both at home and abroad. The stakesnare too high to trust the outcome tonuncontrollable events in other nationsnor to a global “invisible hand.” Competitionnproduces winners and losers.nThose who do not play to win willnlose.nPhillips provides a solid overview ofnthe “neomercantilist” policies pursuednby the expanding Asian economies lednby Japan and b’ the Europeans. Foreignnnations commonly subsidize theirnindustry either directly or through lowninterest loans and public in’estment innresearch. The fact that capital costs tonU.S. firms are twice as high as fornforeign competitors is of prime importaiice.nForeign nations take import restrictions,nexport incentives, businessntax breaks, cartels, state preferences innbu”ing, and government coordinatednmarketing arrangements as commonplace.nThe economic success of thencapitalist nations, especially of those innthe Third World, hae been pointed tonwith pride by conseraties as proof ofnthe superiorit}- of priate enterprisenoer socialism. Yet, this success hasnnot been built on the capitalist theoriesnof Smith and Ricardo as much as onnthe capitalist theories of Mun and List.nThis should not disturb conseraties.nAs Phillips argues:nThe managers of Japan, Inc.,nhae used the leverage ofngoernment planning andnpower to promote a generallynconservative economic systemnand set of culturalnalues. . . . Progressivenacademicians prefer to skirtnsuch recognition, that thenalues of MITI are not those ofnthe Harvard FacultynClub . . . that ‘industrialnpolicy’—a neomercantilistnbusiness-governmentnpartnership—has enjoyed itsnmost substantial successesnunder conservative ornright-wing regimes like thosenfound in Japan, GaullistnFrance, Brazil and Taiwan.nThat’s probably because suchngovernments have meantnbusiness in both senses of thenword.nConservatives long ago discoverednthat on the issues of national securitynand social order there was more tontheir beliefs than the sparse contents ofnclassical liberalism. It is time that thatnsame discovery was made in regard toneconomics. It would actually be anrediscovery. It was not too long agonthat most conservatives shared thenviews of Alexander Hamilton’s “Reportnon Manufactures,” Henry Clay’sn”American System,” and the Republicannprotectionism of the Gilded Age,npolicies which supported America’snrise to Great Power status.nPhillips lists 15 needed reforms.nThe most important is a new cabinetnDepartment of International Tradenand Industry (DITI) combining thenCommerce Department with the Officenof the U.S. Trade Representative.nThe aim would be to create a unifiednpolicv- to replace the ad hoc measuresnwhich result from the tangle of existingnagencies, all of which have their ownnspecial interests. The U.S. would notnbe the first to copy Japan’s MITI; mostnnations have an equivalent body. ThenThatcher government acted to combinenits trade and industrv ministries inn1983.nPhillips’s other major points includentax reform to spur capital formation bynshifting from income taxes to consumptionntaxes; increased export credits;nthe removal of antitrust barriers tonjoint research and export ventures;nincreased support for R&D and fornthe education of students in the sciences;nand a restructuring of labormanagementnrelations to involve thenworker more closely with the firm.nWorker support for increased productivitynwould be purchased with improvednjob security and retrainingnwhen needed.nAn outright return to protectionismncan only be avoided if foreign nationsncan be persuaded to open their marketsnto more U.S. exports and to curb somenof their own “unfair” export activities.nPhillips favors such negotiations.nHowever, if reciprocity cannot be negotiated,nthe U.S. may have to takenmore direct steps to safeguard its domeshcnmarket in lieu of expandingninto foreign markets. The U.S. accountsnfor more than one-quarter ofnthe entire world economy. Unliken-many other nations, our internal marketnis sufficient to maintain our industrialnbase, providing American firmsnare free to dominate it.nPhillips’s proposals are the result ofnnntwo years of interviews with leadingncorporate managers and his usual detailednreading of public opinion. Businessnfeels that the government shouldnbe an ally in the global competition fornmarkets and jobs. The Reagan Administrationnhas moved the state fromnhostility to neutrality, but that stillnleaves U.S. firms outgunned bynbusiness-government partnerships innother lands. Supply-side economicsnhas helped, but has not gone farnenough.n”Phillips hasn’t just missed the boat. Henseems oblivious to the fact that it hasnsunk.”nNational Reviev^’nIn the past, industrial policies havenbeen favored only by specific regions,nmainly the Northeast, but now Phillipsnfinds support nationwide. Thenmovement of business from the Frostbeltnto the Sunbelt has served to involvenall parts of the country in thenglobal economic war. Imports threatennboth low-tech and high-tech firms.nThere are steel mills in Alabama asnwell as in Pennsylvania. Polling showsnclear majorities behind proposals farnstronger than those made by Phillips.nIf conservatives do not act, an opportunitynmay be opened for the liberalsnto return to power on the economicnissue. However, since the underlyingntheme of an industrial strategy is nationalism,nthe right is the logical placenfrom which a credible policy shouldnemerge and gain support.nExamples of the liberal approach tonindustry which might gain ground ifnconservatives fail to address the issuenadequately are provided by MichaelnPiore, Charles Sabel, and DavidnNoble. Piore and Sabel are labor economistsnprimarily interested in workerncontrol of business and other “humanenalternatives” to the existing svstem ofncorporate capitalism. Their booknsports endorsements from professionalnegalitarians Lester Thurow and MichaelnHarrington.nWhat Piore and Sabel jabel as thenfirst “industrial divide” is generallvncalled the Industrial Revolution: thenshift from small-scale production bvnskilled artisans to mass production bynsemi-skilled factory workers. They arenunhappy that this shift occurred be-nAUGUST 1985/11n