Economists don’t like to talk about the effects of culture or of ethics on economic development, since these are such subjective and imprecise matters. But most people, including economists off-duty, assume that there is a connection between the kinds of everyday behavior a society encourages and its stability and prosperity.

In nearly every discussion about Europe’s future, for instance, all sides take it for granted that a reunited Germany would be truly powerful. This has to do only partly with measurable factors like investment rates or manufacturing productivity. It also reflects widespread awe, or dread, of Germany’s record of organizing human energy. For a variety of reasons having to do with national history and personal status, jobs in the government bureaucracy are among the most desirable in Korea, Japan, Singapore, and other East Asian societies with Confucian influence. Ambitious young graduates compete for positions with the Japanese Ministry of Finance or the Korean Economic Planning Board the way ambitious young Americans compete for jobs at what we drolly call “investment” banks. (This spring, 36,000 American graduating college students applied for eight positions at Wasserstein and Perella, the mergers-and-acquisition house that was spun off from First Boston. The obituaries for the Eighties may be a bit premature.)

The ability to attract talent gives these Asian governments more legitimacy—and more competence—in dealing with businesses than the US government can bring to bear, and it has helped to build more successful economies than those in the Philippines or Latin America, where government power has largely been a route to personal wealth. In a forthcoming book called Tropical Gangsters,1 the economist Robert Klitgaard wryly describes his two years of work as an adviser to the government of Equatorial Guinea, a tiny enclave on the west coast of Africa that has become one of the most hopeless economies on earth. Taken one by one, many of the ministers he dealt with were both honest and competent, Klitgaard says; but their country’s history, and their degrading relationships with international aid organizations tempted nearly all of them to act in their own interests first. In Japan, those who have sacrificed their own interests for the nation’s welfare have been seen as cultural heroes; whereas in the Philippines they have been easy prey for the likes of the Marcoses.

It’s easy to make too much of cultural influences on economics—and whatever group is on top at a given moment tends to make too much of them, by moralizing about the reasons for its own success. Until the last decade or two, Westerners observing Asia have usually concluded that its culture could never be adapted to modern industrial capitalism. Confucianism, the Japanese willingness to sublimate individual interests to the group, and other traits that are now cited in the West to explain East Asia’s boom were used earlier in this century to prove that Asia would never catch up. (“My impression as to your cheap labor was soon disillusioned when I saw your people at work,” an Australian expert reported to the Japanese government before World War I. “To see your men at work made me feel that you are a very satisfied easy-going race who reckon time is no object.”2 )

Still, there are two cultural traits that most successful capitalist economies have shared, however much the societies may differ in other ways. One is an emphasis on deferred gratification. Capitalism requires people to consume, but it also requires society to set aside some share of its income for further investment. The other is some recognized link between individual and collective wellbeing. Anyone who has lived in the third world recognizes what happens when this link does not exist. No one can afford not to press his own advantage as far as possible, since everyone else will be doing the same: if a bureaucrat does not take bribes, he’s merely robbing his family. The most impressive postwar recoveries, those in Germany, Korea, and Japan, have been propelled largely by the belief that improvements in the nation’s welfare will pull everyone up together.

When American commentators have examined their society, they have usually concluded that its values served capitalism very well. Apart from the worry that capitalism would eventually make people too rich, spoiled, and hedonistic to be good, forward-looking capitalists (a fear classically expressed by Daniel Bell’s The Cultural Contradictions of Capitalism, published in 1976), the main cultural problem with American capitalism has seemed to be its exceptions—the pockets of people who haven’t decided to pitch in and get ahead. In the mid-nineteenth century, Irish immigrants were thought to be the problem; since the 1950s, we’ve heard repeatedly about the “culture of poverty” affecting rural Appalachian whites, Mexican and Puerto Rican immigrants, and now of course the urban black underclass. The pattern of behavior in this culture has been described with sympathy by Oscar Lewis and Michael Harrington and with scorn or alarm by Edward Banfield and Charles Murray. But their descriptions all boil down to the opposite of what it takes to succeed as a capitalist: short-term gratification rather than stolid investment and planning, fatalism and resentment rather than a Benjamin Franklinesque belief that God helps him who helps himself.


