Presentation / Critique of Eamonn Fingleton, In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (1999)

by Loren Goldner

The following text (ca. 7,000 words) began as a review/critique of one of the most interesting books I read in 1999, Eamonn Fingleton’s In Praise of Hard Industries. While Fingleton is hardly a radical (as the following will make clear), IPHIis one of the most devastating broadsides I have found anywhere against the current “New Paradigm”, “New Economy” ideology. Fingleton’s timing was perfect, as IPHI appeared in the fall of 1999, about six months before the collapse of the high tech stock market mania in March 2000.

My intent was originally to critique the book in depth, but more than half of the “review” remains a summary of the book. This in itself is not bad, since IHPIis a great read, and thus a decent 7,000 word summary can be an inducement, to some, to actually read the book.

The main reason I wanted to write an in-depth critique of Fingleton is that I feel an analysis and program of the type he exemplifies could well emerge as the program of a “left” restructuring of capitalism. Fingleton is a productivist, almost a technicist, and very much in favor of a “high wage” “high road” for blue-collar labor, going much farther than the feeble “national industrial policy” proposals of the 1980’s and since. He describes himself as a “scientific mercantilist”, meaning ultimately the tradition of Alexander Hamilton, Henry Carey and Friedrich List, the often unacknowledged theoreticians of the new Asian economies (largely through first the German, then Japanese mediation). For Fingleton, capital as capital presents no problem to the world expansion of the productive forces. What I found most interesting in his analysis is his theory of “producing more with less” (sort of an inversion of the E.F. Schumacher ideologies of Zen austerity), a variation on Schumpeter’s older theory of “creative destruction” as a theory of the way in which capitalism has advanced historically. Translated into more familiar Marxist terms, this could be summarized as the “cheapening of the material content of the total wage bill” as e.g. occurred with consumer durables for the working class through the twentieth century.

Fingleton’s major concern and perspective is the future of the American economy and American society; my own are the future of the international workers’ movement.
Despite its flaws and its obliviousness to the concerns of Marxists and of other people interested in the creation of a radical anti-capitalist left, I can highly recommend this book to anyone concerned about the future of the international workers’ movement.

Fingleton makes possible something I have encountered in few other venues: an understanding of how deeply our experience over the past three decades in the U.S. has been conditioned and distorted by de-industrialization and the supposed triumph of the “post-industrial” “New Paradigm” economy associated with the computer, the Internet, e-commerce and so forth. His book is one big broadside against the feelgood ideologies which have hyped these developments, and provides much ammunition which the radical left can put to its own uses.

Eamonn Fingleton is an interesting fellow. His earlier book Blindside: Why Japan Is Still on Track to Overtake the U.S. by the Year 2000 (1995) is a long encomium to the superiority of the Japanese (mercantilist) model over Anglo-American free market capitalism, as well as a dissection of how badly Western commentary misunderstands the underlying strengths of the Japanese economy. In his new book In Praise of Hard Industries(hereafter IPHI) Fingleton (whose first book came out well before the Asian crisis of 1997-98) is singularly unrepentant about his earlier prognosis. Not only had he foreseen (in articles in the late 1980’s) the impending collapse of the Tokyo stock market, the real estate market and the resulting banking crisis; he asserts today that, serious though they may be, these phenomena have not slowed down Japan’s continuing rise as the world’s export superpower and main source of capital, during the same period that the U.S. has sunk deeper and deeper into debt on international account. “In the long run”, Fingleton writes in IPHI) “this changing balance of financial power will be just about the only thing that historians will remember about U.S.-Japan economic rivalry in the 1990’s– but it was the one thing that Western observers utterly overlooked at the time”.

IPHI, however, is much more about the U.S. than about Japan, though it brings to bear all the insights of Fingleton’s 14 years as an economic journalist in Tokyo. Before getting into a critique of Fingleton’s framework, I would like to devote considerable space to unpacking his analysis.

I would say, from the outset, that the perspective articulated by Fingleton is, in the short to medium term, a significantly more formidable rival to a Marxist orientation than any of the laissez-faire or Keynesian ideologies we confront more immediately, at least in the U.S. It is on a spectrum with (less coherent) works like Michel Albert’s Capitalism vs. Capitalism (1990), which argued that the real struggle in the world today is not capitalism vs. socialism but Anglo-American capitalism vs. continental European (essentially German) capitalism. Both Fingleton and Albert like mercantilism (in the Henry Carey- Friedrich List sense of the term); in BlindsideFingleton even implies that Japan is somehow beyond capitalism as such. Nevertheless, I predict that we will be hearing a lot more of these ideas in years to come, as the U.S. economy sinks deeper and deeper into ficticious growth, (temporarily) subsidized by recycled foreign capital arising from chronic U.S. balance-of-payments deficits.

What, then, does Fingleton say?

He begins by exploring the “major holes in the case for post-industrialism”, as the latter has been trumpeted in the past thirty years by such luminaries as Daniel Bell. He wants to counter the “effort by embarrassed government officials to cover up the extent to which real manufacturing has declined in certain key Western nations” (in the particular case in point the classification of software production as a “manufacturing industry”). What interests Fingleton is the future potential of “capital-intensive, technically sophisticated forms of manufacturing”, as opposed to “final assembly of consumer products”, a much lower-level activity which accounts for an increasing amount of what is left of U.S. manufacture. By focusing on the latter, in Fingleton’s view, the post-industrialists have set up a “straw man”, for it has been the latter which has been easily outsourced to Third World countries. Fingleton critiques the post-industrial paradigm for 1) a mix of jobs that leans heavily to the highly-educated, 2) slow income growth (tied to low increases in productivity), and 3) poor export prospects.

1) needs little elaboration. On income growth, Fingleton cites the 1998 OECD In Figures showing 8 nations with higher income levels than the U.S, all of them with a larger manufacturing work force as well. Further, Fingleton shows that since 1980, when the “post-industrial” paradigm became dominant in U.S. debates about the economy, 12 nations, most of them with a larger manufacturing orientation, have had faster income growth than the U.S. In contrast, the other “Anglo-American” capitalisms, Britain and Canada, which have embraced post-industrialism as much or more than the U.S., are 21st and 25th respectively of 26 OECD countries in income growth. Purveyors of post-industrial hype totally overlook the impact of these developments on the millions of workers whose lives have been devastated by de-industrialization and the shift to the high-tech software paradigmin the U.S. By contrast, both Asian manufacturing powers South Korea and Japan, even taking the 1997-98 crisis into account, have shown “stunning” levels of income growth in the past 40 years.

Fingleton also unmasks the fallacies of the “purchasing power parity” approach to living standards in international comparisons, pointing out its absurdity in comparing an American suburban lifestyle requiring two or three cars and private school for the kids with Singapore, where the far lower cost of using the excellent public transportation and public school systems would show up as a lower standard of living than the U.S. The “purchasing power parity” neglects realities as divergent as infant care, preventive medicine and longevity (Japan having long since passed the U.S. in the latter).

One of the real strong points of Fingleton’s book is his demolition of the myth that high wages are an obstacle to a country’s export or, more generally, economic prowess, and that “manufacturing economies are ipso facto low-wage economies”.

Finally, on point 3), Fingleton shows the pathetic fallacies of the post-industrialists concerning the international trading position of the U.S., and the closely- related question of the balance-of-payments. “Virtually all post-industrial activities are handicapped in export markets by fundamental cultural differences.” American information businesses on the Internet have “negligeable” export sales: who outside the U.S. cares about data bases of baseball scores or information on traffic conditions in Vermont? Fingleton breaks down the difficulties of foreign sales of personal computer programs, “which must be altered for other nations’ writing systems and customs”. Commands and menus must also be remade to fit other cultures. “Thus, for all the hype about the world-beating lead in software enjoyed by the United States, most American software businesses generate little if any revenue abroad and therefore do remarkably little for the chronically troubled U.S. balance of payments.” Post-industrial exports are further undermined by the ease of piracy in computer software, movies and music. This ease, along with the emergence of large educated populations in countries such as China and India who are themselves increasingly capable of cutting-edge software innovation, is setting the stage for large-scale importsinto the U.S. of post-industrial products. In fact, the future “outsourcing” of the post-industrial sector to the Third World looms larger than it does for manufacture. Against the various commentators who brush off chronic U.S. balance-of-payments problems (after all, it’s “only” 12% of the total economy) Fingleton says: (in the view of such commentary) “the huge current account deficits do not directly affect the quality of life within the nation–at least not in the short run. But in the long run, trade matters– and matters fundamentally. A nation that allows its trade position to deteriorate too far for too long cannot expect to remain the world’s leading economy indefinitely.” (One problem with Fingleton is that he does not explore how U.S. international economic weakness is concealed by the recycling of surplus dollars into U.S. capital markets–for now– just as Britain chronic balance- of- payments deficits in the first half of the 20th century were recycled into London while the erosion of the British economy continued apace.)

