62 R.R. Nelson technology and the computer market differ from modes of organizing economic activity. Finally the situation in textiles. Factor prices and a repris availabilities and product markets in Germany differ from those in Taiwan. Thus. firms are forced to be different THE DIVERGENT LITERATURES ON The tendency to ignore discretionary firm 'COMPETITIVENESS differences in part reflects that economists are not interested in behavior and performance The differences in perspective can be seen clearly t the level of firms, but rather in broader in the divergent literatures concerned with what aggregates-industry or economy wide perform- now popularly is called the competitiveness ance, It reflects, as well, some strong theoretical issue- the recent weakness of American firms, views held by most main line economists about particularly vis-a-vis Japanese ones, in industries what economic activity is all about, and about where not so long ago U.S. firms were doing the role and nature of firms in economic activity. very well. There is a sharp split between studies My argument that discretionary firm differences that focus on the differences between American within an industry exist and do matter significantly and Japanese firms, and studies by economists is part and parcel of my broader argument that that are focused on more aggregated variables neoclassical economic theory is badly limited Made in America, a publication put out in the Let me flag here, for future elaboration, what summer of 1989 by the MIT ComI do and don' t mean by the term 'discretionary. Industrial Productivity, is a good example, and I do mean to imply a certain looseness of summary, of the former line of research. While constraints, both in the short and long run, that the staff of the Commission undertook consider- gives room so that firms that differ in certain able research on its own, the multifaceted important respects can be viable in the same diagnosis it presents is quite consistent with that economic environment. I do mean that to some presented in a number of prior studies concerned extent these differences are the result of different with why American firms have been losing out. strategies that are used to guide decision making American firms are hooked on old style mass at various levels in firms. On the other hand, I production methods, in an era where flexible do not mean that what a firm is and does is manufacturing has become a more effective mode under the tight control of high level decision of operation. Similarly, our hierarchical mode makers. And I certainly do not mean that what of organization and custom of specifying job makes a firm strong or weak at any time is well assignments narrowly, while perhaps appropriate understood. even within the firms themselves in an earlier era. now are sources of weakness although there well may be an articulated point Research and product design and development of view on this. more on these matters later stand too distant from manufacturing and pro The remainder of this essay is structured as duction engineering; thus it takes American follows. In the following section I shall flesh out companies much longer than the Japanese to my above remarks about the very significant go from conception to production, and our differences in perspective between scholars production costs and quality often are inferior trained or inclined to see discretionary firm level American firms are myopic, both in the sense of variables as important, and economists who see their failure to look at world rather than national firm differences as determined largely by more markets, and in the sense that time horizons are aggregative economic forces. Then I focus on the short. The latter partly has to do with the higl basic theoretical preconceptions of neoclassical cost of capital in the United States, but also with economic theory that lead to this position, and the way our managers think and the tools of hich make it very difficult to move any analysis they are taught in business schools distance from it. I follow with an exploration of Compared with the Japanese and Germans, our evolutionary economic theory which provides a blue collar work force comes to the work place very different view of what economic activity is poorly trained by the public education system all about and within which firm differences are This is compounded by a weakness of in-company central, and go on to consider the role of firm training and retraining programs. Together, this differences in the evolution of technology and puts American firms at a significant disadvantage