Arguments about the “culture of poverty” are old and familiar ones in America. They are now taking on an intriguing twist. In much of the rest of the world, especially Asia, they are being applied not to defeated enclaves within America but to American society as a whole.

For instance, instead of listening meekly as American negotiators criticize them for keeping out imports from the US, Japanese officials have recently taken the offensive and said that America’s culture is America’s main trade problem. Late last year, the United States and Japan began a bizarre series of negotiations known as the “Structural Impediments Initiative.” The original idea, on the American side, was to concentrate attention on the structural factors, such as a prohibition on discount stores, that made it hard for outsiders to penetrate the Japanese market. The Japanese government deftly switched the focus of the meetings to the structural problems that made American exporters ineffective, and began speaking to the United States much as middleclass whites typically talk to the shiftless poor. It’s time to work harder, study more, hit the books, and think of the future for a change, the Japanese government now says. The secret of success is to pull yourself up by your own bootstraps; no one ever got rich by blaming other people for his failures.

Akio Morita’s speeches about America’s business failures, summarized in the notorious “No” to Ieru Nippon, or A Japan That Can Say No, follow quite similar “culture of poverty” lines:

As I told the Americans, we are focusing on business ten years in advance, while you seem to be concerned only with profits ten minutes from now. At that rate, you may well never been able to compete with us.3

Japan is telling America: “Stop loafing, get a job!”

Even the things the rest of the world admires about America increasingly fit the same pattern:

Living in the present [one] may develop a capacity for spontaneity, for the enjoyment of the sensual, which is often blunted in middleclass, future oriented man.

This was Oscar Lewis writing thirty years ago about poor Puerto Rican and Mexican families. It could just as well be a modern Japanese commentator saying that Americans still make the best movies and have the most fun, even if they can no longer stand up to Japan in the serious industrial work of the world.

The three books under review concern the cultural and moral aspects of America’s economic predicament. The authors see the world in very different ways but end up emphasizing similar themes. George Gilder’s Microcosm, as many readers will guess, is the cheeriest of the three. But those who know Gilder only from Wealth and Poverty, an essentially theological work that provided the “intellectual basis” for supply-side economics, may underestimate this book. As with most of his other writing about economics, Gilder takes a leap into the stratosphere every few pages. If he wants to emphasize that social misfits have played a big role in building the computer and semiconductor industry, he seems to feel he’s undersold the point unless he inflates it this way:

The fanatical energy and commitment of outsiders drove American electronics to the top and saved the world economy.

Sentences like this are representative of the book as a whole, which starts with reasonable, often fascinating, material and then drives toward spiritual conclusions. At the very end of the book Gilder becomes something like a sidewalk preacher waving his arms and saying that the millennium is near. In the coming Age of the Microcosm (by which he means the advent of much more powerful semiconductor chips and far more capable systems of artificial intelligence), governments will no longer oppress, nations need no longer clash in battle, and mankind need no longer stumble under the material limits that have weighed him down for eons:

By crashing into the inner sanctums of the material world, into the microcosm, mankind overcame the regnant superstitions of matter and regained contact with the primal powers of mind and spirit…. The era of the microcosm is the epoch of free men and women scaling the hierarchies of faith and truth and seeking the sources of light.

Still, even though the computer age, like other subjects before it, is a theological question for Gilder, he sticks to the secular details of most of the stories he has to tell. Ninety-five percent of the book is, in fact, a skillful work of narration and exposition, which raises a crucial question about America’s cultural adaptation to capitalism.


Gilder has done enough reading, interviewing, and traveling to understand his subject thoroughly. What is more impressive, he can explain quite arcane topics vividly and simply enough that readers will understand them too. For instance, near the end of the book Gilder discusses a fundamental strategic choice that will have to be made in the development both of future supercomputers and the “artificial intelligence” programs that some day may let them mimic human thought.

