I am 100% convinced that industrial policy is necessary for strategic reasons. I am not at all convinced that it is good for any other reason. And if we are going to do it we need a clear goal in mind and be able to make tradeoffs in favor of that outcome. When I see these arguments like the "Abundance Agenda" saying that it will be good for everyone I see only pie in the sky nonsense.
Are we doing this to keep China from monopolizing strategic industries, or are we doing this for the ever popular political goal of "jobs"? Because those goals are in opposition. e.g. if we are doing it for strategic reasons, investing in technology to automate manufacturing would be of massive benefit. If we could cut the labor intensity of a factory by 10x China's cost advantage would evaporate, but millions of workers would lose their jobs. I have doubts as to whether the political will could be summoned to make a strategically correct choice like this.
Furthermore, I doubt that our government has the competence to achieve it even if the political will is there. We would need our best people involved or it will just be more debacles like the $800 million ACA website that didn't even work. We don't have that, and in fact the current system prevents the government from hiring them. They have apparently never heard the phrase "pay peanuts, get monkeys." I have never once considered working for the government because I make close to 2x the max pay for a government employee just working an ordinary tech industry job. And even though the US government is the largest employer in the US, not a single one of the smart guys I knew in school works there. If we are to be successful, we need to completely change how the government does its hiring and contracting.
Yeah, this is where I'm at. Noah kind of has a motte and bailey argument for industrial policy. He generally says it's good in all sorts of areas, but when explaining why, he retreats to the argument that it's needed for national security.
When the objective is to please donors and activists and subsidy farmers, it may not matter how smart the government employees are- results might still be the same.
Also, the outside lobbyists and lawyers writing the actual policies, legislation and regulations are smart people generally working at the behest of smart people (at least on the industrial side). It is not as if we are relying on Pete Buttigieg to spend his time thinking up policies or on Hakeem Jeffries to write actual legislation- these ideas are handed to them (and their staffers) by special interests. “Thought leaders” 😊 from the outside have plenty of influence- the problem is the “thoughts” chosen by the pols have to align with craven political objectives and the thinkers themselves are representing special interests. Not that working at the behest of special interests was a bad thing in countries like Korea and Japan dominated by chaebols or trading companies/industrial conglomerates back in the day.
I wrote this piece on some of the theory on when state planning can work + some historical examples if you're looking for arguments in favour for that position.
Overall I'm pro-industrial policy even for non-strategic reasons, and I think the mainstream view moving in that direction is a good thing. But I also think you're completely right that it needs to be managed by people of the absolutely highest calibre to work and can go very badly without them.
I agree with some of your examples, but not the reasoning. Basically I see a few reasons why planning will outperform:
1. price signals are too slow
2. we, as a society, find the conclusion of the price signals to be unacceptable
3. buyers are unable to receive or respond to price signals for other reasons
4. strategy - production has to happen in the right place
To your examples of when markets don't work:
Healthcare:
This is 2 and 3. A true free market in healthcare would mean that if you don't have the money you will be left to die. This is not acceptable to almost anyone so, even in the US, the government steps in to keep this from happening. Also there is a problem with price signals. There is a fundamental problem with price signals because when you need a hospital you don't exactly have time to shop around for one. When these conditions don't apply there is actually a perfectly well functioning market for healthcare. e.g. Lasik surgery. We are perfectly happy to tell people who can't afford it "sorry, you have to keep wearing glasses." And anybody who wants the elective procedure has plenty of time to shop around for it. You will notice that all doctors advertise their price clearly since there is no insurance company paying.
War Planning:
This is 1 and 4. The government could easily get what it needs by price signals. Offer to buy missiles for 2x what it costs to produce them and you will have plenty of missiles, eventually. The problem is that in war, you just need those missiles now. And, of course, you need to make sure the factories producing them aren't in the country you are at war with because they won't sell for any price.
Agriculture
I strongly disagree with you that the market works for this one and that it is even a market in the first place. In the US it is nothing close to a free market and I wouldn't want it to be. The market fails for 1 and 2. Planting new crops has a yearly cycle. If you don't have enough wheat, it will be a year before you can produce more no matter the price. It won't be a year before the government ceases to be the government anymore if it fails to ensure that enough wheat gets planted every year. And it works. The grocery store shelves are always full.
