This review article has benefited greatly from commentary by Benjamin J. Cohen, Joanne Gowa, Stephen D. Krasner, and an anonymous referee. Any credit, but not necessarily criticism, should be shared with them.

1. Krugman makes the following comments early (p. 9) in the volume under review: “‘Imperfectly competitive’ does not mean that competition is not fierce or that the firms are somehow misbehaving. What it means is simply that what can happen in these markets is different from, and more complicated than, what is captured by the simple concepts of supply and demand. The imperfection, in other words, is in the economist's understanding, not in the world.”

2. See the review article by Lenway, Stefanie Ann, “Between War and Commerce: Economic Sanctions as a Tool of Statecraft,” International Organization 42 (Spring 1988), pp. 397–426.CrossRefGoogle Scholar

3. Exceptions include the classic case for the “optimal” tariff, the optimal retaliation against it, and comparisons of tariffs to import quotas under monopoly.

4. I have proposed an algebraic characterization of strategic environments, as distinct from algebraically simpler perfectly competitive environments, on pp. 93–94 and 99 of my contribution to Shaping Comparative Advantage. See Richardson, J. David, “‘Strategic’ Trade Policy: Research and Practice in the United States.”Google Scholar

5. In terms of inflation-adjusted gross domestic product per person (one of several alternative measures of economic influence), the United States had more than twice the level of any other country except Britain in the mid-1950s. By the mid-1980s, the U.S. level relative to Germany and France had fallen to just over 1.5; relative to Japan to 1.3 (from nearly 5); and relative to Korea, a typical newly industrializing country (NIC), to 2.7 (from nearly 10). By the same measure, Germany, France, and Italy converged on Britain; Japan passed them; and the East Asian NICs began converging on all. For a discussion of the strategic implications, see Richardson, J. David, “Trade Policy,” in Feldstein, Martin, ed., International Economic Cooperation (Chicago: University of Chicago Press, 1988), pp. 180–85.Google Scholar

6. See Stegemann, Klaus, “Policy Rivalry Among Industrial States: What Can We Learn from Models of Strategic Trade Policy?” International Organization 43 (Winter 1989), pp. 73–100CrossRefGoogle Scholar, which focuses on the two foundational economic models of strategic trade policy. Because of concern about conclusions sensitive to special assumptions and apprehension about supplying intellectual ammunition to the protectionists, Stegemann believes that “the heretics are recanting, and the economics profession is again closing ranks against any kind of protectionist ideas” and concludes that “the attempted revolution … [has gone] by” (p. 90). It might be more accurate to say that the reformers (revolutionaries, yes; heretics, no) have won the day and are finding ever more reasons for lively faith, without apology or recantation.

7. See Richardson, J. David, “Empirical Research on Trade Liberalization with Imperfect Competition: A Survey,” OCED Economic Studies 12 (Spring 1989), pp. 7–50Google Scholar; and Claudio Frischtak, Ulrich Zachau, and Bita Hadjimichael, Competition Policies for Industrializing Countries, World Bank, Industry Development Division of the Industry and Energy Department, 20 March 1989.

8. The conference that led to the Krugman book, for another example, was sponsored by major corporate and trade organizations in commemoration of the fiftieth anniversary of the Export-Import Bank of the United States. Chapter 10 by William H. Branson and Alvin K. Klevorick, “Strategic Behavior and Trade Policy,” describes a series of meetings between academic researchers and staff from the office of the United States Trade Representative (USTR). Their outcome was summarized (p. 241) in the following way: “The policy makers were in command of the detailed facts concerning policy problems, while the academics were able to see that particular models, in the existing or developing literature, could be matched up with the facts to yield useful insights. It seemed clear that combining the capabilities of members of the academic and policy communities would provide the potential for improved analysis of the policy problems, as well as additional information and data for research and the stimulation for analyzing new theoretical models.”

9. There are only modest efforts in this literature to keep trade (border) policy analytically distinct from industrial (sectoral) policy. This is in part because the first is often used as the instrument of the second and in part because international mobility of corporate capital causes many modern “trade” disputes to be essentially disputes over the sharp trade consequences of industrial policies that do not explicitly discriminate at the border. For a discussion of the negotiating implications of this, see Camps, Miriam and Diebold, William Jr., The New Multilateralism: Can the World Trading System Be Saved? (New York: Council on Foreign Relations, 1983), pp. 21–43Google Scholar. In the United States, the blurring of distinctions between trade and industrial policy is reflected in the justification of many sectoral policy changes by appeal to the need to bolster “international competitiveness,” for example, in agriculture.

