Turbo-Capitalism - Winners and Losers in Global Economy 006093137X

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LUTTWAK'S WORK

IS

A RIGOROUS CRITIQUE OF A SYSTEM THAT HE BELIEVES

THE BEST THING ABOUT

WILL EITHER EVOLVE OR COLLAPSE FROM

whether you agree with them or not, is the agile, independent intellect at work in them. it makes him, among other things, a

his books,

superb social critic."

— Business Week

TURBO CAPITALISM Winners and Losers

in

the Global Economy

Edward Luttwak LUTTWAK'S STRONG SUIT

HE

IS

IS

THAT HE WRITES FORCEFULLY AND IDIOSYNCRATICALLY.

COSMOPOLITAN AND EASY TO READ.

NOMIC AND SOCIAL CRITICISM ALMOST

IN

AT HIS BEST, LUTTWAK BLENDS ECO-

THE STYLE OF JOHN KENNETH GALBRAITH."

ROBERT KUTTNER, NEW YORK TIMES BOOK REVIEW

More

Praise

For

TURBO-CAPITALISM "Turbo-capitalism has been sweeping the world since the 1970s. ...

It has resulted from on by the computer revolution, and it has made many people very rich. But has it been a good thing for society as a whole? This is the question debated engagingly in Turbo-Capitalism by Mr. Luttwak, a senior fellow at the Center for Strategic and International Studies in Washington .... Much of what Mr. Luttwak writes makes sense, particularly his discussions of industrial Christopher Lehmann-Haupt, policy."

spectacular gains in productivity brought

—

New York "On

occasion Luttwak musters a delicious Galbrathian barb.

with a measured fair-mindedness.

mentalism over,

He

Slowly a

aries

is

fully

On

the whole, he writes

aware of the appeals of market funda-

—the innovation, the excitement, the constant change. But he

whether the

fruits,

such as they

most suggestive point concerns the der.

Times

new

politics

is

are, are

asks, over

political implications

of the

new economic

most fundamental

money. Perhaps

it

disor-

emerging, a politics that seeks to re-establish the bound-

of the market in both environmental and social terms. This politics

ative in the

and

always worth the social price. Perhaps his

sense, but appears radical for

is

conserv-

opposing the radicalism of

new politics and prod the Edward Luttwak has offered a large contri-

will take a conservative to explain this

opinion establishment to acknowledge bution to this end."

it.

— The Washington Monthly

"A decidedly even-handed, cogent discussion, more descriptive than prescriptive. Here is an independent, thoughtful text, useful for interpreting tomorrow morning's economic news." Kirkus Reviews

—

"This wide-ranging review and critique of the prevailing economic current will not win

Luttwak plaudits from the economics establishment, which believes in its mind and heart (as much the one as the other) that free markets and free enterprise are the ratio nal and indispensable recipe for growth and development. But Luttwak has company: Harvard economist Dani Rodrik's recent defense of protection and the worried mifl givings of George Soros etary movements."

on the

risks

and dangers of uncontrolled speculation and moil David S. Landes,

—

Los Angeles Times Book Review

ALSO BY EDWARD LUTTWAK Coup d'Etat Dictionary of Modern

The The

Israeli

Political Uses

War

Army of Sea Power

The Grand Strategy of the Roman Empire Strategy

and Politics:

Collected Essays

The Grand Strategy of the Soviet Union

The Pentagon and the Art of War Strategy

and History:

Collected Essays

The Endangered American Dream

TURBOCAPITALISM WINNERS AND LOSERS IN THE GLOBAL ECONOMY

Edward Luttwak

± HarperPerennial A

Division of HarperCollinsPM^fo^m

To

my

wife Dalya

This book was originally published in Great Britain in 1998 by Weidenfeld 8c Nicolson.

A

hardcover edition of this book was published in 1999 by HarperCollins

Publishers.

TURBO-CAPITALISM. Copyright

©

1999 by Edward Luttwak. All

reserved. Printed in the United States of America.

No

part of this

rights

book may

be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews.

For information address HarperCollins Publishers

New York, NY

Inc.,

10 East 53rd Street,

10022.

HarperCollins books

may be purchased

for educational, business, or sales

promotional use. For information please write: Special Markets Department, HarperCollins Publishers, Inc. 10 East 53rd Street,

New York, NY 10022.

First HarperPerennial edition published in 2000.

ISBN 0-06-093137-X 00 01 02 03 04

/PvRD

10

987654321

7

1

CONTENTS

Acknowledgements Preface

1.

