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APPENDIX C A Review of Policy Recommendations of Selected Study Committees, Panels, and Commissions, 1979-1985 INTRODUCTION The past decade has seen growing concern about signs of a weakening of the position of U.S. manufacturing in the world economy. Numerous committees, commissions, and panels have been appointed to study the sources of retardation and to rec- ommend policies to strengthen U.S. industry's competitiveness. While some of these study groups have dealt with broad issues of productivity, innovation, and technological change, the main focus has been on the manufacturing sector. This appendix summarizes policy recommendations made by 17 study committees during 1979-1985. The sponsors included the Committee for Economic Development, the American Productiv- ity Center, the National Research Council, the Office of Technol- ogy Assessment, and the U.S. Department of Commerce. The recommendations reflect a consensus among business executives, university experts, and government officials. In some cases, union officials and public representatives also participated. Each study group is briefly described, and its major policy recommendations or options are outlined. 131

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132 OVERVIEW OF MAJOR POLICY RECOMMENDATIONS To provide an overview of the scores of policy recommenda- tions included in these various studies, they have been classified and briefly analyzed under 10 headings. Research and Development in Science and Technology Continuation or increase of the federal government's support of basic research was favored by several study groups. Support for generic research, particularly in manufacturing technology and au- tomation, also was favored, as was coupling industry and univer- sity research. The President's Commission on Industrial Compet- itiveness recommended the establishment of a federal Department of Science and Technology to encompass all existing programs. Human Resource Management Various studies included wide endorsement of the idea that employees should be more involved in the decisions affecting their work, that the adverse human impacts of automation need to be moderated, that reward systems linked to productivity perfor- mance can be helpful, and that labor-management cooperation should be encouraged. Education and Training Several panels stressed the need to improve and expand en- gineering education in a time of explosive growth in technology. Particularly vital is the need for graduate education to fill faculty vacancies at the university level. The spread of computers also is expanding the training requirements of managers and employees. According to one panel, effective computer education will require further research on educational software.

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133 Regulatory Reform The use of performance standards, cost-benefit analysis, and economic incentives was recommended by many panels as a way of balancing regulatory and business goals. Several panels favored a faster review process in their industries. Tax Policy Changes More favorable treatment of research and development (R&D) in the tax code was recommended by many groups, along with continuation of incentives for capital investment. Several panels favored simplification of the tax structure. Capital Investment The capital investment issue was considered by several groups as connected with efforts to stabilize monetary and fiscal policy. According to the President's Commission on Industrial Competi- tiveness, the supply of capital should be increased by reducing the federal deficit. Trade Policy Many committees favored closer monitoring and stricter en- forcement of import policies. A few favored a review of the effect of national security export controls on competitiveness. Two pan- els endorsed the establishment of a single agency or Department of Trade. Antitrust Policy Modification of antitrust policy on mergers and competition was endorsed by many committees on the grounds that foreign firms have become major competitors in many industries. En- couragement of joint R&D ventures was also favored.

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134 Government Procurement The government has an important role to play in improving the competitiveness of industries in which government or govern- ment contractors are major customers, such as aircraft and ma- chine tools. Several panels favored unprovement in procurement policies through more coordinated planning and support for mod- ernization among suppliers. Patent Reform Several panels favored changes in the patent system to im- prove the competitiveness of U.S. industry. The recommended changes include a first-to-file system, restoration of time lost due to regulatory requirements, and an effective computer-based patent search and retrieval system. Some panels favored stronger protec- tion against unfair patent use by other countries. SUMMARY OF SPECIFIC REPORTS 1. Committee for Economic Development Research and Policy Committee. 1980. Stimulating Technological Progress. New York: Committee for Economic Development. Background This was a committee of 28 business and university execu- tives headed by Thomas A. Vanderslice, GTE Corporation. It an- alyzed how technological progress is affected by certain economic problems, including slow productivity growth, inadequate capital investment, uncertain government regulation, and a complicated patent system. Major Policy Recommendations Tax policy should be changed to increase investment in new plant and equipment, including a more rapid capital recovery allowance and flexible depreciation of fixed R&D assets.