10. For two other book-length treatments of similar material, see Stern, Robert M., ed., U.S. Trade Policies in a Changing World Economy (Cambridge, Mass.: MIT Press, 1987)Google Scholar; and Yamamura, Kozo and Yasuba, Yasukichi, eds., The Political Economy of Japan, vol. 1, The Domestic Transformation (Stanford, Calif.: Stanford University Press, 1987)Google Scholar. Roughly half of the content of the Stern book concerns the political economy of strategic trade policy. Roughly half of the content of the Yamamura-Yasuba book concerns the political economy of strategic industrial policy. Economists and political scientists are represented in both of these books as well as in the three under review.

11. See Cohen, Benjamin J., “The Political Economy of International Trade,” International Organization 44 (Spring 1990)CrossRefGoogle Scholar. The following five books are reviewed by Cohen: Conybeare, John A. C., Trade Wars: The Theory and Practice of International Commercial Rivalry (New York: Columbia University Press, 1987)Google Scholar; Gilpin, Robert, The Political Economy of International Relations (Princeton, N.J.: Princeton University Press, 1987)CrossRefGoogle Scholar; Lake, David A., Power, Protection, and Free Trade: International Sources of U.S. Commercial Strategy, 1887–1939 (Ithaca, N.Y.: Cornell University Press, 1988)Google Scholar; Milner, Helen V., Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton, N.J.: Princeton University Press, 1988)Google Scholar; and Rosecrance, Richard, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York: Basic Books, 1986).Google Scholar

12. Although I make contributions to two of the three books reviewed in this article, I have endeavored to come as close to objectivity in what follows as human nature will permit.

13. The wording is chosen carefully. “Distinctively” denotes the subquestion, “Can a government do something for its constituents that they cannot do for themselves, either individually or in free association (for example, as firms or unions)?” “Markets” should be taken to mean both national and international markets, industrial policy being distinctly relevant to the first and trade policy to the second. The question relates to “all its constituents” somehow weighted together; no one doubts that a government can arrange useful market interventions on behalf of “some” constituents (special interests) at the expense of others. And if a government “can” act economically to the benefit of all, it does not necessarily follow that it “should,” since doing so may set undesirable precedents or generate unwanted side effects in noneconomic spheres of life. For example, it could impair military alliances. This was the source of conflict within the Bush administration in 1989 between the Commerce Department and the Defense Department over technology sharing with Japan to develop a new jet fighter. Commerce was anxious to intervene in the Pentagon's arrangements to avoid any economically undesirable undervaluation of the net technology transfer. The Pentagon opposed such intervention, implicitly justifying any undervaluation by appeal to international security.

14. Cohen and Zysman draw extensively from background studies of their own and other members of BRIE. Many of the contributors to the Krugman volume draw on background studies carried out during and prior to a large research project on trade policy that was sponsored by the National Bureau of Economic Research and funded experimentally by the National Science Foundation. Zysman and his colleagues Michael Borrus and Laura D'Andrea Tyson author one of the twelve chapters in the Krugman volume. Tyson, James A. Brander, and I (each of whom contribute chapters to Krugman) are also represented in Lipsey and Dobson's synthetic critique.

15. For readers overfamiliar with the U.S. debate, Paul A. Geroski's comment on James A. Brander's essay in Shaping Comparative Advantage is fresh, empirical, and European in its vantage point. Brander's essay, “Shaping Comparative Advantage: Trade Policy, Industrial Policy, and Economic Performance,” is a useful summary of the historical debate over the central question. It serves as a keynote essay to the entire volume and as a commentary on the other two books reviewed here as well. Yamamura and Yasuba's The Political Economy of Japan, vol. 1, is up-to-date, assiduously documented, and Japanese in its vantage point.

16. See Organization for Economic Cooperation and Development (OECD), Structural Adjustment and Economic Performance (Paris: OECD, 1987), pp. 229–41.Google Scholar

17. See Kelly, Margaret et al. , Issues and Developments in International Trade Policy, Occasional Paper no. 63 (Washington, D.C.: International Monetary Fund, 12 1988), pp. 36–43.Google Scholar

18. Issues that require the framework and language of political science are thus underrepresented, as discussed in a subsequent section of this review article. They are, by contrast, well represented in the five books reviewed by Cohen in “The Political Economy of International Trade,” but not always with a consciously strategic framework of analysis.

19. For example, in a sort of informal factor analysis, Cohen and Zysman employ trade deficits, export shares, profit margins, and trends in productivity, real wages, and price elasticities as indicators of the unmeasurable factor “international competitiveness.” The methodology is impeccable, whatever one thinks of its execution.

