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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


The Case for Intelligent Industrial Policy

Also in 1987, the government and 14 companies launched Sematech (the name Sematech derived from Semiconductor Manufacturing Technology), which was a 50/50 government–industry consortium aimed at maintaining the competitiveness of U.S. semiconductor equipment manufacturers. [In 1994, Sematech’s board voted to discontinue federal support on the grounds that the U.S. semiconductor industry had fully recovered; the organization continues today as an international innovation consortium.]

S+B: What do you say to business or government leaders who, rightly or wrongly, don’t trust one another enough to act this way?
It should not be that difficult a problem. Industry needs government all the time — often in ways that it doesn’t fully acknowledge. I hear CEOs talking about how they hate to go to Washington, and how U.S. taxes are too high. At the same time, they want Washington to do more to protect their intellectual property from appropriation by Chinese companies. They complain about the official “buy China” rules [forcing companies that want to sell goods in China to produce there]. And to whom do they complain? To the U.S. government.

An astute government official would take advantage of this situation. He or she would do more to enforce international intellectual property rules, and respond more fiercely to China’s innovation policies [in which countries entering China are forced into R&D-sharing joint ventures]. But the official would also say to the CEO, “I’m taking care of my part of the deal, but you need to think more broadly as well.”

S+B: You’re asking for sweeping changes in the way some policymakers think. How do we get from here to there, especially in a very partisan political climate?
It probably takes a crisis. I think the last economic crisis wasn’t bad enough to force the changes we need. We should have nationalized the banks or gotten rid of their management. The bankers should have taken a haircut. And we should have much more discipline on Wall Street.

The world is going to be tougher for Americans than it was between 1945 and 2000, when the U.S. had absolute economic dominance. That wasn’t normal; we’re just getting back to normal now. But within that new normal, I have great confidence that the United States can maintain a high and rising standard of living. If I think of the global economy like a game of bridge, I think the U.S. has a better hand of cards than any other player: better than the European Union, Japan, China, or India. But as any bridge player knows, it’s very possible to have good cards and lose if you don’t play the cards well. The U.S. has not been playing its cards well for quite some time. If we change the quality of our game, we won’t have to begrudge China’s success — or the success of Brazil, India, or anyone else. We can all be successful.

Reprint No. 11302

Author Profiles:

  • Art Kleiner is editor-in-chief of strategy+business.
  • Arvind Kaushal is a partner with Booz & Company in Chicago. He leads the firm’s North American manufacturing team.
  • Thomas Mayor is a Booz & Company senior executive advisor based in Cleveland, where he focuses on developing operations strategies and leading business transformation programs for the global aerospace, automotive, and industrial sectors.
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