Booknotes

LESTER THUROW, AUTHOR, "HEAD TO HEAD: THE COMING ECONOOMIC BATTLE AMONG JAPAN, EUROPE AND AMERICA," Well, basically what I argue there is what I really believe, and that is that the world economy in the 21st century is going to be radically different than it was in the 20th century. In my terms, the world economy begins just seven months from now, because on the first of January, 1993, for the first time in 120 years, the United States will be the second-largest economy in the world. The historian of the future looking back will say that the 21st century begins earlier. We now have a brand-new ballgame, and the question is, can we understand what that ballgame's all about and how we Americans are going to have to be different to play in that ballgame.

THUROW: No, I think it's going to be a real psychological shock on the first of January when it's officially announced that if you want to play major league economics you do it in Europe, and if you want to be a AAA ballplayer, you do it in the United States. That's going to make everybody sit up and take notice.

THUROW: Well, you know, if you look at what the Japanese are doing to invest in plant and equipment, research and development, skills and bringing everybody up to a very high skill level, it is just absolutely phenomenal. There's no human society that's ever done what they've done as fast as they've done it. Their momentum is enormous. I mean, last year they invested basically $2 for every $1 we invested in the United States. So to keep the sport metaphor going, if you think about going to the weight room to beef up to play the game better, the Japanese are going to the weight room more often and longer than anybody else in the world to play the game.

THUROW: The answer, I think, comes back to skills. What the Japanese have discovered is that the trick in the modern world economy is how good are you at making products, delivering services, and to do that, you've got to have a staff that's absolutely first-rate -- the people who manufacture the products, deliver the products. To have that, you've got to have a population that's very well-educated from top to bottom. Where the Japanese education system is good is not at the top, but at the bottom. You know, if you look at the very top, we probably in the United States do a better job of education than the Japanese do. But if you look at the bottom half or the bottom quarter, they'll bring that part of their population up to levels of performance that are almost inconceivable by America's standards.

THUROW: I spend most of my time trying to run a business school at M.I.T.

THUROW: Massachusetts Institute of Technology.

THUROW: It's an engineering and science school basically. If you look at what management's trying to do, we're trying to get this linkage between engineering, science and management so that we can bring that technology into American industry in the way in which it ought to be brought in.

THUROW: There are about 11,000 students at M.I.T. in total and about 1,000 students who are in the business school one way or another.

THUROW: Sloan was the founder of General Motors, a graduate of M.I.T. way back in the '20s and '30s. He kind of designed what we could think of as modern American management, and for about 50 years modern American management was very successful. I think the problem is that the world economy has changed, and if Mr. Sloan were still alive, he would also be changing. But one of the big problems we have in the management area is that we're so locked into that Sloan model coming out of General Motors in the 1930s that a lot of American corporations are finding it very hard to move to different forms of management that are more appropriate in today's world economy.

THUROW: Five years.

THUROW: I was a professor of economics at M.I.T.

THUROW: Well, a learning experience is, I think, the way you would describe it. What everybody learns if you try and run an operation -- and in this case it has probably 1,500 people attached to it, including students -- is the name of the game is how do you get human beings to work together without having a failure. Of course, that's true in schools and it's also true in companies and it's also true in societies. Once you're a failure like the Soviet Union, it's easy to change. Or once you're a corporation that's going broke, it's easy to change. Or once you're a school that's a failure, it's easy to change. But the trick is, how do you change while you're still successful? That's the M.I.T. problem, that's the American corporation problem, that's the American society problem. We're still one of the most successful societies in the world, but in order to remain successful, we have to change. What a historian's going to look at is whether we first have to go into failure before we can change, or are we one of those flexible societies that can change without failure?

THUROW: About a thousand students.

THUROW: If you take those thousand students, a couple hundred of them would be people who are undergraduate majors or people who are majoring in other things taking a few management courses, and the rest of the them would be graduate students, mostly at the master's level.

THUROW: If you look at men vs. women, it's probably about 35 percent female, 65 percent male. If you look at minorities, we're kind of very close to the American average. The thing that's different probably is that about a third of the students would come from the rest of the world at the master's level. Now those third would be roughly equally divided between a third from Europe, a third from Japan and the Pacific Rim and a third from everywhere else.

THUROW: Yes, they have a different approach, and one of the reasons we bring students from other countries is we want them to help teach Americans. We want to globalize people who are Americans even if you happen to be in Boston, Massachusetts doing your education. But you see some differences in terms of how they've been educated.

Now, at the master's level, almost all of these people have worked from three to five years, so they're not just right out of universities in the rest of the world, so they bring with them some experience with companies and how companies in the rest of the world do it differently. See, if you think of that exercise, that's basically a benchmarking exercise. It's something we need to do on the national level -- look at the rest of the world, look at the significant economic variables in the United States, match America's performance with the performance in the rest of the world, and where we're not worldclass we have to come up to world-class. Now, we want to know how they did it but we're not going to copy them, but we do have to meet their performance standards. So if the Japanese invest twice as much, you and I in America will have to invest twice as much if we want to have some of the good jobs in the 21st century. You can learn the same thing from students in a business school.

If you get a student who works for, let's say, Mitsubishi Trading Company, he can tell his classmates or she can tell her classmates how people do things, and you can trade information and learn by doing that. You've got to have this outward focus, and I think that's one of the big places where America needs to change. In the last 50 years, there legitimately wasn't a lot in the world of economics and business to learn in the rest of the world, and you and I collectively got out of the habit of benchmarking vis-a-vis the rest of the world. But now there's a lot to learn, and we've got to get back into that habit.

