It's Time for an American Perestroika

While Japan plants its flag on the twenty-first century, an ideological fixation on the relations that should obtain between government and business prevents us from taking the steps necessary to ensure our future prosperity

BY GEORGE C. LODGE

PRESIDENT GEORGE BUSH HAS NAMED AN ADMINISTRAtion that for the most part has been greeted as “pragmatic,” a welcome change from the “ideologues” of the Reagan years.

When we contemplate what needs to be done in America, however, there is no escaping ideology. The choice is which one and how it is to be implemented. The pretense of pragmatism—that you can act without ideological consequences—obscures the choice and invites perilous inadvertence in adopting a new course.

Take, for example, maintaining national competitiveness in such high-tech industries of the future as semiconductors, supercomputers, high-definition TV, biotechnology, and telecommunications. All have confronted or are about to confront devastating competition not only from Japan but also from Europe. As Paul McCracken, the chairman of the Council of Economic Advisers in the Nixon Administration, has recently written:

If trends of the 1980s for the Big Seven of the industrial world continue through the 1990s, Japan’s per-capita output will exceed that of the U.S. by nearly 40%. Real incomes in France and West Germany will also be well above those here. Italy and Britain would still be lower than the U.S., but closing the gap. If there is no improvement in our own performance, the malady under discussion in the 1990s will be the American Disease.

Unless we quickly learn the causes of our lagging performance, we are doomed to become a second-class economy. Learning means understanding that most of the problems of our high-tech industries derive from America’s traditional ideology of individualism, from the very hymns that we as a nation love to sing.

According to this ideology, the legitimacy of business derives from the notion of property rights, and the authority of its managers derives from its owners, the shareholders. The managers’ primary purpose is the satisfaction of those shareholders. To this end managers compete to satisfy consumer demand in a marketplace rigorously kept open by antitrust laws. Government, a necessary evil, is a referee blowing its whistle now and then, but never a coach and certainly not a player. Bigness in government and in business is inherently suspect, as is cooperation between the two.

Time was when this conception worked. It was pragmatically as well as ideologically satisfying. Owners were few in number; they could readily be consulted by management about whether they sought long-term market share or short-term returns. Labor was plentiful and, by the standards obtaining in the rest of the world, well-educated. American corporations, nourished by a populous and affluent market at home, dominated international trade.

During the past two decades intense global competition has demolished this ideological paradigm, leaving America to grope for a new one. The idea of property rights is meaningless when owners—shareholders—do not in fact own. In these circumstances, while it is accurate to say that legal authority remains with the stockholders, the enabling authority of the company manager flows not from the top down but from the bottom up—from the companies’ employees, who must have a degree of job security and a role in corporate governance if they are to be committed and motivated. Successful corporations (and trade unions) realize this. But the old ideology delays transition.

Government policies are crucial to corporate success— and failure. For two decades they have kept America’s rates of savings and investment the lowest in the indusencouraging a buy-now-pay-later society through consumer-oriented tax policies—that, for example, have allowed taxpayers until recently to write off most of the interest on large consumer loans, something few (if any) other major industrial countries permit. They have perpetuated a fragmented and adversarial relationship between industry and government, while our competitors have enjoyed coherence and cooperation. They have allowed the deterioration of our educational system and the erosion of our skill base.

The American semiconductor industry fifteen years ago dominated the world. Today it is fighting for its life. There is a choice: going abroad to join the competitors for shortterm gain, or staying home and changing. Many argue that pursuing the first course is a matter of necessity: Motorola joins Toshiba, Texas Instruments goes with Hitachi—and high-definition TV, supercomputers, and other elements of the microelectronic “food chain” go abroad. To some extent this is essential, but, fortunately, the industry took an initiative in the mid-1980s to offset this trend. Fourteen semiconductor companies joined to form Sematech, a partnership with government to recover America’s position on the leading edge of semiconductor-manufacturing technology. Half a billion dollars was pledged by government, to be matched by industry; today Sematech is under way in Austin, Texas. Many doubt, however, that it is enough. Without an invigoration of the electronics industry that uses chips and of the suppliers of equipment and materials to the chip-makers, Sematech’s mission will fail.

Sematech came into existence, in contradiction to traditional ideology, only after the individualistic, fragmented semiconductor industry reluctantly realized that the old paradigm was broken. Industry leaders argued that the national interest required government funding. What was that interest? Under the legislation passed by Congress, the Defense Department became Sematech’s government sponsor. The national interest was thus presumably military in nature. In fact, however, the national interest lies in recovering competitiveness in commercial markets. Here we run into an ideological problem. Both government and industry have stubbornly refused to acknowledge that it is a proper role for government to think strategically about the fate of American industries. Industrial policy is ideologically anathema. Nevertheless, such policies are being forced upon us: in microelectronics, probably in biotechnology, new materials, and telecommunications, and maybe in banking. Our refusal to face the ideological implications of ad hoc pragmatic accommodations like Sematech blinds us to the requirements for success.

ONLY GOVERNMENT HAS THE AUTHORITY TO EXEMPT industry from the strictures of the antitrust laws and to allow the collaboration among companies required for competitiveness. And yet only business has the competence to do the work. So there must be a linkage of government authority and business competence.

Government must provide the authority and business the competence to decide for the long run what we want our economy to look like—to define the national interest reliably. A possible instrument for forging that definition is at hand: it is the Competitiveness Policy Council provided for in the Omnibus Trade and Competitiveness Act of 1988, to be composed of representatives of government, business, labor, and academia. The council could articulate and clarify the new ideology that is upon us, and provide a fresh basis of legitimacy for cooperative ventures such as Sematech.

The firms involved in Sematech, and also government, have realized pragmatically that the traditional model of arm’s-length competition in a marketplace kept open by the antitrust laws serves the interests of neither the nation nor—in the long run—the shareholders. A new model is being formed, one in which rival firms compete but also cooperate with one another and with government to build the nation’s economic base. Today competitive forces require an industry-government partnership. The ideology implicit in this new model is objectionable to many, but unless its implications are understood, the partnership, for all its practical value, will be found illegitimate and fail. Critical questions must be faced: When government and business join together to serve community needs, who is the senior partner? What are the terms of the partnership? Is it covert or overt? Who decides its objectives, and by what process? These are issues the Competitiveness Policy Council should address.

In this new ideology neither government and business nor managers and managed are adversaries. They are engaged in a common endeavor for the common good. This outlook ultimately provides competitive advantage.

There are many dangers in such a communitarian approach, not least among them inadvertence and carelessness (though ideological consciousness of what we are doing, as opposed to mere pragmatic experimentation, would help us avoid these dangers). Government-business cooperation without clear lines of authority, appropriate definitions, and realistic expectations could result in wasteful support of companies that should be allowed to fade away. It could lead to excessive nationalism at a time when international interdependence is a fact of life. The new emphasis on consensus could threaten the rights of workers.

Still, the reality of global competition has forced us to recognize that while each of us may have rights, we also have duties. Although rights are politically easy to define, duties are more controversial. All states provide welfare, but only thirty accompany it with a duty to work—workfare. All states provide medical aid. Should they impose a duty not to smoke? All states have public education. Is there a duty to satisfy minimum standards before receiving a high school diploma?

The United States, like the Soviet Union, must confront its ideology. We are moving pragmatically and experimentally away from our traditional ideology of individualism, not because we want to but because we have no choice. Yet we resist articulating the ideology that justifies the steps we are taking, as if preferring consistency to discovery, blindness to self-recognition. It’s time for our beliefs to catch up with our practices, so that we can give our experience an enduring reflection in thought.