Corporate Internals
In some cases this is 1. But in other cases it is a massive success. e.g. AWS is the reason why Amazon is a $2T corporation and it was developed by using the internal market approach.
Good points, especially on Lasik and war planning.
I feel like if you accepts those 4 failure points though that should allow plenty of space where strategically aimed industrial policy can overlap with independently good planning policy.
We don't need supermen, but honestly we probably could get them and they would do if for free. If you asked Elon Musk to direct this he probably would. Even if you hate him, he started two companies worth more than $100 billion that were based on technological breakthroughs. And if you don't want that type of person directing industrial policy then I really don't know what to say. And there are a ton of other successful business founders and world renowned scientists and experts in any field that would work on this and do it for free.
But I'm not even asking for that. Can the richest most powerful organization in the world (who has a money printer) just pay the people directing something as important as a national industrial policy a competitive salary? Can we just do things like incentivize them with bonuses when they hit goals and cut costs? Can we just rapidly fire people who fail? It's not that difficult.
This review would be a lot better if you cited a few naysayers. I believe you remarked on California's celebrated "Bullet Train to Nowhere" in a previous post. Over at New York, Jonathan Chait, in a pretty sour "Biden Sucks" post, notes how little of the money that has been appropriated under Biden has actually been spent, because of various NIMBY-style obstacles. Modern-day "progressives"--largely, young people (relatively) who were burned by the 2008 recession, have a deep hatred of the profit motive, and, when they hand out money at all, add so many restrictions on its expenditure--the notorious "everything bagel"--that, well, no one wants to bite the bagel. Money gets spent on jobs for bureaucrats, consultants, diversity training, studies, lawyers, lobbyists, and all the rest of the usual suspects, and nothing concrete gets done, which really doesn't bother a lot of the "progressives" because, 1) they profited from all the wheel-spinning, because they were the ones who got paid to do it, and 2) they hate "development" in the first place. In the pretty famous book "Chip Wars", the authors' stories about successful projects always emphasizes the project leaders' "ruthless" determination to cut costs, prevent unions, demand unpaid overtime, etc., etc., etc., putting "the job" first and employees last, and screw the environment too. This not how things get done--or, more correctly, don't get done--in the U.S. of A.
He kind of included one in Bill McKibben who claims to be against NIMBYs but counts as his biggest achievement getting the Keystone XL pipeline stopped, and cheerleaded Biden’s ban on LNG exports. He wants to unblock a tiny 2 MWh solar farm but is against nuclear power generation which could use land more than 100 times effectively.
This is the main problem I have with Democrats. I actually agree with a lot of what the want to do but I have no confidence at all that they can get anything done even without political opposition. On top of what you said, for a project to succeed it needs to focus on one narrow goal and leave everything else out of scope. Democrats tend to want to have a policy that is a huge grandiose fix for all of the problems in our society.
I actually agree with most of what Jake Sullivan says in the article. But then he says this:
"[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…"
This is a recipe for a boondoggle. Plenty of bureaucrats will do great, but nothing will get done. We need an industrial policy that lets us strategically compete with China. I am also on board for fighting global warming. But when you bring "justice" and "inequality" into it I just hear "we need to make sure that the people I want to pay get paid." I want industrial policy, but I don't want Jake Sullivan or his ilk anywhere near it.
Noah, when you do your piece on Canadian economic growth can you also address how we should respond to China, the IRA and new thinking about industrial policy in general? 🙏
I'm Brazilian and I find it curious that some paper claims industrial policy in Latin America had small-scale success. Import substitution was an utter failure, plaguing Brazilian industry with non-competitive scale, high prices, and low quality. If there is something that has cost dearly to Latin Americans, it was industrial policy.
Curiously, the case cited in Brazil is the aircraft industry. Embraer, the former state-owned aircraft manufacturer, just became competitive when the government mostly relinquished control of it, and let it operate more freely to import its inputs. The Brazilian dictatorship was obsessed with having most of the industrial supply chain in Brazil, and this doomed Embraer in the early days. Only when the government gave a free hand for Embraer to import inputs and negotiate partnership abroad, in particular with an Italian aircraft manufacturer, did the company start growing and becoming internationally competitive.
