Sidney Harman on National Industrial Policy

When the Japanese government decided in 1971 that having only 6 percent of the world’s computer business was inadequate and unsatisfactory, the Ministry of International Trade and Industries “urged” the six principal manufacturers to work out a system of cooperation on research and development for both hardware and software. This led to create three cartels and ultimately, in 1975, when a second consolidation occurred, they reduced the three to two.

In 1976, the two combines were provided with funds to finance joint research and development of very large-scale integrated circuits as the basis for a new generation of computers to compete with IBM’s anticipated new series.

Meanwhile in the United States, we have just celebrated the tenth anniversary of the continuing case of the U.S. v. IBM, “the Methuselah of antitrust trials”—a case effectively designed to dismember the nation’s principal computer manufacturer, which funds an overwhelming percentage of its own research.

In pointing up the contrast, I mean neither to defend IBM nor to argue that the Japanese address is best. I wish to emphasize that Japan proceeds from a coherent industrial policy and that we do not. One may argue that antitrust is our policy, but, if so, it is too narrow, too provincial. It has no jurisdiction outside the U.S., and the action is increasingly outside the U.S.


All this is rather strange and anomalous. The United States emerged from World War II as the world’s most powerful military and industrial nation. We enjoyed many advantages: a massive domestic market as well as technological and financial strength so overwhelming as to foreclose any serious competition. As a result, until recently there seemed little need for an industrial strategy in the U.S.

By contrast, “industrial policy,” as a set of practices or programs by which government is more intimately connected to industry than as the mere provider of the broad economic and legal settings in which business operates, has spread throughout Europe since World War II. Initiated by the French and Italian determination to develop industrial parity with their more advanced northern neighbors, industrial policy has since become a definable part of national policy throughout the Common Market.

In Japan, industrial policy has become so clear and coherent that the integration of business, governmental and quasi-governmental organizations and planning has become known around the world as “Japan, Inc.”

Both the Europeans and the Japanese long ago determined that reliance on the workings of impersonal, so-called free markets was not adequate to produce economic growth and economic security at a socially acceptable pace and in socially acceptable ways. These nations identify high-growth industries and support the applicable technology with education, research and related social policy. Capital support is provided by intervention in the credit markets. Similar interventions help declining industries over competitive shocks. Firms in the same industry are often encouraged to merge (as in the Japanese computer example) in order to achieve economies of scale in marketing, research and development, and production. Occasionally, firms in related industries are pressed to merge to achieve strength through increased size and diversification.

Selected industries are further supported by the importing of foreign technology and know-how and through administrative procedures and other nontariff barriers, subsidies and tax measures.

While all this has been going on in Japan and Europe, we have done virtually nothing to develop and articulate a coherent, explicable and consistent industrial policy of our own. We go to the Tokyo round of multilateral trade negotiations with no overarching policy to guide our negotiators. We have lost our once vast technological advantage and with it our TV and high-fidelity industries. Our role in oil-refining, electrical equipment, light engineering, clothing and automobiles has eroded. National consortiums threaten our commercial-aircraft supremacy.


We produce ad hoc programs in response to heavy political pressure in steel, shoes and men’s clothing, but each is addressed as though no other exists or ever will. Few regard these programs as anything but responses to squeaking wheels.

Everyone seems to argue for free markets and free enterprise for everyone else. Industries and firms complain that they are injured by unfair foreign competition, but we can’t really tell whether they have been unfairly injured or whether their own poor management has made them vulnerable to that competition.

In the absence of a U.S. industrial policy, strong protectionist sentiment is building. It is a destructive impulse. Rather than propping up moribund industries, we would be better served by government helping them to revitalize themselves structurally so that they can compete. In the end, it is not government involvement that business fears; it is government incompetence.

As Congress prepares to examine our antitrust legislation, I do not argue for its abandonment. Nor am I arguing for national policy that blindly builds big and bigger business. I do urge thorough reconsideration to determine whether our laws serve the national interest, given the world’s new realities, for the world has changed dramatically and we have not changed in corresponding or appropriate style.

A national industrial policy should and could strengthen the best in us; it can mobilize our innovative genius and ultimately free us from playing without a team strategy in a crucial game in which the other players know exactly what they want to do—and how they plan to do it.

Sidney Harman, industrialist, educator and former Under Secretary of Commerce, is not special adviser to the Aspen Institute for Humanistic Studies and a management consultant.