project usa: american competitiveness and what must be done to restore it

58 ~ O L O G Y TRANSFER Winter 1992

RESEARCH

PROJECT USA: AMERICAN COMPETITIVENESS AND WHAT MUST BE DONE TO RESTORE IT*

Students a t the Johnson Graduate School of Management a t Cornell University**

The United States today laces a loss o f influence as a world power, a reduction in American independence as a policymaker, and a dech'ne in the standard o f Hying on which Americans have come to depend tI is tory teaches that nations weaker and l e ~ productive than the United States can rise to become economic powerhouses and rapidly i n c r e ~ their ~randards o f living, th'story also teaches that nations fai l ing to recognize their fundamental problem8 v~ll inevitably decline. American politicians mus t face what is abundantly cleat, the United States is loMng ground and mus t act quickly to reverse i t s course. This White Paper outlines what mus t be don~ Information about the nation's current ~ a t u s mus t be analyzed and communicated Incentives to improve the level o f competence in government mus t be provided and mMntained The emphaMs o f government policy mus t be changed to reflect broad economic and technological interests as oppo~d to ~peeial in teresta Sa vin gs m ast be encouraged and increased Infrastructure mus t be improved Tax laws mus t be moeh'fied to help bring these changes about. Economic and technologieal issues mus t be elevated to the importance they require. American thinking mus t retlect the n e w realities: that the age o f leadership through mi l i tary power is over, that the requirements for success in the world o f the 19908 and beyond require a 8ound and growing economy that is internationally competitive. The US can accomplish these goalg only through foundation-abating, comprehenMve, fundamental change---along the h'nes we propose herein.

PART I The US government has demonstrated its ability to establish and follow a long-term geopolitical strategy:, to contain "world Communism." To contribute to this goal, the US encouraged the rapid economic development of its trading partners, including its wartime adversaries Germany and Japan. It did so (and continues to do so) at the expense of its domestic economy. The policy has been successful to a greater degree and in a much shorter time than could have optimistically been hopecL The Cold War is now over, and the United States and its allies

*This paper is the executive summary (with minor editing modifications) of a %vhite paper" that is available from Cornell University's Johnson Graduate School of Management. **The authors are described in a self-statement boxed a t the end of this paper.

have defeated "world Communism~mwithout a war between the superpowers.

With the collapse of the Soviet Bloc and the Warsaw Pact, the world has undergone fundamental change. The policies of the past are now no longer required; in fact, the policies of the past can no longer be afforded by this country.

Interestingly, it was the economic, rather than the military impact of the US military build-up--a build-up that began with the Carter Administration and reached full-force in the Reagan Administrationmthat was a primary cause of Western victory in the Cold War. The world's economy had evolved technologically, especially through the 1980s, but the centrally planned Soviet economy had been unable to keep pace. With the added stress of the military build- up intended to match that of the US, the Soviet economy essentially self-destructed.

TECHNOLOGY TRANSFER Winter 1992 59

Unfortunately, however, the same phenom- enon may be repeating itself in the US. In pursuit of its geopolitical goals, the US has allowed itself to be driven out of many important issues, become barely competitive in many others, and face trends in most high-tech industries that are adverse. During recent decades, US manufacturing industry generally has also declined. Many American firms are now "hollov/' corporation~ they no longer manufac- ture the products they serve and sell; rather, they purchase them from manufacturers over- seas And while in the past the US Department of Defense was a primary driver of high-tech innovation, this is no longer the case. In many areas civilian technologies, even including consumer electronics, are now the high-tech pace- setters for the world-

Motorola is a company that has been successful in fighting the "hollowing ~ trend, but only with great difficulty and as a result of great perseverance. What Motorola has done must be repeated throughout US industry. Industry too, must adapt to a changed world. It is not a matter of the US government changing, or of US industry changing:, both must change, and deeply, if the economic decline is to be reversed. Unfortunately, given the focus of this White Paper, further in-depth discussion of change within US industry must be left to others

