The GAO Journal, No. 9, Summer 1990

Published by the Government Accountability Office on 1990-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  THE GoA.

                                                                                  A CHALLENGE
                                                                                  FOR YANKEE
                                                                                  iVf?U themesin

                                                                                  The continuing

                                                                                  WOMEN IN          \
                                                                                  THE MILITARY       t
                                                                                  Do combat          I
                                                                                  exchsion laws
                                                                                  make sense?        i

                                    THE GUANO

                                    C              0              N     T            E           N   T   S

                                    FROM THE COMPTROLLER                GENERAL                          3
                                    NEW THEMES           IN COMPETITIVENESS
                                    l    .4N AMERICAN      SOCIETY    IN A GLOBAL        ECONOMY         4
                                         .4n Interview with RobertB. Reich
                                    l    JAPAN’S MOVE TOWARD CREATIVITY
                                         Sheridan ,lii. Tarsuno
                                    l    THE NEED FOR A STRATEGIC                MARKETING   PLAN
                                         FOR U.S. TECHNOLOGY
                                         Amy Lown Manheim

                                    David R. Martin &?Susan Gibbs
                                        SHOULD WOMEN BE KEPT OUT OF COMBAT?
                                        Beverly Ann Bendekgey

                                        TheDeshmukhMemotial Lecture, Bombay,India, Januaq 1990
                                        E . Gerald Corrigan
                                        PRESTIGE, AND CORRCiPTIONOF THE
                                        iNTERNATIONAL AID BUSiNESS and Hernando de Soto,
                                         THE OTHER PATH: THE INVISIBLE RE VOLI’TION IL%’
                                         THE THIRD WORLD, reviewedby J. Allan Hooey,JI: Jamesl

                                        Q. Wilson, BITREAIICRACY: WHAT GOVERNMENT
                                        AGE*%KiESDO AND WHY THEY DO 17: reviewedby Sarah
                                        F Jaggar-•Jack Weatherford, INDIAN GIVERS: HOW THE
                                        INDIANS OF THE AMERKAS TRANSFORIIED THE
                                         WORLD, reziewedby Sheila Aat-uch    l

Cover Illustration by John Porter

     !%nptfol/pr Ihml                      f!anagiq Editor                   zditon’ul .~dzisorv Board
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                                                                             :DWARD BALES                       BEVIS LONGS’I‘RE’I‘l1
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         ‘CST HOWCO>tPETITIVE--Ornoncompetitive-          give much thought to the product it has to offer or
          is the United States in the world market-       to the customer who might buy it and make use of
          place? By now the issue has been so             it. Ms. Manheim proposes that we think of tech-
thoroughly hashed over that new thoughts on the           nology not as high-tech goods but as the knowledge
matter seem hard to come by Nevertheless, politi-         or information that underlies them, and that the
cal economist Robert B. Reich shares a number of          government make that information more accessible
fresh perspectives with us in this issue’s pro-           to the private sector while it is still useful and com-
vocative interview, “An American Society in a             mercially appealing. The private sector, she says,
Global Economy.”                                          will take it from there.
     Mr. Reich believes there is no longer a single           While this issue of the GAOJournalis our second
American economy in competition with the rest of          of the new decade, we could not resist publishing
the world. Therefore, “American economic com-             one final look back at the 198Os,particularly since
petitiveness” is a no longer an issue but rather “an      the writer-E.       Gerald Corrigan, President of the
abstraction without meaning.” Twenty percent of            Federal Reserve Bank of New York-is so well
Americans, he says, are competing quite well in the       qualified to remark upon them. In January of this
global economy. But the other four-fifths are ill-pre-    year, Mr. Corrigan addressed the Reserve Bank of
pared for competition and at risk of falling further       India on how our national and international eco-
behind. “We are not all in the same boat in such a        nomic systems held up through the 1980s a decade
way that, if the American economy does well, all of       in which “powerful forces-some technological,
 us rise together,” he says. For that reason, he argues   some political, and some competitive-were         to rad-
 that it is up to the top fifth to help the lower four-    ically transform the economic and financial setting
fifths to become better equipped to compete. That          in which governments, businesses, and households
 means making the sort of long-term investments in         would have to manage their economic affairs.” Out
education and infrastructure that the nation seems,        of the experiences of the volatile 198Os,&lr. Corri-
 in Mr. Reich’s estimation, indisposed to make.            gan has drawn a number of lessons he feels will
     The second article in our focus on competitive-       make the uncharted waters of the 1990s a little
 ness is by Sheridan Tatsuno, author of Createdin Ja-      less dangerous.
pan: From imitators to World-ClassInnovators. He              Rounding out this issue’s features are two arti-
 argues that we Americans are caught up in a myth:         cles by GAO staff on very timely and controversial
 “We still cling to the cherished belief that the Jap-     topics. David R. Martin and Susan Gibbs discuss
 anese will never match our ‘Yankee ingenu-                        the administration’s recent procedural and
 i ty.’ ” But they not only ma                                        policy changes in response to the flood of
 Tatsuno says, they will soon                                          Soviets now applying to the United States
 we are not as imaginative in enriching                                 for refugee status. Beverly Bendekgey
 our own approaches to creati                                            iscusses the viability of combat exclu-
  have been in theirs.                                                   sion laws for women. Both articles
     GAO’s Amy Lowen Manheim                                                make good reading.
 writes that much of the technol-                                                   All in all, a varied issue and
 ogy produced or sponsored by                                                      one in which we hope you will
  the U.S. government goes to                                                       find something of interest.
  waste. It’s a marketing                                                             Let us know if there are
  problem, she says: The                                                                ways in which we can
  government      doesn’t                                                                do better.

                      AN AMERICANSomn
                      An Interview with RobertB. Reich
                                                  GAO JOURNAL:         The United States has top-quality research facilities and
                                                  scientists and puts a lot of money into research and development (R&D). With
                                                  all these investments in creativity, why do we seem to have difficulty compet-
                                                  ing in the world market for high-technology products?

                                                  REICH:      First of all, we continue to have a problem transforming the knowl-
                                                  edge we gain in laboratories into concrete results in industry. Americans have
                                                  tended to be very good at coming up with new ideas but very bad at creating
                                                  the human organizations and manufacturing systems necessary for implement-
                                                  ing them. A lot of our best new ideas migrate abroad more quickly and effec-
R  obert B . Reich is a professor of political    tively than they are utilized here at home.
economyat theJohn E KennedySchool of
Governmentat Harvard. He was director of          GAO JOURNAL:         What could we do to better translate ideas into commer-
policy planning at the Federal Trade Commission   cial products?
during the Carter administration. His books
include TheNext American Frontier, Talesof a      REICH:       One obvious step is to improve the education and training of ‘\mer-
,%v America, The Power of Public ideas, and,      ican workers. It is very difficult to translate new ideas from laboratory to fac-
due in Februaq 1991from Knopf, T&lVanishing       tory when one out of five 18-year-olds is functionally illiterate and many people
ovation. /n March, GA0 Journal managing editor    are unable to do simple computations. In addition, U.S. companies haven’t
Richard Smith and associateeditor Deborah         made concerted efforts to invest in their production workers by providing them
                                                  with on-the-job training. This is true even where workers do have an adequate
Signer visited ;llr Reich at his ojfice in
                                                  secondary education on which to build.
Cambridge, Massachusettsto ask his views on
                                                       One reason for this unwillingness to invest in employee training is the
how the United States can make the most of its
                                                  tendency of so-called “knowledge workers,” such as software and computer de-
strengthsin the world marketplace.
                                                  signers and engineers, to move quickly from one organization to another. This
                                                  tendency is endemic to American society, and tends to undermine any sense of
                                                  loyalty between workers and managers. A few things could be done to address
                                                   the problems: changing the tax laws so that pension benefits become vested
                                                  even later than now, which would give workers an incentive to stay put; chang-
                                                   ing the laws covering executive bonuses so that executives would also tend to
                                                   stay; and creating tax advantages for employers who offer on-the-job training.
                                                       But actions like these only tinker around the edges of a larger problem.
                                                   Without a fundamental change in the entire culture of productive relation-
                                                   ships, we won’t be able to solve the problem of excessive employee mobility

                                                  GAO JOCRNAL:          You’ve mentioned the lack of adequate education and
                                                  training as one factor in this country’s uneven record in commercializing new
                                                  technologies. What other factors would you cite?

                                                  REICH:      National defense is another piece of the puzzle. ‘4 lot of U.S. manu-
                                                  facturing in high-technology areas, including aerospace, microelectronics, and
                                                  communication technologies, is intimately related to the defense industrial
                                                  base. Although spin-offs from defense industries occurred regularly during the
                                                  1950s and 196Os,they are much less frequent today. Nevertheless, the defense
                                                  industrial base still absorbs a great deal of our talent, our manufacturing facili-
                                                  ties, and our national income.

                                                   G.40 JOURNAL:       Why are there fewer spin-offs from defense than there
                                                   used to be?

                         is concerned with reliability, of course, but is willing to settle for a degree of
                         reliability somewhat less than that required for making sure that precision-
                         guided missiles reach a target 5,000 miles away. Consumers are also unwilling
                         to pay the kinds of prices that the military tolerates-not just for the infamous
                         $600 toilet seats but also for a lot of other paraphernalia.
                              In addition, the pressures of the highly competitive world market have in
                         some cases forced civilian technology to move more quickly than military
                         technology. This is true in such areas as high-definition television, liquid crys-
                         tal displays, fiber optics, lasers, and light-sensing devices. When civilian tech-
                         nology is ahead of military technology, there’s no opportunity for the tra-
                         ditional military-to-civilian  spin-offs.
                              To get back to the question of why this country is slow to commercialize its
                          new ideas-1 think a third reason is that C.S. industries still tend to be orga-
                          nized according to a model of high-volume, standardized mass production.
                         The old hierarchical arrangements are, by and large, still in place. Many Amer-
                          ican managers pay lip service to the buzzwords of modern management, such
                          as decentralization and quality circles. Only rarely, however, are production
                          systems truly decentralized, with responsibility pushed downward and greater
                          emphasis placed on human capital. Yet this is precisely the kind of organiza-
                          tional change that’s needed if we are to make the switch from mass production
                          to higher value-added production, which emphasizes flexibility, quality,
                          and customization.

                         GAO JOURNAL:           Do you think that some sort of shift in values is necessary
                         if .4merica is to maintain its long-term economic health and prosperity?

                         REICH:       Here we come to the nub of the issue. We talk about the American
                         economy, and we use the pronoun “we.” But actually, if you examine it closely,
                         there is no longer an “American economy.” There is no longer a monolithic is-
                         sue called “U.S. competitiveness.” There is no longer a “we.”
                             The top 20 percent of Americans are competing quite well in the interna-
                         tional economy. Their children are likely to do well also. The educational sys-
                         tem for elite young .4mericans is the best in the world. The country’s research
                         scientists, engineers, investment bankers, lawyers, management consultants,
                         film-makers, musicians, writers, publishers-those people whose job it is to
                         manipulate abstract symbols-are doing well. As the global market becomes
                         ever more integrated, these people’s value increases. They can sell their de-
                         signs, prototypes, formulas, and financial analyses all over the world.
                              So there is no reason for concern about this segment of the U.S. popula-
                         tion. They are highly competitive and becoming more and more so.
                              There are two other categories of American workers, however, whose posi-
                         tion is becoming more precarious. In one category are routine production
                         workers engaged in global commerce-traditional      blue-collar workers, for ex-
                         ample, or the data processors working on global computer networks. These
                         people are becoming less and less competitive because they must compete
                         with individuals in other countries, the majority of whom would be delighted
                         to work for a fraction of the wages that .4mericans make. Global corporations,
                         whatever the nationality of their owners, tend to move routine work to where
                         wages are lowest. As a result, within a short time there won’t be much global
                          routine work left in the United States.

                                     AN AMERICAN SOCIETY IN A GLOBAL ECONOMY

     That leaves the other category of workers-those who provide person-to-
person services. These include hospital orderlies, retail sales clerks, restaurant
employees, cab drivers, and-the fastest growing job category of all-security
guards. None of these people is engaged in international competition. They
compete for their jobs indirectly, against labor-saving machinery, but they don’t
compete directly with anyone else around the world. Instead, their earnings
depend on the earnings of that top 20 percent of the American population. A
cab driver in this country earns a lot more than a cab driver in a Third World
nation only because the top 20 percent pull in wealth from the rest of the
world and spend it here.
     For the position of the bottom 80 percent to improve in any lasting and
meaningful way, their productivity will have to increase. That’s the only way
they can compete against low-wage workers in other countries. And the only
people who can afford to make the needed investments in the bottom 80 per-
cent’s productivity-investing     in their education and training, and in the in-
frastructure necessary to bring the fruits of their labor to the world market-
are those in the top 20 percent of the population. The question is: Are they
willing to make those investments?
     There is no reason to suppose that they will, because they are no longer
dependent on the bottom 80 percent. Quite the reverse: The top fifth can ex-
tract from the bottom 80 percent all kinds of concessions, because the bottom
80 percent depend so much on the top 20 percent. The top 20 percent are cos-
mopolitan. Their fates are linked to the fate of the global economy, not
uniquely to that of the national economy.
      If present trends continue, there will be a widening gap between rich and
 poor-or, more accurately, between the rich and everybody else in this coun-
 try That will create grave problems.

GAO JOURNAL:         Do you see any countervailing trends-any indication of
increased willingness to make the investments that are needed?

REICH:       This country’s record over the past 15 years hasn’t been good.
What determines national economic progress in today’s global economy? Al-
most every factor of production has become totally mobile. Money and technol-
ogy move across national borders almost at the speed of an electronic impulse.
A modern, up-to-date factory can be built anywhere around the world in a very
short time. New ideas can travel to any spot on earth almost immediately,
    The only two factors of production that are relatively immobile are people
and infrastructure. .4nd these are precisely the two areas in which there has
been dwindling investment over the past decade and a half.
    As I mentioned earlier, we have not adequately educated our young people.
Per-pupil spending on primary and secondary education has increased over the
past 15 years, but no faster than the per-pupil increases that occurred during
the 1960s and early 1970s. At the same time, we can no longer count on a large
pool of talented women willing to work as teachers for low pay, since too many
other professional options have opened up to them. In other words, the free
ride is over: If we want good teachers, we’re going to have to pay for them. Yet
teachers’ salaries, adjusted for inflation, are only a bit higher in 1990 than they
were in 1970. Finally, many of our schools are burdened by all sorts of social
problemsarugs,      crime, AIDS, child abuse, family disintegration. These are

                                                                  SUMMER 1990     7

                         often the same schools that must rely on impoverished local tax bases for their
                         support. Overall, then, the increases in education spending have been com-
                         pletely inadequate.
                             The story on infrastructure is equally discouraging. During the 1960s the
                         nation spent 2.4 percent of gross national product (GNP) on infrastructure. We
                         now spend just a little over one percent of GNP Roads are not being repaired.
                         Bridges are collapsing. We have tremendous problems with sewage and waste
                         treatment. Airports and major highways are clogged.
                             For both education and infrastructure, the federal government has, over the
                         past 15 years, pushed responsibility back to the state and local levels. But
                         poorer states and cities have not been able to shoulder this burden.
                             The irony is that investments in education and infrastructure are crucial to
                         boosting this country’s economic standing. If we had a top-notch infrastructure
                         and a highly educated work force, U.S. productivity would be higher, and we
                         could attract industry to this country much more effectively than we do.

                         GAO JOURKAL:       Do you see the so-called peace dividend as an opportunity
                         to channel more money into these areas?

                         REICH:        Absolutely. If we were to reduce military spending by even the
                         modest amount of 3 percent each year, by the end of 10 years we would have
                         roughly half a trillion dollars to invest. If we were also to adopt a slightly more
                         progressive tax schedule (a suggestion that even liberal Democrats are afraid to
                         mention these days) so that those in the upper-income brackets were taxed to
                         the same extent as they were 15 years ago, we would gain another trillion dol-
                         lars over the decade to invest in education and infrastructure. Upper-income
                         Americans are earning more than ever before, so a tax increase wouldn’t lower
                         their living standard; it would simply slow their living standard’s rise. And over
                         the 1990s this country would gain $1 trillion.
                              Is it going to happen? Probably not, in the prevailing political environment.
                         Politicians are already talking about using the peace dividend to cut the budget
                         deficit, thereby reducing the need for additional taxes. As long as politicians
                         think in these terms, as long as the top 20 percent remain unwilling co make
                         the necessary investments in this country, the bottom 80 percent of Americans
                         don’t face a very attractive future.

                         GAO JOURN‘4L:      So you wouldn’t use the peace dividend to help bring
                         down the budget deficit?

                         REICH:      My views on this subject may border on blasphemy, but I don’t con-
                         sider the budget deficit in itself a major concern. For one thing, the budget def-
                         icit is now down to roughly 1.5 percent of GNP-about where it has always
                         been, historically,
                              But even if the deficit were larger, I would still urge that we increase ex-
                         penditures on infrastructure and education for the simple reason that they rep-
                         resent investments in future productivity. The same principle applies here as it
                         would in any business: It’s perfectly appropriate to go into debt to invest in fu-
                         ture capacity to produce wealth. Later on, when your wealth has increased,
                         the debt will be easier to pay off. If this country invests adequately in infra-
                         structure and human capital, corporations will see it as an attractive place to
                         invest: They will bring higher value-added jobs here that will increase U.S.
                         wealth. And paying off the budget deficit won’t be such a burden.

                                     AN AMERICAN SOClElY IN A GLOBAL ECONOMY

GAO JOURNAL:         Let’s talk a bit now about the international scene. Since
World War II, the United States has paid for a large share of the defense of its
allies-particularly Japan and West Germany, which have emerged as Ameri-
ca’s main economic competitors. To what extent has this allocation of the de-          ,
fense burden contributed to America’s current economic problems?

REICH:      We should not blame the Japanese or the Europeans for not taking
on more of the collective defense burden. After all, it was we who insisted on
maintaining a certain level of defense. We also wanted to maintain a position of
leadership among our allies, and this entailed paying a large share of the de-
fense costs.
    Surely the military buildup this country began in the late 1970s has played
a part in our current predicament. We would not be so deeply in debt, and we
wouldn’t have neglected infrastructure and human capital to such a large ex-
tent, had we not spent a trillion dollars increasing our armaments over the past
decade. In some people’s view, of course, these investments in defense are
what brought the Soviets to their knees. That seems to me a highly dubious
proposition. The Soviet economy was gradually collapsing anyway, and Gor-
bachev had few options. It’s hard to say what would have happened if there
hadn’t been a Gorbachev-but       there is certainly no reason to believe that our
arms buildup created him.

GAO JOURNAL:        What opportunities for new investment does the opening
in Eastern Europe create?

REICH:       Global companies are going to invest substantially in Eastern Eu-
rope because the region is right at the edge of Western Europe, which, after
1992, will be a booming, integrated market. Eastern Europe will, in some
ways, be to Western Europe what Mexico is to the United States-a source of
inexpensive labor for high-volume production. Not just inexpensive labor, but
also relatively skilled labor. So I wouldn’t be surprised if the next three years
saw an extraordinary influx of capital into Eastern Europe.
    This capital will come from the savings of the rest of the world, particularly
from West Europeans, Japanese, and Americans. This will mean less global
capital to go around. As a result, Latin America will probably suffer, as foreign
investments there decline. Also, interest rates in Western Europe, Japan. and
the United States may rise.

