341 CHRONICLESndine in your own country has made then”world” a better place. There is no suchnentity as the “world” — only othernnation-states that have gained at yournexpense.nManufacturing Matters is an attemptnby two Berkeley University ofnCalifornia economists to shake Americanout of the complacency of then”invisible hand” approach to internationalntrade. Manufacturing is the centralnfront in the global trade war andntechnology is:nrevolutionizing production . . .ncreating a fundamentalneconomic transition that putsnthe position of every nation innthe international hierarchy ofnwealth and power, including thenUnited States, up for grabs.nBy value-added, manufacturing directlyngenerates 24 percent of GNP.nCohen and Zysman, citing the 1983nReport of the President on the TradenAgreements Program, then add 25 percentnof GNP for services “tightly linked”nto manufacturing. Thus, manufacturingnrepresents about half (49npercent) of GNP. It is this linkage thatnforms the core of the authors’ argument.n”Industrial chains” link a numbernof manufacturing and service sectors.nTelecommunications is one examplenamong the many cited.nWill American companiesndominate international trade inncommunications if they are notnleaders in computers,nsemiconductors, telephonenswitching equipment, launchers,nsatellites and fiber optics?nNo, and our rivals understand this.nForeign industrial policies target keynlinks in the chain, hoping to capture anfew strategic pieces so the rest of thenindustrial chain can be pulled underntheir control.nIt is often argued that the shift fromnan industrial economy to a serviceneconomy is a natural evolution andnthereby a sign of progress. Cohen andnZysman note that while all advancednnations are making this shift, it is importantnto distinguish between types ofnservices. Engineering, software design,nsocial work, and fast-food are all services,nbut they are not of equal value tonan economy, nor do they produce thensame income to those employed innthem. “Lose manufacturing and younwill lose — not develop — high-wagenservice jobs.”nHigh-wage service jobs are tied tonmanufacturing by high technology.n”Most high-tech products are producerngoods, not consumer goods.” Lasers,nrobots, computers, bioengineering, andnmachine tools are all linked to improvednmethods of production. “America mustncontrol the production of those hightechnproducts it invents” for two reasons.nFirst, “production is where thenlion’s share of value-added is realized. Itnis where the ‘rent on innovation’ isncaptured.” The profits come fromnusing the technology, not in developingnit. Without an industrial base, R&Dnbecomes too expensive to sustain. Also,nunless R&D is tightly tied tonthe manufacturing of thenproduct—and to the permanentnprocess of innovation innproduction now required forncompetitiveness innmanufacturing — R&D will fallnbehind the cutting edge ofnincremental innovation.nIn short, “you cannot control whatnyou cannot produce.” Manufacturing,nthe best service jobs, and technologicalnprogress are an integral whole. The aimnof policy should be “not a transitionnfrom an industrial economy to a serviceneconomy, but from one kind of industrialneconomy to another.” If postindustrialnmeans nonindustrial, then anpostindustrial America will be an “impoverished”nAmerica.nCohen and Zysman neatly demolishnthe notion of separate economicnstages. Those who argue that the transitionnfrom industry to services is likenthat of the earlier shift from agriculturento industry make a fundamental error ifnthey conclude that industry can benabandoned. America did not abandonnagriculture when it became an industrialnpower. Instead, agricultural productionncontinued to expand at a rapidnpace. The sectors reinforced eachnother, as mechanization increasednfarm productivity. The strength of thenAmerican economy has been its abilitynto build on success without giving upnstrategic sectors that would make itnvulnerable in the future.nMore than just money and jobs arenat stake. Military power depends onnindustrial capacity and technologicalnnninnovation. “An erosion of our competitivenposition in a critical set ofnindustrial chains would constitute anmassive reduction in our strategic independencenand diplomatic options.”nDiverse, robust and leadingedgenU.S. producers inn[semiconductors, computers,ntelecommunications, robotics,nmachine tools] and othernindustrial chains are morencritical to U.S. national securitynat the current time than to mostnother nations . . . whatever thenups and downs of militarynspending, our basic securitynposture is built on thenassumption that America willnmaintain, round after hurriednround, a permanent lead in anrather broad range of advancednindustrial technologies.nThe economies of scale in manufacturingnand the high cost of R&D makena large commercial industrial sector annecessity. It lowers the cost of producingnmilitary equipment because muchnof the fixed cost of production andnresearch are underwritten by the commercialnside of the enterprise. PrivatenAmerican firms must be able to maintain,nunder normal peacetime conditions,nthe productive capacity andnR&D programs needed in an emergency.nOtherwise, the government willnhave to structure its own reserve capacitynat enormous public expense, ornthe nation will become dependent onnuncertain foreign supplies. Both arenhigh-risk, high-cost alternatives to thenprotection of a large and ongoingncommercial industrial base.nAmerican productivity has lagged behindnJapan’s, West Germany’s, andnother rivals’. Cohen and Zysman urgengreater investment in R&D and reindustrialization.nIndustry must “automatennot immigrate.” This will requirengreater capital formation because advancednindustrial systems are capitalintensive.nThe authors make the usualnplea for a tax system that encouragesnsavings and discourages consumer debt.nThe raiding of the capital pool to fundngovernment deficit spending must alsonend. Instead, the government mustncontribute more to R&D and be preparednto subsidize private industry innkey areas.nThis represents a turnabout fromn