How to Rescue a Drowning Economy

Minding America's Business: The Decline and Rise of the American Economy

by Ira C. Magaziner and Robert B. Reich
Harcourt Brace Jovanovich, 387 pp., $25.00

America does not need economic planning if planning means the centralized, detailed, input-output planning associated with the Soviet Union. America does need planning, however, if planning means the strategic coordination of planning associated with a corporate finance committee in a large corporation. Corporate finance committees do not plan the detailed activities of the various divisions in a large firm, but they exercise strategic judgments on where the firm should expand when they allocate investment funds. Some kinds of activities are pushed as the “growth areas” of the future; others are milked as cash cows with none of their earnings plowed back into future expansion.

At the national level such decisions are called industrial policies. If the Reaganauts fail to make America economically competitive again, as now seems highly likely, the debate about whether the United States ought or ought not to have industrial policies is apt to be the key economic debate of the 1980s. Minding America’s Business is an excellent introduction to explaining why the United States needs industrial policies and what other countries are doing in their industrial policies.

Everyone should know by now that the United States is becoming poor relative to the rest of the industrial world and is losing one industrial competition after another; but the details of this decline are superbly documented by Magaziner and Reich. In per capita GNP the United States is now tied for tenth place among industrial countries, after Switzerland, Denmark, Sweden, Germany, Iceland, Norway, Belgium, Luxembourg, and the Netherlands. The French are tied with us and the Japanese rapidly pulling up behind us. German workers have twice as many paid holidays and vacations as American workers. American males can expect to live four years less than those of Switzerland, the world leader, while American females lag “only” three years behind. America ranks eighteenth in infant mortality. Air pollution in the US exceeds that in other industrial countries. The homicide rate is eight to nine times that of other major industrial countries. The authors give a blow-by-blow description of how American industry was knocked out of international competition in the production of steel, the manufacture of TV sets, and the manufacture of electrical generators. Wherever they look, they find something that a country that likes to call itself “number one” can be ashamed of.

The common explanations for foreign success and American failure are that our competitors are catching up and that we have too much government. It is easier to catch up economically than it is to break new paths, or so the argument goes. If so, it is now the United States that has the “easy” task of catching up. We, not they, are the ones who are behind. Since the United States is the only industrial country in the world that has had no growth in productivity over the past four years, we seem to be failing at even the “easy” tasks.

Too much government is the Reagan administration’s answer, but this argument runs into problems.…

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