Clinton's Industrial Policy

...It brings a democratic vision to the place where most Americans spend the best years of their lives...

...But even if the G-7 nations could agree on an expansionary global policy, neither NAFTA nor a willingness by Japan to open its markets a little wider nor a successful completion of the Uruguay Round of trade negotiations will provide a market stimulus great enough to support expanded U.S...

...But just as training cannot be isolated from the question of "what for...

...Given NAFTA's unpopularity in the polls and the widespread skepticism in Congress, Clinton will have to spend a large share of his dwindling political capital for NAFTA...

...Industrial policies affect the quality and wage levels of those jobs...

...An America in which management has unchecked power over its work force is likely to be an America ruled by Republicans...

...The effect on opportunities for those who do not graduate from college (75 percent of the work force) has been dramatic...

...It has meant that the United States has missed a generation of progress in the development of high-speed rail technologies...

...workplace have been piecemeal and tepid, and therefore have had a small effect on workplace performance...

...The United States is woefully behind in this industry...

...Not surprisingly, many of the initial experiments were in nonunion settings...

...Politically, it is the most difficult, but it has the greatest long-term political potential...

...3) whether there is a sense of group cohesiveness...

...No one should bet the farm on a progressive outcome...

...This set off an argument within the campaign, with Reich, Magaziner, and Shearer on the side of a public-investment strategy, and a group representing the conservative Democratic Leadership Conference in favor of tax cuts...

...q 474 • DISSENT...

...The greater problem is inadequate markets for manufacturing...

...In 1992, real wages for male high school graduates with up to five years' work experience were 27 percent below their 1979 levels...

...In Clinton's 1994 budget, the largest share (58 percent) of federal R&D funds still favors the military, but the civilian share will rise faster than the military share...

...The shared dissatisfaction with 468 • DISSENT Industrial Policy Reagan and Bush among manufacturing executives and labor leaders conveniently obscured class and political differences among supporters of industrial policy...

...Inspired by twelve years of anti-union sentiment in the White House, they have become even more hostile...

...business culture precludes the establishment of strong government institutions like the Japanese Ministry of International Trade and Industry (MITI...

...Newer models have exceeded 200 mph...

...The common complaint about training among workers is: "training for what...

...Democratic party venturing in this decade...

...Forgoing the public system in America has meant forgoing the private market...

...Gradually, the hightech community began to look elsewhere for political support...

...version of the French system where businesses are subjected to a special training payroll tax (Clinton proposed 1.5 percent of payroll), which is forgiven if they spend an equivalent amount on employee on-the-job training...

...The new taxes associated with his deficit-reduction and health-care plans now make it too tough for him to demand yet another business tax...

...supporting the small farmer...

...In the last six months of the campaign...

...High-speed rail could be an investment "klondike" of the twenty-first century...

...The idea is still resisted in most university economics departments, but in the eighties it spread among younger academics, journalists, and think-tanks, and seeped into the consciousness of Democrats in Congress and state houses...

...Herein lies the problem for American business...

...The good news is that the Clinton administration has taken some steps in all five areas...

...It is an accommodation to the sensibilities of the business participants for whom high wages do not typically top the list of priorities...

...Business's vision is one in which U.S.-owned firms — wherever they might locate their production—are subsidized and deregulated to make them more competitive with their foreign counterparts...

...But this crude attempt to outbid George Bush as a tax cutter was ridiculed by his opponents on both the left (Harkin) and the right (Tsongas) and ultimately left the voters uninspired...

...Soon the Democrats retreated...

...Japan's bullet trains, which go 130 mph, are thirty years old...

...college graduates worked in jobs that clearly did not require a college education...

...Instead of sympathy, they got lectures from Reaganite bureaucrats who refused to believe that governmentsubsidized foreigners were out-competing America's private sector...

...government increase subsidies to these sectors through a variety of policies, including a national development bank...

...Nevertheless, raising the issue represents progress...

...Now the defense budget is shrinking...

...trade deficit with that country was a problem, and political stage whispers to the Japanese urging them to voluntarily reduce their surplus with the United States...

...One was to take up the suggestion of adviser Derek Shearer to create a National Economic Council to coordinate the many federal agencies whose functions affect the domestic economy...

