(00:00:00) A few months ago some of you may have heard an interesting speech from the City Club of Cleveland by Economist Lester. Thurow quite a number of you called the station to ask us to run it again, which we did we also asked dr. Throw if he would join us for a Colin program some time. He graciously agreed. And today is the day Lester. Thurow joins us by satellite from station WGBH in Boston and I bid you good day sir. It's nice to be here. Let's do thorough is the dean of the Sloan School of Management at the Massachusetts Institute of Technology, and he is known throughout the world as one of this country's leading economists. He's the author of a dozen books and is written one of the rare books about economics that made the bestseller list. It was called the zero-sum society Lester. Thurow is out with a new book now called head-to-head the coming economic battle among Japan Europe and America must you throw has been a contributing editor at Newsweek magazine and a member of the editorial board of the New York Times as well. I guess we got to start out with the most obvious item in the news which is obviously the riots in Los Angeles lot of questions raised since that time about the ability of the US economy to provide jobs for people who need them and a particular concern about jobs in the inner cities. Why do you think there aren't very many jobs available in the inner city areas. Well, basically in the 1980s we were losing out on high wage Industries. We generate a lot of jobs almost 20 million, but almost all of them were jobs that pay wages significantly below the average and in your it comes back to a problem. If you look at the world economy as I try and outlining this new book head-to-head if you take what everybody believes to be the high wage Industries, everybody else in the world has a strategy for conquering those Industries. We've kind of played the laissez-faire game in the 1980s and said well, it's up to Private Business to conquer those Industries. Well, the fact of the matter is private businesses have gotten driven out of those Industries and when they get driven out of the industry's Americans lose the opportunity for highways jobs. Now part of the reason that American firms have been unsuccessful in those Industries. And of course part of the reasons why our Central cities have such problems is if you don't have a skilled Workforce, you can't compete and see nobody's going to locate in the Central City of America unless you can guarantee them a skilled Workforce and at the moment you can guarantee that they wouldn't have a skilled Workforce if they located in our Central cities and so before you can get any businesses to go into these areas with high wage jobs. You're first going to have to offer them a world-class Workforce Now the best way to see the problem is General Motors makes Pontiacs in Korea, you know, if you're an American worker there only two things you can offer General Motors you can offer to work for wages less than Korean wages, or you can offer skills higher than Korean skills. And if you don't have the skills, you will end up having to make work for wages below those in the rest of the world. And if you take the 29 percent of the American population that doesn't graduate from high school. That's a third-world Workforce and you'll be paid third-world wages, even though you live in the United States if you have Third World skills, do you think we are at the point where we might as well kiss the manufacturing economy. Say goodbye in this country. No, I don't think we can afford to do that. But the fact of the matter is that the remedy for the manufacturing economy in some sense is in the education system and in the skills, we put into that education After People graduate from high school and see one of the problems you have here, especially with blacks is if you I wrote a book called poverty and discrimination in the late 1960s and at that time it was true as if you looked at black relative to White in comes the group of blacks that were discriminated against most where those with a college education the more skills you had the more you were in some sense punished and so for a hundred years, we basically told blacks don't get skills don't educate get education now, I think that world has changed in the last 20 years, but the fact of the matter is attitudes haven't changed and you know, would you go off and invest in getting yourself some skills and education where you know for a hundred years. It hasn't paid off. I think one of the things we're going to have to do is put some kind of guaranteed rewards out there saying look if you come up to certain skill levels, we can almost guarantee you that there's a good job at They're in because nobody's going to believe you unless you put some kind of a guarantee into the system Lester. Thurow with us today on a satellite link from Boston as we talk about the role of America in the world economy in the 1990s. And on into the 21st century. How can we doctor thorough compete with Nations who have these laborers were willing to work for what? We would consider an embarrassing wage countries, which whose governments collaborate with their Industries countries, which allow companies to collaborate in ways that we would consider anti-competitive monopolistic. What are we to do about that? Well, first of all, our trade problem is not with countries that pay low wages. We have the big deficits with Japan and Germany. They pay wages higher than what we pay in the United States. The second part of course is the way you compete with Mexico is by having more skills in the New Mexicans have so that you do unskilled activities in Mexico, but you do skilled activities in the United States, and now the Things you refer to is basically you and I live in a world where we're going to have to learn that some things were going to change in America simply because the rest of the world says you can't survive if you insist on doing it that way some of our antitrust laws for example are just absolutely obsolete because they pretend like America is an isolated National economy in the rest of the world doesn't exist. For example, it's perfectly legal for Toyota and General Motors to have a joint production facility in California designed to drive Ford out of business, but it would not be perfectly legal legal for Ford and General Motors to have a joint production facility designed to drive Toyota at a business. That's how Yoda and afford are approximately the same size. That's a crazy law, but we can't blame the Japanese for that. We have to change the American economy and see we're now in a world where we're going to have to look at the rest of the world come back and change American rules and regulations simply because the rest of the world says You must number of folks on the line with questions, dr. Lester thurow with us on the satellite from Boston today, and we'll take your question. First. Go ahead. (00:05:57) Please good afternoon doctor. Could you please describe briefly if possible the biggest mistake that the last 12 years Administration have wrought on the economic condition of our country and try to describe how they could most easily go about correcting that mistake. (00:06:18) Well, the biggest problem we have in America is we've simply been investing Less in the future than any other society and it's completely consistent across the economy business firms put less money into plant and equipment in the 80s than they did in the 70s government's put less money into infrastructure in the 80s than they