No Progress Without Pain

By Charles Alexander

M.I. T.'s Lester Thurow offers some hard economic choices

A major issue in this year's presidential campaign is the poor performance of the American economy. Carter, Reagan and Anderson have all offered vote-catching solutions for the problems of inflation, unemployment, energy shortages and declining productivity. Will the results match the rhetoric? "Not a chance," says M.I.T. Economist Lester C. Thurow. "Everybody is looking for a magic button, and there isn't one."

In one of the most provocative economic books of the year, The Zero-Sum Society (Basic Books; $12.95), Thurow, 42, analyzes the present U.S. economic paralysis. Instead of magic buttons, he offers stringent challenges: lower levels of personal consumption, some higher taxes and less Government aid to failing companies. Thurow's solutions for the nation's ills are based on a concept borrowed from games' theory called the zero-sum game: if someone wins, someone else will have to lose. Poker, for example, is a zero-sum game. If builders beat inflation by using low-cost foreign steel, some American steelworkers will lose their jobs. Higher oil prices will encourage Exxon to explore for new domestic energy sources, but motorists will have to pay more for gasoline. In short, America's economic problems can be solved, but not without hurting some group in society.

An organization of Texas businessmen a few weeks ago invited Thurow to speak to them, but first asked whether he was a liberal or a conservative. The answer: A little of both. An adviser to Democratic Senator George McGovern during the 1972 presidential campaign, Thurow believes in such traditional liberal remedies as stiff inheritance taxes and large public works programs. At the same time, he favors less government regulation. Said Thurow last week: "It's not a simple world. The economy needs less government in some areas and more in others."

In Thurow's analysis, the Government is largely responsible for the economic malaise because it cannot or will not resist growing demands by Americans for a risk-free society. Workers want guaranteed jobs with high salaries, and bosses want certain profits. Argues Thurow: "We have tried to combine economic progress with economic security. Everyone wants both, but everyone cannot have both." The result has been an undynamic economy with sluggish growth and chronically high inflation.

Thurow deplores the Federal Government's efforts to bail out ailing firms like Chrysler. Rather than prop up inefficient companies, Thurow believes, Government funds should flow into fields where the U.S. has a competitive advantage over such countries as Japan and West Germany. Examples: computer chips and agriculture. At the same time, Congress should give generous assistance in retraining and relocating displaced workers in older industries like steel. Says he: "We must strengthen the economic safety net for individuals, but pull it out from under companies."

Thurow also places blame on the shortsighted views of many American businessmen. With shareholders peering over their shoulders, company chiefs too often focus on this quarter's profits, while neglecting long-term investment and planning. By contrast, Japanese managers look ten to 15 years ahead and are willing to sacrifice current earnings for long-run payoffs. As an example, Thurow notes that Nissan Motor Co., the maker of Datsun, lost money in the U.S. for years while it was cultivating the American market. But the company stayed the course, and has become phenomenally successful: its car and truck sales in this country have soared from 1,640 in 1960 to a projected 600,000 this year.

The M.I.T. economist has a controversial plan for rebuilding American business: setting up a national investment committee to pick and support the economy's winners. The group might authorize Government loan guarantees to farm-equipment and chemical companies for research into ways of growing more export crops. Small telecommunications firms could receive the funds needed to compete in the vast world market for information transmission devices from picture phones to satellites. Thurow argues that without such Government aid as price guarantees, some vital industries--synthetic fuel production, for example--would never emerge.

Members of Thurow's proposed investment committee would be recently retired leaders of industry, labor and politics. Those still active, he says, are more concerned with preserving the economic status quo than with opening new fields. Thurow last week dismissed President Carter's proposed Economic Revitalization Board, which will be headed by Du Pont Chairman Irving Shapiro and AFL-CIO Chief Lane Kirkland, as "a prop-up-the-losers approach."

Thurow would encourage research and investment in new technologies by ending the corporate income tax. To offset the Treasury's revenue loss, stockholders would pay a tax on their share of the company's retained earnings as well as on their dividends. Thurow urges that most antitrust laws be wiped off the books. He cites the eleven-year-old Government battle to dismantle IBM as a monumental waste of legal talent and money. Contends Thurow: "The breakup of IBM would benefit no one except the Japanese computer makers." He also favors the growth of giant conglomerates, which he says would readily shift workers and capital from low-to high-productivity jobs within the same company.

Many economists admire Thurow's analysis of the dilemma, but challenge his solutions. Their chief complaint: he would concentrate even more power in Washington. Says Economist George Gilder of the International Center for Economic Policy Studies: "It is difficult to see how Big Government can break the impasse if Big Government is the impasse." Thurow, however, says that his purpose is not so much to provide answers as to show that tough decisions are inevitable. Says he: "The theme for the 1980s will be: all stress, much strain." Only forceful political leadership can ensure that this stress and strain will result in a renewal of American economic vigor.

--By Charles Alexander

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