The Region

Head to Head: The Coming Economic Battle Among Japan, Europe, and America

Book Review

Edward Lotterman | Agricultural Economist

Published March 1, 1993  | March 1993 issue

By Lester Thurow
William Morrow and Co.
336 pages

An October 1992 issue of Time magazine featured a photo of presidential candidate Bill Clinton dozing during a flight on his campaign airplane. Hugged to the candidate's chest is an open copy of Lester Thurow's Head to Head: The Coming Economic Battle Among Japan, Europe, and America. Although Thurow does not have a position in the new administration, the photo symbolizes the influence that his writing has on moderate Democrats. Not everyone will agree with Thurow's views, but anyone who wants to know what sort of ideas will be influential in the Clinton administration should pick up this vigorous and readable book.

Thurow, a native of Livingston, Mont., and professor of economics at Massachusetts Institute of Technology's Sloan School of Management has written widely on U.S. economic issues.

In Head to Head Thurow deals primarily with economic relations among the United States, Japan and Europe. Thurow argues that the collapse of communist regimes, the increasing integration of the European Community, the dynamic cycles of new technology and innovations in business structure and international economic institutions all combine to radically change the environment in which US businesses have to compete. Competition will be much more global, competitive pressures will be more intense, and the stakes will be higher both for individual businesses as well as for nations. He goes on to assert that the governments of all other major economic powers pursue active, coherent, interventionist policies to promote the success of their own firms.

Thurow begins by arguing that the collapse of communism in eastern Europe and Asia has changed the international economic environment in fundamental ways that are not yet fully appreciated. "The next half century will be a competitive game among Japan, Europe, and the United States. In jockeying for competitive advantage, they will force each other to adjust. To mutually prosper, they will have to cooperate to create a world economy that works and a global environment that allows them to survive and to enjoy what they produce."

In subsequent chapters, Thurow anticipates that future competition will be intense: "Today's tough talk is merely a prelude to tomorrow's tough economic competition. Conflicts in economic self-interest will also be sharper than they otherwise would have been because of the disappearance of the Soviet military bear."

European economic integration and the transition to market economies in Eastern Europe occupy a chapter. Writing before the Maastricht Treaty debacle and the implosion of the European Monetary System, Thurow seems to assume that further integration in the European Community is inevitable and will be automatically successful. But he views the transition to democracy and capitalism in Eastern Europe as much more difficult.

Japan merits a chapter of its own. Thurow argues that the Japanese economy differs fundamentally from the assumptions of Western economic theory in its emphasis on production as an end in itself, rather than as a means to greater consumption, and in its focus on group, as opposed to individual, welfare. He also notes differences between the United States and Japan in terms of acceptable rates of return on investments, collaborative behavior within industries, treatment of labor and other stakeholders, profit orientation by firms, research and development cycles and national economic strategies.

When Thurow turns to the United States, he contrasts its position at the end of the 1980s with that at the end of World War II. While the United States is still an economic giant, apathy and decay are rampant, he says. In reviewing several sectors-commercial aircraft, consumer electronics, steel, chemicals, textiles and autos-he sees missed opportunities, shortsightedness and apathy. He concludes: "America starts the twenty-first century with a position second to none, but it has lost the big lead that it had in the last half of the twentieth century, and it will succeed or fail in the century that lies ahead to the extent that it learns to play the new economic games being defined by the Europeans and Japanese."

The economic situation of the developing countries merits a brief chapter. Citing historical experience and the pressures of rapidly growing populations, Thurow concludes that virtually none of the newly industrializing nations will break into the ranks of the wealthy nations in the next 50 years.

International issues, such as global environmental problems, structural trade imbalances, foreign exchange stability, the role of the General Agreement on Tariffs and Trade, are quickly reviewed in a 25-page chapter Thurow's lesson: "In the intensively competitive atmosphere that will exist in the twenty-first century, all of the participants should remind themselves daily that they play in a competitive-cooperative game, not just a competitive game. Everyone wants to win, but cooperation is also necessary if the game is to be played at all."

Thurow concludes by reviewing the three "teams," Europe, Japan and the United States, and concludes that any one of these three may win the competition he sees on the horizon. He then sets out "An American Game Plan" with his policy prescriptions. This chapter is the one most likely to excite his readers' passions, either positively or negatively. Thurow's prescriptions for improving saving and investment include some new taxes and tax increases. His education measures include greater spending, longer school years and new alternatives for funding vocational training. Business organization measures would include revamping antitrust laws, reintroduction of merchant banking (allowing banks to have direct ownership positions in businesses) and changes in legal distinctions between debt and equity stakes in businesses. Most controversially, he calls for overt national industrial and trade policies.

Thurow ends by saying: "The American problem does not lie in the severity of the necessary solutions. America's tough problem is realizing that there are problems that must be solved. Without that realization, nothing can be done. Minor problems that remain unsolvable in the present will create major problems that are difficult to solve in the future."

Head to Head is not recommended for anyone seeking detailed analysis of economic policy questions involving fiscal policy, trade, banking or industrial organization. Better, more specialized, books are available, even for lay readers. The academic critics of Thurow who scoffingly refer to him as "Less than Thorough" will find new material to confirm their views. He frequently shoots from the hip, making broad assertions that may be difficult to support. He does not present any sort of theoretical model to underpin his work.

But Thurow does ask important questions, point out important economic relationships and integrate contemporary political and social events into his economic analysis. Above all, he writes very well. Most readers will find that they can traverse the 300 pages of Head to Head in one or two evenings. Even if they are not convinced by all-or even any-of Thurow's arguments, they will find the experience enlightening and probably enjoyable.

Reviewer Ed Lotterman shares Lester Thurow's Ninth District roots. Ed has farmed in southwestern Minnesota and worked on a USAID-funded livestock development project in Peru.

Prior to joining the Minneapolis Fed last August, Ed was a research fellow at the University of Minnesota, from which is also holds a bachelor's degree in Latin American Studies and a master's degree in agricultural and applied economics.

Ed's passions are Brazil and repairing old automobiles.