The reckoning.

• Author: Fallows, James

PUTTING THE BRAKES ON THE ORIENT EXPRESS

By the time Ronald Reagan took office,even he must have understood that America's economy was in trouble. Richard Nixon had taken the dollar off the gold standard in 1971. The OPEC oil boycott came soon after that, and through the rest of the decade we limped along and learned about stagflation. How could Jimmy Carter have dreamed of reelection, with the prime rate hitting 21 percent in an election year?

The Reagan administration had a plan for gettingthe economy back in shape. The plan began and, for practical purposes ended, with dramatic cuts in tax rates. And even though Caspar Weinberger rarely explained the defense budget just this way, the big military buildup was also supposed to help the economy by creating new demand for high-tech goods.

Perhaps Ronald Reagan, Jack Kemp, RobertNovak, and other cheerleaders thought this approach would really work. Without belaboring the obvious, it hasn't. Six years after the tax cuts that were celebrated as inaugurating the "Reagan Revolution," America's economy has proven resilient in many ways--absorbing throngs of new workers, radically reducing inflation--but it has done so only by borrowing like crazy from the rest of the world. That is, we've lived better than we'd be able to if we were paying our own way and producing what we consumed. Something has gone wrong somewhere at the heart of America's productive system.

Although it took some time for businessmento realize this, they were way ahead of the politicians. After all, for many in industry "competitiveness" is not just a campaign slogan; it determines whether or not their companies can survive. While Reagan and Kemp were still promising that lower marginal tax rates would suddenly cure America of what ailed it, businessmen were gobbling up books and articles about "corporate culture" and true competitive strategy. In one way or another the best-sellers of the Reagan era have been about the cultural and human factors that make businesses rise and fall: Theory Z, In Search of Excellence, Japan as Number One, even Iacocca. In 1982, I was in California, interviewing people in the computer industry. On the flight from San Francisco to Washington, I counted seven dark-suited managerial types reading In Search of Excellence.

David Halberstam's The Reckoning is aculmination of this literature of business culture, more valuable than most because it is such a thorough and engrossing case study. Its themes will be familar to anyone who's read the other books (or more than an issue or two of this magazine), but his narrative approach can make even shop-worn concepts seem vivid and urgent.

Halberstam has been a patron to me, whichmakes it awkward either to praise or criticize him. There are problems with this book, similar to the problems with all his previous works. Halberstam's diminish the force of his argument, as the repetitious anecdotes and overblown writing diminised The Best and the Brightest. But that book, despite its defects, remains readable and important 15 years after it was published, and I think The Reckoning is in the same league.

As everyone knows, The Reckoning is aboutthe rise of the Japanese auto industry and the simultaneous decline of Detroit. Halberstam concentrates on the number-two manufacturer in each country, Nissan in Japan and Ford in the U.S., rather than the giants, Toyota and GM. (Halberstam has said that if he had descended into GM, he might never have come back up. The book took six years as is.)

The travails of the American car makers arenot exactly fresh news. We've been reading about them for 15 years. In fact, the familiarity of its themes and subject makes The Reckoning's success more impressive. In general, Halberstam tells us what we already know. The American industry suffered, he tells us, because it was smug and arrogant, and because the country was complacent about cheap gas, and because the proud men of Detroit underestimated the funny little tongue-tied Japanese. Ford lost its edge because the balance of managerial power swung away from men who knew cars and design and manufacturing and toward men who knew only balance sheets. Detroit and American manufacturing in general suffered because stock market speculators cared only about the next quarter's results, and because unions were greedy, and because managers were greedier still, and because everyone involved viewed the factories as pies to carve up and eat. The Japanese triumphed because they'd been chastened by war, and because their society stressed teamwork and shared sacrifice, and because they cared about building the right car for the market and designing it well. (The classic illustration of arrogant inattention to market, incredible but still true, is that even in 1987, American manufacturers ship cars to Japan with their steering wheels on the American, or "wrong," side. How far would the Japanese have gotten in America if they had pushed cars designed for driving in the left lane?)

Halberstam has a few less-familiar points tomake about the Japanese side of the industry, especially about the post-war union-busting struggles that prepared the way for today's "harmonious" labor relations. Considering the closed-mouthedness of Japanese salarymen, it's remarkable that he tells these stories at all. Still, in large ways and small his book fleshes out and confirms the recent conventional wisdom, rather than challenging or revising it. If The Reckoning were reduced to "executive summary" form, like an article in a business journal, it would hardly seem to justify being read by anybody who'd kept up with the business news.

But the book is so much more than a summaryor policy outline, so rich and engaging in the tales it tells, that it makes its mainly-familiar ideas seem entirely new. Out of dozens of possibilities, let me mention only two illustrations of how Halberstam brings his themes to life. One concerns the rise of financiers within American manufacturing companies. During the Second World War, in an attempt to coordinate the gargantuan logistics of the Allied force, the American military had spawned bright, young specialists in statistics and scientific management. After the war, these "Whiz Kids" descended on American industry and were embraced with particular fervor at Ford. One of the Whiz Kids, Robert S. McNamara, eventually became the company's president. An...