GAO JOURNAL:        America is often compared unfavorably with Japan in its
corporate management, government-business relations, worker skills, and so
on. Do you think there are ways in which this country should emulate Japan?

REICH:       Certainly there are things we can learn from the Japanese. Anybody
who says otherwise is guilty of a kind of ethnocentrism that can only hurt us in
the long term.
    But it’s inaccurate to say that the Japanese are fundamentally different
from us. If you look at America in the 1950s you see many of the same cul-
tural attributes that exist in modern-day Japan. Remember “The Man in the
Grey Flannel Suit”-the      other-directed person, the organization man (it was
always a man), the faceless individual who worked long hours all his life for the
same firm?
    Well, that description very much fits the Japanese “salary man” of today.

                                                                 SUMMER 1990       9

                       The dominant leadership generation in Japan came of age during and after the
                       Second World War, when Japan was devastated and when savings and hard
                       work were the only possible means of improving one’s status in life.
                            This mentality is very similar to that of .4mericans who grew up during the
                       Depression, who became the grey-flannel men of the 1950s. But once a coun-           j
                       try’s living standard reaches a certain level, a lot of people, particularly young
                       people, lose patience with the idea of deferring gratification. That certainly
                       happened in America, beginning in the 1960s.
                            On the basis of that experience, it’s reasonable to anticipate that 20 years
                       from now Japan will look very different. Vast young Japanese face a different
                       world than the one their parents knew. Consequently, they may not be content
                       to be organization men who defer gratification.

                       GAO JOCRNAL:         You’ve written about something you call collective entre-
                       preneurialism-a   system under which major innovations are made more by
                       teams of people than by individuals acting in isolation. Why is collective entre-
                       preneurialism becoming more important! W’hat kind of shift will it take in
                       current American patterns of work, management, and creativity for this new
                       system to stick?

                       REICH:       Traditionally, Americans equate entrepreneurialism with individual-
                       ism: We imagine the maverick inventor who comes up with a breakthrough in-
                       vention in his garage. But that is not, by and large, the way improvements are
                       made in products or processes or sales and marketing techniques. At the heart        ’
                       of the most effective modern enterprise are teams of anywhere from three to
                       thirty people, whose collective skills and insights are greater than the sum of
                       their individual skills and insights.
                             Why are teams necessary? Because modern technologies are too compli-
                       cated for solitary individuals to absorb all the needed information and make
                       innovations on their own. Skills and information from all sorts of areas-manu-
                       facturing, engineering, design engineering, fabrication, sales, international re-
                       lations, foreign languages-have to be blended to meet the complex demands
                       of creating and marketing a product in today’s global economy. There may be
                       in the United States today one or two Thomas Jefferson-like characters who
                       can combine all these skills in one brain, but that’s quite rare.
                             What concerns me is that the image of the lone entrepreneur remains in
                       America’s collective mythology. We are suspicious of collective entrepreneurial-
                       ism. Consequently, we tend to offer enormous psychic, social, and financial re-
                       wards to individuals who look like they made the crucial difference, when in
                       fact behind every cowboy entrepreneur is a team of individuals who really de-
                       serve much of the credit.
                             Many U.S. companies would get better performances from their employees
                        if they developed ways of celebrating group initiative rather than spotlighting
                        individual accomplishment.

                       GAO JOURNAL:          How could they do that?

                       REICH:       The simplest way is alter compensation systems so that a portion of
                       an individual’s salary or wages is based not on what he or she did but on what
                       his or her group accomplished. At the very least, individuals should not be
                       singled out for special awards that put them in competition with others,
                       thereby creating a disincentive to collaborate.

                                      AN AMERICAN SOCIETY IN A GLOBAL ECONOMY

    On a broader social level, America needs a new set of mvths or stories about      I.
noteworthy achievements. Our entrepreneurial stories focus on creative individ-
uals-the lone cowboys. We don’t tell enough stories, either in the press or
within individual companies, about entrepreneurial groups-teams of people             I
who make major breakthroughs.                                                         I

GAO JOURNAL:         Does American culture have precedents for such stories?

REICH:      Certainly. Think of frontier culture. Our mythic frontier is inhab-
ited by a bunch of solitary cowboys; but actual frontier life required collective
work, such as barn raisings and quilting bees. If communities didn’t work to-
gether closely, individuals would perish.
    Team sports is another area in which we understand that the group must
function as a team. If somebody starts acting on his or her own, the whole
team suffers.

GAO JOURNAL:         What changes do you see in America’s role in the world,
given that the world situation itself is changing so rapidly?

REICH:        Undoubtedly we are moving from a bipolar world to a multipolar
world. Superpower politics are becoming a thing of the past.
     This is a result partly of the proliferation of weapons of fierce destruction,
which diffuses power into many arenas around the world. There is now less
risk of a superpower confrontation that would annihilate all of mankind, but
there is more risk of a lot of small-scale conflicts that could cause considerable
local destruction.
     Another factor is the rapid integration of the global economy. As I men-
tioned before, it is now possible for money, ideas, technology, new inventions,
equipment, and factories to move almost effortlessly around the globe. This
diffuses economic power.
     It also means that American corporations are less and less connected to this
country. Many of our major companies have larger operations and have more
sales outside the United States than inside it. They are concerned about the
U.S. economy only insofar as it is a major market for them. I am not calling
into question the patriotism of U.S. corporate executives; I am simply pointing
out that, as executives, their primary concern is to ensure a good return on
their shareholders’ investments. If an ‘4merican corporate executive were to
sacrifice shareholder interests for the sake of some abstract national goal, that
executive would be liable for breach of fiduciary obligation to the shareholder-
or at least would be subject to a hostile takeover by executives who are more
mindful of their shareholders’ interests.
     In a global economy? therefore, U.S.-owned corporations have the same
level of concern for this country that foreign-owned corporations do. These
global corporations-whatever       the nationality of their owners-will invest in
this country and bring good jobs here only if we have the human capital and
the infrastructure that can attract them. They are not uniquely connected to
any single nation. They will undertake production and provide services all over
the globe, pursue R&D all over the world, employ workers in many different
nations. Their shareholders will be citizens of many nations. Even their top
officers will be multinational.
     The question of ownership becomes moot. That foreign investors own
companies operating in the United States doesn’t mean that the foreigners con-

                         fro/ them. Bruce Springsteen and Madonna are both under contract to the Japa-
                         nese, but the idea that they are somehow controlled by the Japanese is
                         obviously absurd. Biotechnology re;searchers who used to work for Genentech,
                         a U.S. company, now work for Roche, a Swiss company. Is their work any less
                         valuable than it was before? Certainly not. Are their paychecks smaller than
                          before? No. Nothing has changed except that they now have a bit more money
                         for research.
                              This is the story all over the country. Foreign ownership is not only harm-
                          less, but in fact, it’s probably necessary.
                              In this kind of world, what is the role of the nation-state? Is the very idea of
                          the nation-state passe? After all, it is not a very old idea: It was the 18th cen-
                          tury that really saw the birth of nationalism as we understand it today. Before
                          then, there was no sense that nations were in any way responsible for the eco-
                          nomic well-being of their citizens, or that the common man had a stake in na-
                          tional economic growth. These concepts developed during the 18th and 19th
                          centuries, when high-volume mass production pitted nation against nation as
                          they competed for limited markets.
                              So it’s not as though nation-states have existed forever or will exist forever.
                          Over the next 50 to 100 years, we may be witnessing the end of the nation-
                          state as we have come to know it.

                         GAO JOURNAL:        Do you foresee the world reaching a point at which it
                         doesn’t make sense to talk about “American economic competitiveness”?

                         REICH:       We have already reached that point. The idea of American eco-
                         nomic competitiveness is an abstraction without meaning, partly because,
                         as I’ve said, the top 20 percent of Americans are gaining in competitiveness
                         while everyone else is losing. There is no longer an American economy that
                         intermediates between individuals and the world economy. We are not all in
                         the same boat in such a way that, if the American economy does well, all of
                         us rise together. We are in a global economy, a global labor market, a global
                         corporate state. Were it not for the facts that we have a common currency,
                         that the government keeps a lot of national economic statistics, and that our
                         politicians like to either congratulate themselves or blame other politicians for
                         how the national economy is doing, we wouldn’t even talk about the
                          “American” economy.
                              But even though we are not an economy, we are, presumably, a society-
                         a political community. We have common ties and a common culture. The un-
                         resolved issue, to my way of thinking, is whether we are enough of a political
                         community that those who are best able to sacrifice for the community will
                         choose to do so. What obligations do we owe one another as citizens, even
                         though we have grown less dependent on one another as economic actors? This
                         is the major question we face as a nation. l

                       Shetidan 44. Tatssun

                       CREATIVITY                                               Havingmasteredquahy
                       asszlrance,the Japaneseare now eyeingAmerica’s last bastions
                       of expertise-basic researchand breakthro24ghthinking.

                                 INCE WORLD WAR II, we Americans have           and Mazda’s Miata may dazzle us, we still cling to
                                 lost much of our international competitive-    the cherished belief that the Japanese will never
                                 ness to Japan and other countries because of   match our “Yankee ingenuity.”
                       our complacency, neglect of export markets, and              Unfortunately, we may be deluding ourselves.
                       just plain arrogance. In the 1950s and 1960s we          And that delusion may be our undoing in the 1990s.
                       overlooked Japanese quality improvements be-             Just as most Americans overlooked Japan’s emphasis
                        cause, according to the prevailing wisdom, the Japa-    on quality improvement during the 1950s today
                        nese made cheap, shoddy products that were mere         most Americans are still unaware of the actions the
                        imitations of ours. That dangerous myth cost us         Japanese are taking to foster their creativity, Having
                        thousands of companies and millions of jobs.            mastered quality assurance, Japanese companies
                                                                                are now eyeing America’s last bastions of exper-
                                                                                tise-basic research and breakthrough thinking.
                          Just as most Americans                                    What are the signs of Japan’s shift to creativity?
  overLooketiJapan’s emphasison quality improve-                                Consider the following:
  ment during the i95Os, today they are unaware of
  the actions theJapaneseare taking to foster and                               l   Between 1978 and 1989, according to the U.S.
  apply their creativity.                                                       Patent Office, the Japanese share of patents regis-
                                                                                tered in the United States doubled, from 10.5 per-
                                                                                cent to 21.1percent.
                          Today, we labor under another myth: that the
                       Japanese are copycats incapable of creative thought.     l    In 1988, a National Science Foundation study
                       Business articles and government reports pound           found that, since 1976, Japanese patents had been
                       home the message that Japanese companies are             cited more often than patents awarded to Ameri-
                       good only at mass production and that the United         cans. These types of citations are one indicator of a
                       States still leads in basic research and innovative      patent’s innovativeness.
                       product development. Although Sony’s Walkman             l       At the International Solid State Circuits Confer-
                                                                                    ence-the Olympics of semiconductor research-
                       SHERIDM A!. TATSUNO is thefounder and                        the U.S. share of technical papers declined from 61
                       principal of NeoConcepts,a consu/tingfirm that               percent in 1981 to 49 percent this year. Over the
                       publishesNet,Iafia-1, a monfhiy nfl&etW on                   row - i- -rind 1-r n'- qhar rliml- 1 f--    Qc

                          l   In high-definition television (HDTV), the                  Wherever one looks-in fashion, architecture,
                          United States is trailing Japan and Europe in devel-      car electronics, construction technology, expert sys-    j
                          oping broadcasting standards, equipment hardware,          terns, and neural network computing-Japanese
                          and a transmission infrastructure. One hour of daily       creativity is blossoming. Yet Americans still persist
                          HDTV programming is already available in Japan             in believing that the Japanese lack creativity. Why
                                                                                    ,is this? Why have we been so blind to Japan’s mas-
                                                                                     sive buildup in creative research and product devel-
                             Whermer- one looks-in                                   opment? How are the Japanese pursuing the elusive
   fashion, architecture, car electronics,constnxtion                                notion of creativity? And what are the implications
    technology--Japanesecreatidq is blossoming. Yet                                  for U.S.-Japan trade relations in the 199Os?
    Americans still persist in behuing that the Japanese
    lack creativity.
                              and large-screen HDTVs are being introduced into
                              factories, hospitals, museums, civic auditoriums,     Shifting paradi&ns
                              video bars and restaurants, and shopping malls in
                              selected Japanese cities.
                              l    At international trade shows, Japanese compa-    Perhaps the b’iggest obstacle now facing Ameri-
                              nies are trend-setters in industrial design, audio-   cans-indeed, all people-is outdated thinking.
                              video equipment, computerized language                Americans are still mentally imprisoned by past
                              translation, bullet trains, car navigation systems,   habits and attitudes. Therefore, experts and lay-
                              advanced robots, and factory automation. Tokyo        men alike were unprepared for the fall of the Berlin
                              is the source of many new product ideas, such as      Wall and the decline of communism in Eastern Eu-
                              vacuum tube bullet trains, ergonomic keyboards,       rope. In U.S.-Japan relations, we were surprised by
                              ceramic paper, music-playing robots, and              the assertiveness reflected in the recent hook, .4
                                                                                                       JAPAN’S MOVE TOWARD CREATIVITY

                       attitude surfaced in Tokyo years ago. Japan is an          ular leaps is considered “ho-hum” science.
                       economic and technological superpower, yet most                Although Western creativity has unleashed
                       Americans still treat it as a “little brother.”            many new ideas, its linear, rational bias has led to
                            Akio Morita, chairman of Sony, has offered a          many political and economic dead ends. No longer
                       warning about the narrowness of this country’s             are big solutions or big projects adequate to solve
                       postwar, “Pax Americana” thinking: “If you go              the complex global problems that face us. We are
                       through life convinced that your way is always best,       like baseball players trying to win the game by hit-
                       all the new ideas in the world will pass you by.           ting only grand slams-overlooking the fact that, to
                       Americans tend to think that the American system           hit a grand slam, you have to fill the bases first. Our
                       is the way things should work all around the world,        “big breakthrough” mentality overlooks the more
                       but they should not be blind and deaf to how things        subtle, less visible forms of creativity that Japan is
                       are done in other countries.“’                             increasingly turning to its advantage.

                        Westernerstend to focus
heavily on thegeneration of breakthrough ideas,                                   A cyclical approach
which we regard as the ultimate proof of creativity.
Anything short of thesespectacular leaps is consid-
ered “ho-hum” science.                                                            1 nd’IVI‘d ua I’ism, f rontier exploration, and personal
                                                                                  freedom-so valued in America-are not highly es-
                             America’s general inability to recognize Japan’s     teemed in Japanese society. Instead, emphasis is
                        burgeoning creativity is symptomatic of the kind of       placed on group cohesion and constant improve-
                        paradigm shift that Thomas Kuhn described in his          ment-values with roots in the three centuries of
                        landmark 1962 book, TheStructure of Scientific Rev-       isolationism so strongly enforced during the Toku-
                        olutions.2Kuhn challenged the prevailing view that        gawa Period (1600-1868). From a very young age,
                        scientific progress is a simple process of making dis-    Japanese are taught to master and improve their lot,
                        coveries and accumulating knowledge. Instead, he          whether it be a menial job or a tiny plot of land.
                        argued, discoveries only have meaning within a            The greatest acclaim is given to work that is highly
                         “paradigm, ” or worldview, which is based on com-        polished and refined, such as bonsai plants. The re-
                         mon assumptions about the problems being consid-         finement of old ideas may not strike Westerners as
                        ered. Paradigms are usually implicit and                  particularly creative, but in world markets it can             I
                         unarticulated; their influence is pervasive, affecting    have powerful results. Witness the overwhelming
                         the way people perceive, think about, analyze, and       success of the Sony Walkman, which is nothing
                         respond to their environments. As long as both the        more than the refinement of two old ideas-porta-
                         underlying assumptions and the environment re-            bility and stereo sound.
                         main unchanged, paradigms serve as useful frame-                In fact, the Japanese often refer to the creative
                         works for analyzing and solving problems. But when        process as the reincarnation of ideas-a cyclical
                         the world changes rapidly, as is happening today,         process. Old ideas never die but are transformed
                         the paradigms need to shift as well. If people apply      into new ones. Although they may lie quietly for
                         outdated paradigms to changing situations, they           years or even centuries, a new development may
                         can end up with distorted perceptions and inappro-        trigger their reappearance in the world. For exam-
                          priate responses.                                        ple, many of the ideas sketched out by Leonardo da
                              To a large extent, Americans are currently stuck     Vinci and H. G. Wells-such as the helicopter and
                          at this phase-holding onto paradigms that no             the submarine--could not be realized in their times
                          longer match reality. This is true of American views     and had to wait until the necessary technology had
                          about creativity. Generally, Western creativity is       been developed. As the Japanese have long known,
                          rapid-fire, awe-inspiring, and often engenders the       it is worth reviewing and recycling old ideas from
                          kind of zeal associated with religious faith. West-       time to time because recent developments may
                          erners delight in dramatic displays of individual         have renewed their potential.
                          genius. We tend to focus heavily on one phase of                The cycle of creativity can be divided into five
                          the creative process: the generation of break-            phases. In the first, idea recycling,new uses are
                          through ideas, which we regard as the ultimate            found for old and existing ideas. When existing
                          proof of creativity Anything short of these spectac-      ideas are inadequate, however, new ideas are

                                                                                                                         SUMMER 1990        15

                          sought-the second phase, idea expforation. The         area in which U.S. companies have begun to fall
                          third phase is idea cultivation, when new ideas are    behind, it may be useful to examine some of the
                          “seeded” and “incubated.” This can lead to the         Japanese techniques for refining ideas into commer-
                          fourth phase, idea generation, in which new break-     cial products.
                          through ideas occur. Finally, there is idea rejne-            One approach is miniaturization, as reflected in
                          ment, during which new ideas are improved and          the compact, lightweight radios, cameras, televi-
                          adapted to the changing environment.                   sions, and automobiles that Japan has produced and
                               Western creativity is clearly stronger in search- marketed so successfully. For new products and
                           ing for new ideas, in cultivating them, and in gener- services, the Japanese always pursue a variety of
                           ating breakthroughs (the second, third, and fourth    miniaturization strategies, which they view as pow-
                           phases). Westerners have traditionally excelled in    erful tools for reducing costs and opening up new
                           pursuing basic research and exploring new scientific  markets. In the early 1980s for instance, Plus and
                           frontiers-activities  that require maximum incellec-  Company developed a handheld copier called the
                           tual curiosity and adventurousness. By contrast, the  Copy-Jack for businesspeople and students. And
                           Japanese are not so given to exploration, and are      during the mid-1980s Murata, Canon, and Ricoh
                           strong in recycling, cultivating and refining ideas    introduced small, desk-top facsimile machines.
                           (the first, third, and fifth phases).                        Another Japanese approach to refining ideas is
                                                                                  simplification. Whereas Americans often develop
                                                                                  complex, large-scale solutions to problems, the Jap-
                          Japanese companieshave                                  anese constantly reduce the complexity of products
   shown a tremendousknack for re$ning ideas and                                   to a bare minimum. They streamline the design,
   technologies.They often take seminal ideas over-                                reduce the number of parts, and simplify the inner
   looked or dismissed by skeptical Westernersand                                 workings.     One example is Fujitu Photo Film’s dis-
   transform them into somethingentirely d@%rent.                                  posable    camera.  To reduce costs and weight, a pa-
                                                                                   per box design was used and the lens system was
                                                                                   simplified by eliminating the focusing and dia-
                                But whereas the Japanese recognize their weak-     phragm devices. The result was a compact, color-
                           nesses in basic research and breakthrough thinking      ful, and simple-to-use paper box camera that now
                           and are trying to strengthen their skills in these      sells in stores worldwide.
                           areas, we Americans tend to believe we have a mo-            Japan’s skills in commercialization represent a
                           nopoly on creativity and disregard the areas of Japa- strength the United States should study and emu-
                           nese strength-the    recycling and refinement of         late. For that is exactly how Japan is responding to
                           ideas. If this myopia continues, Japanese companies America’s strengths. Japanese companies are now
                           could succeed in their drive to master all phases of     experimenting with more than 100 creativity cech-
                           creativity, and U.S. companies could end up being        niques designed to improve Japan’s record in one of
                           left behind. The impact on U.S. economic compet-         its areas of weakness-the development of break-
                           itiveness in the Zlst century would be devastating.      through ideas. Half of these techniques, such as
                                                                                     “brainstorming” and “synectics” (a method of prob-
                                                                                     lem-solving that relies on metaphor and analogy),
                                                                                    were introduced from the United States during the
                                                                                     1950s and 1960s. The other half are new methods
                           Commercializing                 ideas                    developed in Japan.

