Restructuring Interdependent Economies. Proceedings of the Albena, Bulgaria Task Force Meeting

NOT FOR QUOTATIOX WITHOUT PERMISSIOK OF THE AUTHOR

PROCEEDINGS OF THE ALBENk BULGaEIA TASK FORCE MEETING

(8-10 MAY 1 9 8 4 )

Tibor Vasko E d i t o r

April 1985 CP-85-22

Collaborative P a p e r s r e p o r t work which h a s not been performed solely at t h e I n t e r n a t i o n a l I n s t i t u t e f o r Applied Systems Anaiysis and which h a s r e c e i v e d only limited review. Views o r opinions e x p r e s s e d h e r e i n d o n o t n e c e s s a r i l y r e p r e s e n t t h o s e of t h e Insti- t u t e , i t s National Member Organizations, or o t h e r organizations s u p p o r t i n g t h e work.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS AXALYSIS 2361 L a x e n b u r g , Austria

When preparing f o r t h e meeting and this volume i was helped and sup- ported by P r o f e s s o r Boris Z. Milner, Deputy Director, All-Union Institute of Systems Research, Moscow, Dr. Marian Petrov, Deputy Chairman, S t a t e Com- mittee f o r Science and Technical P r o g r e s s , Sofia, Professor Ognyan Panov, Chairman, Bulgarian NMO, M r . Branimir Hand jiev, Bulgarian NMO S e c r e t a r y , and t h e i r staff.

From IIASA thanks are due t o Dr. A. Wienbicki, Dr. A. Smyshlyaev, and o u r supporting staff f o r help and encouragement.

CONTENTS

Organizational and Policy Issues of Interdependence (An Introduction) 1 R b o r Vasko

On Policy Makers and Industry Strategies 7 Robert H Ballance

Macro-Economic Measures t o Implement S t r u c t u r a l Change 23 J. J. van Dui j n

Industrial Restructuring: An International Problem ³⁷ FX. Ian Hamilton

S t r u c t u r a l Changes in t h e World Economy 75 Bdla Ktidtir

Market Integration and Industrial Autonomy, The Case of t h e European Community 81

Jacques Pelkmans

Environmental Economic Analysis in Interacting Regions ¹¹⁹ Wim Hqfkamp a n d Peter Nijkamp

Structural Changes in World Economy: Regional Issues and Consequences ¹⁴⁵ Johann Millendorjer a n d Mushtag h s s a i n

Interdependences Between t h e Economies of t h e Nordic Countries 173 Osmo f i r s s e l l

Growth and Technology: Interdependence Between Taiwan and Japan ¹⁸¹ Mitsuo S a i t o a n d R y o i c h i N i s h i m i y a

Economic Problems of Small Developed Countries ²¹⁵ P. d e W o w

Technology Transfer from Multinational E n t e r p r i s e s to Small Developing Countries:

The Case of G r e e c e 237 E. Dokopoulou

S t r u c t u r a l Change Induced by Foreign Trade. What are the Advantages for t h e Country? ²⁵¹

WiLhelm Krelle

List of Participants ²⁹⁷

ORGANIZATIONAL AND POLICY ISSUES _OF INTERDEPENDENCE (AN INTRODUCTION)

It is a generally accepted fact t h a t t h e world h a s become more and more internationalized. This is evident from t h e e v e r increasing interaction of nations and nation states. These interactions are mainly in t h e political, economic, and cultural domains. Recently, however, concern f o r t h e natural environment has become a n important issue f o r closer interaction.

The economic problems of t h e last decade, but particularly t h e attempts made to remedy them on a national scale, exposed t h e international dimension of t h e r e c e n t economic decline and t h e interdependence of national economies (Kdddr in this volume). It was not always so, a t least f o r t h e "big powers", as H. Kissinger (1984), pointed out for t h e USA:

Economically, as late as 1950 w e produced 52% of all t h e goods and ser- vices of t h e e n t i r e world. In those circumstances foreign policy w a s analogous to domestic policy; it w a s a challenge of identifying problems and then overwhelming them with resources.

No country c a n ciaim t h a t at present.

Interdependence became a n important feature of many economies in t h e e a r l y 1980s (and is expected to be even more s o in t h e 1990s). Interdependence h a s many facets which are not easily identified, n o r is i t possibie to understand t h e i r impact and dynamics. Y e t i t will be a n increasingly important component of national economic policy in general and of industrial policy in p a r t i c u l a r (Ballance in this volume).

Numerous countries are finding it necessary to make interdependence t h e core of t h e i r economic and industrial policies, as a considerable part (often more than 50 percent) of t h e i r GNPs (GNI) is subject to foreign traae (see d e Wolff in this volume). This is t h e case of open economies. Among these, as a specific case, are t h e small economies. These economies are engaged in complex economic, tech- nological, and financial relations with o t h e r aountries, t h e pattern of which is dif- ficult to control nationally (Saito, Nashimiya in t h i s volume). And yet t h e s e pat- terns must meet c e r t a i n criteria if manageable international economic relations are to emerge. This may be t h e r e a s o n why t h e Seventh Congress of t h e Interna- tional Economic Association selected interdependence and s t r u c t u r a l change as one of its main topics in it's 1983 Conference.

Symptoms of interdependence are not always recognized and labeled by t h i s term. In Marxist l i t e r a t u r e internationalization is often used instead of inter- dependence (Bogomolov , 1983). By interdependence w e understand a mutual t r a n s b o r d e r involvement by economic agents located in different nation-states.

Agents act in a d d transnational capacity as buyers and sellers ^of assets, ser- vices o r rights.

There have been suggestions toward a metrics of interdependence

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to m e a s u r e it, for example, by t h e cost of avoiding interdependence. This allows f o r t h e

measurement of t h e symmetry of interdependence (if t h e cost of avoiding involve- ment t o both actors is equal) and asymmetrical if t h e costs are different. To con- tinue t h e semantics one can distinguish between vertical economic interdepen- dence, (between nations with different resource-endowments) and horizontal, (when transactions are in goods of a similar kind) because of economies of scale, special- ization, intra-sectoral exchanges, etc. (Dunning, 1983).

Integration is seldom seen as a proxy f o r interdependence, r a t h e r integration means agents interacting as if they were in t h e same country.

Regarding ^{t h e} responses to interdependence, t h e r e s t r u c t u r i n g of a natural economy o r industry is of paramount importance. The new interpretation of t h e term "restructuring" is explained by Hamilton (in t h i s volume).

OEGANIZATIONS AND POLICIES

There are many well known regional institutions like t h e CRC, EEC, CMEA.