By contrast, Fingleton argues, high-tech manufacture in Europe and Asia continues to employ (in contrast to the highly-educated employees preponderant in software) a broad range of people, including people with relatively little education, and often pays higher wages than in the U.S. because “superior productivity is…the royal road to high wages”. Comparative wage levels show the U.S. productivity slowdown: in 1998, the average hourly wage was $21.01 in Japan, $14.79 in Germany, and $12.37 in the U.S. Further, the capital-intensive quality of such industries makes them far less vulnerable to competition from low-wage areas. Software, on the other hand, being highly labor-intensive, is extremely vulnerable to the rising software exports of India and China.

Perhaps the greatest strength of Fingleton’s book is his industry- by- industry consideration of high- tech manufacture, showing the shallowness of the post-industrialists’ assumption that manufacture as a whole is a “sunset” sector. In the case of textiles, for example, spinning mills require $300,000 of capital investment per job: “It is hardly surprising, therefore, that the world’s most productive spinning mills are located in affluent northern Italy, not in dirt-poor India or Pakistan.” In the components side of the electronics industry in Japan, the investment is $1,000,000 per job. Because, in such industries, wages account for as little as 3% of total costs, relocation to low-wage areas hardly matters, when compared to the advantages of the infrastructure available in high-wage areas. Further, the unpatented “proprietary know-how” that is built up over decades in such industries cannot be easily outsourced or copied.

These high-wage high manufacturing sectors give countries a big edge in international trade: “manufactured goods are generally much more universal in appeal than services…the two great postindustrial economies, the United States and the United Kingdom, have consistently been running large current account deficits for many years.”

And this trade can increasingly be oriented toward the Third World: “Do (Third World nations) “ache to acquire such postindustrial products as Wall Street’s latest portofolio hedging services, personal homepage software, or databases of American newspaper clippings? Probably not. More than anything, what developing countries want is, of course, material goods.”

Another fundamental strength of Fingleton’s book is his vision of evolving technology’s ability to “produce more with less”, an important consideration both in lowering costs and in meeting the environmental challenge. To raise the living standards of the developing world to those of the U.S., Europe and Japan will require a fivefold increase in world production, and since a mere linear extrapolation of present production (considering e.g. only the consumption of fossil fuels and the pollution they cause) is unthinkable, new kinds of energy, production and consumption (“cutting down on (…the..) use of expensive, rare materials and instead making greater use of inexpensive abundant ones”) are the only way forward. Again, Fingleton provides very concrete examples from current industry, such as the shift in telecommunications from the use of expensive copper for cables to “an almost laughably commonplace material–glass”. CDs have made music widely available in countries “where twenty years ago gramophone records were a luxury beyond the reach of all but the richest citizens”, and CD players have been miniaturized to “one-thirtieth the weight of the trunk-sized record players of the 1950’s”. Fingleton foresees the spread of a “full First World-style standard of living” from one-tenth of the world’s population today to nearly one-third by 2050. “At the end of the day, the success of the First World’s most advanced nations in performing more-for-less alchemy in manufacturing industries will be the single most important force driving the world’s increasing prosperity.”

As a mercantilist, Fingleton emphasizes the shortcomings of looking at Japan and other Asian economies through the lenses of Anglo-American laissez-faire and the latter’s short-term emphasis of the bottom line; for the Asian economies, it is the ability to “project economic power beyond their borders” that is the dominant goal of production. He compares Japan’s current position to that of the U.S. in the 1950’s, when the whole world “courted” America for technology transfers and know-how. While some of this continues, much more contemporary “courting” has shifted to Japan and Germany, the latter now playing a role in Eastern Europe similar to Japan’s in Asia. In Fingleton’s view, the only remaining pillar of U.S. global power is its military role.

For Fingleton, the blindness of the Anglo-American postindustrialists to these realities is “a childlike faith in the efficacy of free markets”. Aided by this blindness, other countries have “been consistently pre-empting the world’s most exciting new manufacturing opportunities”. U.S. developments in the same period have been “a passive adjustment to other nations behaviour”, responding in fact to policies that “represent the very antithesis of laissez-faire”. The greatest blindspot of laissez-faire ideology, in Fingleton’s view, is that “it greatly overemphasizes the interests of capital over those of labor”. In the conditions of globalization, this tendency, always present in the history of capitalism, has led to “large profits for a tiny elite and low wages for the broad mass of the work force”. Following the logic of the laissez-faire post-industrial dithyrambs to high profits, we would expect Mexico and the Philippines to be “economic titans” and lower-profit countries such as Germany, Switzerland and Japan “to be paupers”. Direct and indirect government subsidies, anathema to the laissez-faire ideologues, have for example enabled Europe’s Airbus to pull even with Boeing in world market share. Such countries also use protectionism, and in Fingleton’s view “where protection is structured intelligently with an eye to boosting the national interest as opposed to the sectional interests of individual businesses, it can serve powerfully to invigorate a nation’s industries.” Further, the mercantilist countries develop high savings rates, in contrast to the U.S. Laissez-faire ideologues are blind to the fact that, in spite of globalization, “most of the world’s savings continue to be invested close to home where they are generated”. Government policies in Germany and Japan, further, promote the investment of domestic savings in domestic industry. Mercantilist governments also “pry as much advanced know-how as possible out of the United States” while trying to prevent any significant reverse flow, transferring abroad only “mid-level technologies that have already been superceded at home”. Once U.S. companies have built state of the art factories overseas, the inclination , when innovation is needed, is usually to “close the original American factory…because American workers are much easier to fire than their foreign counterparts…”. To American managers, these transfers of technologies abroad make sense “in the spirit of globalism, and almost everyone in corporate America’s boardrooms these days is a globalist”. But things look different to American workers, who cannot “achieve world-beating productivity rates if their employers do not equip them with world-beating production technologies”. In the 1950’s, American workers’ wages were 6 to 8 times higher than those of their German and Japanese counterparts; German and Japan passed American wages in the 1980’s and have not looked back. American managers feel so little threatened by U.S. labor that they openly boast about their indifference to the U.S. domestic economy as such. Through all this, “Japan has continued to gain on the United States in the 1990’s in most of the ways that matter to top policymakers on both sides of the Pacific.” From 1990 to 1997, Japan’s current account surpluses totaled $750 billion, and did so with some of the highest wage-rates in the world; during the same period, Japan more than tripled its net overseas assets.

For Fingleton, the great prestige of the software industry comes down to “just one company, Microsoft”. IPHIrepeatedly shows how much-touted post-industrial companies in fact employ remarkably few people and have rather modest gross earnings. Microsoft’s reputation as a Leviathan came from its unusally high peak stock valuation in 1998 ($325 billion, or twenty times annual sales), “a truly unsustainable ratio which will one day be looked back on with the same sort of disbelief with which we now regard the Dutch tulip bulb mania of the seventeenth century”. By contrast, in terms of sales revenues, Microsoft ranked a mere 400 in the Fortune500. As of 1997, “its American work force of 15,000 was only one-twentieth that of Ford Motors”. By Bill Gates’ own projections, Microsoft will employ a maximum of 40,000 people in 2002, or one-fifth of IBM’s total work force in 1997.

Once again, the vaunted cutting-edge economic role of U.S. software is a myth in world markets, and even in the U.S. market, where innovations are easily imitated or simply pirated. Press coverage, on the other hand, breezily hypes software’s export performance, and often conflate “the American industry’s exports with something quite different: overseas sales”, the latter often being products “made largely or entirely abroad”. Even much of Microsoft’s large overseas sales fall into this category, and for the rest, “exports represent less than 10% of the industry’s total revenues.” In Fingleton’s view, “it is little short of tragic that so many talented people are engaged in an activity which does little to advance America’s long-term position in global competition.”

