By Robert M. Solow
THERE is a lot of loose talk about the "deindusI trialization" of the United States economy. We
I are losing our manufacturing industry to forI eigners and becoming a "service economy" (if
you like the idea) or a "nation of hamburger stands and
insurance companies" (if you don't like the idea). Stephen S. Cohen and John Zysman tregin their book,
"Manufacturing Matters: The Myth of the Post-Industrial Economy," by insisting, quite correctly, that no
such thing can happen. The orders of magnitude are
such that the United States could not hope to pay for its
manufacturing imports by selling seryices abroad. we
need too many goods, and there are not enough services. One way or another we will continue to be pro.
ducers of goods, including manufactures, and probably
net exporters of goods in order to pay interest on the
debts we have incurred during the consumption binge
of the 1980's.
-
That doesn't make things all right. We could of
course balance our trade - and we will - by depreciation of our currency and reductions in our real wages.
There is no trick to that. Every country that is so poor
and so unpromising that no one will lend to it balances
its trade, precisely by being so poor that it cannot afford to import more than it can pay for by exporting.
And what it exports are the products of cheap labor. If
American manufacturing is to win back a competitive
edge against Japan, South Korea and West Germany, it
will have to find a way to sell goods here, there and in
third markets while paying high wages and earning a
good return on investment. That can only happen if we
catch up with, and at least sometimes surpass, our
rivals in productivity, quality and design.
The authors also make the probably valid point
that, even if it were otherwise possible, the notion of a
"post-industrial" economy fails against the proposition
D.hat modern, high-productivity business services are
really inseparable from the production of the goods
they service. The free-floating service sector will soon
lose touch and the new producer will soon acquire
know-how.
This part of the argument is convincingly done.
When Mr. Cohen and Mr. Zysman come to explain What
Robert M. Solow is a professor of economics at the
Massachusetts Institute of Technology.
We'd Better Watch Out
Went Wrong with the United States manufacturing industry they have some interesting and reasonable
things to say, but they also begin to flail around a bit.
They tell war stories, they go in for heavy breathing
(Revolutions and Transformations come thick and
fast), they profess confidence about things no one can
possibly know and they fall into vagueness. Here is a
representative example: "Those firms that understand,
invent and implement thre new possibilities of the
emerging telecommunications technology will gain advantage. Critically, corporate strategies at home and
abroad will use the possibilities of the new technology to
capture competitive advantage. We cannot, of course,
demonstrate how technologies that are only now
emerging will alter strategies in ways yet to be imagined," A passage like that is not wrong; but it only appears to be saying something.
Here is a different sort of example. Alter 100 pages
the authors announce "six h]?otheses that will be used
as premises from here on in. ... First, technological
developments can provoJ<e rapid market shifts. Second,
technologies are shaped by the needs and arrangements that exist in the nations from which they€merge.
Third, some critical technologies can affect the competitive position of a whole range of industries; and if
one nation uses these technologies to gain a lead in a
vital product, it can forge an important trade advantage for itself. These are strategic transformative industries." The other three "hypotheses" are similar.
with all respect, these are truisms, not h)?otheses.
In a way, I do not blame Mr. Cohen and Mr. Zysman, directors of the Berkeley Roundtable on the International Economy at the University of California, for
falling into bad habits. They want to appear to be generalizing about a subject on which there are too few (or
what is almost the same thing, too many) defensible
generalizations. It is just a pity that they cannot be content with the odd insight, the occasional plausible and
discussable hJrpothesis. They do, in fact, produce some
of those. They are interesting, for example, on the need
for flexibility and adaptability in modern manufacturing requiled to give a rich, knowledgeable and finicky
market what it wants when it wants it, quite the opposite of the mass-production philosophy that made
America great. There are other good moments. The
trouble is that they do not know, any more than I do, exactly what let Japan and West Germany overtake
United States industry. They should be content to tell a
few good stories and give the reader furiously to think.
I do fault them for one cop-out. One of their central
beliefs is that there has been a Revolution in manufacturing, its name is Programmable Automation, and
that American industry has failed to capitalize on it.
That may even be so. But then they go on, "We do not
need to show that the new technologies produce a break
with past patterns of productivity growth. ... lThat]
would depend not just on the possibilities the technologies represent, but rather on how effectively they are
used." What this means is that they, like everyone else,
are somewhat embarrassed by the fact that what
everyone feels to have been a technological revolution,
a drastic change in our productive lives, has been accompanied everywhere, including Japan, by a slowingdown of productivity growth, not by a step up. You can
see the computer age ever]rwhere but in the productivity statistics.
HE authors also put some emphasis on the organization of skilled work in factories, and on
the education of production-oriented engineers
and executives. They mention the intriguing
possibility that inattention to quality is a hangover from
the age of mass production. But these side remarks
only undermine the claim to generality, to a grand
scheme. I would have been happier with some welldeserved modesty.