OECD, and in specialized fields like IMF or GAR, as w e l l as ad hoc or temporary organizations, all of which are in action. With t h e turbulent economic develop- ments of t h e 1980s t h e s e institutions are revising t h e i r roles and policies and are working on new measures (see for example, The Fast Report, 1984; Positive Adjust- ment Policies, 1983).

A t the Thirty-Sixth session of CMEA in Budapest (June 8, 1982), t h e Premier Minister of t h e USSR, M r . Tichonov, s t r e s s e d t h a t f o r a n intensification of t h e economies of t h e socialist countries, it will b e necessary to radically restructure production on progressive scientific and technical bases, keeping in mind t h e mutual complementarity of t h e i r economies. A t about t h e same time President Mit- t e r a n d (in Versailles) proposed a "concentrated" development of world economy, to be achieved by cooperative measures in R&D, investments, finance, and trade.

These two events illustrate t h e importance of this topic. Thus complementarity emerges as a dual problem f o r interdependence, (see Pelkmans in t h i s volume), coordination being t h e recommended algorithm f o r solving both problems.

The arsenal for making t h e activities more coherent consists of more impres- sive expressions (technical terms) than, sometimes, t h e real tangible results. A s iIlustrations, (Gordon, Pelkmpms, 1979). it is possible to mention:

unification (the combination of two or more national policy s t r u c t u r e s into a common one). An example, not with overwhelming success, i s t h e Common Agricultural Policy of Western Europe;

coordination (internationally negotiated adaptation of domestic policy intentions to improve t h e impact of t h e s e policies f o r all participants).

Coordination h a s many meanings and h a s also been mathematically formal- ized (for example, in t h e theory of multi-level multi-goal systems). I t can be anticipatory (ex ante) and responsive (ex post);

harmonization (attempts to remove inconsistencies in l a w s and pro- cedures);

consultation (helps information flows among participants and is a confi- dence building activity).

There are o t h e r terms used with slight differences in t h e meaning (concentration often used in France, orchestration, etc.). A11 t h e s e mechanisms have a c e r t a i n political sensitivity and are sometimes (not explicitly) related to what is termed as national economic security (von Geusau, Pelkmans, 1982).

These measures are usually part of national industrial policies, but could also be used on t h e sectoral or corporation levels (see Pelkmans in this volume). The c a s e in point is multinational e n t e r p r i s e s whose activities are superimposed on t h e

endeavors on a national level (for case study illustrations see Dokopoulou and Hamilton in this volume).

SOME OF THE IRESEBBCH NEEDS

During o u r meeting a lively discussion on f u r t h e r r e s e a r c h needs t o o k place.

Among others, the following topics were singled out:

Old V e r s u s New I n d u s t r i e s

A shift in t h e branch structure of industry is seen as a rewarding issue, it has already been widely covered in t h e literature. However, t h e knowledge obtained f r o m this shift, which is available to policy makers, is neither conclusive or con- structive, and can not be used to guarantee success in t h e future. Several con- cepts, such as diversification, leading industries, sun-rise industries, etc., though generally valid, can not easily be applied, as the many failures indicate. These concepts are the functions of t h e size of t h e economy, size of t h e enterprises, availability of venture oapital, entrepreneurship, etc.

New Tschnologies a n d t h e Labor Force

As macroeconomic indicators are not responsive to individual and even less s o to inventions, but r a t h e r to t h e i r wide-scale diffusion, t h e r e f o r e support f o r R&D o n l y is not a sufficient policy measure to endogenously generate economic growth (see Millendorfer, Hussain in this volume). Important factors are attributed to t h e labor force, its qualification and mobility. Also, t h e availability of entrepreneurs willing and able to put new ideas into operation are seen as sinequa-non condition as t h e history of several 'high-tech highways" indicate. In this case many o t h e r regional issues are important, as pointed out by Hafkamp and Nijkamp, and also Forssel (in this volume).

?he Role 4f Market Size

Even if t h e economies of scale under t h e impact of new technology deserve t o be revisited in several sectors t h e size of t h e market has its importance. Here again interdependence has its influence as several commodities (steel, automo- biles, ships, etc.) have, in r e a l i t y , become a world commodity. This means t h a t opportunities, and also saturation, on t h e market in one p a r t of t h e world are felt elsewhere, upsetting t h e economic and monetary balance of t h e impacted national industries (Krelle, in this volume). The consequences of this impact depends on many factors

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t h e size of t h e industry, national economy, openness of t h e econ- omy, t h e responsiveness and innovativeness of the industry. A case in point is t h e Japanese TDK Corporation. I t makes enough profit f r o m magnetic materials (tapes, discs) to cover the aggregate deficit of t h e big five steel companies (Makino, 1985).

THE

MPACT OF INDUSTEIdL RIGIDITY

I t is perhaps a general property of complex systems t h a t they respond to any disturbance and change by activating internal mechanisms to counteract t h e dis- turbance, thus achieving a certain degree of homeostasis. This phenomenon comes into play when t h e changing impact of new technology hits established institutions.

Some r e s e a r c h e r s m a k e these interactions responsible for generating t h e long term up and down swing in economic activity. The m o s t r e c e n t depreciation is explained as a structural crisis caused by t h e mismatch between t h e techno- economic subsystem and t h e socio-institutional framework. In fact w e are witness- ing t h e reversal of t h e former positive interaction between these two spheres (Perez-Perez 1985).

Other potentially rewarding areas singled out were (van Duijn in this volume):

investigation of the r o l e of the investment r a t e in relation t o economic performance;

t h e s h o r t and long term impact of protectionist measures;

capital and l a b o r market allocative efficiency;

d e b t problems, its international, national and e n t e r p r i s e ramifications;

t h e problem of t h e implementation of international anticipative versus responsive measures.

These problems are, in p a r t , addressed in t h e selected p a p e r s included in this volume. Participants had a chance to h e a r s e v e r a l o t h e r interventions.

I t is generally acknowledged t h a t t h e importance of interdependence is by f a r not identified in all i t s forms. This is also t r u e of t h e knowledge necessary to dev- ise active economic policy measures. Quite often t h e essence of international interdependence is circumvented by theories of foreign trade which are not always relevant (Krelle in t h i s volume).

S o t h e approaches to interdependence form a wide s p e c t r u m starting from active and positive acceptance, f o r example, Naisbitt 1982

Instead of resisting increased economic interdependence, w e should be embracing it wholeheartedly. In my view, it is o u r g r e a t hope f o r peace.

If w e g e t sufficiently interlaced economically, w e w i l l most probably not bomb each o t h e r off t h e face of t h e p h n e t .

But t h e r e are those who have second thoughts about it, p e r h a p s best illus- t r a t e d by Matouk, 1979.

