Cato Institute, 224 Second Street, SE, Washington, D.C. 20003 • 216 pages, $8,95 paperback
Richard McKenzie’s Competing Visions is a Cato Institute study of the fallacies 0f national industrial policy being urged on us by an increasing number of economists, intellectuals, and politicians. McKenzie begins by surveying the varied proposals that fall under the rubric of national industrial policy. All of them have in common the view that America has undergone and continues to undergo severe deindustrialization avoided by other nations (notably Japan) only because of national industrial policy (NIP). Through careful analysis of data on the manufacturing sector, McKenzie shows that the doomsayers’ positions on deindustrialization are either misleading, overstated, or both. NIP enthusiasts forget or do not mind that “government control of capital ultimately translates into control of people, whether the control is instituted by democratic or by authoritarian means.” Also misleading, overstated, or both is the displaced worker myth and the inevitable proposals for government retraining programs.
One proposal virtually all NIP advocates call for—and the centerpiece of many of the bills introduced in Congress—is the reinstitution of the Reconstruction Finance Corporation. As McKenzie shows, however, the old RFC is “hardly a model to be followed.” The original RFC was marked by “years of scandals” with “funds . . . often allocated on the basis of political friendship and bribery.” Moreover, after its abolition, pieces of the original RFC continued to exist in various government agencies, none of which can be credited with economic success.
The Chrysler bailout, “touted as the quintessential example of what” an NIP might do, deserves special attention. As McKenzie quotes Heritage Foundation scholar James Hickel: “Chrysler has renegotiated its debt and restructured its organization in a way that greatly resembles a company that has gone through bankruptcy.” Indeed, for all practical purposes, “the Chrysler Corporation has gone bankrupt” (emphasis added). McKenzie then presents an analysis showing that in all likelihood, the bailout aided stockholders and lenders, but saved no jobs. Even Chrysler’s current success is questionable. Various accounting methods, unsound managerial decisions favoring short-term profits over long-term growth, and continued government protection all contribute to the appearance of success.
McKenzie then departs from his empirical approach to present a chapter on “the fatal conceit” of centrally managing an economy. His arguments derive from and are credited to Hayek, although they lack Hayek’s rhetorical elegance and force. Tripartite councils consisting of key politicians, industrialists, and union officials, McKenzie assures us, could never duplicate the efficiency and justice of the market system.
Much of the concern motivating the industrial democracy movement stems from the desire of its proponents to ensure greater job security for workers. They justify such security with the language of individual rights. Workers, they say, have a right to their jobs. Well, that is one position that Competing Visions thoroughly explores, both philosophically and economically. The discussion is nothing short of brilliant and it is left for the reader to enjoy.
Other topics discussed at length are capital mobility and taxation, the various forms of protectionism, their ra tionales, and the fallacies that under-gird them.
McKenzie closes his study with a “competing vision,” a view opposite to that of the NIP enthusiasts. “The case against managed capitalism,” McKenzie writes, “is actually a set of arguments for constraints on the eco nomic powers of government.” Government must be barred, he warns, from the market function of picking “winners” and “losers.” “That is the kind of economic future we must seek in order to remain prosperous and free.”