The end is not quite nigh

SYNOPSIS: Reviews of three books: 1. The Endangered American Dream, by Edward Luttwak, 2. The World Competitiveness Report, with an introduction by Stephane Garelli, 3. The Trap, by James Goldsmith, and 4. Preparing for the Twenty-first Century, by Paul Kennedy.

When it gets down to it--talking trade balances here--once we've brain-drained all our technology to other countries, once things have evened out, they're making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here, once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel, once the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would call prosperity--y'know what? There's only four things we do better than anybody else: music/movies/microcode (software)/high-speed pizza delivery.

Of course, serious people do not really talk like this; the quote is from a (very good) recent science-fiction novel, Neal Stephenson's "Snow Crash". But express the same sentiment in appropriately turgid language--talk, say, about the "delocalisation of production in the post-cold-war global economy"--and you have the stuff of solemn discussions among the would-be sophisticates who gather each year at Davos or Hilton Head. Faced with what seem to be ever-worsening problems in its economies and societies, the West is increasingly given to fin-de-siecle pessimism. Meanwhile other countries, mainly in Asia, seem to be rising as the West declines; and there is perhaps an inevitable tendency not simply to contrast their successes with our failures but to imagine that they are somehow succeeding at our expense.

The four books reviewed here are a small if influential sample of the rapidly growing literature that feeds on and caters to these fears. Admittedly, they differ greatly in style and coverage. Only Edward Luttwak and Stephane Garelli concentrate narrowly on economics. Sir James Goldsmith expresses opinions on everything from relations between the sexes to mad-cow disease. And Paul Kennedy's book is a sort of devil's encyclopedia of everything that might go wrong over the next three generations. Even in the Kennedy and Goldsmith books, however, the growing integration of the global economy is a central source of concern.

By Invitation

It is also worth noting that all four authors are men to be reckoned with. Mr Luttwak, a well-known writer on politics and military strategy, is a fixture on American opinion pages and public television. Mr Garelli speaks for the World Economic Forum, whose aforementioned Davos conferences gather some of the world's most influential people. Mr Kennedy's best-selling "The Rise and Fall of the Great Powers" was arguably one of the half-dozen most influential American books of the past decade. And Sir James is, of course, a self-made billionaire whose book has already topped the bestseller lists in France.

So what can we learn from the thoughts of these influential men? One lesson is that international trade is a very simple subject. What economists know about the topic is so trivial that a management consultant, a historian, a military expert or a businessman can with almost no effort both rasp and refute all their assertions.

So, at least, these authors appear to think. In fact, after reading the books it is impossible to avoid coming to a remarkable conclusion: although all four authors feel able to pronounce with authority on international trade, none of them is familiar with the contents of even the first two or three chapters in a standard undergraduate textbook on the subject. (I do not mean that they disagree with that textbook: I mean that they have no idea what it contains.) As a result, all four books ae filled with conceptual and factual confusions that would be comical if so many people were not likely to take them seriously.

Some of these confusions involve elementary accounting. For example, Mr Garelli offers the straightforward prediction (in which Sir James seems to concur) that in the years to come the newly-industrialising economies will both run massive trade surpluses and attract massive inflows of capital. He is clearly blissfully unaware that a country's current account and capital account necessarily sum to zero--that a country which runs massive trade surpluses cannot help being a net exporter of capital.

Or consider Sir James, who gives warning that free trade will "shatter the way in which value-added is shared between capital and labour", a process which he clearly thinks has already begun in the United States. He obviously does not know that it is easy to look these things up; in particular, that gross domestic product is by definition equal to the sum of the value-added of all sectors in the economy, and that the division of America's GDP between capital and labour has been extremely stable in recent decades. (Wages and benefits were slightly less than 73% of national income in 1973, slightly more than 73% in 1993.)

And if these authors cannot get basic accounting right, it goes without saying that all four are followers of an ancient tradition: that of self-proclaimed experts on world trade who do not understand the concept of comparative advantage.

It seems a shame to pick on Professor Kennedy, who is the most modest and least offensive of the four; but his remarks in a recent speech on the global economy are too revealing to pass by:

Adam Smith's argument in favour of free trade and specialisation, that it made no economic sense for both England and Portugal to strive to produce wine and textiles when England's climate made it a better textile producer and Portugal's climate made it a better wine producer, doesn't address [the] reality of multiple, competitive sources—yet it is the basis of modern, free-market economics. What if there is nothing you can produce more cheaply or efficiently than elsewhere, except by constantly cutting labour costs?