did in the 70s and in the 60s both governments and Private Industry put less money into our civilian R&D. And if you look at our skill system, we haven't really cut back on the spending in the skill system, but we're Miss organized and we're just not producing at the level at which the rest of the world is producing. And so I think you know the real problem in the 1980s is in some sense. We forgot about the 1990s. It was every man for himself. Look at this. Running forget about the future and see if you say what kind of Investments were people making in the 80s to make themselves successful in the 21st century. The answer is at all levels Americans were simply under vet investing compared to what people in the rest of the world does did you know the and that's where we need some leadership to point ourselves at the reality Americans don't want to go down the tubes, but we were acting in the 1980s as if that's what we did want to do. How do we as a nation get to be more of investing? Well, I think that's that's a case where we're going to have to change some government rules and regulations. For example, if you take the 60-month no down payment car loan. Nobody else in the world has that kind of thing some of those credit risk Provisions are just going to have to be restricted. We can't afford to run a 450 billion dollar government deficit because that's money taken out of investment used to finance public consumption and everybody knows how we going to cure that deficit we're going to do it partly by raising taxes and partly by cutting government spending. That's what Senator Rudman from New Hampshire said when he resigned from the Senate and frustration and Senator Conrad from New York North Dakota said when he resigned from the senate in frustration the idea that we're going to do it all by cutting government spending are all by raising taxes is crazy. We all know we're not going to do that. And so the question is can we get down to it? And in some sense rebuild the system see a few years ago President Bush was fond of saying Americans have more will than wallet. He got it exactly backwards. We got lots of wallet, but we got no will to get organized and I suspect a lot of people would say. Well that's Just Ducky as long as you don't raise my taxes or cut the programs benefit me. Well, that's what we've all been saying is that Americans and of course, that's why we've been digging digging ourselves a deeper and deeper hole during the 1980s. Something's got to change. And if everybody in America says it isn't me then obviously we get ourselves Frozen in the long run. We can't compete you see it not just in government spending but you know take what people refer to as the NIMBY syndrome not in my backyard. Everybody wants in America wants prisons, but not in my backyard everybody in America wants electricity, but no power plants in my backyard. But in America generates garbage, but no garbage dumps in my backyard. And the fact of the matter is we have to have a society where you do those things that are necessary to run a society and if we all say not in my backyard the answer is we're not going to have a world class Society. So a lot of the answer does boil down to a matter of individual responsibility, doesn't it? Well, I think it's individual responsibility, which is then built into teamwork see one of the problems in the 80 is we sold individualism to the exclusion of teamwork and a question is not all individualism or all team works. But how do you get the right mixture and see if you think of the societies that are beating us in international economics like Japan and Germany, neither one of those societies are basically individualistic Lone Ranger societies what they are societies that put an enormous emphasis on teamwork now, we'll probably never go as far as the Japanese are the Germans in terms of emphasizing teamwork, but we got to go partly in that direction. One of the things I point out in this new book as far as I can figure out North America is the only place in the world where you have Halls of Fame. We have Halls of Fame for sports stars rock stars businessmen almost everything. You don't have any Halls of Fame in Japan. You don't have any Halls of Fame in Europe. This is an American phenomenon, and it's fine to sing praises to the individual. But at some point we got to recognize the team component in this effort Lester. Thurow with us today dean of the Sloan School of Management at the Massachusetts Institute of Technology. It's about 15 minutes past the hour and your turn to put a question to him. Go ahead, (00:10:26) please. Hello. Dr. Throw. What's your outlook for the 90s given the end of the Cold War which should allow us to take the scientific and Technical Resources that we devoted to the military and apply them to civilian purposes. But on the other hand, we've got a four trillion dollar national debt, which makes me think that at some point to pay it off or going to have another huge inflation like we had in the 1970s. What are your thoughts? (00:10:50) Thank you. Well, we're not going to pay off the national debt. The problem is to get the annual deficit out of the system. The way the national debt is going to be handled if we It right is will quit adding to the national debt will make the American economy bigger in as a proportion of that American economy. The national debt will eventually fall. That's what we've done historically up until the 1980s debts would go up during wartime and then they would be pulled down in peacetime not by repaying the debt, but basically by making the economy grow The Peculiar thing about the 80s is it was a period of Peace time and we were building up these huge deficits. Now if you look at the 90s, we have a little we have two pieces of good luck for the next two or three years both Germany and Japan have other things to do with their money rather than to make themselves more internationally competitive. The Germans are going to put their money into East Germany and rebuilding it and because of the speculative bubble in Japan the Japanese are going to be spending some of their money cleaning up the mess and so you and I have two or three years to do that kind of reallocation that you talked about from the military. We were putting not just a lot of monetary resources into the military. The more important thing is we were putting a lot of skilled people and it question is can you read Deploy, those skilled people in your civilian economy and make it stronger, but that won't happen by accident. If you look at the period after World War took it took a plan and a strategy to bring down the size of the military industrial complex and boost the civilian economy. Simply firing the people in the military area doesn't do much good all by itself. What do you think the odds are that will simply inflate our way out of the debt problem? No, I don't think there are any odds of that see the interesting thing in at the moment. If you went around the world and looked at almost every product semiconductor chips automobiles textiles farm products, whatever instead how much could the world produce if every Factory was producing it capacity. The answer is we can produce about three times as much of anything. You can name as the world's going to buy and with all that excess capacity. There's no danger of inflation in the next few years almost regardless of what else happens. Dr. Lester. Thurow with us today back to the phones and York turn go ahead, please. (00:12:56) Thank you. Say American company started moving overseas. Mostly