But this meager contribution to the U.S. balance of payments hardly ends the story. Fingleton goes on to argue for a coming wave of Third World software exporters, notably from China and India. It is precisely the labor-intensive quality of software– in contrast to hight-tech manufacture– that makes this a serious eventuality: “Virtually the only equipment needed (to start a software company-LG) is desks, telephone lines and and personal computers.” Third World software imports to the U.S. are also made possible by the new telecommunications. Satellite communications and cellular phones “have suddenly liberated local software contractors from the acute limitations of primitive terrestial telephone services”, which makes a major difference when “at least half the world’s people still live more than two hours’ travel time from the nearest telephone”. Given that the key faculty for a software programmer is an excellent short-term memory, the necessary skills have been quickly internationalized. U.S. post-industrialists gloating over U.S. superiority in software engineering overlook the thousands of Japanese engineers recruited to Silicon Valley (among the 100,000 foreign-born engineers working there), Japanese software for factory robots, or the German-based company SAP, whose R/3 software is used in the global administrative systems of IBM, Motorola, Texas Instruments, Intel, Hewlett-Packard, Digital Equipment and Microsoft. But high wages in Germany and Japan do hinder their competitiveness with the U.S. in a labor-intensive industry such as software, while this is hardly the case in the Third World, or even Ireland and Israel. Personal networks between engineers who have studied or worked in the U.S. enable many more start-ups in their respective countries. In contrast to manufacture, software uses “remarkably simple management structures”. The U.S. is already importing software from Poland and Russia, countries with large numbers of well-educated and low-wage technical people. China has also begun to come on stream, not to mention India, where a Third World Silicon Valley already exists in Madras and elsewhere. India’s education system, particularly strong in mathematics, “educates the middle class to a level broadly comparable” to that of the U.S. or U.K. India’s software industry already employed 160,000 people by 1998. Two-thirds of Indian software exports already go to the U.S. A few years ago, India’s Tata Consultancy Services beat out the U.S.’s Andersen Consulting for a major Swiss contract, meeting the American firm’s technical standards across the board and underbidding it by half the price.

On the basis of such developments, Fingleton predicts a slowdown in the U.S. software industry, and already in its 1995 annual report Microsoft said the industry was entering a “mature” phase, with diminishing returns for most users in new innovations. Fingleton mentions various contingent phenomena such as conversion of European systems to the euro and the Y2K problem as feeding an inflated gold rush atmosphere, which will dissipate just about the time India is really coming on stream. “Body shops” –schemes by which Indian software engineers are brought to the U.S. on short-term visas to work in the U.S. at Indian wages–are just the tip of the iceberg. The World Bank has predicted a 20-fold increase world trade in data processing, etc. by 2005, and India, with an educated class of 200 million people and graduating 60,000 people a year in computer science alone, is well-positioned to take “the lion’s share” in this labor-intensive sector. And even India’s emergence is threatened by the possibility of computers that write their own software, which Bill Gates has predicted for ca. 2010. What will be the impact on employment in the U.S. software industry of such a double whammy?

On a broader front, Fingleton sees America’s early embrace of computerization as “too hasty”, having already had negative consequences vis a vis Germany and Japan. Fingleton sees the scorn of the post-industrialists for German and Japanese “backwardness” in computerization as a misplaced judgement of what is actually prudence about hidden pitfalls. Many studies have already suggested that with computers “a large proportion of the huge investment involved is wasted”, giving rise to the term “computer productivity paradox”. In Fingleton’s view, the post-industrialist chorus about computer impact on productivity is just “wishful thinking”. He cites software designer Thomas Landauer, who has (in The Trouble With Computers) showed “an acute case of diminishing returns” in the computerization of the economy. Computers did prove very effective for the tasks for which they were originally designed in the 1950’s and 1960’s (control of production machinery, routing of phone calls, automation of utility billing systems), but their later applications (e.g. inventory control, general office administration) have “produced on balance a negative return on investment for society”. Fingleton sees the later applications largely stymied by “the complexity of the tasks involved”, starting with “user interface”. Small keystroking errors can hang or crash a program, throwing the user back on incomprehensible manuals and unhelpful providers with a “blame the customer” attitude. Keeping a company’s computer systems going require “heavy running costs” and a large information technology department, which moreover have to invest in constant program upgrades or fall behind (cf. Clifford Stoll, Silicon Snake Oil), with many of the innovations being little more than marketing gimmicks. Such gimmicks often result in “more bugs–and less user-friendliness”, not to mention requiring users to repeatedly take out the time to keep current. Another negative side effect is the acute information overload that buries people in “stack-feet” of undigestible reports and printouts.

As a result, in Landauer’s view, “the information technology industry has found it far more difficult to provide the right information than to provide lots of the wrong information.” Fingleton also quotes another critic of computer mania, Paul Strassman (author of The Squandered Computer) who argues that the Y2K problem is only one of many bugs that happens to be well-known just because it is ubiquitous. In Strassman’s view, “Very soon the decades-long infatuation with spending money freely on information technologies will come to an end.” The exacting demands of computer accounting, for example, in 1994 cost corporations $94 billion in paperwork to pay taxes of $175 billion”. In the enthusiasm of the financial sector for computers, the impact of the latter on productivity has been “deplorable”, tempting the financial sector “not to reduce its costs but to increase the complexity of its products”, with the end result being “to bamboozle customers in ways that tempt them to trade far more often than is necessary”.

But the coup de grace is in the productivity statistics: while U.S. business has “been increasing its computer investment by more than 30% a year since the early 1970’s, the rate of growth of productivity has fallen from an average of 2.85% a year in the decades before 1973 to about 1.1% a year since. No wonder the Nobel Prize winning economist Robert Solow has commented: ‘You can see the computer age everywhere but in the productivity statistics'”. The U.S. has invested $4 trillion in computerization since 1960, and in Fingleton’s view “the scale of the waste is staggering”.

The financial services sector is Fingleton’s Exhibit A for the prosecution on the question of postindustrial social waste. Not accidentally, these services have mushroomed above all in the U.S. and the U.K., the two “vanguard” posti-ndustrial economies. Like software, financial services and its high salaries employs “the cream of the intellectual crop” who could just as easily be employed in a productive manufacturing sector, thereby furthering U.S. industrial decline in recent decades. Fingleton notes that Britain already went down this path long ago, i.e. in the early 20th century when it was well into its industrial decline. The weight of the financial sector is not merely “unproductive” but “positively destructive from the point of view of the general public good”, “feathering its own nest at the expense of the great investing public”. Fingleton sees the postindustrialist praise for the financial services sector as “their biggest mistake of all”.

Fingleton sees the financial sector as making a considerable contribution to the economy, but almost exclusively in services that were in place a century ago. Ca. 1900, when they were the clearinghouse for both the U.K.’s internal finances and most of the world’s international transactions, London financial services “got through the day with less than 30,000 clerks, scriveners, and messenger boys–less than half the workforce of a typical major Wall Street firm today.” Some of this expansion of the work force employed by finance comes from the expansion of world trade, personal wealth and population, but Fingleton sees the majority of it arising from “financialism”, i.e.”the increasing tendency for the financial sector to invent gratuitous work for itself that does nothing to address society’s real needs but simply creates lucrative jobs for financial professionals. The financial sector can get away with this because the people ultimately paying the bill usually don’t know they are doing so.”

“…financial trading in the United States grew more than thirty-fold in real terms between the early 1970’s and the mid-1990’s”, one hundred times faster than the economy as a whole. Fingleton attributes this to de-regulation and to “the widespread belief among conventional economists that the freer a financial market is, the more ‘efficient’ it is”. In reality, de-regulation has resulted in much greater volatility of markets, “valuing assets more and more irrationally”. By these criteria, the “Black Monday” crash of October 1987 occurred in the ostensibly most “efficient” market in financial history, greatly abetted by such “innovations” as portfolio insurance that automatically sold more and more shares as the market fell. Similar volatility has appeared in currency markets, such as the wild swings in the yen-dollar exchange rate, swings often disconnected from any production criteria of trade-weighted competitiveness. The sole purpose of this “churning”, in Fingleton’s view, has been “to create lots of jobs for currency traders”. Meanwhile, the swings have wrought havoc with attempts of the productive sector to plan international strategy.

But even worse, in Fingleton’s view, is “the ever-growing army of well-paid analysts and other ‘experts’ whose views drive so much trading”. “…for society at large, the vast amount of intellectual energy expended on all this churning is almost entirely wasted”, a case in point being Wall Street securities analysts, whose predictions have been shown to be shockingly bad in different studies, failing “to match the performance of market averages”, or that of their proverbial rival, “a chimpanzee throwing darts at the stock pages”. Conceding that a small minority of analysts come out ahead of the market, Fingleton says “those who can, make profits for themselves; those who can’t, lose money for other people.” Fingleton points out that some of the most successful speculators such as George Soros and Warren Buffett are openly scornful of the phenomenon of “financialism”; Buffett has called the new financial instruments “an invisible foot kicking society in the shins”. Ordinary Americans foot the bill in high fees for the management of their pension and mutual fund assets, and stockbrokers’ commissions, a $50 billion a year cost (in Fingleton’s estimate) above and beyond any possible contribution of these sectors to social productivity.