20. See the section of this review article entitled “Neglects and opportunities” (below).

21. National economic welfare is defined as the command (purchasing power) of a country's aggregate national income over real goods and services, where the “country” is defined either by citizenship or permanent residency.

22. This is the beginning of the title of Lipsey's technical appendix to the Lipsey-Dobson book, presumably inspired by Cohen and Zysman's Manufacturing Matters. Lipsey's appendix is useful for identifying an important research agenda in the economics and political economy of strategic trade policy (see also Brander's contribution, pp. 49–51). Avinash K. Dixit's chapter in the Krugman book, “Trade Policy: An Agenda for Research,” is similarly useful.

23. Lipsey finds Tyson's summary of the BRIE work “perplexing,” although not clearly wrong, and exclaims at the same point, “This argument cries out to be modeled.” See Shaping Comparative Advantage, pp. 119–20. See also the section of this review article entitled “Distinctive insights and disagreements” (below). Cohen and Zysman's response would probably be that the economists are equally guilty of obscuring logic with their passion to persuade but have an added addiction to denying their guilt. Cohen and Zysman have no love for (“contempt” fits) liberal trade propagandists whose ideology has been surprisingly dominant in global trade policy institutions for thirty years and remains dominant among U.S. elites even today. They seem to suspect economists deep down of being such propagandists, however much they cloak their ideology in the finery of objective models and dispassionate deduction. The tendentious edge of accusation that runs right through Manufacturing Matters may elicit a kind of confirmatory return to roots among the economists, who seem appalled at the thought that their scholarship could serve evil protectionist purposes. Krugman comments in his introduction (p. 19) that “there is a risk that interest groups that have a stake in trade policy will simply find in new ideas an excuse to advocate policies that are not likely to benefit the nation as a whole. There are already some signs that this is happening—I know that some of the participants in this volume have been surprised and perhaps worried at the places they find themselves cited.” The economists' reluctance to popularize their ideas reflects their general professional belief that serious scholarship should minimize rhetoric. They (unlike Cohen and Zysman) pass perhaps too quickly over the argument that scholarship ought to be disseminated and that dissemination requires at least persuasive communication and possibly also rhetoric or even pamphleteering. McCloskey, Donald M. is the economist who has written most generally along these lines in The Rhetoric of Economics (Madison: University of Wisconsin Press, 1985).Google Scholar

24. Appropriability is the ability to assign clear property rights to economic benefits.

25. The traditional counterquestion is whether a government can efficiently identify and value such externalities. If not, because governments have even more shortcomings (“failure”) than markets, then reliance on unfettered markets without policy intervention generates higher economic welfare, externalities notwithstanding. The “public choice” economists, especially those in the United States, often argue this way, but their perspective is curiously absent in most of these books.

26. National market power is the foundation of the optimal tariff and is the result of a country's firms together possessing a significant share of world market sales, even if no single national firm is large.

27. Economic models conclude that trade patterns among countries are “indeterminate” under economies of scale and imperfect competition. That is, for purposes of the political economy of strategic trade policy, there are many alternative geographical concentrations of production for scale-intensive goods which each feature the same relative prices, global supplies, and global demands. Countries can inherit shares in a given alternative by historical accident or can stake claims to shares by policy aimed at “getting there”—that is, reaching some preferred alternative—“first.” In brief, the sectoral structure of a country's comparative advantage is initially more “up for grabs” by policy than it is in traditional models of trade.

28. Excess profits are profits above the level that is normally just adequate to compensate entrepreneurs for planning, organization, innovation, and related activities. They accrue to firms with market power resulting from barriers to entry, large size, or uniquely differentiated products, technology, workers, or management.

29. The following is a good summary of Cohen and Zysman's perspective in this case: “As advanced countries are pressed by the NICs into each other's markets, firms that exploit the strategic and tactical possibilities of PA will establish real advantages. Those that do not capture the possibilities, or who are slow to do so, will lose. The competitive markets will drive toward adoption. Those who move first will build up expertise and supporting technologies to push ahead faster through this fundamental transition. Markets will drive the process, but market outcomes tomorrow will be shaped by corporate and government choices today.” See Manufacturing Matters, p. 170.

30. Excess profits do not play a large role, for example, in the research that I surveyed and presented in “Empirical Research on Trade Liberalization with Imperfect Competition.” None of that research, however, takes account of the empirical possibility that, excess profits are hidden in the wage structure, and very little of it properly models product differentiation. Both of these features increase the role played by excess profits, as discussed in a subsequent section of this review article.