Today t h e choice is between a n attitude open to the world, with t h e r i s k s which this entails, but also t h e opportunities which i t offers, and a pro- tectionism which, limited t o t h e national level, can only lead to a failure t o satisfy consumers who are deprived of some imported goods and obliged to change drastically t h e i r life-style, if only to r e d u c e t h e i r con- sumption of energy. However. such a change, painful at p r e s e n t time might eventually lead t o a life-style more harmonious with t h e ecosystem, more natural, and which ultimately guarantees more efficiently t h e sur- vival of t h e species.

S o t h e positions towards interdependence r a n g e from t h r e a t s through chal- lenges, to opportunities. I t is t h e behavior of different actors t h a t may make t h e difference. The policy response of each country looks for national optimum and s o t h e sum of policies h a s little chance to b e close t o t h e overall optimum of t h e com- munity. I t is a challenge t o t h e analysts to show what t h e optimum is and make t h e sum of individual policies as close as possible to t h e overall optimum. There are many indications t h a t t h i s optimum drifts more and more toward a global one (Bogn4r 1984).

B o g n e , J. 1984. Dealing with Global Problems in an Interdependent World Econ- omy. IIASA Distinguished Lecture Series/3. International Institute f o r

Applied Systems Analysis, Laxenburg, Austria.

Bogomoiov, 0. 1983. Interdependence, S t r u c t u r a l Changes and Conflicts in t h e World Economy. P l e n a r y Session P a p e r s . 7th World Congress of t h e Inteerna- tional Economic Association, September, Madrid.

Dunning, J. H. 1983. The Organisation of International Economic Interdependence:

An Historical Excursion. Sesiones Especializadas. 7th World Congress of t h e International Economic Association, September , Madrid.

The Fast Report. 1984. Eurofutures: m e C h d l e n g e s of Innovation. Butter- worths, London.

Gordon, R.J., and J. P e k m a n s . 1979. C h d l e n g e s to Interdependent Economies.

McGraw-Hill Book Company.

von Gewau, F.A.M.A., and J. P e k m a n s . 1982. National Economic Security. John F.

Kennedy Institute, Tilburg, The Netherlands.

Kissinger, H.A. 1984. lRe Eighties: The ChcrUenge j b r the Western World. Forum CA, Forum Schwarzenbergplatz, Vienna, Austria.

Makino, N. 1985. Probing t h e Direction of Informationalization of Industry. JMA Newsletter, No. 21, January.

Naisbitt, J. 1982. Megatrends. Warner Books Inc., N.Y., p. 77.

Matouk, J. 1972. "Les votes d e la croissance explosive. Futuribles, No. 18, Janu- ary.

Positive Adjustment Policies. 1983. Managing S t r u c t u r a l Change. OECD, P a r i s . Perez-Perez, C. 1985. Towards a Comprehensive Theory of Long Waves. IIASA

CP-85-9, p. 103. International Institute f o r Applied Systems Analysis, Laxen- b u r g , Austria.

ON POLICY MAKERS AND INDUSTRY

STRATEGY*

Robert H. BatLance**

Statistics and Survey Unit Division f o r Industrial Studies

UNIDO

Vienna International Centre, Austria

There is general agreement t h a t t h e period 1950-70 w a s one of exceptional economic progress in western countries, pariicularly in t h e manufacturing sec- tor.' Rapid growth brought many changes in world industry. However, i t s full impact on t h e field of industrial policy has only recently emerged. This p a p e r begins with an examination of growth-induced t r e n d s which have a l t e r e d t h e inter- national environment relating t o industrial policy. Some consequences of these trends f o r t h e formulation of national s t r a t e g i e s ( o r policy mixes) a r e noted and a tentative framework f o r characterizing national s t r a t e g i e s is suggested. A brief survey of national s t r a t e g i e s in two industries

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^steel and advanced electronics

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provides t h e basis f o r some tentative generalizations.

k THE CHANGING MAP OF WORLD INDUSTRY

Since 1950, policy makers in various capitals have witnessed a relative decline in t h e international r o l e of t h e i r country's manufacturing s e c t o r . The decline was marked in t h e c a s e of t h e US, although similar t r e n d s o c c u r r e d in t h e UK and elsewhere. For instance, during 1963-78, t h e combined s h a r e of world manufacturing value added in eight western countries declined from 46 t o 33 per- cent.' A different set of circumstances applies t o o t h e r countries, notably Japan and West Germany. The industrial importance of both countries steadily increased.

These gains were matched by a corresponding expansion in t h e two countries' s h a r e of world exports.

The redistribution of industrial capabilities led t o modifications in t h e opera- tion of a loose international framework which, heretofore, had guided policy mak- ers' deliberations in t h e field of industry, t r a d e , finance and investment. Experi- ence suggests t h a t t h e operation of such a system usually r e q u i r e s a powerful leader o'r regulator. In o t h e r words, t h e internationalization of economic relations will proceed more rapidly if one nation has a n e a r monopoly of power.3 However, 'This paper w a s not p r e s e n t e d o r a l l y a t t h e m e e t i n g b u t w a s p r e p a r e d e s p e c i a l l y a s a con-

t r i b u t i o n .

==The v i e w s e x p r e s s e d i n t h i s paper a r e t h o s e of t h e a u t h o r and do n o t n e c e s s a r i l y r e f l e c t t h o s e of t h e o r g a n i z a t i o n w i t h which he is a f f i l i a t e d .

he s c o p e of t h e following d i s c u s s i o n is l i m i t e d t o w e s t e r n c o u n t r i e s . I t p e r t a i n s t o t h e manufacturing s e c t o r i n t h e s e c o u n t r i e s and t o s e l e c t e d i n d u s t r i e s w i t h i n t h a t s e c t o r . ' ~ i ~ u r e s w e r e compiled f r o m n a t i o n a l a c c o u n t s d a t a , e x p r e s s e d i n US d o l l a r s and a t con- s t a n t p r i c e s . C o u n t r i e s include Belgium, P r a n c e , Luxembourg, Netherlands, Norway, Sweden, t h e United Kingdom and t h e United S t a t e s . S e e R.Ballance and S. S i n c l a i r , Collapse and Surutual: I n d u s t v SYratepies i n a Chanptng World (London: George Allen and Unwin, 1983), p.14.

3Kindleberger h a s d e s c r i b e d how t h e UK performed t h i s f u n c t i o n p r i o r t o t h e 1930s. S e e C.P. Kindleberger, The World i n &presston, 2929-99 (Berkley: U n i v e r s i t y of C a l i f o r n i a

as t h e global distribution of industrial capacity has begun to converge, many pol- icy decisions have come t o b e fashioned by negotiation between countries o r coali- tions of countries. In s h o r t , t h i s redistribution of industrial activity makes i t increasingly difficult t o achieve t h e political consensus between c o u n t r i e s t h a t i s n e c e s s a r y t o deal with emerging problems.

