Managing the Decline of the Corporate Sector

MANAGING THE DECLINE OF THE CORPORATE SECTOR ZoltanJ. Acs Two basic approaches have emergedfrom public discussion thus far. One approach is the targeted approach by which government offers incentives and subsidies to certain chosen industries and locations. . . . But political reality suggests that the sunrise industries don't want or need the bureaucratic hand ofgovernment to help them along and government does not have any particular wisdom in selectingfuture winners. . . . In any contest for governmentfunds, the sunset industries, which are usually mature industries with high employment in old established locations, are sure to win. —Reginald H. Jones, 1981 D'uring the postwar period, the industrialized nations were effectively managed along Keynesian lines. The domestic economy was managed with monetary and fiscal policies, and the international system by the International Monetary Fund (imf), which provided adequate liquidity to the system. Trade was regulated by the General Agreement of Trade and Tariffs (gatt) and the Organization for Economic Development (oecd). The decline of the corporate sector of the economy in all advanced industrialized countries has created an urgent need for the management of this decline. In addition to fiscal policy, an industrial policy has been proposed in order to manage this decline in the United States. The essence of the policy is an industrial financing bank modeled on the Reconstruction Finance Corporation, economic planning to direct investment, and protection for declining industries in order to save jobs. Industrial policy, however, cannot be a program for the rebuilding of the American economy: rather it must be a program for the management of the decline of the corporate sector. But most advocates of industrial policy do not realize that the corporate sector cannot be restored to its former glory, and that most of the growth is coming from the competitive Zoltan J. Acs is assistant professor of economics and finance at Manhattan College School of Business. Part of the research for this paper was done while the author was a research associate at the Institute on Western Europe, School of International Affairs, Columbia University. This article is taken from his forthcoming book, The Changing Structure ofthe American Economy: Lessons from the Steel Industry, with a foreword by Charles P. Kindleberger, to be published by Praeger Publishers in 1984. 149 150 SAIS REVIEW Table 1. Manufacturing Employment as a Percentage of Total Employment (Figures in Thousands) Year196519801995* Manufac. employment18,00020,00022,700 Total employment60,675100,000125,000 Manufac/total302017 Source: Economic Report of the President, 1982, p. 275, Table B-37 * The Labor Department assumes a growth of 4 percent a year in labor productivity . If labor productivity grew by 5 percent, manufacturing employment as a percentage of total employment would drop to 15 percent. sector of the economy.1 In short, industrial policy as it is now understood is a prescription for disaster. Between 1965 and 1980 manufacturing employment declined by 33 percent and thousands of plants were closed in the United States (see Table 1). These plant closings have resulted in rising unemployment and hardship in local communities and are part of a process that has come to be known as "deindustrialization." Although very few data are available on this subject, one study on deindustrialization has estimated that between 32 and 38 million manufacturing jobs were lost in the United States owing to massive disinvestment.2 A chief cause of alarm is that this trend could cripple America's manufacturing base and thus prevent the United States from competing successfully in the international economy. This would result in Japan and West Germany becoming the world leaders in manufacturing. If one compares the United States with the other major industrialized countries (Japan, West Germany, and France), the percentage of the labor force employed in manufacturing is higher in those countries. While manufacturing employment as a percentage of total employment declined 33 percent in the United States, in France and West Germany it declined by only 5 percent and has stabilized in Japan. Some advocates of this deindustrialization thesis have argued that America has deindustrialized too rapidly and that this process should be slowed or even halted. The labor unions and Marxist intellectuals are the strongest supporters of this position. Although the percentage of the labor...