Fingleton then shows the paltry results of the globalization of American financial organizations. In view of the hype surrounding e.g. Merrill Lynch’s overseas activities, “one would have been forgiven for assuming that the firm was a major contributor to America’s invisible exports. A look at the fine print, however, shows that its contribution was actually negligeable.” The 24% of revenues generated by Merrill Lynch abroad were the activities of foreign subsidiaries, with little positive impact on the U.S. balance of payments. American Express shows a similar pattern. Tight regulation of foreign capital markets is a formidable barrier to the penetration of these services. Finally, the low savings rate in the U.S. is another obstacle: “…the hidden leverage that the United States once enjoyed over world financial markets has long since disappeared. The unfortunate truth is that the United States no longer sets the rules of world finance.”

A further social sinkhole identified by Fingleton in the proliferation of financial services is a general lowering of ethical standards through society, with insider trading only the best known. Derivatives have opened up many possibilities: “security firms deliberately concoct instruments that are so complex that most institutional investors cannot fully understand them”. A former Morgan Stanley executive said “the way you earned money on derivatives was by trying to blow up your client.” Executive stock options encourage managers “to take an even more short-sighted view than the stock market”. In sum, “most of the new financial activities the postindustrialists extol feed parasitically on the rest of the economy”.

Fingleton then proceeds to take on the Internet. In his opinion, “the jury is out” on its usefulness. For a skeptical minority, the Internet is a system for “transmitting ‘garbage at high speed'”. As a world-class example of Internet hype, Fingleton cites “New Age guru” Bran Ferren who, in an appearance on Nightline, “rated the Internet as perhaps the human race’s most significant discovery since hominoids began to speak”. Another booster, the futurologist Barry Howard Minkin, predicts that “97% of all new jobs in the United States will soon come from ‘knowledge work'”. But when pressed for specifics, Minkin can think of nothing more earth-shaking on the way than video telephones and home shopping, “two applications”, as Fingleton says, “that have been heralded for decades by previous generations of futurologists”. Beyond this, Fingleton says, Minkin’s ideas are “comically trite”, such as more polished sales presentations and “blur-mercials” which combine advertising and editorial content, as if the contemporary media are not already sufficiently in thrall to advertising. In Fingleton’s view, Ferren and Minkin are paragons of “cyberbabble” and “silicon snake oil”.

Fingleton similarly demolishes the widespread parallel drawn between the Internet and the invention of printing. The Internet “offers at best only a marginal improvement in productivity”. He cites an MIT study showing that 95% of e-mail and other computer communications “represent only a minor advance on the efficiency of the telegraphy a century ago”. Further, an “electronic version of Gresham’s Law” has set in, in which “frivolous and time-wasting users are driving out serious and welcome ones”, starting with electronic junk mail. E-mail overload has already led to the invention of “bozo filters” that screen a sender’s name, the number of people on the copy list and key words in the text, automatically deleting messages that fall short of desired quality.

Even as a research tool, the Internet has been hyped, given the tremendous amount of irrelevant information turned up on a typical search. “The pattern is that it serves up everything but what you want”. For business research, the kind of information businesses “disclose to the public is almost by definition more chaff than wheat”, “mere public relations material”. Even things of some use as Internet press clippings must be used with caution, given “significant spin control” in most of them. In reality, as Fingleton points out, “the press has often been years or even decades behind the times in spotting trends that have crucially affected the American economy”, such as the rise of the Japanese steel industry; in that development, “the press took notice only when the layoffs started”. The press completely missed IBM’s fatal mistakes in ceding control of the personal computer industry to Microsoft and Intel. As one quality control expert puts it, “information, no matter how complete and speedy, is not knowledge”.

The Internet has also been a disappointment to those who predicted a “global electronic shopping mall”. According to America Online, “only 12% of its members had ever made a purchase from any of the many merchants included in its service”. For foreign sales, the Internet runs into many of the same foreign regulations that limit the export of U.S. banking services. And, in spite of all the hype, “typical shoppers still want to see and feel merchandise before they buy it”.

The real success stories of e-commerce hardly inspire enthusiasm: electronic junk mail is one of the few really profitable areas. Other success stories are pornography, medical quackery and gambling. Similarly, the much-touted names of Internet businesses such as Netscape, America Online, and Yahoo! turn out to employ remarkably few people and have surprisingly small total sales, compared to old, fuddy- duddy “sunset” sectors and firms.

Fingleton also lays into Newt Gingrich’s dithyrambs to virtual reality. Gingrich predicts, for example, that America’s cutting-edge medicine will soon be able to export such things as cyberspace surgery. But, in addition to exposing Gingrich’s facile assumptions that surgeons and national regulators, not to mention patients, will be receptive, Fingleton points out (as in the case of software) that “trade is a two-way street” and that plenty of other countries have high-quality medical establishments capable of taking advantage of such arrangements at much lower cost. Gingrich’s analysis also “overlooks the fact that American health care costs are greatly inflated by a dysfunctional American legal system”, forcing doctors to pay for “exorbitantly expensive insurance” and so forth. Foreign doctors unencumbered by such constraints could readily benefit.

Entertainment, “regarded by the postindustrialists as a cornerstone of the American economy”, also comes under Fingleton’s scrutiny. The past three decades have seen a fivefold expansion of the available television channels. Judged by television viewing, which has increased only 5% between 1981 and 1997, quantity has not been transformed into quality. With such an increase in choice, says one observer, “you decrease the audience for everything”.

But quality aside, the postindustrialists tout entertainment as a major contributor to the U.S. balance of payments. In fact, according to Fingleton, given the number of people they employ, “most sectors of the American entertainment industry are quite small exporters”. Again, trade runs two ways, and the U.S. imports a lot of music. Aside from a few superstars, “most American musicians have little appeal outside the Western world”, and in East Asia, 70% of music sales involve local artists. American talk shows and game shows do not do any better. And once again, trade barriers limit expansion. In fact, in the summer of 1998, officials of 20 countries met in Ottawa to consider limiting the impact of American entertainment. Piracy also takes a large toll. Even entertainment giants with important overseas sales such as Viacom and MTV contributed little to U.S. exports, with most overseas activities mainly benefiting foreign subsidiaries.

But surely the movie industry is “solid gold”? “In fact, movie exports have grown so large that as of the late 1990’s Hollywood seemed poised to pass the aerospace industry as the largest U.S. export earner”. Hollywood “will remain by far the most successful of postindustrial businesses in the United States”. But in the long run, even Hollywood’s position depends on the current hegemony of English in world culture, which in the long run is also tied to the position of the U.S. economy. Fingleton points out that British films do best abroad when they “set the action in the nineteenth or early twentieth century– a period when, by no coincidence, the United Kingdom was regarded as the world’s leading society”. Films about American inner-city life already do not play well in foreign markets. There has already been some decline in English as the world’s lingua franca, with German expanding into Eastern Europe and Chinese and Japanese gaining ground in East Asia.

Having demolished, one by one, the different claims of the postindustrialists, Fingleton turns to the high-tech manufacture sector that, for him, represents the alternative, “industries that not only pay superb wages to a broad range of workers but are also strong exporters”. The auto industry has not migrated to the Third World, but remains the backbone of the German export economy, and still accounts for one-fifth of all manufacturing jobs in the U.S. Nor has the rise of South Korea made serious inroads on the Japanese auto industry. “The Japanese automobile industry’s success in defying predictions of decline is a striking demonstration of how the postindustrialists underestimate the contribution of capital intensity and knowledge intensity in enabling the world’s highest-wage nations to continue to dominate old world markets even in the face of determined competition from low-wage countries.” Other strong First World sectors are aerospace, construction machinery, power-generation equipment, pharmaceuticals, household appliances and machine tools.