The main direction of computer development has been to emphasize sheer force and speed; if a chess-playing program, for instance, can run a thousand times faster than the previous model, it will have a better chance of beating a human grandmaster, even though every one of the computer’s “decisions” is a simple choice between one move or another represented in the computer as a choice between 0 or 1 in binary code. But even the fastest and most complex computers, processing data much more swiftly than human beings possibly can, lag far behind human intelligence at such simple chores as recognizing patterns. A person can tell a horse from a cow, or a truck from a tank, at a glance; it is extremely difficult to program computers to make such elementary judgments.

Gilder presents the arguments of a computer scientist named Carver Mead, who, years before anyone else thought it was possible, envisioned the first “computer on a chip,” with thousands of transistors on a tiny square of silicon. Mead now contends that computers must shift course altogether: they must head away from high-speed, brute-force, 0-or-1 calculations and instead try to mimic the much slower, more subjective operations of the human brain. The brain, he said, does not make digital judgments, 0 versus 1; it makes analog decisions, more versus less. So should future computers. Gilder sums up the struggle, which is still going on, in this deft way:

At MIT and throughout the computer establishment, it went without saying that a return to analog was reactionary…. To them, the proposal for an analog computer based on natural models was exactly comparable to a proposal to revive the Pony Express on the grounds that God did not make airplanes.

Gilder also dramatizes exactly what is revolutionary about the “microcosm” at the heart of the semiconductor chips: it has reversed the engineering expectations of the industrial age. In what Gilder calls the “material world”—which means the mechanical technologies of the industrial age—the laws of physics mean that progress usually comes at an increasingly high price. The fastest railroad trains go barely three times as fast as they did a century ago. As speed goes up, problems go up even faster: wind resistance makes it harder to push the train, momentum makes it harder for it to stay on the rails. To make a jet airplane go 25 percent faster, its engine may have to be twice as complex, costly, and difficult to maintain. But in microelectronics, as Gilder shows, engineers have revoked these iron rules, at least for a while. Because what is going on inside a semiconductor chip depends on interactions at the atomic level—not on gross mechanical forces like those in a car or airplane, the more complex and miniaturized the chips become, the better and more reliably they work.

It is, of course, harder to manufacture the tiniest chips. Circuit designs for the latest models are laid out on vast sheets in loft-sized offices, then miniaturized to fit onto the chip. The Perkin-Elmer company is the last American manufacturer of the “stepper” machines that lay the circuits on the chip; this is why the proposed sale of Perkin-Elmer, presumably to foreign buyers, created alarm in the industry. Japanese chip makers, computer makers, and stepper makers tend to be linked in informal alliances or even to be part of one large company, like Fujitsu or NEC. American computer makers end up having to buy chips and other components from the same Japanese companies they’re competing against.

Gilder’s book is built on a series of stories about the often bizarre inventors and entrepreneurs who built the business. For instance, at age twelve the child prodigy Raymond Kurzweil wrote a software program that IBM adopted. At age twenty-seven, in 1976, he came up with the first practical machine that could take printed pages and read them aloud. Much of the respectable world scoffed—and The New York Times got the story wildly wrong, claiming that the machine “translates ordinary reading material into Braille.” But Stevie Wonder, the blind musician, heard Kurzweil on the Today Show, traveled to Cambridge to meet him for lunch, and bought the first model. “As Wonder said, the technology has been ‘a brother and a friend…without question, another sunshine of my life.’ “

Built into the profiles of Gilder’s book is a distinctly American point about the effects of culture on economics. Among the characters Gilder introduces, Kurzweil is relatively bland. Many of the innovators and entrepreneurs are immigrants. A few went to CalTech or MIT, but apart from Bill Gates, who dropped out of Harvard as a sophomore, not one is from the “best” academic background. The most affecting portrait is of “Little Wally,” a punk from the South Side of Chicago, who reemerges, Hefner-like, in California as the flashy W. Jerry Sanders, chairman of a major chip producer. “The United States did not enter the microcosm through the portals of the Ivy League, with Brooks Brothers suits, gentleman Cs, and warbling society wives,” Gilder says:

Few people who think they are already in can summon the energies to break in. From immigrants and outcasts, street toughs and science wonks, nerds and boffins, the bearded and the beer-bellied, the tacky and uptight,…from Iowa and Havana, from Brooklyn and Boise and Belgrade and Vienna and Vietnam, from the coarse fanaticism and desperation, ambition and hunger, genius and sweat of the outsider, the downtrodden, the banished, and the bullied come [sic] most of the progress in the world and in Silicon Valley.

