THE hearing room in the Rayburn House Office Building was packed with press, lobbyists, and Congressional aides. The subject of the gathering wasn't a new government scandal; it was ``managed trade.'' Managed trade is one of the hot policy concepts in Washington these days. Its proponents argue, in effect, that the United States has been a sucker in its approach to trade with Japan, France, South Korea, Taiwan, and some other nations. The US considers itself as the chief purveyor of liberal trade, following to a considerable degree a ``laissez faire'' policy of letting the market determine trade flows without interference from government. But US trading partners, while paying lip service to free trade, devise pragmatic measures to subsidize or otherwise protect their domestic industries from the harsh winds of international competition.
``The prevailing US ideology of economic liberalism eschews industrial goals for the United States,'' says a paper by economist Robert Kuttner, written for the Economic Policy Institute, a Washington think tank, and presented in that Rayburn hearing room last month.
``In principle,'' he continues, ``it is none of the government's business where steel, or automobiles, or semiconductors, or VCRs, or civilian aircraft are produced. If production migrates, this must be the market speaking. If the invisible hand [spoken of by the 18th century economist, Adam Smith in reference to free markets] operates through the guiding hand of foreign industrial policies, this is deemed to make no significant difference. Classical trade theory holds that if other nations are stupid enough to subsidize their export industries, American consumers ought to welcome the gift.''
Mr. Kuttner holds that this attitude makes America's industrial fate partly the captive of other nation's industrial policies. Because the US considers itself as the political leader of the Western world, it is reluctant to play tactical hardball on trade issues, lest it alienate key geopolitical allies. The US does not easily resort to explicit market-sharing remedies when its trading partners fail to open their markets adequately.
Finally, says Kuttner, when the US does depart from its free trade ideal, the actions are ``undertaken guiltily and without strategic purpose, and are seen by US officials as unfortunate concessions to domestic politics rather than as economic development initiatives.''
Clyde Prestowitz, a former Reagan administration trade official and an advocate of managed trade, maintains this revisionist trade thesis has won growing support in the Commerce Department, Treasury, and the Office of the US Trade Representative. The State Department, he adds, still doesn't want to do anything to upset diplomatic equanimity.
On the whole, he finds Washington trade bureaucrats ``more willing to be pragmatic. The discussion has moved off good and bad, and more toward how do we do it.''
Kuttner also finds less trade ideology in the Bush administration than in its predecessor. ``There is a more eclectic view of trade problems than a couple of years ago,'' he says.
Oddly enough, US trade protectionism increased considerably during the Reagan years when the free trade gospel was preached the loudest. America's trading partners can offer a host of examples of US restrictions on imports. But the opponents of managed trade argue that US protectionism would have been even worse if the US had abandoned its free trade ideals. They further maintain that the current round of trade negotiations under the General Agreement on Tariffs and Trade plus the free trade deal with Canada should reverse the wave of trade restraints.
Noting the saying, ``The best can be the enemy of the good,'' Kuttner asserts that free trade ideology can damage freer trade. He supports a ``mixed economy,'' with government providing guidance to the private sector. In fact, most everyone counts on a role for the government in the economy. The debate is over the balance between the free market and government direction.
The danger in managed trade is that it could become an excuse for unwarranted protectionism for specific industries and thus their workers. It assumes that bureaucrats can be wise enough to make the right decisions on the future of US industries. Yet the emphasis on pragmatism of these trade revisionists does appeal.