Whither Industrial Policy? The Candidates Play It Cool

DURING this presidential election year, the first in the post-cold-war era, sagging United States competitiveness dominates the debate.

To boost the US economy, Democratic challengers call for a reorientation of America's industrial policy.

Since World War II, the US government has invested trillions of dollars in US military preparedness; the Democrats seek a civilian substitute - a policy that encourages US development by offering incentives, ensuring financing, and enacting protective laws for certain industries.

Incumbent President Bush won't utter the phrase industrial policy; he is concerned that he'll incur the wrath of Pat Buchanan and the conservative right who oppose big government.

"Bush knows he's knee-deep in sectoral-specific policies, but he won't admit it, because he's afraid of the political heat," says Otis Graham, author of the recently released book, "Losing Time: The Industrial Policy Debate." This is not a new-found fear among Republicans, says the history professor at the University of California, Santa Barbara.

"Since Ronald Reagan denounced industrial policy in 1980, Republicans have denied that we've had such a policy," Mr. Graham says. "Fact is, we've always had one. Policies are sector specific, tax policies aren't uniform, and we're always picking winners and losers. For example, steel production doesn't get [government] research-and-development assistance, but electronics manufacturing does."

US policymakers have lost precious time during this 12-year denial, says Graham. "We're left with an enormously scattered industrial policy, instead of a strategically managed industrial portfolio." Like other economists and trade watchers, Graham looks toward Europe and Asia when he recommends better coordinated government intervention as a means of enhancing US economic competitiveness.

America's European and Asian competitors - with subsidies, aggressive marketing, and protective trade policies - have a far more strategic outlook for their economies, many analysts say. Graham points to Japan's Ministry of International Trade and Industry as the height of "government and business cooperating in a partnership." He says "the crucial question of industrial policy is 'Who is the senior partner?' Government has to be the senior partner, because corporations, which are often multinational, ha ve themselves, not a nation, in mind first."

That senior partner must pick winners such as electronics over steel, says Graham. It must successfully work the interests of labor unions, corporations, and government into a cogent policy. Democrats favor planning

Jeff Faux, president of the liberal Economic Policy Institute points to several Democratic challengers who offer concrete proposals to advance industry through government intervention. These include Arkanas Gov. Bill Clinton, Sen. Tom Harkin (D) of Iowa, and Sen. Bob Kerrey (D) of Nebraska who all support "diffusing the latest developments in technology to small and medium-sized manufacturers," as Mr. Faux puts it.

This, says Faux, can best be achieved by setting up state agencies that, together with the federal government, finance and direct public-university research, which is then funneled down to the county and city levels so that business can use it. "This goes on in Europe and Asia. We can and should use this approach here," Faux says.

But US businesses fear more government control, including antitrust, labor, and environmental regulations. John Cregan, president of the conservative US Industrial and Business Council, a group of 1,500 companies, says the Democratic presidential candidates go too far.

"Paul Tsongas has it right when he says that economic security is the key challenge," Mr. Cregan says. But he faults the former Massachusetts senator and other candidates for having an "unabashed statist approach toward US business - lumping big government, big labor, and big business together. And it has a very negative connotation to the average American. The past 12 years have been about a reaction against big government," and voters cannot be expected to take an about face, Cregan says.

"We don't have to go that far," says Cregan. "We don't have to put government in the boardroom. What we must do is get government to recognize that it must look at business strategically."

From the opposite perspective, Faux says that "industrial policy is as American as apple pie." The US, he says, has had an unstated industrial policy that worked primarily for the defense sector, but at crucial junctures, also for the civilian sector.

"Look at the development of the airline industry," he adds. "In the 1920s, we were far behind. But the US Postal Service offered lucrative contracts to US air services if they scheduled more flights. Airmail subsidized passenger service, and we built the most productive, most successful air-travel sector in the world. That is, until we deregulated it in the 1980s."

Despite White House denials, the current administration has an industrial policy, insists Cregan. Bush supports funding more R&D efforts in the private sector and financing the supercollider there's a big section in his budget on that," Cregan says.

Other signals of Bush's industrial policy are the way he focused on real estate in his proposed budget (as a sector to rejuvenate with tax credits and rebates) and his decision to take auto- and electronic-industry leaders to Japan in January, Graham adds.

Cregan cites "three alternatives in our challenges for the 1990s: We can become more like Japan, with government aggressively managing business decisions; we can let the chips fall where they may - the sort of laissez-faire approach that is currently not working; or we can take a tougher stance toward competitiveness and preserve our unique style of entrepreneurialism."

Cregan's immediate priority is to make investment tax credits a permanent fixture in the national tax code and to drop some newly established regulations. Laws that require businesses to comply with costly environmental standards and provisions for the disabled eat into the bottom line of US producers, he says. Priming the pump

On Feb. 12, the Bush administration launched the "National Technology Initiative," another program observers say is part of a de facto US industrial policy. The program is designed to shift technology from the country's large number of federal laboratories into the civilian sector.

In the same breath that Energy Secretary James Watkins denied that the administration has an industrial policy, he said "Having won the cold war, we have an unparalleled opportunity to join with industry in new partnerships for progress."

Faux says the government should lend greater support to the industrial process, instead of to innovation.

"We're doing a good job with inventions. We must learn how to bring our good inventions to market. For that, we need the technology that will produce goods more efficiently."

"The Pentagon has been the engine of the nation's technological and economic growth," says Faux. Now that the cold war has ended, "we need to find a civilian substitute for the Pentagon."