New Industrialist Roundup 2024

What people are writing about rebuilding America.

Steve Jurvetson from Los Altos, USA, CC BY 2.0, via Wikimedia Commons

Every half century or so, America undergoes a sea change in the way it thinks about economic policy. The 1930s brought the New Deal, the 1980s brought the “neoliberal” revolution. Now in the 2020s, it’s pretty clear that there’s a new paradigm forming. I’ve been calling that paradigm “New Industrialism”, “industrial policy”, or just “industrialism” for quite a while now.

It’s important to realize that how a country thinks about economic policy is very different from how it makes policy. The scope of the “neoliberal turn” in America has been greatly exaggerated, and it happened slowly and gradually over time. But sometime in the late 70s and early 80s, the idea that free markets are good and government intervention is harmful came to prominence, and lots of people started to think about policy initiatives in terms of how much they fit that ideal.

Similarly, the CHIPS Act and the Inflation Reduction Act have brought back industrial policy in America, but they haven’t yet transformed the economy. But a growing chorus of intellectuals now thinks about reindustrialization and abundance as the goals of economic policy, and views government intervention as generally acceptable if it advances those goals. About two and a half years ago, I wrote a roundup of things people were writing that fit the New Industrialist mold:

A New Industrialist roundup

Immediately after I wrote that post, I started saving up links to write a follow-up. I promise I have a very good excuse for not writing that follow-up until now.¹But anyway, it’s long past time for a sequel! I think I’ll make this a semi-regular series. This installment is pretty long, since it covers 2.5 years’ worth of articles.

Note that the link to each article is in the section heading.

Reka Juhasz and Nathan Lane: “A New Economics of Industrial Policy”

Reka Juhasz and Nathan Lane are the most important economists doing research on industrial policy right now. Their Industrial Policy Group is doing a bunch of cutting-edge research on the topic, which deserves a lot more attention. Although much of this research concerns developing countries — e.g. what Korea did to industrialize half a century ago, or what trade policies the U.S. used in its early days — the researchers are trying to apply these insights to the economic challenges that the U.S. faces today. Juhasz, Lane, and Dani Rodrik have a great literature review of recent work in the field, entitled “The New Economics of Industrial Policy”. Slightly confusingly, they also wrote an op-ed for the IMF in June, titled “A New Economics of Industrial Policy”. Here are some excerpts from the op-ed:

Once relegated to the junk heap of economic ideas by mainstream policymakers, industrial policies, or state actions to change the composition of economic activity, are making a comeback. In the United States alone, major new industrial policies grapple with the green energy transition, geopolitical competition, and supply-chain resilience. And the US is not alone; it’s part of a global renaissance of industrial policy…

New empirical work in economics, which, along with Dani Rodrik, we call the new economics of industrial policy, shows that some episodes of industrial policy have delivered large, positive, and, at times, transformational effects…The Heavy and Chemical Industry push under President Park Chung-hee in the 1960s…drove increased output and export development in targeted sectors, shifted comparative advantage toward these same sectors, and made the economy better off…

Postwar Italy pursued a decades-long massive industrial policy aimed at jump-starting development in lagging southern regions. The policy launched durable clusters of economic development both in targeted high-skill manufacturing jobs and the knowledge-intensive service jobs that emerged to support them…

Case studies from Latin America show that much-smaller-scale industrial policies contributed to export market success…Similar proof-of-concept demonstration projects show signs of success in Africa…One example is a multipronged policy to promote cut flower exports in Ethiopia…

The new economics of industrial policy has revealed its potential, but skeptics rightly point to the many flops that litter development economics. The debacles of industrial policy in postindependence African countries and the disappointing performance of Southeast Asia’s “Look East” policies have informed thinking about government failures…The risks and failures around industrial policy are real…

Given this context, we highlight three key lessons for success with industrial policy…[P]olicymakers should carefully evaluate how industrial policy aligns with the domestic political environment…Second…policies must be tailored to administrative and fiscal capacity…Third, industrial policy almost always requires investment in administrative capacity...[T]he risks of government failure can and have been overcome in the past.

See also:

• “The Political Economy of Industrial Policy”, by Juhasz & Lane (2024)

• Jostein Hauge’s taxonomy of types of industrial policy

Liza Tobin: “China’s Brute Force Economics: Waking Up from the Dream of a Level Playing Field”

If there’s one single motivating force behind the rise of New Industrialism, it’s China. Whether it’s military competition that threatens America directly, or industrial competition that threatens American companies and workers in the competitive sense, China’s rise has motivated calls for the U.S. government to respond. In a long piece in the Texas National Security Review in early 2023, Liza Tobin laid out the case:

The time has come for the United States and its allies to abandon the notion that competing on a level playing field with China’s state-led economy is possible and confront the reality of what I am calling the country’s brute force economics. I use this term…to summarize the aggressive, evolving, and often opaque web of policies and tactics that Beijing employs to give its national champions — corporations acting to advance government policy — an advantage and seize a dominant global market share in strategic sectors. The litany of specific practices is long: market access restrictions in strategic sectors, massive subsidies that fuel domestic overcapacity and enable Chinese firms to wipe out foreign competition, requirements for foreign firms to transfer technology in order to access the Chinese market, economic coercion, intellectual property theft, cyber- and human-enabled espionage, and forced labor. China’s brute force economics playbook puts competing firms out of business and destroys entire industries in rival nations. Once international competitors to Chinese national champions are either acquired or eliminated, trade partners have no choice but to rely on Chinese firms for critical technology products or inputs…

