In widely heralded new books, Robert Reich and Robert Kuttner undertake the perilous task of drafting new economic blueprints for the left. Both have ties to the liberal wing of the Democratic Party. Both assert that the economy’s increasing openness to international trade and investment, while benefiting many Americans, hurts the majority of workers. But their views about how the government should respond diverge sharply.
In “The Work of Nations,” Reich, a lawyer who teaches at Harvard University, contends that an identifiable “American economy” no longer exists. In the modern global economy, he says, the interests of U.S. corporations may be quite different from the interests of average Americans. He argues that government should focus on making the United States an attractive place for companies, whether foreign or domestic, to conduct operations that create high-wage jobs.
This doesn’t sound like the writer who made his reputation as an advocate of “industrial policy” - the notion that government should identify and foster the growth of key industries. In a 1982 book, Reich and consultant Ira Magaziner warned: “Without government support, American business will find it increasingly difficult to achieve competitive leadership in today’s international environment.” Now, he says, a company’s national origin makes no difference. As Reich puts it, “It is not what we own that counts; it is what we do.” In reality, of course, the world economy is nowhere near so global as he argues. What we own does matter: more than 93 percent of the stock of publicly held U.S. corporations is in the hands of Americans, not to mention the lion’s share of privately held companies. Other things being equal, the U.S. economy gains if American companies perform well against foreign competitors.
Reich argues that while today’s economy may be good for skilled people who can solve problems and broker transactions (engineers, investment bankers, consultants and the like), factory workers and people in service trades are suffering. Those who thrive in the new international economy, he contends, are “quietly seceding” from the less fortunate majority, debasing public schools, neglecting public investment and refusing to finance social programs that would aid those whose living standards have been cut by foreign competition. His recommendations: spend more on education and training, rebuild our infrastructure and ease the movement of workers out of uncompetitive industries. Once an advocate of limited protectionism, he now calls for eliminating trade barriers, welcoming foreign investment and speeding the shift of high-volume production to low-wage countries. If this is a recipe for “industrial policy,” it’s one even George Bush could swallow.
Kuttner doesn’t buy it. His book, “The End of Laissez-Faire,” echoes Reich’s concern about American living standards, but it rejects Reich’s globalist views. “American liberals who once scoffed at the idea that ‘what’s good for General Motors is good for the country’ ought not to go to the opposite extreme and insist that it simply doesn’t matter whether General Motors goes down the drain,” he writes.
Kuttner convincingly shows that economic policy, both in the United States and abroad, has never been left to the market. Like the Reich of old, he argues that the United States would be better off with an explicit government role in economic decision making - call it economic planning, if you like - than by simply responding to challenges posed by foreign businesses and governments. He offers specific proposals - managing trade flows, getting tough with Japan, forcing the yen and the Deutsche mark to play a larger global monetary role - that will prove far more enticing to politicians than Reich’s call for more attention to training and infrastructure. But when it gets down to cases, Kuttner has difficulty finding a trade barrier he doesn’t like; his concern for U.S. industry is not matched by concern for the consumers and business customers who are harmed by protectionist measures.
Both of these books offer evidence that liberals are beginning to grasp why the public treats their economic ideas so disdainfully. The arguments, while often debatable, are more sophisticated than much of what has passed for Democratic economic thinking. Whether the party’s leaders can translate these concepts into policies that offer real benefits to American workers, though, is still an open question.
