You will respond to the Foreign Policy argument either agreeing with the statement that it is time for America to embrace industrial policy and offer 3 policy recommendations about how it should go about implementing it based on our reading from this term. OR disagree with the statement that it is time for America to embrace industrial policy and offer 3 policy examples about how or why industrial policy is not right or will not work for the United States.
5/2/22, 10:13 AM The Time for America to Embrace Industrial Policy Has Arrived
https://foreignpolicy.com/2020/07/22/industrial-policy-jobs-climate-change/ 1/10
SHADOW GOVERNMENT
A front-row seat to the Republicans’ debate over foreign policy,
including their critique of the Biden administration.
The Time for America to
Embrace Industrial
Policy Has Arrived
The United States has always helped some parts
of the economy at the expense of others. It’s
time to get it right.
By Jared Bernstein
JULY 22, 2020, 8:22 AM
For years, if you wanted to be dismissed in
debates over how to help the U.S. economy, you
merely had to utter the words “industrial
policy.” This is the idea that in pursuit of a
national goal, the government can and should
choose particular industries for targeted help—
which can take the form of low-cost loans,
https://foreignpolicy.com/category/analysis/shadow-government/
https://foreignpolicy.com/author/jared-bernstein/
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grants, subsidies, tax breaks, or direct
purchases of goods and services using the
government’s $600 billion annual procurement
budget. Critics—especially, but not only,
conservative ones—ridiculed industrial policy
as government eggheads “picking winners” and
pointed to socialist planned economies as proof
that such efforts were doomed to fail.
That consensus is rapidly changing. In
December 2019, Republican Sen. Marco Rubio
called for “revitalizing American industrial
policy” to counter China’s aggressive brand of
state capitalism. In discussing new proposals
from Democratic presidential candidate Joe
Biden, the Wall Street Journal’s Gerald Seib
wrote that while conservatives once recoiled at
the idea of industrial policy as a “harmful
interference with free markets,” now some of
them “explicitly argue for helping American
manufacturers.” (Disclosure: I was then-Vice
President Biden’s chief economist during
President Barack Obama’s first term and
informally advise his current campaign.)
https://americanmind.org/essays/american-industrial-policy-and-the-rise-of-china/
https://www.wsj.com/articles/joe-bidens-search-for-that-elusive-economic-consensus-11594651754
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In fact, the shifting consensus has less to do
with new ideas for policy than with finally
opening one’s eyes. The United States, along
with every other advanced and emerging
economy, has always pursued industrial
policies. The question is not whether the
country should have such policies, but whether
it is willing to be transparent about them. And,
more importantly, whether it is willing to
implement smart policies promoting useful and
inclusive national goals—or counterproductive
ones at the behest of well-connected lobbyists.
Consider the privileges the U.S. government
bestows on the finance industry. The assets and
deals the industry markets to its customers are
deeply subsidized through the tax code (capital
gains get favorable tax treatment, including
deferred taxation at a lower rate than
paychecks), deregulation has hugely boosted
the industry’s size and profitability, and when
this unregulated industry systematically
underprices risk, as it did during the housing
bubble leading up to the global financial crisis,
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it is quickly made whole through taxpayer-
funded bailouts.
This is industrial policy of the worst kind and
has been happening right under our noses. But
it’s not the only sector that has been coddled by
the U.S. government—others include Big
Agriculture, the sugar industry, defense and
aerospace, and even Silicon Valley, which
would not exist if the government hadn’t
subsidized and purchased its output long
before laptops and mobile phones even existed.
The financial industry isn’t the only
sector that has been coddled by the
U.S. government—others include
Big Agriculture, the sugar industry,
defense and aerospace, and even
Silicon Valley.
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Support for industrial policy has deep roots in
U.S. history. Americans’ “safety and interest
require that they should promote such
manufactures as tend to render them
independent of others for essential, particularly
military, supplies,” President George
Washington told the U.S. Congress in his first
State of the Union address in 1790. The need to
onshore vital supply chains was apparent even
then, even if policies that made sense in the
18th century don’t necessary make sense now.
