The MacNeil/Lehrer Report; Industrial Policy Debate

ROBERT MacNEIL: Good evening. Financial markets all over the world waited today for clues about U.S. monetary policy when Federal Reserve Board Chairman Paul Volcker testified on Capitol Hill. But they were left mostly in the dark. Appearing before the Senate Banking Committee, Mr. Volcker said the financial world would not find the decisions of the Fed's Open Market Committee this week terribly dramatic, but he said he would not reveal what decisions had been made about interest rates and the money supply until later this month. Meanwhile, two other congressional committees were focusing on the idea that some economic problems can't be solved by monetary and tax policies alone. Many economists are calling for an industrial policy to set a national strategy that will make American industry more competitive in the world marketplace. Advocates, looking at the Japanese example, say only a national policy will make it possible to help key industries and reshape the U.S. economy. Opponents see industrial policy as just an excuse for central government planning. Tonight we look at that growing debate. What is an industrial policy and is it the cure for America's economic ills? Jim?

JIM LEHRER: Robin, the United States must have an industrial policy if it is to survive. That's the economic thing to say these days if you're a Democrat. An industrial policy would destroy this nation's free enterprise economic system. That's the right thing to say if you are a Republican. While the economic argument over an industrial policy may be complex, the political one is really very simple. It's the same one that's been going on for years between liberal and conservative politicians. The issue is the role of the federal government in business and industry. The pro-industrial policy people argue the government can and should lead the industrial future of the nation. The other side says the government should stay out of the marketplace and let the chips fall where they may. Many Democrats, including most of the 1984 candidates for president, are pushing the industrial policy concept as an alternative to Reaganomics. Most Republicans, including President Reagan, reject it as a proposal that smacks of Big Brother socialism. Robin?

MacNEIL: One of the leading proponents of a national industrial policy is Lester Thurow, MIT economics professor, journalist and author. He joins us from public station WGBH in Boston. Mr. Thurow, first of all, why do we need an industrial policy?

LESTER THUROW: Well, there are really two reasons. The first is the competition may force you to do it. If the Japanese pick off computers as part of their industrial policy, the Germans get robots, the French get transportation equipment, what's left for America? The second argument is that America already has an industrial policy. It's called "prop up the losers." Every tariff, every quota, every government loan guarantee is in fact an industrial policy, and if we protect the Harley Hog, a motorcycle, which we're doing, and the Japanese put money into the fifth-generation computer, who's got the best industrial policy? It simply isn't possible not to have an industrial policy.

MacNEIL: What are the fundamental elements of the industrial policy you propose?

Mr. THUROW: I think there are three elements. The first element is essentially a civilian ministry of technology, a civilian ARPA, which we have in the Defense Department, that looks in and helps finance research and development projects that are industrial. We have good funding for the National Science Foundation in universities, we do good things in the Defense Department, but when it comes to civilian industrial research, we simply aren't in the ballgame. Essentially every other industrial country has a ministry of technology. The second item is basically investment banking, both public and private. We made investment banks illegal in the United States back in 1933 because we blamed the house of Morgan for the Great Depression. That's irrelevant now, and in order to make an economy work you've got to have some investment banks in that economy. Most people have found that a public investment bank is important, but I think we also need private investment banks. The third thing is basically what the Japanese call a recessionary cartel -- I would call industrial triage -- and that is, if you have a sick industry -- let's say steel -- what you say to that industry is, "Go away and you figure out a plan for how you make your industry healthy, not somebody in Washington doing it, but if you can figure out a plan for making the steel industry healthy, we will cooperate with you in trying to put that plan into operation." That might involve some new facilities, some changes in laws, some investments, perhaps some protection, but think about what we did do in steel. We have protected that industry ever since 1968, but it's weaker today than it was then. We have had a very ineffective industrial policy for steel, and the question is whether you can replace it with a good industrial policy for steel.

MacNEIL: How would firms or industries or parts of industries qualify for the government investment and special treatment that this industrial policy would offer them?

Mr. THUROW: Well, I think two things. The first thing you'd do on the research level is you would let firms form consortiums of firms, groups of firms, and the government might help finance their research and development up to 50%. But the government would never pay 100% of the bills. If private people aren't willing to put up some of the money, you wouldn't do it. I think the same thing is true on the investment banking. If you had a public investment banking. If you had a public investment bank it would never pay 100% of anything. It would put up 30, 40, 50 percent of the money, but if private people aren't willing to put up the rest of the money, it doesn't get done. And on the recessionary cartel part, it would then be up to an industry to say, "Hey, we're a sick industry, we need some help." But the government would say, "No help unless you in the industry, the workers in the industry, the firms in the industries, the banks in the industry, you come up with a program on how you save your industry, and we'll help you put it into effect." It isn't central planning in the sense that people in Washington deciding what to do about the economy.

