A case for developing a US industrial policy
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For that particular piece of industrial policy, we had to do something special for the banking sector and for the industrial sector. Those were done. We now have three or four trading companies in operation. People say they are doing well, but we have to wait and see what the results are.Skip to next paragraph
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Q What are trading companies and how do they work?
One trading company is General Electric. Another is Sears Roebuck. They buy masses of goods and sell them in foreign countries. They acquire masses of (foreign) goods and bring them to the United States. They don't bring only their own goods. They have to arrange the financing, so they need a bank. They have to arrange shipping. They need market research teams.
Also, the National Science Foundation is making grants to business to enter new high-tech activities, requiring venture capital. That's a part of industrial policy - small scale, but I think it is a change in practice from what the National Science Foundation used to do.
Q What about government help to save Chrysler as an example of industrial policy?
I don't know if you'd call the Chrysler bailout successful or unsuccessful yet. I'm not sure you would say that that was really good industrial policy, but it seems to have been capable of being implemented under American conditions.
The Chrysler bailout cannot be considered costless, even though the government did not shell out cash. It had an effect on capital markets. If you did such things on a bigger scale, it would have a bigger effect on capital markets. Somebody has to pay for that activity.
Q Is there a danger, since the pool of capital available for intervention would be limited, that it would be channeled in the wrong directions - protecting losers rather than picking winners?
My former student, Prof. Jim Ball, who is principal of the London Business School, says that to him industrial policy means picking the winners, not in the sense of a day at the races, but in the sense of improving the breed. And that is exactly the way I would put the situation.
I'd channel money into R&D, channel money into basic scientific research, restore research to the position it held at the end of the 1960s, before it started to slip in real terms. Secondly, approach the retraining (of workers) more carefully and have it a much more cooperative venture between the private sector and the public sector.
I would give much more sympathetic treatment to R&D expenditures in the private sector, through tax treatment and the fostering of venture capital. All these things we would want to do, and that, I think, would reduce the danger of picking individual losing companies or individual losing industries.
Q Are we beginning to see a better climate for industrial cooperation, in terms of labor-management relations?
The answer is yes. The fact that we had a labor representative on the Chrysler board, that in a few cases we've seen people willing to take wage moderation to protect their jobs, all point to a somewhat better climate.
Q Did the productivity decline of the 1970s reflect structural problems in the way the US economy works, which might be benefited by an industrial policy?
The decline was both structural and cyclical. The principal structural problem was a long-term shift in the terms of trade vis-a-vis energy-supplying (oil-exporting) areas of the world. But there was also a long-term increase in the industrial cost of protecting the environment. This brought down some of the productivity gains of the past. Out of that we have learned how to live and deal better with both the environmental and energy issues.
We are on the threshold of starting progressive productivity again. In the early stages, as we come out of the recession, we will see cyclical gains in productivity. Then in the later stages I think there will be a follow-through with the new technologies and we will see some trend gain in productivity.