Planning for Prosperity

...this figure has now risen to almost 40 per cent, thanks in large measure to the bloated price of oil and the widening search for ways to pay that bill...

...American companies also hire greater numbers of people than their foreign counterparts, especially the Japanese, who concentrate on perfecting manufacturing processes...

...The problem is the surge of international competition to American production...

...Similarly, if treating workers well indeed increased productivity (in addition to being morally right, which is an important yet separate matter), then some firm would have realized that by improving working conditions it could make higher profits...

...And they have delineated many of their arguments and proposals...

...author, "Regulating America, Regulating Sweden" THERE'S NOTHING like stagnation to make people appreciate growth...

...So do the estimates of exactly to what extent the various steps suggested to ease the death of declining industries would mitigate the political strength of protectionism...

...They rightly fear that such aid is likely to land in the laps of politically powerful declining industries...

...Magaziner and Reich review the dismal record of the wounds we have suffered atthehandsof Japanese and other outside competition...

...We still have a long way to go in devising sensible solutions to the problems confronted by the authors...

...The authors point out that our most successful trading partners, particularly Japan and Germany, have already introduced many of the elements of the industrial policy they want Washington to adopt...

...In the U.S., the large role of the stock market as a source of corporate funding (in contrast with other countries) leads to a fixation on quater-by-quarter profit comparisons that are Wall Street's yardstick and blind managers to attractive longterm investments involving the sacrifice of some immediate gains...

...They also have justifiable doubts that government officials will ever be experts at predicting growth areas...

...Subsidization of on-the-job retraining for displaced workers, and making up the difference between their new and old salaries would permit an orderly transition...

...The implication is that these contribute significantly to Japanese and German prosperity...

...It is a pathbreaking book...

...and the solution is what the authors, using a phrase common in Europe and only beginning to gain currency in the United States, call "industrial policy...

...But with standards of living static or declining, inflation persisting and people out of work, cool analysis does not tend to be abundant...

...In short, one would expect the normal effects of competition—even domestic competition alone—to weed out supposedly self-defeating practices...

...Such an assumption may be altogether wrong, but the authors do not attempt to show why...

...The long middle section of Minding America's Business, discusses what gives firms advantages in sales...

...the villain is management techniques incapable of meeting the foreign challenge...

...At the first sign of a downturn U.S...

...Nor do they tell us how, if management practices are in fact responsible for our lack of competitiveness, their own recommendations would remedy the situation...

...Reviewed by Steven Kelman Assistant Professor of Public Policy, Harvard...

...Magaziner and Reich oppose having the government pick the successful industries of the future and back them up with money and infant-stage protectionism (an approach often attributed to the Ministry for International Trade and Industry in Japan...

...that none has means this is not the case...

...Instead, the authors would direct more Federal research money and loan guarantees to risky ventures that have trouble getting private funding...

...I finished Minding America's Business hoping that Magaziner and Reich will continue to explore the issues raised in their book...

...Many have been looking for scapegoats, and politicians are happy to provide them...

...firms recklessly lay off workers...

...foreign concerns invest in employee loyalty and productivity by keeping workers on the job and involving them more in decision-making...

...Although much of their account is familiar, they cite an arresting statistic to emphasize the relationship between our competitiveness and our standard of living: In 1969, exports and imports amounted to 16 per cent of our GNP...

...In the United States, all this has strengthened conservatism, since the first reaction of most Americans in these circumstances is to surrender control to the group that is supposed to be best at promoting economic growth?businessmen...

...The analysis here draws on Magaziner's work as a management consultant, and the conclusions dovetail with the conventional wisdom on the subject...

...The authors' proposals for, say, on-the-job training vouchers for displaced workers, need to be explicated in greater detail, too...

...Yet for this reader, at least, serious questions remain...

...Both men are unabashed liberals, yet (or perhaps one should say "and") they believe that economic growth should be at the top of the liberal agenda...

...Further, the internal corporate structure for approving investment decisions makes it relatively easy to push through many small undertakings, rather than a single large project totaling the same amount...

...In this sense, their book fits into the preoccupations of "neolib-erals" like Democratic Senators Gary Hart of Colorado and Paul Tsongas of Massachusetts and economists like Lester Thurow...

...It is necessary to help with the phasing out of currently moribund industries, the authors contend, because those who happen to have spent their lives toiling in them pay an unfair price as the end arrives...

...This unfairness, in turn, generates strong demands for a protectionism that risks miring the economy in ever-worsening stagnation...

...Having said this, though, let me add that none of my criticism is meant to diminish the achievement of Minding America's Business...

...The best response, therefore, is to help cushion the blow and not try to stop the unavoidable...

...In their concluding section they argue for the adoption of a strategy that would 1) ease the shutting down of businesses headed inevitably toward decline, and 2) encourage viable industries to become large enough to reduce production costs and thereby strengthen their position in the international market...

...A nagging point, for example, relates to the classical one economists raise when confronted with claims that businesses are acting in ways inimical to their longterm interests: If the fixation on quarterly comparisons really hurts long-term profitability, then surely some company would have acted accordingly...

...Now, in this intriguing and important book, Ira C. Magaziner and Robert R. Reich begin to sketch what Reich has called "the liberal promise of prosperity...

...They have performed a valuable service in thrusting industrial policy into the political debate...

...Finally, I am unclear on how the research and loan subsidies Magaziner and Reich favor for industries of the future actually differ very much from the "picking winners" approach they reject...

...For conservatives, the call to unleash business involves blaming "stifling" regulations, excessive taxes and other burdensome government interferences...

...We are, to use the phrase of William Aber-nathy of the Harvard Business School, "managing our way to economic decline...

...When the predicament is viewed without ideological spectacles, much of the West's trouble can be seen to have resulted from the simple uncompetitive-ness of many of our basic industries and the transfer of our real wealth to oil producers...

...Since then, however, the postwar success story of the Western world has been replaced by a 10-year tale of economic woe...

...A decade ago, when prosperity was taken for granted, it was fashionable to deride economic expansion for being psychologically unsatisfying and pernicious...

...Magaziner and Reich set themselves three tasks—to outline the problem, to uncover a villain and to present a solution...

...Moreover, Magaziner and Reich view their proposals as appropriate for American liberalism, since they require an activist government and promise renewal without massive tax cuts for the wealthy or the wholesale massacre of social regulation...

...competitiveness...

...After thus casting doubt on the wisdom of turning things over to American businessmen by demonstrating that confidence in their ability to stimulate growth is misplaced, the authors sketch a two-pronged industrial policy for fostering U.S...

...More than ever, foreign firms are invading American markets and domestic companies are being driven to sell abroad...