Customer Reviews

Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy

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Lester Thurow has performed a service to non-academics by raising the blinds in his ivory tower and letting us peek in to see how academic economists such as Ravi Batra at Southern Methodist University and Harvard's Robert C. Merton and Stanford's Myron S. Scholes can make so many serious mistakes when they take their craft out of academia and into the real world. Batra has been predicting an imminent depression for fifteen years and Merton and Scholes threatened world bond markets last year when the lost billions of dollars at Long Term Capital Management. Thurow himself had a previous unpleasant confrontation with the real world when he predicted in his 1992 book, Head to Head, that Japan would rule the world economically and the U.S. would end up a third class economic power in the 1990's.

The first insight Thurow provides into ivory tower economics is his open distrust of the real world when it contradicts numbers he has access to. He is unwilling to believe that America led the world in productivity in this decade. He trusts numbers showing that "total factor productivity has not grown at all" and wonders, "Which perspective is real: the rapid technological change we feel, see and smell, or the slow productivity growth we measure?" Instead of urging economists to spend more time in the outside world, Thurow argues that Americans should spend "the sums necessary to get better statistics." Thurow shows the same preference for numbers as opposed to reality when he rehashes the numbers that make it seem as if "real wages have been flat or falling" since the 1970's." Cox and Alm in Myths of Rich and Poor showed in great detail earlier this year that an accurate comparison of real wages requires looking beyond the wage and seriously flawed CPI numbers. Cox and Alm compare the real things that workers owned in 1971 with what they enjoy today, such as air conditioning, automobiles, washing machines, dishwashers and hours of leisure. In the real world, the poor today are living better than the average worker was in 1971. And the average worker is enjoying a life his 1971 peers could not have hoped for.

Thurow shows us the ivory tower economist in his lab treating economics the way a chemist or biologist does research. If a chemist runs an electric current through water, hydrogen and oxygen will appear. If governments provide the right amount of education, infrastructure and research money, Thurow suggests, new, big companies will appear. He seems to be unaware of the little deal makers, salespeople and distributors who make things happen: the plumber or printer bidding on a job; the salesperson building relationships and educating customers about new products and the owners of warehouses and trucks without which even Internet commerce would be impossible.

Thurow's ignorance of the world outside his ivory tower is equally apparent in his view of the past. He maintains that, "For all of human history, the source of success has been the control of natural resources." He ignores traders such as the resource poor Phoenicians, Venetians and Dutch who built wealth with their knowledge of navigation, deal making and by developing mathematical models to improve record keeping and calculate compound interest.

Because there were no government economic programs or public schools Thurow asserts that "for a long period of time (500 to 1150 AD) technology was regressing." In fact, the improvement of harnesses in the eighth century, introduction of iron shoes for horses, the horse's replacing of slow oxen and especially the invention of the wheeled plow changed the medieval rural resident from a subsistence farmer to an entrepreneur. The invention of the camshaft around 970 AD enabled millwrights to mechanize industries which had been operated by hand or foot and the invention of the mechanical clock probably changed western Europe more than the steam engine.

Certainly the economic catastrophe that Batra and Thurow see right around the corner may actually appear, but Building Wealth should be a warning to government and corporate leaders not to depend on ivory tower economists to find a solution.

Before the high tech stock meltdown last year, techno-boosters breathlessly proclaimed a "third industrial revolution," that of the "knowledge-based" or "new" economy. Unlike revolutions one and two - the steam engine and then the electric power tools that liberated us from dependence on muscle labor - this time it was the human mind, somehow magnified by dazzling new gadgets and software, that was supposed to generate economic value: knowledge workers, engineers, and scientists would control data, the structure of matter, and even of life itself for our benefit. For all its seductive hype - and the cult status of Wired magazine illustrates how extolling the third industrial revolution has become a cottage industry in itself - this vision remains controversial and unproven, now perhaps fatally flawed.

