Debating Industrial Policy

  • Share
  • Read Later

The proposal for some sort of national industrial policy to increase U.S. competitiveness in world markets has become a rallying cry for Democratic presidential candidates, organized labor and some business groups. Robert Reich, 37, a professor of business and public policy at Harvard's Kennedy School of Government, is one of the leading advocates of such a program, and his book The Next American Frontier has become a baedeker for industrial policy since its publication in May. Last week Reich was a guest at the meeting of the TIME Board of Economists.

Reich began by conceding that the whole concept of industrial policy is being lost in a cloud of confusion. Said he: "Industrial policy is one of those issues that have gone from relative obscurity to near meaninglessness without any intervening period of coherence."

Nonetheless, he maintained, the U.S. already has something like industrial policy in place. Federal, state and local authorities are giving large grants to prop up aging industries and encourage new ones. The Administration has proposed merging trade officials now spread around several federal agencies into a single department that would be modeled after Japan's Ministry of International Trade and Industry. In addition, the Defense Department's Advanced Research Projects Agency is expected to spend nearly $1 billion by the end of the decade to help firms look into supercomputers and other hightechnology areas. "We have all kinds of decisions being made all over Washington that affect particular industries," Reich said, "but there is absolutely no understanding, no coordination, no overall strategy."

Reich advocates bringing these activities out "from under the table." He argues that both declining industries like steel and emerging ones like robotics should be given Government assistance only in exchange for accepting industrial-policy coordination. Fading industries like steel, which are demanding protection from foreign competitors, might be given temporary relief from imports if managers and workers accepted pay cuts and more flexible work rules. Whenever high-tech firms receive Government help, Reich would like to see them match public funds for research ventures with their own spending and make commitments to keep R. and D. operations in the U.S. instead of locating them abroad.

Differing sharply with Reich was the Brookings Institution's Charles L. Schultze, President Carter's chief economist. Any attempt at industrial policy, said Schultze, is more likely to do harm than good. While he approved Government support of research and development and Government-financed job-retraining programs, Schultze warned that a "coordination" program would almost surely increase protectionism and unwarranted subsidies. Said he: "A Government agency that explicitly tries to sit there and say, 'The cotton industry can live but the wool-textile industry will die' or 'The Youngstown steel plant can be rehabilitated but the Weirton plant must close' will be a terrible mistake." The invisible hand of the free market, Schultze said, should make the decisions about industrial structure, even though the "choices will be imperfect."