The policy that shall not be named

That’s industrial policy folks. It used to be that all developed nations with the exception of the US engaged in it, albeit quietly. Now, it’s back in public vogue, and even Americans are keen on it. It has always been central to the Biden administration, but now, according to a senior administration official I interviewed recently, business leaders are coming to Washington and asking for a signal in the noise of deglobalisation — should they be in Vietnam, Mexico, South Carolina? Should they put investment into clean technology or biotech, or both? They are also looking for increased public support for more domestic production in the wake of the semiconductor industry’s multibillion-dollar boost.

But what is industrial policy exactly? And how should it be used — if at all — in the US?

Let’s start by understanding that the contours of industrial policy differ depending on the country. Command and control states like China explicitly pick winning sectors, and even companies, and lavish public incentives on them for better or worse. They also engage in mercantilism and protectionism of all kinds to ring fence and support local markets. European countries like France support “national champions” (think Airbus) and Germany is well-known for its co-determination model of corporate governance in which the public sector, private sector and labour all play a role in how companies operate.

But the US is different. The country has for the past half a century been run like a company — lean and mean. As long as consumer prices were falling, it didn’t matter how many industries were lost or jobs outsourced and/or displaced by technology. That’s now changing (see my Monday column on the death of trickle-down economics) for all sorts of reasons, from national security and environmental concerns to technological and demographic shifts that favour more domestic production and labour. Both the right and the left in particular are trying to figure out what the contours of more government directed economic policies should be. How do we make industrial policy something that supports equitable growth, rather than simply becoming a boondoggle for already wealthy corporations?

This past Friday, I spoke at a Roosevelt Institute event “Progressive Industrial Policy: 2022 and Beyond”, which was a terrific deep dive into this topic (see the live stream of the event, here). Below are five of my top takeaways:

1. We need more data. Over the past couple of decades, most of the offices within the federal government dedicated to gathering data about production of goods have been defunded. That’s one reason it took longer than it might have to increase production of personal protective equipment during the Covid pandemic. We didn’t even know how much stuff we were producing, or who was doing it. Basic data gathering doesn’t cost that much money, and having this kind of information about what is or can be manufactured in the country would be a great starting point for shaping better policy (on that score, we should also roll back the Donald Trump-era budget cuts of the Office of Financial Research, which gathers similar info on financial markets).

2. Environmental sustainability and good jobs are critical economic organising principals. We’ve always lived in a world in which incentivising gross domestic product growth was priority one. But in the future, managing climate change and issues of income distribution (at both the national and global level) will probably be the top priorities. So policymakers will have to ask whether their prescriptions support lower use of fossil fuels, the transition to clean energy, and middle-class job creation.

3. Manufacturing isn’t simply a “fetish for keeping white males with low education in the powerful positions they are in”, as the Peterson Institute for International Economics economist Adam Posen put it, rather shockingly, at the Cato Institute recently. Rather, it’s a building block for place-based economics (particularly in the era of high-tech manufacturing, which blends services and technology in deeper ways than old factory line jobs did, it’s the core of a strong and diverse economy). By the way, I continue to be shocked at how little mainstream economists get how businesses are run, or indeed how geopolitics works. Perhaps the economics profession itself is a way to keep white males with high education in the powerful positions they are in.

4. Services matter, too. Growth is people plus productivity. Getting more minorities and women into the labour market is crucial for growth, and since most of them are in service sectors, you have to bake that into industrial strategies. That’s why unions are focused on organising home healthcare workers, for example (amazing fact: these workers were cut out of the social security system years ago and are fighting for pensions; Washington just became the first state to award them).

5. Implementation is hard. Neoliberalism has died hard because it was simple — a share price is the only metric of success, government should just step out of the way. Getting more voices in the room is tougher — but that doesn’t mean we shouldn’t try.

Recommended viewing

I’m three weeks into a two-month book tour circuit, so I haven’t had much time to read over the past week or two. As anyone who has written a book knows, you have to become a self-centred heat-seeking missile for publicity (at least temporarily) in order to get your message out.

So, I’ll just ask that Swampians give a watch of my first-ever FT film production, which looks at the problems of Big Ag and the dysfunction in America’s food systems. I’m super excited about this, as it’s based on my upcoming book, Homecoming: The Path to Prosperity in a Post Global World, which is out on October 18. My colleagues Joe Sinclair, Gregory Bobillot and I travelled around the country looking at why industrial farming has become as toxic as it has, and what’s being done to change the paradigm in how we grow what we eat. Hint: smaller is better. This is the first in a three-part series; the second will air in November.

Edward Luce will return on Friday.

Your feedback

And now a word from our Swampians . . .

In response to ‘The Saudi prince’s ominous axis with Putin’:
“Delighted to finally read the positive slant on high oil prices; the new rush to renewables and how a stoic reduction in domestic use will reduce global warming. It’s a shame that the politicians in the UK are not telling the Brits to buck up and cut down on their consumption after all.” — L Stevens