M CLINTON ADMIMSTRATION AND BIG BUSINESS*

WALTER ADAMS

Trinity University AND

JAMES W. BROCK Miami University

After only one year in office, it would be p r ema tu re to try to evaluate the Clinton Adminis t ra t ion 's policy in the a rea of competi t ion and monopoly. Clearly, its NAFTA initiative was a s tep away from protectionism. On the other hand, its rhetorical p o s t u r i n g a b o u t a tough t rade policy, especia l ly v is -a-v is J a p a n , s m a c k s of *managed trade" and the pol i t ic izat ion of global markets .

The fundamenta l quest ion that remains to be answered is whe the r , in the next th ree years , the Admin i s t r a t ion will embrace some form of "industrial policy," based on a coalition be tween Big Bus iness , Big Labor, and Big Government . Such a policy, we believe, would suffer from at least four fundamen- tal shortcomings.

1. The first d r a w b a c k is the inevi table t e n d e n c y toward the coalescence of power among organized groups that are pre- d isposed to protect their private interests rather than promot- ing the publ ic interest . Coalition capi tal ism naively a s s u m e s tha t powerful private groups will act in ways, and toward ends, t ha t p romote be t t e r economic per formance . Bu t s u c h power blocs may instead recognize their mutua l interest in preserving the s t a t u s quo, opting instead to aggrandize their own power and influence. Such col laborat ion may immunize t hem from competit ion, global and domestic alike. It may enable them to

*Revised v e r s i o n of a t a l k de l ive red by W a l t e r A d a m s a t a " P r e s i d e n t i a l R o u n d t a b l e on P r e s i d e n t C l i n t o n ' s F i r s t Year" a t the a n n u a l m e e t i n g s of t h e Assoc ia t ion for Social Economics on J a n u a r y 3, 1994 in Bos ton .

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inflate prices and wages, while slumbering in a quiet life of inef- ficiency and technological stagnation. Government part icipa- tion may serve to legitimize and cement the counterproduct ive s chemes collaboratively contrived by these coalescing power blocs.

This conce rn is not idle theore t ica l con jec tu re , bu t the product of past experience. For example, the National Recovery Admin i s t r a t i on (NRA), es tab l i shed dur ing the Grea t Depression, was at the outset intended to achieve the kind of comprehens ive m a n a g e m e n t - l a b o r - g o v e r n m e n t coopera t ion advocated by today's coalition capitalists. It featured manage- ment - labor planning, replete with "codes of fair competit ion," and with overall supervision and enforcement by government . But the resu l t s were scarcely what was hoped for. The NRA enab led b u s i n e s s groups to cartelize i ndus t r i e s and labor groups to raise wages while government rubber - s tamped their self-serving decisions. As an experiment in economic statecraft , the NRA was an unmitigated failure.

The nuclear electric power debacle provides a more recent i l lustrat ion of the problem. Here is a field where gove rnmen t and indust ry cooperated for decades to promote what both con- s idered to be a promis ing "sunrise" technology. Tens of bil- l ions of dol lars were expended over four decades on s ta te subsidies for research and production of nuclear power plants, equipment , and fuels. Nuclear power provided cost -plus rev- e n u e s for the monopoly utility f i rms tha t commiss ioned the plants. It provided a seemingly endless gravy train for the labor unions and construct ion trades which built the plants initially, d i smant led them when they cons tant ly required redesigning, and r e - cons t ruc t ed t h e m over and over again, drawing the i r pay all the while. But the consequences for the coun t ry have been less than inspiring: astronomical cost overruns; billions of dollars of abandoned nuc lear power plants; multimill ion-dol- lar ra te hikes; decept ion of the public regard ing r i sks and hea l th th rea t s ; and a lethal, s teadi ly m o u n t i n g ha rve s t of highly radioactive was tes for which no acceptable m e t h o d of disposal has yet been devised.

2. Coalition capitalism also suffers from a misplaced faith in mega-mergers, corporate giantism, and the consolidation of Amer ican indus t ry as prerequis i tes for world-class economic performance.

It is not fa tuous to suggest tha t the problems of the American automobile industry are somehow due to the fact that General Motors is too small, when the firm ranks as the world's

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The Clinton Administration and Big Business

very largest industr ial concern, when it is bigger t han its two largest J a p a n e s e rivals combined, and when its a n n u a l sa les exceed the gross nat ional p roduc t s of all b u t n ine teen of the world 's na t ions? Is it not more realistic to conc lude (with B u s i n e s s Week) tha t the *basic problem nagging this biggest, mos t diverse, and most integrated of car companies is [that] it is j u s t too big to compete in today's fast-changing car market"?

Similarly, can the sho r t comings of the Amer ican s teel indust ry be at tr ibuted to the fact that America's steel giants are too small, or tha t they have been prevented from merging and consolidating, when merger- induced giant ism in the indus t ry has proceeded virtually unmoles ted from the formation of the United Sta tes Steel Corporation in 1901, to the consol idat ion (and s u b s e q u e n t financial collapse) of LTV and Republic Steel in the 1980s? Today, it is the sleek, small "minimills," not Big Steel, which are revolutionizing steel product ion . It is t he se technologically sophist icated minimills which are not only prof- i table, bu t are also captur ing one marke t af ter ano the r f rom such allegedly "invulnerable" foreign producers as " Japan Inc." and South Korea.