31. For example, Cohen and Zysman argue (pp. 178–79 and 218) that telecommunications represent infrastructure for the coming decades and have the same importance that railroads, telegraphs, highways, and telephones had for past decades. They and many others agree that macroeconomic stability makes microeconomic markets work better and that many sectoral problems of the 1970s and 1980s were due to macroeconomic policy failure. Policies for justice have special importance in the strategic perspective in defining and defending the “intellectual property rights” on which much innovation is premised; but because the policies also confine these rights, innovation is eventually disseminated. Policies toward risk (for example, bankruptcy provisions and safeguards “insurance” in trade policy) are also crucial to the strategic perspective, since activities such as innovation, market entry, and liberalizing mutual access to national markets are economically beneficial yet quite risky.

32. Few say so, but the case for policy in these instances usually rests on market shortcomings caused by myopia and the absence of markets by which future and present generations can trade with each other.

33. See, for example, Cohen and Zysman, pp. 256–58. For a description of postwar Japanese trade policy until 1973, see Yamamura, Kozo, “Caveat Emptor: The Industrial Policy of Japan,” pp. 171–85 of the Krugman volume.Google Scholar

34. Gene M. Grossman's “Strategic Export Promotion: A Critique” in the Krugman volume is especially persuasive in its demonstration that most governments have virtually no chance of obtaining the decentralized and detailed market information necessary to know what to do strategically in sectoral policy (tax? subsidize?), much less how intensely to do it. Barbara Spencer's attempt to provide objective targeting criteria from the strategic perspective (“What Should Trade Policy Target?” in the Krugman volume) is not nearly as convincing. Krugman and I are among the contributors who argue that explicitly embracing sectoral policy can create political contagion—an epidemic of special interest lobbying. Yamamura convincingly documents the declining “coherence and efficiency” of Japanese sectoral policy since 1973 for exactly these reasons (pp. 185–200 in the Krugman volume). Even Cohen and Zysman conclude their case on a surprisingly cautious note (p. 242): “There are many risks in sector-specific policies. … If we open wide the Pandora's box of sectoral-specific policy, we may not support the development of key sectors or competitive firms, but rather may lavish resources on those sectors which have the greatest political clout, usually those with the biggest battalions and the longest political experience. … Sector-specific policies … are the most difficult to sell politically and the hardest to implement well. Once understood in terms of the strategic questions we have just reviewed, they can be answered more often than not, through the factor level and market perfecting policies we discussed previously.”

35. Cohen and Zysman, for example (pp. 255–56), view the U.S. bailout of Chrysler as an exception to this rule and an action not to be copied. They comment, “Defensive protectionist policies will neither stop the import pressure nor help American firms adapt and adjust. They won't suffice.”

36. Brander (in Shaping Comparative Advantage, pp. 51–52) considers style rather than substance to be the chief distinction between analysts like Cohen and Zysman and the economists represented in these books. But the editors explicitly disagree with him (pp. vi and 131–32).

37. Tyson, in Shaping Comparative Advantage, p. 71.Google Scholar

38. See Levin, Richard C., “Appropriability, R&D Spending, and Technological Performance,” American Economic Review 78 (05 1988), pp. 424–28Google Scholar. Levin gives a brief, accessible summary of some of this literature, as do adjacent papers by Iain Cockburn and Zvi Griliches and by Jeffrey I. Bernstein and M. Ishaq Nadiri. Two recent papers by Ricardo J. Caballero and Richard K. Lyons illustrate and find strong evidence of spillovers and externalities: “Internal vs. External Economies in European Manufacturing” and “The Role of External Economies in U.S. Manufacturing,” Columbia University Department of Economics Discussion Papers nos. 427 and 431, both May 1989.

39. Linkage is Cohen and Zysman's term for the dependence of one economic activity on others.

40. See Levin, Richard C. et al. , “Appropriating the Returns from Industrial Research and Development,” Brookings Papers on Economic Activity: Special Issue on Microeconomics, no. 3, 1987, pp. 783–820.CrossRefGoogle Scholar

41. See Lipsey, , “Report on the Workshop,” in Shaping Comparative Advantage, pp. 125–27.Google Scholar

42. The distinction between spillovers and externalities is made most clearly in Manufacturing Matters, pp. 14–16. Cohen and Zysman's discussion of “tight, loose, and medium linkages” (pp. 13–24) is one of the less precise sections of their book. Tight linkages seem to be necessarily local intermediate transactions; loose linkages are intermediate transactions that could be either local or international (cross-border). After much tendentious description, it is still not clear why the first but not the second warrants policy intervention.