T h e r e are o t h e r , r e l a t e d , r e a s o n s f o r t h e sometimes hesitant attempts to sus- tain t h e post-war network of policies, programmes and

institution^.^

The gradual s p r e a d of new industrial capacity h a s accentuated t h e importance of foreign mark- ets and suppliers at t h e expense of t h e i r domestic c o u n t e r p a r t s . Under such c i r - cumstances, policy makers are faced with a g r e a t e r margin of uncertainty when making decisions. These dilemmas d e r i v e from a c t u a l problems: (a) a n unfamiliar- ity with t h e c h a r a c t e r i s t i c s of foreign markets and s u p p l i e r s and t h e inability t o influence t h e s e firms through domestic policies; (b) t h e emergence of l a r g e tracts of competitive capacity in foreign countries, p a r t i c u l a r l y in industries where adjustment p r e s s u r e s a r e a l r e a d y evident; (c) t h e f e a r t h a t e x t e r n a l s u p p l i e r s may impose c o n s t r a i n t s on domestic firms by cutting deliveries, raising p r i c e s o r enforcing embargos; (d) t h e p r o s p e c t t h a t r e l i a n c e on imported c a p i t a l goods may r e l e g a t e domestic u s e r s t o a n i n f e r i o r technology o r lessen t h e i r ability t o influ- e n c e t h e n a t u r e of technological advances. One r e s u l t h a s been a growing number of industry-specific disputes which often pit t h e US against Japan, t h e European Community o r i t s individual members.

The policy consequences of realignment are re-enforced by a n o t h e r , more specific, t y p e of convergence. For a wide r a n g e of manufactures, r e l a t i v e f a c t o r abundance in western c o u n t r i e s h a s gradually become more similar. Thus, s e v e r a l of t h e traditional determinants of comparative advantage

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r e l a t i v e differences in national endowments of capital, unskilled and skilled l a b o u r

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may no longer dom- inate while o t h e r s , such as r e s o u r c e endowment, may not b e germane.5 Under t h e s e circumstances t h e p a t t e r n of specialization in production and t r a d e may depend heavily on f a c t o r s such as non-competitive firm behavior and government inter- vention.

These subtle, but basic, shifts in worid industry have a l t e r e d both t h e objec- tives and t h e p r o c e s s of policy making in western countries. A s t h e s t r e n g t h of international guidelines h a s waned, national differences in t h e choice of industry s t r a t e g i e s have t a k e n on added significance. Given t h e s e t r e n d s , i t i s p e r h a p s a p p r o p r i a t e t o s e a r c h f o r common t h r e a d s in t h e national s t r a t e g i e s . Such a n e x e r c i s e can b e dealt with on many levels but, in any c a s e , c a n not b e conclusively examined in s o brief a p a p e r as t h i s one. The following discussion suggests one rationale f o r generalizing about national s t r a t e g i e s which might b e useful f o r Press, 1973). O t h e r s h a v e p o i n t e d t o t h e s i m i l a r r o l e p l a y e d by t h e US u n t i l mid 1 9 7 0 s a n d

t h e r e s u l t a n t v a c u u m i n i n t e r n a t i o n a l l e a d e r s h i p t h e r e a f t e r . See I n t e r f u t u r e s , k d n g the f i t u r e : Wastertng the Probable a n d Managing the h p r e d i c t a b l e (Paris: OECD, 1979), pp.77-78. F i n a l l y , Aho a n d B a y a r d h a v e a r g u e d t h a t t h e p o s t - w a r c h a n g e s i n t h e i n t e r n a - t i o n a l d i s t r i b u t i o n o f e c o n o m i c and p o l i t i c a l p o w e r h a v e h a m p e r e d t h e a b i l i t y o f t h e i n t e r - n a t i o n a l t r a d i n g s y s t e m t o d e a l w i t h problems. See C.M. Aho a n d T.D. B a y a r d , "The 1980s:

T w l i g h t of t h e Open T r a d i n g S y s t e m " , The h r l d Economy, December. 1982, p.399.

4 ~ r e a t i o n of t h e p o s t - w a r e c o n o m i c s y s t e m began w i t h t h e M a r s h a l l P l a n a n d i n c l u d e d t h e B r e t t o n Woods A g r e e m e n t , t h e e s t a b l i s h m e n t o f t h e IMF, t h e World B a n k a n d GATT.

5 ~ h e R i c a r d i a n i n f l u e n c e of n a t u r a l r e s o u r c e s is of l i m i t e d r e l e v a n c e t o t r a d e i n manufac- t u r e s . F o r i n s t a n c e , steel is n o t n e c e s s a r i l y p r o d u c e d m o s t e f f i c i e n t l y w h e r e i r o n o r e a n d c o a l a r e found, g i v e n m o d e r n t r a n s p o r t a t i o n a n d t h e i n f l u e n c e of m a r k e t l o c a t i o n . Similar- l y , t h e i m p o r t a n c e o f H e c k s c h e r - O h l i n t r a d e is l a r g e l y c o n f i n e d t o l a b o u r - i n t e n s i v e p r o - d u c t s . T h e s e a s p e c t s h a v e b e e n e x a m i n e d b y William Cline, Reciprocity: A New Approach to World n u d e h l i c y (Washington DC: I n s t i t u t e f o r l n t e r n a t i o n a l Economics, 1982), p.9 a n d pp.38-40.

analytical purposes.

B. INDUSTRY STRATEGIES IN THE MANUFACTURING SECTOR

It would be a simple process t o distinguish between national strategies if each were characterized by a single o r well-defined line of policy emphasis. If so, coun- t r i e s might be depicted as subscribing t o a strategy giving an overriding emphasis to R and D and associated industries (computers, advanced electronics, aerospace) o r , perhaps, a strategy of preserving sunset industries (steel, textiles and footwear). Other examples which come to mind include policy-oriented strategies reflecting the traditional dichotomy between open and closed economies, export promotion and import substitution, o r a strategy of emulating technological leaders.

Unfortunately, national strategies are neither s o simple nor coherent as t o permit this type of generalization. First, they a r e seldom consistent over time and may be altered abruptly

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by voters, by changes in t h e approach of top-level bureaucrats or by major shifts in global economic circumstances. Second, t h e real priorities underlying a n industrial strategy are r a r e l y obvious and are not always clearly defined even in t h e minds of policy m a k e r s 6 Third, no country follows a n industrial strategy which is common to the entire manufacturing sector. An emphasis on 'high-tech' industries may be pursued simultaneous1 with a 'defensive strategy' t o delay o r d e t e r t h e contraction of mature industries! In brief, national strategies a r e neither ciear cut nor sufficiently broad to permit a simple charac- terization which is applicable t o t h e entire manufacturing sector.