Finally, for Fingleton, electronics, the “mother of modern manufacturing”, “exemplifies the message of this book”. The postindustrialists’ misunderstanding of this industry “goes to the root” of their misunderstanding of the world economy. Electronics has been providing “a rapidly growing torrent of ever more powerful and reliable components for virtually every kind of manufactured product”. “Computerized production techniques have boosted productivity in a host of manufacturing industries, from shipbuilding to telecommunications”. Fingleton goes into Nikon’s little-known dominance in the production of “steppers”, which “play as important a role in world manufacturing in the late twentieth century as blast furnaces did in the nineteenth.” Steppers print circuit patterns on silicon wafers, and are a classic case “of the ability of manufacturing industries to make more with less”. Nikon employs 7,000 workers in the production of steppers, nearly 50% having “no more than a high school education”, and pays them roughly $55,000 per year (at 1997 exchange rates), comparable to wages in the Japanese auto industry. Stepper production is not likely to be outsourced any time soon because of the “secret technological know-how” that goes into them. “Like many other advanced products that are now made mainly in Japan, the stepper was invented in the United States.” But Nikon beat out GCA, the American innovator, because it was already a leading producer of optical equipment (which GCA had to import from Germany), because it benefited from the support of MITI (the Ministry of International Trade in Tokyo), as a member of the Mitsubishi group, and because of an edge in labor quality; its “new recruits spend up to 70% of their time in training programs that can continue for as long as four years”, a policy followed up by retraining every two years. For Fingleton, Nikon, which was founded in 1917 and rose to prominence in camera production, is a classic case of industrial self-reinvention.

Fingleton then turns to silicon, a universal buzzword used by the post-industrialists to obscure its centrality to a high-tech manufacture perspective on the economy. In fact, “only a handful of highly sophisticated companies are capable of making silicon to the standards required in the semiconductor industry” and three of them (one Japanese, one American and one German) “account for well over half the world market”. Like stepper production, the highly refined form of silicon used in semiconductors is a capital-intensive high-wage industry employing many “ordinary blue

collar workers” with a lot of knowledge intensive proprietary know-how, not likely to be outsourced to the Third World anytime soon. The requirements of a sophisticated electricity grid (any blackouts being a catastrophe for refined silicon production) and high-quality labor make the costs of such relocation far greater than any benefits from lower wages.

Fingleton reminds the reader of the “furious policy debate” of the mid-1980’s when U.S. semiconductor makers came under strong competitive pressure from Japan, and the do-nothing attitude of the Reagan administration, summed up in a remark attributed to (though later denied by) a Reagan economic adviser: “Computer chips, wood chips, potato chips. What’s the difference? They’re all chips.” In Fingleton’s view, if the U.S. had pulled out of semiconductor production then, “it would have missed out on enormous subsequent growth”. At a state-of-the-art semiconductor plant in Japan, each worker “is backed by $1.4 million of capital– or about 140 times the investment needed to create each new job in the Indian software industry.” Workers at the plant earn $50,000 per year, with high job security.

A similar success story is to be found in the Japanese laser industry, led by Sony.

All these parts of the electronics industry feed into a stream of final consumer products such as “videocassette recorders, camcorders, compact disk players, fax machines…personal computers” that show no sign of letting up. .

Fingleton probes deeper into the fallacies of the postindustrialists with an investigation of supposedly “sunset” “golden oldies” such as shipbuilding, textiles and steel. Even a millennial industry such as ceramics continues vigorous innovation such as “supplying high-tech ceramic packaging to the world semiconductor industry” and heat-resistant materials for such things as jet engines and power-station turbines. Glass continues to feed into the production of steppers (cf. above) and fiber optics. Japan and Germany continue to innovate in printing equipment. (Fingleton does admit that these sectors shows a “pattern of declining employment”. This, as Fingleton rightly points out, does not justify “the postindustrialists’ portrayal of such industries as ‘deadbeats”, let alone ‘dinosaurs'”. “These industries’ job cuts are simply the flip side of their success in boosting labor productivity.” “Sacrificing a whole industry because it has become a little overstaffed makes no more sense than chopping down a fine apple tree because it has become a little overgrown”.

Turning to the core “dinosaurs” of postindustrialist cant, Fingleton finds the First World still producing 70% of annual new shipping tonnage, while “the world’s shipping fleet has more than doubled since 1970”. Only South Korea, of Third World developing economies, has managed to break into shipbuilding, showing (in Fingleton’s view) Korea’s advance, not the backwardness of the industry and its labor requirements. Older shipbuilding nations have responded to South Korea by “specializing in the more sophisticated subsectors of the industry”, such as luxury liners, icebreakers, offshore oil rigs, LNG carriers, wave-power electricity-generating plants, faster ships (a Japanese high-speed cargo ship that cruises at 58 m.p.h. is in the works), and floating airports. “Evidently the idea that shipbuilding was destined to become a Third World activity was less a megatrend than a megablooper”.

Fingleton takes the postindustrialists to task for their superficial view of the textile industry, which for them is limited to apparel making, the one sub-sector in fact easily outsourced to sweatshops in both the First and Third Worlds. But the prior stages of spinning, weaving and making the machines that make fabrics and apparel are, once again, capital and knowledge intensive and therefore “First World” in their employment patterns. Synthetics follows the same pattern. Even an emerging textile power such as Taiwan is no longer a low-wage economy.

Synthetics have moved beyond apparel to car airbags and tires; other textile producers make membranes for high-tech medical applications and carbon fibers used in sporting goods and aircraft components. Switzerland’s high-wage industry is dominant in the production of textile technology.

The steel industry is, according to Fingleton, “almost universally scorned by the post-industrialists”. In fact, world steel output did decline by 4% from 1990 to 1996. But Fingleton argues that this conceals an important “more with less” phenomenon, such as improvements in the strength-to-weight ratios. High levels of steel production, including in the U.S., still correlate with high wages, as evident in Germany, Switzerland, Sweden, Austria, Belgium, Luxemburg and Japan. Within this framework, higher-wage Japan exported huge amounts of steel to lower-wage America. Admitting that half or more of the steel sectors jobs havebeen eliminated in the U.S., the U.K. and France since 1980, Fingleton says “the industry’s tendency to cut jobs is the flip side of its greatest success– the enormous progress it has made in raising labor productivity in the last fifty years”. Steel is “a classic example of a supposed ‘sunset’ industry that in reality boasts such highly advanced technologies.” “All postindustrial talk to the contrary, the world desperately needs more steelmaking capacity if residents of the developing world are ever to approach Western- style living standards”. Sumitomo pipes, where each job is backed by $470,000 of capital investment, and a blue-collar worker earns $65,000 a year, are a prime example of a technological innovation within an old industry that has opened up new vistas, such as to the world oil industry, where the pipes are invaluable in “ever more hostile and remote environments”.

On the general future of manufacturing, for Fingleton, “the gloomsters could hardly be more wrong”. Fingleton, following Care International, says the proportion of the world’s people who live in absolute poverty has fallen from 70% to 30% in just the last three decades.The First World, in his view, should be providing the Third World with producer goods, not consumer goods. Fingleton sees Third World workers “almost automatically” acquiring purchasing power as they approach First World standards, which (in my view) moves a bit quickly over the battles, e.g. of Korean workers from the late 80’s onwards to “acquire purchasing power”. “Many emerging nations will become rich much sooner than anyone in the West anticipates.” In Fingleton’s view, the 1997-98 Asian financial crisis was “little more than an isolated air pocket”, resembling “the financial panics that periodically afflicted the United States in the latter half of the nineteenth century.”

He predicts that Asian recovery from temporary overcapacity “will be even more exuberant than the recoveries enjoyed by the United States in its era of fastest growth”. Industrialization “is becoming easier all the time”: UK first doubled its GDP in 58 yrs., the US in 47, Japan in 34, China in 10. For Fingleton, the idea of glut is absurd for the First World. (his list of possible future consumer goods is on p. 170). The potentials of the telephone, computers, transistors, photocopiers, lasers, and microprocessors were all underestimated at the time of their appearance. Economist Paul Romer says “Humans are adept at converting low-value raws materials into high-value mixtures.” For future development, Fingleton singles robots and automation, voice recognition systems, environmental protection, health care, hydrology and nanotechnology as future potentials.

Fingleton critiques the idea of an oil glut and generally “ultra-cheap” energy. In the Third World, energy consumption is one-fiftieth per capita of U.S., and, people still use kerosene and cow dung. The result is a stunting of the rest of economy because of lack of energy. Cheaper energy could help in production of food, as in fish ponds and chicken coops for egg production. For Fingleton, in light of the overestimation of oil reserves and global warming, new energy sources are essential. Those can be (p. 180) water, wind, and sunshine. Solar power can help the Third World in water supply, health care (solar powered refrigerators), communications (solar powered telephones). With effective water pumps, there can be vast savings in the labor time of women who currently have to spend hours a day fetching water.