As usual, Gilder stretches the point. Much of the science and engineering that gave us the “microcosm” came from big, dull, well-financed institutions with their share of oddballs but lots of organization men too: MIT, Bell Labs, IBM, Texas Instruments. The last two companies may have between them about one percent of the glamour of the computer business, but they are still the reigning powers of the semiconductor business. (IBM is the leading manufacturer of semiconductors in the world, although it doesn’t produce any for sale outside the company; the Texas Instruments plant in Kyushu makes it the leading chip producer in Japan.) Moreover, it is one thing to say that America needs to make the most of its unusually flexible society—and something else to assume, as Gilder apparently does, that flexibility by itself will overcome the stolid power of corporate Japan. Recent evidence points the other way. While the US firms Intel and Motorola still dominate the markets for microprocessors, the chips that direct a computer’s actions, Japanese firms have virtually eliminated US producers from the very high-volume memory-chip business. (Michael Borrus’s book Competing for Control: America’s Stake in Microelectronics is a very useful history of how the US lost the semiconductor competition.4 ) For the last two years IBM had encouraged other big American computer makers to help start a venture called US Memories, in hopes of providing an American source of advanced memory chips. The idea collapsed in January of this year when several of the largest companies decided it would be cheaper to keep buying chips from Japan.

In one way, and no doubt to their mutual consternation, Barbara Ehrenreich is on the same side as Gilder. The resemblance is peculiar, because in so many other respects these books (and their authors) are each other’s opposite. Ehrenreich is as established a figure of the left as Gilder is on the right. While the strength of Gilder’s book is its reporting and anecdotes, Fear of Falling contains very little original research and is strongest when Ehrenreich analyzes familiar cultural patterns expressed in movies, books, and TV. Gilder keeps leaping for the cosmic; Ehrenreich’s tone is consistent, understated, dryly amused.

The point of convergence is the idea that the stolid corporate men in Brooks Brothers suits are ruining America. For Gilder, they reflect the dead weight of bureaucratic caution and staleness. For Ehrenreich, they are a distinct, relatively small class, whose interests are at odds with those of the great majority beneath them, and whose self-absorption has warped the class politics of the postwar era.

Ehrenreich’s argument turns on the strangely insecure position of the American middle class. The term “middle class” itself illustrates the problem; it suggests a condition typical for Americans, but Ehrenreich says it has been appropriated by a smaller group that should more accurately be called the “professional class.” These are people whose position in society fundamentally depends on their education. She never makes clear exactly how many people she is talking about, but says they are an assortment including

such diverse types as schoolteachers, anchorpersons, engineers, professors, government bureaucrats, corporate executives (at least up through the middle levels of management), scientists, advertising people, therapists, financial managers, architects, and, I should add, myself.

People in such jobs can tell themselves that their privileges are based on the American ideal of reward for effort. They studied, stayed in college, got degrees. Ehrenreich is of course aware that professional privilege is not fully “earned” in a moral sense, since children of professional-class parents have a head start toward the schooling that will keep them in that class. But the fact that it’s only a head start, not a guaranteed inheritance (as it would be for the truly rich, or in a more deeply class-bound society), creates a destructive mixture of smugness and insecurity in the professional class. His belief that he has earned his status limits the professional’s sympathy for those who haven’t made it, Ehrenreich says, but also increases his fear that he or his children will fail to keep earning their place. Because this class dominates discussion of the American condition, Ehrenreich says, its increasing nervousness has intensified the crabbed, ungenerous tone of political and cultural debate.

