National Industrial Policy Debate Goes On

President Reagan is such an ardent advocate of free enterprise and of getting the government off the backs of American workers and corporations that it seems almost ridiculous for a prominent economist to charge that “all of this small government-big government debate (led by Reagan) is bull.”

But that is the accusation made by Robert B. Reich, whose 1983 book about industrial strategy, “The Next American Frontier,” was a best seller.

Reich teaches business, law and political economy at the John F. Kennedy School of Government at Harvard University. His latest book, “New Deals: The Chrysler Revival and the American System,” details how the Treasury Department, Congress and the United Auto Workers put together the government bail-out of Chrysler and explores the lessons to be learned.

In an interview here last week with Times political writer Keith Love, who provided this columnist with a transcript, Reich says, in effect, that the often bitter debate that characterized the early part of the 1984 presidential election over a proposed “national industrial policy” is far from over.

In fact, Reich argues, such a policy is more necessary now than ever, even though many politicians and many of his colleagues have written off the idea.

In simplest terms, groups and individuals ranging from investment banker Felix Rohatyn to the AFL-CIO have urged that business, labor and government cooperate in an effort to help direct the economy.

The AFL-CIO has proposed two tripartite boards. One would help set overall economic policies, such as assessing the country’s needs in steelmaking, shipbuilding and high technology.

The second board would manage a national bank that could help make or guarantee loans to industries deemed essential to aid in rebuilding, modernization or start-up of new operations.

Conservatives generally ridicule the industrial policy concept, suggesting that it amounts to centralized planning, comes perilously close to socialization and would weaken if not destroy the free enterprise system.

Reich contends that the President is trying unilaterally to establish an industrial policy without any serious input from labor, business or finance.

“Ironically, for all of Ronald Reagan’s talk about giving us less government, I think he is giving us a much more centrally controlled planning system than we’ve ever had before,” Reich said, adding:

“Just take the effect of ‘Star Wars’ (the nickname for Reagan’s proposed space defense weapons) on high-technology development in this country.

“For years, some of us have been saying we need a high-tech industrial policy, that there is no way that we can possibly rely completely on the private sector” to build the high-tech industry and make it competitive with some foreign nations, such as Japan, that help their high-tech companies.

“So Reagan comes along with a $26-billion ‘Star Wars’ program for the most advanced high-technology work--fifth-generation computers, lasers, fiber optics. It’s bigger than the Apollo space program or the Manhattan Project.

“So all of this small government-big government debate is bull. The real issue here is (the combination of) the defense buildup and its effect on high technology, and the tax plan and its effect on basic industry, and you see that the total effect of the two together is to take public funds out of basic industry and push that money into high technology.”

The President did not enlist labor, business or academics in deciding to put the power of the government behind the high-tech industry. In fact, his proposal has drawn harsh criticism from many sources, including some scientists.

But the Administration obviously has decided on the direction it wants the nation’s economy to go, and so, Reich says, the “Reagan Revolution” is actually less about small government versus big government than it is about redirecting government subsidies from basic industries to high technology.

Reich says the government already provides substantial help for many industries, such as agriculture and banking, and even for individual companies. Chrysler, for example, was saved from bankruptcy in 1980 by government-guaranteed loans.

Saving the nearly bankrupt Chrysler proved that “government, finance, management and labor can get together and make a deal,” Reich said. However, he said, the rescue plan wasn’t adequately thought out and, although useful, “might not have been worth its salt.”

The problem there, he argued, is that, as time went on, “all of the people who administered the Chrysler bail-out forgot the ultimate goal--to save jobs--and eventually Chrysler closed more plants than it had intended.

“The work force dropped from 121,800 in 1979 to 83,900 by 1985. So trying to save people through saving companies may be a lousy idea and could too easily lead to goal displacement.

“For all of the effort that went into saving the company--the armies of accountants, government officials and bankers--you realize that almost no attention was paid to retraining the nearly 40,000 people who lost their jobs. It was as if they were almost an unfortunate side effect. At least some of the energy put into the goal of saving Chrysler should have been directed to helping the displaced workers.”