Washington and its allies are still struggling to fully conceptualize the challenge of brute force economics, much less mount a sufficiently robust counteroffensive. As a director responsible for coordinating China policy at the National Security Council during the Trump and Biden administrations, I experienced this firsthand…

A look at a few case studies, in addition to the telecoms and wind turbine examples above, illuminates how China’s brute force economics works in practice to increase domestic production, knock out foreign competition, and seize international market share…Beijing’s brute force economics will not stop at solar panels, shipbuilding, border security equipment, and batteries. China’s 14th five-year plan makes clear that industries at the cutting edge of the American economy, like artificial intelligence, semiconductors, biotechnology, aerospace, blockchain, and cloud computing are all in China’s line of fire…

Washington and its allies should pursue a strategy of selective disentanglement from China that would deny support to Beijing’s techno-economic ambitions while strengthening ties with each other…Vital steps for strengthening America’s innovation ecosystem include boosting support for research and development, maximizing the digital economy’s potential, and investing in a tech-savvy workforce…Closer monitoring of, and enhanced restrictions on, China’s access to U.S. markets, technology, and expertise in cutting-edge technology sectors will be required…[T]he United States should find ways to restrict Chinese access to U.S. markets in critical industries where China is racing to catch up to and surpass the United States. America has done this in the past with positive results…

To better resist coercion and reduce the risks associated with overdependence on China, the United States and other market-oriented democracies should strengthen trade, investment, financial, and technology ties among themselves…The United States should start by assembling small groups of countries with shared concerns and form trade blocs that withhold market access from Chinese companies…Groupings could focus on issues such as greentech, digital trade, and supply chain security, areas in which allies share far more in common with each other than with China.

See also:

• “Memo to the President on U.S. Leadership in Advanced Manufacturing”, by the Special Competitive Studies Project

• “Vision for Competitiveness: Mid-Decade Opportunities for Strategic Victory”, by the Special Competitive Studies Project

• “U.S. Industrial Transformation and the ‘How’ of 21st Century Industrial Strategy”, by Elisabeth B. Reynolds

Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution

I would argue that no single person has been as instrumental to the actual creation and implementation of American industrial policy over the last few years as Jake Sullivan, Biden’s National Security Adviser. So it’s important to know how Sullivan thinks about industrial policy. Alongside Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo, Sullivan has laid his vision out in a series of speeches over the last few years, and it’s surprisingly coherent — it integrates national security concerns, progressive economic goals, and economic growth into a single framework. Here are some excerpts from Sullivan’s speech to the Brookings Institution in April 2023, widely regarded as the most comprehensive explanation of his ideas:

After the Second World War, the United States led a fragmented world to build a new international economic order…But the last few decades revealed cracks in those foundations. A shifting global economy left many working Americans and their communities behind…A financial crisis shook the middle class. A pandemic exposed the fragility of our supply chains. A changing climate threatened lives and livelihoods. Russia’s invasion of Ukraine underscored the risks of overdependence…This strategy will build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere…

America’s industrial base had been hollowed out…[E]ntire supply chains of strategic goods—along with the industries and jobs that made them—moved overseas…By the time President Biden came into office, we had to contend with the reality that a large non-market economy had been integrated into the international economic order in a way that posed considerable challenges…The People’s Republic of China continued to subsidize at a massive scale both traditional industrial sectors, like steel, as well as key industries of the future, like clean energy, digital infrastructure, and advanced biotechnologies. America didn’t just lose manufacturing—we eroded our competitiveness in critical technologies that would define the future…Economic integration didn’t stop China from expanding its military ambitions in the region, or stop Russia from invading its democratic neighbors. Neither country had become more responsible or cooperative…

[We also face] an accelerating climate crisis and the urgent need for a just and efficient energy transition [and] the challenge of inequality and its damage to democracy…

When President Biden came to office, he knew the solution to each of these challenges was to restore an economic mentality that champions building.  And that is the core of our economic approach. To build.  To build capacity, to build resilience, to build inclusiveness, at home and with partners abroad.  The capacity to produce and innovate, and to deliver public goods like strong physical and digital infrastructure and clean energy at scale.  The resilience to withstand natural disasters and geopolitical shocks. And the inclusiveness to ensure a strong, vibrant American middle class and greater opportunity for working people around the world…

The first step is laying a new foundation at home—with a modern American industrial strategy…A modern American industrial strategy identifies specific sectors that are foundational to economic growth, strategic from a national security perspective, and where private industry on its own isn’t poised to make the investments needed to secure our national ambitions…It deploys targeted public investments in these areas that unlock the power and ingenuity of private markets, capitalism, and competition to lay a foundation for long-term growth…It helps enable American business to do what American business does best—innovate, scale, and compete…This is about crowding in private investment—not replacing it. It’s about making long-term investments in sectors vital to our national wellbeing—not picking winners and losers…