Nor ha s e lephant ine size been an a s se t in the c o m p u t e r industry. In spite of its mass ive size, IBM has s taggered from one cris is to ano the r dur ing the la t ter 1980s and 1990s , announcing layoffs of some 140,000 employees, and suffering a catas t rophic decline of $75 billion in the stock marke t value of its securities. "If bigger were bet ter in research and develop- ment," says the London Economist , "IBM would be the best . It spends $6 billion a year on R&D. Its researchers have won two Nobel pr izes in the 1980s, and th i ckened IBM's portfol io of pa t en t s to over 33,000. Yet, despite all that , IBM's new tech- nologies have time and again been bea ten to market by those of smaller, nimbler firms." Ironically, IBM now seems to be doing wha t the J u s t i c e Depar tmen t originally sough t to achieve in its 1969 monopolization suit against the firm - - dismantling its bloated bureaucra t ic s tructure.

Abroad, two decades of merger-lnduced corporate giantism failed to provide salvat ion for West Eu ropean na t ions (espe- cially Bri ta in and France), which became imbued in the late 1950s with the bigness complex. The putative "national cham- pions" which were merged to dominate their national indust r ies ( including Brit ish Leyland in au tomobi les , Bri t ish Steel, ICL and Bull in computers) became the lame ducks of the 1970s and 1980s: they lost sales , m a r k e t share , and employment . After suffering billions of dollars in losses, they are now depen-

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dent on financial life suppor t from their home governments in order to forestall outright collapse.

3. Con t ra ry to the claims of indus t r ia l policy advoca tes , coal i t ion capi ta l i sm was not the source of J a p a n ' s p o s t - w a r economic "miracle." Rather than embracing tight-knit govern- ment - indus t ry collaboration or excessive industrial concentra- tion, J a p a n may have benefitted from an intensely competitive industr ial mil ieu--a competitive d o m e s t i c market s t ruc ture put into place by Amer ican occupa t iona l au tho r i t i e s du r ing the years immediately following the end of World War II.

Under the leadersh ip of General Douglas MacArthur , a mass ive deconcen t ra t ion program was implemented in post - war J a p a n . The two larges t J a p a n e s e holding c o m p a n i e s , Mitsui and Mitsubishi , were divided into some two h u n d r e d s u c c e s s o r f irms and an accompany ing d ives t i tu re p rog ram forced the sale of poss ib ly half the 1945 paid- in va lue of all J a p a n e s e corporate securities.

Through the 1950s and 1960s, there was a sha rp diver- gence of concentrat ion t rends in J a p a n and the United Sta tes

drifting downward in Japan , while rising in the U.S. (despite the fact t ha t the U.S. economy is 40 pe rcen t larger t h a n Japan 's) . At the same time, J apanese industrial ists s tubborn ly r e s i s t e d govemment efforts to promote oligopoloid giant ism by limiting major fields to one or a few "national champions ." In automobiles, for example, Mr. Honda and other en t repreneurs ignored govemment efforts to restrict the field to j u s t two firms. In machine tools, the president of one successful firm recounts tha t J a p a n ' s Ministry of In te rna t iona l Trade and I n d u s t r y (MITI) "told u s to form into larger companies . We told t h e m ' the hell with tha t ' and refused." More general ly , as George Gilder points out, "in every one of the indust r ies in which the J a p a n e s e did prevail, they generated more companies and m o r e in tense domes t ic compet i t ion than the United S t a t e s ... The J a p a n e s e created three times as many shipyards, four t imes as many steel firms, five times as many motorcycle m a n u f a c t u r - ers, four t imes as many automobile firms, three t imes as m a n y makers of consumer electronics, and six t imes as many robot- ics companies as the United States." Gilder observes that it was establ ished American oligopolies in consumer electronics, such as RCA, Zenith, and General Electric, tha t gave up the color television to the more entrepreneuria l J apanese . It was verti- cally integrated American automobile firms that s u c c u m b e d to the more fragmented and entrepreneurial J apanese automobi le industry.

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Perhaps, then, the J apanese succeeded the old-fashioned w a y m n o t by elaborate collaborationist s chemes or via mega- mergers, but by building better products, of higher quality, in mode rn state-of- the-art facilities, and by competing intensely at home to produce them more efficiently. Perhaps the mos t significant policy lesson of the J a p a n e s e "miracle" is tha t the best way to promote competi t iveness abroad is to ma in t a in a competitive industry s t ructure at home.

4. In the final analysis, the Achilles heel of coalition capi- tal ism, " industr ial policy", a n d other m o d e m - d a y re inca rna - tions of the economic syndicalist schemes of the 1930s, is the specter of interest group politics. As Henry C. Simons incisively observed, "Bargaining organizations will contest over the divi- sion of the swag, but we commonly overlook the fact tha t they have large common in te res t s as agains t the c o m m u n i t y and tha t every increase of monopoly power on one side serves to s t r eng then and implement it on the other." To facilitate such coalescing power, Simons warned, would be to "drift rapidly into political organizat ion along funct ional , occupa t iona l l ines-- into a miscellany of specialized collectivisms," incapable of acting in a manne r compatible with the public interest.

One can only hope tha t the Clinton Admin i s t r a t ion will take to hear t Mr. Dooley's warning: "Whenever I see a banke r and an a lderman walking down the street hand in hand, I know tha t the Recording Angel will have to order ano the r bott le of ink."

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