National industrial policy in America - Research Paper Example

National Industrial policy in America Full National Industrial policy in America “National industrial policy is a government-sponsored economic program in which the public and private sectors coordinate their efforts to develop new technologies and industries. Government provides the financial support and capital to the private sector by direct subsidies, tax credits, or government-run developmental banks. Industrial policy emphasizes cooperation between government, banks, private enterprise, and employees to strengthen the national economy. In the 1980s and 90s, industrial policies enjoyed some success in Germany and Japan. In the United States, such direct government involvement in business planning has traditionally been viewed with suspicion. However, the Advanced Technology Program, begun in 1990, has been instrumental in the research and development of promising, high-risk technologies. U.S. government subsidies can also be found in such areas as defense, energy, transportation, and home construction.” (Reich, 1991). The National Industrial Policy in US have been one of the hot and happening topics in the recent time and is subjected to mixed reactions from different corner. This paper will discuss about the cons of the Industrial policies in America and is set to provide sources supporting it. Let us take the instance of Soviet Union. Industrial policies have been used elsewhere in the world and have proved unsuccessful. The fall of the former Soviet Republic stands proof to this. An industry definitely require motivation to build up which can be achieved only when there is a competition. Also, a competitive market can be measured well unlike other market. According to (Grahame 1989), “The competitiveness of an economy can be a rather elusive concept since there are a number of ways in which it can be defined and measured”. National industrial policy (NIP) has been defined in different ways by many scholars. For instance Johnson outlines that "Industrial policy means the initiation and coordination of governmental activities to leverage upward the productivity and competitiveness of the whole economy and of particular industries in it." (1984, p. 8) while others referring to it as the “….relationship between business and government on a microeconomic level” (Wachter and Wachter 1981). It is very clear that industry policies are created keeping in mind the need for the development and establishment of industries with in the US. The Governments undertakes and promotes such industrial policy by way of using many beneficial industrial mediums and policy implementation such as tax exemptions, lessening of tax amount, industry-favoring plans, and trade protections. Some other scenarios such as government-initiated mergers and a protection against acquisition of foreign company takeovers are also practiced. Many eminent proponents like that of Bechara have maintained that the industrial policies that are passed by the governments should be rational rather than national in order to achieve its purpose. United States needs to learn from Japan, one of the leading industrial spaces, where economy is taken care by the Ministry of International Trade and Industry (Bechara, 1985) It is not possible to develop an industry to a greater level in a region with socialistic structure. There needs to be enough free-hand to develop something novel. Only when people get some edge over a business by way of money or special status, they will strive to survive otherwise full efforts will not be taken and the industry will become stagnant. As per Ulrich (2009), “Anytime a government consciously favors some economic activities over others it is engaging in industrial policymaking”. As per DiLorenzo, the “US National Industrial Policy is leaning more towards the concept of protectionism and thereby is set to create a lot of difficulties in the international trade arena”. The high tariff charged on the American goods that are exported to the other countries stands example for the scenario. Of late, there have been more voice raised in favor of industrial policy, but DiLorenzo believes that it is vague term that is used in the place of welfare state and national economic planning. There have been a number of misconceptions when it comes to industry policy determination. There is always a notion that the industry policies that are passed using the democratic way have much effect than a democratic based market design. Market system that demands competition is looked upon as something to be careful of or that of an act of greed. This picture serves to be a major hindrance for the development of market and it should actually be looked upon as security, equity and also participation from all corners. Instead, the monopolistic policies are still followed which blocks the expansion of the market to a considerable level. These major conservative economic forces will have due influence on the market and will bring down heavily on the particular sector over a period of time (Thompson, 1989). The myth of greed and fear related to the market system has been busted with the market system performing better than the industrial policies. There are several instances that stand proof for the market system’s better performances when compared to that of the industrial policies. Even the greed factor is fair when the results of such greed is good and serves on a good motive. “As longs as property rights are enforced in a fair manner, things will not become difficult in a market system” (Trezise, 1989). Lack of co-operation is cited as one of the big drawbacks to implement the market system which is very much