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Rumours of industrial policy in America have been greatly exaggerated. This may come as a surprise to some. The Biden administration has, after all, reasserted the role of the state in the US economy in ways we haven’t seen for half a century: supporting re-industrialisation, subsidising strategic industries, boosting unions, rethinking trade relations and rebooting competition policy.
Yet those are separate policies, not a fundamentally new operating system. At an intellectual level, it’s quite clear that there’s a big pendulum shift happening on the political left in America, and to a certain extent on the right, as well. Both have embraced tariffs, subsidies and other government interventions. The state will certainly be more dominant no matter who wins the US presidential election in November.
But industrial policy is about accomplishing certain things in the real world, such as rebalancing consumption and production within an economy, reducing inequality and promoting better and more sustainable kinds of growth, building a more globally competitive workforce, finding a middle ground between innovation and regulation and so on. To do that, you need real connections between the stakeholders that matter: namely business, labour, educational institutions, civic society and government at all levels.
We have barely scratched the surface of that challenge in the US. If Europe is a technocracy and China an autocracy, America might be described as a large, bureaucratic corporation, a conglomerate that is so massive, complex, diversified and self-interested that it’s difficult for it to work effectively or productively. Operations are siloed. Rent-seeking is rife. Divisions can’t work together.
Not only do the public and private sectors exist in largely separate spheres, but within those spheres the right people are often not in the same room for the most important discussions. Let’s start with the federal government. The Biden administration is one of the most collaborative I’ve seen in my 33 years of journalism. But even there you’ll see big gaps in communication and policy goals between, say, the Department of Commerce and the Office of the US Trade Representative or the Pentagon and Treasury.
That’s an issue when you are trying to change the entire nature of the American economy. Does resiliency mean cutting new trade deals in Asia to counter China, which seems to be the commerce department approach? Or does it mean pushing for an entirely new system of trade, as the USTR wants? Should we speed up re-industrialisation and de-risking from China for the sake of security, as many in defence circles would advocate, or take an incremental approach and try to smooth things over with Beijing to avoid a trade war or inflation, which is the Treasury view?
There is broad agreement at the White House level that we’re moving away from the mythology of efficient and always self-correcting markets, to an age in which the public sector will have to do more nudging, or “marketcrafting” as some would put it, to ensure economically and politically stable outcomes. Dealing with big complex problems such as climate change, or social inequality and the political instability that results from it, are two good examples of where this is needed. But there is no new unified field theory about how to do that. Or how fast it should happen. Some officials are for incrementalism; others for system change.
Add into this still-discordant mix the fact that so much of what would constitute smart industrial policy — such as educational reform — is done at the state level, meaning it is inherently balkanised and politicised. Then add the fact that business and educators don’t really talk together in a systemic way about what a 21st-century workforce would look like or how to create it. This means that even if stimulus dollars get rolled out quickly, there may not be enough skilled workers to fill positions.
And don’t get me started on how the wildly dysfunctional relationship between business and labour in the US hinders everything from skills training to economic inclusion to productivity and overall gross domestic product growth.
I’m painting with broad brush strokes here, and there are plenty of isolated counter-examples. At the local or even state level, progress is being made to connect the dots between capital, government and the public interest in ways that advance more sustainable growth and inclusion. And perhaps those local successes constitute their own kind of decentralised industrial strategy. By communicating the challenges at a national level, and funding change in places that need it (economically distressed counties are receiving double the amount of strategic sector investments relative to their GDP), local success could blossom into something bigger.
But I suspect that America will still need to think more systemically, and strategically, about the challenges of the moment. When Europeans in particular criticise America’s move towards industrial policy, they should remember that the US is starting from ground zero. This is the land of privatised healthcare, gated communities, no labour representatives in the boardroom and very little sense of collectivism. Perhaps a bit more joined up thinking about where the country is going, and how to get there, would be good not just for America, but for the world.
rana.foroohar@ft.com
Source: Economy - ft.com
