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"Minding America's Business"

by Ira C. Magaziner and Robert B. Reich
Review by John Gabree

Between now and the 1984 presidential election I expect the Democratic Party will become home to those elements of the business community calling for the development of a rational industrial policy for the nation. Almost everyone but the free-market ideologues controlling the Republican Party acknowledges the need for national economic planning if the United States is to compete successfully with Europe and Japan. The only issue is whether planning is democratically controlled, or, as Felix Rohatyn and others are urging the Democrats, is left in the hands of the business community itself.

"Minding America's Business" is a brief for an effective industrial policy. The authors, professors at Brown and Harvard, argue that coherent strategies are necessary to ease adjustment to economic upheaval and to forestall political opposition. According to Magaziner and Reich, flexible industrial policy-making depends on several interrelated factors: clear goals to enable the government to apply its tools in the most effective way; across-the-board accelerated depreciation to encourage new investments in, say, alternative energy sources; an assessment of the relative strengths of various industries and an estimate of the type of aid that will give the most precise help (some industries need tax benefits to encourage research, but others could better use assistance in overseas distribution); and a reduction of certain excessive costs.

Japan provides a good example of what might be done. The Japanese steel industry, for instance, was hurt by a lack of indigenous raw materials, the need for large investments, and the havoc created by sudden changes in demand. Consequently, the Japanese government coordinated overseas investments to secure the raw materials, provided guarantees and interest rate subsidies for equipment modernization, and established cartels to maintain prices and profitability during market downturns.

U.S. industrial policy is currently the product of fragmented and uncoordinated decisions made by executive departments, the Congress and independent regulatory agencies. The authors stress that if American products are to be competitive in the world economy, the President should establish an agency to coordinate and evaluate economic consequences of government programs and that Congress should develop the competence to effectively oversee programs aiding industry.

Magaziner and Reich are aware of the powerful barriers -- business paranoia and greed, the decline of consensus-building social organizations (such as churches and political parties), the reliance on regulation and legal action to resolve social and economic disputes, political cowardice, the constitutional division of powers between Congress and President, and so on -- that make consensus seem unlikely. Yet there is no question that we must turn to industrial planning if we want renewed prosperity. (1983)



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