NMIRI

A few years ago, some experts on political economy were calling for so-called industrial planning to set the economic stage for the 21st century. The model put forth was Japan. Fortunately, the needed legislative action was not taken to operationalize such ideas. Today, the American economy is setting the standard for global competitiveness while the Japanese economy has endured several years of stagnation.

Former Secretary of Labor, Robert Reich, declared in 1992 that "industrial policy is back, much more respectable than it was before." Reich noted the growth of the "Japanese leviathan" and the "erosion of the U.S. industrial base."

Another highly influential and very articulate fan of industrial policy was economist and former Dean of the Business School at MIT, Lester Thurow. In his 1992 book, Head to Head, he said, "In the real world of the 21st century, defensive industrial policies are unavoidable."

Yet another proponent of industrial policy, Chalmers Johnson, remarked that, "The Cold War is over, and Japan won." He contended that America was in economic decline and would continue to slide unless the government adopted aspects of Japanese-style industrial policy. Johnson, President of the Japan Policy Research Institute in San Diego, was still so impressed with Japan in 1995 that he commented, "Japan's combination of a strong state, industrial policy, producer economics and managerial autonomy seems destined to lie at the center, rather than at the periphery, of what economists teach their student in the next century."

And so the litany went, and even so will it go again some day when the economy slows. While a free market economy is far from perfect, policy makers should take note of the medical credo of "Prinum Non Nocere", or to paraphrase, "First Do No Harm" or -2- more literally, do nothing noxious. It takes more than good intentions to generate good results.

The strength of the American economy of the 1990s is, in large part, a result of difficult but necessary decisions made by numerous firms in the 1980s. Managerial decisions necessary to achieve strategic competitive advantage are market-based and take the longer run into consideration. Rather than taking the expedient path, mission focused decisions are made which prioritize objectives and resources.

With the Asian financial turmoil that began in the summer of 1997, longer-term problems surfaced. While the international community has responded fairly well, the individual Southeast Asian countries will have to make substantive reforms if they are to realize previous growth patterns. Such fundamental reforms include more open economies, less governmental involvement in particular businesses and industries (i.e., less industrial planning), less cronyism, and significant overhauls of financial institutions. Additionally, accounting systems should be more open and consistent with the Generally Accepted Accounting Practices (GAPP), fewer restrictions placed on foreign ownership, and far less involvement by government in the lending process of financial intermediaries.

The economic model of Japan, emulated by varying degrees in the other Asian countries, has been one in which private enterprise and public policy have been joined to maximize exports. Various forms of trade protectionism and economic vassalage where banks were beholding to industrial groups called keiretsu were utilized. (These are similar to chaebols in South Korea.) In essence, the Japanese people were expected to -3- sacrifice through low returns on savings and high living costs, to build Japan, Inc. and keep it going. Thus, although Japan achieved phenomenal growth over time, the standard of living of Japanese consumers did not increase at a proportional rate.

It is important that the wrong lessons not be learned from the Asian financial turmoil. The problems were not created because the economies wee too open to market forces; rather, the problem is that they were not open enough.

Lawrence W. Lovik is the Holder of the Chair of Free Enterprise, Sorrell College of Business, Troy State University, Troy, AL