Proving My Point

My article in the March/April issue of Foreign Affairs has obviously upset many people. Some of my critics claim that I misrepresented their position, that despite their insistent use of the word "competitiveness" they have never believed that the major industrial nations are engaged in a competitive economic struggle. Others claim that I have gotten the economics wrong: that countries are engaged in a competitive struggle. Indeed, some of them make both claims in the same response.

MOVING TARGET

Lester C. Thurow vigorously denies ever asserting that international competition is a central issue for the U.S. economy. In particular, he cites page counts from his 1985 book, The Zero-Sum Solution, to demonstrate that domestic factors are his principal concern. But Thurow's most recent book is Head to Head, which follows its provocative title with the subtitle, The Coming Battle Among Japan, Europe and America. The book jacket asserts that the "decisive war of the century has begun." The text asserts over and over that the major economic powers are now engaged in "win-lose" competition for world markets, a competition that has taken the place of the military competition between East and West. Thurow now says that international strategic competition is no more than seven percent of the problem; did the typical reader of Head to Head get this message?

Similarly, Stephen S. Cohen denies that he, or indeed anyone else with whom I should "deign to take difference," has ever said the things I claim competitiveness advocates believe. But in 1987 Cohen, together with John Zysman, published Manufacturing Matters, a book that seemed to say two (untrue) things: the long-term downward trend in the share of manufacturing in U.S. employment is largely due to foreign competition, and this declining share is a major economic problem.

After their initial denial, both Cohen and Thurow proceed to argue that international competition is of crucial importance after all. In this they are joined by Clyde V. Prestowitz, Jr., who at least makes no bones about believing that trade and trade policy are the central issue for the U.S. economy. Does Cohen believe that Prestowitz, or James Fallows, who expressed similar views in his new book, Looking at the Sun, is one of those people with whom I should not deign to argue?

SLOPPY MATH: PART II

Of all the elements in my article, the section on careless arithmetic, the strange pattern of errors in reporting or using data in articles and books on competitiveness, has enraged the most people. Both Thurow and Prestowitz have taken care to fill their responses with a blizzard of numbers and calculations. However, some of the numbers are puzzling.

For example, Thurow says that imports are 14 percent of U.S. GDP, while exports are only 10 percent, and that reducing imports to equal exports would add $250 billion to the sales of U.S. manufacturers. But according to Economic Indicators, the monthly statistical publication of the Joint Economic Committee, U.S. imports in 1993 were only 11.4 percent of GDP, while exports were 10.4 percent. Even the current account deficit, a broader measure that includes some additional debit items, was only $109 billion. If the United States were to cut imports by $250 billion, far from merely balancing its trade as Thurow asserts, the United States would run a current account surplus of $140 billion, that is, more than the 2 percent maximum of GDP U.S. negotiators have demanded Japan set as a target!

Or consider Prestowitz, who derides my claim that high-technology industries, commonly described as "high value" sectors, actually have much lower value added per worker than traditional "high volume," heavy industrial sectors. I have aggregated too much by looking at broad sectors like electronics, he says; I should look at the highest-tech lines of business, like semiconductors, where value added per worker is $234,000. Prestowitz should report the results of his research to the Department of Commerce, whose staff has obviously incorrectly calculated (in the Annual Survey of Manufactures) that in 1989 value added per worker in Standard Industrial Classification 3674 (semiconductors and related devices) was $96,487, closer to the $76,709 per worker in sic 2096 (potato chips and related snacks) than to the $187,569 in sic 3711 (motor vehicles and car bodies).1

Everyone makes mistakes, although it is surprising when men who are supposed to be experts on international competition do not have even a rough idea of the size of the U.S. trade deficit or know how to look up a standard industrial statistic. The interesting point, however, is that the mistakes made by Thurow, Prestowitz and other competitiveness advocates are not random errors; they are always biased in the same direction. That is, the advocates always err in a direction that makes international competition seem more important than it really is.