Biden’s industrial policy key to economic restructuring
America is about to revive an idea left for dead decades ago. It’s called industrial policy, and it’s at the heart of Joe Biden’s plans to restructure the U.S. economy.
When industrial policy was last debated in the 1980s, critics recoiled from government “picking winners.” But times have changed. Devastating climate change, a deadly pandemic and the rise of China as a technological powerhouse require an active government pushing the private sector to achieve public purposes.
The dirty little secret is that America already has an industrial policy, but one that’s focused on pumping up profits with industry-specific subsidies, tax loopholes, tax credits, bailouts and tariffs. The practical choice isn’t whether to have an industrial policy but whether it meets society’s needs or those of politically powerful industries.
Consider energy. The fossil fuel industry has accumulated “billions of dollars in subsidies, loopholes and special foreign tax credits,” in Biden’s words. He intends to eliminate these and shift to non-carbon energy by strengthening the nation’s electrical grid, creating a new “clean electricity standard” that will force utilities to end carbon emissions by 2035 and providing research support and tax credits for clean energy.
It’s a sensible
180-degree shift of industrial policy.
The old industrial policy for the automobile industry consisted largely of bailouts — of Chrysler in 1979 and General Motors and Chrysler in 2008.
Biden intends to shift from gas-powered cars entirely and invest $174 billion in companies making electric vehicles. He’ll also create 500,000 new charging stations.
This also makes sense. Notwithstanding the success of Tesla, which received $2.44 billion in government subsidies before becoming profitable, the switch to electric vehicles still needs pump priming.
Internet service providers have been subsidized by the states and the federal government, and federal regulators have allowed them to consolidate into a few telecom giants. But they’ve dragged their feet on upgrading copper networks with fiber, some 30 million Americans still lack access to high-speed broadband, and America has among the world’s highest prices for internet service.
Biden intends to invest $100 billion to extend high-speed broadband coverage. He also threatens to “hold providers accountable,” for their sky-high prices — suggesting either price controls or antitrust enforcement. I hope he follows through.
The pharmaceutical industry exemplifies the old industrial policy at its worst. Big Pharma’s basic research has been subsidized through the National Institutes of Health. Medicare, Medicaid and the Affordable Care Act bankroll much of its production costs. The industry has barred Americans from buying drugs from abroad. Yet Americans pay among the highest drug prices.
America’s old industrial policy was stifling innovation and gouging taxpayers and consumers. The challenges ahead demand a different economy.
But Biden’s new industrial policy must avoid capture by the industries that dominated the old. He needs to be clear about its aims and the expected response from the private sector, and to reframe the debate so it’s not about whether government should “pick winners” but what kind industrial policy will help America and much of the world win.