43. This argument of Cohen and Zysman is discussed in detail in an earlier section of this review article.

44. Indeed the smaller number of agents in strategic environments makes more likely Coase-like bargaining “solutions” to externalities problems, obviating the need for policy intervention. On the other hand, this line of argument seems more theoretically appealing than practically relevant. It is contradicted by too many simple, irrefutable observations, most prominently the many barriers to unfriendly cross-border takeovers of one firm by another. Contrary to the doubters' allegation, for example, many things would deter a takeover of a small Japanese automaker by an American retailer; foreign airlines cannot legally own more than 25 percent of the stock of U.S. airlines, to say nothing of buying McDonnell-Douglas; and “foreign” firms are systematically excluded from many research joint ventures and consortia in Japan, Europe, and the United States. The list of examples could go on and on.

45. As discussed earlier, the common question addressed by all contributors is whether government has a distinctively useful microeconomic role.

46. In fact, “manufacturing matters” in Cohen and Zysman's title and reasoning more because of its ancillary technical services and their externalities than because of any intrinsic virtue in industrialization per se. Their prediction of faster technical progress is based both on the greater stock of technical professionals seeking successful innovation and on learning-by-doing progress passed from one generation of technical professionals to the next. The one crucial question that economists would address to this reasoning, as discussed below, is whether the sectoral structure of production has any independent impact on a country's endowment of technical professionals.

47. Tyson, in Shaping Comparative Advantage, p. 74.Google Scholar

48. This misleads in that the evidence presented by Cohen and Zysman suggests at best that onshore manufacturing contributes to technological progress. It does not suggest that onshore manufacturing is a necessary condition for technological progress nor its sine qua non. They are more accurate and more temperate elsewhere: “A national industrial community still provides the central locus of technological innovation and diffusion. This is not to argue that these national developments will be entirely separate and distinct. Technologies and strategies emerging in one country will diffuse to others. Licensing and joint ventures, for example, are instruments of diffusion.” See Manufacturing Matters, p. 176.

49. Given their argument, it is strange that Cohen and Zysman say almost nothing about either foreign direct investment in the United States, which has mushroomed in the 1980s, or immigration of skilled professionals, which is growing as a share of legal U.S. immigration. Both trends temper Cohen and Zysman's recurring alarm that U.S. direct investment abroad will deprive the country of its skilled labor endowment.

50. In fact, unencumbered diffusion adds the complication of national free riding to technological impetus due to manufacturing specialization. Current attempts to negotiate a multilateral GATT code on intellectual property rights can be seen as an effort to end free riding and to convince all countries to contribute their fair share of policy resources to protecting patents and maintaining technological impetus.

51. See Lipsey, , “Report on the Workshop,” pp. 129–30Google Scholar; and Geroski, in Shaping Comparative Advantage, pp. 59–60Google Scholar. It is possible for the capacity and the research and development to be excessive from the standpoint of world welfare as well as national welfare.

52. Lipsey, in Shaping Comparative Advantage, pp. 113–14, 122–23, 129–32, 144, and 155–66.Google Scholar

53. Geroski, in Shaping Comparative Advantage, pp. 59–60.Google Scholar

54. Richardson, in Shaping Comparative Advantage, p. 104.Google Scholar

55. For a discussion of this view, see Dixit, Avinash, “Optimal Trade and Industrial Policies for the U.S. Automobile Industry,” in Feenstra, Robert C., ed., Empirical Methods for International Trade (Cambridge, Mass.: MIT Press, 1988), pp. 141–65.Google Scholar

56. For the beginnings of empirical documentation and additional discussion, see Dickens, William T. and Lang, Kevin, “Why It Matters What We Trade,” in Tyson, Laura D'Andrea, Dickens, William T., and Zysman, John, eds., The Dynamics of Trade and Employment (Cambridge, Mass.: Ballinger, 1988), pp. 87–112Google Scholar; and Katz, Lawrence F. and Summers, Lawrence H., “Can Inter-Industry Wage Differentials Justify Strategic Trade Policy?” in Feenstra, Robert C., ed., Exchange Rate and Trade Policies for International Competitiveness (Chicago: University of Chicago Press, forthcoming)Google Scholar. For general background, see Thaler, Richard H., “Anomalies: Interindustry Wage Differentials,” Journal of Economic Perspectives 3 (Spring 1989), pp. 181–94.CrossRefGoogle Scholar

57. Tyson, by contrast, is much more explicit than her BRIE colleagues on the matter: “The notion of ‘good’ and ‘bad’ jobs and the new literature on efficiency wage theory capture many of the competitiveness concerns that worry contributors to the industrial policy debate. If there are good and bad jobs even in equilibrium, and good jobs have higher wages, higher average productivity, and higher valued added per worker, then competitive difficulties in sectors that support good jobs can reduce total economic welfare and industrial policies to promote such sectors can increase it.” See Shaping Comparative Advantage, p. 79.Google Scholar

58. “Value-added” is merely what a worker's effort produces in the form of extra goods and services.