If the situation is as severe as this, one may wonder why the US has not yet reacted- The answer appears to be three-fold and interrelated- First, the issue is complex and its impact has been masked. Second, those persons in the best position to recognize the problem face a trou- bling paradox: it will take time and enormous effort to solve, yet, if politicians explicitly recognize the problem, they are likely to be swept from office by others who deny that "this great nation ~ faces any difficulties that cannot be readily resolved. And finally, the US will be required to face a number of realities that are disturbing to the American psyche. Americans have long assumed their philosophical, economic, and mili tary superiority. To recognize that this country must compete aggressively merely to survive, runs counter to what Americans prefer

to believe. Yet, a number of very disturbing facts must

be recognized. For many in this country, the American dream is already dead. For many others, its promise is increasingly dim. One in five Americans is born into poverty. The average real income of wage earners is now at a level below that of 1961. Even when adjusted for a number of governmental transfer payments, the growth in real family income from 1973 to 1989 was less than 1% per year, as compared to the 3-4% annual increases of the 1950s and 1960~ Even here, however, the figures are somewhat deceiving. To achieve this modest gain, the percentage of two-earner families had to grow from 30% to more than 65%: it now takes more workers per family to maintain the family's standard of living.

As a nation, the US has been unable to earn its way in the world in recent years Rather, Americans have been forced to borrow more and save less to maintain their prior standard of living. The national debt has more than tripled during the last decade; a huge portion of that debt is now owed to foreigners the US savings rate has declined substantially.

The net result is that the slow-growth economy is putting great pressure on the equal- opportunity ideals of this country. The United States is becoming economically and racially polarized. The gains of one sector now must come at the expense of another, a situation that is potentially explosive. As drug use increases along with drug-related crime and homelessness, America faces social tensions and potential social instability rarely experienced in its history.

What went wrong? At one level the answer is, "Nothing. ~ This country achieved what it set out to do: contain "world Communism." It did so with perseverance, bipartisan effort, and strategic intent. Private enterprise systems have defeated the command-and-control economies of the East. Democracy is sweeping the globe. This is a spectacular achievement for the policies of the United States and its allie~

Operations Desert Shield and Desert Storm were miracles of logistics that provide further evidence of competence in government. The US government bureaucracy, in this instance its

60 TECHNOIX)GY TRANSFER Winter 1992

military, has once again demonstrated its ability to carry out geopolitical tasks efficiently and effectively. The American government has also demonstrated its ability to mobilize and sustain a coalition of nations in pursuit of a goal, in this case a coalition even more complex than the one it mustered for the Cold War. And it has used its power within United Nations mandatea

But all this has been achieved in large measure at the expense of the domestic economy. The United States now must come to grips with its economic crisis if it is to provide moral and economic leadership for the "new world orderY In moving to the future, the nation has available to it lessons in what to emulate and what to avoid from the experience of its trading partners during the post-WWII period.

Japan During the Cold War, Japan was looked upon

as an ~unsinkable aircraft carrier s in the Western Pacific. To maintain it required political stability in Japan; political stability required economic growth: Japan's economic growth thus became an objective of US geo-pelitical strategy.

Immediately after World War II, more than half of Japan's labor force worked in subsistence agriculture. Even at this point the Japanese had a goal, best articulated in their motto to, "Match the Standard of Living of the West? The Japanese government recognized that to achieve the goal, Japan would have to move its workers from agriculture and other low-productivity industries to those with higher productivity. And it was also clear that for rapid structural change to take place with coherence, the government would have to guide the transfor- matiorL An early step was to develop consensus around this motto. Then, a host of policies was implemented to facilitate the orderly, sequential transfer of resources from low-productivity agriculture and light manufacturing to industries of higher and higher productivity.

After World War 1I, Japan's infrastructure lay in ruins, its economy devastated. Now, less than 50 years later, it challenges--and in many areas leads--the United States in competition for world economic and technological supremacy. Japan's success with ~administrative guidance s

for its economy by skilled bureaucrats in its ministries is unparalleled. It is crucial to note that industrial policies were not only implemented by the ministries but also developed by therm

A clear pattern of action emerges from a study of Japanese industrial policy:, identify an industry as attractive, provide low-cost capital for investment in this industry, encourage domestic demand while protecting domestic producers from foreign competition so that domestic enterprises move down their produc- tion learning curves, and, finally, encourage experts once domestic firms are competitive with the rest of the world. Export demand further improves cost positions due to continued learn- ings, further enhancing the international competitiveness of the Japanese producers. This pattern has been and is still followed at successive periods in the development of Japan's economy in steel, shipbuilding, consumer electronics, semiconductors, automobiles, lap-top com- puters, flat-panel displays, and telecommunica- tions equipment.