Fingleton’s horizon extends to new possibilities of transportation, with electric cars, hybrid cars, “intelligent cars”, planes, and ultra-fast trains, which are ten times more fuel efficient than planes, and do no damage to the ozone layer. (The U.S. has been left behind in ultra-fast trains by sector leaders such as France.

“If America’s drift into postindustrialism continues unchecked, we can safely predict a drastic deterioration in the American economy’s performance in the decades ahead.” Increase of poorer Americans, who have increased from 17 to 25% of the population since 1972. As a mercantilist, Fingleton slams the postindustrialists for their complacency about America’s declining foreign trade position, “just”, as indicated earlier, 12% of US GDP. Trade “in the long run is the most important determinant of a nation’s ranking in the world income league”. He cites the example of Argentina, which at the beginning of the 20th century “ranked among the world’s richest nations in per capita income”, whereas today it ranks lower than Thailand, Syria or Lithuania. Further neglect of America’s balance-of- payments problems is likely to provoke “a major dollar crisis”, after which the U.S. “could be replaced almost overnight by Japan as the world’s largest economy”. (Here, Fingleton seems to lack an analysis of the centrality of access to the U.S. market, at least for the present, for the world’s exporters, and the U.S. ability to blackmail them into recycling their trade surpluses into U.S. capital markets to keep the show going).

Americans, in Fingleton’s view, have been “so complacent about America’s drift into deindustrialization” because they have been “blindsided” by the American press. To begin with, journalists are one professional group who have truly benefited from the information revolution: word processors have eliminated tedious retypings, and the Internet is useful for fact-checking. Financial professionals, from within their unproductive sinkhole, have also benefited. But, as one commentator put it, they “haven’t understood…that almost no one else finds computers and the Internet quite so essential”. When one adds in the blinders of laissez-faire ideology, the distortions can be fatal. “Although the British economy has been in relative decline since the mid- nineteenth century, this does not stop The Economist from presenting the United Kingdom as still the world economy’s trend setter.” Fortune magazine, after years of neglect (until 1993 it refused to list anything but manufacturing companies in the Fortune 500) flipped into the opposite viewpoint that “manufacturing is no longer cool”. Fingleton points out that the fifteen postindustrial companies on Fortune’s “cool company list” in 1997 employed a grand total of 2,781 people, “little more than the number of people IBM hired in a good month in its days of manufacturing leadership”. But “lionizing obscure, untried cyberspace start-ups” is only part of the problem. The press’s euphoria about “a full-scale economic renaissance” in the 1990’s is even more pernicious, during a period when “the U.S. current account deficits were more or less spiraling out of control”, mainly because of imports for “ultra-high wage” Germany and Japan (the latter fact raising serious questions about how “healthy and competitive” the U.S. economy was). For the press commentators, the balance-of-payments problem was a “quibble”. From 1990 to 1996, however, U.S. current account deficits totaled $726 billion, and this during a period of massive dollar devaluation. Few if any commentators, in Fingleton’s view, confront the sticky question of why the U.S. cannot make the goods it has been importing from higher-wage countries: “The sad reality is that after the rundown of so many once great American manufacturing industries in the previous two decades, the United States simply does not have the capacity anymore to meet its consumers’ needs from its own manufacturing resources”. The pervasive postindustrial view of manufacturing as “dull” adds to the blindside effect, where in Japan (according to an MIT study) “production has a far greater stature … and attracts some of the most qualified and competent technical and managerial professionals”. This distorts coverage of countries such as Germany, where 30% of the work force is in manufacturing, as against 16% in the U.S. For Fortune, Fingleton notes, this was a “sure sign” that German manufacturers were “seriously overstaffed”. The reality is that Germany exports two-thirds of its manufactures, whereas the U.S. imports one-third of all the manufactured goods it consumes. The high-wage German exporters did not get to this position, according to Fingleton, by being “overstaffed”.

The American press is similarly “patronizing” about Japan’s key high-tech industries. Simply because the Japanese do not export many desktop computers, their dominant position in “areas that are invariably much more sophisticated than the desktop business”, such as components and computer miniaturization, is overlooked. The U.S. press blindsides itself by condescendingly referring to the components of elite Japanese companies as “commodities”, as though their products were somehow associated with “sunset” industries. “…’commodities’, says Fingleton, is a weasel word that hides from the American reading public how far ahead Japanese manufacturing companies truly are.”

Why then, asks Fingleton, “has the Japanese economy been doing so badly in recent years?” For the postindustrialists, the answer is obvious; after seeming to lose ground in the 1980’s, the U.S. ” ‘turned the tables’ on Japan’s ‘machine age’ economy”, leaving the U.S. as the “world’s sole economic superpower”.

“There is only one problem with this”, says Fingleton: “the United States has not turned the tables on Japan”. Japan has continued to close the gap with the U.S. precisely “because it has stayed the course in manufacturing”. Fingleton does not for a minute deny the well-publicized problems besetting Japan in the 1990’s, including the stock market crash, the slump in Tokyo real estate, and “the traumatic weakening of Japan’s big banks and securities companies” (he himself wrote a couple of articles in the late 1980’s foreseeing these developments). U.S. commentators have concluded from these problems that Japan is in the throes of a 1930’s style slump, a view Fingleton simply calls “absurd”. Only one Japanese bank has collapsed in the 1990’s, the financial and real estate problems have been confined, “and most of the rest of the economy has come out of the 1990’s largely or totally unscathed. Thus, whether judged by employment levels, exports, savings rates, or a host of other crucial measures of economic health, the contrast with Depression-era America could hardly be more startling”. Fingleton admits that “Japan’s highly regulated economy continues to suppress consumption in various ways that clearly diminish the potential for the good life”. Growth did slow in the 90’s. Per capita GDP from 1990 to 1997 grew faster than in “the supposedly booming United States”. Fingleton points out the sleight of hand involved in emphasizing GDP rather than GNP, since the latter “takes account of debits and credits relating to cross-border investments”, which means that the recent large capital imports of the U.S. make the American GDP higher than the GNP. In Fingleton’s estimate, the shift from GNP to GDP reporting 10 years ago “makes the American economy appear at least three percentage points larger relative to that of Japan than it really is.” Further, the U.S. national income figures include executive and employee stock options that have not been deducted from profits, and the “figures are bloated by an increasingly large element of ‘funny money’ in corporate profit statements.”

Again, in Fingleton’s view, it is the “simplistic logic of American-style laissez-faire” that blinds American commentary to the realities of the U.S.-Japan economic relationship; “the American press is rather like someone whose knowledge of board games is limited to checkers but who nonetheless has been called upon to provide a running commentary on a Grand Master chess match!” Matters are complicated, admits Fingleton, by the “highly counter-intuitive nature of Japan’s international public relations strategy in recent years”. The latter arises from the desire of Japan’s leaders and spokesman to appear “dysfunctional” so that the West “will continue to take a patient and indulgent view of Japan’s controversial trade policies”. Westerners have difficulties understanding a nation that “would go out of its way to play down its economic strengths”. Through the 1990’s, the Japanese have convinced the West that it was running huge government deficits, whereas Fingleton cites OECD figures showing Japan running huge budget surpluses; in 1995 it was the sole major country to show a surplus. “Any full analysis of the Japanese economy’s performance in the 1990’s”, he writes, ” can produce dozens of other similar discrepancies between an image of an apparently weak economy and an underlying reality of enormous strength”. The American press complicates the picture by relying on the assessment of many securities analysts with little or no knowledge of the Japanese financial system. One critic of such “rent-a-quote” specialists pointed out that “they aren’t even on the ground in Asia, yet they also get quoted making the most sweeping Armageddon-like statements”. Most of these analysts “have egregiously bad records in interpreting the Japanese economy”; “with guides like this, no wonder the press so often grasps the wrong end of the stick”. These analysts both failed to foresee the deflation of the banking and real estate booms of the 1980’s and then “had no compunction in turning around in the 1990’s and painting the state of the wider Japanese economy in outlandishly dire terms”. Throughout this period, Japan has grown at 3.9% annually (against the “booming” U.S. rate of 2.8%) and has continued to pile up current account surpluses that are “the culmination of a century-long commitment by Japan to scientific mercantilism as the key to national economic power”; “Japan has now clearly surpassed the United States in its external economic clout”. Japan’s savings rate also continues to soar, while that of the U.S. remains negligeable; Japan thus invests twice as much per worker as the U.S., and “has decisively surpassed the United States as the world’s main source of capital”, having attained a position compable to that of the U.S. in the l950’s. As of 1996, Japan’s net external assets were $891 billion and America’s net external liabilities were $831 billion.