59. Krugman makes these points eloquently and at length in his contribution to Stern, U.S. Trade Policies in a Changing World Economy.

60. This argument appears at many points throughout Manufacturing Matters, most directly on pp. 216–17.

61. Alternatively, the argument would be better accepted if “high value-added” activities could be shown to create positive externalities for the rest of the economy. One way that economists themselves suspect that this may be true is “learning-by-doing,” in which cumulative experience in an activity such as engineering or basic research creates current productivity advantage that cannot be appropriated.

62. Sophisticated econometric attempts to detect a positive sensitivity of research and development to either industrial concentration, size of firm, or length of product run have not discerned much, once unique industry influences and appropriability differences are controlled for. See Levin, Richard C., Cohen, Wesley M., and Mowery, David C., “R&D Appropriability, Opportunity, and Market Structure: New Evidence on Some Schumpetarian Hypotheses,” American Economic Review 75 (05 1985), pp. 20–24Google Scholar; and Cohen, , Levin, , and Mowery, , “Firm Size and R&D Intensity: A Reexamination,” The Journal of Industrial Economics 35 (06 1987), pp. 543–65.CrossRefGoogle Scholar

63. In Shaping Comparative Advantage, p. 58, Geroski discusses the general issue briefly and provides some European references. In the Krugman volume, three chapters—by Geoffrey Carliner; Kozo Yamamura; and Michael Borrus, with Tyson and Zysman—all describe government-coordinated, industry-wide research in Japan. In the United States, the issue of freeing research and development joint ventures from the threat of antitrust challenges is a lively one, with some legislation to that effect passed in the 1980s and with likely prospects for more.

64. In Shaping Comparative Advantage, pp. 61–62, Geroski summarizes research that shows procurement to be most important and subsidies to be least important in policy support for innovation over the past half-century.

65. Yamamura, in Strategic Trade Policy and the New International Economics, pp. 200–201.Google Scholar

66. Tyson, in Shaping Comparative Advantage, p. 66Google Scholar. Cohen and Zysman virtually emote what Tyson observes at the beginning (p. 5) of Manufacturing Matters: “Compared to the argument of this book, these [conventional economists'] views are more soothing in their message, calmer in tone, more confident in style, and more readily buttressed by applications of traditional economic data and methodologies. They are also quite possibly wrong in their analysis. And because they encourage and justify policies that create risks of colossal scale— the wealth and power of the United States being the stakes—they are, for all their conventionality, terribly radical as guides and rationalizers for policy. By contrast, our message is disturbing. Our tone is one of urgency, and our approach, precisely because it differs from conventional economic analysis, appears to be handcrafted and radical. No attempt has been made to disguise these appearances. As a guide to policy, however, it is quite conservative. It argues against taking major and potentially irreversible risks on a basis of uncertain knowledge consisting of inadequately examined and unexplained economic data (mostly about employment in jobs labeled ‘services’) and unproven and untried, albeit dominant, economic theory.”

67. In Manufacturing Matters, Cohen and Zysman disdainfully dismiss “statistical evidence of impeccable banality” (p. 29) and “students … practicing origami in Economics 101” (p. 68). In Shaping Comparative Advantage, Brander sniffs that the activists' familiar recommendation that “piecemeal policies … be coordinated” is mere “sophistry” (p. 30).

68. The precision of Cohen and Zysman in denning “regimes” and “transitions” and their defense of the worth of formal hypothesis testing (pp. 85 and 88–89) illustrate the point well and would surprise many suspicious economists.

69. Communication and dissemination were a primary goal of the Krugman volume, and the C. D. Howe Institute, which underwrote the Lipsey-Dobson book, aims to translate “scholarly research into choices for action by governments and the private sector.”

70. Such studies are both possible and extant, as Geroski makes clear in his refreshing contribution to Shaping Comparative Advantage. Lipsey's plaintiveness on p. 130 of the book— “how easy it is to be misled by appearances” and “there is no substitute for careful measurement”—is more appropriate for the typical contribution, assuming he will include careful history as part of careful measurement.

