND IT GREW SOME DURING THE CLINTON ADMINISTRATION.

Borg: QUICK ONE, DAVE.

Yepsen: DR. HARL, REAL QUICKLY, DO ORGANICS, HORMONE-FREE MEATS, IS THAT A FUTURE FOR AGRICULTURE, IN ABOUT TEN SECONDS?

Harl: IN TEN SECONDS, I WOULD SAY IT WILL CONTINUE TO GROW. IT'S GROWING AT AN ASTOUNDING CLIP, ABOUT 20 PERCENT A YEAR. IT PROBABLY WILL CONTINUE, MAYBE NOT AT THAT RATE BUT A PRETTY GOOD RATE. IT WILL BE ANOTHER -- IT'S AN ALTERNATIVE. IT'S AN ALTERNATIVE BECAUSE PEOPLE HAVE MORE CONCERN ABOUT FOOD SAFETY THAN AT ANY TIME DURING MY YEARS.

Borg: THANK YOU, DR. HARL. THANKS FOR SHARING THE INSIGHTS. AND THAT'S IT FOR THIS WEEKEND'S EDITION OF "IOWA PRESS." WE'LL BE BACK NEXT WEEK, SAME TIME: 7:30 FRIDAY; SUNDAY AT NOON. UNTIL THEN, I'M DEAN BORG. THANKS FOR JOINING US TODAY. FUNDING FOR THIS PROGRAM WAS PROVIDED BY "FRIENDS," THE IOWA PUBLIC TELEVISION FOUNDATION... GENERATIONS OF FAMILIES AND FRIENDS WHO FEEL PASSIONATE ABOUT THE PROGRAMS THEY WATCH ON IOWA PUBLIC TELEVISION; AND BY THE IOWA BANKERS ASSOCIATION... FOR PERSONAL, BUSINESS, AND COMMERCIAL NEEDS, IOWA BANKS HELP IOWANS REACH THEIR FINANCIAL GOALS.