EC takes cue from Japan in aid to industry Trend could mean stiffer competition for U.S. companies

April 19, 1992|By Ian Johnson | Ian Johnson,Special to The Sun

Berlin -- Imagine that Maryland's biggest employer, Westinghouse Electric Corp., reports record losses, lays off workers and stumbles toward bankruptcy.

Fearing the loss of an electronics giant, U.S. government officials huddle with Westinghouse executives, introduce them to emerging technologies and give them a few billion dollars to get the company back on its feet.

That's an unlikely scenario in the United States, but such intervention could become common in Europe under a new industrial policy gathering momentum. The catalyst: world competition in fields as diverse as shipbuilding, autos and electronics.

The European Community, which previously promoted only research and development, has a new mission: crafting industrial policy. If the EC succeeds, U.S. companies could face much tougher competition in Europe.

European Community leaders are developing a strategic plan to promote key industries, including a fund that would pay for research, development and the restructuring of failing companies. As a last resort, tariffs would shield ailing companies from foreign competition until they were strong enough to stand alone.

While that plan is being developed, EC President Jacques Delors has created an interim program to help bolster Europe's competitiveness. The community's $3 billion research budget will be focused on a few big industries, such as cars, electronics, textiles and defense. An additional $1 billion will be used to retrain workers in outdated industries.

As European leaders debate the scope of long-term interventionism, they are focusing on the crucial role of Germany, Europe's dominant economic power.

Germany once sided with free-traders Britain and the Netherlands, which have open economies with little state intervention.

But Germany recently has begun to heed the call from France and Italy, which have long traditions of state involvement in the economy and heavy protection for domestic industries. Many German leaders have become fascinated with the idea of starting a national or European version of Japan's Ministry of International Trade and Industry.

"There's more and more speculation in Germany that expert knowledge should be brought together under a new ministry like MITI to find out future developments instead of having to rely on the complicated market," said Uwe Vetterlein, an author on trade who heads the Karlsruhe Chamber of Commerce.

There are two reasons. First, Europe's main makers of computer chips -- Germany's Siemens, the Netherlands' Philips and the French-Italian SGS-Thomson group -- haven't kept up with U.S. and Japanese competitors. The three companies account for 7 percent of the world's chip market, and Europe suffered a $45 billion trade deficit in electronic goods last year.

Second, Germany's experience in rebuilding its backward eastern states has convinced many that government should at least temporarily restructure and shelter traditional industries.

In northeastern Germany, for example, the government has agreed to some worker demands to support the region's outdated shipyards. More than 2,000 workers will have their jobs guaranteed for 10 years at a cost to taxpayers of $500 million.

Projections show that at least 2,000 companies in eastern Germany are so inefficient they cannot be privatized and will have to close unless the government steps in. Estimates for such intervention start at $40 billion.

A senior German politician, Social Democrat Klaus von Dohnanyi, summarized German fears of being left behind when he recounted a meeting with a top Japanese industrial leader, who told him: "You are building streets and houses [in the east]. We're investing in high technology."

Such worries have pushed even staunch free-traders toward a Europe-wide industrial policy.

"Some people have the illusion that an industrial policy is something dirty. I can't stand these Victorian morals," said Martin Bangemann, former German economics minister and current EC commissioner for industrial policy.

Intervention, Mr. Bangemann said, is nothing new, "only that we've been practicing the wrong kind." In western Germany, for example, government funding allows companies to lower the price of coal -- an annual subsidy equal to $50,000 for each of the country's 60,000 coal miners. And European farmers receive an estimated $75 billion in subsidies each year.

Europe's new industrial policy will no longer simply pump money into failing industries. In the future it will have to restructure companies and point the way toward successful, future-oriented technologies, said Konrad Seitz, head of planning for the German Foreign Ministry.

MITI, which attracts some of Japan's best-educated people, has been the guiding hand behind that nation's "economic miracle." It has repeatedly identified industries, such as computer chips, that have driven technology for a decade or more.

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