71. Experimental simulations of iterated prisoner's dilemma games by political scientist Axelrod, Robert in The Evolution of Cooperation (New York: Basic Books, 1983)Google Scholar are, however, assessed admiringly by several of the economists—and perhaps more uncritically than political scientists themselves assess his work.

72. See the five books reviewed by Cohen in “The Political Economy of International Trade.”

73. For a discussion of these conflicts, see Cooper, Richard N., “Trade Policy as Foreign Policy,”Google Scholar in Stern, , U.S. Trade Policies in a Changing World Economy, pp. 291–322.Google Scholar

74. On sanctions and retaliation, see Lenway, “Between War and Commerce,” which offers a review of the following books on the subject: Baldwin, David A., Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985)Google Scholar; and Hufbauer, Gary Clyde and Schott, Jeffrey, assisted by Elliott, Kimberly Ann, Economic Sanctions Reconsidered: History and Current Policy (Washington, D.C.: Institute for International Economics, 1985)Google Scholar. On trade wars, see Conybeare, John A. C., Trade Wars: The Theory and Practice of International Commercial Rivalry (New York: Columbia University Press, 1987)Google Scholar, one of the five books reviewed by Cohen in “The Political Economy of International Trade.” For the beginnings of research on sanctions which incorporates internal politics from a public choice perspective, see three papers by Kaempfer, William H. and Lowenberg, Anton D.: “The Theory of International Economic Sanctions: A Public Choice Approach,” American Economic Review 78 (09 1988), pp. 786–93Google Scholar; “Divestment, Investment Sanctions, and Disinvestment: An Evaluation of Anti-Apartheid Policy Instruments,” International Organization 41 (Summer 1987), pp. 457–73Google Scholar, with Lehman, James A. as middle author; and “A Model of the Political Economy of International Investment Sanctions: The Case of South Africa,” Kyklos, vol. 39, no. 3, 1986, pp. 377–96.Google Scholar

75. For an example, see Riker, William H., The Art of Political Manipulation (New Haven, Conn.: Yale University Press, 1986).Google Scholar

76. According to Cohen and Zysman (p. 213), “The theory behind these arguments is limited and, when applied to modern economic development, flawed and weak. But most importantly, the record does not support the case that the advanced economies have been fouled in the undergrowth of interest groups and excess of democracy. In each fast-growth country a coalition for rapid growth and development was established.” Yamamura's recounting of the post-1973 Japanese record in the Krugman volume is in direct conflict with Cohen and Zysman's reassurance. Yamamura claims that special interest politics vitiated the strength of the pro-growth coalition in Japan. See also Yamamura, and Yasuba, , The Political Economy of Japan, vol. 1.Google Scholar

77. Cohen and Zysman say, for example (p. 210), that “a multitude of competing social objectives must be acknowledged and incorporated. The sheer diversity of decisions and choices to be made across the continent in state legislatures and local governments almost requires and demands a broad national agreement that we must make the adjustment to a changing world economy that our national hopes and goals require. We must build an American consensus.” They also argue (p. 213) that “America's political problems do not stem from the slow buildup of interest groups that submerge the market. Rather, they have their source in America's unwillingness or inability to define its new political choices in the radically changed world economy and build political coalitions in support of innovative solutions on which growth can once again be built.”

78. Geroski, in Shaping Comparative Advantage, p. 59Google Scholar. Geroski observes that less than one-third of the British government's sector-specific support goes to high-growth sectors, while more than two-thirds goes toward “endless subsidizing of the old … lame ducks.”

79. See my contributions to Shaping Comparative Advantage, pp. 104–7, and to Strategic Trade Policy and the New International Economics, pp. 266–68 and 274–78. In the spirit of strategic trade policy, however, I defend a case for strategic re-action to the industrial policy activism of foreign governments. Branson and Klevorick's summary of academic and USTR meetings in the Krugman volume questions whether reaction is adequate for the United States, however. It implicitly suggests the possible virtue of increased USTR initiative, as written into the 1988 Omnibus Trade and Competitiveness Act.

80. The U.S. Omnibus Trade and Competitiveness Act of 1988 may illustrate this tendency in its easier corporate access to trade remedies, procedural protectionism, and pressure on the USTR to initiate market-opening negotiations with U.S. trading partners.

