Economic Elixir


The Next American Frontier, by Robert B. Reich, New York: Times Books, 1983, 324 pp., $16.60.

During the Carter administration, Robert Reich was director of policy planning for the Federal Trade Commission. In those days, his opinions on economic policy ended up in the kinds of standardized reports and US Government Printing Office publications that line the office bookshelves of every member of Congress but that practically no one anywhere ever reads. He was a faceless bureaucrat with limited influence—and the nation was better off.

Today, Reich is a professor at the Kennedy School of Government at Harvard University. His latest book, The Next American Frontier, was excerpted in the Atlantic in advance of its publication this year and has been widely reported and reviewed, usually favorably, in mainstream newspapers and magazines. Democratic presidential hopefuls, especially Walter Mondale, Gary Hart, and Ernest Hollings, have warmly praised his proposals and arguments for government intervention. Reich himself, no longer faceless, is active on the speaking and public-appearance circuit as a leading proponent of a "national industrial policy."

This is free enterprise and the competition of ideas in action, and for that reason, but only for that reason, one cannot be too displeased by Reich's career ascendancy. After all, if an average academic with ignoble and unworkable ideas can achieve success and influence, there's also hope for those making the case for individual rights, world peace, human freedom, and economic prosperity. As long as a free market in ideas exists, so does the potential for advancing truth.

To give Reich his due, he is more than a "public policy entrepreneur…possibly hunting for future employment in the government," as Robert Samuelson characterized him in Harper's. Not that he isn't that; it's just that he is also a capable writer with a good feel for public-policy analysis. Though countless writers in Washington on congressional committee staffs or in other jobs could have written this book, that should not diminish Reich's achievement. He found a market niche and filled it, and market advocates have to give him that.

The fact of the matter is, Reich does have some interesting things to say. Unfortunately for his readers, he doesn't have enough for a whole book. One might say that he "crammed" a mildly interesting 30-page essay or pamphlet into 300 pages. Not only is it difficult and time-consuming to ferret out his useful thoughts when spread so thinly over so many pages, but the filler he put in-between is pure nonsense. Indeed, it's so bad that one wonders whether the good stuff was intentional or accidental. While his analysis is fairly good, his social-justice ideas and policy recommendations are downright embarrassing to anyone who qualifies as an intellectual.

The worthwhile parts of Reich's book include his discussion of the problems wrought by increased international competition, the reluctance of American corporations to embrace economic change, and the problems created by past government policies aimed at helping certain industries. These segments provide little new analysis, and most has been said before just as well; but some points are interesting, and sound analysis is always welcome. Without the filler, these segments would have made a useful little pamphlet.

Reich's book falls apart, however, when he begins suggesting ways for the United States (meaning the federal government) to "solve" the problems cited. For example, he correctly identifies as a problem the fact that past interventions have been politicized to the point of helping only old and established firms—and what they do with the help is forestall change. His "new" solution is to institute more government aid programs, but with some kind of promise or contractual commitment from recipient industries and firms that they will try to change. Applied to a situation in which welfare recipients are living off their government checks instead of getting jobs, this solution is akin to giving the recipients more and larger checks but asking them to try harder to get jobs if they can.

Reich recognizes the natural reluctance of corporations to change their methods and the cravings of corporate executives and owners for stability. He tells why much postwar government policy has focused on protecting people and industries from change, clearly at a cost to international competitiveness and economic growth potential. And as a professed humanitarian, Reich understands the need for security and stability. Simultaneously wanting competitiveness, growth, security, and stability, he vaguely espouses public policies that promote economic adjustment while maintaining jobs and preventing bankruptcies. How's that for an innovative approach?

Throughout the book, Reich mixes his analysis of real, bona fide problems (most of them caused by previous interventions) with a call for solutions that are mindful of "social justice." He boldly asserts that the choice between central planning and free markets is a "false choice." Instead, he advocates a mixed economy as if it were a new idea. What we need in America, he says, is "an economics that reaffirms our political life together and a politics that promotes our mutual prosperity.…A social organization premised on equity, security, and participation will generate greater productivity than one premised on greed and fear."

Harvard or not, Robert Reich is a lightweight. He understands, as the old saying goes, just enough to make him dangerous. He is not an economist, but having worked in Washington, he knows the language and the basic interplay of various special-interest groups. It's clear that he's never read the outstanding scholars in the field in which he's writing, many of whom demonstrated the futility of his federal interventionist approach long ago. He is like a summer intern who spends two months working on a special project and then believes that he knows more about this topic than anyone else. Reich doesn't even know what he doesn't know—but then, since when did ignorance ever keep anyone out of Harvard or the FTC?

Once, some years ago, television personality Tom Snyder was asked if he had an explanation for the popularity of his late-night interview program. Snyder is reputed to have answered in all seriousness that "It's simply because I think and talk good in front of a camera, and always have." It's easy to imagine a similarly immodest explanation from Reich for the success of his book. He might say, "It's simply because I understand political economics better than those who have studied it, and I always have." One cannot read him or hear him without seeing that he seems to believe that about himself.

Reich's book is to economic policy what sensational ads in cheap newsweekly papers are to diets and nutrition. These ads promise that overweight readers can continue to overeat and lose weight at the same time. They don't work, but people keep ordering their wares because the idea is so appealing that people want to believe it. Likewise, the notion that government can allocate resources in a compassionate and "socially just" way and not interfere with economic growth and prosperity is just as impossible. Reich is selling an elixir, a government policy that is all benefit, no cost; all gains, no pains.

In the final analysis, as Austrian School economist Ludwig von Mises pointed out decades ago, the policy choice is straightforward. "Either the consumers' demand as manifested on the market decides for what purposes and how the factors of production should be employed, or the government takes care of these matters. There is nothing that could mitigate the opposition between these two contradictory principles. They preclude each other." Reich's contention that "the U.S. economy is grinding to a slow, painful halt" does not justify more intervention. There is no golden mean. As his own book implies, intervention is nothing more than a policy of socialism by steps. The past has proven it, and the present reaffirms it. Reich's brand of corporatism should not be embraced for our future.

Richard Wilcke is president of the Council for a Competitive Economy in Washington, D.C.