WINNERS AND LOSERS

1

Turbo-capitalism conquers the world

4

Two cheers for nasty Two more cheers for

12

Why Why The

.

viii

ix

lawyers

7

greedy lawyers

American winners have no fun American perils of

WHAT

incomplete imitation

IS

1

losers accept their fate

20

25

TURBO-CAPITALISM?

Controlled capitalism

27

31

The retreat of the state 36 From tradition to contracts 40 The victory of the computer 44 Adaptation

Money and

.

.

.

.

and

love

frustration

46

50

GLORIES AND DOWNFALLS OF THE

GLOBAL ECONOMY Booming

sales,

'Out-sourcing' Betting the

The new

all

way

the

company

54 57

insecure jobs to

China

64

prohibitionism

68

Intolerant justice, unjust tolerance

7

62

CONTENTS

THE MICROSOFT MIRAGE

4.

Titans

new and

Much

capital,

The

76

77

old

few jobs

81

85

return of the servants

THE RETURN OF POVERTY

5.

Why

wages

The

fall

91

94

Underclass myths

95

99

rational criminal

THE ERA OF UNEMPLOYMENT

6.

The world demand /technology Growth without jobs 109

How

to eliminate

unemployment

a French parable

Japan:

full

in five easy steps:

1 1

employment

as the national goal

1 1

THE THEORY AND PRACTICE OF GEO-ECONOMICS 127

7.

Warfare by other means: geo-economics

A

new

Is

geo-economics new?

role for elite bureaucrats

A world

of

128

133

138

rival trading blocs?

143

THE INDUSTRIAL POLICY DEBATE

8.

The

bureaucratic trap

152

155

Having a policy without knowing

it

159

TURBO-CAPITALISM COMES TO RUSSIA

9.

A

gangster economy?

Beneficial crimes

164

167

Will Russia ever prosper?

173

Globalization and the information deficit

10.

FREE TRADE AS IDEOLOGY

Protectionism as sin

1 1

102

102

cycle

184

MONEY AS RELIGION

187

The age of the central bankers 191 The march to the euro 196 The euro: a super-hard currency? 199

1

78

181

162

1

CONTENTS

SHOPPING AS THERAPY

12.

A cure

Emotional

fast

208

food

Shopping and the trade balance

2

1

THE GREAT DILEMMA

13.

204

207

for solitude

215

Dynamism and insecurity 219 The destruction of authenticity 224 Growth

The

for ever

great

Appendix

231

dilemma

236

THE GLOBAL ADVANCE OF

TURBO-CAPITALISM

238

Tables for selected countries: 1985 and 1998 Definitions

Index

280

and sources

for

Appendix

tables

247

278

ACKNOWLEDGMENTS

I

am

grateful for the direct help of

my

former

research assistant David Leishman,

now advancing

and teacher

in agricultural

as a doctoral student

economics. I

I

am

as grateful for all the indirect help

have received over

administrative

many years from

and research

staff

the directing,

of the Center for

and International Studies of Washington affiliation. It has grown so large under the valiant leadership of Ambassador David M. Abshire, and so many have helped in one Strategic

DC, my

way or

only institutional

another, that

I

without indecent excess.

cannot thank individuals

PREFACE

Perhaps

it

is

because

I

am

the son of an innovative capitalist

manufacturer, and an entrepreneur on

my own

account, that

I

deeply believe both in the virtues of capitalism and in the need

impose some measure of control over its workings. With the possible exception of nuclear weapons, capitalism is the most powerful of human inventions. As true an expression of the restless soul of European crviftzatiorf as the urge to discover, create and conquer, capitalism has now spread to almost every part of the world. Traditional economies guided by unchanging practices, communist economies directed by bureaucrats, closed economies commanded by rulers or magnates have all been swept away, surviving only in isolated backwaters. Nothing can equal the unique ability of to

capitalism

to

convert simple

productive energies.

No

human

greed into

infinitely

varied

purposeful central administration can pursue

both efficiency and innovation as successfully as the relendess com-

and wealth unleashed by capitalism. No disciplined scheme can coordinate tasks and apportion supplies as harmoniously as the utterly spontaneous workings of capitalist markets, which need no scheme or discipline at all. By displacing set work-routines or planned outputs with the everchanging competitive production of goods and services; by replacing giving and taking among the entitled with buying and selling among people who might as well be perfect strangers and often are, capitalism

petition for profit

transforms both ends of every traditional, bureaucratic, or patrimonial

economy

it

conquers. With that, inevitably,

formed, from the ways of

politics

much

and government

else

is

also trans-

to private habits

and personal tastes, from the patterns of family life to the very landscape of town and country. Even Russia's very new and much-resisted capitalism has been