Chrysler also should be faulted for failing to negotiate any funds for community development, Reich contends.

“Now you’ve got states bidding against each other to attract industry--it’s crazy,” he said. “Instead, we need a national industrial policy that attracts new industries into severely impacted areas so there are alternatives for these people.”

The kinds of changes that Reagan is making would be possible, and perhaps even desirable, under a true industrial policy, but he is going about them in a dangerous way.

The time may not be ripe politically for the creation of a meaningful, legislated industrial policy, but it is certainly not too soon to once again start giving the concept the serious consideration that it deserves.

Benefits Continue

A substantial majority of workers at California Steel Industries, which operates the former Kaiser Steel mill at Fontana, are “double dipping” in an unusual fashion that helps keep the company’s labor costs down and the United Steelworkers out.

Most California Steel workers are former Kaiser workers and former union members who are now working for wages and fringe benefits far below those provided under the defunct Kaiser contract.

But they are not suffering by those cuts nearly as much as they would be if they were not also enjoying some benefits of the old contract.

For instance, the old Kaiser contract continues to provide most of the 720 California Steel workers with pension benefits that the union estimates at $1,000 to $1,500 a month. In addition, they get other fringe benefits carried over for Kaiser retirees, including those who were allowed to retire early because of the shutdown. An estimated 80% of the California Steel workers were Kaiser employees, and most of them were entitled to pension and other benefits.

Michael Wilkinson, who is chairman and president of California Steel and owns 50% of the Fontana works, says it is true that most of his workers are former Kaiser employees, but he says he has no estimate of how many are getting pensions and other benefits under the old pact.

He acknowledges that the “double dipping” has made it possible for his company to pay lower wages to highly skilled steelworkers who learned their crafts in training programs sponsored jointly by the union and Kaiser. However, the plant no longer does basic steel manufacturing but instead processes steel slabs--mostly imported.

Wilkinson, a Brazilian mining firm, and Kawasaki Steel of Japan joined to reopen a small part of Kaiser’s Fontana steel mill that shut down in December, 1983, after having operated as a unionized company since 1942. They named their new operation California Steel Industries. The Kaiser plant was opened during World War II to provide steel for Liberty ships.

By the 1970s, Kaiser employed more than 10,000 workers, but the worldwide slump in the steel market, as well as labor costs, competition with foreign countries and environmental problems, proved its undoing.

Kaiser workers were getting about $11 an hour along with productivity bonuses, typical in the steel industry, that could raise their incomes to between $30,000 and $40,000 a year. In addition, they got fringe benefits such as fully paid, complete medical care.

California Steel pays a lower base rate, estimated at $9 to $10 an hour, and has eliminated the valuable incentive bonuses. The company has also reduced fringe benefits and eliminated pension, dental and eye-care programs.

Wilkinson says the company will begin a profit-sharing plan to replace the bonus system, although the company is not yet profitable.

Wilkinson’s brother, Howard, who is vice president, said that, while wages and benefits at California Steel are substantially below those paid by Kaiser, “we have created jobs here (in Fontana) and hope to increase the size of our work force.”

And he noted that last January almost all of the 400 workers then employed by the firm signed a petition saying they do not want union representation.

Ronald Bitonti, a union representative in charge of an organizing campaign at California Steel, says the benefits of “double dipping” by the firm’s former Kaiser workers have made it more difficult for the union to regain support.

“But there is no doubt that, in the near future, the union will again represent Fontana’s steelworkers as new people are hired to replace those ‘double dipping’ former union members who have forgotten that the union made it possible for them to have a fairly decent income.”

While management says the reduced labor costs were essential to meet foreign competition, union spokesman Cass Alvin says “that is ridiculous.”

“There is no way skilled American steelworkers are going to work for the wages paid in South Korea, where they earn about a tenth of the wages paid in this country, or even for rates paid in Japan, where steelworkers make about half as much as Americans,” Alvin said.

It is obvious that, since American workers are unlikely to accept a lower standard of living, competitiveness must be based on factors such as management efficiency, increased investments in plants and higher productivity.