THUROW: Yes, it was from 1870 until today, and there has been a little change in the list, but all the rest of the change in the list has either been natural resource-rich countries dropping off the list or natural resource-rich countries like Kuwait joining the list. No basically industrial country has dropped off the list, and only one new industrial country has made it in 120 years. So, if you talk about being one of the wealthiest 20 countries in the world, it's very hard to get on the list, but once you're off the list it's also very hard to get back on it.

THUROW: I think the answer is we're very near the top of the list at the moment, and it also takes a long time to drop off. So probably the answer is if we came back 50 years from now, we'll still be on the list, but the question is will we be near the top or the bottom? The best illustration is Great Britain. In 1870 Britain was near the top of the list; today it's near the bottom of the list and just about to drop off, but it shows you how hard it is to do it. It took them a hundred years basically to go from the top of the list to the bottom of the list. Now I think the world economy moves faster, and if we don't do something it'll take us only about 50 years, but it doesn't happen tomorrow morning.

THUROW: Yes.

THUROW: Oh, I enjoy teaching. What I've found as a dean is that you can't teach a class where you promise to show up at 8:30 on Monday, Wednesday and Friday for 18 straight weeks because you have other obligations. But what I do is kind of what I would call mini-teaching inside other courses where I can do some concentrated teaching where I guarantee that I'm really there for that period of time. I think that's fun. Of course, you wouldn't become a university professor if you didn't want to teach. Otherwise there's no reason to do it.

THUROW: Yes, I do a lot of speaking. I used to do even more, in some sense, before I was a dean.

THUROW: Well, that's part of public education. You know, if you have ideas, one of the things you want to do is try to sell those ideas to people in the United States and in the rest of the world. You sell ideas partly by writing books, but you also sell ideas partly verbally by giving talks and you sell ideas by being on television programs like this one. It is a question of how you can sell the ideas that you think are important for Americans or people in the rest of the world to hear if we're going to have a successful world economy in the 21st century.

THUROW: That's remarkable! I don't remember who spoke at my graduation.

THUROW: I think you have to have a kind of vision of where the world's going and a vision of the kind of things that you can do to change the world. I think what we're talking about here is, in some sense, changing America, and each of us over the next ten years are going to play a role in that change in America -- regardless of whether it's successful or a failure, we're going to ride with that success or failure. I think that's the most important thing.

THUROW: I think the one thing to remember is I very carefully go through and look at what are going to be the sources of strategic advantage in the 21st century. The bottom line is there will be only one source of strategic advantage in the 21st century and that's the education and skills of the workforce. When you talk about education, you're basically talking about K-12 education. How can you bring that up to world-class standards? Then the other thing we need to do in the United States is build a system of post-secondary education for those people who do not go to college. Everywhere else in the world education doesn't stop with the 12th grade. They put you through a very good 12th grade, but then they pile some skill training on top of that. In the United States we don't have a system, so I would argue that basically in the education and skills areas there are two big things to do. The first is improve K-12 education; the second is put this skill system on top of it.

THUROW: Oh, yes. The first public school in the world was in Massachusetts in 1842. We had the first compulsory education law. One of the interesting things about American history is we had mass compulsory universal education for just about 100 years before the rest of the world did. Most of the rest of the world didn't have mass universal compulsory education until after World War II -- 1945 as opposed to 1842. For a hundred years, if you go back and read history books, people would talk about how American workers could work without supervision, about how American workers could absorb technologies. Of course, the reason was that Americans were literate and numerate while the rest of the world was illiterate and innumerate. But the rest of the world noticed what we did, copied it, and they upped the intensity level. My boys go to school 180 days a year, but in the rest of the industrial world kids are going to school 220, 240 days. You can't learn in 180 days what a smart kid in Spain can learn in 230 days. It just can't be done.

THUROW: I think the answer is we were so confident after World War II that we were doing it right we didn't notice what the rest of the world was doing. We didn't notice that they were upping the intensity level and out-producing us in some sense in the education sector. It's only now that we're starting to notice because those well-educated people in the rest of the world are starting to take away from us some of the jobs that we think that by rights ought to be ours.

THUROW: I grew up in Montana, America's Siberia.

THUROW: I went through high school there and basically am one of those people who maybe went East to college and never came home.

THUROW: I came to Williams College as an undergraduate, and then I did a masters degree at Oxford as a Rhodes Scholar and then came back to Harvard to get a Ph.D.

THUROW: I think it just kind of gradually accumulated. I didn't start off to be a professor of economics back when I was an undergraduate. It's one of those things where I couldn't say there was a magic day when I had the equivalent of St. Paul's burning bush and decided to become an economist. It kind of just drifted in that direction.

THUROW: My father was a Methodist minister in Montana, so we kind of moved around a lot and saw a lot of the state because in that day and age Methodist ministers tended to move from city to city about every four or five years.

THUROW: It was kind of all across the state. I went to high school partly in Glendive, which is way over on the North Dakota border, and partly in Anaconda, which is over on the Idaho border. Anaconda is kind of interesting, because Anaconda and Butte were big copper-mining areas when I was living there. I think there were almost 20,000 people working in the mines and smelters of Butte and Anaconda. Then there came a time when it was entirely closed down, and you could see the global economy working in a very micro way because copper from Zambia or Chile or wherever was cheaper and basically put those Montana copper mines out of business.