If a sector-wide interpretation of national strategies offers little basis f o r generalization, can more useful insights be gained by focusing on industry-specific policies and strategies? A t this level of disaggregation an additional simplification would s e e m t o be appropriate. Briefly stated, in most countries

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including t h e technologically advanced

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a large portion of total manufacturing output will probably always consist of traditional standardized activities, f o r example, t h e production of building materials, food, clothing and 'ordinary' consumer durables.' Transport costs, national differences in consumer preferences and declining r e t u r n s t o scale (e.g. f o r natural-resource-based products) are among t h e reasons why most countries produce a similar set of goods. While such industries may be the frequent subject of domestic policy debates, they are not of primary impor- tance f o r t h e formulation of industry-specific strategies in a n interdependent world. Rather, the industries which are the main focus f o r national strategies

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and thus tend t o be t h e focal point of international disputes

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^{typically seem t o fall}

into one of the following groups:

'1" a n y c a s e , t h e c o n t e n t o f n a t i o n a l s t r a t e g i e s c a n c e r t a i n l y n o t be judged f r o m t h e pro- nouncements o f a c o u n t r y ' s p o l i t i c a l leadership. F o r i n s t a n c e , P r e s i d e n t Reagan's c a l l t o

" r e - i n d u s t r i a l i e e America" h a s s u b s e q u e n t l y p r o v e d t o be m o r e o f a p o l i t i c a l e v e n t t h a n a p o l i c y s t a t e m e n t .

' ~ o v e r n m e n t i n t e r v e n t i o n d e s i g n e d t o f a v o r o n e set o f i n d u s t r i e s i m p l i c i t l y d i s c r i m i n a t e s a g a i n s t o t h e r s . Thus, p o l i c y m a k e r s m a y e v e n t u a l l y f i n d t h e m s e l v e s under s t r o n g p r e s - s u r e t o a s s i s t i n d u s t r i e s o t h e r t h a n t h o s e which w e r e i n i t i a l l y accorded t h e h i g h e s t p r i o r i t y . The r e s u l t m a y be a n a t i o n a l s t r a t e g y w h i c h b o r d e r s on t h e s c h i z o p h r e n i c but, i n a n y c a s e , is n o t co-ordinated.

' ~ s s a r Lindbeck, 'Industrial P o l i c y a s an I s s u e i n t h e Economic Environment,' The World Econmny, December, 1981, p.393.

i) The industry is a relatively large one in terms of its capital investment and/or employment. Thus, significant and prolonged adjustment pres- s u r e s (reflected in low rates of capacity utilization, depressed levels of domestic demand, rising import penetration, overinvestment, etc.) could alter t h e prevailing international hierarchy in t h e industry. The con- traction of these industries, which are euphemistically known a s 'mature' o r 'sunset' industries, poses economic and/or political problems.

ii) The industry ^is a highly specialized one, often regarded as technology- intensive. In t h e opinion of some policy makers, international leadership in these fields (often r e f e r r e d t o as 'sunrise' industries) depends upon

"who gets t h e r e first". Once established, technological pre-eminence is thought t o provide a lasting competitive advantage in international mark- ets.

Examples of industries falling in t h e first category are steel, autos and, perhaps, bulk petrochemicals along with various supplier industries. The reasons f o r contractive p r e s s u r e may include significant over-capacity, resulting from previous misjudgments about present levels of demand,g o r t h e establishment of new capacity in developing countries (e.g. petroleum refining in t h e Middle East and Mexico and new steel mills in many developing countries). Related explana- tions are widespread obsolescence (as in the American steel industry) o r poorly t i m e s expansion programmes which were soon undercut by new technological advances.1° Here t h e major issues confronting policy makers is how t o accommo- date a contraction in industry size. A related, but secondary, concern is t o find t h e means to rejuvenate t h e industry and to r e s t o r e some m e a s u r e of international competitiveness.

The prominence which policy makers attach to t h e second cluster of indus- tries derives from t h e i r belief t h a t comparative advantage may be achieved artifi- cially. In general, any advanced country may aspire to technological leadership in a t least some phase of manufacturing

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especially if government intervention occurs. Moreover, technological pre-eminence in a particular phase (e.g. semi- conductors and integrated circuits) may help to confer leadership in related pro- duct lines (computers, automated machine tools) and t h e i r applications (computer- aided design and computer-aided manufacture). Thus, f o r technology-intensive goods t h e argument would s e e m t o be t h a t comparative advantage is made, not given. National strategies t o foster these types of activities are regarded warily by foreign competitors since t h e establishment of a pre-eminent position could affect a much wider range of industries on an international scale.

C. A TALE OF TWO INDUSTRIES

Further generalizations as t o t h e objectives and forces that shape a national strategy are difficult without a closer look at t h e actual policies and strategies.

Two industries

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^steel and advanced electronics

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^were chosen for this purpose.

Steel is a mature industry, typical of t h e f i r s t group of activities noted above while advanced electronics is representative of t h e second group. A thorough examina- tion of e i t h e r industry is beyond t h e scope of this paper; instead t h e purpose is

'A r e l e v a n t example is t h e e x p e r i e n c e o f B r i t i s h Steel Corporation: i n 1971, t h e Covern- m e n t e n d o r s e d plans t o expand c a p a c i t y t o a l m o s t 40 m i l l i o n t o n n e s b y 1980. Ironically, 1980 began w l t h a t r i p a r t i t e d i s p u t e b e t w e e n government, i n d u s t r y and labour r e g a r d i n g a production l e v e l of 15-16 m i l l i o n t o n n e s . S e e , The Economist, 12 April, 1980.

' O ~ h e p l i g h t o f 'mature' i n d u s t r i e s may be f u r t h e r c o m p l i c a t e d b y rapid i n c r e a s e s i n hour- l y w a g e s which o u t s t r i p t h e g a i n s r e c o r d e d i n c o m p e t i t i v e c o u n t r i e s .

merely t o illustrate similarities and differences in national s t r a t e g i e s as w e l l as some of t h e f o r c e s and conditions t h a t influence t h e choice of a strategy.

