Industrial Policy
Atrios mentions one of the problems discussing trade and industrial policy by the federal governmentThe First Rule Of Industrial Policy at Eschaton.
“This is a society in deep, deep trouble and the fixes currently in the works are in no way adequate to the enormous challenges we’re facing. For example, an end to the mantra of monthly job losses would undoubtedly be welcomed. But even if the economy manages to create a few hundred thousand new jobs a month, it would do little to haul us from the unemployment pit dug for us by the Great Recession. We need to create more than 10 million new jobs just to get us back to where we were when the recession began in December 2007. What’s needed are big new innovative efforts to fashion an economy that creates jobs for all who want and need to work. Just getting us back in fits and starts over the next few years to where we were when the recession began should not be acceptable to anyone. We should be moving now to invest aggressively in a new, greener economy, leading the world in the development of alternative fuels, advanced transportation networks and the effort to restrain the poisoning of the planet. We should be developing an industrial policy that emphasizes the need for America to regain its manufacturing mojo, as tough as that might seem, and we need to rebuild our infrastructure.”
Atrios adds his own comments:
One of my longstanding pet peeves is that everyone in the US pretends we don’t have an “industrial policy” because that implies naughty state intervention in certain sectors. But of course we have lots of naughty state intervention in certain sectors, we just don’t do it even notionally for any good reason. We prop up the single family homebuilding industry and the automobile industry (even before the bailouts). We prop up certain agricultural sectors. We favor big business over small. Now we’re massively propping up one skimmer industry – the financial industry – and are about to prop up another skimmer industry – health insurance.
So, yes, by design or accident we have industry policy. We should recognize that and then decide what we should be doing instead of pretending we don’t have any.
Here is a great example of the barriers that prevent industrial developement:
http://arstechnica.com/tech-policy/news/2010/01/municipal-fiber-needs-more-fdr-localism-fewer-state-bans.ars
In teh above example:
– Politicians set up barriers at the behest of certain corporations or interested parties
– Government is not efficient at auctionuing off valuable broadband
Simply, there need to be less barriers to certain things (e.g. gambling being illegal, so states can monopolize it through their lotteries), remove money from politics (this is a tough one, but doable), and the government managing public goods better – such as broadband spectrum.
Taking Atrios list at face value, it is noteworthy that much of our industrial policy is aimed at sectors that are largely non-tradable. The tradeables that are the beneficiaries of policy are not the high-margin stuff that New Trade Theory suggests, but rather farm commodities and old industrial products. This is what we argue is wrong with third world industrial policy in the worst cases – protection for vested interests. It doesn’t even qualify on an infant industry basis, much new New Trade Theory.
Regarding infrastructure, I caugth the History Channel show: The Crumbling of America. I recommend it. http://www.history.com/shows.do?episodeId=452430&action=detail
I believe it was stated 5.5 trillion dollars was needed over 5.5 year (?) to fix everything. We are ginned up on fear of terrorism but, we really are living dangerously regarding our infrastructure.
Then again, we seem to be living in an economic environment based on the simple good old days such as my inlaws lived running the flower shop: Cash in the pocket. Why fix the show case that was rotting and falling through the floor it rotted? It was still cold inside! Hey, the porch only leaked when the rain hit it from a certain direction. What’s the problem? Repair the mechanicals to the walkin? Why, when you can just have the guy come out and keep recharging it. Cash in the pocket meant they were making money, never understanding wealth.
They sucked the infrastructure of the business pretty much dry, just like we have done with the nation.
I forgot to add, I’ve created $250K worth of jobs rebuilding the flower shop, not including the garage I just built as a means of stimulating the economy.
As long as the emphasis is on financial rather than labor, we will continue down this road. The profits are in the financial sector with 40% of them going to the Finance sector pre-2008 and it having ~1/3 of GDP. No investment in:
“big new innovative efforts to fashion an economy that creates jobs for all who want and need to work. Just getting us back in fits and starts over the next few years to where we were when the recession began should not be acceptable to anyone. We should be moving now to invest aggressively in a new, greener economy, leading the world in the development of alternative fuels, advanced transportation networks and the effort to restrain the poisoning of the planet. We should be developing an industrial policy that emphasizes the need for America to regain its manufacturing mojo”
until we change the emphasis. The Unemployment and NILF pit had its beginning in 2001 and not 2007.
Most amusing. The American political system provides an industrial policy which protects vested interests. Therefore we should have more industrial policy.
Why? To protect more vested interests?
Here’s a question that relates to the concept of our government’s industrial/trade policy.
I ask only because it comes to mind as a vague recollection and I don’t have the time nor
a hint of where to look for verification. Did not the US government have some form of financial guaranty program in place that provided such guaranty’s to corporations to build factories, but not in the US? I have this vague recollection of companies that were early to set up manufacturing in China, as an example, that had govt assurance of their investments in other places, not here at home. Does anyone know more clearly about such a guarnty program?