The UK went through similar and ill-fated phases of borrowing from fascism and socialism in attempting to stem industrial decline from the 1930s through the 1970s. All ultimately failed. Similarly, the US seriously examined industrial policy in the 1980s in response to the rise of Japan and the deindustrialization that occurred in the 60s/70s. Robert Reich and later David Osborne were among the leading voices. Ultimately, those positions became less compelling once the Cold War ended, Japan's growth stopped, and the tech boom occurred. The industrial policy that people articulate today is more akin to trade policy coupled with calls for significant subsidies for environmental investment. It's fine but in many ways a lot less ambitious than what others have had in mind in the past. There needs to be significantly more emphasis on federal investment in basic research across numerous industries (with the associated multipliers on economic growth that can occur). I don't see anybody in the New Industrial Policy movement talking specifically about where public investment may be most productive (and have the greatest positive spillovers for the national economy) beyond semiconductors. Although private R&D investment is much, much larger than it used to be, a lot of it is skewed to very specific applications (i.e., AI), so it is very deep (reflecting competition and long-term significance of AI) but not broad. And whereas people today are focused (appropriately) on barriers to capital (YIMBYists), Reich and others focused on the importance of reducing barriers to labor mobility. We need to substantially increase incentives for people to move from low- or no-growth areas to high-growth areas - witness the labor shortages that are impairing the completion of new semiconductor projects in the western US. At the end of the day, though, all of this occurs within the framework of a system where private enterprise must ultimately deliver. In that sense, it is not a significant departure from previous thinking about industrial policy. Nor should it be.
Fair point - but you could still remove the building restrictions and continue to have problems recruiting skilled labor, which is what we are seeing at some of the new semiconductor builds. I think the broader barrier to labor in NIMBY-intensive areas is the high cost of living in those areas, but it seems much harder to reduce the high cost of living (which involves much more than housing costs) than to locate capital and labor elsewhere.
(1) there has never been an industrial superpower that did not effectively use industrial policy (and state capacity at all levels) to achieve it.
(2) the most successful and country-transforming product categories have all benefitted from industrial policies. Smartphones (Taiwan, China), EVs (China), chips (US, then Korea and Taiwan) and on and on.
I'm glad Brad DeLong gave Alexander Hamilton his flowers because he pushed back against Jefferson and others who prioritized agriculture over industry in the early days of the US.
To expand on (1), tracing the lineage of industrial policy thinkers and doers since Hamilton, Henry Clay was also pivotal in 19th century US policy. Friedrich List, who was a German immigrant to the US, was a founder of the German school which would influence Germany's industrial rise in the late 19th and, to devastating effect, the early 20th century.
Japan sent ministers and many bureaucrats on missions during the Meji period to Germany to learn how the latter was industrializing so quickly. They would become great students, and used their knowledge to the detriment of the US, East Asia and Oceania in WW2.
Korea, Taiwan and China would follow Japan's lead. Sun Yat-sen would take inspiration from Friedrich List as well. East Asia was no economic miracle. It was motivated execution by the public and private sectors.
We know what effective industrial policy looks like, but as was quoted above, we need corresponding effective state capacity. We also need to recognize that economic development is never finished. The notion of a "developed" country is ridiculous, if the US measures our development against what is possible in the future. If we always see ourselves as developing, always pushing the technological and industrial frontier forward, we have a fighting chance to actually do that.
Land use is not only an issue for housing us but for feeding us as well. Even here in Oregon, where our land system (adopted in the early 1970s) was designed to preserve farm land and has largely succeeded in doing so, it now protects both productive and unproductive land indiscriminately. Combining that with a first-in-time approach to water rights and we get wasteful use of water and inefficient use of land for feeding us -- and a shortage of land for making things. It's time for a reworking of our 50-year old land use system here...
There are new technologies emerging to make better use of water and farm land, but they won't achieve their potential without undating our land use systems as well.
While the US certainly needs to develop broad based industrial policies, Noah and those he quotes seem overly focused on the technological, economic and administrative, i.e. technocratic, construction of such policies; they appear to give little consideration to developing the wider social and political consensuses and structures that need to be in place to deliver them.
The need for an underpinning shared social consensus on development of national industrial policy is starkly illustrated by comparing the political landscape at the time the US had to most urgently embark on such a task with the present landscape. In 1940 the Democratic and Republican presidential nominees both shared in and jointly further built a national policy of international engagement and rearmament. The Republican nominee in 2024, however, has no interest at all in developing any new national consensus, and a party in thrall to him is perfectly willing to thwart any efforts to do so, e.g. on immigration policy, in the pursuit of very short term political gains.
