Industrial Policy Revisited
With the Japanese, German and French economies no longer performing with the vigor that prompted Robert Reich and Ira Magaziner in 1982 to tout them as models the United States should emulate, lest American businesses be overwhelmed by these invincible economic juggernauts, it's instructive to review the recent economic history of these once seemingly omnipotent giants. First, however, given Secretary of Labor Reich's intensifying foray into the policy-making arena, where he's been busy recommending prescriptions to alleviate the labor-market anxieties here, it's worth recalling the solutions and predictions he and Mr. Magaziner offered in 1982 at the depth of this country's worst postwar recession.
In their appropriately titled 1982 book, "Minding America's Business," Messrs. Reich and Magaziner proposed to increase national wealth by encouraging "U.S. companies and the government [to] develop a coherent and coordinated industrial policy whose aim is to raise the real income of our citizens by improving the pattern of our investments." Throughout their heavily footnoted, exhibit-filled (89 in all) tome, they admiringly point to Japan, France and then-West Germany. Those wise governments "understand that the only real alternative to developing a rational industrial policy that seeks to improve the competitive performance of their economy in world markets is for the government to cede the formation of policy to the politically strongest or most active elements of industry. Industrial policies are necessary to ease society's adjustment to structural changes in a growing economy."
The authors lament the fact that "the United States has an irrational and uncoordinated industrial policy," resulting in a "process of economic policy formation [that] remains decentralized and chaotic." Worst of all: "Perhaps the most striking feature of the U.S. industrial policy apparatus is the absence of a single agency or office with overall responsibility for monitoring changes in world markets or in the competitiveness of American industry, or for easing the adjustment of the domestic economy to these changes."
The would-be economic czars indict the American economic system, both absolutely and comparatively, observing: "The failure of U.S. industrial policy is not simply a failure of organization, of course. It is a failure of substantive strategy. The industrial policies of Japan, West Germany and France have been more successful than U.S. policies because they have explicitly and consciously aimed at improving the international competitiveness of their businesses."
Messrs. Reich and Magaziner illustrate the relative inferiority of the United States economy in a graph depicting differences in the annual percentage growth in inflation-adjusted gross national product per employed person during two periods: 1960-1973 (Japan 8.9, West Germany 4.7, France 4.5, U.S. 1.8) and 1974-78 (Japan 3.2, West Germany and France 3.0, U.S. 0.1). Between 1960 and 1979, the per capita gross domestic product of France and Germany had increased from less than half that of the United States to parity in the case of France and 16 percent higher in the case of Germany.
Throughout these two decades, Western European and Japanese economies sustained unemployment rates that were dramatically lower than the United States'. Between 1959 and 1976, the average U.S. unemployment rate of 5.4 percent was four times the average rates in Japan (1.4 percent) and West Germany (1.2 percent) and more than twice the rate in France (2.4 percent). Between 1977 and the first half of 1980, the U.S. unemployment rate averaged 6.5 percent, while the rates in Japan and West Germany averaged 2.1 percent and 3.5 percent, respectively. Between 1981 and 1983, a period not covered by their book, unemployment rates averaged 8.8 percent in the U.S., 5.5 percent in West Germany and 2.4 percent in Japan. …