[T]his brings me to the second step in our strategy: working with our partners to ensure they are building capacity, resilience, and inclusiveness, too…Creating a secure and sustainable economy in the face of the economic and geopolitical realities will require all of our allies and partners to do more—and there’s no time to lose. For industries like semiconductors and clean energy, we’re nowhere near the global saturation point of investments needed, public or private…

This brings me to the third step in our strategy: moving beyond traditional trade deals to innovative new international economic partnerships…[W]e have designed the elements of an ambitious regional economic initiative, the Indo-Pacific Economic Framework…[T]hrough the U.S.-EU Trade and Technology Council, and through our trilateral coordination with Japan and Korea, we are coordinating on our industrial strategies to complement one another…At the same time, the Biden Administration is developing a new global labor strategy that advances workers’ rights through diplomacy…The Global Arrangement on Steel and Aluminum that we’re negotiating with the European Union could be the first major trade deal to tackle both emissions intensity and over-capacity.

This brings me to the fourth step in our strategy: mobilizing trillions in investment into emerging economies—with solutions that those countries are fashioning on their own, but with capital enabled by a different brand of U.S. diplomacy…At the same time as we are evolving the multilateral development banks, we’ve also launched a major effort to close the infrastructure gap in low- and middle-income countries…[W]e’re also committed to addressing the debt distress faced by an increasingly large number of vulnerable countries…

So, what does success look like?…The world needs an international economic system that works for our wage-earners, works for our industries, works for our climate, works for our national security, and works for the world’s poorest and most vulnerable countries.

See also:

• “Remarks by Secretary of the Treasury Janet L. Yellen on the U.S. - China Economic Relationship at Johns Hopkins School of Advanced International Studies”

• “U.S. Commerce Secretary Raimondo Outlines Vision for Implementation of the CHIPS and Science Act”

• “Remarks by National Security Advisor Jake Sullivan on the Biden-⁠Harris Administration’s National Security Strategy”

Brad DeLong: “Industrial Policy From Engels to Eisenhower”

My podcast co-host Brad DeLong was one of the thinkers whose ideas launched the New Industrialist movement — I highly recommend his book Concrete Economics. Brad has been pushing back on claims that industrial policy represents a break from the successful orthodoxy of the past. In early 2023, he wrote a piece for Promarket arguing that the U.S. has often used industrial policy to good effect throughout its history:

Those who took Engels too seriously and tried to replace the market economy with an all-thumbs command economy created what were the greatest economic disasters of the twentieth century…But Engels’s point—that the market is going to get it wrong because it cannot price, it does not see, the value of the non-rival ideas of science and of the communication networks of communities of engineering practice—is 100% right. And…intellectual property “rights” and public funding of basic research is highly, highly, unlikely to be a sufficient fix for the problem…And so we have largely successfully had here in America, since Alexander Hamilton, industrial policy to try to fill in the gap…

That an excessively large chunk of income in America flows to dissipative activities—health-care administration, financial churning—is not something I have heard anyone deny in recent years…

Alexander Hamilton set out to redesign the agrarian economy…[H]e knew that the winning industrial structure had manufacturing and banking in prominent places, rather than having the United States be a gigantic New Zealand. After Hamilton, Jefferson, Madison, and their successors quickly decided that the “American system” was industry-promotion, protective manufacturing tariffs, and infrastructure—especially canal and railroad building. Pre–Civil War America, safe from foreign military threat, channeled Department of War money to fund the development of promising high-tech industries at the Springfield Arsenal and elsewhere…Railroad expansion, state land-grant colleges, homesteads to prevent the growth of latifundia and latifundistas—the post-Civil War government’s infrastructure constructions and land allocations were big government incarnate. Regulation of natural (and unnatural) monopolies. Amending the constitution and shifting from a tariff- to an income tax-based government…

[I] you had tried to argue to either FDR or to Eisenhower of the Interstate Highway System and the post-Sputnik moment that we did not know what a “‘winning’ industrial structure” was, they would have laughed…

Perhaps now the Silicon Valley infotech hub; the Boston, San Francisco, San Diego, and Research Triangle BioTech hubs; plus the widely distributed CleanTech efforts are simply running on fumes. Perhaps CHIPS and IRA and follow-on efforts will be unsuccessful. As Laura Tyson and Lenny Mendonca very politely put it: “Getting an industrial policy right is never easy, and getting a place-based one right will prove even more challenging.” If so, then the 21st century will definitely not be an American century in any sense.

But perhaps not. It is in our hands.

