Hands-on spells danger

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IS THE WORLD trading system heading for a new era of confrontation between and among competing cartels as a result of the 'strategic' targeting of industries? President Clinton's announcement last week that the US administration would pump dollars 17bn over four years into an industry-government programme to create new technologies has raised this fear. Critics warn that the row between the European Community and the United States over Airbus subsidies could be just the start of a new age of commercial wars that will spill over into the next century.

In arguing for the programme, Mr Clinton told hi-tech workers in California's Silicon Valley that 'to keep the US on the cutting edge, my job as president is to adjust America so we can win in the 21st Century'. A key part of this adjustment is forging a new partnership between government and industry that will have the same positive impact in the US that the Ministry of Trade and Industry has had in Japan. This represents a sea change in US thinking, the beginnings of a hands-on industrial policy to enhance US competiveness in a dramatically altered world. The goal is not war machines but dominance in advanced civilian technologies.

The programme that Mr Clinton unveiled is very close to one that he proposed during his election campaign after consultation with executives in Silicon Valley. It includes:

Resuscitating the National Institute of Standards and Technology to promote joint ventures between business and government.

Government funding of research on a new national high-speed computer network called an information 'superhighway'.

Government partnership with industry to develop an environmentally 'clean' car.

More partnerships between private industry and national research laboratories, designed to lead to commercial adaptation of breakthroughs in technology.

A national network of manufacturing extension centres to help small and medium-size companies gain access to new technology.

Supporters of Clinton's programme argue that it is the right response to a dramatically altered world, in which markets are global, companies are borderless and workforces are viewed in competitive terms. The end of the Cold War also means that the US, in particular, must redirect defence-related research and development spending into commercial programmes. There is no disputing that the development and adoption of advanced technology is critical to economic growth. It is also true that - despite many disclaimers in the 1980s - the US has always had an industrial policy, centred on military applications since the Second World War.

Thus Mr Clinton's foray into civilian technology is just another chapter in a long-running story. This is the view of the new school of US trade theorists. Some are very close to Mr Clinton. They include Laura D'Andrea Tyson, who heads his Council of Economic Advisers. She and her former colleagues at the University of California in Berkeley have long pushed for a US technology policy. Michael Borrus, a prominent member of the Berkeley Roundtable, wrote that 'US industrial policy is obscured in deep shadow' when the reality is that the government has always been involved - and often to enormous economic benefit. According to Mr Borrus, the benefit has come not from following a policy of picking winners and losers, but from government sponsorship of a technology development 'path' or trajectory, which coincided with the requirements of the commercial market.

Thus, the US military played an important economic role when it pushed silicon chips toward high reliability, miniaturisation, high performance and low cost. Other successful 'spillovers' derived from the government's programmes in nuclear energy and space exploration. But even activists like Mr Borrus acknowledge that overly intrusive government dampens the vitality of innovation and markets. The trick is to find the right balance between government intervention and market forces.

Critics contend that the balance cannot be found, as illustrated by failed attempts in the 1970s, most notably in Europe. The dying carcasses of overmanned, underperforming steel, coal and shipbuilding industries that have been propped up by subsidies testify to this. In their view, government intervention inevitably preserves non-performing companies that market forces would have long since dispatched. Meanwhile, the public sector bears huge costs. Additionally, critics who attempt to navigate the minefield of acronyms that denote the EC's efforts at technological superiority - Esprit, Race, Flair, Jesse - pronounce them all a failure. They view the hands-off approach of the 1980s as the way to go.

The path of the 1990s, however, is likely to be somewhere in between. Most industrial governments, in one form or another, are flirting with programmes of government intervention to boost international competitiveness. Strategic targeting and economic security are new watchwords. Cartels are growing. Hardly anyone now believes that a policy of laissez- faire is adequate. The danger is that one or more of the big players will become too aggressive.