Prosperity: The Coming 20-year Boom and What It Means to You. - book reviews

Washington Monthly, May, 1998 by Dani Rodrik

by Bob Davis and David Wessel Times Books, $27.50

Pat Buchanan has a mission: He wants to make protectionism respectable. The American public, he thinks, is being fed a pack of lies about international trade and its consequences. The perpetrators are politicians who ignore the lessons of American history, cosmopolitan economists who disregard facts in favor of theories, and a coterie of business elites who lack any sense of patriotic duty. The victims are the working people of America who have fallen on hard times -- and for whom worse lies ahead unless the economic nationalism that made this country great is reinstated.

So goes the argument of Buchanan's new book, The Great Betrayal. This is unlikely to come as a surprise, unless you happen to have been on a different planet during the last two presidential campaigns and have never heard of CNN. Buchanan's fiery mix of conservative populism has long made him a household name. But this book is more than an ordinary political manifesto. It is Buchanan's attempt to rewrite American history through the prism of the import tariff Buchanan wants to take on the scribes who cherish free trade on their own turf. Hence a book packed with charts, footnotes, and references to the works of economists, living and dead.

Buchanan's interpretation of American history is straightforward: Great things happened whenever the United States raised its tariffs on imports. Washington, Hamilton, and Madison all "abhorred `free trade,'" Jefferson "ended his days as fierce an economic nationalist as Andrew Jackson," and Lincoln was "America's Great Protectionist." Import tariffs stood at 40 to 50 percent as America caught up with and surpassed Europe in manufacturing production during the five decades before World War I. The Smoot-Hawley tariff of 1930 was not the highest in American history -- that honor belongs to the Tariff of Abominations of 1828 -- and in any case did not play a significant role in the Great Depression.

Buchanan thinks America's protectionist past should be the beacon for its future. He would like to see the U.S. declare its economic independence by imposing a 15 percent tariff on all imports that compete with domestic production. (Canada would be exempt provided it too adopted the 15 percent tariff.) But that is just the beginning. Developing countries would be hit by additional tariffs aimed at equalizing labor costs and calibrated to their wage differential with the U.S. Japan would also face special tariffs, unless Japanese companies were to shift auto production en masse to the U.S. China would be denied most-favored-nation status, NAFTA would be renegotiated, and membership in the World Trade Organization would be withdrawn.

The trouble with Buchanan's vision is the blind spots. Buchanan's account makes it seem as if unpatriotic fat cats are the only ones who benefit from trade. He remains silent about the millions of workers who are employed in export-related industries, and whose livelihood would necessarily be threatened by a policy of economic nationalism. He is also silent about technological change, which is a much greater source of job churning and dislocation than trade. It is not clear what Buchanan's blueprint has to offer, say, the 37-year old high-school graduate who is unable to find a job paying more than the minimum wage after the video store that he used to manage closes. In practice this kind of job loss -- due to shifts in consumer demands or in technology -- overwhelms any that might be associated with import competition. For the bulk of displaced workers, there is very little to soften the blow in Buchanan's "humane economy" with its high tariffs but otherwise no government role in providing safety nets and educational opportunities.

The example of the video store manager is taken from the book by Bob Davis and David Wessel, Prosperity. Davis and Wessel are two Wall Street Journal reporters who think Buchanan and the other prophets of doom have got it exactly backward. They believe that we are about to enter a period of prosperity that will boost the nation's productivity and raise the incomes of the middle class.

Why the optimism? First, the revolution in information technology will finally show up in the productivity numbers. Second, community colleges will provide less-skilled workers with the education and training needed to work with the new technologies. And third, globalization -- far from squeezing the middle class a la Buchanan -- will open up new employment opportunities and raise the wages of U.S. workers. Technology, education, and globalization will combine to open a new golden era for the American economy.

On the face of it, Davis and Wessel's consummate optimism is easy to ridicule, but if you can get beyond the first few pages, you'll find yourself less of a skeptic by the end of the book. The two authors have done their homework. Their claims are based on a close reading of the economics literature and are buttressed by extensive interviewing. The idea that computers will soon give rise to a much-delayed productivity boom, for example, draws on Stanford economic historian Paul David's analogy with the gradual introduction of electricity in the nation's factories during the early part of the century. It is also nicely illustrated by the story of Maytag Corp.'s early years in Newton, Iowa, based on interviews with several surviving Maytag employees. The claims on education and globalization are also developed convincingly, combining insights from the academic literature with anecdotes from the lives of real people.