Understanding American Economic Decline.

America, it is said, has been in an economic decline for perhaps two decades. Japan, and to some extent Germany, have emerged as a major competitor, catching up with America in productivity and living standards. At the end of World War II, Japan's gross domestic product was only one-eleventh the size of America's. But it now appears that some time after the beginning of the new century, Japan's GDP will be two-thirds the size of ours.

The debate on how this came to pass has been explored in countless books and articles. I have argued in the pages of The Washington Post, and in my book Self-Inflicted Wounds--From LBJ's Guns & Butter to Reagan's Voodoo Economics, that American mistakes at the highest levels of government, corporate, and labor power are responsible for this unhappy result.

Yet, I don't believe the situation is hopeless, as do the authors of a new work, Understanding American Economic Decline, co-edited by Michael A. Bernstein, an historian-economist from the University of California at San Diego, and David Adler, a television programming manager. Bernstein sets the tone of the book at the start: "Today, many [economic experts] fear that the American economy is weak and failing, destined to be a second-echelon participant in a new 21st century world economic order."

With an approach they identify as "largely outside the focus of mainstream economic theory," the authors raise questions that are timely as a backdrop to the current debate over President Clinton's economic policy.

The correctives suggested in this book are difficult to nail down. For example, Jane Knodell calls for "the creation of alternative financial institutions to provide long-term development finance, reform of the Federal Reserve, and/or bank regulatory reform." That sounds great, but Knodell doesn't tell us how to do it.

Among the most innovative essays in the book--and one that departs a bit from the overall defeatist thesis--is by James K. Galbraith and Paulo Du Pin Calmon on "Industry, Trade, and Wages." Galbraith, a former Congressional aide now at the University of Texas, and Calmon, a teacher at the University of Brasilia, say that "we remain agnostic on whether the American economy overall is or is not 'in decline.' Rather, we see weak sectors getting weaker, strong sectors getting stronger, and a range of problems as a result of the increasing gap between the two."

Galbraith and Calmon view the NAFTA trade treaty "with contingent optimism," which sets them apart from some of their co-authors. They find a close and strong link between industrial performance, trade, and wages. Thus, they conclude American industries must pay wages that match those paid in competing countries. They found no example among major industries that wages fall when their companies prosper in world and domestic markets; conversely, there were no cases of rising wages in the face of falling export sales.

The policy lesson for government, as Galbraith and Calmon read it, is to support the trade potential only for the most successful industries. The Clinton Administration has dedicated itself to unabashed mercantilist policy of pushing exports as the main engine of growth for the U.S. economy. Galbraith and Calmon say, wisely, that the United States cannot maintain an export advantage in all industries at once.

On the whole, although it is difficult to evolve a consensus theme from the book, there are at least scattered suggestions of a return to economic isolationism. For example, R.A. Blecker, a Washington economist associated with Clyde Prestowitz's Economic Policy Institute, calls for "pressure" on China and Japan to open up their markets. A "credible threat," he suggests, would be to erect "trade barriers in some cases where cooperation is not forthcoming."

My view remains that the decline in America's relative economic power is regrettable only if one believes, in a macho way, that the United States always has to be first in everything. It makes more sense to me to believe that in an interdependent world, America will and should inevitably share power with Japan, Germany, and others. That's the route to global peace. I know the authors of Understanding American Economic Deline share that goal. But I'm not convinced they have shown us how to get there.