Book Reviews

A REVIEWER'SNOTEBOOK JOHN CHAMBERLAIN The Wealth ofAmerica In his From Adam Smith to the Wealth ofAmerica (New Brunswick, N.J., Transaction Books, 237 pp., $29.95), Alvin Rabushka has writ ten one of the really searching books of our time. But its title, though apt as an indication of the validity of principle, is somewhat misleading. Taken literally, it implies a straight line process in history. But the sad truth is that Adam Smith lost caste in England at the very peak of his success. His principles took hold in America in the nineteenth and early twentieth centuries, but they went out of vogue in the depression of the Thirties. If that were all there was to it, Ra bushka might as well have called his book The Decline of the West. Both Britain and America have been throwing their wealth away. But it so happened that several geograph ically small countries on the rim of eastern Asia (Hong Kong, Taiwan, Singapore, South Korea) decided to follow the path of economic freedom, a ·phenomenon which is now teaching us to have a new look at things.

Rabushka devotes part two of his book to the Oriental experience. With rebirth in mind he might bet ter have called his book The Phoe nix. Or even, There'll Always be an England-Somewhere. Certainly we in the West have been honoring Adam Smith's laissez faire philosophy in the breach. But there is a lesson in Rabushka's story. The lesson is that it can take fifty years for a common sense proposition to take over. When Adam Smith wrote The Wealth of Nations England was in the grip of the mercantilist phi losophy. The younger William Pitt was fascinated by Smith's work, but the war with Napoleon kept him from doing much about it. "In the aftermath of the Napo leonic Wars," so Rabushka writes, "Britain paralleled the contempo rary United States." The list of reg ulations in the British statute book covered all sorts and conditions of work. There was a stiff tariff wall around manufactures, and the corn 507 508 THE FREEMAN August laws were regarded as an absolutely necessary crutch for agriculture. The export of machinery was banned and skilled artisans were denied the right to emigrate. The Navigation Acts stipulated that all seaborne trade going in and out of British ports should be carried in British ships. The ships themselves had to be built in British yards. There were restrictions on joint stock compa nies, and foreign trade was in the hands of royally-chartered monopo lies. A huge public debt, the legacy of the eighteenth-century wars, con sumed half of all public spending.

Says Rabushka, "the govern ment's heavy-handed approach to the economy reflected mercantilist thinking and practice embellished by wartime controls ... The British economy was a mixture of deliberate economic decisions of her rulers to achieve specific national goals and a collection of ad-hoc taxes and mea sures solely reflecting urgent war time needs for more revenue or eco nomic protectionism." Sounds very much like Washington, D.C., today. The Cotton Industry It so happened that the British controllers in 1815 had overlooked the cotton industry, which was just coming into existence. There were hundreds of regulations to prevent growth in silk and woolen manufac ture. But the cotton industry had, for a moment, the unchecked advantage of the nascent industrial revolution. It began to show its heels to silks and woolens. Adam Smith had been a long time dead when the British: really began to heed his words. And it took a full half century, from 1815 to 1865, be fore the economic reform had been completed. Some great men were in volved in it. Rabushka doesn't give enough credit to the evangelists of free trade, John Bright and Richard Cobden. His heroe.s are William Huskisson, Sir Robert Peel and Wil liam Gladstone. Huskisson started the ball rolling by the tariff reform of 1825, with reduction in the duties on rum, fabrics, minerals and man ufactured goods. In 1832 the first im portant electoral reform brought manufacturing representatives into the House of Commons.

Sir Robert Peel continued the tar iff reduction crusade, but he had to compromise by accepting a not too onerous income tax in order to keep the budget balanced. The Corn Laws persisted, and Peel, as a Tory, didn't dare go too strongly against the landed aristocrats who insisted that agriculture should not be left to the mercies of the international market. But the potato famine in Ireland changed the intellectual climate a bit. Despite the opposition of the Duke of Wellington, who said "damned rotten potatoes put Peel in his fright," the Corn Laws were fi nally repealed.

