No aspect of Bill Clinton’s presidential campaign was more controversial than his pledge to “restore America’s economic leadership” by pumping up key industries. Clinton’s selection of technology guru Al Gore as his vice presidential candidate and his newfound friendship with Apple Computer chairman John Sculley guaranteed that technology issues would get a full airing. Clinton’s appointment of free-market critics like economist Laura D’Andrea Tyson and former Cray Research CEO John Rollwagen to high-ranking jobs suggested that he was climbing on the industrial-policy bandwagon. But the 36-page document that Clinton unveiled in Silicon Valley last week neatly slices through the hoary debate over whether government intervention or market forces alone should guide economic growth. Industry will get support for high-tech research, small manufacturers will get some help applying technical innovations and everyone will be urged to curb pollution and use less energy. If this is industrial policy, free-market purists can rest easy.
Clearly the administration hasn’t discouraged the rhetoric of revolution. But the most far-reaching ideas have quietly disappeared. Remember Clinton’s campaign promise of a civilian agency to promote selected cutting-edge technologies? Forget it. “There was no support for that from industry,” says a White House aide. Remember the calls from high-tech lobbyists for government help with venture capital? No dice. Even conservatives are muting their objections. “They’ve started off in a good direction,” says Ford Motor Co. research chief John McTague, a former science adviser to Ronald Reagan.
Industrial policy has bedeviled economic thinking ever since 1979, when the phrase entered America’s political lexicon after the bailout of Chrysler Corp. The concepts of a decade ago, when such luminaries as Clinton Labor Secretary Robert Reich and adviser Ira Magaziner called for Washington to foster “infant” industries, are out of fashion. Pleas to help basic industries like steel and shipbuilding no longer get much sympathy, either, because it’s too obvious that many of their problems are self-inflicted. Meanwhile, during the Bush years, industrial policy took on a more subtle meaning: government should sponsor generic research that may have commercial applications. This policy was reflected in the federal money for Sematech, the semiconductor-manufacturing consortium, and for an auto-industry project to develop batteries for electric cars.
Clinton the candidate called for far more, but Clinton the president seems to be having second thoughts. He proposes no industrial-policy czar, nor even a centralized effort to coordinate government research programs. Instead, the administration will do what it can with the array of existing programs housed in agencies from the Commerce Department to the National Aeronautics and Space Administration. “The fastest way to spin your wheels is to try to go around reorganizing things,” says White House science adviser John Gibbons. So the Defense Advanced Research Projects Agency, which spends $1.5 billion a year to promote leading-edge technology for military use, will remain in the Pentagon but give higher priority to projects that can serve civilian ends. Government labs will take on projects with commercial applications–a reorientation started under George Bush-but they’ll remain in their current agencies. Clinton’s promise to create 170 manufacturing extension centers, along the lines of the 79-year-old Agricultural Extension Service, has been modified; now much of the money will go to outreach programs already functioning at universities and community colleges.
Those who’d expected a research-and-development bonanza will be disappointed, too. “These are all good bits and pieces,” says Pioneer Magnetics chairman Allen Rosenstein, who wanted Clinton to put a single agency in charge of aiding high tech. While Clinton is shifting the government’s emphasis from military to civilian research with a special focus on clean cars and fast computer networks, there’s not much money attached. Government spending on civilian R&D is set to rise only 15 percent over the next five years after inflation. That’s less than a billion new dollars each year-far less than Clinton will spend over the same period to build the scaledback space station. “There’s a lot of pruning back of what they’re going to do,” notes a congressional technology expert.
What happened on the road to industrial policy? With chip makers and software houses like Intel and Microsoft booming, those foreign industrial policies aren’t as threatening as they seemed a few years ago. For example: Tokyo’s supposedly omniscient Ministry of International Trade and Industry has been powerless to prevent a crisis in Japan’s electronics sector, and much-heralded research collaborations between industry and government haven’t stemmed the decline of Europe’s semiconductor and computer industries. Then, too, even the strongest advocates of government activism have been chastened by the speed with which technical change can render their analyses obsolete: while the industrial-policy crowd was harping on the importance of research and manufacturing, companies like IBM and Digital Equipment got into trouble by taking their eyes off their markets. Or take the unlikely saga of high-definition television. As recently as 1990, U.S. electronics companies were wringing their hands over Washington’s neglect of HDTV research and warning that Japan would conquer the market. But General Instrument, a U.S. company working without government funds, stunned the experts by announcing the first digital HDTV system in 1991; Japan’s government-endorsed program, based on older analog technology, was instantly rendered all but worthless. “HDTV is a success story for the nonconsensus approach to technology policy,” says Joseph Farrell, an economist at the University of California, Berkeley.
If the advocates are less confident than they once were, they are more realistic: Clinton, like many a president before him, has discovered that master plans just don’t work in Washington, no matter what the subject. The president himself provided further evidence on that point last week. Even as his administration reaffirmed its pledge to strengthen manufacturing and create high-paying jobs, Clinton sought to advance his health-care policy by attacking the pharmaceutical industry-one of the best-paying and most research-intensive high-tech sectors-for charging excessive prices (page 38). And the link with trade policy is easier in theory than in practice as well. Clinton used a visit to a Boeing plant last Monday to berate European governments for subsidizing Airbus-an unabashed example of industrial policy at work-and thereby harming U.S. aircraft manufacturers (below). But he avoided promises to act against the subsidies, since that could harm Airbus’s U.S. suppliers.
A few years ago Clinton’s technology plan would have unleashed an ideological wrangle. When the Carter administration challenged U.S. automakers to join the federal government to “reinvent the car,” Ford Motor chairman Henry Ford II shot back: “You can’t order somebody to invent something.” But Clinton’s call for public-private research toward “a new generation of automobiles” reaped praise in Detroit. Ideology has faded; now it’s Republicans like Missouri Sen. John Danforth who hint that the administration isn’t going far enough. If nothing else, the simple but false dichotomy between free markets and intervention is gone, and a far more complex view of government stands in its place.
