Ground Shifts in Longstanding Debate on Economics : Politics: Democratic position on need for governmental industrial policy is also advocated by Perot, a billionaire businessman.

After years of ideological stalemate, the ground is suddenly shifting in an economic debate that has rumbled through presidential politics for the past decade.

This year, the entrance of a third player--undeclared independent candidate Ross Perot--may transform the longstanding argument between Republicans and Democrats over how closely government should work with industry to promote lasting prosperity.

Although differing on specifics, at the most fundamental level Perot lines up with presumptive Democratic presidential nominee Bill Clinton: Both men argue that government must forge unprecedented partnerships with business and toughen its stance toward foreign economic competitors to arrest a long-term decline in American economic competitiveness.

Standing apart in this debate is President Bush. Saying the United States “is still a rising nation,” he denounces calls from both his challengers for an increase in government’s efforts to guide the economy as a misguided attempt to pick “winners and losers.”

This confluence between Clinton and Perot could fundamentally reshape the campaign’s economic dialogue. With Perot, a billionaire businessman, joining Clinton in calling for a form of government industrial planning and a tougher line on trade--ideas that have long been associated predominantly with liberal Democrats--the ideological compass that has guided debates over how to invigorate the economy could become obsolete.

“When it was just the Democrats saying these things, it was easy for the Republicans to say it’s more Democratic claptrap,” said Clyde V. Prestowitz Jr., chairman of the Economic Strategy Institute in Washington. “When you have a very successful businessman saying it, it makes it harder for the Republicans to dismiss it. Nobody doubts Perot is committed to capitalism, so you can’t call it socialism.”

Since Ronald Reagan’s White House victory in 1980, the two major parties have conducted an increasingly rote economic debate: Republicans have pressed a laissez faire approach centered on cutting taxes, spending and regulation, while many Democrats have urged bolder government efforts to steer the economy--an evolving complex of ideas that have often been grouped together under the label of industrial policy.

It has been relatively easy for the GOP to brush off Democratic calls for industrial policy as tired liberal efforts to give Washington bureaucrats more control over business. And both Reagan and Bush have successfully dismissed Democratic demands for a tougher line against U.S. trading partners (particularly Japan) as protectionist efforts to prop up decaying industries and high-wage union jobs.

But with Perot also advocating a government commitment to industrial policy, those reference points suddenly make less sense, many argue. Can industrial policy be dismissed simply as an unwarranted infringement on business when the man advocating it most strenuously comes from the boardroom? Is a tough trade stand really a sop for unions when it comes from a man who has resisted unionization of his own work force?

Although Perot hasn’t offered nearly as much detail about his plans as Clinton, the two men share several basic assumptions, each of which is largely rejected by Bush. The common ground between Perot and Clinton include the views that:

- The U.S. economy faces a long-term loss of competitiveness that extends beyond the waning recession.

- Government must work more closely with business and labor in a manner reminiscent of Japan or Germany.

- Government must substantially increase its investment in the building blocks of productivity, from education to research and development.

If anything, Perot, the businessman, appears to envision an even broader economic charter for Washington and a tougher line on trade than Clinton, the lifelong politician. “By certain yardsticks, Perot is to the left of Clinton on economic issues,” said conservative economics consultant Jeff Bell.

Perot has clearly sounded tougher notes on trade than Clinton. Although critical of aspects of Bush’s trade record, the Arkansas governor supports the President’s proposed free trade agreement with Mexico. Perot, by contrast, has criticized the idea as a threat to American jobs, and called for the United States to raise its own trade barriers if Japan doesn’t lower obstacles to American exports.

In the economic policy plan he released last week, Clinton offered two ideas that are associated with traditional industrial policy--the creation of a civilian counterpart to the defense agency that would fund research into cutting-edge technologies and the formation of an Economic Security Council to plot international economic policy. He also proposed substantial increases in spending on infrastructure, education and training.

At various points in the campaign, Clinton has also talked in terms that imply a broader planning responsibility for the government. During the Michigan primary, he called for a government strategy for reviving the automobile industry. And he has spoken of steering defense contractors toward involvement in new infrastructure needs, such as the construction of high-speed rail.

Perot has been even more emphatic in calling for a degree of government economic planning unprecedented in peace time. On several occasions, he has called for government to develop “strategic plans” for the long-term health of key industries.

