David Warsh: We were warned that things would go wrong
Lancaster, Ohio, devastated by the effects of the new forms of corporate financial manipulation that took off in the 1980s.
SOMERVILLE, Mass.
The appearance of a new edition of America: What Went Wrong?, a 1992 best-seller by Donald Barlett and James Steele, prize-winning reporters for The Philadelphia Inquirer, is an opportunity for those of us still in the news business to reflect. I have no problem with the subtitle they have added, The Crisis Deepens. But what was I thinking when the book was published?
What Went Wrong appeared in the spring of 1992, based on a series that had appeared in the newspaper the autumn before. Already there was plenty of carnage to fill chapters titled “Dismantling the Middle Class,” “Shifting Taxes – from Them to You” and “The Chaos of Health Care.” H. Ross Perot was warning about the “giant sucking sound” that would accompany passage of the North American Free Trade Act, as American manufacturing jobs were shifted to Mexico. Reagan had made the idea of NAFTA part of his 1980 presidential campaign. George H.W. Bush had signed the Canadian portion of the measure in 1988. Bill Clinton defeated Bush in November, while Perot received 19 percent of the popular vote. The overall treaty was ratified by the Democratic-led Senate in December the following year.
The U.S. was deep in the political/cultural mood-swing I have come to think of as “the market turn” – away from the propensity to regulate, towards enthusiasm for the promise of technological and financial innovation, with a predisposition toward globalization and reliance on market processes to sort it all out.
My prior beliefs about America’s foreign trade at the time were informed mainly by a little conference volume from 1986, Strategic Trade Policy and the New International Economics, edited by Paul Krugman, of MIT. Twenty-two years later, Krugman would be recognized with a Nobel Prize in economics for the work he had done in those years about competition among what we had recently begun calling “high-tech” products. “Industrial policy” had been a somewhat daring taste, but now it was coming out of the closet.
The fast growth of Japan in the 1970s and ’80s had been a false alarm; you couldn’t conclude that America has “gone wrong” from Toyota’s success; only that it had received a clarion wake-up call. By 1990 Japan’s economy was mired in recession. But things were definitely changing.
The first leveraged-buyout book I read was When the Machine Stopped (1989), by Max Holland, about a disastrous Kohlberg, Kravis & Roberts buyout 10 years before of toolmaker Houdaille Corp. I reviewed American Steel: The Metal Men and the Resurrection of the Rust Belt (1991), by Richard Preston, about the new scrap mill industry, then read with special care the brilliant Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might (1988), by Baltimore Sun reporter Mark Reutter. By then I was reading books about Wall Street, of which Highly Confident: The Crime and Punishment of Michael Milken (1992), by Jesse Kornbluth, seemed the most damning.
But the eyes-wide-open moment for me arrived with IBM’s decision in 1994 to sell its personal-computer business to China’s Lenovo. I had reviewed Big Blues: The Unmaking of IBM (1993), by Paul Carroll, of The Wall Street Journal. So I knew something about how Bill Gates had snookered IBM out of the far more profitable than hardware personal-computer software industry. The question was, could a Chinese company continue to make a success of a high-gloss American manufacturing business?
Ten years later, the answer was in: They had, and then some. By then, Harvard economist Dani Rodrik had published his heretical Has Globalization Gone Too Far? (1997). The 1999 Seattle protests as China prepared to join the World Trade Organization had made it clear there was trouble on the horizon. William Overholt had been prescient in The Rise of China: How Economic Reform Is Creating a New Superpower (1993), but not until James Kynge, of the Financial Times, published China Shakes the World: A Titan’s Rise and Troubled Future (2006) were the dimensions clear.
By the time that David Autor, David Dorn and Gordon Hanson published “The China Shock Learning from Labor Market Adjustments to Large Changes in Trade’’ in the Annual Review of Economics, in 2016, Donald Trump has become the Republican Party’s presidential nominee. “The China Shock” and the work that’s come after may warrant another Nobel Prize 20 years hence; and an avalanche of books about American job losses has roared through in recent years, including the best-selling Hillbilly Elegy: A Memoir of Family and Culture in Crisis (2016), by the many-faceted J.D. Vance. My favorite was Glass House: The 1% Economy and the Shattering of an American Town (2017), by Brian Alexander, about Lancaster, Ohio, his hometown.
It was when I read An Extraordinary Time: The End of the Post-war Boom and the Return of the Ordinary Economy (2015), by economic journalist Marc Levinson, that my sense of the overall narrative crystalized. Those first 30 years after World War II had indeed seen a period of remarkable economic growth in the United States and Europe – les trente glorieuse in France; a “golden age” in Britain; the Wirtschaftswunder in West Germany, il Miracolo in Italy. But those first 30 years were a phenomenon of the Atlantic World. The next miracles of growth occurred around the Pacific. It was U.S. power and America’s commitment to principles of free trade that facilitated the growth that brought down communism, and created a vastly richer and more equal world – equal, at least, among nations. Does that make it safer, too? The world certainly has become dangerously warmer. There is nothing “ordinary” about the global economy of today.
I didn’t vote for Ross Perot in 1992. Nor did I believe America had “gone wrong” then, at least not in a general way, though abuses were beginning to pile up. Barlett and Steel were definitely on to something, along with other center-left journalists, in particular Thomas Edsall, then of The Washington Post, and David Cay Johnson, then of The New York Times. Only in 2016 did America’s elected government decisively break bad, at least for a time. Thanks to Perot and Barlett and Steele and all the others, including young Paul Krugman, we can’t say we were not warned.
David Warsh, an economic historian and veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this column first appeared.