to the Pacific Rim back in the 1970s and of course continued through the 80s and during that time, of course the unions began to shrink. Now. My question is what do you see as the future of the unions and on the world can people live on minimum wages in this country? (00:13:19) Well, the answer is they can't live on minimum wages, but the answer also is that unions can't get your wages up in a world economy. What unions have to focus on is skill training and what they have to be negotiating with companies about is skill training because wages are going to be set on a worldwide basis and the only thing you can do to help your members is make them higher skilled workers so that they come in and hire skilled categories. And so I think this is one of the places where unions need to refocus see if you look at the caterpillar strike of a few weeks ago. That was a perfect example of the problem caterpillar was saying we don't care what John Deere does. Our competition is Komatsu and therefore we have to have conditions that match Komatsu and that's certainly true. Other hand one of the great advantages of Komatsu is it has a more skilled Workforce? And so if you're the caterpillar Union, you have to be saying. All right. I want I may not be able to negotiate with the company on wages, but I can negotiate on skills. And if I get skill training up at caterpillar then we'll get wages up at caterpillar Japan Europe and America the three Powerhouse economies of the 21st century. Which one do you think is going to emerge on top? Well at the End of This Book I have a chapter called who will own the 21st century and I say basically the Europeans have the best position on the economic chessboard, you know, if you think about it on January 1st, 1993, the European economy will have 380 million people in it. That's as many as Japan plus the United States combined now the per capita income in Europe is not as high as it is in the United States, but part of Europe like Switzerland have a per capita income as high or higher than that in the United States, you know in the long run Russia's a genuine High science Society Germans of he's a production export leader the You're very good in fashion. The Italians lead the world in design and you got a world Capital Market in London. If you can put all those things together in a positive way. You can build something in Europe that cannot be matched in North America and cannot be matched in Japan. Now, that's a big if but they basically have the winning position on the chessboard. They may not be able to play it to win. But the position is there's to lose Lester. Thurow his new book is called head-to-head the coming economic battle among Japan Europe and America next question from you. Where you calling from. (00:15:29) I'm calling from Hudson, (00:15:30) Wisconsin. We had please (00:15:33) I just had a comment about the very first part of the program when Your guest was speaking about trying to get more jobs for the people that live in the inner city. And that one way to do it would be if they would go on for further education than promised them some type of job or place of employment. Once they complete that you know, that sounds like a real good idea, but people have problems getting jobs all over I have friends and relatives who have gone through Technical Training college and once that's completed it's not easy to get a job for anybody and (00:16:18) any further thoughts on that then dr. Thorough. Well, the answer is we clearly if you're going to do that for inner cities, you'd have to do it for everybody and in the basic problem is education by itself doesn't work unless you also have a strategy for getting some of these expanding High wage Industries and that involves more than education involves some Rd, you know, if Bob's dealing with the word that Americans don't like to deal with industrial policies aircraft manufacturing is a high-wage industry. But American aircraft manufacturing companies are either losing market share Boeing or getting driven out of business McDonnell Douglas by Airbus Industries, which is owned by the British French German and Spanish government's you know, what do you do about a government company that's trying to capture one of your big Industries now currently Americans yell scream and shout and accuse the Europeans of cheating but the fact of the matter is they're not violating any treaty. We there anybody else has ever signed their simply playing football differently and you and I are going to learn to play a different economic game because the rest of the world's going to say to us either learn to play the game our way or you will fail now we Americans have been used to a world where we could just assume everybody would learn to play at the American way. We're now going to learn to play at the German way. We're going to learn to play at the Japanese way and if we refuse to play the German and Japanese way, we will simply be beaten one is one of the arguments against the so-called Industrial Is that government has done a fairly lousy job of managing public affairs? How can we justifiably let government pick winners and losers among different types of Industries. Well, when people talk about industrial policies, it doesn't have anything to do necessarily with government picking winners and losers for example in Europe. They have decided that they're five or six hot technical industries that are going to grow a lot and they have designed public R&D programs for each of these industries. They have acronyms Like Jesse Eureka Esprit Vision 2500, each of these programs running approximately the same way the government say look, there's a pot of research money for this particular area or a technology if three companies from two different countries will March through the door with half the money we will match that and so the companies are picking winners and losers but the gullet government is multiplying their Effects by giving him a research budget that's twice as big now. That's not the government picking winners and losers but it isn't it is an industrial policy. Back to the phones and more questions for dr. Lester. Thurow you're on with him. Thanks for (00:18:41) waiting. Yes, I'd appreciate a comment from my Economist of choice as an education reform over the past 50 years. I have been distinguishing between a school society and an educated one. It seems to me that America is really a school population. It's difficult for me to believe that an educated society would behave the way this one does and so since education begins at Birth and ends at death and schooling begins at what our dates are coded in law. Do you would you help in making this distinguishing Nationwide between education and (00:19:20) schooling? Well it certainly, you know, if you think of schooling big being K through 12 education, we certainly need a lot besides that, you know everywhere else in the world. There's a post-secondary education system for the people who do not go to college a skill training system. That just doesn't exist in the United States. Now on the other hand, you've got to have an education system a school system that turns out people who can read write do arithmetic do all those kind of things. And so there's an important role for school in the education system, but it's certainly true that the education system extends far beyond just K through 12 education another listener question here for dr. Lester. Thurow. Go ahead, please. Where are you calling from? Yes (00:20:03) in your speech that you gave dr. Thorough. I remember