ture look like it's evolving into over the next 10 to 20 years? Whatever base created one wants to take.

Second, and related to that, I think we do need some new methodologies to analyze the impact of the policies of foreign governments on their industries, and the impact those may have on us.

At the moment we have lots of allegations as to what the Japanese, the French, the Brazilians, or somebody are doing is going to injure our industry, industry A, B, or C.

But frankly, that is pretty ad hoc. I do applaued several U.S. industry groups who have tried to put together serious case studies thereof, and I think those are valuable for starts, but again, just like we need to have a systematic analysis of where our own industries are headed, we need some systematic base first, to know what the governments are doing, and second, to analyze whether those have or they're really fluff on some bureaucrats and some meatier-some other government agency around the world patting themselves on the back and justifying your own existence.

So I think we do need that, which could amount to some kind of early warning system for international competition, so that our industries and perhaps our Government could develop more appropriate responses at an earlier stage rather than waiting until the horse is out of the barn door, the trade is flowing, the jobs are being lost, and then you say let's apply countervailant moves. It's too late. We need something earlier.

Third, when we do help individual firms or industries with the various kind of Government help, we really need to help extract adjustment commitments from the people that are being helped.

Again, I have been involved in many cases over the years of providing import relief, and in none of those cases has there been a quid pro quo extracted from the injured industry.

Chairman LAFALCE. Conditionality.

Dr. BERGSTEN. Well, that is the idea-to assure that the industry would use the time so that you could, in fact, phase down eventually out temporary relief, and so you would buy something with your deviation from normal principle.

As it is, very little is done. What frequently goes into it without even knowing whether you're trying to protect the industry so it can bounce back into what it used to be, or whether it can adjust itself to a new line of endeavor, you don't even have that fundamental judgment in front of you, let alone a specific plan as to how to do so.

In my judgment, most import controls have therefore been counterproductive. They have hurt the industry. There are certainly other mechanisms to use there, using steel as an example, and so we have not put a very effective industrial policy into effect, even when we have carried out steps that are normally regarded as par.

Finally, there is a need to find a way to coordinate the disparate steps to support particular industry and to monitor the interrelationships among different industries as they are affected by particular steps.

Again, since I know in the past I referred to the trade example, when steel import restraints were applied in 1968 and 1977, nobody really looked hard at what we did to the auto industry or other steel-using industries, and I would argue that that has been one of

these sources of difficulty with the subsequent competitive problems of our automobile industry.

No one really looks at the different Government steps that are taken vis-a-vis the steel industry, for example. Tax measures, the regulation questions come up frequently. When regulatory policies have been applied to the steel industry, they were almost always done without any consideration of the macroeconomic effect on that industry, the impact on its investment requirements, the impact on its overall competitive position.

So what steps have been taken? They have been taken in isolation, not coordinated, not pulled together in terms of the impact on that industry itself or on related industries, and that, too, seems to me to be another step we could take.

In conclusion, I would therefore start with what are fairly modest objectives, at least compared with the more grandiose proposals for a comprehensive industrial policy here.

Nevertheless, I think steps along these four lines could have immediate and pragmatic impact, both on their own merits because they would begin to make some very useful contributions to American economic performance, and, second, they would begin to provide an entry into broader ideas and one could see how they worked if they did provide these benefits.

And, if so, if one were so inclined, they might then be carried further in the future.

[Dr. Bergsten's prepared statement, "What Kind of Industrial Policy for the United States?" follows:]

WHAT KIND OF INDUSTRIAL POLICY FOR THE UNITED STATES?

Statement by C. Fred Bergsten

Director

Institute for International Economics

Before the

Subcommittee on Economic Stabilization

House Banking, Finance and Urban Affairs Committee

June 9, 1983

Introduction

The United States now carries out a fairly extensive set of "industrial policies". To be sure, the US effort is not nearly

as coordinated and single-minded as those of some other countries. To be sure, US "industrial policies" are as frequently reactive as initiatory. To be sure, much of the US effort normally goes under a heading other than industrial policy, such as "national security policy" or "the space effort." But the United States clearly has an industrial policy, or several sets thereof. The issue therefore is not whether such a policy should be created. The main issues for policy are whether current US efforts in this direction are (a) adequate or inadequate, (b) effective or ineffective and (c) equitable or inequitable.

Before turning to more detailed analysis of these questions, let me state the obvious: we should do everything possible to improve the competitiveness of our economy, within the bounds of cost-effectiveness and international policy compatibility. Such areas as private investment, education, and research and

development may frequently need government encouragement to make their needed contribution to our economy (and society as a

whole). But such steps should proceed whatever is done or not done on "industrial policy" per se, and are not usually regarded as synonymous with that term. Such steps may be components of any "industrial policy" that may emerge here or in other countries, of course, and better coordination among them is one of the steps that I will suggest, at the end of these remarks, could possibly contribute to a more effective US industrial effort.

The International Competitiveness of the United States

Most attempts to answer the questions listed above begin by addressing the international competitiveness of the United States. Many such analyses conclude that the United States, or at least large sectors of its industry, are rapidly losing their ability to compete abroad and that we must therefore adopt a comprehensive industrial policy. I believe that both components of this argument are basically incorrect, though certain US sectors (as in any country) do of course face competitive decline which may be intensified by international considerations.

All relevant data show that the United States retains an enormously competitive industrial sector. As recently as 1978-80, US exports were growing at double the rate of world trade. By early 1981, US manufacturers had regained the share of world markets which they held in the late 1960s. From 1978 to 1980, the US current account strengthened by over $15 billion despite an increase of over $35 billion in the cost of oil imports after the second oil shock--a gain of $50 billion in two years on everything else. Three-fourths of the total growth in

US GNP during this period derived from the improved trade balance, and four of every five new jobs came from the export expansion. These enormous aggregate gains comprised improvement in almost every industry sector and geographical market.

Similar conclusions derive from a recent study of the

evolution of US trade during the 1970s by Robert Z. Lawrence of

the Brookings Institution.1 Lawrence asked two questions:

is

is international trade

the United States being deindustrialized? contributing to any such deindustrialization?

His answers to

both questions are clearly in the negative. During the 1970s, US employment in manufacturing expanded; indeed, US employment growth was more rapid than that of Japan in virtually every major industry. Foreign trade provided a net addition to output and jobs in US manufacturing as a whole, and in forty of fifty-two industries studied. Only two of these (autos and radio-TV) suffered a greater decline in employment from trade than they gained from the rise in purely domestic demand; from 1973 to 1980 there was no industry in which a positive effect due to domestic use was offset by a negative effect due to trade and even the auto industry's problems were much more due to domestic than foreign factors during this period. The decline from trade was greater than the decline from domestic use in only two industries (footwear and miscellaneous manufacturing) from 1970 to 1980.

1.

To be sure, the picture has changed dramatically over the

Robert Z. Lawrence, "Is Trade De-industrializing America? A Medium-Term Perspective", Brookings Papers on Economic Activity, forthcoming.