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Unclear and Present Danger

Unclear and Present Danger

Mini Teaser: The simple geo-economic idea of the relentlessly adversarial state is a threadbare concept, badly in need of overhauling. And Mr. Luttwak's book is not the first step in that process

by Author(s): Raymond Vernon

Edward N. Luttwak, The Endangered American Dream (New York: Simon and Schuster, 1993) 365 pages, $24.

With the USSR acronym already fading out of memory, governments are turning to the dangerous, dirty, and unglamorous task of pulling apart their nukes and reprocessing the components. But that is not the only adjustment that marks the passage of the Soviet empire. Geo-politicians, having for so long occupied center stage among the foreign affairs elite, find their audiences dissipated, their status challenged.

But all is not yet lost. Nation states are still the principal players in the international game and show no signs of relinquishing that role. And geo-politicians can count on one basic verity as they face the future: In the words of Mr. Luttwak, "states are relentlessly adversarial." So we can expect the continuation of warfare, even if it takes the form of economic rivalry. In such a world, the state that wishes to emerge triumphant needs the services of the geo-economist. And where best to find the well-prepared geo-economist than from the ranks of the underemployed geo-politicians?

One thing is certain: National economic security is the growth subject of the Washington think tanks. The Soviet Union is no more, revealed in the end as a paper tiger; but Asia is fast developing new menaces, whose armaments take an economic form. The status of national economic security as the subject of the moment is now confirmed from many directions, including the reports of congressional committees and the addresses of leaders in the executive branch.
To be sure, the demand for national economic security has had nothing like the compelling clarity that more old-fashioned concepts of national security can command. National economic security conjures up no simple image of a Cuban missiles crisis or a Berlin wall or 30,000 threatening warheads spread across twelve time zones. The geo-economist must content himself instead with the threat emerging from an insignificant string of islands, devoid of natural resources, and crowded beyond bearing with rapidly aging workaholics. The economic security threat, therefore, cries out for definition.

In the search for definition, history is no great help. Although there have been clauses in international agreements on traffic in implements of war and in the things that support a warmaking potential, the idea of national economic security has never been the subject of an international treaty. Indeed, most U.S. economists, being devoted to such antediluvian propositions as the virtues of free trade, have had some difficulty even understanding what the phrase purports to represent. Hence the compelling need, Mr. Luttwak tells us, for a breed of thinkers, honed by the realities of geo-politics, to guide America in a world of economic rivalry.
What, then, is this geo-economic threat? In some ways, Mr. Luttwak's message is gratifyingly reassuring. Bullets will not fly nor bombs be dropped by geo-economic predators; countries such as Japan have too much at stake in maintaining their foreign markets to think of destroying them. Indeed, Mr. Luttwak assures us, trade is not a zero-sum game; the victims of geo-economic warfare can even see themselves gaining from their exchanges with the victors in the short run. There is something to be said, after all, for having Japanese buyers acquire overpriced Los Angeles real estate from American sellers at the top of a boom. The sleepless nights that Japanese engineers create for their rivals at Ford cannot be all bad. And there is a case for the American computer maker who buys Japan's memory chips so that American PC's can hold their competitive position in international markets. But those gains, Mr. Luttwak assures us, are largely illusory, especially when measured by the standards of geo-economics.

For the goal of nations in geo-economic warfare is not simply to add to the profits of the investor or the pleasures of the consumer but to hold the high ground in a world of technological rivalry. This is the new form of warfare among states, at least for that small subset of states that hope to rate as Number One in the international pecking order.

We need not be told what country Mr. Luttwak regards as the world leader in this form of state rivalry, nor what country he regards as the world laggard. But at this point in the unfolding argument, the reader is in for a few small surprises. The true nature of the leader, according to Mr. Luttwak, is more complicated than we suppose. Not nearly as unequivocal as Karel van Wolferen or Clyde Prestowitz, Mr. Luttwak's portrait of Japan is bound to leave the reader a little puzzled. Following familiar lines, he sees Japan as a country jerked around by a willful little band of bureaucrats, centered in MITI and abetted by the Gaimusho and the Boecho. (A tip to the uninitiated: These are the Japanese Foreign Office and Defense Ministry respectively, always identified by their Japanese names in communications among seasoned geopoliticians).

But then Mr. Luttwak's account becomes a bit bewildering. Japan, he observes, is " a thoroughly confused society now undergoing frenetic change." Japanese in considerable numbers see themselves as the victims of the bureaucratic drive for technological superiority, exploited by greedy politicians, industrial combines, and power-hungry bureaucrats. To be sure, despite its confusion, Japan is engaged in a determined drive for geo-economic superiority. But on the other hand, according to Mr. Luttwak

"It is plain that the 'Japan, Inc' myth of a bureaucratic big-business conspiracy to conquer the world economy is nothing but a sinister fantasy, distinctly evocative of antiSemitic libels."

If the reader is a bit unsure where Mr. Luttwak stands, he is entitled to his confusion. And his uncertainty will not be reduced as he studies Mr. Luttwak's discussion of the instruments that states employ in the pursuit of their technological warfare.

