Industrial Policy in Canada and the United States

Industrial Policy in Canada and the United States

Description

The view that governments should act to encourage economic growth, enhance the living standards of citizens, and protect workers is deeply entrenched in both the United States and Canada. Macroeconomic policy, as discussed in the previous chapter, seeks to influence the economy by setting the broad monetary and fiscal context within which businesses, investors, and workers operate Industrial policy, by contrast, seeks to shape economic growth and competitiveness more directly. It is the self-conscious effort to use government policy to create or restore the competitive advantage of particular sectors, industries, or firms - or, alternatively, to shelter firms and their workers from threatening economic changes. Traditionally, industrial policy was seen as operating through a narrow range of instruments, such as subsidies or trade restrictions that were clearly targeted towards alteration of comparative advantage in specific industries. However, on both sides of the border, such direct instruments have been receding, and the conception of industrial policy is being expanded to encompass a wide range of policies that effect the economic competitiveness of a nation, including framework policies, research and development, education and training, infrastructure, and quality of life. Similarly, there is a continuing political struggle in both Canada and the United States to define the basic purposes of industrial policy. All industrial policies, by definition, involve attempts to alter market outcomes. However, there is an important distinction between industrial policies that seek to resist or block changes in comparative advantage or to protect against the impact of market forces, and those that seek to enhance or preserve competitiveness in the light of, or in anticipation of, changing global market conditions. Examples of the former kind of policy are subsidies or trade restrictions aimed at preserving the domestic markets of industries under threat from low-wage competitors in South Asia. Examples of a market-facilitating policy are training and retraining programs to shift human resources from sectors in which a country has lost comparative advantage to other industries where local firms have more potential to be competitive internationally. Understandably, while market-resisting policies focus largely (or, in many cases, exclusively) on protecting the domestic market, market-facilitating policies are also preoccupied with the capture or recapture of export markets. The discourse of industrial policy in Canada and the United States increasingly shares the language of high technology, human capital, and market facilitiation. The Clinton administration has seized on technology and science as the fundamental building blocks for restoring the United States' competitive position in the international marketplace while maintaining high wage levels. In Technology for America's Economic Growth: A New Direction to Build Economic Strength, a report issued in February 1993, the administration identifies three goals as being critical for U.S. success in the new global marketplace: economic growth that creates jobs and protects the environment; more productive and responsive government; and world leadership in basic science, mathematics, and engineering. Similarly, the Chrétien government's “Red Book,” which set out the Liberals' 1993 election platform, speaks of the need to create a technologically advanced and innovative economy by forming technology networks among universities and industry associations, by strengthening research and development, and by expanding assistance for the funding of basic research. Both governments emphasize investment in human capital as an integral part of restoring their nation's comparative advantage. Increased training and other labour market reforms, with a view to building a more flexible and responsive workforce, are seen as the primary means by which a high-skill, high-wage economy is to be created. As a result, both the Chrétien and Clinton governments have outlined a number of policy prescriptions designed to move the workforce in this direction. Both have also stressed the need to rebuild and enhance the national infrastructure, especially in communication technologies. This chapters explores the patterns of convergence and divergence in the broad approach to industrial policy in Canada and the United States. It argues that, traditionally, Canadian governments at both federal and provincial levels have undertaken more explicit and wide-ranging attempts to shape their economy and have utilized a wider range of policy instruments than American governments. However, in recent years, there has been a strong convergence between the two countries. This convergence has come from two different directions. On the one hand, U.S. policy makers, increasingly concerned with maintaining their competitiveness in a more globally competitive world, have begun to pay somewhat more attention to industrial policy. On the other hand, the faith of Canadian governments' in the efficacy of traditional industrial policies, and in their capacity to achieve these policies, has declined. Industrial policies in the two countries are therefore increasingly alike, both in the objectives they pursue and in the instruments they use. To be sure, different cultural traditions, institutional frameworks, and policy legacies sustain important differences in strategy and detail. Nevertheless, in the industrial policy sector, the most powerful trend has been convergence between these North American nations. The chapter is organized as follows. The first section explores the implications of globalization for industrial policy, underlining the differences and similarities of the two countries in their location within the global marketplace, and the tightening links between trade policy and industrial policy. The next two sections review the basic instruments of industrial policy, starting with both countries' use of traditional instruments such as public ownership, subsidies, and defence procurement, and then moving on to the more recent emphasis on instruments such as research and technology, framework policies, social programs, human capital, and new forms of partnership. The final section summarizes the extent of convergence and divergence in the industrial policies of Canada and the United States, and looks at some possible explanations for the patterns that have emerged.

Source Publication

Degrees of Freedom: Canada and the United States in a Changing World

Source Editors/Authors

Keith Banting, George Hoberg, Richard Simeon

Publication Date

1997

Industrial Policy in Canada and the United States

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