In "Building Wealth," Thurow wanted to examine it all by applying a formula he honed to perfection in previous bestsellers: he articulates, and to a degree analyzes, trends that we find confusing and frightening, tying them together in coherent form. Only this time, while swallowing the fashionable rhetoric of info-revolution whole, he played a kind of booster who also wants to be a critic. Barely able to contain his enthusiasm for the enormous fortunes then being amassed in the name of high technology, Thurow was mesmerised by "glittering eye" atop the "wealth pyramid" on the back of the dollar bill. "Wealth," Thurow writes, "is the only game to play if you want to prove your mettle...If you do not play there, by definition you are second rate." But he is also worred about the direction of American capitalism, which he portrayed as dangerously imbalanced in wealth distribution and opportunity. The result is an awkward book that tries to do too many things at one time.

Thurow is at his worst as a techno-booster pundit, and in retrospect he appears to have been as gullible as the rest of us. That makes this book dated - badly. Moreover, except for some vague references to the growing importance of knowledge in wealth creation, he never clearly defines what is new about the so-called knowledge-based economy. Is it the systematic application of science to business problems? The emergence of new technologies? Or sheer computing power? Rather than addressing these questions, Thurow presents a series of faintly illustrative anecdotes, such as the use of seismographic tests in the search for oil, which have replaced the old-style wildcatters who simply drilled holes. This leaves a huge gap at the core of the book, allowing Thurow to avoid legitimate questions about whether the revolution exists as of yet (it doesn't) or whether the Panglossian visions of the Wired crowd simply conceal traditional, extremely conservative economic views (they do).

In addition, the thirteen New Rules of his subtitle fail to add to the text. For example, Rule One states: "No one has ever become very rich by saving their money. The rich see opportunities to work and invest in situations where large disequilibriums exist..." Such observations, which in my opinion are way beneath Thurow's dignity and talent, are sprinkled abruptly throughout the book as if some editor added them to mimic the banality of the "Seven Habits of Highly Effective People." It would be pathetic if it wasn't comic.

It would have been far more useful for Thurow to step back and ask whether this booster rhetoric is premature or if it is even "revolutionary." As events have shown, the industries that techno-boosters celebrated were built on far shakier ground than was commonly acknowledged, even those like Cisco that supplied "Internet plumbing." Almost all of those hot new internet companies failed or remain stubbornly unprofitable, some disastrously. In defense of these industries, techno-boosters invariably (now lamely) argue that it is too early to judge (or "accurately measure") these results and that extremely high failure rates are typical of "embryonic" industries. Which is precisely my point.

Even the booming PC and telecommunications industries, which accounted for nearly 35% of the growth in the U.S. economy, were vulnerable. At any rate, an information-technology recession could finally put the sector back into realistic perspective: it has improved productivity in certain limited applications, but overall its impact has been modest.

Nonetheless, Thurow is a very good worrier. Sensing that something may be amiss in the U.S. economy, he returns with conviction to his familiar themes of education reform, the impact of social systems on economic well being, and the need for government investment strategies to create long-term advantages. Though more traditional economists disdain Thurow's willingness to plunge into messy subjects that transcend their basic algebra, it is here that he has the most to contribute to the national debate. That glittering eye on the greenback, he says, must be supported by a solid base in the "wealth pyramid," that is, in order for any economic revolution to take hold, workers have to benefit as well. Unfortunately, this is not happening.

There it is. I am sorry to say that this is a mediocre book, as I have gotten a great deal about Thurow's perspective in the past.

It is now so dated - after only a few years - that I would not recommend it.

Overall, it is a fascinating read for anyone interested in economics, or how rich countries become rich. Lots of good facts which reflect on the competitive, and opportunistic capitalist paradigm we currently live in.

1) There has been significant change in the economic landscape, and that change continues to accelerate. Before the industrial revolution, 98% of the world's population had income only from farming. Now less than 2% are farmers.

2) The world is increasing a global market. Coca Cola gets 80% of its revenues from outside the United States.