With these trends in mind, Fingleton calls talk of a American manufacturing comeback “wishful thinking”. He savages Jerry Jasinowski, president of the National Association of Manufacturers, whose book Making It in America calls America “the industrial powerhouse of the world”, a “world preeminence” that should put an end to “all the talk about a postindustrial society and ‘deindustrialization'”. Jasinowski does not even mention U.S. government figures showing a 3 1/2% drop in manufacture in the 1980’s, an omission which in Fingleton’s view “speaks volumes”. Jasinowski’s assertions of “a tremendous resurgence of exports” since 1985 is largely due to a 50% fall in the value of the dollar since that year, and a “country whose currency loses more than half its value in a decade can hardly be said to be going from strength to strength”. Jasinowski ignores a major rise in U.S. imports, due to the fact that (for Fingleton’) “the final products American manufacturers export these days are assembled with the use of an ever rising proportion of imported components and materials”. U.S. manufacturing exports have merely benefited from other countries’ increases in productivity, and, once again, U.S. current account deficits have soared. Since 1984, just before the dollar’s steep decline, U.S. imports continued to rise at 4% per year, when a cheaper dollar would have implied a decline in imports. International trade figures as well “are conspicuously absent from Jasinowski’s analysis–perhaps understandably because they flatly contradict him”. The U.S. auto industry exports nowhere except to Canada and Mexico, and continues to lose U.S. domestic market share. Japan has moved from exporting whole cars to the more sophisticated activity of “exporting components and materials”, which figure large in the U.S. trade deficit. Jasinowski’s claims for a comeback in U.S. steel production, similarly, would lead us to “expect it to be major exporter”, whereas the U.S. “is by far the world’s largest importer”. American steel, in fact, “is now so weak that it cannot compete with foreign producers even in third-country markets”. Even in American high-tech manufacture, argues Fingleton, well-known U.S. companies are “a mere shadow of their former selves”, increasingly dependent on outsourcing from East Asia, and much of it from “ultra-high wage” Japan: ergo, “when a lower-wage nation imports a product from a higher-wage one, we can reasonably assume that the manufacturing technology concerned is one in which the importing country is lacking”. Today, “journalists who ask questions about such issues either are unceremoniously rebuffed or are at best fed a diet of highly-misleading half-truths”. U.S. stars such as Hewlett-Packard and Compaq “depend on East Asian rivals not only for crucial components but for entire manufacturing functions”. The real truth, says Fingleton, shows up in corporate disclosure documents filed with the S.E.C., which “often contain surprising admissions of dependence on foreign suppliers”. Even companies that contributed to “real successes in high-tech manufacturing” such as Boeing are doing less well than they used to, and have been transferring jobs abroad. Figures from Jasinowski, similarly, would seem to support the idea of a U.S. comeback in semiconductors, with 44% of global market share, but (in Fingleton’s view) the figure is bogus, concealing the fact that most chips are, once again, outsourced from East Asia.

In 1997, the U.S. ran a $3 billion deficit with Japan in semiconductors. From the vantage point of individual U.S. firms who still do the chip design work, this development may not pose any problem, but “from the point of view of American national interest things look different”, with all the typical weaknesses of postindustrialism detailed earlier. (This poses the question of why “American national interest” should be a framework of judgement.)

For Fingleton, the last illusion is the “myth of superior American creativity”, which still has “a powerful tranquilizing effect”. Yet “the Walkman, the Handycam, the liquid-crytsal display, the digital camera, the home video recorder, the compact disc players and laptop computer and the cellular telephone” were all largely or wholly developed in Japan. In fact, in the early 20th century, British and continental European analysts talk about the U.S. in terms identical to those used in the U.S. to talk about Japan today.

Fingleton’s book concludes with an “action plan”, conceding that at this point “any effective strategy would have to be drastic”. His program is:

“-Boost the nation’s savings

-Channel a larger proportion of those savings into industrial investment, particularly productivity-enhancing production engineering.

-Ensure that manufacturers earn a reasonable return on their investment.

-Upgrade workers’ skills.

-Stem the leakage of world-beating production technologies abroad”.

Fingleton proposes using tax incentives to channel savings into manufacture, a stronger emphasis on technical subjects in education, and attracting more “of the nation’s best brains” into engineering. He proposes further measures to lessen the attraction of careers in finance and other postindustrial services such as an 0.5% transaction tax on stock trades. Fingleton proposes leveling the playing field with U.S. rivals by beefing up America’s “notably half-hearted trade diplomacy”, and possibly relaxing anti-trust rules to facilitate agreement on product standards and “avoid wasteful duplication of effort” with R&D cooperation. Profits “must be plowed back into raising worker productivity, rather than siphoned off in large compensation packages for a wealthy elite”. Managers will have to be forced to boost long-term prospects. Fingleton proposes seven-year vesting before managers can cash in their stock-option gains, and these would be forfeited when they “laid off American workers”. This would give companies an incentive to bolster “the quality of jobs at home”. Further measures should be taken to frustrate “the destabilizing activities of short-term-minded takeover artists and stock market speculators”. While Fingleton thinks that any attempt to implement an East Asian “forced savings policy” would “spark a political firestorm” in the U.S., he recommends “an option that has so far been regarded as second only to nuclear war in unthinkability”: tariffs, without which “American manufacturers will be condemned to a perpetually unequal struggle in trying to compete with foreign manufacturers that enjoy the enormous advantage of a protected home market”.

Fingleton makes a real gaffe in quoting Patrick Buchanan’s recent book The Great Betrayal to say that the poor image of tariffs is “largely undeserved”, from associations with the beggar-thy-neighbor policies of the 1930’s. Fingleton mentions the Eisenhower period of the 1950’s, accompanied by “careful demand management” and “fair regulation of financial markets” as a better yardstick, when “tariffs clearly played a major role in providing the economic stability needed for manufacturing industries to survive”. (This is problematic, given the overwhelming superiority of U.S. industry in the 1950’s, due to the destruction of most competitors in World War II.) Tariffs have their downside, admits Fingleton, somewhat disturbing “the optimal distribution of global industrial capacity”, but the downside is “quite minor” compared to the advantage in “maintaining some firewalls against the vagaries of globalization”. Economic efficiency is rarely the sole concern “in real life”. “Globalization might work if all the world’s people shared substantially the same cultural values”, but the recent “Westernization” of much of the world is “typically highly superficial”.

Rather, thinks Fingleton, the nub of the problem is “how to slay the prevailing zeitgeist”, as “any talk of pulling back from globalization is likely to appall the American financial elite”. Fingleton identifies as co-thinkers in this quest as James Fallows, Lester Thurow, William Wolman, Clyde Prestowitz, Chalmers Johnson, Bennett Harrison, Patrick Buchanan (!), George Soros, John Judis, Robert Kuttner and Barry Bluestone. But “the dogmatists still reign supreme” and “have survived a well-deserved measure of opprobrium in the immediate aftermath of the Reagan-Thatcher era to come back in arguably even more potent form than ever in the late 1990’s”. Whereas, Fingleton thinks, the media should be “questioning the obvious contradictions in the prevailing dogma…they have generally shrunk from the task”, partly from intimidation “by the economics profession’s pretensions to scientific certainty”. The latter’s “highly theoretical models” merely “assume away the imperfection and complexity of the real world”, and their “mathematical abstruseness merely camouflages the worthlessness of its insights in guiding practical policy making”. The Bank of Sweden’s laissez-faire bias in Nobel Prizes in economics also serves to marginalize and intimidate critics of the mainstream.

In calling for more serious media coverage of the economy, Fingleton decries “the current practice of delegating economic coverage to business reporters” as “a recipe for bias and misinformation”. The latter identify too closely with the “Wall Street view”, “an especially deadly formulation of the prevailing dogma”, leading them to produce mainly “pure spin”. Business reporters share the proclivities of stock analysts “to identify exclusively with the interests of capital and are therefore implicitly or explicitly hostile to the much more economically significant interests of labor”. The press should “recognize the obvious truth that a nation cannot be rich if its workers are poor”. The general hostility to regulation that pervades the press arises from the fact that “Wall Street has a huge vested interest to protect” in making it easier “for financial professionals to feather their own nests at the expense of the nation’s savers”. The nation state is still a reality, argue Fingleton, and the dominant view that “other nations are prepared to abandon all national concerns and behave as true globalists in managing their economies…is a utopian reading of human nature”. “There is probably hardly a single American who does not yearn for a return to the halcyon years of the Eisenhower and Kennedy presidencies, when American manufactures paid the highest wages in the world yet nonetheless almost effortlessly dominated world markets”. Fingleton ends with a call for the media to redress the situation.

