More Industrial Policy

In “Endless Industrial Policy,” John Alic sets out an ambitious agenda just in time for consideration by the Biden administration and by members of Congress. COVID-19 has exposed cracks in American society: inequality in income and wealth, with access to jobs, health care, and other basic services determined by demographics or zip code. If the objective is to provide broad-based national prosperity, Alic argues that the policy emphasis needs to shift from science and technology policy to industrial policy—considerations of the building of local supply chains, with a need to emphasize the provision of quality jobs, and predicated upon a more careful consideration of firm-level operations.

Alic provides a commanding overview of American policy that contributed to the nation’s industrial leadership, starting with early debates between Thomas Jefferson, a libertarian in current parlance, and Alexander Hamilton, an advocate of industrial policy. The argument is still ongoing and the hands-off view has prevailed in recent years. Alic’s historical overview is an antidote to the argument that the American economic success is the outcome of unfettered market forces that demonstrates the power of capitalism. He provides an alternative narrative about the historical contributions of policy.

If politicians desire to create a more prosperous America, there is a need to incorporate industrial policy to complement science and technology policy. Simply investing in science, without considering the downstream needs, will fail to yield the outcomes we seek. Consider Operation Warp Speed as an example: scientific discovery coupled with production and plans for distribution are what will address the pandemic. Private enterprise could not have tackled the pandemic alone.

Alic concludes his timeline in 1980, which was marked by the ascendency of neoliberal policies that promoted the transfer of technology out of universities and into commercial firms, notably young start-up firms. There was no need for considerations of policy related to companies. The market would work its magic. Unfortunately, the promise of new firms commercializing technologies to create new industries has not provided widespread prosperity. The preferred venture capital model invests in companies with an emphasis on short-term payback to investors, with little concern for creating jobs or wealth in local communities that nurtured the start-ups. Too many times inventions that started from ideas in American universities have been manufactured elsewhere, mainly China—a country with a decidedly focused industrial policy.

The United States already has an unintended industrial policy that benefits a few companies, places, and investors—these are the winners of our lack of an intentional industrial policy. Unattended capitalism turns into crony capitalism, with money dictating policy rather than evidence guided by considerations of what is good for the country. Alic demonstrates that industrial policy has served America well in the past and needs to be more deliberately considered.

Extreme imbalances in wealth and opportunity characterize the current American economy. Proposals such as the Endless Frontier Act, while well-intentioned, cannot increase the innovative and wealth-generating capacities of areas of the country that are economically disenfranchised without a commitment to investing and incentivizing industrial capacity. More investment in science without corresponding consideration of industrial capacity is like pushing on a string—it cannot yield the results that the American economy needs and the electorate demands.

Maryann Feldman