The summer’s renewed decline of the dollar against the yen, at long last making one US cent worth less than one Japanese yen, has once again concentrated public attention on America’s difficulties in international economic relations. Concerns along such lines were also widespread a decade or so ago, when a combination of surging American demand for foreign goods and weak demand abroad for American-made products resulted in an overall US trade imbalance that widened to record proportions. But in the mid-1980s the dollar was expensive in relation to most foreign currencies, and it was plausible to suppose that both the rise in US imports and the weakness of US exports were in large part just the consequence of an overvalued dollar. Today the dollar is cheap, yet America’s trade imbalance is once again large and growing steadily larger.
Not surprisingly, a much discussed question in recent months has been what, if anything, the Clinton administration intends to do to support the dollar, and what the administration intends to do to reverse the nation’s widening trade deficit. Also not surprisingly, much of this discussion has centered on America’s economic relationship with Japan. Although lately the dollar has fallen against other major currencies too, the major decline—12 percent since the beginning of this year—has been against the yen. And although America now has a trade deficit with many more countries than just Japan, in 1993 our $60 billion bilateral deficit with Japan accounted for almost half of the $132 billion overall US trade deficit. (The same $60 billion imbalance accounted for a modestly smaller share of Japan’s overall trade surplus, which amounted to $142 billion when measured in dollars.) By not intervening to support the dollar against the yen, is the Clinton administration deliberately pursuing a “cheap dollar policy” (which is the same as an “expensive yen policy,” although somehow nobody calls it that) in order to slow down Japanese exports and open Japanese markets to American products? If so, does this mean the administration has abandoned its highly publicized effort to gain access to Japanese markets by direct negotiations over restrictive trade practices?
And beyond these immediate questions about current policies and the specific actions they imply, which understandably absorb the daily attention of both the interested public and, especially, the financial markets, what about the more fundamental issues at stake? Should Americans care whether the dollar is expensive or cheap in foreign currency terms? Should we care whether we import more than we export, or vice versa? At a deeper level still, what does it mean for a nation to be competitive in the world economy, and why should we care whether America is competitive or not?
The conventional answer, at least among economists, is that Americans should care about such matters—but in specific ways, and for specific reasons, that are at odds with many of the suppositions on which popular discussion is usually based. In particular, citizens should want their nation to be competitive in the sense of exporting as much as it imports, on average over time, while maintaining (a) an exchange rate that is advantageous for its consumers, (b) a price level that is profitable for its producers, and (c) a wage level consistent with its workers’ aspirations for their and their families’ standards of living. Continually running large trade deficits and therefore having to finance the excess of US imports over US exports by borrowing heavily from abroad, as we have done ever since 1982, is not in America’s interest. But neither is correcting the imbalance by driving the dollar so low that US imports shrink because Americans can no longer afford to buy foreign-made goods. Nor is increasing US export sales by cutting American firms’ prices to levels where they risk going out of business, or forcing down American wages, and therefore American standards of living, so they will be closer to those of countries with “cheap labor.”
Indeed, the main reason why continually running large trade deficits and borrowing from abroad is not in America’s interest is that, sooner or later, market forces will bring about exactly the undesirable outcomes mentioned just above, in one combination or another. Lenders are often glad to accumulate a borrower’s IOUs, but the reason for doing so is to cash them in later on—at the borrower’s expense. Thinking of the cheap dollar (the expensive yen) as a deliberately chosen device of the Clinton administration to combat the US–Japan trade imbalance therefore misses the point. When two countries chronically run a large bilateral trade imbalance, and the country with the bilateral deficit has an even larger overall trade deficit while the country with the bilateral surplus has an even larger overall trade surplus (so that the two countries’ bilateral trade imbalance is not just an inconsequential aspect of multilateral trading), movement in the bilateral exchange rate of those two countries is simply the market’s way of restoring some balance to their respective trading activities. That fewer Americans can afford Japanese-made cameras or VCRs after the dollar-yen rate falls is in no way intentional; but it is, nevertheless, an important and inevitable part of the adjustment process. And there is no reason for American consumers to be happy about it.
How, then, does a country manage to be competitive—that is, to balance its trade while keeping its exchange rate favorable to its consumers, its prices favorable to its producers, and its wages favorable to its workers? The main requirement is to be highly productive (in other words, to produce as much output as it can from the hours its workers put in and the capital its businesses provide) and that in turn means having a well-trained work force, up-to-date technology, and an ample stock of factories and machines, and combining all three with efficient management and creative entrepreneurship.