See also:

• “A Note on Industrial Policy”, by Brad DeLong

• Promarket’s series on industrial policy

Aaron Slodov: “A Techno-Industrialist Manifesto”

The private sector is, of course, absolutely crucial to industrialism, since the core idea of industrial policy is public-private partnership. Over the last few years, the enthusiasm for industrial policy among intellectuals and policymakers has been matched by a renewed interest in manufacturing industries among tech founders and investors. One of the most outspoken of these is Aaron Slodov, founder of Atomic Industries and organizer of the Reindustrialize conference. In a piece in Pirate Wires this February, he made the case for why the private sector needs to go all-in on manufacturing:

The marriage of technology and manufacturing could be the salvation for which our nation is searching. The prospect of 4%+ GDP growth does not come from SaaS, banking, real estate, investing, or AI. The opportunity to achieve sustainable GDP expansion comes by way of improved production…The most valuable thing to pursue is also the hardest; rebuilding a modernized US industrial base will take trillions of dollars, but will also extend our prosperity and abundance into the next millennium…

As is now painfully obvious, shedding our industrial base for a post-industrial, higher profit and margin service-based economy was a terrible oversight. Doing so enriched our ideological opponents…

In my conception, there are three primary components to the US industrial base…Capacity refers to a fundamental layer of processing power in terms of efficiency, throughput, and raw materials. E.g., how many factories and machines do you have, what are their capabilities, and what do they process or produce?…Execution refers to the layer above capacity required to operate and produce goods, AKA tacit/trade knowledge. E.g., high-skill trade knowledge in manufacturing, operations, engineering, or materials…Application refers to the most abstracted layer — what goods are actually produced. E.g. semiconductors, submarines, cars, apparel, food, drugs…

[T]he market [for manufacturing-oriented software] is enormous and nearly impossible to monopolize. The one nice thing about tech in the context of manufacturing is that tech companies are purpose-built vehicles to scale a solution to a single problem, then expand into other offerings as they grow…Notice how Tesla approaches this…The factory is the product…

This is all to say that the direction of the world for manufacturers is, dare I say, more “service-based platforms” — aka converting their capex lines into opex that is ultra flexible, capital efficient, and powered by advanced software and automation built by technologists and customized to the manufacturer’s needs…

The breakout signal here will be the first layers and services of the modern industrial base coming online at scale, with lower level companies tackling fundamental manufacturing like machining, welding, sheet metal forming, die casting, assembly, tool and die, riveting, forging, and stamping. Simultaneous evolution in computing, robotics, ML, AI, and materials will swing the pendulum even further. The ability to simulate and optimize complex mechanical systems and designs is imperative; even more important is to connect the design of these systems to the machines that will fabricate them (Automatic Design for Manufacturability/ no more CAD)…

We may even get to the point where it only takes a few people to operate a factory, just like running a SaaS company, and instead of an over-saturation of apps, we'll have a glut of production capacity waiting to chew through the next job…

The most talented people in tech enjoy deeply violent challenges, so here’s my challenge: leave your SaaS job and go build something you’ll be proud of on your deathbed. Join a manufacturing startup, or start one.

See also:

• “War for Our World”, by Ryan McEntush

• “Rebooting the American Industrial Base: Software and the Future of Manufacturing”, by Shyam Sankar

Kelvin Yu and Anson Yu: “Unleash the Techno-Industrial State”

American Compass is a conservative think tank focused on industrial policy — something we very much need if the new paradigm is going to be politically durable. They recently published a very good piece by Kelvin Yu and Anson Yu² that articulates a view of industrial policy as being centered around technological progress. Some excerpts:

Today, only one in four people believe that the federal government’s role in science is essential. This couldn’t have been more different in mid-twentieth century America, where frontier technological exploration was near-synonymous with state-funded research. This period, sometimes dubbed the “Endless Frontier,” marked the high point of technological statecraft, with federal R&D investments reaching their all-time peak in 1964. Most of today’s major scientific institutions were created during this golden age…

The state’s contributions extended far beyond merely funding research. Federal procurement subsidized early markets for titanium and the transistor before they were commercially profitable. U.S. advanced manufacturing reached its peak in the post-WWII period, aided by tax credits, the Marshall Plan, and the Air Force’s contributions to inventing CNC machines & CAD software. Public-private partnerships of unprecedented scale were initiated, such as NASA’s coordination of 400,000 people, 20,000 organizations, and 4.4% of the federal budget to propel the Apollo missions. This was a culture that understood “progress is a policy choice.”…

[Our current] amnesia [about the role of government] could not have come at a worse time. After decades of assisting the Chinese Communist Party’s (CCP) ascent, the United States now faces its strongest geopolitical competitor ever—which makes securing technological leadership existential to safeguarding U.S. security and economic interests…[T]he U.S. must also overcome decades of de-industrialization…

[S]ome claim the state is no longer needed, that state interventions are “socialist,”I…Industrial policy critics point to legitimate concerns…Nevertheless…Democracies like Israel, South Korea, Taiwan, and Japan have shown for decades that government levers can be an economic force-multiplier for capitalism, if done right. The U.S. understands this too, having provided decades-long oil and farm subsidies; we just don’t like to admit it…

Unleashing a true techno-industrial state requires more than mere billion-dollar bills—it demands state capacity reforms to fix underlying process bottlenecks, institutional sclerosis, and resource mismanagement…For instance, the Department of Defense’s procurement process is infamously difficult and expensive…The DOD can purchase better capabilities at lower costs by simply making it easier to work with new entrants, from updating commercial data rights to promoting rapid technology transition pathways…Similar progress has been made by the NSF, which recognizes the limitations of its traditional grantmaking process and thus partnered with the Institute for Progress in 2023 to explore alternative funding mechanisms such as milestone payments, prize competitions, and grant lotteries.