                           J apanese companies    have shown a tremendous
                           knack for refining ideas and technologies. They
                           often take seminal ideas overlooked or dismissed by     Promoting           creativity
                           skeptical Westerners and gradually transform them
                           into something entirely different. The videotape re-
                           corder, for example, was pioneered by Ampex, a          B  ecause breakthrough thinking is not a Japanese
                           U.S. company, but it was Sony and Matsushita that       hallmark, these creativity techniques are being
                           turned it into a mass consumer product. Given that      custom-designed to fit Japanese culture and over-
                           the commercialization of new technologies is one        come the obstacles it presents to the generation of
                                                                                                    JAPAN‘S MOVE TOWARD CRL4TIVIl-Y

                       new ideas. The hlitsubishi brainstorming method,
                       for example, takes advantage of the Japanese prefer-
                                                                                U.S.-Japan trade relations
                       ence for structure and order. In this method. partic-
                       ipants are given a chance to warm up by writing
                       down their ideas for 15 minutes. To prevent more         Th e JP  a anese are poised at the leading edge in
                                                                                field after field, from high-definition television to
                       aggressive or vocal people from dominating the
                                                                                automobiles. During the 199Os,given their momen-
                       group, each person is asked to read his or her ideas
                                                                                tum and strong R&D funding, the Japanese will
                       aloud. While each participant explains the back-
                                                                                surpass the United States in a dozen crucial emerg-
                       ground and content of his or her ideas, others write
                                                                                ing technologies. When the impacts of this “Sput-
                       them onto “idea maps.”
                                                                                nik 2” are felt by U.S. industries, the political
                                                                                reaction in the West will be deafening. What should
                         Japan is approaching                                   U.S. companies be prepared for?
creatie?ityjxst as it studied qua&y control 30 years                                  First, unless U.S. companies reconsider their
ago-deliberate/y and systematically.                                            views of creativity, they will continue to lose global
                                                                                market share. Japanese companies will increasingly
                                                                                challenge existing U.S. industries, such as soft-
                           Another approach is the MY Method (named for         ware, biotechnology, and medical electronics, and
                       Yasuo Matsumura), used by the Japan Management           could dominate next-generation fields, such as
                       Association to train managers in creative brain-         bioelectronics, biocommunications, optocom-
                       storming and management planning design. This            puting, marine electronics, automated biotechnol-
                       method employs a diagram inspired by the lotus           ogy manufacturing, and automated telephone
                       blossom. A central theme is written in the middle        translation software.
                       of the diagram. Participants are asked to think of             In addition, current American attitudes toward
                       related ideas or applications of the first idea; these    intellectual property and patent protection could se-
                       are written in the surrounding “petals.” For exam-       verely hurt U.S. industries in the future. Americans
                       ple, if the central theme is superconductivity, the       now assume that U.S. technology is the best in the
                       related ideas might include such commercial appli-       world and that we must protect these family jewels.
                       cations as magnetic levitation trains, energy stor-       But already, Japanese companies hold a virtual mo-
                       age, electrical transmission, and computer board          nopoly on dynamic RAMS (random access memory
                       wiring. These ideas can then serve as the trigger for     chips), liquid crystal displays, photomasks, and
                       another round of new, more specialized ideas.             large TV screens; and they may soon achieve
                       When the concepts become highly technical, fur-           breakthroughs in next-generation industries, even-
                       ther brainstorming may be done by groups of ex-           tually surpassing the United States in technology
                       perts. The Japanese have found that this method           development. At that point, U.S. intellectual prop-
                       can help companies diversify into new products and        erty laws could be used to deny America access to
                       technologies.                                            Japanese companies’ technologies. U.S. companies
                           These are just a few of the dozens of creativity      will become increasingly dependent upon their Jap-
                       techniques being explored by Japanese companies.          anese competitors for key technologies, and could
                       Japan is approaching creativity just as it studied        be forced to trade their own technologies or pay
                       quality control 30 years ago-deliberately     and sys-    large royalties to Japanese firms.
                       tematically. Japanese companies are forging their              Finally, Japanese technologies will increasingly
                       own distinctive style of creativity-a    subtle blend     form the backbone for U.S. military security.
                       of Japanese-style group creativity and Western-style      “Black boxes” for military avionics, for example,
                       individual creativity. Mazda’s Miata sports car is a      contain a high percentage of Japanese electronics.
                       classic example of this new hybrid. The basic con-        If Japanese companies were to decide not to share
                       cept and body styling were developed in Mazda’s           their technologies with U.S. aerospace companies,
                       U.S. design center in Irvine, California; the dash-       U.S. military security could be severely compro-
                       board displays in Frankfurt, West Germany; and            mised. Already, Japanese firms are often reluctant
                       the car electronics and interior design in Yokohama.      to share their technologies with the Pentagon be-
                       If the result is any indication of Japan’s emerging       cause of U.S. restrictions on “dual use”-the use
                       creativity, the United States may be in for some          of military technologies in commercial products.
                       nide awakeningr.                                          Many comnanies would nrefer not to handcuff

                         themselves by selling their technology to the Penta-     economic, technological, and cultural information
                         gon; all too often, this means a loss of potential       to companies seeking to export products or serv-
                         commercial profits.                                      ices. Furthermore, instead of abandoning the Soc-
                                                                                  rates Project, a program that is providing invaluable
                                                                                  technology assessments for the Defense Depart-
                                                                                  ment, the federal government should make it avail-
                         Improving American                                       able on-line to private companies through the
                                                                                  Commerce Department on a user-fee basis.
                         competitiveness                                                Already, the Commerce Department is working
                                                                                  with Japan and other countries to organize interna-
                                                                                  tional business development and export promotion
                         Thfde e eraI government, state and local govern-         conferences. Newsletters, video- and audiotaped
                         ments, and U.S. corporations should take a variety        programs, live radio broadcasting, and newspaper
                         of actions now to try to improve this country’s com-      coverage of these business seminars should be
                         petitiveness vis-a-vis Japan. But in many ways,           made widely available. Commerce should work with
                         Americans are ill-equipped to take up the chal-           the Japan External Trade Organization (JETRO) to
                         lenge. First, we need to do some catch-up work to         publish lists of industrial associations, funding
                         enable us to operate more effectively in today’s          sources, schedules of trade shows and technical
                         global economy.                                           seminars, and small businesses seeking foreign
                                                                                   partners. It should also help the venture capital and
                                                                                   investment banking community to identify over-
                           In addition to heightening                              the-counter (OTC) financing opportunities overseas
   American awarenessofforeign cultures, the nation                                for U.S. companies. When OTC markets are weak
   can also take stepsgeared toward boosting the                                   or nonexistent, the American venture capital indus-
   private sector’sinternational competitiveness.                                  try could work with foreign governments to suggest
                                                                                   OTC policy guidelines.
                                                                                        There are innumerable other steps that could be
                               For one thing, Americans need to increase their      taken: more collaborative design projects involving
                          knowledge of foreign languages, cultures, and soci-      American and foreign corporations; more collabora-
                          eties. Public education is an area to work on, cer-       tion among national governments to address such
                          tainly, but we also need to implement more                problems as poverty, hunger, and environmental
                          exchange programs: Young people, manufacturers,           degradation; more sister city and sister region pro-
                          managers, engineers, and top executives could all         grams between the United States and other coun-
                          benefit from a more hands-on, working knowledge           tries to increase cultural awareness. Fortunately, the
                          of foreign countries. If U.S. companies better            United States is blessed with a rich multicultural
                          understood the Japanese housewife, for example,           heritage that, if properly tapped, can prove a great
                          they would have much more success in selling her          advantage in the international economy. American
                          their products,                                           businesspeople and entrepreneurs should be
                               In addition to heightening American awareness        equipped to operate as freely in the world economy
                          of foreign cultures, this country can also take steps     as Yankee clipper ships did 200 years ago when they
                           geared specifically toward boosting the private sec-     sailed the globe in search of trading opportunities. l
                           tor’s international competitiveness. One such action
                           would be to establish international business devel-
                           opment libraries in all major industrial centers.      1. Akio Morica, Mude in Japan (New York: E.l? Dutron, 1986).
                                                                                  p. 251.
                           Through books, tapes, software, on-line databases,     2. Thomas S. Kuhn, The Structure o~Scient$c Rmolurions (Chi-
                           and faxes, these libraries could provide business,     caeo: Lniversitv of Chicago Press. 1962).
 IF. COVPETITIL EUESS    Amy Lowen Manheim

                         A STRATEGICMARKETING
                         PLAN FORUS.TECHNOLOGY
                         Like any product, govemment-sponsoredtechnologyneedsto be
                         sold properly if ifs to do well

                                  URING THE   1960s the National Aeronautics    particular technology that the company developed-
                                   and Space Administration (NASA) worked       familiar in such consumer products as shiny metallic
                                   with a Massachusetts-based company to de-    potato chip bags and the “space blankets” used by
                         velop a process that allowed a reflective metal film   outdoor enthusiasts-is       responsible for an annual
                         coating to be applied to different materials. The      market of somewhere between $750 million and $1
                         process had applications within the space program,     billion.L Not only has this company benefited from
                         but it also had commercial applications from which     government sponsorship of its technology develop-
                                                                                ment, so also has the U.S. market-based economy as
                                                                                a whole.
                                                                                      In fiscal year 1991, the federal government will
Government-sponsoredzechnologyoften doesnot                                     spend nearly $70 billion on research and develop-
meettheprivate sector’sneedsand ther&ore cannot                                  ment (R&D). The above example suggests the
besold or used. Sometimes,technologythat the                                     positive effects these expenditures can have: Tech-
p&ate sector&d useends up languishing in a                                       nology developed under government sponsorship
laboratory, on a drawing board, or in the thickets                               may be used both in government programs and by
of thefederal bureaucracy.                                                       the private sector, where it can generate new wealth
                                                                                 that benefits the entire U.S. economy. But, unfor-
                                                                                 tunately, this is a best-case scenario: all too often,
                         this company was able to profit. The result? The        various factors cause real events to follow a different
                         company, which started in 1964 with 16 employees        path. For example, sometimes the technology that is
                         and annual sales just under $100,000, today employs     produced does not meet the private sector’s needs
                         55 and has annual sales of around $20 million. Its      and therefore cannot be sold or used. In other cases,
                         patents have expired, but while they were in effect     technology that the private sector could use ends up
                         the company did receive licensing fees. And now this    languishing in a laboratory, on a drawing board, or in
                                                                                 the thickets of the federal bureaucracy. Every time
                                                                                 this happens, the United States loses opportunities
                          AMY LOWEN MANHEIM is an evaluator in the               to increase its economic wealth and improve its
                          NASA issuearea of GAO’sNationa/ Security and           international competitiveness though the sale of
                          International Affairs Division.                         new products.

                                                                                                                      SUMMER 1990     19

                                                                    life cycle, and at any point can be classified as new or   1
        A word about technology                                     mature. If a company does not commercialize tech-          ’
                                                                    nology at the appropriate stage in its life cycle. when
                                                                    its commercial potential is at a maximum, the tech-        ;
        F.irst,  w h’at IS tee hlno ogy? Technology is not a com-   nology’s economic value begins to dwindle, since           i
        puter chip or a hypersonic plane. Rather, technology        competing companies may then develop similar tech-         i
        is knowledge-the          information that enables us to    nology and capture a significant share of the market
        produce these things. Computer chips, for example,          in question.
        are based on an understanding of how electrical im-
        pulses move through gallium arsenide crystals. And
        hypersonic planes are made possible, in part, by the
        knowledge of how much energy liquid or solid fuels          Federally sponsored
        produce under different atmospheric conditions.
             Technology is produced when human creativity           technolo&y
         is applied to research and development. In both basic
         and applied research, the technology that emerges is
         knowledge that may not yet have commercial appli-          1 n t h’IS country, technology is produced both in pri-
                                                                    vate settings, such as university and corporate lab-           II
         cations. In development, the technology consists of
                                                                    oratories, and in laboratories run by federal agencies,         11
         answers to practical questions, such as how to make
         something behave in a new or different way to better       such as the National Institutes of Health (NIH), the           )
         satisfy some consumer need.                                Department of Energy, NASA, and the Department                 i
             Another point: Technology lives and dies. It has a     of Defense (DOD). In addition, federal agencies                1
                                                                                                              MARKETING US. TECHNOLOGY

                         routinely channel financial support to nongovern-          private sector. The first step toward such a strategic
                         mental organizations through grants and contracts.         marketing plan would be to refine our concept of
                         The federal government has also initiated a number         technology as a product.
                         of policy and regulatory efforts to get federally
                         sponsored technology into the hands of private-
                         sector companies.
                               But all is not well with the way the government      Technolog&: the “product”
                         manages the technology that it produces or sponsors.
                         One problem lies in the process by which technology
                         is transferred from the government to the private sec-     P.nvate-sector     marketers design products to confer a
                         tor. Another stems from the government’s funding           “bundle of benefits”-to     meet customers’ needs in a
                         priorities. Although the United States has superb fa-      particular way. But in the federal government, there
                         cilities for scientific research, military R&D tends to    seems to be some confusion about the form in which
                         dominate the federal budget, crowding out R&D              technology is most useful to the private sector. This
                         with broader potential economic benefit. The less fi-      has led to a problem in timing: Rarely are govern-
                         nancial support the government gives to the spon-          ment efforts to transfer a given technology to the pri-
                         sorship and production of technology through R&D           vate sector made at a sufficiently early stage in that
                         contracts and grants, the less technology American         technology’s life. Once again, technology is not a
                         companies will have at their disposal to manufacture       videocassette recorder or a communications satellite;
                         internationally competitive goods and services.            it is the knowledge.the information, that underlies
                               The inspiration for some solutions to these prob-    these applications. For this kind of “naked” tech-
                         lems can be found in the principles of strategic mar-      nology to be transformed into a commercially suc-
                         ket planning-the        use of effective product design,   cessful product, it must first be “clothed”            in
                         pricing, and promotion and distribution to encourage       consumers’ needs.
                                                                                          Generally, our economy handles this transition
                                                                                    efficiently. During basic and applied research, a
 No lessthan education, law enforcement,and                                         given technology remains in the form of knowledge.
 national defense,technologyis a public good-a                                      The research scientists and engineers who work with
product produced or sponsoredby thegovernment                                       it at these stages speak a language of inquiry and ex-
for the benefit Ofthe American people. More so than                                 perimentation. Farther along, as the technology en-
 otherpublic goods, it needsto be marketedproperly                                  ters the development and manufacturing stages, it is
 or it wiiigo to waste.                                                             passed to private-sector manufacturers who concern
                                                                                    themselves with assessing customer markets and
                                                                                    maximizing the return on investment. All this is as it
                         customers to buy a particular product. No less than        should be: Scientists would have no more idea of how
                         education, law enforcement, and national defense,          to match commercial product with consumer de-
                         technology is a public good-a product produced or          mand than manufacturers would of how to conduct
                         sponsored by the government for the benefit of the         open-ended laboratory research.
                         American people. More so than other public goods,                Unfortunately, federal programs sometimes work
                         technology needs to be marketed properly or it will         differently, getting research scientists involved in de-
                         go to waste.                                                veloping and building models and prototypes of prod-
                              If one acknowledges that the government is the         ucts for which, it is hoped, there will eventually be
                         producer and technology is the product, then the pri-       some commercial application. This runs counter to
                         vate sector becomes the customer. In our free-market        the usual, and more efficient, division of labor. It can
                         economy, most commercial applications of new tech-          lead to wasted effort and wasted time.
                         nologies during the development stage-including                  One case to consider is the National Aero-Space
                         those produced with federal support-are        accom-       Plane (NASP) program. Guided by political and mil-
                         plished in the private sector. The private sector must      itary considerations, DOD and NASA have decided
                         adopt and commercialize technology-“buy”          it, if    to build the X-30, an experimental flight vehicle ca-
                         you will-if    technology is to yield economic and so-      pable of reaching Mach 25 (25 times the speed of
                         cial benefits.                                              sound). Such high speeds are necessary because the
                              What the government needs is to streamline the         NASP program is charged with developing technol-
                         transfer of government-sponsored technology to the          ogy for three different aircraft: a space launch vehi-

                          cle; a military vehicle capable of flying offensive,
                          defensive, combat, and reconnaissance missions;
                                                                                       Technolo&Js               “price”
                          and a commercial high-speed, long-distance trans-
                          portation vehicle (the so-called “Orient Express”).
                              Because these three differing applications have
                          been rolled into one program, the government will
                          end up taking approximately 20 years to develop an           C ertain    federal policies exact a price that discour-
                          operational aerospace plane that will be much more           ages the involvement of private-sector firms in pro-
                          technologically sophisticated than the private sector        ducing and using technology. This is true, for
                          needs or, perhaps, could even use. In contrast, the          example, of the way in which the government buys
                          French are planning to incorporate high-speed tech-          the goods and services that a private-sector company
                          nology-a second-generation supersonic technology             has developed or is developing. Under some current
                          that would yield speeds of about Mach 3-into their           procurement policies, the federal government retains
                          existing commercial airplane production. This tech-          certain important rights to federally supported tech-
                          nology already exists, so it seems highly likely that        nology. The government gives the right to apply that
                          other countries will beat the United States to the           technology back to the company that developed it,
                          next high-speed air transport market.                        which ostensibly enables the firm to reap the com-
                                                                                       mercial benefits.
                                                                                           But the government retains the right to dictate
What moneyentrepreneursgain through federal                                            who has access to that technology, This creates prob-
contracts often doesnot make up for thepotential                                       lems when the government wants a new supply of, or
commercialprofits that theyforfeit.                                                    replacement parts for, the particular technology-
                                                                                       based product in question. At that point, to keep
                               The NASP program demonstrates some of the               costs down, the government can create competition
                          general drawbacks inherent in the “spin-off’ method          by opening up the procurement process to other in-
                          the United States favors for getting federally spon-         terested manufacturers. It can also take blueprints,
                          sored technology into the private sector. Under this         working drawings, photographs of plants, and even
                          approach, technology is developed with government            laboratory notebooks and make the information con-
                          sponsorship for a particular government or military          tained in this material available to all potential man-
                          application. At some point in that development-              ufacturers of the product. In other words, the
                          after the technology has been converted into a model         competitors of the company that originally developed
                          or prototype-it   is “spun off’ into the private sector.     the technology can end up profiting at that com-
                          But by this stage, the technology being developed            pany’s expense.
                          may no longer be suited to commercial needs. It may              This is exactly what happened to an American
                          have become overly specialized or too technologi-            company that had invented and patented a process
                          cally sophisticated-in    short, no longer of value.         for making pilotless aircraft. Because the company
                               The solution, of course, is not to scrap all pro-       had accepted Navy money to develop the tools for
                          grams in which technology is developed for govern-           mass production, all competitors on the following
                          ment or military applications. The solution is to            production contract received photographs not only of
                          make the technology available to the private sector at       these tools but of the entire plant. A Canadian firm
                          the right stage-while it is still in the form of knowl-      won the contract. The American company’s presi-
                          edge, and while the private sector can make a judg-          dent remarked that “the procurement process dis-
                          ment, based on its understanding of present and              courages creativity.. . . It’s like we don’t have a right
                          future market demand, as to whether the technology           to succeed.“3
                          is worth buying.? Too often, today, the technology                Entrepreneurs may sometimes decide that the
                          has already been “clothed” by the government-                risk-the      “price’‘-of     participating in federally
                          most likely by someone who lacks the necessary               sponsored technology development is too high. What
                          commercial insight-making        it harder for the private   money they gain through a federal contract often
                          sector to absorb the technology, profit from it, and         does not make up for the potential commercial profits
                          channel its benefits to the public. ,4nd by the time         that they forfeit. If enough companies are put off by
                          the government makes it available, the appropriate           this situation, there will be a decrease in the overall
                          markets may already have been captured by foreign            amount of technology that is produced in the
                          producers, anyway.                                           United States.
                                                                                          MARKETING U.S. TECHNOLOGY               !