The class anxiety Ehrenreich is describing was probably most vivid in the mid-nineteenth century, when today’s professional class was just beginning to form. In those days, doctors, lawyers, accountants, and professors were just variants of tradesmen, without professional guilds to protect them or educational requirements to keep newcomers out. In his classic book on the subject, The Search for Order (1966), the historian Robert Wiebe said that a century ago,

The concept of the middle class crumbled at the touch…. The socalled professions meant little as long as anyone with a bag of pills and a bottle of syrup could pass for a doctor, a few books and a corrupt judge made a man a lawyer, and an unemployed illiterate qualified as a teacher.

In the century since, the professional class made the American school system into a vehicle for greater fairness and greater rigidity at the same time. Schools were in principle opened to all, and virtually anyone who stayed in school long enough could eventually enter the professional class. But with the rise of formal professions, those who didn’t stay in school were more trapped than before. Thomas Edison, who dropped out of elementary school, could conceivably still find a place in the oddball world George Gilder describes, but not within the respectable, meritocratic, professional class.

“The professional and managerial occupations have a guildlike quality,” Ehrenreich says, following Wiebe.

They are open, for the most part, only to people who have completed a lengthy education and attained certain credentials. The period of study and apprenticeship—which may extend nearly to mid-life—is essential to the social cohesion of the middle class.

One of the few parts of American life that is becoming less tied to credentials is public school teaching. During the 1980s, half a dozen states decided to permit the hiring of teachers who didn’t have degrees from education colleges but who knew about French, math, science, or whatever subject they were supposed to teach. But the larger trend is the other way. Because of the reliance on education and credentials, Ehrenreich concludes, the professional-class system is rigged enough to keep most members of the working class out—but not rigged enough to make its members feel secure.

Ehrenreich devotes most of her book to an examination of how this mixture of complacency and anxiety affects the behavior of the professional class. The complacency shows up in the repeated “surprise” revelations that not all of American society is made of people with white-collar careers and orthodontists for the kids. In the 1930s, she says, people who still had jobs knew many others who didn’t: the poverty of the Great Depression was not merely a theoretical concern to the opinion-making classes. By the 1960s, she says, professional-class life had become insulated enough that people could be astonished by Michael Harrington’s “discovery” that some forty million Americans lived in poverty. A decade later the big surprise was that the white working class was angry—angry because its children were dying in Vietnam while privileged children were protesting in college; because judges who lived in the suburbs were handing down bussing orders for working-class schools; because managers of big companies seemed to view workers as disposable parts of the industrial machine. Since then, of course, American life has seemed designed to spare members of one class routine contact with members of another. The two great institutions of postwar class mixing, the public schools and the pre-Vietnam drafted military, no longer function that way, and many other institutions keep people apart.

The most powerful parts of Ehrenreich’s book, I think, demonstrate how this continuing class tension has spread, showing it as reflected in books, movies, and the news organizations. “The pundits who dominate the talk shows are, to a man and an occasional woman, all members of this relatively privileged group,” she says.

When we see a man in work clothes on the screen, we anticipate some grievance or, at best, information of a highly local or anecdotal nature. On matters of general interest or national importance, waitresses, forklift operators, steamfitters—that is, most “ordinary” Americans are not invited to opine.

Ehrenreich says that in movies and TV shows it has become unacceptable to use stereotypes in portraying blacks, gays, or other minority groups, but not the working class as a whole. The overall message of movies such as Joe, Taxi Driver, Looking for Mr. Goodbar, and The Deer Hunter, she says, was that working-class whites had ended up in the station of life that they deserved.

To middle-class men, the blue-collar stereotype could never be such a distant “other” as the poor, especially the black poor. Here were blood brothers, personified, in personal memory, by the high-school teammate left behind in one’s hometown pumping gas…. Yet the blood between the classes, as anyone could see through the lens of the media discovery, was mostly bad.

The discovery that it was unloved, Ehrenreich concludes, made the professional class even more narrowly self-protective—more intent on insulating its children from the public schools, more determined to show its sophistication by not buying products that the ordinary Joe might use. Ehrenreich nicely describes the way almost every consumer product—cars, beer, cereal—not to mention entire store chains have split into an upscale and downscale version, further weakening the sense that Americans of different classes might have anything in common. She quotes a market analyst on redundant buying patterns among the professional class:

When they have friends over, these people do not want those friends to see names like Sears or Kenmore. They want people to see names like Sony or Kitchen Aid.