The United States should “target the industries of the future,” Perot said in a recent appearance on NBC’s “Today” show. He described his vision as “an alliance between government and business to make sure that the industries of the future that will pay our people the highest standard of living are in this country.”

In a recent interview with the New Republic, Perot insisted that government may have to jointly invest with industry in the development of critical technologies--a central tenet of industrial policy, and an idea that the Bush Administration has resisted.

Perot’s embrace of ideas more traditionally associated with Democrats symbolizes a little-observed shift in business’ agenda as the strains of international competition have intensified.

Most business leaders remain cool to the hard-line trade strategy Perot hints at, fearing that such efforts might provoke a trade war. But “a major segment” of the business community--particularly those in high-technology industries--have grown increasingly anxious for the kind of partnership with government that Perot espouses, said Dan Burton, executive vice president of the private-sector Council on Competitiveness.

Added Alan Webber, managing editor of the Harvard Business Review: “The debate is over, and everyone assumes that government in the 1990s is going to be a much more catalytic player in the economy.”

Even the Bush Administration, for all its rhetorical opposition to industrial policy, has embraced some policies associated with that idea, particularly increased funding for government labs engaged in basic research, said William T. Archey, senior vice president for policy at the Chamber of Commerce of the United States.

Still, Archey and others maintain, the degree of government planning envisioned by Perot and Clinton--if not fully clear in all particulars--moves far beyond anything acceptable to Bush.

Bush signaled as much in an interview with the New York Times this week in which he said: “I don’t think we ought to have industrial planning. I don’t believe in targeting. . . . I do not want to see the government pick winners and losers.”

He added, “Maybe we have a fundamental difference we can talk about in the fall when we get into the campaign mode.”

Bush will likely get that chance. Clinton advisers believe that with two candidates making the case for greater government intervention, the President’s more conservative view will seem anachronistic. And, in a fashion that became familiar through the Democratic primaries, they hope to position Clinton at the fulcrum of this debate--more committed to activist government than Bush but less protectionist and heavy-handed in his intervention than Perot.

But on the central issues of competitiveness, Clinton risks being overshadowed by Perot, whose background as a businessman may give him more credibility than his Democratic rival in calling for a rethinking of government’s economic approach. “It is harder for a Democrat to say some of the stuff Perot is saying,” said Prestowitz.

Most Republican strategists, meanwhile, think that both Clinton and Perot have boarded a boat for oblivion by advocating dramatic increases in government’s economic authority at a time when most voters view Washington as corrupt, inefficient and incompetent.

“Industrial policy is the essence of elitism,” Bell said. “The ideas that people at the top are going to pick winners and losers won’t be very attractive to people.”

Key Competitiveness Issues: Where They Stand

The candidates’ positions on fostering economic competition:

INDUSTRIAL POLICY

PEROT--Calls for government to work with business to develop “industry-by-industry” plans to “target the industries of the future.”

CLINTON--Proposes creating a federal agency to fund research into cutting-edge domestic technologies and extensive government planning efforts to steer defense contractors toward peace-time pursuits.

BUSH--Administration has increased funding for basic technological research, but he generally resists calls for greater business-government joint planning as misguided effort to pick “winners and losers” in the economy.

TRADE

PEROT--Criticizes proposed free-trade agreement with Mexico as a potential threat to U.S. jobs and promises a much tougher stand against Japan in trade negotiations.

CLINTON--Supports a Mexican free-trade agreement, provided it tightens labor and environmental regulation in Mexico; also talks tough on Japan but warns against protectionism.

BUSH--Vigorously endorses Mexico free-trade agreement; though denouncing protectionism, he has reached a “managed trade” agreement that requires Japan to buy somewhat more U.S. cars and auto parts.

ACCESS TO CAPITAL

PEROT--Proposes capital gains tax cut solely for small start-up companies; is interested in easing regulations which now prohibit banks from making equity investments in new enterprises; and would explore creating a network of lending institutions targeted at small business.

CLINTON--Would cut capital gains taxes only for entrepreneurs starting new companies; favors a nationwide network of inner-city development banks for start-up companies.

BUSH--Has strongly pushed for across-the-board capital gains tax; Congress rejected his proposals to expand access to credit by easing regulations on commercial banks.

Source: Times staff reports