Bush, Clinton, and a US Industrial Policy
Layoffs and abysmal US economic growth make a national economic strategy a real election-year debate
AS the United States economy remains mired in slow growth, hallmark of the Bush presidency, the question of whether America needs an industrial policy has become a prominent Washington economic debate. "Industrial policy" had been a postwar taboo - linked to the disastrous economic record of communism. But now the subject may play an important role in the presidential campaign if Bill Clinton, whose platform contains many industrial policy-like components, uses the issue to challenge George Bush's hands- off, laissez-faire philosophy.
Japan has employed industrial development strategies to build an advanced economy. The Germans and French have used industry and technology policies to foster growth in key industries like aircraft and aerospace. Now some US economists are grudgingly giving industrial policy a second look. So are politicians. The reason is simple: Our free-trade economics isn't working to America's advantage in the post-cold-war global competition.
The situation somewhat resembles the final years of the USSR, when the ruling elite knew Marxist economics was bankrupt - but clung to it out of ideological rigidity and fear that privileges would vanish. In the more pragmatic and flexible US, at least some Republican members of Congress, and a few executive branch officials, wonder if a rethinking of the administration's hands-off approach is needed.
In the brave new economic world, foreign "national champion" industries, with the full backing of their governments, are skewing marketplaces to give themselves comparative advantage and win market share from US rivals. US corporations, operating without government support or sympathy, must fend for themselves. The results are proving catastrophic.
Almost weekly, layoffs are announced by premier corporations. Tens of thousands have lost jobs at GM, IBM, Hughes, United Technologies, McDonnell Douglas, and Boeing. Along with Zenith and Smith-Corona, many companies will move to Mexico to stay competitive. Key European and Asian competitors, however, are following high-wage, value-added, differentiated product approaches to achieve good work and a rising standard of living.
President Bush's most telling failure is the 0.4 percent annual rate of GDP growth - the lowest of any modern president. At the 1988 Republican convention, Bush promised growth that would create 30 million jobs. Now, as he admits, he is 29 million jobs short. And jobs that have been created are in services and government. Almost every other sector has employment drop, especially the crucial manufacturing sector, which lost 1.3 million jobs.
The difference between manufacturing jobs and others is crucial. Not only does manufacturing pay an average weekly wage of $455, higher than the national average of $355, or the $331 a week of service industries, it is also the sector most amenable to more productivity, which raises salaries and living standards. As more of our manufacturing base is des-troyed by predatory practices of foreign rivals or moved offshore in an attempt to compete, the country will be trapped in a downward wage spiral.
Meanwhile, foreign industrial policies have tried to manipulate market forces for better work and living standards. Hence, our new discussion of industrial policy. Where do the candidates stand?
The Bush campaign is mainly opposed to industrial policy. The concept clashes with its free-trade ideology. But its officials claim success for industrial policy-like programs. The president's science adviser, Allan Bromley, speaks glowingly of the National Technology Initiative, procedures intended to foster cooperation between the 726 federal labs and private enterprise. Though not a White House creation, Sematech, a semiconductor consortium partly supported with government funds, gets credit for gains
in worldwide market share for US firms.
Yet the White House won't emerge a champion of industrial policy. Its departures from laissez-faire are too few. Take the proposed North American Free Trade Agreement (NAFTA), among the US, Canada, and Mexico. Not only is it the centerpiece of Bush's trade and industrial strategy; it is the strategy.
In negotiating NAFTA, the administration remained true to a presumption that free trade alone will bring economic growth. Ignoring the fact that true growth is a function of savings, investment, and innovation - not trade - and overlooking the effect of job-destroying imports on US industry and workers, the White House plunged into NAFTA with a vengeance, betting the farm on its pet theory.
Yet the economic models and forecasts it marshals assume the very questions that need asking. They assume a textbook-perfect economy where the US is at full employment and job loss is quickly offset by job gains. Former well-paid assembly line workers whose jobs were lost to auto, electronics, tool, and semiconductor imports know the real world works differently. A new economic approach from Bush won't happen.
Mr. Clinton's program goes much further, but stops short of the industrial policies of Paul Tsongas and Ross Perot.
Democrats want industrial-policy champions like a permanent R&D tax credit, capital-gains tax reduction for longer term holdings, and an investment tax credit. These proposals may enable US companies to attract investment, expand R&D, and renew capital equipment and manufacturing. They are pushed by those who realize the US can't be competitive if the Japanese and Europeans radically outinvest us.
Clinton, moreover, favors creation of a civilian technology agency to coordinate and expand on the work of the federal labs. The idea is to push advances in researching critical technologies and then commercialize them. By contrast, the White House fired Craig Fields, head of the Defense Advanced Research Projects Agency, when he came too close to a similar plan.
Another Democratic plank is reduction of the federal budget deficit, which will lower the government profile in the capital markets and cut the cost of capital to businesses. Clinton promises in-creased investment in both traditional infrastructure (highways, bridges, tunnels) and 21st-century infrastructure (supercomputers, maglev trains, fiber optics). The resulting transportation and communications links will make US firms more competitive.
Yet Clinton's approach contains pitfalls. He emphasizes investing in people - creating "the best educated, best trained work force in the world." No one says education and workers' skills aren't crucial for a competitive economy, and that Europe and Japan do better than we. But the question remains: What about supporting businesses that employ newly trained workers?
Unlike Mr. Tsongas, Clinton won't break with the Democratic tradition of arms-length dealing with business. Aside from supplying business with tax breaks and trained workers, he is leaving them to compete in world markets without support. Tsongas's little gray book, "A Call to Economic Arms," articulates the difference: "American companies need the US government as a full partner if they are to have any hope of competing internationally." Clinton would partly implement an industrial policy, not fully. St ill, he stands in sharp contrast to Bush, who insists, despite the ongoing destruction of US industry, that global markets are working magic for US companies and workers.
In fact, the country has shied from any real discussion of industrial policy for so long we don't realize how broadly based a true industrial policy is. Policies aimed at a single industry or even a group of industries will fail unless they are integrated into a larger economic strategy. Such a gameplan includes programs in trade, technology, health care, legal reform, banking, corporate governance, the macroeconomic sphere, savings and investment, the environment, training, education, worker safety, and
taxation. Neither candidate has a true national economic agenda, but enough differences exist to spark a debate on the future course of the economy.