ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, January 14, 1997 TAG: 9701140032
SECTION: EDITORIAL PAGE: A5 EDITION: METRO
SOURCE: REGINALD SHAREEF
ECONOMIST Lester Thurow's latest book, "The Future of Capitalism," makes a compelling argument for an industrial policy as America becomes more integrated in the global economy.
His argument that a de facto industrial policy has always existed in the United States offers a serious challenge to conservative economists who argue that market forces, not the government, should be the primary determinant of the nation's economic outcomes. To the citizen who is concerned about taxation policy and government spending, Thurow offers empirical evidence that government investment, not private-sector research and development, has historically been the catalyst for much of America's economic growth.
In capitalist societies, Thurow contends, private firms have a six- to seven-year planning horizon. If profits are not predicted in that time period, businesses are not likely to invest the necessary funds to produce new products and services.
My own research on innovative organizations provides a good example. In the early 1990s, General Electric curtailed its pioneering research on high-speed rail locomotives because profits would not be realized until well beyond the typical business-planning horizon.
Conversely, government's economic-planning horizon is usually 18 to 20 years. Once research-and-development funds are invested, and the product or service matures, the enterprise is usually taken over by private business. Government monies provide the long-term research-and-development financing that private-sector organizations are unwilling to chance until there is a virtual guarantee of profitability.
Thurow lists examples dating from the War Department's financing of Eli Whitney's invention of interchangeable musket parts in 1801 to a more contemporary example like the Internet. The Net was created in 1969 by the Defense Department to link military bases in case of atomic attack. The National Science Foundation paid for a major expansion in 1986. Now that the threat of nuclear war has diminished, the Internet has become America's, and the world's, electronic highway. Seeing the economic benefits, business organizations have constructed tolls that allow the Internet to be financed privately.
Yet, Thurow points out, the private sector would never have invested the research-and-development funds to develop the Internet: "Initially, it could not have been financed privately - the usage wasn't there, it would take 20 years to develop, and no one could have foreseen the widespread usage of cheap personal computers."
We do not have to look far for other examples. The Electronic Village in Blacksburg is a joint venture between two governmental entities (Virginia Tech and the town of Blacksburg) and Bell Atlantic. This cooperative effort has spawned more than 100 entrepreneurial businesses since its inception. Since the venture has matured, it is interesting and important to note, there are calls for its privatization. Government agencies have also helped finance electric-car research and the "smart highway" technology being developed at Tech.
Thurow's analysis raises two crucial points:
* Government financing has played, and continues to play, a role in economic development.
That role is mostly invisible and, thus, often unappreciated. It is a fundamental role, however, given the nature, and inherent risks for private business, of operating in a capitalist economic society.
* This role is an industrial policy.
It is not an economic policy based on government's picking winners and losers, but a technology and industrial strategy for expanding time horizons. Widened governmental time-horizons make it both possible and cheaper for private firms to compete in the strategic industries of tomorrow.
Operating in the global economy - a world where anything can be made on the face of the Earth and sold anywhere else on the face of the Earth - demands a highly skilled work force. As an editorial in The Roanoke Times recently stated, "Just as vital as strong connections with higher education's research and educational resources is high-quality K-12 education: it is key to sustaining the kind of highly skilled work force that produces saleable exports."
Thurow would add another variable to the educational equation - the need for publicly financed secondary-education programs for noncollege-bound students. These programs would be similar to the German apprenticeship training system that produces highly skilled workers who manufacture the precision tools and equipment demanded by cutting-edge technologies.
From Thurow's perspective, there is no dichotomy between America's technology policy and its industrial strategy. Government-financed technological investments do indeed require an overall industrial strategy to be successful. If this analysis is correct, the country's business and political leaders must jointly convey the message to a skeptical American taxpayer.
Reginald Shareef is an associate professor of political science and public administration at Radford University.
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