Clinton Revives Debate Over Industrial Policy : Economy: He says government should take a more active role in supporting business. Bush disagrees.

Standing in a San Diego shipyard earlier this week, Bill Clinton celebrated the nation’s victory in the Cold War--and wondered whether America could withstand the economic consequences of the peace.

For the thousands of workers in brightly colored hard-hats arrayed before the presumptive Democratic presidential nominee, the immediate issue was whether the build-down in defense would endanger their jobs at the National Steel & Shipbuilding Co.

But Clinton tied that troubling question to an even larger one: Could the United States regain its economic edge without fundamentally renegotiating the relationship between business, government and labor?

“All these countries we are competing with, they’re working in partnership, hand in hand, government, business, labor, education, to stake a position for their workers of the future,” he said. “Only the United States is saying we don’t have to do that. . . . We have not had the kind of partnership we need to compete in the global arena.”

With such declarations, Clinton has reinvigorated a policy debate that appeared dormant before the 1992 campaign: Does the United States need an industrial policy that would establish government as an intimate partner of business?

Despite strong pressure from congressional Democrats--and echoes of support from some corners of the business community--the Bush Administration has resisted such calls for enhanced cooperation and planning as a misguided attempt to pick “winners and losers” in the economy.

In a speech at Southern Methodist University in Dallas last weekend, Bush maintained that even the concerns of declining competitiveness driving the demands for an industrial policy were misplaced. “America is still a rising nation . . . the greatest economic power the world has ever seen, a country uniquely able to provide each of you unparalleled opportunity.”

The debate over government’s role in the economy frames one of the central contrasts between Clinton and Bush--with businessman Ross Perot, whose views aren’t yet fully clear, occupying a spot on the spectrum somewhere between them.

Clinton portrays Bush as the prisoner of a minimalist view of government that has been rendered obsolete by policies of government-business cooperation in countries such as Germany and Japan. “We are in the grip of a failed economic theory,” he says.

Bush’s aides see Clinton’s ever-expanding roster of policy initiatives as evidence that beneath the Arkansas governor’s calls for reinventing government lurks a vestigial Democratic urge to open more agencies, christen more programs and fatten the Federal Register with new regulations.

Americans have long been enormously ambivalent about giving Washington more power to channel the economy. For many, the idea that bureaucrats who can’t deliver the mail could rescue the auto industry seems preposterous: By a 2-1 margin in a recent Louis Harris survey, Americans said they did not think Washington should “take a more active role in . . . helping industries” vital to long-term prosperity.

But another recent survey for the Council on Competitiveness, a business group, found that with fears of economic decline widespread, majorities backed such specific ideas as increasing funding for worker training and an annual government economic strategy.

“The language of picking winners and losers still resonates with voters in a negative way,” said Democratic pollster Geoff Garin, who conducted the council’s survey. “But I would maintain that right now the risks of defending nonintervention are very much greater than the risks of defending government action.”

Clinton’s vision of industrial policy updates the initial ideas that emerged a decade ago. In its first incarnation, industrial policy focused on creating a federal bank to funnel public money into both decaying “sunset” industries and emerging “sunrise” industries.

But Democrats were never able to coalesce around a specific plan to make such investments--and with both President Ronald Reagan and President Bush opposed to any ideas carrying the industrial-policy label, the idea largely fell into disrepute.

Through the 1980s, many of the idea’s original proponents--most prominently Harvard University political economist Robert B. Reich, a close Clinton adviser--rethought their premises. Rather than directly aid American companies--which were globalizing their operations--Reich argued that the government could more effectively stimulate the economy by investing in the building blocks of productivity: education, infrastructure and training.

To a considerable extent, Clinton has adopted Reich’s vision. Rather than proposing government investments in specific industries, he called for major increases in spending on infrastructure and job training--including a requirement that all companies devote 1% to 1.5% of their payroll to retraining, or else pay an equivalent sum into a federal account to fund such efforts. And he has pushed for reforms of the educational system.

But Clinton envisions government’s role extending beyond these investments, to the crafting of a “national economic strategy.” Exactly what such a strategy would specifically entail isn’t clear, but it is apparent that Clinton envisions a much more intimate relationship between government and business than now prevails.

Earlier this week, for example, he told the shipyard workers that government should move aggressively to steer defense contractors toward peacetime pursuits, such as construction of high-speed rail.

To get business where he wants it to go--and balance his promises of cooperation with populist notes of confrontation--Clinton has also brandished some sticks. He has called for the elimination of tax incentives for companies that move jobs overseas, and tougher tax treatment of lavish corporate salaries. He has suggested that any industry granted protection from foreign imports--such as the auto manufacturers--be required to reform their operations and increase investments in productivity.

Almost all of this is anathema to the free-market economists in the Bush Administration. Bush has also talked about government’s ability to act as a “catalyst” for economic change--largely by reforming education and investing in infrastructure.

But Democrats insist he hasn’t backed up his rhetoric with dollars. And his Administration has generally argued that the most important thing government can do to encourage economic growth is to get out of the private sector’s way--by reducing environmental and other regulations, and cutting taxes on capital gains.

At times during the campaign, Clinton has mused that he faces the task of selling not only himself, but the idea that government itself can be a positive force for change. That’s no small challenge in an era when many voters wonder why members of Congress can’t balance even their own checkbooks. But if Clinton can’t first soften those suspicions, analysts say, he’s unlikely to convince Americans that the way to revive the economy is to give Washington a louder voice in the boardrooms.