On public policy, Mr. Cohen and Mr. Zysman have
very little to say. They offer the advice that a hands-off
policy is both impossible and undesirable. They suggest
that public policy ought to be directed positively toward
encouraging and assisting the achievement of industrial competitiveness. They suspect, probably rightly,
that the United States Government has allowed itself to
tre flimflammed by the Japanese for years on the matter of nontariff barriers, and ought to play a little hardball. All that sounds right to me. But there is nothing
here to offer a Presidential candidate by way of something concrete to do. It would be an interesting memo,
and it might yet get written
THERE is a lot of loose talk about the "deindusI trialization" of the United States economy. We
I are losing our manufacturing industry to forI eigners and becoming a "service economy" (if
you like the idea) or a "nation of hamburger stands and
insurance companies" (if you don't like the idea). Stephen S. Cohen and John Zysman tregin their book,
"Manufacturing Matters: The Myth of the Post-Industrial Economy," by insisting, quite correctly, that no
such thing can happen. The orders of magnitude are
such that the United States could not hope to pay for its
manufacturing imports by selling seryices abroad. we
need too many goods, and there are not enough services. One way or another we will continue to be pro.
ducers of goods, including manufactures, and probably
net exporters of goods in order to pay interest on the
debts we have incurred during the consumption binge
of the 1980's.
-
That doesn't make things all right. We could of
course balance our trade - and we will - by depreciation of our currency and reductions in our real wages.
There is no trick to that. Every country that is so poor
and so unpromising that no one will lend to it balances
its trade, precisely by being so poor that it cannot afford to import more than it can pay for by exporting.
And what it exports are the products of cheap labor. If
American manufacturing is to win back a competitive
edge against Japan, South Korea and West Germany, it
will have to find a way to sell goods here, there and in
third markets while paying high wages and earning a
good return on investment. That can only happen if we
catch up with, and at least sometimes surpass, our
rivals in productivity, quality and design.
The authors also make the probably valid point
that, even if it were otherwise possible, the notion of a
"post-industrial" economy fails against the proposition
D.hat modern, high-productivity business services are
really inseparable from the production of the goods
they service. The free-floating service sector will soon
lose touch and the new producer will soon acquire
know-how.
This part of the argument is convincingly done.
When Mr. Cohen and Mr. Zysman come to explain What
Robert M. Solow is a professor of economics at the
Massachusetts Institute of Technology.
We'd Better Watch Out
Went Wrong with the United States manufacturing industry they have some interesting and reasonable
things to say, but they also begin to flail around a bit.
They tell war stories, they go in for heavy breathing
(Revolutions and Transformations come thick and
fast), they profess confidence about things no one can
possibly know and they fall into vagueness. Here is a
representative example: "Those firms that understand,
invent and implement thre new possibilities of the
emerging telecommunications technology will gain advantage. Critically, corporate strategies at home and
abroad will use the possibilities of the new technology to
capture competitive advantage. We cannot, of course,
demonstrate how technologies that are only now
emerging will alter strategies in ways yet to be imagined," A passage like that is not wrong; but it only appears to be saying something.
Here is a different sort of example. Alter 100 pages
the authors announce "six h]?otheses that will be used
as premises from here on in. ... First, technological
developments can provoJ<e rapid market shifts. Second,
technologies are shaped by the needs and arrangements that exist in the nations from which they€merge.
Third, some critical technologies can affect the competitive position of a whole range of industries; and if
one nation uses these technologies to gain a lead in a
vital product, it can forge an important trade advantage for itself. These are strategic transformative industries." The other three "hypotheses" are similar.
with all respect, these are truisms, not h)?otheses.
In a way, I do not blame Mr. Cohen and Mr. Zysman, directors of the Berkeley Roundtable on the International Economy at the University of California, for
falling into bad habits. They want to appear to be generalizing about a subject on which there are too few (or
what is almost the same thing, too many) defensible
generalizations. It is just a pity that they cannot be content with the odd insight, the occasional plausible and
discussable hJrpothesis. They do, in fact, produce some
of those. They are interesting, for example, on the need
for flexibility and adaptability in modern manufacturing requiled to give a rich, knowledgeable and finicky
market what it wants when it wants it, quite the opposite of the mass-production philosophy that made
America great. There are other good moments. The
trouble is that they do not know, any more than I do, exactly what let Japan and West Germany overtake
United States industry. They should be content to tell a
few good stories and give the reader furiously to think.
I do fault them for one cop-out. One of their central
beliefs is that there has been a Revolution in manufacturing, its name is Programmable Automation, and
that American industry has failed to capitalize on it.
That may even be so. But then they go on, "We do not
need to show that the new technologies produce a break
with past patterns of productivity growth. ... lThat]
would depend not just on the possibilities the technologies represent, but rather on how effectively they are
used." What this means is that they, like everyone else,
are somewhat embarrassed by the fact that what
everyone feels to have been a technological revolution,
a drastic change in our productive lives, has been accompanied everywhere, including Japan, by a slowingdown of productivity growth, not by a step up. You can
see the computer age ever]rwhere but in the productivity statistics.
HE authors also put some emphasis on the organization of skilled work in factories, and on
the education of production-oriented engineers
and executives. They mention the intriguing
possibility that inattention to quality is a hangover from
the age of mass production. But these side remarks
only undermine the claim to generality, to a grand
scheme. I would have been happier with some welldeserved modesty.
On public policy, Mr. Cohen and Mr. Zysman have
very little to say. They offer the advice that a hands-off
policy is both impossible and undesirable. They suggest
that public policy ought to be directed positively toward
encouraging and assisting the achievement of industrial competitiveness. They suspect, probably rightly,
that the United States Government has allowed itself to
tre flimflammed by the Japanese for years on the matter of nontariff barriers, and ought to play a little hardball. All that sounds right to me. But there is nothing
here to offer a Presidential candidate by way of something concrete to do. It would be an interesting memo,
and it might yet get written
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