STEEL

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^{AN ACEING} INLWSTKY;. P r i o r t o t h e 1970s, t h e world s t e e l industry's growth w a s steady. Bouyant domestic demand meant t h a t producers were not plagued by prolonged contractions giving r i s e t o problems of excess capacity, by t h e t h r e a t of substitutes f o r steel, o r by declining rates of profit. The eventual transition from a rapidly growing industry to a m a t u r e one changed all this. World consump- tion of c r u d e steel grew steadily until t h e mid 1970s and t h e r e a f t e r fluctuated erratically. l1

Basic changes in long-term patterns of demand and production provided t h e impetus f o r this aging process. Because steel requirements depend on t h e demand f o r steel products. s t r u c t u r a l changes within t h e manufacturing s e c t o r w e r e reflected in t h e industry. Today's major growth areas are telecommunications, energy, a e r o s p a c e and computers. Unlike t h e industries t h a t led t h e field during t h e f i r s t two thirds of t h e century, these new industries are not intensive u s e r s of steel. Thus, steelmakers are dependent on u s e r industries which, themselves, are losing ground relative to overall economic activity. Other, economy-wide struc- t u r a l changes have had a similar effect. For instance, t h e s e r v i c e s e c t o r ' s s h a r e in G D P has tended t o grow relative to t h e production of material products, and investment has given way to consumption in t h e expenditure of national income.

Because both services and consumption are less steel-intensive than investment in t h e production of material oods, t h e industry's s h a r e in output and employment is likely t o decline further." The following discussion focuses on t h e major stra- tegies observed in t h e US, t h e EEC and Japan developed during this period.

W e n s i v e strategies

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^{the US approach:} The US f i r s t became a net importer of steel in 1959 during t h e c o u r s e of a prolonged strike. Since t h a t time a prominent policy objective has been t o r e s t r a i n t h e growth of imports. A s imports r o s e , pro- tectionist sentiments grew s t r o n g e r and, in 1969, voluntary e x p o r t r e s t r a i n t s (VERs) w e r e negotiated with t h e European Community and Japan. Although t h e s e r e s t r a i n t s were abolished with t h e passage of t h e Trade A c t of 1974, protectionist p r e s s u r e s soon re-emerged. The new campaign o c c u r r e d in t h e midst of t h e worst recession since 1930 and thus benefited greatly from public support. There w a s also a change in tactics which took into account t h e new test f o r dumping contained in t h e Trade A c t of 1974. This shift w a s said t o be on t h e advice of t h e Carter Administration which w a s anxious to deflect a new drive f o r import quotas.13 The American Iron and S t e e l Institute (AISI) played a leading r o l e in this period. I t filed a petition in 1976 charging t h a t Japanese producers had unfairely diverted shipments of steel t o t h e US as a r e s u l t of a n agreement t o r e s t r i c t imports to t h e European Community. The AISI also attempted to document charges of unfair prac- tices and forcefully advocated t h e need f o r s t r o n g e r import restraints.

''producers did not restrict their capacity expansion during this period, apparently anti- cipating only a brief downswing. Until 1974, the world's steel industry operated a t over 90 percent of effective capacity. Afterwards. utilization rates plummeted t o l e s s than 60 percent. See Interfutures, h c i n g t h e f i t u s e : Mastering the AobabLe a n d Managing t h e UnpredfctabLe (Paris, OECD, 1979), p.369.

l%'hese contractive effects of demand have been reinforced by basic changes in produc- tion processes and, in particular, by technical advances that have dramatically reduced steeluserss requirements.

131i. Mueller and H. van der Ven, 'Perils in the Brussels-Washington Steel Pact 1982', The WorLd Economy, November 1982, p.263.

A t t h e height of t h e protectionist d r i v e , a s t e e l caucus of about 150 Represen- tatives and S e n a t o r s demanded t h a t t h e Administration produce a n effective means of import r e s t r i c t i o n by t h e end of 1977. Significantly, t h e C a r t e r Administration introduced a t r i g g e r p r i c e mechanism (TF'M) in e a r l y 1978. The mechanism set a minimum p r i c e f o r imports based on 'constructed costs' using Japanese data.

Foreign steel could b e sold in t h e US at p r i c e s above t h e minimum, b u t imports at p r i c e s below t h e s e levels would prompt a preliminary review to determine whether t h e government should launch a full-scale investigation of dumping p r a c t i c e s . Minimum p r i c e s were periodically r a i s e d at t h e government's discretion. However, American s t e e l i n t e r e s t s remained dissatisfied with t h e levels of protection a c c o r d e d by t h e TPM. They called f o r a two-tier system of constructed c o s t s

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^one

based on Japanese data and a n o t h e r derived from European figures. The proposal, which w a s not a c c e p t e d , would have led to much h i g h e r t r i g g e r p r i c e s f o r Euro- pean e x p o r t e r s whose c o s t s exceeded those of Japanese p r o d u c e r s (although t h e i r Landed American p r i c e s were sometimes lower).

Firms subsequently r e s o r t e d to litigation in a n attempt to f o r c e t h e Adminis- t r a t i o n to r e p l a c e t h e TPM with a s t r o n g e r form of import r e s t r a i n t . In 1980 US S t e e l Corporation filed and extensive anti-dumping petition against s e v e r a l Euro- pean p r o d u c e r s which led to t h e suspension of t h e TPM. The suit violated a n agreement whereby t h e Administration had established t h e mechanism in r e t u r n f o r a n industry pledge not t o file anti-dumping c h a r g e s . After f u r t h e r negotiations US S t e e l withdrew i t s petition and t h e Administration r e i n s t a t e d t h e TF'M with a 1 2 p e r - c e n t i n c r e a s e in t h e minimum p r i c e s of imports and new quantitative r e s t r i c t i o n s . In January 1982 s e v e r a l firms again filed anti-dumping s u i t s and appealed f o r coun- tervailing duties to equal t h e subsidies received by foreign competitors. This s t e p led t o a second suspension of t h e TPM. The accusations implicated a host of sup- p l i e r s and included p r o d u c t c a t e g o r i e s t h a t were new t o t h e dispute. The legal c a s e s affected most of t h e steel e x p o r t e d t o t h e US by t h e European Community. A compromise with European suppliers w a s r e a c h e d in October 1982 just h o u r s b e f o r e a deadline t h a t would have brought,penalties into f o r c e . Governments and industries alike a g r e e d to a quota system, t h a t would limit Europe's e x p o r t s , on a v e r a g e , t o 5.4 p e r c e n t of t h e American market.

Throughout t h i s e n t i r e period t h e e f f o r t s of l a w makers and s t e e l p r o d u c e r s were actively supported by t h e United Steelworkers Union. Because p r o d u c e r s had traditionally o f f e r e d only minimal r e s i s t a n c e to t h e union's demands, t h e gap between steel wages and t h e a v e r a g e f o r manufacturing widened from 30 p e r c e n t in t h e mid 1960s to 70 p e r c e n t by 1980.14 Viewed in t h i s light, t h e union had v e r y good r e a s o n s f o r endorsing t h e protectionist drive. All t h e s e circumstances led t o a paradoxical situation in which steel producers, while offering some of t h e highest wages and benefits of any American industry, were appealing f o r government i n t e r - vention t o shield them from international competition.