...The 1930s were such a period, in which the initial exploitation of the automobile industry, which drove much of the investment of the 1920s, had been exhausted...

...America is not deficient in basic science or in the ability to invent...

...For any advanced nation, the high-skill, highwage path now requires an ability to compete on quality, design, and capacity to speed the product to market...

...Labor's vision is of an industrial policy that will help create high-paying jobs in the United States...

...and John Sculley, founder of Apple Computer, led off the discussion by defining the long-term economic problem as one of sluggish productivity, lack of innovation, and obsolete work organization—particularly in the manufacturing sector...

...One might argue that this is all the more reason to plow more money into research and development...

...But they were not enough to establish the basis for a transformational boom...

...And the Democrats will have missed an opportunity to stimulate their own political recovery...

...Stressing high skills rather than high wages avoids the question of how the proceeds of rising productivity are to be distributed...

...Without the prospect of jobs, the average worker fails to see the logic of going through the expense and trouble to learn new skills...

...In 1988, for example, the military share of R&D spending stood at nearly 68 percent...

...A study by David Levine and Laura Tyson identified four elements that made for an effective high-performance workplace: (1) whether productivity gains are shared with employees...

...As economist Ann Markusen observed in an EPI report entitled Converting the Cold War Economy, defense industries embody much of the leading edge technological capability of the U.S...

...Labor Secretary Reich has revived the Department of Labor's program to promote labor-management workplace cooperation (it had been dismantled by Bush) and has appointed a very able former assembly-line FALL • 1993 • 473 Industrial Policy worker with an MBA from Harvard to run it...

...But, as with the other pieces of the industrial policy mosaic, God is in the details...

...Today, a global market has given the same advantage to corporations located anywhere there is a large supply of trainable labor...

...Up to now, the bulk of governmentsponsored training programs has been devoted to training the poor and disadvantaged and, to a lesser degree, retraining the unemployed...

...But, although he is pointed in the right direction, political and ideological timidity seem to be restraining him from taking the steps needed to move the country along a high-wage path...

...Not Utopia, but as far as one could imagine the U.S...

...They are now working on the next generation of systems—including "Maglev" technologies in which trains are powered by superconducting magnets and are capable of speeds up to 300 mph...

...America's choice, said Sculley, echoing the title of an earlier report written by Clinton adviser Ira Magaziner, is between "high skills" and "low wages...

...They employ disproportionately large shares of the nation's scientists and engineers...

...Walter Mondale, an early advocate of industrial policy, abandoned it and made deficit reduction the centerpiece of his failed 1984 campaign...

...Today, only one relatively small American company, with limited capacity, can produce rail cars...

...Given the political consensus, it is not surprising that the administration has moved most quickly to continue the trend...

...After his inauguration, Clinton did several things to lay a foundation for industrial policy...

...U.S...

...Investment in infrastructure has a dynamic quality that is missed in the conventional conception of public works...

...The hope for something better lies in the assumption that the president wants another term...

...workers and firms...

...Nations all over the world will be buying sophisticated cars, equipment, and computer technologies from firms in first world countries that can produce and install them...

...Lack of skills does not seem to be the central problem for the unemployed and underemployed...

...Since co-authoring (with Ira Magaziner) Minding America's Business, the book that first put the case for industrial policy on the map, Reich became somewhat of an apostate...

...The computer and the expansion of the welfare state—in health care, housing, and education—are other examples...

...Another call was from an unemployed man in Los Angeles who was a tool-and-die maker—about as high-skilled a blue-collar job as one can get—asking how more training would help him...

...Irving Shapiro, then head of DuPont, Lane Kirkland, president of the AFL-CIO, and investment banker Felix Rohatyn advocated that the U.S...

...And politically, the idea has enormous potential...

...The competition for world markets has become severe, exacerbated by the deflationary macroeconomic policies pursued by international lenders...

...Meanwhile, the fastest U.S...

...trade negotiators...

...After a long session in which the assembled cabinet officers and experts extolled education and training as answers to the problem of too few good jobs, a woman with a master's degree called from Boston to say that she has been looking for full-time work for two years...

...It has been successful when applied to specific national goals—creating an internal barge canal network, a transcontinental railroad track, a weapons system, or a space program...

...As the presence of Sculley and other high-tech entrepreneurs at the Little Rock summit suggest, this view has now spread to important segments of the business sector...