that you came down a whore on the American education system particularly the local school boards, and I was wondering what you see needs to change and how are we going to get it to (00:20:16) change? Well see the basic problem with local school boards and their fifteen thousand and four of them in the United States is they won't set a quality standard. They almost can't because you can't flunk a lot of kids or you won't get reelected more than half. The people who vote don't have kids the kids go and work in somebody else's City. Anyway business firms won't locate if you try and collect taxes and running. Fine school system, you know if local school boards were the way to run schools. It would be reasonable that one of these fifteen thousand and four annual experiments turn out kids at the high school level who could pass the European or Japanese examinations. Nobody does and see one of the things were very reluctant to do is sit back and say if something fails maybe it's a problem that the system is designed wrong. What we do in the United States is try and find the devil. So in the 1980s the financial system doesn't work we throw mr. Milliken and mr. Keating in jail, and we feel better about it. Well, we've done the same thing in the education system we say well the trick is Merit pay or it's this or that the fact is that we know we have an organizational structure that does not work because it is not working not just one place but in fifteen thousand places and therefore you have to do some fundamental redesigns now once again in this new book, I had at the end of the last chapter called an American game plan. I have a four-part redesign of the American education system part of the redesign would be paying world class. Ages which means a teacher would make about $50,000 rather than $30,000 because we can't get skilled people in the schools with current wages. But part of the bargain would be to you to work 230 days. Not a hundred eighty Days part of the bargain would bring mean that you bring your school bureaucracy down to Japanese and German levels and the final part of the bargain is that the high wage business community in each area would basically write an exam saying an academic exam saying these are the skills. We need workers to have if they're going to be world class workers. If your children can't pass this exam the answer is there not a high school graduate and won't get a high school graduates job and so don't kid Yourself by letting the local school board passed them. They aren't really high school graduates. How much should I go ahead and I you know, I think it's a four-part what I call a grand bargain like that that would be necessary how much of the problem with the the public elementary and secondary schools has to do with the fact that so many of weaknesses of the family get passed on to the schools. That is say they like yeah see, I think that's a big issue one. Problems is we've used the American school system as a social Dumping Ground when you got a problem, you don't know what to do about it. Throw it to the school system teenage pregnancy driver's training you name it nutrition. It's the school's problem. The answer is a lot of these problems have got to be taken out of the school system and somebody else has got to solve them not the school's I take driver's training. We got private companies who would be perfectly willing to do driver's training driver's training does not belong in our school system. You won't find it in a French school system. You won't find it in a German School System. You won't find it a Japanese school system schools are not in the business of doing driver's training. They're in the business of academic education. And if you think drivers trainings important pass a law saying everybody has to go take a course at a driver's training company, but if little kids come to school without adequate parenting without anything to eat. They're not going to be in much of a position to learn are they owe on some of these things you have to do them. If the family is for failing to live up to in some sense its commitments on the same time. You got to have some social programs that in the long run deal with those family failures. Because if you can't deal with the family failures, the school said the school system cannot really substitute for parents is the brutal fact of the matter. It can be a semi replacement. And if you know, if you don't have some other solution to those family problems there again, you're not you're not going to solve them in the schools. And so you on one level you probably even shouldn't even try. It's about 29 minutes past the hour. Dr. Lester. Thurow is with us head-to-head the coming economic battle among Japan Europe and America is the title of his newest book and he's on the satellite with us today from Boston. Thanks for waiting at your turn. Go (00:24:09) ahead. Dr. Throw. My question is what do you think of Ross Perot is President? And what do you think she is the best and worst potential for his presidency and as a second quick question on a light-hearted note. What do you think of a parole throat ticket has such a nice ring to it? Right (00:24:27) the you know, I think Ross Perot is kind of interesting because he clearly is a very successful businessman who kind of you know, get people organized well, I think the real issue about Ross Perot is you know, he's used to working in a business environment where you give people orders president United States has to persuade people most of the time there's very little order giving and you know, we simply don't know whether Ross Perot would be a good Persuader or a bad Persuader. He might be a good Persuader. We have no evidence. He isn't but he might he might be a horrible Persuader to and so I think you know that that that's the big problem. Now, you know, I think the other problem you have in the American political system is we've set it up in such a way that it becomes a very unattractive system for talented people to want to run for office because you spend 90% of your time raising money. If you're not Ross Perot, which means selling your soul you then give that money to an advertising agency who spends it on these negative ads that you don't have much to do with and then you spend the other 10% of your time trying to show up someplace. Where at a media event where you'll get free television time. Now, that's not a process. It encourages intelligent discussion is not a process which is going to encourage talented people. For president and one of the only reasons that Ross Perot can think about this is you can put a hundred million dollars worth of his own money into it and doesn't have to worry about the fundraising part. Now, you know, that's fine if you're Ross Perot, but you don't want a system where basically only very wealthy people have any chance to run for president or people who are willing to you know, spend all of their time raising money. So what do you do about it? Well there again, you got to come back and change the system. There are lots of ways to change the change the system that you could limit the amount of Television time people can buy a whole set of things that can be done. And in other countries, they've done them but you can't simply say, you know American should reform you've got to be willing to say how do we rebuild the system and make it into a very different system. For example, if you take the negative television ads what the British do is in Britain politicians can't have less than 10 minutes of television time. You can't buy