These are the same characteristics that would make for high productivity, and therefore a high standard of living, in a society that trades with nobody and just consumes domestically whatever it produces. But in addition, to the extent that trading with other countries offers opportunities to raise living standards still further—by allowing even more Americans to produce what they make best, while bringing in from abroad products that we don’t want to make or can’t make very well—it is important to keep those opportunities open. Some restrictions, for example those imposed both formally and informally by the Japanese, bar American-made goods from foreign markets when making those goods would be a better use of Americans’ effort than the substitute economic activities we carry on when foreigners simply will not buy from us. Such restrictions impair our competitiveness and ultimately reduce our standard of living. Policies aimed at eliminating those restrictions are not as important as policies that promote productivity by encouraging worker training, or new research, or capital investment, but they can be important nonetheless. So can even more specific actions, like President Clinton’s recent successful effort to persuade Saudi Arabia to order airplanes from Boeing rather than Airbus.
Paul Krugman, a highly distinguished economist who has recently left MIT for Stanford, believes instead that the notion of “competitiveness” should be eliminated altogether from discussions of economics and economic policy. In a series of writings, including his new book, Peddling Prosperity, as well as contributions to such widely circulated journals as Foreign Affairs, Scientific American, and the Harvard Business Review, Krugman argues that not only the general public but also supposedly well-trained professionals, who should know better—including key members of the Clinton administration—persistently misunderstand the basic principles of international economics and, far worse, go on from these misunderstandings to advocate foolish and potentially counterproductive policies. As Krugman forcefully summarizes this view in Peddling Prosperity, “the alleged competitive problem of the United States is…a fantasy.” Worse yet, “the rhetoric of competitiveness will be destructive, because it can all too easily lead to bad policies and to a neglect of the real issues.”
Krugman’s case against “competitiveness” has two main elements. First, he argues—no doubt correctly—that most people tend to overestimate the importance of international trade in accounting for America’s recent and current economic problems. The fact that American workers and their families face stagnating average standards of living, fewer “good” jobs, and widening income inequalities is true in large part for reasons that have far more to do with internal failures than with any kind of competition, fair or otherwise, from abroad.
The main issue here is productivity. As is well known, growth of workers’ productivity in the United States slowed from 2.5 percent per annum on average during 1948–1973 to 0.7 percent per annum during 1973–1990. Productivity growth improved for a while after the 1990–1991 recession ended, in a repetition of the usual cyclical pattern, but more recently the growth has slowed once again. Productivity growth is central to the problems America now faces because over long periods of time the average worker’s wage inevitably outpaces price inflation by just about the increase in productivity achieved by the economy as a whole.
Just why American productivity growth slowed so dramatically remains a subject of debate. The standard list of contributing factors includes too little investment in factories and machines, inadequate research and development, poor education and worker training, and burdensome government regulation. Krugman’s main point is that each of these impediments to US productivity growth, and hence ultimately impediments to rising US living standards, mostly reflects either public policies or private behavior here in America—not the effects of foreign competition. (Moreover, while the precise timing varies from country to country, other industrialized economies have also experienced a slowing of productivity growth in recent years. Hence it is also incorrect to suppose that our losses in this regard are necessarily someone else’s gains.)
Krugman concentrates his criticism in particular on concerns over the decline of America’s manufacturing sector, which is widely thought to have resulted from the transfer of advanced production technologies to countries where wages are low compared to what Americans earn. While 27 percent of US workers were employed in manufacturing in 1970, only 16 percent were in 1993. And the United States exported $91 billion less in manufactured goods than it imported last year. If we had balanced or trade in manufactured goods—that is, if American firms had produced an additional $91 billion of goods, and either exported these goods or sold them here at home to people who bought foreign-made products—that extra production would have required approximately one million additional workers. The share of American workers employed in the manufacturing sector would therefore have been 17 percent instead of 16 percent. (These figures update Krugman’s calculation, which is for 1991.)
Blaming foreign competition for the fact that manufacturing no longer employs 27 percent of the work force, as it did a quarter century ago, is therefore simply wrong. Moreover, it is also wrong to suppose, as many people do, that even these one million additional manufacturing jobs would have represented net job creation for the American economy. It is mostly our government’s monetary and fiscal policies—that is, interest rates and the federal budget—that determine how close to full employment our economy is at any time, and so the effect of balancing our manufacturing trade would mostly have been to shift one million people to jobs in factories from other jobs that they held elsewhere in the economy.