...producers to solve their competitiveness problems by pursuing cheap labor, rather than take the more difficult route of making higher quality goods and services more efficiently...

...Ideally, the movements of those who actually do the work are programmed minute-by-minute...

...4) finding a substitute for the Pentagon as a driver of industrial growth...

...It captures the spirit of teamwork and even patriotism in this era in which economic competition has emerged as a major national concern...

...In his presidential campaign, Clinton proposed a U.S...

...Her presence has steadied the hand of U.S...

...The issues are unresolved and made more complicated by a Japanese government weakened by scandal...

...Even sectors such as computing and semiconductors, which have successfully developed extensive commercial markets, still rely heavily on military contracts for basic research and innovation funding...

...But the president has already backed away from this idea...

...It culminated in Bush's tragicomic trip to Tokyo in 1992, when he brought to Japan a group of overpaid and underperforming auto executives to demand that the Japanese buy more U.S...

...Bush's trade policy for Japan consisted of fierce denials that the huge U.S...

...As a result, there is no significant increase in resources going to upgrade employed workers in the Clinton economic plan, although some more money will be provided for training the disadvantaged...

...The bad news is that most of the steps are tiny...

...manufacturing in a way that will generate high-wage jobs...

...no longer has an advantage in assemblylinetype-work organization...

...Clinton's pro-investment advisers understood that there was a power in these ideas that went beyond a list of programs...

...Someone is soon going to have to ask Bill Clinton what he intends to say to the majority of voters in November 1996, who, in the absence of a bolder industrial policy, will be working even harder for even less...

...And it is a bit eerie to hear Clinton and his advisers, when pushed on this question, repeat George Bush's assumption that the markets will come from increased exports...

...Following a well-established tradition, these corporate free marketeers went to the Republican administration for help...

...He spoke of high-speed trains, vertical lift-off, short-haul aircraft, automated highways, and advanced environmental systems for recycling and waste treatment...

...Reich would have the government take responsibility for a continual training and upgrading of the entire labor force—including the 90 percent who are employed...

...Robert Heilbroner has suggested that we 470 • DISSENT Industrial Policy may be in the economic trough of a long-term cycle of technological innovation...

...Reich is at the Department of Labor, some distance from the White House, Magaziner has been handed the health-care portfolio, which could absorb him for another year...

...They relieve congestion...

...Creating jobs by building high-speed trains, investing in technologies that clean the air and water, and giving everyone the opportunity to master the computer could be the building blocks of an alternative economic vision that could rival the abstract picture of a laissez-faire future painted by Reagan and Bush, which, in the absence of any competing vision, is implicitly accepted by most Democrats as well...

...By and large, managers have never come to terms with the idea of sharing power in the workplace...

...The shift of federal dollars from defense to civilian research and development actually began during the Bush years...

...They do not require airport expansion, or construction of new airports, which environmental standards now make all but impossible...

...and Japanese trade officials are negotiating on the basis of interest rather than ideology...

...Clinton seems to understand it...

...New investment possibilities arose in the 1930s," writes Heilbroner, citing frozen foods and the electric light bulb...

...In a new study for the Economic Policy Institute, Eileen Appelbaum and Rose Batt report that most of the efforts at reorganizing the U.S...

...But when it comes time to rule, labor's seat at the policy table is well below the salt...

...Nations that want to pay high wages have to target their goods and services to market "niches" — segments that will pay for quality goods and thus generate sales with large enough margins to pay high wages...

...Europe will soon have a network of trains that can move at 200 mph connecting major cities, and Germany may be even further ahead of Japan in the development of Maglev technology...

...This was dramatized in the middle of the Little Rock economic summit when the President took calls from television viewers...

...These are factors that can be improved upon by shrewd public choices...

...The campaign manifesto Putting People First states: "We are determined . . . to create an environment in which workers at the front lines make decisions instead of simply following orders...

...In a world economy, Reich now maintains, there is little practical distinction between domestic and foreign firms...

...FALL • 1993 • 471 Industrial Policy And as they have shrunk as a share of GDP, our growth rate and standard of living have declined...

...Despite the hype of business magazines, most of their efforts are largely cosmetic...

...It may be that under Clinton we will have more public consciousness about industrial policy with even less cash to pay for it...

