In episode 14 of Power and Consequences, we (Gary Gensler and Simon Johnson) discuss whether Industrial Policy makes sense for modern America.
Over the past decade, there has been increasing debate over whether and how the US can or should use industrial policy – meaning policies that benefit particular sectors (or even specific firms). Over the past 250 years, the US has often said “we don’t do industrial policy”, but – arguably – the US has used industrial policy in every decade of its history. The question now is: what version will maintain political support? Everyone wants to strengthen national security and economic resiliency, but how much efficiency or fiscal resources is the US willing to sacrifice? How much are we willing to pay to promote sectors that we regard as strategically important?
On the history of American thinking underlying industrial policy, take a look at Ganesh Sitaraman’s essay, from September 2020 including this from Ganesh:
“The reality is that industrial policy is not limited to active planning or strategy … Tax breaks for specific industries, sectoral deregulation, tariff reductions, and global standards-setting can all have precisely the same effects.”
Alexander Hamilton’s contributed to the debate is his famous 1791 “Report on the Subject of Manufactures.” James Madison’s case for national infrastructure can be found in his ask to Congress for “internal improvements” in 1815. For Benjamin Franklin’s personal contributions to science, see this Franklin Institute material.
A more modern perspective on economic development-through-investment-in-science is best represented by Vannevar Bush’s Science: The Endless Frontier, published in 1945. In 2019, Simon and Jonathan Gruber published Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, recommending a big expansion of science – commercializing more ideas, building the ensuing businesses as much as possible in the US, and creating more good jobs for Americans. The experience with Sputnik is discussed in their Chapter 2.
For a look at industrial policy around the globe take a look at this recent World Bank report ‘Overview, Industrial Policy for Development’. In the podcast, we refer to a recent publication from MIT: Priority Technologies: Ensuring US Security and Shared Prosperity, edited by Elisabeth Reynolds. This includes material on critical minerals, semiconductors, drones, biomanufacturing, and advanced manufacturing. (Simon wrote the foreword.)
To understand the views of two of President Biden’s then most influential advisors on industrial policies read Brian Deese’s ‘Executing a Modern American Industrial Strategy’ and Jake Sullivan’s ‘Renewing American Economic Leadership’. To keep up on industrial policy discussions, as Gary mentions in the podcast, subscribe to the substack of Mike Schmidt, Todd Fisher, and Sara Meyers, ‘Factory Settings’.
Does China have an industrial policy? Most people would say: definitely, yes. If this assessment is correct, can the US afford not to have a matching policy, at least to some extent?
“The Malaise Speech” was President Jimmy Carter’s address to the nation on Energy and National Goals, broadcast July 15, 1979. As Gary mentions, this led to the rise and fall of the U.S. Synthetic Fuels Corporation. Energy policy, though, has remained important in shaping opportunities – for example, see this recent report on the development of the shale oil and gas sector.
We also mention Mariana Mazzucato’s famous Ted Talk, and Graham Allison’s even more famous idea the “Thucydides Trap”.
For the case against what they define as industrial policy, the Cato Institute has been consistent over the decades, including: in 2021, Questioning Industrial Policy; and at least as far back as 1984, with The Case Against “Industrial Policy”. Relevant also is Anne Krueger’s famous warning about the rise of a “rent-seeking society.”
