This fall, the present and future health of American business will be turned into a presidential campaign issue.
In early November, Democratic members of a House banking subcommittee will propose a package of controversial strategies to prevent what they see as a continuing erosion of the nation's industrial strength. The subcommittee chairman, Rep. John J. LaFalce (D-N.Y.) hopes it will be the blueprint for congressional action next year.
An industrial policy task force of Senate Democrats, headed by Sen. Edward M. Kennedy (D-Mass.), will bring out by early November a broad outline of new industrial policies, intended to become a key plank of the party's economic platform in the 1984 campaign.
If the plans bear fruit, the result would be the biggest change in the relationship between business and government since the end of the New Deal in the 1930s and the wartime industrial controls that followed.
But the Democrats must overcome the charge that they are brewing the "voodoo economics" of the 1984 campaign. A solid core of economic professionals, including presidential advisers in Democratic and Republican administrations, are challenging the basic premises of the industrial policy movement.
And there is a debate within Democratic ranks over whether Congress can afford to spend significant amounts of money on new industrial policies with huge federal budget deficits hanging over its head.
"Any new program that involves money is going to be affected by our budgetary constraints," LaFalce said. What the federal government should spend, and how it should spend it, are the most important issues remaining to be settled as LaFalce and the Democrats on his House Banking subcommittee on economic stabilization push toward the end of a summer-long series of hearings on industrial strategies.
LaFalce, whose district in western New York connects Rochester's high-tech Eastman Kodak Co. with Buffalo's battered steel and chemical industries, says he expects the subcommittee to produce "a series of bills--a menu from which we can choose" in 1984.
This menu is likely to include:
* An Economic Cooperation Council composed of leaders from business, labor and the private sector, which would try to influence American companies to change their ways to become more competitive against foreign rivals. The council might insist on specific investments by troubled companies, coupled with concessions on wages by employes, for instance.
* A federal financing institution that could make loans or guarantee private loans to companies that are working with the council, including those in depressed basic industries like steel, that need to modernize plants, and new ventures that need long-term "patient" loans, perhaps at subsidized rates, while developing experimental technologies.
* A new civilian federal research agency, patterned after the Defense Advanced Research Projects Agency, to concentrate research on technologies on which the next generation of computers, electronics, building materials, drugs and other high-priority products will depend.
* A connection between trade policy and industrial planning, to require that companies receiving protection against imports use that relief to modernize and improve their productivity. This feature is attracting growing support among some House and Senate Democrats who have cooled off on organized labor's appeal for tough new import restrictions and are looking for some other response, congressional sources say.
* Plans to cushion the shock of plant closings on workers and communities, perhaps with financial incentives for companies that give advance notice and help with training and relocation of displaced workers.
* Renewal of the president's standby authority to impose credit controls that would give some sectors of the economy a preference in borrowing, or restrict credit sought for "lower priority" uses.
LaFalce contends that it is not necessary to invest substantial new amounts of federal spending or create large new tax expenditures for an industrial policy if Congress is able to redirect current federal credit programs. "I don't know that we need additional money as much as we do a restructuring of the money we spend," he said.
The outlook in the House is complicated by the competition LaFalce faces for leadership on this issue with other Democrats, including Reps. Richard A. Gephardt (D-Mo.), Timothy E. Wirth (D-Colo.), Richard Ottinger (D-N.Y.), and Doug Walgren (D-Pa.,), all of whom have their own initiatives. Nor is it clear what role the House leadership will play on the issue.
Meanwhile, a significant difference has emerged between the House and Senate efforts to design industrial strategies, according to sources on both sides. In the House, the goal is specific legislation.
The work of Kennedy, Sen. Robert Byrd (D-W.Va.) and others on the Senate task force is aimed at a more general statement of national needs and possible solutions. The senators are designing what they hope will be a political document for the 1984 campaign, specific enough to explain what industrial policy means, but general enough for any of the Democratic candidates to stand on if they choose.
"We're looking for a melody line, not an orchestrated symphony for 150 pieces," said one Senate aide.
As some Democrats see it, they face the danger that "industrial policy" may be discredited as a slogan before the campaign is really under way and the candidates have had a chance to say exactly what policies they are calling for. The basic rationales for industrial policies cited by the Democrats are being challenged by academics from the left and right, as well as Republican politicians, who see it as a Democratic grab for power.
Industrial policy proposals "reflect half-truths and massively distorted interpretations of what is actually happening in the economy," contended Richard B. McKenzie, professor of economics at Clemson University, who has prepared a counterattack on behalf of the conservative Heritage Foundation.
America has not lost its international industrial leadership, is not being eclipsed technologically by the Japanese, and thus should not be considering copying the close-knit relationships among business, labor and government that are found in Europe and Japan, McKenzie said. And he is joined in this point by some prominent Democratic economists, including Charles W. Schultze, chairman of the Council of Economic Advisers under former president Carter, and George Eads, who was a council member with Schultze.
"Everybody assumes the success of the Japanese example and assumes it could be duplicated here," says Eads, now at the University of Maryland. "Is it really consistent with our political process? I have some serious questions about that."
In particular, Eads questions whether any presidential-level economic council could come to grips with simultaneous problems in a host of old and emerging industries. More than likely, such a board would become captive of troubled industries like steel that come to Washington for handouts, he said.
"The title of industrial policy is no longer meaningful," except as a Democratic slogan to oppose Republican supply-side economics, Barry P. Bosworth, director of the Council on Wage and Price Stability in the Carter administration, said recently. "It will last one more election campaign," he predicted.
Many economists who oppose industrial policy proposals see them as a disguised strategy for raising American trade barriers higher against cheap imports in order to protect threatened domestic industries. That route risks serious inflationary consequences, they say.
But LaFalce and congressional aides working on industrial policy proposals say the critics may misunderstand where the proposals are headed. According to LaFalce, the goal isn't more protection for U.S. industries, but strategies to make them self-sufficient and competitive in world trade. Senate aides say they are not proposing, for instance, to "fix" the American steel industry and restore it to pre-recession levels, but to seek a consensus within management and labor over how the industries can handle competitive pressures in the future.
"We're not talking about a 'Ministry of Planning,' " said one congressional aide. The goal isn't managing the economy. "If that were the goal, then the skeptics would be right," the aide said.
But industrial policy strategists believe, as LaFalce said recently, "that the recent recession has helped accelerate a basic restructuring of American industry--shutting down thousands of plants and eliminating literally millions of traditional jobs which will never be recreated when the recession ends."
The government can no longer assume "that the market alone will remedy the problems which the market itself has created," LaFalce said. The position of the Democrats in 1984 will be that the damage done by the restructuring of industry--the unemployment and closed plants--are a national burden that should not be borne by individuals and regions randomly, a Senate staffer said.