SPIEGEL: In other words, most people are not benefiting from the recovery and are justifiably disappointed?

Rogoff: The working population's share of national income remained constant for 100 years. That's why Marx's theory that only capitalists benefit from capitalism and workers are exploited was completely wrong. Nothing could have been further from the truth. Workers earned more as economies grew.

SPIEGEL: Is this no longer true?

Rogoff: There has been a noticeable decline in the labor factor in all wealthy countries in the past 20 years. The rich are getting richer, but those at the lower end aren't moving ahead as quickly as the capitalists.

SPIEGEL: So Marx was right after all?

Rogoff: We're still a long way away from that. Workers are not being exploited. But if their share of growth doesn't increase, this could be a potential cause of social tension worldwide. The point is that so far attempts to reverse this trend in the US have failed. Boeing employees achieved barely anything by going on strike (editor's note: last autumn). Instead, the workers are now in a weaker position -- both in aviation and in other industries.

SPIEGEL: Meanwhile, corporate CEOs and Wall Street bankers are cashing in on record bonuses.

Rogoff: There has never been a better time to get rich. It's quite astonishing how much money people make in the hedge fund business and in the private equity field, and how well-off affluent families really are. Given these contradictions, it comes as no surprise that average Americans have a different perception of the economy than (US President) George W. Bush and his friends. They can play around with statistics as much as they want, but it's clear that we have an unfair distribution of wealth.

SPIEGEL: That hasn't seemed to bother anyone, as long as the dishwasher-to-millionaire dream still exists.

Rogoff: I tell my children that a man like Bill Gates has a personal fortune of $100 billion. They can't even comprehend that. Then I explain that he has more money than some countries. If we have these extremes, I can't understand why we should get rid of the inheritance tax. It hasn't harmed the economy, and it has evened out the distribution of income across generations.

SPIEGEL: Billion-dollar tax cuts for the super-rich -- such as eliminating the inheritance tax -- are meant to generate growth for all. Conservatives like to say that a rising tide lifts all boats.

Rogoff: The New Orleans disaster made it painfully clear what happens to people in deep poverty: they don't even have a boat. Even more tax cuts are the wrong approach, as long as we don't even have universal health insurance for children. I think that's outrageous.
SPIEGEL: Are these injustices the price for lower unemployment and strong growth in the United States?

Rogoff: This unbridled capitalism in the United States can't be sustained socially. It leads to tensions. If we experience another five years like the last five, we will start seeing greater social friction. After all, people aren't looking at how they're doing, but rather at how their neighbors are doing and at their own place in society. These huge inequalities are not a particularly desirable characteristic in our society.

SPIEGEL: Are Western corporate CEOs driven by globalization, or do they themselves use the situation to their advantage?

Rogoff: We react to market forces and we try to protect jobs -- that's the image many managers have of themselves. They have no idea why people are so furious with them. Look at corporate takeovers where outgoing CEOs get a $50 million settlements and 5,000 workers are let go. That kind of thing happens all the time. On the one hand, it shows that we have a flexible economic system and we permit change. On the other hand, it's completely naïve to think that this doesn't create tensions.

SPIEGEL: But don't companies and countries that oppose globalization end up hurting themselves?

Rogoff: There are no easy answers. Of course it would be suicidal to nationalize our industries, for example. But those who say the economy is growing and everything's just great are simply unwilling to acknowledge these cracks in the system. Incidentally, this gap is much bigger in China. It's the 21st century along the coastline, but if you travel to the interior, where two-thirds of all Chinese live, you'll experience the 18th century. These are incomprehensible inequities. They have an extremely raw form of capitalism.

SPIEGEL: According to the 19th century English economist David Ricardo, free trade is good for everyone. According to his theory, the wealthy industrialized nations would simply have to concentrate on becoming even more technologically advanced to make up for their outsourcing losses in certain industries.

Rogoff: Ricardo was never right. Sure, there are more winners than losers, and winners profit to a greater extent than the losers suffer. But the assertion that everyone benefits simultaneously from free trade is simply incorrect.

SPIEGEL: Protectionism ...

Rogoff: ... is not a solution. We can't turn back the clock. But unbridled capitalism will lead to some very real problems. We will see that ever-increasing deregulation can lose political support among the population in the long term.

SPIEGEL: If entire industries are shifted to the Far East, how can new jobs be created in the West?

Rogoff: Our high-tech industries are raking in tremendous profits, but for 50-year-old steelworkers or people in the aviation industries, it's difficult or impossible to improve their situations. The problem -- at least in the United States -- is not that people can't find jobs. The problem is that they're no longer finding jobs that provide them with dignity and decent social status. This tremendous downward pull for unskilled laborers has been around for a long time. But now outsourcing is also beginning to affect people in mid-level and higher-level jobs -- those who had felt secure in their positions.

SPIEGEL: Are you saying that not even a first-class education can protect against competition from the Chinese?