We need technocratic innovation (read: state capacity) badly.
Read Alon Levy's Pedestrian Observations ( pedestrianobservations.com ) to see how tunnel-visioned American planners and engineers are incurious to learn about better engineering, procurement and risk management practices innovated in Europe and Asia, and learn nothing from poorly done public works projects.
Noah, you and I have very different ideas on industrial policy. I prefer marekts to decide, which is why I hate Biden’s fealty to only electric vehicles as one effort to lower carbon emissions.
What if he is wrong. What if you are wrong. What if the entierty of journalism, research is focused on EV’s and we leave out something in carbon mitgation that might more economically feasible than $60,000 EV’s?
The government isn’t all knowing, nor are pundits or economists all knowing. Organic knowledge is the knowledge that has move the world forward in its science and technological expansion.
I think you are the problem, you might just be the economist who inhibits us from going to down a different path....
Obviously, I am exaggerating you role....but in reality somehow a butterfuly batting is wings is the cause of hurricane in Florida.....That is what we are dealing with here....and you position that the government should be making these decsions is really screwed up. That is not how science works and you should know better.
You must be right about the perception, but I recall welcoming "Neoliberalism" (it was not called that at the time) as a sort of newish idea that some regulations harmed growth and that smarter regulation could be used, together with tax and transfers to spur growth with greater equity. Cutting taxes to produce large deficits was never part of what I though of as "Neoliberalism."
Frankly I don't see anything that has come along since as any better. I think that Pigou taxation and subsidies of negative and positive externalities is the epitome of neoliberalism. So if individual importers do not take account of the risky dependence their imports from China create, it makes sense to tax or administratively interfere with those imports or even to subsidize the domestic production of the critical item. The important point is to carefully match the tax or subsidy to the objective being sought.
What makes me nervous about "Industrial policy" is the idea that it is something new and a welcome departure from "Neoliberalism." The part that is new is not welcome and the part that is welcome is not new.
That is just in principle worry. I have to add to that the fact that CHIPS, for example, seem to be larded with all kinds of additional objectives and fails to include clearing away NEPA-ish obstacles and the subsidies of IRA (those for "green" hydrogen are in the news) do not seem to be carefully aligned with the value of the CO2 emissions avoided. And on top of this, these subsidies are not being offset by new revenues to prevent them from adding to deficits that are already greater than the sum of activities with NPV > 0.
The quoted text from Jake Sullivan makes me particularly annoyed at all the screeching "but socialism???" tweets I see from people opposing a potential Kamala Harris administration. That sure doesn't sound like a command economy manifesto to me!
She hasn’t stated any policies that she supports other than copying Trump’s ridiculous tax-free tips and being brat. Does she even agree with Sullivan? Who is her national security adviser? She and Walz have spent their entire careers in government, and haven’t produced anything. Trump and Vance haven’t produced much valuable (golf courses, real estate schools, and MAGA hats are not great products, nor are hillbilly memoirs, but maybe one of the ventures Vance funded will make something).
Well, it helps that elective office, which is also a government job, a person has had government experience -- like knowing the pace of and the temperaments behind the people making the sausage, what it takes to craft law, the role of lobbyists, the capability of civil servants, and so on.
Producers are really out of their element in government service. Even when it's something like where a city council is an extension of the country club and chamber of commerce, the true power lies in the city manager, a commissioned professional.
Biden can't debate but he produced substantial policy in his advanced age because he had been in the Senate and eight years in the White House.
Great links, well-tied together, thanks
I am 100% convinced that industrial policy is necessary for strategic reasons. I am not at all convinced that it is good for any other reason. And if we are going to do it we need a clear goal in mind and be able to make tradeoffs in favor of that outcome. When I see these arguments like the "Abundance Agenda" saying that it will be good for everyone I see only pie in the sky nonsense.
Are we doing this to keep China from monopolizing strategic industries, or are we doing this for the ever popular political goal of "jobs"? Because those goals are in opposition. e.g. if we are doing it for strategic reasons, investing in technology to automate manufacturing would be of massive benefit. If we could cut the labor intensity of a factory by 10x China's cost advantage would evaporate, but millions of workers would lose their jobs. I have doubts as to whether the political will could be summoned to make a strategically correct choice like this.