There were also unintended effects from this system that proved beneficial When the Minis- try of International Trade and Industry (MITI) indicated interest in a particular industry, it sent a signal to the keiretsu, the Japanese industrial conglomeratea The keiretsu could then obtain government-backed support that reduced the risk of pursuing ventures in the new industry. In each keiretsu group, firms pushed to be "first movers ~ in the emerging market. Almost instantly a competitively structured domestic market came into being in the new target-industry.

It is often argued that "protectionism s hinders or prevents competition from taking place. Yet Japanese-style "protection ~ resulted in the development of economies of scale and high learning rates by domestic firms The Japanese government, through the ministries, working with the Bank of Japan and the keiretsu, simultaneously fostered fierce domestic compe- titior~ This competition forced prices down and quality up, a pattern that continues today.

When confronted by foreign competition, however, Japanese firms unite with one another

~ O L O G Y TRANSFER Winter 1992 61

under government coordination to ensure that Japan's interests are served in competition with "geifien" (outsiders). Part of the genius of the Japanese approach has been knowing when to compete and when to cooperate. This is a lesson the US must learn.

Germany The situation in Germany after World War

II presented a sharp contrast to that faced by the Japanese at that time, with the exception that the US recognized the need for a strong and stable Germany as a bulwark against Commu- nism in Europe. Despite the fact that much of Germany lay in ruins, post-war German manufacturing output was 30% higher than its pre- war level, and Germany's industrial structure was ideal for post-WWII market conditions Unlike Japan, which had to industrialize from a very low base and literally create higher productivity industries, Germany needed only to rebuild the factories and infrastructure it had before the War. It still had the plans, the people, and the processes necessary.for the task. The Marshall Plan provided the seed capital to begin the proces~ The capitalist system took over from there. There was no need for significant structural change in the Germany economy. Therefore, there was no need for institutions to catalyze it; Germany has no counterpart to MITI. Germany's "industrial tire was flat." All that was needed was to "patch it, pump it up" and the economy was "ready to roUY

As was true of the currencies of most industrialized countries in the early decades of the post-war period, the German mark was undervalued in relation to the dollar. This was a condition artificially supported by the US to stimulate German (and other) exports At the same time, the undervalued mark provided some protection for German markets against imports, while Germany formally embraced the doctrine of free trade.

In Germany, the free market was allowed to do what free markets can do for a strong economy:, bring about gradual, minor adjust- ments in the industrial structure of the economy as the world evolves Free markets, however, cannot bring about rapid and coherent positive

structural change in an economy--especially against well-established rivals. A lesson on what markets can do in the way of destructive structural change is being provided by East Germany since reunification. Free markets are forcing rapid change upon East Germans--but without coherence. Experts quoted in Der Spiegel predict that as a result of free-market pressures (and an overvalued East German mark), no more than 20% of the pre-unification industrial jobs in East Germany will survive.

France Much like that of Japan, the French

economy in the immediate post-WWII period was heavily committed to agriculture (40%). Europe's Common Agricultural Policy (CAP) effectively provided a European subsidy to French agriculture in exchange for "legitimacy" for Germany and openness to German exports CAP facili- tated the rapid industrialization of France concurrent with an orderly reorganization of its agricultural sector. The CAP subsidy helped France avoid social or political disruption while rapidly transforming the agricultural sector of its economy. The rapid transition from agriculture to manufacturing brought with it rapid productivity gains

The success of France's Commissariat au Plan (PC) in the post-WWII period demonstrates again the potential for competent performance by bureaucrats when they are insulated from day-to-day politic~ Control of France's Marshall Plan funds gave the PC the freedom to act rationally in the French national interest.

When he came to power, and after Marshall Plan funds had run out, DeGaulle exacted a price for his leadership. He demanded and got a new constitution that greatly strengthened the president's powers and permitted him to exercise executive power free of day-to-day politics Under DeGaulle, the parliament was reduced to a body that approved or disapproved of presiden- tial initiatives

DeGaulle's policy was two-fold: to reorganize France economically (as well as politically) and to reorganize the world order to take France into account. DeGaulle recognized that to do this France would have to possess the substance of

62 TECHNOIDGY TRANSFER Winter 1992

power from which the symbols of power are derived. For example, to sit at the table of the nuclear powers, France would need to have an independent nuclear force. France would need the economic wherewithal to sustain the symbols of power, hence, France embarked upon an effort to restructure French industry to provide strategic goods and to increase its international competitivenesa

