Rethinking Foreign Economic Policy

Since the Eisenhower years the pivotal debates about America's role in the world economy have been mostly an inside-the-beltway affair. Such issues as protecting the steel or auto industries, propping up the dollar, cutting off trade with Moscow, manipulating foreign aid or pressing Japan and Europe to buy more American farm products have rarely challenged our most deeply held beliefs about economics or business. Throughout the Cold War foreign economic policy was seen as a way to strengthen the nation and its allies in the East-West competition. America's goals would be achieved by strong U.S. companies stretching their tentacles to every corner of the globe. America believed in Adam Smith and tried to convert anyone who would listen.

There have been tumultuous changes in recent years: the United States' shift from being the world's largest lender to its biggest debtor, fierce technological competition from Japan, the growing economic cohesion of the European Community, the crumbling of the Soviet empire, the crises in America's classrooms and on its city streets. Amidst all this the big question is whether the fundamental tenets of past economic policies are still correct. Two new books answer with an unambiguous "no." Written for a truly national audience, together they constitute a frontal assault on mainstream American policy. If they do not cause America to think hard about where it is headed in the coming decades, it is unlikely that anything in writing can or will.

II

Robert B. Reich's very first paragraph sets the tone for his thinking. "We are living through a transformation that will rearrange the politics and economics of the coming century," he says. "There will be no national products or technologies, no national corporations, no national industries. There will be no national economies. . . . All that will remain rooted within national borders are the people who comprise a nation." Is this another lesson about economic interdependence, another call for bigger and better summit meetings? Definitely not.

The Work of Nations starts with the idea that post-World War II economic policy has focused on the big American corporations-the General Motors, the Westinghouses, the Colgate Palmolives. As long as such companies were doing well, says Reich, so were American citizens. At mid-century these big firms made and sold their products in America. They reinvested profits in their own communities and throughout the nation. Together with Washington and Big Labor they worked to create an economic climate in which the middle class could steadily expand, both in size and living standards. Everything fit well together: the big companies were in the business of mass production of standardized goods-from look-alike washing machines to identical black telephones-which, in turn, required a growing work force of moderately well-educated white and blue collar workers to staff corporate bureaucracies and routine factory jobs. U.S. companies were fully supported by Uncle Sam, who relentlessly pushed other nations to lower barriers to American sales and investment and dealt a strong blow to countries that threatened the likes of Standard Oil, Kennecott Copper or United Fruit.

But now, says Reich, all this has changed. "That the strength of the American economy is synonymous with profitability and productivity of American corporations is . . . an axiom on the brink of anachronism." Why? Reich cites two developments. First is the changing nature of business among the highly competitive advanced industrialized nations. Standardized mass production is giving way to products that are custom tailored: specialty steel mills are replacing mammoth plants; one-of-a-kind machine tools are being turned out routinely; plastics are molded to order; telecommunications networks are designed for individual corporate clients. As a result big companies are breaking up into autonomous, specialized units. They are rapidly moving away from mass employment of workers with only general skills; instead they need creative specialists with extensive skills and education.

Second, many of the big companies have lost their American character. They make "composite products" like microprocessors that contain chips from South Korea, but are designed in California and financed in Germany and Japan. Whether they locate their production in Philadelphia, Düsseldorf or Osaka depends on where they find the most talented and experienced workers. Whether they invest in Wall Street, London or Tokyo depends on where the returns are highest. There is no national allegiance. "I was asked the other day about United States competitiveness," says the president of NCR Corporation in The Work of Nations, "and I replied I don't think about it at all. We at NCR think of ourselves as a globally competitive company that happens to be headquartered in the U.S."

The combination of changing labor requirements and the rootlessness of the big companies leads Reich to talk about the growing disparity of economic prospects among Americans. It used to be, he recalls, that in America a rising economic tide lifted all boats. This is no longer true. Better than looking at the tide, consider the many vessels. Those which contain the engineers, the strategic planners, the management consultants, the lawyers, the investment bankers, the accountants and the public relations experts will have smooth sailing in the years ahead because their skills will be in demand by any big company operating in the United States, be it General Electric, Siemens, Toyota or Samsung. For the others-whom Reich estimates to be 80 percent of the American population-the prospects are bleak.