Furthermore, I doubt that our government has the competence to achieve it even if the political will is there. We would need our best people involved or it will just be more debacles like the $800 million ACA website that didn't even work. We don't have that, and in fact the current system prevents the government from hiring them. They have apparently never heard the phrase "pay peanuts, get monkeys." I have never once considered working for the government because I make close to 2x the max pay for a government employee just working an ordinary tech industry job. And even though the US government is the largest employer in the US, not a single one of the smart guys I knew in school works there. If we are to be successful, we need to completely change how the government does its hiring and contracting.
Yeah, this is where I'm at. Noah kind of has a motte and bailey argument for industrial policy. He generally says it's good in all sorts of areas, but when explaining why, he retreats to the argument that it's needed for national security.
When the objective is to please donors and activists and subsidy farmers, it may not matter how smart the government employees are- results might still be the same.
Also, the outside lobbyists and lawyers writing the actual policies, legislation and regulations are smart people generally working at the behest of smart people (at least on the industrial side). It is not as if we are relying on Pete Buttigieg to spend his time thinking up policies or on Hakeem Jeffries to write actual legislation- these ideas are handed to them (and their staffers) by special interests. “Thought leaders” 😊 from the outside have plenty of influence- the problem is the “thoughts” chosen by the pols have to align with craven political objectives and the thinkers themselves are representing special interests. Not that working at the behest of special interests was a bad thing in countries like Korea and Japan dominated by chaebols or trading companies/industrial conglomerates back in the day.
I wrote this piece on some of the theory on when state planning can work + some historical examples if you're looking for arguments in favour for that position.
https://claycubeomnibus.substack.com/p/economic-calculation-in-the-rts-commonwealth
Overall I'm pro-industrial policy even for non-strategic reasons, and I think the mainstream view moving in that direction is a good thing. But I also think you're completely right that it needs to be managed by people of the absolutely highest calibre to work and can go very badly without them.
I agree with some of your examples, but not the reasoning. Basically I see a few reasons why planning will outperform:
1. price signals are too slow
2. we, as a society, find the conclusion of the price signals to be unacceptable
3. buyers are unable to receive or respond to price signals for other reasons
4. strategy - production has to happen in the right place
To your examples of when markets don't work:
Healthcare:
This is 2 and 3. A true free market in healthcare would mean that if you don't have the money you will be left to die. This is not acceptable to almost anyone so, even in the US, the government steps in to keep this from happening. Also there is a problem with price signals. There is a fundamental problem with price signals because when you need a hospital you don't exactly have time to shop around for one. When these conditions don't apply there is actually a perfectly well functioning market for healthcare. e.g. Lasik surgery. We are perfectly happy to tell people who can't afford it "sorry, you have to keep wearing glasses." And anybody who wants the elective procedure has plenty of time to shop around for it. You will notice that all doctors advertise their price clearly since there is no insurance company paying.
War Planning:
This is 1 and 4. The government could easily get what it needs by price signals. Offer to buy missiles for 2x what it costs to produce them and you will have plenty of missiles, eventually. The problem is that in war, you just need those missiles now. And, of course, you need to make sure the factories producing them aren't in the country you are at war with because they won't sell for any price.
Agriculture
I strongly disagree with you that the market works for this one and that it is even a market in the first place. In the US it is nothing close to a free market and I wouldn't want it to be. The market fails for 1 and 2. Planting new crops has a yearly cycle. If you don't have enough wheat, it will be a year before you can produce more no matter the price. It won't be a year before the government ceases to be the government anymore if it fails to ensure that enough wheat gets planted every year. And it works. The grocery store shelves are always full.
Corporate Internals
In some cases this is 1. But in other cases it is a massive success. e.g. AWS is the reason why Amazon is a $2T corporation and it was developed by using the internal market approach.
Good points, especially on Lasik and war planning.
I feel like if you accepts those 4 failure points though that should allow plenty of space where strategically aimed industrial policy can overlap with independently good planning policy.
If your system depends on supermen to succeed, failure is guaranteed.
We don't need supermen, but honestly we probably could get them and they would do if for free. If you asked Elon Musk to direct this he probably would. Even if you hate him, he started two companies worth more than $100 billion that were based on technological breakthroughs. And if you don't want that type of person directing industrial policy then I really don't know what to say. And there are a ton of other successful business founders and world renowned scientists and experts in any field that would work on this and do it for free.