                                                                Many of these distribution problems could be re-
Promoting and distributing                                 solved by the establishment of one federal data base
technologY                                                 containing information about government-sponsored
                                                           research from all federal laboratories, from univer-
                                                           sities, and from private-sector contracts. Users would
                                                           be assisted by a staff familiar both with a range of sci-
                                                           entific disciplines and with the needs and interests of
Any commercial      producer who wants to stay in busi-    private industry. In other words, it would be easy for
ness understands how essential it is that the cus-         the American private sector (some restrictions would
tomer be aware of the product and know how to get          apply to foreign entities) to reach into the mass of
it. At times, however, the government seems almost         new federally sponsored technology and adapt it for
to have tried to keep federally sponsored technology       use in the marketplace. Only when technology is
a secret.                                                  easily accessible can the private sector make the
      The system of technology transfer is haphazardly     most of it.
organized. It is geographically dispersed and dis-
jointed, involves multiple stages, and employs anti-
quated communication methods. And each instance
of technology transfer requires that a seemingly in-       Taking the right approach
 finite number of legal and contractual details be
worked out-usually      by a seemingly infinite number
of patent attorneys.
      Consider what it takes for companies to acquire a    Of course, the marketing approach I’ve been ad-
 specific technology from NASA.4 In theory, an inter-      vocating addresses only one part of the competitive-
 ested party can obtain NASA-sponsored technology          ness question. And to acknowledge the need for that
 by contacting the office dedicated to this purpose at     approach is just the first step toward developing the
 every NASA field center, of which there are nine; by      strategic marketing plan I mentioned earlier. Such a
 approaching certain specially designated universi-        plan is crucial. The need for private-sector commer-                       ’
 ties; by direct contact with the Technology Utiliza-      cialization of government-sponsored technology is                          /
 tion Office at NASA headquarters; by subscribing to       too great for us to allow the process of technology                        /
 a privately published magazine called NASA Ech            transfer to continue to be as passive and poorly or-                       1
 Briefs; or by pursuing any number of other channels.      ganized as it is now. The federal government needs                         ’
 The existence of so many distribution centers may         to take aggressive steps to ensure that technology
 sound like an advantage. But no one source provides       reaches the world of commerce while it is still of
 information about all the technology that is available.   value and with the fewest impediments possible. We
 The customer has to search for it.                        can then give the private sector the opportunity to
      The president of a firm that makes water filters     use that technology to create the economic benefits
 based on NASA technology called the process of ac-         that can increase this nation’s wealth and sharpen
 quiring that technology a “puzzle.“5 Tracking down         its competitiveness. l
 and developing the NASA technology for one product
  took 18 months and a lot of tenacity-and this search     1. Phone conversation with Patrick E. McHugh, Vice President of
  involved only one federal agency. For all the customer   Metallized Products, Inc.
  knew, the technology he was hunting might also have      2. Technology that is directly applicable to defense and security
                                                           purposes would, of course, remain classified.
  been available from DOD, NIH, or the Department          3. See Sandra Sugawara, “Collision Course on Contracting,”
  of Agriculture.   Searching in these places would        Washington Post-Khhington Business, November 6, 1989, pp. 1,
  doubtless have dragged out the process even further.     16, 17; Sandra Sugawara, “Partial Victory for Developer of Pilotless
                                                           Plane,” Wadington Post-Washington Business, February 26, 1990,
  NIH, for example, conducts technology transfer           pp. 5, 6.
  through two different channels: its own in-house Of-     4. Problems similar co those found in NASA’s technology transfer
  fice of Technology Transfer; and the National Tech-      process exist in other federal agencies, of course. NASA is a good
                                                           example to study because it has devoted major efforts to technol-
  nical Information Service, which is lodged within        ogy transfer since its inception in 1958.
  the Department of Commerce. In addition, it re-          5. Phone conversation with Mike Pedersen. founder and Presi-
  mains the prerogative of each university receiving       dent of Western Water International. Also, see “NASA Technology
                                                           Spin-off Hearing,” April 3. 1989, Subcommittee on Space. Sci-
  NIH grants to commerciali7e the technoloq that it                  n* I:
                              As the Soviet UnionJinaZLylets its peoplego, the United States

                                      OR MOST OF     us in this nation of immigrants,     in Europe, travel costs while en route, and resettle-
                                        our ancestors’ journeys to America are a part     ment costs here in the United States.
                                        of history. But for tens of thousands of Soviet         Over the past two years, however, something has
                              citizens, the decision to leave their country is a pres-    happened to greatly complicate the situation: The
                              ent-day trauma. Just to request an exit visa calls for      Soviet Union has significantly loosened its hold on
                              courage on their part-a willingness to endure both          those wishing to leave. The stream of emigres ebbed
                              the stigma of applying to emigrate and the uncer-           and flowed with Soviet policy for more than two dec-
                              tainty of leaving behind their homes and homeland-          ades. Recently, however, the flow became a torrent.
                              and entails not just the fervent hope that the authori-     Whether this stemmed more from U.S. diplomatic
                              ties will grant them permission to go, but a stalwart       efforts or from factors internal to the Soviet Union,
                              faith that the United States or some other Western          the fact remains that by last fall the United States
                              nation will accept them once they are out.                  found its procedures for accepting Soviet refugees-
                                   That faith has been well-founded for a long time.      and the resources to help them-virtually           over-
                              The United States has consistently pressured the So-        whelmed. The dilemma that emerged so suddenly,
“he dilemma that              viet Union for the release of Soviet citizens-promi-         and which remains hotly debated even now, was this:
emerged so suddenly, and
which remains botly           nent among them Jews and Evangelical Christians-             How can the United States make good on an implicit,
debated even now, wae         who have suffered human rights abuses and perse-             long-standing offer of help to any Soviet refugee,
this: How can the United      cution in their own land. It has been standard prac-         when suddenly there are so manyof them?’
States make good on an
implicit, long-etsoding       tice among administrations in Washington to express               How many? By October 1989, the number of So-
offer of help to any Soviet   their wholehearted support for those able to gain re-        viet emigres seeking access to the United States had
refugee, when all of a
sudden there are 80 many
                               lease. In Rome, the major way station for Soviet            reached some 10,000 a month, in stark contrast to the
of them?                      emigres wishing to enter the United States, U.S. Im-         20,421 admitted to the United States in all of fiscal
                               migration and Naturalization Service (INS) officers         year 1988 and the mere 3,694 admitted during fiscal
                               have, for years, virtually rubber-stamped the appli-        year 198%
                               cations of Soviet citizens. For those accorded official          The exit route these people followed was known
                               refugee status by INS, support from the U.S. govern-         as the Vienna-Rome pipeline. Inside the Soviet
                               ment has included not just the offer of U.S. citizen-        Union, they would apply to the proper authorities for
                               ship, but financial aid to cover living expenses while       exit visas and, if lucky enough to get them, would 1
                                                                                            travel first to Vienna and then on to Rome, where they ’
                                                                                            would formally apply for refugee status at INS. The
                              DAVID R MAR TI:l; is an Assistant Director and                pipeline had worked smoothly enough when the
                              SL’SAiv GIBBS is a senior evaluator in the Foreign            numbers were smaller. But now the numbers were
                              EconomicAssistanceGroup in GAO’sNational                      enormous, and how much higher they would go was
                              Security and International Affairs Division.                  anybody’s guess. Not only did the United States lack
control over the volume of people entering the pipe-
line, it lacked any way of knowing how many more
were on the way.
      Another troublesome fact stemmed from the
administration’s decision in August 1988-based on
the burgeoning number of applicants-to review So-
viet refugee applications on a case-by-case basis,
rather than to accept virtually all Soviet refugee
claims on face value. As a result, some claims of So-
viet emigres already out of the Soviet Union and now
in Italy were being denied. The growing population
of Soviets in Italy-both     those awaiting processing
and those altogether stranded-was         of increasing
concern to American and Italian officials.
      For these and other reasons, the State Depart-
 ment in September 1989announced that it would im-
 mediately close the Vienna-Rome pipeline and
 establish a new set of application and processing pro-
 cedures. The first major change was that Soviet citi-
 zens seeking refugee status would have to apply at
 the American Embassy in Moscow-that            is, before
 they left the Soviet Union. The second major change
 was that-for the first time-the United States itself
 would impose limits on the number of Soviets to be
 admitted:2 In fiscal year 1990, 50,000 would be
 granted refugee status, with limited additional ad-
 missions under the Attorney General’s discretionary
 parole authority. 3
       By imposing new procedures and a firm ceiling on
 the number of Soviet immigrants, the administration
 hoped to bring some order to the migration of Soviets
  to the United States-a process that had been wholly
 dependent on the emigration policies of the Soviet
  Union, and that was breaking down under the burden
 of so many new emigres. But by putting a cap on So-
 viet immigration-thereby      helping to solve some ad-
  ministrative and financial problems-the         United
 States may have begun to deny tens of thousands of
  Soviet citizens the opportunity to leave the Soviet
  Union-thereby adding to some delicate political ones.

The way it was

 TheSeptember        1989 announcement was State’s re-
 sponse to a billowing bureaucratic nightmare. Here is
 what it confronted.
    The first stop for Soviet emigres is Vienna,J
 where voluntary agencies, such as the Hebrew Im-
 migrant Aid Society, give them assistance. Soviet

                 Jews   are met in Vienna bv an Israeli OVClnmentI$ -
                                                       1           P
                 resentativei if   theydecidkto emigrate(0Israel,
                 are routed directlythereBs         who$hvvje

                 routed to Rome for processing by INS. There,once          offered
                                                                                     alienSEP~US            GUI~
                 more, voluntary agenciesmeet them: transport them         eral’s parole authority, also fly to the United States
                 to temporary lodgings; and provide food, shelter, and     (but without financial assistance from the govern-
                 other necessary care during their stays. The volun-       ment), and are met by individuals or organizations
                 tary agencies also help them prepare for their all-       that have pledged responsibility for their welfare.
                 important INS review. Each applicant’s case is            Still others, either having been denied access to the
                 examined and decided by an INS officer; only after        United States or having chosen not to accept parole
                 the INS interview does the applicant learn if he or she   offers, are left to their own devices in Italy.
                 has been accepted for entry into the United States             The flow of Soviet emigres into Vienna and on to
                 as a refugee, been denied entry entirely, or been         Rome began to grow appreciably in fiscal year 198%
                 considered for entry under the Attorney General’s         and then dramatically in fiscal year 1988. (See figure
                 parole authority.                                          1.) By January 1989 (three months into fiscal year
                                                                                                                               SOVIET REFUGEES

                              1989), State Department officials were anticipating         processing cycle in Rome-typically      60 to 90 days-
                              over 100,000 applications-about        half of them com- were housed in the small seaside town of Ladispoli,
                              ing through Rome-by the end of the fiscal year. By Italy. For Ladispoli’s residents, the influx of foreign
                              July, the number of applications had already ex-            transients created housing shortages and was in other
                              ceeded 32,000 in Rome and 38,000 in MOSCOW.                 ways troublesome and disruptive-all         the more so
                              When the fiscal year ended in September, 39,553 So- because it just kept growing.
                              viet refugees had been admitted to the United                     Another problem lay with the increasing number
                              States. The great majority of these were Jews and of Soviet emigres who, having been denied refugee
                              Evangelical Christians coming through Rome;                 status, were unwilling or unable to accept a parole of-
                              fleeing a history of persecution in the Soviet Union,       fer as an alternative. Some declined parole status un-
                               members of these two groups were usually granted           der the rationale that to accept it would be a tacit
                               refugee status by INS. (By contrast, most Soviets          admission that their group had not suffered persecu-
                               who were applying at the American Embassy in Mos-          tion as a class in the Soviet Union. Others did not
                               cow were .4rmenians. As a group, they were not              have relatives or contacts in the United States who
                               fleeing persecution and generally were not granted         could provide the required stateside affidavits of sup-
                               refugee status. )6                                          port. As of July 1989, about 4,400 Soviet emigres in
                                     The rapidly increasing number of applicants           Italy had been denied refugee status and been of-
                               moving through the Vienna-Rome pipeline strained            fered parole. According to INS, at that time only 117
                               the resources available to help them. The voluntary         had accepted the offer and left for the United States.
                               agencies, even with financial help from the State De-       Those who stayed behind had little choice but to en-
The rapidly increasing
number of npplicauts           partment, were hard pressed to keep up. During fis- ter the Italian labor market as illegal aliens.*
moving through tbe             cal year 1989, the State Department-funding         food,
pipeline strained the
                               lodging, and medical expenses for the refugees, and
resources available to help
them. The voluntary            also reimbursing the voluntary agencies for their as-
agencies, even with
financial help from the
                                sistance to each approved refugee-spent $85 mil-         The way it is
State Department.    were       lion on refugee processing in Vienna and Rome.’
hard pressed to keep up.             Money aside, by early 1989, the influx of Soviet
                                emigres into Rome had swamped the capacity of the cl ear 1y, t hen, there were several pressing reasons
                                voluntary agencies and INS to keep them moving. In behind the decision to close the Vienna-Rome exit
                                response, both the voluntary agencies and INS in-          route. The dramatic rise in the number of Soviet
                                creased the size of their staffs substantially. Yet by emigres had led to an equally dramatic rise in proc-
                                July 1989, the backup in Italy amounted to some essing costs and to tremendous strains on the system.
                                 12,000 persons in various stages of processing. By the The pipeline had never before accommodated so
                                end of September, that number had grown to about large a volume of refugee applicants, and no one
                                 15,000, with an additional 12,000 in Vienna awaiting       could predict with certainty whether their numbers
                                travel to Rome.                                             would continue to rise or drop off. The levels already
                                      Not surprisingly, the strain began to show in Italy   reached had led not just to thousands of Soviet
                                 itself. Many of the Soviet emigres enduring the long emigres enduring lengthy delays in Italy while their