1985 THE WEALTH OF AMERICA 509 A Stimulusto Trade Then came the Gladstone budget of 1860, with a total abolition of du ties on dairy products and cuts on timber. The favor to imports had a magical effect on exports. "The ex port ~rade of 1860," says Rabushka "was the largest on record, having risen in value to 136 million pounds from the 1859 figure of 130 million." Modern supply side theorists would be fully justified in claiming that the· history of England between 1815 and 1865 proves the case for the Laffer Curve. Money continued to pour into the exchequer in steadily increasing amounts with each round oftariff reductions. The lower the tax rate, the bigger the tax volume. But Britain's increase in wealth, coupled with the new electoral laws that ex tended the franchise to all males re gardless of property qualifications, was its own undoing. The Fabians, with their philosophy of redistribu tion, set the new intellectual climate in the Eighties and Nineties, and the Welfare State was the end result.

Rabushka more or less drops the British story at this point. He con tinues to accentuate the positive by switching to what happened after 1946 in Hong Kong, Taiwan, Sin gapore and South Korea, where the British experience of the 1815-1865 half century has repeated itself. Ra bushka's penultimate chapter, enti tled "What happened to the Ameri can Dream?," is pure melancholy. The final chapter, "Recipe for Pros perity," calls for a return to Adam Smith's principles. With the fifty-year struggle in Britain in mind, Rabushka ob viously doesn't think anything is going to happen overnight. But "Ronald Reagan," he says, "has taken a modest first step, perhaps no more than that of William Huskis son ..." Some modest reforms, he says, have been achieved. And the "determination and success of three giants in nineteenth-century Brit ain gives cause for optimism in our country. As the intellectual currents increasingly demonstrate the flaws in big government and the benefits of the market economy, politicians ... will find the attractions of more economic freedom irresistible. On this view, the future is not so black."

I) AN AMERICAN IN LENINGRAD by Logan Robinson CH.W. Norton & Co., New York, New York 10010), 1982 320 pages _ $17.50 hardback Reviewedby Bill Anderson LOGAN ROBINSON, a New York City lawyer and Harvard Law School graduate, has written an enjoyable 510 THE FREEMAN August and informative book on his expe riences in the Soviet Union, first as an exchange student at the Civil Law Faculty of Leningrad State Uni versity (Lenin's alma mater) from 1976 to 1977 and later as a tourist returning to the U.S.S.R. in the fall of 1980. A well-written and fast-paced book, An American in Leningrad gives much insight into daily life in the Soviet Union through a collection of anecdotes detailing the author's ad ventures (and misadventures) in dealing with the omnipresent bu reaucracy, standing in long lines to purchase shoddy merchandise (when it was available), and making friends with local.citizens despite the KGB and the built-in paranoia of the Rus sian culture. Robinson's accounts are laced with humor as he describes his many brushes with Soviet bureau crats whose main duty, it seems, is to make life as difficult as possible for anyone needing their official approval.

For example, the author cites the difficulties of obtaining the neces sary faculty signatures to allow him to travel in other parts of the U.S.S.R., although he admits that his being an· American gave him a distinct advantage over his counter parts from the Soviet Union as well as those from Eastern European and Third World nations who were also studying in Leningrad. And part of the reason for his relative success in winning "victories" over the bu reaucratic system, Robinson writes, was his determination not to leave his American values and forceful ness at home. Although he is not an economist, Robinson picks apart the inefficien cies of the Soviet economy with the logical scalpel worthy of a Milton Friedman, pointing out just why the communist system fails. The author gives an excellent example in his ac count of a small, private industrial goggles factory in Leningrad. Be cause of the eye injuries occurring in Leningrad factories due to a goggles shortage, some workers fashioned industrial goggles of their own. They recognized the· growing demand for their products and were soon filling orders from state factories, an illegal activity in the U.S.S.R. punishable by death. For a while, the state's des perate need for goggles outweighed the gravity of the workers' "crimes,"

but when the factory became "too" successful, the authorities closed in on the operation, shutting down the enterprise and jailing its owners. The end result, Robinson writes, is that once again goggles came into short supply and eye injuries rose in Leningrad. The fascinating part of that story, he narrates, is that it was told to him by a Soviet lawyer who herself be· lieved that state crackdowns on pri· vate enterprises were wrong-headed at best and harmful at worst. The 1985 OTHER BOOKS 511 lawyer's attitudes, it seems, mir rored the attitudes of others Robin son met in the U.S.S.R. In fact, he writes that he found only one (that's correct) believing Marxist-Leninist in all his travels in the ideology's birthplace. Unfortunately, the lone adherent to the Russian civil reli gion happened to be his faculty advisor. An American in Leningrad con tains many other anecdotes as well, including Robinson's brief tour with the Nitty Gritty Dirt Band as he served as the band's translator dur ing part of its Soviet tour, a tour made humorous by the bumbling an tics of the KGB as it tried, in grade B movie style to harass the band and its Russian fans.

