From books, articles and television talk shows, Americans have come to accept the idea of the "competitive nation," one that excels in most every economic field it enters. Japan is often depicted as a sumo wrestler, shoving aside all comers from abroad. West Germany is a well-oiled factory-state. The United States, in contrast, appears more often as a flabby Uncle Sam who is falling behind the pack in a global economic wind-sprint.
Now comes Harvard Business School professor Michael Porter to argue that there are no such things as competitive nations. There are only competitive industries, and they are scattered all over. Porter believes that, however tarnished its image as an economic unit, the United States has world-leading industries in ample supply: computers, software, commercial aircraft, credit cards and movies, to name a few. Many Japanese industries, despite their nationality, he says, are second-rate in global terms and likely to remain that way.
Governments can help by channeling funds and energy into such things as education and infrastructure, Porter says, but they are likely to gum things up if they try to subsidize, organize or otherwise set the long-term direction of their companies. In the end, industrial success comes from myriad factors that merge to create higher productivity. Top among them: incessant pressure to innovate, best applied by brisk competition in the home market.
These are the core ideas of "The Competitive Advantage of Nations," an 855-page tome that Porter published this spring after 4 1/2 years of research here and abroad. It has fast become a book that people who care about America's place in the world economic order must read -- or pretend they have. Porter in his opening pages suggests various shortcuts through its dense and often repetitive prose. Many, however, are getting by on a cheat sheet the author has considerately supplied: a summary article in the March-April Harvard Business Review.
In whatever form they are encountered, Porter's arguments appear at a time when powerful people in Washington, from both political parties, are moving in the opposite direction, becoming enamored with the idea of cooperation among industries and government-industry cooperation in some form. Many Republicans, while praising competition, say there is also room in today's world for joint research and joint production. Many Democrats want to go a big step further and have government set up national consortia that would target specific industries, such as high-definition television, for financial aid and coordination.
People in the Democratic camp are more comfortable with a book that George C. Lodge, a Harvard Business School colleague of Porter's, published this spring at about the same time (a coincidental timing, Lodge says) as Porter's book. "Perestroika for America" is its title and it argues for a U.S. version of the Soviet reform program of that name. Get government and industry working together on a grand scale, Lodge says, noting that some of the prime breakthroughs of U.S. technology came through cooperation that already takes place in the defense industry.
Research and development consortia will allow companies to avoid the duplication of spending, their promoters promise. Joint production will make for greater economies of scale, while government aid will further bolster capabilities in key "strategic industries." Said Jeff Faux, president of the Economic Policy Institute: "These are the characteristics of the nations that are beating the pants off us in international competition."
However compelling the case for competition may sound, the United States faces countries that do not play by its rules, members of this camp say. The United States must shift course accordingly, or risk seeing industry after industry wiped out by foreign competition. Ultimately, they say, U.S. prosperity depends on keeping these industries alive and well within the national borders. So, too, may military security, because high technology is key to the country's armed strength.
The devotees of this approach have hardly welcomed Porter's work. "It's sort of a Chinese dinner of a book," said Faux. "After you've stuffed yourself with it, you're wondering what does it mean for what America should do?"
Porter is also faulted for ignoring industries that don't fit his mold. There are only two U.S. manufacturers of commercial aircraft, for instance, but they dominate the world. On the other hand, there are countless American makers of computer chips, but they are taking a beating from large, vertically integrated companies in East Asia.
Some of his rivals suggest that Porter is more promoter than scholar. Amiable and thoroughly Ivy League, he has a highly successful consulting practice on the side and a book like this is a powerful advertisement. But where, they ask, is the substance in a book that tells us yet again that competition is king?
Porter shrugs off his critics and points to 855 pages of heavy artillery of his own.