a 30-second ad well 10 in 10 minutes. You can't be negative for 10 minutes. You got to start to say something positive. If you got to talk for ten minutes, you can be negative for 30 seconds, but you can't be negative for 10 minutes while we could have that kind of a Which is politicians basically can't buy 30 second ads. They can buy television time but they got to have something intelligent to say for 10 minutes. What about the parole thorough ticket? Well, I think that's probably a non-starter on both parts. All right, let's move on to our next question. You're here you're on with with the Lester. Thurow. Go ahead, please. (00:26:58) Yes, my name is John wat. I'm calling from Minneapolis and I've been a song a supporter through the caucuses and primaries and and I will be again at the State Convention and I guess my question, you know given that it looks very clear that that Bill Clinton is going to be the nominee my big concern the thing that attracted me to song this was fiscal responsibility and I really had the idea that he would get the house in order. My concern with Bill Clinton is as he tries to consolidate his support in the party. He's reaching out to special interest groups with with programs that I don't you how are they going to be funded? I you know II just don't know whether he's as fiscally responsible and and I'm wondering if you can give me any insight on (00:27:48) that. Well, you know, I think the the basic problem is I mentioned isn't in the long run you and I will be forced to cure the federal budget deficit because of the rest of the we can only run these deficits if the rest of the world lends us the right amount of money and I think we're reaching the point where the rest the world is not going to lend us the right amount of money. And when that time comes I don't care who the president I states are you're going to raise taxes cut spending and do some of these things now the the other problem you've got what you're referring to is, you know, there are some legitimate things out there. We need to increase public spending on see I think we spent too much time in the last decade or two talking about government versus private. That's not the interesting difference the difference ought to be consumption versus investment and some of the investment that needs to be increased as in the public sector infrastructure. Let me think of Chicago for one of ten thousand dollars worth of repairs on a tunnel a of a bitch. Dollars worth of private loss that's Madness but it's going to happen all over America some of the investment that needs to be done is in the private sector conversely. Some of the consumption that needs to be cut is in the public sector some of the consumption needs to be cut as in the private sector, for example, one of the things that Ross Perot talks about that's absolutely right. We've got a not everybody but a large number of people who are elderly who have above average per capita incomes and we can't continue to give them huge sums of money from the taxpayer who was on average poorer than they are and there's got to be a balance here when it comes to Social Security. We can't continue to put 18% 13% of the GNP and to healthcare and nobody else puts more than eight or nine in the rest of the world. We've got to bring our spending on Healthcare down to that of the level of the rest of the world. Our health is not better than the rest of the world. The only thing we do is spend more money on health care. So there are a whole variety of things like that in the end. We're going to have to do and see the problem in the United States is not figuring out what must we do almost everybody knows what we must do and in some Is what we will in fact do in the long run but it's terribly important that we get ourselves organized to do it sooner rather than later. Are there any politicians out there that are giving this message now that you admire? Well, I think the answer is everybody has a bit and piece of it Tsongas for example talked about a growth policy raising savings and investment and we clearly need that mister Clinton talks about the plight of the middle class. Now, he talks a lot about tax cuts, but that's not the cure to the problem of the middle class middle class needs more skills in higher to income before taxes. Jerry Brown talks about the system not working and in some areas he is certainly right President Bush talks about a new world order and there certainly will be a new world order now. I think he thinks the new world order's got our wishes that the New World Order would be 70 percent military and 30% economic when the truth of the matter is it's going to be 98% economic and 2% military. And so if you think of those four candidates, they all have bits and pieces of what I think is wisdom. The question is how do you put it together as a package and manage to get yourself elected? Because he every politician in the remember in America knows Winston Churchill's dictum the dictum was if you're if you're not elected, you're not a Statesman you can't be a Statesman until you first get elected. That's the truth of the matter. And so there's you know, part of the problem is us if you and I wouldn't pay any attention to negative ads. They wouldn't pay for them. The fact of the matter is you and I do pay attention to the negative ads and therefore we're going to watch him because they're going to pay for anything that you and I will pay attention to back to the phones more questions for dr. Lester. Thurow who is Dean of the Sloan School of Management at Massachusetts Institute of Technology on the satellite from Boston today. Go ahead please where you calling from (00:31:14) going from Wadena Northeastern Minnesota, right? Thank you to both dr. 404 wonderful report an MPR for Kang has address and also this opportunity. Dr. Phil Roe you mentioned that we don't have an industrial policy in this country. It strikes me that we have had a very deliberate industrial policy and that was too Sell everything we know to other countries in order to get those low wages that we now complain about when we built the Aerospace industry by subsidizing military contractors. That was an industrial policy when we control agricultural export prices. That's an industrial policy. When we sell our Timber to Timber companies in this state of Minnesota for less than that would costs to bring down that's a industrial policy. How can we get some honesty on the part of the politicians and the corporation's to tell the American public what their deliberate policy has been (00:32:09) now, you're absolutely right. We obviously have a government that's been involved in the economy. In fact, there was an article in a Japanese magazine recently talking about the American industrial policy versus the Japanese industrial policy and what they said was the American industrial policies. Just loser driven while the Japanese industrial policy is winter driven. For example, we keep New Zealand lamb out of the United States to protect Growers of lamb in America. Well at the same time the Japanese are keeping American amorphous Metals out of Japan that most Americans don't even know what a Morpheus metals are there metals that have some very nice electrical properties and they were invented in America and the Japanese are not letting them in but the Japanese say hey, that's no different than you keeping out New Zealand lamb. The only difference is we've got our eye on the future while you got your eye on the past. And so I think you're absolutely right to America always has had and