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135 Regulatory reform should use performance standards, a system of economic incentives and penalties, and appraisal of po- tential adverse effects on future innovation. The patent system could be made more effective through voluntary arbitration, a single court of appeals, and a first-to-file patent system. Federal R&D support for basic research in universities should be increased. 2. Committee for Economic Development Research and Policy Commit tee. 1983. Productivity Policy: Key to the Nation 's Economic Future. New York: Committee for Economic DeveJop- ment. Background Under the chairmanship of William F. May, Dean of the New York University Graduate School of Business Administration and Management, 31 executives and consultants undertook a study of the nation's lagging productivity growth in relation to its past record and to the rates of other industrialized economies. The committee emphasized that long-term and, in some cases, fun- damental changes are needed in management and labor practices and in public policy areas. Major Policy Recommendations Review the tax code to achieve substantial simplification in the tax structure, reduction in tax preferences, and reduction in marginal tax rates through a broadening of the tax base. Adopt a mechanism to adjust the valuation of capital gains for inflation thereby eliminating a major impediment to sav- ing and investment. Increase outlays for repairs, modernization, and expan- sion of the portion of the public infrastructure that contributes to productivity. Ensure that investment incentives are neutral among dif- ferent types of capital assets.

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136 Increase federal funding of basic research, especially in universities, including payment of the full cost of R&D performed under contract by universities, financing of individual scholars of outstanding ability, and sharing of high cost instruments among - universities. Introduce a flexible system of depreciation of R&D capital assets by amending laws to permit expensing of R&D structures and equipment. Review current antitrust policies and modify any antitrust laws that inhibit productivity growth. Regulatory goals should be pursued primarily through market incentives and the use of the bubble and offsets programs; use of regulatory requirements and direct controls should be avoided. Every American business should adopt explicit produc- tivity goals and select appropriate techniques to achieve them, including encouraging entrepreneurship within the firm. Involve employees and unions in designing and implement- ing policies to enhance productivity, including compensation sys- tems providing financial incentives for improved productivity. 3. Committee on Technology and International Economic and bade Issues. 1985. The Competitive Status of the U.S. Civil Aviation Manufacturing Inclus try. Washington, D.C.: National Academy Press. Background The Civil Aviation Industry Pane! of the Committee on Tech- nology and International Econorn~c and Trade Issues, headed by Frederick Seitz, included 27 business, labor, and academic ex- perts. They examined key challenges created by a combination of circumstances, including deregulation of airlines, emergence of foreign competitors, internationalization of aircraft manufacture, and growing involvement of foreign governments in the industry.

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137 Major Policy Recommendations Monitor trade and encourage compliance with trade agree- ments. Extend measures that would enable aircraft manufactur- ers to spread the risk in leasing aircraft to domestic and foreign customers. Reexamine the lending role of the Export-Import Bank in light of heightened competition. Continue the new Export-Import Bank facility to provide medium-term loans for sales of small aircraft. Develop mechanisms to ensure an effective industry voice in deliberations on coproduction. Reexamine mechanisms for working with civil aircraft manufacturers to ensure that maximum advantage is taken of dual-use capabilities in technology development for design, man- ufacture, and certification. The Department of Defense (DOD) and industry should strengthen the process of coordinated planning for aircraft pro- curement to reduce, as far as practicable, disruption due to the great cyclicality in production. Reexamine the research and technology development ac- tivity in support of civil aviation within the National Aeronautics and Space Administration (NASA) in light of new technologies and a changing competitive environment, including expansion of NASA programs on technology validation. 4. Committee on Technology and International Economic and bade Issues. 1982. The Competitive Status of the U.S. Auto Industry. Washington, D.C.: National Acaclemy Press. Background Professor William J. Abernathy of the Harvard University Graduate School of Business Administration headed an 11-person pane} of experts from industry, labor, universities, finance, and an official of a major automobile manufacturing company. The pane} dealt primarily with trends in cost and technology, recent