Other pillars for techno-industrial policy should include…Targeted investment for critical industries, such as U.S. shipbuilding…Removing legal barriers that hinder development, such as reforming the National Environmental Protection Act…Developing talent and workforce, such as reversing our record declines in basic math, fixing the high-skilled immigration backlog, and rethinking non-degree technical pathways—starting in high school.

See also:

• “Move Fast and Make Things”, by Dean W. Ball

• “America’s Advanced Manufacturing Problem — and How to Fix It”, by David Adler and William Bonvillian

Will Rinehart: “We Need an Abundance Agenda”

You don’t hear quite as much about the Abundance Agenda or Supply-Side Progressivism these days, but it’s still extremely important. Industrial policy is partly about defending the nation, sure, but it’s also about enriching the people and improving their living standards. Back in 2022, Will Rinehart wrote a good post about it for Discourse magazine:

[W]e are living at a time of artificial scarcity…

An agenda of abundance would confront the twin problems of artificial scarcity and technological scarcity. For starters, this means addressing the housing crisis…Cities and states need to deregulate land use, which would allow denser housing and mixed-use neighborhoods to develop on their own…

Another central part of the abundance agenda would aim to upgrade our energy system. Building an electricity transmission line needs to be easier, geothermal permitting should be simplified and the next generation of nuclear reactors, which are safe to operate, should be ushered through the approval process rather than subjected to layer upon layer of regulatory obstacles.

To directly combat the problem of technological scarcity, an abundance agenda would need to be focused on ensuring an abundance of capable minds. That means that immigration reform has to be a key part of this. As my colleague Josh Smith has suggested…Policymakers could automatically make a U.S. college degree into a work visa for foreign students, expand the H-1B visa program and use immigration-generated fees to promote retraining for native-born Americans.

How we regulate transport also needs a major overhaul. Among other things, the Jones Act needs to be abolished, ports and railways need to be automated and commerce in space must be encouraged and nurtured.

Finally, there are a host of smaller changes that need to be implemented. More modest fixes include allowing people to purchase better sunscreens, giving all patients access to ordering prescription glasses online and making telehealth services available to everyone—permanently. And that is just a small fraction of an ever-expanding list…

[The CHIPS Act] may be the impetus to passing more abundance items like the ones my colleagues at The Center for Growth and Opportunity have outlined for Congress.

See also:

• Discourse magazine’s full series of articles on abundance

• “The rise of the abundance faction”, by Robert Saldin and Steven Teles

Bill Janeway: “The Rise of Mesoeconomics”

An economic paradigm is, first and foremost, a way of thinking about policy and its goals. Bill Janeway believes that the economic problems that led America to turn to industrial policy represent a whole new branch of economics. He calls it “mesoeconomics”:

In 1950, George A. Lincoln of the US Military Academy’s Department of Social Sciences published Economics of National Security: Managing America’s Resources for Defense, in which he and his colleagues distilled the lessons learned, often belatedly and painfully, from industrial mobilization during World War II…[T]he economics of national security overlaps with and can inform the economics of a broader range of industrial policies…Seven decades later, this mode of thinking has become newly relevant, because it offers the necessary framework for operationalizing the “modern industrial and innovation strategy” that US President Joe Biden’s national security adviser, Jake Sullivan, presented on April 27, 2023…Re-shoring America’s lost capacity for high-tech manufacturing and accelerating construction of green infrastructure will require something like a melding of Lincoln’s “partial mobilization” and the “plateau of preparedness.”…

Whether mobilizing for war or (re)constructing advanced manufacturing capabilities in peacetime, success turns on the functioning of complex supply chains…Not until recent supply-chain shocks did academics, policymakers, and others start paying more attention to the complicated, barely studied “meso” (middle) domain between microeconomics and macroeconomics…

[T]here is now an urgent need to understand the economy as a complex set of production networks that evolve dynamically in response to specific demands and supply-side shocks…A good example of such work is a landmark 2016 paper by Vasco Carvalho of the University of Cambridge and his colleagues, which traced the “propagation effects” of the 2011 Great East Japan Earthquake…This focus on production networks opens new avenues for the economics discipline…[T]he digitalization of economic life and the availability of far more computing capacity [are] opening up new possibilities for mesoeconomics…Yet another application of mesoeconomics is to map the dependencies entailed by industrial-policy initiatives and their systemic consequences…

One key feature is the focus on existing relationships between firms within and across markets, supply chains, and financial networks…A link to another firm connects the original one to others at second, third, and higher levels…But what do we want to know about these networks? First, we want to know how they emerge in response to market forces acting on firms. We want to know how stable and resilient they are to shocks, and whether their role in a network is small and specific, or large and systemic. We also want to know how well they serve larger social or strategic purposes, and where and how effectively state interventions may strengthen or shape particular networks…[M]uch of the recent literature includes case studies that address the “how” of mesoeconomics by developing models that exploit increasingly available micro-data to explore the networks of relationships that the data define…

