The idea of a federal industrial policy is nothing new. In the 1984 election it was hot topic, particularly among Democratic presidential candidates. Back then, increased competition from Japan and Europe were chief concerns, and proponents of industrial policy suggested the United States follow models adopted by competing nations that foster a collaborative environment between government and private industry.

Fast forward to 2010, and calls for industrial policy are once again working their way into editorial pages and lobbying efforts by both labor groups and corporate interests. Naturally, their rallying cries are quite different.

Unions are adamant that addressing trade inequities with China should be priority No. 1 in any manufacturing policy discussion. At the same time, many business groups say a free-market approach that includes reducing corporate taxes and opening up new energy sources, such as offshore oil drilling and nuclear power, are the ideal ways to revitalize U.S. manufacturing.

Talk of industrial policy gained traction in September when President Obama appointed Ron Bloom to the newly created senior adviser for manufacturing policy position. Bloom, who has also served as senior adviser to the administration's auto task force, was commissioned to work with federal departments and agencies to develop new manufacturing initiatives.

Taxed to Death

Since then, various interest groups and politicians have stepped up their efforts to establish a new manufacturing framework. On Feb. 3, U.S. Sen. Sherrod Brown (D-Ohio) pushed Obama on the need for a national industrial policy that includes incentives for clean-energy manufacturing, a defense against unfair trade, research and development tax credits and job-training strategies for displaced workers.

Weeks earlier the National Association of Manufacturers released a report it sponsored that concludes cutting corporate tax rates along with other measures that reduce financial burdens could create more than 11 million jobs. Some key recommendations from the report conducted by the Milken Institute include reducing the U.S. corporate income tax to match the average of other industrial countries, increasing the R&D credit by 25% and making it permanent, and modernizing federal export control laws.

The current corporate tax rate makes the United States inherently noncompetitive with China and other emerging markets because only Japan's is higher, says David Littman, senior economist with the Mackinac Center for Public Policy, a free-market think tank based in Michigan. He says "so-called industrial policy" championed by labor advocates that would address currency manipulation and unfair subsidies in China will only backfire.

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