THUROW: That's one of the places where I got interested in economics. One of the nice things I did from Williams is a summer internship program I spent working for actually a Montana congressman down here in Washington, D.C., in the summer of 1958.

THUROW: It was then-Congressman Metcalf, who later on became Senator Metcalf. I think that's what kind of kindled the interest in political economy as opposed to just plain economics. Then the first job I had after my Ph.D. was working for Lyndon Johnson's Council of Economic Advisors back under Walter Heller. Then ever after that I've had this interest in public policies.

THUROW: I was on the staff of the council at the time. I had just gotten my Ph.D., and my thesis adviser at Harvard, Otto Eckstein, had come to Washington as one of the three members of the Council of Economic Advisors, and in some sense he brought me with him.

THUROW: The interesting thing, if you think about it, is how optimistic we were at the time. I was working there in 1964-'65, right before the Vietnam War and right as the Vietnam War was getting started. In fact, I was the liaison between the Council of Economic Advisors and Lyndon Johnson on the War on Poverty, and we really believed we could cure poverty! I mean, people really believed it could be done. The sad thing is, I think maybe it could have been at that time. If Lyndon Johnson hadn't had the fatal flaw and gotten himself involved in Vietnam, maybe it could have been done. It's one of those things where we lost the historic opportunity to do something about it.

The thing to remember about the Great Society programs is they weren't welfare programs. I remember once being given the task by Lyndon Johnson and Walter Heller to go through the economic report of the president and make sure the word "welfare" never appeared. It was supposed to be jobs programs to lead people out of poverty, not welfare programs. In fact, in the `60s and for the first half of the `70s, the percentage of the population in poverty went way down, and then starting in the late 1970s and through the 1980s it started to pick up. Now if you look back, we've made a little progress since the 1960s, but we've lost much of the progress that was made in the `60s and `70s.

THUROW: Periodically I get involved in one of these advisory groups for a presidential candidate. They've all been Democratic, because once you work in a Democratic administration you are a Democrat as far as the world's concerned. But since working in Washington with Lyndon Johnson, I've never had a full-time job back down here again.

THUROW: I was involved in the Bobby Kennedy effort way back in 1968, the McGovern effort in 1972, the Jimmy Carter effort in 1976.

THUROW: I think some do and sometimes nobody does. If you look at the Council of Economic Advisors, it really depends on the personal relationship between the chairman of the Council of Economic Advisors and the president. There's some Councils of Economic Advisors that have had no influence whatsoever. There are other chairmen of Councils of Economic Advisors that have had great influence. Walter Heller, I think, for example, had great influence on Lyndon Johnson. You can name some other people who've held that job that have had almost no influence on the administrations for which they've worked.

THUROW: Yes. See, what people say to me today is, "If you were advising the next president of the United States regardless of whether it was a Republican or a Democrat, what would you say?" What I would say is in the short run forget the policies. What I think the next president has to do is lead America through a benchmarking exercise where you simply take all the key strategic economic variables in America, compare them with a country in the world that's doing that variable best, and when there is a gap between what the United States is doing and what the rest of the world's doing, how do we design a strategy for closing the gap?

I use a statistic in the book that I think people like you and I always have to remember. It's a "Trivial Pursuit" question. What fraction of Americans have a passport? The answer is one out of 11 -- 9 percent. Ten out of every 11 Americans will never leave the United States. You can't even go to Canada anymore without a passport. Our media is very good on riot and revolution in the rest of the world. We get hours and hours on Croatia vs. Serbia, but they're horrible on daily everyday economic life in the rest of the world. Most Americans have no understanding of what the economic forces they face are that are coming out of Japan, coming out of Europe, coming out of the Koreas, and they've got to be made to understand that before you can ever talk about public policies.

In late February, early March, I was with a group of M.I.T. students in Korea, and we went to visit the Samsung Consumer Electronics factory right outside of Seoul. I would have loved to have taken every American with me, because there were 55,000 Koreans in one facility banging out consumer electronics -- probably more robots in that facility than in any one facility in the United States. That's modern competition. But if I asked the average American to describe Korea economically for me, they would probably describe something that sounded like M.A.S.H., which was a fairly description of Korea in 1949, but has no relationship to 1992. I think the president has got to lead us in this outward-looking benchmarking exercise, and then we can come back and talk about policies. I think we've put the policies ahead of the benchmarking, and you've got to make Americans understand the world they live in before you can persuade them that they have to do some of these things which I think they have to do.

THUROW: I think if you look at the people running for president at the moment, the problem is they've all got a bit of the truth and nobody's put it together as a package. Mr. Bush talks about a new world order, and there clearly is a new world order, but I think in the back of his mind he'd like it to be 70 percent military and 30 percent economic when it's probably going to be 98 percent economic and 2 percent military. Bill Clinton talks about the middle class, and that is a terribly important problem -- except he's talking mostly about tax cuts for the middle class. The real problem is their before-tax income is falling. You've got to do something about the education and skills of their children. You've got to do something about the industrial structure in America if you're going to help the middle class. Now, Perot, I think, has the great advantage because people see him as a businessman who's interested in the world economy, but we don't know exactly yet what Mr. Perot plans to do about any of these things. So I think his kind of image of being interested in business is the right focus to economics, but what he's going to do in terms of policy leadership side, we don't yet know.

