An industrial policy is "any government measure that prevents or promotes changes in the structure of an economy." This paper provides an overview of the issue, by focusing on how government can encourage productivity growth in the economy.

By studying other countries we hope to learn how industrial policy might work in America. The obvious choice to model is Japan's Ministry of International Trade and Industry (MITI), but other countries, most notably the British and the French, have adopted certain policies as well. On the whole, while Japan has been most successful, MITI may have more credit than is due, and countries such as France have failed in their industrial policy initiatives. Given America's reluctance to involve government in the management of the economy and the uncertain response of government commissions to crises in the past, the best approach would be to combine a Japanese MITI-like body with some power and an advisory British-style committee that must be checked by Congress and/or the president.

Industrial policy should focus on several sectors of the economy. There are two ways that industrial policy is helpful. First, industrial policy can directly influence tariffs and non-tariff barriers (NTBs), which can have a significant influence on productivity. This paper, however, only addresses the second aspect of industrial policy. What are the areas where productivity can be improved. They include infrastructure, education, science, technology, and R&D promotion.

The methodology is based on both economic and political theories. Underlying the economics is indifference curve analysis which postulates that American economic growth in overseas markets will depend on competitiveness, which in turn depends upon productivity. Politically, congresspeople will try to maximize their probability of getting re-elected. These two theories are incorporated into a system that ranks preferences on economic and political feasibility. Accordingly, since politicians are making the decisions, more weight is given to the political component, and the two feasibility rankings are added to come up with a feasibility score. This score is set against a null hypothesis, and the lower of the two scores should reflect Congressional preference.

President"Clinton has made several proposals, including one for an Economic Security council. These proposals are evaluated for their political and economic feasibility. Conclusions will show that for the most part, Clinton's proposals are economically and politically feasible, compared to what the government currently does. There are problems, however, with the data, the methodology, and the various proposals. There are limits to what can be inferred from this study. These will be explored, and the need for more research will be examined, as well as what area would be focused on in the future. Now, however, this paper provides a general overview into a topic that is very current.



Included in

Economics Commons