I. Introduction: Industrial Policy as Marketcrafting
The tectonic plates of political economy are shifting in the United States. In the past two years, policymakers have passed three large-scale, state-directed economic policy programs that intend to reorganize markets for better outcomes: onshoring semiconductor manufacturing, updating the nation’s infrastructure for the 21st-century, and accelerating technological development to combat climate change.1 Many analysts are calling this an “industrial policy moment,” reviving an old term to describe a historic turn in American political economy.2 Others see in the moment evidence of a “supply side progressivism” (Klein 2021), “new productivism” (Rodrik 2022), or “a liberalism that builds” (Klein 2022).
We believe we are witnessing a new embrace of a policy approach known as “marketcrafting”: the creation and implementation of frameworks of market governance and public investment to pursue certain social and economic goals.3
The surge of interest in a proactive approach to shaping industries and markets is the result of many factors. Americans have lived through a decade of tepid wage growth, coming on the heels of the largest financial crisis since the Great Depression. There is a growing recognition that the neoliberal policy agenda of deregulation, austerity, and globalization has been a failure for the majority of the population. At the same time, the accelerating climate crisis has forced many to reckon with the scale and speed at which we need to build out our clean energy infrastructure. Likewise, growing concern over China’s rising power has contributed to increased interest in ramping up domestic production of essential goods. And, most recently, a pandemic-driven shift in consumption patterns, coupled with major supply chain disruptions, large fiscal expenditures, and the outbreak of the largest ground war in Europe since World War II, pushed inflation in 2021 and 2022 to its highest level in four decades. In search of ways to control inflation that avoid precipitating high levels of unemployment, many progressives have focused on ways to restructure markets to lower prices and enhance output.
The proliferation of terms analysts use today to describe this sea change in policy all fundamentally describe a new policymaking approach in which the state shapes markets toward certain social and economic ends. This marketcrafting approach stands in direct contrast with the neoliberal ideology that has dominated the political economy of the past generation. In the neoliberal view, markets are natural, spontaneously arising features of the economy imbued with their own operating logic, dictated by supply and demand, and communicated to individuals through prices. In this view, left to themselves, markets produce the correct price signals, allocate resources efficiently, and maximize aggregate well-being. To be fair, there is some diversity of views within neoliberalism regarding the status of markets, with some believing that markets are always efficient and others seeing a limited but important need for a regulatory state. In all conceptions, however, public policy “intervenes” in otherwise free and natural markets, exhibiting a tendency to distort their outcomes and threaten their efficiency.
The neoliberal framework offered both a paradigm-setting way of understanding political economy and a set of concrete prescriptions for public policy. This report argues that marketcrafting offers a similarly broad framework built upon a very different ideological foundation, while also helping to shed light on specific policy challenges of today. In this report, we examine policy responses to issues like our country’s housing and climate crises through the lens of such a framework.
The term “marketcraft” emerged in the past decade from the work of political scientist Steven Vogel (2018), who argued that, since markets are constructs of public policy, no market is free and the state is regularly and necessarily engaged in creating and shaping markets.4 Proper recognition of the state’s visible hand can lead to better policymaking, Vogel contends. Working along similar lines, scholars like Marianna Mazzucato (2015, 2021) and Todd N. Tucker (2019) have emphasized the important role of government in aligning market activity with public policy goals. This report seeks to expand on their collective work, arguing for a specifically progressive marketcrafting vision that can achieve major policy goals in a just and equitable manner while also minimizing inflationary impacts.
Legislators, administrators, and regulators wielding the power of government to design, manage, and harness markets to meet the policy demands of the moment will need to think broadly about how to use all the governance tools available to craft markets to meet our public policy goals. These include the kinds of centralized, state-led public investment programs that would fall under most definitions of industrial policy, such as military investment and infrastructure spending. It also includes the use of state programs to provide incentives and subsidies for private investment, such as the current effort to reshore semiconductor manufacturing or support industries that transition the economy to renewable energy sources. These public investment programs can often take the form of public options like Medicare or the US Postal Service.
Marketcrafting, however, does not just revolve around public investment. It also includes the many forms of market governance through which the state continually creates and shapes the architecture of markets. Competition and antitrust policy, for example, structure markets to meet certain social ends. The state can pursue changes in the law that encourage competition through limits placed on consolidation or changes that make it easier for new entrants to emerge. Alternatively, the state can—and does—manage the cost of essential goods through the use of centralized stockpiles, like the strategic petroleum reserve. Tax policy, meanwhile, designs markets to change the relative value of certain kinds of labor and to promote certain consumption patterns, rewarding home ownership over renting, for instance. Intellectual property law can structure markets to encourage or stifle research and development, depending on the structure of patent and copyright protections.