always will have an industrial policy. The question is whether you have a smart one or a dumb one. Let's take another listener question here at 22 minutes before the hour you're on with dr. Lester. Thurow. Hello. (00:33:07) Hello. Thank you very much. I have two questions for dr. All several. The first one is there have been a couple articles that I've seen over the last six eight months which people have done a little retrospective look at some of your earlier writings and in particular. I remember that in I think the early 80s are mid-80s you wrote very approvingly of the Soviet economy. And I think said that within a very short time the Soviet output would exceed the US. I'm wondering if the same atom Political skills that gave us that comment were used to write this book or have you upgraded your skills before this (00:33:42) one? Well, first of all, I never said that what I did said there was was misquoted by mr. Buckley, which is probably where you got it is if you look at the estimates of the CIA not myself the estimates of the CIA. They estimated that in the 1980's the American economy in the Soviet economy were growing it exactly the same pace and then and what I was then making the comment was that the Soviet economy. If you believe our CIA then obviously did not fall apart because of a failure of its economy. Now, I have never advocated that the central planning was in fact the way to run the Soviet economy or that they were a great success in terms of consumer goods. The only thing I have pointed out it in my writing is that our CIA thinks that they were running approximately even with the United States during the 1980s and your second Point sir (00:34:34) question whenever people comment about the Wings of the US economy. It's very fashionable to talk about executive salaries or the short-term thinking or underpaid teachers or lack of National Health Care, but no one ever at leat posits the possibility that things like comparable worth or affirmative action programs or sensitivity training seminars or extreme Environmental Protection may be causing some of the productivity problems that were experiencing. Are you familiar with anyone who has done any work to look at some of these I don't let's call them the liberal hot buttons that have pretty much pervaded our economy the last 10 20 years to examine what effects that might be having on output and productivity. (00:35:19) Well, some of those things are actually in this new book of mine head-to-head because one of the things I point out is if you look at biotechnology, probably the winner in the biotechnology race will not be the country that has the most phds in biotechnology. The winner will be the country that has the regulatory system that most rapidly approves new drugs. And I also talked in his new book about what people is often referred to as the NIMBY syndrome in the United States where everybody wants prisons but not in my backyard. Everybody wants electricity, but not in my backyard. Everybody generates garbage, but doesn't want a garbage jump in their backyard and there's no question about it some of these some of these things you've got to do if you're going to run a modern industrial economy. And you know, there is a literature on a lot of those things is to how much they cost in terms of productivity. And are you willing to make the trade-off for whatever the gains is in those productivities and some of those things I talked about in this book and a lot of those things are footnoted to and the name of the book by the way is head-to-head the coming economic battle among Japan Europe and America. Thanks for waiting. You're on with Lester (00:36:22) thurow. Hello. This is Mark from North Oaks, which is a suburb of st. Paul. I wanted to take issue with a characterization of the caterpillar strike and then to ask a question. I mean caterpillar invested over two billion dollars in retooling they did an intensive. Cooperating with the Union they improve their quality improved Innovation improve productivity. They were increasing their market share against come out Sue they weren't losing we had here with straight out and out union-busting and I'm concerned that the logic of doctor thoreau's approach is to depress wage levels to those in the most repressive least Democratic regimes in the world, and I'd appreciate a response to (00:37:04) them. No, but I don't think that would that was what was really going on see the quite the question is in the late 70s and early 80's caterpillar was losing a lot of market share to come out. So the question is are you going to get it back and ingested because you've started the process doesn't mean you can let go of it and you know, the real issue I wanted to focus on is this issue of skills and education of the workforce now, I suspect the answer isn't it would be fun to do this and I would love it if employees from Caterpillar willing to do it in employees from come on Sir was willing to do it suppose we gave us Gil test to those two sets of employees would be very interesting to know who is the most skilled. I suspect the answer is to come on soup employees would be the most skilled, but it will be funding put it to the test and find out let's take another listener question. Dr. Lester. Thurow is with us from Boston and you're on hello. (00:37:55) Hello. Thank you for being here. I wish that you would talk some more about skills the kind of skills that you know, no one says what kind of skills these are apparently they don't come from public education. Apparently, they don't come from getting a college education or technical college education. This sounds like in service kind of skills that we need. I'm just wondering if you can talk about what skills are you talking about? What (00:38:22) isn't sure let me give you example in you're absolutely right there skills that basically combined educational skills with skills that you have to basically learn in a place of employment take for example statistical quality control if you want to make semiconductor She got to do certificate quality control now to learn statistical quality control you first have to have some mathematics which is more sophisticated than what you'll get in the ordinary American High School. After that. You have to be taught some simple operations research and every single production and worker has got to be able to do it and if you can do sophistical quality control and if you're in an industry, like semiconductors where that's important, then you can make a successful industry at it. So it's a question of having the combination and having a strategy where you do the other things that allows you to have semiconductor industry where you can take advantage of those skills now semiconductors are very interesting because this is an industry where the Americans have been losing market share over the last decade and a big part of the reason we've been losing market share is that in the United States. It's very hard to find a Workforce that's well educated enough so that you can teach them the skills. They have to learn because if I have to go back and teach you mathematics then it's much more expensive for me teachers just a good quality control and it is for a job. He's who doesn't have to teach you mathematics and the Japanese dominate the industry in the Americans don't and so it's not simply a matter of having skills and you will automatically have a job. It has to be put together as a package of things. Are you doing the right R&D? Do you have the the you know, for example as I mentioned on