futile when compared to that of the corruptions in the government and the political manipulation that results from it. There are several cases of wrong decisions and also political interference through that of the industrial policies that has fallen down heavily over the people by way of taxes and other such related consequences. As per McKenzie, “In the United States NIP became a major bone of contention in the 1984 presidential campaign.” “There are three major arbitrary divisions that strive to attain a greater economic share which includes workers, government officials, managers and other such authorized persons” (Trezise, pp 7-11). The major problem with National Industrial Policy is that information related to the necessities of what people require cannot be determined outside the market process. Industrial policy in America has influence from various other countries and used the theory internally according to the political necessities “America “discovered” that other industrial countries practice something with the unfamiliar name of “industry policy” which seems to vitalize their domestic industries and enhance their international competitiveness of their products” (Johnson, 1984). If left undisturbed, markets will surge forward on own and will turn out very good results. When there is no clear-cut industrial policy the resources and the capital will be used by areas where there is more competition and where the market is bound to expand. In government institutions, the technology is introduced slowly and also hesitantly as the government fears that there will be more job cuts happening in such cases. In order to overcome such situation these labors can be employed in the areas of maintaining and programming of such modern technology. It is through some advanced technology will the industry reach the heights of success (Blais, 1986). At last, advocates of industrial policy believe a great amount of stupidity on the part of profit maximizing entrepreneurs, consumers and workers. Supporters contend that entrepreneurs are methodically willing to close profitable plants, grossly abuse workers who are needed for manufacturing and the profits they seek and are unwilling to settle in when adjustment can translate into endurance, if not for considerable amounts of profits (McKenzie, 1985). Owing to several problems, the workers suffer from indecision when it comes to training and continuous trainings as people are not provided with the knowledge of the current decisions which in turn affects the citizens. Some of the proponents are of the impression that the National Industrial Policy will work out well in the US scenario and is looking forward for it for a greater expectation. “If the United States is to become a leader, we need a national industrial policy to drive demand” (Fitzgerald, 2010). What these proponents fail to understand is that there is a lot of political influence associated with that of the industrial policy and the policy will not achieve its true purpose. Conclusion The government policies that are created by way of such industrial policies brings in a lot of dissatisfaction in the economic arena; more protection of domestic industries from overseas competition, more subsidies for failing businesses, more welfare benefits for workers whose wages have been raised far above the national average, more spending on social services, and more proposals for the federal government to consolidate control of the economy. Several of the policies included in the spate of industrial policy reforms warrant further and serious consideration. From the above contention it is very clear that a national industrial policy is not a better option in place of a market economy. There are lots of political interventions associated with the industrial policy. America must carry on with a current market economy to keep its economy flowing. If it is in a position to promote its market then US will surely retain its position as a leader in the world economy. Reference List Blais A (1986). "Industrial Policy in Advanced Capitalist Democracies," Industrial Policy. Toronto: University of Toronto Press. pp. 1-53. Bechara, D. (1985). The myth of national industrial policy.The Freeman: Ideas on Liberty. Vol. 35(8). Retrieved from http://www.thefreemanonline.org/columns/the-myth-of-national-industrial-policy/ DiLorenzo, T. J. The political economy of national industrial policy. Cato Journal. Retrieved from http://www.cato.org/pubs/journal/cj4n2/cj4n2-10.pdf Fitzgerald J. (2010). The Need for Industrial Policy. Emerald Cites: Urban sustainability and economic development, 7, pp. 235 – 242. Johnson C (1984). The Industrial Policy Debate. San Francisco: Institute for Contemporary Studies. McKenzie, R (1985). Competing Visions: The Political Conflict over Americas Economic Future. 1985. McKenzie R. Industry Policy, The Concise Encyclopedia of Economics. http://www.econlib.org/library/Enc1/IndustrialPolicy.html Reich R. (1993). The Work of Nations: Preparing Ourselves for 21st century capitalism, pp. 300 – 330. Thompson, G (1989). "The American Industrial Policy Debate: Any Lessons for the UK?" in Grahame Thompson, ed., Industrial Policy: USA and UK Debates. London: Routledge. pp. 11-83. Trezise P (1989). "Industrial Policy Is Not the Major Reason for Japans Success." Brookings Review. 13-18. Ulrich R. (2009). Envisioning an Obama Industrial Policy. Retrieved July 26, 2011, http://www.demos.org/press.cfm?currentarticleID=2FD31265-3FF4-6C82-5124716925018A0B Wachter M. and Wachter S, "Introduction," in Michael L. Wachter and Susan M. Wachter, eds. (1981). Toward a New Industrial Policy? Philadelphia: University of Pennsylvania Press, pp. 1-5. Read More