MacNEIL: For those parts of industries or industries which couldn't demonstrate that they could be competitive -- they had a plan to be competitive in the international marketplace -- your policy would let them be jettisoned, is that it? You'd say, "Okay, die." Is that it?

Mr. THUROW: That is absolutely right. If you take motorcycles, where we now have what I would consider a stupid industrial policy of propping up one firm that makes 50,000 cycles, you would say to that firm, "If you cannot figure out a way as to how you make your firm into a world-class firm, producing a substantial number of motorcycles, you will get no aid out of the federal government. And if you get forced out of the economy, that's just tough."

MacNEIL: And, in effect, the government would be picking winners and losers among American industry?

Mr. THUROW: Well, in some senses that's true, and in other senses industries would be proving that they're winners or losers. It's not the idea that you're predicting who is going to be the winner 20 years from now. You're saying if an industry needs help in terms of research and development and in terms of investment banking or restructuring, and they themselves come up with a program that makes sense, a research program, an investment program, a restructuring program, the government will help cooperate. But of course that's exactly what we're doing now. The difference is we don't make the private industries come up with a positive program as to how they make themselves into world-class industries. We just bail money out the back door without any policy behind it at all, and it's a terribly inefficient industrial policy that we're now pursuing, and it's a losing industrial policy.

MacNEIL: Why are you confident that the federal government would be a better arbiter of who should be a winner and loser than the open marketplace with all the specialists there are who are watching every company all the time and their stocks for signs of their health and promise and so on?

Mr. THUROW: Well, see, I don't think it's a matter of the federal government picking winners. I think it's a matter of saying, are there places where the federal government can help make this a more competitive country vis-a-vis the rest of the world, and it comes back to the first thing I mentioned. You may have to do it because the competition is doing it, not because you want to do it. What happens if the Japanese focus in on computers and the Japanese government pays for 50% of the research in the computer business in Japan? The same thing happens in Germany, and they do it in the robot business. You have to face the fact that America doesn't make the rules of the ballgame anymore. America has to play in a competitive world, and part of the meaning of competition is you have to do things you don't want to do. And if the competition can make industrial policies work, then America will have to make industrial policies work or we'll simply go down the drain, and that's the choice.

MacNEIL: Well, thank you. Jim?

LEHRER: Another view of it now from Jack Albertine, president of the American Business Conference, an organization which represents the Washington interests of some 100 highgrowth manufacturing, service and technology industries. He's an economist who was formerly the director of the Joint Economic Committee in Congress. Generally what do you think of the Thurow ideas?

JACK ALBERTINE: Well, when you talk about industrial policy, Jim, you have to recognize that there are about as many foes of industrial policy as there are advocates of industrial policy, and some of them want to pick winners and some of them want to pick losers, and some of them want to pick winners and losers. I really don't think that Mr. Thurow's policies would be effective, and for this reason. I think they sound good on paper, but when you try to translate those policies into practical reality, you have the intervention of the political process in the United States, and I think the political process will produce what Mr. Thurow says is the problem with the current industrial policy.

LEHRER: Well, let's take -- how would the political process intervene, say, in one of his proprosals, which is the civilian research and development idea?

Mr. ALBERTINE: Well, let me tell you exactly -- I can predict precisely what the Congress of the United States would do if that program went through. What the Congress would do is establish set-asides. There'd be a set-aside for small business, a set-aside for this group and that group. In most of the programs which exist today, that the Congress has established, they have established set-asides because constituent groups have the responsibility to go to the Congress and get those set-asides established.

LEHRER: So if a steel -- to use his analogy, if the steel industry came up with an idea for a research project, it would depend on how much steel had -- how much clout the steel industry had in the Congress of the United States?

Mr. ALBERTINE: Absolutely. The problem that Mr. Thurow has talked about, which is that the way the policy works now is that there is a comingling of objective analytical data along with raw politics will work precisely under his system the way it works today.

LEHRER: Same with a public investment bank?

Mr. ALBERTINE: Oh, I think that -- I don't know. When I think about what the Congress could do with respect to the question of restructuring and helping to restructure the basic industries, I don't know whether to laugh or cry. The fact of the matter is that if Mr. Thurow's industrial policy had been institutionalized 100 years ago I would be here tonight as the president of the national association of buggy whip manufacturers arguing that we need to maintain resources in the buggy whip industry probably for national security purposes.