Among those weapons, Mr. Luttwak rates state-owned enterprises high on the list. But Mr. Luttwak, like any reader of the Financial Times and The Economist, is aware that governments all over the world are selling off such enterprises wholesale; such sales in the past decade have involved more than sixty countries disposing of assets worth several hundred billions of dollars. Well then, he observes, it must be that state-owned enterprises are powerful weapons in the hands of only some governments, while being liabilities for others. And there the analysis stops. We shall never know if he thinks that state-owned enterprises in American hands would be assets or liabilities.

So who is the enemy? What does he want? How does he propose to get it? And what are the consequences for Americans?

We get a hint of Mr. Luttwak's answer to the last question as he turns to the other protagonist in his book, the United States. Here, his account runs on more familiar lines, amply elaborated by relevant statistics and interesting anecdotes. The U.S. social structure is being rendered by schisms never previously encountered in this country: by the greed of business leaders and lawyers, by the destruction of the middle class, by the decline in education, health, and economic opportunity for large segments of the population. Concurrently, the U.S. economy is headed for hell in a hand basket. Structural deficits, a pitiful level of savings, and persistent underinvestment are turning it into a third-world country, with an underclass of poorly paid, badly prepared workers. "We are," says Mr. Luttwak as he observes the new Mercedes plant establishing itself in Alabama, " thus becoming Europe's own Mexico."

Economists may say that the economic causes for this sorry condition lie mainly within the United States; that the United States as a nation has never lacked for resources to mitigate the palpable problems of miserable education and crumbling infrastructure that are found in many of its old cities and rural communities. But as geo-economist Mr. Luttwak looks beyond these surface observations; he sees the aggressive efforts of Europe and Japan to capture the commanding heights of the technological frontiers as contributors to this sorry state.

A favorite target of the geo-economist, it seems, is the mainstream economist, whose outdated dogmas prevent the United States from framing an effective response. But the savaging that mainstream economists take in Mr. Luttwak's running commentary is not likely to give them much concern. Economists, like physicians, are notorious for their inability to hear the ideas that emanate from outside the temple; and geo-economics is not destined soon to be recognized as a branch of economics. It matters little to most economists, therefore, that Mr. Luttwak's complaints often hit the mark. He is, for instance, right when he says that mainstream economics today lives by one principal scorecard, GDP, slighting other less pliable measures of considerable significance. He is on target again when he says that most economists cannot imagine that the Japanese capital market may have been more efficient than the American, or that the guidance of the Japanese government may have had something to do with the impressive growth of the Japanese economy.

But the complex geo-economic lens through which the Mr. Luttwak views the world's events has a strong tendency to generate distorted images and create oversized blind spots, rendering him a push-over for those inside the temple. He seems not to be aware, for instance, that the current crop of young economists, epitomized by Paul Krugman, have finally come to accept--a century or two after Alexander Hamilton and Friedrich List--that governments could play an effective role in improving the competitive position of their national industries. What gives Krugman and others pause over using protection and subsidy to implement any such policy, however, is the expectation that everybody suffers when a11 nations play the game.

Mr. Luttwak's blind spots, however, are often much more egregious. "GATT," he says, "was clearly meant to be the commercial counterpart of the pan-Western alliance against the Soviet Union." For anyone who knows GATT's parlous past, this of course is unrestrained fantasy, fully compatible with geo-history but unrelated to reality.

Mr. Luttwak's world needs to be redrawn in other dimensions as well. Viewing the world through geo-economic lenses, the Martian visitor would never know that the manufacturing structure of the world is undergoing a metamorphosis that blurs state boundaries and confounds state interests. Our Martian would eventually learn, for instance, that the telecommunications systems of the world, pillars in any scheme for national security, are being swiftly reconfigured by international consortia that are intertwining the interests of national companies. He would eventually discover that manufacturing firms with their home base in the United States control so large a group of foreign affiliates that the total employment of the affiliates comes to 40 percent of U.S. employment of these firms. He would puzzle over the fact that firms based in the European Community now report cross-border mergers in such large numbers as to exceed the number of mergers involving firms from the same country.

Our Martian would also encounter some other odd facts about the quarrelsome, contentious states he had come to observe. He would be bound to note that ancient rivals in Europe, growling and grumbling at every step, have been burying their blood-stained hatchets in an unprecedented partnership represented by the European Union; that rivalrous governments, despairing of their ability to protect their financial markets without the cooperation of other financial centers, have been building a network of cooperative arrangements among their supervisory agencies; that reluctant governments, responding to the persistent pressures of their own nationals, are getting down to the business of banning dangerous chemicals from the world's air and water. There has never been a time, in fact, in which the international agenda has been as crowded in efforts to shape cooperative economic arrangements among governments.

There is no joy in Mudville, no sense of shaping a brave, new world. Governments are not giving up their claims to sovereignty, nor their itch for power, least of all the United States. Their newly forged cooperative arrangements are repeatedly coming apart at the seams, exposing the bare spots and demanding emergency repairs. But the simple geo-economic idea of the relentlessly adversarial state is a threadbare concept, badly in need of overhauling. And Mr. Luttwak's book is not the first step in that process.

Essay Types: Book Review