Why it is Difficult to Implement Industrial Policies: Lessons from the Synfuels Experience

See Piore Michael J. Sabel Charles F. , The Second Industrial Divide (New York, NY: Basic Books, 1984).

Bluestone Barry Harrison Bennet , The Deindustrialization of America (New York, NY: Basic Books, 1982); Bowles Samuel Gordon David Weiskopf Thomas , Beyond the Wasteland (Garden City, NY: Anchor Press Doubleday, 1983).

Phillips Kevin , Staying on Top: The Business Case for a National Industrial Strategy (New York, NY: Random House, 1984).

The cure, according to George Lodge (1984), is to abandon the belief in individualism, which was appropriate for the competitive environment of the past, and to adopt a “new ideology” of “communitarianism” to match foreign competition. See Lodge George C. , The American Disease (New York, NY: Knopf, 1985).

See Reich Robert , “Making Industrial Policy,” Foreign Affairs, 60 (Spring 1982): 852–881; and Reich Robert , The Next American Frontier (New York, NY: Times Books, 1983). Reich maintains that “a nation's industrial policy is the sum of its microeconomic policies—like tax rules, research and development grants, credit subsidies, and import restrictions.” He argues that every advanced industrial nation, explicity or by default, has an industrial policy. The United States is no exception. This policy in the U.S, however, “lies buried.” It has been “spearheaded” by the nation's “politically most active and sophisticated industries” and is a “patchwork” that, according to Reich, yields perverse results. For the automobile industry, for example, industrial policy has involved import restrictions and loan guarantees, pollution control requirements and relatively high effective tax rates, and little or no federally supported research. For the home construction industry, on the other hand, it has meant large credit and tax subsidies to home owners. Reich argues for greater coherence in industrial policy. He maintains that the choices that industrial policy embodies should be clearly articulated with the purpose being to improve America's international competitiveness. Also, see Reich Robert , “An Industrial Policy of the Right,” The Public Interest, 73 (Fall 1983): 3–18.

Government actions that can be considered part of industrial policy include: Disbursements (direct subsidies); services (such as the provision of roads and waterways, and R&D); taxation (including tax credits); regulation (such as price controls); reorganization (the creation or termination of business organizations); exhortation (voluntary action, publicity, and jawboning); and market activities (purchases or loan guarantees). Constraints generally fall in the category of regulation, but they can include exhortation and reorganization. Taxation can be an incentive or a constraint. Loan guarantees, price supports, and purchase agreements are usually incentives. See Cole Roland , “A Theoretical Approach to Analyzing Incentives for Energy Production,” in Battelle Pacific Northwest Laboratories, An Analysis of Federal Incentives Used to Stimulate Energy Production (Richland, Washington, 1980), pp. 33–34. Also, see Reich Charles , “The New Property,” Yale Law Journal 73 (1964): 733–86.

Adams F. Gerald Bollins C. Andrea , “Meaning of Industrial Policy,” in Adams F. Gerald Klein Lawrence R. , eds., Industrial Policies for Growth and Competitiveness (Lexington, MA: D.C. Health, 1983).

These examples come from Tyson Laura Zysman John , “American Industry in International Competition: Government Policies and Corporate Strategies,” California Management Review, 25/3 (Spring 1983): 27–52.

A liberal critic is Schultze Charles , see “Industrial Policy: A Solution in Search of a Problem,” California Management Review, 25/4 (Summer 1983): 5–26. A conservative critic is Gilder George , see “A Supply–Side Left—Economics of the Left,” The Public Interest, 72 (Summer 1983): 29–44. Gilder, for example, maintains that it is low taxes, welfare benefits, and government spending and a vigorous small business sector that is mainly responsible for Japan's rapid growth. MITI tried to dissuade Janpanese auto makers from trying to export on the grounds that they would never be able to penetrate foreign markets. It also urged that conglomerates patterned on the American automobile industry be created in Japan. What the critics of industrial policy find particularly objectionable is the proposal that government attempt to pick “industrial winners.” Older, more established industries, as even Reich admits, are likely to have more political clout. This is likely to bias American industrial policies away from needed regeneration. Given the way the American political system works, high–tech firms are not likely to obtain assistance. Moreover, given the complexity of the economy and technological developments, the government is not likely to be able to identify “winners.” Charles Schultze has disputed whether the U.S. needs an industrial policy and whether it could be successfully implemented. He maintains that “the knowledge, skills, and ability that go with successful innovation … are specialized, idiosyncratic, and narrowly defined… They come from decentralized search, innovation, and trial and error by particular firms looking for a specific advantage to exploit… in short… from highly individualized and idiosyncratic search processes… validated by market tests.” Also see Etzioni Amitai , “The MITIzation of America,” The Public Interest, 72 (Summer 1983): 46.