                                                                                                                               SUMMER 1990     27

                              cases were processed, but to the specter of large            saries, not surprisingly, are not so pleased. And the
                              numbers of them being stranded entirely.                     problem is doubly complicated by the possibility that
                                    By now the effects of the decision are being felt.     the rising number of Soviet Jews entering Israel will
                              For one thing, the United States has gained control          settle in the occupied territories. It is not just Israel’s
                              over the number of refugee applicants entering the           adversaries, but its ally the United States, who op-
                              system: State and INS can now decide how many ap-            pose that practice. The United States now has a tan-
                              plicants will be interviewed and how many refugees           gled diplomatic problem to deal with.
                              will be admitted. Processing costs for each refugee               And it has another as well. The administration
                              should fall by more than one-half, as there will be no       has closed the Vienna-Rome pipeline and effectively
                              need for feeding, sheltering, and caring for appli-          capped the number of Soviet citizens who will be ad-
                              cants, as had been the case for those processed in Vi-       mitted to the United States. This is a signal that the
                              enna and Rome. And there will no longer be large             United States either cannot or will not accept all who
                              numbers of Soviets citizens lingering at Ladispoli           would leave the Soviet Union. Many of those waiting
                              and Rome for processing.                                     in Moscow call this the abrogation of a promise. Is it?
                                    For the prospective applicants themselves, there            In a sense. the United States may be the victim
                              are some advantages: They can now apply for refugee          of its own good fortune. Having waited years for this
                              status-and get a decision-without         having to dis-     window of opportunity, the nation must now make
                              rupt their lives by first applying for and receiving vi-      the most of the situation while keeping an eye on fi-
                              sas from their own government, and then packing up            nances, politics, diplomacy-and its conscience. l
                              and leaving their country in a state of uncertainty.
                               Under the new, Moscow-based system, those denied            1. GAO’s work on matters relating to Soviet refugees began in No-
                               refugee status can return to their homes without hav-       vember 1988 and has included several reviews of policy and proc-
                               ing burned their bridges behind them.                       essing issues. The latest is entitled Sawier Rcfugeees:  froce5sjng and
                                                                                           .4dminuncero & LInitcdSrares (GAO/NSIAD-90-158, May 9. 1989).
                                    But there are disadvantages for them as well. Al-      While the authors were significant contributors to these reports,
                               ready, there is a growing backlog of applications at the    their views as expressed in the GAO Journal are not necessarily
                                                                                           those of GAO.
                               American Embassy in Moscow. And because of var-             2. The United States has traditionally set yearly refugee admis-
                               ious priorities now being assigned to those wishing to      sion levels on a region-by-region       basis-the    Soviet Union in-
                               emigrate, many may not be interviewed at all. Also,         cluded. For years, however, the practice has been to accept all
                                                                                           Soviets who could obtain permission to leave their country regard-
                               because of the volume of applicants, postinterview          less of the numbers. If individuals were not accorded refugee sta-
                               processing of approved applicants may keep them in          tus, then offers of parole would be made instead.
                               the Soviet Union for as lone as six months after their      3. Soviet citizens entering the United States under the Attorney
                                                                                           General’s parole authority do not receive travel, medical, or reset-
The United States has          applications have been approved. For successful ap-          tlement benefits. Until recently. parolees were not given the option
si@kd      that it either
                               plicants, all this may add up to a year’s processing        of eventually obtaining U.S. citizenship. But with passage of Pub-
cannot or will not accept
                                                                                            lic Law 101-167in November 1989, chat right was extended to all
all who would leave thh        time from apolication
                                             L.         to embarkation-something      of    Soviet parolees.
Soviet Union. Many of
those waiting in Moscow
                                particular concern to Soviet Jews at a time when So-        4. Because there are still Soviet emigres in the V’ienna-Rome
                               viet anti-Semitism is reportedly on the rise.                pipeline, we have chosen to use the present tense in describing it.
call this the abro&atioo of
                                                                                            The reader should keep in mind, however, that the effect of the
a promise. Is itP -                  Long waits may be troublesome enough, but the          September 1989 State Department decision has been to phase out
                                most profound effect on Soviet emigres will be that         the practices we are describing.
                                                                                            5. Over the past two years, more than 90 percent of Soviet Jews
                                not as many of them will be coming to America as            arriving in Vienna have chosen co travel to the United States rather
                                probably would have had the Vienna-Rome pipeline            than Israel. In fact, most of the Soviet refugee applicants in Rome
                                been left open. Fifty thousand refugees and several         during this time have been Jews.
                                                                                            6. The legal basis of U.S. refugee admissions is the Refugee Act
                                thousand more eligible for parole status: These are         of 1980, which embodies the American tradition of granting refu-
                                sizable numbers, but they do not match the esti-            gee status to groups suffering or fearing persecution. For purposes
                                                                                            of the U.S. refugee admissions program, the act adopted the defi-
                                mated 800,000 Soviet citizens who will apply for ad-         nition of “refugee” contained in the United Nations Convention
                                mission to the United States during fiscal year 1990.        and Protocol relating to the Status of Refugees. In general, a refu-
                                     If they don’t come to the United States, where          gee is one who has suffered persecution, or has established a well-
                                                                                             founded fear of persecution, on account of race, religion, nation-
                                might they go? For Soviet Jews, the most prominent           ality, membership in a particular social group, or political opinion.
                                alternative is Israel.                                       The full definition mav be found in Section lOl(a)(42) of the Im-
                                                                                             migration and Nationality Act, as amended.
                                     This is where the administration’s      attempt to      Z This figure does not include the costs of resettling refugees m
                                solve one problem has begun to stir up another. The          the United States-costs that are funded by the U.S. Department
                                Israelis are pleased with the influx of Soviet Jews,         of Health and Human Services.
                                                                                             8. Soviet emigres in the Vienna-Rome pipeline are admitted to It-
                                who number some 1.8 million and are the last great           aly, not as resident aliens, but rather as transients for purposes of
                                source of Jews to populate Israel. But Israel’s adver-       resettlement in other countries, primarily the United States.

28   THE GA.0    JOURNAL
                         Bevedy Ann Bendekgey

                         BE KEPT OUTOFCOMBAT?
                          Combat exchsion laws don ‘t fu&ZZ their-objectives.Maybe their
                          objectivesare theproblem.

                                   URING THE   U.S. military action in Panama     passed the Women’s Armed Services Integration
                                    last December, a platoon of military police   .4ct of 1948, which authorized career opportunities
                                    exchanged gunfire with Panamanian             for women in the regular and reserve forces. The act
                         soldiers at an attack-dog compound near Panama           made it possible, for the first time, for women to
                         City. This incident was nothing out of the ordi-         pursue military careers; it also included several re-
                         nary-except that the U.S. platoon was led by a           strictions, including what are known as the combat
                         woman, making this the first modern instance of          exclusion laws. Today these combat exclusion laws
                         American women engaging hostile troops in combat.        prohibit the assignment of women to aircraft or naval
                         Current laws and regulations exclude women from          vessels engaged in combat missions. (Because the
                         direct combat roles, but there has been a long-stand-    Women’s Army Corps existed until 1978 and had its
                         ing debate-reopened by the recent events in              own restrictions, there was no need in 1948 for stat-
                         Panama-+ver whether these exclusions should               utes covering the Army.)
                         be maintained.                                                 In the 42 years since the Women’s Armed Serv-
                                                                                   ices Integration Act was passed, many significant
                                                                                  changes have occurred that raise serious questions
                                                                                  about the extent to which combat exclusion laws can
 /n the 42 years since the act was pasA.ed,dramatic                                be effectively applied. For one thing, the number of
 changeshave taken place in the way wars are                                      women in the military has soared to nearly 11per-
fbught, blur-r& g d’lAtlnctions
                     -          betweencombat and                                 cent of all forces, a result largely of the removal in
 noncombat ~-o/esas ,zell as betweensafeversus high-                                1967 of the Z-percent ceiling on women in the mili-
 risk areas.                                                                       tary and the switch in 1973 from a draft to an all-vol-
                                                                                   unteer force. This increase in the number of women
                                                                                   has meant that a greater proportion of military per-
                              The laws governing women’s role in the armed         sonnel are barred from fully participating in military
                          forces have been on the books for more than 40           action. In addition, a general expansion of profes-
                          years. To recognize the contribution that women          sional opportunities for women-both military and
                          made to the military during World War II, Congress       civilian-has    encouraged frequent challenges to the
                                                                                  job restrictions imposed by the combat exclusion
                                                                                   laws. Finally, dramatic changes in communication
                          BEVERLY AN8 BENDEKGE Y is a senior                       and weapons technology have significantly altered
                          evaluator in theManpower issueArea in                    the way wars are fought, blurring distinctions be-
                          GAO’sNztional Security and International                 tween combat and noncombat roles and between
                          Affairs Division.                                        safe versus high-risk areas.

                                                                                       ships or to direct combat units. Marine Corps policy
                            The laws’ rationale                                        does acknowledge, however, that women may be as-
                                                                                       signed to support roles that could become engaged
                                                                                       in defensive combat during an enemy attack.
                            Th   e existing combat exclusion laws do not directly
                                                                                            Although the role of women in the Army is not        ’
                            address the issue of prohibiting women from engag-
                                                                                       covered by statute, the i\rmy bases its assignment        I
                            ing in combat. What they say is: Women shall not be
                                                                                       policy for women on its interpretation of the intent
                            assigned to ciir Force and Navy aircraft or naval ves-
                                                                                       of the laws for the Air Force and the Navy. Women in
                            sels “engaged in combat missions.” The statutes
                                                                                       the .4rmy may not be assigned to those jobs most
                            neither state their underlying objectives nor define
                                                                                       likely to engage them in direct combat, the risk of
                            “combat mission.”
                                                                                       which is assessed on the basis of job duties, unit
                                                                                       mission, tactical doctrine, and battlefield location.
                                                                                        Battlefield location, according to Army officials, has
 The ud..sion luw do not cnntffin u xfuremuntof                                         the greatest impact on this risk assessment.’ As a re-
their objecrices.Here ure 3.omepossibilities: to                                        sult, women are excluded not only from direct com-
uddres~concernsabout women‘.qubilig to jiht, to                                         bat positions but also from some combat support
r,odlfi uttitudes r/bout ,whut roIes urf “u~rptubLe”                                    positions that are expected to be near the front line.
ftir ,women.und to prorei? .xomenfrom th1pbaud-                                              Until recently, the services used different risk
oj-L!Yz/:                                                                               levels to identify the noncombat positions that
                                                                                        would be closed to women. In 1988, however, the
                                 In implementing the laws, the services have            Department of Defense standardized the criterion
                            tried to fill in these gaps. For one thing, they have       for identifying which noncombat positions may be
                            tried to determine what might be the laws’ unspo-           closed. The risk rule, as it is called, assumes that
                            ken objectives.’ Possible interpretations of these in-      protecting women is an objective of the combat ex-       I
                            clude: to address concerns about women’s ability to         elusion laws. The rule states that women should be
                            “fight,” to codify attitudes about what roles are con-      excluded only from those noncombat positions that
                            sidered “acceptable” for women, and to protect               are exposed to risk that is equal to or greater than
                            women from the hazards of war.                               that faced by associated combat units. The immedi-
                                  In addition, the services have established defini-     ate impact of the risk rule was to open several thou-   ’
                            tions of what constitutes a combat mission. The Air          sand more positions to women.
                            Force, for example, defines combat mission aircraft
                            as those whose principal mission is to deliver muni-
                            tions against an enemy. Women, therefore, cannot
                            serve on fighter or bomber aircraft, such as the F-4,      Problems and
                             the F-16, and the B-52. Because the Air Force inter-
                             prets the law as intended to protect women, it closes     inconsistencies
                            other assignments to them on the basis of risk of ex-
                             posure to hostile fire and capture. Fighter recon-
                             naissance aircraft such as the RF-4, for instance, are    Th   e services have made extensive efforts to apply
                             closed to women because their usual mission is to         the combat exclusion laws appropriately and effec-
                             fly over enemy territory before and after attacks.        tively. But the changes in warfare that have occurred j
                                  The Navy defines combat mission aircraft and         since 1948 raise questions about whether that goal is
                             vessels as those that seek out, reconnoiter, and en-      achievable. Despite several revisions in service poli-
                             gage the enemy. ,4ccordingly, women may not be            cies, women are still barred from some fighting posi-
                             permanently assigned to such ships as destroyers,         tions but not from others, protected (to varying
                             submarines, and aircraft carriers, or to the aircraft     degrees) in some positions but highly exposed to
                             associated with carriers. In addition, because an air-    danger in others, and allowed to perform some tasks
                             craft carrier task force can have a mission as a group,   not traditionally assigned to women while prohib-
                             the supply ships that routinely travel with the carrier   ited from performing others.
                             group are also closed to women.                                Consider, for example, the impact that the laws
                                  The restrictions that the Navy imposes also ap-      have on a woman in the Air Force. She may “deliver
                              ply to the Marine Corps, which does not assign           munitions” against an enemy by firing a land-based
                             women to units that will deploy on combat mission         missile from U.S. or European soil-but she may nor

 30   THE C.A.0   JOURNAL
.   l

        SIIMMFR IQQO   31

                          deliver munitions from an F-16. The restriction            pected to be able to engage in hand-to-hand combat
                          seems designed to “protect” this woman. But it’s           requiring a level of physical strength that, some
                          difficult to judge which of these two positions is ac-     would say, women are not generally capable of at-
                          tually exposed to the greater danger; land-based           taining. But the laws themselves explicitly close air-
                          missiles, after all, would be targets in the event of      craft and ships, where there would be little if any
                          war. Furthermore, the degree to which a woman is           dispute about women’s capabilities. Furthermore,
                          “protected” in either situation depends not just on        the Marine Corps now includes defensive combat in
                          U.S. capabilities but also on enemy capabilities-          basic training for women; one wonders why, if
                          something beyond this country’s control.                   women can be trained for defensive combat, they
                                The Navy provides another example of the diffi-      cannot also be trained for offensive combat. The
                          culties inherent in applying the combat exclusion          U.S. military action in Panama also highlights the
                          laws. Naval vessels include 37 combat logistics force      difficulty in clearly defining combat and noncombat
                          supply ships. Of these, 24 normally shuttle between        roles in today’s military environment; as mentioned
                          storage depots and the ships being supplied, while         earlier, the debate over whether Army women were
                           13 usually travel continuously with a battle group,       or were not in combat in Panama centered on the re-
                          such as an aircraft carrier task force. In December        sponsibilities and actions of military police units
                           1987,the Navy announced that it would admit               containing women.
                          women to the 24 shuttle supply ships. Women would               As long as assignments for women produce these
                           still be excluded, however, from the 13 supply ships      varying results, the apparent objectives of the exclu-
                           that travel with battle groups, since these ships         sion laws are not being fulfilled. Perhaps they can-
                          share the battle groups’ missions. Application of the       not be fulfilled. If the laws’ objectives are indeed
                           Defense Department’s risk rule sustained this deci-        unattainable, then the primary effect of the laws
                           sion, since the 13 supply ships that travel with battle    seems only to be an arbitrary limitation of oppor-
                          groups were judged as being exposed to the same             tunities for women in the armed services.
                           degree of danger as the ships within that group.
                                 Since these supply ships are not, in themselves,
                           combat mission ships, the only purpose for closing
                           them would seem to be to protect women. It is diffi-      Possible revisions
                           cult to determine, however, which supply ships are

                                                                                     TheD efense Department’s        risk rule, which stipu-
[f the exclusion Iuws ’ objktives ure indeed unat-                                   lates that only those noncombat positions involving
taint&e. then theprimary effectof the laws seems                                     risks as great as those experienced in associated
on(v to be nn urbitrury limitation of opportunities                                  combat positions should be closed to women, repre-
jiir .zomen in the rrrmedsefxires.                                                   sented one attempt to iron out inconsistencies in the
                                                                                     implementation of the combat exclusion laws. An
                                                                                     earlier attempt was made in 1987,when Senator
                           more exposed to danger-those that travel with bat-        William Cohen and former Senator William
                           tle groups and therefore can avail themselves of the      Proxmire introduced legislation that would have
                           protection of, say, an aircraft carrier task force, or    barred women only from “fighting” positions,
                           those that travel back and forth between combat           thereby opening all noncombat positions regardless
                           groups and storage depots. A risk assessment is           of their exposure to danger. The bill died without
                           made all the more sensitive by current military strat-    a hearing.3
                           egies and tactics, which increasingly emphasize at-            Both these efforts raise continuing questions
                           tacking supply lines as a way of decreasing an            about the feasibility of establishing a workable law
                           enemy’s fighting capacity.                                for keeping women out of combat. It is not clear that
                               The combat exclusion laws may have originated         excluding military women from some combat and
                           in part from concerns about women’s ability to fight.     noncombat jobs really provides them with an added
                           This may make sense in the cases of the Army and          degree of protection. For one thing, it is difficult to
                           the Marine Corps, some of whose members are ex-           define a context in which anyonein today’s military

                                                                                                                               WOMEN AND COMBAT

                        can be protected from the dangers of war. And, as            of the combat exclusion laws, what is the rationale
                        was evident in Panama, civilians are at as much risk         for prohibiting qualified women from flying the
                        as military personnel. Furthermore, although the             bomber? What is the rationale for closing nearly
                        risk rule’s basic criterion seems sensible, it may not       6,000 positions on an aircraft carrier if only a small
                        provide the same degree of protection across the             fraction of that number actually crew the aircraft?
                        services because of the different ways in which the
                        services fight.

7%~whsion kuzx dosejobs that prode t2perienr.e
                                                                                     The laws’ effects
u-ucial fbr pmnrotion-e~.perwrN’ at the hi$er und
general c&firergrades. Ilbmen have less0pportuniQ
both to ronfribute to the military and to further
                                                                                     The continued       existence of the combat exclusion
                                                                                     laws for women denies the services the opportunity
their own profes.iional dtzzehpment.
                                                                                     to most efficiently and effectively manage their hu-
                                                                                     man resources. For instance, because combat mis-
                                                                                     sion aircraft are closed to Air Force women, the
                             Consider, for example, the contrasts between a          number of women who can enter pilot training is
                        Navy aircraft carrier task force and an Air Force base       limited; this may result in highly qualified women
                        in Europe. No women may be assigned to any of the            being passed over for less qualified men. Last De-
                        ships in an aircraft carrier task force because the          cember’s military action in Panama provides another
                        group, by definition, has a combat mission. (As              example: The 82nd Airborne Division, deploying
                        mentioned earlier, application of the risk rule sup-          from Fort Bragg, North Carolina, left behind a
                        ported the closing of the supply ships that travel           woman intelligence analyst whose area of expertise
                        with the carrier group.) Many women would be sta-             was Panama.
                        tioned, however, at a U.S. air base in Europe. The                 The exclusion laws also close jobs that provide
                         main task of a carrier task force is the launching of        experience crucial for promotion-especially       at the
                        the carrier’s aircraft, and the main task of a U.S. air       higher and general officer grades. Women have less
                         base is the launching of its aircraft. The Navy unit         opportunity, therefore, to contribute to the military
                         moves; the Air Force unit is landlocked. Both units          and to further their own professional development.
                         have ways of defending themselves from enemy at-             This may help explain why, at career decision
                         tack. Both would be primary targets in a war. Is one         points, women are more likely to leave the service
                         unit at higher risk of attack than the other? Is one         than men are.
                         unit more vulnerable than the other? Are Navy                     In sum, problems seem inherent in the imple-
                         women afforded more protection than Air Force                 mentation of any kind of combat exclusions in to-
                         women? These questions are difficult, perhaps im-            day’s warfare environment. Moreover, the existing
                         possible, to answer.                                         combat exclusions limit the military’s ability to
                              The Cohen/Proxmire bill’s dismissal of protec-           manage its forces and to fully utilize its human re-
                         tion as an objective of the combat exclusion laws            sources. In light of these problems, one must ques-
                         raises the question: Is it logical to close positions         tion whether combat exclusion provisions are
                         that women may be capable of filling if they can, by          feasible or are in the military’s best interest. l
                         law, still be exposed to the greatest risks? For exam-
                         ple, under the current law, the Air Force allows
                         women to fly the tankers that refuel (in the air) the        1. See Combat Exclusion Lowsfor Womenin theMdifary(GAO/T-
                                                                                      NSIAD-88-8, Nov. 19, 1987), pp. 4-10. While theauthorwasasub-
                         long-distance F-111 bomber-the aircraft used in              stantial contributor to this testimony, her views as expressed in the
                         the attack on Libya. If the tanker is shot down be-          GAOJoumalare entirely her own and do not necessarily reflect the
                         fore it gets to the bomber, the bomber cannot reach          official position of GAO.

                         its target. Many people would argue that the tanker          2.    GAO/T-NSIAD-88-8,    p. 9.
                                                                                      3.    Congressman U’illiam Dickinson submitted the same proposal
                         faces a risk of attack at least as great as that faced by    in   the House of Representatives. The bill was never reported out
                         the bomber. If protection is ruled out as an objective       of   committee.