3) The gap in wealth continues to widen.
- Bill Gates market value is the same as the poorest 110,000,000 Americans.
- In the United States, the average CEO pay is 212x the average worker.
- The top 1% of people in the US own 40% of the total wealth.
- Africa GDP is the same as it was in 1965. Has not changed in 35 years.

4) We are all busier. With the invention of electricity, the average hours of sleep dropped from 9 hours to 7 hours a day.

5) Old companies must destroy themselves (re-invent themselves) in order to stay competitive and grow. Also, individuals must constantly change and grow to remain competitive. If not, they will fall behind.

6) Capitalism is a tough game. The number of businesses failing (88% a year) is almost as many as new business are formed. Wealth is constantly being transferred from one group ~ to another.

7) There are many basic ingredients to create wealth. Some are cultural (like entreprenuership), some are created and enforced by the government (intellectual property, law and order, infrastructure), some are learned by the individual (skills, knowledge)

8) Each country, and region has its strengths and weakness. In order to build wealth for the future, each country must act differently:

- Japan: Clean up the banks, bring in professional management, restore government credibility, and create internal growth. Japan is too big to play the export game anymore.
- US: Break the two-tier society (rich and very poor) by improving education for more skilled workers, and investing more in infrastructure
- Europe: Encourage entrepreneurs and corporate flexibility

9) Wealth is created when there is a disequillibrium (imbalance) in technology, or society. When there is change, there is opportunity ~ because wealth is being transferred.

10) Know your weakness and go where that weakness is not important.

As an analysis of the strengths and weaknesses of the major economies and the global system in the emerging knowledge economy, this could hardly be bettered. It is very well written and avoids economist's jargon. Whether or not you agree with the author's underlying assumptions, the book is essential reading for anyone concerned with either global business or national or international policy. It is a 'must read'. Readers should however be aware of the underlying assumptions about the goals of society, many of which are being challenged. In effect, Thurow is describing a particular scenario in which the relationships that he specifies are dominant. Other scenarios are equally plausible, in which these relationships do not hold.

Thurow is arguing for a capitalism in which state or societal intervention is not only acceptable but necessary, provided that it is directed to supporting growth by correcting the failures of laissez-faire capitalism and not to direct income redistribution. The book ends with 'A Salute to the Builders'. Great civilisations, says Thurow, are those that have been great builders.

It is said that there are two roads to happiness. One is to be content with what you have, the other is to get what you want - the distinction between what Daniel Quinn in Ishmael called the 'leavers' and the 'takers'. Thurow belongs squarely with the second group. The 'great debate' developing is between those who. like Thurow, take it for granted that economic values encompass all the values that need to be taken into account and those who regard non-economic values as more important. They are not necessarily mutually exclusive, but real effort is needed to reconcile them. It is not enough to simply dismiss one set or the other as being 'inferior'.

Overall, it is a fascinating read for anyone interested in economics, or how rich countries become rich. Lots of good facts which reflect on the competitive, and opportunistic capitalist paradigm we currently live in.

1) There has been significant change in the economic landscape, and that change continues to accelerate. Before the industrial revolution, 98% of the world's population had income only from farming. Now less than 2% are farmers.

2) The world is increasing a global market. Coca Cola gets 80% of its revenues from outside the United States.

3) The gap in wealth continues to widen.
- Bill Gates market value is the same as the poorest 110,000,000 Americans.
- In the United States, the average CEO pay is 212x the average worker.
- The top 1% of people in the US own 40% of the total wealth.
- Africa GDP is the same as it was in 1965. Has not changed in 35 years.

4) We are all busier. With the invention of electricity, the average hours of sleep dropped from 9 hours to 7 hours a day.

5) Old companies must destroy themselves (re-invent themselves) in order to stay competitive and grow. Also, individuals must constantly change and grow to remain competitive. If not, they will fall behind.

