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Perestroika for America.

Perestroika For America Perestroika For America. George C. Lodge. Harvard Business School Press, $22.95. This book has a simple, and, I believe, true thesis. In the 21st century, comparative advantage will be man-made, based upon the invention and mastery of new product and process technologies. Europe, Japan, and North America will all want the same high value-added, high wage industries: micro-electronics, biotechnology, the new material science industries, robotics, civilian aviation, computer hardware and software, and telecommunications.

According to Lodge, to be successful, countries and industries, as well as individual business firms, must formulate and carry out the resulting strategies; business and government must work together. Individual initiative must be combined with a communitarian vision.

America needs perestroika because its standard operating procedures have not usually involved cooperation and planning. It needs a new structure to formulate a bottoms-up economic game plan and to find some institution to play quarterback--the role played by MITI in Japan and by the universal banks in Germany.

Lodge gives sensible advice on what it takes to form a successful consortium. It must be industry-led; participants must have clear, shared objectives; timing must be right, with a sense of urgency and agreed-upon deadlines; the key players must have top management support; substantial time must have been spent planning strategies; strongly motivated, competent people with career paths within and outside the consortium must be attracted and a common culture built. Government's role is as a legitimizer, a power broker to protect small companies from large ones, a provider of supplemental funds, a coordinator with other government policies, a socializer to spread the benefits to the community, an overseer to ensure that the project stays on track, and a defender of the clearly defined national interest that is to flow from the consortium's activities.

In the bulk of the book Lodge takes a random walk through the failures of American business firms to work together, to work with government, and to compete successfully against those in Europe or Japan who have learned to work together. We learn about the Japanese strategy for conquering robotics, information policies in Brazil, and about the problems the U.S. semiconductor industry is experiencing while the European semiconductor industry is still getting its act together. Our failures to capitalize on our lead in remote space satellite sensing devices is also recounted.

George Lodge appears to believe that he is writing an optimistic book. While we Americans have failed to get our act together thus far, we are slowly and painfully learning both within our business firms and within our government. But even ignoring two events that have occurred since this book went to press (the collapse of U.S. Memories, because U.S. firms could not work together, and the Bush administration's firing of the most important government actor in government-industry cooperation--Craig Fields, the head of the Defense Advanced Research Projects Agency), I find this a deeply pessimistic book.

Lodge writes that "in the 1960s the British government sought to collaborate with business and labor to formulate something like an industrial policy, [but] neither the institutions, the instruments, the personnel, nor the ideology were there to make it work." Lodge's words could refer just as easily to the United States. American businessmen talk as if an incompetent government is filled with venal, dumb civil servants. The government returns the hostility: Lodge quotes an FDA inspector as saying, "Our job is to get the violators. We are cops, let's face it." "Our" job is not, apparently, to help build a successful American medical industry.

As Lodge recognizes, national visions and strategies have a legitimacy problem in the United States. During our history, the economic activities of government arose in response to the excesses of capitalism. In the mid-19th century, transportation was regulated when the railroads attempted to rip everyone off. At the turn of the century, antitrust laws were passed in response to the excesses of the robber barons. In the 1930s the failure of capitalism led to the rules and regulations of the New Deal. By contrast, in both Germany and Japan, industry grew up with government as a big brother; everyone needed to work together to catch up with England and the United States and rebuild after the destruction of World War II.

Lodge recognizes that we won't act differently until we have a different history. This means a crisis. As he says, "The issue seems to be: How much crisis will it take?" The empirical answer, unfortunately, seems to be quite a bit. Losing consumer electronics has not done it. Losing autos, steel, and machine tools has not done it. Having nonsupervisory workers (two-thirds of the work force) with real hourly wages 11 percent below where they were in 1973 has not done it. Apparently, it will take a very large crisis.

As an economic system, communism may be dying in Eastern Europe, but there is another battle underway in the world between two different forms of capitalism--best represented by Germany and Japan on one side, and the United States and Great Britain on the other. One side believes in having a game plan and a quarterback, the other does not. The side that does not may not be dying, but it is certainly being severely betaen. How long the whipping continues before the American firm expires is an interesting question.
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Author:Thurow, Lester C.
Publication:Washington Monthly
Article Type:Book Review
Date:Jul 1, 1990
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