America's Dangerous Liaisons


By Martin and Susan J. Tolchin

Alfred A. Knopf - 427pp - $25

No one in the White House seems willing to admit saying "there is no difference between computer chips and potato chips." Yet the remark is frequently ascribed to unnamed aides to President Bush or to members of his Cabinet. Ross Perot used it in the Oct. 11 Presidential debate. The quote also appears in Selling Our Security: The Erosion of America's Assets.

Whether anyone in authority actually said it is almost beside the point: The alleged remark perfectly sums up the Reagan and Bush Administrations' aversion to industrial-policy planning. In their thinking, sales of computer chips and potato chips both contribute to the gross domestic product, and government shouldn't try to discourage one and encourage the other. The market, the theory holds, allocates resources and investments far better than Washington could.

Selling Our Security, by Martin and Susan J. Tolchin, details why this philosophy is simplistic and even dangerous. Using dozens of examples, the Tolchins outline a pattern of neglect they say has hurt the U.S. economy and undermined national security. Making computer chips, they note, entails technological spin-offs and cross-fertilization throughout the electronics industry that can never be matched by producing an equivalent amount of potato chips. Across a wide range of high-tech goods vital to national economic and military security--including flat-panel displays, robotics, and superconductors--U.S. companies are at risk of being hollowed out while high-skilled jobs are lost.

"The failure of American firms has been blamed on the shortsightedness of American management," the Tolchins note, "but there has been complicity on the part of government officials who are wedded to outmoded and unrealistic laissez-faire ideologies." As they point out, there are signs of hope. For one, the Bush Administration has grudgingly complied with congressional mandates to compile lists of critical technologies and examine the national security impact of foreign takeovers. A Clinton White House would carry that ball still further.

The Administration's hands-off, free-market approach sounds like Adam Smith talking, and it is. But fans of this approach also find persuasive lessons in contemporary events. The cold war, after all, was fought against a communist system that employed centralized planning to disastrous effect. In the past decade, the term Eurosclerosis was coined to describe a system so paralyzed by regulation and tax-supported subsidies that almost no jobs were created. And when, in the 1970s, the U.S. government did try its hand at planning--"picking winners and losers," as critics saw it--bureaucrats often proved inept or prone to pork-barrel extravagance. Billions were wasted, for example, on the Synfuels shale-oil project and Tennessee's Clinch River Breeder Reactor.

As foreigners bought up American companies, research, and technology in the late 1980s, almost anyone who suggested that something unseemly was afoot was accused of xenophobia or racism. Anyway, the Japanese seemed perfectly happy to overpay for U.S. real estate, Treasury securities, corporations, technology, and, above all, Washington lobbyists. So where was the harm?

All around us, the Tolchins maintain. First, U.S. weapons makers are increasingly dependent on foreign manufacturers for critical components, and little is being done about it. Recently, for example, a Japanese company, Fanuc, tried to buy the Energy Dept.'s sole supplier of machine tools used in the exacting construction of hydrogen-bomb triggers. The potato-thinkers in the White House refused to intercede, although the deal fell apart for other reasons. And it's not just components that are at risk, the Tolchins say. We also stand to lose engineering, design, inventory control, and manufacturing knowhow.

The authors warn of the potential transfer of civilian or dual-use technologies. General Dynamics Corp., for example, agreed to co-develop a new version of the F-16 fighter jet with Mitsubishi Corp., with the blessing of the Reagan White House. And Nikon Corp. attempted in 1989 to buy the lithography division of Perkin-Elmer Corp. to secure the next generation of chipmaking technology. In both cases, the Japanese were willing to overpay.

On some points, the Tolchins--Susan's a professor at George Washington University and husband Martin is a Washington correspondent for The New York Times--are off base. They describe former Commerce Secretary Robert Mosbacher as an "eloquent" spokesman for a government role in technology. He wasn't. They claim the nation's lead in semiconductors and supercomputers has been "lost." It hasn't--yet. And readers of the duo's ground-breaking 1988 book, Buying Into America: How Foreign Money is Changing the Face of Our Nation, may suffer a bit of deja vu. Indeed, Susan Tolchin has described the new book as "the national security chapter" left out of the previous effort.

While the book covers some of the same ground as the earlier volume, it is distinguished by up-to-date examples and its emphasis on national security. Taken together, the two paint an alarming picture of a U.S. industrial base hemorrhaging technology so dramatically that entire industries are in danger of going the way of VCRs and color TVs.

The Tolchins' penchant for repetition can get annoying. For example, former CIA Director William Casey appeared in Buying three times, warning that foreign investment is a "Trojan horse." He sounds the same alarm twice in Selling. But that's quibbling. For those who are wondering why they can't find a 100% American-made computer or TV--and whether it even matters--this is the book to read.

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