"Commodity ~ capital-intensive goods, such as oil and steel, were appropriate candidates for effective bureaucratic control, as the requirements for success in these industries are simply to provide adequate resources, sufficient produc- tion facilities, and a receptive market--all of which the French hack Success in electronics, however, requires competitive pressures to force innovation and the timely adoption of emerging technologies. The strengths of central control--access to capital, provisions of an assured market, and insulation from world- market pressures---are of limited value, and in the case of the last factor can be counter- productive in industries of rapid technological change. Therefore, rote application of the strategies that had worked so well in the other industries failed in electronics

Nonetheless, growth in French output and productivity was second only to that of Japan among post-War industrial nation~ Note that Japan found ways to "guide ~ both types of industries, including those experiencing rapid technological change. In the latter case, a key has been effective domestic competition when markets are "protected, ~ plus a focus on export~

I t a ly Italy's post-WWII industrial strategy was

implicit in the motto, "Italy is poor. Poor Italy, ~ a motto seen as "creating strength through weaknesa ~

The motto meant that Italy would require the patronage of its international allies to meet its domestic economic imperativea Initially, aid came from the US, but later, after its recovery, also from Germany. The fear was that if aid was not forthcoming, the Communist Party might come to power in Italy. To the people of Italy, the Christian Democratic Party (DC) not only

offered its patronage but also offered the fear that ff a different government were to come to power, aid from Italy's allies would not be forthcoming.

At the same time, Italy did create government-owned holding companies (GOHCs) to spearhead its domestic post-war redevelopment in a period of great capital shortage. For an extended period these firms were able to perform effectively and efficiently. The initial success of the Italian GOHGs demonstrates the ability of a government, even one popularly perceived as corrupt and inefficient, to create agencies that perform effectively and efficiently. The state-owned enterprises IRI (industrial and commercial) and ENI (oil and energy) were extensions of the DC~ontrolled government. Both groups of enterprises were widely perceived as competent and efficient, with an orientation toward profit-making while serving the public interest. Their leaders were viewed as national heroes (called condottieri, in reference to the adventurous Renaissance soldiers of fortune)--these views were very much in contrast to the views held about politicians and even the capitalist businessmen of the time.

Two conditions allowed these GOHCs to succeed:an appropriate incentive system including insulation from the influence of the politics of Italy, and market realities. The latter were reflected in the incentive systems that rewarded bureaucrats for performance in competition with private enterprises. Insulation from political influence was achieved in part through multiple sources of funding for the GOHCS, from the financial markets as well as from government.

However, during the recession of 1974-75, political forces became overwhelming. ENI and IRI were forced to bail out private enterprises that could not weather the recession. The incentive systems that had previously led GOHCs to be so successful were lost to patronage, and the GOHCs were caught up in the general quagmire that surrounds large Italian institu- tiona Decades after the end of WWII, 24% of Italy's workforce remained in agriculture, mainly in the South. Even so, Italy's agricultural imports soared over the same period.


Britain Through the 1960s, British post-WWII eco-

nomic policy-mol~ing was dominated by foreign- policy goals more appropriate for an imperial Britain of an earlier day. No politicians in either party could call attention to Britain's decline and hope to be re-elected. With the 1967 devaluation of the pound, however, reality could no longer be ignored. Unfortunately, devaluation at this point came too late. The economy was in disarray from the policies of all of Britain's prior governments, both Tory and Labor. Unemploy- ment was rising, the standard of living was stagnating, and the trade unions increasingly were unwilling to exercise restraint.

The British government's commitment to maintaining the value of the pound essentially as a symbol of power regardless of the economic consequences--appropriate throughout the earlier post-war period, when Britain was the world's banker--was now sorely out of date. It was also pernicious: an overvalued pound crippled Britain's ability to export its gooda The domestic economy also suffered as Britain restrained domestic investment and consumption as the means to manage its balance-of-payments problems This policy was designed to free up resources for exporta The policy was wrong- headed, and it failed- If the tactic had succeeded for a time, it would have re-established an overvalued pound, thereby thwarting export growth. Britain's "stop-go ~ economic policies wreaked havoc on the economy and undermined Britain's ability to pursue either its domestic or its gee-political agenda These "stop-go ~ policies made business planning impossible for business decision-makers and resulted in net capital outflows as the British invested elsewhere.