...There is bipartisan agreement that the federal government should subsidize research that would benefit no particular firm and development that would require private firms to put up some of their own money...

...When Bill Clinton was nominated, many Silicon Valley entrepreneurs defected to him...

...But the high-tech crowd, confident that they were in expanding world markets, dismissed industrial policy as a bailout of economic dinosaurs who simply couldn't cut it in the new global marketplace...

...And he picked up Al Gore's favorite project—the creation of a national information network "to link every home, business, lab, classroom and library by the year 2015...

...This requires an organizational system that can modify its product or process rapidly to adjust to changed market conditions...

...Expanded training and research and development programs will have some positive longFALL • 1993 • 469 Industrial Policy term effects on the performance of U.S...

...and (5) the reorganization of the workplace by empowering front-line workers...

...Economist David Aschauer has estimated that had the U.S...

...And one can argue that unless the government is prepared to assure that the results of its R&D subsidies will be produced in America, we should stop subsidizing it...

...Shearer, after getting a toothless job at Commerce, packed it in and went home to California...

...Since in most other countries labor is cheaper, the U.S...

...After the defeat of Clinton's modest stimulus package in the spring, to paraphrase a description of FDR, Doctor "Invest-in-theFuture" became Doctor "Reduce-the-Deficit...

...Many of these efforts have been thinly disguised strategies for preventing, or undermining, unionization...

...On the other hand, Clinton's embrace of Bush's North American Free Trade Agreement (NAFTA) with Mexico and Canada moves in the opposite direction...

...Echoing a decade of policy debate among Democrats, he talked of the need for America to seek a "high-wage" path through the new competitive global marketplace...

...After years of denial, the political and academic mainstream now acknowledge the long-term decline in average real wages...

...Clinton has surrounded himself with conservative advisers—Lloyd Bentsen, Bob Rubin, Leon Panetta, and now David Gergen...

...High-speed trains are now clearly the superior mode of public transportation for distances below six hundred miles...

...It took the tremendous technological energies expended in World War II to bring the economy to a new level of investment opportunities...

...The last piece in the industrial policy mosaic is the reorganization of the workplace...

...for the first time in memory, U.S...

...Clinton seemed to understand the political potential of the theme of public investment...

...Macroeconomic spending and monetary policies determine the size of the Gross Domestic Product (GDP) and, thus, how many jobs there will be...

...Bush's resistance to these ideas gave the Democrats a wedge to drive between parts of the business community and the Republican party...

...But we have not been producing the products for market...

...Legislation is currently pending in the House of Representatives to create a second commission focusing on the auto industry...

...The Clinton people are not knee-jerk freemarket zealots like those in the previous administration...

...economy maintained the rate of public investment in infrastructure that it supported in the early 1970s, private-sector investment and productivity would have been raised by 20 percent and 50 percent, respectively...

...The only way for us to gain comparative advantages is to create a superior labor force that will attract global capital...

...Other routes of the small and antiquated Amtrak system top out at only 90 mph...

...The administration has already made some positive moves...

...But these are largely activities that improve "supply-side" skills and capital, rather than create jobs...

...But the absence of a market for rail transport in the United States is accompanied by the absence of an industry...

...Thus, the jet airplane not only created a booming new aircraft industry, it made possible the explosive growth of tourism worldwide...

...These industries have posted the highest rates of manufacturing output growth in the last two decades, and they account for the lion's share of net manufacturing trade receipts...

...Postulating "high skills" as an alternative for "low wages" tells us something about the politics of the industrial policy discussion...

...cars...

...I said regulate more and invest to create jobs...

...Like most other Democrats, Clinton has been happy to "sup at Labor's table" at election time, depending on labor's money and organization...

...The fifteen business guys said deregulate more and cut the deficit...

...Henry Ford once said the American public could have the Model T in any color it wanted so long as it was black...

...A decade before, the high-tech business people were scornful when some labor leaders and industrialists talked about industrial policy to save mature industries—auto, steel, chemicals, textiles, and so on—whose markets were being eroded by foreign firms subsidized by industrial policies in their home markets...

...market made this system ideal for the production of identical mass-produced items...

...business is still responding to global competition by shrinking, and cutting wages...

...For example, the Bureau of Labor Statistics (BLS) reports that in 1980 some 12 percent of U.S...