THUROW: No, I'm not, simply because if you look at George Bush, he's the Cold War president. He's got a background in that kind of thing. He's interested in that kind of thing. I think the public understands the Cold War is over. I'm not sure the president understands the Cold War is over, but the public does. So those things that were very positive for Mr. Bush in 1988, like being head of the CIA, are in some sense irrelevant in 1992. I think the problem with Bill Clinton is he's a professional politician. People say, "Look, he's been governor of Arkansas. Perhaps he's been a good governor of Arkansas, but that doesn't have anything to do with this economic world I'm living in where I seem to be on a down escalator." So the fact that some independent -- see, I know how you could be president of the United States.

THUROW: Go to court and have your name changed to "None of the Above," and then run for president. I'm sure you'll be elected.

THUROW: It was the Deutschebank-Daimler Benz group and the Mitsubishi group of Japan. So the largest business group of Japan and the largest business group in Germany spent one week meeting behind closed doors in Singapore.

THUROW: Secret meeting.

THUROW: The fact that it was occurring was public knowledge. Now, technically speaking, I don't know what they were talking about, but, of course, you and I really do know what they were talking about. They were talking about joint strategy, because that's the only thing important enough to get those people to give up a week of their lives sitting in Singapore talking to each other. The purpose of talking about the meeting is to point out that the rest of the world plays economics differently. We made business groups illegal in the United States in 1933 under the Glass-Stiegel Act, and what I argue in the book is we're going to have to change the banking laws and the antitrust laws to once again allow American business groups.

If 26 Japanese companies can get together and plan joint strategy, then you've got to make it legal for 26 American companies to get together and plan joint strategy. Now, Bush at the moment is talking about kind of exporting American anti-trust laws to Japan, but that's a lot of nonsense. We can't do that; we're not going to do that. We have to play the ballgame defined by them, as opposed to forcing them to play the American game.

THUROW: It's a situation where it's two steps forward, one step backward, one step to the side, then another two steps forwards. We're talking about a 30- to 50-year period of time before the Europeans are really fully integrated and get Eastern Europe involved in it. On the other hand, they're beyond the point of no return, and the best example is Mrs. Thatcher. Mrs. Thatcher didn't like the Common Market. In some sense she didn't want it to continue, and the British knew they couldn't survive without it. So if the choice came to stay in the Common Market or fire your prime minister, they fired a very popular prime minister. I think that's very strong evidence that the Common Market is beyond the point of any break-up. They will have some backward set-backs, but they're going to continue forward. I think in the 1990s we'll talk a lot more about Europe and somewhat less about Japan when we start talking about economic competitors.

THUROW: Clearly the Common Market is dominated by the German-speaking world because there are about 100 million German speakers in the middle of Europe and there are only 50 million British, 50 million French, 50 million Italians. I think we in America are going to be very surprised by how fast countries in Eastern Europe join. I think Czechoslovakia will be an associate member of the Common Market before the year 2000, and I think we're going to be surprised how fast the Russians come in. If I'm sitting in England, France or Italy, I've got a problem. There are 50 million of me and there are 100 million Germans and if I don't want this to be a German-dominated Common Market I've got to get some group into the Common Market big enough to counterbalance the Germans, and the Russians are the only group. I think we're going to be surprised at how fast countries like Russia join.

THUROW: The Germans are the world's best at basically being exporters. Sixty million Germans exported more than 120 million Japanese, and on a per capita basis they were far ahead of Japan in terms of being a world exporter. Now, we Americans didn't notice because the Germans tend to export machine tools and factory equipment that we don't see, and for some reason we don't remember that every Mercedes we see is the equivalent of five Japanese cars when it comes to dollar value. So the Germans are phenomenally successful on world markets.

THUROW: Basically, even though the Japanese were selling maybe 10 cars for every one European car, if you looked at the dollar value it wasn't anything like in that relationship. You were getting German cars coming in at an average value of $50,000 while you were getting Japanese cars coming in at an average value of $12,000. It is interesting. Of course, the Japanese say we're racist because of it; that is, we yell about them having an export surplus with the United States and we don't yell about Germany having an export surplus with the United States. I don't think it really is racism. I think it's simply a fact that for some reason German exports come in areas which are almost invisible while Japanese exports come in very visible areas like video recorders, cameras. You see the brand names every day.

THUROW: They're certainly doing it at the moment, and that's one of the things that's got the Europeans very worried and is, of course, one of the reasons why they're building barriers in Europe to keep the Japanese cars out. See, I think we're going to see a lot of trade disputes between Europe and Japan in the 1990s. If you walk around the Common Market and talk to either government or business leaders, you'll hear everybody privately say, "We're not going to let the Japanese do in Europe what they've done in America."

The former prime ministress of France in some sense got in trouble for saying publicly what everybody else was saying privately. I think you're going to see a lot of trade disputes basically between Japan and Europe, and in some sense that's probably a good thing from an American point of view because it means that we don't have all of these arguments between ourselves and the Japanese. They got somebody else to fight with other than we Americans.

