Thursday, April 28, 2016

National Industrial Policy

Via  Richard B. McKenzie:

National industrial policy is a rubric for a broad range of proposed economic reforms that emerged as a unified political program in the early eighties. Had they been passed, these reforms would have given government officials additional authority, as well as the necessary fiscal and regulatory powers, to directly alter the country's industrial structure. Proponents of national industrial policies (NIP) across the globe have typically been harsh critics of unfettered markets and of past limited efforts of government to create economic growth simply with macroeconomic (fiscal and monetary) policies...

NIP proponents believed, and some still believe, that many of the country's industrial markets had failed, causing the entire economy to come apart at its industrial seams. Harvard's Robert Reich, a leading exponent of industrial policies in the early eighties, claimed, in The Next American Frontier, that the U.S. economy had been "unraveling" since the sixties. He found "chronic disarray" in the political sphere, which he linked to the "growing unemployment, mounting business failures, and falling productivity" in the economy's industrial sector.

More specifically, NIP proponents claimed the following:

  • The nation is in long-term economic decline, with little hope of a turnaround without greater government involvement in the restructuring of the economy.
  • The country is "deindustrializing," or losing its core industrial base to plant closings and "capital flight." In The Deindustrialization of America economists Barry Bluestone and Bennett Harrison argued that the ongoing process of deindustrialization amounted to a "wide-spread, systematic disinvestment in the nation's productive capacity." Without its "core" industries—steel, textiles, rubber, shoes, and automobiles—the national economy will lose its stature in the world, and workers will lose their better-paying employment opportunities.
  • Major segments of the U.S. economy are uncompetitive in the new global economic order. Many U.S. firms are gradually being destroyed by their own misguided internal policies, by their pursuit of short-term profits, and by foreign competitors that are more successful primarily because of the national industrial policies adopted by their governments. The postwar economic success of Japan was extensively credited to industrial policies orchestrated by its Ministry of International Trade and Industry (MITI). Economist Lester Thurow of MIT, in The Zero-Sum Society, worried that if left alone, "our economy and our institutions will not provide jobs for everyone who wants to work," and that "we have a moral responsibility to guarantee full employment."
  • While acknowledging that his proposed industrial policies would create "a socialized sector of the economy," Thurow maintained that "major investment decisions have become too important to be left to the private market alone.... Japan Inc. needs to be met with U.S.A. Inc." Reich contended that Japan and several European countries were growing relative to the United States because "these countries are organized for economic adaptation.... America is not."

NIP proponents generally believe that government should be directly involved in establishing national industrial goals and in assuring that the goals are achieved.