THE ZERO-SUM SOLUTION: Building a World-Class American Economy

Thurow here responds, with a thoroughgoing program of structural reforms, to critics who complained that The Zero-Sum Society (1980) described America's pressing economic problems but did not offer solutions. Beyond nominating the Democratic party as the likeliest agent of change, however, the MIT economist is vulnerable this time around to the charge that he largely begs the question of how his more creative proposals might be carried out. Citing massive and persistent trade deficits (attributable mainly to the inability of domestic suppliers to compete in global markets), Thurow argues that America has lost its ""effortless economic superiority."" In particular, he is concerned about lagging gains in productivity. His recommendations for retrieving the situation include ""better social organization,"" an objective that in part involves restructuring corporations along partnership lines which could promote the mutual long-range interests of labor, management, and shareholders. Likewise, having documented the top-to-bottom decline in the work force's competence, Thurow counsels replicating the crash educational/training program launched during the post-Sputnik era. Financial as well as tuition deficiencies underly America's eclipse as a world-class competitor, Thurow asserts, pointing to a personal savings rate that's too low to support an adequate level of capital formation. To raise gross fixed investment to 25 percent of GNP (from the current rate of 18 percent) in seven years, he suggests private-sector sacrifices akin to those made in postwar Germany and Japan, e.g., a phase-out of the deductibility of interest charges on consumer credit. Also high on the author's agenda is an overhaul of the Internal Revenue Code, which would include a value-added tax and simplification of levies on individual income … la Bradley/Gephart. On grounds that health-care costs are not really an economic issue, he calls for development of a consensus on the trade-offs. In like vein, Thurow dismisses much of the controversy over industrial policies, which ""are to a nation what strategic planning is to a firm,"" as theological. If this approach is indeed ineffectual, he observes, intervention by foreign governments should be cause for celebration in corporate boardrooms. As a practical matter, Thurow maintains, industrial policies (which in fact if not in name are an integral part of the US economic system) should be directed openly to strengthening and underwriting the nation's R&D as well as production capacities. Also a top priority for the Democrats in Thurow's book is getting America's macro-economic act together. A crucial (and unexplained) aspect of this effort would require tying wage rates to productivity; similarly, the party of change is enjoined ""to lead the way toward a more efficient (and adaptive) form of social organization,"" i.e., one that does not necessitate the practice of Phillips-curve economics (which, broadly speaking, rely on higher unemployment to curb inflation). While they're at it, Thurow advises, Democrats should end the Federal Reserve Board's independence to reverse the tight monetary and loose fiscal policies that have boosted interest rates--and helped produce an injuriously overvalued dollar. On the whole, though, Thurow offers generalized commentary--and equity-based appeals--to the better nature of a citizenry he concedes encompasses too many determined special-interest groups. In consequence, then, an informed, frequently provocative contribution to the debate on America's economic course, albeit one whose political feasibility and practicability remain very open questions.