81. Destler, I. M. and Odell, John S., Anti-Protection: Changing Forces in United States Trade Politics, Policy Analyses in International Economics no. 21 (Washington, D.C.: Institute for International Economics, 1987).Google Scholar

82. Destler, I. M., American Trade Politics: System Under Stress (Washington, D.C.: Institute for International Economics, 1986).Google Scholar

83. Milner, Helen V. and Yoffie, David B., “Between Free Trade and Protectionism: Strategic Trade Policy and a Theory of Corporate Trade Demands,” International Organization 43 (Spring 1989), pp. 239–72.CrossRefGoogle Scholar

84. Destler and Odell's Anti-Protection and Milner and Yoffie's “Between Free Trade and Protectionism” include more careful and more sophisticated empirical research than anything in the three books being surveyed.

85. These perspectives are found, for example, in Brander's and my contributions to Strategic Trade Policy and the New International Economics, pp. 36–43 and 270–74, respectively.

86. In Strategic Trade Policy and the New International Economics, pp. 298–301, Dixit discusses threats, responses, deterrence, compellence, credibility, commitment, reputation, toughness, irrationality, and brinkmanship, with insight for international policy interaction drawn from the classic work of Thomas Schelling and Howard Raiffa.

87. Cohen, and Zysman, , Manufacturing Matters, p. 48.Google Scholar

88. Geroski, in Shaping Comparative Advantage, p. 59.Google Scholar

89. See Krugman, Paul, “Is Bilateralism Bad?”Google Scholar National Bureau of Economic Research Working Paper no. 2972, May 1989, for early research on this question that suggests a discouraging answer: little likelihood of welfare gains and greater likelihood of welfare losses.

90. See, for example, strategic suggestions to that effect from Baldwin, Robert E. in “GATT Reform: Selected Issues,” in Kierzkowski, Henryk, ed., Protection and Competition in International Trade: Essays in Honor of W. M. Corden (London: Basil Blackwell, 1987), pp. 204–14.Google Scholar

91. See Hamada, Koichi, “The Political Economy of International Economic Coordination,” paper presented at the Japanese Ministry of Finance Conference on Macroeconomic Policy in the New Era,1–2 November 1988Google Scholar; and Putnam, Robert D., “Diplomacy and Domestic Politics: The Logic of Two-Level Games,” International Organization 42 (Summer 1988), pp. 427–60CrossRefGoogle Scholar. For a general discussion of alternative and multiple levels of analysis in these contexts, see Cohen, , “The Political Economy of International Trade.”Google Scholar

92. The literature on strategic trade policy borrows amply from the literature on strategic corporate planning, as Krugman notes on pp. 18–19 of Strategic Trade Policy and the New International Economics. But it borrows virtually nothing from the comparably relevant literature on military history and military science. The strategic planning for and the coordination of multinational or multiple-branch armed forces presumably have some important parallels to strategic trade and industrial policy.

93. Aronson, Jonathan David and Cowhey, Peter F., When Countries Talk: International Trade in Telecommunications Services (Cambridge, Mass.: Ballinger, 1988).Google Scholar

94. See Yoffie, David B., “Mixed Motives, Bureaucratic Power, and Learning: The Past Appeal and Future Evolution of Voluntary Export Restraints,” Harvard Business School Working Paper no. 89–009, 1988Google Scholar. See also Udis, Bernard and Maskus, Keith E., “Offsets as Trade Policy: Some Motivations and Consequences for the Aerospace Industry,” unpublished manuscript, May 1988Google Scholar. Udis and Maskus's rationalization of offset agreements in aerospace trade takes an approach to strategic complexity very similar to Yoffie's approach.

95. Axelrod, , The Evolution of Cooperation.Google Scholar

96. Harrison, Glenn W. and Rustrom, E. E., “Trade Wars and Trade Negotiations: A Computational Approach,” University of Western Ontario Centre for the Study of International Economic Relations Working Paper no. 8714C, October 1987.Google Scholar

97. Experimental simulation in economics is growing. See, for example, the survey by Smith, Vernon L., “Theory, Experiment, and Economics,” Journal of Economic Perspectives 3 (Winter 1989), pp. 151–69CrossRefGoogle Scholar. Simulation is also growing in large-scale physical science, where it goes by names such as scientific computing, computational science, and numerical science.

98. In Shaping Comparative Advantage, pp. 102–3, I briefly discuss some of the economics of this perspective; and in Strategic Trade Policy and the New International Economics, p. 16, Krugman observes the sampling bias that is created for historians and researchers if losers “disappear.” Accounts of activist policy that was mistaken in retrospect are not well represented in these books, although such accounts exist. See, for example, Borins, S. F. and Brown, L., Investments in Failure (Toronto: Methuen, 1986).Google Scholar