Industrial policy is back — and the common good how to think about it
With divisive partisan rhetoric as heated as ever, it would be easy to overlook exactly how much Democrats and Republicans agree upon these days. A quiet bipartisan consensus behind industrial policy has formed in the wake of COVID-19. The president joins conservatives and liberals in Congress, as well as the governors of red and blue states, in calling for the federal government to make strategic subsidies in targeted manufacturing sectors to rebuild American industry. Yet this sudden agreement poses an unfamiliar challenge of its own. How do voters determine whether these significant investments in America’s future are being made wisely? An old idea, long set aside in years of gridlock, returns as a rallying point: the common good.
The 117th Congress directly invested hundreds of billions of dollars in industry. Lawmakers hope to make the United States a global competitor in semiconductor manufacturing again. The CHIPS Act allocated $106 billion to this end in August. The federal government has placed its chips in a plan to subsidize domestic high-tech industries.
Industrial policy is back — whether professional economists think it’s a good idea or not. This is because Congress and the White House can present it to voters as a response to inflation, and because the impact of the COVID-19 pandemic, and other real or imagined consequences of strategic competitionwith China, are causing alarm.
For the first time since the 1980s, inflation weighs heavily upon voters’ minds, especially for lower-income working families who have provided crucial swing votes in recent elections. Even if there has been some relief at the gas pump since the five-dollar-per-gallon summer, grocery bills are still up more than 10% over the past year.
Still, those who feel the squeeze should not really look for redress at the polls. Monetary policy, which most directly addresses inflation by controlling the influx of dollars into the market and setting the interest rates on government debt, is delegated to the mostly independent Federal Reserve, which has responded to inflation with the fastest interest rate hike cycle in more than forty years. Under normal circumstances, Congress and the White House have little to do with handling inflation.
Yet these are not exactly normal times: When a problem arises that affects all Americans, like rapid inflation, the expectation that our elected representatives ought to promote the general welfare returns with urgency. Voters will not blame economists or starchy bank boards if they fail to do so: politicians need to take direct action. And they have tried.
For instance, the Biden
administration has argued that COVID-19 related supplychain disruptions as a major cause of inflation, specifically due to the unavailability of semiconductors for auto manufacturers. These new economic realities seem to make the CHIPS Act, unthinkable in the pre-2016 free trade consensus, a plausible, and popular, response to inflation.
It’s true that the CHIPS Act may authorize wasteful subsidies, divert capital from more advantageous uses, and stick U.S. producers and consumers with more expensive components than could be sourced from China. But other arguments won the day in Congress, including attracting 17 Republican votes in the Senate: Rising military and strategic competition with China requires the U.S. to regain global market share in the manufacturing of advanced-microchips.
Industrial policy creates opportunities for Midwestern states hard hit by the decline of manufacturing. In the U.S. Senate race in Ohio, the original sponsor of the CHIPS Act in the House, Rep. Tim Ryan, squares off against J. D. Vance, who has called for his fellow Republicans to move on from a fixation on shrinking the size of government to embrace industrial policy. Policy arguments that prioritize efficiency have lost their salience in the face of bigger concerns about the future of American society and its place in the world. This is where the common good has an opening.
Still, not everyone is pleased by the industrial policy consensus. Senator Bernie Sanders on the socialist left and Representative Jim Jordan on the libertarian right have both lambasted the CHIPS Act as an example of “crony capitalism” and government handouts to big business. Yet in the contest between Ryan and Vance, there is no vote against industrial policy: For many voters who perceive that government and corporate interests have connived against them for decades, the idea that they might cooperate on their behalf, and on behalf of the country as a whole, is appealing.
The old concerns about cost overruns and the general efficiency of publicly
funded early-stage research-and-development programs are now academic. The decision facing voters now is not whether the federal government ought to direct industrial policy, but how industrial policy will be overseen and carried out. If this is where the swing votes remain in purple states and in a divided Congress, then Ohio will be a bellwether of a new economic politics.
This debate about how to reinvest and rebuild American manufacturing is an opportunity to reflect on our common goods, since there is broad agreement these major investments must be made in the shared national interest. Democrats have committed themselves to bold environmental legislation, mindful of the earth we are leaving to our children and grandchildren. Republicans have (sometimes) remained conscious of the national debt that will burden future generations if we do not invest their borrowed trillions wisely. National defense and strategic competition with China seems to be the shared consensus driving industrial policy — yet it must keep in view the greatest of true common-goods, peace.
In the “how” of industrial policy, hopefully we can cast off ready-made ideological soundbites and find a politics befitting serious citizens with common concerns for their country. Common goods are those goods we think it is good to pursue together into the future. The prospect of leaving to our children a less safe world or dimmer economic prospects often recommits us to these goals. Some new, major commitments have already started to come. The common good is how to talk about them.