A former summit planner scans Williamsburg prospects

When Richard Cooper was top economics man at the State Department under President Carter, he was much involved in the preparations for economic summits, but he had to be careful in what he said publicly.

Now Mr. Cooper is a professor of international economics at Harvard University and can pretty well say what he likes. Here's how he sees the world economy today and the prospects for the Williamsburg summit meeting at the end of the month.

First, he hopes the seven leaders of the top Western industrial nations will agree to work together to ensure economic recovery.

Because of high domestic inflation, France and Italy may not be able to conduct an expansionist economic policy.

In the United States, fiscal policy - government tax and spending policy - is already too loose. But, says Professor Cooper, the Federal Reserve System should continue with its moderately expansionist monetary policy.

Britain has managed to reduce its government deficit sharply.

West Germany and Japan have not reduced their nominal deficits, but have trimmed their structural deficits, that is, the size of the deficits were their economies running at a healthy speed. These nations, Mr. Cooper said in a talk to the World Affairs Council here, should postpone fiscal austerity until their economies are more buoyant.

Second, Professor Cooper hopes the leaders can manage to stave off growing protectionist pressures. If they crumble and the free trade system tatters, it could take a decade to repair it. Mr. Cooper doesn't expect much to be accomplished in settling the controversy over East-West trade or over intervention in foreign-exchange rates during the summit.

He said the United States has been ''unnecessarily dogmatic'' in refusing to intervene in the foreign-exchange markets when this has been requested by European governments. He does not see any wisdom in returning to a fixed exchange rate, however, by which a government fixes the value of a currency in relation to the US dollar or some other peg by regular buying and selling of the currency in the foreign-exchange market.

''That would require a supranational central bank and we are not ready for that,'' he said. The exchange rate of the dollar today ''floats.'' Supply and demand for the dollar sets its price on the foreign-exchange markets without government intervention.

Mr. Cooper made several other interesting observations about the economic scene:

* Lost output from the current world slump, the worst since the Great Depression of the 1930s, amounts to some $600 billion in the noncommunist industrial nations. About $100 billion of this is in decreased investment in plant and equipment.

''That lost investment cheats the future,'' Mr. Cooper noted. The negative impact on productivity and capacity of industry could last until the end of this decade.

* The recession, with its 30 million unemployed in the industrial nations, could weaken the self-respect of young people unable to find work. They may be alienated from society, he said.

* Recession has had a sharp political cost, in that citizens in industrial nations have thrown incumbent governments out of power.

In developing countries, Mr. Cooper sees a danger of ''more adventurous regimes of either the extreme right or left'' replacing present more moderate governments, should the recession continue.

* The recession, which he says was deliberately caused by the central banks of the United States, West Germany, Japan, and Britain in an attempt to weaken the inflationary impact of the 1979-80 rise in world oil prices, has worked in that regard. Prices are rising more slowly.

''We have slid down the Phillips Curve perfectly,'' Professor Cooper said, referring to an economics rule that maintains that unemployment levels and inflation move in opposite directions.

* There is an ''all but universal feeling'' in the industrial nations that government has become too big. There are moves to trim government in Japan, Britain, Italy, and West Germany, as well as in the United States. This feeling, however, has hampered the use of fiscal policy as a means of stabilizing the economy. Governments, for instance, have been slow to step up spending to reduce unemployment.

* The US budget deficit is a ''serious problem, but it is not a world-economy-threatening problem.'' The 1982 deficit indeed gave the economy a needed boost. And the US could sustain large deficits that are equivalent to 5 percent of the nation's gross national product, its output of goods and services , without economic disaster for some years.

But Cooper said this will mean higher interest rates. These in turn will keep the dollar strong as foreign investors put their money into dollar assets, and also larger US balance-of-payments deficits. With a strong dollar, exporters have a harder time selling abroad, and importers find it easier selling in the US.

The deficits, he continued, do not necessarily lead to more inflation if the Federal Reserve System does not produce excessive amounts of money. Foreigners can lend money in the US, helping to absorb the problem of financing the deficit. Private investors are not necessarily crowded dollar for dollar out of the capital markets by federal financing issues. ''For the moment, the rest of the world is happy to lend to us.''

* There may be a financial crisis in the world scene. ''But, with fast foot action on the part of the central banks, I think we can wend our way through that.'' Mr. Cooper gives the Fed ''good marks'' for its handling of developing-country debts to US commercial banks.

* Fluctuations in the value of the dollar are now highly important to the US because of their impact on trade. Without the decline in exports because of the strong dollar, the current slump would have been ''negligible.'' Moreover, the upturn in the 1980-82 period was three-quarters the result of extra exports, because the dollar was weak.

This is the result, Mr. Cooper noted, of the US economy's being much more ''open'' to world economic influences than it once was.