LEHRER: No, he says that they will jettison industries that don't come up with a really neat plan.

Mr. ALBERTINE: If I went to the top of this building and jumped off, there's some probability that I might go up and not down. That probability is very small, but it is higher than the probability that under this system the federal government will ever do anything except preserve the status quo, and the reason is -- let's think about how Mr. Thurow's program will get enacted. It won't get enacted under a Reagan administration. It'll get enacted, as we all know, if there's a Democratic administration. Now, if there's a Democratic administration we all know that organized labor will play a central role in this industrial policy. Organized labor is not interested in jettisoning the jobs of its members. It's interested in preserving the jobs of its members.

LEHRER: What about the example he used -- well, he says there already is an industrial policy and it props up the losers. He used the motorcycle example. He's right about that, isn't he?

Mr. ALBERTINE: He's absolutely correct, and so what he would do is institutionalize propping up the losers. What I think we ought to do is begin to remove the federal government from the process of allocating resources, and I think that's a much better, if you want to call it an industrial, policy than we now have.

LEHRER: He says though in order to compete with these countries like Japan, where there is government subsidy and there is industrial policy, the United States is going to have to do the same thing.

Mr. ALBERTINE: I think the major problem we have with Japan is the cost of capital. Dr. George Hatsopoulos of the Thermo Electron Corporation has done a study for the American Business Conference which shows that the cost of capital in Japan is three times -- the cost of capital in the United States is three times the cost of capital in Japan. That's why we're not competitive. We've got to get the cost of capital down in the United States. Moreover, the fact of the matter is no matter how hard we might want to believe that somehow the federal government will make these allocative decisions, that the Congress of the United States will make these allocative decisions absent politics is completely counterintuitive and completely counter to all of our experience with the Congress of the United States.

LEHRER: Is there a word that comes to mind to describe what you think would happen if the Thurow ideas actually came to be?

Mr. ALBERTINE: I think we would simply have -- I would -- I tell you how I'd describe it. I would describe it as a welfare program for economists. We would have more bureaucracy, lots of economists hired. I'm not opposed to that; I'm an economist myself. But that's what we're talking about here. We're talking about institutionalizing the very problems that Professor Thurow has identified correctly.

LEHRER: Thank you. Robin?

MacNEIL: One of the many proposals in the works is a high production strategy being devised by Democratic Congressman Richard Ottinger of New York with the backing of some 150 House Democrats. The senior economic adviser for the project isGar Alperovitz, director of the National Center for Economic Alternatives. Mr. Alperovitz, what do you think of Mr. Thurow's industrial policy?

GAR ALPEROVITZ: Well, I think Les is basically on the right track, although I think in some ways the argument is too limited. I've just come back from talks with top Japanese economic officials, and they would laugh really at the level of the discussion here. It's a very sophisticated process that they're involved in, and I think we're going to have to learn. I agree that right now we do not have the capacity. We're going to have to develop that capacity. Let me say this: one of the points about whether or not we can do it is -- it's obvious we can do it. American agriculture is a fantastic story of the success of industrial policy. We developed the most fantastic agriculture with government assistance over the last century, really. Or we've just taken care of Chrysler, for instance, which was a loan program. That industry, with the cooperation of labor and business, pared itself down, got efficiency. They just paid back their loan. There's no doubt we could do it. By the way, as you may or may not recall, it was Ronald Reagan who put the stamp of approval, not just the Democrats, on the Chrysler loan. It's a Republican policy as well; I think it's inevitable. The question is whether we get our money's worth out of these industrial policies, and above all, are we integrating these in a high-production strategy that gets this economy going? If in fact we allow recession to go on or stop-start growth, if we're back in a system of falling down, I think you're right. We're going to get special interests crowding in to protect themselves because they're in tremendous recession.

MacNEIL: Are you saying that any industrial policy would have to be integrated with tax policies and monetary policies that would promote high production and economic growth at the same time?