Throughout the period, successive governments effectively abdicated their responsibili- ties, scrupulously maintaining their separation from business and their unwillingness to inter- vene in "its affairs. ~ Instead they called on business and labor to assume what were essentially governmental functions of fighting inflation and improving the business environ- mentmboth matters beyond the control of these private sectors--while blaming them for "living beyond their means ~

Lessons for the US ~ s ~ information about one's own economy

and about the global economy is essential. And since the distribution of information, once it is gathered and analyzed, has a marginal cost near zero, in an efficient economy the price of access to that information by commercial enterprises should also be near zero. Hence, information is most efficiently gathered once, and then sup- plied to all users at a low price. This is a task that can be carried out most efficiently by government with appropriate advice and counsel from other sectors, especially busines&

Second information once gathered must be analyzed by qualified experts to identify trends and relationships, and to establish their signifi- cance. This also is a task that can be efficiently carried out by government. Japan has done this most effectively. France has been second.

Third, consensus around a theme that captures the nation's strategic intent must be developed to provide focus for the nation's effort~ For the Japanese, that was to "Match the Standard of Living of the WestY For the Germans, it was to develop a "Social Market Economy? For the French, it was to "Reform France, then Change the World- ~

Fourth, economic- and technological-policy decisions must be insulated from the influence of day-to-day politics Such decisions must be made based on economic and technological criteria.

Fis any plan must include a forcing function--a catalyst for action and aprocess and institution(s) for delivering it.

PART II Japan is different from other industrialized countries This is a two-edged sword. The Japanese believe that others view the world as they do, while Westerners believe that the Japanese view the world as Westerners do. These false judgments have provided the basis for many a dispute. Contrarily, the Japanese often believe that things Japanese are unique: their rice is "special, ~ and their intestines are longer than those of Westerners Each such belief "explains ~ why Japanese people purchase products made by the Japanese rather than by

64 TECHNOIX)GY TRANSFER Winter 1992

othera For their part, Americans believe as many

myths about the world as they do about Japan. Many Americans believe that "national borders don't matter, ~ "capital markets (always) allocate funds efficiently," "Americans don't try hard enough to be successful in entering Japanese markets," and that "Japan's economy must slow. ~ Very few, if any, of America's rivals in Japan act on the basis of these myths Yet the myths appear to be widely accepted and acted on in the US by both business and government.

The Japanese economy is organized around keiretsu--conglomerates each of which is cen- tered on a major banking institution. The Japanese keiretsu firms achieve lower risk through broad industrial diversificatiorL The keiretsu bank serves as a focal point through which resources are re-allocated to new, more productive industrial sectors and away from less productive or declining sectora This structure has proven to be ideal for creating strong, competitively structured domestic industry. But it has also been ideal for direct, powerful influence by the Japanese economic ministries, especially MITI, through its "administrative guidance, ~ and the Ministry of Finance (MOF). The Bank of Japan's backing to the city banks, the heart of the keiretsu, further supports and influences the development of the Japanese economy.

The firms making up a given keiretsu have joint stock cross-ownership, a major source of stability even during times of rapid economic development and change. The government- industry partnership achieves diversification, stability, and financial back-stopping. Together they also reduce the cost of capital to Japanese industry.

To these structural phenomena must be added a number of cultural factors that further tip the scales in favor of Japanese industry. Perhaps the most important is a difference in the meaning of the word "open" as it applies to markets and trade. For the US, a market is "open" when it requires no action by government other than overseeing generally applied rulea This contrasts with the Japanese culture in which all matters require government permis-

sion or notification unless they are specifically exempted from government oversight. In the US, all matters are permitted Imless specifically prohibited; in Japan, all matters are prohibited unless specifically permitted.

Thus,. the Japanese genuinely believe that a market is "open" when it is dealt with in the standard Japanese fashion requiring step-by- step permissions Clearly, such a market fails to meet the American definition of "opera" This difference in perceptions of the meaning of a word has been at the root of trade disputes throughout the post-WWII period.