She emphasizes that even the women’s movement, while making life somewhat fairer between men and women, has pushed the working and professional classes farther apart. In the old days, a male doctor might marry a female nurse; now, she says, two doctors are likely to marry each other. In 1987 the median income for men with at least one year of graduate-school education was $34,731, and for women with the same education, $26,399—$61,130 for the median professional-class couple. The median for a working couple with high-school education was only $36,888.

Ehrenreich’s book is more valuable for its incidental perceptions than as a sustained thesis. (To put it another way, this book seems to have been a convenient vehicle for a number of class-related subjects Ehrenreich wanted to discuss, even though some subjects aren’t clearly connected to the others.) Her main political conclusion is that the professional class should overcome its sense of precarious isolation and make common cause with the workers against their mutual enemy, the truly rich.

In a symbolic sense, this is certainly right: people like the Helmsleys and Michael Milken greatly damage the idea that American society is in any way fair. But, as economists have pointed out for years, there is not as much money in the hands of the truly rich as the rest of us would like to think; most tax money must come from professional and middle classes largely because that’s where so many people are.

Ehrenreich’s other large ideal is a society that has outgrown consumerism, and that offers everyone a professional-style job, one that can be enjoyed rather than endured. There are a few missing pieces to this argument, of course. The societies that have the most professional jobs are usually those with the most productive industries, and with strong consumer cultures too. Ehrenreich is so reluctant to say anything positive about business, industry, or productivity that it’s hard to know exactly what economic base her new society would stand on; she gives only a hazy idea of the jobs most people would have, the products they would make.

Still, her book is insightful and sensible, and—to come back to the original question—it establishes two central points about America’s productive culture. One is that people are devoting more and more energy to defending what privileges they have and to protecting their status within the class system, instead of creating new opportunities or strengthening the US economic system as a whole. The fundamental source of anxiety is the widespread sense that today’s young adults—those born in 1960 or later—may never live as well as their parents did. In 1950, a median-price house cost the average wage earner 14 percent of his gross monthly wage; in the mid-1980s, it cost 44 percent. On the whole, today’s houses are bigger and better-equipped, but despite the recent softening of prices they are not automatically available, as they seemed to be for two decades after World War II. It is hard for a family to do anything about housing costs, and so the struggle to avoid decline has concentrated instead on the schools, and in a peculiar way.

The one “school crisis” that affects the professional class directly is the competition for places in the right elementary (or even nursery) schools, which feed into the right prep schools and in turn the right universities. Many readers of this journal will know how much time, money, and emotion go into this competition—yet from the larger perspective, it’s a meaningless exercise. The proliferation of prep schools and SAT cram courses is the moral equivalent of bond trading, an activity that shuffles temporary advantages while adding nothing to the common wealth.

Only about fifty of the nation’s nearly two thousand colleges have serious competition for admissions. In the United States, unlike Japan, it is still possible for people who don’t go to those three dozen colleges to rise to the top in business and politics. Between our last two Ivy League presidents, John Kennedy and George Bush, our presidents have come from Southwest Texas State, Whittier College, the University of Michigan, the Naval Academy, and Eureka College. In contrast, nearly all of Japan’s postwar prime ministers have been graduates of the University of Tokyo.

The academic standards in the best American colleges, and the schools that feed them, are already above those of their Japanese, Korean, or Singaporean counterparts—which suggests that raising the standards and increasing the pressure in these schools probably won’t do much for America’s overall strength. Most scholars of Japanese education, including Thomas Rohlen and Merry White, emphasize that the Japanese elementary and high schools succeed precisely because the worst graduates are so well educated.5 But applying that lesson to America, with a crusade to improve ghetto schools, is not seen as an urgent task by the American professional class. Ehrenreich rightly suggests that it should be.