                                                                                                                                     SUMMER 1990         33
                                                    E. Gerald Corrigan

                                                    ON THE 1980s
                                                    IN BOMBAY, INDIA: The Sixth Deshmukh
                                                    Memorial Lecture, January 1990

The DeshmuhhMemorial Lecture was namedfor                      VEN THE MOST cursory review of the broad sweep of economic and finan-
Dr C. D. Deshmuhh,f;rst Governor of the Reserve                cial developments over the past 10 years serves as a forceful reminder of
Banh of India. The speakerthis year was E. Ger-                just how much the world economy had to digest in a relatively short
ald Corrigan, President of the Federal Reserve      period of time. The decade began with much of the world caught up in a virulent
Band of Nkk I&-h. Mr Corrigan said that in his      inflation the likes of which many countries had not experienced in a peacetime
addresshehopedto recountsomeof the lessonsof the    setting in decades. Not surprisingly, that burst of inflation gave rise to major
1980sand to discuss ‘how thoselessonsmight help     imbalances in economic performance, culminating in a deep recession which for
us in the 1990s as we seehto securesustained non-   a number of countries-my own included-was the most severe economic down-
inj’ationary growth in our national and interna-    turn since the 1930s. In that same period, the debt problems of many developing
tional economicsystems.”He delivered his remark,    countries exploded onto the scene, bringing with them an enormously complex
which the GA 0 Journal reproduces here, on          series of economic and social problems for the debtor countries but also placing
January I1 in Bombay.                               truly dangerous strains on the international banking system.
                                                         Even as the world economy began to recover from the recession of the early
                                                     1980s it was quite clear that powerful forces-some technological, some politi-
                                                    cal, and some competitive-were          to radically transform the economic and finan-
                                                    cial setting in which governments, businesses, and households would have to
                                                    manage their economic affairs. In few places were those changes more apparent
                                                    than in financial markets, where the interrelated forces of technological change,
                                                     innovation, and deregulation induced changes of several orders of magnitude in
                                                    the manner in which national and global financial markets operate. Partly as a
                                                     result of these forces, volatility-at     times of extreme proportions-became      the
                                                    order of the day in financial markets. The stock market drop of October 1987 pro-
                                                     vided a vivid, indeed somewhat frightening, reminder of the risks to our collec-
                                                     tive economic well-being that can be associated with excessive churning and
                                                     volatility in financial markets.
                                                         Yet, despite the LDC debt crisis, the stock market shock, and numerous
                                                     other disruptions in banking, financial, and commodity markets, overall eco-
                                                     nomic performance-especially           in the industrialized world-panned     out re-
                                                     markably well over most of the decade. Indeed, in a number of countries-the
                                                     United States included-the         duration of the economic expansion has been of
                                                     record proportions. More generally, the growth in world trade has continued to
                                                     outpace the growth in overall output and protectionist pressures have been
                                                     reasonably well contained even in the face of truly massive imbalances in trade
                                                     and current account positions.

                                                    E. GERALD CORRIGAN is Presidenrof the FederalResere?e
                                                                                                       Bank of ~Vezx~

                                    Outside of the major industrialized countries, developments in the 1980s
                               were distinctly more mixed. To be sure, a number of newly industrialized coun-
                               tries-notably     on the Pacific rim-showed powerful economic growth over the
                               period and in the process chalked up very large trade and current account sur-
                               pluses. Perhaps the most graphic example of this is to be found in the case of
                               Taiwan, whose foreign exchange reserves are now significantly greater than those
                               of Saudi Arabia at the peak of oil prices in the early 1980s. In a number of other
                               important cases, major economic strides were made. In this regard, India cer-
                               tainly stands out as one of the countries that has made major gains, as illustrated
                               by both the pronounced acceleration in the trend rate of growth in Gross Do-
                               mestic Product and ongoing efforts to increase efficiency and competitiveness.
                               But, for many countries, especially in Africa and Latin America, the 1980s were
                               indeed a dark decade. Sadly, in more than a few instances, living standards today
                               remain below levels that had been achieved at the end of the 1970s and in the
                               early 1980s. Nevertheless, in a growing number of heavily indebted developing
                               countries, important progress has been made, especially in the recent past.
                                    In short, the events of the 1980s in much of the developing world must, on
                                balance, be regarded as disappointing. On the other hand, we can claim a meas-
                                ure of satisfaction with developments in the industrialized world. But that sense
                                of satisfaction must be tempered. For example, it would be tempting to conclude
                                that we have somehow come to master our economic fate such that things that at
                                one time seemed to be a matter of great concern are no longer particularly im-
                                portant. For example, I am struck by the number of commentators in the United
                                States who look back at the 1980s and conclude that concerns about the United
                                States’ internal and external deficits were misplaced. After all, they would argue,

NOT    ONLY    DO 1 CONTINUE            TO VIEN   THE     I’.s.

IUTERY-\L     .AND EXTERk%L           DEFICITS    -\S CNSI        S-

T\IN,ABLE     OVER TIME.       BLT     1 SURELY   DON‘     r

FIND   ,AN ISFL.4rION       R4TE      OF 4 PERCENT       TO 4.5

PERCENT     IN 1%       WAY C.i[‘SE     FOR CELEBR.4TION.

                                these deficits did not stand in the way of the longest peacetime expansion in his-
                                tory, during which the underlying inflation rate has remained essentially stable at
                                4 percent to 4.5 percent for several years running.
                                    It will, I am sure, come as no surprise to you when I say that I do not share
                                that view. Not only do I continue to view the U.S. deficits as unsustainable over
                                time, but I surely don’t find an inflation rate of 4 percent to 4.5 percent in any
                                way cause for celebration. That, of course, is simply another way of saying that
                                the impressive performance of the U.S. and other industrialized countries’ econ-
                                omies over much of the 1980s cannot be allowed to lull us into a false sense of
                                comfort and security about prospects for the 1990s.
                                    Our success in managing economic and financial affairs in the 1990s will, in
                                no small way, depend on the extent to which we take advantage of the experience
                                of the 1980s in framing approaches to economic policy. Looked at in that light, it
                                 seems to me that there are several very important lessons to be learned from what
                                we experienced in the 1980s.

                                                                                                  SUMMER 1990    35

                                                                 The first lesson of the 1980scould probably apply to almost any decade, but
                                                            may be especially relevant for the 1990s. and that is the utmost need to be cau-
                                                            tious about the extremes of economic doctrine and theory. Indeed, whether we
                                                            are speaking of the Keynesian, the monetarist, the supply sider, the rational er-
                                                            pectationalist, or any other school of thought, single-minded approaches to public
                                                            policy can be very misleading, if not dangerous. Let me cite just two examples
                                                            in support of this view. First, there can be no doubt that cuts in tax rates in the
                                                            l’nited States that were conceived in the context of a supply side view of eco-
                                                            nomics played a major role in the record expansion in the United States. How--
                                                            ever. it is also true that those same tax cuts contributed to the budget deficit
                                                            problem just as it can be said that the major gains in productivity and savings

                            THE       SE(:OUD   LESSON      OF THE     IYXOS Is I H.\‘I

                            INFL4TION       (:O\FLIC’fS     WITH     5.U3l.t:      \NI)
                            GROWTNG        E(.ONOLIIES.     \IOREOVER. I’HE               COSTS

                            OF CORRE(:TING          ISFL.\TIOS~      ONCE       1’1 f1.15

                            I’.\fX%    HOLD.    \RE \‘ERY    GRE.AT     11DEF.D.

                                                             suggested by the supply side school simply did not materialize. Second, the enor-
                                                             mous shifts in monetary velocity that we experienced at times during the 1980s
                                                             make it quite clear that the pursuit of any strict monetarist approach to monetary
                                                             policy would have been disastrous. That, of course, is not to say that the supply 1
                                                             side or monetarist approaches are not helpful schools of economic thought,
                                                             for clearly both have much to offer. But, it is to say that economics and theology
                                                             don’t mix.
                                                                   The second important lesson of the 1980s is the compelling evidence that in-.
                                                             flation is fundamentally in conflict with stable and growing economies. Whether
                                                             we look at the industrial world, the developing world, the East, the West, the
                                                             North, or the South, what we see is that reasonable performance on the inflation
                                                             front is associated with higher levels of overall economic performance, while high
                                                             and rising rates of inflation are universally associated with instability and subpar
                                                             patterns of economic activity. Moreover, it is also true that the economic and so-
                                                             cial costs of correcting inflation, once it has taken hold, are very great indeed.
                                                             Taking the United States as an example, there is no question in my mind that the
                                                             depth of the 1981-82 recession was directly related to the severity of inflation that
                                                             preceded it, just as I have no doubt that the extraordinary duration of the current
                                                             expansion is importantly related to our relative success in keeping the inflation
                                                              rate from accelerating in any significant way.
                                                                   As another example, I would also argue that many of the root causes of the
                                                             debt problem which still plagues so many developing nations today can be traced
                                                             back to the inflationary environment of the late 1970sand early 1980s. Similarly, ’
                                                             I would argue that it is no coincidence that the individual debtor countries in the
                                                              developing world that have had the greater measure of success in working their
                                                             way out of the debt problem are the ones that, on balance, have had the best per-
                                                              formance in coping with inflation.
                                                                    Against that background, one would think that broad-based public and po-
                                                              litical support for monetary policies designed to keep inflation rates in check
                                                              would be a given. Unfortunately, I do not sense that is the case, especially when

                                                                                          PERSPECTIVES ON THE 1980s

                              it comes to support for preemptive policies that work to head off rises in the in-
                              flation rate before they are actually reflected in statistics and in behavior and ex-
                              pectations. In other words, while the evidence is overwhelming that inflation
                              should be viewed as the economic equivalent of public enemy number one, there
                              is often little or no public support for policies aimed at restricting rises in the in-
                              flation rate before the): become a reality A little inflation or a little more inflation
                              always seems so benign as it occurs. But as we all have learned the hard way
                              there is no such thing as a little more inflation because once the process takes
                              hold, it cumulates.
                                    In my judgment, this is the first and foremost reason why central banks
                              should have an appropriate degree of independence from short-term political
                              pressures, even though I fully recognize that the degree and form of that inde-
                              pendence will vary from country to country. In that connection, I draw some
                              comfort from the fact that in a number of countries, ranging from Chile, to New
                              Zealand, to South Korea, to Sweden, efforts are now under way, or have been re-
                              cently completed, to enhance the degree of independence of their central banks.
                               In this regard, let me also add that I find it more than a bit ironic that there are
                               some in the United States who seem to want to go in just the opposite direction
                               by reducing the independence of our central bank.

A.LOTHER       l\lPORT\NT     LESSON     OF IHE     P.AS’I


COOPER\TIO?.        ON ECOhOMlC        4ND    FfhWCIAL

\FF.-\IRS   IS wr    ONLY   NECESS.~RY       BCT (:.a-   BE


                                  A third important lesson to be learned from the 1980sis that international co-
                              operation on economic and financial affairs is both necessary and can be made to
                              work. For example, in the 1980s we witnessed several extraordinary examples of
                              international cooperation at its best, including the initial efforts to contain and
                              stabilize the problems growing out of the LDC debt crisis, the emergence of in-
                              ternationally accepted bank capital standards, the extraordinary speed and rel-
                              ative ease with which the European economic integration has proceeded, and the
                              close collaboration among financial authorities in the time frame of the October
                              1987 stock market break.
                                   More generally I regard the post-Plaza Accord efforts of the G-5 and G-7
                              aimed at improved coordination of macroeconomic policy as a distinct plus, even
                              though I recognize that that process is not without its critics. To some extent,
                              however, the critics of the process may have exaggerated expectations about what
                              realistically can emerge from these efforts. At the extreme, there are those who
                              would seem to regard any meeting of the G-7 that does not yield some dramatic
                              policy initiative as a failure. I simply don’t see it that way. To the contrary from
                              my experience, the simple fact of face-to-face discussion of issues of mutual con-
                              cern on matters pertaining to economic policy produces the highly valuable re-
                              sult of making all the parties to the discussion more sensitive to the problems and
                              perspectives of others. Accordingly, the measure of success for a meeting of the
                              G-7, the Interim Committee, or the G-10 Central Bank Governors in Basle is not
                               3 rb rh r rb r       ic E-        I’    ’

                            whether there even is a communique. Rather, the measure of success is the abil-
                            ity of the participants to grasp more fully all the dimensions of their own situation
                            and the situation of others and their ability to frame their own policies in a man-
                            ner in which the sensitivities to the problems and perspectives of others loom
                            larger rather than smaller. Looked at in that light, I firmly believe the broad proc-
                            ess of collaboration and cooperation on economic and financial matters is nec-
                            essary and desirable and that our success in such efforts during the 1980s was a
                            significant net plus for the well-being of the world economy.
                                  A fourth important lesson of the 1980s is that the globalization, innovative-
                            ness, and deregulation of financial markets have proven to be very much a two-
                            edged sword. On the one hand, there is little doubt that these developments have
                            expanded the choices for savers and investors, reduced the cost of financial trans-
                            actions, improved the allocation of saving and investment nationally and inter-
                            nationally, and increased the competitiveness and efficiency of financial
                            institutions and financial markets. But, and this is a very large but. there is also
                            no doubt-at least in my mind-that         these same forces have also increased vol-
                            atility in financial markets and introduced new and highly complex elements of
                            risk-possibly even increasing systemic risk-while at the same time contribut-
                            ing to the apparent condition of overcrowding we are seeing in international and
                            wholesale financial markets. Another very troubling phenomenon that seems to
                            grow out of this process is the manner in which credit flows to individual borrow-
                            ers-whether a company or a country---can suddenly stop. That is, up to a point,
                            credit flows are almost automatic even as the creditworthiness of the borrower
                             may be deteriorating. But once the threshold of concern about creditworthiness
                             is reached, the flow of credit can come to a full and harsh halt. From one per-
                             spective, that may illustrate the marketplace working at its best, but from an-
                            other, it may imply that we have a financial system which is more prone to rather
                             abrupt and potentially destabilizing shocks.
                                   Leaving that particular issue aside, it seems to me that the characteristics of
                             financial markets and institutions as they have evolved over the decade of the
                              1980s leave an enormous burden on those who manage and those who supervise
                             such markets and institutions. This burden is all the more compelling when ev-
                             ident pressures on profit margins and spreads can give rise to overly aggressive,
                              if not outright speculative, business strategies on the part of individuals or in-
                             dividual firms. In these circumstances, it seems to me important that central
                              bankers and other supervisory authorities should not feel the slightest bit apol-
                              ogetic-even in this age of deregulation-about        insisting that prudential stand-
                              ards in such areas as capital adequacy, liquidity, avoidance of concentrations, and
                              the presence of strong risk management and controls systems are the first order
                              of business for financial institutions.
                                   The final major lesson of the 1980s I want to touch on may be the most dra-
                              matic, and that, of course, would be the sweeping trend toward more open, more
                              competitive, and more market-oriented economic systems at the national level.
                               Even before the recent stunning developments in Eastern Europe and the Soviet
                               Union, the handwriting was on the wall as the gap in performance between more
                              open and more market-oriented economies relative to closed and governmental
                              controlled systems became more apparent, as illustrated, for example, by the
                              comparative patterns of economic development in the Pacific Basin relative to
                               Latin America. This is not to suggest that relative economic performance alone
                              accounts for the recent astonishing turn of events in so many countries. On the
                               other hand. and especially in this age of information technology, there can be lit-
                               tle doubt that the relative shortcomings of tightly controlled economic systems
                               are an important driving force in these developments. The great challenge, of
                                                                                        PERSPECTIVES ON THE 1980s

                              course, is for the community of nations to do all that it can in support of this shift
                              in direction-a    responsibility which falls heavily on all of the major industrial-
                              ized nations-with     particular emphasis, in my judgment, on the United States.
                                   Against the backdrop of those reflections on the 198Os,allow me to close with
                              a few comments about the key priorities as we enter the 1990s. Looking first to
                              the major industrial countries as a group, it seems clear to me that the priorities
                              are fourfold: First, to keep inflation in check, recognizing that many if not most
                              such countries are already in the “yellow zone” with regard to the potential for
                              some buildup in inflationary forces. Second, to redouble efforts to reduce the
                              massive trade and current account imbalances among these nations. This is im-
                              portant in its own right. but it is especially important in view of the clear and
                               pressing need to redirect international savings flows away from countries such as
                               the United States and the United Kingdom and toward developing countries and
                               the nations of Eastern Europe. Third, to do all that can be done through financial
                               support, technical assistance, and technological transfer to help narrow the gap
                               in economic performance and living standards between the industrial countries
                               and the other nations of the world. Finally, to strongly resist protectionist pres-
                               sures and, more positively, to seek out opportunities to reduce and eliminate
                               trade barriers. even in such politically difficult areas as services-including     fi-
                               nancial services-and agricultural products.

FOR DEVELOPIW           s-\‘i-IONS, I‘HE DICT.ATES           OF

‘THE   IY9OS \\ ILL   BE C.-\PTI’RED     IN ‘I’\%‘0 G’ORDS:

BOTH    OF THESE      PRESI-PPOSE      SOI.VD      514CRO-

ECONOMIC      411) STRI’CTI.R;\L       POLl(:IES     OS THE


                                   As for the United States itself, there are several areas of particular emphasis.
                               For our own sake and for the well-being of the world economy, we simply must
                               do a much better job of coming to grips with the savings imbalance in the U.S.
                               economy. To me that means eliminating the budget deficit, even though the pri-
                               vate savings rate may be expected to rise somewhat simply on the basis of de-
                               mographics. As a corollary to [his, the U.S. economy also needs a large and
                               sustained increase in net private investment, especially in manufacturing, in or-
                               der to generate the supply of exports that is critical to the shrinkage of our trade
                               deficit. Indeed, I can see no way in which there can be an orderly reduction in
                               the U.S. trade deficit (and a corresponding cut in our claims on the world’s sav-
                               ings) unless a significant fraction of that adjustment takes the form of higher ex-
                               ports of manufactured goods-especially        “high-tech” goods-to industrialized
                               and newly industrialized nations.
                                   For developing nations, it is very clear that the dictates of the 1990s will be
                               importantly captured in two words: competitiveness and creditworthiness. Both
                               of these words presuppose the pursuit of sound macroeconomic and structural
                               policies on the part of individual countries. There is nothing new about that.
                               What will be new, or at least different, will be the extent to which the market-
                               place will distinguish between strong performance and weak performance. De-
                               veloping countries, by definition, need external capital Bows to develop. In the
                                1990s I suspect that competition for such capital flows will be especially keen

                                                             in a context in which there simply will not be enough official money to go around.
                                                             For that reason, the countries that stand the better chances for success will be the
                                                             countries that are able to attract private capital flows, whether in the form of cap-
                                                             ital reflows, direct investment, capital market funding, or conventional bank
                                                             loans. This is precisely the reason why shortsighted efforts by some countries to
                                                             finance themselves by accumulating interest arrearages or by ill-conceived pro-
                                                             grams of debt reduction can be so very dangerous to their own long-run interests.
                                                             That is not to say-as we have seen-that it is impossible to assemble construc-
                                                             tive, innovative, and market-sensitive approaches to reducing debt service bur-
                                                             dens. However, it is to say that where such approaches are necessary, they should

                            IT   IS WITHIN     OIR   C.iP’.CITY       ‘I‘0 tOROE

                            POI.ICIES    .AhD PROGRi\415          TO L1A’I‘ER~~l.I.~
                            E\H-\N(‘F    PROSPECTS       FOR SI‘(:CESS         \hD

                            PRO(;RE\I.       1. tOR ONE.     \EE THE         IWO4      \\   1 TIME

                            OF t.SORJlO[      5 OPPORI‘L’UITS          \ND    1.OOli

                            t’ORN’\RD      I‘0 IT IN TH.iT      SPIRIT.