A second cultural factor is the lifetime employment system within the Japanese ministries (as well as its large industry). Traditionally the "best and brightest" graduates of Tokyo University and to a lesser extent, other imperial colleges, have sought their careers in government ministriea This has meant that US negotiators, whose careers generally follow a "revolving door" pattern (from industry to government and back to industry), face true professionals On the Japanese side of the table are arrayed negotiators with information and staff support in depth. Many of the Japanese negotiators have participated in similar negotia- tions over decades, first as observers, and then as participants Seldom on the American side will one find participants with service extending beyond two yeara "Institutional memory" can be almost totally lacking on the US side. This helps to explain how the US can trumpet "success" in a negotiation which promises less than had been promised on the same subject in a prior negotiation a few years earlier. Add to this the penchant for the US side to travel, and the result is a heavily jet-lagged American team negotiat- ing on the home turf of their better-prepared Japanese rivala

A number of myths perceived by the Japanese about their trading partners, especially the United States are based on their perception that others are "like them." This view is as idiosyncratic as is Americans' perception of the Japanese. In effect, the Japanese perceive that their US economic rivals operate under the same rules and procedures that the Japanese do, when quite the opposite is the case.


The structure of the Japanese economy has been fundamentally determined by Japanese industrial policy. This was true over the period of the Cold War, and it is true today. Although the overall US economy continues to maintain a productivity lead over that of Japan, where the Japanese have targeted their industrial policiesmmostl recently on their high-tech industries--Japan has achieved its lead over the U~ Current trends suggest that Japan will increase its lead in these industries of the future. For this situation to be reversed, the US must change its strategy, it is not in the interests of the Japanese to change theirsmbecause they are winning.

PART HI There are direct clashes in approach to important matters between the United States and Japan. A theoretical economic analysis of computer chips as compared to potato chips demonstrates this difference in approaches These two items have taken on symbolic meaning as a metaphor for the Japanese versus the US approach to their economies Japan's policy has been to move its economy from low- productivity to high-productivity sectors through its business-government partnership, which in- cludes government intervention to achieve fundamental structural change. US government policy has been to leave the structure of the economy "to the marketY US government policy does not differentiate between high-productivity sectors, such as those producing computer chips, and low-productivity sectors, such as those producing potato chips This analysis demonstrates why the composition of the economy is a matter that does require the attention of government.

Conflict over the Japanese/American co- development of a next-generation fighter plane, labeled the FSX, further demonstrates the differences between the Japanese and American approaches to economic matters On the Japa- nese side, this national-security-development project embodies an explicit industrial objective. There is no such industrial objective on the US side. This raises the question of which side will win the likely future industrial competition.

The US has not always followed doctrinaire laissez-faire policies Large-scale government efforts were focused on the construction of the transcontinental railroads in the 1800s and on the creation and functioning of the US Depart- ment of Agriculture at the beginning of this century; at that time agriculture was the largest American industry. Post-WWII approaches in- cluded the National Defense Highway Act of 1956, the National Education Act following Sputnik, and perhaps most importantly, the GI Bill of Rights The Defense Advanced Research Projects Agency is an unusually effective American government agency that has influ- enced the development of high-technology industries, including the computer and (along with NASA) the aerospace industries Perhaps the greatest weakness of past US industrial policies has been their lack of coherence and overall objectives,

A specific example of major American industrial policy is its anti-trust policy. Under today's conditions of global markets, we recom- mend a minor modification to permit American firms to engage in joint manufacturing under carefully controlled conditions This is necessary to permit the US to re-enter a number of markets, including those from which it has been driven by policies of foreign actors, especially the Japanese. Firms of other nations are not subject to such restrictions

Two important economic areas cry out for incorporation into a coherent strategy to improve the competitiveness of US industry. The first is the deteriorating American infrastructure which is now recognized as a significant contributing cause of lagging US industrial productivity. The second is the proposed free- trade area (FTA) with Mexico to extend the prior US-Canada FTA into a North American FTA.

The deterioration of the American infrastructure needs to he reversed. Such a reversal would provide an enormous opportunity to implement coherent government-industry policies The proposed FTA with Mexico also offers an opportunity for such coherence, but is also fraught with danger. In the absence of a long- run strategy similar to that employed by the US during the Cold War, it will be difficult to sort

66 TECHNOLOGY TRANSFER Winter 1992

opportunity from danger, or to assure that the opportunities are seized and the dangers avoided.

