THE GoA. A QCJARTERLYSPONSORED BY THE U.S. GENERAL ACCOUNTING OFFICE JOURNAL A CHALLENGE FOR YANKEE KNOW-HOW iVf?U themesin competitiveness SOVIET REFUGEES The continuing dilemma t WOMEN IN \ THE MILITARY t Do combat I exchsion laws make sense? i NUMBER 9 SUMMER 1990 NUMBER 9 THE GUANO A QUARTERLY SPONSORED BY THE L S. GENERAL ACCOUNTING OFFICE SUMMER I990 JOURNAL 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 41 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 A QL’ARTERLY SPONSORED BY THE U S CEhERAL KCOUYTINC OFFICE JOURNAL !%nptfol/pr Ihml f!anagiq Editor zditon’ul .~dzisorv Board ?f the crnitet/ stutes RICHARD SXII’I’H OHN F. AHEAkNE ALAN B. I,EL’E5SON ::Hr\RLES ,A. BOVVSHER IEORGE J. ALEXANDER DAVID F. LINOh’E.7 :DWARD BALES BEVIS LONGS’I‘RE’I‘l1 Editorial .~dmsors rHEODORE ‘2. BARRE.4I:X CHARLES F. I,I:CE HARRY S. HAVENS, Associate Editors NORTON SI. BEDFORD BRt:CE K. MacI,At’R1 Uzaiman LINDA F. BAKER IOBERT F. BORUCH ANN LlcLAI’GHLIN IRA GOLDSTEIN HANNAH F. FEIN <ORMAN M. BR.L\DBURh’ JOHl\i L. LlcLl’CAS JAMES F. HINCHMiZT\; DEBORAH A. SIGNER IOHk BRADEM4S DORIS MEISSNER DONALD J. HORAN MARVIN BWSSLER .4STRID E. MERGE’1 XIICHAEI, SPEER Tat Editor j&DREW F. BRIhlhlER 1%‘.LEE NOEL DIAXE REINKE IOHN C. BCRTON ALFRED E. OSBORSE. ofire OJPubiir Affum MICHAEL N. CHETKOVICH RI-SSELL E. P.4LxlER CLEVE E. CORLE’IT. Coordinator SHELDON COHEN blERTON J. PECK Director JOAX D. SCOTT WILLIAM T. COLEMAN.lR. RAYblOND E. PEE?’ MICHAEL COLLINS - AI.LANA L. PETERS Editor Design UORRIS W. H. COLLINS,JR. DONALD A. PETRIE STEPHEN AI,TXIAN KROHN. IN<: ROBERT ClJRVIN GEORGE VV. PHILLIPS BREWSTER C. DENNY IOHN R. RHINELANDE offe of Publishing JOHN T. DUNLOP E:LLIOT RICHARDSON and Communications URSULA F. FAIRBAIRN J. ROBERT SCHAETZEI MICHAEL SPEER, P.4UL L. FOSTER EDWIN H. SIMMONS Acting Director J. RONALD FOX J. EDWARD SIMPKINS BARBARA H. FRANKLIN ALVIN R. TARLOV Production MARTHA W. GILLILAND SL;SAN J, TOLCHIN KATHLEEN KEVLIN PATRICIA A. GRAHAM ROBERT WARNER TOM KNEELAND C. JACKSON GRAYSON, JR. ROBERT WEAVER ROBERT HAVEhl SIDNEY J. WEINBERG, J CHARLES T. HORNGREN KAREN H. WILLIAblS blEL\‘IN R. LAIRD CH.4RLES J. ZU’ICK HERMAN B. LEONARD THE GAO JOL’R:\!4L is published quarterly by the EDITORIAL CORRESPO:VDE:VCE; By mail to the above Office of Public Affairs, Rm. 4129, U.S. General Accounting address. Letters to the editor are encouraged. Unsolicited Office. Washingcon, D.C. 20548. First class postage paid manuscripts will be returned only if accompamed by a self- at U’ashingcon, D.C. addressed, stamped envelope. WRITERS whose work appears in the GAO lournal speak/or POS7XASTER: Send changes of address to the GAO Iournal, th~mseiveson(v. [ lnfess otherwise indicated, their views or opinions Office of Public .4ffairs. Rm. 4129, IJ.S. General Accounting should not be construed us the poiiq orposition ofG.40 or any Office, Washington. D.C. 20548. other oqanization wit/l hick thy mq be afiliated. FROMTHECOMPTROLLER GESERAI, J ‘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. \E'A THEMES IL COMPETITILE'GESS I AN AMERICANSomn INAGLOBALECONOMY 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? FOCUS 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. 6 THE GA.0 JOURNAL 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 FOCUS 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. 