I have gone to such lengths to summarize Fingleton’s book because it is one of the most intelligent critiques of the contemporary U.S. economy of which I am aware within a framework that accepts capitalism. It seems clear that if a program of “reform” capable of embracing Fingleton’s diagnosis and implementing his cure could triumph, it would achieve widespread support. But the very first problem that arises is precisely how such a reorganization of the U.S. economy could occur. Fingleton does not purport to be a political analyst and cannot be criticized for what he does not set out to do, but a glaring lacuna in his vision is, so to speak, “getting from here to there”. Does he seriously believe that the U.S. devolved into the post-industrial sinkhole because U.S. capitalists “had the wrong ideas”? He himself points out that the U.S. itself originated many of the mercantilist theories he defends, in figures such as Alexander Hamilton and Henry Carey.

Why did the mercantilist school go into decline in the U.S.? Why, ultimately, did the internationalist wing of American capital, closely linked to finance, to the Harrimans, Rockefellers, Achesons and John J. McCloys, seize the political and economic high ground in the 1930’s and 1940’s, setting the U.S. on the road to the current debacle? Once again, Fingleton does not pose this question and he does not have to answer it. But a critique of his book can start from these considerations.

Fingleton is not so naive as to think that capitalism, even the mercantilist capitalism of Japan, produces new technologies and new goods simply because they are useful, not because they can be produced at a profit. But he often sounds as if he did think that. He seems to ignore (at least for purposes of argument) that after World War II the U.S. allowed Japan and to a lesser extent Germany to rebuild with “mercantilist” policies which went “against the grain” of U.S. economic ideology because the rapid reconstruction of East Asia and Europe was part of a general Cold War strategy. (The same was true later with the East Asian “tigers”.) It is certainly true that the U.S. capitalist class, like the British capitalist class before it, was “blindsided” by its own ideology (the latter in the U.S. case being postwar Keynesianism); it implicitly or explicitly assumed its specific position of superiority from 1945 to the 1960’s to be eternal, not contingent. Nevertheless, as early as the late 1950’s and the creation of the Eurodollar market, the balance-of-payments deficits from the declining U.S. trade position were being recycled into U.S. capital markets to keep the dollar, and hence the Bretton Woods system, afloat. The U.S. was de-industrializing to Canada and western Europe (and after the 1960’s to select Third World countries); the “tradeoff” for countries compelled by the Western alliance to accept this arrangement was access to the U.S. market, and it remains so today. It was and is the possibility of “profit” from this situation that set the stage for the triumph of “post-industrial” ideology, of which Fingleton graphically records the consequences.

Thus a political program to push through a mercantilist “high road”, high wage, technology-intensive program such as Fingleton’s presupposes at the very least an attack on the vast interests, centered in Wall Street, who benefit from the current arrangement, however destructive the latter is to society. Such an attack would necessarily involve the labor movement (indeed, Fingleton’s book already attracted attention in the wing of the labor movement arguing for the “high wage high road” strategy), as well as some capitalists who might be won over to such a program “in the national interest”. Yet none of Fingleton’s programmatic points (above) take up the question of finance, or of the political stakes of breaking the hold of the powerful forces who have benefited from “post-industrialism” and would be major losers if Fingleton’s reforms were seriously implemented.

Fingleton’s basic frame of reference is Japan, where for many decades it did seem as if the system could dispense with the profits of an individual firm as long as “Japan, Inc.” produced enough of a surplus to, for example, cover the costs of long-term investments that had not yet paid off. (Once again, Fingleton does not seem to take account of the extent to which Japan could operate as it did because of access to the very different U.S. market, and the U.S. defense shield, but this is not our concern at the moment.) Taking the mercantilist framework of the nation-state, Fingleton seems to imagine a world in which all nation-states could adopt this export-oriented strategy, which seems highly unlikely.

Nevertheless, let us follow out this logic and see where it leads. As indicated at the outset, something like Fingleton’s scientific-mercantilist vision could become the perspective of a major reform of the world economy, however inadequately he seems to grasp the political and social forces involved.

At an important level of abstraction, what Fingleton’s model, (or our extrapolated world model based on Fingleton’s premises) ignores is what Marx called “the anarchy of production”. Even if competition were reduced to competition between well-organized “Japan Inc.”-type national economies, the anarchic (asocial) nature of production would still generate crisis. Why? Most immediately, ecause capitalist “book values”, under the spur of competition, cannot reflect their current real cost of reproduction. They necessarily show historical costs, against which they must show an adequate rate of profit. In the absence of enlightened accounting based on current cost of replacement, crisis is the means by which capitalism periodically eliminates over-valued assets. The mercantilist model, at least as Fingleton develops it, further overlooks the role of finance, and above all international finance, in which the overvalued book values of individual firms (or individual mercantilist nation states) can be papered over for an extended period and circulated through the whole world system, further increasing systemic anarchy.

(On another point, Fingleton is none too specific about just how many high-paying blue-collar jobs his high wage high road industries can employ, but to unwrap that point would take us far afield.)

But we can also imagine an even more far-sighted capitalist policy than Fingleton’s. We can imagine a crisis in which the current U.S.-centered system would be superceded by an international financial and accounting system that could in fact take account of such historical book values and systematically revalue capital at its current reproductive cost. (There would be the little problem of the political-military underpinning of such a system, but we can bracket that for now.) Such a system would then eventually come up against Marx’s view of the historical limits of capitalism.

The fundamental contradiction of capitalism is that is requires the labor time of reproduction as the standard of value to regulate production, and at the same time, through technological innovation, is constantly undermining labor time as the standard of value. The burgeoning unproductive section of the U.S. work force described by Fingleton does indeed represent a tremendous drain on social wealth, but the very fact that U.S. capitalism has been able to sustain it for decades also points to a very high productivity of labor (within and outside the U.S.) in that dwindling sector that does produce socially useful goods. This decline of the portion of the total labor time of society required to produce (historically-defined) necessary material goods is one major factor favoring the possibility of abolishing capitalism altogether, because the regulation of production by necessary labor time is less and less necessary.

One can argue about the extent to which the world has today reached that level. The kind of crisis now unfolding is one in which, through massive devaluation of assets to reflect current levels of productivity, capitalism “moves backward” to establish a new “standard” of general labor productivity to regulate production. This has taken many forms, from the “classical” 19th century boom-bust cycle (with massive liquidation of inventory, bankruptcy, and extended periods of mass unemployment) to the “slow crash landing” the U.S. and Europe have experienced since the 1970’s, with a general grinding down of living standards, under essentially Keynesian (warfare state or welfare state) auspices. With large-scale retrogression since the 1970’s in Latin America, Africa, much of Asia, Eastern Europe and Russia (a retrogression against which the advance of the Asian tigers must be set when judging the overall state of the world system), and with decades of austerity in the U.S. and western Europe, world accumulation since the 1970’s has been anything but brilliant. It would not be excessive, in my view, to describe it as a “managed depression”. But this is not the place in which to argue such a case.

That is, nonetheless, the context in which Fingleton’s program stands or falls.

His book is a persuasive analysis of certain glaring flaws in the current U.S. economy, though it is by no means exhaustive. It borders on the naive in its sense of how such a “scientific mercantilist” reorientation of the U.S. could come about. It does not ask the “big questions” about the overall state of world capitalist accumulation, to test the limits of how far such a reform might go.

It is certainly true (and again, this is beyond Fingleton’s scope) that the Asian tigers (along with China and Japan) might become an independent pole of attraction in the world economy, based on scientific mercantilism. Behind the scenes of the 1997-98 Asian crisis, U.S.-China friction, and U.S. penetration into Central Asia after Sept. 11, just such a development seems to be the real issue. But Fingleton’s purpose in IPHIis a reorganization of the U.S. economy along mercantilist lines. He raises many questions which the radical left would do well to consider in its often hidebound views of capitalist crisis. But without an analysis of the world situation, and a consideration of alternate scenarios of crisis (most importantly, the Marxist perspective), Fingleton’s critique, far ranging as it is, falls seriously short.