...Their political allies— "Atari Democrats" like Gary Hart—joined New Right Republicans and the press in ridiculing these ideas...

...2) a national system for training and retraining workers...

...and (4) whether workers have guaranteed rights...

...This in turn requires putting more responsibility in the hands of the front-line worker...

...The limits here are budgetary rather than ideological...

...With his election, "Industrial Policy" has crept back on the national agenda: the question now is not whether the government should guide the private sector to become more competitive, but how...

...2) whether workers have employment security...

...minds (including the fax, the flat-panel display, the VCR, and the video camera...

...At least in part from the same source that has generated much of the demand for high-tech production for most of this century —tthhee U.S . government...

...But in a few short years many U.S...

...If technology policy stops with simply subsidizing research and development, it might do more harm than good to the economy...

...For example, the shrinking of public spending on transportation does not just show up in potholes, worn bridges, and traffic congestion...

...A whole series of recent successful "Japanese" products came originally from U.S...

...technological competitiveness...

...They found it among Democrats on Capitol Hill, Democrats who began to argue that industrial policy was needed to maintain U.S...

...Another was to choose economist Laura Tyson—a well-known advocate of industrial policy—to be the chair of his Council of Economic Advisors...

...Earlier, he made a middle-class tax cut the center of his economic program...

...The trouble with trying to solve the problem of inadequate markets through exports is that every nation in the world is trying to do the same thing...

...Its concreteness would enable middle-class voters to see, in some tangible way, where a social democratic path might take them...

...But gradually, unions have begun to understand that taking more responsibility for the product has a powerful appeal to rank-andfile workers, and now some of the most innovative examples of high-performance workplaces are found in unionized plants in industries such as textiles, autos, steel, communications, shipbuilding, and even public services...

...The idea of Washington bureaucrats telling large corporations where they should invest and threatening regulatory retribution if they do not is simply not credible...

...Reich and Commerce Secretary Ron Brown organized a Clinton-style summit on this issue in Chicago in late July that showcased examples of how it might be done...

...neither can research and development...

...Still, the idea of workplace democracy is spreading...

...In this case, the most important detail is the administration's attitude toward organized labor...

...But there is little prospect that left to itself the private economy will generate industries that can play the role that defense has played as the major source of support for cutting-edge industrial technologies...

...Their energy efficiency is three times that of autos and four times that of airplanes...

...In 1990, the number was close to 20 percent...

...During the campaign, Clinton could play to both camps...

...If passed, this agreement will encourage U.S...

...For the immediate future, industrial policy is likely to involve a mosaic of government actions rather than a single unified economic plan...

...they are bargaining for an improved trade balance rather than pledges of allegiance to free trade...

...by 1992, it had fallen to under 59 percent...

...Where do we find the engine of growth of demand for high-technology production in the United States...

...In particular, industrial policy implies that a healthy manufacturing sector is essential for a high-wage strategy...

...industrial power over the past century was marked by a specific management system— symbolized by the mass-production assembly line...

...During the election, Clinton stipulated that he would approve NAFTA only after negotiating side agreements on labor and environmental standards...

...In recent years NASA and the Departments of Agriculture, Housing and Urban Development, and Health and Human Services have all established their own versions of the militaryindustrial complex—complete with networks of bureaucrats, businesses, banks, labor unions, and influential members of Congress—which have created small investment "klondikes" of economic growth...

...If Clinton is to succeed in nurturing high-performance workplaces in America, he and other Democrats will have to understand that the shrinkage in the share of the work force that is organized is not good news for them...

...It's still too early to judge Clinton's answers...

...It is in this area that Laura Tyson's influence has been greatest...

...U.S...

...But these are largely exhausted, and while inventions keep coming, we have not yet seen the development of large new sectors, built on what Heilbroner calls "investment klondikes...

...Given widespread ideological resistance to government interference in the marketplace, creating a full-fledged industrial policy will not be easy...

...Economists Richard Freeman of Harvard, Paula Voos of the University of Wisconsin, and others have concluded that efforts to create high-performance workplaces are more successful when workers are represented by a union...

...By itself the market—because of its short-term horizons—will not make the necessary investments to keep that sector prosperous...

...This at a time when his health-care program—deemed by everyone to be a key to his reelection—will need all of his political strength to pass...