All this is true enough, but nagging questions still remain. For example, to what extent have we managed to preserve our manufacturing sector only by holding down our workers’ wages so as to prevent American firms from losing out by much more than they actually have? Krugman cites work by several distinguished scholars (most prominently, Robert Lawrence and Matthew Slaughter) showing that foreign competition has had little impact on US wage levels; but other respected researchers (for example, Jeffrey Sachs) have reached different conclusions. To put the same point in a stronger way, what, apart from foreign competition, prevents the United States from running a huge surplus in manufactured goods, not only dominating our own markets for cars and cameras and VCRs at home but also selling American-made products all over the world and using the proceeds to finance other aspects of a high standard of living like foreign vacations, ample oil supplies, and exotic foreign-produced foods? To answer such questions persuasively would require unraveling complicated trade patterns in different markets and different countries, allowing for the fact that not only the quantities of different goods produced but also the prices charged and the wages earned vary depending on the circumstances, and so there is ample room for disagreement. Even so, Krugman is no doubt right that popular perceptions greatly exaggerate the role of foreign competition in accounting for America’s economic disappointments.
The more practical question, however, is just why this particular popular misperception (only one among many others in dealing with economics and economic policy) matters so much. Krugman fears, in part, that excessive concentration on international competition may lead to neglect of important changes in national economic policy—such as reducing the government’s deficit—that are needed for reasons unrelated to competitiveness. But as the example of President Clinton’s 1993 budget package demonstrates, it is also possible to use the threat of losing out to foreign competition to muster support for much needed domestic policies. Narrowing the chronic deficit inherited from the fiscal policy of Presidents Reagan and Bush was a major policy achievement, mostly for reasons related to our own domestic economy. Still, in his 1993 State of the Union Address the President leaned heavily on the assumed imperative to be competitive abroad in order to push his proposed combination of spending cuts and tax increases.
Krugman’s more urgent concern is that an exaggerated emphasis on American competitiveness “can all too easily lead to bad policies.”
What might those bad policies be? Krugman harshly attacks the policy proposals, and in some cases the professional competence, of a readily identifiable group whom he labels “strategic traders.” He has in mind current administration officials like labor secretary Robert Reich and health-policy strategist Ira Magaziner, and he specifically criticizes Reich’s book The Work of Nations and Reich and Magaziner’s The Next American Frontier. He also criticizes Lester Thurow’s Head to Head and works by other private economists. In addition to consistently overestimating the role of international trade in accounting for America’s real economic problems, Krugman writes, “strategic traders” both in and out of the Clinton administration have pushed strongly for specific policies that he—like most other economists—fears would be self-defeating, if not worse. Prominent examples are the administration’s recent attempt to impose specific numerical targets on American trade with Japan; calls for protectionism to shield American producers on a case-by-case basis; and suggestions that the US government subsidize, in one way or another, targeted industries that supposedly would make a difference to the nation’s overall competitiveness.
What runs throughout Peddling Prosperity—indeed, the origin of the title—is Krugman’s anger and frustration that people whom he regards as second- or even third-rate thinkers inevitably take over, and exploit for their own purposes, the serious contributions of first-rate thinkers. During the 1970s, conservative scholars like Milton Friedman and Martin Feldstein mounted a well-thought-out and empirically well-supported attack on at least some aspects of “liberal” economic policies. But the Reagan administration’s “supply-side economists,” many of whom had little if any actual training in economics, badly misused these ideas and left behind an economic mess of vast proportions. (The best-known example of such folly was the claim that across-the-board reductions in US income tax rates would increase tax revenues.)
Similarly, during the 1980s some excellent scholars, including Krugman himself, developed powerful new ways of thinking about important issues in international economics. But, Krugman argues, the people he calls “strategic traders” have perverted these ideas to promote such caricatures as managed trade with Japan, or protectionism and “industrial policy” at home. And like the supply-siders before them, along the way the strategic traders have, in his view, done a pretty good job of promoting themselves as well.