Rogoff: You know, I was a chess pro in my younger days. Back then, the best player in New York could earn a pretty good living. But now the Indians and Chinese have become brilliant chess professionals. They get on a plane and play all over the world. This has led to dramatic pressure on incomes. Nowadays, the best chess player in Argentina can no longer make a living playing chess.

SPIEGEL: What's Germany's place in the globalized world?

Rogoff: Even if your economy grows a little this year, the trend is pointing downward. You need reforms in the labor market, in the tax system, in the area of corporate governance and in the education sector. Your school system is very good compared with the US, but your universities are not competitive.

SPIEGEL: You've already written off one of the world's biggest economies?

Rogoff: Please don't misunderstand me. If Berlin would finally enact some decisive reforms, it could surpass the United States in growth for 20 years. Germany has such incredible wealth --with its culture, its education and its highly qualified population. It would just have to flex its muscles a little to achieve growth rates of four to five percent in the coming years and turn itself into an economic miracle, as it did in the 50s and 60s. But that won't happen as long as you have this political paralysis.

Interview conducted by Frank Hornig

As a result, gasoline is nearing $3 per gallon, its level for a brief period in autumn. This time, there aren't any hurricanes to blame.

Contracts to deliver crude oil in May closed at $70.40 Monday on the New York Mercantile Exchange, up $1.08. Oil futures contracts flirted with that price in August, crossing $70 for a few hours the day Hurricane Katrina smashed into the Louisiana coast. By the end of that afternoon, the price dropped back to $67.20.

Only once have prices been higher. The 1979 Iranian revolution started oil on a two-year climb that, in January 1981, hit roughly $87 per barrel, when adjusted for inflation.

Now, Iran is once again driving the petroleum market. The reported possibility that America could attack nuclear facilities in Iran -- an Organization of the Petroleum Exporting Countries member that pumps roughly 3.9 million barrels of crude per day and abuts the Middle East's main shipping lane -- has given petroleum traders reason to bet that prices will climb higher.

They have, however, other reasons. Nigerian rebels pushing for a greater share in that country's oil wealth have blocked roughly 500,000 barrels from reaching the market each day. Chad's president, embroiled in a fight with the World Bank over oil revenue, has threatened to cut off his country's exports, about 160,000 barrels per day.

"The issue isn't just Iran," said Stephen Jones, a principal at the Purvin & Gertz energy consulting firm in Houston. "Iran's on top of the pile of all the issues around the world right now. So Iran gets the headlines, but the markets are looking at the whole stack of dominoes."

Although Saudi Arabia has pledged to increase its oil production, the amount it pumps has stayed relatively flat this year. The United States has ample amounts of crude oil in storage, but tight worldwide supplies continue to press on prices. And demand for petroleum remains high in China, India and the United States, regardless of the cost.

"As long as economic growth and demand remain vibrant, it's difficult to see much pressure taken off the oil price," said James Burkhard, director of global oil market research at Cambridge Energy Research Associates in Boston. "If you're looking at the next six months, we don't see the kind of (supply) growth that would make a difference in prices."

All of these forces, political and economic, have an effect at the gas pump.

A gallon of regular now costs, on average, $2.78 nationwide and $2.94 in California, according to the AAA auto club. Both have jumped about 30 cents in the past month and are still rising.

So far, those prices haven't seriously dented the economy. Gary Schlossberg, a senior economist at Wells Capital Management in San Francisco, said that last year, the steep increase in home values for many Americans compensated for rising energy costs. Consumers kept spending, bolstering the economy.

Should oil continue its rise this year, the economy could slow, especially if home prices stagnate.

"I would think that toward the end of the year, you'll see some cooling," Schlossberg said. "It won't throw us into a recession."

Analysts remain divided on how long the increase will continue, as well as whether oil prices will eventually drop as they did after 1981.

Long-term oil futures contracts remain above $60 for the next six years. Stanford University energy economist James Sweeney said many traders are taking out options betting that prices will actually climb much higher, perhaps above $90 per barrel. But a nearly equal number is betting prices will fall below $40, he said.

"What the financial markets are telling us is that there's not any confidence that it's going to go up, nor confidence that it's going to go down, nor confidence that it will stay the same," Sweeney said.

"Put me on either side of the debate and I can give you a compelling argument. But I think the argument is more compelling on the upside."

Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted in a Chinese state-owned newspaper Monday as saying that China should cut the amount of U.S. Treasury bonds it buys.

He said China should channel the money into buying more U.S. goods, which would cut its politically sensitive trade surplus, the China Securities Journal reported. Cheng made a similar remark earlier this month to a Hong Kong newspaper, prompting the central bank to say his comments didn't reflect its official position.

China has $875.1 billion in foreign currency reserves, much of that money invested in U.S. Treasuries. Reducing those purchases could undermine the dollar.

Sentiment toward the dollar also took a hit after an article in The Wall Street Journal said not all Federal Reserve officials are convinced that much more monetary tightening is required, traders said.

Some dealers say the euro could rise as high as $1.2240 in Asia on the dollar-selling momentum generated by the reports.

