Monday, January 3, 2011

Industrial Policy for the US of A?

What got me riled recently was this item on China's push to become the dominant supplier to America of equipment and infrastructure for generation of wind power.  The article raises the question of whether or not China's subsidies to its own manufacturers are in violation of WTO rules.  What was clear in any case was that Beijing was bent on dominating the American market in this industry.

A related story was the recent imposition by China of export quotas on rare earth metals -- important ingredients in many manufactures, but notably in that of small magnets used for green electrical generation.

What all of this adds up to of course is not so much Chinese economic predation (although there is a component of that) as the existence of a coherent Chinese industrial policy.  Beijing targets certain industries, and pushes them forward, through subsidies and regulations, on both the national and international stages.

Jeez, what a novel idea.  Why can't we do that?  Well to some extent we do.  The great successes of the biotechnology and pharmaceutical industries in the US are due entirely to the infrastructure created by the National Institutes of Health (NIH), which funds the underlying academic research, and concurrently subsidizes the training of the small army of Ph. D.'s who will move largely into careers in industrial R & D.

But, no one wants to call this an 'Industrial Policy.'  The NIH has become over time another inside the beltway political constituency (and Saints be praised for that!) which has enjoyed strong Congressional support for generations, and is of a piece with Mom and Apple Pie.

But in a larger sense, we totally lack industrial policy.  Or rather what we have is anti-industrial policy.  The apparent goals (to judge by the outcomes over 30 years) are to send American manufacturing jobs off shore, and destroy American labor unions.  Where off-shoring is the norm, labor has no bargaining power.  What is the underlying motivation?  My own cynical view is that the weakening of the labor movement was the major domestic policy goal of the Reagan administration, and what better way to accomplish same than to get rid of manufacturing jobs, which have historically been heavily unionized.

But to return to our titular theme, an excellent post up at Daily Kos makes the case for industrial policy by (among other things)  comparing the manufacture of Steinway pianos in Germany and the U.S.  German Steinways get the palm.   The point is that German governmental policy actively supports the training and nurture of workers who will become industrial craftsmen whose metier is the creation of high-end manufactured products -- just think of German automobiles.

There is also some excellent (although depressing) discussion from Yves Smith on the issue of structural unemployment and (tangentially) industrial policy.  This was originally up at Angry Bear .

And since industrial policy costs money and we are in the process of de-funding the Federal Government, it's also worth remembering that high top marginal rates have on the whole not hurt GDP, and low rates have not helped in the U. S. of A., from 1913 to the present.

1 comment:

  1. I think it is interesting that some people in the US keep telling China that they need to deregulate some of their industries and loosen their control on the Chinese currency all in the name of free market. At the same time, using tax break, tariff, subsidies and other measures (how about a coup here, a war there?), the US have been doing a whole lot in trying to keep its dominance in world economy.

    The US may not have an industrial policy, but free market principle is also not what is really being practice there.