                                                             be framed in a manner that clearly is sensitive to the ongoing need to preserve
                                                             constructive relationships between the individual country and private sources of
                                                             fresh credit and finance. It is also to say that countries that follow sound policies
                                                             which permit them to satisfy their financial obligations in a manner that strength-
                                                             ens their credit standing will be the ones that are much closer to the front of the
                                                             long line of those seeking external financing during the decade of the 1990s.
                                                                   If those are a few thoughts on priorities for the industrial nations, developing
                                                             nations, and the United States in particular, there is one final thought that applies
                                                             to ail nations. That is, as I look to the 199Os,the need for a still higher level of
                                                             international cooperation is clear. Consistent with that, I believe the case for in-
                                                             creased financial, political, and moral support for the key multinational official
                                                             institutions is compelling. Here, I have in mind not just the International Mon-
                                                             etary Fund (IMF), the World Bank, and the Regional Development Banks, but
                                                             also and perhaps especially the General Agreement on Tariffs and Trade
                                                             (GATT). Our successes or failures in the Uruguay round will go a long way-for
                                                             better or worse-in setting the tone for the balance of the decade. In this regard,
                                                             let me also say that I would hope and expect-for both substantive and symbolic
                                                             reasons-that the United States Congress will act swiftly and harmoniously to
                                                             pass the legislation that is needed to put in place the U.S. share of the contem-
                                                             plated IMF quota increase, once the details on the quota increase are worked
                                                             out. A failure to do so, even in the face of our obvious budgetary problems,
                                                             would, in my view, send all of the wrong signals at just the point in time that the
                                                             opportunities for progress on so many fronts are so great.
                                                                   In closing, I wish I could say to you that having reasonably well navigated the
                                                             unchartered waters of the 198Os,we could safely look forward to clear sailing for
                                                             the 1990s. But you know and I know that’s not in the charts. We also know, how-
                                                             ever, that it is within our capacity to forge policies and programs to materiali!
                                                             enhance prospects for success and progress. We also know that if we opt for the
                                                             expedient, if we concern ourselves only about today, or, even worse, if we each
                                                             concern ourselves only about ourselves, we will fail. I, for one, see the 1990s a>
                                                              2 time ofenormolls onnorrunitv 2nd look fnward to it in thor pnirit l

                                                                     Bilateral and multilateral aid projects worldwide,
                                                              Hancock writes, “illustrate the same kinds of
                                                              mistake being made again and again-an addiction
                                                              to highly priced technologies and to grandiose and
                                                              irrelevant schemes, a culpable lack of empathy for
                                                              the poor on the part of staff and consultants, and
                                                              repeated failures to take into account in project
                                                              design the harsh realities of Third World existence.”
                                                                     Such mistakes have littered the Third World
                                                              with the “festering carcasses of many prodigious
                                                              white elephants.. . . Roads that end in rivers and then
                                                              continue blithely onward on the other side, silos
                                                              without power supplies, highly sophisticated
    SACRED COWS AND WHITE              ELEPHANTS              equipment that no one can use installed in remote
                                                              places, aquaculture projects producing fish at
                                                              9,000 per kilo for consumption by African peasants
                                                              who do not even earn $400 a year, dams that
    Graham Hancock
                                                              dispossess thousands and spread fatal water-borne
    LORDS OF POVERTY: THE POWER,                              diseases, resettlement schemes that make the
    PRESTIGE, AND CORRUPTION OF THE                           migrants poorer than they were before they left
    INTERNATIONAL  AID BUSINESS                                home, that destroy the environment and that
                                                              obliterate tribal peoples-such blunders are not
    NewYork:TheAtlantic MonrhiyPress,1989.234 pp.
                                                               quaint exceptions to some benign and general rule
                                                              of development. On the contrary, they are the rule.”
                                                                      “Long after the experts and professionals from
    Hernando de Soto                                           the United Nations or the EEC or USAID or the
                                                               World Bank have packed their bags and their cute
    THE OTHER PATH: THE INVISIBLE                              ethnic souvenirs, boarded their aircraft and fled
    REVOLUTION IN THE THIRD WORLD                              northwards, the ill-conceived development projects
    iVewYork:Harper&f Row,1989.2 71pp.                         that they have been responsible for continue to
                                                               wreck the lives of the poor.”
                                                                      As these quotations suggest, much of the
                                                               evidence Hancock marshals is anecdotal. Still, the
    ByJ. A/Ian Hovey,Jr                                        horror stories he tells are numerous and generally
                                                               well documented. The projects they depict are
                                                               often fabulously expensive. 4 billion here and a
                                                                billion there, it has been said, soon add up to
    G  raham Hancock’s Lords of Poverfy is probably the
                                                                real money.
    most wide-ranging, unmitigated, angry, impres-
                                                                      While foreign aid does not help the poor,
    sively documented indictment of international
                                                                Hancock writes, it does serve the interests of other
    development assistance in print. Hancock’s target is
                                                                parties. For one thing, it “systematically empowers
    not just economic aid that has been diverted,
                                                                and enriches the very forces that today most
    inverted, or perverted, but--explicitly-economic
                                                                efficiently stifle the initiative and resourcefulness of
    aid “as such.” It should, he says, be abolished.
                                                                peasants, nomads, slum-dwellers and villagers
    Ousting the lords of poverty-“the      middle men of
                                                                throughout the Third World.” Aid projects also
    the aid industry”-would     serve the best interests of
                                                                “meet the bureaucratic needs of the agencies
    both “the taxpayers of the rich countries and the
                                                                themselves, the psychological and career needs of
    poor of the South .”
                                                                their staff, and the commercial needs of suppliers
                                                                from whom equipment and services are procured.”
    J. ALLAN HOVEx JR. is a seniorvaluator in                          Hancock, a former East Africa correspondent for
    GAO’sNational Securig and International Affairs              TheEconomist,homes in primarily on the official
    Division, currently on assignmentwith theHouse               rather than the nongovernmental programs. He
    ForeignAffairs Committee.                                   castigates the “aid industry” not only for arrogance,

                           greed, and failure, but for a largely successful                  But Hancock’s indictment of economic aid “as
                          coverup. This publicly funded enterprise, he                  such”-his case for simply abolishing official
                          claims, has been able to “wail off its inner workings         development assistance-is less convincing. Despite
                           from the public view,” set its own goals, determine          the kinds of mistakes Hancock describes, some aid
                           how the goals are to be sought, and in due course            efforts have lent a useful hand in the eradication of
                           pass judgment on its own efforts.                            tropical diseases, the mitigation of hunger, the
                                But Hancock’s achievement in writing this book          spread of literacy, the green revolution, the eco-
                           belies that charge-the more so because much of               nomic takeoffs of some developing countries, the
                           his evidence comes from published reports of the             reduction of infant mortality, the slowing of popula-
                           agencies’ own auditors and inspectors general. If the        tion growth, and the gathering attack on environ-
                           aid aristocracy is in trouble, it is not because they        mental hazards. Toward the end of the book,
                           have escaped responsible evaluation, but because             Hancock seems to acknowledge that some help can
                           they have not listened or have refused to learn              be helpful: “Perhaps when the middle men of the
                           (a phenomenon with which GAO evaluators are                  aid industry have been shut out it will become
                           not unacquainted).                                           possible for people to rediscover ways to ‘help’ one
                                American readers may be surprised by                    another directly according to their needs and aspira-
                          Hancock’s assertion that the aid industry’s “massive          tions as they themselves define them, in line with
                          international exercise” in public relations has made          priorities they themselves have set, and guided by
                          foreign aid a “sacred cow.. . the least questioned form       their own agendas.”
                          of state spending.” And by the further statement that              The global challenge for development
                          in all donor countries ‘Lmoregets spent on overseas            “assistance” today is to sort out the real from the
                          development every year.” Between 1968 and 1990,                unreal-and to deal ruthlessly with the latter. We
                          U.S. spending on development aid (measured in                 could be in for a bout of basic reassessment and
                          constant dollars) declined by some 40 percent. In              reform. Hancock’s book improves that prospect.
                           1984, a Roper poll showed that 61 percent of                      So also, in a different but complementary way,
                          Americans believed this country was spending “too             does Hernando de Soto’s seminal study of the
                          much” on foreign aid.                                          “informal” economy in Peru. TheOtherPathreveals
                                It is nevertheless a fact that foreign aid survives      in depth how the informal (sometimes called the
                          in this country, despite federal deficits and budget           underground or black market) economy of an
                          stringencies; and there is no visible movement to do           underdeveloped country operates and how aston-
                          to it what Hancock recommends. For most of its                 ishingly complex and productive it is. In the
                           nearly 50-year history, U.S. foreign aid has been             process, the book does indeed, as Mario Vargas
                          defended, to a significant extent, on the grounds              Llosa says in his foreword, alter “the terms of debate
                           that it was essential to containing the spread of            concerning the prerequisites for economic develop-
                          communism-first          in Western Europe and then            ment, effective democratic institutions, and appro-
                           throughout the Third World. In light of current               priate foreign policy toward the Third World.” The
                           developments, that rationale for foreign aid has              OtherFizthbecame a best-seller in Latin America; it
                           begun to lose force. Increasingly, aid will have to           deserves to do well elsewhere.
                           stand or fall on economic and humanitarian grounds.                What de Soto and his Institute for Liberty and
                           Giving aid to corrupt or repressive governments will          Democracy propose is nothing less than a peaceful
                           become increasingly difficult to justify.                     revolution that would legalize, protect, and stimu-
                                 It is, therefore, to be expected that critiques like    late the informal sectors of Latin American and
                           that of Graham Hancock will gain a niore attentive           other Third World countries. From such a revolu-
                           and open-minded hearing. How much of Hancock’s                tion, they claim, would emerge genuine market
                           thesis is valid! Although occasionally a tad sarcastic        economies, with all the attendant benefits of
                           or shrill, his attack on arrogance, greed, bloat, and         economic growth and equity, responsive govern-
                           imprudence in the official international aid commu-           ment, and social stability.
                            nity is largely persuasive and well-documented.                   This is the “other path,” which de Soto
                           Many in that community have long been aware of                contrasts sharply with both the “shining path” of
                            much that Hancock recounts. A candid, comprehen-             Peru’s Maoist guerrillas and the prevailing culture of
                           sive rebuttal from various corners of that commu-              “mercantilist” privilege that, in most of Latin
                           nity, coupled with some rigorous self-examination,            America, has for too long successfully masqueraded
                           would seem to be in order.                                    as a market-oriented, Western-style liberal system.

                                                                                                                  BOOK REVIEWS

     The informal economy is “usually thought of as        growing effort to reform development assistance.
a problem: clandestine, unregistered, illegal              The effort gained impetus early last year with the
companies and industries that pay no taxes, that           appearance of two reports: one from Congress, by
compete unfairly with companies and industries             the Task Force on Foreign Assistance; and the other
that obey the law and pay their taxes promptly? But        from the Bush administration, by Alan Woods, the
that perception, de Soto argues, is erroneous. In          late administrator of the Agency for International
fact, the informal economy “is the people’s                Development, Alan Woods accurately summed up
spontaneous and creative response to the state’s           the situation: “Radically reshaping future official
incapacity to satisfy the basic needs of the               assistance programs to face new realities. _.must be
impoverished masses.”                                      both an immediate concern and a major long-term
     Although it has been gathering momentum for           national priority?
some four decades, “informalism” has only recently               With the winding down of the Cold War and the
emerged as a threat to Peru’s and the region’s legal        recent emergence of freely elected civilian
institutions. These “are still clearly mercantilist”       governments in most of Latin America and
inasmuch as “access to private enterprise is difficult     elsewhere, the prospects for such reform seem
or impossible for the popular classes, the legal            brighter than ever before. It may just be that the
system is excessive and obstructive, there are              sovereign purpose common to TheOther-Path,the
massive public and private bureaucracies,                   Alliance for Progress, and, in its way, Lords of
redistributive combines [that appropriate rather            Pocjevquitable,        sustainable, corruption-
than generate national wealth] have a powerful              resistant, bottom-up development-is an idea
influence on lawmaking, and the state intervenes in         whose time has come.
all areas of activity?
     Peru, de Soto and his associates found, has come
 to be “a country in which 48 percent of the
 economically active population and 61.2 percent of
 work hours are devoted to informal activities which
 contribute 38.9 percent of the gross domestic
  product (GDP) recorded in the national accounts.. . ,
  Through invasions or illegal acquisitions of land,
  neighborhoods sprang up which today account for
  12.6 percent of all housing in Lima and are home to
  $7 percent of the city’s population.. . . Lima’s 91,455
 street vendors dominate the retail distribution of
 popular consumer goods in the capital and.. .39,000        TIES THAT BIND
other vendors have managed to build or acquire 274
 informal markets valued at $40.9 million.. . . By
 invading routes, informals have managed to gain            James Q. Wilson
 control of 93 percent of the urban transport fleet,
                                                            BUREAUCRACY: WHAT GOVERNMENT
 and 80 percent of its seats.”
                                                            AGENCIES DO AND WHY THEY DO IT
      De Soto’s other path would remove mercantilist
 obstacles and legitimize such informal enterprise. .4 NW York:BasicBoo&s,1989.433~~.
 big question is how to get Peru and similar countries
 onto that other path over the opposition of the
 entrenched military-oligarchic complex that runs           By Sarah F: Jaguar
 things behind the scenes. Beyond drafting revi-
 sionist legislation, de Soto does not seek to address
 this question. It is instructive to recall that President
 John E Kennedy proposed objectives similar to de           wh     at would happen to your local department of
 Soto’s in his Alliance for Progress. The effective          motor vehicles if it registered automobiles as
 response of Latin American oligarchs to Kennedy’s          efficiently as your local McDonalds sells Big Mats?
 program was summed up in an epigram: “Alianza,
 si; progreso, no!”                                          SARAH F: JAGGARis Director of Operationsin

                               According to James Q. Wilson. professor of            most government bureaucracies seem not to
                          management at UCLA and author of several well-             work efficiently?
                          known books about organizations, this is the                    It all goes back to those aforementioned
                          answer: Like McDonalds, a department of motor              constraints -the ones managers must enforce and
                          vehicles that performed especially well would attract      experts must adhere to. Wilson points out that the
                          additional customers. But unlike McDonalds, it             constraints are placed upon the bureaucracies by
                          would not be able to draw on additional resources to       elected representatives (e.g., Congress) and the
                          serve the added clientele. Eventually, the                 citizenry to ensure adherence to the multiple,
                          heightened demand for its services would exceed its        conflicting, ambivalent objectives called for by the
                          ability to provide them. The motor vehicles office         people. They include:
                          would “fail,” thereby reconfirming the public’s            . multiple, inconsistent, or ill-defined organi-
                          expectations that bureaucracies are inefficient. ‘4s       zational goals, including lack of accountability
                          Wilson says, “Government management tends to be            in any one person for setting those goals;
                          driven by the constraintson the organization . . .”        . a requirement that the bureaucracy provide
                                This is a valid insight, and by the time we get to   “equal opportunity” to users and providers. to
                          it in Bureaucraq: WhatGowmmenrAgencies          Do and     builders and operators, possibly at the cost of
                          WhyTheyDo It, we’ve encountered others as well.            efficiency (for example, requirements that minoriF
                          Among them: that structure in a bureaucracy really         owned firms have a shot-or even a preference-in
                          matters; that the clarity with which a bureaucracy’s       the awarding of contracts);
                          goals and functions are defined significantly affects      . the public’s demand for fairness to all (operatin;
                          the ability of its managers and workers to operate,         in accordance with preset rules) and a flexible
                          not just effectively, but at all; that the impediments     response to individual circumstances;
                          created by unclear or unpopular goals can be               . the expectation that bureaucrats will get things
                          overcome, nevertheless, by peer expectations-a             done quickly, but still follow a set of intentionally
                          force strong enough to motivate soldiers to enter           limiting rules and internal controls designed to
                          battle. Wilson points out that the culture of an           ensure deliberation and caution in spending
                          organization is an important enforcer, creating, if         taxpayer money; and
                           strong enough, a sense of mission among its               . the necessity for exhaustive specificity in
                          workers-a feel for the way to act.                          advance of spending taxpayer money, thereby
                                Other parts of Bureaucracyexplain further the         limiting innovation and flexibility in performing
                          constraints that limit the effectiveness of                 tasks as they develop.
                          government managers and executives. Wilson                       In the face of these constraints, Wilson says,
                          explains how the government hires professionals for         “modest deregulation” is the major action that
                           their expert knowledge, then denies them the right        would most likely improve government operations.
                           to fully use that knowledge as they see fit, because       Is Wilson’s yet another voice to the effect that if
                           this expertise tends to encourage them to be more         only government were run more like private
                          creative than the “rules” will allow. Experts hired         industry, it would be “better”? Apparently so. He
                           into government become demoralized and distrustful         argues that deregulation would “liberate the
                           of their managers, whose primary job it is to enforce      entrepreneurial energies” of bureaucrats. Even
                           the constraints.                                           absent the discipline of a price system and a profit
                                Wilson is clearly a student-maybe even a fan-         motive, he claims, this release of energy would
                           of bureaucracies. The book is filled with vignettes        generate pride in workmanship and a willingness
                           to illustrate his points. Some of the examples are old     to innovate.
                            but still powerful, such as that of J. Edgar Hoover’s           Wilson calls upon the people who manage
                           imposing the culture and, hence, the operational            bureaucracies to take pains to understand-and to
                           style of the FBI. Others are virtual distillations of       build on-their organizational cultures. They
                           the frustrations bureaucrats feel when they try to get      should, he says, negotiate with their “political
                            things done. For instance, Wilson relates the story of     superiors” to determine which constraints are trul)
                           how Donald Trump could rebuild the Central Park             necessary and which ones are not. He also suggests
                            ice-skating rink in 5 months for about $2.25 million,      that authority in the bureaucracy be lodged at the
                            after the City of New York had tried for more than 6       lowest possible level-that is, at the lowest level at
                           years, spent more than $13 million, and failed.             which all the essential information for decision-
                                 But now to the main question: Why is it that          making is available. And he suggests that