The reaction to the reports underlines sensitivity to U.S.-China relations especially ahead of a meeting in Washington between President Bush and Chinese leader Hu Jintao later in the week, traders said.s

The Federal Reserve boosted a key interest rate, the federal funds rate, to a five-year high of 4.75 percent, and many analysts expect another rate increase on May 10, the Fed's next meeting.

The European Central Bank has also been raising interest rates, most recently to 2.5 percent last month.

The Bank of Japan has said it will start to raise interest rates, although they remain at zero for now - a measure the central bank took to encourage lending during economic stagnation.

At the 2006 summit of the World Travel and Tourism Council this week, managers of tourism firms looked into the reasons behind the slump which began with what they called "the disastrous impact" of the attacks of September 11, 2001 on New York and Washington.

The stricter US immigration policy introduced in the aftermath of the attacks, such as stringent visa requirements and demands that foreign countries issue biometric-enabled passports, has done little to encourage tourism, they said.

The US has also been routinely fingerprinting and face-scanning foreign visitors.

Thomas Donohue, president and chief executive officer of the American Chamber of Commerce, said the US must "get over the paranoia and start bringing people" to the country.

Arabs not welcome

"Because of US immigration laws, if you want to do business with the Arab world you have to go to London" because it is virtually impossible for Arabs to obtain a US visa, Donohue added.

"We have to get over the paranoia (of September 11) and start bringing people to the US"

Thomas Donohue, CEO of the US Chamber of Commerce

Disapproval of the US invasion of Iraq also translated into less tourism.

Jay Rasulo, the chairman of Walt Disney Parks and Resorts, said: "Among Europeans, [the US] was the third favourite destination, now it's the sixth and declining."

Moreover, competition in the tourist market has become stiffer as the European Union expands its borders and emerging powers such as China become more attractive destinations.

Billions lost

For the United States, losing ground in the world tourist market is a costly proposition.

About $286 billion has been lost in tourism revenues since 1992, according to the TIA, and one out of eight jobs in the US is directly or indirectly dependent on tourism.

Industry leaders said it was vital to press ahead with promotional campaigns and urged the government to review its immigration policy.

"It needs a well funded marketing campaign, and it needs safe but welcoming borders," said Walt Disney's Rasulo.

"The group is unable to justify the investment needed for the production of future vehicules," the company said in a statement.

The factory is located in the West Midlands in central England, the traditional heart of British car manufacturing. The area has been hit hard by the demise of the
industry, particularly the collapse of MG Rover in April last year.

PSA said the closure of the factory, which is located in the town of Ryton near Coventry, would be carried out in two phases.

"In the first instance, the factory, which today operates two shifts, moves to a single shift in July 2006, with production not continuing beyond mid 2007," the group said.

"Having presented the proposal to its staff at the plant, the group will now enter into consultation with the trade unions."

In February, PSA Peugeot Citroën had posted a 37.5-percent fall in annual net profit for 2005 and had cited sluggish demand in western Europe and high raw material costs for the faltering performance.

Net profit in 2005 totalled EUR 1.029 billion, down from EUR 1.646 billion in 2004.

Peugeot chief executive Jean-Martin Folz had signalled that the French group intended to shift production to low-cost eastern and central European countries to increase profitability.

"We will need more production capacity in central Europe because we expect European sales to pick up in 2006," Folz had said after presenting the results for 2005.

In its statement on Tuesday, the group said that the "difficult conclusion" to close the plant in Ryton came after a decision to implement "reduced production at a number of other European sites at the end of 2005".

On the Paris stock exchange, shares in PSA were showing a gain of 0.60 percent at EUR 50.35 after showing a loss earlier in the day before the announcement. The CAC-40 index of leading French shares was down 0.25 percent.

Slated for release today, the report also shows a significant if not quite as dramatic increase in local black business ownership. It found 4,363 black-owned firms in the Pittsburgh metropolitan area as of 2002, up 38.8 percent from 3,142 in 1997. Revenue figures for the metro area, which includes Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland counties, were not available.

Doris Carson Williams, president of the African American Chamber of Commerce of Western Pennsylvania, found the Census Bureau figures encouraging but not surprising.

As blacks join the numbers of those being downsized by corporations, she said, "more and more have found that entrepreneurship is a viable option for them. They don't want to go through the corporate menagerie again."

Both local and national figures show the greatest numbers of black-owned businesses in the fields of health care and social assistance.

Other categories with a strong presence of black-owned businesses include retail; professional, scientific and technical services; and transportation and warehousing.

New York City had more black-owned firms than any other city at 98,076, followed by Chicago (39,424), Los Angeles (25,958), Houston (21,226), and Detroit (19,530).

Among states, New York had the greatest number of black-owned firms with 129,324, followed by California (112,873), Florida (102,079), Georgia (90,461) , and Texas (88,769). These five states accounted for about 44 percent of all black-owned businesses in the United States. Pennsylvania had 24,757.