Readers who remember their college economics courses should be chuckling—not because Mr Kennedy thinks that Adam Smith and David Ricardo were the same person, but because he has missed the essential point of Ricardo's England-Portugal example, driven home ad nauseam in every freshman course: that international trade raises real incomes in both countries, even if England is more efficient at producing everything, and even if Portuguese industry competes by paying lower wages.

If you want an idea of the level of misunderstanding involved, it is as if somebody thought it was a telling criticism of the theory of evolution to say: "Survival of the fittest means that the nastiest, fiercest animals prevail; but what happens when all of the 'unfit' species have been eaten?" Mr Luttwak and Sir James also cite Ricardo, but they don't get it either. Mr Luttwak's description of what he thinks Ricardo said echoes Mr Kennedy's confusion between absolute and comparative advantage. As for Sir James, his refutation of comparative advantage, which he obviously thinks of as deep and radical, is nothing but the classic "pauper labour" argument, the flip side of Mr Kennedy's confusion.

As a European living in France, Sir James affects an intellectual rather than a populist style. His views on world trade are, however, essentially indistinguishable in content and sophistication from those of another self-made billionaire who recently decided that he is an expert on economics: Ross Perot, of the "great sucking sound"

Where the wind is blowing

It is a mark of the perplexity, if not necessarily the decline, of the West that such bad ideas can be taken so seriously. But although what these authors say, and the strand of thought they represent, may be nonsense, it is a kind of nonsense that is already immensely influential and likely to become more so. Where will that take us?

If you look only at what Professors Garelli and Kennedy have to say, or if you read only Mr Luttwak's book and not some of his other recent writings, the answer may not be clear. The "World Competitiveness Report", indeed, seems gripped by an odd fatalism: globalisation will destroy prosperity as we know it, but there isn't really anything much we can do about it. And Mr Luttwak, in the conclusion of his book, seems to have fallen prey to an uncharacteristic diffidence: after all the bashing of conventional wisdom, after all the purple rhetoric about America as a third-world nation and world trade as a kind of warfare, he ends by recommending such weak-tea cures as higher national savings, better education, more spending on infrastructure, and a mild dose of industrial policy.

Only Sir James has the courage to follow his ideas where they naturally lead: into true, European-style conservatism.

Why conservatism of a European style? Mr Luttwak put it well at a recent conference in Japan. He pointed out that American conservatives, and their imitators in Europe, suffer from an internal contradiction. On one side, they advocate the traditional values of family and community; on the other, they advocate free markets whose dynamics do more than any government policy to undermine those traditions. What the public really wants, he thinks, are politicians who will be consistent conservatives, standing in the way of change on all fronts.

That is precisely the unifying theme of Sir James's ruminations. He opposes free trade, immigration and modern agriculture; all have the common feature that they tend to disrupt traditional ways of life. Of course, he argues that they all fail in terms of narrow economic criteria as well--that free trade reduces wages, that modern agriculture means mad cows. But one suspects that these are rationalisations: it is change itself that he opposes. It is not surprising that in the end, like so many philosophical conservatives, Sir James ends up blaming it all on the Enlightenment. And since even the most favourable change does hurt many people, we should not be surprised that his words have found a receptive audience.

How powerful will this new/old conservatism become? If Sir James represents the wave of the future, keep your eye on politicians such as France's Jean-Marie Le Pen, who did so well in Sunday's first round of the French presidential election, and America's Patrick Buchanan. Such men oppose immigration, while supporting God, family and protectionism.

So all these books, Sir James's in particular, may well represent important omens for the direction of western politics. But that does not change the fact that they are terrible books; they are compendia of misinformation and sloppy thinking, and they are not even interesting to read.

So here are some suggestions. Take a look at "The Trap" not for its merits, but to get a sense of the rather ominous way the intellectual wind is blowing. Skip the rest. In particular, if you want to read intelligent, well-written, grimly imaginative speculations about what might happen to our societies if present trends continue, do not struggle through Mr Kennedy's book: you would do far better to read Neal Stephenson, or other clever "cyberpunk" writers like William Gibson and Bruce Sterling.

And, if you want to learn something about the world economy, try doing something that Sir James and his colleagues thought was unnecessary: read the first few chapters of a good undergraduate textbook. You may be surprised at what you find.

The books discussed by Paul Krugman are "The Endangered American Dream", by Edward Luttwak (Touchstone; 365 pages; $24), "The World Competitiveness Report" with an introduction by Stephane Garelli (IMD/World Economic Forum; 666 pages; SFr800), "The Trap", by James Goldsmith (Macmillan; 224 pages; L7.99. Carroll & Graf; $20); and "Preparing for the Twenty-first Century", by Paul Kennedy (Fontana; 448 pages; L7.99. Vintage; $18).

Originally published, 4.29.95