Will Biden’s embrace of industrial policy pay off?


Joe Biden wants more government intervention in the American economy. And not just cutting checks to people. Biden favors a national industrial policy, what his “build back better” campaign agenda describes as a “comprehensive manufacturing and innovation strategy” which “will marshall the resources of the federal government in ways that we have not seen since World War II.”

We should find out more next month. But the campaign version of the proposal has two big pieces: $400 billion in federal “buy American” purchases (electric vehicles, infrastructure commodities, critical medical supplies, and advanced electronics) and $300 billion in R&D funding (basic research, “key technologies” for competitiveness, seed funding for businesses that want to commercialize R&D).

It isn’t just Bidenomics. The notion that Washington should directly help domestic manufacturing — through targeted spending plans, special tax subsidies, and trade policy — is popular right now among many Democrats and Republicans. Politicians think it’s a way of helping left-behind Main Street and meeting the China economic challenge, especially in an age of populism. And maybe the success with COVID-19 vaccine development shows that Washington really can pick winners and losers, and really can solve big problems. Financial Times columnist John Kay describes this view thusly: “We need a ‘solutions based economy’, driven and co-ordinated by more powerful governments engaged in every stage of the process of innovation.”

The history of such efforts in advanced capitalist economies gives ample reason for skepticism about the effectiveness of such top-down government planning, from Japanese economic stagnation to the now-mothballed Concorde supersonic jet to France’s failed attempt to create a thriving tech sector. The Internet might seem like the exception that negates the rule, but what turned out to be a successful partnership of government and entrepreneurs didn’t arise out of some master plan from Washington. And what do even the smartest plans look like when filtered through the dodgy quality of American governance? Maybe as an excuse for cronyism and protectionism. Also, would even a successful effort really be a jobs bonanza? If somehow the manufacturing share of the American economy rose, much of the work would be done by robots, not humans.

Well, whatever the final plan looks like, I hope there’s a big focus on basic research.

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