Using the tools of mesoeconomics, Princeton University’s Ernest Liu has been able to examine the evident success of industrial policy in South Korea and China. He shows that industries targeted by the state for preferential support are strategically upstream, with strong and diverse forward links. When these industries achieved accelerated growth and increased productivity, they delivered substantial benefits across the economy’s production networks, contributing to each country’s growth “miracle.”…

[T]he London School of Economics’ Philippe Aghion and his colleagues’ argument for a “sector-specific industrial policy to best address the energy transition problem” may complement, or even prove more effective than, the conventional appeal for a general tax on carbon…

In a recent paper, Liu and Song Ma show that yet another recent application of mesoeconomics is to evaluate networks of innovation…

The mesoeconomic approach has also been used to explore the dynamics of inflation. For example, the University of Chicago’s Elisa Rubbo works backward from an advanced New Keynesian macroeconomic model with “multiple industries and primary factors with heterogeneous supply curves”…And like virtually all domains of economics, mesoeconomics has a financial dimension…

[W]hat mesoeconomics offers to policymakers is the information needed to guide targeted interventions designed either to increase the resilience of the economic system on the supply side, or to enable effective responses to legitimate extra-market demands. That information necessarily includes a mapping of economic networks to identify potential vulnerabilities and bottlenecks. Armed with such insights, those designing industrial policies will have a better chance of achieving their overlapping economic- and national-security goals.

Todd Tucker et al.: “Industrial Policy 2025: Bringing the State Back In (Again)”

Conservatives are just starting to think about how to formulate their own approach to industrial policy, but progressives have been thinking about theirs for a while. It was progressives who led the charge for the Inflation Reduction Act, and whose ideas have defined the Biden administration’s implementation of all of its industrial policy programs. And no progressive think tank has been more important in this process than the Roosevelt Institute. “Industrial Policy 2025” is actually a 102-page series of essays from a bunch of Roosevelt Institute contributors, and the whole thing is worth reading. But for now, I’ll just quote some excerpts from Todd Tucker’s introductory chapter:

After decades of policymakers attempting to minimize the actual or perceived role of the state in the economy, the state is undeniably back as a key actor. State-dominated countries like Russia and China make daily headlines. States are waging wars against one another and against non-state actors around the globe. Closer to home, Presidents Trump and Biden have used emergency powers from the FDR era to tackle everything from manufacturing vaccines to the baby formula shortage to deploying heat pumps. The US has also deployed tax credits, loans, and grants on a scale not seen in generations…

Bidenomics is both a theory of economic growth and a theory of economic power, and it is meant to replace Reaganomics…In lieu of the latter’s “trickle-down” emphasis on shrinking the public sector and reducing its burden on the rich (in the thinking that this would spur economic growth)…the former “is rooted in the recognition that the best way to grow the economy is from the middle out and the bottom up”…This vision in turn centers on three pillars:

1. Making public investments in America;

2. Empowering workers to grow the middle class; and

3. Promoting competition and challenging corporate concentration.

The first plank was operationalized through the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act (IIJA), and the CHIPS and Science Act…The second plank, worker empowerment, is advanced through the promotion of tight (or “hot”) labor markets through the spending of the American Rescue Plan…The third plank (competition) is operationalized primarily through a new (or old) approach to antitrust and monopoly policy that seeks to constrain not only business concentration that leads to increases in prices for consumers but also concentration per se…

The economic data suggests that state intervention has been productive and effective. The contribution of manufacturing construction to GDP is at the highest levels on record…Employment in construction has reached [record] highs…US-made solar and wind energy are now cost competitive with imports for the first time in a generation…

The debates around the new industrial strategy can sometimes feel like they are taking place in a vacuum. Is US industrial policy too condition-heavy? Are permitting processes too slow? Is the government doing too much second guessing of private actors, or not enough? Fortunately, there is a robust comparative politics scholarship on the theory of the state that can shine light on these debates…

A particularly useful contribution to this inquiry is Bringing the State Back In, a landmark 1985 volume edited by sociologists Peter B. Evans, Dietrich Rueschemeyer, and Theda Skocpol…

The authors in this Industrial Policy 2025 collection provide rich comparative politics studies that have the potential to help answer questions and critiques sparked during Biden’s first term by “bringing the state back in.”…

Kyunghoon Kim’s essay begins the collection with a thousand-foot view, exploring the question: Just how much state involvement is there out there? Much more than one might think, it turns out…Saule Omarova’s essay establishes a rich taxonomy of state financial institutions…Jonas Algers’s essay looks at how a variety of state institutions are remaking and decarbonizing the steel industry in Sweden…Andrea Furnaro’s essay looks at using industrial policy to wind down an old one, coal, in Germany…How workers fare in industrial transitions is the theme of César Rosado Marzán’s essay, which discusses two historical cases…Lenore Palladino’s essay brings us closer to the present through her case study of the bailout of Detroit automakers in the global financial crisis of 2008-2010…

None of these case studies are perfectly transposable to the United States context in 2024 and 2025…The US has to take its own particularities into account, such as the outsized role played by a state-enabled yet non-state-checked billionaire class…and the history of racial exclusion leading to uneven trust of the state by distinct demographic groups…On the other hand, as a “late developer” in some modes of economic statecraft, the US can learn from what has come before…And the US benefits from a higher degree of early fiscal federalization[.]