6) Capitalism is a tough game. The number of businesses failing (88% a year) is almost as many as new business are formed. Wealth is constantly being transferred from one group ~ to another.

7) There are many basic ingredients to create wealth. Some are cultural (like entreprenuership), some are created and enforced by the government (intellectual property, law and order, infrastructure), some are learned by the individual (skills, knowledge)

8) Each country, and region has its strengths and weakness. In order to build wealth for the future, each country must act differently:

- Japan: Clean up the banks, bring in professional management, restore government credibility, and create internal growth. Japan is too big to play the export game anymore.
- US: Break the two-tier society (rich and very poor) by improving education for more skilled workers, and investing more in infrastructure
- Europe: Encourage entrepreneurs and corporate flexibility

9) Wealth is created when there is a disequillibrium (imbalance) in technology, or society. When there is change, there is opportunity ~ because wealth is being transferred.

10) Know your weakness and go where that weakness is not important.

While my views are generally favorable to letting market forces decide who is the fittest I think it is important that we do not close our minds to the different influences that shape the ecomomic landscape. After reading the customer reviews it struck me as ridiculous how opinionated some of them were. I found the book at minimum to be an objective view of what constitutes wealth and what is needed to build the foundation and the structure to achieve it. Wealth cannot exist unless we have a strong educated middle class that is accustomed to changing without sacrificing what they have earned everytime they do so. Thurow gives an excellent blueprint of what is necessary to achieve greatness as a country, profit as a company and achieve security as an individual. Therefore, it is paramount that we take a long term view on investment so that we can shape the very market forces that we could be in the best possible position to benefit from.

Heh, a reviewer claimed that the book is out dated, and reffered to the media hyped "technology meltdown" as a reason to give up home in technology and the building of wealth through intellect. We are now 2 years into the 21st century (3 years if you think it started in the year 2000), the markets are readjusting, and technology is abounding. The "internet bubble" or "Dot Com Crash" was a cataclysm of investors and venture capitalists, smart and stupid, who got too greedy, and forgot the fundamentals of business, internet or no internet. The markets will ALWAYS naturally receed and recess after "bubbles", which is what happened. Technology, however, did and has not receeded. Wealth is being built upon the foundations of intellect, and Thurow's book shows how this is to be accomplished by analyzing all other economic revolutions and what occured to make them possible. If Thurow was giving stock predictions and analysis, and "hot picks of the week" (which he absolutely does not), then i would understand the discredit which some reviewers have given him. But this is just not the case. Thurow analyzes the wealth being generated by Global corporations, and small businesses alike through the internet. He gives examples of those who have made it to the top of the wealth pyramid. He points to revolutionary ideas and systems which have fueled economies for decades. He answers questions, he asks questions. For futurists, insight, knowlegde, and analysis of history is key. If you want to be someone who is ahead in the future, and if you want to know what it will take to grow financially in the current century, "Building Wealth" gives insights into how it has been done, and what it may take. As with all good financial books, a disclaimer: This is not going to TELL you how to get RICH. It will teach you about current debates on the direction of capitalism, and what is believed will happen in 21st century buisness. Expand your mind, expand your wealth, even if it be only a wealth of mind.

Having read other Thurow books, and recalling particularly "Head To Head" from 1991, I'd say despite his authoritative writing and recognizable name, we have no particular reason to think he'll be right this time. Look at "Head to Head," in your local library and see how well this talking head predicted such things as Japan's economic collapse and the U.S.'s continued global competitiveness. Thurow has made an industry out of books that have useful lifespans of six months.

"Building Wealth: The New Rules for Individuals, Companies and Nations in a Knowledge-Based Economy"

Review by Madanmohan Rao, Bangalore, INDIA (madanr@microland.net)

The 301-page book is an excellent read, and covers a wide range of issues including emerging knowledge-based industries, global economic integration, entrepreneurial skillsets, business scaleability, national economic policies, and the digital divide; comparative analyses also cover the U.S., Asia and Europe.