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138 innovations, and their impact on the industry's relative compet- itive position. An ~n-depth analysis of policy options was not carried out. Instead, three main lines of future development were presented, with the broad public policy implications of each line indicated. Major Policy Recommendations On the assumption that the current situation reflects a tem- porary economic misfortune, the pane] projects that Relaxation of regulation and tax incentives will spur cap- ital investment and allow a viable domestic industry. Temporary import quotas will reduce imports, slacken the drive for changes In management, and accelerate construction of Japanese plants in the United States. On the assumption that the auto industry is maturing and losing competitiveness to low-cost foreign producers, the pane! projects that Relaxation of regulations and tax incentives will result in capital investment in specialty and high technology models. Temporary import quotas will encourage production inef- ficiencies and high prices, weakening primary demand. On the assumption that fundamental structural change is tak- ing place with substantial technological change, new products, de- cTine of vertical integration, and advance of specialized producers, the pane} projects that Tax incentives and deregulation will aid investment in new product development. Temporary import quotas will preserve market share in standard models, but reduce the urgency of structural changes. 5. Committee on Tech noJogy and International Economic and Trade Issues. 1982. The Competitive Status of the U.S. Electronics Industry. Washington, D.C.: Nation a] Academy Press.

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139 Background The chairman of the 12-person pane! of university and in- dustry experts was Professor John G. Linvill of Stanford Univer- sity. Four sectors of the industry semiconductors, computers, telecommunications equipment, and consumer electronics-were studied separately, but policy options were outlined for the indus- try as a whole. Major Policy Recommendations Research policy Encourage joint research ventures. Support basic research. Expand incremental R&D funding as well as research grants to universities for projects related to a firm's business. Capital formation policy Create a category in the depreciation system for equip- ment with high rates of technological obsolescence combined with a reduction in the penalty for taking the investment tax credit over a short time period. Increase the first-year depreciation allowance. Human resource policy If the industry is provided with appropriate incentives by gov- ernment, it can take important steps to respond to the shortage of faculty and equipment needed to train additional electrical en- g~neers. International tracle policy Clarify and consolidate responsibility for foreign trade policy within one federal agency. Review restrictive U.S. laws and regulations and elimi- nate instances in which they place U.S. firms at a competitive disadvantage.

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140 Electronics industry policy "The U.S. government, working with industry and universi- ties, must develop a statement of national goals for the electronics industry." 6. Committee on Technology and International Economic en c' Trade ~sues. 1983. The Competitive Status of the U.S. Pharma- ceutica] Industry. Washington, D.C.: National Academy Press. Background A panel of 12 industry, financial, and university experts, headed by Charles C. Edwards, President, Scripps Clinic and Re- search Foundation, examined the relative decline of the U.S. phar- maceutical industry despite its continued expansion of output. Major Policy Recommendations The Food and Drug Administration (FDA) prohibition of exports of unapproved new drugs should be revised to permit domestic production for shipment abroad. Restore the patent time lost as a result of FDA regulatory requirements. Examine antitrust policy to determine whether it discour- ages mergers that could make U.S. companies more competitive in world markets. Expand research tax credits to include research-related expenditures not now eligible for the investment tax credit. Allocate R&D expenditures incurred in the United States solely to the U.S. income of the taxpayer. Study the impact of product liability in the pharmaceuti- cal industry in an attempt to reduce this disincentive to research. Implement the recommendations of the Commission on the Federal Drug Approval Process to expedite the review process without reducing public health protection.

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141 7. Committee on Technology and International Economic and Trade Issues. 1983. The Competitive status ofthe U.S. Fibers, Textiles, and Apparel Complex. Washington, D. C. : National Academy Press. Background An 11-person pane! of experts from industry, labor, univer- sities, and the trade press, headed by Dean W. Denney Freeston, Jr., of the Georgia Institute of Technology College of Engineering, assessed the future of international competitiveness of the U.S. textile complex, including fibers, fabrics, and end users apparel, home furnishings, and industrial. One of every eight factory work- ers is employed in this textile sector. This pane! concentrated on incremental changes in existing policies rather than on sweeping changes. Major Policy Recommendations Trade Enforce existing trade mechanisms more rigorously. Tighten controls and speed response to changes in market conditions and import surges. Seek reductions in tariff and nontariff barriers in other countries. Change to a system of granting licenses to U.S. importers instead of foreign exporters. Technology Examine government-sponsored collaborative R&D proj- ects in apparel manufacturing, involving fiber, fabric, and equip- ment industries. Place greater emphasis on policies affecting equipment utilization, such as more favorable tax incentives for the use of experimental equipment.