See also:

• The rest of the essays in “Industrial Policy 2025: Bringing the State Back In”

• “Industrial Policy Synergies: Reflections from Biden Administration Alumni”, edited by Todd Tucker

• “Industrial Policy Synergies: Industrial Policy + Trade Policy”, by Jennifer Harris

• “Industrial policy and the new paradigm”, by Brian Kettenring

• “Strategic State Capacity: How States Counter Opposition to Climate Policy”, by Meckling & Nahm (2021)

Bill McKibben: “Yes in Our Backyards”

One of the biggest obstacles to industrial policy and the Abundance Agenda is NIMBYism — you need land to build anything, and NIMBYs stop both the government and private companies from doing anything with land. All too often, legacy environmental groups like the Sierra Club have been at the forefront of NIMBYism, prioritizing open space over the fight against climate change. The struggle unfolding between pro-development environmentalists and NIMBY environmentalists will determine whether the movement helps or hinders the industrial policy push. So it’s great to see environmentalists like Bill McKibben coming out in support of abundance instead of stasis:

I’m an environmentalist, which means I’ve got some practice in saying no. It’s what we do: John Muir saying no to the destruction of Yosemite helped kick off environmentalism; Rachel Carson said no to DDT; the Sierra Club said no to the damming of the Grand Canyon. We’re often quite good at it, and thank heaven; I’ll go to my grave satisfied by, if nothing else, having played some part in stopping Big Oil from building the Keystone XL pipeline 1,700 miles across the heart of the continent…

But we’re at a hinge moment now, when solving our biggest problems—environmental but also social—means we need to say yes to some things: solar panels and wind turbines and factories to make batteries and mines to extract lithium. And new affordable housing that will make cities denser and more efficient while cutting the ruinous price of housing. And—well, it’s a long list…

Right now we’re at a moment when we need to build in a way we haven’t for quite a while, maybe since the days of the New Deal and the Second World War. The consensus among scientists and engineers who study this stuff is that we need to replace about a billion machines in America alone—regular cars with EVs or e-bikes, furnaces with heat pumps. And to run them on clean power, we need to build out lots of solar panels and wind farms and battery arrays. The factories to churn these things out are going up fast, in response to the incentives in the Inflation Reduction Act. But once this stuff has emerged from the factory, it needs to go in someone’s basement, someone’s kitchen, someone’s…backyard. Transmission lines have to cross fields; railroad tracks need to be built through rights of way…

We are in an unprecedented and dire emergency, with the planet’s temperature increasing quickly and dangerously; if we can’t bring it under control, then it poses an existential risk to poor and vulnerable people around the planet, and then to everyone else—not to mention most of the other species, and all the generations that come after us…[W]e don’t just live in a community; we also live on a planet where carbon crosses jurisdictional boundaries shortly after we spew it into the air…

[T]he general tactic used by the opponents of projects—delay it until it goes away—is in effect a form of climate denial. Making the perfect the enemy of the good is, in such a case, more like making the perfect the enemy of anything at all. When you’re in an emergency, acting at least gives you a chance; not acting guarantees an outcome, and not a good one…

In Vermont, where I live now, the public service commission recently rejected an 8-acre solar farm, solely on “aesthetic” grounds; in the even bluer San Francisco Bay Area, well-intended environmental review laws have been twisted to endlessly delay the housing development desperately needed to keep people from sprawling out into fire-prone mountain towns. If we’re going to avert climate catastrophe, that can’t be standard practice…So maybe we could learn to think a little differently—maybe we could gaze up at wind turbines on the ridge and take pleasure in seeing the breeze made visible. And in seeing ourselves taking responsibility for something we need—energy—instead of pawning the costs off on poorer people somewhere else, or on the people who will come after us…

Saying no is relatively simple, and sometimes right. But we live in a moment when our future—and the future of everyone and everything—depends on sometimes learning to offer a resounding yes.

Barry Naughton, Siwen Xiao, and Yaosheng Xu: “The Trajectory of China’s Industrial Policies”

Industrial policy isn’t just about the U.S. — other countries are racing to implement their own, and nobody’s is as big or as bold as China’s. Not only does China’s industrial policy affect America’s economy in many ways, but it provides a pioneering example — the U.S. will be able to learn from China’s successes as well as its failures, just as we learned from the successes and failures of Japan and South Korea in the 20th century. So it’s important to understand Chinese industrial policy — its goals, its methods, and its results.