The "wealth and productivity pyramid" in the New Economy, according to Thurow, is based on layers consisting of social organisation, entrepreneurship, knowledge creation, workforce skillsets, infrastructural tools, and natural resources.

The steam engine ushered in the first industrial revolution at the end of the 18th century, electrification heralded the second industrial revolution a hundred years later, and the third industrial revolution is now underway, spearheaded by technologies like the Internet, designer materials and biotechnology.

Technologies like the Internet help companies globally source and sell new products. The biggest changes of the third industrial revolution may well occur in areas like retailing.

"Entrepreneurs are needed to see the economic possibilities of new technologies such as Internet retailing, and break the old barriers that will attempt to prevent them from happening," says Thurow.

"With the onset of the third industrial revolution, the ability to rapidly open up the new and close down the old becomes the central characteristic needed for economic success. The American system - typified by the dismantling of phone giant AT&T or the transformation of Intel from a DRAM to a semiconductor company - was built to open up the new and close down the old," observes Thurow.

"Entrepreneurs built the national companies that destroyed local companies at the end of the 19th century - and they are building the global companies that are now destroying national companies," says Thurow.

Entrepreneurs are risk takers, organisers and doers - not usually thinkers and inventors. "Bill Gates has invented no new technologies and was never a creative software programmer. He is, however, an entrepreneur and a builder," says Thurow.

To advance and use knowledge, a society needs the right mix of chaos and order. Too much order (China and Singapore) does not work; too much chaos (Russia) does not work either.

As for other parts of the world, Europe has to reinvent itself to allow enterpreneurs to emerge, says Thurow. Europe saves a lot, is well educated, has a strong technological and infrastructural base, and will have a well-integrated regional economy - but lags considerably in entrepreneurial change capacity.

Japan has an excellent workforce with skill levels in the bottom half - but currently lacks creativity at the top; it has more than enough order to be efficient but too little chaos to be creative and risk-taking, according to Thurow.

In a time of such turbulent change, individuals will have to play the game based upon their education and their skills - and their willingness to change. Adult education, lifelong learning, network literacy, and on-the-job training are becoming increasingly important.

"In a knowledge-based economy, successful regions have to have the ability to grow new big companies rapidly. No one has been to rapidly grow new big companies as in the U.S.," says Thurow.

But in the U.S., the bottom two-thirds of the labour force is poorly educated and less skilled as compared to world standards, says Thurow. "Its rapidly rising earnings gap between the top and bottom quintiles of the workforce is in the long run unsustainable. It is a low savings and investment society," he says.

"These technological opportunities are creating fortunes faster than they have ever been created," says Thurow, but are also creating greater uncertainties in areas like intellectual property enforcement and the financial turbulences of a global economy.

"Just as the second industrial revolution moved us from local to national economies, so the third industrial revolution is moving us from national economies to a global economy. But the transition from national to global is going to be far more turbulent than the transition from local to national. There is no global government to learn how the new global economy should be managed," Thurow warns.

In sum, this is a very thought-provoking and comprehensive treatise on the emergence and future of the New Economy. It effectively weaves together of the roles of various actors like the individual, organisation, nation and culture. Some more comparative analysis of different parts of the world like eastern Europe or Latin America would have helped give it more global appeal. Still, it is a must read for all those wanting to reflect on what exactly this New Economy has wrought on our futures.

Building Wealth delivers the same level of analytical depth and breadth that Thurow's readers have come to expect. Excellent insights are drawn from a truly impressive set of research efforts. Lester Thurow assimilates a hugely broad set of general and industry-specific research into what is essentially a series of essays centered on the theme of explaining relationships within the "wealth pyramid."

Great reading for anyone looking for a little perspective and context in which to frame today's hyper-speculative technology stock boom. Thurows analytics provide a good refresher on international and traditional economic theory. Building Wealth is a solid sounding board that reflects characteristically strong direction for public policy. Fun read, and excellent conclusions.