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146 Study the effects of consolidation, acquisitions, and joint ventures on the strength of the U.S. industry in competition with foreign producers. Other government agency actions Promote a machine too! export program through the De- partment of Commerce. Reduce barriers to the export of machine tools to Eastern bloc markets. Make an inventory of federal programs that are aimed at the problems of manufacturing productivity to gain better coor- dination and simplification. Ma chin e too! in d ustry a c tio as Aggressively apply advanced equipment and processes in machine too] production. Actively search for new technology. Increase investments in long-term competitive strategies rather than responding only to short-term economic considera- tions. Participate in joint R&D efforts. Expand information programs to inform machine too! builders of DOD programs. 11. Committee on the CAD/CAM Interface. 1984. Computer Integration of Engineering Design and Production: A National Opportunity. Washington, D.C.: National Academy Press. Background In response to a request from NASA, the Committee on the CAD/CAM Interface, composed of 12 experts from industry and academia, was organized by the Manufacturing Studies Board to recommend ways to improve the interaction between the engi- neering design of a product and its production. Professor Arthur R. Thomson chaired the committee. The committee visited five

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147 companies with experience in jar federal programs. . Integration and reviewed three ma Major Policy Recommendations A strategy of computer-integrated manufacturing (CIM) should be adopted by NASA for its manned space station program. Consortia should be formed by groups of companies to pursue research and other projects in CIM not readily undertaken by individual companies. Existing knowledge of CIM technology should be compiled by the Computer and Automated Systems Association and made available to industry, universities, and government agencies. Research should continue to be undertaken by the fed- eral government to resolve fundamental technical issues related to CIM. Federal agencies that purchase manufactured goods should accept digital data sets compatible with the Initial Graphic Ex- change Standard rather than requiring conventional drawings as a deliverable item under contracts. Manufacturing companies considering investment in prod- uct design or manufacturing process technology should consider CIM. 12. Computer Conferences on Productivity. 1983. A Final Report for the White House Conference on Productivity. Houston: American Productivity Center. Background The American Productivity Center brought together 175 senior-level leaders from business, labor, acadern~a, and govern- ment through a computer conferencing system over a four-month period in 1983. These leaders exchanged information and debated recommendations in areas involving productivity and work qual- ity for submission to the White House Conference on Productivity.

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148 The consensus reached In several areas pertains to the manufac- turing sector. Major Policy Recommendations A less authoritarian and more interactive style of man- agement should be followed at all levels. Organized labor should accept greater responsibility for the competitiveness of its employing firms. Government is responsible for moderating the human im- pact of the competitive process. Quality awareness should be raised through campaigns that would include private cooperation with schools to spread the concept of quality and national awards for contributions to im- proved quality. Reward systems for productivity improvement should be initiated, including sharing business information with employees, participative work practices, pay for performance, and better mea- surement of productivity. Strong programs of education and training are needed to enhance management skills in the development and use of new technology. Government procurement practices should be changed to include provisions for sharing increases in risk and reductions in cost due to implementation of new technology. 13. White House Conference on Productivity. 1984. Produc- tivity Growth: A Better Life for America. Washington, D.C.: U.S. Government Printing Office. Background On October 25, 1982, the President signed legislation calling for a White House Conference on Productivity to develop rec- ommendations for stimulating productivity growth in the United States. During the following 11 months, preparatory conferences were held at four universities across the country, each dealing