THUROW: You've got to be careful. We're not very good at exporting to the rest of the world. We're very good at running overseas facilities. One of the great strengths of the American economy is we have the culture that's the easiest in the world for a foreigner to join. If you go to Singapore, what they'll tell you is, "Look, the American companies come to Singapore, they set up a semiconductor operation, they train the local managers and five years later all the Americans have gone home." It's still an American subsidiary, but run by Singaporians. The Japanese will come to Singapore, build the same facility and 20 years later it's still being managed by Japanese because the Japanese don't know how to bring foreigners into their operation. So when it comes to running things abroad, I think we're very good. When it comes to designing things in America, to build them in America, to sell them in the rest of the world, then we've got a lot to learn because we just don't have the mentality where we ask the Japanese, "What do you want?" and then try and build it.

What we try and do is build things for Americans and then sell them to the Japanese, and then we wonder why they don't want them. Well, you know, the Japanese don't have a lawn big enough to buy an American lawnmower. They do have their steering wheel on the opposite side of the car. American companies, when it comes to building things here and selling them there, are very bad at looking at what the world wants and then designing something to their tastes as opposed to designing something to American tastes.

THUROW: I think the big difference is in both Germany and Japan they sell the concept of teamwork much more, while we sell the concept of individualism. The kind of statistic I point to is this phenomenon of halls of fame. We in the United States have a hall of fame for everything. We have it for every athletic thing, rock movie stars. Fortune magazine has a business hall of fame. As far as I can find out, there's not a single hall of fame in either Germany or Japan. We build no monuments to teamwork; we build monuments to individuals. It's interesting in these sporting halls of fame. If you take the great Boston Celtic teams, they're not there as teams. Bill Russell's there as an individual, Casey Jones is there as an individual, but the great Celtic teams are not there as a team. I think the big difference is that the Germans and Japanese build up a culture of teamwork while we've built up a culture of individualism. Now, in the 1980s, we grossly oversold individualism. There are lots of things in American history that are, in fact, teamwork, and we may never be as team-oriented as they are, but we could at least put a little pressure on teamwork.

THUROW: No, I think you would be somewhat different. For example, in the English-speaking world, making speeches is seen as a very positive thing. My understanding is in the Japanese world, it is not seen as such a positive thing, and if you wanted to be successful in Japan, that would not be one of the routes to success in Japan. On the other hand, in Germany public speaking is a great art, and, of course, that's one of the reasons Hitler got to be head of Germany because he was maybe the finest orator in German history in terms of being able to get a crowd moved. So I think there are differences, but there are different routes to success and failure in the three countries.

THUROW: I think if we kept it at the level of the 1980s to the exclusion of teamwork, the answer is yes, because, of course, where we're losing is to these societies that emphasize teamwork. But we can look at American wagon trains and community barn-raisings and we find a lot of teamwork in American history. So the issue is not to throw out the individualism, but can you get the correct balance. See, I use the example that I'm a professor of economics at M.I.T. My wages are more than twice as high as professors of economics at Oxford and Cambridge in England, and that's a little bit unfair because they know everything I know. On the other hand, my wages today are about 30 percent below what a German professor would make in a German university, and that's very unfair because I know everything he knows. If you ask why, it's because of our teams. My team is more productive than the British team, and, therefore, I can be paid more. My team, the American team, is less productive than the German team, and, therefore, I'm paid less. What we all have to understand is we partly earn our living as an individual, but we partly earn our living as a team.

Let's look at C-SPAN. If you were C-SPAN in a poor country, you would get paid less than you will be being C-SPAN in a rich country, even though you do exactly the same things. So you're on the American team just like I, a professor of economics in an American university, am on the American team.

THUROW: I think it does come back to this team phenomenon and being willing to work together as a team. For example, take the textile industry, which is one of the industries talked about here. The world's largest exporter of textiles is mainland China. No great surprise -- low wages. But the second- and third-largest exporters of textiles are Italy and Germany, both of which have textile wages above the United States. If you say, "How did that happen?" the answer is the Germans sat down as a team, which involved the companies, the unions, the universities, and said, "Where out there is there a market for high technology fabrics, rapid fashions which can basically pay German wages?" Using basically a team concept, they were able to save a good part of their textile industry and still pay high wages.

We in the United States have not done that, and so we basically have lost a lot of our textile industry and the only part we have left is basically low-wage industries where we just keep pushing wages down year after year. It's a perfect example of where playing together can give you a positive outcome, where insisting on playing individually has not given the United States a positive outcome.

THUROW: Yes. I think most of us would find it very confining to play on a Japanese team, but the question is, can we define an American team that we would be comfortable playing on.

THUROW: One of the things I think we're trying to do at M.I.T. is bring some teamwork into a university education because we were one of the problems. If you did teamwork at M.I.T. five or six years ago, what happened? The answer is you got tossed out for cheating because you weren't supposed to work as a team. You were supposed to do everything as an individual. So we put in some deliberate team exercises. We begin the semester with some team exercises, we have some team grading, and we gave one course this year which was interesting way. Using random number tables -- and only M.I.T. would do this -- we assigned students to groups of about six or seven and we said, "The grade of everybody in this group will be the grade of the lowest person in the group." Of course, that means I've got to really work with people in my group because my own grade -- A, B or C -- is going to be determined by the person in my group who performs the worst.

Now, it caused a very high anxiety level among the students, but it's one of the kinds of things that we've been trying to work on to persuade people, "Hey, you've got to work with the weakest member of your group because the weakest member of your group is going to determine your own personal success or failure."

THUROW: Well, the answer is we did it and the students got over their anxiety, but it took a certain amount of a kind of a psychological stroking to keep everybody going since this was so strange to a group of American students.