The important new ideas that Krugman and other leading scholars of international trade put forward in the 1980s start from the easily understandable notion that what is possible today often depends crucially on what actually happened yesterday. For example, in the abstract there is no reason why a bright college senior with a knack for science cannot go on to medical school and to a career as a physician thereafter. But if the student has never taken the requisite courses in chemistry and biology, that path is closed unless he is willing to spend a year or two of dedicated work that will open it up. Sometimes things have simply gone too far down one path to make switching to another one possible. Many promising athletes can choose which sport to play professionally; but except for the genuinely rare talent like Michael Jordan, that choice, once made, soon becomes irreversible. The basic principle at work here is immediately intuitive to anyone who has ever lamented “you can’t get there from here.”
To illustrate how this kind of “path dependence” applies to economics, Krugman uses Stanford economist Paul David’s example of the QWERTY…configuration of the standard Roman alphabet typewriter. This arrangement of letters was originally designed to slow down typists in their work, in order to avoid problems of sticking mechanical keys. By now mechanical typewriters have almost entirely disappeared, yet the QWERTY arrangement is still around, still slowing down anyone who sits at a keyboard. Why have attempts to introduce a more efficient keyboard layout failed? Because typists are all used to QWERTY. And why are typists today all used to QWERTY? Because the typewriter industry adopted it more than a century ago.
The general principle that the QWERTY example illustrates is that the initial conditions prevailing at any point in time matter importantly, and those conditions in turn depend in part on the path previously taken. What Krugman and other scholars of international trade did in the 1980s was to bring sophisticated applications of this concept of path dependence—the QWERTY idea, as he calls it in Peddling Prosperity—to bear on questions like why some countries have an aircraft industry while others do not, and why a country that has no aircraft industry today may now find it impossible to start one.
The overwhelming conclusion from looking at the actual pattern of trade is…that exports from one industrial country to another don’t give us much indication that they are based on any underlying national resource or characteristic.
Consider, for example, the strong US presence in the world aircraft industry. Is there something about the US mix of resources that makes Americans particularly adept at making aircraft? It is hard to argue that there is. Aircraft manufacture is a business in which the cost of capital is important, because investments in new generations of aircraft take so long to yield a return; but the US cost of capital is no lower and often higher than the cost of capital in Japan or Europe. The aircraft industry requires highly skilled workers and engineers—but so does production of, say, autos, in which the United States runs massive trade deficits.
The United States does, of course, have a large pool of workers and engineers with the very specific skills and knowledge required to design and build aircraft. But where did this pool of skills and knowledge come? Was it innate in the US character? Of course not. US workers developed the skills they needed to build aircraft because there was a large demand for those skills in the United States, arising from our dominant position in the world aircraft industry.
But of course our dominance in aircraft is in large part due to the fact that we have such a large pool of people with the right skills and knowledge. And you know where that puts us: squarely in the land of QWERTY.
Now there is a special reason why the virtuous circle that sustains the US aircraft industry got started: the huge base of demand for aircraft that arose from the needs of the US military during World War II and the early years of the Cold War. The interesting thing, however, is that even though that special advantage is long gone, the dominant position of the US aircraft industry endures (indeed, it would be complete, were it not for Europe’s support of Airbus…).
The point is that that there are many industries like aircraft, industries in which an international competitive advantage can be self-reinforcing. And the presence of such industries explains why countries that are similar at a broad level do so much trade. American and German industry are nowadays very similar in their overall levels of technology and in the resources available to them. Time and chance have, however, caused the two countries to develop different competences at a more detailed level, with America leading in aircraft, semiconductors, computers, and Germany leading in luxury automobiles, cameras, machine tools. From a distance, the two economies look more and more alike; in close-up, we are sufficiently different to find reasons to engage in an ever-growing volume of international trade.
In contrast to Krugman’s emphasis in such discussions on “time and chance,” and on cumulative historical circumstances, the “strategic traders” want to foster the conditions for competitive advantage through explicit public policy. Today’s initial conditions are simply what they are. But tomorrow’s initial conditions are yet to be created. The strategic traders’ objective is to take actions today that will create the initial conditions we will want to have years from now. For example, if only a few countries will be able to have successful computer industries in the year 2020, what path can we pursue over the next quarter century to ensure that the United States will be one of them? If the aircraft industry is likely to consolidate to just one predominant producer, what can we do to be sure the surviving firm will be Boeing or McDonnell Douglas, not Airbus?