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149 with a single topic. The White House Conference was held in Washington, D.C., on September 21-23, 1983, and was chaired by L. William Seidman and William Simon. About 1,000 per- sons attended to discuss the findings and recommendations of the preparatory conferences and new suggestions for action by the public and private sectors. Major Policy Recommendations Government actions Increase public recognition and acceptance of improving productivity growth as a national goal and as the means of raising our standard of living, including tivity. Maintain a stable noninflationary economic environment and reduce the government's consumption of national resources. Develop a specific plan for fundamental tax reform, with improving productivity as a standard for evaluating tax reform proposals. Change or repeal laws that unpose impediments to pro- ductivity growth, including performance standards in environmental regulation; cost-benefit analysis and market-based incentives in health and safety regulation; - protection of patents against unfair use by other coun tries, especially in areas of computer software and chip tech nologY; making joint ventures, including joint R&D ventures, a more effective means of meeting world competition; and consistently evaluating regulations and laws in terms of effects on productivity; creating a National Medal for Productivity and Qual- ity Achievement; and emphasizing better techniques of measuring produc

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150 - removal of restraints on competition in the energy, communications, transportation, and financial service indus tries. Private sector actions Focus more attention on improving technology, quality, and information resources. Employ creative, innovative work practices to use more fully the knowledge and talent of employees. Establish productivity measures and improvement goals, especially for information and service workers. Promote labor-management cooperation to consider work- place problems such as plant closings, training, restrictive prac- tices, and employment security. 14. U.S. Congress, Once of Technology Assessment. 1984. Computerized Manufacturing Automation: Employment, Educa- tion, and the Workplace. Washington, D.C.: U.S. Government Printing Office. Background The Office of Technology Assessment (OTA), with a 24-person advisory pane} and three workshops, conducted an in-depth study of programmable automation, covering computer-aided design, computer-aided manufacturing, and computer-aided techniques for management. The findings covered the state of the art, the impact on employment and occupations, health and safety effects, education, training and retraining issues, the automation indus- tries, R&D, and programs abroad. Instead of specific recommen- dations, the OTA proposed a series of policy options for congres- sional consideration under four broad headings.

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151 Major Policy Options Technology development and diffusion Increase funds for R&D on automation, especially for longer-term generic research in nonmilitary applications. Facilitate standard-setting as a means of increasing the ease of use and encouraging the application of automation tech- nologies. Redress the historical U.S. inattention to manufacturing processes, organization, and management through support of en- gineering education and some form of manufacturing institute and clearinghouse. Employment programs Establish job creation programs for production of public mation. goods and services, from highway building to child care. Expand programs for disseminating labor market infor Expand programs for assisting displaced workers, includ- ing advance notice and financial incentives to relocate personnel, either in or outside the firm. Work environment Increase oversight of and research on the workplace effects of automation through OSHA and the National Institute for Occu- pational Safety and Health. Education, training, and retraining Increase support for facilities, equipment, and qualified instructors at colleges, universities, and vocational schools. Encourage curriculum development geared to the de- velopment of automation-related skills. Encourage renewed emphasis on basic skills in reading, math, and science as well as problem-solving skills.

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152 Encourage individual participation in instruction re- lated to automation and development of industry in-house pro gralms. 15. Advisory Committee on Industrial Innovation. 1979. Fi- na] Report. Washington, D.C.: Department of Commerce. Background In 1978, President Carter called for an extensive review of government policies on industrial innovation. Under the guidance of the Department of Commerce, more than 150 senior representa- tives from industry, labor, academia, science, and public interest groups participated in meetings held by the Advisory Committee on Industrial Innovation. These deliberations covered the broad issues of economic and trade policy, environmental, health, and safety regulations, regulation of industry structure and competi- tion, federal patent and information policy, federal procurement policy, and direct federal support of R&D. Industrial members of the advisory committee issued 10 separate reports covering the ef- fects of federal policies in these areas on industrial innovation and specific recommendations for change. Separate reports covering all issues were produced from the perspectives of small business, labor, and public interest groups. Major Policy Recommendations Since the specific recommendations are too numerous to list, only the major general ones are highlighted, under five broad head- ~ngs. Economic and trade policy Revise tax laws to elirn~nate disincentives to overall in- vestment and R&D. Reduce disincentives to savings to help alleviate shortages of venture capital.

