Industrial Policy Is Only Option, Prestowitz Says

THERE'S an Old Testament quality about Clyde Prestowitz. One can imagine him striding out of the wilderness, confronting the wayward children of Israel, and crying, "Woe!"

This latter-day prophet heads the Economic Strategy Institute, which he created. From his glass-walled aerie overlooking Connecticut Avenue he tirelessly repeats his basic message: For its own sake and for the global community, the United States must design and implement a strategy for a vibrant industrial economy that can lead the world into the 21st century.

"If the US economy is not a vital, dynamic economy providing a rising standard of living to its citizens," he says in an interview, "if it's experiencing slow growth, lagging productivity, and declining standards of living, its ability to be the market of last resort for the rest of the world simply won't exist."

The US economy must be strong in a broad range of products, Mr. Prestowitz continues, including automobiles, computers, and aircraft. He has no patience with economists who argue that so long as the economy keeps growing, it does not matter whether US factories are churning out computer chips, wood chips, or potato chips. His fundamental message: What the US makes is as important as how much it makes. Policy differences

Prestowitz takes sharp issue with the laissez faire economic philosophies of the Reagan and Bush administrations, which have claimed that the market knows best and that industrial policy is bad. The government is continually making decisions that impact the economy, he says, and these decisions must be thought through in more than a piecemeal fashion. "You can't avoid industrial policy," he says.

Macroeconomic policy, defining and shaping the environment in which individual businesses make their decisions, is important, he says. He wants tax and budget policies that will encourage investment and research and development. He would do away with taxes on savings while imposing them on gasoline and other items of consumption. He wants the defense budget halved, to $150 billion a year.

Prestowitz tells of a Japanese electronics executive who said five years ago that his company was prepared to lose money for 10 years, if need be, in order to achieve dominance in the flat panel display screens used in portable computers. What American executive, he asked, could make such a statement? Japanese and German executives can make plans for the long haul because they are not captives of the quarterly report.

To remedy this situation, Prestowitz proposes creating a two-tier shareholding system that would restrict voting rights to long-term shareholders. Symbolism vs. action

Prestowitz says the US has wasted far too much time on symbolic free-trade issues such as opening Japan's market to US rice. Why keep harping on rice, he asks, when three quarters of the US trade deficit with Japan is in cars and car parts, and the rest is in electronics? The US should insist, rather, that Japanese automakers, when they build plants in this country, commit themselves to a specific timetable to achieving 75 percent US content.

Once US carmakers had nearly 100 percent of the US market. Today they are having trouble hanging onto 60 percent. Prestowitz says that the same thing could happen in aerospace, where Boeing is dominant in commercial aircraft but is competing worldwide with the heavily subsidized European Airbus.

If the US continues on its present course, Prestowitz says, piling up budget and trade deficits, letting once vigorous industries either give way to foreign imports or move their manufacturing operations abroad, "Americans will get poorer and poorer."

"So we've got to change. And that means sacrifice." More taxes, less consumption, at least for a while, until America gets back on its feet. How do you persuade the US voter? The Old Testament gleam returns. "Well, if you grabbed him by the lapel and said, 'Listen, if you don't do this, you're taking money away from your children and your grandchildren he'd listen."