Run ~ ” As long as the emphasis is on financial rather than labor, we will continue down this road.”
Absolutely. But it is worse than just a disregard for wages. The U.S. economy is not being allowed to correct as a result of supply and demand forces. Crude oil is probably the best example, if oil tankers being used for storage were put end to end, they would stretch for 26 miles. And of course wages need not rise if costs are allowed to fall.
Globalization has eased the dependence of U.S. investors on U.S. consumers. Without this interdependency, and with the U.S. investment class having become so large as to affect the democratic process more than ever before, the U.S. economy has lost an integral safeguard. We have entered into an advanced stage of a society that very well may destroy itself as a result of selfish behavior. And, as Upton Sinclair said ” It is difficult to get a man to understand what his livelihood depends on his not understanding.”
Here is another example of poor policy:
http://webworkerdaily.com/2009/12/18/ending-unfair-telecommuter-taxes/#comments
Hogher levels of telecommuting would decrease what we spend on oil too, whihc is green, and less money flowing overseas.
Um, who said we needed more industrial policy? I mean, if you are going to poke fun at a proposal, shouldn’t we at least be let in on the proposal at which you poke?
That said, I think the implication that since we do something badly, we shouldn’t do it at all is pretty shallow. If we make poor food choices, should we stop eating? If we’ve done a bad job choosing a vocation, should we stop working? If we have done a bad job educating our children, is that an argument for not trying? OK, I admit that some conservative heehaws make arguments abotu education spending which, at their core, are exactly that, but they are clever enough to avoid saying “don’t try” outright.
Industrial policy may be a bad idea. It may be a good idea if done well. But the fact that we do it badly is not, in itself, an argument against doing it.
The sooner we stop denying that the U.S. does, indeed, have a de facto industrial policy, the sooner we can admit that the one we have is horribly broken precisely because all it does is protect vested interests, the sooner we can put a robust economic policy in place that focuses on promoting real economic growth.
An option competing with left wing industrial policy is to junk the whole Obama/democrat program and go back to Reaganomics. Electing Scott Brown to the U.S. Senate in Massachusetts would be a good first step.
We should be moving now to invest aggressively in a new, greener economy, leading the world in the development of alternative fuels, advanced transportation networks and the effort to restrain the poisoning of the planet.
This is the bloggers idea of what we should be investing in, and presumeably some lib bureaucrats idea of what we should be promoting. This is what the blogger/bureaucrat wants, and may (likely) not what a potential customer wants. Thats why this type of “Industrial Policy” usually/always fails.
To create jobs, we need to produce things at costs that people will buy. The best mechanism for this is the market, where participants are driven by profit potential to innovate and produce things that others want. The best industrial policy is for gpvernment to GET OUT OF THE WAY as much as possible.
The U.S. Government has been engaged in a domestic de-industrialization policy for the last three decades. This policy is evidenced in U.S. trade agreements, U.S. membership in the WTO, and the resulting growing volume of imported industrial, intermediate, and finished goods. The failure to understand WTO policy in general, and, more specifically, subsidy restrictions established in WTO rules makes the likelihood of “picking” a winner around which the U.S. might rejuvenate industrial strength, such as the green industry, somewhat laughable.
I take it the owner and co-owner were paid salaries from stimulus funds. 😀
Cantab, your response is nonsensical partisan blathering. Tacit US “industrial policy”, as described pretty accurately in the post and comments here, is not something that Obama created. You either have no idea what the conversation is about, or you are trying to distract innocent minds from reality by tossing out stuff like this. Look at the list. Farm policy? It has been around for decades, with a good chunk of it started under Nixon, at the urging of Earl Butz. The financial rescue program that Atrios identifies as industrial policy for banks, was created under Bush. Oh, and steel tariffs. Let’s not forget those.
In another recent comments section, you said you thought you had lost ground in some discussions by not expressing yourself clearly. That may be a problem, but not the only one. Facts, man. Facts.
I removed my comment to make a repair but now when I try to post it again I get the too many characters bleep. But my comment only has 3,300 characters?
The Industrial Policy Debate
CBO stated:
“An industrial policy implies the formulation of goals for specific sectors or industries and coordinated efforts to achieve them. The United States does not have a unified industrial policy, although it has a potpourri of policies that affect industrial growth–often unintentionally. These include monetary and fiscal policies, credit subsidies, and specific features of tax laws, as well as policies in the areas of procurement, trade, research and development, economic adjustment, regional development, and competition.”
