The United States (finally) has an industrial strategy

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Readers of Swamp Notes will know that I am a big fan of U.S. industrial policy, as I was This note Starting a few weeks ago, instead of picking winners, it simply brought a little bit of strategy and long-term vision to the way the US economy works. In a world where we have to compete with state-owned giants like China, from a 50-year span, quarterly capitalism no longer cuts it at all (not that it has actually done so).

Last week, I had the opportunity to discuss this topic in depth with Brian Deese, director of the White House National Economic Council. (See his speech and my Q&A with him, Here.)

As most readers will recognize, Deese’s proposal is neither protectionist nor particularly radical—in fact, it is just an outline of how the government can provide better incentives for long-term thinking, and how politicians can use federal power. begin. Procurement to advance climate and fairness goals, and how to reduce the concentration and flexibility of the supply chain (in terms of geography and company). Most developed countries and many developing countries have already done so.

The United States still has a long way to go in this regard to restore muscle memory.Just like me wrote In the swamp notes of 2019, industrial policy originated in the United States, but in the past 40 years, we have completely got rid of any state involvement in the economy.Studies have shown that U.S. multinational corporations and Chinese people have benefited from this approach, but most Workers in developed countries No.

Deese’s speech outlined several ways the government plans to solve this problem. The most concrete way is to rebuild the US semiconductor supply chain.As i am in mine This week’s column, This should involve allies who will help promote demand and innovation in the newly transformed ecosystem, thereby reducing everyone’s dependence on Taiwan.

If anything, I think the US plan is not radical enough. Therefore, I have listed below three things the White House can do to help rebuild better, stronger, and faster:

  1. Appoint an elastic czar.As i argued This column, Such people can bring all the various departments together faster to reduce bureaucracy and red tape, to address the most needed critical infrastructure, the connection between the public and private sectors, and the areas where the results need to be extracted are more elasticity. Industrial policy, by its very nature, requires high-level action, but the process should not become too cumbersome or involve too many different budget schedules or vested interests, so as not to be too slow and useless.

  2. The first task of the Czar should be to create a 3D image of all available resources to achieve the goals of the White House-the world’s leading private companies, top vocational schools or industrial projects, areas with too much or too little skilled labor, etc. Simply create this kind of knowledge center, and then let anyone who wants to take advantage of it can be of great help.I’m thinking about a story I reported at the beginning of the pandemic, during which the private sector Textile company is reorganizing Make masks without the help of the Trump White House or anyone else. If there was a place, these companies could quickly find the best place to obtain demand from the public or private sector, obtain tax incentives for restructuring, find workers, etc. They could have done what they did faster and more efficiently.

  3. Looking for the possibility of increasing regional resilience. Similarly, I am thinking of those high-yield textile supply chains in North Carolina, which can apply the Darwinian skills learned in the past 20 years in the struggle to outsource business to China. Productivity approach. Now, they produce T-shirts with lower profit margins (mask production has stopped because there are no long-term incentives to maintain production-this is another problem that needs to be solved). Why not connect them with an electric car manufacturer 400 miles south of Greenville, South Carolina, to make interiors for electric cars?In the long run, this will help Connect a wider range of businesses In the fields of lithium batteries and clean energy, profit margins are higher and strategic government subsidies are used.

Again, this is not about picking winners, nor any type of top-down heavy planning—it just connects the dots. There is no protectionism. Peter, what do you think of Diss’s speech? Do you have anything to add?

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Peter Spiegel responds

Lana, Diss’ blueprint is both compelling and comprehensive, but as someone who is more skeptical of industrial policy than you, I think it’s almost too comprehensive. He claims to oppose “returning all our supply lines,” but in some of the most advanced sectors of our economy, this is exactly what his plan wants to promote. After the global pandemic, I saw the appeal: countries that can rely on domestic medical supplies and manufacturing are appearing faster than countries that cannot rely on domestic medical supplies and manufacturing. But this does not mean that we should organize the top of the entire economic value chain around government-supported domestic suppliers.

Many current problems revolve around semiconductors, because global shortages (and lack of domestic suppliers) have Trigger Congressional legislation, As you pointed out. But let’s not forget that we’ve been here: in the 1980s, when Japanese chipmakers seemed to let their American competitors go bankrupt, the Reagan administration supported a government-funded consortium called Sematech.Since then, economists have been arguing about its impact and it may help Reduce domestic chip manufacturing costs, But it also seems to crowd out private investment in the industry. After all, decades later, we are facing almost the same market failure.

For many years, I believe that industrial policy has a reason, and there is only one reason: national security. If we go to war with the country that made our bullets, all right. .. This will be a very short war. But this pandemic has shown me a truly historic partnership between the government and the private sector: Operation Warp Speed, which provides a very effective Covid vaccine in record time.

I recently attended a virtual Ditchley Park conference. One of the participants (Chatham College’s regulations, so I can’t say who it is!) referred to the “Twisting Speed ??Action” as the government as the “preferred buyer”. This is One concept I found was compelling. This is basically what Deese was talking about when touting the Obama-era private space exploration policy: if you build it, we will come.

Of all the “pillars” of Deese, I think this is the most likely to have the desired effect: using federal procurement funds to incentivize the private sector. Build a better microprocessor? The Pentagon will buy them. Invent a more robust, zero-emission vehicle? We will ensure that the municipalities have the funds to purchase them.

Maybe not as comprehensive as Deese wants, but I think it has a better chance of success.

Edward Luce is on vacation and will return in mid-July.

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