THUROW: Oh, sure, there were some low grades. Now, the two interesting things. First of all, what we worried about is that everybody would quickly say, "That's the stupidest student in our group," and he or she would be kind of ostracized. That isn't the way it happened. What happened is everybody said, "My God, I may lower everybody else's grade." Everybody thought they were the stupidest person in the group. Now, we did have one case where somebody got a very low grade on an exam, the professor offered to let that person retake the exam, and his whole group retook the exam with him so he didn't just have to take the exam by himself. To show solidarity, they all went back and retook the exam. I think little things like that, essentially the compensation system or how you award people, make huge differences to the extent to which Americans are willing to be a team player as opposed to throw the loser off the ship.

THUROW: M.I.T. is in Cambridge, Massachusetts, otherwise the Boston metropolitan area.

THUROW: There are about 100.

THUROW: M.I.T.'s pretty hard to get into. If you look at the students we take in terms of standardized tests, they come right off the top. If you take our under-graduates, their average math S.A.T. is 740, which puts them very close to the top 1 percent of the population when it comes to mathematical ability.

THUROW: Graduate school you get in basically by having done well as an undergraduate, plus having a three- to five-year period of work experience where you've done interesting and good things in that work experience. We'll give you delayed admissions when you come out of undergraduate school. We'll say, "Hey, you can come to M.I.T. three or four years from now, but you can't come immediately after doing an undergraduate degree."

THUROW: Tuition at the moment is about $17,000, and then you've got board, room, books. The basic answer is it's going to cost you about $25,000.

THUROW: M.I.T. is a private corporation and a private university. Now, the fact of the matter, however, is that about half of the research money we spend in the science and engineering area does, in fact, come from the federal government, mostly through the Department of Defense and the Department of Energy.

THUROW: MITER is part of M.I.T. Well, it's not part of M.I.T. but was set up by M.I.T. During World War II and immediately afterwards, there were a number of spin-offs from M.I.T. because radar was invented at M.I.T. and MITER was part of that. One of the things that M.I.T. is proud of is that we are one of the universities that probably has more entrepreneurs who've come from M.I.T. setting up these great technological firms than any other university in America. Some of these have been spin-offs from military research. Some are spin-offs from civilian research. We've got a lot of firms in biotechnology that have basically come out of M.I.T.'s laboratories, and one of the things we want to do is have managers and engineers and scientists who know how to do both the engineering and science and then make a successful company out of it.

THUROW: We run Lincoln Laboratory, which is one of the national laboratories, which is 100 percent, basically, funded by the Air Force. If they're included, the Defense Department's sponsoring a little bit more than half the research at M.I.T. If you just look at the campus research, the Defense Department is maybe 10 percent and the military parts of the Energy Department are maybe something on the order of 5 [percent], so maybe 15 percent of the research on campus comes from military-related projects. But in the total, it's much higher than that.

THUROW: I don't think it happens on that. The place where they periodically run into trouble is we have a group of mathematicians who do cryptography, codes. They're not, in fact, on federal government contracts, but the federal government believes it has the right to supervise everybody working on cracking and uncracking codes, even if they don't pay for it. So periodically there have been fusses on this cryptography area about how much of this research can be made public. There's a huge dispute at the moment about cryptography in the private area, because the federal government is afraid that people like the people at M.I.T. will develop codes which are so good that they can't break them, and they don't want private businesses having codes which are in some sense unbreakable. So occasionally you get a dispute like that, but that's not a major problem.

THUROW: Basically a week of a dean is probably spending a day or so wrestling with various faculty problems of one sort or another -- recruiting people, retaining people, making sure that you get organized to teach the classes that you're supposed to be organized on. It's probably a day and a half of relating to alumni, the people who help pay for the M.I.T.'s of the world in the long run. Maybe a half a day of relating to the public. And then every once in a while if you want to write a book, you've got to have a little time to work on those kinds of things. The basic answer is you can fill up seven days pretty easily.

THUROW: I do a little speaking to private business groups, but as a dean I don't really do any consulting anymore, which means really spending time understanding their particular problems and then if you can bring some economic expertise to those particular problems.

THUROW: I have two boys. The interesting thing is that we put them in Spanish schools for a year in Madrid. The idea was to make them bilingual in Spanish, but the interesting part of it was not the Spanish. The interesting part was how different the Spanish education was than the American education. At the end of the year, if you'd asked my boys, they would tell you the Spanish education was better.

THUROW: One is now a freshman in college, and the other will be a junior in high school next fall.

THUROW: He's at Williams College.

THUROW: Well, I think maybe some.

THUROW: I think the answer was the schools were focused. They knew what the purpose was. The Spanish have a national exam like the French baccalaureate, which they call BUP. I came to the conclusion that one of the problems we have in American K-12 education is we're just asking the school system to do too much. We've made it into the ultimate kind of social welfare dumping grounds. When America has a problem it doesn't know how to solve -- drugs, teenage pregnancy, nutrition, driver's training, whatever -- we throw it in the school system. Spanish schools don't do any of those things. Their purpose in life is to get the kid through BUP, get him to graduate from high school. They don't even do sports.

The Spanish are nuts about soccer, but you do soccer separately in a soccer club that doesn't officially have anything to do with the school system. You know, if you think about driver's training, there's nothing wrong with driver's training, but we've got companies that would be glad to do it. It doesn't make sense to load the school system down with things like driver's training. That ought to be done separately if it's a social need. I think one of the big problems in our schools is that they're unfocused in the sense that nobody has clearly said, "This is what we want you to do." We have a little of this and a little of that and it's all very fuzzy. I think the focus is the big thing that makes it successful.

