Courtesy Reuters

Playing To Win

Paul Krugman first achieved a measure of public recognition with a study of competition in the aircraft industry, which proved mathematically the potential efficacy of strategic, that is to say managed, trade. That this analysis was considered important might seem odd in view of the fact that the German-American scholar Friedrich List had done more or less the same work nearly 150 years ago and in view of the experience of the Japanese, who had been practicing strategic trade for more than 40 years at the time of Krugman's study. But given the narrow scope of the research considered permissible by the conventional wisdom of U.S. economists, as well as their ignorance of history and other disciplines, Krugman's analysis was a notable, iconoclastic achievement.

Indeed, it may have been too daring because ever since its publication Krugman has been running away from the implications of his own findings. His diatribe in Foreign Affairs (March/April) against the concept of competitiveness and those who espouse it is only the most recent example.

Krugman not only claims that concern with competitiveness is misplaced. He attacks all those who think otherwise, including leading members of the Clinton administration such as Robert B. Reich, Ira C. Magaziner, Laura D'Andrea Tyson and the president himself, as protectionists whose work is careless if not dishonest and whose motives run from simple greed to chauvinism and demagoguery.

Krugman contends that concern about competitiveness is silly because as a practical matter the major countries of the world are not in economic competition with each other. He attempts to prove this by making three points. First he argues that trade is not a zero-sum game. Trade between the United States and Japan is not like competition between Coca-Cola and Pepsi because whereas Pepsi's gain is almost always Coke's loss, the United States and its trading partners can both be winners through the dynamics of comparative advantage.

Although true to some extent, this rationale ignores that different kinds of trade take place.

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