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Cultivating the Economy : Industrial Policy Debate Renewed

March 31, 1985|CHRIS WELLES | Times Staff Writer

One day in August, 1982, Walter F. Mondale sat down to read the manuscript of a new book titled "Minding America's Business" by Ira C. Magaziner and Robert B. Reich, advocates of a new approach to federal industrial policy, which concerns the government's relationship with particular industrial sectors. "This," he remarked enthusiastically to his wife when he finished, "should do it for the Democrats in 1984."

For a time, Mondale's comment seemed prophetic. By early 1984, industrial policy remedies for the nation's economic malaise, such as a federal development bank to assist beleaguered industries, were being espoused by nearly all the Democratic presidential aspirants.

But by last summer, the malaise having given way to a boom, industrial policy had all but disappeared from Democratic rhetoric. Some political analysts, however, see the last campaign as only the prelude to what conservative commentator Kevin P. Phillips calls a "great mid-1980s debate," an intense, far-reaching struggle between liberals and conservatives over government's proper role in guiding the affairs of American business.

Denounced Proposals

During the campaign, the Republican response to Democratic proposals was simply to denounce industrial policy, and reaffirm the party's traditional opposition to extensive intervention. Yet, Phillips and others on the right argue that conservatives must now take a much more activist stance and come up with an alternative industrial policy.

They argue that while the deep recession that provoked the Democrats' interest in industrial policy is over, demands are growing for new federal action to revitalize the sagging international competitiveness of American industry as evidenced by last year's record $123-billion trade deficit.

The deficit has been largely attributed to the soaring dollar. But "U.S. Competitiveness in the World Economy," recently published proceedings from a Harvard Business School colloquium, says the main cause is that, unlike the United States, chiefly East Asian trade rivals pursue "coherent national strategies through which each country mobilizes and shapes its productive capabilities to achieve economic growth and global competitiveness."

As an example, the book cites Japan's highly successful nurturing of its semiconductor industry. After identifying the industry's vast export potential in the early 1970s, the government provided interest-free loans, research and development subsidies, insulation from foreign competition, exemption from anti-monopoly laws and, once the industry was competitive internationally, aggressive export promotion. Japanese firms have rapidly increased their market shares at the expense of U.S. companies.

Develop Own Strategy

The book does not advise that the United States copy the Japanese model. But it does suggest that the U.S. government adopt a much more "productivity-oriented development strategy" toward business.

"A new round of government involvement in the economy is developing, and the question is who is to control it," Phillips says in his recently published "Staying On Top: The Business Case for a National Industrial Strategy."

"If the conservatives abdicate and liberals win . . . " he writes, "opinion could possibly lurch toward a new array of government mechanisms . . . to usurp corporate managers' authority on behalf of politicians and government regulators. That becomes a clear possibility if the country slips into another recession in 1985-86. On the other hand, if business and conservative strategists co-opt the trend and shape new government involvement toward a 'support enterprise' direction, then the new agenda could have a conservative cutting edge."

The outlines of the new conservative agenda are already taking shape. On Feb. 13, the President's Commission on Industrial Competitiveness, formed in 1983 to provide an alternative to Democratic industrial policy proposals and composed mostly of business leaders, recommended a wide-ranging program to meet what commission Chairman John A. Young, chief executive of Hewlett-Packard Co., called the "new reality of global competition."

Range of Proposals

The recommendations, among other things, would promote exports, stimulate research and development, relax federal regulations that the commission believes unnecessarily hamper innovation and competitiveness, create two new Cabinet-level departments--trade and science, and technology--foster an "effective dialogue" among government, business, and labor, and generally enable the government to take a more active and coordinated approach to encouraging business investment and performance."Sure, it's industrial policy," says commission member Michael Porter of the Harvard Business School, "except that the philosophy is fundamentally different from what the Democrats were proposing. We don't believe in direct subsidies of specific industries. We believe in improving the environment for all industries."

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