Author: New Economy will shortchange US

On Wall Street, the celebration of the New Economy and the corresponding Information Age is in full swing.

Investors embrace Internet companies awash in red ink while snubbing even streamlined blue-chip manufacturers as sprouters of smokestacks from the Rust Belt.

Journalist Eamonn Fingleton doesn't just go against the grain of such attitudes, he rips them with a cross-cut saw.

In his recently published book, "In Praise of Hard Industries" (Houghton Mifflin), he says the most promising engine for future prosperity is not the ethereal builders of cyberspace but the makers of vital, sophisticated products like high-tech components and advanced materials.

Following are excerpts from a recent interview with Mr. Fingleton.

Why are "hard industries" so much better for wealth generation than the information-based companies?

I make three points for manufacturing. It creates a better range of jobs by harnessing the talents of all the population, whereas information services create jobs for an intellectual elite.

Second, manufactured goods tend to be less culture-specific and therefore more exportable.

Third, manufacturing generates better prospects of achieving real lasting productivity leadership for two reasons: It absorbs a lot of capital, each worker is working with a lot of help from machinery and so his or her output is enhanced by the contribution of capital; and it also relies on proprietary know-how.

This know-how tends to be the know-how you can keep for your own company or nation. Know-how in information services tends to be something that anyone can copy.

Who is hurt by the snub of hard industries?

To some extent the downside is carried by labor, but longer term, the nation as a whole will suffer in the sense that America's ability to project economic power abroad will be diminished.

Already the US depends more and more on major foreign nations for financing its consumption. That is related to manufacturing because it is related to trade: If you don't make things, you will have to import them and borrow the money to finance those imports.

Some statistics indicate that US manufacturing is growing faster than the overall economy. How does that square with your idea of manufacturing decline?

At the end of the day, the point to remember is that output in manufacturing can grow in statistical terms but not really be contributing significantly to the economy.

Companies are outsourcing more and more and buying entire products from Japan and slapping an American name on those products. That creates the impression of great growth in output but it's achieved at the expense of radically expanding imports and is a total illusion.

How do you think the Internet sector will evolve?

A: As with computer time-share companies in the '60s, we will see the same sort of thinning among Internet stocks. There will be some spectacular survivors but many we will not remember five or 10 years from now.

Why are you skeptical of the long-term competitiveness of the US software industry?

There is a boom in the industry today. But over time there will be increasing wage pressure from lower-wage countries. I doubt it will be seen as a disaster but it will take some of the bloom off the rose.

(c) Copyright 1999. The Christian Science Publishing Society