PERSPECTIVE ON GOVERNMENT : A Policy of American Abnegation : Economic ideologues say the U.S. doesn’t need an industrial policy. Japan’s success in taking business from us says we do.

Why can’t the U.S. government do some of the things to increase our economic strength and competitiveness that the Japanese government does all the time?

During this month alone the Japanese Ministry of International Trade and Industry, known widely as MITI, has announced the following new initiatives: a 10-year collaborative venture among competing Japanese and foreign firms to develop advanced computers for the next century; a 10-billion-yen ($75-million) project to create a lightweight material that is more resistant to heat and chemical corrosion than plastics, conducts electricity better than metal and causes little pollution; development of a national stockpile of liquefied petroleum gas to match Japan’s crude oil reserves for 142 days of consumption.

The Japanese ministry announces these kinds of measures all the time with the objectives of supplying high-quality jobs for future generations of Japanese and ensuring the nation’s economic soundness and national security. This is what the Japanese call “industrial policy”--the third side of an official economic policy triangle that also includes the fiscal and monetary policies pursued by all governments.

In the United States, by contrast, the current Administration is explicitly opposed to industrial policy because it believes that government aid to industry is an economic heresy--even though it knows and fears Japan’s governmental effectiveness in the economic sphere. (It should also be noted that many U.S. states have industrial policies, often complete with lobbyists in Tokyo, to boost their own development at the expense of other states.)

The lack of a national industrial policy in the United States today is the main reason that Japan and the United States are, in Clyde Prestowitz’s phrase, “trading places” in terms of wealth and technological prowess. Call it whatever you want--industrial policy, economic strategy, competitiveness policy or a defense-science policy--we need one and can no longer afford to have it blocked by economic ideologues.

Our political leaders tell us that we don’t need an industrial policy, even though Australia is the only nation in the Pacific with which we have a favorable balance of trade. We also hear that our government is incapable of formulating one because bureaucrats cannot pick the industries of the future. But industrial policy does not mean picking winners. It means supporting those enterprises that look promising, just as the National Science Foundation and the National Institutes of Health do not pick the sciences and drugs of the future but do support those that the best-informed think are important.

The real reason there is no U.S. industrial policy is that economic and intellectual vested interests stand in the way. By economic interests I mean the vast amounts of money spent by private parties, both domestic and foreign, to influence legislators and administrators.

A good example was the $8 million paid by Matsushita to former U.S. Trade Representative Robert S. Strauss to shepherd its acquisition of MCA Corp. through the U.S. government. A partial answer to that kind of behavior is to expand the laws against trust violation now aimed at embezzlers and inside traders like Ivan Boesky and Michael Milken to include people who have held high positions in the government.

The intellectual vested interests arrayed against industrial policy are mainly the professional economists intent on defending their arcane and jargon-ridden theories against the clear evidence of the Japanese ministry’s continuing successes.

In the name of a 19th-Century concept of free trade, our economists are quite prepared to see Japan destroy such important U.S. industries as semiconductors and telecommunications in which we once had an overwhelming comparative advantage. (We invented the technologies, built better infrastructures than any other nation and controlled the world’s largest market for their products.)

These are the same economists who told us about the wonders that deregulation would bring to our savings-and-loan and airline industries. Some of us who have studied Japan and its industrial policy are convinced that the United States can no longer afford this kind of laissez-faire approach.

Industrial policy means governmental affirmative action on behalf of industry. Its criterion of success is the number of high-value-added jobs held by American workers. There are two kinds of industrial policy: functional and sectoral. Functional industrial policy means the role of government in educating the labor force, building the roads and infrastructure on which industry depends, legislating incentives to reward savers and investors, developing an environmentally sound energy policy and supporting the research and development for the technologies of the future.

Sectoral industrial policy is the nitty-gritty of helping new industries become competitive and assisting in the orderly retreat of those that can no longer compete.

Sectoral industrial policy can take the form of the government leading the market when the private sector thinks an activity is too risky--for example, the manned space station or “Star Wars” program--or of government trailing the market when the private sector has already taken the lead but needs governmental assistance to compete against other nations’ industrial policies--as is the case of semiconductors or machine tools.

Sectoral policy can take the form of providing low-cost capital, the strategic use of access to the domestic market, relief from antitrust on a case-by-case basis and tax incentives. But the actual strategy employed should never be discussed in public, since a strategy known to one’s opponent can also be defeated by him. The Japanese do not tell us exactly how they plan to promote their businesses of the future.

The ultimate defense of governmental industrial policy is that the markets that fuel our competitive successes are propelled by both economic and political forces. Changes of industrial structure are often so destructive of people’s lives--for example, the decline of the American steel industry--that they will use their democratic power to frustrate market outcomes, even when these promise a more efficient use of resources.

It thus becomes a governmental responsibility to ameliorate the problems that cause citizens to stand in the way of economic change. Industrial policy is not a plan to protect or enrich private industry;it is, rather, the recognition that the economy is too important to be left entirely to private interests.

An economics that denies these simple truths and refuses to recognize the role of government in economic activities is worthless, as the successes of Japan and its emulators attest. Having just fought a high-tech, virtually casualtyless “Nintendo war,” the United States must remind itself that Nintendo is a Japanese company.