Bishop Jerry , “Synfuel: Bonanza for the Synjargonists,” Wall Street Journal, September 25, 1979, p. 18. “Synfuels Now, Repent Later” was the charge hurled against the Carter program when it proposed spending $88 billion in 10 years.

See Heclo Hugh , “Issue Networks and the Executive Establishment,” in King A. , ed., The New American Political System (Washington, D.C.: AEI, 1978); and Jordan A. Grant , “Iron–Triangles, Wooly Corporatism, and Elastic Nets,” Journal of Public Policy, 1/1 (February 1981): 95–123.

See Vernon Raymond , Two Hungry Giants (Cambridge, MA: harvard University Press, 1983) for a comparison of American and Japanese energy policies; and Vietor Richard , Energy Policy in America Since 1945 (Cambridge, England: Cambridge University Press, 1984) for a discussion of the history of American energy policy. Vernon holds that the United States and Japan have dealt with the instability of resource scarcity in very different fashions. In the United States, occasional periods of crisis have led to direct government involvement, but the resulting policies have been erratic and inconsistent. The United States government has relied on open markets to augment supply, but it has offered only trivial support for private sector initiatives and has erected substantial barriers in the way of private sector development. While American policies have appeared random, unstable, and uncoordinated, Japanese policies have been planned, coordinated, and relatively rational. Vietor agrees with much of Vernon's discussion. However, he stresses the importance of market forces. He argues that from 1959–68, during a period of surplus, government policies were affected by the interplay of private groups. One or more of these groups was able to “capture” public authority for its own purposes. After the energy “crisis” of 1973, the government turned to policies designed to redistribute revenue, raise prices, increase utilization of relatively plentiful fuels, and curb demand. Constitutional checks on private power came to the fore, as the government engaged in something approaching a crusade in an effort to correct so–called “market defects.”

See Rudolph Joseph Willis Sabrina , “The Politics of Technology, Public Policy, and Administration,” paper delivered at the 1985 Annual Meeting of the American Political Science Association, New Orleans, August 1985.

Vietor , op. cit., pp. 44–59.

Ibid, pp. 163–193.

For a detailed account of the debates, see Kaufman Allen , “Public Policy and Synthetic Fuels: Challenges to Business Solidarity,” in Preston Lee , ed., Research in Corporate Social Performance and Policy. Vol. 6, (Greenwish, CT: JAI Press, 1984); also see Kaufman Allen Brown Stuart , “Public Policy and Corporate Strategy: The Case of Synthetic Fuels,” Policy Perspectives (Summer 1984).

Hershey Robert D. , “Energy: Blessing or Boondoggle?” New York Times, September 21, 1980, p. 1.

See Rosenbaum Walter A. , Energy Politics and Public Policy (Washington, D.C.: Congressional Quarterly Press, 1981), pp. 163–165.

This may have been intended, but it is the majors that now pay the windfall profits tax.

See Johnson Howard D. , “Financing Synthetic Fuel Projects: An Overview,” University of Pittsburgh Law Review, 43 (1981): 103.

Nulty Peter , “Shale Oil Is Braced for a Big Role,” Fortune, September 24, 1979, pp. 42–50.

Marcus Alfred A. , “Policy Uncertainty and Technological Innovation,” Academy of Management Review, 6 (1981): 443–448.

See Hershey , op. cit., p. 1.

See “Conferees Close on Mobilization Board, but Waiver Power Unresolved,” Synfuels, December 21, 1979, p. 3; also see Mosher Lawrence , “A Fast Track for Colorado,” National Journal, January 2, 1980, p. 1284.

See Corrigan Richard , “The Ill–advised Rush to Synfuels,” National Journal, November 10, 1979, p. 1902.

Ibid.

Nulty Peter , “The Tortuous Road to Synfuels,” Fortune, September 8, 1980, pp. 58–64.

Ibid.

Ibid.

Wiser Wendell , “Synfuels: Are Goals Hasty and Impractical?” Christian Science Monitor, December 3, 1980, p. 18.

Ibid.

Nulty , op. cit., p. 59.

Ibid.

