NONFICTION - April 26, 1992

HEAD TO HEAD Coming Economic Battles Among Japan, Europe and America by Lester C. Thurow (Morrow: $25; 325 pp.). When MIT economist Lester Thurow found himself responding to a group of Japanese executives at a recent meeting in Tokyo, the question that most took him by surprise was, “Who’s worrying about making the American system work better?” “The honest answer,” he admits here, “is, of course, no one . Why should one worry about making a perfect system better?”

Ours is a complacency that would strike any nation that has succeeded in inspiring revolutionaries and leading economies for half a century. But it has blinded us to a central problem at the heart of our economy: a stock market which puts business leaders in a straitjacket, forcing them to obsess about the next quarter’s profits rather than to plan for long-term growth. Thurow offers a devastating example of a firm he advised which feared for its life because it had made 50% more money in one quarter than it had anticipated. The profits had come because a cost-cutting program had substantially exceeded expectations, but management knew that since it would be unable to duplicate these profits in the next quarter, its stock was likely to plunge. Clearly, such a neurotic system cannot go “head to head” with Japan and Europe in the 21st Century.

Even the cocky Thurow, however, realizes that Americans will never agree to a heart transplant: Wall Street has been our Main Street for too long. Instead, he suggests two principal reforms that, sadly, are likely to be ignored by politicians concerned about a voter backlash. Some politicians will fear that promoting Thurow’s first reform--allowing banks and other financial institutions to take stakes in industrial corporations--will brand them monopolists. And others will worry that his second reform--encouraging exports and discouraging consumption with value-added taxes--will consign them to Walter Mondale’s fate in 1984.