solving approach can be illustrated by four case studies: Protecting the auto industry, saving the Chrysler Corporation, the savings and loan bailout, and rationalizing the commercial banking industry. One of the problems with functional problem solving is that it tends to become instrument-specific. The focus shifts from the industry to the instrument. Once a problem is solved using a specific instrument, the instrument is given special status and is thought to be able to solve all other problems. This is equated with the law of the hammer: 'Give the child a hammer and suddenly everything resembles a nail.' The law of the hanuner is illustrated by the Reagan adn-Linistration's fascination with voluntary trade restraint agreements. Examples will be provided. Global Steering The second traditional component of U.S. industrial policy is global steering. First used to describe industrial policy during the Johnson years, global steering found favor with both the Reagan and Bush administrations. Global steering remains an important component of industrial policy today largely because of the policies of the Federal Reserve Bank. Global steering is the exclusive use of macroeconomic instruments for industrial policy purposes. Global steering is a modified laissez-faire system where the government manages the macro economy through fiscal and monetary policies. Individual industries are expected to take care of themselves. Robert Lawrence's Can America Compete? (1984) is one of the best-reasoned arguments for global steering. Proponents of global steering typically believe that the government is too politicized and incompetent to manage a selective industrial policy. Defense Spending to Defense Downsizing Defense spending must also be seen as a major component of national industrial policy. Defense contracting has produced a new economic map of the United States. This 'gunbelt' has worked as a kind of .underground regional policy,' reallocating jobs from one region of the nation to another. The role of the modem defense establishment in industrial promotion will be researched. A case study of Sematech will be developed and the Sematech effort evaluated in comparison to similar Japanese efforts. The impact of the downsizing of the military on industrial policy will be investigated as will the industrial implications of defense conversions. Base closings may provide some interesting case studies of modem defense-related industrial policy. From Free Trade to Managed Trade Presidents Reagan and Bush were essentially free traders. Both adnlinistrations pursued policies that reduced trade barriers and opened markets. Many of these negotiations were on a bilateral basis. The U.S.- Canada Free Trade Agreement and the North American Free Trade Agreement provide examples (althou(yh NAFTA is technically trilateral). However, neither the Reagan nor Bush administration relied entirely on bilateral agreements. 'Me Uruguay Round of GATT negotiations was important to both (as it is to President Clinton). The election of President Clinton marked a significant change in trade policy -- a movement from free trade to managed trade. The influence of Laura D'Andrea Tyson as Chair of the Council of Economic Advisors in modifying trade policy will be examined. Case examples will be drawn from negotiations aimed at opening Japanese markets. The recent activities of the Export-Import Bank in promoting industrial policy goals may also illustrate how other administration agencies are pursuing industrial policy goals. The Conunerce Department's BEMS (big emerging markets) program will also be researched. Downtown Development to Empowerment Zones National industrial policy is not strictly a policy to aid manufacturing industries. Some components, like downtown development, have largely benefited services. One component of national industrial policy has been targeting economic assistance to distressed places. The implementation of such policy has traditionally been carried out through grants-in-aid to states and localities. The Urban Development Action Grant program, while only one of nearly 70 federal programs that dealt with economic development in the late 1970s and early 1980s, will provide an excellent example of how targeted industrial policy worked. Targeting distressed conununities through project grants created a de facto industrial policy with geographic and sectoral implications. The ultimate outcome of UDAG was the creation of an enormous number of service sector 'ohs in the cities of the Northeast and Midwest. UDAG, however, was only one component of taroeted support for the real estate sector. During the late 1970s and 1980s, Congress changed a number of the rules 2oveming banks and passed changes to the tax laws that encouraged investment in real estate. All of this succeed@d dramatically. Durin- the 1980s, an increchble 12.S billion square feet of commercial real estate was built--between one-third and two-fifths of the total space available t today. This construction was financed with over $1 trillion in debt. (As we know, a significant amount of that debt went bad.) Human Resource Development One element of national industrial policy largely ignored by the Reagan and Bush administrations was the human component. In a country riddled with persistent poverty, some companies (e.g., Motorola in suburban Chicago) cannot find enough workers with the right skills. The research will thus describe and attempt to evaluate Secretary of Labor Robert Reich's new initiatives. These include technology academies and the AmeriCorps Initiative. President Clinton created a commission to recreate the workplace. The White House wants the findings of the commission to be the center-piece for upcoming labor legislation. The commission hopes to lead the way to a labor/management compromise giving workers and managers shared power in running their companies. Science and Technology-Based Policy Science and technology-based development is the most interesting component of U.S. industrial policy. It is most interesting because it most closely resembles Japanese policy. The Clinton administration has announced