For those who wish to gain more insight into the U.S.S.R., its econ omy and its people, this book is must reading. i) MAKING THE FUTURE WORK by John· Diebold (Simon & Schuster, Inc., 1230 Avenue of the Americas, New York, N.Y. 1002.0), 1984 466 pages _ $18.95 Reviewedby William H. Peterson THOSE who well anticipate and de fine the issues, according to legal lore, usually win the arguments. John Diebold is one who not only foresaw the postwar sweep of automa tion-indeed he coined the word-but who has long been adept at spotting and honing issues and hence win ning arguments. Diebold sharpens national if not global questions and probes the fit (or misfit) of many of America's institutions with the dy namics of the 1980s. Generally he finds these institu tions out of tune with the times-Le., a drag on progress. Accordingly he comes up with ways of "closing the gap between what our society can achieve-and what we do achieve."

Examining that gap, Mr. Diebold analyzes on the basis of structure, function, process and management such institutions as the federal reg ulatory bureaucracy, Congress, or ganized labor, commercial banking, corporate America, the "lawyering" industry, the media, and public education. Well, what about education? He notes that the school industry spends about 85 per cent of its budget for salaries, 10 per cent for buildings, less than 5 per cent for books and pa pers, and under 1 per cent in re search on how children learn and its own efficacy in educating them. He worries about educational monop oly-about requiring a child to at tend a particular school regardless of its goals, methods, and curricu lum. He therefore asks for more choices in education and comes out for the voucher plan, for possibly 512 THE FREEMAN even for-profit corporate-run schools. He writes: "An IBM school or a Gen eral Electric school is not outside the realm of possibility."

What about the media, which Mr. Diebold thinks is indeed the Fourth Estate? He decries its generally short-term outlook, its penchant for creating crises by focusing attention on isolated generally pictorial events to the exclusion of stories that can not be told in pictures or a few par agraphs. Television news gets espe cially rapped for sensationalism. Example: Three-Mile Island, which Walter Cronkite hyped up at the time as "a nuclear nightmare ... the worst nuclear power plant acci dent of the atomic age." Even now the incident is still described as a "disaster," comments Mr. Diebold, even though the only human harm known for sure as attributable to the accident was caused by anxiety, not radiation. What of the "lawyering" industry? Mr. Diebold criticizes the U.S. legal system for becoming in many ways a roadblock to making the future work and even "a roadblock to jus tice." He criticizes, for example, the government antitrust attorneys who tried to subpoena IBM documents that would have taken 62,000 man years to produce at a cost of $1 bil lion. He complains about the more than 600,000 lawyers in America af against 15,000 in Japan. He thinkf humorist Russell Baker has a pos· sible cure-we export one lawyer t< Japan for each Japanese car im ported here.

So this incisive book goes, witl hardly any institution spared. MorE and more corporate leaders are cas tigated for their short-term vision which in turn is blamed on the "per formance" orientation of Wall Stree1 analysts, the SEC requirement 0: quarter ly reporting, the here-and there behind-the-times teaching 0: business schools, and the Congres sional prohibition manifested in thE Glass-Steagall Act preventing bank~ from taking equity positions ir corporations. To be sure, the anachronizing, thE emerging cross-purposes of Ameri ca's institutions, are complex mat ters. The status quo is frequently ty rannical, as another critic of ou] times, Milton Friedman, has re minded us. But the promise of free dom and free enterprise is too grea1 to be short-changed. Better to define issues, raise questions, exerciSE leadership, engage in dialogue, and perhaps above all, have vision-the long view. These are the marchini orders that John Diebold, a modern day Socrates, hands us in this book @ the Freeman VOL. 35, NO.9· SEPTEMBER 1985 Three Steps to FreedomA Page on Freedom, No. 23 Robert D. Love 515 The way is not easy, but the reward is liberty.