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153 tion. Maintain strong foreign competition as a spur to innova Environmental, health, and safety regulation Improve the regulatory process through analysis of risks, costs, and benefits, reducing uncertainty of content and timing, etc. Maintain a high level of competence in the regulatory agencies. Avoid use of mandatory controls, including methods spec- ification. Regulation of industry structure and competition . Encourage joint or cooperative research, even among large competitors in some cases. titrust policy. Consider general economic health in enforcement of an Patent and information policy Complete development of art effective computer-based patent search and retrieval system. Establish a policy of convenient access to all information created and collected by the government, except for confidential and classified materials. Direct federal support of research and development Support a substantial increase in the coupling of univer- sity research and industrial needs. Support R&D and the dissemination of new technology generic to process or product innovation in a wide array of indus- tries. 16. The President's Commission on Industrial Competitive- ness. 1985. Global Competition: The New Readity. 2 vois. Wash- ington, D.C.: U.S. Government Printing Office.

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154 Background The President formed the 30-person Commission on Inclus- trial Competitiveness in 1983 to study ways of improving the competitiveness of American industry. The commission, under the chairmanship of John A. Young, President, Hewlett-Packard Corporation, included high officials of private industry, unions, universities, and banks. The commission's recommendations are reported under four headings. Major Policy Recommendations Research and development and manufacturing Create a federal Department of Science and Technology. Increase tax incentives for R&D. Remove antitrust barriers to joint R&D. Commercialize new technologies through improved man- ufacturing processes. . Strengthen protection of intellectual property rights. Capital resources Reduce the federal deficit. Restructure the tax system. Pursue a stable monetary policy. Remove barriers to the efficient flow of capital. Human resources . Increase effective dialogue among government, industry, and labor through existing advisory committees and in other ways. Encourage labor-management cooperation through presi- dential recognition of good cases. Strengthen employee incentives through use of plans link- ng pay and performance. Encourage programs to assist in the reemployment of dis- placed workers. Improve engineering education and business schools. i:

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155 Establish partnerships in education to counter high drop- out rates and continue support of research programs in educational software for computer technology. International trade hnprove trade and investment policy through the estate lishment of a Department of Trade. Review U.S. trade law to facilitate industrial adjustment to increased global competition. Reform U.S. antitrust policy to recognize the potential ef- ficiency gains from business combinations and the reality of global competition. Review export policies, including renewal of the Export Administration Act, negotiate agreements to minimize the impact of national security export controls on competitiveness, and im- prove the functioning of export expansion, trade information, and export financing programs. 17. Work in America Institute. 1984. Employee Security in a Free Economy. New York: Pergamon Press. Background The Work in America Institute, a nonprofit, nonpartisan or- ganization, conducted an investigation of workable alternatives for achieving greater employment stability as a means of spurring company prosperity. A national advisory committee of 38 experts from business, labor, academia, and consultancy provided guid- ance to the study. The study was directed by Jerome M. Rosow, President of the Work in America Institute, and Robert Eager, Vice President for policy and technical studies. The specific rec- ommendations fall under seven major headings. Major Policy Recommendations Employers should consider a commitment to employment security to the full extent in circumstances that are under their

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156 control and to the extent that they can in circumstances beyond their control. Employers should institute a system of advance planning of human resource needs and shifts, in consultation with union officials. Employers should adhere to lean staffing standards to avoid layoffs due to imbalances and should adopt production, mar- keting, and financial policies that minimize sudden changes in the size of the protected work force. In response to economic declines, employers should de- fer layoffs as long as possible while taking advantage of attrition, release temporary employees, increase training, and, as a final re- sort, use work sharing. Employers, in the event of dismissal of permanent em- ployees, should actively help them find suitable work elsewhere, including outplacement services, retraining, and pension portabil- ity. Regional groups of employers and unions should form al- liances and organize computer-based job clearinghouses and re- training, education, and job creation programs. Government should play a supportive role, providing in- centives to employers who are committed to employment security, requiring protection to provide an approximate measure of em- ployment security, and enacting short-time compensation regula- tion.