But I'm not even asking for that. Can the richest most powerful organization in the world (who has a money printer) just pay the people directing something as important as a national industrial policy a competitive salary? Can we just do things like incentivize them with bonuses when they hit goals and cut costs? Can we just rapidly fire people who fail? It's not that difficult.
Like with public school teachers...?
Yes?
Supermen is a bit of an exaggeration. A system that nudges talented people towards government like in Singapore or China can achieve a lot.
"...needs to be managed by people of the absolute highest calibre to work..."
This review would be a lot better if you cited a few naysayers. I believe you remarked on California's celebrated "Bullet Train to Nowhere" in a previous post. Over at New York, Jonathan Chait, in a pretty sour "Biden Sucks" post, notes how little of the money that has been appropriated under Biden has actually been spent, because of various NIMBY-style obstacles. Modern-day "progressives"--largely, young people (relatively) who were burned by the 2008 recession, have a deep hatred of the profit motive, and, when they hand out money at all, add so many restrictions on its expenditure--the notorious "everything bagel"--that, well, no one wants to bite the bagel. Money gets spent on jobs for bureaucrats, consultants, diversity training, studies, lawyers, lobbyists, and all the rest of the usual suspects, and nothing concrete gets done, which really doesn't bother a lot of the "progressives" because, 1) they profited from all the wheel-spinning, because they were the ones who got paid to do it, and 2) they hate "development" in the first place. In the pretty famous book "Chip Wars", the authors' stories about successful projects always emphasizes the project leaders' "ruthless" determination to cut costs, prevent unions, demand unpaid overtime, etc., etc., etc., putting "the job" first and employees last, and screw the environment too. This not how things get done--or, more correctly, don't get done--in the U.S. of A.
He kind of included one in Bill McKibben who claims to be against NIMBYs but counts as his biggest achievement getting the Keystone XL pipeline stopped, and cheerleaded Biden’s ban on LNG exports. He wants to unblock a tiny 2 MWh solar farm but is against nuclear power generation which could use land more than 100 times effectively.
This is the main problem I have with Democrats. I actually agree with a lot of what the want to do but I have no confidence at all that they can get anything done even without political opposition. On top of what you said, for a project to succeed it needs to focus on one narrow goal and leave everything else out of scope. Democrats tend to want to have a policy that is a huge grandiose fix for all of the problems in our society.
I actually agree with most of what Jake Sullivan says in the article. But then he says this:
"[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…"
This is a recipe for a boondoggle. Plenty of bureaucrats will do great, but nothing will get done. We need an industrial policy that lets us strategically compete with China. I am also on board for fighting global warming. But when you bring "justice" and "inequality" into it I just hear "we need to make sure that the people I want to pay get paid." I want industrial policy, but I don't want Jake Sullivan or his ilk anywhere near it.
This is fantastic Noah. This is the stuff I am after. Where you been?!?!
Noah, when you do your piece on Canadian economic growth can you also address how we should respond to China, the IRA and new thinking about industrial policy in general? 🙏
I like "mesoeconomics" as a coinage. Is it due to Janeway? Pretty good.
I'm Brazilian and I find it curious that some paper claims industrial policy in Latin America had small-scale success. Import substitution was an utter failure, plaguing Brazilian industry with non-competitive scale, high prices, and low quality. If there is something that has cost dearly to Latin Americans, it was industrial policy.
Curiously, the case cited in Brazil is the aircraft industry. Embraer, the former state-owned aircraft manufacturer, just became competitive when the government mostly relinquished control of it, and let it operate more freely to import its inputs. The Brazilian dictatorship was obsessed with having most of the industrial supply chain in Brazil, and this doomed Embraer in the early days. Only when the government gave a free hand for Embraer to import inputs and negotiate partnership abroad, in particular with an Italian aircraft manufacturer, did the company start growing and becoming internationally competitive.
well done and impressive....
