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The Third Century: America's Renaissance in the Asian Era.

The Third Century: America's Renaissance in the Asian Era.

Bored by Lee Iacocca's latest round of Japan-bashing? Tired of Allan Bloom's efforts to get you to read the classics and take a morning pledge of allegiance to Europe? Had enough of Paul Kennedy's theories of inexorable historic decline? Fed up with Robert Reich's and George Gilder's attacks on big business--albeit from diametrically opposite perspectives? Confused by the macroeconomists' indecision about whether Reaganomics was something new (that either worked or didn't), or just Keynesian deficit spending in disguise?

If you answer "yes" to some or all of these questions, I heartily recommend Joel Kotkin and Yoriko Kishimoto's The Third Century. Kotkin and Kishimoto do not carry the academic credentials of Kennedy or Bloom; nor do they have the reknown of Iacocca. But Kotkin, Inc.'s West Coast editor, and Kishimoto, a management consultant, have written an original and sweeping treatise on American economic and social alternatives.

Their thesis is startlingly optimistic: the American economy cannot only catch up with its competitors, it can overtake them. According to the authors, Europe is stuck with its stodgy system of special subsidies and slack unions while Japan is awash in xenophobia and short on risk takers. A new American age could be dawning if we create firms that combine the best entreprenuerial behavior (and not Fortune 500 behavior) with Asian approaches to cooperation in the workplace.

Entrepreneurial behavior means the creativity, flexibility, and daring that are the essence of the American character at its best. To Kotkin and Kishimoto it means as well the humanity that is also a part of that character but is too often ignored by conservatives like George Gilder.

Kotkin has previously authored numerous analyses of midsize and smaller American manufacturing firms. His original research demonstrates that manufacturing is on the mend in this country, thanks mainly to vast new outpourings by the smaller firms--high-tech and low. The Third Century carefully documents the surge of smaller-scale manufacturing in the L.A. Basin, which is now the manufacturing center of the U.S.; the role of midsize and smaller firms in revitalizing even our oldest industries (e.g., steel, other metals, and forest products); and the central role played by the newer concerns in the struggle for global high-tech prominence. Compaq, which took on IBM at the zenith of that firm's dominance of the PC market and then proceeded to race to $1 billion in sales faster than had any company in U.S. business history, is a typical Kotkin and Kishimoto favorite. "The small and mid-size firms now represent the most dynamic force in the United States economy," the authors assert in a well-argued section of the book appropriately titled "The End of the Era of Galbraith."

Kotkin and Kishimoto lambast Europe for targeting industries for financial assistance and for its singular failure to generate extensive entrepreneurship, especially in the increasingly significant high-tech sector. The Japanese, the authors note, call Europe the "tribes of the setting sun." The book's unmistakable message is that we should too.

The authors begin with a statistical review. For instance, from 1959 to 1976, U.S. unemployment ran 50 percent above that of Europe; more recently, ours has been about 65 percent less. But they save their heavy artillery for an attack on Europe's failure to innovate: "The 1980s ushered in a period of decline on the continent, with Europe's economic growth rates falling well below those of both Asia and the United States. And despite massive `targeting' by governmental agencies, the worldwide share of high technology-based industries of three top European economies-Great Britain, France, and West Germany--dropped nearly 13 percent between 1980 and 1984."

The problem, they conclude, is an approach that scorns entrepreneurship. "Nowhere," they say, "has the dampening effect on planning for entrepreneurial growth been more evident than in the high-technology field." Overall, "Europe's government-guided shift to `high value-added production' has contributed to turning the continent even more into a technological backwater."

I agree with the thrust of their argument. As Europe moves to confront 1992, when all common market countries will drop their trade barriers with one another, I have been deeply discouraged to watch its merger frenzy, which is a tragically flawed attempt to achieve the "critical mass" needed to compete throughout the soon-to-be-opened, 320 million-person market. The era of clumsy giants is past. We are entering the "Era of the Gazelle," as a collegue puts it--from steel to computers, biotechnology, semiconductors, and superconductivity. Not only does Europe have few gazelles, it seems haughtily uninterested in birthing any.

Kotkin and Kishimoto's meticulous, firsthand analysis of today's Japan is peppered with words and phrases such as "tragic," "profound weakness," and "desperate vice." Could this really be invincible Japan?

In brief, the authors argue that Japan is not fully embracing the next stage of required development. "As the nation enters the 1990s," we are informed, "Japanese industry finds itself caught in a desperate vice, too expensive to compete with the low-cost NICs [newly industrialized countries, like Taiwan, Korea, Hong Kong, et al.] in mass manufacturing while lacking the dynamic new growth companies...capable of producing the necessary new innovations and technological breakthroughs."

The authors and many of their Japanese informants say that Japan needs to find a new way: seedling firms. But so far, this has not been in the cards. They write: "The much admired `adjustment' policies and corporate stability of Japan are in reality signs of a profound structural weakness. A society facing a major industrial transition should be rife with the messy capitalist carnage caused by large-scale takeovers, mergers, and spin-outs. But instead the structure of Japan's economy, characterized by giant conglomerates, has remained largely intact."

The old strategy has run afoul of the changing times. "The mercantilist success of Japan has been based largely on a `fast-follower' strategy," Kotkin and Kishimoto contend. "Rather than competing on innovation and creativity, Japanese firms usually prefer to buy the latest technology from abroad, an approach that worked when Japan's currency and labor rates were relatively cheap in comparison with those of Europe or the United States. But now Japanese costs approach or even exceed those of its advanced competitors."

Where is Japan (and the other Asian nations, for that matter) looking for new role models? Kotkin and Kishimoto's answer is surprising: "America's open system."
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Author:Peters, Thomas J.
Publication:Washington Monthly
Article Type:Bibliography
Date:Jul 1, 1988
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