Why would a scholar who helped pioneer the theory of path dependence as a useful way of thinking about international trade be resistant to applying the theory to policy questions like these? Surely the notion provides a theoretical justification for “industrial policies” aimed at creating the right initial conditions for tomorrow’s success. And if it does, why shy away?
Apart from accusations of sloppy research and a relaxed use of facts (including, he claims, outright confusion of facts with non-facts in some cases), the most specific criticism Krugman makes of the use of path dependence by the strategic traders is their tendency to conceive a country as analogous to one large firm and then to apply to it standard concepts of corporate strategy familiar from the 1960s. (Milk the “cash cow” industries, nurse the “stars,” sell off the “dogs,” etc.) The resulting work hardly constitutes a front-ranking intellectual contribution, and Krugman’s frustration is perhaps understandable in view of the attention given to what he may see as naive variations on the pioneering analyses he and others have made. But the question here is not who is going to win a Nobel Prize. What matters for public policy is practical usefulness, not intellectual creativity for its own sake. Aside from the sloppy research and questionable factual claims by specific writers—what Krugman calls “crude misconceptions, presented as if they were sophisticated insights”—what exactly is wrong with the idea of applying principles of path dependence to policies bearing on specific industries in this way? And regardless of whether the strategic traders’ concepts of corporate strategy are fresh or dated, why are policies based on them more likely to do harm than good?
Krugman’s explicit arguments notwithstanding, I believe the real answers to these questions center on economists’ usual skepticism about the ability of government decision-makers to improve on market outcomes in the absence of clearly demonstrable market failure. In part this is a matter of competence at analysis and prediction, and here Krugman’s charge that the strategic traders offer up poor research is relevant (although if this were the only problem, presumably one could solve it by assigning the task to researchers of Krugman’s proven quality). The standard example cited nowadays to cast doubt on the ability of policy-makers to “pick winners” is the US government’s misguided push to develop synthetic fuels as an alternative to expensive foreign oil in the late 1970s, but a recent study by the McKinsey consulting firm of attempts at industrial policy here as well as in Germany and Japan draws the same kind of negative conclusion more broadly. But as Krugman puts the broader point, “an acknowledgement of the power and effectiveness of the market as a mechanism is a central part of the professional identity even of liberal economists.”
In addition, however, industrial policies entail further problems because government policy-making is inevitably a political process and, at least in the United States, its participants too often seek policies to benefit specific constituencies at the expense of those that would be best for the nation as a whole. The issue at the heart of the debate over industrial policy is probably not so much whether it is in principle possible to pick winning industries for the government to subsidize and protect. It is whether, in practice, the government is likely to hand out its subsidies in a genuinely strategic way. The strategic traders may believe the government would play the game straight, or at least that politicians are capable of being reasonably objective about the future of the particular companies on whose behalf they seek subsidies and protection. By contrast, Krugman, like most economists these days, is far more skeptical:
Perhaps the most important reason that economists [who pioneered in applying path dependence to international trade] were diffident about making policy pronouncements based on their new theory was their fear that it would be used, not to make better policy, but to rationalize bad policies. Concepts such as strategic trade policy can all too easily be used to rationalize good old-fashioned protectionism.
So far, at least, there is little evidence that the influence of the “strategic traders” within the Clinton administration has caused real harm. The administration has apparently backed away from its goal of negotiating quantitative trade targets with Japan. (This retreat has not paid off in major Japanese concessions, but in this respect the Clinton administration is neither more nor less successful than its predecessors. Because of all the borrowing from abroad that this country has done as a consequence of the government’s huge budget deficit, America now negotiates from weakness, especially when it negotiates with Japan.) In contrast to Krugman’s fear that “the direct threat from the ascendancy of strategic traders is that their fixation on the supposed problem of competitiveness will set off a trade war,” protectionist measures have mostly gotten nowhere.
Instead, the Clinton administration showed good sense and real courage in defying both Ross Perot and the AFLCIO on NAFTA. In doing so it not only made a useful contribution to international trade but also made clear how flimsy were the threats made by both of these opponents of the treaty. Mr. Perot’s “giant sucking sound” of American jobs migrating to Mexico is so soft as to be inaudible, and despite organized labor’s repeated threat to defeat Congressmen who voted for NAFTA, it now seems likely that not a single incumbent will lose his or her seat because of a pro-NAFTA vote. The Clinton administration also deserves high marks for successfully concluding the latest round of GATT negotiations, although the task of selling the result to Congress will be tricky because of the need, under current budget procedures, to make up the federal revenues to be lost from lower tariffs.