The UK went through similar and ill-fated phases of borrowing from fascism and socialism in attempting to stem industrial decline from the 1930s through the 1970s. All ultimately failed. Similarly, the US seriously examined industrial policy in the 1980s in response to the rise of Japan and the deindustrialization that occurred in the 60s/70s. Robert Reich and later David Osborne were among the leading voices. Ultimately, those positions became less compelling once the Cold War ended, Japan's growth stopped, and the tech boom occurred. The industrial policy that people articulate today is more akin to trade policy coupled with calls for significant subsidies for environmental investment. It's fine but in many ways a lot less ambitious than what others have had in mind in the past. There needs to be significantly more emphasis on federal investment in basic research across numerous industries (with the associated multipliers on economic growth that can occur). I don't see anybody in the New Industrial Policy movement talking specifically about where public investment may be most productive (and have the greatest positive spillovers for the national economy) beyond semiconductors. Although private R&D investment is much, much larger than it used to be, a lot of it is skewed to very specific applications (i.e., AI), so it is very deep (reflecting competition and long-term significance of AI) but not broad. And whereas people today are focused (appropriately) on barriers to capital (YIMBYists), Reich and others focused on the importance of reducing barriers to labor mobility. We need to substantially increase incentives for people to move from low- or no-growth areas to high-growth areas - witness the labor shortages that are impairing the completion of new semiconductor projects in the western US. At the end of the day, though, all of this occurs within the framework of a system where private enterprise must ultimately deliver. In that sense, it is not a significant departure from previous thinking about industrial policy. Nor should it be.
Isn't NIMBYism as much a barrier to labor (due to potential workers being priced out of high-growth areas) as it is to capital?
Fair point - but you could still remove the building restrictions and continue to have problems recruiting skilled labor, which is what we are seeing at some of the new semiconductor builds. I think the broader barrier to labor in NIMBY-intensive areas is the high cost of living in those areas, but it seems much harder to reduce the high cost of living (which involves much more than housing costs) than to locate capital and labor elsewhere.
Noah provides a useful literature survey of research on industrial policy. Moses Sternstein gives us a useful picture of reality. "Lots of big bets and, for now, not all that much to show for it." https://www.therandomwalk.co/p/reindustrialized-shrugged?utm_source=%2Finbox&utm_medium=reader2
If we look at history,
(1) there has never been an industrial superpower that did not effectively use industrial policy (and state capacity at all levels) to achieve it.
(2) the most successful and country-transforming product categories have all benefitted from industrial policies. Smartphones (Taiwan, China), EVs (China), chips (US, then Korea and Taiwan) and on and on.
I'm glad Brad DeLong gave Alexander Hamilton his flowers because he pushed back against Jefferson and others who prioritized agriculture over industry in the early days of the US.
To expand on (1), tracing the lineage of industrial policy thinkers and doers since Hamilton, Henry Clay was also pivotal in 19th century US policy. Friedrich List, who was a German immigrant to the US, was a founder of the German school which would influence Germany's industrial rise in the late 19th and, to devastating effect, the early 20th century.
Japan sent ministers and many bureaucrats on missions during the Meji period to Germany to learn how the latter was industrializing so quickly. They would become great students, and used their knowledge to the detriment of the US, East Asia and Oceania in WW2.
Korea, Taiwan and China would follow Japan's lead. Sun Yat-sen would take inspiration from Friedrich List as well. East Asia was no economic miracle. It was motivated execution by the public and private sectors.
We know what effective industrial policy looks like, but as was quoted above, we need corresponding effective state capacity. We also need to recognize that economic development is never finished. The notion of a "developed" country is ridiculous, if the US measures our development against what is possible in the future. If we always see ourselves as developing, always pushing the technological and industrial frontier forward, we have a fighting chance to actually do that.
Land use is not only an issue for housing us but for feeding us as well. Even here in Oregon, where our land system (adopted in the early 1970s) was designed to preserve farm land and has largely succeeded in doing so, it now protects both productive and unproductive land indiscriminately. Combining that with a first-in-time approach to water rights and we get wasteful use of water and inefficient use of land for feeding us -- and a shortage of land for making things. It's time for a reworking of our 50-year old land use system here...
There are new technologies emerging to make better use of water and farm land, but they won't achieve their potential without undating our land use systems as well.
While the US certainly needs to develop broad based industrial policies, Noah and those he quotes seem overly focused on the technological, economic and administrative, i.e. technocratic, construction of such policies; they appear to give little consideration to developing the wider social and political consensuses and structures that need to be in place to deliver them.
