Breaking New Ground or Breaking the Rules: Strategic Reorientation in U.S. Industrial Policy

152 Breaking New Ground or Breaking the Rules Glenn R. Fong Strategic Reorientation in U.S. Industrial Policy Whether it has been in the process of building a new nation or the new economy, the United States has had to grapple with enduring industrial policy issues. At the time of the Founding Fathers, the question was how the then-less developed new nation should meet the challenge of Britain’s manufacturing prowess, and whether it should adopt Alexander Hamilton’s infant industry proposals for industrial subsidies and trade protection. Jumping ahead more than two centuries, the issues have included whether to dismantle the Department of Commerce and eliminate corporate welfare. Most recently the debate has reached into cyberspace, including whether to exempt internet commerce from taxes and legislate protections for online privacy. The common thread across these different eras and issues is the role played by industrial policies—broadly deªned as government measures that affect business operations, whether positive or negative, intended or unintended. The powerful association of the U.S. economy with the laissez-faire paradigm leads many to question whether industrial policies exist at all in the United States. For instance, former White House Chief of Staff John Sununu was quoted as saying, “We don’t do industrial policy.”1 Empirical evidence demonstrates otherwise. To cite one striking indicator, the Congressional Budget Ofªce estimates that federal support for business in the form of ªnancial subsidies , credit programs, loan guarantees, and tax preferences amounts to more Glenn R. Fong is Associate Professor of International Studies at Thunderbird, the American Graduate School of International Management. Research for this article was supported by the Harvard University Graduate School of Business Administration Division of Research, the University of Illinois Institute of Government and Public Affairs, and the Department of International Studies and School-Wide Research Committee at Thunderbird. I am grateful to many government and industry ofªcials for their cooperation in the course of this research. I am also grateful to Vicki Golich, Eric Harwitt, Tom Lawton, Judith Reppy, Herman Schwartz, and Richard Van Atta—as well as journal reviewers—for helpful comments on earlier versions of this article. Any errors or omissions are solely those of the author. 1. Quoted in Otis L. Graham, Jr., Losing Time: The Industrial Policy Debate (Cambridge, Mass.: Harvard University Press, 1992), pp. 231–232. International Security, Vol. 25, No. 2 (Fall 2000), pp. 152–186© 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. than $100 billion annually.2 For better or worse, the United States does do industrial policy. This article examines nine case studies in U.S. industrial policy: (1) Sketchpad , 1961–63, pioneered interactive computer graphics; (2) ARPANET, 1967– 75, created the ªrst internet; (3) the Very High Speed Integrated Circuit Program (VHSIC), 1980–88, advanced digital signal processing technology; (4) the Strategic Computing Program (SCP), 1983–92, promoted massively parallel computing and artiªcial intelligence; (5) Sematech, 1987–present, carries out semiconductor manufacturing research and development (R&D); (6) the Advanced Lithography Program (ALP), 1988–present, pushes the technology for shrinking more transistors on a chip; (7) the Advanced Technology Program (ATP), 1990–present, promotes the commercialization of new technologies; (8) the High Performance Computing and Communications Initiative (HPCC), 1992–present, funds supercomputer research and high-speed ªber optic networks ; and (9) the National Flat Panel Display Initiative (NFPDI), 1994–98, supported ºat panel electronic display technologies. These cases are formally technology programs that may not ordinarily be examined from an industrial policy perspective.3 Yet technology projects can fundamentally bolster industrial competitiveness by contributing to the commercial technology base and the manufacturing, industrial base of an economy. Technology programs as instrumentalities of industrial policy, more than an analytical construct, are widely implemented in public policy. Foreign government-sponsored technology programs such as Japan’s Very Large Scale Integration Project of the 1970s and its Fifth Generation Computer Project of the 1980s have long been centerpieces of government strategies for national economic restructuring.4 GATT (General Agreement on Tariffs and Trade) Uruguay Round attention to the potential market biases introduced by government R&D subsidies further substantiates the industrial policy as well as trade policy...