Ehrenreich’s other fundamental point is that as professional-class consciousness has risen, the sense of the public good has declined. A few days after I moved back to the United States from Japan last fall, I tried to use a pay phone in midtown Manhattan. The first one I tried was full of gum; with the next the booth smelled of urine; in the next the handset was ripped off its cord; the next would not take coins. Meanwhile, people were driving by happily talking on their cellular car phones. It was a depressingly neat symbol of the shift from public to private well-being: as the public facility was left to crumble, people with money tried to recreate it on their own.

In larger ways, Ehrenreich shows, the professional class has followed the rich in insulating itself from public institutions. The public schools may be bad, but you can keep your children out of them. The parks may be run-down and dangerous, but you can join a private health club. Powerful Americans learn to prosper even if the whole society is weakening. Without belaboring the obvious, this is not a sign of social health.

This brings us to Steven Schlossstein, who is not as well known as the other two writers but who has produced the most impressive of the three books. The End of the American Century supplies the background to explain why Gilder’s entrepreneurs, for all their ingenuity, may fail, and why something more than Ehrenreich’s status anxiety may be driving classes apart in the United States. (For the record, after reading galley proofs of the book, I met the author to discuss his findings.)

Schlossstein, who is now working as a business consultant, was through the 1960s and 1970s an officer for Morgan Guaranty serving in Japan, Germany, Hong Kong, and New York. He had the foresight as a student to become fluent in both German and Japanese. In the early 1980s he published a book about trade strategy, called Trade War, and a thriller about Japanese corporations spying on American semiconductor makers, Kensei.

Schlossstein’s new book is much more ambitious. His basic purpose is to compare two modern systems for organizing capitalist production. One is the new form of democratic capitalism that has been pioneered in Japan and applied in South Korea, Singapore, Taiwan, and some other parts of Asia. Under this system, the nation keeps a lid on the welfare of its own consumers by discouraging imports, encouraging high savings and long working hours, and limiting investment in such luxuries as housing stock. (Coming back to America from Japan, I instantly saw at once a way to end the Japanese export boom: give every Japanese a big American house with a big yard. Soon they too would be sinking their time and money into caring for the yard, designing a new kitchen, looking at furniture, fixing up the bathroom, and cleaning out the garage.) The Asian system also limits political choice; each of the successful countries has de facto one-party government and extremely strong bureaucratic guidance.

On the other side is the American model of business and politics, which Schlossstein says is in relative collapse. America still does not take this challenge seriously enough, Schlossstein says, largely because American economists have a hard time accepting that a government-guided economic strategy like Japan’s could really work. The rise of the Asian economic model, he says,

is the first revolution America has had to experience that is being accelerated by influences outside its direct control. For America not to respond strategically to this external challenge could mean [abdicating] not only its present position of global economic and technological leadership, which it is already in the process of losing, but its future claims to world political leadership as well.

Such a lament may sound familiar, but Schlossstein develops it in provocative ways. He carefully outlines the differences in economic strategy between America and Japan, but then concentrates on the social structure that supports these policies. The Asian societies are now proving themselves superior, he says, not because they have more advanced chip-making machinery or better industrial robots, but because they have created institutions to perform basic cultural tasks. These include ensuring that nearly all children are well educated, keeping most families intact, systematically diverting money from consumption to investment, and attracting talent into government service.

In Gilder’s hands, arguments like these would take the form of sermons, but Schlossstein is temperate and backs up everything he says with comparisons between daily life in the United States and in East Asia. He shows exactly how the Asian family structure shores up the schools, and how culture and government policy ensure that people and companies save enough to invest. He knows that American society could never attain the same results by the same means (for instance, by keeping women out of the professional work force, as Japan does), so he proposes a series of tax incentives, tax penalties, regulatory changes, and other measures to encourage “useful” cultural behavior in the United States.

Although neoclassical economists regard virtually all economic activity as being indistinguishably valuable, Schlossstein says that the US clearly needs some kinds of activity much more than others. Therefore, taxes should be lowered in “strategic” industries, such as semiconductor manufacturing, and raised in others, such as real estate, many service businesses, and of course pure financial churning. To encourage families to save more, he proposes that up to $5,000 per year of interest income should be tax-free.