The need for an underpinning shared social consensus on development of national industrial policy is starkly illustrated by comparing the political landscape at the time the US had to most urgently embark on such a task with the present landscape. In 1940 the Democratic and Republican presidential nominees both shared in and jointly further built a national policy of international engagement and rearmament. The Republican nominee in 2024, however, has no interest at all in developing any new national consensus, and a party in thrall to him is perfectly willing to thwart any efforts to do so, e.g. on immigration policy, in the pursuit of very short term political gains.
We need technocratic innovation (read: state capacity) badly.
Read Alon Levy's Pedestrian Observations ( pedestrianobservations.com ) to see how tunnel-visioned American planners and engineers are incurious to learn about better engineering, procurement and risk management practices innovated in Europe and Asia, and learn nothing from poorly done public works projects.
Noah, you and I have very different ideas on industrial policy. I prefer marekts to decide, which is why I hate Biden’s fealty to only electric vehicles as one effort to lower carbon emissions.
What if he is wrong. What if you are wrong. What if the entierty of journalism, research is focused on EV’s and we leave out something in carbon mitgation that might more economically feasible than $60,000 EV’s?
The government isn’t all knowing, nor are pundits or economists all knowing. Organic knowledge is the knowledge that has move the world forward in its science and technological expansion.
I think you are the problem, you might just be the economist who inhibits us from going to down a different path....
Obviously, I am exaggerating you role....but in reality somehow a butterfuly batting is wings is the cause of hurricane in Florida.....That is what we are dealing with here....and you position that the government should be making these decsions is really screwed up. That is not how science works and you should know better.
You must be right about the perception, but I recall welcoming "Neoliberalism" (it was not called that at the time) as a sort of newish idea that some regulations harmed growth and that smarter regulation could be used, together with tax and transfers to spur growth with greater equity. Cutting taxes to produce large deficits was never part of what I though of as "Neoliberalism."
Frankly I don't see anything that has come along since as any better. I think that Pigou taxation and subsidies of negative and positive externalities is the epitome of neoliberalism. So if individual importers do not take account of the risky dependence their imports from China create, it makes sense to tax or administratively interfere with those imports or even to subsidize the domestic production of the critical item. The important point is to carefully match the tax or subsidy to the objective being sought.
What makes me nervous about "Industrial policy" is the idea that it is something new and a welcome departure from "Neoliberalism." The part that is new is not welcome and the part that is welcome is not new.
That is just in principle worry. I have to add to that the fact that CHIPS, for example, seem to be larded with all kinds of additional objectives and fails to include clearing away NEPA-ish obstacles and the subsidies of IRA (those for "green" hydrogen are in the news) do not seem to be carefully aligned with the value of the CO2 emissions avoided. And on top of this, these subsidies are not being offset by new revenues to prevent them from adding to deficits that are already greater than the sum of activities with NPV > 0.
I was just reading Noah’s initial thoughts on the IRA where he says:
“Overall, the bill is predicted to reduce the deficit by $306 billion over the decade.”
Though I’m not sure where that total comes from.
https://www.noahpinion.blog/p/the-inflation-reduction-act-some?utm_campaign=posts-open-in-app
The quoted text from Jake Sullivan makes me particularly annoyed at all the screeching "but socialism???" tweets I see from people opposing a potential Kamala Harris administration. That sure doesn't sound like a command economy manifesto to me!
She hasn’t stated any policies that she supports other than copying Trump’s ridiculous tax-free tips and being brat. Does she even agree with Sullivan? Who is her national security adviser? She and Walz have spent their entire careers in government, and haven’t produced anything. Trump and Vance haven’t produced much valuable (golf courses, real estate schools, and MAGA hats are not great products, nor are hillbilly memoirs, but maybe one of the ventures Vance funded will make something).
https://www.nytimes.com/interactive/2024/08/06/us/elections/trump-vance-harris-walz-education-career.html
Well, it helps that elective office, which is also a government job, a person has had government experience -- like knowing the pace of and the temperaments behind the people making the sausage, what it takes to craft law, the role of lobbyists, the capability of civil servants, and so on.
Producers are really out of their element in government service. Even when it's something like where a city council is an extension of the country club and chamber of commerce, the true power lies in the city manager, a commissioned professional.
Biden can't debate but he produced substantial policy in his advanced age because he had been in the Senate and eight years in the White House.