                           more marginal land and in cold areas where periodic      Secretary of the Continental Congress Charles
                           crop blights had previously caused famines. .4s a        Thomson-bserved          Indian political institutions a
                           result, in countries where the potato became a           first hand. Franklin, for example, served as Indian
                           common foodstuff, populations tended to burgeon.         Commissioner and was intimately acquainted with
                           And as reliance on the potato increased, milling         the League of the Iroquois, which at its greatest
                           declined. Weatherford traces the impact of all these     extent controlled territory from New England to tht
                           factors on the industrial development of Kahl, West      Mississippi. In 1754, Franklin advocated to the
                           Germany: In Kahl, after the potato was introduced,       Albany Congress that the delegates of the English
                           the waterpower that had been used for milling and        colonies unite in a form of self-government similar I
                           the extra manpower no longer needed for farming          that of the League.
                           became available for use by the new factories then            America’s current governmental institutions do
                           being built.                                             emulate the League in significant ways. The
                                Another American product that stimulated            League united five principal Indian nations-the
                           technological innovation and further industrial          Mohawk, Onondaga, Seneca, Oneida, and Cayuga
                           development was cotton. Unlike its European cousin,      Each nation had a council, composed of elected
                           American cotton is long-stranded and therefore much      delegates. that governed the nation’s territory. Tht
                           better suited for weaving into cloth. And unlike wool,   grand council of the League consisted of all counci
                           American cotton could be produced in large               members from all the nations. The League counci
                           quantities. After the invention of the cotton gin        had power over common concerns; it could declare
                           and additional innovations in spinning and weaving,      war and peace, send and receive delegations, enter
                           American cotton triggered an increase in British         into treaties of alliance, and receive new member
                           trade wealth. By 1850, cotton cloth accounted for        tribes. Within the League council, each member
                           more than half of Great Britain’s annual exports.        had equal power and had to depend on his powers (
                                Yet few of the influences described above were      persuasion to get the council to act.
                           directly due to Indian innovation. The most direct            Not only does the general outline of this
                           innovative influence came in the form of products-       organizational form persist in Congress, many
                           principally food and medicine-that       Indians had     specifics of the Iroquois League’s organization we
                           discovered or domesticated. What would ethnic            also introduced into U.S. government. In the
                           cooking, from Thailand to Kenya to Italy to               League, military and civilian authority were
                           Hungary, be without Chile peppers, peanuts,               separated; council members could be impeached;
                           tomatoes, zucchini, paprika, potatoes, avocadoes,        and delegates were given the floor when they spok’
                           beans, corn, and sweet potatoes? Apart from the          The caucus, a Capitol Hill tradition, comes from s
                           variety in tastes they provided, these new foods          Indian word and is an Indian invention.
                           filled specific gaps and improved nutrition among             A sad coda to Indian Giws describes how the
                           various populations. Furthermore, Indian                 Old World transformed the Indians. They have
                            medicines such as quinine have become an essential      become, as Weatherford puts it, a peripheral
                            part of modern pharmacopeia.                            people-forced off their land, alienated from their
                                 Indian culture also directly influenced the        culture, and sometimes annihilated. South Amer-
                           development of America’s ideology of personal             ican Indian cultures are disappearing rapidly, and
                            freedom and egalitarianism and its federal form of      with them vanishes knowledge about medicines ar
                            government. Europeans were fascinated by Indian          products of potential value. This is an old pattern.
                            societies, some of which lacked rulers and central      What Indians had to give, European settlers did no
                            governments. Weatherford traces how reports of          always have the wit to take; one example is the
                            Indian egalitarianism influenced Enlightenment           process of vulcanizing rubber, which Indians knew
                            thinkers, from Voltaire to Rousseau. Some of             but which later had to be rediscovered. The
                           America’s founding fathers-Benjamin         Franklin,     Indians’ legacy to us has not been fully appre-
                            George Washington, Thomas Jefferson, and                ciated-and ours to them has been tragic. l

46   THE C.A.0   JOURNAL
                                                                                                                       BOOK REVIEWS

bureaucracies judge their own performance on the            Weatherford’s premise here is that Indian products,
basis of the results they achieve.                          ideas, and institutions profoundly changed the Old
      But finally-and   most tellingly-he   says that the   World and helped usher in modernity He builds a
only real “solution” to more bureaucracy is less gov-       strong case for this argument, and his book makes
:rnment. Wilson argues that “the greatest mistake           for engrossing reading.
:itizens can make when they complain of ‘the                      The book’s title, however, is to some degree a
2ureaucracy’ is to suppose that their frustrations          misnomer. Much of the Indians’ influence
uise simply out of management problems; they do             depended not upon their direct contributions to
 lot-they arise out of governance problems.”                European culture but upon how Europeans adapted
      So in this sense, Bureaucracyis a curiously           or reacted to what they found in the New World.
 Discouraging book. Its message is not one of hope or       Weatherford traces the effects of four such factors
  dp. Under the rarest circumstances, when there is          upon industrialization and the growth of capitalism:
  Lconvergence of clear and compelling goals and             the influx of precious metals; the establishment of
  nissions, favorable political support, manageable         corporations to exploit the new territory; the
  organizational and regulatory constraints, strong          development of new technical processes; and the
  jublic backing, and-for all we know-a proper               introduction of new foods and medicines.
   Iignment of the stars, a really talented executive              Silver and gold from the New World had an
  vi11guide his or her bureaucracy to real success. But      immediate impact on the Old World economy,
  Vilson’s message remains: that such successes, rare        tremendously increasing its store of money. In the
   s they are, cannot be sustained-that     bureau-           16th century, during the first 50 years of the
  ,racies are set up to work as they do. They reflect,       conquest of the Americas, the amount of silver and
  n fact, the mass of contradictions and conflicting         gold coinage in Europe tripled. This led to a
  objectives that “we, the people” require of our            century of inflation and of increased trade, as
  governmental organizations. It is no wonder                 Europeans used their new wealth to import luxury
  jureaucracies have a bad reputation.                        goods from Asia. It also decreased the importance of
                                                              trade with Africa, a previous source of gold.
                                                                   Efforts to develop the wealth of the new colonies
                                                              also contributed to the growth of modern financial
                                                              institutions. Land development and colonization in
                                                              the New World were conducted primarily by
                                                              companies, such as the Virginia Company of
                                                              London (which founded Jamestown) and the
                                                              Hudson’s Bay Company-the oldest company in the
                                                              world still in operation. These companies grew out
                                                              of a series of earlier English companies that were
                                                              created to prey on the Spanish through piracy and to
 LEGACIES                                                     provide slaves to European colonists in the New
                                                              World. The later companies formed to exploit the
 lack Weatherford                                              new lands created wealth that fostered the
 INDIAN GIVERS: HOW THE INDIANS                               development of new mercantile exchanges in Great
 3F THE ‘4MERICAS TR4NSFORMED                                  Britain and the Netherlands-a further step toward
 THE WORLD                                                     a modern world economy. Moreover, in terms of
                                                               scope, organization, and management, these
 .%a l&k: Crown Publishers,1988.2 72pp.                       companies formed a basis for modern European and
                                                               American corporations.
 BySheilaAW-ZZ/                                                    Technological innovation in Europe was
                                                               encouraged by new products from the Americas.
 Like his book about Congress, TribesontheHill,                The potato, for instance, had a profound influence
 lack Weatherford’s Indian Gie?ers provides an                 on Northern Europe, which until then had relied for
  nteresting new slant on current institutions.                food primarily on grains. Because an acre of
                                                               potatoes furnishes more calories than an acre of
 SHEILA AVRUCHis an t=va/uatorworkingon                        wheat, more people could be fed from existing
 Mdren’s issuesin GAO’sHumanResourcesDivision.                 farmland. Furthermore, potatoes could be grown on
                                                     DIIULIO. John J., Jr.. section   H~YTER. Ken, “Navigatmg
                     ARTICLES                        in the feature. “America’s       the Nineties,” Number 8.
                                                     Overcrowded Prisons,”            lVinter/Spring 1990, p. 13.
                                                     Number 7, Fall 1989, p. 31.
                     AWJROSE.James R., “Time                                          JENCKS,Christopher,
                     for Some New Thinking”          DUFFEY, Joseph, “The Case        Lawrence M. Mead. and
                     (part of the package. “The      for National Service,”           Isabel Sawhill. “The Issue
                     Defense Acquisttion             Number 7, Fall 1989. p. 35.      of L’nderclass” (discussion).
                     Sysrem”), Number 7, Fall        Dusts, Patrick.                  Number 5, Spnng 1989,
                     1989. p. 16.                                                     p. 15.
                                                     “Perspectives on the Crash”
                     B.ARBIERI,Robert .-\. and       (review of Tim Metz. Black       JOHNSON.Eleanor Llebman,
                     Dennis W Fricke, “The           .Nonday: The CaraJrrophe 01      “Aging and Options”
                     Crisis m Affordable             Ocrobw 19, I982 ..and            (review of Michael E. Borus.
                     Housing” (part of the           Beyond), Number 5, Spring        Herbert S. Parnes. Steven
                     package, “Housing and the        1989, p. 52.                    H. Sandell. and Bert

INDEX                Homeless”), Number 5,
                     Spring 1989. p. 28.
                     BENEDICK, Richard Elliot,
                                                     FASTRUP,Jerry C., “Why
                                                     Does the Money Go W’here
                                                     It Goes?” (part of the
                                                                                      Beidman. editors, T/le O/der
                                                                                       lticbrber).Number 7, Fall
                                                                                      1989. p, 53.
rssues5-8            “Diplomacy and the Ozone        package, “Washington and         KAMENSKY,John M.. “The
                     Crisis” (part of the package,   the States”), Number 6.          New Face of Intergovern-
S&ing 1989-          “The Environmental              Summer 1989, p. 53.              mental Relattons” (part of
                                                     Fox, J. Ronald, “Training        the package, “Washington
WinterlSpring 1990   ~%Z%9~~.nZ?            6’
                                                     the Wise Buyer” (part of the     and the States”), Number 6,
                     BLC.MSTEIN,‘Alfred, section     package, “The Defense            Summer 1989, p. 46.
                     in the feature. “hmerica’s      Acquisition System”),            KEYES,Langley C.. “A
                     Overcrowded Prisons.”           Number 7, Fall 1989, p. 9.       Broader View of Shelter”
                     Number 7, Fall 1989, p. 2%      FRICKE, Dennis W. and            (part of the package,
                     BRONSTEIN.Alvin J.,             Robert .4. Barbieri. “The        “Housing and the
                     section in the feature.         Crisis in rlffordable            Homeless”), &umber 5.
                     “America’s Overcrowded          Housing” (part of the            Sprmg 1989, p. 34.
                     Prisons.” Number 7. Fall        package, “Housing and the        KRAMER.John H., section in
                     1989, p. 29.                    Homeless”), Number 5,            the feature, “America’s
                                                     Spring 1989, p. 28.              Overcrowded Prisons,”
                     BUROW.James H. and Carl
                     T Trisler, “Defining the        GOLDENKOFF.Robert,               Number 7, Fall 1989, p. 34.
                     Problem” (section in the        “High Fliers” (review of         MASCIA, Janet L., “At Home
                     feature, “i\merica’s            R. E. G. Davies, Airlinesof      in America” (review of
                     Overcrowded Prisons”),          rhe Unired Srares Since I914),   Irving Welfeld, Whge We
                     Number 7, Fall 1989, p. 22.     Number 7, Fall 1989, p. 56.      Live: A Social Hisroq of
                     CAMPBELL, Alan K.,              GOLDSTEIN. Ira. “Managing        .4merrcan Houstg), Number
                     “Reflections on CSRA’s          for Performance in the           7. Fall 1989, p. 57.
                     First Decade,” Number 5.        Public Sector,” Number 7,        MATH, Paul, “.4cquisition
                     Spring 1989, p. 9.              Fall 1989, p. 42.                Reform: Three Guiding
                     CARLSON, Norman A.,             HARVEY, E Barton, III, and       Principles” (part of the
                     section in the feature,         James W. Rouse, “Public-         package, “The Defense
                     “i\merica’s Overcrowded         Private Partnerships” (part      Acquisition System”),
                     Prisons,” Number Z Fall         of the package, “Housing         Number 7, Fall 1989, p. 4.
                     1989, p. 32.                    and the Homeless”),              MdTEE. Michael P and
                                                     Number 5. Spring 1989,           Joseph J. Natalicchio, “The
                     CHELIMSKY, Eleanor,
                                                     p. 38.                           Piracy of Ideas,” Number 6,
                     “Expanding GAO’s
                     Capabilities in Program         HAVENS, Harry S., “Prodigal      Summer 1989. p. 38.
                     Evaluation,” Number 8,          Times” (review of Benjamin       MEAD, Lawrence M.,
                     Winter/Spring 1990. p. 43.      J. Friedman, Day of              Christopher Jencks, and
                                                     Reckoning: The Consequences      Isabel Sawhill, “The Issue
                                                     o/American Economic Policy       of Underclass” (discussion),
                     Murrie, “Truth in Research”
                                                     Cnder Reagan and Beyond),        Number 5. Spring 1989,
                     (review of Richard I?
                                                     Number 5, Spring 1989,           p: 15.
                      Nathan, SocrOf Sczencein
                                                     p. 48.
                     Govcmmenr: Usesand                                               IMENDELOWITZ,Allan I.,
                     ,qisuJes). Number 5, Spring     HAVENS, Harry S., “What          “Clean-Up Crew” (review of
                      1989, p. 49.                   We Were, Who We Are,”            Murray Weidenbaum,
                                                     Number 8, Winter/Spring          Rendezvous wirh Realiry: The
                     CONABLE, Barber B., “New
                                                     1990, p. 33.                     Am&an Economy Afrer
                     Directions ac the World
                     Bank” (interview), Number       HUNTER, Ken, “The Need           Reagan), Number 7, Fall
                     8, Winter/Spring 1990. p. 4.    to Listen” (review of Daniel      1989, p. 58.
                                                     Yankelovich and Sidney           MORRIS, Norval, section in
                     DEWAR, David. “Once L$on
                                                     Harman, Srarring with de         the feature, “America‘s
                     a Time: The Auditor for
                     America,” Number 8,             Pcopfe), Number 6, Summer        Overcrowded Prisons,”
                                                     1989. p. 61.                     Number 7, Fall 1989, p. 24.
                     Winter/Spring 1990, p. 29.
                          NADEL, Mark V,                 SHIKLES, Janet, “Parallels”     VIERECK, Ronald G. and           Reagan and Beyond. Number
                          “Presidential Machinery”       (review of Neil Sheehan, A      John L. Vialet. “‘Toward a       5. Spring 1989, p, 48.
                          (review of Bradley H.          Bright Shinrng Lie: John Paul   Realistic Anti-Dnrg              HAVEMAN, Robert. Starring
                          Patterson. Jr., The Ring of    Vann and America in             Strateg);,” Number 5. Spring     Even: .4n Equal Opporrunlg
                          Power). Number 6. Summer       Vietnam), Number 6.             1989. p. 23.                     Program ro Combat the
                          1989, p. 63.                   Summer 1989, p. 60.                                              Xarzon ‘5 ~VewPocesfy 1
                                                                                         VOLCKER,Paul, “The Not-
                          NATALICCHIO. Joseph 1. and     SHRIVER.Sargent. “Giving        So-Quiet Crisis”                 Number 8, WinteriSprmg
                          Michael I? Mc.Q.ee, “The       and Getting,” Number 8,         (interview), Number 5,           1990, p. 55.
                          Piracy of Ideas,” Number 6.    Wincer/Spring 1990, p. 21.      Spring 1989, p. 4.               HEYMANN, Philip B.. The
                          Summer 1989. p. 38.            SHULTZ, George, “.A             WILTER, Earl E.                  Polrrics of Public
                          PETERSEN.Carol D..             Changing World”                 “Strategizers” (review of        .Nanagemenr, Number 7, Fall
                          “Opportunities and             (interview). Number 6,          Philip B. Heymann, The            1989, p. 54.
                          Outcomes” (review of           Summer 1989, p. 4.              Politics of Public               M ETZ, T i m . Black .Uonday :
                          Robert Haveman. Starting       SNYDER,Donald C., “Peace        .lfonoge&nr), Number 7.          The Carasrrophe of October
                          Even: An Equal Opporrunity     of Mind?” (review of Merton     Fall 1989, p, 54.                19, 1982. .and Beyond.
                          Program co Combat the          C. Bernstein and Joan           ZEDLEWSKI, Edwin, section        Number 5. Spnng 1989,
                          ,Varion’s X-w Pooerty),        Brodshaug Bernstein, Social     in the feature, “America’s       p. 52.
                          Number 8. Winter/Spring        Security: The .Qstem That       Overcrowded Prisons,”
                           1990, p. 55.                  Worbs), Number 5, Spring                                         NATHAN, Richard I?. Sonal
                                                                                         Number 7. Fall 1989, p. 28.
                                                         1989. p. 50.                                                     Screncein Gmrmmenr: I ies
                          PETERSILIA,Joan, section in
                                                                                                                          and,Uisuses. Number 5,
                          the feature, “America’s        SPETH, James Gustave,                                            Spring 1989, p. 49.
                          Overcrowded Prisons,”          “Turning Point for the
                          Number 7, Fall 1989, p. 25.    Earth” (part of the package,    BOOKS                            PATTERSON.Bradley H.. Jr..
                                                                                                                          The Ring of Power. Number
                          RATNER,Jonathan, “Pie          “The Environmental
                          Cutting” (review of Herbert    Challenge”), Number 6,          REVIEWED                         6, Summer 1989, p. 63.
                          Stein, Gorxrning & $5          Summer 1989, p. 23.             llisred &y aurhorl               SHEEHAN.Neil, d Brighr
                          TtiNion Economy), Number       THOMAS, Lee.                                                     Shinrng Lie: John Paul C5znn
                          8, Winter/Spring 1990,         “Government and the                                              and America in Vietnam,
                          p. 53.                         Environment” (interview,        BERNSTEIN,Merton C. and          Number 6, Summer 1989.
                                                         part of the package. “The       Joan Brodshaug Bernstein,        p. 60.
                          REILLY, Frank, “Information
                          Technolom and Government       Environmental Challenge”),      Social Securify : The System      STEIN. Herbert, Governing
                          Operations.” Number 5,         Number 6, Summer 1989,          That Works, Number 5,             the 6.5 Trillion Economy,
                          Spring 1989. p. 42.            p. 15.                          Spring 1989, p. 50.               Number 8, Winter/Spring
                                                         TRAVISONO.Anthony I?,           BORUS,Michael E., Herbert          1990, p. 53.
                          ROUSE,James W. and E
                          Barton Harvey, III, “Public-   section in the feature,         S. Parnes, Steven H.              WEIDENBAUM,Murray,
                          Private Partnerships” (part    “America’s Overcrowded          Sandell, and Bert Beidman,        Rendezvous wirh Reality: The
                          of the package, “Housing       Prisons,” Number 7, Fall        editors, The Older Worker,        American Economy Afrer
                          and rhe Homeless”),            1989, p. 23.                    Number 7, Fall 1989, p. 53.       Reagan, Number 7, Fall
                          Number 5, Spring 1989.         TRI&ER, Carl T and James        DAVIES, R. E. G., Airlines        1989, p. 58.
                          p. 38.                         H. Burow, “Defining the         of de &red Stares Since           WELFELD. Irving, Where We
                          S~WHILL, Isabel,               Problem” (section in the        j914, Number 7, Fall 1989,        Live: A Social Hisroq of
                          Christopher Jencks. and        feature, “America’s             p. 56.                            ilmerican Housing, Number
                          Lawrence M. Mead, “The         Overcrowded Prisons”).                                            7, Fall 1989, p. 57
                                                                                         FRIEDMAN. Benjamin J..
                          Issue of Underclass”           Number 7, Fall 1989, p. 22.
                                                                                         Day of Reckoning: The             YANKELOVICH,Daniel and
                          (discussion), Number 5,        VIALET. John L. and Ronald      Consequencesof American           Sidney Harman, Srarring
                          Spring 1989, p. 15.            G. Viereck, “Toward a           Economic Policy L’nder            with the People, Number 6.
                                                         Realistic Anti-Drug                                               Summer 1989, p. 61.
                                                         Strategy,” Number 5, Spring
                                                         1989, p. 23.

                                                                                          Illustration Credits-Page 3: Rosanne Bono. Pages4. 14. and 20,
                                                                                          Daniel Sweetman. Pages 25 and 26: Ken Krawczyk. Pages 3 I. 41-
                                                                                          45: Les Kanturek.

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