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Obama to introduce radical reforms: Report

November 20, 2008 16:51 IST

President-elect Barack Obama is promising to intervene in the economy in ways that US hasn't tried since the 1970s, favouring some industries and products while hobbling others, a media report said on Thursday.

Under his financial policies, the Wall Street Journal reported, banks seeking government assistance would be forced to lend and to halt foreclosures.

Automobile companies would be pushed to change their product lines to more advanced, fuel-efficient vehicles.

Billions of federal dollars would promote solar, wind and biomass energy, while dirty coal power could be priced out of business.

Obama advisers were quoted by the paper as saying that difficult times necessitate extraordinary measures.

"We are in the midst of a massive reorganisation right now in autos but also other areas as well -- finance, information technology. All of this flows into...the new green energy economy we are living in, albeit in an embryonic stage," David Bonior, an economic adviser to Obama and proponent of a more interventionist industrial policy in the 1980s, told the paper.

Asked if this was the industrial policy of the incoming Obama administration, he replied: "The answer is yes."

Critics and advocates alike, said the Journal, see the re-emergence of government economic steering that was in vogue when Japan, South Korea and Germany embraced it three decades ago, then discredited after its key practitioners slipped into deep economic funks.

With the upheavals in world capital markets, pure free-market policies are facing more criticism, it noted. 

Obama is by no means an activist in the Japanese mold, Douglas Holtz-Eakin, an economic adviser to John McCain's presidential campaign, was quoted as saying. 

But as a whole, policies crafted to address distinct problems in the auto, energy and banking sectors are merging into a broader policy that would pick some winners and losers, preserve entire industries and shape consumer choices, he said.

"We're backing into industrial policy in an emergency to correct massive market failures," Jared Bernstein, an economist at the liberal Economic Policy Institute who has worked with the president-elect's economic team, told the paper.

The Bush administration's $700 billion Wall Street rescue plan could be thought of as a state intervention to preserve US dominance in financial services, Bernstein said.

And coming from a conservative Republican administration, the Wall Street rescue plan opened the gates to other economic inter ventions.

What is changing is the unabashed nature of the coming interventions, after decades of denial, Fred Block, a sociologist at the University of California at Davis who studies public-private partnerships, was quoted as saying.

Obama has said future assistance to the banking sector would be tied to a 90-day moratorium on foreclosures. Advisers are pushing for other conditions to ensure tax money going to the banks would be lent out, not put into the vaults to recapitalise the firms, the paper said. 

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