The Time for Strategic Industrial Policy Is Now

The strong thread that runs through technological leadership, economic success, and national security has never been more evident than it is today, so I read with great interest the article by Bruce R. Guile, Stephen Johnson, David Teece, and Laura D. Tyson, titled “Democracies Must Coordinate Industrial Policies to Rebuild Economic Security” (Issues, April 14, 2022).

The paradigm of free-market capitalism that has driven the global economy forward for the past 200 years is being challenged by a new vision for a managed economy operating at a global scale. Traditional models of international trade are breaking down, and the perils of using trade as a diplomatic tool have been cruelly exposed as nations now rush to rid themselves of dependencies on Russian products. A new approach to global collaboration in trade and commerce—one that preserves and advances the interests and values of liberal democracies—is sorely needed.

Guile and his coauthors are right to focus on industrial policy. The liberal democracies do collaborate well on publicly funded science. Perhaps not as much as they should, but the recently launched James Webb Space Telescope is a great example of a (literally) far-reaching joint endeavor from my own domain of expertise, space.

Similarly, the private sector is very adept at working across international borders in the commercial domain. Large global enterprises with complex international supply chains are now the norm heading up all major industry sectors.

However, for the area in between, where the outputs of science are still being matured into promising new technologies for the future, the situation is quite different. Here the split of responsibilities between public and private is more ambiguous, and nations vary in their approaches. These differing views on how to use public resources to support industry advancement in new technologies—that is, industrial policy—are a source of friction in international trade relations, rather than harmony.

This makes it very hard to collaborate internationally in the maturation of new technologies, except in areas such as the European Union where common models of state aid and subsidy control are in place. Yet this is precisely the area where such collaboration is most needed. The technologies emerging now—beyond 5G communications, autonomous transport, and the commercialisation of space, to name just a few—will go on to define the twenty-first century. And those nations that bring the solutions, and define the standards that the world adopts, will reap the economic and geopolitical rewards.

For all its advantages, the free market is opportunistic and not strategic. The new threat, however, is highly strategic, operating at similar or larger scale, increasingly competent, and underpinned by the state at every stage. If the liberal democracies are to continue with their leadership in technological and economic advancement, then the time for coordinated and strategic industrial policy is now.

Stuart Martin