Raimondo launches new ‘industrial policy’

WASHINGTON — The United States is about to embark on a bold economic experiment — a bipartisan plan to bolster the semiconductor industry and other high-tech sectors with $52 billion in government investment. It’s a big idea, but it’s not well understood outside Washington, and without broad support it won’t succeed.

The centerpiece is called the Chips and Science Act. I sat down this week with Commerce Secretary Gina Raimondo, one of its architects. She explained the rationale for the program and also discussed some of the potential challenges to the revitalization of high-tech manufacturing it envisions.

Raimondo says she hopes the Chips program will spur a “national mobilization” on technology, like the “moonshot” passion of the 1960s. She argues that the United States was able to put a man on the moon within a decade of President John F. Kennedy’s pledge to do so not just by channeling federal dollars but, even more, public enthusiasm. She notes that during the space-race decade of the ’60s, the number of American Ph.D.s in science tripled and quadrupled in engineering. She’d like to see a similar multiplication of talent now.

Raimondo launched Chips implementation with a speech on Thursday describing the broad arc of the program, and on Tuesday, she will issue formal rules for applying for $39 billion in chipmaking grants. She’ll be discussing, too, an $11 billion program to build a National Semiconductor Technology Center and a network of federally funded innovation hubs that she likens to the old “Bell Labs” that did pathbreaking research a half-century ago.

“This is more than just an investment to subsidize a few new chip factories,” Raimondo told me. “We need to unite America around a common goal of enhancing America’s global competitiveness and leading in this incredibly crucial technology … Money isn’t enough. We all need to get in the same boat as a nation.” That’s a laudable sentiment, but not an easy goal for a country that operates more like the bumper cars in an amusement park than a single vessel.

The catalyst for the bipartisan passage of the legislation is, to be blunt, China. Just as fear of the Soviet Union animated the space program during the 1960s, the Chinese challenge has brought together Republicans and Democrats who agree on little else. For all our national celebration of free enterprise, people in both parties worry that China’s civil-military fusion might give Beijing a decisive advantage.

So what are the danger points as we embrace “industrial policy,” which until recently was dismissed by many economists as a misguided effort to steer the economy from Washington? I put some questions to Raimondo, and her answers underlined the importance of this effort and also some of the difficulties in making it work.

Let’s start with the economics. The idea that the government should incubate and sometimes steer economic development goes back to Alexander Hamilton. And public investment — in canals, roads, hydroelectric dams and, eventually, the internet and GPS satellites — helped build America over its first 200-plus years.

But American “managerial capitalism,” as economist John Kenneth Galbraith called it, with its heavy government intervention, gave way in the 1980s to a sharper-edged, more market-driven approach. Industrial policy was for Europeans; a common putdown was that it was “dirigiste,” a French term for “directed.” So, the swing back to industrial policy that the Biden team envisions will represent a sharp change in direction — with far from universal public support.

The semiconductor industry is a good example of what undermined U.S. competitiveness. Partly, it was bad management. But a deeper problem was that building and operating semiconductor plants in the United States became much more expensive than doing so abroad. Raimondo blames managers. “I believe the primary cause was companies chasing cheap labor in Asia, in the name of efficiency and profit maximization,” she says. But really, it was simple economics.

How will the Chips Act remedy that competitive problem? That’s what the subsidies are for. They will reimburse companies for the additional cost of building chip-fabrication plants in the United States rather than overseas. Maybe chips are so important that they deserve such subsidies. But what about cars, or airplanes, or cellphones? At some point, this departure from market measures of efficiency becomes dangerous in altering economic incentives.

The United States needs more public investment. But this would be a crazy moment to embrace Chinese-style public-private interdependence. President Xi Jinping has been destroying value and innovation in China’s technology sector by trying to steer money toward the big state-run projects he favors. Chinese entrepreneurs are in retreat. I hate to imagine a smart young engineer joining a Chips-subsidized fab plant rather than a startup.

The Chips experiment is absolutely worthwhile. But the measure of its success will be Raimondo’s moonshot test — whether it helps draw millions of American kids into science and engineering. When we think about the Chinese challenge, it’s about investing in freethinking brainpower far more than fabrication plants.