The protectionist campaign did not proceed without opposition. A t l e a s t some p a r t s of t h e US b u r e a u c r a c y w e r e r e l u c t a n t to e n d o r s e t h e s e measures. They were concerned with wider ranging t r a d e relations with t h e Economic Community; retali- ation in t h e form of t r a d e r e s t r i c t i o n s on American e x p o r t s of chemicals, t e x t i l e s o r a g r i c u l t u r a l p r o d u c t s was f e a r e d . In c o n t r a s t , r e p r e s e n t a t i v e s of steel u s e r s managed only token opposition to protectionist efforts.15 Generally, American

1 4 ~ . Kawahito, 'Japanese Steel in the American Market: Conflict and Causes,' The WmLd Economy, September 1981, p.248.

1 5 ~ h e American Institute for Imported Steel, for example, has stressed the fact that demand for specific products, notably pipes and tubes, often exceeded domestic supply capabilities.

steel u s e r s have demonstrated a lack of unity and have failed t o marshal1 a n effec- tive response to t h e industry's p r e s s u r e groups. The zeal with which firms sup- ported t h e protectionist campaign also varied. Several, f o r example, had long- term commitments t o import specific types of s t e e l t h a t w e r e in s h o r t supply and, as a result, w e r e opposed t o at least some a s p e c t s of t h e campaign. A f e w firms had begun to diversify

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into oil refining, chemicals o r activities outside t h e manufacturing s e c t o r

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and t h e i r enthusiasm f o r protective measures w a s lukewarm.

European cartelisation and the Davignon Plan: Beginning in 1976, t h e EEC adopted a s t r a t e g y of cartelisation which w a s reminiscent of t h e tactics followed in t h e 1920s.16 The c a r t e l w a s a voluntary one intended to promote market stability by fixing levels of c r u d e steel production, minimum p r i o e s f o r imports and duties t o prevent dumping. In r e t u r n , producers w e r e expected t o reduce excess capa- city with t h e help of cash payments f o r t h e EEC. The cartel's operation h a s been plagued by a continued fall in demand which contributed t o a series of internal disputes. These included intra-EEC p r i c e w a r s and dumping allegations, objections t o t h e public subsidies t o specific steelmakers and disagreement on t h e need f o r compulsory r a t h e r than voluntary controls to enforce t h e cartel. An additional handicap w a s t h e heterogeneity of t h e European steel industry resulting from differences in (a) t h e e x t e n t of public ownership, (b) t h e d e g r e e of specialization in bulk steel, speciality steel and steel products and (c) t h e extent t o which steel makers w e r e integrated into t h e country's industrial s t r u c t u r e .

While t h e disputed issues are mainly couched in national terms, t h e underlying problems are common to most European countries. They include t h e existence of considerable excess capacity and, t o a lesser extent, t h e failure of s e v e r a l major p r o d u c e r s t o modernize t h e i r steel-making capacity. Moreover, t h e Davignon Plan faces a t h i r d difficulty which is new t o t h e 1980s: t h e overall effectiveness of t h e strategy is greatly influenced by t h e EEC's changing fortunes in t h e 'steel w a r ' waged against American producers. Most European producers would probably have p r e f e r r e d t o see t h e continuation of t h e original American TPM, provided t h a t t r i g g e r p r i c e s were not set too high. This would have allowed them access t o t h e US market without any formal investigation of t h e extent to which t h e i r opera- tions are subsidized. However, as protectionist p r e s s u r e s mounted in t h e US, voluntary e x p o r t r e s t r a i n t s (VERs) became more a t t r a c t i v e t o t h e Europeans. Clo- s u r e of t h e American market would have meant t h a t six million tonnes of steel being exported to t h e US _would be diverted back t o Europe.

A consensus strategy

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the Japanese approach: In c o n t r a s t t h e t h e internal differences t h a t have plagued t h e European cartel, t h e homogeneity of t h e Japanese steel industry facilitated a consensus strategy. During t h e 1970s five producers accounted f o r 70 p e r c e n t of Japan's output and all had similar cost s t r u c t u r e s . Although t h e product mix of t h e major firms differed, t h e market s h a r e of each p r o d u c e r w a s relatively constant.

The framework f o r consultation included t h e provision of monthly voluntary guidelines by MITI and weekly meetings attended by executives of t h e five com- panies and MITI officials. Many r a w materials were bought through joint negotia- tions between t h e five firms and t h e i r suppliers. Investment programmes and plans f o r modernization were also closely co-ordinated. These tactics enabled t h e indus- t r y t o weather t h e global slump in steel in t h e 1970s without serious cutbacks in

16see KJones, 'Forgetfulness of Things Past: Europe and t h e Steel Cartel,' The W d d Economy, vol. 2, no. 2, 1979, pp.139-54.

capacity. Japan soon became t h e world's l e a d e r in t h e use of continuous castings as t h e proportion of output accounted f o r by t h i s technology rose from 20 to 80 p e r c e n t between 1973 and 1983.17

Falling steel p r i c e s and new capacity in developing c o u n t r i e s h a v e subse- quently led to a d e t e r i o r a t i o n in t h e Japanese industry: in 1983, all five major steel p r o d u c e r s r e p o r t e d losses f o r t h e f i r s t time in decades. Like t h e i r American c o u n t e r p a r t , some steelmakers have proposed t h a t t h e i r government f i l e dumping c h a r g e s against foreign e x p o r t e r s in Brazil, South Korea and ~ a i w a n . " However, such a defensive s t r a t e g y i s not likely to gain wide acceptance. Unlike t h e Us industry which e x p o r t s v e r y little, most Japanese steelmakers are r e l u c t a n t to ban imports since

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unlike t h e US industry

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t h e y ship so much steel a b r o a d them- selves.

The i n t e r n a t i o n a l i z a t i o n of steelmaking: In comparison to o t h e r industries

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consumer electronics, a u t o s o r petroleum products

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steelmakers have tradition- ally eschewed international commitments through joint ventures, technology- swapping agreements o r capacity-sharing arrangements. Recently, however, t h e r e i s mounting evidence t h a t such t a c t i c s may eventually become a dominant s t r a t e g y in both Japan and t h e US. Despite criticism within t h e industry, some American firms h a v e begun t o s e a r c h f o r foreign technical assistance leading t o 'a multitude of agreements

...

between Japan's big five and t h e USA's top ten.'lg This option also opens up t h e possibility f o r traditional steelmakers to c o n c e n t r a t e on those pro- duct lines where they are m o s t competitive while importing semi-finished s t e e l from abroad." The r e c e n t p u r c h a s e of a modest s h a r e in Wheeling Pittsburgh by Nisshin S t e e l suggests a n o t h e r dimension to t h e s t r a t e g y . H e r e t o f o r e , foreign investors have been discouraged from similar moves by t h e antiquity of t h e US industry but American-based production h a s gradually become more a t t r a c t i v e as a means of avoiding protectionist p r e s s u r e in t h a t country.