8 THE GA.0 JOURNAL 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 FOCUS 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. IO THE G.A.0 JOURNAL AN AMERICAN SOCIETY IN A GLOBAL ECONOMY On a broader social level, America needs a new set of mvths or stories about I. I noteworthy achievements. Our entrepreneurial stories focus on creative individ- I 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- FOCUS 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 12 THE GA.0 JOURNAL NEWTTHEMES I\ COMPETITIVE\FSS Shetidan 44. Tatssun 2 JAFYNSMOVETOWARD CREATIVITY Havingmasteredquahy asszlrance,the Japaneseare now eyeingAmerica’s last bastions of expertise-basic researchand breakthro24ghthinking. S 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 FOCUS 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 FOCUS 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 FOCUS 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). NEW THEMES IF. COVPETITIL EUESS Amy Lowen Manheim THENEEDFOR A STRATEGICMARKETING PLAN FORUS.TECHNOLOGY Like any product, govemment-sponsoredtechnologyneedsto be sold properly if ifs to do well D 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 1 FOCUS I t 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 I MARKETING US. TECHNOLOGY 1 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- FOCUS 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 ! i 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: SOVIETREFUGEES: THE CONTINUINGDILEMMA As the Soviet UnionJinaZLylets its peoplego, the United States F 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 I 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 SOVIETREFUGEES Jews are met in Vienna bv an Israeli OVClnmentI$ - 1 P resentativei if theydecidkto emigrate(0Israel, they Sovietemigr&s are routed directlythereBs who$hvvje routed to Rome for processing by INS. There,once offered resident alienSEP~US GUI~ underthe,!ttOrlKV 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 . SOVIET REFUGEES 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 SHOULDWOMEN BE KEPT OUTOFCOMBAT? Combat exchsion laws don ‘t fu&ZZ their-objectives.Maybe their objectivesare theproblem. D 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. WOMEN AND COMBAT ships or to direct combat units. Marine Corps policy The laws’ rationale does acknowledge, however, that women may be as- I 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 WOMEN AND COMBAT 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 32 THE GA.0 IOURNAL 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 I E. Gerald Corrigan REFLECTIONS ON THE 1980s IN BOMBAY, INDIA: The Sixth Deshmukh Memorial Lecture, January 1990 E 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~ XT&. 34 THE C.A.0 IOURNAL 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 PERSPECTIVES ON THE 1980s 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 36 THE C.A.0 IOURNAL 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 DE(:.ADE IS I‘H.AT I\TERN,\TIONAL COOPER\TIO?. ON ECOhOMlC 4ND FfhWCIAL \FF.-\IRS IS wr ONLY NECESS.~RY BCT (:.a- BE MADE TO WORK. 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’ ’ PERSPECTIVES ON THE 1980s 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: COMPETITIVElESS .AND CREDITWORTHINESs. BOTH OF THESE PRESI-PPOSE SOI.VD 514CRO- ECONOMIC 411) STRI’CTI.R;\L POLl(:IES OS THE P\RT OF INDIVIDI 4L COI.NTRIES. 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 PERSPECTIVES ON THE 1980s 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, BOOK REVIEWS 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. 42 THE GA.0 JOURNAL 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 BOOK REVIEWS 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 44 THE GA.0 JOURNAL BOOK REVIEWS 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 CLEVENGER,William 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. 48 THE CA.0 lOURNAL UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 O)fficiul Business Penul(vfor Pnkate Cke$300
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)