Mr. ALPEROVITZ: Exactly.Let me -- and I think the debate has headed over on one side as if you can consider industrial policy without that. Let me give you two examples. I'd like to see a full-scale plan to rebuild the harbors, the bridges, the rails, the infrastructure of this nation and to get this economy rolling and to produce jobs. In the context of a full highproduction strategy we'd be having a steel shortage in certain categories. In that context, industrial policies to quickly modernize and upgrade pieces of those industries would really make an awful lot of sense, and I think there'd be a facilitation because we'd be going forward rather than back. Let me give you another example in the same vein, more specific in a concrete area. Over this next decade we are going to have to put in mass transit, rails, buses, upgrading our transportation system to move away, on balance, away from the auto and more towards what every other industrial country has done. That's going to take a lot of government money. In that situation we ought to be using industrial policy also to build up our rail capacity, so we don't have to buy subway cars from the Japanese or the Fernch, so we're making them in Detroit. We only make about 5,000 buses here. On the European continent, about the same size market, they make about 100,000 a year. We ought to be using industrial policy also as a way to lift those industries in the context of a full-production plan for jobs and energy conservation and getting the economy rolling. I don't think we ought to see it in the abstract, it's separate from that.

MacNEIL: I see. What do you think of Mr. Thurow's willingness to jettison the inefficient industries or parts of old-line industries like steel?

Mr. ALPEROVITZ: Well, I think there is a case-by-case examination that has to be made. Let me give you an example. I think he's right about motorcycles. But ask yourself this question. The free market would say if the Japanese can sell steel at $50 a ton across the line less than American producers, if they can do that, then we let the market decide. The United States of America wipes out every ounce of its steel capacity. Obviously we're not going to do that. So we're going to have to make some decisions even in some cases to hold together industries that don't match the world competition if they're essential to the economy either for national security reasons or in order to have a high-growth sitaution so we don't bottleneck. It doesn't mean proppoing them up. There's every argument to increase efficiency in every single case, but it may mean that in some circumstances we're going to want to have an industry because we need it for overall economic development.

MacNEIL: What do you say to critics of the various industrial policy proposals that it's just another way of providing central government planning, and that government should just stay out and leave it to the marketplace?

Mr. ALPEROVITZ: Well, first, I think there is a lot of unrealistic talk. We are talking about planning, but the fact is we're talking about planning in case after case after case in which the Congress has been voting. We've been voting in energy in order to have a concrete plan to promote that industry. We do it in housing and we do it in the medical care. We do it in agriculture. We've done it in connection with steel. Congressmen voted recently in the tax programs not to plan but to give massive tax giveaways to certain industries on the theory they might use them will. Well, what do we get without concrete planning or targeting or quid-pro-quos? We get the steel industry getting massive amounts of federal tax benefits, and they turn around and speculate in oil industries. The essence of industrial policy, it seems to me, is that if you are going to get government money and if that's necessary for the economy, there is a quid-pro-quo. We want to see productivity, efficiency and a contribution to economic growth. What we don't want is what we've now got, very massive voting of federal funds, taxpayers' money, without asking for a concrete plan. They're throwaways.

MacNEIL: Thank you. Jim?

LEHRER: Finally, a second critic of industrial policy. He is Congressman Daniel Lungren, Republican of California, a member of the Joint Economic Committee. He chaired this week's hearings on industrial policy. And what are your objections, Congressman?

Rep. DANIEL LUNGREN: Well, basically, no matter how you break it down it seems to me the advocates of industrial policy are asking for more rather than less government planning. The burden is on them to prove that somehow the knowledge base is greater, the judgment is better here in Washington, D.C., through some governmental structure than it is out in the marketplace itself. Now, I'm not arguing for a completely laissez-faire marketplace -- I recognize that's not the case -- but that's not what we're talking about. We're talking about essentially embarking on a more massive intervention in the marketplace and in the private economy than has existed heretofore. And all the criticisms that you heard from Professor Thurow and from Mr. Alperovitz suggest that we haven't done a good enough job in the intervention we've had. I suggest they have the burden of showing how that is going to be different in terms of substance if you deposit more decisionmaking power with some sort of governmental structure. We tried some of these things in the past. We talked about some sort of investment bank or industrial bank. We had the Reconstruction Finance Corporation in this coutnry. It basically was folded up by the government because of the scandals that ensued as a result of it. I mean, they got involved in things -- and this is quoting from the Senate report that investigated at the time under Senator Fullbright. They thrust money on the proprietors of roadside snake farms, cultivators of cactus plants for sale in dimestores, dental clinics, paperboard makers, mattress makers and finally all the way down to rainbow trout factories, and some people who wanted to be concessionaires for the roulette room in a Nevada hotel. Now, that's been the experience when we tried to say that somehow we have better judgment and better skills here in Washington, D.C., and through the government than to make it in the marketplace. I think Vietnam should have shown us at least one thing: the best and the brightest aren't all here. And I would have more faith with people making those judgments where they have to be judged on the bottom line.

