The New Economy

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highly fuel-efficient cars.

Japan also has its share of declining industries. Chemical-fertilizer production is down 66% from its peak, while paperboard and cement output are off 10%. But instead of resisting change in the economy, the Japanese government encourages it. That is easier to do in Japan than in the U.S. or Western Europe because much of Japanese industry is organized into large groups like Mitsubishi, with product lines ranging from beer to nuclear power plants. Workers whose jobs become superfluous in one part of the group can often find work in another branch. Large-scale retraining programs have helped channel workers into new fields like the manufacture of antipollution equipment.

These upheavals caused by the New Economy have generated intense pressure on governments around the world. No one wants to lose a job, and no politician wants to lose the votes of those who lose jobs The automatic response of many businessmen and workers when threatened by foreign competition is to demand protection: quotas, tariffs, subsidies, "voluntary" trade agreements, anything to preserve the status quo. In times of recession and high unemployment, the clamor becomes virtually irresistible. As a result, the world is suffering its worst outbreak of protectionism since the 1930s. The U.S. has moved to reduce imports of cars, motorcycles, steel, textiles and a host of other products. The European Community has persuaded Japan to limit its exports of hi-fi equipment, computer-controlled machine tools and television tubes. Japan is considering barriers against South Korean steel. The list goes on and on.

In the U.S., protectionist pleas are often pitched as dire warnings of doom. Chrysler Chairman Lee Iacocca contends that Japan is trying to "capture systematically" the American auto market. Says he: "The process is well under way, and the damage inflicted thus far is both serious and permanent. If the American auto industry succumbs, steel, textiles, rubber and machine tools will follow, and the high-tech industries, which are vulnerable to the same kinds of Japanese attack as American heavy industry, won't be far behind." Such arguments have gained wide popular support. A poll by the Opinion Research Corp. suggests that 69% of Americans support import barriers.

Some industries contend that protectionism is a matter of national survival. Says James Gray, president of the National Machine Tool Builders' Association: "The continued growth in imports will completely debilitate the American machine-tool industry. If we wish to deter aggression, America must have a strong industrial base, built upon the foundation of a strong machine-tool industry. With a weak industry, we could become subject to threats and intimidation. It is a matter of national security." But Lawrence Krause, an economist at the Brookings Institution in Washington, replies: "National defense is generally the last argument of the scoundrel, because who can argue against national defense? It is a way to close off the argument rather than debate it. The machine-tool industry could be one-twentieth of its size now and provide all of the machine tools needed for national defense."

The apparel industry argues that imports from low-wage nations in Latin America, among other places, are causing social problems in the U.S. Says Herman

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