Page 168 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
market failure. In practice, most American economists, public offi-
cials, and business leaders are strongly opposed to industrial policy.
Their principal objection is that governments are incapable of picking
winners; many argue that politicians will support particular industries
for political (“pork barrel”) reasons rather than for sound economic
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reasons. American economists argue that the structure and distribu-
tion of industries in the United States should be left entirely to the
market. This belief is supported by the assumption that all industries
are created equal and that there are no strategic sectors. Nevertheless,
despite the arguments against having an industrial policy in America,
such policies have developed in the areas of agriculture, national secu-
rity, and research and development.

Corporate Governance and Private Business Practices
The American system of corporate governance and industrial struc-
ture parallels its political system. The governance and organization of
American business are characterized by fragmentation and an overall
lack of policy coordination. Indeed, the strong American antitrust
and competition policies are intended to prevent concentration of cor-
porate power and direction. American business is much more con-
strained in its ability to share business information, to pool techno-
logical and other resources, and to developjoint strategies than are
its rivals. Many observers have charged that such restrictions disad-
vantage American firms in global competition.
Control of American business is also much more dispersed than in
Japan and Germany. Although American firms are much more re-
sponsive to shareholder concerns then are German and Japanese
firms, the largest shareholders in many of America’s large corpora-
tions may own just 1 or 2 percent of the stock. In Japan, ownership
of 70 percent or more of the stock frequently resides in a cooperative
business grouping called a keiretsu. Also, industry and finance are
more completely separated from one another in the United States, and
in some instances this has meant higher capital costs than those en-
joyed by foreign rivals. This also contributes to frequent conflicts be-
tween industry and finance, and these conflicts have been detrimental
to national policy-making. At the national level, the National Associ-
ation of Manufacturers, Chamber of Commerce, and other business
organizations have no role commensurate with that of either the kei-

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A valuable and representative critique of industrial policy is Gene M. Grossman,
“Promoting New Industrial Activities: A Survey of Recent Arguments and Evidence”
(Princeton: Woodrow Wilson School, 1989).
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