Good read, I agree with much of this post! However, why avoid employing top-down industrial policy as *one* tool in the toolkit to accelerate industrialization?
We will indeed not beat China by being China, but China has, in the history of industrialization, leveraged policy to do this better than any other country. We also forget that the US utilized policies especially in the 19th century, setting the stage for our industrial dominance post Model T through the 1950s.
There are many US industries in which market forces and private capital alone will struggle to compete with effective, coordinated industrial strategies by competing countries. Today, we see this in EVs, lithium ion batteries, consumer electronics and solar PV.
If we want dozens of companies that are as successful as Tesla at strengthening our supply chain, I don't see how this happens without effective industrial strategies.
I think that's fair. In my view government can do things like fund basic R&D and improve the tax code to incentivize domestic capex (and some other stuff I'm still working on fleshing out).
I agree with you that policies intended to boost the competitiveness of the US economy can work, but I am skeptical of "industrial policy" (which I take to be: widespread use of tariffs and direct government subsidy of industry).
I think the biggest gap, and I think incentivizing domestic capex gets to some of it, is in commercialization. I'm also referencing young industries that have strategic importance to US industrial capacity, not protecting uncompetitive legacies like auto.
Tax incentives, public funds for early stage ventures, and various other accelerants for young strategic industries are how the US has been outcompeted by China, and prior to that Korea and Japan. Funnily enough, their policy makers all took inspiration from Alexander Hamilton and other pioneers of early US industrial policy like Friedrich List.
I do think tariffs can have a role, but again not to protect legacy industries. They work best if allowing young industries time to become world class.
Exactly. The legacy vs. young industry distinction could be tough to adjudicate in practice (what if we have new entrants trying to compete with legacy steel makers for instance?), but I agree with that general framing.
Another important thing, more state and local than federal, is workforce development.
Good example - and I think the framing could be young industries or disruptive technology in existing industries. For steel, startups commercializing electrolysis would be examples.
Agreed with the need for workforce development. I think this is part of how to align incentives for more competition between different states/counties/cities for the investment of companies.
Exciting stuff, I'm looking forward to reading more. One question I do have is about the capacity for labor and willingness to work along the American people. The English essayist Theodore Dalrymple worked his whole career as a psychiatrist in an English slum, among the descendants of the last generation of industrial workers. One argument he returns to again and again is argument is that welfare dependency had led to several generations in whom the capacity for work had been, in essence, bred out of them. It would not be possible to restore anything like the manufacturing sector Britain had, on the scale it had, as the willingness to labor was gone. Films I have seen of the decayed Rust Belt of America, with unprecedented levels of opioid addiction and disability, make me concerned large swathes of the US may be similar to Britain.
Do you have any concerns that America faces a similar challenge in attempting to rebuild its industrial base?
I think it's a reasonable concern. The US isn't particularly good at workforce development, and I think training will be an important part of getting this right. That said, the labor force participation rate has been trending in the right direction, though it's still soft.
Good read, I agree with much of this post! However, why avoid employing top-down industrial policy as *one* tool in the toolkit to accelerate industrialization?
We will indeed not beat China by being China, but China has, in the history of industrialization, leveraged policy to do this better than any other country. We also forget that the US utilized policies especially in the 19th century, setting the stage for our industrial dominance post Model T through the 1950s.
There are many US industries in which market forces and private capital alone will struggle to compete with effective, coordinated industrial strategies by competing countries. Today, we see this in EVs, lithium ion batteries, consumer electronics and solar PV.
If we want dozens of companies that are as successful as Tesla at strengthening our supply chain, I don't see how this happens without effective industrial strategies.
I think that's fair. In my view government can do things like fund basic R&D and improve the tax code to incentivize domestic capex (and some other stuff I'm still working on fleshing out).
I agree with you that policies intended to boost the competitiveness of the US economy can work, but I am skeptical of "industrial policy" (which I take to be: widespread use of tariffs and direct government subsidy of industry).
I think the biggest gap, and I think incentivizing domestic capex gets to some of it, is in commercialization. I'm also referencing young industries that have strategic importance to US industrial capacity, not protecting uncompetitive legacies like auto.
Tax incentives, public funds for early stage ventures, and various other accelerants for young strategic industries are how the US has been outcompeted by China, and prior to that Korea and Japan. Funnily enough, their policy makers all took inspiration from Alexander Hamilton and other pioneers of early US industrial policy like Friedrich List.
I do think tariffs can have a role, but again not to protect legacy industries. They work best if allowing young industries time to become world class.
Exactly. The legacy vs. young industry distinction could be tough to adjudicate in practice (what if we have new entrants trying to compete with legacy steel makers for instance?), but I agree with that general framing.
Another important thing, more state and local than federal, is workforce development.
Good example - and I think the framing could be young industries or disruptive technology in existing industries. For steel, startups commercializing electrolysis would be examples.
Agreed with the need for workforce development. I think this is part of how to align incentives for more competition between different states/counties/cities for the investment of companies.
Exciting stuff, I'm looking forward to reading more. One question I do have is about the capacity for labor and willingness to work along the American people. The English essayist Theodore Dalrymple worked his whole career as a psychiatrist in an English slum, among the descendants of the last generation of industrial workers. One argument he returns to again and again is argument is that welfare dependency had led to several generations in whom the capacity for work had been, in essence, bred out of them. It would not be possible to restore anything like the manufacturing sector Britain had, on the scale it had, as the willingness to labor was gone. Films I have seen of the decayed Rust Belt of America, with unprecedented levels of opioid addiction and disability, make me concerned large swathes of the US may be similar to Britain.
Do you have any concerns that America faces a similar challenge in attempting to rebuild its industrial base?
I think it's a reasonable concern. The US isn't particularly good at workforce development, and I think training will be an important part of getting this right. That said, the labor force participation rate has been trending in the right direction, though it's still soft.
A great cri de cœur.