And yet the rationale for industrial policy is as
strong as ever. Consider, for example, climate
change induced by human activity. It must be
reversed by policies that invest in renewable
energy sources; electric vehicles (and their
charging stations); a new, efficient grid; and
conservation efforts such as mass transit. Some
of these are classic public goods that no private
enterprise will undertake.
The tools of such industrial policy are tax
incentives to produce and purchase clean
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energy, renewable portfolio standards (rules
that require utilities to produce a given share of
energy from renewable sources), border
adjustment taxes that force countries to
internalize the environmental costs they’re
imposing on the rest of the world with their
manufacturing methods and energy mix, and
direct government support to clean-energy
producers.
This international dimension provides yet
another rationale for industrial policy. For
many years, certain other countries, including
China and Germany, suppressed consumer
spending to help exporters and, in China’s case,
managed the value of its currency in the service
of boosting competitiveness and generating
trade surpluses. The inevitable flip side was
trade deficits in manufactured goods for
countries such as the United States that
consumed more than they produced. In the U.S.
case, the flood of foreign loans to finance these
imbalances helped feed destructive credit
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cycles in the U.S. financial sector, including the
subprime mortgage crisis.
These are the inevitable results of not having a
smart industrial policy. While competitors are
investing in keeping good jobs on their shores
and positioning themselves to meet the next big
focus of global demand, the United States is
eschewing strategic industrial policy in favor of
sweeping tariffs that cost U.S. consumers and
manufacturers, dampen global trade as a
whole, and don’t help anyone. This is the
context to understand Biden’s plans for
boosting U.S. manufacturing and supporting
clean energy, including his “Buy American”
plan for government procurement.
Of course, industrial policy must go well
beyond manufacturing, which only accounts
for about 10 percent of U.S. output and
employment. In services, the most fertile
ground for targeted industrial policy is the
child care sector. Here, the United States is also
behind many other advanced economies, with
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the pandemic drawing back the curtain on the
severe lack of policies to grow and nurture this
critical industry. Approaches include direct
provision of care by creating public child care
centers, subsidies to parents and providers, and
introducing universal prekindergarten for all
children between 3 and 4 years of age. The clear
goal of these policies is to allow parents to
participate in the job market while holding
down the cost of child care. (U.S. working
families with low to moderate incomes who pay
for child care spend 35 percent of their take-
home pay on it, more than double the share in
most of Europe.)
Of course, industrial policy must go
well beyond manufacturing, which
only accounts for about 10 percent
of U.S. output and employment.
https://www.americanprogress.org/issues/early-childhood/reports/2019/06/20/471141/working-families-spending-big-money-child-care/
http://www.oecd.org/els/family/OECD-Is-Childcare-Affordable
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Jennifer Harris and Jake Sullivan wrote in
Foreign Policy earlier this year that “advocating
industrial policy … was once considered
embarrassing—now it should be considered
something close to obvious.” As long as the
United States has been a nation, it has
implemented industrial policy just like every
other country, and it will continue to do so. The
United States might as well get it right by being
transparent and smart about these policies in
order to support good jobs, rising living
standards, and globally competitive industries
while offsetting market failures such as those
affecting child care and climate change.
Anything else would not only be embarrassing
and naive—it would also be bad for Americans
and the U.S. economy.
Jared Bernstein is senior fellow with the Center on Budget and
Policy Priorities and former chief economist and economic
adviser to Vice President Joe Biden.
TAGS: CLIMATE CHANGE, JOE BIDEN, LABOR POLICY, UNITED STATES
America Needs a New Economic Philosophy. Foreign Policy Experts Can Help.
https://foreignpolicy.com/tag/climate-change/
https://foreignpolicy.com/tag/joe-biden/
https://foreignpolicy.com/tag/labor-policy/
https://foreignpolicy.com/tag/united-states/
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