Krugman’s fears that excessive concerns about competitiveness will lead to poor policies in other spheres have also not been realized. True, President Clinton exaggerated the role of international trade in making the case for his 1993 budget plan. But surely the more important points by far are that the President (a) proposed a plan to narrow the budget deficit by some hundreds of billions of dollars over the next five years, (b) pushed vigorously for that plan, and (c) succeeded in getting Congress to adopt it (without a single Republican vote in the Senate). More important still, as of now the plan is clearly working. Growth of government spending has slowed, growth of tax revenues has picked up, and for now the deficit is steadily declining. It is difficult to imagine such an outcome under either Ronald Reagan or George Bush. Krugman’s fears to the contrary—and putting aside the administration’s plans for health-care reform, which he seeks to compare to the strategic trade idea—economic policy is the most impressive of the accomplishments of the Clinton administration to date. There is certainly no evidence of what Krugman calls “a sort of Gresham’s Law in which…bad ideas drive out good ones.”
Just what, apart from avoiding the strategic traders’ calls for industrial policy and protectionism, would Krugman have us do? His list of recommendations at the end of Peddling Prosperity is fairly familiar, at least among economists. Although he deprecates the importance of the federal budget deficit throughout his book, the first item on his list of policy recommendations is to cut spending and/or raise taxes so as to narrow the deficit further. He is also hardly alone in calling for such measures as reforming health care, substituting taxes and other market-based incentives for costly and ineffective regulation, and doing more to help the children of poor families.
Krugman is surely right in arguing that, over the long term, it is productivity growth that delivers rising standards of living and that we should therefore do whatever we know how to do to boost our productivity growth—even just a little at a time, if that is all we can manage. That is, after all, why so many other economists have paid so much attention to such matters as improving education and worker training, increasing tax and other incentives for firms to undertake research and development, and narrowing the budget deficit so that more saving will be available to finance new factories and machines. But for all the emphasis on the central importance of productivity growth, Peddling Prosperity is not about any of these matters, and Krugman mentions them merely in passing. The book is mostly a plea to forget competitiveness and, above all, to dismiss the recommendations of the strategic traders.
Should Americans ignore their country’s success, or lack of it, in international competition? No doubt many foolish things are being said about the subject, and Krugman effectively demolishes many of them. But in the end, should we really not care whether Boeing or Airbus gets the orders, or whether the next generation of personal computers relies on operating systems by Microsoft or some Japanese competitor whose name nobody yet recognizes?
We certainly should care about such matters. The question is what to do about them. Just as we prefer a strong dollar to a weak one—as long as we can balance our trade—we also prefer that US companies get the business instead of someone else. But that does not mean we want to give up more than these objectives are worth in order to achieve them.
We want a strong dollar, ultimately, so that we can afford to buy more goods from abroad without having to pay more for them. But artificially pushing the dollar to levels not sustainable by our needs and abilities only makes us borrow from abroad and ultimately makes us all pay more. We want American firms to have more business, but if the government subsidizes them so that they become artificially low-cost producers, or uses tariffs and quotas to protect their sales at home, this only forces the rest of us to pay more for these firms to get foreign business than it is worth for them to have it. As Krugman correctly argues, the right way to get business is to be more productive in the conventional sense. Whether we have the analytical ability to figure out which “path” will encourage US companies to be productive in just the right ways, some years from now, is an open question. If so, whether the government could exploit that knowledge without being sidetracked into subsidizing people who are influential rather than activities that are important is even more doubtful.
And, finally, what should we think about our competitors? Does it matter whether or not US productivity grows as rapidly as everybody else’s? Paul Krugman is right in arguing that, from a strictly economic perspective, the comparison with other countries doesn’t make much difference. But it certainly does matter if we also care about America’s ability to take a leading part in world affairs—whether in protecting other nations against aggression, or in assisting them in economic development and environmental protection, or in influencing their attitudes toward human rights and democratic institutions. Poor countries do not lead in such matters. They lack the capacity. (Historically, so do debtor countries, and that is a further reason for regret at America’s new status as a debtor nation.) If we want the United States to be able to accept international responsibilities, and to project abroad not only American interests but American values and institutions as well, then we should want not merely to do as well as we can for ourselves but also to outpace the competition.
October 20, 1994