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THE END OF LAISSEZ-FAIRE:

NATIONAL PURPOSE AND THE GLOBAL

ECONOMY AFTER THE COLD WAR

By Robert Kuttner

Knopf -- 304pp -- $22.95

The Reagan Administration's infatuation with laissez-faire economics, contends Robert Kuttner, accelerated the decline of America's global economic power. Virtually alone among nations, he writes, the U. S. clings to the ideal of a self-regulating market.

Of course, the country violates that ideal by resorting to monetary ease, as well as unemployment insurance and other safety nets, to counter the current recession. Similarly, the BUSINESS WEEK columnist notes, huge expenditures on defense research and development constitute a de facto industrial policy. And U. S. trade policy is marked by quotas and preferential rules, often the result of diverse political pressures.

The problem is, the U. S. still views such actions as necessary evils rather than parts of a coherent strategy to secure stability and growth. And that schizophrenic attitude has become a liability in a world in which successful rivals play by quite different rules.

America's push for free trade made sense right after World War II, when the nation's productive advantage was overwhelming, says Kuttner. Its trading partners never fully went along, employing subsidies and planning to strengthen their economies. But the U. S. was more concerned that they accept its cold war leadership role, particularly since it assumed that its own laissez-faire ideals assured its economic supremacy.

The end of the cold war helped shatter that illusion, Kuttner writes. Europe and Japan have largely caught up with the U. S. And the globalization of the world economy and the mobility of capital and technology have eroded America's ability to manage its economy.

Kuttner says the U. S. should temper the goal of free trade and work instead to build a pluralistic trading system in which predatory practices are banned and similar rules govern all. At home, he advocates an industrial policy stressing technology development, infrastructure investment, and job training. "The hands that repair the damage of recent decades," he says, "must be visible ones."


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