122. "Reindustrialization: View From the Source" The New York Times (June 25, 1980). Reprinted in the Herald Tribune International edition (June 30, 1980).


As the proud father of the thesis of ''reindustrialization,'' let me rise to its defense. Its potential is currently being clouded by the limitations of ''industrial policy,'' a remote relation, and misintroduced as the son of the post-industrial society, not its ancestor. But before I can set one and all straight, let me first properly present the newcomer.

The kernel of the reindustrialization thesis is that, for the last decade, the American society has been underdeveloping, which has put industrialization in reverse gear. Decades of overconsumption and of underinvestment in the nationwide economic machine, the source of mass consumption, have weakened America's productive capacity. If America is to continue to be able to sustain a high standard of living and set aside the resources needed for national security, a decade or so of shoring up its productive capacity, or reindustrializing, is required.

To determine what is to be done, one must combine three sets of considerations: what goes into industrialization in the first place; which of the component parts of the American economy have evolved successfully and which have become deficient, and in what ways will the industrial composition need to be different in the near future from what it was in the past.

Historically, industrialization is achieved in two main stages: First, an infrastructure is developed in which nationwide transportation systems are set up (in the United States, it was canals and railroads), cheap power is gained (mining of coal and drilling of oil wells), technological innovations are advanced (the steam engine), modern communications systems are evolved (the telegraph), financial institutions introduced (national currency, banks, stock exchanges), and the labor force is prepared (the rise of vocational education, acculturation of immigrants).

Next, it is the turn of the capital-goods sector, which must build the heavy-duty machinery and plants (steel mills, etc.). These are not consumer goods, but the tools to be used to mass-produce them.

When these two stages are well advanced, a society can mass-produce consumer goods and services. In American history, this stage was reached by the late 1920's, but the Depression and World War II delayed the full introduction of the affluent society until the late 1940's. Then came the generation of mass production of autos, television sets, appliances, homes, and higher standards of health, mass post-secondary education, mass involvement in culture and explosion of social services.

In the period of mass consumption in the United States, however, not enough was plowed back into the underlying sectors, such as the infrastructure of the capital goods sector, to maintain and update them. In that sense, consumption was ''excessive,'' in that adequate reinvestment was neglected.

Some see excesses only in public consumption, such as Government expenditures, mainly in social services and transfer payments. However, calculations I have made suggest that, even if Government spending were cut back as extensively as 30 percent over three years, as some of the radical-conservatives have suggested, we still would not have all the resources we need to shore up America's productive capacity.

For example, a strong drive for energy self-sufficiency alone would require the spending of more than $120 billion in an average year over the next decade. Also, increasing reinvestment in the capital goods sector to 12 percent of gross national product would require another $50 billion, and so on.

A decade of public and private belt-tightening is therefore needed if all the obsolescent elements are to be replaced and others adapted to the current environment. Otherwise, the slow economic growth, decline in productivity, inflationary pressures, and the other well-known signs in the strained economy, will persist.

In determining specifically what needs shoring up, one must take into account the changing world. We cannot simply retrace the industrialization of the 19th century to find our priorities; we must adapt to the last decades of the 20th century and beyond. The factors that stand out here are: energy (the potential exhaustion of oil, the rise in cost of all energy resources, and the dependence that imports generate) and national security (renewed Soviet expansionism).

The first factor suggests that we must adapt our infrastructure and capital goods sectors to be more energy-efficient and to use fuels other than oil. This would require the generation of capital needed to replace or modify machinery.

The second criteria suggests that we need to dedicate more resources, including labor force, to our ability to deter not only a direct Soviet attack, but incursions on Middle East oil as well. This requires allotting some assets and personnel to work that does not increase our productive capacity, and heeds considerations other than sheer economic logic.

In pursuing the goals of reindustrialization, adapting to the new energy world, and meeting Soviet challenges, the following sectors need to be granted priority:

* Transportation: Railroads and roads must be improved. Waterways are by-and-large overdeveloped, and pipelines, with some exceptions, are very costly and serve only limited purposes.

* Energy: Develop all alternatives to oil and make all industries more energy-efficient and more able to use fuels other than oil.

* Research and development: Return expenditures on research and development to 3 percent of gross national product, from its current 2.3 percent. Stress applied and technological work to make use of our strong basic research.

* Human capital: Increase vocational and technical education and make it more job-relevant.

* Capital goods: Try to increase plow-back investment to 12 percent of gross national product, from less than 10 percent recently, to come nearer to our main competitors (West Germany, about 15 percent; Japan, about 21 percent) and to provide the capital to replace obsolete equipment (especially in steel, rubber and textiles).

* Defense: Shore up the industrial base for the production of conventional warfare equipment to reduce the probability of a nuclear confrontation. Close the pay differential between skilled jobs in the military and in the private sector to prevent the drainage of skilled labor force from the military.

The reindustrialization thesis has been confused with the notion of industrial policy, which maintains that we should select some industries as winners and provide those with public assistance while burying the losers. There are two radically different versions of industrial policy: One, a micropolicy, calls for selecting a few industries (steel or autos) and using, say, a $5 billion revolving fund (or a renewed Reconstruction Corporation) to help them overcome their obsolescence and to become more competitive. This idea was advanced by Felix Rohatyn, chairman of New York City's Municipal Assistance Corporation and a partner in the investment banking firm of Lazard Freres & Company, and by Henry Kaufman, a senior partner of Salomon Brothers, investment bankers.

A quite different version calls for a national committee to review and guide most, if not all, industries. Gar Alperovitz and Jeff Faux, for instance, of the National Center for Economic Alternatives, a private group examining proposals for restructuring the economy, favor such an approach, which is but a poorly disguised version of national planning. In contemporary America, which is growing more politically conservative and responsive to business, it would be easier to walk on water than to form and implement national planning of the economy.

Reindustrialization does not require any such national planning. All it takes is to favor two economic sectors, infrastructure and capital goods, by broad-stroke economic incentives such as accelerated depreciation, tax incentives to encourage savings and investment, more encompassing write-offs for research and development and other expenditures, as well as some guarantees and other support for those who enhance energy efficiency and conversion to nonoil energy sources. Such a macro approach can well be supplemented by microindustrial policy that would help some select industries without requiring overall national planning.

If our basic industrial base is to grow along the lines I have outlined, public and private consumption must be sacrificed to some extent. For a decade or so, we will have to tighten our belts or we will continue to eat into the economic foundation that provides our high standard of living, our social benefits and our security. Most Americans, I believe, if presented with a realistic program of reindustrialization, would be willing to make the needed sacrifices.

Amitai Etzioni, senior adviser in the Executive Office of the President, is a sociologist and former professor at Columbia University.

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