“The term “industrial policy” represents not so much a policy as a debate over the best way to address America’s long-term industrial problems. Everyone agrees that the country’s basic manufacturing industries face both short-term and long-term difficulties. At issue is the role of government in addressing these difficulties and whether special programs that would complement fiscal and monetary policies would be appropriate. Supporters of a new, activist industrial policy would like the government to take a more interventionist role in solving industrial problems and rationalizing government policy toward industry. They hold that the present economic recovery, even at best, will not eliminate structural problems in the form of high unemployment, underutilized industrial capacity, and depressed communities. Supporters of a traditional free-market policy argue, on the other hand, that the government already intervenes too much and that intervention may represent part of the problem. They hold that industrial policy is inappropriate because economic growth can be maintained through conventional fiscal and monetary policy tools and flexible prices and wages.”
“In general, industrial policies concerned with trade seek either to stimulate industrial production for international markets or to protect domestic producers from import competition. The rapidly increasing dependence of the U.S. economy on foreign trade, combined with the increasing use of industrial policies by U.S. trading partners, has heightened the sense of need for changes in trade policy.”
“Industrial policy proposals aim at three major goals: improving the economy’s overall performance; meeting foreign competition; and assisting workers, firms, or communities to adjust to economic change. The pursuit of overall goals envisions improving total economic performance by overcoming problems in specific sectors and industries that affect employment, output, or prices. Some proponents go even further, arguing that government should take an active role in altering the structure of the economy. They would pursue competitive goals by promoting specific industries in competition with other nations. Finally, some have adjustment goals—that is, they would seek to ease the problems of workers, firms, or communities seriously affected by market-driven change.”
The year was 1983.
“the year was 1983”
The Plaza Accords did help from 1985 through the mid-nineties, though. Then in the 1990s a bunch of nasty events (many of which happened at the behest, or with the acequiesnce of the US) reversed that.
It’s fine to talk about industrial policy in a generic sense, but I find the standard progressive conceptions of that to be a little naive. Most of the countries that people think of as using industrial policy feature the repression of exchange rates, wages and state direction of credit. It’s really a “make it profitable to export” strategy that the East Asians actually practice. Of course, since it was so profitable, everyone rushed to build capacity during booms, leading to lots of surplus industrial capacity that no one really wants to retire because it means lost jobs and investments.
What I hear from American progressives is of their dreams of “green jobs”, “innovation” an “advanced manufacturing” as opposed to “old manufacturing.” Now, of course, this is hoping for innovations, and innovation doen’t happen neccessarily on a timescale to suit our desires. Even if suitable innovations were forthcoming, however, this approach is still not going to help much. If someone else’s economy is rigged to produce at an inherently lower unit cost, then it doesn’t matter how new or innovative our ideas are – industrialists will try to get their products made in that place.
The key for us, then, is to erase the cost advantage through very direct policies that directly impact the bottom line. There’s no “enlightened” approach here that will avoid hurting anyone else.
Hugh ~ “ Most of the countries that people think of as using industrial policy feature the repression of exchange rates, wages and state direction of credit. “
As part of the Washington Consensus, the IMF encouraged poor nations to hold dollar related assets as criteria for credit worthiness. Now we are printing down the value of our currency at the expense of nearly every nation on earth to minimize the cost of a meltdown caused by fraudulent securities, the origin of which I suppose you know of. I think your use of the terms “state directed credit”, and”repression of exchange rates, may be “naive”. And thinking that the U.S. Government has not played a major role in the dubious control of wages is beyond “naive”.
Demographics ignored again. The monster surge in retiring “baby boomers” will drop the unemployment rate.
That’s assuming that so-called baby boomers will be able to retire. Given the destruction of their IRAs and 401ks they’re probably contemplating the inglorious possibility of having to work ’til they simply keel over at the office desk.
Kharris,
Cantab, your response is nonsensical partisan blathering.
Your thinking that moving back to Reaganomics is nonsensical demostrates that you have no clue what you’re talking about. America is coming to the conclusion that doing the left way will take us nowhere. I just heard a focus group on NPR discussing the economy and Obama’s policy. Its not good for the democrats.
Industrial policy is an attempt by backers of big government to give government officials to increase fiscal and regulatory power to direct the the country’s industrial sector. The last time anyone took this mistaken initiative seriously was during the early 1980s. Hart talked about it and Mondale ran on it. They lost and the initiative died. Clinton wanted to do some but pretty much gave it up to get reelected.
The Obama people said many things during the election. I think once elected they thought they would pivot to the left and impose their policies on healthcare, the environment, and with these two why not go all the way to a industrial policy directed by the government.
But now its in question if they can even hold their majorities and get reelected. And that’s a good thing.
Sammy,
+1 million
Left-wing wankers love to get high and fantasize about “what could be” but the next day they wake up with a bake-over and they have to go to work just like the rest of us.
Only then, as they reflect on the previous night’s festivities, do they realize that 95% of their “great ideas” are actually completely retarded.