LEHRER: You reject the basic concept of Thurow and Alperovitz, whch is that in order for many parts of American industry to compete internationally it must have the government's help?

Rep. LUNGREN: No, I think instead of having a grand industrial strategy we must look -- if one of our trading partners or competitors is unfairly subsidizing a particular industry we have to have some leverage to deal with that. But that's a far cry from saying that necessitates some grand national industrial policy --

LEHRER: Take it case by case, in other words?

Rep. LUNGREN: Take it case by case. Professor Thurow said we don't want to do these things because we want to do them. We're going to do them because we're forced to do them. Well, I would suggest we ought to try and support those things we do best. Entrepreneurship is what we ought to be targeting, not targeting industries.

LEHRER: Is Jack Albertine right when he says that you and your colleagues in Congress would really foul it up anyhow?

Rep. LUNGREN: Well, we have a pretty good track record on that. Look what we did last year when we did some things with the infrastructure, when we were supposed to be passing a highway bill and when we had a new jobs bill -- $4.6 billion. The latest reports that have just come in show that more money went to those areas of the country that had lesser unemployment than those areas that had greater unemployment. They just happened to go to those areas that are represented by chairmen of the committees and subcommittees. Now, that's a fact of life, and that is a political judgment being superimposed over economic judgments that, in my judgment, would probably retard our movement towards the newer industries which Professor Thurow is so interested in.

LEHRER: What about the argument we just heard about -- that the government is already in the planning business in the areas of medicine, particularly in agriculture and things like that? What's the difference?

Rep. LUNGREN: Well, there may be specific areas where we have intervened in the past. The burden is still on those to suggest that a grand intervention in almost all aspects of the economy would be effective. I think it wouldnot be. I'll just give you one specific example. We've had petroleum price controls in this country. They were based on the fact that somehow the government could allocate the petroleum products that we had in this country better than the marketplace when we reached a crisis. And I recall two or threee years ago coming back here to Washington after I'd been in my home district where we had huge lines of people waiting half an hour to get gas. I talked with a congressman from Michigan at that time. They were selling gas round the clock in Michigan because they had plenty of gas. A guy from Tennessee, a member from Tennessee came back. They were having price wars there. Why? Because the governmental system based the allocation on the historical record. They wanted to be fair. The problem with the historical record is the marketplace changes daily and so the supply was not following the demand and the government was fouling it up. Why? Because they wanted to be unfair? No. Because they wanted to be fair, but they don't have the ability to do the job as well as the marketplace does.

LEHRER: Thank you. Robin?

MacNEIL: Mr. Thurow in Boston, a lot to talk about and a very short time to talk about it. Let me put -- first of all, a main objection has been raised that raw politics would just takeover. Such a policy would only get enacted in a Democratic administration, Mr. Albertine said, and then the unions, who have an interest in propping up existing old industries would run it.

Mr. THUROW: Well, I think the raw politics argument is basically what happens when you try and do these things through the back door and don't admit that you're doing them. If you're doing them through the front door and the objective is to have first-class industries, then I think it's much harder for that to come in. That is a danger; I admit that. But if you say that's going to happen, you're basically saying the American economy is through and down the tubes, because what the opponents have forgotten here is they're making it sound like the American economy at the moment is a healthy, prosperous, advancing economy. That's the fundamental problem. It's not. In the last five years this is the only industrial country in the world with a zero rate of growth of productivity. Those entrepreneurs are not performing, and that you have to face up to.

MacNEIL: Mr. Albertine?

Mr. ALBERTINE: Yeah, let me respond to Mr. Thurow in a number of ways. One, we have experience to look at. For example, this question of targeting. The Economic Development Administration was established in 1961 by the Kennedy administration for purposes of providing targeted, above-board targeted loans and loan guarantees for infrastructure improvements in distressed areas of the country, those counties of the country like Appalachia which were distressed. By 1976, 85% of the counties in America qualified, and by 1980 when the Carter administration left, 93% of the counties in America qualified. And I know, because I used to work to try to get the formulas changed so that counties would qualify in Texas because I worked for a senator from Texas. Now, let me address --

MacNEIL: I'm going to have to stop you there. I hate to do this, and I am pretty sure we're going to be coming back to this as the debate goes on, but that is our time this evening. Mr. Thurow, we'll give you an opportunity another time to come back and defend it. Thank you for joining us in Boston. Mr. Albertine, Mr. Alperovitz and Congressman Lungren, thank you. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.