Charles L. Schultze, who was chairman of the Council of Economic Advisers in the Carter administration, yesterday issued a sharp attack on proposals for a new national industrial policy that have been springing up throughout the Democratic Party in advance of the 1984 presidential election.
"The core of industrial policy is saying government can determine better than the market can where investment ought to go, to what industries," Schultze told a press conference. "As a rule, that's just a dangerous approach."
A top-level advisory committee of leaders from business, labor and the private sector--proposed by most industrial policy advocates--would almost certainly fail to achieve the goals of steering the manufacturing sector toward greater investment in promising new technologies and easing the pain in declining industries, Schultze said.
"Whenever you get such groups together to do things that might really be useful, like moderating wages and prices, they combine to make sure you don't get either. And the one thing they usually can agree on is more protection" from foreign imports, Schultze said.
In a paper published by the Brookings Institution, where Schultze is now a senior fellow, he challenged the basic premises of the industrial policy architects:
"America is not de-industrializing; Japan does not owe its industrial success to its industrial policy. Government is not able to devise a 'winning' industrial structure. Finally, it is not possible in the American political system to pick and choose among individual firms and regions in the substantive, efficiency-driven way envisaged by advocates of industrial policy."
He said he has "the impression" that the interest in a full-fledged industrial policy "may have peaked. . . . I cross my fingers it's fading away."
Schultze's criticism and similar challenges by other prominent Democratic economists may mark a turning point in the development of the issue away from the more ambitious proposals by academic advocates toward a more limited approach that does not involve heavy federal spending or a powerful central planning effort, some Democratic sources indicate.
In another month, leading Democrats in the House and Senate hope to unveil industrial policy proposals for the 1984 campaign, and a key issue is how powerful a new industrial planning effort should be.
In the Brookings article, Schultze said the woes of the steel and auto industries "are not typical of American industry generally."
He cited a study by the National Commission for Employment Policy that reported that "dislocated workers"--jobless people whose last jobs were in declining industries and who had been out of work for more than eight weeks--amounted to only 0.4 percent of the labor force in March 1980.
Schultze says that the heavy losses in basic manufacturing industries since then have largely to do with the severity of the recession and an excessively high value of the dollar compared with the currencies of Japan and major European industrial countries, which makes U.S. goods relatively harder to sell abroad while giving foreign goods a price advantage in American markets.
Rather than an industrial policy, the government should work on producing a more effective overall economic policy, he contends. His remedy: "Tighter budgets and looser money."