THUROW: The question, of course, as a university administrator, you ask, "Did he take that job because it was so desirable or was he tired of being president of Yale?" I think it's an interesting job, because I do really think that we've got to reinvent especially the American high school. If you look at performance of American kids relative to the rest of the world at age 12, sixth grade, they're not much behind the rest of the world. Where they really fall behind is junior high school and the first couple years of high school. Correcting that part of American education, I think, is probably the most vital thing on the American agenda.

THUROW: I think if you had the right kind of opportunity like that, you can imagine doing that. I think if somebody could make a success out of that and then we could copy it -- I don't think private education is the right American answer in the long run, but I think we can use a lot of good private experiments. The interesting thing about Japan -- and I think here we have something to learn -- is every kid in Japan goes to a public high school until about 3:00 in the afternoon. Then about half the Japanese kids go to a private high school after the public high school, let's say between 3:00 and 6:30. What you do during the public high school is you do egalitarian education, and then in some sense in the late afternoon, you do mericratic, who's-going-to-get-ahead-of-whom education. I suspect some mix of public and private is the right thing, rather than all public or all private.

THUROW: I lived for two years in England.

THUROW: Yes, and then various times I've lived for as long as -- well, I also spent a year working in Pakistan as a development economist back in 1972. Periodically I live for as long as six to eight weeks someplace else in the world.

THUROW: I don't think there's really a difference on that level. I think we enjoy it very differently in the sense that if you put me in Germany or you put me in Japan, I wouldn't enjoy their life as much as I enjoy the American life. But I think it's also true if you took that Japanese and put them in the United States, they wouldn't necessarily enjoy the American life as we do either. One of the things that's interesting that my wife points to when you're going around the world, how often do people smile on the streets? Do people look happy on the streets as you just walk by them? The interesting thing is that in Japan you see a lot of happy people on the streets. I think what makes you happy partly depends on the culture in which you grow up, but I don't see any huge difference on that. The Germans know how to play in which Americans don't. They get their sixweek vacation, 15 national holidays, and so the Germans enjoy life, too. But I think we enjoy life somewhat differently.

THUROW: I think what we need to do in this area is focus more on Germany and less on Japan. People have kind of given up on the Japanese example. They say, "My God, those guys work all the time. They live in houses that are too small." The Germans are remarkably like us. Their houses are not as big as ours, but they're not shabby, either. What the Germans prove is the issue is not working 24 hours of the day. The issue is working smart while you work. The Germans work many fewer hours than we Americans do, have a standard of living remarkably like what we have in the United States, have much longer vacations, and are a world's great exporter. Working smart is a lot more important than working every hour of the year.

THUROW: I think the bad news is this is number 13.

THUROW: "The Zero Sum Society," which was really published twice. It was first published in 1979 and was quite successful. Then when Ronald Reagan was elected in 1980, the paperback version was just coming out and they kind of played that like it was a brandnew book. So in some sense they got two books out of one book.

THUROW: The main thesis of that book is that we had a government structure that was almost completely incapable of dealing these problems where you had to do some reallocations from one area to another, where you had to go through a period of time which was a zero sum society, because if I want to do more investment, I have to take it out of consumption. I make this transfer and then in the long run the investment will pay off, but in the short run I'm just making this transfer. We find it very hard to do that in the United States.

THUROW: Zero sum means if you add up the pluses and minuses, they would equal zero. So you've added something here and subtracted something there, and as far as the whole is concerned, it adds up to zero.

THUROW: I've never done it.

THUROW: See, I think the place where the Economist, the British magazine, is very good is they give you better coverage of the Third World than any other publication in the world. If you want to know about Europe, the United States and Japan, there are other places to get it. If you want to look at the rest of the world, the Economist just has better coverage than almost anybody.

If you look at the Financial Times, I think the big advantage of it relative to an American paper like the Wall Street Journal is if you are an American, they have a different slant on the world since they're not American.

The New York Times and the Wall Street Journal are kind of competitors, but their slant on the world is both American, so there's a lot of overlap between those two. I think one of the terribly important things for Americans to do is start reading publications from the rest of the world. If you take the Japanese Economic Times, which is now the Nikkei Weekly, which is basically an English language translation, that's something which I think most American business people ought to be reading. You've got to understand from a Japanese point of view what the Japanese are doing. If you can't read Japanese, the only way to do it is to read it in translation.

THUROW: I sometimes don't read them every day but I stack them up and I read them on long airplane trips. I try and skim through them all.

THUROW: I keep clippings of interesting things. What usually happens with me on a book is I write articles about things. Then after I've got six or seven articles, I say to myself, "Hey, there's a book there," and I didn't really start out to write that book in the beginning. It's just that it starts to emerge out of these articles I write various places. Some of them are academic articles for academic journals. Some are popular articles for magazines or newspapers, either in this country or the rest of the world, and pretty soon you start to see the skeleton of a book there. Now, the thing I always find interesting is if you read the first draft of the book I wrote and then you read the draft that actually gets published, how remarkably different they are sometimes.