U.S. Synthetic Fuels Corporation, “Projects Awarded Financial Assistance,” January 5, 1984.

U.S. Congress, House Committee on Energy and Commerce, U.S. Synthetic Fuels Corporation and National Synfuels Policy: Proceedings of A Seminar by the Congressional Research Service, 97th Congress, 2nd session (Washington, D.C.: GPO, 1982), p. 16.

Myers Richard , “Requiem for Synthetic Fuels,” Energy Daily, January 27, 1982, p. 2.

Madison Christopher , “In Washington, The Energy Industry Isn't Going to be the Enemy Anymore,” National Journal, December 6, 1980, p. 2075; also, see Kaufman in Preston , ed., op. cit.

Corrigan Richard , “Synfuels Subsidies—Reports of their Death are Greatly Exaggerated,” National Journal, March 14, 1983, p. 430.

Plattner Andy , “Energy Issues Shoved Onto Back Burner,” Congressional Quarterly, May 24, 1982, p. 1650; and Hershey Robert D. Jr. , “Synthetic Fuels: Program Lags,” New York Times, May 12, 1983, p. 430.

U.S. Congress, House Subcommittee on Energy Development and Applications of the Committee on Science and Technology, Synthetic Fuels Development (Washington, D.C.: GPO, 1981), p. 3

Copulos Milton , “Synfuels: Approaches to Development,” Heritage Foundation Backgrounder, August 31, 1979, pp. 7–8; and Copulos Milton , “The Carter Energy Plan: Analysis and Alternatives,” Heritage Foundation Backgrounder, July 30, 1979.

Synthetic Fuels Development, op. tit., p. 14.

See “Improvement of Corporation Communications” in U.S. Congress, Senate Subcommittee on Oversight of Government Management of the Committee on Governmental Affairs, Oversight of the Management of the Synthetic Fuels Corporation, 98th congress, 1st session (Washington, D.C.: GPO, 1983), pp. 182–194.

Conte Christopher , “Synfuel Plans Delayed by Stable Oil Prices and Plentify Supplies,” Wall Street Journal, December 28, 1981, p. 1; and “Synfuel Baby is Thrown out with the OPEC Bathwater,” Economist, March 13, 1981, pp. 63–64.

“Response,” API Public Affairs Group, R–252, May 2, 1983; and Flint Jerry , “What to Expect from Synfuels,” Forbes, December 6, 1982, pp. 43–44.

A summary of the Committee's findings is found in Oversight, op. cit., pp. 181.

For an administrative history of the SFC see the comments of Noble, Schoreder and Lesey, the SFC Inspector General, in Oversight, op. cit., pp. 59–67, 73–82, and 104–107.

See “What They Are Saying,” Oil Daily, April 2, 1982, p. 2; and Mosher Lawrence , “Synfuels Subsidies—What Some Call ‘Insurance’, Others Call a Giveaway,” National Journal, May 7, 1983, p. 967.

Murray Alan , “Summit Leaders Press Reagan for Deficit Cut,” Congressional Quarterly, June 4, 1983, pp. 1104–1105.

Kilburn Peter T. , “Split Over U.S. Budget Deficits Ruffles the Overall Harmony at London Meeting,” New York Times, June 9, 1984, p. A6.

Tale Date , “Senate Ends Deficit Marathon, Approves Reagan–Backed Bill,” Congressional Quarterly, May 19, 1984, p. 1161.

See Marcus Alfred A. , The Adversary Economy: Business Responses to Government Requirements (Westport, CT: Quorum, 1984).

Olson Mancur , The Rise and Decline of Nations; Economic Growth, Stagflation, and Economic Rigidities (New Haven, CT: Yale University Press, 1982). Also see, Maitland Ian , “Interest Groups and Economic Growth Rates,” The Journal of Politics, 47 (1985): 44–58.

Olson Mancur , “Stagflation and the Political Economy of the Decline in Productivity,” American Economic Review, papers and proceedings, May 1982, p. 145.

Badaracco Joseph L. Jr. Yoffie David B. , “Industrial Policy: It Can't Happen Here,” Harvard Business Review (November/December 1983), p. 97.

Vernon , op. cit.; also see Allen Christopher S. Rishikoff Harvey , “Tale Thrice Told: A Review of Industrial Policy Proposals,” Journal of Policy Analysis and Management, 4/2 (Winter 1985).

Badarraco Yoffie , op. cit., p. 98.

Ibid.