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Candidates' economic advisers square off on industrial policy

STANFORD -- Industrial policy, including the presidential candidates' attitudes toward university research funding, became a central focus of a debate Monday, Oct. 12, between two economists who helped George Bush and Bill Clinton devise their economic plans.

MIT economist Rudiger Dornbusch, an adviser to Clinton, and Stanford University economist John Taylor, an adviser to Bush, spoke to affiliates of the Stanford Center for Economic Policy Research at the Quadrus Conference Center. They left little doubt that the nation's economic competitiveness will be addressed differently, depending on which candidate wins the election.

Dornbusch stressed Clinton's plan for "complementarity" between the private sector and the public. Clinton does not propose just to fix roads, bridges and sewers, he said, but to build "high- tech infrastructure" such as high-speed trains and "smart" highways that will give U.S. companies experience with products they also can sell to the rest of the world.

"Industrial policy is an attitude above all," he said. Bush demonstrated he didn't have the right one, Dornbusch asserted, when he took American automakers along on his trade mission to Japan instead of executives from "what is best in America - capital goods."

Taylor called Clinton's high-speed train proposal a "heavily subsidized program for wealthy individuals" and said the Democrat's plan to create industrial research centers around the country were a waste because business people don't need to learn how to improve technology from "government bureaucrats."

Bush, in contrast, he said, would continue to improve the nation's industrial competitiveness by continuing to expand the free trade opportunities he has championed, by keeping inflation and interest rates down and by providing tax incentives for private business investment.

In addition, he said, Bush proposes to double National Science Foundation spending within two years, a significant contribution to basic science research by universities, while Clinton proposes to cut by $3 billion the government's rate of reimbursement for university research.

Clinton's industrial plan is "controversial," Dornbusch said, because it "assigns a direct role to government in coordinating, pushing and, to some extent, providing blueprints" for private commercial development.

Industrial policies such as his have been traditionally "taboo on the domestic side" of U.S. policy, he said, but other nations are doing it, and the United States has done it successfully with its Agricultural Extension Service and National Institutes of Health.

The industrial research centers are akin to agricultural extension offices, which help small- and medium-sized farms increase their productivity, he said.

"We know in Japan government does get new technology used by small- and medium-sized businesses," Dornbusch said.

Because of the budget deficit, such new spending programs can be financed only by government savings in other areas, along with higher taxes on foreign companies and families with taxable incomes over $200,000, Dornbusch said.

Taylor said Clinton's spending programs will require higher taxes on people well below the $200,000 income level. President Bush's "Agenda for American Renewal" will help America's competitiveness more, he asserted, by promoting free trade, keeping taxes down and placing a cap on government "entitlement programs" such as Medicare and agriculture supports to farmers making more than $100,000 annually.

Both Clinton and Bush have proposed capital gains tax cuts to encourage investment in the country's private industry, but Taylor said Bush is the only one who provides a broad array of individual and small business tax incentives.

Taylor said Clinton would burden business with more regulation while Bush proposes "innovative legal reforms" to reduce the cost of lawsuits. The president's efforts to reduce inflation and interest rates have been important stimulants to business and job growth, he said, and American workers are more competitive with others since Bush took office. He called Clinton's proposed tax on foreign business operating in the United States "protection action" that is likely to bring retaliation against American companies by other countries.

Taylor said that Bush would improve America's worker skills, with a voucher system that would introduce market incentives to improve kindergarten through 12th-grade schools, and he would give $3,000 to any dislocated worker for retraining.

"It's true we are more competitive than in 1985, but it's not true that we are better than in the late 1970s," Dornbusch said.

He stressed Clinton's plans for making the unemployed work in national service after two years of government assistance, and the creation of "apprenticeships, German style," with a 1.5 percent payroll tax on firms that did not already provide in-service training to their workers. He criticized some corporations for training their executives in "golf" instead of training lower-ranking workers to "use modern equipment."

Dornbusch stressed his candidate's ability to get more accomplished than Bush has while working with a Democratic Congress. Taylor urged Americans not to "exaggerate" the nation's economic problems and said that "massive government spending could make the economy worse."



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