One of the most important chroniclers of Chinese industrial policy is Barry Naughton of UCSD. His short free book, The Rise of China’s Industrial Policy: 1978 to 2020, has been invaluable in helping me understand what that country has been up to — in particular, the shift from local government industrial policy under Deng, Jiang, and Hu to nationalized industrial policy under Hu and Xi. Now, along with Siwen Xiao and Yaosheng Xu, he has an update on Xi Jinping’s big push to invent a whole new way of managing an advanced economy:

China’s industrial and technology policies have been in a constant state of flux since the mid-2000s. In this short piece, we situate Chinese industrial policy and then argue that most of the process [can be represented by] two dimensions: first, the build out of a policy/planning mechanism; and second a shift in the ultimate objective of technology and industry polices from economics to security…We then discuss the most recent phase of China’s industrial policy, characterized by a focus on security and new implementing instruments such as the “new-style national team” and the strengthening of the “national strategic science and technology force” (NSS&TF)…

First, we show that China gradually built out a planning and industrial policy process, starting in 2006. That is, they started with ideas and policies that were tentative and, in some cases, halfbaked; and with few instruments to realize these fuzzy objectives. They then gradually invested in knowledge and procedures that gave them the ability to carry out industrial and technological policies. In particular, we see the gradual creation of information resources, targets (or KPIs: key performance indicators), and resources. That does not mean that those policies were necessarily good or even better, but simply that they were (relatively) more internally consistent and better thought out…

Second, we can trace shifts in the guiding objectives of industrial policy…Broadly speaking, the primary objective has shifted from economics to security…The initial targeting of sectors was opportunistic and based on potential opportunities in sectors that were emerging in a global context (i.e., “strategic emerging industries”). However, the concept of strategic technological opportunity gradually shifted with the recognition that there was a rising wave of interrelated global technologies with potentially revolutionary implications. By the time the “innovation-driven development strategy” (IDDS) was formally adopted in 2016, the identification of industrial policy with this wave of technological change had become commonplace and had been woven into various more concrete policies.

It should be noted that this shift from an opportunistic to a “revolutionary cluster” approach to technologies had a number of different implications. First, it implied that the logic of industrial targeting should be driven by the technological relationship among complementary technologies, rather than by economic or business logics. Second, it implied a shift toward more basic science and technology research, which would be required by the profound interactions among related technology. Third, it contributed to the shift toward a security orientation. Since “the country that masters the new technologies will emerge as the dominant power,” according to a frequently quoted maxim of Liu He, security demands a comprehensive push toward the totality of strategic technologies. This blend of technological utopianism and security obsession has characterized China’s industrial policy since at least 2016…

The complex of policies adopted after 2020 clearly demonstrate the triumph of national security over all other policy objectives. At the same time, the conceptually separate processes of refining strategies and developing institutions is proceeding apace and is also clearly evident in the discussions of key technologies and the approach to national technological self-strengthening. China, in other words, is getting better at running industrial policy, even as the objectives of that industrial policy become less beneficial to China and the world. In addition, a whole range of new pressures is being created in the economy, as increasingly numerous and conflicting plans and commands are passed down through the system. This fundamental tension inevitably undermines the efficiency of the market system. In more concrete terms, the creation of new national teams is undermining the vitality of China’s market system right now.

See also:

• “How China innovates”, by Mary Hui

• “A warped hall of mirrors: US-China competition and industrial policy”, by Kyle Chan

• “Which Country Should Design U.S. Industrial Policy?”, by Michael Pettis

• “Justin Lin Yifu on China’s third plenum, overcapacity and avoiding Japan’s fate”, in the South China Morning Post

Others

A roundup like this can only barely scratch the surface of all the interesting things that have been written about industrial policy over the last few years. Here’s a list of some useful sources:

• The Industrial Policy Group’s research page

• American Affairs, a heterodox policy journal that often promotes industrialist ideas

• Brian Potter’s substack, Construction Physics, which is all about construction technology

• Marshall Kosloff’s Arsenal of Democracy podcast at the Hudson Institute

• The Institute for Progress, and Santi Ruiz’s substack, Statecraft (especially check out the IFP’s case for a NIST Foundation)

• The Geoeconomic Turn in International Trade, Investment, and Technology, a series of open-access journal articles

• Jim Pethokoukis’ substack, Faster, Please!, a great roundup of news about technology and progress

• Matt Clancy’s substack, What’s New Under the Sun, which explains cutting-edge economics research about science and innovation

• Kyle Chan’s substack, High Capacity, about Chinese industrial policy

• Works in Progress, a monthly publication that brings together essays from leading thinkers in the area (not to be confused with Derek Thompson’s very similarly-named but also very awesome and relevant newsletter, Work in Progress)

• The websites of the Roosevelt Institute, the Hewlett Foundation, and American Compass

• The X account @IndustrlPolicy

• The U.S. Defense Department’s National Defense Industrial Strategy paper

This is a lot, but it needs to be a whole lot more. The U.S. economy is in the middle of the kind of epic transformation that only happens twice in a century, and we’re reacting to specific events with specific ad hoc solutions. We need a general theory of industrialism — or actually, multiple competing general theories of industrialism — so we won’t be flying blind.

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1. Well OK no, I lied. I don’t have a good excuse. I just kept putting it off, because writing these roundups actually takes a whole lot of time. First I have to scour the internet for industrial policy manifestos that I missed over the last 2.5 years. Then I have to read all the articles — about a hundred pages — and pick out the bits that I think communicate the point of the article in the fewest number of words. This is why posting has been a little sparse on Noahpinion over the last few days. My apologies!

2. Anson Yu, who is still in college, is pretty much a wunderkind. She’s a talented engineer who also thinks a lot about policy, and plays the occasional epic prank. Definitely a name you will be hearing more of in the coming years.