...What to do about declining incomes for the middle class, who, in Clinton's words, "work hard and play by the rules," was a major theme at the post-election Little Rock economic summit Economist Robert Solow of M.I.T...

...The chief advocate for expanded training is the new secretary of labor, Robert Reich...

...One labor leader who attended a meeting with fifteen business representatives and the president reported: "Clinton asked what we should do...

...The cabinet officials were silent...

...It signals an understanding that in addition to its "macroeconomic" responsibilities for maintaining overall levels of production, the federal government should also concern itself with the composition of output and the way that it is produced...

...Ranked according to their ideological acceptability in the current political climate, they are (1) increased government subsidy for civilian research and development...

...But by the late twentieth century, different factors of production—technology, worker and management skills, and workplace organization— have become more important to the ability of an advanced nation to compete...

...Most of these efforts at a cooperative workplace have been half-hearted because they conflict with another, at this point stronger, management objective—to get rid of labor unions...

...Worse, once deficit reduction took priority, the administration's commitment to even this level of funding dwindled, allowing the various appropriations subcommittees to downscale virtually all of the president's high-tech proposals...

...The president counseled patience...

...For most of the last half-century, the cold war military mission has been the driver of national industrial policy...

...To make genuine progress toward building such a mosaic in four years, Clinton will have to fit together five policy pieces...

...This idea challenges the notion that has dominated U.S...

...But old ways die hard...

...If so, Americans in 1996 will be working even harder for even less...

...Critics of industrial policy assert that U.S...

...3) a managed trade policy...

...The system of pyramidial hierarchies, known as "scientific management" or Taylorism (after engineer Frederick Taylor), required that those at the top of the pyramid break down tasks of those at the bottom into smaller and smaller pieces...

...Rather, industrial policy in the United States has been "mission" oriented...

...The size of the U.S...

...472 • DISSENT Industrial Policy But after the election, this vision began to fade...

...Clinton's people are much more savvy...

...national economic policy since the end of World War II—and the discipline of economics since the early nineteenth century— FALL • 1993 • 467 Industrial Policy that a nation must make do with whatever "comparative advantage" (its natural resources, its location, the energy and intelligence of its population) God and history have given it...

...There is increasing evidence that unions provide an essential element of what it takes to create a high-performance workplace—a sense of equality between labor and management...

...But now that he is president, he will have to make choices, and it will require a much higher level of statecraft to keep the coalition together...

...passenger trains can go only 125 mph, and that exclusively on the New York–Washington Metroliner...

...The ideological walls have been breached, but it is not clear how far into the citadel of laissez-faire the Clinton administration is willing to storm...

...The administration's shift from an investment strategy to a deficit-reduction strategy can be read as an ominous decision to sacrifice the interests of the industrial sector in order to accommodate Wall Street...

...Clinton decided for Reich and company, and began to pepper his speeches with talk of public goals that might be substituted for the cold war...

...establishing an aircraft industry, and so on...

...But under the influence of his more conservative advisers, the administration has proposed side agreements that do not even meet Clinton's own criteria...

...Despite the popular view of these activities as pork barrels, they have been essential for the creation of private investment opportunities...

...Inspired by the success of Japanese, Swedish, and German firms, and pushed by business schools, American business has been experimenting with horizontal organization for more than a decade...

...A third, initiated by an act of Congress, was to organize a "commission" of representatives of government, business, academia, and labor to design competitiveness strategies for the troubled airline industry...

...The degree of support the administration gives to labor-law reforms that reverse the anti-union bias of the past twenty years may be the clearest indication of how progressive Clinton's industrial policy will be...

...Their efforts created the government-sponsored SEMATECH Consortium of computer chip producers, an increase in funding for technology programs at the Department of Commerce and other civilian agencies, and removed the word "defense" from the Defense Advanced Research Projects Agency (DARPA), now known as ARPA...

...The once-promising high-tech public investment strategy of the campaign was scaled back in the first Clinton budget: $2 billion for high-tech transportation infrastructure R&D, $1 billion for "information superhighways," and $1.5 billion for manufacturing technologies...

...high-tech firms found themselves outspent and outmaneuvered by Japanese and European companies whose home markets were secured by protectionist policies and who had access to government-subsidized capital...