THUROW: I use a word processor. I have my laptop, which goes everywhere with me. I think the basic answer is the first articles that were the germ of this book were probably written way back in '87, '88. I didn't really see it as a book, however, until about '89 when I started trying to put it seriously together. Now, when you try and put it seriously together, you start to see holes, and then you say, "Hey, this is an area I've got to cover. How do I get the information to do it?" Eventually something emerges.

THUROW: I think it's probably the chapter on Japan because I think it's difficult for Americans to understand how Japanese corporations really work, and in that chapter I'm trying to explain the Japanese corporation basically to a Western audience. I'm proud of that one.

THUROW: Sure.

THUROW: Oh, absolutely, and I had a couple of our Japanese graduates look at the chapter on Japan and say, "Hey, what do you think? I don't want to step on any land mines I don't know about. Is there anything major I've left out?" So I had some help.

THUROW: Airbus Industries is a real challenge to the United States because it's a public, government-owned corporation owned by the British, French, German and Spanish governments designed to crack the American monopoly in aircraft manufacturing, which at one time was Lockheed, McDonnell-Douglas and Boeing. Under American theology, government corporations aren't supposed to work, but here's one that seems to be working.

Basically they've reduced McDonnell-Douglas's market share in half in a decade and are driving McDonnell-Douglas to the Orient and they're eating into the market share of Boeing. We in the United States don't know what to do about it, because since it isn't playing the ballgame our way, what we're doing at the moment is kind of having a temper tantrum and screaming, "You're cheating!" But, in fact, the Airbus Industries doesn't violate any treaty we, they or anybody else has ever signed. It's simply the way they play economics, which is not the way we Americans play economics.

What it is, is an illustration of a problem that if you're in leading industries, the rest of the world has an economic strategy for conquering those industries. Now, sometimes it's an R&D strategy, sometimes it's an Airbus Industries strategy. We in America have had a very clever, very well-thoughtout military strategy, but no economic strategy. The rest of the world had no military strategy because they said that's an American problem, but they did have an economic strategy which was catching up to the United States. So if you talk about an industry like computer software, I can talk to you about the Japanese strategy for conquering that industry. If you talk about an industry we don't have like robotics, what's the American strategy for conquering robotics? Well, the answer is we don't have one. So you've got a problem here of how we start to take some of our strategic-thinking capability out of the military area and put it into the economic area.

THUROW: No. The Boeing 707 was a modified military transport plane. The Europeans quite correctly point out that a lot of our avionics that we put into civilian aircraft comes out of our military aircraft. There's been a synergy, no question, between military aircraft and civilian aircraft. That's the excuse that the Europeans argue as to why this has to be a government corporation because from their point of view McDonnell-Douglas, Lockheed and Boeing weren't private corporations either because they all had military contracts.

THUROW: You've got to be careful here. We haven't lost the whole industry. It's only part of the industry. The answer there is that the Japanese embarked on a very ambitious catch-up project. They called it the very large integrated circuit chip project, which was about half funded by the Japanese government, to catch up with and then leap-frog American technology in terms of making basic memory chips, and that strategy was successful. They've done it partly by integrating their semiconductor chip manufacturers with their big consumer electronics companies, so in some sense you have a captive market because the same company who makes the chips also makes the TV sets where you put the chips. They've built up a very successful industry, and it's an example of the Japanese strategy for getting into an industry which back in the mid-1970s was an American monopoly and now is a very competitive industry.

THUROW: My guess at the end of the book is Europe. Europe, I think, has four great advantages. The first great advantage, being the world's largest economy, is if there are any economies of scale and scope, they get them. The second big advantage is that they have a unique set of talents. You can think of Russia as a high science society, Germany as an export production leader, the Italians lead the world in design, the French have fashion and technological flair, Britain has a world capital market. All of those things don't exist in the United States; all of those things don't exist in Japan. If they can put them together -- and that's a big if -- they've got a set of complementary talents that can't be matched elsewhere in the world.

Thirdly, as the world's biggest economy, I argue they're going to be writing the rules for world trade in the 21st century, and the guy who writes the rules always writes a set of rules that favors him. So the European rules will help the Europeans. Finally, the biggest European advantage is everybody in Europe, from the humblest citizen to the prime minister, understands that the 21st century is going to be very different than the 20th. If I'm an Italian, I know that 10 years from now I'm going to be a little less of an Italian and a little bit more of a European. If I live in Eastern Europe, I know that communism has gone away and something's going to replace it. So I'm thinking about change, I know I will change, I'm planning for change at Brussels, I know the world's going to be very different. I think that's the big European advantage. They appreciate that they will have to be different to be successful in the 21st century, while we Americans and the Japanese can at least pretend that we can be successful without changing.

THUROW: I think what you have to do is have some examples and some analogies that people can understand and remember. That's part of the understanding. Then you have to have a reasonably clear argument so they can understand where you began and where you ended. A lot of economics people throw in jargon. Most of the jargon is not necessary. I think when you're talking about these kinds of issues, the question is, how can you put it in language that people can really relate to?

THUROW: Oh, sure. If it was the right opportunity to make some of the changes I talk about in the book, I would be delighted to do that.

THUROW: I think that's harder because we've made running for office in the United States very unattractive. You basically sell your soul raising money, and you give all that money to advertising firms to do advertising on television. The process of running for office in the United States, I think, we've made unattractive. If you think about running to be a congressman, I sometimes wonder why anybody ever does it.

THUROW: I'm 54.

THUROW: I'm not sure what the next book is because it hasn't congealed in my mind.