MISSOURI IS DOWNSIZING ITS ECONOMY

Is Missouri reaching its economic potential, and if not, then why not? Our state is not unique in experiencing the effects of a nationwide recession, as witness last month's revenue report indicating a 3 percent decline in Department of Revenue collections. Even if tax revenues meet their expected goal of 3.2 percent for the year, this is hardly the sign of a robust economy in the Show-Me State, given a collection rate of more than twice this amount in more prosperous periods.

Missouri is something of a bellwether state when it comes to the national economy, with the exception of the late 1980s when we fell into the so-called "Rust Belt" downturn that did not include the economies on either coast. These latter areas were to get theirs, so to speak, a couple of years following the Middle West recession. Generally speaking, however, our state's fortune doesn't grow unless the national economy is alive, well and expanding.

Being an economic bellwether at this moment in history is a real downer for Missouri, and many of the states in our region, because nationally, the United States is performing far below its potential. As a matter of fact, it is doing well below what it should and below what we have a right to expect.

The current recession is usually referred to in terms of the unemployment rate, the level of business profits, the number of corporate failures, the degree of inflation and even the prices and incomes to farmers. All of these indicators are valid.

But from another viewpoint, both the U.S. and Missouri can be said to be underperforming in terms of total output that is well below what it could be. In our state's case, consider the total performance of such companies as McDonnell Douglas, Monsanto, Armco and even regulated utilities such as Southwestern Bell, all of which have been downsized in recent months. At the national level, the downsizing of huge corporations such as General Motors, IBM and Sears have reduced not only national income but the living levels of millions of families.

A potentially more dangerous effect of this corporate shrinking is the signal it sends about the future. The current recession-level output can be interpreted as representing a new and lower norm for the economy's performance. Not only are millions now being affected by this downsizing, but millions of others are worried that they may soon become the next victims. Such a level of despair affects wage earners in hundreds of ways, from curtailing current retail purchases to reducing future expectations. Families that fear unemployment is just around the corner will be less likely to risk any savings they might have to send their children to college. Over-caution brings retrenchment, and this in turn leads to the threat that the situation will become self-perpetuating. This is not a small danger. Do we simply conclude that Missouri's largest employer will always be McDonald's hamburger joints?

Regardless of what our exact potential may be, the level of performance today is not a measure of it. Today's performance falls far short. Yet many of our decisions are made on grounds that what prevails today is also an indicator of the future. Both state and local governments in Missouri are under unremitting pressure to retrench funding for education, mental health, social services, health care and other essential programs. The rationale is that Missouri's economy is no longer able to provide the same quality of these services that it has in the past.

This rationale is false and terribly dangerous. Our economy has the capacity to sustain high quality education, improved health services, better care for the indigent. We simply have to provide the means to revitalize and restore. The next question is how to do this, how to make use of our still-great potential. First, we cannot assume this recession will cure itself, automatically. Nor can it be supposed that an economy can be started in the manner of a toy electric train, by punching one of three buttons. That's about all economic policy has consisted of for years punching the buttons of fiscal, monetary and tax policy. One could reasonably conclude that it's time to do something more.

We could look, for example, into whether huge corporations are really the answer to sustained and acceptable rates of growth. It is conceivable these corporate giants have compromised or even lost their competitiveness, leading to overpricing and reduced production levels. It's possible our economic progress will be found in increasing smaller businesses.

A lot could be done to re-energize our economy other than to fiddle still more with the three buttons.