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Pinpoint Aid to US Industries

A MAJOR issue facing policymakers is whether the federal government should help specific industries or sectors of the economy to become more competitive. In recent years several important American industries were losing ground to Japan and Europe, and there was a concern that government had no role to play and did not care whether the United States made computer chips or potato chips.

In contrast to the reluctance of the Reagan and Bush administrations to publicly support industrial policy, President Clinton has supported fairly ambitious assistance to specific industries. In recent months, he has announced efforts to help automakers produce clean cars, to help develop an information superhighway, to assist the shipbuilding and oil and gas industries, and to fund research into advance technologies such as flat-panel displays.

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Critics do not want the government picking industry winners and losers; they worry that assistance will be channeled to the politically powerful. Yet the focus on industrial policy is driven by the increasingly tough competition our industries face from abroad. Policymakers are looking for ways to improve our ability to sell more goods and to keep good-paying jobs.

As this debate unfolds, we need to get a clearer sense of overall US industrial policy. Many people view industrial policy as having the federal government choose winners and losers between exotic technologies such as opto-electronics and advanced robotics. But as some have pointed out, the US already has an extensive de facto industrial policy: Spending and tax programs already assist the agricultural sector, the housing industry, the health-care industry, and others.

Industrial policy basically means government support for some sectors or economic activities over others, and the federal government has been doing that for a long time in a variety of ways, primarily through direct spending and tax subsidies, but also through trade policy and regulatory relief. For example, the agricultural research and extension system has helped make US farmers world leaders; our aerospace and computer industries owe their origins to federal programs; and our federally supported medical technology is among the world's best. Some of our most successful industries have had considerable federal support. Yet the way the government helps these major industries is often not looked at coherently; and when it is, much of the policy does not make sense - such as the minuscule amount we spend on manufacturing extension compared with agriculture extension, or the large amount of federal help we offer commercial real estate compared with advanced electronics.

The administration should be required to put together periodically a brief list of the main sectors of the economy and a description of the federal help they get. Such assistance probably totals hundreds of billions of dollars a year in direct spending and tax breaks. Some industries receive significant government support; others, perhaps more important to our long-term competitiveness, may receive little.

It is difficult to have an informed debate if we do not know whether the government currently provides more assistance to oil producers, condominium developers, software companies, or agriculture. Our goal should be to bring about such a debate on industrial policy by getting a broad sense of what our priorities already are and evaluating results to see if some sectors need more or less support. We will likely be debating industrial policy more in the future; we should at least be doing it in a more informed context.

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