What We Agree on and What We Don’t: In Response to Julius Krein’s Industrial Policy Take
August 22, 2019
By Nell Abernathy
Industrial policy has “united the left and right,” Julius Krein wrote in the New York Times Tuesday. In this moment of deep political division, any policy agreement is worth highlighting. But just because the left and right are both using the language of industrial policy, doesn’t mean we have the same vision for how it should be used and who should benefit.
As Roosevelt Fellow Todd Tucker recently outlined, progressive industrial policy centers four strategic goals:
- national competitiveness;
- good jobs;
- decarbonization; and
- enhanced equity.
While we welcome conservative partners in pursuit of these goals, there may be reason for caution. When conservatives have championed policy to promote growth in the past, it has often served to increase corporate power at the expense of workers, sustainability, equity, and even domestic innovation.
In some ways, the economy we see today is a product of conservative industrial policy. To name a few:
- tax cuts for big business;
- corporate governance that undermines research and development (R&D);
- trade policies that promote intellectual property rights and foreign investment;
- right-to-work laws that undermine worker bargaining; and
- lax regulation that encourages resource extraction and pollution.
And when today’s conservatives talk about policy for coal workers and manufacturers—constituencies progressive policies also must aim to benefit directly—it often seems to be code for targeting government to aid white male workers.
But industrial policy can be deployed in pursuit of many goals. It aims to shift resources—workers, investment, materials—toward strategically important sectors that “the market” leaves underdeveloped. Done well, industrial policy includes some level of strategic planning—insofar as the government identifies a clear set of goals and paths for getting there.
This does not mean that the government dictates quantities or prices. Rather, progressive industrial policy promotes collaboration between public and private sectors.
Key industrial policy tools include investments that support private-sector innovation and development; public investments in basic science and education; and more targeted, industry-specific policies. Such policies range from funding applied research centers—like the 14 advanced manufacturing institutes developed by President Obama—to a suite of investment subsidies and trade policy—as South Korea did to develop heavy industry in the 1970s.
A spate of empirical research has demonstrated when and how industrial policy works. And the success of our economic competitors—from China to Germany—continues to teach real-world lessons about the power of strategic goal setting by government.
When and How Do Progressives Want to Use Industrial Policy?
To increase national competitiveness
First, and most obviously, we can pursue industrial policy to increase national competitiveness through manufacturing and innovation capacity. A robust manufacturing sector can seed supply chains that expand wealth beyond a single producer.
Researchers and business leaders have also found that maintaining production capacity is essential to maintaining a technological edge. The Chinese government, for example, invested heavily in increasing domestic production of lithium batteries, which are essential to powering electric cars. Soon, battery innovation capacity followed the production supply chain. Today, China is leading the world in the technological and productive race to power the vehicles of the future.
To create good jobs
Second, progressive industrial policy can promote the creation of good jobs. Good jobs provide economic and social benefits (which includes reducing the drift toward right-wing nationalism) and are undersupplied by the current market.
While some conservative champions have argued for manufacturing investments to promote job creation, it is not clear that they are prepared to use the policy tools needed to ensure that interventionist policy doesn’t become one more boon to shareholder profits.
Sen. Elizabeth Warren’s industrial policy plan includes a lot for businesses to like—including R&D investments, export support, and American-made procurement policies. Coupling this agenda with her plans to promote worker power and curb harmful corporate profiteering can ensure that these benefits will accrue to workers. Rep. Tim Ryan has promoted an industrial plan to build out the electric vehicle supply chain in Ohio, and pairs this with calls for doubling union membership, raising the minimum wage, and expanding overtime standards, among other protections.
In addition to traditional labor policy, Dani Rodrik warns that when promoting a “good jobs policy,” government must hold corporations accountable for their commitments—for example, by paying out tax credits once firms have demonstrably created good jobs, rather than offering big breaks for false promises (see Wisconsin and Foxconn or Amazon and everywhere.)
In one success story, the nonprofit organization Jobs to Move America has deployed state and municipal government procurement policies to ensure that public transit dollars previously spent on importing rail cars now support 2,500 union manufacturing jobs from Los Angeles to New York. By contrast, Trump’s steel tariffs—a blunt form of industrial policy—have largely failed to benefit workers, who must lobby owners for a share of the benefits.
To decarbonize the economy
Third, a progressive industrial policy must focus on decarbonizing the economy and fostering clean-green technologies. Let’s take as fact that a sustainable ecosystem has social and economic value, and that the current market underprovides for it. Putting the existential threat of climate change aside, there is enormous economic potential in developing clean industries.
As the world decarbonizes, someone needs to produce the cars and buses, charging stations, and batteries and component parts to supply the electric vehicle industry. Someone needs to produce wind turbines, ancillary equipment, and vessels to supply the offshore wind industry, recently valued at $70 billion in the US alone.
Right now, Asia and Europe have the advantages. The US has deployed traditional policy tools, like tax credits and subsidies, but has failed to promote the kinds of investments in technological development and deployment that are required to transition. Indeed, markets and market-based policies are notoriously bad at transition.
Beyond that, the private sector in the US is simply not allocating resources very effectively. As Sarah Knuth shows in the case of solar tax credits, financialized US firms were able to capture the benefits without delivering the needed investment.
To increase equity
Finally, progressive industrial policy must increase equity in America by targeting investment in regions and sectors in order to reduce racial, gender, and geographic disparities. An ever-growing literature documents the economic and democratic costs of increasing inequality.
Encouraging the development of manufacturing capacity in deindustrialized regions is certainly a key aspect of promoting equity. Perhaps this means solar plants in West Virginia and electric vehicle supply chains in Midwest communities hit by trade.
But inclusive industrial policy means ensuring that high-quality work is also created in Black, Latino, and Native communities, and that local workers have access to local jobs. It means creating pathways for women in male-dominated fields. The equity imperative requires that we develop sectors—like the care industry—that traditionally employ women and people of color.
Quality health care, childcare, and elder care provide essential social benefits but are undersupplied by the market, making these sectors prime candidates for industrial policy. While the economic benefits of investing in children are unparalleled, under the current US system, many children don’t have access to high-quality care and workers are underpaid. Where a subsidy solution would fail to address quality standards, worker wages and skills, and the need for new infrastructure, a commitment to universal access (a public option) would greatly benefit the many women of color represented among childcare workers.
Ultimately, the proponents of progressive industrial policy should welcome allies wherever they come. The tools we promote are an essential component of building an innovative and sustainable multiracial democracy, but these same tools can also be deployed in pursuit of exclusionary oligarchy. Though the left and right may agree on some pillars of industrial policy, progressives cannot compromise on essential nonnegotiables.