Classic economic theory holds that "comparative advantage" among nations is the key to understanding patterns in world trade. (The title of Porter's book, in fact, is an insider's pun, a play on this term.) In its simplest form, the theory states that nations that are the lowest-cost producers of particular items will export them. Over the years, the theory has been refined, with some scholars stressing exchange rates' role in determining advantage, others going variously with labor costs, interest rates and the presence of natural resources.
Porter, however, contends that none of the available literature presents "an integrated theory of competitiveness." So, he offers up one. Key is the notion that competitiveness resides within industries, not national borders, and can show up in countries not commonly ranked as economically nimble -- Italy, for instance. It has companies that are world leaders in fields such as ceramic tiles, ski boots, jewelry and packaging machinery.
Industries that do well internationally tend to be headquartered in clusters in the same geographic area, he notes, creating crucial cross-fertilization between companies. Silicon Valley for semiconductors; the town of Seki in Japan for cutlery; and Basel, Switzerland, for pharmaceuticals are a few examples.
Education and strong local universities and research centers contribute to success, he says, and government can help in this regard by promoting them. So, too, can conditions that government has far less control over, such as the presence of healthy supporting industries, tough, discriminating customers and a skilled, motivated work force.
But nothing helps like a competitive home environment. By definition, this is impossible if government is trying to organize mammoth "national companies" or give out subsidies. Companies by nature resist change, unless they believe their survival is threatened. Intense competition at home produces strong companies that then stand ready to take on the world.
Claims that Japanese industry grew strong through collusion and government aid are plain wrong, in Porter's view. Yes, those things do go on in Japan, he concedes, but where is the evidence that they explain Japanese success?
Many scholars looking at Japan tend to focus on the differences they find to how things are done in the United States. But the strongest Japanese industries, he says, are those that are diverse -- Japan has nine automobile companies, 15 camera producers, 112 makers of machine tools, 15 makers of television sets. Despite claims that it is foundering, he says, the U.S. semiconductor industry leads the world in many fields. As for commercial aircraft, the United States in fact has competition within its borders -- most countries have only one national aircraft maker.
Porter says that efforts toward government leadership in the United States will backfire. Members of research and development consortia will in fact waste money by funding both the joint work and private work that they will continue secretly in home labs. Government aid and lack of home competition will act as a "narcotic," leading companies to fail to make the difficult choices that they must to keep on top of the world. To keep the competitive fires burning at home, government must step up enforcement of antitrust laws, not loosen them, as the Bush administration is suggesting doing.
The book continues to draw attention. The Harvard Business Review article touched off a spirited exchange in the letters column of two issues. The book has been cited in Senate debate over antitrust policy. At Sidney Kramer Books on I Street NW, a favorite stop for Washington economists in search of some reading, the book is selling briskly.
Members of Congress need not buy it, however: Celebrity management consultant Tom Peters was so impressed that he sent a copy to each of the 535 congressional offices. Peters claims that the book backs up with fact and fine print things that many free marketeers had been taking on faith.
Porter's ideas are getting a hearing across the Atlantic, too, through an article in Britain's Economist magazine. In it, he argues that Europe's strategy toward the 1992 economic integration risks disaster by stressing cooperation and the patching together of mammoth cross-border companies.
In recent weeks, Porter has been invited to Washington for a string of seminars, briefings at federal agencies and the White House and private meetings with legislators. All in all, he said, the response "is much better than I would have ever dreamed for an 855-page monster."
Yet, at the same time, Porter does not fit neatly into any camp. For instance, his praise of antitrust laws and government technical standards rubs wrong for free marketeers who contend that companies should be free to do most anything they want. He accepts that there are "food chains" of industries, a valued notion for the interventionists, but says that government shouldn't try to set them up.
Porter said he hopes that this will help bring the camps together. Another view is that independence of this sort is not conducive to political impact, because no existing group can wave the book as a manifesto. Thus, it may well sink into the dusty oblivion so common to thick books. But, said Robert Z. Lawrence of the Brookings Institution, "that's the nature of the problem. There are no easy concepts."