These policies all intend to shape the structure of the market. They are marketcrafting rather than merely market-affecting because they alter foundational decisions about what market actors do through the use of rulemaking, public investment, or competition policy, among others. Policymakers engineer markets, harnessing their power to accomplish a collective good.
Because marketcrafting involves shaping how markets function, it is distinct from a wide range of economic policies that are largely focused on providing financial or material assistance to compensate retrospectively for adverse market outcomes. Food assistance, unemployment benefits, Social Security benefits and certain income guarantee programs are indispensable in providing critical economic security to millions of Americans. They are not, however, intended to prospectively shape specific markets to be more productive or fair. This is in contrast to state actions that are “predistributive” like minimum wage laws, collective bargaining frameworks, and higher education and job training programs. Such initiatives would fall under the category of marketcrafting policies.5
The dividing line here is the purpose of the state action: Marketcrafting is about harnessing the power of markets in the pursuit of social and political goals, whereas redistribution is a remedial measure to provide a foundation for the satisfaction of basic needs. Even though marketcrafting and redistributive policies are distinct, they can also be complementary. Policymakers can craft markets to achieve more equal and just outcomes—for example, by enhancing the power of labor unions, increasing the minimum wage, or setting standards for mandatory paid family and sick leave. Such policies are particularly powerful when paired with redistributive tools like income support programs.
Importantly, marketcrafting can be done well or poorly, and there is no reason to assume that crafting markets is necessarily progressive; conservative policymakers have shaped markets to deemphasize equality, stability, and prosperity. Even in the period of so-called “deregulation” of the neoliberal era, state actors were crafting markets to favor consolidation, innovation, and liquidity-enhancing policies, choosing those goals over alternatives like stability or equality.6 And, recently, Republican Senators like Marco Rubio (R-FL), Josh Hawley (R-MO), and Ted Cruz (R-TX) have all chosen to lean into conceptual frameworks that put the state center stage in shaping markets to achieve policy outcomes.7
At its heart, marketcrafting is a policy approach that seeks to achieve optimal outcomes through the proactive and purposeful use of the power of the state. It is not in itself an agenda, but rather a way of thinking about how to create a particular political economy. The tools of marketcrafting are the tools of public investment—including public options—and market governance measures.
In this report, we articulate a framework for designing an effective, explicitly progressive marketcrafting policy—that is, policy that supports robust growth and prosperity that is widely shared and fairly distributed—and we show how it can be used to combat some of the most pressing political issues of our day, including the green energy transition, the housing crisis, and inflation.
A strong progressive marketcrafting policy requires a focus on three key areas:
- Mission: Policymakers must clearly articulate the goals of the policy and organize political and institutional coalitions to sustain support for it.
- Implementation, coordination, and maintenance: Policymakers must develop a plan both for the policy’s immediate implementation and for the ongoing actions necessary to maintain the conditions for its success.
- Accountability: The policy must be designed to effect a just distribution of economic and political gains and include mechanisms for ongoing review and revision to hold both political and market actors accountable.
In the remainder of this report, we explain why each of these areas is crucial to the success of a progressive marketcrafting program. In Section II, we shed light on the content of marketcrafting policy by exploring several past examples. In Section III, we discuss the particular importance of mission; implementation, coordination, and maintenance; and accountability to progressive marketcrafting. Finally, in Section IV, we explore the possibilities for progressive marketcrafting in practice by evaluating recent major economic policy initiatives through our framework, noting where they are effective and where they could be improved.
Chris Hughes is a senior fellow at the Institute on Race, Power, and Political Economy at the New School and a senior advisor at the Roosevelt Institute. His work focuses on the public policy of progressive political economy, including the history of central banking, antitrust policy, guaranteed income studies, and tax policy. In 2016, he co-founded the Economic Security Project, a nonprofit advocating to build economic power for all Americans, and he continues to serve on its board. His writings on political economy have been published in the New York Times, the Financial Times, the Wall Street Journal, and Time. He has degrees in economics and history from Harvard and The New School for Social Research. His first book, Fair Shot: Rethinking Inequality and How We Earn was published by St. Martin’s press in 2018.
Peter Spiegler is a senior researcher at the New Institute of Political Economy. His research focuses on political economy and economic methodology. He is the author of Behind the Model: A Constructive Critique of Economic Methodology (Cambridge University Press 2015), as well as articles in venues including the Journal of Institutional Economics, the Journal of Economic Methodology, the Forum for Social Economics, and Social Research. He received his PhD in economics from Harvard University.