PART IV We propose a new agency to provide this country with the coherence its industrial strategies require. The agency might be called the Board of Industrial and Economic Strategy (BIES). Its structure would be patterned on that of the Federal Reserve Board (FED) whose members are appointed to staggered 14-year terma The objective is to establish an agency free from day- to-day politics and sufficiently autonomous to make rational decisions regarding national industrial priorities.

Initially, BIES would lack the credibility that has been established over the decades by Japan's economic ministries. Rather, its credibility will need to be established through the competence and expertise of its initial appoin-

tees. To this end, we suggest as possibilities Robert Galvin, former CEO of Motorola, Paul Voelker, former chairman of the FED, and persons of similar qualifications as initial members. To provide for future continuity, we suggest the development of a Civilian Officers Training Corps (COTC) modeled after the ROTC as a "West Point ~ for government service. Institutions such as the North American Devel- opment Bank could provide a necessary "forcing function. ~

There is no problem identifying potential target industries for initial actions by BIES. BIES can busy itself by focusing on the 22 technologies that are identified by the Bush Administration as critical to both civilian and defense needa BIES can spearhead the efforts to re-establish this nation as a competitive participant in the industries supported by these vital technologiea

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THE STORY BEHIND THE PAPER

This White Paper is the product of a class (under direction of Prof. Alan I~ McAdams) studying the international competitiveness of various countries around the world. As we prepare to leave Cornell University's S.C. Johnson Graduate School of Management to enter the world of business, we have developed serious concerns about the environment we will enter and about this nation's future--as well as our own. We believe that our extensive analysis of Japan, Germany, France, Britain, and Italy during periods of high growth as well as decline, combined with our other studies at business school, provide us with insights on issues involving international economic competitiveness. In addition, we have come to understand better the role that the United States plays in the world as an economic and political leader and the assumptions upon which that role is based. And finally, we have become acutely aware that the United States' role as leader of the economic "New World Order" is in jeopardy.

Who are we? We are 29 students out of a course of 44. Our concentrations are evenly distributed among operations, marketing, finance, and international business. Two-thirds of us will be graduating and heading out to join the workforce this May. Many of us are Americans, but others of us are from Belgium, France, Korea, and Japan. Regardless of our national origin, we all believe that the United States has an extremely important role to play in the international community, and that its ability to perform that role is in jeopardy due to the declining competitiveness of our high technology industries

It would be difficult to find a pattern in our demographic makeup. We range in age from twenty-two to forty. We were raised in virtually every corner of the United States as well as various countries around the world. One third of the group members are married, and about half of those have children.

We received our undergraduate degrees in the arts and sciences from private schools as small as Middlebury College and as large as

state schools such as the University of Michi- gan. We studied not only business and econom- ics, but also engineering, political science, physics, geology, and international relations Among us we also have graduate-degree holders in engineering, public affairs, and law.

Our employment backgrounds are as di- verse as our educational backgrounds, if not more so. We have worked in aerospace, steel, and information technology. We have been bankers, consultants, and educators We are very much aware of what it is like to work for a country's leading companies, and we have seen their competition at very close range. We worked for companies that are in the heat of international battle, like General Motors and Xerox, and we have worked as consultants in Eastern Europe, as bankers in Latin America, as engineers in Germany, and as US embassy military attachds in Pakista~ We have served in the military around the world over the past decade. We also have experience in government ranging from work on high-tech defense contracts, to election campaigns, to courts of law, to a governor's office.

We are concerned about the ability of the United States to maintain its position as a world leader. We are worried about America's declining infrastructure, its inadequate educational system, and the hollowing of American corporations So, before we move on to the corporate world, we want to take this opportunity to let you know what we are thinking, and what we believe can be done about it. It's our future--and yours

Contributors Peter Atkins, Greg Bagley, J im Bartoo, Michael Bayer, David Beatty, David Brown, Terry Cook, Reggie Fairchild, David Foster, Bruno Gentfl, Gordon Goetzmann, Michael Green, Jim Hamann, Rustom Irani, Greg Lee, Lynn Little, Jim Mariani, Tom McGuire, Doug Merrill, Gentaro Murakami, Todd Nalven, Taisuke Nomura, Doug Paul, Joe Rodriguez, Stephen Silver, Howard Suskind, Mitsuhiro Tsuchiya, Mike Wais, Jeff Wright, Jonathan Zaremski.

project usa: american competitiveness and what must be done to restore it

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