Best read of the day so far is this article on US industrial policy by Jon Gertner in the NYT magazine. Since I began this blog, I’ve worried about job creation, both cyclical and structural. Re the latter, one of the many pairs of ideological handcuffs we put on ourselves in this country is the notion that “we don’t pick winners.”
Well, then we shouldn’t be surprised if we lose to countries that do.
And in fact, we pick winners all the time, we just don’t do so particularly thoughtfully. We have hundreds of tax credits for different types of production and investment, for example, but they reflect more the skill of particular industries’ lobbyists than a coherent economic development strategy.
In reality, the federal government has played a role, often a central one, in every innovation throughout our history, from the subsidizing of machine tools to produce weapons during the Revolutionary War, through the railroads, electronics, lasers, the internet, and today, clean energy.
What the NYT article suggests is that we need to do so with greater intention to get ahead of the market and to capture global market share. The piece focuses largely on battery production. I assure you, many, if not most, American economists and policy makers would argue that subsidizing battery production, as the Obama administration has done extensively, is an example of terribly misguided winner-picking.
But as the world moves from fossil fuels to renewables, the efficient storage of energy, whether from wind, the sun, or lithium ions will become increasingly important. Having a government that’s forward looking enough to get a footprint in that market is key to future growth and to creating a path for our manufacturers to move from contracting to expanding industries.
That means recognizing self-imposed limitations compared to the practices of our competitors:
“Federal agencies like the Department of Energy have long financed scientific research — through university grants, for instance — on technologies like lithium-ion batteries. But a basic feature of government policy is to allow corporations and entrepreneurs to pick through the results of that research, commercialize the promising ideas and let the market sort things out. In other countries, it often works differently. Governments are more willing to help companies pool information about a new industry or technology and (especially in Korea and China) assist with the early-stage commercialization of products, including the construction of plants.”