R o d u c t d i v e r s ~ c a t i o n : A s t r a t e g y of product diversification r e f l e c t s a d e s i r e t o lessen t h e firm's dependence on c r u d e steel production. One a l t e r n a t i v e i s to shift into t h e production of h i g h e r quality steels. Another i s t o move downstream from c r u d e steel, through integration, into steel-using o p e r a t i o n s t h a t are more closely r e l a t e d t o engineering activities. A t h i r d version, diversification into non-steel producing activities, h a s been observed among American firms and i s tantamount t o a p a r t i a l e x i t from t h e s t e e l industry."

1 7 ~ h i s a d v a n c e y i e l d s s i g n i f i c a n t r e d u c t i o n s i n e n e r g y use and o t h e r i m p r o v e m e n t s i n ef- f i c i e n c y . In c o n t r a s t t o t h e J a p a n e s e s i t u a t i o n continuous c a s t i n g accounted f o r only 31 p e r c e n t of US s t e e l production i n 1983 while, t h e EEC, t h e c o r r e s p o n d i n g f i g u r e w a s ap- p r o x i m a t e l y 50 p e r c e n t .

''wages a r e c i t e d a s o n e of t h e main r e a s o n s f o r t h e p r i c e a d v a n t a g e of new c o m p e t i t o r s . In t h e US, t h e s h a r e of w a g e s i n t o t a l c o s t s is a b o u t 24 p e r c e n t ; i n J a p a n t h a t s h a r e is 18 p e r c e n t but i n S o u t h K o r e a t h e c o r r e s p o n d i n g f i g u r e is 4-5 p e r c e n t . S u b s i d i e s a r e though t o be a n o t h e r i m p o r t a n t explanation. E s t i m a t e s p u t t h e s e s u b s i d i e s a t 40 p e r c e n t of pro- duction c o s t s i n B r a z i l and 10-20 p e r c e n t i n S o u t h K o r e a and Taiwan. Far Eastern Econom- i c R e v i e w , 17 November 1983.

l 9 ~ a l l a n c e and S i n c l a i r , op. c i t . , p.122.

' ' U

S s t e e l m a k e r s h a v e r e c e n t l y a t t e m p t e d t o complete s u c h a g r e e m e n t s w i t h f i r m s i n Bra- z i l b u t t h e d e a l s h a v e n o t gone through.

2 1 ~ o r example, i n 1980 s t e e l o p e r a t i o n s accounted f o r only 11 p e r c e n t of o p e r a t i n g income a t U.S. S t e e l . O t h e r s , n o t a b l y Annco and National S t e e l , s t e a d i l y moved o u t of steel a s t h e i r f i n a n c i a l p o s i t i o n p e r m i t t e d . S e e R. Reich, 'Making I n d u s t r i a l Policy,' Foreign qf- fairs, S p r i n g , 1982, pp.851-81.

The popularity of a diversification strategy reflects t h e consequences of t h e slump in demand and t h e r i s e in production costs which o c c u r r e d during t h e 1970s.

Diversification into higher quality o r speciality steels o f f e r s b e t t e r demand pros- pects and a lesser t h r e a t from competitive substitutes. Some Japanese steelmak- ers have followed this tactic by specializing in t h e production of 'high-strength' steels t h a t compete with aluminium in t h e manufacture of automobiles, containers and o t h e r mass-produced items. Alternatively, producers t h a t choose to move downstream into engineering activities are usually p a r t of large, integrated, firms.

Their steel-using operations are of a sufficient size t o absorb demand fluctuations and to subsidise losses in t h e steel-producing activities. This arrangement works t o t h e benefit of t h e firm because t h e engineering and metalworking phases of t h e operation are assured t h a t they will obtain t h e types of steel required.

In conclusion, t h e prevailing American s t r a t e g y has been a defensive one designed t o control t h e level of imports. A s t h e domestic market h a s become more fragmented

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through competition from US-based mini-mills as w e l l as foreign sup- pliers

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a variety of policy tools have been employed t o reduce t h e p r e s s u r e t o contract. The European s t r a t e g y has focused on t h e problems of excess capacity and obsolescence while, in Japan, modernization and a n increased reliance on e x p o r t s helped t o s t a v e off t h e effects of t h e global slump. The European and American s t r a t e g i e s are interrelated owing t o t h e former group's dependence on exports. Moreover, t h e r e is mounting evidence to link t h e American and Japanese strategies as firms in t h e Latter country attempt t o circumvent t h e defensive tac- tics adopted in t h e US.

All these s t r a t e g i e s s h a r e one common f e a t u r e , however. They were not dev- ised and implemented solely by policy makers but were assembled through negotia- tion involving government officials, industry representatives, t r a d e unions and, sometimes, t h e importers and domestic u s e r s of steel.

ADVANCED ELECTRmICS

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^AN EhfERGING I N D U S T m The advanced electronics industry is defined h e r e t o include electronic applications equipment such as com- p u t e r s and automated machine tools as w e l l a s t h e main components

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semiconduc- t o r s and integrated circuits

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used in such equipment. Beginning from a negligible base t h e industry has expanded rapidly and, in several countries, has overtaken consumer electronics as t h e predominant sub-sector in t h e electronics field. Thus, by 1978. t h e value of industrial products and components accounted f o r 68 p e r c e n t of all electronics production in t h e US. The corresponding figure f o r t h e EEC w a s 53 percent while t h e s h a r e in Japan w a s lower but w a s rising rapidly

."

There are several reasons why governments have actively sponsored t h e industry's development. First, t h e industrial applications of advanced electronics are expected t o improve greatly t h e reliability and quality of products. Manufac- turing activities consist mainly of making materials, forming them into various shapes, joining t h e bits together and then assembling these p a r t s into finished pro- ducts. A product's quality and reliability are mainly dependent on t h e perfor- mance of these tasks

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whether welding, brazing, soldering, glueing o r riveting

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and electronic capital goods and computer control of manufacturing processes are expected to perform more consistently than workers in this r e g a r d . Second, t h e cost of a manufactured product largely depends on t h e level of efficiency attained in t h e joining and assembly phases and t h e use of electronic capital goods is expected t o lead t o improvements. In general, many government officials apparently hope t h a t new systems of electronic capital goods w i l l eventually s e r v e 2 2 ~ n s t i t u t e of Developing Economies, The Electronics Indust- in Japan (Tokyo: Institute

for Developing Economies, 1980), p.11.