Compared to most East Asian societies, the US has disproportionate numbers of children who never learn the basic skills of modern life—and entirely apart from humanitarian concerns, these children should be seen as America’s great competitive weakness, Schlossstein says. Many of these children and their mothers have been abandoned by fathers who simply won’t obey court orders to pay child support. The entire nation suffers from their failure, Schlossstein argues, and he proposes that the federal government garnish wages through the income-tax program to make sure child-support agreements are honored. He also presents dramatic proposals for giving parents more control over, and choice about, the public schools.

The most important part of Schlossstein’s analysis, however, is his explanation why national economic strength still matters, even in this age of the borderless international economy. In theory, no one is supposed to think in nationalistic terms any more. Capital moves around the world on computers; companies operate as if the borders designating “Japan” or “France” or “Canada” do not exist. Therefore it is foolish to worry about national labels, when Toyota meets payrolls in Tennessee and McDonald’s opens restaurants in China and the world is becoming one big marketplace.

That is the theory. Yet it is precisely the internationalization of the economy that makes national strategies more important. Because not everything moves across borders as easily as currency-futures orders do, governments may need to pay more deliberate attention to the welfare of “Japan” and “France” and “Canada” than most people realize.

In principle, the flows of international trade and investment might seem to even things out around the world: East Germans will ultimately live like West Germans, Malaysians and Thais will take over semiconductor assembly work that was once done in Santa Clara. But the evening-out process is itself uneven. Some skills and functions are fully exposed to international competition—auto assembly, tuna fishing—but others are not. American schoolteachers, barbers, dentists, and TV announcers don’t have to care how hard anyone is working in Korea since international competition doesn’t affect them, at least not in the short run. Some Americans clearly benefit from the creation of a world economy, since they can sell their skills on a larger, richer market. The US movie, TV and music industries make more money overseas than at home. Despite the rise of Japanese banks, American financiers still take a share from the movement of money into and out of the United States. Many American teachers, consultants, writers, lawyers, restaurant franchisers, PR and advertising specialists, and assorted other members of Ehrenreich’s class will become richer because a market of a billion English-speaking people around the world is opening up to them.

But this same international process threatens other Americans. Indeed it is alarming as a general proposition, for if conditions really are evened out around the world, Americans will have to take a big step down. On average, Americans are not any smarter or more energetic than Japanese, Singaporeans, or Koreans, but, on average, Americans are worse trained. The average American has slightly more productive capital backing him up, but not for long: Japanese companies are investing in new machinery about twice as fast as American companies are. Yet the average American is still living higher on the hog than any of his Asian counterparts. This can’t last.

And some people will have to adjust much more than the average. For American professionals, the international market means an increase in demand for their services; for workers with limited skills, it means an increase in the supply of labor competing against them. They will be competing head-on against workers in Korea, then in Thailand, and eventually in Bangladesh, and they won’t have an edge in either education or productive capital. Compared to Japanese or Korean society, postwar America has tolerated very large internal differences in education and skills. But because American society wasn’t fully exposed to international competition, those differences did not become as extreme as they may soon be. People don’t live in markets, they live in societies, and the question is whether our society can tolerate the even greater extremes that full internationalization would bring. Manhattan is the closest thing to a test case.

That is, in order to have a workable society, the United States must have some nationally minded economic plans, even in this age of the worldwide market and flows. Especially in such an age a society needs nationalistic plans, since the societies still exist within national borders and require for their stability a greater degree of equality than the worldwide division of labor will naturally create. George Gilder argues that the ingenuity of American entrepreneurs will be enough to rebuild the economy. Barbara Ehrenreich would like to mitigate the selfishness of a class war largely caused by changes inflicted from outside the country. Both of these are necessary but hardly sufficient conditions to achieve the goals the authors have in mind. Steven Schlossstein has an ambitious set of proposals to rebuild the productive culture, including policies that will encourage industry to invest in technology and manufacturing rather than in financial churning. These might help point us toward an answer, if we were looking for one.

This Issue

March 1, 1990