Bob Herbert has a good heart, but I suspect he has smoked dope for his chronic depression every day for the last 35 years (he was in ‘Nam you know… his issues are all “the man’s fault”…). That is why all of his op-eds read like something you could have whipped out in 20 minutes for your sophomore journalism class (while drunk no less).
I agree that US policies have been based on academic theories and idealistic notions, supported with plenty of cash from companies who want to sell their products in overseas markets or off-shore their manufacturing.
I also agree that the green industry is a joke.
Having said that, I also believe that a decay in American society – American managers who want nothing more than to line their pockets, and American workers who frankly just don’t give a crap – have also contributed to this problem.
How do you build a successful business when the managers / owners won’t reinvest the profits because they don’t believe in the future of the company and /or would rather spend their money on wasteful luxuries?
Johnny,
So what you are saying is the unemployment rate will fall becuase millions of baby boomers will move from the productive part of the economy – ie working – to the non-productive part of the economy, ie retired and on the govt dole?
Why exactly is that good news?
I thought the wealth of a nation could be measured by the number of workers x hours worked x productive capacity per hour.
Please explain to me how these demographics are working in our favor?
“The Obama people said many things during the election. I think once elected they thought they would pivot to the left and impose their policies on healthcare, the environment, and with these two why not go all the way to a industrial policy directed by the government.”
Yah cause all the senior economic advisers he picked leaned in that direction. Anyway, as usual with you, classic misdirection. The real issue is industrial policy and you would prefer we waste our time addressing your disruptive behaviour. I take your mother told you that such behaviour was a mark of distinction. Pitty that…alas a mothers’ love knows no malice of forethought.
The real issue is industrial policy and you would prefer we waste our time addressing your disruptive behaviour.
Industrial policy is not a specific policy but rather a wish for the big mommy state to make everything alright. If you think otherwise then please provide a definition on what you think industrial policy is. The column was short on specifics and heavy on whining which is typical of children that want their mommy.
Obama recently admitted that there actually is a war on terror. Maybe he’ll fire Janet Napolitano since she is to homeland security as James Watt was to the environment (or to the beach boys). Once Obama’s reverses himself, extends the tax cuts and not add new ones,and basically tells us that the era of big government is still over i’ll back him even if he remains a democrat.
Jack:
Maybe this is what you are looking as far as a verification? http://www.thefreelibrary.com/China:+manufacturer+for+the+world%3F+With+vast+amounts+of+slave+labor…-a0153189969 “China, Manufacturer of the World?”
“They have done so, in large part, because they have been actively encouraged to do so by the U.S. Commerce Department; because their China ventures are bankrolled by U.S. taxpayer-subsidized entities such as the International Monetary Fund and the World Bank; because their loans are guaranteed by the Export-Import Bank, a U.S. government agency; and because heavy U.S. taxes and regulations add significantly to the cost of manufacturing goods in the United States.”
Not really a doctoral essay on the topic; but, you get the idea on how the US gov. assists companies to relocate to other countries. Even so, we have hurt manufacturing in other ways such as favoring the financial industry over manufactuing growth in such ways as having states such as South Dakota and Delaware dictate the nation’s banking, interest, and usury regulations. The latest financial reform will strike down even more of the state regulation on banks/finance (which were pretty much the only means the industry was brought under scrutiny over the last 8 years). Banks being allowed to charge higher interest can command higher profits. It has been argued with me that the latest 16% demanded of customers with good credit is necessary to cover banking costs and profits because they can no longer leach off of those with poor credit with higher rates. Maybe allowing WalMart, Costco, Bruces and a other low cost warehouses/businesses enter into the banking industry may drive that cost downward. And the Corkers and McConells harp over the UAW?
A similar model is being advocated for healthcare reform, one state with the most favorable regulations for insurance becomes the corporate headquarters as a part on interstate sales of insurance.
Tao:
You do have economic growth, the US just doen’t have it in manufacturing as compared to other business.
South Korea, Japan, Taiwan and China did not follow the Washington Consensus. The WC presscribes uncontrolled capital inflows which cause appreciation of the exchange rate and loss of export competitiveness, not to mention currency crises.
South Korea, Japan, Taiwan and China did not follow the Washington Consensus. The WC presscribes uncontrolled capital inflows which cause appreciation of the exchange rate and loss of export competitiveness, not to mention currency crises.
If anyone is interested in a serious manufacturing framework, take a look this paper (Jan 2010).
Rationales and Mechanisms for Revitalizing U.S. Manufacturing R&D Strategies
Gregory Tassey, Senior Economist
National Institute of Standards and Technology
http://www.nist.gov/director/planning/manufacturing_strategy_paper.pdf
Good grief—ever hear of Project 863 and its like in China.
js kit behaves badly sometimes…