biotechnology, do you have the right regulatory framework? And yeah any one of these things by themselves is worthless. The question is can you put together a strategic package and see we in the united few say what is the thing Americans do worst? It's think strategically there's a group in Europe called the Davos World economic forum and every year they put out a report called A World competitiveness report and their rating private companies not governments and they what they do is they have a panel people that rate companies from the 23 industrial countries on a variety of Dimensions, but one of the dimensions is what's the ability of the firms in this country to formulate carry out and Implement strategic long-run thinking and That question they rated American firms as they essentially 21 out of 23. The only two countries are believed to be worse than Americans that this were the Greeks and the hungarians, but when the rest of the world thinks you're completely uncapable of thinking strategically, you've got to go back and say to yourself are is the rest of the world completely wrong or are we ready Orton? It's not that Americans are dumb. Are we organized in such a way that we can't do any strategic thinking how would we have to reorganize in order to do that? Well, I think it revolves a whole set of different things at every level. For example, you know, we're used to thinking strategically in military areas and we're geared up to do that. We're interested in benchmarking and Military areas, you know, if the Soviets had two thousand tanks, we wanted three thousand tanks if their missile and within 20 feet ours had to do 15 feet if their submarine stayed underwater two months ours had to stay under water a year. Well, you got to do the same thing. You got to start to understand that strategic thinking is important in the economic area as well as the military area. And then I think it goes all the way from top to bottom local school boards have got to think strategically vis-à-vis a global economy because their kids are going to lose jobs. If some kid in Seoul, Korea is better educated, you know, it isn't it isn't Chicago versus Minneapolis st. Paul it Chicago versus Sendai and the reason I Minneapolis versus Sendai. The reason I mentioned that is a few years ago. There was a very famous study of Education comparing Minneapolis. St. Paul was Sendai Japan and the interesting thing is on all objective measures of performance the children in Sendai Japan were doing a much better job than the children in Minneapolis st. Paul but the parents in Minneapolis st. Paul were much more positive about their school system. Then the parents were in sin Diana and what it meant. Well, of course was that the parents had very low expectations of what good performance was in Minneapolis and st. Paul and so even though performance was better in Sendai the parents more more unhappy because they were setting a higher standard. More folks with questions here for dr. Lester. Thurow dean of the Sloan School of Management at Massachusetts Institute of Technology. Thanks for waiting. You're (00:42:40) on. Yeah. I'm calling II did hear dr. Throat talk about reducing the Social Security benefits cut it or cutting back on that I would like what to know what he thinks about taxing fringe benefits which Go free of taxes. Now taking away the deduction for the interest on mortgages on reducing the limit on the inheritance tax something that has concerned me for some time the transfer of property to Children extending the period when that can be done. (00:43:19) Well see, I think there are a whole set of things here where you have to say, what's the social objective? For example, if you think of the mortgage tax deduction, there may be some some social objective to help people buying their first modest home, but there's no Objective that I know of involving buying your second home. And so one of the things you might say ways. Well, you can have tax deductibility on the first home, but not the second home now at the current thing, you know the limits I think is I remember $100,000 but you know that allows you to buy a home in most parts of America that are substantially above average and so there are that some of these places where we probably ought to cut back if you look at Fringe Benefits, there's nothing now in general in the United States most fringe benefits are in fact taxed the big exception is Healthcare and see here. I think the solution to the Health Care problem is not by changing the tax laws, but here we need a genuine change in the way. We think about the world you depending on Whose estimates you take something on the order of about 40% of American Health Care spending goes to people in the last six months of life. It's basically thrown into hopeless causes and what eat we Americans have to understand is every American's going to die. If something there comes a point where the right thing is to say. We're going to give you painkillers make you feel comfortable, but we're not going to spend another. Thousand dollars giving you a treatments where the probability of working is close to zero and it's those kind of things we're going to have to think about and so I don't think it's just a matter of taxes. It's a matter of a whole set of social procedures Visa be some of the things we do. Here's another listener question for Lester. Thurow. Thanks for waiting. You're on the (00:44:52) air. Oh, yes. I'm calling from st. Paul and I have two items. I like dr. Throw to comment on. The first one would be to comment on our national energy needs and a policy for that and II would be comment on the idea that we have so many Imports such as shoes bicycles and clothing that people could earn more than a minimum wage for and yet they wouldn't require the high-level skills that he mentioned in the semiconductor business and I think that the Imports themselves affect jobs more than the math knowledge and so on. More jobs and I couldn't thank you. (00:45:36) Well, let me come to the second part first. You mentioned a number of things like clothing and bicycles see those are not certainly not high-tech products, but they're now produced by high-tech processes. I can take you to them a modern facility for producing clothing and you might come here to the production headquarters of The Limited North of Boston. You're going to see lasers. You're going to see high definition TV between Boston and Hong Kong on the production side you starting to have enormous skill demands. Let me tell you about some things happening in Japan and bicycles. There's a place you can go in Japan and bicycles which is basically a computer Emporium. So to speak where you go in and on a computer using CAD cam you basically design your own bicycle and then you deliver you a custom-made bicycle 24 hours later for basically the price of a mass made bicycle, you know, the bicycle is not a high-tech product, but the process of making it has become a very high-tech process and so Fact of the matter is even on these simple Goods. If you go to the back side in the production side, they now require just requires skills. They didn't used to require. For example, if you go over to Michigan to Flat Rock, Michigan where Mazda was set up its production headquarters, you will find that they gave intellectual mathematics test to blue-collar assembly line workers that you couldn't pass having graduated from a Michigan high school because they were going to ask workers on the assembly line not just to turn bolts, but to make some reasonably complicated mathematical