Remedy for Doomsayer Blues

The Third Century: America's Resurgence in the Asian Era, by Joel Kotkin and Yoriko Kishimoto, New York: Crown Publishers, 286 pages, $19.95

Tired of hearing about America's inevitable decline? Wearied by sage warnings that the United States must accommodate itself to a more circumscribed role in the world? Burned out on arguments that our foundering industries must be "adjusted" by government planners? The Third Century is the remedy for these fin de siècle blues. Coauthors Joel Kotkin, West Coast editor for Inc. magazine, and Yoriko Kishimoto, a consultant who aids companies engaged in trans-Pacific trade, argue convincingly that the "Asian challenge" is really the "Asian opportunity" for the United States.

In this so-called era of limits, innumerable commentators, academicians, and politicians take America's eventual decline as a given. "The whole post-Reagan political atmosphere seems to be colored by acceptance of the superiority of foreign role models that embrace mercantilist strategies using government policy and planning to develop and maintain trade surpluses," write the authors. "As the economic debacle of the Depression provoked a surge of interest in such European-bred authoritarian systems as socialism and communism, today's setbacks have led to a new fascination with the industrial policies of other countries."

Consequently, our political leaders, spurred on by liberal intellectual elites, urge us to "rationalize" our industries in the manner of the European Community and to target our sunrise industries the way Japan's Ministry of International Trade and Industry (MITI) does. In addition, we should raise tariff barriers to protect industries vital to our national security and to punish countries whose trade surpluses grow unacceptably large. The latest horror, vigorously purveyed by Michael Dukakis and Richard Gephardt in last year's campaigning, is what economist Herbert Stein refers to as "economic patriotism." The U.S. government should limit foreign investments because such investments in American businesses will somehow impair our national sovereignty.

Much of what Kotkin and Kishimoto say is familiar: the Pacific Basin is the new center of the world's economy; the United States is becoming a multiracial "world nation"; the wellspring of American competitiveness is the entrepreneurial talent of our small innovative companies; and American businessmen have a lot to learn about successful management from their Asian competitors. Their distinctive achievement is the way they weave these strands together into a clear, convincing analysis of how America is positioned to compete successfully in the 21st century.

In particular, Kotkin and Kishimoto focus on two of the United States' unique economic strengths—its entrepreneurial culture and its open economic system. Our economy is an amazing machine that churns out thousands of dynamic and innovative new companies annually. In Asia and Western Europe, entrepreneurs are rare, and large corporations are in positions to strangle most new companies at birth. By contrast, in the United States the 1980s has been the Decade of the Entrepreneur, celebrated by one and all, and rightfully so. To recite just a few of the now familiar statistics: In 1985, 700,000 new corporations were registered, up from 200,000 only 20 years ago. Between 1977 and 1985, small companies created 89 percent of 18 million new jobs. (By contrast, Europe lost 3 million jobs and 19 million people are unemployed—over 10 percent unemployment in many countries.)

So perhaps the most pernicious notion currently being advanced by interventionist doom-and-gloomers like Harvard's Robert Reich is that our small entrepreneurial companies simply cannot be expected to compete successfully with international giants like Japan's Mitsubishi or Korea's Daewoo. John Kenneth Galbraith concurs, saying that the entrepreneur is "a diminishing figure in the industrial system." So they argue that the federal government should focus its attention on "helping" our large corporations to compete in world markets. "Help" is a code word for protective tariffs and higher government subsidies.

Unfortunately, large corporations may just get such help in the near future. George Bush, a mainstream Republican, may well favor the interests of big business over those of America's small companies. This would be a profound mistake. Kotkin and Kishimoto show just how new, nimble American companies like Nucor and Compaq beat the Japanese dinosaurs every day. Currently, everyone's attention is drawn to the takeover battles raging on Wall Street, ignoring the past five years of enormous economic growth propelled by small, new, innovative companies. Takeovers are a fad; the continual creation and growth of new small companies is the permanent reality of America's economic future.

Also, Kotkin and Kishimoto argue that American openness to immigration gives the United States an enormous competitive advantage. This country admits more legal immigrants each year (more than 500,000) than the entire rest of the world combined. And most new immigrants come from precisely those parts of the world where our economic opportunities are the greatest—East and South Asia and Latin America. The new immigrants bring to America their drive to succeed, international marketing savvy, and unmatched business connections in their native countries.

In response to the champions of industrial policy, the authors point out that many countries are now struggling, but largely failing, to inculcate some of the dynamism of the American economy into their own economies. They show that MITI's reputation for successfully targeting Japan's sunrise industries is vastly overblown. That paragon of industrial planning has not been able to develop the breakthrough technologies that are the dynamic source of an economy's growth, despite the money that has poured into its highly touted Technopolis Concept and Fifth Generation Project. The authors also call attention to the fact that Japan's much-ballyhooed lifetime employment system, which covers only a third of the workers anyway, smothers innovation and straightjackets talented managers. Discounting Japan's apparent economic success as evidenced by its trade surpluses, Hiroshi Takeuchi, chief economist of Japan's Long Term Credit Bank, glumly predicts, "The Japanese role will be to assist the United States by exporting our money to rebuild your economy. This is the evidence that our economy is fundamentally weak. The money goes to America because you are fundamentally strong."

A self-absorbed Europe is well on the way to economic obsolescence, cowering in its fortress of protective tariffs. The lowering of internal trade barriers in the European Community by 1992 is merely the last gasp of European mercantilism—the consolidation of failed economic policies. Melvyn Krauss, an economist at New York University, succinctly notes that the adoption of European industrial "adjustment" policies and government economic planning would be an attempt to "catch up with the losers."

Kotkin and Kishimoto cast cold water on the notions of postindustrial enthusiasts like John Naisbitt of Megatrends fame. The authors convincingly assert that manufacturing does matter. Technological innovation is tied closely to the manufacturing process. American business leaders are only fooling themselves if they believe that they can retain their technological edge if they lose their ability to manufacture new products.

Kotkin and Kishimoto have made a strong case that the United States is far from being a declining nation. America's dynamic capitalist economy and multicultural heritage guarantee, with due respect to Michael Dukakis, that the best America is yet to come in its third century.

Ronald Bailey is a staff writer at Forbes.