Microchips, Not Potato Chips

Courtesy Reuters

The Gang of Eight (Bill Clinton, John Major, Jacques Delors, Robert Reich, Laura D'Andrea Tyson, Mickey Kantor, Ira Magaziner, Lester Thurow) pleads not guilty to Paul Krugman's charges that it is grossly exaggerating the importance of international competitiveness.

Krugman asserts that, economically, nations have "no well-defined bottom line." Wrong! Nations seek to raise the living standards of each citizen. Higher living standards depend on rising productivity, and in any economy the rate of productivity growth is principally determined by the size of domestic investments in plant and equipment, research and development, skills and public infrastructure, and the quality of private management and public administration.

I have written articles referring to strategic trade policies as the "seven percent solution." Ninety-three percent of economic success or failure is determined at home with only seven percent depending on competitive and cooperative arrangements with the rest of the world. My book, The Zero-Sum Solution: Building a World-Class American Economy, contains 23 pages on competitiveness issues, 45 pages on the importance of international cooperation and 333 pages on getting things right at home. The centrality of domestic invention and innovation is precisely why I agreed to lead the Lemelson-MIT program in invention and innovation, one part of which is a $500,000 prize for the American inventor and innovator of the year. The corpus of writings, speeches and actions of the rest of the Gang of Eight contains similar quotations, proportions and actions.

But remembering this sense of proportion, what is the role for competitiveness? Clearly something is wrong with Krugman's arithmetic that shows international trade cannot make much difference to American productivity. If his arithmetic were correct, then it follows that a lot of American protection might be quite a good thing.

Today 6 million Americans are working part-time who would like to work full-time, and almost 9 million are unemployed. In the last 20 years the bottom two-thirds of the male work force has taken a 20 percent reduction in real wages. The American work force could use a few million extra high-wage

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