calculations and the world of unskilled high-wage jobs is just gone and you know, that's one of the things we Americans have to face up to the days when a high school graduate high school dropout can make $20 an hour working in the automobile assembly lines is just over as for a national energy policy. Well on the energy side, you know, the rest of the world looks at us and they think we're mad because everywhere else in the rest of the world where you import oil people have a very large gasoline tax, and if you won't do something simple like again in most of the Gasoline costs between about four dollars and fifty cents a gallon and the difference between their price in our price is taxes. And if you go to Italy at six dollars and fifty cents a gallon and we import 50 percent of our oil we can't afford to pay for it and it would be a sensible thing to make oil a much more expensive commodity which it is in reality. And so the rest of the world when it comes to energy policy just doesn't even take American seriously because they say you guys haven't even faced up to reality back to the phones more questions here in the remaining five or six minutes we have with dr. Lester. Thurow. Thanks for waiting around the air where you calling from (00:48:06) Professor throw. I'm calling from Northfield Minnesota. I'm a student in college and we read your book zero-sum Society from 1980 back in our industrial policy class and it struck me as my question is concerned with where industrial policy in America what branch of government has made in and seems that for most industrial policy. It's made in Congress where special interests and private groups and individuals and all kinds of Interest muck up the S end up creating what you described as a zero-sum society where we can't get off dead center to move in a direction to help the economy. But it seems that America has a model in the way the Department of Defense helps the defense industry. Maybe we could use that as a model to boost America's commercial industry because in defense, we've created the best industry in the world based on a bureaucracy that works with government and Industry instead of antagonistically. What do you think of a plus? (00:48:58) I think that's right and a lot of people have said if you look at DARPA, which is the defendant is going to see if I get the acronym right? It's the defense Advanced research projects agency DARPA where they basically fun a lot of their R&D money through DARPA that that would be a model you could use in the civilian economy. And I think in that sense, that's right, but you may need to design some new models to as opposed to just copying the things we did in defense. Time for a couple more questions here. Let's take you next. Hello there you're on with dr. Lester. (00:49:26) Thurow. Thank you Dean thorough from Golden Valley many years ago, and I was young and foolish. I got myself into a financial bind and I had a choice I could either pay my debts or I could feed my children and I chose the latter the bankruptcy law allowed me to do that. Now, I don't want our country to go bankrupt, but I wonder if it would be feasible if it would not be entirely appropriate for the United States to declare some kind of a moratorium on paying its national debt and perhaps reissue the paper so that instead of a hundred years would have 200 years to pay for it. Whatever the appropriate numbers are but just doesn't seem to me that we can do the things that we need to do in order to be a viable competitor in the Old and pay the percentage of our income that of our of our national product that we are currently paying on the debt now. All (00:50:31) right, sir, let's hear what dr. Throw has to say on that. Well, basically first of all, you have to understand that what we call the national debt is read the federal debt. And most of the national debt is in fact owed to Americans. And so we collect money from one American and we give it to another American the debt you really ought to worry about is the international debt and there's about a thousand billion dollars of that and the problem is that we the Americans owe it to the Germans or the Japanese but there's no easy way to cancel it because that Delta is held in the form that the Japanese own Rockefeller Center. And so when you pay rent to Rockefeller Center a certain proportion of that goes back to Japan the Japanese own Columbia Pictures. So when you go to a movie picture show a certain proportion of the admission charge goes back to Japan and C. We use a word in the international economy debt. That's a little misleading because people assume it's like a bank loan the way we calculate International debt as we take all foreign Assets in the United States. And we subtract from that number All-American own Assets in the rest of the world and at the moment that's about - 1000 billion dollars, but it's not interest payments think it can simply not be made we have time for one more question here for a doctor throw and it's going to be from you. Go ahead, (00:51:37) please. Thank you. I'm calling from the central part of Minnesota. And my question for dr. Thorough is what is his view of short and long-term effect of deregulation of the Airlines and the transportation industry on our economy. I'll hang up and listen. Thank you. (00:51:50) Well, the airline deregulation is one of the places where the economist were involved in it were wrong and nobody else said they were wrong and so we were all equally guilty and that is they thought this would be a competitive industry. The problem was that flying airplanes is a competitive industry, but reservation systems are an intrinsic Monopoly and so American Delta and United have basically been able to use their reservation systems to run many of the other airlines in the United States out of business and put a lot of them like Northwest Airlines under an enormous Financial pressure now, they put probably put themselves. Financial pressure by borrowing too much money, but it didn't turn out the way everybody expected because they didn't see the economies of scale in Monopoly elements in the reservation system. They just said hey anybody can fly airplanes at roughly the same cost and therefore it will be a competitive business. And of course it didn't turn out that way. Now one of the things that affected it was that the Reagan Administration didn't enforce the antitrust laws at local airports. And so you got airports like Minneapolis st. Paul where basically one airline has most of the Lake Landing and takeoff slots doctor throw we have just about a minute left as you look toward the 21st century. Are you generally optimistic or pessimistic about America and the prospects for her standard of living? Well see I think that depends on what kind of leadership we get in the next decade because I guess I've become convinced that America doesn't work unless you have a president who wants to lead he or she is the only person in America who command the media make people think about things, you know, 535 congressmen in 50. Governor's can't lead America if President doesn't want to lead the answer as we won't get there on that point. We must end. I thank you so much for joining us by satellite from Boston today. Dr. Thrill my pleasure. Been a treat to meet you and and to visit with you today. Dr. Lester. Thurow dean of the Sloan School of Management at the Massachusetts Institute of Technology. And the author of a number of books is latest one is called head-to-head the coming economic battle among Japan Europe and America.